Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jaily, we bring you
Speaker 1: insight from the best and economics, finance, investment, and international
Speaker 1: relations to find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg
Speaker 1: dot Com and of course on the Bloomberg terminal. What
Speaker 1: we're gonna do right now, And we've really tried to
Speaker 1: do this, and we tried to have every guest today
Speaker 1: be a Red Sox fan, and we've massively succeeded. With
Speaker 1: Megan Green, the only guest I know who has Red
Speaker 1: Sox vans when she's styling on the weekend at Harvard,
Speaker 1: and of course we welcome her. Is a global chief
Speaker 1: economist for Cole Institute. Thrilled she's with it that the
Speaker 1: news is so important. Megan, I'm going to avoid the
Speaker 1: baseball right now. The makeup of this trade deficit, is
Speaker 1: Lisa mentioned, Is that an export afferential or an important
Speaker 1: differential that gets us to this record statistic. Yeah, so,
Speaker 1: as Lisa highlighted, it's a bit of both. And it
Speaker 1: is really interesting that it's happening as these talks are
Speaker 1: just kicking off between the US and China. China, of
Speaker 1: course hasn't held up its end of the bargain in
Speaker 1: terms of the trade deal that we had struck. They
Speaker 1: haven't boughten nearly the amount in value terms of goods
Speaker 1: that they had promised. Too. That seemed forgivable in the
Speaker 1: throes of a global pandemic that of course originated in China,
Speaker 1: so they had massive shutdowns. Um, the best thing about
Speaker 1: the pandemic might have been that actually there was an
Speaker 1: excuse for China not actually holding up its end of
Speaker 1: the deal. But that excuse is really waned, and so
Speaker 1: now the US would like China to go ahead and
Speaker 1: hit the targets. It's a big question though, about how
Speaker 1: they're going to get there, or whether they're really incentivized.
Speaker 1: That's gonna take forever. If the equation is why caill
Speaker 1: C plus G plus i g UH plus x M
Speaker 1: is the X minus M gonna change American GDP quarterly
Speaker 1: over the next year, is it enough to shift the
Speaker 1: larger parts of that algebra? So no, I don't think
Speaker 1: we'll strike something that actually fundamentally makes the difference in
Speaker 1: terms of growth. And of course, most of the growth
Speaker 1: right now is coming through the reopening UM and the
Speaker 1: peaks behind us unfortunately. Uh, And I think actually the
Speaker 1: biggest impediment isn't really how much China is buying our stuff.
Speaker 1: The real impediment is going to be supply shocks globally.
Speaker 1: That's going to be the biggest drag on growth in
Speaker 1: the second half of this year. And those those things
Speaker 1: go together, right, I mean, there is this question of
Speaker 1: the fact that we do have this trade mismatch and
Speaker 1: the fact that China is perhaps in a better negotiating
Speaker 1: position with the US simply because the US wants to
Speaker 1: import all this stuff immediately. How much does this give
Speaker 1: a sense that the supply chain disruptions may last some
Speaker 1: somewhat longer than people are currently expect. Day. Look, I
Speaker 1: think that even without this dynamic, this trade dynamic between
Speaker 1: the US and China, these supply disruptions will be a
Speaker 1: problem for at least the next six months, possibly longer. Um.
Speaker 1: I think they should be uh sort of eased up
Speaker 1: in the in the second half of next year for sure.
Speaker 1: And so it feeds into this question about inflation and
Speaker 1: how much you think inflation is sustainable versus temporary. But
Speaker 1: also we economists aren't very good at defining what temporary
Speaker 1: or transitory and sustained are. And I think if you're
Speaker 1: expecting inflation to go ahead and wane in the next
Speaker 1: three months, you're going to be really disappointed. If you're
Speaker 1: happy to sit through the next year and expect prices
Speaker 1: to be higher because of supply chain disruptions and you
Speaker 1: think that's sort of a one off cork of the pandemic,
Speaker 1: then you might actually see inflations start to come down
Speaker 1: in the second half of next year. Although it's not
Speaker 1: just supply chain disruptions. It's also a shift in the
Speaker 1: Chinese economy with a push toward making a higher wage,
Speaker 1: toward bettering the middle class. And I wonder how much
Speaker 1: for decades we were importing disinflation, We were importing deflation
Speaker 1: from China with cheaply made goods. Is that reversing now
Speaker 1: as the shift for Jim Pink changes. Well, So that
Speaker 1: was the case, as you know, the iron curtain fell
Speaker 1: and the bamboo curtain fell, and we added billions of
Speaker 1: workers to the global workforce, and Chinese workers were really cheap.
Speaker 1: That hasn't been the case for a long time. We
Speaker 1: just have been rising in China for a long time.
Speaker 1: Now we've had cheap work coming out of Vietnam, Malaysia,
Speaker 1: other parts of Southeast Asia. Wages are rising there too,
Speaker 1: So the question is, you know, where do we go next?
Speaker 1: If we're looking for cheap labor. One is actually two machines,
Speaker 1: So there's been a ton of automation over the course
Speaker 1: of this pandemic. That should ease some of the upper
Speaker 1: pressure on wages certainly. And then secondly, there are other
Speaker 1: parts of the world with cheap labor. So if that's
Speaker 1: going to continue to be the model, which is too
Speaker 1: sort of offshore any production with cheap labor, and I
Speaker 1: don't think that is going to be the model. But
Speaker 1: if that's what we're looking for, you know, Sub Saharan Africa,
Speaker 1: North North Africa in particular the Middle East, there's there's
Speaker 1: a lot of room for that trend to run. So
Speaker 1: I don't actually buy the fact that we're running out
Speaker 1: of cheap workers. I think that we are restructuring the
Speaker 1: economy through a new uh industrial policy that's actually accepted
Speaker 1: by both sides of the political spectrum right now. That
Speaker 1: means that we're not actually just going for the cheapest
Speaker 1: products made in the cheapest places we're trying to onshore
Speaker 1: some of that work with industrial problems. Let me ask
Speaker 1: you a Harvard question. This isn't a cruel institute question.
Speaker 1: It's a fancy pants academic question. And I can do
Speaker 1: this in honor of Dale Jorgensen. How's our total factor
Speaker 1: productivity look right now? So we don't know exactly because
Speaker 1: that data comes out with a bit of a lag,
Speaker 1: but we do know that it's increased. So you know,
Speaker 1: for the developed world it was about one percent for
Speaker 1: the last decade. In the past couple of years, it's
Speaker 1: increased to around two percents, around double that. In the
Speaker 1: US it was three percent. More more recently, we anecdotally
Speaker 1: through surveys that a lot of firms have taken the
Speaker 1: opportunity of the pandemic to digitalize and automate a lot
Speaker 1: of things, which should fundamentally boost productivity and and and
Speaker 1: it should boost productivity going forward. And then we also
Speaker 1: know there's a ton of legislation on the docket that's
Speaker 1: aimed at infrastructure spending, investment in human capital that should
Speaker 1: continue to boost productivity. And the good thing about productivity
Speaker 1: growth is that you can have wage growth. And if
Speaker 1: you've got productivity growth as well. It doesn't need to
Speaker 1: be inflationary, but that might mean that the participation rate
Speaker 1: in the labor market continues to go down. At least
Speaker 1: the downward trend that we've seen over the past few
Speaker 1: decades is that what you're predicting that people would be
Speaker 1: paid more if they're in the labor market, but there'll
Speaker 1: be a high proportion of people permanently out of the
Speaker 1: labor market. Yeah. Look, this gets down to the question
Speaker 1: whether robots are taking our jobs or not. Fundamentally um
Speaker 1: and I'd say, in in previous periods where we had
Speaker 1: a bunch of innovation and everybody was worried that we'd
Speaker 1: all be automated out of work, it didn't happen. We
Speaker 1: generated jobs. That are we couldn't wrap our heads around.
Speaker 1: When we built highways and had cars, nobody thought about
Speaker 1: all the rest stops that would generate jobs, for example.
Speaker 1: So there may be an equivalent this time around as well.
Speaker 1: I think there will be structurally higher, uh sorry, lower
Speaker 1: labor first participation rate for a little while, in part
Speaker 1: just because certain certain industries aren't coming back, and so
Speaker 1: as a result of the shutdown and the transformation of
Speaker 1: our economy through this pandemic. There's just gonna be a
Speaker 1: lot of rigidities in terms of retooling and reskilling workers
Speaker 1: for sectors that are coming back. And unfortunately, I don't
Speaker 1: actually know a country out there that does a good
Speaker 1: job with that. So that is something that we should
Speaker 1: absolutely be focused on. Tom, did we did the baseball
Speaker 1: think that'll be done that yet? You could do that? Now? John,
Speaker 1: you do it? Mecan Green, Red Sox fan, do you
Speaker 1: go tonight to Fen White? I don't actually have tickets tonight,
Speaker 1: so if any viewers want to give give them to me,
Speaker 1: I would be gratefully receiving them. Corraine, unfortunately, but but
Speaker 1: I like service announced. Perhaps she should go with Tom
Speaker 1: will fly him up tonight. I am Marie. I think
Speaker 1: a Marie may be going. And she told me she
Speaker 1: was one thousand, two hundred thirty two dollars third base. Yeah,
Speaker 1: third base, like three rows behind third base. She's sitting
Speaker 1: in front of Stephen King. Okay, Megan Green, have you
Speaker 1: got any predictions? Yeah? Giving Megan give us some love?
Speaker 1: Come on, yeah, I mean I think the Red Sox
Speaker 1: are gonna win. If not, because the best people root
Speaker 1: for them, obvious Okay, I was convincing making great Cenia
Speaker 1: Fellow at the Harvard Kennedy School and clubal chief economist.
Speaker 1: She took a minor John at Harvard and John Kelvin.
Speaker 1: I think that they going to win because the best
Speaker 1: people root for them. Right now, hugely anticipated. We speak
Speaker 1: with George Sarah Ellis of Deutsche Bank. He has arguably
Speaker 1: the toughest job at the bank. It is Peter Hooper,
Speaker 1: It's Day, it focus Landau, It's Metal Zi and they're
Speaker 1: all churning away and Ruskin and Sarah Velos have to
Speaker 1: figure out how to sort out the inflation dynamics, the
Speaker 1: economic dynamics, and what it means in foreign exchange. Mr
Speaker 1: Sara Velos joins us this morning. What is your dollar call?
Speaker 1: Great to see you, tom So. I think the risks
Speaker 1: are you do see moderately stronger dollar until the end
Speaker 1: of the year. Um. There is much more going on
Speaker 1: in the market than just the inflation story, which is
Speaker 1: dominated this year. UM. I was following with interest the
Speaker 1: interview you had with Muhammad Allarian just after the US
Speaker 1: numbers last week, and he was very focused on the
Speaker 1: inflation upside. But at the same time you had the
Speaker 1: big down side growth surprises as well to those numbers.
Speaker 1: And I think there's three things going on in this
Speaker 1: last quarter of the year. Number one, we're getting extremely
Speaker 1: pessimistic messages on the supply side of the global economy.
Speaker 1: One of my favorite examples is if you look at
Speaker 1: UK total hours worked, it's still eight percent below where
Speaker 1: it was pre COVID, So that's still a massive labor gap,
Speaker 1: and we're talking about rate hikes in the UK um
Speaker 1: The consumer is just not gangbusters. So as John said before,
Speaker 1: this is not the same as Q one. We can
Speaker 1: see in consumer confidence. The slowdown in spending was happening
Speaker 1: before the delta wave, and you're just not seeing the
Speaker 1: straw down in nexcess saving that people were expecting. So
Speaker 1: this week of growth dynamic with our inflation, I think
Speaker 1: that the margin is supportive of the dollar. Okay, so
Speaker 1: let's go there. Let's rebrupt the scripture your folks. We
Speaker 1: can do that with George Seravellis and sterling. How do
Speaker 1: you express that view on sterling if it's not cable,
Speaker 1: which pair is the most intelligent tradeable pair for sterling?
Speaker 1: So the UK is a fascinating example. It's at the
Speaker 1: epicenter of what's going on where you're about to have
Speaker 1: I think of very sharp slowing in growth because you
Speaker 1: have fiscal tightening at the same time and the Bank
Speaker 1: of England hikes rates. Now this is very, very different
Speaker 1: to the demand side cycles we were used to to
Speaker 1: to experiencing, and I think the risk is you see
Speaker 1: UK influence slow down, the growth side decelerate pretty quickly,
Speaker 1: and that would be negative for the pound. Now the
Speaker 1: polar opposite story of that is places like Norway. Essentially
Speaker 1: what you will see this quarter is a direct income
Speaker 1: transfer from the UK consumer to the Norwegian consumer, which
Speaker 1: benefits from these big grices and energy prices. So we
Speaker 1: like sterlet selling the pound against Norway, but also against
Speaker 1: the Swiss franc and my colleagues have done some great
Speaker 1: work showing how the Swiss franc is one of the
Speaker 1: best safe havens in a world of rising inflation but
Speaker 1: falling growth. George, what are the lessons from trading, say
Speaker 1: e m X for some of these currencies in G
Speaker 1: ten right now? Are they applicable? Well, it's an interesting
Speaker 1: question and I think probably most immediately relevant to the
Speaker 1: UK because you do have this environment in the m
Speaker 1: where sometimes central banks try to high rate but the
Speaker 1: currency stays weak because you can't see those inflo UM
Speaker 1: and e M historically has been more vulnerable to the
Speaker 1: supply side shocks. We're now seeing it for the first
Speaker 1: time in d M, and I think it's very interesting.
Speaker 1: You know, at the start of the year, if I
Speaker 1: had told you the Bank of England could be hiking
Speaker 1: rates as soon as this year, you would have told
Speaker 1: me the power would be surging, and instead it's struggling.
Speaker 1: So this transmission channel, which usually a central bank hike does,
Speaker 1: as in strengthen the currency to push inflation down, is
Speaker 1: not working in the UK, and I think that asks
Speaker 1: all sorts of uncomfortable questions for the Bank of England. George.
Speaker 1: Before we let you go, we have to deal with
Speaker 1: the S word, because you did write it in a
Speaker 1: recent report that this environment is definitively stagflationary. How much
Speaker 1: hate mail did you get for using that word in
Speaker 1: a time of still robust growth. So um, it's interesting.
Speaker 1: We we have a lot of internal debates within research.
Speaker 1: Obviously there's there's different definitions of that word. But for me,
Speaker 1: the key point is not how you define a world,
Speaker 1: but that the trajectory in inflation and growth. And one
Speaker 1: thing that I think hasn't materialized for those that have
Speaker 1: been espousing the so called gangbuster narrative is you really
Speaker 1: haven't seen growth accelerating the second half of the year.
Speaker 1: You're seeing a pretty sharp deceleration. So it's a very
Speaker 1: different playbook compared to the first half. Do you think, yes,
Speaker 1: what it is a distraction though, George, the very fact
Speaker 1: that we have to talk about it, because factually it's
Speaker 1: so hard to it's so easy just to turn around
Speaker 1: and say that's not what this is. Well, again, I
Speaker 1: think it is to the destination George, or you think
Speaker 1: it feels like that right now? Do you think that's
Speaker 1: where we're heading? I think debating definitions is not as
Speaker 1: useful as observing that you're seeing a pretty sharp slowdown,
Speaker 1: and it's not just because of the supply side. It's
Speaker 1: because the consumer is underwhelming. But in terms of direction
Speaker 1: of travel, yes, I do worry we have more growth
Speaker 1: loud oncoming slow down coming in the pipeline, both because
Speaker 1: of China, fiscal tightening in the UK and the US importantly,
Speaker 1: so I worry that this mix continues and worsens. George,
Speaker 1: really smart note, Gangbusters ain't hammning. Great to catch up.
Speaker 1: Thanks for coming on shy with us. George Saravlos, the
Speaker 1: Deutsche Bank Globo have head of FX research joining us
Speaker 1: now Chrisma RANKI camp Coco of value. Chris, let's start
Speaker 1: right here. It smells like Q one, it is not
Speaker 1: Q one. What's the difference right now for you? Chris? Yeah,
Speaker 1: there are some key differences. Interestingly, in Q one, I
Speaker 1: think expectations for nominal GDP growth we're probably something like
Speaker 1: ten percent. There's still ty percent, but the mix is different.
Speaker 1: There's probably more of a waiting toward inflation versus real growth.
Speaker 1: As we see supply chain issues crimp real growth and
Speaker 1: those UH inflation pressures persistent and probably worsen. Chris, I
Speaker 1: have been dying to speak to you to know what
Speaker 1: the value house that Gabelly built thinks about the gloom
Speaker 1: on revenues in margin compression. I want to know what
Speaker 1: you guys think we're gonna see on revenues. Are they
Speaker 1: going to be better than good? Alright? I'm not worried
Speaker 1: about revenue. There's certainly play me of demand out there
Speaker 1: pretty much across the board. The issue is can that
Speaker 1: demand be fulfilled, and we're seeing a lot of Obviously
Speaker 1: we talked about it, that nausea, bottlenecks and inability to
Speaker 1: meet that demand, and that in many cases has caused
Speaker 1: some some margin oppression. Companies have tried to pass through
Speaker 1: um many of those costs and and many have pricing power,
Speaker 1: but they haven't been able to produce to pass through
Speaker 1: all those costs. And so the question is how persistent
Speaker 1: will those margin pressures be. Are we at new levels
Speaker 1: for labor costs, for example, for other natural resource inputs?
Speaker 1: And I think the answer is probably yes. I think
Speaker 1: once you raise wages, very difficult to take them back.
Speaker 1: So over the next few years, probably going to see
Speaker 1: some some margin pressure broadly in the market. What's being
Speaker 1: priced in? Are we being pricing in peak supply chain
Speaker 1: disruption or are people concerned that this is just the
Speaker 1: beginning based on where pricing is right now. Well, you know,
Speaker 1: when you think something is priced and it's it's usually not.
Speaker 1: But clearly the move over the last month or so
Speaker 1: has been at least partly in response to a number
Speaker 1: of companies out there, particularly in the industrial area, warning
Speaker 1: about what their Q three is going to look like.
Speaker 1: Saying they're going to be at the low end of
Speaker 1: their previously expected earnings, for example. So I think we're
Speaker 1: gonna see more of that as we go through earning season.
Speaker 1: Some of it's priced in, probably all of it isn't Chris.
Speaker 1: I want to talk about the banks just briefly. Where
Speaker 1: you want to sit in the financials at the moment,
Speaker 1: the kind of business models you want to warn, the
Speaker 1: characteristics of those names, where do you want to be well,
Speaker 1: you know, generally, so banks performed well earlier this year
Speaker 1: in part because there was an expectation that rates would
Speaker 1: go up to the curve wood steepen, and that's generally
Speaker 1: good for borrow short land long, but also because they
Speaker 1: were conduits for growth, conduits for reopening um for more
Speaker 1: consumers spending, more house buying, etcetera. And and I think
Speaker 1: that's been muted a little bit. Generally in the financials area.
Speaker 1: We're looking for non commoditized companies, companies that have some
Speaker 1: kind of a Moodele's tend to be the credit card companies,
Speaker 1: the American Expresses of the World, for example, which itself
Speaker 1: is a significant beneficiary of increased travel spend. For example
Speaker 1: in PNA, so Um, that's generally where we we've been historically,
Speaker 1: and it's where we want to be going forward. I've
Speaker 1: got to ask about autos, you know, Chris, that's where
Speaker 1: Mario Gabelli began as a security analysts. Look in an
Speaker 1: industrialist gartment, says things that fall in your feet. I've
Speaker 1: got to ask about the people going after general motors
Speaker 1: trying to find value. Can hedge funds and stuff? Can
Speaker 1: private capital even with small amounts of percentage ownership? Can
Speaker 1: they go after industrial America? Yeah? Absolutely? And and uh,
Speaker 1: you know, Jenna has found a new life as a
Speaker 1: as an E s G play. We we do have
Speaker 1: a sustainability fund for example, that owns it in part
Speaker 1: because of their commitment to electrification. Mary Barra has has
Speaker 1: been pretty vocal about that obviously, and and it looks like, um,
Speaker 1: it's for real. They are really investing in products to
Speaker 1: compete with Tesla and others and think they're going to
Speaker 1: be successful. It'stock is cheap. Um, it doesn't. We'll never
Speaker 1: escape its cyclical nature. Um, but the cycle probably is
Speaker 1: in its favor for the next five years. That's fascinating.
Speaker 1: It's in other words, E s G considerations are a
Speaker 1: factor in what you put into which companies are potentially attractive,
Speaker 1: which could attract those E s G funds based on
Speaker 1: what their footprint is. Yeah, I don't think there's any
Speaker 1: question that companies with good E s G reputation, good
Speaker 1: E s G scores have attracted capital and in many
Speaker 1: cases have garnered evaluation premiums and what we look for those.
Speaker 1: But we generally, you know, do have some clients and
Speaker 1: some funds that are sustainability and E s G focused
Speaker 1: and UM and they you know, there's certain requirements that
Speaker 1: have to be met and and GM. Actually, even though
Speaker 1: it's still relying on on the ice UM fit's that
Speaker 1: I gotta leave it there. Chris always good to catch up.
Speaker 1: Chrisma Rani there of Gamco, the co c I value.
Speaker 1: He could do logs as well. More regular joins us
Speaker 1: right now. Schwab acid ce io and head of investments.
Speaker 1: Oh our love, love love. What you say about the
Speaker 1: development of new walls of worry for you and Lisian
Speaker 1: Saunders is that just means go along? Well, you know,
Speaker 1: that actually means we've got to continue to educate our
Speaker 1: clients and you know, the behavioral aspect of the market.
Speaker 1: You know, which means you know, they will always be concerns.
Speaker 1: They will always you know, you can always find that
Speaker 1: gloomy scenario at any given time. Um, you know, it
Speaker 1: is true that probably is a little more difficult to
Speaker 1: think about the positives at the moment when you had
Speaker 1: a bad month like September. And it also on this
Speaker 1: on the same thing, the whole discussion about inflation, about
Speaker 1: you know, great luck in Washington, about supply chains, disruptions,
Speaker 1: about labor market. It is very easy to continue to
Speaker 1: build that wall of worry and that usually that information
Speaker 1: gets in the hands of investors and consumers. I'm not
Speaker 1: talk to me about recency past the temptation of extrapolating
Speaker 1: out last week's price action through the whole cycle. Ama,
Speaker 1: how do we have with that? Well, it's uh, it
Speaker 1: is a very natural bias. Is one of those called
Speaker 1: cognitive biases that you know, it is very well studied
Speaker 1: in the literature, which basically you just extravelate your your
Speaker 1: experience of the recent information that's it call is recency bias,
Speaker 1: and you actually think that that's what it's going to
Speaker 1: continue going forward. That happens in the bull market, that's
Speaker 1: what propelled bull markets. If you think about it, that
Speaker 1: is the whole idea of the foamal effect of fear
Speaker 1: of missing out. But it also works on the downside,
Speaker 1: where you know people that have you know, a bad
Speaker 1: experience I think you were talking about earlier. You know
Speaker 1: the significant negative returns that we saw in individual names. Well,
Speaker 1: people extrapolate that and immediately gets the emotional bias to
Speaker 1: kick in, which gives them down on what how to
Speaker 1: make decisues. So recency vice is a very common bias.
Speaker 1: Is one of the vices that that has recent the most,
Speaker 1: especially you know, during the pandemic and in the process
Speaker 1: of getting out of the pandemic. That's the behavioral finance
Speaker 1: of the investor. What about the behavioral finance of the
Speaker 1: consumer as they look at higher prices and they say,
Speaker 1: you know what, maybe I don't want to buy a
Speaker 1: washing machine because it costs twice as much as it
Speaker 1: did two years ago. Hey, maybe now it's not a
Speaker 1: good time to buy a house. How much does this
Speaker 1: start to bleed and ingrain itself into the economic moment
Speaker 1: and create a slowdown in consumer spending despite pretty robust savings.
Speaker 1: Well we did, we did see already that you know
Speaker 1: is low down in consumers spending, you know, after the
Speaker 1: big you know, plush in demand, you know, at the
Speaker 1: beginning of the summer. So Lisa, you know, the consumer
Speaker 1: spending is slow down happened even before you know, we
Speaker 1: actually got into the full delta variant. You know, there
Speaker 1: is a little bit of hesitation on consumers to think about,
Speaker 1: you know, what may happen, you know, going forward. You know,
Speaker 1: there's another another very interesting you know, behavioral finance. You
Speaker 1: know by us that it is called in down an effect,
Speaker 1: which means once you've got a lot of cash, you know,
Speaker 1: holding on it is very hard for people to start
Speaker 1: thinking about it. Now. The good news, though, is that
Speaker 1: the consumers have delivered, you know, during this process of
Speaker 1: accumulating extra savings, they have actually delivered themselves to the
Speaker 1: point that they actually not as worried about you know,
Speaker 1: higher interest rates as much as they were probably three
Speaker 1: or five years ago. So with that in mind, that
Speaker 1: actually assumes that you know, with a little bit of
Speaker 1: a pressure on wage growth and a little bit more
Speaker 1: of that you know, drawing down of excess savings, the
Speaker 1: potential for consumer is maybe not you know, as strong
Speaker 1: as people expected. But the holiday season going into next year,
Speaker 1: it is expected to be positive. Omar how important given
Speaker 1: what you just said are bank earnings and their view
Speaker 1: into consumer borrowing, credit card lending activity there in order
Speaker 1: to determine what the appetite is for consumer spending, well,
Speaker 1: it is, it is. It is important now you know,
Speaker 1: banks are in the in the in the framework that
Speaker 1: we're talking about is obviously related to you know, what
Speaker 1: the shape of the curve is and as well as
Speaker 1: you know as what the demand is for extra credit
Speaker 1: as well as you know, in general just the level
Speaker 1: of interest rates. So you know, the process of where
Speaker 1: they have it's definitely not as as as strong as
Speaker 1: where you know, uh, at the beginning of this year,
Speaker 1: but certainly you know they're well positioned for for going
Speaker 1: forward because you know, we we do expect that there's
Speaker 1: gonna be a significant amount of extra demand for credit,
Speaker 1: especially as you know, investors and consumers and start to
Speaker 1: balance you know how much they actually have to draw
Speaker 1: from their credit and how much still with a low
Speaker 1: absolute level of interest rates they can actually still use
Speaker 1: credit for Just to wrap things up, I hear a
Speaker 1: lot about the bomb, but I want to talk about
Speaker 1: on the one side of it the cycler cause energy banks.
Speaker 1: What you just said on banks is important. We've had
Speaker 1: a massive move and energy over the last month or so.
Speaker 1: Energy equity is not just the underlying commodity. I want
Speaker 1: to understand what you do with that position now, are
Speaker 1: is it's something he sits on or you're looking to
Speaker 1: move into banks, banks which haven't really kept up at
Speaker 1: all with what's happened with energy equities. Yes, so a
Speaker 1: couple of things on this, and I would probably say
Speaker 1: that the first thing is, you know, we are getting
Speaker 1: into that process of moving into that mid mid cycle,
Speaker 1: you know, the the in a way, you know, the
Speaker 1: announcement by the federal yourself about the tapering just extended
Speaker 1: that recovery cycle where cyclicals continue to you know, outperform out. Yes,
Speaker 1: we did hit a little bit of a break in
Speaker 1: the summer because of delta, but you know, we continue
Speaker 1: to see that cyclical you know position, and we still
Speaker 1: think there is probably another quarter to actually go. To
Speaker 1: answer your question, John, you know where you can still
Speaker 1: go around those things where we will have the supply
Speaker 1: demand disruptions that will help energy, that will help industrials,
Speaker 1: that will help financials. Now, we you know, we always
Speaker 1: encourage our investors to rebalance their strategy, and this is
Speaker 1: an interesting time because a negative month like September allows
Speaker 1: them to be proactive, especially in tax laws harvesting, and
Speaker 1: this is probably one of the things that is the
Speaker 1: most important in wealth management. Thank you, sir. I'm a
Speaker 1: Anguilla Show. I'm Asset Management, the CEO and head an investment.
Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join
Speaker 1: us live week days from seven to ten am Eastern.
Speaker 1: I'm Bloomberg Radio, and on Bloomberg Television each day from
Speaker 1: six to nine am for inside from the best in economics, finance, investment,
Speaker 1: and international relations. And subscribe to the Surveillance podcast on
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on
Speaker 1: the terminal. I'm Tom keene In. This is Bloomberg