WEBVTT - Surveillance: Silver Spikes as Reddit Frenzy Spreads 0:00:09.880 --> 0:00:13.840 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Leye. 0:00:14.000 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.040 --> 0:00:23.560 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.640 --> 0:00:27.480 Bloomberg dot Com, and of course on the Bloomberg Join 0:00:27.680 --> 0:00:30.040 us Now. Just had the briefing with pr about what 0:00:30.160 --> 0:00:33.199 you can account talk about, John joins us now Alian's 0:00:33.240 --> 0:00:37.000 Global Investors US investment strategist. I'll just ask you, what 0:00:37.080 --> 0:00:39.280 can you possibly say about what happened last week so 0:00:39.320 --> 0:00:42.440 I keep you out of trouble. Yeah, it's a great 0:00:42.520 --> 0:00:45.320 question on a Monday morning. Look, it was fascinating to 0:00:45.360 --> 0:00:48.680 watch about thirty billion dollars of market cap in a 0:00:48.800 --> 0:00:53.599 fifty trillion dollar US stock market has created really a 0:00:53.600 --> 0:00:56.640 lot of media and attention, and I think in fact 0:00:56.640 --> 0:00:58.480 for some good reason. You know, we are living through 0:00:58.560 --> 0:01:01.160 history here and if you uestions that come to mind 0:01:01.720 --> 0:01:04.320 as we process all of all of these news around 0:01:04.360 --> 0:01:07.600 stocks like game Stop, AMC, etcetera. UM one, you know 0:01:07.680 --> 0:01:11.320 what really drives, uh, the value of an asset is 0:01:11.360 --> 0:01:14.000 it it's fundamental value based on some sort of discount 0:01:14.040 --> 0:01:16.760 of cash flow model or p multiple or is it 0:01:16.880 --> 0:01:19.320 really what an asset owner is willing to pay for it? 0:01:19.440 --> 0:01:23.120 And we see that in places like artwork or collectibles, etcetera. 0:01:23.520 --> 0:01:26.479 Is this really any different? And and really over time 0:01:26.520 --> 0:01:29.840 how does this end? Does game stop or NAMEC come 0:01:29.880 --> 0:01:32.600 back down to its fundamental value, which if you look 0:01:32.640 --> 0:01:36.240 at average price targets by analysts game stop at thirteen fifty, 0:01:36.319 --> 0:01:39.280 a m C at two fifty, or you know, do 0:01:39.319 --> 0:01:41.840 we get some sort of regulation in the introm our market? 0:01:41.840 --> 0:01:44.720 Force is going to dominate? And then finally, you know, 0:01:44.760 --> 0:01:46.920 there's something we've been thinking about as an industry and 0:01:46.959 --> 0:01:49.200 as a financial services firm. M Are we going to 0:01:49.280 --> 0:01:52.480 need a new set of analysts that just kind of 0:01:52.680 --> 0:01:56.960 go through and combe through message boards? Social media? Uh? 0:01:57.040 --> 0:01:59.520 Do we need AI and bots to help us with 0:01:59.600 --> 0:02:02.080 this to kind of figure out where to invest next? 0:02:02.120 --> 0:02:05.400 And so all fascinating questions. I mean, it's really important 0:02:05.440 --> 0:02:07.480 we go through Pharaoh's Twitter feed just to see where 0:02:07.520 --> 0:02:10.200 he is. You know, that's the only way, Yeah, because 0:02:10.400 --> 0:02:13.080 I know you do as well. Uh No, what have 0:02:13.200 --> 0:02:15.440 you changed anything at Alian's I mean, you know it's 0:02:15.480 --> 0:02:19.000 sort of a February first readjust off what was written 0:02:19.040 --> 0:02:23.080 December fifteen for two thousand twenty one. Is it renuance 0:02:23.240 --> 0:02:26.960 in the tone? You know, it's interesting, I mean generally 0:02:26.960 --> 0:02:30.800 speaking beyond what's happening in the retail space, and certainly 0:02:30.840 --> 0:02:34.720 retail investors have become a bigger part of our equation 0:02:35.080 --> 0:02:38.120 of both those clients, but really as drivers of the market, 0:02:38.120 --> 0:02:40.320 and we saw that not only this year, but really 0:02:40.360 --> 0:02:43.320 in Forest last year. I think in you could argue 0:02:43.360 --> 0:02:45.720 the smart money was the retail money who really got 0:02:45.760 --> 0:02:48.480 in post that March low and wrote the market up 0:02:49.600 --> 0:02:52.800 the sp plus on the nastack, and so that was 0:02:53.240 --> 0:02:56.160 fascinating to watch the retail versus the institutional clients that 0:02:56.240 --> 0:03:01.400 we had um But broadly speaking, our outlook for is 0:03:01.480 --> 0:03:05.520 driven by three factors, and that's re accelerating growth and 0:03:05.560 --> 0:03:08.120 we're watching, you know, whether or not that does come 0:03:08.120 --> 0:03:10.600 to question in the second half of this year, a 0:03:10.720 --> 0:03:13.040 FED that continues to remain on the sideline, and we 0:03:13.080 --> 0:03:16.880 would argue that that will remain the case through one 0:03:16.960 --> 0:03:19.200 at least, and then of course what happens with the 0:03:19.240 --> 0:03:22.720 bind administration, stimulus and and physical spending. And I think 0:03:23.000 --> 0:03:25.400 interesting to see this week at one point nine trillion 0:03:25.480 --> 0:03:28.960 met with a six billion package by the Republicans. Perhaps 0:03:29.080 --> 0:03:31.080 the magic numbers in the middle there at one point 0:03:31.080 --> 0:03:33.519 two to one point three trillion at some point, I 0:03:33.520 --> 0:03:36.720 think they both are starting point. So, uh, as long 0:03:36.760 --> 0:03:38.600 as those factors are in place and we don't get 0:03:38.640 --> 0:03:42.280 any exogenous shocks, we do think that this is an 0:03:42.280 --> 0:03:45.400 economy and really in a market that is pretty well supported. 0:03:45.840 --> 0:03:47.880 Have we already passed mona the time where we can 0:03:47.880 --> 0:03:51.400 say that Reddit traders will not necessarily be the exogenous 0:03:51.400 --> 0:03:55.720 shock that causes a deeper sell off. You know, thus far, 0:03:55.920 --> 0:03:59.440 we haven't seen signals that that, uh, these trades will 0:03:59.600 --> 0:04:03.200 will spark any systemic risk UM, as we noted earlier 0:04:03.560 --> 0:04:07.520 as a percent of total market cap very diminimous, probably 0:04:07.600 --> 0:04:10.840 less than maybe even point one percent of overall market 0:04:10.880 --> 0:04:14.120 cap UM. And so we think while they could cause 0:04:14.280 --> 0:04:18.560 ripples in how the financial services industry operates broadly, we 0:04:18.600 --> 0:04:21.599 don't think that it will cause um any major shocks 0:04:21.640 --> 0:04:23.960 that would would really put a dent in the overall 0:04:24.000 --> 0:04:26.680 financial services system. And so that to us is important. 0:04:27.560 --> 0:04:29.880 I do think we're watching for shocks that are beyond 0:04:30.080 --> 0:04:32.920 just you know, the reddit type traders, which include things, 0:04:32.920 --> 0:04:36.359 as you mentioned earlier, variants of the virus, whether or 0:04:36.360 --> 0:04:39.960 not we can win this race between vaccines versus variants. 0:04:39.960 --> 0:04:42.960 How the rollouts going, and we're encouraged on that front 0:04:43.040 --> 0:04:45.600 in particular, not only here in the US, but quite globally. 0:04:45.760 --> 0:04:47.760 If the pandemic copy got a looking last week, did 0:04:47.760 --> 0:04:51.479 it great a catch up? It's fantastic to catch up. 0:04:51.560 --> 0:04:57.719 Sty Well, this is not that David Axelrod of Obama 0:04:57.760 --> 0:05:02.400 administration claim. It's a David axel Rod of Ballard Spark law. 0:05:02.640 --> 0:05:05.839 What you need to know is we know on surveillance 0:05:05.880 --> 0:05:07.960 the length of the resume, the length of the bio 0:05:08.040 --> 0:05:12.520 is in for inversely proportional to the skill. Except axel 0:05:12.640 --> 0:05:17.200 Rod is a wild, wild exception to that. His cases 0:05:17.360 --> 0:05:21.159 are extraordinary, both in private practice and his work with 0:05:21.200 --> 0:05:24.360 the Securities and Exchange Commission. And we're thrilled to bring 0:05:24.360 --> 0:05:27.400 you this voice on surveillance this morning. David, thank you 0:05:27.480 --> 0:05:29.400 so much, really honored that you could be with us, 0:05:29.839 --> 0:05:33.080 uh this morning. You did an insider trader thing at 0:05:33.120 --> 0:05:36.320 the at the Williams Court there in Washington years and 0:05:36.440 --> 0:05:39.480 years ago. If you were speaking to a body of 0:05:39.520 --> 0:05:44.160 attorneys today about what is to come in this uproar, 0:05:44.760 --> 0:05:47.599 what would you say to them. You know, listen, I'd 0:05:47.600 --> 0:05:49.440 say that you know, in the in the in the 0:05:49.440 --> 0:05:52.040 wake of this, everyone's looking for a boogeyman. But I 0:05:52.080 --> 0:05:55.480 think we're gonna find out that nothing really has changed. Um, 0:05:55.520 --> 0:05:58.520 not really much was done wrong here. The rules are 0:05:58.520 --> 0:06:02.160 gonna work. Fine, may see other examples of this going forward. 0:06:02.560 --> 0:06:04.760 But I think the market's going to shake out. I mean, 0:06:05.160 --> 0:06:09.279 the small retail traders saw and saw an inefficiency here, 0:06:09.360 --> 0:06:12.640 saw a window to do something, um, and and they 0:06:12.680 --> 0:06:14.640 and they did, and they made some money. But you know, 0:06:15.080 --> 0:06:17.360 all that the stock is gonna go back down probably 0:06:17.839 --> 0:06:20.159 and I think it's probably all gonna shake out. How 0:06:20.240 --> 0:06:23.159 do you is a lawyer? You've you've been You've been 0:06:23.160 --> 0:06:25.760 with sec against Cooperman, You've had men, you've been on 0:06:25.800 --> 0:06:28.760 both sides of the fence practicing the law. How do 0:06:28.839 --> 0:06:33.000 you treat the silicon val tone that we get from 0:06:33.120 --> 0:06:37.520 Robin Hood and others? How do you candle the behavioral 0:06:37.560 --> 0:06:42.480 and cultural millennial tone that we observe. Well, listen, there 0:06:42.480 --> 0:06:44.840 are very smart people at the hedge funds, at an 0:06:44.880 --> 0:06:49.279 institutional investors. They've been scraping social media for years already, 0:06:49.400 --> 0:06:51.520 that this is nothing new to them. It may be 0:06:51.640 --> 0:06:54.240 new to us in the general public scene this, but 0:06:54.320 --> 0:06:56.080 you know, it's it's they're gonna have to build into it. 0:06:56.080 --> 0:06:58.040 They're gonna build it into their models. They're gonna end 0:06:58.080 --> 0:07:00.479 up probably taking advantage of it, and of ways that 0:07:00.600 --> 0:07:03.159 I wish I could contemplate because I'd be not working 0:07:03.200 --> 0:07:05.440 in the law. Um, but you know, they're gonna deal 0:07:05.480 --> 0:07:07.200 with it, and it's gonna all be built into how 0:07:07.200 --> 0:07:11.280 they operate. What illegal issues here, David, You know, I'm 0:07:11.280 --> 0:07:13.360 not sure there are you know, as I said, a 0:07:13.440 --> 0:07:15.520 lot of people are looking for something wrong here, but 0:07:15.600 --> 0:07:18.080 this isn't the case where you see deception on Reddit. 0:07:18.440 --> 0:07:20.520 It's not people aren't mining about what they're gonna do. 0:07:20.640 --> 0:07:22.360 They're saying, I'm going to buy this stock because I 0:07:22.360 --> 0:07:24.760 wanted to go up. People have been doing this for years, 0:07:25.000 --> 0:07:27.400 So I don't see anything wrong there. You know, for 0:07:27.520 --> 0:07:29.120 robin Hood, you know, you need to look at the 0:07:29.200 --> 0:07:32.040 terms of contracts they have with their with their actual customers. 0:07:32.400 --> 0:07:34.520 But I haven't seen anything that indicates there's a problem 0:07:34.520 --> 0:07:37.160 for robin Hood either. There's a larger question here, David, 0:07:37.280 --> 0:07:40.960 especially as social media takes on an increasing presence in markets. 0:07:41.000 --> 0:07:45.440 What's the line which it crosses into market manipulation. Yeah, 0:07:45.480 --> 0:07:47.400 I mean, that's that's gonna be the difficult thing, right. 0:07:47.520 --> 0:07:50.080 I mean, usually in situations like this, you see people 0:07:50.120 --> 0:07:52.440 crossing the line, and the line is line, the line 0:07:52.520 --> 0:07:55.000 is deception, the line is the pump is part of 0:07:55.000 --> 0:07:57.680 the pump and dump. Um. So once you see people 0:07:57.760 --> 0:08:01.280 kind of exaggerating, fabricating what's going to happen, you'll see 0:08:01.280 --> 0:08:04.640 the SEC get very active, very quickly. But if that 0:08:04.680 --> 0:08:07.280 line hasn't been crossed, if you just have Dave x 0:08:07.360 --> 0:08:09.840 Rod sitting in front of his computer trading stock, it's 0:08:10.240 --> 0:08:13.320 the line is not there. I don't think hedge funds 0:08:13.320 --> 0:08:15.280 need me to protect them David, But I will ask this, 0:08:16.160 --> 0:08:19.200 does intent matter? Does the objective matter? If I go 0:08:19.240 --> 0:08:21.240 on a forum and say this is what I like, 0:08:21.320 --> 0:08:22.760 this is why I like it, and the objective is 0:08:22.800 --> 0:08:25.640 just to make money. What if the objective is to 0:08:25.760 --> 0:08:29.400 hurt or cause someone else paines, does that matter? I 0:08:29.440 --> 0:08:32.679 mean no, uh, in our system and our you know, 0:08:32.880 --> 0:08:34.920 hedge funds has been doing this year for years. I mean, 0:08:35.400 --> 0:08:37.320 the intent is to make money. They don't care whether 0:08:37.320 --> 0:08:39.240 a business gets put out of business. I mean, which 0:08:39.240 --> 0:08:41.800 is the very possibility of the of the put options 0:08:42.120 --> 0:08:44.720 in this case. So no, you know, if retail investors 0:08:44.760 --> 0:08:47.160 want to hurt hedge funds, that's the way. Our system 0:08:47.240 --> 0:08:50.760 doesn't doesn't capture intent. Our system is as long as 0:08:50.800 --> 0:08:53.240 you're honest, as long as you're not deceiving someone, you 0:08:53.240 --> 0:08:56.600 can your intent really is irrelevant. What did you think? 0:08:56.640 --> 0:09:00.680 What was your response when you saw trading shut down 0:09:01.160 --> 0:09:04.720 on Thursday or Friday? Do you just assume that somebody 0:09:04.760 --> 0:09:09.280 got out front of those announcements? Yeah, I I always 0:09:09.280 --> 0:09:11.520 assume that if there's going to be a big shift 0:09:11.600 --> 0:09:14.560 in the way that the markets operating, that someone with 0:09:14.880 --> 0:09:17.720 information and balance is taking advantage. How do you how 0:09:17.760 --> 0:09:21.720 do you discover that? How how does the prosecution discover 0:09:21.880 --> 0:09:25.720 that malfeasance? Really simply, I mean, if it happened, I 0:09:25.800 --> 0:09:28.720 suspect that the SEC and perhaps the Department of Justice 0:09:29.360 --> 0:09:33.640 will send subpoenas for testimony for emails for Bloomberg. I 0:09:33.679 --> 0:09:37.040 am chats uh exactly had to throw that pitching for you, 0:09:37.120 --> 0:09:40.160 But I mean it's it's always in the records. So 0:09:40.200 --> 0:09:42.760 I mean, if some hedge fund knew that bloom that 0:09:42.920 --> 0:09:45.080 Robin Hood was going to take action and knew that 0:09:45.080 --> 0:09:48.000 would harm the stock. Um that information is probably going 0:09:48.080 --> 0:09:50.000 to be there, and the SEC or the d O 0:09:50.120 --> 0:09:52.000 J as I said, because this could be a criminal event, 0:09:52.240 --> 0:09:55.960 we'll find that David as a formal former SEC official. 0:09:56.360 --> 0:09:59.840 Given the politicization of this issue, the fact that ao 0:10:00.040 --> 0:10:03.280 See and Senator Ted Cruz came out and sided on 0:10:03.320 --> 0:10:05.160 the on the side of the robin Hood traders, this 0:10:05.280 --> 0:10:08.840 became a populist versus the system kind of debate. What 0:10:08.920 --> 0:10:12.640 are the long term consequences for the supposedly a political 0:10:12.720 --> 0:10:17.240 regulatory agencies like the SEC. You know, from a policy perspective, 0:10:17.800 --> 0:10:19.600 I don't know. I could go millions of different ways. 0:10:19.679 --> 0:10:23.120 I mean from from AOC's perspective, UM, I mean, they 0:10:23.120 --> 0:10:25.280 could attack what hedge funds were doing in the first place. 0:10:25.320 --> 0:10:28.160 They could attack large put options that you know, some 0:10:28.200 --> 0:10:31.160 people argue have no economic benefit in the beginning, Um, 0:10:31.240 --> 0:10:33.600 others they could attack robin Hood and make sure that 0:10:33.679 --> 0:10:36.760 market access is in place for everyone. But really it's 0:10:36.800 --> 0:10:38.840 hard to talk and the politics of this are really weird. 0:10:39.040 --> 0:10:41.640 As anytime you have AOC and Ted Cruz lining up 0:10:41.640 --> 0:10:42.960 on the same side of an issue, you know one 0:10:42.960 --> 0:10:45.560 should expect UM. So I don't know it. It can 0:10:45.600 --> 0:10:48.440 go a million different different ways. That's certainly a good 0:10:48.480 --> 0:10:51.080 way of putting it. David, great to catch. Yeah, thank you. 0:10:51.320 --> 0:10:54.319 David actually wrote the film sec Supervise Street Trial Council 0:10:54.679 --> 0:11:02.960 Now without a SPA law help Corta droutsa bank for 0:11:03.160 --> 0:11:06.800 years writing most read twelve page papers that always had 0:11:06.800 --> 0:11:09.480 not one, not two, but three charts where you would 0:11:09.520 --> 0:11:12.360 stop and actually have to read the report and read 0:11:12.360 --> 0:11:14.679 the captions under the charts. That's how good he is. 0:11:15.000 --> 0:11:18.319 He was snagged by Apollo Management as their chief economists 0:11:18.480 --> 0:11:22.000 or thrilled it. Mr Slock could join us uh this morning, Torston. 0:11:22.080 --> 0:11:24.400 I want to cut to the chase, which is the 0:11:24.480 --> 0:11:30.280 idea of long term inflation expectations. No one cares commodities 0:11:30.360 --> 0:11:33.680 lift and it's real simple on the Central Bank watch. 0:11:34.400 --> 0:11:39.120 Should Mr Powell pay attention to Dr Copper? I mean, 0:11:39.160 --> 0:11:41.240 this is a very important issue in races, markets and 0:11:41.280 --> 0:11:44.400 therefore and everything fixed income I mean placed expectations in 0:11:44.440 --> 0:11:46.400 the long ends or tenia break evens have gone up 0:11:46.920 --> 0:11:50.840 almost on a linear trend since much I've been a 0:11:50.840 --> 0:11:53.040 few mos here and there, but this is certainly something 0:11:53.040 --> 0:11:55.280 that's very important for the fit. Then, of course the 0:11:55.360 --> 0:11:58.160 question becomes, well, why is it that the market suddenly 0:11:58.200 --> 0:12:01.439 expects inflation in ten years high to be higher? And 0:12:01.440 --> 0:12:03.400 there's a number of different explanations. The first one, as 0:12:03.400 --> 0:12:07.480 you mentioned TOWM, is that commodity prices are almost mechanically 0:12:07.520 --> 0:12:10.400 correlated with long term inflationing incputations, so commodity prices going 0:12:10.480 --> 0:12:13.000 up it is a very important driver. But another very 0:12:13.000 --> 0:12:16.240 important driver is to fit changed the framework from just 0:12:16.360 --> 0:12:20.320 normal inflation targeting to and reflectible inflation targeting, and therefore 0:12:20.440 --> 0:12:22.760 the fit saying will allow OLMOS shooting has been pushing 0:12:23.000 --> 0:12:25.400 long term inflation infectations. Stuff that's good here and now, 0:12:25.760 --> 0:12:28.360 but it's certainly a very critical thing to monitor if 0:12:28.360 --> 0:12:30.200 we do get that strong growth in the second half 0:12:30.200 --> 0:12:32.559 this year that you guys have covered so well. Do 0:12:32.640 --> 0:12:34.960 you think that markets right now towards in our underpricing 0:12:35.080 --> 0:12:38.600 or overpricing inflation so they I mean, if I look 0:12:38.640 --> 0:12:41.200 at Bloomberg screen today, there is really no inflation in 0:12:41.280 --> 0:12:45.440 TRIM means, in code PC, in co CPI. No matter 0:12:45.520 --> 0:12:50.000 what fit measure or be a measure that you look 0:12:50.040 --> 0:12:52.760 at for inflation, there's just no actual inflation. So all 0:12:52.800 --> 0:12:55.680 of this has to do with what expectations, of course, 0:12:55.720 --> 0:12:58.680 both in the next few quarters, but also what expectations 0:12:58.679 --> 0:13:00.720 if you look several years out. So for now, I 0:13:00.760 --> 0:13:03.080 think the market is a little bit get ahead of 0:13:03.080 --> 0:13:05.600 itself in the sense that we will not get that 0:13:05.679 --> 0:13:07.680 much inflation. We will get some base effects of course 0:13:07.880 --> 0:13:09.920 in the next few months, as we all know, but 0:13:10.120 --> 0:13:12.160 going into two thousand twenty two, still we have a 0:13:12.160 --> 0:13:14.360 lot of slag in the economy. We therefore, as as 0:13:14.360 --> 0:13:16.080 you also just spoke about the lago, market is not 0:13:16.160 --> 0:13:19.120 great on Friday with the numbers that we get for January. 0:13:19.160 --> 0:13:21.080 So at this point it is a little bit it's 0:13:21.080 --> 0:13:23.719 still too premature to worry about inflation, not to get 0:13:23.720 --> 0:13:26.960 philosophical about this torson. But as we see higher commodity prices, 0:13:27.000 --> 0:13:29.480 and as the prices of goods goes up as a 0:13:29.520 --> 0:13:33.640 result of supply chain disruptions and other COVID related issues, 0:13:33.920 --> 0:13:36.959 how much could we see some sort of not disinflation 0:13:37.040 --> 0:13:39.800 but stagnation. This idea that people's wages are saying the 0:13:39.840 --> 0:13:42.600 same or going down, the employment picture is weak, and 0:13:42.640 --> 0:13:44.600 they are forced to pay more for the goods that 0:13:44.600 --> 0:13:47.480 they need. That's right, and that's that's that's that's the 0:13:47.520 --> 0:13:50.000 environment we have today, I mean commodity prices going up, 0:13:50.240 --> 0:13:52.520 and at the same time we have also had very 0:13:52.520 --> 0:13:55.040 little employment growth, and unfortunately we still have as you 0:13:55.080 --> 0:13:57.920 know that the employment situation that we have ten million 0:13:57.960 --> 0:14:01.880 people less working today relative to a Fipruary two thousands winning. 0:14:02.080 --> 0:14:04.120 So the label argut is indeed still very weak while 0:14:04.240 --> 0:14:06.920 commodity prices are going up. If you look further out, 0:14:07.120 --> 0:14:10.720 then of course it becomes more almost a philosophical issue, 0:14:10.760 --> 0:14:13.840 whether you think that it is the level of capacity 0:14:13.880 --> 0:14:16.400 utilization that matters. In other words, in the Philip scripture 0:14:16.440 --> 0:14:18.480 were about the level of the outpro gap or the 0:14:18.600 --> 0:14:20.720 change in the outpro gap. That's a sophisticated way of 0:14:20.760 --> 0:14:24.040 saying that should we worry about at growth spurit potentially 0:14:24.040 --> 0:14:26.320 giving some inflation in the second half of this year, 0:14:26.520 --> 0:14:28.280 or should we say, oh, that's not a problem because 0:14:28.280 --> 0:14:30.520 the unemployer is still so high. So there's a lot 0:14:30.560 --> 0:14:33.080 of thinking around this issue, and I'm sure that FED 0:14:33.240 --> 0:14:36.880 is looking very carefully this potential risk that we could 0:14:36.880 --> 0:14:39.680 have that the growth bursts we get in the second 0:14:39.680 --> 0:14:42.560 half this year does lift in particular services pricing, and 0:14:42.640 --> 0:14:45.560 tossed and talked to me about financial stability risks, and 0:14:45.560 --> 0:14:47.400 we've gone through the labor market. There are very clear 0:14:47.440 --> 0:14:49.680 reasons why this fat wants to keep right slow for 0:14:49.720 --> 0:14:52.280 a long long time. Do you see them doing that 0:14:52.320 --> 0:14:55.440 at the sacrifice of really making sure that financial stability 0:14:55.480 --> 0:14:58.400 risk don't build. That's really important, Jonathan. There is a 0:14:58.520 --> 0:15:01.040 very critical paper, reasonably by there on sim Sect that 0:15:01.120 --> 0:15:03.760 try to look at exactly why is it that stock 0:15:03.800 --> 0:15:07.960 prices are so seemingly disconnected from fundamentals, And what they 0:15:07.960 --> 0:15:09.840 are arguing, which makes a lot of sense, is that 0:15:09.840 --> 0:15:12.560 it is actually the optimal strategy for the fit to say, 0:15:12.600 --> 0:15:15.760 if we know that this shock is of limited nature, 0:15:15.760 --> 0:15:17.400 in other words, it will be all at some point, 0:15:17.760 --> 0:15:21.320 then we should be easing financial conditions as much as possible. 0:15:21.320 --> 0:15:25.160 We should be creating a disconnect between stock prices and 0:15:25.240 --> 0:15:28.760 credit spreads and the real economy because that does accelerate 0:15:29.080 --> 0:15:31.920 the expansion later on. So in that sense, I think 0:15:31.920 --> 0:15:34.080 the Fate looks at this it says, yeah, we do 0:15:34.200 --> 0:15:36.360 know that stock prices might seem reads if you're high. 0:15:36.360 --> 0:15:39.200 We know that credit spreads are very tight depressive to fundamentals. 0:15:39.440 --> 0:15:41.440 But this is the best strategy for us in terms 0:15:41.480 --> 0:15:43.600 of getting the economy as quickly back as possible, and 0:15:43.720 --> 0:15:46.360 that's the objective. They've been successful, Toulson. I can pick 0:15:46.400 --> 0:15:50.160 example after example where they've managed to divorce financial conditions 0:15:50.160 --> 0:15:52.280 from economic fundamentals. Do you think we can have a 0:15:52.320 --> 0:15:56.120 reconcund that. Yes, So now the question of course becomes, well, 0:15:56.240 --> 0:15:59.360 what once we then get to the pandemic being over, 0:15:59.600 --> 0:16:01.040 what is the well then going to look like? And 0:16:01.080 --> 0:16:03.320 in particularly if this is associated with rates going up, 0:16:03.600 --> 0:16:05.080 and this is where you get a little bit worried 0:16:05.080 --> 0:16:08.840 about what sexes and this most vulnerable to higher rates. 0:16:08.840 --> 0:16:10.520 And that's of course those sexts that I'm all along 0:16:10.600 --> 0:16:13.000 duration and that's of course in particular tech. So if 0:16:13.000 --> 0:16:15.120 we do have a move higher in rates in the 0:16:15.120 --> 0:16:16.960 second half this year, both in the front end with 0:16:16.960 --> 0:16:19.160 FED expectations and also in the long end, then those 0:16:19.200 --> 0:16:22.840 parts of the fun that a most sensitive to high 0:16:22.840 --> 0:16:24.880 at discount rate and in this case in particularly the 0:16:24.920 --> 0:16:28.280 tech sector would also become more vulnerable. So you're right, Jonathan, 0:16:28.320 --> 0:16:31.320 that if we do have much high level of valuations 0:16:31.360 --> 0:16:34.120 once the pandemic it is over, then we do begin 0:16:34.160 --> 0:16:36.920 to in particular, as I says, become more vulnerable to 0:16:37.120 --> 0:16:41.960 rates moving up within the system. Torsten Slark of Apollo Management, 0:16:42.160 --> 0:16:47.240 do you see effervescence? Is it an effervescence? I don't 0:16:47.240 --> 0:16:50.160 mean bubble in an amateur sense like that, but do 0:16:50.240 --> 0:16:53.440 you just see a ferment there from all this gross accommodation. 0:16:54.840 --> 0:16:56.360 So I think that the FIT and d C be 0:16:56.600 --> 0:16:59.480 NDS would be to say we have done what we 0:16:59.520 --> 0:17:01.480 can do with the tools we have. And that's why 0:17:01.520 --> 0:17:04.520 the debate, as you also have talking about earlier today, 0:17:04.720 --> 0:17:07.359 is that now we're switching from monetary policy having done 0:17:07.400 --> 0:17:09.879 whatever they can, and that results in high as surprises. 0:17:10.119 --> 0:17:12.360 But that's why the fiscal discussion is now so aftertely 0:17:12.440 --> 0:17:14.480 critical that it's small the issue that we haven't really 0:17:14.480 --> 0:17:16.439 spoken about yet. And stuff course that the number of 0:17:16.480 --> 0:17:19.520 cases is coming down quite quickly from the US, also 0:17:19.560 --> 0:17:22.280 in Europe, also in the UK. And I mean think 0:17:22.280 --> 0:17:23.560 about a few weeks ago in the US to have 0:17:23.600 --> 0:17:25.520 about three hundred thousand new cases every day. Now we 0:17:25.560 --> 0:17:28.440 have about a hundred fifty thousand. If you put admittedly 0:17:28.520 --> 0:17:30.439 very simple you rule it down and ask the question, 0:17:30.600 --> 0:17:33.000 if I type c V I D on my Bloomberg screen, 0:17:33.359 --> 0:17:35.320 when will we actually get that the number of new 0:17:35.320 --> 0:17:37.520 cases will be close to zero. You get and I 0:17:37.560 --> 0:17:39.480 know this is a been extreme thinking both about the 0:17:39.560 --> 0:17:42.320 strings from Latin America and South Africa and set up. 0:17:42.320 --> 0:17:44.600 But you can that we get to sero new cases 0:17:44.640 --> 0:17:47.760 sometimes yet potentially already in much so that's why the 0:17:47.840 --> 0:17:50.720 speedless which the number of cases is coming down. That's 0:17:50.720 --> 0:17:52.480 something that we should not under is the mate that 0:17:52.520 --> 0:17:54.359 we could potentially have the growth, but not only the 0:17:54.359 --> 0:17:56.639 second half this year. You could potentially already come in 0:17:56.680 --> 0:17:58.240 the second quarter of this year, and that of course 0:17:58.240 --> 0:18:01.600 will be an upside surprise to market, the upside surprise. 0:18:01.720 --> 0:18:04.680 So would you suggest that this bull market valuing out 0:18:04.760 --> 0:18:09.480 six months, valuing out a year is fairly priced, so 0:18:09.560 --> 0:18:12.000 that that's why that comes to whene we will begin 0:18:12.040 --> 0:18:14.879 to see inflation and therefore the fit dovishness. Will that 0:18:15.040 --> 0:18:17.680 be sticking or will the fit the having to turn 0:18:17.720 --> 0:18:19.760 around quite quickly as you know, the fate is at 0:18:19.760 --> 0:18:21.480 the moment saying we will not high rates on to 0:18:21.480 --> 0:18:24.600 two twenty three. This is almost the premise for the 0:18:24.680 --> 0:18:27.879 hunt for yield. People buying first the duration and treasuries, 0:18:27.920 --> 0:18:30.760 then i G then high yield and in equities. If 0:18:30.760 --> 0:18:34.199 we do begin to see that growth comes faster and quicker, 0:18:34.280 --> 0:18:37.240 and the catch up effect, if you will, is much 0:18:37.720 --> 0:18:41.080 more speedy than what we all expect at the moment. 0:18:41.400 --> 0:18:43.840 Then the f it would certainly have to pedal back 0:18:43.880 --> 0:18:46.200 and and to talk about rate packs coming to know. 0:18:46.320 --> 0:18:48.560 But the question therefore is is the FED going to 0:18:48.640 --> 0:18:51.040 state dovish Clarita has said that we will do que 0:18:51.280 --> 0:18:53.679 meaning by a d building and treasuries forty building in 0:18:53.680 --> 0:18:56.520 mortgages throughout the end of this year. If we have 0:18:56.640 --> 0:18:59.840 three very strong quarters of growth here in the next nine, 0:19:00.400 --> 0:19:03.399 then we could have that defect could be potential being 0:19:03.400 --> 0:19:05.879 to the table already sometime in the second half of 0:19:05.920 --> 0:19:08.120 this year, Towarsten, one thing that you did so well 0:19:08.160 --> 0:19:09.880 when you were at Deutsche Bank was put out these 0:19:09.960 --> 0:19:12.800 charts showing the divide in the labor markets, showing the 0:19:12.840 --> 0:19:16.120 divide in the economy between halves and have nots. From 0:19:16.160 --> 0:19:19.000 your seat now at Apollo, there is a question when 0:19:19.080 --> 0:19:22.199 does this divide and have and have not affect markets 0:19:22.240 --> 0:19:25.000 which have been relatively divorced from it and moving on 0:19:25.119 --> 0:19:28.280 very different factors, in part because they're dominated largely by 0:19:28.320 --> 0:19:31.280 the bigger, more resilient companies. When does it become a 0:19:31.359 --> 0:19:33.840 real problem that you have a two track economy with 0:19:33.880 --> 0:19:36.920 a two track labor market. I know the's and as 0:19:37.000 --> 0:19:38.879 it is a case shaped recovery, and as you have 0:19:38.960 --> 0:19:41.200 covered so well, this is creating all kinds of issues. 0:19:41.240 --> 0:19:45.560 In particular will leverage in companies that have very little learnings, 0:19:45.720 --> 0:19:48.280 not only because of COVID, but have not had earnings 0:19:48.320 --> 0:19:50.640 for three years in a row, the so called sumpie companies. 0:19:50.840 --> 0:19:52.840 And what this is also opening up is of course 0:19:52.880 --> 0:19:55.919 that there's a number of, if you will, unintended consequence 0:19:56.040 --> 0:19:59.280 of the very very quick reaction that the FED had 0:19:59.480 --> 0:20:03.080