WEBVTT - Surveillance: Consumer Is Strong, Sadove Says 0:00:00.080 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Leye. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.760 Bloomberg dot Com, and of course on the Bloomberg. Let's 0:00:27.760 --> 0:00:30.160 start a conversation off this morning with Peter Dixon, Commons 0:00:30.160 --> 0:00:34.239 Bank Global Equities economist. Peter. Great to catch up with you, sir, 0:00:34.360 --> 0:00:36.520 I just want to start with the basic one. Seems 0:00:36.560 --> 0:00:39.200 to me that nobody really wants to sell down risk 0:00:39.520 --> 0:00:42.400 before the first vaccination. Do you share that view, sir, 0:00:43.680 --> 0:00:48.480 M morning, Um, Yeah, it's true. I mean I think 0:00:48.520 --> 0:00:50.839 that at the moment um, you know, all the good 0:00:50.880 --> 0:00:53.280 news is basically being put into the price, but most 0:00:53.280 --> 0:00:55.640 of it anyway, and you know, we're not in kindly 0:00:55.680 --> 0:00:57.080 show how is it going to play out? And we've 0:00:57.120 --> 0:01:00.120 we've had lots of questions, I think, particularly regarding the 0:01:00.400 --> 0:01:04.120 Apresentica situation, but as you said, markets just not willing 0:01:04.160 --> 0:01:06.880 to sell off. Um, you know, at the moment I 0:01:06.920 --> 0:01:09.000 think we're in a bit of a holding pattern. Obviously, 0:01:09.240 --> 0:01:14.080 the holiday disrupted um period has has probably forced investors 0:01:14.120 --> 0:01:15.560 onto the back put a little bit. We're being a 0:01:15.560 --> 0:01:18.240 little bit circumspect now and we still have a couple 0:01:18.280 --> 0:01:22.880 of weeks I guess of trading in this year to come. Um, 0:01:22.920 --> 0:01:25.200 you know, normally you'd expecting to start winding down. But 0:01:25.240 --> 0:01:27.240 I think there are just so many things, so many 0:01:27.280 --> 0:01:30.600 moving parts out there, that I think we can expect 0:01:30.600 --> 0:01:34.880 a very very interesting two weeks. I think the my 0:01:35.000 --> 0:01:37.240 view is that we should be positive. I think we'd 0:01:37.240 --> 0:01:39.559 probably ender you a little bit higher than we are now. 0:01:39.920 --> 0:01:43.319 But um, you know, there's there's many a slip between 0:01:43.360 --> 0:01:45.520 coup lip as you say, and you know there are 0:01:45.560 --> 0:01:48.440 there are lots of downside risks. Well, let's talk about 0:01:48.440 --> 0:01:50.720 the slips that we've had already. Jobless claims moving the 0:01:50.760 --> 0:01:53.800 wrong way last week, jobless claims moving the wrong way 0:01:53.920 --> 0:01:56.800 this week. Peter, I've kept asking a question, how big 0:01:56.800 --> 0:01:59.160 will our tolerance be? How high will our tolerance be? 0:01:59.480 --> 0:02:01.960 As we work our way through some negative data in 0:02:02.000 --> 0:02:04.160 the United States of America. We've shaken off two weeks 0:02:04.160 --> 0:02:06.040 of it. Can we shake off three? Can we shake 0:02:06.080 --> 0:02:10.360 off four? Or five? Six? Um? To fair point? You know, 0:02:10.360 --> 0:02:12.880 when how many how many dat points do you need 0:02:13.040 --> 0:02:15.800 to see a pattern or a trender moving here. UM. 0:02:15.800 --> 0:02:18.280 I mean I think the markets are looking a bit 0:02:18.280 --> 0:02:22.120 further ahead than it. I mean, obviously the labor market 0:02:22.160 --> 0:02:24.240 in the States has taken a massive hit, doesn't need 0:02:24.280 --> 0:02:26.320 has been the casing no other markets around the world. 0:02:26.360 --> 0:02:28.480 But we get more to the data in the US, 0:02:28.520 --> 0:02:30.919 and I think we just put it under the magnifined 0:02:30.919 --> 0:02:33.480 class a little bit more. UM. But it is true 0:02:33.520 --> 0:02:36.639 that it's still some importanment anyway, it's still some tenderly 0:02:36.639 --> 0:02:40.160 shorter where we were back in February. UM. And as 0:02:40.200 --> 0:02:42.639 you said, it's running in the wrong direction. Um. If 0:02:42.680 --> 0:02:44.280 we get to the end of the year we've had 0:02:44.320 --> 0:02:47.120 any major problems, I think markets can can wear that. 0:02:47.280 --> 0:02:48.880 You know, a couple of a couple of small ups 0:02:48.880 --> 0:02:51.440 and a couple of small downs. Broadly ciders and claims 0:02:51.639 --> 0:02:55.160 will be happy. But if if the claims numbers started 0:02:55.320 --> 0:02:58.320 moving the wrong direction of fact to pay, that's the 0:02:58.360 --> 0:03:00.760 point in which I think markets was not to get worried. 0:03:00.760 --> 0:03:05.959 And of course, given the mounting number of COVID cases everywhere, 0:03:05.960 --> 0:03:08.359 but obviously in the United States, I think that certainly 0:03:08.360 --> 0:03:10.960 is a major with Peter, great to have you with us. 0:03:11.080 --> 0:03:13.840 I'm interested by not all markets are made the same. 0:03:13.880 --> 0:03:15.280 At the moment, I'm looking at a board with the 0:03:15.320 --> 0:03:17.600 Russell two thousand. Yes it's only done by tenth of 0:03:17.600 --> 0:03:20.760 a percent, but it's down while the NASDAC outperforms once again, 0:03:20.800 --> 0:03:23.799 this so called rotation trade, which we turn a phrase 0:03:23.800 --> 0:03:25.840 we use too much at the moment, but it's on hold. 0:03:26.800 --> 0:03:30.680 Can we move higher without big tech in leading charge? 0:03:30.800 --> 0:03:32.720 Or do you expect that big tech will once again 0:03:32.760 --> 0:03:38.400 become a game plan for investors? Um? Well, I think 0:03:38.400 --> 0:03:41.360 there would remember this used there all interesting ones. I 0:03:41.400 --> 0:03:45.120 mean in terms of the big picture. Um, you know, 0:03:45.200 --> 0:03:48.720 I do think that the tech universe will move higher, 0:03:48.720 --> 0:03:50.720 but I think we'll have to different chips in those 0:03:50.760 --> 0:03:53.360 parts of the text that we like or would have 0:03:53.680 --> 0:03:57.880 a um you know opposed COVID future and those which 0:03:58.000 --> 0:04:00.760 perhaps have gone well, you know, thanks the lockdown. So 0:04:01.160 --> 0:04:04.360 you know, do you want to stick with Netflix in 0:04:04.400 --> 0:04:06.400 a world in which we're were getting back to some 0:04:06.480 --> 0:04:09.840 Ford normality? Whereas there has been a game change in 0:04:09.920 --> 0:04:15.040 terms of Amazon's revolution of the online trading platform. So 0:04:15.280 --> 0:04:17.919 I think there is there's definitely still value there, but 0:04:18.080 --> 0:04:20.200 whether it will be the same trade that we saw 0:04:20.320 --> 0:04:24.800 prior to the lockdowns, I would question in terms of 0:04:25.080 --> 0:04:28.480 the non tech sector, Um, you know, it is really 0:04:28.480 --> 0:04:31.520 dependent on good news on the vaccines front. I mean, um, 0:04:31.680 --> 0:04:33.360 as I said, I think much of the good news 0:04:33.400 --> 0:04:37.159 was price being very quickly. We need more part of 0:04:37.160 --> 0:04:40.200 the market higher. Um you know, that could happen, But 0:04:40.279 --> 0:04:42.600 at the moment, there's nothing out there which is really 0:04:42.600 --> 0:04:47.640 going to uh, which is been flogging my bolt floating around. 0:04:47.640 --> 0:04:50.560 I mean, the moves have been sensational. The Russell two 0:04:50.600 --> 0:04:53.280 thousand up twenty on the month, a record month, at 0:04:53.320 --> 0:04:57.760 record highs, the Dow at that sacred number thirty thou Meanwhile, 0:04:58.320 --> 0:05:01.440 bonds remain completely ranged and making the US Treasury, which 0:05:01.480 --> 0:05:04.400 never really get above one percential points peter folding the 0:05:04.480 --> 0:05:07.240 yield differentiation here and how much at what point we 0:05:07.360 --> 0:05:11.560 might see people back away from these valuations if the 0:05:11.640 --> 0:05:13.719 yield does just pick up that much higher in the 0:05:13.800 --> 0:05:18.280 US well, I mean, the most question you have to 0:05:18.279 --> 0:05:20.320 ask yourself is is what those central part is going 0:05:20.360 --> 0:05:22.280 to do? And the w belihood is that they will 0:05:22.320 --> 0:05:24.719 stay active for a long time to come. So I 0:05:24.760 --> 0:05:27.160 think we're talking, you know, another six months or there 0:05:27.160 --> 0:05:29.640 about at least before we have to start thinking about 0:05:30.120 --> 0:05:33.200 um significant moves in years. Yes, there might be a 0:05:33.200 --> 0:05:37.760 bit of a pickup UM if we stop UM more 0:05:37.800 --> 0:05:41.160 good vaccine news, I mean much better news we're seeing 0:05:41.160 --> 0:05:42.840 now that that could you know, send you us a 0:05:42.839 --> 0:05:45.640 little bit higher. But I genuinely don't think that years 0:05:45.640 --> 0:05:48.600 are going to go anywhere any time fast. So whatever 0:05:48.880 --> 0:05:50.440 they pick up in the first half of next year, 0:05:50.480 --> 0:05:54.839 they're probably losing. Let's talk about why we want to 0:05:54.880 --> 0:05:56.520 jump in just quickly and get to the bond market. 0:05:56.560 --> 0:05:59.279 At the moment, two's tense thirties yields lower on tens 0:05:59.279 --> 0:06:02.000 were down to bay points to zero point eight six. 0:06:02.880 --> 0:06:05.480 This market is rallied. As Caroline pointed out, we've had 0:06:05.520 --> 0:06:08.440 that great rotation over the last month. This bond market 0:06:08.600 --> 0:06:11.240 yields just haven't come with it. We've been asking a question, 0:06:11.279 --> 0:06:13.600 why do you think it's technical because people believe the 0:06:13.680 --> 0:06:15.600 FED steps in and put a lid on it, or 0:06:15.600 --> 0:06:17.480 do you think it's fundamental. There's some doubts in this 0:06:17.520 --> 0:06:20.760 bond market about that object free for growth, for inflation 0:06:21.000 --> 0:06:24.720 for the years to come. If you ask me to, 0:06:25.520 --> 0:06:28.359 I would expectations of what the ES central banks are 0:06:28.360 --> 0:06:33.440 going to do and said, you know, maybe, um, it's fundamentals. 0:06:33.480 --> 0:06:35.640 I mean, there are some people out there who say, well, actually, 0:06:35.600 --> 0:06:39.039 if the recovery does go at pace over the course 0:06:39.080 --> 0:06:42.279 of the next there's been such damage to the supply 0:06:42.320 --> 0:06:44.120 side of the economy that you might actually see inflation 0:06:44.160 --> 0:06:45.800 start to pick up. I mean, that's not my view, 0:06:46.160 --> 0:06:48.360 but it's out there, so you know, there are some 0:06:48.440 --> 0:06:51.120 modest side this. But I ain generally speaking, I would 0:06:51.120 --> 0:06:53.160 see you know, rate to go in ciders and U 0:06:53.240 --> 0:06:55.599 the Caroline's point, why is the great rotation that happened 0:06:55.600 --> 0:06:59.080 simply because investors we don't see muny violent bonds that 0:06:59.400 --> 0:07:01.480 they continue to pol into Aroviu. Do not think that's 0:07:01.520 --> 0:07:03.560 going to be the theme, certainly for you in a 0:07:03.560 --> 0:07:08.000 month one, Peter Greater, catch up. Appreciate your time this morning, 0:07:08.000 --> 0:07:21.960 Sir Pil Dixon there of Commerce Bank. Camilla Yanaschowski joins 0:07:22.000 --> 0:07:25.400 us now of CFR, a equity research Commilla. I'm trying 0:07:25.400 --> 0:07:30.280 to understand this. Did he increases in COVID positive testing 0:07:30.360 --> 0:07:32.520 rates in the United States of America across the country, 0:07:32.520 --> 0:07:37.600 including hospitalizations? Do they lead to people shopping less or 0:07:37.640 --> 0:07:42.000 just changing how they shop? Shopping less? For sure? Thanks 0:07:42.040 --> 0:07:47.040 for having me fantastic to have you. Let's build on that, then, Comilla, 0:07:47.040 --> 0:07:51.160 where do they shop less in store? I mean, today 0:07:51.160 --> 0:07:54.840 is Black Friday here in the US, and COVID nineteen 0:07:54.920 --> 0:07:58.680 is completely challenging the traditional holiday calendar. I think we're 0:07:58.680 --> 0:08:02.120 going to be seeing very few shoppoholics trending on Twitter, 0:08:02.840 --> 0:08:05.720 uh camping outside a wal Mart, Target or bust by 0:08:05.800 --> 0:08:10.600 today and that very muted outlook we have on Black Friday, 0:08:10.640 --> 0:08:14.400 which traditionally has been one of the biggest holiday shopping 0:08:14.480 --> 0:08:17.240 days of the year, has to do a fear of 0:08:17.360 --> 0:08:22.760 COVID nineteen and daily cases reaching new daily highs. In fact, 0:08:22.760 --> 0:08:27.720 the survey in October found that a little over ten 0:08:27.800 --> 0:08:31.240 percent of consumers said that they were very likely to 0:08:31.320 --> 0:08:35.679 shop in stores on Black Friday. So Committa, the medium 0:08:35.920 --> 0:08:38.040 and the medium of which people choose the shop is 0:08:38.080 --> 0:08:41.680 clearly shifting away from bricks and mortar towards e commerce. 0:08:41.720 --> 0:08:44.439 That's been clear for years and accelerated through this pandemic. 0:08:44.679 --> 0:08:46.560 When I say where will they shop less? I'm trying 0:08:46.600 --> 0:08:49.960 to understand what will people spend money on home depot 0:08:50.000 --> 0:08:52.480 in the home improvement channel that has just been absolutely 0:08:52.559 --> 0:08:55.400 massive through this year. Is that what you see continue 0:08:55.400 --> 0:09:00.840 strength into one even with a vaccine. Resolutely, when we 0:09:00.840 --> 0:09:03.480 look at the survey data, we've seen elevated interest for 0:09:03.559 --> 0:09:06.560 home decker and home furnishings, which doesn't come to us 0:09:06.559 --> 0:09:10.880 as a surprise given that with COVID nineteen cocooning, people 0:09:10.960 --> 0:09:14.160 are taking on more at home living projects. But also 0:09:14.360 --> 0:09:17.760 the data that we've looked at has shown that gift cards, 0:09:17.760 --> 0:09:21.400 the clothing and accessories will continue to be popular categories 0:09:21.480 --> 0:09:25.679 this holiday season. Wow clothing. Finally, because everyone seems to 0:09:25.679 --> 0:09:27.600 have been pretty doom and gloom on that one coming. 0:09:27.800 --> 0:09:30.959 I'm I'm a sucker for an experiential present, you know, 0:09:31.000 --> 0:09:32.920 and you name it a cook re calls some sort 0:09:32.920 --> 0:09:36.280 of cocktail making thing. Are people doing that? I mean 0:09:36.320 --> 0:09:38.680 we've seen a B and B managed to pivot into 0:09:38.679 --> 0:09:40.480 that sort of element of things, but I feel that 0:09:40.520 --> 0:09:43.040 experiential is going to be foot coming off the gas. 0:09:44.480 --> 0:09:47.480 What what is seeing and this is specifically with the 0:09:47.559 --> 0:09:53.040 higher income demographic and why we have a forecast for 0:09:53.080 --> 0:09:57.120 the holiday season of a K shaped economic recovery, is 0:09:57.160 --> 0:10:01.000 that higher income individuals, which have seen after restoration of 0:10:01.080 --> 0:10:05.960 jobs and higher income growth, they're actually shifting spend away 0:10:06.000 --> 0:10:11.840 from pandemic reliance services like travel like entertainment like experiences, 0:10:11.880 --> 0:10:15.960 and that spend is actually shifting into retail this holiday season. 0:10:16.440 --> 0:10:19.760 So our holiday outlook, which is that retail sales for 0:10:19.800 --> 0:10:22.760 the months of November and December will be flat year 0:10:22.760 --> 0:10:25.960 every year, coming in at one point five trillion dollars. 0:10:25.960 --> 0:10:31.000 It's really reliant on how much these higher income individuals 0:10:31.000 --> 0:10:34.200 splurgd this holiday season. This K shaped economy is so 0:10:34.240 --> 0:10:37.080 important to us and the unequal nature of which this 0:10:37.160 --> 0:10:41.320 rebound is occurring. Who benefits by the fact that they're 0:10:41.400 --> 0:10:44.959 unfortunately middle high income brackets who were able to spend 0:10:45.000 --> 0:10:47.160 on a on a piece of jewelry rather than a 0:10:47.320 --> 0:10:51.160 high end luxury travel and who doesn't. Who loses out 0:10:51.200 --> 0:10:53.959 by the fact that those on the who can't manage 0:10:53.960 --> 0:10:56.000 to get back to work at the moment are unable 0:10:56.080 --> 0:10:58.480 to buy for their children in the way that they 0:10:58.520 --> 0:11:03.280 usually would on the retailer. And we did a digital 0:11:03.280 --> 0:11:06.840 traffic analysis. It's an analysis that we run every year 0:11:06.920 --> 0:11:10.040 to forecast or winners and losers. And the reason why 0:11:10.080 --> 0:11:13.160 we look at digital traffic is because we see a 0:11:13.240 --> 0:11:16.920 direct positive correlation between digital traffic and in store traffic. 0:11:17.600 --> 0:11:22.920 And we saw growing momentum of luxury brands like Tiffany's 0:11:23.160 --> 0:11:25.880 entering this holiday season. And then one name that we 0:11:25.960 --> 0:11:29.000 called out in terms of our top five winners was 0:11:29.080 --> 0:11:32.959 Williams Sonoma, which is a digital first home furnishing retailer 0:11:33.280 --> 0:11:37.360 specifically targeted to a higher income demographic. And then in 0:11:37.480 --> 0:11:39.720 terms of losers, I think it comes more on the 0:11:40.480 --> 0:11:45.319 lower income consumer end because we think that this group 0:11:45.320 --> 0:11:49.040 of people are very likely to embrace frugality this holiday 0:11:49.040 --> 0:11:52.600 season as fiscal stimulus starts to run low. There are 0:11:52.760 --> 0:11:57.600 estimates that approximately twelve million workers are facing a jobless 0:11:57.679 --> 0:12:02.400 benefit cliff. On December twenty text, commit to appreciate your 0:12:02.400 --> 0:12:04.720 time this morning. Ready to hope you had a wonderful Thanksgiving. 0:12:04.760 --> 0:12:17.240 Kimilianischewsky there of cf R A, let's bring in our 0:12:17.240 --> 0:12:20.600 guests this morning during Materics MetLife Investment Management, Chief market 0:12:20.640 --> 0:12:23.160 Strategist during Fantastic to catch up with you, mate. Let's 0:12:23.160 --> 0:12:24.960 just talk about the bond market to begin with. We've 0:12:24.960 --> 0:12:27.640 talked through the last ten years in the last cycle, 0:12:28.080 --> 0:12:31.319 and our inability to get yield higher, much higher, our 0:12:31.360 --> 0:12:33.839 inability in Europe to generate any kind of recovery that 0:12:33.880 --> 0:12:36.280 actually lead to higher interest rates. In fact, they kept 0:12:36.320 --> 0:12:40.079 going lower through the cycle. Why is this recovery going 0:12:40.120 --> 0:12:43.440 to be any different route, Well, what I talked to people, 0:12:43.480 --> 0:12:46.160 I think what's different about this recovery is that everyone's 0:12:46.200 --> 0:12:49.360 talking about the risk of inflation going forward. Um. And 0:12:49.640 --> 0:12:51.720 it's actually surprised me because I think when we do 0:12:51.800 --> 0:12:53.360 the math, you know, we come up with kind of 0:12:53.600 --> 0:12:57.679 inflation normalizing post that, post this crisis. UM. But I 0:12:57.720 --> 0:12:59.240 think a lot of people have it in their in 0:12:59.280 --> 0:13:03.640 their minds at the is an inflationary event longer term, uh, 0:13:03.679 --> 0:13:05.840 And that the period we're living in, you know, more 0:13:05.880 --> 0:13:08.679 closely resembles kind of the Vietnam ra and the United 0:13:08.679 --> 0:13:11.680 States that seventies era that led to uh, you know, 0:13:11.720 --> 0:13:15.520 inflation picking up. You have a FED that's very aggressive. 0:13:15.840 --> 0:13:19.920 You have government stimulus, which uh, you know, we already 0:13:19.920 --> 0:13:23.720 had rounds of and we'll probably have more rounds of UM. 0:13:23.760 --> 0:13:25.839 And then of course you have you have a big 0:13:25.880 --> 0:13:28.679 amount of dislocation and things like the labor market um. 0:13:29.040 --> 0:13:31.480 And so you know, you combine those factors and people 0:13:31.520 --> 0:13:33.560 are beginning to worry a little bit more about inflation 0:13:33.559 --> 0:13:37.480 than they used to. Drew got into the eighties at 0:13:37.480 --> 0:13:40.400 the end of the seventies, the tenure yield was about 0:13:41.360 --> 0:13:45.040 right now, it's eighty five basis points. That's a nomenal yield, granted, 0:13:45.160 --> 0:13:47.600 but through where's the concern around inflation? Why is it 0:13:47.640 --> 0:13:49.439 not being priced into this bond market? I know, it's 0:13:49.440 --> 0:13:51.440 part of the conversation. I'm having them daily as well. 0:13:51.840 --> 0:13:55.360 It's not in the market right now, you know, I 0:13:55.400 --> 0:13:58.040 think because people have have kind of you know, this 0:13:58.120 --> 0:14:00.880 is the boy who cried Wolf scenario. People like myself 0:14:00.880 --> 0:14:03.200 have talked about inflation risks coming out of two thousand 0:14:03.160 --> 0:14:06.600 and eight. We were wrong. Um, you know, other people 0:14:06.920 --> 0:14:08.920 you know, talked about it as well, and so people 0:14:08.920 --> 0:14:10.760 have kind of got it into their heads that inflation 0:14:10.880 --> 0:14:13.280 is this thing that you know, the old people in 0:14:13.280 --> 0:14:17.120 Wall Street talk about, but that that doesn't really exist. Uh. 0:14:17.160 --> 0:14:19.480 And I you know, you hate to say, well, this 0:14:19.520 --> 0:14:21.320 time is going to be different, but I do think 0:14:21.360 --> 0:14:24.000 that there are some reasons to believe inflation might tick higher. 0:14:24.240 --> 0:14:27.640 But let's just normalize it, you know, the idea that 0:14:28.400 --> 0:14:31.040 this movement and yields is not part of kind of 0:14:31.080 --> 0:14:34.200 the movement yields we saw for the last couple of decades, right, 0:14:34.280 --> 0:14:37.760 this is this is an aberration across the trend. Uh. 0:14:37.840 --> 0:14:40.800 And it means that most likely, the most likely scenario 0:14:40.800 --> 0:14:43.960 in my mind, is that inflation moves higher, yields move higher. 0:14:44.880 --> 0:14:48.320 We probably don't go above the pre COVID highs. Right. 0:14:48.360 --> 0:14:50.440 Remember at the end of two thousand nineteen ten uar 0:14:50.520 --> 0:14:54.000 US treasure yields were just below two percent, So you know, 0:14:54.080 --> 0:14:57.320 even just a normalization is a basis points um or 0:14:57.400 --> 0:15:00.440 so uh. And I think that's something that's more realistic 0:15:00.800 --> 0:15:03.800 or more reasonable to consider. Um. I'm not worried about 0:15:03.800 --> 0:15:06.440 a four percent ten year yield anytime soon. If you 0:15:06.480 --> 0:15:08.680 want to call that being worried, I think i'd be. 0:15:08.720 --> 0:15:11.920 I'd be moving money at that point one inflation rate, though, 0:15:11.960 --> 0:15:13.760 do you see on the high side, how hot does 0:15:13.760 --> 0:15:19.040 it run. I'm looking for a normalization of inflation, so 0:15:19.160 --> 0:15:22.480 two percent or so. Uh. You know it's um and 0:15:22.560 --> 0:15:23.880 you know it could go a little higher for a 0:15:23.880 --> 0:15:26.880 temporary period of time. But I think the question people 0:15:26.920 --> 0:15:29.400 have is if we see two percent inflation, is the 0:15:29.480 --> 0:15:31.600 FED going to react? And I think pretty clearly the 0:15:31.600 --> 0:15:35.200 answers no, They've told us no. UM. And what worries me? 0:15:35.640 --> 0:15:38.840 And I think what worries other people about that. Is 0:15:38.880 --> 0:15:44.600 this idea that an organization that really couldn't orchestrate an 0:15:44.600 --> 0:15:48.720 inflationary push or you know, has has had more difficulty 0:15:48.800 --> 0:15:52.040 pulling down inflation, moving inflation around the way that they want, 0:15:52.960 --> 0:15:56.320 has the ability to kind of maneuver inflation, you know, 0:15:56.480 --> 0:15:59.720 with that fine degree of precision. And I think you know, 0:16:00.000 --> 0:16:02.560 think it run hot for a while sounds great. How 0:16:02.600 --> 0:16:04.520 do you know when you're supposed to pull back? And 0:16:04.560 --> 0:16:06.280 how do you know what the lag is in terms 0:16:06.320 --> 0:16:09.080 of people believing that you're finally serious about inflation this time? 0:16:09.680 --> 0:16:12.320 So all of those factors are combining to you know, 0:16:12.400 --> 0:16:13.920 the things that are trying to make us feel good 0:16:13.960 --> 0:16:17.360 about the current environment and and keeping policy easy are 0:16:17.400 --> 0:16:19.760 the ones that are making people more concerned about the 0:16:19.760 --> 0:16:22.560 longer term outlook for the inflation move. Where is this 0:16:22.640 --> 0:16:25.040 inflation coming from? There? Drew? Are we importing it? Are 0:16:25.080 --> 0:16:30.080 we fiscal stimulating it? I think people, I think people 0:16:30.080 --> 0:16:33.720 are going back to the idea that it's a monetary phenomenon. Uh, 0:16:33.760 --> 0:16:36.880 you know, the FED has created a gigantic balance sheet. 0:16:37.280 --> 0:16:39.280 But unlike in two thousand and eight, where there were 0:16:39.280 --> 0:16:43.000 regulatory changes that made banks, you know, hold more in 0:16:43.000 --> 0:16:45.120 the way of bank reserves and kind of more of 0:16:45.160 --> 0:16:49.080 that liquid cash. Um, there's nothing on the other side 0:16:49.080 --> 0:16:52.240 of it this time. Uh, there are no regulatory changes 0:16:52.280 --> 0:16:54.040 I've taken place to kind of make people want to 0:16:54.080 --> 0:16:57.000 hold more cash. Uh. You know, people are holding more 0:16:57.000 --> 0:16:59.600 cash because of COVID, because of the risk around the 0:16:59.640 --> 0:17:02.320 econom Me. If you take that away and all that 0:17:02.360 --> 0:17:04.439 money is still sitting out there, people wonder where it's 0:17:04.480 --> 0:17:06.800 going to go. I also think, you know, from a 0:17:06.840 --> 0:17:11.480 psychological perspective, there are you know, the savings rates very high. 0:17:11.600 --> 0:17:14.679 People are kind of tired of being in their homes, 0:17:14.800 --> 0:17:18.280 tired of being locked up. Um, you know, where are 0:17:18.320 --> 0:17:21.280 they going to go spend that money when the all 0:17:21.320 --> 0:17:25.080 clearer is given? Uh? And is there enough capacity in 0:17:25.119 --> 0:17:27.400 the places that they're gonna want to spend that money 0:17:27.440 --> 0:17:29.320 to actually allow them to spend it? And I think 0:17:29.320 --> 0:17:31.800 the answer is no. Right, There's going to be you 0:17:31.840 --> 0:17:34.760 know a lot of demand for a lot of experiences 0:17:34.840 --> 0:17:36.679 and things like that that are just gonna you know, 0:17:36.760 --> 0:17:40.520 it's gonna be whoever wins the bit. The turn of 0:17:40.520 --> 0:17:43.080 the year is a really important time for bookings for airlines. 0:17:43.119 --> 0:17:45.520 Going into a study east of holiday going into spring 0:17:45.560 --> 0:17:48.360 going into the summer, Andrew, you can imagine the competition 0:17:48.640 --> 0:17:52.080 for flights to go on vacations if the vaccinations have 0:17:52.119 --> 0:17:53.960 actually started. I want to check it on the price 0:17:54.000 --> 0:17:56.600 action just quickly through just excuse me for a moment. Equally, 0:17:56.640 --> 0:17:59.119 futures are near session high. So if about ten points 0:17:59.119 --> 0:18:01.720 on five hundred had a brief move on the VIX 0:18:01.800 --> 0:18:04.480 just for a moment sub twenty for the first time, 0:18:04.480 --> 0:18:06.520 I believe, going all the way back to February sub 0:18:06.560 --> 0:18:09.679 twenty just briefly right now twenty eight. Do you just 0:18:09.800 --> 0:18:12.040 returned to the story of rates. You said something really 0:18:12.080 --> 0:18:15.600 important and really quite compelling. The most important question right 0:18:15.640 --> 0:18:18.440 now through one, if we do get anywhere near two 0:18:18.440 --> 0:18:21.320 percent inflation twenty one into twenty two, is how the 0:18:21.400 --> 0:18:24.919 FED response And they've sat up there reaction function really 0:18:24.960 --> 0:18:28.640 really clearly on rates now, Drew, I'm trying to work 0:18:28.680 --> 0:18:31.520 things out and just extrapolate it out a year, two years, three, 0:18:31.600 --> 0:18:33.720 maybe five. So forgive me, but do you think we 0:18:33.760 --> 0:18:36.560 could face a europe style issue where we go through 0:18:36.560 --> 0:18:40.479 a full cycle, a full recovery without ever putting rates up. 0:18:42.920 --> 0:18:45.240 I mean, I think it's possible. I mean, I you 0:18:45.240 --> 0:18:47.640 know it depends on a recovery from what I mean. 0:18:47.680 --> 0:18:49.880 One of the things that you know, I think it's 0:18:49.920 --> 0:18:53.600 easy to lose sight of is most forecasts, including our own. 0:18:54.119 --> 0:18:56.600 You know, I had a recession in one, that's when 0:18:56.640 --> 0:18:58.960 we were expecting a recession. So we were preparing for 0:18:59.000 --> 0:19:02.640 a recession, uh, in the later stages of nine, because 0:19:02.640 --> 0:19:05.280 we saw one coming a year year and a half out. 0:19:05.400 --> 0:19:08.320 Not because of a virus obviously, but you know, if 0:19:08.320 --> 0:19:10.760 you looked at margins, if you looked at the way 0:19:10.800 --> 0:19:13.960 the labor market was behaving, it all suggested that something 0:19:14.040 --> 0:19:16.600 was going to begin to kind of fall apart in 0:19:16.640 --> 0:19:20.080 the in the later half of we'd be staring a 0:19:20.160 --> 0:19:24.840 recession in the face. UM. You know, I don't think 0:19:25.040 --> 0:19:28.280 this is a cycle. This is this is a shock 0:19:28.880 --> 0:19:32.320 the cycle that we're in. UM, you know, probably reset 0:19:32.359 --> 0:19:35.520 actually a little bit right we we've you know, had 0:19:35.560 --> 0:19:39.800 the recession, having the recession, seeing the labor market do 0:19:39.840 --> 0:19:43.000 what's gonna do? UM? I actually think the next economic 0:19:43.080 --> 0:19:48.000 cycle could be something like the um you're seeing. You 0:19:48.000 --> 0:19:52.280 know that there's going to be improvements in productivity, you know. UM, 0:19:52.720 --> 0:19:56.360 think of this as I think of all the technological 0:19:56.400 --> 0:20:00.439 advancements that happened during World War Two. Right, This is 0:20:00.480 --> 0:20:03.120 not obviously World War two, but this is a big 0:20:03.160 --> 0:20:06.919 shock to the global system that required big movements and 0:20:06.960 --> 0:20:11.080 technology that required big changes. We're experimenting with things, we're 0:20:11.080 --> 0:20:12.960 figuring out how things work, and we're doing at a 0:20:13.080 --> 0:20:16.080 very rapid pace. Um. And when we come out of this, 0:20:16.840 --> 0:20:19.119 a lot of the changes that take place are going 0:20:19.119 --> 0:20:22.960 to be ones that are actually productivity boosting. I think 0:20:23.000 --> 0:20:26.080 we need to really think about the positive sometimes put 0:20:26.119 --> 0:20:28.879 my money to work. Then drew in your focus as 0:20:28.920 --> 0:20:34.479 chief market strategist wearing portfolio, are you adding, well, I mean, look, uh, 0:20:34.760 --> 0:20:37.680 you know, don't fight the Fed. The good adage, um, 0:20:37.720 --> 0:20:41.439 you know, I think you know, if you look across um, 0:20:41.480 --> 0:20:44.280 you know, we are a fixed income oriented portfolio. So 0:20:44.480 --> 0:20:47.720 we're you know, we're we're taking our cues from from 0:20:47.840 --> 0:20:50.040 from the Fed. We're taking our cues from kind of 0:20:50.680 --> 0:20:53.399 uh where we think that things you know, should be going. 0:20:53.920 --> 0:20:55.879 But we're also not losing suite of the fact that 0:20:55.920 --> 0:20:58.239 you know, some of the you know, I think some 0:20:58.280 --> 0:21:00.320 of the ideas that are being put forward are or 0:21:00.359 --> 0:21:03.560 maybe getting a little ahead of themselves. Right, people are 0:21:03.600 --> 0:21:07.520 going to go back to offices right. You know, there 0:21:07.600 --> 0:21:10.639 is an efficiency there of people going to offices. There's 0:21:10.720 --> 0:21:13.600 some lack of efficiency there, but there's also I think 0:21:13.640 --> 0:21:17.119 more benefits than not going into an office and interacting 0:21:17.160 --> 0:21:19.560 with people on a daily basis and seeing those interactions 0:21:19.560 --> 0:21:22.359 and what they turn into. UM. Once again part of 0:21:22.359 --> 0:21:25.840 that experimentation process. UM. And I think you know, for 0:21:25.880 --> 0:21:27.320 a long time people are like, why do we need 0:21:27.359 --> 0:21:29.679 to go into offices? What value does it add? I 0:21:29.720 --> 0:21:31.720 think everyone who's more working from home for the last 0:21:31.720 --> 0:21:33.479