1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,240 --> 00:00:13,200 Speaker 1: with Jonathan Farrell and Lisa Brawnowitz. Daily we bring you 3 00:00:13,320 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,960 --> 00:00:23,840 Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 5 00:00:23,920 --> 00:00:30,200 Speaker 1: and of course, on the Bloomberg terminal. Right now, it 6 00:00:30,280 --> 00:00:32,240 Speaker 1: is always good to speak to any of our busy 7 00:00:32,280 --> 00:00:34,600 Speaker 1: politicians in Washington. To do with two days in a 8 00:00:34,680 --> 00:00:38,600 Speaker 1: row is a rare treat from the second District of Arkansas. 9 00:00:38,640 --> 00:00:42,560 Speaker 1: French Hill, French Hill, it's your fault. Arkansas has the 10 00:00:42,720 --> 00:00:47,440 Speaker 1: snowiest uh February like ever, like back to when the 11 00:00:47,520 --> 00:00:50,800 Speaker 1: Hill family came over the border in eighteen twelve or 12 00:00:50,840 --> 00:00:54,680 Speaker 1: whatever it was. What's the snow like in Arkansas? And 13 00:00:54,720 --> 00:00:58,480 Speaker 1: what are you gonna do about it? To fix it? Well, bye, Gollway. 14 00:00:58,560 --> 00:01:01,840 Speaker 1: It's all the responsibility of the politicians in Washington caused 15 00:01:01,840 --> 00:01:07,000 Speaker 1: the snow fifteen to seventeen inches here in central Arkansas, 16 00:01:07,040 --> 00:01:09,920 Speaker 1: and our highways are clear, but our neighborhoods are still 17 00:01:09,959 --> 00:01:14,319 Speaker 1: piled up East Coast style snow. But I've been shoveling 18 00:01:14,560 --> 00:01:16,959 Speaker 1: and doing the best I can yeah, I know it's 19 00:01:17,000 --> 00:01:20,440 Speaker 1: Republicans shovel Democrats calling the snow plow. Okay, let's move 20 00:01:20,480 --> 00:01:23,640 Speaker 1: on from their French hill. We saw yesterday the game 21 00:01:23,680 --> 00:01:27,240 Speaker 1: stop hearings. I noticed the Washington Post this morning gives 22 00:01:27,240 --> 00:01:35,479 Speaker 1: it essentially zero play. What happens next after that testimony, Well, first, 23 00:01:35,520 --> 00:01:39,400 Speaker 1: I think Mr Tinev, the CEO and Robin Hood Market 24 00:01:39,560 --> 00:01:43,160 Speaker 1: certainly apologized for the fact that they had inadequate collateral 25 00:01:43,200 --> 00:01:47,600 Speaker 1: and deposit with their clearing firms and DTCC the depository Trust, 26 00:01:48,120 --> 00:01:51,240 Speaker 1: which then put their customers in a bad position in 27 00:01:51,320 --> 00:01:53,840 Speaker 1: the midst of a bubble that was a key element 28 00:01:54,320 --> 00:01:57,040 Speaker 1: in terms of the equity market plumbing. I thought the 29 00:01:57,080 --> 00:02:00,880 Speaker 1: earring demonstrated that it worked as we expected to. But 30 00:02:01,040 --> 00:02:04,200 Speaker 1: I think Maxine Waters, our chairman of House Financial Services, 31 00:02:04,240 --> 00:02:07,680 Speaker 1: going to have additional capital to markets hearings, and from 32 00:02:07,680 --> 00:02:11,280 Speaker 1: the discussion yesterday Tom, I think she'll focus on payment 33 00:02:11,440 --> 00:02:15,680 Speaker 1: for order flow, also reassess short selling. What have been 34 00:02:15,720 --> 00:02:19,840 Speaker 1: the changes since the two thousand thousand ten changes. Congressmen, 35 00:02:19,840 --> 00:02:23,280 Speaker 1: how concerned are you about the environment, the broader environment 36 00:02:23,639 --> 00:02:26,720 Speaker 1: that's led to this type of speculation about the fact 37 00:02:26,800 --> 00:02:30,040 Speaker 1: that people have money as well as the apparent lack 38 00:02:30,080 --> 00:02:34,600 Speaker 1: of risk prompted by the Federal Reserve. Well, let's start 39 00:02:34,680 --> 00:02:38,160 Speaker 1: with that, which is zero interest rates in the Federal Reserve, 40 00:02:38,200 --> 00:02:42,600 Speaker 1: accommodative policy, and household savings at the highest rate it's 41 00:02:42,600 --> 00:02:45,840 Speaker 1: been in decades. This prompts people to reach out and 42 00:02:45,880 --> 00:02:49,680 Speaker 1: take risk, just as you've been discussing the last a 43 00:02:49,720 --> 00:02:52,520 Speaker 1: few minutes. But the key thing for I think robin 44 00:02:52,560 --> 00:02:56,680 Speaker 1: Hood investors are we all know that investing is caveat inmptour, 45 00:02:57,120 --> 00:03:00,240 Speaker 1: but does robin hood have the support for the those 46 00:03:00,320 --> 00:03:03,800 Speaker 1: new entrance to the investing market. Are they have the 47 00:03:03,880 --> 00:03:08,600 Speaker 1: skills and communication on their platform to educate customers. I've 48 00:03:08,600 --> 00:03:12,160 Speaker 1: been in this business for four decades and the paternalistic 49 00:03:12,240 --> 00:03:16,520 Speaker 1: aspect of coaching and monitoring accounts on margin, on the 50 00:03:16,639 --> 00:03:20,799 Speaker 1: use of options on small dollar stocks are all fundamental 51 00:03:21,240 --> 00:03:26,160 Speaker 1: to retail investment brokerage. Is that really being adequately handled 52 00:03:26,240 --> 00:03:29,040 Speaker 1: on an app based platform like robin Hood. That was 53 00:03:29,080 --> 00:03:31,880 Speaker 1: a key thing we talked about. Brilliantly said from the 54 00:03:31,919 --> 00:03:34,360 Speaker 1: gentleman from the Delta Bank and Trust company, Lisa. What 55 00:03:34,400 --> 00:03:37,440 Speaker 1: I think is so important here is this strange phrase 56 00:03:37,560 --> 00:03:40,720 Speaker 1: due diligence in the old days there was a respect 57 00:03:40,760 --> 00:03:43,920 Speaker 1: for it, and then to be honest, technology took over. 58 00:03:44,400 --> 00:03:47,920 Speaker 1: How do you do due diligence given modern technology? Well, 59 00:03:47,920 --> 00:03:50,840 Speaker 1: and that's exactly what Congressman was talking. Congressman Hill is 60 00:03:50,880 --> 00:03:54,720 Speaker 1: talking about this paternalistic attitude, which is actually part of 61 00:03:54,760 --> 00:03:57,600 Speaker 1: what the robin Hood crowd is rebelling against. And so 62 00:03:58,200 --> 00:04:00,640 Speaker 1: that balance. How do you ensure earth that you give 63 00:04:00,640 --> 00:04:04,560 Speaker 1: people access to this dynamism, to this explosion and asset 64 00:04:04,600 --> 00:04:07,000 Speaker 1: prices that has been fueled by the environment that you're 65 00:04:07,000 --> 00:04:12,960 Speaker 1: talking about, while giving them the correct due diligence. That's complicated. Well, 66 00:04:12,960 --> 00:04:16,320 Speaker 1: I think he should enhance his website, asked him yesterday. 67 00:04:16,360 --> 00:04:19,240 Speaker 1: Does he have a call center? And the average robin 68 00:04:19,240 --> 00:04:22,039 Speaker 1: Hood an investor does not have someone to call during 69 00:04:22,080 --> 00:04:25,400 Speaker 1: the business day. It's all done by email to their account, 70 00:04:25,920 --> 00:04:29,440 Speaker 1: and that's inadequate in tough times. The call centers that 71 00:04:29,560 --> 00:04:32,479 Speaker 1: robin Hood apparently are only granted to those with some 72 00:04:32,640 --> 00:04:36,520 Speaker 1: extreme option approval by the firm. And I believe the 73 00:04:36,520 --> 00:04:41,200 Speaker 1: CEO committed yesterday to much better consumer communication, and he 74 00:04:41,279 --> 00:04:46,680 Speaker 1: made a comment about his consumer education on his platform. 75 00:04:46,720 --> 00:04:50,240 Speaker 1: But look, we all know that granting someone margin, granting 76 00:04:50,320 --> 00:04:54,480 Speaker 1: someone option authority is a tough job just to do 77 00:04:54,600 --> 00:04:58,480 Speaker 1: by algorithm based on the boxes checked by a customer 78 00:04:58,600 --> 00:05:01,080 Speaker 1: complishment before we let you go can scathellical question. It's 79 00:05:01,080 --> 00:05:03,880 Speaker 1: not actually aimed at you personally, who obviously understands the 80 00:05:03,880 --> 00:05:08,560 Speaker 1: financial industry inside out these hearings, how can we make 81 00:05:08,600 --> 00:05:10,400 Speaker 1: them better? Do you think they would be better if 82 00:05:10,400 --> 00:05:12,880 Speaker 1: they were closed door? And I'm here's a journalist talking 83 00:05:12,880 --> 00:05:14,880 Speaker 1: about less transparency. But it just seems to me that 84 00:05:14,960 --> 00:05:19,760 Speaker 1: sometimes these hearings become theater and lawmakers, your colleagues, turn 85 00:05:19,800 --> 00:05:21,920 Speaker 1: around and make it that they might have some pre 86 00:05:22,000 --> 00:05:24,320 Speaker 1: existing bias, some songa dance, They want to clip the 87 00:05:24,400 --> 00:05:26,240 Speaker 1: video and send it out to constituents. How do we 88 00:05:26,320 --> 00:05:29,640 Speaker 1: make this better, more useful? Well, that tone is said 89 00:05:29,680 --> 00:05:32,200 Speaker 1: at the top by the committee chairman, Maxine Waters in 90 00:05:32,200 --> 00:05:36,800 Speaker 1: this case loves click bait, and she also loves Jonathan 91 00:05:36,800 --> 00:05:39,720 Speaker 1: to use the full committee. Here's the way to do this, 92 00:05:39,800 --> 00:05:43,560 Speaker 1: in my view, if you use the Subcommittee on Capitol Markets, 93 00:05:44,000 --> 00:05:47,320 Speaker 1: which is believe chaired by Brad Sherman, you have a 94 00:05:47,400 --> 00:05:50,000 Speaker 1: smaller number of people. You can spend the same amount 95 00:05:50,040 --> 00:05:53,159 Speaker 1: of time, but you can multiple rounds of questions and 96 00:05:53,200 --> 00:05:55,600 Speaker 1: it's a way to have a much more constructive dialogue 97 00:05:55,640 --> 00:05:59,000 Speaker 1: on Capitol Hill, but our chair has elected not to 98 00:05:59,040 --> 00:06:02,000 Speaker 1: do that in some of these high profile matters. And John, 99 00:06:02,040 --> 00:06:04,920 Speaker 1: that's brilliant. That's like the subcommittee we have here where 100 00:06:04,920 --> 00:06:07,560 Speaker 1: you and Lisa tell me to shut up. If you 101 00:06:07,640 --> 00:06:08,960 Speaker 1: if you look at the UK and I'll bring it. 102 00:06:09,040 --> 00:06:11,640 Speaker 1: The House Financial Services Committee is one thing. In the 103 00:06:11,720 --> 00:06:13,839 Speaker 1: UK we have the Treasury Select Committee and it is 104 00:06:13,839 --> 00:06:16,119 Speaker 1: a smaller room, it's a smaller setting, and it seems 105 00:06:16,160 --> 00:06:17,600 Speaker 1: to be a little bit more direct, and I think 106 00:06:17,600 --> 00:06:20,640 Speaker 1: that's what the congressman is alluding to. Congressman is great 107 00:06:20,640 --> 00:06:23,039 Speaker 1: to catch up, come back soon, always great to catch 108 00:06:23,080 --> 00:06:34,120 Speaker 1: up this Republican from Arkansas. Right now, Ellen Santner joins 109 00:06:34,200 --> 00:06:37,760 Speaker 1: us with Morgan Stanley, their chief US economists, out with 110 00:06:37,839 --> 00:06:41,800 Speaker 1: a bombshell report and adjustment. I believe it was yesterday 111 00:06:41,880 --> 00:06:44,160 Speaker 1: looking for as John mentioned, six and a half percent 112 00:06:44,400 --> 00:06:47,680 Speaker 1: and even seven percent GDP depending on where you measurement. 113 00:06:48,040 --> 00:06:51,160 Speaker 1: But what's so important here is what Stephen Roach invented 114 00:06:51,200 --> 00:06:56,680 Speaker 1: it Morgan Stanley, which is everybody feeds off everybody else's research. Ellen, 115 00:06:56,760 --> 00:07:00,400 Speaker 1: your secret weapon on the pandemic is Matthew Harrison, he's 116 00:07:00,440 --> 00:07:04,360 Speaker 1: definitive in biotech. And matt Harrison is telling you he's 117 00:07:04,360 --> 00:07:10,239 Speaker 1: seeing better vaccination numbers. Yeah, better vaccination numbers. We're getting 118 00:07:10,240 --> 00:07:14,440 Speaker 1: shots and arms at a greater rate. Hospitalization rates coming down, 119 00:07:14,560 --> 00:07:18,600 Speaker 1: death counts are coming down. That's what households really care about. 120 00:07:18,880 --> 00:07:22,400 Speaker 1: And that's what gives them the confidence, uh to show 121 00:07:22,440 --> 00:07:25,240 Speaker 1: in the surveys that we send out of households, UH 122 00:07:25,400 --> 00:07:27,200 Speaker 1: that they want to get out there, they want to 123 00:07:27,240 --> 00:07:30,160 Speaker 1: return to you know, put the word normal in quotes. 124 00:07:30,280 --> 00:07:33,600 Speaker 1: Whatever that means to each person is different, but they 125 00:07:33,680 --> 00:07:35,640 Speaker 1: want to get out there right. And maybe it's just 126 00:07:35,680 --> 00:07:38,360 Speaker 1: coming out of this bad winter. But we've got the 127 00:07:38,560 --> 00:07:42,120 Speaker 1: ingredients there to make that happen. And for those of 128 00:07:42,160 --> 00:07:44,440 Speaker 1: you on radio and TV, this is really important. We 129 00:07:44,520 --> 00:07:48,320 Speaker 1: discover these economists before they're a chief economist, a fancy 130 00:07:48,400 --> 00:07:51,880 Speaker 1: title like Ellen has and Ellen Sander was discovered with 131 00:07:51,920 --> 00:07:57,640 Speaker 1: a cute consumer analysis years ago. Ellen, does this devolve 132 00:07:57,720 --> 00:08:01,320 Speaker 1: this six and seven percent g DP? Does it devolve 133 00:08:01,400 --> 00:08:06,000 Speaker 1: into a consumption boom? Uh? Yeah, so that's what So 134 00:08:06,040 --> 00:08:09,040 Speaker 1: when you think about the forecast for the U. S economy, 135 00:08:09,160 --> 00:08:11,800 Speaker 1: right has to be about the consumer because that's the 136 00:08:12,600 --> 00:08:15,600 Speaker 1: lion's share of the economy. Um. But you don't just 137 00:08:15,640 --> 00:08:19,160 Speaker 1: have the consumer this time, right, You've got fiscal stimulus 138 00:08:19,240 --> 00:08:21,480 Speaker 1: behind it, so you've got a lot of buying power 139 00:08:21,600 --> 00:08:25,240 Speaker 1: out there, UM with pent up demand that continues to build. 140 00:08:25,640 --> 00:08:29,680 Speaker 1: And so the biggest delta for the economy this year 141 00:08:30,280 --> 00:08:33,160 Speaker 1: is what the consumer does as we're able to move 142 00:08:33,240 --> 00:08:36,640 Speaker 1: more freely around the economy. Now, that also points to 143 00:08:36,679 --> 00:08:40,360 Speaker 1: the greatest risk is that you know, confidence is rising 144 00:08:40,400 --> 00:08:42,280 Speaker 1: there telling us in our surveys they want to get 145 00:08:42,280 --> 00:08:45,679 Speaker 1: out and do things. And you know, historically and you 146 00:08:45,720 --> 00:08:48,240 Speaker 1: know this, Tom, sometimes we can say we feel one way, 147 00:08:48,360 --> 00:08:52,320 Speaker 1: we do something else. You know that that is a risk. 148 00:08:52,400 --> 00:08:54,280 Speaker 1: And if that's the case, then you see the savings 149 00:08:54,360 --> 00:08:57,319 Speaker 1: right in the US just remain really really elevated this year. 150 00:08:57,360 --> 00:08:59,720 Speaker 1: And you don't see that calm down as people start 151 00:08:59,760 --> 00:09:02,640 Speaker 1: to been ellen. When did the unemployment numbers start to 152 00:09:02,679 --> 00:09:07,240 Speaker 1: matter again? So the unemployment numbers, uh, you know, we're 153 00:09:07,280 --> 00:09:09,040 Speaker 1: looking at two different ones right now. And I know 154 00:09:09,200 --> 00:09:11,880 Speaker 1: we've discussed this in the past. So you've got um, 155 00:09:12,040 --> 00:09:16,240 Speaker 1: you know, the six plus percent on the uh, you know, 156 00:09:16,360 --> 00:09:19,560 Speaker 1: unemployment rate that's the most widely reported that's the traditional 157 00:09:19,600 --> 00:09:22,000 Speaker 1: measure that we use, UM, but you're closer to around 158 00:09:22,040 --> 00:09:25,319 Speaker 1: ten and a half percent for that underlying unemploy unemployment 159 00:09:25,360 --> 00:09:29,040 Speaker 1: rate that you take into account all the measurement issues. Um, 160 00:09:29,080 --> 00:09:31,760 Speaker 1: we do get impro improvement in the unemployment rate this year, 161 00:09:31,800 --> 00:09:36,200 Speaker 1: but if we think about them that broader measure, the 162 00:09:36,280 --> 00:09:39,240 Speaker 1: underemployment measure, the ten and a half percent comes down 163 00:09:39,240 --> 00:09:40,599 Speaker 1: to six and a quarter by the end of the 164 00:09:40,679 --> 00:09:43,720 Speaker 1: year on our estimates. So it's it's a four percentage 165 00:09:43,720 --> 00:09:46,840 Speaker 1: points is a huge amount of improvement. That's still a 166 00:09:46,880 --> 00:09:49,920 Speaker 1: really high unemployment rate by the end of the year. UM. 167 00:09:50,040 --> 00:09:52,360 Speaker 1: So you've got a lot of that pent up demand 168 00:09:52,559 --> 00:09:55,280 Speaker 1: coming through at a time when we still got supply constraints, 169 00:09:55,360 --> 00:09:58,200 Speaker 1: especially on the labor side. And that's what plays into 170 00:09:58,280 --> 00:10:01,360 Speaker 1: some of the inflation forecast for inflation to rise. And 171 00:10:01,440 --> 00:10:03,640 Speaker 1: can you imagine the news conference at the Federal Reserve 172 00:10:03,760 --> 00:10:05,880 Speaker 1: as they see six and a half percent GDP growth 173 00:10:05,920 --> 00:10:08,560 Speaker 1: this year and start to look at five next year, 174 00:10:08,720 --> 00:10:11,559 Speaker 1: what does that look like? Yeah, so I think it's 175 00:10:11,640 --> 00:10:15,040 Speaker 1: it's a it's an evolution, right. So even at the 176 00:10:15,080 --> 00:10:18,120 Speaker 1: March So at the March of Onese meeting, they're gonna 177 00:10:18,120 --> 00:10:20,120 Speaker 1: have to revise upward their forecast. And some of that 178 00:10:20,200 --> 00:10:22,120 Speaker 1: is just because growth is going to be tracking so 179 00:10:22,240 --> 00:10:25,439 Speaker 1: much higher already in the first quarter because of the 180 00:10:25,480 --> 00:10:28,640 Speaker 1: stimulus checks that came through uh in that bill that 181 00:10:28,760 --> 00:10:33,440 Speaker 1: was passed in December. But they may not pull in 182 00:10:33,520 --> 00:10:37,880 Speaker 1: forecast fully for what might be coming right around that 183 00:10:37,960 --> 00:10:42,559 Speaker 1: time of this next fiscal stimulus package. So most likely 184 00:10:42,559 --> 00:10:44,960 Speaker 1: then at the June meeting they would have to revise 185 00:10:45,120 --> 00:10:48,960 Speaker 1: upward their forecasts again UH. And then most likely only 186 00:10:49,000 --> 00:10:53,400 Speaker 1: by September, when their forecasts continue to track behind the economy, 187 00:10:53,640 --> 00:10:55,120 Speaker 1: and this is what we normally see each year, they 188 00:10:55,120 --> 00:10:58,360 Speaker 1: play catch up by revising higher um. But here's the thing, 189 00:10:58,559 --> 00:11:01,440 Speaker 1: it's the unemployment rate that matter for them. UH. And 190 00:11:01,520 --> 00:11:05,520 Speaker 1: even though we have inflation rising and reaching above two 191 00:11:05,520 --> 00:11:08,240 Speaker 1: percent by the end of the year, UH, that's not 192 00:11:08,520 --> 00:11:10,840 Speaker 1: good enough, and especially not in the context of a 193 00:11:10,880 --> 00:11:15,200 Speaker 1: six plus percent underlying unemployment rate. Well, Tom, this is 194 00:11:15,200 --> 00:11:17,240 Speaker 1: the story the forecast for the Fed right now and 195 00:11:17,280 --> 00:11:19,560 Speaker 1: the degree they need to raise those forecasts four point 196 00:11:19,559 --> 00:11:23,320 Speaker 1: two percent real GDP year on year twenty two three 197 00:11:23,600 --> 00:11:26,520 Speaker 1: two percent. Compare and contrast the Fed with Morgan Stanley. 198 00:11:26,640 --> 00:11:29,160 Speaker 1: Right now, the gap is this one gap? Is this white? 199 00:11:29,200 --> 00:11:32,280 Speaker 1: And John? As you mentioned, there's speeches next week. I'm sorry, 200 00:11:32,280 --> 00:11:34,960 Speaker 1: there's going to be a sentence here, a sentence there. 201 00:11:35,120 --> 00:11:37,720 Speaker 1: So how do we navigate that FED speak Helen? When 202 00:11:37,720 --> 00:11:40,800 Speaker 1: you start to get those cracks not from the governors, 203 00:11:40,800 --> 00:11:42,800 Speaker 1: not from the core of the FED pal Clarida, who 204 00:11:42,840 --> 00:11:44,640 Speaker 1: we hear from next week, but from the FED presidents 205 00:11:44,640 --> 00:11:46,400 Speaker 1: who start to look around and see what you see, 206 00:11:46,520 --> 00:11:49,440 Speaker 1: which is better growth. Yees. So I think we'll see 207 00:11:49,480 --> 00:11:52,160 Speaker 1: more of them speaking out and and speaking their mind, 208 00:11:52,200 --> 00:11:54,840 Speaker 1: but they'll they'll temper it right. So it's gonna be 209 00:11:55,320 --> 00:11:58,680 Speaker 1: very obvious that they're seeing better growth, but it's still 210 00:11:58,679 --> 00:12:01,560 Speaker 1: going to be obvious to them. They're still uncertainly around 211 00:12:01,559 --> 00:12:03,840 Speaker 1: how the vaccine will out, will progress, will they be 212 00:12:04,000 --> 00:12:06,880 Speaker 1: hiccups there? So we're still you know, the cloud of 213 00:12:06,920 --> 00:12:08,960 Speaker 1: COVID will be thinning as we get into the middle 214 00:12:09,000 --> 00:12:11,600 Speaker 1: of the year, um, but we're still going to be 215 00:12:11,679 --> 00:12:14,920 Speaker 1: under it. Uh. And so they'll acknowledge better, they acknowledge 216 00:12:14,920 --> 00:12:17,120 Speaker 1: the better growth, but that we're just not there on 217 00:12:17,160 --> 00:12:19,040 Speaker 1: the labor market. So, I mean, they've they've got a 218 00:12:19,040 --> 00:12:22,600 Speaker 1: lot of cover here, um to explain that we're still 219 00:12:22,640 --> 00:12:27,240 Speaker 1: not anywhere near that significant improvement um that they say 220 00:12:27,280 --> 00:12:30,560 Speaker 1: that they're looking for now. That applies to grate heights, 221 00:12:31,080 --> 00:12:33,040 Speaker 1: um for some of them, that does apply to tapering 222 00:12:33,080 --> 00:12:35,480 Speaker 1: the balance sheet as well. But we do think um 223 00:12:35,520 --> 00:12:37,720 Speaker 1: that by the middle of the year, with again with 224 00:12:37,800 --> 00:12:41,160 Speaker 1: the cloud of COVID really thinking then um, that more 225 00:12:41,160 --> 00:12:43,760 Speaker 1: of them will be talking about balance sheet tapering could 226 00:12:43,760 --> 00:12:46,120 Speaker 1: be on the horizon because at some point you don't 227 00:12:46,120 --> 00:12:48,400 Speaker 1: need the titan policy, but you at least need to 228 00:12:48,440 --> 00:12:50,800 Speaker 1: take your foot off the gas pedal, um. And that 229 00:12:50,840 --> 00:12:52,880 Speaker 1: will start when they decided to start tapering, and we 230 00:12:52,920 --> 00:12:56,000 Speaker 1: think that tapering begins in the beginning of next year. Ellen. 231 00:12:56,160 --> 00:12:57,640 Speaker 1: We also are going to be hearing next week from 232 00:12:57,679 --> 00:13:00,840 Speaker 1: Jenny Ellen on Monday, And there is a big question, 233 00:13:00,920 --> 00:13:03,800 Speaker 1: she said yesterday and in interview, the price of doing 234 00:13:03,840 --> 00:13:06,720 Speaker 1: too little is much larger than the price of doing 235 00:13:06,840 --> 00:13:10,880 Speaker 1: something big. How concerned are you about the price of 236 00:13:11,000 --> 00:13:14,000 Speaker 1: higher inflation that perhaps is much beyond what people are 237 00:13:14,040 --> 00:13:17,959 Speaker 1: expecting right now. So I think the risk there, of course, 238 00:13:18,160 --> 00:13:20,800 Speaker 1: is that it rises more so than what the Fed 239 00:13:20,840 --> 00:13:24,920 Speaker 1: can stomach. I mean, we have the highest inflation forecasts 240 00:13:24,960 --> 00:13:26,880 Speaker 1: on the street, and it's still not enough to trigger 241 00:13:26,960 --> 00:13:30,880 Speaker 1: rate hikes in our view before the third quarter of three. Um, 242 00:13:30,880 --> 00:13:32,840 Speaker 1: of course we can get that wrong. Could be that 243 00:13:32,880 --> 00:13:35,520 Speaker 1: there's more supply constraints that last longer. There's a lot 244 00:13:35,520 --> 00:13:37,920 Speaker 1: of flow through from the dollar that we're seeing pushing 245 00:13:37,920 --> 00:13:41,160 Speaker 1: import prices higher, and those tend to be their flow 246 00:13:41,200 --> 00:13:45,520 Speaker 1: and lasting movements. But the FED is there. They'd rather 247 00:13:45,600 --> 00:13:49,080 Speaker 1: fight that battle. Uh and Janet Yellen knows good and 248 00:13:49,080 --> 00:13:51,320 Speaker 1: well what the Fed can do. They'd rather fact fight 249 00:13:51,360 --> 00:13:53,840 Speaker 1: that battle of pushing down inflation if they need to, 250 00:13:54,520 --> 00:13:58,839 Speaker 1: rather than continuing this multi decade battle trying to pision inflation. Ell, 251 00:13:58,840 --> 00:14:01,719 Speaker 1: when you're channeling your inner Mario Draggy, I mean you're 252 00:14:01,760 --> 00:14:04,160 Speaker 1: going out to twenty three. And as you know, when 253 00:14:04,160 --> 00:14:07,200 Speaker 1: the facts change, the news changes, and the actions of 254 00:14:07,280 --> 00:14:11,000 Speaker 1: people change. What do you perceive to be the verbal 255 00:14:11,200 --> 00:14:17,520 Speaker 1: path for institutional officers that demand market stability? Is they 256 00:14:17,600 --> 00:14:20,840 Speaker 1: stagger to year two thousand, twenty three. They're gonna be 257 00:14:20,880 --> 00:14:24,480 Speaker 1: walking on glass. They will be walking on glass. And 258 00:14:24,560 --> 00:14:27,520 Speaker 1: that is the big one of the biggest debates out there. 259 00:14:26,760 --> 00:14:31,320 Speaker 1: They are hell bent on fighting any financial stability with 260 00:14:31,360 --> 00:14:35,400 Speaker 1: macailpredentcial tools. Sometimes I think about macro predential tools. As 261 00:14:35,520 --> 00:14:39,320 Speaker 1: you know, isn't a financial um stability like a frog 262 00:14:39,360 --> 00:14:42,800 Speaker 1: in boiling water. All right, so everything feels fine, everything 263 00:14:42,880 --> 00:14:45,760 Speaker 1: feels fine, everything goes fine. Then oh my god, nothing's fine. 264 00:14:46,120 --> 00:14:50,520 Speaker 1: And so can Michael podentcial tools really exactly well, so well, 265 00:14:50,560 --> 00:14:54,480 Speaker 1: they recognize it fast enough, and so that's the biggest day. 266 00:14:54,520 --> 00:14:58,120 Speaker 1: They are certain that they can battle it fast enough 267 00:14:58,160 --> 00:15:00,480 Speaker 1: and that they've got the tools necessary to battle it. 268 00:15:01,120 --> 00:15:03,720 Speaker 1: Um But you've got to step in with things like 269 00:15:03,880 --> 00:15:08,600 Speaker 1: rate hikes even if to get into the cracks. If right, 270 00:15:08,720 --> 00:15:11,760 Speaker 1: you've got a labor market that's tight. You see, you're 271 00:15:11,800 --> 00:15:14,720 Speaker 1: running a high pressure economy. If those inflationary pressures are 272 00:15:14,760 --> 00:15:17,920 Speaker 1: coming through, you must be a maximum employment and so 273 00:15:18,200 --> 00:15:20,800 Speaker 1: you would be raising rates in that environment, and the 274 00:15:20,840 --> 00:15:23,560 Speaker 1: market would be asking you to raise rates in that environment. 275 00:15:23,720 --> 00:15:26,440 Speaker 1: The problem is if it comes way sooner than expected 276 00:15:26,480 --> 00:15:29,040 Speaker 1: and the market that markets expect, and you get a 277 00:15:29,200 --> 00:15:33,400 Speaker 1: very very violent and volatile move in rates. And that's 278 00:15:33,440 --> 00:15:35,760 Speaker 1: the conversation right now. And I'm fantastic to catch up. 279 00:15:35,920 --> 00:15:43,720 Speaker 1: And is that up the chief economist right now? Robert 280 00:15:43,720 --> 00:15:46,200 Speaker 1: Miller joint just Bob Miller from black Rock head of 281 00:15:46,240 --> 00:15:49,960 Speaker 1: America's fundamental fixed income. That's an important position on the 282 00:15:50,000 --> 00:15:53,000 Speaker 1: speed of change. Bob Miller, I love your note where 283 00:15:53,000 --> 00:15:55,480 Speaker 1: you say events are moving rapidly and the FED isn't. 284 00:15:55,480 --> 00:16:00,080 Speaker 1: When does the FED blink? Great question, Tom, Um. The 285 00:16:00,120 --> 00:16:03,400 Speaker 1: conversation you guys are having preceding the most recent break 286 00:16:03,440 --> 00:16:06,480 Speaker 1: would suggest that we're reading off each other's notes. Um, 287 00:16:06,520 --> 00:16:09,680 Speaker 1: I think it's coming. I don't think it's coming immediately. Um, 288 00:16:09,760 --> 00:16:13,120 Speaker 1: it's certainly not next week at the testimony in front 289 00:16:13,160 --> 00:16:17,000 Speaker 1: of Congress, but we think that at the March MC, 290 00:16:17,760 --> 00:16:20,880 Speaker 1: the SEP that has delivered the state of the economic 291 00:16:20,920 --> 00:16:24,200 Speaker 1: projections that are delivered, where are going Our our expectation, 292 00:16:24,240 --> 00:16:27,200 Speaker 1: as you three, for unemployment for twenty one is going 293 00:16:27,280 --> 00:16:30,119 Speaker 1: to be marked down at four point eight, so approaching 294 00:16:30,120 --> 00:16:33,640 Speaker 1: the four point one longer run rate, and four PC 295 00:16:33,960 --> 00:16:36,000 Speaker 1: is going to be marked up to one point nine, 296 00:16:36,120 --> 00:16:40,080 Speaker 1: approaching the two percent target. So our our simple conclusion 297 00:16:40,160 --> 00:16:42,520 Speaker 1: from this that the FED is going to find it 298 00:16:42,600 --> 00:16:47,880 Speaker 1: more and more difficult as Mark in April pass to 299 00:16:47,920 --> 00:16:52,920 Speaker 1: continue to differ the discussion of recalibration of policy. So, 300 00:16:53,080 --> 00:16:55,880 Speaker 1: as you guys have said, there's massive pistol in the 301 00:16:56,000 --> 00:17:00,400 Speaker 1: system now likely more coming relatively soon with the one 302 00:17:00,440 --> 00:17:04,760 Speaker 1: point nine package from the Biden administration UH potentially followed 303 00:17:04,760 --> 00:17:09,840 Speaker 1: by infrastructure later this year. But the dual policy impulse 304 00:17:10,040 --> 00:17:13,359 Speaker 1: is just epic at the moment, at a time when 305 00:17:13,720 --> 00:17:17,520 Speaker 1: vaccine rollout is proceeding at a very good pace. We're 306 00:17:17,520 --> 00:17:21,119 Speaker 1: now running, on average about fifty million a month, and 307 00:17:21,160 --> 00:17:23,800 Speaker 1: that could easily become sixty million a month. So think 308 00:17:23,800 --> 00:17:27,600 Speaker 1: about what that implies for just two months forward. And secondly, 309 00:17:28,160 --> 00:17:30,080 Speaker 1: the weather is about to turn warm. I know it 310 00:17:30,160 --> 00:17:33,960 Speaker 1: sounds um mundane, but it matters right, and we're four 311 00:17:34,000 --> 00:17:36,560 Speaker 1: weeks away from warmer weather that will allow people to 312 00:17:36,560 --> 00:17:38,240 Speaker 1: get outside. So I think you're going to see this 313 00:17:39,119 --> 00:17:43,240 Speaker 1: just a monumental amount of pensive demand unleashed in the 314 00:17:43,280 --> 00:17:45,600 Speaker 1: next couple of months. And it's gonna make it hard 315 00:17:45,680 --> 00:17:49,560 Speaker 1: for the PAD to say that substantial further progress their 316 00:17:49,640 --> 00:17:54,600 Speaker 1: phrase for what's necessary to consider recalibrating quantitative easing, the 317 00:17:54,680 --> 00:17:58,240 Speaker 1: substantial further progress has not occurred. I think it's coming. 318 00:17:58,520 --> 00:18:00,800 Speaker 1: It's probably gonna take a month or two. We need 319 00:18:00,800 --> 00:18:03,280 Speaker 1: a clinic on duration risk, and I'd like you to 320 00:18:03,400 --> 00:18:05,320 Speaker 1: offer that to us right now. Talk to us about 321 00:18:05,400 --> 00:18:08,040 Speaker 1: duration risk, what it is and how you're thinking about 322 00:18:08,040 --> 00:18:11,840 Speaker 1: it at the moment. But you know, Jonathan, I think 323 00:18:11,960 --> 00:18:14,080 Speaker 1: one one way to see to us this is the 324 00:18:14,080 --> 00:18:17,200 Speaker 1: fet IS really not your friend if you're a bond investor, 325 00:18:18,359 --> 00:18:21,280 Speaker 1: after after forty years of kind of being your friend. 326 00:18:21,280 --> 00:18:24,120 Speaker 1: And we've been talking about this since the adoption of 327 00:18:24,160 --> 00:18:27,879 Speaker 1: the average Inflation Targeting Framework last summer. UM that was 328 00:18:28,000 --> 00:18:31,560 Speaker 1: that was revealed at the August um uh Jackson Hole. 329 00:18:32,000 --> 00:18:35,520 Speaker 1: But um, you know, the fet IS is explicitly telling 330 00:18:35,560 --> 00:18:38,359 Speaker 1: you they're going to target inflation at two percent and 331 00:18:38,359 --> 00:18:40,320 Speaker 1: they're going to be willing to allow it to run 332 00:18:40,440 --> 00:18:44,280 Speaker 1: above UM. That's a very different regime than we've been 333 00:18:44,320 --> 00:18:47,159 Speaker 1: in for the prior board decade. So I think you 334 00:18:47,280 --> 00:18:49,760 Speaker 1: have to you know, when you're looking at long duration 335 00:18:50,359 --> 00:18:53,919 Speaker 1: nominal bonds, UM, you've got to be pretty careful that 336 00:18:54,040 --> 00:18:58,880 Speaker 1: you're being adequately compensated for both UM inflation risks from 337 00:18:58,920 --> 00:19:02,959 Speaker 1: the normal ciplical economy, which which frankly aren't haven't been 338 00:19:03,040 --> 00:19:06,200 Speaker 1: particularly um uh you know, robust in the last couple 339 00:19:06,240 --> 00:19:09,239 Speaker 1: of decades. But nonetheless, the central Bank is telling you 340 00:19:09,280 --> 00:19:12,960 Speaker 1: that they're now going to target higher inflation. So I 341 00:19:13,040 --> 00:19:14,919 Speaker 1: think it I think it really matters and and it 342 00:19:14,960 --> 00:19:19,400 Speaker 1: calls into question the willing you know that the comfort 343 00:19:19,440 --> 00:19:23,920 Speaker 1: in holding longer and phenomenal bombs and relatively well yield Bob, 344 00:19:24,080 --> 00:19:26,680 Speaker 1: the FED is not your friend. And yet don't fight 345 00:19:26,720 --> 00:19:28,720 Speaker 1: the Fed. I mean, these are the sort of contradictory 346 00:19:28,760 --> 00:19:30,960 Speaker 1: messages that we're hearing at a time when yes, the 347 00:19:31,200 --> 00:19:34,320 Speaker 1: FED would like to see inflation run hot, but the 348 00:19:34,320 --> 00:19:37,159 Speaker 1: Fed's balance sheet rose to a new record high in 349 00:19:37,200 --> 00:19:41,760 Speaker 1: the week ended yesterday, to seven point five six trillion dollars. 350 00:19:41,760 --> 00:19:44,360 Speaker 1: I mean, how much will they say involved to suppress 351 00:19:44,400 --> 00:19:48,240 Speaker 1: borrowing costs, to allow this fiscal impulse to gain control 352 00:19:48,400 --> 00:19:51,480 Speaker 1: and to be a friend frankly to bond markets regardless 353 00:19:51,480 --> 00:19:56,359 Speaker 1: of inflation. Well least I think that the FED is 354 00:19:56,440 --> 00:19:58,640 Speaker 1: your friend depends upon the asset class you're talking about. 355 00:19:58,640 --> 00:20:00,880 Speaker 1: I think I think don't fight the Fed is still 356 00:20:01,119 --> 00:20:05,240 Speaker 1: a rule number one in terms of risk assets UM 357 00:20:05,320 --> 00:20:09,760 Speaker 1: and and and certainly supportive for the cyclical outlook. UM. 358 00:20:09,800 --> 00:20:13,840 Speaker 1: That said, they have adjusted their reaction function in a 359 00:20:13,880 --> 00:20:17,760 Speaker 1: way that makes them less quote unquote friendly for long 360 00:20:17,800 --> 00:20:20,480 Speaker 1: duration and you know bond manager so, but I think 361 00:20:20,520 --> 00:20:23,320 Speaker 1: they have to differentiate between what what asset classes you're 362 00:20:23,320 --> 00:20:26,719 Speaker 1: talking about? That messages no longer. It's simply blunt as 363 00:20:26,720 --> 00:20:28,920 Speaker 1: as it used to be. You know, the size of 364 00:20:28,960 --> 00:20:31,600 Speaker 1: the balance. She is going to continue to grow. Um 365 00:20:31,680 --> 00:20:33,679 Speaker 1: it's it's gonna it's gonna start to grow at a 366 00:20:33,680 --> 00:20:36,359 Speaker 1: slower pace sometimes in the next few months. You know. 367 00:20:36,400 --> 00:20:41,160 Speaker 1: Think about this, that the the bonds twenty billion bonds 368 00:20:41,359 --> 00:20:43,920 Speaker 1: a month that they're currently buying, between treasuries and mortgages, 369 00:20:44,720 --> 00:20:51,080 Speaker 1: UM is in order to scale that down over time, 370 00:20:51,320 --> 00:20:53,399 Speaker 1: they want to go really slowly. They certainly want to 371 00:20:53,440 --> 00:20:56,480 Speaker 1: avoid the two thousand and thirteen experience. So our expectation 372 00:20:56,520 --> 00:20:58,439 Speaker 1: has been they'll dial up back like ten billion a 373 00:20:58,480 --> 00:21:01,000 Speaker 1: month right over the core in the year. Well, if 374 00:21:01,000 --> 00:21:02,639 Speaker 1: you're going to dial back over the course of the 375 00:21:02,720 --> 00:21:07,840 Speaker 1: year and in the middle of two you so we 376 00:21:07,880 --> 00:21:10,320 Speaker 1: expect the output gap in the US economy to close 377 00:21:10,440 --> 00:21:14,720 Speaker 1: this summer, and as new Secretary of Treasure Yelling said 378 00:21:14,760 --> 00:21:18,560 Speaker 1: recently with the with the upcoming Crystal Package, she expects 379 00:21:18,600 --> 00:21:21,760 Speaker 1: that we could achieve full employment in two thousand two. 380 00:21:22,240 --> 00:21:24,760 Speaker 1: If you close those two gaps, you still want to 381 00:21:24,800 --> 00:21:26,960 Speaker 1: be buying a lot of bonds. So to our our 382 00:21:27,000 --> 00:21:29,840 Speaker 1: point is we need to slow the rate of purchase 383 00:21:29,960 --> 00:21:32,639 Speaker 1: relatively soon, so that they can do it over a 384 00:21:32,680 --> 00:21:35,480 Speaker 1: long time rise and not be buying bonds when we've 385 00:21:35,520 --> 00:21:40,239 Speaker 1: achieved full employment. Um Interest rates are a totally different story, right, 386 00:21:40,280 --> 00:21:42,439 Speaker 1: that's the tide to the inplacment outlook and that the 387 00:21:42,480 --> 00:21:46,040 Speaker 1: average inplace framework. So they've they've driven a wedge between 388 00:21:46,119 --> 00:21:49,359 Speaker 1: rates and to E. I think appropriately so. But the 389 00:21:49,440 --> 00:21:52,480 Speaker 1: guidance around to E needs to change sometime in the 390 00:21:52,480 --> 00:21:54,840 Speaker 1: next couple of months. But this conversation is too important. 391 00:21:55,000 --> 00:21:56,400 Speaker 1: Can you do me a favor? Just hold the line. 392 00:21:56,400 --> 00:21:58,000 Speaker 1: We'll bring you back in just a couple of minutes. Time. 393 00:21:58,000 --> 00:21:59,960 Speaker 1: Prob Miler that Black Rock head of America's Fund of 394 00:22:00,040 --> 00:22:08,359 Speaker 1: until fixed income and bias there to go to the 395 00:22:08,400 --> 00:22:11,280 Speaker 1: gentleman from Columbia University. I'm gonna really listen to the 396 00:22:11,359 --> 00:22:16,159 Speaker 1: vice chairman John for that one single sentence of nuance 397 00:22:16,640 --> 00:22:20,040 Speaker 1: of how they adapt to a five or six percent 398 00:22:20,240 --> 00:22:23,879 Speaker 1: run rate real g d P A nominal rate of 399 00:22:23,920 --> 00:22:27,240 Speaker 1: what six seven eight percent gdpis treasure yield to the 400 00:22:27,280 --> 00:22:30,720 Speaker 1: breaking out to Let's bring in roberts patim chief investment strategist. Rob. 401 00:22:30,960 --> 00:22:33,159 Speaker 1: I've got one question to kick things off. When does 402 00:22:33,240 --> 00:22:35,080 Speaker 1: roberts Hip become a buyer at the long game now 403 00:22:35,200 --> 00:22:40,520 Speaker 1: tens on thirties, one, etcetera. Yeah, well, this is a 404 00:22:40,560 --> 00:22:44,120 Speaker 1: great environment, and I like answering that question when we've 405 00:22:44,160 --> 00:22:48,199 Speaker 1: crossed above fair value in terms of yield, and I 406 00:22:48,240 --> 00:22:50,320 Speaker 1: think in terms of the long term outlook, I can't 407 00:22:50,320 --> 00:22:52,200 Speaker 1: tell you that's today, if it's tomorrow, or if it's 408 00:22:52,200 --> 00:22:55,199 Speaker 1: gonna be the fourth quarter, but I think we've clearly 409 00:22:55,280 --> 00:22:59,360 Speaker 1: topped the value in terms of treasury yields. What's going 410 00:22:59,400 --> 00:23:03,040 Speaker 1: on here? It kind of looks like a behavioral financista 411 00:23:03,200 --> 00:23:05,600 Speaker 1: where people are looking at these rapid rates of growth. 412 00:23:06,160 --> 00:23:08,119 Speaker 1: They're looking at a few of the high prints and 413 00:23:08,240 --> 00:23:14,120 Speaker 1: CPI and pc that we saw back in the spring summer, 414 00:23:14,560 --> 00:23:18,040 Speaker 1: and they're extrapolating that into the future, and they're pricing 415 00:23:18,040 --> 00:23:22,120 Speaker 1: in a string of fed rate heights that is unlikely 416 00:23:22,240 --> 00:23:26,440 Speaker 1: to be a sensible central scenario. And uh So, I 417 00:23:26,480 --> 00:23:28,600 Speaker 1: don't know whether we're going to get up to one 418 00:23:28,000 --> 00:23:31,200 Speaker 1: fifty or even maybe higher, you know, if you get 419 00:23:31,240 --> 00:23:34,480 Speaker 1: another infrastructure bill coming through. But I think we've already 420 00:23:34,480 --> 00:23:37,199 Speaker 1: topped our value, and that means that looking out, you know, 421 00:23:37,280 --> 00:23:40,159 Speaker 1: five years, in terms of return, bonds are going to 422 00:23:40,200 --> 00:23:42,480 Speaker 1: be likely to end about performing cash. So what have 423 00:23:42,520 --> 00:23:44,720 Speaker 1: you been doing in the first couple of months this year? 424 00:23:44,800 --> 00:23:48,400 Speaker 1: Is all this craziness has been gone on around you? Yeah, 425 00:23:48,520 --> 00:23:51,879 Speaker 1: we have to try to stay with what makes sense, 426 00:23:52,240 --> 00:23:56,240 Speaker 1: what's easy, what's doable. And there's a good balance in 427 00:23:56,280 --> 00:23:59,760 Speaker 1: the market between the economy doing well and spreads coming in. 428 00:24:00,280 --> 00:24:03,520 Speaker 1: Picking up yield in spread product across a range of 429 00:24:03,560 --> 00:24:07,560 Speaker 1: sectors while steering clear of any of the names of 430 00:24:07,600 --> 00:24:11,240 Speaker 1: the sectors that are gonna be having problems, and that 431 00:24:11,400 --> 00:24:15,919 Speaker 1: area of activity in bond portfolio management, the sector allocation 432 00:24:16,160 --> 00:24:21,000 Speaker 1: security selection is a higher information ratio, higher hit ratio, 433 00:24:21,520 --> 00:24:24,960 Speaker 1: a better area to focus anyhow um, but the rate 434 00:24:25,000 --> 00:24:27,960 Speaker 1: side is going to drive returns on over the long term. 435 00:24:28,000 --> 00:24:31,840 Speaker 1: And I think what you've had, frankly in the crash 436 00:24:32,040 --> 00:24:35,879 Speaker 1: of the COVID nine team a good offset between interest 437 00:24:35,960 --> 00:24:38,000 Speaker 1: rate and spread risk, where to the extent that people 438 00:24:38,040 --> 00:24:41,120 Speaker 1: were losing on the spread side in bonds, they were 439 00:24:41,119 --> 00:24:43,920 Speaker 1: making money on the interest rate side. In the recovery 440 00:24:43,960 --> 00:24:46,719 Speaker 1: that we've had, Yeah, you've had some increase in yields, 441 00:24:46,720 --> 00:24:49,439 Speaker 1: but you've had a massive compression and spread what's the 442 00:24:49,480 --> 00:24:53,679 Speaker 1: bottom line. Bonds have done well and looking forward. You know, 443 00:24:53,760 --> 00:24:55,320 Speaker 1: the next two to four years, you're not going to 444 00:24:55,400 --> 00:24:57,879 Speaker 1: get that much spread compression, but you will get income 445 00:24:57,920 --> 00:25:01,800 Speaker 1: from spread product, and so that will help. But I 446 00:25:01,840 --> 00:25:03,800 Speaker 1: think what you're gonna get now looking to to four 447 00:25:03,880 --> 00:25:06,480 Speaker 1: years ahead is a realization that we're not going to 448 00:25:06,600 --> 00:25:09,760 Speaker 1: do six percent GDP for the next five years, that 449 00:25:09,920 --> 00:25:12,080 Speaker 1: after this money flows through the system, there's going to 450 00:25:12,119 --> 00:25:14,760 Speaker 1: be a slowing down and the government markets are going 451 00:25:14,800 --> 00:25:17,120 Speaker 1: to have to mark to market that these fed rate 452 00:25:17,200 --> 00:25:19,399 Speaker 1: hikes are not going to happen at anything near the 453 00:25:19,400 --> 00:25:22,080 Speaker 1: pace it's priced in, and that's gonna be in positive returns. 454 00:25:22,400 --> 00:25:24,640 Speaker 1: So I'm just trying to pass through. There's a lot there, 455 00:25:24,640 --> 00:25:27,080 Speaker 1: and I want to unpack it. With respect to the 456 00:25:27,119 --> 00:25:29,600 Speaker 1: treasure yield, I'm just curious. You're saying that we are 457 00:25:29,640 --> 00:25:34,000 Speaker 1: beyond fair value, but it didn't seem like you're necessarily 458 00:25:34,040 --> 00:25:37,720 Speaker 1: going all in. You're talking long term, short term, how 459 00:25:37,800 --> 00:25:40,000 Speaker 1: high can we go and how much could it potentially 460 00:25:40,119 --> 00:25:43,600 Speaker 1: challenge the flight into risky credit that we've seen year 461 00:25:43,640 --> 00:25:47,399 Speaker 1: to date. Right So so I can't tell you that obviously, 462 00:25:48,080 --> 00:25:50,840 Speaker 1: and but I can take a stab at it please. 463 00:25:51,080 --> 00:25:54,000 Speaker 1: And but what we've seen right from from that period 464 00:25:54,240 --> 00:25:58,320 Speaker 1: exactly a year ago February, the hundred basis points springs 465 00:25:58,760 --> 00:26:01,760 Speaker 1: swinging rates from thirty to one thirty. That spect out 466 00:26:01,760 --> 00:26:05,400 Speaker 1: the whole future from the worst scenario to the best scenario. 467 00:26:05,480 --> 00:26:08,600 Speaker 1: That was likely at that time. But since that time, 468 00:26:09,640 --> 00:26:13,560 Speaker 1: we've had Washington d Cgo Democrat. We've seen that they're 469 00:26:13,600 --> 00:26:19,520 Speaker 1: able to spend money. We've seen vaccines developed, uh much 470 00:26:19,880 --> 00:26:22,439 Speaker 1: to a greater extent than anyone would have guessed. I 471 00:26:22,440 --> 00:26:25,600 Speaker 1: would imagine in a time frame not not imaginable, but 472 00:26:25,680 --> 00:26:28,480 Speaker 1: more important than any of that, we have seen people 473 00:26:28,640 --> 00:26:30,960 Speaker 1: take the money that they get from the government and 474 00:26:31,040 --> 00:26:34,760 Speaker 1: their income and spend it like mad. So we're a 475 00:26:34,800 --> 00:26:38,320 Speaker 1: few percentage points elevated and unemployment, but we're at record 476 00:26:38,359 --> 00:26:42,400 Speaker 1: retail sales, so the market has to price in that psyche, 477 00:26:42,960 --> 00:26:45,879 Speaker 1: and I think, you know, we're in the zone. I 478 00:26:45,880 --> 00:26:48,280 Speaker 1: would think that unless we get some other breakout and 479 00:26:48,320 --> 00:26:50,720 Speaker 1: the economic activity, you're not going to top one fifty 480 00:26:50,760 --> 00:26:53,920 Speaker 1: on the tenure. It will be very difficult to see 481 00:26:54,160 --> 00:26:56,879 Speaker 1: if we do top one fifty, to see that sustained. 482 00:26:56,920 --> 00:26:59,160 Speaker 1: So I think we're basically in that last twenty five 483 00:26:59,200 --> 00:27:02,720 Speaker 1: basis points. Roeber tip, I'm gonna go back to dive 484 00:27:02,720 --> 00:27:05,040 Speaker 1: into the business at first Boston. And what I find 485 00:27:05,080 --> 00:27:08,719 Speaker 1: fascinating is all the MATHA Berkeley doesn't matter. It's what 486 00:27:08,840 --> 00:27:13,960 Speaker 1: corporations do when yields back up like this? What does 487 00:27:14,000 --> 00:27:19,159 Speaker 1: supply do? What does CFO do? CFOs chief financial officers? 488 00:27:19,560 --> 00:27:24,200 Speaker 1: What do they do when yields back up? Well, CFOs, 489 00:27:24,400 --> 00:27:29,560 Speaker 1: fortunately for the market, already did it. You know, raise money, right, 490 00:27:29,600 --> 00:27:32,600 Speaker 1: That's what they do is when they're nervous, they raise 491 00:27:32,680 --> 00:27:35,719 Speaker 1: money to make sure they survive. Then when things are 492 00:27:35,760 --> 00:27:38,400 Speaker 1: looking better and rates are low, they raise some more 493 00:27:38,400 --> 00:27:41,120 Speaker 1: money in case they need it for a strategic acquisition. 494 00:27:41,640 --> 00:27:45,000 Speaker 1: And a lot of that's happened, and we've had some 495 00:27:45,119 --> 00:27:48,240 Speaker 1: drop off and issuance. Uh So I think the supply 496 00:27:48,480 --> 00:27:51,960 Speaker 1: is going to be manageable. On the corporate side, I 497 00:27:52,040 --> 00:27:54,920 Speaker 1: think there are signs of accesses in the market. There's 498 00:27:54,960 --> 00:27:58,960 Speaker 1: a lot of liquidity slashing around uh And the problems 499 00:27:58,960 --> 00:28:02,120 Speaker 1: that the Fed UM and these central banks are gonna 500 00:28:02,119 --> 00:28:03,399 Speaker 1: have is not going to be that they're going to 501 00:28:03,480 --> 00:28:08,320 Speaker 1: create systemic inflation, because inflation underlying measures, I think are 502 00:28:08,359 --> 00:28:11,640 Speaker 1: already showing a tendency after bursts of activity, to come 503 00:28:11,760 --> 00:28:13,479 Speaker 1: right back down. And the same as trou on the 504 00:28:13,480 --> 00:28:16,679 Speaker 1: retail sales side. But I think while these central banks 505 00:28:16,720 --> 00:28:20,800 Speaker 1: are shooting for these unreasonably high inflation targets and creating 506 00:28:20,960 --> 00:28:24,199 Speaker 1: very buoyant markets, that that's gonna be the problem. The 507 00:28:24,280 --> 00:28:28,480 Speaker 1: game stops and all of these phenomena that pop up 508 00:28:28,480 --> 00:28:31,520 Speaker 1: that make them nervous. They're creating systemic risk. Robby sound 509 00:28:31,560 --> 00:28:33,359 Speaker 1: like a treasury bobby and not a tries to rebuyd 510 00:28:33,880 --> 00:28:35,800 Speaker 1: I'm just trying to reconcile it. Or in the last time, 511 00:28:36,280 --> 00:28:38,400 Speaker 1: everything I said is I want to buy treasuries and 512 00:28:38,400 --> 00:28:41,239 Speaker 1: it's just something holding you back. Yeah. I mean if 513 00:28:41,240 --> 00:28:43,200 Speaker 1: you told me I had to do one trade right 514 00:28:43,240 --> 00:28:48,240 Speaker 1: now for the next two years, it would be long duration, right, 515 00:28:48,360 --> 00:28:50,760 Speaker 1: it would be long fixed in conversus cash on a 516 00:28:50,840 --> 00:28:54,600 Speaker 1: diversified basis. Uh. If you said, well, you know, do 517 00:28:54,640 --> 00:28:56,720 Speaker 1: you want to go to a maximum position here? You 518 00:28:56,760 --> 00:28:58,920 Speaker 1: want to wait to they see raids crest or something 519 00:28:58,960 --> 00:29:01,560 Speaker 1: like that, I think you'd have to go with that 520 00:29:01,640 --> 00:29:04,640 Speaker 1: because the economy has a lot of momentum. Even just 521 00:29:04,760 --> 00:29:09,880 Speaker 1: this retail sales number we saw this week was spectacular, right, 522 00:29:09,960 --> 00:29:14,000 Speaker 1: So you don't want to underestimate reality. But at the 523 00:29:14,040 --> 00:29:15,880 Speaker 1: same time, what's going on in the markets. As you 524 00:29:15,920 --> 00:29:18,800 Speaker 1: can see, it's extrapolating this pace of growth too far 525 00:29:18,880 --> 00:29:22,640 Speaker 1: in the future. And we saw this exact phenomena play 526 00:29:22,640 --> 00:29:29,160 Speaker 1: out where the Trump victory people priced in a new 527 00:29:29,200 --> 00:29:32,920 Speaker 1: reality of high growth a three ten your note. By 528 00:29:32,920 --> 00:29:36,200 Speaker 1: the end of twenty nineteen, that was all over. Uh 529 00:29:36,240 --> 00:29:39,600 Speaker 1: so may or maye out of made uh make America 530 00:29:39,680 --> 00:29:42,520 Speaker 1: great again, But it made bonds great again. And right 531 00:29:42,560 --> 00:29:45,240 Speaker 1: now this rise and yields to one a quarter or 532 00:29:45,240 --> 00:29:48,600 Speaker 1: whether it's one fifty, is built back bonds better. Right 533 00:29:48,680 --> 00:29:52,160 Speaker 1: we're in a zone where they're attractive. And two years 534 00:29:52,160 --> 00:29:53,920 Speaker 1: from now it's going to be like a lot of 535 00:29:53,960 --> 00:29:56,800 Speaker 1: this optimism I think never happened. You're gonna be back 536 00:29:56,800 --> 00:30:00,240 Speaker 1: at the secular fundamentals of Asian demographics and PERNICI justly 537 00:30:00,280 --> 00:30:02,120 Speaker 1: more inflation. At least it is looking forward time. In 538 00:30:02,160 --> 00:30:04,640 Speaker 1: that conversation with you, Robert, tis great to cash up. 539 00:30:04,680 --> 00:30:08,080 Speaker 1: We hold up, Robert Tip, patm Chief investment Strategist. Thank you, Seth. 540 00:30:09,480 --> 00:30:13,240 Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join 541 00:30:13,360 --> 00:30:16,680 Speaker 1: us live weekdays from seven to ten am Eastern on 542 00:30:16,800 --> 00:30:21,040 Speaker 1: Bloomberg Radio and on Bloomberg television each day from six 543 00:30:21,160 --> 00:30:26,000 Speaker 1: to nine am for insight from the best in economics, finance, investment, 544 00:30:26,160 --> 00:30:31,160 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 545 00:30:31,280 --> 00:30:35,080 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course, on 546 00:30:35,200 --> 00:30:39,320 Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg.