Surveillance: 2021 Outlook With BofA's Blanch

it now been accepted widely accepted in the institutional investment community? Um? Well, look, I think I think uh cryptocurrencies in general and bitcomming in particular, are to your earlier question, I think they're clearly they're clearly tokens, and uh tokens are token circummodities, so I wouldn't necessarily qualify them as currencies. Currencies are

issued by a government. Um, Bitcoin or any any cryptocurrency can be issued by almost anyone, right, So in that sense, it's uh, it's a bit of an unusual setup, and uh, so I would qualify that. I think I think it's more of a commodity and it is a currency, UM, a crypto token The second thing I'd say is that you know, if you if you think about this, this particular construct that that bitcoin has, remember that ninety plus of the coin is is held by less than one

percent of the account holders. So there's a very high concentration of the early um, of the early adopters that haven't really sold. And and again, if we think about supply and demand, you know, it's it's just one of those things that there's been a flurry of demand and and frankly not very much supply because the first of all, the supplies cat longer term and uh and and and

that's been the issue. So so it's extremely volatile. I mean, I wouldn't I mean, compared it to any other commodity, the volativity of of of crypt currency is way way higher in most cases. So, Francisco, I want to ask you, what do you make though of a year where you've got Bitcoin up more than three here in and you've got gold on track to have the biggest annual advance in a decade. How do you kind of juxtaposing to you and how do you kind of make sense of that? Right? So,

to me, it's it's quite straightforward. We've had of course, a flurry of liquidity that's coming to the market from the central banks, the FED spounce. It's more than doubled as well throughout the period. So naturally, when you inject so much money. Remember we were talking about currency before, right, so currency is created by governments. And when when, uh, the world's most important center bank, in the world's artist economy injects so much liquid in the financial system, all

assets tend to benefit from it. Um and and that's what we've seen now if you think about airline stocks, or you think about other assets that have been severely impacted by mobility, which is really what the COVID nineteen crisis is about. Uh, they have not gone back to previous historical records, but all the asset classes that were in some way constraint the shirts and of course that's included UM commodities like gold or silver UM. And and uh it's also like I said before, it's it's impact

to think about UM electric electric vehicle stocks, right. I mean those have have also taken off in a huge way. So so I think liquidity has been driving this this enormous divergence and in asset values that we've seen. Uh, because central banks with the fit of the helm. We're trying to support the economy and predicularly the financial markets.

So what happened then, UM to oil? I mean, we were looking at sixty dollars Francisco at the beginning of the year, it dropped to negative forty, and now we're trading at nine. I can take the negative drop as a as a blip, UM, a giant, possibly orchestrated fat finger, But nonetheless it's a commodity priced in dollars that has dropped in value. Why well so So the oil story, as I mentioned earlier right, is very linked to the

idea that COVID nineteen is a unique counter recession. Normally, recessions are cyclical in the sense that we see industry slowing down many fully and we tend to see some kind of financially band driving them. This time around, COVID nineteen just literally shut us, UM shut shut the global economy down in a meaningful way, and UM and mobility collapsed suddenly. We couldn't go anywhere. In fact, today I'm a home rather than being at the studio with you guys,

as I would normally do on a on a regular day. Um. You know, I haven't. I haven't been on a plane now, I guess for the longest period of my life, I mean spring night, ten ten months now without kind of hopping on a plane. Um, so you know that that mobility is was taken down. The demand for oil by as much as thirty percent in the month of April UM and when the man felt by thirty which also probably linked you know, I think of GDP also felt

about that number. Oil prices collapsed and uh, and then to your point, there was a bit of a fat finger there. But but also also at some point OPEC started to catch back production. We reopened the global economy and starting in May and June and and things picked up. But but now in the last couple of days we've gotten a little nervous again because of this new virus strain going on in the UK. Right, So anyway, okay, Francisco just got about seconds. So what's your projection? Give

us a quick price target for oil. So we we see we see oil getting to sixty barrel by the second quarter, So we are we are constructed. We think the economy comes back. Obviously, we have to control this UK strain in the first In the next couple of months, so it could be a little patchy in January, but I think once we get to June, we're gonna be in a much better shape. Those vaccines are going to really help get things moving. No punting, all right, Gonna

leave it on that note. Francisco, thank you so much. Have a great and safe new year. Francisco blant He is bake of America ahead of global commodities and derivatives research. Joining us here, Lara Ray, Let's bring her in right now, FS Investments Chief US Economists And let me start Lara with the Devil's advocate with the other side of this um. At what point does the US spend too much money? At what point do uh does the US take on

too much debt? Because there isn't really a magic money tree, right, I mean, at some point you just can't keep handing out checks to American citizens. Well, I think if we've seen anything. Instead, if we wait too long and we wait until the economy is really you know, experiencings, it's a really cataclysmic disruption that we then when we're when we're performing legislation under triage, we can at that point

do too much or be I think less targeted. The real point is that if you can enact legislation earlier, you can afford to be more thoughtful and you can be more targeted with it, and that just diminishes the way to diminishes the need for these multi trillion dollar huge packages. I think the point that Carol made is really important, which is that you know, right now we're still we're seeing these delays that really risk I think

making the need so much more inflamed. At that point, you're trying to just fill a bigger gap, it gets more expensive, So doing less earlier really gets you further. Well, and the thing is, Lara, this is all about you know, this is gonna show in the economy in terms of the economic growth figures, which are always lagging, or a lot of them are. But I mean there's another story on the Bloomberg. Millions of Americans are calling in six

stunting the recovery. The whole idea is, you know, there are a lot of lost days and that plays into productivity, and that plays into economic growth. That it's even stunting that, so layer that on top you've gotta be a little bit worried about growth going forward. I think that's right, Carol, If you know, we and and here this is kind of getting deep in the weeds on the employment numbers.

But you know, you look at initial claims and to your point, they've they've come down, but void relative to any other recession. They are so elevated even now months into this recession. And you add to the fact that so many people have left the labor force. We're going to get the big monthly payroll numbers next Friday, But one of the things that we don't usually pay attention to is that participation rate. All that is expressing is how many people are actually out there looking for jobs.

We've seen the unemployment rate calm down to less than seven percent, but bury beneath that is the fact that an awful lot of people and probably because schools aren't open. You can think of a lot of reasons why, or people have taken their elders out of nursing homes. You can think of a lot of reasons why during this pandemic, people have decided to stop looking for work so that

lower participation rate. Little things like that. You know, you cut a ten million here, ten million people there from the labor force, and when you think about what gives us growth, what gives us GDP. You know, those numbers just may not be quite as strong as a lot of people are expecting, you know, into the end of one or as we get that traction back online after the vaccine. So, Lara, do you think companies are going to hold off in terms of hiring even if they

expect demand to start coming back. I just wonder how hesitant do you think companies are going to be until they really see significant demand in This is gonna be a critical thing that we're watching in those monthly payroll numbers, because what we've seen is a really big decline in temporary unemployment, but we've started to see permanent employment rising. So I think something fascinating about COVID is that it's

really accelerated. So many trends that we saw prior to the pandemic, they just really accelerated rapidly, and one of them has been this difference between temporary and permanent employment. And so in a normal recession. This is not a normal recession, but in a normal recession, permanent unemployment really continues to rise throughout the recession, and it keeps rising afterwards because companies may bring back permanent or temporary. Excuse me.

They may be more likely to kind of hire people temporarily temp workers filling the gaps, but they're less likely to bring on that permanent employment. So in that regard, what we're seeing now is actually playing out more in a more normal cycle, and that's troubling. You know, we really need to see companies bringing back those permanent jobs that offer households job security. That's at the end of

the day. Over long cycles without stimulus checks, that's what really burnishes the household confidence of consumer competence that drives our economy. Uh. You know, the thing most troubling to me has been people close to retirement or or planning to retire now they're not getting any kind of return. And you mentioned in your note one of my favorite books from childhood, The Giving Tree. It's so depressing when

it's completely cut down. Um. And you compare this to the fixed income market, for what do you see happening with the tenure for example next year? You know, so many people are looking ahead with really optimistic growth outlooks for one, and I think you know a lot of the forecasts around four percent are very very reasonable, particularly in the second half of the year if we really

get the distribution of the vaccine effective. But here's the real problem, right, long term interest rates are still I think, going to be trapped at really very near these historic lows because on the other side of it, you're going to have continued quantitative easing from the Fed. You're going to have continued, I think, uncertainty about the direction of inflation. A lot of people calling for this big reflation play next year, I think are really getting out over their skis.

The reality is, although you had you had, you had that to some extent now and this is really larah what the FED is trying to you and and the e c B and everyone else. This is financial repression, right because they're pushing even retirees out the risk spectrum. So to get back to my mom, you know she can't be holding fixed income right now at sixty eight. I can't remember exactly how old she has, but you know she's got to be in equities. And this is

you write about the liquid courage. The Feed is enticing these people to go out there and at least in it's been thankfully a good a good move. Oh absolutely, And I think you know the point of of the the idea of the giving tree, right, this tree that was fixed income that gave us growth and income and diversification. You know throughout the decades, back when interest rates were seven percent and five percent and even four percent in the two thousand's, you know it's two thousand times we

really saw that fall flat. At the height of growth that we had in two thousand seventeen eighteen, rates were two and a half percent. Know, now you're less than one percent on the tenure the Barclays bag is you know, one point to five. At the end of the day, you need more. So I think, you know, this is an asset class with trillions of dollars still in it

or related to it. So investors, I think this scheme of trying to get more active around income is just going to continue trying to push further out the incomes by right, lower duration, all those things we're gonna keep going in Lara Ram, we will be talking with you, no doubt. Have a happy New year, Stay safe, Lower Ram. She has FS Investments chief US Economists. Let's see what Dr Deborah Fuller, University of Washington School of Medicine, Microbiology professor,

this is her world. See what she has to say, Dr Fuller, nice to have you here with Matt and myself. When you look at the headlines that are out there on a daily basis, it's kind of hard to keep up. It's hard not to be overwhelmed by what's going on when it comes to COVID. Uh, what is top of mind for you on this Thursday morning, on this New Year's Eve. Well, the top of my mind is as quickly as the news is changing, so does the virus. As we know, this new viral variant that came out

at increases transmission in the population. That's at the top of my mind, because that really does impact things like how quickly we can get to her immunity, and of course raises a concern about increasing the number of the cases in the worldwide and the burden and our hospitals. How quickly can we get to her immunity, Doctor Fuller, can you give us maybe best case um scenario, worst case scenario? Well, as I mentioned, that keeps changing her

community depends on two different variables. That is the level of vaccine efficacy, which is quite high for some of these vaccines, and that's a good thing, but it also changes. It depends on the transmission rate of the virus which

ship because of these mutations can undergo changes. So we've heard anything ranging from sixty to of the population will need to get vaccinated, and how quickly that happens will depend on how quickly we can roll out these vaccines and get them distributed in in addition to getting new ones license like we're seeing this this uh aster Zenica just recently just got their vaccine license in the UK.

One of the other things that really worries me as someone who has had line dosease like four times, what are the long term effects or what do we know now about the long term effects of this disease. Well, there's uh, there's uh two different, two different things there in terms of long terms effects of the disease as something we're going to have to be studying for quite

some time. But in terms of long term effects of the vaccine, that's a lot of new data is starting to roll out that we're seeing um as we study the vaccine further, that immunity seems to be last seeing potentially up to six months after immunization. That's as far as we've gotten so far. Hopefully it will last at least a year or more, so that when you get vaccinated, you can at least anticipate being immune to this virus

for for ideally a year or more. Right because we need that because it's going to take, as we know Dr Fuller, a long time for everyone to get vaccine, and right now we heard from president like Joe Biden, he's worried that it could take years at the current pace that we are, So we need that. Having said that, I want to go back to the variant because that's the one thing that just kind of unnerves me every morning. Could we get to a variant that doesn't respond to

the current rounds of vaccines. Well, if a virus can, it will That's something I learned a long time ago

when I was studying virology. Uh, it is quite possible it could attain mutations to be resistant to our vaccines, but we don't anticipate that would be easy for the virus to do because the vaccines were designed with this in mind, with the fact that viruses do undergo mutations, and so it will be very difficult for this virus to get the number and the right types of mutations to be able to invade vaccine immunity with that set

is possible. And one of the good things about the types of vaccines were developing here, the RNA vaccines and now these add no virus based vaccines are very quick to update if if needed, if a new variant comes out that is resistant to our vaccine induced community. So I have to say, there's a story. Um. We were talking about it in the break before we got going you um, me and Matt, and it's saying it's by our Bloomberg News team China, making it harder to solve

the mystery of where COVID began. How important is it that we understand where this COVID nineteen virus specifically came from, to make sure that we truly understand it and can kind of plan for others to come because others will come right at absolutely UH. This is something about viruses. They they do transmit. One of the most common ways that pandemics will start is a transmission from UH an

animal reservoir, from particular animal into humans. And understanding how that happened that something that scientists will continue to studying. We're still picking at that, improbing at it because it's so important UH to learn about that to be able to hopefully predict the next one and stop it before it gets to this point. Dr Fuller, one of the conversations I'm having with everyone in my world is, Listen,

I'm just exhausted by this year. I know I have to be good because we're we can kind of see the finish line. Having said that, it's still going to be probably a couple of rough months in terms of our economy still being shut down. What do we need to remember as we move forward, more people get the vaccine, those basic things like social distancing, masking, that's gonna be with us for a while. That is going to be

with us for a while. But hopefully with these vaccines coming out, we're going to start to progressively see an impact, hopefully and reducing the number of hospitalizations. We might see that earlier on, even as it takes time to distribute these vaccines and get that into enough people, and during that time we all have to work together. This is now in the hands of the people of the population,

each and every one of us. We need to do our part in getting vaccinated and and uh keeping to the practices, the social discipline and the masking UH to to get this under control. Yeah, if I think about COVID and this year. I think one word that comes to mind over and over again is all about community. It's not you know, you've really got to think about those around you, your community in terms of getting to a post COVID world. Dr Fuller, thank you so much.

Have a good new year. Dr Deborah Fuller, University of Washington School of Medicine, Microbiology professor, joining us now to talk about all of this in the future relationship with the US and the UK's Karen Piers, she's UK Ambassador to the US. Ambassador Peers, thank you so much for giving us a bit of your precious time, Ambassador. When you look at what comes to with the President Trump now out of the White House, does it mean that it's less likely for the UK to to get a

quick deal with the US. Well, I don't want to be presumptuous about the Biden administration's policies and priorities, but we believe this deal can be done. It can be done in twenty twenty one. That said, we don't want to set a hard deadline. Much more important to get a good deal with with lots of good content. It is. It is a good deal. It's a bit spoke deal. It wouldn't take too much bandwidth to get it through Congress, and we'd be delighted to work with the Biden administration

if there were particular angles. Some people have mentioned labor, some people Paul have mentioned climate that they would like to see included. But it is an interesting deal that's for the first time. I think we'll have digital commerce as as part of its its content, and that's given where we are. What would be the UK priorities for a US deal, for a deal with the United States of America on trade. Well, as I say, we've put a lot of effort into what making this deal concentrate

on digital commerce, that's the way of the future. We've also put a lot of effort into small and medium sized enterprises. Both our countries depend very much on that type of business. But I think that sector is also pretty crucial for COVID recovery, and another reason to do the deal would in fact be that COVID recovery. We want to send an early signal in one of our confidence in economic recovery across the globe and particularly in the UK and the US. Have you been talking to

a Biden team already, Um, not directly. The transition team have a dictum of one president at a time. They've made it very clear they don't want to talk to foreign governments, and of course we respect that. And for all the Americans who have been nominated for cabinet posts, they of course need Senate confirmation and so we would not be able to to talk to them, and that's fine.

That's a standard way that American administrations operate. Instead, We've talked to a lot of people around the Biden team, and we talk a lot to people on the Hill of both parties, and we do find a lot. I find as I go on the hill, I get a lot of support for a UK US free trade deal. And also when I'm talking to governors around the country,

there's a lot of interest. Thirty three percent of I beg your pardon, thirty three out of the fifty states have exports to the UK in their top five export markets. So there's a lot of interest in a deal with UK, that's right. I don't believe the Prime Minister Johnson has ever met Joe Biden. Are there any plans for an early meeting? Um? I don't think they have met, though the Prime Minister has met a number of Democratic UH

contacts very close to the Biden team. Part of the Biden team, and I think that includes from memory, the incoming Secretary of State Tony Lincoln if he gets Senate confirmation. But the Prime Minister and President Elect Biden did talk on the phone very soon after President Elect Biden declared victory. I think the Prime Minister was the first European leader to speak to the President elect. They had a very warm conversation. They talked about a great many things, including

the free trade deal. They talked about Northern Ireland and the importance of upholding the Good Friday Agreement in Northern Ireland, and they looked forward to working together on climate in particular and on COVID recovery. And the UK will take the G seven chair from the Americans in January, and COVID recovery is going to be at the heart of what we want to do and we think that will

chime well with President elects Biden's priorities. I don't know if you were on that car between the two leaders, but what was the chemistry. Like I wasn't on the call. This was handled directly between the two offices, but I have had a read out. I have talked to the Prime Minister. I think the chemistry was was fine. Both of them are very affable people. They know the importance

of personal relationships. They have a lot in common in terms of what they want to achieve in twenty one, so I think the atmospherics were warm, they were friendly, and both of them agreed that there's a lot to do. We can do that together. Very important that we work closely together on climate. Very welcome that President elect Biden has said he wants to bring America back into the Paris Agreement, and that's it appears. What what do you see as the biggest or or you know, the biggest

challenge for the UK US special relationship. I think the biggest challenge, to be honest, is making sure that we see the new challenges coming down the track in one and beyond for for what they are. And I think particularly of technology in this respect, I think we're now standing on the threshold of of a major transformation in technology.

I personally would liken it to the effect that nuclear had in the nineteen fifties, and I think we're really going to have to get to grips with that using all our innovation and science cooperation charting away to make sure that as we develop this new technology, it develops onlines that do justice to open societies and open markets. We don't want, for example, to wake up one day and find that there is Chinese standards on things AI and cyber that will be too authoritarian. We want to

have an open model. And I think the second, the second big challenge is the strategic competition from Rasia and China, particularly China. We need to get that right again so that it's open societies that are seen to thrive and recover from the COVID pandemic. And do you think the UK and the US will actually work hand in hand to tackle some of the challenges that you just laid out, Oh, definitely.

I mean there's a very deep, profound, successful relationship between the UK and US that has endured since the end of the Second World War and in fact before that, and it doesn't depend on individual leaders on either side. And one of the layers of that bedrock, if you like, is science. It's innovation alongside the defense and military cooperation. But this is not an exclusive enterprise. There will be a lot of countries we want to work with the

great democracies of the world. We want to work with them to ensure that open societies recover from the pandemic and can go on to tackle some of these really big challenges. And that's where maybe just as a final question, given we're, you know, towards the end um just just twenty days really of the Trump administration, what do you think President transgradest achievement has been. UM. I think the

normalization of relations with Israel from some Arab countries. I think that will prove to be a very important step forward in the Middle East. It's a bit hard at the moment to say exactly how events will unfold, but I think it's a very important achievement and we were happy to salute it at the time. It provides the basis on which to build try and bring peace and stability to the Middle East. UM. I think before COVID struck,

President Trump president get over a thriving economy. That's also something to look back on and think about how America can restore at that level of economic dynamism after the pandemic. And I think what President Trump did on the opioid crisis was also very commendable. All Right, Thank you so much for your time today, Ambassador Karen Pierce, UK Ambassador to the US, joining us to talk about a number of things, Brexit and the US and UK relationship forward.

Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.