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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Ley, we bring

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Speaker 1: you insight from the best and economics, finance, investment, and

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Speaker 1: international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg

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Speaker 1: dot com, and of course on the Bloomberg terminal. Joining

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Speaker 1: us now on this is Jeff Rosenberg, port folio manager

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Speaker 1: of the Systematic Multi Strategy Fund of black Rock. Jeff,

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Speaker 1: let's get straight to it, sir. You'll response to your reaction. Yeah,

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Speaker 1: I think the focus here is that the headline, while

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Speaker 1: a miss, is expected to be revised higher. We've had

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Speaker 1: a pattern for for a number of years now with

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Speaker 1: this calendar setup that December gets revised higher. You had

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Speaker 1: the revisions earlier adding to it. So I think the

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Speaker 1: market's looking past the disappointment on the headline. And as

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Speaker 1: you guys have highlighted, you know, the unemployment rate, the

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Speaker 1: labor force participation rate, and the average hourly earnings, you know,

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Speaker 1: are all about the lookthrough from the payroll report to

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Speaker 1: the outlook on inflation. And that's really the more important

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Speaker 1: story here for for payrolls. You know, we saw in

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Speaker 1: the Minutes earlier this week, the discussion about you know,

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Speaker 1: reaching maximum employment, full employment, and lift off, I think

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Speaker 1: that has been decided. So the kind of the wage

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Speaker 1: count is pretty clear. And we've had a lot of

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Speaker 1: evidence for a long time now that labor markets are

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Speaker 1: are are very strong. I think the issue is are

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Speaker 1: they too strong? And are they a contributor contributor to

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Speaker 1: the inflation story? And I think there's a little bit

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Speaker 1: of that in this report, and I think that's more

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Speaker 1: the takeaway for the market. Can you frame not the

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Speaker 1: certain nous of it, but Jeff Rosenberg, can you begin

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Speaker 1: to frame in your mind that we're heading for an

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Speaker 1: inverted twos tends spread? I mean, are we is this

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Speaker 1: the first discussion with particularly the regular household survey showing

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Speaker 1: six fifty job girls. Are we finally at a point

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Speaker 1: where we really have to begin to discuss potential curve

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Speaker 1: and vision with a two year yield up up up.

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Speaker 1: You know, Tom, it's a it's a very big question.

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Speaker 1: It's a question we we spent a lot of time

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Speaker 1: talking about. But the difference this time is the role

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Speaker 1: of the balance sheet, and and you know, when you

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Speaker 1: see how much the balance sheet has contributed to financial

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Speaker 1: conditions easing. Right, You look at that time series of

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Speaker 1: the balance sheet and it makes what was and you

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Speaker 1: were there with with me, you know, what we thought

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Speaker 1: in in uh in two thousand and eight was historic,

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Speaker 1: unprecedented balance sheet expansion, and what we see in this

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Speaker 1: balance sheet is it makes that period look tiny by comparison.

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Speaker 1: And so I think the difference in the kind of

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Speaker 1: traditional yield curve in version the bond market predicting the

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Speaker 1: FED overdes it yet again, and you're seeing some of

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Speaker 1: that in the bond market already. Is the the tool

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Speaker 1: and the uncertainty around how much will they use the

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Speaker 1: balance sheet to try to take some of that accommodation out.

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Speaker 1: You saw a lot of discussion of that in both

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Speaker 1: speeches and a bit in the minutes about you know,

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Speaker 1: trying to avoid that that very strong curve inversion and

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Speaker 1: using the balance sheet to try to tighten financial conditions

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Speaker 1: without the same kind of yield curb in version. So

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Speaker 1: I think it remains to be seen, and we still

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Speaker 1: have a lot of information to come from the FED

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Speaker 1: about the balance sheet normalization policy. Jeff, it's hard to

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Speaker 1: believe that we're just a fewer than two weeks into

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Speaker 1: the new year. It has been an exhausting period of

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Speaker 1: time in the first week of two. Has anything changed

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Speaker 1: your outlook given the fact that we've gotten the meeting minutes,

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Speaker 1: given the fact that we seem to see some support

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Speaker 1: for a very tight labor market in today's data, that

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Speaker 1: really you're going to actually adjust tweak your view for

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Speaker 1: the year ahead. Well, I think going into this year,

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Speaker 1: we had already had the view that this was a

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Speaker 1: significant set of turning points, right you. We knew that

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Speaker 1: from the meeting. We discussed it when I was on

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Speaker 1: a month ago, from the from the dots plot. What

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Speaker 1: we got out of the minutes was the narrative to

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Speaker 1: that change. And that narrative really laid out that the

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Speaker 1: FED recognizes they have a significant inflation problem on their hands.

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Speaker 1: And and now it's really about the market and the

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Speaker 1: FED figuring out how much intestinal fortitude does the Fed

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Speaker 1: have to tighten financial conditions, Because tightening financial conditions means

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Speaker 1: tighter financial conditions, i e. Lower stock prices, higher interest rates,

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Speaker 1: wider credit spreads. Uh. And what we've seen is very

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Speaker 1: little tolerance for financial conditions over tightening. And that's the

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Speaker 1: tricky part that the FED is gonna try to have

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Speaker 1: to wee here between wanting to take some of this

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Speaker 1: incredible post COVID crisis accommodation out of the market, take

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Speaker 1: some of the froth out of asset prices without overdoing it. Uh.

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Speaker 1: We don't have a really good experience for the ability

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Speaker 1: of of markets to to kind of calmly go through

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Speaker 1: a tightening cycle. And so I think what we've seen

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Speaker 1: in the first two weeks is a little bit of

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Speaker 1: a validation that is a very different market backdrop environment

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Speaker 1: than what we've had in the post COVID environment. Uh.

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Speaker 1: And so I think you have to go into portfolio

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Speaker 1: portfolio risk taking with that understood. Jeff thank you so

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Speaker 1: much for joining us today. Generous of you to be

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Speaker 1: with this. Jeffrey Rosenberg is with Black Rocks. This is

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Speaker 1: a joy. She is out of the combine at Washington

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Speaker 1: University of St. Louis. I think the Laura Douglas North

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Speaker 1: among others, Lawrence Meyer as well, Terrace Singlair Sinclair joins

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Speaker 1: us now from George Washington University or she is expert

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Speaker 1: in counting the data Tera, do you have any idea

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Speaker 1: how to count the data amid a pandemic. Is the

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Speaker 1: data that you see it, indeed, is the data that

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Speaker 1: we see on Bloomberg's surveilance every day. Is it truly believable? Well,

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Speaker 1: I mean, obviously there's a lot of complexity here. And

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Speaker 1: you know, when we're thinking about using data for modeling

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Speaker 1: or for forecasting, we're typically relying on the historical patterns

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Speaker 1: being applicable to today, and so it's really hard to

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Speaker 1: find historical patterns that makes sense when we're seeing such

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Speaker 1: novel events happening day to day and where we keep

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Speaker 1: using the word unprecedented over and over and over again.

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Speaker 1: But it is still the case that our statistical agencies,

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Speaker 1: you know, for today, the Bureau Labor Statistics, the numbers

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Speaker 1: that they're putting out, they're working very very hard to

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Speaker 1: put out the cleanest, clearest numbers that they can, and

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Speaker 1: it's still important to look at this information in order

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Speaker 1: to be able to have some site as to what's

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Speaker 1: going on terra The key question continues to be the

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Speaker 1: participation right. The fact that the participation rate did not

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Speaker 1: increase even as we saw the jobless rate fall to

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Speaker 1: the lowest going back to February of raises some alarm Bells.

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Speaker 1: Why is it that people are not going back into

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Speaker 1: the labor market and what could prop possibly bring them in.

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Speaker 1: What's your experience, both on the ground as well as

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Speaker 1: from an academic setting. Yeah, well, I mean, I think

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Speaker 1: we really have to think carefully about what the incentives

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Speaker 1: are for people to participate in the labor force right now.

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Speaker 1: And we still have a pandemic going on and that

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Speaker 1: is definitely holding back participation, both directly from concerns about

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Speaker 1: the virus, but also from other challenges. You're trying to

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Speaker 1: figure out childcare situation when you don't know when your

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Speaker 1: your child might test positive for the virus, you have

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Speaker 1: to care for others in your household in other ways.

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Speaker 1: That's also an additional constraint on labor force participation. And

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Speaker 1: we also have to remember we still have those long

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Speaker 1: demographic trends that are drawing down that overall lea reforce participation,

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Speaker 1: so we may never get back to leave beforce participation

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Speaker 1: rates we saw pre pandemic, because we've got the retirement

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Speaker 1: of the baby that was happening at the same time.

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Speaker 1: So this raises an issue of is this as good

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Speaker 1: as it gets and are we going to see for example,

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Speaker 1: wages increase much more than people are expecting because that

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Speaker 1: participation rate may not go up that much higher. As

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Speaker 1: you said, it may not ever get back to where

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Speaker 1: we saw a pre pandemic. What's your view on that. Well,

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Speaker 1: I still see this as a temporary maximum employment where

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Speaker 1: we are right now, where we may be close to

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Speaker 1: as far as we can get. But at the same time,

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Speaker 1: we may still see additional improvement once we get more

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Speaker 1: clarity about the long term UH situation with the virus. Tara,

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Speaker 1: thank you so much. Terris Sinclaire with George Washington University

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Speaker 1: today on some of the data nuances of this. Tiffany

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Speaker 1: Wilde is expert at time began she joins us now

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Speaker 1: from PIMCO. What a shock to get the rico Dona.

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Speaker 1: Note Tiffany that before holiday, before seasonal, before this, before that,

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Speaker 1: this was a very strong report. How strong was it? Yeah? Well,

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Speaker 1: good morning Tom and Paul. Um, you know, so, although

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Speaker 1: the headline number was a bit disappointing. Um, you know,

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Speaker 1: I just keep in mind that there are two surveys

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Speaker 1: underlying any payroll report, and the household survey, which isn't

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Speaker 1: given as the headline number. Um, you know, it was

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Speaker 1: actually quite strong, you know, and I think that really

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Speaker 1: is what the FOMC, for example, is going to be

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Speaker 1: focusing on. So they're going to be looking at the

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Speaker 1: six approximately six and fifty job genes um, which pushed

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Speaker 1: the unemployment rate down to three nine percent below their

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Speaker 1: estimates for kind of that long run level a proxy

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Speaker 1: for maximum employee it so you know, by by this measure,

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Speaker 1: we're sort of at maximum employment. Of course, inflation has

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Speaker 1: you know, um, you know, met their standard for hiking

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Speaker 1: interest rates, you know. So to me, this report just

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Speaker 1: solidifies after the minutes UM earlier this week, which which

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Speaker 1: I would argue that showed the Fed very focused on

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Speaker 1: upside risk to inflation UM and in a labor market

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Speaker 1: that's rapidly recovering that this just solidifies the March rate

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Speaker 1: hike that the market was already pricing in. Yeah, that's

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Speaker 1: kind of where I wanted to go, Tiffany. I mean,

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Speaker 1: you know, how do you think the FED will interpret

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Speaker 1: the data here today? Because even though the headline a

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Speaker 1: little bit disappointing relative to Consett, there's a lot of

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Speaker 1: positives underneath. Yeah, I mean so, so I think you know, again,

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Speaker 1: you always have to be really careful because UM, you know,

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Speaker 1: there can be statistical noise around any report, and I

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Speaker 1: think the establishment survey UM had a little bit of

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Speaker 1: that going on. So what what we kind of thought

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Speaker 1: also that was going to happen was that you had

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Speaker 1: establishments businesses right that kind of pulled full word hiring UM.

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Speaker 1: And I think that happened across a gain and that

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Speaker 1: what we saw was a pretty big surgeon hiring in October,

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Speaker 1: and that's been followed by UM, you know, a weaker

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Speaker 1: kind of weaker prince if you will, although two hundred

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Speaker 1: UM thousand jobs is still pretty strong, but weaker than

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Speaker 1: that prince UM in the months to follow. Now, I

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Speaker 1: think that will kind of wash out of the data

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Speaker 1: UM in January, but well, of course we'll have to

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Speaker 1: see what happened with oh Macron. I think the more

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Speaker 1: important thing here, though, is the household survey. You know,

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Speaker 1: it's very strong and and it it's been lagging over

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Speaker 1: the last year, but it's recently caught up, and I

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Speaker 1: think that reflects the fact that we've seen actually a

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Speaker 1: lot of establishments of of proprietors UM, you know, people

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Speaker 1: that you know aren't working in the more traditional UM

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Speaker 1: you know, kind of corporate establishment jobs and the household

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Speaker 1: survey picks that up, whereas establishment survey doesn't. You know. So,

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Speaker 1: I think that the household survey being very strong is

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Speaker 1: something that the fomc IS is really going to focus

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Speaker 1: on here, especially in the unemployment rate. Why don't we

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Speaker 1: focus on that? What is the history where media is

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Speaker 1: fixed aided by non farm payrolls traditionally two D thousand, MG,

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Speaker 1: we're gonna go to one fifty as a run, right,

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Speaker 1: we all got that wrong? And then you know, we

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Speaker 1: focus on that. Why don't we focus on the other survey?

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Speaker 1: David mal Passed when he was at bear Stearns focused

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Speaker 1: on that. Yeah, Well, I mean, I think traditionally, you know, well,

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Speaker 1: obviously most of the higher percentage of jobs in general

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Speaker 1: in the United States are through large corporates and and

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Speaker 1: and larger establishments UM. And so that survey, you know,

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Speaker 1: I think is a very good proxy UM. And in addition,

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Speaker 1: the household survey can be noisy, can suffer from you know,

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Speaker 1: kind of more statistical noise from months a month, but

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Speaker 1: that the pandemic, it does seem, has changed a lot

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Speaker 1: of how people are are working UM or not or

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Speaker 1: not working quite frankly. And one of the things I

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Speaker 1: think that has changed pandemic people prefer to have soldier triatorships. Right. So, So, Tiffany,

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Speaker 1: is I look at that average hourly earnings year on

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Speaker 1: your growth of four point seven? Is that wage inflation?

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Speaker 1: Is wage inflation is something that investors, maybe the Federal

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Speaker 1: Reserve needs to think about. Yeah, I mean I certainly

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Speaker 1: they cannot. I think they can't ignore the wage inflation

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Speaker 1: statistics that are they're coming out of this survey. UM.

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Speaker 1: And and although you know it's well known that it UM,

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Speaker 1: you know, there are some compositional effects that that have

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Speaker 1: you know that that sort of distort can distort these numbers.

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Speaker 1: You know. I think the bottom line is is that

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Speaker 1: wage inflation UM. You know, it's clearly strong for low

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Speaker 1: wage jobs UM. And I think it's potentially broadening out.

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Speaker 1: And that's really what the Fed cares about, UM, you know,

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Speaker 1: and in terms of of looking at longer term inflation

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Speaker 1: expectations and how they're filtering into the way people bargain

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Speaker 1: for jobs. UM, it's really they're they're really concerned with,

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Speaker 1: you know, is wage inflation really broadening out across sectors?

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Speaker 1: And and our businesses passing on, you know, further passing

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Speaker 1: that on to consumers. You know what, I think there

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Speaker 1: is some there is some evidence, right that we're getting

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Speaker 1: the broad out there. That's right, We're wanting to go here.

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Speaker 1: You're thinking, it's like, I am, Tiffany, what is the

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Speaker 1: evidence right now that we're actually seeing wage inflation besides

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Speaker 1: big press headlines from people like Amazon and warehouse workers

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Speaker 1: in that is it really out there? Well? Yeah, I

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Speaker 1: mean so, I think the Atlanta Fed measure is UM

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Speaker 1: is really helpful in that regard. And and and again it

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Speaker 1: shows that UM, you know, it's lower, lower wage, lower

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Speaker 1: skilled service jobs that are really seeing the brunt of

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Speaker 1: the wage inflation UM. But I think that a lot

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Speaker 1: of other jobs, UM, they get contract contract renegotiations happen

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Speaker 1: at the end of the year UM. And of course

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Speaker 1: the December report maybe doesn't pick this up, but in

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Speaker 1: January it's going to be very important to see are people,

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Speaker 1: you know, in broader sectors of the economy, are they

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Speaker 1: actually getting cost of living adjustments UM? And is that

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Speaker 1: broadening out? And and can people sort of bargain for that? So,

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Speaker 1: you know, again, I think there's some small indications that

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Speaker 1: that's starting to happen um now UM, and of course

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Speaker 1: this is this will be something that will be a

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Speaker 1: focused on them in the beginning of the year, getting

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Speaker 1: indications of that. All right, So, Tiffany, given the labor

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Speaker 1: data that we got today, what is the PIMPCO g

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Speaker 1: DP outlook and kind of what are the levers there

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Speaker 1: that could move it one way or the other? Yeah,

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Speaker 1: I mean so so overall, I mean, our forecasts, like

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Speaker 1: many other forecasters, are uh, you know, we're looking for

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Speaker 1: kind of a goldilocks environment of you will, of of

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Speaker 1: still strong GDP growth, but but something that's moderating, you know,

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Speaker 1: because the fiscal stimulus that we've gotten over the last

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Speaker 1: couple of years, of course is also moderating UM. But

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Speaker 1: in the midst of that, we're also, like many forecasters,

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Speaker 1: looking for inflation to to also moderate back, you know,

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Speaker 1: more towards levels consistent with with UM in central bank targets. Now.

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Speaker 1: You know, I again, I call that a goldilocks environment, UM,

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Speaker 1: And I think that's there's reasons to believe that's still

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Speaker 1: the base case, but there's a lot of risks underlying that,

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Speaker 1: and I think those risks have increased lately. You know.

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Speaker 1: One of them obviously is the you know, just inflation

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Speaker 1: remains per distantly elevated. UM. I think another risk, though

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Speaker 1: maybe underappreciated by markets, I'm not sure, is that you

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Speaker 1: could actually get a more abrupt tightening of financial conditions

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Speaker 1: related to that as well. Right, And because I think

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Speaker 1: the Fed you know, so far has been very um,

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Speaker 1: you know, they've been very successful in moving market expectations

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Speaker 1: for earlier timing of rate hikes, but miraculously broader financial

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Speaker 1: conditions to cross you know, equities, currencies, etcetera hadn't really tightened,

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Speaker 1: you know. So I think that raises the risk that

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Speaker 1: you get a more um, you know, a faster, more

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Speaker 1: uh you know, more volatile adjustment um you know. And

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Speaker 1: of course I think that's what something the FED does

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Speaker 1: want to avoid, you know. And then I think the

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Speaker 1: third risk obviously is just is just the virus itself. UM.

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Speaker 1: You know. It seems like the FED was pretty unconcerned

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Speaker 1: about the economic effects of O Macron, more concerned about

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Speaker 1: the inflationary effects. UM. But I think it just it

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Speaker 1: goes to highlight just the uncertainty in general of the

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Speaker 1: virus and and what it could bring in the in

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Speaker 1: the New Year, Tiffany, Thank you so much. Tiffany World

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Speaker 1: with with Pimcoast some really good inside Younger Andrew Peckash

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Speaker 1: is on Eastern Standard Time at the Johns Hopkins University

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Speaker 1: and gives us an i'm acron brief today into the weekend. Andrew,

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Speaker 1: even a dummy like me is figured out i'm acron

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Speaker 1: is not delta, but it's something, well, there's some mystery

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Speaker 1: to it. What's the biggest mystery with a'm acron into

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Speaker 1: this weekend? I think really it circles around the issue

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Speaker 1: of why this virus seems to be so much more transmissible. Certainly,

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Speaker 1: you know, it has mutations that can invade some of

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Speaker 1: the immune responses that vaccines give you, but it really

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Speaker 1: does seem like this virus is spreading better than other

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Speaker 1: variants for other reasons, and right now we don't really

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Speaker 1: understand what that is, but certainly it seems like people

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Speaker 1: are getting infected in on conditions that previously we're highly

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Speaker 1: unlikely uh to mediate infection, and that's fueling this massive

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Speaker 1: surge of cases. Transmission is something that's really difficult to

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Speaker 1: study a laboratory, but it really is one of the

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Speaker 1: things that a macron is doing fantastically better than any

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Speaker 1: previous variant we've seen. Is there a row or is

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Speaker 1: zeta after amacron? I mean I I frankly like the

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Speaker 1: geography designations that we used to do in the old days.

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Speaker 1: But do you just assume there's another variant after this one?

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Speaker 1: There absolutely will be um. This virus has already shown

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Speaker 1: the ability to evolve, change and respond to its new

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Speaker 1: host humans, and it's now showing the ability to try

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Speaker 1: to evade some of the immune responses that are coming

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Speaker 1: down the line. I do firmly feel we're on a

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Speaker 1: path to make this disease caused by this virus much

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Speaker 1: more mild, much work contained, because we will have population immunity,

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Speaker 1: we will have vaccines that are effectively knocking down severe disease,

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Speaker 1: and will eventually have antiviral that are distributed to help

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Speaker 1: limit that. So there are ways that we can control

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Speaker 1: this disease. But this virus will be around for a

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Speaker 1: long time, and it's looking more and more like we're

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Speaker 1: gonna have to deal with this like we deal with

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Speaker 1: seasonal influenza. Andy, When do we get to that point

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Speaker 1: where we have enough whether it's herd immunity or just

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Speaker 1: immunity in the general population with also the remedies, the

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Speaker 1: anti virals and the vaccines where we can basically go

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Speaker 1: back to life as it is, basically treat this like

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Speaker 1: the common cold or the flu. Well. I really do

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Speaker 1: feel like this surge of all macron cases is really

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Speaker 1: going to be the tipping point because with the massive

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Speaker 1: number of cases, and let's be clear, some of the

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Speaker 1: official counts are probably underestimates of the true number of

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Speaker 1: cases that are out there right now because of a

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Speaker 1: number of reasons. But this surge of all macron cases

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Speaker 1: maybe what really pushes us over that border to enough

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Speaker 1: immunity in the population so that transmission is limited and therefore,

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Speaker 1: you know, the likelihood of getting infected will be a

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Speaker 1: little bit lower going forward from here, How do people

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Speaker 1: avoid getting sick? Well, it really comes down to those

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Speaker 1: basic principles we've been talking about, perhaps boost it up

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Speaker 1: a little bit. I'm a big believer now that people

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Speaker 1: should be really thinking about wearing K and nine masks

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Speaker 1: um or double masking with a surgical mask and a

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Speaker 1: facial covering on top of that. I think that this

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Speaker 1: increased transmission of a macron requires people to take an

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Speaker 1: even greater UM effort to try to limit their exposures.

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Speaker 1: And again, masking is one thing. The other social distancing

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Speaker 1: issues that we've talked about UM are important to continue

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Speaker 1: to do, UH, do as much work as you can remotely,

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Speaker 1: but when you're going into situations where you're going to

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Speaker 1: be exposed to people, realize that you need to up

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Speaker 1: your game in terms of the things you do to

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Speaker 1: protect yourself and be wary of of getting infected. Andie

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Speaker 1: pekash there andie thank you sir as always that John's

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Speaker 1: Helpin splim By School of Public calf On. Yes three,

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Speaker 1: Tom entering, Yes three of all of this, and it

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Speaker 1: feels like a lifetime for so many people. This is

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Speaker 1: the Bloomberg Surveillance Podcast. Thanks for listening. Join us live

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Speaker 1: weekdays from seven to ten am Eastern on Bloomberg Radio

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Speaker 1: and on Bloomberg Television each day from six to nine

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Speaker 1: am for insight from the best in economics, finance, investment,

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Speaker 1: and international relations. And subscribe to the Surveillance podcast on

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Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

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Speaker 1: the terminal. I'm Tom Keene and this is Bloomberg