Surveillance: Near-Term Risks With Doll

in mind that you can remain constructive on? Six months? Twelve months? What is it, Bob? Yeah, it is literally six to twelve. I think the New York term is a little more treacherous. But we don't have the signs of recession. Unless we have a recession, it's hard to see a big down move in the market. So I think we're gonna tread water with a lot of volatility in both directions as we sort out what used to be a pattern that was almost all positive. Now it's

just a bit more mixed. For example, inflation is not all transitory. I hope everybody finally gets ahold of that one. Yeah, but I love what you have in your note, uh, Bob doll and that as you talk about technology related disinflation, the advantage we've had from technology, are you suggesting that's over? Not at all, Tom, I think that will remain a powerful force to keep inflation from getting really out of hand.

But when you look at wage rates, that's the most insidious hard to get out of the picture inflation, and it's very prevalent now that on top of just go shopping and you see what the story is exacerbated by the supply shortage you folks coverage just a minute ago. So how important, Bob, is the jobs report that we're gonna get on Friday to you? I think it's very important. The Fed seems almost unilaterally focused on the jobs from on and kind of pushing inflation to the side, not

worrying about it. I think at some point, as the employment numbers continue to improve, inflation will come front and center for their fight. All right, So the idea of the job's report, would you say that it's more important than earnings because a lot of people are saying that almost matters less than earnings at a time when the big question mark is not the Fed, which is said it's very devish, but rather margin pressures and how much

they're exacerbated by the supply chain disruptions. YEA. For the economy, employment is all important, but for for the markets, it's absolutely about earnings. And as you as you talked about earlier, there are a lot of question marks about third quarter earnings. For sure, we're getting a deceleration from the unsustainable record second quarter. The question is will companies be able to sell what's the supply shortage going to mean, how they're

dealing with price pressures. I mean, even in the second quarter reports you saw a big increase in the number of companies commenting on the pricing up problems that they're having raw materials, etcetera. So lots across currents here. My guess is the earning season will be more mixed. So, Bob, going forward, what is your expectation in terms of what you will change in your portfolio? Because right now you are bullish on stocks considering the fact that we're not

going to get a recession. However, is there some scenario that you see as potentially likely that could change that view? So, so, the mainline story is that cyclicals and value are cheap and have some tailwind relative to growth and momentum, and high p e stocks and if inflation interest rates creep higher, you know what part of the market struggles with that.

That's the high high pet side. What we get in the way of that is we saw problems that the economy was slowing more than people thought that there's unbelievable pedal to the metal. Both monetary and fiscal policies is not having the effect that's been having. I think that will continue to carry the day, Bob. I would guess you have seen four times o MG margin contraction, margin pressures. We're all gonna die at the sort of the income statement. How do you respond to that if you're an investor?

So so, I think that those margin issues are for real toend to be paid attention to, particularly light of profit margins. Seemed like quarter after quarter have come in better than expected and reached unbelievable heights all time pies. That's probably not sustainable in the long run, Tom, And therefore I think a long term look at Ernis has to have a profit margin picture that's a little below

where we are today. The worries about these margins into this quarter, Bob, I'd love a playbook from you on what to buy on weakness as this earning season starts. I think that's got to be the focus right now. If you want an investor committee and you're thinking about these issues, you're looking around and saying, well, everyone's till about the same thing right now. Where do I want to fight this story? How do I want to fight this story into earning season? Bob? How would you like

to do that? So into weakness the first part of your question, I want to own what I think is gonna work best over the next six to twelve months, and that is cyclical value, downtap international I think they're the places where the puck is going. So financial stocks, for example, you've seen them as interest rates have crept higher, do a lot better than you might think in the decline we've seen in the market from its highs of just a few weeks ago. So that's the kind of

area I want to jump onto. I have a lot less valuation risk there than I do in some of the higher pe growth stocks have done so so well for it seems like forever, Bob, It's been forever. It's been too long. It always feels like it's too long. It's quite a catch up set as always, Bob, Dell

Cross Mount Global Investment c I YEA. What it really is here early October is the linkage of an economic belief into an equity or stock market execution on the economics, Bruce Casmin joins with JP Morgan or chief Economists and a head of global economic research. Away from stagflation, Bruce Kasmin, what does the JP Morgan call on economic growth forward

a year? So? I think the broad pictures that we continue to get the benefits of vaccinations proving effective, of the virus becoming less of an economic factor, growth rotates away from the US, and we see better growth in emerging markets over the next year. But growth is pretty solid. However, as you were noting, we have a threat right now that growth is decelerating in the US, inflation is moving up. There's important drags here that we have to be right.

We get over with still pretty solid growth over the next few months. I think all of our listeners and viewers can be confused about a fairly optimistic economic outlook uh from JP Morrigan, But my go Faroli's potential GDP, which is much lower, but just up against your arguably top of street optimism on equities from Michael Faroli to Lacos Bougies. I mean, are those two views linked well. I think in the near term, the basic point is we still have an enormous amount of slack in the

U S economy and the global economy. We can grow even with what we still believe is a relatively weak supply side and one that might have gotten earth by the pandemic. I think the question, in the more broad sense and for the equity market, is not so much about the pace of growth but the sustainability of growth. And on that front, we are very optimistic that we're coming into this expansion with healthy balance sheets, supportive policy UM, and that the vaccine still creates an opportunity for a

lot of pent up demands. So potential growth is low. There's a drag that's hitting us now, but there's a good opportunity here for having an expansion that is both sustainable and modestly positive in terms of delivering on the Fed's goal of raising inflation. Bruce, how much is your view predicated on supply chain disruptions getting resolved pretty quickly? Um. I don't think we should expect them to get resolved quickly, but I think we're very much dependent on them starting

to moderate. The pressures are a big drag on growth right now. We should we should recognize that. And I think what's key in our forecast is that we see those pressures a bait. We see some of the inflation begin to come off. Here, purchasing power lifts and goods get moved around the world more easily. But this is going to take a while, probably six to nine months at least, before we see them the problems start to really move away from the scene. So this is what

I'm really struggling with. Six to nine months and we're seeing the likes of Nike, of fed Bath and beyond fall dramatically after reporting their expectations for slower sales or higher margin pressures due to some of these supply chain disruptions. How can you still be optimistic, not only from an economic perspective, but a corporate health perspective when their faith seeing these sort of unsold items that cannot be acquired simply because of these disruptions. Well, I think the underlying

story is that this is a drag. It's a drag which has continued to get bigger. It's a problem not just for consumer purchasing power, in terms of price increases, but for the corporate bottom line. But that there's still this broad story. I mean, we've been downgrading global growth quite sharply in the last few months on a result of this. We still have global growth running close to twice its potential pace in the second half of the year. So part of what's going on here is the pressure

that's coming as we're starting to reopen economies. We think that's going to continue. So you have a balance here pressure on prices, drags from supply chain issues, but still strong global demand. And you know, the question is do we have it right that says the U s economy is not gonna do as well as we might have thought, but could still grow three to four percent here over the next year, that the global economy is actually gonna do better than that because a lot of these countries

really lag behind. In the US, I think importantly China has to deliver on getting its growth back on course after having stumbled somewhat in the third quarter. And I don't want you to make a taibot called to four digits. That's not your remit at JP Morgan, But I do want you to talk about a broader, strong dollar resilient dollar e M. Fear that is out there. Do we underestimate the resiliency of particularly Asia? E M. Giving your house economic call? Well, I think in Asia there's two

forces that work right now. One is the China story, where there's been a very sharp slowing policy driven, and we have to be right that policy is going to calibrate to bring things back up. The other story, which I think is just starting to come into view, is that we are finally seeing vaccination rates up, We're starting to see restrictions come down, and Asia is going to be a pretty decent source of demand here. And I include Japan and include the emerging markets in Asia as

as part of that story. In that context, if we get the kind of growth we're looking forward Asia, I think the even with the FED moving to tapering, we're not going to see the dollar move materially higher here to move to Washington, Bruce Kasman, if we see some form of lessening or failure of these two bills by the Democrats in Congress, what does that do to the

fiscal impulse to this nation? So it is important that we are right in terms of our macro abuse, that we get additional fiscal stimulus, and we're looking for something that adds roughly one percent to GDP next year from fiscal support. If we don't get that, that's obviously a

drag on growth. And then you put war weight on the tension that we have in the macro picture between significant fading supports from this year's stimulus with the fact that the household sector has built up an enormous amount of excess savings. It hasn't spent the stimulus that came in twenty and twenty one, and to think about how much of that actually is a cushion. I wouldn't want

to depend on that in my macro forecast. We are looking for this additional stimulus, but certainly that would be needed if we're going to continue to grow at the pace we're expecting if we don't get that stimulus. US you've been doing this for decades, you've been in this industry. You see the amount of uncertainty that is here among

your colleagues. You even talk about the range of possible outcomes for a whole host of different areas, whether it's the policy response in China, the policy responds down in Washington, d C. With respect to spending, whether we see supply chain disruptions abait. Have you ever seen this amount of uncertainty in your economic forecasts? For sure? I mean, I think one thing we should remember is there's a difference between being an unprecedented times which this is really unprecedented,

and the degree of uncertainty. I don't see a particularly significant risk of the recession in the next twelve to eight months. I think the global economy is on reasonably good footing. I think there's enormous range of outcomes we can talk about on inflation, uh, in terms of growth, but I don't think this is a particularly scary time in terms of macroeconomics. And I do think that one reason we always see a lot of uncertainty going forward is because everything that has happened in the past has

actually happened. So do you think that traders are using economic projections correctly? When they start saying they keep getting it wrong, how can we trust them? And they start looking at the granularity is rather than the overarching point that you just made, We're not going to have a recession in the near term. One thing we can be sure is my economic forecast is going to be wrong. I mean, that's just the nature right now, will be wrong.

But I don't actually see when I look at the way financial markets of pricing an enormous amount of uncertainty relative to normal times, risk premium and bond markets, premium in equity markets are not unduly high here. Um. I do think there is a lot of uncertainty. The range of outcomes is wide, and we've gotten certainly more focused on the possibility for disappointments on growth going into the fourth quarder. But again, I think we're still well balanced

here for a solid recovery. Whether we get the recovery want, whether we control inflation. These are all important questions. What policymakers deliver or not are big questions. But I don't think we're in an unusually large range of uncertainty relative to a number of periods in the past, where you know, we were at the brink of recession, financial crisis, other

things that could have hit us. We're enormous uncertainty early last year when the pandemic first hit, that was far more hard to to figure out than where we are right now. Bruce fantastic cancer wits to hear from you economist and had of global economic research. This is a joy to talk of the moment in Washington, and also the larger picture is well. Wendy Schiller is it Brown University? She just director of the Tobin Center of American po

Politics and Policy. She also has the most readable seven hundred four page textbook, Treatment on America in a Democracy under Threat. John I. Camp convey to you the importance of Gateways to Democracy as an instructing guide for so many America. Let's get some instructions right now, Tom with Wendy. Wendy, great to catch up with you. We keep talking about these numbers one point five, three point five. Bernie sand is talking about something north of that. Senator sand is

looking for six seven three point five in a minimum. Wendy, how many people in American right now do you think know what's in this offering? At three point five? It's on the table, Johnathan as close to zero people in American know what's in this bill. It's been I think political malpractice, and strategically, you know, Ill advised the Democrats to keep talking about the number and fighting about the number and not talking about what's in it for most Americans,

especially since they're talking about a tax hike. On what they call upper income voters, many of whom live in the suburbs that voted for the Democrats and voted for the Democrats at least you know in some part in so if you're gonna go back in and staid reelect us again, but we're gonna raise your taxes and in fact we're spending it on stuff, but we can't even identify simply in thirty seconds or less. That is a very bad political calculation, which is stunning given the experience

you've got between Pelosi, Schumer, and Biden. Can we talk about whose fault this is right now, Wendy, who is at fault? Maybe a couple of names there, who's at fault at the moment for that, Well, I think the people are just named a certain thing. President Biden should have been talking about what's in this reconciliation package, not

just the reconciliation package. Certainly, Schumer, it's interesting, sure is walking into a tight line because he's up for re election in two and you never know, New York politics is changing rapidly. Uh. You know, he looks in good shape, he's gonna raise a lot of money, but you never know. So I think that's a lot of pressure on him not to sort of throw out all the progressive initiatives. But listen, you're doing features on investments in come and

EISI gonna make electric cars for example. That infrastructure bill, either Reconciliation or the infrastructure bill, we're not quite sure has some money. And for public charging stations for example, for electric cars, where are people going to charge their cars? And what are they gonna pay for that electricity? Nobody knows.

But if you're talking about going green and you're talking about electric cars for GM, then the government saying, hey, we're going to row out a free charging station for you, that's something Americans can digest. It's something they think, Oh, I drive to work, particularly in those districts that are competitive in the suburbs, and now I can drive an electric car and not worry about charging it. Wendy, are simple? I did that in lesson to seconds. It's the debate.

Can't do that? It's a mystery. Well, and this really is the question down in Washington, d C. Is this the debate over these details or is it this larger philosophical point of a headline number and a view forward for the Democratic Party as the new UH the new Party of a new deal. I think I think that's been lost thus far. I think it got You know, they did a lot of good things in the COVID relief package. They got a lot of people vaccinated, They

did another stimulus check. The economy seems to rebound now, the stock market and debt ceiling gets a little complicated this time of year. Of course, we expect Republicans, ultimately, as they always do, will go along with the debt ceiling or allow the Democrats to raise it. It'll just be brakemanship for a while, and that will rattle people

a little bit. But if you're a suburban voter who likes the Democratic Party and you're finding your fur own case going down this month, that they're fighting about numbers and that you don't know what's in it for you, but a potential tax cut tax increase is on the horizon, you're getting uncomfortable. Well, and this is not the right time for Democrats to have people get uncomfortable with their agenda, Wendy.

If they are committing political malpractice and not messaging this correctly, are they on the brink of political malpractice when it comes to the debt ceiling? When it comes to the idea of allowing the United States to accidentally default simply because they can't get the timing right. Well, I don't think they're gonna let that happen. I think they're gonna do whatever they can and to make sure that that happens.

And I think there's enough support for Republicans, for example, Becau going into among Wall Street, among corporations, among businesses who don't like instability, that the pressure will be fairly significant the Republicans not to get in the way. But they're just gonna watch the Democrats fumble until the very last minute and then come aboard. That's what I think is going to happen. But Americans don't like the idea of raising taxes, spending lots of money, and having a

skyrocketing debt or deficit. Even if they don't quite understand the relationship, they know that they don't want that to

be our our constant situation. And I want to go to your academics, and I want to dovetailed into Greg Grant and the yells great where yells of school down the coast, Wendy, if you're not aware of that, And I want to talk about the threat of democracy that's out there in the zeitgeist and the new Jacksonian American with former President Trump, or if he doesn't run with the new Republicans, what is the flavor of our new

Jacksonian America for our democracy? Tom That's a great question, But there's an inherent contradiction there, because what Andrew Jackson did that was so brilliant was expand the suffrage, expand the electorate. He pushed state legislatures to allow more people to vote. He got state legislators invest in the idea of state based parties political parties and sending the nomination a process out to the nation, making it more national

because the elites in Washington had blocked him. So that's expanding the suffrage, expanding the vote, having more people participate. The Republican response, I'm not sure I call it a Trump response because he's out of office. But the Republican response now is to limit the suffrage, to try to make it harder to vote, to try to limit the number of people can vote. That's not Andrew Jackson. He didn't see it that way. He said, get everybody in

there and then persuade them that you're the guy. So I think that Trump will ride the codetails of what the Republicans are doing to some extent. But his motto and what he did in twenty sixteen was bring more people who had not voted or hadn't voted recently into the electorate. And that's the Jackson model. Wendy, thank you, it's been too long. Come back soon. That of Brown University right now for Lisa Bramits and I, it's a

great joy in radio and television to bring in Candice Browning. Yes, she's had a global research at a Bank of America, but very much like Tobias Levkovich of City Group, her strength is she started out in the trenches. If you are seventeen years in a row the airline analyst of the world, and if you do securities and analyst analysis, I should say, like Candice Browning two years ago, that is a research foundation. And we're thrilled she could join

us today. Cannice, you have a new report out that's on bitcoin. I don't even know, Candid. Did Brian moyne in let you put the doge in your crypto report? Well, thank you Tom so much for having me on the show today. Actually, what we're doing today is not really so much about bitcoin. Bitcoin is just a part of it. What we did today is we are the first major bank on the South Side to launch a strategist and his job is to be the crypto and digital assets.

So yeah, and lucky him. Uh So. The reason we did it is because it's such a huge growing market. So if you look at it today, digital assets are about two trillion dollars, Bitcoin is about nine hundred billion of the two trillions, so it's big and there's a ton of investor interest in the space. It's growing. So if you look at the number of participants, you know, last year there were about sixty six million people participating in this market. Today it's over two hundred and twenty

million people who are participating. And if you look at the number of UM corporates mentioning crypto on their earnings calls, that's gone from about seven team last year to about a hundred and forty seven in the most recent quarters. So it's really going kind of mainstream and people are getting interested in it, which brings us to the last reason Tom why we decided to launch this, and that's really and this is the most important word I think

is ecosystem you know, this isn't just bitcoin anymore. This is digital assets and it's creating a whole ecosystem of new companies and new opportunities and new applications. And you can see that in the fact that Venture capital, which invested about five and a half billion dollars into digital assets last year year to date has already invested seventeen billion. So this is growing and its mainstream and it's not

just bitcoin. You have a great perspective, Candice, because you deal with both retail and corporate clients and institutional investors. How much is the interest being driven by retail investors versus the institutional players. You know, that's a great question, Lisa, because there is an obviously an enormous amount of retail interest in this space. People want to learn about it in our retail system, but there's a huge growing institutional

interest in this in this space um as well. And so we're launching this for all of our customers and really, you know, we're launching it more, as I said, about the ecosystem, and more to learn about this really potentially revolutionary technology. And that's why we put a former tech

analyst in this spot. The analyst Alkes Shaw has over twenty years experience as a tech analyst, and I really think this is about, you know, whether we want to call it internet to dot oh or whatever we want to call it, It's all about this revolutionary new technology and it's possibilities. But candis this is actually super important, the idea of digital assets not necessarily being a sort

of asset class like commodity. Is it a currency or is this an issue of transmitting money beyond the borders, basically removing some of the frictions that have traditionally been there, Which do you see as the primal driver of the research here and frankly of institutional interest. Yeah, you know, it's it's a great question. And I do think that over time this can become its own asset class um and I think its own sector, just like the Internet.

And the point is, with this new revolutionary technology, you can really address a lot of the issues that you brought up. You can bank the one point seven billion dollars one point seven billion people who are currently unbanked. You can do that with much less friction. You can create um assets such as n f t s that you can sell that will have royalties associated with them

without lawyers. So those are just examples of like all different kinds of things you can do technology, and yes it can also be money, it can be, but it

can be so many other things as well. Naturally the point we're almost out of time, I want to go to Raphael Hour at the Bank of International Settlements in Geneva has got absolutely pristine research on the foundations of bitcoin, the foundations of digital currency, the foundations of crypto, and I want to fold it over to our Your tech analyst is going to have to look at the regulation

and what you call the wild West of crypto. I mean, what what do you do with Gary Ginstler and the rest when the police show up to say enough, Well, you've put your finger on something that I think is one of the greatest risks to crypto. And you've already seen you know, China and India outlaw bitcoin trading. But on the other hand, you know, Gary Ginstler has also said that he's eas this revolutionary new technology as offering a ton of wonderful opportunities. And you know the FED

is studying um central bank digital currencies. So yes, regulation is a huge potential risk in this space. But you could also argue that once there's a regulatory roadmap in place, it will offer enormous opportunities as people conform to that. Okay, I have to leave it there. Candice Browning, congratulations and driving forward the discussion on crypto with a Bank of America, Course America, and of course their head of a Global research.

This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance pod cast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom keene In. This is Bloomberg