Cumberland's Kotok: Not Seeing Inflationary Forces Yet

cast a Rod. I don't know if that's even how you say it, but um David KO Talk joins us himself right now, Chairman and chief investment Officer at Cumberland Advisors. David, I feel like McKee has gone, Rid Holtz has gone. Kathleen Hayes, I've never gotten invite to Camp COO Talk might be a reason. Officially and in the presence of anybody who's listening in care, you are invited this August, and we would love to have you. They made I can actually go home now, but I want to ask

you a couple of questions. David, first, about the state of the U S economy, especially in light of today's jobs report, it looked great, but there's still millions of people without jobs. We talked about the high savings rate, but there's so many people who can't even afford to pay rent. Is this is this K shaped recovery a problem for the FED? For example, it appears so um. J Pal said so um. Others in the FED continue to say so. And we shouldn't be deceived by the

six percent or so official unemployment rate. When you recomputed, to reflect some technical differences, it's closer to say ten percent. So you think about that. You say, see, there were about a hundred and fifty five million, hundred and fifty two millions something like that non farm payrolls before COVID started, and there's fifteen million people out of that group that are not employed today. Some of them have dropped out,

some of them are in the unemployment rate. That the picture is recovery which is robust, but it's coming off a very deep bottom. So I wouldn't get sanguine that everything's going back to normal and everything is wonderful. I don't think we're there yet, but the trend is good, David. You know, we again, the trend is good, there's also been some I guess the murmur starting to build here over the last couple of weeks about inflation and and

maybe not the good kind of inflation. How are you thinking about kind of what we're seeing maybe in the commodities markets, we're seeing the treasuries tenure over one point six percent even earlier this morning. How do you think about inflation? Well, we we look at inflation expectation. They are building, there's various ways to estimate them, and they're all saying that the expectation is rising. My colleague Jung Whoso talks about that all the time. The problem is

expectations are one thing. Delivering a change in the price level of a strategic elevation is something else. Again, hard to see it when you have a true unemployment rate somewhere around ten percent in the country. So maybe down the road it comes. But we're more mild or sanguine about higher inflation risk than some of the others. Actually spoke yesterday with Scott Minerd of Guggenheim. He's well, I mean, he's an outlier, right, he thinks the tenure yield could

go negative. But his point was that disinflationary um forces are much stronger than what he sees as transient inflation. He says, you always see a spike in yields like this, but it's um you know, but but it doesn't stay. Do you look at historically and come of the same conclusion pretty much? So I saw the U I saw the interview with Scott and and the you know their

two camps. Now there's the camp that says, jee, the FETE is printing all this money, we're having all this defic set spending, We're going to get a big inflation. Well sometimes that happens, but there's a lot of history it says that doesn't happen. And I raised a different perspective. I say, to get inflation, you need two things. You need rising labor income, which is robust. We don't have that yet. We're in a recovery, but it's not robust yet.

And the second thing is you need private sector credit multipliers, and that's the monetary piece. We don't have that either. So if you create a lot of bank reserves and they sit there and they're sterilized, and the transfer payments coming from the federal government are not capital investments, but what they're doing is ridging gaps across the valley to keep people surviving. I don't see the inflation forces yet in place, and I don't believe you you treager inflation

by looking at a change in an oil price. The Federal Reserve can drill for oil. It's in monetary and banking multipliers, and the multipliers aren't there yet. And it doesn't look like you're coming so quickly to us, all right, David, If if inflation is not at least a near term concern here, it seems like the bulls have kind of the runway here, given the backdrop they're seeing with the FED and with the potentially reopening trade here. Where are

you finding the best opportunities right now? In the stock market, we think you have to be in it all. You have to be in it. We're looking at maybe SMP five hundred earnings at around a two hundred dollar level in the recovery and trending upward. In the bond market, you you know, we favor the municipal bond sector, the tax free bond yields and structure, and the tax free market are ignoring part of the value of the arbitrage in the US tax code. I, for one, don't see

how tax rates go down. They may stay the same or they may go up. But there's a value in the tax free sector. It has to be understood. It's a different kind of market than a corporate bird treasury bond market. So we like that as well. David, I just want to uh uh talk for a moment about the kind of fraud that you're seeing and if it's worrying you, because it is in your latest note you go through some state by state cases. Is it concerned

you think or should we be focused on the bigger picture? No, I think there's a serious concern about flaws in the state by state data. And we see it in Florida. Now it's going to cost the state of Florida millions to redo their unemployment system. We see it in Ohio, we see it in California, we see it Arinzona, we

see bits and pieces everywhere. I published that piece and I had a response from a friend and said, we have two hundred people in our company who were advised that their initial unemployment claims were processed and none of them applied for it. So the fact is there's a problem, and the problem has two implications. Number one, how do you rely on data when you know it's flawed and

the flaws are changing, so I'm not consistent. And number two, it gives fuel to the people who don't want to help people the ones who needed to get across the valley. So it's a problem. Hey, David, thanks so much for joining us. We always appreciate chatting with you. David Kotalk, chairman and chief investment officer of Kumbling Advisors, also the author co author of the book Adventures in Muni Land. We'll have more coming up. This is Bloomberg. We're just

talking about tech Stox. Greg jeb was talking about text stocks and Tesla. When you think about tech stocks, met One of our faves is Dan I. He's a managing director equity research at wed Bush Securities. Dan, thanks so much for joining us, really timely here. You've been, you know, very bullish on your tech sector for a long time. You've been very right tech Stox getting the short end

of this rotation trade. If you will, Let's step back and I'd love you to share your thoughts on kind of some of the big tech names which have been so good for so long. How are you thinking about that that sector now? Sure? And it's great to be on well. Right now, it's a white knuckle period with what you're seeing in a ten year in the rotation trade, and you're seeing some of these crowded names hit the

sell button. But to me, this is short term. I believe tech stocks go up another this year and we are in the midst We're in the middle of what I've used a multi year bull rally for tech stocks, and that doesn't change with the forty bits moving the tenure. So what kind of valuations do you think are healthy then,

because some of them are really high. I mean, I guess it's not fair to look at earnings for Tesla but a thousand times look, I think right now the conundrum, almost say, the quagmire for investors is how do you value five trillion dollars of growth over the next decade. And that's really what the ev market is of course right now, Tessa Math, we lead in that market. I think that's that's the question. Right now. You see in the digestion period, and of course valuation is going to

be a nice right here. But to me, these are stocks that are going to grow into their evaluation. Tassa Fernt and Center and re rate higher, and I view this is just it's a timbercent pullback that we've seen a lot of high gripthmes anywhere from and Paul I view this as a golden buying opportunity in tech. I think we probably get this. You know, this could be our shot in terms of this year. Just just checked in OR or e V s. I mean, Folkswagen is coming on strong. They're targeting at e V share in

China and the US by thirty. They're targeting a sevent EV share in Europe and they have you know, seventy billion dollars to invest to make it happen. Yeah, and it speaks to what GM's done and Marry, I mean they're diving into the deep end of the pool and evs, but we're do you like? But do you like folks Wagen? Now? To me, I like GM in particular in terms of

one that's going to have success. I think volkswagging. The key with them is what they're doing on the MOBU or build out of EV and their quantums gave ownership. I think that's came from the battery technology. And I think EV we're talking about probably the most transform national opportunity that I've seen twenty plus years of covering tack and disruptive technology. All Right, Dan, let's back away from

the Tesla EV a little bit. Talk to us a little about five G. That's another big theme that we hear coming out of technology companies, telecommunications companies. How should we be thinking about five G and and what are the names that you like as a play on five G. Yeah, in five G we're still probably the first inning of this all building out In China, they've been ahead, but when you look what's happened in US from a five G perspective, this is really building out the infrastructure from

a hotelcom services perspective over the next decade. And our best five G play continues to be Apple because of the supercycled it's playing out in real time, and I think that's still gonna be a three trillion dollar mark ap this year. And then you look at some of the supply chain please like a qual Calm as well as across Semis, which is why we're bullish on Semis as well as just the overall sector with five G as a tall in Apple clearly the biggest beneficiary there.

What do you think I read a story today about China laying a cable that goes um, I think from Pakistan, then around the Horn of Africa and then up onto a beach in Marseille. It's gonna deliver um in one second, the ability to play nine thousand Netflix movies. I mean just super fast internet. Um. But I instantly thought, wow, I wonder where the backdoors are built in, Like cybersecurity must be a huge issue. Well right now cyber security continues to where we've seen post Sowar Wind's attacked as

well as across the board. This is probably the biggest tame point facing enterprise and governments today especially is more and more moved to the cloud, and that's why there's names like a Z scale or a power out, a style points cybersecurity, that basket that that continues to probably be one of our most bullish areas of tech. And I think half those companies could get acquired in terms of consolidation and will give a step back. It's a

fourth generation industrial revolution going on. That's why what I look in terms of the trillions spent, we trust it's to pound the table moment unpacked. Despite some of the white knuckles that we're seeing in many bears who've been hibernation mode the last year now calling fire in a cloud theater. So, Dan, when you talk to institutional investors, I don't you don't get to visit them anymore in this in this water, in but any you do lots of phone calls and things like that. What do you

what's kind of them? Dude? Clients don't do zoom my mom guessing it's hard enough to get him on the phone. But Dan, what are they? What's the pushback you're getting from people that maybe have changed their minds on tech and in fact have turned negative on tech. I think the pushback is, are you are you catching the following night? Are these stocks that are going to continue to move high down in terms of valuation? Reading the other way?

And what gives you that confidence? And that's where I think where you're going to start to see in terms of the fundamentals. I think street numbers move up another ten to fifteen percent this year. But I think what we're gonna see is over the next week, I believe we're gonna have a massive bounce back in tech. And that's where you start to see some of the green lights and the technic goals start to improve, but right now, I think that's the biggest war. No one wants to

be the first to jump into the pool. In terms of this market, I saw an awesome story the other day. Bill Gates and the actor Robert Downey Jr. Are investing in a company called turn Tide. It's still small, it's not publicly traded yet, but they make it a motor that is able to produce the same amount of power as another electric motor with thirty less electricity. It's not all about bad right there are other improvements that can be made in e vis. It's a green title that

that I believe is going to happen. The U S Bodens driven, especially with a blue cent, and we're talking something that's really gonna change the whole ecosystem, not just auto but sore and really across the whole, not just domestic but globally. And I think there's a massive impact here for the coming years. That's why I just cost him with investors. When you're playing ev and you're playing

the basket, I think that this continues. Probably one of the most unique opportunities to the sector that I've seen in dectide. I hope someone figures out a way for evis to make a sweet noise I like, I like a good V eight exhaust note, but I don't know if fake is going to cut it anyway, Dan, thanks so much for joining us. Always a pleasure talking to you. Dana Eyes, Managing director for Equity Research at wed Bush Securities.

This is Bloomberg. Your jobs number came out today. The headline were certainly impressive, seventy jobs at unemployment rate officially ticking down yet again. Uh, let's get a sense of what's going on at street level, at the company level. We do that with Tom Gimble. He's a founder at CEO of LaSalle Network, based in Chicago's lasal Network is one of the leading staffing and recruiting firms in the country. Tom, thanks so much for joining us here. Again that the

numbers we got today were certainly certainly positive. What are you hearing and seeing from the clients that you talked to on a daily basis? Positives and understatement, I mean, we should be throwing parties in the street like it's Mardi Gras. I'm with you. I'm as optimistic as it gets on this kind of stuff. But I didn't think it was going to be this big. And what I've been seeing is companies of all shapes and sizes, non hospitality,

non restaurants, have been hiring. I didn't think we were going to get this bump until the weather really got good in April or May. Job numbers. UM. So this is really a sign that the second and third quarter are really going to be fantastic. But companies are hiring at all, all levels of positions across the board right now. There was an awesome chart tom this morning showing that investors are really betting on summer vacation at least um here in Europe, and we don't even have the vaccines.

Um that you guys have the S and T the stock six hundred Travel and Leisure Index just absolutely soaring. Um. Do you think we're gonna see business travel keep up with um? You know, the trips were all planning down to New Orleans for example. I think that will be

the last one, at the last thing to come back. Actually, because the the economy is going to grow organically and innately in the second and third quarter, because of the vaccine, because of summer in hospitality coming back, that business travel won't need Businesses will think they don't need to do

business travel of the second and third quarter. And what we'll start to see is eventually that's when the small scrappy companies put people on airplane because they know that if they get in front of people, they'll be able to differentiate. I think it'll be a real emergence of the entrepreneurial company because they will travel and big companies to keep earnings being positive, we'll pull back on TNE because that's where they met a lot of their profit numbers.

So Tom again, the headline numbers were very good. You dig down a little bit deeper, there were some issues for concern. The African American unemployment rate actually ticked up a little bit. What's the concern that as we come out of this pandemic and out of this jobless issue, that it's going to be perhaps more unequal than many would like. Well, I think what we're really gonna have

well on on the racial issue. You know, as you saw during the elections like the last year, is as the former administration went to out how great things were from minority hiring because of the a lot of the lack of education and poverty areas that that tends to be one of the laggers, which is a shame. I think an education forward thinking administration should help that. Where I'm really concerned about UH into the future is the

white collar blue collar service level divide. And what I mean by that is what we've seen over the past year is that white collar jobs can be done remotely, but obviously blue collars job plus truck drivers plus cash register workers cannot. And eventually, whether you're black, brown, white, orange,

or green, it doesn't matter. There's gonna be resentment of why are you working from home when I'm going into the factory every day or driving the truck, And we're gonna have some real sociological issues that go beyond gender and or race into deeper, deeper issues than that. That's going to be an interesting economic and job problem that we faced. Tom. What do you think about the minimum

wage debate? It looks like, you know, it's done for now unless Kamala Harris kind of jumps in and does something last minute, or the government's table to do something separately, But is it just too hard for people in Middle America to imagine paying fifteen dollars an hour? How does it shake out? Yeah, that's the problem is that several minimum wage is a floor and and I think too many people look at it as what everybody's gotta gotta be making, and it really is a geographic uh issue.

So should somebody in New York be getting fifteen an hour? Maybe? Should somebody in Tulta maybe not? And I think if they could compromise somehow, it's become seven, seventy five or fifteen and nothing in between. And maybe it's time for a ten or eleven dollar an hour minimum wage federally, but most of the municipalities are drawing that line up anyways. And I think you're looking at small retail businesses. Listen,

I work in downtown Chicago. We have uh Sundurys slash convenience store in our lobby that was run by an Indian immigrant for twenty years. He's not a business now. And even if he could come back, it's vacant. He's been. He's gone because nobody was coming into the office. Even if he could, he couldn't have afforded to keep it running by paying somebody fifteen dollars an hour to work with him. So we've got real problems to think that that's what's gonna be the stagger to keep the economy going.

It's not You've got to get people working and help people and and paying them more isn't going to help the entrepreneur in the small business owner, It's gonna hurt him. Hey, Tom, thanks so much. We appreciate that as always. Tom Gimble, founder at CEO of LASAL Network. We love talking to Tom on these jobs days. Uh, Tom is you know, Matt, you know, we've been talking to Tom for a long time.

He's been, you know, pretty consistently bullish on the whole labor situation in his country, you know, really confident that jobs would come back as uh, you know, the vaccines get into the marketplace. I think it's pretty fascinating the point he made about travel, Paul, you know, be big companies, not only are the bean counters saying, look, we made so much money cutting back travel, let's keep it. Let's

keep it down. But you've got big HR offices also who are saying not yet, let's let's wait a couple more weeks, a couple more months because they don't want their employees getting infected. That's when the small businesses are going to be able to get a leg up. Yeah, I think that's a good that's a good point. So, but light at the end of the tunnel, as we

like to say. I am here in Berlin. Germany has said it's loosening the lockdown, but you really can't do anything except for go to the barber, which is no use to me, and uh and go to the flower shop. It's weird, isn't it that those are the two things they open. Hopefully by the end of the month they'll start opening my favorite stores and restaurants in the US many states are doing that. But is it a good idea?

Let's bring in Lauren sour right now from Johns Hopkins University, where she is an associate professor of emergency Medicine in Lauren, Connecticut, now joining Texas and Mississippi in reopening the state lifting restrictions. Is it too soon? I mean Germany is like nowhere near that. Yeah. I mean my personal opinion, and I think the opinion of many of my colleagues is it

is a bit too soon. It sort of feels like we've put in all this hard work we've done on all of this staying home and wearing the masks and and participating in all these restrictions. That have been challenging for everyone, and we're watching all of that hard work potentially crumble. Um, just because of a few weeks of good numbers. You know, we have a little bit more of a ways to go, and I think we were all sort of hoping that we would see these states

maintained for just a bit longer. Lauren, give us a sense of how things are on the ground. Um. We know the headline numbers generally are are trending very much in the right direction in terms of vaccinations and so on. But at the Johns Hopkins University Hospital in Baltimore, how are things going. Yeah, the numbers are definitely looking better.

It's still you know, everything has to be in contact, right, So you still have to remember that while the numbers look good and they're going down, it's still from a very high place, right. So, Um, we had some of the highest numbers UM so far in the pandemic just a couple of months ago, and so that downward trend is great to see, UM, But our hospitals are still stressed.

We're still seeing patients with covid UM. We have seen a couple of reinfections, and I think all eyes are on what happens over the next few weeks to a month when as vaccine you know, sort of trickles through through the state. I mean, the US is crushing it in terms of vaccines. You guys are up to like almost two million vaccines a day, right and here in Germany, which is the largest economy in Europe by the way, and I don't know what's going on. Very good at

building cars and stuff. They've vaccinated like forty eight people in the past couple of weeks. Um, what is the US done right in that sense? Lauren? I think one of the things that has been done right in in distribution of vaccine is UM really a push to make decisions to get vaccine into people's arms. So the second we get hands on vaccine, UM, we push it through

these systems. It has been challenging because those systems are disconnected. UM. They felt sluggish at first, but we leveraged global national level infrastructure to really put vaccine into the hands of local vaccinators and that's huge. So the next steps are improving access to those hard to reach communities UM, which many would argue, myself included that should have been done

up front. But we have a lot more work to do UM to make sure that people who can't you know, simply drive up to their hospital, wait in line or wait on the computer to get that to get that appointment, UM and walk in and get it safely. UM still have access. So if they don't have technology access that they don't have someone who can transport them to get vaccine. All those things or where we really need to focus

right now. But you're right where we're doing. We're putting a lot of vaccine into a lot of people right now. If I want to point out, if Germany were nearly as efficient um and smart about this as the US, if Germany was vaccinating at the same rate as you, we'd be done. We would have vaccinated every single man and woman over the age of what fifteen. I don't know if they're vaccinating kids anywhere, but all of us

would be finished if we had done in the US way. Yeah, it's uh, it's just hopefully you guys can get the momentum there, Matt. But Lauren, you know, one of the concerns that we all had and we still have obviously, is the folks that just don't get vaccinations. They don't trust vaccinations in general, and maybe in particular, or they don't trust this COVID vaccination for a variety of reasons. Are you having those conversations with those people and how

are they going? Yeah? Absolutely, I think a lot of work is being done right now to improve UM that vaccine conversation, particularly in vaccine hesitant group, and a lot of that means working with community members, working with both from vaccine hesitant communities who UM really can tell the story to the vaccine distribution planners and the the access

personnel about why there is this hesitancy. And I think that hesitancy gets sort of convoluted when you additionally add access issues, and so those have to be addressed in tandem UM making sure that communities that have high levels of hesitancy don't have high levels of inaccessibility UM so that as people come on board to getting vaccine and they make their decision Okay, I'm gonna go get this vaccine,

they should then be able to get the vaccine. And that is a huge piece of the puzzle, because if you have them for a moment to get vaccine, they may change their mind if it's just too hard. By the way I've been I've spent the last year collecting masks. I've got Ducati masks, BMW masks, I've got Grateful Dead masks. Am I gonna be able to keep using these? Or are we going to be done pretty soon? I think we're going to see masks in various degrees of use

for quite some time to come. I mean, I think as we're seeing already in the US MAX that mask mandates are being um taken away, But that doesn't mean you can't use them. And so in circumstances where people may you may feel less safe as an individual, or you may be going to a place where you feel more vulnerable, UM, we can You'll be able to use those master as long as you want. UM. But I do think there will be a reduction of mask usage as we get more people vaccinated. Hey, Lauren, thank you

so much. We always appreciate this weekly check in helping us stay as smart as we can on this topic. Laurence Sour, Social Professor of Emergency Medicine at the John's Hopkins School of Medicine, I should not that the Bloomberg School of Public Health support about michaelare Bloomberg's now or Bloomberg LP of Blooberg to lamp. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple podcasts or whatever podcast platform you prefer.

I'm Matt Miller. I'm on Twitter at Matt Miller three. Put on false wwhiney. I'm on Twitter at at Sweeney Before the podcast. You can always catch us worldwide at Bloomberg Radio