Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Ley, we bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg
Speaker 1: dot com, and of course on the Bloomberg terminal. Joining
Speaker 1: us now on this is Jeff Rosenberg, port folio manager
Speaker 1: of the Systematic Multi Strategy Fund of black Rock. Jeff,
Speaker 1: let's get straight to it, sir. You'll response to your reaction. Yeah,
Speaker 1: I think the focus here is that the headline, while
Speaker 1: a miss, is expected to be revised higher. We've had
Speaker 1: a pattern for for a number of years now with
Speaker 1: this calendar setup that December gets revised higher. You had
Speaker 1: the revisions earlier adding to it. So I think the
Speaker 1: market's looking past the disappointment on the headline. And as
Speaker 1: you guys have highlighted, you know, the unemployment rate, the
Speaker 1: labor force participation rate, and the average hourly earnings, you know,
Speaker 1: are all about the lookthrough from the payroll report to
Speaker 1: the outlook on inflation. And that's really the more important
Speaker 1: story here for for payrolls. You know, we saw in
Speaker 1: the Minutes earlier this week, the discussion about you know,
Speaker 1: reaching maximum employment, full employment, and lift off, I think
Speaker 1: that has been decided. So the kind of the wage
Speaker 1: count is pretty clear. And we've had a lot of
Speaker 1: evidence for a long time now that labor markets are
Speaker 1: are are very strong. I think the issue is are
Speaker 1: they too strong? And are they a contributor contributor to
Speaker 1: the inflation story? And I think there's a little bit
Speaker 1: of that in this report, and I think that's more
Speaker 1: the takeaway for the market. Can you frame not the
Speaker 1: certain nous of it, but Jeff Rosenberg, can you begin
Speaker 1: to frame in your mind that we're heading for an
Speaker 1: inverted twos tends spread? I mean, are we is this
Speaker 1: the first discussion with particularly the regular household survey showing
Speaker 1: six fifty job girls. Are we finally at a point
Speaker 1: where we really have to begin to discuss potential curve
Speaker 1: and vision with a two year yield up up up.
Speaker 1: You know, Tom, it's a it's a very big question.
Speaker 1: It's a question we we spent a lot of time
Speaker 1: talking about. But the difference this time is the role
Speaker 1: of the balance sheet, and and you know, when you
Speaker 1: see how much the balance sheet has contributed to financial
Speaker 1: conditions easing. Right, You look at that time series of
Speaker 1: the balance sheet and it makes what was and you
Speaker 1: were there with with me, you know, what we thought
Speaker 1: in in uh in two thousand and eight was historic,
Speaker 1: unprecedented balance sheet expansion, and what we see in this
Speaker 1: balance sheet is it makes that period look tiny by comparison.
Speaker 1: And so I think the difference in the kind of
Speaker 1: traditional yield curve in version the bond market predicting the
Speaker 1: FED overdes it yet again, and you're seeing some of
Speaker 1: that in the bond market already. Is the the tool
Speaker 1: and the uncertainty around how much will they use the
Speaker 1: balance sheet to try to take some of that accommodation out.
Speaker 1: You saw a lot of discussion of that in both
Speaker 1: speeches and a bit in the minutes about you know,
Speaker 1: trying to avoid that that very strong curve inversion and
Speaker 1: using the balance sheet to try to tighten financial conditions
Speaker 1: without the same kind of yield curb in version. So
Speaker 1: I think it remains to be seen, and we still
Speaker 1: have a lot of information to come from the FED
Speaker 1: about the balance sheet normalization policy. Jeff, it's hard to
Speaker 1: believe that we're just a fewer than two weeks into
Speaker 1: the new year. It has been an exhausting period of
Speaker 1: time in the first week of two. Has anything changed
Speaker 1: your outlook given the fact that we've gotten the meeting minutes,
Speaker 1: given the fact that we seem to see some support
Speaker 1: for a very tight labor market in today's data, that
Speaker 1: really you're going to actually adjust tweak your view for
Speaker 1: the year ahead. Well, I think going into this year,
Speaker 1: we had already had the view that this was a
Speaker 1: significant set of turning points, right you. We knew that
Speaker 1: from the meeting. We discussed it when I was on
Speaker 1: a month ago, from the from the dots plot. What
Speaker 1: we got out of the minutes was the narrative to
Speaker 1: that change. And that narrative really laid out that the
Speaker 1: FED recognizes they have a significant inflation problem on their hands.
Speaker 1: And and now it's really about the market and the
Speaker 1: FED figuring out how much intestinal fortitude does the Fed
Speaker 1: have to tighten financial conditions, Because tightening financial conditions means
Speaker 1: tighter financial conditions, i e. Lower stock prices, higher interest rates,
Speaker 1: wider credit spreads. Uh. And what we've seen is very
Speaker 1: little tolerance for financial conditions over tightening. And that's the
Speaker 1: tricky part that the FED is gonna try to have
Speaker 1: to wee here between wanting to take some of this
Speaker 1: incredible post COVID crisis accommodation out of the market, take
Speaker 1: some of the froth out of asset prices without overdoing it. Uh.
Speaker 1: We don't have a really good experience for the ability
Speaker 1: of of markets to to kind of calmly go through
Speaker 1: a tightening cycle. And so I think what we've seen
Speaker 1: in the first two weeks is a little bit of
Speaker 1: a validation that is a very different market backdrop environment
Speaker 1: than what we've had in the post COVID environment. Uh.
Speaker 1: And so I think you have to go into portfolio
Speaker 1: portfolio risk taking with that understood. Jeff thank you so
Speaker 1: much for joining us today. Generous of you to be
Speaker 1: with this. Jeffrey Rosenberg is with Black Rocks. This is
Speaker 1: a joy. She is out of the combine at Washington
Speaker 1: University of St. Louis. I think the Laura Douglas North
Speaker 1: among others, Lawrence Meyer as well, Terrace Singlair Sinclair joins
Speaker 1: us now from George Washington University or she is expert
Speaker 1: in counting the data Tera, do you have any idea
Speaker 1: how to count the data amid a pandemic. Is the
Speaker 1: data that you see it, indeed, is the data that
Speaker 1: we see on Bloomberg's surveilance every day. Is it truly believable? Well,
Speaker 1: I mean, obviously there's a lot of complexity here. And
Speaker 1: you know, when we're thinking about using data for modeling
Speaker 1: or for forecasting, we're typically relying on the historical patterns
Speaker 1: being applicable to today, and so it's really hard to
Speaker 1: find historical patterns that makes sense when we're seeing such
Speaker 1: novel events happening day to day and where we keep
Speaker 1: using the word unprecedented over and over and over again.
Speaker 1: But it is still the case that our statistical agencies,
Speaker 1: you know, for today, the Bureau Labor Statistics, the numbers
Speaker 1: that they're putting out, they're working very very hard to
Speaker 1: put out the cleanest, clearest numbers that they can, and
Speaker 1: it's still important to look at this information in order
Speaker 1: to be able to have some site as to what's
Speaker 1: going on terra The key question continues to be the
Speaker 1: participation right. The fact that the participation rate did not
Speaker 1: increase even as we saw the jobless rate fall to
Speaker 1: the lowest going back to February of raises some alarm Bells.
Speaker 1: Why is it that people are not going back into
Speaker 1: the labor market and what could prop possibly bring them in.
Speaker 1: What's your experience, both on the ground as well as
Speaker 1: from an academic setting. Yeah, well, I mean, I think
Speaker 1: we really have to think carefully about what the incentives
Speaker 1: are for people to participate in the labor force right now.
Speaker 1: And we still have a pandemic going on and that
Speaker 1: is definitely holding back participation, both directly from concerns about
Speaker 1: the virus, but also from other challenges. You're trying to
Speaker 1: figure out childcare situation when you don't know when your
Speaker 1: your child might test positive for the virus, you have
Speaker 1: to care for others in your household in other ways.
Speaker 1: That's also an additional constraint on labor force participation. And
Speaker 1: we also have to remember we still have those long
Speaker 1: demographic trends that are drawing down that overall lea reforce participation,
Speaker 1: so we may never get back to leave beforce participation
Speaker 1: rates we saw pre pandemic, because we've got the retirement
Speaker 1: of the baby that was happening at the same time.
Speaker 1: So this raises an issue of is this as good
Speaker 1: as it gets and are we going to see for example,
Speaker 1: wages increase much more than people are expecting because that
Speaker 1: participation rate may not go up that much higher. As
Speaker 1: you said, it may not ever get back to where
Speaker 1: we saw a pre pandemic. What's your view on that. Well,
Speaker 1: I still see this as a temporary maximum employment where
Speaker 1: we are right now, where we may be close to
Speaker 1: as far as we can get. But at the same time,
Speaker 1: we may still see additional improvement once we get more
Speaker 1: clarity about the long term UH situation with the virus. Tara,
Speaker 1: thank you so much. Terris Sinclaire with George Washington University
Speaker 1: today on some of the data nuances of this. Tiffany
Speaker 1: Wilde is expert at time began she joins us now
Speaker 1: from PIMCO. What a shock to get the rico Dona.
Speaker 1: Note Tiffany that before holiday, before seasonal, before this, before that,
Speaker 1: this was a very strong report. How strong was it? Yeah? Well,
Speaker 1: good morning Tom and Paul. Um, you know, so, although
Speaker 1: the headline number was a bit disappointing. Um, you know,
Speaker 1: I just keep in mind that there are two surveys
Speaker 1: underlying any payroll report, and the household survey, which isn't
Speaker 1: given as the headline number. Um, you know, it was
Speaker 1: actually quite strong, you know, and I think that really
Speaker 1: is what the FOMC, for example, is going to be
Speaker 1: focusing on. So they're going to be looking at the
Speaker 1: six approximately six and fifty job genes um, which pushed
Speaker 1: the unemployment rate down to three nine percent below their
Speaker 1: estimates for kind of that long run level a proxy
Speaker 1: for maximum employee it so you know, by by this measure,
Speaker 1: we're sort of at maximum employment. Of course, inflation has
Speaker 1: you know, um, you know, met their standard for hiking
Speaker 1: interest rates, you know. So to me, this report just
Speaker 1: solidifies after the minutes UM earlier this week, which which
Speaker 1: I would argue that showed the Fed very focused on
Speaker 1: upside risk to inflation UM and in a labor market
Speaker 1: that's rapidly recovering that this just solidifies the March rate
Speaker 1: hike that the market was already pricing in. Yeah, that's
Speaker 1: kind of where I wanted to go, Tiffany. I mean,
Speaker 1: you know, how do you think the FED will interpret
Speaker 1: the data here today? Because even though the headline a
Speaker 1: little bit disappointing relative to Consett, there's a lot of
Speaker 1: positives underneath. Yeah, I mean so, so I think you know, again,
Speaker 1: you always have to be really careful because UM, you know,
Speaker 1: there can be statistical noise around any report, and I
Speaker 1: think the establishment survey UM had a little bit of
Speaker 1: that going on. So what what we kind of thought
Speaker 1: also that was going to happen was that you had
Speaker 1: establishments businesses right that kind of pulled full word hiring UM.
Speaker 1: And I think that happened across a gain and that
Speaker 1: what we saw was a pretty big surgeon hiring in October,
Speaker 1: and that's been followed by UM, you know, a weaker
Speaker 1: kind of weaker prince if you will, although two hundred
Speaker 1: UM thousand jobs is still pretty strong, but weaker than
Speaker 1: that prince UM in the months to follow. Now, I
Speaker 1: think that will kind of wash out of the data
Speaker 1: UM in January, but well, of course we'll have to
Speaker 1: see what happened with oh Macron. I think the more
Speaker 1: important thing here, though, is the household survey. You know,
Speaker 1: it's very strong and and it it's been lagging over
Speaker 1: the last year, but it's recently caught up, and I
Speaker 1: think that reflects the fact that we've seen actually a
Speaker 1: lot of establishments of of proprietors UM, you know, people
Speaker 1: that you know aren't working in the more traditional UM
Speaker 1: you know, kind of corporate establishment jobs and the household
Speaker 1: survey picks that up, whereas establishment survey doesn't. You know. So,
Speaker 1: I think that the household survey being very strong is
Speaker 1: something that the fomc IS is really going to focus
Speaker 1: on here, especially in the unemployment rate. Why don't we
Speaker 1: focus on that? What is the history where media is
Speaker 1: fixed aided by non farm payrolls traditionally two D thousand, MG,
Speaker 1: we're gonna go to one fifty as a run, right,
Speaker 1: we all got that wrong? And then you know, we
Speaker 1: focus on that. Why don't we focus on the other survey?
Speaker 1: David mal Passed when he was at bear Stearns focused
Speaker 1: on that. Yeah, Well, I mean, I think traditionally, you know, well,
Speaker 1: obviously most of the higher percentage of jobs in general
Speaker 1: in the United States are through large corporates and and
Speaker 1: and larger establishments UM. And so that survey, you know,
Speaker 1: I think is a very good proxy UM. And in addition,
Speaker 1: the household survey can be noisy, can suffer from you know,
Speaker 1: kind of more statistical noise from months a month, but
Speaker 1: that the pandemic, it does seem, has changed a lot
Speaker 1: of how people are are working UM or not or
Speaker 1: not working quite frankly. And one of the things I
Speaker 1: think that has changed pandemic people prefer to have soldier triatorships. Right. So, So, Tiffany,
Speaker 1: is I look at that average hourly earnings year on
Speaker 1: your growth of four point seven? Is that wage inflation?
Speaker 1: Is wage inflation is something that investors, maybe the Federal
Speaker 1: Reserve needs to think about. Yeah, I mean I certainly
Speaker 1: they cannot. I think they can't ignore the wage inflation
Speaker 1: statistics that are they're coming out of this survey. UM.
Speaker 1: And and although you know it's well known that it UM,
Speaker 1: you know, there are some compositional effects that that have
Speaker 1: you know that that sort of distort can distort these numbers.
Speaker 1: You know. I think the bottom line is is that
Speaker 1: wage inflation UM. You know, it's clearly strong for low
Speaker 1: wage jobs UM. And I think it's potentially broadening out.
Speaker 1: And that's really what the Fed cares about, UM, you know,
Speaker 1: and in terms of of looking at longer term inflation
Speaker 1: expectations and how they're filtering into the way people bargain
Speaker 1: for jobs. UM, it's really they're they're really concerned with,
Speaker 1: you know, is wage inflation really broadening out across sectors?
Speaker 1: And and our businesses passing on, you know, further passing
Speaker 1: that on to consumers. You know what, I think there
Speaker 1: is some there is some evidence, right that we're getting
Speaker 1: the broad out there. That's right, We're wanting to go here.
Speaker 1: You're thinking, it's like, I am, Tiffany, what is the
Speaker 1: evidence right now that we're actually seeing wage inflation besides
Speaker 1: big press headlines from people like Amazon and warehouse workers
Speaker 1: in that is it really out there? Well? Yeah, I
Speaker 1: mean so, I think the Atlanta Fed measure is UM
Speaker 1: is really helpful in that regard. And and and again it
Speaker 1: shows that UM, you know, it's lower, lower wage, lower
Speaker 1: skilled service jobs that are really seeing the brunt of
Speaker 1: the wage inflation UM. But I think that a lot
Speaker 1: of other jobs, UM, they get contract contract renegotiations happen
Speaker 1: at the end of the year UM. And of course
Speaker 1: the December report maybe doesn't pick this up, but in
Speaker 1: January it's going to be very important to see are people,
Speaker 1: you know, in broader sectors of the economy, are they
Speaker 1: actually getting cost of living adjustments UM? And is that
Speaker 1: broadening out? And and can people sort of bargain for that? So,
Speaker 1: you know, again, I think there's some small indications that
Speaker 1: that's starting to happen um now UM, and of course
Speaker 1: this is this will be something that will be a
Speaker 1: focused on them in the beginning of the year, getting
Speaker 1: indications of that. All right, So, Tiffany, given the labor
Speaker 1: data that we got today, what is the PIMPCO g
Speaker 1: DP outlook and kind of what are the levers there
Speaker 1: that could move it one way or the other? Yeah,
Speaker 1: I mean so so overall, I mean, our forecasts, like
Speaker 1: many other forecasters, are uh, you know, we're looking for
Speaker 1: kind of a goldilocks environment of you will, of of
Speaker 1: still strong GDP growth, but but something that's moderating, you know,
Speaker 1: because the fiscal stimulus that we've gotten over the last
Speaker 1: couple of years, of course is also moderating UM. But
Speaker 1: in the midst of that, we're also, like many forecasters,
Speaker 1: looking for inflation to to also moderate back, you know,
Speaker 1: more towards levels consistent with with UM in central bank targets. Now.
Speaker 1: You know, I again, I call that a goldilocks environment, UM,
Speaker 1: And I think that's there's reasons to believe that's still
Speaker 1: the base case, but there's a lot of risks underlying that,
Speaker 1: and I think those risks have increased lately. You know.
Speaker 1: One of them obviously is the you know, just inflation
Speaker 1: remains per distantly elevated. UM. I think another risk, though
Speaker 1: maybe underappreciated by markets, I'm not sure, is that you
Speaker 1: could actually get a more abrupt tightening of financial conditions
Speaker 1: related to that as well. Right, And because I think
Speaker 1: the Fed you know, so far has been very um,
Speaker 1: you know, they've been very successful in moving market expectations
Speaker 1: for earlier timing of rate hikes, but miraculously broader financial
Speaker 1: conditions to cross you know, equities, currencies, etcetera hadn't really tightened,
Speaker 1: you know. So I think that raises the risk that
Speaker 1: you get a more um, you know, a faster, more
Speaker 1: uh you know, more volatile adjustment um you know. And
Speaker 1: of course I think that's what something the FED does
Speaker 1: want to avoid, you know. And then I think the
Speaker 1: third risk obviously is just is just the virus itself. UM.
Speaker 1: You know. It seems like the FED was pretty unconcerned
Speaker 1: about the economic effects of O Macron, more concerned about
Speaker 1: the inflationary effects. UM. But I think it just it
Speaker 1: goes to highlight just the uncertainty in general of the
Speaker 1: virus and and what it could bring in the in
Speaker 1: the New Year, Tiffany, Thank you so much. Tiffany World
Speaker 1: with with Pimcoast some really good inside Younger Andrew Peckash
Speaker 1: is on Eastern Standard Time at the Johns Hopkins University
Speaker 1: and gives us an i'm acron brief today into the weekend. Andrew,
Speaker 1: even a dummy like me is figured out i'm acron
Speaker 1: is not delta, but it's something, well, there's some mystery
Speaker 1: to it. What's the biggest mystery with a'm acron into
Speaker 1: this weekend? I think really it circles around the issue
Speaker 1: of why this virus seems to be so much more transmissible. Certainly,
Speaker 1: you know, it has mutations that can invade some of
Speaker 1: the immune responses that vaccines give you, but it really
Speaker 1: does seem like this virus is spreading better than other
Speaker 1: variants for other reasons, and right now we don't really
Speaker 1: understand what that is, but certainly it seems like people
Speaker 1: are getting infected in on conditions that previously we're highly
Speaker 1: unlikely uh to mediate infection, and that's fueling this massive
Speaker 1: surge of cases. Transmission is something that's really difficult to
Speaker 1: study a laboratory, but it really is one of the
Speaker 1: things that a macron is doing fantastically better than any
Speaker 1: previous variant we've seen. Is there a row or is
Speaker 1: zeta after amacron? I mean I I frankly like the
Speaker 1: geography designations that we used to do in the old days.
Speaker 1: But do you just assume there's another variant after this one?
Speaker 1: There absolutely will be um. This virus has already shown
Speaker 1: the ability to evolve, change and respond to its new
Speaker 1: host humans, and it's now showing the ability to try
Speaker 1: to evade some of the immune responses that are coming
Speaker 1: down the line. I do firmly feel we're on a
Speaker 1: path to make this disease caused by this virus much
Speaker 1: more mild, much work contained, because we will have population immunity,
Speaker 1: we will have vaccines that are effectively knocking down severe disease,
Speaker 1: and will eventually have antiviral that are distributed to help
Speaker 1: limit that. So there are ways that we can control
Speaker 1: this disease. But this virus will be around for a
Speaker 1: long time, and it's looking more and more like we're
Speaker 1: gonna have to deal with this like we deal with
Speaker 1: seasonal influenza. Andy, When do we get to that point
Speaker 1: where we have enough whether it's herd immunity or just
Speaker 1: immunity in the general population with also the remedies, the
Speaker 1: anti virals and the vaccines where we can basically go
Speaker 1: back to life as it is, basically treat this like
Speaker 1: the common cold or the flu. Well. I really do
Speaker 1: feel like this surge of all macron cases is really
Speaker 1: going to be the tipping point because with the massive
Speaker 1: number of cases, and let's be clear, some of the
Speaker 1: official counts are probably underestimates of the true number of
Speaker 1: cases that are out there right now because of a
Speaker 1: number of reasons. But this surge of all macron cases
Speaker 1: maybe what really pushes us over that border to enough
Speaker 1: immunity in the population so that transmission is limited and therefore,
Speaker 1: you know, the likelihood of getting infected will be a
Speaker 1: little bit lower going forward from here, How do people
Speaker 1: avoid getting sick? Well, it really comes down to those
Speaker 1: basic principles we've been talking about, perhaps boost it up
Speaker 1: a little bit. I'm a big believer now that people
Speaker 1: should be really thinking about wearing K and nine masks
Speaker 1: um or double masking with a surgical mask and a
Speaker 1: facial covering on top of that. I think that this
Speaker 1: increased transmission of a macron requires people to take an
Speaker 1: even greater UM effort to try to limit their exposures.
Speaker 1: And again, masking is one thing. The other social distancing
Speaker 1: issues that we've talked about UM are important to continue
Speaker 1: to do, UH, do as much work as you can remotely,
Speaker 1: but when you're going into situations where you're going to
Speaker 1: be exposed to people, realize that you need to up
Speaker 1: your game in terms of the things you do to
Speaker 1: protect yourself and be wary of of getting infected. Andie
Speaker 1: pekash there andie thank you sir as always that John's
Speaker 1: Helpin splim By School of Public calf On. Yes three,
Speaker 1: Tom entering, Yes three of all of this, and it
Speaker 1: feels like a lifetime for so many people. This is
Speaker 1: the Bloomberg Surveillance Podcast. Thanks for listening. Join us live
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