WEBVTT - Surveillance: Global Recovery With Malpass 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz. Daily we bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com 0:00:23.920 --> 0:00:30.639 and of course on the Bloomberg Tournament. Right now, and 0:00:30.680 --> 0:00:33.599 this is timely on the global impact of the vaccines. 0:00:33.720 --> 0:00:36.960 Can America prosper out of pandemic if the rest of 0:00:37.000 --> 0:00:39.320 the world does not. David melt Pass joins us the 0:00:39.400 --> 0:00:42.519 World Bank President. Mr melt Pass, wonderful to have you 0:00:43.040 --> 0:00:46.760 with us. Your World Bank wants a shared prosperity. I 0:00:46.840 --> 0:00:50.599 want you to explain to our fancy audience why we 0:00:50.680 --> 0:00:54.480 need the impoverished world to get beyond the vaccine and 0:00:54.520 --> 0:00:57.640 the pandemic, to get beyond the pandemic so we can 0:00:57.680 --> 0:01:01.320 prosper as well. Great question, everybody, and to you to 0:01:01.480 --> 0:01:06.000 your to your well manicured audience. Um, the the challenge 0:01:06.400 --> 0:01:10.840 is both the moral the moral issues, meaning we really 0:01:10.959 --> 0:01:13.679 want people everywhere in the world to do well, But 0:01:13.760 --> 0:01:18.480 there's a very hard economic reason as well that uh 0:01:18.480 --> 0:01:21.720 that that people will create markets of the future and 0:01:21.760 --> 0:01:25.520 they will also be the innovators, the the the UH, 0:01:25.600 --> 0:01:29.080 the really practitioners of growth. That's got to come from 0:01:29.200 --> 0:01:31.560 all over the world. So I think there's there's both 0:01:31.640 --> 0:01:35.880 the responsibility to be engaged in countries worldwide UH, and 0:01:36.040 --> 0:01:41.200 also the the the profit motive for everyone in the world. 0:01:41.240 --> 0:01:44.000 We all do better. It's a positive some game if 0:01:44.040 --> 0:01:48.000 everyone can be in the global economy in a positive 0:01:48.040 --> 0:01:51.919 way and constructive and keeping track of global public goods 0:01:51.920 --> 0:01:55.160 like climate issues. David, I have said this for years 0:01:55.200 --> 0:01:58.240 full disclosure, Mr mail Passes in my book of Eons Ago, 0:01:58.800 --> 0:02:01.480 David Mayl Pass want to make clear you own the 0:02:01.520 --> 0:02:05.200 word fast. You have always looked at the calculus of 0:02:05.240 --> 0:02:07.680 the global economy and now you do it through the 0:02:07.680 --> 0:02:12.320 prism of the World Bank. Are we recovering fast? Some 0:02:12.520 --> 0:02:15.360 of the countries are? You know, China didn't even really 0:02:15.400 --> 0:02:19.919 have a recession in twenty The US now looks to 0:02:20.040 --> 0:02:23.919 be h in in a faster recovery, which is welcome. UH. 0:02:24.280 --> 0:02:26.880 But as as we look at the rest of the 0:02:27.320 --> 0:02:30.400 at many parts of the world, the inequality is the 0:02:30.480 --> 0:02:33.560 more striking conditions. So and you can see it you 0:02:33.680 --> 0:02:37.680 I heard your the announcer UH. Prior talking about commodity 0:02:37.720 --> 0:02:41.279 prices and you were talking about oil seventy or eighty dollars. 0:02:41.320 --> 0:02:47.080 That has a differential impact on different countries. Commodity exporters 0:02:47.280 --> 0:02:51.520 are feeling the rise right now from commodity prices, and 0:02:51.560 --> 0:02:55.359 so that's good. But the countries that that use commodities 0:02:55.400 --> 0:02:59.320 that aren't commodity producers. Uh. For example, if you're a 0:02:59.480 --> 0:03:03.520 primary export is tourism, you know, the tourist destinations in 0:03:03.560 --> 0:03:06.680 the developing world, they're still feeling it very hard, and 0:03:06.760 --> 0:03:09.919 I think it's going to be a hard David, as 0:03:10.000 --> 0:03:12.040 do we believe in this reflation trade, or at least 0:03:12.040 --> 0:03:14.359 markets do. Globally, there's been a lot of money that's 0:03:14.360 --> 0:03:17.560 flown into the developing world, into emerging markets assets. Do 0:03:17.600 --> 0:03:19.840 you think the chance of a debt crisis in the 0:03:19.880 --> 0:03:24.360 developing world has basically gotten diminished to near nothing or 0:03:24.400 --> 0:03:26.560 do you think that that's still a really prominent risk. 0:03:27.080 --> 0:03:29.520 I think it's a prominent risk for a lot of 0:03:29.560 --> 0:03:33.040 the countries at the bottom, and that has to do 0:03:33.120 --> 0:03:35.800 with the difficulty of getting new investment. You know, it's 0:03:35.840 --> 0:03:38.400 not enough to get just new debt. You need to 0:03:38.560 --> 0:03:42.480 have that debt applied in the countries. Two projects that 0:03:42.560 --> 0:03:46.400 are really going to create growth. We're trying to provide 0:03:46.680 --> 0:03:50.160 the vaccine support that we can that helps the people 0:03:50.200 --> 0:03:53.160 of the country begin to put it back together again. 0:03:53.680 --> 0:03:57.960 Food insecurity is a big problem because of both the 0:03:58.120 --> 0:04:00.520 things going on on a global scale in terms of 0:04:00.600 --> 0:04:04.920 climate changes, but also because the supply change were disrupted. 0:04:05.120 --> 0:04:07.640 So all of those mean that the people at the 0:04:07.680 --> 0:04:11.720 bottom are still not are not feeling a lift, and 0:04:11.840 --> 0:04:14.280 I think they really need some new systems that will 0:04:14.280 --> 0:04:16.800 give them that kind of lift. One new system would 0:04:16.800 --> 0:04:18.480 be at least wiping out some of their debt to 0:04:18.520 --> 0:04:20.480 give them a leg up as they try to enter 0:04:20.600 --> 0:04:24.359 a new growth trajectory. There's been some talk nascent talk 0:04:24.720 --> 0:04:29.240 about linking at debt reduction to addressing climate change issues. 0:04:29.600 --> 0:04:32.320 How far along are you in those talks. We're working 0:04:32.400 --> 0:04:34.760 closely with the I m F on ways that we 0:04:34.839 --> 0:04:40.400 can uh envision the connection. It's not just climate, it's 0:04:40.520 --> 0:04:44.280 development in general. The country's need as if there if 0:04:44.279 --> 0:04:49.520 there could be debt reduction, that would that would temporarily 0:04:49.760 --> 0:04:53.440 disadvantage the creditors, but it would provide resources in the 0:04:53.480 --> 0:04:57.200 country for them to invest into healthcare, into COVID response, 0:04:57.520 --> 0:05:01.599 UH and into climate and so the rest of the 0:05:01.640 --> 0:05:05.920 world should see that there's a beneficial linkage from UH 0:05:05.960 --> 0:05:09.960 for countries where their debt is unsustainable because maybe past 0:05:10.040 --> 0:05:13.520 governments took on too much debt or the projects that 0:05:13.600 --> 0:05:17.039 they that that were being financed didn't work out. Some 0:05:17.040 --> 0:05:20.680 some of the countries have giant white elephants projects that 0:05:20.680 --> 0:05:24.080 that someone thought five years ago or ten years ago, 0:05:24.200 --> 0:05:26.279 thought it was a good project, and it doesn't work 0:05:26.279 --> 0:05:28.919 out Instill, the people in country have to pay the 0:05:28.960 --> 0:05:31.520 debt a year after year after year. So there's gotta 0:05:31.600 --> 0:05:34.400 be some way out of that for the poorest countries. 0:05:34.800 --> 0:05:36.880 Mr mel Press, I have to ask for Craig Gordon 0:05:36.880 --> 0:05:40.280 in our Washington team. The delicate question always asked when 0:05:40.279 --> 0:05:43.480 we see a change in administrations. You were appointed by 0:05:43.480 --> 0:05:47.600 President Trump to a five year term at the World Bank, 0:05:47.680 --> 0:05:50.440 I believe through two thousand twenty four. But now you 0:05:50.520 --> 0:05:54.320 have a different president. Explain the dynamic of the President 0:05:54.360 --> 0:05:57.960 of the World Bank with a new Biden administration and 0:05:58.000 --> 0:06:00.560 how you see that unfolding here in the coming months. 0:06:00.920 --> 0:06:04.080 I think pretty well. I was proposed by President Trump, 0:06:04.120 --> 0:06:06.279 but I was selected by the Board of the of 0:06:06.360 --> 0:06:08.360 the World Bank. I work for the World Bank and 0:06:08.440 --> 0:06:10.880 for the shareholders of the World Bank and the governors, 0:06:10.880 --> 0:06:13.800 which are countries around the world. So as the Biden 0:06:13.800 --> 0:06:18.760 administration comes in, they guide the relationship as the biggest 0:06:18.800 --> 0:06:22.200 shareholder in the in the World Bank. But I work 0:06:22.400 --> 0:06:25.920 for the for the Bank, and we're doing things that 0:06:25.920 --> 0:06:29.919 that the Biden administration is supportive of, I think, and 0:06:29.960 --> 0:06:34.840 I'm sure that they're very supportive of global growth, of 0:06:34.880 --> 0:06:39.240 developing countries doing better of a of recognizing the importance 0:06:39.240 --> 0:06:43.919 of climate changes in the in the formation of economic 0:06:43.960 --> 0:06:49.320 policies in countries. All of those are work synergistically and 0:06:49.360 --> 0:06:53.000 work well. And they also I think, I mean, I'm 0:06:53.080 --> 0:06:56.839 sure are very interested in the poverty reduction goals of 0:06:56.880 --> 0:06:59.279 the World Bank. That's one of the cores, and so 0:06:59.600 --> 0:07:03.360 I'm looking forward to that new relationship. David Melps, thank 0:07:03.400 --> 0:07:05.480 you so much the World Bank President this morning with 0:07:05.560 --> 0:07:07.760 the good news we've seen over the last number of weeks, 0:07:08.000 --> 0:07:19.160 and better pandemic statistics, Pinco market strategist, pretty slow manage 0:07:19.720 --> 0:07:23.160 an investment committee member, so many great to catch up. 0:07:23.200 --> 0:07:26.560 We have had faulty A hours full of central banks 0:07:26.600 --> 0:07:31.040 speak to I sound tired. What was the headline well, 0:07:31.040 --> 0:07:32.840 I think you are all just talking about. In fact, 0:07:32.880 --> 0:07:36.360 Lisa just said jobs claims are still elevated eight hundred thousand. 0:07:36.600 --> 0:07:39.600 And a key comment this week from Lyle Brainerd, who 0:07:39.640 --> 0:07:42.000 by the way, could well be the next FED chair 0:07:42.120 --> 0:07:45.320 next year. Keep that in mind, um. She spoke to 0:07:45.360 --> 0:07:48.440 the idea that even though we've seen improvement in employment, 0:07:49.320 --> 0:07:51.680 that it's not yet it does not yet fit the 0:07:51.680 --> 0:07:56.520 Fed's new definition of what constitutes maximum employment. Remember last August, 0:07:57.120 --> 0:08:00.440 the FED changed its framework to say that maximum impointment 0:08:00.560 --> 0:08:03.520 must be broad and inclusive, and so that that's a 0:08:03.600 --> 0:08:06.960 broadening of the definition. That means even if there's a 0:08:07.040 --> 0:08:10.560 recoping of the ten million additional jobs that have been 0:08:10.600 --> 0:08:14.320 lost that have not been regained, that the FED will 0:08:14.320 --> 0:08:17.240 be looking at different yardsticks to decide whether or not 0:08:17.440 --> 0:08:20.440 it should raise its policy rate. And that's an important 0:08:20.440 --> 0:08:23.800 element and wrinkle in the central bank God world, Tony, 0:08:23.840 --> 0:08:25.840 congratulations on your new book out. I want to go 0:08:25.840 --> 0:08:31.000 back to stygums one pages on the short term market 0:08:29.560 --> 0:08:36.600 to sorry miss I didn't get stay with me here, Okay, 0:08:36.679 --> 0:08:38.960 The bond market when it moves moves like in the 0:08:39.000 --> 0:08:41.599 spread market, we move what's called folks, red zone to 0:08:41.640 --> 0:08:44.680 green zone up and down quickly. We're in the middle 0:08:44.720 --> 0:08:48.199 of that right now, Anthony Krissenzi. We're we're moving rapidly 0:08:48.280 --> 0:08:52.079 on spreads. Is it a normal red zone, green zone 0:08:52.160 --> 0:08:57.320 abrupt movers or something different this time? Well, it is 0:08:57.520 --> 0:09:00.640 different than the twenty tens. The ten is the wrong 0:09:00.720 --> 0:09:03.360 analog for the current period because of the degree of 0:09:03.440 --> 0:09:08.479 experimentation that's occurring between the monetary and physical authorities. Experimentation 0:09:08.559 --> 0:09:12.000 meaning the extent to which the Central Bank is enabling 0:09:12.600 --> 0:09:17.080 the fiscal authority to drop money into the economy in 0:09:17.200 --> 0:09:21.680 massive quantities. So that's different. But Lisa mentioned the seven 0:09:21.760 --> 0:09:24.600 year auction, and that's an important concept in this, and 0:09:24.640 --> 0:09:27.920 the steepness of the curve. Bond managers love a steep 0:09:28.000 --> 0:09:30.839 yield curve. Bot investors should love it. Generally, the ten 0:09:31.000 --> 0:09:34.320 the seven year note on the services yielding one It 0:09:34.440 --> 0:09:38.320 is one percent yield, but the six year note is 0:09:38.440 --> 0:09:41.440 eight basis points. Let me give you some strange bond math. 0:09:41.520 --> 0:09:43.559 There's a twenty basis point difference. So what does this 0:09:44.000 --> 0:09:45.840 So what does the seven year become in a year 0:09:45.880 --> 0:09:48.960 a six year? So today the yield is one percent 0:09:49.120 --> 0:09:51.880 next year, then if the six years eight basis points. 0:09:51.920 --> 0:09:54.800 It'll it'll fall on yield. What what happens when yields fall, 0:09:55.040 --> 0:09:58.960 prices rise by how much? Bondmath is seven years duration 0:09:59.640 --> 0:10:02.520 times at that change in yield twenty basis points. That's 0:10:02.600 --> 0:10:05.600 one point four percentage points. So a seven year in 0:10:05.600 --> 0:10:08.880 the total return any year fields just stopped moving would 0:10:08.880 --> 0:10:11.200 be two point four percent. And so there's a cushion, 0:10:11.280 --> 0:10:13.440 is what I'm saying. Our unit of duration is thirty 0:10:13.480 --> 0:10:18.400 basis points per unit of maturity of cushion to help 0:10:18.400 --> 0:10:21.439 a bond manager, bond investor today. Now that cushion is 0:10:21.440 --> 0:10:24.319 important for the equity investor, to the credit investor, of 0:10:24.320 --> 0:10:26.240 the investor in the private markets if they are thinking 0:10:26.280 --> 0:10:29.920 about bonds and they're worried about the move, Uh, that 0:10:29.920 --> 0:10:32.600 that's a bit of insurance. It's it's it's it's about 0:10:32.640 --> 0:10:35.839 It's similar to saying that you buy a seven year 0:10:35.880 --> 0:10:38.439 today one percent. That's not quite attractive. But I mentioned 0:10:38.480 --> 0:10:43.640 the total return idea. It is still has diversifying characteristics 0:10:43.679 --> 0:10:47.560 that enable an investor to take risk in the equity market, 0:10:47.600 --> 0:10:51.200 in the credit market, in private assets, and so bonds 0:10:51.200 --> 0:10:54.920 still have a place in a sixty forty split between 0:10:54.960 --> 0:10:58.360 bonds and stocks contexts. We think there's still hedge value, 0:10:58.720 --> 0:11:01.800 so from that act is still important. Steepness is important 0:11:01.800 --> 0:11:03.840 in terms of what's happened Tony. I gotta say, it 0:11:03.880 --> 0:11:05.480 does show you, though, where we are the cycle that 0:11:05.520 --> 0:11:08.120 we're talking about, bond math and such granularity to eke 0:11:08.160 --> 0:11:11.199 out at two percent two point three percent return based 0:11:11.280 --> 0:11:13.120 on where yields are, so it does give you a 0:11:13.160 --> 0:11:15.600 sense of just where we are in the low interest 0:11:15.720 --> 0:11:18.160 rate environment. I'm wondering on a broader level, though, this 0:11:18.320 --> 0:11:20.760 rise and interest rates has really come up from the 0:11:20.840 --> 0:11:25.360 rise in real yields. That's basically not the inflation expectations. 0:11:25.360 --> 0:11:27.400 And I'm not sure what to make of this. I mean, 0:11:27.520 --> 0:11:31.400 we're not seeing inflation expectations go up in tandem with yields. 0:11:31.440 --> 0:11:34.400 What's the message that's importantly said? In fact, I wrote 0:11:34.400 --> 0:11:36.360 myself a note top. One of the top things I 0:11:36.400 --> 0:11:41.000 wrote was real real yields. Good handwriting. You picked up. 0:11:42.320 --> 0:11:45.679 You picked up on an important point. Um. The important 0:11:45.679 --> 0:11:48.160 thing that's happening is that the rise in real interest 0:11:48.240 --> 0:11:51.360 rates is not affecting the stock market. It's not affecting 0:11:51.360 --> 0:11:54.120 the credit markets, it's not affecting markets more broadly financial 0:11:54.160 --> 0:11:57.080 conditions are still loose. It's another way of saying that 0:11:57.880 --> 0:12:02.040 the pain threshold is been reached, which is to say 0:12:02.080 --> 0:12:07.360 that yields then could go higher because rising real yields, 0:12:07.400 --> 0:12:11.640 higher yields tend to be act as a automatic stabilizer 0:12:11.800 --> 0:12:16.560 self stabilizing UH mechanism in the sense that as yields rise, 0:12:16.720 --> 0:12:19.800 it causes equities to fall and then yield stop rising. 0:12:20.160 --> 0:12:21.880 And so the fact that real yields are having no 0:12:21.960 --> 0:12:24.280 impact is important. But so you want to watch and 0:12:24.320 --> 0:12:27.560 see where it is that the rising real yields starts 0:12:27.559 --> 0:12:30.160 to influence other assets, because that's probably the point where 0:12:30.600 --> 0:12:33.960 the rising yields becomes self stabilizing, and it's not there. 0:12:34.080 --> 0:12:36.360 Might be in the high one percent range, close at 0:12:36.280 --> 0:12:39.280 a two percent for all we know. So long as 0:12:39.320 --> 0:12:43.559 the equity investor, the credit investor thinks two percent is it. 0:12:43.600 --> 0:12:46.120 Tony always grid to catch up, So appreciate it's not 0:12:46.120 --> 0:12:49.120 great to see you. Thank you. Pimco Mark his strategy's 0:12:49.160 --> 0:12:58.280 portfolio manager and investment Committee member Francis Donald manual Life. 0:12:58.320 --> 0:13:02.319 She's really quite good and adapting and adjusting to the 0:13:02.440 --> 0:13:07.280 changing linkages of market with economics. Francis do you change 0:13:07.280 --> 0:13:10.679 your economics because of the markets, or to the markets 0:13:10.800 --> 0:13:15.120 change because of the economics. Uh, well, they're not really 0:13:15.240 --> 0:13:18.520 very closely tied together since COVID occurred. But we are 0:13:18.600 --> 0:13:21.120 at the stage where if we start to see tightening 0:13:21.120 --> 0:13:25.000 of financial conditions, it will matter to the economic outlook. 0:13:25.040 --> 0:13:28.280 And this is what central bankers are watching. I watched 0:13:28.360 --> 0:13:31.360 every minute of Powell speak in the last couple of days. 0:13:31.440 --> 0:13:34.960 I learned nothing new, and yet overnight a huge amount 0:13:35.000 --> 0:13:37.680 of information from a lot of central bankers who are 0:13:37.720 --> 0:13:42.079 clearly worried about their economy because of the financial condition. 0:13:42.280 --> 0:13:46.240 That includes Australia who tried to expand purchases and saw 0:13:46.360 --> 0:13:49.840 yields rise pretty aggressively in response, and includes the ECB 0:13:50.320 --> 0:13:53.040 coming out and saying we're uncomfortable with this. It includes 0:13:53.080 --> 0:13:55.880 the Bank of Canada, with two speeches this week trying 0:13:55.920 --> 0:13:59.040 to imply that they're more nervous than the yield market suggests. 0:13:59.320 --> 0:14:02.120 These are all central bankers who worry that the financial 0:14:02.120 --> 0:14:04.800 commissions are now hurting the economy. Well said, now I 0:14:04.840 --> 0:14:07.800 know you're focused on the real yield. Friday's Folks one PM, 0:14:07.800 --> 0:14:10.880 a two hour special this week with John Pharaoll Francis, 0:14:10.880 --> 0:14:13.360 I want you to focus on the trip point that 0:14:13.520 --> 0:14:17.240 you're watching. Is it euro Is it the real tenuere 0:14:17.360 --> 0:14:20.840 yield in the US? Is this something I don't know? Yeah, 0:14:20.880 --> 0:14:23.960 I'm watching both real yields and the term premium because 0:14:23.960 --> 0:14:26.320 as much analysis as we do, that's when you hit 0:14:26.360 --> 0:14:28.840 the circuit breaker on equities. We have a little bit 0:14:28.880 --> 0:14:30.880 of ways to go here. You could see real yields 0:14:30.960 --> 0:14:33.880 rise thirty forty basis points more, but before they become 0:14:34.000 --> 0:14:37.240 very problematic. But I think Powell himself, who is you know, 0:14:37.280 --> 0:14:39.560 appearing as those very comfortable, is going to get a 0:14:39.600 --> 0:14:41.800 lot more nervous as those real yields start to go. 0:14:42.280 --> 0:14:45.000 Real yields that are this negative with the economic outlook 0:14:45.000 --> 0:14:48.440 that we have are unsustainable. They have to rise. The 0:14:48.440 --> 0:14:50.840 hope is that they do it very smoothly and not 0:14:50.920 --> 0:14:53.280 too aggressively. In the last couple of days on a 0:14:53.280 --> 0:14:55.840 little bit more nervous about that. Talking about being nervous 0:14:55.880 --> 0:14:58.200 and Francis, you do a great reality check. What are 0:14:58.200 --> 0:15:00.960 you seeing in terms of labor market expand our lack thereof, 0:15:01.360 --> 0:15:04.120 and how consistent that is with the optimism we're seeing 0:15:04.120 --> 0:15:08.160 in markets. The biggest challenge of twenty was just acknowledging 0:15:08.160 --> 0:15:10.960 that we could see these really severe job losses and 0:15:11.000 --> 0:15:15.160 they wouldn't translate to necessarily a huge economic shock because 0:15:15.160 --> 0:15:18.320 those we've lost their job were so called lower spenders. Right. 0:15:18.640 --> 0:15:21.200 But now as we head into one, we are seeing 0:15:21.200 --> 0:15:24.960 the employment numbers already lad jobless claims should be doing 0:15:25.000 --> 0:15:27.960 substantially better than they are now. But it's not an 0:15:27.960 --> 0:15:31.960 equity trade. It might be a rates trade, because even 0:15:31.960 --> 0:15:35.840 though we see almost ten million Americans unemployed, they're spending 0:15:35.960 --> 0:15:38.800 is not feeding through to GDP and retail sales as 0:15:38.880 --> 0:15:41.160 much as those that are still employed. Now, what I 0:15:41.200 --> 0:15:43.960 think the mistake is is to ignore that entirely and 0:15:44.000 --> 0:15:47.160 think the Fed doesn't care. The Fed cares deeply. This 0:15:47.240 --> 0:15:49.920 market does not believe the Fed. When the Fed says 0:15:50.000 --> 0:15:53.840 it won't be hiking rates until the employment side of 0:15:53.840 --> 0:15:55.840 the mandate is what the market has to listen to 0:15:55.960 --> 0:15:58.560 more or else they're going to get that wrong. Well, Francis, 0:15:58.600 --> 0:16:01.000 there's one thing about raising rate, there's another thing about 0:16:01.000 --> 0:16:04.640 expanding the purchases into longer duration assets, and that seems 0:16:04.680 --> 0:16:06.480 to be off the table or people aren't really talking 0:16:06.480 --> 0:16:08.560 about it so much. When does that come back on 0:16:08.600 --> 0:16:11.040 the table or is that off the table for the FED? 0:16:12.200 --> 0:16:14.720 I don't think it's off the table. This FED is 0:16:14.800 --> 0:16:17.440 going to have to do something to anchor that front 0:16:17.480 --> 0:16:19.840 and if it starts to rise, just like all these 0:16:19.880 --> 0:16:22.640 global central banks are trying to contain the moving yield, 0:16:22.880 --> 0:16:25.560 it's not gonna be enough to just talk down yields 0:16:25.560 --> 0:16:28.600 from these levels. Powell was extraordinarily devish in the last 0:16:28.640 --> 0:16:31.840 few days. It did nothing for him. I suspect we're 0:16:31.840 --> 0:16:33.720 going to hear a little bit more about wheeld curve 0:16:33.800 --> 0:16:36.680 control at the front end. We might hear about extending WHAM. 0:16:36.920 --> 0:16:38.480 These are issues that are going to come back to 0:16:38.560 --> 0:16:41.120 the frame. I used to think back in December that 0:16:41.200 --> 0:16:44.520 extending the weighted average maturity of purchases was absolutely on 0:16:44.560 --> 0:16:46.680 the table. It seems they wanted to save it for 0:16:46.720 --> 0:16:49.320 a situation like this. That might have been the right move. Franks, 0:16:49.360 --> 0:16:51.240 As you mentioned the labor market, let's talk about the 0:16:51.480 --> 0:16:54.320 word you hear a little bit more recently is employment 0:16:54.600 --> 0:16:57.760 and not unemployment. Can you walk me through the emphasis 0:16:57.760 --> 0:17:00.160 shift there, particularly of the last several years for the 0:17:00.200 --> 0:17:02.920 FED and what that mats is. YEA, that's right. When 0:17:02.920 --> 0:17:04.720 we do our monthly chart book. We used to just 0:17:04.760 --> 0:17:07.600 have the unemployment rate. We've now expanded into a range 0:17:07.680 --> 0:17:11.480 of different members, things like employment to population, labor force 0:17:11.560 --> 0:17:15.080 participation rates in the United States have dropped very precipitously 0:17:15.160 --> 0:17:17.639 and more than we've seen in other countries. This is 0:17:17.680 --> 0:17:20.600 problematic for the Federal Reserve, and they've been very clear 0:17:20.640 --> 0:17:23.560 they're expanding the way that they look at the employment market, 0:17:23.800 --> 0:17:26.040 and we as market players, will have to do that 0:17:26.119 --> 0:17:27.760 as well, or else we're not going to see what 0:17:27.840 --> 0:17:30.640 they see, which is the adjusted employment rate for all 0:17:30.640 --> 0:17:33.480 of these underlying factors is closer to ten percent. It 0:17:33.520 --> 0:17:35.720 doesn't look as good as we see on our Bloomberg 0:17:35.760 --> 0:17:38.280 screens when that non farm heralds comes out. This is 0:17:38.320 --> 0:17:40.800 another reason why, even though we could see an earlier 0:17:40.840 --> 0:17:43.520 taper than perhaps some expect, the Fed is not going 0:17:43.560 --> 0:17:46.080 to raise rates until it s these material improvement there 0:17:46.240 --> 0:17:48.119 and these underlying issues are not going to correct in 0:17:48.840 --> 0:17:50.600 one It's going to take a couple of years to 0:17:50.640 --> 0:17:52.840 help us redefine success fronts is what we should be 0:17:52.880 --> 0:17:56.320 focused on. Well, I can only define what the Fed 0:17:56.400 --> 0:17:58.359 tells us it's watching. That's what I have to do, 0:17:58.520 --> 0:18:00.840 and essentially what we're looking for are is a material 0:18:00.960 --> 0:18:03.800 soaking up of that labor force participation rate, getting it 0:18:03.920 --> 0:18:06.879 much higher, seeing a little bit of a closure of 0:18:06.920 --> 0:18:09.399 those racial and income disparities. This appears to be a 0:18:09.480 --> 0:18:12.320 key focus for the Federal Reserve. It doesn't appears that 0:18:12.400 --> 0:18:14.840 the market believes that this is a key focus. It 0:18:14.880 --> 0:18:18.000 doesn't appear that the market believes in average inflation targeting. 0:18:18.000 --> 0:18:20.320 They're pricing in a rate hype that is too early 0:18:20.600 --> 0:18:22.639 basically what the Fed is telling us. So either the 0:18:22.720 --> 0:18:26.080 feed will get swept up and higher inflation, or they're 0:18:26.080 --> 0:18:27.840 gonna stick to what they're told us, in which case 0:18:27.880 --> 0:18:31.800 they're not hiking. For instance, this has been hugely, hugely 0:18:32.000 --> 0:18:35.119 valuable and to me, the heart of the matters. Whatever 0:18:35.200 --> 0:18:37.720 your number is you've got in your head for Q 0:18:38.040 --> 0:18:41.400 two g d P, there's a mystery to how that 0:18:41.480 --> 0:18:45.960 sustains to Q three Q four. What is the probability 0:18:46.200 --> 0:18:51.960 or waiting that we underestimate better GDP growth Q three 0:18:52.320 --> 0:18:55.879 Q four of this year. So I suspect that we're 0:18:55.880 --> 0:18:58.080 going to see Q one and Q two were much 0:18:58.160 --> 0:19:01.879 better than most expected degree that price in Now you know, 0:19:01.920 --> 0:19:04.720 we expected that the soft patch of being Q one, 0:19:04.760 --> 0:19:07.320 but actually it looks like it was November, December, January. 0:19:07.400 --> 0:19:09.560 Q one, Q two going to be very strong. Where 0:19:09.600 --> 0:19:11.840 I think the mistake might be is yes, data will 0:19:11.880 --> 0:19:14.439 be better in Q three and Q four, but guess 0:19:14.440 --> 0:19:17.480 what the reopening trade is priced. We know we're going 0:19:17.520 --> 0:19:20.159 to have an aggressive reopening. There's so much more scope 0:19:20.200 --> 0:19:22.680 for downside surprises in the second half of the year. 0:19:22.920 --> 0:19:25.040 And this is what really worries me. I tell my team, 0:19:25.040 --> 0:19:27.040 don't come in and tell me that the vaccines are 0:19:27.080 --> 0:19:29.960 doing better in virus casecouncer down We know that I 0:19:30.000 --> 0:19:32.440 need the next big catalysts, and when I think about 0:19:32.440 --> 0:19:34.800 the next big catalysts, it's a little bit easier for 0:19:34.840 --> 0:19:37.840 me to sound find downsides and upsides based on what 0:19:37.880 --> 0:19:41.560 we already know, on what Francis, thank you come at 0:19:41.560 --> 0:19:44.640 Francis on every day, Francis Donald expend your life investment Management, 0:19:44.680 --> 0:19:47.840 chief Economist and head of macro economic strategy. Francis, thank 0:19:47.880 --> 0:19:59.960 you without question our interview of the month, the quarter, 0:20:00.200 --> 0:20:04.560 even the year of your optimism of this pandemic ending. 0:20:04.920 --> 0:20:09.439 Juli Edelstein has a wonderful history with his Israel. He 0:20:09.560 --> 0:20:13.960 is Minister of Health, but that barely defines his symbolism 0:20:14.080 --> 0:20:16.360 is one of the last refuse Neis to leave Russia 0:20:16.720 --> 0:20:19.719 in his politics of his Israel were thrilled that the 0:20:19.800 --> 0:20:23.920 Minister of Health could join us today. Minister Edelstein, thank 0:20:23.960 --> 0:20:26.840 you so much for joining. Thank you for telling us 0:20:27.080 --> 0:20:30.240 about the success of Israel. How did you do it? 0:20:30.480 --> 0:20:34.600 How did you succeed at this vaccination program? Well, thank 0:20:34.640 --> 0:20:37.639 you for having me or I'm really proud to say 0:20:37.680 --> 0:20:42.600 that the as we speak, we are crossing the line 0:20:42.600 --> 0:20:46.280 of fifty of the general Israeli population getting at least 0:20:46.320 --> 0:20:50.800 the first job. I think that the main reason was 0:20:51.000 --> 0:20:54.440 to start negotiating early, understanding that we are a very 0:20:54.520 --> 0:20:58.560 small market. The moment companies will actually have the vaccine. 0:20:58.600 --> 0:21:02.359 They weren't even looking now at direction, so we started early. 0:21:03.000 --> 0:21:05.600 The Prime Minister, I do have to say, was actively 0:21:05.680 --> 0:21:10.080 involved in crucial stages in trying to negotiate the best 0:21:10.200 --> 0:21:15.160 dates possible, and then our medical teams are HMOs, came 0:21:15.160 --> 0:21:18.840 into action in an incredible way. The results are that 0:21:19.280 --> 0:21:22.919 in the two months we reached, as I've said, about 0:21:23.040 --> 0:21:26.000 fifty of the general is Early population. And we have 0:21:26.080 --> 0:21:28.719 to keep in mind that right now we don't have 0:21:28.800 --> 0:21:32.120 the permission from Fiser to vaccinate kids under the age 0:21:32.119 --> 0:21:35.000 of sixteen. So I think it's it is a very 0:21:35.160 --> 0:21:37.679 very impressive result. So, Julie, what is life back to 0:21:37.720 --> 0:21:39.960 normal in Israel when our flights opened up to the 0:21:40.000 --> 0:21:43.520 international audience. Well, that's the question I think I'm asked 0:21:44.560 --> 0:21:47.240 two hundred times a day by my fellow Israelis. So 0:21:47.440 --> 0:21:50.240 if it's so successful, why don't we go back to normal? 0:21:50.840 --> 0:21:53.320 And then we all have to we all have to 0:21:53.400 --> 0:21:56.720 understand that we still have a long way to go. 0:21:57.359 --> 0:22:01.680 Right now, we are cautially open, cautious the opening the 0:22:01.800 --> 0:22:07.639 Israeli economy and social life, cultural life after suffering a 0:22:07.800 --> 0:22:12.200 very serious attack of the coronavirus just during last month. 0:22:12.720 --> 0:22:17.040 And the what enables us to open certain areas that 0:22:17.080 --> 0:22:22.119 we couldn't even dream about opening, like theaters or fitness centers, 0:22:22.640 --> 0:22:25.359 is the what we call the green pass, which is 0:22:25.840 --> 0:22:31.200 a certain documents certificate confirming that the person that has 0:22:31.280 --> 0:22:34.959 either been vaccinated or unfortunately suffered from the disease and 0:22:35.000 --> 0:22:38.760 recovered from the disease. So all these people we're talking 0:22:38.800 --> 0:22:42.240