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

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Speaker 1: with Jonathan Ferrell and Lisa brown Witz Jailey. We bring

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Speaker 1: you insight from the best and economics, finance, investment, and

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Speaker 1: international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg

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Speaker 1: dot com, and of course, on the Bloomberg terminal. Right now,

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Speaker 1: this is a really really important interview for those of

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Speaker 1: you worried about the stock market. Andrew Slimmon is the

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Speaker 1: Morgan Stanley, a senior portfolio manager among other duties. Is well, Andrew,

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Speaker 1: I want to talk about the nuance here. As we

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Speaker 1: went to air, you were talking about not raging but

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Speaker 1: being a raving bull. You're not a raving bull, but

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Speaker 1: you're in the market. How can you do that? Well,

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Speaker 1: I mean, I'm trying to say, is lucky. I mean,

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Speaker 1: let's keep it simple here. Stocks are the present value

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Speaker 1: of future expectations. And what I see is companies are

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Speaker 1: blowing out expectations. So I don't see how you can't

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Speaker 1: take a step back and say, wow, you know, uh,

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Speaker 1: something's going on. Companies are saying things are better than

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Speaker 1: what Wall Street expects, and I think you have to

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Speaker 1: respect that uh, and what the market saying. The term

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Speaker 1: of your research note is you've got the usual bladder

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Speaker 1: and then you've got a killer paragraph of data where

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Speaker 1: you go, oh he and Morgan Stanley did your homework.

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Speaker 1: You have the Street with an eleven percent miscalculation on earnings.

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Speaker 1: They just they missed it by eleven percent. Put that

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Speaker 1: in scope and scale, What does it mean forward? Well,

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Speaker 1: you know that's why I've a hard time someone telling me, well,

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Speaker 1: you know, we started the year with a hundred and

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Speaker 1: sixty seven dollars of earning. That was what Wall Street expected.

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Speaker 1: We're now. I guess I'm just not smart enough to

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Speaker 1: for to listen to someone who says that's it. It's

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Speaker 1: not going up. I mean I have a hard time

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Speaker 1: believing that. And the market is only up by the

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Speaker 1: magnitude of that earnings with so I don't think you

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Speaker 1: can say the market has gotten frothier than it was

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Speaker 1: earlier in the year. No, the markets just repriced based

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Speaker 1: on that miss. And if we continue to move higher,

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Speaker 1: which I think it's always very dangerous to draw the

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Speaker 1: kind of the line that saying said this is it,

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Speaker 1: then I think the market will continue to push higher.

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Speaker 1: The other thing that I think it's really important. Here

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Speaker 1: is the down Jones Industrial Transport, the old index that

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Speaker 1: tells you how the market. It's kind of thirteen weeks

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Speaker 1: in a row. That's you got to respect that something

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Speaker 1: is going on here that I think Wall Street is

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Speaker 1: not optimistic enough about the what companies are saying. And

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Speaker 1: that's healthy though, isn't it. It's healthy. We're not getting

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Speaker 1: carried away with this at the moment. We're looking at

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Speaker 1: prices almost exclusively. At the moment, we're focused on execution risk,

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Speaker 1: very little attention plate and what's actually happening with margins

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Speaker 1: entry focus? It was actually happening with margins well, I

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Speaker 1: mean there's certainly a reals of margins uh peeking or

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Speaker 1: being constrained. I agree with that, but you know, could

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Speaker 1: that be overcome by revenues being stronger than expected. That

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Speaker 1: remains to be seen. But clearly I think there is

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Speaker 1: a rotation into companies that will not be as margin squeeze.

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Speaker 1: Whether that's in some of the commodities, areas, energy, financials.

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Speaker 1: I think those are the areas that are most intriguing

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Speaker 1: in the market because there's probably the least margin squeeze

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Speaker 1: out there and shooting. Emmanuel yesterday put it down another Andrew.

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Speaker 1: They upgraded Staples price action, pricing power rather being the

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Speaker 1: focus that did the Staples. They only right down right now, Andrew,

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Speaker 1: no one like them because I think they will have

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Speaker 1: margin squeeze. Number one. Number two is if I am

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Speaker 1: if I'm right about the fact that the economy is

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Speaker 1: stronger than what is priced in the stocks. I don't

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Speaker 1: want defensive stocks. I want cyclical socks. I want value stocks.

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Speaker 1: And I think as much as I hear people talk

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Speaker 1: about owning uh, cyclical socks, the data suggests they really don't,

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Speaker 1: they really don't. So I think gearing up your own

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Speaker 1: consavele Staples. If the market's gonna fall, gearing up for

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Speaker 1: a fall, well, that's not what the second quarter first

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Speaker 1: quarter earnings reports has sold you. Andrew. Is there any

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Speaker 1: logic behind the caution that we're seeing with stock investors

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Speaker 1: and frankly with the analysts on Wall Street? Well, it

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Speaker 1: sounds smarter, all it does. It all sounds smarter, Uh,

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Speaker 1: But I I think you have to be a little

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Speaker 1: humble here and think us the market's telling you something

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Speaker 1: that leads you to be a little bit more optimistic

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Speaker 1: than what you're hearing. Look, I there's no question in

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Speaker 1: my mind we're gonna have a pull back at some point,

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Speaker 1: but I don't think it's in the near future, not

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Speaker 1: with what's coming out of these uh these earnings report.

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Speaker 1: They're just too powerful. So if a company, you know,

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Speaker 1: if if a Wall Street is forced to raise earning

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Speaker 1: but the stock doesn't respond, don't get don't get pulled

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Speaker 1: out of those stocks. Stocks don't go down for long.

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Speaker 1: You know, when you know the future is better than

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Speaker 1: what it's presently twice in this stock. And the reason

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Speaker 1: why I ask this is because there is then an

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Speaker 1: incoherence with respect to the bond market and what we're

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Speaker 1: seeing in equities. Because if you're right and the balance

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Speaker 1: is toward more gains and a further growth trajectory here,

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Speaker 1: then the bond market is not making sense at a

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Speaker 1: time when the US is increasing its deficit and you've

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Speaker 1: got big nationals in the United States raising their dividends

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Speaker 1: and offering way more income to investors just purely on

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Speaker 1: an income basis, even let alone the potential returns. Can

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Speaker 1: you square these realities exactly? That's maybe why the markets

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Speaker 1: going up. Um. Look, I think rates are going to

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Speaker 1: go up because I think basically the economy is stronger

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Speaker 1: than we realize. But I don't think it's going to

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Speaker 1: go up at a very rapid right because there's this

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Speaker 1: you know that the different menial to the rest of

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Speaker 1: the world is great enough that creates a bid for

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Speaker 1: our for our bond prices. But I'm a I'm an

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Speaker 1: equity guy, and I think it's saying to you that

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Speaker 1: remain in the cyclical. I think there's a long way

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Speaker 1: to go. I think people are you know, energy stocked.

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Speaker 1: They were the best performing sector in the first quarter.

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Speaker 1: They get no love because there's this expectation that the

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Speaker 1: economy is peaking. I think the best of it how

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Speaker 1: many times again, yesterday, Tom, the M the p M,

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Speaker 1: I was seen the best of it, peak growth, Tom

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Speaker 1: again and again on the peak. I love the doing

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Speaker 1: me a favorite, Jonathan. When someone says to you, we've

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Speaker 1: seen the best of it, say, were your estimates eleven

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Speaker 1: eleven percent too low at the beginning of the year.

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Speaker 1: I mean, that's what you have to come to challenge them.

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Speaker 1: The fact is, Andrew, you and I are watching the

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Speaker 1: internet gloom. The peak is Friday evening. Everybody's got a

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Speaker 1: Martini in their hand right, and I'm the gloom and

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Speaker 1: the doom, And the answer is it's a long ticket.

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Speaker 1: I mean, the fact of the matter is you can't

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Speaker 1: go up on Pharaoh to those kind of levels you're

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Speaker 1: hearing from Costin and Lori, Kelvinsina and the rest John Gollub.

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Speaker 1: You can't get there unless you've got the gloom. Well,

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Speaker 1: I think the problem I have with the peak growth concept,

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Speaker 1: and Andrew, I'd love your opinion on this as well,

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Speaker 1: is that the peak right of growth was always going

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Speaker 1: to become at the beginning of this particular cycle because

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Speaker 1: of the nature of the slowdown. It was a mandated recession,

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Speaker 1: reopen spring, coiled, bang, you jump high. For me, I'm

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Speaker 1: not sure that's any indication of where the cycle goes though, Andrew,

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Speaker 1: what's your take on it. I think the cycle is

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Speaker 1: going to last longer. This concept of peak. I'm just

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Speaker 1: I have a hard time with this peak concept given

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Speaker 1: the magnitude of the earnings revisions and the blowout so far.

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Speaker 1: So I'm just not sure we're there yet. And so

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Speaker 1: calling the end they're calling the peak, I think it's premature.

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Speaker 1: So let's talk about the potential returns. Let's go to

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Speaker 1: the Jonathan Gollup call for returns. Can we get what

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Speaker 1: are you looking for here? Well, I think that next

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Speaker 1: year's earnings are already up to about two d eight

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Speaker 1: dollars from the low one nineties at the beginning of year,

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Speaker 1: So that was the s to be getting low, you know,

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Speaker 1: around one night, and we're up to two hundred eight dollars.

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Speaker 1: Well on hams. If we get to two hundred twenty

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Speaker 1: dollars to begin next year, I mean, I think that

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Speaker 1: hundred is very doable as a forward p. The point

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Speaker 1: of this is, I think that what's the most important

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Speaker 1: here is we all look at pease and we based

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Speaker 1: them off forward estimates, and the flaw of four peas

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Speaker 1: is what happens if that E is very wrong. And

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Speaker 1: that's what we're seeing this year. The Ford p has

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Speaker 1: been way too pessimistic. So I think that's very possible

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Speaker 1: we'll see mid for four thousands by year end. Because

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Speaker 1: I'm just looking at the trajectory of the entry. It's

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Speaker 1: gonna catch up. As always, Entry slimming that with a

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Speaker 1: little bit of media training for me as well as

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Speaker 1: tell I think it's trying to tell me what to

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Speaker 1: last next time someone talks about PETE growth. Right now,

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Speaker 1: we've got the perfect guest to get us started in

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Speaker 1: this our Semasha joins from Principal Global Investments and Seema

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Speaker 1: Within your note, what I really loved was the linkage,

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Speaker 1: the study of the linkage rather between equity and debt,

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Speaker 1: the idea of what the stock market is going to

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Speaker 1: do versus what fixed income is gonna do. Describe that

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Speaker 1: linkage right now. Yeah, I mean we've been talking about

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Speaker 1: it earlier today that the acting market is looking so

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Speaker 1: strong at the moment, you know, of course, or concerns

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Speaker 1: that we're not going to get the continued economic surprises

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Speaker 1: which may keep pushing the market as as much as

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Speaker 1: we've seen recently. But it's looking really strong out there.

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Speaker 1: Whereas the bond market, you've got bond deals around the

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Speaker 1: one sixty level. It just doesn't seem to be lining

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Speaker 1: up to me. The main factor which is holding bond

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Speaker 1: deals down is still there's expectation that the fan is

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Speaker 1: going to stay on hold. But some point, I think

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Speaker 1: we're all in agreement here that bond deals are on

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Speaker 1: their way up this year. It's just the speed at

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Speaker 1: which they're going to move and that's what's gonna be um,

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Speaker 1: the major impact for markets. I think one thing that

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Speaker 1: people are struggling with at the moment in the bond market,

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Speaker 1: if this data doesn't get it done, if this data

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Speaker 1: does not translate into higher yields, what data will yeah

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Speaker 1: to me? It's the inflation data. You know, we need

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Speaker 1: to keep watching that. And the thing is is that

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Speaker 1: we're all expecting inflation to move up over the next

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Speaker 1: couple of months, so there's no surprise there. It's really

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Speaker 1: when you start getting into autumn winter and if you're

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Speaker 1: still seeing inflation moving up at that pace, that's and

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Speaker 1: I think when the bond market is really going to

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Speaker 1: freak out. Um. And that's I think when the acting

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Speaker 1: market becomes increasingly invulnerable. And the thing is that, look,

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Speaker 1: you know, the market is very very divided on what

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Speaker 1: the path for inflation is. But I think that even

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Speaker 1: the ones and I'm going to put ourselves in there included,

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Speaker 1: we do think it's transitory. But we also have to

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Speaker 1: admit that there is a very fair chance that inflation

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Speaker 1: will turn out to be sticky. And that's all the

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Speaker 1: risks a lying At the moment, there's a big debate

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Speaker 1: among stock investors of when higher yields is good or

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Speaker 1: when higher yields is bad. Up to a point it's good.

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Speaker 1: It indicates that people are upgrading their expectations for the

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Speaker 1: economy at a point that's too high. It reassesses perhaps

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Speaker 1: some of the valuations currently baked into markets. What is

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Speaker 1: that tipping point? Sema, I think rather than the tipping point,

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Speaker 1: I think it's really that speed, right, what is driving

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Speaker 1: markets high? And you can look at it, but just

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Speaker 1: even just looking at financial conditions, a financial condition still

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Speaker 1: really really loose, and thech case the ACTI market is

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Speaker 1: really fine. It's when you start to see a really

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Speaker 1: turbulent and unsettling move in bond deals that's when I

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Speaker 1: think markets really start to struggle to digest this. So

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Speaker 1: in terms of a level, it's probably higher than what

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Speaker 1: most people are thinking. It's probably above the two level.

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Speaker 1: It's but if you start to get to yields at

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Speaker 1: about two pc within the next month, of course that's

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Speaker 1: going to freak out markets. So it's all the drivers.

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Speaker 1: Is the speed which is really the key point here, Well,

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Speaker 1: the speed it is gonna be out of the first

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Speaker 1: and second derivative I was talking, you should seem into

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Speaker 1: our Keiley lines about this, I mean just the rates

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Speaker 1: of change out there. Do you expect stability or do

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Speaker 1: we need to be really really aware of potential convexity

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Speaker 1: not only in bonds, but the equivalent convexity inequities. I

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Speaker 1: think there are risks out there that we and that

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Speaker 1: is obviously a risk, but I think a lot of

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Speaker 1: it is going to be down now, at least for

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Speaker 1: the next few months. To the FEDS communication, where are

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Speaker 1: they telling us that they feel rates are where they

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Speaker 1: feel about inflation. They have the ability to keep the

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Speaker 1: market calm. But if that starts to unwind, then of

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Speaker 1: course you know that that speed the second derivative becomes

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Speaker 1: a very very key risk up our Our view at

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Speaker 1: the moment, though, is that markets are really on a

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Speaker 1: steady upper path. There may be points of pullbacks, but

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Speaker 1: it's really an upward movement from here seement. Do you

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Speaker 1: have a regional bias right now outside of the United States?

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Speaker 1: Where is it? It's an interesting one actually, because look,

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Speaker 1: we have really favored the US over the last few months.

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Speaker 1: We have pulled back some of our kind of preference

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Speaker 1: for emerging markets because of all the reasons with COVID writing,

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Speaker 1: inflation concerns around China. Now Europe is increasingly becoming more attractive,

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Speaker 1: but I have to say that would be a very

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Speaker 1: tactical trade because further up, beyond the kind of the

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Speaker 1: joy of reopenings, we still think that Europe is very

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Speaker 1: very much under pressure from a long term growth prospect.

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Speaker 1: Until they can get their fiscal policy really moving at

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Speaker 1: the same pace as what we're seeing in the US,

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Speaker 1: which really doesn't look likely, Europe will continue to be

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Speaker 1: the under performer. So you know, a few months of

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Speaker 1: baby maybe good performance from Europe, but then it goes

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Speaker 1: back against Actually overall we still prefer the US seema.

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Speaker 1: I want to just wrap up with dovetailing the conversation

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Speaker 1: that we had earlier this morning with Andrew slimming into

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Speaker 1: this dialogue a question of this eleven percent miss when

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Speaker 1: it comes to Wall Street estimates for earning so far

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Speaker 1: in the S and P five hundred, you're getting a

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Speaker 1: little bit more cautious than some of the large cap

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Speaker 1: stocks are reducing certain allocations. I believe if I have

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Speaker 1: this right, what do you say to people who say

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Speaker 1: earnings have been blowing it out of the water. Does

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Speaker 1: that make you reassess, why do you dismiss it? No, Look, look,

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Speaker 1: there have been a continued upward movement in earnings expectations.

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Speaker 1: Actually we would anticipate that as a year progresses. You

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Speaker 1: have to be very careful though at this point, and

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Speaker 1: this is again active management really will do well at

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Speaker 1: this point because you need to look under the surface,

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Speaker 1: start to start thinking about which sector is going to outperform,

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Speaker 1: which ones are going to do badly. You know, you

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Speaker 1: you refer to our reduced allocation to large cap tech.

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Speaker 1: We still like mega cap tech, but we just don't

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Speaker 1: think that you're going to see the same kind of

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Speaker 1: retense that we saw last year. But if you're looking

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Speaker 1: at earnings potential, if you're looking at cash flow, those

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Speaker 1: are the companies which are really going to provide stability,

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Speaker 1: not just over the next few months, but actually a

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Speaker 1: longer term. So there is still a place for secular

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Speaker 1: trades within your portfolios, as well as the allocation to cyclicals.

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Speaker 1: We've got to leave it there. SMA Principal Global Investors

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Speaker 1: Chief Strategist Ethan Harris with US writing her Bank of

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Speaker 1: America Securities their global economist, Dr Harris, thank you so

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Speaker 1: much for joining us. I want to go to Michelle

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Speaker 1: Myers spectacular two charts on the makeup of our pain,

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Speaker 1: our jobs pain out of this pandemic, and what she does,

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Speaker 1: and she looks at the area underneath the former labor

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Speaker 1: participation rate and it is an ugly integral as the

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Speaker 1: math people call it, that space that we've got to

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Speaker 1: get back to to get back to normal. When do

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Speaker 1: we do that? Um? I don't think we quite recover

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Speaker 1: that whole gap. I think that in the later this

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Speaker 1: year we'll recover a lot of it. Um. I mean

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Speaker 1: what's causing the gap, of course, is the COVID crisis

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Speaker 1: is making people reluctant to work. People need to take

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Speaker 1: care of their kids at home. Unemployment benefits are very generous,

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Speaker 1: and there's been very high retirements going on as people

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Speaker 1: kind of rethink their life in a way in this crisis.

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Speaker 1: So a lot of that will come back in the

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Speaker 1: fall and into next year, but there'll be a chunk

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Speaker 1: of lost workers that never come back. She has a

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Speaker 1: mismatch seven hundred thousand mispatch. Taking this in view of

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Speaker 1: labor statistics and CPS date. Okay, fine, do we get

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Speaker 1: back to a fully employed America? Is that a feasible

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Speaker 1: reach for anything, But politicians were supposed to say that, Yeah,

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Speaker 1: I mean, we're we'll get back to full employment, but

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Speaker 1: full employment may not be as low as it was

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Speaker 1: before because you've got these structural problems of job mismatch.

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Speaker 1: I mean, we've seen in other cycles where you'll have

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Speaker 1: a big shock to the economy, some sectors grow, others don't.

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Speaker 1: Workers get kind of displaced along the way, and you

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Speaker 1: end up with a higher unemployment rate on a chronic basis.

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Speaker 1: So I think we'll get back to very low unemployment.

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Speaker 1: We probably can get below four percent, but there's gonna

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Speaker 1: be a little bit to that structural unemployment that that

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Speaker 1: hangs over well into the recovery. Just want to touch

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Speaker 1: on this data eighthean just give me a second, the

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Speaker 1: trite deficit, the trite balance, come and get a seventy

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Speaker 1: four point four billion dollars negative in line with the survey.

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Speaker 1: Mike McKay straightaway pointing out that is the widest monthly

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Speaker 1: gap in history of data going all the way back.

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Speaker 1: Tom k too, that's as wide as it's been for

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Speaker 1: a long long time. Negative seventy four point four billion,

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Speaker 1: And I'm glad to bring it up, John, I missed out.

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Speaker 1: I'm sorry for it's a little bit of a blurrier.

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Speaker 1: Dr Harris comment on that on the trade deficit to

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Speaker 1: GDP another record we didn't want to make. So, I mean,

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Speaker 1: it's obviously the case that the US is coming out

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Speaker 1: of this recession very fast compared to our trading partners.

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Speaker 1: So and the growth is initially is in goods demand,

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Speaker 1: which of course is traded, uh, not in services tend

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Speaker 1: to be domestically delivered. So you've had a massive sucking

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Speaker 1: in of imports. Uh. You folks talked about this. You know,

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Speaker 1: China in particular, big beneficiary of this. Uh, And we're not.

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Speaker 1: Our exports aren't growing quite as as gangbusters. So you're

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Speaker 1: gonna have a record trade deficit and it's going to

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Speaker 1: get bigger going forward. It's it's the it's because the

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Speaker 1: US is so exceptional from the amount of stimulus, it's

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Speaker 1: doing well. It kind of thinness the story, isn't. It's

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Speaker 1: a reflection of this massive demand shock that we're experiencing

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Speaker 1: in this country right now that other countries, other nations,

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Speaker 1: other exporters I'm going through. So we're getting all of

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Speaker 1: their exports and we're getting none of them, getting none

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Speaker 1: of us right now because that demands are not their.

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Speaker 1: Europe a case study for us all to look at. Yeah,

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Speaker 1: I mean, if you compare or contrast to US and Europe,

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Speaker 1: I mean, the amount of fiscal stimulus in the US

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Speaker 1: is three times bigger than what they're doing in Europe. Um.

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Speaker 1: Europe as a pretty small next generation stimulus coming, it's

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Speaker 1: spread out over many years. The U US is poured

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Speaker 1: massive money in and continues to do it. I think

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Speaker 1: a lot of the stuff that's on the table now

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Speaker 1: will pass. So it's gonna you know, when you weigh

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Speaker 1: out grow your trading partners, um, you're gonna your own

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Speaker 1: economy is gonna look very good. But you're gonna pull

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Speaker 1: them along with you. And that's what the US is doing.

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Speaker 1: It's the global engine of growth. You're gonna pull them

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Speaker 1: along with you, or they're gonna Perhaps why you doubt

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Speaker 1: a little bit as you try to get into a

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Speaker 1: new economic cycle, there has been a huge question about

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Speaker 1: where we are in this economic cycle. There's an idea

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Speaker 1: of burn hotter and shorter. There's an idea perhaps that

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Speaker 1: we never left the old cycle. Where do you fall

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Speaker 1: in in this issue. Well, I think in the we're

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Speaker 1: gonna recover extremely fast. This is gonna be, we think,

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Speaker 1: the fastest recovery in history. So we think by uh,

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Speaker 1: you know, early next year, we're going to be back

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Speaker 1: where we we started from. So in a sense, it's

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Speaker 1: almost like this was this kind of bad nightmare to

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Speaker 1: your period and how we're out of it. Um. But

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Speaker 1: there's a danger in this and that Right now high

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Speaker 1: growth is fantastic. Let's get back to normal fest possible.

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Speaker 1: But at some point we need to slow down. We're

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Speaker 1: going to go through the stop signs next year, I think,

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Speaker 1: and at some point the Fed needs to change gears.

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Speaker 1: They need to say, Okay, yeah, we are going to

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Speaker 1: hike uh and we're gonna hike a little bit more

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Speaker 1: than we're telling you, and we need to slow things down.

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Speaker 1: So it's it is. It's a remarkably fast recovery. We're moving.

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Speaker 1: We're jumping from deepercession to full recovery in record time. Ethan,

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Speaker 1: do you ascribe to the Robert Kaplan idea here that

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Speaker 1: markets themselves, given how exuberant they have gotten, could pose

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Speaker 1: a material risk to the economy in a year or

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Speaker 1: two years. If the Fed does have to hike more

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Speaker 1: than people are currently pricing in and there is a

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Speaker 1: quick end to this recovery. I think there's a risk

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Speaker 1: of that. I think it's a very good point. I mean,

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Speaker 1: right now, the markets are being fed an incredible mix

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Speaker 1: of positive news. You've got Fed not hiking anytime soon,

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Speaker 1: You've got big fiscal standards, got great growth numbers, um,

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Speaker 1: the great very good news on vaccines and the COVID crisis.

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Speaker 1: So you're gonna have a red hot risk acid market

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Speaker 1: from whether it's home prices or equity valuations. But that's

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Speaker 1: an environment where you tend to overshoot, and you know,

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Speaker 1: we could be in an environment where the FED has

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Speaker 1: to take away the punch bowls. So the rest of

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Speaker 1: the economy in two and twenty four is pretty high.

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Speaker 1: I think of a of an accident here Ethan with

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Speaker 1: the ties of Bank of America has coast to coast.

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Speaker 1: What do you see for business investment? There is actually

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Speaker 1: gonna affect cap X or is it one big share

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Speaker 1: buy back? Now? I think the cap X is gonna

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Speaker 1: be strong. Um, if you look at our surveys of

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Speaker 1: of fund managers, they're telling companies invest in CAPEX right

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Speaker 1: that's a sign of a lot of optimism about the outlook.

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Speaker 1: If you look at models of capital spending and economist

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Speaker 1: estimate the main driver of cap X is growth and

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Speaker 1: growth expectations. If a company thinks their market's going to grow,

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Speaker 1: they do cap X. And it's not really that important

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Speaker 1: the funding aspect. The funding is kind of something you

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Speaker 1: have to take care of in order to create the

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Speaker 1: cap X. But the real story is about rip roaring recovery. Uh,

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Speaker 1: encouraging a lot of investments. So we're gonna have a

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Speaker 1: We're gonna have a recovery that starts very much concentrated

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Speaker 1: in the consumer as they come out of their cave,

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Speaker 1: their COVID caves and get out there and to engage.

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Speaker 1: And then over time CAPEX is actually gonna start outgrowing consumption.

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Speaker 1: That that's what we expect next year. Ethan, just quickly

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Speaker 1: the guide for Friday. What's the focus for you away

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Speaker 1: from the headline number? You know, Um, it's it's uh,

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Speaker 1: there isn't any big folk. It's just that this is

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Speaker 1: a ripping labor market. Um. You know, to have another

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Speaker 1: nine hundred thousand plus number. Um. I think the story

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Speaker 1: of the job market and the story for the Fed

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Speaker 1: is the consistency of the strength. So are we going

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Speaker 1: to keep getting these big numbers? And at some point

428
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Speaker 1: then the Fed has to say, okay, now we not

429
00:23:20,200 --> 00:23:23,200
Speaker 1: need to think about tapering our bond purchases. So it's

430
00:23:23,200 --> 00:23:26,240
Speaker 1: not so much about one report, It's about the cumulative

431
00:23:26,960 --> 00:23:30,880
Speaker 1: evidence that this is not a temporary caffeine high. This

432
00:23:30,960 --> 00:23:34,800
Speaker 1: is a real strong recovery going on. To catch up

433
00:23:34,800 --> 00:23:43,879
Speaker 1: Ethan Harris, Bank American securities global economist, we get lucky

434
00:23:43,960 --> 00:23:46,800
Speaker 1: with our analysis and that we have the finances visor

435
00:23:47,200 --> 00:23:49,320
Speaker 1: and with us on my sadology of John's hob Because

436
00:23:49,359 --> 00:23:51,560
Speaker 1: John Farrell, let me go to you. At first, I

437
00:23:51,600 --> 00:23:54,280
Speaker 1: see a single line item, beautifully laid out. I should say,

438
00:23:54,280 --> 00:23:57,840
Speaker 1: by viser, they're not hiding anything here where vaccines go

439
00:23:57,920 --> 00:24:01,920
Speaker 1: from one six billion one point six billion and explode

440
00:24:02,000 --> 00:24:04,720
Speaker 1: up to four point nine billion. John Ferroll, why do

441
00:24:04,840 --> 00:24:07,600
Speaker 1: you bring in Dr a dolge of JOHNS Hopkins with

442
00:24:07,760 --> 00:24:10,040
Speaker 1: Fiser getting it done well? Here's the headline from the

443
00:24:10,040 --> 00:24:11,600
Speaker 1: New York Times to him that you allude to. In

444
00:24:11,600 --> 00:24:13,720
Speaker 1: the last twenty four hours, the FDA to approve the

445
00:24:13,760 --> 00:24:17,480
Speaker 1: Fiser vaccine for ages twelve to fifteen. Next week a

446
00:24:17,560 --> 00:24:19,320
Speaker 1: report coming from the New York Times in place to

447
00:24:19,359 --> 00:24:21,840
Speaker 1: say that doctor Amos, shadow of John's help consent for

448
00:24:21,880 --> 00:24:24,720
Speaker 1: Health Security joined us right now. Dot, let's just start

449
00:24:24,720 --> 00:24:27,879
Speaker 1: with that headline. How important is that next step on

450
00:24:28,080 --> 00:24:31,680
Speaker 1: rolling out this vaccine. Well, if we're going to get

451
00:24:31,680 --> 00:24:34,600
Speaker 1: cases down from the tens of thousands that occur every day,

452
00:24:34,680 --> 00:24:37,080
Speaker 1: we need to have more of the population vaccinated, more

453
00:24:37,080 --> 00:24:40,080
Speaker 1: population level immunity, and as we get to children, the

454
00:24:40,119 --> 00:24:43,679
Speaker 1: older child groups twelve to fifteen are groups that are

455
00:24:43,680 --> 00:24:46,080
Speaker 1: in extra curric activities where you see them spreading in,

456
00:24:46,200 --> 00:24:49,840
Speaker 1: so you will likely get a benefit in terms of

457
00:24:50,119 --> 00:24:53,119
Speaker 1: closer to her immunity, more population level immunity, and decrease

458
00:24:53,200 --> 00:24:55,159
Speaker 1: cases as we get twelve to fifteen year olds. And

459
00:24:55,160 --> 00:24:57,159
Speaker 1: it will help help some of those schools that have

460
00:24:57,200 --> 00:24:59,000
Speaker 1: been holding out and not going to full in person

461
00:24:59,080 --> 00:25:01,560
Speaker 1: learning have us obstacles in their way to do it.

462
00:25:01,600 --> 00:25:03,439
Speaker 1: So I think this is a good step forward, and

463
00:25:03,480 --> 00:25:06,199
Speaker 1: I think we'll probably see even younger age groups approved

464
00:25:06,359 --> 00:25:10,160
Speaker 1: are probably not until two. Capacity is building out as well.

465
00:25:10,200 --> 00:25:15,560
Speaker 1: Finds are indicating that can manufacture at least three billion doses. Two. Doctor,

466
00:25:15,600 --> 00:25:17,359
Speaker 1: the problems of a couple of months ago and no

467
00:25:17,480 --> 00:25:20,119
Speaker 1: longer the problems Now it's not about capacity or supply.

468
00:25:20,200 --> 00:25:22,919
Speaker 1: In fact, this country is now talking about exporting some

469
00:25:23,000 --> 00:25:26,320
Speaker 1: of that stock pile of vaccines. In your opinion, is

470
00:25:26,359 --> 00:25:28,439
Speaker 1: the biggest issue that we have to confront right now.

471
00:25:28,520 --> 00:25:32,480
Speaker 1: Still hesitancy. Yes, that's the biggest issue by far. We're

472
00:25:32,480 --> 00:25:35,240
Speaker 1: basically hit a wall where we're seeing vaccines different, you know,

473
00:25:35,680 --> 00:25:37,920
Speaker 1: to one million, they're probably lower than one million people

474
00:25:37,920 --> 00:25:40,800
Speaker 1: who have gotten vaccinated the early adopters. Those are people

475
00:25:40,840 --> 00:25:43,280
Speaker 1: who are really enthusiastic about the vaccine. Now we're kind

476
00:25:43,280 --> 00:25:46,000
Speaker 1: of hitting that vaccine hesitancy, people on the fence, and

477
00:25:46,000 --> 00:25:47,840
Speaker 1: there are people who are opposed to the vaccine. So

478
00:25:47,880 --> 00:25:50,200
Speaker 1: we're kind of going at a much slower pace now.

479
00:25:50,400 --> 00:25:53,520
Speaker 1: I think the Johnson and Johnson pause definitely knocked down

480
00:25:54,000 --> 00:25:56,520
Speaker 1: the use of that vaccine even after the pause was lifted.

481
00:25:56,560 --> 00:25:59,800
Speaker 1: So right now we're really just kind of trudging along

482
00:26:00,000 --> 00:26:02,120
Speaker 1: in people vaccinated. But I don't think we're gonna see

483
00:26:02,119 --> 00:26:04,040
Speaker 1: major jumps for sometime. It's gonna take some time to

484
00:26:04,119 --> 00:26:07,240
Speaker 1: accrue a large proportion of the population vaccinated, but this

485
00:26:07,280 --> 00:26:11,359
Speaker 1: twelve to fifteen approval will boost at that number significantly.

486
00:26:11,480 --> 00:26:13,680
Speaker 1: People who have gotten vaccinated have had the experience of

487
00:26:13,760 --> 00:26:16,440
Speaker 1: the second shot, and everyone always calls each other up saying,

488
00:26:16,440 --> 00:26:19,080
Speaker 1: how are you doing? Because the side effects have gotten

489
00:26:19,119 --> 00:26:22,520
Speaker 1: to be pretty well known. Are the side effects theoretically

490
00:26:22,640 --> 00:26:25,159
Speaker 1: for say a twelve year old child going to be worse?

491
00:26:25,520 --> 00:26:27,959
Speaker 1: Given the fact that the stronger the immune system, it seems,

492
00:26:28,160 --> 00:26:31,199
Speaker 1: the stronger the reactions, it's hard to make a one

493
00:26:31,240 --> 00:26:33,639
Speaker 1: to one comparison that way. What we know from the

494
00:26:33,920 --> 00:26:36,040
Speaker 1: phase three clinical trial data in that age group was

495
00:26:36,080 --> 00:26:38,520
Speaker 1: that the side effects are not considered to be very severe,

496
00:26:38,920 --> 00:26:41,560
Speaker 1: and there are people who get this vaccine and have

497
00:26:41,640 --> 00:26:44,520
Speaker 1: no side effects, and it's hard to know exactly where

498
00:26:44,640 --> 00:26:46,919
Speaker 1: twelve to fifteen year old would fall. But I know

499
00:26:47,040 --> 00:26:49,120
Speaker 1: that's something that the CDC panel is going to look

500
00:26:49,160 --> 00:26:52,000
Speaker 1: at because remember, children are not likely to have severe disease.

501
00:26:52,040 --> 00:26:54,040
Speaker 1: Children are not likely to be the major spreaders. So

502
00:26:54,080 --> 00:26:55,600
Speaker 1: that's going to be part of the risk benefit of

503
00:26:55,640 --> 00:26:58,560
Speaker 1: calculation that both the FDA and the CDC do. And

504
00:26:58,760 --> 00:27:00,720
Speaker 1: that's important to do it because scenes you know, have

505
00:27:00,840 --> 00:27:03,240
Speaker 1: our risk benefit tradeoff that you have to look at

506
00:27:03,240 --> 00:27:05,440
Speaker 1: in each specific age group when you talk about the

507
00:27:05,520 --> 00:27:08,800
Speaker 1: risk benefit weighing that we're doing every day. There is

508
00:27:08,840 --> 00:27:12,640
Speaker 1: a transition going on, when do health officials say enough

509
00:27:12,840 --> 00:27:16,639
Speaker 1: high risk individuals have been vaccinated that the COVID pandemic

510
00:27:16,880 --> 00:27:19,159
Speaker 1: can be downgraded to a bad flu and we can

511
00:27:19,200 --> 00:27:22,159
Speaker 1: go about our lives. What I think will have to

512
00:27:22,160 --> 00:27:23,680
Speaker 1: happen is we're going to have to get closer to

513
00:27:24,440 --> 00:27:27,520
Speaker 1: the U S population totally vaccinated. And I say, because

514
00:27:27,520 --> 00:27:30,119
Speaker 1: that's where we saw precipitous declines in Israel, which is

515
00:27:30,119 --> 00:27:32,840
Speaker 1: a much more highly vaccinated country, but they still haven't

516
00:27:32,840 --> 00:27:36,240
Speaker 1: reached her immunity either, but their percent positivity of tests

517
00:27:36,320 --> 00:27:38,640
Speaker 1: is less than one percent. So I do think once

518
00:27:38,680 --> 00:27:41,720
Speaker 1: we get more people vaccinated and you see cases plummet,

519
00:27:42,119 --> 00:27:44,879
Speaker 1: uh maybe less than ten thousand or ten thousand, you're

520
00:27:44,920 --> 00:27:46,840
Speaker 1: going to see just kind of a whole rethinking of

521
00:27:46,880 --> 00:27:49,640
Speaker 1: how we come up with a better risk calculation, how

522
00:27:49,680 --> 00:27:51,600
Speaker 1: we how we live with this virus. Because it's not

523
00:27:51,640 --> 00:27:53,960
Speaker 1: going to go to zero, that's a that's a foregone conclusion.

524
00:27:53,960 --> 00:27:56,399
Speaker 1: It's not going to happen, but we will get to

525
00:27:56,400 --> 00:27:58,520
Speaker 1: a point where this is something that has lost the

526
00:27:58,520 --> 00:28:00,560
Speaker 1: ability to cause serious disease at the ring that it

527
00:28:00,880 --> 00:28:04,879
Speaker 1: can dr indulgia. The cynics and the non science crew

528
00:28:05,119 --> 00:28:08,520
Speaker 1: will say that the Fiser's minting all this money, they

529
00:28:08,520 --> 00:28:11,400
Speaker 1: should come to the rescue to the aid of India

530
00:28:11,960 --> 00:28:15,359
Speaker 1: in my in their wonderful press release which quite frankly, folks,

531
00:28:15,400 --> 00:28:18,200
Speaker 1: I didn't do a word search and they don't address

532
00:28:18,280 --> 00:28:21,600
Speaker 1: the catastrophe we see in these other countries. Is the

533
00:28:21,680 --> 00:28:28,399
Speaker 1: Fiser vaccine too fancy for the realities of India. I

534
00:28:28,400 --> 00:28:30,440
Speaker 1: don't know that it's too fancy, but it's probably going

535
00:28:30,480 --> 00:28:33,000
Speaker 1: to be one of several solutions. And remember India as

536
00:28:33,040 --> 00:28:35,600
Speaker 1: a net vaccine exporter and they exported most of their

537
00:28:35,680 --> 00:28:39,120
Speaker 1: vaccine to other countries. They maker of the astrosenica vaccine,

538
00:28:39,160 --> 00:28:41,640
Speaker 1: they have their own homegrown vaccine. So this is a

539
00:28:41,760 --> 00:28:43,760
Speaker 1: question of kind of logistics and getting in the ability

540
00:28:43,800 --> 00:28:46,200
Speaker 1: to make more vaccines. They can handle the Fiser vaccine

541
00:28:46,200 --> 00:28:49,240
Speaker 1: in terms of manufacturing, the delivery situation with visor with

542
00:28:49,280 --> 00:28:51,880
Speaker 1: the ultracold storage that makes it more difficult. A two

543
00:28:51,880 --> 00:28:54,680
Speaker 1: dose vaccine is something that's also not optimal. So if

544
00:28:54,720 --> 00:28:57,040
Speaker 1: they are able to use a single dose vaccine like

545
00:28:57,080 --> 00:28:59,560
Speaker 1: the Johnson and Johnson vaccine in India, that would be

546
00:28:59,600 --> 00:29:02,800
Speaker 1: probably ideal. Could take it into rural areas, so They

547
00:29:02,840 --> 00:29:05,160
Speaker 1: basically have to have all hands on deck using any

548
00:29:05,200 --> 00:29:08,320
Speaker 1: type of safe and effective vaccine that's available to staunch

549
00:29:08,360 --> 00:29:10,920
Speaker 1: what is really an out of control pandemic and to

550
00:29:10,960 --> 00:29:13,520
Speaker 1: get them back online. Doctor, We've gotta leave it that.

551
00:29:13,680 --> 00:29:16,200
Speaker 1: Thanks for catching up this morning. This is the Bloomberg

552
00:29:16,280 --> 00:29:20,640
Speaker 1: Surveillance Podcast. Thanks for listening. Join us live weekdays from

553
00:29:20,680 --> 00:29:23,920
Speaker 1: seven to ten a m. Eastern on Bloomberg Radio and

554
00:29:24,000 --> 00:29:28,280
Speaker 1: on Bloomberg Television each day from six to nine am

555
00:29:28,320 --> 00:29:32,080
Speaker 1: for insight from the best in economics, finance, investment, and

556
00:29:32,200 --> 00:29:38,720
Speaker 1: international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud,

557
00:29:38,880 --> 00:29:42,480
Speaker 1: Bloomberg dot com, and of course on the terminal. I'm

558
00:29:42,520 --> 00:29:45,200
Speaker 1: Tom Keene, and this is Bloomberg