WEBVTT - Surveillance: Shorter, Faster Cycle, Says Sheets 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz. Daily we bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:29.800 and of course on the Bloomberg Terminal. We need to 0:00:29.840 --> 0:00:32.680 get caught up on the finance of the moment. There's 0:00:32.680 --> 0:00:34.840 no one better to do that with an Andrew Sheets 0:00:34.840 --> 0:00:38.839 with Morgan Stanley and their chief cross at assets strategist Andrew. 0:00:38.880 --> 0:00:42.159 Good morning to you. The mill you here is a 0:00:42.200 --> 0:00:47.000 boom American economy. How does your view change on allocation 0:00:47.560 --> 0:00:51.800 given the strength of the American locomotive. Well, I think 0:00:51.840 --> 0:00:54.880 that that's a great place to start. The growth backdrop 0:00:54.960 --> 0:00:59.680 appears incredibly strong. Our economists of Morgan Stanley have continued 0:00:59.760 --> 0:01:02.600 death hold and above consensus view on on both US 0:01:02.680 --> 0:01:06.479 and global growth. So we're certainly in that strong growth camp. 0:01:07.080 --> 0:01:09.319 But I also think we have to acknowledge that this 0:01:09.560 --> 0:01:13.360 unusually fast recovery could mean we also have an unusually 0:01:14.080 --> 0:01:19.279 fast cycle and unusually short cycle, and thus it's time 0:01:19.400 --> 0:01:22.760 for investors to start moving out of many of the 0:01:22.800 --> 0:01:25.280 strategies may of the sectors that often work in that 0:01:25.360 --> 0:01:29.600 early cycle right after a recession period into things that 0:01:29.640 --> 0:01:32.280 tend to work better when conditions get a little bit 0:01:32.280 --> 0:01:34.520 more mid cycle, when that recovery is a little bit 0:01:34.520 --> 0:01:37.280 more mature. And so those are the rotations that we're 0:01:37.319 --> 0:01:40.280 starting to make. Um switching out of small caps into 0:01:40.319 --> 0:01:44.560 large caps, moving into more quality stocks. I think that's 0:01:44.560 --> 0:01:47.480 going to be an important theme as Yes, growth is 0:01:47.600 --> 0:01:50.160 very strong, but I think we could be facing a 0:01:50.200 --> 0:01:53.680 cycle that looks much hotter and much faster than those 0:01:53.720 --> 0:01:55.200 that were used to and I want to get to 0:01:55.200 --> 0:01:57.000 build on that because I think it's lost on some 0:01:57.040 --> 0:01:59.240 paper still. You've been pushing this story now full the 0:01:59.240 --> 0:02:01.560 best pound of a cup of months. I think the 0:02:01.640 --> 0:02:04.920 Shoulta holt To cycle. What are the signposts you're using 0:02:05.240 --> 0:02:07.840 right now to suggest that this cycle will be Sholta 0:02:07.960 --> 0:02:11.400 it will be hot up? Yeah? Great. So I think 0:02:11.400 --> 0:02:15.640 it's it's fascinating because it's really kind of three overlapping cycles. 0:02:15.680 --> 0:02:19.760 There's economic conditions, there are business confidence conditions, and then 0:02:19.760 --> 0:02:23.120 there are market conditions. And if we think about the cycle, 0:02:23.400 --> 0:02:26.560 that kind of cyclical movement in very simple terms, it's 0:02:26.560 --> 0:02:30.920 about going from the low depressed levels to high elevated levels. 0:02:30.960 --> 0:02:33.440 And for the economy, it's about how quickly do you 0:02:33.480 --> 0:02:37.400 go back above trended inflation? How quickly are you below average? 0:02:37.400 --> 0:02:41.000 And unemployment? Well, those things I think will happen unusually fast. 0:02:41.160 --> 0:02:44.040 That's that's the view of Ellen Zentner, our chief US economist. 0:02:44.400 --> 0:02:48.800 For businesses, it's about moving from caution to aggression. It's 0:02:48.840 --> 0:02:52.120 about high corporate confidence coming back. Well, you know, you 0:02:52.240 --> 0:02:56.360 see this in business confidence surveys that those are rapidly improving, 0:02:56.400 --> 0:02:59.800 and we think they'll continue to improve. And on markets, 0:02:59.840 --> 0:03:03.359 you're seeing it invaluations, where you know, market valuations have 0:03:03.360 --> 0:03:06.880 have already returned to kind of cyclical peaks, in many 0:03:06.919 --> 0:03:09.680 cases unusually fast. So I think those are just some 0:03:09.760 --> 0:03:11.799 of the signposts that we're watching. But I think all 0:03:11.840 --> 0:03:15.800 of that is consistent with a progression that's happening much 0:03:15.960 --> 0:03:18.239 faster than what investors have been used to over the 0:03:18.320 --> 0:03:21.520 last thirty years. Andrew of equities have risk assets already 0:03:21.560 --> 0:03:24.680 priced in the peak of this hotter and shorter cycle. 0:03:26.120 --> 0:03:29.080 In some cases they have, I think. And so if 0:03:29.080 --> 0:03:30.840 you look at you know, what we're forecasting for the 0:03:30.919 --> 0:03:33.800 SMP five you know, my colleague Mike Wilson has a 0:03:33.840 --> 0:03:36.960 thirty target for the end of this year, so we're 0:03:36.960 --> 0:03:39.240 above that. I think it's it's fair to say we 0:03:39.280 --> 0:03:41.680 think US equities have priced in a lot of good news. 0:03:42.120 --> 0:03:46.000 UM credit spreads are kind of near cyclical tights near 0:03:46.120 --> 0:03:48.240 near our forecasts again for the end of the year. 0:03:48.360 --> 0:03:50.720 So again a market that we think is priced in 0:03:50.760 --> 0:03:53.280 a lot. And on the interest right front, you know, 0:03:53.360 --> 0:03:56.120 we think that you know, inflation break evens have generally 0:03:56.240 --> 0:03:59.000 hit our team's targets. We had been more optimistic that 0:03:59.080 --> 0:04:01.920 those break evens have of higher, and we now think 0:04:01.960 --> 0:04:04.480 that that is that needs to pause. So there are 0:04:04.520 --> 0:04:06.840 some key movements there. I would say one market that 0:04:06.880 --> 0:04:09.200 we think has not priced in UM you know, whether 0:04:09.360 --> 0:04:12.280 it is still risk premium is an e M local 0:04:12.400 --> 0:04:15.240 debt if one its hedges it. That's a market we've 0:04:15.280 --> 0:04:18.320 recently upgraded on the emerging market side, and that's one 0:04:18.320 --> 0:04:20.320 area where I still think there's some value. Andrew Shaate, 0:04:20.320 --> 0:04:22.280 Sam Morgan Stanley with us this morning as we await 0:04:22.360 --> 0:04:25.080 comments opening remarks from the President of the United States 0:04:25.080 --> 0:04:27.960 at a global climate change summit. The Vice President Common 0:04:28.000 --> 0:04:30.520 House speaking right now, and let me just turn to 0:04:30.560 --> 0:04:33.120 the domestic story in America. You're looking at pay growth 0:04:33.200 --> 0:04:35.760 in the United States. Does that mean one thing for 0:04:35.760 --> 0:04:38.320 the equity market and something else for the bond market. 0:04:38.360 --> 0:04:42.320 Do those two asset classes read into that differently? Well, 0:04:42.400 --> 0:04:45.440 I think there's potentially, because I do think the bond 0:04:45.480 --> 0:04:48.680 market is directly linked or will be heavily influenced by 0:04:48.680 --> 0:04:50.919 what the Federal Reserve does, where I think the equity 0:04:50.920 --> 0:04:53.080 market will be influenced by both the Fed but also 0:04:53.160 --> 0:04:56.160 the progression of earnings and a number of other factors. 0:04:56.200 --> 0:04:58.080 And you know, I think the key issue on the 0:04:58.120 --> 0:05:00.680 equity side. You know, this was a opponent of of 0:05:01.200 --> 0:05:03.920 my colleague Mike Wilson's downgrade of the small cat market is, 0:05:04.320 --> 0:05:07.479 you know, just concerned that the margin pure picture is 0:05:07.520 --> 0:05:10.320 going to start to get more complicated. That um, you 0:05:10.440 --> 0:05:13.279 have costs, they're rising in the supply chain, and those 0:05:13.279 --> 0:05:17.040 costs are not going to be equally easy to pass 0:05:17.080 --> 0:05:19.440 on and UH and customers, and we think will be 0:05:19.480 --> 0:05:21.920 harder for some of those kind of smaller, lower quality 0:05:21.920 --> 0:05:23.920 companies to do so. So now I think of the 0:05:23.960 --> 0:05:26.600 bond market side, you've seen a bond market that's already 0:05:26.600 --> 0:05:29.680 pricing in a near term path that we think is 0:05:29.680 --> 0:05:32.360 more hawkish than what Fied would like to do. And 0:05:32.600 --> 0:05:34.680 so that's so much different picture. Andrew shaates that of 0:05:34.720 --> 0:05:42.400 Morgan Stanley. How do you approach this market, Honey to 0:05:42.400 --> 0:05:44.680 add joint us now kind of coll genuity, Chief Markets 0:05:44.680 --> 0:05:47.480 String just Tony we Stile. But you say the parent 0:05:47.560 --> 0:05:50.719 is still what do you mean by that? So when 0:05:50.720 --> 0:05:52.960 you when you think about an air show, you know 0:05:53.200 --> 0:05:55.040 just about everybody's gone to an air show and they 0:05:55.040 --> 0:05:58.120 see a plane screaming across the runway horizontal, and all 0:05:58.120 --> 0:06:00.240 of a sudden it pulls up and it goes straight up, 0:06:00.240 --> 0:06:03.240 and the powers on engines are cooking, and all of 0:06:03.279 --> 0:06:05.200 a sudden it gets up to a certain part and 0:06:05.279 --> 0:06:08.679 it just stops going up. No matter how much power 0:06:08.800 --> 0:06:11.840 is added to it, you just lose lift. And that's 0:06:11.880 --> 0:06:14.440 kind of our that's our call for and it's our 0:06:14.480 --> 0:06:17.000 analogy for what could happen in the market. We know 0:06:17.480 --> 0:06:20.200 that the fundamental backdrop is very positive. You know how 0:06:20.240 --> 0:06:23.240 optimistic I have been and continue to be on the 0:06:23.279 --> 0:06:27.960 macro backdrop of excess liquidity fueling a strong global recovery. 0:06:28.320 --> 0:06:31.719 That's not gonna change. But that's also so well known, 0:06:32.160 --> 0:06:36.760 the markets are so overbought, enthusiasm is so high that 0:06:36.880 --> 0:06:40.600 I think we're approaching that stall speed for a little while. Tony, 0:06:40.680 --> 0:06:42.360 I want to give you a major shout out. You've 0:06:42.360 --> 0:06:44.440 had the courage to be in the market. I put GENA. 0:06:44.480 --> 0:06:47.400 Martin out in Bloomberg in that campus. Others as well, 0:06:47.480 --> 0:06:50.240 David Constant and Goldman has been quite good. But Tony, 0:06:50.279 --> 0:06:53.480 you link it right into economics. Aren't we as far 0:06:53.600 --> 0:06:58.559 from recession as we've ever been? Well? I think again, 0:06:58.640 --> 0:07:01.840 Tom we we all is try to paint Each environment 0:07:01.920 --> 0:07:04.000 is unique, and of course the reason you go into 0:07:04.000 --> 0:07:07.440 a recession is unique, and it creates a credit crisis, 0:07:07.480 --> 0:07:11.280 and it creates a FED thatics is extraordinarily accommodative. So 0:07:11.320 --> 0:07:13.800 where we are economically is sort of where we were 0:07:13.800 --> 0:07:16.520 in two thousand and four and two tho ten, coming 0:07:16.520 --> 0:07:20.280 out of those kind of never before seeing recessions where 0:07:20.600 --> 0:07:24.320 you get this economic lift that creates uncertainty in the 0:07:24.440 --> 0:07:27.480 interest rate environment. What the Fed's gonna do? Are are 0:07:27.480 --> 0:07:30.760 they gonna um do what Canada did yesterday and pull 0:07:30.840 --> 0:07:35.080 back a little bit un quantitative easing? So this isn't unique. 0:07:35.280 --> 0:07:38.400 Things are good. We're at the beginning of an economic 0:07:38.440 --> 0:07:42.520 and market cycle. But in that process you can have 0:07:42.680 --> 0:07:45.559 periods of a stall and that that's all we're talking 0:07:45.600 --> 0:07:49.280 about here, is not an economic catastrophe by any stretch, 0:07:49.400 --> 0:07:51.640 just a little bit of a market pause. The stall 0:07:51.680 --> 0:07:54.200 speed is very much having to do with markets, not 0:07:54.320 --> 0:07:56.960 economic data which has actually come out better than expected, 0:07:57.160 --> 0:07:59.600 notwithstanding perhaps the claims that number that comes out and 0:07:59.640 --> 0:08:03.040 about any minutes time, that's the expectation. Anyway, what are 0:08:03.080 --> 0:08:05.680 you looking for? What are markets looking for to resume 0:08:05.760 --> 0:08:08.920 that lift, that turbo charged to climb into the sky, 0:08:09.040 --> 0:08:12.400 to use your analogy terribly, um, in order to go 0:08:12.440 --> 0:08:17.120 back into the market, I really think so you need 0:08:17.160 --> 0:08:21.160 to reset expectations. The next leg higher I think has 0:08:21.200 --> 0:08:24.320 to come from a place where people look around and say, 0:08:24.320 --> 0:08:27.440 I'm not invested enough. I think most of the data 0:08:27.560 --> 0:08:32.320 suggest um that everybody's overly invested, and there's been some 0:08:32.400 --> 0:08:35.760 deterioration under in the small cap world and in the 0:08:35.840 --> 0:08:41.520 Nasdaq stocks. So again, think about it this way. About 0:08:41.559 --> 0:08:44.520 six weeks ago, we we downgraded the financials, which we 0:08:44.520 --> 0:08:46.720 had been very positive on. You know, our banks and 0:08:46.760 --> 0:08:49.800 tanks call got a lot of attention, but we dowtgrated 0:08:49.800 --> 0:08:53.840 the financials because we thought interest rates had seen a 0:08:53.920 --> 0:08:56.720 peek and people were saying, how could you think that 0:08:56.800 --> 0:08:58.679 rates are going to come down on the long end 0:08:58.960 --> 0:09:02.760 with inflation xt tectations picking up and almost a million 0:09:02.840 --> 0:09:07.599 jobs being created. But that's what happened. Sometimes those fundamental 0:09:07.679 --> 0:09:10.120 factors are discounted in the market and to create the 0:09:10.160 --> 0:09:12.760 next leg of higher which I think will happen in rate, 0:09:12.880 --> 0:09:15.400 which I think will happen in stocks, you just need 0:09:15.480 --> 0:09:19.760 that pause that refreshes, that resets expectations to a more 0:09:19.800 --> 0:09:22.560 normal level. Tony, always great to get your perspective. You're 0:09:22.559 --> 0:09:24.480 always drying the drama. Tony to our kind of co 0:09:24.600 --> 0:09:34.000 genity chief market strategist and is welcome, sir. Right now 0:09:34.040 --> 0:09:36.240 on that point of clarity, let us migrate to James 0:09:36.200 --> 0:09:40.120 Anthony Aberdeen Standards Senior investment Manager. And what's so important here, 0:09:40.200 --> 0:09:42.280 James as you write it up as well on the 0:09:42.360 --> 0:09:50.560 poor communication? Who is poorly communicating around Christine Lagarde? Uh God, morning, Tom. 0:09:50.559 --> 0:09:52.679 Can I give you a virtual high five first? Because 0:09:52.840 --> 0:09:56.400 I kind of agree on the mumbo jumbo point. I 0:09:56.400 --> 0:09:59.520 think I think centro bunk communication in general and ECB 0:09:59.600 --> 0:10:04.199 community aations specifically has become really a parody because it's apparently, 0:10:04.240 --> 0:10:06.760 you know, the theory behind this is that it's transparent 0:10:07.480 --> 0:10:10.760 communication of one's reaction functions so that markets can smooth 0:10:10.800 --> 0:10:13.560 the transition between policy changes. And that's not what we 0:10:13.559 --> 0:10:15.960 get here at all. I mean the focus you know, John, 0:10:15.960 --> 0:10:18.040 you're talking about the pace of purchases. We have to 0:10:18.160 --> 0:10:21.200 argue over the semantics of what significantly means. You don't 0:10:21.200 --> 0:10:23.920 think tem per cent is significant. Maybe the ECB does, 0:10:24.000 --> 0:10:27.040 But what purpose is this really serving? I just think 0:10:27.240 --> 0:10:30.800 now it creates more distortions and creates bigger problems than 0:10:30.840 --> 0:10:33.440 it solves in in any way, shape or form. So 0:10:33.679 --> 0:10:37.720 who's communicating poorly? Well, the institution. I don't think Madame 0:10:37.800 --> 0:10:40.960 Legarde has necessarily settled down as quickly as would have 0:10:40.960 --> 0:10:45.160 been hoped. She's had several communication missteps. But more importantly, 0:10:45.200 --> 0:10:47.880 and again, Tom, you've made this point brilliantly already, this 0:10:47.960 --> 0:10:51.040 is this is sort of institutional within the ECB because 0:10:51.080 --> 0:10:53.920 of the very nature of you know, the people around 0:10:53.960 --> 0:10:55.880 the table and the fact that they come from sovereign 0:10:55.960 --> 0:10:58.960 nations which are not sort of formally bound together in 0:10:59.000 --> 0:11:01.120 the same way that the state of the US are, 0:11:01.200 --> 0:11:04.680 so you have different people with different domestic economic situations 0:11:04.720 --> 0:11:08.719 to deal with and different bond markets more importantly to 0:11:08.720 --> 0:11:11.840 to report back to, and of course that means that 0:11:11.880 --> 0:11:13.959 they have a very different view of what the appropriate 0:11:14.000 --> 0:11:16.080 path of policy is. James, you're making a couple of 0:11:16.080 --> 0:11:18.360 points there, and they're all important ones. I think that 0:11:18.440 --> 0:11:21.079 the e CP has a credibility issue around the semantics 0:11:21.160 --> 0:11:23.200 right now. Don't think it matters so much at a 0:11:23.200 --> 0:11:26.280 time of stress. You need real credibility. And if they 0:11:26.320 --> 0:11:30.240 can't define what significantly frontloading actually is and what it means, 0:11:30.240 --> 0:11:31.959 and if it is ten percent above the average of 0:11:32.000 --> 0:11:34.199 the first quarter, then the next time they come out 0:11:34.320 --> 0:11:36.360 and there's real stress on say the peripher and they 0:11:36.360 --> 0:11:39.080 say we'll frontload, and this market looks at that and says, well, 0:11:39.120 --> 0:11:41.199 we've heard this before and front loading means x y Z, 0:11:41.559 --> 0:11:44.080 then you've got a problem. So the credibitability issue right 0:11:44.120 --> 0:11:45.760 now might not be a problem, but it could be 0:11:46.000 --> 0:11:48.480 in the near term. You also brought up the ECP 0:11:48.559 --> 0:11:51.680 president Christine the Guard. I've spoken to so many people 0:11:52.240 --> 0:11:54.520 on background, off the record who have got an opinion 0:11:54.520 --> 0:11:56.440 on this but don't want to talk about it on 0:11:56.520 --> 0:11:58.680 the record, James, So let's talk about it on the 0:11:58.720 --> 0:12:01.600 record right now. Why is she finding it so difficult 0:12:01.640 --> 0:12:04.160 to communicate with this market A And why is she 0:12:04.240 --> 0:12:06.400 finding it so difficult to get the governing Council to 0:12:06.440 --> 0:12:09.440 come along with her and not talk behind the scenes 0:12:09.520 --> 0:12:11.559 and not make leaks and not do all these kind 0:12:11.600 --> 0:12:15.800 of things. What is she struggling with specifically? So, I 0:12:15.800 --> 0:12:18.160 think the first problem from the e CBS perspective is 0:12:18.200 --> 0:12:21.880 that there's so far monetary policy and the leavers that 0:12:21.880 --> 0:12:24.439 they're pulling, the policies that they're implementing, are just so 0:12:24.520 --> 0:12:27.240 far from monetary policy. Really, it's untrue. You know, this 0:12:27.360 --> 0:12:30.840 has become very much managing financial markets first and foremost. 0:12:31.200 --> 0:12:36.319 The purported transmission from actions into inflation outcomes or growth 0:12:36.320 --> 0:12:39.599 outcomes has long since been forgotten. There's not even a 0:12:39.679 --> 0:12:44.480 pretense that this is a traditional transmission of economic policy 0:12:44.840 --> 0:12:48.480 from you know, central banker's words to the man in 0:12:48.520 --> 0:12:51.760 the streets actions. Nobody is even pretending that's what's going 0:12:51.760 --> 0:12:55.120 on anymore. So the policy talk has become very big, 0:12:55.240 --> 0:12:58.520 very unwieldy. The problem being dealt with is huge because 0:12:58.800 --> 0:13:02.679 trying to keep financial markets under wraps when the economy 0:13:02.720 --> 0:13:05.160 is structurally weak, but then goes through the sort of 0:13:05.160 --> 0:13:08.320 cyclical weakness that we all experienced in in Q one 0:13:08.320 --> 0:13:12.119 t Q two of last year. Of course incredibly incredibly difficult. 0:13:12.520 --> 0:13:15.520 And I think when you get into that technical tool care, 0:13:15.800 --> 0:13:19.840 the fact that that Madame Legard's background is not, you know, 0:13:19.920 --> 0:13:24.200 from a sort of theoretical economics perspective, is not a 0:13:24.240 --> 0:13:27.480 career central banker. Obviously that means that she has to 0:13:27.480 --> 0:13:29.640 come up the learning curve a little and obviously she's 0:13:29.679 --> 0:13:32.040 doing that and she I think she's getting better through time. 0:13:32.880 --> 0:13:36.160 But in trying to say nothing, to not give the 0:13:36.240 --> 0:13:38.880 market anything to go on, which I think is what 0:13:38.960 --> 0:13:41.760 she aims to do. In most press conferences, she quite 0:13:41.800 --> 0:13:45.680 often confused is more than she clarifies. And we've seen 0:13:45.720 --> 0:13:49.680 this this pattern of the Chief Economist Philip Lane issuing 0:13:49.760 --> 0:13:52.840 these these blog posts in the day after the meeting, 0:13:52.840 --> 0:13:54.760 I think to try and find, tune and clarify some 0:13:54.840 --> 0:13:56.560 of that message. Do you think we need a little 0:13:56.559 --> 0:13:59.199 bit more structure in the communication, James, What is it 0:13:59.280 --> 0:14:01.400 that we need? What we have seen from the Federal 0:14:01.440 --> 0:14:04.120 Reserve is a shift in the reaction function, a new framework, 0:14:04.160 --> 0:14:05.679 and whether you think that's the right or wrong thing. 0:14:05.679 --> 0:14:08.000 What it has done is it's forced pretty much every 0:14:08.000 --> 0:14:10.040 single member of the FMC right now to sing from 0:14:10.040 --> 0:14:12.040 the same hymn sheet. You don't get that in Europe. 0:14:12.040 --> 0:14:14.040 We didn't get that into our tenure either. Do you 0:14:14.120 --> 0:14:17.920 need more structure? You know? My honest answer to this, 0:14:18.040 --> 0:14:20.440 John is we need less, not more. I think interested 0:14:20.480 --> 0:14:23.760 in go back forty years and there was no announcement, 0:14:23.800 --> 0:14:26.000 There was no statement, There was nothing. There was a 0:14:26.080 --> 0:14:28.040 few few men in a smoky room, and then you 0:14:28.080 --> 0:14:29.720 had to look at money markets to work out what 0:14:29.760 --> 0:14:31.720 decision have been made, if any at all. Now that's 0:14:31.920 --> 0:14:33.960 one extreme. I think we're way at the other end 0:14:33.960 --> 0:14:38.200 of the spectrum. I think ultimately central bankers need to 0:14:38.320 --> 0:14:41.600 understand that they cannot manage every short term gyration of 0:14:41.640 --> 0:14:44.720 financial markets, and to the extent that they do, they 0:14:44.760 --> 0:14:47.800 are creating as many problems for themselves when they try 0:14:47.800 --> 0:14:50.760 and exit policy as they're solving as the implement policy. 0:14:50.840 --> 0:14:52.480 And I think this is one of the things we're 0:14:52.520 --> 0:14:55.840 about to experience here. This is something that Richard Coup 0:14:55.920 --> 0:14:58.560 wrote about many years ago and has been very consistent on, 0:14:58.640 --> 0:15:01.440 and he's been very accurate and understanding and describing the 0:15:01.440 --> 0:15:06.080 world post post the GFC, the queue trap, and this 0:15:06.080 --> 0:15:08.280 this is the point that is very easy to wratch 0:15:08.320 --> 0:15:10.600 it and up the amount of policy that's implemented to 0:15:10.680 --> 0:15:14.640 deal with every every whips or every decline in economic activity. 0:15:14.680 --> 0:15:17.360 But actually it's much more difficult to then try and 0:15:17.440 --> 0:15:21.600 deal with financial markets overreacting, over extrapolating when you come 0:15:21.640 --> 0:15:24.760 to exit the policy. And I think central banks possibly 0:15:25.080 --> 0:15:27.960 and possibly this includes the ECB, certainly the Hawks. They're 0:15:28.000 --> 0:15:30.600 just trying not to dig themselves into a deeper hole 0:15:30.760 --> 0:15:34.360 just yet, not until they absolutely have to. James, as 0:15:34.360 --> 0:15:37.680 an investor, what could happen in today's press cut friends, 0:15:37.680 --> 0:15:40.360 that could actually make you change the way you invest 0:15:40.480 --> 0:15:44.480 or what you decide to buy. I mean, yeah, I'm 0:15:44.480 --> 0:15:47.520 a tactical time horizon, Lisa. Obviously that can be portfolio 0:15:47.640 --> 0:15:49.840 changes as a result of things that you hear. I 0:15:49.840 --> 0:15:52.640 wouldn't expect that to be the case today. What I 0:15:52.720 --> 0:15:55.440 might expect is that some prices might change that become 0:15:55.480 --> 0:15:59.200 more attractive to change investments. Um. I think you know, 0:15:59.280 --> 0:16:02.280 broadly speak being bond yields are under pressure everywhere. I 0:16:02.320 --> 0:16:05.200 think the next phase of the sort of bond market, 0:16:06.280 --> 0:16:09.240 economic cycle, bond market transition, if you like, is for 0:16:09.520 --> 0:16:11.880 the rest of the world, the non US, non China world, 0:16:11.880 --> 0:16:14.240 to play some economic catch up, and I think that 0:16:14.320 --> 0:16:18.040 probably sees yields outside of the US underperforming relative to 0:16:18.200 --> 0:16:21.200 the the US. I think when you see yields rising, 0:16:21.400 --> 0:16:23.520 I don't think that's a great place for Italy to be, 0:16:23.760 --> 0:16:26.840 especially if there's any width of taper talk. And so 0:16:27.160 --> 0:16:31.080 if we were to see a very successful devilish message 0:16:31.120 --> 0:16:34.040 from from Madame Legarde and we see Italian yields fall 0:16:34.040 --> 0:16:36.480 and spreads Titan, that might be something I would look 0:16:36.520 --> 0:16:39.160 to lean into. Based on the fact that not a 0:16:39.160 --> 0:16:41.320 lot has changed from the headlines we've seen just now 0:16:41.440 --> 0:16:45.440 at twelve four five, I think, you know, Madame Legard 0:16:45.440 --> 0:16:47.520 again is going to hope that this this press or 0:16:47.600 --> 0:16:50.000 is a bit of a snooze fest. But to your point, John, 0:16:50.080 --> 0:16:52.040 she's going to get she's going to get asked a 0:16:52.040 --> 0:16:56.160 lot of questions about it. In trouble for saying that 0:16:56.240 --> 0:17:00.720 once upon a time, James, James of Seed, I mean this, 0:17:00.880 --> 0:17:03.440 I'm taking notes and it's gonna be you know, we'll 0:17:03.440 --> 0:17:05.760 have it on radios. Can come back tomorrow the day 0:17:05.800 --> 0:17:09.240 after we'll do it on a weekend. I gotta be 0:17:09.280 --> 0:17:10.800 honest with you. This is the bit of the chi 0:17:11.119 --> 0:17:14.720 that I probably enjoyed the least pouring James selling the 0:17:14.880 --> 0:17:18.440 James keep it up. You're not alone, James, You're not alone, though, 0:17:18.520 --> 0:17:22.880 James Athey, Aberdeen Standard Investment, Senior Investment Manage I say 0:17:22.920 --> 0:17:24.920 technical and tell me you're right. You call it boring. 0:17:25.000 --> 0:17:27.199 James Athey does too. And for many people that might 0:17:27.560 --> 0:17:36.280 see Francis Donald, you are expert at this. Thank you 0:17:36.320 --> 0:17:38.960 for joining for Manual Life this morning, and I want 0:17:38.960 --> 0:17:42.840 to really dovetail George Sarah Ellis note earliest morning, Sarah 0:17:42.880 --> 0:17:47.840 Ellis is in foreign exchange. He's looking at strong Canadian dollar. Francis, 0:17:47.920 --> 0:17:50.560 you live and breathe this with Manual Life of Montreal. 0:17:50.880 --> 0:17:54.440 So we've got a wonderful nexus here of George Saravellis 0:17:54.440 --> 0:17:58.639 and Francis Donald and the Canadian US difference and the 0:17:58.760 --> 0:18:03.119 answer Francis accord into George. His Canada is creating jobs 0:18:03.440 --> 0:18:06.800 and christiph Friedland and Trudeaux have a nation getting back 0:18:06.840 --> 0:18:11.639 to real labor excellence faster than America. How long is 0:18:11.640 --> 0:18:15.800 it gonna take for America to stop replacing restaurant jobs 0:18:16.000 --> 0:18:21.240 and get back to actual true job formation. There's about 0:18:21.320 --> 0:18:24.560 six questions in that time. I tried, I was going 0:18:24.600 --> 0:18:28.800 for seven. I failed. Let's start with what we can 0:18:28.920 --> 0:18:31.600 learn from Canada. Canada is telling us a couple of 0:18:31.600 --> 0:18:35.919 really important stories. One is that relative fiscal policy is 0:18:35.960 --> 0:18:39.320 a key global market driver. That's true between Canada and 0:18:39.320 --> 0:18:43.080 the US, but also the US and Europe. The second 0:18:43.160 --> 0:18:45.280 is that labor market healing is going to be a 0:18:45.400 --> 0:18:50.280 key component to our forecast, and places like Canada and 0:18:50.320 --> 0:18:53.240 Europe did not experience the same drop in labor force 0:18:53.320 --> 0:18:57.480 participation rates. What matters for the United States Now, for me, 0:18:57.680 --> 0:19:01.679 the most important nona known is how fast labor supply 0:19:02.200 --> 0:19:05.800 comes back to America, because that's the key to wages. 0:19:06.200 --> 0:19:11.480 That's the key to unlocking two and three growth. Last, 0:19:11.480 --> 0:19:13.639 but not least, we look at these two economies, we 0:19:13.680 --> 0:19:15.880 do see an important story, which is the US rely 0:19:16.359 --> 0:19:19.440 q one story. I love that A lot of very 0:19:19.480 --> 0:19:21.640 good news priced into the U S story. I talked 0:19:21.640 --> 0:19:25.119 about keep reopening in the US, replaced in the US. 0:19:25.200 --> 0:19:28.119 Where are expectations really low? Where are the hawky sh 0:19:28.160 --> 0:19:31.679 up surprises? Where the upside surprises outside the US in 0:19:31.720 --> 0:19:34.320 places like Europe and Canada. My view is the next 0:19:34.359 --> 0:19:36.800 big move higher in the U. S. Treasury yield is 0:19:36.840 --> 0:19:38.800 not going to be US driven. It's going to be 0:19:38.840 --> 0:19:42.000 globally driven, probably Europe. Okay, But Francis, let's go on 0:19:42.040 --> 0:19:45.080 Martilly in here, folks. This is Alfred Marshall's supply and demand, 0:19:45.119 --> 0:19:47.320 you know, the little X E X thing that Francis 0:19:47.720 --> 0:19:51.240 is expert at. Is this about labor supply coming on 0:19:52.000 --> 0:19:57.080 or is it about labor demand in America? It's going 0:19:57.160 --> 0:19:58.879 to be both. And this is one of the biggest 0:19:59.000 --> 0:20:02.080 challenges is that we have this whole list of missing 0:20:02.119 --> 0:20:05.040 inputs into our outlook, and they arranged from things like 0:20:05.080 --> 0:20:07.119 what our corporate tax is going to be, what does 0:20:07.160 --> 0:20:10.959 the infrastructure plan look like? What about the double mutant variant? 0:20:11.000 --> 0:20:13.840 Apparently we have to incorporate this now into our outlook. 0:20:14.080 --> 0:20:16.520 We do not know how fast labor is going to 0:20:16.560 --> 0:20:19.080 come back demand or supply, because we've never lived in 0:20:19.160 --> 0:20:22.440 this before. So you hear high conviction economists and strategists 0:20:22.440 --> 0:20:24.840 who say we're fully healed, We're back to full time 0:20:24.840 --> 0:20:28.600 employment or full employment by two We just don't know. 0:20:28.720 --> 0:20:31.520 We don't have the example and critically. On top of this, 0:20:31.800 --> 0:20:34.359 the Federal Reserve has told us they're not just looking 0:20:34.400 --> 0:20:37.600 for full employment by our traditional metrics, but a broad 0:20:37.640 --> 0:20:41.040 based and inclusive employment goal. So even though we're still running, 0:20:41.080 --> 0:20:42.800 we're trying to figure out what we're doing, the goalposts 0:20:42.800 --> 0:20:45.000 are also moving at the same time. It makes for 0:20:45.040 --> 0:20:47.639 a complicated forecast, and I really think we need to 0:20:47.680 --> 0:20:50.040 be thinking about why confidence intervals as we go through 0:20:50.080 --> 0:20:52.040 the next few months. Yeah, John, I liked it. We're 0:20:52.119 --> 0:20:55.440 complicated and that it's a nation moving in fits and starts. 0:20:55.640 --> 0:20:58.160 It's a complicated issue for the airlines too, and tiking 0:20:58.200 --> 0:21:00.640 it fits and starts domestically things if he picked up 0:21:00.800 --> 0:21:03.960 in America for travel internationally not the story. So here's 0:21:03.960 --> 0:21:07.040 an airline with a domestic till Southwest coming down and 0:21:07.119 --> 0:21:10.760 saying they're hopeful to achieve break even by June, the 0:21:10.840 --> 0:21:13.640 first core adjusted loss coming in at around about one 0:21:13.760 --> 0:21:17.439 seventy two, the estimated loss one one seventy to the 0:21:17.520 --> 0:21:20.720