WEBVTT - Surveillance: GDP Growth Will Persist, Feroli Says 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferroll and Lisa Brownwitz. Daily we bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:30.480 and of course, on the Bloomberg terminal. Our next guest 0:00:30.640 --> 0:00:33.160 is important because a year and two weeks ago, Lele 0:00:33.200 --> 0:00:36.560 Brainerd was at the Boost Schools Seminar in New York. 0:00:36.680 --> 0:00:39.880 Obviously it was you know, pandemic and all that, and 0:00:40.000 --> 0:00:43.680 Michael Faroli, kim Shaw notes, Katherine Mann and Steve Chacchetty 0:00:43.680 --> 0:00:46.360 wrote a definitive paper on the tools that we have 0:00:46.560 --> 0:00:50.519 forward monetary policy. We come forward fifty four weeks and 0:00:50.560 --> 0:00:53.120 it's a whole new world after all. Michael Faroli joins 0:00:53.200 --> 0:00:56.319 us this morning with JP Morgan. Michael, the paper that 0:00:56.360 --> 0:00:59.720 you wrote at the Boost School seminar a fifty four 0:00:59.760 --> 0:01:02.840 weeks ago? Is that paper true today? Are you and 0:01:02.920 --> 0:01:06.880 Bruce Kasman working off a new playbook? No? I think 0:01:07.040 --> 0:01:10.080 I think the results from that paper we're actually put 0:01:10.120 --> 0:01:14.480 into uh into use a few weeks later, right, So, uh, 0:01:14.560 --> 0:01:16.840 that paper focused on the tools what we have that 0:01:16.920 --> 0:01:19.760 the FED has when in a low interest rate environment 0:01:19.800 --> 0:01:22.120 and we had we come to a recession, which is 0:01:22.200 --> 0:01:25.920 forward guidance and quantitative using. They used both those tools 0:01:26.000 --> 0:01:29.120 very aggressively. And one of the tools that we recommended 0:01:29.520 --> 0:01:31.959 UH and most economists I think recommend weren't a looning. 0:01:32.040 --> 0:01:36.280 This is outcome based guidance, which is basically saying when 0:01:36.280 --> 0:01:38.000 the first hike will COMMA is going to be based 0:01:38.000 --> 0:01:41.080 on certain economic conditions, which the Fed put into place 0:01:41.440 --> 0:01:43.520 last September. What is so important here, and I believe 0:01:43.600 --> 0:01:46.040 John Farrell mentioned in an hour ago, were the United 0:01:46.120 --> 0:01:48.919 Kingdom and vision sub two percent GDP out a number 0:01:48.920 --> 0:01:52.240 of years as well? You own the study of potential 0:01:52.280 --> 0:01:54.840 g d P. Do you look at six or seven 0:01:54.960 --> 0:01:58.440 or eight percent g d P now is one quarter 0:01:58.600 --> 0:02:02.120 two quarters fade out or one quarters two quarters in 0:02:02.160 --> 0:02:06.320 a real abrupt drop down to where you see potential GDP? 0:02:07.600 --> 0:02:10.440 So first of all, I should say we see GDP 0:02:10.560 --> 0:02:13.320 growth this year around six and a half percent, but 0:02:13.360 --> 0:02:17.200 we also see above trend GDP growth persisting next year. 0:02:17.280 --> 0:02:20.160 So a lot of the stimulus that we're expecting UH 0:02:20.360 --> 0:02:23.440 should be somewhat delayed. So, for instance, a lot of 0:02:23.440 --> 0:02:26.320 the a to state and local governments won't necessarily get 0:02:26.360 --> 0:02:30.080 spent quickly. H. So that should support growth on into 0:02:30.160 --> 0:02:32.840 next year. But you know, I think when we get 0:02:32.840 --> 0:02:35.200 to perhaps twenty three or twenty four, it's reasonable to 0:02:35.240 --> 0:02:40.000 expect a return to sub GDP growth, which is probably 0:02:40.000 --> 0:02:44.079 still the h the potential GDP growth rate of the economy. 0:02:44.200 --> 0:02:46.760 Tom kicked off this hour talking about the Simon Kennedy 0:02:46.919 --> 0:02:50.040 article about the savings rate, about the glut of cash 0:02:50.120 --> 0:02:52.840 sitting and savings accounts in the US. He pegs it 0:02:52.840 --> 0:02:54.880 at one and a half trillion dollars. And then there's 0:02:54.919 --> 0:02:57.960 this nugget that if everyone were to spend all of 0:02:58.000 --> 0:03:01.200 that money, GDP would run it about nine percent. If 0:03:01.240 --> 0:03:03.080 none of it were spent, it would be two point 0:03:03.160 --> 0:03:06.760 two percent. A huge spread there. What gives you confidence 0:03:06.919 --> 0:03:08.560 that people are going to go out and spend it? 0:03:08.680 --> 0:03:12.679 And on? What? So? Uh? First of all, I would 0:03:12.720 --> 0:03:16.200 say a lot of that saving is an accumulated stimulus 0:03:16.240 --> 0:03:19.320 that wasn't spent last year. Uh, But we should keep 0:03:19.360 --> 0:03:20.919 in mind that it's very likely that we're going to 0:03:20.960 --> 0:03:23.919 see further stimulus this year. Right, so now we have 0:03:24.000 --> 0:03:29.400 potentially checks coming uh, perhaps within a couple of weeks, 0:03:29.880 --> 0:03:33.720 and we saw last year a lot of those checks 0:03:33.760 --> 0:03:36.880 were spent pretty quickly. Uh this year we would expect 0:03:36.880 --> 0:03:39.840 the same, perhaps even more so because unlike last year, 0:03:40.160 --> 0:03:41.840 those checks may be coming out of time when the 0:03:41.840 --> 0:03:45.800 economy as reopening and you can actually spend on a 0:03:45.840 --> 0:03:47.680 lot of things that you couldn't spend on last year. 0:03:47.800 --> 0:03:49.720 So it's not simply the fact that we have a 0:03:49.720 --> 0:03:52.640 lot of accumulated saving, but there should be more income 0:03:52.680 --> 0:03:57.040 support forthcoming that I think should be the really big 0:03:57.040 --> 0:03:59.200 stimulus to growth this year. Give me a second. I 0:03:59.200 --> 0:04:00.800 just want to run through the ice action at the moment, 0:04:00.840 --> 0:04:03.840 up seven basis points on tens, up six on thirties, 0:04:03.880 --> 0:04:06.520 and the NASTAC does roll over to NASTAC future is 0:04:06.600 --> 0:04:08.760 now down by thirty six call it thirty five, and 0:04:08.760 --> 0:04:11.400 off by about a thirty one percent. And just one observation, John, 0:04:11.480 --> 0:04:13.560 we go back to where we were on Friday. We've 0:04:13.600 --> 0:04:16.760 given up essentially Monday, Tuesday, Wednesday of dynamics. This is 0:04:16.800 --> 0:04:18.760 the outlook gets better, and might let's put some numbers 0:04:18.760 --> 0:04:21.320 on that better outlook you've mentioned GDP growth. I read 0:04:21.360 --> 0:04:22.880 a note from you guys in the last couple of 0:04:22.920 --> 0:04:27.440 days six eighty five thousand monthly average for payrolls growth 0:04:27.440 --> 0:04:29.839 for the rest of this year. That just fat sounds 0:04:29.839 --> 0:04:32.320 absolutely fantastic, Mike. Are they the kind of numbers you're 0:04:32.320 --> 0:04:35.920 looking for? Now? Those are two things I would say. 0:04:35.960 --> 0:04:39.599 One is that there's a link between GDP growth and 0:04:39.800 --> 0:04:43.320 job growth, which or at least between the unemploymer rate, 0:04:43.360 --> 0:04:46.680 which is called the Oakin's rule that economists use. Uh. 0:04:46.760 --> 0:04:49.760 In addition, I would say that relative to that, to 0:04:49.880 --> 0:04:52.279 that sort of rule of thumb, we might see more 0:04:52.320 --> 0:04:55.760 than one might expect in terms of job growth because 0:04:56.240 --> 0:04:58.080 we're going to see a lot of sectors come back. 0:04:58.160 --> 0:04:59.800 We should see a lot of sectors come back. That 0:04:59.839 --> 0:05:03.400 a are things like restaurants and movie theaters that might 0:05:03.440 --> 0:05:05.680 be you know, services tend to be a little lower 0:05:05.680 --> 0:05:08.440 than average productivity, but that means you're gonna have higher 0:05:08.440 --> 0:05:12.040 than average jobs per amount of GDP growth. So uh 0:05:12.120 --> 0:05:13.800 So I think we're set for a very good year 0:05:13.839 --> 0:05:17.280 in terms of job growth. In addition to participation rate, 0:05:17.360 --> 0:05:21.080 we anticipate will mostly recover some of the gain some 0:05:21.120 --> 0:05:24.120 of the losses that suffered over the past twelve months. Uh. 0:05:24.160 --> 0:05:28.640 In part because those who are concerned about you know, uh, 0:05:28.720 --> 0:05:30.480 face to face job, so you can can actually get 0:05:30.520 --> 0:05:32.840 back in the labor market, as well as hopefully the 0:05:32.880 --> 0:05:36.760 normalization of school schedules should allow uh, you know, parents 0:05:36.800 --> 0:05:39.000 to get back into the labor market. So it should 0:05:39.000 --> 0:05:40.880 be good from both the perspective of the number of 0:05:41.200 --> 0:05:44.479 jobs created as well as you know, the amount of 0:05:44.680 --> 0:05:47.440 the population that's actually back in the workforce. And perhaps 0:05:47.520 --> 0:05:49.320 markets have already prices in at least if you look 0:05:49.320 --> 0:05:51.680 at the equity valuations that we're looking at, And the 0:05:51.760 --> 0:05:56.919 question is what happens three, what happens even two, and 0:05:56.960 --> 0:05:59.719 whether there's sort of an ongoing virtuous cycle it gets 0:05:59.760 --> 0:06:03.000 create aided by some of the stimulus by the job creation, 0:06:03.040 --> 0:06:05.440 and growth can go a little bit faster than people 0:06:05.480 --> 0:06:08.960 currently are expecting. What's your view on that, given the 0:06:09.000 --> 0:06:12.120 sort of consensus that we will see a slowing out 0:06:12.160 --> 0:06:14.880 of growth, a slowing out of inflation, in a return 0:06:14.960 --> 0:06:18.200 to the environment that we were in pre COVID, right, So, 0:06:18.360 --> 0:06:21.520 as Tomas mentioned, you know, we have been somewhat cautious 0:06:21.600 --> 0:06:24.040 on potential GDP growth, but there have been some developed 0:06:24.080 --> 0:06:27.520 developments that have been um I think favorable When thinking 0:06:27.560 --> 0:06:29.960 about the longer term outlook. One of those is that 0:06:30.080 --> 0:06:35.599 capital spending has really recovered quite robustly, particularly spending on 0:06:35.760 --> 0:06:39.000 tech R and D, things that tend to be sort 0:06:39.000 --> 0:06:43.320 of high productivity uh categories of spending. So I think 0:06:43.360 --> 0:06:46.360 that's one favorable development. I think if we do get 0:06:46.360 --> 0:06:50.080 an infrastructure package later this year, which seems you know, 0:06:50.520 --> 0:06:54.080 uh likely, Uh, there's a lot of evidence that suggest 0:06:54.120 --> 0:06:57.960 that infrastructure is good for the economy's long run growth rate. 0:06:58.040 --> 0:07:00.520 So there are still a lot of get us out 0:07:00.520 --> 0:07:03.159 there in terms of slowing growth in the labor force 0:07:03.240 --> 0:07:06.279 that will you know, keep trend GDP growth definitely below 0:07:06.320 --> 0:07:09.000 three percent and probably below two percent. But there have 0:07:09.120 --> 0:07:12.119 been some favorable developments when we look at the productivity picture. 0:07:12.280 --> 0:07:14.040 Mike want to finish up on the bond market. We've 0:07:14.040 --> 0:07:16.120 got a thirty year at two five tens at one 0:07:16.280 --> 0:07:19.280 forty six helds bleeding high again. Chairman Power tomorrow, do 0:07:19.320 --> 0:07:22.200 you expect Chairman Power to stay on script? I do. 0:07:22.280 --> 0:07:24.800 I think he's going to remain quite dothersh um. I 0:07:24.840 --> 0:07:26.600 don't know if he necessarily is going to have to 0:07:26.640 --> 0:07:29.520 fight the market per se, but I think he wants to. Uh, 0:07:29.920 --> 0:07:32.440 he'll have to reiterate that they're gonna hike only when 0:07:32.480 --> 0:07:35.440 they are confident that inflation is going to be above 0:07:35.480 --> 0:07:37.720 two percent, And right now it doesn't look like the 0:07:37.720 --> 0:07:43.120 inflation markets are pricing persistent above two percent pc inflation. 0:07:43.200 --> 0:07:47.240 So I think Powell have to address that that perhaps 0:07:47.320 --> 0:07:50.160 misperception in the market that they're going to be quick 0:07:50.160 --> 0:07:52.320 to tighten even when there's no inflation pressure out there 0:07:52.440 --> 0:07:55.280 doesn't really I want to steal a phrase from Jean Clautrichet, 0:07:55.680 --> 0:07:58.320 and that is the idea of diffuse. He was talking 0:07:58.360 --> 0:08:02.200 to me about productivity diffew using. What is the diffusement 0:08:02.360 --> 0:08:05.800 of stimulus? Do you and your combine over there under 0:08:05.840 --> 0:08:09.680 Bruce Kasman, do you have a confidence in knowing how 0:08:09.760 --> 0:08:15.000 stimulus will diffuse through the American system? I don't think 0:08:15.360 --> 0:08:17.960 the economics profession really has a lot of confidence in 0:08:18.520 --> 0:08:22.160 UH and understanding UH stimulus to you know, to the 0:08:22.200 --> 0:08:27.680 decimal point. We do think it will UM obviously boost spending, 0:08:27.720 --> 0:08:32.520 particularly the stimulus checks H and that should help view 0:08:32.520 --> 0:08:36.480 overall economy and once we kind of get out of 0:08:35.640 --> 0:08:38.520 UM this patchword and where we still have a lot 0:08:38.559 --> 0:08:41.880 of excess labor resources, that should help you know, a 0:08:41.920 --> 0:08:44.960 broad set of of sectors in the economy. But you know, 0:08:44.960 --> 0:08:46.920 I think we do have to be humble and kind 0:08:46.960 --> 0:08:50.520 of putting too much false precision on our understanding of 0:08:50.520 --> 0:08:53.720 how fiscal stimulus affects the economy. Tocay the number for Friday, 0:08:53.760 --> 0:08:58.880 Mike for Friday, We're looking for two. My front could 0:08:58.880 --> 0:09:01.320 say SA and so ife more than chafe. US economists 0:09:01.320 --> 0:09:10.000 look at two hundred thousand on Friday. Let's get a 0:09:10.040 --> 0:09:11.520 relation of it in Bank of New York Man and 0:09:11.600 --> 0:09:14.120 chief strategist joining us now at Lesia Great to catch up, 0:09:14.160 --> 0:09:16.280 Let's just start with the SMP five hundred struggling at 0:09:16.360 --> 0:09:20.440 thirty hundred. What's going on? Well, what's going on here 0:09:20.480 --> 0:09:23.440 is the rotation trade and and higher yields and a 0:09:23.480 --> 0:09:27.800 steeper yelker because the sectors of the market that are 0:09:27.840 --> 0:09:31.080 outperforming and are quite strong are not the ones at 0:09:31.080 --> 0:09:33.200 the top of the index. So all those large cap 0:09:33.240 --> 0:09:37.000 tech docks have really peeked out on a relative basis 0:09:37.679 --> 0:09:41.920 in the summer of so as they struggle, the index 0:09:42.040 --> 0:09:44.520 itself will struggle. But there are plenty of sectors and 0:09:44.600 --> 0:09:47.800 plenty of companies that are doing great year today that 0:09:47.800 --> 0:09:50.680 that are having very clear bowl markets and as yields 0:09:50.720 --> 0:09:54.199 move higher as as we have expectations for higher yields. 0:09:54.200 --> 0:09:57.400 Listen the tech and the growth sectors as large cap 0:09:57.920 --> 0:10:00.400 names that really led last year are going to struggle. 0:10:00.440 --> 0:10:03.280 They're just going to struggle, and that's affecting the index. Alicia, 0:10:03.320 --> 0:10:06.079 you do the macro micro was such acuity. I want 0:10:06.120 --> 0:10:08.640 you to dove chail the easy call on the macro 0:10:09.320 --> 0:10:14.120 with the reality of microadjustment down the income statement. Are 0:10:14.160 --> 0:10:16.000 we at the edge of too good to be true? 0:10:17.120 --> 0:10:20.560 So that is the great question. I think this year 0:10:21.000 --> 0:10:23.240 we're going to see a little bit of a bifurcation 0:10:23.360 --> 0:10:26.719 between Main Street and Wall Street. And last year was 0:10:26.760 --> 0:10:29.400 an amazing year for Wall Street and for asset classes 0:10:29.880 --> 0:10:34.480 because we sat on yields, and this year it's going 0:10:34.520 --> 0:10:36.680 to be a very difficult dance for the FED and 0:10:36.800 --> 0:10:39.959 actually a very difficult dance for the bond market because 0:10:39.960 --> 0:10:42.920 if we actually print ten percent quarters of g d 0:10:43.000 --> 0:10:46.000 P a couple in a row double digits, which I 0:10:46.040 --> 0:10:49.360 think could happen given the spending and consumption numbers we're seeing, 0:10:50.120 --> 0:10:51.920 I think it's gonna be very hard for yields just 0:10:52.000 --> 0:10:54.280 to sit there and for the market to believe that 0:10:54.320 --> 0:10:57.600 the FED isn't going to move sooner. That's the dance 0:10:57.640 --> 0:11:01.080 that the market has to absorb. We do think that 0:11:01.200 --> 0:11:03.959 the economy will reopen. You can feel it everywhere, even 0:11:04.080 --> 0:11:06.520 in the middle of New York City where I am. 0:11:06.520 --> 0:11:08.720 You know, you feel it. Half springs coming. People are 0:11:08.720 --> 0:11:12.360 getting inoculated, and it's happening sooner than I think we 0:11:12.440 --> 0:11:15.360 had hoped for six weeks ago. At Leasha Roberts Shiftment 0:11:15.400 --> 0:11:18.400 over at Bloomberg Intelligence as a brilliant piece today on 0:11:18.480 --> 0:11:21.800 how tight the big tech bond credits are. They're shockingly 0:11:21.880 --> 0:11:25.200 tight and surprisingly Amazon actually doing you know, on the 0:11:25.280 --> 0:11:28.000 edge of apple uh in tightness as well. They're up 0:11:28.040 --> 0:11:30.440 to their eyeballs in cash. What do they do with 0:11:30.480 --> 0:11:34.120 the cash? And particularly across the market, what do they 0:11:34.160 --> 0:11:37.480 do with all the new cash? Look, that's a great question. 0:11:37.520 --> 0:11:39.880 We think overall, in the aggregate, with all the new 0:11:39.920 --> 0:11:41.800 cash that's raised, you are going to see a lot 0:11:41.840 --> 0:11:44.760 of M and A, which will help support markets here. 0:11:45.080 --> 0:11:48.120 But I think I think ultimately, you know, the cash 0:11:48.200 --> 0:11:50.520 is going to be used for buybacks and things like that, 0:11:50.760 --> 0:11:54.360 an investment, because this is a great investment year for 0:11:54.400 --> 0:11:58.160 those companies that have large cash surpluses change the business 0:11:58.200 --> 0:12:01.120 grow the business ad businesses. This is really the way 0:12:01.160 --> 0:12:03.760 to use it to look forward. We were kind of 0:12:03.760 --> 0:12:07.120 concerned about those favorite names that supported all of us 0:12:07.200 --> 0:12:10.280 last year during the misery we all experienced. It's kind 0:12:10.280 --> 0:12:12.560 of clear that the growth year of the year is 0:12:12.559 --> 0:12:14.920 going to be slower this year, and I think those 0:12:15.000 --> 0:12:18.520 names are going to struggle. We love energy, we love financials. 0:12:18.720 --> 0:12:22.760 Invest with the yield curve, think big, big economy boom 0:12:22.800 --> 0:12:26.440 in the economy, yields moving higher, and pick those old 0:12:26.440 --> 0:12:29.160 economy stocks that everybody gave up for dead for years 0:12:29.160 --> 0:12:32.120 and years and years. You know, value has an outperformed 0:12:32.120 --> 0:12:35.680 since two thousand and seven. There are many investors who 0:12:35.679 --> 0:12:38.640 don't remember a time when those stocks in the old 0:12:38.640 --> 0:12:42.000 economy actually worked and gave your performance. And here we 0:12:42.040 --> 0:12:45.160 are and it's working. Not to mention the under allocation 0:12:45.240 --> 0:12:48.520 to energy across the investors space because of E S 0:12:48.559 --> 0:12:51.440 G concerns and investor concerns. I mean, this is the 0:12:51.480 --> 0:12:56.280 sectory that's outperforming, outperforming, and under owned. There's your pain trade, Felicia. 0:12:56.920 --> 0:12:58.760 I don't want to say that I'm Debbie Downer again. 0:12:58.800 --> 0:13:00.480 I go back to trying to see a on corners 0:13:00.520 --> 0:13:02.559 because I think that that's sort of more how I'm 0:13:02.559 --> 0:13:05.400 playing this. But let's say the consensus is wrong, and 0:13:05.480 --> 0:13:08.439 let's say yields instead of rising fall a fall to 0:13:08.520 --> 0:13:10.920 eighty basis points, as Greg Peter's of PGM was saying, 0:13:11.360 --> 0:13:14.480 could very well happen earlier, as we've seen Scott miner 0:13:14.520 --> 0:13:17.160 And of Guggenheim say that he could see yields going 0:13:17.320 --> 0:13:19.600 close to zero next year on the ten year treasury. 0:13:19.880 --> 0:13:23.200 Let's say that the structural story here of an aging 0:13:23.200 --> 0:13:28.280 demographic of slow growth reasserts itself. What happens then, how 0:13:28.400 --> 0:13:31.720 violent could the move be? Given how crowded this consensus 0:13:31.720 --> 0:13:34.720 that we see today in the market really is. Look, 0:13:34.720 --> 0:13:36.880 that's really the left tail risk, and it could be 0:13:36.920 --> 0:13:39.959 a violent move down. You'll see a rotation very quickly 0:13:40.480 --> 0:13:44.599 back into those defensive favorites of large large cap growers 0:13:44.640 --> 0:13:47.040 and tech. But also, I mean, but that is really 0:13:47.040 --> 0:13:50.280 the risk here. You know, the variant whoever invented that 0:13:50.320 --> 0:13:53.040 word was the scary variants. I mean, that's that's really 0:13:53.040 --> 0:13:56.880 the risk. And also that there's their stasis within the 0:13:56.960 --> 0:14:01.080 labor market and that bottom and has really been affected 0:14:01.080 --> 0:14:04.960 by unemployment and the closing of the service economy. Doesn't 0:14:04.960 --> 0:14:07.280 really quite come back. So maybe you get fifty of 0:14:07.280 --> 0:14:10.400 those jobs back, maybe sev but what do you do 0:14:10.480 --> 0:14:14.200 with the rest? And it's very clear that retraining is 0:14:14.200 --> 0:14:17.200 not something this country does very well on a short 0:14:17.320 --> 0:14:20.320 term basis, So then you do have a permanently unemployed 0:14:20.400 --> 0:14:23.080 That is the risk here. Um. We do think though, 0:14:23.080 --> 0:14:25.520 there's so much forward momentum in the next few months, 0:14:25.520 --> 0:14:28.520 and I think the desire to engage with the service 0:14:28.560 --> 0:14:32.840 economy is palpable. It's real, and so I'm pretty optimistic 0:14:32.880 --> 0:14:35.640 about what happens with the labor market going forward. Alicia 0:14:35.800 --> 0:14:37.680 love catching up with you, Alicia Leving The Bank of 0:14:37.720 --> 0:14:45.200 New York melon chief strategists John, is there a bag 0:14:45.280 --> 0:14:47.320 book with a Bank of England? They do have the 0:14:47.440 --> 0:14:50.760 report the agencies around the country report bank, Yeah, something similar, 0:14:50.800 --> 0:14:53.320 so like you know Tottenham is terrible, they report something 0:14:53.360 --> 0:14:56.240 like that. You get the North London report on report 0:14:56.360 --> 0:14:58.760 back to the government. Yeah, we often do that in 0:14:58.800 --> 0:15:02.560 London time because our wonderful to the question this morning 0:15:02.560 --> 0:15:05.520 with Greg paid is a page Jim Senya futfolio manager. 0:15:05.800 --> 0:15:08.600 Greg We've been asking is awake about page Jim. He 0:15:08.920 --> 0:15:12.040 was touching one sixty one sixty one on Thursday. Have 0:15:12.160 --> 0:15:15.560 you been a buyer? Yeah, So we've been poking around. 0:15:15.600 --> 0:15:19.160 I mean it's been definitely an interesting journey, right, So 0:15:19.440 --> 0:15:22.640 I mean our view, you know above, it gets more 0:15:22.720 --> 0:15:26.880 interesting kind of one fifty uh, you know, even more interesting, uh, 0:15:27.120 --> 0:15:30.640 and then one seventy five very interesting. And so that's 0:15:30.680 --> 0:15:32.600 kind of how we're thinking about it from a scale. 0:15:33.080 --> 0:15:36.000 I mean, what happened last Thursday was less about kind 0:15:36.040 --> 0:15:38.680 of the level of yield, but more what happened in 0:15:38.760 --> 0:15:41.640 the market itself. Right, The market really had a whiff 0:15:41.760 --> 0:15:44.400 of March two thousand and twenty where there was just 0:15:44.520 --> 0:15:48.120 a lot of dysfunction in the marketplace, tremendous ill liquidity. 0:15:48.640 --> 0:15:50.440 So those are the things that we were really more 0:15:50.520 --> 0:15:53.640 attuned to. But at the same time it has created, 0:15:53.800 --> 0:15:57.360 i think dislocations in the curve. And so there's been 0:15:57.400 --> 0:15:59.840 lots to talk about the seven year auction and how 0:16:00.000 --> 0:16:03.880 at tailed and by frankly, how worrisome that was. The 0:16:04.000 --> 0:16:06.600 twenty year part of the curve. Tread curve is also 0:16:06.720 --> 0:16:09.280 very interesting. So to me, maybe it's not so much 0:16:09.280 --> 0:16:13.040 about the overall level of interistrates, but really the dislocations 0:16:13.080 --> 0:16:15.920 across treasuries themselves. Within there, we go back to basics, 0:16:16.000 --> 0:16:18.400 Greg Peters, and there's an idea of the nominal yield, 0:16:18.440 --> 0:16:21.280 the regular yield, the one point four or four percent yield, folks, 0:16:21.600 --> 0:16:24.200 and around that the dynamics of inflation, and what's called 0:16:24.240 --> 0:16:26.400 the residual, which is the real yield. It's a show 0:16:26.520 --> 0:16:29.720 on Bloomberg TV Greg Peters. Which matters right now, the 0:16:29.840 --> 0:16:34.000 inflation dynamics or the residual the real yield. I think 0:16:34.040 --> 0:16:38.000 the real yield matters more here as that will actually 0:16:38.080 --> 0:16:41.520 act as a buying constraint around activity, I think, uh 0:16:42.280 --> 0:16:47.480 and borrowing. And so you've seen this real move in inflation, right, 0:16:47.520 --> 0:16:50.280 So inflation was priced clearly too low in March of 0:16:50.400 --> 0:16:52.880 last year. It was absolutely on the floor. So it's 0:16:52.920 --> 0:16:56.440 been moving higher ever since. But I really struggle with 0:16:57.040 --> 0:17:01.080 this narrative that inflation, uh, it's really going to continue 0:17:01.120 --> 0:17:04.560 to pick up. So so I'm I'm kind of on 0:17:04.680 --> 0:17:09.000 the other side of inflation continuing to rise. Will it 0:17:09.119 --> 0:17:12.080 be around the two percent level, yes, but it's not 0:17:12.200 --> 0:17:14.840 going to be well above uh. And I hate to 0:17:14.920 --> 0:17:17.680 talk about base effects, but there are real base effects 0:17:17.800 --> 0:17:21.440 coming through here that gives the optics of inflation being 0:17:21.560 --> 0:17:23.680 much higher than it really is, and the FETE is 0:17:23.800 --> 0:17:26.080 telling you that, and no one wants to listen. This 0:17:26.280 --> 0:17:30.040 is so so, so so important, Lisa. I can't say 0:17:30.160 --> 0:17:33.200 enough about this five year five year forward says exactly 0:17:33.280 --> 0:17:35.879 what Mr Peters just described. Yeah, and that's what we've 0:17:35.920 --> 0:17:39.120 been seeing with respect to short term inflation expectations versus 0:17:39.200 --> 0:17:43.120 long term inflation expectations. The curve is inverted the most 0:17:43.280 --> 0:17:46.639 ever on record, which raises a question, could we actually 0:17:46.760 --> 0:17:50.280 see tenure treasure yields drop two new lows at some point? 0:17:50.320 --> 0:17:52.320 And this seemed to be at Scott Minard of Guggenheim 0:17:52.440 --> 0:17:54.320 was saying yesterday in a report where he was seeing 0:17:54.600 --> 0:17:57.679 saying that even tenure treasure yields could go negative at 0:17:57.760 --> 0:17:59.800 some point. I mean, Greg, are you on that side 0:17:59.840 --> 0:18:02.080 of things that we could see an actual rally that 0:18:02.240 --> 0:18:04.760 is pretty significant in treasuries? Are you just saying that 0:18:04.840 --> 0:18:06.720 perhaps it's gotten a little ahead of itself in terms 0:18:06.760 --> 0:18:09.800 of the sell off. Also, I'm not willing to say 0:18:09.960 --> 0:18:12.399 negative at this point. I mean, let's get below one 0:18:12.440 --> 0:18:15.040 percent and then take it from there. So I think 0:18:15.040 --> 0:18:19.240 that's somewhat heroic. But I think the director of travels right, 0:18:19.800 --> 0:18:23.040 But the timing is tricky. So so we think the 0:18:23.160 --> 0:18:26.600 natural wrestling place for ten year treasuries is around a 0:18:26.760 --> 0:18:31.080 B basis points. Uh so. Uh. That's not to say 0:18:31.160 --> 0:18:33.280 it's going to happen over the next several months, as 0:18:33.320 --> 0:18:36.600 the forces with stimulus and just the economic rebound is 0:18:36.720 --> 0:18:40.280 so strong. But I think when you look out, you know, 0:18:40.400 --> 0:18:44.960 eighteen months, two years, I do really see an environment 0:18:45.040 --> 0:18:47.600 where yields will continue to kind of move lower. So 0:18:47.960 --> 0:18:50.920 timing is tricky, but I do think the direction of 0:18:51.000 --> 0:18:54.200 travel is for lower yields, not higher yields. Correct the 0:18:54.280 --> 0:18:55.960 south side, and this is not at this on the 0:18:56.000 --> 0:18:59.080 south side, they often predict high yields, but gradual moves. 0:18:59.160 --> 0:19:00.760 And I think on the bis side right now, there's 0:19:00.760 --> 0:19:03.080 more attention being paid to that volatility, that burst of 0:19:03.160 --> 0:19:05.399 all we got last week in the treasury market, and 0:19:05.440 --> 0:19:07.639 whether we see repeats of that. Think Apollo in the 0:19:07.680 --> 0:19:09.639 last twenty four hours speaking of Bloomberg about this, how 0:19:09.680 --> 0:19:13.240 to take advantage of those bursts of volatility in the future. Greg, 0:19:13.359 --> 0:19:15.040 can you want me three how you approach things last 0:19:15.080 --> 0:19:16.879 week and how you approach things in the future if 0:19:16.920 --> 0:19:21.560 you expect to see that again, Well, quite frankly, it's 0:19:21.880 --> 0:19:25.440 it's tricky though, because the markets have a tendency of 0:19:25.560 --> 0:19:28.920 seizing up, and so if there's dysfunction and dislocation in 0:19:29.000 --> 0:19:32.959 the treasury market, which is the most liquid market, uh 0:19:33.280 --> 0:19:37.520 in the world, in the US for sure, everything sets 0:19:37.560 --> 0:19:39.440 off of that. So what we saw in March of 0:19:39.640 --> 0:19:42.679 last year was it all started with treasuries and then 0:19:42.800 --> 0:19:46.160 the illequidity broke down everywhere else. So quite frankly, it's 0:19:46.240 --> 0:19:50.960 difficult to do that. Being said, the derivative market is 0:19:51.000 --> 0:19:54.480 where you continue to see real liquidity in times of 0:19:55.000 --> 0:19:58.680 stress with cash. So I do think though, if you 0:19:58.800 --> 0:20:01.720 get these gaps and creating kind of these vacuum moods 0:20:01.800 --> 0:20:06.040 which which we didn't really see um, that will create 0:20:06.080 --> 0:20:08.600 opportunity because I think the whole world on the boy 0:20:08.680 --> 0:20:13.840 sides waiting for credit the cheapen up because uh, you know, 0:20:13.960 --> 0:20:16.920 the strengthened economy is such where you really want to 0:20:17.000 --> 0:20:20.280 own it. Greg always get to say so, Greg Padish, 0:20:20.800 --> 0:20:29.480 portfolio manager. Right now in commodities and of course every 0:20:29.520 --> 0:20:32.760 major house is really looking at the idea of a supercycle. 0:20:32.840 --> 0:20:36.440 The nuances of commodities, the metals, the softs and of 0:20:36.560 --> 0:20:39.880 course oil lifting Francisco. Blanche rides a herd at Bank 0:20:39.920 --> 0:20:44.359 of America Securities, head of Global Commodities in Derivatives Research, 0:20:45.119 --> 0:20:48.640 Francisco to cut to the chase into paragraph one. Are 0:20:48.720 --> 0:20:52.480 we re seeing now a new commodity supercycle? Hey Tom, 0:20:52.560 --> 0:20:56.119 thank you for having me. I do think we are saying, Uh, 0:20:56.440 --> 0:20:59.960 definitely upside pressure sending in some cases across the commority complex. 0:21:00.160 --> 0:21:04.040 We could see um supercycle like behavior. But I do 0:21:04.200 --> 0:21:05.920 think I do think it's gonna be more concentrated on 0:21:05.960 --> 0:21:11.000 the metals. Um. Unfortunately, I don't see that cycle happening 0:21:11.040 --> 0:21:13.679 in oil. I do see upside pressure on oil prices, 0:21:13.800 --> 0:21:16.800 but as you know, oil is the main commodity, is 0:21:16.840 --> 0:21:20.639 the largest portion of the commodity market value, so and 0:21:20.680 --> 0:21:22.679 it's gonna be hard for oil to see the kind 0:21:22.720 --> 0:21:27.840 of supercycle we witness in the two thousands. The metals, then, 0:21:28.320 --> 0:21:31.560 how do you apply capital on a bed of the 0:21:31.640 --> 0:21:34.399 Pacific rim? Is it as simple as buying re minby? 0:21:34.840 --> 0:21:37.040 Is there something more nuanced if you believe in the 0:21:37.119 --> 0:21:39.760