WEBVTT - Surveillance: Pick Value, Inker Says 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 Ferroll and Lisa Brownwitz. Daily we bring you 0:00:13.280 --> 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 --> 0:00:29.800 and of course, on the Bloomberg Terminal. No one has 0:00:29.840 --> 0:00:35.080 been more articulate about value than Grantham, Mayo and Van Otterloo. 0:00:35.200 --> 0:00:39.080 Benninker joins us this morning and supported Jeremy Grantham in 0:00:39.120 --> 0:00:43.560 the need to consider value among raging tech growth. Ben, 0:00:43.560 --> 0:00:46.400 thank you for joining us. You've got a quarterly letter out. 0:00:46.479 --> 0:00:50.360 I love the detail you go into. There's no consultants 0:00:50.360 --> 0:00:52.920 here telling you what to do. What is the number 0:00:52.960 --> 0:00:56.000 one message that we get wrong? As we put in 0:00:56.040 --> 0:01:00.760 the next buy ticket for Apple and Amazon. Uh, the 0:01:00.840 --> 0:01:03.520 number one thing that I think people get wrong is 0:01:03.720 --> 0:01:07.160 if you buy a market, if you buy a company, 0:01:07.200 --> 0:01:10.120 if you buy a situation where things are about as 0:01:10.120 --> 0:01:13.040 good as they have ever been, Uh, You're probably not 0:01:13.160 --> 0:01:17.039 going to get a great return going forward. Uh. You 0:01:17.160 --> 0:01:20.960 get the best returns when you're buying at not the 0:01:21.000 --> 0:01:25.480 best times. This has been a wonderful time for big tech. 0:01:25.560 --> 0:01:27.360 This has been a wonderful time for the S and P. 0:01:28.000 --> 0:01:29.880 You really want to be looking for the places where 0:01:29.880 --> 0:01:32.520 this hasn't been quite as wonderful. Where are they? Where 0:01:32.520 --> 0:01:36.160 where is the mean reversion going constructively back to the mean? 0:01:37.280 --> 0:01:42.080 So what we see is value stocks generally, and I 0:01:42.080 --> 0:01:44.280 think you want to be smart about how you're defining 0:01:44.360 --> 0:01:47.480 value stocks, but honestly, any way you define value stocks, 0:01:47.600 --> 0:01:51.160 they look really cheap relative to history um. And what 0:01:51.240 --> 0:01:56.320 we think is, if you're looking intelligently at the valuations 0:01:56.520 --> 0:01:59.559 of the stocks that have been left behind, they're training 0:01:59.560 --> 0:02:01.480 at some of the biggest discounts to the market we 0:02:01.560 --> 0:02:04.400 have ever seen. Uh, And there doesn't seem to be 0:02:04.440 --> 0:02:07.000 a really good economic reason for it. So sooner or 0:02:07.080 --> 0:02:09.200 later you're gonna get a really good return out. And 0:02:09.320 --> 0:02:11.519 there's a reason why some of the big tech stocks 0:02:11.520 --> 0:02:13.600 have done so well, and it comes from the cash 0:02:13.680 --> 0:02:15.400 that they are generated. It comes from the fact that 0:02:15.440 --> 0:02:17.760 they are somewhat independent of some of the price pressures 0:02:17.880 --> 0:02:20.560 because they don't have as many employees relative to their 0:02:20.600 --> 0:02:23.200 overall cash flow. It also comes from the fact that 0:02:23.240 --> 0:02:26.240 they are on the vanguard of a shift technological shift 0:02:26.480 --> 0:02:29.880 in the community that was frankly accelerated during the pandemic. 0:02:30.280 --> 0:02:32.960 How do you sort of counteract all of those forces 0:02:33.080 --> 0:02:36.280 and say, look, that's all baked in. These other stocks 0:02:36.280 --> 0:02:40.639 are going to benefit as we revert to a normal economy. Well, 0:02:40.639 --> 0:02:43.000 I'd say a couple of things. One is, there's a 0:02:43.000 --> 0:02:45.600 lot of craziness going on in the economy. We do 0:02:45.680 --> 0:02:49.240 see some stocks trading and utterly looney valuations. Big tech 0:02:49.680 --> 0:02:53.360 is not the core of that. Right. You can say, hey, 0:02:53.400 --> 0:02:55.120 Google has been on a great run. You can say 0:02:55.160 --> 0:02:57.639 Apple has been on a great run. They don't look cheap, 0:02:57.800 --> 0:03:00.560 but they don't look stupid. Um, there's any of stuff 0:03:00.600 --> 0:03:03.760 in the market that does look pretty stupid like and 0:03:03.880 --> 0:03:07.959 the um you know, the the Tesla's, the a m 0:03:08.040 --> 0:03:11.720 c s, the meme. Stocks are trading at valuations where 0:03:11.760 --> 0:03:15.960 you have to assume utterly extraordinary things to get a 0:03:16.000 --> 0:03:18.520 decent return. A quarter of the market right now is 0:03:18.560 --> 0:03:23.679 trading at more than ten times sales, which is utterly crazy. 0:03:24.240 --> 0:03:27.920 Stocks trading at ten times sales or more historically have 0:03:28.120 --> 0:03:32.520 underperformed the market profoundly. Um And today a quarter of 0:03:32.560 --> 0:03:36.040 the market is trading at that huge multiple. But ben 0:03:36.280 --> 0:03:38.360 some people would argue if you try to go to, 0:03:38.360 --> 0:03:41.600 say the Russell two thousand as a value proposition, because 0:03:41.600 --> 0:03:43.920 they tend to be less loved, you end up buying 0:03:43.920 --> 0:03:46.000 a lot of AMC, a lot of Game Stop, which 0:03:46.040 --> 0:03:48.880 suddenly account for a big proportion of these indexes. How 0:03:48.880 --> 0:03:53.520 do you get around that? Well, I think buying buying 0:03:53.520 --> 0:03:56.240 the industries right now is a tough thing, right, because 0:03:56.280 --> 0:03:59.280 whenever you're buying the industries, you are buying those stocks 0:03:59.320 --> 0:04:02.960 which have very high market caps. In the case of 0:04:03.120 --> 0:04:06.320 you know, Apple and Amazon and stuff, they are legitimately 0:04:06.400 --> 0:04:09.400 huge companies. For some of these companies, a mc is 0:04:09.400 --> 0:04:12.360 is a wonderful example. The company isn't huge, just the 0:04:12.400 --> 0:04:15.720 market cap has exploded, um, And I think you want 0:04:15.720 --> 0:04:19.200 to be careful doing anything that assumes that that market 0:04:19.240 --> 0:04:22.159 cap is correct. Right. The Russell has had a heck 0:04:22.240 --> 0:04:26.200 of a run since the lows of last year. It 0:04:26.440 --> 0:04:29.240 is not cheap either. I'm not making the argument that 0:04:29.560 --> 0:04:31.720 the S and D is expensive by the Russell too. 0:04:31.880 --> 0:04:35.040 I'm saying growth has been on a great run. Growth 0:04:35.080 --> 0:04:40.920 is expensive by value, Benn and Kurt. Value is founded 0:04:41.040 --> 0:04:44.520 on certain bibles. One of them is Graham, Dot and Coddle. 0:04:44.600 --> 0:04:47.120 You and I read it cover to cover ages ago. 0:04:47.240 --> 0:04:50.680 You guys have led the charge on growth. The growthiness 0:04:50.720 --> 0:04:53.800 that we've got now is unusual. All of that is 0:04:53.880 --> 0:04:57.919 based UNFED and central banks blowing out their balance sheets. 0:04:58.440 --> 0:05:02.360 How do you perceive market it's reacting when they finally 0:05:02.360 --> 0:05:05.120 have to pull in their balance sheets or at least 0:05:05.400 --> 0:05:10.160 stabilize them. You know, I really wish I knew. You know, 0:05:10.440 --> 0:05:13.159 it's not just that what the FED has done in 0:05:13.200 --> 0:05:17.680 the aftermath of of COVID has been unprecedented, and even 0:05:17.720 --> 0:05:21.279 insofar as we have precedents, we saw what happened in 0:05:21.320 --> 0:05:25.480 the GFC. Man, it's really hard to truly disentangle the 0:05:25.520 --> 0:05:28.440 impact of quantitative using from the impact of very low 0:05:28.440 --> 0:05:31.320 interest rates. I mean, yes, we had a taper tantrum, 0:05:31.480 --> 0:05:36.159 but it was a pretty short term phenomenon. The FED 0:05:36.320 --> 0:05:39.839 has this belief that balance sheet expansion is the equivalent 0:05:40.000 --> 0:05:43.640 of of a of a further drop in interest rates. 0:05:44.200 --> 0:05:49.520 Um that belief is not really backed by strong empirical evidence. 0:05:50.080 --> 0:05:54.080 I don't know what impact the FED balance sheet and 0:05:54.120 --> 0:05:57.320 the expansion of the FED balance sheet has had um 0:05:58.120 --> 0:06:01.360 it it seems it would be the kind of thing 0:06:01.400 --> 0:06:04.680 that would push people more into risky assets. But when 0:06:04.720 --> 0:06:08.000 we've tried to crunch the data, we don't see an 0:06:08.040 --> 0:06:11.440 obvious smoking gun. For Here's how that that impacted the 0:06:11.480 --> 0:06:14.440 market before, Here's how undoing it is going to impact 0:06:14.440 --> 0:06:17.680 the market now. Ben valuable inside this morning. We appreciate it. 0:06:17.680 --> 0:06:20.000 Ben into that f g M the head of US 0:06:20.040 --> 0:06:28.440 Allocation right now to continue our discussion of now what 0:06:28.720 --> 0:06:32.479 for Central Asia? Robert Harmatz joins us. He's the title 0:06:32.600 --> 0:06:37.039 and advisors that barely describes a cross party public service 0:06:37.080 --> 0:06:41.000 to this nation. Yes, working with Secretary Clinton, but long 0:06:41.040 --> 0:06:44.560 ago and far away, working for others and driving the 0:06:44.600 --> 0:06:48.159 hundred and forty eight miles from Cobble to the Khaiber Pass. 0:06:48.600 --> 0:06:50.960 Bob Hormetts, you're one of the few people with real 0:06:51.080 --> 0:06:54.440 boots on the ground experience over there. How does the 0:06:54.560 --> 0:07:00.240 United States now manage the Western Pakistan tribal regions? How 0:07:00.240 --> 0:07:06.120 does the United States manage a new relationship with Pakistan? Well, 0:07:06.160 --> 0:07:09.159 it's going to be a challenge because we've seen the 0:07:09.279 --> 0:07:14.440 Taliban as our enemy for so long, and now we 0:07:14.480 --> 0:07:17.880 find that we're working with them to help get people 0:07:18.120 --> 0:07:21.800 out of the country. And I suspect that over a 0:07:21.840 --> 0:07:24.640 period of time we're gonna have to have something of 0:07:24.640 --> 0:07:28.680 a dialogue with the Caliban. The other point is that 0:07:29.160 --> 0:07:32.960 the bigger threat of the United States is really ISIS 0:07:33.040 --> 0:07:37.240 or isis K, and the Caliban is their arch enemies. 0:07:37.280 --> 0:07:40.880 So it may turn out that if isis K starts 0:07:42.000 --> 0:07:47.560 threatening its neighbors or US over the longer run, we're 0:07:47.560 --> 0:07:50.560 gonna have to work with the Taliban who try to 0:07:50.600 --> 0:07:53.720 suppress them. In fact, in the earlier agreement they said 0:07:53.760 --> 0:07:56.800 that they would not allow terrorists to operate from their territory. 0:07:57.000 --> 0:07:59.000 But I want you to take a broader picture here, 0:07:59.040 --> 0:08:01.160 which only you can do. You know, you're darkened the 0:08:01.160 --> 0:08:03.360 door toughs a few years ago. You can do this. 0:08:03.920 --> 0:08:06.520 I want you to take us back to John Kenneth 0:08:06.600 --> 0:08:12.640 Galbraith is Ambassador to India, and we had to manage India, 0:08:12.920 --> 0:08:17.840 Pakistan and Afghanistan. What do we do now. We don't 0:08:17.880 --> 0:08:21.600 have Robert Hormats, we don't have j KG. What do 0:08:21.640 --> 0:08:26.840 we do now to manage that that strange relationship. Well, 0:08:26.840 --> 0:08:31.600 it is gonna be difficult. The Indians themselves now, who 0:08:31.720 --> 0:08:36.400 have regarded Pakistan of course as a threat, are worried 0:08:36.400 --> 0:08:39.240 about several things. They're worried about the fact that there 0:08:39.280 --> 0:08:46.600 may be Johadas elements based in Afghanistan who move over 0:08:46.800 --> 0:08:53.000 into Pakistan or the disputed territories or Kashmir and UH 0:08:53.480 --> 0:08:57.440 pose threats to India. So what India is now doing 0:08:57.480 --> 0:09:02.080 already we've just learned, is they been having UH secret 0:09:02.120 --> 0:09:06.520 meetings with Taliban authorities to try to make sure that 0:09:06.600 --> 0:09:13.199 the Taliban can control these forces in the country and elsewhere. Bob, 0:09:13.280 --> 0:09:16.400 you know we talked to John Bolton about this yesterday. Bob, 0:09:16.440 --> 0:09:18.760 you're the expert at this. Should Lincoln be on the 0:09:18.760 --> 0:09:22.640 next plane to Delhi? Well, I do think we need 0:09:22.679 --> 0:09:24.800 to have a lot of cooperation with Deli, and I 0:09:24.800 --> 0:09:27.760 would certainly if I were Tony b Lincoln be working 0:09:27.840 --> 0:09:31.440 with the with the Indians UM on how we deal 0:09:31.920 --> 0:09:36.640 with the Taliban and how we controlled ISIS and ISIS 0:09:36.640 --> 0:09:39.760 groups that are in that are in Pakistan that could 0:09:40.200 --> 0:09:44.520 cause lots of destructions both in India, UH and UH 0:09:44.559 --> 0:09:47.880 and the areas around it, and certainly could play a 0:09:48.080 --> 0:09:52.360 disruptive role in Kashmir. The other interesting thing is that 0:09:52.480 --> 0:09:55.280 we may have a lot of interests in common with 0:09:55.360 --> 0:09:59.760 the Chinese and the Russians. They're concerned about ISIS and ISIS, 0:10:00.320 --> 0:10:03.280 and they want to be able to work with in China, 0:10:03.280 --> 0:10:06.240 of course as a border with Afghanistan, so they want 0:10:06.240 --> 0:10:10.240 to work with the Afghanis to try to control these 0:10:10.320 --> 0:10:14.920 movements that could base themselves in Afghanistan but could be 0:10:15.040 --> 0:10:18.160 disruptive to the region itself. Bob taking a step back, 0:10:18.440 --> 0:10:21.080 there is a concern that President Biden talks in a 0:10:21.160 --> 0:10:25.120 much nicer tone toward the Allies, toward Europe in particular, 0:10:25.679 --> 0:10:29.480 but doesn't necessarily act that differently than the Trump administration 0:10:29.520 --> 0:10:32.280 when it comes to policies and the way that things 0:10:32.360 --> 0:10:35.280 are carried out. And that's one thing that people have 0:10:35.559 --> 0:10:39.080 argued has just been perpetuated with the Afghanistani exit. How 0:10:39.200 --> 0:10:42.280 much do you think that they are actually changing the 0:10:42.400 --> 0:10:47.800 dynamic post Trump versus just continuing it. Well, this particular 0:10:47.840 --> 0:10:52.360 incident is going to have an impact because the Allies 0:10:52.400 --> 0:10:56.760 were concerned, they work consulted in advance, and now, of 0:10:56.760 --> 0:11:00.480 course the Germans are having elections and ref of Geez 0:11:00.880 --> 0:11:03.480 from Afghanistan are going to be one issue. Do the 0:11:03.520 --> 0:11:06.959 Germans take them? Do they how much they trust the 0:11:07.040 --> 0:11:09.840 United States. I think we're gonna see, in part as 0:11:09.880 --> 0:11:14.199 a result of this, a much closer set of ties 0:11:14.840 --> 0:11:18.679 and consultations between the United States and many of our 0:11:18.679 --> 0:11:22.000 allies in many countries that are not allies about how 0:11:22.040 --> 0:11:25.000 to deal with the Taliban, and particularly how to deal 0:11:25.040 --> 0:11:27.400 with this refugee issue. This is going to be a 0:11:27.520 --> 0:11:30.480 very big issue in American politics, and we have just 0:11:30.679 --> 0:11:35.120 begun to recognize this there now in temporary quarters. But 0:11:35.240 --> 0:11:38.920 we've got to find long term homes for a lot 0:11:38.960 --> 0:11:40.800 of these people, and we're gonna have to work with 0:11:40.840 --> 0:11:44.600 the allies to do it. So I think the lack 0:11:44.679 --> 0:11:47.680 of real preconsultations in the eyes of some of these 0:11:47.679 --> 0:11:50.280 countries is going to mean we're gonna spend a lot 0:11:50.360 --> 0:11:53.640 more time working with the allies on a multitude of 0:11:53.800 --> 0:11:59.240 post um takeover Taliban issues. Ambassador hermits, thank you so 0:11:59.320 --> 0:12:07.360 much for joining us today with Taman advisors. It is 0:12:07.400 --> 0:12:11.160 not to be understood that we invented this out of 0:12:11.320 --> 0:12:16.200 thin air. Long ago, Paul and far away, there was 0:12:16.240 --> 0:12:20.480 a plan, and off the back of an envelope. The plan, 0:12:20.600 --> 0:12:22.600 I had a beverage of my choice at my left hand, 0:12:22.800 --> 0:12:27.920 was well, wait a minute, Richard Edelman says this, and 0:12:28.000 --> 0:12:31.600 I can't convey to all listening nationwide and around the 0:12:31.640 --> 0:12:38.160 world the importance of the Edelman Trust Barometer and launching me. 0:12:39.040 --> 0:12:45.000 It's breathtaking. Richard Edelman joins us four years on through 0:12:45.040 --> 0:12:49.800 a Pandemic to tell us about the trust barometer of 0:12:49.840 --> 0:12:53.000 our institutions. As always, Richard Edelman, thank you so much 0:12:53.640 --> 0:12:58.200 for joining. What have you learned in the pandemic? Tom? 0:12:58.240 --> 0:13:02.679 The most important finding of this study is the rise 0:13:02.840 --> 0:13:07.640 of belief driven employees. And the employee is no longer 0:13:07.760 --> 0:13:12.880 willing just to work for pay and advancement. He or 0:13:12.920 --> 0:13:19.200 she wants flexible work hours and also wants to work 0:13:19.240 --> 0:13:24.840 for a company that is dedicated to improving society. And 0:13:25.040 --> 0:13:29.120 the amazing thing, Tom is somewhere between. Depending on the 0:13:29.160 --> 0:13:33.320 country of employees say that they're going to quit in 0:13:33.320 --> 0:13:36.120 the next six months. They've gotten through the pandemic and 0:13:36.559 --> 0:13:40.000 they want something new. By two to one, the reason 0:13:40.080 --> 0:13:47.160 for quitting is societal ambition of their employer. They don't 0:13:47.160 --> 0:13:50.360 agree with the values of the company. Said that only 0:13:51.120 --> 0:13:54.080 say it's because of cash, compensation or advancement. Come on, 0:13:54.240 --> 0:13:57.040 you're not Tony, I mean, I get what you're saying, Richard. 0:13:57.920 --> 0:14:01.280 The bottom the bottom line is is they want to 0:14:01.320 --> 0:14:06.240 be paid more and find a social belief in their CEO. 0:14:06.640 --> 0:14:11.600 You're telling me, No, I'm telling you that table stakes 0:14:11.920 --> 0:14:18.120 is the wages and upside in their career and the 0:14:18.160 --> 0:14:24.520 additional aspects of flexibility on hybrid work or um you know, 0:14:24.760 --> 0:14:28.360 for example, a staggered ship for a manufacturing company so 0:14:28.400 --> 0:14:30.120 that you don't have to be there at seven am 0:14:30.240 --> 0:14:31.920 on the GM line. You could be there at eight 0:14:31.960 --> 0:14:34.520 if you're a mom or dad dropping a kid at school, 0:14:34.880 --> 0:14:37.120 but then you still could work the eight hours. We 0:14:37.240 --> 0:14:39.160 were going to have to figure this out, that there's 0:14:39.160 --> 0:14:41.680 a new social contract that we're going to have to create, 0:14:42.040 --> 0:14:45.120 and it can't just be for the white collar worker. 0:14:45.200 --> 0:14:48.120 And well, that's the unfairness of it all. What's so important, Paul, 0:14:48.120 --> 0:14:50.360 I gotta paint the picture for you. I mean, Davos 0:14:50.840 --> 0:14:55.400 and Lionel Barber would have as Wednesday opening Ft Edelman 0:14:55.440 --> 0:14:58.840 Trust Barometers soire and they would invite me and you know, 0:14:58.920 --> 0:15:01.880 be Richard Edelman in my Moses and you know, Julie 0:15:01.880 --> 0:15:05.480 Andrews singing in the background. Richard, You've done this year 0:15:05.520 --> 0:15:09.560 after year. Is this about corporations and the new belief? 0:15:10.040 --> 0:15:13.280 Or is it about the failure of government? Is an institution? 0:15:15.280 --> 0:15:19.400 As always, Tom, it's a little of both. Government has 0:15:19.440 --> 0:15:22.720 disappointed us. I mean the most recent is what are 0:15:22.720 --> 0:15:26.120 we supposed to be doing about vaccinations as employers were 0:15:26.200 --> 0:15:28.480 left on our own? You know, do we mandate them? 0:15:28.640 --> 0:15:30.480 Do we say you have to have a vaccine before 0:15:30.480 --> 0:15:32.560 you come to the office, Do we wear masks? I mean, 0:15:32.800 --> 0:15:35.320 all of this has a bitten limbo. So business is 0:15:35.360 --> 0:15:38.520 stepping into the void left by government, and that's increasingly 0:15:38.640 --> 0:15:45.560 true on pay, on benefits, on even vaccination. So it 0:15:45.680 --> 0:15:51.440 is true, though, interestingly, that if a employer has high 0:15:51.480 --> 0:15:55.440 trust from its employees, it drags up all the institutions 0:15:55.440 --> 0:15:58.240 and trust. It's one of the shockers in this study is, 0:15:58.640 --> 0:16:01.600 you know, if you have an nine or above on 0:16:01.640 --> 0:16:05.480 a sent scale level of trust in your employer, all 0:16:05.520 --> 0:16:10.080 the other institutions um from media to business get much 0:16:10.160 --> 0:16:13.360 higher scores. And if it's only a level five, then 0:16:13.360 --> 0:16:19.320 we're in trouble of trust in institutions. Richard, I wonder 0:16:19.360 --> 0:16:21.520 how much of this is a function of the fact 0:16:21.520 --> 0:16:25.320 that pre pandemic, we're at full employment now coming out 0:16:25.400 --> 0:16:28.440 of the pandemic, despite the delta variant. You know, there's 0:16:28.480 --> 0:16:31.680 a lots of employers that need lots of employees, so 0:16:31.800 --> 0:16:34.840 there's some leverage for the employee. How much it is 0:16:34.920 --> 0:16:37.880 that or how much is it again? Like as you're 0:16:37.920 --> 0:16:42.000 suggesting a real fundamental change in the construct between employer 0:16:42.000 --> 0:16:46.320 and employee, I think in the back of every employee's 0:16:46.360 --> 0:16:49.960 head is still I'm afraid of being fired on the 0:16:50.000 --> 0:16:55.720 basis of UH artificial intelligence or or other attack. Um 0:16:56.680 --> 0:17:01.840 people say that still today, and so there is thinking. Look, also, 0:17:02.360 --> 0:17:06.240 I've just seen my mom die. Americans actually had a 0:17:06.359 --> 0:17:09.240 person they knew passed away or be sick from COVID. 0:17:09.760 --> 0:17:13.240 That that that's a big shock to the system. So, um, 0:17:13.280 --> 0:17:15.560 you know, we're having traumatic stress syndrome a little bit, 0:17:15.680 --> 0:17:18.200 and we're reevaluating who we are and what we want 0:17:18.240 --> 0:17:20.679 to be. And that's why I think it's a tripod. 0:17:20.760 --> 0:17:25.840 Now it's pay and upside, it's flexible work conditions, and 0:17:25.920 --> 0:17:29.680 I want to work for an employer. I want to succeed. 0:17:30.000 --> 0:17:33.840 You know, it's really important to have all three. Richard Edleman, 0:17:33.880 --> 0:17:36.399 thank you so much for your support of our effort 0:17:36.480 --> 0:17:39.320 over the years. And folks, I can't say enough about 0:17:39.359 --> 0:17:42.880 the Edelman Trust parameter and the other social studies that 0:17:43.040 --> 0:17:47.480 Edelman and company do. Richard Edelman, the founder of Edelman 0:17:47.600 --> 0:17:54.679 and Company. Let's catch up with Roadleshawi Capital you can 0:17:54.680 --> 0:17:56.639 always found it and Shairman and the author of a 0:17:56.680 --> 0:17:59.600 book The Death of Inflation that was the mid niceties. 0:17:59.720 --> 0:18:02.359 Rogie joined us. Now it's one And Roger, if you 0:18:02.359 --> 0:18:06.359 wrote that book today, what would the title be. I'm 0:18:06.400 --> 0:18:08.479 not sure. I think I might be tempted to call 0:18:08.520 --> 0:18:12.360 it the Rebirth of Inflation. I probably adopt a completely 0:18:12.359 --> 0:18:14.720 different title. The title, you know, at the time n 0:18:15.280 --> 0:18:19.960 I published it caused fantastic argument the Bundas Bank, in particular, 0:18:20.000 --> 0:18:23.160 We're very angry with me inflation, they said, comp possibly, 0:18:24.240 --> 0:18:27.639 I'm worried about inflation researching now, Roger Buda. We had 0:18:27.680 --> 0:18:30.359 Jeff Lacker on the other day, the former president Richmond 0:18:30.400 --> 0:18:33.600 fed and he was extremely articulate about a need for 0:18:33.680 --> 0:18:37.280 preemptive central banks. And I asked him where the inflation 0:18:37.320 --> 0:18:40.600 east has got wrong? And at the same time I 0:18:40.680 --> 0:18:45.800 talked to Geea gopinath Off Jackson Hall about modern monetary theory. 0:18:46.040 --> 0:18:49.080 In the last ten years, have we simply moved our 0:18:49.200 --> 0:18:54.280 inflation dynamic, our price dynamic over to a balance sheet dynamic, 0:18:54.320 --> 0:18:57.359 whether it's fiscal policy or it's all this debt build 0:18:57.440 --> 0:19:01.200 up we see out there. I don't think either of 0:19:01.240 --> 0:19:03.560 those things really. I think what's happened is a combination 0:19:03.600 --> 0:19:06.359 of two things. First of all, we've continued to have 0:19:06.880 --> 0:19:10.520 various supply factors which have been bearing down on inflation, 0:19:10.560 --> 0:19:13.760 and those are the things that I identified in the 0:19:13.800 --> 0:19:16.560 middle Night is they've been continuing. And then, of course, 0:19:16.600 --> 0:19:19.920 for a variety of reasons, we've had a relatively weak demand. 0:19:20.680 --> 0:19:24.720 And in key countries like the US, I think those 0:19:24.760 --> 0:19:27.560 two conditions are now are now changing, and the US 0:19:27.600 --> 0:19:32.520 economy is surging. You've got this massive stimulus from policy 0:19:32.600 --> 0:19:34.560 at a time when I don't think there's quite the 0:19:34.640 --> 0:19:38.760 same downward pressure on prices from various supply factors, and 0:19:38.800 --> 0:19:42.200 in many cases, of course there's upward pressure on prices. 0:19:42.480 --> 0:19:45.880 As for M M T, I think it's just quite frankly, 0:19:45.960 --> 0:19:50.560 profoundly misguided. Roger. Can we get sustained increases in inflation 0:19:50.680 --> 0:19:54.000 without more wage inflation? And and b somewhere we are 0:19:54.280 --> 0:19:58.439 wage inflation that we're not seeing. Well, you can in 0:19:58.520 --> 0:20:01.879 some circumstances, and I think a pretty unlikely. I mean, 0:20:01.880 --> 0:20:05.200 you've got to have either a very very marked shift 0:20:05.240 --> 0:20:09.399 towards profits or big increases in external costs which are 0:20:09.400 --> 0:20:12.440 pushing inflation for a considerable time. In the end, of course, 0:20:12.480 --> 0:20:14.359 that will come to an end. No, I think you know, 0:20:14.440 --> 0:20:19.040 in really to continue with high inflation for quite a while, 0:20:19.359 --> 0:20:23.200 we're gonna need wage inflation. At the moment. There are 0:20:23.240 --> 0:20:25.399 some signs of that depends where you look, but in 0:20:25.480 --> 0:20:27.560 some countries wages and going up quite a lot. But 0:20:27.640 --> 0:20:31.040 you know, the whole thing about inflationary process. This is 0:20:31.040 --> 0:20:33.640 what makes it so difficult to forecast, to set policy 0:20:34.080 --> 0:20:36.560 is the answers aren't always obvious to you. Aren't given 0:20:36.600 --> 0:20:39.760 you on a plate. You don't suddenly see the whole 0:20:39.800 --> 0:20:43.919 process and form immediately. It happens over time, gradually. Right, 0:20:43.960 --> 0:20:46.760 You're one final question very important here. You can literally 0:20:46.760 --> 0:20:48.600 be lined up right now working at the Bank of 0:20:48.640 --> 0:20:54.080 England helping Governor Bailey. Do you do you presume smooth 0:20:54.160 --> 0:20:58.960 curves in smooth reaction functions when we're finally over with 0:20:59.000 --> 0:21:02.120 the stimulus already, or do you have an angst out 0:21:02.160 --> 0:21:06.160 there about jump conditions we don't see coming. Well, I'm 0:21:06.160 --> 0:21:08.119 worried about a jump and this is one of the 0:21:08.160 --> 0:21:11.280 reasons why I would act on policy sooner rather than 0:21:11.359 --> 0:21:14.879 later in both the States actually and the UK. These 0:21:15.280 --> 0:21:19.639 current levels of interest rates are absurdly low. The monetary 0:21:19.640 --> 0:21:22.920 stimulus is extraordinary in the course of history. We've got 0:21:22.960 --> 0:21:25.800 to move back to some sort of normality, and I 0:21:25.840 --> 0:21:28.159 would do it sooner rather than later, and do it 0:21:28.240 --> 0:21:31.480 gradually in order to avoid the thing you're referring to. Tom. 0:21:31.680 --> 0:21:33.320 That's to say that at some point or other we 0:21:33.440 --> 0:21:36.639 get a shock and the policy mat makers will react. Roger, 0:21:36.760 --> 0:21:38.199 thank you, sir. It's going to hear from you as 0:21:38.200 --> 0:21:40.800 always rot a good or their Capital Economics founder and chairman, 0:21:40.920 --> 0:21:48.960 or perhaps the rebirth the rebirth inflation. Right now, I 0:21:48.960 --> 0:21:51.239 want to rationalize to the year end, and we do 0:21:51.320 --> 0:21:55.080 that with James Ay of Standard Charter thrill that he 0:21:55.119 --> 0:21:59.800 could join his standard investors everytheen Standard Investments, I should say, James, Ah, 0:22:00.000 --> 0:22:04.639 thank you so much for joining us. James, it's September one. 0:22:04.960 --> 0:22:11.359 Guys like you have to rerationalize till twelve one one. 0:22:12.080 --> 0:22:16.000 How much rationalization is going on right now? How much 0:22:16.040 --> 0:22:22.480 of institutional money is behind the benchmark. I mean that's 0:22:22.520 --> 0:22:25.399 a good question. Yeah, I mean the fourth quarter brings 0:22:25.440 --> 0:22:28.399 with it it's a special set of dynamics normally, summer 0:22:28.440 --> 0:22:31.159 has tended to be a quiet period and certainly in 0:22:31.240 --> 0:22:34.359 terms of primary market activity, it's generally pretty dead. And 0:22:34.400 --> 0:22:35.920 then as we get towards the end of August, we 0:22:35.960 --> 0:22:38.320 look into the fourth quarter and think, well, there's still 0:22:38.320 --> 0:22:39.840 a heck of a lot of companies and governments out 0:22:39.880 --> 0:22:41.760 there with funding needs. They're going to come to market, 0:22:41.840 --> 0:22:45.040 So you get this kind of concession events into the 0:22:45.040 --> 0:22:49.160 fourth quarter supply. This year it's a bit more complicated 0:22:49.200 --> 0:22:52.280 because we've got the potential for some some relatively major 0:22:52.320 --> 0:22:57.000 monetary policy changes as well. Both of those have the 0:22:57.080 --> 0:23:00.400 potential to drive bondial it's higher. But as you guys 0:23:00.440 --> 0:23:04.200 were talking about in your previous section there, thinking about 0:23:04.240 --> 0:23:06.600 bond jeals in isolation doesn't get you very far. You 0:23:06.640 --> 0:23:08.880 have to think about what's going to happen to bondels, 0:23:08.880 --> 0:23:10.680 what's gonna happen to yield curve, what's going to happen 0:23:10.720 --> 0:23:12.600 to the dollar, and what does that mean for risk assets? 0:23:12.600 --> 0:23:14.640 And that's where it gets a bit more complicated. I'm 0:23:14.680 --> 0:23:16.760 still off the opinion that fourth quarter is going to 0:23:16.800 --> 0:23:19.520 be about flattery. You're curve in the US John Standard 0:23:19.520 --> 0:23:23.560 pours five twelve months trailing up twenty eight percent year 0:23:23.640 --> 0:23:26.560 to day. Johanet's terrible, it's up twenty It's not bad, 0:23:26.680 --> 0:23:29.840 is It's people are behind a lot of people, And James, 0:23:29.880 --> 0:23:31.600 I think the big question right now is what dense 0:23:31.720 --> 0:23:35.080 risk appetite. We know that the equity market can go 0:23:35.200 --> 0:23:38.200 higher in a rising rate regime over the federal reserve. 0:23:38.280 --> 0:23:40.479 We know that the equity market can rally even as 0:23:40.520 --> 0:23:46.000 they pull back on QUEI what will hit risk appetite? Yeah, 0:23:46.000 --> 0:23:48.919 I mean we know all of these things until we don't. Now. 0:23:49.000 --> 0:23:52.240 I try really hard to avoid foiling into sort of 0:23:52.320 --> 0:23:56.480 some of the basic cognitive bias traps, and the status 0:23:56.560 --> 0:23:59.439 quo bias, I think is one of the one of 0:23:59.440 --> 0:24:01.639 the strong, as we have a tendency to believe that 0:24:01.680 --> 0:24:04.080 what is true today will continue to be true tomorrow 0:24:05.200 --> 0:24:07.040 by the same token. I can see here in front 0:24:07.080 --> 0:24:08.919 of you guys week after week saying I think the 0:24:08.920 --> 0:24:12.480 equity market is fragile, and I'll end up with egg 0:24:12.520 --> 0:24:14.080 on my face more often than not. But I think 0:24:14.080 --> 0:24:16.000 the kind of equity market that we live in now 0:24:16.080 --> 0:24:19.840 is one where you know, you get such long periods 0:24:19.840 --> 0:24:22.240 of this grinding, low volatility rally, but when it does 0:24:22.320 --> 0:24:24.600 crack it you get all of the volatility in one go. 0:24:24.720 --> 0:24:27.159