BNY's Levine: Inflation Will Be Higher Than Expected

two point two trillion dollars of assets under management. Alicia is speaking today on the Financial markets panel at the Engage Undergraduate Investment Conference, so we're fortunate to get her time. Alicia a lotted the discussion from market participants really over the last several weeks, in particular has been inflation and the impact on financial assets and where you want to be with your portfolio and your investments. Love to get your thoughts right here, right now on inflation and kind

of how that's factoring it to your calculus. So that's great. Thanks for having me almost at the noon hour exciting panel today. Um, look, I think that is that's the question of the moment, And I think what better example of the problem with inflation and inflation risk than the Suez Canal where we saw that giant tank or sitting

there for about eight days choking up supply chain. And today we've got a p p I number, you know, four four point two percent year year growth on PPI prices, much higher inflation and prices than expected for goods inputs, and I think we are on a path for the next few months of much higher inflation reads than UH than we would have sought. Even though the FETE is telling us not to worry. I think the prints are

going to be higher. So there are two issues. One is inflation coming and to what do central banks do about it? And the two are separate. But I think the issue of inflation is real, and I think it's going to last longer than a couple of months now. We spent so much money on it already the pandemic in terms of stimulus. But as I look at food inflation and gasoline prices, you know, it doesn't matter if

they're coming from a lower UH comparison. These are still making up a much higher percentage of the incomes of the people who are hit hardest during the pandemic. Are we going to see do we need to see more federal government spending in terms of stimulus. So I don't think they're going to be able to get more stimulus

for the kind of pandemic related issues. We had one point nine trillion dollars, as you know, passed very quickly, and if you think about how much money is coming to the US economy, think about the timing of this. On the one point nine one point two is going to be plowed into the economy one point two trillions by early September. So that's one point to trillion dollars

in six months. That's absolutely extraordinary and that can be inflationary. Um. The question is do labor markets really adjust quickly to get people back into you know, as we reopen, demand increases,

demand for services increases, candle labor markets keep up. And that's really the big question, right, do people decide to stay home and collect their unemployment benefits because it's about twenty three an hour through September six or do people go back to to you know, to working, and that's those are those are tough questions, but it really is staff forwards, higher risk of inflation in the very short term, all right, So is it the higher risk of inflation

in the short term? Alicia? Is that how does that kind of coloring where you guys at B and hy melon are looking for opportunities. So this is really a great question because again the two parts are is their higher inflation we would say, yes, it's coming, and to what is the said do about it? Right? Two different things,

because that's how it affects the economy. So the FED has tried with every ounce of every know f o MC member to say that they are strategiously patient and will wait to see um until we get into whether in three whether we've recovered in the labor market, and they expect inflation to normalize as we exit. Data will be noisy, and we expect and actually not to sit on their hands. We think that the market believes that

this is going to happen. In addition, the inflation curved invaser investors actually are buying the FED story, which is you're going to get higher inflation in the short term and then lower inflation in the out years, and that's an inverted inflation curve. That's very unusual. We have an

inverted curve because people see its short terms. The big wisp here is whether inflation expectations become unmoored right, whether they become un anchored, whether it last bombers than a couple of months of April, May June, and whether they're for future expectations so higher. And that's the big risk that would change FED policy. That's where you are. You know, we're buying the stories for now, but the real numbers

are going to be coming through entire than expected. There's so much money UM in US retirement accounts tied up in stocks though, and any action from the FED would not only work to um you know, tame inflation, but also probably push the equity market down in a pretty rough way. Is the Greenspan put alive? And well, look, I think I think what the the overall tone of the market except for the last couple of weeks, that

cyclicals are are the ways to play this right. So ultimately, when you have higher inflations, financials outperform, energy outperforms, industrials and materials outperform. And we think while you will have periods of consolidation and yields, we think the removal yield is simately going to be higher. Although not spiky, right, We had really spike. We had eight five basis points

in the first quarter. We think the bulk of the big move is behind us, but there will be moments of doubts, and there will be moments of doubt when we get some of those nasty inflation prints. Can we still think the cick local sectors are a way to insulate portfolios from some of the damage that higher rates can do from inflation. I think you need to think about your long duration assets, which are the speculative tech assets.

Um those may have a tougher time, and we know they have had tougher times as we so yield spikes sometimes eight to tend basis points in a day. I think investors should be conscious that those risks remain, and I think the market is somewhat sniffing out could there be a policy mistake here? Right? Well, the FED sit on its hand so long that it may get runaway inflation. We're not seeing it in the numbers yet, but you're starting to have that conversation with investors. So I still

be insticklable. I still like the small caps. You are going to have moments where you know your growth stocks will outperform, and we think you should be invested in those profitable growth stocks that have increasing earnings and and and not just trading on forty times revenue. And we would use bond market volatility to start and grow positions in those stocks. What do you think about the US

versus Europe? You mentioned that one point two trillion dollars of US stimulus is going to be into the economy by September. As far as I know, the in comparison poultry seven and fifty billion dollar European rescue package or billion euro European rescue package. Only of that is going to go out to the countries that need it by this summer. Are they going to have to do more? Are we gonna see the European assets continue to underperform?

So it's an interesting question, Shi. I think there may be pressure for the Europeans to do more on the fiscal side. Um. You know, the the ECB is absolutely adamant that it will not allow the euro to appreciate against the seller anymore. Oh, it looks like we lost Alicia there, unfortunately, but it was great to have her for the time being. Alicia Levine, chief strategist at b N y Melon Investment Management. We heard earlier from Rob Kaplan,

Texas FED president, out of the Engage Undergraduate Investment Conference. UM. That's David Coudla's conference there in Michigan. Jeffrey Rosenberg is also there on the financial markets panel. He's a portfolio manager at the black Rock Systemic Multi Strategy Fund. Jeff, great to get you on the program. UM. I wonder, considering what we heard from uh from Kaplan, how how supportive of this rally do you expect the FED to remain. They want to obviously get us back to full employment.

They want to well, their stated goal is to to to fight I guess inflation in some ways, but or keep price stability, maintain price stability. But now they're trying to boost inflation and it's having a great effect on financial assets as well. Yeah, you know you you talking about the FED um fighting inflation. This is a FED

that's fighting inflation from below too little inflation. And the implication for supporting the rally is that is providing historic amount of accommodation, you know, first for the fighting for fighting COVID, but then the second order impact of COVID on inflation is that it is making it that much harder for the FED to achieve its its new policy objective. And so the FED is absolutely here in a new operating mode, and that operating mode has removed preemptive FED

tightening for tightening conditions in the labor mark. They basically said, we're only going to look at one side of the mandate when it comes to tightening. We're not going to look at labor markets as an indication that we should be pulling back from our accommodation. And that's absolutely very supportive in terms of highly accommodative financial conditions, which supports

Jeff the rally. To your question, the reason I ask is that this morning on our m Live blog, um Wes Goodman wrote a story saying the bull run has years to go thanks to our beloved baby boomers. You would have thought that they shifted into bonds at the end of their you know, working life, but estimate show retirement accounts of US households on thirty percent of the nation's corporate equity and so, um, you know, with this entire generation invested in stocks, the FED has no other

choice but to remain supportive. At least that's how his theory goes. Yeah, look, the FED is going to measure its togree of supportiveness based on its economic outcomes and its economic objectives. Financial conditions are part of that now in in the in the post first GFC crisis environment, and certainly in the post COVID crisis environment. So it's not a stated aim, but it's it's it means to achieving that aim, and so that keeps the FED very

much supportive. We haven't had a situation, however, where the FED has been challenged by potential conflict within its objectives. All of the objectives have lined up on the same side. Too little inflation, you need more accommodation. Too little growth, you need more accommodation. Tightening of financial conditions, you need

more accommodation. The future will be one where the FED may see a period where some of those objectives are no longer all lining up in the same way, and the uncertainty for the market will be well, how going to balance and manage the conflict between those objectives. So far that that has been pretty clear to say we're going to preference financial conditions and achieving inflation over any

of the other concerns. Concerns such as financial stability, on a long run basis in terms of too much accommodation, or asset price bubbles, financial stability concerns, all of those have been secondary. So that's where you get to these kind of statements that the FED will always be there. I think we're going to be perhaps in an environment where in a rising inflationary environment that isn't transitory, that

FED faces a different challenge. The market will face that challenge, But right now that remains a pretty uncertain call as whether or not we're going to get to that point. For now, the FED has been able to remain entirely accommodative because they face no conflict in their multiple objectives. All right, Jeff, Given where we think the FED is, where are you guys at black Rock finding value here? Well?

Value in value? Uh? You know, I'm on the fixed income side, But we certainly take a broad market perspective in terms of investing, and in many of the investment strategies we run, we run cross market. Uh. You know. A long period of falling real interest rates reflective of secular stagnation, falling term premium have certainly benefited the secular growth story um to the point where valuations have become secondary uh, and now there's a real challenge in the

market around that viewpoint. It starts with the fundamental top down macro debate that we were just having in terms of does the FED face the future environment where they are achieving their objectives? But along the way and where we are right now, is that is significantly change the relative value in some of the growth stock story versus the value stock story, where that rising potential of breaking out of thirty years of falling interest rates secular stagnation

starts to benefit that that value perspective. On the fixed income side of the value perspective, UM, there's uh not much value left, uh. Spreads across our credit markets, headlines in Bloomberg highlighting you know, tight levels of high yield spread predating the global financial crisis going back to two thousand and seven. So it's hard to find value, uh in the fixed income market, the way that you can still find some value in the equity market. All right, Jeff,

thank you so much for joining us. We always appreciate getting your perspective here. Jeffrey Rosenberg, portfolio manager of the black Rock Systematic Multi Strategy Fund at Blackbird Molly should joins us Bloomberg Technology reporter Molly, Um, did it ever look like the unions we're going to take this? Hi? Um. I think in the very beginning it was a little bit close. It was hard to see maybe which way it would go. But as soon as they started counting

the vote, Amazon quickly pulled ahead. They spent about three hours counting the votes yesterday and Amazon was ahead UM at the close yesterday evening, and this morning, just in the past hour and a half or so, Um, Amazon pulled even further ahead. And so now, like you said, they have a large majority of the of the votes here and it doesn't look like there's any way that the the union side could could catch up at this point. Molly, what do you think both sides again here Amazon in

the unions will learn from what happened in Alabama? Is this just the beginning what will likely be more efforts to unionized parts of Amazon dot Com. It will definitely be interesting to see. It's, you know, give in the fact that you know, Amazon did win here. This is kind of the status quo going forward with them. They've always been anti union. This was a hard effort from the beginning for the UM the retail union here in Alabama.

But given the Biden administration support for unionization and the support for workers rights to unionize, they could get a little extra federal support in the movement across the country and try this again in other um, in other factories at Amazon and other warehouses and factories that Amazon has

across the country. Molly, to some extent, you are You're a tech reporter, but you're also kind of a gig worker reporter, right, because a lot of these tech companies rely on gig workers, and there's been some push for change, but in the big headline cases, the gig worker seems

to have lost out. I'm thinking about Uber and California, which is I think doubly interesting because it's a really an historically left leaning state, right, and they still voted against giving those workers the same kind of it's that salaried workers have. Why is this, I mean, well, the the Yeah, the gig worker situation is challenging and interesting

for for many reasons. I mean, in this case, these are I wouldn't say that you can categorize them necessarily as gig workers at the factory they have you know, they do have some uh they have regular hours and you know, they're basically part time or even full time workers, so it's a little bit of a of a different situation here. So Molly, it's um, you know, one point three million employees at Amazon. This is it's just an area that I would think you needs can't ignore. So

what's the next steps do we think? Well, they're already making UM noise about challenging this, uh this this vote here, saying that Amazon you know, put pressure on on workers in mandatory information sessions, trying to you know, it's maybe not explicitly threatened them, but definitely lean hard on reasons why they should not join the union. And they sided Amazon putting up a mailbox on the site of the warehouse UM as kind of a threatening gesture to workers.

So they're definitely already saying that they're going to um go after, you know, to to challenge this vote. So I have no doubt that there will be a whole series of legal challenges and issues going forward from this. So this probably isn't just an open end shut vote today, so we'll see some more challenges to that going forward for sure. All Right, Molly, thank you so much for joining us. It's really a fascinating story. Developing here at

Amazon dot com. Molly Shoots, us technology editor. Uh about Bloomberg again, I'm sorry talking about Amazon, and uh, it's interesting here the in Alabama, Amazon wins this round against the union. Brad Bretti joins us. He senior wealth advisor from Mainstay Capital Management. They have three and a half billion dollars worth of assets under management out of Michigan. But more importantly, he's been working on the annual Engage

Undergraduate Investment Investment Conference. As Paul was saying, it is the largest collegiate investment conference in North America and it is also sponsored by the Gate David Kudla Foundation. So um, Brad tell us about the point of the conference, where the goals of the event. Yeah, good morning, Paul, Matt. This is bread and I'm very thankful to be a part of the process. You know, David Coudla is our CEO of main State Capital Management, really has made this

conference the pillar of his ongoing philanthropic endeavors. And what we're able to do is attract the bust in the brightest minds all across North North America and even globally. Students from Harvard, Yale, Stanford, Princeton, Uh, Duke Paul, I know which is uh uh you're all mo monitor to to um free nba um. But bring them in right and have them compete in a real, live stock pitch competition. This isn't um you know, a false or or a made up company. But they're able to pick uh any

any company that's public. They can pitch a long or a short and dig into all the details some of the I'll be honest, some of these presentations that are given,

they're fantastic and um. They get to pitch these live and they get feedback from not just a professor, but industry executive level professionals so CEOs of investment firms, private equity chief strategists, and receive real life feedback um and so quite frankly, it really serves as a launchpad um for the next generation of financial leaders, right, people that

are interested in our industry and finance investment world. And they come and compete with the very best across the globe and see how they stuck up and then receive feedback in real time, like I said, and it's and it's been excellent. I've spoke to not only just partisans, we're gonna hear about when are we gonna because I want to know who's the winner and what's the stock idea. I'd love to have that kid on my show. Yeah, yeah, no, absolutely.

So the actual Investment Undergraduate Conference spotun by David Koup Foundation is underway as we speak. So the final rounds are going to be held throughout today. At the very end of the day, they're going to pick a first, second, and third, and they're they're all over the board, UM as far as the different companies that are chosen. But it's not just the competition is that great. It is, but during the entire event, David's able to bring together

UM Federal Reserve officials. As you guys mentioned previously, you're Bloomberg's very own Kathleen Hayes is gonna be going live very shortly with Federal Reserve Bank of Dallas President Robert Kaplan. Um. Later on in the day, we have an executive member of Mainstay Capitals team, Michael Braza, will be interviewing to have a fireside chat with Melody Hobson, President co CEO Arial Investments, Board chair of Starbucks, on the JP Morgan Board, many many other roles. UM but it's able to and

there's questions and answer sessions. These aren't just watching people you know on TV on YouTube, interacting directly with these officials that quite frankly, it energizes a eighteen, nineteen twenty year old and my my myself, uh, at my age in my role, I'm very excited to be a part of it. Um. I can only imagine as a young uh just you know, double it, but uh, as a eighteen nineteen twenty year old right to be able to

hear from somebody in those different roles. Uh, it really just serves as a launchpad um to project and because let's face it, these kids, right are the next people in our industry, in the media industry, running hedge funds, investment companies and the like. So very excited, all right, Brad. So obviously this year is different for all of us here. Uh, your conference this year is virtual. Tell us about some

of the you know how that's going. Yeah, it is, so obviously we this is an annual event and David's actually been putting on and involved heavily with investment conferences for the better part of a decade. It's usually always in person. Obviously, with everything going on throughout the country, especially here in Michigan. Um, it is a virtual event, but quite frankly, it's been able to attract even more participation. We have a group joining us from the Republic of Kazakhstan.

We have multiple Canadian groups and competitors that are joining it. So it's nice. Um, you know, I think we're all getting more acclimated to zoom or to a virtual interaction than we were maybe a year or so ago. UM, So we're not gonna let anything slow us down. Engage is going to march forward. Have you seen any of the pitches so far? Has anything moved you? Uh? You know what? Here's honestly what's moved. The teams are made up of four or five individuals, but these are the

spokespersons for their respective college. There are stock pitch clubs and finance clubs, groups of on college campuses spread across America. Some of the best and brightest minds. There's a twenty the thirty slide presentation. Quite frankly, even at my age and and uh at my experience level, some of these things are way over my head. Many of the speakers sometimes and even President Kapitlan will remark Hey, those were fantastic questions. I wish I was shocked in surprise, right

or um. It serves as a networking event, to be honest, many of these students can obtain maybe an in or an internship or something moving forward because they're talking with the bust and the brightest in our industry. Hey, Brad, thank you so much for joining us. We really appreciate that and the best of luck for a good conference today. Brad Repki, Senior wealth advisor at Mainstay Capital. Thanks for

listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three on False Sweeney I'm on Twitter at pt Sweeney Before the podcast, you can always catch us worldwide at Bloomberg Radio.