Latest / Bloomberg Intelligence / The Latest On Interest Rates, Fed Tapering, And Inflation

Transcript

The Latest On Interest Rates, Fed Tapering, And Inflation · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast
• 0:15
  Speaker 1: called Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com Slash podcast. When we had the
• 0:22
  Speaker 1: Bank of England this morning, I just wanted to point
• 0:26
  Speaker 1: out one thing. Uh, I love I never know what
• 0:30
  Speaker 1: to say bitcoin pricing per It's really per coin. Greg
• 0:35
  Speaker 1: just said per bit, which is funny, but a bitcoin
• 0:38
  Speaker 1: is made up of about a million bits, so I
• 0:42
  Speaker 1: was going with the old per token that could work.
• 0:46
  Speaker 1: Per token works also as as does per coin. Just
• 0:50
  Speaker 1: saying per coin it sounds there's an echo, you know,
• 0:53
  Speaker 1: but um, there are many, many, many bits in the
• 0:58
  Speaker 1: line of code that make up one. Speaking of a point,
• 1:00
  Speaker 1: it's per I'm gonna go with token down seven fifty
• 1:06
  Speaker 1: dollars or one point five, So there you go. All right,
• 1:09
  Speaker 1: let's check in with Megan Horneman, director of portfolio Strategy
• 1:12
  Speaker 1: at Verden's Capital Advisors. Megan, thanks so much for joining
• 1:16
  Speaker 1: us here. Just give us your thoughts of what we've
• 1:19
  Speaker 1: heard and seen and read from various central banks over
• 1:23
  Speaker 1: the past twenty four hours. How has that changed, if
• 1:25
  Speaker 1: at all, your outlook for next year. Um, it hasn't
• 1:29
  Speaker 1: changed our outlook. It wasn't a complete surprise what they did.
• 1:33
  Speaker 1: I mean, they kind of told us what they would
• 1:34
  Speaker 1: do when the Fed pivoted, when they dropped transitory last
• 1:38
  Speaker 1: week or the week before. I think what they're doing
• 1:40
  Speaker 1: is necessary. I think it's it's going to the Sometimes
• 1:45
  Speaker 1: that short term pain helps with the long term gain.
• 1:48
  Speaker 1: We need to get a little bit more aggressive about
• 1:50
  Speaker 1: pulling back some of these emergency measures. Quantitative easing, for sure,
• 1:54
  Speaker 1: we haven't needed that for some time now, we've been
• 1:56
  Speaker 1: at that emergency situation. So I do agree with what
• 2:00
  Speaker 1: they're doing there from the inflation standpoint as well, getting
• 2:03
  Speaker 1: a little bit more aggressive now saying potentially three rate
• 2:06
  Speaker 1: hikes next year. This is what the market wanted to hear,
• 2:09
  Speaker 1: and you're seeing that being reflected in the equity market.
• 2:12
  Speaker 1: If they had disappointed in coming out in any more
• 2:15
  Speaker 1: debbish type of a tone, I think you actually would
• 2:17
  Speaker 1: have seen a very big different story on the equity markets.
• 2:20
  Speaker 1: I think you would have seen them sell off because
• 2:22
  Speaker 1: there's that overwhelming fear that the FED maybe behind the curve.
• 2:26
  Speaker 1: And what they're doing right now is showing that they're
• 2:28
  Speaker 1: they're very um, observant of what's going on with the
• 2:31
  Speaker 1: inflation environment and ready to hit to do what they
• 2:33
  Speaker 1: need to do to tackle that. And um, do you
• 2:37
  Speaker 1: have faith that they'll be able to do that without
• 2:38
  Speaker 1: derailing economic growth? That's the that's the biggest question, right
• 2:43
  Speaker 1: what can we do? Also, I didn't mean to use
• 2:44
  Speaker 1: the word faith. I mean, you know, do you do
• 2:48
  Speaker 1: you expect that? Yeah? No, no, do not worry about that. Um.
• 2:52
  Speaker 1: So I think right now this is a very good step.
• 2:55
  Speaker 1: I'm I'm glad they got a little bit more aggressive.
• 2:57
  Speaker 1: The biggest thing that we will have to see in
• 2:59
  Speaker 1: the first half of next year to see if they
• 3:01
  Speaker 1: can successfully do this is, um, is there something that's
• 3:05
  Speaker 1: going to give? Will the demand side of it from
• 3:07
  Speaker 1: the consumers start to slow a bit? Um? Will that
• 3:10
  Speaker 1: help us catch up on the supply side of things
• 3:13
  Speaker 1: that may help alleviate some of the inflationary pressures in
• 3:16
  Speaker 1: the second half of next year. That time will tell.
• 3:20
  Speaker 1: With the consumer. We saw retail sales yesterday they were
• 3:23
  Speaker 1: a little bit disappointing. There is some evidence that the
• 3:26
  Speaker 1: higher prices from either the gas pump or the food prices,
• 3:31
  Speaker 1: this is starting to affect consumers. You're seeing it with
• 3:34
  Speaker 1: credit card debt pick up as well. So if we
• 3:37
  Speaker 1: see some poolback in that demand side of things, then
• 3:40
  Speaker 1: the FET is doing the right thing. It's doing its job.
• 3:43
  Speaker 1: I still think it's a little bit too early to tell.
• 3:46
  Speaker 1: Can we successfully land this economy in in Megan, So,
• 3:52
  Speaker 1: given that backdrop, are you suggesting to your clients in
• 3:57
  Speaker 1: that they focus on again some many cyclical names that
• 4:00
  Speaker 1: will I guess perform well in a reopening economy, or
• 4:04
  Speaker 1: kind of sticking with a tried and true big cap
• 4:07
  Speaker 1: growth names. Um No, we're still recommending to stick with
• 4:12
  Speaker 1: those cyclical type of sectors that will benefit from the
• 4:16
  Speaker 1: global recovery. These also are the areas of the market
• 4:19
  Speaker 1: that have lagged over the past six months by a
• 4:21
  Speaker 1: significant amount. They from evaluation perspective, they're more they're more
• 4:26
  Speaker 1: attractive than those large cap growth, mega cap tech type
• 4:30
  Speaker 1: of names. And keep in mind that a lot of
• 4:32
  Speaker 1: these very expensive investments, whether you're looking at mega tech
• 4:37
  Speaker 1: or some of these momentum type of investments that you've
• 4:40
  Speaker 1: seen materialized in two. They've been hurt over the past week,
• 4:45
  Speaker 1: and that's been primarily because of the fact that the
• 4:47
  Speaker 1: easy money policy that has fueled some speculative, speculative types
• 4:51
  Speaker 1: of trades over the past year, that's going to be
• 4:54
  Speaker 1: fading in the two. So you're seeing some profit taking there.
• 4:58
  Speaker 1: You're seeing that today as well in seeing a rotation
• 5:01
  Speaker 1: back into those areas that actually have values that can
• 5:03
  Speaker 1: benefit from UM not only higher interest rates when you're
• 5:07
  Speaker 1: looking at financials, they can benefit from the resumption of
• 5:10
  Speaker 1: economic growth with industrials. So those are some areas that
• 5:14
  Speaker 1: we still focus on going into next year. Drum Pal
• 5:16
  Speaker 1: didn't seem terribly concerned about oh, Macron, although drinking havoc
• 5:21
  Speaker 1: in Europe, UM, how does that factor into your strategy?
• 5:27
  Speaker 1: So UM, we're going to deal with the different variants
• 5:31
  Speaker 1: of this virus forever. This this isn't going away. What
• 5:34
  Speaker 1: I would like to see INO is that we learned
• 5:36
  Speaker 1: to live with it as opposed to locking down. Right now,
• 5:40
  Speaker 1: we're still in that concern of lockdown phase. But if
• 5:44
  Speaker 1: we can learn to live with this and get through
• 5:46
  Speaker 1: these humps, because we will deal with more variants this,
• 5:49
  Speaker 1: Oh Macron. Apparently there is a knee jerk reaction at first.
• 5:53
  Speaker 1: That's because it's more transmissible, it's more dangerous. We're not
• 5:56
  Speaker 1: seeing that right now. Um, it is definitely I've it's
• 6:00
  Speaker 1: been more transmissible, but we're not seeing it necessarily increase
• 6:04
  Speaker 1: the Hospitalization's. The one thing that we think will be
• 6:09
  Speaker 1: a big focus in is therapeutics for for coronavirus. This
• 6:14
  Speaker 1: will help us to get further to that living with
• 6:16
  Speaker 1: it as opposed to locking down because of it. So
• 6:18
  Speaker 1: I think that's going to be a focus in two.
• 6:21
  Speaker 1: I'm not concerned at this point of Amcron's railing on
• 6:24
  Speaker 1: the economic recovery. All right, Megan, thank you so much
• 6:27
  Speaker 1: for joining us. Megan Hornham and director of Portfolio Strategy
• 6:29
  Speaker 1: of Verden's Capital Advisers, talking about locking down just coming
• 6:33
  Speaker 1: across the Bloomberg Terminal City tells New York, New Jersey
• 6:36
  Speaker 1: staffers to work from home again. So we'll see how
• 6:40
  Speaker 1: this plays out as a COVID nineteen continues and the
• 6:44
  Speaker 1: Amicron variant is the driver here. I want to bring
• 6:51
  Speaker 1: in Mark Douglas now, he is the president and CEO
• 6:55
  Speaker 1: at Mountain. He works with Ryan Reynolds to put out
• 6:58
  Speaker 1: ads like the one we saw over the weekend with
• 7:00
  Speaker 1: Chris Noth still alive and well and writing his Peloton.
• 7:06
  Speaker 1: Um bark talked to me about that fast turnaround. Did
• 7:10
  Speaker 1: you have any heads up that um, the sex in
• 7:12
  Speaker 1: the city, Uh, you know, death was going to happen
• 7:16
  Speaker 1: in the days proceeding. Um none, So we had no
• 7:20
  Speaker 1: head up, and Peloton had no head up, And we
• 7:25
  Speaker 1: learned about it just like everyone else by just watching
• 7:28
  Speaker 1: television and um, you know, in the basically on the show,
• 7:33
  Speaker 1: HBO essentially implies that exercise is not healthy. And because
• 7:38
  Speaker 1: one of the main characters missed the big dies and
• 7:40
  Speaker 1: so UM, Peloton had just become a customer with a service.
• 7:45
  Speaker 1: We new service we have we called Creative as a
• 7:47
  Speaker 1: subscription where we can just mobilize quickly to include Creative
• 7:51
  Speaker 1: and the media by and we actually on Saturday flew
• 7:55
  Speaker 1: to New York and Ryan is a chief creative officer
• 7:59
  Speaker 1: essentially UM with it with the team here, his team
• 8:02
  Speaker 1: and Mountains just wrote this ad and UM filmed it
• 8:05
  Speaker 1: and edited it and released it on Sunday. And I
• 8:08
  Speaker 1: woke up Monday to all this news. So it was
• 8:12
  Speaker 1: pretty amazing. Yeah, yeah, no advance about this whatsoever. Yeah,
• 8:15
  Speaker 1: that was extraordinary. And what kind of said to me
• 8:17
  Speaker 1: a little bit, Ryan, is we often talked to you,
• 8:19
  Speaker 1: I'm sorry, often talked to you about you know, digital
• 8:23
  Speaker 1: ad tech, digital advertising. It's still the importance of a
• 8:27
  Speaker 1: good old TV ad can really generate a lot of buzz. Yeah, absolutely,
• 8:34
  Speaker 1: I mean it's something I say all the time. And
• 8:36
  Speaker 1: a Mountain Wars software platform and essentially um distribute television
• 8:42
  Speaker 1: media commercials on streaming media. But I always say, you know,
• 8:47
  Speaker 1: it's advertising first, mad you know, the age of Madmen,
• 8:50
  Speaker 1: all of that, it matters, and the message matters and
• 8:53
  Speaker 1: so um and this literally essentially proved it. I mean,
• 8:57
  Speaker 1: nothing beat just putting something and of consumers that is
• 9:01
  Speaker 1: and attaining and watchable and and you know that that
• 9:06
  Speaker 1: they can really consume and enjoy. And that's exactly what
• 9:09
  Speaker 1: happened here. So it was. I can't stress how how
• 9:13
  Speaker 1: unbelievable it was between Saturday and essentially Monday morning. It
• 9:18
  Speaker 1: is pretty amazing. By the way, do people Mark, do
• 9:21
  Speaker 1: they often confuse you with Brian not yet, has not yet,
• 9:27
  Speaker 1: I've heard, but I was on CNBC with him. Well
• 9:29
  Speaker 1: maybe I shouldn't mention that on Blue Work the other day,
• 9:32
  Speaker 1: and I thought I was holding up pretty well. We
• 9:38
  Speaker 1: are platform agnostic, but you know, speaking of TV, and
• 9:41
  Speaker 1: Paul makes an interesting point, there's a lot of people
• 9:44
  Speaker 1: who still watch the boob tube, UM, but most of
• 9:48
  Speaker 1: us are going to see your ads on Instagram and
• 9:51
  Speaker 1: YouTube rather than television. Right, where do you get the
• 9:57
  Speaker 1: most exposure? Right? So, so from Mountains, we're basically just
• 10:03
  Speaker 1: how television is new it's on demand, it's streamed. UM.
• 10:08
  Speaker 1: That's where Mountains delivers the ad experience, the word performance
• 10:12
  Speaker 1: platform for streaming television UM, and any brand can come
• 10:16
  Speaker 1: to our website and sign up, you know, essentially use
• 10:20
  Speaker 1: our platform and reach consumers. So we we are not
• 10:23
  Speaker 1: on We obviously use social media ourselves, but our platform
• 10:29
  Speaker 1: is on streaming. It's on when you're watching ABC, or
• 10:32
  Speaker 1: you're watching the Bloomberg chatl on television or you know
• 10:35
  Speaker 1: any essentially involved the teaving networks in America. But not well, UM,
• 10:42
  Speaker 1: I think you know, we do have a ded we
• 10:44
  Speaker 1: do serve an NBC. It sounds like we shouldn't be,
• 10:47
  Speaker 1: so I'll keep that in mind. Mark, give us a
• 10:50
  Speaker 1: sense of kind of how your conversations with your clients
• 10:53
  Speaker 1: have kind of evolved over the past couple of years
• 10:56
  Speaker 1: of this pandemic, is it How have they changed? If
• 10:59
  Speaker 1: at all, It's it's the main thing. It's all about results.
• 11:04
  Speaker 1: I mean, I think that we're in kind of a
• 11:06
  Speaker 1: golden age of television. It's just so much great content.
• 11:10
  Speaker 1: I don't know anyone who you know, actively watches TV
• 11:13
  Speaker 1: who can literally keep up with all the shows that
• 11:17
  Speaker 1: are available on all the great content. Um. But for
• 11:20
  Speaker 1: the advertisers, what really matters, especially during the pandemic, is
• 11:25
  Speaker 1: they have to have provable results. And so that's kind
• 11:28
  Speaker 1: of been the big ship to see this big shift
• 11:31
  Speaker 1: going from brand advertising, UM, where companies just kind of
• 11:35
  Speaker 1: take a leap of faith in terms of results to
• 11:37
  Speaker 1: that spend so now kind of performance advertising and so
• 11:41
  Speaker 1: you know, Mountain we've jumped really into performance advertising space.
• 11:45
  Speaker 1: We may create a front and center by merging with
• 11:48
  Speaker 1: Maxim MEFA Bryant's company, and um, it's just been a great,
• 11:53
  Speaker 1: you know, kind of great journey in doing that. It's
• 11:56
  Speaker 1: fantastic content, and UM, it doesn't seem to me that
• 12:01
  Speaker 1: there are a lot of people as smart and good
• 12:04
  Speaker 1: looking as Ryan Reynolds. It seems unfair almost that did
• 12:09
  Speaker 1: you do you shign him with your deal? Do you
• 12:11
  Speaker 1: get a piece of him? I know Ryan is chief
• 12:16
  Speaker 1: creative officer of Mountains UM and obviously founded Maximum Effort,
• 12:21
  Speaker 1: and you know, I'm touching on just a small part
• 12:24
  Speaker 1: of his old career. UM. It's been amazing UM to
• 12:29
  Speaker 1: work with him and continues to be amazing, and he recently,
• 12:34
  Speaker 1: you know, kind of took a sabbatical from films to
• 12:36
  Speaker 1: just focus on building mountains and and the other things
• 12:41
  Speaker 1: he has going on. So it's UM, I feel privileged
• 12:44
  Speaker 1: to be able to UM have that kind of talent.
• 12:47
  Speaker 1: And you know, one of the things on going back
• 12:49
  Speaker 1: to Peloton and the ad that we put out this weekend,
• 12:52
  Speaker 1: I mean, it's almost an unfair advantage to have Ryan.
• 12:55
  Speaker 1: It's a chief grative officer and and the team UM
• 12:58
  Speaker 1: Maximum Efforts. It's now part of noun to see that,
• 13:00
  Speaker 1: So it's it's UM. Uh. You know, we're just a
• 13:03
  Speaker 1: big belief in creative as part of media and you know,
• 13:07
  Speaker 1: UM bad media, so we're it's just it's kind of
• 13:10
  Speaker 1: amazing to watch Mark. It's great having you on. I
• 13:13
  Speaker 1: always love talking to you. Thanks so much for dropping by.
• 13:15
  Speaker 1: Mark Douglas there, president and CEO at Mountain. Interest rates
• 13:23
  Speaker 1: are on the rise. We saw the action by the
• 13:25
  Speaker 1: Beau the Bank of England today. We heard FED Chairman
• 13:29
  Speaker 1: Pal yesterday as he talks about accelerating tapering and then
• 13:32
  Speaker 1: raising rates next year and into three. What is a
• 13:36
  Speaker 1: fixed income manager to do? Where the opportunities in that
• 13:39
  Speaker 1: kind of environment. Let's check in them with a pro
• 13:41
  Speaker 1: Kevin Nicholson, Global Fixed Income Co c i OH. He's
• 13:45
  Speaker 1: also co head of Investment committee at Riverfront Investment Group. Kevin,
• 13:49
  Speaker 1: thanks so much for joining us here. All right, given
• 13:52
  Speaker 1: what we now know from an interest rate perspective, what's
• 13:57
  Speaker 1: your outlook for My outlook for two is that we
• 14:02
  Speaker 1: should see the ten year move higher by year. In
• 14:05
  Speaker 1: our base case scenario is for the ten year to
• 14:08
  Speaker 1: yield two percent by the end of the year UM.
• 14:12
  Speaker 1: And as far as where we're looking for opportunities, UM,
• 14:16
  Speaker 1: we're going to focus on trying to get some higher
• 14:20
  Speaker 1: yields into the portfolio. We're going to look at high yield,
• 14:25
  Speaker 1: even though UM we would stay up at the higher
• 14:28
  Speaker 1: quality high yield at this juncture because as the FED
• 14:33
  Speaker 1: begins its tightening cycle, I think it will put some
• 14:36
  Speaker 1: pressure on some of the lower yielding companies out there,
• 14:39
  Speaker 1: but you think it's safe. But you think it's safe
• 14:42
  Speaker 1: to go back in the water now. I mean the
• 14:44
  Speaker 1: second half of November was rough, um, not just for
• 14:46
  Speaker 1: high yield, but for I G two and UM. Now
• 14:51
  Speaker 1: now you think uh investors will cotton too, that they're
• 14:54
  Speaker 1: gonna need some of that yield. Well, I think that.
• 14:58
  Speaker 1: I mean when you look at where treasures are heal
• 15:00
  Speaker 1: thing right now, I mean we have the tenure at
• 15:01
  Speaker 1: a one forty two, you're not really you're not keeping
• 15:04
  Speaker 1: up with inflation, and so you have to look at
• 15:07
  Speaker 1: a place that you're at least going to get closer
• 15:09
  Speaker 1: to it. Um. There's very few places in the in
• 15:12
  Speaker 1: the fixing income market that can keep up with inflation
• 15:16
  Speaker 1: at at current levels. A matter of fact, there's only
• 15:18
  Speaker 1: one place you can really go, and that's to the
• 15:20
  Speaker 1: tips market. UM. So from my perspective going into next year,
• 15:26
  Speaker 1: we have to continue to be underweight fix income. If
• 15:30
  Speaker 1: you're looking at it in a balanced portfolio, you're going
• 15:34
  Speaker 1: to continue to have your duration shorter because interest rates
• 15:38
  Speaker 1: are going up, so you don't want to, you know,
• 15:42
  Speaker 1: put more pressure on your portfolio. By having a long
• 15:46
  Speaker 1: duration in there at this point. So, Kevin, if I'm
• 15:50
  Speaker 1: searching for yield and I venture into the high old market,
• 15:52
  Speaker 1: what are some of the sectors, uh, that you guys
• 15:55
  Speaker 1: think will be interesting next year? I mean, if we're
• 15:57
  Speaker 1: going to continue to uh look at you know, your
• 16:02
  Speaker 1: consumer UM services more from like your financial m consumer
• 16:06
  Speaker 1: financial services, as well as we will look you know
• 16:11
  Speaker 1: in the high yell space at energy see where how
• 16:15
  Speaker 1: that goes. UM. Those are the probably the main UM
• 16:19
  Speaker 1: areas that we will look at going into the year.
• 16:23
  Speaker 1: And as if we get past this COVID uh you
• 16:27
  Speaker 1: know lockdown that we're seeing um transpire over in Europe, UM,
• 16:32
  Speaker 1: we will start also looking at some of your leisure
• 16:36
  Speaker 1: UM stocks more for the excuse me, bonds that are
• 16:40
  Speaker 1: more for the reopening is I guess el macron must
• 16:44
  Speaker 1: be one of the biggest worries other than the FED. Yes, UM,
• 16:50
  Speaker 1: I think that you know, I'm not concerned about on
• 16:53
  Speaker 1: the cron so much here in the US because they
• 16:56
  Speaker 1: don't think that we're going to shut down our economy again.
• 16:59
  Speaker 1: But when I look across the pond and you know,
• 17:03
  Speaker 1: work for fixed income ideas that are outside of the US,
• 17:07
  Speaker 1: I do indeed worry about Um. You know, I'm a
• 17:11
  Speaker 1: cron because they're tending to shut down. Their economies are
• 17:16
  Speaker 1: a lot faster than you know we're thinking about in
• 17:19
  Speaker 1: the US. I think we've learned our lesson and we're
• 17:21
  Speaker 1: just gonna live with it going forward. All right, you're
• 17:24
  Speaker 1: not the first person to tell us that today, Kevin,
• 17:26
  Speaker 1: it seems to be a consensus for you. Kevin Nicholson
• 17:29
  Speaker 1: is a global fixed income co c i O and
• 17:32
  Speaker 1: co head of the Investment Committee at Riverfront Investment Group,
• 17:36
  Speaker 1: giving us his outlook for two as well as his
• 17:40
  Speaker 1: take on what we heard from Jerome Powell and the
• 17:43
  Speaker 1: FED yesterday and uh, the current situation with the coronavirus.
• 17:53
  Speaker 1: As promise, we're gonna bring you Marcus show mur chief
• 17:55
  Speaker 1: economist at pine Bridge Investment, to talk about the hawk
• 17:59
  Speaker 1: is pivot first off and then um and then Marcus,
• 18:03
  Speaker 1: we saw the b o E actually go the whole
• 18:06
  Speaker 1: nine yards or almost I guess, fifteen basis point points
• 18:09
  Speaker 1: of an increase. What do you think about these central
• 18:12
  Speaker 1: banks getting more and more hawkish on inflation? They guys,
• 18:16
  Speaker 1: it's nice to be back on the show. Um, Yes,
• 18:19
  Speaker 1: what a what a few days or two days here
• 18:22
  Speaker 1: for central bank watchers. I mean, we knew that this
• 18:25
  Speaker 1: would be busy when we saw the schedule that everything
• 18:28
  Speaker 1: was punching up here. The week for most people, I
• 18:32
  Speaker 1: guess shutdown for Christmas, but that would get so much
• 18:35
  Speaker 1: action probably was a little bit of a surprise. Um
• 18:37
  Speaker 1: yet the Fed clearly in a hawk ish pivot. The
• 18:42
  Speaker 1: Bank of England probably even more surprising and more confusing,
• 18:46
  Speaker 1: after disappointing expectations last month where they was supposed to
• 18:50
  Speaker 1: raise rate it didn't for kind of no really apparent reason,
• 18:54
  Speaker 1: and then this time with storing COVID cases again clouding
• 18:59
  Speaker 1: the economic out brogan p mind numbers this morning not
• 19:01
  Speaker 1: particularly exciting. They decided to do race rates. So I
• 19:06
  Speaker 1: think what we're having here's just an environment where central
• 19:09
  Speaker 1: bank communication has become very, very inconsistent. And I think
• 19:14
  Speaker 1: that's something that I would have thought as an economist.
• 19:17
  Speaker 1: I'm not a portformio manager, but as an economist, I
• 19:19
  Speaker 1: would have thought that would really impact financial markets and
• 19:22
  Speaker 1: that we would start to pric in greater risk premiums.
• 19:25
  Speaker 1: Again for central bank surprises, but so far they look
• 19:29
  Speaker 1: at the markets, none of that really is happening. Marcus,
• 19:32
  Speaker 1: what is your view of inflation as we head into
• 19:36
  Speaker 1: the transitory term has been retired by the US FED chair,
• 19:40
  Speaker 1: But what is your view? Well, I mean, there is
• 19:45
  Speaker 1: the idea that inflation can be transitory was always just
• 19:49
  Speaker 1: out there to placate markets. I think the central banks
• 19:53
  Speaker 1: were just too afraid to suddenly talk about inflation as
• 19:56
  Speaker 1: a problem, but that could mean the financial markets. That's
• 19:58
  Speaker 1: why they sort of came up with transiti aations. Never
• 20:00
  Speaker 1: transitory inflation is one of the worst economic trends that
• 20:06
  Speaker 1: makes income inequality worse than anything else. Yes, we know
• 20:11
  Speaker 1: it's kind of good for debt because you know, if
• 20:14
  Speaker 1: you have a lot of phenomenal debt, higher inflation eats
• 20:16
  Speaker 1: a way that that amount of debt faster vality to
• 20:19
  Speaker 1: GDP over income. But with our pivot away from that
• 20:24
  Speaker 1: towards more income in equality related problems, inflation is really
• 20:29
  Speaker 1: really bad. It makes which people richer and poor people poor.
• 20:32
  Speaker 1: That's a huge problem. So that the fact finally pivots.
• 20:35
  Speaker 1: So this is not a big surprise. And we know
• 20:38
  Speaker 1: from previous inflation periods that even if it lasts only
• 20:42
  Speaker 1: twelve months or eighteen months, it has an impact. So
• 20:45
  Speaker 1: the call it. To have called it transitory at the beginning,
• 20:49
  Speaker 1: I think basically was an attempt by central banks to
• 20:53
  Speaker 1: play defense in an environment where they are so far
• 20:57
  Speaker 1: leaning towards excessive emergency stimulus that couldn't really dial back
• 21:01
  Speaker 1: that may that fast, so they rolled up this word transitory.
• 21:05
  Speaker 1: And the fact that they actually that Powell even used
• 21:07
  Speaker 1: the word let's retire that expression or made me really
• 21:11
  Speaker 1: cringe last time, because it meant it has served its
• 21:14
  Speaker 1: purpose and it took this purpose to confuse you all
• 21:18
  Speaker 1: or placate you all. But now we don't need to
• 21:21
  Speaker 1: do this anymore because we're ready to raise rate, so
• 21:23
  Speaker 1: we could retire in inverted commas that were transitory. Um,
• 21:28
  Speaker 1: I think it was never actually an honest description of
• 21:32
  Speaker 1: the inflation backdrop. You hate inflation almost as much as
• 21:35
  Speaker 1: Ronald Reagan did. He said he said inflation is as
• 21:39
  Speaker 1: violent as a mugger, as frightening as an arm drobber,
• 21:42
  Speaker 1: and as deadly as a hit man. What I've been
• 21:45
  Speaker 1: thinking about a lot lately, Marcus, is what it forces
• 21:48
  Speaker 1: investors to do, Especially with so much liquidity, so much
• 21:51
  Speaker 1: cash out there, you don't want to just leave it
• 21:55
  Speaker 1: in dollars and you know, have it being reduced by
• 22:00
  Speaker 1: a tent every year. Right, Um, you need to put
• 22:03
  Speaker 1: it to work, and when you need to put it
• 22:04
  Speaker 1: to work, that's when dangerous things can happen. Well, that
• 22:09
  Speaker 1: is true, but that isn't it exactly what we're doing,
• 22:12
  Speaker 1: or what investors are doing with the market is doing.
• 22:14
  Speaker 1: I mean, why would you buy at ten year bond
• 22:17
  Speaker 1: at one point four percent when the current inflation wright
• 22:20
  Speaker 1: is six And yeah, eventually we will get back to
• 22:24
  Speaker 1: one point four percent, but but who really believes that
• 22:26
  Speaker 1: over the next ten years inflation will ever be below
• 22:29
  Speaker 1: one point four percent so that you can average to
• 22:32
  Speaker 1: something that makes sense in terms of the novel returns
• 22:36
  Speaker 1: and interest in getting on that investment in a ten
• 22:38
  Speaker 1: year bond visa. The the inflation that will eat up
• 22:42
  Speaker 1: the investments you just made in that bond um and
• 22:45
  Speaker 1: a lot of money is still going into those markets,
• 22:47
  Speaker 1: a lot of money is sustaining those markets. It really
• 22:50
  Speaker 1: tells you have to be in equities, right. That's the
• 22:53
  Speaker 1: inflation story being housing all the assets that have some
• 22:58
  Speaker 1: inflation protection because that it reacts to nominal economic activity,
• 23:03
  Speaker 1: which is what equity markets are doing. That's what the
• 23:05
  Speaker 1: money is that's what the market the money is still going,
• 23:08
  Speaker 1: but it is not that that's what everybody is doing.
• 23:10
  Speaker 1: I'm surprised that we have not seen a greater reaction
• 23:14
  Speaker 1: in the bond market as a result of all this
• 23:17
  Speaker 1: inflation and the fact that the Fed is removing the
• 23:21
  Speaker 1: policy support four bonds. Hey, Marcus, thank you so much
• 23:25
  Speaker 1: for joining us. Really appreciate getting your thoughts and perspective
• 23:29
  Speaker 1: here as we try to digest, uh, some of what
• 23:31
  Speaker 1: we've heard from the Federal Reserve yesterday in the ecb
• 23:34
  Speaker 1: UH and the Bank of England today. Marcus Schomer is
• 23:37
  Speaker 1: a chief economist for pine Bridge Investments, and Marcus was
• 23:40
  Speaker 1: just referencing kind of interest rates and again at the
• 23:43
  Speaker 1: ten year treasury here we are one point four three percent.
• 23:47
  Speaker 1: We have seen a flattening of the curve, but can
• 23:50
  Speaker 1: you look at that ten years still at one point
• 23:51
  Speaker 1: four three percent. A lot of folks I thought we'd
• 23:54
  Speaker 1: see a pick up, a rise in yields, just not
• 23:57
  Speaker 1: seeing yet. Thanks for listening to the Bloomberg Markets podcast.
• 24:02
  Speaker 1: You can subscribe and listen to interviews of Apple Podcasts
• 24:06
  Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
• 24:10
  Speaker 1: on Twitter at Matt Miller three and on Fall Sweeney.
• 24:14
  Speaker 1: I'm on Twitter at pt Sweeney Before the podcast. You
• 24:16
  Speaker 1: can always catch us worldwide at Bloomberg Radio