Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferroll and Lisa Brownwitz Jailely. We bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com,
Speaker 1: and of course, on the Bloomberg terminal. Richard Haas a
Speaker 1: year ago his effort was my book of the summer,
Speaker 1: and that would be The World A brief introduction. I
Speaker 1: really can't say enough about it being the required brief
Speaker 1: read to get you up to speed on the inter
Speaker 1: dynamics of the world economy. Ambassador has thank you so
Speaker 1: much for joining us this morning. What do you worry
Speaker 1: about after a fourth of July. What's the thing within
Speaker 1: the entire sphere of your work with the Council on
Speaker 1: Foreign Relations? Where's your reading, where's your research where you're
Speaker 1: trying to figure something out? Tom, I could give you
Speaker 1: two answers. I could give you a very long list
Speaker 1: of international things that that worries me. You mentioned Afghanistan,
Speaker 1: there's always China. People aren't talking about North Korea hasn't
Speaker 1: gone away. There's wrong. But but but the thing that
Speaker 1: worries me most is still us. What still worries me
Speaker 1: most is how divided this country is, how our democracy
Speaker 1: is under assault from within. And that's what worries me.
Speaker 1: If we can't come together as a country, there's no
Speaker 1: way we will be able to act effectively on the
Speaker 1: world stage. You drove forward this discussion, it seems a
Speaker 1: lifetime ago. A world in disarray. So let's look at
Speaker 1: after this fourth of July and America in disarray, what
Speaker 1: do our institutions need to do to get us back
Speaker 1: on course in a better direction. Well, our institutions, some
Speaker 1: of them were arm pretty well when you think about
Speaker 1: the courts have performed admirable league. The media for the
Speaker 1: most part, has fulfilled its its role. The real problem,
Speaker 1: I think is is two things. One is Washington, UH.
Speaker 1: We're still unable, for the most part, to come together
Speaker 1: to deal with some of the challenges facing this UH country,
Speaker 1: even beyond infrastructure, things like immigration reform, dealing with budget
Speaker 1: issues and so forth. And then at the state level,
Speaker 1: the disparity in state levels of vaccination. As a real statement,
Speaker 1: shall we say about the federal system and the unevenness
Speaker 1: of how the United States is dealing with what is
Speaker 1: still the biggest challenge the country faces. Why can't we
Speaker 1: get more of a bipartisan push behind infrastructure. I mean,
Speaker 1: I know we have the seven billion dollar deal right now,
Speaker 1: but in an age of you know, trillion dollar stimulus
Speaker 1: and a country um full of patriotic politicians, why don't
Speaker 1: we get a bipartisan deal to give us an edge
Speaker 1: on our competition. Well, we may have a bipartisan deal.
Speaker 1: I think central to it it will be a narrow
Speaker 1: definition of what constitutes infrastructure. If interesting, there's there's no
Speaker 1: bipartisan support for shall we call it a broad definition
Speaker 1: of quote unquote human infrastructure? And then I think there's
Speaker 1: still questions and whatever scale legislation has passed is how
Speaker 1: you pay for it? And you're obviously going to have
Speaker 1: problems when it comes to specific tax increases. Is there
Speaker 1: ever a possibility that we get someone or a group,
Speaker 1: a big enough group, that wants to clean out the loopholes,
Speaker 1: clean out the deductions, and bring revenue higher with the
Speaker 1: with the tax base. Where it is, ever is a
Speaker 1: long time, But I don't see it. One of the
Speaker 1: rules of democracy. It's not what majorities care about, what
Speaker 1: what what drives a democracy? Are intense minorities. That's the reason.
Speaker 1: For example. But you might have the country favoring background checks,
Speaker 1: but you can't get certain things on gun control because
Speaker 1: of the intensity of minority. And by and large you
Speaker 1: have very intense minorities in favor of quote unquote loopholes,
Speaker 1: and I think it makes it very hard even though
Speaker 1: a majority of the country might be open to the
Speaker 1: sort of thing you're talking about, Dr. House. I mean,
Speaker 1: we talk about the disarray here in the U S.
Speaker 1: And of course a lot of foreign nations look at
Speaker 1: that disarray and they see opportunity where continue to be
Speaker 1: barraged by cyber attacks, presumably either at the direction or
Speaker 1: at lease with the sort of implicit uh I guess
Speaker 1: backing of foreign governments. Here you have the resurgence here
Speaker 1: of China across the world in areas where the US
Speaker 1: used to be the dominant force here. How much does
Speaker 1: the White House and the policymakers here in the US
Speaker 1: need to be concerned here about the influence or the
Speaker 1: lack of influence we may now have in some parts
Speaker 1: of the world. I think you have two areas. One
Speaker 1: is with actual or would be is The other is
Speaker 1: with allies. I think they've been more focused on trying
Speaker 1: to rebuild US relations with our friends to reduce some
Speaker 1: of the uncertainty some of the concerns there. But with
Speaker 1: the two countries you mentioned, Uh, the administration has been
Speaker 1: focused much more on China than on any other foreign
Speaker 1: policy issue. Uh. They haven't quite put together a comprehensive
Speaker 1: or coherent policy with Russia. We're going to have a test. Uh.
Speaker 1: You had the meeting in Geneva. The President put down
Speaker 1: a marker about cyber Russia continues to allow cyber operations
Speaker 1: against US that emanate from its its territory. So the
Speaker 1: real question is, are we going to act on the
Speaker 1: norm that, like in the case of terrorism, governments are
Speaker 1: held accountable for terrorist actions that come from their territory.
Speaker 1: Are we going to act on the norm that governments
Speaker 1: are also going to be held accountable from cyber actions
Speaker 1: that emanate from their territory. We're gonna find out. Do
Speaker 1: you have confidence that they'll be a diplomatic solution to this? Uh? No? Uh.
Speaker 1: I may be a diplomat by training, I don't have
Speaker 1: a lot Like you're not gonna get some Geneva convention
Speaker 1: on how to regulate cyberspace. The real question is whether
Speaker 1: you can influence, say, the cost benefit assessment of a
Speaker 1: Latin air boots and that's the real issue. Ambassador has
Speaker 1: a totally unfair question. But let's go there. It's unfair. Tuesday,
Speaker 1: Is there a Biden doctrine his secretary of state Blincoln
Speaker 1: is a president. If they delineated a distinction here that
Speaker 1: you see that you can call a Biden doctrine. No,
Speaker 1: I don't see a doctrine because the doctrine has a
Speaker 1: degree of a commonality and universality to it. On what
Speaker 1: I'm seeing, it's on what I'm seeing are certain impulses,
Speaker 1: a real one I mentioned already, which is an emphasis
Speaker 1: on rebuilding relations with allies, to a surprising emphasis on
Speaker 1: the promotion of democracy. This the idea of dividing the
Speaker 1: world between democracies and authoritarian systems. Obviously uh, fairly robe
Speaker 1: uh rhetorical and other set of responses towards towards China. Uh.
Speaker 1: There's been a re entry into multilateral organizations. But again,
Speaker 1: these are all tendencies. I don't see anything that both
Speaker 1: explains what's going on and and predicts what will go on.
Speaker 1: What is so helpful here? To the gentleman of the
Speaker 1: Council and foreign relations with US is there can always
Speaker 1: be a headline that comes out that deserves perspective from
Speaker 1: Richard hass Here's the headline, Ambassador China, US officials have
Speaker 1: phone call on Korean peninsula issue. You lead with this
Speaker 1: in our conversation this morning. Have we've been tested yet
Speaker 1: on Biden in North Korea? Or does that await it
Speaker 1: awaits hasn't happened, And there's been no what you call
Speaker 1: station identification from North Korea. Historically, we've gotten from time
Speaker 1: to time, there's been some intriguing reports about real problems
Speaker 1: with COVID inside North Korea. So one has the sense
Speaker 1: from AFAR that they've got their their handsful. But in
Speaker 1: the meantime, North Korea's nuclear capabilities and missile capabilities is
Speaker 1: steadily built up over the last decades. And I think
Speaker 1: the real question is does the Biden administration try to
Speaker 1: start some type of what you might call an arms
Speaker 1: control conversation saying, look, we want to get rid of
Speaker 1: all your nuclear weapons and missiles. We know that's not
Speaker 1: gonna happen anytime soon. Let's see if we can't slice
Speaker 1: this in a way or trunch this in a way
Speaker 1: where you get we get a bit of progress and
Speaker 1: what we want, and in exchange, you get a bit
Speaker 1: of progress and what you want, which is sanctions relief.
Speaker 1: We haven't seen that yet, Tom, but I think that's possible, Ambassador.
Speaker 1: I want to ask about Berlin. I'm here, and of
Speaker 1: course the elections are coming up in September. Does does
Speaker 1: do any of the possible outcomes change the relationship between
Speaker 1: the West and Vladimir Putin? Because until now we've been
Speaker 1: really unable to strike back at Russia, or at least
Speaker 1: if we do strike back, we're still sending billions of
Speaker 1: euros to nords Dream too, pretty soon straight to Moscow
Speaker 1: and straight to Putin's coffers. I think nords Dream was
Speaker 1: going so far that it's hard for me to imagine
Speaker 1: anyone walking it uh completely back now. I think the
Speaker 1: United States is going to have differences with pretty much
Speaker 1: whatever leadership emerges ultimately in Germany over both China and Russia.
Speaker 1: And in both cases, the German desire to have an
Speaker 1: economically led diplomacy or foreign policy will probably outpace US.
Speaker 1: And I think that's going to be an inevitable area
Speaker 1: of some friction. Ironically enough, it might be less between
Speaker 1: the US and the Greens because they're the Biden administration
Speaker 1: might find more of an overlap stemming from both environmental
Speaker 1: issues and human rights issues. Ambassador has Thank you so much,
Speaker 1: Richard Hass the force of the Council on Foreign Relations
Speaker 1: their president. I can't say enough about the required read
Speaker 1: the world A brief introduction for all of us. Really
Speaker 1: just a lovely primer, if you will, on the state
Speaker 1: of our international relations. We got the right guest at
Speaker 1: this moment. Christopher Grossanti of m Ai Capital, is a
Speaker 1: great student of the equity markets, looking for value within growthiness. Now, Chris,
Speaker 1: do you own any of these Chinese companies? We don't, Tom.
Speaker 1: We think there's a lot of opportunity here. That's that's
Speaker 1: just much simpler. And if I, if I are a
Speaker 1: wee Bow shareholder, I would be afraid. I hate to
Speaker 1: use this analogy, but I think Hong Kong was frankly
Speaker 1: taken private several months ago, and it's a it's an
Speaker 1: issue of control. I think it's not data. It's about
Speaker 1: controlling the most important, uh political and corporate entities in
Speaker 1: the country. I think you and I earn the same
Speaker 1: page on this Your job is to talk about it.
Speaker 1: My job is to ask the questions I will. We
Speaker 1: spoke to Richard Hassa, the Counsul and Foreign Relations in
Speaker 1: the last hour about an American disarray. Is this a Beijing,
Speaker 1: Chris Grosanti and capitalistic or financial disarray? No? In fact time,
Speaker 1: I think it's a Beijing that's exercising its strength, and
Speaker 1: it's UH perhaps taking advantage of an American and disarray,
Speaker 1: but it's also exercising its strength in its own playground.
Speaker 1: So um I would I would suspect we'll see more
Speaker 1: of that over the in the second half. Let's talk, Yeah, Chris,
Speaker 1: I am curious here about what the effect this could
Speaker 1: potentially have on American companies. There's been a lot of
Speaker 1: reports about some of the issues Tesla is having with
Speaker 1: regards to its relationship with Chinese authorities. Obviously, Apple and
Speaker 1: the iPhone basically wouldn't exist without its relationship with China. Here,
Speaker 1: is there a point where US investors European investors need
Speaker 1: to start being worried about the ties at those that
Speaker 1: those UH countries and those companies in those countries have
Speaker 1: with China. Yes, I'm only half joking when I say, yes,
Speaker 1: there's a point, and it was last year. I really
Speaker 1: think what this exhibits is a flexing of muscle, much
Speaker 1: more overtly than we've seen in the past. But but
Speaker 1: clearly I don't even think the Chinese have been trying
Speaker 1: to hide the ball. They want control over just about
Speaker 1: every financial transaction and and corporate move in the country.
Speaker 1: So I think it's a it's a tough place to
Speaker 1: do business. As the major tech companies have been finding out,
Speaker 1: it is a tough place to do business. It's also
Speaker 1: a relatively lucrative place to do business, all based on
Speaker 1: the size of the population and of course the growing
Speaker 1: wealth there. For a company like Apple or any sort
Speaker 1: of big tech company that wants to have a presence there.
Speaker 1: How comfortable are you, Chris, as an investor and some
Speaker 1: of those US names and being exposed to that Chinese market, Well,
Speaker 1: not terribly comfortable. I'd say. What we do try to
Speaker 1: do is pick those that can survive. A Facebook is
Speaker 1: a perfect example without it, even though as you mentioned,
Speaker 1: it's such a terrific market that you know, the rest
Speaker 1: of the world still dwarfs China by itself. So a
Speaker 1: Facebook a Google have been doing pretty well without towing
Speaker 1: the line and and basically having been mostly excluded from
Speaker 1: the marketplace, So we like that. Yeah, a number of
Speaker 1: those companies actually um threatening to pull out of business
Speaker 1: in Hong Kong if they have to tow the line.
Speaker 1: There is that a concern for you when you look
Speaker 1: at the international companies that you're invested in, how they
Speaker 1: do their business in China, how they manage that balancing act.
Speaker 1: Of course, it has to be concerned. And and I'm
Speaker 1: a great admired Richard Hassas, and I think the black
Speaker 1: swan that we may be seeing over the next few
Speaker 1: years is a real kind of hot confrontation with China,
Speaker 1: and that very much worries me. So again I would uh,
Speaker 1: it's it's on the negative side of a balance those
Speaker 1: companies that have China has a large piece of the
Speaker 1: pie for revenues and profits, but more and more, that's
Speaker 1: got to be all of the big companies you're invested in.
Speaker 1: If I think of the big banks, if I think
Speaker 1: of the big cyclicals, the car makers, you know, the
Speaker 1: equipment makers, um, if I think of the big tech companies,
Speaker 1: they all have to do business in China. It's their biggest,
Speaker 1: fastest growing market. Well, you know, I wouldn't go quite
Speaker 1: that far. Actually, I think Facebook is frankly excluded from China.
Speaker 1: Google is mostly excluded from China, and they're doing, you know,
Speaker 1: pretty darn well. So I'm not saying they can. Obviously
Speaker 1: they'd be able to grow a lot faster, but but
Speaker 1: they're doing okay as it is now. But having said that,
Speaker 1: we can't keep on going like this with you know,
Speaker 1: an divided world of people who can it be blue can't?
Speaker 1: So so there's a resolution coming. I'm just not sure
Speaker 1: it's a happy resolution. Chris, We're not having a normal
Speaker 1: Christopher Grossante interview, which is a good and beautiful thing.
Speaker 1: Thrilled to have you on with this breaking news out
Speaker 1: of China. But to bring it back to something you've
Speaker 1: been expert on and profited on, and that is Apple computer.
Speaker 1: I believe a Apple has manufacturing facilities in China. I
Speaker 1: believe be Apple has a lot of revenue coming from China.
Speaker 1: Is Apple shares or your confidence in Apple shares affected
Speaker 1: by what China does with Chinese stocks? How can they
Speaker 1: not be tombet? But I would say even greater. We're
Speaker 1: not super positive on Apple as opposed to other alternatives
Speaker 1: and technology space, simply because at the end of the day,
Speaker 1: most of its profits still come from iPhones. So look,
Speaker 1: I love Apple, I loved him cook, It's just an
Speaker 1: expensive stock at over thirty times earnings when I can
Speaker 1: get a faster growing non hardware stock like Facebook selling
Speaker 1: in the low twenties times earnings based on next concernings
Speaker 1: and and so I just think there's other better ways
Speaker 1: to play tech growth than Apple at this current time.
Speaker 1: We'll leave it there, Christmas Santi, thank you so much
Speaker 1: on China, particularly this morning with m Ai Capital. Benjamin
Speaker 1: Laidler joins us with each o their global market strategists.
Speaker 1: Smartest guy in the block right now, Ben Laidlor reaffirm
Speaker 1: a double digit two thousand, twenty one. Yeah, definitely. I
Speaker 1: think we continue to underestimate the growth recovery. I mean,
Speaker 1: we're going to go into second water ownings next week.
Speaker 1: Consensus sixty year over year, that will be the peak
Speaker 1: year over year. But I still think we're gonna beat that.
Speaker 1: And and I think the next turning story is next year.
Speaker 1: Expectations for next year just look far too low, twelve
Speaker 1: percent when you've got seven percent nominal GDP growth. So
Speaker 1: I think there's still upside to this sort of growth story.
Speaker 1: You know, pms are still you know, at sixty very
Speaker 1: very high levels. So I think the growth story has
Speaker 1: you know, has further to go. And and that's your
Speaker 1: insurance policy to the biggest risk which is out there,
Speaker 1: which is evaluations are still very high. They're gonna come
Speaker 1: down probably is the FED sort of gradually tightens here.
Speaker 1: But but I think that that sort of growth story
Speaker 1: is more than going to offset the decline evaluation. So yes,
Speaker 1: I think there's you know, you've you've you've had a
Speaker 1: remarkable first half. You're gonna make less money than that
Speaker 1: in the second half. But there's definitely a positive return
Speaker 1: on the story here, and I think people should stay invested.
Speaker 1: So Ben, when we talk about the growth obviously the
Speaker 1: economic growth here, a lot of people are starting now
Speaker 1: to sort of look at the idea that the pace
Speaker 1: of growth, earnings growth, i should say, and the pace
Speaker 1: of revenue growth for a lot of the companies, particularly
Speaker 1: here in the US, are gonna be enough to overcome
Speaker 1: any sort of concerns about the FED, inflation, etcetera, etcetera.
Speaker 1: Here are there certain pockets though of the market, certain
Speaker 1: industries that you think are gonna be a little bit
Speaker 1: more resilient than others. So you know, if you're in
Speaker 1: the bullish sort of growth camp that I am, you're
Speaker 1: looking for, you know, who gives me the most lea
Speaker 1: rage and the most exposure to this growth story, and
Speaker 1: that's that's that's the cyclicals, it's value, it's financials, it's
Speaker 1: everything that's pulled back in the last sort of muthil so,
Speaker 1: so I really think you've been given us another opportunity
Speaker 1: here to step up and buy those sort of pro growth,
Speaker 1: pro growth names. So you know, the U S earnings
Speaker 1: next week overall be probably up sort of the second quarter,
Speaker 1: but these cyclicals are gonna be up, you know, over
Speaker 1: you look internationally, you know, Europe, Canada, I mean a
Speaker 1: lot of these are the marks its which were are
Speaker 1: much more depressed. They're coming off much lower basis. You know,
Speaker 1: those overall indices are going to see a hundred percent
Speaker 1: earnings growth rate. So um, you know, I'm bullish on
Speaker 1: the sort of reopening story. You know, the world is vaccinated,
Speaker 1: so I think the reopening story is only just sort
Speaker 1: of beginning, and that's pushing growth with it, and I
Speaker 1: think the places to get exposure to that are these
Speaker 1: sort of cyclicals and and international markets. You know, our
Speaker 1: Javier Blast laid out an argument for structural supply constraints
Speaker 1: in oil pushing the price higher. Of course, we've also
Speaker 1: seen the Opeque saga do that as well. But do
Speaker 1: you see other areas where we have real structural shifts
Speaker 1: in terms of inflation. I noticed you've got the German
Speaker 1: election and the Copy Summit on your docket of things
Speaker 1: to watch. Yeah, so I think what's going on in
Speaker 1: the oil states and just sort of more broadly, the
Speaker 1: sort of green transition, this move to sort of renewables
Speaker 1: is absolutely fascinating. You know, I think all the ingredients
Speaker 1: are there for you know, for a hundred dollar oil,
Speaker 1: You've got this heavily backwardad future's curve, which is not
Speaker 1: incentivizing anybody to draw from more oil. You've got you know,
Speaker 1: you've got drigg recounts in the US which are rebounded
Speaker 1: maybe half as much as you would have expected with
Speaker 1: sort of prices, you know, at these levels. So you know,
Speaker 1: I think there's a real supply um constraints sort of
Speaker 1: coming through, and that's going to drive. You know, that
Speaker 1: potentially drives oil prices up even further. And and I
Speaker 1: actually say the same goes for the broader commodity space.
Speaker 1: I mean, we're focusing a lot on the sort of
Speaker 1: demand rebound right now, but you know, commodity has been
Speaker 1: out of favor for a decade. That means that no
Speaker 1: one's been investing in the commodity space for a decade.
Speaker 1: So I think you have real supply constraints, but it's
Speaker 1: just worth saying. You know, particularly oil, you know, the
Speaker 1: higher prices go, those are the sort of seeds of
Speaker 1: it's sort of understruction, if you like. I mean ultimately
Speaker 1: that will incentivized supply to come back to the market.
Speaker 1: That's going to incentivize but even in centirice even more,
Speaker 1: the sort of move to renewables, so you know, enjoy
Speaker 1: it while they last, but you know ultimately the market
Speaker 1: is going to adjust. Then you have been on a
Speaker 1: magical re year tear. There's just no other way to
Speaker 1: describe it. You've got other people participating in the ball market,
Speaker 1: but nobody's nailed at like you are we over emphasizing
Speaker 1: the so called rotation from technology too cyclical? Is that
Speaker 1: like emphasized too much versus just being in the market. Yeah,
Speaker 1: I think so. I mean, I think cyclicals lead here
Speaker 1: because you know, I think growth, the growth story has
Speaker 1: sort of sort of further to go. But I think,
Speaker 1: I mean, you need to be invested. I think, you know,
Speaker 1: the tech story is just a different story. It's slightly longer, terms,
Speaker 1: a bit more structural. Evaluations are obviously sort of somewhat higher.
Speaker 1: But these are you know, the Fortress balance sheets, you know,
Speaker 1: very strong growth. I mean, big Tech last quarter grew earnings.
Speaker 1: I mean, it's just mind blowing for companies that size
Speaker 1: coming off the year they'd already had. And I think
Speaker 1: it just speaks to sort of somebody some of the
Speaker 1: earnings power. So you know, we can have a debate
Speaker 1: about you know what, am I prepared to pay for
Speaker 1: these things? But I don't really have a problem with that,
Speaker 1: with that sort of earnings power, These margine, these bind sheets,
Speaker 1: you know, more dividends, more shot by backs. It's a
Speaker 1: different story, less sort of juice copy, we're saying right now,
Speaker 1: but it's it's still a very attractive story. Ben Laylor,
Speaker 1: thank you so much, greatly appreciate you getting us started
Speaker 1: here at this morning with Eutro Global Markets can't say
Speaker 1: enough about the sharpness of ters of his morning note.
Speaker 1: Tom Persella joined some RBC Capital Markets today, Tom, I
Speaker 1: did it shart of the real Atlanta wage tracker. Inflation
Speaker 1: adjusted wages are not there. Do you just presume that
Speaker 1: somehow we get inflation adjusted wage growth or is that
Speaker 1: going to be something we cannot attain in the coming
Speaker 1: quarters and years? Well, I think that Well, first of all,
Speaker 1: good morning and hope hope every had to go to holiday. Um,
Speaker 1: you know, I think it's something like that. It's going
Speaker 1: to take more time than it otherwise would in the
Speaker 1: context of we have a lot of inflation right now.
Speaker 1: Um that the fit keeps to like to keep telling
Speaker 1: us is transitory. Um. So I think in in the
Speaker 1: context of these inflationary pressures, I think it will take
Speaker 1: time for that idea to develop. But I think what
Speaker 1: we have to keep in mind is, you know, as
Speaker 1: we look at wage pressures, um, they're they're they're they're
Speaker 1: very present. Um, you know, they are starting to build.
Speaker 1: I think it will take time for them to uh
Speaker 1: push into more of a positive territory. When when you
Speaker 1: just for inflation, but um, you know, no one can
Speaker 1: deny that that that we're moving in the right direction.
Speaker 1: I mean, Tom, you know how it is everyone wants
Speaker 1: everything so fast. Um, you know this is an idea
Speaker 1: that takes time. I mean the the z W over
Speaker 1: where Matt Miller is in Berlin, those expectations came in
Speaker 1: a little soggy. Is the negative real wage enough to
Speaker 1: derail or I should say, get us to a two
Speaker 1: percent g DP sooner than we think? Yeah, So I
Speaker 1: think what we have to keep in mind. So there's
Speaker 1: so I love this question. So there's a couple of
Speaker 1: well with it. I think that there's a couple of
Speaker 1: of of ways of tackling. So I think when I
Speaker 1: think about the recovery, I think I think it's been
Speaker 1: sort of a step function. UM. The first step in
Speaker 1: that function is you know the sort of this mountain
Speaker 1: of saving that that that we're sitting on UM. And
Speaker 1: I think that's going to be you know, a critical
Speaker 1: ingredient to you know, let us see this this ten
Speaker 1: percent or near ten percent um UH growth rate over
Speaker 1: over the coming year. I think what's then going to
Speaker 1: happen is that at some point that's going to hand
Speaker 1: off to wage pressures which we know are mounting now.
Speaker 1: And and so the obviously the step function there is
Speaker 1: you are going to see some slowing in economic activity.
Speaker 1: I mean, you know, it's funny, I think again people
Speaker 1: want it so simple. Yes, growth is gonna slow, but
Speaker 1: you're gonna slow from you know, roughly eight percent growth
Speaker 1: in the coming year to you know roughly four or
Speaker 1: five percent growth next year, which is still you know,
Speaker 1: meaningfully above um potential growth. So that step function then
Speaker 1: um uh, going from going from wages excuse me, going
Speaker 1: from saving then two wages. We think from wages that
Speaker 1: the next step function is an interesting one. We think
Speaker 1: that that could then hand off to the banking system, right.
Speaker 1: I mean, I think if you look at the loans
Speaker 1: deposits ratio in the United States right now, it's collapsed,
Speaker 1: and it's collapsed for all the reasons that that you
Speaker 1: would you know, sort of think, or the reasons you
Speaker 1: would think it would collapse over the course of a pandemic. Um.
Speaker 1: And so what's interesting is at some point that's not
Speaker 1: going to remain collapsed, right, at some point there's going
Speaker 1: to be a uh, you know, the banks will then
Speaker 1: step in, right, people will start knocking on the doors
Speaker 1: of banks once they depleted their savings, you know, once
Speaker 1: you know, wage pressures start to stabilize and say, hey,
Speaker 1: you know, I'd like to make that loan um. And
Speaker 1: so I think that there's a few steps in the
Speaker 1: function that could actually really sort of help us achieve UM.
Speaker 1: I think really strong growth for again, you know, north
Speaker 1: of potential growth for the next few years. But what
Speaker 1: if we do get to that stage or when we
Speaker 1: do get to that stage where folks come back knocket
Speaker 1: on the door, not only of course the individuals, but
Speaker 1: of course with regards to commercial loans as well. If
Speaker 1: that happens with rates currently where they are here, what
Speaker 1: does that mean for the banks here? Yeah? So I mean, look,
Speaker 1: I'm not going to get into the sort of the
Speaker 1: banking sector. I mean that's you know, are are a
Speaker 1: great banking of folks to to sort of deal with.
Speaker 1: But what I would say is, look, even for me,
Speaker 1: someone who's been talking about sort of more inflationary pressure
Speaker 1: than is appreciated, right, stickier inflationary pressure certainly than is appreciated,
Speaker 1: I still don't think that yields go that high. I
Speaker 1: mean it's something like I'm looking for ten ye yields
Speaker 1: to sort of you know, rocket higher from here. Um
Speaker 1: you know, I think we'll be sort of lucky to
Speaker 1: be holding a two handle on on on tends over
Speaker 1: the coming year. I think would be lucky for for
Speaker 1: for that to happen. I mean, I just think there's
Speaker 1: too many factors at play. So I think I tell
Speaker 1: you something about doesn't that tell you something tom about
Speaker 1: how the market sees economic growth further out? No, I don't.
Speaker 1: I think that I don't think it's I don't think
Speaker 1: it's quite that way. I think I think that there
Speaker 1: are a couple of very important ideas that are sort
Speaker 1: of weighing on the market. Which again, look, let's be
Speaker 1: clear the market. We are all the market, right, I
Speaker 1: mean we're we're all the people that are making these forecasts.
Speaker 1: And I think that you know, whoever the quote unquote
Speaker 1: market is, I don't think they know any more than
Speaker 1: any of the economists that or or or in the
Speaker 1: other analysts that are building views, um on on on
Speaker 1: the economic backdrop. So what I would say is, instead
Speaker 1: of some mysterious hey, the market knows something more about
Speaker 1: the backdrop, you know, two or three years out, what
Speaker 1: I would say is this, I think there are a
Speaker 1: couple of key things that are weighing on the market
Speaker 1: or not weighing on the market, that are that are
Speaker 1: that are stopping yields from really rising materially. Here here's
Speaker 1: to them. So the first is, I think, you know,
Speaker 1: we have to keep in mind that we obviously have
Speaker 1: you know, countries and central banks that are still engaged
Speaker 1: in this this negative rate experiment. UM. You know, that
Speaker 1: is obviously something that I think needs to be entertainment.
Speaker 1: We still buns that are you know, negative yielding negative
Speaker 1: right now. If you SX adjust our ten year yield yield,
Speaker 1: what you would actually see is that it's very enticing
Speaker 1: to UM, the Japanese investors in particular, and to European
Speaker 1: investors in particular. So I think that that's a factor
Speaker 1: point one that's weighing on tenure yields. I think the
Speaker 1: other fact that that's weighing on tenure yield UM is
Speaker 1: I think you have to keep in mind, where's the
Speaker 1: fight going with funds right Like if you look at
Speaker 1: their long run estimate of funds right now, it's only
Speaker 1: two and a half percent. Think back to the last
Speaker 1: hiking cycle, the last hiking cycle when the FED got
Speaker 1: funds to two and a half percent, what was their
Speaker 1: long run estimate of funds and then it was three percent.
Speaker 1: So over the course of the last you know, call
Speaker 1: it five or six years, long runestment of funds has
Speaker 1: shifted from three percent down to where it is today,
Speaker 1: which is to say, two and a half percent. So
Speaker 1: if the FED finished fifty basis points less relative to
Speaker 1: their long renestment during the last hiking cycle, I think
Speaker 1: that they're probably gonna wand up and again, not that
Speaker 1: that equation works always, I'm just simply saying, I think,
Speaker 1: but that is then nothing but chopped their long run
Speaker 1: estimate of funds. I think that they're gonna have a
Speaker 1: really hard time lifting rates materially north of two percent.
Speaker 1: And I think that that is yet another factor that
Speaker 1: that sort of you know, is acting as a sealing
Speaker 1: on tends. And the debate here, folks, is on the
Speaker 1: idea can they do in a linear fashion or is
Speaker 1: a jump condition at some point and we'll have to
Speaker 1: see how that works out. Mr PERSELLI, thank you so much,
Speaker 1: Tom Perselli with RBC Capital Markets. Douglas cast is the
Speaker 1: Sabers Partners. Yes, his acclaimed morning note as well. It's
Speaker 1: about more the shorter term, but also he has a
Speaker 1: courage to go along. We'll talk about to go along
Speaker 1: in a minute. Doug, you are terse and decidedly cautious
Speaker 1: on the market. The phrase you use as group stink,
Speaker 1: and it's an institutional Wall Street position for good and
Speaker 1: better times. Are you worried about a correction? Or are
Speaker 1: you worried about a bear market? Or are you worried
Speaker 1: about the worse than that? I'm worried that no one
Speaker 1: else is worried about substantial walkdown in stock prices. I
Speaker 1: see a number of I'm glad you didn't start with
Speaker 1: the New York Yankees, by the way I did. I
Speaker 1: was advised my people talked to your people, and shockingly,
Speaker 1: they've made a total of eighty errors this year. That's
Speaker 1: four more errors than the number of hot dogs that
Speaker 1: Joey Chestnut concerned in the eating contest anage. But I'm
Speaker 1: not am I have no intention of calling my next
Speaker 1: puppy Fenway. Okay, but we got no no, we gotta
Speaker 1: stay on this right now. This is why did I start?
Speaker 1: Who did the Yankees trade to rebuild? Aaron Boone Okay,
Speaker 1: that's easy one. That's a manager that would work. But
Speaker 1: do you really think it's a manager solution? I do
Speaker 1: think so, yes, Okay, that's yeah, that's good. I got guys.
Speaker 1: According to the bookmakers I checked, it actually just made
Speaker 1: a bet there are a fourteen percent chance to make
Speaker 1: the postseason, in less than one half of one percent
Speaker 1: to win the World Series. That's good. Okay. Let's you're
Speaker 1: talking to market about the market. The market ramp uh,
Speaker 1: Tom and poil has been a start. The NAS back
Speaker 1: is now up seven straight weeks. It's strong this morning. Um.
Speaker 1: But my old pal and legendary technical line this Bott
Speaker 1: Farrow once warned in his Ten Lessons of Investing that
Speaker 1: excesses in one direction will lead to an opposite excess
Speaker 1: in the other direction. There's another one of his rules
Speaker 1: I think that might be relevant. Um. Was it was
Speaker 1: Bod's belief that the public and today that means the
Speaker 1: Reddit community and the robin Hood crowds by the most
Speaker 1: at the top and the least at the bottom. Yeah.
Speaker 1: We've certainly seen them, uh, you know, big time in
Speaker 1: the last twelve months here, eighteen months. So Doug is
Speaker 1: the catalyst for a pullback However, you want to define
Speaker 1: a pullback in your mind, what is that catalyst is
Speaker 1: simply that's that's the that's the sixty or four thousand
Speaker 1: dollar question. The biggest market player is the Federal Reserve
Speaker 1: UH and the market players the Federal Reserve in the
Speaker 1: central banks around the world. They've been providing um equity
Speaker 1: heroin for the players since the COVID low. All you
Speaker 1: have to do, Paul is draw a chart that plots
Speaker 1: the SMP index to the Fed's balance. The two lines
Speaker 1: are right on top of each other. But the thing
Speaker 1: about drug dealers is that that they never want the
Speaker 1: customers to get clean. We've had several bubbles in the
Speaker 1: last three decades. Each bubble is growing larger and larger,
Speaker 1: larger than the one before, So one might ask um
Speaker 1: the FED slashes rates lower and lower, rather than clearing
Speaker 1: the imbalances, which get bigger and bigger. With a drug
Speaker 1: like heroin, it takes more and more to induce the high.
Speaker 1: The problem is that it's taking more and more money
Speaker 1: and debt to have a marginal incremental impact on production
Speaker 1: domestic growth UM. I think in endorsing this sort of policy,
Speaker 1: we sow the seeds for problems as debt is at
Speaker 1: least historically been a governor to growth. Um, we're finally
Speaker 1: seeing the adverse impact of unprecedented monetary largest in the
Speaker 1: form of rapidly rising inflation. It's being dismissed by the
Speaker 1: same people who dismissed the dot com boone in the
Speaker 1: two thousand and the slicing and dicing and derivatives that
Speaker 1: took down the global economy in two thousand seven and eight.
Speaker 1: The outcome is that the FED is suppressing volatility. It's
Speaker 1: inflated asset prices, real estate art, it's promoted speculation. It's taken,
Speaker 1: as you mentioned several segments ago, the real tenure yield
Speaker 1: um to deep negative levels, serving two generally underpriced risk.
Speaker 1: There appears to me to be a lot more uncertainty
Speaker 1: than many investors and traders see. I saw an amazing
Speaker 1: statistic um that five eight billion has flown into global
Speaker 1: equity funds during the first half. If we annualize that
Speaker 1: and make it a billion, a trillion, fifty million, that
Speaker 1: would result in more inflows in twenty in twenty one
Speaker 1: years combined. And I think that the twelve trillion of
Speaker 1: negative yielding debt has definitely helped the talk of the weekend.
Speaker 1: Bank of America with that research plot I thought you
Speaker 1: mentioned when you mentioned five and a gazillion dollars, I
Speaker 1: thought that was Mookie Bett's contract with the Dodgers continue exactly.
Speaker 1: But we are seeing we are seeing, you know, as
Speaker 1: it relates to the market share to term, we're seeing divergences.
Speaker 1: During the last seven weeks. The percentage of stocks over
Speaker 1: there forty two simple moving average is barely changed and
Speaker 1: as substantially lower than in January. And we have these
Speaker 1: these yolo traders not happy or satisfied making money in stocks.
Speaker 1: They have to move out ever further on the risk curve.
Speaker 1: And according to Goldman Sachs, listen to this stat three
Speaker 1: of the top fifteen call auction volume days on record
Speaker 1: going back to and that's a total of seven thousand,
Speaker 1: two hundred observations have happened since this year's Memorial Day. Well,
Speaker 1: it's a new market, and Gary Gensler is going to
Speaker 1: solve that. For studcast, I gotta go long term here.
Speaker 1: I want you to reaffirm you know you're doing the
Speaker 1: short term thing, and I get all that that's your class,
Speaker 1: but you have had the courage to say some of
Speaker 1: these technological juggernauts are five and I don't want to
Speaker 1: put words in your mouth, but they're literally decade long holes.
Speaker 1: Do you stand by that this morning? Yeah, I think
Speaker 1: that I've long stated and you know that Amazon has
Speaker 1: been my favorite. It's up another eighty two dollars this morning.
Speaker 1: UM that several members X Netflix of fang UM that
Speaker 1: would be Facebook, Amazon and Google have deepening modes of
Speaker 1: paraphrase the term used by Warren and Charlie UM, and
Speaker 1: that the existential threat of anti trust really is being overstated.
Speaker 1: And I've said, in the case of Amazon, and it's
Speaker 1: happened in the last two quarters, that their earnings growth
Speaker 1: UM will substantially exceed group stink or consensus expectation, and
Speaker 1: that has occurred. Are they value stocks or are they
Speaker 1: growth stocks? Well, UM, it depends when you buy them.
Speaker 1: Buy them, um. You know, if you brought them in
Speaker 1: December two eighteen, they were when we did it was
Speaker 1: they were clearly UM value stocks. The same could be
Speaker 1: said for much. I don't think they're you know, I
Speaker 1: know that a lot of people are making the case
Speaker 1: that their value stocks because their pees are less than
Speaker 1: their expected growth rates. So I think there's somewhere between
Speaker 1: value and growth. Doug, we gotta shift back, and you know,
Speaker 1: I'm so upset. I'm watching more National in Ball this
Speaker 1: year than I've ever watched before because it's like real baseball.
Speaker 1: Doug casts on the shift, folks. For those of you
Speaker 1: that don't understand this, there's four players in the infield
Speaker 1: and they move around a little bit, but all of
Speaker 1: a sudden, we're you know, twenty years ago, it was
Speaker 1: like once a game twice again. They did it every
Speaker 1: single Plague Dog cast. They're doing some fancy pants stuff
Speaker 1: and I'm sorry, the hitters are starting to figure this out.
Speaker 1: Are you for a rule that would contain the shift
Speaker 1: in baseball? No, I don't think. I don't you know
Speaker 1: you asked me last time, would regard to the distance
Speaker 1: of the mount to home plate? No? I think you
Speaker 1: keep you keep, you keep the rules as they are.
Speaker 1: They work well for over a century. Okay, Doug Cass,
Speaker 1: thank you so much. An update. Yeah, absolutely, Well that's
Speaker 1: what they're doing. I mean in the National League where
Speaker 1: they know what to do with the bat because they're
Speaker 1: not all trying to hit homers. Play after the Brewers
Speaker 1: are like a clinic, play after play, after they beat
Speaker 1: they beat the shift as well. Have we done enough
Speaker 1: baseball talk? This is the Bloomberg Surveillance Podcast. Thanks for listening.
Speaker 1: Join us live weekdays from seven to ten am Eastern
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