WEBVTT - Surveillance: Yields Levels With Boivin 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferroll and Lisa Brownwitz Jay Ley, we bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:22.440 international relations. To find Bloomberg Surveillance on Apple podcast, Suncloud, 0:00:22.840 --> 0:00:26.280 Bloomberg dot Com and of course on the Bloomberg terminal. 0:00:28.960 --> 0:00:31.960 Chisel and Marble at Princeton a few years ago, and 0:00:32.080 --> 0:00:35.199 Joan Bavan joins us today. What was it like to 0:00:35.280 --> 0:00:39.040 go in front of your PhD advisors at Princeton? Who 0:00:39.080 --> 0:00:45.080 were those guys? Uh? Ben Bernankee, Mike, Michael Woodford, Mark Watson, 0:00:45.400 --> 0:00:49.000 Michael Watt Watson was my man advisor. Um, that was 0:00:48.800 --> 0:00:51.479 it was. It was a great momentum. I would not 0:00:51.560 --> 0:00:53.240 have remembered the title if you have not said it, 0:00:53.320 --> 0:00:56.000 so thanks for bringing that up. No, it's very very cool. 0:00:56.040 --> 0:00:57.800 I mean, do you have Bernankey moving one way on 0:00:57.920 --> 0:01:00.720 economics and Michael Woodford with a math maddox on the 0:01:00.760 --> 0:01:03.920 other side. Must have been intimidating. Is that kind of 0:01:03.960 --> 0:01:07.360 brain power gonna show itself at Jackson Hole this year? 0:01:07.560 --> 0:01:11.600 Are we gonna dovetail the mathematics of Woodford with the 0:01:11.640 --> 0:01:17.839 more holistic economics of Bernanke at Jackson Hole Young. Uh. Interesting, 0:01:18.080 --> 0:01:20.600 to be honest, we're we're we're kind of wondering what 0:01:20.640 --> 0:01:24.039 will really happen there. UM. Our view is that there's 0:01:24.040 --> 0:01:26.399 maybe too much hope that this is gonna be a 0:01:26.400 --> 0:01:30.680 policy signaling exercise, Uh, especially around the paper. So I 0:01:31.200 --> 0:01:35.360 think this might be a disappointment and uh, maybe returning 0:01:35.360 --> 0:01:39.080 more to hardcore kind of like academic input to policy making, 0:01:39.520 --> 0:01:41.760 like we've that used to be the case maybe with 0:01:41.840 --> 0:01:44.840 a yet this last year with the framework review so on. 0:01:44.920 --> 0:01:47.160 Based on your tenure at the Bank of Canada, based 0:01:47.160 --> 0:01:50.080 on your experience with central bankers and having them as colleagues, 0:01:50.520 --> 0:01:53.120 do you think that they're concerned by how much control 0:01:53.200 --> 0:01:57.000 they have are perceived control by markets over not only 0:01:57.040 --> 0:02:02.400 benchmark rates, but just risk appetite in general. Um concerned. 0:02:02.360 --> 0:02:06.080 I'm I'm thinking they're pretty aware of you know, central 0:02:06.280 --> 0:02:09.280 central making has been in the front stage for since 0:02:09.320 --> 0:02:12.520 two thousand eight. Uh, we only came in town, So 0:02:12.560 --> 0:02:15.000 I think they've gotten used to the attention and the 0:02:15.040 --> 0:02:18.480 center role that they're playing. I think this is evolving though, 0:02:18.639 --> 0:02:21.840 UM and uh in our view, like fiscal policies is 0:02:21.880 --> 0:02:25.240 now taking the baton from from them will be more 0:02:25.280 --> 0:02:27.359 so going forward. So I think we're kind of a 0:02:27.560 --> 0:02:30.440 juncture where things are changing a bit. But I think 0:02:30.440 --> 0:02:33.040 their concern is probably more about, like how they communicate 0:02:33.240 --> 0:02:38.000 around the current situation. I think the potential for mistake 0:02:38.080 --> 0:02:41.040 is pretty high. We've seen it. I think we're losing 0:02:41.040 --> 0:02:42.799 a bit of a long term anchor on on ten 0:02:42.880 --> 0:02:44.720 year yields, for instance, and I think this is largely 0:02:44.800 --> 0:02:48.400 due to on certainly around the Central Bank. You know, 0:02:48.440 --> 0:02:51.400 out looking, we're losing a long term anchor on a 0:02:51.480 --> 0:02:54.160 ten year yields. Elaborate, please, what does that mean to you? 0:02:55.440 --> 0:02:57.480 I think when you look at the price movement from 0:02:57.760 --> 0:02:59.799 the last two months, right we went from pricing and 0:03:00.040 --> 0:03:03.320 nation fears uh with tenuiels that were on the way 0:03:03.400 --> 0:03:06.200 up to what we see now is a complete disconnect 0:03:06.240 --> 0:03:09.200 between the macro outlook and you know the woman we've 0:03:09.200 --> 0:03:12.400 seen in yields um you know. Various explanations for that, 0:03:12.440 --> 0:03:14.400 technical and so on, but I think one of them is, 0:03:14.960 --> 0:03:16.880 you know, a big debate around what the Central ban 0:03:16.960 --> 0:03:20.360 is actually doing. Markets trying to digest that your framework, 0:03:20.400 --> 0:03:23.120 and I think that's part of the story there. John. 0:03:23.440 --> 0:03:26.800 I look at the entire economics right now in the 0:03:26.840 --> 0:03:29.079 word that we keep talking about here between John and 0:03:29.160 --> 0:03:31.400 Lisa and me, and we make jokes about it, but 0:03:31.440 --> 0:03:36.600 it's really serious microeconomic foundations. Which is the ambiguity of 0:03:36.640 --> 0:03:40.400 what's going to happen given a given thrust in inflation. 0:03:40.880 --> 0:03:45.520 What's the key ambiguity of which way the financial system 0:03:45.640 --> 0:03:51.600 cuts given a higher inflation? What's the key mystery? Well, 0:03:51.640 --> 0:03:54.400 I think, I think Tom, this is exactly Uh. You know, 0:03:54.400 --> 0:03:56.960 what I think is very unusual about the current situation 0:03:57.080 --> 0:04:01.279 is that the range of outcome that we are templating collectively, 0:04:01.760 --> 0:04:04.080 bit on inflation, bit on what the central nights will 0:04:04.120 --> 0:04:06.600 be doing, even on growth, what is it a restart? 0:04:06.720 --> 0:04:08.480 Is it at the beginning of a longer kind of 0:04:08.560 --> 0:04:12.400 you know, expansion. This is a pretty wide range of 0:04:12.400 --> 0:04:15.280 of outcome, and I think the markets in those environments 0:04:15.720 --> 0:04:18.440 tend to interpret the news flow and then go from 0:04:18.480 --> 0:04:22.119 one kind of potential outcome to the other. Uh. And 0:04:22.120 --> 0:04:24.320 and these are more like binary kind of outcome, and 0:04:24.320 --> 0:04:27.360 that creates like the volatility what we're saying, I think, 0:04:27.400 --> 0:04:29.200 I think what where there's consensus is that this is 0:04:29.240 --> 0:04:32.560 a pretty constructive environment for RISCO we're seeing that inequities. 0:04:32.600 --> 0:04:35.840 Of course, we're pro risk. We're to be prosc at 0:04:35.839 --> 0:04:38.360 the stage, so that is kind of consensus. But from 0:04:38.360 --> 0:04:41.320 here on the unusually wide range, and I think we're 0:04:41.320 --> 0:04:44.640 gonna we're facing binary outcomes. John Pharaoh has led our 0:04:44.640 --> 0:04:48.479 discussion here of stock and flow, and I would suggest 0:04:48.480 --> 0:04:50.520 when we look at the death, the deficit is a 0:04:50.680 --> 0:04:54.360 static object. It's a bathtub. That's the size of an 0:04:54.360 --> 0:04:58.720 Olympic pool should be Should we be worried about the 0:04:58.800 --> 0:05:01.919 stocks the size of the pool that's built up of 0:05:02.000 --> 0:05:06.400 these things we worry about. Yeah, I think I think 0:05:06.720 --> 0:05:09.080 there's been uh we we left the stock a bit 0:05:09.080 --> 0:05:10.920 out of the picture. But like if you if you 0:05:11.080 --> 0:05:14.560 just take a step back and look since COVID, uh, 0:05:14.600 --> 0:05:16.719 the amount of spending that has been like put on 0:05:16.720 --> 0:05:19.840 the table, including with the infrastructure build this week and 0:05:19.920 --> 0:05:23.680 the reconciliation, we're gonna see no going forward. We're talking 0:05:23.680 --> 0:05:27.560 about like amounting a total of GDP and new spending 0:05:27.760 --> 0:05:30.240 that you know we didn't we didn't have pre COVID. 0:05:31.160 --> 0:05:34.960 That's a large amount. That's your stock point. Um, we 0:05:35.000 --> 0:05:38.599 are comfortable or you know, pretty relaxed about this, given 0:05:38.640 --> 0:05:42.400 the rate they're saying, but I think we're much more 0:05:42.440 --> 0:05:46.520 now subject and uh, and we're facing a fragile environment 0:05:46.560 --> 0:05:49.240 where if there are adjustment in rates, it's going to 0:05:49.320 --> 0:05:53.440 be a lot more disruptive with the stock much larger now, Jean, 0:05:53.600 --> 0:05:55.599 before we let you go, Dean Courne on the show 0:05:55.640 --> 0:05:59.360 earlier said that the inflation is contained is the same 0:05:59.400 --> 0:06:03.080 as sub our prime is contained of today. That basically, Uh, 0:06:03.160 --> 0:06:05.880 this is a faith based assertion that has yet to 0:06:05.920 --> 0:06:08.719 be proven, and it really goes to your call about 0:06:08.720 --> 0:06:11.560 the question marks underpinning where treasure yields are today. Do 0:06:11.600 --> 0:06:15.640 you agree that inflation is controlled is the same kind 0:06:15.800 --> 0:06:19.320 of view as subprime is contained of two thousand seven 0:06:19.520 --> 0:06:23.200 two thousand six. Yeah, I think I think it's even 0:06:23.240 --> 0:06:26.440 more than subprime because inflation is in my view and 0:06:26.480 --> 0:06:29.920 our view of purely self fulfilling phenomenal ultimately, so it's 0:06:29.960 --> 0:06:32.080 what we what we believe or markets believe it to be. 0:06:32.760 --> 0:06:35.520 UM and I think we're seeing that the elements for 0:06:35.600 --> 0:06:38.240 inflation to to break out to our level, we think 0:06:38.279 --> 0:06:42.440 it's going to be contained. Ultimately that's still like kind 0:06:42.440 --> 0:06:45.360 of our baseline, but that's only given. That's far from 0:06:45.360 --> 0:06:47.240 a given. An episode in the past where inflation got 0:06:47.279 --> 0:06:50.320 out of end. I mean, we're not expected, you know, 0:06:50.400 --> 0:06:52.640 before they happen. So I think that's a that's a 0:06:52.720 --> 0:06:54.320 fair I would I would, I would have sympathy for 0:06:54.440 --> 0:06:56.560 that point. And I think this is under appreciated as 0:06:56.600 --> 0:06:59.160 a risk. Jean bo Then, thank you so much, greatly, 0:06:59.200 --> 0:07:02.040 greatly appreciated this morning with black Rock. They're really really 0:07:02.080 --> 0:07:05.240 informed discussion their folks and some of the dynamics that 0:07:05.360 --> 0:07:12.200 we see right now. I think cut in a macro 0:07:12.280 --> 0:07:15.120 drisk at five is founder and CEO Dean. The complacency, 0:07:15.360 --> 0:07:18.040 the complacency of us to start a program like we 0:07:18.120 --> 0:07:20.720 have done start this hour like we just have look 0:07:20.800 --> 0:07:23.880 through all time highs forty seven of them today on 0:07:23.880 --> 0:07:26.280 the SMP five hundred, and it just seems to me 0:07:26.320 --> 0:07:29.040 that we're numb when numb to any incoming information that 0:07:29.080 --> 0:07:31.560 tells you otherwise about this bullish story you've creates it. 0:07:31.680 --> 0:07:34.200 What does that's how you do well? You know? I 0:07:34.280 --> 0:07:36.560 like the Field of Dreams exercise. I think it's interesting 0:07:36.560 --> 0:07:38.520 to take a movie and kind of make it into 0:07:38.560 --> 0:07:40.760 real life. But I also in terms of markets, I 0:07:40.800 --> 0:07:43.480 like taking real events and looking back on him and 0:07:43.640 --> 0:07:47.200 it is ten years to the week that the I 0:07:47.240 --> 0:07:50.560 would call it the joint crisis between the Eurozone sovereign 0:07:51.480 --> 0:07:55.640 episode of and the US dead ceiling showdown occurred. And 0:07:55.720 --> 0:07:58.960 for the week of this week ten years ago, realized 0:07:59.040 --> 0:08:03.960 volatility in the s P was nine. This week realized 0:08:04.040 --> 0:08:07.560 volatility and SMP is three point five cent. So it 0:08:07.680 --> 0:08:10.840 just goes to show you the extent to which markets 0:08:10.840 --> 0:08:15.040 can go from extremely high levels of alatility to as 0:08:15.080 --> 0:08:18.400 you're discussing something that really is a snooze fest. And 0:08:18.400 --> 0:08:21.440 I think the important part about the snooze fest is 0:08:21.560 --> 0:08:25.360 it really dulls our imagination. It it catches us, it 0:08:25.440 --> 0:08:28.280 causes us to be caught off guard. And of course 0:08:28.800 --> 0:08:31.560 the lynchpin of it all, I know you host your 0:08:31.560 --> 0:08:38.080 show the really Yield. There's not much that up um, 0:08:38.160 --> 0:08:41.600 so you know everything is linked to a minus one 0:08:41.679 --> 0:08:47.719 point one too more negative tenure yield, everything, equity valuations, 0:08:48.160 --> 0:08:52.280 low levels of volatility, and I just I'm very concerned 0:08:52.559 --> 0:08:55.840 that we're trusting the central banks in a way that 0:08:57.080 --> 0:09:00.480 you know, history has proven unkind to that level of trust. 0:09:00.480 --> 0:09:03.320 I go back to, for example, the early two thousand 0:09:03.360 --> 0:09:06.920 seven period, and to me, uh, sub prime is contained 0:09:07.120 --> 0:09:12.679 is the inflation is transitory. Of these epic misreads by 0:09:12.800 --> 0:09:16.720 central bankers shouldn't be forgotten. They can cause ultimately cause 0:09:16.760 --> 0:09:18.960 a lot of market harm. H Dana, I want to 0:09:18.960 --> 0:09:21.040 know how VIX sets here. We had a VIX of 0:09:21.120 --> 0:09:24.079 twenty two, twenty one whatever back in mid July, and 0:09:24.120 --> 0:09:27.480 now down we go under sixteen at today. Tell me 0:09:27.559 --> 0:09:31.200 what the Greek letters say right now, the co movements 0:09:31.240 --> 0:09:34.600 of the markets say about the umph to get the 0:09:34.720 --> 0:09:38.200 VIX down to a true bullmarket fourteen or dare I 0:09:38.280 --> 0:09:42.760 say thirteen? Well, as as I as I mentioned, you know, 0:09:42.800 --> 0:09:45.720 realized volatility around three and a half percent. It's almost 0:09:45.760 --> 0:09:49.000 as if the SP five is a PEG's currency, right, 0:09:49.360 --> 0:09:52.640 and options on a peg are really not worth very much. 0:09:52.760 --> 0:09:55.760 And so the gravitational pull as you call it and 0:09:56.320 --> 0:09:59.520 in the VIX is really contingent on not just this 0:09:59.640 --> 0:10:03.560 low level of volatility realized volatility, but it's it's nearly 0:10:03.800 --> 0:10:06.280 ground to a screeching halt. So you know, I had 0:10:06.320 --> 0:10:10.320 the VIX floorida around seventeen. Obviously we've breached that. And 0:10:10.360 --> 0:10:13.120 what causes you to breach it is when you get 0:10:13.200 --> 0:10:17.840 such shockingly low levels of movement, it's it's the quiet, 0:10:18.000 --> 0:10:21.600 and uh, A lot of folks have forecasted that there 0:10:21.600 --> 0:10:24.400 would be some fireworks in August that that has been 0:10:24.760 --> 0:10:30.040 with some regularity a month where the summer vacation got disrupted. 0:10:30.080 --> 0:10:32.640 It doesn't look like, at least for now, that that's 0:10:32.640 --> 0:10:35.120 going to happen right now. So, UM, you know, I 0:10:35.120 --> 0:10:36.640 think when I step back, I just try to look 0:10:36.679 --> 0:10:39.760 at risk reward, and you're right. The equity markets going up, 0:10:39.800 --> 0:10:42.760 it's not going up a ton, uh, And so you 0:10:42.760 --> 0:10:47.240 know what I worry about is this degree of complacency. Uh. 0:10:47.400 --> 0:10:53.439 That again, it's it's grounded in the mispricing of nominal 0:10:53.520 --> 0:10:57.040 yields versus the rate of inflation. We're we're really hoping 0:10:57.600 --> 0:11:02.040 that uh, inflation comes down. It's just very difficult to know. 0:11:02.720 --> 0:11:06.080 And the damage that could result should did not prove 0:11:06.160 --> 0:11:10.120 transitory and bond yields react ultimately and kind of push 0:11:10.200 --> 0:11:12.720 higher on a nominal level. Dingnitating us. I just want 0:11:12.720 --> 0:11:14.400 to make you, get you to make the point. You 0:11:14.440 --> 0:11:17.240 said something that I will not let pass. You said 0:11:17.760 --> 0:11:21.199 that inflation in transitory is transitory, is the new subprime 0:11:21.280 --> 0:11:23.920 is contained. That's quite a cool. So let's get the 0:11:23.920 --> 0:11:26.240 conviction call in this market, not the ips, the butts 0:11:26.280 --> 0:11:28.160 on the one hand, On the other, what's the coal. 0:11:29.880 --> 0:11:34.319 I think the call is that the the the valuation 0:11:35.200 --> 0:11:38.120 argument that's being made in equities is contingent on something 0:11:38.160 --> 0:11:41.440 that we just have no idea around. And the data 0:11:41.480 --> 0:11:44.439 tells us, at least so far, that nominal yields are 0:11:44.480 --> 0:11:47.600 so far below the rate of inflation that the FED 0:11:47.679 --> 0:11:50.200 could be in a very very difficult spot if we 0:11:50.240 --> 0:11:52.800 go back and look at all the risk offs that 0:11:52.800 --> 0:11:54.800 that we've that we've had, and you know, there have 0:11:54.880 --> 0:11:57.600 been some doozies along the way. The FED has always 0:11:57.640 --> 0:12:01.320 been there to massage the market and to to lift 0:12:01.360 --> 0:12:03.880 it higher for for a couple of reasons. One is 0:12:03.920 --> 0:12:07.680 that market risk and economic risk typically occur at the 0:12:07.679 --> 0:12:10.760 same time, right the they typically run into trouble at 0:12:10.760 --> 0:12:13.080 the same time, and so the FED, in its remit 0:12:13.160 --> 0:12:16.520 to revive the economy, ultimately has these policies with with 0:12:16.559 --> 0:12:19.440 work which work more directly on asset prices. But the 0:12:19.440 --> 0:12:22.679 bigger point, John, is that the feds air cover is 0:12:22.800 --> 0:12:25.719 always that the rate of inflation, the rate of inflation 0:12:26.080 --> 0:12:28.720 is below targets, so it's allowed to do much. We're 0:12:28.720 --> 0:12:31.760 in a much different circumstance. Now, the rate of inflation 0:12:31.840 --> 0:12:34.880 is well well well above target. So if we do 0:12:34.960 --> 0:12:37.040 run into a risk off, we've got to be asking 0:12:37.040 --> 0:12:39.880 ourselves the question, what's the FED going to do? Just 0:12:39.960 --> 0:12:42.719 giving that inflation so far far above target already to day, 0:12:42.800 --> 0:12:44.599 so so important and a place we got you on 0:12:44.679 --> 0:12:46.599 a spot on that question, then count it there a 0:12:46.679 --> 0:12:49.319 macro risk Adfinience is the founder and CEO Tom that 0:12:49.520 --> 0:12:53.800 line there, Inflation is transitory? Is the new subprime is contained? 0:12:54.400 --> 0:13:00.480 That's something to take an out. Tell Well, let's get 0:13:00.520 --> 0:13:02.800 from New York to why I'm bringing Joe my work 0:13:02.960 --> 0:13:05.720 the chief economist ACTS or Investment Management. Joe. Let's start 0:13:05.720 --> 0:13:08.920 the August twenty because no one's really interested in August 0:13:09.440 --> 0:13:12.439 this morning, it saint was. Let's start in August twenty six. 0:13:12.520 --> 0:13:14.199 Jackson Hall, what are you looking for from the FED 0:13:14.320 --> 0:13:18.280 chairmen at that gathering? I'd be I'd be surprised if 0:13:18.360 --> 0:13:21.880 we had a sort of formal announcement from from them 0:13:22.120 --> 0:13:25.199 or from him actually in Jackson Hall, because the last 0:13:25.400 --> 0:13:27.839 few years, quite a few years actually, the FED is 0:13:27.920 --> 0:13:31.800 try to tone down the importance of Jackson Hall in 0:13:31.960 --> 0:13:34.760 terms when it comes to to actual policy announcements. It's 0:13:34.760 --> 0:13:36.640 a place where you debate, it's a place where you 0:13:36.760 --> 0:13:39.839 lay the ground for your future announcements, but you you 0:13:39.920 --> 0:13:42.839 don't use it really to be too precise about what 0:13:42.960 --> 0:13:45.400 you want to do. So my guesses starts we'll have 0:13:45.520 --> 0:13:51.920 a pretty consensual discussion from everybody from the FED making 0:13:51.960 --> 0:13:54.120 it clear that hey, you know, we may still have 0:13:54.320 --> 0:13:56.719 some sort of differences on the exact timing of when 0:13:56.800 --> 0:14:00.640 we taper, but tapering we will and this is this 0:14:00.800 --> 0:14:03.839 is for the coming months. Probed As a Frenchman, I 0:14:03.920 --> 0:14:08.079 have trouble putting a nest after th um. So yeah, consensual. 0:14:08.400 --> 0:14:13.240 Not a lot of conversations of dissenters, I would say, 0:14:13.520 --> 0:14:15.880 because they're all moving into in direction if you, if 0:14:15.920 --> 0:14:19.880 you really speaks, so probably not much suspense JO define 0:14:20.080 --> 0:14:23.080 data dependency for us in the theme as Jackson Hall 0:14:23.160 --> 0:14:26.200 is going to be waiting and waiting and waiting to 0:14:26.400 --> 0:14:32.400 find this new data dependency of this new FED. Definitely, 0:14:32.560 --> 0:14:35.040 And I don't think that they can answer any precise 0:14:35.120 --> 0:14:39.720 question at this at this stage because on tapering, okay, 0:14:39.800 --> 0:14:42.840 it's a matter of months on when they would fully 0:14:42.880 --> 0:14:45.640 normalize military policy, i e. When they would actually stop 0:14:45.760 --> 0:14:49.040 moving great they've given themselves a lot of leeway. And 0:14:49.240 --> 0:14:52.320 this is where I think they will will have to 0:14:52.440 --> 0:14:55.480 learn by by by watching them and and and follow 0:14:55.720 --> 0:15:00.720 follow their their stride because um before the pandemic struck, honestly, 0:15:01.320 --> 0:15:05.080 there was no consensus on where uh the natural uh 0:15:05.320 --> 0:15:07.640 unclun rate was in the US. There was no agreement 0:15:07.640 --> 0:15:10.640 on where the equilibrium interest rate was in the US. 0:15:11.160 --> 0:15:16.000 It's become even more unclear in this in this crisis. UM, 0:15:16.200 --> 0:15:19.280 So I think they will be extremely progetic. And there's 0:15:19.360 --> 0:15:21.640 again not much they can say at this stage on 0:15:21.880 --> 0:15:23.280 what they intend to do in the next two or 0:15:23.280 --> 0:15:25.600 three years. It's sort of shocking to me. We get 0:15:25.640 --> 0:15:29.600 equity analysts after equity analysts saying, by this rally, basically 0:15:29.680 --> 0:15:31.120 it's going to keep going up, It's going to go 0:15:31.240 --> 0:15:34.080 up more than we had previously expected. We have pretty 0:15:34.120 --> 0:15:36.800 incredibly good data. We're coming out of the labor market, 0:15:36.880 --> 0:15:39.120 coming out of inflation. Where you know, if you want 0:15:39.200 --> 0:15:42.520 to see inflation, if you start to see recovery signs 0:15:42.640 --> 0:15:46.680 all over the place. Why are economists not changing their 0:15:46.760 --> 0:15:50.400 projections after the past two weeks. Why is this transitory? 0:15:50.480 --> 0:15:54.160 Why does this fit into everybody's narrative on the economic side. 0:15:54.200 --> 0:15:58.720 If it's not on the equity analysts side, I think, 0:15:58.920 --> 0:16:03.160 well it come. Mists usually try to to to focus 0:16:03.240 --> 0:16:05.360 on on one of the fundamentals are telling us, and 0:16:05.760 --> 0:16:09.080 probably try to take on board what the impact of 0:16:09.400 --> 0:16:12.040 the beginning of the normalization of manatory policy will mean. 0:16:12.400 --> 0:16:15.480 At the moment. Yes, you're right, the fundamentals are telling 0:16:15.600 --> 0:16:19.320 great story. Earnings are doing well, the economies reopening a 0:16:19.520 --> 0:16:22.560 fast clip. We were very worried about the delta variant, 0:16:22.720 --> 0:16:25.520 but it seems that, you know, the capacity of the 0:16:25.560 --> 0:16:27.800 Committe to deal with it is higher than we than 0:16:27.880 --> 0:16:31.120 we thought, higher than we feared. Still, there's an elephant 0:16:31.160 --> 0:16:33.200 in the room. The elephant in the room is how 0:16:33.520 --> 0:16:36.920 is the market going to behave once we start losing 0:16:37.320 --> 0:16:42.600 this massive constant purchases of of a verris cree asset 0:16:42.680 --> 0:16:45.440 and not so risk free assets from from central banks. 0:16:45.800 --> 0:16:48.560 It's not for immediate consumption in Europe, which may explain 0:16:48.640 --> 0:16:51.320 why the equity market is doing even better in your 0:16:51.440 --> 0:16:54.160 right now, But in the US it's a matter of months. 0:16:54.240 --> 0:16:57.120 So I guess most economists are trying to trying to 0:16:57.240 --> 0:16:59.400 to to work the models and start to think, hey, 0:16:59.480 --> 0:17:02.880 you know, once I take out from the equation those 0:17:03.040 --> 0:17:06.480 billions of dollars of purchases, where should the market be? 0:17:07.119 --> 0:17:09.080 And you know, this is probably what makes us a 0:17:09.119 --> 0:17:11.960 bit grumpy, but that probably comes with the trade. You know, 0:17:12.040 --> 0:17:14.240 how do you gauge that? Is that just a guess? 0:17:14.520 --> 0:17:16.359 How do you know how the market will respond? What 0:17:16.400 --> 0:17:20.240 do you look for? Well, you can try actually to 0:17:21.240 --> 0:17:25.480 come up with with correct models, which which makes sense 0:17:25.680 --> 0:17:28.720 because we've had actually years and years now of experience 0:17:29.440 --> 0:17:33.640 of an increase in the size of central banks balance sheet. 0:17:33.720 --> 0:17:37.000 We've had years of experience with with que so you 0:17:37.160 --> 0:17:41.159 can actually it's not that complicated. You can actually UH 0:17:42.640 --> 0:17:46.360 estimate the impact of a change in the balance sheet 0:17:46.400 --> 0:17:49.040 of the central bank on equity prices. That's not that's 0:17:49.080 --> 0:17:53.600 not rocket science. The question though, is that, um, what 0:17:53.800 --> 0:17:58.240 we what is really complicated to UH to estimate is 0:17:58.320 --> 0:18:02.200 the psychological impact fact that even if the central bank 0:18:02.280 --> 0:18:05.119 stopped buying, and then the model is going to tell you, hey, 0:18:05.160 --> 0:18:09.280 you know that means expersent less on the trajectory for 0:18:09.480 --> 0:18:12.280 for risky assets. The problem is that now the market 0:18:12.400 --> 0:18:16.040 knows that if something goes wrong, central banks are going 0:18:16.160 --> 0:18:20.040 to act probably faster and in a bigger way than before. 0:18:20.320 --> 0:18:22.760 So that provides a sort of insurance, sort of flooring 0:18:22.880 --> 0:18:25.560 to the market. And that's the pits that is really 0:18:25.640 --> 0:18:28.600 really hard to to to estinate. But the direct impact, 0:18:28.720 --> 0:18:31.000 yes you can and there are lots of models which 0:18:31.040 --> 0:18:33.040 which do that. The conditioning jail, we've got to leave 0:18:33.040 --> 0:18:35.160 it there. Really great fan of thoughts. You're my work 0:18:35.160 --> 0:18:42.879 there Banks for Investment Management, the chief economists Danny tells it. 0:18:43.000 --> 0:18:45.040 Thank you so much for joining us today. And the 0:18:45.119 --> 0:18:48.800 state of retail. What's the why behind you're you're in 0:18:48.960 --> 0:18:53.040 Joe Felban's enthusiasm. What's the om that's getting retailed to 0:18:53.119 --> 0:18:56.080 the end of the year. Thank you so much time 0:18:56.119 --> 0:18:58.879 for having me. I think them that's getting retail to 0:18:58.960 --> 0:19:01.080 the end of the year. I think number one, it's 0:19:01.119 --> 0:19:04.040 the consumer, the dollars that they have and the pent 0:19:04.160 --> 0:19:07.640 up demand that they have for gathering and hopefully being 0:19:07.720 --> 0:19:10.719 together in a safe way if if this variant can 0:19:10.800 --> 0:19:13.720 be controlled. I think the other thing is the innovation 0:19:13.840 --> 0:19:17.560 that companies have more new product innovation, and not just 0:19:17.760 --> 0:19:23.080 in product, but think about also in transaction transformation, whether 0:19:23.119 --> 0:19:27.119 it's curbside, whether it's digital, the convenience that consumers have 0:19:27.440 --> 0:19:30.760 is greater than ever and it's exciting. What's the lesson 0:19:30.920 --> 0:19:35.320 learned from the pandemic on inventory management that's so much 0:19:35.480 --> 0:19:39.119 part of the failure of margins. Is there something that 0:19:39.400 --> 0:19:44.359 carries over that they all learned about inventory reduction and 0:19:44.560 --> 0:19:48.960 sk use helps to drive profitability? Managing inventory is key. 0:19:49.440 --> 0:19:52.760 Can you do more with less? And can you personalize 0:19:52.800 --> 0:19:55.240 the offering so that you don't have an abundance of 0:19:55.320 --> 0:19:58.399 goods leading to mark downs. The head wind today is 0:19:58.480 --> 0:20:02.159 definitely supply chain and getting goods into the US. We 0:20:02.359 --> 0:20:05.600 hear that from company after company and it doesn't seem 0:20:05.680 --> 0:20:08.560 like that's going to normalize before the end of the year, 0:20:09.000 --> 0:20:12.080 so we're gonna have tight inventory levels as we go 0:20:12.240 --> 0:20:14.520 through the second half of the year. How are companies 0:20:14.560 --> 0:20:16.480 dealing with that, the supply chain issues that they see 0:20:16.520 --> 0:20:19.760 persisting for a while some of the different ways they're 0:20:19.760 --> 0:20:22.560 dealing with it. They're bringing goods in by air. It's 0:20:22.600 --> 0:20:25.320 not a cheap way to do things, but it helps 0:20:25.400 --> 0:20:28.480 to meet demand and you'd rather not lose the sale 0:20:28.920 --> 0:20:30.720 and bring goods in that you can sell at a 0:20:30.800 --> 0:20:34.000 full price. Some of them are transitioning from the West 0:20:34.040 --> 0:20:37.200 Coast ports to the East coast ports. But reduction in 0:20:37.320 --> 0:20:40.359 inventory and hopefully lower inventory levels than we had in 0:20:40.440 --> 0:20:44.240 the past, will lead to a much more balanced promotional 0:20:44.400 --> 0:20:48.160 environment in the future. As the delta variant continues to spread, 0:20:48.200 --> 0:20:51.920 our people overestimating or underestimating the return of brick and mortar. 0:20:53.160 --> 0:20:57.119 I think basically, as the delta variant spreads, we're continuing 0:20:57.160 --> 0:21:03.040 to see reopenings, recover physical story footprints, encouraging, traffic improving, 0:21:03.480 --> 0:21:07.359 but conversion is higher than traffic. Consumers are going with 0:21:07.520 --> 0:21:10.800 destinations in mind and picking up goods. There is certainly 0:21:10.840 --> 0:21:13.960 a concern that will traffic slow a bit if we 0:21:14.040 --> 0:21:17.720 see this delta variant expand. But now companies know how 0:21:17.800 --> 0:21:22.280 to manufacture and to deliver the whole experience with omni channel, 0:21:22.480 --> 0:21:25.520 That omni channel customer is more profitable than the single 0:21:25.600 --> 0:21:28.400 channel customer. In big backs, what's your single best by 0:21:28.480 --> 0:21:31.920 Dana right now? I mean, look what targets doing. It's 0:21:31.920 --> 0:21:35.040 pretty special. And frankly, look what's Walmart. Walmart is doing. 0:21:35.440 --> 0:21:39.080 I think the big box discounters are capturing more consumers. 0:21:39.440 --> 0:21:41.880 How long can this consumer boom continue? Though in terms 0:21:41.960 --> 0:21:44.720 of spending, Given the fact that we are seeing prices rise, 0:21:45.119 --> 0:21:47.680 and we are expecting some of the wage increases to 0:21:47.720 --> 0:21:50.920 start to slow. So when we see the wage increases 0:21:50.960 --> 0:21:53.240 slow and yes, prices are rising. We've heard about it 0:21:53.320 --> 0:21:56.000 in footwear, We've heard about it in other categories. To 0:21:56.680 --> 0:21:58.760 child tax credits going to be there through the end 0:21:58.800 --> 0:22:01.840 of the year. The savings rate is high. I think 0:22:01.880 --> 0:22:05.320 we're gonna see a sustained demand of enhanced spending as 0:22:05.400 --> 0:22:08.560 we go through the Christmas time period. Is where people 0:22:08.760 --> 0:22:11.199 are spending? Is that changing? I know that we went 0:22:11.320 --> 0:22:13.760 through the cycle of devices, and then recently we've seen 0:22:13.800 --> 0:22:16.000 an explosion of people trying to buy clothes at fit 0:22:16.080 --> 0:22:18.400 them as they try to return to the office. Where 0:22:18.520 --> 0:22:21.119 are the hot spots right now heading into your end? 0:22:22.160 --> 0:22:24.359 I think heading into the year end by category, I 0:22:24.440 --> 0:22:26.879 think a parallel is a hot spot, the innovation that 0:22:27.000 --> 0:22:30.280