1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along 2 00:00:09,240 --> 00:00:13,200 Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you 3 00:00:13,320 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,960 --> 00:00:23,840 Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 5 00:00:23,920 --> 00:00:31,120 Speaker 1: and of course on the Bloomberg terminal. All right now 6 00:00:31,160 --> 00:00:33,879 Speaker 1: to make a smarter Matthew Loseetti with us for you 7 00:00:33,960 --> 00:00:36,199 Speaker 1: on Global Wall Street. Deutsche Bank has just done a 8 00:00:36,320 --> 00:00:39,400 Speaker 1: terrific job. It's maybe a fractious view with a different 9 00:00:39,479 --> 00:00:42,800 Speaker 1: view short term versus their view long term. Let's go 10 00:00:42,960 --> 00:00:46,200 Speaker 1: wicked short to Friday with Matthew Lozetti our first real 11 00:00:46,240 --> 00:00:49,240 Speaker 1: discussion of this job's report. Matthew, I love what you say. 12 00:00:49,360 --> 00:00:54,040 Speaker 1: It is a perplexing labor economy. How will this Friday's 13 00:00:54,080 --> 00:00:58,640 Speaker 1: report be perplexing? Sure, thank you for having me. I 14 00:00:58,640 --> 00:01:00,600 Speaker 1: think what we've seen over the past of the months 15 00:01:00,680 --> 00:01:03,639 Speaker 1: is UH data data points which are pointing at two 16 00:01:03,640 --> 00:01:06,199 Speaker 1: different things. We have an economy which on a number 17 00:01:06,200 --> 00:01:08,360 Speaker 1: of metrics look like looks like there's a lot of slack, 18 00:01:08,800 --> 00:01:11,520 Speaker 1: seven point six million jobs below pre COVID, a labor 19 00:01:11,520 --> 00:01:14,720 Speaker 1: force at three point five million below pre COVID as well. 20 00:01:15,000 --> 00:01:17,759 Speaker 1: On the other hand, you have record quits, record job openings, 21 00:01:17,840 --> 00:01:20,399 Speaker 1: wages have been firm. Uh. And so I think we've 22 00:01:20,400 --> 00:01:22,679 Speaker 1: been looking for data points to try to resolve these 23 00:01:22,680 --> 00:01:24,399 Speaker 1: two issues in our mind, and I know the feed 24 00:01:24,520 --> 00:01:26,959 Speaker 1: is is certainly looking at data points there. I don't 25 00:01:27,000 --> 00:01:29,280 Speaker 1: think we get a resolution this week. We expect seven 26 00:01:29,440 --> 00:01:32,160 Speaker 1: thousand jobs. We expect the employment rates to take down 27 00:01:32,240 --> 00:01:34,760 Speaker 1: by by one t the labor force to pick up 28 00:01:34,800 --> 00:01:36,759 Speaker 1: a little bit. But I think, you know, as FED 29 00:01:36,800 --> 00:01:38,480 Speaker 1: officials have said, it's more likely that we have to 30 00:01:38,480 --> 00:01:41,040 Speaker 1: wait until the fall to we get labor supply coming 31 00:01:41,080 --> 00:01:43,840 Speaker 1: on fully and get a greater resolution of these this 32 00:01:44,000 --> 00:01:46,200 Speaker 1: real dichotomy that we're seeing in the labor market. That 33 00:01:46,400 --> 00:01:49,760 Speaker 1: February before the pandemic, we all look back at that 34 00:01:49,880 --> 00:01:53,720 Speaker 1: Nirvano of what was build as a fully employed America. 35 00:01:54,360 --> 00:01:57,160 Speaker 1: Is that what we're going back to or are we 36 00:01:57,240 --> 00:02:01,920 Speaker 1: going forward to something new and different? Look. I think 37 00:02:01,920 --> 00:02:04,920 Speaker 1: there's definitely some things that have changed, and probably from 38 00:02:04,920 --> 00:02:08,400 Speaker 1: a structural sense, and and the FED and Chair Palace 39 00:02:08,440 --> 00:02:11,520 Speaker 1: has talked about retirements really picking up, probably on the 40 00:02:11,520 --> 00:02:13,840 Speaker 1: back of a big pickup and wealth and and savings 41 00:02:13,840 --> 00:02:16,680 Speaker 1: that the households have had there. But in my mind, 42 00:02:17,360 --> 00:02:19,640 Speaker 1: what we learned from the pre COVID labor market was 43 00:02:19,680 --> 00:02:23,120 Speaker 1: we just continually found labor supply. The primary labor force 44 00:02:23,160 --> 00:02:26,280 Speaker 1: participation rate continue to trend hire people coming off disability 45 00:02:26,280 --> 00:02:29,480 Speaker 1: insurance roles, you know. Vice Chair Clarad at that point 46 00:02:29,520 --> 00:02:31,440 Speaker 1: was saying that NEHRU could be as low as three 47 00:02:31,440 --> 00:02:33,760 Speaker 1: and a half percent. And I don't think that there's 48 00:02:33,800 --> 00:02:36,639 Speaker 1: anything from the shock that prevents us from getting back there. 49 00:02:36,639 --> 00:02:39,680 Speaker 1: If anything, you know, greater workforce flexibility, some of these 50 00:02:39,960 --> 00:02:42,520 Speaker 1: policies that the buying administration is looking at should help 51 00:02:42,560 --> 00:02:45,840 Speaker 1: the lift labor supply. So there is no doubt constraints 52 00:02:45,840 --> 00:02:47,480 Speaker 1: in the near term on labor supply. But if we 53 00:02:47,520 --> 00:02:50,399 Speaker 1: look for by a year, two years, um, I think 54 00:02:50,400 --> 00:02:52,280 Speaker 1: that we should anticipate that we can get back to 55 00:02:52,360 --> 00:02:54,520 Speaker 1: that pre COVID labor market. Some people have made the 56 00:02:54,600 --> 00:02:57,720 Speaker 1: argument that holding back labor supply. Want factor behind that 57 00:02:57,760 --> 00:03:01,240 Speaker 1: has been the additional unemployment insurance. You ke THEOGUMAN you 58 00:03:01,280 --> 00:03:04,919 Speaker 1: find limited evidence that enhanced unemployment insurance benefits were exerting 59 00:03:04,919 --> 00:03:08,799 Speaker 1: a material drag on aggregate employment. What did you look at, 60 00:03:08,840 --> 00:03:12,480 Speaker 1: Matt sure, So I know there's been a lot of 61 00:03:12,520 --> 00:03:14,840 Speaker 1: look at the work done on this, and what we've 62 00:03:14,880 --> 00:03:16,720 Speaker 1: looked at is try to look across states, try to 63 00:03:16,720 --> 00:03:19,799 Speaker 1: look across sectors, and are you seeing labor markets either 64 00:03:19,840 --> 00:03:22,000 Speaker 1: in low wage states that look like they are are 65 00:03:22,040 --> 00:03:25,080 Speaker 1: more constrained because they should be more impacted by enhanced 66 00:03:25,120 --> 00:03:28,280 Speaker 1: unemployment benefits? Are you seeing low wage sectors that are 67 00:03:28,280 --> 00:03:31,640 Speaker 1: also being more constrained and you really don't find that. So, 68 00:03:31,720 --> 00:03:34,720 Speaker 1: for example, leisure and hospitality, we looked at the vacancy 69 00:03:34,800 --> 00:03:37,000 Speaker 1: yield and this is the rate at which they're you're 70 00:03:37,000 --> 00:03:39,960 Speaker 1: turning job openings into hires. The vacancy yield and leisure 71 00:03:39,960 --> 00:03:42,160 Speaker 1: on hospitality, which is a low wage sector, is actually 72 00:03:42,160 --> 00:03:44,960 Speaker 1: well above a lot of high wage sectors. Similarly, if 73 00:03:44,960 --> 00:03:47,200 Speaker 1: you look at across states, it's actually the low wage 74 00:03:47,240 --> 00:03:49,480 Speaker 1: states that are really outperforming here, it's it's the high 75 00:03:49,520 --> 00:03:52,760 Speaker 1: wage states that still have a lot of slack or 76 00:03:52,920 --> 00:03:55,720 Speaker 1: or a well blow pre code levels. So in our mind, 77 00:03:55,960 --> 00:03:58,440 Speaker 1: you know, unemployment trans benefits you no doubt, I would 78 00:03:58,440 --> 00:04:00,960 Speaker 1: not deny that it is probably a factor for some, 79 00:04:01,360 --> 00:04:04,040 Speaker 1: But if you look at the big macro stories, in 80 00:04:04,080 --> 00:04:07,120 Speaker 1: my mind, it's COVID and it's really not unemployment insurance benefits. 81 00:04:07,160 --> 00:04:08,960 Speaker 1: It's the return to school part of the COVID story. 82 00:04:09,040 --> 00:04:11,480 Speaker 1: So two things happen in September. The additional u I 83 00:04:11,560 --> 00:04:14,920 Speaker 1: expires and the schools reopened hopefully and everyone gets to 84 00:04:14,920 --> 00:04:16,440 Speaker 1: go back to school. Match you think that could be 85 00:04:16,520 --> 00:04:20,120 Speaker 1: the dominant factor. Hit Absolutely. I think you have the 86 00:04:20,160 --> 00:04:22,960 Speaker 1: direct effect of that in reopening, which is just getting 87 00:04:23,000 --> 00:04:26,040 Speaker 1: greater education employment. But on the other hand, it opens 88 00:04:26,080 --> 00:04:28,040 Speaker 1: up labor supply to an extent that we haven't seen 89 00:04:28,200 --> 00:04:30,680 Speaker 1: as of yet. So I think in the debates that 90 00:04:30,720 --> 00:04:33,360 Speaker 1: we have with clients on this, uh, there's a very 91 00:04:33,640 --> 00:04:36,120 Speaker 1: forceful debate on on both sides. But but we all 92 00:04:36,200 --> 00:04:37,680 Speaker 1: kind of end up in a place where once we 93 00:04:37,680 --> 00:04:39,880 Speaker 1: get to the fall, as vaccinations have picked up, as 94 00:04:39,880 --> 00:04:43,839 Speaker 1: schools reopened, as unemployment insurance benage bits roll off, all 95 00:04:43,880 --> 00:04:45,680 Speaker 1: of those things should really lead to a lift and 96 00:04:45,760 --> 00:04:47,760 Speaker 1: labor suppli as we get to towards the ball. Yet 97 00:04:47,839 --> 00:04:49,920 Speaker 1: we haven't seen as much progress in the labor market 98 00:04:49,960 --> 00:04:52,360 Speaker 1: as many people had expected. And yes, we have to wait, 99 00:04:52,400 --> 00:04:55,680 Speaker 1: but at what point, well you rethink your your goals 100 00:04:55,720 --> 00:04:58,159 Speaker 1: in terms of getting the unemployment rate back down to 101 00:04:58,200 --> 00:05:01,400 Speaker 1: where it was and frankly getting the participation rate higher. 102 00:05:01,440 --> 00:05:03,920 Speaker 1: I mean, what is concerning you and keeping you up 103 00:05:04,040 --> 00:05:07,480 Speaker 1: at night with respect to this, Yeah, I think the 104 00:05:07,920 --> 00:05:10,720 Speaker 1: lack of response from labor force participation has has certainly 105 00:05:10,720 --> 00:05:13,200 Speaker 1: been one of them. Um. You know, the trend that 106 00:05:13,240 --> 00:05:16,280 Speaker 1: we've seen in employment gains has been weaker than than 107 00:05:16,320 --> 00:05:20,280 Speaker 1: we anticipated. There's an interesting um if you look at 108 00:05:20,279 --> 00:05:22,600 Speaker 1: the non seasonally adjusted data, we've been printing about one 109 00:05:22,640 --> 00:05:25,279 Speaker 1: million jobs per month on average over over the past 110 00:05:25,320 --> 00:05:28,719 Speaker 1: four months, a very steady pace, and Charepal noted this. 111 00:05:28,760 --> 00:05:30,919 Speaker 1: There may just be speed limits on how quickly we 112 00:05:30,960 --> 00:05:33,279 Speaker 1: can rehire people into this economy, and maybe it's one 113 00:05:33,320 --> 00:05:36,240 Speaker 1: million jobs per month on a nonseasonally adjusted basis. UH 114 00:05:36,360 --> 00:05:39,000 Speaker 1: indeed has some great data looking at a really big 115 00:05:39,000 --> 00:05:42,160 Speaker 1: pickup in job postings for HR departments, and so maybe 116 00:05:42,240 --> 00:05:44,320 Speaker 1: this is business is trying to get around this natural 117 00:05:44,320 --> 00:05:47,080 Speaker 1: speed limit. UH. In any event, as if we continue 118 00:05:47,080 --> 00:05:49,760 Speaker 1: to print those types of nonseasonally adjusted jobs, it will 119 00:05:49,800 --> 00:05:51,720 Speaker 1: get a boost over over the next few months. So 120 00:05:52,120 --> 00:05:53,680 Speaker 1: I you know, with a labor demand that we have 121 00:05:53,720 --> 00:05:57,280 Speaker 1: out there, as labor supply does normalize, I anticipate that, 122 00:05:57,440 --> 00:05:59,559 Speaker 1: you know, our our bullish outlook for the labor market 123 00:05:59,600 --> 00:06:01,640 Speaker 1: should be fulfilled as we get towards the end of 124 00:06:01,680 --> 00:06:03,320 Speaker 1: this year, and then as we get into next year. 125 00:06:03,480 --> 00:06:05,000 Speaker 1: A lot of people will talk about the frictions in 126 00:06:05,040 --> 00:06:08,280 Speaker 1: the labor market as leading to a lot of wage increases. 127 00:06:08,360 --> 00:06:11,359 Speaker 1: How persistent. How much has the balance shifted back to 128 00:06:11,520 --> 00:06:17,040 Speaker 1: labor from corporations in terms of demanding higher wages? Yeah, there, 129 00:06:17,080 --> 00:06:19,360 Speaker 1: you know. I think you're seeing different views from different 130 00:06:19,360 --> 00:06:22,640 Speaker 1: wage numbers. So the Atlanta Feds wage metrics have actually 131 00:06:22,720 --> 00:06:26,800 Speaker 1: decelerated in a broadway, and they're tracking individuals over time, 132 00:06:26,880 --> 00:06:29,000 Speaker 1: so they're able to control for a lot of different 133 00:06:29,000 --> 00:06:32,440 Speaker 1: compositional shifts. The average on learnings data will get on Friday, 134 00:06:32,839 --> 00:06:35,400 Speaker 1: it's just skewed by so many compositional issues that they 135 00:06:35,440 --> 00:06:39,920 Speaker 1: don't control for occupation or sectoral shifts. So so it's 136 00:06:39,920 --> 00:06:42,120 Speaker 1: really difficult to read too much into those data. We 137 00:06:42,120 --> 00:06:44,400 Speaker 1: have to wait for the employment cost index to come 138 00:06:44,400 --> 00:06:46,440 Speaker 1: out each quarter. But but what I would say, there 139 00:06:46,560 --> 00:06:50,039 Speaker 1: is no doubt you're seeing wage pressures. I think uh 140 00:06:50,240 --> 00:06:51,960 Speaker 1: in a number of metrics. Now, certainly a lot of 141 00:06:52,000 --> 00:06:54,919 Speaker 1: anecdotes and labor supply is constrained at this point, but 142 00:06:55,000 --> 00:06:56,960 Speaker 1: if I go back to what I said before, I'd 143 00:06:56,960 --> 00:06:58,920 Speaker 1: be very surprised if we go back, you know, if 144 00:06:58,920 --> 00:07:01,320 Speaker 1: we look forward by a year, two years, and we're 145 00:07:01,360 --> 00:07:05,280 Speaker 1: still seeing these same constraints there. I think, on the contrary, 146 00:07:05,400 --> 00:07:08,000 Speaker 1: we should be back towards a pre COVID labor market 147 00:07:08,000 --> 00:07:11,080 Speaker 1: where we are really unleashing significant labor supply. And that 148 00:07:10,920 --> 00:07:13,280 Speaker 1: I that I think keeps price pressures in check, keeps 149 00:07:13,280 --> 00:07:15,480 Speaker 1: wage pressures in check as well. So what is your 150 00:07:15,600 --> 00:07:19,280 Speaker 1: unemployment rate? That is a mental tip point? You know, 151 00:07:19,320 --> 00:07:23,239 Speaker 1: the Deutsche Bank research of folkirts Landau and Hooper worried 152 00:07:23,280 --> 00:07:26,560 Speaker 1: about inflation out three and four years and yet a 153 00:07:26,600 --> 00:07:30,000 Speaker 1: short term view that's very much different than that. Can 154 00:07:30,040 --> 00:07:33,840 Speaker 1: we use a tip point of unemployment rate is a 155 00:07:33,920 --> 00:07:38,240 Speaker 1: signal that we're back to where we're supposed to be. Yeah, 156 00:07:38,280 --> 00:07:40,200 Speaker 1: And I should be clear, you know, we have a 157 00:07:40,480 --> 00:07:43,840 Speaker 1: baseline view that the inflation jumped at this year's transitory 158 00:07:43,920 --> 00:07:45,840 Speaker 1: and I think there's good reasons for that. But you know, 159 00:07:46,000 --> 00:07:49,000 Speaker 1: we completely agree that the risks are very clearly skewed 160 00:07:49,040 --> 00:07:52,040 Speaker 1: to the upside, given substantial fiscal stimulus that we've seen, 161 00:07:52,120 --> 00:07:55,680 Speaker 1: given this regime shift from the FED, it's really unprecedented. 162 00:07:55,760 --> 00:07:58,360 Speaker 1: So I completely agree that the risks are to the upside. 163 00:07:58,840 --> 00:08:03,840 Speaker 1: Specifically to your point, you know, identifying NEHRW pre COVID 164 00:08:04,040 --> 00:08:07,160 Speaker 1: was almost impossible. As I mentioned, Vice Chair Clarida had 165 00:08:07,160 --> 00:08:08,800 Speaker 1: said that neighbor could be as low as three and 166 00:08:08,840 --> 00:08:10,960 Speaker 1: a half percent. In fact, we never really found it. 167 00:08:11,000 --> 00:08:17,040 Speaker 1: He you know, I I would agree with that assessment 168 00:08:17,200 --> 00:08:19,400 Speaker 1: at that point in time, which was we never really 169 00:08:19,400 --> 00:08:21,160 Speaker 1: found it. You know, we tried to do state level 170 00:08:21,200 --> 00:08:24,560 Speaker 1: analysis where could you see a non linear Phillips Pholps 171 00:08:24,560 --> 00:08:26,840 Speaker 1: curve kick in, and the evidence was you really need 172 00:08:26,840 --> 00:08:29,280 Speaker 1: to see the unemployment rate dropped to very low levels, 173 00:08:29,280 --> 00:08:32,280 Speaker 1: you know, low three percents, perhaps one percentage point or 174 00:08:32,280 --> 00:08:35,520 Speaker 1: more below what people thought neighbor was. So my takeaway 175 00:08:35,520 --> 00:08:38,760 Speaker 1: from the pre COVID economy was we did not find neighrew. 176 00:08:38,800 --> 00:08:41,160 Speaker 1: We we could not find, you know, where full employment was. 177 00:08:41,600 --> 00:08:43,360 Speaker 1: And I think the FED that was a big takeaway 178 00:08:43,360 --> 00:08:46,640 Speaker 1: from their policy review that they had, which was you 179 00:08:46,679 --> 00:08:49,560 Speaker 1: really could get broad based gains. The film scrup really 180 00:08:49,559 --> 00:08:52,520 Speaker 1: flattened h and neighbor was probably lower than they always anticipated. 181 00:08:52,559 --> 00:08:55,360 Speaker 1: So let's finish on this. You've just painted this picture 182 00:08:55,679 --> 00:08:58,199 Speaker 1: of a world that we won't see more clearly until 183 00:08:58,240 --> 00:09:00,160 Speaker 1: the end of the year, which is basically the all 184 00:09:00,760 --> 00:09:04,839 Speaker 1: my awesome, your full September October time. Why would the 185 00:09:04,880 --> 00:09:07,080 Speaker 1: Federal Reserve make an announcement on the reduction of asset 186 00:09:07,120 --> 00:09:11,959 Speaker 1: purchases until they've seen that data. Yeah. So I think 187 00:09:12,000 --> 00:09:15,280 Speaker 1: there's there's two things. One, the significant demand that they 188 00:09:15,320 --> 00:09:18,719 Speaker 1: see in the labor market, record, job openings, um, you know, 189 00:09:18,760 --> 00:09:21,679 Speaker 1: all the different survey indicators give them a lot of 190 00:09:21,720 --> 00:09:25,800 Speaker 1: confidence that if supply does become unleashed, the demand is 191 00:09:25,840 --> 00:09:28,240 Speaker 1: there to see substantial further progress in the labor market. 192 00:09:28,280 --> 00:09:30,640 Speaker 1: So I think that's an important data point. The second 193 00:09:30,880 --> 00:09:34,640 Speaker 1: is this risk management. And you know, we agree that 194 00:09:34,679 --> 00:09:37,520 Speaker 1: there is just substantial upside risk to inflation, even though 195 00:09:37,920 --> 00:09:41,960 Speaker 1: I believe in the baseline transitory story. And because there 196 00:09:42,040 --> 00:09:44,600 Speaker 1: is you know, a process here of your tape beginning 197 00:09:44,640 --> 00:09:47,120 Speaker 1: the tapering process, drawing down to the net zero asset purchases, 198 00:09:47,600 --> 00:09:51,280 Speaker 1: raising interest rates. Given the growth outlook, given the labor 199 00:09:51,320 --> 00:09:54,199 Speaker 1: market outlook, it probably does make sense to start that process. 200 00:09:54,400 --> 00:09:56,520 Speaker 1: And again they'll say that it's not tightening, it's just 201 00:09:56,600 --> 00:09:58,680 Speaker 1: pulling back on some of the accommodation that they have. 202 00:09:59,240 --> 00:10:01,680 Speaker 1: So I think by the of the year, given our outlook, 203 00:10:01,920 --> 00:10:03,880 Speaker 1: they should start that process. I think they will start 204 00:10:03,920 --> 00:10:08,120 Speaker 1: that process. Uh. And we have them announcing tapering in December. 205 00:10:09,000 --> 00:10:12,200 Speaker 1: In December, okay, MONTI with the December called Deutsche Bank 206 00:10:12,280 --> 00:10:21,840 Speaker 1: Chief US economists joining us now is Manama John Alliance 207 00:10:21,880 --> 00:10:25,480 Speaker 1: Global Investors, senior US investment strategist. Moment, let's just start here. 208 00:10:25,920 --> 00:10:28,760 Speaker 1: The cyclical trade seen some cracks through the month. The 209 00:10:28,760 --> 00:10:31,160 Speaker 1: bank struggled at one point, the airlines have been struggling 210 00:10:31,160 --> 00:10:33,080 Speaker 1: over the past dirty days too. Do you want to 211 00:10:33,080 --> 00:10:37,560 Speaker 1: stick with it? Yeah? You know generally obviously, we've had 212 00:10:37,600 --> 00:10:39,960 Speaker 1: a phenomenal run in the value trade, and we talked 213 00:10:39,960 --> 00:10:43,520 Speaker 1: about this since November. UM, we've been up. Energy has 214 00:10:43,520 --> 00:10:48,960 Speaker 1: been up, nearly, financials up fifty, industrials up over so 215 00:10:49,080 --> 00:10:50,680 Speaker 1: you know, it's been a it's been a good run. 216 00:10:50,720 --> 00:10:54,560 Speaker 1: And I think certainly people were anticipating investors were anticipating 217 00:10:54,600 --> 00:10:56,600 Speaker 1: some of the recovery that we are now seeing in 218 00:10:56,640 --> 00:11:00,160 Speaker 1: the economy. UM. But as we're standing here today, the 219 00:11:00,240 --> 00:11:03,880 Speaker 1: tenure again under one fifty. When you think about the 220 00:11:03,960 --> 00:11:07,720 Speaker 1: upside downside on the yield profile, UM, if you really 221 00:11:07,760 --> 00:11:10,520 Speaker 1: think you know yields have much more downside to go, 222 00:11:10,600 --> 00:11:13,240 Speaker 1: then perhaps you step back from the value trade. But 223 00:11:13,559 --> 00:11:16,439 Speaker 1: if you think that yields now may start to either 224 00:11:16,520 --> 00:11:22,400 Speaker 1: stabilize or grind higher, given both technical factors and fundamental factors, 225 00:11:22,640 --> 00:11:24,599 Speaker 1: then I think that there is one more leg in 226 00:11:24,640 --> 00:11:27,360 Speaker 1: the value trade to come. Keep in mind as we 227 00:11:27,480 --> 00:11:30,160 Speaker 1: move through this year, as you know, the FED starts 228 00:11:30,200 --> 00:11:34,160 Speaker 1: to taper eventually as the reopening occurs in earnest UH, 229 00:11:34,320 --> 00:11:36,320 Speaker 1: that will support the value trade. But as we head 230 00:11:36,320 --> 00:11:40,280 Speaker 1: into two, we are looking at comps that might get 231 00:11:40,280 --> 00:11:43,080 Speaker 1: a little bit harder for some of the value sectors 232 00:11:43,320 --> 00:11:45,960 Speaker 1: and compact get once again easier for some of these 233 00:11:46,000 --> 00:11:50,079 Speaker 1: growth tech names. Again, so we do think as your progresses, 234 00:11:50,480 --> 00:11:52,320 Speaker 1: the more and more interests or there will be more 235 00:11:52,320 --> 00:11:54,880 Speaker 1: and more interest in some of the tech trade. But 236 00:11:55,240 --> 00:11:58,560 Speaker 1: for now we stick with the value mon American investors 237 00:11:58,600 --> 00:12:01,199 Speaker 1: like to buy America. They want to go on American. 238 00:12:01,360 --> 00:12:04,600 Speaker 1: You say, go law in the un American European stocks. 239 00:12:04,600 --> 00:12:07,599 Speaker 1: These are unfamiliar names a s mL l V m H. 240 00:12:07,720 --> 00:12:11,840 Speaker 1: We know that's not unfamiliar. Unfortunately, s AP Lindian Totel, 241 00:12:11,920 --> 00:12:16,280 Speaker 1: the French oil company. Should we be buying European big caps? 242 00:12:17,520 --> 00:12:20,760 Speaker 1: You know, we think Europe obviously has leveraged or is 243 00:12:20,840 --> 00:12:22,720 Speaker 1: leveraged towards the value trade. You know, a lot of 244 00:12:22,760 --> 00:12:27,040 Speaker 1: their sectors and industries are long financials, long industrials, and 245 00:12:27,120 --> 00:12:30,200 Speaker 1: a lot of great European industrial companies and long energy, 246 00:12:30,440 --> 00:12:34,280 Speaker 1: so classic value sectors in Europe right now, combined with 247 00:12:34,440 --> 00:12:37,040 Speaker 1: a European economy that's also catching up in terms of 248 00:12:37,080 --> 00:12:40,480 Speaker 1: vaccine rollout in terms of economic recovery. That being said, 249 00:12:40,480 --> 00:12:42,440 Speaker 1: when you look at some of the index performance already 250 00:12:42,480 --> 00:12:45,320 Speaker 1: year to date, a lot of European industries are in line, 251 00:12:45,360 --> 00:12:47,880 Speaker 1: if not outperforming the SMP five hundreds, So some of 252 00:12:47,920 --> 00:12:50,840 Speaker 1: that catch up trade has been had. But that being said, 253 00:12:50,880 --> 00:12:54,679 Speaker 1: we do think that as this global recovery is unfolding, 254 00:12:55,080 --> 00:12:58,400 Speaker 1: investors need to think more global in their portfolios as well. 255 00:12:58,440 --> 00:13:00,720 Speaker 1: You know, earlier this year there as a period of 256 00:13:00,760 --> 00:13:03,800 Speaker 1: what we call us exceptionalism. The US really came out strong, 257 00:13:04,200 --> 00:13:06,840 Speaker 1: uh in the March time frame with their vaccine rollout. 258 00:13:07,160 --> 00:13:10,760 Speaker 1: Economic recovery started in earnest during that time period. But 259 00:13:10,880 --> 00:13:14,160 Speaker 1: now we are starting to see this unfold globally. Of course, 260 00:13:14,160 --> 00:13:16,800 Speaker 1: we're watching the variances as you guys noted noted earlier 261 00:13:16,840 --> 00:13:19,520 Speaker 1: as well. Um, but through the summer months, we do 262 00:13:19,600 --> 00:13:23,480 Speaker 1: expect some stability, and not only the European economies, but 263 00:13:23,559 --> 00:13:26,480 Speaker 1: some of those e M economies that really were lagging, 264 00:13:26,520 --> 00:13:29,160 Speaker 1: you know, think areas like India, like Brazil that are 265 00:13:29,200 --> 00:13:32,080 Speaker 1: now starting to show signs of stability. Their markets are 266 00:13:32,080 --> 00:13:34,960 Speaker 1: playing catch up as well. And if we resume a 267 00:13:35,000 --> 00:13:38,920 Speaker 1: softening dollar, friend, we do think that over time that 268 00:13:39,000 --> 00:13:42,600 Speaker 1: supports some of the real egards beyond just Europe, parts 269 00:13:42,600 --> 00:13:44,720 Speaker 1: of those em as well. There was a lot in there. 270 00:13:44,800 --> 00:13:46,800 Speaker 1: Let's unpack one point. You said that that you are 271 00:13:46,880 --> 00:13:49,800 Speaker 1: watching the delta variant and how that is spreading. How 272 00:13:49,840 --> 00:13:52,440 Speaker 1: does that play into your thesis? How much and how 273 00:13:52,480 --> 00:13:55,560 Speaker 1: closely are you watching that to determine when you perhaps 274 00:13:55,559 --> 00:13:58,680 Speaker 1: should shift gears. Yeah, you know, it does really seem 275 00:13:58,720 --> 00:14:01,480 Speaker 1: to be a race betweenvaccines and variants, and I think 276 00:14:01,480 --> 00:14:03,280 Speaker 1: here in the US we've done a really good job. 277 00:14:03,320 --> 00:14:06,160 Speaker 1: I mean, the vaccine roll out perhaps won't hit the 278 00:14:06,160 --> 00:14:10,000 Speaker 1: seventy percent target by July four that President Biden had outlined, 279 00:14:10,240 --> 00:14:13,559 Speaker 1: but we're getting pretty close, and so in many states 280 00:14:13,679 --> 00:14:16,880 Speaker 1: we are now at seventy or higher. We think that's 281 00:14:16,880 --> 00:14:19,480 Speaker 1: a pretty good situation. To be in UM to fight 282 00:14:19,960 --> 00:14:22,920 Speaker 1: or offset some of the growth and the variants. Aside 283 00:14:22,920 --> 00:14:25,120 Speaker 1: from the variance, the other thing that we're watching closely 284 00:14:25,240 --> 00:14:29,080 Speaker 1: is the seasonality of this uh you know this UM covid. 285 00:14:29,560 --> 00:14:33,720 Speaker 1: I guess, uh, you know the COVID itself. And so 286 00:14:33,880 --> 00:14:36,760 Speaker 1: you know, when you think about it as a September 287 00:14:36,920 --> 00:14:40,160 Speaker 1: October months roll around, UM, that really could be when 288 00:14:40,160 --> 00:14:42,840 Speaker 1: we see a surgeon cases once more. And so we 289 00:14:42,920 --> 00:14:45,560 Speaker 1: are you know, looking at the summer months in line 290 00:14:45,600 --> 00:14:47,640 Speaker 1: with last year's summer months where we're seeing a plateau 291 00:14:47,720 --> 00:14:50,120 Speaker 1: in cases. But keep in mind seasonality is a big 292 00:14:50,160 --> 00:14:53,240 Speaker 1: factor here, as are the variants. These are tail risks 293 00:14:53,280 --> 00:14:55,520 Speaker 1: in our case, in our view, not really a base 294 00:14:55,600 --> 00:15:00,000 Speaker 1: case scenario. Mona always gonna see it. Thank you, Globe 295 00:15:00,040 --> 00:15:08,720 Speaker 1: invest the senior US investment strategist. Right now, this is 296 00:15:08,800 --> 00:15:11,600 Speaker 1: really a joy. We don't do enough on the soft 297 00:15:11,720 --> 00:15:14,480 Speaker 1: We talked to Dennis Gartman about red weed, but we 298 00:15:14,600 --> 00:15:17,920 Speaker 1: really just don't do enough on the softs soft. She 299 00:15:18,120 --> 00:15:21,600 Speaker 1: is expert on the soft commodities. ConA Hey, because E. D. 300 00:15:21,760 --> 00:15:24,440 Speaker 1: N f Man, head of research with just a terrific 301 00:15:24,640 --> 00:15:29,040 Speaker 1: distinguished career in these trends, I want you to discuss 302 00:15:29,120 --> 00:15:33,640 Speaker 1: ConA first, the linkage of your world to Brazil. Why 303 00:15:33,760 --> 00:15:38,040 Speaker 1: is Brazil so important in getting on board a soft 304 00:15:38,120 --> 00:15:43,920 Speaker 1: commodity trend? Yeah, it's super important. Brazil is the biggest 305 00:15:43,960 --> 00:15:49,880 Speaker 1: exporter for coffee, for sugar, It's a huge exporter of cotton, um, 306 00:15:50,120 --> 00:15:53,160 Speaker 1: you name it. It's massive. So everything that goes on 307 00:15:53,240 --> 00:15:56,120 Speaker 1: in Brasil, whether it's the currency or whether it's the weather, 308 00:15:56,440 --> 00:16:00,800 Speaker 1: will have a direct impact on sugar, coffee in Cordon, Yeah, 309 00:16:00,800 --> 00:16:04,000 Speaker 1: it's and corn and soybeans. These are massive, massive. My 310 00:16:04,480 --> 00:16:06,520 Speaker 1: my take on your world is you've got to get 311 00:16:06,520 --> 00:16:08,760 Speaker 1: on a trend and stay on the trend as well. 312 00:16:08,800 --> 00:16:13,120 Speaker 1: What's the most identifiable trend right now in soft commodities? 313 00:16:13,160 --> 00:16:17,000 Speaker 1: It gives comfort to be either long or short. It's 314 00:16:17,080 --> 00:16:19,640 Speaker 1: very similar to what we're seeing in the general commodity space. 315 00:16:19,720 --> 00:16:22,760 Speaker 1: So obviously the inflation trade, the fact that we've had 316 00:16:22,760 --> 00:16:27,080 Speaker 1: a post commodity inflation, rising inflationary expectations has led to 317 00:16:27,120 --> 00:16:30,360 Speaker 1: a boom in commodities. Now. Whether we're a supercycle or not, 318 00:16:30,720 --> 00:16:33,960 Speaker 1: that's still debatable, but for sure we are seeing money 319 00:16:34,000 --> 00:16:38,160 Speaker 1: flowing into commodities, and the soft commodity sector has definitely 320 00:16:38,160 --> 00:16:41,440 Speaker 1: been a beneficiary to that. So we have seen speculative 321 00:16:41,600 --> 00:16:45,240 Speaker 1: and investor buying across coffee sugar, and it helps that 322 00:16:45,320 --> 00:16:48,640 Speaker 1: the forward curves are in backwardation, so you know, that's 323 00:16:48,640 --> 00:16:51,760 Speaker 1: basically suggesting that the markets are slightly tight, and that's 324 00:16:51,760 --> 00:16:54,200 Speaker 1: helped by the fact that Brazil has been very dry 325 00:16:54,280 --> 00:16:56,480 Speaker 1: in the first half of the year and that's really 326 00:16:56,760 --> 00:17:00,400 Speaker 1: caused some concerns for yields. With just fuels concerned, well, 327 00:17:00,400 --> 00:17:02,680 Speaker 1: there's a question about the elasticity of some of the 328 00:17:02,760 --> 00:17:05,080 Speaker 1: soft commodities, a question of how quickly you com plant, 329 00:17:05,280 --> 00:17:08,879 Speaker 1: how quickly you can compensate for the increase in demand 330 00:17:08,960 --> 00:17:13,080 Speaker 1: or the reduction in supply based on the droughts that 331 00:17:13,119 --> 00:17:15,159 Speaker 1: we're seeing not only in Brazil but also across the 332 00:17:15,240 --> 00:17:20,240 Speaker 1: United States. What asset classes, what commodities have the least elasticity, 333 00:17:20,320 --> 00:17:23,600 Speaker 1: are the least capable of being produced quickly to meet 334 00:17:23,640 --> 00:17:29,520 Speaker 1: the demand. So I suppose firsh things like soybean and corns. 335 00:17:29,600 --> 00:17:32,840 Speaker 1: At least you have other countries like the USA and 336 00:17:32,960 --> 00:17:36,200 Speaker 1: Argentina that can competit. So if Brazil has a disaster crop, 337 00:17:36,560 --> 00:17:38,959 Speaker 1: you can look to the USA. But right now we 338 00:17:39,040 --> 00:17:41,240 Speaker 1: have seen some issues, you know, it's very drying parts 339 00:17:41,240 --> 00:17:43,840 Speaker 1: of the US UM. The weather is turning a little 340 00:17:43,840 --> 00:17:46,399 Speaker 1: bit better, so corn and soybeans. The rally those in 341 00:17:46,440 --> 00:17:49,760 Speaker 1: those commodities have come off a little bit um, so 342 00:17:49,840 --> 00:17:51,760 Speaker 1: we wait to see. The nice thing about the way 343 00:17:51,920 --> 00:17:54,760 Speaker 1: these commodities work is that just when Brazil is exporting, 344 00:17:55,160 --> 00:17:57,840 Speaker 1: that's when um you know, and then when they finished 345 00:17:57,880 --> 00:17:59,920 Speaker 1: export season, that's when the U S starts expertting. So 346 00:18:00,040 --> 00:18:04,040 Speaker 1: you have a nice little supply UM chain across the 347 00:18:04,080 --> 00:18:07,359 Speaker 1: calendar year. With when it comes to coffee and sugar, 348 00:18:07,400 --> 00:18:10,080 Speaker 1: you're looking at more sort of the beginning the middle 349 00:18:10,119 --> 00:18:13,000 Speaker 1: of the year when you start seeing harvests. So then 350 00:18:13,119 --> 00:18:15,639 Speaker 1: and there really isn't a lot of substitute areas to 351 00:18:15,720 --> 00:18:19,800 Speaker 1: provide that kind of huge replacements, So we are more 352 00:18:19,840 --> 00:18:23,200 Speaker 1: concentrated in in the soft as such. But I mean, 353 00:18:23,320 --> 00:18:25,680 Speaker 1: if I wanted to talk about the demands at elasticity, 354 00:18:25,720 --> 00:18:28,520 Speaker 1: I mean we're talking different things now. So for coffee, 355 00:18:28,520 --> 00:18:33,399 Speaker 1: for example, the pandemic meant that lockdown cafes were closed 356 00:18:33,400 --> 00:18:36,520 Speaker 1: across um the world if you like, and people had 357 00:18:36,520 --> 00:18:39,040 Speaker 1: to drink coffee at home. And now there's a real 358 00:18:39,160 --> 00:18:42,320 Speaker 1: hope that as lockdowns are risk lifted, people can go 359 00:18:42,400 --> 00:18:44,880 Speaker 1: back to outdoor coffee consumption. That should provide a nice 360 00:18:44,920 --> 00:18:47,359 Speaker 1: little boost there, all right, Well, maybe some people drink 361 00:18:47,520 --> 00:18:50,160 Speaker 1: more coffee when they go out, other people like myself 362 00:18:50,480 --> 00:18:52,480 Speaker 1: during plenty when I'm at home as well. There is 363 00:18:52,520 --> 00:18:55,800 Speaker 1: a question just more broadly in the entire commodities complex. 364 00:18:55,840 --> 00:18:59,280 Speaker 1: We've been talking about peak reflation, whether we have reached 365 00:18:59,359 --> 00:19:01,800 Speaker 1: peak every thing, and whether that's being reflected and some 366 00:19:01,840 --> 00:19:04,600 Speaker 1: of the commodity prices easing off where they were earlier 367 00:19:04,640 --> 00:19:07,639 Speaker 1: in the year. Do you see that consistently around the 368 00:19:07,640 --> 00:19:12,879 Speaker 1: commodities that are most sensitive to global growth? Um, So, 369 00:19:13,160 --> 00:19:16,040 Speaker 1: the agricultural site, I suppose it is less sensitive to 370 00:19:16,520 --> 00:19:19,720 Speaker 1: economic birth per se. If anything, you'd say that emerging 371 00:19:19,760 --> 00:19:23,960 Speaker 1: markets more of the income is spent on staple food commodities, 372 00:19:24,000 --> 00:19:27,600 Speaker 1: So it's more about the you know, as the countries 373 00:19:27,600 --> 00:19:31,159 Speaker 1: they move out of the COVID, their demand for basic 374 00:19:31,200 --> 00:19:33,320 Speaker 1: romatils is going to be very, very strong, and that 375 00:19:33,480 --> 00:19:36,840 Speaker 1: is definitely happening. Um you know, we have we are 376 00:19:36,840 --> 00:19:40,240 Speaker 1: seeing food inflation, and if governments start taking wind of 377 00:19:40,240 --> 00:19:42,359 Speaker 1: that and they start worrying about food rights the likes 378 00:19:42,440 --> 00:19:44,760 Speaker 1: we saw in two thousand eight, they might want to 379 00:19:44,760 --> 00:19:48,159 Speaker 1: start important to start building the strategics reserves to ensure 380 00:19:48,200 --> 00:19:51,720 Speaker 1: that they don't have domestic food inflation. So I think, 381 00:19:51,800 --> 00:19:53,640 Speaker 1: you know, are we at the peak? I would say 382 00:19:53,680 --> 00:19:57,480 Speaker 1: we're in the middle with I mean, certainly for some commodities, UM, 383 00:19:57,800 --> 00:20:00,640 Speaker 1: harvests are coming up that should provide something life pressure. 384 00:20:01,040 --> 00:20:04,120 Speaker 1: But generally speaking, I think because interest rates are still 385 00:20:04,160 --> 00:20:06,640 Speaker 1: so low, and the rate hikes by the Fed promised 386 00:20:06,720 --> 00:20:09,560 Speaker 1: now are now still two years away, people need to 387 00:20:09,560 --> 00:20:12,080 Speaker 1: put their money in. And I think commodities right now 388 00:20:12,200 --> 00:20:15,080 Speaker 1: still feel like a good bet. Connor has switched to oil, 389 00:20:15,119 --> 00:20:18,080 Speaker 1: and of course you followed out at Macquarie for years. 390 00:20:18,280 --> 00:20:20,119 Speaker 1: I don't want you to single point oil out to 391 00:20:20,119 --> 00:20:22,840 Speaker 1: a hundred dollars, But do you see an identifiable trend 392 00:20:23,160 --> 00:20:25,719 Speaker 1: in Brent crude that launches out to eight And then 393 00:20:28,160 --> 00:20:31,240 Speaker 1: I think, Um, the fact that oil has done so 394 00:20:31,320 --> 00:20:34,119 Speaker 1: much better than even I thought, you know, just a 395 00:20:34,160 --> 00:20:37,400 Speaker 1: few months ago, suggest that the demand we really maybe 396 00:20:37,480 --> 00:20:41,119 Speaker 1: underestimate the demand. So as more and more countries come 397 00:20:41,160 --> 00:20:45,720 Speaker 1: out of lockdown, I think that demand can really spike higher. Um. 398 00:20:45,760 --> 00:20:49,159 Speaker 1: Maybe in the US we've slowed the demand. Birth from 399 00:20:49,200 --> 00:20:51,680 Speaker 1: here is going to be slightly slower. We probably need 400 00:20:51,720 --> 00:20:55,639 Speaker 1: aviation to take off for the next leg higher um. 401 00:20:55,680 --> 00:20:57,920 Speaker 1: But at the same time we do know that OPEC 402 00:20:58,040 --> 00:21:01,040 Speaker 1: is now, you know, bringing supply on the plan, and 403 00:21:01,080 --> 00:21:03,600 Speaker 1: I think, how if they if they go over bottom, 404 00:21:03,640 --> 00:21:06,239 Speaker 1: it is most risk of cheating. And then I think 405 00:21:06,280 --> 00:21:07,840 Speaker 1: he could stop seeing a little bit of a slow 406 00:21:07,880 --> 00:21:10,520 Speaker 1: down in the old price cuad Conor John from Milan 407 00:21:10,720 --> 00:21:13,280 Speaker 1: emails in and he says he's probably gonna lose money 408 00:21:13,320 --> 00:21:16,360 Speaker 1: on Germany England today. What's your single best idea here 409 00:21:16,640 --> 00:21:18,720 Speaker 1: for people that lose a pot this afternoon on that 410 00:21:18,840 --> 00:21:21,439 Speaker 1: big soccer game. I mean, if you look the way 411 00:21:21,560 --> 00:21:25,359 Speaker 1: France's art porshugoes out, I mean, if that's the same trend, 412 00:21:25,400 --> 00:21:27,840 Speaker 1: then maybe Jermy's gonna go. I don't know, but England 413 00:21:27,840 --> 00:21:30,720 Speaker 1: has a good chance kind of. I love that. That's 414 00:21:30,760 --> 00:21:33,120 Speaker 1: the best dance we've had all day. That's great. I'll 415 00:21:33,160 --> 00:21:36,520 Speaker 1: expect it kind of thanne I think, because what I 416 00:21:36,560 --> 00:21:38,560 Speaker 1: heard that head of race, she'd be bound the bottom 417 00:21:38,600 --> 00:21:40,520 Speaker 1: in France this morning, wouldn't you tell them? I guess so. 418 00:21:40,720 --> 00:21:50,160 Speaker 1: And it's just terrible. This is what surveillance is about. 419 00:21:50,200 --> 00:21:52,800 Speaker 1: We talked to one analyst and go right to another 420 00:21:52,840 --> 00:21:57,320 Speaker 1: analyst where we can link them together. Ira Jersey on yielding, 421 00:21:57,320 --> 00:21:59,919 Speaker 1: now David George on the outcome for the equity market, 422 00:22:00,200 --> 00:22:04,080 Speaker 1: and of course the banks as expertise at Robert war 423 00:22:04,400 --> 00:22:07,919 Speaker 1: David George. If we get in Ira Jersey tenure yield 424 00:22:08,280 --> 00:22:11,920 Speaker 1: two point two two points, what does that do to 425 00:22:12,040 --> 00:22:16,359 Speaker 1: bank equities? Um, If we get that, Tom, good morning, 426 00:22:16,600 --> 00:22:19,320 Speaker 1: I think that it's fair to expect a you know, 427 00:22:19,359 --> 00:22:21,240 Speaker 1: if you're gonna pin me down to a number ten 428 00:22:22,440 --> 00:22:25,440 Speaker 1: upside for banks Fox if that's the outcome out of it. 429 00:22:25,560 --> 00:22:29,119 Speaker 1: In addition to the rate the rate environment itself, that 430 00:22:29,160 --> 00:22:33,880 Speaker 1: obviously reflects a much a much stronger macro backdrop as well, 431 00:22:33,920 --> 00:22:37,199 Speaker 1: so I that undoubtedly would be positive. How do you 432 00:22:37,320 --> 00:22:41,160 Speaker 1: calibrate the umph of this one off in share by 433 00:22:41,200 --> 00:22:46,480 Speaker 1: back and particularly dividend increase with the sustained dividend growth? 434 00:22:46,920 --> 00:22:49,320 Speaker 1: What kind of model do you have for these big 435 00:22:49,359 --> 00:22:53,560 Speaker 1: banks is they try to figure out the sustained dividend 436 00:22:53,640 --> 00:22:57,720 Speaker 1: that they will give shareholders well over over time. We're 437 00:22:57,800 --> 00:23:00,480 Speaker 1: we're of the view that most of the big banks, 438 00:23:00,520 --> 00:23:03,399 Speaker 1: and I say this as a positive, are going to 439 00:23:03,520 --> 00:23:08,280 Speaker 1: be very utility like with respect to how they distribute capital. 440 00:23:08,320 --> 00:23:11,520 Speaker 1: I would expect over the longer term, the three five 441 00:23:11,680 --> 00:23:14,800 Speaker 1: seven year time arizon, you're going to see close to 442 00:23:16,080 --> 00:23:19,000 Speaker 1: capita return to shareholders, both in the form of of 443 00:23:19,080 --> 00:23:23,520 Speaker 1: buy back in dividend. And obviously the buy back discussion 444 00:23:23,520 --> 00:23:28,159 Speaker 1: can be variable depending upon uh movements in the economy, 445 00:23:28,320 --> 00:23:30,760 Speaker 1: stock price movements, etcetera. But but I think that the 446 00:23:31,480 --> 00:23:34,600 Speaker 1: punchline is that there's going to be very significant kapita 447 00:23:34,680 --> 00:23:37,000 Speaker 1: return out of the financial services industry over the next 448 00:23:37,000 --> 00:23:39,639 Speaker 1: several years. David Mike Mayo of Wells Fargo came on 449 00:23:39,680 --> 00:23:41,600 Speaker 1: the program last week and said that right now, with 450 00:23:41,760 --> 00:23:45,560 Speaker 1: all in payouts, the yield on these financial stocks are 451 00:23:45,560 --> 00:23:48,200 Speaker 1: probably equate to something like eight or potentially even nine 452 00:23:48,280 --> 00:23:53,040 Speaker 1: percent one how much can people buy these shares for 453 00:23:53,280 --> 00:23:57,480 Speaker 1: simply the payouts versus the dynamism from a steeper yield curve, 454 00:23:57,560 --> 00:24:00,919 Speaker 1: from greater consumer lending activity, things that perhaps we're not 455 00:24:01,000 --> 00:24:05,080 Speaker 1: really seeing as much. Um. I think part of the 456 00:24:05,119 --> 00:24:08,560 Speaker 1: investment cases is clearly capital return. But but I think 457 00:24:08,600 --> 00:24:12,560 Speaker 1: buying banks on that alone is probably a somewhat of 458 00:24:12,600 --> 00:24:16,080 Speaker 1: a frail thesis. I think in order to be very 459 00:24:16,200 --> 00:24:18,879 Speaker 1: bullish from these prices and again to to kind of 460 00:24:18,920 --> 00:24:22,760 Speaker 1: give you some perspective banks or out of over over 461 00:24:22,800 --> 00:24:25,600 Speaker 1: the last twelve months, they're up over t on a 462 00:24:25,680 --> 00:24:30,199 Speaker 1: year to day basis, So clearly they're significant expectations priced 463 00:24:30,240 --> 00:24:32,639 Speaker 1: into them today. So so I think that the challenges 464 00:24:32,760 --> 00:24:36,960 Speaker 1: from here. UM. Capital returned from my perspective is very positive, 465 00:24:37,000 --> 00:24:41,120 Speaker 1: but it's not enough to make a very bullish call 466 00:24:41,560 --> 00:24:45,200 Speaker 1: for financials from these levels. I think for for for 467 00:24:45,320 --> 00:24:48,000 Speaker 1: the group to do well, you need higher rates, you 468 00:24:48,040 --> 00:24:50,400 Speaker 1: need more loan growth, you need to continue to strengthen 469 00:24:50,400 --> 00:24:53,160 Speaker 1: the capital markets. And and again, as you said, UM, 470 00:24:53,240 --> 00:24:55,640 Speaker 1: that that kind of remains to be seen at this point. Okay, 471 00:24:55,680 --> 00:24:58,720 Speaker 1: let's put the rates picture aside, since that's a less 472 00:24:58,720 --> 00:25:01,720 Speaker 1: determined frankly is anyone's guests. There is a question about 473 00:25:01,760 --> 00:25:04,560 Speaker 1: loan growth. And Alison Williams of Bluebrig Intelligence and I 474 00:25:04,600 --> 00:25:07,679 Speaker 1: were talking yesterday and she said, really, the untold story 475 00:25:07,720 --> 00:25:10,639 Speaker 1: over the past month was from these big executives saying 476 00:25:10,640 --> 00:25:14,440 Speaker 1: that actually consumer loan growth is sluggish, that JP Morgan 477 00:25:14,520 --> 00:25:17,320 Speaker 1: City Group is actually seeing disappointments in that area, particularly 478 00:25:17,320 --> 00:25:19,840 Speaker 1: with respect to credit cards. How much have you noticed that? 479 00:25:19,880 --> 00:25:24,280 Speaker 1: How concerning is that too? Um, it's not, it's not concerning, 480 00:25:24,280 --> 00:25:27,880 Speaker 1: but it's absolutely a factor. Allison is right on um 481 00:25:27,920 --> 00:25:32,520 Speaker 1: as usual and this last basically, in simplest terms, the 482 00:25:32,640 --> 00:25:36,720 Speaker 1: government stimulus has crowded out loan growth. That's basically from 483 00:25:36,720 --> 00:25:39,439 Speaker 1: my perspective, really what's happening here that the amount of 484 00:25:39,440 --> 00:25:43,920 Speaker 1: stimulus has been so significant that it is really um 485 00:25:44,080 --> 00:25:49,560 Speaker 1: eliminated the need for many entities and consumers frankly, to 486 00:25:49,560 --> 00:25:52,200 Speaker 1: to really binge on borrowing. Now. I think that will 487 00:25:52,320 --> 00:25:54,919 Speaker 1: change over the next couple of years, but over the 488 00:25:54,920 --> 00:25:58,600 Speaker 1: short term it shouldn't be a significant surprise because it's 489 00:25:58,640 --> 00:26:01,600 Speaker 1: it's very much in bank deposits. If you look at 490 00:26:01,680 --> 00:26:04,760 Speaker 1: deposit growth for the banks, it's it's been well, well 491 00:26:04,800 --> 00:26:07,399 Speaker 1: in excess of loan growth for the last several months. 492 00:26:07,400 --> 00:26:10,360 Speaker 1: So in order for us to see loan growth improve, 493 00:26:10,920 --> 00:26:13,840 Speaker 1: we would probably need to see deposits start to come down, 494 00:26:13,840 --> 00:26:16,720 Speaker 1: and that frankly, hasn't happened yet. Will it happen with 495 00:26:16,800 --> 00:26:20,760 Speaker 1: these announcement of capital deployment. If they're gonna buy back shares, 496 00:26:20,800 --> 00:26:24,000 Speaker 1: they're gonna use cash to do that, they by definition 497 00:26:24,080 --> 00:26:27,640 Speaker 1: become smaller entities. You leverage out what they've got left 498 00:26:27,680 --> 00:26:30,560 Speaker 1: there onto their balance sheet, and with that, do they 499 00:26:30,600 --> 00:26:35,320 Speaker 1: preclude growth? Do they limit their growth? Um? No, No, 500 00:26:35,440 --> 00:26:39,520 Speaker 1: they don't. If if loan growth does not manifest itself 501 00:26:39,520 --> 00:26:42,920 Speaker 1: in a meaningful way. Ironically, most of these companies will 502 00:26:43,000 --> 00:26:47,000 Speaker 1: generate capital faster um because they're not growing their balance 503 00:26:47,000 --> 00:26:49,359 Speaker 1: sheets because of that lack of loan demand. So I 504 00:26:49,720 --> 00:26:53,080 Speaker 1: don't think that any um pick up in sheer bodyback 505 00:26:53,119 --> 00:26:57,880 Speaker 1: activity Tom has any implications for loan growth. David Love 506 00:26:57,920 --> 00:26:59,879 Speaker 1: catching up. It's gonna hear from you, David joyge that 507 00:27:00,240 --> 00:27:03,840 Speaker 1: Robert W. Bad sena research analyst. This is the Bloomberg 508 00:27:03,840 --> 00:27:08,200 Speaker 1: Surveillance Podcast. Thanks for listening. Join us live weekdays from 509 00:27:08,240 --> 00:27:11,600 Speaker 1: seven to ten am Eastern on Bloomberg Radio and on 510 00:27:11,680 --> 00:27:15,960 Speaker 1: Bloomberg Television each day from six to nine am for 511 00:27:16,240 --> 00:27:21,160 Speaker 1: insight from the best in economics, finance, investment, and international relations. 512 00:27:21,640 --> 00:27:26,320 Speaker 1: And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, 513 00:27:26,440 --> 00:27:30,040 Speaker 1: Bloomberg dot com, and of course on the terminal. I'm 514 00:27:30,080 --> 00:27:32,760 Speaker 1: Tom Keene and this is Bloomberg