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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jaily, we bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com,

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Speaker 1: and of course on the Bloomberg Terminent. This is a joy.

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Speaker 1: Daniel Kurtz Phelan went to the University of Jonathan Spence

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Speaker 1: also known as Yale University, and turned it into a

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Speaker 1: China Watch. He has been involved with government, including writing

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Speaker 1: speeches for Secretary Clinton, and has now been annointed with

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Speaker 1: the worst job in diplomacy, which is filling Gideon Roses

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Speaker 1: Shoes at Foreign Affairs, where he has been named editor.

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Speaker 1: Daniel Kurtz Phalan joins us at this morning. Daniel, I

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Speaker 1: want to go to the United States. I know Lisa's

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Speaker 1: very much focused abroad. We had Adam posing on with

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Speaker 1: his nostalgia of America. Are we drive owning a nostalgia

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Speaker 1: right now? I think you see this across across both parties.

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Speaker 1: Right now, there's so much focus on how we get

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Speaker 1: back to economic strange to pass that there are ways

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Speaker 1: in which families to realize the opportunity with the future

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Speaker 1: that's out of opposing piece. The price of nostalgia focuses

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Speaker 1: on the trade aspects of this. There's been this really

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Speaker 1: fascinating shift against what it in a pretty strong free

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Speaker 1: trade consensus across across both parties for some time, and

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Speaker 1: the narrative you tend to hear now is that we

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Speaker 1: have done too much trade, integrated too much with the world,

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Speaker 1: and that has reinforced an equality displaced workers out. Imposen's

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Speaker 1: argument is that in fact, for the last twenty years,

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Speaker 1: when we've seen this period of rising inequality and stagnating

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Speaker 1: wages increast a lot of industries, we've in fact been

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Speaker 1: retreating from the world, and trying to to retreat further

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Speaker 1: is only going to reinforce those trends. Daniel, in honor

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Speaker 1: of John Williamson dying here in the last number of days.

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Speaker 1: The nostalgia of the Washington consense is everybody wants to

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Speaker 1: go back to when it was cozy, when it was comfortable.

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Speaker 1: What does our new Washington consensus look like. So you

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Speaker 1: can see some of the outlines of this. In the

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Speaker 1: Biden administration, there's much more attempt to to have the state,

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Speaker 1: have the government that directs certain portions of the economy.

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Speaker 1: There's much more focus on the international competition. I know

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Speaker 1: you were just talking about the United States in China,

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Speaker 1: but much more focus on how what country controls different

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Speaker 1: parts of the supply chain, where semiconductors are manufactured, where

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Speaker 1: green technology is manufactured. Uh, those are going to be

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Speaker 1: the battles of the future, out imposing and others in

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Speaker 1: in this package that leads the major initiative foreign affairs

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Speaker 1: try to take a look at this that is not

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Speaker 1: about just pulling these things back into our own borders

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Speaker 1: or making these all kind of domestic industries, but really

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Speaker 1: think about how we shape the global economy in a

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Speaker 1: way that addresses those security concerns but also realize the

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Speaker 1: economic gains both for Americans in a broad based way,

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Speaker 1: but also that really shapes the bubble economy. That's a

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Speaker 1: lot of work to dig down. So let's pick up

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Speaker 1: on that word consensus. How you established consensus on an

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Speaker 1: issue like the Chinese Communist Party right now, how you

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Speaker 1: get the European allies to come along with you. So

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Speaker 1: this is I think the kind of key tension in

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Speaker 1: the Biden China policy. The Biden administration, I think in

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Speaker 1: the way that has surprised a lot of people. Came

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Speaker 1: really out of the gate trying to set a pretty

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Speaker 1: hard line on China's I think one of your your

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Speaker 1: previous guests said they made clear as they came into

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Speaker 1: office that they were not going back to some pre

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Speaker 1: Trump consensus on engagement with China, but really continuing the

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Speaker 1: hard line there there change the thing that they're trying

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Speaker 1: to do differently than the Trump administration is doing that

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Speaker 1: with allies, whether that's Japan you saw you saw Japanese

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Speaker 1: Prime Minister in Washington Friday, whether it's with our NATO allies,

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Speaker 1: with with the Quad, the India, Japan and Australia, and

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Speaker 1: our partners in in the rest of Asia. The problem

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Speaker 1: is that a lot of these allies have different views

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Speaker 1: about how you compete with China. So you saw this

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Speaker 1: on Europe most strongly. Europe was striking an investment deal

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Speaker 1: with China at the same time that the United States

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Speaker 1: was trying to craft this allied front against against the

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Speaker 1: Chinese Communist Party and against Chinese influence. So it's very

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Speaker 1: very delicate balancing act where the United States one just

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Speaker 1: wants to sustain this hard line, but it wants to

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Speaker 1: do it with as many allies and partners as it can,

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Speaker 1: and that creates a certain tension. You know, this is

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Speaker 1: really the strength United States, and I think the Biden

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Speaker 1: administration has has tried to keep this in mind. We

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Speaker 1: go into this competition with China with an incredible range

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Speaker 1: of allies and partners both in Europe and in Asia

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Speaker 1: and elsewhere. China doesn't bring a lot to that fight

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Speaker 1: when you think about it in those terms. Well, let's

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Speaker 1: build on that tension. Though. The issue is, you know,

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Speaker 1: through economic history, at the center of a global system

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Speaker 1: is a hedgemm that brings everyone else with them. Right now,

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Speaker 1: we can't get the Chinese Communist Party to come with us,

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Speaker 1: and that's the issue. The major miscalculation of the last

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Speaker 1: several decades, and arguably laced with arrogance, was this idea

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Speaker 1: that the Chinese Communist Party would want to be more

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Speaker 1: like us, to embrace the system that we've all been

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Speaker 1: as from and down. That's not gonna happen. So I

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Speaker 1: guess the issue that I have every time this comes up,

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Speaker 1: and I'm always asking this question, what kind of system

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Speaker 1: can we in our allies embrace. If China doesn't want

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Speaker 1: any part of it, doesn't want to play by the

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Speaker 1: same rules, that that's a great point in look, I

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Speaker 1: wrote a book about US policy towards China in the

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Speaker 1: nineteen forties, and you can see exactly that that mistake,

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Speaker 1: going back really towards the beginning of the American relationship

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Speaker 1: with the Chinese Communist Party. With Communist China, this notion

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Speaker 1: that with just the right amount of trade, the right

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Speaker 1: amount of diplomatic engagement, the Chinese would really come to

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Speaker 1: see the world the way we do. And you know,

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Speaker 1: back when I was writing about about George Marshall in

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Speaker 1: the nineteen forties in China, that was an illusion that

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Speaker 1: we we clung to pretty bitterly. You see that in

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Speaker 1: some of the China policy of the nineteen nineties and

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Speaker 1: the in the two thousands, this notion that with just

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Speaker 1: the right amount of you know, capitalism or or trade

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Speaker 1: or diplomacy, the Chinese would come to really see the

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Speaker 1: world the way we do. And and that illusion, I

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Speaker 1: think has um has has fallen apart over the last

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Speaker 1: four years. I think the question is, can you use competition,

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Speaker 1: can you use pressure from that coalition to bring to

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Speaker 1: bring the Chinese along. We're seeing something like that with

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Speaker 1: climate change right now. The by An administration is going

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Speaker 1: to hold a climate summit at the White House on Thursday,

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Speaker 1: and they've tried to say, look, we want the Chinese

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Speaker 1: to come along. We realize that China is the biggest

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Speaker 1: admitter of carbon in the world right now, the US

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Speaker 1: the second. Only if these two countries are able to

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Speaker 1: do something meaningful on climate change, is the world of

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Speaker 1: any hope of of being this challenge. But we can't

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Speaker 1: we can't try too hard to bring to bring the

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Speaker 1: Chinese along. We need to bring a kind of competitive

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Speaker 1: edge to this where we show leadership, we show an

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Speaker 1: ability to to to shape the global global action on

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Speaker 1: this question or working with our allies, and that kinda

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Speaker 1: feels really pressure to come along for its own interests,

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Speaker 1: not because we expect that with the right amount of diplomacy,

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Speaker 1: the Chinese are simply going to see the world the

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Speaker 1: way we do. And the global warming discussion is a

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Speaker 1: bigger one that we're gonna be having throughout this week.

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Speaker 1: I do want to go back to the US China tensions,

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Speaker 1: paired with this disenchantment with the way that globalization really

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Speaker 1: worked for a lot of people within the United States

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Speaker 1: and elsewhere. What is the modern version of globalization that

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Speaker 1: economists that you quoted and had in your magazine seemed

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Speaker 1: to think is the path forward? So one one really

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Speaker 1: interesting element of this, I think when we talk about trade,

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Speaker 1: we tend to think of you know, traditional manufacturing and steel,

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Speaker 1: maybe services. There's there's one essay in this set of

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Speaker 1: pieces on trade by Matt Slaughter and David McCormick. Dave

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Speaker 1: mccormicks the CEO of Bridgewater, Matt Slaughters at Dartmouth. They

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Speaker 1: were both senior economic officials in the George of the

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Speaker 1: Bush administration. They make the point that when you talk

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Speaker 1: about global trade increasingly increasingly we're talking about about data,

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Speaker 1: about data flows, which have grown something like a hundred

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Speaker 1: times in the last the last ten years, and that's

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Speaker 1: really the future of global trade. That's a lot of

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Speaker 1: what we're talking about, and we're talking about these these

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Speaker 1: conflicts over trade going forward. China's working very hard to

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Speaker 1: shape global governance of data. You know, they have this

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Speaker 1: kind of techno authoritarian model which applies domestically but also

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Speaker 1: shapes the way they engage with other countries. The kind

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Speaker 1: of economic model the Chinese are trying to bring to

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Speaker 1: the rest of the world, And as Slader McCormick argue,

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Speaker 1: the US really hasn't gone that far in trying to

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Speaker 1: put forth an alternate vision of global governance. So when

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Speaker 1: we talk about the trade battles of the future, there's

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Speaker 1: likely to be about data as they are to be

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Speaker 1: over you know, steel tariffs and the the traditional trade

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Speaker 1: battles that were all pretty familiar with. And the question

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Speaker 1: is which of these global countries is going to go

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Speaker 1: out and shape some kind of global policy about this.

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Speaker 1: And this applies to everything from you know how these

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Speaker 1: are tax to um to to privacy and all the

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Speaker 1: issues that we're familiar with domestically, those are international issues

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Speaker 1: as well. And only if the United States goes out

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Speaker 1: and tries to put forward it, tries to build some

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Speaker 1: kind of coalition, tries to some forward some kind of

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Speaker 1: global rules to define data trade going forward. Otherwise other

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Speaker 1: countries are gonna are going to step in and do

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Speaker 1: that themselves. And that's probably not going to be a model.

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Speaker 1: It's probably not going to be an approach that we're

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Speaker 1: going to be especially happy with. Just quickly here, I'm

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Speaker 1: wondering you're saying that people think that the US is

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Speaker 1: behind China and coming up with governance of global data. Meanwhile,

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Speaker 1: Tony BLINKLN Secretary of say so that the US was

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Speaker 1: behind China when it came to taking advantage of new

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Speaker 1: job opportunities resulting from fighting climate change. Is the presiding

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Speaker 1: sentiment that the US is falling way behind on a

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Speaker 1: lot of the most important issues. I think that's been

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Speaker 1: the view over the past few years, whether that's on data,

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Speaker 1: whether that's on the technology that goes into UH, into renewables,

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Speaker 1: kind of green technology. This is I think at the

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Speaker 1: heart of some of what the Biden iministration is trying

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Speaker 1: to do with this infrastructure package. You know, we're having

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Speaker 1: this debate now about what infrastructure looks like. Some of

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Speaker 1: that is twentieth century infrastructure, that's you know, roads and bridges,

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Speaker 1: but I think most of us think of when we

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Speaker 1: look at infrastructure. The Biden aministration is trying to make

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Speaker 1: this case that this really should be about UM, how

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Speaker 1: you UH renovate buildings to make them more energy efficient,

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Speaker 1: how you invest in these future technologies. That's a politically

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Speaker 1: fraud issue. You know, we can go back to the

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Speaker 1: cylinder controversy of the Obama administration to see what happens

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Speaker 1: when you make some of these investments that go wrong.

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Speaker 1: But the case they're trying to make is that when

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Speaker 1: we think about infrastructure, when we think about investments in

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Speaker 1: ways that are going to be key to the competition

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Speaker 1: with the future, whether that's on data and technology, whether

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Speaker 1: that's on on renewables, that we need to think about

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Speaker 1: these questions much more broadly than we have traditionally. You

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Speaker 1: and I and the tame We're gonna be talking about

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Speaker 1: this for a long long time. Dan Castrod in their

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Speaker 1: Foreign Affairs editor Greater catch up with you, sir, to

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Speaker 1: make care Morgan standing Investment Management, fixed income portfolio manager, Jim,

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Speaker 1: let's start with credit, shall weight some of these companies?

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Speaker 1: Some of this universe is actually stronger than it was

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Speaker 1: twelve months ago, Jim. Some people struggle to see that.

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Speaker 1: Can you just explain it for for us? Yeah, it's

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Speaker 1: all about cash flow, right, So effectively, what people were

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Speaker 1: able to do in the last twelve months is with

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Speaker 1: rates so low in the aid of QI, is that

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Speaker 1: many corporations were able to refinance their debt for longer

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Speaker 1: terms and at lower interest rates. And we also have

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Speaker 1: to recognize is that as the economy recovers, you get

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Speaker 1: this cash flow that starts to come back into the market.

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Speaker 1: That cash flow for a bond investor is key because

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Speaker 1: that's what's going to keep default risk down. So as

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Speaker 1: the economy is growing and we expected to grow this year,

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Speaker 1: next year, in in the year following, and as that

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Speaker 1: cash flow stays very very positive, and as long as

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Speaker 1: we don't expect interest rates to rise substantially consistently over

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Speaker 1: the next several years, and that means that the refinancing

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Speaker 1: risk of all the debt that they've taken on is

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Speaker 1: still going to come at a very very low rate.

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Speaker 1: And right now spreads are tight, as you've been pointing out,

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Speaker 1: and as long as that doesn't widen so much, it

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Speaker 1: basically sets up for um better interest coverage rates, meaning

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Speaker 1: the amount of payment that you have to pay on

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Speaker 1: the debt that you have outstanding. So they'll start to

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Speaker 1: look better, especially with the backdrop of an expectation of

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Speaker 1: a better and growing economy with more positive cash flow.

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Speaker 1: So that's why credits doing well. Jim, I want you

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Speaker 1: to synthesize the x X as it's HSBC on it today.

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Speaker 1: Rollen Center has been great, man Hornbox has been great, etcetera.

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Speaker 1: I want you to synthesize the game of guessing the

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Speaker 1: win of this and the duration of some of these

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Speaker 1: arguments about we're gonna see higher yields, we're gonna see

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Speaker 1: lower yields. How's the x X is playing well? The

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Speaker 1: way that I think about it is that the tails

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Speaker 1: are fat on both sides, so effectively, Yes, we have

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Speaker 1: a lot of monetary expansion and there could be some

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Speaker 1: inflation risks and all of those risks have gone up

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Speaker 1: because of what we're doing. But on the other side

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Speaker 1: of that, what we have to question is that have

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Speaker 1: things structurally really changed where we were prior to the pandemic?

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Speaker 1: Is that we had structural disinflation, and the reason why

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Speaker 1: is that we had aging population, which is demographics, We

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Speaker 1: had technology and all the other factors that have been

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Speaker 1: pushed prices lower. Has that just magically gone away as

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Speaker 1: the aging population has the technology and everything else. Is

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Speaker 1: that really gone at this point? And if the answer

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Speaker 1: to that is no, then those structural factors are going

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Speaker 1: to reassert themselves and do at least keep yields from

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Speaker 1: rising out of control. Or excessively high. Now, if we

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Speaker 1: start to get you know, over the next twelve months,

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Speaker 1: if the data starts to you know, slow down, which

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Speaker 1: we do think the rate of growth will start to

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Speaker 1: slow down over the next twelve months, but still stay positive,

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Speaker 1: will it be enough to generate consistent de anchored inflation.

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Speaker 1: And that's the question that we have to ask ourselves.

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Speaker 1: It's not is inflation a risk, Yes, it's a risk.

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Speaker 1: It's always a risk. Can rates go up, sure? But

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Speaker 1: is inflation becoming de anchored where we expect growth rate

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Speaker 1: of prices to consistently move higher over this year, next year,

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Speaker 1: or the year after, the year after that, in the

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Speaker 1: year after that, And once that gets ingrained in psychology,

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Speaker 1: one can think that, you know, yields could stay high.

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Speaker 1: But until that starts to happen, I still think that

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Speaker 1: we're in a relatively low yielding environment. And I can't

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Speaker 1: dismiss a tale of two percent move in the tenure Treasury,

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Speaker 1: and I can't dismiss a tale of something closer to either.

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Speaker 1: It really just depends on how all of this unfolds.

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Speaker 1: And Jim, that's the great story, going back to the

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Speaker 1: credit story, and I'm really glad that John brought up Netflix.

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Speaker 1: It's a great story and frankly it has survived and

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Speaker 1: thrived during the pandemic. There are also the stories of

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Speaker 1: United Air, which came out yesterday and said it would

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Speaker 1: stop losing money only when business and international travel recovered

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Speaker 1: to sixty of where it was back in two thousand

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Speaker 1: and nine, team, which seems like a tall feat given

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Speaker 1: the pace of vaccinations. Would you say, overall, on average,

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Speaker 1: the majority of companies have a better balance sheet now

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Speaker 1: than pre pandemic is at fifty fifty. How is the

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Speaker 1: overall profile based on where it used to be? I

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Speaker 1: think it's just like you said, it's very idiosyncratic, right,

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Speaker 1: So it depends, you know, if you're looking at the

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Speaker 1: cruise lines, if you're looking at the airlines, you're looking

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Speaker 1: at some very very specific, uh, sectors of the economy

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Speaker 1: that we're very very hard hit by the pandemic. When

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Speaker 1: you look at say the broader industrials, when you look

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Speaker 1: at say paper packaging, when you look at other areas,

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Speaker 1: we could even look at leisure, all of these areas

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Speaker 1: can start to actually get um, you know, better balance

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Speaker 1: sheets to extent that they have been able to. Many

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Speaker 1: companies have been able to refinance their debt for longer

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Speaker 1: terms and at lower interest rates. So in that sense,

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Speaker 1: there there there's a cohort of companies that are out

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Speaker 1: there that do have stronger looking balance sheets, and that's

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Speaker 1: mainly in the investment grade sectors. And I would say

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Speaker 1: that many of the financials actually have come out looking

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Speaker 1: like they have a lot stronger balance sheets. But then

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Speaker 1: there are other sectors still, like the reopening sectors, that

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Speaker 1: the sectors that get the hardest hits. So these are

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Speaker 1: as you pointed out, the airlines and some of the

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Speaker 1: cruise lines and things of that nature, that you know

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Speaker 1: that's really going to depend on the vaccine, the rollout,

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Speaker 1: how quickly that happens, how quickly people are willing to

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Speaker 1: get back on an airplane and start traveling, which, by

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Speaker 1: the way, I think will be pretty quick. I think

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Speaker 1: the speed at which people return to that will be

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Speaker 1: faster than most people think. Jim, it's gonna catch ups.

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Speaker 1: As a wise Jim can Morgan Stanley Investment Management, Fixing

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Speaker 1: comport Folio manage it right now? And this is a joy.

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Speaker 1: Benjamin Laidler not only has done it once twice, but

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Speaker 1: indeed three times in a row. He's made a major

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Speaker 1: bullmarket call and been right, right right, holding cord at

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Speaker 1: hsb C for years and then onto a different projects.

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Speaker 1: We are thrilled that Ben Laidler gives us a first

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Speaker 1: interview with eat Toro Yanny s. He is Israeli operation.

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Speaker 1: It is big in digital and moving over to the

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Speaker 1: equity markets, and Mr Laidler will provide global market strategy

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Speaker 1: for uh TOROL. Ben Laidler, can you reaffirmed now you're

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Speaker 1: very lonely double digit equity return for two thousand twenty one? Yeah,

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Speaker 1: I think. Sorry, I don't think it's a forecast anymore though,

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Speaker 1: I mean we're up for the year, so I think

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Speaker 1: it's really a question so hanging onto what we've got when,

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Speaker 1: which is is going to be you know, pretty historic, right,

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Speaker 1: I mean we've had I think only twice in the

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Speaker 1: last fifty years if we had this sort of three

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Speaker 1: in a row strong equity markets. So yes, I think

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Speaker 1: we do. Valuations are very high, but I think earnings

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Speaker 1: are just going to keep keep surprising. I think first quarter,

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Speaker 1: which we're obviously in the middle of reporting right now,

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Speaker 1: is going to be um, you know, the latest, I think.

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Speaker 1: But I still think with these sort of top line

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Speaker 1: growth numbers being revised up and all this operating leverage

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Speaker 1: that this earning story is going to keep is going

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Speaker 1: to keep delivering, and that I think really is um

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Speaker 1: you know, the fact the foundation here, given the Laidler

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Speaker 1: bull market, what is your experience or guestimate of what

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Speaker 1: they will do with all that cash. We're already seeing

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Speaker 1: buy backs being the flavor, the favor of the moment,

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Speaker 1: flavor of the moment. Yeah, I think you're going to

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Speaker 1: see more of frankly everything right. I mean you're seeing

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Speaker 1: more buy backs, You're seeing more dividends. I mean sort

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Speaker 1: of dividend and buy back strategies have you know, recovered

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Speaker 1: from beginning to recover from how badly they did last year.

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Speaker 1: You know, you're going to see a pick up in

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Speaker 1: CAPEX as well, which I think is really important to

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Speaker 1: keep an eye on because I think, you know, we're

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Speaker 1: talking a lot about this year, but really what we

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Speaker 1: should be caring about is what next year begins to

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Speaker 1: look like. Right, I mean consensus ove percent early go

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Speaker 1: for next year that seems a little bit pedestrian compared

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Speaker 1: to this year. You know, we want to see more

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Speaker 1: than that. If if this rally is really going to continue,

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Speaker 1: and I think CAPEX is going to be you know,

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Speaker 1: capex is going to be an important part of that.

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Speaker 1: And I think how consumers sort of spend down this

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Speaker 1: sort of sort of access savings they have right now, Ben,

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Speaker 1: you've been a stock bull. You have been right again

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Speaker 1: and again. There is a question out in markets right

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Speaker 1: now of whether a one point six percent treasury yields

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Speaker 1: and the tenure is incoherent with the optimism that we're

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Speaker 1: seeing in stocks. Well, I guess there's ten years of

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Speaker 1: inflation history that or you know, or thirty years of

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Speaker 1: sort of bullmarket history that would sort of argue against that.

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Speaker 1: But you know, to your point, I mean, I think

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Speaker 1: bond yields are going to go up. I think, you know,

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Speaker 1: one of the reasons I think markets are so resilient

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Speaker 1: is we've just been hugely stress tested here right with

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Speaker 1: this bondy or tantrum um and and sort of markets

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Speaker 1: sort of survived. So I think bond yields are going up.

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Speaker 1: I think equities can survive that as long as it's

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Speaker 1: sort of a moderate rise for the right reasons. I

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Speaker 1: you know, growth at growth expectations continue to move higher

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Speaker 1: and I fully expect that to be the case. And

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Speaker 1: and just more broadly, um, you know, bondy yields are important,

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Speaker 1: but it's not just about bond yields, right, I mean,

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Speaker 1: bondy yields were at one point nine percent, you know,

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Speaker 1: coming into last year, and markets were fine with that.

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Speaker 1: And you know, bondy yields are zero or negative and

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Speaker 1: the rest of the world and that's not helping their

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Speaker 1: equity markets. So you know, bondyles are important, but you know,

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Speaker 1: there's a lot more to that, corporate profitability and the

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Speaker 1: earnings recovery, all of which I think is is very

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Speaker 1: very healthy here. Corporate profitability and earnings potential. Is that

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Speaker 1: isolated to the United States? Are you seeing the opportunity

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Speaker 1: set shift to Europe or perhaps even beyond? Absolutely? I

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Speaker 1: think this we've been in this sort of global rotation trade.

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Speaker 1: I mean, it's arted off with China, so first in

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Speaker 1: first out, you know, best performing major market last year.

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Speaker 1: You know. Now we've had this sort of US exceptionalism

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Speaker 1: with the sort of vaccine rollout and and and and

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Speaker 1: the stimulus, and obviously U s sort of led the

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Speaker 1: world among major markets in the first quarter. I think

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Speaker 1: the story is sort of looking into the second half

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Speaker 1: is the rest of the world. I mean, Europe is

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Speaker 1: going to grow earnings probably twice as much as the

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Speaker 1: US so in this quarter. If I look at where

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Speaker 1: the economic surprises are coming from and frankic and they're

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Speaker 1: coming everywhere, but they've been led by sort of Europe

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Speaker 1: and the UK. So I think as you sort of

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Speaker 1: look further out this um you know, I think as

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Speaker 1: Europe begins to get its act together on the sort

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Speaker 1: of vaccine rollout, which I think they will ultimately, I

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Speaker 1: think you begin to look for some sort of catch

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Speaker 1: up performance there where you know, evaluations are cheaper, earnings

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Speaker 1: more depressed, and and and you know there's a much

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Speaker 1: bigger sort of cychnical component of those indicries. I mean,

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Speaker 1: Ben so far a year to day d sp X

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Speaker 1: up eleven percent. And the big surprise there has been

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Speaker 1: the reaffirmation of big tech and sort of the stories

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Speaker 1: someone Ben Ladler was ready the second or the first

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Speaker 1: time as well your third sound big tech? Do you

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Speaker 1: participate with them? Or is the international story so compelling

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Speaker 1: you've got to go there? Which is it? I think

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Speaker 1: the leadership is going to be sort of international plus

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Speaker 1: sort of value. But and it's a big butt. You

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Speaker 1: have to believe in tech. Right. If you don't believe

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Speaker 1: in tech, it's just got so big, then equities just

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Speaker 1: don't work. Um and I still think the equity tech

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Speaker 1: equity story still works. It's a different story. I mean,

432
00:21:27,240 --> 00:21:29,600
Speaker 1: it's just sort of this longer term structural story which

433
00:21:29,640 --> 00:21:31,639
Speaker 1: I think is going to keep giving. I mean, growth

434
00:21:31,680 --> 00:21:33,800
Speaker 1: is still going to be very good. There's big motes here,

435
00:21:33,800 --> 00:21:36,600
Speaker 1: there's high profitability. None of that is going away. But

436
00:21:36,760 --> 00:21:39,040
Speaker 1: here and now you know, the catch up trade is

437
00:21:39,040 --> 00:21:41,320
Speaker 1: the value. That's where you're getting this. You know, four

438
00:21:41,440 --> 00:21:44,359
Speaker 1: or five times earnings leverage to what's happening on the

439
00:21:44,680 --> 00:21:49,760
Speaker 1: to what's happening on the top line. M and Ben,

440
00:21:49,920 --> 00:21:52,400
Speaker 1: there is a question as you talk about the global

441
00:21:52,520 --> 00:21:55,200
Speaker 1: look for the opportunity, and you say that China is

442
00:21:55,240 --> 00:21:56,960
Speaker 1: the first in first out, I want to bring you

443
00:21:56,960 --> 00:22:00,359
Speaker 1: these headlines from a p B O c H member,

444
00:22:00,480 --> 00:22:05,040
Speaker 1: basically that China has deficient equity capital. It is insufficient

445
00:22:05,240 --> 00:22:08,440
Speaker 1: long term capital, and this is why they have such

446
00:22:08,520 --> 00:22:11,560
Speaker 1: high macro leverage. This kind of feeds into the People's

447
00:22:11,560 --> 00:22:14,639
Speaker 1: Bank of China's effort to reduce leverage in this system.

448
00:22:14,680 --> 00:22:16,800
Speaker 1: Moving in the opposite direction than a lot of other

449
00:22:16,840 --> 00:22:19,639
Speaker 1: central banks around the world. How does this affect your

450
00:22:19,720 --> 00:22:22,000
Speaker 1: view on the assets in China, which we have seen

451
00:22:22,080 --> 00:22:25,679
Speaker 1: underperforming pretty consistently over the past month at least. Do

452
00:22:25,720 --> 00:22:28,480
Speaker 1: you think that that underperformance will continue based on where

453
00:22:28,480 --> 00:22:33,320
Speaker 1: they are in the tightening cycle? So, so you're absolutely right.

454
00:22:33,359 --> 00:22:35,280
Speaker 1: I mean, there are a different point in the cycle, right,

455
00:22:35,320 --> 00:22:37,359
Speaker 1: I mean the central banks just held rates sort of

456
00:22:37,400 --> 00:22:40,600
Speaker 1: four for one year. One year, right, I mean, look

457
00:22:40,600 --> 00:22:42,240
Speaker 1: where the rest of the world is, right, So you

458
00:22:42,280 --> 00:22:44,679
Speaker 1: know that there are a different point in the cycle.

459
00:22:45,080 --> 00:22:46,680
Speaker 1: But I think there's sort of two things going on here.

460
00:22:46,680 --> 00:22:48,960
Speaker 1: I mean, similarly, there's this sort of cyclical story, which

461
00:22:48,960 --> 00:22:51,359
Speaker 1: I think incrementally is going to tighten, but there's a

462
00:22:51,359 --> 00:22:53,399
Speaker 1: long term sort of structural story. I mean, they are

463
00:22:53,400 --> 00:22:55,520
Speaker 1: going to keep opening up that capital market, both on

464
00:22:55,560 --> 00:22:57,640
Speaker 1: the equity side, you know, and on the fixed income

465
00:22:57,680 --> 00:23:00,600
Speaker 1: side to attract more foreign cap and I think that's

466
00:23:00,600 --> 00:23:03,840
Speaker 1: going to dramatically expand the sort of bottom up opportunity

467
00:23:03,920 --> 00:23:06,800
Speaker 1: set for sort of fun managers going forward. But I

468
00:23:06,880 --> 00:23:10,560
Speaker 1: want you to address what I call the Friday gloom crew.

469
00:23:10,920 --> 00:23:14,040
Speaker 1: There's a cottage industry at least in America. I don't

470
00:23:14,040 --> 00:23:16,120
Speaker 1: know if you see it over in the pond, over

471
00:23:16,160 --> 00:23:19,000
Speaker 1: in London, but there's a cottage industry that wanders out

472
00:23:19,080 --> 00:23:25,080
Speaker 1: Thursday evening into Friday and reaffirms and rerationalizes the walls

473
00:23:25,119 --> 00:23:27,879
Speaker 1: of worry that are out there. How do you respond

474
00:23:27,880 --> 00:23:32,119
Speaker 1: to that industry? It's not I want well, you know,

475
00:23:32,200 --> 00:23:34,440
Speaker 1: I want that wall to worry. Right if it didn't exist,

476
00:23:34,520 --> 00:23:36,680
Speaker 1: then you know, it was your incremental buyer coming from.

477
00:23:36,920 --> 00:23:40,119
Speaker 1: And I actually think markets are becoming more secure, not

478
00:23:40,240 --> 00:23:42,320
Speaker 1: sort of less secure here. And I guess what I

479
00:23:42,320 --> 00:23:44,399
Speaker 1: mean by that is, you know, the breadth of this

480
00:23:44,520 --> 00:23:48,119
Speaker 1: recovery is now dramatically different than it was sort of

481
00:23:48,200 --> 00:23:49,760
Speaker 1: last year. I mean it was all tech last year.

482
00:23:49,800 --> 00:23:52,240
Speaker 1: Now sort of everything. It's sort of this everything rally

483
00:23:52,359 --> 00:23:54,399
Speaker 1: right now, which I think is sort of much more sustainable.

484
00:23:54,680 --> 00:23:56,359
Speaker 1: You know. The threats to the rally, I mean, the

485
00:23:56,359 --> 00:23:58,560
Speaker 1: FED making a sort of policy mistake. You know, I

486
00:23:58,600 --> 00:24:00,920
Speaker 1: think they'd be very consistent in their sort of messaging.

487
00:24:00,960 --> 00:24:02,400
Speaker 1: So I think that risk will sort of come down

488
00:24:02,400 --> 00:24:06,520
Speaker 1: a bit, and that sort of investor over exuberance. Um,

489
00:24:06,680 --> 00:24:08,359
Speaker 1: you know, I think the market has been very smart.

490
00:24:08,400 --> 00:24:09,960
Speaker 1: I mean you said pull back in I p O

491
00:24:10,040 --> 00:24:13,280
Speaker 1: performance pulled back in sort of ev performance pulled back

492
00:24:13,320 --> 00:24:15,399
Speaker 1: in sort of solar. I mean, all these sort of

493
00:24:15,440 --> 00:24:17,879
Speaker 1: micro sort of bubbles that the market was maybe getting

494
00:24:17,880 --> 00:24:19,760
Speaker 1: a little concerned about, I've all sort of you know,

495
00:24:19,920 --> 00:24:21,480
Speaker 1: pulled back a little bit. I mean that's not the

496
00:24:21,480 --> 00:24:24,320
Speaker 1: say I'm completely complacent. I mean, earnings do need to

497
00:24:24,359 --> 00:24:27,400
Speaker 1: really keep delivering here with evaluations where they are. But

498
00:24:27,520 --> 00:24:29,400
Speaker 1: you know, actually I think risks have been coming down

499
00:24:29,440 --> 00:24:32,679
Speaker 1: a little bit, actually not not not not going up. Then, Layler,

500
00:24:32,800 --> 00:24:35,240
Speaker 1: thank you so much. Congratulations for the new effort with

501
00:24:35,280 --> 00:24:39,600
Speaker 1: the torial. Mr Laidler of courses enthusiastical about the market.

502
00:24:45,480 --> 00:24:48,080
Speaker 1: Leaf Ferrits joins us right now with State Street, head

503
00:24:48,080 --> 00:24:51,880
Speaker 1: of America's macro strategy writer of really Cogent notes, look

504
00:24:51,880 --> 00:24:54,600
Speaker 1: at the Liverpool Leaf ferryge in a moment right now,

505
00:24:54,640 --> 00:24:57,160
Speaker 1: I want to get to your information of a one

506
00:24:57,320 --> 00:25:02,399
Speaker 1: thirty car on euro Can Germany. Can Europe stand that

507
00:25:02,600 --> 00:25:07,760
Speaker 1: strong of the euro um? It won't be easy for sure,

508
00:25:07,840 --> 00:25:09,879
Speaker 1: But the problem they have is what do they do

509
00:25:09,960 --> 00:25:12,640
Speaker 1: about it? I mean, the bottom line is that that

510
00:25:12,640 --> 00:25:15,560
Speaker 1: that the FED is not moving raids anytime soon. So

511
00:25:15,600 --> 00:25:17,720
Speaker 1: what you have is a very very steep curve in

512
00:25:17,760 --> 00:25:21,160
Speaker 1: the US, and that means for for for Eurozone investors,

513
00:25:21,160 --> 00:25:24,040
Speaker 1: for Japanese investors, they can buy treasure is and they

514
00:25:24,119 --> 00:25:26,880
Speaker 1: can hedge their effex right now, and Eurozone investor can

515
00:25:26,880 --> 00:25:30,200
Speaker 1: buy treasury is tenure treasuries heads their effects for three months.

516
00:25:30,400 --> 00:25:33,560
Speaker 1: They're earning a hundred and twenty basis points over buns, right.

517
00:25:33,720 --> 00:25:36,080
Speaker 1: They're going to do that all day long. That means

518
00:25:36,119 --> 00:25:38,600
Speaker 1: the US current account deficit does not get paid for

519
00:25:38,680 --> 00:25:41,919
Speaker 1: by the bomb market, so you have a basic balance

520
00:25:41,960 --> 00:25:45,280
Speaker 1: shortfall in that world, the dollar has to go down.

521
00:25:45,680 --> 00:25:47,760
Speaker 1: So we saw over the last couple of months, we

522
00:25:47,800 --> 00:25:50,679
Speaker 1: saw this upgrade the US growth expectations. We saw yields

523
00:25:50,720 --> 00:25:54,399
Speaker 1: push up short term momentum, traders bought the dollar. We

524
00:25:54,440 --> 00:25:56,800
Speaker 1: had a big underwey in the dollar that got closed out.

525
00:25:57,320 --> 00:26:00,480
Speaker 1: And now as things calm down, the default for the

526
00:26:00,520 --> 00:26:02,840
Speaker 1: dollar will be for the dollar to go down. If

527
00:26:02,880 --> 00:26:04,840
Speaker 1: we haven't got more good news, if we haven't got

528
00:26:04,920 --> 00:26:07,560
Speaker 1: rates going up, if we don't have a short squeeze,

529
00:26:07,880 --> 00:26:10,240
Speaker 1: the default for the dollar will be this drift lower,

530
00:26:10,320 --> 00:26:12,520
Speaker 1: drift lower, drift lower. And that's what we've seen over

531
00:26:12,560 --> 00:26:15,119
Speaker 1: the last few weeks. And that's a game where we

532
00:26:15,160 --> 00:26:17,399
Speaker 1: are now, and this is why for me, that's going

533
00:26:17,440 --> 00:26:20,080
Speaker 1: to be the default this year. We're abouts of dollar strength,

534
00:26:20,400 --> 00:26:22,560
Speaker 1: but they'll be short lived and then the default will

535
00:26:22,600 --> 00:26:24,520
Speaker 1: be this dollar drift down and that's how we get

536
00:26:24,520 --> 00:26:26,560
Speaker 1: to one thirties. And just in terms of the deficit,

537
00:26:26,640 --> 00:26:28,720
Speaker 1: can you help us understand why this dynamic is so

538
00:26:28,760 --> 00:26:32,240
Speaker 1: different to what we saw in the previous cycle. Well,

539
00:26:32,400 --> 00:26:35,320
Speaker 1: the difference is the ability to hedge. The previous cycle,

540
00:26:35,440 --> 00:26:39,280
Speaker 1: the FED, you know, from seventeen onwards was leading the

541
00:26:39,280 --> 00:26:42,760
Speaker 1: way in terms of hiking rates, right, so they were hiking.

542
00:26:42,800 --> 00:26:46,040
Speaker 1: No one else just hiking. So therefore foreign investors couldn't

543
00:26:46,040 --> 00:26:48,240
Speaker 1: buy treasure is hedged because of the amount they paid

544
00:26:48,280 --> 00:26:50,840
Speaker 1: on the hedge cost them all the yield premium they

545
00:26:50,880 --> 00:26:53,600
Speaker 1: were picking up. So you attracted capital to the U

546
00:26:53,840 --> 00:26:57,440
Speaker 1: s FX unhedged. If the FED aren't playing the game,

547
00:26:57,480 --> 00:27:00,239
Speaker 1: If the Feder keeping rates down close to zero in

548
00:27:00,280 --> 00:27:04,080
Speaker 1: line with everywhere else, the hedging works. So if the

549
00:27:04,119 --> 00:27:06,640
Speaker 1: hedging works, the dollar goes down. And that's the difference.

550
00:27:06,680 --> 00:27:09,680
Speaker 1: This time, it's the reaction function of the Fed. They're

551
00:27:09,720 --> 00:27:12,240
Speaker 1: are hiking into this strength like they were in seventeen

552
00:27:12,240 --> 00:27:14,640
Speaker 1: and eighteen, which pushed the dollar up. If the Fed

553
00:27:14,680 --> 00:27:16,879
Speaker 1: don't hide, the dollar goes down. So let's build on that.

554
00:27:16,920 --> 00:27:18,239
Speaker 1: If you want to play that theme, what's the best

555
00:27:18,280 --> 00:27:22,000
Speaker 1: way of expressing it? Right now? Right now in Q two,

556
00:27:22,040 --> 00:27:23,560
Speaker 1: I think I think we are getting to the state.

557
00:27:23,640 --> 00:27:26,000
Speaker 1: I mean, you know, I like Eurohire, I like Dolly

558
00:27:26,119 --> 00:27:29,040
Speaker 1: and Lower, but their drifts that they're they're slow, gradual grinds.

559
00:27:29,359 --> 00:27:31,440
Speaker 1: I think we're actually in Q two in the stage

560
00:27:31,440 --> 00:27:34,320
Speaker 1: where where EM starts to perform better again. You know,

561
00:27:34,359 --> 00:27:36,159
Speaker 1: we've priced in a lot of good news for the

562
00:27:36,240 --> 00:27:38,000
Speaker 1: US in an awful lot of good news in terms

563
00:27:38,000 --> 00:27:40,520
Speaker 1: of growth. You know, yields have gone up, yields are

564
00:27:40,520 --> 00:27:42,800
Speaker 1: now back in arrange, So you have this sort of

565
00:27:42,800 --> 00:27:45,560
Speaker 1: positive growth outlook. You have yields in arrange, you're having

566
00:27:45,560 --> 00:27:48,320
Speaker 1: no reaction from the FED. That's sort of an ideal

567
00:27:48,359 --> 00:27:51,119
Speaker 1: world for EM. But you've got to be selective. And

568
00:27:51,160 --> 00:27:53,600
Speaker 1: you mentioned before about the COVID cases going up in

569
00:27:53,920 --> 00:27:56,760
Speaker 1: various places. You have to be really selective. You have

570
00:27:56,880 --> 00:27:59,960
Speaker 1: to be wary of of of domestic issues as well.

571
00:28:00,400 --> 00:28:03,920
Speaker 1: We like max Max is at proxy to the US.

572
00:28:04,440 --> 00:28:07,959
Speaker 1: Direct proxy obviously gives you some yield. Mex is one

573
00:28:08,000 --> 00:28:10,040
Speaker 1: of our favorites. We also like South Africa as a

574
00:28:10,119 --> 00:28:13,439
Speaker 1: sort of reasonably liquid EM proxy as well. But but

575
00:28:13,480 --> 00:28:16,000
Speaker 1: we're wary of others. But but there's there's value out

576
00:28:16,040 --> 00:28:18,600
Speaker 1: there in EM just to push back against the weaker

577
00:28:18,640 --> 00:28:21,119
Speaker 1: dollar story. As we have seen the dollar strengthen this

578
00:28:21,200 --> 00:28:25,159
Speaker 1: year on the strength of the economy, markets are discounting mechanisms.

579
00:28:25,200 --> 00:28:26,919
Speaker 1: People are going to be looking to a FED that

580
00:28:26,960 --> 00:28:29,879
Speaker 1: will be tightening at some point. How concerned are you

581
00:28:29,960 --> 00:28:33,800
Speaker 1: about better data spurring expectations for rate hikes even as

582
00:28:33,840 --> 00:28:37,479
Speaker 1: soon as two, causing the dollar to strengthen despite all

583
00:28:37,520 --> 00:28:41,680
Speaker 1: of these dynamics. That's what we've seen, Lisa, that's what

584
00:28:41,680 --> 00:28:43,560
Speaker 1: we say. We've priced the first time at the end

585
00:28:43,600 --> 00:28:48,280
Speaker 1: of two, we've priced another three stroke four three. What

586
00:28:48,360 --> 00:28:50,880
Speaker 1: are the fat dots saying? The fat dots are saying

587
00:28:50,880 --> 00:28:53,400
Speaker 1: they're not hiking through the end of twenty three and

588
00:28:53,520 --> 00:28:55,960
Speaker 1: the rest root from the FED is not changing. They've

589
00:28:55,960 --> 00:28:58,120
Speaker 1: got a highly growth forecast for the market for this year.

590
00:28:58,160 --> 00:29:00,720
Speaker 1: They've got six and a half percent, they got unemployment

591
00:29:00,760 --> 00:29:03,200
Speaker 1: rate at three and a half percent in three and

592
00:29:03,360 --> 00:29:06,560
Speaker 1: still they're saying, we're not hiking rates, and you have

593
00:29:06,640 --> 00:29:09,440
Speaker 1: to listen to Powe. The reaction function from the feed

594
00:29:09,480 --> 00:29:13,600
Speaker 1: has changed inflation. With average inflation targeting, they can ignore

595
00:29:13,640 --> 00:29:16,600
Speaker 1: transitory rises in inflation. They can look through it. They're

596
00:29:16,600 --> 00:29:20,800
Speaker 1: targeting the labor market. They're targeting maximum employment, not unemployment.

597
00:29:20,920 --> 00:29:25,280
Speaker 1: Maximum employment and maximum employment for all. They're looking for

598
00:29:25,280 --> 00:29:27,920
Speaker 1: for underemployment to come down, they're looking for low income

599
00:29:27,960 --> 00:29:30,200
Speaker 1: to go up. All the stuff we saw in eighteen

600
00:29:30,200 --> 00:29:32,320
Speaker 1: and nineteen. Power wants to get back to and that's

601
00:29:32,360 --> 00:29:36,160
Speaker 1: going to take time. Leefar is very direct. Chris Collins

602
00:29:36,200 --> 00:29:39,320
Speaker 1: of Bloomberg News felt we were fair and unbalanced yesterday

603
00:29:39,600 --> 00:29:42,760
Speaker 1: with a focus on Manchester United. What's it like to

604
00:29:42,800 --> 00:29:45,760
Speaker 1: be Liverpool where last night you were tied with leads

605
00:29:46,120 --> 00:29:48,680
Speaker 1: and your team is wandering off to the Super League?

606
00:29:48,880 --> 00:29:53,040
Speaker 1: Were you medicated? And I will be if it carries

607
00:29:53,080 --> 00:29:55,560
Speaker 1: on like this twite honestly, Tom, Yeah, it's it's it's

608
00:29:55,560 --> 00:29:57,680
Speaker 1: not easy being a Liverpool found with this season hasn't

609
00:29:57,680 --> 00:29:59,920
Speaker 1: been easy after after last year which was which was

610
00:30:00,240 --> 00:30:03,480
Speaker 1: a gift, and then the super League news is not

611
00:30:03,560 --> 00:30:05,880
Speaker 1: a positive in my mind, Lee, I'm not sure how

612
00:30:05,920 --> 00:30:08,239
Speaker 1: many people out there feel sorry for Liverpool fans right now,

613
00:30:08,560 --> 00:30:10,640
Speaker 1: I got that right. I've got to say we're enjoying

614
00:30:10,640 --> 00:30:13,160
Speaker 1: it a little bit. It's gonna catch up Lee Ferrit's

615
00:30:13,240 --> 00:30:18,160
Speaker 1: Stay streetead of American Strategy. This is the Bloomberg Surveillance Podcast.

616
00:30:18,400 --> 00:30:21,800
Speaker 1: Thanks for listening. Join us live weekdays from seven to

617
00:30:21,880 --> 00:30:25,960
Speaker 1: ten AMI Eastern. I'm Bloomberg Radio and on Bloomberg Television

618
00:30:26,280 --> 00:30:30,320
Speaker 1: each day from six to nine AM for insight from

619
00:30:30,320 --> 00:30:34,880
Speaker 1: the best in economics, finance, investment, and international relations. And

620
00:30:35,000 --> 00:30:40,160
Speaker 1: subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg

621
00:30:40,200 --> 00:30:43,520
Speaker 1: dot com, and of course, on the terminal. I'm Tom

622
00:30:43,600 --> 00:30:45,920
Speaker 1: Keene and this is Bloomberg