Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Rates are on the rise,
Speaker 1: but just don't look at the bond market. But we've
Speaker 1: got the Bank of England it raised rates, We've got
Speaker 1: the Federal Reserve talking about raising rates in two and three.
Speaker 1: What does that mean for economic outlook in the face
Speaker 1: of a resurgent pandemic. Here, let's check in with Jennifer Lee,
Speaker 1: senior economist and managing director at Email Capital Markets. Jennifer,
Speaker 1: thanks so much for taking the time to be with
Speaker 1: us here. How are you thinking about your two economic
Speaker 1: outlook in the face of rising interest rates, in the
Speaker 1: face of inflation transitory maybe not in the face of
Speaker 1: this omicron variant? Um, good morning. Um. You know what,
Speaker 1: I'm fairly optimistic overall. Of course I have my my days,
Speaker 1: but overall I think we are still you know, we're
Speaker 1: still upbeat. I think it's a good thing in many
Speaker 1: ways that the that UM central banks are finally starting
Speaker 1: to raise race. I say finally for some some of
Speaker 1: them I've already been doing so over the past number
Speaker 1: of months, because if they weren't raising rates, it would
Speaker 1: mean that the global economy in the US in particular
Speaker 1: is still in too shape to handle it. So I
Speaker 1: think in that way, it's it's a good thing UM.
Speaker 1: Whether or not UM, you know, we can get these
Speaker 1: prices under control is another story. We look fractually for
Speaker 1: CPI to continue, UM maybe not rising at such a
Speaker 1: fast pace, but we look forward to peak around seven
Speaker 1: percent in the new year, just because of you know,
Speaker 1: food costs and housing and all that, before moderating UM
Speaker 1: in the second half of the year. So we're talking
Speaker 1: about potentially seven handle on CPI in the not so
Speaker 1: distant future and a FED rate hike that will come
Speaker 1: in maybe not so distant after that. And yet I'm
Speaker 1: looking at a ten year treasury yield that is at
Speaker 1: one thirty seven. What kind of signal do you take
Speaker 1: from the bond market right now? That is a big
Speaker 1: head scratcher. UM. In some ways, I'm you know, I'm
Speaker 1: wondering you know, maybe the bond market is is thinking
Speaker 1: that you know, transportation should not have been you know,
Speaker 1: removed from from the lexicon. UM is also a potential
Speaker 1: that you know, everyone is still very afraid or fearful
Speaker 1: of what um amicron is going to bring or what
Speaker 1: the impact is going to be, because they're you know,
Speaker 1: they're all these different um um papers or surveys coming
Speaker 1: out of what the impact will be, what the the
Speaker 1: what the the the the whether or not you know,
Speaker 1: we are able to fight it um and I think
Speaker 1: it's a bit too soon right now. But you know,
Speaker 1: obviously it's not looking that great right now, Jennifer, what
Speaker 1: has given that backdrop? What is your GDP forecast for
Speaker 1: two and what could be kind of the variables that
Speaker 1: either move that one way or the other off your
Speaker 1: kind of your your best case, your your best case.
Speaker 1: So this or we're looking at about five and a
Speaker 1: half five point six percent growth, and of course there
Speaker 1: is almost over next year we do see growth moderating
Speaker 1: two three and a half percent UM moderating, yes, but
Speaker 1: that's still almost um double um um the long run potential.
Speaker 1: And this is all assuming that you know, we're not
Speaker 1: going to see huge restrictions like we saw back in
Speaker 1: UM in that are needed to control a macron UM.
Speaker 1: We're gonna see probably still low real rates UM, but
Speaker 1: I think the main thing is that we still have
Speaker 1: massive household savings out there. So even though prices are
Speaker 1: rising and it's probably going to hamper some buying decisions,
Speaker 1: I think households in general can still handle it. So
Speaker 1: we still see, you know, UM a boost from that.
Speaker 1: And of course this is all assuming that the supply
Speaker 1: chain disruptions will ease up around the middle of the year.
Speaker 1: So we're focused a lot obviously on the fence accelerated taper,
Speaker 1: when liftoff, maybe what the hiking cycle is going to
Speaker 1: look like, When do we start having a more serious
Speaker 1: conversation about QT and rolling off that balance sheet we
Speaker 1: are probably looking at sometimes it'll be will probably be
Speaker 1: sometime this not this year, but two UM, I think
Speaker 1: what you want to do is probably just get the
Speaker 1: hikes out of the way and get everyone more comfortable
Speaker 1: with with with raising rates, and at some point they're
Speaker 1: going to have to start bringing down that that balance sheet,
Speaker 1: which the last check was like four over four or
Speaker 1: four trillion dollars, which is way way too big. So
Speaker 1: I see at some point we're probably gonna start seeing
Speaker 1: a runoff beginning probably, but I'm gonna say by the
Speaker 1: end of ye if I want to talk about the
Speaker 1: labor market, Kaylee and I were in your office today,
Speaker 1: but we're one of the few here are on a
Speaker 1: Friday lonely the four to five million folks out there
Speaker 1: that aren't in the labor force. Do I need to
Speaker 1: worry about them? Or they just kind of out of
Speaker 1: the labor force for a variety of reasons. It's a
Speaker 1: variety of reasons. And this is the one part that
Speaker 1: that does make me feel very uncomfortable. And this is
Speaker 1: where the whole virus kicks in again. It's all, it's all,
Speaker 1: it's almost like a big chain reaction. You know. If
Speaker 1: we can get this virus and new control, and if
Speaker 1: everybody gets comfortable with getting the vaccines um and getting
Speaker 1: back to work, you know, then I think I am
Speaker 1: That's why I'm optimistic for you know, for for two.
Speaker 1: But if people are still afraid to return back to
Speaker 1: work just for fear of contracting the virus, if schools
Speaker 1: return to online learning, and even if it's just for
Speaker 1: a few weeks, you know, that's very disruptive, and that
Speaker 1: means that labor shortages are going to continue. Um. And
Speaker 1: that you know, of course, means not enough hands on
Speaker 1: deck to to build the car, to create the car,
Speaker 1: to program everything. UM. So that means all these shortages
Speaker 1: are going to continue, and that means prices are going
Speaker 1: to rise. UM. Wages are gonna heat up further, and
Speaker 1: that's going to give this the green light to keep
Speaker 1: to keep tightening that. So that's what I'm afraid of,
Speaker 1: is just that people are just still afraid to come
Speaker 1: back to work. All right, Jennifer, thank you so much
Speaker 1: for joining us. Really appreciate that. Jennifer Lee, Senior economists
Speaker 1: and managing director at Demo Capital Markets. Let's turn to
Speaker 1: housing here. This has just been an amazing part of
Speaker 1: the economy to me, at least all throughout the pandemic,
Speaker 1: this housing market has just really performed well. I took
Speaker 1: advantage of it as a seller. Matt Miller was probably
Speaker 1: on the other end of that trade as a recent
Speaker 1: buyer of real estate in the metro New York area.
Speaker 1: But it's just been a constant, constant, strong part of
Speaker 1: the economy. Let's get the latest and Brad Domains, a
Speaker 1: chief economist at Courtland Brad give us kind of is
Speaker 1: there more room to grow in what I consider to
Speaker 1: be a very strong real estate market? Yeah, definitely. You know,
Speaker 1: our estimate is still that the US is underbuilt by
Speaker 1: about a million housing units. We can look at the
Speaker 1: case Shiller index with annual home price appreciation. It does
Speaker 1: look like it's hit its peak, but it's not going
Speaker 1: to go to zero overnight. So I think we're still
Speaker 1: looking at a situation where home prices are going to
Speaker 1: be going up for certainly the next year and a
Speaker 1: half at least, So we can talk about the supply side,
Speaker 1: but on the demand side and for people wanting to
Speaker 1: buy homes, how would a FED starting to lift interest
Speaker 1: rates affect that as it relates to mortgage rates and
Speaker 1: and you know how much people can afford. Yeah, you
Speaker 1: know what's been behaving. Interest rates have been behaving very
Speaker 1: interestingly over the last couple of years. We can look
Speaker 1: at the tenure treasury rate, which has been negative and
Speaker 1: real terms for about a year and a half two
Speaker 1: years now, and it's actually been unresponsive to these taper
Speaker 1: related to announcements. Uh, you know, the tenure right now,
Speaker 1: I'm looking out on my screens at precedent would have
Speaker 1: suggested that should go up. So right now it doesn't
Speaker 1: look like it's having any effect. But if these rate
Speaker 1: hikes do happen next year, and we're thinking there's going
Speaker 1: to be three now, we should see that translate into
Speaker 1: higher long term rates or we'll have to see the
Speaker 1: Fed reverse course and begin to cut rates relatively quickly,
Speaker 1: because three rate hikes implies at the high end of
Speaker 1: the FED funds rate would be in a ground and
Speaker 1: that's not a lot of spread to one point four percent,
Speaker 1: which is where the tenure is right now. That does
Speaker 1: that's not menstorate with a steep old curve associated with
Speaker 1: a continued expansion. Bready talked about the US being under
Speaker 1: built by you know, at least a million households. What
Speaker 1: I've heard in the past is where the real shortages
Speaker 1: is in the lower end of the market, the entry
Speaker 1: level house. There's lots of mcmansion's being built all over
Speaker 1: the country, but not a lot for the first time buyer.
Speaker 1: Is that changing here? Well, you know, builders are always
Speaker 1: having to build, you know, on on the margin, right,
Speaker 1: so it's very difficult to deliver housing product that's at
Speaker 1: the bottom of the market without some kind of subsidies.
Speaker 1: But when I look at what's happening and starts, um,
Speaker 1: I see a continued reversion to the pre pandemic longer
Speaker 1: term trend. If you were to draw a straight line
Speaker 1: on a lot of these metrics from the Great Recession
Speaker 1: to where we are today, over the last couple of years,
Speaker 1: we had, you know, maybe a big pullback and then
Speaker 1: a big rebound, and things are kind of right sizing. Uh.
Speaker 1: When I look at the the over or undersupply of
Speaker 1: housing in the country, and again we obviously estimate that
Speaker 1: it's underbuilt right now, it does look like the worst
Speaker 1: of that was a couple of years ago. And so
Speaker 1: in a sense, we're building more housing than we need
Speaker 1: right now, but we've got a lot we have to
Speaker 1: catch up with. It's almost like what the set has
Speaker 1: argued with inflation, right that it was so low for
Speaker 1: so long. We need to catch up. Brad, let's talk
Speaker 1: about people getting if they, you know, are being priced
Speaker 1: out of buying a home. I'm not talking about myself here,
Speaker 1: but I don't think I'd be in a position to
Speaker 1: buy a house right now. But at the same time,
Speaker 1: I'm looking at rents in New York City that are
Speaker 1: going really really astronomically higher, at least compared tod levels.
Speaker 1: What are you seeing more broadly in terms of rents
Speaker 1: and people who may not be able to buy and
Speaker 1: are looking to rent, but those are also much more expensive. Yeah,
Speaker 1: I mean, there's no question that the rental market has
Speaker 1: performed very well over the last year and a half.
Speaker 1: We're clocking rents and when I say we, I mean
Speaker 1: our market data, not Courtland specifically, but probably about fifteen
Speaker 1: and a half percent year over year across the sub
Speaker 1: markets we track for, and we think that's going to
Speaker 1: go to about six and a half percent next year,
Speaker 1: So that some big slowdown in annual rent growth, but
Speaker 1: it's still very large historical standards. So yes, if we
Speaker 1: are in a situation where, say that mortgage races truly
Speaker 1: do go up with the rate hikes, we'll see that
Speaker 1: much more demand channeled to the rental space. Hey, Brad,
Speaker 1: thanks so much for joining us. Really appreciate getting the
Speaker 1: update on real estate. And again, real estate has been
Speaker 1: one of those asset classes that's performed consistently well throughout
Speaker 1: this pandemic and the economic disruption Brad Dillman's the chief
Speaker 1: economist at Courtland. And my question, you know, on the
Speaker 1: back of your question at Kaylie in New York City
Speaker 1: at least, what are these people doing. They're not they're
Speaker 1: coming back into the city of the renting compartments, but
Speaker 1: they're not going to work. I mean, they're not coming
Speaker 1: into the office. Yeah. Well, and I wonder too if
Speaker 1: people are looking for you know, bigger places where there's
Speaker 1: a room to have a desk for work from home
Speaker 1: and uh. And it's been interesting to see to the
Speaker 1: division between luxury housing and luxury rentals here in the
Speaker 1: US versus you know, standard buildings that don't have a doorman.
Speaker 1: There's a big divide there. Yeah. Interesting. I just you know,
Speaker 1: I find it fascinating. Um, just wondering what people are
Speaker 1: are they coming back into the city if they're not
Speaker 1: going back into the office. I just don't understand that.
Speaker 1: But the restaurants are full, so I guess that's good
Speaker 1: news there. Got w T I crude a little bit
Speaker 1: lower today at seventy one cents a barrel. You know
Speaker 1: that supply demand situation out there driving this commodity. What's
Speaker 1: winning the day? Regina Mayor principal Global sector head of
Speaker 1: Energy at KPMG joins us So Regina is we look
Speaker 1: out the two boy, I'm seeing widely divergent calls on
Speaker 1: crude oil, anything from a hundred and hundred twenty dollars
Speaker 1: a barrel to forty barrel. How do you view the
Speaker 1: energy markets looking out to next year? We view them
Speaker 1: as being extremely volatible, and I think that volatility will
Speaker 1: continue to be what drives the overall sentiment, and that
Speaker 1: shows in those ranges, Paul that you just discussed. On
Speaker 1: the one hand, we know supplies constrained. We're at seasonal
Speaker 1: lows that are seven that we haven't seen an over
Speaker 1: seven years. But at the same and we had increasing demand.
Speaker 1: Now we have a macron and concerns about COVID and
Speaker 1: what the pandemic has in store for the world. We're
Speaker 1: having lockdowns and shutdowns. So while we thought demand was
Speaker 1: going to increase, the i e A has just issued
Speaker 1: a report that lowers their two thousand one average global
Speaker 1: demand by three thousand barrels per day. So with a
Speaker 1: very uncertain demand and constrained supply, that leads to these
Speaker 1: ranges and the market impacts. Because w t I is
Speaker 1: down fifteen dollars from its high just a month or
Speaker 1: so ago. How much of this what happens in the
Speaker 1: oil market is going to be predicated on whatever OPEC
Speaker 1: plus decides to do, whether they decided to continue with
Speaker 1: production cut production hikes to hold until you know there's
Speaker 1: more certainty around the variant. I mean, do they really
Speaker 1: hold all the cards here? Not really anymore, Kaylee. I
Speaker 1: I see their influence waning because they are largely at
Speaker 1: a point where a lot of their supply is in
Speaker 1: the market already, and while there is has a little
Speaker 1: bit of intremental supply that they can continue to put
Speaker 1: into the market, the word on the street is that
Speaker 1: their supply is constrained as well. So regardless of what
Speaker 1: they decide to do, I think there's a physical reality
Speaker 1: of how much they can really produce, and that's what's
Speaker 1: driving the sentiment today. Gina, Let's talk about the shale uh,
Speaker 1: folks in Texas and Houston. It just seems like in
Speaker 1: the past, whenever you know, oil kind of moved higher,
Speaker 1: our good friends in Texas and Oklahoma would start drilling holes.
Speaker 1: But I'm told this time is different, that they're gonna
Speaker 1: have some discipline how do you view it? That is
Speaker 1: the word on the street, Paul, discipline, and you know Houston.
Speaker 1: I'm here in Houston and the Permian is practically in
Speaker 1: my backyard. The public is focused on the public companies
Speaker 1: and the CEOs are focused on free cash flow and returns,
Speaker 1: and they are committed to retaining those promises that they've
Speaker 1: made to the market. So there's no willie nilly, we're
Speaker 1: all rushing out to go drill some more wells. We
Speaker 1: do see recounts up. I think they're up seven over
Speaker 1: the last week. They're seventy up year over year, but
Speaker 1: they're still down against the pre pandemic level. And let's
Speaker 1: let's be clear, even if you do drill a hole today,
Speaker 1: it doesn't mean that oil is there tomorrow. It still
Speaker 1: takes time for these assets to develop and then be produced,
Speaker 1: So we're not going to see shale running to the rescue.
Speaker 1: I do think we'll see incremental improvement, but it's not
Speaker 1: going to be anything to fill the potential gap if
Speaker 1: the man resurges post omicron. Well, let's talk about gaps
Speaker 1: in demand and look at Europe and the energy shortage
Speaker 1: there and how volatile natural gas prices have been. I
Speaker 1: mean today it was price is actually coming in because
Speaker 1: Russia said, hey, we got you. What do How long
Speaker 1: do you think that that kind of volatility will persist.
Speaker 1: I think it's a volatility we'll see for the next
Speaker 1: two to five years at least, because we're racing into
Speaker 1: the energy transition and we don't have the supply and
Speaker 1: demand balance that we need to have. So the in
Speaker 1: Houston we're talking a lot about chaos and that the
Speaker 1: fact that the chaos will intensify as we try to transition.
Speaker 1: What we need to focus on is energy security and
Speaker 1: energy affordability. I think right now the UK is burning
Speaker 1: more natural gas and cold because the wind isn't blowing,
Speaker 1: and we don't have the storage and capability of using
Speaker 1: the renewables for a much larger percentage because we need
Speaker 1: that sustainability of energy supply. So I think it's going
Speaker 1: to stay pretty chaotic for at least the near term future.
Speaker 1: And Regina, thanks so much for joining us. We really
Speaker 1: appreciate chatting with you, getting the latest on the global
Speaker 1: energy story. Supply demand, Um, you know that's kind of
Speaker 1: the key issues that you know, investors are really trying
Speaker 1: to get their handles on here Regina Mayor, Principal Global
Speaker 1: Sector head of Energy for kp MG. Let's continue our
Speaker 1: discussion of cyber security. It is a huge issue for
Speaker 1: corporate American corporations around the globe. UH Dana Simberkoff is
Speaker 1: the Chief Risk Privacy see an information security officer for
Speaker 1: app Point. At Point is a publicly traded company on
Speaker 1: Nastack symbol a vp T. It's got about a one
Speaker 1: point two billion dollar market cap. Dana, thanks so much
Speaker 1: for joining us here. I'd love to get your thoughts
Speaker 1: as to what are some of the key issues that
Speaker 1: you're hearing from your clients as they think about cybersecurity
Speaker 1: in this day and age. Sure, well, thanks for having
Speaker 1: me today. Um, there are certainly a lot of things
Speaker 1: for our clients to think about as app Point does
Speaker 1: as well, and key in that list is supply chain
Speaker 1: management and vendor management. I think and are increasingly interconnected world.
Speaker 1: Companies like app Point provide services to many of our
Speaker 1: customers to help them mitigate risks of their suppliers, to
Speaker 1: add on layers of protection to help ensure that they're
Speaker 1: making information available to people who need it and protecting
Speaker 1: it from people who should not. And is there a
Speaker 1: sense that companies are making adequate investment in those kind
Speaker 1: of productions. I was talking to the Deputy National Security
Speaker 1: Advisor in New Burger yesterday. He focuses on cyber and
Speaker 1: she was really pushing that the private sector needs to
Speaker 1: do more to kind of shore up their defenses. Does
Speaker 1: more investment need to be made? Absolutely, UM ad point,
Speaker 1: as a cloud provider to millions of customers around the world,
Speaker 1: has been working in a space for about twenty years,
Speaker 1: and particularly with the shift UM that covid has brought
Speaker 1: to companies increasingly relying on the cloud for workers that
Speaker 1: are either working from home or working in a hybrid environment.
Speaker 1: Now as people begin to come back to work, that
Speaker 1: dependency on suppliers and vendors instead of on your own
Speaker 1: um I T operations is really making it critical to
Speaker 1: invest in UM what I call trust and verify. So
Speaker 1: you obviously need to pick providers that you trust, but
Speaker 1: then verify with those third party controls that UM you're
Speaker 1: getting what you expect from those providers as well and
Speaker 1: supplementing any of the as a box security controls that
Speaker 1: they provide as part of their services to you. So
Speaker 1: data I understand that the Biden administration is looking to
Speaker 1: tighten restrictions on data security and collection with the Build
Speaker 1: Back Better Plan. What are you looking for to come
Speaker 1: out of that piece of legislation. Well, that's a really
Speaker 1: important piece of legislation and it's something that's been sort
Speaker 1: of in in discussions for some time. It's really looking
Speaker 1: at UM ensuring that companies are adequately protesting UH investing
Speaker 1: in controls that will allow for adequate protection of consumer
Speaker 1: privacy and sensitive data. And I think all of us
Speaker 1: UM are aware that the the increase in attacks and
Speaker 1: in UM identity theft and in hacking on both our
Speaker 1: sort of personal attacks as well as B two B
Speaker 1: attacks has really been on the rise and at the
Speaker 1: forefront of people's minds, something that's in the news almost
Speaker 1: every day. So UM, what the what a privacy law
Speaker 1: for the US would mean is it would mean regulatory
Speaker 1: certainty for companies and so I think companies like app
Speaker 1: points and our industry peers are really looking for clear
Speaker 1: guidelines on which to build and that allows us to
Speaker 1: build UH a network of trusted UH systems for consumers,
Speaker 1: for our business partners where everybody is rolling in the
Speaker 1: same direction. Currently in the US we have a very uh,
Speaker 1: federated privacy landscape where states have their own privacy laws,
Speaker 1: industries have their own privacy laws, and a common framework
Speaker 1: like the EU GDPR in the US is something that
Speaker 1: I think would be very beneficial in helping all industries
Speaker 1: to consolidate on a common approach. So it made ring
Speaker 1: more clarity. But what kind of impact would that have
Speaker 1: on the global supply chain? Well, I think, um, you know,
Speaker 1: it may impact the supply chain, but frankly I think
Speaker 1: in in positive ways, UM for the most part, Because uh,
Speaker 1: the US is a country because we don't have that
Speaker 1: common privacy framework like Europe does, or even like many
Speaker 1: of our counterparts around the world do. UM, that causes
Speaker 1: friction in moving data around the world, which is really
Speaker 1: critical to the supply chain. I think if we were
Speaker 1: to um build toward that model of globalization and standards
Speaker 1: based privacy and security controls, that would actually ease friction
Speaker 1: in the supply chain. So is this it just feels
Speaker 1: like this is a public private partnership kind of thing.
Speaker 1: I mean, you know, the the governments, they're doing what
Speaker 1: it can for the backbone, the internet backbone and infrastructure,
Speaker 1: but it's also really up to the companies to step
Speaker 1: up their game. Is Is that the best way to
Speaker 1: think about just cypers security in general. Oh? Absolutely absolutely,
Speaker 1: And again you know, from an a point in perspective,
Speaker 1: we've been doing this for over twenty years as a
Speaker 1: provider of cloud UM data protection for Microsoft and for Google,
Speaker 1: and for Salesforce and for business UM. Business users of
Speaker 1: these technologies, they need to know that, uh, they have
Speaker 1: again supply chain that they can have confidence in, and
Speaker 1: that includes not only regulation from the government side so
Speaker 1: that you have that predictability and you have benchmarks to
Speaker 1: work against, but also commitment from the companies themselves that
Speaker 1: we're all working in a common direction and that we're
Speaker 1: not um necessarily doing the minimum necessary, but rather we're
Speaker 1: optimizing our programs and and that's done through collaboration. Dana,
Speaker 1: thanks so much for joining us. Really appreciate getting your
Speaker 1: informed thoughts here. It's a critical issue for corporate America.
Speaker 1: Dama SIMBERCOF Chief Risk, Privacy and Ormation Secured your officer
Speaker 1: for app Point. Thanks for listening to the Bloomberg Markets podcast.
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
Speaker 1: on Twitter at Matt Miller three. Pet On Ball Sweeney,
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
Speaker 1: can always catch us worldwide at Bloomberg Radio