Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownowitz Jaily. We bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg Terminent Right now, a
Speaker 1: treat Richard hass as a President of the Council on
Speaker 1: Foreign Relations and far more than that with his public
Speaker 1: service to the nation in Northern Ireland negotiations Inbassador hass
Speaker 1: joins us with my book of the Summer a number
Speaker 1: of summers ago the world a brief introduction. Clearly it
Speaker 1: needs to rewrite hass rumor to have a book out
Speaker 1: in January. We're thrilled the Ambassador could join us this morning.
Speaker 1: Richard Austin your newest essay see it folks at my
Speaker 1: favorite project syndicate. You talked beautifully about American overreach. There's
Speaker 1: all these phrases in the Richard House world, the classes
Speaker 1: of civilizations, the post American world, and now American overreach.
Speaker 1: What will our new overreach look like? Well, this has
Speaker 1: become an assumption. Tom in the wake of Afghanistan and
Speaker 1: the two thousand three I Roq war, But the biggest
Speaker 1: problem facing American foreign policies we were trying to do
Speaker 1: too much. Now you have the Russian invasion of Ukraine,
Speaker 1: and it's a reminder that classic geopolitics have not gone away,
Speaker 1: and that the new danger and might not be overreach,
Speaker 1: but might be underreach, which is simply another word for
Speaker 1: retrenchment or isolationism. And we've seen voices calling for that
Speaker 1: in both parties. And I actually think one of the
Speaker 1: things coming out of this crisis is going to be
Speaker 1: a new eak equilibrium. We've already seen some new signs
Speaker 1: of that, some initial signs of that in the administration's budget.
Speaker 1: National security spending is going to go up. But the
Speaker 1: United States now faces the world of a Russian threat
Speaker 1: to Europe, Chinese assertiveness at least in the Asia Pacific.
Speaker 1: Iran has not given up its nuclear ambitions. North Korea
Speaker 1: is expanding its nuclear and missile capabilities. You've got a
Speaker 1: raft of other global challenges, so Linda world looks to
Speaker 1: be a very dangerous place. The United States has got
Speaker 1: to address them. The new isolationism. It can't be the
Speaker 1: Chicago Tribune isolationism of our parents, Richard Haas. With the
Speaker 1: modern technology, the speed of information, the reporting of intelligence
Speaker 1: by the United States in the uk of putin, the
Speaker 1: speed of news here means it's a new isolationism. How
Speaker 1: do you see that playing out? Well, it makes no sense.
Speaker 1: Think about it, Tom, We're just two years out of
Speaker 1: a virus that began in Wuhan, China and killed nearly
Speaker 1: a million Americans. Climate change effects us every day. We
Speaker 1: just marked the twentieth anniversary of nine eleven. To be
Speaker 1: isolationist in a global world, globalization into reality, it's not
Speaker 1: a choice. The choice is how we how we deal
Speaker 1: with it. So American isolationism now is truly truly a
Speaker 1: self defeating and dangerous fallacy. Richard. Let's talk about the
Speaker 1: here and now, right now, about these conflict, this war
Speaker 1: in Ukraine and what this does to the world order
Speaker 1: as you see it. If we're talking in big geopolitical
Speaker 1: strategy terms, how much is there a winner and how
Speaker 1: much is there a loser? Well, there's more losers than winners,
Speaker 1: which is almost almost always the case. And more that said,
Speaker 1: NATO has come out of it in much better shape
Speaker 1: than than I was. I think the Biden administration has
Speaker 1: handled this fairly well. For the most part. The EU
Speaker 1: looks pretty good. Germany what what a what a turnaround?
Speaker 1: Ukraine is both tremendous resilience, but look at the destruction
Speaker 1: to the to the physical plant of the country. A
Speaker 1: quarter of the people are now on now homeless, either
Speaker 1: displaced or refugees. I think they're the big loser more
Speaker 1: than anything else, will be Russia. Look what Russia has
Speaker 1: done to its position in the world, to it to
Speaker 1: its economy. It's beginning to lose some of its best
Speaker 1: and brightest, and its army looks like a potempic in military.
Speaker 1: So out of all of this, I'd say Russia is
Speaker 1: the biggest loser, but also increasingly all a dangerous loser.
Speaker 1: We don't know how Mr Putin might react to this,
Speaker 1: how he might lash out, how he might even escalate.
Speaker 1: When you talk about how NATO is a winner in
Speaker 1: Germany in particular as they try to strengthen their place,
Speaker 1: what's your view on how lasting this move away from
Speaker 1: Russian oil will be? How much can the Western nations
Speaker 1: actually effectuate some replacement for that nation's reserves. It's a
Speaker 1: great question. It's two parts of One is the physical
Speaker 1: part of transitioning out of dependence on Russian gas. In particular,
Speaker 1: we're talking about years in this country. We're going to
Speaker 1: have to build the ability, the ability to export liquid
Speaker 1: net liquefied natural gas. Europe is going to have to
Speaker 1: build the capacity to import it at scale. That's something
Speaker 1: that happens that over over years, not not months or weeks.
Speaker 1: And then the question is whether the pole tis a there.
Speaker 1: That depends, I think, on what Russia looks like over time.
Speaker 1: Do you do we get to a post Putin period.
Speaker 1: If we do, I expect they'll be voices in Germany
Speaker 1: that will say we can now relax some of the sanctions.
Speaker 1: Some of the old fishers within the Western Alliance will
Speaker 1: begin to re emerge if you see a changed Russia.
Speaker 1: But at the moment, you know, we can't. We can't
Speaker 1: count on that. That's not a strategy, that's simply a hope.
Speaker 1: Richard hass was the were the realist correct? Was John
Speaker 1: Muir Steimer and others? Publishing in your magazine, you provided
Speaker 1: leadership on this debate where the real politic crew correct? Tom.
Speaker 1: I think this is one of these debates about whether
Speaker 1: we mishandled the end of the Cold War. It's going
Speaker 1: to go on for some time. This is one of
Speaker 1: those rare cases that even hindsight is my own view,
Speaker 1: as we did mishandle in some ways dealing with the
Speaker 1: Russia in the years after the collapse of the Soviet
Speaker 1: Union the end of the Cold War. But I also
Speaker 1: would point out that doesn't in any way just the
Speaker 1: fire explained what Vladimir Putin has done. You can you
Speaker 1: can say both things. We mishandled some of the post
Speaker 1: Cold War diplomacy, but in no way does that by
Speaker 1: a warrant what Putin did, Ambassador. Let's get down to
Speaker 1: the nitty griddy in two thousand and eight, I believe
Speaker 1: it was at Pratoslava. Could be wrong on that. I
Speaker 1: can't remember where the meeting was. Yeah, thank you, Boko
Speaker 1: started with a B. What do I know? The answer
Speaker 1: is Condi Rice and Richard Gates got hammered. They didn't
Speaker 1: listen to the prose about what to do on the
Speaker 1: Eastern Front. Are they gonna listen this time to the
Speaker 1: pros that are nurtured by institutions like what you've built?
Speaker 1: A cfire? Full disclosure, folks, I'm a member of CFR,
Speaker 1: so I'm talking to my book. But they didn't listen
Speaker 1: in two thousand and eight, did they? But Tom the
Speaker 1: Foreign policy espous, it was divided you and Democrats and
Speaker 1: the Clinton administration medal at all right, I made her
Speaker 1: memory be for a blessing. Was one of the advocates
Speaker 1: of NATO and large. But so is brig Brisinski, Condi Rice,
Speaker 1: as you say at two Ashdated and Bucharest with Steve Badly,
Speaker 1: that was that was the view even now you what
Speaker 1: people will say, we should have done more NATO expansion.
Speaker 1: That's the problem that that NATO has never expanded to
Speaker 1: to Ukraine. And then you have just the opposite point
Speaker 1: of view. We don't know what Russian political culture would
Speaker 1: have would have emerged as so we don't know whether
Speaker 1: NATO enlargement and the mishandling of relations with Russia brought
Speaker 1: this about or would have come anyway. That's really one
Speaker 1: of those debates that won't end. You said, like now Ferguson,
Speaker 1: let's not do the counter factual thing. Richard has bring
Speaker 1: it forward for the next Secretary of State. Which way
Speaker 1: do they till Rice or all Bright? I would say
Speaker 1: what we want to do is limit our involvement if
Speaker 1: we can in Europe. That's not the critical arena for
Speaker 1: the twenty one century. Tom I would say say, we
Speaker 1: want to free ourselves up as best we can to
Speaker 1: deal with China, the Indo Pacific and with global issues.
Speaker 1: Century is ultimately not going to be decided in Europe.
Speaker 1: So what we need to do is manage things in Europe,
Speaker 1: put a ceiling on them so we can focus on
Speaker 1: global issue is out on other geographies. Clinic as always
Speaker 1: of the Council on Foreign Relations, Richie, thank you, thank
Speaker 1: you very much. One of those sites of the four
Speaker 1: Salt minds, if you will, the salt caverns, John Is,
Speaker 1: Scenic West Hackberry is where we'll get those millions of
Speaker 1: barrels or whatever we're doing. And that is about the
Speaker 1: strategic petroleum reserve and it is something that will affect
Speaker 1: the global price of oil. We are advantaged with all
Speaker 1: of our coverage founded by Stuart Wallace, Javier Blass and
Speaker 1: the rest on hydrocarbons, and we get expert view today
Speaker 1: from KPMG, their global head of Energy, Regina Mayor Regina.
Speaker 1: I've got to rip up the script here and take
Speaker 1: it from the strategic petroleum reserved to your visit in
Speaker 1: recent days to the United Arab Emirates. We spoke to
Speaker 1: the head of their energy policy who stayed on script.
Speaker 1: I need you to get off script. What is the
Speaker 1: power of the peers Engulf to affect global price and
Speaker 1: diminish Mr Biden's efforts to lower price? The Okay plus
Speaker 1: producing nations definitely have the power to lower prices right
Speaker 1: now that I was struck by that, the confirmation that
Speaker 1: there is spare capacity in both Saudi and the U
Speaker 1: a e UM, But there is a sticking to the
Speaker 1: script that all of them are are focused on. They
Speaker 1: have an agreement, that agreement has been in place, and
Speaker 1: they're sticking to the agreement UM. And then they'll I
Speaker 1: think that gives a little bit of a buffer from
Speaker 1: some of the the external um pressures that might be
Speaker 1: facing them. And then when you ask each of them
Speaker 1: independently write of you a you will say, well, we're
Speaker 1: just ten and there is an agreement. So I was
Speaker 1: not surprised by what came out of a twelve minute
Speaker 1: meeting take us from Doha to a Bloomberg surveillance conversation
Speaker 1: with a Secretary of energy a number of months ago,
Speaker 1: and the point of the argument was the one price
Speaker 1: of oil. Is that true that Mr Biden and the
Speaker 1: for salt caverns have to deal with a global oil
Speaker 1: price or they can they manage a US price? Well,
Speaker 1: I think that the challenge for the US administration is
Speaker 1: that gasoline prices more closely correlate to the global oil price,
Speaker 1: which is tydemore to Brent versus w t I. So
Speaker 1: we do have abundant US supply, which we still have
Speaker 1: a challenge of getting out of the ground, labor shortages, costs,
Speaker 1: et cetera. But the price of gasoline pivots more closely
Speaker 1: with the price of Brent, and that's where OPEC plus
Speaker 1: and some of the other suppliers come into play. Regina,
Speaker 1: we're looking at this oil reserve release potentially as reported
Speaker 1: by Bloomberg, that could amount to a hundred and eighty
Speaker 1: million barrels in some after all of the months are
Speaker 1: added up. How much does this actually reduce the strength
Speaker 1: of the US basically diminishing the reserves and actually propping
Speaker 1: up prices even further later when they try to rebuild them.
Speaker 1: Great question, but you know, if you if you believe
Speaker 1: some of the other analysts like Secretary Munees that was
Speaker 1: referenced earlier. There is a belief that towards the end
Speaker 1: of the year, supply markets will balance. So if there's
Speaker 1: an opportunity to diminish some of ooplex influence in the
Speaker 1: short term and ease prices at the pump for consumers,
Speaker 1: then that's the wise decision to take right now. I
Speaker 1: worry less about what it does to our our defense
Speaker 1: ability in the future and the cost exposure, because I
Speaker 1: do think well markets are poised to settle down in
Speaker 1: twenty three Regina to double down on that point that
Speaker 1: Ernest means and you you echo that we're going to
Speaker 1: have more of a balancing and the rest of the year,
Speaker 1: what does that assume, the end of what's going on
Speaker 1: in Eastern Europe, the bringing back on some of the
Speaker 1: Russian barrels or other sources as production increases in the US.
Speaker 1: All of the above, plus I think the one thing
Speaker 1: we said that maybe you left out is that the
Speaker 1: current price is an incentive to non OPEC producers. So
Speaker 1: a lot of plays are in the money, and I
Speaker 1: think people will do what they absolutely possibly can to
Speaker 1: bring more of those supplies to the market so they
Speaker 1: can monetize. Think Canadian oil stands, you know, think investments
Speaker 1: in Mexico. So there are other sources of supply. Guyana
Speaker 1: and the fine that we have there that I do
Speaker 1: believe will come into into the market, and that's what
Speaker 1: folks are counting on to help ease the supply crimes. Regina,
Speaker 1: can you just clarify something for me quickly? What is
Speaker 1: the SPN for and it's just the right way to
Speaker 1: use it? Well, I've actually don't feel qualified to comment
Speaker 1: on that, John things. I think it's it's a lot
Speaker 1: about our defense of our our country at you know,
Speaker 1: fuel is a really important commodity. I grew up in
Speaker 1: Hawaii and I remember the seventies sitting in the back
Speaker 1: seat of my parents car for hours on end on
Speaker 1: an auto even license day, waiting to be able to
Speaker 1: fuel up our tank of gap you know, are so
Speaker 1: that we could drive around a small island. So I
Speaker 1: think that's what it's intended to try to buffer, and
Speaker 1: that we could get gosh forbid, that there would be
Speaker 1: a large conflict. We have those supplies, and I think
Speaker 1: it's pretty important, Regina Man, Thank you, kypmje Nila Richardson
Speaker 1: joins us right now chief economist at a DP. That
Speaker 1: was important, of course, we're their Wednesday effort on a
Speaker 1: DP statistics on the American labor economy, Nila, let me
Speaker 1: start with Richardson one oh one. Are we a fully
Speaker 1: employed America? Now? We can't be as long as a
Speaker 1: million workers are still on the sidelines. And you know
Speaker 1: the labor force participation rate is below pre pandemic levels.
Speaker 1: But that goal is moving. What is full employment with
Speaker 1: a smaller workforce? It is defined as the level of
Speaker 1: employment the large the largest number of employed people the
Speaker 1: economy can support without a spurring additional inflation. And so
Speaker 1: that's going to be a moving goal as inflation hopefully
Speaker 1: comes down over the course of the year. Neil I
Speaker 1: was passing through the data and frankly, the most interesting
Speaker 1: aspect of this was real personal spending, which was down
Speaker 1: by zero point four percent negative. We're looking at negative numbers.
Speaker 1: People are not spending as much as inflation is going up.
Speaker 1: Is this a signal or simply a blip? Well, you
Speaker 1: can't answer that in one yes or no, because consumers
Speaker 1: are very bifurcated. Low income consumers spend what they have
Speaker 1: so that little increase in personal income, if it was
Speaker 1: too low income households, that's actually a good sign for
Speaker 1: spending going forward. High income households spend when they feel
Speaker 1: confident about the economy, and there is indication that consumers
Speaker 1: are not confident with inflation this high. So it's a
Speaker 1: mixed picture right now in terms of where that increase
Speaker 1: and income landed. If it landed with the low income,
Speaker 1: they need that money to keep up with rising fuel
Speaker 1: and food prices, and you might see that translated into
Speaker 1: consuming we're spending. If the Fed we're looking at this data,
Speaker 1: do they get comfort from seeing a decline in real
Speaker 1: spending in some ways? Do they want to see a
Speaker 1: deceleration in demand? They want to see a deceleration and inflation,
Speaker 1: not so much a deceleration in demand. Unfortunately, you can't
Speaker 1: have one without the other. They want to see an
Speaker 1: economy that continues to grow. Uh So, I think that
Speaker 1: they're very careful of where they're the demand is being contracted, right,
Speaker 1: they'd like to see it in house prices and rents.
Speaker 1: Uh not necessarily though, in incomes and wages um But
Speaker 1: that that is going to be the challenge that they
Speaker 1: have this very blunt instrument. They can't control where the
Speaker 1: demand can be tacks in the economy neily, you have
Speaker 1: a huge advantage no one talks about. You're going to
Speaker 1: the secret combine of a DP and you calculate all
Speaker 1: the pay rolls and all the corporations using a DP
Speaker 1: for that core automatic data processing services. What are corporations
Speaker 1: doing right now? Consumer seventy of the economy. I'll let
Speaker 1: you tell me what corporations are eleven? Maybe it's fift
Speaker 1: of the economy. What does a DP? And you see
Speaker 1: is the doing the action of corporations right now? They're
Speaker 1: trying to figure out how to hold onto their people.
Speaker 1: We have a very low jobless claims number. It's not
Speaker 1: as low as it was last late week, but it's
Speaker 1: awfully low. And you pointed to what the cultural notion
Speaker 1: of this is. The cultural notion in terms of the
Speaker 1: business climate is they are very reluctant to let go
Speaker 1: of people because they don't know if those people are
Speaker 1: going to come back. We have a very high quiz breath,
Speaker 1: that is elevated job openings hovering near record highs, and
Speaker 1: hirings are not keeping up with openings. So right now
Speaker 1: everyone is very focused big clients, small clients UM on
Speaker 1: retaining the people and hiring in a highly competitive environment
Speaker 1: for talent. When we're talking about the corporate outlook, Miila,
Speaker 1: let's end where we began the show, which is really
Speaker 1: restoration hardware and this call that they had where they
Speaker 1: basically through the kitchen sink at their expectation that growth
Speaker 1: would decelerate and that their business outlook would deteriorate. How
Speaker 1: much is that representative of the larger corporate universe and
Speaker 1: face of the inflation and the consumer where they are
Speaker 1: versus perhaps a more specific or ambiguous story look as
Speaker 1: the economy as this recovery matures, what we expect um
Speaker 1: is a shift in consumer spending from durable like furniture
Speaker 1: over to services. Um that's what we're waiting for. The
Speaker 1: problem is uh that that served this increase is capped
Speaker 1: by employees. If services can't find the head count, especially
Speaker 1: in leisure in the hospitality but took a large hit
Speaker 1: from the pandemic, then we are not going to see
Speaker 1: the growth. So it is a macro story in terms
Speaker 1: of durable goods like furniture, like big more big ticket items,
Speaker 1: but it also is about this transformation of the economy
Speaker 1: up through the recovery back into services. Nina always an education.
Speaker 1: Thanks for being with us, Nata Richards in that of
Speaker 1: a d P, let us save ourselves with Anders Crossed
Speaker 1: Assets strategist at Morgan Stanley and Andrew Wey. What you
Speaker 1: do is you combine in so nicely all the fractious
Speaker 1: and folks. I say this with immense respect, the fractious
Speaker 1: debate of Morgan Stanley and your single phrase is solid growth.
Speaker 1: What does solid growth mean for my two thousand twenty two? Yeah, thanks,
Speaker 1: good morning, Tom, great to be here with you and
Speaker 1: everybody else. So solid growth to us means that growth
Speaker 1: is lower than where it was in one but one
Speaker 1: was was a very high bar that was extremely strong
Speaker 1: global growth. And two we think will still look pretty
Speaker 1: reasonable by the standards of the last twelve years that
Speaker 1: we're still looking at. You know, US GDP growing around
Speaker 1: four percent this year, and even though we think we
Speaker 1: have a very disappointing first quarter in China, ultimately the
Speaker 1: four year growth we think will still be a pretty
Speaker 1: pretty reasonable and that Chinese growth will re accelerate as
Speaker 1: the year goes on. So when we're thinking about stay inflation,
Speaker 1: I think we're thinking about a year much more like
Speaker 1: two thousand five. We're p m I S or decelerating
Speaker 1: inflation is higher, policy is tightening than than something where
Speaker 1: growth is really falling off right now in terms of
Speaker 1: what the market needs to deal with, Andrew, the research
Speaker 1: you've put out recently is that we've priced in higher
Speaker 1: interest rates but not the growth risks associated with it.
Speaker 1: Can you pull through the equity market force and help
Speaker 1: usunderstand and where you think that needs to be priced
Speaker 1: a little bit more? Yeah, So I think this is
Speaker 1: where some of the debate around the yield curve, which
Speaker 1: I'm sure is something we are now going to be
Speaker 1: talking about for the next six months UM, is really
Speaker 1: interesting because I think what the yield curve is discounting
Speaker 1: is higher odds of a growth slow down next year,
Speaker 1: which which we think is correct UM, and that certain
Speaker 1: asset classes are going to be more vulnerable to that
Speaker 1: than others. So, you know, when we think about the
Speaker 1: overall equity market, when the yield curve inverts, it doesn't
Speaker 1: necessarily go down. In fact, it tends to keep rising
Speaker 1: after that inversion happens. The the equity markets balancing. Yes,
Speaker 1: there's some greater risk of recession, but there's also a
Speaker 1: possibility that things continue on for another twenty four months.
Speaker 1: But assets that tend to be more growth sensitive, something
Speaker 1: like US high yield that tends to see a pretty
Speaker 1: bad risk reward when the curve inverts. When this when
Speaker 1: the odds of a recession are rising, and that starts
Speaker 1: to really underperform after the yeld, after you'll curve in version.
Speaker 1: So we think that favors somewhat more defensive positioning within
Speaker 1: the US equities, things like healthcare utilities. We think that
Speaker 1: favors investment grade over high yield within within the US
Speaker 1: credit and then some of the non US developed markets
Speaker 1: we think could be in a better place, a largely
Speaker 1: better place because the financial conditions there are easier. Policy
Speaker 1: is under less pressure to tighten in Europe and Japan,
Speaker 1: and so I find the banks called fascinating at the moment.
Speaker 1: Betsy Gresik made a move earlier this week. Can you
Speaker 1: walk me through how um in a team thinking about
Speaker 1: the financials? Yeah. So, so we downgraded financials from from overweight,
Speaker 1: which had been a favorite sector for a while, down
Speaker 1: down to equal weight. And you know that the reason
Speaker 1: for that is is a function of both. We've we've
Speaker 1: had a very large, large inister straight move that that
Speaker 1: helped the sector. But also, you know, financials as you
Speaker 1: start to get later in the cycle, have to balance
Speaker 1: both loan growth that is often still strong. Banks continue
Speaker 1: to lend even after the old curve flattens with the
Speaker 1: market and thinking well, if the odds of a recession
Speaker 1: are rising, we need to price in a higher risk
Speaker 1: premium around higher loan losses eight twenty four months out,
Speaker 1: So you know, we think the sector's risk word is
Speaker 1: now a lot more balanced here again as those two
Speaker 1: factors are competing against each other, you know, and after
Speaker 1: we've had a pretty large rate move, and so that
Speaker 1: leaves us more more balanced and looking to reassess, Andrew,
Speaker 1: where do long bond stit in your portfolio given the
Speaker 1: sell off that we've seen to date, and given the
Speaker 1: call that you have that we're in the same kind
Speaker 1: of environment longer term even given this blip. So I
Speaker 1: think that the backdrop favors a flatter and more inverted curve.
Speaker 1: That's that's very much the way that our our interest
Speaker 1: rate strategist at Morgan Stanley are thinking about that, and
Speaker 1: and that we could even have a dynamic where the
Speaker 1: two year rate continues to go up towards towards three percent,
Speaker 1: but the the thirty year bond does not rise in
Speaker 1: yield from here, maybe it even declines a couple of
Speaker 1: basis points. Again, as the market is looking at very
Speaker 1: strong we think structural demand for longer term duration and
Speaker 1: also as overall yields rise, the funding position of pension
Speaker 1: funds gets better. That increases the desire to to buy
Speaker 1: long duration assets to defease those pension liabilities. So we
Speaker 1: think longer term investment grade bonds offer better value here
Speaker 1: than say HI yield. We think some parts of the
Speaker 1: Emerging market credit index will offer better value than say
Speaker 1: emerging market equities here, again in part thanks to the
Speaker 1: longer duration of that index. And we certainly would put
Speaker 1: ourselves in the curve flattening long end out performing camp.
Speaker 1: And I know you've been building cash and that Morgan
Speaker 1: Stanley's approached generally has been to hold a bigger portfolio
Speaker 1: of liquid assets. At what point what signals are you
Speaker 1: looking for to shift that to deploy more and to
Speaker 1: go more into risk. Yeah, it's a great question. So
Speaker 1: so one, I mean, the equity market is clearly rallied
Speaker 1: back very very quickly, and more quickly than than we
Speaker 1: expect it. So, you know, certainly, certainly lower prices, but
Speaker 1: more specifically a higher equity risk premium would be helpful.
Speaker 1: What we've seen is, you know, on our measures, a
Speaker 1: real compression of the equity risk premium. Uh, you know,
Speaker 1: a large richening of equities relative to bonds in a
Speaker 1: in a short period of time. I think more more
Speaker 1: space opening up there would be helpful. I do think,
Speaker 1: you know, the investment case in in in Europe could
Speaker 1: be a lot cleaner if we saw somewhat more certainty
Speaker 1: around the direction of of the conflict in Ukraine, and
Speaker 1: that could I think certainly improve the risk reward as
Speaker 1: we think about that market. Um. But I do think
Speaker 1: for at some level the die is cast. Um. You know,
Speaker 1: we do think we're in a later cycle environment. A
Speaker 1: flattening yield curve, low unemployment tightening policy is a part
Speaker 1: of that, and I think that that at a broad
Speaker 1: level is naturally going to constrain how much risk we
Speaker 1: think investors should take. Um, you know, kind of regardless
Speaker 1: of these other factors. So we think this later cycle
Speaker 1: environment is often one where wants, one wants to be
Speaker 1: closer to home in their portfolio allocation. But you know,
Speaker 1: we would be looking for greater risk premiums to emerge
Speaker 1: in inequities credit that we think would compensate for those
Speaker 1: risks before redeploying cash. And just quickly, how's London? How
Speaker 1: are things right now? Because when I call family, they
Speaker 1: talked to me about how much everything costs at the moment.
Speaker 1: They tell me house price to through the roof. What
Speaker 1: are you experiencing in the general economy there? What does
Speaker 1: your actually look like from your experience in the UK
Speaker 1: at the moment, So you know what we talk a
Speaker 1: lot about stag inflation. I think the stag inflation story
Speaker 1: varies a lot where you talk about it. Right, you
Speaker 1: have very low inflation in Japan, you actually have quite
Speaker 1: good growth still in the US, I think the UK
Speaker 1: is closest to that stagflationary outcome. Growth here is weak
Speaker 1: and make it weaker as you see very large cost
Speaker 1: of living increases bite even starting next month as utility
Speaker 1: bills rise. At the same time that inflation is still
Speaker 1: very high and where the current account deficit is still large.
Speaker 1: And so I think the Bank of England has a real,
Speaker 1: a real challenge to it. I think on a structural basis,
Speaker 1: we are thinking that the pound will weakend against the
Speaker 1: US dollar or the Canadian dollar um and you know,
Speaker 1: I think the UK does face a tougher macrec backdrop
Speaker 1: than the European Union or the U s Andrew Shaye
Speaker 1: Silson as a wife of Marcus STANDI thank you, sir.
Speaker 1: It is claims day in Job Day tomorrow. It's very early, Paul.
Speaker 1: We didn't need to explain this. It's usually the first
Speaker 1: Friday of every month, but it's never the first. They
Speaker 1: always then go seven or eight or whatever the number is.
Speaker 1: And John John Fields like Monday Jobs Day. This is
Speaker 1: I'm like, no, it isn't on air exactly, and it
Speaker 1: was like, Tom Glad you're read in, always read in
Speaker 1: as James Glassman, who really begins our jobs coverage. He
Speaker 1: is acclaimed at JP Morgan in commercial banking and really
Speaker 1: with the pulse of the nation. Jim, I'm gonna go
Speaker 1: local on you in Los Angeles. And this comes off
Speaker 1: an article today I saw that's some mayor Adams in
Speaker 1: New York City and many other big city mayors dealing
Speaker 1: with crime and the l A Times today, Connor Sheets
Speaker 1: has Maxine Waters overwhelmed. You know, one of the most
Speaker 1: esteemed politicians we have dealing with poverty, Maxine Waters overwhelmed
Speaker 1: by crowds, on the homeless issue, on the crime issue.
Speaker 1: In cities like Los Angeles. Are we really seeing a
Speaker 1: migration from troubled cities to new less troubled cities, you know, Tom,
Speaker 1: it does seem so. When you look at the flows
Speaker 1: of data. Part of the problem isn't so much that
Speaker 1: it's a sort of things got really expensive on the
Speaker 1: West Coast up in New York area, and you're you're
Speaker 1: seeing a population that's flowing inward a lot of I
Speaker 1: think for a lot of people, they're figuring, well, if
Speaker 1: I can work remotely for a few days a week,
Speaker 1: I can afford that place for the rot I don't
Speaker 1: have to commute as much. So there there definitely is
Speaker 1: a flow. And when I look at the flows from California,
Speaker 1: for example, uh, and out of the northeast, you can
Speaker 1: see that, Uh, what's going on is there's a heavy
Speaker 1: flow moving into the southeast, into Texas, into the Mountain states.
Speaker 1: Did the pandemic accelerate this, like so many other conditions,
Speaker 1: are we are we basically a Jim and Paul Jim
Speaker 1: is so good at the ten year timeline. Did we
Speaker 1: squeeze seven years into two years with the pandemic? Doesn't
Speaker 1: feel like that, doesn't it? Uh? And there's a reason.
Speaker 1: I think part of it is if you, if you
Speaker 1: work in the technology sector, you're used to working remotely,
Speaker 1: and I see you know why is that the places
Speaker 1: like court A Lane and the Utah are booming? Yeah,
Speaker 1: but Paul, my stuff, Jamie Diamonds listening to us five
Speaker 1: days a week. Jim, if you call in and say
Speaker 1: I'm work from home, What's Mr Diamond gonna say? Well?
Speaker 1: I think we want, we badly want people to be
Speaker 1: back on the team, back home, back in the office,
Speaker 1: because that's where you learn stuff and that's how you
Speaker 1: build culture. So we all want that. And depending on
Speaker 1: the business you're in, some some businesses don't need that.
Speaker 1: But I think over time we're going to find that
Speaker 1: we migrate back to the way we used to do it, because, yeah,
Speaker 1: we don't like commuting, but the truth is we're much
Speaker 1: We build a better team. When you're together, we're opinion free.
Speaker 1: But did you Yeah, I'm with you, I'm with you. Hey, Jim,
Speaker 1: what's a gallon of gas out in Los Angeles today? Oh?
Speaker 1: My god, I see I paid six and a quarter.
Speaker 1: I've seen prices of seven. Yeah, I mean the quarter too. Yeah,
Speaker 1: you're paying six and a quarter to go into the
Speaker 1: glass hummer a three. Yeah, Well I've I've cut the trips.
Speaker 1: You can cut down the trips a little bit and
Speaker 1: save yourself if you work really hard, cut the trip
Speaker 1: to the mall, or you really work remotely for one day,
Speaker 1: you can sort of off set this. But now people
Speaker 1: are I don't see anybody when you look at the highways,
Speaker 1: drive on the highways. It doesn't look like people are
Speaker 1: cutting back. So inflations here, Jim. Just you know again,
Speaker 1: six and a quarter for a gallon of gas in
Speaker 1: the Los Angeles. What is your inflation call? Is that?
Speaker 1: How effective do you believe the FED can be in
Speaker 1: terms of dealing with the inflation pressures? We see, Well,
Speaker 1: what the FED is? The FED can't do anything about
Speaker 1: what's going on right now. They can't get the microprocessor
Speaker 1: chips to the auto industry, they can't get the oil
Speaker 1: prices down. This is all about the dislocations going on.
Speaker 1: But it's important for the FED to get back to
Speaker 1: the sidelines. And that's really to me, what's going on.
Speaker 1: If if you think that the FED moving the rate
Speaker 1: up from where they are now to two and a
Speaker 1: half percent, it's going to fix this, I don't think so.
Speaker 1: The whole, the whole, the game at the FED is
Speaker 1: to just get back to a neutral position, hoping that
Speaker 1: by the time you get there next year a lot
Speaker 1: of this inflation stuff will fall fall away. I personally
Speaker 1: think it will slow down this year, and I'm I
Speaker 1: think it's interesting when you look at the bond investors views,
Speaker 1: you look at the implied inflation expectations that bond investors,
Speaker 1: most people think this is going to settle back to
Speaker 1: where we were now. That may be wishful thinking, but
Speaker 1: that's the view, that's the professional forecasters view, that's the
Speaker 1: bond investors views. I think we all know there's something
Speaker 1: weird going on right now with all these dislocations, and
Speaker 1: it just takes time to work them out. So, Jim,
Speaker 1: one of the issues that are that will be focusing
Speaker 1: on tomorrow here at Bloomberg Radio and Television obviously, is
Speaker 1: the Job's report, and again the consensus is four ninety
Speaker 1: thousand change in non farm payils. But what I'll be
Speaker 1: focusing on equally will be the wages. Is wage inflation
Speaker 1: something that is in this economy, should be in this
Speaker 1: economy or not? Uh? You know what's interesting. Wages, Yes,
Speaker 1: wages are growing faster than they were, but they're not
Speaker 1: keeping pace with inflation. And by the way, even though
Speaker 1: you've seen labor pay growing up, margins have been going
Speaker 1: up too. So it seems to me that wages are
Speaker 1: just kind of following along with the general the drift
Speaker 1: of things. Uh, inflations running in the higher companies are
Speaker 1: trying to avoid locking in a higher cost structure. So
Speaker 1: what they do is a lot of them are offering
Speaker 1: one time cash aims to compensate you for inflation, sort
Speaker 1: of hoping that everything settles down. That's kind of what
Speaker 1: the cost of living adjustments used to do in the
Speaker 1: old days. This is a little better because this gives
Speaker 1: you the flexibility if things settle down, that you don't
Speaker 1: don't get locked into a higher, higher pay structure. So
Speaker 1: I don't think the wages are causing the problem here.
Speaker 1: Wages are just really mirroring when going on in the
Speaker 1: broader economy. You know, I don't want you to front
Speaker 1: run Kasman and Faroly here. But with your anecdote on
Speaker 1: the ground work, Jim Glassman, are we fully employed because
Speaker 1: there there are no employers I know who aren't desperate
Speaker 1: every am I right, Paulture, I mean just just desperate
Speaker 1: for a three point shooter? And you know I mean,
Speaker 1: Jim Glassman, are we fully employed? Based on the Glassman
Speaker 1: or what Northwestern theory? You know? Um, for the very moment,
Speaker 1: looking at the people who want a job, you could
Speaker 1: argue we're fully employed because basically unemployment is back at
Speaker 1: where we were before. The problem is we had about
Speaker 1: we have about four million people who gave up and
Speaker 1: dropped out. We think they want to come back. They
Speaker 1: dropped out because we gave them the financial support to
Speaker 1: be able to do that, so that that support to disappearing.
Speaker 1: And I suspect that if we were fully employed, we
Speaker 1: would find there's nobody else out there to hire. But
Speaker 1: I think over the course of the year we'll find
Speaker 1: in my book there are four million people who are
Speaker 1: still out relative to where we were in the pandemic.
Speaker 1: You can't look at where we are relative to February.
Speaker 1: The economy is always growing you've got to look at
Speaker 1: where would things be as we're growing year by year.
Speaker 1: So I think we still I don't really think it's
Speaker 1: fair to say we're fully employed. Our problem is we
Speaker 1: have a structural demographic thing. You know what's so interesting
Speaker 1: Our work force, the population of people who are working
Speaker 1: age has been slowing down really dramatically. You know who
Speaker 1: it is. It's the vicenarians are twenty years the bisnarians
Speaker 1: are twenty year olds. They are growing. That population was
Speaker 1: growing fifty per month a decade ago. It's now declining
Speaker 1: fifty a month. Finally, just contributed three new adult workers
Speaker 1: to the workforce. Drinking that Jim Glass. And by the way,
Speaker 1: why everyone's complaining to help one signs everywhere it's the
Speaker 1: starting jobs that are really people are struggling with. They're
Speaker 1: having a hard time getting new people. Well, if you
Speaker 1: don't have a flow of twenty year olds coming into
Speaker 1: the job market, this is why this is what they're
Speaker 1: talking about. Okay, what was that term you used? Bisnarians,
Speaker 1: the twenty year olds that the guys who were twenty
Speaker 1: This is like gen z gen yen that and now
Speaker 1: I guess that's a Democrats. This happens when l A.
Speaker 1: You know, it's like an all the other language out there.
Speaker 1: He was charming when he was in Chicago. Jim Glass,
Speaker 1: thank you so much, greatly appreciate with JP Morgan just
Speaker 1: truly a one for way to get our job covered.
Speaker 1: Started his pulse on small business is just sick what
Speaker 1: he does for JPN market every day. This is the
Speaker 1: Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays
Speaker 1: from seven to ten AMI Eastern on Bloomberg Radio and
Speaker 1: on Bloomberg Television each day from six to nine am
Speaker 1: for insight from the best in economics, finance, investment, and
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Speaker 1: Bloomberg dot com, and of course on the terminal. I'm
Speaker 1: Tom Keene and this is Bloomberg