Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene along
Speaker 1: with Jonathan Farrell and Lisa Brown Witz Jay Leye. We
Speaker 1: bring you insight from the best and economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance and Apple Podcast, Suncloud,
Speaker 1: Bloomberg dot com and of course on the Bloomberg terminal.
Speaker 1: Here's our John Farrell with the Secretary of Labor. Let's listen.
Speaker 1: I'm very place to say on TV on radio. We're
Speaker 1: joined now by US Secretary of Labor Marty Walsh, to
Speaker 1: get the White House response to these tremendous jobs numbers
Speaker 1: that we've seen so far this morning. Mrs Extra great
Speaker 1: to have you with us this morning. Let's get straight
Speaker 1: to it. Demand has been stellar for a while now.
Speaker 1: We've been waiting for the supply to turn up. A
Speaker 1: youth confident was saying scientific that with this job's report
Speaker 1: this morning, we certainly I mean, I think adding four
Speaker 1: million jobs since the inauguration of President Biden, an average
Speaker 1: of you know, eight hundred thousand plus jobs over the
Speaker 1: last three months. We're seeing our economy were moving forward.
Speaker 1: We're seeing people going back into all sectors. It's not
Speaker 1: just leisure and hospitality, although that was our biggest game
Speaker 1: again this month, but we saw people in education and
Speaker 1: uh government education and also in manufacturing, so we're starting
Speaker 1: to see different sectors getting busy as well. Mr Secretary,
Speaker 1: What do you think is driving those supply constraints starting
Speaker 1: to ease just a little bit? What do you think
Speaker 1: it is driving that some people have pointed put towards
Speaker 1: the expired unemployment benefits in some states half the states
Speaker 1: across this country. What do you think it is? I
Speaker 1: think there's more people vaccinated, more people feel uncomfortable. Now.
Speaker 1: We obviously have to keep an eye on the delta
Speaker 1: variants and where that takes us. But I think people
Speaker 1: are feeling safer going out when you go to a restaurant,
Speaker 1: more and more people coming out. Here in Washington, I
Speaker 1: see more and more people doing doing on those tour buses.
Speaker 1: So people are starting to travel. We were seeing more
Speaker 1: travel in the airport. So it's comfort, it's it's people
Speaker 1: feeling safe. Seventy of the American population has at least
Speaker 1: one vaccination shot. But we have to we have to
Speaker 1: be very cognizant of the delta variant and make sure
Speaker 1: we don't let that spike and get out of control.
Speaker 1: A higher wage is making it happen. Do we need
Speaker 1: a higher price to bring that supply back in line
Speaker 1: with demand? Four percent wage growth? Mr? Secret do you
Speaker 1: think do you think we do we need to see
Speaker 1: more of this? I think higher wage wage growth is good.
Speaker 1: It's good for the American worker, it's good for people
Speaker 1: going back to work. I think in some sectors we're
Speaker 1: definitely gonna need to see higher wage growth for people
Speaker 1: to come back to work. But but I think where
Speaker 1: we're headed right now, I mean all signs are incrementally
Speaker 1: going in a good positive direction. Companies have starting to
Speaker 1: respond on the vaccine front, Tyson Food requiring all staff
Speaker 1: to be vaccinated by November first. We heard the same
Speaker 1: from the United Airlines. From your standpoint, is there something
Speaker 1: you and the administration support companies mandating vaccines for their
Speaker 1: labor force? Certainly the President said he supports companies when
Speaker 1: they put those mandates in place. H He's taken the
Speaker 1: different We're taking a different approach to the federal government.
Speaker 1: We're asking people to get vaccinated, and if they don't
Speaker 1: get vaccinated, we're going to do lots of testing. So
Speaker 1: anything that we can do to encourage people to get
Speaker 1: back into the workforce is important. I think there are
Speaker 1: people that don't want to get vaccinated because of whatever
Speaker 1: reason it might be. Some people have good, legitimate reasons,
Speaker 1: but the majority of people that aren't getting vaccinated, it's
Speaker 1: a political thing, and it shouldn't be a political political
Speaker 1: issue if it's a political thing. So why do you
Speaker 1: think minority groups in some cities like Washington, d C.
Speaker 1: The city you're in, like New York City, Why some
Speaker 1: of those minority groups have not been getting vaccinated? Why
Speaker 1: those vaccination rates are so much lower? Is it just
Speaker 1: politics or is something else happening? No. I think in
Speaker 1: the community of Carlor, particularly in urban areas, it's a
Speaker 1: distrust in the healthcare system over generations. I've seen it
Speaker 1: when I was Mirror Boston, and we had to do
Speaker 1: a lot of work to go out there and build
Speaker 1: trust in the community. People of color, particularly African American community,
Speaker 1: felt in some cases abandoned by hearts of the hospital
Speaker 1: systems over years. So we have to do more work
Speaker 1: there to encourage people to get vaccinated. And that's the
Speaker 1: issue at playing right now. So, Mr Secretary, I wonder
Speaker 1: what your thoughts on the following might be if we're
Speaker 1: in a position now where large companies are starting to
Speaker 1: say if you're not vaccinated, you can't work for us,
Speaker 1: where cities like New York is starting to say if
Speaker 1: you're not vaccinated, you can't dine here when you and
Speaker 1: I buy both. Now, the vaccination rights of minority groups
Speaker 1: just aren't high enough. You worried that they might be
Speaker 1: frozen out of this economy. You know, I'm concerned, but
Speaker 1: we But it's it's also outreach and marketing. We have
Speaker 1: to go out into the communities and talk to people
Speaker 1: to make sure people are comfortable with the vaccine. So
Speaker 1: you can't just which really say, in certain communities in America,
Speaker 1: like for example, in Boston, the communities of color that
Speaker 1: you know force people to get vaccinated, we have to
Speaker 1: go out and do an educational component of whites and
Speaker 1: point to get vaccinated, just like we had to do
Speaker 1: an educational component at the very beginning of the pandemic
Speaker 1: to express why it was important to wear masks, fizzicle distance,
Speaker 1: washing hands, and do all of those things. So what
Speaker 1: are you doing right now to make that happen. What
Speaker 1: does the outreach look like? Well, I mean I think
Speaker 1: a lot of it. It's gonna be up to local governments.
Speaker 1: I think that that you know, we're gonna be working
Speaker 1: with mayors and states around the country about that to
Speaker 1: reach out there. And I know that the COVID Task
Speaker 1: Force at the White House is working on it as well.
Speaker 1: Right now. I haven't had a meeting with them in
Speaker 1: the last couple of weeks, but I know that they're
Speaker 1: working on how do we deal with this issue of
Speaker 1: the people in America that have decided not to get
Speaker 1: vaccinated for whatever reason they are, How can we encourage
Speaker 1: them to get vaccinated? So it's still it's still work
Speaker 1: in progress. Do you think we need to get past
Speaker 1: this lazy media narrative that it's just politics, that there's
Speaker 1: much more dom and gone so that one more time
Speaker 1: I missed that. Do you think we need to move
Speaker 1: past the lazy media narrative that this is just politics,
Speaker 1: that there's more going on in this country. You touched
Speaker 1: on the distrust of government that's a lot more pervasive
Speaker 1: than I think some people are willing to acknowledge. MS
Speaker 1: the Secretary, would you agree, Yeah, there's no question about it,
Speaker 1: And I'm acknowledging it because I saw it first hand
Speaker 1: as the mayor of the City of Boston. But but
Speaker 1: I do think there's a lot I think a lot
Speaker 1: of this also has to do politics. I think that
Speaker 1: that you know, when you look at some parts of
Speaker 1: rural America, you look at some parts of what's happening
Speaker 1: down in Florida, people refusing to get vaccinated. Uh, it's
Speaker 1: not a political issue. Getting vaccinated is not a Democrat
Speaker 1: or Republican issue. It's not a progressive or conservative issue.
Speaker 1: It's about taking care of yourself and your family and
Speaker 1: your livelihood and keeping yourself alive. So I wish it
Speaker 1: wasn't political. It shouldn't be political. Uh, wearing mass shouldn't
Speaker 1: be political. It's has nothing to do with politics. It's
Speaker 1: about your public health. It's about keeping yourself safe, and
Speaker 1: ultimately it's about keeping our economy moving forward and keeping
Speaker 1: our country moving. Mrs Extra, I know you've got to
Speaker 1: keep moving. You've got a busy morning this morning. Thank
Speaker 1: you for being with us. We appreciate at the U
Speaker 1: S Secretary of LABE that Manti Walsh from New York
Speaker 1: City for not audience worldwide. I'm ready out on TV
Speaker 1: this as Bloin bug Jeff Rosenberg joining with black Rock
Speaker 1: and what's so important here is so holistic and fixed
Speaker 1: income and doing wonderful work in multi strategy as well.
Speaker 1: Is it a regime change today, Jeff Rosenberg? When you
Speaker 1: see the revisions, when you see one point eight eight
Speaker 1: one non firm payrolls over sixty days, does it shift
Speaker 1: the black Rock view? You know, it's a It's a
Speaker 1: really good question, Tom, because I was thinking the exact
Speaker 1: same thing that you know, we've had a lot of
Speaker 1: kind of negative surprises, you know, focused really on the
Speaker 1: delta variant. You know, it's important to remember that this
Speaker 1: payroll report is really pre the CDC mask wearing change
Speaker 1: in guidance. It doesn't really incorporate some of those more
Speaker 1: recent changes yet to the extent that we follow the
Speaker 1: pattern that we've seen in India and the UK where
Speaker 1: the variant surges, but it's not a permanent surge. You know,
Speaker 1: we could be seeing kind of the peaking of the
Speaker 1: negative news that has has been really about the second
Speaker 1: derivative and the slowdown, and that's manifested itself in a
Speaker 1: pretty protracted rally and interest rates. You know, since interest
Speaker 1: rates peaked at the beginning of March, I think the
Speaker 1: next focus here, and you were just talking about it
Speaker 1: in terms of average hourly earnings, Mike McKee spot on,
Speaker 1: it's really hard to digest and and decouple the mixed
Speaker 1: shift from the underlying data. But it's a strong print
Speaker 1: even with the mixed shift that Mike was highlighting, and
Speaker 1: that's really going to turn the focus on inflation. If
Speaker 1: we add labor market strength, and let's be clear, this
Speaker 1: is a very strong report across all metrics. There's there's
Speaker 1: very little that you can point to here that's disappointing.
Speaker 1: And if we add to that, you know, some signs
Speaker 1: of a broadening out from that inflation that we're seeing
Speaker 1: in the in the wages here, you know, this could
Speaker 1: be that regime shift in terms of the direction that
Speaker 1: we've had on interest rates that you were asking about, Jeff,
Speaker 1: if the Fenent May team was tomorrow, what would I decide? Well,
Speaker 1: I think you hit it, or someone talked about the
Speaker 1: taper discussion. You know it's important here. The Fed is
Speaker 1: very focused to separate the interest rate tightening path from
Speaker 1: the tapering discussion. And so when you look at that
Speaker 1: bond market reaction and and earlier, you know, we were
Speaker 1: looking at talking about the two year versus the back
Speaker 1: end of the curve, still a pretty muted response in
Speaker 1: the very short maturities of the treasury market, the actions
Speaker 1: in the back end of the curve, and that tells
Speaker 1: you that, you know, the market is separating the path
Speaker 1: of tightening from the pace or the calendar on tapering.
Speaker 1: I think, you know, if anything, it pulls forward, maybe tapering,
Speaker 1: but the Feds being very clear they want to avoid
Speaker 1: the taper tantrum. And remember the taper tantrum was about
Speaker 1: the market conflating tap tapering with earlier tightening. This is
Speaker 1: not going to be an earlier tightening, but it could
Speaker 1: be an earlier tame And Jeff, that's exactly what President
Speaker 1: Kaplan tried to do this week, aggressively de link kiss
Speaker 1: commentary about que from any kind of idea about hiking
Speaker 1: rates anytime soon. Mike McKay, I want to bring it
Speaker 1: back into the conversation. It is there reason to believe
Speaker 1: that this can persist, These jobs gains can persist into September?
Speaker 1: And was this a stress test for the theory that
Speaker 1: if you remove additional unemployment insurance, the workers will show
Speaker 1: Some people have made the argument I don't hold a
Speaker 1: position here. I'm just wondering, Mike, is the proof of
Speaker 1: that this morning? Now there's no proof of it this morning.
Speaker 1: We don't have data that show that. The research that
Speaker 1: has been done suggests there has been no effect from
Speaker 1: it over are all. In about two weeks, will get
Speaker 1: the state employment numbers and we'll see if any particular
Speaker 1: states that cut off unemployment benefits see arise. But one
Speaker 1: thing that may be at work here, John, is that
Speaker 1: in the summertime, schools are never in session, so the
Speaker 1: daycare issue may have not been a problem UH in
Speaker 1: the sense of the seasonal adjustment that is done because
Speaker 1: they expect people to be out of the labor force
Speaker 1: to a certain extent taking care of their kids. And
Speaker 1: let me also mention that the education component that was
Speaker 1: expected to add two jobs certainly did. UH. Jobs in
Speaker 1: education two hundred and twenty three thousand more in the
Speaker 1: seasonally adjusted UH area than in non seasonally adjusted so
Speaker 1: they've added two hundred twenty three thousand jobs to the total.
Speaker 1: Otherwise we would have had seven d and twenty thousand.
Speaker 1: So definitely a major seasonal adjustment question here. But UH,
Speaker 1: the issue is does anybody at the FED really care
Speaker 1: about seasonal adjustment and when are trying to think of
Speaker 1: whether it's substantial additional progress. Jeff Rosenberg as an investor,
Speaker 1: what do you do with this information? Well, as we
Speaker 1: as we talked about, I think this is a possible
Speaker 1: shift here in the rate dynamic. You know, we we
Speaker 1: really have to follow this up with some inflation data
Speaker 1: if if that's gonna if that's really going to be
Speaker 1: the case. But just going back to the labor market peace,
Speaker 1: because you know, you look at what's driving the FED
Speaker 1: and and and market expectations around the FED, and it's
Speaker 1: it's it's labor markets, and it's inflation. And on the
Speaker 1: labor market side, this is certainly contributing to accelerating mostly
Speaker 1: the taper discussion. I think the FED is going to
Speaker 1: do a lot to try to separate out taper from
Speaker 1: from tightening, and I think that's the main takeaway. I
Speaker 1: want to just add that there is some little piece
Speaker 1: of information here that participation rate did tick up a tenth.
Speaker 1: That's quite helpful. Uh, We're gonna be focused on that
Speaker 1: participation rate as we roll off the rest of the
Speaker 1: unemployment insurance to see whether the supply side starts to
Speaker 1: ease and you start to see the labor market grow
Speaker 1: from that end. Jeff, does this report it change the
Speaker 1: balance of risks with respect to overheating in the economy
Speaker 1: or perhaps going into more of a sagflationary environment. I
Speaker 1: don't think it does. I mean, I think that you've
Speaker 1: had that balance of risk. You know, look at Clarita's
Speaker 1: speech from a couple of days ago, and I think
Speaker 1: the balance of risk that he highlighted is is to
Speaker 1: the upside on inflation. And while that you know, there's
Speaker 1: certainly hawks and doves, both within the Fed and within
Speaker 1: the market. I think that balance of risk to higher inflation,
Speaker 1: uh is something we had before the report. But certainly
Speaker 1: this report, particularly you know what Mike highlighted on average
Speaker 1: hourly earnings, only reinforces that risk on the balance of
Speaker 1: risks being towards higher inflation. John Farrow Jason Furman with
Speaker 1: a blister rain tweet He's never seen a more constructive
Speaker 1: report like this. He calls it a wonderful set of data.
Speaker 1: Neil Dutta is heated that this is a massive start
Speaker 1: to qu three. It's what we all wanted to say.
Speaker 1: Jeff is going to catch up set Jeff Roisenberg of
Speaker 1: black Rock Gina Martin Adams now on the equity market consequences.
Speaker 1: Gin I see a churn to equities, but nevertheless a
Speaker 1: VIX that signals a bowl market. Neil Dutta at Renaissance
Speaker 1: suggests this is a bang up start to queue three.
Speaker 1: How will that change the standard and poor's estimate game? Yeah,
Speaker 1: I think that analysts are still pretty cautious frankly on
Speaker 1: the outlook, and certainly what we've seen over the course
Speaker 1: of the last six weeks or eight weeks or so
Speaker 1: is a rotation into more defensive strategies really driving the
Speaker 1: market higher. So to the degree that we have much
Speaker 1: faster than expected growth and persistent growth, two things are
Speaker 1: very important. We get both of those. Over the course
Speaker 1: of the next several quarters, we're going to continue to
Speaker 1: see upward estimate revision. So far, analysts are only revising
Speaker 1: estimates higher because second quarter numbers beat, and that's been
Speaker 1: consistent throughout the entire pandemic. Analysts are very cautious with
Speaker 1: respect to the outlook, and even though numbers are still
Speaker 1: going higher, they're only going higher because companies are telling
Speaker 1: them that they should go higher. It's not that analysts
Speaker 1: are getting overly optimates. So if we continue to see
Speaker 1: numbers like this, we're going to see upward estimate revision
Speaker 1: all the way into how is use of cash changed
Speaker 1: or your gues estimate of use of cash. Robert Schiffman
Speaker 1: published moments ago of a forty billion share buy back
Speaker 1: up Microsoft. They've got the powder to do that, etcetera, etcetera,
Speaker 1: all of Bloomberg intelligence. How has use of cash changed
Speaker 1: to sustain this bull market? Yeah, so so far this
Speaker 1: year it's all been it's been all about buy backs
Speaker 1: and M and A. Those two things have really been
Speaker 1: the dominant fact 's behind cash utilization by companies. So
Speaker 1: to degree that they're willing to part with their cash,
Speaker 1: which is still a limited amount of companies doing so,
Speaker 1: they're spending it on re engaging in buying buy backs
Speaker 1: that they cut in and increasing buy backs over time.
Speaker 1: They're also buying companies. We are seeing M and A
Speaker 1: trends improve and we've seen that really since. What they're
Speaker 1: not doing so far, and I think where we have
Speaker 1: the greatest potential to sustain a longer term, faster pace
Speaker 1: of economic recovery is capital spending. Companies are still not
Speaker 1: parting with their cash in the most optimistic method, and
Speaker 1: that is spending it on future business potential outside of
Speaker 1: buy backs and m and A. So we've got to
Speaker 1: see capital spending improve. There's certainly capacity to do so.
Speaker 1: Just to get back to average share of capital spending
Speaker 1: relative to sales, we should see capex rise twenty over
Speaker 1: the course of the next twelve to eighteen months. If
Speaker 1: we get that kind of figure, that's going to increase
Speaker 1: the confidence that analysts have of and certainly increased the
Speaker 1: durability um and the perceived durability and rate of growth
Speaker 1: that we likely are going to see over the course
Speaker 1: of the cycle. Gina is stick with us. We're just
Speaker 1: sort of parsing through the numbers. Michael McKee is looking
Speaker 1: at the more granular aspects of this report. And when
Speaker 1: we talked about the dissonance between corporate earnings coming in
Speaker 1: so much harder than people had expected yet economic data
Speaker 1: lagging behind, perhaps the economic data just had and caught
Speaker 1: up with itself. Mike, what are the details, Well, we're
Speaker 1: looking at revisions to the prior months. You add in
Speaker 1: the numbers that were added back for June and May
Speaker 1: nine hundred and thirty eight thousand jobs were created in June.
Speaker 1: We had thought that was eight fifty, so a significantly
Speaker 1: better report for the month of June and total one
Speaker 1: nineteen thousand over those two months, so job creation has
Speaker 1: been a lot stronger than we had thought it was.
Speaker 1: We had some reports we thought were disappointing. Turns out
Speaker 1: they weren't as bad. Meanwhile, Gina Martin that I'm still
Speaker 1: with us, and I'm looking at the action in the
Speaker 1: equity market in response to this, pretty much as you
Speaker 1: would expect. NAZAC futures a way underperforming the SMP, which
Speaker 1: is basically flat. NASTAC futures are down a little less
Speaker 1: than a half a percent, or they were in just
Speaker 1: a couple of minutes ago. I'm wondering, from your perspective,
Speaker 1: if the NASAC can post gains through year end if
Speaker 1: treasure yields continue to rise, very unlikely. Um at least
Speaker 1: they will lag the NASTAC should certainly lag the SMP.
Speaker 1: Five and more cyclically oriented, sort of value centric segments
Speaker 1: of the market could rise faster in an environment where
Speaker 1: rates are rising in inflation expectations are rising. In my mind,
Speaker 1: the recovery that we saw in the NASAAC in big
Speaker 1: cap tech in particular, over the course of the last
Speaker 1: couple of months, what's really about analysts and investors generally
Speaker 1: getting a little bit more cautious about the growth outlook.
Speaker 1: So if you continue to have surprises on growth, continue
Speaker 1: to have surprises on inflation numbers, that trade depletes over
Speaker 1: the course of the rest of them of the year, Gina,
Speaker 1: Marty adamsyk you soone's too short of visit this morning.
Speaker 1: It's the only reason Jerome Schneider agreed to appear with
Speaker 1: us this morning was sure sureser. Max Scherzer killed it
Speaker 1: for the Dodgers in the last forty eight hours, striking
Speaker 1: out ten against the Astros. Schneider is so buffuddled by
Speaker 1: West Coast baseball. That's the only reason we got him
Speaker 1: on air. He's dazzled. I mean, Jerome, it's fun from
Speaker 1: Seattle on down to San Diego. It's West Coast Baseball time,
Speaker 1: isn't it? It is? It is? Unfortunately, you know the
Speaker 1: angel through of our hit and myths, and you know
Speaker 1: you don't mention him. But but you know what I'll
Speaker 1: tell you. You know this, I'm a Yankee stand so
Speaker 1: I trade that have gone on. You know, it's uh,
Speaker 1: it's very funny, funny. Hopefully that pizzas will come together
Speaker 1: in I can't I don't know, I can't continue this.
Speaker 1: I'm gonna just I don't know. Jerome, watch out. And
Speaker 1: I've got to say, folks, they went back and forth
Speaker 1: with Doug asked the Yankees, I left for dead, and Jerome,
Speaker 1: You've got to admit with the trades, this is gonna
Speaker 1: be fun. You know, we always talked about inciting actions
Speaker 1: for markets. This is definitely an exciting action for for
Speaker 1: the the team. But you know, it's a long season.
Speaker 1: It's all stats. We'll see how it comes together. A
Speaker 1: couple of home runs, you know, get the ball rolling.
Speaker 1: So you are in the trenches, Jerome, on a bond
Speaker 1: desk of global repute, and you get a regime change
Speaker 1: like this job's report and its revision. How does your
Speaker 1: desk think when you get a sea change like this?
Speaker 1: I mean, I'll be honest, Tom, regime change is a
Speaker 1: pretty strong word. Um, I think it. You know obviously
Speaker 1: hints that progress and some of that progress we've seen
Speaker 1: for quite some time. You know, we shouldn't be surprised
Speaker 1: by that healing process and growth continuing. Uh and and
Speaker 1: necessarily I don't think it necessarily changes they calculus all
Speaker 1: that much. Some of it's some goods back from last month.
Speaker 1: We clearly see that in a household report. Um. But
Speaker 1: I think ultimately what it does is puts bear in
Speaker 1: the center. It's really your goal, you know, similar to
Speaker 1: the Inkies trying to get to the World Series. The
Speaker 1: goal of dead is to is to effectively get to
Speaker 1: the end of the year and get to that point
Speaker 1: where they view ustential further progress is being made. And
Speaker 1: that's sort of been the mantra that we've been operating
Speaker 1: here at PIMCO, is that that growth will continue, that
Speaker 1: you'll see an unemployment rate close at about four and
Speaker 1: a half percent by the by the end of the year,
Speaker 1: and and those things are the metrics social help that
Speaker 1: tapering process and digested rather easily. The concern for us
Speaker 1: is that digestion, and I think that's the focus for
Speaker 1: we need to make substantial further progress. With a Mets fan, Yeah,
Speaker 1: it was about to say, I take issue, are you
Speaker 1: comparing the Federal Reserve to the Yankees? But I digress, Jerome.
Speaker 1: You you're talking about the adjustment and how that will
Speaker 1: occur in markets, and I'm just noting that there was
Speaker 1: a flood of cash into money market funds over the
Speaker 1: past couple of weeks. There's just move toward a risk
Speaker 1: averse stance, and how quickly could that potentially change? Could
Speaker 1: that potentially get turned on its head if people start
Speaker 1: to buy into a four percent wage increase year over year,
Speaker 1: which is what we just got. Yeah, you know, I
Speaker 1: think there's a few reasons why you seem general trends,
Speaker 1: and I think if you take a step back, you've
Speaker 1: actually seen move out of money market funds for the
Speaker 1: previous few months and now it's come back slightly. There's
Speaker 1: a few reasons to that one. Frankly, investors are worried
Speaker 1: about capital loss either some volatility and broader markets and
Speaker 1: equities and certainty with growth outlooks. That's one area. The
Speaker 1: second area is simply concerned about higher rates. And so
Speaker 1: the mark to market, if you will, is owning duration,
Speaker 1: owning interest rate exposure. Specifically, longer duration comes with a lift.
Speaker 1: Sure you are an income, but you can have loss
Speaker 1: of that price evaluation, and that is potential loss for
Speaker 1: people who have taken a lot more interest rate risk. Uh,
Speaker 1: And that and that renewed growth expectation or concerns about
Speaker 1: inflation really eat into that. And then the second, the
Speaker 1: third thing really is that inflationary discussion, possibility of negative
Speaker 1: real returns. You've highlighted very many times about the real
Speaker 1: real rates. Those are real practical implications for that. There's
Speaker 1: sort of way to mitigate that is being in those
Speaker 1: cash elements and more importantly, trying to navigate the difference
Speaker 1: between being at zero cash interest rates where key builds
Speaker 1: and demand deposits and things like and try to find
Speaker 1: some modest marginal appetite to close those inflationary headwinds from
Speaker 1: from being in cash and not earning returns. So it
Speaker 1: really is a whole discussion of risinication in that process. Here,
Speaker 1: let's do a modest dated check here with the Dow
Speaker 1: up a hundred and fifty one points, we're out at
Speaker 1: record has thirty five thousand, two one five on the
Speaker 1: Dow sp X nine. Lisa, I just did a fancy Bloomberg.
Speaker 1: This is a te function on the Bloomberg. This is
Speaker 1: two standard deviations out. How far is up for standard
Speaker 1: and pores four four six seven would be a two
Speaker 1: standard deviation trend move we're not there. But nevertheles a
Speaker 1: nice two ten percent lived out to a record high SPX. Critically, Lisa,
Speaker 1: those real yields and bonds that do move but don't
Speaker 1: move all that much off about nine forty am just
Speaker 1: as one measure the thirty year bond. One I had
Speaker 1: to mention the thirty year bond just because it drives
Speaker 1: er Ome nuts. That's great, Yeah, but it's right, it's
Speaker 1: out of his purview. He is focused on the here
Speaker 1: and the now. Uh. And I thought that you'd be
Speaker 1: really excited to talk about this time, considering that this
Speaker 1: is the bulk of your portfolio and triple leverage cash.
Speaker 1: But when we talk about cash, let's talk about corporations
Speaker 1: and how much cash they have the fact that they
Speaker 1: are putting it in the bank at a time when
Speaker 1: banks are hoping to lend to them and failing. What
Speaker 1: happens if they start to deploy that cash. What is
Speaker 1: the mechanics behind that drome? Yeah, I think that's exactly
Speaker 1: what you want. It would be less concerned about, you know,
Speaker 1: how you create that liquidity, etceter. The liquidity is clearly
Speaker 1: there and those things, but it really translates into growth
Speaker 1: and it translates into capital expenditure and ways to demandage
Speaker 1: it or delivering balance sheets which has obviously increased in
Speaker 1: leverage over the past, your your plus and so those
Speaker 1: are probably positive and nurtes things for where they for
Speaker 1: the overall environment to minds, productivity growth, things like that.
Speaker 1: So while you might see on on the in the
Speaker 1: data in the minutia, the data that you know, if
Speaker 1: there are some models, there are some wage pressure buildings,
Speaker 1: specifically in lower areas, there's still pretty pretty pretty dominant
Speaker 1: themes that create some pretty good clip profitability in those regards.
Speaker 1: I think you have to what the problemtary investors is
Speaker 1: is trying to reconcile that to really what's the valuations
Speaker 1: that have been already priced into the market. And that's
Speaker 1: where you know, indigestion or or palatability comes in. To
Speaker 1: try to fige out if that's the right way to
Speaker 1: take risk, whether it's through credit or equity risk, etcetera.
Speaker 1: Drum Schneider on nine hundred forty four gazillion dollars of
Speaker 1: overnight repose the wall of liquidity out there and what
Speaker 1: I call the trust market. Jerome Schneider, what does it
Speaker 1: do in the coming months. Yeah, I wouldn't necessarily take
Speaker 1: too much in terms of that number because you think,
Speaker 1: here one you have sea build supply which is lower,
Speaker 1: so people need to find a home for that cash. Fortunately,
Speaker 1: we have the stage of reverse reep facility that you
Speaker 1: mentioned at n billion and and it's rather unlimited. There's
Speaker 1: some the potential constraints that were not anywhere near that.
Speaker 1: We would expect that to actually grow to maybe one
Speaker 1: point five trillion before we had any immediate concerns. So
Speaker 1: this is simply finding another avenue of one of the
Speaker 1: cheapest assets out there at five basis points. Again cheap
Speaker 1: being relative, so you're in five uhcent on that overnight cash.
Speaker 1: The other side to this is the set has been
Speaker 1: really focused on not only financial conditions but liquidity conditions,
Speaker 1: and we've seen them announce this in the standing repo
Speaker 1: facility back in the FLMC minutes the past the past
Speaker 1: few weeks, and so we actually published a blog posted
Speaker 1: on this this morning that the standards standing repo facility
Speaker 1: does a lot to alleviate concerns of liquidity on the
Speaker 1: other side, meaning providing funding to the marketplace. And although
Speaker 1: it's not perfect, there's some issues with transition transaction mechanisms
Speaker 1: and how we actually think about it. Um The reality
Speaker 1: is that you have comfort on both sides how to
Speaker 1: invest cash and how to borrow cash, and so that
Speaker 1: focus on liquidity is a bright, bright spotlight some of
Speaker 1: the market mechanisms that have been frankly weak spots over
Speaker 1: the past few decades. Jerome, we just have about thirty seconds.
Speaker 1: Does this apply to the broader fed balance sheet that
Speaker 1: they have to keep it as big as it is
Speaker 1: or bigger from liquidity perspectives, from technical perspectives, well, I
Speaker 1: think that their main focus is making sure markets are stable.
Speaker 1: I think when they really focus on another thing to
Speaker 1: have to turn their eye to how that liquidity transit
Speaker 1: transmission mechanism actually works. And it's it works in old
Speaker 1: old sense meaning going through going through dealers, primary dealers, etcetera.
Speaker 1: But it doesn't necessarily hit all the end of users
Speaker 1: to borrowords or have cash. And so I think that
Speaker 1: that second derivative of where that cash actually ends up
Speaker 1: in equity is just going to be come a focus.
Speaker 1: But ultimately for investors, this is a period of very
Speaker 1: low rates, very low cash for a considerable period of
Speaker 1: time and trying to figure out how to manage around
Speaker 1: that with the FED context is what the is, what
Speaker 1: the difficult conversations can be for the next two years.
Speaker 1: Thank you so much. Had a short term portfolio management
Speaker 1: at RIM. This is the Bloomberg Surveillance Podcast. Thanks for listening.
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Speaker 1: and of course on the terminal. I'm Tom keene In.
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