Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot com,
Speaker 1: and of course on the Bloomberg terminal. If you have
Speaker 1: concerns about the global economy about slowdown, This is the
Speaker 1: interview of the day. Carl Weinberg with us with High
Speaker 1: Frequency Economics are chief economists with a tour to force.
Speaker 1: Note this afternoon, Carl. One of the fundamental things you
Speaker 1: do is partition the United States in China from everyone else.
Speaker 1: Why do you do that? Well, the U S And
Speaker 1: China are growing right now and growth is far from
Speaker 1: short and most other places of the world we're looking at,
Speaker 1: you know, industrial production GDP figures that are pretty weak.
Speaker 1: Consumer spending is good in a number of countries, but
Speaker 1: overall growth has been disappointing, and forecasts is really not
Speaker 1: that great if you look at it from coming from
Speaker 1: the central banks and from the official agencies. I'm just
Speaker 1: afraid that the world economy has now done it's it's
Speaker 1: v shaped recovery. It's now more of a reverse j
Speaker 1: shape record than we started. Carl Jerome, Polo's central banker
Speaker 1: to the world, will the global slowdown you write about?
Speaker 1: And frankly George Saravellis at Deutsche Bank touches on this warning.
Speaker 1: Is that enough to affect Powell's domestic policy? Oh? Absolutely,
Speaker 1: And in fact, I think among central bankers right now today,
Speaker 1: the thing that worries them the most is not inflation,
Speaker 1: which all of them have clearly said is transient in
Speaker 1: terms of the things that are going up, just a
Speaker 1: small number of prices going up for a short period
Speaker 1: of time. But they're worried that the world is going
Speaker 1: to fall back into a recession or into a period
Speaker 1: of subpart growth. With the unemployment rate elevated and with
Speaker 1: both fiscal and monetary policy tapped out. That's a nightmare
Speaker 1: scenario for central banks, and their job is to minimize
Speaker 1: the chances of the worst possible outcome, and that is
Speaker 1: the worst possible outcome. That's why all central bankers, I believe,
Speaker 1: are reluctant to talk about tapering or interest rate heights
Speaker 1: and say the conversation is weigh in the future, because
Speaker 1: it is this line that comes from you, the winds
Speaker 1: of global recession already in the data. A lot of
Speaker 1: people might be listening to this saying, which data where,
Speaker 1: Because I'm looking at economic data right now. It looks
Speaker 1: really strong. Still no sign of insufficient demand anywhere. What's
Speaker 1: the leading in the cadifor you cal but in terms
Speaker 1: of the region of the kind of data that you
Speaker 1: would look for. Yeah, Well, a lot of people are
Speaker 1: looking at p m I s and they're saying, well,
Speaker 1: the p m I s are up, and that means
Speaker 1: that the economies are booming. But we have to remember
Speaker 1: that it's the economy that causes the p m I
Speaker 1: to move and not the p m I to cause
Speaker 1: the economy too. When I look at industrial production, I
Speaker 1: mean starting from the view that everything that matters in
Speaker 1: this planet is either grown, hammered to get or dug
Speaker 1: out of the ground. All right, Well, hammering things together
Speaker 1: is very important because it drives all of services. And
Speaker 1: I look, as I do in my global note this morning,
Speaker 1: at industrial production charts from a dozen countries, and all
Speaker 1: of them are pointing downward, and all of them are
Speaker 1: furthermore continuing downward trends that started as long ago as
Speaker 1: the end of twenty seventeen early eighteen. So it makes
Speaker 1: me think that we're in the process, in a longer
Speaker 1: term process of industrial decline that has both a cyplical
Speaker 1: as well as a secular component. I'll also point out
Speaker 1: that industrial production almost every place I look in the
Speaker 1: world except for China, is lower now than it was
Speaker 1: in March of two thousand and eight. Well, it reaches
Speaker 1: a point where we may want to start connecting the
Speaker 1: dots between what happened in two thousand and eight and
Speaker 1: what's happening now and viewing it is one longer term episode,
Speaker 1: but we still have to fix what's wrong. Let me
Speaker 1: just sort of summarize as follows them before I get
Speaker 1: to the big kill. Can you just help me understand
Speaker 1: the timeframe for this code. When you talk about this
Speaker 1: cyclical down to and in the future somewhere, what's the
Speaker 1: time and frame for that. Let's just start off with
Speaker 1: right now with the immediate problem. The immediate problem is
Speaker 1: that we're lower now on industrial production than we were
Speaker 1: in February before the pandemic, and we're not getting closer
Speaker 1: back to those levels, We're moving further away from it.
Speaker 1: That's the immediate problem. The longer term problem is that
Speaker 1: we're also lower than where we were in two thousand
Speaker 1: and eight, and while we may have briefly rebounded from that,
Speaker 1: if you connect the dots and run the regression line
Speaker 1: from two thousand and eight to today, it's pointing downward.
Speaker 1: And that's a longer term problem that involves infrastructure investment, spending,
Speaker 1: and demographic trends. Can we talk about the fiscal part
Speaker 1: of this equation. We were just discussing with our Amrie
Speaker 1: horderned down in Washington, the debate over the bipartisan infrastructure
Speaker 1: package and then of course the trillions of dollars that
Speaker 1: they're going to attempt to push through through budget reconciliation.
Speaker 1: How do you factor in that long term spending. That's
Speaker 1: a really good question, and we have to separate the
Speaker 1: long term issues from the short term issues. And of course,
Speaker 1: the only way to get to the long term is
Speaker 1: to get through the short term. But in the longer term,
Speaker 1: the only way we're going to grow in any meaningful
Speaker 1: way is that we increase productivity, because our population growth
Speaker 1: is slowing, and productivity plus population growth gives you long
Speaker 1: term economic growth. So I encourage and I support, and
Speaker 1: I think it's great for the longer term outlook to
Speaker 1: get more investments spending in there so that over the
Speaker 1: next decade we become richer rather than poorer as our
Speaker 1: population growth rates and demographics change. And the short run, though,
Speaker 1: that's not going to help very much. The net impact
Speaker 1: on GDP and the very short term is going to
Speaker 1: be relatively small. It will create jobs, it will certainly
Speaker 1: help the the the the environment, and that's probably the
Speaker 1: most important reason for moving forward quickly with it. But
Speaker 1: the cyclical problem, the shorter term problem, has its roots
Speaker 1: in I think credit growth outside the United States, which
Speaker 1: is flat or down in most of the economies that
Speaker 1: I'm looking at. That's probably the most important short term issue,
Speaker 1: much more important than infrastructure. All we're talking about economies
Speaker 1: outside the United States. It's Freedom Day in the UK.
Speaker 1: It should be a happy day. Restrictions are being lifted. Great.
Speaker 1: Not so great is the resurgence and COVID cases the
Speaker 1: country is seeing because of the delta variant. How big
Speaker 1: do you think the economic pick up there will actually
Speaker 1: be given some of those remaining fears. While you're asking
Speaker 1: me to look into a crystal ball that's yet to
Speaker 1: be delivered. We've never seen this before, so we don't
Speaker 1: really know. What we do know is we're getting anecdotal
Speaker 1: evidence that companies are having trouble operating because of absentee
Speaker 1: ism in the UK, that fifty new cases a day
Speaker 1: are generating maybe five hundred thousand absentees from work and
Speaker 1: that's caused production chain problems everywhere along the line. And
Speaker 1: this is stuff we have no basis to evaluate because
Speaker 1: we've never seen it before. So let's say that I'm
Speaker 1: worried about it, and at the end of the day,
Speaker 1: in the very very short term, the course of the virus,
Speaker 1: the course of the pandemic is probably the most important
Speaker 1: short term restoration, much more important than taper or or
Speaker 1: interest rates or anything like that. Carl very quickly here,
Speaker 1: what's the timeline of getting us GDP back to something
Speaker 1: on the edge of normal, say three or under three percent?
Speaker 1: Is that sooner rather than later or can we extend
Speaker 1: that out it's later rather than sooner. Look at look
Speaker 1: at two thousand and eight, when everything seemingly went better
Speaker 1: after two thousand and nine, and it still took us
Speaker 1: I don't remember the exact time frame, three four years
Speaker 1: to get GDP back to where it was, and to
Speaker 1: get the unemployment rate back to where it was it
Speaker 1: took almost a decade. Right, economies do rebound, and initially
Speaker 1: they rebound quickly, but then the pace settles down to
Speaker 1: a slower pace. Is the harder to re employ, take
Speaker 1: time to get back to work. So this is you know,
Speaker 1: this is a marathon, it's not a sprint. And the idea,
Speaker 1: of course is to get the unemployment rate back down
Speaker 1: to where it was before the next hit comes. And
Speaker 1: this is what central bankers want to ensures get a
Speaker 1: half from you. They that view count Wine back there
Speaker 1: of high frequency economics, the chief economist and managing director
Speaker 1: sprat drop us with us suck and and this is
Speaker 1: the interview of the day folks on fixed income. I'm sorry,
Speaker 1: so Brod, so Brad. We were going on saying there,
Speaker 1: what is what is driving low yield? Is it the
Speaker 1: pricing in of global slowdown? Yeah, I think that this
Speaker 1: feels like a classic flight to quality, if you will,
Speaker 1: Tanning yields at the last ten to fifteen basis points
Speaker 1: have been reacting more to news flow and safe haven
Speaker 1: bed risks associated with the data variant, you know, lower
Speaker 1: core oil prices, um and and general concern if you will,
Speaker 1: on global economies and not so much on funding that seals.
Speaker 1: I mean, the data has been sort of back and forth.
Speaker 1: We got, you know, somewhat okay detail sales numbers, cp
Speaker 1: I was above consensus, but the markets, you know, right now,
Speaker 1: it seems to be more of a safe haven. But
Speaker 1: are we just textbook for bos where what we're really
Speaker 1: doing is pricing in the input of global disinflation, even
Speaker 1: if the US booms, even if the US does better,
Speaker 1: even if strategists call for higher yields, effect as we
Speaker 1: impute global disinflation into America and that suppresses yields. Oh absolutely,
Speaker 1: I think that it's a it's a it's a global uh,
Speaker 1: you know, bond market, if you will. The ECB has
Speaker 1: been very doublished. We get some forward guidance again on
Speaker 1: this week's the ECB meeting on Thursday. I think everybody's
Speaker 1: going to be paying attention to all the details, but
Speaker 1: they're going to broadly remain debbish. And Bonniels are at
Speaker 1: close to negative forty basis points. I think the lower
Speaker 1: global bond years are another fact that's going to keep
Speaker 1: US bond yields lower, and also the the the CPI
Speaker 1: or the inflation differential if you work between US and Europe,
Speaker 1: it's quite dramatic. So I think that as long as
Speaker 1: I stahould means contained overseas, you're going to see that
Speaker 1: global bonds are going to remain low. And John, look
Speaker 1: at the tenure yield for those of you on radio.
Speaker 1: I mean it's a decline, John, and then it's a
Speaker 1: real collapse and yield one right now very briefly breaking
Speaker 1: below that with down six basis points on a US
Speaker 1: tenure so bantary. You just mentioned something quite important the
Speaker 1: inflation dynamics in America. It's a very very different story
Speaker 1: to what we're experiencing right now in Europe and elsewhere.
Speaker 1: Why is that important for this bond market in the
Speaker 1: US in the treasury market, well, because of the yield
Speaker 1: differential between treasuries and bonds and tragedies and g gbs.
Speaker 1: Because the way the global bond market trades, you can
Speaker 1: you can buy assets in other currencies very easily, and
Speaker 1: as long as treasuries remain attractive on a currency adjusted basis,
Speaker 1: you're going to see this demand coming from from foreign investors.
Speaker 1: That's not exactly what's driving this price action here. This
Speaker 1: seems to be much more driven by a safe haven
Speaker 1: bid if you will, for for for treasuries. But broad speaking,
Speaker 1: as long as there's yield differentials differentials are wide, you're
Speaker 1: gonna see, uh, you know, at least treasuries are going
Speaker 1: to struggle to rise tragedy yields. I mean, I'm going
Speaker 1: to struggle to rise UM based on fundamentals. Envy you
Speaker 1: right now. I think you're in a really tough spot
Speaker 1: in this bond market, and I just wonder can you
Speaker 1: give us some insight to what your conversations with colleagues
Speaker 1: and clients sound like right now. The level of confusion,
Speaker 1: the degree of confusion about what it's taking place here
Speaker 1: in this bond market at the moment, Well, there's definitely
Speaker 1: a decent amount of confusion. And this is a completely
Speaker 1: out of consensus move, if you will, in in treasuries. UM.
Speaker 1: You know, the expectation broadly speaking, was for a gradual
Speaker 1: rising yields in the in the second half, and now
Speaker 1: we've basically reversed all the losses we've seen and it's
Speaker 1: a good portion of it in the last quarter UM
Speaker 1: that we saw from the beginning of the year, we
Speaker 1: saw a dramatic sell off between January and March, and
Speaker 1: I started to reverse those games. So and the flat
Speaker 1: me of the curve is also not a consensus in
Speaker 1: your views. So I think that we're all kind of,
Speaker 1: you know, trying to figure out where things go from here.
Speaker 1: I feel like the bondmarket is in a limbo. We're
Speaker 1: waiting on a whole bunch of other factors to come
Speaker 1: into play. For fundamental student polandflow, treasury ails to rise,
Speaker 1: what other factors about it? Because if it's not hot inflation,
Speaker 1: for instance, if it's not hawkish commentary coming out of
Speaker 1: the Federal Reserve, what is the catalyst that makes the
Speaker 1: old to go higher? I think employment is key. I mean,
Speaker 1: we're we saw some data that last month's employment print
Speaker 1: was quite strong. I think that the thread feels like
Speaker 1: they've reached their substantial for the progress mandate on inflation. Really,
Speaker 1: the concern now is on the on the employment front,
Speaker 1: and we need to see anywhere between five hundred thousands
Speaker 1: million jobs being created for the remainders here, and that
Speaker 1: I think is going to be the key for both
Speaker 1: policy as well as for tragedy. Is moving higher. Consensus
Speaker 1: has totally broken down, so Batary is going to catch up.
Speaker 1: Sbautaria that stay general head of US Right Strategy. The
Speaker 1: weather is always good for Barry red Holts. He wakes
Speaker 1: up optimistic each and every day. Barry, the toughest thing
Speaker 1: to do when you're gonna do this in the real
Speaker 1: world of real money. You're gonna get a call this
Speaker 1: morning from X number of people that have entrusted you
Speaker 1: with their money, and they're gonna say, go to cash.
Speaker 1: What do you say, Well, you know, the secret to
Speaker 1: dealing with clients who get nervous with a little volatility
Speaker 1: is having this conversation not when there's read on the screen,
Speaker 1: but when they actually first come to us and say,
Speaker 1: here's what I want to do with my money. Uh,
Speaker 1: here's the history of markets. Here's how often we get
Speaker 1: a ten percent draw down, draw down, one to three
Speaker 1: percent moves. There are dozens and dozens of those every year.
Speaker 1: If you go to cash every single time the market
Speaker 1: twitches one per cent um, you'll never be invested. And
Speaker 1: that's not what our thought processes. It's not day to day,
Speaker 1: it's decade to decade. Well, the decade to decade timeline
Speaker 1: gets across the set of worries that we have this morning.
Speaker 1: One of them is a consensus call was higher yields.
Speaker 1: I believe we've gone the other way. What happens the
Speaker 1: consensus when they're wrong? When you say, when their consensus
Speaker 1: is right most of the time when it comes to
Speaker 1: market prices, but when it comes to forecasting the economy
Speaker 1: or the stock market, consensus seems to be wrong most
Speaker 1: of the time. I can't count how many times I've
Speaker 1: been told that the bond bull market is over, that
Speaker 1: yields are done going lower, They'll never the tenure will
Speaker 1: never drop below two percent, I mean one and a
Speaker 1: half percent, I mean one point to five percent. You know,
Speaker 1: the US still is the cleanest shirt in the hamper
Speaker 1: of dirty laundry. And he we are, you know, we're
Speaker 1: we're one two that that's just astonishing. The people who
Speaker 1: have been betting against bonds have been on the losing
Speaker 1: side of that trade for it's almost forty years. What
Speaker 1: do you chalk it up to? Though, as you say,
Speaker 1: we're six right now? Why is that growth concerns? Is
Speaker 1: that positioning? What what do you make of that? You know,
Speaker 1: it's hard to look at the US is completely separated
Speaker 1: from the rest of the world's um bond markets. And
Speaker 1: and we've seen negative yields in Japan for how long
Speaker 1: and and negative yields in Europe. That that black hole,
Speaker 1: that gravitational pull has been exerted on the US because
Speaker 1: there's so much capital slashing around and it's not just
Speaker 1: the FED and que money is looking for a home.
Speaker 1: And if you just want to make sure you're gonna
Speaker 1: get your cash back return of capital, not return on capital,
Speaker 1: Well who cares if it's one percent? If I put
Speaker 1: a billion dollars in a bank, there's no guarantee that
Speaker 1: that bank is going to be there and give me
Speaker 1: my money back. So this is a way to make
Speaker 1: sure that money that gets parked for a while is safe.
Speaker 1: And maybe it has to do with some geopolitics, maybe
Speaker 1: it has to do with some economic concerns, but the
Speaker 1: biggest issue seems to be just an immense amount of capital,
Speaker 1: trillions of dollars slashing around without a good place to hide. Well,
Speaker 1: you mentioned the FED in quei there, Barry, how high
Speaker 1: do you think the risk of is is of a
Speaker 1: policy mistake? Well, every economic cycle that ends, most contractions
Speaker 1: are eventually caused by a policy. You know, I don't
Speaker 1: know if I would call it. The mistake sort of
Speaker 1: implies that if we only get this right, we can
Speaker 1: avoid recessions. Hey, eventually UM economies get old and vulnerable,
Speaker 1: and what wasn't a mistake in one year suddenly the
Speaker 1: next year becomes a problematic, and we tend to see
Speaker 1: bullmarkets killed not by old age, but by UM either
Speaker 1: fed tightening that's successive or too quick. If you believe
Speaker 1: the underlying economy is stable and strong and robust, well,
Speaker 1: sometime next year we should start moving off of this
Speaker 1: emergency footing and slowly bring rates up. The question is
Speaker 1: where does that become problematic for profits and where does
Speaker 1: that become an issue for consumers who depend so much
Speaker 1: on credit? Is a two percent, three percent, four percent,
Speaker 1: that's anybody's guests, And where people get that wrong, that's
Speaker 1: your policy mistake. Very thanks so much, Very hold to
Speaker 1: this for the important Brian des interview as well. Really
Speaker 1: looking forward to that Masters of Business on a podcast US. Well,
Speaker 1: Dr Erstein, I'm gonna cut to the chase. You were
Speaker 1: at Harvard Undergraduate winning a Stidges Hoops Prized. You did
Speaker 1: Harvard Medical as well, you were at Boston University Hospital,
Speaker 1: and what you did is you studied Fleming, you studied Sock,
Speaker 1: you studied Watson and Crick. You also studied Sharfstein. Guess what,
Speaker 1: there was no social media. How did guys like you
Speaker 1: and your profession adapt to virology and microbiology in the
Speaker 1: time of social media. Well, we're seeing just how challenging
Speaker 1: it is. Um. The misinformation that's out there, The fact
Speaker 1: that people are hearing again and again and again things
Speaker 1: that are just flatly untrue about the virus just shows
Speaker 1: how powerful for us it is. We don't have that
Speaker 1: kind of partisan divide on penicillin, but we have it
Speaker 1: on covid vaccine in the middle of a pandemic. Well,
Speaker 1: let's talk about who are the unvaccinated doctor and what
Speaker 1: policy make is it looking to do about it? Well, um,
Speaker 1: they're they're they're not all the same. Um. I think
Speaker 1: that there are a couple of different ways of looking
Speaker 1: at them. One way is, you know, there's still people who,
Speaker 1: um are open to getting vaccinated. They just wanted to
Speaker 1: be really convenient. And I've met them. I've been out vaccinating.
Speaker 1: I see people who say, you know, this is so
Speaker 1: easy because I can just walk down from my house.
Speaker 1: And so I decided to go do it, and I'm
Speaker 1: gonna bring in some friends. And you think, you know,
Speaker 1: that's great, we're here. That's why we're doing this big
Speaker 1: outreach campaign. There are other people who you really have
Speaker 1: to spend time with. And I've been talking to people
Speaker 1: at different workplaces or just friends of friends call me
Speaker 1: talk it over. Some of them decide yes, UM after
Speaker 1: a conversation, and then there's some people who really are
Speaker 1: dug in that they don't want to get vaccinated. And
Speaker 1: I think that numbers a large I've been seeing recent
Speaker 1: polls on that. Um. Initially it was in the ten
Speaker 1: percent range, but might be higher now with all this misinformation.
Speaker 1: And these are the people who they get bid and
Speaker 1: they almost die and they said, well, what do you
Speaker 1: think about getting a shot now? And they go, I'm
Speaker 1: not so sure. I hear it might not be safe,
Speaker 1: you know, and you've got to scratch your head and
Speaker 1: go like, how could you have that view, you know,
Speaker 1: given that their hundred fifty million plus people who've been
Speaker 1: vaccinated safely and you almost died from COVID. So it's
Speaker 1: really it's really difficult when you get there. We have
Speaker 1: to have a sensible approach to these conversations. And I
Speaker 1: think you're right to draw a distinction between anti vaxus
Speaker 1: and people who are just hesitant about taking a vaccine.
Speaker 1: These vaccines are being deployed under emergency Youth authorization. I
Speaker 1: just wonder if full authorization, so to speak, Joshua, help
Speaker 1: things just a little bit, maybe on the margin, if
Speaker 1: it's all your thoughts, um, I do think it would help.
Speaker 1: And I think it's important for the US Food and
Speaker 1: Drug Administration now to be really explaining that process. I
Speaker 1: thought it's been important for a while. What is the difference,
Speaker 1: what data are they bringing in, what is the timeline.
Speaker 1: I think there are a lot of people who are confused,
Speaker 1: and I think just the will be really quiet until
Speaker 1: we tell everyone it's it's licensed. Approach isn't good enough
Speaker 1: for the pandemic. There should be more transparency, and I
Speaker 1: think that will affect some individuals who are waiting for that,
Speaker 1: but it will affect businesses a lot, particularly businesses who
Speaker 1: are um wondering about requiring vaccination or really pushing vaccination
Speaker 1: for their employees, but are waiting to see what the
Speaker 1: FDA does. Doctor I was catching up with a friend
Speaker 1: who's down in Florida over the weekend, and she says
Speaker 1: she knows about a dozen people who are fully vaccinated
Speaker 1: and yet are sick once again have tested positive for
Speaker 1: COVID nineteen. What do we really know about the protection
Speaker 1: that vaccinated people have, especially with the surge of the
Speaker 1: Delta variant and and others for that matter. Well, there's
Speaker 1: extraordinary protection against serious illness and death um from the
Speaker 1: from the vaccines. It's not perfect, but it's very very rare.
Speaker 1: I'm guessing those twelve people did not get particularly sick um,
Speaker 1: but you can get infected. There's still very good protection
Speaker 1: against any action for the Visor Madurna vaccines. It looks
Speaker 1: like for two shots. You know, people who are fully vaccinated,
Speaker 1: it's it's an excess of um of But that doesn't
Speaker 1: mean there won't be some people who are exposed, and
Speaker 1: people who are really opened up their lives and are
Speaker 1: doing things might well um get a little bit sick
Speaker 1: or test positive for example. But in general, if you're vaccinated,
Speaker 1: it's very very unlikely that you'll get sick. Joshua has
Speaker 1: got to catch up an important conversation, and it gets
Speaker 1: more important by the day. In a way that I
Speaker 1: think some people don't anticipate. John's Houlkins, Bloomberg Stoll of
Speaker 1: Public Half by State. This is the Bloomberg Surveillance Podcast.
Speaker 1: Thanks for listening. Join us live weekdays from seven to
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