WEBVTT - Surveillance: Pandemic Shock With Kotok 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jaylie. We bring you 0:00:13.320 --> 0:00:18.640 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 --> 0:00:30.840 and of course on the Bloomberg Terminal. Great guest joining Katie, 0:00:30.880 --> 0:00:33.080 Matt and I now David Cotal, the co founder and 0:00:33.120 --> 0:00:36.280 CEO of Cumberland Advice is David had a perfect guest 0:00:36.280 --> 0:00:38.800 to do what I've been doing with guests through much 0:00:38.800 --> 0:00:41.159 of this week, which is just the lesson of one 0:00:41.320 --> 0:00:43.519 as we approached twenty two before we run away from 0:00:43.560 --> 0:00:45.920 this year, David and get deep into twenty two. What's 0:00:45.920 --> 0:00:50.400 the number one lesson for you? If there's a lesson 0:00:50.560 --> 0:00:56.240 for me, it's the ignoring of the history John of pandemics. 0:00:56.760 --> 0:01:00.360 They are different. You were talking about the head I 0:01:00.440 --> 0:01:03.440 listened to the show this morning in all week, and 0:01:04.319 --> 0:01:07.240 the morning session that you do in the seven o'clock 0:01:07.240 --> 0:01:10.000 hour is the one that's you're putting the status of 0:01:10.040 --> 0:01:14.039 this pandemic. When you hit the history of all pandemics, 0:01:14.400 --> 0:01:18.440 they are a lesson. This is not a business cycle. 0:01:18.520 --> 0:01:21.400 That's typical and that's being missed here. We're too much 0:01:21.400 --> 0:01:25.240 in the weeds, and we have lots of historical evidence 0:01:25.840 --> 0:01:30.760 for to guide us, especially with the Federal Reserve. I 0:01:30.840 --> 0:01:33.919 went back and looked at every pandemic I could find, 0:01:34.400 --> 0:01:38.920 and there's indicators of impacts on wages, on labor forces, 0:01:38.959 --> 0:01:42.319 on prices, on interest rates, all the way back to 0:01:42.400 --> 0:01:46.880 the time of Athens and Sparta. What's missing in the 0:01:46.959 --> 0:01:52.160 conversation now is the impact. I read Milton Freeman's treatise, 0:01:52.280 --> 0:01:55.760 I read Alan Meltzer's treatise. They talk about the FED, 0:01:55.840 --> 0:02:01.080 they don't even mention a pandemic, and that it's a 0:02:01.160 --> 0:02:07.000 whole different characterization of global economics. So the big takeaway 0:02:07.080 --> 0:02:10.760 for the year, as far as I'm concerned, is missing 0:02:10.919 --> 0:02:15.440 the big picture of a pandemic shock. But David, when 0:02:15.440 --> 0:02:18.760 we look at it from a corporate perspective, profits have 0:02:18.919 --> 0:02:21.720 held in there. They've done actually quite well. They've continually 0:02:21.760 --> 0:02:23.800 surprised to the upside. Do you not buy into the 0:02:23.840 --> 0:02:26.640 idea that you can look through the pandemic and the 0:02:26.680 --> 0:02:29.320 economic impact which seems to be waning of each individual wave. 0:02:29.400 --> 0:02:31.960 You can look through the normalization of monetary policy so 0:02:32.000 --> 0:02:36.880 long as earnings growth remains there, Kelly, I agree with 0:02:36.919 --> 0:02:40.639 that earnings growth to spectacular and it will continue. I 0:02:40.680 --> 0:02:43.880 agree with Paulson's estimate. Are you Inny's estimate? Are the 0:02:43.960 --> 0:02:48.119 other ones? Eight ten, twelve? And makes no difference. It's powerful. 0:02:48.840 --> 0:02:52.080 Why do we have the earnings growth? We have a 0:02:52.280 --> 0:02:56.280 shock that's demographic. We have people dead a million more 0:02:56.280 --> 0:03:00.920 in the United States than traditional trajector rate. We have 0:03:01.120 --> 0:03:04.760 people disabled, not able to get to work, and we're 0:03:04.800 --> 0:03:08.160 not finished with this. So what do you get? You 0:03:08.280 --> 0:03:12.240 get a substitution from labor to capital. When you do that, 0:03:12.560 --> 0:03:17.520 you get productivity gains, whether it's a robot or telemedicine, 0:03:17.800 --> 0:03:21.520 and you get something else. You get a fall in 0:03:21.560 --> 0:03:26.560 the real interest rate. Every pandemic in history has a 0:03:26.720 --> 0:03:30.560 fall in the real interest rate and a substitution of 0:03:30.680 --> 0:03:35.120 capital for labor. Those are the macro pieces, by the way, 0:03:35.280 --> 0:03:40.120 j Pal understands this, and I believe the composition of 0:03:40.200 --> 0:03:44.800 the border governors will also reflect it if it's the 0:03:44.880 --> 0:03:49.320 nominees we're seeing being proposed and vetted now in the 0:03:49.400 --> 0:03:56.160 public area. So big picture, pandemic shock, not business cycle, 0:03:56.800 --> 0:03:59.760 earnings will be good. Stock market will go higher interest rates, 0:04:00.080 --> 0:04:03.160 but a little inflation will roll over back to the 0:04:03.240 --> 0:04:07.160 two three level, and it will happen faster than people 0:04:07.240 --> 0:04:11.760 thinks as the shock adjustment rolls out. Well, you mentioned 0:04:11.800 --> 0:04:13.880 the empty seats that are still remaining at the FED, 0:04:13.920 --> 0:04:15.960 and depending on who sits them, do you think we 0:04:16.000 --> 0:04:19.680 could be looking at a different, different trajectory of policy 0:04:20.200 --> 0:04:23.599 moving forward. Well, if we look at the three names 0:04:23.600 --> 0:04:27.600 that are surfaced in the Wall Street Journal yesterday, they 0:04:28.120 --> 0:04:33.559 lean center, but they are accepting of a changed FED 0:04:33.720 --> 0:04:39.359 structure that also looks beyond narrow monetary policy. To our academics, 0:04:39.760 --> 0:04:42.760 we know what they've written and said. They have some experience, 0:04:43.080 --> 0:04:47.560 and Raskin is a known quantity, but they're all confirmable. 0:04:47.839 --> 0:04:51.200 They are all young enough to hold these positions, and 0:04:51.240 --> 0:04:55.320 obviously they've been able to deal with the financial restraint 0:04:55.560 --> 0:04:59.000 because the FED governor doesn't get paid very much compared 0:04:59.040 --> 0:05:02.640 to other positions. So I think policy stays in the middle. 0:05:03.000 --> 0:05:06.640 That's great for markets, great for the investor class, it's 0:05:06.680 --> 0:05:09.840 great for the country. What we don't want is shocks. 0:05:10.720 --> 0:05:14.280 I'm in the camp they should not reduce the balance 0:05:14.360 --> 0:05:17.680 sheet at the same time they raised the interest rate 0:05:18.000 --> 0:05:21.200 It's hard enough for a central bank to do one 0:05:21.360 --> 0:05:25.320 thing at a time in a pandemic. Doing two things 0:05:25.800 --> 0:05:29.200 and trying to get them both right is virtually impossible. 0:05:29.600 --> 0:05:33.119 So my it's good is that one point at a time, 0:05:33.200 --> 0:05:35.560 do one thing at a time and get it right. 0:05:37.160 --> 0:05:40.080 It's a good point. And I also appreciate your point 0:05:40.120 --> 0:05:44.240 that we need eyes that aren't too narrowly focused. I 0:05:44.279 --> 0:05:48.000 think of your very liberal education. I know you studied 0:05:48.000 --> 0:05:54.440 not only economics but also organizational dynamics and philosophy, right, 0:05:54.560 --> 0:05:58.520 probably reading a lot of favor and fuco um. How 0:05:59.800 --> 0:06:02.640 how how confident are you that this FED is really 0:06:02.680 --> 0:06:07.120 in touch with the human effects of the pandemic and 0:06:07.240 --> 0:06:11.039 their policy actions, especially when looking at something like COVID 0:06:11.200 --> 0:06:15.440 and the effects of long COVID. Well, Matt, I think 0:06:15.560 --> 0:06:18.840 j Pal gets it. There's a community system in the FED. 0:06:18.920 --> 0:06:23.000 It's got thirty six members to it. I know one 0:06:23.160 --> 0:06:26.719 they publish their results. They are looking at the entire 0:06:26.800 --> 0:06:31.880 population of three million Americans and looking at the impacts 0:06:31.960 --> 0:06:35.840 of the various component parts. It seems to me the 0:06:35.920 --> 0:06:40.000 point gees who are being vetted now publicly, uh Cook, 0:06:40.320 --> 0:06:45.240 Jefferson and certainly Raskin have the characteristic to look beyond 0:06:45.279 --> 0:06:49.400 the narrow. I hope the FIT looks beyond the narrow. 0:06:49.720 --> 0:06:55.159 If it's strictly money and velocity and multiplier and not 0:06:55.360 --> 0:06:59.640 looking at full impact in the agendas we face in 0:06:59.680 --> 0:07:02.600 the Nited States and the rest of the world, we're 0:07:02.640 --> 0:07:06.039 in trouble. But j Pals seems to get it. I 0:07:06.120 --> 0:07:09.960 applaud what he did as chairman and continues to do so. 0:07:10.720 --> 0:07:14.080 I'm an endorser. Now. If the politicians will leave the 0:07:14.120 --> 0:07:17.679 FED alone and let it do its job, that would 0:07:17.680 --> 0:07:21.560 be much better. Independence of the FIT is always threatened 0:07:21.560 --> 0:07:24.480 by politics. I want to I want to get to 0:07:24.680 --> 0:07:27.040 politics and a sense here kind of rip up the 0:07:27.040 --> 0:07:31.800 script Tom Kean style. Um, David, and I look at 0:07:31.800 --> 0:07:35.119 your resume. UM, as I think about build back better 0:07:35.120 --> 0:07:37.240 and the chances it won't pass, as I think about 0:07:37.280 --> 0:07:43.040 my personal concerns that the salt deduction cap won't be lifted. UM, 0:07:43.080 --> 0:07:45.040 I look at your resume. You were the commissioner of 0:07:45.040 --> 0:07:48.360 the Delaware River Port Authority. You serve on the Treasury 0:07:48.400 --> 0:07:51.680 transition teams for Keen and Whitman. Um. You were a 0:07:51.680 --> 0:07:56.160 board member of the New Jersey Economic Development Authority. I've 0:07:56.160 --> 0:07:58.560 been asking myself a lot lately. Why do these states, 0:07:58.640 --> 0:08:01.360 especially New Jersey and New York, how such high taxes 0:08:01.480 --> 0:08:04.920 compared to other states? You know, it seems to only 0:08:05.000 --> 0:08:08.920 matter the the the UH the salt cap to the 0:08:08.960 --> 0:08:12.400 Tri state area. If if we don't get that, what 0:08:12.480 --> 0:08:15.160 else can be done to lower these tax burdens that 0:08:15.200 --> 0:08:19.120 are incredibly heavy on a lot of working families in 0:08:19.160 --> 0:08:24.920 those in those states. Well, it takes a shock, and 0:08:24.960 --> 0:08:28.800 it hasn't happened yet, And I totally agree with. Our 0:08:28.880 --> 0:08:31.920 company used to be headquartered in New Jersey where now 0:08:31.960 --> 0:08:37.520 in Florida. So we've got it. Change not the only 0:08:37.760 --> 0:08:41.080 driver of the reason to make the change. We were 0:08:41.120 --> 0:08:44.000 on airplanes flying to Florida because of the migration of 0:08:44.040 --> 0:08:47.000 wealth here. Now, I will tell you during a pandemic, 0:08:47.400 --> 0:08:51.760 Florida is not such an easy place because we don't 0:08:51.760 --> 0:08:57.000 have mitigation. Should we have a Florida which is playing 0:08:57.080 --> 0:09:01.880 this differently? And two in maya opinion that there is 0:09:01.920 --> 0:09:06.120 a detriment to that. My office is now extending it's 0:09:06.200 --> 0:09:10.440 closing to February and doing a rolling month. We've had 0:09:10.559 --> 0:09:15.520 COVID cases in our staff among our clients, so we 0:09:15.720 --> 0:09:20.559 see a direct negative business impact when there is no mitigation. 0:09:20.840 --> 0:09:25.960 That's not an advocacy for a lockdown, it's an advocacy 0:09:26.080 --> 0:09:30.800 for thoughtful policy. M David got to leave it there, buddy, 0:09:30.840 --> 0:09:33.439 But we appreciate your friendship, your partnership with this program 0:09:33.480 --> 0:09:34.800 through the year, and we look forward to doing the 0:09:34.840 --> 0:09:37.400 same through twenty two. Thank you, David. Co talk there 0:09:37.400 --> 0:09:45.560 of couble of advises with us now in place to say, 0:09:45.600 --> 0:09:48.640 as Jim Pulson, chief investment officer at the Loophole Group, Jim, 0:09:48.679 --> 0:09:50.800 you've got a year end price target on the SMP 0:09:50.880 --> 0:09:52.800 of five thousand. I'm trying to work out if that's 0:09:52.800 --> 0:09:58.000 this week or next year, which one, Jim, it's it's 0:09:58.080 --> 0:10:02.000 next year. I really think, Jonathan, we're gonna have a 0:10:02.120 --> 0:10:04.240 very violatile year ahead of us, and I think we're 0:10:04.240 --> 0:10:07.760 gonna end up, you know, margly, not not near as 0:10:07.840 --> 0:10:09.800 much as we've been used to have late, but I 0:10:10.000 --> 0:10:13.200 would argue that, um, it's probably gonna be the best 0:10:13.240 --> 0:10:15.160 in the first half of the year. I I know 0:10:15.240 --> 0:10:17.600 we're up here. A lot of people think we might 0:10:17.640 --> 0:10:20.040 give some of this back as we enter the new year. 0:10:20.320 --> 0:10:23.000 That could happen, but I think we're gonna maybe go 0:10:23.040 --> 0:10:25.440 above five thousand during the first half of the year, 0:10:26.080 --> 0:10:32.760 on excitement that finally maybe moving the COVID from pandemic 0:10:32.800 --> 0:10:36.559 to an epidemic, and on the realization I think increasingly 0:10:36.640 --> 0:10:40.200 that inflation is moderating. But then I think in the 0:10:40.240 --> 0:10:43.640 last half, I think we're gonna see bond yields come up, 0:10:43.720 --> 0:10:48.600 and and the FED tapering tapering, and maybe and raising 0:10:48.720 --> 0:10:51.440 rates more aggressively. I think we could have a bit 0:10:51.480 --> 0:10:53.000 of a struggle in the latter half of the year. 0:10:53.040 --> 0:10:55.120 That's why I think we'll end up around five thousand 0:10:55.360 --> 0:10:59.120 for the SMP. But I think the broader market outside 0:10:59.120 --> 0:11:02.000 of the SMP five it does better this coming year 0:11:02.320 --> 0:11:05.480 than the SP overall. Well, let's talk about the bond 0:11:05.520 --> 0:11:07.360 yields going up, because I know you see the tenure 0:11:07.400 --> 0:11:10.280 at a year end next year, obviously we're about seventy 0:11:10.280 --> 0:11:12.640 five basis points south of that at the moment. Does 0:11:12.679 --> 0:11:16.120 it matter the ultimate rate, how high the rates ultimately go, 0:11:16.440 --> 0:11:18.480 or the speed at which they get there. Do you 0:11:18.520 --> 0:11:20.480 think that is a move that will happen quickly and 0:11:20.480 --> 0:11:22.720 that that is actually what will be upsetting to the 0:11:22.720 --> 0:11:26.520 equity market. Uh, it's a great question, Killy. You know, 0:11:26.600 --> 0:11:29.240 one of the things that I've looked at recently, looked 0:11:29.280 --> 0:11:33.400 back and looked at all the months that we've been 0:11:33.520 --> 0:11:36.760 under a three percent ten year yield, And I got 0:11:36.880 --> 0:11:40.080 to tell you, when you're under three percent ten year historically, 0:11:40.120 --> 0:11:42.720 we've only been there about twenty percent of the time. 0:11:43.200 --> 0:11:48.040 It is a gift to equity investors because the stock market, 0:11:48.040 --> 0:11:53.480 what it does is almost annualized UH annualized monthly returns 0:11:53.840 --> 0:11:57.240 and it and it has negative monthly returns a third 0:11:57.320 --> 0:12:01.000 of the time, third less compared to when above three percent. 0:12:01.320 --> 0:12:03.720 The return when you're above three percent is ten percent, 0:12:03.800 --> 0:12:06.719 but it's one below. So one of the things I 0:12:06.800 --> 0:12:09.440 think it is important for investors to focus on is 0:12:09.679 --> 0:12:12.000 rates are going to go up, but boy tell you, 0:12:12.679 --> 0:12:15.440 until you get back above a three percent level. The 0:12:15.559 --> 0:12:20.280 history on the stock market is awful, encouraging for stock investors. Um. 0:12:20.320 --> 0:12:24.679 That doesn't mean, um that a rate rise of seventy 0:12:24.720 --> 0:12:27.080 five or hundred basis points over a short period time 0:12:27.080 --> 0:12:29.560 won't bring a correction, and I think we might we 0:12:29.600 --> 0:12:33.480 will get that later this later next year. But I 0:12:33.520 --> 0:12:36.200 think it's important to realize not to totally run away 0:12:36.240 --> 0:12:40.120 from stocks, at least until we get back above three percent. Tenure. Well, 0:12:40.240 --> 0:12:42.520 is there no alternative, Jim, I mean, is that part 0:12:42.559 --> 0:12:46.000 of the thesis or uh do you see other places 0:12:46.040 --> 0:12:51.640 to go, especially to hide from inflation? Um? You know, Matt, 0:12:51.679 --> 0:12:54.640 I I UM, I could be wrong, but I really 0:12:54.679 --> 0:12:58.280 think inflation is going to moderate. I think there's already 0:12:58.320 --> 0:13:01.560 some favorable science. Commodity prices have kind of flattened out 0:13:01.600 --> 0:13:05.040 since May break even rates have flattened out since May. 0:13:05.280 --> 0:13:08.599 And I think what I'm most encouraged by is that policy, 0:13:08.920 --> 0:13:13.480 both monetary and fiscal, have been tightening really since March. 0:13:14.120 --> 0:13:17.520 The h M TOO money growth annual growth was twenty 0:13:17.600 --> 0:13:20.119 seven percent year on year in March, it's now thirteen. 0:13:20.520 --> 0:13:23.280 FEDS balance sheet was growing at eight percent in March 0:13:23.520 --> 0:13:26.520 year on year, and it's now under So there's been 0:13:26.559 --> 0:13:30.800 a good degree of monetary at least less stimulus, if 0:13:30.840 --> 0:13:34.720 you will. Uh, fiscal deficit was nineteen percent of GDP 0:13:35.000 --> 0:13:38.760 earlier this year. It's now under twelve percent. So there's 0:13:38.800 --> 0:13:42.000 also been fiscal tightening, if you will. And I think 0:13:42.000 --> 0:13:46.800 that policy leads inflation historically anywhere from twelve to eighteen months. 0:13:47.280 --> 0:13:50.520 And UH that those tightening moves since since really the 0:13:50.600 --> 0:13:53.200 end of the first quarter I think come into play 0:13:53.280 --> 0:13:57.800 next year in moderating inflationary. Fourth, so with the commodity prices, 0:13:57.840 --> 0:14:00.880 which are the leading edge of inflation pre sure already 0:14:00.920 --> 0:14:05.520 showing a roll over, and policy behind that now moderating, 0:14:05.640 --> 0:14:08.080 I think we're gonna be uh. I think it's gonna 0:14:08.120 --> 0:14:10.520 be a good outcome for inflation. And I don't think 0:14:10.520 --> 0:14:13.400 it's going to return to our two percent and FED target. 0:14:13.679 --> 0:14:16.600 In fact, I think it's gonna stay elevated around three 0:14:16.640 --> 0:14:19.200 percent and the balance of this recovery. But I do 0:14:19.280 --> 0:14:22.400 think it's gonna moderate next year, and that's gonna calm 0:14:22.480 --> 0:14:25.560 fears of runaway inflation. Jimmy just said something really really interesting. 0:14:25.560 --> 0:14:28.400 You use the word timing, but then you said that 0:14:28.800 --> 0:14:31.080 the equity market wouldn't get hit until ten your year. 0:14:31.120 --> 0:14:33.640 It's got to say now, I'm trying to work through 0:14:33.640 --> 0:14:35.720 this with you now, jim So bear with me a second. 0:14:36.040 --> 0:14:38.600 Are you saying that we can get inflation down with 0:14:38.600 --> 0:14:41.080 the Federal Reserve doing what it's doing without actually seeing 0:14:41.240 --> 0:14:47.840 tight to financial conditions. I expect bond yields will will 0:14:47.880 --> 0:14:50.240 move up, as I said, to two and a quarter 0:14:50.280 --> 0:14:53.320 percent next year, primarily because I think economic growth is 0:14:53.320 --> 0:14:57.160 going to continue to be to be strong. UM. I 0:14:57.720 --> 0:15:00.720 also think a realization is going to hit us next 0:15:00.760 --> 0:15:04.160 year Jonathan, that we're not returning to the FEDS two 0:15:04.160 --> 0:15:08.160 percent inflation target. I think the Fed may even adopt 0:15:08.360 --> 0:15:12.640 the three is okay uh as an inflation target. They'll 0:15:13.080 --> 0:15:15.040 you know, move their inflation target up and I think 0:15:15.040 --> 0:15:16.760 the bond market is going to respond to that as 0:15:16.800 --> 0:15:19.640 the year progresses. And also expect the Fed to raise 0:15:19.720 --> 0:15:22.720 the FED funder rate over there. And I do think 0:15:22.760 --> 0:15:25.920 that will bring a correction, but a correction that's viable 0:15:25.960 --> 0:15:28.400 in my view because I think the market will recover 0:15:28.480 --> 0:15:31.240 from it and move on to new highs. And I 0:15:31.360 --> 0:15:34.600 really think that the earnings and fundamentals of the economy 0:15:34.600 --> 0:15:37.160 are going to remain very, very strong and that is 0:15:37.160 --> 0:15:39.720 going to continue to drive this equity market. Jim, thank you, 0:15:39.760 --> 0:15:42.320 buddy for everything for today, in for the year so fine. 0:15:42.400 --> 0:15:45.680 Looking forward to looking forward to two to cover that 0:15:45.720 --> 0:15:47.400 with you as well. Thank you, Jim. Jim posting there 0:15:47.440 --> 0:15:54.800 the little good. Sarah House, senior economist, d Wells Fargo 0:15:54.840 --> 0:15:56.720 Securities joining us now. Sarah, I know you think we 0:15:56.720 --> 0:16:00.200 can see a seven handle on inflation early in see 0:16:00.240 --> 0:16:03.360 five percent for the full year. Does the O Macron 0:16:03.480 --> 0:16:07.640 variant provide upside or downside risk to that inflation outlook? 0:16:08.800 --> 0:16:12.640 So I think for inflation O Macron does provides perhaps 0:16:12.640 --> 0:16:15.440 from overall upside when you think of the ongoing pressure 0:16:15.520 --> 0:16:18.400 on goods prices, I think you might get some offset 0:16:18.400 --> 0:16:20.920 in the near term on things like travel related prices. 0:16:20.960 --> 0:16:23.600 So we saw that weekend temporarily with the delta wave 0:16:23.640 --> 0:16:26.280 improved a little bit in November, so I think the 0:16:26.640 --> 0:16:29.600 recovery and travel related prices probably gets pushed back a 0:16:29.600 --> 0:16:32.680 little bit further further to the spring. So there are 0:16:32.720 --> 0:16:35.320 there are some offsets that I think overall, just given 0:16:35.720 --> 0:16:38.040 the pressure we're seeing on supply chains and what that's 0:16:38.120 --> 0:16:41.440 doing two goods inflation, I think O Macron probably does 0:16:41.600 --> 0:16:43.760 does pose a little bit of upside risk to that 0:16:43.800 --> 0:16:47.360 inflation call. And is the upside risk to inflation larger 0:16:47.400 --> 0:16:52.960 than the downside potential impact to growth. So I'd say 0:16:53.360 --> 0:16:56.360 it's it's probably fairly balanced. So I think we've seen 0:16:56.560 --> 0:16:59.360 some give back in terms of activity if you look 0:16:59.400 --> 0:17:02.560 at some of the things like UM restaurant reservation, so 0:17:02.640 --> 0:17:05.399 I think you've seen some some moderate pullback that I 0:17:05.440 --> 0:17:09.560 think overall the the effects of each new wave has 0:17:09.680 --> 0:17:13.320 has had diminishing impacts on both growth and UM to 0:17:13.400 --> 0:17:17.479 some extent, and inflation as well as people are tired 0:17:17.600 --> 0:17:19.600 of of the pandemic, and so I think we have 0:17:19.640 --> 0:17:22.159 seen a great deal of COVID fatigue. People aren't changing 0:17:22.160 --> 0:17:25.480 travel plans UM around the holidays, even in the face 0:17:25.560 --> 0:17:29.199 of this very contagious variant, and so I think with 0:17:29.359 --> 0:17:32.560 that we we are seeing the overall effects on the economy, 0:17:32.560 --> 0:17:36.400 whether it's growth UM and even to some extent defending 0:17:36.440 --> 0:17:40.520 patterns UM is diminishing. When do you see that playing 0:17:40.520 --> 0:17:44.040 out in the data, Sarah, So, I think we will 0:17:44.080 --> 0:17:46.439 probably see some of it in in the December data. 0:17:46.600 --> 0:17:48.760 So I think again see some of that. And when 0:17:48.800 --> 0:17:50.679 you we look at the inflation numbers, I think some 0:17:50.760 --> 0:17:54.399 weakness in areas like UM, like travel services picking picking 0:17:54.480 --> 0:17:57.920 up again UM. I think you'll also see in terms 0:17:58.280 --> 0:18:01.640 of of perhaps in the higher numbers some renewed weakness 0:18:01.680 --> 0:18:05.280 and things like leisure and hospitality, as as perhaps employers 0:18:05.320 --> 0:18:07.639 are or maybe bracing for a little bit of a 0:18:07.680 --> 0:18:10.080 gift back there. But I think it's probably really going 0:18:10.119 --> 0:18:12.919 to be more more present in some of the January 0:18:12.960 --> 0:18:15.880 and perhaps even even February data, So we won't get 0:18:15.960 --> 0:18:19.640 a full sense of the dent from Omicron until probably 0:18:20.240 --> 0:18:23.280 early in the first quarter, but it will likely be 0:18:23.560 --> 0:18:27.840 a dent rather than a major crash, right because I 0:18:27.920 --> 0:18:31.640 look at crude oil for example, still hovering around one 0:18:31.640 --> 0:18:35.159 month hie, it doesn't look like mr Market expects a 0:18:35.200 --> 0:18:39.400 real um ding in demand. Right. And again, I think 0:18:39.400 --> 0:18:42.240 we've seen that this this idea of fatigue and people 0:18:42.520 --> 0:18:45.080 have they feel like the tools to to carry on 0:18:45.160 --> 0:18:47.960 more with their lives than we did this time last year. 0:18:48.040 --> 0:18:50.240 I think suggests that we're not seeing that same degree 0:18:50.280 --> 0:18:53.399 of impact on on activity and to some extent that 0:18:53.480 --> 0:18:56.560 this wave is has the potential to be relatively short lived, 0:18:56.560 --> 0:18:59.080 given how contagiously seems to be a potential for it 0:18:59.119 --> 0:19:02.080 to burn through pretty pretty quickly. And so I think 0:19:02.119 --> 0:19:05.200 our our overall outlook for two is still very much 0:19:05.320 --> 0:19:07.919 on on track in terms of another year of above 0:19:08.280 --> 0:19:10.919 trend growth, even if we get off to a weaker 0:19:11.000 --> 0:19:13.720 start than than maybe envisioned only a month or so ago. 0:19:14.040 --> 0:19:16.200 But while we're talking about the kind of demand side 0:19:16.200 --> 0:19:19.360 and the consumer, obviously you don't necessarily see any risk 0:19:19.400 --> 0:19:22.000 to demand from Amicron. But on the inflation side of 0:19:22.040 --> 0:19:24.639 things as well. When we saw those personal income and 0:19:24.680 --> 0:19:27.359 spending numbers, this data come out last week, real spending 0:19:27.400 --> 0:19:29.960 when you adjust for inflation, was flat. Are we going 0:19:30.000 --> 0:19:32.600 to see a consumer moving forward that is less tolerant 0:19:32.920 --> 0:19:36.400 of higher prices and consumption going to start winding down 0:19:36.400 --> 0:19:39.480 as a result. So I think we are going to 0:19:39.480 --> 0:19:42.760 see greater pushback in terms of the inflation picture in 0:19:42.880 --> 0:19:48.840 the year ahead. So we've seen that over over consumers. 0:19:49.040 --> 0:19:51.720 You know, many businesses just largely price taker seement with 0:19:51.800 --> 0:19:54.879 that and see seemingly insatiable in the end. But I 0:19:54.920 --> 0:19:58.000 think that we are seeing demand. We're expecting demand growth 0:19:58.040 --> 0:20:01.160 to to moderate over the coming year, so still very strong. 0:20:01.560 --> 0:20:04.920 That you don't have as much fiscal support um at 0:20:05.600 --> 0:20:07.720 the backs of consumers, and so I think that does 0:20:07.840 --> 0:20:11.280 lead to more to more moderate growth. And again we've 0:20:11.280 --> 0:20:13.600 just seen these eye popping and inflation rates. I think 0:20:13.600 --> 0:20:17.800 people are um considering thinking twice about about certain purchases. 0:20:17.840 --> 0:20:20.200 And I think the businesses maybe won't quite have the 0:20:20.560 --> 0:20:23.960 same the same degree of pricing power, but I think 0:20:24.000 --> 0:20:27.240 they still have quite a bit. So uh underappreciated in 0:20:27.359 --> 0:20:30.520 all this the spending picture and the inflation picture is 0:20:30.560 --> 0:20:33.680 just how strong demand growth has been. So we're going 0:20:33.720 --> 0:20:37.159 to see that moderate but um but still very strong. 0:20:38.359 --> 0:20:40.960 I almost forgot that I was super excited about the 0:20:41.040 --> 0:20:46.480 Richmond Fed Manufacturing survey, because I I really am. I'm 0:20:46.560 --> 0:20:50.280 looking so excited you forgot. I'm looking at sarah UM, 0:20:50.400 --> 0:20:52.840 the supply chain. I'm trying to figure out when this 0:20:53.000 --> 0:20:55.720 is going to get rolling again, when UM companies are 0:20:55.760 --> 0:21:00.560 gonna start putting inventory back into stores back on dealer 0:21:00.680 --> 0:21:03.840 lot um. And the Richmond Fed survey was good at 0:21:03.840 --> 0:21:07.840 came at the headline number sixteen compared to twelve last month. Economists, 0:21:07.840 --> 0:21:10.400 we survey, we're only looking for thirteen shipments went from 0:21:10.480 --> 0:21:15.360 zero to twelve in a month. UM finished goods inventories 0:21:15.440 --> 0:21:18.600 went back up still to negative seven, but from negative 0:21:18.600 --> 0:21:21.920 twenty three. Does it look to you like these wheels 0:21:21.920 --> 0:21:25.600 are starting to turn again. It's a start, but we 0:21:25.680 --> 0:21:27.520 have a long way to go when we look at 0:21:27.520 --> 0:21:30.680 the inventory picture. So we have seen some positive signs 0:21:31.040 --> 0:21:35.000 UM coming from the Manufacturing Service uh in manufacturing surveys 0:21:35.000 --> 0:21:38.320 of the I s M in addition to the Richmond index. 0:21:38.600 --> 0:21:41.080 But if you look at the retail numbers, so go 0:21:41.200 --> 0:21:44.520 further down the pipeline, the retail inventory to sales numbers 0:21:44.560 --> 0:21:47.480 have have still just really made no headway from the 0:21:47.560 --> 0:21:50.080 outright collapse that we've seen over the past year. And 0:21:50.119 --> 0:21:52.200 so this is this is the start, but I think 0:21:52.200 --> 0:21:54.360 we're still going to be dealing with these supply issues 0:21:54.400 --> 0:21:57.200 for the better part of the upcoming years. There's there's 0:21:57.240 --> 0:22:00.200 a long way way to go in terms of rebuilding 0:22:00.240 --> 0:22:03.240 those inventories. And again, you still have pretty strong demand 0:22:03.400 --> 0:22:05.639 into your head, if not quite as rippling as what 0:22:05.720 --> 0:22:08.800 we saw well, and of course we know that the 0:22:08.800 --> 0:22:11.840 FED can't necessarily do anything about those supply side issues, Sarah, 0:22:11.880 --> 0:22:13.680 but the FED is going to try to do something 0:22:13.680 --> 0:22:16.359 eventually to rein in inflation. Why do you think the 0:22:16.400 --> 0:22:20.280 move isn't going to come until the second half. So 0:22:20.400 --> 0:22:23.000 in our last published forecast that was before we got 0:22:23.040 --> 0:22:25.920 the before we had the December FED meeting, I think 0:22:25.920 --> 0:22:28.040 what we learned from the December FED meeting is that 0:22:28.080 --> 0:22:31.000 their reaction functions maybe a little bit more aggressive than 0:22:31.040 --> 0:22:33.560 what we had anticipated. So I'd say the risks to 0:22:33.640 --> 0:22:38.040 our call are perhaps pulled forward um from UM where 0:22:38.080 --> 0:22:40.960 it might we might see a move perhaps as early 0:22:41.040 --> 0:22:44.119 as as the second quarter. But I think overall, um, 0:22:44.160 --> 0:22:46.560 you know to your point that there is some limitations 0:22:46.600 --> 0:22:49.439 and really where what the FED can do given the 0:22:50.280 --> 0:22:53.720 where a lot of these these inflation pressures are coming from. 0:22:53.720 --> 0:22:56.960 But they certainly can signal that they are attuned to 0:22:57.000 --> 0:23:00.000 these inflation risks, that they are in a better position 0:23:00.240 --> 0:23:02.800 to to tackle them if they should persist through the 0:23:02.840 --> 0:23:05.480 second half of the year, which we think they certainly will, 0:23:05.800 --> 0:23:08.440 and so that should get the FED moving more aggressively 0:23:08.880 --> 0:23:11.680 in the second half of the year two. It helps 0:23:11.760 --> 0:23:14.320 them that and signal that they are on top of 0:23:14.359 --> 0:23:18.199 this inflation quandary that's facing the economy. Sarah, this was 0:23:18.240 --> 0:23:20.359 too serious. The found a question from me, when is 0:23:20.359 --> 0:23:24.800 the Christmas tree come down? When? Yes day? You go 0:23:24.880 --> 0:23:27.320 on New Ys Day? Key? When do you? Yeah, maybe 0:23:27.520 --> 0:23:29.720 maybe a day or two after, given that it's it's 0:23:29.720 --> 0:23:32.800