Inflation, Investing, And The Latest On Omicron

very close attention to that. Let's check in with Sylvia Jablonski, chief investment officer and co founder of Defiance E t F S. Sovia, thanks so much for joining us here. You know, a lot of folks are saying, boy, these guys, these folks are gonna be very hawkish here come Wednesday. What are your expectations? Hi, good morning. Well, I think, like everyone else, I'm very curious to see what what FED share Powell will will have to stay on Wednesday.

You know, the recent meetings have given us an indication that, you know, the tone is a little bit more hawkish, and we're talking about perhaps doing you know, sort of more tapering more quickly, and um, you know, perhaps there's a debate about rate hikes whether or not they will come sooner than we expected. So you know, I'll just be kind of listening in to see, um, you know,

what what the tone is and whatnot. But you know, all in all, if we take a step back from it, I think that, you know, we do have this senslation issue, but we also have an expanding economy. We have, you know, just a massive surplus of equidity in the markets, and I think, you know, the point here for the fat is that the economy is sort of strong and on the way off. We had this this good unemployment number

four point two percent. Perhaps it is appropriate to sort of pump the brakes because we don't need as much riscal and monetary stimulus. So um, you know, there's two sides to that too. How much can the economy take in terms of rate hikes. I mean, I don't mind, um, if the market is telling us with the flat yield curve that inflation goes away. But I don't want growth

to go away. Yeah, I don't want grows. I don't want growth to go away either, So you know, I I think though that if you if you look at some of the top growth companies, UM out there right now and look at the amount of sort of cash that they have on the balance sheet, you know, and you sort of like think about where we've been in the last couple of years, and you know, some of the issues in terms of like the economy being hit and you know, massive part of the economy still haven't

recovered supply chain issues. I just wouldn't expect the FED to sort of come crashing in and do aggressive rate hikes really quickly. I would anticipate that they would be slow and steady. And and if they are sort of slow and steady, you know, in that case, the growth growth firms are you know, they're they're well capitalized, are well founded, they have balance sheets, so I don't think it's going to be a huge impact for them if

it goes in an orderly fashion. So, so you've given that background background for the FED for rising rates, for inflation transitory maybe not. What is your kind of bag eas case outlook for how are you approaching this new year? Yeah, so I actually project that two is going to be a positive year. I think the consumer is strong. There's that you know, there's tillions of dollars of savings on the sidelines that will either come into spending or will

come into the market. UM. I think that we're sort of learning how to live with the various variants. They'll probably with be with us going forward, but you know, we've sort of adapted. I think that some of the supply chain issues will sort of shake out, and you know, companies are flesh with cash as we said, and they're spending it. We have UM, you know, a record level of buybacks coming back in capital expenditures. UM. The you know,

employment numbers good. So I think that you know, you're going to see a lot of growth, particularly in some of these hot new disruptive sectors. So I think that for example, quantum computing, UM and and the metaverse are going to be to sort of hot topics that people are going to invest in and investing in that means looking at things like you know, semiconductor, is cloud computing, cybersecurity, ai A, are you know e TPX or single stocks

that sort of play in those different spaces. Five G is going to be something that has a huge opportunity as as Washington continues to invest there. I think the reopen trade that UM you know have has has sort of just like flit along is going to really start to grow, you know, do the delta abicon in the general COVID headwinds, I think that that trade hasn't really worked yet. And you know, travel is about nine trillion of the global economy. Half of that went away during

COVID and we're nowhere near that now. So I think that you know, once we sort of see full fledged travel, hotels, casinos, um cruise, ships and airlines will benefit from that. So there's a lot there are a lot of really great places to put your money. And I just think overall, but the market is again just flush with cash and and we'll just generally be be sort of like liquid and the right place to be in terms of equity exposure. Me and Paul are going on a cruise and hopefully

we don't see Omega. What about healthcare? What do you think about healthcare? Sylvia? Yeah, so health care I think is UM health care will be a good portfolio diversifier.

You know, if we we always advocate for the Barbell approach, right and you want some some level of defensive exposures of portfolio, and I always you know, throw healthcare into that bucket because I think it's something that UM is you know, it's it's sort of consumed whether or not the market pulls back, right, and you have all of these sort of advancements and um, you know, different mergers. Now. You heard about the Deviser murder today, and I just

think that there's going to be consolidation. I think there's gonna be sort of better use of cash. You know, we've had this backdrop of like fast track at THEA approvals um and you know, it's it's it's interesting. I have a husband who's deeply involved in research in medicine and has said that, you know, the COVID vaccine is either going to COVID is either going to be looked at as the biggest disaster of our time or you know, an absolute modern miracle in terms of how fast research

trials and things came out to pump out vaccines. So you know, we'll see how how much that continues. And yeah, so I do think it's always good to be positioned there. So Villa, thank you so much for joining us and sharing your thoughts. We always appreciate getting your time. So Via Jablonski, chief investment officer, co founder of Defiance et F S the new variant in Town. These days is omikron uh and governments and cities all around the world are trying to figure out and companies, for that mat

are trying to figure out how to respond. Let's get the latest from Dr Pervy Perk, pediatric allergist and immunologists at Allergy and the Asthma Network. Dr P thanks so much for joining us here amikron. We've it's been in our midst here for several weeks. Here. What do we really know and how concerned should people be about this new variant? Right right? Thank you for having me so. You know, when news verse broke, there was a lot of concern, you know, given the number of mutations that

this variant carries compared to previous ones. But in the last few weeks we've actually had reassuring news, one of which is that, you know, luckily, majority of the cases have been mild um so we haven't been seeing increase in deaths, increasing severe disease or hospitalization. And the other good news is that we have evidence that you know, those who are vaccinated are well protected against the severe disease and hospitalizations, and then those who go on to

receive their booster are in even better shapes. You know. Um, So, so we have more information now and this variant maybe more trans transmissible, sorry, transmissible or contagious, But the good news is it doesn't appear so far to be more dangerous and also it appears our vaccines are still very effective against it. Yeah, we were talking this morning with an epidemiologist from the UK who said, um, this this variant doesn't seem to care whether or not you're vaccinated.

I mean he wasn't talking about people who are necessarily boosted, but who had the first two shots and assuming okay that was months ago. Um, does it make a difference whether or not you're vaccinated when it comes to the severity of the disease? Right? So that we we still don't know the exact answer to right, because we want to see how many people unvaccinated get this variant versus those who are vaccinated and if there is a difference and the severity and and frankly we just don't have

that data yet. Um. But you know, whatever drop in antibodies that we did see and those were fully vaccinated, that it was well compensated for with that booster dose. So um, you know, in different studies have shown difference amounts that have decreased. So I know, one study showed a fortyfold drop in that neutralizing antibody. Another study showed a twenty five fold drop. But the nice thing is with that booster dose that kind of compensated for that drop.

And um, you know, everyone talks about these antibodies, but it's so much more than that. You know, our immune system has t cells that help us remember and fight off infections, and it looks like those cells are still quite efficacious and keeping people out of the hospital even with this new variant and preventing death. Um, whether vaccinated versus unvaccinated makes a big difference, we'll find out soon enough.

I know in South Africa they had some data showing that people who recovered from COVID were more likely to catch this variant if they had not been vascinated versus those who were. So there may be something there and that the vaccine is still more helpful. But we we again, we're building the plane as we're flying it, so hopefully as that data comes in, will have better answers the

next few weeks. Doctor is I guess the new normal, at least for the foreseeable future, is that given that there's so much of the world's population that is unvaccinated or not fully vaccinated, that these variants are just going to be a way of life going forward. Yeah, you know, I think we should accept that covid vantine is here to stay, just like so many other coronaviruses. You know, the common cold is a coronavirus, and we don't think twice about you know, getting a cold in the winter

time or what have you. Um, So I think it is here to stay. But um, the good news is, I think we have much better tools to deal with it. Uh, and eventually, hopefully we can reach that concept where enough people have been exposed that the virus just continues to become milder and milder, similar to you know, the more common coronaviruses that our bodies have become used to over

the last few decades or hundreds of years. Um. But you know, again, I think we're in much better shape than we were two years ago, or we were all naive to this virus. Now we have excellent vaccines and we have excellent therapeutics too. Even if you do happen to get sick. Um, I have been I hate wearing a mask. It gives me, mask me and I don't breathe terribly well in them, etcetera. On silvia. But at the beginning of the pandemic, I thought I was only

wearing a master protect others. Now I hear that if I wear a mask, if it's an f FP two mask, and I wear it properly, I'm protecting myself with the mask. Have you have we seen that opinion evolved? Yeah? No, definitely, um so much has evolved, right, but we have now very good studies and data that show that it not only protects others, but the user as well, you know,

especially if it's a medical grade math So now I care. Yeah. So, if it's a bandana or like a gator, you may not be providing much protection to yourself, but if it's a surgical mask or higher some medical grade mask, you're actually helping yourself too. And I think that's why we virtually saw no flu cases last year too. You know, in years prior, flu season always crushed our healthcare system, but last year there were almost no cases, and it's

because everyone was masked up. Everyone was very proactive about getting their flu shot early on, you know, even before the COVID vaccine was available, So UM, I think you know, the masking can only help, especially in the winter time. You know, when you're indoors and public places outdoors, you don't have to be as stringent, thankfully, because those respiratory viruses don't aren't as contagious outside. Dr what's the latest

on therapeutics? Uh? If folks do in fact become sick, Um, what's the latest and what should we be looking for in terms of treatments? Yeah, you know, and now it's exciting because um, you know, we have therapeutics both in injection and pillform. So um Fiser you know, has a tablet that's an anti viral that if you take it within the first three to five days, it can reduce your chances of being in the hospital or being very very ill by over nine which is huge um. And

as does mrkum Astra Zeneca. They don't have a pill, but they have UM, you know, an antibody cocktail, which given early enough, can help prevent you from getting ill. Um. And of course the regeneration monoclonal antibodies, which you know with the musing for some time. Even our last president

used that when he became ill. So the key is early treatment timing is everything um and recently another antibody Cocktails, got a pool for those people who may have had a severe reaction to the vaccine and can't tolerate another dose, or can't tolerate a booster, or let's say they're immune compromise where they took the shot, but they just don't mount as good of a response as someone who's not

immune compromised. So there's there's so many options out there now, both preventatively as well as once you're already sick, that we're we're in much better shape now than we were before. Dr perv Peric, thank you so much for joining us. I really appreciate getting your expertise pediatric allergists and immunologist at the Allergy and Asthma Network, also on the faculty as a clinical assistant professor at n y U School

of Medicine. So we always appreciate and we can get experts on the air and hope explain all the changes and that this pandemic leads us through. And of course the discussion over the last several weeks and likely coming forward will be the omikron uh and the reactions to that. Right, let's go to Tim Fury, chairman of the Institute of Supply Management i s M, to the insiders. Hey, Tim, this is the time of year and we'd like to chat with you about your forecast. For boy, there's so

many moving pieces here. Just give us your top line and then we'll dig in. Yeah, Thanksfaul very much. So yes, twice a year we do a forecast, do comprehensive forecast here in December, we do an update in May. We also look back at the prior year in December to see how well we perform. And we gathered the information both in terms of UH percent change year over year and also the diffusion index that we use on the p M I, meaning anything over fifty is positive, under

fifty is contracting. So you know, the headline number here is that our manufacturing revenues for two are expected to be up six point by the end of the year, following a fourteen point one percent growth in one. So that's really strong. Indicates that things will continue on at a pretty good pace holloway through two. The panel said. On the outlook side for the next twelve months, the fusion index of sixty six, which is a strong number. You know, anything over sixty is really strong, so very

positive there. And then from the business comparison standpoint half one to half two, the panel believes that half one will perform at a seventy the fusion index compared to the end of this year, which is really strong, and half two will be a sixty three percent the fusion

index compared to half one. So we're gonna be growing as a year goes on, it looks like, but the growth will slow, right, I mean, when we look at the flattening yield curve, it shows us that investors are aren't sor that this inflation and this growth is going to stick around at the same kind of strength that we're seeing it now. Well, you know at sixty two sixty three, I think for the half half two against

half one is still pretty strong. Remember over fifties is expanding, so uh, definitely better than half We're going to perform better in half one of two compared to the end of twenty one, and then again in half two of twenty two. It's gonna be a pretty strong period. So on the profit margin side, interesting, we we've forecasted at the end of this year we saw a contraction and profits compared to the first half, but for the first half of two we see an expansion of profits at

a fusion index of fifty six. So you know a lot of ups and downs there with labor costs going up, rob till and puts going up, and we collect information on that also. Would you like to hear those numbers? Yeah, they're right, yeah, so uh So on the labor and benefits side, we we forecast that the cost of labor will be up four point seven percent two uh and last year in December one, we thought it would be two point seven So you can see escalating and labor

costs and the better just go with that. So that's a headline obviously for in your fashion. On the employment side, we believe that we grew our employment levels three one and we'll grow them a further one. So that's a big question mark because the question really is is it because they only need one percent more people or because they can't get any more than one percent more people?

A lot of stuff you can't get right now Before Um, you worked for I s M. You were a rioter before that, I think at Tuson, so you know what the supply chain is like firsthand. Do you think that this issue is gonna work itself out by the end of next year. Well, the transportation has been a big disruptor. Usually it's an enabler when it comes to speeding goods

to the next level of assembly. This year has been a disabler because there's so many variables in whole supplies, and as you know, I've been looking very closely at that and the t m I, and we really don't see much recovery before the second half of next year, and the porticians may even continue beyond that through to the labor management negotiations on the next contract for the UH port workers on the West Coast. So it's gonna

be interesting. I mean, transportations remaining very disruptive about half of my comments, and the supplier delivery section last month where transportation related the highest I've ever seen, So you know, I think that that destruction level is going to continue. Hey, Tim, thanks so much for joining us. Really appreciate UH chatting with you. Tim Fury, Chairman, Institute of Supply Management Business

Survey Committee. UH. They get some really good granular data from all folks in the manufacturing sector, in the services sector, and now increasingly important in the transportation and logistics sector, and then we love getting their survey results, and of course we get the manufacturing and service data from I S M on a monthly basis as well of checking

in with Tim Fury. Now, let's get over to Michael Cogino, President and portfolio manager the Permanent Portfolio family of funds, to talk to us about what investors do as we head into a tidal wave of central bank decisions. I guess the feed is clearly UM first and foremost, or at least UH for US investors, the most important thing to watch, Michael, what do you expect from Jerome Powell? Yeah,

good morning guys. Um. You know, because of the different directions they have taken over the last few years, pivots or whatever you want to call them, I'm not really sure, um, And and we've positioned our portfolio that way. I mean, the general sense, UM that's been evolving in the last month or so here has been that the FETE is finally recognized that, you know, inflations not just transitory there

tapering interest rate hikes may come quicker than everybody expected. Um. We're hearing going into the meeting this week, that they might even be more dramatic than that, um, and quicker on the on the trigger. So I mean, sure, all that's on the table. Um. The biggest issue is is you know, the to the degree that these aggressive actions are taken, it just slams home the point that they

were wrong to begin with. And I mean, and and so you know, I don't know how drastic you want to be, because you could easily raise rates too quickly and throw the economy into a recession. Um, But you do have an inflation problem, that's real. I mean, anybody that saw the liquidity creation and the velocity of money over the last year and a half or so, I don't know why anybody would be surprised by what we're

seeing right now. And and so the question for investors is, yeah, we all know inflation, we're hearing about it constantly, But what do you do with it to protect your life in your portfolio? Alright? So give us you know, kind of your thoughts there, my as we go into what are you telling your clients? Well, I mean you want to try to be reasonable. Um, you know, inflation at

some level is a natural byproduct of economic growth. And and so the question and so are arising interest rates really and so The question is at what point does does that is? What is gradual, what is reasonable, what is sort of a positive from the market growing, and then when when does the turn negative. Our view has always been that part of this inflation story was structural. UM. Yes, part of it is transitory. We would expect inflation to

maybe settle down from where it's been going. But I think I still think you're looking at a three or four, you know, five percent number on a longer term basis, and that's a big difference from where we've been for the last you know, X number of years and decades. So that's going to necessitate a change in thinking. Our view would be to stay diversified. UM. Markets are moving

around assets, money flows, assets are moving quickly. We would, obviously, UM want to have some hedges against the declining value of money UM I e s A. Gold and silver assets on the bond side. Given the risk of rising rates and volatility, UM, we would be very short duration

and we are high quality balance sheets. UM. You know, despite the flattening of the curve, I think the real risk would be that the FED loses credibility, market rates decouple from the feds desires, and investors lose confidence and they start selling bonds. Um. If that occurs, then you're gonna want to be short. And on the equity side, I think there's there's always opportunities and equities, but equities

are richly valued as an asset class. And certainly if rates go higher, um, and you're dealing with more inflation, other types of companies are going to do better and some are gonna suffer. Inequities, we would look for companies that have pricing power for their goods and services, and also those that have some control over input costs and say tabor and materials and whatever, because those are the things that are going to have some structural inflation built

into them. So in terms of the growth expectation, what do you see going forward? We just talked to Tim Fiori from the I S M and he said he thinks growth is still going to remain very strong in the first half and even in the second half, it's not going to tail tail off too much. Um. Yeah, I mean I don't really have a prediction one way another.

That's a reasonable story. Um. The one thing I worry about with respect to growth, I do think you're gonna have a growth story UM, but it definitely is tempered by what goes on with COVID. COVID has been a risk, you know, since it came out, and and I think anybody that uh sort of feels like we're beyond it or we know all the things that come out of

it is really being naive. And I think we're seeing that with the most recent omicron and and you know, you're heading into the winter, people getting together vaccine means not being as effective and needing boosters, and you know, there's just all kinds of issues there that potentially have risk economic growth. The other is with respect to UM, you know, cost structure, labor UM, the fact that you've got millions of unfilled jobs UM, and how do you

get those jobs filled? Because at some point that's a limit to economic growth. You you sort of limit your upside, you're sealing your capacity. And so I see that as an emerging problem. And and the fact that you have so many unfilled jobs is definitely adding to UM labor costs and wage inflation, and wage inflation is going up higher than income numbers based on the recent dat I've seen, and that's a risk as well. UM, So that could

limit economic growth higher interest rates. Interest rate volatility could could impact growth because you're you're lending costs, you're borrowing costs go up um. So there are risks to the just growth story. And I'm not predicting recessions or lower growth stories, but I think you need to think about those in an overall investment strategy. And you do need to worry about things like stagflation, you know, the misery

index and all those other things. Not saying they're gonna happen, but you do have them, all right, Michael, A lot to think about their Thanks very much for you taking the time today. We always appreciate that, Michael Caino. He's a president and portfolio manager, a permanent portfolio family of funds, constructive for two. But there are some headwinds out there. Need to be mindful fed. Coming up Wednesday. Thanks for

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