WEBVTT - Surveillance: Global Tax With OECD's Cormann 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 --> 0:00:18.600 insight from the best and economics, finance, investment and international relations. 0:00:18.960 --> 0:00:23.560 Find Bloomberg Surveillance on Apple Podcast, sun Cloud, Bloomberg dot 0:00:23.560 --> 0:00:29.840 Com and of course on the Bloomberg terminal. This is 0:00:29.880 --> 0:00:32.240 a great joy for Bloomberg Right now, after the fifteen 0:00:32.320 --> 0:00:34.159 years of public service at the o e c D 0:00:34.280 --> 0:00:39.200 in Paris, Annael Guria has retired and after a really 0:00:39.240 --> 0:00:43.159 interesting nominating process, the o e c D selects the 0:00:43.200 --> 0:00:46.159 Pacific Rim. The heritage of the o c D and 0:00:46.200 --> 0:00:51.760 the previous five Secretary generals has been Denmark, Netherlands, France, Sweden, 0:00:51.880 --> 0:00:56.120 France and then it changed to Canada and Gurius, Mexico. 0:00:56.760 --> 0:00:59.560 Now the o e c D reaches across the Pacific 0:00:59.640 --> 0:01:02.720 Rim because sure marble Bonny of Singer Sports says, it 0:01:02.960 --> 0:01:06.080 is the Asian century and part of that is Australia. 0:01:06.440 --> 0:01:09.560 Matthias Corman is the o e c d's newly appointed 0:01:09.760 --> 0:01:12.880 Secretary General. Mr Corman, wonderful to have you with us 0:01:12.920 --> 0:01:18.320 today and you dive into a treaty and the complexities 0:01:18.480 --> 0:01:22.880 of a G seven effort to tax the larger companies. 0:01:23.400 --> 0:01:27.600 A treaty makes it very very difficult as well. How 0:01:27.600 --> 0:01:31.679 will the o c D monitor and study the treaty 0:01:31.760 --> 0:01:40.760 effort to make taxes uniform at well? Firstly good to 0:01:40.760 --> 0:01:45.840 be uh. Secondly, the globalization and the digitalization of our 0:01:45.840 --> 0:01:50.240 economies has created distortions and inequities when it comes to 0:01:50.280 --> 0:01:53.160 the capacity of governments around the world to rise the 0:01:53.240 --> 0:01:58.000 necessary revenue to fund the public services and supports die 0:01:58.040 --> 0:02:01.040 provide to their populations. And the only way you can 0:02:01.120 --> 0:02:04.920 solve a challenge like this is through a global solution 0:02:05.360 --> 0:02:08.200 that is multi largally agreed. And in that context, the 0:02:08.240 --> 0:02:10.720 o CIT has been working for many years to help 0:02:10.760 --> 0:02:14.480 improve the global taxation arrangements, to make them fairer, to 0:02:14.520 --> 0:02:18.080 make them work better. Now at the G seven on 0:02:18.160 --> 0:02:22.639 the weekend, a landmark historic agreement was reached and and 0:02:22.919 --> 0:02:27.480 that goes to two important components. One to ensure that 0:02:27.760 --> 0:02:32.239 digital companies, large digital companies but also other large companies 0:02:32.280 --> 0:02:37.200 that operate multinationally around the world pay their fair share 0:02:37.240 --> 0:02:43.080 of tax in markets where they generate significant profits. And secondly, 0:02:43.800 --> 0:02:48.400 to ensure that multinational companies are not able to structure 0:02:48.760 --> 0:02:54.160 their tax liabilities, I mean seriously minimize or completely eliminate 0:02:54.160 --> 0:02:57.240 their tax liabilities anywhere around the world, taking advantage of 0:02:57.280 --> 0:03:00.480 tax hyns and and so on, and so you know, 0:03:00.560 --> 0:03:02.880 ultimately this is one step in the process. There will 0:03:02.919 --> 0:03:05.320 be other steps to follow. The O E c D 0:03:05.440 --> 0:03:09.840 facilities a process that is quality inclusive framework which brings 0:03:09.880 --> 0:03:13.880 together hundred thirty nine countries and jurisdictions from all around 0:03:13.919 --> 0:03:16.480 the world, and and and and of course ultimately at 0:03:16.480 --> 0:03:20.040 the G twenty UH further formal agreement will have to 0:03:20.040 --> 0:03:23.200 be reached. But the fact that G seven economies, you know, 0:03:23.400 --> 0:03:25.400 some of the biggest economies around the world, have a 0:03:25.400 --> 0:03:30.200 great to this reform is a very significant stop step 0:03:30.240 --> 0:03:33.839 forward in making sure that there is a globally more 0:03:33.960 --> 0:03:37.839 fair and sustainable taxation framework in place. Before you went 0:03:37.880 --> 0:03:41.120 to Perth, Australia, within your Belgian economics, you studied the 0:03:41.120 --> 0:03:45.160 Wilsonian effort coming out of Versailles and how all the 0:03:45.320 --> 0:03:48.720 League of Nations collapsed. Basically with the US Congress in 0:03:48.720 --> 0:03:51.960 the US Senate is the O E C D and 0:03:52.040 --> 0:03:55.560 a G seven or G twenty tax regime at the back, 0:03:55.640 --> 0:04:03.680 and call the American legislative branches. I mean, firstly, I 0:04:03.720 --> 0:04:08.160 have to say that the Biden administration has been very 0:04:08.200 --> 0:04:13.560 helpful in facilitating I consensus at the G seven on 0:04:13.600 --> 0:04:17.200 the weekend. I mean, the Biden administration and Secretary Yelling 0:04:17.400 --> 0:04:22.039 took a very constructive approach to multilateralism, helping to unblock 0:04:22.160 --> 0:04:26.719 what had been you know, difficult dossier up until that time. 0:04:27.440 --> 0:04:30.360 But of course, I mean, ultimately, all countries that are 0:04:30.440 --> 0:04:34.039 part of an agreement and international agreement ultimately have to 0:04:34.040 --> 0:04:38.480 work you know, these issues through in their domestic context, 0:04:38.560 --> 0:04:41.880 including you in, in the context of you know, their parliaments. 0:04:41.920 --> 0:04:44.560 And I mean that is that is obviously something that 0:04:44.600 --> 0:04:48.080 we hope the US will do in its you know, 0:04:48.120 --> 0:04:50.880 in its own time, in the appropriate way. My DearS 0:04:51.120 --> 0:04:55.719 G seven agreed to a minimum at least of fifteen percent. 0:04:55.800 --> 0:05:02.840 Could you see that tax rate going above that fift Well, look, 0:05:03.080 --> 0:05:07.240 you know, it's important to ensure that we strike the 0:05:07.360 --> 0:05:11.160 right balance. I mean, the average across the or CIT, 0:05:11.240 --> 0:05:13.600 the average corporate tax right across the o E City 0:05:14.080 --> 0:05:18.040 membership at present sits at about twenty one. There are 0:05:18.080 --> 0:05:22.200 some countries that are below the fifteen percent, quite a 0:05:22.200 --> 0:05:24.920 few of them are above the I mean, if if 0:05:24.960 --> 0:05:29.360 we were able to achieve a circumstance where all multinational 0:05:29.400 --> 0:05:34.520 companies operating globally are required to pay at least fifteen 0:05:34.560 --> 0:05:37.280 percent on their on their profits, I mean, I think 0:05:37.279 --> 0:05:40.240 that that is a very significant step forward. Of course, 0:05:40.240 --> 0:05:46.440 there's still then spies for the appropriate competition between different 0:05:46.839 --> 0:05:50.640 jurisdictions based on the fiscal policy settings and their tax 0:05:50.720 --> 0:05:54.360 mix in their respective jurisdictions. But yes, there's still a 0:05:54.400 --> 0:05:56.840 lot to do. As you were mentioning and Tama's referencing, 0:05:56.880 --> 0:05:59.560 how US legislature may end up taking a lead role. 0:06:00.040 --> 0:06:02.239 What exactly this looks like. What are the main hurdles 0:06:02.240 --> 0:06:04.880 that you see in the ongoing negotiations as we had 0:06:04.920 --> 0:06:10.640 in the G twenty. Well, look, I mean, you know, clearly, 0:06:10.680 --> 0:06:13.400 I mean it's very important to have all of the 0:06:13.560 --> 0:06:17.000 G seven countries reached that agreement, but of course something 0:06:17.040 --> 0:06:20.520 we need to expand you know, the level of agreement 0:06:20.680 --> 0:06:22.919 you know well and truly beyond the G seven And 0:06:22.920 --> 0:06:26.520 that's what the Inclusive Framework process will do with more 0:06:26.560 --> 0:06:29.920 than a hundred countries and jurisdictions involved. And indeed, I 0:06:29.960 --> 0:06:32.800 mean around the G twenty table, you have a you know, 0:06:32.880 --> 0:06:38.240 significant number of other large economies around the world part 0:06:38.279 --> 0:06:41.640 of the process. So I mean, I'm quietly hopeful, quietly 0:06:41.680 --> 0:06:44.800 optimistic that ultimately, when it's all said and done, we 0:06:44.800 --> 0:06:48.640 will be able to reach an outcome, you know, in 0:06:48.839 --> 0:06:51.480 the next in the next little while. But I think 0:06:51.520 --> 0:06:53.800 it's on the tax plan though. Can we go back 0:06:53.800 --> 0:06:56.440 to this idea here of what when you're setting the 0:06:56.480 --> 0:06:59.120 revenue threshold here there's been a lot of talk about 0:06:59.200 --> 0:07:02.200 how complex agreement is or how much it will be, 0:07:02.279 --> 0:07:04.719 and the idea that companies will sort of be able 0:07:04.760 --> 0:07:07.599 to find loopholes to get below that twenty billion dollar 0:07:07.680 --> 0:07:10.760 threshold or whatever the final threshold. Maybe, how do you 0:07:10.840 --> 0:07:13.120 ensure that companies aren't going to find and end run 0:07:13.160 --> 0:07:18.560 around that with regards to the revenue component of it. Look, 0:07:18.560 --> 0:07:21.040 I mean you're now going well and truly into the 0:07:21.080 --> 0:07:24.880 weeds of you know, technical you know, implementation arrangements. I mean, 0:07:24.920 --> 0:07:29.400 I think the principles are very clear. Companies, large companies 0:07:29.760 --> 0:07:33.800 that are generating significant profits in markets around the world, 0:07:34.720 --> 0:07:38.680 digital companies but also other large companies should be required 0:07:38.720 --> 0:07:42.080 to pay their fair share of tax in the markets 0:07:42.120 --> 0:07:44.760 in which they generate those profits. I mean, the combined 0:07:44.800 --> 0:07:48.680 effects of the globalization and the digitalization of our economies 0:07:49.120 --> 0:07:53.120 has meant that you know, it has been possible for 0:07:53.320 --> 0:07:57.200 quite a number of large companies not to pay or 0:07:57.240 --> 0:07:59.120 to to pay very little, or not to pay any 0:07:59.160 --> 0:08:01.560 tax at all in many of the market stall pride 0:08:01.560 --> 0:08:03.400 and and that is just a model of fans and 0:08:03.720 --> 0:08:07.280 public confidence in the viol taxation system works. And and 0:08:07.320 --> 0:08:10.720 that is something that the proposal agreed to buy g 0:08:10.840 --> 0:08:15.200 seven finance ministers on the weekend would address. I'm gonna 0:08:15.200 --> 0:08:18.800 tais Corman. I am absolutely fascinated is your selection through 0:08:18.800 --> 0:08:22.000 the nominating process. Many of the other nominees for o 0:08:22.120 --> 0:08:25.040 E c D or people very familiar to Bloomberg Surveillance. 0:08:25.080 --> 0:08:28.880 They've been great helped us in our coverage internationally over 0:08:29.000 --> 0:08:32.560 the years. You are a different o E c D 0:08:32.679 --> 0:08:35.160 Secretary General. And I want to go to your Australia, 0:08:35.240 --> 0:08:38.880 your Western Australia and the idea of the debate over 0:08:39.000 --> 0:08:42.880 big evil American tech companies. Maybe it's tangential to O 0:08:43.040 --> 0:08:45.080 E c D, but this is going to be in 0:08:45.080 --> 0:08:48.480 the cross eres. The fact is Amazon out of the 0:08:49.040 --> 0:08:53.439 Perth Airport has been a massive job creator for Western 0:08:53.480 --> 0:08:57.160 Australia from where you sit with your finance work in 0:08:57.200 --> 0:09:01.280 Australia and now you moved to Paris. How do you dovetail? 0:09:01.480 --> 0:09:05.679 How do you fit together the European fear of American 0:09:05.760 --> 0:09:09.280 big tech with the reality that create jobs like the 0:09:09.320 --> 0:09:17.080 per theirport Fulfillment Center. Well, firstly, you know, there's thirty 0:09:17.080 --> 0:09:19.079 eight member countries of the o e c D and 0:09:19.120 --> 0:09:22.360 the one thing that joins us all together is that 0:09:22.400 --> 0:09:26.000 we are all market based democracies and were all committed 0:09:26.600 --> 0:09:32.480 to generating opportunities for the people in our countries to 0:09:32.559 --> 0:09:37.080 get ahead based on free market principles and indeed, you know, 0:09:37.240 --> 0:09:41.280 based on democratic principles and in the counties of rules 0:09:41.320 --> 0:09:44.400 biased global trading systems. So I think you'll find that 0:09:44.440 --> 0:09:47.600 the things that we have in common are much much 0:09:47.640 --> 0:09:51.680 stronger than than the variances between you know, different parts 0:09:51.960 --> 0:09:55.040 of our membership. Now, you know, I mean, I bring 0:09:55.080 --> 0:09:59.400 to this job about seven years experience as the Australian 0:09:59.440 --> 0:10:03.080 financemen stuff. But I also bring to this job, you know, 0:10:03.160 --> 0:10:06.080 my background us uh, somebody who grew up in Europe, 0:10:06.280 --> 0:10:09.240 went to school and university in Europe. And so I mean, 0:10:09.280 --> 0:10:11.920 I think, I guess you know, the membership felt that 0:10:12.000 --> 0:10:16.040 I had a particular contribution to Mike and I look 0:10:16.120 --> 0:10:19.120 forward to making it. This has been wonderful Mats Corman. 0:10:19.480 --> 0:10:24.680 Congratulations uh as the new Secretary General of the OECD, 0:10:31.080 --> 0:10:33.679 we begin strong in as our Troy Gayski joins us 0:10:33.679 --> 0:10:36.959 with Skybridge here on the making of alphabeta Gamma and 0:10:37.000 --> 0:10:39.959 the rest of it within the hedge fund business. Troy, 0:10:40.120 --> 0:10:43.200 I see all sorts of articles that it's been a 0:10:43.360 --> 0:10:48.000 really really whipsode challenge six weeks or so for the 0:10:48.080 --> 0:10:52.920 hedge fund business. How is it? Is there alpha out there? Yeah, 0:10:53.120 --> 0:10:55.520 but you're write it has been challenging, particularly in long 0:10:55.559 --> 0:10:58.720 short equity, really started since February. And what we saw 0:10:58.760 --> 0:11:00.920 is that remember in this gets back to some of 0:11:00.920 --> 0:11:03.560 the inflation concerns and where the treasury yield is now, 0:11:04.040 --> 0:11:06.839 is that you know, the industry is really positioned for 0:11:07.200 --> 0:11:11.439 you know, slower growth potentially you know, less fiscal stimulus coming, 0:11:11.880 --> 0:11:16.320 and so they were overweight growth and um stay at 0:11:16.360 --> 0:11:19.360 home names to some extent um, those have underperformed recently 0:11:19.360 --> 0:11:21.760 and a lot of the value circulcols have really screamed 0:11:22.120 --> 0:11:24.000 and so it's been a choppy environment and law in 0:11:24.040 --> 0:11:26.160 short equity, you know, last year was a very strong 0:11:26.200 --> 0:11:29.079 alpha year. This year has been a slight negative alpha year, 0:11:29.160 --> 0:11:30.719 so it's been harder in the equity part of the 0:11:30.760 --> 0:11:33.319 capital structure. That being said, if you look at the 0:11:33.360 --> 0:11:36.800 stress debt managers or those in structure credit, their principally 0:11:36.840 --> 0:11:40.920 recovery slash value plays. So those have performed very admirably 0:11:40.960 --> 0:11:43.480 through June seven so far this year. We could talk 0:11:43.480 --> 0:11:45.679 all about that, Troy, but really everyone wants to know 0:11:45.720 --> 0:11:48.800 about bitcoin. And you're holding in the crypto asset. Considering 0:11:48.840 --> 0:11:51.120 the fact that you have made such a big push 0:11:51.280 --> 0:11:54.000 saying that this is going to be the key determining 0:11:54.040 --> 0:11:57.040 factor in your outperformance this year, where do you stand 0:11:57.120 --> 0:12:01.559 on that now? Given China's noise around potential lockdowns, regulatory issues, 0:12:01.880 --> 0:12:04.600 and the fact that we're perhaps moving into a new 0:12:04.640 --> 0:12:08.680 regime of liquidity. Yeah, so look, we we stepped back 0:12:08.800 --> 0:12:11.440 and still look at the initial thesis. Right, you still 0:12:11.440 --> 0:12:13.880 have tremendous money supply growth. You know, the FED is 0:12:13.920 --> 0:12:16.959 still expanding their balance sheet by twenty billion a month. 0:12:17.360 --> 0:12:19.560 You know M two's on pace to grow somewhere between 0:12:19.600 --> 0:12:22.920 fifteen and seventeen percent this year. Um, you think of 0:12:22.960 --> 0:12:25.360 every central bank in every nation state is still in 0:12:25.400 --> 0:12:29.760 a debasement period for their currencies. So the macro environment 0:12:29.840 --> 0:12:32.680 is still very favorable. And as you're talking about before, 0:12:33.120 --> 0:12:35.200 you know, it doesn't look like there's any urgency for 0:12:35.240 --> 0:12:37.320 the Fed to taper. They may announce the taper at 0:12:37.360 --> 0:12:39.800 the end of this year and start to paper sometime 0:12:39.840 --> 0:12:42.720 early twenty two, but that's the most likely path. And 0:12:42.760 --> 0:12:45.719 then from an adoption standpoint, again, we still think we're 0:12:45.800 --> 0:12:47.960 very early. Um. You look at some of the high 0:12:48.080 --> 0:12:51.360 net worth are the wealth management platform products. You know, 0:12:51.440 --> 0:12:55.320 Morgan Stanleys is raised a hundred fifty million dollars already. Um. 0:12:55.360 --> 0:12:57.800 You look at gradual adoption in the hedge fund industry 0:12:57.800 --> 0:13:01.280 and the asset management industry that continue us. And then lastly, 0:13:01.360 --> 0:13:04.040 we're still relatively early. Closet having you know, the last 0:13:04.080 --> 0:13:07.000 having was made eleventh of last year, typically have an 0:13:07.000 --> 0:13:09.680 eighteen to twenty four month bull market, So we still 0:13:09.720 --> 0:13:11.640 think we're in a bull market. Obviously we had a 0:13:11.840 --> 0:13:14.480 very horrific correction, but we think the trend line is 0:13:14.520 --> 0:13:16.560 still up here over the next three to six months. 0:13:16.600 --> 0:13:18.600 And you think that the floor built into that Troy 0:13:18.640 --> 0:13:20.440 I mean because a lot of people look at the 0:13:20.480 --> 0:13:23.320 current prices. They wonder about some of the institutional embrace 0:13:23.400 --> 0:13:25.320 of this and whether that's going to be enough of 0:13:25.360 --> 0:13:27.800 the floor to keep things from going lower. Well, yeah, 0:13:27.840 --> 0:13:30.880 so obviously after the big dislocation we had, we built 0:13:30.920 --> 0:13:33.680 up a nice stability zone here in this thirty three 0:13:33.679 --> 0:13:36.600 to thirty six thousand level. UM, it will be hard 0:13:36.640 --> 0:13:39.720 to push meaningfully above forty to forty five UM in 0:13:39.760 --> 0:13:42.200 the near term. But again, if you go back and 0:13:42.200 --> 0:13:46.280 look at previous bull markets, you had substantial corrections along 0:13:46.320 --> 0:13:50.280 the way. UM, this one was obviously more profound. UM. 0:13:50.360 --> 0:13:52.960 You do highlight a good point on the environmental concerns 0:13:53.040 --> 0:13:56.240 is that may slow down some institutional adoption. But again, 0:13:56.280 --> 0:13:58.320 if you step back and look at your choices for 0:13:58.400 --> 0:14:01.120 how you play currency to basement, if you care about 0:14:01.120 --> 0:14:04.240 liquidity and you care about non correlation, you know, Bitcoin 0:14:04.320 --> 0:14:06.560 in particular is still a very strong choice for you, 0:14:06.800 --> 0:14:10.360 alongside gold and maybe tell lesser extent copper, But copper 0:14:10.440 --> 0:14:12.720 of course, you know, it's a very cypical recovery play 0:14:12.800 --> 0:14:16.160 that's already rallied. UM. You know, it's up percent over 0:14:16.200 --> 0:14:18.320 a very short period of time. Troy, I want to 0:14:18.320 --> 0:14:20.560 talk about the big tech, big cap we've got the 0:14:20.560 --> 0:14:23.840 Apple conference today, Uh, something that will become a recovery 0:14:23.920 --> 0:14:27.239 of course across all the afternoon. Troy, there's a comfort 0:14:27.360 --> 0:14:32.160 factor for hedge funds to own those companies. Describe the 0:14:32.200 --> 0:14:37.600 intellectual process of hedge funds loading the boat on large 0:14:37.600 --> 0:14:42.000 cap profit making tech. Yeah, loading the boats a strong terms, 0:14:42.320 --> 0:14:45.320 because I think there is some distinction in which names 0:14:45.320 --> 0:14:49.360 they own. But the industry particularly is as long Facebook 0:14:49.360 --> 0:14:51.760 and Google as we've ever seen them. You know, when 0:14:51.760 --> 0:14:54.360 you have great value investors like set farm and with 0:14:54.440 --> 0:14:56.680 you know, two of the top ten names, or Facebook 0:14:56.680 --> 0:14:59.160 and Google for instance, says a lot. And you know, 0:14:59.200 --> 0:15:01.840 so the intellectual process is pretty straightforward. It's like, hey, 0:15:02.240 --> 0:15:04.840 we're gonna be mean reverting here to a slower growth 0:15:04.920 --> 0:15:08.080 environment again after a big cyclical growth period. You have 0:15:08.120 --> 0:15:12.320 tremendous profit margins, tremendous cash flow generation. There's really no 0:15:12.480 --> 0:15:16.080 cost pressures in terms of you know, expenses, meaning they're 0:15:16.080 --> 0:15:18.920 not it's not labor intensive industry that's gonna suffer from 0:15:18.960 --> 0:15:23.480 higher wages for instance, um and you know, on evaluation standpoint, 0:15:23.560 --> 0:15:26.480 they haven't been cheaper relative to the broader markets pre 0:15:26.640 --> 0:15:30.080 pandemic days. So you know, as hedge funds filter through 0:15:30.120 --> 0:15:33.760 their choices. Uh, if you're filtering for risk adjusted returns, 0:15:34.440 --> 0:15:37.480 particularly in an environment that will mean revert to slower growth, 0:15:37.720 --> 0:15:41.200 does look like uh, standout winners to the hedgemund industry. Troy, 0:15:41.280 --> 0:15:43.000 thank you so much, Truck. I ask you a briefly 0:15:43.000 --> 0:15:53.040 there in the state of alternative investments with Skybridge, We're 0:15:53.040 --> 0:15:55.480 thrilled to start strong this week with Bruce cas when 0:15:55.480 --> 0:15:58.440 he's with JP Morgan, their chief economists, had a globally 0:15:58.480 --> 0:16:01.200 could have a research he hurts the cats to JP Morgan, 0:16:01.480 --> 0:16:05.360 trying to get out of cogent message on economics, Bruce Lincoln. 0:16:05.480 --> 0:16:10.480 Global inflation with the recovery that we're seeing dovetail those 0:16:10.520 --> 0:16:14.120 two in Is it a good inflation or a bad inflation? 0:16:14.640 --> 0:16:18.160 I think there's some of both here. Um on the 0:16:18.160 --> 0:16:22.160 spike that we're seeing, there's definitely some problems in terms 0:16:22.240 --> 0:16:26.840 of companies adjusting supply to demand. That's the bottlenecks you 0:16:26.920 --> 0:16:30.200 see in the semiconductor that's the used car prices. Is 0:16:30.240 --> 0:16:32.400 a bunch of those forces that are pushing up inflation, 0:16:32.400 --> 0:16:34.680 which is not great in terms of what we would 0:16:34.680 --> 0:16:36.680 like to see. The Other side of this, though, is 0:16:36.720 --> 0:16:40.280 that we are seeing price normalization and what are depressed 0:16:40.360 --> 0:16:43.760 levels of service prices as we're seeing activity picking up, 0:16:43.760 --> 0:16:47.040 and I think that's obviously uh constructive. The bottom line 0:16:47.040 --> 0:16:49.480 those we're getting a big spike in inflation here and 0:16:49.480 --> 0:16:51.840 we're looking for another big number this week with a 0:16:51.920 --> 0:16:55.400 five tense rise in the US core CPI. What happens 0:16:55.400 --> 0:16:57.600 What does the Fed do if we see that increase 0:16:57.640 --> 0:17:01.160 in cp I this week, if we see the inflationary pressures, 0:17:01.160 --> 0:17:04.359 but we don't see material improvement in at the pace 0:17:04.480 --> 0:17:07.400 of job gains akin to what we saw on Friday. 0:17:07.480 --> 0:17:09.439 So I think there's three things the FED has to 0:17:09.480 --> 0:17:12.320 really work on. One is I think continuing to guide 0:17:12.359 --> 0:17:15.640 us that it's not going to change rates anytime soon 0:17:15.720 --> 0:17:18.480 in response to an inflation spike that they think is 0:17:18.600 --> 0:17:20.639 largely temper Aright. We think they're going to continue to 0:17:20.680 --> 0:17:23.000 guide that rates are gonna at least be on hold 0:17:23.040 --> 0:17:25.159 through the end of twenty two. The second thing I 0:17:25.240 --> 0:17:27.359 think they need to do is start telling us that 0:17:27.440 --> 0:17:30.280 if they're wrong, and certainly they could be wrong, uh 0:17:30.320 --> 0:17:33.360 and inflation is more persistent, that down the road they 0:17:33.359 --> 0:17:35.360 can do what they need to do to keep inflation 0:17:35.440 --> 0:17:38.560 under control. And I think in that regard they will, 0:17:38.600 --> 0:17:42.280 if not encourage, at least tolerate a rising expectation of 0:17:42.359 --> 0:17:46.000 rates over and then, finally, what we're not going to 0:17:46.080 --> 0:17:48.680 get in June but we need is more clarity about 0:17:48.720 --> 0:17:50.800 the balance sheet. I think they're gonna tell us they're 0:17:50.800 --> 0:17:52.760 talking about it, but they're also gonna tell us it's 0:17:52.760 --> 0:17:55.399 too soon to really lay out the parameters of what 0:17:55.440 --> 0:17:58.400 they do in terms of tapering and balance sheet movements. 0:17:58.400 --> 0:18:04.400 More generally, our bruce are Bloomberg opinion columnist Marcus Ashworth 0:18:04.480 --> 0:18:09.200 today says it's really difficult to model UM the US 0:18:09.200 --> 0:18:14.920 economy because the ferocity has been driven by monster fiscal 0:18:15.320 --> 0:18:19.560 UH injections, and because the Fed has been deliberately vague 0:18:19.600 --> 0:18:24.080 about what inflation, what flexible targeting really means. How much 0:18:24.080 --> 0:18:27.240 harder is that? Is that making your job well? I 0:18:27.240 --> 0:18:31.720 think forecasting is always difficult, particularly the future UM. Obviously 0:18:31.720 --> 0:18:34.360 we're going through a very volatile period. But I think 0:18:34.359 --> 0:18:37.200 if you take the broad contours that the economy is 0:18:37.320 --> 0:18:40.479 entering a boom phase led by the consumer, that Europe 0:18:40.520 --> 0:18:43.200 is joining it, and as you just mentioned, the news 0:18:43.240 --> 0:18:46.800 on vaccines and virus is starting to look good. Globally. Uh. 0:18:46.880 --> 0:18:49.119 The simple issue is we're in a very strong phase 0:18:49.119 --> 0:18:51.320 of growth that's not going to go away anytime soon. 0:18:52.040 --> 0:18:55.119 The spike in inflation, I think is largely temporary, but 0:18:55.320 --> 0:18:57.879 whatever is going to happen here, the FED for the 0:18:57.920 --> 0:19:00.840 time being is gonna be relative of lee, cautious and 0:19:00.920 --> 0:19:03.320 continue to hold the line. And I think on the 0:19:03.359 --> 0:19:06.560 inflation targeting side, the FED wants inflation to get up 0:19:06.600 --> 0:19:08.760 to the mid twos for a while. It doesn't want 0:19:08.800 --> 0:19:10.560 it to get above three, and it wants it to 0:19:10.600 --> 0:19:13.640 settle at two in the media in the medium term. 0:19:13.680 --> 0:19:16.320 I don't think these parameters are that far, you know, 0:19:17.080 --> 0:19:20.320 far away from you know where we might think ranges are, 0:19:20.400 --> 0:19:23.160 so that there's a lot of uncertainty. Executing is obviously 0:19:23.280 --> 0:19:25.520 very difficult. I think the Fed is pretty clear on 0:19:25.560 --> 0:19:29.160 what it wants here. Pruce, Michael Faroli and your team 0:19:29.160 --> 0:19:32.639 have led the way on our potential g DP just 0:19:32.680 --> 0:19:35.399 the sort of where are we from a demographic and 0:19:35.520 --> 0:19:39.399 economic standpoint? Have you tweaked your potential g d P 0:19:39.960 --> 0:19:42.879 to be a more optimistic statistic coming out of this 0:19:42.960 --> 0:19:47.040 pandemic with all the stimulus. It's an interesting question, and 0:19:47.080 --> 0:19:49.760 we're struggling with that, and we have not changed our 0:19:49.840 --> 0:19:51.920 view that US potential growth is around one and a 0:19:51.920 --> 0:19:55.639 half And as you can see in the latest employment report, 0:19:55.680 --> 0:19:58.160 and you can see more generally, there's been damage done 0:19:58.520 --> 0:20:00.760 to the supply side on LABE, but at the same 0:20:00.800 --> 0:20:02.879 time we've had a big productivity there to some of 0:20:02.920 --> 0:20:05.920 that is the rotation and growth to higher productivity sectors. 0:20:06.320 --> 0:20:08.879 It still remains to be seeing what happens here in 0:20:09.000 --> 0:20:12.480 terms of blasting damage from this effect, and we're not 0:20:12.680 --> 0:20:15.320 at this point taking a view of really trying to 0:20:15.400 --> 0:20:17.480 change that you of a one and a half percent 0:20:17.520 --> 0:20:20.679 potential growth rate, Dr Kasmin, thank you so much, Bruce Kasmin, 0:20:20.760 --> 0:20:23.600 JP Morgan, Chief Economists, head of all of their global 0:20:23.680 --> 0:20:36.879 economic research. This conversation has been hugely anticipated and it 0:20:37.000 --> 0:20:40.400 does so because Nicholas Bloom, as a young student many 0:20:40.440 --> 0:20:45.400 many years ago, was at the absolute forefront of labor dynamics, 0:20:45.960 --> 0:20:49.479 innovation and technology. He did this with someone that's been 0:20:49.520 --> 0:20:53.240 of such help to Bloomberg on the economy and Bloomberg surveillance, 0:20:53.240 --> 0:20:55.720 a great John Van Ren And and we're thrilled that 0:20:55.840 --> 0:20:59.600 Nicholas Bloom could join us from Stanford this morning. Professor 0:20:59.600 --> 0:21:04.200 congratulations and your January two thousand twenty one paper, which 0:21:04.240 --> 0:21:07.480 is the discussion point and work from home. I want 0:21:07.520 --> 0:21:10.320 to go back to Bloom Kretschmer and then rening of 0:21:10.400 --> 0:21:14.800 two thousand nine and what has changed as the technology 0:21:14.920 --> 0:21:19.240 has changed is the new technology the reason work from 0:21:19.320 --> 0:21:24.440 home will work. You know, it's been a very odd journey, 0:21:24.560 --> 0:21:27.280 so you know, it's back drop. I've been working on 0:21:27.400 --> 0:21:30.200 working from home since I think two thousand and four. 0:21:30.240 --> 0:21:32.520 I mean that's almost twenty years now, and it was 0:21:32.600 --> 0:21:37.520 normally a quiet backwater topic until of course March beginning 0:21:37.520 --> 0:21:41.280 of the pandemic, when it just went wild. Um, it 0:21:41.400 --> 0:21:43.760 has changed a lot. You know, my experience of working 0:21:43.800 --> 0:21:46.439 on working from home the last ten years have been 0:21:46.520 --> 0:21:49.479 kind of different because basically we've got the two final 0:21:49.520 --> 0:21:52.800 critical pieces. We have video calls so we can do this. 0:21:52.880 --> 0:21:55.240 We can know how have talks and zoom and teams 0:21:55.240 --> 0:21:57.960 on the internet, and we've had Dropbox in the clouds. 0:21:57.960 --> 0:22:01.680 You can file shares, but files. If you go back 0:22:01.720 --> 0:22:04.000 twenty thirty years, I talked to people that you know, 0:22:04.080 --> 0:22:06.960 do working from home in the eighties or the nineties, 0:22:06.960 --> 0:22:11.840 it was terrible. Yeah, telephone calls and dropping off piles 0:22:11.840 --> 0:22:15.119 of paper at the front door. If the pandemic had happened, 0:22:15.119 --> 0:22:18.040 did say, would have been in real trouble. I mean, 0:22:18.080 --> 0:22:21.679 we couldn't have efficiently. I'm not sure what the lockdown did. 0:22:21.840 --> 0:22:24.760 Like thank you know, thankfully we had the ability to 0:22:24.840 --> 0:22:29.120 flip roughly two thirds of the economy in March. Working 0:22:29.160 --> 0:22:31.680 from home it worked pretty well. In fact, it looks 0:22:31.720 --> 0:22:33.399 like a lot of that's here to stay well. But 0:22:33.520 --> 0:22:35.480 is there a permanence to it? And let's go back 0:22:35.520 --> 0:22:37.760 to the hallmark you did the paper with ven Rena 0:22:37.800 --> 0:22:41.080 and crushed where in oh nine Marissa Meyer changed the 0:22:41.119 --> 0:22:44.720 world at Yahoo in two thousand and twelve thirteen with 0:22:44.800 --> 0:22:47.840 a great debate about Yahoo worked from home. Dragged that 0:22:48.040 --> 0:22:51.680 forward now to where Nicholas Bloom and Mersa Mayer can 0:22:51.800 --> 0:22:54.919 say there's a permanence to work from home, or like 0:22:55.040 --> 0:22:57.880 Marrissa Myers, people would say, let's get into the office. 0:22:58.200 --> 0:23:01.960 Which is it? No, you know, I I spoke to 0:23:02.000 --> 0:23:04.280 Marissa mar recently about this, and I think what she 0:23:04.359 --> 0:23:07.000 did is exactly right. But history has kind of forgotten 0:23:07.000 --> 0:23:10.280 what she did. So just to be clear, Marissa Maya 0:23:10.400 --> 0:23:13.760 discovered that there are people that are working home full time, 0:23:14.240 --> 0:23:17.240 and some of them were like working so poorly, they've 0:23:17.240 --> 0:23:19.280