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 --> 00:00:13,080 Speaker 1: with Jonathan Ferrell and Lisa brown Witz. Daily we bring 3 00:00:13,119 --> 00:00:17,159 Speaker 1: you insight from the best and economics, finance, investment, and 4 00:00:17,280 --> 00:00:23,280 Speaker 1: international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg 5 00:00:23,360 --> 00:00:30,000 Speaker 1: dot Com, and of course on the Bloomberg Tournament right now. 6 00:00:30,000 --> 00:00:32,159 Speaker 1: A joy to have Michael Wilson with this. Mike Wilson 7 00:00:32,200 --> 00:00:35,440 Speaker 1: with Midwest Academics out of Michigan and Northwestern legendary of 8 00:00:35,520 --> 00:00:39,080 Speaker 1: Morgan Stanley, and he joins us now for an update. 9 00:00:39,159 --> 00:00:41,839 Speaker 1: I love what you say, Mike Wilson about the alpha 10 00:00:41,960 --> 00:00:45,519 Speaker 1: in the beta. This is not options dynamics, folks, delta, gamma, 11 00:00:45,800 --> 00:00:48,760 Speaker 1: all the other Greek malarchy we talked about, Mike Wilson. 12 00:00:48,880 --> 00:00:56,360 Speaker 1: It's about relative performance versus absolute performance. Parts that yeah, well, 13 00:00:56,400 --> 00:00:58,640 Speaker 1: thanks Tom. I mean, look, I think that's what this 14 00:00:58,720 --> 00:01:01,120 Speaker 1: year is going to be about. Last year, you know, 15 00:01:01,160 --> 00:01:04,760 Speaker 1: we're obviously in the midst of the pandemic, the lockdown, 16 00:01:04,880 --> 00:01:08,280 Speaker 1: that the economy was falling apart, and of course stocks 17 00:01:08,400 --> 00:01:11,679 Speaker 1: discounted the recovery and it was really a beta trade, 18 00:01:11,720 --> 00:01:14,960 Speaker 1: meaning everything kind of went up together because everything had 19 00:01:14,959 --> 00:01:18,040 Speaker 1: got crushed at the same time. Now it's about, okay, well, 20 00:01:18,040 --> 00:01:20,720 Speaker 1: where can I find the sort of needles in the haystack? 21 00:01:20,880 --> 00:01:23,080 Speaker 1: The stocks that are there, are companies are gonna really 22 00:01:23,080 --> 00:01:26,240 Speaker 1: outperform as we reopen. And oh, by the way, there's 23 00:01:26,240 --> 00:01:28,880 Speaker 1: gonna be some losers as that happens to right, There's 24 00:01:28,880 --> 00:01:30,560 Speaker 1: gonna be a wall of share shift as we go 25 00:01:30,600 --> 00:01:32,960 Speaker 1: back to normal. There's gonna be cost pressures. You were 26 00:01:32,959 --> 00:01:35,200 Speaker 1: just talking about the inflation trade, something we've been on 27 00:01:35,319 --> 00:01:37,199 Speaker 1: for quite a while. That's going to create some cost 28 00:01:37,200 --> 00:01:39,480 Speaker 1: pressures for many businesses. So so we want to take 29 00:01:39,480 --> 00:01:41,120 Speaker 1: advantage of that. We want to take advantage of the 30 00:01:41,160 --> 00:01:43,800 Speaker 1: companies that can benefit from that environment and then try 31 00:01:43,840 --> 00:01:45,720 Speaker 1: to avoid those that are gonna be going to be 32 00:01:45,720 --> 00:01:49,280 Speaker 1: punished by that. And then it's just it's individual stocks 33 00:01:49,280 --> 00:01:52,320 Speaker 1: with the Morgan Stanley research combine. You say the haystack, 34 00:01:52,680 --> 00:01:56,200 Speaker 1: what are the sectors in the haystack? You know, we 35 00:01:56,280 --> 00:01:58,000 Speaker 1: were just talking about when it's the banks, right, So 36 00:01:58,040 --> 00:01:59,920 Speaker 1: we've we've been on the rate trade for a while, 37 00:02:00,160 --> 00:02:02,040 Speaker 1: we've been on the reslation trade for a while, and 38 00:02:02,080 --> 00:02:04,120 Speaker 1: we think, look, let's let's take advantage of that. I mean, 39 00:02:04,120 --> 00:02:05,880 Speaker 1: there are going to be companies that benefits from higher 40 00:02:05,960 --> 00:02:10,760 Speaker 1: rates and higher commodity prices, so materials, metals and mining, obviously, 41 00:02:10,800 --> 00:02:13,760 Speaker 1: the banks, um clearly some of the cehtical parts of 42 00:02:13,800 --> 00:02:17,560 Speaker 1: technology that you know have benefit the benefit front reopening 43 00:02:17,560 --> 00:02:20,960 Speaker 1: of an economy. Maybe the industrial sectors we get an 44 00:02:21,000 --> 00:02:24,280 Speaker 1: infrastructure buill those are gonna be areas from a sector standpoint, 45 00:02:24,280 --> 00:02:26,760 Speaker 1: they could do quite well. Let's just build on the 46 00:02:26,800 --> 00:02:29,000 Speaker 1: year and coal thirty nine hundred. I imagine you filled 47 00:02:29,040 --> 00:02:30,359 Speaker 1: a lot of calls and they say to you, Mike, 48 00:02:30,440 --> 00:02:32,760 Speaker 1: thirty nine hundred, why haven't you lifted to your price target? 49 00:02:33,080 --> 00:02:35,120 Speaker 1: Is this just down to the member waitings, the sector 50 00:02:35,160 --> 00:02:37,760 Speaker 1: wait things, just the mechanics of the makeup of an 51 00:02:37,760 --> 00:02:41,040 Speaker 1: index like the SMP five D. Yeah, I mean, let' 52 00:02:41,080 --> 00:02:43,040 Speaker 1: let's talk about the SMP itself. That it's really a 53 00:02:43,080 --> 00:02:45,480 Speaker 1: large kind of growth index, John, as you know, and 54 00:02:45,720 --> 00:02:48,320 Speaker 1: I mean, those tonics have done terrifically well over the 55 00:02:48,440 --> 00:02:51,200 Speaker 1: last decade, and part of that story has been the 56 00:02:51,200 --> 00:02:53,959 Speaker 1: fact that rates have come down. Right, they're they're great businesses, 57 00:02:54,000 --> 00:02:56,919 Speaker 1: but they've looked they've been over valued because rates are 58 00:02:57,240 --> 00:03:00,640 Speaker 1: been repressed and that's changing now. Well, then their multiples 59 00:03:00,680 --> 00:03:03,160 Speaker 1: are going to come down, probably more perhaps than what 60 00:03:03,240 --> 00:03:06,840 Speaker 1: the earnings can offset. So good, I'm still feel really 61 00:03:06,880 --> 00:03:08,960 Speaker 1: good about that target. A year end. We have a 62 00:03:08,960 --> 00:03:11,560 Speaker 1: bowl case of where do you want fifty? Okay, fine, um, 63 00:03:11,560 --> 00:03:13,560 Speaker 1: but that's not the story. The story is what's going 64 00:03:13,560 --> 00:03:16,000 Speaker 1: on underneath the surface. I mean you mentioned it earlier. 65 00:03:16,080 --> 00:03:17,560 Speaker 1: Some of the medals of mounting stacks, some of the 66 00:03:17,560 --> 00:03:19,680 Speaker 1: bank stacks that are really doing well. These are the 67 00:03:19,680 --> 00:03:22,200 Speaker 1: these are the opportunities for portfolio managed to find what 68 00:03:22,280 --> 00:03:23,959 Speaker 1: I've really enjoyed in the last couple of ways. Catching 69 00:03:24,000 --> 00:03:25,640 Speaker 1: up with you guys, and Morgan Stanley is just putting 70 00:03:25,639 --> 00:03:27,920 Speaker 1: all the pieces together. Allen setting the last week of 71 00:03:27,960 --> 00:03:31,040 Speaker 1: Morgan Stanley talking up five percent GDP growth next year, 72 00:03:31,160 --> 00:03:33,320 Speaker 1: six and a half percent this year. I imagine a 73 00:03:33,360 --> 00:03:35,640 Speaker 1: Matt hornback high yields call is in there as well. Mike. 74 00:03:35,680 --> 00:03:37,160 Speaker 1: Can you just put it all together for us, join 75 00:03:37,200 --> 00:03:39,480 Speaker 1: the dots between the different calls coming from the bank 76 00:03:39,480 --> 00:03:42,480 Speaker 1: at the moment. Yeah, I mean, the macro team has 77 00:03:42,480 --> 00:03:44,840 Speaker 1: really been in sync over the last twelve months. I mean, 78 00:03:44,880 --> 00:03:47,600 Speaker 1: because the pieces have come together, and you know, Ellen's 79 00:03:47,640 --> 00:03:50,560 Speaker 1: calling the economy, mets calling rates are call on kind 80 00:03:50,560 --> 00:03:53,920 Speaker 1: of the sector dispersion and rotation that's been going on. 81 00:03:54,080 --> 00:03:56,360 Speaker 1: It's all part of the same narrative, and it goes 82 00:03:56,360 --> 00:03:58,760 Speaker 1: back to almost a year ago. Now it seems it 83 00:03:58,800 --> 00:04:01,480 Speaker 1: seems like it was yesterday, but a year ago, you know, 84 00:04:01,560 --> 00:04:04,200 Speaker 1: we're talking about this regime shift as we move from 85 00:04:04,280 --> 00:04:08,520 Speaker 1: a monetary policy dominant regime to a fiscal policy dominant regime. 86 00:04:08,640 --> 00:04:10,640 Speaker 1: And it's clear now that that's what's happening. What does 87 00:04:10,680 --> 00:04:13,760 Speaker 1: that mean. It needs to higher velocity economy, it means 88 00:04:14,040 --> 00:04:17,360 Speaker 1: higher nominal GDP, it means inflation, and those are things 89 00:04:17,360 --> 00:04:20,360 Speaker 1: that are going to change what works going forward. So 90 00:04:20,440 --> 00:04:22,520 Speaker 1: within the churn, the churn can be nice and it 91 00:04:22,560 --> 00:04:25,080 Speaker 1: can be uh, for example, a hot tub, or it 92 00:04:25,120 --> 00:04:27,200 Speaker 1: can be the ocean where you're getting smashed against the 93 00:04:27,240 --> 00:04:29,280 Speaker 1: shore and there's a question about how much leverage there 94 00:04:29,360 --> 00:04:31,479 Speaker 1: is beneath the surface. It's going to lead to some 95 00:04:31,520 --> 00:04:34,000 Speaker 1: pretty violent moves. Mike, what's your sense of how much 96 00:04:34,080 --> 00:04:36,520 Speaker 1: leverage has been pushed out of the system or how 97 00:04:36,600 --> 00:04:40,160 Speaker 1: much has been built up in preparation for a relatively 98 00:04:40,400 --> 00:04:43,800 Speaker 1: violent churn over the next few months. Well, that's right. 99 00:04:43,839 --> 00:04:45,320 Speaker 1: I mean, I think one of the one of the 100 00:04:45,360 --> 00:04:47,719 Speaker 1: things that we're not that comfortable with at the moment. 101 00:04:47,800 --> 00:04:50,919 Speaker 1: To be honest, it's been a really a one way 102 00:04:51,160 --> 00:04:53,840 Speaker 1: risk market. Okay, there hasn't been a lot two way risk. 103 00:04:53,920 --> 00:04:57,040 Speaker 1: We had that little you know, snaphoo in January, some 104 00:04:57,200 --> 00:04:59,360 Speaker 1: shortcovering and some de leveraging that went on. But we're 105 00:04:59,440 --> 00:05:02,320 Speaker 1: right back to those high leverage areas. When I say 106 00:05:02,400 --> 00:05:05,520 Speaker 1: high leverage, I mean across both the institutional world and 107 00:05:05,760 --> 00:05:09,039 Speaker 1: the retail world. We've rarely seen leverage as high and 108 00:05:09,120 --> 00:05:11,960 Speaker 1: that can't bite both ways. And so the wild cards 109 00:05:12,000 --> 00:05:14,599 Speaker 1: and me is, let's send that we go into the 110 00:05:14,640 --> 00:05:17,560 Speaker 1: reopening phase, which it looks like it's gonna be sooner 111 00:05:17,640 --> 00:05:20,240 Speaker 1: rather than later. Some of these cost pressures arise. We 112 00:05:20,360 --> 00:05:22,760 Speaker 1: do have supply chain issues. You know, this event in 113 00:05:22,800 --> 00:05:24,920 Speaker 1: Texas with the weather is not helping that, by the way, 114 00:05:25,200 --> 00:05:27,919 Speaker 1: so we could have margin pressure, we could have rates 115 00:05:27,960 --> 00:05:30,520 Speaker 1: go up more quickly than people are anticipating in evaluations. 116 00:05:30,600 --> 00:05:33,600 Speaker 1: So so I think that leverage will will create more 117 00:05:33,720 --> 00:05:37,200 Speaker 1: two way risk, will create some more volatility in the marketplace, 118 00:05:37,279 --> 00:05:39,000 Speaker 1: and by the way, we'll create some opportunities in the 119 00:05:39,040 --> 00:05:40,800 Speaker 1: areas that we do like That's exactly what I was 120 00:05:40,800 --> 00:05:42,279 Speaker 1: going to say, how do you use that? How are 121 00:05:42,320 --> 00:05:44,880 Speaker 1: you preparing to jump on that with respect to specific 122 00:05:44,960 --> 00:05:48,679 Speaker 1: market calls. Well, we're advising clients right now to probably 123 00:05:48,680 --> 00:05:51,119 Speaker 1: take their leverage down. And we think people have leverage 124 00:05:51,400 --> 00:05:53,680 Speaker 1: that's too high that it looks things are. And even then, 125 00:05:53,680 --> 00:05:55,200 Speaker 1: the things that we like right now there are a 126 00:05:55,240 --> 00:05:57,679 Speaker 1: bit of ahead of themselves. And we wouldn't be surprised 127 00:05:57,720 --> 00:06:00,320 Speaker 1: if we had another surprise over the court the next 128 00:06:00,320 --> 00:06:03,280 Speaker 1: thirty five days and we get a bigger correction, and 129 00:06:03,279 --> 00:06:05,400 Speaker 1: and so it's like run lower risk right now. That's 130 00:06:05,520 --> 00:06:07,760 Speaker 1: that's and and then let's take advantage of the drawdown 131 00:06:07,839 --> 00:06:09,839 Speaker 1: like we got in January, or like some of the 132 00:06:09,880 --> 00:06:14,080 Speaker 1: drawing after got last year. Mike fantasticic catchups, great work 133 00:06:14,120 --> 00:06:17,279 Speaker 1: as always, Matt Wilson, that Morgus, Downey Cio and Chafe 134 00:06:17,360 --> 00:06:26,280 Speaker 1: us equity strategists. Megan Green joins us right now. Harvard 135 00:06:26,279 --> 00:06:30,600 Speaker 1: County School Senior Fellow. Megan. There's all this debate about economics, 136 00:06:30,960 --> 00:06:35,120 Speaker 1: and we all toss around ratios like productivity three ratio 137 00:06:35,360 --> 00:06:38,560 Speaker 1: six unit idea, and then there's a strange thing, the 138 00:06:38,760 --> 00:06:42,520 Speaker 1: output gap. Do we really have knowledge of where these 139 00:06:42,560 --> 00:06:48,000 Speaker 1: relationships are these ratios. Given the pandemic we look, we 140 00:06:48,160 --> 00:06:50,840 Speaker 1: never really know where the output gap is because it's 141 00:06:50,880 --> 00:06:55,000 Speaker 1: predicated on this idea of potential growth, and measuring potential 142 00:06:55,040 --> 00:06:57,400 Speaker 1: growth is much more of an art than a science 143 00:06:57,440 --> 00:07:00,000 Speaker 1: at the best of times, let alone in a crisis 144 00:07:00,040 --> 00:07:03,440 Speaker 1: is But I would also argue that this idea of 145 00:07:03,480 --> 00:07:07,279 Speaker 1: potential growth, this equilibrium that the economy is naturally going 146 00:07:07,320 --> 00:07:11,400 Speaker 1: to come back to, might be a bit and antiquate. Antiquated. 147 00:07:11,440 --> 00:07:15,640 Speaker 1: I mean, in economics we believe in equilibria. Um usually 148 00:07:15,680 --> 00:07:18,240 Speaker 1: there's just one. But we've all spent the past year 149 00:07:18,360 --> 00:07:23,760 Speaker 1: looking at eideline epidemiological models. And the hard scientists don't 150 00:07:23,840 --> 00:07:26,320 Speaker 1: view the world this way. They look at the world 151 00:07:26,400 --> 00:07:28,800 Speaker 1: very differently, thinking, you know what, there is no actual 152 00:07:28,960 --> 00:07:32,240 Speaker 1: equilibrium that we know about at the beginning. Instead, we're 153 00:07:32,240 --> 00:07:36,360 Speaker 1: gonna look at actors, use agent based models to see 154 00:07:36,360 --> 00:07:39,320 Speaker 1: how they respond to things, use machine learning to build 155 00:07:39,360 --> 00:07:42,320 Speaker 1: models around that, and figure out what the outcome is. 156 00:07:42,360 --> 00:07:45,080 Speaker 1: And so I think this debate about the output gap 157 00:07:45,200 --> 00:07:49,880 Speaker 1: based on some kind of equilibrium is probably missing the point. 158 00:07:50,560 --> 00:07:53,640 Speaker 1: And you know, we economists, we we assume that they 159 00:07:53,680 --> 00:07:57,160 Speaker 1: are very intelligent actors in a very simple world, and 160 00:07:57,200 --> 00:07:59,400 Speaker 1: I think scientists have have a very different view of 161 00:07:59,440 --> 00:08:01,680 Speaker 1: the world. They assume they're very simple people in a 162 00:08:01,800 --> 00:08:04,239 Speaker 1: complex world, and there's a lot that we could probably 163 00:08:04,320 --> 00:08:07,240 Speaker 1: learn from them. Economics. Okay, well, what's the timeline here? 164 00:08:07,480 --> 00:08:10,080 Speaker 1: What are we getting wrong right now about the X axis? 165 00:08:10,400 --> 00:08:13,560 Speaker 1: We're talking about this across the simulcast all morning, the 166 00:08:13,680 --> 00:08:17,160 Speaker 1: guestimates out to June, the guestimates out to September. Do 167 00:08:17,200 --> 00:08:19,240 Speaker 1: you have a belief in the X axis right now 168 00:08:19,280 --> 00:08:23,000 Speaker 1: or is that a mystery as well? Look, I think 169 00:08:23,040 --> 00:08:25,200 Speaker 1: everything is a mystery at the moment. This isn't a 170 00:08:25,280 --> 00:08:28,560 Speaker 1: typical kind of downturn and it won't be a typical 171 00:08:28,680 --> 00:08:31,880 Speaker 1: kind of recovery at all. And as I've been saying 172 00:08:31,920 --> 00:08:34,040 Speaker 1: since the beginning of this virus, the virus is going 173 00:08:34,080 --> 00:08:38,280 Speaker 1: to dictate everything and we'll be determining prices and quantities 174 00:08:38,320 --> 00:08:42,320 Speaker 1: and so uh, you know, it's it's actually the epidemiological 175 00:08:43,040 --> 00:08:45,680 Speaker 1: data that's much more important than the economic data at 176 00:08:45,720 --> 00:08:48,480 Speaker 1: the moment. So make a reason people were gravitating towards 177 00:08:48,520 --> 00:08:50,520 Speaker 1: the output gap that we're trying to assess how big 178 00:08:50,559 --> 00:08:53,200 Speaker 1: this package was down in day say, and perhaps whether 179 00:08:53,240 --> 00:08:54,680 Speaker 1: it was too big. So what's the best way of 180 00:08:54,720 --> 00:08:58,760 Speaker 1: assessing that size too big, too small? So I don't 181 00:08:58,760 --> 00:09:00,800 Speaker 1: think we should think of this package as a stimulus 182 00:09:00,800 --> 00:09:04,040 Speaker 1: at all. It's it's unfortunately been deemed that, but I 183 00:09:04,040 --> 00:09:06,760 Speaker 1: think we should think of it as cataxtrophe mitigation. And 184 00:09:06,880 --> 00:09:09,400 Speaker 1: so the point isn't to figure out the size of 185 00:09:09,440 --> 00:09:12,320 Speaker 1: the whole, to measure how big it is and how 186 00:09:12,400 --> 00:09:14,640 Speaker 1: much dirt we need to fill it in. The point 187 00:09:14,720 --> 00:09:18,160 Speaker 1: is to get dirt out to those most vulnerable um 188 00:09:18,280 --> 00:09:20,360 Speaker 1: so that we can protect them, and then in the 189 00:09:20,400 --> 00:09:24,040 Speaker 1: next stage think about trying to provide a stimulus so 190 00:09:24,080 --> 00:09:26,040 Speaker 1: that we can get on our way to recovery. And 191 00:09:26,480 --> 00:09:29,320 Speaker 1: in this sense, I think the next package is almost 192 00:09:29,400 --> 00:09:31,440 Speaker 1: the more important one. If you want to think about 193 00:09:31,559 --> 00:09:33,760 Speaker 1: potential growth, or if you want to consider there might 194 00:09:33,760 --> 00:09:37,680 Speaker 1: be multiple equilibria and we're trying to end up on 195 00:09:37,720 --> 00:09:41,160 Speaker 1: a better one. The next package, the build back better package, 196 00:09:41,200 --> 00:09:42,920 Speaker 1: is the one that's going to do that. So what 197 00:09:43,000 --> 00:09:45,480 Speaker 1: do you think that package specifically mag and should look like. 198 00:09:47,000 --> 00:09:49,199 Speaker 1: I think it should be full of public investments. I mean, 199 00:09:49,240 --> 00:09:52,079 Speaker 1: it doesn't matter if you believe in secular stagnation or not. 200 00:09:52,400 --> 00:09:55,199 Speaker 1: If you think that we've had low growth, low inflation, 201 00:09:55,280 --> 00:09:58,240 Speaker 1: low rates for so long because of supply side issues 202 00:09:58,360 --> 00:10:01,120 Speaker 1: or demand side issues. The is one thing that fixes 203 00:10:01,200 --> 00:10:04,680 Speaker 1: both of those issues, and that's public investment. So, you know, 204 00:10:04,720 --> 00:10:08,920 Speaker 1: a massive infrastructure spending program that's green in nature, I 205 00:10:08,920 --> 00:10:11,240 Speaker 1: think is an absolute no brainer, and a lot of 206 00:10:11,280 --> 00:10:14,199 Speaker 1: money should be behind that before we get there. Megan, 207 00:10:14,320 --> 00:10:17,360 Speaker 1: i'd love your assessment of the efficiency of this one 208 00:10:17,400 --> 00:10:20,400 Speaker 1: point nine trillion dollar package. Greg Valier was talking about 209 00:10:20,640 --> 00:10:23,240 Speaker 1: that Wall Street Journal op ed talking about the pork 210 00:10:23,600 --> 00:10:26,200 Speaker 1: built into this plan. Do you have a sense of 211 00:10:26,240 --> 00:10:28,720 Speaker 1: whether that's actually the case or whether there is a 212 00:10:28,760 --> 00:10:31,480 Speaker 1: sort of sense behind each dollar and sort of a 213 00:10:31,559 --> 00:10:36,040 Speaker 1: firepower behind it. So I think there is firepower behind 214 00:10:36,600 --> 00:10:40,440 Speaker 1: you know, purely based on the size. Is every dollar 215 00:10:40,720 --> 00:10:44,040 Speaker 1: perfectly allocated? Absolutely not. But we've already learned in this 216 00:10:44,160 --> 00:10:47,360 Speaker 1: crisis and the previous crisis that we don't have great 217 00:10:47,400 --> 00:10:50,880 Speaker 1: tools for ferreting out exactly who needs how much money 218 00:10:50,880 --> 00:10:53,400 Speaker 1: and getting it to them, And so the idea is 219 00:10:53,440 --> 00:10:56,840 Speaker 1: you just get out a lot quickly. It's not particularly targeted. 220 00:10:56,880 --> 00:11:00,120 Speaker 1: It could be more targeted, certainly, and it doesn't includ 221 00:11:00,000 --> 00:11:03,680 Speaker 1: of things like automatic stabilizers, which I wish it did, 222 00:11:03,800 --> 00:11:06,240 Speaker 1: so that you took the politics out of this process 223 00:11:06,280 --> 00:11:08,160 Speaker 1: a little bit, and it was all based on what's 224 00:11:08,200 --> 00:11:11,439 Speaker 1: actually happening in the economy. Um. But the idea isn't 225 00:11:11,480 --> 00:11:14,439 Speaker 1: to fill in the hole perfectly, We're we're clearly over 226 00:11:15,080 --> 00:11:17,640 Speaker 1: doing it on filling in the hole. But that's okay, 227 00:11:17,720 --> 00:11:19,640 Speaker 1: because the point is just to get money to the 228 00:11:19,760 --> 00:11:22,840 Speaker 1: most vulnerable businesses and individuals. But Megan, what about people 229 00:11:22,840 --> 00:11:24,600 Speaker 1: who look at the savings rate the fact that it's 230 00:11:24,640 --> 00:11:29,080 Speaker 1: climbed so incredibly high. Yes, this gives people firepower arguably 231 00:11:29,080 --> 00:11:32,400 Speaker 1: when the economy does reopen. But does this indicate to 232 00:11:32,480 --> 00:11:35,160 Speaker 1: you that people are not going to necessarily get this 233 00:11:35,200 --> 00:11:37,319 Speaker 1: money out into the economy right away, and then it's 234 00:11:37,360 --> 00:11:39,640 Speaker 1: not as efficient and that perhaps the people who are 235 00:11:39,640 --> 00:11:41,400 Speaker 1: getting it aren't the people who need it the most. 236 00:11:43,240 --> 00:11:45,679 Speaker 1: So that that's where I think this might be targeted 237 00:11:45,720 --> 00:11:49,559 Speaker 1: a little better towards those with lower incomes or no incomes, certainly, 238 00:11:49,679 --> 00:11:53,800 Speaker 1: rather than a check going to everyone, which I wouldn't advise. 239 00:11:53,920 --> 00:11:56,400 Speaker 1: But that being said, I think that the savings rate 240 00:11:56,480 --> 00:11:59,400 Speaker 1: is a little bit misleading because it doesn't consider all 241 00:11:59,400 --> 00:12:02,280 Speaker 1: the forebearing that we have um at the moment, and 242 00:12:02,320 --> 00:12:06,160 Speaker 1: so the savings three has skyrocketed, so has household debt actually, 243 00:12:06,600 --> 00:12:09,679 Speaker 1: and you have to consider that what bills finally come do, 244 00:12:09,960 --> 00:12:13,120 Speaker 1: which many of them aren't because the forbearance, a lot 245 00:12:13,160 --> 00:12:14,840 Speaker 1: of the savings are going to have to be plowed 246 00:12:14,840 --> 00:12:19,199 Speaker 1: into that. Megan, part of your charm is folding politics 247 00:12:19,320 --> 00:12:22,800 Speaker 1: into your economics. Mit Rochelle was on Friday from Florida, 248 00:12:23,120 --> 00:12:26,680 Speaker 1: where houses are being sold in twelve minutes. I mean, 249 00:12:26,880 --> 00:12:31,600 Speaker 1: clearly the benefits are being skewed across different income levels. 250 00:12:31,880 --> 00:12:35,560 Speaker 1: Do you have any confidence at all that Washington has 251 00:12:35,600 --> 00:12:38,840 Speaker 1: a political will to actually get money to those that 252 00:12:38,920 --> 00:12:43,199 Speaker 1: really need it? So I think, you know, from a 253 00:12:43,280 --> 00:12:46,480 Speaker 1: macro sence, absolutely, If you just look at who the 254 00:12:46,520 --> 00:12:49,959 Speaker 1: administration has hired on the on the domestic side, it's 255 00:12:49,960 --> 00:12:52,360 Speaker 1: a load of labor economists, and that's because there is 256 00:12:52,400 --> 00:12:55,920 Speaker 1: a real concern about income and wealth inequality in the US. 257 00:12:56,040 --> 00:12:59,240 Speaker 1: So I do think in a big sense the Biden 258 00:12:59,280 --> 00:13:02,440 Speaker 1: administration and does want to do something about this. But 259 00:13:02,520 --> 00:13:05,640 Speaker 1: as I said, you know, we don't have great tools 260 00:13:05,760 --> 00:13:09,120 Speaker 1: for figuring out how to get money specifically to those 261 00:13:09,160 --> 00:13:12,440 Speaker 1: who needed the most. Um and what you mentioned in 262 00:13:12,480 --> 00:13:15,160 Speaker 1: the housing market, I mean that's clearly a result of 263 00:13:15,720 --> 00:13:20,200 Speaker 1: central bank policy, and that's the fed UH mortgages cars. 264 00:13:20,360 --> 00:13:22,560 Speaker 1: Those markets have been on fire because RS are so 265 00:13:22,640 --> 00:13:24,760 Speaker 1: incredibly low, and you know, I think they will be 266 00:13:24,880 --> 00:13:26,760 Speaker 1: for a very long time, but I think we can 267 00:13:27,120 --> 00:13:30,760 Speaker 1: can continue to see those markets do well. Mag and 268 00:13:30,800 --> 00:13:32,400 Speaker 1: good to hey from you. Thanks for joining us this 269 00:13:32,440 --> 00:13:34,720 Speaker 1: Monday morning, make and green that at the Hobbit Kennedy 270 00:13:34,760 --> 00:13:43,680 Speaker 1: school Sania Fellow right now in the change landscape of 271 00:13:43,760 --> 00:13:47,079 Speaker 1: this virus, this pandemic and all the good news we're 272 00:13:47,080 --> 00:13:50,760 Speaker 1: observing when we look at hospitalizations and the improved statistics 273 00:13:50,760 --> 00:13:54,560 Speaker 1: of death. Is Joshua Sharfstein's with Johns Hopkins Bloomberg School 274 00:13:54,800 --> 00:13:57,800 Speaker 1: of Public Health. Mr Bloomberg, of course a philanthropist, is 275 00:13:58,200 --> 00:14:01,800 Speaker 1: engineering school at John's Hopkins and all of j h 276 00:14:01,920 --> 00:14:04,160 Speaker 1: U and of course founder of Bloomberg LP in this 277 00:14:04,280 --> 00:14:08,760 Speaker 1: radio and TV property as well, Joshra Sharfstein, I get 278 00:14:08,880 --> 00:14:12,319 Speaker 1: upset when I hear the media talk about her herd 279 00:14:12,320 --> 00:14:16,000 Speaker 1: immunity and simplistic phrases. You and I know it's some 280 00:14:16,200 --> 00:14:22,840 Speaker 1: really interesting differential equations. Explain how prose like you take 281 00:14:22,880 --> 00:14:26,320 Speaker 1: the fancy math of diff e Q and get us 282 00:14:26,360 --> 00:14:30,520 Speaker 1: to where her immunity clicks in. Well, I think they're 283 00:14:30,600 --> 00:14:33,200 Speaker 1: models of her immunity, and then there's the reality of 284 00:14:33,240 --> 00:14:36,640 Speaker 1: her immunity, and so people can estimate when we think 285 00:14:36,760 --> 00:14:39,840 Speaker 1: her immunity might kick in and what that means for people, 286 00:14:40,200 --> 00:14:42,440 Speaker 1: But then we really have to see it because those 287 00:14:42,480 --> 00:14:45,680 Speaker 1: models are generally based on assumptions. I think one of 288 00:14:45,680 --> 00:14:48,360 Speaker 1: the key important points to remember about her immunity is 289 00:14:48,400 --> 00:14:52,240 Speaker 1: that you can have generally herd immunity, meaning that cases 290 00:14:52,320 --> 00:14:56,040 Speaker 1: really don't have a good opportunity to keep spreading. But 291 00:14:56,160 --> 00:14:59,200 Speaker 1: then you have communities where there's a lot of vulnerability. 292 00:14:59,280 --> 00:15:01,680 Speaker 1: People have an been vaccinated and a few people have 293 00:15:01,760 --> 00:15:05,240 Speaker 1: gotten infected that could wind up with pretty serious outbreaks 294 00:15:05,280 --> 00:15:08,880 Speaker 1: as well as hospitalizations and deaths. So general herd immunity 295 00:15:08,920 --> 00:15:11,840 Speaker 1: can leave some serious pockets. And then the second question 296 00:15:11,920 --> 00:15:14,200 Speaker 1: is you know what will it really take and that 297 00:15:14,400 --> 00:15:17,480 Speaker 1: may depend on how these variants behave and other factors 298 00:15:17,480 --> 00:15:19,560 Speaker 1: we don't know about. And one of the factors is 299 00:15:19,600 --> 00:15:23,400 Speaker 1: the virulence of whatever you're talking about. Have you changed 300 00:15:23,480 --> 00:15:27,760 Speaker 1: your perception of how virulent this vaccine is, this this 301 00:15:27,920 --> 00:15:32,200 Speaker 1: virus is rather given the new variants that are out there, well, 302 00:15:32,240 --> 00:15:35,000 Speaker 1: there is certainly some evidence that some of the new 303 00:15:35,080 --> 00:15:38,600 Speaker 1: variants may be more lethal, but it doesn't appear to be, 304 00:15:38,760 --> 00:15:43,360 Speaker 1: you know, fundamentally changing the epidemiology of the of the 305 00:15:43,480 --> 00:15:46,400 Speaker 1: virus so far in the United States. So right now 306 00:15:46,600 --> 00:15:50,160 Speaker 1: the cases are coming down, hospitalizations are coming down, deaths 307 00:15:50,160 --> 00:15:53,360 Speaker 1: are coming down. But we know with five hundred thousand 308 00:15:53,440 --> 00:15:56,800 Speaker 1: people who have died, just how serious this pandemic is, 309 00:15:57,120 --> 00:15:59,320 Speaker 1: and we can't let up. We have to keep pushing 310 00:15:59,320 --> 00:16:02,120 Speaker 1: it down, um, so that we can really minimize the 311 00:16:02,200 --> 00:16:04,440 Speaker 1: chance we get in trouble with variants or any other 312 00:16:04,520 --> 00:16:06,880 Speaker 1: kind of problem. Professor, do you think we are understanding 313 00:16:06,920 --> 00:16:10,920 Speaker 1: the vaccine at all? I think the vaccine is pretty 314 00:16:10,920 --> 00:16:13,520 Speaker 1: awesome really. I mean, if you think about it, that 315 00:16:13,640 --> 00:16:19,200 Speaker 1: within a year we have um incredibly effective vaccines with 316 00:16:19,560 --> 00:16:22,800 Speaker 1: very strong safety records, and you see now the data 317 00:16:22,840 --> 00:16:26,600 Speaker 1: from Israel's showing staggering declines and risk for people who 318 00:16:26,680 --> 00:16:29,840 Speaker 1: have been vaccinated. I think that there's no reason to 319 00:16:29,880 --> 00:16:33,640 Speaker 1: undersell the vaccine. But we shouldn't think that. You know, 320 00:16:33,920 --> 00:16:36,640 Speaker 1: in a week after you know that everything is going 321 00:16:36,680 --> 00:16:39,280 Speaker 1: to be fine, there are a lot of risks out there. UM. 322 00:16:39,680 --> 00:16:41,880 Speaker 1: The way I'm telling people, as you know that list 323 00:16:41,920 --> 00:16:43,800 Speaker 1: of things that you want to do when this is 324 00:16:43,840 --> 00:16:46,840 Speaker 1: all over. You can't do them all today, you know. 325 00:16:46,960 --> 00:16:50,080 Speaker 1: But if you've been vaccinated and you're you're through that period, 326 00:16:50,360 --> 00:16:52,160 Speaker 1: there's probably some things on that list you may be 327 00:16:52,240 --> 00:16:53,920 Speaker 1: able to do. Well. Don't you think it would be 328 00:16:54,800 --> 00:16:57,440 Speaker 1: more optimal so to speak, to tell people who have 329 00:16:57,480 --> 00:16:59,440 Speaker 1: had the vaccine that they can do the things on 330 00:16:59,480 --> 00:17:01,640 Speaker 1: the list. Wouldn't that be a better way of selling 331 00:17:01,640 --> 00:17:04,000 Speaker 1: this vaccine, So actually encourage people to go and get 332 00:17:04,000 --> 00:17:05,680 Speaker 1: it by saying to them that you can't start to 333 00:17:05,680 --> 00:17:08,880 Speaker 1: return to normal once you've had it. Well, I think 334 00:17:08,920 --> 00:17:11,399 Speaker 1: you you can say you can start to return to normal. 335 00:17:11,520 --> 00:17:13,440 Speaker 1: I think that some people are really itching to be 336 00:17:13,480 --> 00:17:15,520 Speaker 1: able to say it's all done. You know, you're done, 337 00:17:15,560 --> 00:17:19,159 Speaker 1: and that's not really a great message for for for 338 00:17:19,240 --> 00:17:21,920 Speaker 1: everyone right now. But you, I think can say, for example, 339 00:17:21,960 --> 00:17:24,760 Speaker 1: that people have been vaccine, you can get together for dinner. 340 00:17:24,920 --> 00:17:28,040 Speaker 1: You know, you can go see your grandkids. You know, 341 00:17:29,560 --> 00:17:33,080 Speaker 1: perhaps depending on the situation, with a few modifications, but 342 00:17:33,160 --> 00:17:35,520 Speaker 1: a lot closer than you were before. So you know, 343 00:17:35,520 --> 00:17:38,000 Speaker 1: I'm fielding these questions every day from people and they're 344 00:17:38,000 --> 00:17:40,320 Speaker 1: just amaze when I start to tell them yes, after 345 00:17:40,440 --> 00:17:43,399 Speaker 1: a year of telling them now it has a psychological impact. 346 00:17:43,480 --> 00:17:47,160 Speaker 1: I would say everyone, particularly younger kids, who have seen 347 00:17:47,200 --> 00:17:50,120 Speaker 1: this as the majority or a significant portion of their 348 00:17:50,200 --> 00:17:53,200 Speaker 1: life going forward. What's the time frame that you see 349 00:17:53,240 --> 00:17:56,720 Speaker 1: at this point, given the vaccinations available, where you expect 350 00:17:56,800 --> 00:17:58,680 Speaker 1: anybody to be able to go to their local drug 351 00:17:58,800 --> 00:18:03,080 Speaker 1: store or say a stadium and get vaccinated. You know, 352 00:18:03,119 --> 00:18:05,680 Speaker 1: I would I defer to the estimates of the federal government. 353 00:18:05,720 --> 00:18:08,200 Speaker 1: I think they're they're talking about the summer for adults 354 00:18:08,440 --> 00:18:11,439 Speaker 1: more or less for that. Obviously, it's going to take 355 00:18:11,480 --> 00:18:13,480 Speaker 1: longer for kids because the studies have to be done. 356 00:18:13,560 --> 00:18:17,040 Speaker 1: But um, I think we're going to see that this 357 00:18:17,119 --> 00:18:20,920 Speaker 1: is going to turn from an excess demand situation pretty quickly. 358 00:18:21,160 --> 00:18:23,480 Speaker 1: I mean in in you know, in a matter of 359 00:18:23,520 --> 00:18:26,520 Speaker 1: weeks or a couple of months, to a vaccine acceptance 360 00:18:26,560 --> 00:18:29,720 Speaker 1: situation where we really are going to be waiting for 361 00:18:29,760 --> 00:18:32,760 Speaker 1: people to get ready for vaccination. And we need to 362 00:18:32,800 --> 00:18:37,720 Speaker 1: start that process now, offering vaccines, answering questions, doing mobile teams. 363 00:18:38,119 --> 00:18:41,560 Speaker 1: You know, there's there's vast inequity in access to vaccination 364 00:18:41,680 --> 00:18:43,840 Speaker 1: right now, and we should be fixing that because that's 365 00:18:43,840 --> 00:18:47,119 Speaker 1: going to turn in to the most important endgame for 366 00:18:47,160 --> 00:18:50,320 Speaker 1: this virus. Conversations like this are important, Joshua. We appreciate 367 00:18:50,359 --> 00:18:52,320 Speaker 1: it's on this morning. Thank you so, Joshua Shastain that 368 00:18:52,680 --> 00:19:02,320 Speaker 1: of Jones Help Kids, dianel over the jpmorganist management where 369 00:19:02,320 --> 00:19:06,880 Speaker 1: the real focus on emerging markets joins us UH this morning, Diana, 370 00:19:07,200 --> 00:19:09,439 Speaker 1: I want to look in your research notes at the 371 00:19:09,480 --> 00:19:13,160 Speaker 1: distinctions involved. You can't buy em blind. You can't buy 372 00:19:13,240 --> 00:19:17,640 Speaker 1: big developed countries blind either. What are the distinctions right 373 00:19:17,680 --> 00:19:22,760 Speaker 1: now of placing capital in emerging markets? So right now, 374 00:19:22,840 --> 00:19:25,200 Speaker 1: the big driver and they're seeing that playing out as 375 00:19:25,200 --> 00:19:29,560 Speaker 1: well in developed markets is actually growth. UM. The vaccine 376 00:19:29,600 --> 00:19:32,120 Speaker 1: rollout has been a very big focus on the markets, 377 00:19:32,160 --> 00:19:34,879 Speaker 1: and I think there is growing confidence now as the 378 00:19:34,880 --> 00:19:38,960 Speaker 1: pace accelerates and you have more vaccine candidates coming into play, 379 00:19:39,000 --> 00:19:41,400 Speaker 1: that this is going to be done in a sustained 380 00:19:41,440 --> 00:19:44,440 Speaker 1: manner and in some cases we might even see the 381 00:19:44,720 --> 00:19:48,680 Speaker 1: openings of the economies as early as Q two, full 382 00:19:48,680 --> 00:19:52,560 Speaker 1: reopenings in places like the US, the UK, markets like 383 00:19:52,680 --> 00:19:55,560 Speaker 1: Israel where they're fire runs to the curve. So in 384 00:19:55,600 --> 00:19:59,600 Speaker 1: emerging markets, very similar stories are playing out. UM. The 385 00:19:59,640 --> 00:20:03,200 Speaker 1: focus has very much been on focusing on those economies 386 00:20:03,480 --> 00:20:06,359 Speaker 1: where a rollout of vaccine has been credible and it's 387 00:20:06,400 --> 00:20:09,520 Speaker 1: actually well ankered. Um So you look at somewhere like Chile, 388 00:20:10,000 --> 00:20:13,359 Speaker 1: Chile stands out amongst the latter and actually amongst broader 389 00:20:13,359 --> 00:20:16,399 Speaker 1: E margin markets as being one that's really ahead of 390 00:20:16,440 --> 00:20:19,720 Speaker 1: the curve rolling out vaccines and that's actually traded well. 391 00:20:19,960 --> 00:20:22,480 Speaker 1: Bringing a story with Turkey, so Joan, I know you're 392 00:20:22,480 --> 00:20:25,520 Speaker 1: a great student. That's what's so important here is a maturity, 393 00:20:25,560 --> 00:20:30,040 Speaker 1: the maturation rather of emerging market bonds, the size of 394 00:20:30,160 --> 00:20:34,280 Speaker 1: scope to scale to the commodity e M nations have 395 00:20:34,400 --> 00:20:40,040 Speaker 1: a greater, more sophisticated bond pool to play with. Um So, 396 00:20:40,119 --> 00:20:43,720 Speaker 1: by and large commodity exporters tend to have more issuance. 397 00:20:43,960 --> 00:20:47,920 Speaker 1: Um they're larger economies, so that's not unexpected. But then 398 00:20:48,160 --> 00:20:50,960 Speaker 1: um so those two those that side of things is 399 00:20:51,000 --> 00:20:53,560 Speaker 1: actually a positive for them in that liquidity is not 400 00:20:53,760 --> 00:20:57,840 Speaker 1: necessarily an issue. But actually where we're seeing interesting opportunities 401 00:20:57,920 --> 00:21:01,159 Speaker 1: right now is in the smaller idiosyncratic stories within emerging 402 00:21:01,280 --> 00:21:04,080 Speaker 1: markets are those are markets that have less beta to 403 00:21:04,160 --> 00:21:06,560 Speaker 1: what's happening in coreates and are less likely to be 404 00:21:06,600 --> 00:21:09,600 Speaker 1: impacted by the big duration move that we're seeing in 405 00:21:09,640 --> 00:21:12,760 Speaker 1: the US Diana. So much of the emerging markets call 406 00:21:12,840 --> 00:21:15,760 Speaker 1: has hinged on the weaker dollar consensus. And here we 407 00:21:15,840 --> 00:21:19,479 Speaker 1: have a growing number of naysayers who argue that you 408 00:21:19,520 --> 00:21:22,840 Speaker 1: have American exceptionalism, that basically you have an economy that's 409 00:21:22,840 --> 00:21:25,879 Speaker 1: going to break away and accelerated a faster clip because 410 00:21:25,880 --> 00:21:29,359 Speaker 1: of the vaccination schedule and because of the fiscal support 411 00:21:29,359 --> 00:21:32,960 Speaker 1: and stimulus that the Congress is passing. How much does 412 00:21:33,000 --> 00:21:36,000 Speaker 1: that disrupt your thesis, disrupt your argument that you need 413 00:21:36,040 --> 00:21:38,000 Speaker 1: to go into emerging markets debt in order to get 414 00:21:38,000 --> 00:21:42,160 Speaker 1: any yield. So so far, what we've seen this year 415 00:21:42,359 --> 00:21:45,960 Speaker 1: is most markets have actually been from a total return perspective, 416 00:21:46,040 --> 00:21:49,040 Speaker 1: most markets have been dragged higher in yields um as 417 00:21:49,119 --> 00:21:52,800 Speaker 1: treasuries have moved. However, spreads have held up quite well 418 00:21:52,840 --> 00:21:56,600 Speaker 1: in e M and the big distinction up until now 419 00:21:56,600 --> 00:21:59,720 Speaker 1: has been the move higher has been led by brake events. 420 00:21:59,760 --> 00:22:02,439 Speaker 1: What we saw last week is somewhat concerning for the 421 00:22:02,480 --> 00:22:05,440 Speaker 1: outlook going forward, where it's no longer a break even 422 00:22:05,560 --> 00:22:08,240 Speaker 1: lead repricing of rates that we're seeing in the US, 423 00:22:08,280 --> 00:22:11,400 Speaker 1: it's actually being led by real rates um and that's 424 00:22:11,400 --> 00:22:13,879 Speaker 1: actually something that we think The FED is likely to 425 00:22:13,920 --> 00:22:16,879 Speaker 1: be more sensitive too, because not only are we seeing 426 00:22:16,920 --> 00:22:19,359 Speaker 1: that spilling over to e M, we're also seeing that 427 00:22:19,440 --> 00:22:22,080 Speaker 1: impact in US markets. So you see mortgage rates are 428 00:22:22,080 --> 00:22:24,680 Speaker 1: starting to rise. Um, we had the biggest rise in 429 00:22:24,760 --> 00:22:28,000 Speaker 1: US mortgage rates that we've seen since August last year. Well, 430 00:22:28,040 --> 00:22:31,560 Speaker 1: the economy is looking promising, the recovery is still at 431 00:22:31,600 --> 00:22:33,919 Speaker 1: the early stages, and it's still quite fragile, So we 432 00:22:34,000 --> 00:22:36,080 Speaker 1: do think the FED is going to want to lean 433 00:22:36,119 --> 00:22:38,680 Speaker 1: against this. Wait. Hold on a second, Diana, this is important. 434 00:22:38,680 --> 00:22:41,160 Speaker 1: Are you saying that a key component of your emerging 435 00:22:41,160 --> 00:22:43,560 Speaker 1: markets call is a belief in faith in the Federal 436 00:22:43,600 --> 00:22:46,320 Speaker 1: Reserve to come in buy more longer duration bonds to 437 00:22:46,320 --> 00:22:51,040 Speaker 1: suppress yields if you start seeing real yields continue to rise, No, 438 00:22:51,240 --> 00:22:54,000 Speaker 1: that's not what I'm saying at all. What I'm saying 439 00:22:54,080 --> 00:22:57,359 Speaker 1: is if it's rates moving higher because growth is picking 440 00:22:57,440 --> 00:23:00,720 Speaker 1: up globally and it's an orderly reprice seeing higher of 441 00:23:01,000 --> 00:23:03,840 Speaker 1: rates both real rates and break events, that's a good 442 00:23:03,920 --> 00:23:07,320 Speaker 1: environment for EM because growth is what matters, and exports 443 00:23:07,600 --> 00:23:11,080 Speaker 1: from emerging markets are a key driver of returns. However, 444 00:23:11,119 --> 00:23:14,360 Speaker 1: if we see rates markets running ahead of what we're 445 00:23:14,359 --> 00:23:17,359 Speaker 1: seeing in the data, then that becomes a concern. And 446 00:23:17,400 --> 00:23:20,159 Speaker 1: I think right now where we are, the data is 447 00:23:20,160 --> 00:23:22,840 Speaker 1: not their market surprising in a stimulus that hasn't yet 448 00:23:22,960 --> 00:23:26,640 Speaker 1: been approved. So that's the big distinction. We actually need 449 00:23:26,680 --> 00:23:29,240 Speaker 1: to see that growth being realized and we need to 450 00:23:29,280 --> 00:23:32,120 Speaker 1: see that inflation being realized. And that's something the FED 451 00:23:32,160 --> 00:23:35,359 Speaker 1: has been quite key in reiterating time and again that 452 00:23:35,440 --> 00:23:38,800 Speaker 1: it's actually realized core PC that they're focused on downal 453 00:23:38,840 --> 00:23:40,439 Speaker 1: Let's said on the feed just for a moment, then 454 00:23:40,480 --> 00:23:42,800 Speaker 1: share and power tomorrow advice check claratory in the mix 455 00:23:42,880 --> 00:23:46,399 Speaker 1: as well. If there's some kind of intervention, it's usually verbal. First. 456 00:23:46,440 --> 00:23:49,040 Speaker 1: Do you expect any actual real action of the back 457 00:23:49,080 --> 00:23:53,000 Speaker 1: of that. It's probably too early for them to do 458 00:23:53,040 --> 00:23:55,720 Speaker 1: anything more. So I think they'll want to sequence the 459 00:23:55,800 --> 00:23:57,960 Speaker 1: tools that they used to talk to markets and to 460 00:23:58,000 --> 00:24:01,080 Speaker 1: communicate with markets. So this week we have a raft 461 00:24:01,119 --> 00:24:04,640 Speaker 1: of speakers coming in, starting with today where we'll see 462 00:24:04,720 --> 00:24:07,960 Speaker 1: the first speaker, and tomorrow where we have GERALN. Powell speaking. 463 00:24:08,640 --> 00:24:11,720 Speaker 1: I think verbal intervention is going to be key. Um, 464 00:24:11,840 --> 00:24:14,480 Speaker 1: we already had your own Power speaking in previous weeks 465 00:24:14,680 --> 00:24:17,400 Speaker 1: reiterating the messages. So it will be key to see 466 00:24:17,440 --> 00:24:20,119 Speaker 1: them doubling down on that message that while the outlook 467 00:24:20,240 --> 00:24:23,720 Speaker 1: is looking better, the economy is far from a strong 468 00:24:23,840 --> 00:24:25,639 Speaker 1: enough footing for them to be easy and back on 469 00:24:25,720 --> 00:24:29,240 Speaker 1: accommodation um and I think if markets still continue to 470 00:24:29,280 --> 00:24:33,160 Speaker 1: price in or accelerate too fast, then it's likely that 471 00:24:33,200 --> 00:24:36,000 Speaker 1: we might see more tools coming to play. Tom. This 472 00:24:36,119 --> 00:24:37,560 Speaker 1: is the issue at the moment, isn't it. A couple 473 00:24:37,560 --> 00:24:39,280 Speaker 1: of weeks ago, if you'd asked me about cham and 474 00:24:39,280 --> 00:24:41,880 Speaker 1: Power would have said us down script, nothing new. Look 475 00:24:41,920 --> 00:24:43,520 Speaker 1: at the moment we've seen in the last week alone, 476 00:24:43,560 --> 00:24:45,720 Speaker 1: it was a struggle to break one twenty for about 477 00:24:45,720 --> 00:24:49,240 Speaker 1: a minute three through one thirty, and now people talking 478 00:24:49,359 --> 00:24:53,040 Speaker 1: one fifty in the very nettime future. I haven't done 479 00:24:53,080 --> 00:24:55,920 Speaker 1: the tannical work above at one point three six, but John, 480 00:24:55,920 --> 00:24:58,119 Speaker 1: I'll make it clear the one person I'm watching and 481 00:24:58,200 --> 00:25:01,040 Speaker 1: the speaker than this week is Richard Clata had a 482 00:25:01,119 --> 00:25:06,520 Speaker 1: Columbia Economics, truly one of our great academics on monetary theory. 483 00:25:06,560 --> 00:25:09,080 Speaker 1: If there's one person who's going to say one sentence, 484 00:25:09,320 --> 00:25:11,159 Speaker 1: it's going to be Richard Claire. He has provided the 485 00:25:11,160 --> 00:25:13,520 Speaker 1: guidance for financial markets, that's for sure, over the last 486 00:25:13,560 --> 00:25:16,520 Speaker 1: couple of years, there's maybe Chairman Palet's fumbled things just 487 00:25:16,560 --> 00:25:18,240 Speaker 1: a little bit. Danny, do you have a number of 488 00:25:18,280 --> 00:25:20,359 Speaker 1: mind where we get to on the nominal yield on 489 00:25:20,400 --> 00:25:23,800 Speaker 1: a ten year that starts to infect risk assets elsewhere? 490 00:25:23,880 --> 00:25:26,000 Speaker 1: It's not one thirty six and we see an equities 491 00:25:26,000 --> 00:25:28,600 Speaker 1: gap below. Now is there something a little bit higher 492 00:25:28,680 --> 00:25:32,760 Speaker 1: or are we there? So? I think the technical charges 493 00:25:32,840 --> 00:25:35,160 Speaker 1: have been plugging one thirty eight as a key level 494 00:25:35,520 --> 00:25:38,000 Speaker 1: um and it's not surprising that as we approach that 495 00:25:38,040 --> 00:25:39,960 Speaker 1: we're starting to see a bit of a spill over 496 00:25:40,119 --> 00:25:44,040 Speaker 1: into other financial assets, which the FED will be watching closely. 497 00:25:44,520 --> 00:25:46,560 Speaker 1: But I think one fifty is also another one to 498 00:25:46,600 --> 00:25:49,560 Speaker 1: watch because that's the point where the tenure yield is 499 00:25:49,560 --> 00:25:53,280 Speaker 1: equivalent to the SMP dividend yield. And so for people 500 00:25:53,320 --> 00:25:55,360 Speaker 1: who have been saying, why would I want to buy 501 00:25:55,400 --> 00:25:58,359 Speaker 1: fixed income when the yield I'm getting from equities is 502 00:25:58,440 --> 00:26:02,639 Speaker 1: much higher than becomes a different conversation where fixed income 503 00:26:02,720 --> 00:26:05,520 Speaker 1: is actually yielding enough and still providing you the ballast 504 00:26:05,640 --> 00:26:09,240 Speaker 1: in the in the extent that we see any growth 505 00:26:09,280 --> 00:26:12,840 Speaker 1: drawdowns coming forward um to be meaningful in a portfolio. Again, 506 00:26:12,880 --> 00:26:14,520 Speaker 1: So I think one fifty is going to be the 507 00:26:14,560 --> 00:26:17,560 Speaker 1: next level that we're watching very closely. Diana. I'm sitting 508 00:26:17,600 --> 00:26:20,119 Speaker 1: here and thinking about what you have been saying, and 509 00:26:20,160 --> 00:26:22,720 Speaker 1: I'm struggling with one aspect the idea. Yes, the data 510 00:26:22,800 --> 00:26:26,280 Speaker 1: has not been showing the growth that perhaps markets are 511 00:26:26,320 --> 00:26:28,840 Speaker 1: pricing in. But markets are forward looking and they are 512 00:26:28,920 --> 00:26:32,000 Speaker 1: looking to the reopening of the economy and the expectation 513 00:26:32,040 --> 00:26:34,879 Speaker 1: of the stimulus being passed. What if the FED is wrong? 514 00:26:34,960 --> 00:26:37,520 Speaker 1: What if the FED buys a whole host of longer 515 00:26:37,600 --> 00:26:40,959 Speaker 1: duration bonds and allows risk acids to keep going up, 516 00:26:41,359 --> 00:26:44,520 Speaker 1: and that reflation that everyone is talking about comes back 517 00:26:44,560 --> 00:26:47,320 Speaker 1: online and that growth, I mean, does that increase the 518 00:26:47,400 --> 00:26:49,280 Speaker 1: chances that the Fed will have to hike much more 519 00:26:49,359 --> 00:26:52,960 Speaker 1: rapidly on the back end. So for the Fed to 520 00:26:53,440 --> 00:26:58,119 Speaker 1: change their conversation around UM when they'll start hiking, you 521 00:26:58,240 --> 00:27:01,639 Speaker 1: need to see inflation come meing in and staying elevated 522 00:27:01,720 --> 00:27:05,400 Speaker 1: for a sustained period. We already got guidance previously from 523 00:27:05,400 --> 00:27:09,560 Speaker 1: Clarida that a sustained period means twelve months. So it's 524 00:27:09,720 --> 00:27:12,600 Speaker 1: very difficult for marked for me to see the Fed 525 00:27:12,800 --> 00:27:16,359 Speaker 1: in the next twelve months starting to hike rates. UM 526 00:27:16,400 --> 00:27:19,520 Speaker 1: they might signal that they will be rolling back on 527 00:27:19,560 --> 00:27:23,000 Speaker 1: some of their purchases. Before that, we'd expected that to 528 00:27:23,080 --> 00:27:26,720 Speaker 1: happen in Q four as as September, but if the 529 00:27:26,840 --> 00:27:30,560 Speaker 1: economic data looks promising, they might start preparing the markets 530 00:27:30,600 --> 00:27:33,320 Speaker 1: for that move. But in terms of hiking, I think 531 00:27:33,359 --> 00:27:36,560 Speaker 1: we need to see realized inflation above target for a 532 00:27:36,560 --> 00:27:39,639 Speaker 1: sustained period of time, and that's really not yet where 533 00:27:39,680 --> 00:27:42,120 Speaker 1: we are. Danna, always great to catch shop with you. 534 00:27:42,280 --> 00:27:45,440 Speaker 1: Thank you time, Dana of Jack Morgan as Management. Thank 535 00:27:45,480 --> 00:27:48,679 Speaker 1: you Dinaker to say it. This is the Bloomberg Surveillance Podcast. 536 00:27:48,920 --> 00:27:52,320 Speaker 1: Thanks for listening. Join us live weekdays from seven to 537 00:27:52,400 --> 00:27:56,440 Speaker 1: ten am Eastern and Bloomberg Radio and on Bloomberg Television 538 00:27:56,800 --> 00:28:00,840 Speaker 1: each day from six to nine am for site from 539 00:28:00,840 --> 00:28:05,359 Speaker 1: the best in economics, finance, investment, and international relations. And 540 00:28:05,480 --> 00:28:10,639 Speaker 1: subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg 541 00:28:10,680 --> 00:28:14,000 Speaker 1: dot com, and of course on the terminal. I'm Tom 542 00:28:14,080 --> 00:28:16,439 Speaker 1: keene In. This is Bloomberg