WEBVTT - Surveillance: Expect Deceleration, Hatzius Says 0:00:05.120 --> 0:00:09.320 Welcome to the Bloomberg Surveillance Podcast Hometown Keene. Along with 0:00:09.440 --> 0:00:13.200 Jonathan Ferrill and Lisa A. Brownwitz Jayleie, we bring you 0:00:13.320 --> 0:00:18.640 insight from the best and economics, finance, investment and international relations, 0:00:18.960 --> 0:00:23.840 Fine Bloomberg Surveillance, an Apple podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:29.600 and of course on the Bloomberg terminal. Early this week, 0:00:29.680 --> 0:00:32.400 one call from one economist and one team on Wall 0:00:32.440 --> 0:00:35.040 Street made a ton of headlines that came from Goldman 0:00:35.120 --> 0:00:37.159 and this was the quote from near the top of 0:00:37.200 --> 0:00:40.320 the south Side research. In the near term, a complete 0:00:40.360 --> 0:00:44.360 service sector recovery will likely require fully overcoming virus fares 0:00:44.600 --> 0:00:48.120 and returning to office work patterns, both now appear likely 0:00:48.200 --> 0:00:51.760 to take longer than we anticipated. That was Janhattis and 0:00:51.800 --> 0:00:53.840 the team over at Goldman Sax, the chief economist joins 0:00:53.880 --> 0:00:56.280 us right now and yeah, because of that, you've downgraded 0:00:56.280 --> 0:00:58.240 your forecast. Can you just walk me through this just 0:00:58.280 --> 0:01:00.480 a little bit more that agree to think to which 0:01:00.520 --> 0:01:04.760 you think we will decelerate in the coming quarters. We 0:01:04.920 --> 0:01:08.640 are looking for a pretty significant deceleration as we go 0:01:08.720 --> 0:01:12.399 into two thousand and twenty two. Right now, you know, 0:01:12.440 --> 0:01:15.080 obviously six and a half percent growth in Q two, 0:01:15.440 --> 0:01:18.559 probably more than that in Q three, But then we're 0:01:18.600 --> 0:01:21.600 at one and a half to two by the second 0:01:21.640 --> 0:01:24.920 half of two thousand and twenty two. And that's partly 0:01:25.480 --> 0:01:31.399 because the return to full utilization in the in the 0:01:31.480 --> 0:01:35.000 service sector is it's a slow process. Just one data 0:01:35.080 --> 0:01:39.440 point that I think is very important. U. The office 0:01:39.480 --> 0:01:43.280 occupancy rate in the United States is still only thirty 0:01:44.400 --> 0:01:48.760 of the pre pandemic level, and even in Texas, which 0:01:48.880 --> 0:01:53.800 is most advanced, it's only fift And this you know, 0:01:53.840 --> 0:01:56.040 I do think those numbers are going to be much 0:01:56.120 --> 0:02:00.200 higher eventually, but we're we're still it's a very slow process. US. 0:02:00.280 --> 0:02:03.800 You're one point five to trend growth. Yeah, and that 0:02:03.880 --> 0:02:05.720 was amazing just to read that one point five to 0:02:05.760 --> 0:02:09.200 two percent trend by the back end at two it's 0:02:09.200 --> 0:02:11.720 a second half of two young, you're looking for one 0:02:11.720 --> 0:02:15.040 point five to two percent GDP. Groves. Now that's the call. 0:02:15.360 --> 0:02:18.480 Help me understand how you reconcile that with your call 0:02:18.760 --> 0:02:21.440 from the Federal Reserve. How does the policy call reconcile 0:02:21.520 --> 0:02:24.359 with the growth call that you're making. Well, the policy 0:02:24.400 --> 0:02:26.840 call is that the FED is still going to be 0:02:27.000 --> 0:02:31.320 very gradual in exiting from the current policy stands, or 0:02:31.680 --> 0:02:35.400 we have tapering starting in early two thousand and twenty two, 0:02:35.520 --> 0:02:40.040 announced that the decemberform C meeting. Then a pretty gradual, 0:02:40.680 --> 0:02:45.680 you know, fifteen billion and meeting tapering pace. So it 0:02:45.680 --> 0:02:48.320 takes you until the end of two thousand twenty two 0:02:48.400 --> 0:02:51.560 until tapering is done, and then whether you get rate 0:02:51.600 --> 0:02:54.679 hikes thereafter, it's going to depend on whether the criteria 0:02:54.760 --> 0:02:58.120 that the Feds laid out are met. So what are 0:02:58.120 --> 0:03:03.480 the criteria two percent inflation, confidence that you'll be somewhat 0:03:03.520 --> 0:03:08.440 above two for a while, and full employment. When those 0:03:08.600 --> 0:03:12.200 conditions are met, they will hike. Our baseline is that 0:03:12.200 --> 0:03:15.000 that happens in late two thousand twenty three, but I 0:03:15.000 --> 0:03:18.360 think the risks are towards the later side, could slip 0:03:18.400 --> 0:03:21.680 into two thousand and twenty four, and that is, you know, 0:03:21.760 --> 0:03:24.920 somewhat later than what markets are pricing I think for 0:03:25.000 --> 0:03:27.880 all of these things. So I think it's consistent with 0:03:28.120 --> 0:03:31.120 a growth forecast that is still strong in the short 0:03:31.240 --> 0:03:35.000 term but decelerates quite a lot because of the withdrawal 0:03:35.040 --> 0:03:39.120 of fiscal stimulus and less of a boost from reopening. Okay, 0:03:39.200 --> 0:03:42.000 that said, some of the factors that you're talking about, 0:03:42.040 --> 0:03:44.840 like people getting back to the office and the delta 0:03:44.920 --> 0:03:48.040 variant will subside. Potentially, it will take a couple of 0:03:48.080 --> 0:03:50.680 months longer, but will subside. I mean, why do you 0:03:50.720 --> 0:03:53.400 disagree with City macro strategists that actually put out our 0:03:53.400 --> 0:03:57.680 report today saying that this stagflation surprise regime is tactical 0:03:57.760 --> 0:04:01.920 in nature and shouldn't last more than a couple of months. Well, 0:04:02.000 --> 0:04:06.800 I certainly agree on the the inflation side of of 0:04:06.960 --> 0:04:09.480 things that we you know, I've seen obviously a big 0:04:09.520 --> 0:04:13.160 increase in inflation, and we do think that is transitory. 0:04:13.200 --> 0:04:17.839 We have a sharp deceleration in inflation in terms of 0:04:17.880 --> 0:04:20.920 core PC, you know, we think will be below two 0:04:20.920 --> 0:04:24.279 percent for much of two thousand and twenty two. So 0:04:24.320 --> 0:04:27.520 I think on that part, we you know, we certainly 0:04:27.560 --> 0:04:29.880 have a similar view. You know. I think on the 0:04:29.920 --> 0:04:34.120 growth side, we've been very optimistic about the the rebound 0:04:34.160 --> 0:04:38.040 in growth in two thousand and twenty one basically because 0:04:38.080 --> 0:04:41.839 you've seen a massive amount of fiscal support and a 0:04:41.880 --> 0:04:45.920 big boost from reopening and those things have not quite 0:04:45.960 --> 0:04:49.120 played out yet, but they are temporary. The reopening is 0:04:49.160 --> 0:04:51.600 a is a one time boost to the growth rate 0:04:52.279 --> 0:04:54.560 and you know, permanent boost to the level. But at 0:04:54.600 --> 0:04:58.159 one time boost to the growth rate, and fiscal actually 0:04:58.240 --> 0:05:01.320 turns into a neg to have impact in two thousand 0:05:01.320 --> 0:05:04.200 and twenty two because a lot of the enormous support 0:05:04.200 --> 0:05:08.080 of two thousand twenty one isn't repeated in twenty two. Sure, 0:05:08.120 --> 0:05:11.160 we're not going to get instant trillion dollar money dumps 0:05:11.160 --> 0:05:12.920 like we got during the pandemic. It's not going to 0:05:12.960 --> 0:05:15.840 be instantaneous fiscal policy, but we're still talking about trillions 0:05:15.839 --> 0:05:18.880 of dollars in the longer term economics spending on Capitol 0:05:18.920 --> 0:05:21.680 Hill that is making progress. I know it's spread out 0:05:21.680 --> 0:05:23.240 over a long time, but how do you factor that 0:05:23.279 --> 0:05:25.200 in here? Well, I think that is the key point. 0:05:25.240 --> 0:05:27.359 That it's spread out over a long time. So the 0:05:27.440 --> 0:05:29.920 headline number is going to be very big. Let's say 0:05:29.960 --> 0:05:31.960 it's going to be three trillion dollars when all is 0:05:32.000 --> 0:05:35.040 said and done. But there are two things to consider. One, 0:05:35.760 --> 0:05:38.160 um maybe one one and a half trillion of that 0:05:38.279 --> 0:05:41.880 is going to be offset by higher taxes. And number two, 0:05:42.279 --> 0:05:45.240 it's spread over a ten year horizon, So you basically 0:05:45.240 --> 0:05:47.960 have to divide all these numbers, you know, one and 0:05:48.000 --> 0:05:50.680 a half trillion or three trillion by ten and then 0:05:50.720 --> 0:05:53.240 you're talking about something that's sort of in the one 0:05:53.279 --> 0:05:58.080 percent of GDP range and nowhere near the support that 0:05:58.160 --> 0:06:02.360 the American Rescue Plan provided for two thousand and twenty one. 0:06:02.400 --> 0:06:05.320 And what I'm most interested in in terms of the 0:06:05.400 --> 0:06:09.200 impulse to growth is what's the change from one year 0:06:09.240 --> 0:06:12.920 to the next. What do we get there? Fiscal support 0:06:13.160 --> 0:06:15.760 worth about twelve percent of GDP in two thousand and 0:06:15.800 --> 0:06:18.920 twenty one, and even with our assumption on fiscal which 0:06:18.920 --> 0:06:21.680 is actually fairly expensive, we only get four percent of 0:06:21.720 --> 0:06:24.640 GDP in two thousand twenty two. So that's an eight 0:06:24.680 --> 0:06:28.480 percentage point reduction. Now that's not an eight percentage point 0:06:28.520 --> 0:06:31.200 negative impulse, because some of this, of course is the 0:06:31.200 --> 0:06:33.760 flip side of a more normal economy, but it's still 0:06:33.760 --> 0:06:36.720 pretty sizeable negative impulse. And just quickly, just around things up, 0:06:36.720 --> 0:06:38.640 we've done a beautiful job of explaining how you think 0:06:38.680 --> 0:06:41.320 growth will decelerate in the coming years to coming quarters. 0:06:41.320 --> 0:06:43.560 Can you help me also understand how you expect their 0:06:43.600 --> 0:06:46.480 READI of inflation to decelerate as well? From the high 0:06:46.560 --> 0:06:48.400 rates we're at right now, does that persist into the 0:06:48.400 --> 0:06:51.520 new year. We don't think so, because if you look 0:06:51.560 --> 0:06:54.400 at the high rate right now and the upside surprise, 0:06:54.839 --> 0:06:58.880 it's very concentrated in a small number of areas that 0:06:59.200 --> 0:07:02.440 are very likely to be temporary. The single most important 0:07:02.440 --> 0:07:06.680 one is used cars, and the used car market is 0:07:07.200 --> 0:07:10.160 already showing some signs of relaxation. We have data on 0:07:10.240 --> 0:07:14.320 auction prices which have been going down over the last 0:07:14.360 --> 0:07:16.320 six weeks or so. That hasn't shown up in the 0:07:17.160 --> 0:07:19.600 in the CPI and PC yet, but it will show 0:07:19.680 --> 0:07:22.160 up over the next several months. And so you're going 0:07:22.200 --> 0:07:25.600 to go from positive impulse to to a negative impulse, 0:07:25.640 --> 0:07:28.200 not just neutral, but a negative impulse as you go 0:07:28.240 --> 0:07:32.520 into into next year. Other observations. I think wage pressure 0:07:32.560 --> 0:07:36.280 has been sizeable but looks quite temporary and probably related 0:07:36.320 --> 0:07:39.440 at least in part to the top up unemployment benefits 0:07:39.440 --> 0:07:43.960 which are expiring. And then lastly, inflation expectations still seem 0:07:44.080 --> 0:07:46.440 very anchored, at least for the longer term. You have 0:07:46.560 --> 0:07:48.440 always super sharp and credit cant shop with you on 0:07:48.440 --> 0:07:51.600 the WEEKI down credit growth. You're Nhancys Government Sex chief economist, 0:07:57.320 --> 0:08:00.600 look Fairy stay Street, head of mac Rice Strategy North America, 0:08:00.720 --> 0:08:04.960 joined us now lee this conversation about stagflation light just 0:08:05.000 --> 0:08:07.120 give me a pushback if you want to push back, leak, 0:08:08.160 --> 0:08:11.880 I'd love to push back. I mean stag stagflation. It's 0:08:11.920 --> 0:08:15.840 a phrase that comes up virtually every slowdown we have 0:08:16.000 --> 0:08:17.760 or if we have a high inflation print and growth 0:08:17.720 --> 0:08:21.240 is not about high people talk about stagflation. Real stagflation 0:08:21.400 --> 0:08:24.400 is really, really, really hard to get in an economy, 0:08:24.760 --> 0:08:27.000 and really the last time was probably in the seventies. 0:08:27.080 --> 0:08:29.760 But that's when you've got price controls, right, you know, 0:08:30.000 --> 0:08:33.480 because if you have a slowdown the economy, price pressures diminished. 0:08:33.559 --> 0:08:36.600 That's in a normal functioning market economy, that's what happened. 0:08:36.640 --> 0:08:39.640 So this idea of stagflation, this growth is going to 0:08:39.720 --> 0:08:41.800 be you know, let's just say north of five percent 0:08:41.920 --> 0:08:45.560 this year. We've got some reopening inflation pressures that we're seeing. Now, 0:08:45.960 --> 0:08:48.720 that's not stagflation. I mean, you can call it stag 0:08:48.800 --> 0:08:51.679 light if you want, but you're basically saying it's not stagflation. 0:08:51.720 --> 0:08:54.360 Let's call it something new that actually doesn't exist. Important 0:08:54.400 --> 0:08:56.840 to recognize where the price pressure is coming from. Is 0:08:56.880 --> 0:08:59.200 it coming from demand that's too big, or is it 0:08:59.240 --> 0:09:01.719 coming from supply constraints that could persist. How would you 0:09:01.800 --> 0:09:05.480 characterize it? Um it's a good question. Actually, I mean 0:09:05.679 --> 0:09:07.600 it's from supply you know, in my mind this is 0:09:07.640 --> 0:09:12.400 from supply constraints. Um that yes, they could persist. But listen, 0:09:12.400 --> 0:09:14.760 what what we need to do and what people aren't doing? 0:09:14.880 --> 0:09:18.480 Not even the FREED really is to work out or 0:09:18.559 --> 0:09:22.760 to to to define what's the difference between transitory and 0:09:22.840 --> 0:09:27.040 persistent right, And the difference between the two is transitory 0:09:27.080 --> 0:09:29.480 will go away on its own without the FED having 0:09:29.480 --> 0:09:32.720 to do anything. Right, price pressures will diminish, they will 0:09:32.760 --> 0:09:35.160 come back down towards two percent or maybe even below 0:09:35.520 --> 0:09:39.400 without any FED action. Persistent means that without the FED 0:09:39.440 --> 0:09:42.600 tightening and slowing the economy and reducing demand, we will 0:09:42.679 --> 0:09:46.520 have constantly rising inflation for the foreseeable future with no 0:09:46.679 --> 0:09:49.040 change in that part. That will neither shot from outside 0:09:49.200 --> 0:09:52.680 to stop inflation rising. That's not where we are. These 0:09:52.720 --> 0:09:56.760 are reopening pressures. Yes, some retailers, your restaurants, et cetera, 0:09:56.880 --> 0:09:59.719 taking the opportunity of the reopening to raise prices from 0:09:59.720 --> 0:10:02.920 where they were pre pandemic. And people are desperate to 0:10:02.960 --> 0:10:05.240 go out again, the desper to go to restaurants, etcetera. 0:10:05.440 --> 0:10:08.240 And they're paying those higher prices. Well, but that doesn't 0:10:08.240 --> 0:10:10.240 mean that they'll raise prices again next year or the 0:10:10.320 --> 0:10:13.480 year after in six months time. And that's what persistent 0:10:13.520 --> 0:10:17.600 inflation is. This is transitory lee. One of the key 0:10:17.600 --> 0:10:20.040 determining factors, as many people say, as wages. Right, if 0:10:20.040 --> 0:10:22.400 we start to see wage pressure, that could change the 0:10:22.400 --> 0:10:26.280 equation to a more persistent inflationary impulse. And I have 0:10:26.360 --> 0:10:29.320 to pair these ideas of sag inflation, light and higher 0:10:29.360 --> 0:10:32.840 wages with this statistic. The biggest US single family landlord 0:10:32.840 --> 0:10:36.920 boosted rents by eight percent nationwide just in the second quarter, 0:10:37.040 --> 0:10:39.520 giving you a sense, as have the basic costs of 0:10:39.600 --> 0:10:42.600 life going up, how much do you expect wages to 0:10:42.720 --> 0:10:45.199 have to increase? With the labor shortages and fact the 0:10:45.280 --> 0:10:48.320 fact that consumers are looking at these costs and saying 0:10:48.400 --> 0:10:50.280 I can't afford to get the same wage that I 0:10:50.320 --> 0:10:54.360 got last year. That may be the case, but are 0:10:54.360 --> 0:10:56.400 they going to get paid more? You know, when we 0:10:56.440 --> 0:10:59.160 talk about labor shortages, there are six point eight million 0:10:59.200 --> 0:11:02.439 people out of work, more than they were pre pandemic. Yes, 0:11:02.520 --> 0:11:05.079 we have labor shortages now because of the you know, 0:11:05.200 --> 0:11:08.520 because of the supplementary unemployment insurance, but that runs out 0:11:08.520 --> 0:11:11.360 in September. We're going to get a huge increase in 0:11:11.400 --> 0:11:14.360 supply of labor in September, right, and we had a 0:11:14.360 --> 0:11:16.840 three and a half percent unemployment rate before the pandemic 0:11:16.840 --> 0:11:20.120 with no wage inflation or no meaningful wage inflation. Why 0:11:20.160 --> 0:11:21.560 do we think we're going to get it now? What 0:11:21.640 --> 0:11:25.120 do we think has changed in the labor market well 0:11:25.240 --> 0:11:28.560 during the pandemic, which means certainly workers have all this 0:11:28.640 --> 0:11:31.319 bartling power, they're going to get all these wage increases. Yes, 0:11:31.400 --> 0:11:33.640 we get headline stories now. Absolutely. In the summer we 0:11:33.679 --> 0:11:36.880 talked about sign on bonuses and shortage of workers. But 0:11:37.040 --> 0:11:40.440 as the unemployment insurance runs out in September, you're going 0:11:40.480 --> 0:11:43.080 to see that supply of labor come back and suddenly 0:11:43.120 --> 0:11:44.920 you're not going to have sign on bonuses and you're 0:11:44.960 --> 0:11:46.880 not going to have wage increases in the same extent. 0:11:47.280 --> 0:11:49.439 So yeah, I mean, you're absolutely right on the rents 0:11:49.520 --> 0:11:52.400 and that's a huge problem for people. But this is 0:11:52.440 --> 0:11:54.880 where we come back to the stagflation and stag like whatever. 0:11:55.679 --> 0:11:57.800 Just a champ in medium rents in New York. And 0:11:57.800 --> 0:12:00.199 I understand New York's not America, but medium it's in 0:12:00.200 --> 0:12:04.320 New York with down, But this is the distinction between 0:12:04.320 --> 0:12:08.000 big cities that have gotten slammed indiosyncratically by the pandemic, 0:12:08.120 --> 0:12:11.079 and some suburban areas that have gotten their prices increased 0:12:11.280 --> 0:12:13.600 to record highs and it record paces. But you make 0:12:13.679 --> 0:12:15.960 up good point. It's not consistent across the board, and 0:12:16.000 --> 0:12:19.600 people can move if they so choose. But Lee, honestly, 0:12:19.920 --> 0:12:22.360 you raise actually a very controversial point, which is the 0:12:22.400 --> 0:12:25.400 gap in how quickly people are coming back online, the 0:12:25.440 --> 0:12:28.440 low participation rate, despite the fact that the economy does 0:12:28.440 --> 0:12:30.000 seem to be going back, and the fact that a 0:12:30.000 --> 0:12:32.040 lot of companies say that we need workers, we want 0:12:32.040 --> 0:12:35.280 to hire people. Is it really just that simple that 0:12:35.400 --> 0:12:38.400 the enhanced unemployment benefits will roll off and that people 0:12:38.400 --> 0:12:39.880 will go back and see their kids go back to 0:12:39.920 --> 0:12:44.440 school and kumbaya, It's solved. I think. So, I mean, 0:12:44.440 --> 0:12:46.400 where are the six point eight million people gone that 0:12:46.440 --> 0:12:48.760 do they not need to work anymore? You know, once 0:12:48.800 --> 0:12:51.080 the unemployment insurance has rolled off? And you make a 0:12:51.080 --> 0:12:53.200 good point about childcare, because I think that's been a 0:12:53.200 --> 0:12:56.679 factor as well, is childcare, and that this sub nervous 0:12:56.720 --> 0:12:59.320 there's still about COVID quite rightly with the delta varian. 0:12:59.720 --> 0:13:01.920 But the fact is those six point eight million people 0:13:01.960 --> 0:13:04.880 who are working pre pandemic still need to work. And 0:13:04.920 --> 0:13:06.920 we could argue that some might have retired, et cetera. 0:13:07.040 --> 0:13:09.800 But but but even so, there's a large number of 0:13:09.800 --> 0:13:13.120 people who aren't working now who were working before the pandemic. 0:13:13.360 --> 0:13:15.160 Why do we think they're not going to need a job. 0:13:15.840 --> 0:13:17.880 They're going to need a job when the unemployment insurance 0:13:17.920 --> 0:13:20.520 runs out. How do you think the FED views all 0:13:20.559 --> 0:13:23.760 of this week? I think the FED views this that 0:13:24.120 --> 0:13:26.760 you know, they haven't got a clear picture yet. I 0:13:26.760 --> 0:13:28.400 think the Freed views is that we're going to have 0:13:28.440 --> 0:13:30.560 to wait until later this year and maybe even the 0:13:30.600 --> 0:13:33.160 first part of next year to get a clear picture 0:13:33.200 --> 0:13:35.480 of the labor market and what's going on. And the 0:13:35.559 --> 0:13:37.679 labor market is the key thing for the FED now. 0:13:37.760 --> 0:13:39.760 I mean, you know, powers told us this over and 0:13:39.800 --> 0:13:42.079 over again, but they don't know what's happened in the 0:13:42.160 --> 0:13:44.120 labor market yet none of us do because of these 0:13:44.160 --> 0:13:48.240 uncertainties we're talking about now, it's probably November December data, 0:13:48.360 --> 0:13:51.719 maybe even into two before we start to get some 0:13:51.800 --> 0:13:54.360 sort of clear picture of the labor market. I mean, 0:13:54.360 --> 0:13:56.720 you mentioned before about the consensus risk in Q four 0:13:56.840 --> 0:13:59.679 and and you're the uncertainty there and the absolutely right. 0:13:59.720 --> 0:14:01.920 And the same goes for the picture in the labor market. 0:14:02.559 --> 0:14:05.240 So while there are still so many known unknowns while 0:14:05.280 --> 0:14:07.520 we try and figure out what the trajectory of monetary 0:14:07.559 --> 0:14:10.320 policy is going to look like, the resurgence of COVID 0:14:10.360 --> 0:14:12.080 nighteen in the delta area is going to look like. 0:14:12.120 --> 0:14:15.000 How do you construct a portfolio? How defensive would you 0:14:15.000 --> 0:14:18.960 recommend being here? I wouldn't be that defensive at all. 0:14:19.000 --> 0:14:21.600 I'd be absolutely honest, because we're still getting a hundred 0:14:21.600 --> 0:14:24.000 and twenty billion dollars a month of liquidity. You know, 0:14:24.040 --> 0:14:26.360 we're still hitting all time highers and equity markets. I 0:14:26.400 --> 0:14:29.120 think there are certain areas you can be more defensive. 0:14:29.120 --> 0:14:31.920 I mean, clearly emerging markets are more of a challenge 0:14:32.600 --> 0:14:35.440 perhaps that than a lot of people think they should be, 0:14:35.440 --> 0:14:38.800 because valuations are more attractive. But the thing is that 0:14:38.840 --> 0:14:42.040 we're still seeing you know, exty markets hit all time 0:14:42.120 --> 0:14:44.320 highs because we've still got a huge amount of liquidity. 0:14:44.400 --> 0:14:47.640 Now what we're seeing is the duration trade, the sort 0:14:47.680 --> 0:14:50.200 of cap that the high tech sort of large cap 0:14:50.280 --> 0:14:53.120 high tech stops. They're the ones doing well now, whereas 0:14:53.120 --> 0:14:56.240 you sort of rustle two thousands your meatcaps, which is more. 0:14:56.320 --> 0:14:59.800 The reflation trade of certainly underperformed over the last few months, 0:15:00.040 --> 0:15:02.400 and I think that's sort of duration that Nastack over 0:15:02.480 --> 0:15:05.280 Russell trade is probably the one that's going to continue 0:15:06.480 --> 0:15:08.880 over the next couple of months. We have these growth fears, 0:15:08.920 --> 0:15:12.360 but we have the liquidity. But you know, it's too 0:15:12.400 --> 0:15:14.720 soon to be defensive, I think. I mean, once we 0:15:14.880 --> 0:15:17.120 get a clarity on taper and how fast it will be, 0:15:17.160 --> 0:15:19.120 I think it will be very gradually. One starts will 0:15:19.120 --> 0:15:22.760 probably early next year. You can't sit on the sidelines 0:15:22.760 --> 0:15:25.400 with add billion dollars a month being printed. A lot 0:15:25.440 --> 0:15:27.760 of people feel that way. Lee gonna catch our buddy 0:15:27.800 --> 0:15:30.000 as always, Lee Farage, their State Street, head of macro 0:15:30.120 --> 0:15:38.360 Strategy for North America. Some news out this morning from 0:15:38.400 --> 0:15:40.880 the Washington Post. That story published in the last couple 0:15:40.920 --> 0:15:43.320 of hours. Lisa, here's the quote that's going to get 0:15:43.440 --> 0:15:46.840 a lot of runtime today. Vaccinated people infected with the 0:15:46.920 --> 0:15:49.200 data variant may be able to spread the virus as 0:15:49.240 --> 0:15:53.640 easily as unvaccinated people. This according to unpublished data cited 0:15:53.760 --> 0:15:56.720 in a federal presentation obtained by the Post. And the 0:15:56.840 --> 0:15:59.600 question I have is why did the federal government not 0:15:59.760 --> 0:16:03.760 really least this data publicly when they were reimplementing mask mandates. 0:16:03.760 --> 0:16:06.440 The idea here recommending masks, you could get people to 0:16:06.480 --> 0:16:09.840 do it if they understood what the logic was behind it. 0:16:09.880 --> 0:16:12.160 If that's the case, why isn't there more clarity on 0:16:12.200 --> 0:16:13.880 this chart? Well, let's try and get some clarity now. 0:16:13.960 --> 0:16:17.560 Andy Pekhos joins us Jones Hopkins University, Bloomberg School, public 0:16:17.600 --> 0:16:20.200 health professor and virologists and he got to catch you 0:16:20.280 --> 0:16:22.320 up as always, and how for me to get you 0:16:22.360 --> 0:16:25.280 to comment on an internal document that you haven't seen either? 0:16:25.680 --> 0:16:29.080 But does this reconcile with your experience at the moment 0:16:29.080 --> 0:16:34.320 as well? Well? What we've been hearing anecdotally is that 0:16:34.560 --> 0:16:38.760 you know, there have been cases of delta in vaccinated people. 0:16:39.400 --> 0:16:42.160 I think the other thing to emphasize is as case 0:16:42.280 --> 0:16:46.440 numbers increase, the number of exposures that vaccinated people have 0:16:46.760 --> 0:16:50.120 to Delta virus increases as well, So we would expect 0:16:50.160 --> 0:16:55.600 to see some slight increase in cases and vaccinated people. Now. 0:16:55.760 --> 0:16:58.800 The critical thing that we're learning now though, is just 0:16:59.000 --> 0:17:03.040 how much more are dangerous the delta variant is compared 0:17:03.080 --> 0:17:06.679 to others other variant strains, And it really does seem 0:17:06.680 --> 0:17:09.359 like the data that was first coming out and unvaccinated 0:17:09.400 --> 0:17:13.080 people is really being amplified in that population, and that 0:17:13.240 --> 0:17:16.320 is that this virus is incredibly more contagious. Um, if 0:17:16.320 --> 0:17:19.600 you get infected, you get more virus in your system 0:17:19.640 --> 0:17:23.560 after infection, and what follows from that is that you 0:17:23.600 --> 0:17:26.800 become more contagious. So even if vaccinated people have a 0:17:26.840 --> 0:17:29.879 tend to a hundredfold lower amount of virus in their system, 0:17:30.160 --> 0:17:32.640 that still may push them over the limit of when 0:17:32.640 --> 0:17:35.160 they could be showing symptoms or spreading the virus. So, Andy, 0:17:35.200 --> 0:17:37.439 I wonder what this would mean for restrictions, because just 0:17:37.480 --> 0:17:40.920 because you can spread it as easily as the unvaccinated, 0:17:40.960 --> 0:17:43.080 it doesn't mean that you are necessarily more likely to 0:17:43.119 --> 0:17:45.040 be infected by it. Of course that's not the case. 0:17:45.040 --> 0:17:46.560 It's so so, Wendy, what do you think this would 0:17:46.600 --> 0:17:50.760 make for restrictions. Yeah, I think it's it's it's a 0:17:50.840 --> 0:17:53.840 cause for concern. So I've got my mask on again. 0:17:53.920 --> 0:17:59.000 Here today, our hospital complex today just want reinstituted masking policies, 0:17:59.000 --> 0:18:02.760 even among vaccinated people, simply because we as an institution 0:18:03.119 --> 0:18:06.760 need to be much more careful about potential infections and 0:18:06.800 --> 0:18:09.280 the spread of infections. Here, So I think this is 0:18:09.320 --> 0:18:12.159 all going to go back to what's your local situation 0:18:12.200 --> 0:18:14.480 look like. If you're in a place where Delta is 0:18:14.600 --> 0:18:19.600 really really spreading fast, then extra precautions need to be 0:18:19.600 --> 0:18:22.439 put in place. But but let's be clear, if we 0:18:22.520 --> 0:18:26.920 had a higher vaccinated population in this country, these concerns 0:18:26.960 --> 0:18:29.679 would be released, and that comes back to the core issue. 0:18:30.240 --> 0:18:34.200 Masking vaccinated people helps. The critical thing would be to 0:18:34.320 --> 0:18:37.240 increase the number of vaccinated people in this country and 0:18:37.280 --> 0:18:39.679 to do it rapidly. Andy, what's the latest on the 0:18:39.720 --> 0:18:44.000 efficacy rate of preventing infection among vaccinated individuals from the 0:18:44.040 --> 0:18:47.399 various vaccines. So the numbers that I've seen so far 0:18:47.600 --> 0:18:53.240 is that the efficacy has dropped from about to somewhere 0:18:53.240 --> 0:18:57.680 in the seventy percentage range with delta variant. But again 0:18:57.760 --> 0:18:59.600 that data is a couple of weeks old, and we 0:18:59.640 --> 0:19:02.440 know that the virus has been surging, so we're waiting 0:19:02.440 --> 0:19:06.199 to see some more reports there. Efficacy against severe disease 0:19:06.280 --> 0:19:11.000 is still maintained relatively high in vaccinated populations, which again 0:19:11.040 --> 0:19:13.960 is a good sign. So I think that the emergence 0:19:13.960 --> 0:19:18.160 of Delta shouldn't make people more hesitant about getting the vaccine. 0:19:18.400 --> 0:19:21.440 In fact, just the opposite. It's it's the best tool 0:19:21.520 --> 0:19:24.879 that we have right now to prevent infections, and so 0:19:24.960 --> 0:19:27.560 DELTA should be a warning to people more of a 0:19:27.600 --> 0:19:31.840 motivation than anything else to get the vaccine. Andrew, Andrew, 0:19:31.920 --> 0:19:33.760 what can we learn from the other regions of the 0:19:33.760 --> 0:19:35.720 world that have already seen this happen? In India, you 0:19:35.760 --> 0:19:38.320 saw a big spike in DELTA cases that then went 0:19:38.440 --> 0:19:40.600 way lower. You're seeing the same thing playing out in 0:19:40.600 --> 0:19:43.159 the UK. Now, is there any reason to believe that 0:19:43.200 --> 0:19:47.280 the US will not follow that path? We absolutely will. 0:19:47.400 --> 0:19:50.639 The question becomes what's the magnitude of the number of 0:19:50.680 --> 0:19:54.880 cases UM infections like this spread in peaks and valleys. 0:19:55.400 --> 0:19:59.960 UM vaccines and other public health interventions can help lower 0:20:00.000 --> 0:20:02.959 of that peak so that we don't have as many 0:20:03.000 --> 0:20:06.480 serious cases and deaths UM. And that's where we're trying 0:20:06.520 --> 0:20:08.720 to sort of work with some of these masking policies 0:20:08.840 --> 0:20:12.720 right now. Lower that peak, don't let it get to 0:20:12.800 --> 0:20:15.879 the to a to an uncontrolled stage, and then we 0:20:15.880 --> 0:20:20.879 can recover faster and have less UM cases and less 0:20:20.920 --> 0:20:23.439 of a strain in our hospital systems. And he just quickly. 0:20:23.440 --> 0:20:25.560 The original goal, of course, was to protect the most 0:20:25.560 --> 0:20:27.600 at risk in society and in doing so, protect the 0:20:27.600 --> 0:20:30.240 healthcare system, not just in this country, but our swhere. 0:20:30.560 --> 0:20:33.440 Israel has really led the way on vaccine distribution over 0:20:33.480 --> 0:20:36.119 the last year or so. They're going on now to 0:20:36.480 --> 0:20:39.879 give a third shot to the over sixties. Do you 0:20:39.920 --> 0:20:41.679 think we're going to see more of that now, swear? 0:20:44.480 --> 0:20:46.919 I really do. I haven't seen the data yet, but 0:20:46.960 --> 0:20:50.600 if everything continues on the trends here, what we're probably 0:20:50.600 --> 0:20:53.119 going to see is that the elderly are going to 0:20:53.200 --> 0:20:57.000 have a more waning of the antibody responses induced by vaccination, 0:20:57.680 --> 0:21:01.959 and with a more suscept more more transmissible virus, that 0:21:02.040 --> 0:21:05.360 population becomes the most important one for us to focus on. 0:21:05.640 --> 0:21:08.160 So it wouldn't surprise me if we see a vaccination 0:21:08.480 --> 0:21:12.560 or a booster vaccination come out specifically targeting those high 0:21:12.640 --> 0:21:15.840 risk populations. Interesting. Andy, it's good to catch up. As always, 0:21:15.840 --> 0:21:17.800 It's good to see you and thanks for your heart work, sir, 0:21:18.000 --> 0:21:20.879 Andy peckos that Johns Hopkins University, Bloomberg School of Public 0:21:20.880 --> 0:21:29.080 Health professor and virologists Terry Haines joined us now Pangea 0:21:29.119 --> 0:21:31.359