Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jailey. 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. Let's get to
Speaker 1: russ Coastrick now Blanctrol Global Allocation, Fund Portfolio manage you Rust.
Speaker 1: Let's start right here. You've trimmed directly exposure just a
Speaker 1: little bit, walk me through the thinking gun into your
Speaker 1: end Well good more and Jonathan, so you know it's
Speaker 1: not it's not that complicated. I think our view is
Speaker 1: the stock market is gonna end your higher than it's today.
Speaker 1: But we are in a period where I think risk
Speaker 1: is a little high. End. One reason seasonality. I think
Speaker 1: people are well aware this is seasonally the toughest part
Speaker 1: of the year. Uh. Second, the uncertainty around the delta variant.
Speaker 1: And find something that that both you and least have
Speaker 1: been mentioning supply chain disruptions. Uh, this is this is
Speaker 1: a big issue. It's affecting the pace of growth, it's
Speaker 1: affecting prices. Uh, And it's something we're not used to.
Speaker 1: We're always used to talking about demand in the post
Speaker 1: GFC world, but at least in the near term, this
Speaker 1: is another factor the market's going to be dealing with.
Speaker 1: Having said all that, we think these are temporary issues
Speaker 1: and looking at six nine month stocks are higher than
Speaker 1: they are today. So where are you trimming rusts? We've
Speaker 1: been trimming a little bit of our cyclical exposure. One
Speaker 1: place we have been trimming are the financials. We were
Speaker 1: overweight financials earlier in the year. We've actually brought that
Speaker 1: down and part of that is the evolutionary thinking about
Speaker 1: rates up. Ourselves include have been surprised about how tame
Speaker 1: the long end of the US curve has been and
Speaker 1: what we do think we're gonna see some normalization yields,
Speaker 1: particularly in real yields. We're not likely to see the
Speaker 1: melt up that people were worried about earlier in the year.
Speaker 1: You know, if you look at bond market volut reality,
Speaker 1: it's been coming down and down and down. So here's
Speaker 1: what I'm struggling with. A lot of people are talking
Speaker 1: about this correction, the supposed correction that's supposed to happen
Speaker 1: that everybody wants to buy, and yet it seems like
Speaker 1: we've had trigger after trigger when it comes to disappointing
Speaker 1: data or signs that perhaps delta is slowing at the
Speaker 1: economic recovery in a meaningful way for more than just
Speaker 1: one quarter. What's the trigger at this point, given all
Speaker 1: of that is very well known, I think there are
Speaker 1: a couple of things, you know, one of which we
Speaker 1: haven't spoken about yet is Washington. Now. I don't think
Speaker 1: there's anything there that represents a long term issue. We're
Speaker 1: still getting fiscal support. We're getting obviously a lot of
Speaker 1: monetary support, but we are likely to get some headline
Speaker 1: risk as we get later into the month, as we
Speaker 1: get into October and Congress wrestles with not only that
Speaker 1: the budget package and the reconciliation package, but also in
Speaker 1: the dead ceiling. Now. Again, to be clear, this will
Speaker 1: ultimately get resolved, but we are likely to see more
Speaker 1: headline risk than we've been used to in recent years.
Speaker 1: Russ I look at where we are now on the
Speaker 1: optionality forward is you know, everybody's with their narratives. You've
Speaker 1: got a narrative. I know, it's radically different than Jeff
Speaker 1: Rosenberg's narrative narrative narrative narrative as well? How do you
Speaker 1: manage in the multiple sets of narratives that are out
Speaker 1: there right now? And Tom, I think this is the
Speaker 1: ultimate question. You know, you have to start with the baseline.
Speaker 1: What is what is it you expect to the market.
Speaker 1: Our baseline, I think it's pretty straightforward. Yes, the economy
Speaker 1: is decelerating, but we expect better than trend m G
Speaker 1: d P. We do expect inflation is going to be transitory,
Speaker 1: contain yields in that environment with tremendous cash flow generation.
Speaker 1: We are still very long equities, even though we have
Speaker 1: been trimming. We want some cyclical exposure. We want to
Speaker 1: pair that with the secular growth areas that we expect
Speaker 1: to work for year after year. We're less enamored with
Speaker 1: duration as a hedge, and instead we look at other strategies,
Speaker 1: whether that's been long the dollar, whether it's using volatilities
Speaker 1: and asset class and then you manage from there. You
Speaker 1: manage his unexpected events change narrative. But that's our baseline
Speaker 1: right now. How do you manage maybe it so if
Speaker 1: you're remit, I don't think so. How do you manage commodities,
Speaker 1: John Ferroll mentioning Francisco Blant at Bank of America with
Speaker 1: a hundred dollar oil, how do you manage commodities out
Speaker 1: one year out, two years out, four years to win well?
Speaker 1: I think it depends on the commodity. We actually do
Speaker 1: think that oil prices are going to remain firm and
Speaker 1: in their term, and we've been having some tactical positions
Speaker 1: to take advantage of that. In the equity market, other
Speaker 1: commodities were less sanguent on. You know one place where
Speaker 1: there has been a big change in our portfolio as gold. Uh,
Speaker 1: fourteen months ago, we had a fairly significant position in gold.
Speaker 1: Today we've reduced it to almost zero. Why is that Well,
Speaker 1: because we primarily think of gold as a hedge against
Speaker 1: equity risk, and that works when you've got an environment
Speaker 1: when real rates are flatter declining. If part of our
Speaker 1: view is at real rates normalize a bit, that particular
Speaker 1: commodity is unlikely to work as well as it did
Speaker 1: in the middle of two thousand and twenty. That's really interesting.
Speaker 1: A hedge against equity risk but not inflation. Pers say,
Speaker 1: why is that Russ. Yeah, I think this is a
Speaker 1: very important point. Your gold is often spoken about as
Speaker 1: an inflation hedge. I don't think that's wrong, but you
Speaker 1: have to look at very long horizons measured in decades,
Speaker 1: you know, well beyond the investment horizon, and most fund managers,
Speaker 1: if you're thinking about the near term, there are probably
Speaker 1: better hedges against inflation of the equity market. And rather
Speaker 1: than all own an asset that doesn't produce any cash flow,
Speaker 1: we would rather hedge some of the near term upside
Speaker 1: and inflation with stocks that have pricing power in the
Speaker 1: material sector, in the industrial sector, in the consumer sector,
Speaker 1: companies that can raise prices as input costs also rise.
Speaker 1: Russ really good final point. Fantastic to get your thoughts
Speaker 1: on your portfolio right now. Russ Coastrick that blank Rock
Speaker 1: Global Allocation Fund portfolio manager. Seriously, up the Mississippi River,
Speaker 1: up the Ohio River. And this isn't the romance of
Speaker 1: Near America. This is the next part of this pandemic.
Speaker 1: Jennifer Neuso joins from Johns Hopkins Center for Health Security.
Speaker 1: I'm looking at the heat map in the New York Times, Jennifer,
Speaker 1: and I'm sorry, this thing is my great and north
Speaker 1: up to Mississippi, up the Ohio. Is it going to
Speaker 1: migrate to the northeast, this new agony of nineteen deaths
Speaker 1: right now a day? Yeah, I mean, I don't think
Speaker 1: anybody should get complacent. And certainly as we had indoors,
Speaker 1: because the weather is getting cooler, that raises the possibility
Speaker 1: that we could see search of cases and places that
Speaker 1: you hadn't seen it in the previous weeks. That said,
Speaker 1: I'm much less worried about the Northeast compared to the southeast,
Speaker 1: which has really been hammered by this virus because of
Speaker 1: the higher vaxination coverage. I'm confused over boosters. John's confused,
Speaker 1: Lise is confused. We're all confused. The only thing I
Speaker 1: know for certain I used to dread going to the
Speaker 1: doctor to get whatever the booster was because it always
Speaker 1: hurt more. Is the booster gonna hurt more? I don't
Speaker 1: think so. My second shot didn't feel like anything. But
Speaker 1: if you're confused, you're not alone. I think a lot
Speaker 1: of America is a part because we haven't had the
Speaker 1: scientific community come together and formally evaluate the That's going
Speaker 1: to happen on Friday UM with the FDA Advisory Committee.
Speaker 1: We'll see what they say, UM, my guess is that
Speaker 1: you know, there's clearly a case for third shots from
Speaker 1: you know, compromise that's already happening. Um, there might be
Speaker 1: some evidence for people over the age of six five. Um,
Speaker 1: but I am not yet convinced that anybody else needs
Speaker 1: it at this time. Dr needs. I love that Tom
Speaker 1: asks the real questions of is it gonna hurt? Do
Speaker 1: I need a lollipop? And that's right the question, Yeah,
Speaker 1: exactly all the uh answering from our kids. So we
Speaker 1: talk about boosters, who do we listen to? Can we
Speaker 1: trust visor that came out yesterday and made this big
Speaker 1: presentation on how important boosters are and how your immunity
Speaker 1: wanes after the initial two doses. I think you can
Speaker 1: trust the FDA Committee and the Advisory Committee Immunization Practices
Speaker 1: will meet next week. Uh. You know, these are scientists
Speaker 1: or beyond reproach. They'll be tearing into the actual data
Speaker 1: and looking at it and making their judgments and whatever
Speaker 1: they recommend. I think, Um, you know, I think it's
Speaker 1: likely to be some some consensus around that. Meanwhile, overnight
Speaker 1: we got some news that China has vaccinated more than
Speaker 1: a billion of its residents of its citizens. How important
Speaker 1: is that given some of the efficacy of that vaccination
Speaker 1: and what we know about that. Yeah, I mean it
Speaker 1: is important. You know, every vaccine in an arm is
Speaker 1: a serious illness um averted. And although um, the vaccines
Speaker 1: being used to China has probably less protections than others. Um,
Speaker 1: you know, it's still fairly good at keeping people out
Speaker 1: of the hospital. And you know that remains my top
Speaker 1: line goal for vaccines. That said, UM, you know, I
Speaker 1: think China and other countries are potentially going to be
Speaker 1: looking um you know, for additional doses in the future. Um,
Speaker 1: but my overarching priority is we need as a globe
Speaker 1: to make sure we get first and second doses into
Speaker 1: arms before we even think about the third doses. Jennifer
Speaker 1: A question off the remit. Peter Hotez is all fired
Speaker 1: up that we've succeeded in mRNA for which rich wealthy nations,
Speaker 1: but we need to figure out a COVID kill or
Speaker 1: for poor nations Africa, India, you name, the rest is Well,
Speaker 1: from where you sit in your research, how are we
Speaker 1: how close are we to a successful non fancy vaccine
Speaker 1: for the rest of the world. Well, I reject that
Speaker 1: our m RNA vaccines are not appropriate for the rest
Speaker 1: of the world. UM. You know, there they are potentially
Speaker 1: being used. I think some people worry about the cold temperatures.
Speaker 1: I think we're learning better about the stability of these
Speaker 1: vaccines at different temperatures. And also, um, you know, Africa
Speaker 1: has proven its ability to um maintain a cold chain. UM.
Speaker 1: So we first of all need to start doing more
Speaker 1: with the vaccines. We have to improve access. That said,
Speaker 1: I think there are other vaccine candidates on the horizon
Speaker 1: that will add to it. I mean, we just simply
Speaker 1: need more vaccines than we have right now, so I'll
Speaker 1: take them all absolutely. I look, Jennifer, where we alre
Speaker 1: And again it's about the booster. When am I going
Speaker 1: to get a booster? Is a booster upon us? Well,
Speaker 1: you know, my guest, and this is just reading. What
Speaker 1: he leaves here is that if the FDA Committee UM
Speaker 1: endorses anything, it maybe boosters over the age of sixty five,
Speaker 1: which clearly isn't you Tom, But you know, I think
Speaker 1: that might be the next that might be the next offering. UM.
Speaker 1: And you know, we'll see. I know the President is
Speaker 1: eager to push these, but really we need to let
Speaker 1: the scientists evaluate the data and again not distract from
Speaker 1: our top line mission, which is to get first and
Speaker 1: second vaccines into arms. Jen thank you got to leave
Speaker 1: you the dr Jennifer now so that John's helping center
Speaker 1: the half security Sitia Scota, this is really important discussion.
Speaker 1: Thomas Costs joined us with pick Day right now pick
Speaker 1: Day wealth Management, and Thomas, you got buried in your
Speaker 1: note a really really, really important sentence. You ignore consumer surveys.
Speaker 1: Why I do? And I think it was the right
Speaker 1: thing to do because we've seen retail sales data that
Speaker 1: actually the U. S consumer is fine, and I actually
Speaker 1: look at credit card data and I see that, you know,
Speaker 1: US consumer is fine, is happy to go and spend
Speaker 1: and take more credits. So I'm a bit yeah, a bit,
Speaker 1: a bit more um, you know, dismissive of recent consumers surveys.
Speaker 1: I think there may be affected by the end of
Speaker 1: the jobless benefits, but otherwise I think the US consumer
Speaker 1: is fine, and I think we have some data today
Speaker 1: showing that, yeah, the U. S consumer is fine and
Speaker 1: can withstand so many headwinds like Delta, like the end
Speaker 1: of of Chewy and so on and so forth. It's
Speaker 1: a tiny number. It's a strong be hesitant to move
Speaker 1: on from retail sales too quickly. But almost just your
Speaker 1: view on the business surveys we get from the regional Feds.
Speaker 1: We have the Empire Manufacturing survey earlier this week that
Speaker 1: was really nice to the Philly fed busines. Sound look
Speaker 1: right now, that's a big upside surprise. This is for September.
Speaker 1: What's the early September day to telling you, Thomas, Well,
Speaker 1: if you look at the n f I B survey,
Speaker 1: the Empire survey, I think they are actually much better
Speaker 1: than expected. So um, you know, the the order books
Speaker 1: are actually looking fine. Um, maybe actually too fine, because
Speaker 1: the risk maybe in two is that we have so
Speaker 1: many orders that actually there's a risk of having some
Speaker 1: fake orders as companies in order too much and maybe
Speaker 1: the cancel orders down the line. But I think so
Speaker 1: far we're still in the early phase of this, you know,
Speaker 1: accelerating business cycle. And yeah, things are fine, they're are.
Speaker 1: There are some bottlenecks, I must say, some bottlenecks affecting cars,
Speaker 1: for instance, but they are very niche products. Otherwise, the U.
Speaker 1: S consumer is fine. US manufacturing chains are okay. More
Speaker 1: or less. You know, you know, given the supply chain bottlenecks,
Speaker 1: but otherwise the order books look fine. So I'm actually
Speaker 1: quite positive on US growth, especially the fourth exam positivity.
Speaker 1: Then and push it over to the twenty two the
Speaker 1: FED decision. How does this so fold in to them? Well,
Speaker 1: so the FED as already well telegraphed that you know,
Speaker 1: they intend to taper before the end of the year.
Speaker 1: I think they won't do it next week because well,
Speaker 1: first of all, I think Gerald Powell does not want
Speaker 1: to to rock the boat. You know, we're seeking renominations,
Speaker 1: so it doesn't want to rock the boat and move
Speaker 1: financial markets too much. Um, so he's going to probably
Speaker 1: wait until November. But otherwise I think, yeah, the pressure
Speaker 1: is there too for them to to taper. We've given this,
Speaker 1: you know, strong data and also ongoing strong inflation. I
Speaker 1: think the regional FED presidents are going to uh, you know,
Speaker 1: to to want to push towards you know, firmers schedule
Speaker 1: on tapering and maybe actually they're going to put hockey
Speaker 1: Is dots in there. Thomas, are you saying that even
Speaker 1: if the data supports the idea of tapering the bond
Speaker 1: purchases earlier that FED chair j Powell would not do
Speaker 1: so in order to curry favor politically. Well, what I'm
Speaker 1: going to say is that the it is like a
Speaker 1: supertanker and you don't change directions so quickly. So, um,
Speaker 1: you know, they have indicated they want to do it
Speaker 1: before year, and I think they are going to stick
Speaker 1: to that view. And I don't see any sign of
Speaker 1: rush coming from Jeral Powell. So yeah, I think he's
Speaker 1: going to indicate that it's coming soon, but I think
Speaker 1: he's they are unlikely to do it, uh next thing,
Speaker 1: as we have some deadlines in DC as well. That's
Speaker 1: that's interesting. It's not the only ones saying it, I know,
Speaker 1: but it's interesting to me. And the whole idea is
Speaker 1: you know, to me frankly, John, you know, is the
Speaker 1: data actually backing a taper that they're not going to
Speaker 1: do because of other motivations. Some some people are asking
Speaker 1: that question. Yeah, there, you know, I think it's out there.
Speaker 1: It's part of the mix of the day and the
Speaker 1: huge variance we see her in opinions. Time constr The
Speaker 1: last time I fell off my seat before today was
Speaker 1: it the Zurich McDonald's When I figured out this is
Speaker 1: right down from Bono Strauss Or pict has their wonderful
Speaker 1: office over the price of you know, cheeseburger and Zurich.
Speaker 1: This morning, I fell off my chair because you're talking
Speaker 1: about a Voker moment. You gotta be kidding me that
Speaker 1: we're gonna see a Voker moment at a three or
Speaker 1: four percent inflation rate. Really well, I'm highlighting this as
Speaker 1: a risk because I think the baseline is that the
Speaker 1: FED will ignore high inflation. And when I say high inflation,
Speaker 1: it's two to three percent inflation. However, the problem may
Speaker 1: come if inflation comes at four percent next year. I mean,
Speaker 1: it's quite unlikely, but it's not impossible, right, Thomas Costa,
Speaker 1: Thank you, sir, from PI Tech Wealth Management senior economists
Speaker 1: down there. We've got some good Xeric stories that I'll
Speaker 1: share one day. This is a joy for Lisa Bramwin
Speaker 1: to myself right now, it's Nudge. The final addition, it
Speaker 1: gets thicker on radio. I'm showing the thickness here on TV.
Speaker 1: Cass Sunstein did not want to do this, but Richard
Speaker 1: Taylor said we gotta do it. Cast cast Sunstein, Richards
Speaker 1: Tailor Nudge. We're thrilled to bring this to you, right
Speaker 1: now with a laureate from Chicago, Richard, I want to
Speaker 1: take nudge and your work over to this crazy baseball season.
Speaker 1: Your Cubs are in total disarray. The San Francisco Giants
Speaker 1: are ascendant now. And the gentleman that has driven forward
Speaker 1: the San Francisco Giants experiment is a Berkeley Saylor. Right,
Speaker 1: tell us how the nudge in the behavioral economics folds
Speaker 1: into the success of the San Francisco Giants. Well, you know,
Speaker 1: Moneyball really is a book about the real economics. And uh,
Speaker 1: when cass and I wrote a review of Moneyball, and
Speaker 1: that's when I first met Michael Lewis, and it was
Speaker 1: an epiphany for him that the stuff he had been
Speaker 1: writing about the Moneyball there with this whole academic field
Speaker 1: about taking advantage of other people's biases. And that's what
Speaker 1: led to Michael's book, The Undoing Project. So, uh, this
Speaker 1: makes total sense. Um and barn could have been a
Speaker 1: very good behavioral economist. Berkeley is one of the top
Speaker 1: two or three departments in that area. And you know
Speaker 1: his mother was disappointed he went into baseball and not
Speaker 1: in the economics, professor saying let's go to the biases
Speaker 1: and blunders of your informative must read book Nudge Great,
Speaker 1: what are the biases and blunders of COVID in your update? Well,
Speaker 1: I must say we don't dwell on COVID. We were
Speaker 1: writing in the midst of COVID and as you as
Speaker 1: we all have learned, it changes every month, so there
Speaker 1: are passing references. The publisher wants said, why don't you
Speaker 1: add a chapter on COVID, And we knew it would
Speaker 1: be out of date the book the minute the book
Speaker 1: came out, so, um, we talked about it off and on.
Speaker 1: I think right now the key thing that we're dealing
Speaker 1: with is how do we get people vaccinated? And is
Speaker 1: is nudging enough? And if not, what else do we need?
Speaker 1: And and my conclusion is that, um, we we've now
Speaker 1: reached the point where there are so many people with
Speaker 1: very strong, ill informed opinions that stronger measures are necessary. Richard,
Speaker 1: I gotta say I thought it was kind of funny
Speaker 1: that you called it the final addition, so you never
Speaker 1: would be tempted to write this or rewrite this again,
Speaker 1: and that you thought, well, it is COVID after all,
Speaker 1: so it's what else you're gonna do? Why not rewrite
Speaker 1: this bestseller? And pre eminent book in the behavioral economics field.
Speaker 1: What though, was the biggest change in how you viewed
Speaker 1: the way we make decisions from the first addition to
Speaker 1: this final addition. Well, a lot of it was just
Speaker 1: getting rid of anachronisms. We had a whole chapter devoted
Speaker 1: to a very clever solution to the same sex marriage
Speaker 1: problem that UM just legalizing it was even better. So
Speaker 1: I think one of the things we stress in the
Speaker 1: new addition, which is probably two thirds new, is that
Speaker 1: exactly this point that sometimes nudging is not enough. And
Speaker 1: there's an entire chapter on climate change where we start
Speaker 1: with saying what we need is a carbon tax or
Speaker 1: cap and trade. I am with every economist in the
Speaker 1: world on this. If we don't get the prices right,
Speaker 1: we're never going to get anywhere. I think it's ridiculous
Speaker 1: that the the bill that's going through Congress now has
Speaker 1: no carbon tax or anything resembling that we're gonna pay
Speaker 1: for trillion dollars and not tax something that UM is
Speaker 1: killing the world. Is shocking to me. Richard, you said
Speaker 1: that sometimes nudging is not enough is the answer, and
Speaker 1: economic one basically causing prices to go up dramatically or
Speaker 1: is it just a legal one. Well, you know, a
Speaker 1: basic principle of economics is that it's more efficient to
Speaker 1: drive behavior through pricing. And this is especially true for
Speaker 1: climate change because so many of the decisions are being
Speaker 1: made at the industrial level. How we generate power, how
Speaker 1: we manufacture what we manufacture, how do we transport things
Speaker 1: around the world. These are all business decisions, and businesses
Speaker 1: react if the price of fuel triples. Well, you know,
Speaker 1: we do. We want our grandchildren to be able to
Speaker 1: live in a comfortable world or not if if we do,
Speaker 1: we're gonna have to suck it up. Sweden has proved
Speaker 1: that it's possible hundred and twenty dollars per ton, and
Speaker 1: their economy is thriving. We can do it. We would
Speaker 1: love to continue this conversation, but we run out of time,
Speaker 1: and I greatly we get that. I've got about another
Speaker 1: hour of questions for Richard Thaylor. He is at Blue School, Chicago,
Speaker 1: the laureate, a Cubs fan. He's in therapy for that
Speaker 1: right now. And also the book with the wonderful cast
Speaker 1: Sunstain Nudge. The final addition, Taylor and Sunstein look for
Speaker 1: that now. This is the Bloomberg Surveillance Podcast. Thanks for listening.
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Speaker 1: the terminal. I'm Tom keene In. This is Bloomberg