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 --> 00:00:13,080 Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring 3 00:00:13,119 --> 00:00:17,159 Speaker 1: you insight from the best and economics, finance, investment, and 4 00:00:17,280 --> 00:00:23,280 Speaker 1: international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg 5 00:00:23,360 --> 00:00:28,920 Speaker 1: dot Com, and of course on the Bloomberg Terminal. Let's 6 00:00:28,920 --> 00:00:30,800 Speaker 1: get to the nuance right now in the equity markets 7 00:00:30,800 --> 00:00:33,760 Speaker 1: home with Mike Wilson Malkin, Stanley's chief US equity strategist, 8 00:00:33,840 --> 00:00:36,000 Speaker 1: and see I might great a catch up with you 9 00:00:36,040 --> 00:00:37,960 Speaker 1: as always serving. Let's start with margin has been a 10 00:00:37,960 --> 00:00:40,440 Speaker 1: big thing for us this morning. A lot of people 11 00:00:40,479 --> 00:00:42,599 Speaker 1: think that maybe this margin story, which has held up 12 00:00:42,600 --> 00:00:45,919 Speaker 1: in corporate America, that story can persist into a new year. 13 00:00:46,000 --> 00:00:49,120 Speaker 1: Do you think it can? Well, look, I mean I 14 00:00:49,200 --> 00:00:51,960 Speaker 1: think margins have surprise on the upside. That was really 15 00:00:52,080 --> 00:00:54,320 Speaker 1: the call last year, which always happens, as you know, 16 00:00:54,440 --> 00:00:56,720 Speaker 1: coming out of recession you get operating leverage. This time 17 00:00:56,720 --> 00:01:01,600 Speaker 1: it was extraordinary because you had policy support essentially subsidize 18 00:01:01,640 --> 00:01:04,280 Speaker 1: the unemployment that was out there. Right People were home, 19 00:01:04,280 --> 00:01:06,840 Speaker 1: but they were still getting checks from the government and 20 00:01:06,840 --> 00:01:10,240 Speaker 1: they could spend it digitally. So that is unique. Um, 21 00:01:10,280 --> 00:01:13,240 Speaker 1: and we see that being a problem going forward where 22 00:01:13,240 --> 00:01:16,759 Speaker 1: people have made assumptions now that those extraordinary margins are 23 00:01:16,959 --> 00:01:18,600 Speaker 1: going to be carried forward. We see a couple of 24 00:01:18,600 --> 00:01:22,839 Speaker 1: areas of particular consumer discretionary industrials, parts of the technology 25 00:01:22,880 --> 00:01:25,240 Speaker 1: market look to be a little bit lofty in terms 26 00:01:25,240 --> 00:01:28,520 Speaker 1: of margin expectations. That's where we are in the cycle. Um, 27 00:01:28,520 --> 00:01:30,560 Speaker 1: we see no reason why it's gonna be any different. 28 00:01:30,920 --> 00:01:32,959 Speaker 1: And because it was so acute on the upside with 29 00:01:33,000 --> 00:01:35,640 Speaker 1: operating leverage on the upside, it's not going to be 30 00:01:35,640 --> 00:01:37,360 Speaker 1: a surprised as if we see a little bit more 31 00:01:37,400 --> 00:01:40,000 Speaker 1: margin degradations we go into two and that needs to 32 00:01:40,000 --> 00:01:43,920 Speaker 1: get baked into people's expectations. Mike, your great strength as 33 00:01:43,920 --> 00:01:46,560 Speaker 1: a sell side analysts at Morgan Stanley, I know you 34 00:01:46,600 --> 00:01:49,040 Speaker 1: and I are all Jack Welch one oh one on 35 00:01:49,160 --> 00:01:54,000 Speaker 1: pricing power sector to sector analysts to analysts, what does 36 00:01:54,080 --> 00:01:58,080 Speaker 1: your team say about the ability of corporations to adapt 37 00:01:58,400 --> 00:02:03,000 Speaker 1: and generate pricing power? Yeah, it's it's the key question. 38 00:02:03,040 --> 00:02:06,160 Speaker 1: I mean, there's gonna be companies that absolutely have pricing power. 39 00:02:06,240 --> 00:02:08,400 Speaker 1: We've been, you know, looking for those types of companies 40 00:02:08,400 --> 00:02:11,160 Speaker 1: and our recommendations going forward. You know, one thing we've 41 00:02:11,200 --> 00:02:13,040 Speaker 1: noticed time as you know, I mean, the market's gotten 42 00:02:13,120 --> 00:02:18,000 Speaker 1: very narrow. Obviously we've seen companies, higher quality companies and 43 00:02:18,280 --> 00:02:21,360 Speaker 1: larger cap companies who have scale um. The market is 44 00:02:21,360 --> 00:02:23,480 Speaker 1: paying up for those now because those are the types 45 00:02:23,520 --> 00:02:27,000 Speaker 1: of companies that typically have pricing power. Okay, So I 46 00:02:27,040 --> 00:02:29,040 Speaker 1: mean that's the name of the game. It's like costs 47 00:02:29,040 --> 00:02:31,639 Speaker 1: are going up for everyone. So two areas I think 48 00:02:31,680 --> 00:02:33,840 Speaker 1: you can look to to say maybe they'll be protected. 49 00:02:33,880 --> 00:02:36,079 Speaker 1: Companies that don't have as big of a labor component. 50 00:02:36,120 --> 00:02:38,480 Speaker 1: We do think labor is going to be an issue 51 00:02:38,480 --> 00:02:40,239 Speaker 1: not just for the economy, but the for the fit 52 00:02:40,360 --> 00:02:42,960 Speaker 1: Ultimately that they're gonna have to tap down there and 53 00:02:42,960 --> 00:02:44,760 Speaker 1: and that's that that that's gonna be. You know. So 54 00:02:44,840 --> 00:02:47,040 Speaker 1: technology companies as an example, where they don't have as 55 00:02:47,120 --> 00:02:49,800 Speaker 1: much labor um, they can maybe managed student and of 56 00:02:49,800 --> 00:02:52,400 Speaker 1: course scale always gives you the ability to kind of 57 00:02:52,440 --> 00:02:56,120 Speaker 1: spread costs across a bigger slater revenue. So, Mike, does 58 00:02:56,120 --> 00:02:58,960 Speaker 1: this mean tech continues to outperform and other types of 59 00:02:58,960 --> 00:03:01,480 Speaker 1: sectors the ones that lead the move lower Where you 60 00:03:01,480 --> 00:03:04,079 Speaker 1: see the SMP ending the year below, where we are 61 00:03:04,120 --> 00:03:08,560 Speaker 1: now now I think technology has gotten a double boost here, Lisa. 62 00:03:08,600 --> 00:03:12,560 Speaker 1: I mean, it's obvious candidate for you know, pricing power 63 00:03:12,680 --> 00:03:15,000 Speaker 1: or the ability to kind of manage costs, but it 64 00:03:15,080 --> 00:03:18,120 Speaker 1: also is probably the single biggest beneficiary of this incredibly 65 00:03:18,440 --> 00:03:21,079 Speaker 1: move move lower in rates at the back end, which 66 00:03:21,080 --> 00:03:23,720 Speaker 1: doesn't really jibe with what's going on in the really economy. 67 00:03:23,800 --> 00:03:26,639 Speaker 1: We know why that's happening. The fend has been ultra slow, 68 00:03:26,760 --> 00:03:30,200 Speaker 1: ultra dubbish to to kind of get off the maximum 69 00:03:30,240 --> 00:03:33,760 Speaker 1: accommodation mode. And and so that's been baked in now. 70 00:03:33,840 --> 00:03:35,800 Speaker 1: So as rates move higher, which is our call for 71 00:03:35,840 --> 00:03:38,280 Speaker 1: the rest of this year, you know, the valuation on 72 00:03:38,360 --> 00:03:40,760 Speaker 1: some of these long duration TEX stacks will offset their 73 00:03:40,760 --> 00:03:44,000 Speaker 1: ability to generate the earnings growth that's been spectacular, Mike, 74 00:03:44,080 --> 00:03:46,280 Speaker 1: What does that mean for your index level? Cool going 75 00:03:46,320 --> 00:03:48,160 Speaker 1: into year round? Because you have looked for that index 76 00:03:48,240 --> 00:03:50,480 Speaker 1: level correction as we work on way through this mid 77 00:03:50,520 --> 00:03:54,200 Speaker 1: cycle transition. Where are we now, Mike? So we're you know, 78 00:03:54,240 --> 00:03:57,400 Speaker 1: we're working through that mid cycle transition. We're seeing corrections 79 00:03:57,480 --> 00:03:59,680 Speaker 1: kind of happen around the market, but not at the 80 00:03:59,800 --> 00:04:02,280 Speaker 1: end X level, which is typical to John, you know, 81 00:04:02,320 --> 00:04:04,920 Speaker 1: and then it usually ends with an index level correction 82 00:04:04,960 --> 00:04:06,800 Speaker 1: when the market can't find anywhere else to go where 83 00:04:06,840 --> 00:04:09,360 Speaker 1: there's value. So we think we're kind of in the 84 00:04:09,440 --> 00:04:11,760 Speaker 1: I don't know, six inning um. We probably have three 85 00:04:11,840 --> 00:04:14,280 Speaker 1: or four months left to go for this med cycle transition. 86 00:04:14,400 --> 00:04:17,800 Speaker 1: Usually it ends with the FED finally moving forward with 87 00:04:17,839 --> 00:04:20,440 Speaker 1: either a tightening like it did at ninety four or 88 00:04:20,520 --> 00:04:23,320 Speaker 1: in O four, or some form of tapering or balance 89 00:04:23,360 --> 00:04:26,600 Speaker 1: sheet running off um like it did in two thousand eleven. 90 00:04:26,640 --> 00:04:29,040 Speaker 1: And we think it's no different this time. I mean, 91 00:04:29,160 --> 00:04:31,159 Speaker 1: by the way, that's not a crazy statement. I mean, 92 00:04:31,279 --> 00:04:32,880 Speaker 1: is there anybody in the planet who doesn't think the 93 00:04:32,880 --> 00:04:35,320 Speaker 1: FED is going to be tapering next year? No? Well, 94 00:04:35,720 --> 00:04:38,160 Speaker 1: in fact, if they're not tapering, then that we got 95 00:04:38,160 --> 00:04:41,520 Speaker 1: a serious problem. So the mid cycle transition will end 96 00:04:41,520 --> 00:04:44,320 Speaker 1: with multiple you know, multiples coming down the index level 97 00:04:44,400 --> 00:04:48,000 Speaker 1: because the FED is tightening policy. It's that simple, Mike. 98 00:04:48,240 --> 00:04:50,360 Speaker 1: A lot of people expect the FED to tighten policy, 99 00:04:50,360 --> 00:04:52,719 Speaker 1: and as you said, if they don't, that may become 100 00:04:52,760 --> 00:04:55,479 Speaker 1: more of a problem. You said that the one point 101 00:04:55,560 --> 00:04:58,160 Speaker 1: eight percent year on target for the ten year note 102 00:04:58,279 --> 00:05:01,559 Speaker 1: actually could be conservative because the FED is so behind 103 00:05:01,600 --> 00:05:04,360 Speaker 1: the curve and may be forced to raise rates faster 104 00:05:04,600 --> 00:05:07,520 Speaker 1: than expected. Play out what that would look like and 105 00:05:07,520 --> 00:05:10,920 Speaker 1: when we would know that perhaps race should rise more 106 00:05:11,040 --> 00:05:14,200 Speaker 1: and that would be later this year, right, it could 107 00:05:14,200 --> 00:05:16,080 Speaker 1: be sooner than later this year. It could be next month, 108 00:05:16,279 --> 00:05:18,840 Speaker 1: you know. I mean, let's see how the FED wants 109 00:05:18,880 --> 00:05:21,440 Speaker 1: to communicate this path. I mean, maybe it starts at 110 00:05:21,520 --> 00:05:23,599 Speaker 1: Jackson Hole, and maybe it starts in September, which is 111 00:05:23,600 --> 00:05:26,120 Speaker 1: our bet that they start to communicate when they're gonna 112 00:05:26,160 --> 00:05:28,560 Speaker 1: do this. And you know, but the other way to 113 00:05:28,560 --> 00:05:30,240 Speaker 1: think about, at least is the bomb market. You know, 114 00:05:30,240 --> 00:05:33,000 Speaker 1: it's not stagnant. The bomb market will start to challenge 115 00:05:33,080 --> 00:05:36,039 Speaker 1: the FED in their timing of that communication if it 116 00:05:36,080 --> 00:05:39,280 Speaker 1: believes they're falling too far behind the curve. Right, I mean, 117 00:05:39,560 --> 00:05:42,560 Speaker 1: we're we're basically close to full employment now based on 118 00:05:42,800 --> 00:05:45,040 Speaker 1: you know, the wage increases that we're seeing in the commentary. 119 00:05:45,040 --> 00:05:47,039 Speaker 1: We're hearing from companies like we don't really know what 120 00:05:47,200 --> 00:05:49,840 Speaker 1: neghru is. Maybe it's four percent, maybe it's four and 121 00:05:49,839 --> 00:05:51,880 Speaker 1: a half, maybe it's five percent, we don't really know. 122 00:05:52,240 --> 00:05:54,599 Speaker 1: What we do know is that labor supply has probably 123 00:05:54,600 --> 00:05:57,880 Speaker 1: been impaired during the pandemic. Maybe permanently we'll find out, 124 00:05:58,360 --> 00:06:01,479 Speaker 1: and you know, typically the FED is tightening policy long 125 00:06:01,520 --> 00:06:04,720 Speaker 1: before we get the neighbor. They start the process. You know. 126 00:06:04,920 --> 00:06:07,400 Speaker 1: Once again, I don't think anybody would disagree with this statement, 127 00:06:07,400 --> 00:06:10,280 Speaker 1: which is, does it seem right that we have emergency 128 00:06:10,360 --> 00:06:13,119 Speaker 1: monetary accommodation at a time when the economy is growing 129 00:06:13,120 --> 00:06:15,279 Speaker 1: six and a half percent real eight and a half 130 00:06:15,360 --> 00:06:19,200 Speaker 1: nine percent nominally. That doesn't seem like it. Jibs and 131 00:06:19,279 --> 00:06:21,560 Speaker 1: I think the delta variant is the market is same. Okay, 132 00:06:21,680 --> 00:06:23,560 Speaker 1: let's see how the delta varian plays out. But if 133 00:06:23,640 --> 00:06:27,280 Speaker 1: we find that the delta barian is fading, schools are reopening, 134 00:06:27,520 --> 00:06:29,200 Speaker 1: we are going to get back to work. You know. 135 00:06:29,240 --> 00:06:31,800 Speaker 1: The BAB market can adjust quickly, very much like we 136 00:06:31,839 --> 00:06:34,159 Speaker 1: saw in January and February, the last time that we 137 00:06:34,200 --> 00:06:36,479 Speaker 1: were kind of out of consentus on the rate moves, 138 00:06:36,760 --> 00:06:38,760 Speaker 1: you know, probably surprising at the upset. It's such a 139 00:06:38,760 --> 00:06:40,440 Speaker 1: good final point, Mike, I'm gonna leave it that it's 140 00:06:40,440 --> 00:06:43,760 Speaker 1: gonna catch up SA Michael Wilson, Morgan Stanley, Chief US 141 00:06:43,800 --> 00:06:51,640 Speaker 1: Equity Strategists, and see a decade ago or even more, 142 00:06:51,680 --> 00:06:56,480 Speaker 1: I should say I learned about field economics from Pascaline Dupart. 143 00:06:56,520 --> 00:06:59,680 Speaker 1: Her colleague is Esther Duflo, who won the Nobel Prize 144 00:06:59,680 --> 00:07:04,800 Speaker 1: with Energy Energy and the Flow become definitive on poverty economics. 145 00:07:04,839 --> 00:07:08,320 Speaker 1: That new effort out is good Economics for hard Times 146 00:07:08,360 --> 00:07:13,960 Speaker 1: out in paperback today and Esther, congratulations again, not only 147 00:07:14,080 --> 00:07:18,120 Speaker 1: on the acclaim you've received, but the persistency that you've 148 00:07:18,160 --> 00:07:22,840 Speaker 1: worked with in studying poverty. And part of that is 149 00:07:22,880 --> 00:07:25,120 Speaker 1: in one of the chapters of your book, the End 150 00:07:25,160 --> 00:07:33,320 Speaker 1: of Growth. Give us the optimism that growth is not ended. Oh, 151 00:07:33,440 --> 00:07:35,360 Speaker 1: I don't know if I can give you the optimism. 152 00:07:35,440 --> 00:07:37,800 Speaker 1: I think it depends if you have a left has 153 00:07:37,800 --> 00:07:40,360 Speaker 1: food or left has empty type of person. Because the 154 00:07:40,400 --> 00:07:42,880 Speaker 1: tooth is we don't know, We have no idea ghost 155 00:07:42,960 --> 00:07:46,440 Speaker 1: does whatever it wants to do. Economies have found very 156 00:07:46,440 --> 00:07:50,840 Speaker 1: difficult to predict how to do nurtur it. We know 157 00:07:50,960 --> 00:07:53,600 Speaker 1: very went how to kill it. Venezuela is a good 158 00:07:53,640 --> 00:07:56,640 Speaker 1: case study on how to kill ghoth. But once the 159 00:07:56,760 --> 00:07:59,920 Speaker 1: basic conditions are there, we don't really know how to 160 00:08:00,120 --> 00:08:02,800 Speaker 1: nurturing it. So that's the bad news. But the good 161 00:08:02,840 --> 00:08:07,040 Speaker 1: news also means that it also comes and goes and 162 00:08:07,040 --> 00:08:09,560 Speaker 1: and and policy makers and economies can do a lot 163 00:08:09,560 --> 00:08:13,000 Speaker 1: of things to make sure that once it's there, everyone 164 00:08:13,040 --> 00:08:17,280 Speaker 1: in the economy, including the poor, take maximum advantage of it. 165 00:08:18,360 --> 00:08:21,720 Speaker 1: I look at the idea of growth and poverty, and 166 00:08:21,720 --> 00:08:24,440 Speaker 1: of course the foundation of this is Robert Solo at 167 00:08:24,480 --> 00:08:27,360 Speaker 1: your M I T and the study of growth over 168 00:08:27,400 --> 00:08:31,280 Speaker 1: the years. And the elephant in the room is technology 169 00:08:31,360 --> 00:08:37,120 Speaker 1: and its advantages. Can we process technology over to relieve 170 00:08:37,320 --> 00:08:41,320 Speaker 1: poverty or is the benefits of technology the benefits of 171 00:08:41,360 --> 00:08:46,040 Speaker 1: the elite. Well, another thing Bobsulo told us he was 172 00:08:46,080 --> 00:08:49,040 Speaker 1: really one of the gen field is that technology is 173 00:08:49,120 --> 00:08:52,240 Speaker 1: really the measure of our ignorance. And what it called 174 00:08:52,280 --> 00:08:55,199 Speaker 1: technology is basically what we're not very good at measuring. 175 00:08:56,040 --> 00:09:00,480 Speaker 1: And for the certain reasons, we don't know whether it 176 00:09:00,600 --> 00:09:03,760 Speaker 1: helps or hot. And but it depends a little bit 177 00:09:03,760 --> 00:09:07,200 Speaker 1: on what we are doing. For example, if we have 178 00:09:07,520 --> 00:09:11,560 Speaker 1: a new machines that replace workers, it happened during the 179 00:09:11,600 --> 00:09:15,679 Speaker 1: Industrial Revolution, is happening again today with autovation with AI. 180 00:09:16,440 --> 00:09:19,880 Speaker 1: There is no big law of economics that says that 181 00:09:19,960 --> 00:09:23,400 Speaker 1: these workers will necessarily find another job, and there is 182 00:09:23,400 --> 00:09:25,439 Speaker 1: no big law of economics that says that they want 183 00:09:25,760 --> 00:09:29,520 Speaker 1: the tools. That it depends on whether their help, whether 184 00:09:29,559 --> 00:09:32,480 Speaker 1: they are accompanied, whether they are trained in the new 185 00:09:32,520 --> 00:09:35,360 Speaker 1: technology to find new jobs. So there is a massive 186 00:09:35,480 --> 00:09:41,640 Speaker 1: rule for policy and for policymaking to accompany the process 187 00:09:41,640 --> 00:09:45,360 Speaker 1: of the diffusion of technology too, to all out our 188 00:09:45,440 --> 00:09:48,319 Speaker 1: economies and to make it a post for good as 189 00:09:48,360 --> 00:09:52,400 Speaker 1: oppose as a post for destruction. And a perfect example, frankly, 190 00:09:52,520 --> 00:09:55,040 Speaker 1: is the technology that we've seen deployed for the m 191 00:09:55,120 --> 00:09:58,400 Speaker 1: R and A and arculations that have at least helped 192 00:09:58,440 --> 00:10:02,400 Speaker 1: save off some of the progress of the COVID nineteen virus. 193 00:10:02,440 --> 00:10:05,000 Speaker 1: One thing I find fascinating is that your book, which 194 00:10:05,040 --> 00:10:08,600 Speaker 1: was first published in November two nine, focused intensely on 195 00:10:08,640 --> 00:10:11,840 Speaker 1: the need to get vaccines across the world to prevent 196 00:10:11,960 --> 00:10:15,040 Speaker 1: certain diseases. Why has there not been more money and 197 00:10:15,080 --> 00:10:17,760 Speaker 1: more of a coordinated effort to create a network of 198 00:10:17,840 --> 00:10:24,319 Speaker 1: vaccinations globally well before this pandemic. Well, what is really 199 00:10:24,400 --> 00:10:26,440 Speaker 1: sad in a way is that to some extent this 200 00:10:26,520 --> 00:10:30,800 Speaker 1: network does exist. There is a very successful international initiative 201 00:10:30,840 --> 00:10:35,840 Speaker 1: gold Gaby, that has been quite effective at promoting the 202 00:10:35,840 --> 00:10:39,840 Speaker 1: spread of ammunition around the world before the COVID nineteen pandemic. 203 00:10:40,240 --> 00:10:42,880 Speaker 1: Childhood a munician, and there has been a lot of 204 00:10:42,920 --> 00:10:47,680 Speaker 1: progress in the decade starting two thousand uh till put 205 00:10:47,720 --> 00:10:52,640 Speaker 1: thousand nineteen in childhood ammunition. And we haven't found a 206 00:10:52,760 --> 00:10:56,920 Speaker 1: more effective or coustictive where to save life than childhood musician. 207 00:10:57,720 --> 00:11:01,880 Speaker 1: So when COVID nineteen pandemic came and thanks to technology 208 00:11:01,920 --> 00:11:08,640 Speaker 1: and wonderful with that ingenuity and love effort and government funding, 209 00:11:09,040 --> 00:11:13,439 Speaker 1: we had a vaccine so quickly this network was clear existing, 210 00:11:14,080 --> 00:11:16,920 Speaker 1: but somehow to this date we haven't been able to 211 00:11:16,960 --> 00:11:21,920 Speaker 1: mobilize it to uh with the code mine to immunize 212 00:11:22,400 --> 00:11:25,439 Speaker 1: the entire world against COVID. And this is really sad 213 00:11:25,520 --> 00:11:28,560 Speaker 1: because in a sense it was there. It really wasn't 214 00:11:28,600 --> 00:11:32,280 Speaker 1: going to take much more than money and single minded 215 00:11:32,360 --> 00:11:35,680 Speaker 1: focused on the entire award and not just on the 216 00:11:35,800 --> 00:11:41,079 Speaker 1: US or Professor Thank you so much, greatly, greatly appreciate 217 00:11:41,160 --> 00:11:45,920 Speaker 1: this morning and celebration of her new effort with Professor 218 00:11:46,000 --> 00:11:55,320 Speaker 1: Banerji as well. Right now, Joy Maryland Watson joins US 219 00:11:55,320 --> 00:11:58,240 Speaker 1: with black Rock, head of Global Fundamental Fixed Income Strategy. 220 00:11:58,559 --> 00:12:00,839 Speaker 1: Her public service to the United Kingdom working at the 221 00:12:00,880 --> 00:12:04,520 Speaker 1: Bank of England, noted Maryland, I look at the band 222 00:12:04,559 --> 00:12:09,320 Speaker 1: market right now and it's a jumble. In fiscal stimulus 223 00:12:09,360 --> 00:12:13,160 Speaker 1: in the United States, is the fiscal stimulus in the 224 00:12:13,240 --> 00:12:17,560 Speaker 1: United States a global phenomenon or is it discreet to 225 00:12:17,640 --> 00:12:22,160 Speaker 1: the United States. So I think that the fiscal stimulus 226 00:12:22,200 --> 00:12:24,760 Speaker 1: that we saw before certainly was a global phenomenon, and 227 00:12:24,800 --> 00:12:28,839 Speaker 1: it certainly did help to promote growth globally, even though 228 00:12:28,840 --> 00:12:31,920 Speaker 1: we did see these issues obviously with the pandemic and 229 00:12:31,960 --> 00:12:36,400 Speaker 1: supply chain issues, UM and and global mobility really being restricted. 230 00:12:36,679 --> 00:12:39,000 Speaker 1: I think going forward, when we do see the new 231 00:12:39,280 --> 00:12:44,240 Speaker 1: package coming through, it will be largely very pertinent to 232 00:12:44,280 --> 00:12:46,439 Speaker 1: the US, particularly when you think when you look at 233 00:12:46,440 --> 00:12:49,320 Speaker 1: the focus on infrastructure and on things that are very 234 00:12:49,360 --> 00:12:52,679 Speaker 1: domestic to the US that wasstanding. I do think it 235 00:12:52,760 --> 00:12:55,160 Speaker 1: was going to still have a significant impact globally as well, 236 00:12:55,160 --> 00:12:57,240 Speaker 1: when you look at the demand that you might have 237 00:12:57,400 --> 00:13:00,200 Speaker 1: for um, you know, for commodities from abroad, you look 238 00:13:00,240 --> 00:13:02,760 Speaker 1: at the demand for various things that will feed into 239 00:13:03,520 --> 00:13:05,920 Speaker 1: the different packages. I do think it will have some 240 00:13:05,960 --> 00:13:08,480 Speaker 1: impact globally, but this time around, I think it will 241 00:13:08,520 --> 00:13:10,760 Speaker 1: be more pertinent to the US. How big will the 242 00:13:10,760 --> 00:13:13,480 Speaker 1: impact be on the bond market? Maryland tends right now 243 00:13:13,480 --> 00:13:17,079 Speaker 1: at one thirty three, Yeah, so the market I think 244 00:13:17,160 --> 00:13:19,800 Speaker 1: is already pricing it into you know, to do it 245 00:13:19,840 --> 00:13:21,720 Speaker 1: to a large degree. I think at the moment, I mean, 246 00:13:21,760 --> 00:13:23,480 Speaker 1: when you look at the bond market, it really is 247 00:13:23,600 --> 00:13:27,560 Speaker 1: very difficult to really understand why yields are still down 248 00:13:27,600 --> 00:13:29,520 Speaker 1: at this level. And I heard you know, your previous 249 00:13:29,520 --> 00:13:31,560 Speaker 1: speakers and you saying that you know, we do think 250 00:13:31,559 --> 00:13:35,400 Speaker 1: the tends will rise further throughout this year. I think 251 00:13:35,440 --> 00:13:37,640 Speaker 1: at the moment, you know, the market is still digesting 252 00:13:37,800 --> 00:13:41,520 Speaker 1: some negative news around covid um, and also it's still 253 00:13:41,520 --> 00:13:45,040 Speaker 1: continuing to see this huge amount of suppression coming from 254 00:13:45,040 --> 00:13:47,480 Speaker 1: the central banks. As you do start to get more 255 00:13:47,559 --> 00:13:50,560 Speaker 1: from the FMC, as they do start to start to taper, 256 00:13:50,840 --> 00:13:54,240 Speaker 1: start to withdraw this very very very comgeliative munship policy, 257 00:13:54,520 --> 00:13:56,960 Speaker 1: I think that will help to shift yields higher. And 258 00:13:57,000 --> 00:13:58,880 Speaker 1: then I also think that you know you are seeing 259 00:13:59,240 --> 00:14:01,199 Speaker 1: in the equity mark kits, you're seeing in the bond 260 00:14:01,280 --> 00:14:04,400 Speaker 1: market as well, already pricing in the stimulus that you're 261 00:14:04,400 --> 00:14:06,320 Speaker 1: going to come through from the fiscal as well. And 262 00:14:06,360 --> 00:14:09,240 Speaker 1: we started to discriminate within credit Marly, and given what's 263 00:14:09,240 --> 00:14:12,040 Speaker 1: happened with the data arrant in this country, I'm thinking 264 00:14:12,040 --> 00:14:14,559 Speaker 1: of the likes of Carnival and others in the credit market, 265 00:14:14,600 --> 00:14:18,440 Speaker 1: we're starting to discriminate a little bit more. I think 266 00:14:18,480 --> 00:14:21,240 Speaker 1: that's right. So obviously, at the beginning of the pandemic 267 00:14:21,280 --> 00:14:23,840 Speaker 1: you did see quite a large amount of dispersion and 268 00:14:23,840 --> 00:14:27,640 Speaker 1: discrimination between the different names. I think now again where 269 00:14:27,640 --> 00:14:31,560 Speaker 1: you see that spreads are still incredibly tight, really across 270 00:14:31,560 --> 00:14:34,200 Speaker 1: the board, across all sectors, when you look at the 271 00:14:34,280 --> 00:14:37,480 Speaker 1: huge amount of crowding that we have in different asset 272 00:14:37,480 --> 00:14:40,400 Speaker 1: classes and the sectors of the bond market, because again 273 00:14:40,480 --> 00:14:43,440 Speaker 1: the Montro policy stimulus is really pushing investors down the 274 00:14:43,560 --> 00:14:46,240 Speaker 1: risk spectrum. Now, I think is the time where you 275 00:14:46,320 --> 00:14:49,000 Speaker 1: really are to see a lot more from a bottom 276 00:14:49,040 --> 00:14:51,440 Speaker 1: up perspective, and I think it's important as you start 277 00:14:51,480 --> 00:14:53,320 Speaker 1: to look where to invest in the bond market at 278 00:14:53,360 --> 00:14:57,200 Speaker 1: these incredibly tight spreads um and they're pretty rich valuations 279 00:14:57,320 --> 00:15:00,240 Speaker 1: in general, then I think, you know, it's really, really 280 00:15:00,280 --> 00:15:02,560 Speaker 1: really important that you really understand from a boss up 281 00:15:02,600 --> 00:15:06,440 Speaker 1: perspective exactly the dynamics behind that company, behind the sector, 282 00:15:06,840 --> 00:15:09,640 Speaker 1: and you really have a very very high conviction in 283 00:15:09,680 --> 00:15:11,160 Speaker 1: the bonds that you're buying. And I think we are 284 00:15:11,160 --> 00:15:12,520 Speaker 1: starting to see that, and I think we'll see that 285 00:15:12,560 --> 00:15:15,640 Speaker 1: further going forward, and it's incredibly important now Maryland. A 286 00:15:15,640 --> 00:15:17,640 Speaker 1: lot of people have said that the credit cycle is dead. 287 00:15:17,680 --> 00:15:19,360 Speaker 1: What you are saying is that it is not. And 288 00:15:19,360 --> 00:15:21,320 Speaker 1: that is why it is so important to do bottom 289 00:15:21,400 --> 00:15:24,880 Speaker 1: up research. What does this credit cycle look like? Given 290 00:15:24,880 --> 00:15:27,040 Speaker 1: where we are with treasury yields and given where we 291 00:15:27,080 --> 00:15:29,800 Speaker 1: are with the balance sheets of corporate America that are 292 00:15:29,800 --> 00:15:33,400 Speaker 1: pretty good. Yeah, they do look pretty good. And you know, 293 00:15:33,440 --> 00:15:35,880 Speaker 1: I think I think there are quite a few positives 294 00:15:35,880 --> 00:15:37,360 Speaker 1: when you look at the as you say, the balance 295 00:15:37,400 --> 00:15:39,920 Speaker 1: sheets some of these corporates. When you think that even 296 00:15:39,920 --> 00:15:42,280 Speaker 1: when the FED does start to reduce, you know, it's 297 00:15:42,320 --> 00:15:44,560 Speaker 1: a covert amount of policy, it's still going to be 298 00:15:44,600 --> 00:15:47,280 Speaker 1: incredibly supportive for a very long time. And as the 299 00:15:47,320 --> 00:15:50,280 Speaker 1: economy continues to do well, we're seeing this huge amount 300 00:15:50,280 --> 00:15:53,920 Speaker 1: of demand. And you spake earlier about the demand supply um, 301 00:15:53,960 --> 00:15:57,080 Speaker 1: you know imbalance that still will take some time to correct. 302 00:15:57,320 --> 00:15:58,800 Speaker 1: I think we're going to continue to see a lot 303 00:15:58,840 --> 00:16:01,120 Speaker 1: more demand going forward, and this is going to bode 304 00:16:01,120 --> 00:16:03,800 Speaker 1: I think very well, particularly those companies that have already 305 00:16:03,800 --> 00:16:06,600 Speaker 1: been investing that are going to be investing in you 306 00:16:06,600 --> 00:16:09,840 Speaker 1: know there in technology communications, They're going to be improving 307 00:16:09,880 --> 00:16:12,720 Speaker 1: their supply chains, and I think that those companies will 308 00:16:12,720 --> 00:16:15,200 Speaker 1: do well as we see growth continue to you know, 309 00:16:15,560 --> 00:16:17,840 Speaker 1: carry on at this very very robust pace that we're seeing. 310 00:16:17,880 --> 00:16:21,040 Speaker 1: All right, Marylyn, what's more important for an investor clipping 311 00:16:21,080 --> 00:16:23,120 Speaker 1: coupons and a company that looks like it has a 312 00:16:23,120 --> 00:16:26,000 Speaker 1: promising trajectory, even if that coupon is a lot lower, 313 00:16:26,360 --> 00:16:29,000 Speaker 1: or searching for some sort of growth story at a 314 00:16:29,040 --> 00:16:31,600 Speaker 1: time when the economy does seem to be expanding and 315 00:16:31,600 --> 00:16:33,240 Speaker 1: when the consumer does have a lot of money to 316 00:16:33,280 --> 00:16:36,840 Speaker 1: spend well. I actually think that you need a balance 317 00:16:36,920 --> 00:16:40,360 Speaker 1: of both. It's very hard at the moment. You really 318 00:16:40,360 --> 00:16:42,840 Speaker 1: have to do a lot of altimate research to find 319 00:16:42,880 --> 00:16:45,800 Speaker 1: those companies where you are going to see the significant 320 00:16:45,800 --> 00:16:48,920 Speaker 1: growth and you can really capture the price appreciation, so 321 00:16:48,960 --> 00:16:51,800 Speaker 1: to speak. Um. I also think it's important to find, 322 00:16:51,920 --> 00:16:54,240 Speaker 1: you know, in the bond market areas of carry where 323 00:16:54,280 --> 00:16:56,280 Speaker 1: you can get that steady income that you need. It 324 00:16:56,320 --> 00:16:59,040 Speaker 1: also depends on the investor. So we've seen, you know, 325 00:16:59,120 --> 00:17:03,440 Speaker 1: the huge continuing amount of demand even for juries from 326 00:17:03,520 --> 00:17:06,639 Speaker 1: patient funds that have very very good funding status, is 327 00:17:07,080 --> 00:17:11,080 Speaker 1: from investors from abroad. You're continuing to see investors, corporate 328 00:17:11,119 --> 00:17:15,000 Speaker 1: investors investing in um, you know, corporate bonds, even high 329 00:17:15,040 --> 00:17:16,720 Speaker 1: yield where they're looking for a little bit more carry 330 00:17:16,760 --> 00:17:19,760 Speaker 1: to match their liabilities. So I think both are important, 331 00:17:19,880 --> 00:17:24,040 Speaker 1: but I think really understanding the liquidity of those positions, 332 00:17:24,080 --> 00:17:27,520 Speaker 1: understanding the risk award dynamic, understanding the potential volatility of 333 00:17:27,560 --> 00:17:30,600 Speaker 1: all very important. And actually think a very well constructed 334 00:17:30,640 --> 00:17:34,080 Speaker 1: balanced portfolio is the most important thing. Now, thank you, 335 00:17:34,119 --> 00:17:35,920 Speaker 1: It's going to catch up. As always Marin and Watson, 336 00:17:36,000 --> 00:17:43,679 Speaker 1: their blackdog head of global fundamental fixed income strategy. The 337 00:17:43,800 --> 00:17:47,160 Speaker 1: research report is so important for Doug has Paul Sweeney 338 00:17:47,400 --> 00:17:49,760 Speaker 1: that we've got to get right to it. But have 339 00:17:49,880 --> 00:17:54,240 Speaker 1: you noticed like Brett Gardner just endures. Every time I 340 00:17:54,280 --> 00:17:56,320 Speaker 1: hear somebody say we need to trade in orcutto I'm 341 00:17:56,320 --> 00:17:58,840 Speaker 1: like you crazy, if for no other reason, then he 342 00:17:58,880 --> 00:18:02,840 Speaker 1: shows up every day. No oblique, there's no oblique tears, 343 00:18:03,000 --> 00:18:06,600 Speaker 1: there's no I know everybody hit two. He's there every day. 344 00:18:06,960 --> 00:18:09,399 Speaker 1: Doug Cass joins us to further the conversation now with 345 00:18:09,480 --> 00:18:14,280 Speaker 1: Seabres Partners. Brett Gardner, would you trade him? Doug, so 346 00:18:14,359 --> 00:18:16,719 Speaker 1: much to say about the markets in the red sox, 347 00:18:16,760 --> 00:18:20,760 Speaker 1: but so little time. All I could say is the 348 00:18:20,840 --> 00:18:23,359 Speaker 1: last time I appeared Paul with you and Tom, the 349 00:18:23,359 --> 00:18:26,160 Speaker 1: odds makers I mentioned had the Yankees out of four 350 00:18:26,200 --> 00:18:29,000 Speaker 1: percent odds of making the playoffs. As I said on 351 00:18:29,040 --> 00:18:32,000 Speaker 1: the show, I made that bet. Now the odds opposed 352 00:18:32,040 --> 00:18:36,400 Speaker 1: to Tampa Bay. Toronto and the Yankees have each one 353 00:18:36,480 --> 00:18:39,359 Speaker 1: eight of the last ten ball game. The Red Sox 354 00:18:39,400 --> 00:18:43,560 Speaker 1: have lost eight of the last ten. It's August for 355 00:18:43,640 --> 00:18:51,000 Speaker 1: the Red Sox. You know Latin, I say, races loqual Tour. Yeah, 356 00:18:51,080 --> 00:18:55,720 Speaker 1: it's the It's the August of my many childhoods as well. Doug. 357 00:18:55,800 --> 00:18:59,120 Speaker 1: Let's move on to the markets. In an important research 358 00:18:59,200 --> 00:19:05,560 Speaker 1: note from you yesterday, with a single sentence, well, I 359 00:19:05,560 --> 00:19:09,000 Speaker 1: would distill my my current view by twisting around a 360 00:19:09,080 --> 00:19:12,560 Speaker 1: quote from a student of Bob Farrell, Walt Eamer. Now, 361 00:19:12,600 --> 00:19:16,200 Speaker 1: while he, like Bob, is a legendary technical analyst who 362 00:19:16,200 --> 00:19:18,720 Speaker 1: worked at Putnam when I was there, And while he 363 00:19:18,800 --> 00:19:21,359 Speaker 1: used to say, when the time comes to buy, you 364 00:19:21,400 --> 00:19:25,040 Speaker 1: won't want to, so I say, now twisting around his quote, 365 00:19:25,400 --> 00:19:28,160 Speaker 1: when the when the time comes to sell or short, 366 00:19:28,280 --> 00:19:31,280 Speaker 1: you won't to you won't want to either. I think 367 00:19:31,359 --> 00:19:34,800 Speaker 1: we're in a well defined tug of war. On one hand, 368 00:19:35,040 --> 00:19:38,760 Speaker 1: we have a quickening federal debt spiral that is now 369 00:19:38,760 --> 00:19:43,520 Speaker 1: out of control. The rate of domestic economic growth is decelerating. 370 00:19:43,920 --> 00:19:46,600 Speaker 1: We have a mark slow down in China, which has 371 00:19:46,600 --> 00:19:49,840 Speaker 1: been the engine of global growth over the last twenty years. 372 00:19:50,359 --> 00:19:54,000 Speaker 1: The federal reserve is like the dissume pivot. Inflation and 373 00:19:54,000 --> 00:19:59,240 Speaker 1: inflationary expectations are climbing. Course pressures are intensifying. There's an 374 00:19:59,280 --> 00:20:03,120 Speaker 1: acceleration in the spread of delta variant and the individual 375 00:20:03,160 --> 00:20:06,320 Speaker 1: and corporate tax rates moving higher. Moreover, and this is 376 00:20:06,359 --> 00:20:09,000 Speaker 1: really important. I touched on it last time. A lot 377 00:20:09,040 --> 00:20:12,239 Speaker 1: of demand has to pull forward, as we learned in 378 00:20:12,400 --> 00:20:17,639 Speaker 1: the quarterly releases at Apple, Amazon and terrorists, Facebook, Netflix 379 00:20:17,680 --> 00:20:20,359 Speaker 1: and many others, and that pull forward is now ending 380 00:20:20,359 --> 00:20:23,520 Speaker 1: as people begin to normalize the life their lies. I 381 00:20:23,560 --> 00:20:27,360 Speaker 1: think to make matters worse. Historic valuations based upon all 382 00:20:27,440 --> 00:20:32,159 Speaker 1: traditional metrics, mostly at all time highs. In fact, I 383 00:20:32,280 --> 00:20:38,119 Speaker 1: have fifteen metrics on the SMPS valuation and three quarters 384 00:20:38,160 --> 00:20:43,240 Speaker 1: of them are at the historic percentile. Now we have 385 00:20:43,320 --> 00:20:46,040 Speaker 1: to be balanced, and on the other hand, the positives 386 00:20:46,040 --> 00:20:49,760 Speaker 1: are also pretty clear. The offset to my concerns is 387 00:20:49,800 --> 00:20:52,879 Speaker 1: obviously something you touched on in the last segment. The 388 00:20:52,960 --> 00:20:56,479 Speaker 1: tailwind of liquidity. Last time I was with you and 389 00:20:56,520 --> 00:20:59,679 Speaker 1: Paul I stated that if we grafted the Fed's balance 390 00:20:59,760 --> 00:21:03,120 Speaker 1: sheet with the SMP index, it's a perfect fit. It's 391 00:21:03,119 --> 00:21:06,560 Speaker 1: a high R squared or coefficient determination. And for the 392 00:21:06,560 --> 00:21:10,200 Speaker 1: CFAs out there, I know you reference the failing rate 393 00:21:10,720 --> 00:21:14,119 Speaker 1: of CFAs over the last twelve months. Our square is 394 00:21:14,160 --> 00:21:17,480 Speaker 1: basically the proportion of the variation. Here we go in 395 00:21:17,840 --> 00:21:23,119 Speaker 1: a dependent variable from an independent vable Bob Shill. Of course, 396 00:21:23,480 --> 00:21:26,440 Speaker 1: so for some time it's been clear to end this 397 00:21:26,840 --> 00:21:31,680 Speaker 1: modern and undisciplined physical and monetary policy, coupled with the 398 00:21:31,720 --> 00:21:35,160 Speaker 1: market structure, have been the primary determinant of market support. 399 00:21:35,680 --> 00:21:38,119 Speaker 1: And it could be argued today that investors are the 400 00:21:38,200 --> 00:21:42,920 Speaker 1: least informed and least educated because the role Listen to you, Yeah, 401 00:21:43,000 --> 00:21:47,119 Speaker 1: it's true. I mean just that was like a dis 402 00:21:47,119 --> 00:21:50,480 Speaker 1: no no, no, no, no. Look look look I'm ripping 403 00:21:50,560 --> 00:21:53,959 Speaker 1: up the street the script to use your phrase. Unlike 404 00:21:54,119 --> 00:21:57,320 Speaker 1: a lot of very confident guests parading in the media, 405 00:21:57,440 --> 00:21:59,960 Speaker 1: I don't have all the answers. I'm often wrong, I'm 406 00:22:00,040 --> 00:22:03,400 Speaker 1: always in doubt, and I recognize that the market will 407 00:22:03,440 --> 00:22:05,840 Speaker 1: do the best to twist around the consensus. I remember 408 00:22:05,880 --> 00:22:09,720 Speaker 1: Grandma co Fax used to tell me always look over 409 00:22:09,760 --> 00:22:12,480 Speaker 1: my shoulder because the Cossacks might be coming. So when 410 00:22:12,520 --> 00:22:16,240 Speaker 1: I questioned my investment sanity, as I do today, I 411 00:22:16,320 --> 00:22:19,200 Speaker 1: go to people like Leekoverman and Howard Marks and I 412 00:22:19,280 --> 00:22:22,640 Speaker 1: give him a call. And arguably the best go to guy, 413 00:22:22,800 --> 00:22:25,440 Speaker 1: the greatest investment hit or of all time to use 414 00:22:25,480 --> 00:22:29,639 Speaker 1: a baseball metaphor are Ruth Garrig and Williams combined is 415 00:22:29,680 --> 00:22:32,760 Speaker 1: stand the Man. And I don't mean stand usual, I 416 00:22:32,800 --> 00:22:36,680 Speaker 1: mean stan Drucket Miller and And just to conclude, if you, 417 00:22:37,200 --> 00:22:41,800 Speaker 1: if you, if your listeners, go to YouTube and search 418 00:22:42,200 --> 00:22:46,080 Speaker 1: USC Marshall School of Business speech that Stanley just he 419 00:22:46,200 --> 00:22:49,639 Speaker 1: allies the unusual state uh and highly recommend it. It 420 00:22:49,720 --> 00:22:53,440 Speaker 1: runs only twenty five minutes. It's available for free. Discusses 421 00:22:53,560 --> 00:22:58,800 Speaker 1: the uniqueness of this time in our economic monogue. Dog, 422 00:22:58,840 --> 00:23:00,679 Speaker 1: I read your note, and you know a lot of 423 00:23:00,680 --> 00:23:03,480 Speaker 1: the items that you just noted went through in terms 424 00:23:03,480 --> 00:23:05,240 Speaker 1: of the challenges for this market, some of them have 425 00:23:05,280 --> 00:23:07,920 Speaker 1: been there for a while. Do you have a catalyst 426 00:23:08,000 --> 00:23:10,359 Speaker 1: in mind that you think will kind of bring these 427 00:23:10,359 --> 00:23:13,359 Speaker 1: to the four for the marketplace? That's the best question ever, 428 00:23:13,400 --> 00:23:15,920 Speaker 1: because every night it keeps me awake, you know what 429 00:23:16,119 --> 00:23:18,639 Speaker 1: is going to make me. I really launched Sea Breeze 430 00:23:18,680 --> 00:23:21,639 Speaker 1: Partners my hedge fund on July one. I was absent 431 00:23:21,680 --> 00:23:25,320 Speaker 1: in the hedge fund business rate years after recovering from cancer, 432 00:23:25,760 --> 00:23:28,520 Speaker 1: and I have been slightly net short since then for 433 00:23:28,560 --> 00:23:31,040 Speaker 1: the last five weeks, and we're actually in the black, 434 00:23:31,080 --> 00:23:34,760 Speaker 1: which is a good accomplishment. UM. To me, the single 435 00:23:34,800 --> 00:23:39,320 Speaker 1: most important factor will be a sustained UM level of 436 00:23:39,359 --> 00:23:41,600 Speaker 1: the ten year yield and excess at one point three, 437 00:23:42,359 --> 00:23:46,080 Speaker 1: and I think we're moving in that direction. So the 438 00:23:46,080 --> 00:23:49,080 Speaker 1: the issue here is I think the market probably Doug 439 00:23:49,119 --> 00:23:52,840 Speaker 1: is saying, Okay, we understand tapering is coming. We understand 440 00:23:53,280 --> 00:23:56,800 Speaker 1: that rates are likely going up certainly, you know it's 441 00:23:56,800 --> 00:24:00,600 Speaker 1: called it perhaps um, But we have faith in this 442 00:24:00,680 --> 00:24:03,000 Speaker 1: fed and that that seems to be what we hear. 443 00:24:03,400 --> 00:24:08,119 Speaker 1: Is that faith not enough? It's not enough, you know. 444 00:24:08,200 --> 00:24:11,919 Speaker 1: Webster defines a Ponzi scheme as an investment swindle in 445 00:24:11,920 --> 00:24:14,920 Speaker 1: which some early investors have paid off with money put 446 00:24:14,960 --> 00:24:17,199 Speaker 1: up by ladder ones in order to encourage more and 447 00:24:17,240 --> 00:24:22,840 Speaker 1: more risks, bigger risks, and our economic policy Paul is 448 00:24:22,880 --> 00:24:26,240 Speaker 1: beginning to look that way. We have massive government spending 449 00:24:26,560 --> 00:24:31,639 Speaker 1: it's benefiting current citizens and being financed by taking enormous 450 00:24:31,800 --> 00:24:35,679 Speaker 1: amounts of debt which will um burden our future citizens 451 00:24:36,320 --> 00:24:38,600 Speaker 1: um As a result, we live in a world where 452 00:24:38,840 --> 00:24:42,639 Speaker 1: economic health is a bit of an artificially created illusion 453 00:24:43,080 --> 00:24:45,520 Speaker 1: in both the market. The stock market and the bond 454 00:24:45,520 --> 00:24:48,040 Speaker 1: market have stored as a result. The question is whether, 455 00:24:48,080 --> 00:24:50,479 Speaker 1: as you put it, this is sustainable, and what are 456 00:24:50,520 --> 00:24:53,679 Speaker 1: the consequences if it is not so? In a sense, 457 00:24:53,840 --> 00:24:56,600 Speaker 1: I think Tom and Paul, and I'm not being hyperbolic, 458 00:24:56,960 --> 00:24:59,840 Speaker 1: we could be witnessing the biggest Ponzi scheme in history. 459 00:25:00,119 --> 00:25:04,199 Speaker 1: So the risk, especially at current valuations, is extraordinary, and 460 00:25:04,240 --> 00:25:07,840 Speaker 1: it seems to me that with a substantial recovery underway, 461 00:25:08,040 --> 00:25:11,280 Speaker 1: the Fed should immediately begin to reduce its artificial support 462 00:25:11,320 --> 00:25:14,560 Speaker 1: which is so distorted the economy in our markets. Doug 463 00:25:14,600 --> 00:25:17,680 Speaker 1: Cass quickly here on Amazon, you've got a short term view, 464 00:25:17,720 --> 00:25:21,400 Speaker 1: You've got a bullish lung term view. Doug Cass on Amazon, 465 00:25:22,200 --> 00:25:26,520 Speaker 1: I'm a buyer thirty fifty after having sold it uh 466 00:25:27,000 --> 00:25:32,480 Speaker 1: right before the disappointing second quarter release. The stock immediately 467 00:25:32,520 --> 00:25:36,600 Speaker 1: fell three thirty points dollars in the next day. Again, 468 00:25:36,640 --> 00:25:40,479 Speaker 1: that was an example, as I referenced of pulling forward demand, 469 00:25:40,800 --> 00:25:43,800 Speaker 1: I think the stock will trade in a pretty narrow range, 470 00:25:43,800 --> 00:25:50,439 Speaker 1: and I would be a buyer at that level. We 471 00:25:50,520 --> 00:25:52,840 Speaker 1: wanted to get a breath of fresh air always with 472 00:25:52,960 --> 00:25:57,240 Speaker 1: a g F Investments. Greg Villier on our political system, Greg, 473 00:25:57,280 --> 00:25:59,920 Speaker 1: I am so fed up with a cluelessness that also 474 00:26:00,040 --> 00:26:03,560 Speaker 1: editors are the same. I consider the Senator from Vermont 475 00:26:03,680 --> 00:26:07,560 Speaker 1: winning six of the vote in his last go around, 476 00:26:08,080 --> 00:26:10,439 Speaker 1: and I look at Tina Smith in Minneapolis, who we 477 00:26:10,520 --> 00:26:14,040 Speaker 1: featured earlier in Minnesota, who I think was winning with 478 00:26:15,280 --> 00:26:18,159 Speaker 1: or something like that. I mean, there's a lot of 479 00:26:18,200 --> 00:26:21,639 Speaker 1: people like the Senator from Minnesota right now that have 480 00:26:21,760 --> 00:26:29,600 Speaker 1: to step very carefully in these two uh proposals. Absolutely 481 00:26:29,640 --> 00:26:32,840 Speaker 1: taught this first one we'll get in a few hours. 482 00:26:32,880 --> 00:26:36,600 Speaker 1: We all know that. But I am not euphoric that 483 00:26:36,800 --> 00:26:40,000 Speaker 1: this somehow means we've got this done. The really heavy 484 00:26:40,040 --> 00:26:42,800 Speaker 1: lifting now comes on the second bill, which would have 485 00:26:42,960 --> 00:26:46,960 Speaker 1: three point five trillion dollars in spending in new taxes. 486 00:26:47,040 --> 00:26:50,119 Speaker 1: That's crazy. It's never gonna happen, and people like Tina 487 00:26:50,200 --> 00:26:52,680 Speaker 1: Smith know it, and at some point they're going to 488 00:26:52,840 --> 00:26:56,119 Speaker 1: have to give this bill a very big haircut. Is 489 00:26:56,400 --> 00:26:58,359 Speaker 1: is it a new deal? I mean, I get the 490 00:26:58,440 --> 00:27:02,440 Speaker 1: politics and I get the symbol. Is Greg your expert 491 00:27:02,480 --> 00:27:05,960 Speaker 1: on the breadth of history of our politics? Is it 492 00:27:06,119 --> 00:27:10,800 Speaker 1: a Biden new deal? Yes? It is to a large extent. 493 00:27:10,880 --> 00:27:13,960 Speaker 1: It's the biggest new deal type of spending sense f DR. 494 00:27:15,000 --> 00:27:18,520 Speaker 1: If we got what they proposed yesterday, and I would 495 00:27:18,640 --> 00:27:21,200 Speaker 1: argue that three point five trillion could quickly go down 496 00:27:21,200 --> 00:27:24,360 Speaker 1: to two five, maybe the two maybe even below that, 497 00:27:24,880 --> 00:27:27,639 Speaker 1: I think we'll get a bill. But there are some big, 498 00:27:27,680 --> 00:27:31,280 Speaker 1: big obstacles, the death ceiling, the fact that a smaller 499 00:27:31,320 --> 00:27:36,760 Speaker 1: price tag would infuriate the progressives like Alexanderocascio Cortez, who 500 00:27:36,800 --> 00:27:40,120 Speaker 1: has votes that she could put into this fight. So 501 00:27:40,440 --> 00:27:43,639 Speaker 1: the fall is going to be a ferocious fight. And 502 00:27:43,720 --> 00:27:47,639 Speaker 1: just because we get a deal today does not portend 503 00:27:47,760 --> 00:27:50,240 Speaker 1: that we're going to get a deal in two months. Greg, 504 00:27:50,240 --> 00:27:54,200 Speaker 1: how far can the fifty billion dollar bar bipartisan infrastructure 505 00:27:54,200 --> 00:27:59,160 Speaker 1: bill go without something more concrete on this other reconciliation package. 506 00:27:59,720 --> 00:28:03,560 Speaker 1: That's a great question, Lisa, and I think that if 507 00:28:03,600 --> 00:28:06,680 Speaker 1: if we don't get the second part saying we're gonna 508 00:28:06,960 --> 00:28:10,639 Speaker 1: do use reconciliation, that's the big Schumer goal where you 509 00:28:10,640 --> 00:28:13,399 Speaker 1: won't have to have a big veto fight. Yeah, that'll 510 00:28:13,440 --> 00:28:15,480 Speaker 1: get us into the fall. But once we do get 511 00:28:15,520 --> 00:28:18,280 Speaker 1: into the fall, the price tags are going to be huge. 512 00:28:18,760 --> 00:28:21,359 Speaker 1: And there looks like, at least for now, a very 513 00:28:21,440 --> 00:28:24,879 Speaker 1: intractable battle over raising the death ceiling that's going to 514 00:28:24,960 --> 00:28:28,160 Speaker 1: complicate everything. Well, the reason why I ask is because 515 00:28:28,160 --> 00:28:30,680 Speaker 1: a lot of people are treating the bipartisan plan as 516 00:28:30,680 --> 00:28:33,200 Speaker 1: a sure thing. It basically has a lot of support 517 00:28:33,240 --> 00:28:35,119 Speaker 1: on all sides, and yet it does seem to be 518 00:28:35,200 --> 00:28:38,560 Speaker 1: linked in sort of an unknowable way to this other 519 00:28:38,600 --> 00:28:41,240 Speaker 1: proposal that seems like pie in the sky according to 520 00:28:41,320 --> 00:28:44,320 Speaker 1: almost all accounts. So there is a question of what 521 00:28:44,480 --> 00:28:48,840 Speaker 1: is the willingness of Democrats torpedo the bipartisan effort in 522 00:28:49,000 --> 00:28:53,000 Speaker 1: order to push forward something on the other side, Well, 523 00:28:53,040 --> 00:28:55,239 Speaker 1: there is a willingness if you talk to people like 524 00:28:55,360 --> 00:28:59,440 Speaker 1: Joe Manchin or Kristen Cinema of Arizona, that they would 525 00:28:59,480 --> 00:29:04,040 Speaker 1: never read attacks increases of this magnitude, if I'm not mistaken. 526 00:29:04,080 --> 00:29:06,560 Speaker 1: We have an election coming up next year, and the 527 00:29:06,640 --> 00:29:09,840 Speaker 1: idea that we're going to raise taxes this dramatically, I 528 00:29:09,880 --> 00:29:13,240 Speaker 1: think would be suicidal on the part of the Democrats. Meanwhile, 529 00:29:13,280 --> 00:29:15,840 Speaker 1: inflation very much in the forefront of people's minds. We 530 00:29:15,920 --> 00:29:19,080 Speaker 1: got a survey yesterday out of the Federal Reserve showing 531 00:29:19,280 --> 00:29:22,440 Speaker 1: that consumers expectations for inflation over the next couple of 532 00:29:22,520 --> 00:29:25,200 Speaker 1: years arising to the highest levels since at least two 533 00:29:25,200 --> 00:29:27,880 Speaker 1: thousand and thirteen. How does that play in some of 534 00:29:27,880 --> 00:29:32,800 Speaker 1: these spending debates. Well, it's a factor, and the Republicans 535 00:29:32,840 --> 00:29:36,960 Speaker 1: are arguing, I think somewhat disingenuously that the spending will 536 00:29:37,000 --> 00:29:39,920 Speaker 1: cause inflation. A lot of commodities, as you guys know, 537 00:29:40,280 --> 00:29:43,840 Speaker 1: have dropped in the last few weeks, oil, copper, lumber. 538 00:29:44,120 --> 00:29:45,880 Speaker 1: You know, we do have a wage problem. I think 539 00:29:45,920 --> 00:29:49,880 Speaker 1: that's more intractable obviously, But the Republicans will will play 540 00:29:49,920 --> 00:29:53,680 Speaker 1: this up. They've got some big issues immigration, inflation, and 541 00:29:53,720 --> 00:29:56,680 Speaker 1: in my opinion, especially crime. Who are you watching on 542 00:29:56,720 --> 00:29:59,800 Speaker 1: the Republican Party, I mean, away from former President Trump, 543 00:30:00,040 --> 00:30:04,160 Speaker 1: does Grege value watch in Washington? Well, for weeks and 544 00:30:04,160 --> 00:30:07,080 Speaker 1: weeks and weeks everyone said to Santis and his his 545 00:30:07,240 --> 00:30:10,560 Speaker 1: halo has slipped in Florida, no question. So the new 546 00:30:10,600 --> 00:30:15,080 Speaker 1: hot name right now is an African American Republican from 547 00:30:15,080 --> 00:30:19,320 Speaker 1: South Carolina, Tim Scott, very well spoken, not not way 548 00:30:19,320 --> 00:30:22,320 Speaker 1: way out on the right, A likable guy. He may 549 00:30:22,440 --> 00:30:27,840 Speaker 1: run for president, and he's raising a lot of money. Right. No, 550 00:30:27,880 --> 00:30:30,680 Speaker 1: I just I'm sorry. My brain was just going there 551 00:30:30,720 --> 00:30:33,880 Speaker 1: and raising money. We can talk. I'm sorry, John. Now 552 00:30:33,880 --> 00:30:35,920 Speaker 1: you can get a fun one in Can I get one? 553 00:30:36,960 --> 00:30:39,560 Speaker 1: Raising money is a huge deal, explained to our audience, Greg. 554 00:30:39,960 --> 00:30:43,080 Speaker 1: Why raising money is the heart of the matter. Oh, 555 00:30:43,160 --> 00:30:45,000 Speaker 1: you gotta have ads on TV. And if you want 556 00:30:45,000 --> 00:30:46,960 Speaker 1: to have ads on TV, you've got to raise a 557 00:30:47,040 --> 00:30:50,560 Speaker 1: ton of money. We're already seeing saturation ads here in 558 00:30:50,640 --> 00:30:54,000 Speaker 1: d C for the Virginia gubernatorial race. You're just still 559 00:30:54,360 --> 00:30:56,720 Speaker 1: it's still two and a half months away, John, Is 560 00:30:56,760 --> 00:30:59,480 Speaker 1: it like that in the United Kingdom? Does Boris Johnson 561 00:30:59,520 --> 00:31:01,240 Speaker 1: have to raise a lot of money? No? Thanks are 562 00:31:01,160 --> 00:31:04,280 Speaker 1: a little bit more straightforward in the UK. Tom, we 563 00:31:04,360 --> 00:31:06,440 Speaker 1: talk about this every cycle dime. No, but I just 564 00:31:06,440 --> 00:31:09,160 Speaker 1: wish we'd get I know which one you'd prefer. We 565 00:31:09,240 --> 00:31:12,160 Speaker 1: get it done in a shorter time frame. Greg, thank you, 566 00:31:12,280 --> 00:31:17,880 Speaker 1: We can go. JF Investment's Chief US policy strategistic. This 567 00:31:17,960 --> 00:31:21,760 Speaker 1: is the Bloomberg Surveillance Podcast. Thanks for listening. Join us 568 00:31:21,800 --> 00:31:25,560 Speaker 1: live weekdays from seven to ten am. Eastern on Bloomberg 569 00:31:25,640 --> 00:31:29,480 Speaker 1: Radio and on Bloomberg Television each day from six to 570 00:31:29,600 --> 00:31:34,240 Speaker 1: nine am for insight from the best in economics, finance, investment, 571 00:31:34,400 --> 00:31:39,440 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 572 00:31:39,520 --> 00:31:43,320 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course, on 573 00:31:43,440 --> 00:31:47,560 Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg