WEBVTT - Surveillance: SEC Transparency With Gensler 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast Home, Tom Keene, along 0:00:09.240 --> 0:00:12.719 with the Jonathan Pheron and Lisa Brownwitz Jay Leie, we 0:00:12.880 --> 0:00:16.800 bring you insight from the best and economics, finance, investment 0:00:17.079 --> 0:00:22.440 and international relations. Find Bloomberg Surveillance and Ample podcast, Suncloud, 0:00:22.840 --> 0:00:26.280 Bloomberg dot Com and of course on the Bloomberg termainment 0:00:29.000 --> 0:00:31.920 for our audience worldwide on TV and radio. We begin 0:00:32.000 --> 0:00:34.680 with a big issue, the gamification of stock markets, taking 0:00:34.720 --> 0:00:39.120 center stage. Lawmakers growing increasingly concerned about distortions in the marketplace, 0:00:39.479 --> 0:00:42.440 especially within crypto and the new phenomenon known as the 0:00:42.600 --> 0:00:45.560 meme stocks. That's where our next guest comes in. Gary Ginstler, 0:00:45.840 --> 0:00:49.000 the thirty third chair of the Securities and Exchange Commission 0:00:49.000 --> 0:00:51.760 against the served as the Chairman of the CFTC under 0:00:51.760 --> 0:00:54.920 President Obama and working for nearly two decades at Goldman. 0:00:54.920 --> 0:00:57.560 He joins us now exclusively for his first interview on 0:00:57.640 --> 0:01:00.720 this network in his new role alongside Bloomberg's Tom Kane. 0:01:00.760 --> 0:01:03.000 Joining us to Gary. Great to catch up and thank 0:01:03.000 --> 0:01:04.679 you for joining us for the next ten minutes. I 0:01:04.680 --> 0:01:07.319 just want to start with your statement, your mission statement 0:01:07.400 --> 0:01:11.559 to meet our mission of protecting investors that's the first line. Gary, 0:01:11.640 --> 0:01:13.640 what do you do for a group of investors that 0:01:13.720 --> 0:01:17.760 don't want your protection? Well, I'm gonna be animated every 0:01:17.800 --> 0:01:21.040 day in this job by working families. UH, and working 0:01:21.080 --> 0:01:24.440 families need the protection. And Franklin Roosevelt knew this in 0:01:24.480 --> 0:01:27.240 the nineteen thirties. We know this now President Biden knows 0:01:27.280 --> 0:01:29.760 that it's it's about working families ensuring they get the 0:01:29.800 --> 0:01:32.560 disclosures so they can make their choices in the markets. 0:01:32.880 --> 0:01:35.880 And there's a cop wing to be protecting against fraud 0:01:35.959 --> 0:01:39.440 manipulation that helps companies raise money too. By the way, 0:01:39.440 --> 0:01:44.479 by lowering the fraud manipulation ensuring that there's consistent disclosure 0:01:44.520 --> 0:01:47.920 to those investors, I think companies benefit as well. Disclosure 0:01:48.000 --> 0:01:49.840 is a broad concept, so let's narrow in on that 0:01:50.240 --> 0:01:53.640 were specifically. Do you think we need more disclosure? Well, 0:01:53.680 --> 0:01:56.920 I think there's trillions of dollars of assets under management 0:01:56.960 --> 0:02:02.200 now calling for greater and consistant disclosure around climate risk, 0:02:02.600 --> 0:02:05.440 and when I've also asked staff to take up UH 0:02:05.640 --> 0:02:09.920 disclosures around human capital, the most important, really fundamental asset 0:02:09.960 --> 0:02:14.000 of a company, the people that work there. Gary, thank 0:02:14.000 --> 0:02:16.720 you so much for joining John and I this morning. 0:02:16.880 --> 0:02:20.519 I'm gonna go broader here, Gary, I have never seen 0:02:21.000 --> 0:02:26.079 a primal cry for an SEC commissioner to just do something. 0:02:26.400 --> 0:02:30.400 You mentioned something I mentioned an hour ago, which is FDR. 0:02:30.480 --> 0:02:33.320 I'll go to the Commonwealth speech early in the depression. 0:02:33.760 --> 0:02:37.960 There is a primal screen chairman to do something. What 0:02:38.040 --> 0:02:40.920 does the do something you want to do to help 0:02:41.000 --> 0:02:44.240 us with meme stocks, with SPACs and other things. I 0:02:44.280 --> 0:02:48.200 don't understand. Well, Tom, you're you're you're being a little 0:02:48.200 --> 0:02:50.160 and honest. I'm sure that you understand them a little 0:02:50.240 --> 0:02:52.720 better than that, and your listeners have listened to you 0:02:52.800 --> 0:02:55.520 for years. But look what I think the important thing 0:02:55.639 --> 0:02:58.440 is is investors want another there's somebody looking after that, 0:02:58.840 --> 0:03:02.120 working families, engineers, people that have four oh one case. 0:03:02.600 --> 0:03:07.480 So you mentioned special purpose acquisition companies or so called spects. 0:03:08.360 --> 0:03:12.040 It's really making sure that the sponsor who's behind that 0:03:13.080 --> 0:03:17.840 is fully disclosing their take on it. These are very 0:03:17.880 --> 0:03:21.519 expensive dilutive products. I mean the sponsors take out a 0:03:21.639 --> 0:03:24.880 chunk at the beginning, then there's more being taken out 0:03:24.960 --> 0:03:28.040 later when they merge with the private company in what's 0:03:28.040 --> 0:03:31.480 called a DESPAC. I just call that a target I 0:03:31.639 --> 0:03:35.760 p O and it's those disclosures, ensuring that the retail 0:03:35.840 --> 0:03:39.960 investors get the right disclosures and are protected and somebody's 0:03:40.000 --> 0:03:44.120 not misleading them. And secondarily that they're participating just like 0:03:44.160 --> 0:03:47.200 the the institutional investors and a lot of the big 0:03:47.200 --> 0:03:51.800 institutions buy into these spacts later during that target I 0:03:51.920 --> 0:03:54.600 p O and they do so at a preferred price 0:03:54.760 --> 0:03:57.840 rather than the price the retail public's getting. Sherman guests 0:03:57.840 --> 0:03:59.840 are long agoing far away. We had a red hair. 0:04:00.160 --> 0:04:02.880 We all read them, you know, differently ourselves. I start 0:04:02.920 --> 0:04:05.680 at the back and see the character and the integrity 0:04:05.680 --> 0:04:08.920 of the people involved, and as you just mentioned, you 0:04:09.000 --> 0:04:12.200 go up to that single page on delution to see 0:04:12.200 --> 0:04:15.800 how bad the new shareholders are being taken. Do we 0:04:15.920 --> 0:04:19.560 know the delustion? Do we have transparency on specs or 0:04:19.600 --> 0:04:23.760 frankly on other challenges you have. Do we have visibility 0:04:23.800 --> 0:04:26.960 on these key issues right now? Now? I've asked staff 0:04:27.040 --> 0:04:30.400 to think across our whole markets. You know, technology rapidly 0:04:30.480 --> 0:04:34.200 changes be names and so their their rules sometimes put 0:04:34.240 --> 0:04:37.520 in place fifty years ago. For instance, on beneficial ownership, 0:04:37.560 --> 0:04:39.919 Congress set if you went past five per cent and 0:04:40.000 --> 0:04:43.680 you had an intent to to control a company you 0:04:43.720 --> 0:04:46.560 have to disclose, but they gave you ten days and 0:04:46.600 --> 0:04:49.920 we've been given authority to shorten that. Well, technology says 0:04:50.000 --> 0:04:52.840 we can shorten that. Shouldn't shouldn't the whole market know 0:04:53.040 --> 0:04:56.480 if somebody has tripped that five percent wire? So I've 0:04:56.520 --> 0:04:59.800 asked staff to think about these types disclosure and stock 0:05:00.000 --> 0:05:04.840 I backs in something called derivatives called security space swaps, 0:05:04.920 --> 0:05:08.560 and yes, in these special purposes acquisition companies as well, 0:05:09.440 --> 0:05:12.799 the delusion, the cost and the like. Well, Gary, this situation, 0:05:12.839 --> 0:05:16.080 this conversation brings up the episode around doc Keane Gholst. 0:05:16.120 --> 0:05:17.560 What have you learned from that event and what does 0:05:17.560 --> 0:05:21.200 it mean for disclosures from family offices. Well, I think 0:05:21.240 --> 0:05:23.960 that the events of March around the family office do 0:05:24.160 --> 0:05:28.520 raise questions about the exclusion of family offices. But to 0:05:28.680 --> 0:05:32.200 us at the U S Securities and Exchange Commission, we're gonna, 0:05:32.320 --> 0:05:35.440 I guess staff to lean in how we can have 0:05:35.560 --> 0:05:39.279 more disclosure about these derivatives security space swaps. We have 0:05:39.360 --> 0:05:43.200 a reform regime that my predecessors put in place that 0:05:43.240 --> 0:05:46.760 goes live in November of this year for more disclosure. 0:05:47.040 --> 0:05:49.400 But I think we need to also aggregate some of 0:05:49.400 --> 0:05:53.280 those holdings. So people, again, have you tripped that five 0:05:53.360 --> 0:05:57.400 percent line? Uh? And we didn't have that disclosure. But 0:05:57.680 --> 0:06:00.480 in the r key ghost Garry one of the choice 0:06:00.520 --> 0:06:03.240 of you, and I think everybody that is politically with you, 0:06:03.360 --> 0:06:06.240 and frankly you're people a little bit a little bit 0:06:06.279 --> 0:06:10.039 off the Gunstler belief. They all have an immense respect 0:06:10.560 --> 0:06:14.120 of how you have lived Wall Streets through your story career. 0:06:14.520 --> 0:06:16.800 Great and John and I have talked about this before. 0:06:17.440 --> 0:06:22.039 That's all great about derivative transparency, but the street is 0:06:22.080 --> 0:06:25.880 set up based on mystery and based on the unknown. 0:06:26.240 --> 0:06:28.159 How are you going to force and I'll pick on 0:06:28.240 --> 0:06:34.280 two familiar names, Morgan Stanley and Goldman Sachs to display 0:06:34.440 --> 0:06:39.799 and make visible their derivative holdings. Well, look, because uh, 0:06:39.880 --> 0:06:43.320 the public is ultimately represented by those of us in 0:06:43.360 --> 0:06:46.760 the official sector, and whether it was President Roosevelt in 0:06:46.880 --> 0:06:50.640 n thirties, President Obama, with the passes of Dodd, Frank 0:06:51.279 --> 0:06:55.200 uh and and multiple precedents in between, with Congress, we 0:06:55.320 --> 0:06:58.840 have laws that help our capital markets and help those 0:06:58.880 --> 0:07:03.800 working families and our client, you know, my client are 0:07:03.839 --> 0:07:07.880 those working families, those those retirees that want a cop 0:07:07.960 --> 0:07:10.400 on the beat and rules so yes, whether it's a 0:07:10.480 --> 0:07:13.480 large firms that you've mentioned, there are other large firms, 0:07:13.520 --> 0:07:17.320 we have the authority to bring such transparency and we'll 0:07:17.320 --> 0:07:19.760 put things out to notice and comment. Folks will be 0:07:19.800 --> 0:07:22.000 able to say they think it's good idea or not. 0:07:22.200 --> 0:07:26.520 We'll look at the economic analysis, but overall we'll be 0:07:26.560 --> 0:07:29.800 looking out for our ultimately, our the American public, who 0:07:29.800 --> 0:07:34.240 are really our clients and President Biden's clients. Ultimately, if 0:07:34.280 --> 0:07:36.600 you're cheating in on the bloom Black radio when Blomberg TV, 0:07:36.640 --> 0:07:38.600 we're catching up with the thirty third year of the SEC. 0:07:39.000 --> 0:07:42.160 Gary Gainstler check against the Let's continue this conversation around 0:07:42.160 --> 0:07:44.520 our kegos. Tom and I had a difficulty for about 0:07:44.560 --> 0:07:46.360 a month knowing what to cool our kegos. Was it 0:07:46.440 --> 0:07:48.480 a family office, was it a fund? Was it an 0:07:48.480 --> 0:07:52.240 asset manager? How would you describe it? Well, I don't 0:07:52.280 --> 0:07:54.320 want to get into any one company because you could 0:07:54.400 --> 0:07:59.880 imagine the reasons why not. But um large funds investing 0:08:00.040 --> 0:08:03.720 our market are required to still play by the rules 0:08:04.080 --> 0:08:08.320 are anti fraud and other rules and various disclosure rules. 0:08:08.320 --> 0:08:11.040 But I do think that we at the SEC can 0:08:11.200 --> 0:08:13.840 do more work here and said that's why the S 0:08:13.840 --> 0:08:19.600 staff to have more disclosure rules related to these contracts 0:08:19.600 --> 0:08:23.920 that that entity was using, using something called security spased swaps. 0:08:23.960 --> 0:08:27.680 In Congress in two thousand and ten in the reform 0:08:27.720 --> 0:08:32.760 movement after that crisis of OH eight past rules that said, yes, 0:08:33.160 --> 0:08:36.880 the SEC can bring greater disclosure. In fact, it's not 0:08:36.920 --> 0:08:39.520 even once in what's called Dodd Frank, but twice in 0:08:39.559 --> 0:08:43.840 two different provisions. So I had meetings even yesterday with 0:08:43.920 --> 0:08:46.960 staff about well, how do we stitch this together and 0:08:47.000 --> 0:08:49.080 try to put something in front of our five member 0:08:49.120 --> 0:08:52.600 commission and get it out for public notice. A gay 0:08:52.640 --> 0:08:55.520 one stead of disclosures that we haven't discussed today, things 0:08:55.520 --> 0:08:59.400 around the climate, around gender diversity as well, and in 0:08:59.440 --> 0:09:01.040 the limited and we have left with you. I think 0:09:01.080 --> 0:09:03.200 we need to talk about that as well. Republicans have 0:09:03.280 --> 0:09:05.439 really pushed back against your role in all of this. 0:09:05.440 --> 0:09:08.200 This is what twelve GOP senators wrote to you the 0:09:08.320 --> 0:09:11.120 SEC on June fourteenth. They push for more disclosure related 0:09:11.160 --> 0:09:13.199 to global warm because a little to do with providing 0:09:13.240 --> 0:09:17.240 material information for investment purposes. Rather, activists with no fiducry 0:09:17.320 --> 0:09:19.720 duty to the company or its shareholders are trying to 0:09:19.760 --> 0:09:24.839 impose their progressive political views on publicly traded companies. Why 0:09:24.920 --> 0:09:27.280 is that statement wrong in your view? So I have 0:09:27.360 --> 0:09:30.080 deep respect for the members of Congress, the senators who 0:09:30.120 --> 0:09:33.680 wrote that letter, and we've had some very good, uh 0:09:33.720 --> 0:09:38.520 individual conversations about this. I think it's it's foremost about investors, 0:09:38.840 --> 0:09:42.320 and this is at our regime. Investors want to know 0:09:42.480 --> 0:09:46.840 more about this very important risk, climate risk, and how 0:09:46.880 --> 0:09:52.160 do companies deal with whatever transitions might be in the future, 0:09:52.440 --> 0:09:55.640 whatever physical risk that they have, How are they managing it, 0:09:55.720 --> 0:09:57.560 how are they governing it, and what are some of 0:09:57.559 --> 0:10:01.920 the basic metrics. So invest just want to see information, 0:10:02.280 --> 0:10:04.320 and then the role of the SEC has to try 0:10:04.360 --> 0:10:09.000 to bring some consistency, some comparability, and yes, reliability to 0:10:09.080 --> 0:10:13.960 that information. And then investors benefit, and frankly also the 0:10:14.000 --> 0:10:18.360 company's benefit because they get some they get some rules 0:10:18.640 --> 0:10:21.600 as to how to present it, and they also then 0:10:21.840 --> 0:10:25.840 can compete for capital in the capital markets based upon 0:10:25.920 --> 0:10:29.080 that nexus. Chairman, guess, so I want to get a 0:10:29.160 --> 0:10:31.560 question in here. I know Johnny has an important final 0:10:32.160 --> 0:10:35.720 question is, well, what I know for certain garreas everything 0:10:35.840 --> 0:10:37.640 is free. There was one day where the Wall Street 0:10:37.679 --> 0:10:41.520 Journal had three consecutive ads one page next page next 0:10:41.520 --> 0:10:44.920 page of free trading on Wall Street and all that's 0:10:44.960 --> 0:10:47.920 devolved down to the meme stocks and the order flow debate. 0:10:48.200 --> 0:10:50.840 What I know is the people that own order flow 0:10:51.240 --> 0:10:54.080 are in billionaires row in New York City on fifty 0:10:54.160 --> 0:10:58.680 seven Street. Does the sec of a need to somehow 0:10:58.960 --> 0:11:05.120 remanage order flow and remanage the fiction of free trading? Tom, 0:11:05.160 --> 0:11:09.680 I'm glad you're closed. It's not free. It's just simply so. 0:11:10.000 --> 0:11:15.120 It might be zero commission, but underneath that, some of 0:11:15.160 --> 0:11:17.920 these brokers, not all, but some of these brokers are 0:11:17.960 --> 0:11:23.000 then selling your orders to another firm I'll call it 0:11:23.000 --> 0:11:26.640 a wholesaler. And when they sell that, why why is 0:11:26.679 --> 0:11:30.440 somebody paying for it? Is because there's an inherent conflict 0:11:30.559 --> 0:11:33.120 that even if it's a penny or two pennies or 0:11:33.240 --> 0:11:38.880 some small fraction that's trading off against you, the retail public. 0:11:38.920 --> 0:11:40.640 So it's not free. You know what can we do 0:11:40.720 --> 0:11:42.520 about it? We're gonna take a look at the whole 0:11:42.600 --> 0:11:46.920 equity market structure, the stock market. Some other countries, the 0:11:47.000 --> 0:11:51.640 United Kingdom, Canada, Australia, they've banned such payment ford or flow, 0:11:52.000 --> 0:11:54.480 and so we're gonna take a look closely at that 0:11:55.320 --> 0:11:58.640 also to look at when you're the retail public, when 0:11:58.679 --> 0:12:00.840 you put in order in a mark could order, it 0:12:01.280 --> 0:12:04.520 rarely goes to the New York Stock Exchange or not NaSTA, 0:12:04.760 --> 0:12:08.120 it goes to these whost salers. That segmentation matters to 0:12:08.280 --> 0:12:10.599 us the public. Check ENSLO. I know you've got to 0:12:10.640 --> 0:12:12.520 run and your team is firing away emails kind of 0:12:12.520 --> 0:12:13.960 gets to let you go. So I just one final 0:12:14.040 --> 0:12:16.959 question on this very important issue. You really pushed back 0:12:17.000 --> 0:12:20.559 against the language there. It's not free. Is that something 0:12:20.600 --> 0:12:23.599 you want to do something about the language specifically, or 0:12:23.720 --> 0:12:28.079 is the priority the activity? The priority is the investing public, 0:12:28.280 --> 0:12:30.040 and so we're going to take a look at this 0:12:30.080 --> 0:12:33.040 and say what works best for them. Congress has given 0:12:33.040 --> 0:12:36.280 authority to think about the efficiency of markets, and it's 0:12:36.280 --> 0:12:39.600 the efficiency for the big pension funds. It's efficiency for 0:12:39.679 --> 0:12:43.000 that person that's going on a platform and app and 0:12:43.000 --> 0:12:46.560 and trying to say for their future. And so that's 0:12:46.600 --> 0:12:50.679 our priority. The language matters, but I don't think it's 0:12:50.720 --> 0:12:54.320 just about disclosure. I also think that there's inherent conflicts 0:12:54.320 --> 0:12:56.439 and we need to take a close look at at 0:12:56.480 --> 0:12:59.720 how we reform these markets. Check Inslo, thanks for you 0:12:59.720 --> 0:13:01.200 wanting am and on. We hope this is the beginning 0:13:01.240 --> 0:13:03.800 of an ongoing dialog with you. The thirty third chat 0:13:04.080 --> 0:13:11.480 of the sect against the Thank you sir, just getting 0:13:11.559 --> 0:13:12.880 right to it. Our interview of the day on the 0:13:12.920 --> 0:13:16.959 equity market, Mike Wilson has been just absolutely brilliant trying 0:13:16.960 --> 0:13:19.200 to go back and forth the nuances of the equity 0:13:19.240 --> 0:13:23.520 market in this great bull market Mike Wilson with Morgan Stanley, 0:13:23.640 --> 0:13:27.839 is the great bull market over now? I don't think 0:13:27.880 --> 0:13:30.960 it's over. I think this is you know, the typical 0:13:31.080 --> 0:13:33.680 pause that we get as we go from early to 0:13:33.720 --> 0:13:36.720 mids angle. Uh, you know, PEK created changes. John was saying, 0:13:36.880 --> 0:13:39.960 is what we've been focused on not just for you know, 0:13:40.040 --> 0:13:43.319 growth measures, whether it be economic data or say earnings 0:13:43.360 --> 0:13:46.480 growth data, but also policy. You know, the Fed you 0:13:46.520 --> 0:13:49.600 know has you know, kind of pivoted a bit to 0:13:49.640 --> 0:13:54.120 start the long process of removing monetary accommodation. 're not 0:13:54.160 --> 0:13:56.600 doing it yet, but the market, you know, keys off 0:13:56.640 --> 0:13:59.520 of that, and we've been focused on really money supplied 0:13:59.600 --> 0:14:02.400 growth because in the world where you're on the zero 0:14:02.480 --> 0:14:06.360 bound globally, right and every in every sort of major market, 0:14:07.120 --> 0:14:11.160 that the key determinant whether monetary policy accommodation is accelerating 0:14:11.240 --> 0:14:14.080 or decelerating. Is MP two growth and EMP two growth 0:14:14.120 --> 0:14:17.000 peaked at the end of February early March and has 0:14:17.000 --> 0:14:19.800 been slowly coming down, and that we think that has 0:14:19.800 --> 0:14:23.760 had a very large impact on the speculative parts of 0:14:24.240 --> 0:14:27.120 asset markets. Obviously cryptos part of that, you know, very 0:14:27.120 --> 0:14:30.760 expensive kind of unprofitable companies, backs and things like that. 0:14:30.800 --> 0:14:35.480 They've corrected significantly because at the margin, right, the accommodation 0:14:35.600 --> 0:14:39.080 has already been deteriorating. So my campus out when it 0:14:39.120 --> 0:14:41.600 comes to the debate away from the index level, within 0:14:41.640 --> 0:14:45.760 the index, the churn, the rotation growth versus cyclicals, what 0:14:45.760 --> 0:14:48.360 does that look like for you and the team? Now? Yeah, so, 0:14:48.480 --> 0:14:50.760 I mean, you know, the beginning of the year, obviously 0:14:50.840 --> 0:14:52.760 the you know, the call was rates were going to 0:14:52.840 --> 0:14:55.640 go higher, and that you took out the very expensive 0:14:55.680 --> 0:14:58.720 long duration assets. That was the beginning of the correction. 0:14:59.160 --> 0:15:02.720 Then it kind of shift too. Low quality names started 0:15:02.720 --> 0:15:05.600 to come off the boil, and now look the market's 0:15:05.640 --> 0:15:08.560 going after kind of the reflation theory, typical assets had 0:15:08.600 --> 0:15:10.960 probably ran up a little too far. But you know, 0:15:10.960 --> 0:15:12.960 I think, as Leasa said, there's just the inflows of 0:15:13.000 --> 0:15:16.040 money you know, are still so good. The money doesn't 0:15:16.120 --> 0:15:18.160 leave the market, it just looks for another place to go. 0:15:18.280 --> 0:15:21.120 So recently, obviously longer duration growth stocks have done better 0:15:21.520 --> 0:15:23.920 as rates have come down, and people say, well, if 0:15:23.920 --> 0:15:25.640 the rate of changes peaking, and then I want to 0:15:25.680 --> 0:15:27.200 go where the growth is. So the market is being 0:15:27.280 --> 0:15:30.400 very efficient internally. The problem is it's very difficult to 0:15:30.400 --> 0:15:33.800 trade for people because it's flip flopping back and forth. 0:15:33.840 --> 0:15:36.640 And by the way, this is all normal during the 0:15:36.680 --> 0:15:41.880 mid cycle transition is what always happens. You know, this 0:15:42.000 --> 0:15:43.480 is it. This is what you get. It's a chop 0:15:43.520 --> 0:15:45.880 at to churn. It's not as easy as it wasn't 0:15:46.000 --> 0:15:47.600 last year, and we you know, it's probably got another 0:15:47.640 --> 0:15:49.840 three to six months of this sort of patterned Mike, 0:15:49.840 --> 0:15:52.200 could you draw a distinction between the rate of change 0:15:52.280 --> 0:15:55.320 in the money supply the amount of cash slashing around 0:15:55.360 --> 0:15:58.760 the system versus the actual amount. Basically that we still 0:15:58.800 --> 0:16:01.880 are climbing to new hot eyes. We saw this catastrophic increase. 0:16:01.880 --> 0:16:03.800 I'm looking at the M two chart right now on 0:16:03.800 --> 0:16:07.120 the Bloomberg terminal, just fascinating to see how massive the 0:16:07.160 --> 0:16:10.360 growth has been. Why is that not enough to keep 0:16:10.400 --> 0:16:12.880 the rally going, given the fact that we're also getting 0:16:13.240 --> 0:16:16.600 the economic recovery, well, I think it is keeping the 0:16:16.920 --> 0:16:19.160 rally going. I mean, you know, the index level, we 0:16:19.200 --> 0:16:22.200 haven't really seen any correction. What you know, the the 0:16:22.320 --> 0:16:25.520 change at the sort of rate of change movement in 0:16:25.520 --> 0:16:28.160 in M two or whatever money supply growth you're looking at, 0:16:28.680 --> 0:16:32.120 you know, is causing the internals to move around a lot. Okay, 0:16:32.160 --> 0:16:35.480 So once again, you know, the deterioration and that money 0:16:35.520 --> 0:16:38.880 supply growth is causing the more speculative parts of the 0:16:38.880 --> 0:16:42.040 market to really underperform, whereas you know, it's becoming a 0:16:42.120 --> 0:16:44.840 higher quality bid. You know, maybe the markets moving towards 0:16:44.840 --> 0:16:48.200 where evaluation is more amenable, and so it's doing it 0:16:48.240 --> 0:16:51.760 that way. Until you know, we see outflows from the 0:16:51.800 --> 0:16:54.600 equity market, the index level is probably gonna be okay. 0:16:54.600 --> 0:16:57.360 It's just it's it's a sideways chop, and so the 0:16:57.360 --> 0:16:59.280 the action is in the internals of the market, not 0:16:59.440 --> 0:17:02.400 the index. Mike, when you touched your analysts, and you know, 0:17:02.440 --> 0:17:04.320 I don't know if you're doing this or they're doing it, 0:17:04.359 --> 0:17:07.680 but when you sum up SMP earnings, can you get 0:17:07.680 --> 0:17:10.679 out to a two d and fifty dollars statistic like 0:17:10.800 --> 0:17:15.200 some of the optimists, Uh, well maybe in like five years, 0:17:15.240 --> 0:17:20.679 I mean, okay shot. But we we think that's another 0:17:20.800 --> 0:17:23.000 risk here is that the peak rate of change on 0:17:23.080 --> 0:17:27.080 growth has also been reached. And um, something we've been 0:17:27.080 --> 0:17:28.680 focused on a lot here time is at the first 0:17:28.760 --> 0:17:33.199 quarter benefited um from you know, two fiscal stimuluses that 0:17:33.200 --> 0:17:36.040 were enormous. It also benefited from, you know, the run 0:17:36.080 --> 0:17:40.040 up in cryptocurrencies, which increased wealth by over a trillion dollars, 0:17:40.520 --> 0:17:42.520 and some of that leaked into the real economy. So 0:17:42.520 --> 0:17:45.399 what we're focused on, what we think is a potentially 0:17:45.440 --> 0:17:48.760 is that people are now annuallyzing this Q one from 0:17:48.760 --> 0:17:51.719 a margin and sort of earnings growth standpoint, and so 0:17:51.760 --> 0:17:53.800 we're having a hard time, quite frankly getting to to 0:17:54.040 --> 0:17:57.560 ten for next year, which is where the bottomtop consensus is. 0:17:57.880 --> 0:18:00.520 Part of that is because we're baking in some tax increases, 0:18:00.560 --> 0:18:03.560 but also we think the margin assumptions now have got 0:18:03.600 --> 0:18:05.600 a little too aggressive. So now we think the earning 0:18:05.640 --> 0:18:08.159 story is also something needs to be tempered back, and 0:18:08.200 --> 0:18:09.800 we saw the beginning of that last week with the 0:18:09.800 --> 0:18:12.840 financial stacks, some of the financials companies talking talking down 0:18:12.880 --> 0:18:15.480 guidance a bit, which is why those stacks underperformed. It 0:18:15.520 --> 0:18:18.840 wasn't just about the rate curve the landing. This is 0:18:18.880 --> 0:18:20.200 the heart of the matter, John, I don't mean to 0:18:20.240 --> 0:18:21.960 step on you, but this is the heart of the matter. 0:18:22.440 --> 0:18:25.919 I mean, you've got our earnings analysis in every interview 0:18:25.960 --> 0:18:28.280 we do is different in nuance and it really is 0:18:28.320 --> 0:18:29.919 the heart of the matter to get through the summer. 0:18:29.960 --> 0:18:31.479 I remember the note that Mike and the team put 0:18:31.520 --> 0:18:34.360 out a couple of months ago around earning season. Mike, 0:18:34.440 --> 0:18:37.400 he was execution risk. That's what you were discussing, execution risk. 0:18:37.440 --> 0:18:39.600 When it comes to Machin's What is the cost pressure 0:18:39.640 --> 0:18:42.600 you focused on, Mike that you worried about. Well, I 0:18:42.600 --> 0:18:44.480 think the one that we have to pay attention to 0:18:44.520 --> 0:18:46.720 the most because this is the one that will probably 0:18:46.800 --> 0:18:49.959 cause the FED to move more quickly or not is wages. Right, 0:18:50.000 --> 0:18:53.879 So labor is an enormous, you know, input to most 0:18:53.880 --> 0:18:57.400 companies cost structures. And you know, I think the transient 0:18:57.520 --> 0:18:59.520 like the materials and some of the commodity stuff is 0:18:59.560 --> 0:19:04.280 somewhat is in because obviously it's self prectic. There's demand instruction, 0:19:04.560 --> 0:19:06.960 but labor, you know, seems to be a bit more structural. 0:19:07.280 --> 0:19:09.240 You know, we did destroy some of the labor supply 0:19:09.560 --> 0:19:11.880 in the pandemic and the lockdown. There's some people now 0:19:11.920 --> 0:19:16.320 retiring earlier given the windfalls asset prices, and you know, 0:19:16.480 --> 0:19:19.159 and also the movement of labor around the country, you know, 0:19:19.280 --> 0:19:21.159 where people don't live, where they need to live to 0:19:21.680 --> 0:19:24.159 meet the job openings, and so that part of it 0:19:24.240 --> 0:19:26.879 I think is really important to watch here over the 0:19:26.880 --> 0:19:29.160 next couple of months. What's the direction of the turn 0:19:29.280 --> 0:19:31.960 right now, Mike, what's set to outperform over the next 0:19:32.000 --> 0:19:36.200 three to six months. What's the best asset? Yeah, what's 0:19:36.240 --> 0:19:38.560 the direction of the turn of the turn underneath the 0:19:38.960 --> 0:19:42.600 headline number of the index. Well, I think well, first 0:19:42.640 --> 0:19:45.440 of all, we're pretty barished at the index level because 0:19:45.480 --> 0:19:48.280 we're having a hard time getting much about four thousand 0:19:48.320 --> 0:19:51.240 by year ends. That's pretty punky returns at the index level. 0:19:51.720 --> 0:19:54.000 So you know, once again we're trying to make money 0:19:54.119 --> 0:19:56.520 at the top level of the tech level, trying to 0:19:56.640 --> 0:19:58.840 trying to be a bit more nimble and tactical UM. 0:19:58.920 --> 0:20:01.480 But we still believe in the flation inflationary story. So 0:20:01.640 --> 0:20:04.280 I mean, banks and material stocks have corrected here recently, 0:20:04.640 --> 0:20:07.439 are you can start looking back to going to UM 0:20:07.600 --> 0:20:09.600 growth areas. I think you gotta be released selective in 0:20:09.720 --> 0:20:12.280 terms of what you pay. We've been favoring the higher 0:20:12.320 --> 0:20:14.440 quality growth theories that are more reasonably priced. That would 0:20:14.480 --> 0:20:17.720 include some of the fang stocks. And then healthcare we 0:20:17.760 --> 0:20:20.160 think is a very interesting area where there's probably pent 0:20:20.240 --> 0:20:23.360 up demand as opposed to payback in demand from last 0:20:23.400 --> 0:20:27.119 year because we'll put off healthcare services and whatnot. So 0:20:27.200 --> 0:20:29.639 that those are areas we're focused on right now. We're 0:20:29.640 --> 0:20:31.119 going to continue to have an open mind and be 0:20:31.160 --> 0:20:34.479 flexible as a market changes. Mike Wilson, Morgan Stanley might 0:20:34.480 --> 0:20:36.040 looking forward to get you in the studio soon. It's 0:20:36.080 --> 0:20:44.040 going to catch up the chief US equity strategists. It's 0:20:44.040 --> 0:20:46.600 a cheap guy funny guests that appears on Bloomberg Surveillance 0:20:46.640 --> 0:20:50.000 on radio and TV. When some starts to interrupt, keep sulking. 0:20:50.160 --> 0:20:52.520 James Sweeney's back with us on police to say sweets. 0:20:52.560 --> 0:20:55.440 Chief economist James gonna have you with us on the show. 0:20:55.520 --> 0:20:58.199 We're just continuing this conversation about the amount of uncertainty 0:20:58.240 --> 0:21:00.560 we have, the lack of clarity as we work our 0:21:00.600 --> 0:21:02.920 way through this reopening. When do you think we will 0:21:02.960 --> 0:21:05.000 get that is at the end of summer, the beginning 0:21:05.000 --> 0:21:08.640 of September. James, what's the date in your diary. Yeah, 0:21:08.720 --> 0:21:12.040 I think late summer we start to get uh we 0:21:12.200 --> 0:21:15.080 we get better information on the wage picture, and we 0:21:15.080 --> 0:21:21.600 could talk more uh informed about about services inflation given 0:21:21.640 --> 0:21:25.080 that wage picture. The problem right now is that with 0:21:25.280 --> 0:21:28.879 this reopening, with the checks just sent, with the base effects, 0:21:28.960 --> 0:21:31.439 with the seasonal effects, with the composition effects in the 0:21:31.440 --> 0:21:34.520 wage data, you can't really tell. But but I'll tell 0:21:34.560 --> 0:21:37.480 you what was happening. What was helpful in this FED 0:21:37.560 --> 0:21:41.639 meaning is exactly that dropping that kind of debate about 0:21:41.680 --> 0:21:44.560 temporary which was which was lame all along, because that 0:21:44.640 --> 0:21:47.920 was that word was aimed at a strong man argument 0:21:48.359 --> 0:21:52.840 of very high inflation down the road, where professionals care 0:21:52.880 --> 0:21:57.480 about the path of inflation within this and whether inflation 0:21:57.480 --> 0:21:59.479 could be a little bit higher and a little bit 0:21:59.480 --> 0:22:02.919 more vol tile once we're through this whole pandemic event. 0:22:03.359 --> 0:22:06.639