Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Ferrell and Lisa brown Witz Jailey. We bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg
Speaker 1: dot com, and of course, on the Bloomberg terminal. Right now,
Speaker 1: this is a really really important interview for those of
Speaker 1: you worried about the stock market. Andrew Slimmon is the
Speaker 1: Morgan Stanley, a senior portfolio manager among other duties. Is well, Andrew,
Speaker 1: I want to talk about the nuance here. As we
Speaker 1: went to air, you were talking about not raging but
Speaker 1: being a raving bull. You're not a raving bull, but
Speaker 1: you're in the market. How can you do that? Well,
Speaker 1: I mean, I'm trying to say, is lucky. I mean,
Speaker 1: let's keep it simple here. Stocks are the present value
Speaker 1: of future expectations. And what I see is companies are
Speaker 1: blowing out expectations. So I don't see how you can't
Speaker 1: take a step back and say, wow, you know, uh,
Speaker 1: something's going on. Companies are saying things are better than
Speaker 1: what Wall Street expects, and I think you have to
Speaker 1: respect that uh, and what the market saying. The term
Speaker 1: of your research note is you've got the usual bladder
Speaker 1: and then you've got a killer paragraph of data where
Speaker 1: you go, oh he and Morgan Stanley did your homework.
Speaker 1: You have the Street with an eleven percent miscalculation on earnings.
Speaker 1: They just they missed it by eleven percent. Put that
Speaker 1: in scope and scale, What does it mean forward? Well,
Speaker 1: you know that's why I've a hard time someone telling me, well,
Speaker 1: you know, we started the year with a hundred and
Speaker 1: sixty seven dollars of earning. That was what Wall Street expected.
Speaker 1: We're now. I guess I'm just not smart enough to
Speaker 1: for to listen to someone who says that's it. It's
Speaker 1: not going up. I mean I have a hard time
Speaker 1: believing that. And the market is only up by the
Speaker 1: magnitude of that earnings with so I don't think you
Speaker 1: can say the market has gotten frothier than it was
Speaker 1: earlier in the year. No, the markets just repriced based
Speaker 1: on that miss. And if we continue to move higher,
Speaker 1: which I think it's always very dangerous to draw the
Speaker 1: kind of the line that saying said this is it,
Speaker 1: then I think the market will continue to push higher.
Speaker 1: The other thing that I think it's really important. Here
Speaker 1: is the down Jones Industrial Transport, the old index that
Speaker 1: tells you how the market. It's kind of thirteen weeks
Speaker 1: in a row. That's you got to respect that something
Speaker 1: is going on here that I think Wall Street is
Speaker 1: not optimistic enough about the what companies are saying. And
Speaker 1: that's healthy though, isn't it. It's healthy. We're not getting
Speaker 1: carried away with this at the moment. We're looking at
Speaker 1: prices almost exclusively. At the moment, we're focused on execution risk,
Speaker 1: very little attention plate and what's actually happening with margins
Speaker 1: entry focus? It was actually happening with margins well, I
Speaker 1: mean there's certainly a reals of margins uh peeking or
Speaker 1: being constrained. I agree with that, but you know, could
Speaker 1: that be overcome by revenues being stronger than expected. That
Speaker 1: remains to be seen. But clearly I think there is
Speaker 1: a rotation into companies that will not be as margin squeeze.
Speaker 1: Whether that's in some of the commodities, areas, energy, financials.
Speaker 1: I think those are the areas that are most intriguing
Speaker 1: in the market because there's probably the least margin squeeze
Speaker 1: out there and shooting. Emmanuel yesterday put it down another Andrew.
Speaker 1: They upgraded Staples price action, pricing power rather being the
Speaker 1: focus that did the Staples. They only right down right now, Andrew,
Speaker 1: no one like them because I think they will have
Speaker 1: margin squeeze. Number one. Number two is if I am
Speaker 1: if I'm right about the fact that the economy is
Speaker 1: stronger than what is priced in the stocks. I don't
Speaker 1: want defensive stocks. I want cyclical socks. I want value stocks.
Speaker 1: And I think as much as I hear people talk
Speaker 1: about owning uh, cyclical socks, the data suggests they really don't,
Speaker 1: they really don't. So I think gearing up your own
Speaker 1: consavele Staples. If the market's gonna fall, gearing up for
Speaker 1: a fall, well, that's not what the second quarter first
Speaker 1: quarter earnings reports has sold you. Andrew. Is there any
Speaker 1: logic behind the caution that we're seeing with stock investors
Speaker 1: and frankly with the analysts on Wall Street? Well, it
Speaker 1: sounds smarter, all it does. It all sounds smarter, Uh,
Speaker 1: But I I think you have to be a little
Speaker 1: humble here and think us the market's telling you something
Speaker 1: that leads you to be a little bit more optimistic
Speaker 1: than what you're hearing. Look, I there's no question in
Speaker 1: my mind we're gonna have a pull back at some point,
Speaker 1: but I don't think it's in the near future, not
Speaker 1: with what's coming out of these uh these earnings report.
Speaker 1: They're just too powerful. So if a company, you know,
Speaker 1: if if a Wall Street is forced to raise earning
Speaker 1: but the stock doesn't respond, don't get don't get pulled
Speaker 1: out of those stocks. Stocks don't go down for long.
Speaker 1: You know, when you know the future is better than
Speaker 1: what it's presently twice in this stock. And the reason
Speaker 1: why I ask this is because there is then an
Speaker 1: incoherence with respect to the bond market and what we're
Speaker 1: seeing in equities. Because if you're right and the balance
Speaker 1: is toward more gains and a further growth trajectory here,
Speaker 1: then the bond market is not making sense at a
Speaker 1: time when the US is increasing its deficit and you've
Speaker 1: got big nationals in the United States raising their dividends
Speaker 1: and offering way more income to investors just purely on
Speaker 1: an income basis, even let alone the potential returns. Can
Speaker 1: you square these realities exactly? That's maybe why the markets
Speaker 1: going up. Um. Look, I think rates are going to
Speaker 1: go up because I think basically the economy is stronger
Speaker 1: than we realize. But I don't think it's going to
Speaker 1: go up at a very rapid right because there's this
Speaker 1: you know that the different menial to the rest of
Speaker 1: the world is great enough that creates a bid for
Speaker 1: our for our bond prices. But I'm a I'm an
Speaker 1: equity guy, and I think it's saying to you that
Speaker 1: remain in the cyclical. I think there's a long way
Speaker 1: to go. I think people are you know, energy stocked.
Speaker 1: They were the best performing sector in the first quarter.
Speaker 1: They get no love because there's this expectation that the
Speaker 1: economy is peaking. I think the best of it how
Speaker 1: many times again, yesterday, Tom, the M the p M,
Speaker 1: I was seen the best of it, peak growth, Tom
Speaker 1: again and again on the peak. I love the doing
Speaker 1: me a favorite, Jonathan. When someone says to you, we've
Speaker 1: seen the best of it, say, were your estimates eleven
Speaker 1: eleven percent too low at the beginning of the year.
Speaker 1: I mean, that's what you have to come to challenge them.
Speaker 1: The fact is, Andrew, you and I are watching the
Speaker 1: internet gloom. The peak is Friday evening. Everybody's got a
Speaker 1: Martini in their hand right, and I'm the gloom and
Speaker 1: the doom, And the answer is it's a long ticket.
Speaker 1: I mean, the fact of the matter is you can't
Speaker 1: go up on Pharaoh to those kind of levels you're
Speaker 1: hearing from Costin and Lori, Kelvinsina and the rest John Gollub.
Speaker 1: You can't get there unless you've got the gloom. Well,
Speaker 1: I think the problem I have with the peak growth concept,
Speaker 1: and Andrew, I'd love your opinion on this as well,
Speaker 1: is that the peak right of growth was always going
Speaker 1: to become at the beginning of this particular cycle because
Speaker 1: of the nature of the slowdown. It was a mandated recession,
Speaker 1: reopen spring, coiled, bang, you jump high. For me, I'm
Speaker 1: not sure that's any indication of where the cycle goes though, Andrew,
Speaker 1: what's your take on it. I think the cycle is
Speaker 1: going to last longer. This concept of peak. I'm just
Speaker 1: I have a hard time with this peak concept given
Speaker 1: the magnitude of the earnings revisions and the blowout so far.
Speaker 1: So I'm just not sure we're there yet. And so
Speaker 1: calling the end they're calling the peak, I think it's premature.
Speaker 1: So let's talk about the potential returns. Let's go to
Speaker 1: the Jonathan Gollup call for returns. Can we get what
Speaker 1: are you looking for here? Well, I think that next
Speaker 1: year's earnings are already up to about two d eight
Speaker 1: dollars from the low one nineties at the beginning of year,
Speaker 1: So that was the s to be getting low, you know,
Speaker 1: around one night, and we're up to two hundred eight dollars.
Speaker 1: Well on hams. If we get to two hundred twenty
Speaker 1: dollars to begin next year, I mean, I think that
Speaker 1: hundred is very doable as a forward p. The point
Speaker 1: of this is, I think that what's the most important
Speaker 1: here is we all look at pease and we based
Speaker 1: them off forward estimates, and the flaw of four peas
Speaker 1: is what happens if that E is very wrong. And
Speaker 1: that's what we're seeing this year. The Ford p has
Speaker 1: been way too pessimistic. So I think that's very possible
Speaker 1: we'll see mid for four thousands by year end. Because
Speaker 1: I'm just looking at the trajectory of the entry. It's
Speaker 1: gonna catch up. As always, Entry slimming that with a
Speaker 1: little bit of media training for me as well as
Speaker 1: tell I think it's trying to tell me what to
Speaker 1: last next time someone talks about PETE growth. Right now,
Speaker 1: we've got the perfect guest to get us started in
Speaker 1: this our Semasha joins from Principal Global Investments and Seema
Speaker 1: Within your note, what I really loved was the linkage,
Speaker 1: the study of the linkage rather between equity and debt,
Speaker 1: the idea of what the stock market is going to
Speaker 1: do versus what fixed income is gonna do. Describe that
Speaker 1: linkage right now. Yeah, I mean we've been talking about
Speaker 1: it earlier today that the acting market is looking so
Speaker 1: strong at the moment, you know, of course, or concerns
Speaker 1: that we're not going to get the continued economic surprises
Speaker 1: which may keep pushing the market as as much as
Speaker 1: we've seen recently. But it's looking really strong out there.
Speaker 1: Whereas the bond market, you've got bond deals around the
Speaker 1: one sixty level. It just doesn't seem to be lining
Speaker 1: up to me. The main factor which is holding bond
Speaker 1: deals down is still there's expectation that the fan is
Speaker 1: going to stay on hold. But some point, I think
Speaker 1: we're all in agreement here that bond deals are on
Speaker 1: their way up this year. It's just the speed at
Speaker 1: which they're going to move and that's what's gonna be um,
Speaker 1: the major impact for markets. I think one thing that
Speaker 1: people are struggling with at the moment in the bond market,
Speaker 1: if this data doesn't get it done, if this data
Speaker 1: does not translate into higher yields, what data will yeah
Speaker 1: to me? It's the inflation data. You know, we need
Speaker 1: to keep watching that. And the thing is is that
Speaker 1: we're all expecting inflation to move up over the next
Speaker 1: couple of months, so there's no surprise there. It's really
Speaker 1: when you start getting into autumn winter and if you're
Speaker 1: still seeing inflation moving up at that pace, that's and
Speaker 1: I think when the bond market is really going to
Speaker 1: freak out. Um. And that's I think when the acting
Speaker 1: market becomes increasingly invulnerable. And the thing is that, look,
Speaker 1: you know, the market is very very divided on what
Speaker 1: the path for inflation is. But I think that even
Speaker 1: the ones and I'm going to put ourselves in there included,
Speaker 1: we do think it's transitory. But we also have to
Speaker 1: admit that there is a very fair chance that inflation
Speaker 1: will turn out to be sticky. And that's all the
Speaker 1: risks a lying At the moment, there's a big debate
Speaker 1: among stock investors of when higher yields is good or
Speaker 1: when higher yields is bad. Up to a point it's good.
Speaker 1: It indicates that people are upgrading their expectations for the
Speaker 1: economy at a point that's too high. It reassesses perhaps
Speaker 1: some of the valuations currently baked into markets. What is
Speaker 1: that tipping point? Sema, I think rather than the tipping point,
Speaker 1: I think it's really that speed, right, what is driving
Speaker 1: markets high? And you can look at it, but just
Speaker 1: even just looking at financial conditions, a financial condition still
Speaker 1: really really loose, and thech case the ACTI market is
Speaker 1: really fine. It's when you start to see a really
Speaker 1: turbulent and unsettling move in bond deals that's when I
Speaker 1: think markets really start to struggle to digest this. So
Speaker 1: in terms of a level, it's probably higher than what
Speaker 1: most people are thinking. It's probably above the two level.
Speaker 1: It's but if you start to get to yields at
Speaker 1: about two pc within the next month, of course that's
Speaker 1: going to freak out markets. So it's all the drivers.
Speaker 1: Is the speed which is really the key point here, Well,
Speaker 1: the speed it is gonna be out of the first
Speaker 1: and second derivative I was talking, you should seem into
Speaker 1: our Keiley lines about this, I mean just the rates
Speaker 1: of change out there. Do you expect stability or do
Speaker 1: we need to be really really aware of potential convexity
Speaker 1: not only in bonds, but the equivalent convexity inequities. I
Speaker 1: think there are risks out there that we and that
Speaker 1: is obviously a risk, but I think a lot of
Speaker 1: it is going to be down now, at least for
Speaker 1: the next few months. To the FEDS communication, where are
Speaker 1: they telling us that they feel rates are where they
Speaker 1: feel about inflation. They have the ability to keep the
Speaker 1: market calm. But if that starts to unwind, then of
Speaker 1: course you know that that speed the second derivative becomes
Speaker 1: a very very key risk up our Our view at
Speaker 1: the moment, though, is that markets are really on a
Speaker 1: steady upper path. There may be points of pullbacks, but
Speaker 1: it's really an upward movement from here seement. Do you
Speaker 1: have a regional bias right now outside of the United States?
Speaker 1: Where is it? It's an interesting one actually, because look,
Speaker 1: we have really favored the US over the last few months.
Speaker 1: We have pulled back some of our kind of preference
Speaker 1: for emerging markets because of all the reasons with COVID writing,
Speaker 1: inflation concerns around China. Now Europe is increasingly becoming more attractive,
Speaker 1: but I have to say that would be a very
Speaker 1: tactical trade because further up, beyond the kind of the
Speaker 1: joy of reopenings, we still think that Europe is very
Speaker 1: very much under pressure from a long term growth prospect.
Speaker 1: Until they can get their fiscal policy really moving at
Speaker 1: the same pace as what we're seeing in the US,
Speaker 1: which really doesn't look likely, Europe will continue to be
Speaker 1: the under performer. So you know, a few months of
Speaker 1: baby maybe good performance from Europe, but then it goes
Speaker 1: back against Actually overall we still prefer the US seema.
Speaker 1: I want to just wrap up with dovetailing the conversation
Speaker 1: that we had earlier this morning with Andrew slimming into
Speaker 1: this dialogue a question of this eleven percent miss when
Speaker 1: it comes to Wall Street estimates for earning so far
Speaker 1: in the S and P five hundred, you're getting a
Speaker 1: little bit more cautious than some of the large cap
Speaker 1: stocks are reducing certain allocations. I believe if I have
Speaker 1: this right, what do you say to people who say
Speaker 1: earnings have been blowing it out of the water. Does
Speaker 1: that make you reassess, why do you dismiss it? No, Look, look,
Speaker 1: there have been a continued upward movement in earnings expectations.
Speaker 1: Actually we would anticipate that as a year progresses. You
Speaker 1: have to be very careful though at this point, and
Speaker 1: this is again active management really will do well at
Speaker 1: this point because you need to look under the surface,
Speaker 1: start to start thinking about which sector is going to outperform,
Speaker 1: which ones are going to do badly. You know, you
Speaker 1: you refer to our reduced allocation to large cap tech.
Speaker 1: We still like mega cap tech, but we just don't
Speaker 1: think that you're going to see the same kind of
Speaker 1: retense that we saw last year. But if you're looking
Speaker 1: at earnings potential, if you're looking at cash flow, those
Speaker 1: are the companies which are really going to provide stability,
Speaker 1: not just over the next few months, but actually a
Speaker 1: longer term. So there is still a place for secular
Speaker 1: trades within your portfolios, as well as the allocation to cyclicals.
Speaker 1: We've got to leave it there. SMA Principal Global Investors
Speaker 1: Chief Strategist Ethan Harris with US writing her Bank of
Speaker 1: America Securities their global economist, Dr Harris, thank you so
Speaker 1: much for joining us. I want to go to Michelle
Speaker 1: Myers spectacular two charts on the makeup of our pain,
Speaker 1: our jobs pain out of this pandemic, and what she does,
Speaker 1: and she looks at the area underneath the former labor
Speaker 1: participation rate and it is an ugly integral as the
Speaker 1: math people call it, that space that we've got to
Speaker 1: get back to to get back to normal. When do
Speaker 1: we do that? Um? I don't think we quite recover
Speaker 1: that whole gap. I think that in the later this
Speaker 1: year we'll recover a lot of it. Um. I mean
Speaker 1: what's causing the gap, of course, is the COVID crisis
Speaker 1: is making people reluctant to work. People need to take
Speaker 1: care of their kids at home. Unemployment benefits are very generous,
Speaker 1: and there's been very high retirements going on as people
Speaker 1: kind of rethink their life in a way in this crisis.
Speaker 1: So a lot of that will come back in the
Speaker 1: fall and into next year, but there'll be a chunk
Speaker 1: of lost workers that never come back. She has a
Speaker 1: mismatch seven hundred thousand mispatch. Taking this in view of
Speaker 1: labor statistics and CPS date. Okay, fine, do we get
Speaker 1: back to a fully employed America? Is that a feasible
Speaker 1: reach for anything, But politicians were supposed to say that, Yeah,
Speaker 1: I mean, we're we'll get back to full employment, but
Speaker 1: full employment may not be as low as it was
Speaker 1: before because you've got these structural problems of job mismatch.
Speaker 1: I mean, we've seen in other cycles where you'll have
Speaker 1: a big shock to the economy, some sectors grow, others don't.
Speaker 1: Workers get kind of displaced along the way, and you
Speaker 1: end up with a higher unemployment rate on a chronic basis.
Speaker 1: So I think we'll get back to very low unemployment.
Speaker 1: We probably can get below four percent, but there's gonna
Speaker 1: be a little bit to that structural unemployment that that
Speaker 1: hangs over well into the recovery. Just want to touch
Speaker 1: on this data eighthean just give me a second, the
Speaker 1: trite deficit, the trite balance, come and get a seventy
Speaker 1: four point four billion dollars negative in line with the survey.
Speaker 1: Mike McKay straightaway pointing out that is the widest monthly
Speaker 1: gap in history of data going all the way back.
Speaker 1: Tom k too, that's as wide as it's been for
Speaker 1: a long long time. Negative seventy four point four billion,
Speaker 1: And I'm glad to bring it up, John, I missed out.
Speaker 1: I'm sorry for it's a little bit of a blurrier.
Speaker 1: Dr Harris comment on that on the trade deficit to
Speaker 1: GDP another record we didn't want to make. So, I mean,
Speaker 1: it's obviously the case that the US is coming out
Speaker 1: of this recession very fast compared to our trading partners.
Speaker 1: So and the growth is initially is in goods demand,
Speaker 1: which of course is traded, uh, not in services tend
Speaker 1: to be domestically delivered. So you've had a massive sucking
Speaker 1: in of imports. Uh. You folks talked about this. You know,
Speaker 1: China in particular, big beneficiary of this. Uh, And we're not.
Speaker 1: Our exports aren't growing quite as as gangbusters. So you're
Speaker 1: gonna have a record trade deficit and it's going to
Speaker 1: get bigger going forward. It's it's the it's because the
Speaker 1: US is so exceptional from the amount of stimulus, it's
Speaker 1: doing well. It kind of thinness the story, isn't. It's
Speaker 1: a reflection of this massive demand shock that we're experiencing
Speaker 1: in this country right now that other countries, other nations,
Speaker 1: other exporters I'm going through. So we're getting all of
Speaker 1: their exports and we're getting none of them, getting none
Speaker 1: of us right now because that demands are not their.
Speaker 1: Europe a case study for us all to look at. Yeah,
Speaker 1: I mean, if you compare or contrast to US and Europe,
Speaker 1: I mean, the amount of fiscal stimulus in the US
Speaker 1: is three times bigger than what they're doing in Europe. Um.
Speaker 1: Europe as a pretty small next generation stimulus coming, it's
Speaker 1: spread out over many years. The U US is poured
Speaker 1: massive money in and continues to do it. I think
Speaker 1: a lot of the stuff that's on the table now
Speaker 1: will pass. So it's gonna you know, when you weigh
Speaker 1: out grow your trading partners, um, you're gonna your own
Speaker 1: economy is gonna look very good. But you're gonna pull
Speaker 1: them along with you. And that's what the US is doing.
Speaker 1: It's the global engine of growth. You're gonna pull them
Speaker 1: along with you, or they're gonna Perhaps why you doubt
Speaker 1: a little bit as you try to get into a
Speaker 1: new economic cycle, there has been a huge question about
Speaker 1: where we are in this economic cycle. There's an idea
Speaker 1: of burn hotter and shorter. There's an idea perhaps that
Speaker 1: we never left the old cycle. Where do you fall
Speaker 1: in in this issue. Well, I think in the we're
Speaker 1: gonna recover extremely fast. This is gonna be, we think,
Speaker 1: the fastest recovery in history. So we think by uh,
Speaker 1: you know, early next year, we're going to be back
Speaker 1: where we we started from. So in a sense, it's
Speaker 1: almost like this was this kind of bad nightmare to
Speaker 1: your period and how we're out of it. Um. But
Speaker 1: there's a danger in this and that Right now high
Speaker 1: growth is fantastic. Let's get back to normal fest possible.
Speaker 1: But at some point we need to slow down. We're
Speaker 1: going to go through the stop signs next year, I think,
Speaker 1: and at some point the Fed needs to change gears.
Speaker 1: They need to say, Okay, yeah, we are going to
Speaker 1: hike uh and we're gonna hike a little bit more
Speaker 1: than we're telling you, and we need to slow things down.
Speaker 1: So it's it is. It's a remarkably fast recovery. We're moving.
Speaker 1: We're jumping from deepercession to full recovery in record time. Ethan,
Speaker 1: do you ascribe to the Robert Kaplan idea here that
Speaker 1: markets themselves, given how exuberant they have gotten, could pose
Speaker 1: a material risk to the economy in a year or
Speaker 1: two years. If the Fed does have to hike more
Speaker 1: than people are currently pricing in and there is a
Speaker 1: quick end to this recovery. I think there's a risk
Speaker 1: of that. I think it's a very good point. I mean,
Speaker 1: right now, the markets are being fed an incredible mix
Speaker 1: of positive news. You've got Fed not hiking anytime soon,
Speaker 1: You've got big fiscal standards, got great growth numbers, um,
Speaker 1: the great very good news on vaccines and the COVID crisis.
Speaker 1: So you're gonna have a red hot risk acid market
Speaker 1: from whether it's home prices or equity valuations. But that's
Speaker 1: an environment where you tend to overshoot, and you know,
Speaker 1: we could be in an environment where the FED has
Speaker 1: to take away the punch bowls. So the rest of
Speaker 1: the economy in two and twenty four is pretty high.
Speaker 1: I think of a of an accident here Ethan with
Speaker 1: the ties of Bank of America has coast to coast.
Speaker 1: What do you see for business investment? There is actually
Speaker 1: gonna affect cap X or is it one big share
Speaker 1: buy back? Now? I think the cap X is gonna
Speaker 1: be strong. Um, if you look at our surveys of
Speaker 1: of fund managers, they're telling companies invest in CAPEX right
Speaker 1: that's a sign of a lot of optimism about the outlook.
Speaker 1: If you look at models of capital spending and economist
Speaker 1: estimate the main driver of cap X is growth and
Speaker 1: growth expectations. If a company thinks their market's going to grow,
Speaker 1: they do cap X. And it's not really that important
Speaker 1: the funding aspect. The funding is kind of something you
Speaker 1: have to take care of in order to create the
Speaker 1: cap X. But the real story is about rip roaring recovery. Uh,
Speaker 1: encouraging a lot of investments. So we're gonna have a
Speaker 1: We're gonna have a recovery that starts very much concentrated
Speaker 1: in the consumer as they come out of their cave,
Speaker 1: their COVID caves and get out there and to engage.
Speaker 1: And then over time CAPEX is actually gonna start outgrowing consumption.
Speaker 1: That that's what we expect next year. Ethan, just quickly
Speaker 1: the guide for Friday. What's the focus for you away
Speaker 1: from the headline number? You know, Um, it's it's uh,
Speaker 1: there isn't any big folk. It's just that this is
Speaker 1: a ripping labor market. Um. You know, to have another
Speaker 1: nine hundred thousand plus number. Um. I think the story
Speaker 1: of the job market and the story for the Fed
Speaker 1: is the consistency of the strength. So are we going
Speaker 1: to keep getting these big numbers? And at some point
Speaker 1: then the Fed has to say, okay, now we not
Speaker 1: need to think about tapering our bond purchases. So it's
Speaker 1: not so much about one report, It's about the cumulative
Speaker 1: evidence that this is not a temporary caffeine high. This
Speaker 1: is a real strong recovery going on. To catch up
Speaker 1: Ethan Harris, Bank American securities global economist, we get lucky
Speaker 1: with our analysis and that we have the finances visor
Speaker 1: and with us on my sadology of John's hob Because
Speaker 1: John Farrell, let me go to you. At first, I
Speaker 1: see a single line item, beautifully laid out. I should say,
Speaker 1: by viser, they're not hiding anything here where vaccines go
Speaker 1: from one six billion one point six billion and explode
Speaker 1: up to four point nine billion. John Ferroll, why do
Speaker 1: you bring in Dr a dolge of JOHNS Hopkins with
Speaker 1: Fiser getting it done well? Here's the headline from the
Speaker 1: New York Times to him that you allude to. In
Speaker 1: the last twenty four hours, the FDA to approve the
Speaker 1: Fiser vaccine for ages twelve to fifteen. Next week a
Speaker 1: report coming from the New York Times in place to
Speaker 1: say that doctor Amos, shadow of John's help consent for
Speaker 1: Health Security joined us right now. Dot, let's just start
Speaker 1: with that headline. How important is that next step on
Speaker 1: rolling out this vaccine. Well, if we're going to get
Speaker 1: cases down from the tens of thousands that occur every day,
Speaker 1: we need to have more of the population vaccinated, more
Speaker 1: population level immunity, and as we get to children, the
Speaker 1: older child groups twelve to fifteen are groups that are
Speaker 1: in extra curric activities where you see them spreading in,
Speaker 1: so you will likely get a benefit in terms of
Speaker 1: closer to her immunity, more population level immunity, and decrease
Speaker 1: cases as we get twelve to fifteen year olds. And
Speaker 1: it will help help some of those schools that have
Speaker 1: been holding out and not going to full in person
Speaker 1: learning have us obstacles in their way to do it.
Speaker 1: So I think this is a good step forward, and
Speaker 1: I think we'll probably see even younger age groups approved
Speaker 1: are probably not until two. Capacity is building out as well.
Speaker 1: Finds are indicating that can manufacture at least three billion doses. Two. Doctor,
Speaker 1: the problems of a couple of months ago and no
Speaker 1: longer the problems Now it's not about capacity or supply.
Speaker 1: In fact, this country is now talking about exporting some
Speaker 1: of that stock pile of vaccines. In your opinion, is
Speaker 1: the biggest issue that we have to confront right now.
Speaker 1: Still hesitancy. Yes, that's the biggest issue by far. We're
Speaker 1: basically hit a wall where we're seeing vaccines different, you know,
Speaker 1: to one million, they're probably lower than one million people
Speaker 1: who have gotten vaccinated the early adopters. Those are people
Speaker 1: who are really enthusiastic about the vaccine. Now we're kind
Speaker 1: of hitting that vaccine hesitancy, people on the fence, and
Speaker 1: there are people who are opposed to the vaccine. So
Speaker 1: we're kind of going at a much slower pace now.
Speaker 1: I think the Johnson and Johnson pause definitely knocked down
Speaker 1: the use of that vaccine even after the pause was lifted.
Speaker 1: So right now we're really just kind of trudging along
Speaker 1: in people vaccinated. But I don't think we're gonna see
Speaker 1: major jumps for sometime. It's gonna take some time to
Speaker 1: accrue a large proportion of the population vaccinated, but this
Speaker 1: twelve to fifteen approval will boost at that number significantly.
Speaker 1: People who have gotten vaccinated have had the experience of
Speaker 1: the second shot, and everyone always calls each other up saying,
Speaker 1: how are you doing? Because the side effects have gotten
Speaker 1: to be pretty well known. Are the side effects theoretically
Speaker 1: for say a twelve year old child going to be worse?
Speaker 1: Given the fact that the stronger the immune system, it seems,
Speaker 1: the stronger the reactions, it's hard to make a one
Speaker 1: to one comparison that way. What we know from the
Speaker 1: phase three clinical trial data in that age group was
Speaker 1: that the side effects are not considered to be very severe,
Speaker 1: and there are people who get this vaccine and have
Speaker 1: no side effects, and it's hard to know exactly where
Speaker 1: twelve to fifteen year old would fall. But I know
Speaker 1: that's something that the CDC panel is going to look
Speaker 1: at because remember, children are not likely to have severe disease.
Speaker 1: Children are not likely to be the major spreaders. So
Speaker 1: that's going to be part of the risk benefit of
Speaker 1: calculation that both the FDA and the CDC do. And
Speaker 1: that's important to do it because scenes you know, have
Speaker 1: our risk benefit tradeoff that you have to look at
Speaker 1: in each specific age group when you talk about the
Speaker 1: risk benefit weighing that we're doing every day. There is
Speaker 1: a transition going on, when do health officials say enough
Speaker 1: high risk individuals have been vaccinated that the COVID pandemic
Speaker 1: can be downgraded to a bad flu and we can
Speaker 1: go about our lives. What I think will have to
Speaker 1: happen is we're going to have to get closer to
Speaker 1: the U S population totally vaccinated. And I say, because
Speaker 1: that's where we saw precipitous declines in Israel, which is
Speaker 1: a much more highly vaccinated country, but they still haven't
Speaker 1: reached her immunity either, but their percent positivity of tests
Speaker 1: is less than one percent. So I do think once
Speaker 1: we get more people vaccinated and you see cases plummet,
Speaker 1: uh maybe less than ten thousand or ten thousand, you're
Speaker 1: going to see just kind of a whole rethinking of
Speaker 1: how we come up with a better risk calculation, how
Speaker 1: we how we live with this virus. Because it's not
Speaker 1: going to go to zero, that's a that's a foregone conclusion.
Speaker 1: It's not going to happen, but we will get to
Speaker 1: a point where this is something that has lost the
Speaker 1: ability to cause serious disease at the ring that it
Speaker 1: can dr indulgia. The cynics and the non science crew
Speaker 1: will say that the Fiser's minting all this money, they
Speaker 1: should come to the rescue to the aid of India
Speaker 1: in my in their wonderful press release which quite frankly, folks,
Speaker 1: I didn't do a word search and they don't address
Speaker 1: the catastrophe we see in these other countries. Is the
Speaker 1: Fiser vaccine too fancy for the realities of India. I
Speaker 1: don't know that it's too fancy, but it's probably going
Speaker 1: to be one of several solutions. And remember India as
Speaker 1: a net vaccine exporter and they exported most of their
Speaker 1: vaccine to other countries. They maker of the astrosenica vaccine,
Speaker 1: they have their own homegrown vaccine. So this is a
Speaker 1: question of kind of logistics and getting in the ability
Speaker 1: to make more vaccines. They can handle the Fiser vaccine
Speaker 1: in terms of manufacturing, the delivery situation with visor with
Speaker 1: the ultracold storage that makes it more difficult. A two
Speaker 1: dose vaccine is something that's also not optimal. So if
Speaker 1: they are able to use a single dose vaccine like
Speaker 1: the Johnson and Johnson vaccine in India, that would be
Speaker 1: probably ideal. Could take it into rural areas, so They
Speaker 1: basically have to have all hands on deck using any
Speaker 1: type of safe and effective vaccine that's available to staunch
Speaker 1: what is really an out of control pandemic and to
Speaker 1: get them back online. Doctor, We've gotta leave it that.
Speaker 1: Thanks for catching up this morning. This is the Bloomberg
Speaker 1: Surveillance Podcast. Thanks for listening. Join us live weekdays from
Speaker 1: seven to ten a m. Eastern on Bloomberg Radio and
Speaker 1: on Bloomberg Television each day from six to nine am
Speaker 1: for insight from the best in economics, finance, investment, and
Speaker 1: international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud,
Speaker 1: Bloomberg dot com, and of course on the terminal. I'm
Speaker 1: Tom Keene, and this is Bloomberg