WEBVTT - Surveillance: Gensler & Crypto With Rubenstein 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.080 with Jonathan Farrell and Lisa Brownwitz Jay Ley. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:30.560 dot com, and of course on the Bloomberg Terminal. Gary Gunsler, 0:00:30.720 --> 0:00:35.200 SEC Chairman and someone of uncommon academic acuity, someone even 0:00:35.200 --> 0:00:37.280 the Republicans have said, boy, does this seem to be 0:00:37.320 --> 0:00:40.559 the right guy at the right time. Interviewed by the 0:00:40.680 --> 0:00:44.360 Gentleman from Baltimore, David Rubinstein peer to peer interview and 0:00:44.400 --> 0:00:47.120 the gentleman from Baltimore joins us, sound did you guys 0:00:47.240 --> 0:00:49.680 know each other? Did you know the families years ago? 0:00:50.960 --> 0:00:53.760 We grew up in the same part of northwest Baltimore, 0:00:53.800 --> 0:00:56.160 but he's younger than me and so I really didn't 0:00:56.160 --> 0:00:59.800 know him. It's uh, it's interesting to see the path 0:01:00.040 --> 0:01:03.920 of Gary Gensler now to this point, David of an 0:01:04.000 --> 0:01:11.800 SEC facing absolutely stunning innovation. It is just mind boggling 0:01:11.840 --> 0:01:15.119 to me, the challenges ahead. What did you learn about 0:01:15.200 --> 0:01:21.119 Gensler's approach to these innovative challenges? Gary Gensler for those 0:01:21.160 --> 0:01:23.679 who don't know him, is a really really smart person, 0:01:23.760 --> 0:01:28.000 an academic superstar at at Penn, but also professor at 0:01:28.440 --> 0:01:31.319 M I T and also a very young partner at Goldman. 0:01:31.400 --> 0:01:35.679 Sachs previously headed the CFTC, now the SEC. The real 0:01:35.760 --> 0:01:38.160 challenge he has is does he need to go to 0:01:38.240 --> 0:01:42.480 Congress to get additional authority to regulate things like cryptocurrencies 0:01:42.720 --> 0:01:45.040 or can he do it with the existing authority? And 0:01:45.080 --> 0:01:47.840 I suspect he will use existing authorities because trying to 0:01:47.880 --> 0:01:50.960 get legislative approval for some of the things he wants 0:01:51.160 --> 0:01:53.280 is going to take forever, and the markets may move 0:01:53.360 --> 0:01:56.240 well past what Congress already decides to do. So I 0:01:56.280 --> 0:01:58.920 think he's going to do things administratively and see what 0:01:59.080 --> 0:02:04.200 the impact is. David tom was framing innovation as a positive. 0:02:04.320 --> 0:02:07.760 Does Gary Gensler view it as largely a positive that 0:02:07.840 --> 0:02:11.960 you do have so much money going into crypto assets? Well, 0:02:11.960 --> 0:02:14.360 I think he thinks that innovation is good. But you 0:02:14.400 --> 0:02:16.720 have to make certain that the SEC's job is to 0:02:16.800 --> 0:02:19.160 make make it clear to everybody what the facts are. 0:02:19.440 --> 0:02:21.360 They're not saying this is a good investment or this 0:02:21.400 --> 0:02:23.639 is a bad investment. They're saying here's all the facts 0:02:23.639 --> 0:02:26.480 you should have before you make a decision. But sometimes 0:02:26.520 --> 0:02:29.760 now people are not being quite accurate in his view 0:02:29.800 --> 0:02:32.760 about what the facts are, or technology is pushing people 0:02:33.000 --> 0:02:35.799 to make certain investment decisions they might not otherwise make 0:02:36.040 --> 0:02:37.920 if they really knew all the facts. So that's what 0:02:38.000 --> 0:02:40.400 his concern is. How do you police this at a 0:02:40.480 --> 0:02:43.240 time when the technology is moving more quickly than often 0:02:43.280 --> 0:02:46.400 regulators can keep up, and frankly, when the brightest minds 0:02:46.480 --> 0:02:49.680 are attracted to the biggest paychecks, seeing more in Silicon 0:02:49.760 --> 0:02:53.679 Valley or Wall Street than in Washington, d C. That's 0:02:53.680 --> 0:02:56.080 a real good question. There's no great answer for it, 0:02:56.120 --> 0:02:58.200 because the truth is you can make staggering sums on 0:02:58.240 --> 0:03:00.960 the outside out winning the regulators, and the regulators are 0:03:01.000 --> 0:03:03.320 playing catch up. So I think all you can really 0:03:03.360 --> 0:03:05.680 do is make a couple of examples of people who 0:03:05.680 --> 0:03:07.919 have made some mistakes and hope that will trickle down 0:03:07.919 --> 0:03:10.280 to other people. But it's impossible to catch all the 0:03:10.320 --> 0:03:13.160 innovations that are going on that probably the SEC isn't 0:03:13.160 --> 0:03:17.120 happy with. David an overarching question, and I say this 0:03:17.240 --> 0:03:20.600 with immense affection for say a Screenberg Bear Sterns with 0:03:20.680 --> 0:03:23.880 the buy tickets in one pocket in the cell tickets 0:03:23.919 --> 0:03:27.120 in the other pocket were now to robin hood and 0:03:27.200 --> 0:03:30.840 all have we gone too far? Have we gone too 0:03:30.880 --> 0:03:34.600 far in a search for depth of market and very 0:03:34.680 --> 0:03:40.000 narrow spreads. It maybe benefits some, but our mothers too 0:03:40.000 --> 0:03:42.200 early to say. There's no doubt that younger people are 0:03:42.200 --> 0:03:45.640 coming into the market and trading day traders, our traders 0:03:45.680 --> 0:03:47.920 and minute traders, and I don't know that they're fully 0:03:47.920 --> 0:03:51.080 informed about what they're doing. But also there haven't been 0:03:51.120 --> 0:03:54.320 gigantic losses for many people yet because the markets have 0:03:54.400 --> 0:03:57.040 been very robust. Now if if all of a sudden 0:03:57.040 --> 0:03:59.840 the markets go down, we'll see as as Warren Buffett 0:03:59.840 --> 0:04:03.480 likes to say, who's swimming without a bathing suit on? Well, 0:04:03.520 --> 0:04:06.800 tell me again about what Ginstler's approach is just in 0:04:06.880 --> 0:04:10.640 the next twelve months to dool Is the immediacy for 0:04:10.760 --> 0:04:15.240 his slow Motion agency. He's asking his staff to come 0:04:15.320 --> 0:04:17.320 up with ideas and the words. The way he operates 0:04:17.320 --> 0:04:19.960 at the CFTC and that the SEC is he has 0:04:19.960 --> 0:04:22.039 a lot of smart staff people. He asked them to 0:04:22.120 --> 0:04:24.480 deal with the challenges he asked him to deal with 0:04:24.640 --> 0:04:27.360 and come back with the recommendations. So he's waiting for recommendations, 0:04:27.400 --> 0:04:29.920 but I suspect at some point he will deal with 0:04:30.160 --> 0:04:33.479 some of the challenges like cryptocurrency. Most recently, after my 0:04:33.520 --> 0:04:36.880 interview with him, he made a speech about private equity, 0:04:37.560 --> 0:04:39.960 indicating that he thought there were some issues that have 0:04:40.080 --> 0:04:42.240 to be dealt with with the disclosure of private equity 0:04:42.240 --> 0:04:44.600 fees and so forth, and we'll see whether he regulates 0:04:44.600 --> 0:04:46.400 in that area. There's no doubt that he has a 0:04:46.440 --> 0:04:48.640 lot of authority. There's no doubt he's very smart and 0:04:48.640 --> 0:04:50.920 determined to do something as you did at the CFCC, 0:04:51.400 --> 0:04:53.760 So I suspect his tenure at the SEC will be 0:04:53.800 --> 0:04:56.600 one of activism. And there's no doubt that he's highly 0:04:56.680 --> 0:04:59.239 respected in the White House and highly respected in Congress. 0:04:59.320 --> 0:05:01.200 I have to say, David tom was talking about younger 0:05:01.200 --> 0:05:03.720 traders going into crypto assets, and I got a text 0:05:03.760 --> 0:05:05.640 for my twelve year old son this morning saying, Mom, 0:05:05.680 --> 0:05:08.080 we should buy some ethereum. It's going up fast and 0:05:08.120 --> 0:05:11.400 we'll continue. I do wonder, David Rubinstein, in your tenure 0:05:11.480 --> 0:05:13.760 in the markets, in your decades, do you think that 0:05:13.800 --> 0:05:19.279 investing has gotten more or less treacherous for investors. Well, 0:05:19.320 --> 0:05:21.840 the example you just gave as an example of reminds 0:05:21.839 --> 0:05:23.640 one of Joe Kennedy when he was getting his shoes 0:05:23.640 --> 0:05:26.960 shine and the the person shining his shoes was talking 0:05:26.960 --> 0:05:29.080 about stock tips. That's when he realized too many people 0:05:29.120 --> 0:05:31.239 in the market and he sold everything. When you're twelve 0:05:31.279 --> 0:05:34.599 year old is dealing with stock market uh gyrations. You 0:05:34.600 --> 0:05:36.240 have to wonder whether that's the top of the market, 0:05:36.680 --> 0:05:39.760 but there's no doubt that, uh the market is much 0:05:39.760 --> 0:05:42.880 more complicated today than it ever was, and technology is 0:05:42.960 --> 0:05:46.760 giving people certain advantages over other people and when they trade, 0:05:47.000 --> 0:05:48.400 and what the SEC is trying to do is to 0:05:48.400 --> 0:05:50.800 make sure and everybody has an equal playing field. It's 0:05:50.839 --> 0:05:54.120 not easy to do because the technology is changing hour 0:05:54.240 --> 0:05:56.640 by hour. So I think people have to really know 0:05:56.680 --> 0:05:58.760 what they're doing when they trade in the markets and 0:05:58.800 --> 0:06:01.919 recognize that it's great time to make money recently. But 0:06:02.200 --> 0:06:04.080 at some point the markets do go down and then 0:06:04.080 --> 0:06:06.360 they're gonna be some losses, and I suspect at that 0:06:06.400 --> 0:06:09.400 point you'll see investigations. David, Thank you so much, David 0:06:09.480 --> 0:06:11.760 Rubinstein with us, of course, and it is a pure 0:06:11.839 --> 0:06:22.320 to pure conversation. They've been wonderfully eclectic this year. Jordan 0:06:22.440 --> 0:06:25.719 Rochester joins us here on G ten, G five, maybe 0:06:25.720 --> 0:06:29.279 even G three Foreign exchange, of course, and number Jordan, 0:06:29.360 --> 0:06:30.799 let me get the dollar out of the way, because 0:06:30.800 --> 0:06:33.200 Pharrell's focused on the sterling, because he's got to get 0:06:33.200 --> 0:06:35.400 on the golf stream and come home. Jordan, I want 0:06:35.400 --> 0:06:38.240 to on the dollar. There's a persistency here. Are we 0:06:38.320 --> 0:06:41.600 at key levels of dollars strength or do we need 0:06:41.640 --> 0:06:46.160 to go ever stronger to find a critical point? Well, 0:06:46.160 --> 0:06:48.039 the question is do you think more can be priced 0:06:48.080 --> 0:06:51.040 into the FED? Do you think US inflation keeps rising? 0:06:51.120 --> 0:06:54.000 Do you think US growth out performance keeps going? Does 0:06:54.040 --> 0:06:56.400 the consumer, does the services p M I is the 0:06:56.440 --> 0:06:58.120 I M S in U s keep going up and 0:06:58.160 --> 0:07:00.520 stay at these high levels. And so far all of 0:07:00.560 --> 0:07:03.359 those things keep happening, whilst the rest of the world, 0:07:03.600 --> 0:07:06.920 especially China, having a slowdown to and that feeds through 0:07:06.960 --> 0:07:09.960 to Europe, and that leads to a European manufacturing slowdown, 0:07:10.080 --> 0:07:12.840 which we're seeing as well. Until those things change, I 0:07:12.840 --> 0:07:14.840 don't see a reason why the dollars should weaken, and 0:07:14.840 --> 0:07:17.000 so that's why we're still along the dollars here, expecting 0:07:17.000 --> 0:07:19.840 more of this appreciation to go. So Jordan's help out 0:07:19.880 --> 0:07:21.800 a lot of people with this one. The Bank of 0:07:21.840 --> 0:07:23.960 England seems to be on track to hike before the 0:07:23.960 --> 0:07:26.560 Federal Reserve, yet sterling isn't doing much. In fact, you're 0:07:26.560 --> 0:07:29.200 short sterling. Can you make sense of that for our audience? 0:07:29.280 --> 0:07:33.320 Jordan's It depends who you're selling sterling against. So I'm 0:07:33.320 --> 0:07:35.040 doing against the dollar because I think it's a nice 0:07:35.040 --> 0:07:37.440 trade off between the US and the UK both kind 0:07:37.440 --> 0:07:40.320 of about performing with inflation rising, with both both have 0:07:40.400 --> 0:07:42.520 central banks looking to raise rates. But I think the 0:07:42.560 --> 0:07:44.000 FED could have a bit more priced in than the 0:07:44.040 --> 0:07:46.360 Bank of England in the medium to long run because 0:07:46.360 --> 0:07:48.600 the UK has got a few problems with Brexit ahead. 0:07:48.920 --> 0:07:52.280 When it comes to the Euro, because the European central Bank, 0:07:52.640 --> 0:07:55.440 they've had so pretty much ten years of low interest rates, 0:07:55.480 --> 0:07:59.160 quantitative easing, low yields, they're unlikely to move as fast 0:07:59.360 --> 0:08:01.640 with the ination that's going on right now, and so 0:08:01.800 --> 0:08:04.680 that's why the pound can strengthen against the Euro because 0:08:04.720 --> 0:08:07.440 that currency doesn't have a center bank willing to take 0:08:07.480 --> 0:08:11.000 action against this inflation, where against the dollar it's tip 0:08:11.040 --> 0:08:14.000 for tap. The US pricing for the two year on 0:08:14.040 --> 0:08:16.280 the FED is pretty much the same for the Bank 0:08:16.320 --> 0:08:19.120 of England and until that changes, until there's more priced 0:08:19.160 --> 0:08:22.000 in for medium to long term growth and higher interest 0:08:22.080 --> 0:08:24.040 rates in the UK, I don't see a reason why 0:08:24.040 --> 0:08:26.240 cable should material go higher, Jordan. This is what I 0:08:26.240 --> 0:08:27.880 struggle with. I talked about this at the top of 0:08:27.920 --> 0:08:30.320 the AD, the growth inflation mix in the UK. If 0:08:30.360 --> 0:08:32.719 you ask people about it. TV Securities wrote about it 0:08:32.720 --> 0:08:34.520 in their outlook. There's a feeling that it's worse than 0:08:34.559 --> 0:08:36.040 the UK than the U S. But I look at 0:08:36.040 --> 0:08:39.960 the year ahead calls for inflation, for growth for unemployment, 0:08:40.240 --> 0:08:42.600 John and they're very very similar. What do you make 0:08:42.600 --> 0:08:46.120 of the growth inflation mix in either country. Well, in 0:08:46.120 --> 0:08:49.000 the US you've got all of the excess savings. The 0:08:49.080 --> 0:08:52.280 UK also has those excess savings, so it is quite 0:08:52.280 --> 0:08:54.760 finely balanced. But if you look at the data for 0:08:54.800 --> 0:08:57.240 the UK, there are there are problems with the supply 0:08:57.360 --> 0:08:59.880 chain that are on top of the global situation. So 0:09:00.280 --> 0:09:03.960 getting around ten to fifteen percent less ships arriving at 0:09:04.040 --> 0:09:07.120 UK ports because of the checks involved with Brexit, you're 0:09:07.160 --> 0:09:09.880 having all of the damage done from that sort of side. 0:09:10.080 --> 0:09:13.319 And then when it comes to the UK, consumer retail 0:09:13.360 --> 0:09:16.160 cells in the UK haven't gone up anywhere, nothing like 0:09:16.240 --> 0:09:18.400 the U S. So US retail sales have been much 0:09:18.480 --> 0:09:21.520 much stronger than the pre pandemic trend. UK not so 0:09:21.600 --> 0:09:24.640 much so until that dynamic changes, until we see reasons 0:09:24.640 --> 0:09:27.160 for the UK consumer to go out and shop a bargain. 0:09:27.520 --> 0:09:29.559 I don't think you've got to see that change that 0:09:29.679 --> 0:09:32.240 narrative between the UK and the US. Jordan's this is 0:09:32.280 --> 0:09:34.360 a fascinating moment at a time when Steve Rattan and 0:09:34.480 --> 0:09:36.240 we were talking about his New York Times out ed. 0:09:36.559 --> 0:09:39.120 Basically he was saying, nobody should be surprised that modern 0:09:39.120 --> 0:09:43.520 monetary theory essentially ended up with inflation. However, is what 0:09:43.559 --> 0:09:46.240 you're saying, that perhaps some of the stimulus in the 0:09:46.320 --> 0:09:50.880 United States actually gave consumers the spending power to keep 0:09:50.920 --> 0:09:54.719 the dollars strong, to basically keep the currency underpinned by 0:09:54.760 --> 0:09:57.920 economic momentum at a time when other nations, particularly the 0:09:58.000 --> 0:10:01.720 United Kingdom, is not seeing that well. To begin with, 0:10:01.880 --> 0:10:04.960 the plan was for FX markets all that all that 0:10:05.000 --> 0:10:08.840 stimulus was debt induced, so lots of issuance from the U. S. Treasury. 0:10:09.120 --> 0:10:11.600 The world had way more dollars, and we saw massive 0:10:11.600 --> 0:10:14.520 dollar weakness last year. Remember going to queue four your 0:10:14.520 --> 0:10:17.280 a dollar really went higher, but that was on the 0:10:17.320 --> 0:10:19.560 idea from all the U S economists that the FED 0:10:19.559 --> 0:10:24.160 wouldn't consider raising rates aggressively. That's changing, and I think 0:10:24.280 --> 0:10:27.240 once you introduce rate hikes into the equation in the 0:10:27.240 --> 0:10:30.600 future pricing of the curve, that sort of balance of 0:10:30.640 --> 0:10:34.280 payments argument for dollar weakness just fell through because investors 0:10:34.280 --> 0:10:37.640 seek yield, and the yields rising US much faster than Europe, 0:10:37.640 --> 0:10:40.800 So that's been part of that driver. And with monetary theory, 0:10:41.120 --> 0:10:44.200 if you get taxes, sorry, if you get inflation, the 0:10:44.240 --> 0:10:47.320 way to do it is taxes. And because of Congress, 0:10:47.360 --> 0:10:50.240 because of the sort of type line with mention of cinema, 0:10:50.480 --> 0:10:53.040 the idea of big tax rising in the US have 0:10:53.200 --> 0:10:55.480 really softened as well. So that's why we're seeing more 0:10:55.520 --> 0:10:57.959 being priced in for inflation, more being priced in for 0:10:58.080 --> 0:11:00.840 rate hikes. Jordan's what do you make of Terry Wiseman's 0:11:00.840 --> 0:11:04.960 an argument that a perceived politicization of the Federal Reserve 0:11:05.080 --> 0:11:09.199 chair nominee will actually weaken the dollar potentially lose credibility 0:11:09.440 --> 0:11:14.599 in the US Central Bank. The Fed's not gonna lose credibility, 0:11:14.640 --> 0:11:17.199 but it's kind of been political all along. So the 0:11:17.280 --> 0:11:20.280 US president has always had a choice of the FED chair, 0:11:20.400 --> 0:11:23.959 so that is that element. And remember President Trump used 0:11:23.960 --> 0:11:27.560 to tweet about Janet Ellen, so that there's always been 0:11:27.600 --> 0:11:30.640 that element of politics involved all central banks that we're 0:11:30.640 --> 0:11:32.960 talking about here. The FED included our independence, so it 0:11:32.960 --> 0:11:36.000 doesn't erode their credibility. They are trying to do the 0:11:36.080 --> 0:11:38.760 job right. But yeah, there is an element of politics 0:11:38.800 --> 0:11:40.160 when it comes to the choice of FED chair, and 0:11:40.200 --> 0:11:43.240 we can't ignore that it's chosen by a politician. Jordan 0:11:43.280 --> 0:11:46.200 found a question. What's more likely Askton Fella avoids relegation 0:11:46.280 --> 0:11:48.720 or the Bank of englond heights interest rates next month? 0:11:49.800 --> 0:11:52.680 They're both, They're both likely. Come on, that's really unfair 0:11:52.760 --> 0:11:55.400 the villa. The villa is going to survive and you 0:11:55.480 --> 0:11:58.120 think we get it hi next month. To Jordan's we 0:11:58.280 --> 0:12:00.480 definitely get a hike. I think they mean it's pretty 0:12:00.559 --> 0:12:02.320 much priced, so that's not really a big call. The 0:12:02.400 --> 0:12:05.000 question is do we see more rate hikes than what's 0:12:05.040 --> 0:12:07.000 priced him for the rest of the year, And that's 0:12:07.040 --> 0:12:09.679 getting tough. That's why we're short sterling because there's a 0:12:09.760 --> 0:12:12.319 hundred and fifteen basis points of rate hikes pretty much 0:12:12.360 --> 0:12:14.640 every quarter. You get a twenty five basis point rate 0:12:14.720 --> 0:12:18.040 hike in that FX curve. That's kind of that's kind 0:12:18.040 --> 0:12:21.000 of okay, but any anything more I doubt it. So 0:12:21.040 --> 0:12:23.600 that's why the risk reward is the bank thing might 0:12:23.640 --> 0:12:26.520 do less. Later on, Jordan, thank you sir as always. 0:12:26.559 --> 0:12:34.440 Jordan Rochester joining us now to kick off the equity 0:12:34.440 --> 0:12:37.920 conversation is Ben Laidler, global market strategist. That eat out 0:12:37.960 --> 0:12:41.400 of London, Ben, Santa came early this year? Is that 0:12:41.520 --> 0:12:47.679 your take? Absolutely? November December generally the strongest months of 0:12:47.720 --> 0:12:50.040 the year, but so called sort of Santa rally, we've 0:12:50.040 --> 0:12:52.200 been here. We are the middle of November. We're up 0:12:53.000 --> 0:12:57.199 from or nearly from the sell off in in September. 0:12:57.240 --> 0:12:59.760 So I think this has been very frontloaded U And 0:13:00.000 --> 0:13:02.560 you know, we the year and we never thought we 0:13:02.559 --> 0:13:05.640 were going to get here, was sitting on our card already, 0:13:05.720 --> 0:13:09.040 So you know, I I think markets are very well supported. 0:13:09.120 --> 0:13:11.520 I see, you know, got upside for next year. I 0:13:11.559 --> 0:13:14.880 would just you know, caution that, you know, maybe we're 0:13:14.920 --> 0:13:17.880 not just going to keep rallying h inexorably here. I 0:13:17.960 --> 0:13:20.240 mean we've we've I think we've already had the Saints 0:13:20.400 --> 0:13:23.520 rally and we're sitting on great gains and we I 0:13:23.520 --> 0:13:26.840 would take a little bit of consolidation the modest Ben Laidler, 0:13:27.000 --> 0:13:29.960 let me make clear, folks, No one and Global Wall 0:13:30.000 --> 0:13:32.960 Street called for three years of double digit return like 0:13:33.040 --> 0:13:36.880 Ben Laylor, He's not surprised we're up twenty five. Ben, 0:13:36.920 --> 0:13:39.480 what is the double digit call for two thousand twenty 0:13:39.480 --> 0:13:42.600 two or do we finally get to a single digit reality. 0:13:44.559 --> 0:13:46.640 I think we're gonna come pretty close to double digits. 0:13:46.800 --> 0:13:48.800 And just to put that in perspective, I mean, that 0:13:48.840 --> 0:13:50.760 would be your fourth straight year, and I think you've 0:13:50.760 --> 0:13:53.120 only ever seen that once in the last sort of 0:13:53.120 --> 0:13:55.360 fifty or sixty years, So it really we're heading into 0:13:55.400 --> 0:13:58.840 uncharted territory. But I think it's very very doable, and 0:13:58.880 --> 0:14:00.439 I think you know, the to drive us here, I 0:14:00.480 --> 0:14:03.680 think earning his expectations is just just still far too low. 0:14:04.160 --> 0:14:06.240 You know, in the US A globally there's seven eight 0:14:06.360 --> 0:14:09.079 cent for next year. I think you probably get double 0:14:09.120 --> 0:14:11.439 that when all is said and done. I think, m 0:14:11.840 --> 0:14:15.520 you know, GDP growth is nearly double long term averages. 0:14:15.600 --> 0:14:18.160 I think we're seeing the resilience of corporate margins. We 0:14:18.240 --> 0:14:20.080 have a lot of sectors, a lot of these reopening 0:14:20.120 --> 0:14:23.720 sectors that still have a long way to bounce back here, 0:14:24.080 --> 0:14:26.880 and and I think valuations are going to come down 0:14:26.880 --> 0:14:28.560 a bit, but I still think they're going to stay 0:14:28.600 --> 0:14:30.880 white higher than sort of long term averages. I think 0:14:31.040 --> 0:14:32.960 bond deals are going to go up a bit, but 0:14:33.000 --> 0:14:37.080 there's still a fraction of you know, previous some previous recoveries. 0:14:37.200 --> 0:14:40.600 And you've still got this huge text tech sector which 0:14:41.320 --> 0:14:44.040 just you know, deserves to have very high valuations. Then 0:14:44.280 --> 0:14:47.200 you said, take consolidation and a little bit around the edges. 0:14:47.280 --> 0:14:49.880 Given the fact that we've already front loaded this rally, 0:14:50.200 --> 0:14:55.640 where are you taking consolidation right now? You know, I 0:14:56.120 --> 0:14:58.280 think our you know, tech, I guess would be the 0:14:58.320 --> 0:15:00.560 obvious place. I mean when neutral tech X time sort 0:15:00.560 --> 0:15:02.040 of very well here. I mean, we had this sort 0:15:02.040 --> 0:15:04.640 of everything rally, which you know, I take a lot 0:15:04.640 --> 0:15:06.440 of comfort from, right because I think, you know, it's 0:15:06.440 --> 0:15:08.080 not the sort of one legged stool we had sort 0:15:08.080 --> 0:15:10.440 of last year. But you know, I've been sort of 0:15:10.480 --> 0:15:12.160 putting back a little bit on tech. I think that 0:15:12.280 --> 0:15:15.440 I think the near term story is this very strong 0:15:15.480 --> 0:15:18.240 growth reacceleration that that we're having. I mean, you've you've 0:15:18.280 --> 0:15:19.960 seen it in the payrolls numbers. You sat in the 0:15:20.000 --> 0:15:21.960 retail sales numbers yesterday, You've seen it in the I 0:15:22.160 --> 0:15:24.400 S M. I mean, you look at the FED now 0:15:24.520 --> 0:15:27.600 cast GENP now cast for the fourth quarter is nearly 0:15:27.680 --> 0:15:31.560 nine percent growth. We had two percent last quarter. Uh So, 0:15:31.640 --> 0:15:33.360 I think, you know, you need to be sort of 0:15:33.360 --> 0:15:35.760 pulling back on on sort of defensive things that aren't 0:15:35.760 --> 0:15:39.000 exposed to that and really focusing on the you know, 0:15:39.040 --> 0:15:42.560 the sort of cyclicals, the commodities, the industrials, the segments 0:15:42.600 --> 0:15:45.200 of the market, the reopeners that are really sensitive to 0:15:45.280 --> 0:15:48.320 this this very strong growth recovery that we're seeing. And 0:15:48.600 --> 0:15:51.320 I would also just say the markets past this huge 0:15:51.320 --> 0:15:54.360 stress test. I mean, we're all worried about inflation, we're 0:15:54.120 --> 0:15:57.160 all worried about the FED tapering, We're all worried about 0:15:57.440 --> 0:16:00.400 interest rates, and we've just had tapering an ouse when 0:16:00.440 --> 0:16:03.200 we've had a big repricing of the FED, and markets 0:16:03.240 --> 0:16:05.800 are you know, markets are yawning and many Your position 0:16:05.880 --> 0:16:07.760 for a repeat of Q one this year is that 0:16:07.840 --> 0:16:11.960 it is that the playbook. I think so, yes, I mean, 0:16:12.000 --> 0:16:14.960 I think you know, it's small cap, it's it's the 0:16:14.960 --> 0:16:18.040 reopening stocks, it's the sort of more cyclical side of 0:16:18.080 --> 0:16:20.680 the economy. You know, who's got the most sensitivity to 0:16:20.760 --> 0:16:23.480 this growth rebound that we're seeing. And I, you know, 0:16:23.480 --> 0:16:25.640 I still don't think it's priced. I mean, just more broadly, 0:16:25.640 --> 0:16:27.400 I mean the earning ex numbers are just far, far 0:16:27.480 --> 0:16:30.280 too low. You know, even after what is it the 0:16:30.320 --> 0:16:32.800 fourth quarter of you know, very strong earning speaks. We've 0:16:32.840 --> 0:16:36.040 just had the optimism of Ben Laidler of et O. Ben, 0:16:36.120 --> 0:16:45.440 thank you, sir. Right now, Sarah House joins us for 0:16:45.640 --> 0:16:48.080 senior economist at Wells ferg and we're going to rip 0:16:48.120 --> 0:16:50.880 up the script and get her in trouble. Sarah is 0:16:51.040 --> 0:16:58.160 family formation a dominant changer within the American economy. So 0:16:58.200 --> 0:17:01.480 I think the demographics are absolutely important to the overall 0:17:01.520 --> 0:17:04.920 housing outlook. So we see millennials are just entering their 0:17:04.920 --> 0:17:07.800 prime home buying years. You couple it with the pandemic 0:17:07.960 --> 0:17:10.520 and it sets us up for a strong demand to 0:17:10.960 --> 0:17:13.480 remain in train for years, especially just given the state 0:17:13.520 --> 0:17:16.520 of overall household balance sheets. You know, the excess saving 0:17:17.040 --> 0:17:19.160 that we've seen over the past year, that that helps 0:17:19.160 --> 0:17:21.080 a lot of millennials pay down debt, getting a better 0:17:21.119 --> 0:17:23.560 position for home buying. So it's absolutely important to the 0:17:23.600 --> 0:17:27.080 housing now look going forward, nicely done, but if they 0:17:27.119 --> 0:17:29.879 can't afford the damn house because of down payment, is 0:17:29.960 --> 0:17:33.000 more money than that? God, what do they do? How 0:17:33.040 --> 0:17:38.240 do you perceive house prices reacting that most of America 0:17:38.400 --> 0:17:42.520 can't find an entry point? So I think what we're 0:17:42.520 --> 0:17:46.400 seeing is is that this that the onslaught of activity 0:17:46.440 --> 0:17:48.159 that we're seeing. Okay, so maybe we didn't see a 0:17:48.240 --> 0:17:50.840 jump and starts this particular month, but you do have 0:17:50.960 --> 0:17:53.480 more homes under construction than at any time we've seen 0:17:53.520 --> 0:17:56.720 since nineteen four. You still have more permits coming down 0:17:56.720 --> 0:17:59.800 the pike, and so yes, we're seeing construction activity can 0:18:00.080 --> 0:18:03.280 change right right now by supply, but there is supply 0:18:03.440 --> 0:18:06.760 coming down the pipeline in in subsequent years, and so 0:18:06.800 --> 0:18:10.160 I think that's going to help the affordability pictures for 0:18:10.160 --> 0:18:12.680 for home buyers in the coming year. So, yes, the 0:18:13.080 --> 0:18:16.919 prices recently have gotten I think, away from many households, 0:18:16.960 --> 0:18:19.160 but I do think that we'll see some some greater 0:18:19.240 --> 0:18:21.520 balance over over the next year or two that should 0:18:21.560 --> 0:18:24.560 help that household formation and help that home buy an activity. 0:18:24.680 --> 0:18:26.399 On the flip side, Sarah, it's been really cheap to 0:18:26.400 --> 0:18:28.440 get a mortgage. It's been really cheap to borrow money 0:18:28.480 --> 0:18:32.720 for consumers, especially with longer term rate expectations as low 0:18:32.840 --> 0:18:34.960 as they are. You pointed to this, and you think 0:18:35.000 --> 0:18:37.199 that this is an aberration, that this is wrong, the 0:18:37.240 --> 0:18:41.160 market is getting this incorrectly. Are you seeing a material 0:18:41.320 --> 0:18:45.000 increase in the policy rate? The end policy rate akin 0:18:45.080 --> 0:18:47.080 to what we heard from Bill Dudley of three to 0:18:47.119 --> 0:18:51.080 four percent. So that's not our base case right now. 0:18:51.160 --> 0:18:53.679 So we do think that the Fed will begin raising 0:18:53.720 --> 0:18:56.960 the Fed funds rate by the third quarter of next year. 0:18:57.119 --> 0:18:59.200 I think the fact that they get going a little 0:18:59.240 --> 0:19:01.440 earlier than they have sketched out, I think that will 0:19:01.440 --> 0:19:05.439 help prevent that terminal rate perhaps reaching as as high. So, 0:19:05.480 --> 0:19:08.160 of course, the sooner the Fed gets started, that has 0:19:08.240 --> 0:19:10.800 the potential where they won't have to ultimately raise policy 0:19:10.880 --> 0:19:14.120 to such a restrictive stance. So right now, in our 0:19:14.359 --> 0:19:17.679 forecast that goes out through three we have about a 0:19:17.760 --> 0:19:21.040 hundred basis points of tightening. Now, given what happens with inflation, 0:19:21.359 --> 0:19:24.600 how tight the labor market gets, that that could obviously change, 0:19:24.640 --> 0:19:27.800 But for right now, um, given the mix of demand 0:19:27.920 --> 0:19:30.240 and what we see happening with that mix of spending 0:19:30.280 --> 0:19:33.640 going forward and the path of inflation. We think that 0:19:34.080 --> 0:19:36.000 the FED still doesn't have to be too aggressive in 0:19:36.240 --> 0:19:38.520 this environment, or at least they won't be too aggressive 0:19:38.640 --> 0:19:41.320 Sarah if they don't raise rates. Though until the beginning 0:19:41.320 --> 0:19:44.680 of is Morgan Stanley and TV Securities has been saying, 0:19:45.119 --> 0:19:49.280 is that a policy error? It's hard to say, because 0:19:49.720 --> 0:19:52.040 you know, while we I think everyone's pretty familiar with 0:19:52.080 --> 0:19:55.560 the risks in terms of if inflation does stay at 0:19:55.600 --> 0:19:57.800 the current levels and we don't get the moderation that 0:19:57.880 --> 0:20:01.439 I think many people many people still expect. But again, 0:20:01.480 --> 0:20:04.760 we have this, uh, we have a great likelihood that 0:20:04.800 --> 0:20:06.879 you're going to see demand slow over next year, that 0:20:06.960 --> 0:20:09.640 the mix is going to shift more towards services. That's 0:20:09.640 --> 0:20:11.840 going to relieve a lot of the pressure that we're 0:20:11.880 --> 0:20:15.199 seeing in goods inflation, which has really been the aberration 0:20:15.240 --> 0:20:17.720