WEBVTT - Surveillance: Inflation Debate With Hooper 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:31.360 and of course on the Bloomberg terminal. Right now, there 0:00:31.360 --> 0:00:33.720 can be always a moment that comes along when you 0:00:33.800 --> 0:00:37.000 say it's the essay of the summer. Boy, it's awful 0:00:37.040 --> 0:00:40.200 early to say it's essay this summer. But David focus 0:00:40.360 --> 0:00:42.879 land Out his team is Deutsche Bank, with the leadership 0:00:42.880 --> 0:00:45.919 of Peter Hooper, the whole whole head of economic research, 0:00:46.200 --> 0:00:51.400 have generated eighteen thought provoking must read pages for Global 0:00:51.400 --> 0:00:54.200 Wall Street. We're honored that Dr Hooper could join us 0:00:54.200 --> 0:00:58.080 this morning. Peter, you say it is the end of neoliberalism, 0:00:58.120 --> 0:01:00.200 we have a risk of going back to ray can 0:01:00.280 --> 0:01:02.800 voke or how close are we to going back to 0:01:02.880 --> 0:01:09.160 a time of shockingly high inflation. Um, We've obviously seen 0:01:09.200 --> 0:01:14.679 a huge shift in both monetary and fiscal policy that's 0:01:14.800 --> 0:01:18.280 given us a lot more stimulus to the economy than 0:01:18.319 --> 0:01:22.240 ever anyone would have imagined. A couple of years ago. Uh, 0:01:22.520 --> 0:01:27.399 the chances are getting back to the high inflation sixties 0:01:27.440 --> 0:01:31.520 and seventies have have taken a leap forward. Is still 0:01:31.560 --> 0:01:33.920 not the most likely outcome, but certainly the risk of 0:01:34.000 --> 0:01:40.640 risen have risen tremendously thanks to uh GDP in in 0:01:40.720 --> 0:01:43.520 fiscal stimulus in the last year and a half. Who 0:01:43.560 --> 0:01:48.040 would have imagined seeing something like that Peter's This increasingly 0:01:48.080 --> 0:01:51.760 becomes a game of faith because people are dismissing current 0:01:51.840 --> 0:01:56.800 data as simply transitory. How do you convince clients who say, look, 0:01:57.080 --> 0:01:59.720 it has been this way for twenty thirty years, where 0:01:59.720 --> 0:02:03.880 we've seen inflation come down progressively in a steady fashion. 0:02:04.520 --> 0:02:06.840 If you look over time, what do you say to 0:02:06.880 --> 0:02:10.200 them to convince them at this time is different? Uh? 0:02:10.320 --> 0:02:14.440 And at least so you're right, the market is remarkably 0:02:15.040 --> 0:02:19.600 calm about in the face of the storm coming. Um. 0:02:19.919 --> 0:02:25.160 I think you have to live through a surgeon inflation 0:02:25.200 --> 0:02:27.959 that's going to be reversed for a while, and then 0:02:28.040 --> 0:02:30.760 you have to look ahead to the possibility of an 0:02:30.800 --> 0:02:35.639 economy that's can be operating at well above potential. I mean, yes, 0:02:35.720 --> 0:02:39.239 we've been expecting. Uh. We had a big surprise in 0:02:39.240 --> 0:02:44.160 in April. UH people have had revised their expectations and 0:02:44.240 --> 0:02:47.520 now the numbers were likely to get for may not 0:02:47.560 --> 0:02:51.040 looking anywhere are scary, and there are reasons to expect 0:02:51.040 --> 0:02:55.040 things to to slow down the near term. But if 0:02:55.080 --> 0:03:00.400 if we get this increase in household saving uh in 0:03:00.520 --> 0:03:03.240 excess of ten percent of GDP that's been salted away 0:03:03.280 --> 0:03:06.760 here not spend so far, if that begins to come 0:03:06.760 --> 0:03:11.440 on stream as households are normalizing, they're spending as pent 0:03:11.520 --> 0:03:14.720 up demand of being released. Uh, we're gonna see this 0:03:14.800 --> 0:03:20.000 economy pushing well into overheated state. And the problem is 0:03:20.440 --> 0:03:23.160 that the FED has told us they're going to be 0:03:23.480 --> 0:03:28.080 uh late in removing the punch bowl if you will, um, 0:03:28.160 --> 0:03:31.520 I mean the They want to see the economy overheat 0:03:31.560 --> 0:03:34.200 before they start raising rates. There's gonna be a recognition lag, 0:03:35.040 --> 0:03:37.480 and there's gonna be a long response lag of the 0:03:37.480 --> 0:03:40.240 economy to Fed tending. So the chances of things getting 0:03:40.240 --> 0:03:43.400 out of hand down the road certainly have increased. Hold 0:03:43.400 --> 0:03:45.160 on a second, Peter, are you saying out of hand? 0:03:45.200 --> 0:03:47.600 And this is a distinction from other people who say that, yes, 0:03:47.600 --> 0:03:50.320 we may see above trend inflation, but we're not going 0:03:50.360 --> 0:03:52.720 to go back to the nine seventies. Are you saying 0:03:52.920 --> 0:03:56.160 that we could go back to nine seventies style inflation. 0:03:57.760 --> 0:04:01.080 There's certainly a risk there. Um. You know, our our 0:04:01.200 --> 0:04:05.280 our numbers say that there is a chance, in fact, 0:04:05.520 --> 0:04:09.760 an uncompanably high chance. That you see the output gap 0:04:09.840 --> 0:04:13.440 for the US, the amount by which GDP exceeds potential 0:04:14.040 --> 0:04:18.080 moving up above to the highway scene for the last 0:04:18.800 --> 0:04:21.760 three or four decades has been around two percent, and 0:04:21.920 --> 0:04:25.799 inflation hasn't gotten out of control. UH. In the sixties 0:04:25.839 --> 0:04:28.400 it got went up to five and a half six percent. 0:04:28.960 --> 0:04:32.200 We could be there if as much as a third 0:04:32.200 --> 0:04:37.200 of this UH savings that's been accumulated unusually large saving 0:04:37.240 --> 0:04:39.279 has been accumulated over the last year and a half, 0:04:39.720 --> 0:04:42.920 it's been out over the next year or two. UH here, 0:04:42.960 --> 0:04:47.320 that would be a massive push to GDP. Peter the 0:04:47.360 --> 0:04:49.919 Bank of England chief economist Andy hal Dane, writing in 0:04:49.960 --> 0:04:53.760 The Statesman yesterday, saying this is the most dangerous moment 0:04:53.839 --> 0:05:00.359 for monetary policy since inflation targeting began in two He's saying, 0:05:00.720 --> 0:05:03.320 you know, you can't look anywhere and find something as 0:05:03.400 --> 0:05:09.560 price isn't rising. Is this overheating? UH? Is this overheating? 0:05:09.560 --> 0:05:13.040 Intention shared in the UK and the e c B 0:05:13.360 --> 0:05:16.839 as much as it is in the US. Well, I 0:05:16.839 --> 0:05:21.839 think so so Europe's in a different situation. Uh. Certainly 0:05:21.839 --> 0:05:24.200 that the labor market going in was not as tight 0:05:24.240 --> 0:05:27.479 as in the US. Uh. And Uh, we have not 0:05:27.640 --> 0:05:31.560 seen the kind of shift in fiscal and monetary policy 0:05:31.600 --> 0:05:34.440 regime that the US has had. The ECB has not 0:05:34.560 --> 0:05:38.320 said they're gonna be reactive as opposed to preemptive if 0:05:38.360 --> 0:05:41.640 inflation we saw inflation picture in Europe the way we 0:05:41.720 --> 0:05:44.080 are anticipating in the US, I think the e c 0:05:44.240 --> 0:05:47.919 B would respond quite differently. Uh. And Uh. Well, we 0:05:48.000 --> 0:05:52.000 have had the m G e P, the UH, the 0:05:52.240 --> 0:05:58.000 the recovery recovery program, et cetera. Spending in in in 0:05:58.040 --> 0:06:01.360 Europe coming up that's not anywhere near as large as 0:06:01.400 --> 0:06:05.040 what the US is has untapped. So yes, I think 0:06:05.440 --> 0:06:10.560 there is concerned about near term supply disruptions and and 0:06:10.600 --> 0:06:15.279 we are seeing some impressive increases in inflation in Germany. Um, 0:06:15.320 --> 0:06:20.400 But the sense that the risk is anywhere near as 0:06:20.520 --> 0:06:24.479 large in Europe, it's just not there. Dr Ooper underpinning this, 0:06:24.600 --> 0:06:26.960 and I say this with great respect to Steve Roach, 0:06:27.080 --> 0:06:29.840 you know him from Morgan Stanley and now Yale University 0:06:30.279 --> 0:06:33.200 years ago. Is the underpinning of your work at the 0:06:33.240 --> 0:06:36.360 I m F and also the work of Duly folkus 0:06:36.480 --> 0:06:40.839 landau Garber, which has always watched the flows, watch the money. 0:06:41.120 --> 0:06:43.560 Many of you folks will know Martin Wolfen is wonderful 0:06:43.600 --> 0:06:46.120 work at the FT on this as well. If we 0:06:46.279 --> 0:06:50.719 get the time bomb in your eighteen page report, what 0:06:50.800 --> 0:06:57.360 does it do to the flows of capital in the world? Well, now, 0:06:57.400 --> 0:07:03.040 the time bomb is another way of describing the FED 0:07:03.120 --> 0:07:06.240 being late to late to the party, Okay, late in 0:07:06.320 --> 0:07:09.080 terms of taking the punch fell away because we've got 0:07:09.120 --> 0:07:12.000 in behind the curve. We're gonna need to act aggressively. 0:07:12.080 --> 0:07:15.560 That means rates go up sharply. That's very disruptive to 0:07:15.840 --> 0:07:19.880 financial markets. It's very disruptive to many emerging market countries 0:07:19.920 --> 0:07:22.720 with huge amounts of debt that are gonna be very 0:07:22.760 --> 0:07:27.440 sensitive to a sharp rice in US rates. That I 0:07:27.440 --> 0:07:31.320 mean that that that that's the concern down road. It's 0:07:31.320 --> 0:07:34.400 a risk. It's not not in my way of thinking 0:07:35.160 --> 0:07:38.000 the most likely scenario yet, but it's certainly something we 0:07:38.080 --> 0:07:42.760 need to have our have our attended UH tuned into 0:07:43.040 --> 0:07:46.000 your X access in this report to be clear, folks, 0:07:46.120 --> 0:07:48.560 is not getting out to Q three or Q four 0:07:48.600 --> 0:07:51.240 and the rest of the game of market economics and 0:07:51.280 --> 0:07:55.000 the financial media. The Deutsche Bank view begins to frame 0:07:55.000 --> 0:07:59.480 out two thousand twenty four. What is the efforts we 0:07:59.560 --> 0:08:04.200 can do before two thousand twenty four to ameliorate the 0:08:04.280 --> 0:08:08.760 time bound? Well, I think the I mean the FED 0:08:09.400 --> 0:08:14.400 has have gotten into this um inflation averaging framework R. 0:08:15.040 --> 0:08:18.040 This was this was exactly what they needed to do 0:08:18.440 --> 0:08:20.640 to deal with the world where they were struggling to 0:08:20.640 --> 0:08:24.080 get inflation up to two percent and get inflation expectations 0:08:24.600 --> 0:08:29.840 UH to a more desirable sustainable level. Inflation expectations are back. 0:08:30.760 --> 0:08:33.360 I think the FED is going to need to recognize 0:08:33.640 --> 0:08:38.000 begin to recognize this risk certainly over the next year UH, 0:08:38.080 --> 0:08:42.600 and begin to begin to edge toward a sooner tightening 0:08:42.760 --> 0:08:46.559 than it is currently. Well, Peter, let's started at Jackson Hall. 0:08:46.640 --> 0:08:48.480 I don't know if you're gonna be there with David, 0:08:48.520 --> 0:08:50.480 but we'd be thrilled to speak to you. Our Michael 0:08:50.559 --> 0:08:53.000 McKee I know, will be reporting there. Let's go to 0:08:53.040 --> 0:08:56.040 the time bomb of Jackson Hall. Is the time bomb 0:08:56.040 --> 0:08:59.000 of Jackson Hole for the markets for our radio and 0:08:59.080 --> 0:09:03.120 TV listeners and viewers. Is it a change back to 0:09:03.200 --> 0:09:06.719 the theories and regimes pre pandemic? Can the FED do 0:09:06.800 --> 0:09:10.880 that leading the rest of the central banks? I think 0:09:10.920 --> 0:09:14.239 I think the central focus of Jackson Hole will probably 0:09:14.280 --> 0:09:17.600 be is the FED going to give us a clear 0:09:17.679 --> 0:09:21.280 signal that they're beginning to unwind the talk about unwinding 0:09:21.280 --> 0:09:25.000 their balance sheet? Uh, We're still We're still at ways 0:09:25.040 --> 0:09:29.640 away from the FED recognizing seriously, Uh, this this risk 0:09:30.080 --> 0:09:33.959 and I mean they have ways to go to get 0:09:34.000 --> 0:09:35.920 to that point. And Peter, this is a lot of 0:09:35.920 --> 0:09:38.360 people are looking for the talking about tapering or talking 0:09:38.400 --> 0:09:40.800 about talking about tapering as being the key moment for 0:09:40.880 --> 0:09:44.400 Jackson All. There's also a question, though, going toe as 0:09:44.440 --> 0:09:46.880 you did, does the FED have the tools to control 0:09:46.960 --> 0:09:49.320 the control inflation in the way that they have in 0:09:49.360 --> 0:09:51.720 the past. And then I think is sort of underpinning 0:09:51.760 --> 0:09:54.040 your call. Are you saying that the FED does not 0:09:54.320 --> 0:09:57.679 have those same tools given how much money has been 0:09:57.679 --> 0:10:01.640 pumped into the system. The it certainly has the tools 0:10:01.640 --> 0:10:04.640 to deal with inflation. It doesn't have the tools to 0:10:04.760 --> 0:10:08.480 deal with a with a in a soft landing sense, 0:10:08.559 --> 0:10:11.240 if you will, It's very difficult if you're going to 0:10:11.320 --> 0:10:14.520 be behind the curve to deal with an inflation problems, 0:10:14.559 --> 0:10:18.800 building some momentum that's getting into expectations and moving beyond 0:10:18.960 --> 0:10:22.520 the GIRED levels without being very disruptive. The FETE has 0:10:22.640 --> 0:10:27.560 never been able to deal with a rising inflation problem 0:10:28.320 --> 0:10:31.680 bring it back without causing a recession. And if they're 0:10:31.720 --> 0:10:34.360 behind the curve when they start this process, it could 0:10:34.400 --> 0:10:37.000 be a major regnition. Dr Hoopers, thank you so much 0:10:37.000 --> 0:10:40.160 for this first conversation and it's important research for thrilled 0:10:40.160 --> 0:10:46.760 that Peter Hooper of Deutsche Bank could join us today. 0:10:49.120 --> 0:10:51.920 Right now, Katrina Dudley joins us with Franklin and this 0:10:52.000 --> 0:10:55.040 is really special. She's got a real ample career on 0:10:55.080 --> 0:10:59.040 the cell side and securities research UH and a portfolio manager, 0:10:59.080 --> 0:11:02.760 particularly in your with Franklin Mutual. Katrina, good morning to you. 0:11:03.120 --> 0:11:06.920 How much of a value is Europe right now? Look, 0:11:06.920 --> 0:11:09.840 Europe has always been a quintessential value market. You just 0:11:09.840 --> 0:11:12.960 look at the construct of the market. It's heavy and financials, 0:11:13.000 --> 0:11:15.760 it's heavy in energy and their two sectors that are 0:11:15.800 --> 0:11:18.960 trading and very very cheap multiples um. But the good 0:11:18.960 --> 0:11:21.600 news about Europe is actually the construct of the market 0:11:21.640 --> 0:11:25.320 is changing. We've now got a rising luxury sector, which 0:11:25.400 --> 0:11:28.160 is the equivalent of the technology sector over here in 0:11:28.200 --> 0:11:31.160 the United States, and that sector is actually growing. I 0:11:31.600 --> 0:11:34.200 gotta stop, but come on, are you telling me Louis 0:11:34.280 --> 0:11:38.920 Howton is equivalent to Apple or Amazon? Um? I think 0:11:39.000 --> 0:11:42.560 Louis Baton is actually even better than an Amazon because 0:11:42.600 --> 0:11:48.400 it's it's it's brand something here. I'd agree with you exactly, 0:11:48.480 --> 0:11:51.800 but you can't. You can't replace some of their products. 0:11:52.040 --> 0:11:54.400 You can't get some of their handbags at the moment, 0:11:54.640 --> 0:11:57.240 and if you've tried to ordering some of their jewelry, 0:11:57.360 --> 0:12:03.599 it's out of least Keen Mrs Keane would agree. And 0:12:05.240 --> 0:12:08.320 literally this is if you manage a bit, I'm going 0:12:08.360 --> 0:12:10.400 to walk off the set. He will have, you know, 0:12:10.640 --> 0:12:15.120 nightmares from dinner conversations of your Meanwhile, we're as talking 0:12:15.120 --> 0:12:17.400 about the e c V policy and tandem with e 0:12:17.480 --> 0:12:21.200 c V stocks, and really the underlying question here is 0:12:21.200 --> 0:12:24.600 is there an exit strategy that could be done with grace? 0:12:24.679 --> 0:12:27.680 In other words, can you buy European stocks for a 0:12:27.800 --> 0:12:31.280 longer period of time with faith that the ECB can 0:12:31.320 --> 0:12:35.880 extract themselves easily and gracefully. Well, I think it's interesting 0:12:35.920 --> 0:12:38.199 because you were talking about grace Kelly before and high 0:12:38.280 --> 0:12:41.240 heels backwards about half the price. UM. If I take 0:12:41.280 --> 0:12:44.040 a look at the exit out of this, the ECB 0:12:44.240 --> 0:12:47.640 is watching the FED. Um. The European markets are actually 0:12:47.760 --> 0:12:50.800 behind the US in terms of our recovery out of 0:12:51.040 --> 0:12:54.680 or actually recovery from the COVID virus, because the vaccine 0:12:54.760 --> 0:12:57.439 rollout was slower, um. And so I think they're really 0:12:57.520 --> 0:12:59.920 looking at the markets. They're looking at the FED action, 0:13:00.000 --> 0:13:02.080 and I think that the e c B will be 0:13:02.200 --> 0:13:04.640 slower to act this time. UM. Just to have a 0:13:04.640 --> 0:13:07.120 look what happened back in May where you saw kind 0:13:07.120 --> 0:13:09.520 of Italian deels blow out and it was kind of 0:13:09.520 --> 0:13:11.960 this mini tape the tantrum, And I think they're really 0:13:12.000 --> 0:13:15.040 watching to see what happens because it's not just about 0:13:15.120 --> 0:13:17.360 what the bit the e c B is saying, it's 0:13:17.400 --> 0:13:20.200 the implications of that on various markets, for example, in 0:13:20.200 --> 0:13:22.520 this case in Italy. All right, well let's talk a 0:13:22.559 --> 0:13:24.320 little bit a little bit about Italy, and I guess 0:13:24.360 --> 0:13:26.560 the reaction that at least a lot of us on 0:13:26.559 --> 0:13:29.040 this side of the Atlantic look to when we try 0:13:29.080 --> 0:13:31.719 to sort of divine what the ECB is going to 0:13:31.840 --> 0:13:34.480 do and how it's going to be received. How are 0:13:34.520 --> 0:13:37.160 investors in Italy right now, the investors in Italian debt 0:13:37.240 --> 0:13:40.800 right now? Uh, preparing for whatever it is the ECB 0:13:40.880 --> 0:13:43.480 may or may not do. If I take a look, 0:13:43.480 --> 0:13:45.960 what we're looking at in Italy is support for the 0:13:46.000 --> 0:13:48.520 new government. I think actually, where you know, I've talked 0:13:48.520 --> 0:13:51.320 about Italian politics as as I say, as messy as 0:13:51.360 --> 0:13:53.559 a bowl of spaghetti. But I think it's actually, at 0:13:53.600 --> 0:13:56.760 this time it's probably the best outlook for Italy we've 0:13:56.800 --> 0:13:59.160 had in a long time. And I think the EB 0:13:59.320 --> 0:14:02.800 is aware of that. They need to be accommodated. I mean, continued, 0:14:02.880 --> 0:14:05.160 anytime for one more question. We gotta get you back here. 0:14:05.200 --> 0:14:08.360 This has been fascinating. What kind of a victory lap 0:14:08.440 --> 0:14:11.559 is Mario Dragging going to take at G seven? I mean, 0:14:11.600 --> 0:14:14.680 he's on top of the world right now, right, I 0:14:14.679 --> 0:14:16.480 don't think he's going to take a victory lad. I 0:14:16.520 --> 0:14:18.760 think he's a humble person and I think that he 0:14:18.960 --> 0:14:23.120 is quietly doing what's white Wait wait, wait, wait wait, 0:14:23.160 --> 0:14:26.400 I'm sorry, Contrada, Mario Dragging is a humble person. Really. 0:14:27.560 --> 0:14:30.160 I think what he's doing and the role he's taking 0:14:30.160 --> 0:14:33.040 in Italy is doing something that you want all with 0:14:33.240 --> 0:14:35.960 politicians to do which is acting in the best interests 0:14:35.960 --> 0:14:39.080 of the country, and I think that's what he is doing. 0:14:39.960 --> 0:14:41.560 I don't mean to interrupt it. We gotta go. But 0:14:41.640 --> 0:14:45.560 in your research on luxury to find value for Franklin 0:14:45.640 --> 0:14:49.480 Mutual series, don't you find the Gucci store below the 0:14:49.560 --> 0:14:52.880 seven the Steps, the Spanish Steps. The Spanish Stairs in 0:14:53.000 --> 0:14:56.520 Rome is the most dangerous store in Europe. I haven't 0:14:56.560 --> 0:14:58.560 been there because of the travel band, but I am 0:14:58.680 --> 0:15:01.480 very excited about the fact that Boris Johnson is now 0:15:01.600 --> 0:15:03.680 meeting with Joe Biden and we may be able to 0:15:03.720 --> 0:15:06.200 travel back to London and hopefully back to Spain so 0:15:06.240 --> 0:15:08.120 that we could go there in person. There well, I 0:15:08.160 --> 0:15:10.200 expect we do a road trip and we demand a 0:15:10.280 --> 0:15:13.880 surveillance remote with you from the Spanish Stairs in Rome. Here, 0:15:14.080 --> 0:15:22.760 Katrina Dudley, thank you so much on Franklin right now 0:15:22.800 --> 0:15:26.600 widely anticipated. Jeffrey You joins us B and YML and 0:15:26.600 --> 0:15:30.840 their senior strategist, Jeffrey You the zeitgeist right now. The 0:15:30.920 --> 0:15:35.160 certitude is it's been one big short squeeze. Everyone was 0:15:35.240 --> 0:15:39.240 betting on lower bond prices in higher yields and the 0:15:39.280 --> 0:15:42.720 trade is swung with acceleration the other way, do you 0:15:42.840 --> 0:15:46.440 buy it? That is just a short squeeze, um mad 0:15:46.760 --> 0:15:49.520 And perhaps I'm heading into the summer months and people 0:15:49.600 --> 0:15:51.640 just don't want to take too much risk on in 0:15:51.880 --> 0:15:54.480 either direction now. But given the experience over the past 0:15:54.520 --> 0:15:56.960 few years, you know, by definition, you know, risk on 0:15:57.680 --> 0:16:01.600 means um actually having equities not as risk off. Well, 0:16:01.840 --> 0:16:08.920 do you need to take that? That's okay, Jeff, Jeff, 0:16:08.920 --> 0:16:13.160 you know what that is. That's Jeffrey, you gome stuck today. Yeah, 0:16:13.280 --> 0:16:16.200 that's going on, jefflicit. We're looking at a bond market 0:16:16.240 --> 0:16:17.760 and a lot of people are saying that it's an 0:16:17.840 --> 0:16:22.120 endorsement of the Fed's view that inflationary impulses are going 0:16:22.160 --> 0:16:24.040 to be short lived and we're going to end up 0:16:24.080 --> 0:16:26.640 in the same slow inflation kind of environment that we've 0:16:26.640 --> 0:16:28.800 been in for the past several decades. Do you agree? 0:16:28.920 --> 0:16:32.200 Is that the message from Bonnes Well again, the message 0:16:32.240 --> 0:16:34.080 from bonds is and they want to know, you know 0:16:34.120 --> 0:16:37.440 which type of inflation is that theft actually targeting. Let's 0:16:37.480 --> 0:16:39.760 put it this way. We've actually had two straight months 0:16:40.000 --> 0:16:45.400 of soft jobs, soft wage growth now in Germany in Euros, 0:16:45.840 --> 0:16:48.840 BOE saying a wage growth wage settlement is not that strong. 0:16:49.080 --> 0:16:52.800 The most hawkish region in the world right now, Central Europe, 0:16:52.840 --> 0:16:56.760 Poland warning jobs are wage growth is not accelerating at 0:16:56.760 --> 0:16:59.680 the same pace as before the pandemic, So is inflation 0:16:59.720 --> 0:17:02.240 really hush? But then again, should we be targeting this 0:17:02.640 --> 0:17:04.960 or is the market taking about that the short term 0:17:05.000 --> 0:17:07.600 supply constraints, they're going to be permanent and this is 0:17:07.640 --> 0:17:09.920 going to challenge the bond market and challenge the Fed 0:17:09.960 --> 0:17:12.160 as well. Jeff, how many queues should we be taking 0:17:12.240 --> 0:17:14.399 right now from the commodities market? I mean, we still 0:17:14.400 --> 0:17:17.560 see our oil brent crews still camped out around our 0:17:17.640 --> 0:17:20.040 seventy two bucks. You have a lot of the base 0:17:20.119 --> 0:17:23.040 medals are either are at or sort of near their 0:17:23.119 --> 0:17:25.760 record highs that they set back in April. And may 0:17:25.800 --> 0:17:29.360 hear how much concern should be baked into reading those 0:17:29.440 --> 0:17:32.720 prices right now? I think the market is very concerned. 0:17:32.720 --> 0:17:34.479 But if you look at what the policymakers are doing, 0:17:34.520 --> 0:17:38.280 especially in China, what was the biggest marginal price for 0:17:38.480 --> 0:17:42.040 commodity prices globally China? And China is saying commodity prices 0:17:42.119 --> 0:17:44.760 are too high, that they are blaming too much liquidity. 0:17:44.800 --> 0:17:47.600 They are blaming speculation as well, some of the domestically driven. 0:17:47.600 --> 0:17:50.280 Granted we saw the monetary aggregates overnight. But on the 0:17:50.280 --> 0:17:52.840 other hand, they are blaming global central banks as well. 0:17:53.000 --> 0:17:55.479 So they're saying, look fed or reserve ECB, you're printing 0:17:55.520 --> 0:17:57.359 too much money and we have to deal with the 0:17:57.440 --> 0:18:00.280 consequences here. So China can use price controls as much 0:18:00.320 --> 0:18:02.160 as they can, but the rest of the world less. 0:18:02.160 --> 0:18:05.639 So hence we should be concerned at the combination of 0:18:06.040 --> 0:18:09.920 tightening by China and globally to contain these prices. I 0:18:09.920 --> 0:18:12.800 I look at where we are, Jeffrey you, and I'm 0:18:12.800 --> 0:18:16.200 going to suggest that our radio and TV listeners their 0:18:16.240 --> 0:18:20.960 heads are spinning over all the different opinions, all the theory, 0:18:21.119 --> 0:18:24.520 the Ekano babble that's out there as well, And to me, 0:18:24.600 --> 0:18:28.240 it comes down to the time continuum, the X axis. 0:18:28.320 --> 0:18:31.879 Deutsche Bank looking out past two thousand twenty three with 0:18:32.000 --> 0:18:36.080 their time bomb of inflation, and others looking wicked short term. 0:18:36.119 --> 0:18:38.480 That's a Boston phrase. If you're with b and Y 0:18:38.560 --> 0:18:40.720 Mel and Jeff you, you've got to have a full 0:18:40.800 --> 0:18:45.000 understanding of the phrase wicked. What's the X axis look like? 0:18:45.119 --> 0:18:48.920 For Jeff you? What does your continuum look like from 0:18:48.960 --> 0:18:52.119 now out, one year out, two years, at three years. 0:18:53.040 --> 0:18:55.399 I'm looking at the next six months. Actually, I'm looking 0:18:55.480 --> 0:18:58.960 at what the ECB will signal in September, not today, 0:18:59.000 --> 0:19:02.359 but September. Talking about tapering. If you're looking at Eastern Europe, 0:19:02.359 --> 0:19:05.320 you know they are signaling advancement already a full rate 0:19:05.359 --> 0:19:08.879 cycle being priced in over the next eighteen months or so. 0:19:08.960 --> 0:19:11.959 You're seeing some of that within Scandinavia, Australia, New Zealand, 0:19:12.040 --> 0:19:14.600 like all the list goes on and on. So I 0:19:14.600 --> 0:19:17.000 don't think we should be blase and just go b 0:19:17.160 --> 0:19:20.359 O J like oh, five year inflation expectations are are wherever. 0:19:20.600 --> 0:19:22.399 It's much more about the short term and within the 0:19:22.400 --> 0:19:25.080 next three months we need to see whether these supply 0:19:25.200 --> 0:19:27.800 issues are indeed short term. But if they are going 0:19:27.840 --> 0:19:30.159 to be persistent, then central banks probably will have to 0:19:30.200 --> 0:19:33.040 move and that's going to introduce volatility into the market. So, Jeff, 0:19:33.080 --> 0:19:37.120 what would you be doing right now? So right now again, 0:19:37.160 --> 0:19:39.280 reading the tea leaves in terms of central banks probably 0:19:39.280 --> 0:19:42.440 where in a holding pattern they're heading into August and September. 0:19:42.520 --> 0:19:44.000 Look at the event risk, so you want to be 0:19:44.119 --> 0:19:47.000 light on risk but then start to factor in upside 0:19:47.000 --> 0:19:50.200 surprises for vol and for inflation. Got Jackson Hole coming 0:19:50.280 --> 0:19:53.080 up where there's more communication. ECB September meeting is going 0:19:53.119 --> 0:19:55.399 to be crucial. German elections is are going to be 0:19:55.440 --> 0:19:59.359 a new era for europe reflation as well. The UK taper, 0:19:59.640 --> 0:20:02.360 the furlough scheme coming off, and the bo WE will 0:20:02.400 --> 0:20:04.520 decide where they want to move towards a new regime. 0:20:04.640 --> 0:20:06.159 So I think all of this can actually happen in 0:20:06.240 --> 0:20:08.720 the next three months, So for those waiting for another 0:20:08.800 --> 0:20:10.680 year or so, I think that's going to be too late. 0:20:10.840 --> 0:20:13.280 So risk light heading into summer, but you want to 0:20:13.520 --> 0:20:16.159 have some risk on in either direction heading into August 0:20:16.160 --> 0:20:19.160 and September. Any any confidence in the trade of being 0:20:19.240 --> 0:20:24.160 short government banced, so that is still going to be 0:20:24.320 --> 0:20:26.680 highly contingent, you know, on what the FEDS would So 0:20:26.800 --> 0:20:29.719 for the short term, volatility is going to pick up, 0:20:29.720 --> 0:20:33.640 so you want to own fixed income volatility that price wise, 0:20:33.800 --> 0:20:36.800 they're going to keep the range in place because that 0:20:36.960 --> 0:20:39.639 kind of tightening and financial conditions through lower prices and 0:20:39.760 --> 0:20:41.600 higher yields. That's going to be a step too far 0:20:41.840 --> 0:20:43.680 a central bank of the time being. But you want 0:20:43.720 --> 0:20:45.600 to own a fixed in combab di Jeff for you, 0:20:45.720 --> 0:20:47.639 thank you so much with bn y mel and greatly 0:20:47.680 --> 0:20:57.280 greatly appreciate that. Joining us right now. Sebastian Galley Woria 0:20:58.080 --> 0:21:01.600 coming to us today from Scenic looks a Sebastian, good morning, 0:21:02.680 --> 0:21:05.639 Good morning. What is Luxembourg like? I think you know 0:21:05.720 --> 0:21:09.120 seriously across this nation of America for most of our 0:21:10.000 --> 0:21:14.199 good listeners, including me, I have trouble finding it on 0:21:14.240 --> 0:21:18.400 a map. But but, but seriously, what what does Luxembourg 0:21:18.480 --> 0:21:23.439 look like on a beautiful summer morning. It's beautiful, it's sunny, 0:21:23.440 --> 0:21:26.000 it doesn't mean a lot also um and there are 0:21:26.040 --> 0:21:28.399 cows around, and it's a huge financial center, which is 0:21:28.440 --> 0:21:32.280 a bit unusual, like a small country between Belgium, France, 0:21:32.480 --> 0:21:35.520 uh and in Germany. They speak a dialect which is 0:21:35.640 --> 0:21:37.520 a mixture of all three and they speak French and 0:21:37.920 --> 0:21:40.120 German as well as English. So quite a few people 0:21:40.200 --> 0:21:43.000 coming from the UK here. Is there a dominant language? 0:21:43.200 --> 0:21:47.280 Is French the dominant language? No, it's what they call 0:21:47.400 --> 0:21:50.439 Luxemburg Ley show duxin Bourgeois, which is a local language 0:21:50.720 --> 0:21:54.320 which is a dialect slash language see folks that you 0:21:54.320 --> 0:21:57.800 can learn on surveillance. It's mapping it right now. And yeah, boy, 0:21:58.160 --> 0:21:59.760 I've been all around it. I just haven't been to 0:22:00.359 --> 0:22:03.280 I've been all around semestion. Gilly has been all around 0:22:03.320 --> 0:22:06.679 our economics, financial investment, semeestion. What is the thrust of 0:22:06.720 --> 0:22:09.960 your note after you see the kind of inflation levels 0:22:10.000 --> 0:22:13.640 we speak of in America. Yeah, it's it's a very 0:22:13.640 --> 0:22:16.760 interesting phenomenon because of the reaction the equity markets relatively 0:22:16.840 --> 0:22:21.920 positive for somewhere nonsense futures of two zero five exactly. 0:22:22.080 --> 0:22:24.200 And what what do you have is inflation rising one 0:22:24.240 --> 0:22:27.639 because the bottlenecks number two because people companies find it 0:22:27.680 --> 0:22:31.320 easy to pause through inflation. Why because inflation becomes unstable. 0:22:31.320 --> 0:22:34.119 Once inflation starts to rise, it has a certain tenity 0:22:34.160 --> 0:22:36.160 to rise even more so people think they can pass 0:22:36.160 --> 0:22:39.359 it through. We're gonna get negative economic data because of 0:22:39.400 --> 0:22:42.639 this in the following month. And then wage expectations have 0:22:42.760 --> 0:22:45.760 reset higher because people are much more optimistic. They have 0:22:45.880 --> 0:22:49.040 suffered for decades of low, low wages and suddenly there's 0:22:49.040 --> 0:22:51.800 a reset which is happening that feeds also into a 0:22:51.880 --> 0:22:54.399 higher inflation. So the question, of course is whether this 0:22:54.520 --> 0:22:57.639 is transitory or not. And the answer is and make 0:22:57.680 --> 0:23:00.520