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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily

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Speaker 1: we bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Right now.

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Speaker 1: On the markets, Lize Saunders joints with Charles Schwaber, Chief

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Speaker 1: Investment Strategists and listne I've got up on the screen

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Speaker 1: on SPX. You know down December of a few years ago,

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Speaker 1: down twenty in the ugliness a year or so ago,

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Speaker 1: and then you know in the recent pullback down nine

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Speaker 1: or point nine percent, you have had the courage to

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Speaker 1: stay in the market and participate. Justify that. How do

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Speaker 1: you go through the process of staying in the market

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Speaker 1: when we pull back, Well, it depends on what you

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Speaker 1: mean by stay. What we have been espousing, which is

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Speaker 1: not terribly unique versus any other quote normal time in

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Speaker 1: the environment is not just stay, but be disciplined, particularly

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Speaker 1: around things like periodic rebalancing. And specific to that, our

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Speaker 1: message has been for investors that have historically done rebalancing

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Speaker 1: on a calendar basis, they might do it on a

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Speaker 1: quarterly basis. Or an annual basis, similar to what mutual

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Speaker 1: funds do. They typically rebound for last week and each quarter.

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Speaker 1: But to let volatility be your guide as to wander rebalance.

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Speaker 1: I have your portfolio dictate a message around rebalancing. So

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Speaker 1: you're sort of trimming into some of these big pops

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Speaker 1: in the market. You're adding during periods of weakness. It's

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Speaker 1: not all or nothing decision making, but it keeps you

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Speaker 1: in gear and forces us, of course to do what

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Speaker 1: we know we're supposed to, which is you know, ad

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Speaker 1: low and trim high. So it's that rebalancing shift that

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Speaker 1: we have been pushing this year. There's not just in

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Speaker 1: terms of your approach the single names. What are you

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Speaker 1: advising clients at the moment. So, of course I don't

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Speaker 1: analyze individual stocks, but two investors who like to pick stocks.

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Speaker 1: What we have been telling investors to focus on is

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Speaker 1: factor more than either sector or style. And the factor

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Speaker 1: that has been most consistently successful in this environment really

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Speaker 1: throughout the entire year pre pandemic, you know, into the

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Speaker 1: the bear market portion of this, and then since March

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Speaker 1: twenty three low is balance sheet quality and even in

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Speaker 1: sectors that have not been as dominant from a performance perspective.

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Speaker 1: That quality factor has been leadership. So you can look

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Speaker 1: for that quality basis, and I think factor in particular

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Speaker 1: is more important than sector in this environment. So listen.

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Speaker 1: Yesterday black Rock chief executive Larry Fink came out after

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Speaker 1: they reported that their assets had surged to nearly eight

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Speaker 1: trillion dollars, and he said, I believe we still have

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Speaker 1: more to go on the upside. He was talking about equities.

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Speaker 1: We have a strong conviction that the average investor still

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Speaker 1: is underinvested. Some people say he's just talking his book.

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Speaker 1: Do agree with him? Well, it depends on what you

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Speaker 1: mean by the average investor. You can bring at the

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Speaker 1: market and investors into cohorts. I think the you know,

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Speaker 1: the cohort that's getting a lot of attention recently. I've

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Speaker 1: been calling the newly minted day trader. I'm not sure

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Speaker 1: there's a lot of liquidity left there, but they're trading

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Speaker 1: fairly small amounts. If you look at other measures of sentiment.

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Speaker 1: Certainly from an attitudinal standpoint, older investors they're a little

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Speaker 1: bit more cautious. But when you look at money market

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Speaker 1: UH funds and the amount in there sitting there is

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Speaker 1: and sort of pseudo cash on the sidelines aren't necessarily

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Speaker 1: like that term. Relative to overall market cap, it's a

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Speaker 1: fairly low number, and cash and mutual funds is a

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Speaker 1: fairly low number. Two. If you look over the long

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Speaker 1: term at households exposure to equities, it's down a little

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Speaker 1: bit off the recent peak, but in kind of the

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Speaker 1: highest quintile historically. So I'm not so sure I buy

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Speaker 1: the argument that there's just massive amounts of money um

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Speaker 1: sitting there waiting to go into the market. I think

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Speaker 1: it's a mixed bag. Listen, I want to go back

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Speaker 1: to something you and I know well, which is the

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Speaker 1: work of Stephen Ross at m I T on factor analysis.

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Speaker 1: You've got to talk more about this. I want you

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Speaker 1: to explain why so much of what we do day

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Speaker 1: to day within investment firms and within the newly minted

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Speaker 1: ignores factor analysis and what's going to be the the

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Speaker 1: the variable at three in five years that drives Steven

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Speaker 1: Ross's original world, well, the newly minted day traders, uh,

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Speaker 1: the the data we have both anecdotally and then just

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Speaker 1: looking at the activity among that cohort clearly is not

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Speaker 1: focusing really on anything terribly fundamental be evaluation, UH factors,

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Speaker 1: long term learning growth. I think it's it's purely a

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Speaker 1: momentum play. That momentum can be in areas that may

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Speaker 1: be justified by some fundamental certain tech type stocks, but

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Speaker 1: also just purely gambling plays like some of the activity

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Speaker 1: that we saw in areas like the bankruptcy stock. So

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Speaker 1: I would I wouldn't sort of add that cohort in

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Speaker 1: as making decisions based on any fundamental I think the

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Speaker 1: reason why the quality factor and I and I agree.

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Speaker 1: I think there will be increasing focus on factor based

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Speaker 1: decision making um, not just because of the positive bias

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Speaker 1: that's had in terms of performance in this environment, but

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Speaker 1: the realization that there's so much diversity within sectors that

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Speaker 1: making that blanket sector call is probably not the path

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Speaker 1: toward long term investing success. That those factors around things

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Speaker 1: like in this environment, quality I think supersede a more

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Speaker 1: simplistic focus just on the sector level. Is that great

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Speaker 1: to catch up this morning, Thanks for a time stone

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Speaker 1: as that joh schwapwagon on this equity market right now.

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Speaker 1: Instets joins us with Morgan Stanley. Always wonderful to have

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Speaker 1: them on. Truly on the dynamics and correlations of the

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Speaker 1: market inder sheets. Is the equity market alone year or

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Speaker 1: is it other markets that adapting and adjusting to the

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Speaker 1: expectation out there? Well, good morning and good to be

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Speaker 1: with you. You know what I think is pretty fascinating

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Speaker 1: about both the equity market, but but a lot of

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Speaker 1: different markets is that you know that the headline levels

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Speaker 1: speak to quite a bit of optimism. We're back near

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Speaker 1: the highs and the SMP five um that that would

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Speaker 1: clearly suggest a quite optimistic outlook on the economy and events.

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Speaker 1: And yet I think across a lot of these markets

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Speaker 1: you still have a lot of the kind of the

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Speaker 1: micro relationships, the inner market relationships that reflect a lot

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Speaker 1: of growth pessimism. Um Right, small caps still trade to

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Speaker 1: historically large discount to large caps. Yields are still very low,

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Speaker 1: the curve is still very flat on the race show

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Speaker 1: between high yield and investment grade spreads is still pretty wide.

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Speaker 1: Um And and all those things are are what you

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Speaker 1: would expect if investors were less confident about growth, not

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Speaker 1: more confident. So I do think it's a pretty nuanced picture. Yes,

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Speaker 1: you know, the headline indusicries are high. It's it's easy

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Speaker 1: to kind of read that as, oh, there's there's an

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Speaker 1: enormous amount of growth optimism that's come into the market.

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Speaker 1: But but actually, I think looking below the surface, what

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Speaker 1: I think that would suggest is there's a lot more confidence.

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Speaker 1: I think on there's a that that there's a lot

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Speaker 1: of liquidity in the market, then there's a lot of

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Speaker 1: confidence and high expectation that growth is going to rebound strongly. Andrew,

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Speaker 1: I might have misheard you. Did you just say that

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Speaker 1: spreads are still pretty wide? Yeah, so, I I know

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Speaker 1: it might have sounded like a like a misquote. No,

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Speaker 1: if if we look at, you know, the relationship between

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Speaker 1: high yield and investment grade UM, you know that relationship

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Speaker 1: is still pretty pretty elevated UM in the sense that

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Speaker 1: high yield spreads have come in a lot less relative

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Speaker 1: to too higher quality spreads. And even you know, within

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Speaker 1: the high old market, you know, you still see pretty

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Speaker 1: average levels of UM evaluation gaps between say kind of

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Speaker 1: single BE credit and double B credit. So you know,

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Speaker 1: our our view is has you know, is and remains

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Speaker 1: pretty constructive on the credit space. You know, yes, it

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Speaker 1: has rallied in. Yes, there's a lot less value than

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Speaker 1: there was there over the summer but I think this

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Speaker 1: is an asset class that rarely trades at the average,

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Speaker 1: and I think we're in one of those phases where

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Speaker 1: we're moving from spreads being kind of too wide to

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Speaker 1: probably the next phase being they need to move to

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Speaker 1: being too tight. All right, Andrew John Farrow is just

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Speaker 1: setting me up because he wants me to ask you,

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Speaker 1: I'm sure about the incredible amount of money that's poured

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Speaker 1: into the triple C space and this question about whether

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Speaker 1: we've seen the end of the bankruptcy cycle. In other words,

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Speaker 1: are you saying that spreads are going to tighten because

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Speaker 1: credit quality is perhaps under priced right now that basically

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Speaker 1: investors aren't giving the benefit of the doubt the likes

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Speaker 1: of Carnival at Delta and these other companies have yet

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Speaker 1: to get back on board. Or you saying that liquidity

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Speaker 1: will overcome all of those concerns and they won't be

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Speaker 1: an issue for creditors. Yeah, So I think it's actually

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Speaker 1: a little bit of a little bit between the two.

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Speaker 1: I think actually it's a would be a pretty common,

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Speaker 1: pretty normal credit cycle to see the market rally and

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Speaker 1: improve ahead of kind of the ahead of the peak

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Speaker 1: in the default rate, ahead of um the worst of

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Speaker 1: of of the downgrade cycle. You know, we saw some

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Speaker 1: of that in two thousand nine and ten, where where

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Speaker 1: the market had had largely recovered in even as there

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Speaker 1: were still quite a few downgrades to happen, even as

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Speaker 1: you know, many companies did go on and default. That

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Speaker 1: the credit market I think does have some some precedent

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Speaker 1: of of moving well ahead of those factors. And so

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Speaker 1: you know, I guess what I would see it more

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Speaker 1: consistent with is that kind of that normal, that normal

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Speaker 1: cycle that yes, you know you still will see down grades,

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Speaker 1: you'll still see defaults, but that you know, the credit

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Speaker 1: market is and I think a reasonable job of some

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Speaker 1: differentiation there and that those those events won't be enough

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Speaker 1: to derail the broader high yield market. Andrew is so

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Speaker 1: constructive you make in Leasa depress. Can you just tell

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Speaker 1: me what would make you bearish on a Sunday when

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Speaker 1: you write that Sunday start and note that everyone wants

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Speaker 1: to be on the distribution list for what makes Andrew

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Speaker 1: sheets bearish? Thank you that note? When it comes out?

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Speaker 1: What changes it? Yeah? Sure? So, so I do think

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Speaker 1: the case for credit is better than than other asset classes.

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Speaker 1: You know, we have we have less upside to our

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Speaker 1: to our US equity targets, we have less upside to

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Speaker 1: our emerging market equity targets. I think those are markets

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Speaker 1: that we do think are are more fully valued than

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Speaker 1: the credit market is, and and they do think if

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Speaker 1: we kind of think through us, you know, election outcomes,

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Speaker 1: and I think there's a lot of focus on you know,

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Speaker 1: what's what's the immediate market reaction to different combinations. But

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Speaker 1: but there are certainly combinations where you could uh inhibit

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Speaker 1: further fiscal stimulus in the US, and I think that

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Speaker 1: could be problematic. You know, if you if you had

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Speaker 1: to ask me, you know, what's the broader scenario that

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Speaker 1: would worry me most longer term. It's it's almost that

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Speaker 1: we have a little bit of a groundhog day with

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Speaker 1: where you know, back then, we were coming out of

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Speaker 1: a recession, we were coming out of a really bad place.

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Speaker 1: There was a lot of stimulus in the system, and

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Speaker 1: then the stimulus just kind of stopped and the market

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Speaker 1: focus shifted to balancing the budget, fiscal austerity, and those

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Speaker 1: types of things really slowed down the recovery. And so

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Speaker 1: my my concern would be that maybe you go through

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Speaker 1: that again, that you've You've had this very sharp recovery

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Speaker 1: off the loads, and in March and April um that

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Speaker 1: that actually kind of policy makers take their their feet

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Speaker 1: off the gas next year and the recovery isn't as

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Speaker 1: as strong as we expect. Andrew right to catch up,

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Speaker 1: Andrew Chase and Morgan Stanley, and congratulations on the call

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Speaker 1: so far in twenty far more constructive than the consensus

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Speaker 1: through this year for an economic recovery. Not just Andrew Chase,

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Speaker 1: my Wilson on equities alon zetting around the economy and

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Speaker 1: the United States. Chet and I are laid in the

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Speaker 1: research Matt holmeback named the right side of things right

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Speaker 1: now on the reality, which is, if you're a shareholder

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Speaker 1: of Morgan Stanley and Goldman Sachs, guess what, it's been

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Speaker 1: a lousy ten years. You're compared to a lot of

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Speaker 1: other things out there, given all the challenges, it hasn't happened.

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Speaker 1: The Fortress Gorman Okay, eight percent a year, maybe tenure return.

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Speaker 1: Golden Sacks totally unacceptable under four percent return per year.

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Speaker 1: Christian below holding Court at Credit Suites and particularly at

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Speaker 1: Bernstein joins us now with Autonomous Research and their senior

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Speaker 1: analyst Christian. You are long these guys and particularly long

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Speaker 1: Golden Sacks. How do they do better than the terrible

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Speaker 1: performance of the last ten years? Good good, good morning

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Speaker 1: Tom Um trying to help you on Goldman. I thought

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Speaker 1: help in the iPhone though one twelve UM on Goldman. Look,

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Speaker 1: I think, UM, there are many differences this cycle versus

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Speaker 1: last cycle UM in terms of business mix. UM, I

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Speaker 1: think the lack of UM owner incremental regulation, which is

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Speaker 1: generally how well managed the companies are left in a

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Speaker 1: life cycle. So I do think there are there are

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Speaker 1: better prospects for both the brokerage stocks, Goldman and Morgan UM.

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Speaker 1: You know, headed forward and you've seen that somewhat this

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Speaker 1: year in a recession, in a somewhat tough environment. For example,

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Speaker 1: this morning Goldman putting up almost tc UM which which

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Speaker 1: really was best in class relative to the other banks

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Speaker 1: have reported so far. So so I do think, UM,

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Speaker 1: you know, you know, knock on Wood at this time

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Speaker 1: is somewhat different. You know, I look at this so

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Speaker 1: this time it's different. It starts with management. The belief

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Speaker 1: over ten years, going back to Bradhain's at Sanford Bernstein

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Speaker 1: is you know they're really in it for themselves. They're

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Speaker 1: really not doing it for the shareholders. What's changed. Well,

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Speaker 1: today's results are a really good example of what has changed. Right. So,

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Speaker 1: for example, a big part of the really strong results

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Speaker 1: is discipline on compensation UM. And that speaks to a

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Speaker 1: business that's a far more geared towards sort of platform

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Speaker 1: businesses versus people's businesses, which allows far more operating leverage.

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Speaker 1: Now clearly, um, um, this is still a talent business

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Speaker 1: and you still have to pay up a performance and

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Speaker 1: you still have to attract the very best. But what

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Speaker 1: with the business makes and the focus on efficiency um, Again,

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Speaker 1: like this morning, they can put up decent results Christian

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Speaker 1: platform business versus people business and efficiency. It screams job cuts?

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Speaker 1: How big are the job cuts be next year? On

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Speaker 1: Wall Street? Yeah? No, look look I think, um, you know,

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Speaker 1: I think broadly speaking the um. You know, just generally speaking,

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Speaker 1: you've seen cuts on wall streets over the last decade

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Speaker 1: for the most part. And as you see automation increase, UM,

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Speaker 1: digitization increase, UM, electronic trading increase, there are problem that

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Speaker 1: is probably still going to be UM. You know some

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Speaker 1: uh some more cut. It is inevitable um. That said, Um,

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Speaker 1: there are also opportunities that come come through using the

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Speaker 1: likes of Golden sides, for example, recruits far heavily, far

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Speaker 1: more heavily in engineering type disciplines and technology type disciplines

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Speaker 1: versus what they would have traditionally, you know, ten fifteen

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Speaker 1: years ago. So so I do think to your point

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Speaker 1: that there will be some head count rationalization, but as

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Speaker 1: I think there's a lot of opportunities in areas like

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Speaker 1: like technology to bring on new talent which bank right

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Speaker 1: now based on the earnings results that we've gotten so far,

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Speaker 1: are you most impressed by Yeah? So so I look

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Speaker 1: at the Goldman and Morgan, so um, it has to

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Speaker 1: be golden, I would say, a so far and you know,

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Speaker 1: again just just just looking at the returns today, um um,

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Speaker 1: you know, you know, kind of speak to that, I

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Speaker 1: would say, more broadly speaking, if I was kind of

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Speaker 1: thinking about the more broad strategic direction of the companies.

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Speaker 1: We really like Morgan Stanley. I think James Coming has

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Speaker 1: done a really good job in changing the business mix.

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Speaker 1: They'd be very um clever and way to use excess

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Speaker 1: capital to really remix the business by by a knee trade.

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Speaker 1: And you know, very recently eaten fans almost two thirds

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Speaker 1: of that of Morgan Stanley will come from you know,

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Speaker 1: capital l businesses like wealth and asset managed asset management.

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Speaker 1: So so overall, I would say Morgan Stanley in terms

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Speaker 1: of thinking about the long term and strategic direction, Morgan

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Speaker 1: stand the stuff we we like the most Christian before

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Speaker 1: we let you go. Just on the acquisition option, it's

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Speaker 1: an option that's not available for many of the other

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Speaker 1: big banks. It's an option that could be available to Goldman.

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Speaker 1: Why do you think Goldman hasn't gone in that direction? Yeah,

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Speaker 1: so you know, look I think, um, you know, again,

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Speaker 1: Morgan Stanley, some of more bands strategically than go right,

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Speaker 1: you know, a newer management team, um less in the

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Speaker 1: way of capital flexibility. Um, you know. So so I

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Speaker 1: do think there's somewhat behind strategically to Morgan Stanley. And

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Speaker 1: and you know, you need to know where you want

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Speaker 1: to go first and be very clear or your direction

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Speaker 1: before you go out into deals. Um. But but but

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Speaker 1: I do think they will be in the conversation for

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Speaker 1: for acquisitions. Um, they're beginning to build capital now. And

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Speaker 1: and you know they've always spoken to wealth management as

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Speaker 1: a management and digital consumer banking as areas that would

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Speaker 1: benefit from scale acquisitions. So so I do think Goldman

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Speaker 1: will be in the conversation for equation going forward. Christian,

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Speaker 1: looking forward to getting you back on the show soon.

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Speaker 1: Look forward to Christine Bolo that autonomas research senior analysts

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Speaker 1: on the banks right now. This is a joint Michael

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Speaker 1: Ferrod him out of Boot Schools Chicago and New York

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Speaker 1: University as a fed economist and joined a small bank

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Speaker 1: in New York called JP Morgan. He wrote for Melman,

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Speaker 1: he wrote for Kasman and the others, and within their

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Speaker 1: weekly prospects defined in this Nation this odd phrase potential

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Speaker 1: g d P. John and Lisa have a whole bunch

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Speaker 1: of questions for Dr Feroli on where we are right now. Michael,

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Speaker 1: I want to go back to your initial acclaim on

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Speaker 1: potential g d P. Do you adjust that statistic because

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Speaker 1: of the pandemic. So, I think that's an open question

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Speaker 1: right now. Normally, a really bad recession would lead want

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Speaker 1: to lower their estimate of trend GDP growth because there

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Speaker 1: are longer run impacts from short run of that's like recessions. However,

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Speaker 1: I think it's a little early to say right now

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Speaker 1: because this recession was so short and the recovery so

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Speaker 1: far has been robust and offense. I think it's an

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Speaker 1: open question. So, for example, normally one would say that

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Speaker 1: the slow down in capital spending after a recession would

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Speaker 1: lead to slower productivity growth. Right now, it's not clear

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Speaker 1: how much capital spending is actually slow, and we obviously

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Speaker 1: had a bad second quarter but a good rebound in

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Speaker 1: the third course. I think, um, the jury is still out.

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Speaker 1: It's something we've we've been considering quite a bit, but

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Speaker 1: right now we're leaving our estimate unchanged and wanting a

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Speaker 1: half percent for for potential GDP growth. Michael, since an

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Speaker 1: increasing number of people are saying the same thing that

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Speaker 1: you are, that this economic recovery has been more robust

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Speaker 1: than people had expected, and that the recession perhaps a

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Speaker 1: bit shallower, does that mean that there is a greater

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Speaker 1: chance of bigger inflationary pressure has given the amount of

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Speaker 1: money that the federal government has thrown at this at

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Speaker 1: the margin, yes, uh, you know, better growth should lead

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Speaker 1: to better firm our inflation outcomes. It's still the case, however,

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Speaker 1: that unemployment looks like it will be elevated for several

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Speaker 1: quarters to come. So so while we may revise our

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Speaker 1: views towards somewhat higher inflation. It's still going to be

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Speaker 1: inflation that we've think will remain below the FATS two

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Speaker 1: percent objective for for PC inflation at least, so directionally,

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Speaker 1: I would agree with what you're saying, but I wouldn't

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Speaker 1: want to take it too far and say that we're

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Speaker 1: you know, we're looking at a big inflationary year to come. Michael,

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Speaker 1: we talked about this before. I just wonder how polarized

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Speaker 1: the conversation is with clients at the moment on this

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Speaker 1: issue on inflation. Well, inflation has gotten interesting. So we

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Speaker 1: obviously had a few uh week months around UH during

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Speaker 1: the worst of the pandemic. We've had a few strong

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Speaker 1: months since. A lot of that strength has been reversing.

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Speaker 1: Some of the category is that we're week during the pandemic,

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Speaker 1: but it has kept the discussion alive. I think it's

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Speaker 1: um you know, my in my opain, I think we

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Speaker 1: are in a disinflationary environment. And you know, as you say,

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Speaker 1: the discussion, I'm sure it's polarizing as much as it

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Speaker 1: was perhaps in two thousand and nine when we first

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Speaker 1: were experimenting with expanding the fact balongy. But people definitely

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Speaker 1: are interested in it, particularly given the central importance. Now

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Speaker 1: it hasn't the prospects for a future federate. We caught

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Speaker 1: up a Catherine Maunt of City yesterday and she brought

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Speaker 1: up a series of issues. I love your thoughts on them.

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Speaker 1: She was talking about the gap between consumers perception of inflation,

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Speaker 1: statistical measures of inflation, and financial market pricing of inflation. Michael,

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Speaker 1: how do those three different things? What's that spread look

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Speaker 1: like at the moment? Right? So? I think financial market

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Speaker 1: expectations are closer to what you're seeing in the actual

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Speaker 1: statistical measures of inflation. Uh. I would say consumer perceptions

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Speaker 1: of inflation are higher. I think one of the reasons

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Speaker 1: for that is that consumers tend to UH put more

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Speaker 1: weight on prices that are more salient. So, for example,

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Speaker 1: food prices tend to seem to carry more weight in

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Speaker 1: consumers perceptions than they do in the UH than they

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Speaker 1: do in the actual baskets of goods and services, and

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Speaker 1: food prices had been a little firm recently. Uh so

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Speaker 1: I think that maybe one factor that is leading to

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Speaker 1: that disconnect between consumer perceptions and either financial market expectations,

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Speaker 1: which are renamed relatively depressed or uh, you know, the

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Speaker 1: actual measures like core PC, which is also sub degree Michael,

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Speaker 1: how does real estate play into our guestimate of new inflation?

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Speaker 1: How do rents play in owners adjusted rent, et cetera.

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Speaker 1: How does ownership of homes play in to our guestimate

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Speaker 1: or reality of inflation in twelve or thirty six months. Yeah,

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Speaker 1: this this is actually pretty interesting issue because both tenants

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Speaker 1: rent and owners imputed rent, which is the rent people

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Speaker 1: who own their homes would be paying hypothetically if they

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Speaker 1: had to rent at those homes. Both of those has

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Speaker 1: have accelerated very sharply in the past three months. Some

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Speaker 1: of that may be due to a phenomena that is

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Speaker 1: similar to what we saw in the early two thousands,

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Speaker 1: which is when there's a very hot housing market and

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Speaker 1: everyone's rushing to buy a house, what you see is

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Speaker 1: weakness in the rental market. So it may be a

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Speaker 1: bit of a statistical mirage in a sense, but it

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Speaker 1: nonetheless it will feature pretty prominently because those measures are

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Speaker 1: of the core PC basketb the FED looks at so

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Speaker 1: so carefully so um so, maybe sort of an odd

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Speaker 1: byproduct of a hot housing market is a depressed or

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Speaker 1: depressed set of rental measures for inflation, Michael, pushing forward

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Speaker 1: the next six to twelve months, how much does your

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Speaker 1: unemployment forecast vary depending on whether there's a fiscal support

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Speaker 1: plan passed in Washington or not. Yeah, it could, It

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Speaker 1: could vary quite a bit because the growth outlook could

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Speaker 1: vary quite a bit. Uh, you know, if we got

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Speaker 1: something like you know, some of the numbers have been

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Speaker 1: coalescing around two trillion dollars recently. You know that's uh,

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Speaker 1: that's ten percent of GDP. Even if you haircuffed that

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Speaker 1: for you know, people savings, some of that stimulus, that

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Speaker 1: would still have a pretty significant effect on GDP growth.

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Speaker 1: And you know, as GDP growth goes, so goes with

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Speaker 1: so much your unemployment rate. So so clearly the the

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Speaker 1: you know this is um you know, the markets are not.

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Speaker 1: I think mislead to be focusing so intently on on

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Speaker 1: where fiscal standless negotiations are going. Michael Feroli, I don't

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Speaker 1: get much gloom out of the House of Chasman. But

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Speaker 1: you had that chart on the trade deficit and weekly

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Speaker 1: prospects this week. Tell me about the twin deficits. Do

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Speaker 1: you link together our trade deficit and our fiscal are

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Speaker 1: new and enlarge fiscal deficit into something that you need

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Speaker 1: to think about, study about, right about, and we need

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Speaker 1: to understand. Yeah, so, uh, you know, one of the

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Speaker 1: interesting things is normally in recessions, the US trade deficit

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Speaker 1: tends to tends to contract because US de na for

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Speaker 1: imports tend to contract more than foreigned an ad for exports.

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Speaker 1: That hasn't been the case in this most recent recession,

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Speaker 1: in part because it was unusually global in nature. So

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Speaker 1: usually the US kind of leads the global recession. This time,

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Speaker 1: everyone kinds, you know, part took a the recession in

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Speaker 1: a way equally, and so that was one factor I

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Speaker 1: think that contributed to this widening the trade deficit. The

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Speaker 1: other thing is that, given the nature of this recession,

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Speaker 1: the US actually runs a a surplus in trade in services. However,

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Speaker 1: trading services has contracted quite a bit given the inability

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Speaker 1: to maintain social distance in any of those services. So

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Speaker 1: we think it's uh, you know that that winding the

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Speaker 1: trade deficit may partly be due to physical definity concerns,

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Speaker 1: physical deficit issues. I think it's also partly due to

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Speaker 1: h the global nature of this recent slow Now Michael

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Speaker 1: Grant to catch up as always, send up best to

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Speaker 1: the team. Wind you Michael ferraudt that Checking mon Securities,

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Speaker 1: Chief US economist. Thanks for listening to the Bloomberg Surveillance podcast.

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Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

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Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom

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Speaker 1: Keane before the podcast. You can always care just worldwide.

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Speaker 1: I'm Bloomberg Radio