WEBVTT - Surveillance: Rep. Hill on Robinhood 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Farrell and Lisa Brawnowitz. Daily we bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:30.200 and of course, on the Bloomberg terminal. Right now, it 0:00:30.280 --> 0:00:32.240 is always good to speak to any of our busy 0:00:32.280 --> 0:00:34.600 politicians in Washington. To do with two days in a 0:00:34.680 --> 0:00:38.600 row is a rare treat from the second District of Arkansas. 0:00:38.640 --> 0:00:42.560 French Hill, French Hill, it's your fault. Arkansas has the 0:00:42.720 --> 0:00:47.440 snowiest uh February like ever, like back to when the 0:00:47.520 --> 0:00:50.800 Hill family came over the border in eighteen twelve or 0:00:50.840 --> 0:00:54.680 whatever it was. What's the snow like in Arkansas? And 0:00:54.720 --> 0:00:58.480 what are you gonna do about it? To fix it? Well, bye, Gollway. 0:00:58.560 --> 0:01:01.840 It's all the responsibility of the politicians in Washington caused 0:01:01.840 --> 0:01:07.000 the snow fifteen to seventeen inches here in central Arkansas, 0:01:07.040 --> 0:01:09.920 and our highways are clear, but our neighborhoods are still 0:01:09.959 --> 0:01:14.319 piled up East Coast style snow. But I've been shoveling 0:01:14.560 --> 0:01:16.959 and doing the best I can yeah, I know it's 0:01:17.000 --> 0:01:20.440 Republicans shovel Democrats calling the snow plow. Okay, let's move 0:01:20.480 --> 0:01:23.640 on from their French hill. We saw yesterday the game 0:01:23.680 --> 0:01:27.240 stop hearings. I noticed the Washington Post this morning gives 0:01:27.240 --> 0:01:35.479 it essentially zero play. What happens next after that testimony, Well, first, 0:01:35.520 --> 0:01:39.400 I think Mr Tinev, the CEO and Robin Hood Market 0:01:39.560 --> 0:01:43.160 certainly apologized for the fact that they had inadequate collateral 0:01:43.200 --> 0:01:47.600 and deposit with their clearing firms and DTCC the depository Trust, 0:01:48.120 --> 0:01:51.240 which then put their customers in a bad position in 0:01:51.320 --> 0:01:53.840 the midst of a bubble that was a key element 0:01:54.320 --> 0:01:57.040 in terms of the equity market plumbing. I thought the 0:01:57.080 --> 0:02:00.880 earring demonstrated that it worked as we expected to. But 0:02:01.040 --> 0:02:04.200 I think Maxine Waters, our chairman of House Financial Services, 0:02:04.240 --> 0:02:07.680 going to have additional capital to markets hearings, and from 0:02:07.680 --> 0:02:11.280 the discussion yesterday Tom, I think she'll focus on payment 0:02:11.440 --> 0:02:15.680 for order flow, also reassess short selling. What have been 0:02:15.720 --> 0:02:19.840 the changes since the two thousand thousand ten changes. Congressmen, 0:02:19.840 --> 0:02:23.280 how concerned are you about the environment, the broader environment 0:02:23.639 --> 0:02:26.720 that's led to this type of speculation about the fact 0:02:26.800 --> 0:02:30.040 that people have money as well as the apparent lack 0:02:30.080 --> 0:02:34.600 of risk prompted by the Federal Reserve. Well, let's start 0:02:34.680 --> 0:02:38.160 with that, which is zero interest rates in the Federal Reserve, 0:02:38.200 --> 0:02:42.600 accommodative policy, and household savings at the highest rate it's 0:02:42.600 --> 0:02:45.840 been in decades. This prompts people to reach out and 0:02:45.880 --> 0:02:49.680 take risk, just as you've been discussing the last a 0:02:49.720 --> 0:02:52.520 few minutes. But the key thing for I think robin 0:02:52.560 --> 0:02:56.680 Hood investors are we all know that investing is caveat inmptour, 0:02:57.120 --> 0:03:00.240 but does robin hood have the support for the those 0:03:00.320 --> 0:03:03.800 new entrance to the investing market. Are they have the 0:03:03.880 --> 0:03:08.600 skills and communication on their platform to educate customers. I've 0:03:08.600 --> 0:03:12.160 been in this business for four decades and the paternalistic 0:03:12.240 --> 0:03:16.520 aspect of coaching and monitoring accounts on margin, on the 0:03:16.639 --> 0:03:20.799 use of options on small dollar stocks are all fundamental 0:03:21.240 --> 0:03:26.160 to retail investment brokerage. Is that really being adequately handled 0:03:26.240 --> 0:03:29.040 on an app based platform like robin Hood. That was 0:03:29.080 --> 0:03:31.880 a key thing we talked about. Brilliantly said from the 0:03:31.919 --> 0:03:34.360 gentleman from the Delta Bank and Trust company, Lisa. What 0:03:34.400 --> 0:03:37.440 I think is so important here is this strange phrase 0:03:37.560 --> 0:03:40.720 due diligence in the old days there was a respect 0:03:40.760 --> 0:03:43.920 for it, and then to be honest, technology took over. 0:03:44.400 --> 0:03:47.920 How do you do due diligence given modern technology? Well, 0:03:47.920 --> 0:03:50.840 and that's exactly what Congressman was talking. Congressman Hill is 0:03:50.880 --> 0:03:54.720 talking about this paternalistic attitude, which is actually part of 0:03:54.760 --> 0:03:57.600 what the robin Hood crowd is rebelling against. And so 0:03:58.200 --> 0:04:00.640 that balance. How do you ensure earth that you give 0:04:00.640 --> 0:04:04.560 people access to this dynamism, to this explosion and asset 0:04:04.600 --> 0:04:07.000 prices that has been fueled by the environment that you're 0:04:07.000 --> 0:04:12.960 talking about, while giving them the correct due diligence. That's complicated. Well, 0:04:12.960 --> 0:04:16.320 I think he should enhance his website, asked him yesterday. 0:04:16.360 --> 0:04:19.240 Does he have a call center? And the average robin 0:04:19.240 --> 0:04:22.039 Hood an investor does not have someone to call during 0:04:22.080 --> 0:04:25.400 the business day. It's all done by email to their account, 0:04:25.920 --> 0:04:29.440 and that's inadequate in tough times. The call centers that 0:04:29.560 --> 0:04:32.479 robin Hood apparently are only granted to those with some 0:04:32.640 --> 0:04:36.520 extreme option approval by the firm. And I believe the 0:04:36.520 --> 0:04:41.200 CEO committed yesterday to much better consumer communication, and he 0:04:41.279 --> 0:04:46.680 made a comment about his consumer education on his platform. 0:04:46.720 --> 0:04:50.240 But look, we all know that granting someone margin, granting 0:04:50.320 --> 0:04:54.480 someone option authority is a tough job just to do 0:04:54.600 --> 0:04:58.480 by algorithm based on the boxes checked by a customer 0:04:58.600 --> 0:05:01.080 complishment before we let you go can scathellical question. It's 0:05:01.080 --> 0:05:03.880 not actually aimed at you personally, who obviously understands the 0:05:03.880 --> 0:05:08.560 financial industry inside out these hearings, how can we make 0:05:08.600 --> 0:05:10.400 them better? Do you think they would be better if 0:05:10.400 --> 0:05:12.880 they were closed door? And I'm here's a journalist talking 0:05:12.880 --> 0:05:14.880 about less transparency. But it just seems to me that 0:05:14.960 --> 0:05:19.760 sometimes these hearings become theater and lawmakers, your colleagues, turn 0:05:19.800 --> 0:05:21.920 around and make it that they might have some pre 0:05:22.000 --> 0:05:24.320 existing bias, some songa dance, They want to clip the 0:05:24.400 --> 0:05:26.240 video and send it out to constituents. How do we 0:05:26.320 --> 0:05:29.640 make this better, more useful? Well, that tone is said 0:05:29.680 --> 0:05:32.200 at the top by the committee chairman, Maxine Waters in 0:05:32.200 --> 0:05:36.800 this case loves click bait, and she also loves Jonathan 0:05:36.800 --> 0:05:39.720 to use the full committee. Here's the way to do this, 0:05:39.800 --> 0:05:43.560 in my view, if you use the Subcommittee on Capitol Markets, 0:05:44.000 --> 0:05:47.320 which is believe chaired by Brad Sherman, you have a 0:05:47.400 --> 0:05:50.000 smaller number of people. You can spend the same amount 0:05:50.040 --> 0:05:53.159 of time, but you can multiple rounds of questions and 0:05:53.200 --> 0:05:55.600 it's a way to have a much more constructive dialogue 0:05:55.640 --> 0:05:59.000 on Capitol Hill, but our chair has elected not to 0:05:59.040 --> 0:06:02.000 do that in some of these high profile matters. And John, 0:06:02.040 --> 0:06:04.920 that's brilliant. That's like the subcommittee we have here where 0:06:04.920 --> 0:06:07.560 you and Lisa tell me to shut up. If you 0:06:07.640 --> 0:06:08.960 if you look at the UK and I'll bring it. 0:06:09.040 --> 0:06:11.640 The House Financial Services Committee is one thing. In the 0:06:11.720 --> 0:06:13.839 UK we have the Treasury Select Committee and it is 0:06:13.839 --> 0:06:16.119 a smaller room, it's a smaller setting, and it seems 0:06:16.160 --> 0:06:17.600 to be a little bit more direct, and I think 0:06:17.600 --> 0:06:20.640 that's what the congressman is alluding to. Congressman is great 0:06:20.640 --> 0:06:23.039 to catch up, come back soon, always great to catch 0:06:23.080 --> 0:06:34.120 up this Republican from Arkansas. Right now, Ellen Santner joins 0:06:34.200 --> 0:06:37.760 us with Morgan Stanley, their chief US economists, out with 0:06:37.839 --> 0:06:41.800 a bombshell report and adjustment. I believe it was yesterday 0:06:41.880 --> 0:06:44.160 looking for as John mentioned, six and a half percent 0:06:44.400 --> 0:06:47.680 and even seven percent GDP depending on where you measurement. 0:06:48.040 --> 0:06:51.160 But what's so important here is what Stephen Roach invented 0:06:51.200 --> 0:06:56.680 it Morgan Stanley, which is everybody feeds off everybody else's research. Ellen, 0:06:56.760 --> 0:07:00.400 your secret weapon on the pandemic is Matthew Harrison, he's 0:07:00.440 --> 0:07:04.360 definitive in biotech. And matt Harrison is telling you he's 0:07:04.360 --> 0:07:10.239 seeing better vaccination numbers. Yeah, better vaccination numbers. We're getting 0:07:10.240 --> 0:07:14.440 shots and arms at a greater rate. Hospitalization rates coming down, 0:07:14.560 --> 0:07:18.600 death counts are coming down. That's what households really care about. 0:07:18.880 --> 0:07:22.400 And that's what gives them the confidence, uh to show 0:07:22.440 --> 0:07:25.240 in the surveys that we send out of households, UH 0:07:25.400 --> 0:07:27.200 that they want to get out there, they want to 0:07:27.240 --> 0:07:30.160 return to you know, put the word normal in quotes. 0:07:30.280 --> 0:07:33.600 Whatever that means to each person is different, but they 0:07:33.680 --> 0:07:35.640 want to get out there right. And maybe it's just 0:07:35.680 --> 0:07:38.360 coming out of this bad winter. But we've got the 0:07:38.560 --> 0:07:42.120 ingredients there to make that happen. And for those of 0:07:42.160 --> 0:07:44.440 you on radio and TV, this is really important. We 0:07:44.520 --> 0:07:48.320 discover these economists before they're a chief economist, a fancy 0:07:48.400 --> 0:07:51.880 title like Ellen has and Ellen Sander was discovered with 0:07:51.920 --> 0:07:57.640 a cute consumer analysis years ago. Ellen, does this devolve 0:07:57.720 --> 0:08:01.320 this six and seven percent g DP? Does it devolve 0:08:01.400 --> 0:08:06.000 into a consumption boom? Uh? Yeah, so that's what So 0:08:06.040 --> 0:08:09.040 when you think about the forecast for the U. S economy, 0:08:09.160 --> 0:08:11.800 right has to be about the consumer because that's the 0:08:12.600 --> 0:08:15.600 lion's share of the economy. Um. But you don't just 0:08:15.640 --> 0:08:19.160 have the consumer this time, right, You've got fiscal stimulus 0:08:19.240 --> 0:08:21.480 behind it, so you've got a lot of buying power 0:08:21.600 --> 0:08:25.240 out there, UM with pent up demand that continues to build. 0:08:25.640 --> 0:08:29.680 And so the biggest delta for the economy this year 0:08:30.280 --> 0:08:33.160 is what the consumer does as we're able to move 0:08:33.240 --> 0:08:36.640 more freely around the economy. Now, that also points to 0:08:36.679 --> 0:08:40.360 the greatest risk is that you know, confidence is rising 0:08:40.400 --> 0:08:42.280 there telling us in our surveys they want to get 0:08:42.280 --> 0:08:45.679 out and do things. And you know, historically and you 0:08:45.720 --> 0:08:48.240 know this, Tom, sometimes we can say we feel one way, 0:08:48.360 --> 0:08:52.320 we do something else. You know that that is a risk. 0:08:52.400 --> 0:08:54.280 And if that's the case, then you see the savings 0:08:54.360 --> 0:08:57.319 right in the US just remain really really elevated this year. 0:08:57.360 --> 0:08:59.720 And you don't see that calm down as people start 0:08:59.760 --> 0:09:02.640 to been ellen. When did the unemployment numbers start to 0:09:02.679 --> 0:09:07.240 matter again? So the unemployment numbers, uh, you know, we're 0:09:07.280 --> 0:09:09.040 looking at two different ones right now. And I know 0:09:09.200 --> 0:09:11.880 we've discussed this in the past. So you've got um, 0:09:12.040 --> 0:09:16.240 you know, the six plus percent on the uh, you know, 0:09:16.360 --> 0:09:19.560 unemployment rate that's the most widely reported that's the traditional 0:09:19.600 --> 0:09:22.000 measure that we use, UM, but you're closer to around 0:09:22.040 --> 0:09:25.319 ten and a half percent for that underlying unemploy unemployment 0:09:25.360 --> 0:09:29.040 rate that you take into account all the measurement issues. Um, 0:09:29.080 --> 0:09:31.760 we do get impro improvement in the unemployment rate this year, 0:09:31.800 --> 0:09:36.200 but if we think about them that broader measure, the 0:09:36.280 --> 0:09:39.240 underemployment measure, the ten and a half percent comes down 0:09:39.240 --> 0:09:40.599 to six and a quarter by the end of the 0:09:40.679 --> 0:09:43.720 year on our estimates. So it's it's a four percentage 0:09:43.720 --> 0:09:46.840 points is a huge amount of improvement. That's still a 0:09:46.880 --> 0:09:49.920 really high unemployment rate by the end of the year. UM. 0:09:50.040 --> 0:09:52.360 So you've got a lot of that pent up demand 0:09:52.559 --> 0:09:55.280 coming through at a time when we still got supply constraints, 0:09:55.360 --> 0:09:58.200 especially on the labor side. And that's what plays into 0:09:58.280 --> 0:10:01.360 some of the inflation forecast for inflation to rise. And 0:10:01.440 --> 0:10:03.640 can you imagine the news conference at the Federal Reserve 0:10:03.760 --> 0:10:05.880 as they see six and a half percent GDP growth 0:10:05.920 --> 0:10:08.560 this year and start to look at five next year, 0:10:08.720 --> 0:10:11.559 what does that look like? Yeah, so I think it's 0:10:11.640 --> 0:10:15.040 it's a it's an evolution, right. So even at the 0:10:15.080 --> 0:10:18.120 March So at the March of Onese meeting, they're gonna 0:10:18.120 --> 0:10:20.120 have to revise upward their forecast. And some of that 0:10:20.200 --> 0:10:22.120 is just because growth is going to be tracking so 0:10:22.240 --> 0:10:25.439 much higher already in the first quarter because of the 0:10:25.480 --> 0:10:28.640 stimulus checks that came through uh in that bill that 0:10:28.760 --> 0:10:33.440 was passed in December. But they may not pull in 0:10:33.520 --> 0:10:37.880 forecast fully for what might be coming right around that 0:10:37.960 --> 0:10:42.559 time of this next fiscal stimulus package. So most likely 0:10:42.559 --> 0:10:44.960 then at the June meeting they would have to revise 0:10:45.120 --> 0:10:48.960 upward their forecasts again UH. And then most likely only 0:10:49.000 --> 0:10:53.400 by September, when their forecasts continue to track behind the economy, 0:10:53.640 --> 0:10:55.120 and this is what we normally see each year, they 0:10:55.120 --> 0:10:58.360 play catch up by revising higher um. But here's the thing, 0:10:58.559 --> 0:11:01.440 it's the unemployment rate that matter for them. UH. And 0:11:01.520 --> 0:11:05.520 even though we have inflation rising and reaching above two 0:11:05.520 --> 0:11:08.240 percent by the end of the year, UH, that's not 0:11:08.520 --> 0:11:10.840 good enough, and especially not in the context of a 0:11:10.880 --> 0:11:15.200 six plus percent underlying unemployment rate. Well, Tom, this is 0:11:15.200 --> 0:11:17.240 the story the forecast for the Fed right now and 0:11:17.280 --> 0:11:19.560 the degree they need to raise those forecasts four point 0:11:19.559 --> 0:11:23.320 two percent real GDP year on year twenty two three 0:11:23.600 --> 0:11:26.520 two percent. Compare and contrast the Fed with Morgan Stanley. 0:11:26.640 --> 0:11:29.160 Right now, the gap is this one gap? Is this white? 0:11:29.200 --> 0:11:32.280 And John? As you mentioned, there's speeches next week. I'm sorry, 0:11:32.280 --> 0:11:34.960 there's going to be a sentence here, a sentence there. 0:11:35.120 --> 0:11:37.720 So how do we navigate that FED speak Helen? When 0:11:37.720 --> 0:11:40.800 you start to get those cracks not from the governors, 0:11:40.800 --> 0:11:42.800 not from the core of the FED pal Clarida, who 0:11:42.840 --> 0:11:44.640 we hear from next week, but from the FED presidents 0:11:44.640 --> 0:11:46.400 who start to look around and see what you see, 0:11:46.520 --> 0:11:49.440 which is better growth. Yees. So I think we'll see 0:11:49.480 --> 0:11:52.160 more of them speaking out and and speaking their mind, 0:11:52.200 --> 0:11:54.840 but they'll they'll temper it right. So it's gonna be 0:11:55.320 --> 0:11:58.680 very obvious that they're seeing better growth, but it's still 0:11:58.679 --> 0:12:01.560 going to be obvious to them. They're still uncertainly around 0:12:01.559 --> 0:12:03.840 how the vaccine will out, will progress, will they be 0:12:04.000 --> 0:12:06.880 hiccups there? So we're still you know, the cloud of 0:12:06.920 --> 0:12:08.960 COVID will be thinning as we get into the middle 0:12:09.000 --> 0:12:11.600 of the year, um, but we're still going to be 0:12:11.679 --> 0:12:14.920 under it. Uh. And so they'll acknowledge better, they acknowledge 0:12:14.920 --> 0:12:17.120 the better growth, but that we're just not there on 0:12:17.160 --> 0:12:19.040 the labor market. So, I mean, they've they've got a 0:12:19.040 --> 0:12:22.600 lot of cover here, um to explain that we're still 0:12:22.640 --> 0:12:27.240 not anywhere near that significant improvement um that they say 0:12:27.280 --> 0:12:30.560 that they're looking for now. That applies to grate heights, 0:12:31.080 --> 0:12:33.040 um for some of them, that does apply to tapering 0:12:33.080 --> 0:12:35.480 the balance sheet as well. But we do think um 0:12:35.520 --> 0:12:37.720 that by the middle of the year, with again with 0:12:37.800 --> 0:12:41.160 the cloud of COVID really thinking then um, that more 0:12:41.160 --> 0:12:43.760 of them will be talking about balance sheet tapering could 0:12:43.760 --> 0:12:46.120 be on the horizon because at some point you don't 0:12:46.120 --> 0:12:48.400 need the titan policy, but you at least need to 0:12:48.440 --> 0:12:50.800 take your foot off the gas pedal, um. And that 0:12:50.840 --> 0:12:52.880 will start when they decided to start tapering, and we 0:12:52.920 --> 0:12:56.000 think that tapering begins in the beginning of next year. Ellen. 0:12:56.160 --> 0:12:57.640 We also are going to be hearing next week from 0:12:57.679 --> 0:13:00.840 Jenny Ellen on Monday, And there is a big question, 0:13:00.920 --> 0:13:03.800 she said yesterday and in interview, the price of doing 0:13:03.840 --> 0:13:06.720 too little is much larger than the price of doing 0:13:06.840 --> 0:13:10.880 something big. How concerned are you about the price of 0:13:11.000 --> 0:13:14.000 higher inflation that perhaps is much beyond what people are 0:13:14.040 --> 0:13:17.959 expecting right now. So I think the risk there, of course, 0:13:18.160 --> 0:13:20.800 is that it rises more so than what the Fed 0:13:20.840 --> 0:13:24.920 can stomach. I mean, we have the highest inflation forecasts 0:13:24.960 --> 0:13:26.880 on the street, and it's still not enough to trigger 0:13:26.960 --> 0:13:30.880 rate hikes in our view before the third quarter of three. Um, 0:13:30.880 --> 0:13:32.840 of course we can get that wrong. Could be that 0:13:32.880 --> 0:13:35.520 there's more supply constraints that last longer. There's a lot 0:13:35.520 --> 0:13:37.920 of flow through from the dollar that we're seeing pushing 0:13:37.920 --> 0:13:41.160 import prices higher, and those tend to be their flow 0:13:41.200 --> 0:13:45.520 and lasting movements. But the FED is there. They'd rather 0:13:45.600 --> 0:13:49.080 fight that battle. Uh and Janet Yellen knows good and 0:13:49.080 --> 0:13:51.320 well what the Fed can do. They'd rather fact fight 0:13:51.360 --> 0:13:53.840 that battle of pushing down inflation if they need to, 0:13:54.520 --> 0:13:58.839 rather than continuing this multi decade battle trying to pision inflation. Ell, 0:13:58.840 --> 0:14:01.719 when you're channeling your inner Mario Draggy, I mean you're 0:14:01.760 --> 0:14:04.160 going out to twenty three. And as you know, when 0:14:04.160 --> 0:14:07.200 the facts change, the news changes, and the actions of 0:14:07.280 --> 0:14:11.000 people change. What do you perceive to be the verbal 0:14:11.200 --> 0:14:17.520 path for institutional officers that demand market stability? Is they 0:14:17.600 --> 0:14:20.840 stagger to year two thousand, twenty three. They're gonna be 0:14:20.880 --> 0:14:24.480 walking on glass. They will be walking on glass. And 0:14:24.560 --> 0:14:27.520 that is the big one of the biggest debates out there. 0:14:26.760 --> 0:14:31.320 They are hell bent on fighting any financial stability with 0:14:31.360 --> 0:14:35.400 macailpredentcial tools. Sometimes I think about macro predential tools. As 0:14:35.520 --> 0:14:39.320 you know, isn't a financial um stability like a frog 0:14:39.360 --> 0:14:42.800 in boiling water. All right, so everything feels fine, everything 0:14:42.880 --> 0:14:45.760 feels fine, everything goes fine. Then oh my god, nothing's fine. 0:14:46.120 --> 0:14:50.520 And so can Michael podentcial tools really exactly well, so well, 0:14:50.560 --> 0:14:54.480 they recognize it fast enough, and so that's the biggest day. 0:14:54.520 --> 0:14:58.120 They are certain that they can battle it fast enough 0:14:58.160 --> 0:15:00.480 and that they've got the tools necessary to battle it. 0:15:01.120 --> 0:15:03.720 Um But you've got to step in with things like 0:15:03.880 --> 0:15:08.600 rate hikes even if to get into the cracks. If right, 0:15:08.720 --> 0:15:11.760 you've got a labor market that's tight. You see, you're 0:15:11.800 --> 0:15:14.720 running a high pressure economy. If those inflationary pressures are 0:15:14.760 --> 0:15:17.920 coming through, you must be a maximum employment and so 0:15:18.200 --> 0:15:20.800 you would be raising rates in that environment, and the 0:15:20.840 --> 0:15:23.560 market would be asking you to raise rates in that environment. 0:15:23.720 --> 0:15:26.440 The problem is if it comes way sooner than expected 0:15:26.480 --> 0:15:29.040 and the market that markets expect, and you get a 0:15:29.200 --> 0:15:33.400 very very violent and volatile move in rates. And that's 0:15:33.440 --> 0:15:35.760 the conversation right now. And I'm fantastic to catch up. 0:15:35.920 --> 0:15:43.720 And is that up the chief economist right now? Robert 0:15:43.720 --> 0:15:46.200 Miller joint just Bob Miller from black Rock head of 0:15:46.240 --> 0:15:49.960 America's fundamental fixed income. That's an important position on the 0:15:50.000 --> 0:15:53.000 speed of change. Bob Miller, I love your note where 0:15:53.000 --> 0:15:55.480 you say events are moving rapidly and the FED isn't. 0:15:55.480 --> 0:16:00.080 When does the FED blink? Great question, Tom, Um. The 0:16:00.120 --> 0:16:03.400 conversation you guys are having preceding the most recent break 0:16:03.440 --> 0:16:06.480 would suggest that we're reading off each other's notes. Um, 0:16:06.520 --> 0:16:09.680 I think it's coming. I don't think it's coming immediately. Um, 0:16:09.760 --> 0:16:13.120 it's certainly not next week at the testimony in front 0:16:13.160 --> 0:16:17.000 of Congress, but we think that at the March MC, 0:16:17.760 --> 0:16:20.880 the SEP that has delivered the state of the economic 0:16:20.920 --> 0:16:24.200 projections that are delivered, where are going Our our expectation, 0:16:24.240 --> 0:16:27.200 as you three, for unemployment for twenty one is going 0:16:27.280 --> 0:16:30.119 to be marked down at four point eight, so approaching 0:16:30.120 --> 0:16:33.640 the four point one longer run rate, and four PC 0:16:33.960 --> 0:16:36.000 is going to be marked up to one point nine, 0:16:36.120 --> 0:16:40.080 approaching the two percent target. So our our simple conclusion 0:16:40.160 --> 0:16:42.520 from this that the FED is going to find it 0:16:42.600 --> 0:16:47.880 more and more difficult as Mark in April pass to 0:16:47.920 --> 0:16:52.920 continue to differ the discussion of recalibration of policy. So, 0:16:53.080 --> 0:16:55.880 as you guys have said, there's massive pistol in the 0:16:56.000 --> 0:17:00.400 system now likely more coming relatively soon with the one 0:17:00.440 --> 0:17:04.760 point nine package from the Biden administration UH potentially followed 0:17:04.760 --> 0:17:09.840 by infrastructure later this year. But the dual policy impulse 0:17:10.040 --> 0:17:13.359 is just epic at the moment, at a time when 0:17:13.720 --> 0:17:17.520 vaccine rollout is proceeding at a very good pace. We're 0:17:17.520 --> 0:17:21.119 now running, on average about fifty million a month, and 0:17:21.160 --> 0:17:23.800 that could easily become sixty million a month. So think 0:17:23.800 --> 0:17:27.600 about what that implies for just two months forward. And secondly, 0:17:28.160 --> 0:17:30.080 the weather is about to turn warm. I know it 0:17:30.160 --> 0:17:33.960 sounds um mundane, but it matters right, and we're four 0:17:34.000 --> 0:17:36.560 weeks away from warmer weather that will allow people to 0:17:36.560 --> 0:17:38.240 get outside. So I think you're going to see this 0:17:39.119 --> 0:17:43.240 just a monumental amount of pensive demand unleashed in the 0:17:43.280 --> 0:17:45.600 next couple of months. And it's gonna make it hard 0:17:45.680 --> 0:17:49.560 for the PAD to say that substantial further progress their 0:17:49.640 --> 0:17:54.600 phrase for what's necessary to consider recalibrating quantitative easing, the 0:17:54.680 --> 0:17:58.240 substantial further progress has not occurred. I think it's coming. 0:17:58.520 --> 0:18:00.800 It's probably gonna take a month or two. We need 0:18:00.800 --> 0:18:03.280 a clinic on duration risk, and I'd like you to 0:18:03.400 --> 0:18:05.320 offer that to us right now. Talk to us about 0:18:05.400 --> 0:18:08.040 duration risk, what it is and how you're thinking about 0:18:08.040 --> 0:18:11.840 it at the moment. But you know, Jonathan, I think 0:18:11.960 --> 0:18:14.080 one one way to see to us this is the 0:18:14.080 --> 0:18:17.200 fet IS really not your friend if you're a bond investor, 0:18:18.359 --> 0:18:21.280 after after forty years of kind of being your friend. 0:18:21.280 --> 0:18:24.120 And we've been talking about this since the adoption of 0:18:24.160 --> 0:18:27.879 the average Inflation Targeting Framework last summer. UM that was 0:18:28.000 --> 0:18:31.560 that was revealed at the August um uh Jackson Hole. 0:18:32.000 --> 0:18:35.520 But um, you know, the fet IS is explicitly telling 0:18:35.560 --> 0:18:38.359 you they're going to target inflation at two percent and 0:18:38.359 --> 0:18:40.320 they're going to be willing to allow it to run 0:18:40.440 --> 0:18:44.280 above UM. That's a very different regime than we've been 0:18:44.320 --> 0:18:47.159 in for the prior board decade. So I think you 0:18:47.280 --> 0:18:49.760 have to you know, when you're looking at long duration 0:18:50.359 --> 0:18:53.919 nominal bonds, UM, you've got to be pretty careful that 0:18:54.040 --> 0:18:58.880 you're being adequately compensated for both UM inflation risks from 0:18:58.920 --> 0:19:02.959 the normal ciplical economy, which which frankly aren't haven't been 0:19:03.040 --> 0:19:06.200 particularly um uh you know, robust in the last couple 0:19:06.240 --> 0:19:09.239 of decades. But nonetheless, the central Bank is telling you 0:19:09.280 --> 0:19:12.960 that they're now going to target higher inflation. So I 0:19:13.040 --> 0:19:14.919 think it I think it really matters and and it 0:19:14.960 --> 0:19:19.400 calls into question the willing you know that the comfort 0:19:19.440 --> 0:19:23.920 in holding longer and phenomenal bombs and relatively well yield Bob, 0:19:24.080 --> 0:19:26.680 the FED is not your friend. And yet don't fight 0:19:26.720 --> 0:19:28.720 the Fed. I mean, these are the sort of contradictory 0:19:28.760 --> 0:19:30.960 messages that we're hearing at a time when yes, the 0:19:31.200 --> 0:19:34.320 FED would like to see inflation run hot, but the 0:19:34.320 --> 0:19:37.159 Fed's balance sheet rose to a new record high in 0:19:37.200 --> 0:19:41.760 the week ended yesterday, to seven point five six trillion dollars. 0:19:41.760 --> 0:19:44.360 I mean, how much will they say involved to suppress 0:19:44.400 --> 0:19:48.240 borrowing costs, to allow this fiscal impulse to gain control 0:19:48.400 --> 0:19:51.480 and to be a friend frankly to bond markets regardless 0:19:51.480 --> 0:19:56.359 of inflation. Well least I think that the FED is 0:19:56.440 --> 0:19:58.640 your friend depends upon the asset class you're talking about. 0:19:58.640 --> 0:20:00.880 I think I think don't fight the Fed is still 0:20:01.119 --> 0:20:05.240 a rule number one in terms of risk assets UM 0:20:05.320 --> 0:20:09.760 and and and certainly supportive for the cyclical outlook. UM. 0:20:09.800 --> 0:20:13.840 That said, they have adjusted their reaction function in a 0:20:13.880 --> 0:20:17.760 way that makes them less quote unquote friendly for long 0:20:17.800 --> 0:20:20.480 duration and you know bond manager so, but I think 0:20:20.520 --> 0:20:23.320 they have to differentiate between what what asset classes you're 0:20:23.320 --> 0:20:26.719 talking about? That messages no longer. It's simply blunt as 0:20:26.720 --> 0:20:28.920 as it used to be. You know, the size of 0:20:28.960 --> 0:20:31.600 the balance. She is going to continue to grow. Um 0:20:31.680 --> 0:20:33.679 it's it's gonna it's gonna start to grow at a 0:20:33.680 --> 0:20:36.359 slower pace sometimes in the next few months. You know. 0:20:36.400 --> 0:20:41.160 Think about this, that the the bonds twenty billion bonds 0:20:41.359 --> 0:20:43.920 a month that they're currently buying, between treasuries and mortgages, 0:20:44.720 --> 0:20:51.080 UM is in order to scale that down over time, 0:20:51.320 --> 0:20:53.399 they want to go really slowly. They certainly want to 0:20:53.440 --> 0:20:56.480 avoid the two thousand and thirteen experience. So our expectation 0:20:56.520 --> 0:20:58.439 has been they'll dial up back like ten billion a 0:20:58.480 --> 0:21:01.000 month right over the core in the year. Well, if 0:21:01.000 --> 0:21:02.639 you're going to dial back over the course of the 0:21:02.720 --> 0:21:07.840 year and in the middle of two you so we 0:21:07.880 --> 0:21:10.320 expect the output gap in the US economy to close 0:21:10.440 --> 0:21:14.720 this summer, and as new Secretary of Treasure Yelling said 0:21:14.760 --> 0:21:18.560 recently with the with the upcoming Crystal Package, she expects 0:21:18.600 --> 0:21:21.760 that we could achieve full employment in two thousand two. 0:21:22.240 --> 0:21:24.760 If you close those two gaps, you still want to 0:21:24.800 --> 0:21:26.960 be buying a lot of bonds. So to our our 0:21:27.000 --> 0:21:29.840 point is we need to slow the rate of purchase 0:21:29.960 --> 0:21:32.639 relatively soon, so that they can do it over a 0:21:32.680 --> 0:21:35.480 long time rise and not be buying bonds when we've 0:21:35.520 --> 0:21:40.239 achieved full employment. Um Interest rates are a totally different story, right, 0:21:40.280 --> 0:21:42.439 that's the tide to the inplacment outlook and that the 0:21:42.480 --> 0:21:46.040 average inplace framework. So they've they've driven a wedge between 0:21:46.119 --> 0:21:49.359 rates and to E. I think appropriately so. But the 0:21:49.440 --> 0:21:52.480 guidance around to E needs to change sometime in the 0:21:52.480 --> 0:21:54.840 next couple of months. But this conversation is too important. 0:21:55.000 --> 0:21:56.400 Can you do me a favor? Just hold the line. 0:21:56.400 --> 0:21:58.000 We'll bring you back in just a couple of minutes. Time. 0:21:58.000 --> 0:21:59.960 Prob Miler that Black Rock head of America's Fund of 0:22:00.040 --> 0:22:08.359 until fixed income and bias there to go to the 0:22:08.400 --> 0:22:11.280 gentleman from Columbia University. I'm gonna really listen to the 0:22:11.359 --> 0:22:16.159 vice chairman John for that one single sentence of nuance 0:22:16.640 --> 0:22:20.040 of how they adapt to a five or six percent 0:22:20.240 --> 0:22:23.879 run rate real g d P A nominal rate of 0:22:23.920 --> 0:22:27.240 what six seven eight percent gdpis treasure yield to the 0:22:27.280 --> 0:22:30.720 breaking out to Let's bring in roberts patim chief investment strategist. Rob. 0:22:30.960 --> 0:22:33.159