Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg Terminal. We need to
Speaker 1: get caught up on the finance of the moment. There's
Speaker 1: no one better to do that with an Andrew Sheets
Speaker 1: with Morgan Stanley and their chief cross at assets strategist Andrew.
Speaker 1: Good morning to you. The mill you here is a
Speaker 1: boom American economy. How does your view change on allocation
Speaker 1: given the strength of the American locomotive. Well, I think
Speaker 1: that that's a great place to start. The growth backdrop
Speaker 1: appears incredibly strong. Our economists of Morgan Stanley have continued
Speaker 1: death hold and above consensus view on on both US
Speaker 1: and global growth. So we're certainly in that strong growth camp.
Speaker 1: But I also think we have to acknowledge that this
Speaker 1: unusually fast recovery could mean we also have an unusually
Speaker 1: fast cycle and unusually short cycle, and thus it's time
Speaker 1: for investors to start moving out of many of the
Speaker 1: strategies may of the sectors that often work in that
Speaker 1: early cycle right after a recession period into things that
Speaker 1: tend to work better when conditions get a little bit
Speaker 1: more mid cycle, when that recovery is a little bit
Speaker 1: more mature. And so those are the rotations that we're
Speaker 1: starting to make. Um switching out of small caps into
Speaker 1: large caps, moving into more quality stocks. I think that's
Speaker 1: going to be an important theme as Yes, growth is
Speaker 1: very strong, but I think we could be facing a
Speaker 1: cycle that looks much hotter and much faster than those
Speaker 1: that were used to and I want to get to
Speaker 1: build on that because I think it's lost on some
Speaker 1: paper still. You've been pushing this story now full the
Speaker 1: best pound of a cup of months. I think the
Speaker 1: Shoulta holt To cycle. What are the signposts you're using
Speaker 1: right now to suggest that this cycle will be Sholta
Speaker 1: it will be hot up? Yeah? Great. So I think
Speaker 1: it's it's fascinating because it's really kind of three overlapping cycles.
Speaker 1: There's economic conditions, there are business confidence conditions, and then
Speaker 1: there are market conditions. And if we think about the cycle,
Speaker 1: that kind of cyclical movement in very simple terms, it's
Speaker 1: about going from the low depressed levels to high elevated levels.
Speaker 1: And for the economy, it's about how quickly do you
Speaker 1: go back above trended inflation? How quickly are you below average?
Speaker 1: And unemployment? Well, those things I think will happen unusually fast.
Speaker 1: That's that's the view of Ellen Zentner, our chief US economist.
Speaker 1: For businesses, it's about moving from caution to aggression. It's
Speaker 1: about high corporate confidence coming back. Well, you know, you
Speaker 1: see this in business confidence surveys that those are rapidly improving,
Speaker 1: and we think they'll continue to improve. And on markets,
Speaker 1: you're seeing it invaluations, where you know, market valuations have
Speaker 1: have already returned to kind of cyclical peaks, in many
Speaker 1: cases unusually fast. So I think those are just some
Speaker 1: of the signposts that we're watching. But I think all
Speaker 1: of that is consistent with a progression that's happening much
Speaker 1: faster than what investors have been used to over the
Speaker 1: last thirty years. Andrew of equities have risk assets already
Speaker 1: priced in the peak of this hotter and shorter cycle.
Speaker 1: In some cases they have, I think. And so if
Speaker 1: you look at you know, what we're forecasting for the
Speaker 1: SMP five you know, my colleague Mike Wilson has a
Speaker 1: thirty target for the end of this year, so we're
Speaker 1: above that. I think it's it's fair to say we
Speaker 1: think US equities have priced in a lot of good news.
Speaker 1: UM credit spreads are kind of near cyclical tights near
Speaker 1: near our forecasts again for the end of the year.
Speaker 1: So again a market that we think is priced in
Speaker 1: a lot. And on the interest right front, you know,
Speaker 1: we think that you know, inflation break evens have generally
Speaker 1: hit our team's targets. We had been more optimistic that
Speaker 1: those break evens have of higher, and we now think
Speaker 1: that that is that needs to pause. So there are
Speaker 1: some key movements there. I would say one market that
Speaker 1: we think has not priced in UM you know, whether
Speaker 1: it is still risk premium is an e M local
Speaker 1: debt if one its hedges it. That's a market we've
Speaker 1: recently upgraded on the emerging market side, and that's one
Speaker 1: area where I still think there's some value. Andrew Shaate,
Speaker 1: Sam Morgan Stanley with us this morning as we await
Speaker 1: comments opening remarks from the President of the United States
Speaker 1: at a global climate change summit. The Vice President Common
Speaker 1: House speaking right now, and let me just turn to
Speaker 1: the domestic story in America. You're looking at pay growth
Speaker 1: in the United States. Does that mean one thing for
Speaker 1: the equity market and something else for the bond market.
Speaker 1: Do those two asset classes read into that differently? Well,
Speaker 1: I think there's potentially, because I do think the bond
Speaker 1: market is directly linked or will be heavily influenced by
Speaker 1: what the Federal Reserve does, where I think the equity
Speaker 1: market will be influenced by both the Fed but also
Speaker 1: the progression of earnings and a number of other factors.
Speaker 1: And you know, I think the key issue on the
Speaker 1: equity side. You know, this was a opponent of of
Speaker 1: my colleague Mike Wilson's downgrade of the small cat market is,
Speaker 1: you know, just concerned that the margin pure picture is
Speaker 1: going to start to get more complicated. That um, you
Speaker 1: have costs, they're rising in the supply chain, and those
Speaker 1: costs are not going to be equally easy to pass
Speaker 1: on and UH and customers, and we think will be
Speaker 1: harder for some of those kind of smaller, lower quality
Speaker 1: companies to do so. So now I think of the
Speaker 1: bond market side, you've seen a bond market that's already
Speaker 1: pricing in a near term path that we think is
Speaker 1: more hawkish than what Fied would like to do. And
Speaker 1: so that's so much different picture. Andrew shaates that of
Speaker 1: Morgan Stanley. How do you approach this market, Honey to
Speaker 1: add joint us now kind of coll genuity, Chief Markets
Speaker 1: String just Tony we Stile. But you say the parent
Speaker 1: is still what do you mean by that? So when
Speaker 1: you when you think about an air show, you know
Speaker 1: just about everybody's gone to an air show and they
Speaker 1: see a plane screaming across the runway horizontal, and all
Speaker 1: of a sudden it pulls up and it goes straight up,
Speaker 1: and the powers on engines are cooking, and all of
Speaker 1: a sudden it gets up to a certain part and
Speaker 1: it just stops going up. No matter how much power
Speaker 1: is added to it, you just lose lift. And that's
Speaker 1: kind of our that's our call for and it's our
Speaker 1: analogy for what could happen in the market. We know
Speaker 1: that the fundamental backdrop is very positive. You know how
Speaker 1: optimistic I have been and continue to be on the
Speaker 1: macro backdrop of excess liquidity fueling a strong global recovery.
Speaker 1: That's not gonna change. But that's also so well known,
Speaker 1: the markets are so overbought, enthusiasm is so high that
Speaker 1: I think we're approaching that stall speed for a little while. Tony,
Speaker 1: I want to give you a major shout out. You've
Speaker 1: had the courage to be in the market. I put GENA.
Speaker 1: Martin out in Bloomberg in that campus. Others as well,
Speaker 1: David Constant and Goldman has been quite good. But Tony,
Speaker 1: you link it right into economics. Aren't we as far
Speaker 1: from recession as we've ever been? Well? I think again,
Speaker 1: Tom we we all is try to paint Each environment
Speaker 1: is unique, and of course the reason you go into
Speaker 1: a recession is unique, and it creates a credit crisis,
Speaker 1: and it creates a FED thatics is extraordinarily accommodative. So
Speaker 1: where we are economically is sort of where we were
Speaker 1: in two thousand and four and two tho ten, coming
Speaker 1: out of those kind of never before seeing recessions where
Speaker 1: you get this economic lift that creates uncertainty in the
Speaker 1: interest rate environment. What the Fed's gonna do? Are are
Speaker 1: they gonna um do what Canada did yesterday and pull
Speaker 1: back a little bit un quantitative easing? So this isn't unique.
Speaker 1: Things are good. We're at the beginning of an economic
Speaker 1: and market cycle. But in that process you can have
Speaker 1: periods of a stall and that that's all we're talking
Speaker 1: about here, is not an economic catastrophe by any stretch,
Speaker 1: just a little bit of a market pause. The stall
Speaker 1: speed is very much having to do with markets, not
Speaker 1: economic data which has actually come out better than expected,
Speaker 1: notwithstanding perhaps the claims that number that comes out and
Speaker 1: about any minutes time, that's the expectation. Anyway, what are
Speaker 1: you looking for? What are markets looking for to resume
Speaker 1: that lift, that turbo charged to climb into the sky,
Speaker 1: to use your analogy terribly, um, in order to go
Speaker 1: back into the market, I really think so you need
Speaker 1: to reset expectations. The next leg higher I think has
Speaker 1: to come from a place where people look around and say,
Speaker 1: I'm not invested enough. I think most of the data
Speaker 1: suggest um that everybody's overly invested, and there's been some
Speaker 1: deterioration under in the small cap world and in the
Speaker 1: Nasdaq stocks. So again, think about it this way. About
Speaker 1: six weeks ago, we we downgraded the financials, which we
Speaker 1: had been very positive on. You know, our banks and
Speaker 1: tanks call got a lot of attention, but we dowtgrated
Speaker 1: the financials because we thought interest rates had seen a
Speaker 1: peek and people were saying, how could you think that
Speaker 1: rates are going to come down on the long end
Speaker 1: with inflation xt tectations picking up and almost a million
Speaker 1: jobs being created. But that's what happened. Sometimes those fundamental
Speaker 1: factors are discounted in the market and to create the
Speaker 1: next leg of higher which I think will happen in rate,
Speaker 1: which I think will happen in stocks, you just need
Speaker 1: that pause that refreshes, that resets expectations to a more
Speaker 1: normal level. Tony, always great to get your perspective. You're
Speaker 1: always drying the drama. Tony to our kind of co
Speaker 1: genity chief market strategist and is welcome, sir. Right now
Speaker 1: on that point of clarity, let us migrate to James
Speaker 1: Anthony Aberdeen Standards Senior investment Manager. And what's so important here,
Speaker 1: James as you write it up as well on the
Speaker 1: poor communication? Who is poorly communicating around Christine Lagarde? Uh God, morning, Tom.
Speaker 1: Can I give you a virtual high five first? Because
Speaker 1: I kind of agree on the mumbo jumbo point. I
Speaker 1: think I think centro bunk communication in general and ECB
Speaker 1: community aations specifically has become really a parody because it's apparently,
Speaker 1: you know, the theory behind this is that it's transparent
Speaker 1: communication of one's reaction functions so that markets can smooth
Speaker 1: the transition between policy changes. And that's not what we
Speaker 1: get here at all. I mean the focus you know, John,
Speaker 1: you're talking about the pace of purchases. We have to
Speaker 1: argue over the semantics of what significantly means. You don't
Speaker 1: think tem per cent is significant. Maybe the ECB does,
Speaker 1: But what purpose is this really serving? I just think
Speaker 1: now it creates more distortions and creates bigger problems than
Speaker 1: it solves in in any way, shape or form. So
Speaker 1: who's communicating poorly? Well, the institution. I don't think Madame
Speaker 1: Legarde has necessarily settled down as quickly as would have
Speaker 1: been hoped. She's had several communication missteps. But more importantly,
Speaker 1: and again, Tom, you've made this point brilliantly already, this
Speaker 1: is this is sort of institutional within the ECB because
Speaker 1: of the very nature of you know, the people around
Speaker 1: the table and the fact that they come from sovereign
Speaker 1: nations which are not sort of formally bound together in
Speaker 1: the same way that the state of the US are,
Speaker 1: so you have different people with different domestic economic situations
Speaker 1: to deal with and different bond markets more importantly to
Speaker 1: to report back to, and of course that means that
Speaker 1: they have a very different view of what the appropriate
Speaker 1: path of policy is. James, you're making a couple of
Speaker 1: points there, and they're all important ones. I think that
Speaker 1: the e CP has a credibility issue around the semantics
Speaker 1: right now. Don't think it matters so much at a
Speaker 1: time of stress. You need real credibility. And if they
Speaker 1: can't define what significantly frontloading actually is and what it means,
Speaker 1: and if it is ten percent above the average of
Speaker 1: the first quarter, then the next time they come out
Speaker 1: and there's real stress on say the peripher and they
Speaker 1: say we'll frontload, and this market looks at that and says, well,
Speaker 1: we've heard this before and front loading means x y Z,
Speaker 1: then you've got a problem. So the credibitability issue right
Speaker 1: now might not be a problem, but it could be
Speaker 1: in the near term. You also brought up the ECP
Speaker 1: president Christine the Guard. I've spoken to so many people
Speaker 1: on background, off the record who have got an opinion
Speaker 1: on this but don't want to talk about it on
Speaker 1: the record, James, So let's talk about it on the
Speaker 1: record right now. Why is she finding it so difficult
Speaker 1: to communicate with this market A And why is she
Speaker 1: finding it so difficult to get the governing Council to
Speaker 1: come along with her and not talk behind the scenes
Speaker 1: and not make leaks and not do all these kind
Speaker 1: of things. What is she struggling with specifically? So, I
Speaker 1: think the first problem from the e CBS perspective is
Speaker 1: that there's so far monetary policy and the leavers that
Speaker 1: they're pulling, the policies that they're implementing, are just so
Speaker 1: far from monetary policy. Really, it's untrue. You know, this
Speaker 1: has become very much managing financial markets first and foremost.
Speaker 1: The purported transmission from actions into inflation outcomes or growth
Speaker 1: outcomes has long since been forgotten. There's not even a
Speaker 1: pretense that this is a traditional transmission of economic policy
Speaker 1: from you know, central banker's words to the man in
Speaker 1: the streets actions. Nobody is even pretending that's what's going
Speaker 1: on anymore. So the policy talk has become very big,
Speaker 1: very unwieldy. The problem being dealt with is huge because
Speaker 1: trying to keep financial markets under wraps when the economy
Speaker 1: is structurally weak, but then goes through the sort of
Speaker 1: cyclical weakness that we all experienced in in Q one
Speaker 1: t Q two of last year. Of course incredibly incredibly difficult.
Speaker 1: And I think when you get into that technical tool care,
Speaker 1: the fact that that Madame Legard's background is not, you know,
Speaker 1: from a sort of theoretical economics perspective, is not a
Speaker 1: career central banker. Obviously that means that she has to
Speaker 1: come up the learning curve a little and obviously she's
Speaker 1: doing that and she I think she's getting better through time.
Speaker 1: But in trying to say nothing, to not give the
Speaker 1: market anything to go on, which I think is what
Speaker 1: she aims to do. In most press conferences, she quite
Speaker 1: often confused is more than she clarifies. And we've seen
Speaker 1: this this pattern of the Chief Economist Philip Lane issuing
Speaker 1: these these blog posts in the day after the meeting,
Speaker 1: I think to try and find, tune and clarify some
Speaker 1: of that message. Do you think we need a little
Speaker 1: bit more structure in the communication, James, What is it
Speaker 1: that we need? What we have seen from the Federal
Speaker 1: Reserve is a shift in the reaction function, a new framework,
Speaker 1: and whether you think that's the right or wrong thing.
Speaker 1: What it has done is it's forced pretty much every
Speaker 1: single member of the FMC right now to sing from
Speaker 1: the same hymn sheet. You don't get that in Europe.
Speaker 1: We didn't get that into our tenure either. Do you
Speaker 1: need more structure? You know? My honest answer to this,
Speaker 1: John is we need less, not more. I think interested
Speaker 1: in go back forty years and there was no announcement,
Speaker 1: There was no statement, There was nothing. There was a
Speaker 1: few few men in a smoky room, and then you
Speaker 1: had to look at money markets to work out what
Speaker 1: decision have been made, if any at all. Now that's
Speaker 1: one extreme. I think we're way at the other end
Speaker 1: of the spectrum. I think ultimately central bankers need to
Speaker 1: understand that they cannot manage every short term gyration of
Speaker 1: financial markets, and to the extent that they do, they
Speaker 1: are creating as many problems for themselves when they try
Speaker 1: and exit policy as they're solving as the implement policy.
Speaker 1: And I think this is one of the things we're
Speaker 1: about to experience here. This is something that Richard Coup
Speaker 1: wrote about many years ago and has been very consistent on,
Speaker 1: and he's been very accurate and understanding and describing the
Speaker 1: world post post the GFC, the queue trap, and this
Speaker 1: this is the point that is very easy to wratch
Speaker 1: it and up the amount of policy that's implemented to
Speaker 1: deal with every every whips or every decline in economic activity.
Speaker 1: But actually it's much more difficult to then try and
Speaker 1: deal with financial markets overreacting, over extrapolating when you come
Speaker 1: to exit the policy. And I think central banks possibly
Speaker 1: and possibly this includes the ECB, certainly the Hawks. They're
Speaker 1: just trying not to dig themselves into a deeper hole
Speaker 1: just yet, not until they absolutely have to. James, as
Speaker 1: an investor, what could happen in today's press cut friends,
Speaker 1: that could actually make you change the way you invest
Speaker 1: or what you decide to buy. I mean, yeah, I'm
Speaker 1: a tactical time horizon, Lisa. Obviously that can be portfolio
Speaker 1: changes as a result of things that you hear. I
Speaker 1: wouldn't expect that to be the case today. What I
Speaker 1: might expect is that some prices might change that become
Speaker 1: more attractive to change investments. Um. I think you know,
Speaker 1: broadly speak being bond yields are under pressure everywhere. I
Speaker 1: think the next phase of the sort of bond market,
Speaker 1: economic cycle, bond market transition, if you like, is for
Speaker 1: the rest of the world, the non US, non China world,
Speaker 1: to play some economic catch up, and I think that
Speaker 1: probably sees yields outside of the US underperforming relative to
Speaker 1: the the US. I think when you see yields rising,
Speaker 1: I don't think that's a great place for Italy to be,
Speaker 1: especially if there's any width of taper talk. And so
Speaker 1: if we were to see a very successful devilish message
Speaker 1: from from Madame Legarde and we see Italian yields fall
Speaker 1: and spreads Titan, that might be something I would look
Speaker 1: to lean into. Based on the fact that not a
Speaker 1: lot has changed from the headlines we've seen just now
Speaker 1: at twelve four five, I think, you know, Madame Legard
Speaker 1: again is going to hope that this this press or
Speaker 1: is a bit of a snooze fest. But to your point, John,
Speaker 1: she's going to get she's going to get asked a
Speaker 1: lot of questions about it. In trouble for saying that
Speaker 1: once upon a time, James, James of Seed, I mean this,
Speaker 1: I'm taking notes and it's gonna be you know, we'll
Speaker 1: have it on radios. Can come back tomorrow the day
Speaker 1: after we'll do it on a weekend. I gotta be
Speaker 1: honest with you. This is the bit of the chi
Speaker 1: that I probably enjoyed the least pouring James selling the
Speaker 1: James keep it up. You're not alone, James, You're not alone, though,
Speaker 1: James Athey, Aberdeen Standard Investment, Senior Investment Manage I say
Speaker 1: technical and tell me you're right. You call it boring.
Speaker 1: James Athey does too. And for many people that might
Speaker 1: see Francis Donald, you are expert at this. Thank you
Speaker 1: for joining for Manual Life this morning, and I want
Speaker 1: to really dovetail George Sarah Ellis note earliest morning, Sarah
Speaker 1: Ellis is in foreign exchange. He's looking at strong Canadian dollar. Francis,
Speaker 1: you live and breathe this with Manual Life of Montreal.
Speaker 1: So we've got a wonderful nexus here of George Saravellis
Speaker 1: and Francis Donald and the Canadian US difference and the
Speaker 1: answer Francis accord into George. His Canada is creating jobs
Speaker 1: and christiph Friedland and Trudeaux have a nation getting back
Speaker 1: to real labor excellence faster than America. How long is
Speaker 1: it gonna take for America to stop replacing restaurant jobs
Speaker 1: and get back to actual true job formation. There's about
Speaker 1: six questions in that time. I tried, I was going
Speaker 1: for seven. I failed. Let's start with what we can
Speaker 1: learn from Canada. Canada is telling us a couple of
Speaker 1: really important stories. One is that relative fiscal policy is
Speaker 1: a key global market driver. That's true between Canada and
Speaker 1: the US, but also the US and Europe. The second
Speaker 1: is that labor market healing is going to be a
Speaker 1: key component to our forecast, and places like Canada and
Speaker 1: Europe did not experience the same drop in labor force
Speaker 1: participation rates. What matters for the United States Now, for me,
Speaker 1: the most important nona known is how fast labor supply
Speaker 1: comes back to America, because that's the key to wages.
Speaker 1: That's the key to unlocking two and three growth. Last,
Speaker 1: but not least, we look at these two economies, we
Speaker 1: do see an important story, which is the US rely
Speaker 1: q one story. I love that A lot of very
Speaker 1: good news priced into the U S story. I talked
Speaker 1: about keep reopening in the US, replaced in the US.
Speaker 1: Where are expectations really low? Where are the hawky sh
Speaker 1: up surprises? Where the upside surprises outside the US in
Speaker 1: places like Europe and Canada. My view is the next
Speaker 1: big move higher in the U. S. Treasury yield is
Speaker 1: not going to be US driven. It's going to be
Speaker 1: globally driven, probably Europe. Okay, But Francis, let's go on
Speaker 1: Martilly in here, folks. This is Alfred Marshall's supply and demand,
Speaker 1: you know, the little X E X thing that Francis
Speaker 1: is expert at. Is this about labor supply coming on
Speaker 1: or is it about labor demand in America? It's going
Speaker 1: to be both. And this is one of the biggest
Speaker 1: challenges is that we have this whole list of missing
Speaker 1: inputs into our outlook, and they arranged from things like
Speaker 1: what our corporate tax is going to be, what does
Speaker 1: the infrastructure plan look like? What about the double mutant variant?
Speaker 1: Apparently we have to incorporate this now into our outlook.
Speaker 1: We do not know how fast labor is going to
Speaker 1: come back demand or supply, because we've never lived in
Speaker 1: this before. So you hear high conviction economists and strategists
Speaker 1: who say we're fully healed, We're back to full time
Speaker 1: employment or full employment by two We just don't know.
Speaker 1: We don't have the example and critically. On top of this,
Speaker 1: the Federal Reserve has told us they're not just looking
Speaker 1: for full employment by our traditional metrics, but a broad
Speaker 1: based and inclusive employment goal. So even though we're still running,
Speaker 1: we're trying to figure out what we're doing, the goalposts
Speaker 1: are also moving at the same time. It makes for
Speaker 1: a complicated forecast, and I really think we need to
Speaker 1: be thinking about why confidence intervals as we go through
Speaker 1: the next few months. Yeah, John, I liked it. We're
Speaker 1: complicated and that it's a nation moving in fits and starts.
Speaker 1: It's a complicated issue for the airlines too, and tiking
Speaker 1: it fits and starts domestically things if he picked up
Speaker 1: in America for travel internationally not the story. So here's
Speaker 1: an airline with a domestic till Southwest coming down and
Speaker 1: saying they're hopeful to achieve break even by June, the
Speaker 1: first core adjusted loss coming in at around about one
Speaker 1: seventy two, the estimated loss one one seventy to the
Speaker 1: number the estimate one eight five, hopeful to achieve break
Speaker 1: even by June. LISTA, here's an airline with a domestic
Speaker 1: till A little bit later this morning, I believe we
Speaker 1: get an American airlines earnings as well. That's an airline
Speaker 1: with an international till. Yeah, and when you look at
Speaker 1: the overall picture I had at the International Association for
Speaker 1: Airlines came out yesterday and actually said that the net
Speaker 1: loss would be substantially bigger ten billion dollars bigger this
Speaker 1: year than they had previously expected. John, because of the variance,
Speaker 1: because of the prolonged nature of this pandemic, which just
Speaker 1: isn't exactly going away. I want to use that term
Speaker 1: that Tom use fits and starts Francis, this will come
Speaker 1: in waves, the reopening what happened all at once? What
Speaker 1: does that mean for you just as a market participant
Speaker 1: as well? Well? The congregated element of this is when
Speaker 1: you're an eponymous sitting in an investment team, you have
Speaker 1: to say, what's gonna happen to the economy, and then
Speaker 1: importantly how much of that is already price? A lot
Speaker 1: of good news in this price right now. So when
Speaker 1: I hear headlines like IATA saying actually, we're gonna be
Speaker 1: a little bit less than expected, this is what worries me.
Speaker 1: The scope for downside surprises in the United States is bigger.
Speaker 1: But more problematically, I hear a lot of people saying,
Speaker 1: you know, and very bullish economy because I got on
Speaker 1: a flight to Florida and it was packed. The question
Speaker 1: through is is it still going to be packed in
Speaker 1: three You're gonna notice a lot of economists are talking
Speaker 1: now the boom busts, the short cycle. A lot of
Speaker 1: forecasts are showing a sizeable drop in growth for three Now,
Speaker 1: that might seem very far off, but that's your fiscal
Speaker 1: impulse coming off. So fits and starts over the next
Speaker 1: three to six months. Absolutely, we're gonna have to trade those.
Speaker 1: It's gonna be a very tactical rangebound market. But where
Speaker 1: my eye is is the strategic fits and starts, which is,
Speaker 1: do we see in the United States a pull forward
Speaker 1: of demand that's very aggressive for once two years and
Speaker 1: then are we facing a little bit more of a
Speaker 1: problem in the back half of these five year forecast period.
Speaker 1: It so you wet two hats. So let me just
Speaker 1: address that question a little bit more specifically. When you
Speaker 1: say the scope for downside surprise, more scope for downside
Speaker 1: surprises in America, as an economist or as a market participant,
Speaker 1: oh as bold. The problem, however, is that we're looking
Speaker 1: at a market and even though I can say we've
Speaker 1: seen peak reflation, peak reopening in the United States, I
Speaker 1: cannot do short equities in this market. I absolutely you know,
Speaker 1: don't want to be long bonds, particularly after this move.
Speaker 1: Even if there's a little bit more upside, rates are
Speaker 1: still incredibly low. If you want to make your return profile,
Speaker 1: you have to be allocating the equities, particularly with momentum
Speaker 1: still in your favor and the low rate environment. So
Speaker 1: now is the time with your sector rotations, to be
Speaker 1: adding internationally, to be focusing on country risk and country plays.
Speaker 1: That's the way we're going to make money in the
Speaker 1: next six months, as opposed to trying to make these
Speaker 1: calls on broad risk or headline SPX. Meanwhile, for instance,
Speaker 1: this is Earth Day, and I'm wondering how much you're
Speaker 1: paying attention to some of these proposals from an investment perspective,
Speaker 1: especial Actually, as President Biden puts money behind it. Absolutely
Speaker 1: every single day, I'm often asked, what's the biggest delta
Speaker 1: on your forecast? Because change on your forecast, the transition
Speaker 1: from the Trump administration to the Biden administration, it's actually
Speaker 1: green spending. Now importantly, when we talk about fiscal spending.
Speaker 1: People usually say this amount billions of dollars and brillions
Speaker 1: of dollars equals this amount of growth, but how it's
Speaker 1: spent is what determines the fiscal multipliers. Green spending is
Speaker 1: going to have a longer horizon with a different fiscal multiplier.
Speaker 1: The other component of that that's really critical, as we
Speaker 1: watched green bond issuance as another big component of future
Speaker 1: ASCID allocation, a lot of first for that, so incorporating
Speaker 1: as investing, looking at green spending key component of the
Speaker 1: economic outlook, but also the investment portfolio construction for instance.
Speaker 1: I want to dovetail this idea of a green initiative
Speaker 1: with where we began this conversation, that is jobs and wages.
Speaker 1: And we have a Biden coming out and saying that
Speaker 1: this will actually generate well paying jobs. But you've got
Speaker 1: union groups pushing back and saying that solar and wind
Speaker 1: companies haven't been really opposed unionization and opposed efforts to
Speaker 1: try to bring wages up in that way. What's the truth.
Speaker 1: The promulicated element of this is all forms of infrastructure spending,
Speaker 1: from green to highways. The i m F has plenty
Speaker 1: of work on this. They hit the economy with a
Speaker 1: long lag, so you can announce these sorts of initiatives,
Speaker 1: but we don't see them traditionally from anywhere from three
Speaker 1: to eight years. So finding that truth and what happens
Speaker 1: in reality is not going to happen next year. The
Speaker 1: market is going to have to be patient on seeing that.
Speaker 1: And this is why I say heading into three there's
Speaker 1: gonna be a potle in the economy. I think the
Speaker 1: market is starting to sniff that out. Knowing what you
Speaker 1: own is so difficult right now, Francis, we hear that
Speaker 1: term greenwashing. Black Rock put out a transition ETF recently,
Speaker 1: huge demand for it, loads of inflows, as you might expect.
Speaker 1: Then you go through the top holdings of this thing, Apple, Microsoft, Amazon,
Speaker 1: Alphabet and Facebook. Now maybe they are the leading companies
Speaker 1: making a transition in the United States of America. Maybe
Speaker 1: that's the right way to benchmark the CTF. But for
Speaker 1: the people who are allocating capital to some of these stories, Francis,
Speaker 1: do you think they really know what they own right now?
Speaker 1: My focus on this is actually moving away from company
Speaker 1: specific risk, also because I'm a macro strategist, so it's
Speaker 1: not my area to the same extent, but focusing on
Speaker 1: country risk on this component and the E s G
Speaker 1: country screens that are coming through sitting up here in
Speaker 1: Canada as Tom and Bil to everybody. Of course, we're
Speaker 1: talking about having to do early and cheaper green transitions
Speaker 1: or fearing access to global capital markets, and I think
Speaker 1: countries who are going to be accelerating green spending in
Speaker 1: order to avoid losing capital flows. And that's the component
Speaker 1: of the macro story that has to integrate the green
Speaker 1: infrastructure component or you're gonna get the trade rock. Francis
Speaker 1: really really interesting. Final point and great to catch up
Speaker 1: as always Francis Donald to Manulife. Always great to have
Speaker 1: Francis with this slave so often putting Tom in his
Speaker 1: place as well. Very good. Every single cover about six
Speaker 1: questions in there throw seven six questions in. We do
Speaker 1: panels together and she just crushes me on there's the
Speaker 1: headline tell connected to the story out of India Singapore
Speaker 1: to Office. It's just from India on the deteriorating situation
Speaker 1: which is just getting worse and worse, just a matter
Speaker 1: of time until we see that from other geographies. We've
Speaker 1: seen this with the Philippines, with Brazil, as well. We're
Speaker 1: gonna have news on Golden Sex here in a moment.
Speaker 1: Stay where this Global Wall Street right now, Jennifer News.
Speaker 1: O where this Johns Hopkins Center for Health Security, And
Speaker 1: all of a sudden, our international health security is important,
Speaker 1: Jennifer News So how far are we from a humanitarian
Speaker 1: crisis in India? Oh? I mean, we're on the brink.
Speaker 1: The stories that really worrying me the most is hearing
Speaker 1: about shortages of medical oxygen. I mean to think that,
Speaker 1: you know, you can save people's lives by supplementing their
Speaker 1: oxygen and they just don't have it oxygen something that's
Speaker 1: easy to make. That is really I think a severe tragedy.
Speaker 1: How close are we to shifting to say nine seven
Speaker 1: and the starvation of Europe, the Netherlands post World War two? Europe?
Speaker 1: How close are we to where there will be a
Speaker 1: call for international developed nation and American responsibility to assist India?
Speaker 1: But we are there. If the call hasn't already been sounded, um,
Speaker 1: let's sound it now because there is clearly a deep,
Speaker 1: deep struggle there and they need help. And you know
Speaker 1: the United States is not going to be back to normal,
Speaker 1: um safe fully safe until we help countries end um
Speaker 1: these very concerning surges of these cases. Based on the
Speaker 1: searches that we have seen, how much has the end
Speaker 1: of the pandemic been pushed out, Well, I mean it's
Speaker 1: it's really hard to say. I mean, we still have
Speaker 1: parts of the globe that haven't gone through this yet.
Speaker 1: And you don't want any country to go through this
Speaker 1: where you see a massive surge of cases. But any
Speaker 1: country that has not yet had a surge of cases
Speaker 1: and it's not actively vaccinating its population remains at risk
Speaker 1: to exactly this scenario. I think earlier there were countries
Speaker 1: that maybe breathe a sigh of relief that somehow assume
Speaker 1: that they escaped the worst of this pandemic. But we're
Speaker 1: seeing um quite clearly that that's very much not the case.
Speaker 1: That many parts of the world still remain deeply at risk.
Speaker 1: So I worry about these headlines continuing for a year
Speaker 1: or more unless UH international partners get together and help
Speaker 1: share some of the vaccines that are there. We need
Speaker 1: to absolutely make more vaccines. There's clearly a shortage of
Speaker 1: medical supplies that needs to be addressed. So a lot
Speaker 1: of work that the globe can do to help countries
Speaker 1: and to you know, try to lessen some of these
Speaker 1: hideous tolls of the pandemic has already had. We need
Speaker 1: to make more vaccine, and we need to convince people
Speaker 1: to actually get inoculated. John touched in the fact that
Speaker 1: there is a slowing pace of vaccinations in the United States.
Speaker 1: How concerning is that it is quite concerning. I just
Speaker 1: read a study about an outbreak in a nursing home
Speaker 1: where most of the residents were protected with vaccines, but
Speaker 1: only about of the healthcare workers in the nursing home
Speaker 1: here in the US UM had been fully vaccinated. And unfortunately,
Speaker 1: one of the residents who had been vaccinated, and this
Speaker 1: can happen particularly and medically frail individuals, died. So this
Speaker 1: is a real problem. And then of course we're hearing
Speaker 1: about states pulling back on ordering vaccine, that they are
Speaker 1: not having the kind of uptake that they had been
Speaker 1: had been having. UM. This is something that I think
Speaker 1: we have to address with much urgency. I think there
Speaker 1: are some people who are probably just trying to wait
Speaker 1: and see. I think there are some people who don't
Speaker 1: feel that they want to get vaccinated. But we need
Speaker 1: to reach both of those people. Both of those groups
Speaker 1: of people and and convince them that you know, your
Speaker 1: time to get vaccinated is as soon as as you're able,
Speaker 1: and the faster we do this is the faster we
Speaker 1: get back to normal. What a tough moment to be
Speaker 1: a leader of this country right now and make this
Speaker 1: decision doctor, because there is so much pressure to take
Speaker 1: some the supply here and allocates it to the rest
Speaker 1: of the world where it's needed most right now. How
Speaker 1: do you make a decision like that when some parts
Speaker 1: of your country have decided they don't want this vaccine? Sure, well,
Speaker 1: it is a tough decady, and you know every elected
Speaker 1: official their first responsibility is to the people who elected
Speaker 1: him or her. UM. In this case, though, the United
Speaker 1: States have has more vaccines than we need. Even if
Speaker 1: every single American UM work to get a vaccine, we
Speaker 1: still have more than we need. And so I think
Speaker 1: it is important for us to consider donating at least
Speaker 1: to cover some some very high risk groups like healthcare
Speaker 1: workers that are working across the globe. They show up
Speaker 1: every day with their lives on the lines to save
Speaker 1: people's lives. We should be able to protect them. And
Speaker 1: the US has enough vaccine to be able to um
Speaker 1: to help in those efforts. Dolta, thank you. We have
Speaker 1: to leave that. Doctor. Jennifer Neo said that John's help
Speaker 1: consents at the House security Senia Scalta. This is the
Speaker 1: Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays
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Speaker 1: and on Bloomberg Television each day from six to nine
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Speaker 1: on the terminal. I'm Tom keene In. This is Bloomberg
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