WEBVTT - Surveillance: Inflation Distortion with Stiglitz 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:29.920 and of course on the Bloomberg terminal. What we're gonna 0:00:29.960 --> 0:00:33.919 do is dive into a conversation here on the great unspoken, 0:00:34.000 --> 0:00:35.920 and we can do that going back to the giant 0:00:36.080 --> 0:00:39.839 David Ricardo of the early nineteenth century who changed our 0:00:40.040 --> 0:00:46.320 language about how the halves gain advantage. Stiglitz is of Columbia, 0:00:46.400 --> 0:00:50.120 the university professor Joseph Stiglitz, joins us this morning at 0:00:50.120 --> 0:00:53.560 the bottom of your wonderful essay on inflation and project syndicate, 0:00:54.000 --> 0:00:58.880 Joe Stiglets you talk about monopoly rents. I would expand 0:00:59.080 --> 0:01:04.360 extend that even more to monoximistic rents, which is economic 0:01:04.520 --> 0:01:08.800 mumbo jumbo. You teach for they has gained how much 0:01:08.840 --> 0:01:13.959 did they haves gain off the fiscal largesse of this pandemic? 0:01:15.040 --> 0:01:18.200 Who an enormous amount? Uh. You know, it's got a 0:01:18.280 --> 0:01:22.040 lot of attention that while so many Americans were living, 0:01:22.440 --> 0:01:26.760 hand them out money that was going to them just 0:01:27.200 --> 0:01:30.520 enabled them to get by the people at the top, 0:01:30.880 --> 0:01:36.000 we're making literally billions and billions and billions of dollars. 0:01:36.040 --> 0:01:38.520 So one of the things in that article that you 0:01:38.600 --> 0:01:42.280 mentioned that I advocate is we're going through a very 0:01:42.319 --> 0:01:46.319 tough time. Uh, there are prices are going up, and 0:01:46.360 --> 0:01:48.240 it's a little bit hard for those at the bottom 0:01:48.280 --> 0:01:52.920 in the middle. Why don't we have a excess profits 0:01:52.960 --> 0:01:57.280 tax on those companies that have done very well in 0:01:57.320 --> 0:02:01.040 the pandemic and used a a aneuver of that to 0:02:01.120 --> 0:02:06.800 help those who are really struggling by one time attacks, 0:02:06.840 --> 0:02:10.200 just to uh, you might call it a pandemic inflation 0:02:10.280 --> 0:02:13.560 adjustment and Joe and Ah luck in America, which has 0:02:13.639 --> 0:02:16.200 moved on from that kind of language to love of 0:02:16.240 --> 0:02:20.720 the individual. Let's say you can't get through and excess 0:02:20.760 --> 0:02:26.280 profits tax, what's the second best thing to do? Well, 0:02:26.320 --> 0:02:28.880 I can tell you what the second best thing not 0:02:29.000 --> 0:02:32.600 to do the best. It is not a good thing 0:02:32.639 --> 0:02:38.400 to raise interest rates to kill the economy in order 0:02:38.440 --> 0:02:43.400 to be what is still moderate inflation seven And if 0:02:43.400 --> 0:02:49.480 you look at those inflation numbers, they're all distorted by uh, 0:02:49.880 --> 0:02:52.560 you know, a huge increasing energy price that is not 0:02:52.560 --> 0:02:56.320 going to continue. The price of oil went from below 0:02:56.440 --> 0:03:00.600 normal levels because of the pandemic to moren real levels. 0:03:00.639 --> 0:03:04.080 They're not going to go to stratisfy spherical levels and 0:03:04.440 --> 0:03:08.320 use car prices. We know how to make cars, but 0:03:08.400 --> 0:03:13.440 there's a short chips, a shorty called wifire in Japan. 0:03:13.600 --> 0:03:17.519 So why killed economy won't solve the problem? Will help? 0:03:17.639 --> 0:03:21.399 Hill Brand got it absolutely right. There's there's an important 0:03:21.560 --> 0:03:24.880 distinction here within what you're saying, which is, as you 0:03:24.960 --> 0:03:27.160 look toward the FED and the way that they should 0:03:27.160 --> 0:03:31.920 handle policy, they should continue to rely on fiscal policymakers 0:03:31.960 --> 0:03:34.320 to try to help the lower class, but that their 0:03:34.360 --> 0:03:37.840 policies are more helpful to the lower income individuals and 0:03:37.840 --> 0:03:40.920 they are harmful in terms of widening the gap, fueling 0:03:41.000 --> 0:03:43.840 market gains that have really led to the bigger dispersion 0:03:43.880 --> 0:03:46.280 between the wealthy and the poor. Can you explain that 0:03:46.320 --> 0:03:48.480 because a lot of people view the FED as the 0:03:48.560 --> 0:03:54.920 instrument of widening this wealth disparity, Well, the Fed, Uh, 0:03:55.040 --> 0:03:58.000 whatever it does has distribution effects. I mean, we have 0:03:58.080 --> 0:04:02.040 to admit that it tries to attend that it's absolutely neutral, 0:04:02.520 --> 0:04:06.920 but what it does has big distributional effects when it 0:04:07.120 --> 0:04:10.880 lowered the interest rate, as it did beginning and the 0:04:10.960 --> 0:04:14.920 Great Recession two thousand and eight, the big gainers were 0:04:14.920 --> 0:04:22.279 those inequity markets. Losers included those who uh elderly people 0:04:22.320 --> 0:04:25.279 who had put their money and tea bills. That return 0:04:25.320 --> 0:04:28.400 they got on their tea bills went to zip uh. 0:04:28.560 --> 0:04:31.880 So they were the people who lost, and the owners 0:04:31.880 --> 0:04:36.440 of the equity overwhelmingly evidence overwhelmingly those in the upper 0:04:36.480 --> 0:04:41.520 one they did very well. No, at the current juncture, 0:04:41.680 --> 0:04:45.320 if you raise the interest rates, it will slow down 0:04:45.360 --> 0:04:49.120 the economy, and the first order impact is going to 0:04:49.200 --> 0:04:54.279 be on unemployment. People who might otherwise have jobs won't 0:04:54.360 --> 0:04:57.400 get those jobs. But but but, Professor Sigletts, how can 0:04:57.440 --> 0:04:59.880 you say that that's really a risk at raising rates 0:05:00.000 --> 0:05:03.480 fift even a hundred basis points at a time when 0:05:03.520 --> 0:05:06.039 they're near zero and you have a labor market that's 0:05:06.080 --> 0:05:08.840 so tight that you have vastly more job openings than 0:05:08.880 --> 0:05:12.680 you do people to fill them. Well, first of all, 0:05:13.240 --> 0:05:17.839 the numbers in the unemployment rate don't give a full 0:05:18.000 --> 0:05:21.000 picture of what is going on in the labor market. 0:05:21.760 --> 0:05:27.279 We are millions short of the number of jobs that 0:05:27.320 --> 0:05:31.719 we would have had had we continued the pace of 0:05:31.800 --> 0:05:40.360 job creation. Well, I think we've lost bonds school population. Yeah, 0:05:40.360 --> 0:05:42.520 we're gonna leave it there. I think with the technology 0:05:42.600 --> 0:05:44.680 when the professor stickers will leave it there and we'll 0:05:44.680 --> 0:05:46.760 have them on again. I had at least four more 0:05:46.839 --> 0:05:54.200 questions as well. I want you to think of Bank 0:05:54.200 --> 0:05:56.480 of America in the long term roll up of many 0:05:56.520 --> 0:06:00.240 banks into one giant bank that could be black So 0:06:00.440 --> 0:06:03.240 Smith Klein, Yes, it's Glasow from way back, and then 0:06:03.279 --> 0:06:06.240 welcome and Smith Climb Beacham in there as well. But 0:06:06.240 --> 0:06:11.039 it's essentially a pharmaceutical and consumer roll up that is challenged. 0:06:11.160 --> 0:06:14.239 Emma Warmsley is of lorel and of course the chief 0:06:14.240 --> 0:06:18.040 executive officer of Glacksow Smith Klein. She and John Pharaoh 0:06:18.400 --> 0:06:22.159 in a conversation. John is Dame Walmsley is under a 0:06:22.279 --> 0:06:24.960 bit of distress. That is a beautiful introduction, Tom, and 0:06:25.040 --> 0:06:26.880 thank you for that, Emma. Fantastic to have you with 0:06:26.960 --> 0:06:29.240 us on the program. Let's work through the outlook that 0:06:29.279 --> 0:06:31.320 we got from earnings this morning. The Nittam out look 0:06:31.360 --> 0:06:34.279 is good, forecasting earnings from the farmer and vaccines business 0:06:34.320 --> 0:06:37.240 to rise to alter fourteen percent. City came out with 0:06:37.279 --> 0:06:40.560 this in response GS case pass to a higher multiple 0:06:40.560 --> 0:06:43.640 remains dependent on solving the post twenty seven growth rate 0:06:43.960 --> 0:06:46.719 as opposed to the near term guidance. What's in the 0:06:46.760 --> 0:06:51.280 pipeline emma that's going to satisfy those people. Well, first, well, John, 0:06:51.279 --> 0:06:54.000 thank you for having me. Absolutely delighted to be here 0:06:54.040 --> 0:06:58.200 today off the back of announcing strong performance for twenty 0:06:58.279 --> 0:07:01.839 one and excellent quarter and really showing momentum across the 0:07:01.880 --> 0:07:06.479 business as we're building into this landmark year in twenty two, 0:07:06.640 --> 0:07:10.760 when as you know, we are separating into two exciting 0:07:11.000 --> 0:07:15.160 growth oriented companies, and delighted to be guiding as you said, 0:07:15.200 --> 0:07:18.240 for this year for new GSK buy a farmer with 0:07:18.400 --> 0:07:21.800 a five to seven top line growth rate and twelve 0:07:21.800 --> 0:07:25.320 to fourteen in terms of operating margin growth, and that 0:07:25.400 --> 0:07:30.720 excludes any contribution from COVID Solutions. It's also the first 0:07:30.840 --> 0:07:34.000 year of the five year outlook we've given of growing 0:07:34.080 --> 0:07:36.400 up more than five and more than ten percent, which 0:07:36.440 --> 0:07:39.760 is really a step change in delivery four g s K, 0:07:40.320 --> 0:07:43.480 and at the heart of that is the progress in innovation. 0:07:43.760 --> 0:07:47.000 When you look back at twenty one, we actually grew 0:07:47.040 --> 0:07:50.360 on new and specialty products by twenty six percent. That's 0:07:50.480 --> 0:07:55.360 very important momentum. We look forward and seeing vaccines obviously 0:07:55.400 --> 0:07:59.040 adut vaccination hit by the prioritization of COVID vaccines, but 0:07:59.160 --> 0:08:02.360 we see shing it's a very sizable product for US, 0:08:02.400 --> 0:08:07.360 doubling by twenty six And I'll come back to consumer later. 0:08:07.440 --> 0:08:10.600 But across our total R and D pipeline, we have 0:08:10.800 --> 0:08:14.160 sixty four assets, twenty two of them are in pivotal 0:08:14.200 --> 0:08:17.200 stages and seven with big milestones in rs V and 0:08:17.280 --> 0:08:20.480 rheumortided author writers, in oncology and in hepatitus B so 0:08:20.640 --> 0:08:22.920 lots to come. I have to say, written the transcript 0:08:22.920 --> 0:08:25.640 from a recent healthcare conference over at JP Morgan and 0:08:25.680 --> 0:08:28.400 your presentation when it went to oncology, I found it depressing, 0:08:28.400 --> 0:08:32.240 gemma depressing, how neglected that area of healthcare has been 0:08:32.240 --> 0:08:35.439 over the last two three years. Just fixing their emma 0:08:35.559 --> 0:08:37.520 as a macron fade. How much for tell? When is 0:08:37.559 --> 0:08:41.240 that going to be for you? Well? Oncology is one 0:08:41.280 --> 0:08:44.600 of the areas of specialty medicine that GSK has reinvested in. 0:08:44.640 --> 0:08:47.320 Remember one of the most important strategic shifts we've been 0:08:47.400 --> 0:08:52.120 driving as towards vaccines and specialty medicines. GSK got out 0:08:52.160 --> 0:08:55.880 of oncology completely, and then over the last four years 0:08:56.160 --> 0:09:01.120 with new talent, UH, some business development moves and homegrown 0:09:01.120 --> 0:09:04.280 assets as well, we've sound really good growth in oncology 0:09:04.280 --> 0:09:08.800 and exciting emerging pipeline too. The tragedy has been over 0:09:08.840 --> 0:09:11.640 the last two years, as you say, actually diagnosis and 0:09:11.679 --> 0:09:14.080 surgery rates are down a lot. I think in a 0:09:14.160 --> 0:09:16.320 variant cancer. I'll give you that example where we have 0:09:16.400 --> 0:09:20.600 a tremendous medicine for women facing into a really difficult 0:09:20.640 --> 0:09:24.120 cancer diagnosis and surgery rates are down twenty percent. So 0:09:24.360 --> 0:09:28.280 we're all hoping that as the pandemic moves into an 0:09:28.280 --> 0:09:31.800 an endemic stage, we're going to see further growth fueled 0:09:32.240 --> 0:09:35.120 through through that and mainly, you know, real impact for patients. 0:09:35.200 --> 0:09:36.640 We hope we can fix some of that because that 0:09:36.679 --> 0:09:39.719 needs to happen soon and quickly. You mentioned spinning off 0:09:39.720 --> 0:09:42.920 the business, splitting into let's talk about how you're going 0:09:42.960 --> 0:09:44.920 to do that. You've got a plan, You've had a plan, 0:09:45.400 --> 0:09:48.160 only leaves got other plants. Have you spoken to the 0:09:48.240 --> 0:09:52.000 CEO about their bit? Have you spoken directly with him? 0:09:52.120 --> 0:09:54.920 We've been very clear and very public since the news 0:09:55.000 --> 0:09:59.760 on this emerged in our press release statements. That's obviously 0:10:00.040 --> 0:10:04.320 g s k's priority. In fact, since we announced the 0:10:04.320 --> 0:10:07.400 deal with Visor several years ago and are intent to emerge, 0:10:07.400 --> 0:10:11.640 our priority has always been about creating shareholder value. So 0:10:12.040 --> 0:10:15.920 when these unsolicited offers came in, obviously the board took 0:10:15.960 --> 0:10:20.200 its responsibilities to review them very seriously, very seriously, and 0:10:20.280 --> 0:10:24.760 after that we did reject them unanimously, alongside our joint 0:10:24.800 --> 0:10:28.319 venture partners as well, just for fundamentally undervaluing what we've 0:10:28.360 --> 0:10:31.520 built in this pure play consumer business and particularly it's 0:10:31.600 --> 0:10:35.560 future prospects for growth. We've had a lot of support 0:10:35.920 --> 0:10:38.280 and some of it very public from our shareholders who 0:10:38.320 --> 0:10:41.160 we listened to and talked to a lot about continuing 0:10:41.160 --> 0:10:43.760 with the plan forward in terms of a emerger that's 0:10:43.760 --> 0:10:45.240 in a matter of months, and we have a great 0:10:45.280 --> 0:10:47.880 Capital Markets Day coming up on the twenty February when 0:10:47.880 --> 0:10:50.120 we're bringing going to bring a lot more visibility to 0:10:50.240 --> 0:10:53.640 the above market growth prospects for this business. It's sustainable 0:10:53.679 --> 0:10:57.079 margin expansion, great cash generation and the truly unique portfolio 0:10:57.120 --> 0:10:59.360 and great management team. Well, maybe Alan has other plans 0:10:59.360 --> 0:11:01.200 for the end of the Maybe he has other plans 0:11:01.200 --> 0:11:03.240 to come back. Is he aware of what your price is. 0:11:03.840 --> 0:11:05.680 I don't expect you to negotiate with me right now, 0:11:05.760 --> 0:11:07.800 but does he know what your price is? We've been 0:11:07.920 --> 0:11:12.000 extremely clear that our priority is shareholder value creation. We've 0:11:12.040 --> 0:11:15.240 never disclosed any kind of price. Our focus is on 0:11:15.320 --> 0:11:19.719 making sure that we you know, prioritize our shareholders, that 0:11:19.760 --> 0:11:24.040 we unlock the balance sheet for GSK absently a better 0:11:24.080 --> 0:11:26.960 offer than the plan we're working on for the d merger. 0:11:27.000 --> 0:11:29.559 We're going to stay very focused on executing that success. 0:11:29.600 --> 0:11:31.400 You know what Elliott Management thinks. This is what they 0:11:31.440 --> 0:11:33.640 put out in a letter last year. I'm going to 0:11:33.920 --> 0:11:36.000 allow you to respond to that emer and just the moment. 0:11:36.040 --> 0:11:38.960 This was the quote from last July. This is a 0:11:39.040 --> 0:11:43.080 firm with quote a poor record of operational execution and 0:11:43.200 --> 0:11:47.520 value creation, leading to skepticism about the company's future and 0:11:47.679 --> 0:11:52.000 under appreciation of its true potential for some people. M A, 0:11:52.080 --> 0:11:54.959 you are a CEO under pressure at the moment. It's 0:11:55.000 --> 0:11:57.480 almost five years at the top, five years which have 0:11:57.520 --> 0:12:00.319 delivered negative returns for the stock. How you're going to 0:12:00.400 --> 0:12:04.400 keep people like Elliott Management happy? Well, we are very 0:12:04.400 --> 0:12:08.360 focused on listening and to our shareholders and talking to them. 0:12:08.400 --> 0:12:12.920 I was brought in to address perennial under performance for 0:12:12.960 --> 0:12:16.160 this company, and over the last four years we've been 0:12:16.200 --> 0:12:21.040 addressing in a comprehensive way a wholesale transformation of reprioritizing 0:12:21.080 --> 0:12:24.000 investment in R and D and strengthening the pipeline that 0:12:24.040 --> 0:12:27.240 we've definitely seen now with twenty two assets in our 0:12:27.280 --> 0:12:32.119 pipeline and pivotal stage readouts, we have been completely reset 0:12:32.520 --> 0:12:36.320 the group's structure with this path forward into separation into 0:12:36.320 --> 0:12:38.800 two new companies, and most importantly, we're going to see 0:12:38.840 --> 0:12:42.640 all of that translating into meaningful growth and we're incredibly 0:12:42.640 --> 0:12:44.720 excited that the year this year is going to be 0:12:44.760 --> 0:12:47.280 the first year of that delivery of more than five 0:12:48.360 --> 0:12:50.880 five percent top line growth and more than double digit 0:12:51.080 --> 0:12:54.880 bottom line bottom line growth, whilst allowing for continued investment 0:12:54.960 --> 0:12:58.760 in and prioritizing of the pipeline with a great leadership 0:12:58.800 --> 0:13:03.000 team that's completely to delivery for that. So I look 0:13:03.000 --> 0:13:05.520 forward to seeing that step up performance materialized and catching 0:13:05.559 --> 0:13:07.000 up with you soon. Thank you for being with us. 0:13:07.040 --> 0:13:15.680 Emma Walmsley, Dad the CEO of Glacksow Smith Klein. Right now, 0:13:15.760 --> 0:13:17.960 what we're gonna say is this, the research has gotten 0:13:17.960 --> 0:13:21.079 better since the crisis two thousand seven. Two thou eight 0:13:21.160 --> 0:13:24.480 is a broad statement. Research is better, but then there 0:13:24.480 --> 0:13:27.559 every once in a while exceptional pieces where you go, well, 0:13:27.600 --> 0:13:29.800 this ruins my afternoon. I've got to read every word. 0:13:30.240 --> 0:13:33.800 I do that with Alex Schiller, Danny Newman, and Rebecca 0:13:33.840 --> 0:13:37.920 Patterson at the Bridgewater Shop. They wrote a brilliant, brilliant 0:13:37.920 --> 0:13:40.920 note on the dynamics of what we've got with rate 0:13:41.040 --> 0:13:44.439 changes and balance sheet changes at our central Bank. We're 0:13:44.480 --> 0:13:48.000 on the Rebecca Patterson of Bridgewater joins us this morning. Rebecca, 0:13:48.040 --> 0:13:51.960 congratulations on a thought provoking note. How does all of 0:13:52.040 --> 0:13:56.200 this monetary dynamics, think of the mathematics of say Richard 0:13:56.240 --> 0:13:59.560 Clart of Colombia and x FED, how does all of 0:13:59.600 --> 0:14:04.000 that fold into your guestimate on what economic growth will 0:14:04.080 --> 0:14:07.360 do well? First of all, thank you so much, Tom. 0:14:07.400 --> 0:14:11.040 That was very kind of you so early in the morning. Especially, 0:14:11.120 --> 0:14:14.840 I'm only kind early in the morning. So in terms 0:14:14.920 --> 0:14:17.320 of the FED, you know, I really think they're in 0:14:17.320 --> 0:14:20.680 one of the most difficult situations in our lifetimes, and 0:14:20.800 --> 0:14:24.360 that you still have very strong nominal demand. Even if 0:14:24.360 --> 0:14:27.480 growth moderates a little bit this year. We expect nominal 0:14:27.520 --> 0:14:29.800 demand is going to be well over nominal GDP will 0:14:29.800 --> 0:14:33.520 be well over consensus expectations, but also you have inflation 0:14:33.600 --> 0:14:37.400 well overation over expectations. And our view is twelve months 0:14:37.440 --> 0:14:40.440 from now, CPI is probably going to be closer to 0:14:40.520 --> 0:14:45.240 a five figure, not the three ish that consensus is 0:14:45.280 --> 0:14:47.920 looking for. And so what does the Fed do If 0:14:47.960 --> 0:14:50.520 they tighten too much, they risk slowing down the economy, 0:14:50.600 --> 0:14:53.000 starting a recession. They don't want to do that. They're 0:14:53.040 --> 0:14:55.760 dealing with pandemic related data which doesn't give them as 0:14:55.840 --> 0:14:59.280 much confidence in their view, and their scarred I'm being 0:14:59.360 --> 0:15:03.760 generous he by you know, the tightening both rates and 0:15:03.920 --> 0:15:08.160 quantitative tightening guy gave us a sell off, so they 0:15:08.200 --> 0:15:10.320 don't want to go too fast, but they also want 0:15:10.320 --> 0:15:13.720 to make sure inflation expectations don't get deanchored. So our 0:15:13.720 --> 0:15:15.360 our view is that you are going to see more 0:15:15.480 --> 0:15:17.880 rate heights than what has been priced in so far 0:15:18.120 --> 0:15:21.080 over the next couple of years, but not as much 0:15:21.120 --> 0:15:24.040 as needed to get inflation back down to that two 0:15:24.040 --> 0:15:26.680 percent target. I love the nominal analysis. It reminds me 0:15:26.720 --> 0:15:28.880 of cuddlo Ad bear Sturns a million years ago. And 0:15:28.880 --> 0:15:31.000 I want to take it over to a guy named Gallio, 0:15:31.400 --> 0:15:34.760 who has looked at the social dynamics of social aspects 0:15:34.960 --> 0:15:37.520 of this is recent interview with David Rubinstein. I thought 0:15:37.560 --> 0:15:40.480 it was illuminating Rebecca Patterson. If we get a five 0:15:40.520 --> 0:15:45.200 percent inflation rate, what is the societal dispersion, the effect 0:15:45.400 --> 0:15:49.240 of five percent inflation between the halves and the have nots. 0:15:50.680 --> 0:15:52.520 It's a great point and I think it's something the 0:15:52.520 --> 0:15:55.040 FED is also looking at. And one of the reasons 0:15:55.080 --> 0:15:58.440 they're going to lean relatively more on balance sheet rather 0:15:58.480 --> 0:16:01.520 than rates is because when you raise rates, you are 0:16:01.560 --> 0:16:04.520 going to hit small businesses relatively more. You are going 0:16:04.520 --> 0:16:07.760 to hit that lower socioeconomic cohort more because they rely 0:16:08.000 --> 0:16:10.600 relatively more on credit cards. So that's one of the 0:16:10.640 --> 0:16:13.040 reasons the FED would prefer to do a balance of 0:16:13.080 --> 0:16:16.640 these tools rather than just rate hikes. UM. But as 0:16:16.640 --> 0:16:19.880 we're looking at the different quintiles, if you will, of 0:16:19.920 --> 0:16:23.520 wealth in the United States today, one good thing, great 0:16:23.560 --> 0:16:28.720 thing is that the fiscal transfers we got in one 0:16:28.880 --> 0:16:33.200 have created more wealth for everybody. UM. You have seen 0:16:33.280 --> 0:16:36.800 wealth at the bottom cohort go up significantly, their balance 0:16:36.840 --> 0:16:40.440 sheets are stronger, their debt levels are relatively lower. UM, 0:16:40.480 --> 0:16:44.760 they're seeing big wage increases and so high inflation, especially 0:16:44.840 --> 0:16:48.120 gas prices, energy prices, food prices, those are the big ones. 0:16:48.480 --> 0:16:51.880 They're definitely going to be a problem, but at least 0:16:52.000 --> 0:16:55.240 is happening against this backdrop where the starting point is 0:16:55.320 --> 0:16:57.760 so much stronger than it has been coming out of 0:16:57.800 --> 0:17:01.400 past recessions. This dynamic, however, of echa of negative real 0:17:01.440 --> 0:17:04.479 wage growth, particularly at the lower income levels, is one 0:17:04.520 --> 0:17:06.720 of the reasons why people are saying we won't get 0:17:06.720 --> 0:17:08.960 to that five percent level in twelve months. It will 0:17:09.000 --> 0:17:12.000 be much lower than that, because realistically the economy will 0:17:12.040 --> 0:17:14.680 have to slow, and we're seeing that in consumer sentiment data. 0:17:14.760 --> 0:17:17.960 How do you push back against that? Well, I think 0:17:18.160 --> 0:17:20.320 I think that we are going to see stronger nominal 0:17:20.359 --> 0:17:23.280 growth this year for a couple of reasons. One is 0:17:23.320 --> 0:17:26.560 the reopening itself. So as oh Macron continues to fade, 0:17:26.560 --> 0:17:29.760 hopefully and hopefully we have no new variants, we are 0:17:29.800 --> 0:17:33.480 going to see people going out to restaurants more, spending 0:17:33.520 --> 0:17:36.040 more on travel, etcetera. And yes, part of that is 0:17:36.040 --> 0:17:38.560 a shift from goods to services, but overall we think 0:17:38.600 --> 0:17:41.880 that continues to so port growth. I think, even more importantly, 0:17:42.080 --> 0:17:45.280 we think will continue to see an inventory rebuild. Now, 0:17:45.359 --> 0:17:47.960 how it affects GDP is a little bit wonky. I 0:17:47.960 --> 0:17:50.159 don't want to go into that right now, but I 0:17:50.200 --> 0:17:53.640 do think that inventory rebuild will continue to create demand, 0:17:53.680 --> 0:17:56.280 which will create jobs, which will create incomes and spending. 0:17:56.680 --> 0:17:58.639 And then third, we think we're just in the early 0:17:58.720 --> 0:18:02.000 stages of a cap ex goal, which his recent years 0:18:02.000 --> 0:18:04.000 has been mainly tech. We think it's gonna be fairly 0:18:04.000 --> 0:18:06.240 broad based, and that's also going to be a support 0:18:06.280 --> 0:18:09.680 for growth. You still have eleven million job openings out 0:18:09.680 --> 0:18:12.480 there right now, and while the pandemic slowing down is 0:18:12.520 --> 0:18:14.760 going to bring some people back to the labor market, 0:18:15.000 --> 0:18:17.520 we think to get all those people back in to 0:18:17.640 --> 0:18:21.040 reduce that UM that gap, we are going to see 0:18:21.240 --> 0:18:23.800 significantly higher wages. We think the wage growth is going 0:18:23.840 --> 0:18:26.879 to be sticky. We think commodity prices are likely to 0:18:26.920 --> 0:18:29.920 be sticky. We think house prices will be sticky. All 0:18:29.960 --> 0:18:34.880 of those simply because supply can't meet demand. UM Rebecca. 0:18:35.119 --> 0:18:38.639 Within this scenario, here's what I'm struggling with. Five percent 0:18:38.720 --> 0:18:42.920 inflation twelve months out means a serious bond market sell off. 0:18:43.000 --> 0:18:47.199 It means a complete recalibration of longer term real yields 0:18:47.200 --> 0:18:51.280 of longer term base rates that the FED can really address. 0:18:51.680 --> 0:18:54.560 How can the market continue to climb and the economy 0:18:54.600 --> 0:18:57.439 continue to be stronger than it has been pre pandemic 0:18:57.720 --> 0:19:01.080 With that type of market turmoil, I think you just 0:19:01.160 --> 0:19:03.120 hit the nail on the head. What what I think 0:19:03.160 --> 0:19:07.200 we're shifting into right now is is really an inflection 0:19:07.320 --> 0:19:11.240 point versus the last twenty thirty years. We had central 0:19:11.240 --> 0:19:15.520 banks fighting deflationary risks, bond yields worth falling kind of structurally, 0:19:16.040 --> 0:19:18.800 and that was pushing people out into more risky assets, 0:19:18.840 --> 0:19:23.040 out into more stocks, and specifically longer duration stocks because 0:19:23.080 --> 0:19:26.000 they benefit from that liquidity. So where we were left 0:19:26.640 --> 0:19:31.960 is investors long bonds, long tech and growth stocks specifically, 0:19:32.040 --> 0:19:34.520 and guess who has the most of those the US. 0:19:34.560 --> 0:19:37.160 So now we're seeing a reversal of that entire thing. 0:19:37.520 --> 0:19:41.600 We're seeing higher inflation, pushing central banks to tighten um, 0:19:41.600 --> 0:19:44.840 pushing people out of those long duration stocks, pushing people 0:19:44.920 --> 0:19:47.560 out of those bonds. I think that leaves the US 0:19:47.600 --> 0:19:51.800 stock market relatively more vulnerable than a lot of markets overseas. 0:19:51.880 --> 0:19:54.840 We're not barish on US equities, but we think that 0:19:54.880 --> 0:19:57.160 the opportunity this year for the first time in many 0:19:57.280 --> 0:19:59.760 years is going to be more outside the US than 0:19:59.840 --> 0:20:02.240 in And for those reasons I just cited Rebecca, I 0:20:02.240 --> 0:20:04.960 want to go back to your dark, conclouded past in 0:20:05.080 --> 0:20:09.280 talk dollar and foreign exchanges. Well, to me, it's amazing 0:20:09.320 --> 0:20:12.719 the foreign exchange tightness, the range bound nature of it. 0:20:12.840 --> 0:20:16.320 When it breaks, which way does dollar break? Oh, that 0:20:16.400 --> 0:20:20.399 we're wrestling with that one. Internally right now. We have 0:20:20.440 --> 0:20:22.879 a mixed view on the dollar. We're embarished on the 0:20:22.920 --> 0:20:25.320 dollar against some of these currencies that we think will 0:20:25.359 --> 0:20:30.280 benefit relatively more from commodity rises from that inflation cycle, 0:20:30.880 --> 0:20:32.880 and then we're bullish dollar against some of the other 0:20:32.920 --> 0:20:35.840 reserve currencies, especially where the central banks don't face the 0:20:35.880 --> 0:20:38.680 same amount of pressure. Japan would obviously be a good 0:20:38.680 --> 0:20:42.040 example of that, or something like China where we see 0:20:42.040 --> 0:20:44.520 them actually easy and we think there's more easy to come. 0:20:44.880 --> 0:20:47.399 The really interesting thing Tom right now with the dollar 0:20:47.680 --> 0:20:50.720 is that you do have this fed tightening cycle just 0:20:50.720 --> 0:20:53.600 just warming up right now, and higher yields traditionally have 0:20:53.640 --> 0:20:56.320 been a big support for a currency, but we also 0:20:56.400 --> 0:20:59.120 have a pretty wide current account deficits, so a big 0:20:59.119 --> 0:21:02.000 external finance you need. And when I just mentioned a 0:21:02.040 --> 0:21:04.680 minute ago about all these people who have gone into 0:21:04.680 --> 0:21:08.440 the US. Foreign allocations to U stocks and bonds today 0:21:08.520 --> 0:21:11.560 are the highest they've been since the mid eighties. And 0:21:11.600 --> 0:21:14.000 so if we see that foreign money, maybe not all 0:21:14.040 --> 0:21:16.639 of it, but a piece of that coming out harder 0:21:16.680 --> 0:21:19.480 to finance our current account deficit, that's going to be 0:21:19.480 --> 0:21:22.240 a pretty big barrished dollar pressure. And I think that 0:21:22.480 --> 0:21:25.800 is part of the reason in January possibly that we 0:21:25.840 --> 0:21:29.040 saw a dollar weaker despite yields going up. Was that 0:21:29.440 --> 0:21:32.280 saw off and some of those foreign investors maybe pulling 0:21:32.400 --> 0:21:34.679 back a bit. So I think it's gonna be a 0:21:34.800 --> 0:21:37.600 much more unusual year for the dollar than you'd normally 0:21:37.640 --> 0:21:40.919 expect in a tightening cycle. Again, just watch the money 0:21:41.000 --> 0:21:44.600 watch where you see the foreign capital going in and 0:21:44.600 --> 0:21:47.520 out of US bonds and US stocks. Rebecca, that was 0:21:47.560 --> 0:21:50.359 a clinic. Thank you, Rebecca Cadison, that Ridge, what are 0:21:50.359 --> 0:21:57.960 we appreciate it right now? Our math conversation for the 0:21:58.040 --> 0:22:00.480 day we do that with Amy with Silverman, really quite 0:22:00.560 --> 0:22:03.959 good and the derivatives and the dynamics of the market 0:22:04.119 --> 0:22:06.920 at the Royal Bank of Canada RBC Ay, thank you 0:22:07.040 --> 0:22:09.560 so much for joining UH this morning. I want to 0:22:09.640 --> 0:22:12.320 cut to the chase, which as you go cross asset 0:22:12.840 --> 0:22:17.880 and your derivative analysis and look at equity presentation against 0:22:18.040 --> 0:22:24.520 optionality and the credit market, explain that in English, sure, 0:22:24.840 --> 0:22:28.280 you know. Look it's uh, it always makes options people 0:22:28.320 --> 0:22:32.040 a little nervous when you see a flurry of credit hedging, 0:22:32.440 --> 0:22:35.639 so people buying downside protection in h y G the 0:22:35.720 --> 0:22:37.760 high old bond proxy e t F t L t 0:22:38.040 --> 0:22:41.280 l QT. We've seen a lot of that tom a lot. 0:22:41.800 --> 0:22:44.480 And even though we're getting that vixed number, as you said, 0:22:44.600 --> 0:22:47.879 kind of going back to sub twenty levels, that dynamic 0:22:48.000 --> 0:22:52.000 between the cross asset credit hedging uh not abating is 0:22:52.040 --> 0:22:54.040 a bit of a divergence from what we're seeing in 0:22:54.119 --> 0:22:56.399 equities right now. I mean something's going on to the 0:22:56.440 --> 0:22:59.399 single name level as well. Facebook just having a massive 0:22:59.520 --> 0:23:01.919 months to on a single day. That's surprised a lot 0:23:02.000 --> 0:23:04.919 of people. But you take some signal from what happened 0:23:04.960 --> 0:23:07.560 with Facebook about the consumer at the lower end of 0:23:07.600 --> 0:23:10.280 the white spectrum, the lower end of wealth in the 0:23:10.400 --> 0:23:13.280 United States of America not throwing small business confidence as well. 0:23:13.720 --> 0:23:15.760 You've got the media numbers, the average, and you've got 0:23:15.800 --> 0:23:18.240