1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along 2 00:00:09,240 --> 00:00:13,200 Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jaily, we bring you 3 00:00:13,320 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,960 --> 00:00:23,840 Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 5 00:00:23,920 --> 00:00:30,600 Speaker 1: and of course on the Bloomberg terminal. It is a 6 00:00:30,640 --> 00:00:34,400 Speaker 1: regime change. Well, no, actually nothing's changed. Michael McKee is 7 00:00:34,440 --> 00:00:37,519 Speaker 1: off at someplace romantic. Well, Lisa, John and I are 8 00:00:38,159 --> 00:00:40,960 Speaker 1: in the cold show of a summer in New York. 9 00:00:41,000 --> 00:00:43,839 Speaker 1: It is Michael McKee in conversation at the Rocky Mountain 10 00:00:43,920 --> 00:00:48,199 Speaker 1: Summit with the most interesting gentleman from St. Louis. Michael McKee, 11 00:00:48,280 --> 00:00:52,800 Speaker 1: Good morning, Good morning to you, Tom. We are here 12 00:00:52,880 --> 00:00:55,000 Speaker 1: in Victor, Idaho, where the sun will be up and 13 00:00:55,240 --> 00:00:57,600 Speaker 1: a little bit the sun's already up in St. Louis, 14 00:00:57,600 --> 00:01:00,320 Speaker 1: and we'd like to welcome Jim Bullard to Bloomberg Elevision 15 00:01:00,360 --> 00:01:03,520 Speaker 1: and Radio worldwide. Good morning to us, sir. I'd like 16 00:01:03,600 --> 00:01:07,520 Speaker 1: to start with a two part question. Chairman Powell yesterday 17 00:01:07,880 --> 00:01:11,759 Speaker 1: said that inflation is largely a factor. The inflation we're 18 00:01:11,800 --> 00:01:14,399 Speaker 1: seeing is largely a factor of the reopening of the 19 00:01:14,400 --> 00:01:18,080 Speaker 1: economy and supply chain issues that will fade. But he 20 00:01:18,200 --> 00:01:21,480 Speaker 1: also said that we are some ways off from the 21 00:01:21,560 --> 00:01:24,840 Speaker 1: substantial further progress the FEDS using as a marker for 22 00:01:24,880 --> 00:01:27,920 Speaker 1: when it wants to start tapering. So question one, do 23 00:01:27,920 --> 00:01:30,840 Speaker 1: you agree with Chairman Powell on inflation that it is 24 00:01:30,880 --> 00:01:34,280 Speaker 1: going to be very temporary? And question too, where do 25 00:01:34,319 --> 00:01:41,040 Speaker 1: you think we are on that substantial further progress continuum? 26 00:01:41,080 --> 00:01:43,920 Speaker 1: You know, on the you said very temporary. I think 27 00:01:43,959 --> 00:01:48,120 Speaker 1: that's the the key debate here. I think, uh, it's 28 00:01:48,200 --> 00:01:50,720 Speaker 1: clear that some of the inflation will be temporary. How 29 00:01:50,800 --> 00:01:54,480 Speaker 1: much and how much feeds into a more persistent process 30 00:01:55,360 --> 00:01:58,240 Speaker 1: is really the question that the Committee has to wrestle 31 00:01:58,320 --> 00:02:03,360 Speaker 1: with going forward year. So I think we're you know, 32 00:02:03,480 --> 00:02:08,519 Speaker 1: already above our target on core PC inflation. The Committee, 33 00:02:08,560 --> 00:02:13,400 Speaker 1: according to the Summary of Economic Projections, is protecting three percent. 34 00:02:14,400 --> 00:02:18,840 Speaker 1: That's excluding food and energy prices. Uh, that's more inflation 35 00:02:18,840 --> 00:02:21,280 Speaker 1: than we've seen in a long time in the US, 36 00:02:21,360 --> 00:02:24,239 Speaker 1: and I think some of that will hang on and 37 00:02:24,240 --> 00:02:29,919 Speaker 1: and persist through twenty two. And we had hotter reports 38 00:02:30,280 --> 00:02:35,720 Speaker 1: than we anticipated recently, so there's some uh possibility that 39 00:02:35,760 --> 00:02:39,920 Speaker 1: we would ratchet up our expectations for inflation in one 40 00:02:39,960 --> 00:02:44,400 Speaker 1: and twenty two UM. So this is a different situation 41 00:02:44,440 --> 00:02:48,400 Speaker 1: than we faced in the past. UM. On the on 42 00:02:48,480 --> 00:02:52,160 Speaker 1: the labor market, I think we have made substantial progress. 43 00:02:52,960 --> 00:02:56,840 Speaker 1: We've come a long way from where we were last December, 44 00:02:57,760 --> 00:03:02,960 Speaker 1: and all indications are by anecdotal reports that the labor 45 00:03:03,000 --> 00:03:05,240 Speaker 1: market is going to continue to improve a lot of 46 00:03:05,240 --> 00:03:09,160 Speaker 1: people are looking towards September October when schools are back 47 00:03:09,200 --> 00:03:13,560 Speaker 1: in session, for further improvements. So I think we're in 48 00:03:13,600 --> 00:03:17,359 Speaker 1: great shape on labor markets. As far as having been 49 00:03:17,400 --> 00:03:23,600 Speaker 1: able to make progress since last December, is not fully healed, 50 00:03:23,639 --> 00:03:28,320 Speaker 1: it's not fully uh don But but have we come 51 00:03:28,360 --> 00:03:30,760 Speaker 1: a long way since December? I think the answer is yes. 52 00:03:32,760 --> 00:03:35,080 Speaker 1: Well in terms of that progress, then do you think 53 00:03:35,120 --> 00:03:39,000 Speaker 1: tapering may have to come sooner than most people anticipate, 54 00:03:39,080 --> 00:03:46,240 Speaker 1: perhaps pulling it forward into the fourth quarter of this year? Well, 55 00:03:46,280 --> 00:03:49,560 Speaker 1: the Committee is gonna debate that in earnest now at 56 00:03:49,600 --> 00:03:52,880 Speaker 1: the July meeting. I would emphasize there are lots of 57 00:03:52,960 --> 00:03:57,280 Speaker 1: parameters around a taper decision. The starting date is only 58 00:03:57,280 --> 00:04:00,080 Speaker 1: one part of it. The pace of tapering as an 59 00:04:00,080 --> 00:04:04,560 Speaker 1: other part. NBS versus treasuries UM, and we can talk 60 00:04:04,600 --> 00:04:08,120 Speaker 1: about that if if you want and and uh, but 61 00:04:08,240 --> 00:04:10,840 Speaker 1: I think the most important thing, and that I've been 62 00:04:10,840 --> 00:04:15,320 Speaker 1: stressing here is the idea that you probably don't want 63 00:04:15,320 --> 00:04:18,599 Speaker 1: to be on automatic pilot in this situation. This is 64 00:04:18,680 --> 00:04:23,960 Speaker 1: a really fast growing economy, lots of things happening both 65 00:04:24,000 --> 00:04:28,000 Speaker 1: in the US and globally. Uh, And I don't think 66 00:04:28,040 --> 00:04:30,640 Speaker 1: we're we have the luxury of being able to just 67 00:04:31,120 --> 00:04:34,560 Speaker 1: uh go on to automatic pilot and and say that 68 00:04:34,600 --> 00:04:37,640 Speaker 1: we're never going to change the pace of purchases. I 69 00:04:37,680 --> 00:04:40,000 Speaker 1: think we have to be more state contingent than that, 70 00:04:41,200 --> 00:04:44,800 Speaker 1: because we're not quite sure where this inflation process is 71 00:04:44,839 --> 00:04:48,680 Speaker 1: going to go. We need some optionality on the upside 72 00:04:48,960 --> 00:04:53,960 Speaker 1: with respect to possible inflation shocks. Well, the Chairman did 73 00:04:53,960 --> 00:04:58,200 Speaker 1: say again yesterday that if inflation did seem to be persistent, 74 00:04:58,279 --> 00:05:00,680 Speaker 1: that FED wouldn't hesitate to act, and that you have 75 00:05:00,760 --> 00:05:03,320 Speaker 1: the tools to deal with inflation. What do you say 76 00:05:03,360 --> 00:05:05,520 Speaker 1: to critics on Walster who say, yes, you have the 77 00:05:05,520 --> 00:05:08,080 Speaker 1: tool to deal with inflation, you raise interest rates and 78 00:05:08,080 --> 00:05:13,280 Speaker 1: then historically plunge the economy into recession. Yeah, that's exactly 79 00:05:13,320 --> 00:05:17,159 Speaker 1: the kind of logic I think that you want to 80 00:05:17,200 --> 00:05:22,200 Speaker 1: avoid that you get too far out of alignment with 81 00:05:22,240 --> 00:05:25,159 Speaker 1: what's actually happening in the economy, and then then you 82 00:05:25,200 --> 00:05:29,640 Speaker 1: really have to react more strongly than you'd like and 83 00:05:30,000 --> 00:05:32,440 Speaker 1: possibly causing disruption in the economy. So you don't want 84 00:05:32,440 --> 00:05:34,960 Speaker 1: to be in that situation. I think the risk management 85 00:05:35,040 --> 00:05:39,760 Speaker 1: here is that if inflation does come back down uh 86 00:05:39,800 --> 00:05:44,680 Speaker 1: in two we're in great position for that. We're exactly 87 00:05:44,920 --> 00:05:48,039 Speaker 1: a position for that. But if it doesn't, we're not 88 00:05:48,160 --> 00:05:51,719 Speaker 1: in such great positions. So I think for that reason, um, 89 00:05:51,880 --> 00:05:56,400 Speaker 1: we want to have some flexibility on this taper. There 90 00:05:56,440 --> 00:05:58,599 Speaker 1: are a lot of people who look at what the 91 00:05:58,640 --> 00:06:02,160 Speaker 1: Fed is doing and say, uh, the economy is opening 92 00:06:02,279 --> 00:06:05,120 Speaker 1: very fast, as Jim Bullard says, So why do we 93 00:06:05,200 --> 00:06:07,840 Speaker 1: need a hundred and twenty billion dollars a month, forty 94 00:06:07,880 --> 00:06:10,680 Speaker 1: billion of that in mortgage bonds? What do we get 95 00:06:10,680 --> 00:06:16,640 Speaker 1: for that that we wouldn't get for less? Yeah, I 96 00:06:16,640 --> 00:06:19,320 Speaker 1: think it's a good question. Uh. You know, we we 97 00:06:19,400 --> 00:06:24,440 Speaker 1: took this policy decision in April March and April of 98 00:06:26,120 --> 00:06:29,160 Speaker 1: h that was a very different situation. The pandemic was 99 00:06:29,680 --> 00:06:33,960 Speaker 1: just getting going, and uh, it looked like there could 100 00:06:33,960 --> 00:06:38,920 Speaker 1: be a financial crisis. People were talking great depression. So 101 00:06:39,000 --> 00:06:42,280 Speaker 1: that was the context in which this decision was made. 102 00:06:42,360 --> 00:06:46,600 Speaker 1: But now you're in a very different situation, uh, fifteen 103 00:06:46,640 --> 00:06:51,719 Speaker 1: months later, where the pandemics coming under very sharp control. Here, 104 00:06:52,400 --> 00:06:57,279 Speaker 1: you've got growth in real GDP projected to be seven 105 00:06:57,279 --> 00:07:01,240 Speaker 1: percent in the U s s here, faster than China 106 00:07:01,520 --> 00:07:06,279 Speaker 1: has typically grown in recent years. You've got bottlenecks and 107 00:07:06,320 --> 00:07:12,200 Speaker 1: shortages everywhere. So this is a very different situation. UM 108 00:07:12,640 --> 00:07:15,760 Speaker 1: treasury market functioning and other financial markets seem to be 109 00:07:15,840 --> 00:07:19,720 Speaker 1: functioning very well. Financial stress indexes are way are back 110 00:07:19,760 --> 00:07:22,760 Speaker 1: down to normal and have been for some time. So 111 00:07:22,840 --> 00:07:26,800 Speaker 1: I think I think we're in a situation where we can, uh, 112 00:07:27,120 --> 00:07:30,920 Speaker 1: we can taper and and I think setting those parameters 113 00:07:31,320 --> 00:07:34,560 Speaker 1: the right way. We don't want to jar markets or anything, 114 00:07:34,600 --> 00:07:39,800 Speaker 1: but I think it is time to end these emergency measures. Well, 115 00:07:39,800 --> 00:07:42,040 Speaker 1: there's certainly a lot of concern out there on Wall 116 00:07:42,040 --> 00:07:45,680 Speaker 1: Street that the VET has sort of eliminated price discovery, 117 00:07:45,960 --> 00:07:48,920 Speaker 1: and the uncertainty over when you're going to taper is 118 00:07:48,920 --> 00:07:52,240 Speaker 1: setting the stage for possible market accidents. Are you worried 119 00:07:52,280 --> 00:08:00,200 Speaker 1: about assets? I mean, I love price discovery just as 120 00:08:00,280 --> 00:08:03,400 Speaker 1: much as an ex person. I'm a little skeptical that 121 00:08:03,440 --> 00:08:07,160 Speaker 1: there isn't any on Wall Street is true that monetary 122 00:08:07,200 --> 00:08:11,920 Speaker 1: policy is part of the equilibrium. Uh, So UH traders 123 00:08:11,960 --> 00:08:14,200 Speaker 1: have to factor that in. I know it's a tough job, 124 00:08:15,320 --> 00:08:18,640 Speaker 1: but um, but I think we've come a long way 125 00:08:18,680 --> 00:08:24,440 Speaker 1: with our transparency and our ideas about constantly communicating and 126 00:08:24,480 --> 00:08:28,080 Speaker 1: trying to do our best to uh to inform markets 127 00:08:28,120 --> 00:08:34,000 Speaker 1: about where the monetary policy debate is and where it's 128 00:08:34,120 --> 00:08:36,320 Speaker 1: likely to go at least short term. But we don't 129 00:08:36,360 --> 00:08:38,000 Speaker 1: know that how the data is going to come in 130 00:08:38,040 --> 00:08:41,840 Speaker 1: any better than anyone else. And for that reason, you 131 00:08:41,920 --> 00:08:46,719 Speaker 1: are going to get slight adjustments all the time. I'm 132 00:08:46,760 --> 00:08:49,240 Speaker 1: out here in Idaho at the Rocky Mountain Economics someone 133 00:08:49,320 --> 00:08:52,400 Speaker 1: with a lot of CEOs and economists, and the CEOs 134 00:08:52,440 --> 00:08:55,400 Speaker 1: are all asking the economists why does the FED think 135 00:08:55,400 --> 00:08:58,640 Speaker 1: there's no inflation when gas prices are way up? When 136 00:08:58,679 --> 00:09:01,360 Speaker 1: home prices are way up. Now, I know that raising 137 00:09:01,360 --> 00:09:03,800 Speaker 1: interest rates isn't going to bring down gasoline prices, but 138 00:09:03,880 --> 00:09:08,400 Speaker 1: how do you keep inflation expectations anchored when the real 139 00:09:08,520 --> 00:09:17,080 Speaker 1: economy inflation is something that people are starting to talk about. Yeah, 140 00:09:17,120 --> 00:09:20,600 Speaker 1: this is uh, Like I said my opening comments, this 141 00:09:20,640 --> 00:09:22,959 Speaker 1: is a different situation than we've seen in the US 142 00:09:23,280 --> 00:09:25,479 Speaker 1: for quite a while. This is quite a bit of inflation, 143 00:09:25,559 --> 00:09:27,960 Speaker 1: more than we're used to, and you kind of have 144 00:09:28,040 --> 00:09:33,679 Speaker 1: a generation that hasn't seen very much inflation. So UM, 145 00:09:33,720 --> 00:09:35,559 Speaker 1: I do think it will be a challenge to keep 146 00:09:35,600 --> 00:09:39,560 Speaker 1: inflation expectations in check. I do take some solace that 147 00:09:40,000 --> 00:09:42,040 Speaker 1: markets are seemed to be giving us a vote of 148 00:09:42,040 --> 00:09:45,400 Speaker 1: confidence based on the tips market, UH, that we're going 149 00:09:45,440 --> 00:09:49,120 Speaker 1: to bring this under control and continue to have good 150 00:09:49,120 --> 00:09:53,040 Speaker 1: inflation outcomes for the US. But it does require management, 151 00:09:53,080 --> 00:09:58,640 Speaker 1: and it does require us to move appropriately on issues 152 00:09:58,679 --> 00:10:03,319 Speaker 1: like tapering asset purchases and and talking about when we 153 00:10:03,520 --> 00:10:06,440 Speaker 1: left off of zero at some point down the road. 154 00:10:08,600 --> 00:10:11,760 Speaker 1: I'm wondering how you think about and factor COVID into 155 00:10:11,800 --> 00:10:16,560 Speaker 1: your economic projections now, especially since Missouri seems to be 156 00:10:16,720 --> 00:10:20,319 Speaker 1: the poster boy state for not getting vaccinated and having 157 00:10:20,360 --> 00:10:27,840 Speaker 1: cases rise. UH. We track it every day. I like 158 00:10:27,960 --> 00:10:31,880 Speaker 1: to look at the main indicator, UH deaths per day 159 00:10:31,960 --> 00:10:35,480 Speaker 1: per million in the US, and compared to other countries 160 00:10:35,520 --> 00:10:39,520 Speaker 1: around the world, it has come down uh dramatically and 161 00:10:39,720 --> 00:10:44,080 Speaker 1: is projected to continue to fall. Uh. It's true not 162 00:10:44,240 --> 00:10:48,880 Speaker 1: everyone is vaccinated. I think that uh, it would be 163 00:10:49,000 --> 00:10:52,840 Speaker 1: unrealistic to think every single person is going to get vaccinated. 164 00:10:52,880 --> 00:10:55,480 Speaker 1: That's not how this UH, that's not how this works. 165 00:10:56,320 --> 00:10:58,959 Speaker 1: But I'm hopeful that we can get to the level 166 00:10:59,000 --> 00:11:03,319 Speaker 1: that will bring the virus under clear control. I think 167 00:11:03,360 --> 00:11:09,959 Speaker 1: that is happening. UM. I also, UH would encourage people 168 00:11:10,000 --> 00:11:12,400 Speaker 1: to think about the vaccination. I think this is a 169 00:11:12,480 --> 00:11:17,640 Speaker 1: preventable UH disease at this point. UH, there's no reason 170 00:11:17,720 --> 00:11:21,640 Speaker 1: that really now that we have to have very many 171 00:11:21,679 --> 00:11:27,440 Speaker 1: deaths from UH from COVID nineteen one. Last question, I 172 00:11:27,440 --> 00:11:29,240 Speaker 1: want to go back to something John Farris said at 173 00:11:29,280 --> 00:11:32,120 Speaker 1: the beginning of the show, quoting a congressman. In the 174 00:11:32,120 --> 00:11:36,760 Speaker 1: summary of economic projections, you see long term economic growth 175 00:11:36,800 --> 00:11:40,600 Speaker 1: at one point eight percent. If we're spending all this money, 176 00:11:41,440 --> 00:11:45,760 Speaker 1: why are we only getting one growth? UH? What's the 177 00:11:45,840 --> 00:11:49,160 Speaker 1: benefit to the real economy from everything that you're doing 178 00:11:49,160 --> 00:11:54,280 Speaker 1: over the longer run? You know, that is a great 179 00:11:54,360 --> 00:11:57,120 Speaker 1: question to ask. I think what we're looking at here 180 00:11:57,440 --> 00:12:04,079 Speaker 1: is UH really tactic growth in the US during seven 181 00:12:04,800 --> 00:12:11,320 Speaker 1: is the current projection of various UH prognosticators UH and 182 00:12:11,320 --> 00:12:15,440 Speaker 1: and our own staff here. UM. And then I think 183 00:12:15,480 --> 00:12:19,880 Speaker 1: above trend growth in two, above trend growth in three 184 00:12:19,920 --> 00:12:24,520 Speaker 1: so you've got a period here where GDP is passing 185 00:12:24,720 --> 00:12:30,480 Speaker 1: the previous pre pandemic peak in total output produced in 186 00:12:30,520 --> 00:12:33,560 Speaker 1: the U. S. Economy. That's happening right now as I'm speaking, 187 00:12:34,400 --> 00:12:37,880 Speaker 1: and then uh it is projected to go above the 188 00:12:37,920 --> 00:12:41,840 Speaker 1: previous trend line. So you're really looking at quite a 189 00:12:41,880 --> 00:12:45,679 Speaker 1: strong US economy over the next couple of years, and 190 00:12:45,720 --> 00:12:47,640 Speaker 1: I would hope that some of that would feed through 191 00:12:47,679 --> 00:12:51,160 Speaker 1: to the underlying growth rate. I'm I'm hopeful that we'll 192 00:12:51,160 --> 00:12:57,440 Speaker 1: see productivity growth switch now to a higher growth regime, 193 00:12:57,480 --> 00:13:01,880 Speaker 1: a higher productivity growth regime, because we have experimented with 194 00:13:02,280 --> 00:13:06,000 Speaker 1: new ways of doing business, new technologies, and some of 195 00:13:06,000 --> 00:13:09,199 Speaker 1: that will get into basic processes in the US and 196 00:13:09,200 --> 00:13:12,439 Speaker 1: and lead to faster productivity growth. So that a lot 197 00:13:12,480 --> 00:13:14,800 Speaker 1: of that seems to be happening. The data is very 198 00:13:14,880 --> 00:13:17,640 Speaker 1: violatile right now, but I'd be hopeful that the medium 199 00:13:17,720 --> 00:13:19,760 Speaker 1: term growth rate for the U. S economy will be 200 00:13:19,800 --> 00:13:24,400 Speaker 1: somewhat higher. Well, we'll hope you are correct. Jim Bullard 201 00:13:24,720 --> 00:13:27,199 Speaker 1: is President of the Federal Reserve Bank of St. Louis. 202 00:13:27,200 --> 00:13:30,200 Speaker 1: Thank you for joining us this morning on Blueberg TV 203 00:13:30,320 --> 00:13:32,560 Speaker 1: and radio. I'll send it back to you guys and 204 00:13:32,800 --> 00:13:43,280 Speaker 1: I'll enjoy being out here. You doo that, Mike right now? 205 00:13:43,320 --> 00:13:45,480 Speaker 1: I really looking forward to this. Michael Feroli. Where us 206 00:13:45,480 --> 00:13:48,600 Speaker 1: with JP Morgan, their chief US economist, and usually we 207 00:13:48,640 --> 00:13:51,000 Speaker 1: can talk about his arch call on potential g d 208 00:13:51,040 --> 00:13:54,280 Speaker 1: P a very tepand number even under two percent, or 209 00:13:54,320 --> 00:13:58,199 Speaker 1: the other economics of his acclaimed weekly prospect, But today 210 00:13:58,600 --> 00:14:02,440 Speaker 1: we go to the gossip of the moment. Michael Ferolia, 211 00:14:02,520 --> 00:14:05,920 Speaker 1: how does a pro like you look at the gossip 212 00:14:05,960 --> 00:14:11,240 Speaker 1: of a blended inflation worry versus pros like you looking 213 00:14:11,280 --> 00:14:15,600 Speaker 1: at say, the Cleveland Median the Trim Dallas. Which one 214 00:14:15,720 --> 00:14:19,200 Speaker 1: is right, a blended view of inflation or a more 215 00:14:19,360 --> 00:14:23,560 Speaker 1: median view, a more acute view of price change. Well, 216 00:14:23,600 --> 00:14:26,600 Speaker 1: I think if we're thinking about longer run, the median 217 00:14:26,840 --> 00:14:30,680 Speaker 1: is probably a better indication of how much transitory influences 218 00:14:30,720 --> 00:14:32,920 Speaker 1: there are. I think looking at the top line is 219 00:14:32,920 --> 00:14:38,520 Speaker 1: perfectly adequate for understanding the pressures on household incomes and 220 00:14:38,600 --> 00:14:42,040 Speaker 1: disposable incomes that are being deserted by these inflation pressures. 221 00:14:42,040 --> 00:14:45,320 Speaker 1: So they're real. They are depressing the amount of real 222 00:14:45,360 --> 00:14:49,520 Speaker 1: consumer spending that's occurring in the second third quarters. But 223 00:14:49,600 --> 00:14:52,400 Speaker 1: if we want to understand inflation developments out you know, 224 00:14:52,480 --> 00:14:54,840 Speaker 1: three to six months from now. I think things like 225 00:14:54,920 --> 00:14:57,520 Speaker 1: the median are useful in telling us how much of 226 00:14:57,520 --> 00:15:01,239 Speaker 1: that UH increases being drill been by a few categories, 227 00:15:01,240 --> 00:15:03,600 Speaker 1: and recently it has been driven by a few categories. 228 00:15:03,640 --> 00:15:07,760 Speaker 1: So we like the market, the inflation market, believe that 229 00:15:07,800 --> 00:15:10,120 Speaker 1: as we look out you know, one to two years, 230 00:15:10,520 --> 00:15:13,160 Speaker 1: a lot of this kind of spasm of inflation we've 231 00:15:13,160 --> 00:15:15,680 Speaker 1: seen over the past few months, we'll be out of 232 00:15:15,680 --> 00:15:19,160 Speaker 1: the picture. How does Chairman Paul fight off the inflation 233 00:15:19,200 --> 00:15:24,200 Speaker 1: East's Uh, well, he saw a lot of that yesterday. 234 00:15:24,520 --> 00:15:29,600 Speaker 1: He's persisting in his measure his message that this is transitory. Uh. 235 00:15:29,680 --> 00:15:33,720 Speaker 1: If if inflation expectations were to arise in the market 236 00:15:33,720 --> 00:15:36,920 Speaker 1: based measures, UH, then you can, you know, a little 237 00:15:36,920 --> 00:15:40,240 Speaker 1: tough talk, you know, can beat back down those measures 238 00:15:40,240 --> 00:15:43,960 Speaker 1: of inflation expectations. So far, that hasn't happened, and so 239 00:15:44,120 --> 00:15:47,800 Speaker 1: right now it's really just rhetorical tangle with some members 240 00:15:47,840 --> 00:15:51,080 Speaker 1: of Congress that probably won't have a lot of influence 241 00:15:51,120 --> 00:15:54,320 Speaker 1: on how they set policy. Michael, from your perspective, is 242 00:15:54,360 --> 00:15:58,480 Speaker 1: a flattening yield curve signaling a likely FED policy error, 243 00:15:58,640 --> 00:16:01,120 Speaker 1: or is it signaling that this is bad inflation that 244 00:16:01,160 --> 00:16:05,120 Speaker 1: will by nature slow future growth. I think there's a 245 00:16:05,160 --> 00:16:09,560 Speaker 1: little of a little of both. Certainly, far forward inflation 246 00:16:09,640 --> 00:16:13,960 Speaker 1: expectation component of the longer term yield curve isn't signaling 247 00:16:14,040 --> 00:16:17,440 Speaker 1: much of an overshoot of inflation relative to the FETs 248 00:16:17,440 --> 00:16:20,400 Speaker 1: two percent target. I think the other interesting thing, though, 249 00:16:20,440 --> 00:16:24,600 Speaker 1: is if you look out at forward inflate um interest rates, 250 00:16:24,680 --> 00:16:27,120 Speaker 1: is that the real interest rate component further out in 251 00:16:27,120 --> 00:16:31,920 Speaker 1: the yield curve remains very low, in some cases in 252 00:16:32,000 --> 00:16:36,080 Speaker 1: negative territory. I think that sends a signal that the 253 00:16:36,120 --> 00:16:38,720 Speaker 1: market doesn't have a lot of faith that this booney 254 00:16:38,800 --> 00:16:42,560 Speaker 1: growth we're seeing this year and probably next year is 255 00:16:42,600 --> 00:16:46,720 Speaker 1: translating into a higher path of trend growth. So I 256 00:16:46,720 --> 00:16:52,080 Speaker 1: think it's sending somewhat a message really that secular stagnation, 257 00:16:53,040 --> 00:16:56,240 Speaker 1: while it's temporarily sort of out of the picture, will 258 00:16:56,280 --> 00:16:58,200 Speaker 1: come back, and you know in three or four or 259 00:16:58,200 --> 00:17:01,440 Speaker 1: five years time from now. So, being flationistas as Tom 260 00:17:01,480 --> 00:17:04,080 Speaker 1: calls them, have pointed to the trend line at the 261 00:17:04,160 --> 00:17:07,399 Speaker 1: three month rolling average of inflation has searched to levels 262 00:17:07,400 --> 00:17:09,840 Speaker 1: that we have not seen for four decades. How do 263 00:17:09,880 --> 00:17:13,240 Speaker 1: you push back against that and say, look, we still 264 00:17:13,240 --> 00:17:16,159 Speaker 1: are seeing base effects. This still is really just a 265 00:17:16,200 --> 00:17:21,160 Speaker 1: transitory move. Well. Uh, you can control for the base 266 00:17:21,160 --> 00:17:23,880 Speaker 1: effects by looking at three or six month annualized measures, 267 00:17:23,880 --> 00:17:27,520 Speaker 1: and those are very very strong. Uh. You can then 268 00:17:27,560 --> 00:17:32,720 Speaker 1: also strip out categories that have been outsized in their influence, 269 00:17:32,840 --> 00:17:36,760 Speaker 1: used cars being the obvious one. Some of the um, 270 00:17:36,800 --> 00:17:40,879 Speaker 1: you know, travel and tourism things are normalizations. Uh. You know, 271 00:17:40,880 --> 00:17:43,560 Speaker 1: when you strip those out, it's a little firm um 272 00:17:43,840 --> 00:17:47,639 Speaker 1: on a sequential basis, which is, you know, probably a 273 00:17:47,640 --> 00:17:51,720 Speaker 1: good thing. Um. But again, if you look at things 274 00:17:51,720 --> 00:17:53,919 Speaker 1: like the media or the trimmed mean, it sends a 275 00:17:54,000 --> 00:17:58,320 Speaker 1: much more reassuring message that, um, you know, this is 276 00:17:58,720 --> 00:18:02,840 Speaker 1: narrowly based. Now, that doesn't mean that people don't uh. 277 00:18:03,520 --> 00:18:05,400 Speaker 1: Powell's point that I'm sure he's gonna have to say 278 00:18:05,400 --> 00:18:07,960 Speaker 1: it again this uh this morning, is that it's not 279 00:18:08,040 --> 00:18:10,480 Speaker 1: that people don't spend money on youth cars and gas 280 00:18:11,119 --> 00:18:14,880 Speaker 1: uh and airfares. It's just that when we look when 281 00:18:14,920 --> 00:18:17,919 Speaker 1: we try and think about inflation developments, uh, you know, 282 00:18:18,119 --> 00:18:20,360 Speaker 1: as we get into the winter and on into next year, 283 00:18:20,720 --> 00:18:23,840 Speaker 1: should we expect this to persist? And if not, then 284 00:18:23,880 --> 00:18:27,159 Speaker 1: reacting to it now doesn't make much sense. From the 285 00:18:27,200 --> 00:18:28,720 Speaker 1: FEDS point of view, but it is you know, look, 286 00:18:28,720 --> 00:18:32,000 Speaker 1: it's a real um hit to consumers purchasing power. And 287 00:18:32,000 --> 00:18:35,080 Speaker 1: that's there's no if sands or buds about that. Mike. 288 00:18:35,160 --> 00:18:37,920 Speaker 1: Let's set the scene. We're in a hotel bar yesterday 289 00:18:37,960 --> 00:18:41,400 Speaker 1: afternoon and with Mr Tom Keane here in New York City. 290 00:18:41,440 --> 00:18:44,760 Speaker 1: He's there pontificating about guess what inflation? And I see 291 00:18:44,800 --> 00:18:47,239 Speaker 1: the rack of newspapers, the snack of newspapers piled up 292 00:18:47,240 --> 00:18:49,360 Speaker 1: in the hotel front page? Tom, what did? I point 293 00:18:49,400 --> 00:18:51,760 Speaker 1: to the New York Post, the front page in the 294 00:18:51,800 --> 00:18:54,160 Speaker 1: New York Post, and it said the incredible shrinking dollar? 295 00:18:54,560 --> 00:18:57,199 Speaker 1: And I do wander from a consumer's perspective right now 296 00:18:57,200 --> 00:18:59,879 Speaker 1: when they're confronted with that, Mike. Every time we have 297 00:19:00,040 --> 00:19:03,200 Speaker 1: inflation print, they're not reading your research, they're not listening 298 00:19:03,200 --> 00:19:05,720 Speaker 1: to make the majority of this country is seeing headlines 299 00:19:05,880 --> 00:19:09,760 Speaker 1: like that one. What does that mean for expectations? Well, 300 00:19:09,800 --> 00:19:13,600 Speaker 1: I think for for it weighs on expectations actually, and 301 00:19:13,600 --> 00:19:16,959 Speaker 1: there's a lot of solid research that shows that, you know, 302 00:19:17,240 --> 00:19:20,760 Speaker 1: higher inflation expectations actually make consumers spend less, which is 303 00:19:20,760 --> 00:19:25,200 Speaker 1: contrary to economic theory. I would say the more comforting 304 00:19:25,240 --> 00:19:30,880 Speaker 1: thing is that so far, surveys of consumers inflation expectations 305 00:19:30,920 --> 00:19:35,399 Speaker 1: beyond the one year horizon have basically just returned to 306 00:19:35,760 --> 00:19:40,399 Speaker 1: levels they were prior to the pandemic. Uh so, you know, 307 00:19:40,480 --> 00:19:43,119 Speaker 1: longer run, even the you know man on the street 308 00:19:43,560 --> 00:19:47,760 Speaker 1: apparently has not really changed their longer run view of 309 00:19:47,760 --> 00:19:50,480 Speaker 1: how inflation developments are likely to play out. And so 310 00:19:50,560 --> 00:19:54,200 Speaker 1: that should matter for you know thing thinking about price 311 00:19:54,240 --> 00:19:57,960 Speaker 1: setting and wage setting and wage demands. So far, it's 312 00:19:58,000 --> 00:20:02,560 Speaker 1: not really um. Consumers are understanding apparently that, just as 313 00:20:02,600 --> 00:20:07,040 Speaker 1: the market and professional forecasters apparently are also understanding that, uh, 314 00:20:07,240 --> 00:20:10,080 Speaker 1: what happens this year is not a strong signal of 315 00:20:10,080 --> 00:20:11,919 Speaker 1: what we should expect next year of the year beyond 316 00:20:12,240 --> 00:20:13,960 Speaker 1: at that point, Mike, I think is so important and 317 00:20:14,040 --> 00:20:16,840 Speaker 1: Tom weighing on this the discussion that we have every 318 00:20:16,840 --> 00:20:19,160 Speaker 1: single day on these dynamics, it's just not the discussion 319 00:20:19,200 --> 00:20:21,720 Speaker 1: that I don't think the rest of his country happened 320 00:20:21,720 --> 00:20:24,680 Speaker 1: at having. And I think that expectations component is something 321 00:20:24,680 --> 00:20:26,760 Speaker 1: we've got to be laser focused on through the next 322 00:20:26,800 --> 00:20:30,720 Speaker 1: several months. The expectations component is out of control. You 323 00:20:30,760 --> 00:20:33,400 Speaker 1: see it everywhere. I love what Michael McKee John said 324 00:20:33,440 --> 00:20:37,160 Speaker 1: about the Empire Index out of Buffalo, New York. It's 325 00:20:37,200 --> 00:20:40,199 Speaker 1: not an elite three zip code series. It's something that 326 00:20:40,240 --> 00:20:42,760 Speaker 1: really talks about a regional pulse. When he talked about 327 00:20:42,840 --> 00:20:44,480 Speaker 1: policy too, So let's build on that, Mike. Just to 328 00:20:44,480 --> 00:20:47,000 Speaker 1: wrap things up for the Federal Reserve, Mike McKee asked 329 00:20:47,000 --> 00:20:50,359 Speaker 1: this question, and he repeatedly asks it. What do we 330 00:20:50,400 --> 00:20:52,840 Speaker 1: get for a hundred and twenty billion every single month? 331 00:20:52,880 --> 00:20:54,840 Speaker 1: And can we get the same thing for less? What 332 00:20:54,880 --> 00:20:58,359 Speaker 1: would your answer be to that, Mike, Well, if we 333 00:20:58,480 --> 00:21:00,959 Speaker 1: get there, if we if we go less sooner than 334 00:21:01,000 --> 00:21:03,000 Speaker 1: the market expects, I think what we would get is 335 00:21:03,040 --> 00:21:06,359 Speaker 1: a tightening of financial conditions. I think you see that. 336 00:21:06,480 --> 00:21:11,119 Speaker 1: The way the market is uh is, you know, completely 337 00:21:11,280 --> 00:21:14,440 Speaker 1: attuned to every word. Powell said, So there's a billion 338 00:21:14,480 --> 00:21:16,960 Speaker 1: dollars the right number. No, they kind of arrived at 339 00:21:16,960 --> 00:21:20,840 Speaker 1: it by accident last summer or by you know, experiment. 340 00:21:20,920 --> 00:21:23,760 Speaker 1: Let's say, um, so that might not be the right number. 341 00:21:23,800 --> 00:21:26,480 Speaker 1: But if they were to dial that back to a 342 00:21:26,560 --> 00:21:30,439 Speaker 1: hundred and nineteen tomorrow, you can be quite assured that 343 00:21:30,480 --> 00:21:35,240 Speaker 1: the market would would react in a very negative way 344 00:21:35,280 --> 00:21:38,919 Speaker 1: for financial conditions that affect households and businesses across the country. 345 00:21:39,320 --> 00:21:42,000 Speaker 1: Froni Jpman, Mike always going to see it. Thank you, 346 00:21:42,119 --> 00:21:44,720 Speaker 1: Michael Frondi at J p In, the chief US economist. 347 00:21:52,119 --> 00:21:54,960 Speaker 1: This is a joy. There are so many negative stories 348 00:21:55,000 --> 00:21:58,760 Speaker 1: about asset management. Woe is me, this and that and 349 00:21:58,840 --> 00:22:02,280 Speaker 1: the other. Is used to talk about a huge success, 350 00:22:02,840 --> 00:22:04,520 Speaker 1: own a piece of the rock, and you know it 351 00:22:04,560 --> 00:22:08,639 Speaker 1: well from Prudential, their iconic effort across American finance. In 352 00:22:10,440 --> 00:22:13,159 Speaker 1: and out of that. He has become pigeon p G. 353 00:22:13,520 --> 00:22:17,639 Speaker 1: I am Eric Schatzker here with a spirited conversation with 354 00:22:17,720 --> 00:22:22,000 Speaker 1: a CEO taking a victory lap. At right, Eric, Tom absolutely, 355 00:22:22,160 --> 00:22:26,040 Speaker 1: and that CEO is David Hunt. David, it's always a 356 00:22:26,040 --> 00:22:28,399 Speaker 1: delight to have you with us on Bloomberg Television and 357 00:22:28,440 --> 00:22:31,520 Speaker 1: Bloomberg Radio. Good morning, Good morning to you. Eric. It's 358 00:22:31,560 --> 00:22:34,240 Speaker 1: great to be back with you, David. We heard it 359 00:22:34,280 --> 00:22:37,159 Speaker 1: from J. Powell himself, and no down. He'll say the 360 00:22:37,280 --> 00:22:42,359 Speaker 1: same again today. Too early to pull back on monetary stimulus. 361 00:22:42,440 --> 00:22:47,400 Speaker 1: Let's translate what that means for investors for financial markets. 362 00:22:47,440 --> 00:22:51,600 Speaker 1: As someone who speaks for one point five trillion dollars, 363 00:22:51,680 --> 00:22:55,000 Speaker 1: David is now still a good time to be taking 364 00:22:55,119 --> 00:22:59,440 Speaker 1: risk or is now a time to get cautious. Well, 365 00:22:59,560 --> 00:23:03,480 Speaker 1: first few comments on the chairman's remarks yesterday, and I 366 00:23:03,520 --> 00:23:06,840 Speaker 1: do think you'll say exactly the same thing today. Um, 367 00:23:06,880 --> 00:23:11,159 Speaker 1: without any doubt. The place to look is the labor market. 368 00:23:11,680 --> 00:23:14,920 Speaker 1: There is all this noise about the monthly CPI in 369 00:23:15,000 --> 00:23:17,320 Speaker 1: this needs to come out. I would encourage your viewers 370 00:23:17,359 --> 00:23:19,560 Speaker 1: not to spend a lot of time on that. All 371 00:23:19,640 --> 00:23:22,680 Speaker 1: of the action is around the labor market and that's 372 00:23:22,720 --> 00:23:24,600 Speaker 1: what you need to do to understand the direction to 373 00:23:24,640 --> 00:23:28,760 Speaker 1: the Fed and to understand inflation. So in the direction 374 00:23:28,800 --> 00:23:31,600 Speaker 1: of the Fed, what's very clear, and they've been they've 375 00:23:31,640 --> 00:23:34,040 Speaker 1: been very consistent on this has been until we have 376 00:23:34,480 --> 00:23:37,040 Speaker 1: a lot more job creation in this country and we 377 00:23:37,080 --> 00:23:40,520 Speaker 1: see unemployment going back down, they are not gonna move 378 00:23:40,560 --> 00:23:44,440 Speaker 1: on rates. So watching that growth of jobs is the 379 00:23:44,480 --> 00:23:49,439 Speaker 1: most important place to focus. And then secondly is how 380 00:23:49,520 --> 00:23:54,160 Speaker 1: the actual employment marketplace works. It's too early to tell, 381 00:23:54,600 --> 00:23:57,119 Speaker 1: but it will be very interesting to see whether or 382 00:23:57,119 --> 00:24:00,240 Speaker 1: not we do get a rise in wages because it's 383 00:24:00,320 --> 00:24:04,960 Speaker 1: hard to learn workers back, or or will we see 384 00:24:05,000 --> 00:24:08,920 Speaker 1: that actually employers have made significant advancements, they don't need 385 00:24:08,960 --> 00:24:12,119 Speaker 1: as many workers and actually the rise of automation is 386 00:24:12,160 --> 00:24:16,000 Speaker 1: going to keep UH wages down. Both of those I 387 00:24:16,040 --> 00:24:19,040 Speaker 1: think are plausible at this point, but we're watching very 388 00:24:19,119 --> 00:24:21,720 Speaker 1: carefully to see which one, because what we do know 389 00:24:22,440 --> 00:24:24,600 Speaker 1: is that if we're going to go back to higher 390 00:24:24,720 --> 00:24:28,880 Speaker 1: long term inflation, those wages will need to rise. We've 391 00:24:28,920 --> 00:24:31,840 Speaker 1: never seen it happen without that. Our view at the 392 00:24:31,920 --> 00:24:36,919 Speaker 1: moment is that the inflation levels are transitory. We agree 393 00:24:36,960 --> 00:24:39,560 Speaker 1: with the FED, and we think their stance is very 394 00:24:39,560 --> 00:24:43,760 Speaker 1: appropriate given the stage of the economic recovery, David, The 395 00:24:43,880 --> 00:24:49,120 Speaker 1: debate over the timing of a taper is intensifying inside 396 00:24:49,160 --> 00:24:52,280 Speaker 1: the Central Bank. St. Louis FED President Jim Bullard told 397 00:24:52,359 --> 00:24:56,080 Speaker 1: Mike McKee right here this morning, it's time to end 398 00:24:56,320 --> 00:25:00,560 Speaker 1: these emergency measures. How soon do you think the FED 399 00:25:00,600 --> 00:25:03,840 Speaker 1: should slow its bond purchases from a hundred twenty billion 400 00:25:03,840 --> 00:25:07,480 Speaker 1: dollars a month, So that goes back to what I'm 401 00:25:07,520 --> 00:25:10,800 Speaker 1: watching closely. That will depend very much, I think, on 402 00:25:10,920 --> 00:25:14,440 Speaker 1: the employment picture and how quickly that picks up. If 403 00:25:14,480 --> 00:25:17,960 Speaker 1: we have very strong job numbers and we begin to 404 00:25:18,080 --> 00:25:21,480 Speaker 1: see wages beginning to rise, that I think we could 405 00:25:21,480 --> 00:25:26,160 Speaker 1: easily enter into talks about talk starting UH in Jackson 406 00:25:26,240 --> 00:25:29,760 Speaker 1: Hole and then actually the fourth quarter here beginning to 407 00:25:29,840 --> 00:25:33,879 Speaker 1: be some kind of tapering. If, however, those employment numbers 408 00:25:33,920 --> 00:25:36,560 Speaker 1: are much weaker than I've just projected, then I think 409 00:25:36,600 --> 00:25:40,479 Speaker 1: we're looking at before that begins to happen. But I 410 00:25:40,520 --> 00:25:43,440 Speaker 1: think that that labor picture is the piece to focus 411 00:25:43,480 --> 00:25:46,520 Speaker 1: on to really understand where they're gonna come out. David, 412 00:25:46,520 --> 00:25:48,520 Speaker 1: when you look at the S and P five of 413 00:25:48,640 --> 00:25:52,520 Speaker 1: almost seventeen percent year to date as a proxy for 414 00:25:52,640 --> 00:25:57,679 Speaker 1: risk assets, and the Schiller pe ratio pushing higher and 415 00:25:57,840 --> 00:26:02,840 Speaker 1: higher now at thirty eight times, what signal are those 416 00:26:02,960 --> 00:26:08,360 Speaker 1: in indicators Let's call them sending to the asset allocators 417 00:26:08,359 --> 00:26:13,480 Speaker 1: who are your clients. So the dominant fact of the 418 00:26:13,520 --> 00:26:17,800 Speaker 1: investment landscape today is that it's never been more punitive 419 00:26:17,920 --> 00:26:22,040 Speaker 1: to hold cash full stop. For the last twenty four months, 420 00:26:22,080 --> 00:26:24,680 Speaker 1: that's been true certainly in the United States, but even 421 00:26:24,800 --> 00:26:29,080 Speaker 1: more true actually around around the world. And what that's 422 00:26:29,119 --> 00:26:33,360 Speaker 1: doing is driving unprecedented amounts of money out of government 423 00:26:33,400 --> 00:26:38,560 Speaker 1: bonds and into higher risk assets UM certainly including equities, 424 00:26:38,720 --> 00:26:43,000 Speaker 1: but also including a wide range of other alternative assets 425 00:26:43,440 --> 00:26:47,240 Speaker 1: UM where we see the search for yield just and testifying. 426 00:26:47,640 --> 00:26:50,840 Speaker 1: So I think what you have to believe about valuations 427 00:26:50,880 --> 00:26:54,280 Speaker 1: today is that those are supported by a view that 428 00:26:54,480 --> 00:26:57,440 Speaker 1: rates are going to stay low for longer. That's a 429 00:26:57,520 --> 00:27:00,720 Speaker 1: view that we certainly have, UM, but others have been 430 00:27:01,080 --> 00:27:04,440 Speaker 1: been pushing back hard against that and time will tell. Well, 431 00:27:04,520 --> 00:27:07,199 Speaker 1: let me go back to my first question. Then you 432 00:27:07,240 --> 00:27:09,320 Speaker 1: speak for a trillion and a half dollars, is it 433 00:27:09,400 --> 00:27:11,800 Speaker 1: time to be taking risk or time to get conscious? 434 00:27:11,840 --> 00:27:14,439 Speaker 1: It sounds to me like you're on the risk taking side, 435 00:27:15,119 --> 00:27:17,880 Speaker 1: full stop. We are. We We believe that the risk 436 00:27:17,960 --> 00:27:21,400 Speaker 1: assets are are are attractive today and we certainly are 437 00:27:21,680 --> 00:27:25,800 Speaker 1: constructive on on risks. UM. We're mindful of some places 438 00:27:25,880 --> 00:27:29,639 Speaker 1: where uh, you know, pricing is run run ahead, but broadly, 439 00:27:30,000 --> 00:27:32,439 Speaker 1: you know, there's plenty of risks in the economy. But 440 00:27:32,560 --> 00:27:35,560 Speaker 1: our base case is for the next eighteen months to 441 00:27:35,640 --> 00:27:40,200 Speaker 1: have you know, very strong economic recovery and economic performance 442 00:27:40,520 --> 00:27:43,919 Speaker 1: right across the developed world and including China. David, you 443 00:27:43,920 --> 00:27:45,760 Speaker 1: and I have talked many times about the need for 444 00:27:45,800 --> 00:27:50,240 Speaker 1: consolidation in asset management. Earlier this week, Pigeon announced a 445 00:27:50,280 --> 00:27:55,120 Speaker 1: small purchase a Swiss private equity secondaries firm called Montana Capital. 446 00:27:55,320 --> 00:27:58,399 Speaker 1: Is that the extent of the deal making we'll see 447 00:27:58,440 --> 00:28:02,639 Speaker 1: from you small bolt On. So let me put this 448 00:28:02,760 --> 00:28:04,760 Speaker 1: a little bit in perspective in our terms of our 449 00:28:04,800 --> 00:28:08,879 Speaker 1: broader alternative strategy here, so we manage about two d 450 00:28:09,040 --> 00:28:12,959 Speaker 1: and fifty billion in alternatives of across both public and private. 451 00:28:13,200 --> 00:28:16,919 Speaker 1: Were the third largest alternatives firm UH in the world. 452 00:28:17,440 --> 00:28:20,600 Speaker 1: Mostly for us that's been a very leading real estate 453 00:28:20,640 --> 00:28:24,040 Speaker 1: business and a private credit business, but we've been seeing 454 00:28:24,080 --> 00:28:27,119 Speaker 1: a lot of money going into alternatives over the last 455 00:28:27,200 --> 00:28:29,439 Speaker 1: four or five years, and we've been working closely with 456 00:28:29,480 --> 00:28:34,439 Speaker 1: our clients on on their alternative strategies. One thing's become 457 00:28:34,640 --> 00:28:38,320 Speaker 1: very clear from their perspective is that they feel that 458 00:28:38,360 --> 00:28:42,280 Speaker 1: they need more liquidity for their private equity portfolios and 459 00:28:42,320 --> 00:28:46,080 Speaker 1: increasingly now we're real estate and private credit, and what 460 00:28:46,360 --> 00:28:50,800 Speaker 1: secondaries do is allow them to actually swap out their 461 00:28:50,960 --> 00:28:55,000 Speaker 1: LP interests. So this is bringing liquidity to the private 462 00:28:55,000 --> 00:28:59,240 Speaker 1: equity industry, and that is we see at very kind 463 00:28:59,240 --> 00:29:02,880 Speaker 1: of early stage ages but rapid demand in that and 464 00:29:03,000 --> 00:29:07,160 Speaker 1: so we are delighted to welcome UH Montana Capital Partners 465 00:29:07,160 --> 00:29:10,480 Speaker 1: to the Pigim family. It's a very high class firm 466 00:29:10,520 --> 00:29:12,960 Speaker 1: that's been around for a decade and has a terrific 467 00:29:13,040 --> 00:29:16,479 Speaker 1: investment capability and we believe that they're going to be 468 00:29:16,640 --> 00:29:20,240 Speaker 1: really critical to meeting the needs our clients have for 469 00:29:20,280 --> 00:29:24,960 Speaker 1: finding more ways to provide liquidity into their private equity portfolio. David, 470 00:29:25,000 --> 00:29:29,280 Speaker 1: Why just secondaries? Right? The money is pouring into buyouts. 471 00:29:29,320 --> 00:29:32,120 Speaker 1: Look at Hellman and Friedman. They raised twenty four billion 472 00:29:32,160 --> 00:29:36,640 Speaker 1: dollars for a single fund that's news out today. Why 473 00:29:36,680 --> 00:29:41,920 Speaker 1: isn't page In participating in primary private equity? So we 474 00:29:42,000 --> 00:29:44,440 Speaker 1: certainly have spent time looking at that, but in truth, 475 00:29:44,640 --> 00:29:48,240 Speaker 1: we don't see what we bring that is special to 476 00:29:48,440 --> 00:29:53,840 Speaker 1: that particular area. The world does not need another kkr UM. 477 00:29:53,920 --> 00:29:57,760 Speaker 1: What we think we bring is a unique investment capability 478 00:29:57,760 --> 00:30:02,920 Speaker 1: and an institutionalized capability in secondaries, now with with Montana, 479 00:30:03,320 --> 00:30:09,200 Speaker 1: where we can actually build a fundamentally differentiated franchise. So 480 00:30:09,320 --> 00:30:12,360 Speaker 1: I applaud the leaders in private equity. I think that 481 00:30:12,440 --> 00:30:15,240 Speaker 1: they've done a wonderful job, as you and I've talked 482 00:30:15,240 --> 00:30:18,240 Speaker 1: about before. I think that's going to continue to grow um. 483 00:30:18,240 --> 00:30:21,440 Speaker 1: But for us, we wanted to have a distinctive capability 484 00:30:21,800 --> 00:30:26,240 Speaker 1: where we could actually build an institutionalized investment process that 485 00:30:26,280 --> 00:30:29,440 Speaker 1: would directly speak to what our clients need today. David, 486 00:30:29,480 --> 00:30:31,959 Speaker 1: one last quick question for you can't help but notice 487 00:30:31,960 --> 00:30:35,840 Speaker 1: the enormous E s G business you're building inside PGIM 488 00:30:35,880 --> 00:30:39,720 Speaker 1: it comes with some risks. I might say, how big 489 00:30:39,720 --> 00:30:45,480 Speaker 1: a problem David is greenwashing in sustainable investing? You know, 490 00:30:45,600 --> 00:30:48,720 Speaker 1: I think Eric, it's a it's a major problem. Um. 491 00:30:48,760 --> 00:30:51,840 Speaker 1: There is so much kind of marketing spin around E 492 00:30:52,080 --> 00:30:55,760 Speaker 1: s G now that sometimes it's hard to separate the 493 00:30:55,760 --> 00:30:58,840 Speaker 1: week from the jaff and I think that, Uh, the 494 00:30:59,040 --> 00:31:02,280 Speaker 1: big question that I would encourage all of your viewers 495 00:31:02,320 --> 00:31:06,000 Speaker 1: to ask their asset managers is to what extent is 496 00:31:06,120 --> 00:31:10,440 Speaker 1: E s G fundamentally grounded in your investment process. So 497 00:31:10,600 --> 00:31:13,760 Speaker 1: it can't be a screen, it can't be a separate overlay. 498 00:31:13,840 --> 00:31:16,360 Speaker 1: It needs to be part of how you manage money 499 00:31:16,400 --> 00:31:18,840 Speaker 1: on a day to day basis. So every bond that 500 00:31:18,880 --> 00:31:21,520 Speaker 1: we own has an E s G rating on it, 501 00:31:21,800 --> 00:31:24,880 Speaker 1: Every stock we own in our quant portfolios has an 502 00:31:24,880 --> 00:31:28,040 Speaker 1: E s G rating, and we use that both to 503 00:31:28,200 --> 00:31:31,560 Speaker 1: make sure we're fulfilling our fiduciary duty to clients and 504 00:31:31,600 --> 00:31:35,720 Speaker 1: considering those risks, and to then offer products that allow 505 00:31:35,960 --> 00:31:39,400 Speaker 1: our clients to express how they want to invest in 506 00:31:39,480 --> 00:31:42,040 Speaker 1: E s G. But if you don't start with that 507 00:31:42,080 --> 00:31:46,240 Speaker 1: foundation of a true integration into your investment process. Then 508 00:31:46,320 --> 00:31:48,840 Speaker 1: you're really just on a marketing campaign, and that's the 509 00:31:48,880 --> 00:31:50,720 Speaker 1: thing to look for. David don't want to thank you 510 00:31:50,800 --> 00:31:53,120 Speaker 1: very much for spending time here with me and the 511 00:31:53,160 --> 00:31:56,880 Speaker 1: rest of us at Bloombick Television and Radio. David Hunt 512 00:31:57,120 --> 00:31:59,840 Speaker 1: is the CEO of PACHM. Tom Eric, thank you so much. Erch. 513 00:32:00,000 --> 00:32:02,640 Speaker 1: That's good. There an important interview, a successful story in 514 00:32:02,840 --> 00:32:12,600 Speaker 1: asset management. Right now with the summary of what we've 515 00:32:12,640 --> 00:32:15,920 Speaker 1: seen Allison Williams Bloomberg Intelligence and Allison, what I think 516 00:32:16,000 --> 00:32:18,080 Speaker 1: is so important here is the view out. We're focused 517 00:32:18,120 --> 00:32:21,960 Speaker 1: on the minutia right now. Were these institutions on July fifteen, 518 00:32:22,280 --> 00:32:25,720 Speaker 1: two thousand, twenty six. They're in great shape and it's 519 00:32:25,760 --> 00:32:28,560 Speaker 1: really a solid quarter. So we have seen most of 520 00:32:28,560 --> 00:32:31,600 Speaker 1: the stocks trade off. Um, but you know, it's it's 521 00:32:31,600 --> 00:32:35,320 Speaker 1: about expectations and uh, you know, one percent after a 522 00:32:35,400 --> 00:32:37,520 Speaker 1: huge move is not something that I would get overly 523 00:32:37,600 --> 00:32:40,640 Speaker 1: upset about. Um. You know, we look at Morgan Stanley's 524 00:32:40,680 --> 00:32:43,720 Speaker 1: results today and we see strength across the board. The 525 00:32:43,760 --> 00:32:45,800 Speaker 1: one week spot and the one thing people might be 526 00:32:45,840 --> 00:32:47,960 Speaker 1: a little bit worried about is the equities trading line. 527 00:32:48,040 --> 00:32:50,720 Speaker 1: It's just a time. I guess gray hair is just 528 00:32:50,760 --> 00:32:52,680 Speaker 1: flowing in here, Allison, just because of the time. I 529 00:32:52,720 --> 00:32:54,200 Speaker 1: want to get to because I know John and Lisa 530 00:32:54,440 --> 00:32:56,960 Speaker 1: have some important question. James Diamond a couple of years 531 00:32:57,000 --> 00:32:59,840 Speaker 1: ago said, look, all we do is hard work. What 532 00:33:00,240 --> 00:33:04,560 Speaker 1: is the hard work for the American banks to succeed internationally? 533 00:33:05,080 --> 00:33:08,640 Speaker 1: I think the hard work is really the investments, right, 534 00:33:08,720 --> 00:33:12,280 Speaker 1: So on the ground building the business these banks. You know, 535 00:33:12,480 --> 00:33:16,040 Speaker 1: there's a difference between buying and building, and JP Morgan 536 00:33:16,200 --> 00:33:18,200 Speaker 1: is doing a little bit of both. And to your point, 537 00:33:18,760 --> 00:33:21,400 Speaker 1: going international is something that's new for them. On the 538 00:33:21,440 --> 00:33:24,600 Speaker 1: retail they're obviously a huge global bank. On the institutional 539 00:33:24,640 --> 00:33:27,000 Speaker 1: side of things, they bought this little business in the 540 00:33:27,120 --> 00:33:29,720 Speaker 1: UK and I think we're going to see that built 541 00:33:29,720 --> 00:33:33,280 Speaker 1: out over the next couple of years. And it is 542 00:33:33,320 --> 00:33:36,600 Speaker 1: I think he said something like, uh, blood spit and 543 00:33:36,640 --> 00:33:39,800 Speaker 1: gravel um in in one of his recent shocks at 544 00:33:39,840 --> 00:33:43,400 Speaker 1: the conferences. That's Shakespearean John, blood spin and what was 545 00:33:43,640 --> 00:33:47,720 Speaker 1: gravel's that's a slogan for the tight extra for blood 546 00:33:47,760 --> 00:33:51,840 Speaker 1: spitting gravel over Morgan Stanley till it's and it's really 547 00:33:51,880 --> 00:33:54,560 Speaker 1: it's it's the it's the war on technology, you know, 548 00:33:54,720 --> 00:33:57,120 Speaker 1: So we know that the banks have money and they're 549 00:33:57,160 --> 00:33:59,280 Speaker 1: spending it. It's hard to see what the return on 550 00:33:59,360 --> 00:34:02,520 Speaker 1: investment is today, UM, but I think that's where they're 551 00:34:02,520 --> 00:34:04,560 Speaker 1: doing a tough work. Allison, how important is it that 552 00:34:04,600 --> 00:34:07,880 Speaker 1: Morgan Stanley showed an increase in interest income and lending 553 00:34:08,000 --> 00:34:10,919 Speaker 1: sort of a contrary to what we saw at other banks. 554 00:34:10,960 --> 00:34:14,120 Speaker 1: So I think that's a positive. But for them, it's 555 00:34:14,200 --> 00:34:16,520 Speaker 1: it's UM perhaps a smaller part of the business. It 556 00:34:16,680 --> 00:34:20,280 Speaker 1: is part of their wealth business, which is UM overall 557 00:34:20,360 --> 00:34:24,120 Speaker 1: a big, a big unit. But I think that UM 558 00:34:24,160 --> 00:34:27,360 Speaker 1: what investors might be looking at UH is the equity 559 00:34:27,360 --> 00:34:29,360 Speaker 1: trading line. We know that they're the biggest and equity 560 00:34:29,400 --> 00:34:32,879 Speaker 1: trading all the banks beat, Morgan Stanley beat, but perhaps 561 00:34:32,920 --> 00:34:35,480 Speaker 1: a little bit higher bar coming into the earnings and 562 00:34:35,560 --> 00:34:37,440 Speaker 1: sort of the eight percent growth looks a little bit 563 00:34:37,480 --> 00:34:41,600 Speaker 1: modest compared to peers, And the question maybe after last 564 00:34:41,680 --> 00:34:44,160 Speaker 1: quarter or what we saw with Articos, are there some 565 00:34:44,280 --> 00:34:46,880 Speaker 1: changes that are making an impact. They did say in 566 00:34:46,920 --> 00:34:50,360 Speaker 1: their statement that prime brokerage was a help. We know 567 00:34:50,440 --> 00:34:53,360 Speaker 1: that JP Morgan and More and JP Morgan and Goldman 568 00:34:53,440 --> 00:34:56,680 Speaker 1: had record prime balances back American City Group we think 569 00:34:56,680 --> 00:35:00,239 Speaker 1: are gaining share. They had really strong growth, although a 570 00:35:00,239 --> 00:35:03,640 Speaker 1: little bit easier comparisons, and so that's I think really 571 00:35:03,680 --> 00:35:08,600 Speaker 1: the one UM thing that investors may complain about. UM. Otherwise, 572 00:35:08,719 --> 00:35:12,359 Speaker 1: flows looking really good. Some slow down from the last quarter, 573 00:35:12,440 --> 00:35:14,880 Speaker 1: but that that should be expected. Ellison, we take a 574 00:35:14,880 --> 00:35:18,240 Speaker 1: step back. The big five US banks have reported already, 575 00:35:18,320 --> 00:35:20,680 Speaker 1: and we have been talking about taking market share, as 576 00:35:20,680 --> 00:35:23,680 Speaker 1: you talked about from the likes of say that Zurich Bank, 577 00:35:23,960 --> 00:35:27,759 Speaker 1: that Jeffreys actually just Warnts may disappoint after the talent rain. 578 00:35:28,280 --> 00:35:31,880 Speaker 1: How much have the US banks gained share and which 579 00:35:31,880 --> 00:35:34,839 Speaker 1: banks are the main gainers that I mean, I think 580 00:35:34,880 --> 00:35:38,160 Speaker 1: that has been the story of the last decade, and 581 00:35:38,360 --> 00:35:43,319 Speaker 1: the biggest beneficiaries have been Morgan Stanley, Goldman Sachs and 582 00:35:43,920 --> 00:35:47,840 Speaker 1: JP Morgan. And in fact, equities trading has been a 583 00:35:47,960 --> 00:35:51,400 Speaker 1: key area for the banks um, but also fixed income trading, 584 00:35:51,440 --> 00:35:54,040 Speaker 1: and and Morgan Stanley, even though we talk about equities, 585 00:35:54,239 --> 00:35:56,200 Speaker 1: you know, they've been one of the biggest gainers there 586 00:35:56,239 --> 00:36:00,000 Speaker 1: over time. And so these three the leaders have actually 587 00:36:00,000 --> 00:36:03,760 Speaker 1: have been consolidating share, especially within the cash equities business. 588 00:36:04,080 --> 00:36:06,879 Speaker 1: Prime brokerage is a business where again the banks were 589 00:36:06,880 --> 00:36:09,839 Speaker 1: beneficiaries when Deutsche Bank did their step back a few 590 00:36:09,960 --> 00:36:13,840 Speaker 1: years ago. In the current environment again, Credit Suite is 591 00:36:13,880 --> 00:36:17,480 Speaker 1: making a more dramatic pullback. Um they've specifically said they're 592 00:36:17,520 --> 00:36:20,040 Speaker 1: gonna be cutting their balance sheet there, and so we 593 00:36:20,080 --> 00:36:23,239 Speaker 1: think that the banks are benefiting not just in prime brokerage, 594 00:36:23,239 --> 00:36:26,080 Speaker 1: but through sort of knock on risks, as we call them, 595 00:36:26,400 --> 00:36:28,560 Speaker 1: cash equities again as an area, we think they're going 596 00:36:28,600 --> 00:36:32,160 Speaker 1: to be gaining. Bank of American City Group have also gained, 597 00:36:32,280 --> 00:36:35,040 Speaker 1: but we think that this is now really the opportunity 598 00:36:35,080 --> 00:36:36,839 Speaker 1: for them because the other three are already so big, 599 00:36:36,880 --> 00:36:40,280 Speaker 1: and City Group lifted base salaries to a hundred thousand 600 00:36:40,320 --> 00:36:43,200 Speaker 1: for first year analysts that don't know one tenth of 601 00:36:43,239 --> 00:36:47,399 Speaker 1: what Ellison Williams knows. Another sentence, black Rock to lift 602 00:36:47,440 --> 00:36:51,759 Speaker 1: compensation eight percent. Oh it's terrible. Come on, this is 603 00:36:51,800 --> 00:36:54,600 Speaker 1: a rounding here for their income statement, isn't it. It's 604 00:36:54,640 --> 00:36:57,520 Speaker 1: a it's a very small impact, but thank you. But 605 00:36:57,560 --> 00:36:59,600 Speaker 1: I think you are hitting on. I think that the 606 00:36:59,640 --> 00:37:01,799 Speaker 1: big that we're going to be focusing on coming out 607 00:37:01,800 --> 00:37:04,560 Speaker 1: of this quarter, and that is the cost line. I 608 00:37:04,600 --> 00:37:07,480 Speaker 1: think that's that's really what investors have been reacting to. 609 00:37:07,880 --> 00:37:10,920 Speaker 1: We've had. JP Morgan has guided up about five billion 610 00:37:10,960 --> 00:37:14,239 Speaker 1: since early December and one billion dollar increments. City Group 611 00:37:14,320 --> 00:37:17,000 Speaker 1: is up upping their guidance which they set as investments. 612 00:37:17,000 --> 00:37:20,040 Speaker 1: We view that more positively than these sort of transformation costs. 613 00:37:20,320 --> 00:37:22,439 Speaker 1: As we said, banks need to invest for the long 614 00:37:22,520 --> 00:37:26,319 Speaker 1: term sort of ignore the short term noise. But the 615 00:37:26,400 --> 00:37:32,880 Speaker 1: questions pay six for young Turks is going to affect 616 00:37:33,120 --> 00:37:37,560 Speaker 1: their core ratios. So not not that specifically, but I 617 00:37:37,600 --> 00:37:40,919 Speaker 1: think overall. I think over all the banks are spending more, 618 00:37:40,960 --> 00:37:43,720 Speaker 1: and we do wonder so two things. We have higher 619 00:37:43,719 --> 00:37:46,160 Speaker 1: costs across the banks. How much of that is inflation? 620 00:37:46,440 --> 00:37:48,600 Speaker 1: How much of it is the cost to compete, so 621 00:37:48,880 --> 00:37:51,880 Speaker 1: in terms of compensation, because the banks don't just compete 622 00:37:51,880 --> 00:37:54,319 Speaker 1: with each other, they are competing with hedge funds, are 623 00:37:54,320 --> 00:37:59,120 Speaker 1: competing with tech firms. And then secondly, um, so it's 624 00:37:59,160 --> 00:38:02,040 Speaker 1: the cost to compete. And then you know in businesses 625 00:38:02,080 --> 00:38:03,960 Speaker 1: like credit card, is it going to cost them more? 626 00:38:04,120 --> 00:38:07,840 Speaker 1: They're just gonna be money. Chanel, Right, Lisa, you know 627 00:38:07,840 --> 00:38:12,000 Speaker 1: about now better than I do. Tom come morning, Thank you, 628 00:38:14,200 --> 00:38:19,400 Speaker 1: It's gonna catch up. handsOn Williams. Thanks animists. This is 629 00:38:19,440 --> 00:38:23,439 Speaker 1: the Bloomberg Surveillance Podcast. Thanks for listening. Join us live 630 00:38:23,600 --> 00:38:27,360 Speaker 1: weekdays from seven to ten am Eastern on Bloomberg Radio 631 00:38:27,560 --> 00:38:31,200 Speaker 1: and on Bloomberg Television each day from six to nine 632 00:38:31,239 --> 00:38:35,640 Speaker 1: am for insight from the best in economics, finance, investment, 633 00:38:35,800 --> 00:38:40,840 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 634 00:38:40,920 --> 00:38:44,719 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on 635 00:38:44,840 --> 00:38:48,960 Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg