WEBVTT - Peak Recovery 0:00:13.400 --> 0:00:16.759 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:16.920 --> 0:00:19.639 I'm Mike Reagan, a senior editor at Bloomberg, and this 0:00:19.720 --> 0:00:22.760 week on the show, Well, investors did sell in May, 0:00:22.880 --> 0:00:25.279 but they didn't stay away very long, and now as 0:00:25.320 --> 0:00:28.680 we speak, SMP is more or less unchanged for the month. 0:00:29.240 --> 0:00:31.920 What exactly should we make of this pause in a 0:00:32.080 --> 0:00:35.400 raging bull market, especially now that some of the economic 0:00:35.479 --> 0:00:39.440 data is disappointing but inflation readings are surprising on the upside. 0:00:40.040 --> 0:00:43.240 We'll get into it with a global market strategist in London, 0:00:43.800 --> 0:00:46.839 but first, Charlie Pellett tell us who this week's mystery 0:00:46.880 --> 0:00:52.240 co host is. This week's mystery co host is Eric Weener. 0:00:52.360 --> 0:00:55.280 Weener is a markets editor for Bloomberg in New York 0:00:55.480 --> 0:00:58.320 who actually wrote a history of modern Wall Street called 0:00:58.360 --> 0:01:01.840 What Goes Up. He claims he's not bitter at all 0:01:01.920 --> 0:01:05.640 that Mike Reagan stole the name for this podcast. His 0:01:05.760 --> 0:01:09.920 hobbies include watching hockey and informing Reagan of all the 0:01:10.000 --> 0:01:14.280 things he was wrong about. You know, Eric, I had 0:01:14.280 --> 0:01:16.240 hope you actually had other hobbies, But I think that's 0:01:16.280 --> 0:01:19.400 pretty much it right that those two that that pretty 0:01:19.480 --> 0:01:23.000 much covers the whole thing. Um, basically sit around watching 0:01:23.040 --> 0:01:27.080 hockey and then wondering what you're saying wrong. And I 0:01:27.600 --> 0:01:31.039 managed to do both quite well. That's that you do, 0:01:31.200 --> 0:01:34.400 you do, that's uh, you know. And I'm also I'm 0:01:34.520 --> 0:01:38.560 conflicted about Charlie getting a promotion for your book into 0:01:38.600 --> 0:01:40.440 that intro. I don't know how to feel about that. 0:01:40.880 --> 0:01:42.280 As you know, one of the risks of being a 0:01:42.360 --> 0:01:45.000 financial journalists is so many of your friends end up 0:01:45.000 --> 0:01:47.560 having books and you have to sort of pretend like 0:01:47.600 --> 0:01:49.480 you you've bought them and read them. But I'm gonna 0:01:49.480 --> 0:01:53.280 tell you this, I'm gonna buy your What Goes Up? Book? Um. 0:01:53.320 --> 0:01:55.800 I might even buy there's a collector's version of it 0:01:55.840 --> 0:01:58.320 on Amazon that's actually cheaper than the regular version. I 0:01:58.360 --> 0:01:59.840 don't know how that works, but I might buy that. 0:02:00.520 --> 0:02:04.720 Go go just spend money, man. Uh. But whatever you 0:02:04.720 --> 0:02:07.400 can possibly do. Because you did rip off my title, 0:02:08.200 --> 0:02:12.400 which is how I sold the book. Um when the 0:02:12.960 --> 0:02:15.480 original it was funny. I did it during the dot 0:02:15.520 --> 0:02:19.960 com era, and the original title had a question mark. Uh. 0:02:20.000 --> 0:02:22.880 And then as the whole thing fell apart, it just 0:02:22.960 --> 0:02:26.560 became What Goes Up? Because at first it looked like 0:02:26.760 --> 0:02:29.120 things were never gonna stop going up and well then 0:02:29.160 --> 0:02:33.320 it stopped there you go. Well, without promoting your book 0:02:33.320 --> 0:02:35.120 atty further, I will say it's a it's a very 0:02:35.120 --> 0:02:37.920 interesting concept. You basically talked to a bunch of sort 0:02:37.919 --> 0:02:40.400 of titans of Wall Street, and it's the whole history 0:02:40.400 --> 0:02:43.320 of Wall Street told in their words, which I find interesting, 0:02:43.400 --> 0:02:45.800 not because I don't find your words interesting, but I'm 0:02:45.840 --> 0:02:48.600 I'm already a big consumer of your commentary, so I 0:02:48.880 --> 0:02:51.440 would be interesting to see how how you did this. 0:02:51.480 --> 0:02:54.160 So I'm excited. I'm excited to get that Amazon purchase 0:02:54.240 --> 0:02:57.680 one of these days. Yeah, it was. It was actually fun, 0:02:57.840 --> 0:03:00.760 but hard to do. I mean, you got to track down, like, uh, 0:03:01.000 --> 0:03:03.400 thousands of the richest people in the world who are 0:03:03.440 --> 0:03:06.040 very busy and really don't want to talk to you. Um, 0:03:06.080 --> 0:03:09.359 But getting it in their words is very different than 0:03:09.639 --> 0:03:13.040 having US journalists kind of explain it. So it's much 0:03:13.120 --> 0:03:16.240 more like the story is being told to you in 0:03:16.280 --> 0:03:18.400 a room full of all the most important people in 0:03:18.440 --> 0:03:20.880 Wall Street history, and they're coming at you and sort 0:03:20.880 --> 0:03:24.239 of telling you their view. So it's unique in that sense. 0:03:24.760 --> 0:03:26.840 And it's uh, it's just because our guest this week 0:03:26.880 --> 0:03:30.080 I recently had a similar experience with her for the 0:03:30.120 --> 0:03:34.200 Business Week how to issue, where we basically UH reached 0:03:34.240 --> 0:03:36.960 out to smart people to get in their words, how 0:03:37.000 --> 0:03:40.200 they would how they would do certain things, and so 0:03:40.240 --> 0:03:43.360 we talked about how to do sixty forty in in 0:03:43.400 --> 0:03:46.280 this low interest rate environment, which is a perfect segue 0:03:46.360 --> 0:03:48.880 to are very important Wall Street titan we have on 0:03:48.920 --> 0:03:52.160 the show this week. She is the actually a city 0:03:52.160 --> 0:03:55.280 of London titan, I guess if you consider Wall Street 0:03:55.520 --> 0:03:58.400 running through London, which which I very much do. But 0:03:58.560 --> 0:04:02.920 she is the chief strategy at Principal Global Investors. Her 0:04:03.000 --> 0:04:05.400 name is Sema Shaw. Sema, welcome back to the show. 0:04:05.920 --> 0:04:09.280 Thank you very much for having me back. Let's start 0:04:09.280 --> 0:04:12.200 with that idea that I mentioned in the intro seem 0:04:12.280 --> 0:04:15.480 in that it seems like this euphoric rally that we've 0:04:15.520 --> 0:04:19.120 had uh someone hit the pause button in May. I'm 0:04:19.160 --> 0:04:23.040 almost tempted to wonder, if you know, the whole reopening 0:04:23.040 --> 0:04:26.239 of the economy is almost a sell the news event, 0:04:26.320 --> 0:04:29.160 or at least not a continue to buy with both 0:04:29.200 --> 0:04:31.800 fist type of events. But I'm curious what your perspective 0:04:31.960 --> 0:04:34.880 is on this kind of sideways market that we've seen 0:04:35.000 --> 0:04:38.520 over the last month, especially because it corresponds with really 0:04:38.560 --> 0:04:42.599 the height of the economic reopenings, as well as some 0:04:42.800 --> 0:04:45.679 data that's kind of lackluster, you know, uh, some misses 0:04:45.680 --> 0:04:48.280 here and there. The city surprise index has come down, 0:04:48.720 --> 0:04:51.880 but the inflation readings are are still pretty hot, you know, 0:04:52.279 --> 0:04:55.120 transitory or not being the question on everyone's mind. But 0:04:55.160 --> 0:04:58.159 I'm curious how you're sort of sizing up the environment 0:04:58.360 --> 0:05:01.240 right now given that risk assets at least here in 0:05:01.279 --> 0:05:04.760 the US are kind of sideways. Um, is it changing 0:05:04.800 --> 0:05:07.200 any of the thinking about the main themes of this 0:05:07.320 --> 0:05:10.600 year for you to see this pause? Well, I think 0:05:10.600 --> 0:05:13.000 it's fair to say that the US is probably reaching 0:05:13.320 --> 0:05:17.680 peak recovery. And having said that, look, the fundamentals are 0:05:17.760 --> 0:05:19.760 really really strong. So although it hit a peak and 0:05:19.760 --> 0:05:24.960 you're seeing activity um no longer probably accelerating as much 0:05:25.000 --> 0:05:28.359 as it was, it's still resting at a really high level. 0:05:28.920 --> 0:05:30.560 So I think that's the main thing to remember. So 0:05:30.640 --> 0:05:32.840 fundamentals are still really strong. I think the key thing 0:05:32.880 --> 0:05:34.720 here is those you know, when we all came into 0:05:35.920 --> 0:05:37.880 we all knew or we all hopeful that there would 0:05:37.880 --> 0:05:41.160 be an economic reopening. We were all hopeful about fiscal policy. 0:05:41.200 --> 0:05:42.839 We all knew that there would be some kind of 0:05:42.880 --> 0:05:46.640 inflatoring pressures at some point in one. But what we've 0:05:46.640 --> 0:05:48.880 seen happen is that all of those things, all of 0:05:48.880 --> 0:05:52.400 those factors and those themes were pushed forward to like 0:05:52.440 --> 0:05:55.080 the Q one and Q two of this year, so 0:05:55.200 --> 0:05:57.520 much much early, all compressed in a really short time scale. 0:05:57.520 --> 0:05:59.799 And I think the market has just run out of Steve, 0:06:00.320 --> 0:06:04.360 But that doesn't necessarily mean that there's a correction. So 0:06:04.480 --> 0:06:09.080 when you look at Mike mentioned inflation, Uh, how do 0:06:09.160 --> 0:06:13.280 you see this sort of reflation playing out? If you're 0:06:13.560 --> 0:06:18.000 say a stock market investor, how do you respond when, 0:06:18.640 --> 0:06:20.799 as you say, it's sort of played out in the US, 0:06:20.920 --> 0:06:23.080 but there could be more coming and it looks like 0:06:23.120 --> 0:06:26.760 prices are going to rise. Do you rotate into different 0:06:26.920 --> 0:06:30.120 asset classes? How do you handle this? Yeah, this is 0:06:30.120 --> 0:06:33.520 gonna be a really interesting dimension now for investors because 0:06:33.520 --> 0:06:36.640 what we're seeing is inflation is clearly picking up, but 0:06:36.720 --> 0:06:40.800 it isn't necessarily related to a continued acceleration and activity. 0:06:40.960 --> 0:06:43.880 It's really down to those those transitory factors that that 0:06:44.279 --> 0:06:47.279 policymakers are talking about. But of course as investor, you 0:06:47.320 --> 0:06:49.800 can't just say, well, look, inflation is going to fade 0:06:49.800 --> 0:06:51.520 out in the near future, so I'm just going to 0:06:51.600 --> 0:06:54.080 sit back and watch it happening. You have to invest 0:06:54.480 --> 0:06:57.840 for what the current environment is. So we think that 0:06:57.880 --> 0:07:00.440 you need to have some kind of inflation pool portfolio 0:07:00.520 --> 0:07:04.560 protection um. And what we've seen is that investors, after 0:07:04.600 --> 0:07:06.760 a couple of decades of really not having to worry 0:07:06.760 --> 0:07:09.600 about inflation, just don't have it in their portfolios. So 0:07:09.640 --> 0:07:12.160 the increasing we have to start thinking about this. So 0:07:12.360 --> 0:07:14.920 we see a couple of different things. Is so within equities, 0:07:15.240 --> 0:07:17.280 one of the obvious places is going to be value 0:07:17.400 --> 0:07:20.760 because there's still growth. There's still growth, you have rising 0:07:20.760 --> 0:07:24.560 inflation pressures. That's a steaming yiel curve. So value specifically 0:07:24.600 --> 0:07:29.360 financials should do very very well in this situation. Same 0:07:29.360 --> 0:07:31.400 thing with cyclicals. You've got a reopening trade, You've got 0:07:31.440 --> 0:07:33.400 people are rushing back in to spend. That does well 0:07:33.440 --> 0:07:35.960 for cyclicals. But the other side of it is also 0:07:36.000 --> 0:07:39.000 going to be real assets that you know, we hear 0:07:39.040 --> 0:07:42.200 people talk about commodities all the time, like commodities have 0:07:42.440 --> 0:07:45.880 got a tendency of being really volatile. So as an investor, 0:07:45.880 --> 0:07:47.760 I don't know if that's the volatility that you want 0:07:47.800 --> 0:07:49.559 to be taking on. So an easy way you're playing 0:07:49.560 --> 0:07:52.520 this is real estate, and that is typically a good 0:07:52.520 --> 0:07:56.320 diversifier and it does well in a rising but steady 0:07:56.360 --> 0:08:01.400 inflation environment. Yes, I'm curious how you know. Obviously, if 0:08:01.400 --> 0:08:04.720 you're an institutional investor, there's any number of ways to 0:08:04.880 --> 0:08:09.840 play real estate. That's kind of an average investor, individual investor, 0:08:10.440 --> 0:08:12.400 it's a little bit trickier. I mean, you know, one 0:08:12.400 --> 0:08:14.280 thing you could do is buy a vacation home, say, 0:08:14.360 --> 0:08:17.320 or buy a rental property, but that entails a whole 0:08:17.560 --> 0:08:21.840 bunch of other work that you know and risks. So 0:08:21.920 --> 0:08:25.120 how how could you play a real estate team? Is 0:08:25.120 --> 0:08:29.320 it something as simple as reets or you know, other 0:08:29.400 --> 0:08:32.719 equities tied to the real estate space. So reats is 0:08:32.760 --> 0:08:36.160 a great place to be um. Generally speaking, in real 0:08:36.280 --> 0:08:38.719 estate you have to be careful which sectors you're looking at. 0:08:39.320 --> 0:08:41.120 We've seen a number of themes play out. If you 0:08:41.160 --> 0:08:44.320 just think about the retail side during the pandemic. Unfortunately, 0:08:44.320 --> 0:08:47.839 it really has declined from a real estate perspective, So 0:08:48.080 --> 0:08:50.800 some of those big shopping centers, which were already struggling 0:08:50.800 --> 0:08:53.640 in the run up to the pandemic, that deceleration just 0:08:53.920 --> 0:08:56.880 almost accelerated through the last year. Or so what we're 0:08:56.880 --> 0:09:00.600 seeing increased strengthen is data centers. If you think all 0:09:00.640 --> 0:09:02.920 of these companies are ones that are really thrived or 0:09:02.960 --> 0:09:05.280 even survived in the pandemic, they did so because they 0:09:05.320 --> 0:09:08.200 used technology to pivot themselves, to pivot their business models. 0:09:08.679 --> 0:09:10.920 And that's not going to go into reverse, which means 0:09:10.920 --> 0:09:14.360 that industrial data centers anywhere where they can house a 0:09:14.400 --> 0:09:18.720 lot of those technology technology centers, that's going to do well. 0:09:18.840 --> 0:09:21.079 So we would think they look at real estate, look 0:09:21.080 --> 0:09:32.719 at reads, but really focus on the right sectors. So 0:09:32.920 --> 0:09:36.560 the inflation idea is something that's just coming up a 0:09:36.600 --> 0:09:41.360 ton among our readers and in the newsroom in general. Uh, 0:09:41.520 --> 0:09:44.240 it's sort of the you know the topic jur as 0:09:44.280 --> 0:09:48.120 you as you watch prices rise and the FED has 0:09:48.240 --> 0:09:52.320 used the term transitory, which can mean a lot of things, 0:09:53.080 --> 0:09:56.680 and to me, it's one thing. It's like with a bubble. 0:09:57.080 --> 0:10:01.000 It's you can see where the bubble is, but timing 0:10:01.559 --> 0:10:04.040 when it's going to end, when it's going to pop 0:10:04.400 --> 0:10:09.520 is the challenge. Spotting it isn't so hard. The timing 0:10:09.559 --> 0:10:12.440 of where it's going to play out is what does 0:10:12.640 --> 0:10:19.199 transitory mean to you? And how transitory is this going 0:10:19.280 --> 0:10:23.160 to be. You have horned in on the most important 0:10:23.160 --> 0:10:27.040 point here. With inflation. We all know it's here, it's come. 0:10:27.120 --> 0:10:30.280 You know, it's going to continue rising, and we, same 0:10:30.320 --> 0:10:32.240 as the policymakers, think it's going to be short lived. 0:10:32.640 --> 0:10:35.120 But as you said, nobody knows how long now coming 0:10:35.120 --> 0:10:37.680 into this year, the general views it will last through 0:10:37.720 --> 0:10:40.280 the summer and then come full a lot of those 0:10:40.679 --> 0:10:45.120 UM inflation pressures driven by supply shortage shortages should fade away. 0:10:46.120 --> 0:10:48.280 What we're starting to see now actually is a supply 0:10:48.360 --> 0:10:51.599 shortages are worse than expected, the rising prices going a 0:10:51.640 --> 0:10:54.920 little bit higher than more higher than expected UM and 0:10:55.080 --> 0:10:58.680 on top of that we're also seeing inflation expectations increase. 0:10:58.920 --> 0:11:01.480 So the key things to what to figure out how 0:11:01.480 --> 0:11:03.520 long this is going to go on for is inflation 0:11:03.600 --> 0:11:07.720 expectations and how much of these cost increases are being 0:11:07.760 --> 0:11:11.000 passed onto consumers. That's going to tell you how sticky 0:11:11.000 --> 0:11:12.520 inflation is going to be. And I've got to say 0:11:12.880 --> 0:11:16.520 the jury is really out on that factor. Yeah, it's 0:11:16.559 --> 0:11:20.200 interesting to me, see me because you you know, explained 0:11:20.200 --> 0:11:23.920 about the sort of supply bottlenecks and shortages and I 0:11:23.960 --> 0:11:26.959 hate to use and overuse cliche like a perfect storm. 0:11:27.000 --> 0:11:29.520 But it's like this perfect storm for inflation because you 0:11:29.600 --> 0:11:33.000 have those shortages and supply bottlenecks on the one end, 0:11:33.080 --> 0:11:36.559 and then on the demand side, you've got the unleashing 0:11:36.600 --> 0:11:40.040 of what was a bottleneck during the pandemic. Everyone now 0:11:40.200 --> 0:11:43.120 is ready to spend and go out and travel again 0:11:43.240 --> 0:11:47.000 and all that. So I'm trying to think of how 0:11:47.040 --> 0:11:50.520 it looks on the other side when the that transitory 0:11:50.600 --> 0:11:53.200 period is over, you know, whether it be later this 0:11:53.280 --> 0:11:58.400 year or the first half. To me, there's almost a 0:11:58.520 --> 0:12:01.319 risk of sort of a reversion back the other way 0:12:01.480 --> 0:12:05.839 and and almost the transitory deflationary period on the other side. Um, 0:12:05.880 --> 0:12:09.080 everyone seems to be worried about a more prolonged period 0:12:09.120 --> 0:12:13.439 of inflation after you know, this year, But I wonder 0:12:13.440 --> 0:12:16.720 if the risk is almost as good, Uh for thinking 0:12:16.720 --> 0:12:19.719 we could see a transitory deflation period. So tell me 0:12:19.760 --> 0:12:22.079 if I'm nuts for thinking that, ay, and uh, if 0:12:22.080 --> 0:12:25.120 I'm not nuts, hopefully I'm not too crazy. How would 0:12:25.160 --> 0:12:26.719 how would that play out in the markets? Would that 0:12:26.760 --> 0:12:28.559 be a sort of about face and try to try 0:12:28.600 --> 0:12:31.400 to go back to growth again? Uh? You know, how 0:12:31.400 --> 0:12:34.679 are you thinking about that other side of the transitory period? 0:12:34.679 --> 0:12:38.160 Of inflation well fastly. I don't think you're crazy. I 0:12:38.200 --> 0:12:41.000 think that that is a possibility. You know, if we 0:12:41.040 --> 0:12:44.240 think about that, the supply is they're going to be 0:12:44.280 --> 0:12:46.800 looking at this unleashing of demand, and they could be 0:12:46.880 --> 0:12:49.160 ramping up their supply the next couple of months. But 0:12:49.200 --> 0:12:51.400 what if they go too far? What if they just 0:12:51.440 --> 0:12:53.320 go too far? A lot of their demand it's gonna 0:12:53.320 --> 0:12:56.160 be front loaded. Um as you see, it's it's about 0:12:56.240 --> 0:12:58.560 unbleashing that demand that has been so contained for the 0:12:58.600 --> 0:13:00.679 last number of months. So I think there is a 0:13:00.760 --> 0:13:03.360 chance that supply goes too far, demand just doesn't essentially 0:13:03.440 --> 0:13:05.840 meet it in the end, and then you get the 0:13:05.880 --> 0:13:09.320 disinflationary pressure is coming. Well, what happens to the market, Well, 0:13:09.360 --> 0:13:11.360 on one hand, I think the market really starts to 0:13:11.360 --> 0:13:15.280 get a bit worried because ultimately, you've seen Montree policymakers, 0:13:15.280 --> 0:13:20.600 you've seen fiscal policy makers throw everything they have this problem, 0:13:20.679 --> 0:13:24.240 and if they still can't create some kind of inflation, 0:13:24.280 --> 0:13:26.280 which is a healthy type of inflation, So around that 0:13:26.360 --> 0:13:30.040 two percent level, I think the market will become quite concerned. 0:13:30.559 --> 0:13:33.000 So I think from that perspective, the Fed is playing 0:13:33.000 --> 0:13:35.600 a really difficult game here. They have to get the 0:13:35.600 --> 0:13:38.360 balance right. Um, and if the market does get freaked 0:13:38.360 --> 0:13:41.200 then of course we have to be shifting into safer assets. 0:13:41.600 --> 0:13:44.960 We're talking about growth again. Technology if you're looking at 0:13:45.000 --> 0:13:47.960 lower bond deals, and technology is typically your your best 0:13:48.000 --> 0:13:52.440 place to hide out. So you mentioned the idea of 0:13:52.520 --> 0:13:56.840 stickiness of inflation, and that that intrigues me just the 0:13:56.880 --> 0:14:02.160 difference between flexible pricing versus sticky I saying, Um, what 0:14:02.320 --> 0:14:06.000 are you looking at in terms of the cues for 0:14:06.640 --> 0:14:11.160 what's a real inflation move, What's a real like hard 0:14:11.240 --> 0:14:16.120 inflationary move versus you know, so with sticky prices, it's 0:14:16.160 --> 0:14:18.880 something like the cost of getting your car fixed doesn't 0:14:18.960 --> 0:14:22.440 change no matter what happens in the economy, whereas you know, 0:14:22.480 --> 0:14:25.480 the cost of gas is very very reactive to the economy. 0:14:25.720 --> 0:14:29.040 What are you looking at in terms of gauging how 0:14:29.120 --> 0:14:34.640 severe things get or how how how much less we 0:14:34.680 --> 0:14:37.920 need to be concerned about it. So to us, there's 0:14:38.040 --> 0:14:40.640 there's a couple of key things to be watching out for, 0:14:40.760 --> 0:14:42.880 which is going to give us an idea of how sticky, 0:14:43.240 --> 0:14:46.120 so really how long this higher inflation is going to last? 0:14:46.120 --> 0:14:49.400 For um, the first thing is inflation expectations. You've got 0:14:49.400 --> 0:14:52.280 to be looking at not only market inflation expectations, but 0:14:52.360 --> 0:14:55.800 all the various surveys, because what we have seen the 0:14:55.840 --> 0:14:59.520 threat of is as consumers start to see higher prices, 0:15:00.120 --> 0:15:04.360 they start to expect themselves that they react in that way, 0:15:04.560 --> 0:15:07.880 and that brings forward or extends that inflation pressures that 0:15:07.880 --> 0:15:10.120 they've already been witnessing. So then it becomes part of 0:15:10.120 --> 0:15:13.320 the system and you're seeing permanently higher prices. But the 0:15:13.360 --> 0:15:16.560 second thing is is companies, how are they going to respond? 0:15:16.840 --> 0:15:18.840 Now this is gonna be really interesting because over the 0:15:18.920 --> 0:15:23.600 last year we've seen savings in the US increased significantly, 0:15:24.200 --> 0:15:26.840 So you have a new consumer subset who are extremely 0:15:26.880 --> 0:15:31.480 financially resilient, and consumers and companies are very aware of this. 0:15:32.040 --> 0:15:35.360 So if companies decide that, look, our consumers are clients 0:15:35.600 --> 0:15:38.520 now very financially resilient. We can pass on all of 0:15:38.560 --> 0:15:42.520 the cost increases that we're experiencing to our consumers, then 0:15:42.560 --> 0:15:46.560 you are looking at inflationary spiral, not to the kind 0:15:46.560 --> 0:15:49.080 of five or six percent level, that inflationary spiral in 0:15:49.120 --> 0:15:52.040 the current term meaning kind of the two to two 0:15:52.080 --> 0:15:54.240 and a half to three percent level, which of course 0:15:54.280 --> 0:15:56.520 as we know from the first perspective, is a little 0:15:56.520 --> 0:15:59.560 bit above where they wanted to be. I just want 0:15:59.560 --> 0:16:02.160 to read in a little bit and reiterate that Sema said, 0:16:02.280 --> 0:16:05.560 I'm not crazy Eric. You know, no matter what Eric says, 0:16:06.000 --> 0:16:08.800 I've got Sema on my owner said, I'm happy about that. 0:16:08.840 --> 0:16:11.560 But uh uh see, I want to switch gears a 0:16:11.600 --> 0:16:16.200 little bit um and talk about the vaccination rates. I 0:16:16.200 --> 0:16:18.040 know it's something you've kept an eye on. I think 0:16:18.080 --> 0:16:22.720 everyone you know who's got their eye on global markets 0:16:22.880 --> 0:16:26.240 is kind of seeing where the sort of advantages are 0:16:26.280 --> 0:16:30.080 and disadvantages are in vaccination rates. And obviously in the US, 0:16:30.400 --> 0:16:35.040 uh we got out to a strong start on that front. Um. 0:16:35.040 --> 0:16:37.600 Currently now we're at about I think a little bit 0:16:37.600 --> 0:16:41.000 over fifty of the population has had at least one 0:16:41.080 --> 0:16:44.280 shot of the vaccines. Um. But you know, as we 0:16:44.320 --> 0:16:46.560 all know, one of the big growth industries in the 0:16:46.640 --> 0:16:52.960 US is conspiracy theories and skepticism towards science and experts 0:16:53.080 --> 0:16:55.520 and that sort of thing. So there, I think there's 0:16:55.560 --> 0:16:58.440 this concern that we might plateau out a little bit 0:16:58.480 --> 0:17:01.960 on on vaccination rates that you know, the people left 0:17:02.000 --> 0:17:04.720 who are unvaccinated are those who are reluctant to get 0:17:04.720 --> 0:17:08.760 it for for whatever reason. Um, And I'm curious, you know, 0:17:09.520 --> 0:17:12.280 if you're seeing that in other countries, is that mainly 0:17:12.320 --> 0:17:14.680 a US phenomenon. It's it seems like we are sort 0:17:14.720 --> 0:17:18.520 of the epicenter of that potential issue of skepticism and 0:17:18.600 --> 0:17:21.320 reluctance to get a vaccine. But I'm curious if you're 0:17:21.320 --> 0:17:24.000 seeing it anywhere else or if it is kind of 0:17:24.080 --> 0:17:26.280 unique to the US. But also, how much does it 0:17:26.359 --> 0:17:29.800 really matter if we do get say above fift vaccinated. 0:17:29.880 --> 0:17:33.000 I mean, you know, should the reopening of the economy 0:17:33.160 --> 0:17:37.520 and the return to normal continue apace even if there 0:17:37.720 --> 0:17:40.880 is a certain segment of the population that might still 0:17:40.920 --> 0:17:43.720 be struggling with covid um If there are enough people 0:17:43.720 --> 0:17:47.679 are vaccinated that, you know, businesses feel comfortable, uh, going 0:17:48.119 --> 0:17:51.520 full capacity and and getting back to normal. How much 0:17:51.520 --> 0:17:53.880 does it matter if if we sort of plateau here 0:17:53.880 --> 0:17:56.800 in the US on vaccination rates. Well, I think you're 0:17:56.880 --> 0:17:58.639 right that the U s really is the epicent two 0:17:58.680 --> 0:18:00.520 of that, but that's because the US is so far 0:18:00.560 --> 0:18:02.800 ahead with this vaccination process, so you're kind of the 0:18:02.800 --> 0:18:06.280 guinea pigs here. What we are seeing though, is in Europe, 0:18:06.280 --> 0:18:09.720 for example, they do have a lot of vaccine hesitancy. UM. 0:18:09.800 --> 0:18:12.520 It's really not unusual even for for COVID. Actually you 0:18:12.600 --> 0:18:15.800 typically see in countries like France, they've always been very 0:18:15.800 --> 0:18:18.720 reluctant even to take the annual flu vaccine. So this 0:18:18.840 --> 0:18:21.680 is something that we were expecting, and of course the 0:18:22.040 --> 0:18:23.960 very side effects that have been reported from a couple 0:18:23.960 --> 0:18:27.800 of the vaccines haven't really helped the situation. Now. What 0:18:27.960 --> 0:18:30.600 we are expecting to see though, for example in the US, 0:18:31.600 --> 0:18:33.640 is that we are hitting we're close to hitting your 0:18:33.680 --> 0:18:38.000 peak vaccination numbers. You can have people who are reluctant, 0:18:38.080 --> 0:18:40.600 you can have people who simply aren't eligible maybe because 0:18:40.600 --> 0:18:43.040 of age UM, and then those can be the other 0:18:43.080 --> 0:18:45.080 ones who say, well, you know, everyone else surround us 0:18:45.160 --> 0:18:48.000 is vaccinated, so why would we could have bothered? Would 0:18:48.040 --> 0:18:49.679 come around to when it When it works for us, 0:18:50.119 --> 0:18:54.000 it doesn't really matter from an economic perspective, in the 0:18:54.000 --> 0:18:56.680 best case scenario, No, it doesn't really matter, because all 0:18:56.680 --> 0:19:00.600 the government cares about UM is of course they want 0:19:00.600 --> 0:19:03.159 to reopen the economy. It's really if those hospitalizations that 0:19:03.400 --> 0:19:04.879 that they start to get concerns. So if you've got 0:19:04.920 --> 0:19:07.560 a lot of people vaccinated, then they will continue to 0:19:07.560 --> 0:19:10.680 push forward with the reopening. The concern starts to arise 0:19:10.720 --> 0:19:13.680 though if you get some more of these variants start 0:19:13.760 --> 0:19:17.359 to circulate UM, and if those various circulate, then it 0:19:17.400 --> 0:19:20.080 becomes more of a concern for the population that isn't vaccinated, 0:19:20.440 --> 0:19:22.199 And then you get to a point where maybe the 0:19:22.200 --> 0:19:24.240 government was to take a bit of a stand still 0:19:24.440 --> 0:19:26.720 on that on that factor. And I would point to 0:19:26.760 --> 0:19:30.480 the UK here on this where although we have vaccinated 0:19:30.600 --> 0:19:33.600 a very high percentage of people, we have the variant 0:19:33.600 --> 0:19:35.719 from India is circulating in the UK and they are 0:19:35.760 --> 0:19:39.280 talking already about stopping the reopening. So when you talk 0:19:39.320 --> 0:19:43.240 about vaccination rates UM, the FED has pointed to a 0:19:43.320 --> 0:19:46.919 vaccination rates as something that it's looking at in terms 0:19:47.000 --> 0:19:53.280 of when to react to QUEI and whatever UM. Are 0:19:53.359 --> 0:19:57.480 we getting close to a point where the FED would 0:19:57.480 --> 0:20:00.679 feel comfortable? I mean obvious there are a bunch of 0:20:00.680 --> 0:20:04.640 other numbers that go go into that UM, but they've 0:20:04.680 --> 0:20:08.680 act they've not really been looking at necessarily the whole 0:20:08.760 --> 0:20:12.440 data and talking about more of this societal function. Are 0:20:12.480 --> 0:20:15.480 we close to that point where the FED can react 0:20:15.560 --> 0:20:20.680 based on being comfortable that the population is vaccinated. I 0:20:20.720 --> 0:20:22.680 think we are getting close to that point. But what 0:20:22.720 --> 0:20:25.520 we are increasingly seeing is that policymakers are saying that 0:20:27.000 --> 0:20:30.000 our country may be pretty healthy, doing pretty well with vaccinations, 0:20:30.359 --> 0:20:32.639 but they have to look at all the countries and 0:20:32.800 --> 0:20:35.160 not just even next to them, but all around because 0:20:35.200 --> 0:20:38.879 there are continued threats coming in from other countries. You know, 0:20:38.920 --> 0:20:41.520 we just have to think about India, about Brazil. Um. 0:20:42.040 --> 0:20:46.119 So I think policymakers will remain pretty cautious until this 0:20:46.160 --> 0:20:48.720 fight is over, and I unfortunately think that fight is 0:20:48.720 --> 0:21:09.159 going to continue into So you know, there's kind of 0:21:09.160 --> 0:21:13.280 this growing I wouldn't necessarily call it a consensus perhaps yet, 0:21:13.359 --> 0:21:17.879 but growing speculation that, uh, the Jackson Hall meeting in 0:21:17.920 --> 0:21:21.440 August will be when the FED at least admits their 0:21:21.560 --> 0:21:26.360 thinking about talking about maybe whispering about tapering. Um. How 0:21:26.400 --> 0:21:27.920 are you looking at that meeting? Do you think it's 0:21:28.040 --> 0:21:30.119 it's a live one that that we're all going to 0:21:30.160 --> 0:21:32.480 have to keep an eye on, or I guess just 0:21:32.520 --> 0:21:35.800 wait and see. I think that we have to be 0:21:35.840 --> 0:21:39.680 watching Jackson Hole very very carefully. You know, when we've 0:21:39.720 --> 0:21:41.840 talked about the FED, you know, we know that of 0:21:41.880 --> 0:21:44.520 course with the econom reopening, with the kind of pace 0:21:44.600 --> 0:21:47.639 of growth that we're saying we're seeing, and they must 0:21:47.680 --> 0:21:50.560 be talking about tapering behind closed doors. They must be 0:21:50.600 --> 0:21:53.200 talking about it. But this is a very very careful 0:21:53.280 --> 0:21:55.560 process that they're going to take. Where they started, as 0:21:55.560 --> 0:21:57.920 you said, they start to whisper about it, we start 0:21:57.960 --> 0:22:01.840 to hear hints, and then at Jackson Hole, hopefully they 0:22:01.840 --> 0:22:04.119 talk a little bit more openly to the market and 0:22:04.119 --> 0:22:06.040 prepare the market for the start. So it didn't start 0:22:06.040 --> 0:22:08.880 in Jackson Hole, but it starts a couple of months later. 0:22:09.440 --> 0:22:11.560