1 00:00:05,120 --> 00:00:09,320 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. Hometom Keene along with 2 00:00:09,440 --> 00:00:13,720 Speaker 1: Jonathan Ferroll and Lisa Brownwitz Jaylie, we bring you insight 3 00:00:13,840 --> 00:00:18,560 Speaker 1: from the best and economics, finance, investment and international relations, 4 00:00:18,960 --> 00:00:23,840 Speaker 1: Fine Bloomberg Surveillance and Apple podcast SoundCloud, Bloomberg dot Com, 5 00:00:23,920 --> 00:00:30,840 Speaker 1: and of course on the Bloomberg Terminal. We've got a 6 00:00:30,880 --> 00:00:33,800 Speaker 1: fantastic guest joining us from Washington. Now. I'm pleased to 7 00:00:33,840 --> 00:00:36,559 Speaker 1: say the former governor of Michigan, the current Secretary of 8 00:00:36,640 --> 00:00:38,720 Speaker 1: Energy here in the United States, Jennifer Granham, joins us 9 00:00:38,760 --> 00:00:41,479 Speaker 1: right now. Secretary, thank you very much for joining us 10 00:00:41,640 --> 00:00:45,000 Speaker 1: this morning. I'm about to commit an interview sin so 11 00:00:45,159 --> 00:00:48,800 Speaker 1: forgive me. I'm gonna start really really narrow on the 12 00:00:49,400 --> 00:00:52,879 Speaker 1: oil reserves in the spr they're gonna be released as 13 00:00:52,920 --> 00:00:54,880 Speaker 1: part of the pay for I didn't see in the 14 00:00:54,960 --> 00:00:57,520 Speaker 1: White House release, And forgive me if you've done it subsequently, 15 00:00:57,920 --> 00:00:59,960 Speaker 1: how much you're looking to raise from that? What is 16 00:01:00,040 --> 00:01:04,240 Speaker 1: the number? Yeah, there's there wasn't a number in there, 17 00:01:04,280 --> 00:01:07,560 Speaker 1: probably strategically because some of this still has to be negotiated. 18 00:01:07,560 --> 00:01:09,880 Speaker 1: But no, that it's not selling off all of the 19 00:01:09,920 --> 00:01:12,560 Speaker 1: strategic petroleum reserves. It is really it will be a 20 00:01:12,560 --> 00:01:15,759 Speaker 1: limited sale to be able to meet the goal, which 21 00:01:15,840 --> 00:01:18,840 Speaker 1: is too I mean, the president's goal was he did 22 00:01:18,880 --> 00:01:21,319 Speaker 1: not want any of these paid force as you know, 23 00:01:21,440 --> 00:01:25,800 Speaker 1: to raise taxes on those earning over under four hundred thousand. 24 00:01:25,920 --> 00:01:29,960 Speaker 1: He didn't want to see UH tax on electric vehicles 25 00:01:30,240 --> 00:01:34,720 Speaker 1: or gas tax. So this is one of several elements 26 00:01:34,880 --> 00:01:36,959 Speaker 1: that were used as a paid for and again it's 27 00:01:36,959 --> 00:01:39,319 Speaker 1: a limited sale. Sexty Groundhub. It was interesting that the 28 00:01:39,319 --> 00:01:42,720 Speaker 1: Republicans put out a document circulated by Republican law micer 29 00:01:42,720 --> 00:01:45,800 Speaker 1: Is that had the number six billion dollars in there 30 00:01:45,840 --> 00:01:48,080 Speaker 1: the amount of money that they would raise from the 31 00:01:48,080 --> 00:01:50,200 Speaker 1: set of emergency all reserves. As you say, of course, 32 00:01:50,280 --> 00:01:52,960 Speaker 1: not the entirety a pultion off them. Is that number wrong. 33 00:01:54,120 --> 00:01:56,440 Speaker 1: I'm not saying it's wrong. I'm just saying that that is. 34 00:01:56,880 --> 00:02:00,480 Speaker 1: You know, this is a framework that was announced. Everything 35 00:02:00,560 --> 00:02:03,480 Speaker 1: is set in stone, and it may you know, it 36 00:02:03,600 --> 00:02:06,160 Speaker 1: may move a bit, but the bottom line is it 37 00:02:06,240 --> 00:02:11,160 Speaker 1: is a limited sale. Secretary grind Home, how far does 38 00:02:11,200 --> 00:02:15,359 Speaker 1: this deal get toward moving to an electric future? I'm 39 00:02:15,360 --> 00:02:18,720 Speaker 1: talking about vehicles in particular, given the fact that there 40 00:02:18,800 --> 00:02:23,160 Speaker 1: isn't necessarily provisions for taxes on gas, higher taxes on gas, 41 00:02:23,200 --> 00:02:26,560 Speaker 1: and the provision for electric vehicle charging stations is just 42 00:02:26,600 --> 00:02:29,240 Speaker 1: seven and a half billion dollars versus the call for 43 00:02:29,280 --> 00:02:31,840 Speaker 1: a hundred and seventy four billion dollars of Biden originally 44 00:02:31,840 --> 00:02:34,960 Speaker 1: had for electric vehicle initiatives. Yeah, I mean part of 45 00:02:35,000 --> 00:02:37,920 Speaker 1: that one and seventy four was a big part of 46 00:02:37,919 --> 00:02:41,920 Speaker 1: it was the point of sale tax uh, you know, incentives, 47 00:02:42,040 --> 00:02:45,480 Speaker 1: point of sale incentives for the purchase of electric vehicles 48 00:02:45,480 --> 00:02:47,800 Speaker 1: so that they are at the same level of as 49 00:02:47,880 --> 00:02:51,000 Speaker 1: internal combustion vehicles. And that's something that the President will 50 00:02:51,040 --> 00:02:54,080 Speaker 1: still fight for in the second part of the two 51 00:02:54,160 --> 00:02:56,959 Speaker 1: step dance that is being done, Um, the first part 52 00:02:56,960 --> 00:03:00,600 Speaker 1: being the bipartisan part and the second part being reckon insciliation, 53 00:03:00,680 --> 00:03:02,960 Speaker 1: which I'm sure your viewers know is the is the 54 00:03:03,000 --> 00:03:05,920 Speaker 1: budget reconciliation process, and that in that part he's going 55 00:03:05,960 --> 00:03:10,480 Speaker 1: to fight for a lot of the climate related measures 56 00:03:10,520 --> 00:03:13,359 Speaker 1: that he put forth in the American Jobs Plan, as 57 00:03:13,360 --> 00:03:17,080 Speaker 1: well as the measures in the American Families Plan, which 58 00:03:17,280 --> 00:03:21,280 Speaker 1: involves you know, preschool, it involves two years of free 59 00:03:21,880 --> 00:03:26,640 Speaker 1: community college, it involves the care economy. So this first 60 00:03:26,760 --> 00:03:30,640 Speaker 1: step important, uh, and important I'll say this in terms 61 00:03:30,639 --> 00:03:34,320 Speaker 1: of electrifying the futures, that we have a strong transmission grid. 62 00:03:34,639 --> 00:03:36,880 Speaker 1: And you you saw that there was seventy four billion 63 00:03:36,920 --> 00:03:40,360 Speaker 1: dollars UH in the power sector. Good chunk of that 64 00:03:40,480 --> 00:03:45,040 Speaker 1: for expanding the capacity. The resiliency of the transmission grid 65 00:03:45,240 --> 00:03:49,480 Speaker 1: hugely important for electrifying. Secretary, are you disappointed by the 66 00:03:49,520 --> 00:03:52,080 Speaker 1: fact that there wasn't more momentum behind some of these 67 00:03:52,120 --> 00:03:56,720 Speaker 1: initiatives that would push the United States further toward some 68 00:03:56,880 --> 00:04:01,600 Speaker 1: of the clean energy goals. I'm I'm not surprised that 69 00:04:01,680 --> 00:04:06,480 Speaker 1: this first package, this first framework doesn't include a lot 70 00:04:06,600 --> 00:04:09,520 Speaker 1: of that, because there have there's you know, it's been 71 00:04:10,160 --> 00:04:13,800 Speaker 1: um difficult to get a lot of tax incentives behind 72 00:04:14,160 --> 00:04:17,720 Speaker 1: clean energy from the Republicans, but there's a lot of 73 00:04:17,760 --> 00:04:20,120 Speaker 1: Republicans who are benefiting from it as well. And so 74 00:04:20,160 --> 00:04:23,080 Speaker 1: in the second package, as the President mentioned yesterday, he's 75 00:04:23,080 --> 00:04:25,520 Speaker 1: going to continue to fight for those climate measures, including 76 00:04:25,520 --> 00:04:29,320 Speaker 1: a clean energy standards. So the bottom line is this 77 00:04:29,839 --> 00:04:32,120 Speaker 1: is just one step, but we gotta take the second 78 00:04:32,120 --> 00:04:34,479 Speaker 1: step as well to get the President's full agenda through 79 00:04:35,200 --> 00:04:37,040 Speaker 1: some of the items as well that we're looking at. 80 00:04:37,120 --> 00:04:41,040 Speaker 1: And I hearkened back on some of my Muni days, uh, 81 00:04:41,120 --> 00:04:43,919 Speaker 1: Miss Secretary about fixing bridges. I mean, of course we 82 00:04:43,920 --> 00:04:46,840 Speaker 1: talked about the electrification of buses, but it's more than that. 83 00:04:46,920 --> 00:04:50,839 Speaker 1: It's updating the airports, it's fixing waterways, it's it's beyond 84 00:04:50,960 --> 00:04:54,320 Speaker 1: just the size and scope of an electrification. Are those 85 00:04:54,360 --> 00:04:58,039 Speaker 1: two though, enough of a green energy for you? Well, 86 00:04:58,240 --> 00:05:02,560 Speaker 1: it's certainly. I mean, this is and historic investment in water. 87 00:05:02,880 --> 00:05:05,320 Speaker 1: So what they're gonna do is make sure that every 88 00:05:05,400 --> 00:05:09,120 Speaker 1: home in America has pipes that are safe to drink from, 89 00:05:09,400 --> 00:05:11,479 Speaker 1: so that there's not lead in the pipes and so 90 00:05:11,640 --> 00:05:14,520 Speaker 1: children are not poison every home, that every home in 91 00:05:14,560 --> 00:05:18,720 Speaker 1: America has access to high speed internet. It's in a 92 00:05:18,880 --> 00:05:23,840 Speaker 1: historic investment in rail, it's an historic investment in transit, 93 00:05:23,880 --> 00:05:27,120 Speaker 1: as you suggest, and of course it's an historic investment 94 00:05:27,160 --> 00:05:30,400 Speaker 1: in the transmission grid. So all of those pieces are 95 00:05:31,080 --> 00:05:34,360 Speaker 1: very important for America's future, and frankly, all of them 96 00:05:34,440 --> 00:05:38,360 Speaker 1: are pieces that the public, whether they're Democrats are Republicans, 97 00:05:38,400 --> 00:05:41,600 Speaker 1: overwhelmingly support because who you know, who cares whether you're 98 00:05:41,600 --> 00:05:44,240 Speaker 1: a Democrat or Republican. You want to have water that's 99 00:05:44,279 --> 00:05:47,320 Speaker 1: safe to drink. Can we also just talk quickly about 100 00:05:47,360 --> 00:05:49,640 Speaker 1: the grid. What you can do from a national level. 101 00:05:49,880 --> 00:05:53,000 Speaker 1: We're coming off of Texas that we just saw. I'm 102 00:05:53,000 --> 00:05:56,120 Speaker 1: from California. The power goes out in the summer every afternoon. 103 00:05:56,160 --> 00:05:58,159 Speaker 1: You have to unplug your appliances. You try to go 104 00:05:58,200 --> 00:06:00,599 Speaker 1: to dinner and they say, we're out of power. Too bad. 105 00:06:01,000 --> 00:06:03,520 Speaker 1: What can we do on a national level to make 106 00:06:03,520 --> 00:06:06,760 Speaker 1: sure that we are shifting to being more climate friendly 107 00:06:06,920 --> 00:06:11,479 Speaker 1: but also maintaining reliability really important question. So what we 108 00:06:11,560 --> 00:06:14,960 Speaker 1: need to do is to add capacity to the transmission 109 00:06:15,000 --> 00:06:18,440 Speaker 1: to grid grid to bring the clean energy that's being 110 00:06:18,480 --> 00:06:21,159 Speaker 1: generated in the states that have a lot of wind 111 00:06:21,240 --> 00:06:24,200 Speaker 1: and solar to the places that have load centers which 112 00:06:24,240 --> 00:06:26,960 Speaker 1: are using a lot of electricity. We have to make 113 00:06:26,960 --> 00:06:29,400 Speaker 1: sure that we do what the Department of Energy is doing, 114 00:06:29,400 --> 00:06:33,120 Speaker 1: which is investing in the research that allows for expanded 115 00:06:33,520 --> 00:06:37,440 Speaker 1: significant storage movement on energy storage so that we can 116 00:06:37,520 --> 00:06:41,560 Speaker 1: use these clean energy assets. Seven. But the President also 117 00:06:41,640 --> 00:06:44,520 Speaker 1: wants to see an investment, for example, in keeping the 118 00:06:44,600 --> 00:06:48,039 Speaker 1: nuclear plants that we have online open, or investment in 119 00:06:48,120 --> 00:06:52,279 Speaker 1: next generation nuclear which is baseload clean power, investment in 120 00:06:52,360 --> 00:06:56,440 Speaker 1: geo thermal which is baseload clean power, investment, investments in 121 00:06:56,600 --> 00:07:00,240 Speaker 1: hydro power, which is baseload clean power. All of at 122 00:07:00,240 --> 00:07:02,720 Speaker 1: has to happen. Not all of that was included in 123 00:07:02,720 --> 00:07:05,640 Speaker 1: this first piece, but um, we're going to fight to 124 00:07:05,640 --> 00:07:07,440 Speaker 1: make sure that all of that is included in the 125 00:07:07,480 --> 00:07:10,880 Speaker 1: second bit of legislation that we hope will arrive at 126 00:07:10,880 --> 00:07:13,600 Speaker 1: the President's desk this summer. We're speaking with Jennifer Grandholme, 127 00:07:13,840 --> 00:07:17,480 Speaker 1: U S Secretary of Energy and Secretary Grandholme, there's a 128 00:07:17,560 --> 00:07:21,239 Speaker 1: question about the shale producers here. Even as we try 129 00:07:21,480 --> 00:07:24,680 Speaker 1: to talk about a transition to clean energy. Shell producers 130 00:07:24,880 --> 00:07:27,840 Speaker 1: have been behind a huge surge and economic activity for 131 00:07:27,920 --> 00:07:32,280 Speaker 1: the United States, a huge concept of US oil independence. 132 00:07:32,480 --> 00:07:35,600 Speaker 1: And now we've seen shale production fall up substantially during 133 00:07:35,600 --> 00:07:37,920 Speaker 1: the pandemic and not really come back as much, no 134 00:07:38,000 --> 00:07:41,840 Speaker 1: longer thought of as the swing producers. How important is 135 00:07:41,840 --> 00:07:44,840 Speaker 1: it in your view to get that production back up 136 00:07:44,880 --> 00:07:47,680 Speaker 1: and running at the capacity that it has versus the 137 00:07:47,680 --> 00:07:49,840 Speaker 1: discipline that we're hearing out of the CEO is from 138 00:07:49,840 --> 00:07:52,200 Speaker 1: a lot of these companies. Well, I think this is 139 00:07:52,240 --> 00:07:56,040 Speaker 1: a really important question because the world, as you know, 140 00:07:56,200 --> 00:08:00,720 Speaker 1: is moving to clean electricity, clean power, and and um 141 00:08:00,840 --> 00:08:06,320 Speaker 1: natural gas an important baseload fuel has some problems with 142 00:08:06,400 --> 00:08:09,120 Speaker 1: clean I mean, it is cleaner than coals, certainly, but 143 00:08:09,240 --> 00:08:12,200 Speaker 1: it has methane emissions, which is a very potent greenhouse gas. 144 00:08:12,200 --> 00:08:14,920 Speaker 1: It's got it's got CEO two emissions. What's so, what's 145 00:08:15,000 --> 00:08:19,560 Speaker 1: interesting is in the framework that was announced yesterday there 146 00:08:19,560 --> 00:08:25,040 Speaker 1: are demonstration significant amount of money for demonstration projects in 147 00:08:25,080 --> 00:08:28,200 Speaker 1: what is known as carbon capture and sequestration which could 148 00:08:28,240 --> 00:08:33,000 Speaker 1: be used to to decarbonize the fossil fuel sector. And 149 00:08:33,080 --> 00:08:37,640 Speaker 1: that to me is another very important technological step and 150 00:08:37,920 --> 00:08:42,280 Speaker 1: step that helps our climate goals UH. And and it's 151 00:08:42,480 --> 00:08:45,600 Speaker 1: technology that can be used here but also helped around 152 00:08:45,679 --> 00:08:48,680 Speaker 1: the world to decarbonize and everybody get to the goal 153 00:08:48,760 --> 00:08:51,040 Speaker 1: that all these countries have signed onto, which is at 154 00:08:51,040 --> 00:08:53,120 Speaker 1: the Paris Agreement, that we get to that zero carbon 155 00:08:53,160 --> 00:08:56,000 Speaker 1: emissions by I think that will help. Those kind of 156 00:08:56,040 --> 00:09:00,560 Speaker 1: technologies will help for this UH, for the oil gas sector, 157 00:09:00,600 --> 00:09:03,679 Speaker 1: the gas sector in particular, to be able to ramp 158 00:09:03,840 --> 00:09:06,840 Speaker 1: up production but in a way that is clean. Government 159 00:09:06,880 --> 00:09:09,280 Speaker 1: just quickly just around on this interview. What's the future. 160 00:09:09,280 --> 00:09:13,920 Speaker 1: What's the role of the SPR in this administration? It's 161 00:09:13,920 --> 00:09:17,600 Speaker 1: a it's an emergency stockpile essentially in the in case 162 00:09:17,840 --> 00:09:20,720 Speaker 1: of in case we have obviously it was something that 163 00:09:20,840 --> 00:09:25,120 Speaker 1: was that was generated in particularly important during like the 164 00:09:25,120 --> 00:09:28,960 Speaker 1: the oil embargo and you know the OPEC crisis. We 165 00:09:28,960 --> 00:09:33,320 Speaker 1: have this, We have this as an important, important measure 166 00:09:33,600 --> 00:09:37,560 Speaker 1: in case there is UM shortages, in case we need 167 00:09:37,600 --> 00:09:39,040 Speaker 1: to have it, and so we're going to keep it. 168 00:09:39,120 --> 00:09:41,280 Speaker 1: And in fact it's in it's underneath the Department of 169 00:09:41,360 --> 00:09:44,400 Speaker 1: Energy and we're putting it uh into a section of 170 00:09:44,400 --> 00:09:46,719 Speaker 1: the Department of Energy that responds to emergencies. So what 171 00:09:46,880 --> 00:09:48,600 Speaker 1: is it being used to rice money if there's an 172 00:09:48,640 --> 00:09:51,600 Speaker 1: emergency every year? I'm telling this is not new. This 173 00:09:51,640 --> 00:09:53,439 Speaker 1: is not a new understand that you can do get 174 00:09:53,440 --> 00:09:55,120 Speaker 1: a release, but to raise money to pay for an 175 00:09:55,120 --> 00:09:58,880 Speaker 1: intrastructure plan. That feels honestly, every year Congress uses it 176 00:09:58,920 --> 00:10:01,600 Speaker 1: for some to pay for something or another that may 177 00:10:01,600 --> 00:10:05,760 Speaker 1: not be related to the reserve itself. So the reserve 178 00:10:05,800 --> 00:10:08,679 Speaker 1: will be will be solid. We've got lots in the reserve, 179 00:10:08,760 --> 00:10:11,200 Speaker 1: it will continue to be UM. It will continue to 180 00:10:11,200 --> 00:10:13,600 Speaker 1: be there for the purposes for which it was intended. 181 00:10:13,840 --> 00:10:16,880 Speaker 1: But it also has this mechanism that it's being Some 182 00:10:16,960 --> 00:10:20,160 Speaker 1: of it gets sold off every year for other reasons 183 00:10:20,200 --> 00:10:22,040 Speaker 1: that Congress wants to fund and this is one of 184 00:10:22,080 --> 00:10:25,440 Speaker 1: those occasions. Apparently, Secretary Fantastic to catch up. Secretary of Energy, 185 00:10:25,520 --> 00:10:35,440 Speaker 1: Jennifer granhow, thank you. Let's continue this thing. We can 186 00:10:35,480 --> 00:10:38,800 Speaker 1: do that with Republican Congressman French Hill of Arkansas. Congressman 187 00:10:38,840 --> 00:10:40,679 Speaker 1: fantastic to get you on the program with us. Can 188 00:10:40,720 --> 00:10:42,600 Speaker 1: we just start with the infrastructure plan just briefly. If 189 00:10:42,600 --> 00:10:45,480 Speaker 1: you make looking at these numbers, you would think that'd 190 00:10:45,480 --> 00:10:47,120 Speaker 1: be a big reaction here in the bond market, and 191 00:10:47,120 --> 00:10:48,920 Speaker 1: we don't have one. So I want to understand from 192 00:10:48,960 --> 00:10:51,200 Speaker 1: your perspective what you've heard in the last twenty four hours, 193 00:10:51,600 --> 00:10:54,480 Speaker 1: what you think can actually be passed down on Capitol 194 00:10:54,520 --> 00:10:58,319 Speaker 1: Hill in d C. I think the moderate Democrats and 195 00:10:58,360 --> 00:11:00,720 Speaker 1: the Republicans in the Senate have been sort of thrown 196 00:11:00,880 --> 00:11:05,839 Speaker 1: under the transit bus by their proposed compromise because immediately 197 00:11:05,920 --> 00:11:10,640 Speaker 1: upon reaching a constructive bipartisan agreement with the President, Nancy 198 00:11:10,679 --> 00:11:13,080 Speaker 1: Pelosi and Chuck Schumer said, well, we won't support this 199 00:11:13,160 --> 00:11:16,640 Speaker 1: at all until we raise taxes on working people in 200 00:11:16,720 --> 00:11:20,479 Speaker 1: business and pass our Green New Deal and other American 201 00:11:20,520 --> 00:11:25,360 Speaker 1: family priorities through budget reconciliation. So, once again, I think 202 00:11:25,360 --> 00:11:28,640 Speaker 1: President Joe Biden is a prisoner of the left wing 203 00:11:28,720 --> 00:11:32,359 Speaker 1: of the Democratic Party here in Washington. So just quickly, Congressman, 204 00:11:32,640 --> 00:11:35,840 Speaker 1: just to jump back in what was agreed yesterday, dead 205 00:11:35,840 --> 00:11:40,719 Speaker 1: on arrival already. Well, the House Republicans proposed a four 206 00:11:40,920 --> 00:11:45,000 Speaker 1: d billion dollar service transportation bill with a pilot program 207 00:11:45,120 --> 00:11:48,800 Speaker 1: to have a vehicle's taxed on miles as opposed to 208 00:11:48,840 --> 00:11:51,240 Speaker 1: the gas tax, which I think is a constructive approach. 209 00:11:51,720 --> 00:11:53,880 Speaker 1: House Democrats are going to move a bill next week 210 00:11:53,920 --> 00:11:56,440 Speaker 1: that's basically the Green New Deal priorities of about five 211 00:11:56,800 --> 00:12:00,120 Speaker 1: and seventy billion, So it's not dead on arrival, but 212 00:12:00,200 --> 00:12:03,760 Speaker 1: I wouldn't say that it's being acclaimed on both sides 213 00:12:03,800 --> 00:12:07,800 Speaker 1: of the aisle and that it's not done remotely yet. Congressman, 214 00:12:07,960 --> 00:12:09,600 Speaker 1: what would you be okay with when it comes to 215 00:12:09,640 --> 00:12:15,079 Speaker 1: reconciliation in tandem with his bipartisan deal, Well, we need 216 00:12:15,080 --> 00:12:17,880 Speaker 1: targeted spending and we need to get back to spending 217 00:12:17,960 --> 00:12:21,199 Speaker 1: priorities instead of proposing to spend six trillion dollars and 218 00:12:21,320 --> 00:12:24,160 Speaker 1: increase the size of the federal government way up over 219 00:12:25,200 --> 00:12:29,000 Speaker 1: our gross domestic economy. We need to not raise taxes 220 00:12:29,080 --> 00:12:32,000 Speaker 1: on workers and on businesses as we try to come 221 00:12:32,040 --> 00:12:34,280 Speaker 1: out of the pandemic and get people back to work. 222 00:12:34,720 --> 00:12:36,720 Speaker 1: So at least it's really a subject of not only 223 00:12:36,720 --> 00:12:39,880 Speaker 1: the amount of money, but the target and the priorities, 224 00:12:39,920 --> 00:12:42,400 Speaker 1: and that remains to be seen with the Democrats will 225 00:12:42,440 --> 00:12:45,440 Speaker 1: propose in the Senate and propose in the House. So, Congressman, 226 00:12:45,480 --> 00:12:47,679 Speaker 1: if there are no tax hikes attached to this or 227 00:12:47,920 --> 00:12:51,199 Speaker 1: to minimus ones, ones that are more palatable to you, 228 00:12:51,200 --> 00:12:54,640 Speaker 1: you would be willing to support a multi trillion dollar package, 229 00:12:54,840 --> 00:12:56,560 Speaker 1: or at least not push back and vote on the 230 00:12:56,559 --> 00:13:00,960 Speaker 1: bipartisan bill and allow the reconciliation to go forward. I 231 00:13:01,000 --> 00:13:03,040 Speaker 1: don't think that's the way it's gonna go. Lest I 232 00:13:03,080 --> 00:13:05,960 Speaker 1: think you're gonna try to have an infrastructure vote, but 233 00:13:06,080 --> 00:13:08,520 Speaker 1: Nancy Pelosi and Chuck Schumer are not going to bring 234 00:13:08,640 --> 00:13:13,120 Speaker 1: that infrastructure compromise approach to a vote until they get 235 00:13:13,160 --> 00:13:15,960 Speaker 1: a vote on their reconciliation packed, which is a multi 236 00:13:15,960 --> 00:13:20,199 Speaker 1: trillion dollar package with tax increases. That's what the Democrats 237 00:13:20,200 --> 00:13:22,160 Speaker 1: in the House and the Democrats in the Senate are 238 00:13:22,240 --> 00:13:25,599 Speaker 1: demanding of Chuck Schumer and of Nancy Pelosi. So I 239 00:13:25,640 --> 00:13:28,360 Speaker 1: think it's premature to say, well, what does the final 240 00:13:28,440 --> 00:13:32,880 Speaker 1: package look like? Does this sort of two route approach 241 00:13:33,240 --> 00:13:36,960 Speaker 1: is that the way to be going well normally, No 242 00:13:37,280 --> 00:13:40,800 Speaker 1: I thought, what job my Joe Mansion thought he was 243 00:13:40,880 --> 00:13:43,560 Speaker 1: doing with Susan Collins and others was coming up with 244 00:13:43,600 --> 00:13:47,079 Speaker 1: a way to get a bipartisan infrastructure package which with 245 00:13:47,120 --> 00:13:51,880 Speaker 1: as much paying pay for from previously appropriated funding as possible, 246 00:13:51,880 --> 00:13:54,640 Speaker 1: and get that passed in a clean way on a 247 00:13:54,679 --> 00:13:58,760 Speaker 1: bipartisan basis in both Houses of Congress. And clearly yesterday 248 00:13:59,400 --> 00:14:02,040 Speaker 1: uh Nan to Pelosi and Chuck Schumer through a wrench 249 00:14:02,280 --> 00:14:06,920 Speaker 1: in that plan. Senator or Congressman, I should say, you're 250 00:14:07,000 --> 00:14:09,680 Speaker 1: also ranking member as we see here on the National Security, 251 00:14:09,720 --> 00:14:13,679 Speaker 1: International Development, and Monetary Policy Subcommittee. When we think about 252 00:14:13,720 --> 00:14:16,840 Speaker 1: the grid as being a national security issue, are we 253 00:14:16,920 --> 00:14:21,600 Speaker 1: doing enough to really meet both requirements making the grid reliable, 254 00:14:21,880 --> 00:14:26,760 Speaker 1: transitioning perhaps two more of a green energy friendly but 255 00:14:26,960 --> 00:14:30,200 Speaker 1: it has to be protected as well from a national 256 00:14:30,240 --> 00:14:33,280 Speaker 1: security perspective. Is there enough in this bill to do 257 00:14:33,360 --> 00:14:37,360 Speaker 1: all of those well, that's been an ongoing priority on 258 00:14:37,400 --> 00:14:39,960 Speaker 1: a Bick Parson basis in Congress. And we have two 259 00:14:40,000 --> 00:14:44,000 Speaker 1: of the power control powering sharing a company's headquartered in 260 00:14:44,040 --> 00:14:47,760 Speaker 1: Little Rock, Arkansas and mad District Southwest Power Pool and MISO, 261 00:14:48,040 --> 00:14:53,119 Speaker 1: and in both instances they have a Reliability Transfer Authority 262 00:14:53,240 --> 00:14:56,560 Speaker 1: for power across this country that includes a strong cyber 263 00:14:56,600 --> 00:15:01,000 Speaker 1: protection and grid resiliency initiative, and I've met with those 264 00:15:01,000 --> 00:15:03,960 Speaker 1: companies and many utilities on it. So the private sector 265 00:15:04,040 --> 00:15:06,880 Speaker 1: works on this every single day, and where the government 266 00:15:06,880 --> 00:15:10,160 Speaker 1: can make strategic investments, I think you'd find bipartisan support. 267 00:15:10,520 --> 00:15:13,200 Speaker 1: As to the amount, that's not something I can comment 268 00:15:13,200 --> 00:15:17,760 Speaker 1: on today because I haven't studied their proposal, and we 269 00:15:17,920 --> 00:15:21,400 Speaker 1: will make sure to ask you as well. Another question, 270 00:15:21,480 --> 00:15:24,240 Speaker 1: because we're coming off of a bank conversation that we 271 00:15:24,360 --> 00:15:27,440 Speaker 1: just had. Of course, the bank's coming out and passing, 272 00:15:27,520 --> 00:15:30,280 Speaker 1: of course all of those stress tests, can you confirm 273 00:15:30,320 --> 00:15:33,760 Speaker 1: that you don't see systemic risk, that the banks passing 274 00:15:33,760 --> 00:15:36,840 Speaker 1: those stress tests are indeed a positive thing, returning that 275 00:15:36,920 --> 00:15:41,080 Speaker 1: capital to shareholders. I think the bank's financial strength through 276 00:15:41,120 --> 00:15:43,480 Speaker 1: the pandemic has been one of the bright spots that 277 00:15:43,560 --> 00:15:46,520 Speaker 1: gives us the strength for the economy to know that 278 00:15:46,560 --> 00:15:48,840 Speaker 1: we can get people back to work and have GDP 279 00:15:49,000 --> 00:15:51,960 Speaker 1: grow between six and eight percent this year. So I 280 00:15:51,960 --> 00:15:55,200 Speaker 1: think that Flying Colors pass of the stress tests indicates 281 00:15:55,200 --> 00:15:58,360 Speaker 1: our economy is open and ready for business, and I 282 00:15:58,440 --> 00:16:00,920 Speaker 1: look forward to the results of that by moral more 283 00:16:00,960 --> 00:16:03,720 Speaker 1: Americans getting back to a full time job. Congressman, just 284 00:16:03,760 --> 00:16:05,200 Speaker 1: before I let you go, I just want to finish 285 00:16:05,200 --> 00:16:08,320 Speaker 1: on that the usefulness of stress test if we never 286 00:16:08,360 --> 00:16:11,360 Speaker 1: allow the banks to face stress again, and the Federal 287 00:16:11,360 --> 00:16:14,200 Speaker 1: Reserve is cleaning seemingly pretty intent on never allowing that 288 00:16:14,320 --> 00:16:17,520 Speaker 1: to happen. Last year fantastic example of that. The banks 289 00:16:17,520 --> 00:16:19,240 Speaker 1: didn't get into the stress and maybe that's a good thing. 290 00:16:19,280 --> 00:16:20,600 Speaker 1: I don't know, but I want you to tell me 291 00:16:20,640 --> 00:16:23,480 Speaker 1: what's the value of a stress test if this Federal 292 00:16:23,480 --> 00:16:27,840 Speaker 1: Reserve is how bent on these banks never facing stress again. Well, 293 00:16:27,880 --> 00:16:30,720 Speaker 1: I don't agree with zero interest rates that the Fed 294 00:16:30,880 --> 00:16:33,360 Speaker 1: has proposed, and I don't think they should continue at 295 00:16:33,360 --> 00:16:36,200 Speaker 1: the rate of a twenty billion dollars a month. Those 296 00:16:36,280 --> 00:16:39,960 Speaker 1: benefit uh the economy and the short run during the pandemic, 297 00:16:39,960 --> 00:16:42,400 Speaker 1: but it's time, with an eight percent projected growth rate 298 00:16:42,440 --> 00:16:45,000 Speaker 1: to move away from that. But they have a primary 299 00:16:45,080 --> 00:16:47,560 Speaker 1: obligation to regulate our banks and make sure they have 300 00:16:47,640 --> 00:16:51,040 Speaker 1: the capital to operate a safe and sound environment. And 301 00:16:51,120 --> 00:16:53,680 Speaker 1: that's what's been done, and it's been a big change 302 00:16:53,720 --> 00:16:56,240 Speaker 1: from the O eight oh nine crisis, and that's why 303 00:16:56,280 --> 00:16:58,880 Speaker 1: you saw so many street firms convert to a commercial 304 00:16:58,880 --> 00:17:01,320 Speaker 1: bank charter so it could build the capital and the 305 00:17:01,360 --> 00:17:06,160 Speaker 1: resiliency necessary if there was an economic downturn. Congressman, always smile, 306 00:17:06,160 --> 00:17:07,840 Speaker 1: always shop, and it's going to catch up, sir, come 307 00:17:07,880 --> 00:17:11,359 Speaker 1: back soon, Republican Congressman French Hill of Arkansas, Thank you, sir. 308 00:17:18,560 --> 00:17:21,480 Speaker 1: Perfect guests, the man himself might mayor wilst Fargo Securities 309 00:17:21,520 --> 00:17:24,479 Speaker 1: US Large Camp Bank Research Managing director Joy just now 310 00:17:24,560 --> 00:17:27,880 Speaker 1: to discuss Michael. Let's start here. After the closed Monday, 311 00:17:28,160 --> 00:17:30,600 Speaker 1: we could get some big capital return plans. What are 312 00:17:30,600 --> 00:17:35,920 Speaker 1: the numbers that you're looking for, sir? Well, wow, this 313 00:17:36,040 --> 00:17:38,040 Speaker 1: was the FED stress test, and it used to be 314 00:17:38,119 --> 00:17:41,920 Speaker 1: the Super Bowl banking and now it's like a preseason game. 315 00:17:42,080 --> 00:17:44,679 Speaker 1: It was. It was boring, but you know what, boring 316 00:17:44,760 --> 00:17:47,680 Speaker 1: is beautiful for banks. The FED through the kitchen sink 317 00:17:47,760 --> 00:17:50,800 Speaker 1: at the banks with the stress test. The banks passed 318 00:17:50,800 --> 00:17:54,959 Speaker 1: with blind colors. As you mentioned, Monday at four thirty pm, 319 00:17:55,040 --> 00:17:59,600 Speaker 1: we expect a flurry of press releases that announces increases 320 00:17:59,640 --> 00:18:02,960 Speaker 1: and divid it ends and buy backs, and we ultimately 321 00:18:03,000 --> 00:18:07,919 Speaker 1: expect capital return to double versus the prior year and 322 00:18:07,960 --> 00:18:10,600 Speaker 1: that should lead to a and all in yields. That 323 00:18:10,680 --> 00:18:13,639 Speaker 1: the dividend yield plus buy backs, that's better than what 324 00:18:13,680 --> 00:18:15,840 Speaker 1: it is for even junk bots. So there's a lot 325 00:18:15,840 --> 00:18:18,520 Speaker 1: of value with banks and we think that will draw 326 00:18:18,560 --> 00:18:22,199 Speaker 1: in new investors, quants, dived in funds, given in growth 327 00:18:22,240 --> 00:18:26,520 Speaker 1: funds to Ultimately, what this means is redemption for the banks. 328 00:18:26,520 --> 00:18:29,760 Speaker 1: Remember during the pandemic, banks were going to fail, they 329 00:18:29,800 --> 00:18:33,200 Speaker 1: were going to cut the dividends. Now you have dividend 330 00:18:33,200 --> 00:18:38,480 Speaker 1: increases and a bevy of banks with buy back increases 331 00:18:39,040 --> 00:18:42,080 Speaker 1: after Monday. So this is very good news for banks 332 00:18:42,280 --> 00:18:45,399 Speaker 1: and I would say thank you regulators after the global 333 00:18:45,480 --> 00:18:50,879 Speaker 1: pral work and now banks and their investors should be 334 00:18:50,920 --> 00:18:53,280 Speaker 1: able to reap the benefits. So, Mike, why are we 335 00:18:53,320 --> 00:18:57,239 Speaker 1: not saying more of a reaction in markets. You know, 336 00:18:57,680 --> 00:19:02,000 Speaker 1: people have been skeptical about banks the past year. As 337 00:19:02,000 --> 00:19:04,160 Speaker 1: you know, we upgraded a few of the large banks 338 00:19:04,560 --> 00:19:07,840 Speaker 1: in the middle of the crisis. They didn't trust the 339 00:19:08,640 --> 00:19:11,880 Speaker 1: resiliency of the banks, right they It was kind of 340 00:19:11,920 --> 00:19:15,320 Speaker 1: the memories from the global financial crisis. It was still 341 00:19:15,600 --> 00:19:17,760 Speaker 1: front and center and it's like, okay, if something goes wrong, 342 00:19:17,800 --> 00:19:19,679 Speaker 1: banks are going to get hurt, and that was the 343 00:19:19,720 --> 00:19:23,120 Speaker 1: farthest from the truth. If anything, you know, the more 344 00:19:23,160 --> 00:19:25,960 Speaker 1: of the risk that's been outside of the banking industry. 345 00:19:26,040 --> 00:19:29,840 Speaker 1: So just like there's been skepticism too much over the 346 00:19:29,880 --> 00:19:33,440 Speaker 1: past year, there's still skepticism. But connect the dots. I mean, 347 00:19:34,000 --> 00:19:37,080 Speaker 1: banks past the FED stress test Monday at four thirty pm, 348 00:19:37,119 --> 00:19:40,440 Speaker 1: you get the announcements, then you get the increases. Hold 349 00:19:40,480 --> 00:19:42,640 Speaker 1: on a second, I'm sorry. I don't think I hear 350 00:19:42,680 --> 00:19:44,280 Speaker 1: from a lot of people that they're worried about some 351 00:19:44,280 --> 00:19:46,440 Speaker 1: sort of systemic risk from the banks. I hear the 352 00:19:46,440 --> 00:19:48,280 Speaker 1: fact that the field curve is flattening if this has 353 00:19:48,280 --> 00:19:50,360 Speaker 1: been priced in. I mean, are you saying that it's 354 00:19:50,359 --> 00:19:53,800 Speaker 1: not that the people are still worried about systemic risk. No, 355 00:19:53,920 --> 00:19:56,000 Speaker 1: I think that's past. That's what happened in the last 356 00:19:56,040 --> 00:20:00,200 Speaker 1: six to twelve months. But now people are like, oh, 357 00:20:00,280 --> 00:20:03,080 Speaker 1: we don't really we know the dividends are coming, but 358 00:20:03,160 --> 00:20:04,959 Speaker 1: we don't really care that much. But I think they 359 00:20:04,960 --> 00:20:07,760 Speaker 1: should care because if you look at the the dividend 360 00:20:07,840 --> 00:20:12,280 Speaker 1: yield adjusted for buybacks should be about eight percent compared 361 00:20:12,320 --> 00:20:15,920 Speaker 1: to the tenure yield of under two percent. That gap 362 00:20:16,400 --> 00:20:18,840 Speaker 1: is one of the widest in history. Where can you 363 00:20:18,880 --> 00:20:22,840 Speaker 1: get an eight percent yield globally? And in fact that's 364 00:20:22,880 --> 00:20:25,960 Speaker 1: three bases points above the junk bond yield. So I 365 00:20:26,000 --> 00:20:30,600 Speaker 1: think people are just cynical and skeptical about the sustainability 366 00:20:30,640 --> 00:20:34,200 Speaker 1: of banks cap returns, the sustainability of earnings. At least 367 00:20:34,240 --> 00:20:37,239 Speaker 1: you raise a great point. The flatter yield curve is 368 00:20:37,280 --> 00:20:40,240 Speaker 1: on people's minds. But look what just happened last week. 369 00:20:40,280 --> 00:20:44,399 Speaker 1: The Fed said now it's likely to have two increases 370 00:20:44,400 --> 00:20:48,120 Speaker 1: in the Fed funds rate in three and banks benefit 371 00:20:48,200 --> 00:20:51,639 Speaker 1: twice as much from increases in short term rates as 372 00:20:51,640 --> 00:20:54,960 Speaker 1: they do from increases in long term rates. Mike, you're 373 00:20:54,960 --> 00:20:57,280 Speaker 1: famous for your calls coming on the program and saying 374 00:20:57,280 --> 00:21:01,160 Speaker 1: banks aren't financials, Banks are just tech companies. Despite all 375 00:21:01,200 --> 00:21:04,520 Speaker 1: of the buy backs and dividends, are they investing enough 376 00:21:04,600 --> 00:21:09,439 Speaker 1: to keep up with big tech? Well, the largest banks 377 00:21:09,440 --> 00:21:12,120 Speaker 1: certainly are. I mean, some of the best fintech players 378 00:21:12,200 --> 00:21:15,399 Speaker 1: on the planet are Bank of America and JP Morgan. 379 00:21:15,520 --> 00:21:19,000 Speaker 1: You have tens of millions of customers, and this is 380 00:21:19,040 --> 00:21:23,280 Speaker 1: going from digital interactions to digital relationships. They're not just 381 00:21:23,359 --> 00:21:27,199 Speaker 1: touching customers through one point, but through multiple points, and 382 00:21:27,240 --> 00:21:30,359 Speaker 1: they continue to invest and they continue to gain customers. 383 00:21:30,680 --> 00:21:33,200 Speaker 1: And both Bank America, which is our number one pick, 384 00:21:33,560 --> 00:21:38,280 Speaker 1: and JP Morgan grew deposits over the past year equal 385 00:21:38,320 --> 00:21:40,879 Speaker 1: to the sixth largest bank, and that was organic growth 386 00:21:41,040 --> 00:21:43,719 Speaker 1: and a lot of that is aided through digital banking. 387 00:21:44,800 --> 00:21:47,920 Speaker 1: And Mike gotta run apologize for my colleague Lisa Brownwitz 388 00:21:48,440 --> 00:21:53,359 Speaker 1: joking Lisa las Fagger Securities US Large Camp Bank Research, Moneatil. Right, 389 00:22:00,160 --> 00:22:02,480 Speaker 1: let's hit this stanks and right now we're torsting. Slock Cobler, 390 00:22:02,520 --> 00:22:05,320 Speaker 1: Global Management, Chief Economy is tosting, just pouring through the 391 00:22:05,400 --> 00:22:07,640 Speaker 1: days of this morning the recent economy dactors. Well, what's 392 00:22:07,640 --> 00:22:11,240 Speaker 1: your take, sir? So there are two very important components here. 393 00:22:11,240 --> 00:22:14,000 Speaker 1: Of course, the first thing to watch this inflation core 394 00:22:14,080 --> 00:22:18,320 Speaker 1: PC inflation was exactly as the consensus expected three point four. 395 00:22:18,440 --> 00:22:21,200 Speaker 1: So that means, of course that we do see inflation 396 00:22:21,280 --> 00:22:23,680 Speaker 1: higher and that is just confirming what we saw. Remember, 397 00:22:23,720 --> 00:22:26,280 Speaker 1: we've got the CPI numbers already, so that means that 398 00:22:26,320 --> 00:22:30,040 Speaker 1: we already knowing that this month was indeed a very 399 00:22:30,080 --> 00:22:32,560 Speaker 1: elevated level of inflation. The second thing is what Lesa 400 00:22:32,640 --> 00:22:36,280 Speaker 1: just mentioned, this shift away from goods to services to 401 00:22:36,359 --> 00:22:39,160 Speaker 1: what extent that we're seeing people go back on airplanes, 402 00:22:39,280 --> 00:22:42,119 Speaker 1: they at hotels, go to restaurants. The service part of 403 00:22:42,119 --> 00:22:44,520 Speaker 1: the economy needs to come back, and that is exactly 404 00:22:44,520 --> 00:22:46,119 Speaker 1: what we're seeing in the data and what we've been 405 00:22:46,119 --> 00:22:48,480 Speaker 1: seeing a lot of the high frequency indicators. More people 406 00:22:48,480 --> 00:22:50,880 Speaker 1: are flying on airplanes, more people are going to restaurants, 407 00:22:50,880 --> 00:22:53,159 Speaker 1: more people are staying at hotels. So the trend is 408 00:22:53,200 --> 00:22:57,000 Speaker 1: shifting from goods being a key driver to now moving 409 00:22:57,040 --> 00:22:58,919 Speaker 1: towards services being a key driver. So those are the 410 00:22:58,920 --> 00:23:01,160 Speaker 1: two main components of the board here. Let's talk about 411 00:23:01,160 --> 00:23:02,720 Speaker 1: how we capture some of those trends. Just run a 412 00:23:02,760 --> 00:23:04,560 Speaker 1: clinic for us, a short one if you can, for 413 00:23:04,640 --> 00:23:06,520 Speaker 1: people who tune in every now and again to a 414 00:23:06,560 --> 00:23:08,760 Speaker 1: show like this and here terms like c p I, 415 00:23:08,920 --> 00:23:12,119 Speaker 1: p P A p p I rather p C, A 416 00:23:12,160 --> 00:23:15,720 Speaker 1: core deflator, deflator, what are all these things to usten? 417 00:23:17,040 --> 00:23:18,480 Speaker 1: So what the key is you're really here is to 418 00:23:19,160 --> 00:23:21,760 Speaker 1: monitor what the FED is watching. And the FAITH has 419 00:23:21,840 --> 00:23:25,359 Speaker 1: very clearly said that they monitor core inflation and specifically 420 00:23:25,400 --> 00:23:28,480 Speaker 1: the core PC inflation indicator, which just came out. And 421 00:23:28,520 --> 00:23:30,679 Speaker 1: why do they monitor core inflation and what does core 422 00:23:30,720 --> 00:23:34,879 Speaker 1: inflation mean? Well, normally we measure inflation including everything, also 423 00:23:34,920 --> 00:23:38,480 Speaker 1: including very volatile components such as food and energy. But 424 00:23:38,560 --> 00:23:41,000 Speaker 1: the FED has the logic which makes a lot of 425 00:23:41,040 --> 00:23:43,199 Speaker 1: sense to say, well, we don't want to monitor and 426 00:23:43,280 --> 00:23:46,760 Speaker 1: good monitor positive according to very volatile indicators. So let's 427 00:23:46,800 --> 00:23:49,560 Speaker 1: just then look at those parts of inflation that are 428 00:23:49,560 --> 00:23:53,280 Speaker 1: reatively stable. That's also something about where the economy is going. 429 00:23:53,600 --> 00:23:57,239 Speaker 1: And core inflation, meaning excluding the most volatile components mean 430 00:23:57,320 --> 00:24:00,359 Speaker 1: food and energy, does represent a very good picture of 431 00:24:00,600 --> 00:24:02,960 Speaker 1: where is the economy at the moment. And that indicator 432 00:24:03,000 --> 00:24:06,159 Speaker 1: at the moment is significantly above the FENS inflation target 433 00:24:06,200 --> 00:24:08,879 Speaker 1: of two. And that's why this debate about now that 434 00:24:08,920 --> 00:24:11,600 Speaker 1: we are so much higher than defeats inflation target of two. 435 00:24:12,040 --> 00:24:14,280 Speaker 1: Is that something that temporary? Is that something that's permanent? 436 00:24:14,320 --> 00:24:16,600 Speaker 1: And that is the discussion that we're having in markets, mainly, 437 00:24:16,960 --> 00:24:19,280 Speaker 1: what are the reasons that one could believe why this 438 00:24:19,359 --> 00:24:21,600 Speaker 1: could be a more permanent problem And towarden, a lot 439 00:24:21,600 --> 00:24:24,000 Speaker 1: of people have dismissed some of these traditional metrics of 440 00:24:24,000 --> 00:24:26,640 Speaker 1: inflation just simply because the composition has changed so much 441 00:24:26,720 --> 00:24:29,959 Speaker 1: during the pandemic. Services such a big component of some 442 00:24:30,000 --> 00:24:32,879 Speaker 1: of these inflation metrics completely fell out of bed simply 443 00:24:32,920 --> 00:24:34,960 Speaker 1: because people were not allowed to go out and do stuff. 444 00:24:35,200 --> 00:24:38,199 Speaker 1: Now we're seeing it come back online. How significant is 445 00:24:38,240 --> 00:24:40,560 Speaker 1: it for you that in this most recent data we 446 00:24:40,560 --> 00:24:43,400 Speaker 1: saw a disappointment in terms of services spending that that 447 00:24:43,520 --> 00:24:45,879 Speaker 1: isn't coming back perhaps as quickly as some people have 448 00:24:45,960 --> 00:24:49,800 Speaker 1: previously expected. Yeah, this is very important I think about it. 449 00:24:50,240 --> 00:24:54,200 Speaker 1: CPI or inflation is measured as the basket of consumption 450 00:24:54,240 --> 00:24:57,119 Speaker 1: that we all have every month. So if my consumption 451 00:24:57,240 --> 00:24:59,680 Speaker 1: changes during the pandemic, I don't fly a dolost that 452 00:24:59,760 --> 00:25:01,800 Speaker 1: hopes us, I don't go to restaurants, of course, I 453 00:25:01,800 --> 00:25:04,680 Speaker 1: will spend less money on those components. And those components 454 00:25:04,680 --> 00:25:07,320 Speaker 1: are mainly services. So that's why during the pandemic people 455 00:25:07,359 --> 00:25:09,840 Speaker 1: spend a lot more money on goods and much less 456 00:25:09,880 --> 00:25:12,760 Speaker 1: on services. That's changing now, So that's why I'm from 457 00:25:12,840 --> 00:25:15,320 Speaker 1: a basket perspective, And exactly as you're pointing out, it 458 00:25:15,359 --> 00:25:17,760 Speaker 1: becomes relevant to monitor whether are we seeing prices go 459 00:25:17,920 --> 00:25:21,040 Speaker 1: up of airline tickets, of hotels, of restaurants, which is 460 00:25:21,040 --> 00:25:23,240 Speaker 1: exactly what we've seen in the inflation data, and that's 461 00:25:23,280 --> 00:25:26,240 Speaker 1: what has been lifting the level of inflation to this 462 00:25:26,640 --> 00:25:29,479 Speaker 1: much higher level. Relative to where the FATS target is. 463 00:25:29,680 --> 00:25:31,800 Speaker 1: So that's why over the next sevel months we need 464 00:25:31,840 --> 00:25:35,440 Speaker 1: to monitor very carefully whether the services component, in other words, 465 00:25:35,480 --> 00:25:38,680 Speaker 1: the reopening parts of the economy continue to see high inflation, 466 00:25:38,680 --> 00:25:40,720 Speaker 1: which is what J. Paul earlier this week also was 467 00:25:40,760 --> 00:25:42,720 Speaker 1: pointing to. So he's saying this is all temporary, but 468 00:25:42,800 --> 00:25:44,560 Speaker 1: there are some reasons to worry that this might be 469 00:25:44,640 --> 00:25:47,919 Speaker 1: more permanent. Commodity prices if I type CRP go on 470 00:25:48,040 --> 00:25:50,880 Speaker 1: my Bloomberg screen, as the commodity price is still very elevated. 471 00:25:51,160 --> 00:25:53,800 Speaker 1: I also look at the label market being still very tight, 472 00:25:54,040 --> 00:25:55,960 Speaker 1: and of course also the supply chain problems. If you 473 00:25:55,960 --> 00:25:58,480 Speaker 1: look at the regional FAT surveys also show a lot 474 00:25:58,480 --> 00:26:00,800 Speaker 1: of consistent problems with supply chain. So there are some 475 00:26:00,840 --> 00:26:02,720 Speaker 1: reasons to believe that this is not just going to 476 00:26:02,840 --> 00:26:05,359 Speaker 1: be a few months and then inflation comes down. So 477 00:26:05,400 --> 00:26:07,960 Speaker 1: that's why the discussion in particular rates is all about 478 00:26:08,000 --> 00:26:10,560 Speaker 1: this issue a long time. Is this inflation problem going 479 00:26:10,600 --> 00:26:13,240 Speaker 1: to persist? We're speaking with towards and Slack Apollo Global Management, 480 00:26:13,280 --> 00:26:16,800 Speaker 1: chief economist. You came to this by side firm from 481 00:26:16,840 --> 00:26:19,360 Speaker 1: the south side firm of Deutsche Bank, where you rule 482 00:26:19,400 --> 00:26:21,640 Speaker 1: over the economics team for a long time, and now 483 00:26:21,680 --> 00:26:25,400 Speaker 1: you actually have to put this into implementation and help 484 00:26:25,440 --> 00:26:28,840 Speaker 1: them direct their strategy. And I'm wondering, given the details 485 00:26:28,840 --> 00:26:31,840 Speaker 1: that we're getting out here, is your view that the 486 00:26:31,880 --> 00:26:34,639 Speaker 1: market is right, that it is risk on low rates 487 00:26:34,640 --> 00:26:37,280 Speaker 1: in perpetuity because the signs of longer term inflation. I 488 00:26:37,280 --> 00:26:39,600 Speaker 1: hear what you're saying on commodity standpoint, but when it 489 00:26:39,640 --> 00:26:41,520 Speaker 1: comes to the deployment of some of the cash that 490 00:26:41,560 --> 00:26:44,320 Speaker 1: people have in savings account, there hasn't been a sign 491 00:26:44,400 --> 00:26:47,840 Speaker 1: of some some sort of massive rush that can outweigh 492 00:26:47,960 --> 00:26:51,560 Speaker 1: some of the higher prices that might keep people from 493 00:26:51,600 --> 00:26:55,280 Speaker 1: spending too much for too long. Yeah. From an investor perspective, 494 00:26:55,320 --> 00:26:57,040 Speaker 1: I mean, it's very clear at the moment. The level 495 00:26:57,160 --> 00:26:59,560 Speaker 1: of long rates is very low, the level of short 496 00:26:59,680 --> 00:27:02,960 Speaker 1: rates is very low. The credit spreads across the board 497 00:27:03,000 --> 00:27:06,360 Speaker 1: i g. High yield loans are very very tight. Stocks 498 00:27:06,520 --> 00:27:09,640 Speaker 1: are basically at all time highs. So with that backgroup, 499 00:27:09,880 --> 00:27:11,600 Speaker 1: it does become very important to think about if there 500 00:27:11,640 --> 00:27:14,440 Speaker 1: is an inflation risk, if there's a higher likelihood that 501 00:27:14,520 --> 00:27:16,439 Speaker 1: this cloud that we're seeing on the horizon, if it 502 00:27:16,480 --> 00:27:19,600 Speaker 1: does start raining over the next several months, then investors 503 00:27:19,600 --> 00:27:22,119 Speaker 1: should be more prepared for that event. In other words, 504 00:27:22,440 --> 00:27:24,920 Speaker 1: I would think about the investment outlook at the moment 505 00:27:24,960 --> 00:27:26,960 Speaker 1: as is there a chance that the FEN might begin 506 00:27:27,000 --> 00:27:29,399 Speaker 1: to turn even more hawk is that just turned slightly 507 00:27:29,400 --> 00:27:31,880 Speaker 1: more hawkis last week. But if they begin to send 508 00:27:31,920 --> 00:27:34,600 Speaker 1: small HAWKUS signals that we do see more upside risk 509 00:27:34,640 --> 00:27:36,840 Speaker 1: to inflation, if we do see more upside risk in 510 00:27:36,880 --> 00:27:39,680 Speaker 1: markets to the feed adjusting their message, then that would 511 00:27:39,760 --> 00:27:42,919 Speaker 1: have some negative applications for credit spreads for equities, and 512 00:27:42,960 --> 00:27:45,159 Speaker 1: they might also have negative inplications for the dollar. So 513 00:27:45,280 --> 00:27:47,520 Speaker 1: the short answer to your question leaves that turning this 514 00:27:47,600 --> 00:27:51,000 Speaker 1: into investment advice and thinking about what implications are. There 515 00:27:51,040 --> 00:27:53,560 Speaker 1: are good reasons to be very cautious here in terms 516 00:27:53,560 --> 00:27:55,240 Speaker 1: of the artook, at least as long as this cloud 517 00:27:55,320 --> 00:27:57,400 Speaker 1: is hanging out there and the fear of inflation still 518 00:27:57,520 --> 00:27:59,560 Speaker 1: is so pronounced. In a few months time, we will 519 00:27:59,600 --> 00:28:01,880 Speaker 1: know if it did start to rain, if we did 520 00:28:01,920 --> 00:28:04,560 Speaker 1: see inflation. But for now, there's still good reasons to 521 00:28:04,560 --> 00:28:08,160 Speaker 1: be worried about the inflation potentiity being a bigger problem 522 00:28:08,200 --> 00:28:10,480 Speaker 1: than they would to fit is appreciating at the moment, 523 00:28:10,800 --> 00:28:14,320 Speaker 1: Can you square from more then towards in given that 524 00:28:14,400 --> 00:28:17,720 Speaker 1: there's a labor problem, not a skills problem, why we 525 00:28:17,800 --> 00:28:20,760 Speaker 1: have record nine point three million job openings and no 526 00:28:20,840 --> 00:28:24,000 Speaker 1: one wants to fill them. Yeah, this is of course 527 00:28:24,040 --> 00:28:26,280 Speaker 1: a very important discussion in terms of the labor market. 528 00:28:26,280 --> 00:28:29,480 Speaker 1: There are more job openings than there are unemployed people. 529 00:28:29,840 --> 00:28:32,600 Speaker 1: I mean, think about that. That tells you that, by definition, 530 00:28:32,640 --> 00:28:36,480 Speaker 1: we have a skills mismatch. The job openings uh requiring 531 00:28:36,520 --> 00:28:39,920 Speaker 1: skills that the labor market, the individuals who are unemployed 532 00:28:39,960 --> 00:28:42,040 Speaker 1: in the labor market don't necessarily have. And that can 533 00:28:42,040 --> 00:28:44,040 Speaker 1: not only be a skills match in terms of education 534 00:28:44,080 --> 00:28:46,680 Speaker 1: and background, it could also be a mismatch in terms 535 00:28:46,760 --> 00:28:50,000 Speaker 1: of geographical skills that people live in the different zip 536 00:28:50,080 --> 00:28:51,959 Speaker 1: code ready to where the jobs are. And a very 537 00:28:51,960 --> 00:28:54,400 Speaker 1: important aspect of this is also that it could also 538 00:28:54,440 --> 00:28:57,600 Speaker 1: be that the job openings have been in manufacturing, which 539 00:28:57,600 --> 00:28:59,880 Speaker 1: is the good sector, whereas a lot of the layol 540 00:29:00,280 --> 00:29:03,720 Speaker 1: during the pandemic was in the service sector again airlines, hotels, restaurants. 541 00:29:03,840 --> 00:29:06,560 Speaker 1: So we're seeing nice hiring and also nice job openings 542 00:29:06,560 --> 00:29:10,080 Speaker 1: in the service sector again in the airline, hotels and 543 00:29:10,120 --> 00:29:13,040 Speaker 1: restaurant at Leasian hospitality. More generally, but we're also seeing 544 00:29:13,120 --> 00:29:15,840 Speaker 1: very significant job openings and manufacturing. So is this mismatch 545 00:29:15,880 --> 00:29:17,720 Speaker 1: in the labor market to a question, tell you that 546 00:29:18,160 --> 00:29:20,640 Speaker 1: it's very important that we need to see a lot 547 00:29:20,640 --> 00:29:23,120 Speaker 1: of the job openings be filled, and that's why you're 548 00:29:23,120 --> 00:29:25,520 Speaker 1: seeing wages go up. I mean, think about in the 549 00:29:25,640 --> 00:29:28,320 Speaker 1: full service restaurants have seen wages in the last three 550 00:29:28,400 --> 00:29:30,640 Speaker 1: full months go up by a full dollar for fifteen 551 00:29:30,640 --> 00:29:32,280 Speaker 1: and a half dollars an hour to six and a 552 00:29:32,360 --> 00:29:34,640 Speaker 1: half dollars an hour. That's not coming down again. The 553 00:29:34,680 --> 00:29:37,320 Speaker 1: best estimate here is probably that we will see wages 554 00:29:37,320 --> 00:29:39,480 Speaker 1: stay at a more elevated level, and if you will, 555 00:29:39,520 --> 00:29:42,000 Speaker 1: from a market respective, see wages probably continue to go up. 556 00:29:42,160 --> 00:29:44,320 Speaker 1: So that's why the label market, that's not just the 557 00:29:44,400 --> 00:29:47,120 Speaker 1: temporary issue. It has a very persistent risk to this 558 00:29:47,240 --> 00:29:50,000 Speaker 1: inflation album. Yeah, are we paying attention to the fact 559 00:29:50,040 --> 00:29:53,560 Speaker 1: that once you raise wages, it's hard to cut them, 560 00:29:53,760 --> 00:29:58,120 Speaker 1: so they're not necessarily transitory. It is a ratchet effect. 561 00:29:58,160 --> 00:30:01,840 Speaker 1: Once you have jack wages up, then it is very difficult. 562 00:30:01,880 --> 00:30:04,040 Speaker 1: Almost never see in any country around the world way 563 00:30:04,080 --> 00:30:06,400 Speaker 1: just begin to go down. Even during recessions. It is 564 00:30:06,520 --> 00:30:08,920 Speaker 1: very rare to see wayes begin to move lower. So 565 00:30:08,960 --> 00:30:10,840 Speaker 1: that's why also when you think about the year year 566 00:30:10,880 --> 00:30:13,600 Speaker 1: in fact, it sticks if you will, now that the 567 00:30:13,680 --> 00:30:16,320 Speaker 1: twelve month window moves forward and the level of wages 568 00:30:16,400 --> 00:30:18,120 Speaker 1: is now at this higher level, and it's not going 569 00:30:18,120 --> 00:30:20,160 Speaker 1: to go down. If anything, it might even go further up. 570 00:30:20,360 --> 00:30:23,160 Speaker 1: So that's why the wage inflation issue is a very 571 00:30:23,160 --> 00:30:25,560 Speaker 1: important issue when we think about what might be having 572 00:30:25,560 --> 00:30:27,440 Speaker 1: And that doesn't mean necessarily that that was belower to 573 00:30:27,520 --> 00:30:30,400 Speaker 1: selling prices. It could also be the companies basically begin 574 00:30:30,480 --> 00:30:34,000 Speaker 1: to see squeezed margins. But if that's the case, that's 575 00:30:34,040 --> 00:30:36,920 Speaker 1: also another risk for credit and equities because lower march, 576 00:30:36,960 --> 00:30:39,080 Speaker 1: you think about the PE ratio. If the E and 577 00:30:39,120 --> 00:30:41,560 Speaker 1: the PE ratio starts to go down, that begins to 578 00:30:41,560 --> 00:30:43,440 Speaker 1: also bring some risk to the P And that's why 579 00:30:43,520 --> 00:30:46,080 Speaker 1: valuations in equities and credit as long as you're have 580 00:30:46,080 --> 00:30:49,720 Speaker 1: an inflation problem on inflation risk does look fairly vulnerable. 581 00:30:50,040 --> 00:30:52,000 Speaker 1: They toast them. It's gonna hear from you as always 582 00:30:52,000 --> 00:30:55,520 Speaker 1: always shop Thank you, sir, toasting Slark Apollo Global Management 583 00:30:55,600 --> 00:31:00,880 Speaker 1: Chief Economists. This is the Bloomberg Surveillance Podcast. Thanks for listening. 584 00:31:01,240 --> 00:31:04,560 Speaker 1: Join us live weekdays from seven to ten am Eastern 585 00:31:04,800 --> 00:31:08,880 Speaker 1: on Bloomberg Radio and on Bloomberg Television each day from 586 00:31:08,920 --> 00:31:14,160 Speaker 1: six to nine am for insight from the best in economics, finance, investment, 587 00:31:14,320 --> 00:31:19,320 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 588 00:31:19,440 --> 00:31:23,240 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course, on 589 00:31:23,360 --> 00:31:27,480 Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg