WEBVTT - Surveillance: Omicron Risks 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa Brownwitz Jay Ley, we bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg 0:00:23.360 --> 0:00:29.920 dot com, and of course, on the Bloomberg terminal. Let's 0:00:29.920 --> 0:00:32.360 do more on all Things markets with Richard Bernstein, CEO 0:00:32.479 --> 0:00:35.639 and ce IO of r B Advisors. Richard, when you're 0:00:35.640 --> 0:00:38.720 looking ahead to two now that there's a question about 0:00:38.720 --> 0:00:40.840 the fiscal agenda here in the States and a question 0:00:40.920 --> 0:00:42.840 as to how much of a growth impact we could 0:00:42.880 --> 0:00:45.879 see from the omicron variant, do you think differently this 0:00:45.960 --> 0:00:49.360 morning than you did a week ago? Well, Kaylee, I 0:00:49.400 --> 0:00:51.920 think that the markets right now were caught between a 0:00:52.000 --> 0:00:54.560 rock and a hard place. Right in the short term, 0:00:54.600 --> 0:00:57.240 we've got this slew of bad news, whether it's builback 0:00:57.280 --> 0:01:00.440 better that you just mentioned, or whether it's COVID, or 0:01:00.480 --> 0:01:02.800 whether it's the FED from last week deciding they're gonna 0:01:02.800 --> 0:01:04.800 be tighter. You know, in the short term, you don't 0:01:04.800 --> 0:01:07.679 have a lot of good news. However, that short term 0:01:07.760 --> 0:01:12.120 news could cause the better longer term outlook as we 0:01:12.160 --> 0:01:16.680 go through three. So I think the short term here 0:01:16.720 --> 0:01:18.920 could be a little rocky. But I think to try 0:01:18.959 --> 0:01:23.080 and trade that maybe a full scheme. So what do 0:01:23.080 --> 0:01:24.920 you do? You just sit on your hands, Richard, Wait 0:01:25.120 --> 0:01:27.240 what see what happens into the new year. Is that 0:01:27.280 --> 0:01:30.000 the right strategy here? I think, to some extent that's 0:01:30.000 --> 0:01:32.000 absolutely right. I mean, it's always cute to say we 0:01:32.040 --> 0:01:34.080 should trade and trade out, trade and trade out, but 0:01:34.480 --> 0:01:37.759 very few people can actually do that successfully. So so 0:01:37.840 --> 0:01:41.080 saying one thing and doing is is another. So I think, look, 0:01:41.200 --> 0:01:44.880 it's pretty clear that inflation is probably going to be 0:01:45.000 --> 0:01:49.600 higher than people think in two I think that is 0:01:49.640 --> 0:01:52.400 the most important thing that portfolio should be structured for 0:01:52.800 --> 0:01:54.400 right now. Now that's not gonna look that way in 0:01:54.440 --> 0:01:57.800 the next two weeks perhaps, But remember, if we do 0:01:57.880 --> 0:01:59.600 shut down, let's say COVID is a lot worse than 0:01:59.600 --> 0:02:03.160 anybody things, and we do shut down, the supply disruption 0:02:03.240 --> 0:02:05.920 problems that we've already had just get worse. They don't 0:02:05.960 --> 0:02:08.560 get better, and so the whole notion of the of 0:02:08.639 --> 0:02:14.560 inflation and of us being a price taker just gets worse. Richard. 0:02:14.600 --> 0:02:16.600 I'm gonna dig a little bit into that inflation call. 0:02:16.639 --> 0:02:20.640 When you're thinking about inflation into two, are you thinking 0:02:20.680 --> 0:02:24.200 we see some more deeply embedded wage based inflation start 0:02:24.320 --> 0:02:28.360 to emerge? I think many much of the inflation excuses 0:02:28.360 --> 0:02:31.960 are the inflation sort of narrative around it being transitory 0:02:32.000 --> 0:02:34.560 has suggested that it's it's all due to the supply 0:02:34.639 --> 0:02:37.200 chain constraints. But how much of this has demand and 0:02:37.240 --> 0:02:39.560 how much of it becomes deeply embedded as we look 0:02:39.600 --> 0:02:43.760 into three? Right, So, so, Gina, one thing you said, 0:02:43.800 --> 0:02:47.080 I think it's very important that the word transitory. So 0:02:47.080 --> 0:02:50.000 I think it's important to understand the supply disruptions have 0:02:50.200 --> 0:02:54.200 already lasted an awful lot longer than the seventy seventy 0:02:54.240 --> 0:02:57.720 four oil embargo right now was a supply disruption. It 0:02:57.800 --> 0:03:00.440 was a political supply disruption, and but it was a 0:03:00.480 --> 0:03:03.960 supply disruption and that changed the way people thought about 0:03:04.000 --> 0:03:07.799 inflation for basically the next ten years. And it wasn't 0:03:07.800 --> 0:03:09.919 the beginning of inflation, but it changed the way people 0:03:09.919 --> 0:03:12.639 thought about it. So our supply disruption is are already 0:03:12.720 --> 0:03:16.000 much bigger, much broader, and longer than what we saw. 0:03:17.320 --> 0:03:20.160 But to get to your question explicitly, yes, we're having 0:03:20.160 --> 0:03:23.640 a perfect storm in the labor market right now. There's 0:03:23.680 --> 0:03:27.080 no one issue that's causing the labor market to be type. 0:03:27.080 --> 0:03:29.360 But you can think of you know, whether it's baby 0:03:29.360 --> 0:03:33.079 boomers retiring, whether it's COVID restrictions, whether it's immigration restrictions, 0:03:33.360 --> 0:03:35.560 whether it's the rise of unions. I mean, all these 0:03:35.560 --> 0:03:38.200 you could argue are good or bad. Not my day job, 0:03:38.560 --> 0:03:41.040 but you're getting a perfect storm that is tightening the 0:03:41.120 --> 0:03:44.360 labor market. And I think that's a substantial change that's 0:03:44.400 --> 0:03:46.520 not going to go away. Well, you talk about all 0:03:46.560 --> 0:03:49.240 these supply side issues, supply side issues or not something 0:03:49.280 --> 0:03:51.839 that monetary policy is equipped to address. What the FED 0:03:51.880 --> 0:03:56.680 can do is tamped down on demand. So and the 0:03:56.680 --> 0:03:59.280 fence policy operates with a lag when we think about 0:03:59.280 --> 0:04:03.560 monetary polic See so, how does the inflation conversation actually 0:04:04.200 --> 0:04:07.760 get solved? In your view? So that's kind of my 0:04:07.880 --> 0:04:10.840 point is, and I'm not sure it does get solved, 0:04:10.880 --> 0:04:12.760 so to speak. That's why I think one should have 0:04:12.760 --> 0:04:15.360 been on higher inflation. I'm not talking the ninety seventies 0:04:15.400 --> 0:04:17.840 type inflation, but think of it as an over under bed. 0:04:18.040 --> 0:04:19.800 I think right now you should get the over on 0:04:19.960 --> 0:04:24.160 inflation as we looked at three, because you're right, you know, 0:04:24.200 --> 0:04:26.800 all monetary policy can do is to sign me demand, 0:04:27.200 --> 0:04:31.000 and that's politically unacceptable, especially as we head towards the 0:04:31.040 --> 0:04:34.279 mid terms in two would be a lot for the Fed, 0:04:34.960 --> 0:04:39.000 really tu intervening, Richard, Is that actually the case because 0:04:39.080 --> 0:04:42.080 my impression, certainly, and listening to the narrative coming out 0:04:42.080 --> 0:04:45.000 of DC at the moment, the Democrats in particular, and 0:04:45.000 --> 0:04:48.200 the President is focused very much on this idea that 0:04:48.240 --> 0:04:50.919 he needs to tamp down inflation. It was interesting to 0:04:50.920 --> 0:04:53.000 see the pivot that we got from j Pal posts 0:04:53.200 --> 0:04:56.720 he was his reappointments the Democrats and I agree, we've 0:04:56.760 --> 0:05:01.040 never really seen this before, the politics stick that that 0:05:01.120 --> 0:05:04.240 they once inflation brought down. So what we owe in 0:05:04.240 --> 0:05:07.880 a different difference kind of picture here relative to previous 0:05:07.920 --> 0:05:11.120 cycles where we've seen inflation coming through. So I'll use 0:05:11.200 --> 0:05:13.480 my analogy again, rock in a hard place. I think 0:05:13.480 --> 0:05:15.880 the Biden administration is caught in a rock in a 0:05:15.920 --> 0:05:21.000 hard place on inflation. Why because they reappointed j Pal. Right, 0:05:21.040 --> 0:05:23.640 we made the argument many months ago that if he 0:05:23.720 --> 0:05:28.000 reappointed j Pal, he owned inflation. If he didn't, then 0:05:28.000 --> 0:05:31.359 it was the previous administration that would own inflation. Because j. 0:05:31.520 --> 0:05:34.760 Powe was appointed by the previous administration. So by not 0:05:34.880 --> 0:05:38.320 reappointing Powell, he would say we have a clean slate 0:05:38.360 --> 0:05:41.200 where we have to fight inflation. But now he owns it, 0:05:41.480 --> 0:05:43.039 and and so again I think the rock in the 0:05:43.040 --> 0:05:44.960 hard place is the right way to think about it. 0:05:45.400 --> 0:05:48.080 Richard talked to us a little bit about your investment strategy. 0:05:48.120 --> 0:05:51.279 If we're going to have a more deeply embedded inflation, 0:05:51.720 --> 0:05:53.960 if we're going to have faster inflation, but maybe not 0:05:54.120 --> 0:05:57.360 seventies inflation, what do you do with your asset allocation, 0:05:57.720 --> 0:06:01.479 and specifically within the equity market, it's your mix. Yeah, 0:06:01.480 --> 0:06:04.640 So I think, um Gina the you know, obviously you 0:06:04.640 --> 0:06:07.680 want to have pro inflation assets in in the portfolio. 0:06:07.760 --> 0:06:10.600 And I think you know, most investors, whether the institutions, 0:06:10.600 --> 0:06:14.480 individuals makes a difference. Most investors are are very underweight 0:06:14.560 --> 0:06:17.280 pro inflation assets. But at the same time, getting to 0:06:17.360 --> 0:06:19.240 some of the other questions we were just talking about, 0:06:19.480 --> 0:06:22.400 one has to remember that inflation really pops up in 0:06:22.440 --> 0:06:25.239 a late cycle environment, doesn't really happen in early cycle 0:06:25.320 --> 0:06:28.479 Environment's more of a late cycle environment. So I think 0:06:28.520 --> 0:06:30.719 you want to have spare tires in the portfolio so 0:06:30.760 --> 0:06:35.279 we are overweight energy and industrials and and some emerging markets, 0:06:35.279 --> 0:06:37.640 you know, all the traditional pro inflation type assets on 0:06:37.680 --> 0:06:40.000 the equity sign. But at the same time, our more 0:06:40.000 --> 0:06:42.920 recent editions have been things like consumer staples that we 0:06:43.040 --> 0:06:46.760 started to add spare tires to the portfolio. All right, Richard, 0:06:46.760 --> 0:06:48.839 Before we let you go, Tom and John aren't here, 0:06:49.520 --> 0:06:52.440 and that means that we haven't talked about football yet, 0:06:52.520 --> 0:06:54.720 or at least European football. I when I think football, 0:06:54.720 --> 0:06:56.279 I think a very different kind of football. I'm not 0:06:56.400 --> 0:06:59.240 educated on this subject, but I know you like the Spurs, or, 0:06:59.279 --> 0:07:01.919 as Tom Keene would call them, the Tots. Do you 0:07:01.920 --> 0:07:03.720 have any thoughts you would like to share with our 0:07:03.720 --> 0:07:07.240 television and radio audience this morning. Um? Well, as I've 0:07:07.240 --> 0:07:09.880 said many times, any Spurs fan out there will will 0:07:10.040 --> 0:07:12.280 know that being a Spurs fan is like being sisyphus. 0:07:12.800 --> 0:07:14.400 We get to the top of the hill and then 0:07:14.400 --> 0:07:18.160 we seem to roll back down and um it's um. 0:07:18.240 --> 0:07:20.040 You know if if New Yorkers think it's hard being 0:07:20.080 --> 0:07:23.560 a Met fan, uh, Spurs are are probably the biggest 0:07:23.640 --> 0:07:27.880 challenge to one's personal psyche. But they're great team. I 0:07:27.880 --> 0:07:31.480 had to say, Richard, Richard to two against Liverpool. I 0:07:31.480 --> 0:07:33.720 thought it was a much better game. I appreciate it. 0:07:33.600 --> 0:07:36.400 It was a fairly controversial game, Harry Kane what he 0:07:36.440 --> 0:07:38.800 did over the weekend. But never this feels like a 0:07:38.840 --> 0:07:40.520 team that could be on the turn at the moment, 0:07:40.640 --> 0:07:44.200 so appreciate the content. Is a very good manage. Yeah, 0:07:44.280 --> 0:07:46.480 and we'll see what happens. Yeah, yeah, yeah, there's but 0:07:46.560 --> 0:07:49.120 you see, that's that's the story is. There's always hope, 0:07:49.200 --> 0:07:53.040 there's always a sun rising, and um, we'll see what happens, 0:07:53.400 --> 0:07:55.240 all right, Richard Bernstein leaving us with a little bit 0:07:55.280 --> 0:07:57.200 of optimism, at least for the sports world this morning 0:07:57.240 --> 0:07:59.200 of our v advisors, thank you so much for joining 0:07:59.240 --> 0:08:07.760 us in Happy holiday is to you and yours. Let's 0:08:07.760 --> 0:08:10.600 continue our conversation on the fiscal part of this equation. 0:08:10.640 --> 0:08:14.240 Henrietta Trades, director of economic policy research at Beta Partners, 0:08:14.320 --> 0:08:16.920 joins us. Now, So, Henrietta, it doesn't seem like this 0:08:16.960 --> 0:08:19.600 is entirely a done deal. Chuck Schumer wants to put 0:08:19.640 --> 0:08:22.400 Bill back better to a vote in January, really calling 0:08:22.440 --> 0:08:25.640 out Mansion on his bluff. Do you agree with Goldman 0:08:25.800 --> 0:08:27.800 that if he is a though if it doesn't pass 0:08:27.880 --> 0:08:30.000 we're going to see a real read through into growth 0:08:30.040 --> 0:08:33.520 here in the US. I think that's a perfectly valid 0:08:33.679 --> 0:08:37.120 argument and good economic policy and thinking um the child 0:08:37.160 --> 0:08:39.520 tax credit alone, I think one of the biggest components 0:08:39.520 --> 0:08:42.440 that changes when that benefit lapses at the end of 0:08:42.480 --> 0:08:45.120 this year is it moves from a monthly payout to 0:08:45.280 --> 0:08:48.079 an annual payout. Never mind the drop from thirty six 0:08:48.480 --> 0:08:50.920 dollars a year to two thousand dollars, it's that an 0:08:51.320 --> 0:08:54.520 that monthly pay out that so many families used to 0:08:54.559 --> 0:08:57.319 spend on food. Um that I think is going to 0:08:57.400 --> 0:09:00.520 have a material impact if you disposal income, which is 0:09:01.080 --> 0:09:03.960 you would call it for that income threshold. I think 0:09:04.000 --> 0:09:06.240 that's going to be a major driver. And then you have, 0:09:06.400 --> 0:09:10.880 of course, the near term impacts of incredible amounts of 0:09:10.920 --> 0:09:15.440 investment across all kinds of energy sectors, the health care space. 0:09:15.480 --> 0:09:17.760 It's hard not to see what this touches. UM. So, 0:09:17.840 --> 0:09:20.760 I think it's very appropriate to have a downward revision 0:09:20.800 --> 0:09:23.080 to economic forecast for two in the back of this 0:09:23.120 --> 0:09:26.640 bill not becoming law. And may so were you surprised 0:09:26.679 --> 0:09:29.280 how strong the language was from the White House over 0:09:29.320 --> 0:09:32.400 the weekend post a Fox interview. It feels like bridges 0:09:32.400 --> 0:09:35.200 are being burnt here. If they are, is there a 0:09:35.240 --> 0:09:38.640 way back? How do they reconnect the White House and 0:09:38.800 --> 0:09:43.400 Joe Mansion after this? That's exactly right. I spoke with 0:09:43.440 --> 0:09:46.360 a number of Democrats in the immediate hours after Senator 0:09:46.400 --> 0:09:49.960 Mansion's commentary on Fox News No Less, and I think 0:09:50.040 --> 0:09:53.400 the White House felt very stabbed in the back that 0:09:53.480 --> 0:09:56.760 they had had meetings and conversations with Senator Mansion. Even 0:09:56.760 --> 0:10:00.079 President Biden personally at his home in Delaware. Hearing the 0:10:00.240 --> 0:10:03.440 news second hand from a TV screen as opposed to 0:10:03.440 --> 0:10:06.200 getting a heads up from the senator from West Virginia 0:10:06.360 --> 0:10:10.440 was a huge blow. Obviously, the tensions have been fraud 0:10:10.559 --> 0:10:13.680 and Senator mentioned has an election coming up, and I 0:10:13.720 --> 0:10:17.520 think it makes sense for him to cross the rubicon 0:10:17.640 --> 0:10:20.880 into being an independent who caucuses with Democrats as opposed 0:10:20.920 --> 0:10:24.040 to being a Democrat Democrats. So I think that's the 0:10:24.080 --> 0:10:27.200 direction that he's painting right now, the path that he's 0:10:27.280 --> 0:10:29.719 drawing for himself, and it makes political sense for him. 0:10:29.760 --> 0:10:32.199 But absolutely burns bridges at the White House. You can 0:10:32.200 --> 0:10:35.199 see that from the Press Secretary's response and from majority 0:10:35.200 --> 0:10:37.520 of Leader Schumer's response as well. I don't think there's 0:10:37.520 --> 0:10:39.480 a fear that he'll affect and become a Republican. But 0:10:39.559 --> 0:10:41.959 the scenario where he becomes an independent the coxes of 0:10:42.080 --> 0:10:46.040 Democrats makes a lot of sense to me. Okay, if 0:10:46.080 --> 0:10:47.440 that is the case, that he is going to be 0:10:47.600 --> 0:10:50.920 largely and independent, how should we think about what the 0:10:50.960 --> 0:10:53.680 president can do next? Um, I've read a lot over 0:10:53.720 --> 0:10:56.120 the weekend talking about the fact that maybe what should 0:10:56.120 --> 0:10:59.559 be the focus here is fewer programs that are smaller 0:10:59.600 --> 0:11:02.240 but they last longer. Kind of what's what can be 0:11:02.320 --> 0:11:06.920 we formulated here to make to make it work that 0:11:07.120 --> 0:11:10.920 is actually going to provide some benefit to the American people. Well, 0:11:10.960 --> 0:11:14.400 I think you have a really big problem that's beyond policy. 0:11:14.520 --> 0:11:17.760 The Senator Mansion voiced yesterday at about the ten minute 0:11:17.800 --> 0:11:21.720 mark in his program on Fox News when he said 0:11:21.800 --> 0:11:25.679 he doesn't support the current strategy in the process of reconciliation, 0:11:26.040 --> 0:11:28.960 when he said we should move to the original committee process. 0:11:29.200 --> 0:11:32.120 What you're talking about there is abandoning a Democrat only 0:11:32.200 --> 0:11:34.800 package and going in a scenario where you need at 0:11:34.880 --> 0:11:37.680 least three or four or maybe even ten Republicans to 0:11:37.679 --> 0:11:40.760 get on board before Senator Mansion will support anything. That's 0:11:40.800 --> 0:11:44.080 a huge hurdle and we'll have more material implications than 0:11:44.160 --> 0:11:47.760 just the policy. On the policy front, I think you're 0:11:47.920 --> 0:11:49.559 not going to be in a situation where you get 0:11:49.559 --> 0:11:52.600 a permanent child tax credit increase. That bill alone would 0:11:52.600 --> 0:11:56.200 be one point six trillion dollars. So the truncated period 0:11:56.200 --> 0:11:58.040 of time where you get you know, one to three 0:11:58.120 --> 0:12:00.880 years worth of policy is half of the course. It's 0:12:01.040 --> 0:12:03.280 very normal in Washington. It was part of the two 0:12:03.320 --> 0:12:06.200 thousand seventeen tax bill and basically every other big piece 0:12:06.240 --> 0:12:09.480 of legislation I've ever seen. So to anticipate that this 0:12:09.520 --> 0:12:12.079 will all be short term makes sense. I think that 0:12:12.280 --> 0:12:15.840 Senator Mansion has an issue with the overall sack the bill, 0:12:16.280 --> 0:12:18.400 and so what I see is the power from here 0:12:18.480 --> 0:12:22.559 is you take inspiring the sender's package, which currently has 0:12:22.600 --> 0:12:26.480 a host of the provisions in clean energy retrofitting for 0:12:26.520 --> 0:12:30.200 your home, for example, UM and also the business expense 0:12:30.200 --> 0:12:33.160 deduction that expires from the two thousand seventeen tax bill. 0:12:33.440 --> 0:12:36.120 Cobble those together, get a portion of the child tax 0:12:36.160 --> 0:12:39.520 credit that maybe is means tested and less beneficial for families, 0:12:39.880 --> 0:12:42.160 strip out the self deduction, and try to put that 0:12:42.200 --> 0:12:45.280 bill on the floor, maybe with a top bound of 0:12:45.320 --> 0:12:48.920 about seven billion and see where that gets you. So, Henrietta, 0:12:48.960 --> 0:12:51.839 where then is the dollar figure? If we're going to 0:12:51.960 --> 0:12:55.520 have this cobble together bill that is substantially smaller, has 0:12:55.640 --> 0:13:00.199 less provisions within it, what's the total dollar figures for 0:13:00.280 --> 0:13:04.480 spending from the fiscal government? Coming in somewhere between three 0:13:04.520 --> 0:13:07.319 hundred billion and seven hundred billion is my new range. 0:13:07.559 --> 0:13:10.160 That's down from one point four to one point six trillion, 0:13:10.200 --> 0:13:12.560 which was my range when we were going a Democrat 0:13:12.600 --> 0:13:15.600 only strategy. Now that we're going to need potentially Republican 0:13:15.679 --> 0:13:17.640 votes and we need to make this bill smaller, my 0:13:17.760 --> 0:13:20.520 main fear is that seven hundred billion is probably the 0:13:20.559 --> 0:13:24.000 top line and three hundred billion is the small end um. 0:13:24.120 --> 0:13:26.440 One thing I'd encourage investors to keep an eye on 0:13:26.600 --> 0:13:30.720 is an emergency supplemental out of the tornadoes that hit UH. 0:13:30.920 --> 0:13:34.800 It's like Kentucky and nearby. That's must pass. That's legislation 0:13:34.800 --> 0:13:36.800 that you can get Republican votes for. So it's not 0:13:36.840 --> 0:13:39.679 outside the bounds of UH. You know, conventional thought to 0:13:39.720 --> 0:13:42.240 see a bill passing with sixty votes in the first 0:13:42.280 --> 0:13:44.440 quarter next year, and if you can tack on the 0:13:44.520 --> 0:13:47.320 CTC and a host of the other components that have 0:13:47.440 --> 0:13:49.800 bi partisan support. Um, I think you can get that 0:13:49.840 --> 0:13:52.800 bill done by like February eighteenth, alright, just with a 0:13:52.800 --> 0:13:55.000 smaller price tag. Thank you so much to Henrietta Trace 0:13:55.080 --> 0:14:02.040 for joining us this morning. In the central banks are 0:14:02.080 --> 0:14:04.560 instead of tightening, it is loosening policy. But tightening is 0:14:04.559 --> 0:14:06.040 the name of the game and so many parts of 0:14:06.040 --> 0:14:08.360 the world, and increasingly so here in the US. Is 0:14:08.400 --> 0:14:11.280 the FED looks potentially to raise interest rates three times 0:14:11.679 --> 0:14:14.160 next year? How are is the omicron variant? Maybe change 0:14:14.160 --> 0:14:16.920 that calculus? Laura Ray In, chief US economist at FS 0:14:17.000 --> 0:14:20.600 Investment Investments, joins us. Now, So, Laura, given how rapidly 0:14:20.800 --> 0:14:23.240 this variant in particular seems to be swept spreading, and 0:14:23.280 --> 0:14:26.200 given now the likelihood that the build back Better agenda, 0:14:26.200 --> 0:14:28.760 at least in its holistic current form, may not be 0:14:28.880 --> 0:14:31.640 passed on the fiscal side, does the FED have to 0:14:31.680 --> 0:14:35.400 think differently than it did just a week ago on Wednesday? 0:14:35.960 --> 0:14:38.320 You know, I think the FED is well aware that 0:14:38.680 --> 0:14:41.840 the pandemic that variants are going to continue to be 0:14:41.880 --> 0:14:45.360 a challenge, and these are gonna come fast, and they 0:14:45.360 --> 0:14:50.080 could also these waves could pass us by also fairly quickly. 0:14:50.400 --> 0:14:52.880 I think what they're really focused on right now is inflation, 0:14:53.320 --> 0:14:57.080 and of course step one is this really rapid tabor. 0:14:57.160 --> 0:14:58.560 They want to get that out of the way to 0:14:58.600 --> 0:15:02.560 give themselves the flexibility, so, you know, give it. Getting 0:15:02.600 --> 0:15:05.400 the taper out of the way and March puts March 0:15:05.480 --> 0:15:08.280 on the table as a rate hike option. I think 0:15:08.400 --> 0:15:11.440 that's where we start to get more specific with timing 0:15:11.440 --> 0:15:14.680 and thinking about the variants where the economy is doing. 0:15:14.720 --> 0:15:18.239 How resilient we've been in the face of these challenges, 0:15:18.560 --> 0:15:23.320 because as rapidly as the virus continues to evolve, our 0:15:23.360 --> 0:15:27.160 ability to work around it also continues to improve. Okay, 0:15:27.160 --> 0:15:30.000 so we're getting better at handling the virus side of things, 0:15:30.000 --> 0:15:32.840 but we also have had monetary and fiscal stimulus at 0:15:32.840 --> 0:15:35.840 our backs for most of this pandemic. Now the monetary 0:15:35.880 --> 0:15:37.560 side and theory is going to start to wane, and 0:15:37.600 --> 0:15:40.720 the fiscal side remains a question. In Goldman Sachs downgraded 0:15:40.800 --> 0:15:43.280 its views on US growth for not just the first quarter, 0:15:43.400 --> 0:15:45.600 not just the second quarter, already out to the third 0:15:45.680 --> 0:15:48.800 quarter on the basis and build back better, not getting past. 0:15:48.880 --> 0:15:53.360 Do you agree with that thesis? You know, I think 0:15:53.440 --> 0:15:57.400 it's strong to pencil in the build Back Better plan 0:15:57.520 --> 0:15:59.960 is adding one percent to GDP, and each of the 0:16:00.000 --> 0:16:03.960 those orders, um, they were probably higher than my forecast 0:16:04.160 --> 0:16:07.080 for next year, which was for four percent growth in 0:16:07.120 --> 0:16:09.120 the first half and then two and a half percent 0:16:09.200 --> 0:16:12.200 growth in the second half. And that really reflects the 0:16:12.240 --> 0:16:15.520 fact that I think our economy, while still growing at 0:16:15.520 --> 0:16:19.200 a healthy clip, is just going to be decelerating back 0:16:19.240 --> 0:16:22.560 towards sort of our long run potential. That's a combination 0:16:22.640 --> 0:16:26.240 of the lower labor force participation and to your point, 0:16:26.280 --> 0:16:30.880 the fact that these myriad tail winds are dissipating, and 0:16:31.240 --> 0:16:33.520 you know, you look at the fed rate heights cycle 0:16:33.960 --> 0:16:36.160 that is going to be a head to into our economy. 0:16:36.520 --> 0:16:40.240 Maybe not next year specifically, certainly towards the end of 0:16:40.280 --> 0:16:43.160 next year that could materialize, but that impacts things with 0:16:43.200 --> 0:16:45.440 the lag. I do think they were on a trajectory 0:16:45.480 --> 0:16:48.240 for slower growth, which you know is going to feel 0:16:48.240 --> 0:16:54.080 weird after six quarters of just really extraordinarily supercharged exponential growth. 0:16:54.840 --> 0:16:56.720 Laura and the interest of trying to get a sense 0:16:56.760 --> 0:17:00.320 for how much build back Better contributed to up tomism 0:17:00.360 --> 0:17:04.680 in the in the asset markets and contributed to forecast optimism. 0:17:04.720 --> 0:17:07.040 How much are you talking to clients about build back 0:17:07.080 --> 0:17:11.680 Better specifically, and and from your perspective, how much optimism 0:17:11.920 --> 0:17:16.119 was um sort of tied to this package getting past. 0:17:17.960 --> 0:17:21.240 I think the optimism has slowly been fading. I think 0:17:21.280 --> 0:17:24.199 for economists, you know, we've just been hammering that we 0:17:24.280 --> 0:17:28.159 need infrastructure spending um and it's good not only for 0:17:28.200 --> 0:17:30.200 just the economy in the near term, but for long 0:17:30.280 --> 0:17:34.040 run productivity growth. I think for markets, there's been a 0:17:34.119 --> 0:17:38.679 real focus on real assets and that's been happening partly 0:17:38.720 --> 0:17:42.760 because of inflation, because it's an underappreciated sector that we 0:17:42.840 --> 0:17:45.320 just haven't really needed to focus on, and I think 0:17:45.359 --> 0:17:49.199 build back Better has was part of that optimism. I 0:17:49.240 --> 0:17:53.040 think the inflation narrative is still very strongly in play there, 0:17:53.440 --> 0:17:56.679 and real assets is a place that we see a 0:17:56.680 --> 0:18:00.240 lot of interest in focus from clients. But I think 0:18:00.240 --> 0:18:02.760 at the end of the day, UM, you know, people 0:18:02.880 --> 0:18:05.359 are have been seeing this bill struggle along for the 0:18:05.400 --> 0:18:08.200 better part of a year now, and the reality is 0:18:08.240 --> 0:18:11.760 that optimism I think had faded some time ago. It's 0:18:11.800 --> 0:18:15.520 really just sort of tempered, cautious hope that something will 0:18:15.560 --> 0:18:18.640 get done right. And when you're talking to those clients 0:18:18.640 --> 0:18:21.240 about the biggest upside and downside risk to the economy 0:18:21.280 --> 0:18:26.480 going into two. What are you talking most about? You know, inflation? Inflation. 0:18:26.480 --> 0:18:29.439 Inflation is the topic, and I actually am trying to 0:18:29.480 --> 0:18:33.480 get them to move away from just focusing on inflation 0:18:33.480 --> 0:18:36.879 to how you manage that in investing, because what we 0:18:36.960 --> 0:18:40.120 actually see is that inflation is one of the uh 0:18:40.119 --> 0:18:43.080 in a in a high and rising inflation environment is 0:18:43.080 --> 0:18:46.159 one of the most detrimental to equities, and it's a 0:18:46.240 --> 0:18:52.160 place where investors and typically underestimate the impact of inflation 0:18:52.160 --> 0:18:56.200 on forward valuations. And so for that reason, you really 0:18:56.240 --> 0:19:00.560 need to rotate out of just these big traditional um 0:19:00.600 --> 0:19:03.920 index funds and into something that's more active and really 0:19:03.960 --> 0:19:06.840 captures the fact that equity markets for a long time 0:19:06.920 --> 0:19:10.560 now have seen this huge dispersion underneath, right, we have 0:19:11.000 --> 0:19:15.399 a small number of super charged large cap equities pulling 0:19:15.440 --> 0:19:18.160 the whole thing higher, and underneath there are a lot 0:19:18.200 --> 0:19:21.119 of equities which are not which you're struggling at this point, 0:19:21.400 --> 0:19:24.680 and annual returns are not looking as good. So from 0:19:24.680 --> 0:19:27.119 that perspective that, of course fixed income is really I 0:19:27.119 --> 0:19:29.119 think going to struggle next year and a higher inflation 0:19:29.119 --> 0:19:30.760 and fund right, and I'm Glad you brought up the 0:19:30.760 --> 0:19:33.320 divergence going on within the equity market, because the really 0:19:33.320 --> 0:19:36.080 clear divergence has emerged between small cups and large caps 0:19:36.119 --> 0:19:39.840 as well. When you're thinking about capitalization and the small 0:19:39.880 --> 0:19:43.000 caps versus large gaps going into two and then follow 0:19:43.080 --> 0:19:46.359 that on with style, how would you recommend crafting that 0:19:46.440 --> 0:19:51.000 allocation going into your head? So for us, we're really again, 0:19:51.040 --> 0:19:54.919 you know, focused on the inflation protection, so focused on 0:19:54.960 --> 0:19:59.200 real assets, and I think focused on energy, which uh, 0:19:59.240 --> 0:20:01.040 you know has come a long way, but I think 0:20:01.040 --> 0:20:04.520 it's still relatively undervalue, and it's a place where, given 0:20:04.520 --> 0:20:08.280 that things are starting to feel really late cycle, I 0:20:08.320 --> 0:20:10.680 think the economy is going to be able to handle 0:20:10.760 --> 0:20:13.400 rate hikes. I'm just not sure the market is going 0:20:13.440 --> 0:20:15.320 to be able to handle it. We need to just 0:20:15.400 --> 0:20:18.440 brace for that volatility. So I think for us, it's 0:20:18.440 --> 0:20:21.720 a it's a twofold story because we really want to 0:20:21.800 --> 0:20:29.400 keep investors rounded in opportunistic credit, in lower duration credit options, 0:20:29.720 --> 0:20:33.640 and we want to maintain the help on the equity 0:20:33.680 --> 0:20:38.520 side when it comes to the inflation challenge. Lord, good morning, 0:20:38.520 --> 0:20:40.240 it's a guy. Can I just take you back to 0:20:40.280 --> 0:20:43.200 the tape? How much flexibility do you think the FED 0:20:43.800 --> 0:20:46.399 currently has in the way that it's thinking about that type. 0:20:46.640 --> 0:20:49.439 It has accelerated it. We've obviously learned that over the 0:20:49.480 --> 0:20:52.520 last few days. But if we do see overcrown taking 0:20:52.560 --> 0:20:56.480 off in January February, how much flexibility is there still 0:20:56.480 --> 0:21:00.000 in the process. Could the Fed manage it's maybe backlow, 0:21:00.119 --> 0:21:02.960 did a little bit more, maybe actually deliver a little 0:21:02.960 --> 0:21:05.800 bit more on the monetary front up front if we 0:21:05.880 --> 0:21:08.800 have to deal with that January February and then really 0:21:08.840 --> 0:21:12.479 push hard into the end of that type and then 0:21:12.560 --> 0:21:15.359 ultimately where where they were and where they announced a 0:21:15.400 --> 0:21:18.480 few days back. If I were at the FED, I 0:21:18.480 --> 0:21:21.439 would be kicking myself for not having initiated the taper 0:21:21.560 --> 0:21:25.600 significantly earlier. I think right now they just need to 0:21:25.600 --> 0:21:28.320