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MS' Zezas: Relief Funds Are Enough for State, Local Needs · 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
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  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. One point nine trillion
• 0:23
  Speaker 1: dollar fiscal stimulus about to be signed into law tomorrow
• 0:27
  Speaker 1: by President Biden. Seems to be a lot of things
• 0:31
  Speaker 1: in this package for a lot of folks. Let's break
• 0:33
  Speaker 1: it down. We can do that with Michael zzas Uh.
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  Speaker 1: He is the chief US public Policy and municipal strategists
• 0:39
  Speaker 1: for Morgan Stanley based in New York. Michael, thanks so
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  Speaker 1: much for joining us here. I want to look at
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  Speaker 1: initially the amount of money that is going to states
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  Speaker 1: and local municipalities. Is it enough and how do you
• 0:51
  Speaker 1: think it will be utilized? Yeah, I think it's enough.
• 0:56
  Speaker 1: I think it's enough. We had estimated back in May
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  Speaker 1: that state and local governments would be short of their
• 1:04
  Speaker 1: budget estimates through the end of calendar one by about
• 1:07
  Speaker 1: two hundred and seventy billion dollars. This is three fifty
• 1:09
  Speaker 1: billion dollars in our two hundred and seventy billion dollars
• 1:13
  Speaker 1: probably now is actually too high of an estimate because
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  Speaker 1: we we were looking at an SMP level that was
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  Speaker 1: lower back than UM. We did not account for unemployment
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  Speaker 1: being skewed towards lower income workers so that the tax
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  Speaker 1: base didn't suffer nearly as much as we thought. So
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  Speaker 1: three d fifty billion we think will will relatively well
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  Speaker 1: cover the revenue that state and local officials UM expect
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  Speaker 1: should have been there. So what does that money get
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  Speaker 1: used for at the end of the day, Well, you know,
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  Speaker 1: it will depend on a state by state basis, but
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  Speaker 1: ultimately it replaces lost revenue from lost economic activity. UH.
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  Speaker 1: Probably enables operating budgets to stay intact, UM capital budgets
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  Speaker 1: to continue to flow UH. And it basically just it
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  Speaker 1: ensures that thing governments can undertake the normal amount of
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  Speaker 1: economic activity they otherwise would have. So does it change
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  Speaker 1: UM issuance plans? Were they changed before the bill came along?
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  Speaker 1: Does it change rates? Has it already been priced in well?
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  Speaker 1: With regard to the MUNI market, I mean, the muni
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  Speaker 1: market is pricing in a way that I think reflects
• 2:28
  Speaker 1: a substantial amount of optimism, and I think well placed
• 2:31
  Speaker 1: optimism about the strength of credit quality, which is to
• 2:35
  Speaker 1: say that if you're providing three fifty billion dollars of
• 2:39
  Speaker 1: grant money when the amount of revenue LASS was going
• 2:42
  Speaker 1: to be less than that, then the credit quality of
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  Speaker 1: the asset class is more or less what it was
• 2:48
  Speaker 1: before the pandemic, which is not to say it didn't
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  Speaker 1: have its flaws, but UM certainly UM not nearly experienced
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  Speaker 1: the weakness that it was perceived too. So I don't
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  Speaker 1: think this as an impact on yields per se that
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  Speaker 1: the muni yields will go down relative to treasury yields,
• 3:06
  Speaker 1: but it sort of justifies where market pricing is with
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  Speaker 1: regard to supply. I think potentially a transform supply, Whereas
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  Speaker 1: without this aid you might have looked at municipalities doing
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  Speaker 1: some refunding activity to create budget savings. Now they're probably
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  Speaker 1: more likely to be aggressive in their capital plans and
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  Speaker 1: and borrow money to UM match the money they would
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  Speaker 1: have used on I pay as you go basis to
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  Speaker 1: pay for roads and bridges, etcetera. Alright, so, Michael, this
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  Speaker 1: UH bill passed strictly along partisan lines. Party lines. That
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  Speaker 1: does not bode well. I wouldn't think for the next
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  Speaker 1: round of stimiles that presumably would have some bigger ticket items,
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  Speaker 1: some you know, some infrastructure. How are you guys thinking
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  Speaker 1: about that? Well, I think the way that I think
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  Speaker 1: you're right that there there's nothing in this process that
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  Speaker 1: suggests that infrastructure can be done in a bipartisan way,
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  Speaker 1: at least easily, and so I think that sets up
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  Speaker 1: a process that is long and arduous, uh and probably
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  Speaker 1: one that we think will ultimately be a bill that
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  Speaker 1: has to be mostly deficit financed. So if you're going
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  Speaker 1: to have an infrastructure bill that approaches the ambition of
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  Speaker 1: what the Biden administration has laid out, there are just
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  Speaker 1: aspects of that bill are probably nonstarters for Republicans, starting
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  Speaker 1: with some of the tax increases uh that they want
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  Speaker 1: to be adjacent to it, as well as many of
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  Speaker 1: the environmental standards that they want to be adjacent to it.
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  Speaker 1: So if the Democrats have to go it alone, then
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  Speaker 1: they're probably going to follow this budget reconciliation process. Again,
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  Speaker 1: that probably means that you're looking at October passage the earliest,
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  Speaker 1: because that has to the next fiscal year, and then
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  Speaker 1: the Party amongst themselves, has to develop a kind of
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  Speaker 1: unanimous view on the nitty gritty of what's in the
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  Speaker 1: bill in terms of labor standards, environmental standards, not just
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  Speaker 1: how much more they want to spend on roads and bridges.
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  Speaker 1: It's a complicated negotiation, it will take much of the year. Ultimately,
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  Speaker 1: we think it will get over the finish line, But
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  Speaker 1: this one is a much harder lift than the COVID
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  Speaker 1: relief package. Do you think it'll be more than four
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  Speaker 1: trillion dollar bill coming over the finish line? That's not
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  Speaker 1: in our base case, And I think it's important to
• 5:21
  Speaker 1: defind time frames here too, So yeah, I mean the
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  Speaker 1: COVID relief bill is one point nine trillion. The CBO
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  Speaker 1: says one point two will be spent this calendar year.
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  Speaker 1: The numbers quoted on infrastructure bills, they tend to be
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  Speaker 1: either five or ten year numbers. So um, in our view, yeah,
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  Speaker 1: you could look at a multi trillion dollar number over
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  Speaker 1: ten years. Um, it's entirely possible that the first proposals
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  Speaker 1: are five year numbers. So there's a little bit of
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  Speaker 1: apples and orange comparisons here. At the end of the day,
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  Speaker 1: we think you'll see something that is at least one
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  Speaker 1: and a half trillion dollars spread out over five years
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  Speaker 1: or more. What else are you looking for? What else
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  Speaker 1: are you guys looking at? What are you working on
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  Speaker 1: right now that we should be focusing on. Well, I
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  Speaker 1: think the the tax debate inside of this legislative debate
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  Speaker 1: on infrastructure is critical. We're assuming at the end of
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  Speaker 1: the day that there's only fifty Democratic Senate votes for
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  Speaker 1: about five to six hundred billion dollars worth of tax
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  Speaker 1: increases over a ten year period, and that's out of
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  Speaker 1: a menu of over three trillion dollars of tax increases
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  Speaker 1: that the by administrations proposed. But but we would expect
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  Speaker 1: that the initial proposal here will probably include almost all
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  Speaker 1: of those tax increases. So there's there's a It's it's
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  Speaker 1: important to understanding diffence between the two because that could
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  Speaker 1: affect markets in the short term. Alright, tough to do
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  Speaker 1: a bipartisan bill on big tax increases. Americans much prefer
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  Speaker 1: free money. Michael zesus, Thanks very much, Cheek us public
• 6:48
  Speaker 1: policy and municipal strategists at Morgan Stanley. Well, it's Thursday,
• 6:56
  Speaker 1: so we had another jobless claims number hit today. The
• 7:00
  Speaker 1: news is it was the lowest since November. Came in
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  Speaker 1: a little bit better and expected. It's a hundred and
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  Speaker 1: twelve thousand, But that's still a stubbornly, stubbornly high number.
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  Speaker 1: And it's against it that backdrop that President Biden will
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  Speaker 1: sign tomorrow. I believe the UH one point nine trillion
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  Speaker 1: dollar fiscal stimulus UH plans. Let's bring that all together.
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  Speaker 1: We can do that with Chris Lewis, a senior fellow
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  Speaker 1: at the University of Virginia Miller Center. UH. He's former
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  Speaker 1: Deputy Secretary of Labor under President Obama, joining us on
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  Speaker 1: the phone from Charlottesville. Chris, thanks so much for joining
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  Speaker 1: us here. Let's start with the jobs claims. I love
• 7:37
  Speaker 1: to get your thoughts, as a former deputy secretary of
• 7:40
  Speaker 1: labor about how you view this labor market today. Are
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  Speaker 1: you concerned about some of this permanent unemployment that we
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  Speaker 1: may be seeing out there? Yeah, you know, I really am.
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  Speaker 1: I mean, we have with these weekly numbers. This is
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  Speaker 1: now the fifty one week in a row that has
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  Speaker 1: exceeded the worst of the Great Recession. So while the
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  Speaker 1: numbers are kind of inching down very slowly, there's still
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  Speaker 1: at a really elevated level. And I think what I'm
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  Speaker 1: as concerned about is, you know, the four million people
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  Speaker 1: who UH who have lost their jobs permanently, about six
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  Speaker 1: million people who are working part time but would rather
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  Speaker 1: be working full time. We've got a long term unemployment
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  Speaker 1: at rates that um, you know, we haven't seen really
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  Speaker 1: since the Great Recession at this point. And what we
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  Speaker 1: know is that the longer people are out of work,
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  Speaker 1: the harder is to get them back. And I think
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  Speaker 1: what we've also seen over the pandemic is a lot
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  Speaker 1: of the broader changes in the economy, like the shift
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  Speaker 1: to online retail, have been accelerated, so a lot of
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  Speaker 1: the jobs that people have left probably aren't there anymore.
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  Speaker 1: Right now. You know, the uh the automation UM, which
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  Speaker 1: isn't the same as on shifting to online, but it's
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  Speaker 1: similar UM. And the shift of manufacturing label to four
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  Speaker 1: labor to foreign insurers was something that Donald Trump was
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  Speaker 1: working to turn around in some ways. He wanted to
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  Speaker 1: bring jobs back to America. President Biden thinks he can
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  Speaker 1: do a better job of it. Do you see that too,
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  Speaker 1: You know, Look, I I am confident that the plan
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  Speaker 1: they're going to put forward will do that, and I
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  Speaker 1: am hopeful that if we can get an infrastructure bill,
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  Speaker 1: a real infrastructure bill, that can bring back some of
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  Speaker 1: those jobs as well. But you know, as you said,
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  Speaker 1: they're broader globalization trends that make this very challenging, you know,
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  Speaker 1: And so I think we need to understand that the
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  Speaker 1: manufacturing jobs, many of them that have gone overseas, probably
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  Speaker 1: aren't going back because labor costs are just too high
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  Speaker 1: in the United States. But when you move to things
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  Speaker 1: like advanced manufacturing, that is a place that we can
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  Speaker 1: continue to dominate here in the United States. But it's
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  Speaker 1: going to require a level of training of workers that
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  Speaker 1: exceeds what we have right now. Chris, you know, we've
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  Speaker 1: talked about the uh, the bigger fiscal stimulus plan, maybe
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  Speaker 1: one that focuses on infrastructure. Um that see used to
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  Speaker 1: be something that is on the ad Biden's plate right now.
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  Speaker 1: Are you concerned that there's just been no bipartisan support
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  Speaker 1: of the this one point nine trained dollar plan that
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  Speaker 1: really would call in the question ability to do anything
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  Speaker 1: bigger down the line. You know, I am concerned, and
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  Speaker 1: I think in part because look, we can we can,
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  Speaker 1: you know, quibble about some of the things in the bill,
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  Speaker 1: but there's so many other things that are just wildly popular.
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  Speaker 1: Leaving aside the stimulus checks, uh, you know, the extension
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  Speaker 1: of unemployment benefits, which really needs to happen otherwise eleven
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  Speaker 1: million people are going to start to lose uh their
• 10:34
  Speaker 1: check starting next week. But it's the rental assistance, it's
• 10:37
  Speaker 1: the assistance to small businesses, UM money that goes for
• 10:41
  Speaker 1: vaccines and opening school So all of those things there
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  Speaker 1: should be consensus on. And I think it's an unfortunate
• 10:47
  Speaker 1: sign of where partisanship is in Washington right now. That
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  Speaker 1: being said, look, we've talked now for for the entire
• 10:54
  Speaker 1: Trump administration and now the beginning of the Biden administration,
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  Speaker 1: is that maybe the sweet spot when it comes to
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  Speaker 1: buy parsonship is infrastructural. So we'll have to see whether
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  Speaker 1: that happens or not. How do you think Republicans on
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  Speaker 1: Capitol Hill are going to UM are going to react
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  Speaker 1: to the infrastructure bill because you know, they didn't vote
• 11:15
  Speaker 1: for this bill, but the Republican base was overwhelmingly in
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  Speaker 1: favor of it. So even though none of the representatives
• 11:23
  Speaker 1: UM we're able to cast a vote for it, the
• 11:25
  Speaker 1: people they represent want it past. Yeah, and I think
• 11:29
  Speaker 1: that's obviously one of the contradictions here right now. I mean,
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  Speaker 1: I think with infrastructure, as with everything else, the question
• 11:35
  Speaker 1: is going to be how to pay for it. We've
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  Speaker 1: kind of tossed the settle depth sit out the window
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  Speaker 1: over the last couple of administrations. You're not an M
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  Speaker 1: M T guy. You don't like the magic money tree. Look,
• 11:47
  Speaker 1: I'm not one of these people who think that inflation
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  Speaker 1: is going to be a problem. But uh, you know,
• 11:52
  Speaker 1: once we got that cut done, we've kind of stopped
• 11:55
  Speaker 1: talking about the debt of that being said. Look, you know,
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  Speaker 1: how you pay for infrastructure will be a critical issue.
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  Speaker 1: And obviously one of the things that the President President
• 12:05
  Speaker 1: Biden has talked about is rolling back some of those
• 12:08
  Speaker 1: two tax cuts. So that will be an area where
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  Speaker 1: I think Republicans are gonna have a hard time swallowing that.
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  Speaker 1: But I do think when it comes to you know,
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  Speaker 1: the nuts and bolts of infrastructure like roads and bridges
• 12:20
  Speaker 1: and airports, Uh, there is broad agreement. So hopefully we
• 12:24
  Speaker 1: will come to that, Chris, we hope. Look, Chris lou
• 12:28
  Speaker 1: from the University of Virginia went to Harvard with UM.
• 12:32
  Speaker 1: Barack Obama worked at Sidney with the Obamas, went to
• 12:35
  Speaker 1: Washington with Obama, and we we're guessing that the Biden
• 12:39
  Speaker 1: team brings you back to d C very quickly. So
• 12:42
  Speaker 1: please come back and talk to us after you get
• 12:44
  Speaker 1: hired by the Biden administration. Chris Leu there a senior
• 12:47
  Speaker 1: fellow at the University of Virginia Miller Center. Now I
• 12:53
  Speaker 1: want to get straight over to Gaby Coppola. She covers
• 12:56
  Speaker 1: UM well, she covers cars for us, and today we're
• 13:00
  Speaker 1: going to talk to her about Apple because we're all
• 13:02
  Speaker 1: excited once again about the possibility of an Apple car.
• 13:05
  Speaker 1: I feel like Gabby, we've been we've been pretty stoked
• 13:07
  Speaker 1: about this possibility for well on a decade. Now, is
• 13:12
  Speaker 1: it ever going to happen? I think we're seeing very
• 13:16
  Speaker 1: clear signals that it is going to happen. Um. I
• 13:18
  Speaker 1: mean just the talk, you know with automakers that have
• 13:21
  Speaker 1: been leaking. My colleagues and I did a story a
• 13:23
  Speaker 1: couple of weeks ago about you know, they're in talks
• 13:26
  Speaker 1: trying to find um lighter, which is sort of sensors
• 13:29
  Speaker 1: for self driving car features. UM. I think it is good.
• 13:32
  Speaker 1: It really does look like it's going to happen. This time,
• 13:35
  Speaker 1: I think that it's still a few years away. Are
• 13:37
  Speaker 1: reporting suggest that we're still several years away from seeing
• 13:40
  Speaker 1: an actual product? Why would Apple want to get into
• 13:44
  Speaker 1: the auto business, Gabby? What's kind of their strategy? Yeah, well,
• 13:49
  Speaker 1: I think, um it's almost become a cliche in my world,
• 13:52
  Speaker 1: but thinking of a of a car as an iPhone
• 13:54
  Speaker 1: on wheels, especially when the cars do you have, um,
• 13:58
  Speaker 1: do have autonomous capabilities? Think about it. I mean, think
• 14:02
  Speaker 1: about what you're going to do in your car if
• 14:04
  Speaker 1: you don't have to pay attention to the road. I mean,
• 14:07
  Speaker 1: probably I'm going to be taking work email, but you
• 14:09
  Speaker 1: could also be you know, watching TV, or you know,
• 14:13
  Speaker 1: playing video games or basically all the kind of data
• 14:16
  Speaker 1: and services and things shop taking a selfie for the
• 14:19
  Speaker 1: Graham exactly, you'll be Graham and all of that. Apple
• 14:23
  Speaker 1: wants to own that space. And so if this is
• 14:27
  Speaker 1: the future, and I think even though it's you know,
• 14:29
  Speaker 1: still pretty far away, if the future is cars that
• 14:32
  Speaker 1: can drive themselves, then you're going to basically be living
• 14:35
  Speaker 1: inside your phone when you're commuting, and Apple wants to
• 14:38
  Speaker 1: be able to kind of provide you all the services
• 14:41
  Speaker 1: and that. Let's let's try and guess how far away
• 14:43
  Speaker 1: it is from your experience reporting on UM, you know,
• 14:47
  Speaker 1: the traditional automakers. How long does it take from start
• 14:51
  Speaker 1: to finish when somebody at GM or somebody at Ford
• 14:55
  Speaker 1: UH comes up with a concept for a new car
• 14:58
  Speaker 1: to you know, design it, to organize production, to figure
• 15:04
  Speaker 1: out the supply chain, They get the prototype, then they
• 15:10
  Speaker 1: you know, start testing it. I mean, what does that
• 15:12
  Speaker 1: process take and cost? Gabby um billions of dollars? UH
• 15:19
  Speaker 1: costs billions of dollars. And I mean a lot of
• 15:22
  Speaker 1: that depends on if you're doing something brand new, which
• 15:24
  Speaker 1: obviously Apple would be doing. So that means everything you
• 15:27
  Speaker 1: just talked about, design, engineering, UH, testing for safety, you know,
• 15:32
  Speaker 1: things like that, that takes years. So I think that
• 15:34
  Speaker 1: whole process, I mean, I think you probably know as
• 15:37
  Speaker 1: well as I do, but I want to say, like
• 15:39
  Speaker 1: five years, you know, UM, And that's exactly that's UM.
• 15:45
  Speaker 1: That's if you're an automaker who's been doing this for
• 15:47
  Speaker 1: a hundred years or exactly exactly. I was thinking five
• 15:50
  Speaker 1: years and and a couple of billion dollars. But that's
• 15:53
  Speaker 1: if you already have factories. That's if you're already designing
• 15:57
  Speaker 1: and making cars. So Apple. We know, it was just
• 15:59
  Speaker 1: talking with Day and a couple of others. Chances are
• 16:03
  Speaker 1: they're gonna need to do a whole lot of that
• 16:05
  Speaker 1: footwork themselves. Yeah. Although the story I did today with
• 16:11
  Speaker 1: my colleague Mark German in in l A, who's our
• 16:13
  Speaker 1: stellar Apple reporter, UM talked about how, you know, Apple
• 16:18
  Speaker 1: may want to take its iPhone handbook and kind of
• 16:20
  Speaker 1: trying to transfer that to the auto industry and UM,
• 16:24
  Speaker 1: you know, they're very used to managing supply chains, and
• 16:26
  Speaker 1: fox Con, who we all know is supplier to Apple,
• 16:30
  Speaker 1: UM is trying to get into the electric vehicle manufacturing business.
• 16:33
  Speaker 1: So that's why people are looking at them. UM. But
• 16:37
  Speaker 1: I think you know, Apple, as many Silicon Valley UH
• 16:41
  Speaker 1: companies that have tried to get into the auto industry
• 16:44
  Speaker 1: have realized it's really not fun making a car. I mean,
• 16:47
  Speaker 1: maybe it's fun to design it, but the money involved,
• 16:50
  Speaker 1: the thin margins that you get for it is very
• 16:52
  Speaker 1: different from um, you know, writing some software and then
• 16:55
  Speaker 1: charging huge margins on it. So I don't think they
• 16:58
  Speaker 1: want to get their hands dirty with the manufacturing stuff.
• 17:01
  Speaker 1: That's not what they do. UM. So that's why we
• 17:03
  Speaker 1: think that you know, it would make a lot of
• 17:05
  Speaker 1: sense for them to go after a contract manufacturer, which
• 17:09
  Speaker 1: you know in our story we talked about Magna, which
• 17:11
  Speaker 1: is a Canadian global. This Dyer built my truck, the
• 17:16
  Speaker 1: truck I drive today. Yeah, yeah, yeah, So they can
• 17:19
  Speaker 1: do stup to nuts car manufacturing and they've got a
• 17:22
  Speaker 1: really long track record and a good reputation. Fox Cott
• 17:26
  Speaker 1: already has a good um. Obviously they're already in deep
• 17:31
  Speaker 1: with that. Well, it's just a question that can they
• 17:32
  Speaker 1: really make cards? Can they make cars? Bending metal? That's
• 17:36
  Speaker 1: the tough part, is Kevin Tyne from Bloomberg Intelligence always says,
• 17:39
  Speaker 1: Gabby Coppla, thank you so much for joining us. Gabby Copple,
• 17:41
  Speaker 1: as the auto reporter for Bloomberg News, joining us on
• 17:44
  Speaker 1: the phone from Detroit. European Central Bank President Christine Lagar
• 17:52
  Speaker 1: discussed her monetary policy decision at a news conference this
• 17:55
  Speaker 1: morning and had this to say about inflation. Inflation hospited
• 18:00
  Speaker 1: over recent months, mainly on account of some transitory factors
• 18:05
  Speaker 1: and an increase in energy price inflation. At the same time,
• 18:11
  Speaker 1: underlying price pressures remain subdued in the context of weak
• 18:16
  Speaker 1: demand and significance luck in labor and product markets, so
• 18:23
  Speaker 1: with that, the e c B also upped its inflation
• 18:26
  Speaker 1: forecast not UM to an absolute level that is scary
• 18:31
  Speaker 1: at all, one percent to one point five percent. And
• 18:33
  Speaker 1: of course Europe has had a much more difficult time
• 18:38
  Speaker 1: bringing about inflation than has the US. Right Um, the
• 18:43
  Speaker 1: e c B just simply hasn't been able to move
• 18:45
  Speaker 1: the needle UM the way the Federal Reserve had UM.
• 18:50
  Speaker 1: And it's very interesting also the comparison, because here in Europe,
• 18:54
  Speaker 1: I would say inflation is probably considered more of an evil.
• 18:58
  Speaker 1: Certainly in Germany it's the last thing that people want
• 19:01
  Speaker 1: to see. UM. Memories of the memories are are are
• 19:05
  Speaker 1: are very long here and the Weimar Republic, although very
• 19:09
  Speaker 1: few people alive now lived through it, UM still uh
• 19:13
  Speaker 1: still leaves a serious scar in the German psyche. It's
• 19:16
  Speaker 1: not nearly as bad I think in the US, Paul,
• 19:18
  Speaker 1: do you think that's the case, you know? And it's
• 19:21
  Speaker 1: been a while since we've had real inflation here, the
• 19:23
  Speaker 1: kind that hurts UM, you know, so there's a discussion of,
• 19:26
  Speaker 1: you know, kind of good inflation versus bad inflation. UM.
• 19:31
  Speaker 1: And I think we saw the ten year spike a
• 19:33
  Speaker 1: couple of weeks ago matt to one point six percent.
• 19:36
  Speaker 1: That kind of got people's attention, um, and caused them
• 19:39
  Speaker 1: to say, Okay, do we have some inflation creeping into
• 19:43
  Speaker 1: uh this economy more so than maybe we were forecasting,
• 19:46
  Speaker 1: and maybe quicker than we were forecasting. And boy, when
• 19:49
  Speaker 1: you to take a look at some of the commodities
• 19:51
  Speaker 1: out there, you can certainly get some confirmation. Um. But
• 19:54
  Speaker 1: you know, I was talking about this with Lisa Bramwitz,
• 19:56
  Speaker 1: and you know she's of the opinion that and you know,
• 19:59
  Speaker 1: unless you get real wage inflation, you're not gonna get
• 20:02
  Speaker 1: real inflation in this country. Well, I mean then the
• 20:05
  Speaker 1: kind of inflation that isn't real is still going to
• 20:08
  Speaker 1: leave a lot of people hungry and unable to drive. Right. So,
• 20:12
  Speaker 1: even if you don't get real inflation in the eyes
• 20:15
  Speaker 1: of an economist or Lisa who is close enough to
• 20:19
  Speaker 1: be an economist, um, it's still going to be the
• 20:21
  Speaker 1: kind of inflation that that makes it hard for people
• 20:24
  Speaker 1: to do grocery shopping and get to work and back
• 20:27
  Speaker 1: if they still have a job. And the other thing
• 20:29
  Speaker 1: I think is interesting is I'll never forget watching Ben
• 20:32
  Speaker 1: bernanke on sixty Minutes when he said, look, deflation is
• 20:37
  Speaker 1: the big scare. Um, that's what we need to worry about.
• 20:40
  Speaker 1: Inflation we can deal with, no problem. And you can
• 20:44
  Speaker 1: understand where he's coming from. We heard it from Janet
• 20:47
  Speaker 1: Yellen recently as well, who of course no longer at
• 20:50
  Speaker 1: the FED but now in charge of Treasury said, inflation
• 20:53
  Speaker 1: is something that we have the tools to deal with.
• 20:55
  Speaker 1: But Um, you and I were talking to someone recently
• 20:58
  Speaker 1: who pointed out that, yeah, Um, the FED can stop inflation,
• 21:03
  Speaker 1: no problem. Um. The only issue that they is that
• 21:06
  Speaker 1: they crushed the economy when they do it. The last
• 21:08
  Speaker 1: time we saw it happened was Paul Volker Um, and
• 21:11
  Speaker 1: he was practically assaulted by members of the public as
• 21:15
  Speaker 1: he raised rate to try and stop double digit inflation.
• 21:19
  Speaker 1: Let's bring in John Author's who wrote a Bloomberg opinion
• 21:22
  Speaker 1: piece about um. The only problem basically with the inflation
• 21:28
  Speaker 1: scare being that he doesn't see any inflation. John, Um,
• 21:32
  Speaker 1: are you saying that, yeah, the opportunity word yet? But
• 21:36
  Speaker 1: yes there is. There is very little clear inflation showing
• 21:40
  Speaker 1: up in official numbers yet, so we've seen it so far.
• 21:43
  Speaker 1: I was just looking at beef prices and they have
• 21:45
  Speaker 1: been steadily rising. Paul noted that UM, it costs now
• 21:49
  Speaker 1: three dollars a gallon to fill up his tank with gas,
• 21:53
  Speaker 1: which is certainly a rising price. And I noticed that
• 21:56
  Speaker 1: the kids think rent is gonna cost nine percent more
• 21:59
  Speaker 1: next year. So some things are definitely starting to scare people.
• 22:04
  Speaker 1: Oh yes, definitely. What what is interesting and the thing
• 22:08
  Speaker 1: is we have always known, UM, people have been braced
• 22:12
  Speaker 1: for months for an inflation scare in the early months
• 22:14
  Speaker 1: of this year because the big lockdown and also the
• 22:18
  Speaker 1: big fall in the oil price for March last year,
• 22:21
  Speaker 1: are going to drop out of year on your year comparisons, uh,
• 22:25
  Speaker 1: and you're suddenly going to have headline inflation figures that
• 22:28
  Speaker 1: look not like a return to the seventies but sharply worse.
• 22:33
  Speaker 1: So a lot of people have been nervous about what
• 22:36
  Speaker 1: that psychology, psychological effect will have. What is intriguing to me,
• 22:41
  Speaker 1: just UM writing up the My latest piece is that
• 22:46
  Speaker 1: it's not really new pieces of evidence about inflation of
• 22:49
  Speaker 1: that is really truly scaring the market. It's um nerves
• 22:55
  Speaker 1: about bond deals because so much is running on also
• 23:00
  Speaker 1: leveraged trading, on on on, you know, as we all know,
• 23:05
  Speaker 1: very low interest rates, and so the great concern is
• 23:10
  Speaker 1: that we's not so much that or the great content
• 23:13
  Speaker 1: for the time being, which explains these incredible rotations and
• 23:18
  Speaker 1: moves within the market for the last week or two.
• 23:21
  Speaker 1: Isn't about the long term prospect of you know, secular
• 23:25
  Speaker 1: extent of inflation. It's about, Oh, you're gonna have an
• 23:27
  Speaker 1: accident in the bond market, and is that going to
• 23:30
  Speaker 1: bring us all crashing down? Um? And somehow are there
• 23:34
  Speaker 1: We've just about avoided that more by luck and judgments probably.
• 23:38
  Speaker 1: What are some of the areas if we do, in
• 23:40
  Speaker 1: fact get some troubling inflation, Where do you think we're
• 23:44
  Speaker 1: going to see it first? And what kind of where
• 23:46
  Speaker 1: where where are you paying attention? Well, other than other
• 23:50
  Speaker 1: than oil, which isn't strictly part of what the Fed
• 23:54
  Speaker 1: can try to try to cover, but that's obviously an
• 23:58
  Speaker 1: important part of it. The area you just mentioned as
• 24:02
  Speaker 1: well of rents, that the fact that the low rates
• 24:05
  Speaker 1: have led to very sharp increases in house prices that
• 24:09
  Speaker 1: might well logically lead to a rise in rents in
• 24:14
  Speaker 1: its wake. Other than that, it's all these areas that
• 24:18
  Speaker 1: might be affected by supply bottlenecks, which is much of
• 24:23
  Speaker 1: much of the economy. UM. Yeah, well, cars, it is
• 24:26
  Speaker 1: one thing. I mean, I've noticed, John, that dealers are
• 24:31
  Speaker 1: marking up cars to an incredibly high margin because you
• 24:35
  Speaker 1: just can't get them on a lot due to the
• 24:37
  Speaker 1: chip shortage. Yes, and well, and I'm trying to I'm
• 24:41
  Speaker 1: trying to buy a laptop for my for my daughter
• 24:44
  Speaker 1: at the moment. Since yes, that that chip shortage also
• 24:46
  Speaker 1: has an effect on computer prices, So you know those
• 24:49
  Speaker 1: are those are big. It's it's it's those supply shortages.
• 24:54
  Speaker 1: You know, the piggies working its way through the python,
• 24:58
  Speaker 1: and we're now at the stage where their really affecting
• 25:01
  Speaker 1: prices here. And so if you then add that to
• 25:04
  Speaker 1: the base effects and the worries about it change in
• 25:07
  Speaker 1: psychology with all the money around, that's why people think
• 25:10
  Speaker 1: a serious rising inflation could be ahead of us. But
• 25:13
  Speaker 1: I don't think. But what is interesting is the true
• 25:16
  Speaker 1: serious inflation in the measures that we normally look at
• 25:19
  Speaker 1: hasn't really got starting yet. Hey, John, thank you so
• 25:24
  Speaker 1: much for joining us. We always appreciate getting your thoughts.
• 25:27
  Speaker 1: John author's senior editor Bloomberg Markets, also a bloomberket opinion,
• 25:31
  Speaker 1: comments that joining us on the phone, thanks for listening
• 25:35
  Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen
• 25:38
  Speaker 1: to interviews of Apple Podcasts or whatever podcast platform you prefer.
• 25:43
  Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller three.
• 25:47
  Speaker 1: Pet On Ball Sweeney I'm on Twitter at pt Sweeney.
• 25:50
  Speaker 1: Before the podcast, you can always catch us worldwide at
• 25:52
  Speaker 1: Bloomberg Radio