WEBVTT - Surveillance: U.S. CPI With Furman 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferroll and Lisa Brownwitz Jailey. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.800 and of course, on the Bloomberg terminal. Right now, an 0:00:30.840 --> 0:00:34.479 extensive conversation with Jason Furman of Harvard University and of 0:00:34.560 --> 0:00:37.280 courses public Service to the Nation with the Council of 0:00:37.320 --> 0:00:41.200 Economic Advisors. Jackson. Wonderful to have you with us at 0:00:41.200 --> 0:00:44.400 this moment. You're gonna tell me as a public policy 0:00:45.120 --> 0:00:47.320 type that we need to see more data that we 0:00:47.360 --> 0:00:50.519 need to see two or three months data. Does President 0:00:50.640 --> 0:00:53.800 Biden and others wait for that data or must they 0:00:53.880 --> 0:00:57.680 adjust to this report? Ok? I think the main people 0:00:57.720 --> 0:01:00.760 who need to adjust to this report, adjust to the 0:01:00.880 --> 0:01:05.080 job's report we got last year is the federal Reserve. 0:01:05.880 --> 0:01:09.400 The other part of it is looking at what we 0:01:09.480 --> 0:01:12.480 can do in our economy to address the biggest thing 0:01:12.520 --> 0:01:16.080 we have, which is a constraint on supply. We need 0:01:16.160 --> 0:01:19.720 more supply. Shots and arms are doing a lot. My 0:01:19.840 --> 0:01:21.880 guess is there's a lot more people are working in 0:01:21.959 --> 0:01:25.840 May than in April. But when you take this plus 0:01:25.880 --> 0:01:29.759 the jobs report on Friday, plus the totality of the data, 0:01:30.000 --> 0:01:31.920 I think we have a very different picture of the 0:01:31.920 --> 0:01:35.000 economy right now than a lot of people held a 0:01:35.080 --> 0:01:38.319 week ago. It's a different picture of the economy. Vice 0:01:38.400 --> 0:01:41.920 Chairman Clarata will speak here and I believe twenty four minutes. 0:01:42.600 --> 0:01:45.600 Does he adjust Is there one word or one sentence 0:01:45.640 --> 0:01:49.520 that will begin a tone of a Federal Reserve shifting 0:01:49.760 --> 0:01:53.600 their language. I don't know. I mean, they're very big 0:01:53.640 --> 0:01:56.960 on this being transitory. A lot of this is transitory. 0:01:57.000 --> 0:01:59.920 We saw a ten percent increase in the youth call 0:02:00.120 --> 0:02:02.960 is in trucks market in April. Okay, but Jason, Jason, 0:02:02.960 --> 0:02:04.800 I don't want to interrupt you, but I'm looking at 0:02:04.880 --> 0:02:09.360 rentals in New York City that are not transitory. Is 0:02:09.400 --> 0:02:14.560 Michael McKee just mentioned higher rents are real not transitory. Oh? 0:02:14.639 --> 0:02:17.400 I agree. I was gonna say, you are going to 0:02:17.480 --> 0:02:20.480 be able to point to things that are transitory. I 0:02:20.520 --> 0:02:22.640 think your best guest has to be that this isn't 0:02:22.800 --> 0:02:26.800 entirely transitory. The FED and others have rested a lot 0:02:26.919 --> 0:02:31.800 on inflation expectations being anchored this is the type of 0:02:31.880 --> 0:02:35.840 thing that's going to start to move those inflation expectations. 0:02:35.880 --> 0:02:38.560 So yes, I think the problem is you can point 0:02:38.560 --> 0:02:42.120 to all sorts of chransitory things, strip all of those out, 0:02:42.639 --> 0:02:45.160 add in what we know about how much demand we 0:02:45.240 --> 0:02:49.520 have in our economy, how little supply we still have. Uh, 0:02:49.120 --> 0:02:51.720 you know, I think this this there's some caution and 0:02:51.840 --> 0:02:54.639 should change the way people are thinking about the economy. Jason, 0:02:54.680 --> 0:02:56.400 what do you think that means for the relief package 0:02:56.440 --> 0:02:59.200 we passed just a couple of months ago, when Larry 0:02:59.200 --> 0:03:02.640 summer Is another court including Olivia Blanchard, came out and 0:03:02.639 --> 0:03:04.400 said it was too big for the moment we're in. 0:03:04.840 --> 0:03:07.520 Do you think this is evidence of that? But it 0:03:07.560 --> 0:03:09.120 was definitely too big for the moment. I don't know 0:03:09.120 --> 0:03:12.680 any economist that was recommending something the size that what 0:03:12.840 --> 0:03:16.920 was done. Um, the question is how big the downside was. 0:03:17.880 --> 0:03:20.840 I wouldn't leak to a judgment yet on the basis 0:03:20.840 --> 0:03:23.919 of April. This is one month's data. The data are 0:03:23.960 --> 0:03:28.160 obviously extremely noisy. We knew as the economy reopened there 0:03:28.200 --> 0:03:32.239 would be all sorts of patches along the way, rough 0:03:32.280 --> 0:03:35.920 patches along the way. But you know, I think there's 0:03:36.000 --> 0:03:38.880 a you know, a certain amount to that logic, and 0:03:39.480 --> 0:03:41.000 let's try to do what we can to make it 0:03:41.040 --> 0:03:44.120 not true. How do we make Larry's prediction not true? 0:03:44.720 --> 0:03:48.320 We increased labor supply and the FED is a little 0:03:48.320 --> 0:03:52.440 bit more cautious to help keep inflation inflation anchored. Jason, 0:03:52.440 --> 0:03:54.400 can I get your thoughts then on what happened on 0:03:54.400 --> 0:03:56.960 Friday when we saw that big miss, and we talked 0:03:56.960 --> 0:04:00.440 about the supply side story and the mismatch between demand 0:04:00.440 --> 0:04:03.240 a supply, and the maybe prices would need to adjust. 0:04:03.960 --> 0:04:06.160 Arguably is view pointed out. We saw that in wages 0:04:06.200 --> 0:04:07.800 already and we could see that a whole lot more 0:04:07.840 --> 0:04:11.120 in months to come. Some governors of Republican states have 0:04:11.240 --> 0:04:13.960 decided that they need to remove the additional UI, the 0:04:14.040 --> 0:04:16.360 unemployment insurance that was offered by the federal government and 0:04:16.360 --> 0:04:18.800 the package that was delivered recently. Do you think that's 0:04:18.839 --> 0:04:22.320 the right decision to fill that gap? Yeah, So the 0:04:22.400 --> 0:04:26.080 big miss on Friday was wages. The expectation for wages 0:04:26.160 --> 0:04:30.000 was zero point zero percent. The actual number was zero 0:04:30.120 --> 0:04:34.640 point seven percent. Even that actual number understated what actually 0:04:34.720 --> 0:04:37.480 happened because of composition effects that the real number is 0:04:37.520 --> 0:04:41.360 probably more like zero point nine percent UM. Either way, 0:04:41.520 --> 0:04:44.479 that's the fastest wage growth we've had since the nineteen eighties. 0:04:44.520 --> 0:04:47.960 So you're not looking at you know, one isolated data 0:04:48.040 --> 0:04:52.080 point around used truck. This is everywhere around us. If 0:04:52.160 --> 0:04:54.039 I were in a state with a three point five 0:04:54.120 --> 0:04:59.160 percent unemployment rate, I'd be thinking seriously about whether UM 0:04:59.520 --> 0:05:03.040 paying bulmore to not work than to work was a 0:05:03.120 --> 0:05:08.960 good thing to continue doing. Jason lost for words that 0:05:09.240 --> 0:05:13.799 even agreement with Republican governors. Then in places like corkinsil Iowa, Montana, 0:05:14.040 --> 0:05:17.200 South Carolina, you know, it depends on where you are 0:05:17.600 --> 0:05:20.200 in the virus. It depends on where you are in 0:05:20.320 --> 0:05:25.960 your unemployment rate. But by certainly by June July August 0:05:26.040 --> 0:05:28.880 of this year, I don't think we need the same 0:05:29.000 --> 0:05:32.240 UI system we had in January. In January it made 0:05:32.279 --> 0:05:35.720 sense three thousand people were dying a day. We did. 0:05:35.839 --> 0:05:37.880 We wanted to give people an option other than work 0:05:37.960 --> 0:05:41.080 and support them in that option. UM in an increasingly 0:05:41.160 --> 0:05:44.720 hot labor market for a lot of states, it may 0:05:44.800 --> 0:05:46.720 not make sense. It may not make sense in the 0:05:46.800 --> 0:05:49.000 same way. So I think they should be taking a 0:05:49.040 --> 0:05:52.200 hard look at it. Dr frem and I just did 0:05:52.279 --> 0:05:54.600 a study here. Thank you John for extending that out 0:05:54.600 --> 0:05:57.840 because I was working the Bloomberg terminal, Jason, I did 0:05:57.920 --> 0:06:02.279 a standard deviation study on a monthly basis. Of course 0:06:02.360 --> 0:06:06.080 cp I back to the time of Paul Boker, maybe 0:06:06.360 --> 0:06:11.159 around I can find a jump condition in course cp 0:06:11.400 --> 0:06:16.200 I like we see now we do interview after interview 0:06:16.520 --> 0:06:20.120 or experts like you say, it's about the jump that 0:06:20.279 --> 0:06:23.680 we see an inflation. Right now, we're seeing a jump 0:06:23.800 --> 0:06:27.800 that I would suggest is near original. How do should 0:06:27.839 --> 0:06:33.440 we respond to that? Yeah, I mean the economy is 0:06:33.440 --> 0:06:38.400 gonna do weird things. We saw a collapse that was um, 0:06:39.240 --> 0:06:43.200 you know, historic last year in prices. We're seeing. Some 0:06:43.400 --> 0:06:45.600 of what we're seeing now is the unwinding of that. 0:06:46.200 --> 0:06:48.719 Some of what we're seeing is different sectors come back 0:06:48.880 --> 0:06:52.440 at different paces. So I wouldn't leap all the way 0:06:52.520 --> 0:06:55.120 to where, you know, we're not worried about inflation now, 0:06:55.160 --> 0:06:57.719 we're worried about hyper inflation. It's going to be zero 0:06:57.800 --> 0:07:02.320 point nine every month from now one. But what I'm 0:07:02.320 --> 0:07:06.280 saying it's just a recalibration of views. Discount the data 0:07:06.360 --> 0:07:09.640 a lot because of the weirdness. Don't discount the data 0:07:10.080 --> 0:07:12.800 all the way. You should update your views. How do 0:07:12.880 --> 0:07:15.040 you think that meeting in the White House changes later 0:07:15.440 --> 0:07:17.559 between the Big Four and the President of the United 0:07:17.600 --> 0:07:20.240 States with this inflation data this morning. Now every single 0:07:20.280 --> 0:07:22.640 market participant, every economist will come on the show today 0:07:22.680 --> 0:07:24.680 and talk about it only being one data point. But 0:07:24.840 --> 0:07:27.440 that's the data point. I imagine that the Republicans will 0:07:27.440 --> 0:07:29.760 be talking about all day going into that meeting in 0:07:29.760 --> 0:07:31.560 the White House. Lank, Yeah, the meeting is there, and 0:07:31.640 --> 0:07:34.640 that's a political discussion. It will be emotional like Gasolene 0:07:34.680 --> 0:07:36.960 and all that. I'm way more interested in people like 0:07:37.160 --> 0:07:39.880 Jason Furman, and I would go to the Vice chairman 0:07:40.160 --> 0:07:43.120 where particularly if he does Q and A, John, that 0:07:43.200 --> 0:07:45.280 will be fascinating. We get the Q and A in 0:07:45.320 --> 0:07:47.920 about fifteen minutes today, Jason, just to find a one 0:07:47.960 --> 0:07:50.040 from me before I have to run your view on that. 0:07:50.160 --> 0:07:52.360 How the Federal Reserve will talk about this when we 0:07:52.440 --> 0:07:54.120 hear from the Vice chair in about fifteen minutes. What 0:07:54.160 --> 0:07:56.160 would you anticipate What do you expect them to say 0:07:56.560 --> 0:07:58.200 in the coming weeks off the back of this data. 0:08:00.120 --> 0:08:02.400 I would expect them to make very little in the 0:08:02.480 --> 0:08:05.880 way of adjustment. I would expect them to emphasize this 0:08:06.080 --> 0:08:09.720 is transitory. Some of the quirkish parts of this, like 0:08:10.200 --> 0:08:13.400 um use cars and the like. I'd love to see 0:08:13.440 --> 0:08:19.000 them Tilton notch towards concern about inflation, but I think 0:08:19.040 --> 0:08:21.680 they'll mostly I'll be doing more to explain this away 0:08:22.160 --> 0:08:25.960 than to express any concerns about it. Jason Furman, let's 0:08:25.960 --> 0:08:27.840 do a little bit of a history lesson of the 0:08:27.920 --> 0:08:31.679 shock here, and I went back to Neil Dutta talks 0:08:31.720 --> 0:08:34.880 about the biggest one month game since June of two 0:08:35.000 --> 0:08:38.600 thousand nine. Dr Furman take us back to the sixties, 0:08:38.679 --> 0:08:42.319 and Robert Samuelson at the Washington Post has written about 0:08:42.400 --> 0:08:46.040 this the time of Walter Heller. What did they do 0:08:46.160 --> 0:08:50.120 in the sixties about the inflation shock and trude should 0:08:50.160 --> 0:08:52.800 we use that as a template. First of all, they 0:08:52.880 --> 0:08:57.160 did a lot of emphasizing one time factors and micro stories. 0:08:57.360 --> 0:08:59.800 You know, there's this segment is doing this, that's a 0:09:00.080 --> 0:09:04.280 mint is doing that, um and they missed the bigger 0:09:04.320 --> 0:09:09.160 macro forces what was going on with fiscal and monetary policy. 0:09:09.280 --> 0:09:12.719 So number one is, look at the macro, don't do 0:09:13.240 --> 0:09:16.160 each try to explain away each one of them micro 0:09:16.679 --> 0:09:18.560 um lesson to that which I think is a good 0:09:18.640 --> 0:09:21.400 one for us. It took years and years and years 0:09:21.480 --> 0:09:24.080 of a policy change to get us to the place 0:09:24.200 --> 0:09:27.120 we were at in the late sixties. We've just been 0:09:27.200 --> 0:09:30.200 through a freakish pandemic. We've just been through a highly 0:09:30.280 --> 0:09:34.800 unusual period of policy. I don't expect policy uh too. 0:09:35.040 --> 0:09:37.160 I don't think there's been a huge regime change. I 0:09:37.200 --> 0:09:40.280 think we'll go back to the old regime and this 0:09:40.600 --> 0:09:44.040 should hopefully all stay under control as a result. But 0:09:44.080 --> 0:09:45.880 we do need to get back to a little bit 0:09:45.920 --> 0:09:47.800 more of the old regime for that to work. We 0:09:47.920 --> 0:09:50.400 certainly heard that from young Hotzi yes yesterday, folks of 0:09:50.480 --> 0:09:53.640 Goldman Sex. Then I look at what wages will do, 0:09:53.840 --> 0:09:57.520 and there's a phrase from ancient history, Jason Furman, a 0:09:57.679 --> 0:10:02.560 cost push inflation. I don't observe that anywhere. Am I wrong? 0:10:02.679 --> 0:10:06.360 Are we gonna redux the sixties and seventies, I should say, 0:10:06.679 --> 0:10:10.199 and cost push inflation? Where we have to whip inflation now? 0:10:11.800 --> 0:10:15.240 I mean we just seven in April, wages were up 0:10:15.640 --> 0:10:19.079 by about zero point seven zero point nine, depending on 0:10:19.120 --> 0:10:22.440 how you look at the number. Prices were up by 0:10:22.640 --> 0:10:26.559 that same amount. You know. Again, I mean, we obviously 0:10:26.679 --> 0:10:31.040 don't want to read too much into any one data point. 0:10:31.440 --> 0:10:35.560 But unless people start heading back to work in bigger numbers, 0:10:36.240 --> 0:10:40.000 we're gonna have concerns now that should happen, should happen 0:10:40.080 --> 0:10:47.040 no later than September when unemployment insurance expires, but you 0:10:47.120 --> 0:10:50.640 know it needs to happen. Jason Furman, thank you so much, 0:10:50.679 --> 0:10:54.760 greatly appreciate it. With Harvard University, UNI, course of Peterson Institute, 0:11:00.480 --> 0:11:02.719 we're all Marcus, Marcus markets, John, I'm gonna go to 0:11:02.760 --> 0:11:06.280 the real economy, like Jason Furman, jobs formation and that 0:11:06.520 --> 0:11:09.400 you wonder if a little bit of rising inflation finally 0:11:09.600 --> 0:11:13.600 helps people in a booming g DP economy eight percent, 0:11:13.720 --> 0:11:16.520 whatever the number is. So that's attention, folks, as we 0:11:16.559 --> 0:11:19.800 go here twenty five minutes from now on the financial 0:11:20.000 --> 0:11:24.800 aspects and the asset aspects, the real economy aspects. No 0:11:24.880 --> 0:11:28.320 one better to dovetail those two together than Alicia Levine 0:11:28.360 --> 0:11:30.960 of b n Y Melon always writing smart. And what's 0:11:31.040 --> 0:11:34.480 so important about Alicia Levine is really looking almost at 0:11:34.520 --> 0:11:38.880 a strategic basis of where we are. Given this rising inflation. 0:11:39.040 --> 0:11:43.360 You talk about a regime change. Alicia in America described 0:11:43.440 --> 0:11:46.400 that right. So look, we we think that When the 0:11:46.520 --> 0:11:51.199 new administration came in, it was really focused on Main 0:11:51.320 --> 0:11:54.679 Street versus Wall Street, and I think the policies that 0:11:54.760 --> 0:11:57.120 have flowed from the fiscal side and frankly for the 0:11:57.200 --> 0:12:01.120 monetary side, really are creating that. So, as you've said 0:12:01.160 --> 0:12:03.520 all morning, you know, a little bit of inflation is 0:12:03.559 --> 0:12:07.360 actually quite positive for main Street. You get higher wages, 0:12:07.440 --> 0:12:10.320 you get some pricing power, you know, you get assets 0:12:10.400 --> 0:12:14.080 moving higher, and in the real economy that's not such 0:12:14.120 --> 0:12:18.480 a bad thing. It tends to be terrible for equity markets, 0:12:18.520 --> 0:12:21.719 particularly in the long duration assets, as we've seen in 0:12:21.800 --> 0:12:24.280 the last couple of days, where the tantrum really was 0:12:24.360 --> 0:12:26.600 in the equity market and not in the bond market. 0:12:26.960 --> 0:12:29.520 The equity market is telling you that their inflation fears 0:12:29.520 --> 0:12:32.839 all over the place for investors. So, look, we think 0:12:32.880 --> 0:12:36.080 there is a regime change, So higher growth, higher inflation, 0:12:36.160 --> 0:12:40.080 that doesn't mean, you know, terrible inflation. It does mean, though, 0:12:40.520 --> 0:12:43.400 that higher than it was in the post global financial crisis, 0:12:43.480 --> 0:12:47.640 and therefore higher rates eventually. But right now we're seeing 0:12:47.679 --> 0:12:49.640 we think, we think it's sustainable. We don't think this 0:12:49.720 --> 0:12:51.920 is a sugar high. Okay, it's very clear it's not 0:12:51.960 --> 0:12:54.240 a sugar high. It's literally a regime change. You've got 0:12:54.360 --> 0:12:58.800 fancy degrees, you're expert at the mathematics of the financial system, 0:12:59.280 --> 0:13:01.680 and you and me what in common. As we started 0:13:01.720 --> 0:13:04.320 out dishwashing. You had a love affair with the Hobart 0:13:04.400 --> 0:13:08.240 dishwashing machine at a camp years and years ago. Let's 0:13:08.360 --> 0:13:12.640 talk about the real world effects of this inflation in 0:13:12.760 --> 0:13:16.400 the old days that meant rising wages. Do you fold 0:13:16.480 --> 0:13:19.560 that into your strategy or is this time different from 0:13:19.600 --> 0:13:23.200 when you were running a Hobart. So so those were 0:13:23.280 --> 0:13:25.760 great days, and actually I didn't get paid at all. 0:13:26.160 --> 0:13:29.000 So yes, there's inflation for those jobs. But look, there 0:13:29.160 --> 0:13:33.400 is clearly supply constraints in the labor market as well, 0:13:33.520 --> 0:13:37.680 which is what we learned on Friday. Wages are going higher, 0:13:37.720 --> 0:13:40.520 and they're going higher because we don't have as much 0:13:40.640 --> 0:13:44.360 slack in the labor force overall, even if you strip 0:13:44.440 --> 0:13:47.679 out the extra unemployment benefits, which of course are a 0:13:47.760 --> 0:13:51.079 downward pressure on on labor coming into the market. But 0:13:51.160 --> 0:13:54.520 if you think about the expedited retirements in the boomers 0:13:55.520 --> 0:13:58.120 and above, you think about the fact that two million 0:13:58.200 --> 0:14:01.080 women have simply dropped out of the labor force, probably 0:14:01.160 --> 0:14:04.120 because schools are not open by the time those schools open. 0:14:04.760 --> 0:14:08.360 You know, it's been eighteen months that people are disassociated 0:14:08.400 --> 0:14:10.760 from the labor force, very hard to get back into 0:14:10.800 --> 0:14:13.480 the same job. So we think participation will be lower, 0:14:13.880 --> 0:14:17.439 slack is lower, and wages will be higher. You know, 0:14:17.840 --> 0:14:19.880 as we saw with Jolty yesterday, there are eight point 0:14:19.920 --> 0:14:23.720 one million jobs available ostensibly, the same number of jobs 0:14:23.800 --> 0:14:26.520 as those who do not have jobs today that did February. 0:14:27.480 --> 0:14:29.640 Something's wrong, right, something there's a mismatch. So there's a 0:14:29.720 --> 0:14:32.840 skills mismatch, and there's a need to pay labor higher. 0:14:33.240 --> 0:14:35.600 And I do think that the fiscal policy that's been 0:14:35.720 --> 0:14:39.720 enacted has conditioned people, frankly, to want more and to 0:14:39.840 --> 0:14:42.680 expect more. We've just spent eight hundred and fifty billion 0:14:42.760 --> 0:14:48.200 dollars from January one, as the economy is reopening directly 0:14:48.280 --> 0:14:52.280 into households, directly into bank accounts, more than we and 0:14:52.360 --> 0:14:55.000 we spent that was six hundred billion last year when 0:14:55.000 --> 0:14:58.200 the economy was closed, and we're expecting another four hundred 0:14:58.240 --> 0:15:01.600 billion by early September. All that is going to create 0:15:01.760 --> 0:15:04.840 upward pressure on wages. Next logical question, then, what does 0:15:04.880 --> 0:15:06.800 that mean for margentilation? And one of the sectors that 0:15:06.840 --> 0:15:09.800 you would avoid. Right. Look, I think I think the 0:15:09.960 --> 0:15:14.040 rotation that came became apparent in the fall last year 0:15:14.400 --> 0:15:20.200 still plays out, right. So, you know, commodities, materials, industrials, financials, 0:15:20.360 --> 0:15:24.640 and energy are really the sectors that benefit from higher inflation. 0:15:25.080 --> 0:15:28.000 And that's where we would be very hard to ignore. 0:15:28.120 --> 0:15:31.200 Your profitable tech. You know, the future is digital. You 0:15:31.360 --> 0:15:34.240 have to be there. We just think that those that 0:15:34.520 --> 0:15:37.440 sector probably underperforms a bit. And we do think that 0:15:37.640 --> 0:15:40.480 speculative tech, you know, those companies that we know in 0:15:40.640 --> 0:15:44.760 love and are valued on revenue and not earnings, were 0:15:44.800 --> 0:15:46.840 really suffer here and we would stay away from those. 0:15:46.880 --> 0:15:49.280 We just think it's a long term secular change and 0:15:49.360 --> 0:15:53.080 where rates are going, where yields are going, and where 0:15:53.160 --> 0:15:56.120 expectations are going. So I think the cyclical trade will 0:15:56.200 --> 0:15:58.240 have legs and we'll have legs for longer. We saw 0:15:58.240 --> 0:16:00.680 a ton of companies in the first quarter, right seeing prices, 0:16:00.760 --> 0:16:03.400 P and G, Kimberly Clark, others as well. Alicia, there's 0:16:03.400 --> 0:16:05.400 a nice little debate debate plank out on the south 0:16:05.440 --> 0:16:08.280 side at the moment on staples, bt I G on 0:16:08.320 --> 0:16:10.280 the one side, BEMO on the other, bt I g 0:16:10.720 --> 0:16:13.400 likes the pricing path. Bemo is worried about the input costs. 0:16:13.800 --> 0:16:16.600 Where are you in the team on Staples? I like 0:16:16.760 --> 0:16:20.520 Staples simply because they've underperformed so woefully. That is just 0:16:20.640 --> 0:16:22.640 a good It's not a bad place to come in here. 0:16:22.960 --> 0:16:26.640 They do have pricing power. I think households are are 0:16:26.720 --> 0:16:30.000 are becoming conditioned to paying it, frankly, because there's so 0:16:30.080 --> 0:16:32.960 much extra liquidity in the household sector, right, you're not 0:16:33.160 --> 0:16:36.520 getting pushback, so therefore those price changes will be sticky. 0:16:37.080 --> 0:16:40.800 If you add to that that the sector has completely underperformed, 0:16:40.920 --> 0:16:43.480 as the here and now looks better than worrying about 0:16:43.520 --> 0:16:45.600 the future three years from now. I think it's not 0:16:45.640 --> 0:16:47.800 a bad place to add two staples here. You know, 0:16:47.880 --> 0:16:49.520 you want to add when it seems like the wrong 0:16:49.640 --> 0:16:52.440 thing to do, so it seems like the wrong Yeah, 0:16:52.480 --> 0:16:54.640 there you go. I mean, we like we we've learned 0:16:54.680 --> 0:16:56.080 this right. How many times do we have to be 0:16:56.160 --> 0:16:59.000 hit over the head? And so I actually do like 0:16:59.120 --> 0:17:02.160 Staples here for the reason I think this pricing power 0:17:02.320 --> 0:17:05.120 will be very sticky. When you raise wages, you don't 0:17:05.160 --> 0:17:07.520 lower them. When you raise prices that you don't lower them. 0:17:07.920 --> 0:17:12.080 Get comfortable feeling uncomfortable. That's a lifeless Alicia, Thank you, 0:17:12.200 --> 0:17:21.800 Alicia Levy bm Y Melon Investment Management right now. This 0:17:21.920 --> 0:17:23.720 is a joy for John and I to bring in 0:17:23.920 --> 0:17:26.359 Terry Weisman with us out of vest Or in Harvard. 0:17:26.440 --> 0:17:30.120 Terry Weisman iconic on emerging markets at Bear Strings long ago, 0:17:30.560 --> 0:17:34.280 and most importantly he is the director of Global Currencies 0:17:34.320 --> 0:17:38.119 and interest rates for the crew at fifty Martin Place 0:17:38.400 --> 0:17:41.760 in Sydney, Australia with Macquarie, and where thrilled he could 0:17:41.800 --> 0:17:44.920 join us right now with a real touch of this economics. 0:17:45.359 --> 0:17:48.640 But also it is linked to the commodity boom. Does 0:17:48.720 --> 0:17:52.840 inflation cause commodities or is a commodity boom gonna cause 0:17:52.880 --> 0:17:56.359 the inflation to come Terry, you know it could be 0:17:56.440 --> 0:18:00.080 two ways. Um. One of the aspects of inflation that 0:18:00.119 --> 0:18:03.199 I think is driving the commodity boom is just public policy. Right. 0:18:03.280 --> 0:18:07.399 You have quite a lot of of an imperative around 0:18:07.400 --> 0:18:09.320 the world to move towards a green economy, and that's 0:18:09.359 --> 0:18:12.680 clearly causing some commodity prices to go up. So here 0:18:12.760 --> 0:18:17.560 the causality runs from public policy to commodities. But you 0:18:17.680 --> 0:18:19.960 also have to take into account that the rising commodities, 0:18:19.960 --> 0:18:22.000 whether it's speculative or not, is going to put pressure 0:18:22.040 --> 0:18:24.200 on things that have nothing to do with that green economy. 0:18:24.720 --> 0:18:27.040 If copper prices go up, home prices can go up 0:18:27.080 --> 0:18:29.240 as a results, even because of the cost push inflation. 0:18:29.720 --> 0:18:32.920 So it runs two ways, um and and I suspect 0:18:32.960 --> 0:18:34.720 that there is a little bit of a specult development 0:18:34.800 --> 0:18:37.320 in some of the commodity prices that have seen a 0:18:37.400 --> 0:18:40.879 big increase recently, but more so iron than copper. Let's say, right, 0:18:41.200 --> 0:18:42.800 that's right where I wanted to go cheery. When you 0:18:42.880 --> 0:18:45.760 talk to the commodity experts at Macquarie, and truly folks, 0:18:45.840 --> 0:18:50.480 they are Australian experts. How does iron or dynamics filter 0:18:50.760 --> 0:18:56.480 into a more developed world inflation Wednesday? Not too much 0:18:56.600 --> 0:18:59.400 because because iron goes into steal, and steal is really 0:18:59.520 --> 0:19:02.879 a construct auction material, it's not something that's really prevalent 0:19:02.960 --> 0:19:05.119 that much in the consumer basket. But I will tell 0:19:05.160 --> 0:19:08.600 you this McQuary's view on iron is not positive. We 0:19:08.680 --> 0:19:10.520 see a lot of the run up recently as having 0:19:10.600 --> 0:19:14.399 been caused by hoarding on the part of Chinese steel mills, 0:19:14.800 --> 0:19:17.720 who are worried. The Chinese in the second half of 0:19:17.760 --> 0:19:20.680 this year, Chinese policy makers will come down hard on 0:19:20.800 --> 0:19:24.040 the steel mills because of environmental issues, and that they 0:19:24.040 --> 0:19:26.720 will do that by restricting iron imports in the second half, 0:19:26.800 --> 0:19:29.760 and as a result, steel mills are hoarding iron now 0:19:30.359 --> 0:19:34.840 ahead of that and obviously hedging against future price increases. 0:19:35.200 --> 0:19:37.280 But that's not really a demand based story as much 0:19:37.280 --> 0:19:41.120 as it is a story about fear of import controls 0:19:41.160 --> 0:19:44.320 and fear of restrictions copper, as I mentioned, a different 0:19:44.400 --> 0:19:47.440 story that is that is purely structurally demand ern people 0:19:47.480 --> 0:19:50.960 are excited about the the implications for copper demand coming 0:19:51.040 --> 0:19:54.280 from green economy imperatives. Harry, what's China's role in all 0:19:54.359 --> 0:19:56.040 of this? If you shewed me a chance of China's 0:19:56.040 --> 0:19:58.760 credit impulse, I might have made a different decision on 0:19:58.800 --> 0:20:01.439 the direction to travel that seeing across some of these markets. 0:20:01.480 --> 0:20:04.320 What is China's rolled in this cycle? Well, well, normally 0:20:04.440 --> 0:20:07.879 China's role is as as a commodity UH importer and 0:20:08.000 --> 0:20:10.919 demander and and of course the credit cycle is hugely 0:20:11.000 --> 0:20:14.320 important to determining how much credit is being is being 0:20:14.400 --> 0:20:19.040 directed towards construction towards infrastructure UH in China, so credit 0:20:19.119 --> 0:20:21.720 normally plays a strong role. We all I'm saying is 0:20:21.720 --> 0:20:23.720 that this time around, and maybe the reason you're seeing 0:20:23.720 --> 0:20:26.920 this divergence between credit growth and commodity prices is because, 0:20:27.000 --> 0:20:29.680 in the case of some commodities, what's being driven is 0:20:29.800 --> 0:20:32.919 not structural. What's driving is not structural demand coming out 0:20:32.960 --> 0:20:36.000 of China, or certainly not the outlook for stronger structural demand. China, 0:20:36.040 --> 0:20:38.320 after all, maybe moving towards monitoring tightening in the bad 0:20:38.680 --> 0:20:40.679 latter part of this year, but might be moving these 0:20:40.680 --> 0:20:44.520 commandis instead is concerned about restrictions on the use of 0:20:44.600 --> 0:20:47.560 them later or the import of them later, I should say, 0:20:47.640 --> 0:20:50.480 and as a result, is hoarding today. Very different story, 0:20:50.600 --> 0:20:52.760 very different dynamic. Let's say that what we normally get 0:20:52.800 --> 0:20:55.680 out of China where credit drives the commodity price cycle, 0:20:55.840 --> 0:20:58.000 when you look at market based inflation expectations in the 0:20:58.080 --> 0:21:00.480 momentary that's time of two stories together. What degree do 0:21:00.520 --> 0:21:02.800 you think that being influenced by what we're seeing in 0:21:02.840 --> 0:21:07.080 the commodity male kit not that much. I you know, 0:21:07.240 --> 0:21:10.840 to some extent. We're talking about consumer prices here, um 0:21:11.160 --> 0:21:13.280 and the price of a house does not figure into 0:21:13.440 --> 0:21:15.760 the consumer price in deck, but figures into the persumer 0:21:15.840 --> 0:21:19.440 price index. Is the service price of renting a house, 0:21:19.520 --> 0:21:21.560 let's say, or the owner of equivalent rent that's not 0:21:21.600 --> 0:21:23.520 affect too much by the price of a home. So 0:21:23.560 --> 0:21:26.200 I don't think commodities themselves, not certainly, not those those 0:21:26.359 --> 0:21:29.119 those basic metal commodities are having that much of an 0:21:29.160 --> 0:21:31.080 impact on CP I know. I think what's having, or 0:21:31.200 --> 0:21:34.760 for that matter, expectations. I think what's driving inflation expectations 0:21:34.960 --> 0:21:37.600 is somewhat different. It's it's a FED that has been 0:21:38.400 --> 0:21:42.080 politically inclined to be to sound very dubbish and therefore 0:21:42.160 --> 0:21:45.679 fuel inflation expectations higher. And of course we have everything 0:21:45.840 --> 0:21:49.199 pertaining to the demand impulse around the world coming from 0:21:49.240 --> 0:21:52.080 public policy, more spending in the US, prospectively more in Europe. 0:21:52.320 --> 0:21:54.720 I think that's fueling a little bit the inflation expectation 0:21:54.800 --> 0:21:57.840 increase that we've seen recently. Terry Device Chairman, I believe, 0:21:57.920 --> 0:22:02.520 speaks at nine am, well street time. Can they shock 0:22:02.680 --> 0:22:05.720 the market or can they actually have a dialogue the 0:22:05.840 --> 0:22:10.040 next ninety days where we ease our way towards the 0:22:10.200 --> 0:22:14.840 beginning of a discussion of less accommodation, so they can 0:22:14.920 --> 0:22:18.240 ease into it. And can they do that? Not today? 0:22:19.320 --> 0:22:21.240 Not today? Just because I said that they can ease 0:22:21.280 --> 0:22:23.080 into it, doesn't mean they're going to ease into it today. 0:22:23.119 --> 0:22:25.240