1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,240 --> 00:00:13,200 Speaker 1: with Jonathan Ferrell and Lisa Brownwitz. Daily we bring you 3 00:00:13,320 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,960 --> 00:00:23,840 Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 5 00:00:23,920 --> 00:00:29,800 Speaker 1: and of course on the Bloomberg Terminal. We need to 6 00:00:29,840 --> 00:00:32,680 Speaker 1: get caught up on the finance of the moment. There's 7 00:00:32,680 --> 00:00:34,840 Speaker 1: no one better to do that with an Andrew Sheets 8 00:00:34,840 --> 00:00:38,839 Speaker 1: with Morgan Stanley and their chief cross at assets strategist Andrew. 9 00:00:38,880 --> 00:00:42,159 Speaker 1: Good morning to you. The mill you here is a 10 00:00:42,200 --> 00:00:47,000 Speaker 1: boom American economy. How does your view change on allocation 11 00:00:47,560 --> 00:00:51,800 Speaker 1: given the strength of the American locomotive. Well, I think 12 00:00:51,840 --> 00:00:54,880 Speaker 1: that that's a great place to start. The growth backdrop 13 00:00:54,960 --> 00:00:59,680 Speaker 1: appears incredibly strong. Our economists of Morgan Stanley have continued 14 00:00:59,760 --> 00:01:02,600 Speaker 1: death hold and above consensus view on on both US 15 00:01:02,680 --> 00:01:06,479 Speaker 1: and global growth. So we're certainly in that strong growth camp. 16 00:01:07,080 --> 00:01:09,319 Speaker 1: But I also think we have to acknowledge that this 17 00:01:09,560 --> 00:01:13,360 Speaker 1: unusually fast recovery could mean we also have an unusually 18 00:01:14,080 --> 00:01:19,279 Speaker 1: fast cycle and unusually short cycle, and thus it's time 19 00:01:19,400 --> 00:01:22,760 Speaker 1: for investors to start moving out of many of the 20 00:01:22,800 --> 00:01:25,280 Speaker 1: strategies may of the sectors that often work in that 21 00:01:25,360 --> 00:01:29,600 Speaker 1: early cycle right after a recession period into things that 22 00:01:29,640 --> 00:01:32,280 Speaker 1: tend to work better when conditions get a little bit 23 00:01:32,280 --> 00:01:34,520 Speaker 1: more mid cycle, when that recovery is a little bit 24 00:01:34,520 --> 00:01:37,280 Speaker 1: more mature. And so those are the rotations that we're 25 00:01:37,319 --> 00:01:40,280 Speaker 1: starting to make. Um switching out of small caps into 26 00:01:40,319 --> 00:01:44,560 Speaker 1: large caps, moving into more quality stocks. I think that's 27 00:01:44,560 --> 00:01:47,480 Speaker 1: going to be an important theme as Yes, growth is 28 00:01:47,600 --> 00:01:50,160 Speaker 1: very strong, but I think we could be facing a 29 00:01:50,200 --> 00:01:53,680 Speaker 1: cycle that looks much hotter and much faster than those 30 00:01:53,720 --> 00:01:55,200 Speaker 1: that were used to and I want to get to 31 00:01:55,200 --> 00:01:57,000 Speaker 1: build on that because I think it's lost on some 32 00:01:57,040 --> 00:01:59,240 Speaker 1: paper still. You've been pushing this story now full the 33 00:01:59,240 --> 00:02:01,560 Speaker 1: best pound of a cup of months. I think the 34 00:02:01,640 --> 00:02:04,920 Speaker 1: Shoulta holt To cycle. What are the signposts you're using 35 00:02:05,240 --> 00:02:07,840 Speaker 1: right now to suggest that this cycle will be Sholta 36 00:02:07,960 --> 00:02:11,400 Speaker 1: it will be hot up? Yeah? Great. So I think 37 00:02:11,400 --> 00:02:15,640 Speaker 1: it's it's fascinating because it's really kind of three overlapping cycles. 38 00:02:15,680 --> 00:02:19,760 Speaker 1: There's economic conditions, there are business confidence conditions, and then 39 00:02:19,760 --> 00:02:23,120 Speaker 1: there are market conditions. And if we think about the cycle, 40 00:02:23,400 --> 00:02:26,560 Speaker 1: that kind of cyclical movement in very simple terms, it's 41 00:02:26,560 --> 00:02:30,920 Speaker 1: about going from the low depressed levels to high elevated levels. 42 00:02:30,960 --> 00:02:33,440 Speaker 1: And for the economy, it's about how quickly do you 43 00:02:33,480 --> 00:02:37,400 Speaker 1: go back above trended inflation? How quickly are you below average? 44 00:02:37,400 --> 00:02:41,000 Speaker 1: And unemployment? Well, those things I think will happen unusually fast. 45 00:02:41,160 --> 00:02:44,040 Speaker 1: That's that's the view of Ellen Zentner, our chief US economist. 46 00:02:44,400 --> 00:02:48,800 Speaker 1: For businesses, it's about moving from caution to aggression. It's 47 00:02:48,840 --> 00:02:52,120 Speaker 1: about high corporate confidence coming back. Well, you know, you 48 00:02:52,240 --> 00:02:56,360 Speaker 1: see this in business confidence surveys that those are rapidly improving, 49 00:02:56,400 --> 00:02:59,800 Speaker 1: and we think they'll continue to improve. And on markets, 50 00:02:59,840 --> 00:03:03,359 Speaker 1: you're seeing it invaluations, where you know, market valuations have 51 00:03:03,360 --> 00:03:06,880 Speaker 1: have already returned to kind of cyclical peaks, in many 52 00:03:06,919 --> 00:03:09,680 Speaker 1: cases unusually fast. So I think those are just some 53 00:03:09,760 --> 00:03:11,799 Speaker 1: of the signposts that we're watching. But I think all 54 00:03:11,840 --> 00:03:15,800 Speaker 1: of that is consistent with a progression that's happening much 55 00:03:15,960 --> 00:03:18,239 Speaker 1: faster than what investors have been used to over the 56 00:03:18,320 --> 00:03:21,520 Speaker 1: last thirty years. Andrew of equities have risk assets already 57 00:03:21,560 --> 00:03:24,680 Speaker 1: priced in the peak of this hotter and shorter cycle. 58 00:03:26,120 --> 00:03:29,080 Speaker 1: In some cases they have, I think. And so if 59 00:03:29,080 --> 00:03:30,840 Speaker 1: you look at you know, what we're forecasting for the 60 00:03:30,919 --> 00:03:33,800 Speaker 1: SMP five you know, my colleague Mike Wilson has a 61 00:03:33,840 --> 00:03:36,960 Speaker 1: thirty target for the end of this year, so we're 62 00:03:36,960 --> 00:03:39,240 Speaker 1: above that. I think it's it's fair to say we 63 00:03:39,280 --> 00:03:41,680 Speaker 1: think US equities have priced in a lot of good news. 64 00:03:42,120 --> 00:03:46,000 Speaker 1: UM credit spreads are kind of near cyclical tights near 65 00:03:46,120 --> 00:03:48,240 Speaker 1: near our forecasts again for the end of the year. 66 00:03:48,360 --> 00:03:50,720 Speaker 1: So again a market that we think is priced in 67 00:03:50,760 --> 00:03:53,280 Speaker 1: a lot. And on the interest right front, you know, 68 00:03:53,360 --> 00:03:56,120 Speaker 1: we think that you know, inflation break evens have generally 69 00:03:56,240 --> 00:03:59,000 Speaker 1: hit our team's targets. We had been more optimistic that 70 00:03:59,080 --> 00:04:01,920 Speaker 1: those break evens have of higher, and we now think 71 00:04:01,960 --> 00:04:04,480 Speaker 1: that that is that needs to pause. So there are 72 00:04:04,520 --> 00:04:06,840 Speaker 1: some key movements there. I would say one market that 73 00:04:06,880 --> 00:04:09,200 Speaker 1: we think has not priced in UM you know, whether 74 00:04:09,360 --> 00:04:12,280 Speaker 1: it is still risk premium is an e M local 75 00:04:12,400 --> 00:04:15,240 Speaker 1: debt if one its hedges it. That's a market we've 76 00:04:15,280 --> 00:04:18,320 Speaker 1: recently upgraded on the emerging market side, and that's one 77 00:04:18,320 --> 00:04:20,320 Speaker 1: area where I still think there's some value. Andrew Shaate, 78 00:04:20,320 --> 00:04:22,280 Speaker 1: Sam Morgan Stanley with us this morning as we await 79 00:04:22,360 --> 00:04:25,080 Speaker 1: comments opening remarks from the President of the United States 80 00:04:25,080 --> 00:04:27,960 Speaker 1: at a global climate change summit. The Vice President Common 81 00:04:28,000 --> 00:04:30,520 Speaker 1: House speaking right now, and let me just turn to 82 00:04:30,560 --> 00:04:33,120 Speaker 1: the domestic story in America. You're looking at pay growth 83 00:04:33,200 --> 00:04:35,760 Speaker 1: in the United States. Does that mean one thing for 84 00:04:35,760 --> 00:04:38,320 Speaker 1: the equity market and something else for the bond market. 85 00:04:38,360 --> 00:04:42,320 Speaker 1: Do those two asset classes read into that differently? Well, 86 00:04:42,400 --> 00:04:45,440 Speaker 1: I think there's potentially, because I do think the bond 87 00:04:45,480 --> 00:04:48,680 Speaker 1: market is directly linked or will be heavily influenced by 88 00:04:48,680 --> 00:04:50,919 Speaker 1: what the Federal Reserve does, where I think the equity 89 00:04:50,920 --> 00:04:53,080 Speaker 1: market will be influenced by both the Fed but also 90 00:04:53,160 --> 00:04:56,160 Speaker 1: the progression of earnings and a number of other factors. 91 00:04:56,200 --> 00:04:58,080 Speaker 1: And you know, I think the key issue on the 92 00:04:58,120 --> 00:05:00,680 Speaker 1: equity side. You know, this was a opponent of of 93 00:05:01,200 --> 00:05:03,920 Speaker 1: my colleague Mike Wilson's downgrade of the small cat market is, 94 00:05:04,320 --> 00:05:07,479 Speaker 1: you know, just concerned that the margin pure picture is 95 00:05:07,520 --> 00:05:10,320 Speaker 1: going to start to get more complicated. That um, you 96 00:05:10,440 --> 00:05:13,279 Speaker 1: have costs, they're rising in the supply chain, and those 97 00:05:13,279 --> 00:05:17,040 Speaker 1: costs are not going to be equally easy to pass 98 00:05:17,080 --> 00:05:19,440 Speaker 1: on and UH and customers, and we think will be 99 00:05:19,480 --> 00:05:21,920 Speaker 1: harder for some of those kind of smaller, lower quality 100 00:05:21,920 --> 00:05:23,920 Speaker 1: companies to do so. So now I think of the 101 00:05:23,960 --> 00:05:26,600 Speaker 1: bond market side, you've seen a bond market that's already 102 00:05:26,600 --> 00:05:29,680 Speaker 1: pricing in a near term path that we think is 103 00:05:29,680 --> 00:05:32,360 Speaker 1: more hawkish than what Fied would like to do. And 104 00:05:32,600 --> 00:05:34,680 Speaker 1: so that's so much different picture. Andrew shaates that of 105 00:05:34,720 --> 00:05:42,400 Speaker 1: Morgan Stanley. How do you approach this market, Honey to 106 00:05:42,400 --> 00:05:44,680 Speaker 1: add joint us now kind of coll genuity, Chief Markets 107 00:05:44,680 --> 00:05:47,480 Speaker 1: String just Tony we Stile. But you say the parent 108 00:05:47,560 --> 00:05:50,719 Speaker 1: is still what do you mean by that? So when 109 00:05:50,720 --> 00:05:52,960 Speaker 1: you when you think about an air show, you know 110 00:05:53,200 --> 00:05:55,040 Speaker 1: just about everybody's gone to an air show and they 111 00:05:55,040 --> 00:05:58,120 Speaker 1: see a plane screaming across the runway horizontal, and all 112 00:05:58,120 --> 00:06:00,240 Speaker 1: of a sudden it pulls up and it goes straight up, 113 00:06:00,240 --> 00:06:03,240 Speaker 1: and the powers on engines are cooking, and all of 114 00:06:03,279 --> 00:06:05,200 Speaker 1: a sudden it gets up to a certain part and 115 00:06:05,279 --> 00:06:08,679 Speaker 1: it just stops going up. No matter how much power 116 00:06:08,800 --> 00:06:11,840 Speaker 1: is added to it, you just lose lift. And that's 117 00:06:11,880 --> 00:06:14,440 Speaker 1: kind of our that's our call for and it's our 118 00:06:14,480 --> 00:06:17,000 Speaker 1: analogy for what could happen in the market. We know 119 00:06:17,480 --> 00:06:20,200 Speaker 1: that the fundamental backdrop is very positive. You know how 120 00:06:20,240 --> 00:06:23,240 Speaker 1: optimistic I have been and continue to be on the 121 00:06:23,279 --> 00:06:27,960 Speaker 1: macro backdrop of excess liquidity fueling a strong global recovery. 122 00:06:28,320 --> 00:06:31,719 Speaker 1: That's not gonna change. But that's also so well known, 123 00:06:32,160 --> 00:06:36,760 Speaker 1: the markets are so overbought, enthusiasm is so high that 124 00:06:36,880 --> 00:06:40,600 Speaker 1: I think we're approaching that stall speed for a little while. Tony, 125 00:06:40,680 --> 00:06:42,360 Speaker 1: I want to give you a major shout out. You've 126 00:06:42,360 --> 00:06:44,440 Speaker 1: had the courage to be in the market. I put GENA. 127 00:06:44,480 --> 00:06:47,400 Speaker 1: Martin out in Bloomberg in that campus. Others as well, 128 00:06:47,480 --> 00:06:50,240 Speaker 1: David Constant and Goldman has been quite good. But Tony, 129 00:06:50,279 --> 00:06:53,480 Speaker 1: you link it right into economics. Aren't we as far 130 00:06:53,600 --> 00:06:58,559 Speaker 1: from recession as we've ever been? Well? I think again, 131 00:06:58,640 --> 00:07:01,840 Speaker 1: Tom we we all is try to paint Each environment 132 00:07:01,920 --> 00:07:04,000 Speaker 1: is unique, and of course the reason you go into 133 00:07:04,000 --> 00:07:07,440 Speaker 1: a recession is unique, and it creates a credit crisis, 134 00:07:07,480 --> 00:07:11,280 Speaker 1: and it creates a FED thatics is extraordinarily accommodative. So 135 00:07:11,320 --> 00:07:13,800 Speaker 1: where we are economically is sort of where we were 136 00:07:13,800 --> 00:07:16,520 Speaker 1: in two thousand and four and two tho ten, coming 137 00:07:16,520 --> 00:07:20,280 Speaker 1: out of those kind of never before seeing recessions where 138 00:07:20,600 --> 00:07:24,320 Speaker 1: you get this economic lift that creates uncertainty in the 139 00:07:24,440 --> 00:07:27,480 Speaker 1: interest rate environment. What the Fed's gonna do? Are are 140 00:07:27,480 --> 00:07:30,760 Speaker 1: they gonna um do what Canada did yesterday and pull 141 00:07:30,840 --> 00:07:35,080 Speaker 1: back a little bit un quantitative easing? So this isn't unique. 142 00:07:35,280 --> 00:07:38,400 Speaker 1: Things are good. We're at the beginning of an economic 143 00:07:38,440 --> 00:07:42,520 Speaker 1: and market cycle. But in that process you can have 144 00:07:42,680 --> 00:07:45,559 Speaker 1: periods of a stall and that that's all we're talking 145 00:07:45,600 --> 00:07:49,280 Speaker 1: about here, is not an economic catastrophe by any stretch, 146 00:07:49,400 --> 00:07:51,640 Speaker 1: just a little bit of a market pause. The stall 147 00:07:51,680 --> 00:07:54,200 Speaker 1: speed is very much having to do with markets, not 148 00:07:54,320 --> 00:07:56,960 Speaker 1: economic data which has actually come out better than expected, 149 00:07:57,160 --> 00:07:59,600 Speaker 1: notwithstanding perhaps the claims that number that comes out and 150 00:07:59,640 --> 00:08:03,040 Speaker 1: about any minutes time, that's the expectation. Anyway, what are 151 00:08:03,080 --> 00:08:05,680 Speaker 1: you looking for? What are markets looking for to resume 152 00:08:05,760 --> 00:08:08,920 Speaker 1: that lift, that turbo charged to climb into the sky, 153 00:08:09,040 --> 00:08:12,400 Speaker 1: to use your analogy terribly, um, in order to go 154 00:08:12,440 --> 00:08:17,120 Speaker 1: back into the market, I really think so you need 155 00:08:17,160 --> 00:08:21,160 Speaker 1: to reset expectations. The next leg higher I think has 156 00:08:21,200 --> 00:08:24,320 Speaker 1: to come from a place where people look around and say, 157 00:08:24,320 --> 00:08:27,440 Speaker 1: I'm not invested enough. I think most of the data 158 00:08:27,560 --> 00:08:32,320 Speaker 1: suggest um that everybody's overly invested, and there's been some 159 00:08:32,400 --> 00:08:35,760 Speaker 1: deterioration under in the small cap world and in the 160 00:08:35,840 --> 00:08:41,520 Speaker 1: Nasdaq stocks. So again, think about it this way. About 161 00:08:41,559 --> 00:08:44,520 Speaker 1: six weeks ago, we we downgraded the financials, which we 162 00:08:44,520 --> 00:08:46,720 Speaker 1: had been very positive on. You know, our banks and 163 00:08:46,760 --> 00:08:49,800 Speaker 1: tanks call got a lot of attention, but we dowtgrated 164 00:08:49,800 --> 00:08:53,840 Speaker 1: the financials because we thought interest rates had seen a 165 00:08:53,920 --> 00:08:56,720 Speaker 1: peek and people were saying, how could you think that 166 00:08:56,800 --> 00:08:58,679 Speaker 1: rates are going to come down on the long end 167 00:08:58,960 --> 00:09:02,760 Speaker 1: with inflation xt tectations picking up and almost a million 168 00:09:02,840 --> 00:09:07,599 Speaker 1: jobs being created. But that's what happened. Sometimes those fundamental 169 00:09:07,679 --> 00:09:10,120 Speaker 1: factors are discounted in the market and to create the 170 00:09:10,160 --> 00:09:12,760 Speaker 1: next leg of higher which I think will happen in rate, 171 00:09:12,880 --> 00:09:15,400 Speaker 1: which I think will happen in stocks, you just need 172 00:09:15,480 --> 00:09:19,760 Speaker 1: that pause that refreshes, that resets expectations to a more 173 00:09:19,800 --> 00:09:22,560 Speaker 1: normal level. Tony, always great to get your perspective. You're 174 00:09:22,559 --> 00:09:24,480 Speaker 1: always drying the drama. Tony to our kind of co 175 00:09:24,600 --> 00:09:34,000 Speaker 1: genity chief market strategist and is welcome, sir. Right now 176 00:09:34,040 --> 00:09:36,240 Speaker 1: on that point of clarity, let us migrate to James 177 00:09:36,200 --> 00:09:40,120 Speaker 1: Anthony Aberdeen Standards Senior investment Manager. And what's so important here, 178 00:09:40,200 --> 00:09:42,280 Speaker 1: James as you write it up as well on the 179 00:09:42,360 --> 00:09:50,560 Speaker 1: poor communication? Who is poorly communicating around Christine Lagarde? Uh God, morning, Tom. 180 00:09:50,559 --> 00:09:52,679 Speaker 1: Can I give you a virtual high five first? Because 181 00:09:52,840 --> 00:09:56,400 Speaker 1: I kind of agree on the mumbo jumbo point. I 182 00:09:56,400 --> 00:09:59,520 Speaker 1: think I think centro bunk communication in general and ECB 183 00:09:59,600 --> 00:10:04,199 Speaker 1: community aations specifically has become really a parody because it's apparently, 184 00:10:04,240 --> 00:10:06,760 Speaker 1: you know, the theory behind this is that it's transparent 185 00:10:07,480 --> 00:10:10,760 Speaker 1: communication of one's reaction functions so that markets can smooth 186 00:10:10,800 --> 00:10:13,560 Speaker 1: the transition between policy changes. And that's not what we 187 00:10:13,559 --> 00:10:15,960 Speaker 1: get here at all. I mean the focus you know, John, 188 00:10:15,960 --> 00:10:18,040 Speaker 1: you're talking about the pace of purchases. We have to 189 00:10:18,160 --> 00:10:21,200 Speaker 1: argue over the semantics of what significantly means. You don't 190 00:10:21,200 --> 00:10:23,920 Speaker 1: think tem per cent is significant. Maybe the ECB does, 191 00:10:24,000 --> 00:10:27,040 Speaker 1: But what purpose is this really serving? I just think 192 00:10:27,240 --> 00:10:30,800 Speaker 1: now it creates more distortions and creates bigger problems than 193 00:10:30,840 --> 00:10:33,440 Speaker 1: it solves in in any way, shape or form. So 194 00:10:33,679 --> 00:10:37,720 Speaker 1: who's communicating poorly? Well, the institution. I don't think Madame 195 00:10:37,800 --> 00:10:40,960 Speaker 1: Legarde has necessarily settled down as quickly as would have 196 00:10:40,960 --> 00:10:45,160 Speaker 1: been hoped. She's had several communication missteps. But more importantly, 197 00:10:45,200 --> 00:10:47,880 Speaker 1: and again, Tom, you've made this point brilliantly already, this 198 00:10:47,960 --> 00:10:51,040 Speaker 1: is this is sort of institutional within the ECB because 199 00:10:51,080 --> 00:10:53,920 Speaker 1: of the very nature of you know, the people around 200 00:10:53,960 --> 00:10:55,880 Speaker 1: the table and the fact that they come from sovereign 201 00:10:55,960 --> 00:10:58,960 Speaker 1: nations which are not sort of formally bound together in 202 00:10:59,000 --> 00:11:01,120 Speaker 1: the same way that the state of the US are, 203 00:11:01,200 --> 00:11:04,680 Speaker 1: so you have different people with different domestic economic situations 204 00:11:04,720 --> 00:11:08,719 Speaker 1: to deal with and different bond markets more importantly to 205 00:11:08,720 --> 00:11:11,840 Speaker 1: to report back to, and of course that means that 206 00:11:11,880 --> 00:11:13,959 Speaker 1: they have a very different view of what the appropriate 207 00:11:14,000 --> 00:11:16,080 Speaker 1: path of policy is. James, you're making a couple of 208 00:11:16,080 --> 00:11:18,360 Speaker 1: points there, and they're all important ones. I think that 209 00:11:18,440 --> 00:11:21,079 Speaker 1: the e CP has a credibility issue around the semantics 210 00:11:21,160 --> 00:11:23,200 Speaker 1: right now. Don't think it matters so much at a 211 00:11:23,200 --> 00:11:26,280 Speaker 1: time of stress. You need real credibility. And if they 212 00:11:26,320 --> 00:11:30,240 Speaker 1: can't define what significantly frontloading actually is and what it means, 213 00:11:30,240 --> 00:11:31,959 Speaker 1: and if it is ten percent above the average of 214 00:11:32,000 --> 00:11:34,199 Speaker 1: the first quarter, then the next time they come out 215 00:11:34,320 --> 00:11:36,360 Speaker 1: and there's real stress on say the peripher and they 216 00:11:36,360 --> 00:11:39,080 Speaker 1: say we'll frontload, and this market looks at that and says, well, 217 00:11:39,120 --> 00:11:41,199 Speaker 1: we've heard this before and front loading means x y Z, 218 00:11:41,559 --> 00:11:44,080 Speaker 1: then you've got a problem. So the credibitability issue right 219 00:11:44,120 --> 00:11:45,760 Speaker 1: now might not be a problem, but it could be 220 00:11:46,000 --> 00:11:48,480 Speaker 1: in the near term. You also brought up the ECP 221 00:11:48,559 --> 00:11:51,680 Speaker 1: president Christine the Guard. I've spoken to so many people 222 00:11:52,240 --> 00:11:54,520 Speaker 1: on background, off the record who have got an opinion 223 00:11:54,520 --> 00:11:56,440 Speaker 1: on this but don't want to talk about it on 224 00:11:56,520 --> 00:11:58,680 Speaker 1: the record, James, So let's talk about it on the 225 00:11:58,720 --> 00:12:01,600 Speaker 1: record right now. Why is she finding it so difficult 226 00:12:01,640 --> 00:12:04,160 Speaker 1: to communicate with this market A And why is she 227 00:12:04,240 --> 00:12:06,400 Speaker 1: finding it so difficult to get the governing Council to 228 00:12:06,440 --> 00:12:09,440 Speaker 1: come along with her and not talk behind the scenes 229 00:12:09,520 --> 00:12:11,559 Speaker 1: and not make leaks and not do all these kind 230 00:12:11,600 --> 00:12:15,800 Speaker 1: of things. What is she struggling with specifically? So, I 231 00:12:15,800 --> 00:12:18,160 Speaker 1: think the first problem from the e CBS perspective is 232 00:12:18,200 --> 00:12:21,880 Speaker 1: that there's so far monetary policy and the leavers that 233 00:12:21,880 --> 00:12:24,439 Speaker 1: they're pulling, the policies that they're implementing, are just so 234 00:12:24,520 --> 00:12:27,240 Speaker 1: far from monetary policy. Really, it's untrue. You know, this 235 00:12:27,360 --> 00:12:30,840 Speaker 1: has become very much managing financial markets first and foremost. 236 00:12:31,200 --> 00:12:36,319 Speaker 1: The purported transmission from actions into inflation outcomes or growth 237 00:12:36,320 --> 00:12:39,599 Speaker 1: outcomes has long since been forgotten. There's not even a 238 00:12:39,679 --> 00:12:44,480 Speaker 1: pretense that this is a traditional transmission of economic policy 239 00:12:44,840 --> 00:12:48,480 Speaker 1: from you know, central banker's words to the man in 240 00:12:48,520 --> 00:12:51,760 Speaker 1: the streets actions. Nobody is even pretending that's what's going 241 00:12:51,760 --> 00:12:55,120 Speaker 1: on anymore. So the policy talk has become very big, 242 00:12:55,240 --> 00:12:58,520 Speaker 1: very unwieldy. The problem being dealt with is huge because 243 00:12:58,800 --> 00:13:02,679 Speaker 1: trying to keep financial markets under wraps when the economy 244 00:13:02,720 --> 00:13:05,160 Speaker 1: is structurally weak, but then goes through the sort of 245 00:13:05,160 --> 00:13:08,320 Speaker 1: cyclical weakness that we all experienced in in Q one 246 00:13:08,320 --> 00:13:12,119 Speaker 1: t Q two of last year. Of course incredibly incredibly difficult. 247 00:13:12,520 --> 00:13:15,520 Speaker 1: And I think when you get into that technical tool care, 248 00:13:15,800 --> 00:13:19,840 Speaker 1: the fact that that Madame Legard's background is not, you know, 249 00:13:19,920 --> 00:13:24,200 Speaker 1: from a sort of theoretical economics perspective, is not a 250 00:13:24,240 --> 00:13:27,480 Speaker 1: career central banker. Obviously that means that she has to 251 00:13:27,480 --> 00:13:29,640 Speaker 1: come up the learning curve a little and obviously she's 252 00:13:29,679 --> 00:13:32,040 Speaker 1: doing that and she I think she's getting better through time. 253 00:13:32,880 --> 00:13:36,160 Speaker 1: But in trying to say nothing, to not give the 254 00:13:36,240 --> 00:13:38,880 Speaker 1: market anything to go on, which I think is what 255 00:13:38,960 --> 00:13:41,760 Speaker 1: she aims to do. In most press conferences, she quite 256 00:13:41,800 --> 00:13:45,680 Speaker 1: often confused is more than she clarifies. And we've seen 257 00:13:45,720 --> 00:13:49,680 Speaker 1: this this pattern of the Chief Economist Philip Lane issuing 258 00:13:49,760 --> 00:13:52,840 Speaker 1: these these blog posts in the day after the meeting, 259 00:13:52,840 --> 00:13:54,760 Speaker 1: I think to try and find, tune and clarify some 260 00:13:54,840 --> 00:13:56,560 Speaker 1: of that message. Do you think we need a little 261 00:13:56,559 --> 00:13:59,199 Speaker 1: bit more structure in the communication, James, What is it 262 00:13:59,280 --> 00:14:01,400 Speaker 1: that we need? What we have seen from the Federal 263 00:14:01,440 --> 00:14:04,120 Speaker 1: Reserve is a shift in the reaction function, a new framework, 264 00:14:04,160 --> 00:14:05,679 Speaker 1: and whether you think that's the right or wrong thing. 265 00:14:05,679 --> 00:14:08,000 Speaker 1: What it has done is it's forced pretty much every 266 00:14:08,000 --> 00:14:10,040 Speaker 1: single member of the FMC right now to sing from 267 00:14:10,040 --> 00:14:12,040 Speaker 1: the same hymn sheet. You don't get that in Europe. 268 00:14:12,040 --> 00:14:14,040 Speaker 1: We didn't get that into our tenure either. Do you 269 00:14:14,120 --> 00:14:17,920 Speaker 1: need more structure? You know? My honest answer to this, 270 00:14:18,040 --> 00:14:20,440 Speaker 1: John is we need less, not more. I think interested 271 00:14:20,480 --> 00:14:23,760 Speaker 1: in go back forty years and there was no announcement, 272 00:14:23,800 --> 00:14:26,000 Speaker 1: There was no statement, There was nothing. There was a 273 00:14:26,080 --> 00:14:28,040 Speaker 1: few few men in a smoky room, and then you 274 00:14:28,080 --> 00:14:29,720 Speaker 1: had to look at money markets to work out what 275 00:14:29,760 --> 00:14:31,720 Speaker 1: decision have been made, if any at all. Now that's 276 00:14:31,920 --> 00:14:33,960 Speaker 1: one extreme. I think we're way at the other end 277 00:14:33,960 --> 00:14:38,200 Speaker 1: of the spectrum. I think ultimately central bankers need to 278 00:14:38,320 --> 00:14:41,600 Speaker 1: understand that they cannot manage every short term gyration of 279 00:14:41,640 --> 00:14:44,720 Speaker 1: financial markets, and to the extent that they do, they 280 00:14:44,760 --> 00:14:47,800 Speaker 1: are creating as many problems for themselves when they try 281 00:14:47,800 --> 00:14:50,760 Speaker 1: and exit policy as they're solving as the implement policy. 282 00:14:50,840 --> 00:14:52,480 Speaker 1: And I think this is one of the things we're 283 00:14:52,520 --> 00:14:55,840 Speaker 1: about to experience here. This is something that Richard Coup 284 00:14:55,920 --> 00:14:58,560 Speaker 1: wrote about many years ago and has been very consistent on, 285 00:14:58,640 --> 00:15:01,440 Speaker 1: and he's been very accurate and understanding and describing the 286 00:15:01,440 --> 00:15:06,080 Speaker 1: world post post the GFC, the queue trap, and this 287 00:15:06,080 --> 00:15:08,280 Speaker 1: this is the point that is very easy to wratch 288 00:15:08,320 --> 00:15:10,600 Speaker 1: it and up the amount of policy that's implemented to 289 00:15:10,680 --> 00:15:14,640 Speaker 1: deal with every every whips or every decline in economic activity. 290 00:15:14,680 --> 00:15:17,360 Speaker 1: But actually it's much more difficult to then try and 291 00:15:17,440 --> 00:15:21,600 Speaker 1: deal with financial markets overreacting, over extrapolating when you come 292 00:15:21,640 --> 00:15:24,760 Speaker 1: to exit the policy. And I think central banks possibly 293 00:15:25,080 --> 00:15:27,960 Speaker 1: and possibly this includes the ECB, certainly the Hawks. They're 294 00:15:28,000 --> 00:15:30,600 Speaker 1: just trying not to dig themselves into a deeper hole 295 00:15:30,760 --> 00:15:34,360 Speaker 1: just yet, not until they absolutely have to. James, as 296 00:15:34,360 --> 00:15:37,680 Speaker 1: an investor, what could happen in today's press cut friends, 297 00:15:37,680 --> 00:15:40,360 Speaker 1: that could actually make you change the way you invest 298 00:15:40,480 --> 00:15:44,480 Speaker 1: or what you decide to buy. I mean, yeah, I'm 299 00:15:44,480 --> 00:15:47,520 Speaker 1: a tactical time horizon, Lisa. Obviously that can be portfolio 300 00:15:47,640 --> 00:15:49,840 Speaker 1: changes as a result of things that you hear. I 301 00:15:49,840 --> 00:15:52,640 Speaker 1: wouldn't expect that to be the case today. What I 302 00:15:52,720 --> 00:15:55,440 Speaker 1: might expect is that some prices might change that become 303 00:15:55,480 --> 00:15:59,200 Speaker 1: more attractive to change investments. Um. I think you know, 304 00:15:59,280 --> 00:16:02,280 Speaker 1: broadly speak being bond yields are under pressure everywhere. I 305 00:16:02,320 --> 00:16:05,200 Speaker 1: think the next phase of the sort of bond market, 306 00:16:06,280 --> 00:16:09,240 Speaker 1: economic cycle, bond market transition, if you like, is for 307 00:16:09,520 --> 00:16:11,880 Speaker 1: the rest of the world, the non US, non China world, 308 00:16:11,880 --> 00:16:14,240 Speaker 1: to play some economic catch up, and I think that 309 00:16:14,320 --> 00:16:18,040 Speaker 1: probably sees yields outside of the US underperforming relative to 310 00:16:18,200 --> 00:16:21,200 Speaker 1: the the US. I think when you see yields rising, 311 00:16:21,400 --> 00:16:23,520 Speaker 1: I don't think that's a great place for Italy to be, 312 00:16:23,760 --> 00:16:26,840 Speaker 1: especially if there's any width of taper talk. And so 313 00:16:27,160 --> 00:16:31,080 Speaker 1: if we were to see a very successful devilish message 314 00:16:31,120 --> 00:16:34,040 Speaker 1: from from Madame Legarde and we see Italian yields fall 315 00:16:34,040 --> 00:16:36,480 Speaker 1: and spreads Titan, that might be something I would look 316 00:16:36,520 --> 00:16:39,160 Speaker 1: to lean into. Based on the fact that not a 317 00:16:39,160 --> 00:16:41,320 Speaker 1: lot has changed from the headlines we've seen just now 318 00:16:41,440 --> 00:16:45,440 Speaker 1: at twelve four five, I think, you know, Madame Legard 319 00:16:45,440 --> 00:16:47,520 Speaker 1: again is going to hope that this this press or 320 00:16:47,600 --> 00:16:50,000 Speaker 1: is a bit of a snooze fest. But to your point, John, 321 00:16:50,080 --> 00:16:52,040 Speaker 1: she's going to get she's going to get asked a 322 00:16:52,040 --> 00:16:56,160 Speaker 1: lot of questions about it. In trouble for saying that 323 00:16:56,240 --> 00:17:00,720 Speaker 1: once upon a time, James, James of Seed, I mean this, 324 00:17:00,880 --> 00:17:03,440 Speaker 1: I'm taking notes and it's gonna be you know, we'll 325 00:17:03,440 --> 00:17:05,760 Speaker 1: have it on radios. Can come back tomorrow the day 326 00:17:05,800 --> 00:17:09,240 Speaker 1: after we'll do it on a weekend. I gotta be 327 00:17:09,280 --> 00:17:10,800 Speaker 1: honest with you. This is the bit of the chi 328 00:17:11,119 --> 00:17:14,720 Speaker 1: that I probably enjoyed the least pouring James selling the 329 00:17:14,880 --> 00:17:18,440 Speaker 1: James keep it up. You're not alone, James, You're not alone, though, 330 00:17:18,520 --> 00:17:22,880 Speaker 1: James Athey, Aberdeen Standard Investment, Senior Investment Manage I say 331 00:17:22,920 --> 00:17:24,920 Speaker 1: technical and tell me you're right. You call it boring. 332 00:17:25,000 --> 00:17:27,199 Speaker 1: James Athey does too. And for many people that might 333 00:17:27,560 --> 00:17:36,280 Speaker 1: see Francis Donald, you are expert at this. Thank you 334 00:17:36,320 --> 00:17:38,960 Speaker 1: for joining for Manual Life this morning, and I want 335 00:17:38,960 --> 00:17:42,840 Speaker 1: to really dovetail George Sarah Ellis note earliest morning, Sarah 336 00:17:42,880 --> 00:17:47,840 Speaker 1: Ellis is in foreign exchange. He's looking at strong Canadian dollar. Francis, 337 00:17:47,920 --> 00:17:50,560 Speaker 1: you live and breathe this with Manual Life of Montreal. 338 00:17:50,880 --> 00:17:54,440 Speaker 1: So we've got a wonderful nexus here of George Saravellis 339 00:17:54,440 --> 00:17:58,639 Speaker 1: and Francis Donald and the Canadian US difference and the 340 00:17:58,760 --> 00:18:03,119 Speaker 1: answer Francis accord into George. His Canada is creating jobs 341 00:18:03,440 --> 00:18:06,800 Speaker 1: and christiph Friedland and Trudeaux have a nation getting back 342 00:18:06,840 --> 00:18:11,639 Speaker 1: to real labor excellence faster than America. How long is 343 00:18:11,640 --> 00:18:15,800 Speaker 1: it gonna take for America to stop replacing restaurant jobs 344 00:18:16,000 --> 00:18:21,240 Speaker 1: and get back to actual true job formation. There's about 345 00:18:21,320 --> 00:18:24,560 Speaker 1: six questions in that time. I tried, I was going 346 00:18:24,600 --> 00:18:28,800 Speaker 1: for seven. I failed. Let's start with what we can 347 00:18:28,920 --> 00:18:31,600 Speaker 1: learn from Canada. Canada is telling us a couple of 348 00:18:31,600 --> 00:18:35,919 Speaker 1: really important stories. One is that relative fiscal policy is 349 00:18:35,960 --> 00:18:39,320 Speaker 1: a key global market driver. That's true between Canada and 350 00:18:39,320 --> 00:18:43,080 Speaker 1: the US, but also the US and Europe. The second 351 00:18:43,160 --> 00:18:45,280 Speaker 1: is that labor market healing is going to be a 352 00:18:45,400 --> 00:18:50,280 Speaker 1: key component to our forecast, and places like Canada and 353 00:18:50,320 --> 00:18:53,240 Speaker 1: Europe did not experience the same drop in labor force 354 00:18:53,320 --> 00:18:57,480 Speaker 1: participation rates. What matters for the United States Now, for me, 355 00:18:57,680 --> 00:19:01,679 Speaker 1: the most important nona known is how fast labor supply 356 00:19:02,200 --> 00:19:05,800 Speaker 1: comes back to America, because that's the key to wages. 357 00:19:06,200 --> 00:19:11,480 Speaker 1: That's the key to unlocking two and three growth. Last, 358 00:19:11,480 --> 00:19:13,639 Speaker 1: but not least, we look at these two economies, we 359 00:19:13,680 --> 00:19:15,880 Speaker 1: do see an important story, which is the US rely 360 00:19:16,359 --> 00:19:19,440 Speaker 1: q one story. I love that A lot of very 361 00:19:19,480 --> 00:19:21,640 Speaker 1: good news priced into the U S story. I talked 362 00:19:21,640 --> 00:19:25,119 Speaker 1: about keep reopening in the US, replaced in the US. 363 00:19:25,200 --> 00:19:28,119 Speaker 1: Where are expectations really low? Where are the hawky sh 364 00:19:28,160 --> 00:19:31,679 Speaker 1: up surprises? Where the upside surprises outside the US in 365 00:19:31,720 --> 00:19:34,320 Speaker 1: places like Europe and Canada. My view is the next 366 00:19:34,359 --> 00:19:36,800 Speaker 1: big move higher in the U. S. Treasury yield is 367 00:19:36,840 --> 00:19:38,800 Speaker 1: not going to be US driven. It's going to be 368 00:19:38,840 --> 00:19:42,000 Speaker 1: globally driven, probably Europe. Okay, But Francis, let's go on 369 00:19:42,040 --> 00:19:45,080 Speaker 1: Martilly in here, folks. This is Alfred Marshall's supply and demand, 370 00:19:45,119 --> 00:19:47,320 Speaker 1: you know, the little X E X thing that Francis 371 00:19:47,720 --> 00:19:51,240 Speaker 1: is expert at. Is this about labor supply coming on 372 00:19:52,000 --> 00:19:57,080 Speaker 1: or is it about labor demand in America? It's going 373 00:19:57,160 --> 00:19:58,879 Speaker 1: to be both. And this is one of the biggest 374 00:19:59,000 --> 00:20:02,080 Speaker 1: challenges is that we have this whole list of missing 375 00:20:02,119 --> 00:20:05,040 Speaker 1: inputs into our outlook, and they arranged from things like 376 00:20:05,080 --> 00:20:07,119 Speaker 1: what our corporate tax is going to be, what does 377 00:20:07,160 --> 00:20:10,959 Speaker 1: the infrastructure plan look like? What about the double mutant variant? 378 00:20:11,000 --> 00:20:13,840 Speaker 1: Apparently we have to incorporate this now into our outlook. 379 00:20:14,080 --> 00:20:16,520 Speaker 1: We do not know how fast labor is going to 380 00:20:16,560 --> 00:20:19,080 Speaker 1: come back demand or supply, because we've never lived in 381 00:20:19,160 --> 00:20:22,440 Speaker 1: this before. So you hear high conviction economists and strategists 382 00:20:22,440 --> 00:20:24,840 Speaker 1: who say we're fully healed, We're back to full time 383 00:20:24,840 --> 00:20:28,600 Speaker 1: employment or full employment by two We just don't know. 384 00:20:28,720 --> 00:20:31,520 Speaker 1: We don't have the example and critically. On top of this, 385 00:20:31,800 --> 00:20:34,359 Speaker 1: the Federal Reserve has told us they're not just looking 386 00:20:34,400 --> 00:20:37,600 Speaker 1: for full employment by our traditional metrics, but a broad 387 00:20:37,640 --> 00:20:41,040 Speaker 1: based and inclusive employment goal. So even though we're still running, 388 00:20:41,080 --> 00:20:42,800 Speaker 1: we're trying to figure out what we're doing, the goalposts 389 00:20:42,800 --> 00:20:45,000 Speaker 1: are also moving at the same time. It makes for 390 00:20:45,040 --> 00:20:47,639 Speaker 1: a complicated forecast, and I really think we need to 391 00:20:47,680 --> 00:20:50,040 Speaker 1: be thinking about why confidence intervals as we go through 392 00:20:50,080 --> 00:20:52,040 Speaker 1: the next few months. Yeah, John, I liked it. We're 393 00:20:52,119 --> 00:20:55,440 Speaker 1: complicated and that it's a nation moving in fits and starts. 394 00:20:55,640 --> 00:20:58,160 Speaker 1: It's a complicated issue for the airlines too, and tiking 395 00:20:58,200 --> 00:21:00,640 Speaker 1: it fits and starts domestically things if he picked up 396 00:21:00,800 --> 00:21:03,960 Speaker 1: in America for travel internationally not the story. So here's 397 00:21:03,960 --> 00:21:07,040 Speaker 1: an airline with a domestic till Southwest coming down and 398 00:21:07,119 --> 00:21:10,760 Speaker 1: saying they're hopeful to achieve break even by June, the 399 00:21:10,840 --> 00:21:13,640 Speaker 1: first core adjusted loss coming in at around about one 400 00:21:13,760 --> 00:21:17,439 Speaker 1: seventy two, the estimated loss one one seventy to the 401 00:21:17,520 --> 00:21:20,720 Speaker 1: number the estimate one eight five, hopeful to achieve break 402 00:21:20,760 --> 00:21:23,240 Speaker 1: even by June. LISTA, here's an airline with a domestic 403 00:21:23,280 --> 00:21:24,879 Speaker 1: till A little bit later this morning, I believe we 404 00:21:24,880 --> 00:21:27,480 Speaker 1: get an American airlines earnings as well. That's an airline 405 00:21:27,640 --> 00:21:30,400 Speaker 1: with an international till. Yeah, and when you look at 406 00:21:30,440 --> 00:21:33,240 Speaker 1: the overall picture I had at the International Association for 407 00:21:33,280 --> 00:21:35,960 Speaker 1: Airlines came out yesterday and actually said that the net 408 00:21:36,000 --> 00:21:39,240 Speaker 1: loss would be substantially bigger ten billion dollars bigger this 409 00:21:39,320 --> 00:21:42,840 Speaker 1: year than they had previously expected. John, because of the variance, 410 00:21:42,880 --> 00:21:46,199 Speaker 1: because of the prolonged nature of this pandemic, which just 411 00:21:46,400 --> 00:21:48,640 Speaker 1: isn't exactly going away. I want to use that term 412 00:21:48,640 --> 00:21:51,080 Speaker 1: that Tom use fits and starts Francis, this will come 413 00:21:51,080 --> 00:21:54,240 Speaker 1: in waves, the reopening what happened all at once? What 414 00:21:54,240 --> 00:21:56,200 Speaker 1: does that mean for you just as a market participant 415 00:21:56,240 --> 00:21:59,120 Speaker 1: as well? Well? The congregated element of this is when 416 00:21:59,119 --> 00:22:01,240 Speaker 1: you're an eponymous sitting in an investment team, you have 417 00:22:01,280 --> 00:22:03,160 Speaker 1: to say, what's gonna happen to the economy, and then 418 00:22:03,200 --> 00:22:06,200 Speaker 1: importantly how much of that is already price? A lot 419 00:22:06,240 --> 00:22:08,160 Speaker 1: of good news in this price right now. So when 420 00:22:08,160 --> 00:22:10,720 Speaker 1: I hear headlines like IATA saying actually, we're gonna be 421 00:22:10,720 --> 00:22:13,320 Speaker 1: a little bit less than expected, this is what worries me. 422 00:22:13,400 --> 00:22:16,320 Speaker 1: The scope for downside surprises in the United States is bigger. 423 00:22:16,600 --> 00:22:19,359 Speaker 1: But more problematically, I hear a lot of people saying, 424 00:22:19,359 --> 00:22:21,399 Speaker 1: you know, and very bullish economy because I got on 425 00:22:21,440 --> 00:22:24,000 Speaker 1: a flight to Florida and it was packed. The question 426 00:22:24,080 --> 00:22:25,800 Speaker 1: through is is it still going to be packed in 427 00:22:27,400 --> 00:22:29,760 Speaker 1: three You're gonna notice a lot of economists are talking 428 00:22:29,760 --> 00:22:33,080 Speaker 1: now the boom busts, the short cycle. A lot of 429 00:22:33,119 --> 00:22:36,479 Speaker 1: forecasts are showing a sizeable drop in growth for three Now, 430 00:22:36,520 --> 00:22:39,200 Speaker 1: that might seem very far off, but that's your fiscal 431 00:22:39,320 --> 00:22:41,960 Speaker 1: impulse coming off. So fits and starts over the next 432 00:22:41,960 --> 00:22:44,720 Speaker 1: three to six months. Absolutely, we're gonna have to trade those. 433 00:22:44,760 --> 00:22:47,680 Speaker 1: It's gonna be a very tactical rangebound market. But where 434 00:22:47,760 --> 00:22:50,720 Speaker 1: my eye is is the strategic fits and starts, which is, 435 00:22:50,760 --> 00:22:52,800 Speaker 1: do we see in the United States a pull forward 436 00:22:52,800 --> 00:22:55,560 Speaker 1: of demand that's very aggressive for once two years and 437 00:22:55,600 --> 00:22:57,199 Speaker 1: then are we facing a little bit more of a 438 00:22:57,200 --> 00:23:00,000 Speaker 1: problem in the back half of these five year forecast period. 439 00:23:00,000 --> 00:23:01,560 Speaker 1: It so you wet two hats. So let me just 440 00:23:01,640 --> 00:23:03,760 Speaker 1: address that question a little bit more specifically. When you 441 00:23:03,800 --> 00:23:06,920 Speaker 1: say the scope for downside surprise, more scope for downside 442 00:23:06,960 --> 00:23:11,080 Speaker 1: surprises in America, as an economist or as a market participant, 443 00:23:12,640 --> 00:23:16,200 Speaker 1: oh as bold. The problem, however, is that we're looking 444 00:23:16,200 --> 00:23:18,200 Speaker 1: at a market and even though I can say we've 445 00:23:18,240 --> 00:23:21,159 Speaker 1: seen peak reflation, peak reopening in the United States, I 446 00:23:21,240 --> 00:23:25,080 Speaker 1: cannot do short equities in this market. I absolutely you know, 447 00:23:25,200 --> 00:23:28,240 Speaker 1: don't want to be long bonds, particularly after this move. 448 00:23:28,320 --> 00:23:30,879 Speaker 1: Even if there's a little bit more upside, rates are 449 00:23:30,920 --> 00:23:34,040 Speaker 1: still incredibly low. If you want to make your return profile, 450 00:23:34,280 --> 00:23:37,119 Speaker 1: you have to be allocating the equities, particularly with momentum 451 00:23:37,160 --> 00:23:39,679 Speaker 1: still in your favor and the low rate environment. So 452 00:23:39,760 --> 00:23:42,280 Speaker 1: now is the time with your sector rotations, to be 453 00:23:42,359 --> 00:23:46,960 Speaker 1: adding internationally, to be focusing on country risk and country plays. 454 00:23:47,280 --> 00:23:48,720 Speaker 1: That's the way we're going to make money in the 455 00:23:48,760 --> 00:23:51,080 Speaker 1: next six months, as opposed to trying to make these 456 00:23:51,080 --> 00:23:54,359 Speaker 1: calls on broad risk or headline SPX. Meanwhile, for instance, 457 00:23:54,359 --> 00:23:56,120 Speaker 1: this is Earth Day, and I'm wondering how much you're 458 00:23:56,119 --> 00:23:59,640 Speaker 1: paying attention to some of these proposals from an investment perspective, 459 00:23:59,720 --> 00:24:04,520 Speaker 1: especial Actually, as President Biden puts money behind it. Absolutely 460 00:24:04,640 --> 00:24:07,280 Speaker 1: every single day, I'm often asked, what's the biggest delta 461 00:24:07,320 --> 00:24:10,160 Speaker 1: on your forecast? Because change on your forecast, the transition 462 00:24:10,200 --> 00:24:13,360 Speaker 1: from the Trump administration to the Biden administration, it's actually 463 00:24:13,480 --> 00:24:16,919 Speaker 1: green spending. Now importantly, when we talk about fiscal spending. 464 00:24:16,920 --> 00:24:19,719 Speaker 1: People usually say this amount billions of dollars and brillions 465 00:24:19,720 --> 00:24:22,520 Speaker 1: of dollars equals this amount of growth, but how it's 466 00:24:22,560 --> 00:24:26,200 Speaker 1: spent is what determines the fiscal multipliers. Green spending is 467 00:24:26,240 --> 00:24:29,240 Speaker 1: going to have a longer horizon with a different fiscal multiplier. 468 00:24:29,480 --> 00:24:31,639 Speaker 1: The other component of that that's really critical, as we 469 00:24:31,680 --> 00:24:35,359 Speaker 1: watched green bond issuance as another big component of future 470 00:24:35,359 --> 00:24:39,000 Speaker 1: ASCID allocation, a lot of first for that, so incorporating 471 00:24:39,040 --> 00:24:42,439 Speaker 1: as investing, looking at green spending key component of the 472 00:24:42,440 --> 00:24:46,800 Speaker 1: economic outlook, but also the investment portfolio construction for instance. 473 00:24:46,840 --> 00:24:49,560 Speaker 1: I want to dovetail this idea of a green initiative 474 00:24:49,800 --> 00:24:52,920 Speaker 1: with where we began this conversation, that is jobs and wages. 475 00:24:53,080 --> 00:24:55,280 Speaker 1: And we have a Biden coming out and saying that 476 00:24:55,320 --> 00:24:58,360 Speaker 1: this will actually generate well paying jobs. But you've got 477 00:24:58,520 --> 00:25:01,760 Speaker 1: union groups pushing back and saying that solar and wind 478 00:25:02,080 --> 00:25:06,240 Speaker 1: companies haven't been really opposed unionization and opposed efforts to 479 00:25:06,280 --> 00:25:08,960 Speaker 1: try to bring wages up in that way. What's the truth. 480 00:25:10,760 --> 00:25:14,240 Speaker 1: The promulicated element of this is all forms of infrastructure spending, 481 00:25:14,400 --> 00:25:17,000 Speaker 1: from green to highways. The i m F has plenty 482 00:25:17,000 --> 00:25:19,040 Speaker 1: of work on this. They hit the economy with a 483 00:25:19,119 --> 00:25:22,199 Speaker 1: long lag, so you can announce these sorts of initiatives, 484 00:25:22,200 --> 00:25:25,080 Speaker 1: but we don't see them traditionally from anywhere from three 485 00:25:25,359 --> 00:25:28,240 Speaker 1: to eight years. So finding that truth and what happens 486 00:25:28,240 --> 00:25:30,639 Speaker 1: in reality is not going to happen next year. The 487 00:25:30,720 --> 00:25:32,840 Speaker 1: market is going to have to be patient on seeing that. 488 00:25:33,000 --> 00:25:37,000 Speaker 1: And this is why I say heading into three there's 489 00:25:37,040 --> 00:25:38,960 Speaker 1: gonna be a potle in the economy. I think the 490 00:25:38,960 --> 00:25:41,159 Speaker 1: market is starting to sniff that out. Knowing what you 491 00:25:41,200 --> 00:25:43,600 Speaker 1: own is so difficult right now, Francis, we hear that 492 00:25:43,720 --> 00:25:47,640 Speaker 1: term greenwashing. Black Rock put out a transition ETF recently, 493 00:25:47,720 --> 00:25:50,200 Speaker 1: huge demand for it, loads of inflows, as you might expect. 494 00:25:50,240 --> 00:25:53,800 Speaker 1: Then you go through the top holdings of this thing, Apple, Microsoft, Amazon, 495 00:25:53,840 --> 00:25:56,840 Speaker 1: Alphabet and Facebook. Now maybe they are the leading companies 496 00:25:56,880 --> 00:25:59,400 Speaker 1: making a transition in the United States of America. Maybe 497 00:25:59,400 --> 00:26:01,480 Speaker 1: that's the right way to benchmark the CTF. But for 498 00:26:01,520 --> 00:26:04,640 Speaker 1: the people who are allocating capital to some of these stories, Francis, 499 00:26:04,800 --> 00:26:06,720 Speaker 1: do you think they really know what they own right now? 500 00:26:08,240 --> 00:26:11,320 Speaker 1: My focus on this is actually moving away from company 501 00:26:11,400 --> 00:26:14,280 Speaker 1: specific risk, also because I'm a macro strategist, so it's 502 00:26:14,280 --> 00:26:16,800 Speaker 1: not my area to the same extent, but focusing on 503 00:26:17,000 --> 00:26:19,639 Speaker 1: country risk on this component and the E s G 504 00:26:20,119 --> 00:26:22,800 Speaker 1: country screens that are coming through sitting up here in 505 00:26:22,840 --> 00:26:25,560 Speaker 1: Canada as Tom and Bil to everybody. Of course, we're 506 00:26:25,560 --> 00:26:29,080 Speaker 1: talking about having to do early and cheaper green transitions 507 00:26:29,359 --> 00:26:32,480 Speaker 1: or fearing access to global capital markets, and I think 508 00:26:32,480 --> 00:26:35,959 Speaker 1: countries who are going to be accelerating green spending in 509 00:26:36,040 --> 00:26:39,480 Speaker 1: order to avoid losing capital flows. And that's the component 510 00:26:39,480 --> 00:26:42,160 Speaker 1: of the macro story that has to integrate the green 511 00:26:42,320 --> 00:26:45,439 Speaker 1: infrastructure component or you're gonna get the trade rock. Francis 512 00:26:45,560 --> 00:26:47,680 Speaker 1: really really interesting. Final point and great to catch up 513 00:26:47,760 --> 00:26:50,320 Speaker 1: as always Francis Donald to Manulife. Always great to have 514 00:26:50,320 --> 00:26:52,159 Speaker 1: Francis with this slave so often putting Tom in his 515 00:26:52,240 --> 00:26:56,280 Speaker 1: place as well. Very good. Every single cover about six 516 00:26:56,359 --> 00:27:00,399 Speaker 1: questions in there throw seven six questions in. We do 517 00:27:00,520 --> 00:27:10,399 Speaker 1: panels together and she just crushes me on there's the 518 00:27:10,440 --> 00:27:13,040 Speaker 1: headline tell connected to the story out of India Singapore 519 00:27:13,119 --> 00:27:16,639 Speaker 1: to Office. It's just from India on the deteriorating situation 520 00:27:16,640 --> 00:27:19,119 Speaker 1: which is just getting worse and worse, just a matter 521 00:27:19,119 --> 00:27:21,480 Speaker 1: of time until we see that from other geographies. We've 522 00:27:21,480 --> 00:27:24,439 Speaker 1: seen this with the Philippines, with Brazil, as well. We're 523 00:27:24,440 --> 00:27:26,440 Speaker 1: gonna have news on Golden Sex here in a moment. 524 00:27:26,520 --> 00:27:28,920 Speaker 1: Stay where this Global Wall Street right now, Jennifer News. 525 00:27:28,960 --> 00:27:33,239 Speaker 1: O where this Johns Hopkins Center for Health Security, And 526 00:27:33,280 --> 00:27:37,240 Speaker 1: all of a sudden, our international health security is important, 527 00:27:37,320 --> 00:27:41,240 Speaker 1: Jennifer News So how far are we from a humanitarian 528 00:27:41,359 --> 00:27:44,760 Speaker 1: crisis in India? Oh? I mean, we're on the brink. 529 00:27:45,119 --> 00:27:49,080 Speaker 1: The stories that really worrying me the most is hearing 530 00:27:49,119 --> 00:27:52,240 Speaker 1: about shortages of medical oxygen. I mean to think that, 531 00:27:52,480 --> 00:27:55,440 Speaker 1: you know, you can save people's lives by supplementing their 532 00:27:55,440 --> 00:27:58,080 Speaker 1: oxygen and they just don't have it oxygen something that's 533 00:27:58,080 --> 00:28:01,640 Speaker 1: easy to make. That is really I think a severe tragedy. 534 00:28:01,840 --> 00:28:05,280 Speaker 1: How close are we to shifting to say nine seven 535 00:28:05,280 --> 00:28:09,199 Speaker 1: and the starvation of Europe, the Netherlands post World War two? Europe? 536 00:28:09,280 --> 00:28:11,480 Speaker 1: How close are we to where there will be a 537 00:28:11,520 --> 00:28:18,480 Speaker 1: call for international developed nation and American responsibility to assist India? 538 00:28:19,280 --> 00:28:22,640 Speaker 1: But we are there. If the call hasn't already been sounded, um, 539 00:28:22,720 --> 00:28:25,600 Speaker 1: let's sound it now because there is clearly a deep, 540 00:28:25,640 --> 00:28:28,240 Speaker 1: deep struggle there and they need help. And you know 541 00:28:28,280 --> 00:28:31,439 Speaker 1: the United States is not going to be back to normal, 542 00:28:31,720 --> 00:28:35,280 Speaker 1: um safe fully safe until we help countries end um 543 00:28:35,640 --> 00:28:39,240 Speaker 1: these very concerning surges of these cases. Based on the 544 00:28:39,240 --> 00:28:42,080 Speaker 1: searches that we have seen, how much has the end 545 00:28:42,080 --> 00:28:46,160 Speaker 1: of the pandemic been pushed out, Well, I mean it's 546 00:28:46,200 --> 00:28:47,840 Speaker 1: it's really hard to say. I mean, we still have 547 00:28:47,920 --> 00:28:50,200 Speaker 1: parts of the globe that haven't gone through this yet. 548 00:28:50,240 --> 00:28:52,400 Speaker 1: And you don't want any country to go through this 549 00:28:52,440 --> 00:28:54,600 Speaker 1: where you see a massive surge of cases. But any 550 00:28:54,640 --> 00:28:56,680 Speaker 1: country that has not yet had a surge of cases 551 00:28:56,760 --> 00:29:00,520 Speaker 1: and it's not actively vaccinating its population remains at risk 552 00:29:00,600 --> 00:29:04,600 Speaker 1: to exactly this scenario. I think earlier there were countries 553 00:29:04,640 --> 00:29:06,880 Speaker 1: that maybe breathe a sigh of relief that somehow assume 554 00:29:06,960 --> 00:29:09,360 Speaker 1: that they escaped the worst of this pandemic. But we're 555 00:29:09,360 --> 00:29:12,440 Speaker 1: seeing um quite clearly that that's very much not the case. 556 00:29:12,520 --> 00:29:15,560 Speaker 1: That many parts of the world still remain deeply at risk. 557 00:29:15,680 --> 00:29:19,000 Speaker 1: So I worry about these headlines continuing for a year 558 00:29:19,120 --> 00:29:22,960 Speaker 1: or more unless UH international partners get together and help 559 00:29:23,200 --> 00:29:25,040 Speaker 1: share some of the vaccines that are there. We need 560 00:29:25,080 --> 00:29:27,920 Speaker 1: to absolutely make more vaccines. There's clearly a shortage of 561 00:29:27,920 --> 00:29:30,600 Speaker 1: medical supplies that needs to be addressed. So a lot 562 00:29:30,640 --> 00:29:33,120 Speaker 1: of work that the globe can do to help countries 563 00:29:33,120 --> 00:29:35,320 Speaker 1: and to you know, try to lessen some of these 564 00:29:35,400 --> 00:29:37,479 Speaker 1: hideous tolls of the pandemic has already had. We need 565 00:29:37,520 --> 00:29:39,400 Speaker 1: to make more vaccine, and we need to convince people 566 00:29:39,480 --> 00:29:42,120 Speaker 1: to actually get inoculated. John touched in the fact that 567 00:29:42,160 --> 00:29:45,880 Speaker 1: there is a slowing pace of vaccinations in the United States. 568 00:29:45,880 --> 00:29:48,959 Speaker 1: How concerning is that it is quite concerning. I just 569 00:29:49,000 --> 00:29:52,760 Speaker 1: read a study about an outbreak in a nursing home 570 00:29:52,880 --> 00:29:55,760 Speaker 1: where most of the residents were protected with vaccines, but 571 00:29:56,160 --> 00:29:59,160 Speaker 1: only about of the healthcare workers in the nursing home 572 00:29:59,200 --> 00:30:03,440 Speaker 1: here in the US UM had been fully vaccinated. And unfortunately, 573 00:30:03,440 --> 00:30:05,880 Speaker 1: one of the residents who had been vaccinated, and this 574 00:30:06,120 --> 00:30:10,360 Speaker 1: can happen particularly and medically frail individuals, died. So this 575 00:30:10,440 --> 00:30:12,320 Speaker 1: is a real problem. And then of course we're hearing 576 00:30:12,320 --> 00:30:15,640 Speaker 1: about states pulling back on ordering vaccine, that they are 577 00:30:15,800 --> 00:30:18,200 Speaker 1: not having the kind of uptake that they had been 578 00:30:18,400 --> 00:30:20,760 Speaker 1: had been having. UM. This is something that I think 579 00:30:20,800 --> 00:30:22,920 Speaker 1: we have to address with much urgency. I think there 580 00:30:22,920 --> 00:30:24,880 Speaker 1: are some people who are probably just trying to wait 581 00:30:24,880 --> 00:30:27,920 Speaker 1: and see. I think there are some people who don't 582 00:30:27,960 --> 00:30:29,840 Speaker 1: feel that they want to get vaccinated. But we need 583 00:30:29,920 --> 00:30:32,280 Speaker 1: to reach both of those people. Both of those groups 584 00:30:32,320 --> 00:30:34,800 Speaker 1: of people and and convince them that you know, your 585 00:30:34,840 --> 00:30:37,680 Speaker 1: time to get vaccinated is as soon as as you're able, 586 00:30:38,040 --> 00:30:40,000 Speaker 1: and the faster we do this is the faster we 587 00:30:40,040 --> 00:30:42,280 Speaker 1: get back to normal. What a tough moment to be 588 00:30:42,320 --> 00:30:43,920 Speaker 1: a leader of this country right now and make this 589 00:30:43,960 --> 00:30:46,600 Speaker 1: decision doctor, because there is so much pressure to take 590 00:30:46,640 --> 00:30:49,280 Speaker 1: some the supply here and allocates it to the rest 591 00:30:49,320 --> 00:30:51,640 Speaker 1: of the world where it's needed most right now. How 592 00:30:51,680 --> 00:30:54,360 Speaker 1: do you make a decision like that when some parts 593 00:30:54,360 --> 00:30:59,080 Speaker 1: of your country have decided they don't want this vaccine? Sure, well, 594 00:30:59,080 --> 00:31:01,280 Speaker 1: it is a tough decady, and you know every elected 595 00:31:01,320 --> 00:31:05,080 Speaker 1: official their first responsibility is to the people who elected 596 00:31:05,120 --> 00:31:07,680 Speaker 1: him or her. UM. In this case, though, the United 597 00:31:07,720 --> 00:31:10,800 Speaker 1: States have has more vaccines than we need. Even if 598 00:31:11,160 --> 00:31:15,080 Speaker 1: every single American UM work to get a vaccine, we 599 00:31:15,080 --> 00:31:17,240 Speaker 1: still have more than we need. And so I think 600 00:31:17,280 --> 00:31:21,280 Speaker 1: it is important for us to consider donating at least 601 00:31:21,280 --> 00:31:24,800 Speaker 1: to cover some some very high risk groups like healthcare 602 00:31:24,840 --> 00:31:26,960 Speaker 1: workers that are working across the globe. They show up 603 00:31:26,960 --> 00:31:28,640 Speaker 1: every day with their lives on the lines to save 604 00:31:28,680 --> 00:31:30,800 Speaker 1: people's lives. We should be able to protect them. And 605 00:31:30,840 --> 00:31:33,240 Speaker 1: the US has enough vaccine to be able to um 606 00:31:33,400 --> 00:31:36,200 Speaker 1: to help in those efforts. Dolta, thank you. We have 607 00:31:36,240 --> 00:31:38,440 Speaker 1: to leave that. Doctor. Jennifer Neo said that John's help 608 00:31:38,480 --> 00:31:41,120 Speaker 1: consents at the House security Senia Scalta. This is the 609 00:31:41,120 --> 00:31:45,800 Speaker 1: Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays 610 00:31:45,840 --> 00:31:48,960 Speaker 1: from seven to ten a m. Eastern on Bloomberg Radio 611 00:31:49,200 --> 00:31:52,760 Speaker 1: and on Bloomberg Television each day from six to nine 612 00:31:52,840 --> 00:31:57,240 Speaker 1: am for insight from the best and economics, finance, investment, 613 00:31:57,400 --> 00:32:02,080 Speaker 1: and international relations. And subscrib right to the Surveillance podcast 614 00:32:02,360 --> 00:32:05,960 Speaker 1: on Apple podcast, SoundCloud, Bloomberg dot Com, and of course 615 00:32:06,280 --> 00:32:10,600 Speaker 1: on the terminal. I'm Tom keene In. 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