WEBVTT - Inflation Shocker 0:00:01.320 --> 0:00:12.920 Scrap on your parachute. It's time for What Goes Up. Hello, 0:00:13.000 --> 0:00:16.239 and welcome to What Goes Up, a weekly markets podcast. 0:00:16.680 --> 0:00:19.840 I'm Mike Reagan, a senior editor at Bloomberg, and this 0:00:19.920 --> 0:00:22.480 week on the show, we're gonna talk about the reinflation 0:00:22.560 --> 0:00:26.160 report that was heard around the world. In a shocking surprise, 0:00:26.239 --> 0:00:29.280 the U S reported that consumer prices rose four point 0:00:29.360 --> 0:00:32.680 two on a year over year basis in April. That's 0:00:32.720 --> 0:00:36.239 the fastest in almost thirteen years, and if you exclude 0:00:36.240 --> 0:00:39.360 food and energy, the month over month jump in core 0:00:39.479 --> 0:00:44.360 cp I was the biggest since stock market duly freaked 0:00:44.360 --> 0:00:46.479 out about it. It worried that it's a sign that 0:00:46.520 --> 0:00:50.360 the Federal Reserve will have to tighten monetary policy sooner 0:00:50.400 --> 0:00:53.360 than later. We're gonna get into it with a macro 0:00:53.520 --> 0:00:57.720 strategist from a big bank this week, But first, Charlie Pellett, 0:00:57.800 --> 0:01:02.480 let's introduce this week's mystery cohost. This week's mystery co 0:01:02.640 --> 0:01:06.680 host is Joanna awesome erp. Joanna is on Bloomberg's cross 0:01:06.720 --> 0:01:10.880 Aset team in Singapore. She has visited all fifty States, 0:01:11.040 --> 0:01:14.200 has met Gerald Ford and Jimmy Carter, and once bumped 0:01:14.200 --> 0:01:20.040 into Alec Baldwin twice in three days. She loves to travel, 0:01:20.280 --> 0:01:23.880 and she says, for fun, she visits the stock exchanges 0:01:24.200 --> 0:01:27.920 in whatever country she's in, And then it has Reagan 0:01:27.959 --> 0:01:33.800 wondering if she actually knows the definition of the word fun. Joanna. 0:01:33.880 --> 0:01:36.880 Usually Charlie's insult comedy is aimed at me, but I 0:01:36.880 --> 0:01:39.000 guess he knows we we know each other well enough 0:01:39.040 --> 0:01:41.240 that he could give you a dig there with that one. 0:01:41.400 --> 0:01:43.920 But I have to ask, what is the most interesting 0:01:43.959 --> 0:01:48.960 stock exchange you you visited. I enjoyed the Warsaw one 0:01:49.280 --> 0:01:55.040 partially because they had a tank of Piranha's outside the 0:01:55.080 --> 0:01:58.040 c e o S office, and I remember the PR 0:01:58.160 --> 0:02:02.160 person talking about how, oh yeah, sometimes they just kind 0:02:02.160 --> 0:02:05.120 of all gang up and eat one, and it kind 0:02:05.160 --> 0:02:08.760 of seemed like a nice reflection of capitalism in general. 0:02:11.320 --> 0:02:14.840 But I have to say I also loved uh seeing 0:02:15.200 --> 0:02:19.400 c boat with Bill Brodsky, who had this huge collection 0:02:19.760 --> 0:02:24.520 of images of exchanges from around the world historically, from 0:02:24.560 --> 0:02:27.040 centuries past and everything, and gave me this huge tour 0:02:27.120 --> 0:02:32.040 of it. It was that was amazing for an exchange junkie. 0:02:32.040 --> 0:02:34.480 But um, but there are a lot of really interesting 0:02:34.480 --> 0:02:37.919 ones and their beautiful buildings and everything. So yeah, it's 0:02:37.960 --> 0:02:41.720 definitely fun. I promise you know I'm changing my tune 0:02:41.760 --> 0:02:44.000 here that is that does sound pretty fun. The problem 0:02:44.040 --> 0:02:46.000 I did not know about the pranhas. We've got a 0:02:46.000 --> 0:02:48.280 lot of fish tanks at Bloomberg. Maybe we could slip 0:02:48.280 --> 0:02:50.880 a pewn into one of them. I'm kidding. I'm kidding. 0:02:51.600 --> 0:02:55.480 Don't fire me over over that. But but anyway, and 0:02:55.720 --> 0:02:58.040 you know, I'm setting a theme with you, Joanna with 0:02:58.160 --> 0:03:01.959 predatory sea life here. You just returned from Baby Shark 0:03:02.040 --> 0:03:05.840 Live with your two kids. How was that? It was 0:03:05.960 --> 0:03:08.799 kind of horrible for the adults. The kids loved it, 0:03:09.040 --> 0:03:12.560 and of course that's why you go, right, but the 0:03:12.680 --> 0:03:16.600 plot is pretty vapid, and um, I was actually falling 0:03:16.600 --> 0:03:21.560 asleep and the kids were away. But I guess, yeah, 0:03:21.600 --> 0:03:23.880 at least we're able to go now, right. But yeah, 0:03:23.880 --> 0:03:26.320 it's one of those you buy the tickets and you're like, oh, 0:03:26.360 --> 0:03:27.920 this is great, and then it gets to it and 0:03:27.919 --> 0:03:30.000 you say, wait, why did I do this? And then, 0:03:32.880 --> 0:03:34.880 by the way, Joanna is joining us from Singapore, so 0:03:34.920 --> 0:03:37.120 that's kind of an interesting little bit of color on 0:03:37.600 --> 0:03:41.440 the economy. And Singapore reopened enough that you can go 0:03:41.520 --> 0:03:44.200 see a show like that, it's pretty good. Yeah, it's 0:03:44.200 --> 0:03:47.680 been doing okay, although actually they've tightened back a little 0:03:47.680 --> 0:03:51.119 bit because they've had more local cases than they've wanted recently, 0:03:51.360 --> 0:03:55.000 so and they're staying that's stubbornly high. So we'll see 0:03:55.000 --> 0:03:56.720 how things go in the next couple of weeks, because 0:03:56.760 --> 0:04:01.600 they've said it's kind of a it could go either way. 0:04:01.640 --> 0:04:06.080 But yes, for the past year or so, it's been um, well, 0:04:06.080 --> 0:04:09.360 I guess maybe ten months, it's been a little bit open. 0:04:09.440 --> 0:04:13.080 But yeah, masks are mandatory in public and with the 0:04:13.160 --> 0:04:17.080 threat of finds or imprisonment, and um, you definitely have 0:04:17.240 --> 0:04:20.040 to play by the rules here, right right, absolutely, as 0:04:20.080 --> 0:04:21.800 in all things, not just the virus. I guess it's 0:04:22.000 --> 0:04:25.880 exactly reputation goes Let's bring in someone who I think 0:04:25.920 --> 0:04:27.680 plays by the rules. I don't know, we'll find out, 0:04:27.760 --> 0:04:30.240 but we'll get get to that. Market's chat now and 0:04:30.480 --> 0:04:33.039 this guy's by now kind of a frequent flyer on 0:04:33.080 --> 0:04:34.960 the What Goes Up? Show, and we're really happy to 0:04:35.000 --> 0:04:36.640 have him back. It's a good week to have him 0:04:37.040 --> 0:04:40.560 with the FED, with interest rates and inflation all coming 0:04:40.600 --> 0:04:44.839 into focus. He is a macro strategist at Wells, Fargo. 0:04:44.960 --> 0:04:47.520 His name is Zach Griffith's Zach. Welcome back to the show. 0:04:48.080 --> 0:04:50.599 Thanks for having me. Always good to join you guys. Yeah, 0:04:50.600 --> 0:04:55.600 and Zach, you know this inflation print this week, you know, obviously, 0:04:55.640 --> 0:04:59.440 I think it's been interesting how vague the Fed has 0:04:59.520 --> 0:05:04.240 been intentionally vague on exactly how hot they will let 0:05:04.320 --> 0:05:07.880 inflation run above there at least what was a previous 0:05:07.960 --> 0:05:11.480 target of two um, and for how long they'll let 0:05:11.480 --> 0:05:14.800 it run. You know, the the duration of transitory, I 0:05:14.839 --> 0:05:17.560 think is is very much open for debate. You know, 0:05:17.600 --> 0:05:21.480 they've they've said they believe this popping inflation will be transitory. 0:05:21.520 --> 0:05:25.960 I'm not sure how long anyone thinks that is. And 0:05:26.080 --> 0:05:28.080 I'm not sure you know, when we thought of inflation 0:05:28.160 --> 0:05:31.440 running hot, boy a CPI that's more than twice that 0:05:31.520 --> 0:05:35.200 two percent target um, although they target pc but close enough. 0:05:35.640 --> 0:05:37.320 I think it's a shocker for a lot of people. 0:05:37.320 --> 0:05:40.320 But I'm wondering, from your perspective, has it really moved 0:05:40.400 --> 0:05:43.600 the needle at all on you know, when we can 0:05:43.680 --> 0:05:46.320 expect that, you know, the quote unquote punch bowl to 0:05:46.440 --> 0:05:48.680 be drained either, you know, the start of tapering of 0:05:48.720 --> 0:05:52.960 asset purchases or the eventual UH normalization of of interest rates. 0:05:53.480 --> 0:05:55.920 Anything changed from this print in your mind as far 0:05:55.960 --> 0:05:59.000 as what how you're thinking about the FED, I'd say 0:05:59.040 --> 0:06:01.800 that's the million dollar quite sin, and our answer is 0:06:01.839 --> 0:06:04.680 not just yet. I think it was well understood that 0:06:04.800 --> 0:06:06.920 at least on a year over year basis, the c 0:06:07.080 --> 0:06:09.600 p I print would be huge. Now I would point 0:06:09.640 --> 0:06:12.160 to the month over month over month figures, which were 0:06:12.200 --> 0:06:15.440 also very impressive zero eight percent on the headline and 0:06:15.520 --> 0:06:17.760 zero point nine percent on the core, So you can't 0:06:17.760 --> 0:06:20.679 really say that this was all driven by base effects 0:06:20.680 --> 0:06:23.680 are all driven by the volatile food and energy components, 0:06:23.720 --> 0:06:27.160 with core pc I U zero point nine percent. So 0:06:27.200 --> 0:06:29.320 I think it's something that the FED will take into account, 0:06:29.440 --> 0:06:33.159 certainly looking at some of these underlying pressures that are 0:06:33.200 --> 0:06:36.919 not necessarily driven by the reopening of the economy or 0:06:37.000 --> 0:06:39.719 driven by supply pressures, and we saw some of that 0:06:39.760 --> 0:06:42.200 in the subcomponents, so I think it it's something they're 0:06:42.240 --> 0:06:44.960 looking at. But they've really set the stage to dismiss 0:06:45.360 --> 0:06:48.800 at least this print and maybe one more as transitory, 0:06:48.880 --> 0:06:50.599 and from there, I think that's when it gets really 0:06:50.640 --> 0:06:52.640 interesting and the FED is going to have to determine 0:06:53.240 --> 0:06:56.280 if these factors are going to be persistent or if 0:06:56.680 --> 0:06:59.000 inflation does come back, call it in June and July 0:06:59.160 --> 0:07:01.320 and they're able to to stay patient. We think that 0:07:01.360 --> 0:07:04.080 with the shift in their longer run framework, they're going 0:07:04.120 --> 0:07:06.400 to remain patient for much longer than they have in 0:07:06.440 --> 0:07:08.680 the past, and they've at least attempted to make that 0:07:08.800 --> 0:07:11.640 very clear with their communication. So we haven't changed our 0:07:11.720 --> 0:07:14.200 view yet. We think that tapering is likely to be 0:07:14.200 --> 0:07:18.440 announced later this year to commence in early two. That 0:07:18.480 --> 0:07:20.840 could change, but this one print does not change your 0:07:20.880 --> 0:07:25.160 mind at least not not yet. Hey, Zach, so wondering 0:07:25.320 --> 0:07:29.320 if there's a specific factor that you're looking at, like 0:07:29.400 --> 0:07:33.600 are you looking at supply chains to see what what 0:07:33.720 --> 0:07:35.800 the direction of inflation might be, or are you looking 0:07:35.840 --> 0:07:38.200 at wages? Are there are there certain things that you 0:07:38.240 --> 0:07:42.120 think of as a tell for you know whether this 0:07:42.200 --> 0:07:45.760 will be something more So, one of the key measures 0:07:45.800 --> 0:07:48.440 that we've kept an eye on for a long time 0:07:48.480 --> 0:07:51.679 and is really a bell weather for where underlying trend 0:07:51.680 --> 0:07:54.320 inflation is going in our view as shelter costs, and 0:07:54.360 --> 0:07:57.679 you did see shelter costs tick up this past month 0:07:57.840 --> 0:08:01.160 with the overall index rising zero point percent, but that 0:08:01.200 --> 0:08:03.520 was really driven by a big jump in hotel and 0:08:03.600 --> 0:08:07.040 motel lodging, and you know, that's kind of a smaller subcomponent. 0:08:07.120 --> 0:08:09.960 But when you look at owners of equivalent rents, which 0:08:10.000 --> 0:08:14.040 we considered to be a better underlying gauge of shelter costs, 0:08:14.040 --> 0:08:16.600 it was still at zero point two percent, which prior 0:08:16.640 --> 0:08:18.960 to the pandemic, it was really ticking along around zero 0:08:19.040 --> 0:08:21.880 point three percent, which doesn't sound like a huge difference, 0:08:21.920 --> 0:08:25.080 but when gauging these underlying trends, it is something that 0:08:25.120 --> 0:08:28.320 we keep an eye on, and if we don't see 0:08:28.640 --> 0:08:32.640 those types of pressures, then perhaps you see inflation pull 0:08:32.720 --> 0:08:35.280 back and call it June and July and the FEDS 0:08:35.280 --> 0:08:38.839 able to keep this patient mantra. But that remains to 0:08:38.880 --> 0:08:41.560 be seen. And you know, our economists have revised up 0:08:41.720 --> 0:08:44.959 their inflation forecast for quarters further out than just Q 0:08:45.160 --> 0:08:47.600 two and Q three of this year, so I think, 0:08:47.880 --> 0:08:50.800 you know, we are seeing real inflation. But as far 0:08:50.840 --> 0:08:53.839 as this one print goes, it's it's not going to 0:08:54.000 --> 0:08:57.400 change the FEDS outlook or communications in our view, and 0:08:57.400 --> 0:09:00.760 it's going to get increasingly difficult, especially later this summer. 0:09:00.800 --> 0:09:03.560 If inflation remains well above that two percent target. But 0:09:03.600 --> 0:09:05.520 we think that they've really set the stage to wait 0:09:05.559 --> 0:09:09.480 and see and even if we have expectations rising and 0:09:10.040 --> 0:09:13.000 remaining very high, they want to see realized data and 0:09:13.240 --> 0:09:17.080 they've made that very clear recently. Yeah, that rent UH 0:09:17.400 --> 0:09:19.640 or owner's equivalent rent I guess it is in CPI 0:09:19.800 --> 0:09:22.040 is such a such an important thing, you know, big 0:09:22.040 --> 0:09:25.080 waiting in cp I. We had a guest on the 0:09:25.160 --> 0:09:28.520 show last week, vincin Delaware, talking also about how the 0:09:29.200 --> 0:09:32.240 you know, I guess every data set has basically been 0:09:32.360 --> 0:09:34.760 ruined by COVID. You know, it's hard to hard to 0:09:34.800 --> 0:09:36.480 make heads or tails out of any of it. But 0:09:36.800 --> 0:09:40.760 with that eviction moratorium, surely must be playing some kind 0:09:40.800 --> 0:09:43.719 of role in in rent. So I wonder if that's 0:09:43.720 --> 0:09:46.120 something to watch going forward to as well as that, 0:09:46.280 --> 0:09:49.320 you know, on Thursday, after the CPI report, we got 0:09:49.760 --> 0:09:53.120 producer prices the pp I induct core pp I up 0:09:53.160 --> 0:09:55.880 four point six percent. I mean, is it, you know, 0:09:56.559 --> 0:09:58.720 is it possible we haven't even seen the peak of 0:09:58.760 --> 0:10:01.439 inflation yet for this year? Do you think? Yeah, that's 0:10:01.440 --> 0:10:03.640 a great point, especially when you consider what's going on 0:10:03.720 --> 0:10:06.559 with commodity prices, whether it be energy or food. It 0:10:06.840 --> 0:10:09.800 seems like everything is rising. Lumber, that's that's been a 0:10:09.880 --> 0:10:12.560 huge one. So when you look at this pp I print, 0:10:12.559 --> 0:10:16.480 which again well above consensus expectations, that would suggest that 0:10:16.559 --> 0:10:22.600 price pressures, consumer price pressures could remain very high further 0:10:22.640 --> 0:10:25.160 down the road. And again that's that's going to be 0:10:25.240 --> 0:10:28.920 what we think shifts the FEDS at last rhetoric or 0:10:28.960 --> 0:10:32.280 perhaps policy if if you do get that later this year. 0:10:32.320 --> 0:10:34.080 So I think that's definitely something to keep an eye on. 0:10:34.120 --> 0:10:36.360 And you make a good point, Mike. I mean, if 0:10:36.360 --> 0:10:39.840 you talk about the non farm payrolls report for April 0:10:39.960 --> 0:10:44.319 that fell below all economists expectations, We had a one 0:10:44.320 --> 0:10:48.400 point four million job range on economists forecast, we were 0:10:48.440 --> 0:10:50.640 below all of those and as far as cp I, 0:10:50.679 --> 0:10:52.720 and I can't say for sure, but I think pp 0:10:52.800 --> 0:10:56.320 I probably came above all of those expectations. So we've 0:10:56.320 --> 0:10:59.160 been really pointing out that economic data is extremely difficult 0:10:59.240 --> 0:11:01.840 to predict at this point, and the market reactions have 0:11:01.960 --> 0:11:05.560 also not really been consistent with what you'd expect, either 0:11:05.600 --> 0:11:08.199 on the downside or upside, at least looking at treasury yields. 0:11:08.200 --> 0:11:09.840 And I think you can make that our argument for 0:11:09.880 --> 0:11:12.439 equities as well. So it's it's interesting. There's a lot 0:11:12.480 --> 0:11:14.560 to keep an eye on. It's very difficult to predict, 0:11:14.600 --> 0:11:17.600 and not only are the numbers themselves difficult to predict, 0:11:17.600 --> 0:11:20.120 but the market reaction also seems to be out of 0:11:20.160 --> 0:11:24.400 whack with what would be considered historical norms. Yeah, so, Zach, Actually, 0:11:24.400 --> 0:11:26.959 since you brought up the payrolls report, it seems like 0:11:27.480 --> 0:11:31.520 a lot of strategists are really looking at you know, 0:11:31.559 --> 0:11:34.240 they're kind of revising what they thought of it. You know, 0:11:34.320 --> 0:11:36.520 there was the initial take on Friday, and people are 0:11:36.520 --> 0:11:40.320 still chewing it over because it was just so surprising 0:11:40.360 --> 0:11:43.880 and complicated. So at this point, what's your take on it? 0:11:44.040 --> 0:11:46.280 Do you what do you think about it? Just kind 0:11:46.280 --> 0:11:49.760 of a big picture. Yeah, our economists have done some 0:11:49.880 --> 0:11:52.280 great work on this, and I think the big takeaway 0:11:52.360 --> 0:11:55.360 is that the issue is on the supply side and 0:11:55.440 --> 0:11:58.559 not on the demand side. And what I mean by 0:11:58.600 --> 0:12:02.040 that is, you know, you have the is unemployment benefits 0:12:02.080 --> 0:12:05.240 that are set to expire not for another three or 0:12:05.280 --> 0:12:08.360 four months down the road from from the latest COVID 0:12:08.400 --> 0:12:13.160 relief package, and you have job openings at at record high, 0:12:13.320 --> 0:12:16.200 so we don't see the you know, it's not a 0:12:16.280 --> 0:12:20.000 demand problem, um the supply of labor. We think people 0:12:20.000 --> 0:12:23.160 are probably on the sidelines more as a result of 0:12:23.160 --> 0:12:26.160 of the fiscal backdrop, and and maybe that that changes. 0:12:26.240 --> 0:12:29.040 But I guess as far as the outlook for the 0:12:29.080 --> 0:12:32.160 economy goes, it's it's not overly concerning in the sense 0:12:32.240 --> 0:12:34.680 that the economy has all of a sudden slowing down 0:12:34.720 --> 0:12:36.600 and doesn't need to hire more workers. I think it's 0:12:36.640 --> 0:12:39.000 really just the opposite. It will be interesting to see 0:12:39.000 --> 0:12:42.320 how that very low data point is smoothed over in 0:12:42.360 --> 0:12:45.520 the next month and months ahead, as expectations are for 0:12:46.160 --> 0:12:48.360 job gains of a million per month for the next 0:12:48.360 --> 0:12:51.200 several months, and if we have a big paybacks, you know, 0:12:51.400 --> 0:12:54.480 something like closer to two million and in May than 0:12:54.559 --> 0:12:56.839 I think, you know, it kind of washes out and 0:12:57.120 --> 0:13:01.120 the trend is still what was expected prior to the 0:13:01.160 --> 0:13:04.040 print in April. You know, Zack, I'm still uh. My 0:13:04.160 --> 0:13:08.400 background UH is as a stock market reporter and editor. 0:13:08.480 --> 0:13:10.480 You know it think of me is like the equities 0:13:10.520 --> 0:13:13.800 in Dallas, type of type of knuckle head uh, equities 0:13:13.840 --> 0:13:15.800 in the touch of New Jersey. I guess in this 0:13:15.920 --> 0:13:18.920 in this case, like the Dallas of New Jersey. I guess, 0:13:18.920 --> 0:13:23.920 but I gotta say whatever. I try to wrap my 0:13:24.040 --> 0:13:27.680 head around the narrative that's moving the dollar at any 0:13:27.720 --> 0:13:31.800 given time, I my head just starts spinning, and I'm 0:13:32.000 --> 0:13:35.160 I I get so confused about what the main drivers. 0:13:35.280 --> 0:13:38.320 I think you touched a little bit on this in 0:13:38.559 --> 0:13:41.400 UH in a note recently after the c P. I 0:13:41.600 --> 0:13:45.080 you know that initially we saw this dollar strength. Now 0:13:45.600 --> 0:13:48.640 to me, when I think of high super high inflation 0:13:48.840 --> 0:13:51.680 or higher than expected inflation, I think, okay, weaker dollar 0:13:52.040 --> 0:13:54.600 is is sort of the knee jerk response. But then 0:13:54.640 --> 0:13:57.160 you you think, well, is it going to cause higher 0:13:57.280 --> 0:14:01.920 interest rates? Okay, stronger dollar in that sense? How do 0:14:01.960 --> 0:14:05.240 you view the balance between those two sort of classic 0:14:05.360 --> 0:14:09.760 dollar catalysts here, um, especially in light of I mean, 0:14:09.920 --> 0:14:14.040 so many people have died on the hill of being 0:14:14.080 --> 0:14:18.720 barished the dollar uh in recent years. UH, this point 0:14:18.760 --> 0:14:21.120 in time being where you do want to stick out 0:14:21.120 --> 0:14:23.040 of position on that hill and be a dollar bear, 0:14:23.200 --> 0:14:25.600 I would think, But I'm just curious how you're walking 0:14:25.600 --> 0:14:29.360 through the cross currents of the of the currency markets. UH. 0:14:29.440 --> 0:14:31.720 You know which is more important to the dollar right now? 0:14:31.800 --> 0:14:34.800 Is it this high inflation or is it the prospect 0:14:34.800 --> 0:14:38.040 of higher yields. Yeah, there's a lot to balance there, 0:14:38.040 --> 0:14:40.520 and we've recently changed our view on the dollar to 0:14:40.520 --> 0:14:42.960 to bearish, and that's a near term view. And the 0:14:42.960 --> 0:14:45.720 big thing that we're focused on, or a few things 0:14:45.720 --> 0:14:49.160 that we're focused on, are sort of the US exceptionalism 0:14:49.880 --> 0:14:52.800 theme is is waning, we think, and that comes from 0:14:52.840 --> 0:14:57.040 both economic data but also vaccination. I think early on 0:14:57.120 --> 0:15:00.120 the UK and the US we're really leading the or 0:15:00.440 --> 0:15:03.600 major nations in Europe and Canada and that gap has closed, 0:15:03.600 --> 0:15:05.800 So we think that's going to be a key driver. 0:15:05.960 --> 0:15:09.360 And when you think about this inflation report, we're seeing 0:15:09.840 --> 0:15:13.240 big wage pressures, big price pressures for consumers. That's that's 0:15:13.280 --> 0:15:15.760 dollar negative in our view. And I think the other 0:15:15.840 --> 0:15:18.920 key component that comes into play here is the FED 0:15:19.640 --> 0:15:23.640 has been resolutely more dubbish than even some other major 0:15:23.680 --> 0:15:25.840 central banks such as the Bank of Canada and the 0:15:25.880 --> 0:15:28.640 Bank of England that have started tapering. The Nords Bank 0:15:28.680 --> 0:15:30.520 could be raising rates by the end of this year. 0:15:30.920 --> 0:15:34.560 So I think that last component, with the FED remaining dubbish, 0:15:34.680 --> 0:15:38.440 remaining patient even in the face of higher inflation, is 0:15:38.480 --> 0:15:41.760 what really shifted our view on the dollar to to barish. 0:15:41.840 --> 0:15:55.760 Over the next one to two months or so. So, Zack, 0:15:55.840 --> 0:15:59.080 since you're talking about the central banks that have gotten 0:15:59.600 --> 0:16:02.920 a little less of it, do you think that bodes 0:16:03.000 --> 0:16:06.120 well for other central banks, like the FED, to be 0:16:06.160 --> 0:16:07.760 able to rein it in or is this sort of 0:16:07.800 --> 0:16:11.080 like the FED is really just as long as the 0:16:11.120 --> 0:16:14.840 FED is out there providing the stimulus that it doesn't 0:16:14.920 --> 0:16:17.280 really matter say what the Bank of Canada does. And 0:16:17.320 --> 0:16:21.760 I apologize to any Canadians about that question. Yeah, that's 0:16:21.760 --> 0:16:24.760 a great question. I think that perhaps it does give 0:16:24.800 --> 0:16:29.360 the FED some room to shift, but I don't think 0:16:29.440 --> 0:16:32.400 any of these other major central banks have had this 0:16:32.520 --> 0:16:35.400 codified shift in their long run framework that we got 0:16:35.400 --> 0:16:38.000 from the FED in August of last year. So they've 0:16:38.000 --> 0:16:40.920 really went beyond just saying that they're going to be 0:16:40.960 --> 0:16:43.600 more patients. They're going to focus on shortfalls from maximum 0:16:43.600 --> 0:16:47.600 employment instead of deviations from maximum employment and this flexible 0:16:47.640 --> 0:16:50.480 average inflation targeting. So I think the FED is is 0:16:50.560 --> 0:16:53.200 kind of on its own. And while I'm sure they 0:16:53.200 --> 0:16:55.360 will take into account what's going on in the rest 0:16:55.400 --> 0:16:57.840 of the world, what other central banks are doing, they 0:16:57.840 --> 0:17:01.840 have a clear mandate of pray stability and maximum employment, 0:17:01.840 --> 0:17:04.119 and I think that the big shift and focus on 0:17:04.240 --> 0:17:08.720 maximum employment is what they've been saying for almost a 0:17:08.800 --> 0:17:10.959 year now and what they've been focusing on, and that 0:17:11.040 --> 0:17:14.199 gives them the headroom to remain more patient and not 0:17:14.280 --> 0:17:17.119 necessarily feel pressure from these other central banks to change 0:17:17.160 --> 0:17:19.640 tax just because they have you know, z that It's 0:17:19.680 --> 0:17:23.159 interesting you bring up the the vaccination rates. Europe is 0:17:23.200 --> 0:17:26.920 catching up with you with us, um. They seem to me, like, 0:17:27.080 --> 0:17:29.720 you know, we've all become obsessed with all data related 0:17:29.760 --> 0:17:31.880 to the pandemic. You know, first it was the number 0:17:31.880 --> 0:17:34.760 of cases, number of hospitalizations, number of deaths, that sort 0:17:34.760 --> 0:17:37.480 of thing. Now it's really the focus on is on vaccination. 0:17:38.040 --> 0:17:41.040 I feel like we're getting close to a point where 0:17:41.080 --> 0:17:44.159 all of that is is not gonna matter anymore. We're 0:17:44.160 --> 0:17:47.280 gonna sort of move back to, you know, the real 0:17:47.520 --> 0:17:51.639 fundamentals of national economies. And I'm kind of fascinated with 0:17:51.640 --> 0:17:54.440 with Europe right now. I mean that German tenure yield 0:17:54.480 --> 0:17:57.720 that everyone watches. It's almost back in a positive territory. 0:17:57.760 --> 0:18:00.480 Who would have ever thought we'd see positive fields in 0:18:00.560 --> 0:18:04.560 Germany in our lifetime. Craziest thing I've seen in this week. 0:18:05.320 --> 0:18:08.679 But I'm curious how you're thinking about Europe because to me, 0:18:09.560 --> 0:18:14.600 you know, once we get through this fixation on the 0:18:15.040 --> 0:18:17.920 case rates and and the vaccination rates, and I kind 0:18:17.960 --> 0:18:20.800 of feeling like we're getting close to the light at 0:18:20.800 --> 0:18:22.600 the end of that tunnel where Okay, enough people are 0:18:22.600 --> 0:18:26.119 gonna be vaccinated, and all all the developed economies, that 0:18:26.280 --> 0:18:29.080 sort of advantage of who's doing better in that is 0:18:29.400 --> 0:18:32.120 not gonna matter, say maybe by the end of the year, 0:18:32.160 --> 0:18:34.560 even by the end of the summer, I would guess, 0:18:35.359 --> 0:18:37.959 And then you know, we start thinking about the old 0:18:38.000 --> 0:18:41.280 all the old issues in Europe that we had before 0:18:41.320 --> 0:18:44.240 the pandemic. I'm just curious what Europe is gonna look 0:18:44.240 --> 0:18:46.080 like at the other side of this. I mean, is 0:18:46.080 --> 0:18:49.600 that notion of European austerity that had really played such 0:18:49.640 --> 0:18:53.399 a big role in markets, is that is that notion dead? 0:18:53.520 --> 0:18:57.600 I mean, the pandemic basically kill the the European fixation 0:18:57.640 --> 0:19:01.280 on austerity and all the sub a point repples that 0:19:01.359 --> 0:19:04.359 has in markets. I'd say it seems to have at 0:19:04.440 --> 0:19:06.920 least pushed it to the back burner, and that's probably 0:19:06.920 --> 0:19:08.960 going to remain the case for a while. I think 0:19:09.000 --> 0:19:11.320 you're right that we are starting to approach a point 0:19:11.320 --> 0:19:15.560 where maybe the focus shifts back more to traditional economic 0:19:15.640 --> 0:19:18.640 data and after a couple of months from now, perhaps 0:19:18.680 --> 0:19:21.280 you're getting a more true reading on what the underlying 0:19:21.280 --> 0:19:23.560 economy is doing here in the US and in Europe. 0:19:23.600 --> 0:19:25.879 I think you started to see some more encouraging signs 0:19:25.920 --> 0:19:29.400 there finally in some of the more recent data. I think, 0:19:29.480 --> 0:19:31.639 you know, Q one as a whole was was not great, 0:19:31.680 --> 0:19:33.439 so they have a ways to go. But I do 0:19:33.560 --> 0:19:37.960 think that the austerity focus and obsession has probably taken 0:19:38.000 --> 0:19:40.680 a hit, and it's going to be a longer term one. 0:19:40.880 --> 0:19:43.960 You know, defining longer term might be difficult, just because 0:19:43.960 --> 0:19:47.440 we really are there's still plenty of uncertainty and things 0:19:47.440 --> 0:19:50.199 are looking up, but you know, you can't dismiss a 0:19:50.240 --> 0:19:53.719 step in the wrong direction with a particularly virulent strain, 0:19:54.000 --> 0:19:57.639 or you know, you're reminded of how things can go 0:19:57.880 --> 0:20:00.520 in places like India where it's it's been really unfortunate, 0:20:00.600 --> 0:20:03.240 seemed like they had things well under control and you 0:20:03.280 --> 0:20:05.239 sort of take your foot off the gas of of 0:20:05.240 --> 0:20:09.840 taking precautionary measures, and very bad things can still happen. 0:20:09.880 --> 0:20:12.520 So I think to your point, yes, it's taken a 0:20:12.600 --> 0:20:15.159 hit and probably moved to the back burner. Whether or 0:20:15.160 --> 0:20:18.200 not it comes back into focus down the line remains 0:20:18.240 --> 0:20:19.720 to be seen, but I think it's it's going to 0:20:19.800 --> 0:20:22.800 be a while until focus can shift back to that 0:20:22.920 --> 0:20:25.760 austerity that that was really a huge focus part of 0:20:25.760 --> 0:20:29.440 the pandemic. Okay, and Zac sins. We're starting to talk 0:20:29.480 --> 0:20:31.480 about the rest of the world a little bit, and 0:20:31.480 --> 0:20:34.400 you mentioned you think US out performance may be fading. 0:20:34.800 --> 0:20:38.280 Where do you think the next out performance will come from? 0:20:38.720 --> 0:20:42.320 Just regionally, I think it could come from the UK, 0:20:42.520 --> 0:20:45.639 which has has done fairly well with with vaccination and 0:20:45.920 --> 0:20:49.200 seems to be moving perhaps a bit more briskly through 0:20:49.240 --> 0:20:52.240 a to a broad reopening. And I think I recall 0:20:52.320 --> 0:20:57.200 correctly early June is when Prime Minister Johnson had targeted 0:20:57.240 --> 0:20:59.439 for a big reopening. So I think that that kind 0:20:59.480 --> 0:21:04.439 of sets up a decent backdrop for for economic growth 0:21:04.560 --> 0:21:06.280 in the UK. And as I know it earlier, starting 0:21:06.280 --> 0:21:08.920 to see in some of these more high frequency monthly 0:21:09.359 --> 0:21:12.399 prints for for Eurozone as a whole. As you know, 0:21:12.640 --> 0:21:16.159 that's a decent proxy for for what's going on, you know, 0:21:16.160 --> 0:21:17.960 whether it be the p M I S or otherwise. 0:21:17.960 --> 0:21:20.880 So you're seeing some encouraging signs there. So I think, 0:21:21.000 --> 0:21:23.480 you know, both in in the U k and and 0:21:23.520 --> 0:21:25.400 the EU are are possible. And you know, the Bank 0:21:25.440 --> 0:21:29.280 of Canada has has moved to to tapering asset purchases, 0:21:29.320 --> 0:21:32.399 so clearly there's been some strong economic growth there. So 0:21:32.440 --> 0:21:33.800 I think you're you're getting it from a lot of 0:21:33.800 --> 0:21:36.399 different places where the US is not going to be 0:21:36.880 --> 0:21:39.840 as much of a standout relative to sort of a 0:21:39.880 --> 0:21:44.359