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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along

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Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com,

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Speaker 1: and of course on the Bloomberg terminal. Right now, there

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Speaker 1: can be always a moment that comes along when you

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Speaker 1: say it's the essay of the summer. Boy, it's awful

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Speaker 1: early to say it's essay this summer. But David focus

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Speaker 1: land Out his team is Deutsche Bank, with the leadership

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Speaker 1: of Peter Hooper, the whole whole head of economic research,

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Speaker 1: have generated eighteen thought provoking must read pages for Global

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Speaker 1: Wall Street. We're honored that Dr Hooper could join us

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Speaker 1: this morning. Peter, you say it is the end of neoliberalism,

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Speaker 1: we have a risk of going back to ray can

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Speaker 1: voke or how close are we to going back to

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Speaker 1: a time of shockingly high inflation. Um, We've obviously seen

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Speaker 1: a huge shift in both monetary and fiscal policy that's

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Speaker 1: given us a lot more stimulus to the economy than

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Speaker 1: ever anyone would have imagined. A couple of years ago. Uh,

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Speaker 1: the chances are getting back to the high inflation sixties

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Speaker 1: and seventies have have taken a leap forward. Is still

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Speaker 1: not the most likely outcome, but certainly the risk of

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Speaker 1: risen have risen tremendously thanks to uh GDP in in

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Speaker 1: fiscal stimulus in the last year and a half. Who

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Speaker 1: would have imagined seeing something like that Peter's This increasingly

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Speaker 1: becomes a game of faith because people are dismissing current

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Speaker 1: data as simply transitory. How do you convince clients who say, look,

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Speaker 1: it has been this way for twenty thirty years, where

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Speaker 1: we've seen inflation come down progressively in a steady fashion.

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Speaker 1: If you look over time, what do you say to

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Speaker 1: them to convince them at this time is different? Uh?

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Speaker 1: And at least so you're right, the market is remarkably

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Speaker 1: calm about in the face of the storm coming. Um.

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Speaker 1: I think you have to live through a surgeon inflation

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Speaker 1: that's going to be reversed for a while, and then

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Speaker 1: you have to look ahead to the possibility of an

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Speaker 1: economy that's can be operating at well above potential. I mean, yes,

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Speaker 1: we've been expecting. Uh. We had a big surprise in

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Speaker 1: in April. UH people have had revised their expectations and

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Speaker 1: now the numbers were likely to get for may not

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Speaker 1: looking anywhere are scary, and there are reasons to expect

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Speaker 1: things to to slow down the near term. But if

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Speaker 1: if we get this increase in household saving uh in

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Speaker 1: excess of ten percent of GDP that's been salted away

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Speaker 1: here not spend so far, if that begins to come

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Speaker 1: on stream as households are normalizing, they're spending as pent

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Speaker 1: up demand of being released. Uh, we're gonna see this

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Speaker 1: economy pushing well into overheated state. And the problem is

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Speaker 1: that the FED has told us they're going to be

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Speaker 1: uh late in removing the punch bowl if you will, um,

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Speaker 1: I mean the They want to see the economy overheat

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Speaker 1: before they start raising rates. There's gonna be a recognition lag,

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Speaker 1: and there's gonna be a long response lag of the

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Speaker 1: economy to Fed tending. So the chances of things getting

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Speaker 1: out of hand down the road certainly have increased. Hold

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Speaker 1: on a second, Peter, are you saying out of hand?

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Speaker 1: And this is a distinction from other people who say that, yes,

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Speaker 1: we may see above trend inflation, but we're not going

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Speaker 1: to go back to the nine seventies. Are you saying

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Speaker 1: that we could go back to nine seventies style inflation.

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Speaker 1: There's certainly a risk there. Um. You know, our our

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Speaker 1: our numbers say that there is a chance, in fact,

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Speaker 1: an uncompanably high chance. That you see the output gap

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Speaker 1: for the US, the amount by which GDP exceeds potential

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Speaker 1: moving up above to the highway scene for the last

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Speaker 1: three or four decades has been around two percent, and

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Speaker 1: inflation hasn't gotten out of control. UH. In the sixties

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Speaker 1: it got went up to five and a half six percent.

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Speaker 1: We could be there if as much as a third

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Speaker 1: of this UH savings that's been accumulated unusually large saving

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Speaker 1: has been accumulated over the last year and a half,

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Speaker 1: it's been out over the next year or two. UH here,

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Speaker 1: that would be a massive push to GDP. Peter the

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Speaker 1: Bank of England chief economist Andy hal Dane, writing in

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Speaker 1: The Statesman yesterday, saying this is the most dangerous moment

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Speaker 1: for monetary policy since inflation targeting began in two He's saying,

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Speaker 1: you know, you can't look anywhere and find something as

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Speaker 1: price isn't rising. Is this overheating? UH? Is this overheating?

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Speaker 1: Intention shared in the UK and the e c B

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Speaker 1: as much as it is in the US. Well, I

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Speaker 1: think so so Europe's in a different situation. Uh. Certainly

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Speaker 1: that the labor market going in was not as tight

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Speaker 1: as in the US. Uh. And Uh, we have not

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Speaker 1: seen the kind of shift in fiscal and monetary policy

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Speaker 1: regime that the US has had. The ECB has not

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Speaker 1: said they're gonna be reactive as opposed to preemptive if

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Speaker 1: inflation we saw inflation picture in Europe the way we

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Speaker 1: are anticipating in the US, I think the e c

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Speaker 1: B would respond quite differently. Uh. And Uh. Well, we

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Speaker 1: have had the m G e P, the UH, the

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Speaker 1: the recovery recovery program, et cetera. Spending in in in

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Speaker 1: Europe coming up that's not anywhere near as large as

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Speaker 1: what the US is has untapped. So yes, I think

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Speaker 1: there is concerned about near term supply disruptions and and

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Speaker 1: we are seeing some impressive increases in inflation in Germany. Um,

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Speaker 1: But the sense that the risk is anywhere near as

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Speaker 1: large in Europe, it's just not there. Dr Ooper underpinning this,

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Speaker 1: and I say this with great respect to Steve Roach,

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Speaker 1: you know him from Morgan Stanley and now Yale University

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Speaker 1: years ago. Is the underpinning of your work at the

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Speaker 1: I m F and also the work of Duly folkus

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Speaker 1: landau Garber, which has always watched the flows, watch the money.

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Speaker 1: Many of you folks will know Martin Wolfen is wonderful

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Speaker 1: work at the FT on this as well. If we

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Speaker 1: get the time bomb in your eighteen page report, what

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Speaker 1: does it do to the flows of capital in the world? Well, now,

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Speaker 1: the time bomb is another way of describing the FED

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Speaker 1: being late to late to the party, Okay, late in

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Speaker 1: terms of taking the punch fell away because we've got

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Speaker 1: in behind the curve. We're gonna need to act aggressively.

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Speaker 1: That means rates go up sharply. That's very disruptive to

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Speaker 1: financial markets. It's very disruptive to many emerging market countries

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Speaker 1: with huge amounts of debt that are gonna be very

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Speaker 1: sensitive to a sharp rice in US rates. That I

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Speaker 1: mean that that that that's the concern down road. It's

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Speaker 1: a risk. It's not not in my way of thinking

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Speaker 1: the most likely scenario yet, but it's certainly something we

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Speaker 1: need to have our have our attended UH tuned into

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Speaker 1: your X access in this report to be clear, folks,

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Speaker 1: is not getting out to Q three or Q four

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Speaker 1: and the rest of the game of market economics and

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Speaker 1: the financial media. The Deutsche Bank view begins to frame

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Speaker 1: out two thousand twenty four. What is the efforts we

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Speaker 1: can do before two thousand twenty four to ameliorate the

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Speaker 1: time bound? Well, I think the I mean the FED

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Speaker 1: has have gotten into this um inflation averaging framework R.

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Speaker 1: This was this was exactly what they needed to do

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Speaker 1: to deal with the world where they were struggling to

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Speaker 1: get inflation up to two percent and get inflation expectations

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Speaker 1: UH to a more desirable sustainable level. Inflation expectations are back.

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Speaker 1: I think the FED is going to need to recognize

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Speaker 1: begin to recognize this risk certainly over the next year UH,

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Speaker 1: and begin to begin to edge toward a sooner tightening

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Speaker 1: than it is currently. Well, Peter, let's started at Jackson Hall.

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Speaker 1: I don't know if you're gonna be there with David,

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Speaker 1: but we'd be thrilled to speak to you. Our Michael

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Speaker 1: McKee I know, will be reporting there. Let's go to

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Speaker 1: the time bomb of Jackson Hall. Is the time bomb

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Speaker 1: of Jackson Hole for the markets for our radio and

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Speaker 1: TV listeners and viewers. Is it a change back to

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Speaker 1: the theories and regimes pre pandemic? Can the FED do

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Speaker 1: that leading the rest of the central banks? I think

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Speaker 1: I think the central focus of Jackson Hole will probably

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Speaker 1: be is the FED going to give us a clear

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Speaker 1: signal that they're beginning to unwind the talk about unwinding

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Speaker 1: their balance sheet? Uh, We're still We're still at ways

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Speaker 1: away from the FED recognizing seriously, Uh, this this risk

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Speaker 1: and I mean they have ways to go to get

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Speaker 1: to that point. And Peter, this is a lot of

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Speaker 1: people are looking for the talking about tapering or talking

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Speaker 1: about talking about tapering as being the key moment for

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Speaker 1: Jackson All. There's also a question, though, going toe as

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Speaker 1: you did, does the FED have the tools to control

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Speaker 1: the control inflation in the way that they have in

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Speaker 1: the past. And then I think is sort of underpinning

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Speaker 1: your call. Are you saying that the FED does not

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Speaker 1: have those same tools given how much money has been

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Speaker 1: pumped into the system. The it certainly has the tools

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Speaker 1: to deal with inflation. It doesn't have the tools to

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Speaker 1: deal with a with a in a soft landing sense,

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Speaker 1: if you will, It's very difficult if you're going to

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Speaker 1: be behind the curve to deal with an inflation problems,

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Speaker 1: building some momentum that's getting into expectations and moving beyond

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Speaker 1: the GIRED levels without being very disruptive. The FETE has

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Speaker 1: never been able to deal with a rising inflation problem

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Speaker 1: bring it back without causing a recession. And if they're

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Speaker 1: behind the curve when they start this process, it could

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Speaker 1: be a major regnition. Dr Hoopers, thank you so much

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Speaker 1: for this first conversation and it's important research for thrilled

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Speaker 1: that Peter Hooper of Deutsche Bank could join us today.

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Speaker 1: Right now, Katrina Dudley joins us with Franklin and this

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Speaker 1: is really special. She's got a real ample career on

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Speaker 1: the cell side and securities research UH and a portfolio manager,

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Speaker 1: particularly in your with Franklin Mutual. Katrina, good morning to you.

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Speaker 1: How much of a value is Europe right now? Look,

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Speaker 1: Europe has always been a quintessential value market. You just

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Speaker 1: look at the construct of the market. It's heavy and financials,

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Speaker 1: it's heavy in energy and their two sectors that are

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Speaker 1: trading and very very cheap multiples um. But the good

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Speaker 1: news about Europe is actually the construct of the market

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Speaker 1: is changing. We've now got a rising luxury sector, which

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Speaker 1: is the equivalent of the technology sector over here in

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Speaker 1: the United States, and that sector is actually growing. I

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Speaker 1: gotta stop, but come on, are you telling me Louis

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Speaker 1: Howton is equivalent to Apple or Amazon? Um? I think

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Speaker 1: Louis Baton is actually even better than an Amazon because

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Speaker 1: it's it's it's brand something here. I'd agree with you exactly,

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Speaker 1: but you can't. You can't replace some of their products.

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Speaker 1: You can't get some of their handbags at the moment,

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Speaker 1: and if you've tried to ordering some of their jewelry,

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Speaker 1: it's out of least Keen Mrs Keane would agree. And

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Speaker 1: literally this is if you manage a bit, I'm going

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Speaker 1: to walk off the set. He will have, you know,

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Speaker 1: nightmares from dinner conversations of your Meanwhile, we're as talking

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Speaker 1: about the e c V policy and tandem with e

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Speaker 1: c V stocks, and really the underlying question here is

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Speaker 1: is there an exit strategy that could be done with grace?

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Speaker 1: In other words, can you buy European stocks for a

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Speaker 1: longer period of time with faith that the ECB can

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Speaker 1: extract themselves easily and gracefully. Well, I think it's interesting

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Speaker 1: because you were talking about grace Kelly before and high

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Speaker 1: heels backwards about half the price. UM. If I take

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Speaker 1: a look at the exit out of this, the ECB

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Speaker 1: is watching the FED. Um. The European markets are actually

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Speaker 1: behind the US in terms of our recovery out of

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Speaker 1: or actually recovery from the COVID virus, because the vaccine

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Speaker 1: rollout was slower, um. And so I think they're really

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Speaker 1: looking at the markets. They're looking at the FED action,

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Speaker 1: and I think that the e c B will be

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Speaker 1: slower to act this time. UM. Just to have a

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Speaker 1: look what happened back in May where you saw kind

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Speaker 1: of Italian deels blow out and it was kind of

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Speaker 1: this mini tape the tantrum, And I think they're really

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Speaker 1: watching to see what happens because it's not just about

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Speaker 1: what the bit the e c B is saying, it's

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Speaker 1: the implications of that on various markets, for example, in

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Speaker 1: this case in Italy. All right, well let's talk a

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Speaker 1: little bit a little bit about Italy, and I guess

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Speaker 1: the reaction that at least a lot of us on

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Speaker 1: this side of the Atlantic look to when we try

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Speaker 1: to sort of divine what the ECB is going to

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Speaker 1: do and how it's going to be received. How are

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Speaker 1: investors in Italy right now, the investors in Italian debt

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Speaker 1: right now? Uh, preparing for whatever it is the ECB

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Speaker 1: may or may not do. If I take a look,

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Speaker 1: what we're looking at in Italy is support for the

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Speaker 1: new government. I think actually, where you know, I've talked

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Speaker 1: about Italian politics as as I say, as messy as

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Speaker 1: a bowl of spaghetti. But I think it's actually, at

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Speaker 1: this time it's probably the best outlook for Italy we've

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Speaker 1: had in a long time. And I think the EB

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Speaker 1: is aware of that. They need to be accommodated. I mean, continued,

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Speaker 1: anytime for one more question. We gotta get you back here.

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Speaker 1: This has been fascinating. What kind of a victory lap

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Speaker 1: is Mario Dragging going to take at G seven? I mean,

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Speaker 1: he's on top of the world right now, right, I

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Speaker 1: don't think he's going to take a victory lad. I

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Speaker 1: think he's a humble person and I think that he

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Speaker 1: is quietly doing what's white Wait wait, wait, wait wait,

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Speaker 1: I'm sorry, Contrada, Mario Dragging is a humble person. Really.

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Speaker 1: I think what he's doing and the role he's taking

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Speaker 1: in Italy is doing something that you want all with

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Speaker 1: politicians to do which is acting in the best interests

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Speaker 1: of the country, and I think that's what he is doing.

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Speaker 1: I don't mean to interrupt it. We gotta go. But

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Speaker 1: in your research on luxury to find value for Franklin

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Speaker 1: Mutual series, don't you find the Gucci store below the

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Speaker 1: seven the Steps, the Spanish Steps. The Spanish Stairs in

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Speaker 1: Rome is the most dangerous store in Europe. I haven't

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Speaker 1: been there because of the travel band, but I am

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Speaker 1: very excited about the fact that Boris Johnson is now

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Speaker 1: meeting with Joe Biden and we may be able to

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Speaker 1: travel back to London and hopefully back to Spain so

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Speaker 1: that we could go there in person. There well, I

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Speaker 1: expect we do a road trip and we demand a

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Speaker 1: surveillance remote with you from the Spanish Stairs in Rome. Here,

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Speaker 1: Katrina Dudley, thank you so much on Franklin right now

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Speaker 1: widely anticipated. Jeffrey You joins us B and YML and

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Speaker 1: their senior strategist, Jeffrey You the zeitgeist right now. The

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Speaker 1: certitude is it's been one big short squeeze. Everyone was

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Speaker 1: betting on lower bond prices in higher yields and the

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Speaker 1: trade is swung with acceleration the other way, do you

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Speaker 1: buy it? That is just a short squeeze, um mad

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Speaker 1: And perhaps I'm heading into the summer months and people

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Speaker 1: just don't want to take too much risk on in

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Speaker 1: either direction now. But given the experience over the past

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Speaker 1: few years, you know, by definition, you know, risk on

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Speaker 1: means um actually having equities not as risk off. Well,

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Speaker 1: do you need to take that? That's okay, Jeff, Jeff,

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Speaker 1: you know what that is. That's Jeffrey, you gome stuck today. Yeah,

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Speaker 1: that's going on, jefflicit. We're looking at a bond market

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Speaker 1: and a lot of people are saying that it's an

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Speaker 1: endorsement of the Fed's view that inflationary impulses are going

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Speaker 1: to be short lived and we're going to end up

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Speaker 1: in the same slow inflation kind of environment that we've

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Speaker 1: been in for the past several decades. Do you agree?

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Speaker 1: Is that the message from Bonnes Well again, the message

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Speaker 1: from bonds is and they want to know, you know

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Speaker 1: which type of inflation is that theft actually targeting. Let's

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Speaker 1: put it this way. We've actually had two straight months

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Speaker 1: of soft jobs, soft wage growth now in Germany in Euros,

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Speaker 1: BOE saying a wage growth wage settlement is not that strong.

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Speaker 1: The most hawkish region in the world right now, Central Europe,

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Speaker 1: Poland warning jobs are wage growth is not accelerating at

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Speaker 1: the same pace as before the pandemic, So is inflation

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Speaker 1: really hush? But then again, should we be targeting this

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Speaker 1: or is the market taking about that the short term

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Speaker 1: supply constraints, they're going to be permanent and this is

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Speaker 1: going to challenge the bond market and challenge the Fed

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Speaker 1: as well. Jeff, how many queues should we be taking

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Speaker 1: right now from the commodities market? I mean, we still

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Speaker 1: see our oil brent crews still camped out around our

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Speaker 1: seventy two bucks. You have a lot of the base

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Speaker 1: medals are either are at or sort of near their

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Speaker 1: record highs that they set back in April. And may

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Speaker 1: hear how much concern should be baked into reading those

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Speaker 1: prices right now? I think the market is very concerned.

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Speaker 1: But if you look at what the policymakers are doing,

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Speaker 1: especially in China, what was the biggest marginal price for

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Speaker 1: commodity prices globally China? And China is saying commodity prices

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Speaker 1: are too high, that they are blaming too much liquidity.

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Speaker 1: They are blaming speculation as well, some of the domestically driven.

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Speaker 1: Granted we saw the monetary aggregates overnight. But on the

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Speaker 1: other hand, they are blaming global central banks as well.

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Speaker 1: So they're saying, look fed or reserve ECB, you're printing

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Speaker 1: too much money and we have to deal with the

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Speaker 1: consequences here. So China can use price controls as much

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Speaker 1: as they can, but the rest of the world less.

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Speaker 1: So hence we should be concerned at the combination of

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Speaker 1: tightening by China and globally to contain these prices. I

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Speaker 1: I look at where we are, Jeffrey you, and I'm

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Speaker 1: going to suggest that our radio and TV listeners their

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Speaker 1: heads are spinning over all the different opinions, all the theory,

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Speaker 1: the Ekano babble that's out there as well, And to me,

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Speaker 1: it comes down to the time continuum, the X axis.

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Speaker 1: Deutsche Bank looking out past two thousand twenty three with

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Speaker 1: their time bomb of inflation, and others looking wicked short term.

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Speaker 1: That's a Boston phrase. If you're with b and Y

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Speaker 1: Mel and Jeff you, you've got to have a full

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Speaker 1: understanding of the phrase wicked. What's the X axis look like?

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Speaker 1: For Jeff you? What does your continuum look like from

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Speaker 1: now out, one year out, two years, at three years.

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Speaker 1: I'm looking at the next six months. Actually, I'm looking

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Speaker 1: at what the ECB will signal in September, not today,

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Speaker 1: but September. Talking about tapering. If you're looking at Eastern Europe,

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Speaker 1: you know they are signaling advancement already a full rate

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Speaker 1: cycle being priced in over the next eighteen months or so.

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Speaker 1: You're seeing some of that within Scandinavia, Australia, New Zealand,

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Speaker 1: like all the list goes on and on. So I

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Speaker 1: don't think we should be blase and just go b

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Speaker 1: O J like oh, five year inflation expectations are are wherever.

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Speaker 1: It's much more about the short term and within the

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Speaker 1: next three months we need to see whether these supply

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Speaker 1: issues are indeed short term. But if they are going

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Speaker 1: to be persistent, then central banks probably will have to

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Speaker 1: move and that's going to introduce volatility into the market. So, Jeff,

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Speaker 1: what would you be doing right now? So right now again,

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Speaker 1: reading the tea leaves in terms of central banks probably

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Speaker 1: where in a holding pattern they're heading into August and September.

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Speaker 1: Look at the event risk, so you want to be

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Speaker 1: light on risk but then start to factor in upside

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Speaker 1: surprises for vol and for inflation. Got Jackson Hole coming

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Speaker 1: up where there's more communication. ECB September meeting is going

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Speaker 1: to be crucial. German elections is are going to be

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Speaker 1: a new era for europe reflation as well. The UK taper,

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Speaker 1: the furlough scheme coming off, and the bo WE will

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Speaker 1: decide where they want to move towards a new regime.

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Speaker 1: So I think all of this can actually happen in

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Speaker 1: the next three months, So for those waiting for another

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Speaker 1: year or so, I think that's going to be too late.

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Speaker 1: So risk light heading into summer, but you want to

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Speaker 1: have some risk on in either direction heading into August

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Speaker 1: and September. Any any confidence in the trade of being

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Speaker 1: short government banced, so that is still going to be

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Speaker 1: highly contingent, you know, on what the FEDS would So

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Speaker 1: for the short term, volatility is going to pick up,

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Speaker 1: so you want to own fixed income volatility that price wise,

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Speaker 1: they're going to keep the range in place because that

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Speaker 1: kind of tightening and financial conditions through lower prices and

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Speaker 1: higher yields. That's going to be a step too far

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Speaker 1: a central bank of the time being. But you want

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Speaker 1: to own a fixed in combab di Jeff for you,

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Speaker 1: thank you so much with bn y mel and greatly

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Speaker 1: greatly appreciate that. Joining us right now. Sebastian Galley Woria

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Speaker 1: coming to us today from Scenic looks a Sebastian, good morning,

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Speaker 1: Good morning. What is Luxembourg like? I think you know

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Speaker 1: seriously across this nation of America for most of our

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Speaker 1: good listeners, including me, I have trouble finding it on

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Speaker 1: a map. But but, but seriously, what what does Luxembourg

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Speaker 1: look like on a beautiful summer morning. It's beautiful, it's sunny,

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Speaker 1: it doesn't mean a lot also um and there are

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Speaker 1: cows around, and it's a huge financial center, which is

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Speaker 1: a bit unusual, like a small country between Belgium, France,

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Speaker 1: uh and in Germany. They speak a dialect which is

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Speaker 1: a mixture of all three and they speak French and

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Speaker 1: German as well as English. So quite a few people

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Speaker 1: coming from the UK here. Is there a dominant language?

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Speaker 1: Is French the dominant language? No, it's what they call

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Speaker 1: Luxemburg Ley show duxin Bourgeois, which is a local language

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Speaker 1: which is a dialect slash language see folks that you

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Speaker 1: can learn on surveillance. It's mapping it right now. And yeah, boy,

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Speaker 1: I've been all around it. I just haven't been to

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Speaker 1: I've been all around semestion. Gilly has been all around

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Speaker 1: our economics, financial investment, semeestion. What is the thrust of

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Speaker 1: your note after you see the kind of inflation levels

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Speaker 1: we speak of in America. Yeah, it's it's a very

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Speaker 1: interesting phenomenon because of the reaction the equity markets relatively

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Speaker 1: positive for somewhere nonsense futures of two zero five exactly.

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Speaker 1: And what what do you have is inflation rising one

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Speaker 1: because the bottlenecks number two because people companies find it

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Speaker 1: easy to pause through inflation. Why because inflation becomes unstable.

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Speaker 1: Once inflation starts to rise, it has a certain tenity

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Speaker 1: to rise even more so people think they can pass

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Speaker 1: it through. We're gonna get negative economic data because of

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Speaker 1: this in the following month. And then wage expectations have

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Speaker 1: reset higher because people are much more optimistic. They have

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Speaker 1: suffered for decades of low, low wages and suddenly there's

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Speaker 1: a reset which is happening that feeds also into a

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Speaker 1: higher inflation. So the question, of course is whether this

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Speaker 1: is transitory or not. And the answer is and make

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Speaker 1: sure that a lot of it is transit OI and

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Speaker 1: some of it is permanent, which expectations have risen. This

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Speaker 1: is a new America and that's a different one. Record

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Speaker 1: high moments ago in the standard forced you can retire. Yeah, exactly,

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Speaker 1: I've had enough, all right, Sebashian. You know, we we're

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Speaker 1: hearing from the ECB today. We and we we have

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Speaker 1: a pretty consistent message from the Federal Reserve UH that

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Speaker 1: they are going to continue to support UH this economic environment.

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Speaker 1: But there's a lot of folks I think starting to

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Speaker 1: say enough is enough, It's time to pull back. Here,

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Speaker 1: the world's reopening. Enough has been done here, we can

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Speaker 1: pull back. What do you think about that, Well, it's

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Speaker 1: if you imagine it. You're in the race and that

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Speaker 1: we've just basically started accelerating. The last thing you want

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Speaker 1: to do is shoot yourself in the foot. So you

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Speaker 1: want to continue accelerating as much as you can, but

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Speaker 1: there is a maximum amount of explorations you can reach

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Speaker 1: other once you get exhausted, and that's a fine balance

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Speaker 1: between shooting yourself in the foot and going too fast

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Speaker 1: that the FED has to maintain. And as you can

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Speaker 1: fee with the reaction and yelling in US territory thing

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Speaker 1: interest rates have to go higher. We already are being

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Speaker 1: prepared for the phenomenon that interest rates eventually will go higher.

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Speaker 1: So the Fed agrees with you, but it is talking

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Speaker 1: to the US Treasury. Sebastian the sigooy over. That's luxembourgsh

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Speaker 1: the way I said that to sigooy over to your

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Speaker 1: wonderful note on China, I love what you say about

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Speaker 1: clear and reliable signals of goodwill, and part of that

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Speaker 1: is a stronger and men be scene in China against

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Speaker 1: weaker dollar. Are you actually looking for a de escalation

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00:24:33,960 --> 00:24:37,800
Speaker 1: of the tensions of China and the United States. Yes,

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00:24:37,840 --> 00:24:39,720
Speaker 1: I I think that the comment which has been made

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Speaker 1: by the first talk of trade talks between the United

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00:24:42,680 --> 00:24:45,280
Speaker 1: States and UH in China has been to dismiss them

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00:24:45,280 --> 00:24:47,879
Speaker 1: and to say this doesn't matter. But it's very important

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00:24:47,920 --> 00:24:50,159
Speaker 1: because in the process of the escalation is one of

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00:24:50,200 --> 00:24:53,360
Speaker 1: the last up to two months. It's a very long process.

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00:24:53,359 --> 00:24:55,840
Speaker 1: Why because you have to lead the opinion. The opinion

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00:24:55,880 --> 00:24:58,040
Speaker 1: in the United States has been led against China and

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00:24:58,160 --> 00:25:01,720
Speaker 1: China also against you US, and to change that process

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00:25:01,800 --> 00:25:05,240
Speaker 1: is very difficult as slow. UH, the context, the language

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00:25:05,280 --> 00:25:08,160
Speaker 1: has to change, means that the process which is started

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00:25:08,240 --> 00:25:10,960
Speaker 1: now should continue. And then if therefore, the question is

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00:25:11,000 --> 00:25:12,880
Speaker 1: not what's going to happen the next two months, which

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00:25:12,920 --> 00:25:16,080
Speaker 1: is more positive news, but what happens afterwards? Uh, do

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00:25:16,119 --> 00:25:18,439
Speaker 1: you get a credible deal? Do the Chinese let their

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00:25:18,560 --> 00:25:23,080
Speaker 1: currency appreciate? Do you really deescalate? In a more fundamental basis,

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00:25:23,240 --> 00:25:26,199
Speaker 1: They remain adversaries from a strategic point of view, but

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00:25:26,280 --> 00:25:29,560
Speaker 1: they decide to some extent that engaging as the Europeans

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00:25:29,560 --> 00:25:31,919
Speaker 1: are doing with the Chinese, the Americans are willing to

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00:25:31,960 --> 00:25:35,320
Speaker 1: do with with China. And that is of course very

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00:25:35,359 --> 00:25:38,520
Speaker 1: beneficial for both US equities and Chinese equities. All right,

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00:25:38,560 --> 00:25:41,600
Speaker 1: specially with that backdrop, where do you see the greatest

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00:25:41,640 --> 00:25:46,160
Speaker 1: opportunity as you think about your global macro outlook here,

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00:25:46,240 --> 00:25:50,320
Speaker 1: given the various stages or the uneven stages of reopenings

456
00:25:50,320 --> 00:25:53,400
Speaker 1: and vaccine rates and that so on, were you doing

457
00:25:53,400 --> 00:25:58,160
Speaker 1: your most work now destruction? So what you can imagine

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00:25:58,160 --> 00:25:59,800
Speaker 1: is the world not of this year, not of the

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00:25:59,800 --> 00:26:01,680
Speaker 1: next here, but in the following year, will be one

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00:26:01,720 --> 00:26:05,119
Speaker 1: of moderate growth in develop economies, whether it's in the

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00:26:05,160 --> 00:26:08,280
Speaker 1: United States or your particularly so in Europe. Less so

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00:26:08,400 --> 00:26:11,760
Speaker 1: in the United States and disruptions, new technologies that change

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00:26:11,760 --> 00:26:15,280
Speaker 1: fundamentally how we operate will allow companies to become more

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00:26:15,320 --> 00:26:18,440
Speaker 1: cost efficient, demand to be better reached, and that process

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00:26:18,560 --> 00:26:22,119
Speaker 1: has already started. These stocks tend to be expensive, and

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00:26:22,160 --> 00:26:23,760
Speaker 1: the author are that they kind of are going to

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00:26:23,800 --> 00:26:27,920
Speaker 1: get much much more expensive. So the process of creativity

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00:26:27,960 --> 00:26:30,480
Speaker 1: is going to be rewarded evermore in the in the

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00:26:30,480 --> 00:26:32,920
Speaker 1: following decades. And this is the beginning of the time

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00:26:32,960 --> 00:26:35,080
Speaker 1: when you want to be focused on these kind of

471
00:26:35,280 --> 00:26:38,760
Speaker 1: positions within the cosmic nature of your strategy and the

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00:26:38,760 --> 00:26:42,159
Speaker 1: Sebastian we love your research notes, but does it distill

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00:26:42,240 --> 00:26:44,359
Speaker 1: down to your long in the stock market than in

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00:26:44,400 --> 00:26:47,480
Speaker 1: this great bull market you can still own equities for

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00:26:47,520 --> 00:26:52,960
Speaker 1: an enthusiasm of total return. You can so our value

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00:26:52,960 --> 00:26:54,600
Speaker 1: on the U S stock markets. You want to be

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00:26:54,680 --> 00:26:57,720
Speaker 1: a long value and cyclicals rather than growth. So we're

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00:26:57,800 --> 00:27:00,199
Speaker 1: quite Britain on growth, particularly for next year, because we

479
00:27:00,240 --> 00:27:02,359
Speaker 1: think that as if at times will go through the

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00:27:02,400 --> 00:27:04,600
Speaker 1: eye of the needle, what will happen once it goes

481
00:27:04,640 --> 00:27:06,600
Speaker 1: out there through the eye of the needle? If he's

482
00:27:06,600 --> 00:27:10,200
Speaker 1: going to rebound an incredibly rate. Why because they are

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00:27:10,240 --> 00:27:13,199
Speaker 1: the companies which will generate the changes of tomorrow, not

484
00:27:13,280 --> 00:27:15,480
Speaker 1: only the company which sharing here, but the companies which

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00:27:15,520 --> 00:27:17,480
Speaker 1: all here in the next last to ten years. So

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00:27:17,520 --> 00:27:20,160
Speaker 1: that's a huge opportunity to step into growth. So growth

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00:27:20,160 --> 00:27:23,000
Speaker 1: should stay expensive irrespective of the fact that it should

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00:27:23,040 --> 00:27:26,720
Speaker 1: go through significant crashing. So for now we'd like the

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00:27:26,800 --> 00:27:29,879
Speaker 1: JP Morgan, for example, more than Apple um. But it

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00:27:29,880 --> 00:27:32,080
Speaker 1: doesn't mean that Apple has a long term strategy. If

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00:27:32,080 --> 00:27:34,359
Speaker 1: you can hold your portfolio for five a tenure is

492
00:27:34,440 --> 00:27:38,000
Speaker 1: just not an awesome position. Very good, Sebastion Gali, thank

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00:27:38,040 --> 00:27:40,960
Speaker 1: you so much. With an already from Luxembourg. This is

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00:27:41,000 --> 00:27:44,960
Speaker 1: the Bloomberg Surveillance Podcast. Thanks for listening. Join us live

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00:27:45,119 --> 00:27:48,919
Speaker 1: weekdays from seven to ten am Eastern on Bloomberg Radio

496
00:27:49,119 --> 00:27:52,720
Speaker 1: and on Bloomberg Television each day from six to nine

497
00:27:52,800 --> 00:27:57,200
Speaker 1: am for insight from the best in economics, finance, investment,

498
00:27:57,359 --> 00:28:02,000
Speaker 1: and international relations. And subscribe right to the Surveillance Podcast

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00:28:02,280 --> 00:28:05,919
Speaker 1: on Apple podcast, SoundCloud, Bloomberg dot com, and of course

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00:28:06,240 --> 00:28:10,520
Speaker 1: on the terminal. I'm Tom keene In. This is Bloomberg

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Speaker 1: m