WEBVTT - Surveillance: The Best Game in Town 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa Brownwitz Jay Lee. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg 0:00:23.360 --> 0:00:29.680 dot com, and of course, on the Bloomberg terminal. Laurie 0:00:29.720 --> 0:00:31.680 Cavassin that joining us now the head of US equity 0:00:31.720 --> 0:00:35.360 strategy at OBBC Capital Markets. Laurie, your year end, next 0:00:35.440 --> 0:00:40.239 year fifty fifty? Walk us through it? Sure, Look, it's 0:00:40.280 --> 0:00:42.120 all about the numbers for us, John. And before I 0:00:42.120 --> 0:00:44.240 get into that, let me just tell you I sympathize 0:00:44.240 --> 0:00:45.920 with where your head is at. We called our weekly 0:00:45.960 --> 0:00:48.479 this morning good bye one. We're ready for it to 0:00:48.520 --> 0:00:51.879 be God. But look, I think it's you know, it's 0:00:52.040 --> 0:00:54.960 first off, the strong economy. Most of our economic modeling 0:00:55.040 --> 0:00:58.240 is playing us to an SMP five hundred north. Then 0:00:58.240 --> 0:01:00.160 it is looking at stocks versus bond that Lee for 0:01:00.200 --> 0:01:02.120 another year. I think stocks are still the best game 0:01:02.120 --> 0:01:04.440 in town. So are models. They are appointing us to 0:01:04.440 --> 0:01:07.280 about an eight percent type return. I think where things 0:01:07.280 --> 0:01:10.240 get interesting is what happens with pe multiples. If you 0:01:10.240 --> 0:01:13.080 assume a flattish pe we should be you know, around 0:01:13.080 --> 0:01:16.039 my target if you assume some crack contraction, but based 0:01:16.080 --> 0:01:19.240 on more aggressive FED and that's a realistic risk in here. 0:01:19.480 --> 0:01:21.479 Um that does point you to about down two percent 0:01:21.520 --> 0:01:23.040 on the year on our models, that would be our 0:01:23.040 --> 0:01:25.480 worst case scenario. It's a real risk monitor But the 0:01:25.520 --> 0:01:28.240 preponderance of the evidence on the economy and again stocks 0:01:28.319 --> 0:01:30.960 versusponse is telling us to look for another good year 0:01:30.959 --> 0:01:32.800 in stock, not as good as what we had this year, 0:01:32.880 --> 0:01:35.000 though frankly it felt lousy to get to this return 0:01:35.080 --> 0:01:37.360 that we've gotten UM, but I think we'll have another 0:01:37.400 --> 0:01:39.080 good year next year, but it's gonna be a bit harder. 0:01:39.120 --> 0:01:41.280 It's gonna be a bit harder on your outline. How 0:01:41.319 --> 0:01:43.360 in the first half of the year you might get 0:01:43.400 --> 0:01:45.480 an out performance of the value trades of some of 0:01:45.520 --> 0:01:47.560 the cyclicals, and in the back end it's going to 0:01:47.640 --> 0:01:49.920 be a rotation back into growth. Can you give us 0:01:49.920 --> 0:01:52.880 a sense of what that means in terms of the 0:01:52.920 --> 0:01:56.560 ongoing barishness in terms of economic growth that you see 0:01:56.760 --> 0:02:00.040 to the second half of the year. So look at it, 0:02:00.040 --> 0:02:01.840 it's not and you know, I'm sure my economist is 0:02:01.880 --> 0:02:04.200 kind of shuddering if he's hearing this right now. But 0:02:04.480 --> 0:02:06.520 you know, what we're seeing in tree is that if 0:02:06.560 --> 0:02:08.960 you look where the street economists are forecasting, they're right 0:02:08.960 --> 0:02:11.320 and around two and a half percent. Now, that's not 0:02:11.360 --> 0:02:14.040 a recession by any stretch, but it is a deceleration 0:02:14.200 --> 0:02:16.919 back to trend like growth. And what we do tend 0:02:16.960 --> 0:02:19.320 to see is that when markets and markets again are 0:02:19.400 --> 0:02:21.320 very forward looking, when we're in a hot economy like 0:02:21.320 --> 0:02:23.639 we're supposed to be in next year, for percent is 0:02:23.680 --> 0:02:25.600 basically the number in place for next year by most 0:02:25.600 --> 0:02:29.200 economists value, small cap cyclicals tend to outperform. But when 0:02:29.240 --> 0:02:31.800 you move back down to trend like growth or below 0:02:31.840 --> 0:02:34.120 trend like growth, that's when those more defensive parts of 0:02:34.120 --> 0:02:37.000 the market, like large cap secular growers and the growth 0:02:37.040 --> 0:02:39.440 trade itself tend to outperform. And we think at some 0:02:39.480 --> 0:02:41.040 point in the middle of next year, we're going to 0:02:41.120 --> 0:02:43.679 see markets start to focus on three and be done 0:02:43.680 --> 0:02:46.560 with two, and once that happens, will probably be well 0:02:46.600 --> 0:02:48.480 into fed rate hikes, and that also tends to be 0:02:48.520 --> 0:02:51.160 a trigger to get you away from those cyclical trades 0:02:51.320 --> 0:02:55.120 and back towards the growth trades. Wishing time away all right, 0:02:55.160 --> 0:02:56.720 let's dwell on the hair and the now for our 0:02:56.840 --> 0:03:00.440 radio audience. You've got a beautiful backtrol sciantistic communing or house. 0:03:00.480 --> 0:03:02.400 I love the name. My son's called Leo two, and 0:03:02.440 --> 0:03:04.880 you've got one for Leo of your family. I'm interested 0:03:04.919 --> 0:03:07.640 in Santa rally or lack thereof talk to us at 0:03:07.639 --> 0:03:10.240 the very end of one, even though there's but this 0:03:10.280 --> 0:03:13.519 week left. According to John Farrow, are you expecting value 0:03:13.520 --> 0:03:15.480 to still stabilizes it in last week a little bit 0:03:15.520 --> 0:03:18.520 towards the end. It's a great question, Caroline, and we've 0:03:18.520 --> 0:03:20.480 said in the very near term, if you're trying to 0:03:20.560 --> 0:03:23.280 trade now through December thirty feet, we just stay balanced 0:03:23.280 --> 0:03:26.600 on everything. Look, I think, oh Macron is really, at 0:03:26.639 --> 0:03:28.560 the end of the day a threat to the value trade. 0:03:29.040 --> 0:03:30.799 And while the little drifts and drafts of news we've 0:03:30.800 --> 0:03:34.560 been getting have helped stabilize the value trade, ultimately if 0:03:34.600 --> 0:03:37.600 we do see case counts worsen that actually all year 0:03:37.680 --> 0:03:40.440 has portended out performance by things like growth, large cap 0:03:40.520 --> 0:03:43.240 and secular more defensive positioning. But the problem we have 0:03:43.480 --> 0:03:45.920 right now is that the Fed in this more hawkish tilt, 0:03:45.920 --> 0:03:48.160 that we're all of a sudden having to digest is 0:03:48.200 --> 0:03:50.040 really a threat to the growth trade because that's where 0:03:50.040 --> 0:03:53.320 the expensive valuations are, and when we're in hiking periods, 0:03:53.520 --> 0:03:57.880 expensive stocks tend to underperform um when rapes are rising um. 0:03:57.880 --> 0:03:59.880 And so we really think that that's we're sort of 0:04:00.040 --> 0:04:01.640 hot between a rock and a hard place. Over the 0:04:01.680 --> 0:04:03.320 next couple of weeks, we just build on that a 0:04:03.320 --> 0:04:05.080 little bit because what we've seen in Credit Suite have 0:04:05.120 --> 0:04:07.760 pointed this out that the expectations for high rates that 0:04:07.800 --> 0:04:10.280 have fed haven't translated into high yields and that hasn't 0:04:10.360 --> 0:04:12.760 hurt the multiple. Can you want me through the relationship 0:04:12.800 --> 0:04:16.200 between fed rate high expectations and multiples on the SMP 0:04:16.600 --> 0:04:19.680 that you expect to evolve through next year? So look, 0:04:19.720 --> 0:04:22.680 I think the multiple question is a very very challenging one. 0:04:22.680 --> 0:04:24.080 And I know that there are some of my peers 0:04:24.080 --> 0:04:26.120 out there in the strategy world here saying, hey, fed 0:04:26.200 --> 0:04:28.640 rate HIGs always produced contraction, we gotta bake that in 0:04:28.680 --> 0:04:31.000 for next year. And I actually don't think it's quite 0:04:31.000 --> 0:04:33.760 that simple, John. We're starting to see pe multiples compressed 0:04:33.800 --> 0:04:35.600 at the individual stock level. If you look at the 0:04:35.680 --> 0:04:37.479 Russell two thousand, if you even look at the medium 0:04:37.520 --> 0:04:40.680 stock in the SMP. But we've seen a very kind 0:04:40.680 --> 0:04:44.240 of flattish move on the overall top down numbers. And 0:04:44.240 --> 0:04:46.360 I'll just take you back to the fact that we're 0:04:46.400 --> 0:04:48.920 still in this keewee world. And yes, the tapering is coming, 0:04:48.920 --> 0:04:51.840 it's more aggressive than expected. But the FED balance sheet 0:04:51.880 --> 0:04:55.680 has really kind of distorted what happens with PE multiples recently. 0:04:55.880 --> 0:04:57.960 If you expect sort of a flattish balance sheet over 0:04:58.000 --> 0:05:00.480 the next year or so, what that should tell you 0:05:00.600 --> 0:05:02.599 is that we should have a flat ish PE multiple. 0:05:02.640 --> 0:05:04.840 It's really when you get into quantitative tightening and he 0:05:04.960 --> 0:05:07.560 contracts and you contract the balance sheet, that's what the 0:05:07.600 --> 0:05:09.800 recent history is telling that should cause the contraction and 0:05:09.839 --> 0:05:12.280 the multiple. So it's just very complicated right now, Lori. 0:05:12.680 --> 0:05:15.160 This is a really important point and goes to the 0:05:15.200 --> 0:05:17.919 idea that we heard out of out of Seth Carpenter 0:05:17.960 --> 0:05:20.520 from Morgan Stanley over the weekend. The Fed is not 0:05:20.680 --> 0:05:23.280 willing to go to quantitative tightening too quickly because they 0:05:23.320 --> 0:05:26.719 do not understand the effect on Marcus the same degree. 0:05:26.760 --> 0:05:28.920 Are you saying that that's had a bigger effect in 0:05:28.960 --> 0:05:32.039 propping up equity valuations and on the flip side, would 0:05:32.040 --> 0:05:34.320 have a bigger effect on the downside if they were 0:05:34.360 --> 0:05:36.800 starting to withdraw that liquidity than even rate hikes or 0:05:36.839 --> 0:05:39.800 anything else. So let's go back to you know, John 0:05:39.880 --> 0:05:42.720 and my Frankly desire for this year to just be over. Um. 0:05:42.800 --> 0:05:44.919 If you go back to I remember I was on 0:05:45.000 --> 0:05:46.800 vacation at the time that last week of the year. 0:05:46.800 --> 0:05:48.880 I thought I could take vacation, and we had just 0:05:49.240 --> 0:05:52.040 a ridiculous down draft in the equity market. A lot 0:05:52.040 --> 0:05:54.200 of holidays were ruined on, a lot of portfolios were 0:05:54.240 --> 0:05:56.400 ruined in that last week of the year. But what 0:05:56.440 --> 0:05:59.440 we were dealing with back then, um was the kind 0:05:59.440 --> 0:06:01.120 of two through ats right. It was a threat to 0:06:01.200 --> 0:06:03.000 growth from the trade war, and it was a tighter 0:06:03.040 --> 0:06:06.240 fed that we were actually pricing and quantitative tightening. So 0:06:06.440 --> 0:06:08.960 that's really you know, it's not in my base case, 0:06:09.040 --> 0:06:10.560 it's not even on my poe Haast to rise on. 0:06:10.640 --> 0:06:12.880 But that is sort of a dire scenario that you know, 0:06:12.920 --> 0:06:14.760 Frankly will keep me up at night on on some 0:06:14.839 --> 0:06:17.080 of the nights where I'm you know, letting my mind 0:06:17.240 --> 0:06:19.400 race um. But look, I think at the end of 0:06:19.440 --> 0:06:22.320 the day, quantitative easing, quantitative tightening, this is all a 0:06:22.320 --> 0:06:24.440 new tool right. But what I can tell you, Lisa, 0:06:24.520 --> 0:06:27.760 is that since the year over year trend in the 0:06:27.760 --> 0:06:30.880 FED balance sheet has really dovetailed very nicely with the 0:06:30.960 --> 0:06:34.680 year over year trend in the PE multiples in the market. Um, 0:06:34.720 --> 0:06:37.200 so it is having an impact. And I've sympathize, you know, 0:06:37.240 --> 0:06:39.279 with with those who say they don't quite understand what 0:06:39.320 --> 0:06:41.200 the unwind is going to do. But what I can 0:06:41.279 --> 0:06:43.560 tell you is that the Fed has propped up PE 0:06:43.640 --> 0:06:47.159 multiples through the balance sheet. Laurie magnificent as always and 0:06:47.160 --> 0:06:48.840 going to catch up with you. Thank you for everything 0:06:48.880 --> 0:06:50.279 you've done for us this year. Have been great to 0:06:50.279 --> 0:06:53.400 work with you. Lorie Cavassein that of Obbos on a 0:06:53.480 --> 0:07:01.880 secret market. She wants the year done. Mike College joins 0:07:01.920 --> 0:07:05.040 us now City of Portfolio Manager for PATM Fixed Income. Mike, 0:07:05.080 --> 0:07:07.040 I promise would get to this coal at the front end. 0:07:07.520 --> 0:07:10.320 You think that maybe we've seen the peak of ye's 0:07:10.360 --> 0:07:11.800 at the front end and at the long end on 0:07:11.920 --> 0:07:14.240 tent as well. Might just walk us through the framework 0:07:14.240 --> 0:07:16.640 at PATM right now when you get around the table together, 0:07:16.960 --> 0:07:21.200 how you explain this Jonathan, Again, it's looking at the 0:07:21.320 --> 0:07:24.360 long term view, right, and everybody's so caught up on 0:07:24.440 --> 0:07:27.760 this growth surge and on this inflation surgeon, and we've 0:07:27.760 --> 0:07:29.440 done a lot of work on this, and when you 0:07:29.520 --> 0:07:33.480 really peel it back, it's been more demand driven than 0:07:33.560 --> 0:07:36.680 supply driven. Right. If you look at supply of stuff 0:07:36.720 --> 0:07:39.680 that's being made around the world and being shipped, it's 0:07:39.840 --> 0:07:43.800 higher in many places, in many cases than pre COVID, 0:07:43.840 --> 0:07:48.320 but the demand has jumped, like especially for goods, for 0:07:48.440 --> 0:07:53.360 durable goods, for imports. That demand is going to come down, right. 0:07:53.400 --> 0:07:55.560 That big jump in the savings rate we saw last 0:07:55.640 --> 0:07:58.440 year with all the fiscal stimulus, all the helicopter money 0:07:58.720 --> 0:08:02.480 that has already been spent, it's gone, right, So what's 0:08:02.480 --> 0:08:07.320 going to happen going forward as the fiscal stimulus really retrenches. 0:08:07.440 --> 0:08:11.680 Notwithstanding these infrastructure and BBB packages, which I think are 0:08:11.720 --> 0:08:14.960 just really non events in terms of their economic impact. 0:08:14.960 --> 0:08:18.400 It was the helicopter money sending people cash last year 0:08:18.440 --> 0:08:21.800 that really jumped spending and that is going away, right, 0:08:21.840 --> 0:08:24.760 So so the supply demand in balance is going to 0:08:25.560 --> 0:08:27.760 come back into balance over the next twelve months. So 0:08:27.800 --> 0:08:31.360 that's really the big picture. And the FED, though, right 0:08:31.480 --> 0:08:33.439 is kind of trapped or they paying themselves in the 0:08:33.520 --> 0:08:35.719 corner they're going to hike rates because they see these 0:08:35.720 --> 0:08:38.439 headline numbers. So the front end selling off the back 0:08:38.559 --> 0:08:41.120 end is is flattening, which happens every time you get 0:08:41.120 --> 0:08:43.559 a FED rate hiking cycle. So I think the curve 0:08:43.600 --> 0:08:46.360 is going to continue to the point where it's totally flat. 0:08:47.240 --> 0:08:49.840 But that's already priced in. If you look at the 0:08:49.880 --> 0:08:52.600 one year note, Jonathan in two years from now, which 0:08:52.640 --> 0:08:55.120 is reflected in the three year yield. Not to sound 0:08:55.120 --> 0:08:57.840 to wonky on a Monday morning, but that's at one six. 0:08:59.600 --> 0:09:02.240 The ten year note ten years forward is at one. 0:09:03.600 --> 0:09:07.439 So the market is already priced in a totally flat curve, 0:09:07.520 --> 0:09:10.760 which is ultimately what will happen when the Fed's done hiking. Michael, 0:09:10.760 --> 0:09:13.040 you're talking about an idea that a lot of people 0:09:13.080 --> 0:09:16.000 disagree about that you're going to see inflation come down 0:09:16.200 --> 0:09:19.600 enough that can justify the Fed's patients. How can you 0:09:19.640 --> 0:09:23.480 see their rhetoric this Wednesday kind of confirming that if say, 0:09:23.520 --> 0:09:25.920 they do accelerate the taper as they're expected to do 0:09:26.280 --> 0:09:30.320 and continue to talk about uncertainty, you know they're they're 0:09:30.320 --> 0:09:32.400 not being patient, right, That's why the front end is 0:09:32.440 --> 0:09:35.480 getting killed here. I mean two thirties this cycle. Just 0:09:35.600 --> 0:09:39.040 earlier this year peaked at around basis points. I always 0:09:39.080 --> 0:09:41.000 look at thirties because you know, we are, you know, 0:09:41.040 --> 0:09:43.320 manage a lot of long term money. For insurance companies, 0:09:43.360 --> 0:09:46.000 pension plans, they live in that thirty year space. Not 0:09:46.040 --> 0:09:48.520 like retail investors that was at two thirty. It's at 0:09:48.559 --> 0:09:51.720 one today. It's been cut in half, so it's halfway 0:09:51.760 --> 0:09:54.600 to zero, right, and it will get to zero. But 0:09:54.679 --> 0:09:58.000 again that's already priced in. The FED has turned really 0:09:58.040 --> 0:10:00.680 hawk ish. Uh, they're getting really us if they're gonna 0:10:00.679 --> 0:10:03.679 accelerate their taper, they're probably going to pull forward and 0:10:03.720 --> 0:10:07.560 accelerate rate hikes. But ultimately, what's priced into that ten 0:10:07.640 --> 0:10:10.800 year note and the twenty year note is where that 0:10:10.880 --> 0:10:14.640 funds rate is going to average over the next ten years. 0:10:14.960 --> 0:10:18.240 And yeah, an average, it's probably gonna be one percent 0:10:18.440 --> 0:10:20.240 or less. They're gonna get it to one and a half. 0:10:20.640 --> 0:10:23.360 Maybe they overshoot and get it to two or two 0:10:23.360 --> 0:10:25.640 and a quarter this cycle, but sometime in the next 0:10:25.720 --> 0:10:28.520 ten years, Lisa, it's going to be back to zero. Right. 0:10:28.640 --> 0:10:31.360 So on average, it's gonna bounce around between zero and two, 0:10:31.480 --> 0:10:35.160 and it's gonna average one or probably even less. Which puts, 0:10:35.160 --> 0:10:38.840 you know, ten year notes at reasonable value. Here, Michael, 0:10:38.920 --> 0:10:41.480 are you pricing in at all the risk that they 0:10:41.559 --> 0:10:43.720 might have to be more patient? I'm here in England 0:10:43.880 --> 0:10:46.319 with the Bank of England was really hawkish and none 0:10:46.320 --> 0:10:50.280 and not. Yeah, I'm Caroline, good morning. That's that's the risk, right, 0:10:50.280 --> 0:10:53.680 there's so much, so many ice stand in the front 0:10:53.760 --> 0:10:56.160 end now. Basically, you know three next year and and 0:10:56.240 --> 0:10:59.440 three three. That's a lot, right, That's a FED that's 0:10:59.480 --> 0:11:03.760 really moved thing moving for two plus straight years, right, 0:11:03.800 --> 0:11:05.840 I mean that's a lot. That's a long time to 0:11:05.880 --> 0:11:08.360 try to price in and figure out what the economy 0:11:08.400 --> 0:11:10.800 is gonna look like, what inflation is gonna look like, 0:11:10.800 --> 0:11:12.760 and what cold is gonna look right, So you're you're right, 0:11:12.800 --> 0:11:14.640 one of the risks right now. I think the hawk 0:11:14.679 --> 0:11:17.360 is scenario has kind of been priced in with this 0:11:17.440 --> 0:11:20.920 really flat forward curve. But but the risk is that 0:11:20.960 --> 0:11:24.120 you do get a big drop in activity over the 0:11:24.160 --> 0:11:27.319 next six and twelve months, and that inflation comes down 0:11:27.360 --> 0:11:30.640 a little more quickly than people think, and the FED 0:11:31.120 --> 0:11:33.720 and other central banks say, we're not going to be 0:11:33.760 --> 0:11:36.800 able to hike three times a year. Let's pull that back, 0:11:36.840 --> 0:11:39.560 and then the curve, you know, bull Bull Stephens, right, 0:11:39.600 --> 0:11:42.440 and we're not really ideally positioned for that. We're in 0:11:42.480 --> 0:11:46.320 the flattener, which has been working like crazy, but we're 0:11:46.320 --> 0:11:48.760 starting to cover something that in because we are concerned 0:11:49.000 --> 0:11:51.720 about that risk that the FED isn't able to hike 0:11:51.800 --> 0:11:54.880 six times, which is a pretty pretty high probability for sure. Mike, 0:11:54.960 --> 0:11:57.200 you always get me thinking, it's always great a cash 0:11:57.240 --> 0:11:59.880 out with you, Sir Michael Collins that of ahm, Mike, 0:12:00.280 --> 0:12:06.440 you're the best. Thank you. Sir. Ye joining us now 0:12:06.520 --> 0:12:08.959 is white leg level chief investment strategists at Black Rock, 0:12:09.000 --> 0:12:10.760 whiley I wanted to start with China and then we'll 0:12:10.760 --> 0:12:12.800 work our way back to the United States. But can 0:12:12.800 --> 0:12:15.040 you give me your rate on the Chinese economy following 0:12:15.040 --> 0:12:17.880 a week where people already started to reset their expectations 0:12:17.880 --> 0:12:20.679 for a policy shift from the Chinese Communist Party, what's 0:12:20.720 --> 0:12:24.280 your view on that? Well, what we have seen so 0:12:24.360 --> 0:12:28.080 far this year is that there is this greater pivot 0:12:28.200 --> 0:12:33.720 towards social objectives and common prosperity, and as evidenced in 0:12:33.800 --> 0:12:36.840 the regulatory climb down earlier in the year. But what 0:12:36.920 --> 0:12:39.560 we have also seen this year is that growth is 0:12:39.640 --> 0:12:44.080 deteriorating from quarter to quarter, from above in Q one 0:12:44.320 --> 0:12:47.120 to now below five percent in Q three, and kill 0:12:47.200 --> 0:12:49.520 Foy is looking even worse in terms of the kind 0:12:49.520 --> 0:12:52.440 of the growth levels. And as a result of the 0:12:52.520 --> 0:12:56.880 deteriorating growth trajectory, we have been off the view that 0:12:57.600 --> 0:13:02.160 support will have to ramp up heading into a significant year. 0:13:02.280 --> 0:13:06.679 There is twenty two, characterized by the Winter Olympics, characterized 0:13:06.720 --> 0:13:09.680 by the Party Congress, and sure enough we have seen 0:13:10.400 --> 0:13:14.440 support actually date comes through in the form of triple 0:13:14.480 --> 0:13:18.319 our cut, in the form of greater phisical standing expectations 0:13:18.320 --> 0:13:20.560 that we continue to think that will be the case 0:13:20.640 --> 0:13:22.760 as we head into next year, which is why we 0:13:22.840 --> 0:13:27.760 are modestly constructive China assets, both on the equity side 0:13:27.800 --> 0:13:31.120 as well as on fixing come site CGB. You are 0:13:31.160 --> 0:13:33.080 not alone in this. A lot of people have said 0:13:33.080 --> 0:13:35.800 that there needs to be more accommodation in China because 0:13:35.880 --> 0:13:38.199 of some of these issues. And yet over the weekend 0:13:38.280 --> 0:13:41.360 the polop Euro of China it came out with rhetoric 0:13:41.440 --> 0:13:44.520 that was new around the housing market, talking about bringing 0:13:44.559 --> 0:13:47.840 down pricing because this is a place that people live, 0:13:48.160 --> 0:13:50.960 not just invested. How much is there sort of a 0:13:51.040 --> 0:13:53.680 talking out of both sides of the mouth, and frankly 0:13:53.720 --> 0:13:56.840 a harder line in maintaining the de leveraging stands from 0:13:56.840 --> 0:13:59.839 the polop era over the past few weeks. It's a 0:14:00.160 --> 0:14:02.640 It's a fine balance, isn't it. There's always a dance 0:14:02.679 --> 0:14:07.840 between this longer term journey of quality revolution, thinking about 0:14:07.880 --> 0:14:12.559 the leveraging and balancing that with the near term support. 0:14:12.640 --> 0:14:15.080 So indeed, we have seen kind of rhetoric pointing to 0:14:15.480 --> 0:14:18.560 wanting to deliver in the private sector in the housing 0:14:18.640 --> 0:14:22.200 market and also thinking about the resolution of how is 0:14:22.240 --> 0:14:24.920 it going to look like for a grant. But in 0:14:25.040 --> 0:14:28.440 order to make sure that in order to contain the 0:14:28.480 --> 0:14:33.040 spill over effects from the leveraging activities, growth side needs 0:14:33.080 --> 0:14:34.920 to be showed up even more, which is why we 0:14:35.000 --> 0:14:38.600 see easing policy coming through to make sure that the 0:14:39.640 --> 0:14:43.720 way is happening the housing market is properly contained within 0:14:43.720 --> 0:14:46.320 the housing market and does not lead to a broader 0:14:46.360 --> 0:14:49.680 spill over on the economic more broadly, uh and leading 0:14:49.720 --> 0:14:52.680 to a broader risk of which is not what we 0:14:52.760 --> 0:14:56.400 expect heading into next year. The warning really, I mean, 0:14:56.400 --> 0:14:59.520 it's great to get your perspective from China moving out 0:14:59.560 --> 0:15:02.440 to its worldwide impact. Of course, as China tries to 0:15:02.480 --> 0:15:04.600 give some support to its own economy and the acting 0:15:04.600 --> 0:15:07.960 markets reacted off US earlier. What about the supply chain 0:15:08.000 --> 0:15:10.400 issues is Jonathan was just mentioning, we get that first 0:15:10.400 --> 0:15:12.640 case of Omcrown coming into China, are you worried at 0:15:12.680 --> 0:15:15.240 any point of the inflationary pressure that we might see 0:15:15.240 --> 0:15:17.760 once again if indeed the new variant hits China, hits 0:15:17.760 --> 0:15:20.440 supply chains, hits US in Europe and in the US. 0:15:20.920 --> 0:15:26.640 You're absolutely right in that the zero policy, zero tolerance 0:15:26.920 --> 0:15:30.920 policy in China does mean that omic crown cases popping 0:15:31.000 --> 0:15:34.400 up in China will have even more kind of significant 0:15:34.520 --> 0:15:38.560 impact on the supply side, on the economic activity side, 0:15:38.600 --> 0:15:42.440 which is why we expect on the policy side things 0:15:42.480 --> 0:15:44.960 will have come to even more because they would have 0:15:45.040 --> 0:15:47.440 to kind of shut down on the economic side even 0:15:47.880 --> 0:15:52.040 more in comparison with their developed market develop market counterparts. 0:15:52.280 --> 0:15:55.800 Now in terms of the spill over more broadly and 0:15:55.840 --> 0:15:59.960 thinking about the kind of policy room we do see 0:16:00.200 --> 0:16:03.960 on the inflation side not too elevated. In the case 0:16:04.000 --> 0:16:08.600 of China, PPI is hyher CPI is still reasonably contained, 0:16:08.680 --> 0:16:12.640 and that actually does give them room to ease a 0:16:12.640 --> 0:16:14.400 bit more, even needs to be and if you think 0:16:14.400 --> 0:16:18.680 about versus last year, developed world has really kind of 0:16:18.920 --> 0:16:23.080 come through with policy revolution coordination of monetary side as 0:16:23.080 --> 0:16:26.760 well as the physical side. China has been rather reserved 0:16:27.080 --> 0:16:30.440 in their policy response, leaving the great room to to 0:16:30.440 --> 0:16:32.720 to to to act. So that that that is why 0:16:32.920 --> 0:16:37.040 our case in China is modestly constructive against the broader 0:16:37.080 --> 0:16:41.080 backdrop of a very very low starting allocation to China 0:16:41.160 --> 0:16:45.280 in global portfolios. But more broadly, thinking about twenty twenty 0:16:45.360 --> 0:16:49.280 two UM, we talked about supply side constraint. We do 0:16:49.440 --> 0:16:52.880 expect that kind of getting alleviated somewhat second half of 0:16:52.920 --> 0:16:57.320 the next year, and the combination of still robots to 0:16:57.360 --> 0:17:01.040 growth dynamics as well as the negative rate environment should 0:17:01.040 --> 0:17:04.520 continue to support equities. And within aquities, we prefer developed 0:17:04.560 --> 0:17:08.600 market aquities over emerging market aquities. Really within d M, 0:17:08.960 --> 0:17:11.680 it's for an international bias to the asset allocation, that 0:17:11.760 --> 0:17:15.200 equity allocation away from the United States towards the US. 0:17:16.320 --> 0:17:19.119 It's interesting that you should mention that so our d 0:17:19.359 --> 0:17:21.679 M equity core has gone through a bit of a 0:17:21.760 --> 0:17:25.400 journey in twenty twenty one. The first half of twenty one, 0:17:25.400 --> 0:17:29.399 we preferred US equities because the restart was way ahead 0:17:29.560 --> 0:17:33.400 in the US, but at the media point we pivoted 0:17:33.720 --> 0:17:37.520 from US to European maquities. Is the baton of growth 0:17:38.000 --> 0:17:43.040 pick acceleration shifted from the US to Europe. And sure enough, 0:17:43.160 --> 0:17:47.600 this this differentiated approach to play the uneven pace of 0:17:47.720 --> 0:17:50.760 restart was also reflected in the fact that the difference 0:17:50.800 --> 0:17:55.200 in earnings materialized earnings growth in Europe and in the US. 0:17:55.280 --> 0:17:58.720 The differences so far this year almost fifteen. But now 0:17:58.800 --> 0:18:02.760 looking ahead to twenty one, the uneven pace of restart 0:18:02.960 --> 0:18:06.640 is washing through a little bit. And if you look 0:18:06.680 --> 0:18:12.840 as kind of the earnings expectation difference across the US, Europe, Japan, 0:18:13.040 --> 0:18:15.720 you know they're different, arranging from to half percent to 0:18:15.840 --> 0:18:20.080 fifteen percent. So well, less kind of playing the theme 0:18:20.119 --> 0:18:23.520 of uneven restart and instead we see actually what I 0:18:23.600 --> 0:18:26.840 just talked about, this combination of netive real rate and 0:18:27.560 --> 0:18:32.480 dynamic kind of growth environments supporting DM aquities across the 0:18:33.160 --> 0:18:36.879 across the board were modestly constructive across DM aquiti is. 0:18:36.920 --> 0:18:38.640 But under that we also want to kind of think 0:18:38.640 --> 0:18:43.480 about bar boweling across cyclical sectors as well as secular growers. 0:18:43.760 --> 0:18:46.960 Growers like technology and healthcare. Well, they always smile, weally 0:18:47.000 --> 0:18:50.120 of black Rock on Europe, the international story, China too, 0:18:50.280 --> 0:18:59.040 against the United States. The focus right now on the pandemic. 0:18:59.040 --> 0:19:03.320 Primarister Boris john S saying O Macron represents of COVID 0:19:03.400 --> 0:19:06.480 nineteen cases right now in London and by tomorrow it 0:19:06.520 --> 0:19:09.040 will become the dominant strain. Joining us now to discuss 0:19:09.119 --> 0:19:12.760 is Joshua Chastein, weistein the Johns Hopkins bloom By skill 0:19:13.160 --> 0:19:16.440 of public health. Josh when let's start right here. Trust. 0:19:16.920 --> 0:19:19.800 How much trust is that of these politicians delivering these 0:19:19.840 --> 0:19:22.960 emphatic statements and scaring society. And that's the issue we 0:19:23.000 --> 0:19:26.159 have right now, isn't it. Who should we trust? And 0:19:26.240 --> 0:19:28.080 how long do we have to wait to have some data, 0:19:28.160 --> 0:19:31.760 some numbers that we can trust. Well, I think that 0:19:32.080 --> 0:19:35.240 you know the numbers themselves. How many cases, what percentages 0:19:35.240 --> 0:19:38.919 are of amacon those are true. The governments are saying, 0:19:39.040 --> 0:19:42.200 unfortunately there's some percentage of the population that has tuned 0:19:42.280 --> 0:19:45.240 everything out. But I think most people realize that this 0:19:45.320 --> 0:19:47.560 is a new variant, just like Delta was a new variant, 0:19:47.560 --> 0:19:50.439 and we're going to have to respond accordingly. Given the 0:19:50.440 --> 0:19:53.000 fact that omicron is now expected to become the dominant 0:19:53.040 --> 0:19:56.000 strain in the United Kingdom. As Boris Johnson was outlining 0:19:56.000 --> 0:19:59.480 this morning, is the third dose, is the booster shot 0:19:59.720 --> 0:20:03.359 go to be considered required in order to be fully vaccinated? 0:20:04.800 --> 0:20:08.760 I think that is becoming a distinct possibility with each 0:20:08.800 --> 0:20:12.560 study that comes out suggesting actually good news, which is, 0:20:12.640 --> 0:20:15.440 with three shots of the MR and a vaccine, people 0:20:15.480 --> 0:20:19.080 have a reasonable degree of protection from amacron. This is 0:20:19.119 --> 0:20:22.399 not the case of complete escape from the vaccines, but 0:20:22.520 --> 0:20:25.320 that third dose seems to really help, and that may 0:20:25.359 --> 0:20:27.760 in fact, you know, change some of the policies, but 0:20:28.040 --> 0:20:31.720 was considered fully vaccinated so far, companies have really led 0:20:31.800 --> 0:20:34.760 private companies when it comes to setting policy. You see 0:20:34.760 --> 0:20:37.600 in the United States a survey of companies actually shows 0:20:37.640 --> 0:20:40.000 that nearly two thirds of all of them are going 0:20:40.040 --> 0:20:43.200