1 00:00:01,040 --> 00:00:04,600 Speaker 1: Strap on your parachute. It's time for What Goes Up 2 00:00:04,720 --> 00:00:14,000 Speaker 1: with Sarah Ponzack and Mike Reagan. Hello, and welcome to 3 00:00:14,040 --> 00:00:17,920 Speaker 1: What goes Up, a Bloomberg Weekly Markets podcast. I'm Mike Reagan, 4 00:00:18,000 --> 00:00:21,720 Speaker 1: a senior editor at Bloomberg, and I'm Katie greidfeldt across 5 00:00:21,760 --> 00:00:24,600 Speaker 1: asset reporter at Bloomberg. And this week on the show, 6 00:00:24,880 --> 00:00:28,720 Speaker 1: markets have really become obsessed with the possibility of faster 7 00:00:28,840 --> 00:00:32,640 Speaker 1: than normal inflation this year as the world reopens from 8 00:00:32,640 --> 00:00:37,360 Speaker 1: COVID lockdowns and the economy booms. That's causing some volatility 9 00:00:37,360 --> 00:00:40,480 Speaker 1: in the stock market, obviously, especially among the big tech 10 00:00:40,479 --> 00:00:43,640 Speaker 1: companies that led the bull market over the last decade. 11 00:00:44,400 --> 00:00:47,040 Speaker 1: So how exactly should we think about inflation and what 12 00:00:47,080 --> 00:00:49,680 Speaker 1: it means for the market and what type of inflation 13 00:00:49,720 --> 00:00:53,400 Speaker 1: exactly should we expect. Katie, our guest, has some thoughts, 14 00:00:54,120 --> 00:00:56,360 Speaker 1: and as always, we'll close out the episode with our 15 00:00:56,440 --> 00:00:59,880 Speaker 1: tradition the craziest thing I saw in markets this week? 16 00:01:00,320 --> 00:01:03,320 Speaker 1: And if you spot something crazy, give the Bloomberg Podcast 17 00:01:03,400 --> 00:01:06,720 Speaker 1: hotline a call at six four six three two four 18 00:01:07,200 --> 00:01:10,080 Speaker 1: three four nine zero and leave a voicemail and maybe 19 00:01:10,120 --> 00:01:12,960 Speaker 1: you'll make it onto the show next week, and speaking 20 00:01:13,000 --> 00:01:15,399 Speaker 1: of making it on the show, we have a special 21 00:01:15,440 --> 00:01:21,360 Speaker 1: message from Sarah Ponzack if we could play that. Hi, everyone, 22 00:01:21,480 --> 00:01:24,880 Speaker 1: it's Sarah. Some bittersweet news to share. I'm moving on 23 00:01:24,920 --> 00:01:27,880 Speaker 1: from Bloomberg, which sadly means leaving what goes up behind. 24 00:01:28,160 --> 00:01:31,200 Speaker 1: So I wanted to say thank you to everyone who listened, 25 00:01:31,360 --> 00:01:34,360 Speaker 1: help the show grow, and of course called intertweeted with 26 00:01:34,400 --> 00:01:38,080 Speaker 1: Crazy Things Takes. The podcast is obviously in very great 27 00:01:38,120 --> 00:01:40,240 Speaker 1: hands with Mike. I just hope he can find someone 28 00:01:40,600 --> 00:01:42,560 Speaker 1: who laughs at his jokes as much as I did. 29 00:01:42,680 --> 00:01:45,400 Speaker 1: Of course, my just kidding. But now from the other side, 30 00:01:45,400 --> 00:01:47,680 Speaker 1: I'm going to be an avid listener and I'm very 31 00:01:47,800 --> 00:01:50,160 Speaker 1: very excited for that, So everyone please keep in touch. 32 00:01:50,160 --> 00:01:52,280 Speaker 1: I would love that. I'm at at Sarah pon sec 33 00:01:52,400 --> 00:01:56,400 Speaker 1: and goodbye, a very bitter sweet farewell. As as Sarah 34 00:01:56,400 --> 00:01:59,000 Speaker 1: said Katie, I think the bitternesses on on our end 35 00:01:59,000 --> 00:02:01,320 Speaker 1: and maybe the sweets on her and because we we 36 00:02:01,400 --> 00:02:04,760 Speaker 1: sure are sad to see her go. Absolutely Luckily, we 37 00:02:04,800 --> 00:02:07,680 Speaker 1: do have a good support group here at Bloomberg to 38 00:02:07,920 --> 00:02:11,040 Speaker 1: UH to help us handle this. So UH next over 39 00:02:11,080 --> 00:02:13,360 Speaker 1: the next few weeks and months, you're gonna be hearing 40 00:02:13,440 --> 00:02:17,680 Speaker 1: from quite a few different voices from around the Bloomberg Company, 41 00:02:17,680 --> 00:02:21,239 Speaker 1: around the world, a lot of colleagues with some fresh perspectives, 42 00:02:21,320 --> 00:02:24,280 Speaker 1: and they'll bring in some fresh guests of their own. 43 00:02:24,320 --> 00:02:27,280 Speaker 1: So stick with us. We're gonna we're gonna keep it going. 44 00:02:27,360 --> 00:02:30,520 Speaker 1: We wish sire the best in her new career in 45 00:02:30,520 --> 00:02:34,639 Speaker 1: wealth management, Katie. If I ever actually managed to accumulate 46 00:02:34,680 --> 00:02:37,440 Speaker 1: some wealth, I might I might give her a call. Absolutely, 47 00:02:37,520 --> 00:02:41,040 Speaker 1: She's at the top of my list. Yeah, So anyway, 48 00:02:41,160 --> 00:02:43,920 Speaker 1: let's get to the markets chat now. We are very 49 00:02:44,000 --> 00:02:46,880 Speaker 1: happy to welcome to the show the head of global 50 00:02:47,000 --> 00:02:51,640 Speaker 1: investment research at Footsie Russell. His name is Philip Lawlor. Philip, 51 00:02:51,680 --> 00:02:55,560 Speaker 1: welcome to the show. Hell Peace be with you and Philip. 52 00:02:55,560 --> 00:02:58,400 Speaker 1: It's funny, you know, uh, guests like you helpfully send 53 00:02:58,480 --> 00:03:02,120 Speaker 1: us some notes about what you're thinking about, and oftentimes 54 00:03:02,160 --> 00:03:05,680 Speaker 1: there's sample questions in them. I always feel like I'm 55 00:03:05,760 --> 00:03:07,440 Speaker 1: cheating a little bit when I asked one of the 56 00:03:07,480 --> 00:03:10,080 Speaker 1: sample questions, but your first one was so good that 57 00:03:10,120 --> 00:03:12,720 Speaker 1: I'm just gonna cheat and and ask it to you. 58 00:03:12,720 --> 00:03:14,840 Speaker 1: You you say, and I think this is a really 59 00:03:14,919 --> 00:03:19,160 Speaker 1: important concept for the market right now. Is good news 60 00:03:19,240 --> 00:03:22,680 Speaker 1: bad news again, you know that famous sort of cliche 61 00:03:22,760 --> 00:03:25,239 Speaker 1: that we stumble into when it's really the central banks 62 00:03:25,280 --> 00:03:28,400 Speaker 1: that are that are running the show. And uh, you know, 63 00:03:28,480 --> 00:03:31,600 Speaker 1: green shoots in the economy or inflation, get the bond 64 00:03:31,600 --> 00:03:34,800 Speaker 1: market spooked, get rates going up, and people are worried 65 00:03:34,800 --> 00:03:37,120 Speaker 1: about that the central banks are gonna have to react, 66 00:03:37,560 --> 00:03:40,760 Speaker 1: and what it all means for this euphoric rally we've 67 00:03:40,800 --> 00:03:43,600 Speaker 1: seen in stocks. So what is the answer to that question? 68 00:03:43,760 --> 00:03:45,600 Speaker 1: Is good news bad news? Again? Do you think are 69 00:03:45,640 --> 00:03:48,000 Speaker 1: we in that stage again? Yeah? But I think look, 70 00:03:48,080 --> 00:03:50,000 Speaker 1: just before we get to the actual answer, let's just 71 00:03:50,040 --> 00:03:52,400 Speaker 1: step back and understand a bit of the journey we've 72 00:03:52,400 --> 00:03:55,240 Speaker 1: been on. And clearly, you know, in this reflation trade 73 00:03:55,320 --> 00:03:57,640 Speaker 1: that really kicked off in in the sort of from 74 00:03:57,720 --> 00:04:04,080 Speaker 1: early November on, which that'svaccine optimism, expectations of the genuine 75 00:04:04,160 --> 00:04:07,400 Speaker 1: V shaped recovery kicking in. That built a lot of 76 00:04:07,400 --> 00:04:11,320 Speaker 1: exuberance and we saw that manifested in the scale of 77 00:04:11,360 --> 00:04:14,480 Speaker 1: the market moves. We've seen the pickup in risk appetite. 78 00:04:15,400 --> 00:04:17,960 Speaker 1: But you know, I think there is now a case 79 00:04:18,560 --> 00:04:22,480 Speaker 1: of markets in a way injecting premature pessimist mint into 80 00:04:22,560 --> 00:04:25,320 Speaker 1: the market. They're getting a bit spooked too early in 81 00:04:25,360 --> 00:04:29,960 Speaker 1: this cycle. The good news, clearly is the degree of 82 00:04:30,000 --> 00:04:33,520 Speaker 1: stimulus the scope for the recovery, and that's all been 83 00:04:33,600 --> 00:04:38,000 Speaker 1: duced up by the stimulus package that's come in on 84 00:04:38,120 --> 00:04:42,320 Speaker 1: your side of the pond. But you know, is this 85 00:04:42,480 --> 00:04:45,120 Speaker 1: really a case of excessive stimulus? So I think we 86 00:04:45,200 --> 00:04:47,880 Speaker 1: need to understand that actually what we witnessed last year 87 00:04:48,000 --> 00:04:51,279 Speaker 1: was an economic shock equivalent to a major, major war. 88 00:04:52,080 --> 00:04:56,360 Speaker 1: And it feels still a trifle premature to be worrying 89 00:04:56,400 --> 00:04:59,440 Speaker 1: about it being too hot on the way out before 90 00:04:59,480 --> 00:05:04,120 Speaker 1: we've even ready started that journey. Well, I'm a little upset, Mike, 91 00:05:04,160 --> 00:05:06,920 Speaker 1: because I wanted to steal that question and ask it first. 92 00:05:07,000 --> 00:05:10,080 Speaker 1: But I think Philip, you're answer tizing pretty nicely to 93 00:05:10,160 --> 00:05:13,760 Speaker 1: what I'd like to ask, because I mean, the big 94 00:05:13,800 --> 00:05:17,080 Speaker 1: event this week, of course, was the FED, and uh, 95 00:05:17,160 --> 00:05:19,799 Speaker 1: this meeting was actually exciting. I mean, we knew exactly 96 00:05:19,839 --> 00:05:21,360 Speaker 1: what we were going to do, but we did get 97 00:05:21,400 --> 00:05:24,520 Speaker 1: an updated DOT plot and that turned some heads because 98 00:05:24,560 --> 00:05:27,320 Speaker 1: two more officials now expect a rate hike by the 99 00:05:27,400 --> 00:05:31,160 Speaker 1: end of the medium Dot of course, it's still says 100 00:05:31,200 --> 00:05:35,160 Speaker 1: that they're on hold until but Bloomberg Intelligence and I've 101 00:05:35,160 --> 00:05:37,640 Speaker 1: seen a few others have already said that, you know, 102 00:05:37,800 --> 00:05:41,520 Speaker 1: there's a possibility this view could catch on, and I'm 103 00:05:41,520 --> 00:05:44,640 Speaker 1: curious to hear your thoughts. You know, especially as we 104 00:05:45,160 --> 00:05:48,360 Speaker 1: start to see stimulus checks start to hit bank accounts, 105 00:05:48,680 --> 00:05:51,279 Speaker 1: do you think that view could catch on and we 106 00:05:51,320 --> 00:05:56,400 Speaker 1: start to see more dots move or definitely I think clearly, 107 00:05:56,760 --> 00:05:59,160 Speaker 1: I think there's very little credibility that the Fed are 108 00:05:59,160 --> 00:06:02,440 Speaker 1: going to hold rates a steady as power has told us, 109 00:06:02,480 --> 00:06:04,680 Speaker 1: and quite rightly, the market, and you can see this 110 00:06:04,760 --> 00:06:08,560 Speaker 1: in the futures market is anticipating mid next year is 111 00:06:08,600 --> 00:06:10,719 Speaker 1: when we're going to start to get the upward inflection. 112 00:06:11,320 --> 00:06:15,360 Speaker 1: But the question is is it axiomatic that arise in 113 00:06:15,360 --> 00:06:18,799 Speaker 1: interest rates is bad for risk appetite And the answer 114 00:06:18,960 --> 00:06:23,240 Speaker 1: is no, patently, it isn't if that drive in rising 115 00:06:23,279 --> 00:06:26,120 Speaker 1: interest rates is being driven by a rise in nominal 116 00:06:26,160 --> 00:06:30,000 Speaker 1: GDP growth. And you know, the time that you worry 117 00:06:30,000 --> 00:06:33,159 Speaker 1: about a tightening cycle is when the perception is the 118 00:06:33,200 --> 00:06:35,800 Speaker 1: Federal Reserve are going from just tapping on the brakes 119 00:06:35,839 --> 00:06:39,400 Speaker 1: to slamming on the brakes. You don't risk assets do 120 00:06:39,560 --> 00:06:43,039 Speaker 1: quite well while they're starting the process of notdging rates higher. 121 00:06:43,279 --> 00:06:47,120 Speaker 1: Because typically markets are enjoying the economic environment that's justifying 122 00:06:47,120 --> 00:06:50,400 Speaker 1: the higher rates. So it's all about timing. I think 123 00:06:50,400 --> 00:06:54,680 Speaker 1: the market is just possibly jumping straight to the that 124 00:06:54,800 --> 00:06:57,920 Speaker 1: the slamming on the brakes stage before we've actually even 125 00:06:58,000 --> 00:07:02,200 Speaker 1: started the genuine kicker of the pick up in growth 126 00:07:02,240 --> 00:07:07,240 Speaker 1: and seeing how savings ratios draw down kicks into economies. 127 00:07:07,320 --> 00:07:09,720 Speaker 1: With with this conjecture about that, but we haven't seen 128 00:07:09,720 --> 00:07:12,280 Speaker 1: that actually happen happening yet. We're going through the classic 129 00:07:12,320 --> 00:07:14,680 Speaker 1: cycle in the way we've had the vigilante movie in 130 00:07:14,720 --> 00:07:17,920 Speaker 1: the bond market. The bond market antenna moving first, and 131 00:07:17,960 --> 00:07:22,120 Speaker 1: that's really been expressed through inflation expectations. But arising bond 132 00:07:22,200 --> 00:07:26,760 Speaker 1: deal is giving us a sense that there's some credibility 133 00:07:26,800 --> 00:07:30,000 Speaker 1: about the Fed's position in going forward. So what we've 134 00:07:30,000 --> 00:07:33,040 Speaker 1: then got to get is the FED shifting its guidance 135 00:07:33,080 --> 00:07:36,160 Speaker 1: and then that being manifested through some sort of tapering 136 00:07:36,240 --> 00:07:38,720 Speaker 1: of their quee. And they've got to go through that 137 00:07:38,840 --> 00:07:43,000 Speaker 1: sequence before they even get the actual part period where 138 00:07:43,000 --> 00:07:46,200 Speaker 1: they're tightening interest rates. So there's a journey to be 139 00:07:46,720 --> 00:07:50,760 Speaker 1: work through here. How quickly, how constantina that is is 140 00:07:50,840 --> 00:07:53,320 Speaker 1: hard to say, but you know, we all we've really 141 00:07:53,320 --> 00:07:57,000 Speaker 1: seen is the bond market vigilantes get to work. They 142 00:07:57,080 --> 00:07:59,560 Speaker 1: might well be getting a little bit ahead of themselves 143 00:07:59,560 --> 00:08:01,920 Speaker 1: in terms to the scale of the inflation shock. We 144 00:08:01,960 --> 00:08:05,120 Speaker 1: can discuss that as well. But even if they're right, 145 00:08:05,560 --> 00:08:08,160 Speaker 1: you still really got to see the tone of the 146 00:08:08,240 --> 00:08:12,040 Speaker 1: messaging from the FED changing, which is the dot plots. 147 00:08:12,080 --> 00:08:14,720 Speaker 1: But the more significant one will be just at what 148 00:08:14,920 --> 00:08:17,440 Speaker 1: time do they start to pull in their que program 149 00:08:17,520 --> 00:08:20,200 Speaker 1: from a hundred twenty billion a month down to eighty 150 00:08:20,360 --> 00:08:23,640 Speaker 1: or sixty or or whatever, and that that will be 151 00:08:23,680 --> 00:08:27,240 Speaker 1: the next big step. And as I said, I think 152 00:08:27,320 --> 00:08:30,760 Speaker 1: this will all be conditional on the underlying economic environment 153 00:08:30,800 --> 00:08:32,360 Speaker 1: that they're doing this. They won't be doing this in 154 00:08:32,400 --> 00:08:35,880 Speaker 1: a vacuum. So we've got to really position ourselves if 155 00:08:35,920 --> 00:08:39,160 Speaker 1: they start tapering that they're doing that in the latter 156 00:08:39,200 --> 00:08:41,640 Speaker 1: half of the year when the US economy really is 157 00:08:41,840 --> 00:08:45,200 Speaker 1: kicking back. I've yet to really be convinced that that's 158 00:08:45,240 --> 00:08:49,840 Speaker 1: necessarily going to feed into a discernible risk off mode 159 00:08:49,840 --> 00:08:52,480 Speaker 1: for markets. But felt about you know, you brought up 160 00:08:52,520 --> 00:08:56,480 Speaker 1: that notion of a inflation shock, or at least people 161 00:08:56,559 --> 00:09:00,600 Speaker 1: worried about their being an inflation shark. I think inflation 162 00:09:00,679 --> 00:09:03,800 Speaker 1: is such a fascinating topic because it seems way more 163 00:09:03,880 --> 00:09:06,880 Speaker 1: controversial than it should be. Right, you know, the CPI 164 00:09:07,000 --> 00:09:10,840 Speaker 1: index says one thing, but people say, but my hamburger 165 00:09:11,200 --> 00:09:14,280 Speaker 1: price doubled last week. We're look at the asset price 166 00:09:14,360 --> 00:09:16,920 Speaker 1: inflation in the stock market. So I know you've done 167 00:09:16,960 --> 00:09:20,679 Speaker 1: some work sort of trying to suss out exactly how 168 00:09:20,720 --> 00:09:23,640 Speaker 1: we should think about inflation, like what measures to look at, 169 00:09:24,040 --> 00:09:26,720 Speaker 1: and also the difference between kind of the good and 170 00:09:26,760 --> 00:09:29,680 Speaker 1: the bad types of inflation that we might experience. Walk 171 00:09:29,760 --> 00:09:31,360 Speaker 1: us through sort of some of the work you've done 172 00:09:32,000 --> 00:09:35,800 Speaker 1: dissecting inflation. Sure, you know, we're all talking about inflation 173 00:09:36,080 --> 00:09:38,200 Speaker 1: as though it's a it's a single word, but in 174 00:09:38,240 --> 00:09:41,240 Speaker 1: fact it comes in multiple guises. There are multiple drivers 175 00:09:41,240 --> 00:09:43,800 Speaker 1: of inflation, and some are sinister and some of the nine. 176 00:09:44,520 --> 00:09:48,040 Speaker 1: And what we need to understand really is what are 177 00:09:48,040 --> 00:09:51,320 Speaker 1: the core drivers that the inflation we're seeing in this cycle. 178 00:09:51,600 --> 00:09:55,520 Speaker 1: You know that the really bad, sinister inflation that central 179 00:09:55,520 --> 00:09:58,440 Speaker 1: bank will keep central banks up at night is when 180 00:09:58,480 --> 00:10:02,320 Speaker 1: they see a pick up the inflation expectations driven through 181 00:10:03,200 --> 00:10:06,600 Speaker 1: cost push and wage growth. You know, where the labor 182 00:10:06,679 --> 00:10:10,360 Speaker 1: market is red hot, unemployment is incredibly low, and you're 183 00:10:10,360 --> 00:10:13,839 Speaker 1: seeing wage growth really accelerating. That's the type of inflation 184 00:10:14,320 --> 00:10:18,360 Speaker 1: that really makes sent all central banks break out into 185 00:10:18,360 --> 00:10:22,120 Speaker 1: a sweat. Now, clearly we're not in that environment. Now. 186 00:10:22,360 --> 00:10:24,319 Speaker 1: What we're witnessing now, I think we're all aware of 187 00:10:24,440 --> 00:10:26,640 Speaker 1: is the cost push, which is input costs. This is 188 00:10:26,679 --> 00:10:31,640 Speaker 1: supplied disruption, base effects. You know, disrupted supply hitting a 189 00:10:31,720 --> 00:10:35,120 Speaker 1: pickup in demand is going to have a temporary pickup 190 00:10:35,160 --> 00:10:38,800 Speaker 1: in in input costs, and and you know that's feeding 191 00:10:38,800 --> 00:10:41,840 Speaker 1: through into the cp I. Now the question is is 192 00:10:41,840 --> 00:10:46,160 Speaker 1: that is that a permanent or a temporary shift? Is 193 00:10:46,200 --> 00:10:48,600 Speaker 1: that just because of the base effects kind of wash 194 00:10:48,679 --> 00:10:52,640 Speaker 1: itself out in six months time? And in fact, the 195 00:10:52,800 --> 00:10:56,880 Speaker 1: really big problem for for for the economy is this, 196 00:10:57,040 --> 00:10:58,720 Speaker 1: there's just going to be a replay of what we 197 00:10:58,760 --> 00:11:01,640 Speaker 1: lived through into two thousand and eleven. I don't know 198 00:11:01,640 --> 00:11:03,600 Speaker 1: if you remember in two thousand eleven, but you know, 199 00:11:03,640 --> 00:11:07,120 Speaker 1: we come out of the financial crisis, we'd have quantitative easing. 200 00:11:07,880 --> 00:11:11,880 Speaker 1: Accusations are too much liquidity chasing too few goods, says 201 00:11:11,920 --> 00:11:16,200 Speaker 1: all commodity prices going through the roof cp I went 202 00:11:16,280 --> 00:11:20,400 Speaker 1: from one to three, and the Federal Reserve had a 203 00:11:20,400 --> 00:11:23,080 Speaker 1: lot of criticism, but quite rightly, the Federal Reserve saw 204 00:11:23,160 --> 00:11:25,920 Speaker 1: this is actually just a big one off hit at 205 00:11:26,000 --> 00:11:29,360 Speaker 1: the cost of living that was going to damage real 206 00:11:29,440 --> 00:11:33,839 Speaker 1: disposable income, real incomes. If people's pay is not going up, 207 00:11:33,880 --> 00:11:36,920 Speaker 1: they're not getting big pay rises, and the cost of 208 00:11:36,960 --> 00:11:40,160 Speaker 1: living goes up, it ends up being at the end 209 00:11:40,160 --> 00:11:44,520 Speaker 1: of the day, disinflationary. So I think what we've got 210 00:11:44,559 --> 00:11:47,439 Speaker 1: to be is more sophisticated as to what's driving the inflation. 211 00:11:47,600 --> 00:11:50,760 Speaker 1: I think this is all about this temporary base effect 212 00:11:51,440 --> 00:11:55,400 Speaker 1: supply disruption hitting a pickup in demand. That the risk 213 00:11:55,600 --> 00:11:57,880 Speaker 1: is that this is going to hit an economy where 214 00:11:58,360 --> 00:12:01,120 Speaker 1: the labor market is not going to see wage growth. 215 00:12:01,800 --> 00:12:04,840 Speaker 1: You know, we we we've still got some structural headwinds 216 00:12:04,840 --> 00:12:07,680 Speaker 1: in terms of the labor market as we work through 217 00:12:07,679 --> 00:12:11,320 Speaker 1: this COVID impact, And I think the central banks are 218 00:12:11,400 --> 00:12:14,160 Speaker 1: quite right to most probably just say we've got on 219 00:12:14,200 --> 00:12:16,959 Speaker 1: the side of caution and just wait to see how 220 00:12:17,000 --> 00:12:19,440 Speaker 1: this works its way through. Of course, if that leads 221 00:12:19,480 --> 00:12:21,800 Speaker 1: to a structural shift and we do get that being 222 00:12:21,840 --> 00:12:25,360 Speaker 1: reflected pick up in growth, then they need to respond 223 00:12:25,360 --> 00:12:28,600 Speaker 1: more aggressively, but don't act too quickly because that will 224 00:12:28,640 --> 00:12:32,120 Speaker 1: create what we call a policy mistake. So assuming that 225 00:12:32,160 --> 00:12:35,360 Speaker 1: plays out, and this is sort of a similar one off, 226 00:12:35,559 --> 00:12:39,839 Speaker 1: perhaps transitory, dare I say it boosts and inflation. I mean, 227 00:12:39,840 --> 00:12:42,680 Speaker 1: how do you expect that to trickle out in markets? 228 00:12:42,760 --> 00:12:46,000 Speaker 1: Because obviously the cyclical rally that we've seen, which is 229 00:12:46,040 --> 00:12:49,880 Speaker 1: premised on a sort of sustainable rise and inflation, it's 230 00:12:49,880 --> 00:12:53,480 Speaker 1: come pretty far at this point. Yeah, So I mean, 231 00:12:53,600 --> 00:12:55,720 Speaker 1: very good question that lots of sort of knock on 232 00:12:56,600 --> 00:12:59,760 Speaker 1: plays on this. I suspect, you know what, if we 233 00:12:59,800 --> 00:13:03,240 Speaker 1: look at break even inflation rates using the tips, you know, 234 00:13:03,360 --> 00:13:05,600 Speaker 1: I think you might well find that they've done the 235 00:13:05,640 --> 00:13:08,360 Speaker 1: majority of the heavy lifting already that you know, they're 236 00:13:08,400 --> 00:13:12,679 Speaker 1: back up ready to where they started from. There's been 237 00:13:12,760 --> 00:13:16,200 Speaker 1: mean reversion. I've got a feeling we might not see 238 00:13:16,240 --> 00:13:19,040 Speaker 1: the break even inflation rates moved much higher from here. 239 00:13:19,040 --> 00:13:22,480 Speaker 1: So we've done the hard yards in that regard, and 240 00:13:22,520 --> 00:13:25,280 Speaker 1: I think then we as we see this rippling through 241 00:13:25,679 --> 00:13:27,880 Speaker 1: it's this we're looking at this over a six month 242 00:13:27,960 --> 00:13:29,880 Speaker 1: time frame, was probably through to the end of the 243 00:13:29,920 --> 00:13:34,240 Speaker 1: third quarter before it the base effects then were off 244 00:13:34,720 --> 00:13:37,360 Speaker 1: and in between that time, Yes, I think we've had 245 00:13:37,360 --> 00:13:40,400 Speaker 1: a lot of the we're getting a big shift in 246 00:13:40,440 --> 00:13:44,760 Speaker 1: the valuation impact of rising inflation on on the tech stocks, 247 00:13:44,800 --> 00:13:49,480 Speaker 1: the quality the growth stocks. They the highly priced, highly 248 00:13:49,559 --> 00:13:53,280 Speaker 1: valued stocks. But of course that that does imply if 249 00:13:53,320 --> 00:13:57,079 Speaker 1: the inflation rates starts to level out or as we 250 00:13:57,280 --> 00:14:01,200 Speaker 1: approached the fourth quarter, then that creates more of a 251 00:14:01,280 --> 00:14:03,000 Speaker 1: tail when for those sort of stocks. So I think 252 00:14:03,000 --> 00:14:06,040 Speaker 1: we've still got some more rotation to do. Kirt see 253 00:14:06,080 --> 00:14:10,600 Speaker 1: the high valuation impact the rising bond shields planed the 254 00:14:11,520 --> 00:14:14,240 Speaker 1: into that. But you know, I think we've we've we've 255 00:14:14,280 --> 00:14:16,280 Speaker 1: moved quite a long way here. I mean, bond shields 256 00:14:16,280 --> 00:14:18,680 Speaker 1: are really have reversed all the way back to where 257 00:14:18,679 --> 00:14:32,600 Speaker 1: they were before we have the COVID shop. Let's unpack 258 00:14:32,640 --> 00:14:36,960 Speaker 1: a little bit that that relationship between interest rates and valuations. 259 00:14:36,960 --> 00:14:40,520 Speaker 1: You have a great phrase here, valuation vertigo, you call it. 260 00:14:40,520 --> 00:14:42,640 Speaker 1: I might I might be still on that. I'm fair 261 00:14:42,680 --> 00:14:44,960 Speaker 1: warning I might be still on that and using that one. 262 00:14:46,000 --> 00:14:48,440 Speaker 1: That's good, good alliteration there. But I know you did 263 00:14:48,440 --> 00:14:52,240 Speaker 1: a piece um talking about hypothetically if we should get 264 00:14:52,240 --> 00:14:56,320 Speaker 1: a mean reversion in priced earnings ratios or I guess 265 00:14:56,320 --> 00:14:58,360 Speaker 1: it would work for every valuation metric. But if we 266 00:14:58,440 --> 00:15:01,720 Speaker 1: if we sort of mean reverse on valuations um and 267 00:15:02,080 --> 00:15:04,800 Speaker 1: you raise the question you would this be a painful 268 00:15:05,480 --> 00:15:09,400 Speaker 1: reversion to the mean? My new jerk responses, yes, I 269 00:15:09,720 --> 00:15:12,640 Speaker 1: believe it would be very painful. Walk us through it 270 00:15:12,800 --> 00:15:15,920 Speaker 1: would that type of reversion have to by definition be 271 00:15:15,960 --> 00:15:18,680 Speaker 1: a painful time for the market. Okay, Look, I mean 272 00:15:18,680 --> 00:15:21,840 Speaker 1: there's an inference. We all know that last year's move 273 00:15:23,120 --> 00:15:26,960 Speaker 1: results in a significant rerating the markets, most notably the 274 00:15:27,080 --> 00:15:31,600 Speaker 1: US the Russell one thousands large cap you know, significant 275 00:15:31,680 --> 00:15:36,200 Speaker 1: rerating and that was the key driver of returns. And 276 00:15:36,240 --> 00:15:39,000 Speaker 1: as I said, that created this sense of vertico were 277 00:15:39,000 --> 00:15:41,360 Speaker 1: now so elevated where we're going to go. And the 278 00:15:41,360 --> 00:15:45,560 Speaker 1: the inference from a very high valuation is you can 279 00:15:45,640 --> 00:15:50,200 Speaker 1: have a damaging D rating, which is you're just going 280 00:15:50,240 --> 00:15:54,160 Speaker 1: to get the market correct the price, the P element 281 00:15:54,200 --> 00:15:58,480 Speaker 1: of the P correct to bring it down. And the 282 00:15:58,520 --> 00:16:01,800 Speaker 1: problem with that is there no empirical evidence to show 283 00:16:01,800 --> 00:16:05,760 Speaker 1: that valuations very useful market timing tool. If if you 284 00:16:05,800 --> 00:16:08,160 Speaker 1: were a portfolio manager and you were just working on 285 00:16:08,200 --> 00:16:12,240 Speaker 1: the assumption that very high peas we're going to axiomatically 286 00:16:12,360 --> 00:16:16,080 Speaker 1: lead to a market decline over the next six months, 287 00:16:16,120 --> 00:16:19,520 Speaker 1: that tends not to work. High peas tell you something 288 00:16:19,560 --> 00:16:22,760 Speaker 1: about the long term returns you can get from from equities. 289 00:16:23,760 --> 00:16:26,800 Speaker 1: So there are two ways markets then can deemed typically 290 00:16:26,880 --> 00:16:30,520 Speaker 1: de rate. One is actually through that this this this inflation. 291 00:16:31,040 --> 00:16:33,360 Speaker 1: If you get really a pick up an inflation that 292 00:16:33,440 --> 00:16:35,480 Speaker 1: is can be very can lead to a very big 293 00:16:35,560 --> 00:16:40,560 Speaker 1: D rating. If inflation averages five pc on average, you 294 00:16:40,640 --> 00:16:43,680 Speaker 1: get a pe closer to ten ten times. I mean, 295 00:16:43,680 --> 00:16:46,160 Speaker 1: you would see a halving of markets on that type 296 00:16:46,160 --> 00:16:49,480 Speaker 1: of shift, but that's got to be a structural shift 297 00:16:49,480 --> 00:16:53,120 Speaker 1: in inflation. What we're saying is actually we think we're 298 00:16:53,120 --> 00:16:55,160 Speaker 1: at the stage of the cycle where you could actually 299 00:16:55,160 --> 00:16:58,680 Speaker 1: get what we call a benign D rating. And that's 300 00:16:58,720 --> 00:17:02,920 Speaker 1: again deconstructing the P ratio into its two parts. That's saying, 301 00:17:03,080 --> 00:17:06,119 Speaker 1: let's put what happens to the index the price, to 302 00:17:06,200 --> 00:17:09,080 Speaker 1: one side, and let's just look at the earnings. And 303 00:17:09,119 --> 00:17:13,760 Speaker 1: we're saying, if we are confident about the recovery that's coming, 304 00:17:13,800 --> 00:17:16,640 Speaker 1: and we've seen what the Federal Reserve done with their 305 00:17:16,680 --> 00:17:18,720 Speaker 1: forecast for the US, and we've seen what the o 306 00:17:18,840 --> 00:17:22,600 Speaker 1: ec D you've done on the similar sort of upgrade, 307 00:17:23,680 --> 00:17:25,720 Speaker 1: if we start to see that coming through, you're going 308 00:17:25,760 --> 00:17:29,280 Speaker 1: to get very powerful what we call operating leverage kicking in, 309 00:17:29,720 --> 00:17:33,920 Speaker 1: and that that is understanding that for each pick up 310 00:17:33,960 --> 00:17:36,960 Speaker 1: in nominal GDP growth, you tend to get two percent 311 00:17:37,080 --> 00:17:42,600 Speaker 1: pick up in revenue growth. For for you know, traded 312 00:17:42,800 --> 00:17:46,800 Speaker 1: equities are in AGGREGA, that's a long run historical average 313 00:17:46,960 --> 00:17:51,320 Speaker 1: ratio revenue growth being twice that of nominal GDP. So 314 00:17:51,359 --> 00:17:53,359 Speaker 1: you can just do some very simple modeling and saying 315 00:17:53,359 --> 00:17:56,000 Speaker 1: if we're looking at potentially over the next twelve months, 316 00:17:56,080 --> 00:18:01,400 Speaker 1: US nominal GDP getting close to eight percent, and that's 317 00:18:01,840 --> 00:18:06,680 Speaker 1: looking at goods really substantial double digit revenue growth, and 318 00:18:06,960 --> 00:18:12,640 Speaker 1: that's way above the nine revenue growth analysts are currently forecasting. Now, 319 00:18:12,680 --> 00:18:15,040 Speaker 1: if you were to get that for each one on 320 00:18:15,119 --> 00:18:18,520 Speaker 1: revenue growth, it feeds through to the bottom line EPs 321 00:18:18,520 --> 00:18:22,560 Speaker 1: with a multiplier effect. So the point is analysts of 322 00:18:22,680 --> 00:18:26,840 Speaker 1: upgraded their EPs the E, but I suspect they are 323 00:18:26,920 --> 00:18:30,120 Speaker 1: behind the curve in the sense of factoring this top 324 00:18:30,160 --> 00:18:33,159 Speaker 1: down operating leverage. If you get that big kick in 325 00:18:33,200 --> 00:18:36,520 Speaker 1: the E, you can still if the egoes up at 326 00:18:36,520 --> 00:18:38,960 Speaker 1: a faster rate than the P, you actually get a 327 00:18:39,040 --> 00:18:41,399 Speaker 1: D rating. And we've had lots of episodes of that. 328 00:18:41,800 --> 00:18:44,520 Speaker 1: In one of our bits, which just showed actually what happened, 329 00:18:45,359 --> 00:18:49,159 Speaker 1: you know from seen through to the middle of you know, 330 00:18:49,200 --> 00:18:53,840 Speaker 1: the market went up ten EPs went up. That meant 331 00:18:53,880 --> 00:18:55,920 Speaker 1: the P and the market fell from nineteen and a 332 00:18:55,920 --> 00:18:59,240 Speaker 1: half time to seventeen and a half. That's a painless 333 00:18:59,320 --> 00:19:02,120 Speaker 1: D rating. So I think it's got to be are 334 00:19:02,160 --> 00:19:07,520 Speaker 1: we on the cusp of the P correcting falling the 335 00:19:07,600 --> 00:19:11,760 Speaker 1: P dropping because the market correct Of course that could happen, 336 00:19:12,160 --> 00:19:15,159 Speaker 1: but actually it feels more realistically if we're looking at 337 00:19:15,200 --> 00:19:18,520 Speaker 1: this pick up in growth coming through, I think analysts 338 00:19:18,800 --> 00:19:23,440 Speaker 1: are going to end up chasing these upgrades upwards over 339 00:19:23,480 --> 00:19:26,560 Speaker 1: the next six months. That analysts have a pretty poor 340 00:19:26,600 --> 00:19:29,560 Speaker 1: track record of getting in front of the macro curve. 341 00:19:30,640 --> 00:19:35,000 Speaker 1: So in thinking about what you're describing with valuations and 342 00:19:35,119 --> 00:19:37,960 Speaker 1: with you know, the stimulus we're getting from both the 343 00:19:38,080 --> 00:19:40,840 Speaker 1: Fed and from Congress, I have have status to throw 344 00:19:40,880 --> 00:19:43,560 Speaker 1: at you. Um. I saw this week that it's the 345 00:19:43,600 --> 00:19:47,840 Speaker 1: best quarter since two thousand for stocks with trailing twelve 346 00:19:47,880 --> 00:19:51,280 Speaker 1: month net losses. I saw another stat um these are 347 00:19:51,280 --> 00:19:53,760 Speaker 1: from Goldman Sacks Baskets that we use a lot, that 348 00:19:54,119 --> 00:19:56,640 Speaker 1: companies with weak balance sheets are on track for their 349 00:19:56,640 --> 00:20:01,000 Speaker 1: best quarter on record. Against companies with strong re balance sheets. 350 00:20:01,520 --> 00:20:03,919 Speaker 1: So I mean, I'm curious, is that a trend that 351 00:20:03,960 --> 00:20:06,560 Speaker 1: can continue? You know, if we're truly in a world 352 00:20:06,640 --> 00:20:09,960 Speaker 1: where the phenominal GDP could get up to eight percent 353 00:20:10,119 --> 00:20:13,840 Speaker 1: or do you see that you know? Unsustainable? This is 354 00:20:13,880 --> 00:20:17,720 Speaker 1: this is I mean, we encapsulate that by talking about 355 00:20:17,720 --> 00:20:21,760 Speaker 1: this in terms of factors. This is basically seeing value 356 00:20:23,000 --> 00:20:26,959 Speaker 1: stocks now starting to outperform. And remember that they've been 357 00:20:27,000 --> 00:20:30,960 Speaker 1: structural under performance for five six seven years, so you 358 00:20:31,240 --> 00:20:35,640 Speaker 1: it had been the US market have been a very focused, 359 00:20:35,920 --> 00:20:41,200 Speaker 1: concentrated market. The top fifteen stocks were driving the US returns. 360 00:20:41,320 --> 00:20:45,400 Speaker 1: US was the standout market. And we know those top 361 00:20:45,440 --> 00:20:49,119 Speaker 1: fifteen stocks were all in tech and you know that 362 00:20:49,320 --> 00:20:53,119 Speaker 1: the likes of Amazon and consumer services, and that was 363 00:20:53,240 --> 00:20:57,160 Speaker 1: driving what we call the quality or growth factor. And 364 00:20:57,240 --> 00:21:02,000 Speaker 1: of course growth does well when you when aggregate growth 365 00:21:02,040 --> 00:21:05,120 Speaker 1: in the economies are reasonably scarce resource, when you're you're 366 00:21:05,280 --> 00:21:10,800 Speaker 1: reasonably suppressed nominal growth level. If nominal GDP is picking 367 00:21:10,880 --> 00:21:15,080 Speaker 1: up on a meaningful basis for a sustained period, when 368 00:21:15,119 --> 00:21:18,439 Speaker 1: I mean by sustained is twelve months to twenty four months, 369 00:21:19,640 --> 00:21:23,320 Speaker 1: growth becomes much more commoditized. So Therefore, people quite logically 370 00:21:23,440 --> 00:21:27,560 Speaker 1: are reluctant to pay the high peas for those growth 371 00:21:27,600 --> 00:21:32,919 Speaker 1: stocks and go down the into the value arena. And 372 00:21:32,960 --> 00:21:36,480 Speaker 1: I think that's really what we've been seeing occurring since November. 373 00:21:36,520 --> 00:21:39,760 Speaker 1: The market's got the message and it started that rotation. 374 00:21:40,320 --> 00:21:42,800 Speaker 1: So when you look at those factors, if you want 375 00:21:42,840 --> 00:21:45,840 Speaker 1: to be in the quality factor, you've got to be 376 00:21:46,000 --> 00:21:50,439 Speaker 1: long basically technology and something like healthcare. And in value 377 00:21:50,480 --> 00:21:55,320 Speaker 1: you've basically got to be long financials, and and that's 378 00:21:55,359 --> 00:21:58,360 Speaker 1: really where we're seeing this this this this major rotation 379 00:21:58,440 --> 00:22:01,119 Speaker 1: going on. So yeah, people are looking at beaten up stops. 380 00:22:01,200 --> 00:22:04,280 Speaker 1: It's the value area that's getting the interest, and they're 381 00:22:04,280 --> 00:22:07,399 Speaker 1: doing that because they can see this pickup in growth coming. 382 00:22:07,840 --> 00:22:10,879 Speaker 1: It's interesting, Philip, I think it's kind of a tricky 383 00:22:11,240 --> 00:22:13,800 Speaker 1: era to to be looking at the market through the 384 00:22:13,920 --> 00:22:18,879 Speaker 1: lenses of factors um because of like you mentioned, the 385 00:22:18,880 --> 00:22:24,280 Speaker 1: base effects from last year are so outrageous that, uh, 386 00:22:24,600 --> 00:22:27,720 Speaker 1: last time I checked anyway, the earnings estimates were the 387 00:22:27,840 --> 00:22:32,280 Speaker 1: value indexes were for higher growth than the earnings growth 388 00:22:32,280 --> 00:22:35,280 Speaker 1: for the growth indexes. So so to me, you know, 389 00:22:35,359 --> 00:22:40,119 Speaker 1: it's it's people are still chasing growth, albeit uh, this 390 00:22:40,320 --> 00:22:43,040 Speaker 1: temporary growth that a lot of the members of the 391 00:22:43,119 --> 00:22:46,720 Speaker 1: value factor are gonna show year over year because of 392 00:22:46,840 --> 00:22:50,639 Speaker 1: the lousy uh environment of last year. To me, that 393 00:22:50,720 --> 00:22:53,439 Speaker 1: makes it feel very much like, um, this rotation has 394 00:22:53,480 --> 00:22:56,119 Speaker 1: an expiration data on it, that it's not necessarily a 395 00:22:56,200 --> 00:22:59,520 Speaker 1: multi year thing. How do you think about that? Yeah, 396 00:23:00,000 --> 00:23:02,120 Speaker 1: totally agree with that. I think this this, this will 397 00:23:02,200 --> 00:23:05,600 Speaker 1: last as long as people have confidence that this pickup 398 00:23:05,600 --> 00:23:08,440 Speaker 1: in growth and that operating leverage has said kicks in. 399 00:23:08,520 --> 00:23:11,240 Speaker 1: But it will that will fade. I mean, it's very 400 00:23:11,240 --> 00:23:13,480 Speaker 1: hard to say whether that's going to fade in twelve 401 00:23:13,480 --> 00:23:16,800 Speaker 1: months time or in twenty four months, but it won't be. 402 00:23:17,160 --> 00:23:20,399 Speaker 1: You know, this isn't a structural move. This is the 403 00:23:20,520 --> 00:23:23,560 Speaker 1: part of the process of this V shaped recovery coming 404 00:23:23,600 --> 00:23:26,520 Speaker 1: out of you know, there's just the sheer scale of 405 00:23:26,520 --> 00:23:29,560 Speaker 1: the economic hit. We're going to get into that sweet 406 00:23:29,560 --> 00:23:32,920 Speaker 1: spot where we're all going to really enjoy just the upticks, 407 00:23:33,040 --> 00:23:36,399 Speaker 1: the up legger that the V recovery kicks in. But 408 00:23:36,480 --> 00:23:40,200 Speaker 1: it will the sugar high rush springs to mind. There's 409 00:23:40,240 --> 00:23:42,960 Speaker 1: a bit of you know, this is going to be 410 00:23:43,000 --> 00:23:46,320 Speaker 1: a sugar high rush, and then the fundamental problem that 411 00:23:47,040 --> 00:23:51,560 Speaker 1: developed G seven economies have all gots is they've been 412 00:23:51,680 --> 00:23:56,320 Speaker 1: establishing much lower trend growth characteristics, So you get the 413 00:23:56,400 --> 00:23:59,680 Speaker 1: Sugar High rush, this snap back, and then the gravitational 414 00:23:59,720 --> 00:24:02,760 Speaker 1: pull is back down to that trend growth trajectory. Once 415 00:24:02,760 --> 00:24:05,200 Speaker 1: we get to that tipping point, you're going to get 416 00:24:05,240 --> 00:24:09,280 Speaker 1: people wanting to look back to these really high growth 417 00:24:10,280 --> 00:24:14,840 Speaker 1: the business models that can deliver the sustainable cash flow growth. 418 00:24:15,720 --> 00:24:18,359 Speaker 1: But I just think that's most probably not going to 419 00:24:18,400 --> 00:24:21,720 Speaker 1: be the story for the next six to twelve months. 420 00:24:21,560 --> 00:24:25,679 Speaker 1: As we get we entered this arena where people are 421 00:24:25,680 --> 00:24:29,119 Speaker 1: going to want the positive earning surprises, and those are 422 00:24:29,200 --> 00:24:31,280 Speaker 1: much more likely to come from the very beaten up 423 00:24:31,320 --> 00:24:35,240 Speaker 1: stocks that have survived the COVID shock and then able 424 00:24:35,320 --> 00:24:38,240 Speaker 1: to announce on a quarter on quarter basis that actually 425 00:24:38,240 --> 00:24:42,720 Speaker 1: the kick backing growth is feeding through to them very positively. 426 00:24:43,720 --> 00:24:45,880 Speaker 1: As a father of three kids, right here, Sugar High, 427 00:24:45,880 --> 00:24:49,920 Speaker 1: I get nervous. It's it's a it's a scary scary Yeah, 428 00:24:50,080 --> 00:25:09,200 Speaker 1: there might be some PTSD there. I don't know, well, anything, Katie, 429 00:25:09,240 --> 00:25:12,280 Speaker 1: anything other smart questions for Philip here before we get 430 00:25:12,320 --> 00:25:14,480 Speaker 1: to the craziest things. I guess, well, I have you. 431 00:25:14,600 --> 00:25:16,200 Speaker 1: I do want to ask you know, a trend we're 432 00:25:16,240 --> 00:25:20,080 Speaker 1: seeing more and more is stocks and bonds falling together. 433 00:25:20,640 --> 00:25:23,240 Speaker 1: And I mean that just could be, you know, because 434 00:25:23,440 --> 00:25:26,600 Speaker 1: tech tends to move inversely with yields. But given that 435 00:25:26,720 --> 00:25:29,760 Speaker 1: tech is such a big component of all these benchmarks, 436 00:25:30,080 --> 00:25:33,560 Speaker 1: it's actually dragging down benchmarks as well when tech falls. 437 00:25:33,920 --> 00:25:36,440 Speaker 1: I guess I'm just curious in that environment. And given 438 00:25:36,440 --> 00:25:38,960 Speaker 1: that this is happening more and more often, I mean, 439 00:25:38,960 --> 00:25:43,360 Speaker 1: where where do investors hide? Great question? In fact, we've 440 00:25:43,400 --> 00:25:46,000 Speaker 1: just been been doing some work unless the correlation, and 441 00:25:46,720 --> 00:25:49,639 Speaker 1: in fact we're just looking at putting out of things. Say, 442 00:25:49,680 --> 00:25:51,679 Speaker 1: actually we are going back to the old normal in 443 00:25:51,800 --> 00:25:55,359 Speaker 1: terms of equity bond correlations. So you know, we're all 444 00:25:55,400 --> 00:25:59,360 Speaker 1: taught in finance one oh one equities and bonds negatively correlated. 445 00:25:59,800 --> 00:26:01,920 Speaker 1: But the problem is, in the last ten years and 446 00:26:01,960 --> 00:26:05,600 Speaker 1: the post GFC world quantitive easing, we've got conditioned to 447 00:26:06,760 --> 00:26:11,159 Speaker 1: them being positively correlated. What was good for bonds was 448 00:26:11,240 --> 00:26:14,960 Speaker 1: also good for equities. Actually, what we've seen in February 449 00:26:15,280 --> 00:26:18,800 Speaker 1: is of this start of getting back into the negative 450 00:26:18,840 --> 00:26:22,120 Speaker 1: bonds of underperformed or even near today bonds of underperformed 451 00:26:22,480 --> 00:26:26,040 Speaker 1: and equities are still managed to deliver positive return. So 452 00:26:26,480 --> 00:26:29,320 Speaker 1: I think we're at that tipping point as we go 453 00:26:29,520 --> 00:26:32,800 Speaker 1: into possibly the Fed shifting their guidance, as I said, 454 00:26:32,800 --> 00:26:35,280 Speaker 1: an into taper, where we are going back into the 455 00:26:35,359 --> 00:26:39,119 Speaker 1: negative correlation. This is totally logical. This is what is 456 00:26:39,200 --> 00:26:41,879 Speaker 1: bad for bonds. Bonds don't really like a pickup in 457 00:26:41,960 --> 00:26:46,320 Speaker 1: nominal GDP growth, whereas equities quite enjoyed that for a while, 458 00:26:46,800 --> 00:26:50,119 Speaker 1: and they that's why they tend to respond very positively 459 00:26:50,280 --> 00:26:52,560 Speaker 1: even when the Fed get to the stage of putting 460 00:26:52,640 --> 00:26:54,920 Speaker 1: up interest rates for a while, and they do that 461 00:26:55,119 --> 00:26:57,920 Speaker 1: until they suddenly think, hang on the Fed of put 462 00:26:58,000 --> 00:27:00,399 Speaker 1: up rates enough that if they keep pulling rates up, 463 00:27:00,520 --> 00:27:04,639 Speaker 1: that's going to slow us down. And that's exactly what happened. 464 00:27:04,640 --> 00:27:08,280 Speaker 1: If you can recall back in you know, the Fed 465 00:27:08,320 --> 00:27:11,440 Speaker 1: had been putting rates up for a while and we 466 00:27:11,600 --> 00:27:14,639 Speaker 1: got to the fourth quarter of eighteen where the market 467 00:27:14,720 --> 00:27:17,280 Speaker 1: worked out that if the Fed we're going to deliver 468 00:27:17,400 --> 00:27:19,360 Speaker 1: what they told us they were going to do, which 469 00:27:19,400 --> 00:27:21,160 Speaker 1: has put rates up to three and a half percent, 470 00:27:21,840 --> 00:27:24,240 Speaker 1: the market worked out that that was going to really 471 00:27:24,359 --> 00:27:26,680 Speaker 1: start to slow the economy. That's when we have that 472 00:27:26,840 --> 00:27:30,359 Speaker 1: quite big correction. But you know that we had a 473 00:27:30,480 --> 00:27:32,920 Speaker 1: twelve months lead up to that where the FED were 474 00:27:32,960 --> 00:27:36,040 Speaker 1: actually just nudging rates up and the equities kept kept 475 00:27:36,119 --> 00:27:39,520 Speaker 1: powering ahead. So I think we just don't we want 476 00:27:39,560 --> 00:27:42,080 Speaker 1: to just see in that sequencing and don't get you know, 477 00:27:42,240 --> 00:27:48,480 Speaker 1: just just don't panic. I think I kind of colors 478 00:27:49,000 --> 00:27:51,880 Speaker 1: perhaps why drum Power is just so reluctant to even 479 00:27:52,560 --> 00:27:56,600 Speaker 1: talk about the exit strategy. And you know why, why 480 00:27:56,720 --> 00:27:59,679 Speaker 1: spook the market at a time when the economy stolen? 481 00:28:00,320 --> 00:28:02,520 Speaker 1: I think so, I think, so we're on the side 482 00:28:02,520 --> 00:28:06,080 Speaker 1: of caution here. I agree, Yeah, stand clear of the 483 00:28:06,200 --> 00:28:10,960 Speaker 1: craziest things we saw in markets this week. Alright, Well, 484 00:28:11,240 --> 00:28:13,440 Speaker 1: one segment where we do not err on the side 485 00:28:13,440 --> 00:28:16,280 Speaker 1: of caution, we aer on the the side of the opposite. 486 00:28:16,320 --> 00:28:17,960 Speaker 1: What's the opposite of caution? I don't know. I guess 487 00:28:18,000 --> 00:28:20,040 Speaker 1: it's the craziest things we saw in markets this week. 488 00:28:20,119 --> 00:28:22,800 Speaker 1: So let's uh, let's get into it. And Katie Sarah 489 00:28:22,920 --> 00:28:25,720 Speaker 1: promised that she would call the hotline once in a 490 00:28:25,760 --> 00:28:27,960 Speaker 1: while and give us her crazy things. So I we 491 00:28:28,000 --> 00:28:30,240 Speaker 1: didn't get a call this week, but if you talk 492 00:28:30,280 --> 00:28:31,919 Speaker 1: to her, I we need to hold her, hold her 493 00:28:31,960 --> 00:28:35,159 Speaker 1: to that. I'll shake her down, shake her down. But 494 00:28:35,280 --> 00:28:37,160 Speaker 1: let's start with you, Katie. I wanna I'm gonna put 495 00:28:37,200 --> 00:28:39,000 Speaker 1: the pressure on you. What's the craziest thing you saw 496 00:28:39,080 --> 00:28:41,240 Speaker 1: this week? Okay, so this is crazy to me, and 497 00:28:41,320 --> 00:28:44,240 Speaker 1: I promise it has a markets element. But this was 498 00:28:44,280 --> 00:28:48,560 Speaker 1: a story that read spiked on the terminal. Apparently, thirteen 499 00:28:48,720 --> 00:28:52,680 Speaker 1: first year analysts at Goldman Sacks in their IB group, 500 00:28:52,800 --> 00:28:58,000 Speaker 1: they surveyed the theirselves and UM presented a presentation to 501 00:28:58,520 --> 00:29:02,360 Speaker 1: management and uh, it's been making the rounds on social media, 502 00:29:02,600 --> 00:29:08,160 Speaker 1: and there's some solutions that they suggested that their work 503 00:29:08,200 --> 00:29:11,600 Speaker 1: weeks should max out at eighty hours. There shouldn't be 504 00:29:11,760 --> 00:29:16,200 Speaker 1: last minute changes to presentations the night before UM. And 505 00:29:16,720 --> 00:29:19,760 Speaker 1: I mean, obviously Twitter is blowing up about it. But 506 00:29:20,000 --> 00:29:23,200 Speaker 1: I promised that the markets element is that Goldman Sacks 507 00:29:23,240 --> 00:29:26,200 Speaker 1: chars actually hit a record high this week, which I 508 00:29:26,880 --> 00:29:29,640 Speaker 1: found surprising, and it ties in neatly to the uh, 509 00:29:30,080 --> 00:29:34,560 Speaker 1: the rotation trade we've been talking about. Wow, eighty hour limit. 510 00:29:34,680 --> 00:29:40,840 Speaker 1: What a bunch of whimps. My day, I tell you was. 511 00:29:40,880 --> 00:29:43,280 Speaker 1: I think the same story. They're they're feel like they're 512 00:29:43,280 --> 00:29:45,640 Speaker 1: being overworked because of all the spack deals, right, is 513 00:29:45,680 --> 00:29:48,560 Speaker 1: that is that part of this story? I mean I 514 00:29:48,720 --> 00:29:51,280 Speaker 1: don't see it in this story, but I wouldn't be surprised. 515 00:29:51,560 --> 00:29:54,200 Speaker 1: It's actually been a really interesting week for Goldman Sacks 516 00:29:54,240 --> 00:29:57,880 Speaker 1: because Bloomberg had that great story about how CEO David 517 00:29:57,920 --> 00:30:01,720 Speaker 1: Solomon was upset because he's all, you know, someone out 518 00:30:01,760 --> 00:30:05,640 Speaker 1: to launch and take a watch break these kids today. 519 00:30:05,720 --> 00:30:07,520 Speaker 1: I don't get it. I don't get it. I know. 520 00:30:07,760 --> 00:30:16,400 Speaker 1: And plusit there is that Solomon was also was that detail, 521 00:30:16,480 --> 00:30:18,720 Speaker 1: wasn't That's a pretty good one though. I like that. 522 00:30:18,920 --> 00:30:20,840 Speaker 1: I would love to have been a fly on the 523 00:30:20,880 --> 00:30:23,960 Speaker 1: wall to see how that presentation landed with the management. 524 00:30:24,280 --> 00:30:26,600 Speaker 1: I'm sure they were took it under it took it 525 00:30:26,720 --> 00:30:30,880 Speaker 1: under advisement. So that's a good one. Alright, Philip, how 526 00:30:30,880 --> 00:30:33,080 Speaker 1: about you? Have you seen anything crazy this week? I 527 00:30:33,160 --> 00:30:36,280 Speaker 1: know we live in crazy times, so I mean this 528 00:30:36,640 --> 00:30:39,719 Speaker 1: this is boringly dry in the sense it relates to markets. 529 00:30:39,760 --> 00:30:42,560 Speaker 1: But this this genuinely made me splutter over my morning 530 00:30:42,600 --> 00:30:44,240 Speaker 1: coffee when I read it in a in a paper. 531 00:30:44,320 --> 00:30:48,960 Speaker 1: And that was some data relating to the Eurozone, and 532 00:30:49,240 --> 00:30:54,160 Speaker 1: it was collated by an investment bank who just pointing 533 00:30:54,200 --> 00:30:58,480 Speaker 1: out that the capital outflows of the Eurozone and during 534 00:30:58,560 --> 00:31:03,400 Speaker 1: this reflation trade here it is amounting to roughly of 535 00:31:03,560 --> 00:31:07,960 Speaker 1: Eurozone GDP at an annualized rate. This is the fastest 536 00:31:08,080 --> 00:31:12,160 Speaker 1: rate of capital outflows there has been seen for twenty 537 00:31:12,280 --> 00:31:14,760 Speaker 1: years now. This in my mind has gone completely under 538 00:31:14,800 --> 00:31:18,320 Speaker 1: the radar screen. And I think if this gets more 539 00:31:18,440 --> 00:31:23,280 Speaker 1: into it remains sustained and gets more into the market narrative, 540 00:31:23,680 --> 00:31:26,160 Speaker 1: this has really big ripple effects. You know, this has 541 00:31:26,320 --> 00:31:28,880 Speaker 1: very big implications in terms of where the dollar goes. 542 00:31:29,000 --> 00:31:33,400 Speaker 1: The dollar at being perceived to be a reflation was 543 00:31:33,440 --> 00:31:35,880 Speaker 1: a negative for the dollar. But if we started to 544 00:31:35,920 --> 00:31:39,720 Speaker 1: get this data being substantiated and continued this this, this 545 00:31:39,920 --> 00:31:42,080 Speaker 1: I think could be a really big event. So it 546 00:31:42,200 --> 00:31:43,800 Speaker 1: was just the share scale of it. When you see 547 00:31:43,840 --> 00:31:47,920 Speaker 1: anything that's amounting to of of a region that's as 548 00:31:48,000 --> 00:31:51,840 Speaker 1: big as the Ourozone, seeing that type of capital outflow, 549 00:31:51,960 --> 00:31:55,040 Speaker 1: this this is big time stuff. That's that's fascinating. Something 550 00:31:55,080 --> 00:31:57,520 Speaker 1: to keep it onund Katie perked up there when you 551 00:31:57,560 --> 00:32:00,560 Speaker 1: started talking about the dollar. In fact, she was she's 552 00:32:00,560 --> 00:32:04,840 Speaker 1: getting excited. I feel like I'm a former currency reporter. 553 00:32:05,000 --> 00:32:07,880 Speaker 1: Now I cover everything markets, but you know, my first 554 00:32:07,960 --> 00:32:11,520 Speaker 1: love was effects, so I appreciate that her heart is 555 00:32:11,560 --> 00:32:14,240 Speaker 1: still with the well the dot dollars that the dollars 556 00:32:14,280 --> 00:32:18,120 Speaker 1: that are really interesting juncture, isn't it. That's the thing here, 557 00:32:18,200 --> 00:32:20,800 Speaker 1: and you know it have been weak, but it's been 558 00:32:21,000 --> 00:32:25,200 Speaker 1: hovering around these key support levels and well turned to 559 00:32:25,280 --> 00:32:29,400 Speaker 1: the d x Y and possibly people are totally underestimating 560 00:32:29,440 --> 00:32:33,200 Speaker 1: the growth differentials, the interest rate differentials, and these capital flows. 561 00:32:33,760 --> 00:32:35,960 Speaker 1: So the big surprise out there could be for everyone 562 00:32:36,080 --> 00:32:38,840 Speaker 1: that the dollar comes back with a much more vengeance 563 00:32:38,920 --> 00:32:42,959 Speaker 1: than is currently pricingpial with all the the pearl clutching 564 00:32:43,040 --> 00:32:46,960 Speaker 1: over inflation. It's wo'd be funny to see it. Yeah, yeah, exactly. Yeah, 565 00:32:48,160 --> 00:32:52,680 Speaker 1: it's always looking for things that could surprise the potential 566 00:32:52,800 --> 00:32:56,280 Speaker 1: shock shop factors. All right, good stuff. You both brought 567 00:32:56,560 --> 00:32:59,719 Speaker 1: your a game here, Um, Philip. For my crazy thing, 568 00:32:59,760 --> 00:33:02,800 Speaker 1: I specialized in the alternative asset classes. And when I 569 00:33:02,880 --> 00:33:06,560 Speaker 1: say alternative, I mean I really mean alternative. And this 570 00:33:06,720 --> 00:33:08,960 Speaker 1: story is really one of my favorites in a while, 571 00:33:09,120 --> 00:33:13,400 Speaker 1: because I am I love stories about something that someone 572 00:33:13,440 --> 00:33:16,120 Speaker 1: thought was a piece of junk, worthless piece of junk, 573 00:33:16,680 --> 00:33:18,280 Speaker 1: and they and they got rid of it and it 574 00:33:18,440 --> 00:33:21,080 Speaker 1: ended up being priceless. Um, I might I might have 575 00:33:21,160 --> 00:33:24,560 Speaker 1: tipped the my my hand there a little bit about 576 00:33:24,680 --> 00:33:27,440 Speaker 1: how much this thing actually costs. But what happened, and 577 00:33:27,480 --> 00:33:30,120 Speaker 1: this is a story courtesy of the Associated Press um 578 00:33:30,360 --> 00:33:34,560 Speaker 1: out of Connecticut. Uh, someone went to a yard sale 579 00:33:35,000 --> 00:33:38,760 Speaker 1: and they bought a pretty uh bowl. It was clearly 580 00:33:38,800 --> 00:33:43,680 Speaker 1: an antique, a blue cobalt bowl, UH with paintings of 581 00:33:43,800 --> 00:33:47,280 Speaker 1: flowers and other designs on it. And they said that 582 00:33:47,400 --> 00:33:49,760 Speaker 1: this is this is pretty interesting at this yard sale 583 00:33:49,800 --> 00:33:53,000 Speaker 1: and New Haven, Connecticut and uh they bought both for 584 00:33:53,080 --> 00:33:57,200 Speaker 1: thirty five dollars. And then they took it home and 585 00:33:57,320 --> 00:33:59,640 Speaker 1: they said, you know what, I'm gonna send this to Southby's, 586 00:33:59,640 --> 00:34:01,959 Speaker 1: a picture of this to Southeby's and see what they 587 00:34:02,000 --> 00:34:04,720 Speaker 1: think about it. South Beast came back and said, this 588 00:34:04,920 --> 00:34:07,920 Speaker 1: bowl is actually from the fifteenth century, so the fourteen 589 00:34:08,000 --> 00:34:12,160 Speaker 1: hundreds in China, the Ming dynasty. Sotheby's put it up 590 00:34:12,200 --> 00:34:15,600 Speaker 1: for auction, and now Katie it's time and Philip, it's 591 00:34:15,600 --> 00:34:18,440 Speaker 1: time to play the prices right on. How much you 592 00:34:18,560 --> 00:34:25,759 Speaker 1: guys think a fifteenth century Ming Dynasty era bowl. I'm sorry, 593 00:34:25,760 --> 00:34:29,640 Speaker 1: it's a white ball adorned with cobalt blue paintings of flowers. 594 00:34:29,920 --> 00:34:33,360 Speaker 1: That changes things. Yeah, one of only seven such bowls 595 00:34:33,400 --> 00:34:38,759 Speaker 1: known to exist in the world up for sale at Southebyes. 596 00:34:39,520 --> 00:34:41,640 Speaker 1: The only hit I'll give you more than the thirty 597 00:34:41,719 --> 00:34:47,279 Speaker 1: five dollars that was paid at the yard Shale New Haven. So, Katie, crisis, right, 598 00:34:47,360 --> 00:34:49,840 Speaker 1: what's your what's your bid? Well? I mean, given that 599 00:34:49,960 --> 00:34:53,000 Speaker 1: an n f T went for what's sixty nine million 600 00:34:53,320 --> 00:34:56,239 Speaker 1: last week, and at least the bowl is physical, I 601 00:34:56,320 --> 00:35:00,239 Speaker 1: don't know. I'll just say seventy million. Seventy million, okay, 602 00:35:00,680 --> 00:35:03,240 Speaker 1: I'm keeping my poker face on here, Philip. I would 603 00:35:03,400 --> 00:35:06,120 Speaker 1: be quite as aggressive for that, certainly, certainly in the millions. 604 00:35:06,200 --> 00:35:10,320 Speaker 1: But I'll say rough seven million, seven millions, okay. I 605 00:35:11,280 --> 00:35:16,200 Speaker 1: I thought the actual price was high. Seven dollars. But 606 00:35:16,640 --> 00:35:18,400 Speaker 1: but the way you put a Katie with n f 607 00:35:18,560 --> 00:35:20,960 Speaker 1: T selling for you know, with with a bunch of 608 00:35:21,719 --> 00:35:26,240 Speaker 1: bits on a computer server somewhere selling for seventy million dollars, 609 00:35:26,520 --> 00:35:28,359 Speaker 1: you would think the hard asset like this would would 610 00:35:28,400 --> 00:35:31,520 Speaker 1: be a lot more so. Right, My benchmarks are all 611 00:35:31,600 --> 00:35:34,120 Speaker 1: screwed up. I can't keep it straight. I think what 612 00:35:34,360 --> 00:35:36,080 Speaker 1: what you would need to do is buy this bowl, 613 00:35:36,960 --> 00:35:40,799 Speaker 1: take a picture of it, smash the ball, and sell 614 00:35:40,880 --> 00:35:42,200 Speaker 1: the picture as an n f T, and you could 615 00:35:42,200 --> 00:35:44,399 Speaker 1: you could probably get seventy millions, So if you guys 616 00:35:44,440 --> 00:35:47,759 Speaker 1: want to go in, we can go thirds and buy 617 00:35:47,800 --> 00:35:50,200 Speaker 1: it and smash it on the next pot. I feel 618 00:35:50,239 --> 00:35:54,080 Speaker 1: like it's full for what could go wrong? Exactly what 619 00:35:54,280 --> 00:35:58,719 Speaker 1: can go wrong? But I thought that was a good one. 620 00:35:58,760 --> 00:36:00,880 Speaker 1: That was that was certainly the the craziest thing, And 621 00:36:00,920 --> 00:36:04,440 Speaker 1: now I'm thinking it's crazy that it didn't solve for like, honestly, yeah, 622 00:36:04,520 --> 00:36:06,440 Speaker 1: I feel like we should ship in and go in 623 00:36:06,600 --> 00:36:11,799 Speaker 1: on this. Well, you you put up thousand, I'm good 624 00:36:11,840 --> 00:36:16,600 Speaker 1: for like two. Maybe Bloomberg, yeah right, they can Matt 625 00:36:16,680 --> 00:36:19,680 Speaker 1: match it. That's it. But I think with that said, 626 00:36:19,719 --> 00:36:21,680 Speaker 1: that is all the time we have for the show. Philip, 627 00:36:21,760 --> 00:36:23,760 Speaker 1: it was so great to have you. Katie has always 628 00:36:23,800 --> 00:36:26,560 Speaker 1: great to have you. Uh and Philip, let's chat again sometime. 629 00:36:26,600 --> 00:36:29,279 Speaker 1: I really enjoyed it. That's good, Thank you very much. 630 00:36:37,160 --> 00:36:39,759 Speaker 1: What goes up? We'll be back next week. Until then, 631 00:36:39,800 --> 00:36:42,320 Speaker 1: you can find us on the Bloomberg Terminal, website and 632 00:36:42,440 --> 00:36:46,120 Speaker 1: app wherever you get your podcasts. We'd love it if 633 00:36:46,160 --> 00:36:47,960 Speaker 1: you took the time to rate and review the show 634 00:36:48,040 --> 00:36:51,400 Speaker 1: on Apple Podcasts so more listeners can find us. And 635 00:36:51,520 --> 00:36:54,000 Speaker 1: you can find us on Twitter follow me at ing. 636 00:36:54,040 --> 00:36:58,359 Speaker 1: Anonymous Katie Greifeld is at k Greifeld. You can also 637 00:36:58,440 --> 00:37:02,640 Speaker 1: follow Bloomberg Podcasts at at podcasts and thank you to 638 00:37:02,719 --> 00:37:04,800 Speaker 1: Charlie Pellett of Bloomberg Radio and the voice of the 639 00:37:04,840 --> 00:37:08,000 Speaker 1: New York City subway system. What Goes Up is produced 640 00:37:08,040 --> 00:37:12,240 Speaker 1: by Tofur Foreheads. The head of Bloomberg Podcasts is Francesco Levy. 641 00:37:12,719 --> 00:37:14,319 Speaker 1: Thanks for listening, See you next time.