WEBVTT - Surveillance: Supply Shock Risks With Greene 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jaily, we bring you 0:00:13.320 --> 0:00:17.960 insight from the best and economics, finance, investment, and international 0:00:18.000 --> 0:00:23.280 relations to find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg 0:00:23.360 --> 0:00:29.240 dot Com and of course on the Bloomberg terminal. What 0:00:29.320 --> 0:00:31.440 we're gonna do right now, And we've really tried to 0:00:31.480 --> 0:00:33.880 do this, and we tried to have every guest today 0:00:33.960 --> 0:00:37.320 be a Red Sox fan, and we've massively succeeded. With 0:00:37.440 --> 0:00:40.360 Megan Green, the only guest I know who has Red 0:00:40.400 --> 0:00:44.519 Sox vans when she's styling on the weekend at Harvard, 0:00:44.800 --> 0:00:46.720 and of course we welcome her. Is a global chief 0:00:46.720 --> 0:00:50.159 economist for Cole Institute. Thrilled she's with it that the 0:00:50.200 --> 0:00:52.519 news is so important. Megan, I'm going to avoid the 0:00:52.560 --> 0:00:56.840 baseball right now. The makeup of this trade deficit, is 0:00:57.000 --> 0:01:02.160 Lisa mentioned, Is that an export afferential or an important 0:01:02.160 --> 0:01:07.839 differential that gets us to this record statistic. Yeah, so, 0:01:07.880 --> 0:01:10.120 as Lisa highlighted, it's a bit of both. And it 0:01:10.240 --> 0:01:13.360 is really interesting that it's happening as these talks are 0:01:13.400 --> 0:01:16.840 just kicking off between the US and China. China, of 0:01:16.840 --> 0:01:19.240 course hasn't held up its end of the bargain in 0:01:19.360 --> 0:01:22.559 terms of the trade deal that we had struck. They 0:01:22.640 --> 0:01:26.320 haven't boughten nearly the amount in value terms of goods 0:01:26.720 --> 0:01:30.280 that they had promised. Too. That seemed forgivable in the 0:01:30.360 --> 0:01:33.920 throes of a global pandemic that of course originated in China, 0:01:34.200 --> 0:01:37.440 so they had massive shutdowns. Um, the best thing about 0:01:37.480 --> 0:01:40.320 the pandemic might have been that actually there was an 0:01:40.360 --> 0:01:43.280 excuse for China not actually holding up its end of 0:01:43.319 --> 0:01:45.920 the deal. But that excuse is really waned, and so 0:01:46.400 --> 0:01:48.360 now the US would like China to go ahead and 0:01:48.640 --> 0:01:51.200 hit the targets. It's a big question though, about how 0:01:51.200 --> 0:01:54.080 they're going to get there, or whether they're really incentivized. 0:01:54.400 --> 0:01:57.600 That's gonna take forever. If the equation is why caill 0:01:57.680 --> 0:02:04.080 C plus G plus i g UH plus x M 0:02:04.200 --> 0:02:09.680 is the X minus M gonna change American GDP quarterly 0:02:09.840 --> 0:02:12.680 over the next year, is it enough to shift the 0:02:12.800 --> 0:02:16.560 larger parts of that algebra? So no, I don't think 0:02:16.600 --> 0:02:19.720 we'll strike something that actually fundamentally makes the difference in 0:02:19.840 --> 0:02:22.240 terms of growth. And of course, most of the growth 0:02:22.720 --> 0:02:25.560 right now is coming through the reopening UM and the 0:02:25.639 --> 0:02:29.160 peaks behind us unfortunately. Uh, And I think actually the 0:02:29.200 --> 0:02:33.079 biggest impediment isn't really how much China is buying our stuff. 0:02:33.320 --> 0:02:36.119 The real impediment is going to be supply shocks globally. 0:02:36.240 --> 0:02:38.560 That's going to be the biggest drag on growth in 0:02:38.560 --> 0:02:40.680 the second half of this year. And those those things 0:02:40.680 --> 0:02:43.000 go together, right, I mean, there is this question of 0:02:43.200 --> 0:02:45.639 the fact that we do have this trade mismatch and 0:02:45.680 --> 0:02:48.960 the fact that China is perhaps in a better negotiating 0:02:49.000 --> 0:02:52.120 position with the US simply because the US wants to 0:02:52.160 --> 0:02:55.400 import all this stuff immediately. How much does this give 0:02:55.440 --> 0:02:58.160 a sense that the supply chain disruptions may last some 0:02:58.160 --> 0:03:02.080 somewhat longer than people are currently expect. Day. Look, I 0:03:02.120 --> 0:03:05.600 think that even without this dynamic, this trade dynamic between 0:03:05.639 --> 0:03:08.080 the US and China, these supply disruptions will be a 0:03:08.120 --> 0:03:11.760 problem for at least the next six months, possibly longer. Um. 0:03:11.800 --> 0:03:14.680 I think they should be uh sort of eased up 0:03:14.720 --> 0:03:17.720 in the in the second half of next year for sure. 0:03:18.080 --> 0:03:21.040 And so it feeds into this question about inflation and 0:03:21.160 --> 0:03:25.320 how much you think inflation is sustainable versus temporary. But 0:03:25.440 --> 0:03:29.000 also we economists aren't very good at defining what temporary 0:03:29.840 --> 0:03:33.359 or transitory and sustained are. And I think if you're 0:03:33.360 --> 0:03:35.560 expecting inflation to go ahead and wane in the next 0:03:35.560 --> 0:03:38.320 three months, you're going to be really disappointed. If you're 0:03:38.320 --> 0:03:40.840 happy to sit through the next year and expect prices 0:03:40.880 --> 0:03:43.720 to be higher because of supply chain disruptions and you 0:03:43.720 --> 0:03:46.640 think that's sort of a one off cork of the pandemic, 0:03:47.160 --> 0:03:49.480 then you might actually see inflations start to come down 0:03:49.520 --> 0:03:51.200 in the second half of next year. Although it's not 0:03:51.280 --> 0:03:53.800 just supply chain disruptions. It's also a shift in the 0:03:53.920 --> 0:03:57.240 Chinese economy with a push toward making a higher wage, 0:03:57.320 --> 0:04:00.440 toward bettering the middle class. And I wonder how much 0:04:00.480 --> 0:04:05.080 for decades we were importing disinflation, We were importing deflation 0:04:05.200 --> 0:04:09.240 from China with cheaply made goods. Is that reversing now 0:04:09.480 --> 0:04:13.160 as the shift for Jim Pink changes. Well, So that 0:04:13.280 --> 0:04:16.080 was the case, as you know, the iron curtain fell 0:04:16.080 --> 0:04:18.840 and the bamboo curtain fell, and we added billions of 0:04:18.839 --> 0:04:22.719 workers to the global workforce, and Chinese workers were really cheap. 0:04:22.760 --> 0:04:24.520 That hasn't been the case for a long time. We 0:04:24.640 --> 0:04:27.119 just have been rising in China for a long time. 0:04:27.440 --> 0:04:30.960 Now we've had cheap work coming out of Vietnam, Malaysia, 0:04:31.000 --> 0:04:34.320 other parts of Southeast Asia. Wages are rising there too, 0:04:34.360 --> 0:04:36.760 So the question is, you know, where do we go next? 0:04:36.880 --> 0:04:40.680 If we're looking for cheap labor. One is actually two machines, 0:04:40.720 --> 0:04:42.839 So there's been a ton of automation over the course 0:04:42.839 --> 0:04:45.839 of this pandemic. That should ease some of the upper 0:04:45.880 --> 0:04:49.800 pressure on wages certainly. And then secondly, there are other 0:04:49.800 --> 0:04:51.760 parts of the world with cheap labor. So if that's 0:04:51.760 --> 0:04:53.880 going to continue to be the model, which is too 0:04:54.520 --> 0:04:57.880 sort of offshore any production with cheap labor, and I 0:04:57.880 --> 0:04:59.400 don't think that is going to be the model. But 0:04:59.440 --> 0:05:02.560 if that's what we're looking for, you know, Sub Saharan Africa, 0:05:02.960 --> 0:05:06.600 North North Africa in particular the Middle East, there's there's 0:05:06.600 --> 0:05:09.080 a lot of room for that trend to run. So 0:05:09.200 --> 0:05:11.520 I don't actually buy the fact that we're running out 0:05:11.520 --> 0:05:14.200 of cheap workers. I think that we are restructuring the 0:05:14.200 --> 0:05:18.480 economy through a new uh industrial policy that's actually accepted 0:05:18.480 --> 0:05:21.800 by both sides of the political spectrum right now. That 0:05:21.839 --> 0:05:24.239 means that we're not actually just going for the cheapest 0:05:24.240 --> 0:05:27.239 products made in the cheapest places we're trying to onshore 0:05:27.320 --> 0:05:29.200 some of that work with industrial problems. Let me ask 0:05:29.200 --> 0:05:32.080 you a Harvard question. This isn't a cruel institute question. 0:05:32.120 --> 0:05:35.160 It's a fancy pants academic question. And I can do 0:05:35.240 --> 0:05:38.680 this in honor of Dale Jorgensen. How's our total factor 0:05:38.760 --> 0:05:43.640 productivity look right now? So we don't know exactly because 0:05:43.680 --> 0:05:45.520 that data comes out with a bit of a lag, 0:05:45.600 --> 0:05:48.200 but we do know that it's increased. So you know, 0:05:48.279 --> 0:05:50.760 for the developed world it was about one percent for 0:05:50.800 --> 0:05:53.520 the last decade. In the past couple of years, it's 0:05:53.560 --> 0:05:56.599 increased to around two percents, around double that. In the 0:05:56.680 --> 0:06:00.760 US it was three percent. More more recently, we anecdotally 0:06:00.880 --> 0:06:03.000 through surveys that a lot of firms have taken the 0:06:03.000 --> 0:06:06.960 opportunity of the pandemic to digitalize and automate a lot 0:06:07.040 --> 0:06:10.680 of things, which should fundamentally boost productivity and and and 0:06:10.720 --> 0:06:13.560 it should boost productivity going forward. And then we also 0:06:13.600 --> 0:06:16.520 know there's a ton of legislation on the docket that's 0:06:16.600 --> 0:06:19.880 aimed at infrastructure spending, investment in human capital that should 0:06:19.920 --> 0:06:23.880 continue to boost productivity. And the good thing about productivity 0:06:23.920 --> 0:06:26.920 growth is that you can have wage growth. And if 0:06:26.960 --> 0:06:29.360 you've got productivity growth as well. It doesn't need to 0:06:29.400 --> 0:06:32.200 be inflationary, but that might mean that the participation rate 0:06:32.240 --> 0:06:35.200 in the labor market continues to go down. At least 0:06:35.200 --> 0:06:37.240 the downward trend that we've seen over the past few 0:06:37.279 --> 0:06:39.960 decades is that what you're predicting that people would be 0:06:39.960 --> 0:06:42.080 paid more if they're in the labor market, but there'll 0:06:42.080 --> 0:06:44.800 be a high proportion of people permanently out of the 0:06:44.880 --> 0:06:48.400 labor market. Yeah. Look, this gets down to the question 0:06:48.440 --> 0:06:51.599 whether robots are taking our jobs or not. Fundamentally um 0:06:51.640 --> 0:06:55.280 and I'd say, in in previous periods where we had 0:06:55.320 --> 0:06:58.480 a bunch of innovation and everybody was worried that we'd 0:06:58.480 --> 0:07:01.080 all be automated out of work, it didn't happen. We 0:07:01.200 --> 0:07:03.800 generated jobs. That are we couldn't wrap our heads around. 0:07:03.839 --> 0:07:07.720 When we built highways and had cars, nobody thought about 0:07:07.720 --> 0:07:10.440 all the rest stops that would generate jobs, for example. 0:07:10.560 --> 0:07:13.880 So there may be an equivalent this time around as well. 0:07:14.000 --> 0:07:17.960 I think there will be structurally higher, uh sorry, lower 0:07:18.360 --> 0:07:21.040 labor first participation rate for a little while, in part 0:07:21.120 --> 0:07:24.760 just because certain certain industries aren't coming back, and so 0:07:25.120 --> 0:07:28.720 as a result of the shutdown and the transformation of 0:07:28.760 --> 0:07:31.600 our economy through this pandemic. There's just gonna be a 0:07:31.640 --> 0:07:35.360 lot of rigidities in terms of retooling and reskilling workers 0:07:35.360 --> 0:07:38.559 for sectors that are coming back. And unfortunately, I don't 0:07:38.640 --> 0:07:40.920 actually know a country out there that does a good 0:07:41.000 --> 0:07:42.800 job with that. So that is something that we should 0:07:42.840 --> 0:07:45.320 absolutely be focused on. Tom, did we did the baseball 0:07:45.360 --> 0:07:48.280 think that'll be done that yet? You could do that? Now? John, 0:07:48.320 --> 0:07:50.520 you do it? Mecan Green, Red Sox fan, do you 0:07:50.560 --> 0:07:54.640 go tonight to Fen White? I don't actually have tickets tonight, 0:07:54.680 --> 0:07:56.920 so if any viewers want to give give them to me, 0:07:57.000 --> 0:08:01.800 I would be gratefully receiving them. Corraine, unfortunately, but but 0:08:01.840 --> 0:08:04.320 I like service announced. Perhaps she should go with Tom 0:08:04.400 --> 0:08:06.520 will fly him up tonight. I am Marie. I think 0:08:06.600 --> 0:08:08.320 a Marie may be going. And she told me she 0:08:08.440 --> 0:08:13.040 was one thousand, two hundred thirty two dollars third base. Yeah, 0:08:13.480 --> 0:08:18.720 third base, like three rows behind third base. She's sitting 0:08:18.760 --> 0:08:22.560 in front of Stephen King. Okay, Megan Green, have you 0:08:22.560 --> 0:08:25.120 got any predictions? Yeah? Giving Megan give us some love? 0:08:25.240 --> 0:08:27.520 Come on, yeah, I mean I think the Red Sox 0:08:27.600 --> 0:08:29.480 are gonna win. If not, because the best people root 0:08:29.560 --> 0:08:34.800 for them, obvious Okay, I was convincing making great Cenia 0:08:34.840 --> 0:08:37.520 Fellow at the Harvard Kennedy School and clubal chief economist. 0:08:37.520 --> 0:08:41.080 She took a minor John at Harvard and John Kelvin. 0:08:41.120 --> 0:08:43.160 I think that they going to win because the best 0:08:43.200 --> 0:08:53.000 people root for them. Right now, hugely anticipated. We speak 0:08:53.000 --> 0:08:56.200 with George Sarah Ellis of Deutsche Bank. He has arguably 0:08:56.240 --> 0:08:59.439 the toughest job at the bank. It is Peter Hooper, 0:08:59.559 --> 0:09:02.840 It's Day, it focus Landau, It's Metal Zi and they're 0:09:02.880 --> 0:09:06.360 all churning away and Ruskin and Sarah Velos have to 0:09:06.480 --> 0:09:10.040 figure out how to sort out the inflation dynamics, the 0:09:10.080 --> 0:09:13.480 economic dynamics, and what it means in foreign exchange. Mr 0:09:13.520 --> 0:09:17.960 Sara Velos joins us this morning. What is your dollar call? 0:09:19.640 --> 0:09:22.120 Great to see you, tom So. I think the risks 0:09:22.160 --> 0:09:25.839 are you do see moderately stronger dollar until the end 0:09:25.960 --> 0:09:29.240 of the year. Um. There is much more going on 0:09:29.360 --> 0:09:32.120 in the market than just the inflation story, which is 0:09:32.160 --> 0:09:35.200 dominated this year. UM. I was following with interest the 0:09:35.240 --> 0:09:38.800 interview you had with Muhammad Allarian just after the US 0:09:38.880 --> 0:09:41.520 numbers last week, and he was very focused on the 0:09:41.520 --> 0:09:44.679 inflation upside. But at the same time you had the 0:09:44.720 --> 0:09:47.559 big down side growth surprises as well to those numbers. 0:09:48.120 --> 0:09:50.560 And I think there's three things going on in this 0:09:50.640 --> 0:09:54.040 last quarter of the year. Number one, we're getting extremely 0:09:54.080 --> 0:09:57.600 pessimistic messages on the supply side of the global economy. 0:09:58.200 --> 0:10:00.160 One of my favorite examples is if you look at 0:10:00.280 --> 0:10:03.760 UK total hours worked, it's still eight percent below where 0:10:03.760 --> 0:10:06.600 it was pre COVID, So that's still a massive labor gap, 0:10:06.840 --> 0:10:09.720 and we're talking about rate hikes in the UK um 0:10:09.760 --> 0:10:13.079 The consumer is just not gangbusters. So as John said before, 0:10:13.200 --> 0:10:15.360 this is not the same as Q one. We can 0:10:15.400 --> 0:10:18.920 see in consumer confidence. The slowdown in spending was happening 0:10:18.920 --> 0:10:21.439 before the delta wave, and you're just not seeing the 0:10:21.520 --> 0:10:24.280 straw down in nexcess saving that people were expecting. So 0:10:24.360 --> 0:10:27.240 this week of growth dynamic with our inflation, I think 0:10:27.240 --> 0:10:29.480 that the margin is supportive of the dollar. Okay, so 0:10:29.559 --> 0:10:31.599 let's go there. Let's rebrupt the scripture your folks. We 0:10:31.640 --> 0:10:34.920 can do that with George Seravellis and sterling. How do 0:10:34.960 --> 0:10:38.199 you express that view on sterling if it's not cable, 0:10:38.720 --> 0:10:43.000 which pair is the most intelligent tradeable pair for sterling? 0:10:44.400 --> 0:10:47.560 So the UK is a fascinating example. It's at the 0:10:47.600 --> 0:10:50.640 epicenter of what's going on where you're about to have 0:10:50.760 --> 0:10:52.880 I think of very sharp slowing in growth because you 0:10:52.920 --> 0:10:55.400 have fiscal tightening at the same time and the Bank 0:10:55.400 --> 0:10:58.600 of England hikes rates. Now this is very, very different 0:10:58.640 --> 0:11:01.520 to the demand side cycles we were used to to 0:11:01.520 --> 0:11:04.200 to experiencing, and I think the risk is you see 0:11:04.360 --> 0:11:09.360 UK influence slow down, the growth side decelerate pretty quickly, 0:11:09.400 --> 0:11:11.640 and that would be negative for the pound. Now the 0:11:11.679 --> 0:11:16.160 polar opposite story of that is places like Norway. Essentially 0:11:16.160 --> 0:11:18.640 what you will see this quarter is a direct income 0:11:18.679 --> 0:11:22.120 transfer from the UK consumer to the Norwegian consumer, which 0:11:22.160 --> 0:11:26.200 benefits from these big grices and energy prices. So we 0:11:26.280 --> 0:11:29.679 like sterlet selling the pound against Norway, but also against 0:11:29.720 --> 0:11:32.199 the Swiss franc and my colleagues have done some great 0:11:32.240 --> 0:11:34.920 work showing how the Swiss franc is one of the 0:11:34.960 --> 0:11:38.040 best safe havens in a world of rising inflation but 0:11:38.120 --> 0:11:41.240 falling growth. George, what are the lessons from trading, say 0:11:41.280 --> 0:11:43.600 e m X for some of these currencies in G 0:11:43.720 --> 0:11:48.319 ten right now? Are they applicable? Well, it's an interesting 0:11:48.400 --> 0:11:51.240 question and I think probably most immediately relevant to the 0:11:51.320 --> 0:11:54.040 UK because you do have this environment in the m 0:11:54.080 --> 0:11:57.000 where sometimes central banks try to high rate but the 0:11:57.080 --> 0:12:00.600 currency stays weak because you can't see those inflo UM 0:12:00.600 --> 0:12:02.760 and e M historically has been more vulnerable to the 0:12:02.840 --> 0:12:05.400 supply side shocks. We're now seeing it for the first 0:12:05.440 --> 0:12:08.080 time in d M, and I think it's very interesting. 0:12:08.240 --> 0:12:09.720 You know, at the start of the year, if I 0:12:09.760 --> 0:12:11.640 had told you the Bank of England could be hiking 0:12:11.720 --> 0:12:13.960 rates as soon as this year, you would have told 0:12:13.960 --> 0:12:17.120 me the power would be surging, and instead it's struggling. 0:12:17.280 --> 0:12:20.920 So this transmission channel, which usually a central bank hike does, 0:12:21.120 --> 0:12:23.840 as in strengthen the currency to push inflation down, is 0:12:23.880 --> 0:12:26.160 not working in the UK, and I think that asks 0:12:26.240 --> 0:12:30.559 all sorts of uncomfortable questions for the Bank of England. George. 0:12:30.679 --> 0:12:32.640 Before we let you go, we have to deal with 0:12:32.679 --> 0:12:34.600 the S word, because you did write it in a 0:12:34.640 --> 0:12:39.120 recent report that this environment is definitively stagflationary. How much 0:12:39.160 --> 0:12:41.319 hate mail did you get for using that word in 0:12:41.360 --> 0:12:45.480 a time of still robust growth. So um, it's interesting. 0:12:45.480 --> 0:12:48.480 We we have a lot of internal debates within research. 0:12:48.559 --> 0:12:53.280 Obviously there's there's different definitions of that word. But for me, 0:12:53.440 --> 0:12:55.839 the key point is not how you define a world, 0:12:55.880 --> 0:12:59.400 but that the trajectory in inflation and growth. And one 0:12:59.440 --> 0:13:02.120 thing that I think hasn't materialized for those that have 0:13:02.240 --> 0:13:05.840 been espousing the so called gangbuster narrative is you really 0:13:05.880 --> 0:13:08.360 haven't seen growth accelerating the second half of the year. 0:13:08.640 --> 0:13:11.280 You're seeing a pretty sharp deceleration. So it's a very 0:13:11.280 --> 0:13:14.120 different playbook compared to the first half. Do you think, yes, 0:13:14.160 --> 0:13:16.720 what it is a distraction though, George, the very fact 0:13:16.720 --> 0:13:18.559 that we have to talk about it, because factually it's 0:13:18.600 --> 0:13:20.480 so hard to it's so easy just to turn around 0:13:20.520 --> 0:13:24.720 and say that's not what this is. Well, again, I 0:13:24.760 --> 0:13:28.120 think it is to the destination George, or you think 0:13:28.160 --> 0:13:29.679 it feels like that right now? Do you think that's 0:13:29.720 --> 0:13:34.439 where we're heading? I think debating definitions is not as 0:13:34.520 --> 0:13:37.320 useful as observing that you're seeing a pretty sharp slowdown, 0:13:37.400 --> 0:13:39.480 and it's not just because of the supply side. It's 0:13:39.520 --> 0:13:42.280 because the consumer is underwhelming. But in terms of direction 0:13:42.280 --> 0:13:44.920 of travel, yes, I do worry we have more growth 0:13:44.920 --> 0:13:47.920 loud oncoming slow down coming in the pipeline, both because 0:13:47.960 --> 0:13:52.160 of China, fiscal tightening in the UK and the US importantly, 0:13:52.559 --> 0:13:55.560 so I worry that this mix continues and worsens. George, 0:13:55.640 --> 0:13:59.280 really smart note, Gangbusters ain't hammning. Great to catch up. 0:13:59.320 --> 0:14:01.360 Thanks for coming on shy with us. George Saravlos, the 0:14:01.559 --> 0:14:09.400 Deutsche Bank Globo have head of FX research joining us 0:14:09.400 --> 0:14:12.840 now Chrisma RANKI camp Coco of value. Chris, let's start 0:14:12.880 --> 0:14:15.599 right here. It smells like Q one, it is not 0:14:15.760 --> 0:14:20.600 Q one. What's the difference right now for you? Chris? Yeah, 0:14:20.600 --> 0:14:22.800 there are some key differences. Interestingly, in Q one, I 0:14:22.840 --> 0:14:26.640 think expectations for nominal GDP growth we're probably something like 0:14:26.680 --> 0:14:29.240 ten percent. There's still ty percent, but the mix is different. 0:14:29.440 --> 0:14:32.880 There's probably more of a waiting toward inflation versus real growth. 0:14:33.280 --> 0:14:36.640 As we see supply chain issues crimp real growth and 0:14:36.680 --> 0:14:41.720 those UH inflation pressures persistent and probably worsen. Chris, I 0:14:41.760 --> 0:14:43.960 have been dying to speak to you to know what 0:14:44.040 --> 0:14:48.000 the value house that Gabelly built thinks about the gloom 0:14:48.240 --> 0:14:52.240 on revenues in margin compression. I want to know what 0:14:52.400 --> 0:14:55.120 you guys think we're gonna see on revenues. Are they 0:14:55.120 --> 0:14:58.440 going to be better than good? Alright? I'm not worried 0:14:58.440 --> 0:15:01.080 about revenue. There's certainly play me of demand out there 0:15:01.080 --> 0:15:03.680 pretty much across the board. The issue is can that 0:15:04.200 --> 0:15:06.720 demand be fulfilled, and we're seeing a lot of Obviously 0:15:06.760 --> 0:15:09.840 we talked about it, that nausea, bottlenecks and inability to 0:15:10.200 --> 0:15:13.360 meet that demand, and that in many cases has caused 0:15:13.360 --> 0:15:15.880 some some margin oppression. Companies have tried to pass through 0:15:16.400 --> 0:15:19.760 um many of those costs and and many have pricing power, 0:15:19.960 --> 0:15:22.200 but they haven't been able to produce to pass through 0:15:22.240 --> 0:15:26.000 all those costs. And so the question is how persistent 0:15:26.000 --> 0:15:28.920 will those margin pressures be. Are we at new levels 0:15:29.000 --> 0:15:33.880 for labor costs, for example, for other natural resource inputs? 0:15:34.360 --> 0:15:35.880 And I think the answer is probably yes. I think 0:15:36.080 --> 0:15:38.680 once you raise wages, very difficult to take them back. 0:15:38.720 --> 0:15:41.960 So over the next few years, probably going to see 0:15:41.960 --> 0:15:45.400 some some margin pressure broadly in the market. What's being 0:15:45.400 --> 0:15:48.640 priced in? Are we being pricing in peak supply chain 0:15:48.680 --> 0:15:51.160 disruption or are people concerned that this is just the 0:15:51.200 --> 0:15:54.680 beginning based on where pricing is right now. Well, you know, 0:15:54.840 --> 0:15:57.080 when you think something is priced and it's it's usually not. 0:15:57.200 --> 0:16:00.640 But clearly the move over the last month or so 0:16:00.800 --> 0:16:03.240 has been at least partly in response to a number 0:16:03.280 --> 0:16:06.400 of companies out there, particularly in the industrial area, warning 0:16:06.440 --> 0:16:08.400 about what their Q three is going to look like. 0:16:08.520 --> 0:16:09.840 Saying they're going to be at the low end of 0:16:09.880 --> 0:16:12.360 their previously expected earnings, for example. So I think we're 0:16:12.360 --> 0:16:15.200 gonna see more of that as we go through earning season. 0:16:15.480 --> 0:16:18.080 Some of it's priced in, probably all of it isn't Chris. 0:16:18.120 --> 0:16:20.880 I want to talk about the banks just briefly. Where 0:16:20.920 --> 0:16:23.080 you want to sit in the financials at the moment, 0:16:23.080 --> 0:16:25.080 the kind of business models you want to warn, the 0:16:25.160 --> 0:16:29.160 characteristics of those names, where do you want to be well, 0:16:29.200 --> 0:16:32.120 you know, generally, so banks performed well earlier this year 0:16:32.520 --> 0:16:35.160 in part because there was an expectation that rates would 0:16:35.160 --> 0:16:37.280 go up to the curve wood steepen, and that's generally 0:16:37.360 --> 0:16:40.280 good for borrow short land long, but also because they 0:16:40.280 --> 0:16:43.280 were conduits for growth, conduits for reopening um for more 0:16:43.320 --> 0:16:47.520 consumers spending, more house buying, etcetera. And and I think 0:16:47.560 --> 0:16:50.920 that's been muted a little bit. Generally in the financials area. 0:16:50.960 --> 0:16:54.120 We're looking for non commoditized companies, companies that have some 0:16:54.200 --> 0:16:56.600 kind of a Moodele's tend to be the credit card companies, 0:16:56.680 --> 0:16:59.600 the American Expresses of the World, for example, which itself 0:16:59.720 --> 0:17:02.720 is a significant beneficiary of increased travel spend. For example 0:17:02.960 --> 0:17:07.560 in PNA, so Um, that's generally where we we've been historically, 0:17:07.600 --> 0:17:09.560 and it's where we want to be going forward. I've 0:17:09.600 --> 0:17:11.920 got to ask about autos, you know, Chris, that's where 0:17:11.960 --> 0:17:15.000 Mario Gabelli began as a security analysts. Look in an 0:17:15.000 --> 0:17:18.440 industrialist gartment, says things that fall in your feet. I've 0:17:18.440 --> 0:17:21.680 got to ask about the people going after general motors 0:17:21.720 --> 0:17:25.440 trying to find value. Can hedge funds and stuff? Can 0:17:25.480 --> 0:17:29.720 private capital even with small amounts of percentage ownership? Can 0:17:29.760 --> 0:17:35.000 they go after industrial America? Yeah? Absolutely? And and uh, 0:17:35.080 --> 0:17:37.119 you know, Jenna has found a new life as a 0:17:37.119 --> 0:17:39.280 as an E s G play. We we do have 0:17:39.400 --> 0:17:42.360 a sustainability fund for example, that owns it in part 0:17:42.440 --> 0:17:46.479 because of their commitment to electrification. Mary Barra has has 0:17:46.480 --> 0:17:50.160 been pretty vocal about that obviously, and and it looks like, um, 0:17:50.200 --> 0:17:53.480 it's for real. They are really investing in products to 0:17:53.560 --> 0:17:56.560 compete with Tesla and others and think they're going to 0:17:56.600 --> 0:18:00.000 be successful. It'stock is cheap. Um, it doesn't. We'll never 0:18:00.200 --> 0:18:04.159 escape its cyclical nature. Um, but the cycle probably is 0:18:04.160 --> 0:18:06.880 in its favor for the next five years. That's fascinating. 0:18:06.880 --> 0:18:09.320 It's in other words, E s G considerations are a 0:18:09.480 --> 0:18:13.640 factor in what you put into which companies are potentially attractive, 0:18:13.680 --> 0:18:16.239 which could attract those E s G funds based on 0:18:16.280 --> 0:18:19.600 what their footprint is. Yeah, I don't think there's any 0:18:19.640 --> 0:18:23.160 question that companies with good E s G reputation, good 0:18:23.160 --> 0:18:26.920 E s G scores have attracted capital and in many 0:18:26.960 --> 0:18:31.520 cases have garnered evaluation premiums and what we look for those. 0:18:31.600 --> 0:18:34.040 But we generally, you know, do have some clients and 0:18:34.119 --> 0:18:37.080 some funds that are sustainability and E s G focused 0:18:37.520 --> 0:18:40.080 and UM and they you know, there's certain requirements that 0:18:40.160 --> 0:18:43.399 have to be met and and GM. Actually, even though 0:18:43.440 --> 0:18:46.320 it's still relying on on the ice UM fit's that 0:18:47.080 --> 0:18:49.040 I gotta leave it there. Chris always good to catch up. 0:18:49.240 --> 0:18:57.360 Chrisma Rani there of Gamco, the co c I value. 0:18:58.680 --> 0:19:01.040 He could do logs as well. More regular joins us 0:19:01.119 --> 0:19:04.320 right now. Schwab acid ce io and head of investments. 0:19:04.440 --> 0:19:07.840 Oh our love, love love. What you say about the 0:19:07.880 --> 0:19:10.959 development of new walls of worry for you and Lisian 0:19:11.040 --> 0:19:15.399 Saunders is that just means go along? Well, you know, 0:19:15.480 --> 0:19:17.720 that actually means we've got to continue to educate our 0:19:17.800 --> 0:19:20.840 clients and you know, the behavioral aspect of the market. 0:19:20.920 --> 0:19:24.199 You know, which means you know, they will always be concerns. 0:19:24.240 --> 0:19:26.080 They will always you know, you can always find that 0:19:26.119 --> 0:19:29.480 gloomy scenario at any given time. Um, you know, it 0:19:29.640 --> 0:19:32.199 is true that probably is a little more difficult to 0:19:32.280 --> 0:19:34.399 think about the positives at the moment when you had 0:19:34.440 --> 0:19:37.200 a bad month like September. And it also on this 0:19:37.440 --> 0:19:40.679 on the same thing, the whole discussion about inflation, about 0:19:40.760 --> 0:19:44.840 you know, great luck in Washington, about supply chains, disruptions, 0:19:44.880 --> 0:19:47.840 about labor market. It is very easy to continue to 0:19:47.840 --> 0:19:50.639 build that wall of worry and that usually that information 0:19:50.720 --> 0:19:53.080 gets in the hands of investors and consumers. I'm not 0:19:53.200 --> 0:19:56.160 talk to me about recency past the temptation of extrapolating 0:19:56.200 --> 0:19:59.440 out last week's price action through the whole cycle. Ama, 0:19:59.520 --> 0:20:02.879 how do we have with that? Well, it's uh, it 0:20:03.000 --> 0:20:05.960 is a very natural bias. Is one of those called 0:20:06.000 --> 0:20:09.040 cognitive biases that you know, it is very well studied 0:20:09.240 --> 0:20:12.920 in the literature, which basically you just extravelate your your 0:20:12.960 --> 0:20:16.640 experience of the recent information that's it call is recency bias, 0:20:16.640 --> 0:20:18.240 and you actually think that that's what it's going to 0:20:18.320 --> 0:20:21.200 continue going forward. That happens in the bull market, that's 0:20:21.240 --> 0:20:23.520 what propelled bull markets. If you think about it, that 0:20:23.640 --> 0:20:26.400 is the whole idea of the foamal effect of fear 0:20:26.440 --> 0:20:28.960 of missing out. But it also works on the downside, 0:20:28.960 --> 0:20:31.080 where you know people that have you know, a bad 0:20:31.119 --> 0:20:33.679 experience I think you were talking about earlier. You know 0:20:33.760 --> 0:20:38.040 the significant negative returns that we saw in individual names. Well, 0:20:38.080 --> 0:20:42.040 people extrapolate that and immediately gets the emotional bias to 0:20:42.119 --> 0:20:44.679 kick in, which gives them down on what how to 0:20:44.760 --> 0:20:47.800 make decisues. So recency vice is a very common bias. 0:20:47.880 --> 0:20:50.760 Is one of the vices that that has recent the most, 0:20:51.160 --> 0:20:54.520 especially you know, during the pandemic and in the process 0:20:54.560 --> 0:20:57.240 of getting out of the pandemic. That's the behavioral finance 0:20:57.320 --> 0:20:59.840 of the investor. What about the behavioral finance of the 0:21:00.000 --> 0:21:02.560 consumer as they look at higher prices and they say, 0:21:02.720 --> 0:21:04.199 you know what, maybe I don't want to buy a 0:21:04.200 --> 0:21:06.159 washing machine because it costs twice as much as it 0:21:06.200 --> 0:21:08.359 did two years ago. Hey, maybe now it's not a 0:21:08.400 --> 0:21:10.480 good time to buy a house. How much does this 0:21:10.600 --> 0:21:14.440 start to bleed and ingrain itself into the economic moment 0:21:14.520 --> 0:21:18.840 and create a slowdown in consumer spending despite pretty robust savings. 0:21:20.160 --> 0:21:22.560 Well we did, we did see already that you know 0:21:22.680 --> 0:21:25.560 is low down in consumers spending, you know, after the 0:21:25.640 --> 0:21:27.879