Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownowitz Jay Lee, we bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance, an Apple podcast, SoundCloud, Bloomberg
Speaker 1: dot Com and of course on the Bloomberg Terminal. Let's
Speaker 1: bringing Eric Friedman us Band Cassett Management, Chief Investment Officer. Eric.
Speaker 1: Let's start right here and not with Ted Lasso. I'll
Speaker 1: save you. Don't worry. You've asked the important question. Is
Speaker 1: this just a little correction or is this a transition
Speaker 1: into something bigger? Which one is it? Jonathan, We think
Speaker 1: it is a just a pause as opposed to a
Speaker 1: phase transition. Really two reasons behind that. Number one is
Speaker 1: we think there's this portcoll between or we're calling Horizon
Speaker 1: one and Horizon to Horizon one is the reopening investment
Speaker 1: Horizon the gra usual mobility increases, more flights and and
Speaker 1: more mobility across cities. Horizon too, is what happens once
Speaker 1: we're already there, once that reopening occurred. And so we
Speaker 1: do think that the fits and starts that we're seeing
Speaker 1: in Horizon one will have corrections like this, And we
Speaker 1: also think that probably a little nuance here is the
Speaker 1: bond market is likely already pricing in horizon to the
Speaker 1: eternal value of FED funds likely lower, as well as
Speaker 1: general productivity and demographics weaker. So we think this this
Speaker 1: push pull continue, but we're still bullish. We're still sticking
Speaker 1: with that that that growth mentality. Eric, you're write an
Speaker 1: extremely sober adult note. We don't see enough of those.
Speaker 1: It's from a button down banker with belt and suspenders.
Speaker 1: I get it. When there's a phase transition, how do
Speaker 1: you know when to make that transition to a different
Speaker 1: portfolio allocation. The biggest thing that we're focused on early
Speaker 1: three variables. Number one is the dollar, and what we're
Speaker 1: looking at the dollar is a is a rise above
Speaker 1: ninety for ninety four and a half the d X
Speaker 1: Y or one twelve in the trade WAD Dollar Index.
Speaker 1: Number two would be the tenure. We think a test
Speaker 1: of let's call it one tin down to one percent,
Speaker 1: that would signify that the bond market is pricing and
Speaker 1: really worse rising to by our parlance. And I think
Speaker 1: the final is going to be our viewpoint, and earnings
Speaker 1: is mentioned earlier, and Toto does a great job of
Speaker 1: this talking about rate of change. We are in a
Speaker 1: very delicate position right now with in terms of both
Speaker 1: revenue forecasts as well as earnings forecast. If we see
Speaker 1: some deterioration there as we get deeper into this recording season,
Speaker 1: that was signified to us that we need to come
Speaker 1: off that growth mindset, that that pro risk mindset in
Speaker 1: the more of a of a neutral position. That's where
Speaker 1: our biases right now. Eric, you have bond guys like
Speaker 1: Jeff Gunlock of Double Line saying that stocks are attractive
Speaker 1: on a relative basis because a one on the tenure
Speaker 1: doesn't make sense. How are you thinking about relative value? Yeah,
Speaker 1: it's a great question, Taylor. Basically two things we're looking at.
Speaker 1: Number one is if you look at the risk premium,
Speaker 1: so wonkish term and basically shore there's a difference between
Speaker 1: you know, the dividend yield of global equities versus UH
Speaker 1: tenure or even global global rates. It's really attractive. Stocks
Speaker 1: look very attractive versus fixed income versus their own history.
Speaker 1: Stocks are is certainly in the top quartile of expensive,
Speaker 1: So we think fair value for the tenure, Taylor is
Speaker 1: likely around one sixty one. Doesn't mean we have to
Speaker 1: get there immediately, but our viewpoint is a gradual re retracing,
Speaker 1: if you will. Upward in bondyls suggest that that stocks
Speaker 1: probably had a little more value here, but you have
Speaker 1: to look at them on both an absolute basis, from
Speaker 1: a relative value standpoint, on a risk premium basis as
Speaker 1: well versus their own history. So relative values certainly favors
Speaker 1: equities that were fixed incoming. Eric, what on earth is
Speaker 1: fair value in a bond market with a huge monster
Speaker 1: sized and sensitive by a price in sensitive buy? What's
Speaker 1: fair value in the treasury market these days? How do
Speaker 1: we even come up with that? They're almost are three
Speaker 1: waves of buyers, Jonathan. You have you have the general
Speaker 1: speculations of people making making bets on where ten years ago.
Speaker 1: You have hedgers in terms of mortgage as well as
Speaker 1: as pension pension bars, and you have i'd say, just
Speaker 1: a steady drumbeat of FED participation. So tough to have
Speaker 1: an edge on speculators. But if you look at what's
Speaker 1: happening in the mortgage market, if you know what's happening
Speaker 1: with with respect to pension funds, those liabilities are getting
Speaker 1: more expensive, So that's almost like that that short gamma
Speaker 1: position continues to grow. That means people are stepping back
Speaker 1: into the bond market. So again we think that position
Speaker 1: gets cleaned up and a gradual retracement up to that
Speaker 1: one sixty level is more likely. But again it will
Speaker 1: happen on a on a very phased, very gradual basis.
Speaker 1: All Right, we've gotta naven that it's gonna catch up
Speaker 1: set right now in the pandemic. It has been a
Speaker 1: joy to speak to Buck then Sadi with Johns Hopkins
Speaker 1: or expertise and emergency medicine. I want to go there
Speaker 1: today back the instead of the geography that you are
Speaker 1: expert at in emergency rooms at the Johns Hopkins Hospital,
Speaker 1: there's gotta be a certain percentage of people working there
Speaker 1: who are unvaccinated. There's got to be a certain percentage
Speaker 1: of people coming into the emergency room unvaccinated. What do
Speaker 1: you do the regarding employees of John's Hopkins Hospital. We
Speaker 1: are vaccinated. We all do show our vaccine status um
Speaker 1: that is now documented and recorded regarding unvaccinated patients, that
Speaker 1: we have that knowledge on who's vaccinated and who's not.
Speaker 1: My practice is to gown up and be ready if
Speaker 1: I'm unsure of their vaccine status or their COVID status. Doctor.
Speaker 1: I was very surprised to read the following state in
Speaker 1: the New York Times that around six workers in the
Speaker 1: city's public hospital system of vaccinated. Given what's happened in
Speaker 1: the last year, I would have expected that number to
Speaker 1: be far, far higher. Where is that resistance coming from, doctor,
Speaker 1: So we feel like a lot of that resistance is
Speaker 1: coming from our ancillary services. UM. There are still individuals who,
Speaker 1: despite working in public health hospitals UM, have misconceptions or
Speaker 1: concerns around But the medical systems have vaccine hesitancy, have UM,
Speaker 1: you know, victims of misinformation, and so it is really
Speaker 1: difficult to prove a counter factual. And that is something
Speaker 1: we're still struggling with in all sectors of society, not
Speaker 1: just public health hospitals. Don't to many people are characterizing
Speaker 1: this is a political party issue. Do you think that's helpful?
Speaker 1: It is not. This is not a political party issue.
Speaker 1: This is not a national issue. This is a global
Speaker 1: issue that affects every single one of us. Until we
Speaker 1: reduce the amount of circulating virus and we get vaccinated,
Speaker 1: we don't get to return back to normal. And it's
Speaker 1: as simple as that, doctor. Are the vaccines effective against delta?
Speaker 1: Vaccines are effectivigates delta. It is very common to see
Speaker 1: individuals who still get sick despite having vaccines. We see
Speaker 1: this every year with the flu um the fator vaccines
Speaker 1: that they show a scent effectiveness two we after getting
Speaker 1: your second dose. But that does mean that twelve out
Speaker 1: of a hundred people will potentially still get the illness.
Speaker 1: But we know that it's the disease faring vaccines. They're
Speaker 1: less likely to be sivilial, less likely tendive, and the
Speaker 1: I see, less likely to die. What do you think
Speaker 1: it's going to take to see if schools can reopen
Speaker 1: or not. In the fall, we were having a conversation
Speaker 1: here that the markets perhaps might actually believe that something
Speaker 1: is wrong if schools don't reopen. If that is the catalyst,
Speaker 1: what do you think it takes for us to get there?
Speaker 1: You know, I think we've learned a lot about how
Speaker 1: to reopen school safety. In the spring of this year,
Speaker 1: my daughter's school open. They used pods that they you know,
Speaker 1: stegreg They created pods of play um classrooms didn't interact
Speaker 1: those temperature checks yes, you know, it's a bit strange
Speaker 1: taking your child into a temperature check every morning. But
Speaker 1: I felt perfectly safe that my child was in school
Speaker 1: with the precautions that were put in place. But I
Speaker 1: want to talk to you about the too alogy and
Speaker 1: microbiology because I just don't buy this for a minute.
Speaker 1: We cured ourselves from the horrific child killer diphtheria. I
Speaker 1: was on the back end of polio, Taylor, I believe
Speaker 1: her amery mentioned earlier Senator McConnell's battle personally with polio.
Speaker 1: I don't buy it for a minute that we haven't
Speaker 1: done this before from bacteria. We got vaccinated. From VERA viruses,
Speaker 1: we got vaccinated. What's different this time on? There's nothing different.
Speaker 1: Vaccine innovations of it ahead of the curve um. Luckily,
Speaker 1: we had the mr and A vaccine studies that we're
Speaker 1: done for cancer drugs, which allowed us to find a
Speaker 1: suitable vector um for all the vaccine and implement it rapidly.
Speaker 1: We also do have viral back to vaccines as well,
Speaker 1: which are extremely innovative UM, so nothing is different. We
Speaker 1: have actually used all of our lessons learned and applied
Speaker 1: them to the COVID N pandemic the challenges therapeutics. So
Speaker 1: with bacteria, we have to biotics that affects the ability
Speaker 1: of the bacteria to reproduce and stop infection. Viruses have
Speaker 1: always been more trippy, tricky due to the way that
Speaker 1: they replicate. How do we incentivize these people? I mean
Speaker 1: people are saying, give them money, do this, do this,
Speaker 1: do this. How do we get this fixed in a
Speaker 1: Joe Biden speed? So there is two groups. There is
Speaker 1: the hardcore conspiracy theories vaccines. They're you cannot change right,
Speaker 1: I got it, I got it. But the majority of
Speaker 1: the people are people that have a underestimated their vulnerability
Speaker 1: to getting sick, second, overestimated the side effects of the vaccine,
Speaker 1: and because they're kind of just lost, they have just
Speaker 1: do nothing. Now that is a group that we target.
Speaker 1: We to promote positive messaging around the vaccine. We need
Speaker 1: to educate people with clear, concise facts about the true
Speaker 1: risks of vaccination and stop over inflating the few side
Speaker 1: effects that have been seen all the ice later cases
Speaker 1: in social media. Do you think full authorization would have
Speaker 1: pushed this issue forward and move away from just emergency
Speaker 1: youth authorization of these vaccines. Unfortunately, yes, right. So I
Speaker 1: think for the lay public, the difference between full authorization
Speaker 1: and emergency youth authorization is one of the big sticking
Speaker 1: points in their vaccine confidence. The truth of the matter
Speaker 1: is the way that these studies were conducted was rigorous,
Speaker 1: just as we would have conducted any other new drug
Speaker 1: intervention study. UM. Due to the national reporting software, the
Speaker 1: v A R EER software from CDC, we have national
Speaker 1: reporting on vaccine side effects, which is phenomenal, and the
Speaker 1: use case here is in the millions. And so I
Speaker 1: think that having that sticky label that says this is
Speaker 1: fully authorized, I think will improve people's confidence, although scientifically
Speaker 1: it is unnecessary. Don't We appreciate your effort, that's for sure.
Speaker 1: Thank you very much for being with us this morning.
Speaker 1: Dr Bacti, Han Sarti. There, John's Hopkins Universe, the Associate
Speaker 1: Professor of Emergency Medicine, on some of the issues time,
Speaker 1: and those issues are always far more complex than some
Speaker 1: people might want to debate. Right now, we go to
Speaker 1: your content where content is king Michael Nathanson with Craig Moffatt.
Speaker 1: Moffatt Nathanson has just been spectacular on all of this
Speaker 1: stuff that we watch at home. And is there really
Speaker 1: an opportunity to make money at it? Michael Nathanson, where's
Speaker 1: the profit? Magnan Decide ellsse E says, it's all about profit.
Speaker 1: It's all about getting out there and making money. Is
Speaker 1: there an identifiable profit in the streaming business at this point?
Speaker 1: There isn't how the profit is going back to the
Speaker 1: consumer given all the discount it's being done. The consumer
Speaker 1: is grabbing the profit and companies to subsidize from consumers
Speaker 1: content habits. At this point, Comcast was able to make
Speaker 1: that shift in cable TV to get the real profit
Speaker 1: to real cash flow. Do you model an equivalency year
Speaker 1: to what comcasted in cable TV or is this time different?
Speaker 1: This time is different, Tom, We Netflix a goiling company.
Speaker 1: The next three or four years, every people will make
Speaker 1: money money to define this free cash flow, we just
Speaker 1: see big black holes everywhere, right, And that's why you
Speaker 1: had Discovery Warners Merge. That's why Comcast by comes rumored
Speaker 1: to get together. These businesses are really capital intensive. I
Speaker 1: don't think that's the same dynamics as the linear businesses
Speaker 1: that we all do pring years. And Michael, this seems
Speaker 1: to be abroad sectical and That's what gets my attention here.
Speaker 1: This is neutral Netflix, neutral Weald Disney Company, neutral road coude.
Speaker 1: You see this across the board, head, Jonathan. The problem is,
Speaker 1: and I think it's to your previous guest stuff the
Speaker 1: cost of money. You've got to look out five ten
Speaker 1: years to see evaluation here be supportive to me. It's
Speaker 1: just a long way to go, and everyone's so confident
Speaker 1: about their data points that I just think the other
Speaker 1: side of this trade, right, I mean, we know streaming
Speaker 1: is the future, but the market has overpriced these assets
Speaker 1: and I'm just gonna wait for a better entry points
Speaker 1: at this point in time. Let's talk about that. What
Speaker 1: would it take for you to say I'm wrong? Always
Speaker 1: a good exercise, Michael. What would it take in the
Speaker 1: coming year? Is there anything? Well? I would say a
Speaker 1: couple of things. One is our view is that the
Speaker 1: US is a very competitive market and it's hard to
Speaker 1: eat profits out in the U s streaming business. I
Speaker 1: think you need to see more people move into the sidelines, right.
Speaker 1: You would see more consolidation. You would see Apple on Amazon,
Speaker 1: you know, kind of step back and you would start
Speaker 1: to see you need Netflix to start growing more quickly
Speaker 1: in the US, which would point to a higher upside
Speaker 1: you know, penetration case, right, So I think here you
Speaker 1: need competition to lessen and you need um you know,
Speaker 1: growth actually starts re accelerating against That's one. And then secondly,
Speaker 1: I think internationally, you really need to see some of
Speaker 1: the developing markets where there's very low were pricing really
Speaker 1: start to show science of pricing power. So those are
Speaker 1: to me the two things. Because you know, the profits
Speaker 1: right now are in the US potentially, and the growth
Speaker 1: is coming from low market places like India, low price
Speaker 1: pricing markets, they just don't have great returns on invested capital.
Speaker 1: And Michael, I've heard this a lot. The US customer
Speaker 1: is more profitable than an international customer. How do we
Speaker 1: get them to be even? How long does that take? Well,
Speaker 1: it goes to you know, a big part of the
Speaker 1: chaction story is developing markets, right, So you have Latin
Speaker 1: America and age specific as the drivers of growth. But
Speaker 1: those price points are really low, right. The rest of
Speaker 1: the world price point outside Europe could be one half
Speaker 1: to one third price of American customers. So it's just
Speaker 1: can get a long time tailor for pricing to start elevating, right,
Speaker 1: that's and before the pricing can elevate, you need to
Speaker 1: give consumers a ton of content to make the product sticky, right,
Speaker 1: So you need to an invest and this is the
Speaker 1: biggest challenge. You to invest tons of dollions of dollars,
Speaker 1: billions of dollars to make the content except you sticky
Speaker 1: enough so hold on to customers and then too drive
Speaker 1: pricing right, So it takes years investment to get to
Speaker 1: that place which you start raising pricing again. The other
Speaker 1: point that you made pretty well is about consolidation. I
Speaker 1: was reading another of your colleagues notes talking about Amazon
Speaker 1: purchasing MGM for about eight and a half billion dollars.
Speaker 1: Why is it Netflix making more purchases should they be
Speaker 1: What does consolidation in the industry look like to you? Yeah,
Speaker 1: there's not a lot they can do. I mean, the biggest,
Speaker 1: the biggest reason why you make a better on MGM
Speaker 1: is for franchises. Right. The speed of which Disney built
Speaker 1: out the director consumer business is due to the speed
Speaker 1: tied to their ability to really lift Marble Pixar, Star
Speaker 1: Wars Universe in streaming. So but there's just not a
Speaker 1: lot of franchises like that still available MGM has a
Speaker 1: few you Netflix w are going to do this? Uh,
Speaker 1: MGM is really not a lot that that I see.
Speaker 1: Now what's we bought? Um? I worry, you know, as
Speaker 1: the analysts covering the industry, that you're gonna see Apple
Speaker 1: on Amazon for even more money to work in streaming
Speaker 1: because you know they have other reasons to do it
Speaker 1: besides trying to make a profit. Michael, just a bit
Speaker 1: of a tricky line this morning, so we're gonna have
Speaker 1: to cut it short. But you know, we always enjoy
Speaker 1: catching up with the sir, and we enjoy your work too.
Speaker 1: Send up regards to the team that was Michael Nathans
Speaker 1: and Muffin Nathans and senior research analysts. This is a
Speaker 1: joy because he has done public service for America across
Speaker 1: so many areas, including ambassadors to Japan and now Senator
Speaker 1: from his very much his Tennessee, Bill Haggerty joins us
Speaker 1: the Republican from Tennessee. This morning, Senator Haggerty, I have
Speaker 1: to go to the stunning Washington Post analysis this morning
Speaker 1: of the unvaccinated. You are eating spokesman on this. How
Speaker 1: are you going to convince the unvaccinated of your Tennessee
Speaker 1: to get it together and get vaccinated. I think we're
Speaker 1: off to incredibly a good start thanks to Operation Warp Speed.
Speaker 1: I don't think there's enough credit given to the progress
Speaker 1: that we made here at an imprecedented level here in America.
Speaker 1: In Tennessee. I've been very clear. I've taken the vaccine.
Speaker 1: My mother, who is eighty nine years old, is taking
Speaker 1: the vaccine. I lead by example. Uh. We continue to
Speaker 1: encourage people to make its personal choice for folks, of course,
Speaker 1: but I've certainly been clear that I've looked at the data,
Speaker 1: and I think the right decision, certainly for me and
Speaker 1: my family was to do just that. How do you sell?
Speaker 1: And we talked to french Hill a little rock the
Speaker 1: other day with the same challenges. I would suggest Arkansas
Speaker 1: frankly a grimmer story than any Tennessee. But what's the
Speaker 1: prescription you have with your knowledge of Nashville media and
Speaker 1: Tennessee business, what's the prescription. What's the plan to jump
Speaker 1: start this? As we hear from President Biden, I think
Speaker 1: that you know, as we look at where we're headed
Speaker 1: right now, Uh, the numbers continue to look much better spitality,
Speaker 1: and we just need to continue to talk about that
Speaker 1: positive outcome, that positive result, and encourage people to continue
Speaker 1: to get behind it. As school reopens, things get back
Speaker 1: into the swing of things, will probably see another pick
Speaker 1: up in inoculation. One final question on the Senator, because
Speaker 1: I know Taylor Riggs has some important questions as well.
Speaker 1: Senator Haggerty, what do you need from former President Trump
Speaker 1: to send a message to the unvaccinated? President Trump is
Speaker 1: having a hard time sending any messages thanks to the
Speaker 1: censorship of a big tech His normal means of communication
Speaker 1: has been incredibly stifled. I think that's incredibly troubling. Um
Speaker 1: in terms of his message to people, he was no
Speaker 1: one worked harder than President Trump to put a vaccine
Speaker 1: in place. I think people know that. I think he
Speaker 1: can convey that, but he put it from innocent amount
Speaker 1: of work in place, with operation work speed to make
Speaker 1: this fact seem possible, not only for America but for
Speaker 1: the rest of the world. I think that's an incredible example.
Speaker 1: He should talk about that when he can. Senator A
Speaker 1: pivot with me, if you will please to infrastructure. What
Speaker 1: is the past to a bipartisan five hundred and seventy
Speaker 1: nine billion dollar infrastructure deal? Very hard to say, uh,
Speaker 1: you know, Chuck Schumer today is planning to put a
Speaker 1: procedural vote in place to start the process on this.
Speaker 1: Yet we haven't seen any text. We don't know the
Speaker 1: content of it. I haven't seen anything. You know, this
Speaker 1: sounds remarkably similar to something that we've all seen before.
Speaker 1: You remember, you have to pass the bill before you
Speaker 1: can see what's in it. Obamacare two point oh, that
Speaker 1: didn't work out well for America. So we have a lot,
Speaker 1: a lot to see in a lot more work that
Speaker 1: needs to be done before I can comment on exactly
Speaker 1: you know what's in the bill and how we should
Speaker 1: proceed on it. Is this two path approach still the
Speaker 1: right way to go? Well, certainly not the path that
Speaker 1: I would take. You know, I'm a businessman my entire career.
Speaker 1: You know, I step back and look at this and say,
Speaker 1: what's happening here. You've got a two path process, one
Speaker 1: that you know, a lot of effort has gone into play.
Speaker 1: I think I respect my colleagues who have worked hard
Speaker 1: to put a bipartisan plan in place. But as you know,
Speaker 1: when you negotiate a deal, often what's even more important
Speaker 1: is what you negotiate out of a deal. Yet, we've
Speaker 1: got the Biden administration, We've got Nancy Pelosi and Chuck
Speaker 1: Schumer talking about pushing everything that was negotiated out of
Speaker 1: the deal right alongside. In fact, Nancy Pelosia said that
Speaker 1: she's not going to even look at the bipartisan deal
Speaker 1: unless the not, you know, completely partisan reconciliation package is
Speaker 1: put forward to I wouldn't call it a reconciliation package.
Speaker 1: Is just another reckless tax and spending program that they're
Speaker 1: trying to show through a massive program, something that we've
Speaker 1: never seen before, and I think it's going to have
Speaker 1: devastating effects in the economy. So I'm very concerned about
Speaker 1: enabling this partisan package to go through. Under the guise
Speaker 1: of a partisan infrastructure package, it's far smaller. Senator Hackety,
Speaker 1: I am fascinated what your prescription is for your Republican party.
Speaker 1: So many of the interviews we have with Republicans and
Speaker 1: with Democrats, is a liberal trunch of the Democratic Party
Speaker 1: really troubling for moderate Democrats. Do the Republicans respond to
Speaker 1: that by being more staunchly conservative or by moving to
Speaker 1: a Lamar Alexander like middle. I think what we need
Speaker 1: to do is continue to convey what's actually happening here.
Speaker 1: We need more business people like me in Washington. I
Speaker 1: think that's the that's the point. We have a hard
Speaker 1: time conveying the essence of what's occurring here, but right
Speaker 1: now what we're doing. Because we've already seen at one
Speaker 1: point nine trillion dollar package moved through a holy partisan
Speaker 1: basis back in March of this year. That's roughly ten
Speaker 1: percent of our GDP. They're talking now about dumping more
Speaker 1: of our GDP into this so called infrastructure package. It's
Speaker 1: going to be massively inflationary. We need to convey that
Speaker 1: when you hear we hear moderate Democrats like Joe Manchin
Speaker 1: say he doesn't want to put something through that isn't
Speaker 1: paid for, he doesn't want to increase the debt. These
Speaker 1: are things that we need to push back on and say, well,
Speaker 1: it's gonna pay for itself. You've got to look at
Speaker 1: how they're talking about paying for it, and they're talking
Speaker 1: about crushing taxes on job creators. They're talking about killing
Speaker 1: capital formation by putting capital gains taxes in place. Those
Speaker 1: types of policies are going to be devastating to our economy.
Speaker 1: The American public is smart enough to understand this. We
Speaker 1: need more business people talking about this in a way
Speaker 1: that's rational and easy to understand. Senator Haggerty, I wasnt
Speaker 1: gonna bring this up, but you mentioned private business in Washington.
Speaker 1: I need you to comment this morning on the jelling
Speaker 1: of the private equity Gentleman from Los Angeles, Tom Barrick,
Speaker 1: what were your thoughts when you've heard of these actions
Speaker 1: by Justice? Well, I've only seen a headline or two,
Speaker 1: so I don't know you know anything about the specifics
Speaker 1: of the content of this case or what it has
Speaker 1: to do with private equity. Well, it doesn't have to
Speaker 1: do with private equity, but certainly it is of note
Speaker 1: here as well. Senator Haggerty, thank you so much for
Speaker 1: joining us today. Bill Haggerty, he is of Tennessee, greatly
Speaker 1: appreciate that. John. I got to Thomas Kostall, go to
Speaker 1: Thomas Costard right out, pick Day to save me as well. Uh,
Speaker 1: Jimmy ealism might your boundaries toime boundaries? Thomas Costard pick
Speaker 1: Day wealth joining us right now and within his within
Speaker 1: his research, I'm gonna are you within his research note
Speaker 1: is a really really important observation on America's savings pile
Speaker 1: he's optimistic we're going to spend a little bit of
Speaker 1: that savings pile over the next year to advance the
Speaker 1: American economy. But Thomas cost is what happens in a
Speaker 1: couple of years to that still massive savings pile. Right
Speaker 1: So the savings pile right now is around two point
Speaker 1: five trillion dollars, and so the question for the economy
Speaker 1: is how much will be spent within the next year
Speaker 1: and within the next few years. Actually, I think, you know,
Speaker 1: a small amount of that will be spent by about
Speaker 1: a small amount, which I think will be around ten
Speaker 1: to with the next year, But ten to pcent of
Speaker 1: a big savings it's still a big amount of consumer
Speaker 1: spending which will be uh, you know, flowing into the
Speaker 1: economy in the next few months. And that's why I'm
Speaker 1: quite cautiously optimistic about the US consumer and therefore US
Speaker 1: GDP in the coming month, even though we're going to
Speaker 1: see it this oleation in growth, that's for sure, but
Speaker 1: I think the US consumer will stay quite quite resilience.
Speaker 1: Do you believe that our savings pile, as you call it,
Speaker 1: has a permanent feature to it, that it's a permanent
Speaker 1: fixture of how we believe and think, well, I do
Speaker 1: think that. Yes, indeed, I think some of that, you know,
Speaker 1: part of the savings went into the equity market, went
Speaker 1: into long term savings and will probably not go back
Speaker 1: into the economy, but I think, you know, part of
Speaker 1: it will be spent point number one. And also I
Speaker 1: do believe in credit card lending. I think credit card
Speaker 1: lending has also some upside potential in the coming weeks
Speaker 1: and months, and that will also support consumer spending. If
Speaker 1: we get you know, say fifty to wander billing more
Speaker 1: in credit card lending, that would be very helpful for growth.
Speaker 1: Because you're right, and we we have, you know, a
Speaker 1: lot of tail winds are going to fade in the
Speaker 1: second half of the year, including the reopening um, the
Speaker 1: fiscal support, so things like that. We also have some
Speaker 1: headwinds from the delta variant, but I think the US
Speaker 1: consumer will be able to be a resilient. It's almost
Speaker 1: to what a great you think you four is going
Speaker 1: to shake the outlook for the whole cycle, not just
Speaker 1: the following year, the year after, but the whole cycle,
Speaker 1: right right. So the thing with the US cycle is
Speaker 1: that we're going back to potential growth, right, So we're
Speaker 1: going back to the trajectory before the pandemic, and that
Speaker 1: that matters because that's usually a signal that we're mid cycle.
Speaker 1: And we know that when we're mid cycle, growth is
Speaker 1: getting harder to get and the situation becomes more fragile,
Speaker 1: more difficult, more you know, they're more risks. So it
Speaker 1: is true that two could see more risks. However, again,
Speaker 1: I think you know, the US consumer can propel growth.
Speaker 1: I also think we could have more lending in the economy,
Speaker 1: very commony, defencial conditions despite the FED, the FED stap ring,
Speaker 1: and so that could help sustain growth going forward, even
Speaker 1: though from a pure metric perspective we're already mid cycle
Speaker 1: and we have more risks. So Thomas, potential, what is
Speaker 1: potential in the US economy? What is it now? Two
Speaker 1: sub too? Yeah, I don't think potential growth has changed
Speaker 1: that much. I think it's still around two percent. The
Speaker 1: problem is again that we have you know, weak demographics. Um.
Speaker 1: You know, birthrate is especially a concern. I think we
Speaker 1: don't have enough babies uh in the US, but also
Speaker 1: I think in Europe as well, and that's definitely an
Speaker 1: impedimental growth. And with regards to innovation. Innovation is there,
Speaker 1: and it's actually even more prevalent in the US than
Speaker 1: in Europe. But still I think innovation is still failing
Speaker 1: to really broaden out and to spread through the economy.
Speaker 1: I think that's that's the problem. So productivity growth may
Speaker 1: pick up, but it won't be a massive pickup going forward.
Speaker 1: Are you confident that peak inflation is also behind us? Right?
Speaker 1: So regarding inflation, it's a bit complicated. Um. Right now
Speaker 1: we have the bottleneck inflation, so we have you know, Scott,
Speaker 1: you have some products. But next year we'll have the
Speaker 1: cyclical inflation because usually inflation comes with a lag, so
Speaker 1: you have the recovering growth and then one year later
Speaker 1: you have the bounds in inflation. And so twenty two
Speaker 1: may still see inflation above two percent for for cyclical reasons.
Speaker 1: The real question is about three and then I think
Speaker 1: that the jury is out. I think some deflationary forces
Speaker 1: still apply, but I keep an open mind because you know,
Speaker 1: two forces them watching our globalization and especially the US
Speaker 1: China tention, which could lead to potentially in erosion in
Speaker 1: globalization and more inflation in the US. And also, um,
Speaker 1: the the share of labor in the economy and whether
Speaker 1: wages are go up more. But I think that's that's
Speaker 1: a topic for another day. I know I'm simplifying this,
Speaker 1: so so bear with me. You've had a few senators
Speaker 1: come out and saying that this inflation is effectively attacks
Speaker 1: so you've taken away all of those wage gains that
Speaker 1: you describe because of that inflation. How do you think
Speaker 1: about that? Right? I don't think wages are a threat
Speaker 1: to inflation until we get to say around five ish
Speaker 1: or or more on on on on wage growth. And
Speaker 1: you know we're not there. We're at three point two
Speaker 1: on the Atlanta Fed medium wage growth numbers, so we're
Speaker 1: still well below levels that could be dangerous for inflation
Speaker 1: in the sense that they will lead to a self
Speaker 1: perpetuation of inflation above two percent. So you know, we're
Speaker 1: not in the danger zone for in terms of wage growth.
Speaker 1: And actually I think wage growth still has room to
Speaker 1: go up without threatening inflation. How is how do you
Speaker 1: get wage You get back to a constructive and positive
Speaker 1: real wage and it does not affect inflation, right. I
Speaker 1: think the correlation between wages and inflation is actually much
Speaker 1: more fragile and much more uh, you know, tenuous and
Speaker 1: slim than widely appreciated. I think the real danger comes
Speaker 1: above five percent on wage growth, and especially in the
Speaker 1: Atlanta Fed medium wage You have to look at medium wages.
Speaker 1: Really it's how you know someone staying in the labor
Speaker 1: force and was staying in the same job, how he
Speaker 1: is or heard wage compares through time. I think that
Speaker 1: that's that that's the key indicator. And so to me,
Speaker 1: the condicator is the Atlanta Fed medium wage growth number,
Speaker 1: and again it's we are at three point two percent
Speaker 1: right now year on year, and it's still very quite soft.
Speaker 1: So I would not wear until we reach say five
Speaker 1: five percent. We're not there yet, and Johnna run right
Speaker 1: on the Atlantic, but I totally agree with Thomas on
Speaker 1: this on the median aspect of wage growth, We're not
Speaker 1: We got to get back to three point six percent,
Speaker 1: John Ferro, to really get there. We're not there yet.
Speaker 1: Sometime I'm smiling because only economists called five percent wage growth,
Speaker 1: thanks us. Will you find anyone else that calls five
Speaker 1: percent dangerous? Thomas? Just let's finish there for a lot
Speaker 1: of people who might have accidentally tuned in this morning
Speaker 1: trying to find something else, maybe some sports. I don't know,
Speaker 1: and stumbled across some economists talking about the labor market.
Speaker 1: What's dangerous about a five wage hike? Right, because then
Speaker 1: it starts to affect inflation expectations and you have also,
Speaker 1: you know, wage gains starting to outpaces productivity. So this
Speaker 1: is based I mean, this reasoning that I have is
Speaker 1: also based on historical relationships. You know, we have to
Speaker 1: go back, you know, in time to see wage growth
Speaker 1: above you know, five percent, I think in the early nineties. Uh,
Speaker 1: and then you had inflation sustainably above two percent, and
Speaker 1: it was a time when actually central banks were struggling
Speaker 1: to bring down inflation. I think right now the problem
Speaker 1: is that they're trying to move it up. Uh. And
Speaker 1: so I think those days of the early ninety nineties
Speaker 1: are probably gone and they're unlikely to go back. But
Speaker 1: I might be wrong, but so far I don't see them.
Speaker 1: It's almost a picked wealth management sing Us economist's Thomas
Speaker 1: got to catch up, said, thank you. This is the
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