Surveillance: IMF Boosts World Growth Outlook

think gets a little bit more interesting. Downgrading Europe and upgrading the United States get to go up and f the IMF chief economists right in the following Much now depends on the outcome of this race between a mutating virus and vaccines to when the pandemic and on the ability of policies to provide effective support until that happens. Get around, please to say joins us now get it. Thankful you time this morning. I know you're exceptionally busy.

Let's just start with that breakdown on the regional side. What was behind the upgrade for the United States and the down grade for Europe. Firstly, it's a pleasure to join you. What we have is that in the case of the US, we ended twenty twenty with an additional uh stimulus that was provided and that is an important factor for the upgrade for the US by almost a percentage point in twenty also ended in some way in a you know, less worse place than what we had

projected for the US. In the case of the Euro Area, we still have a strict containment measures in place. This virus resurgence is leading to a decline and mobility, which is much more than what we're seeing in the US, and that's part of the reason why because we have a downgrade for the first quarter in the Euro Area. For the year as a whole, we have a down grade for twenty twenty one. So I'd like to start in the United States and the stimulus effort and then

we can turn to vaccines. It's what's happening in Europe. So I want to stimulus effort. N billion is what you baked into the outlook the one point nine trillion. Is that just a little bit extra for you gatsor what would that actually do to the outlook? And is it targeted enough? So of course the details, I mean, it still has to be completely settled, so it's not

in our focus. We have a very preliminary estimate that says that about one point nine trillion stimulus would raise the level of US g d P by five pcent over three years, So that's between twenty one and twenty three. UM. I mean our view is that, of course we are still in the midst of this health crisis. There is need for much more faster vaccine rollout, force health spending including and testing, UH, and also for providing support to vulnerable households and businesses and so you know, all of

those are important pieces that have to be addressed still. UH. And so so you know that those are support measures that should be provided five over the next three years that decent numbers, But get basis on the size of the program one point nine or is there some specifics about the composition of it the I M F likes and would like to see more of. So this is uh, you know where you know, I'm just making a statement about our estimate impact of one point i triuly and

would be able three years. I mean, that's a fiscal wants to player point six just taking into account what we know from a previous data on how much of it tends to get saved based on the package that was was you know, was talked about, but again the details still have to be worked out, and so we'll

see what exact shape that finally takes. One thing you've said in the outlook is the mutations the new strains, And I just wander from your perspective, whether the strains that we're seeing in the United Kingdom, Brazil, South Africa actually raised the bar to reopen these economies gets So

how do you think about those things at the moment. Yeah, I think what it tells us that, you know, while stay at home is difficult and social distancing is difficult, we know that the the chances of the various mutiating is higher when all of us are out there and you know, mixing, and so I think this is an additional reason for for you know, kind of being very cautious about going out and very and very important to

wear masks and so on. So yes, I think we have to, you know, continue to vaccinate a very high basic It doesn't change what we need to do. I think we'll we still need to do is simply to exhilerate the pace of vaccine rollout, but also now we have to just make it available to the world as a whole. I mean, the way it is right now is terribly inequitive, and we know that the virus mutication can come from anywhere in the world. What you're building

them right now, the gator is absolutely critical. The conversation of having at the moment almost every day with market participants. It's just relative growth differentials between Europe the United States. The vaccine rollout is good here, it's bad there. One will do okay, one we'll do better, the other one will do terribly. Would you be willing to make the argument now that if we don't make a bigger effort to vaccinate those outside the developed world, that that ultimately

will drag down the global econom at some point anyway? Well, absolutely, I mean the arguments are obviousible on the health side, on the economic side. On the health side, because of these new variants, we just know that the pandemic is not over until it's over everywhere. But there's also a

strong economic argument. I mean, we estimate that if you can get to a faster into this health crisis by much more widespread rollout of vaccinism and therapies, you know, we would add nine trillion dollars to the global economy between twenty twenty and twenty five and everybody benefits, including the advanced economies who stand to gain four trillion dollars around four trillion dollars. So this is, you know, a

very strong economic case for doing much more. Now, final question gates there is a take amongst some people, especially at markets. It seems to be a belief that if we have to delay reopenings by an extra quarter or so, it doesn't matter, it won't be growth loss will make up for it at the back end of the year into two as well. Do you see it that way?

So there's a couple of things. Even if you just look at when you have a lockdowns, the effect of that on economic activity is much lower than what we had in the spring last spring. You know, if you look at, for instance, relation moving in mobility and economic activity in the U S. Mobility has barely knew that much, but economic activity has continued to recover. So countries have gotten used to functioning with social distancing in place, so

the effect is going to be less severe. And indeed, I mean, for many economies were wanting your higher savings rates in the among households so you could rebound. But again I just cannot emphasize enough the uncertain team. There is so much more we still need to know about how this pandemic evolves. I think that's a message that resonites with a lot of our audience. Kata, thank you for your time. It's precious getting golopment at there. The

I m f Chief economist right now. And this is a joy, folks for those of you that aren't speed on United Kingdom academics. If you're John Pharaoh, there's a point where you must learn rawsy injustice. It's what they do in terms of theory in the United Kingdom. And right now, one of our experts on human rights and its application to our public health in our law, Lawrence

Gonston joins us where Georgetown University. I want to go back to your book Human Rights, Professor Gonston, and I want to talk about the shocking change in philosophy without saying Republican or Democrat, but this tectonic shift we're having right now in the perception of American human rights on this transfer of government. Your observation, please, wow, it's like not in day, isn't it. Um. You know, all of a sudden, we're you know, we're back to the truth.

We're back to freedom of expression. Um, we've rejoined the World Health Organization. UM, We've rejoined the Climate Change Agreement in Paris. UM. So there. It's really been a tectonic change from the last administration. It's kind of almost like a whip saw, you you know, go ego from one to the other. I think that the big thing is, you know, whether American allies are going to think, well, gosh,

you know, is America here? Is this one America? Or is this two America's where we see the old America again? And it's you know, we don't know that. Well, this is vitally important. And this spans your career of the Reagan and the Trumpian individualism of less government or indeed no government, uh somewhat outitorialized, Professor Gunston, Do you see a shift here in an end or diminution of what we got from Ronald Reagan? Yeah, I mean, you know, if we're we're in the middle of we're all kind

of suffering. During the break, we were just having a laugh about how COVID has completely gripped and changed our lives, you know, and if there was ever a time that really government has come through for us, the government failed for sure in the United States we were no match for the virus. But then you know, government public private partnerships through science pharmaceutical companies, the nih UM we ended up with. You know, we we we the science was

the match for the coronavirus. We've got this vaccine um in we've never seen it this quick um and we're now poised by the end of the year um to think that we might climb our way out of that. That was that was a partnership about what government can do with the private sector. I think that the new way that we move forward in America and globally are really public private partnerships. Their nimble um they get the

best of both worlds. And you know, the proof of the pudding is is that now we're starting to get you know, vaccines and people's arms way too slowly, but that will improve. That's what I was going to ask Professor Gostin. How do we turbocharge getting vaccines and people's arms. You know, we we've been able to do it before. It's really kind of shocking to see how badly we've

done in the United States thus far. But you know, if you think about you know, polio in the United States, where we went through a massive campaign, or if you think about UM the current polio eradication UM which the United States UH is spearheading, or that we eradicated smallpox. I mean the way to do it is you open up a lot of vaccine clinics. You get mobile units to go into rural areas, into elderly vulnerable people's homes, into prisons, nursing homes. UM. You have UM drives right now.

What's the real problem with the American rollout is is that it's just far too complicated. You have you know, you just talk to any of your friends and they'll say, well, you know, have you called this number, have you been on this website, did you try you know this pharmacy, are you in this county, this state? UM. So it privileges the people that are tech savvy, that kind of know their way around, but the people who really need the vaccines really really can't compete in that kind of

a way to search for them. So we know we need to search for them, they don't need to search for the vaccine. Looking forward, Professor Gossa, there's a question of whether what we have seen over the past two years, year and a half will turbo charge investment in pharmaceutical companies in the development of new drugs and new biological research. And this comes as Israel gets a headstart in part

because of their production of some of these vaccines. Do you already see the groundwork being laid for more investment, both on the public side as well as the private side, for this type of development. It's a really interesting question, you know, I mean, I think, I think pharma is you know, you know, certainly come come through for us on this UM. But on the other hand, you know,

pandemics are funny things from an economic point of view. UM. The reason companies don't invest in them, and the reason that the public doesn't invest in them is because they're so unpredictable. Um. You know, it's very possible that you know that the next uh novel coronavirus or novel influenza, UM, and we'll we'll we'll jump from an animal to a human and then we'll just get it right under control. We're and and a lot of money putting into vaccines

won't work. And so what what what the new thinking is is is that we develop with public private partnerships. You you need public investment for this platforms, and so the platform can be there, and then when the pathogen comes, you've already got kind of a way to a tackle it. That's exactly what Fiser and Maderna have done with their messenger RNA vaccines. You know, they started out as platforms. We were looking at them for things like um the stars virus, and then when this came, we were all

ready in the way ahead. And I think that's the future. Professor come back saying, great to catch up. Professor of Georgetown, Thank you very much. Let's stuff tell this together with Mr Burlin's comments with Fiser and bring it over to Tina Fordham, Avener's partner and ahead of Global political strategy. We do this and welcome all of you on Bloomberg

Radio and Bloomberg Television. Tina, I love how you address in your note the walls of worry of January, and you make very clear they're not going to be the same as the walls of worry of Q three. The market right now is looking out at the politics of the third and fourth quarter of this year. What will it look like? Well, I think your previous speakers have have already taken us through some of the obstacles to the rollout. Um. I've been talking about my VACS popular

thesis for a while. I think there's phase one and phase two. The phase one is the logistics, the government capacity that the like willingness UM plus the risk of mutant strainings. But I think the second phase is that periods um following pandemics tend to see more political disruption and extremism. And whether we're thinking about the capital riots and Black Lives Matter or that we're anti curfew protests in the Netherlands yesterday, this is going to be a

volatile period as we look to get this under control. Tina, let's talk a little bit about the politics of getting the vaccine out. There is a question of what went so wrong in the European Union that they are so delayed there so behind the United Kingdom, the US and places like Israel. Does this raise questions about the integrity of the EU as a social experiment if they are unable to plan on a routine and mass basis for their population to be inoculated. Well, I think that's a

particularly American point of view. Um. The US has just started its role out and UM, you know, it's kind of starting from from nothing. The UK here where I'm based is is very pleased that it's out doing Europe UM so far, part of the logistics, part of its government capacity, part of its federal universus, regional infrastructure. UM. I do think the EU will get there. I think there's not any reflection on the EU as a as

a social experiment. UM. As you suggested, UM, the U S and the UK still have the highest death rates out of the countries that we mentioned. UM. The UK, out of all of the countries that we're talking about, also has one big advantage, and that is a higher rate of willingness to take the vaccine, which is helping

and approval it approved before the EU did well. There's a question though, Tina, about the conservatism in the European Union approach and not necessarily going as aggressively after the vaccines as early in prioritizing the price and trying to be sort of more democratic about the whole situation in terms of who gets the vaccine, and it isn't necessarily working in the same way. What kind of political reckoning will there be in Europe as a result of this?

I think when I you know, my conception of this vaccs. Popular risk idea is where there is a combination of high futalities um a slow rollout plus or minus this

vaccine hesitancy factor and elections coming up. So if we put that kind of lens over countries at risk, France obviously comes out, you know, quite quite near the top with parliamentary elections this year, presidential next, Italy always because Italy has got kind of all of the risk factors and the government there is certainly starting to to wobble.

So it is imperative that governments find the capacity to to roll this out and they regain the advantage on competence because that's the biggest political risk factor in the government incompetence. Tuna Fordham, thank you so much. With Evan Hurst, partner and head of Global Political Strategy, worked Green on the screen today, Tom and why not the Federal Reserve back stopping this market. A lot of folks are saying,

have I missed my entry point? I've talked to a few little have I missed my I'm getting solo Chris. Heisie Meryl and Bank of America Private Bank Chief Investment Officer. Chris, thanks so much for joining us here. You know you take a look at this market. You see Tom's favorite investment vehicle, SPACs almost on a daily basis, coming to the market. You see Robin Hood retail traders pushing stocks all around the board like game stop. Give us a sense of how you view this market in terms of

the frothiness if you will, in this market. Yeah, I think it's a subject that it really started to take off in no member of last year when small caps had their best month ever and the whole head fake, you know, the Michael Jordan's head fake of investing started to go away, and people started to believe that cyclical can actually extend some of their rally. And then now we talk about offering three, four or five six a week.

We talk about, you know, what's going on in the big story, little profit stocks that are out there being bit up, the high enterprise value to sales companies that are about a quarter of trading volume in the US.

And everybody remembers when or at least some of us remember when right um fall in terms of but I would point to this, you have to look at policy, You have to look at what are the tail winds that are driving not just the thin parts of the market that the risk areas that are suggesting, you know, quite frankly flashing orange as you As you pointed out, the sentiment indicators are clearly at highs right now. For all this is out there, there's a lot of discussion

as to did I miss it? Valuations are high, but earnings are low, and mathematics tells you that when earnings are at a trough, many times valuations are going to be high. That's where we are right now. I would think differently if earnings were at a peak and valuations were high, and thank you so much for that analysis. I would point out, folks, Microsoft, Paul taught me the symbol and the break Microsoft here with a jump condition

out to two thirty two. I believe that's out to a record high Dow well over SPX were on watch, Chris. That's all great and well, but the way this always ends is a cathartic move. Do you see an emotional catharsis right now that leads you to say tippy tippy top yea not yet, not yet Tom. It feels that way because of headlines. It feels that way because of focus that we read and whether you're talking about the

short squeezes that are going on. But actually, when you talk to individual investors, and you talked to to folks out there that are in the market already but not participating as much, they don't believe that there are no risks out there. They still build the five top risks. They're still worried, they're concerned, and they're marching too risks. Still, they're not coming into the market blindly, and that to me means that whatever pause is coming at whatever time

is a temporary pause and it's not the tippy top alright. So, as you talked to the thundering herd at Mary Lynch, that huge retail brokerage force across the country, here, what is the risk appetite here? Um, Chris? Are they willing to continue to take risk in this market that they are they playing that reopening trade in the back half of this year. It's a fantastic question because it does give you a really good feel for not only the

client side, but the advisors side. And from my perspective, what we have done and we always do on a quarter basis, as we we write down what are the big questions out there and what's the mood. The mood is cautiously optimistic on the economy, but cautious on the market, so they're waiting for that. Things are not only okay, but we're not walking into a pullback of say ten percent, So there's still a little bit of trepidation out there. There's cash on the sidelines, and I know cash has

come into the markets. We saw the record flows go in, but if you go back to oh eight and even two eighteen, more than of all flows are still into fixed income. So on a relative basis, you know, in about six percent eight percent or so into equities, So we have a ways to go here. On a longer term basis, shorter term, I would paint the mood as there's cash out there waiting to invest. Advisors and callience are cautious, but they're optimistic on the economy. So Chris,

what do you think about this rotation trade? It's really becoming to vote here, and it's you know, we're kind of four to five months into this trade where people are willing to look to the other side of this pandemic, look to an opening of this economy and saying, hey, I'm gonna take some cyclical risk here. I may even go small cap here, looking for value and looking for performance. How do you view that trade is? Is it something we can depend upon you know going forward? We believe so.

We we just upgraded in January small caps two more of an overweight. We had a slight overweight. We were waiting for some data to come through to make sure that there was more of a secular trend at play, not just an ultra cyclical trend that we saw to close the year. UM, we upgraded, UH, Financials and industrials

and materials as well. UH, those areas you know, provide a little bit more cyclical value and growth quite frankly in those areas, and we are upgraded, and you know, we closed out of merging markets underweight and we went to neutral. The point is you're in the market, right. How many people do you see his Paul mentions at Marylynch with the sprawl of your retail and institutional and high networth people, how many people are just flat out

not in the market. It's tough to tell. UM, I would say a low point are flat out not in Uh. There has been a small increase of of of a risk budget if you will, Tom where you've saw people, you know, because of a backup and yields lower, some fixed income allocations raise, some equity allocations. But on the margin,

we didn't see a huge know that so called great rotation. Yeah, we do believe though, that one is a great rotation foundational year for those long term institutional accounts that I had going to have a hard time matching total return targets. As you'll back up. I mean, Paul, just to put this in perspective, is chriss You know, I'm so used to the gloom of Lisa Bramo. It's that gets through it.

But a ten percent correction here, obviously three thousand down points get you back to November six, it gets you back to the second week of August, and it's just beneath the peaky peak we'd never see again Valentine's Day pre pandemic. I mean, the only thing I can say constructive, Paul, from my entry point is a ten percent correction gives me beneath the nirvana of Valentine's Day. So, Chris, how about for the for the folks that feel like maybe

they've missed the market? Who would that be? What's your advice for those folks? Chris? Yeah, I think it's tough. We all point to dollar cost averaging, we point the seasonality, we point to the calendar. I think use the capital markets as your friend. I know that sounds like it's

easy to do. It's not. But if you're disciplined and you actually point to week periods in the market, as Thomas suggesting, you know, don't wait for that large invitation to the so called party, wait for the small invitation and figure out what your target is. If your target here at sixty deployed to three on weekdays, week weeks over the course of the first quarter, and from our perspective we see the Maverick bull market. We call it

a Maverick bull market continuing because it's independently thinking. And that's what, from our perspective, is the more what I would say, expective way to deploy money into the market. Chris, as you think it's so much for the Marylynch and Bank of American Private Bank. 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