Surveillance: Omicron Uncertainty With Ward

From what you've heard? And that can change? But what

you've heard so far? Is this a game changing for you? A? Right? Jonathan? Um? Well, I'll tell you yesterday, Um, I was very optimistic because the message that I was getting yesterday was that the existing existing vaccines would be fairly efficacious against the new variant um and the data that we do have, which is at of the country fact of those people over the age of twelve, and we're administering about one point eight million doses a day, So we have made tremendous progress,

unfortunately not enough as we should have made, but we are on that We're on that path, and so I was optimistic. Obviously, the comments out of the Maderna CEO. Uh in the ft this morning are alarming, but again, um, there is nothing new data wise. It's going to take a couple of weeks, I think for them to have a good handle on just how good the existing vaccines are and how long it will take to develop one

that's more focused on the omicron variant. Howard Warden, I don't think it's I don't think there's enough data to support this being a game changer a yet. Howard. You know what it means is we have to stay invested as well. Do we shift investment and do we shift our new investment the marginal dollar we're gonna place here with this uncertainty? Does that change? Tom? I don't think so. And and uh, of course, you know I started to investor.

I started working on Wall Street in the nineteen seventies, and so I've seen this economy and the stock market, whether all kinds of tournaments over the years, and essentially every material downturn in the market was a good buying opportunity, and I suspect this will be just the same, a good buying opportunity for those investors that have the willingness and patients to invest for a period of years, and so, uh, you know, the focusing on what's going to happen this

week or next week, it does consume us more than it should all too often, and that's hard. It's hard to avoid that. But we really do try to focus on the long term and really a lot of good news that this this economy is very viber and it's a technology driven global economy, and there's just so much good about that. This is not the nineteen seventies where we had you know, percent inflation, uh stagulation, uh sixteen percent five year treasuries, thirty year treasuries inflation went from

five percent to fiftcent a couple of years. That's not this economy, and so we've been spoiled and uh, you know, so circumstances will change, but this is still an extremely vibrat positive economy growing this year and going for the next couple of years as far as we can see, well, the economy may be vibrant, but you're not seeing that reflected in rates. The tenure yield of south of one

forty three this morning. Do yields have to stay in this lower range in order for equities to continue doing well in it for a continue to be dips that you want to buy. Well, that's a good question, because we would anticipate some upward pressure on rates, I think, as everyone has been anticipating, given the fact that the economy is rebounding strongly from two percent growth last quarter to five six seven percent growth this quarter onto a

probably something with a four percent growth handle next year. Uh. And with the Fed beginning to remove the monetary stimulus that's been so important stocks and to rate lower rates. So yeah, rates should drift higher. Um. If rates go back to where they were pre COVID, we're back to one or two on a ten year, so up fifties sixty basis points. And I think that would be my

base case scenario over the next three to six months. UM. And that's okay, and that that might create some indigestion four stocks, but very weather Well, we can certainly deal

with that. If we're completely wrong on the transitory nation nature of this inflation and it becomes more persistent, uh, and rates spiked materially higher, you know, three or four percent kinds of handles on a note, then uh, yeah, that's gonna be a problem for multiple for stocks to tak what's the grint for this tree this on with something like swell for those of you on radio. I mean Farrell took the Howard Ward playbook and it's got the cute white lights and the things like what seven

ft tall? How big is that thing? Howard? Right? You know what? I think it looks bigger than it is. It's nine Really, if you made in the USA our next year. I mean, Mario's got the ugly colored lights going. You gotta go with the ugly colored lights like me. But it's good to catch that's got a lovely tree. Bays Howard Ward of Confetti Funds, Thank you. We got the advantage. Now we go to Houston, Texas. Victoria Fernandez has the advantage. She gets to work with Robert dolf,

which is always a wonderful thing. Chief market strategist across Mark Global Investments. Victoria, if we get a JP Morgan eighty or a hundred or a hundred and ten whatever dollars of barrel, you're hardwired to this in Texas. What does it mean for America if we get a sustained higher oil price? Well, I think you have two fold here, Tom. I mean, obviously for the energy companies, they've been looking

for these prices to go higher. They need that revenue to go ahead and put that capex in that you guys were just talking about. But we're talking so much about inflation and the effects that it's having on the consumer and what that's going to mean. Obviously, that is where a consumer feels it first and foremost is when it comes to oil. I think we have a lot of concerns here as to what OPEC plus is going

to do. We're going to hear from them later this week, so we'll see what plays into that along with releasing from the reserves. So I think there's a lot of balls in the air when it comes to energy right now. And just like we're talking about the variant, we have to wait and see. Same thing is going to happen with energy. Your clientele is a great cross section of people out there working at it every day. They've made up pot of money whatever, and they go see cross mark,

I get that. How scared of they of Omicron? How scared of they of two thousand twenty two. You know, it's interesting. I think this morning, and obviously I haven't talked to clients yet this morning, but I think we might hear a little bit of a different tone. You hear Powell coming out and using that word uncertainty. We know the markets don't like that word, so that's gonna add some volatility. You have the Maderna CEO coming out and saying that things are not going to be good.

That's going to feed into the psyche of the consumer. We've talked many times about how we think the consumer is leading this economy right now, and that strength of the consumer we need to rely on. So I think there's gonna be maybe a little bit more concern from an investor perspective. But I think that's where my job comes into play, where I need to tell people take a step back. As you guys have said all morning, we don't have the data yet. Let's not change our

outlook and our strategy until we know more. Victor, I just want to pick up on something the chairman said in that pre prepared statement out of his testimony later and you picked up on that word uncertainty. The recent rise and here's the quote in COVID nineteen cases and the emergence of the omicron varium post downside risk to employment and economic activity. That's well understood. Then he said this and increased uncertainty for inflation. What do you think

that actually means? Increased uncertainty for inflation? Does that mean upside risk to inflation? Does it mean downside risk too? What does it mean? I think it's actually an upside risk at first, because it's adding to that whole and I know we hate to use the word, but it's adding to that transitory component. If supply chains do not improve. You know, we talked a couple of weeks ago and we were saying we think we might be at peak

supply chain issues. We started to see shipping costs come down, We started to see a little bit of um pressure being relieved at the ports. If the variant now causes people not to go to work, it causes restrictions and shutdowns, all of that's going to ramp up again. And that's going to lead back into how much of this is transitory? What are we looking at for inflation? So I think it's an upside concern um in the short term. Longer term, I think we're still looking at inflation coming down next

year to a round three. So how do you position then for the medium and longer term Victoria? Yeah? So, Kaylee, what we told our clients before last week, and what we're going to continue to tell them for now is that we need to have that balanced portfolio. We like those growth, those tech names that are in there, and we don't want to get rid of them, but we could trim those and build a little bit more on

the cyclical component of our portfolio. Some of those consumer facing names that here in the fourth quarter would traditionally do well, and we think they will once we get past the initial reaction of this variant. So names we've added like a CBS um, a Walgreens Boots, We've added Lulu Women, even a name like pro Logists, which is a real um in regards to logistics for shipping. So I think you can start looking at some more of those cyclical names to balance out your portfolio, especially when

you see the credit market still holding pretty strong. That's a bullish signal for us. Victoria great to catch up as always is going to see a Victoria Fernandez, the

of col smile on this small kid. Yesterday. It was a magical day for us within the stress of Amicron to speak to Peter Hotez and the good people at Johns Hopkins as well, and what it's about is the dispersion of our intellectual capital with hotels going from Rockefeller University down to Baylor College over the years, or Laurence sour of Johns Hopkins going up to Nebraska to the first rate program at the University of Nebraska Medical Center.

And this is really serious adult stuff about special pathogens like think ebola as well. Lauren, you are looking at an unvaccinated population. My working number is thirteen times greater death. Is A Macron a special pathogen that will get this nation vaccinated. When we think about special pathogens, we think about the tools in our tool kit that allow us to treat, to manage, to to save live of the

patients who get the special pathogens. And I think right now we're still waiting to see what's going to happen with the vaccines around O. Macron. We know some of our tools work, our tests still work, we know masks still work, a lot of our treatments will still work on O. Macron, and we may need boosters to improve our ability to protect people against this new variant. But I think right now we can say that getting your

vaccine is still critically important. An unfair question, but do you within all your resources, including back at Johns Hopkins. Do you have a timeline of when we'll get these answers? I would guess we'll see updates on the vaccine in the next couple of weeks. Science updates understanding how the vaccine will affect UM, the how how the variant will affect the vaccine efficacy UM, and then I would say we could see new approvals for a vaccine if it

has to be updated in the next few months. So I would say somewhere between two and four months we'll see updates to the vaccine. Science is working around the clock, and it's really incredible how fast these changes are happening. To manage UM the changes to the virus that we're seeing well, and Lauren, we've seen the virus change before. We have been here in a similar moment before. We maybe are still in it with delta in many places.

What stops the cycle of this happening again and again? UM, Just like Dr Hota said yesterday, getting that vaccine rate high, high, high UM, as many people vaccinated as possible is critical to stopping and slowing down these UM these new variants. So the variants moved through on vaccinated populations easier and UM, when we start to see them appear in in populations with lower vaccines they can get they can also move out of those populations quicker. So getting as many people

vaccinated as possible as huge. I agree with him. I'd love to see here in the US. Not only does it protect against the variants, but it also protects against the already circulating strains UM and reduces the likelihood of severe disease and death. UM. We are seeing unnecessary death.

We're seeing unnecessary strain on our hospitals and healthcare systems, and on our healthcare workers in particular well or And it's not just about vaccinations as well, it's also about the treatment of people who do end up testing positive and getting sick. Do we know anything about the effectiveness of treatments. We know that vaccine efficacy can change depending

on the variant does treatment as well. As of right now, it's looking like our treatments will still be useful and we still have incredible supportive care here in the United States to to treat and take care of patients who make their way into the hospital because of covid um and the newly developed treatments look like they will continue to work against mccran, which is great to hear. It's

great news. But we are still seeing the development of new therapeutics coming down the pike, and UM, those will continue, those developments will continue to happen even as new variants pop up. For now, those tools still work for us and the and the hope is that will keep people

out of the hospital. UM as the vaccines evolve and develop. Lauren, your observation migrating from the East coast out to Nebraska with a one point nine percent unemployment rate, what is your observation on Olmaha, Lincoln and the rest of it out to Cozad and beyond. I love Omaha. I mean, I'm so happy whenever I'm there. It's a fantastic city. And I think that one of the things that we're seeing is that the hospital and healthcare utilization of people

getting COVID is still really high. So we would like to see higher vaccination rates in Nebraska as well. UM. And and it is a different it's a different environment obviously in Baltimore. UM. I still live in Baltimore, so UM, you know, I get, I get a flavor of both. But we'd love to see increased vaccination rates in in the more rural areas in Nebraska, UM in the city and UM through the support of U and MC, there's big pushes to get more people vaccinated every single day. Lauren,

it's been too long. It's always going to catch up with you. Lauris sad there at the University of Nebraska Medical Center. Thank you very much. This is a joy in studio where it's Ian Shepherdson, chief economist and Pantheon macro Economics, And what's so important about his focus on the United States is also the Pantheon macro Economics expertise on China. Craig Bottom doing that this morning in China.

His morning note talks about the infrastructure push of China, and you clearly see a better China than the gloom that's out there. Well, yeah, some of the gloom was quite extreme. China's got some really big problems, but it's it's not, you know, the end of the world. The loss of the real estate driven model for growth that they've had for so long requires a shift into other areas, and infrastructure is clearly going to be one of them. So it's very early days, and obviously the real estate

problems continue to roll on. This is going to be with us for a very long time. But China does have to find a different growth model to carry it through now that it's lost that impetus from from real estate. With your wonderful perspective, I think of only Leland Miller of China Beije book who really has that dynamic going back and forth across the Pacific. How does the Chinese

dynamics domestically affect your watch of the American economy. It's a problem for us in the US because of the disruptions that are caused by china zero COVID policies, so disrupt the manufacturing, disrupt their logistic chains, disrupt their ports, and of course with omicron, potentially they'll clamp down even more.

China doesn't show any signs of stepping away from that zero COVID approach, and that means endless supply disruptions and supply chain problems for US manufacturers and businesses seeking to import components or finish goods from China. So I don't see this going away. It's a primarily a problem of the manufacturing sector. It's not the whole U S economy, which is enthralled to the problems in China, but it's certainly not helpful at the margin, and the omicron I

would makes things even more difficult to see ahead. And that word endless is very different to the word that's been used all year transit three. So I just wonder a simple question, does the chairman have the time to wait, to sit this out and wait? I think it does if he gets ahead of what's coming over the next few months and preps and markets for what's likely to be some really horrible inflation figures for November, December, January,

then things start to get better. But at the moment, the FED kind of seems reactive to these numbers, rather than getting out front and saying to markets, hey, it's it's going to be bad, it's going to be worse. We might even see core inflation, I don't know, six and a half percent potentially in February. Then it drops

very sharply. But it's a question of whether the FED is prepared to dig in its heels and say we're going to wait for the turn because we know it's coming, or whether they feel that they have to respond, maybe to take out something that they would call an insurance policy against transitory becoming more embedded. That certainly seems to be the way that they've gone with the taper, And if it weren't for my chron, I'm sure they would be doubling the pace at the taper at the December meeting.

Now now that someone certainly over that, do you think they need to do that and to retain that ftionality on rate? Do you think they need to go quicker? I don't think they. I don't think they have to because I'm really quite bullish about inflation in the medium term. I very much by the idea that by the end of next year we're going to be looking back and saying, you know, really, what was all the fuss about, especially in the good sector, where I think we'll see a

really dramatic turnaround. But the FED can't necessarily assume that that's guaranteed to happen. And that's where this question of taking out an insurance policy, giving yourself some more room for maneuver just in case you're wrong, becomes a more pressing question. And if it weren't Phar Macron, yeah, they taper sooner, and that would open the door to a rate I at some point in the second quarter, maybe as soon as March that that will that would surprise me.

I do think that there's still a substantial body of opinion within the FED that thinks that they need to give it some more time. That they're pretty confident that the lobor market is going to fix itself with with rising participation over the next few months and ease some of that wage pressure, But of course it might not. And if it doesn't, then you're looking back saying, well, you know, we should have been a bit more aggressive. So there's a real balancing act to be made there.

And you know, right now markets have a pretty firm view of the way the FED needs to go, but I'm not sure it's quite so clear cut yet. Ian does maximum employment that part of the doormandate not need to be redefined for a pandemic era economy? Well, this is a tricky one because what you know, they've never defined maximum employment in very explicit terms. So do they mean that the unemployment rate getting back to three and

a half like it was before COVID. Did they mean the employment population ratio returned to where it was before COVID? Did they mean the participation rate going back to where

it was before COVID. They've they've never really said, you know, but I think that it's important to appreciate that chap Power has been very keen for for a long time now about reminding people how good the labor market was before COVID and how much he wants to get back to something that looks a lot like that before he would consider the full employment mandate to have been reached, whereas some of his colleagues I think are a bit more gung ho, probably because they're more nervous about the

inflation outlook than the Mr Powell is. And there's a very split opinion on the FED. And of course we've got empty seats that need to be filled over the next few months, so we may well see the balance of power shift thing I think in favor of the DOES in Washington and maybe away from some of the

more hawkish regional people. Well, if you game this out and take what people have said the potential implications of the macron varying, Again, there's things that we don't know, but if you have an exacerbating supply side challenges feeding into those inflation area dynamics at the same time, it may be discourages people from re entering the labor market. Will the FED end up in a situation where it's forced to react to inflation even if the labor market

is not where it wants to be. Yeah, this is this is now a real risk that that if mccron keeps people out of the labor force, who would otherwise have come back in easing this supply demand in balance that we've got right now with very very high wage growth. If if if a macron stops out and balance being shifted in favor of more supply, then the wage numbers won't slow down in the way that the FED needs them to be, and they'll they'll be pushed into being

more aggressive. But at the moment, you know, this is very premature. We don't know. We may find out over the next couple of weeks that this is a great deal of us about not very much, in which case we're back on the on the previous track. We're all speculating right now. And the message coming out of the OXFID vaccine people is different to the message from the

madernav accinge people. So nobody, nobody really knows. And I do think that the FED has maybe a bit more time to deal with this than some people in markets think. I don't think the US is on the verge of some sort of sustained inflation explosion that I think patients is a virtue in central banking most of the time. The patients there is a key question in Ian Sheperdson. What it comes down to is excellentity exposed. And the Latin is they're going to wait for the data. They're

just gonna wait and wait. How how much does the street right now, you know, just as a general statement, underestimate their ability to go ex post and wait. Well a lot. To me, it's a lot. Yeah, Massive markets are markets are very gung home markets. Markets always want things to change because volatility is where they make the money or lose their money exactly. And the Fed, however, you know, is not conducting policy on the basis of

what might make people more money in markets. It's conducting policy on the basis of what's in the national interest. And I think that's a strong case to be made for way things. See how the labor market pans out over the next few months. Most of the structural impediments to rising participation have diminished. Now, schools are reopened, childcares reopened, the extended benefits are all over. A COVID fear until

on Acron maybe was fading away. So it's very reasonable to think that we're going to see a big rush of people back into the labor force and ease some of those pressures. And if the FED, you know, it turns out to be wrong and those pressures don't ease, well, there's maybe lost three or four months, which which I very much doubt would be a medium term game changer.

And I think it's also important to people remember that using monaschy policy to deal with something which is driven by a shock, the COVID shock, is the wrong response because policy works with a twelve to eighteen month lag that's far longer than the time frame that I think is reasonable to expect some of these COVID shocks to diminish. So you end up doing something which which which proves to be a mistake, unless, of course you're wrong and

those labor market pressures don't go away. But at the moment, it's too early to make that judgment, and I think they have more time than markets want to believe. I do wint to drown in semantics here, I do think the following is important, and isn't there an argument that actually now they're more forecast dependent than they are data dependent, that if you think about it, what they are relying

on is their own forecast. The data itself, the incoming economic data, is already telling them that they're wrong and they have been wrong. Well, certainly the current inflation rate and the inflation right over the next few months is going to generate a lot more horrible headlines, and no question about that. But of course it's it's not the job of monetary policy to try and fix today's headlines or tomorrow's headlines. It's a job of monetary policy to

fix the headlines in twelve to eighteen months time. Sometimes today's headlines carry a lot of information about what they're going to look like in twelve to eighty months time. But if you've got a shock rather than an economic cycle that is generating the inflation numbers, then it's different. And it may well be that today's headlines are a terrible guide toward inflation will look like in twelve to eighteen months time, and therefore you shouldn't use them to

drive policy. But the problem, of course is that if you're wrong, then you find yourself in a much worse position in twelve to eighteen months. I mean you have to scramble the catch up to do what maybe you should have done much earlier. But we don't have perfect foresight. We have a great deal of uncertainty. I think they can afford to wait a little bit longer. Are you

talking about newcast? I'm trying not to talk about every time you said a shocking and I was thinking Newcastle thirteen games, not a single win, facing relegation, a new owner, they want to spend in a couple of months, can they can they get this done? Can they stay up? I think it's it's fifty fifty. I mean there's been a different improvement under the new manager, but he's only had two games, so I think we have to give him bit of a chance to do. You two guys,

and we could go all day on this. But to the two of you, is this another like men you waiting to happen where a gazillion dollars is going to come in and completely change what you want. If I pick up the phone and say here's a gazillion dollars, do you want to play for Manchester United. A lot of people might say, sure, Tom, I'll join you. If I pick up the phone and you say, here's a

gazillion dollarge. You've got to spend one year potentially in the league below the Premier League next year because we might get relegated Ian that's a different proposition. You've got two massive gains coming up in Owich and Burnley. That's a relegation fight. Think about January and when they want to spend that money. You want to rebuild this business, this football club. How easy is it going to be

to attract the talent in January? If we lose the next two games, it's going to be extremely difficult because we'll be really, really adrift and we'll be looking very doomed and and you know, no big star is going to come and want to play, you know, in Stoke on a Wednesday night in January, that's for sure. I have no idea what that means. Are you are you? Are you the only one who actually cries watching deadlers?

So are you the only one watching a new Customers has been a source of misery in my life for the last forty years, another couple of years. I mean, what differences. It's like is a red Sax fan from the sixties, and it's good to see it in person too. From Pantheon macro Economics and brought up that line from Oxford University. Tom. No evidence that omicron defeats vaccines, of course, no evidence that the opp cities true life. It's home, so we need to waite for the evidence in the day. Sell.

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 podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom Keene and this is Bloomberg