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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily

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Speaker 1: we bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. This

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Speaker 1: is a joy. We've always prided ourselves and bringing you

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Speaker 1: the best in economics, and in the summer when everybody

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Speaker 1: thinks and writes, the best in economics can be one, two, three,

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Speaker 1: four or five essays, books are articles. This year was easy.

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Speaker 1: Carmen Reinhardt and Vincent Reinhardt wrote a Tour to Force

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Speaker 1: for Foreign Affairs magazine and made world headlines in the

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Speaker 1: economics community with the pandemic depression. We are thrilled at

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Speaker 1: the World Bank Chief Economists could join us this morning,

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Speaker 1: and Mr Reinhardt, of course, with Stay and A Schmellon

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Speaker 1: in their asset management is chief Economists to the two

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Speaker 1: of you, congratulations, I'm putting together this essay. How did

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Speaker 1: you piece it together? Carmen? Did you say, Vincent, we

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Speaker 1: got to write this the world's coming down to an end?

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Speaker 1: Or Vince Vincent, did you tell Carmen we gotta do

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Speaker 1: this Carmen, you start, how did you generate this important essay? Well, Tom,

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Speaker 1: you know, Vincent and I have been writing together for

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Speaker 1: a long time. So you know, back in two thousand

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Speaker 1: and ten we wrote for the Kansas City fac for

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Speaker 1: the for the Jackson Hole Conference, what the next ten

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Speaker 1: years after the global financial crisis, uh looked like? And

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Speaker 1: it was taking stock of the aftermath of major shocks,

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Speaker 1: you know. Uh, so this certainly classifies as a major shock.

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Speaker 1: And these kinds of events lead lasting consequences. They and

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Speaker 1: so that's basically the theme where we we came together.

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Speaker 1: Let us drive the story forward. And folks, again, I

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Speaker 1: can't say enough about a full read of this article

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Speaker 1: in Foreign Affairs, Vincent Ronhard, how do we escape this depression?

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Speaker 1: And if we have a global or a United States depression,

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Speaker 1: is stimulus in large stimulus the only answer. So the

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Speaker 1: sad thing is this really is the third time we

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Speaker 1: wrote this article for two thousand and eight for the

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Speaker 1: European crisis and and one more time for this pandemic depression.

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Speaker 1: What do you need? You have to follow Larry Summer's

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Speaker 1: advice targeted temporary and timely fiscal stimulus. Uh, they did it.

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Speaker 1: Back in March with the Cares Act. They can do

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Speaker 1: it again. Comma, can you built on something for us

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Speaker 1: confusing a mechanical bounce with the account rate? Is that

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Speaker 1: what we've been doing over the last few months. Yes, Um, Look,

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Speaker 1: a very simple basic definition of recovery and minimum minimorum

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Speaker 1: is you at least have the same level of income,

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Speaker 1: same level of GDP that you had before the crisis started. Uh.

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Speaker 1: That took UH quite a number of years, five years

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Speaker 1: in the US from the last UH the global financial crisis,

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Speaker 1: and even longer for Europe. So yeah, before that we

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Speaker 1: see a snap back. We see growth rates come back

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Speaker 1: simply because the declines were so sharp in the in

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Speaker 1: the earlier in the year. But that is rebound. Recovery

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Speaker 1: is when you're at least as well off as you

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Speaker 1: were before, and that will take some years. So in

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Speaker 1: your mind, common do you think this is a political boss,

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Speaker 1: a political decision to make the code to say, look

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Speaker 1: at the recovery, confuse it with a mechanic co bounds

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Speaker 1: and say we don't need more fiscal stimulus, or do

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Speaker 1: you just think it's a failure of the understanding of

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Speaker 1: economics that we can see the mikecause Vincent's points out,

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Speaker 1: you know, there is no simple answer, has elements of both.

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Speaker 1: But we've seen it in history, uh, you know often enough,

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Speaker 1: the premature declaration of victory. It has always been a

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Speaker 1: recurring theme that that you know, the first signs of recovery,

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Speaker 1: the green shoots means that's it. And and you know,

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Speaker 1: I think that this time, uh, we really didn't learn

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Speaker 1: much from the over optimism of two thousand and eight

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Speaker 1: two thousand nine, where growth forecasts had to be marked

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Speaker 1: down repeatedly. So, Vincent, can you build on that with

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Speaker 1: the idea that we're heading into a winter where we

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Speaker 1: have a virus that is actually expanding, worsening, spreading, even

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Speaker 1: though people are getting more concerned about the debt about

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Speaker 1: adding to it with more fiscal support. Do you think, Vincent,

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Speaker 1: we are headed toward a double dip recession that will

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Speaker 1: hamper growth in a longer term way with scarring economically

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Speaker 1: that currently is not being modeled for. So the rebound

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Speaker 1: has enough strength right now. There is waning fiscal impetus,

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Speaker 1: but their most importantly, there's considerable monetary accommodation. Households have

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Speaker 1: a lot of savings, so they have the wherewithal to spend.

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Speaker 1: It isn't as much a risk of a double dip.

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Speaker 1: It's a risk that we extend the rebound, that it

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Speaker 1: takes even longer to get to recovery. And the longer

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Speaker 1: it takes to recover the level of activity, the more

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Speaker 1: likely unfortunate things happen. Balance sheets get strained, there are

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Speaker 1: even more business failures, people lose more and more skills

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Speaker 1: and exit the labor market. So I'm more worried about

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Speaker 1: the permanent scarring associated with taking too long to get

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Speaker 1: to recovery, because usually you can bed on market economies.

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Speaker 1: So what does that mean, Carmen in terms of emerging

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Speaker 1: markets insolvencies, the idea of this emerging markets crisis that

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Speaker 1: a lot of people have been talking about, including yourself.

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Speaker 1: Do you think that if we do get this period

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Speaker 1: of scarring as Vincent is talking about, that you do

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Speaker 1: get that wave of insolvencies in the developing world that

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Speaker 1: so far we haven't seen. Well before we say we

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Speaker 1: haven't seen the pick up an activity UH, even before

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Speaker 1: the pandemic, we had a lot of frailties UH in

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Speaker 1: the low income economies and in several emerging markets. With

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Speaker 1: this Argentina, Lebanon, Venezuela, Ecuador, now Zombia. This is a

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Speaker 1: longer list than what we had in years UH, And

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Speaker 1: of course not everything happens simultaneously, but I think the

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Speaker 1: stage is set for you know UH number. As I said,

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Speaker 1: especially vulnerable are some of the lower income countries, but

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Speaker 1: not limited to UH, a very protracted period of UH

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Speaker 1: financial fragility, both in the financial bankings in the banking side,

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Speaker 1: and the possibility if in the worst cases outright UH

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Speaker 1: sovereign dead crisis and they don't need to be with

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Speaker 1: the drama of a default, but they would be UH

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Speaker 1: still requiring restructuring, still requiring coming to the IMF programs

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Speaker 1: and so on. Can Carmen Ryn art Vincent Rayner with

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Speaker 1: us here this morning on their important article to the

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Speaker 1: pandemic Depression in Foreign Affairs A summer It was, without

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Speaker 1: question my essay of the summer, Carmen Ryn, not a

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Speaker 1: question for you, and it's delicate. As World Bank Chief

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Speaker 1: Economy is do we completely misjudge the percent of g

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Speaker 1: d P of stimulus aid income replacement that will be required?

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Speaker 1: Are we as sort of institutions and elites completely misjudging

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Speaker 1: the two to three percent of g d P is

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Speaker 1: not going to get it done, and the statistic is

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Speaker 1: much more towards five to six of g d P. Tom. Uh,

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Speaker 1: it's not entirely in misjudgment. It's also a reality of capacity.

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Speaker 1: I mean, um, you know the do you if you're

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Speaker 1: if you're speaking about the emerging world, Uh, the private

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Speaker 1: capital flows half significantly retrenched, I wouldn't say right up.

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Speaker 1: And so it's really the multilaterals. It's the I m F,

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Speaker 1: it's a World bank, it's the development banks. The firepower

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Speaker 1: there is very limited. The it's not the Federal Reserve. Uh,

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Speaker 1: it's not the you know b O J or the ECB.

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Speaker 1: These institutions have constraints and how much they can deliver.

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Speaker 1: So it's not entirely about misjudging misjudging this seriousness of

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Speaker 1: what is needed, but also you know, having the capacity

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Speaker 1: to for over well over a hundred countries to deliver

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Speaker 1: that kind of of of shot in the arm comment.

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Speaker 1: Just quickly. We caught up with David Rosenberg around about

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Speaker 1: forty minutes ago and he wanted your view on how

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Speaker 1: higher debt loads can constrain demand constrained potential GDP coming.

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Speaker 1: You can can you speak to that for us, given

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Speaker 1: how much debt we've just added to the global economy

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Speaker 1: in the last nine months, if you started doing work

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Speaker 1: on that, well, look, I've been doing a lot of

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Speaker 1: work also on the issue on the what I think

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Speaker 1: is for the advanced economies, the more immediate issues, which

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Speaker 1: I think have to do with private that uh and

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Speaker 1: financial fragility. This is what I alluded to, a big

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Speaker 1: shot of a big shot in the army, big source

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Speaker 1: of stimulus. UH. This time has also been forbearance uh,

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Speaker 1: you know, delaying payments uh for households and firms. When

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Speaker 1: those programs expire, uh, do those debts continue to be repaid?

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Speaker 1: So the more for the advanced economies, as opposed to

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Speaker 1: some of the lower income countries and in some of

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Speaker 1: the emerging markets, the more immediate immediate issue is the

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Speaker 1: private debt UH. And that is already I think, especially

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Speaker 1: for for the corporate sector, the small and medium businesses,

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Speaker 1: already a source of concern. Vincent royn at the final

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Speaker 1: question to you to really look forward, maybe out of

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Speaker 1: a pandemic depression. Who knows what what is your market forecast,

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Speaker 1: your economic forecast, Rather call for Q one and Q

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Speaker 1: two of next year. Advise the Biden administration this morning.

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Speaker 1: So we keep slowing from where we have been. Obviously,

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Speaker 1: you don't repeat at we have in the first quarter

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Speaker 1: a bit of a soft patch, just two percent growth

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Speaker 1: because of the absence of fiscal stimulus, and then on

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Speaker 1: the assumption Washington d C gets something together, then closer

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Speaker 1: to five in the middle part of the year. What

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Speaker 1: I really hope we get is something like the CARES

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Speaker 1: Act of Targeted and Temporary and Timely uh impetus, rather

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Speaker 1: than the American Recovery and Reinvestment Act of two thousand

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Speaker 1: and nine, which was timely for sure, but it had

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Speaker 1: a very long spend out rate. Now is not the

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Speaker 1: time to do infrastructure we needed over the longer haul.

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Speaker 1: But right now we've got to get income into the

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Speaker 1: hands of people. Guys, we've gotta leave it that common

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Speaker 1: fantastic a here from your common Ryan Hart, that World

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Speaker 1: Bank chief economist, and Vince thank you, sir, Vincent Ryan

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Speaker 1: Hart of Standish Melon Asset Management, Thank you very much.

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Speaker 1: The perfect gentleman to speak to right now on is

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Speaker 1: truly our global Wall Street brief of the day. Alan

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Speaker 1: Ruskin with Deutsche Bank, decades of experience of synthesizing together

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Speaker 1: all of these trends alan to John's point, you lead

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Speaker 1: with the idea that forward a major pair will be

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Speaker 1: dollar and membi looking for stronger you want, and the

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Speaker 1: idea that the Chinese you want will replace the Japanese yen.

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Speaker 1: How does that happen? How does it you want take over?

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Speaker 1: Is a dominant pair? Um Tom, Look, I think the

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Speaker 1: Chinese economy is a substantially larger in Japan's already, and

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Speaker 1: it's only that gap is only going to get wider

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Speaker 1: over time. So it's real economy influence is certainly increasing.

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Speaker 1: And obviously at the same time, the authorities in China

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Speaker 1: are encouraging internationalization. They're encouraging uh the c N wise

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Speaker 1: reserve status to increase over time, so the pool factor

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Speaker 1: in terms of official flows is going to increase as well.

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Speaker 1: The combination of the real economy side, and you know,

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Speaker 1: the encouragement that you know, I think we're going to

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Speaker 1: see from the authorities on an ongoing basis is just

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Speaker 1: gonna help the Chinese currency and it's poor effect, you know,

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Speaker 1: against other currencies in the region. Ellen Ruskin, there's a

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Speaker 1: parlor game to when strong euro hurts Germany, strong euro

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Speaker 1: hurts Finland, or strong yen hurts Tokyo. At what level

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Speaker 1: the stronger and memby hurt Beijing? Are we near there? Look,

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Speaker 1: I think there's going to be a lot of sensitivities

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Speaker 1: in terms of a very modest appreciation in the UN.

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Speaker 1: But I think we forget I think you know memory

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Speaker 1: certainly right, the tenure average is roughly around six fifty

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Speaker 1: on on dollar China, So I think we shouldn't get

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Speaker 1: too caught up with what's happened over the last six

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Speaker 1: months or so. Given the appreciation, we're actually back in

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Speaker 1: the zone that's actually you know, very well traveled, So

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Speaker 1: we shouldn't be at points of extreme sensitivity. But you know,

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Speaker 1: if we saw dollar China go to say six twenty

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Speaker 1: five or those to the levels, I think there would

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Speaker 1: be more concern on the part of the Chinese authorities

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Speaker 1: and an important to look at the currency pairs our

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Speaker 1: swear Euro China, China, Japanese Yen. And what we've seen

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Speaker 1: is that Chinese strength against the Euro and a more

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Speaker 1: pronounced way as well. Do you think that makes it

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Speaker 1: for the ECB at least makes them less sensitive to

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Speaker 1: what's happening on euro dollar as we approach one nineteen

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Speaker 1: and maybe go through one twenty. Yeah, I think for

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Speaker 1: everybody if they look at their own currencies and they say, okay, well,

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Speaker 1: yes we are stronger against the dollar, that in fact

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Speaker 1: most other currencies are also stronger against the dollar. So

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Speaker 1: net net is not much change, as you say between

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Speaker 1: you know, call it the euro and other crosses. Then

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Speaker 1: you get reduced sensitivity from the currency side, and people

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Speaker 1: recognize that this is a dollar story. This is not

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Speaker 1: a China un story or euro dollars story. Um. Up

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Speaker 1: until now it's been a mix, I would say, of

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Speaker 1: a dollar story and a Chinese un story. Very little

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Speaker 1: in the way of really being a euro stories has

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Speaker 1: been stuck in the mud. So there's a question. Well,

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Speaker 1: and we typically ask a question just quickly, let me

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Speaker 1: weigh in, Allen. We typically ask the question whether we

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Speaker 1: would need a weaker dollar and whether the world needs

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Speaker 1: a weaker dollar. Do you think the world needs a

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Speaker 1: stronger Chinese currency? Um? You know, the imbalances have tended

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Speaker 1: to grow over time. In the particular crisis, the own

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Speaker 1: account to surface in China is substantial in an absolute basis,

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Speaker 1: less as a percentage of Chinese GDP, So I think

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Speaker 1: there are potential distortions on that side. Um I would say,

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Speaker 1: you know, let the market do its thing. I think

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Speaker 1: that's the most important thing, and then the imbalances will

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Speaker 1: not build in a substantial way. So I was trying

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Speaker 1: to jump in because honestly, I was just so compelled

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Speaker 1: by this argument here that there used to be this

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Speaker 1: world order where everyone was trying to depreciate their currency,

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Speaker 1: and all of a sudden there is less emphasis on

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Speaker 1: that because there is a question recovering getting money into

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Speaker 1: your economy is better. At what point does strength in

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Speaker 1: currency matter? Again from a trade perspective of And I

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Speaker 1: wonder about this with the u N given the fact

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Speaker 1: the Chinese officials have been willing to step in, and

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Speaker 1: given the fact that internationally this has been such a

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Speaker 1: big driver of flows into the nation. Well, I think

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Speaker 1: you know what's interesting, if you look at currencies generally

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Speaker 1: on a medium term basis, the evaluation and that you're

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Speaker 1: seeing are not that extreme. So you know, the dollars

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Speaker 1: within about five percent of fair value, give or take

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Speaker 1: depending on different metrics, and you know that's that's not

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Speaker 1: extreme by any matter of you know, any any measure,

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Speaker 1: and the same can be said for most of the

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Speaker 1: other currencies as well. So you know, I would say

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Speaker 1: the un euro, yes, you know, the dollar looks on

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Speaker 1: the rich side. Yes, the euro looks a little a

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Speaker 1: little cheap. Yes, the Chinese yuan looks a lot on

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Speaker 1: the expensive side as well. But in terms of the

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Speaker 1: actual absolutes um, these are not huge overshoots and undershoots,

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Speaker 1: And I think for that reason, it's actually going to

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Speaker 1: be relatively comfortable to rain for the authorities to deal

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Speaker 1: with at this point in time. It could get a

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Speaker 1: lot messier than this. I've you know, certainly seen it

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Speaker 1: much worse shape in the early ninety nineties or mid eighties. Uh,

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Speaker 1: you know, these are relatively benign circumstances for the authorities

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Speaker 1: to deal with. On the flip side, Alan, if you

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Speaker 1: take a look at derivative positioning, you could see that

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Speaker 1: the short position on the dollar is increasing, and sort

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Speaker 1: of the conviction, the complacency and markets around this consensus

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Speaker 1: call seems to be growing. Do you see a potential

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Speaker 1: for a short squeeze or some sort of information to

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Speaker 1: come out, perhaps about the vaccine being delayed that could

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Speaker 1: potentially lead to reversal here and strength in the dollar,

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Speaker 1: they could upbend a lot of these trades. Um. You know,

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Speaker 1: the positioning I think is also quite modest in the

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Speaker 1: grand scheme of things. And you highlight you know, the

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Speaker 1: vaccine story, which I think is you know, certain is

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Speaker 1: going to be critical for the real economy for the

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Speaker 1: next year or two, ye know, crucial for markets, and

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Speaker 1: it's probably the dominant theme I think, you know, on

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Speaker 1: an ongoing basis. Some think it's maybe already priced in,

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Speaker 1: but I think that's way too early. And I think,

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Speaker 1: you know, if you saw the reversal in those sort

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Speaker 1: of trades in the absolutely I mean, I think, you know,

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Speaker 1: you you could get some sort of short squeeze um

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Speaker 1: that's always possible into urine into December. But I would

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Speaker 1: tend to emphasize the trend trade. I would say, the

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Speaker 1: vaccine trade is you know, long re cicklic calls in

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Speaker 1: G ten Canada, stocky KNOCKI, etcetera. I think it's still

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Speaker 1: long e m. It plays to the long Asia trade,

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Speaker 1: et cetera. So I think it's still on a medium

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Speaker 1: term basis, is still playing towards the short stylar trade

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Speaker 1: rather than you know, focusing too much on the squeezed potential.

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Speaker 1: Stocky KNOCKI just classic effects. Linco there and thank you,

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Speaker 1: and I'm Ruskin by Chief International Strategists, Sweden, Norway. Just

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Speaker 1: in case anyone's Guy Johnson's favorite currency pair, actually Guy

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Speaker 1: Johnson's favorite currency pair stocky KNOCKI, John, Lisa and I

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Speaker 1: and all of team's surveillance feel very strongly pondentories out

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Speaker 1: and experts are very in. Deborah Fuller is not only

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Speaker 1: at the prestigious University of Washington School of Microbiology, but

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Speaker 1: also it is definitive in labs in the processing in

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Speaker 1: the development of vaccines, and we're honored that Dr Fuller

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Speaker 1: could join us this morning. Dr Fuller, We've got a

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Speaker 1: lot of questions about vaccines and all that I want

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Speaker 1: to go to my childhood, which was the dreaded booster shot.

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Speaker 1: Is a booster shot now the same as it was

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Speaker 1: in nineteen sixty or is a booster shot now so

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Speaker 1: efficacious and the technology so much better, it's not a

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Speaker 1: big deal. A booster shot in in vaccines, particularly the

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Speaker 1: covid nanetinge vaccines that we're we're seeing right now, is

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Speaker 1: absolutely essential to UH to increase UH and bring the

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Speaker 1: immunity UH in individuals that get a vaccine up to

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Speaker 1: higher enough levels to protect against the infections. So booster

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Speaker 1: sauce can feel dredged in the sense that you might

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Speaker 1: experience UH increased reactive unicity in other ways, a bit

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Speaker 1: more soreness in your arm, But that tells you that

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Speaker 1: it's working. That's what When you get that soreness and

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Speaker 1: sort of feeling kind of almost like you're you're getting

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Speaker 1: an infection, uh, initially, that tells you that your immune

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Speaker 1: system is mountine a really good response to the vaccine,

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Speaker 1: and that you will likely be protected against an infection.

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Speaker 1: So Tom Kine is talking about booster shots and light

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Speaker 1: I assume of the Astrosonica news that came out this

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Speaker 1: morning really confusing, more confusing than we got at Adviser

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Speaker 1: of Moderna in terms of efficacy, oh, with some statistics

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Speaker 1: saying se efficacy, others saying when you have a half

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Speaker 1: dose initially followed, but a full dose of this vaccine

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Speaker 1: dr fuller. How complicated is the rollout effort when you

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Speaker 1: do have to have two rounds of a shot in

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Speaker 1: order to get it make it effective? I mean in

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Speaker 1: terms of tracking in terms of distribution and frankly in

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Speaker 1: terms of how long it takes to get immunity. That's

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Speaker 1: a really important question. I an ideal pandemic vaccine movie

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Speaker 1: the one that works in a single dose, and that's

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Speaker 1: just simply because if people have to receive a second dose,

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Speaker 1: often compliance and back for the second dose can go down,

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Speaker 1: especially if they experienced some reaction unity with the with

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Speaker 1: the first dose. So uh, many of these companies were

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Speaker 1: looking at the immuno genacy after the first dose, but

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Speaker 1: the levels of the immune responses are just not high

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Speaker 1: enough to be confident that it's going to provide the

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Speaker 1: level of efficacy that's needed. On the other hand, after

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Speaker 1: the second dose plus efficacy that's as good as the

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Speaker 1: vaccine is really going to get. And that's really what

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Speaker 1: we're going to need ultimately to shut down this pandemic.

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Speaker 1: A doctor, that's science, let's talk about the logistics. How

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Speaker 1: many vaccines, vaccinations do you think we could roll out

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Speaker 1: in America over the next three months? Well, Mudian Advisor.

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Speaker 1: As a results of the air A promising data now,

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Speaker 1: astra Zeneta will likely be applying for emergencies authorization in

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Speaker 1: early December UM. They should have enough safety data by

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Speaker 1: then to be able to make the application. Of course,

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Speaker 1: will only be the vaccines initially will only be available

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Speaker 1: in a limited number, limited numbers that would be for

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Speaker 1: highers groups, that would be for your first responders and

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Speaker 1: medical personnelity. The majority of us really won't be seen

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Speaker 1: these vaccines until up spring. Uh. And some of the

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Speaker 1: challenges between then and now will be being able to

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Speaker 1: produce sufficient numbers of doses. Billions and billions is what

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Speaker 1: we're going to need, because we estimate at least fifty

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Speaker 1: to sixty percent of the population ultimately need to be

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Speaker 1: vaccinated to to shut down the pandemic. And and so

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Speaker 1: that really raised an important point is that we really

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Speaker 1: need multiple vaccines, not just one. It's not only one

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Speaker 1: silver world being able to shut this down. The fact

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Speaker 1: that we're seeing all these vaccines look really at about

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Speaker 1: nine efficacy is super promising. Dr Fuller George Saravellis over

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Speaker 1: at Deutsche Bank today has a Deutsche Bank chart out

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Speaker 1: unheard immunity and it's lovely smooth curves of expectations. Do

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Speaker 1: you trust the A and the forecasting of HERD immunity

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Speaker 1: or are we actually making it up as we go

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Speaker 1: that math is really elegant stuff and it is really

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Speaker 1: based on some important measurements. Uh So, yeah, we can

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Speaker 1: trust the math. What we what we don't know. Some

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Speaker 1: of the things that we don't know. What we into

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Speaker 1: this math is the changes in the infection rates that

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Speaker 1: could occur between now and then. So the predictions are

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Speaker 1: based on, you know, what we know now and as

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Speaker 1: we have seen, we've seen a huge surge in cases

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Speaker 1: as the weather cooled and that actually exceeded, uh the

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Speaker 1: number of cases that was initially predicted at this kind

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Speaker 1: for you know, for you know, reasons that for example,

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Speaker 1: pandemic fatigue and stuff that really can't be predicted. So,

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Speaker 1: uh so what the math is precise, it's based on

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Speaker 1: what we know, not what we don't know. Appreciate your time,

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Speaker 1: your thoughts and honestly full of that of the University

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Speaker 1: Washington skulled of Medicine. This is a joy. David Rosenberg

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Speaker 1: for years helped court at Mary Lynch and own the

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Speaker 1: high ground on parsing price change. He was absolutely brilliant

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Speaker 1: and hugely read. Moving on to all sorts of good

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Speaker 1: work in his Canada and now Rosenberg a Research are

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Speaker 1: chief economist strategist in Montreal, Canadian fan David Rosenberg. I

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Speaker 1: want you to filter disinflation into what yield does. Is

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Speaker 1: it just about a demand for paper price up forcing

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Speaker 1: yield down. Well, look, I think that there's a whole

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Speaker 1: variety of things that goes into bind yield determination. Uh,

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Speaker 1: you know, the expectations on the FED and real rates

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Speaker 1: in flakes, and expectations obviously both perry large. I'm in

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Speaker 1: the camp that thinks that we're probably caught in arrange,

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Speaker 1: always amazed that people think the ten ure is going

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Speaker 1: to break above one percent, go back to two percent,

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Speaker 1: and only that's going to happen. Um. I think that

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Speaker 1: there's still gonna be globally a downward pull on treasury

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Speaker 1: yields because I think in places expectations, given the size

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Speaker 1: of the uplook gap, we're going to come down over time.

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Speaker 1: And at the same time, if you're taking a look

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Speaker 1: around the world, you take a look at the average

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Speaker 1: triple A yield, it's barely above zero. And in the US,

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Speaker 1: you know, you get at least uh, you know, seventy

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Speaker 1: or eighty basis points, so you know, it's a in

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Speaker 1: the land of the blind. The one advent is king,

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Speaker 1: and I still think treasuries offered very good value on

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Speaker 1: a relative basis. It's I think what you're saying it's

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Speaker 1: really really important. It's about the post COVID world and determining,

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Speaker 1: defining what is normal. And many people seem to think

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Speaker 1: that post COVID, with a vaccine treasury, olads have now

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Speaker 1: business south of one percent. You push him back against that,

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Speaker 1: David Well, I am pushing back against that, because you know,

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Speaker 1: what's your expectation of what the Fed is going to

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Speaker 1: be doing. I mean, ultimately your forecast and the ten

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Speaker 1: your yield has to be some scrolled expectation of what

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Speaker 1: short term it is going to be doing over a

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00:27:16,840 --> 00:27:19,720
Speaker 1: certain horizon. The Feds already told you that you know,

430
00:27:19,760 --> 00:27:21,800
Speaker 1: they're not going to start to raise rate until inflation

431
00:27:21,840 --> 00:27:24,040
Speaker 1: gets above two percent. Well, but we'll wait a long

432
00:27:24,080 --> 00:27:27,680
Speaker 1: time for that and for us to return to full employment,

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00:27:27,680 --> 00:27:30,040
Speaker 1: and that's gonna take a long time as well. On

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00:27:30,119 --> 00:27:32,560
Speaker 1: top of that, look, there's no doubt that we're going

435
00:27:32,640 --> 00:27:34,800
Speaker 1: to get a couple of quarters of pent up demand

436
00:27:34,840 --> 00:27:39,040
Speaker 1: release once the vaccine is broadly distributed. That's going to happen.

437
00:27:39,160 --> 00:27:41,560
Speaker 1: You know, Whi's exactly quarter is going to happen next year.

438
00:27:41,640 --> 00:27:43,760
Speaker 1: I mean, who knows, but it's going to happen. So

439
00:27:43,760 --> 00:27:45,679
Speaker 1: we're gonna get a couple of quarters of pent up

440
00:27:45,680 --> 00:27:48,560
Speaker 1: demand release and then what does the world post COVID

441
00:27:48,600 --> 00:27:52,639
Speaker 1: look like after that? And we never got the inflation

442
00:27:53,440 --> 00:27:56,600
Speaker 1: from oh nine to two tho nine, despite all the stimulus,

443
00:27:56,640 --> 00:27:59,320
Speaker 1: despite the FED. You know, the reality is that the

444
00:27:59,400 --> 00:28:03,879
Speaker 1: same sing the fundamental secular developments have nothing to do

445
00:28:03,960 --> 00:28:06,840
Speaker 1: with COVID that brought us to low inflation and low

446
00:28:06,880 --> 00:28:11,320
Speaker 1: interest rates and low growth Asian demographics, Well, how has

447
00:28:11,359 --> 00:28:15,240
Speaker 1: that changed? And monumental debts? Uh, so you're gonna have

448
00:28:15,280 --> 00:28:18,080
Speaker 1: the ran hearts on. Well we'll talk about then. I

449
00:28:18,119 --> 00:28:21,520
Speaker 1: hope how these massive run up and demits and debts

450
00:28:21,560 --> 00:28:23,600
Speaker 1: are going to be dealing with those resolving those are

451
00:28:23,680 --> 00:28:26,040
Speaker 1: going to be a huge constrained and accurate demand for

452
00:28:26,119 --> 00:28:28,040
Speaker 1: years to come. How are you going to get inflation

453
00:28:28,040 --> 00:28:30,200
Speaker 1: out of that? So we're going to get a bump

454
00:28:30,280 --> 00:28:34,760
Speaker 1: and growth bondyles may go up basis points, and they're

455
00:28:34,800 --> 00:28:36,960
Speaker 1: gonna come right back down again because the same fund

456
00:28:37,320 --> 00:28:40,760
Speaker 1: fundamental forces that brought us down two d base points

457
00:28:40,760 --> 00:28:43,560
Speaker 1: in the ten year notes in the last cycle are

458
00:28:43,560 --> 00:28:45,520
Speaker 1: going to be the same forces that drive yields back

459
00:28:45,560 --> 00:28:48,520
Speaker 1: down towards zero in the next number of years. This

460
00:28:48,600 --> 00:28:50,880
Speaker 1: is fascinating to me, and it comes at a time

461
00:28:51,080 --> 00:28:54,000
Speaker 1: when a growing number of strategists expect the Federal Reserve

462
00:28:54,280 --> 00:28:57,560
Speaker 1: to increase their long and dated bond purchases at their

463
00:28:57,600 --> 00:29:00,280
Speaker 1: meeting next month. There is this expectation that eight billion

464
00:29:00,320 --> 00:29:02,800
Speaker 1: dollars of purchases a month will be more heavily weighted

465
00:29:02,840 --> 00:29:06,240
Speaker 1: toward the ten year, twenty and thirty year maturities. Why

466
00:29:06,280 --> 00:29:08,480
Speaker 1: should the Fed be doing that? If you are right,

467
00:29:08,520 --> 00:29:11,000
Speaker 1: and if yields are going to remain low because the

468
00:29:11,040 --> 00:29:15,600
Speaker 1: economy just is not going to grow that quickly, well,

469
00:29:15,600 --> 00:29:17,800
Speaker 1: that's just another form of what they used to call

470
00:29:17,880 --> 00:29:22,040
Speaker 1: operation twist. Um. I'm you know, who knows that the

471
00:29:22,040 --> 00:29:25,760
Speaker 1: Fed is going to go that route or not this quickly. Um,

472
00:29:25,800 --> 00:29:29,080
Speaker 1: It's not as if a ten year treasury not yield

473
00:29:29,200 --> 00:29:32,040
Speaker 1: has really broken out. It's really just in a range

474
00:29:32,080 --> 00:29:33,760
Speaker 1: you can argue on the top end of the range.

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00:29:33,760 --> 00:29:35,680
Speaker 1: In the context of a stock market that's gone up

476
00:29:37,440 --> 00:29:40,360
Speaker 1: from the lows, it's pretty remarkable in its own right. Um.

477
00:29:40,440 --> 00:29:44,120
Speaker 1: But if look, that's basically the threat that will always

478
00:29:44,160 --> 00:29:47,680
Speaker 1: be there is that if bond yields become unhinged, the

479
00:29:47,720 --> 00:29:51,719
Speaker 1: FED will come in hard and uh and cap longer,

480
00:29:51,800 --> 00:29:55,720
Speaker 1: longer term yields because that would be a form of

481
00:29:55,840 --> 00:29:59,320
Speaker 1: financial market tightening, would cause mortgage rates to go up.

482
00:29:59,360 --> 00:30:02,400
Speaker 1: They would you know than um, you know, a detract

483
00:30:02,400 --> 00:30:04,440
Speaker 1: from one of the positives in the economy, which has

484
00:30:04,480 --> 00:30:07,920
Speaker 1: been housing. So I think that that is an ongoing threat.

485
00:30:08,320 --> 00:30:10,560
Speaker 1: Just to know that the fat can come in. It's

486
00:30:10,680 --> 00:30:13,160
Speaker 1: like you're talking about credit spreads before knowing the fat

487
00:30:13,200 --> 00:30:15,320
Speaker 1: is going to come in and buy corporate credit by

488
00:30:15,320 --> 00:30:18,840
Speaker 1: how your bonds. Just knowing that threat exists is what's

489
00:30:18,880 --> 00:30:22,080
Speaker 1: caused investor's comfort to go in and and add on

490
00:30:22,200 --> 00:30:25,040
Speaker 1: risk in corporate credit. It's very similar at the long

491
00:30:25,160 --> 00:30:27,040
Speaker 1: end of the curve, where you might be more comfortable

492
00:30:27,080 --> 00:30:29,200
Speaker 1: taking on duration risk knowing that the FED could do

493
00:30:29,240 --> 00:30:30,800
Speaker 1: this at any point in time. Whether or not they

494
00:30:30,800 --> 00:30:32,840
Speaker 1: do it or not, or they talk about in the minutes,

495
00:30:33,040 --> 00:30:36,080
Speaker 1: I mean, who knows, but that's still out there, and

496
00:30:36,120 --> 00:30:39,040
Speaker 1: that alone helps cap the long end of the crew. David,

497
00:30:39,080 --> 00:30:40,840
Speaker 1: I want to talk. You mentioned the Reinhart's and we're

498
00:30:40,880 --> 00:30:43,000
Speaker 1: thrilled there with us. Later in the hour. Folks, my

499
00:30:43,160 --> 00:30:47,400
Speaker 1: essay is the summer the pandemic depression, David, pretty gloomy assessment.

500
00:30:47,440 --> 00:30:51,360
Speaker 1: You're not a gloomy guy. What do equity markets do

501
00:30:52,280 --> 00:30:58,320
Speaker 1: if you get reinhard caution and gloom. Well, look, you

502
00:30:58,360 --> 00:31:01,280
Speaker 1: know we we have you know, we had are you know,

503
00:31:01,320 --> 00:31:05,040
Speaker 1: the worst recession since the nineteen thirties. We had a

504
00:31:05,080 --> 00:31:10,120
Speaker 1: one month draw down of three in the stock market. Uh,

505
00:31:10,200 --> 00:31:12,280
Speaker 1: and then we bounced right back. And actually, when you

506
00:31:12,320 --> 00:31:14,320
Speaker 1: go back to some of the most horrific days on

507
00:31:14,400 --> 00:31:17,800
Speaker 1: economic data, when we're going back tom to like April

508
00:31:17,880 --> 00:31:20,920
Speaker 1: and May, like at the depths of despair, the markets

509
00:31:20,960 --> 00:31:24,680
Speaker 1: actually already started to rally um. And so I think

510
00:31:24,720 --> 00:31:26,920
Speaker 1: that the mantra of you know, don't fight the Fed,

511
00:31:27,280 --> 00:31:29,360
Speaker 1: there is no alternatives, you know, all these things that

512
00:31:29,400 --> 00:31:31,200
Speaker 1: I used to roll my eyes at, you know, it

513
00:31:31,200 --> 00:31:34,560
Speaker 1: seems to have worked in terms of creating confidence in sentiment.

514
00:31:35,280 --> 00:31:38,160
Speaker 1: It's a confidence led market, a sentiment lead market. We

515
00:31:38,240 --> 00:31:40,800
Speaker 1: have a two year Like when you're taking a look

516
00:31:40,840 --> 00:31:45,800
Speaker 1: at the pe multiple on two estimates, it's eighteen. I

517
00:31:45,840 --> 00:31:48,280
Speaker 1: remember when I started the business in eighteen, multiple on

518
00:31:48,320 --> 00:31:51,280
Speaker 1: trailing would have been unbelievably expensive. Today people don't cope

519
00:31:51,320 --> 00:31:55,040
Speaker 1: in eighteen multiple on two year for forward earnings, the

520
00:31:55,080 --> 00:31:58,040
Speaker 1: market is still cheap. So that's mentality of the marketplace.

521
00:31:58,320 --> 00:32:00,120
Speaker 1: So I would say that as long as you have

522
00:32:00,200 --> 00:32:02,240
Speaker 1: the stad they're saying, we're gonna pump the system of

523
00:32:02,320 --> 00:32:05,560
Speaker 1: liquidity um, and so long as you have this belief

524
00:32:05,640 --> 00:32:08,800
Speaker 1: that the vaccines will return us to the old normal,

525
00:32:09,240 --> 00:32:12,160
Speaker 1: which is not my view, but that's the market to you, uh,

526
00:32:12,200 --> 00:32:14,640
Speaker 1: then the stock market may well continue to surprise on

527
00:32:14,680 --> 00:32:17,560
Speaker 1: the upside um. And so you know, I'm not bullish

528
00:32:17,560 --> 00:32:19,560
Speaker 1: on the market, but that's the narrative and the narrative.

529
00:32:19,680 --> 00:32:21,480
Speaker 1: That narrative is certainly one the day. Over the course

530
00:32:21,520 --> 00:32:24,600
Speaker 1: of the past six seven eight months, the out out

531
00:32:24,920 --> 00:32:27,880
Speaker 1: out normal, a few crises of David writes to catch

532
00:32:27,920 --> 00:32:29,720
Speaker 1: up to my disrespectfully amount of what the guy. Since

533
00:32:29,720 --> 00:32:31,560
Speaker 1: you research, and fantastic to have you with us on

534
00:32:31,560 --> 00:32:34,680
Speaker 1: the program. Thank rosen Buck that of rosen Buck Research.

535
00:32:35,400 --> 00:32:39,600
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

536
00:32:39,680 --> 00:32:45,000
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast

537
00:32:45,040 --> 00:32:49,280
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before

538
00:32:49,320 --> 00:32:53,160
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg

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00:32:53,240 --> 00:32:53,520
Speaker 1: Radio