1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,240 --> 00:00:13,200 Speaker 1: with Jonathan Ferrell and Lisa Brownwitz. Daily 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 --> 00:00:30,000 Speaker 1: and of course on the Bloomberg terminal. Let us turn 6 00:00:30,080 --> 00:00:32,920 Speaker 1: out to the President's trip and we're thrilled to speak 7 00:00:32,960 --> 00:00:35,960 Speaker 1: today to Ian Bremer of Eurasia Group. It is G 8 00:00:36,240 --> 00:00:39,360 Speaker 1: zero media, but far more is the effect of his 9 00:00:39,520 --> 00:00:43,120 Speaker 1: many books upon our thinking of international relations, and that 10 00:00:43,280 --> 00:00:48,000 Speaker 1: includes the phrase a G zero world. Dr Bremer. President 11 00:00:48,040 --> 00:00:50,960 Speaker 1: Biden will travel to that the G eight x Russia, 12 00:00:51,400 --> 00:00:55,040 Speaker 1: the G seven meetings. How G zero is this G 13 00:00:55,280 --> 00:00:59,600 Speaker 1: seven meeting? Well, it's less G zero than last year, 14 00:00:59,680 --> 00:01:03,040 Speaker 1: since the G seven didn't even meet UH in the 15 00:01:03,120 --> 00:01:07,399 Speaker 1: year of the pandemic UH. It clearly is a little 16 00:01:07,560 --> 00:01:11,160 Speaker 1: more aligned. We've got a few pieces of news that matter, 17 00:01:11,600 --> 00:01:16,200 Speaker 1: the Europeans and the Americans coordinating pretty effectively in the 18 00:01:16,319 --> 00:01:20,440 Speaker 1: response to the downing of the Ryan airplane to mince 19 00:01:20,560 --> 00:01:24,240 Speaker 1: the diversion a couple of weeks ago. So everyone pretty 20 00:01:24,280 --> 00:01:28,800 Speaker 1: irritated at Blarus, right Now secondly, you've got the Biden 21 00:01:28,800 --> 00:01:33,200 Speaker 1: administration announcing coordination of this global minimum tax. It will 22 00:01:33,240 --> 00:01:36,240 Speaker 1: take years if it ever gets done, to get the 23 00:01:36,360 --> 00:01:40,720 Speaker 1: US Senate and individual European parliaments to ratify it. But 24 00:01:40,840 --> 00:01:44,480 Speaker 1: still it's a meaningful move towards coordination among the G 25 00:01:44,640 --> 00:01:47,000 Speaker 1: seven that sets up the O E C D in 26 00:01:47,040 --> 00:01:50,120 Speaker 1: that direction. So it's not like nothing is getting done. 27 00:01:50,560 --> 00:01:55,440 Speaker 1: But on really big issues out there, like on coronavirus response, 28 00:01:55,640 --> 00:02:00,000 Speaker 1: like on climate change, we are very very far from 29 00:02:00,080 --> 00:02:04,360 Speaker 1: meaningful global coordination. And even on China, where the US 30 00:02:04,440 --> 00:02:08,600 Speaker 1: of course sees Beijing as its principal adversary through a 31 00:02:08,720 --> 00:02:13,760 Speaker 1: national security lens, the Europeans largely do not. And and 32 00:02:13,919 --> 00:02:18,200 Speaker 1: this is perhaps the most principal issue that really divides 33 00:02:18,280 --> 00:02:20,960 Speaker 1: the G seven in a in a Cold War era, 34 00:02:21,760 --> 00:02:24,440 Speaker 1: seven is all rowing in the same direction because everyone 35 00:02:24,520 --> 00:02:28,000 Speaker 1: sees the Soviets as their principal adversary. Today that is 36 00:02:28,040 --> 00:02:30,880 Speaker 1: no longer the case at all, and it makes life 37 00:02:30,919 --> 00:02:32,919 Speaker 1: a lot more difficult. You see, and you see the 38 00:02:33,240 --> 00:02:36,440 Speaker 1: polarity of Europe. Mr Orban of Hungary coming on saying 39 00:02:36,440 --> 00:02:40,239 Speaker 1: the Global minimum corporate tax plan his quote absurd. Okay, 40 00:02:40,240 --> 00:02:43,919 Speaker 1: that's one view from Eastern Europe. What captured my attention 41 00:02:44,120 --> 00:02:48,160 Speaker 1: was the miracle victory and domestic ellections in Germany over 42 00:02:48,200 --> 00:02:51,200 Speaker 1: the weekend. And to borrow from Mr Trump and the Queen, 43 00:02:51,760 --> 00:02:55,520 Speaker 1: does the President Chancellor Malcha walk in front of him? 44 00:02:56,080 --> 00:02:59,079 Speaker 1: I mean the body language that we're gonna see at 45 00:02:59,120 --> 00:03:02,960 Speaker 1: this summit has to tilt to the Chancellor of Germany 46 00:03:03,160 --> 00:03:07,239 Speaker 1: in her stem career, in her recent political victory. Well, 47 00:03:07,240 --> 00:03:10,080 Speaker 1: since it's her last G seven, sure I'd let her 48 00:03:10,160 --> 00:03:14,680 Speaker 1: do that. And and since the relationship between Biden and 49 00:03:14,760 --> 00:03:18,919 Speaker 1: Merkel has always been friendly. I've seen Biden now attend 50 00:03:18,960 --> 00:03:22,920 Speaker 1: in person Munich security conferences for fifteen years. There's always 51 00:03:22,960 --> 00:03:25,560 Speaker 1: been a good relationship with Merkel and the top of 52 00:03:25,600 --> 00:03:29,680 Speaker 1: the German government, the Biden administration is staffed, its cabinet 53 00:03:29,720 --> 00:03:34,640 Speaker 1: are largely Atlanticists who like these people. The European Allies 54 00:03:34,760 --> 00:03:38,680 Speaker 1: or bond Is the singular major exception, are much happier 55 00:03:38,880 --> 00:03:41,480 Speaker 1: with Biden than they were with Trump. But that doesn't 56 00:03:41,480 --> 00:03:43,920 Speaker 1: mean they trust the Americans. That doesn't mean there as 57 00:03:43,920 --> 00:03:46,560 Speaker 1: a line with the Americans. And they also are very 58 00:03:46,600 --> 00:03:53,760 Speaker 1: aware of just how unstable and politically divided Biden's own 59 00:03:53,920 --> 00:03:57,920 Speaker 1: leadership for the future is and so the willingness of 60 00:03:57,960 --> 00:04:01,840 Speaker 1: the Europeans to suddenly count funny United States that they 61 00:04:01,920 --> 00:04:05,440 Speaker 1: are somewhat less aligned with, and they also don't necessarily 62 00:04:05,480 --> 00:04:08,800 Speaker 1: trust the long term nature of its commitment. That the 63 00:04:08,920 --> 00:04:12,960 Speaker 1: US EU relationship is nowhere close to where Biden would 64 00:04:13,080 --> 00:04:17,160 Speaker 1: like it to be. And this idea ever back, Tom, 65 00:04:17,200 --> 00:04:19,640 Speaker 1: I mean when when Biden said America is back in 66 00:04:19,720 --> 00:04:24,000 Speaker 1: terms of power, America never went anywhere. Not our dollar, 67 00:04:24,160 --> 00:04:27,400 Speaker 1: not our tech companies, not our energy production. In terms 68 00:04:27,440 --> 00:04:30,040 Speaker 1: of the influence we have with allies around the world, 69 00:04:30,360 --> 00:04:33,200 Speaker 1: America has been deteriorating for a long time and it's 70 00:04:33,240 --> 00:04:36,120 Speaker 1: not changing very much right now. Can it ever get 71 00:04:36,120 --> 00:04:38,560 Speaker 1: back in? You know, I split my adult life between 72 00:04:39,120 --> 00:04:43,040 Speaker 1: Germany and the US, And when I first came here 73 00:04:43,120 --> 00:04:45,919 Speaker 1: in the nineties, in the in the early Auts, I 74 00:04:46,000 --> 00:04:49,960 Speaker 1: was welcomed with open arms. They were so excited to 75 00:04:50,080 --> 00:04:54,160 Speaker 1: have an American in their midst who actually spoke the language. 76 00:04:54,440 --> 00:04:58,719 Speaker 1: There was a real brotherhood between the two countries. After 77 00:04:58,839 --> 00:05:03,240 Speaker 1: the healing from World War Two, and and then with 78 00:05:03,480 --> 00:05:08,040 Speaker 1: the first UM or the second move into Iraq under 79 00:05:08,120 --> 00:05:12,520 Speaker 1: Bush too um the relationship disintegrated a little and was 80 00:05:12,760 --> 00:05:17,880 Speaker 1: absolutely destroyed by President Trump? Can we ever get back together? 81 00:05:18,960 --> 00:05:23,279 Speaker 1: It wasn't destroyed by Trump. It was deteriorating under Bush, 82 00:05:23,440 --> 00:05:28,680 Speaker 1: under Obama, and under Trump, and that deterioration accelerated over time. 83 00:05:29,000 --> 00:05:30,800 Speaker 1: But I think it has less to do with the 84 00:05:30,839 --> 00:05:34,440 Speaker 1: individual presidents. It has more to do with the fact 85 00:05:34,480 --> 00:05:38,480 Speaker 1: that the United States no longer leads by example. In 86 00:05:38,560 --> 00:05:43,240 Speaker 1: the eyes of Europeans, our democracy is by far the 87 00:05:43,279 --> 00:05:49,000 Speaker 1: most divided and dysfunctional. January six was an absolute shock 88 00:05:49,680 --> 00:05:52,560 Speaker 1: to the Europeans, more so than it was in the 89 00:05:52,640 --> 00:05:55,599 Speaker 1: United States. We kind of got through. It was soft, 90 00:05:55,720 --> 00:05:57,320 Speaker 1: you know, I mean, we don't we don't have these 91 00:05:57,360 --> 00:06:00,040 Speaker 1: structural problems. Anyone that said it was a coup, No, 92 00:06:00,240 --> 00:06:02,520 Speaker 1: it's not a coup. You know. We we came back 93 00:06:02,560 --> 00:06:06,000 Speaker 1: and we get to business as usual, such as it is. 94 00:06:06,360 --> 00:06:09,240 Speaker 1: The Europeans are pretty startled by all of this. And 95 00:06:09,320 --> 00:06:11,760 Speaker 1: let's also keep in mind, you remember when when the 96 00:06:11,760 --> 00:06:15,320 Speaker 1: Snowden revelation showed that the I'm gonna Merkel's cell phone 97 00:06:15,400 --> 00:06:19,440 Speaker 1: was being hacked by the Americans. It's just a very 98 00:06:19,520 --> 00:06:23,599 Speaker 1: different environment where the US is seen as much more unilateralist. 99 00:06:23,920 --> 00:06:27,600 Speaker 1: Biden says, we're pulling out of Afghanistan. Europeans have as 100 00:06:27,640 --> 00:06:30,400 Speaker 1: many troops there as in the US. He didn't coordinate that. 101 00:06:31,000 --> 00:06:34,280 Speaker 1: The Europeans we announced we're going to not pay attention 102 00:06:34,320 --> 00:06:38,159 Speaker 1: to patents anymore, um for for coronavirus. The Germans and 103 00:06:38,200 --> 00:06:41,880 Speaker 1: the EU strongly opposed. That wasn't coordinated advanced by the 104 00:06:41,960 --> 00:06:44,640 Speaker 1: United States. So even though they liked this guy, and 105 00:06:44,720 --> 00:06:47,800 Speaker 1: even though they trust us more than the Chinese, were 106 00:06:47,839 --> 00:06:51,560 Speaker 1: actually farther apart than we have been. And and that's 107 00:06:51,560 --> 00:06:53,480 Speaker 1: exactly where I wanted to go. And I don't mean 108 00:06:53,520 --> 00:06:56,440 Speaker 1: to cut you off. If there's this question about how, yes, 109 00:06:56,520 --> 00:06:58,719 Speaker 1: the US perhaps is it as far apart from Germany 110 00:06:58,960 --> 00:07:02,320 Speaker 1: as they are with not However, what kind of consensus, 111 00:07:02,360 --> 00:07:05,239 Speaker 1: what kind of alliance can they forge if there isn't 112 00:07:05,279 --> 00:07:08,479 Speaker 1: that trust. And frankly, if Germany looks at the US 113 00:07:08,520 --> 00:07:12,320 Speaker 1: and says you're not leading by example, we can forge 114 00:07:12,560 --> 00:07:17,200 Speaker 1: a lot of coordinated policies when it's intentional and when 115 00:07:17,200 --> 00:07:21,360 Speaker 1: it's specific. So if we sit down and say that 116 00:07:21,440 --> 00:07:26,320 Speaker 1: we want to work together on dealing with digital services, 117 00:07:26,360 --> 00:07:28,600 Speaker 1: tax dealing with an alternamentum attacks, we don't have to 118 00:07:28,680 --> 00:07:32,200 Speaker 1: hit each other with, you know, an escalating tariff environment, 119 00:07:32,400 --> 00:07:36,760 Speaker 1: we can create predictability for the markets on Blarus, an 120 00:07:36,760 --> 00:07:39,320 Speaker 1: issue that is, you know, not front of line for 121 00:07:39,400 --> 00:07:43,160 Speaker 1: the average American in Washington. But nonetheless, Biden made it 122 00:07:43,200 --> 00:07:46,120 Speaker 1: clear that he wanted to coordinate with the Europeans, and 123 00:07:46,200 --> 00:07:49,320 Speaker 1: we did that. We did that effectively. But that's very 124 00:07:49,360 --> 00:07:51,320 Speaker 1: different from saying that on the issues that are the 125 00:07:51,360 --> 00:07:54,320 Speaker 1: top priority of the United States that the Europeans will 126 00:07:54,320 --> 00:07:55,880 Speaker 1: see them in the same way. And one thing we 127 00:07:55,920 --> 00:07:58,600 Speaker 1: haven't mentioned so far, which matters a lot more than 128 00:07:58,600 --> 00:08:01,760 Speaker 1: what we've seen in the US is Brexit. The UK 129 00:08:02,400 --> 00:08:06,480 Speaker 1: is by far the most aligned and closest former European 130 00:08:06,560 --> 00:08:10,200 Speaker 1: country with the United States. They're no longer in the EU. 131 00:08:10,480 --> 00:08:13,240 Speaker 1: The UK relationship with the EU is very strange. This 132 00:08:13,320 --> 00:08:16,680 Speaker 1: makes it a lot harder for the Americans to actually 133 00:08:16,720 --> 00:08:19,000 Speaker 1: get the Europeans on the same page because the UK 134 00:08:19,160 --> 00:08:22,800 Speaker 1: used to help us with that inside the EU don't anymore. So, Ian, 135 00:08:23,040 --> 00:08:25,080 Speaker 1: can you give us a sense of what kind of 136 00:08:25,080 --> 00:08:28,160 Speaker 1: guide posts you're looking forward to determine whether this global 137 00:08:28,200 --> 00:08:31,840 Speaker 1: tour that President Biden is embarking on today is successful. 138 00:08:32,880 --> 00:08:36,880 Speaker 1: I want to see how much Emmanuel mccron talks about 139 00:08:36,960 --> 00:08:41,080 Speaker 1: strategic autonomy in front of the Americans. The French have 140 00:08:41,160 --> 00:08:45,440 Speaker 1: a very different view of the future of Europe in 141 00:08:45,559 --> 00:08:49,520 Speaker 1: terms of national security, in terms of migrants, um, in 142 00:08:49,640 --> 00:08:52,360 Speaker 1: terms of the Middle East, North Africa, you name it. 143 00:08:52,600 --> 00:08:54,600 Speaker 1: I want to see to what in the Mediterranean. I 144 00:08:54,600 --> 00:08:57,040 Speaker 1: want to see to what extent he is trying to 145 00:08:57,120 --> 00:08:59,520 Speaker 1: make a name for himself. Let's keep in mind Merkel 146 00:08:59,600 --> 00:09:02,719 Speaker 1: did very well in these elections in East Germany. Mccron 147 00:09:03,360 --> 00:09:05,560 Speaker 1: is gonna be there after Merkel was gone, and he 148 00:09:05,559 --> 00:09:07,880 Speaker 1: sees himself as the future leader of Europe. So I 149 00:09:07,920 --> 00:09:10,320 Speaker 1: want to watch that. I want to see the mood 150 00:09:10,440 --> 00:09:13,320 Speaker 1: music between the Germans and the Americans at the high levels, 151 00:09:13,360 --> 00:09:16,160 Speaker 1: see how much it looks coordinated in advance. And I 152 00:09:16,160 --> 00:09:18,800 Speaker 1: want to see if there's any substance to the reference 153 00:09:18,840 --> 00:09:22,760 Speaker 1: to the cogs that come out. Nobody cares. When's your 154 00:09:22,800 --> 00:09:26,959 Speaker 1: next book out? Early next year? Early next year? Give 155 00:09:27,040 --> 00:09:30,240 Speaker 1: us the thief, give us a tease here. It's called 156 00:09:30,559 --> 00:09:34,319 Speaker 1: the crisis we need and and given that coronavirus, I mean, 157 00:09:34,320 --> 00:09:37,720 Speaker 1: the lessons we've learned from coronavirus globally do not exist. 158 00:09:38,200 --> 00:09:42,760 Speaker 1: So to what extent can we take from that? Uh? 159 00:09:43,120 --> 00:09:47,920 Speaker 1: Any solace that with climate, with the technology revolution, with 160 00:09:48,040 --> 00:09:51,760 Speaker 1: cyber are are we going to be able to use 161 00:09:51,880 --> 00:09:55,240 Speaker 1: those to change our governance? Winston Churchill, looking at the 162 00:09:55,280 --> 00:09:58,240 Speaker 1: world after coronavirus, would be very disappointed we did not 163 00:09:58,320 --> 00:10:01,600 Speaker 1: take advantage of this. Cristis about the drought very quickly here, 164 00:10:01,720 --> 00:10:04,080 Speaker 1: Dr Bremer. The drought in the United States, I think 165 00:10:04,200 --> 00:10:08,280 Speaker 1: is underplayed right now, do you agree? I think that 166 00:10:08,360 --> 00:10:11,600 Speaker 1: Americans are paying a lot more attention to climate young people, 167 00:10:11,760 --> 00:10:14,120 Speaker 1: whether they're from the left or the right or five 168 00:10:14,200 --> 00:10:16,720 Speaker 1: years ago, the factors it's hitting a lot of Americans 169 00:10:16,760 --> 00:10:19,280 Speaker 1: at home really matters. Dr Bremer, Thank you so much. 170 00:10:19,400 --> 00:10:21,880 Speaker 1: Really look forward to getting out six months now where 171 00:10:21,920 --> 00:10:30,480 Speaker 1: we can planning his top risks of two thousand right now. 172 00:10:30,640 --> 00:10:33,240 Speaker 1: Luigi san Gallas with us from Italy and from the 173 00:10:33,240 --> 00:10:36,439 Speaker 1: Boost School of Chicago, and I really can't say enough 174 00:10:36,480 --> 00:10:41,200 Speaker 1: about his podcast Capitalism and also of course A Capitalism 175 00:10:41,400 --> 00:10:45,240 Speaker 1: for the People is wonderful book, a really different view 176 00:10:45,280 --> 00:10:49,600 Speaker 1: on the American economic and political experiment. Professor's in Gallis, 177 00:10:49,640 --> 00:10:52,319 Speaker 1: thank you so much for joining us this morning. How 178 00:10:52,320 --> 00:10:57,400 Speaker 1: will President Biden be greeted in Europe? I think that 179 00:10:57,720 --> 00:11:01,880 Speaker 1: uh Matt was right, He's greeted very nicely just because 180 00:11:01,880 --> 00:11:04,800 Speaker 1: it's not Trump. I think that Trump did create a 181 00:11:04,840 --> 00:11:08,600 Speaker 1: long term friction, and some of that can be fixed 182 00:11:08,600 --> 00:11:11,559 Speaker 1: by just not being Trump. But I think that there 183 00:11:11,800 --> 00:11:16,360 Speaker 1: is a longer term concern of whether the US policy 184 00:11:16,360 --> 00:11:19,640 Speaker 1: and the European policy are aligned in the future. And 185 00:11:19,640 --> 00:11:23,400 Speaker 1: I think that the the giant in the room is 186 00:11:23,440 --> 00:11:27,560 Speaker 1: of courch China, and the policy that Germany as in 187 00:11:27,600 --> 00:11:30,440 Speaker 1: mind and indirect to you as in mind for China 188 00:11:30,559 --> 00:11:33,400 Speaker 1: is very different you from the policy that the Buying 189 00:11:33,440 --> 00:11:36,040 Speaker 1: administration as in mind. So I think that there's a 190 00:11:36,040 --> 00:11:38,760 Speaker 1: whisk for conflict there. Luigi, what do you expect to 191 00:11:38,800 --> 00:11:42,280 Speaker 1: actually come from these meetings with European allies with respect 192 00:11:42,320 --> 00:11:44,920 Speaker 1: to China policy? What are you hoping could get accomplished 193 00:11:44,960 --> 00:11:50,200 Speaker 1: or will actually tell you something concrete? Um, Honestly, I 194 00:11:50,200 --> 00:11:53,199 Speaker 1: don't hope, I don't I don't expect anything to to 195 00:11:53,240 --> 00:11:58,960 Speaker 1: take place. I think that Germany wants to maintain very 196 00:11:58,960 --> 00:12:02,720 Speaker 1: stronger eight relationships with China and there is not going 197 00:12:02,760 --> 00:12:07,320 Speaker 1: to do anything to jeopardize those and so uh And 198 00:12:07,400 --> 00:12:11,120 Speaker 1: I think the United States like a stronger voice on 199 00:12:11,240 --> 00:12:15,040 Speaker 1: human rights and also on trade policy in general. So 200 00:12:15,280 --> 00:12:18,480 Speaker 1: I don't see much of a space for agreement there 201 00:12:19,480 --> 00:12:22,360 Speaker 1: has Germany becomes somewhat of a problem here, Luigi. I 202 00:12:22,360 --> 00:12:26,840 Speaker 1: mean um Berlin wants stronger ties with Beijing, and Berlin 203 00:12:27,000 --> 00:12:31,720 Speaker 1: also wants to send money to Moscow via the Nord 204 00:12:31,800 --> 00:12:34,720 Speaker 1: dream To pipeline. It seems like the Germans are not 205 00:12:34,840 --> 00:12:39,120 Speaker 1: willing to let go of a lot of US adversaries 206 00:12:41,240 --> 00:12:47,160 Speaker 1: in parties that the Trump presidency represented a structure that 207 00:12:47,320 --> 00:12:52,840 Speaker 1: is difficult to undo. Germany realized that cannot rely longer 208 00:12:52,960 --> 00:12:56,920 Speaker 1: term on on the relation the same way that used to, 209 00:12:57,400 --> 00:13:01,040 Speaker 1: and so I think it started to craft a European policy. 210 00:13:01,720 --> 00:13:05,280 Speaker 1: The problem is that there's not really European state, let 211 00:13:05,320 --> 00:13:07,360 Speaker 1: alone the European Army. So I think it's gonna be 212 00:13:07,360 --> 00:13:10,719 Speaker 1: a bit of a of a challenge there, because if 213 00:13:10,760 --> 00:13:14,080 Speaker 1: you hope, were to spoke with a common uh language 214 00:13:14,080 --> 00:13:18,319 Speaker 1: and a common message, I think would be one thing. Unfortunately, 215 00:13:18,760 --> 00:13:23,120 Speaker 1: in foreign policy we steal a pretty fracture, Luigi, on 216 00:13:23,240 --> 00:13:28,480 Speaker 1: your take on American capitalism, where is our capitalism now? 217 00:13:28,679 --> 00:13:33,760 Speaker 1: With the dominance of these technology companies. President Biden's dealing 218 00:13:33,800 --> 00:13:37,320 Speaker 1: with it, our radio or TV listeners and viewers, each 219 00:13:37,320 --> 00:13:42,559 Speaker 1: of us is dealing with this technological revolution, whether it's Amazon, Google, 220 00:13:43,000 --> 00:13:46,520 Speaker 1: or things we don't even understand, how will our capitalism 221 00:13:46,640 --> 00:13:51,400 Speaker 1: survive that? So I think it's a mixed view. On 222 00:13:51,480 --> 00:13:54,800 Speaker 1: the one end, that technologist boat us an enormous amount 223 00:13:54,800 --> 00:13:59,120 Speaker 1: of benefits. I think would be hard to imagine the 224 00:13:59,240 --> 00:14:03,000 Speaker 1: life under the pandemic without the technology that was provided 225 00:14:03,080 --> 00:14:06,319 Speaker 1: from the zoom we're using to the Amazon, the river, 226 00:14:06,480 --> 00:14:08,800 Speaker 1: our food to our door steps and sounds of food. 227 00:14:08,840 --> 00:14:12,640 Speaker 1: So there is no doubt that there being enormous improvement, 228 00:14:12,760 --> 00:14:18,079 Speaker 1: enormous benefits. UH. The concern I have is that the 229 00:14:18,120 --> 00:14:24,120 Speaker 1: market is becoming more concentrated and less uh contestable UM 230 00:14:24,440 --> 00:14:29,120 Speaker 1: and more importantly, that these companies can pretty quickly have 231 00:14:29,480 --> 00:14:34,680 Speaker 1: also some power and determine what we see, what we read, 232 00:14:35,560 --> 00:14:39,680 Speaker 1: what we do and UH. And when we start to 233 00:14:39,960 --> 00:14:43,120 Speaker 1: such a large market power, the concern is that you 234 00:14:43,200 --> 00:14:45,400 Speaker 1: might use it not only for economic reason but also 235 00:14:45,440 --> 00:14:48,560 Speaker 1: for political reasons. So I think that the easier concern 236 00:14:48,600 --> 00:14:55,240 Speaker 1: that is not just about uh the economic effects of concentration, 237 00:14:55,280 --> 00:14:58,360 Speaker 1: but also the political effects. There's a quick question, Luigi 238 00:14:58,560 --> 00:15:01,840 Speaker 1: about the dynamite of the economy with concentration at the 239 00:15:01,880 --> 00:15:05,200 Speaker 1: top and then highly intended companies that have more legacy 240 00:15:05,200 --> 00:15:08,080 Speaker 1: businesses making up the remaining economy. Do you think the 241 00:15:08,080 --> 00:15:11,240 Speaker 1: economy that you're describing here with the concentration of big 242 00:15:11,280 --> 00:15:16,120 Speaker 1: tech is less dynamic and poised for slower growth. I 243 00:15:16,160 --> 00:15:18,800 Speaker 1: think the wis the wish that is less dynamic, and 244 00:15:18,840 --> 00:15:21,600 Speaker 1: I think that that's where, in my view, one of 245 00:15:21,640 --> 00:15:25,080 Speaker 1: the direction of the anti trust should be um. In 246 00:15:25,160 --> 00:15:27,040 Speaker 1: my view, I know this is a disputed view, but 247 00:15:27,080 --> 00:15:30,520 Speaker 1: in my view, the trial against Microsoft in the late 248 00:15:30,600 --> 00:15:35,320 Speaker 1: nineties was very useful to provide a space for the 249 00:15:35,360 --> 00:15:38,920 Speaker 1: common technology revolution. I think that if Google exists today 250 00:15:38,960 --> 00:15:43,400 Speaker 1: in part is because the d o J sue Microsoft. 251 00:15:43,480 --> 00:15:46,800 Speaker 1: So it's only fair that the J was sue Google 252 00:15:46,920 --> 00:15:50,160 Speaker 1: to let the next Google come about. Luis, you gotta 253 00:15:50,200 --> 00:15:52,520 Speaker 1: leave it there, Luigi's and Gale, thank you so much. 254 00:15:53,040 --> 00:15:55,960 Speaker 1: Really look forward to you coaching Tottenham here in the 255 00:15:56,000 --> 00:15:59,840 Speaker 1: coming weeks. He is from the University of Chicago Booths School. 256 00:16:00,040 --> 00:16:01,680 Speaker 1: Of course, I can't say enough his book of the 257 00:16:01,680 --> 00:16:09,920 Speaker 1: Summer a number of years ago on capitalism, Stewart Chiser 258 00:16:10,000 --> 00:16:11,480 Speaker 1: Joy doesn't get it right to it. Would you be 259 00:16:11,600 --> 00:16:14,640 Speaker 1: as head of equity derivative strategy stored in your world 260 00:16:14,640 --> 00:16:17,840 Speaker 1: of equities. Is your world linked to the ten year 261 00:16:18,000 --> 00:16:22,000 Speaker 1: yield and the shock we see with low yields? Thod 262 00:16:22,000 --> 00:16:24,480 Speaker 1: Martin Tom, It definitely is. And I think really what 263 00:16:24,480 --> 00:16:27,000 Speaker 1: you've seen recently is probably pretty positive for equities in 264 00:16:27,040 --> 00:16:30,160 Speaker 1: the sense that inflation break evens and inflation expectations that 265 00:16:30,280 --> 00:16:32,520 Speaker 1: started to get to the level at which we thought 266 00:16:32,520 --> 00:16:35,440 Speaker 1: it was going to become disruptive for equity markets. But 267 00:16:35,520 --> 00:16:37,200 Speaker 1: now with like you know, with the tender break even 268 00:16:37,200 --> 00:16:39,480 Speaker 1: back bold to forty, with ten year yields pulling back 269 00:16:39,520 --> 00:16:41,960 Speaker 1: a little bit, I think that sort of has relieved 270 00:16:41,960 --> 00:16:43,600 Speaker 1: the pressure a bit. You know, we had a very 271 00:16:43,960 --> 00:16:47,880 Speaker 1: fast and high volatility rise in rates and inflation expectations. 272 00:16:48,160 --> 00:16:49,560 Speaker 1: The fact that those have come off a bit, I 273 00:16:49,600 --> 00:16:51,960 Speaker 1: think is kind of reduced a little pressure on markets. 274 00:16:51,960 --> 00:16:53,920 Speaker 1: But but there's definitely a link between the two, no doubt. 275 00:16:54,160 --> 00:16:56,600 Speaker 1: So what where is the source of potential volatility here 276 00:16:58,080 --> 00:17:00,360 Speaker 1: for markets? I mean, I think I think FED policy 277 00:17:00,400 --> 00:17:02,400 Speaker 1: is gonna be probably the number one source of potential 278 00:17:02,480 --> 00:17:04,640 Speaker 1: volatility over the next couple of weeks. Obviously we get 279 00:17:04,640 --> 00:17:07,520 Speaker 1: a big inflation print on Thursday. You know, ubs is 280 00:17:07,520 --> 00:17:10,760 Speaker 1: is well above consensus for both core and headline, So 281 00:17:10,800 --> 00:17:13,320 Speaker 1: I think that will test the recent moves and markets. 282 00:17:13,320 --> 00:17:15,199 Speaker 1: You know, you you got tenure break evens up to 283 00:17:15,560 --> 00:17:17,480 Speaker 1: sixty ish um the last time we had a strong 284 00:17:17,520 --> 00:17:19,400 Speaker 1: inflation print, So I think it'll be interesting to see 285 00:17:19,400 --> 00:17:21,760 Speaker 1: how that plays out. And then secondly, you know, the 286 00:17:21,760 --> 00:17:24,199 Speaker 1: following week, how does that impact FED thinking? You know, 287 00:17:24,320 --> 00:17:26,920 Speaker 1: do the dots move um? Does the FED start to 288 00:17:26,960 --> 00:17:29,440 Speaker 1: speak a little more positively about the growth outlook, which 289 00:17:29,440 --> 00:17:31,199 Speaker 1: the market might read as hawker? So I think over 290 00:17:31,280 --> 00:17:32,639 Speaker 1: the course of the next month, those are gonna be 291 00:17:32,680 --> 00:17:35,280 Speaker 1: the two big ones and then two key learnings upon 292 00:17:35,359 --> 00:17:37,479 Speaker 1: us at that point. But story, why am I not 293 00:17:37,520 --> 00:17:39,600 Speaker 1: to believe that what the markets pricing in right now 294 00:17:39,760 --> 00:17:42,800 Speaker 1: is effectively what the market forces here. If we do 295 00:17:42,880 --> 00:17:47,080 Speaker 1: get a higher than projected read on that inflation, what 296 00:17:47,160 --> 00:17:50,119 Speaker 1: would change the dynamics here that would take us anywhere 297 00:17:50,640 --> 00:17:52,600 Speaker 1: away from one five where we are right now on 298 00:17:52,640 --> 00:17:55,520 Speaker 1: the tenure yield. Well, it's a great question. I think 299 00:17:55,560 --> 00:17:57,480 Speaker 1: what most people are saying on the market side is 300 00:17:57,520 --> 00:17:59,480 Speaker 1: number one, a lot of the inflation is coming from 301 00:17:59,560 --> 00:18:02,240 Speaker 1: things like use car prices, which they expect to kind 302 00:18:02,240 --> 00:18:04,800 Speaker 1: of be quote unquote transitory. If it hurts me to 303 00:18:04,800 --> 00:18:07,000 Speaker 1: say that term, but but that's the one that's out there. 304 00:18:10,520 --> 00:18:12,240 Speaker 1: So I think, look, I think you know what would 305 00:18:12,280 --> 00:18:14,800 Speaker 1: get it to move would be do you see things 306 00:18:14,880 --> 00:18:18,600 Speaker 1: like wage inflation, like rents um like goods prices inflation 307 00:18:18,640 --> 00:18:20,600 Speaker 1: that might be a little more sustainable. So I think 308 00:18:20,600 --> 00:18:22,720 Speaker 1: it's going to be below the surface and the inflation print. 309 00:18:22,760 --> 00:18:25,720 Speaker 1: What are the drivers and does that start to dislodge things? 310 00:18:26,080 --> 00:18:27,399 Speaker 1: If you were to say, you know what could be 311 00:18:27,440 --> 00:18:30,720 Speaker 1: most disruptive from markets, I think it's gonna be longer 312 00:18:30,840 --> 00:18:33,639 Speaker 1: term inflation expectations, you know, the fit excuse me. The 313 00:18:33,640 --> 00:18:36,080 Speaker 1: FED looks at survey based inflation. So if things like 314 00:18:36,200 --> 00:18:39,119 Speaker 1: University of Michigan long term inflation start to move, if 315 00:18:39,160 --> 00:18:41,960 Speaker 1: the inflation term structure, you know, you know, stops being 316 00:18:42,000 --> 00:18:44,240 Speaker 1: inverted from you know, five year to thirty year, that 317 00:18:44,280 --> 00:18:46,560 Speaker 1: could be an issue as well. So look, it's it's 318 00:18:46,560 --> 00:18:48,840 Speaker 1: a high inflation print, and then it's the components of 319 00:18:48,880 --> 00:18:52,560 Speaker 1: that print um that look less transitory than that maybe 320 00:18:52,560 --> 00:18:54,800 Speaker 1: the FED and the markets are currently expecting. So are 321 00:18:54,840 --> 00:18:57,320 Speaker 1: we overplaying the inflation story which we're not gonna have 322 00:18:57,359 --> 00:18:59,359 Speaker 1: an answer to until the end of the year, and 323 00:18:59,359 --> 00:19:02,640 Speaker 1: perhaps are playing some of these other factors like, for example, 324 00:19:02,680 --> 00:19:07,879 Speaker 1: earnings disappointments, especially given how high expectations are. It's a 325 00:19:07,880 --> 00:19:10,639 Speaker 1: great question. I mean it's it's it's hard for portfolio 326 00:19:10,720 --> 00:19:13,600 Speaker 1: manager or risk manager to ignore the cadence of the 327 00:19:13,600 --> 00:19:16,000 Speaker 1: inflation data, right, So it could be that six months 328 00:19:16,040 --> 00:19:17,960 Speaker 1: from now we look back and we think that that 329 00:19:18,000 --> 00:19:20,439 Speaker 1: was a tempest in a teapot. But you know, an 330 00:19:20,480 --> 00:19:23,199 Speaker 1: investor can't ignore that stuff as it's happening. So I 331 00:19:23,240 --> 00:19:25,879 Speaker 1: think people are responding rationally to the data that that 332 00:19:25,960 --> 00:19:29,760 Speaker 1: they're seeing. Um In terms of earnings, expectations I think 333 00:19:29,760 --> 00:19:31,520 Speaker 1: are high at the single stock level, but if you 334 00:19:31,560 --> 00:19:35,600 Speaker 1: look collectively, you know, SMPPS for next quarter I think 335 00:19:35,600 --> 00:19:38,919 Speaker 1: still shows a sequential decline versus last quarter. So we 336 00:19:38,960 --> 00:19:41,040 Speaker 1: do think there's you know, the potential as we get 337 00:19:41,040 --> 00:19:43,320 Speaker 1: into actually post f O m C. I think as 338 00:19:43,320 --> 00:19:45,920 Speaker 1: people start to look at it, look at earnings and 339 00:19:46,160 --> 00:19:48,600 Speaker 1: sharpen their pencils. I think earnings could you know, turn 340 00:19:48,640 --> 00:19:51,040 Speaker 1: out to be a positive catalyst over over the course 341 00:19:51,040 --> 00:19:53,160 Speaker 1: of the rest of the month. We've heard that now 342 00:19:53,200 --> 00:19:55,879 Speaker 1: this is the second time. That's an important insight. Sharpen 343 00:19:55,920 --> 00:19:57,880 Speaker 1: the pencils as we go to earnings and of course, 344 00:19:57,880 --> 00:20:00,440 Speaker 1: we'll do that here on Surveillan Stewart cards, and we 345 00:20:00,520 --> 00:20:02,879 Speaker 1: look forward to you sharpening at your pencil in a 346 00:20:02,880 --> 00:20:05,320 Speaker 1: couple of weeks with us as well. UBS had an 347 00:20:05,359 --> 00:20:13,920 Speaker 1: equity derivative research. Joining us now is someone who has 348 00:20:13,920 --> 00:20:17,399 Speaker 1: a courage to take a longer perspective. Claudia Sam is 349 00:20:17,400 --> 00:20:20,840 Speaker 1: one of the most interesting practicing economists in the nation 350 00:20:20,960 --> 00:20:25,199 Speaker 1: with Jane Family Institute formally with the Federal Reserve and 351 00:20:25,400 --> 00:20:29,880 Speaker 1: always controversial. We're thrilled and Missam could join us. This warning, Claudia, 352 00:20:29,960 --> 00:20:33,760 Speaker 1: I love your Morning Report where you say, look, would 353 00:20:33,760 --> 00:20:37,879 Speaker 1: everybody grow up and stop looking at weekly claims, stop 354 00:20:37,960 --> 00:20:41,480 Speaker 1: looking monthly, monthly thinking monthly. You want us to have 355 00:20:41,600 --> 00:20:44,480 Speaker 1: the courage to look out a decade. What do you 356 00:20:44,520 --> 00:20:48,760 Speaker 1: mean by that? Well, I follow every shred of data, 357 00:20:48,920 --> 00:20:52,919 Speaker 1: just like anyone else who's doing macroeconomics right now. But 358 00:20:53,040 --> 00:20:56,160 Speaker 1: I am so frustrated with the fact that we can't 359 00:20:56,200 --> 00:20:59,640 Speaker 1: even set the latest numbers in the context of the pandemic, 360 00:21:00,320 --> 00:21:03,840 Speaker 1: let alone the decades of trend that we have seen. 361 00:21:04,280 --> 00:21:08,320 Speaker 1: Inflation is just one example, has trended down decade after decade. 362 00:21:08,600 --> 00:21:11,800 Speaker 1: Trends do not reverse in a month. Or two like 363 00:21:11,880 --> 00:21:16,439 Speaker 1: this is absurd. And we also, and this is very disconcerting, 364 00:21:16,520 --> 00:21:20,840 Speaker 1: have seen for decades fewer people working. I mean the 365 00:21:20,840 --> 00:21:25,320 Speaker 1: employment to population ratio. If you smooth across the recessions, 366 00:21:25,359 --> 00:21:29,399 Speaker 1: it's been going down. Claudia Samas again as Air Force 367 00:21:29,440 --> 00:21:33,960 Speaker 1: one begins a flight three p m. This afternoon, President, 368 00:21:34,040 --> 00:21:36,840 Speaker 1: the first Lady will be at Royal Air Force Milden 369 00:21:36,880 --> 00:21:40,159 Speaker 1: Hall in the United Kingdom and then onto Cornwall in 370 00:21:40,240 --> 00:21:44,080 Speaker 1: the G seven meetings. Very impressive. They're going to go 371 00:21:44,119 --> 00:21:46,760 Speaker 1: to Tregana Castle. I think that was in poll dark 372 00:21:46,840 --> 00:21:50,280 Speaker 1: as as well. Claudia. G seven meetings speaks to the 373 00:21:50,320 --> 00:21:55,040 Speaker 1: international economy. Where does the US fit in right now? 374 00:21:55,200 --> 00:21:59,840 Speaker 1: After the Trump years? The President clearly wants to reassert 375 00:22:00,320 --> 00:22:05,280 Speaker 1: abiden tone internationally. How would you suggest his best practice 376 00:22:05,320 --> 00:22:09,399 Speaker 1: would be, it's time to lead and and it's time 377 00:22:09,440 --> 00:22:12,840 Speaker 1: to work with these other countries. It's just like this 378 00:22:12,880 --> 00:22:15,720 Speaker 1: moment in the pandemic. We are not going to be 379 00:22:15,800 --> 00:22:19,000 Speaker 1: on track until the least privileged among us in the 380 00:22:19,040 --> 00:22:22,640 Speaker 1: world community are on track. And the United States has 381 00:22:22,680 --> 00:22:26,320 Speaker 1: a responsibility, a moral responsibility to help people get out 382 00:22:26,320 --> 00:22:29,720 Speaker 1: of the pandemic and the vaccines. But there's a leadership 383 00:22:29,720 --> 00:22:32,560 Speaker 1: in the global economy that frankly starts at home and 384 00:22:32,640 --> 00:22:35,480 Speaker 1: investing in the United States and its people. Like that's 385 00:22:35,520 --> 00:22:38,119 Speaker 1: an example we need to set for the rest of 386 00:22:38,119 --> 00:22:40,600 Speaker 1: the world. Let's tie the idea of the global stage 387 00:22:40,880 --> 00:22:44,520 Speaker 1: with the domestic one. The idea here of inflation being 388 00:22:44,560 --> 00:22:47,439 Speaker 1: an international story. And one reason why people say for 389 00:22:47,520 --> 00:22:50,359 Speaker 1: decades inflation has been coming down is because of the 390 00:22:50,400 --> 00:22:53,280 Speaker 1: disinflation that was imported from China, the idea that there 391 00:22:53,280 --> 00:22:56,040 Speaker 1: could be some cheap labor uh and and and cheap 392 00:22:56,080 --> 00:22:59,199 Speaker 1: goods that the US was importing. We are seeing a 393 00:22:59,320 --> 00:23:02,600 Speaker 1: shift in How much does that change the underlying premise 394 00:23:02,640 --> 00:23:05,359 Speaker 1: that inflation will not pick up if China is a 395 00:23:05,359 --> 00:23:10,040 Speaker 1: wealthier nation that's seeing inflation itself pick up, right, well, 396 00:23:10,080 --> 00:23:12,920 Speaker 1: I think it's important, especially as we watch the month 397 00:23:12,960 --> 00:23:16,639 Speaker 1: to month numbers, to know that we have different cross currents, right, 398 00:23:16,680 --> 00:23:19,679 Speaker 1: deflationary pressures, particularly now that we are still in a 399 00:23:19,720 --> 00:23:23,560 Speaker 1: pandemic around the world there with US Now, obviously there 400 00:23:23,600 --> 00:23:26,760 Speaker 1: are supply chain issues that have come from the pandemic 401 00:23:26,880 --> 00:23:28,879 Speaker 1: that are pushing against it. So it's kind of a 402 00:23:28,960 --> 00:23:32,240 Speaker 1: race between the two. But I'm betting on the longer 403 00:23:32,359 --> 00:23:35,679 Speaker 1: run trends, and it may change like China, it may 404 00:23:35,800 --> 00:23:38,960 Speaker 1: shift around the world, but it's going to do so slowly. 405 00:23:39,080 --> 00:23:41,760 Speaker 1: We're not turning on a dime here. Yeah, well, there 406 00:23:41,800 --> 00:23:44,040 Speaker 1: is a question, especially as we emerge from the pandemic 407 00:23:44,080 --> 00:23:46,920 Speaker 1: and President Biden among his comments saying that the world 408 00:23:47,040 --> 00:23:51,320 Speaker 1: vaccination strategy that he has he's going to detail in 409 00:23:51,400 --> 00:23:54,360 Speaker 1: his trip to Europe. He is making comments as he 410 00:23:54,359 --> 00:23:58,200 Speaker 1: heads overseas for the G seven meeting, Claudia, going forward, 411 00:23:58,520 --> 00:24:01,119 Speaker 1: what is giving you convict shition that you are right in? 412 00:24:01,200 --> 00:24:03,600 Speaker 1: All of these former FETE officials and others who are 413 00:24:03,600 --> 00:24:06,680 Speaker 1: coming out and warning against being too sanguine about inflation 414 00:24:07,080 --> 00:24:11,120 Speaker 1: are wrong. So I'm a good forecaster and I've trained 415 00:24:11,160 --> 00:24:13,520 Speaker 1: with the best in the world. I mean the Federal Reserve. 416 00:24:13,560 --> 00:24:17,600 Speaker 1: They take inflation very seriously. They think about the data. Frankly, 417 00:24:17,680 --> 00:24:21,320 Speaker 1: the staff did better forecasting than the Federal Open Market 418 00:24:21,320 --> 00:24:23,959 Speaker 1: Committee for years telling them you're not getting to unless 419 00:24:24,000 --> 00:24:27,720 Speaker 1: you do something. So I think there's a thoughtfulness, a 420 00:24:27,880 --> 00:24:33,080 Speaker 1: grounding in data, and an understanding that supply chain issues 421 00:24:33,280 --> 00:24:35,840 Speaker 1: do tend to be temporary. We live in a very 422 00:24:35,880 --> 00:24:39,320 Speaker 1: different world, a very different economy than in the nineteen seventies. 423 00:24:39,880 --> 00:24:42,480 Speaker 1: And while I think inflation is going to run, you're 424 00:24:42,520 --> 00:24:45,480 Speaker 1: over year around three percent the rest of this year. 425 00:24:46,119 --> 00:24:49,760 Speaker 1: That's a good sign. That is a economy getting back 426 00:24:49,840 --> 00:24:53,560 Speaker 1: on track, getting people back to work, And I just 427 00:24:53,720 --> 00:24:55,639 Speaker 1: I want people to write down their numbers so we 428 00:24:55,680 --> 00:24:58,040 Speaker 1: can have a conversation. Do you think that there would 429 00:24:58,080 --> 00:25:01,400 Speaker 1: be if we got to say three or any around there, Claudia, 430 00:25:01,440 --> 00:25:04,080 Speaker 1: do you think that there would be any conflict with 431 00:25:04,240 --> 00:25:08,000 Speaker 1: an inflation rate at that level? Uh? And I guess 432 00:25:08,040 --> 00:25:09,879 Speaker 1: the other side of the mandate here, which is of 433 00:25:09,920 --> 00:25:13,399 Speaker 1: course getting that full employment level, whatever that may be 434 00:25:13,520 --> 00:25:16,399 Speaker 1: at this point. Right, Well, they're both pointing in the 435 00:25:16,440 --> 00:25:19,680 Speaker 1: same direction. Again, if we look back last year, inflation 436 00:25:19,760 --> 00:25:22,760 Speaker 1: was running around one percent. The FED says it once 437 00:25:22,800 --> 00:25:24,960 Speaker 1: on average too. I mean the last time I checked 438 00:25:24,960 --> 00:25:27,840 Speaker 1: one in three average to two. Right, So the Fed 439 00:25:28,000 --> 00:25:30,919 Speaker 1: is on track, and we have millions of people who 440 00:25:31,000 --> 00:25:34,520 Speaker 1: are not on the job. So there are mandates pushing 441 00:25:34,520 --> 00:25:37,560 Speaker 1: in the same direction. And I really struggled to see 442 00:25:37,600 --> 00:25:39,960 Speaker 1: the conflict here. As part of that mandate, though, do 443 00:25:40,000 --> 00:25:41,840 Speaker 1: you think that there's going to be more focused on 444 00:25:41,880 --> 00:25:45,719 Speaker 1: the quality of jobs rather than just that aggregate number. Well, 445 00:25:45,800 --> 00:25:48,399 Speaker 1: there should be that's what full employment is. Maybe you 446 00:25:48,440 --> 00:25:51,120 Speaker 1: go back decades and decades, it wasn't just about having 447 00:25:51,119 --> 00:25:53,919 Speaker 1: a job, it was having a job at a livable wage. 448 00:25:54,359 --> 00:25:58,119 Speaker 1: And frankly, I'm surprised at some of the movement we've seen, 449 00:25:58,880 --> 00:26:01,560 Speaker 1: not just in wages but getting people, you know, more 450 00:26:01,600 --> 00:26:04,040 Speaker 1: regular hours. I mean, there are so many things we 451 00:26:04,080 --> 00:26:06,440 Speaker 1: can do in the labor market to make jobs better 452 00:26:06,960 --> 00:26:09,680 Speaker 1: that are frankly no brainers. And we should have been 453 00:26:09,680 --> 00:26:13,960 Speaker 1: there before the pandemic and we weren't. Clodius, I thank 454 00:26:14,000 --> 00:26:15,760 Speaker 1: you so much. You've got to keep it shorter today 455 00:26:15,800 --> 00:26:19,000 Speaker 1: because of the President's trip, but greatly greatly appreciate it. 456 00:26:19,080 --> 00:26:22,040 Speaker 1: Clodius and I can't say enough folks about following her 457 00:26:22,040 --> 00:26:25,240 Speaker 1: on Twitter just to get her thoughts on the present 458 00:26:25,280 --> 00:26:28,040 Speaker 1: economic data and the longer view as well with the 459 00:26:28,160 --> 00:26:39,080 Speaker 1: Jane Family Institute. This is the equity conversation of the 460 00:26:39,160 --> 00:26:42,800 Speaker 1: moment for me. Jonathan Gollub with credit Sweez, you were 461 00:26:42,880 --> 00:26:45,920 Speaker 1: way out front months ago with respect for the big tech. 462 00:26:46,000 --> 00:26:49,199 Speaker 1: They've been some no lent here over the last X 463 00:26:49,280 --> 00:26:51,520 Speaker 1: number of months. What do you do with big tech 464 00:26:51,680 --> 00:26:56,879 Speaker 1: right now? I think that the real story here is 465 00:26:57,200 --> 00:26:59,520 Speaker 1: not a tech versus the rest of the market. But 466 00:26:59,600 --> 00:27:04,280 Speaker 1: really about the power of the reopening and operating leverage, 467 00:27:04,680 --> 00:27:08,359 Speaker 1: and you want to be in companies that benefit the 468 00:27:08,400 --> 00:27:12,640 Speaker 1: most from the stimulus and the reopening, and those tend 469 00:27:12,720 --> 00:27:16,240 Speaker 1: to be higher fixed cost businesses and old economy businesses. 470 00:27:16,480 --> 00:27:19,639 Speaker 1: I think the tech ends up being a market performer. 471 00:27:20,160 --> 00:27:24,359 Speaker 1: These these tech names are superior long term best five years, 472 00:27:24,359 --> 00:27:27,119 Speaker 1: ten years, they wouldn't want to hold. But over the 473 00:27:27,160 --> 00:27:29,919 Speaker 1: next three to six months between now and the end 474 00:27:29,920 --> 00:27:33,080 Speaker 1: of the year, I think that they're they're they're kind 475 00:27:33,119 --> 00:27:35,639 Speaker 1: of in the game, but they're not leading the pack. Okay, 476 00:27:35,680 --> 00:27:37,480 Speaker 1: they're in the game, they're not leading them pack. But 477 00:27:37,600 --> 00:27:41,520 Speaker 1: to me, what's so important here is they've got revenue growth. 478 00:27:41,760 --> 00:27:47,360 Speaker 1: When you get operating leverage, increase fixed cost advantage. Does 479 00:27:47,440 --> 00:27:52,359 Speaker 1: revenue growth matter? It does, but but it really depends 480 00:27:52,359 --> 00:27:54,159 Speaker 1: on the kind of business. What you really want is 481 00:27:54,240 --> 00:27:57,320 Speaker 1: if you think about a factory where a huge amount 482 00:27:57,320 --> 00:27:59,879 Speaker 1: of the overhead is in that building and the machine, 483 00:28:00,480 --> 00:28:05,240 Speaker 1: when you increase revenues, it drops right to the bottom line. 484 00:28:05,720 --> 00:28:09,440 Speaker 1: You just don't have the same dynamic for a software 485 00:28:09,440 --> 00:28:12,840 Speaker 1: company you do for hardware, you do for technology equipment companies. 486 00:28:13,119 --> 00:28:16,840 Speaker 1: You do for semis, but you don't for internet companies 487 00:28:16,920 --> 00:28:21,000 Speaker 1: or social media companies. So the pure play on this 488 00:28:21,680 --> 00:28:26,240 Speaker 1: is to buy banks and commodities and industrial names and 489 00:28:26,320 --> 00:28:31,280 Speaker 1: transportation companies, stuff that doesn't seem all that innovative, but 490 00:28:31,440 --> 00:28:36,040 Speaker 1: tends to get a bigger unit of EPs growth from 491 00:28:36,040 --> 00:28:39,560 Speaker 1: a single unit of revenue growth. Jonathan, how concerned should 492 00:28:39,600 --> 00:28:43,240 Speaker 1: I be about margins here? You know, in supporting earnings 493 00:28:43,280 --> 00:28:45,600 Speaker 1: going forward? I mean, and I really think about it 494 00:28:45,600 --> 00:28:50,160 Speaker 1: from the wage inflation perspective here, I think, you know, 495 00:28:50,200 --> 00:28:53,320 Speaker 1: as this economy reopens, is that a big risk that 496 00:28:53,320 --> 00:28:58,240 Speaker 1: we have wage inflation to the point that it impacts profitability? 497 00:28:58,840 --> 00:29:01,600 Speaker 1: You know, we we we've a bunch of research on this, 498 00:29:01,720 --> 00:29:04,240 Speaker 1: and we're finding is two things. First of all, right now, 499 00:29:04,800 --> 00:29:09,160 Speaker 1: companies have an extraordinary amount of pricing power. Um. The 500 00:29:09,240 --> 00:29:13,240 Speaker 1: ability to pass on higher costs is just shocking up. 501 00:29:13,280 --> 00:29:16,120 Speaker 1: I guess give you one specific example, UM, people who 502 00:29:16,160 --> 00:29:20,120 Speaker 1: make you know, um sugary beverages. Yeah, you know, soft drinks. 503 00:29:20,840 --> 00:29:23,120 Speaker 1: They're the cost of corn sweeteners up, the cost of 504 00:29:23,160 --> 00:29:25,120 Speaker 1: the cans up, The cost of the oil is up. 505 00:29:25,160 --> 00:29:28,000 Speaker 1: To transport those cance full of sugary water to the 506 00:29:28,040 --> 00:29:32,280 Speaker 1: store is up, and yet their profit margins are rising 507 00:29:32,720 --> 00:29:35,680 Speaker 1: because they're able to pass on that cost and some 508 00:29:36,320 --> 00:29:40,320 Speaker 1: and you're seeing that very very broadly. There's a problem, though, 509 00:29:40,520 --> 00:29:44,200 Speaker 1: is if you look further out into the future, once 510 00:29:44,280 --> 00:29:47,520 Speaker 1: you increase those wages, you can't bring it back down. 511 00:29:47,560 --> 00:29:49,480 Speaker 1: You know, the price of every one of the things 512 00:29:49,480 --> 00:29:52,400 Speaker 1: I mentioned, maybe oil prices going back down, maybe all, 513 00:29:52,760 --> 00:29:56,000 Speaker 1: but wages stick. And so your point, I think is 514 00:29:56,040 --> 00:30:01,800 Speaker 1: the good one. Commodity inflation, not concerning age inflation more concerned. 515 00:30:01,880 --> 00:30:04,680 Speaker 1: Do you think that John Gollub does this research with 516 00:30:04,800 --> 00:30:07,760 Speaker 1: a Canna mountain do in his hand. Absolutely, He's got 517 00:30:08,240 --> 00:30:10,760 Speaker 1: a red bull on the other one. Detail he's got 518 00:30:10,760 --> 00:30:14,480 Speaker 1: a seltzer and his killed potato vodka seltzer, and he's 519 00:30:14,520 --> 00:30:18,640 Speaker 1: just he's all set up for beverage research. Jonathan, Let's 520 00:30:18,640 --> 00:30:23,200 Speaker 1: talk valuation here. I mean three times forward earnings. I 521 00:30:23,280 --> 00:30:25,800 Speaker 1: know earnings have come through really strong over the past 522 00:30:25,800 --> 00:30:32,080 Speaker 1: several quarters, but should investors be asking some valuation questions? Um? 523 00:30:32,240 --> 00:30:35,040 Speaker 1: For first of all, you know we are at you know, 524 00:30:35,200 --> 00:30:38,840 Speaker 1: we're we're absolutely stretched valuations. I think, Um, if you 525 00:30:39,000 --> 00:30:43,880 Speaker 1: if you assume and I do, that the earnings are underestimated. 526 00:30:43,960 --> 00:30:46,440 Speaker 1: I mean take a look at last quarter UM where 527 00:30:46,480 --> 00:30:49,920 Speaker 1: you had something like a twenty plus percent beat. If 528 00:30:50,000 --> 00:30:53,280 Speaker 1: we see something even directionally like that, what it means 529 00:30:53,320 --> 00:30:56,800 Speaker 1: is the actual PE multiple is much much lower than 530 00:30:56,840 --> 00:31:00,479 Speaker 1: the stated number because the earnings are underestimated UM. So 531 00:31:00,560 --> 00:31:03,280 Speaker 1: that's the most important thing. The second issue is if 532 00:31:03,320 --> 00:31:06,920 Speaker 1: you compare now to history, there are two big differences. 533 00:31:07,200 --> 00:31:10,520 Speaker 1: Interest rates or discount rate is much lower, and number two, 534 00:31:10,880 --> 00:31:14,760 Speaker 1: the cash full generation of the SMP is much higher. 535 00:31:15,000 --> 00:31:16,760 Speaker 1: Some of that is text, some of that is just 536 00:31:16,880 --> 00:31:20,040 Speaker 1: changing business practices. So I think that we're gonna be 537 00:31:20,080 --> 00:31:24,400 Speaker 1: carrying a higher multiple for the next decade. I think 538 00:31:24,400 --> 00:31:26,600 Speaker 1: that multiple is just gonna be higher. But in the 539 00:31:26,680 --> 00:31:30,520 Speaker 1: near term, I think that the multiples are probably overstated 540 00:31:30,840 --> 00:31:33,920 Speaker 1: because we're understating the E and the P formula. What's 541 00:31:33,920 --> 00:31:36,320 Speaker 1: your study on use of cash right now? What is 542 00:31:36,360 --> 00:31:40,720 Speaker 1: your study on dividend growth? Share buy back? Which is 543 00:31:40,760 --> 00:31:45,120 Speaker 1: obvious but critically, is there truly an appetite for capex 544 00:31:46,640 --> 00:31:50,360 Speaker 1: um if? That's a brilliant question and I'm not just 545 00:31:50,400 --> 00:31:54,800 Speaker 1: saying that the bi back. Here's what's happened, tom is 546 00:31:54,880 --> 00:32:00,680 Speaker 1: the buy backs have gotten totally slashed, but the corporate 547 00:32:00,840 --> 00:32:04,120 Speaker 1: free cash flow generation has gotten better. So here's what 548 00:32:04,200 --> 00:32:07,800 Speaker 1: normally happens during a session companies free cash flows just 549 00:32:08,200 --> 00:32:11,200 Speaker 1: collapse and they need to pull in. They need to 550 00:32:11,240 --> 00:32:13,440 Speaker 1: cut their nobody wants to cut a dividend, so they 551 00:32:13,520 --> 00:32:17,240 Speaker 1: kill their buy backs and then they reinstate them later. 552 00:32:17,680 --> 00:32:20,320 Speaker 1: Now you've had this weird thing, is that they've killed 553 00:32:20,320 --> 00:32:24,400 Speaker 1: the buybacks in anticipation of of this thing being really ugly, 554 00:32:24,720 --> 00:32:27,360 Speaker 1: and in fact the cash flows have held up so quickly. 555 00:32:27,360 --> 00:32:30,960 Speaker 1: What happens then, So what happens? Five backs are going 556 00:32:31,000 --> 00:32:33,760 Speaker 1: to increase way, way, way more than we think over 557 00:32:33,760 --> 00:32:35,800 Speaker 1: the next two or three years, and it's going to 558 00:32:35,840 --> 00:32:38,280 Speaker 1: support the market. They'll give a real pine. I think 559 00:32:38,400 --> 00:32:41,120 Speaker 1: Mr Golub's onto something there, and that's maybe the great 560 00:32:41,160 --> 00:32:45,200 Speaker 1: surprise September as well. Jonathan Golubs always aren't always in 561 00:32:45,240 --> 00:32:49,880 Speaker 1: the market. Credit Suites Chief US Equity Strategists. This is 562 00:32:49,920 --> 00:32:53,920 Speaker 1: the Bloomberg Surveillance Podcast. Thanks for listening. Join us live 563 00:32:54,040 --> 00:32:57,840 Speaker 1: weekdays from seven to ten am Eastern on Bloomberg Radio 564 00:32:58,040 --> 00:33:01,640 Speaker 1: and on Bloomberg Television each day from six to nine 565 00:33:01,720 --> 00:33:06,120 Speaker 1: am for insight from the best in economics, finance, investment, 566 00:33:06,280 --> 00:33:11,280 Speaker 1: and international relations and subscribe to the Surveillance podcast on 567 00:33:11,400 --> 00:33:15,200 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on 568 00:33:15,320 --> 00:33:19,440 Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg