Interest Rates, Energy, Housing, And Cybersecurity

but just don't look at the bond market. But we've got the Bank of England it raised rates, We've got the Federal Reserve talking about raising rates in two and three. What does that mean for economic outlook in the face of a resurgent pandemic. Here, let's check in with Jennifer Lee, senior economist and managing director at Email Capital Markets. Jennifer, thanks so much for taking the time to be with

us here. How are you thinking about your two economic outlook in the face of rising interest rates, in the face of inflation transitory maybe not in the face of this omicron variant? Um, good morning. Um. You know what, I'm fairly optimistic overall. Of course I have my my days, but overall I think we are still you know, we're still upbeat. I think it's a good thing in many ways that the that UM central banks are finally starting

to raise race. I say finally for some some of them I've already been doing so over the past number of months, because if they weren't raising rates, it would mean that the global economy in the US in particular is still in too shape to handle it. So I think in that way, it's it's a good thing UM. Whether or not UM, you know, we can get these

prices under control is another story. We look fractually for CPI to continue, UM maybe not rising at such a fast pace, but we look forward to peak around seven percent in the new year, just because of you know, food costs and housing and all that, before moderating UM in the second half of the year. So we're talking about potentially seven handle on CPI in the not so distant future and a FED rate hike that will come

in maybe not so distant after that. And yet I'm looking at a ten year treasury yield that is at one thirty seven. What kind of signal do you take from the bond market right now? That is a big head scratcher. UM. In some ways, I'm you know, I'm wondering you know, maybe the bond market is is thinking that you know, transportation should not have been you know,

removed from from the lexicon. UM is also a potential that you know, everyone is still very afraid or fearful of what um amicron is going to bring or what the impact is going to be, because they're you know, they're all these different um um papers or surveys coming out of what the impact will be, what the the what the the the the whether or not you know, we are able to fight it um and I think

it's a bit too soon right now. But you know, obviously it's not looking that great right now, Jennifer, what has given that backdrop? What is your GDP forecast for two and what could be kind of the variables that either move that one way or the other off your kind of your your best case, your your best case.

So this or we're looking at about five and a half five point six percent growth, and of course there is almost over next year we do see growth moderating two three and a half percent UM moderating, yes, but that's still almost um double um um the long run potential. And this is all assuming that you know, we're not going to see huge restrictions like we saw back in UM in that are needed to control a macron UM.

We're gonna see probably still low real rates UM, but I think the main thing is that we still have massive household savings out there. So even though prices are rising and it's probably going to hamper some buying decisions, I think households in general can still handle it. So we still see, you know, UM a boost from that. And of course this is all assuming that the supply chain disruptions will ease up around the middle of the year.

So we're focused a lot obviously on the fence accelerated taper, when liftoff, maybe what the hiking cycle is going to look like, When do we start having a more serious conversation about QT and rolling off that balance sheet we are probably looking at sometimes it'll be will probably be sometime this not this year, but two UM, I think what you want to do is probably just get the hikes out of the way and get everyone more comfortable with with with raising rates, and at some point they're

going to have to start bringing down that that balance sheet, which the last check was like four over four or four trillion dollars, which is way way too big. So I see at some point we're probably gonna start seeing a runoff beginning probably, but I'm gonna say by the end of ye if I want to talk about the labor market, Kaylee and I were in your office today, but we're one of the few here are on a Friday lonely the four to five million folks out there that aren't in the labor force. Do I need to

worry about them? Or they just kind of out of the labor force for a variety of reasons. It's a variety of reasons. And this is the one part that that does make me feel very uncomfortable. And this is where the whole virus kicks in again. It's all, it's all,

it's almost like a big chain reaction. You know. If we can get this virus and new control, and if everybody gets comfortable with getting the vaccines um and getting back to work, you know, then I think I am That's why I'm optimistic for you know, for for two. But if people are still afraid to return back to work just for fear of contracting the virus, if schools return to online learning, and even if it's just for a few weeks, you know, that's very disruptive, and that

means that labor shortages are going to continue. Um. And that you know, of course, means not enough hands on deck to to build the car, to create the car, to program everything. UM. So that means all these shortages are going to continue, and that means prices are going to rise. UM. Wages are gonna heat up further, and that's going to give this the green light to keep to keep tightening that. So that's what I'm afraid of, is just that people are just still afraid to come

back to work. All right, Jennifer, thank you so much for joining us. Really appreciate that. Jennifer Lee, Senior economists and managing director at Demo Capital Markets. Let's turn to housing here. This has just been an amazing part of the economy to me, at least all throughout the pandemic, this housing market has just really performed well. I took advantage of it as a seller. Matt Miller was probably on the other end of that trade as a recent buyer of real estate in the metro New York area.

But it's just been a constant, constant, strong part of the economy. Let's get the latest and Brad Domains, a chief economist at Courtland Brad give us kind of is there more room to grow in what I consider to be a very strong real estate market? Yeah, definitely. You know, our estimate is still that the US is underbuilt by about a million housing units. We can look at the case Shiller index with annual home price appreciation. It does look like it's hit its peak, but it's not going

to go to zero overnight. So I think we're still looking at a situation where home prices are going to be going up for certainly the next year and a half at least, So we can talk about the supply side, but on the demand side and for people wanting to buy homes, how would a FED starting to lift interest rates affect that as it relates to mortgage rates and and you know how much people can afford. Yeah, you know what's been behaving. Interest rates have been behaving very

interestingly over the last couple of years. We can look at the tenure treasury rate, which has been negative and real terms for about a year and a half two years now, and it's actually been unresponsive to these taper related to announcements. Uh, you know, the tenure right now, I'm looking out on my screens at precedent would have suggested that should go up. So right now it doesn't

look like it's having any effect. But if these rate hikes do happen next year, and we're thinking there's going to be three now, we should see that translate into higher long term rates or we'll have to see the Fed reverse course and begin to cut rates relatively quickly, because three rate hikes implies at the high end of the FED funds rate would be in a ground and that's not a lot of spread to one point four percent,

which is where the tenure is right now. That does that's not menstorate with a steep old curve associated with a continued expansion. Bready talked about the US being under built by you know, at least a million households. What I've heard in the past is where the real shortages is in the lower end of the market, the entry level house. There's lots of mcmansion's being built all over the country, but not a lot for the first time buyer.

Is that changing here? Well, you know, builders are always having to build, you know, on on the margin, right, so it's very difficult to deliver housing product that's at the bottom of the market without some kind of subsidies. But when I look at what's happening and starts, um, I see a continued reversion to the pre pandemic longer

term trend. If you were to draw a straight line on a lot of these metrics from the Great Recession to where we are today, over the last couple of years, we had, you know, maybe a big pullback and then a big rebound, and things are kind of right sizing. Uh. When I look at the the over or undersupply of housing in the country, and again we obviously estimate that it's underbuilt right now, it does look like the worst

of that was a couple of years ago. And so in a sense, we're building more housing than we need right now, but we've got a lot we have to catch up with. It's almost like what the set has argued with inflation, right that it was so low for so long. We need to catch up. Brad, let's talk about people getting if they, you know, are being priced out of buying a home. I'm not talking about myself here, but I don't think I'd be in a position to

buy a house right now. But at the same time, I'm looking at rents in New York City that are going really really astronomically higher, at least compared tod levels. What are you seeing more broadly in terms of rents and people who may not be able to buy and are looking to rent, but those are also much more expensive. Yeah, I mean, there's no question that the rental market has performed very well over the last year and a half.

We're clocking rents and when I say we, I mean our market data, not Courtland specifically, but probably about fifteen and a half percent year over year across the sub markets we track for, and we think that's going to go to about six and a half percent next year, So that some big slowdown in annual rent growth, but it's still very large historical standards. So yes, if we are in a situation where, say that mortgage races truly do go up with the rate hikes, we'll see that

much more demand channeled to the rental space. Hey, Brad, thanks so much for joining us. Really appreciate getting the update on real estate. And again, real estate has been one of those asset classes that's performed consistently well throughout this pandemic and the economic disruption Brad Dillman's the chief economist at Courtland. And my question, you know, on the back of your question at Kaylie in New York City

at least, what are these people doing. They're not they're coming back into the city of the renting compartments, but they're not going to work. I mean, they're not coming into the office. Yeah. Well, and I wonder too if people are looking for you know, bigger places where there's a room to have a desk for work from home and uh. And it's been interesting to see to the division between luxury housing and luxury rentals here in the US versus you know, standard buildings that don't have a doorman.

There's a big divide there. Yeah. Interesting. I just you know, I find it fascinating. Um, just wondering what people are are they coming back into the city if they're not going back into the office. I just don't understand that. But the restaurants are full, so I guess that's good news there. Got w T I crude a little bit lower today at seventy one cents a barrel. You know that supply demand situation out there driving this commodity. What's

winning the day? Regina Mayor principal Global sector head of Energy at KPMG joins us So Regina is we look out the two boy, I'm seeing widely divergent calls on crude oil, anything from a hundred and hundred twenty dollars a barrel to forty barrel. How do you view the energy markets looking out to next year? We view them as being extremely volatible, and I think that volatility will continue to be what drives the overall sentiment, and that shows in those ranges, Paul that you just discussed. On

the one hand, we know supplies constrained. We're at seasonal lows that are seven that we haven't seen an over seven years. But at the same and we had increasing demand. Now we have a macron and concerns about COVID and what the pandemic has in store for the world. We're having lockdowns and shutdowns. So while we thought demand was going to increase, the i e A has just issued a report that lowers their two thousand one average global

demand by three thousand barrels per day. So with a very uncertain demand and constrained supply, that leads to these ranges and the market impacts. Because w t I is down fifteen dollars from its high just a month or so ago. How much of this what happens in the oil market is going to be predicated on whatever OPEC plus decides to do, whether they decided to continue with production cut production hikes to hold until you know there's more certainty around the variant. I mean, do they really

hold all the cards here? Not really anymore, Kaylee. I I see their influence waning because they are largely at a point where a lot of their supply is in the market already, and while there is has a little bit of intremental supply that they can continue to put into the market, the word on the street is that their supply is constrained as well. So regardless of what they decide to do, I think there's a physical reality of how much they can really produce, and that's what's

driving the sentiment today. Gina, Let's talk about the shale uh, folks in Texas and Houston. It just seems like in the past, whenever you know, oil kind of moved higher, our good friends in Texas and Oklahoma would start drilling holes. But I'm told this time is different, that they're gonna have some discipline how do you view it? That is the word on the street, Paul, discipline, and you know Houston. I'm here in Houston and the Permian is practically in

my backyard. The public is focused on the public companies and the CEOs are focused on free cash flow and returns, and they are committed to retaining those promises that they've made to the market. So there's no willie nilly, we're all rushing out to go drill some more wells. We do see recounts up. I think they're up seven over the last week. They're seventy up year over year, but they're still down against the pre pandemic level. And let's let's be clear, even if you do drill a hole today,

it doesn't mean that oil is there tomorrow. It still takes time for these assets to develop and then be produced, So we're not going to see shale running to the rescue. I do think we'll see incremental improvement, but it's not going to be anything to fill the potential gap if the man resurges post omicron. Well, let's talk about gaps in demand and look at Europe and the energy shortage there and how volatile natural gas prices have been. I mean today it was price is actually coming in because

Russia said, hey, we got you. What do How long do you think that that kind of volatility will persist. I think it's a volatility we'll see for the next two to five years at least, because we're racing into the energy transition and we don't have the supply and demand balance that we need to have. So the in Houston we're talking a lot about chaos and that the fact that the chaos will intensify as we try to transition. What we need to focus on is energy security and

energy affordability. I think right now the UK is burning more natural gas and cold because the wind isn't blowing, and we don't have the storage and capability of using the renewables for a much larger percentage because we need that sustainability of energy supply. So I think it's going to stay pretty chaotic for at least the near term future. And Regina, thanks so much for joining us. We really appreciate chatting with you, getting the latest on the global

energy story. Supply demand, Um, you know that's kind of the key issues that you know, investors are really trying to get their handles on here Regina Mayor, Principal Global Sector head of Energy for kp MG. Let's continue our discussion of cyber security. It is a huge issue for corporate American corporations around the globe. UH Dana Simberkoff is the Chief Risk Privacy see an information security officer for

app Point. At Point is a publicly traded company on Nastack symbol a vp T. It's got about a one point two billion dollar market cap. Dana, thanks so much for joining us here. I'd love to get your thoughts as to what are some of the key issues that you're hearing from your clients as they think about cybersecurity in this day and age. Sure, well, thanks for having

me today. Um, there are certainly a lot of things for our clients to think about as app Point does as well, and key in that list is supply chain management and vendor management. I think and are increasingly interconnected world. Companies like app Point provide services to many of our customers to help them mitigate risks of their suppliers, to add on layers of protection to help ensure that they're making information available to people who need it and protecting

it from people who should not. And is there a sense that companies are making adequate investment in those kind of productions. I was talking to the Deputy National Security Advisor in New Burger yesterday. He focuses on cyber and she was really pushing that the private sector needs to do more to kind of shore up their defenses. Does

more investment need to be made? Absolutely, UM ad point, as a cloud provider to millions of customers around the world, has been working in a space for about twenty years, and particularly with the shift UM that covid has brought to companies increasingly relying on the cloud for workers that are either working from home or working in a hybrid environment.

Now as people begin to come back to work, that dependency on suppliers and vendors instead of on your own um I T operations is really making it critical to invest in UM what I call trust and verify. So you obviously need to pick providers that you trust, but then verify with those third party controls that UM you're getting what you expect from those providers as well and supplementing any of the as a box security controls that

they provide as part of their services to you. So data I understand that the Biden administration is looking to tighten restrictions on data security and collection with the Build Back Better Plan. What are you looking for to come out of that piece of legislation. Well, that's a really important piece of legislation and it's something that's been sort

of in in discussions for some time. It's really looking at UM ensuring that companies are adequately protesting UH investing in controls that will allow for adequate protection of consumer privacy and sensitive data. And I think all of us UM are aware that the the increase in attacks and in UM identity theft and in hacking on both our sort of personal attacks as well as B two B attacks has really been on the rise and at the forefront of people's minds, something that's in the news almost

every day. So UM, what the what a privacy law for the US would mean is it would mean regulatory certainty for companies and so I think companies like app points and our industry peers are really looking for clear guidelines on which to build and that allows us to build UH a network of trusted UH systems for consumers, for our business partners where everybody is rolling in the

same direction. Currently in the US we have a very uh, federated privacy landscape where states have their own privacy laws, industries have their own privacy laws, and a common framework like the EU GDPR in the US is something that I think would be very beneficial in helping all industries to consolidate on a common approach. So it made ring more clarity. But what kind of impact would that have

on the global supply chain? Well, I think, um, you know, it may impact the supply chain, but frankly I think in in positive ways, UM for the most part, Because uh, the US is a country because we don't have that common privacy framework like Europe does, or even like many of our counterparts around the world do. UM, that causes friction in moving data around the world, which is really

critical to the supply chain. I think if we were to um build toward that model of globalization and standards based privacy and security controls, that would actually ease friction in the supply chain. So is this it just feels like this is a public private partnership kind of thing. I mean, you know, the the governments, they're doing what it can for the backbone, the internet backbone and infrastructure, but it's also really up to the companies to step up their game. Is Is that the best way to

think about just cypers security in general. Oh? Absolutely absolutely, And again you know, from an a point in perspective, we've been doing this for over twenty years as a provider of cloud UM data protection for Microsoft and for Google,

and for Salesforce and for business UM. Business users of these technologies, they need to know that, uh, they have again supply chain that they can have confidence in, and that includes not only regulation from the government side so that you have that predictability and you have benchmarks to work against, but also commitment from the companies themselves that we're all working in a common direction and that we're not um necessarily doing the minimum necessary, but rather we're

optimizing our programs and and that's done through collaboration. Dana, thanks so much for joining us. Really appreciate getting your informed thoughts here. It's a critical issue for corporate America. Dama SIMBERCOF Chief Risk, Privacy and Ormation Secured your officer for app Point. 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. Pet On Ball Sweeney, I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio