Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Ley, we bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg
Speaker 1: dot com, and of course on the Bloomberg Terminal. The
Speaker 1: grand experiment John at Goldman Sachs many many years ago
Speaker 1: was to say, Abbey, Joseph, Abbey, Joseph Cohen, we can
Speaker 1: hire her and she can make a name of it.
Speaker 1: On Women's International International Women's Day, It's very important that
Speaker 1: we speak and get the current thoughts of Abbe Joseph
Speaker 1: Cohen of Goldman Sachs advisory director and their senior investment strategist. Abby,
Speaker 1: you have seen this too many times before, the angst
Speaker 1: of the ambiguity up we go almost the fear of
Speaker 1: economic and GDP success. How do equities react when you
Speaker 1: get a surge in g d P as we anticipate. Well, Tom,
Speaker 1: first of all, thank you very much for including me
Speaker 1: today in the discussion. Uh. It is an important day
Speaker 1: in an important week for women. Um. You are asking
Speaker 1: exactly the right question about the markets uh. And that
Speaker 1: is this um is it good news or bad news
Speaker 1: for the economy to be recovering, And I would say
Speaker 1: it is good news. Now. We are seeing, of course,
Speaker 1: this very significant rotation in terms of views. Those stocks
Speaker 1: that have performed extremely well only because interest rates were
Speaker 1: down uh and low may have a problem, but there
Speaker 1: are plenty of other opportunities in the equity market as
Speaker 1: we do see a rotation towards those stocks that do
Speaker 1: better when we feel work comfortable with the pace of
Speaker 1: economic recovery and hopefully over the next couple of years
Speaker 1: true economic expansion. UH. These of course include the small
Speaker 1: cap names, also the value names where there's been this
Speaker 1: wide gap in things like pe ratios and so on.
Speaker 1: We're also seeing an improvement in stocks that are great sensitive.
Speaker 1: There are some security some companies that do better when
Speaker 1: interest rates are a little bit higher, and we of
Speaker 1: course are seeing some movement now in those seens that
Speaker 1: do better when we come out of lockdown. And the
Speaker 1: good news on the vaccine UH will I think be helpful.
Speaker 1: And of course those areas include things like restaurants and accommodation.
Speaker 1: I mean, I'm not going to mince words. Goldman Sachs
Speaker 1: has been out front on a bull call. Constant has
Speaker 1: led the way to sp xtree. What does the gloom
Speaker 1: crew get wrong? Well, the the argument behind this really
Speaker 1: great outlook from from David is also based upon the
Speaker 1: above consensus for you from Jon hot Sis, our chief economist,
Speaker 1: who believes that this year the US will see g
Speaker 1: d P of close to seven percent, and it's even
Speaker 1: better fourth quarter over fourth quarter, basically about seven point
Speaker 1: seven percent. And that's based upon let's say four factors.
Speaker 1: Number one, this very robust fiscal package. Number two, the
Speaker 1: Fed staying basically friendly, UH. Number three, UH, the virus
Speaker 1: to press sectors beginning to rebound. And also let's remember
Speaker 1: that there's an awful lot of pent up savings in
Speaker 1: the economy. UH, the average consumer balance sheet and again
Speaker 1: I'm looking at the media and there are many exceptions,
Speaker 1: but the average exactly actually looking good. Debt balances are down,
Speaker 1: savings are up. And when people feel a little bit
Speaker 1: better about the outlook, UH, they'll start to to move
Speaker 1: forward um and and start set think. And that's great
Speaker 1: for the economy. But you asked about the gloom crowd,
Speaker 1: and I think with the gloom crowd keeps coming back
Speaker 1: to is that there could be an uptick in inflation.
Speaker 1: Wouldn't be surprising. That's built into Yahn's forecast as well.
Speaker 1: But let's look at inflation as being a function of
Speaker 1: two different things. Number One, there are some special factors
Speaker 1: happening this year. Maybe it's the energy prices and so on.
Speaker 1: And there's also, of course that quick rebound um in
Speaker 1: prices from the very depressed levels that we saw in
Speaker 1: some sectors. But the second important reason that inflation may
Speaker 1: move up a little bit um is that we are
Speaker 1: seeing an improved economy, and I think that's great news.
Speaker 1: You know, it's the opposite side of the coin. On
Speaker 1: one side, the economy is doing better. On the other side,
Speaker 1: prices are not quite so depressed. The Goldman Sax forecast
Speaker 1: on cp I does show it moving up from about
Speaker 1: a one point one last year to two point five
Speaker 1: this year. But we're looking at CPI that by historical levels,
Speaker 1: that is not a problematic level for inflation, and by
Speaker 1: the way, that is the FEDS target level for inflation.
Speaker 1: About I think you've seen it all, and many people
Speaker 1: come on this program and they try and look to
Speaker 1: history to find a parallel with the moment we're in
Speaker 1: right now. How original is this moment and what makes
Speaker 1: it unique? That's a great question. And I think what
Speaker 1: makes it unique is that none of us, regardless of
Speaker 1: how long we've been in the markets, have seen a
Speaker 1: pandemic inspired recession, UM bear market, and now of course
Speaker 1: the recovery. And what pleases us in terms of what
Speaker 1: might happen is that we are seeing policies that are
Speaker 1: aimed at providing relief. So we've had a friendly federal
Speaker 1: Reserve and other central banks are doing what they can
Speaker 1: as well. And now, of course we have this very
Speaker 1: meaningful relief package coming in the form of fiscal policy.
Speaker 1: And I think it's important not to categorize this totally
Speaker 1: is a stimulus package, because it's not. It's a relief
Speaker 1: package aimed at getting us out of the hole. And
Speaker 1: the next important thing to be watching is what the
Speaker 1: Congress can pass and the President can sign with regard
Speaker 1: to really moving us forward UM, and that would include UM,
Speaker 1: you know, things like the infrastructure reform, things like addressing
Speaker 1: some of the big issues in the labor markets, UM
Speaker 1: and UH. There are some underlying problems that really must
Speaker 1: meet must be addressed, and are not quite addressed yet,
Speaker 1: even in this very large package that we expect to
Speaker 1: be assigned into law later this week. I mean, that's
Speaker 1: on the fundamental side, or it's become the fundamentals in
Speaker 1: terms of fiscal support. There's also a question on the
Speaker 1: technical side what that means in markets we've seen coming
Speaker 1: into this year. This year is different also because the
Speaker 1: global reflation trade trade has not come along with a
Speaker 1: weeker dollar. In fact, the dollar is stronger against every
Speaker 1: single emerging markets currency major one out there a year
Speaker 1: a year to date, and we're looking today at the
Speaker 1: biggest cell off of the ms c I Emerging Market
Speaker 1: Currency Index versus the dollar going back to last March.
Speaker 1: How does that alter your views going forward or do
Speaker 1: you think that this is the indication of a different
Speaker 1: regime where the dollar can strength and yields can rise
Speaker 1: and that doesn't come along with the rest of the
Speaker 1: rest of the world improving at the same pace. Yea,
Speaker 1: So let's let's step back for just a moment um.
Speaker 1: When we do currency forecast, obviously we're looking at all
Speaker 1: the same factors that other people are, but one factor
Speaker 1: really has dominated since the beginning of the pandemic, and
Speaker 1: that is the safe haven nature of the US dollar
Speaker 1: as the world's reserve currency UM, and if anything, that
Speaker 1: has been somewhat in anst UM over the recent past,
Speaker 1: in part because the United States UM has been able
Speaker 1: to take somewhat more aggressive measures than other nations in
Speaker 1: coming out and we also are now looking a little
Speaker 1: bit better in terms of vaccination rate and so on.
Speaker 1: What happens going forward in will be a function not
Speaker 1: just of US, but it's two of all currencies. What
Speaker 1: happens to other nations UM. So far we have seen
Speaker 1: some disappointment with regard to some of the emerging economies.
Speaker 1: But one thing we should all be watching is whether
Speaker 1: an improved tone in US economic activity will help bring
Speaker 1: our trading partners along with US. And that certainly would
Speaker 1: be a good new scenario. You know, John, you mentioned
Speaker 1: that last week. I mean one final question, if we
Speaker 1: can on this day as we look to women like
Speaker 1: you that were out front. You know this and I
Speaker 1: know this from the CFA Institute that securities research lead
Speaker 1: the way, whether we're Abby Joseph Cohen, Luis Humata, what
Speaker 1: Sally Crocheck did at Bernstein, and the wonderful Alice bb Longley,
Speaker 1: who I read religiously years ago. I believe it at
Speaker 1: d l J. How do we impart what securities research
Speaker 1: did with women over to other parts of the financial industry, Tom,
Speaker 1: It's a vexing question. What we basically see in financial
Speaker 1: services and some other industries as well, is that there
Speaker 1: may be a large number of women coming in at
Speaker 1: the bottom end of that pyramid, and we all have
Speaker 1: to do better, not just in financial services but other
Speaker 1: industries in enhancing that pipeline. So, for example, we do
Speaker 1: see that women are well represented in the number of industries,
Speaker 1: but as you move up, say to the VP level
Speaker 1: or the empty level, that's where we see uh flattening out.
Speaker 1: And by the way, while we can point to problems
Speaker 1: here in the US, it's worse in most other countries.
Speaker 1: Um and and so they're looking to us interestingly to
Speaker 1: get things better. But let me spend just one more moment,
Speaker 1: you know, we we tend to think about these professional
Speaker 1: white collar jobs. The real problem for many women in
Speaker 1: this has not been a good year for women who
Speaker 1: are really on the front line, those who are heavily
Speaker 1: represented in some of those virus afflicted sectors, including restaurants
Speaker 1: and accommodation, but also in state and local governments where
Speaker 1: women tend to be overrepresented by numbers in physitions like
Speaker 1: teachers and social workers. And over the last year, state
Speaker 1: and local governments have in fact reduced jobs by something
Speaker 1: like nine hundred thousand, and that affects women much more dramatically.
Speaker 1: The labor force rate for women now is much lower
Speaker 1: than for men. If you look at adults, it's about
Speaker 1: participation for men, it's only for women, and this has
Speaker 1: long term consequences in terms of potential scarring of the
Speaker 1: labor force, especially for women. I'll be really important issues
Speaker 1: and we appreciate your time coming on this probably around
Speaker 1: this morning to share them. Abbe Joseph coming that of
Speaker 1: Gellman sax An International Women's Day. We have been flattered
Speaker 1: by how our team has gotten us some important voices.
Speaker 1: Abby Joseph Cohen on the Marcus Elizabeth economy in China
Speaker 1: and now Deborah Fuller from the number one microbiology platform
Speaker 1: in America that is all known as a University of
Speaker 1: Washington and their School of Medicine and Microbiology, where she
Speaker 1: provides important research leadership. Were thrilled she could bring us
Speaker 1: up to date on the pandemic. Deborah Fuller, there's so
Speaker 1: many looking at the clear and present. You and your
Speaker 1: leadership at Washington are trying to figure out where we'll
Speaker 1: be on COVID two years from now, five years from now,
Speaker 1: and even indeed out the two thousand thirty one. How
Speaker 1: do we prepare for the next virus? Right? So, right
Speaker 1: now we uh, we're doing great against the current viruses,
Speaker 1: but as we can see that, we're constantly battling new
Speaker 1: variants that are coming out Already the manufacturers Jane J.
Speaker 1: Mcdonna Viiser, they're updating their vaccines to combat the next
Speaker 1: one to come. And so we're we're gonna enter in
Speaker 1: the cycle that would be similar to two flu, where
Speaker 1: we're just going to have to constantly get another update
Speaker 1: and and always lingering in the background would be uh,
Speaker 1: the potential that a new variant could emerge, It could
Speaker 1: cause yet another pandemic. That's the case for flu, and
Speaker 1: that's the case for coronaviruses. So what we're working on
Speaker 1: is really thinking about the future, is really about developing
Speaker 1: what we would call hand coronavirus vaccine, one that would
Speaker 1: be able to induce immune responses against parts of the
Speaker 1: virus that are very conserved and and allow us to
Speaker 1: have immunity against not just the current variants, but future
Speaker 1: variants to come in and provide us protection against the
Speaker 1: future pandemics. Are we constrained because we don't have an
Speaker 1: efficacious vaccine that can go worldwide and particularly to worldwide
Speaker 1: impoverished areas that we don't need the refrigeration or the
Speaker 1: fanciness of m RNA vaccines. Do we need to get
Speaker 1: to a basic vaccine? Absolutely. I have always said that
Speaker 1: the ideal pandemic vaccine is one that could be UH
Speaker 1: stored at room temperature and administered in a single shot
Speaker 1: and ideally self administered. That is really the way to
Speaker 1: effectively and rapidly distribute and get a vaccine quickly worldwide,
Speaker 1: in into core as well as wealthy countries. That's another
Speaker 1: area that we're working on. We're working on a room
Speaker 1: temperature stable UH nucleic acid vaccine that's actually based on
Speaker 1: DNA rather than RNA, because that's much more stable and
Speaker 1: when that can be self administered without a need on syringe.
Speaker 1: It's about to say self administered with a needle might
Speaker 1: be a different proposition, DOT or full or perhaps people
Speaker 1: wouldn't be that excited about that. There is There is
Speaker 1: a question though, whether the mr and A technology is
Speaker 1: shortened the time from the discovery of how to combat
Speaker 1: a new strain of either coronavirus or some other virus
Speaker 1: to actually getting vaccines rolled out into people's arms. How
Speaker 1: much have we shortened the vaccine rollout? Oh substantially? With
Speaker 1: the RNA vaccines as well as the new viral vector
Speaker 1: vaccines that Jane j is developing, enables really rapid update
Speaker 1: because you only need the sequence of whatever variant is
Speaker 1: emerging to Traditionally, vaccines would take eight nine months to update.
Speaker 1: With these new technologies, we're looking at eight nine weeks
Speaker 1: to be able to update and then roll out a
Speaker 1: new version. Dr Fuller, How different are these vaccines from
Speaker 1: one another? Base of this idea that a lot of
Speaker 1: officials are trying to prevent people from vaccine shopping, and
Speaker 1: yet there have been different efficacy rates, right they The
Speaker 1: efficacy rates are really based on the fact that the
Speaker 1: vaccines were at really different times. The Madonna Advisor m
Speaker 1: RNA vaccines were tested when the first variants emerged, and
Speaker 1: these vaccines, all three vaccines, were designed to combat that
Speaker 1: initial variant. So so the the RNA vaccines were actually
Speaker 1: the world variant with stacked in favor of making those
Speaker 1: look actually better because when you have a vaccine that
Speaker 1: is a better match to the current variant, you're going
Speaker 1: to get better efficacy. So J and J by the
Speaker 1: time they got to their clinical trial, the variants had emerged,
Speaker 1: and so the differences I think in efficacy really can't
Speaker 1: interpret that to mean that to one vaccine is better
Speaker 1: than the other. What's really important is if you look
Speaker 1: at real lot, real world impact, what we're seeing is
Speaker 1: all three of these vaccines have a profound impact and
Speaker 1: protecting against severe disease and death. I mean we're closed
Speaker 1: to protection from death. And that's really what's important. That's
Speaker 1: what we're after with vaccines is to get it to
Speaker 1: a point where we don't have to be afraid of
Speaker 1: the high mortality rate of this virus. To that point,
Speaker 1: it's very close. Don't thanks few times today, don't to
Speaker 1: Debora full of that, the University of Washington School of
Speaker 1: Medicine professor. There is a point, is Liz Goldenberg lectured
Speaker 1: me years ago, where you switch from yield to a
Speaker 1: price analysis. Cathy Jones at Schwab Center for Financial Research,
Speaker 1: and knows this very well. She watches the flows of
Speaker 1: what people are doing with their money. And Cathy, I
Speaker 1: calculate from the end of August, I have a tenure
Speaker 1: yield down a good amount in price, eight point three
Speaker 1: percent down in price. Are we heading for a bond
Speaker 1: bear market? You know? I think we could be over
Speaker 1: the long run. I certainly think that the lows that
Speaker 1: we've put in UH, those very very low yields around
Speaker 1: half of one percent on the ten year or I
Speaker 1: think a third of one percent of the tenure UH
Speaker 1: is probably the low for a long time. But bear
Speaker 1: market is you know, price over time or yield over time.
Speaker 1: So we're looking out two to five years down the read. Yeah,
Speaker 1: I think that yields continue to go higher as long
Speaker 1: as the economy does recover from the COVID COVID nineteen crisis,
Speaker 1: as it continues to do. But the magnitude of the
Speaker 1: move from here is not likely to be nearly as
Speaker 1: fast or as great I think in the next leg
Speaker 1: as it has been from that previous flow. Kathy, we
Speaker 1: discussed so many times about how self limiting a move
Speaker 1: high would be because of the amount of debt that
Speaker 1: we've added to this economy. I remember in and around
Speaker 1: one percent talking about one maybe it was maybe it
Speaker 1: was one fifty, one sixty Right now, where is it
Speaker 1: in your mind? Well, you know, one sixty was our
Speaker 1: target coming into the year, and now that we're here,
Speaker 1: we do start to see a little bit of that
Speaker 1: pushback from the risk markets and risk assets. But certainly
Speaker 1: yields are not so high that we're going to see
Speaker 1: a huge economic deterioration from here unless unless we start
Speaker 1: to see credit spread blow out or something like that.
Speaker 1: You know, you push up towards positive real rate and
Speaker 1: the two percent plus area, and then we're probably going
Speaker 1: to see a negative feedback loop work its way through.
Speaker 1: You know, you have a lot of companies, the smaller,
Speaker 1: low rated, unrated companies, the zombie companies that have been
Speaker 1: rolling over debt for a long time. Their ability to
Speaker 1: continue to do that if rates push up another forty
Speaker 1: fifty basis points is going to be challenged. Wait, that's important.
Speaker 1: Another forty fifty basis points. That's all it would take
Speaker 1: for some of these companies to face true financing pressures.
Speaker 1: You're talking about in the high yield space in particular, Yeah,
Speaker 1: we just did an analysis of some of the zombie companies.
Speaker 1: That's hard to get really good data, but a lot
Speaker 1: of have been really living on fumes. And so you know,
Speaker 1: if you if you look at the private debt area,
Speaker 1: the really low rated UM bonds, they're going to be
Speaker 1: challenged unless unless the conditions changed in terms of revenue.
Speaker 1: Well from here, the reason why this is such an
Speaker 1: important point, Cathy, is because people have come on this
Speaker 1: show and others and said that the real rate risk
Speaker 1: is for rates increasing, right, is duration and not credit
Speaker 1: because credit looks good given the backdrop that we have
Speaker 1: in the easy financing conditions. Are you saying that that
Speaker 1: story is changing, that credit is starting to matter that
Speaker 1: much more because as you get that rise and interest rates,
Speaker 1: some of these credits are that much more sensitive to
Speaker 1: any tightening, let alone forty fifty basis points. Well, I
Speaker 1: think you have to differentiate between saying, you know, investment
Speaker 1: grade where we've seen a sell off from the investment
Speaker 1: grade market basically because of duration, not credit risk. Right,
Speaker 1: And we're not worried about i G. Even in the
Speaker 1: higher rated part of hill, We're not worried as much
Speaker 1: because you know, this is a potent um combination of
Speaker 1: easy fiscal a very accommodative monetary policy, and very expansive
Speaker 1: fiscal policy. That's good for credit. But when you get
Speaker 1: into the lower rated credit where are you've seen this
Speaker 1: big build up of debt and the lack of earnings
Speaker 1: that we've seen. Unless they start to kick in on
Speaker 1: those earnings, we're going to see some deterioration there. Well, Kathy,
Speaker 1: we have to talk about the next logical question then,
Speaker 1: and that's the maturity wall funding requirements, And from what
Speaker 1: we've seen in the last twelve months is an extension
Speaker 1: of the average maturity for so many of these companies
Speaker 1: because funding conditions have been so good. It's there a
Speaker 1: maturity wall on the horizon. I haven't heard about it.
Speaker 1: Do you see it? Yeah? I don't have an askment
Speaker 1: of maturity wall that we're particularly worried about at this
Speaker 1: stage of the game. Um, you know, there is a
Speaker 1: lot of that build up and we're certainly going to
Speaker 1: face some financing problems down the road, but I think
Speaker 1: it continues to get pushed out, so that's not something
Speaker 1: we're worried about for this year or even early next year. Kathy.
Speaker 1: Always good to see you as always Kathy Jones of
Speaker 1: the SWAB Center for Financial Research. We've been the great
Speaker 1: privilege of talking to those within the Ethan Harris shop
Speaker 1: at Bank of American Securities. As we mentioned with Dr
Speaker 1: Harris the other day, Michelle Meyer has been absolutely brilliant
Speaker 1: over the years and the pulse of the American economy.
Speaker 1: She joined us here with their leadership and not only
Speaker 1: that but her symbolism of International Women's Day and getting
Speaker 1: it done. Michelle, you know we have followed followed your
Speaker 1: career and it's always narrow questions about this and that.
Speaker 1: I want to give you a broader question. What is
Speaker 1: the quality of US seven point three percent economic growth?
Speaker 1: What's the makeup of that big number you have Q
Speaker 1: four to Q four. Thanks Tom, and thanks for the
Speaker 1: question having me on today on an important day. UM So,
Speaker 1: when you think about the drivers of US economic growth,
Speaker 1: and particularly this year with a studying we're forecasting seven
Speaker 1: point three percent growth, when you measured on that Q
Speaker 1: four of a Q four basis, we think a lot
Speaker 1: of it has to do with the consumer. It has
Speaker 1: to do with the resolve of the consumer to spend
Speaker 1: and the ability of the consumer to spend. I mean,
Speaker 1: this is a household sector that is sitting on very
Speaker 1: strong balance sheets, that is sitting on a lot of
Speaker 1: dry powder in terms of the amount of cash that
Speaker 1: is accumulated and more to come um, which as a
Speaker 1: result of the latest stimulus spill um and and the
Speaker 1: consumer has already engaged, it's proven to be resilient, and
Speaker 1: we think there's a lot more to come um in
Speaker 1: the coming months and quarters as the economy continues to
Speaker 1: move forward and it's reopening. Michelle, do you think that
Speaker 1: the concerns have been overstated that people have been holding
Speaker 1: cash simply to pay down debt going forward that's been deferred.
Speaker 1: I think that has been overblown on an aggregate basis.
Speaker 1: I'm sure that is happening on a on a micro level,
Speaker 1: and you certainly see that in some of the narratives
Speaker 1: and in the anecdotes that are out there, but you're
Speaker 1: not seeing that on aggregate. I mean, when you think
Speaker 1: about the debt levels, we don't have that much debt
Speaker 1: to pay down. It's not the the two thousand eight period,
Speaker 1: or you had very very very much the case that
Speaker 1: there was access debt, you needed to deleverage. Households need
Speaker 1: to clean up their balance sheets. It's not the case today.
Speaker 1: We entered this crisis, this pandemic with pretty low debt ratios,
Speaker 1: historically low financial obligations ratios. Um And I think yes,
Speaker 1: some will we go Some of that excess cash will
Speaker 1: be going to pay down debt, but the majority will
Speaker 1: be able to be used in some form, to be
Speaker 1: able to be kind of pumped back into the economy
Speaker 1: via spending. Well, the economy have the same sort of
Speaker 1: composition when people start pumping their money back in other word,
Speaker 1: services goods, given that that dynamic has shifted quite a
Speaker 1: bit during the pandemic. In other words, are we going
Speaker 1: back to normal or is this going to be a
Speaker 1: new normal with perhaps more goods and fewer services just
Speaker 1: in general? Well, I don't think we Yeah, I don't
Speaker 1: think we should assume that we're going to go back
Speaker 1: to the economy as it looked prior to the pandemic.
Speaker 1: Too much has changed in the world and in the
Speaker 1: economy in the last year, um And, I mean certainly
Speaker 1: the the embrace of more to technology, the embrace of
Speaker 1: an online retailer that has now you know, shown itself
Speaker 1: through a variety of different categories and sectors, to spend um.
Speaker 1: But you know, when you think about the basket spend
Speaker 1: right when the pandemic hit, Yes, people were predominantly spending
Speaker 1: on goods because they couldn't spend on leisure and other
Speaker 1: types of services. Once they are able to spend on
Speaker 1: leisure and services, there will be a certain amount of
Speaker 1: demand that shows through for those categories, but that will
Speaker 1: be the equilibrium either. Right. We have to get past
Speaker 1: that pent up demand and then we'll figure out what
Speaker 1: that right balance is between goods and services. Michelle, do
Speaker 1: you know what's so original about this moment? I'd love
Speaker 1: to get some insight into your conversations with clients. The
Speaker 1: bulls and bears both agree on whether data is going
Speaker 1: to be in about four months. They just disagree on
Speaker 1: how they think the fetes going to respond to it
Speaker 1: in the months after that. When you speak to clients,
Speaker 1: how many of them just roughly just throw out a number,
Speaker 1: how many of them are convinced by the FETs reaction
Speaker 1: function when data actually starts to pick up aggressively, when
Speaker 1: inflation and starts to pick up too. You know, I
Speaker 1: would say the majority of the clients we talked to
Speaker 1: UM have an appreciation for the fence reaction function in
Speaker 1: that they recognize it is different than the prior cycle,
Speaker 1: that this is not a FED that is looking to normalize.
Speaker 1: This is not a FED that's going to hike upon
Speaker 1: a falling unemployment rate, And it's not a FAT that's
Speaker 1: going to hike when they start to sniff out inflation.
Speaker 1: They are going to wait until the unemployment rate is
Speaker 1: below estimates of NERO, until you've reached that maximum employment measure.
Speaker 1: They're gonna wait until you properly have inflation. But here's
Speaker 1: here's the Here's I think the distinction where there's a debate.
Speaker 1: It's what's the level of inflation? Right? So is it
Speaker 1: that they need to say two percent inflation and they're
Speaker 1: going to want to get going, or will theF that
Speaker 1: actually be able to tolerate something above two percent for
Speaker 1: a period of time. And that's where I think you
Speaker 1: do have a little bit of a disagreement amongst market
Speaker 1: participants that want to try to urge the FED along
Speaker 1: in their hiking cycle. And John, do you really really
Speaker 1: important question four months out? It's not only about the FED.
Speaker 1: It's this disagreement about the makeup of the American economy.
Speaker 1: It's raging debate and the darkts have changed, Michelle, the
Speaker 1: targets in the labor market change. For this Federal Reserve
Speaker 1: and for market participants, we have to change what we're
Speaker 1: looking at too. It's not about aggregant numbers. It's about disparity.
Speaker 1: By definition, does not just mean Michelle, the Fed moves
Speaker 1: much later than they would have otherwise in previous cycles. Yes,
Speaker 1: that is exactly what the Fed is trying to communicate,
Speaker 1: and I think for very good reasons. They're saying, it's
Speaker 1: not just about getting that you three, that aggregate and
Speaker 1: measure of the employment rate down. It's much more than that.
Speaker 1: Maximum employment is to be able to get people to
Speaker 1: re engage in the labor force. So look at these
Speaker 1: broader measures. I've include labor force participation rates. It's about
Speaker 1: getting the unemploymer rate down across income, racial and income.
Speaker 1: They said income divides, right, So it's it's broad based,
Speaker 1: it's complete. And the key to that is that it
Speaker 1: will make it sustainable. Right, if you have an unemployment rate,
Speaker 1: if you have a labor market that's tight enough across
Speaker 1: the board, it could last, It could it could feed
Speaker 1: upon itself, and you can have a much stronger and
Speaker 1: more persistent recovery. What percent of the agony here the
Speaker 1: job agony forward is restaurants, bars, hospitality, What percent of
Speaker 1: it is pandemic jobs, and what percent is the greater
Speaker 1: American economy jobs. So there's a lot of room for
Speaker 1: expansions still in those categories leisure in hospitality, and we
Speaker 1: saw that in the last jobs report the majority of
Speaker 1: jobs creed in the private sector were in leisure on hospitality,
Speaker 1: which was a payback from the decline we have seen
Speaker 1: in December of January and those categories. So, um, as
Speaker 1: economy reopens, you naturally will get a big jump in
Speaker 1: job creation in those categories. Will it get all the
Speaker 1: way back to pre pandemic levels. I think that's debatable.
Speaker 1: There probably will be some inevitable scarring in those in
Speaker 1: those sectors, but yes, you will have certainly a good
Speaker 1: amount of job creation there. The key, though, I think,
Speaker 1: is what comes next as you know that tom right,
Speaker 1: once you get past that just kind of mechanical reopening swing,
Speaker 1: what does the economy look like. What's the momentum for growth,
Speaker 1: and that I think will ultimately be field void. How
Speaker 1: much consumers are spending and how that this naturally feeds
Speaker 1: back into broad based business investment, which then feeds back
Speaker 1: into the labor market through your job creations. So you
Speaker 1: need to get to that positive feedback loop ultimately, UM,
Speaker 1: to get to get a better appreciation of what the
Speaker 1: economy looks like after this ALF set and done. Is
Speaker 1: it too early to do? Right? Hot? Guess is? Do
Speaker 1: you have a right hot guest at this point? Miche three? Four? Yeah, Um,
Speaker 1: so we're in the camp that the FEDS first site
Speaker 1: will be in three more likely in the second half,
Speaker 1: in the first half, but that's you know, still up
Speaker 1: to up to the data. Frankly, Um, you know, to
Speaker 1: get the FETE to hike before that. To get the
Speaker 1: FETE to think about a hike next year, you know,
Speaker 1: a lot would have to go very, very very right.
Speaker 1: And again we are forecasting a lot to go right.
Speaker 1: We are forecasting a very strong economy. But I think
Speaker 1: for the FETE to feel comfortable a lift off that quick,
Speaker 1: they would need to see the inflation cycle really really
Speaker 1: speed up, Inflation expectations move up in a meaningful way.
Speaker 1: UM wage growth showing signs again of increasing across the board,
Speaker 1: and that would convince them that inflation will be able
Speaker 1: to take off, and I'm just not convinced that will
Speaker 1: happen by the end of next year. Michelle tremendous as
Speaker 1: always and good to see a michellema of Banks America
Speaker 1: Securities on this better Outlook, this better economy. This is
Speaker 1: a joy. Very Grant is with bursting and UH with
Speaker 1: the senior portfolio manager responsible investing, and she brings to
Speaker 1: the job and this concludes the s G and the
Speaker 1: rest of it. She brings to the job a prodigious
Speaker 1: resume and ability and all the different aspects of investing,
Speaker 1: including with the CFA Institute in her work years ago
Speaker 1: on the study of shorting and such. She's just immensely
Speaker 1: accomp We're thrilled to a a value Grant. Whether it's your valerie.
Speaker 1: When did you realize on International Women's Day? Did it
Speaker 1: was a little bit challenging for women? Did that happen
Speaker 1: early on or did that happen when you walked through
Speaker 1: the door of the house at Sally Crawchuck Built. Oh
Speaker 1: my goodness, well, good morning everyone. Um. I would say that,
Speaker 1: you know, that was sort of a realization for me
Speaker 1: as a young girl, but it's not something that I
Speaker 1: paid a lot of attention to or view necessarily as
Speaker 1: something to slow me down. And that's because of my mother.
Speaker 1: My mother was a very unconventional person in many ways.
Speaker 1: She was a mathematician by training, and she worked for
Speaker 1: the U. S Department of Defense as an operations research analyst.
Speaker 1: So she was extremely smart and had a quite unconventional
Speaker 1: career for a woman at that time. And so I
Speaker 1: saw her, you know, get up and do what she
Speaker 1: was doing, and I said, well, I'm gonna do what
Speaker 1: I'm gonna do, and um, I just repeat it from there,
Speaker 1: so to speak. How do we extend that? Or Lisa
Speaker 1: Abramoins was telling me this morning of the challenges that
Speaker 1: her Chicago, of everybody in the room was a guy
Speaker 1: except her, and some of the fancy math she did.
Speaker 1: I think of, you know what Sally Cratchuck did at
Speaker 1: your Alliance Bernstein then Sanford Bernstein and building out their
Speaker 1: research capability. How do we get more women doing what
Speaker 1: young Valerie Grant did, which is doing math, doing statistics.
Speaker 1: How do we how do we jump start that? Well?
Speaker 1: I think that really just making the the the learning
Speaker 1: experience perhaps more accessible and more engaging. And then also
Speaker 1: I think there's a lot of work to be done
Speaker 1: just to talk about how fun and how enjoyable a
Speaker 1: career in finance can be. I think sometimes that's overlooked.
Speaker 1: People talk about the struggles and the challenges, but it's
Speaker 1: actually a really fun job interesting. Every day is different
Speaker 1: and new, and so I think we have to begin
Speaker 1: to convey that part of it more um and encourage
Speaker 1: women to to stick with it and to find their
Speaker 1: find their spot. My colleague Paul Sweeney has been miserable
Speaker 1: every single day financial career. Yeah, Valerie, you know, I
Speaker 1: worked at twenty years on Wall Street as a research
Speaker 1: channelis and then I helped build the research department here
Speaker 1: a Bloomberg for about ten years. And what I found was,
Speaker 1: you know, some of those incoming classes of analysts, whether
Speaker 1: it's going into into the investment bank where they hire
Speaker 1: a couple hundred kids every year at a school or
Speaker 1: m MBA programs, they look pretty diverse. The statistics are
Speaker 1: pretty darn good. But then when you get seven to
Speaker 1: ten years later, when you start talking managing director or partner,
Speaker 1: not so diverse anymore. It's it's that interim period where uh,
Speaker 1: women and other minorities seem to fall out of the workforce.
Speaker 1: It seems like you know that that's true. I think
Speaker 1: that there is certainly less diversity at the top of
Speaker 1: the house, so to speak. We are seeing some progress.
Speaker 1: I have my actually Harvard Business Field classmate, Jane Fraser
Speaker 1: over at City running a major financial institution. There are
Speaker 1: several other women. Uh the Sunda Brown Ducket who just
Speaker 1: was named CEO at t I a A Is another example.
Speaker 1: So there are some examples of that glass ceiling being shattered.
Speaker 1: But I do think it's important for organizations to take
Speaker 1: a close look at their culture. They have to look
Speaker 1: at pay equity. They have to look at pay equity,
Speaker 1: and I repeat that at third time. They have to
Speaker 1: look at pay equity because that's a signal. It says
Speaker 1: to a young woman or a person of color, or
Speaker 1: quite frankly, to white men, you'll be treated fairly here.
Speaker 1: Everybody has a fair shot. And I think that's something
Speaker 1: that the financial services UM industry, if you will, could
Speaker 1: do a better job on transparency, on pay equity, and
Speaker 1: also just you know, making sure that they're um they
Speaker 1: are actually enforcing those types of policies and practices is
Speaker 1: very important as a motivating factor. Yeah, all right, let's
Speaker 1: shift to the markets, Valerie. You know we're hearing more
Speaker 1: and more about E s G investing, environmental social governance.
Speaker 1: Bloomberg certainly features a lot of data on the terminal
Speaker 1: to help investors with their investing looking at E s G.
Speaker 1: Talk to us about how you view uh this part
Speaker 1: of you know, portfolio management. I think that responsible investing,
Speaker 1: or the integration of environmental, social and governance factors into
Speaker 1: traditional approaches to investing is one of the most exciting
Speaker 1: areas in asset management right now. Um. I think that
Speaker 1: what we've seen, particularly over the last couple of years
Speaker 1: is just an acceleration and focus on issues like climb change,
Speaker 1: diversity and inclusion, pay equity, which we've already discussed, worker safety,
Speaker 1: and data privacy and security, and all of these used
Speaker 1: to be considered ancillary issues. But I think what investors
Speaker 1: have realized is that they often have a direct impact
Speaker 1: on equity values. And then if you look at the
Speaker 1: fixed income side of the house, there there are consequences
Speaker 1: there as well in terms of the credit worthiness of
Speaker 1: some of the issuers out there. So, um, it's exciting
Speaker 1: and I'm I'm happy to be part of it. Valerie
Speaker 1: when I look at E. S. G and you know
Speaker 1: it's all the rage. Let's be honest, all our radar,
Speaker 1: Valerie Grants radar, my radar, Paul Sweeney's radars up. Because
Speaker 1: when every something is the rage, it usually doesn't turn
Speaker 1: out good. Are you concerned that it's so in that
Speaker 1: it could be challenging? I don't think so, because the
Speaker 1: reality is that they're still lot of work to be
Speaker 1: done in terms of even just basic levels of disclosure,
Speaker 1: corporate disclosure on material, environmental, social and governance issues. I
Speaker 1: think that the data currently is still very uneven. So
Speaker 1: for those of you have been in the investing business
Speaker 1: a long time, you can probably remember back in the
Speaker 1: old days when the data even on basic financial performance
Speaker 1: perhaps was very inconsistently reported. So I think there's still
Speaker 1: a lot of opportunity for both fundamental approaches and systematic
Speaker 1: approaches in responsible investing. And I just think that the
Speaker 1: demand will continue for some time. Yeah, not enough time,
Speaker 1: very Grant. We have to get you on again. Thank
Speaker 1: you so much for joining us with Alliance Bernstein and
Speaker 1: really running all of their responsible investing operations. Just hugely
Speaker 1: qualified value. Grant. Thank you so much. This is the
Speaker 1: Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays
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Speaker 1: Bloomberg dot com, and of course, on the terminal. I'm
Speaker 1: Tom Keene, and this is Bloomberg