Surveillance: Rate Expectations With Dudley

We're thrilled that Bill Dudley could brief us this morning. Bill Dudley, I want to talk about policy rule, inertia, the physics envy of guys like you. You do Newtonian mechanics, and up we go. Interest rates start moving up and we start talking about inertia. What's the inertia look like right now to hire interest rates? Well, the short ending inertia, there's no enough, there's a the inertia of keeping short term rates steady. The feed is said that they're going

to be very slow to raise interest rates. They're not going to begin to raise interest rates until they get to full employment to percent inflation, and they're confident that inflation is going to go aboff TOWERC. We know that's going to take a while to convince some of that. Once they start, however, they're gonna be late and they're gonna have to catch up, and so this is gonna be a period of slow and then it's going to

be a period of fast. And I think the thing that people don't really fully appreciate is when they actually have to catch up, the level of short term rates is going to climb much higher than what's currently priced in financial mark What you just heard there's, folks, is a synthesis of history with economics that Bill Dudley was legendary for with McKelvey at Goldman Sachs. Bill Dudley, I'm

gonna cut to the chase and your wonderful essay. You talk about that process of moving from the reality ex post we're behind and forward you talk about talking and then the Federal Act and finally they will do higher rates, Well they do it in a measured way or do we literally go back Arthur Burns where they're gonna be talking about eighth point or higher moves. I think they're gonna have to move relatively quickly because liftoff in terms of short term rates isn't going to happen until the

economy is already at full employment. So there's gonna be a big gap between where they are starting where they need to be to keep the economy from overheating. So it seems to me that at least a quarter point of meeting seems like the most likely UH template. Think about what happened in two thousand and four to two thousand and six. The Fed raised the quarter point of meeting for there was seventeen meetings in a row, taking the federal fund rate from one percent to five and percent.

Probably not gonna go quite that high this time, but we're gonna go quite a bit higher, I think than the two percent is currently priced into financial market. So, Bill, how would you charunterize this? Is this a race back to neutral once you do start, or a race through neutral? Well, you have to go beyond neutral because you're starting because you're already at full employment and inflation is likely to go above your two percent inflation objective. You actually have

to go to how much was stately forced? Do you think the market would be in that environ man, just having a look back at is a case study to think about. Well, it's gonna be interesting to see how the market reactions. That's the one thing that could slow the FED down if the market reacts really poorly than the federals. Sort of well back a little bit, Well, well, look what happened between two thousand and four and two thousand six. FED tightened every meeting for over two years,

and I guess what happened. The stock market was fine and the bond market was fine. So you're absolutely right how the markets react will affect the pace of tightening when the FED starts. Are you advocating for a change of policy then, Bill, or just highlighting where you think the risk lie? I think I'm just highlighting where the risk lie. I mean, there are there are benefits of what the Fed is doing. It's going to keep inflation

expectations better anchored. It's going to get those eight million people that are still out of work post COVID back to work more quickly. But there are there are costs on the other side, and people in financial markets do need to be cognizant of that of those some of those downside risks, which thing let's cost on than it.

Drug Miller is out in the Ball Street Journal Stanley drug A Miller, famed investor of course, a legendary hedge fund managers, and the following the long term risk from asset bubbles and fiscal dominance dwarf the short term risk of putting the brakes on a booming economy in twenty two. What do you make of that aspect of it, Bill? I think the fan is does recognize that financial markets are frothy, but they're looking through that because they especially

for the equity market. They say the equity market, if the equity market wrey to go down to some future point in time, they don't see as a big risk of financial stability because people investors in the equity market typically don't do so on a highly leveraged basis. Remember what happened to Great Financial Crisis. It was leverage that

killed us. So you know, the fans to view is if we tighten and the stock market goes down to some subsequent period of time, that will tighten financial conditions and we may then have to tighten monentrec passy as much. But you know, they agree that markets are frothy, but they're looking through that. They're determined to keep rates low until they actually get a lot more people back to work.

Bill Dudley, don't want to digress. We just talked to Jared Bernstein to the White House about this, the arch conservative fear that we're not going to be able to grow our way, or the growth won't participate in our debt our deficit solutions. And this goes back to out on at Berkeley where you were Chip Jones and others and solo at M I, T, etcetera. The idea that just this fear that the growth won't be there frame your optimism that growth economic growth of this nation will

assist in helping us with this pandemic debt and deficit. Well, I think it will help because we have excess capacity in the labor market. Uh. And I think you know, if you look at the pro tivty numbers, I mean, it's hard to read them through the pandemic, but they actually seem to be better than what people expected. End of the day, growth is about resources and proctivity. Resources not so much in the sense that the population growth in the US is pretty modest, so labor force growth

is only but a half a percent a year. But proctivity growth, that's the key and if pro tivty growth takes up thing, you'll have stronger growth. But which is finally final question. We've got to get your take on that pyrosal pull from Friday. How would you be processing that if you're on the FED right now, I think

you'd say, Wow, that was surprisingly weak. But you know, we don't have a lot of experience coming out of pandemics, and you know, it's very possible that is weak because people don't want to go back to work quite yet, because they can't gonna have people to take you know, they don't have people to take care of their telling me because schools are still out of session. Um so I think it's gonna just take a while to understand

what's really happenings to the pandemic. I don't think they're gonna put a lot of weight on one month's uh weakness in terms of ferals. Oh A, tomny Pace would the former Federal Reserve Bank of New York President, Thank you, Bill. Look forward to catching up soon. It is a wonderful time to move on from the jobs reporting catch up with Jared Bernstein, member of the White House Council on

Economic Advisors. Dr Bernstein has been definitive on socio economics with his work at the Center on Budget and Policy Priorities in e P I before that, an advisor to Vice President Biden, now holding court at the White House. Jared, thank you so much for joining us today. Jared, I want to go back to the arch conservative fear. It has been there from the time of David Ricardo and John Stewart Mill. We will not grow our way out

of our challenges. Everyone in the middle, everyone liberal, including Joe Stiglets, a laureate, has battled disc for years, including solo at m I t N describe right now this

fear that we can't grow our way out of our challenges. Well, that's certainly not a fear I share, and in fact, I think the administration's policies thus far are very much targeted at not just growing our way out of this, because that's always going to be just a part of the solution, but making sure that that growth is equitable, that it's reaching people that hasn't reached before. One of the touchstones of President Biden's economic policy will always be

GDP growth, stock market growth. Even lower unemployment by itself is not enough. It has to reach the middle class that has to reach lower income people, and they need the bargaining clouds so they can claim they're fair share of the growth, which by the way, was six point four percent in the first quarter, and the and the fingerprints of the Rescue Plan are all over that getting to the other side of the crisis begat the building Back Better agenda, which is a much longer term set

of investments. Jared, what does the Biden warning in America look like? You know, I think the way to think of that is uh kind of shifting from the American Rescue Plan to the Jobs and Family Plan. The Rescue Plan was always intended to do precisely what it's doing, get us to the other side of the crisis as quickly as possible by getting shots and arms checks in pockets and making sure families and businesses and childcare providers

are intact on the other side of the crisis. But simply getting back to where we were is wholly insufficient for this administration. There needs to be a deep, ten year set of investments embedded in the Jobs and Family Plan to make sure that what I described in my first answer to you occurs, which is that we pull along.

Folks have historically left behind by deep investments in education and an opportunity in neighborhoods that have been left behind, and clean energy, in manufacturing, and standing up a care sector for childcare and elder care. Those are all keystones of the jobs and family clans Montana, South Carolina, Arkansas, and now North Dakota Jacks, you'll be familiar with this story that push him back against the additional UI unemployment insurance.

Have you spoken to the governors of those states? I have not personally spoken to the governors, but that's the president. There are people within the administration. I don't know how to read out of precisely who, but I do know that, yes, the presidents talks to talks to governors all the time. Do you think that's the wrong decision. Yeah, I do

think it's the wrong decision. I think the right decision is what the President talked about yesterday, which is a twofold to make sure we take down any barriers that stand between people and getting back to work, with childcare being the most prominent. To make sure that the rules of the UI system are followed. If people are offered a suitable job, the rules say they need to take it. And suitable, by the way, means a job that is

enables them to go back to work safely. And then and and and and recognizes that people have childcare obligations that they can't always meet, so helping to take down those barriers getting folks back to work, and recognizing that the UI system is classic insurance for people who don't have income from for work and it's been a huge boon to unemployed Americans throughout this period. If it's the wrong decision, let's stress test them. What would the consequences

be this month and next month when these policies are introduced. Yeah, that's a great question. So I think they're twofold. One is that you'll see people really experience a level of economic hardship that wouldn't have occurred if they maintained their enhanced benefits. And the other is that you're not going to see much difference between uh, the labor market outcomes in these areas versus others. So if we dig into the data, thus far, I should say thus far, because

these things change month to month. We don't see a negative correlation between places where unemployment insurance replacement rates, meaning the extent to which it's replacing the wage. We don't see a negative correlation between replacement rates and labor market outcomes, so that would suggest that UI is not the problem. And we know that people are facing barriers to childcare at to school. We know there's concerned about the virus

out there. If you actually look at the vaccination rates among working age people, they're obviously a lot lower than the broader adult population. Dr Bernstein, you are eminently qualified to speak to those on the right and the left with your PhD and social welfare from Columbia. Folks. That is a history and inheritage that speaks of a long century. Dr Bernstein, frame right now on childcare, the debate of a federal solution versus states rights to decide what their

child care would be. Where does that stand now and where does President Biden wanted to go. Probably the best way to answer that question is to look at every other advanced economy and recognize that they have stood up an accessible and affordable child care sector. And in the vast majority of those economies, the labor force participation rate among care takers, particularly women, is many percentage points higher

than ours. This is not, you know, a a classical sort of federal state, right, And this is a classical missing markets problem. Even the most mainstream economics recognizes that when a market is missing, there's a role for the federal government to come in and fix that externality. And here the negative externality is a barrier to work for people who want to get into the labor market. So this is just a very simple solution to a market failure. I look, Jared, at the solution to a market failure,

and I look at the politics. You don't have to worry about two thousand twenty two. Your boss does as well. How is the White House adapting economically to the reality of an election coming ever closer in two thousand twenty two. Yeah, that's an easy one. If you just watch the where the president and the Vice president are going and listen to what they're saying. They're taking their message to the

American people, and if you look at the American people. Okay, I don't mean to interrupt, Jerry, but you've nailed it. How do they sell this to Republicans who support what you're talking about, yet the leadership that they have is dead set against it. How does that metric, that dialectric work, Well, I think you know, you don't have to sell things to people. If there are things that people want to need, you just have to tell them about it. So I

think it's it's less sell and more tell. Explain to constituents why what you're trying to do. And what we found from the polling is that telling, uh does not require selling. When it's childcare, when it's safely reopening schools, when it's beating the vaccine, when it's providing people the resources they need to get to the other side of this crisis, and when it's making historic investments in the jobs and families plans, in their lives and their opportunities.

Now you know what goes on in partisan circles in in d C. We have to show that out for what it is. But the President vice President are keeping their heads down meeting the needs of the American people on all sides of the aisle. When the President will be making with a big full in the White House tomorrow and change we're told about childcare. Are you determined to make childcare and policies addressing childcare issues a part

of a broad to infrastructure package. Unquestionably so, And in fact, if you look at the jobs Plan and the Families Plan. You see that right at the heart of those plans. And I should be very clear about this. As I said before, I think sometimes this childcare story takes on a life of its own in the way that Tom was referring to. Otherwise, for us, it's providing an accessible and affordable path to get into the job market for care takers who want to do so. Some will want to,

others will not want to. But if you want to and you need to get back to work, it is not hard to find care takers today who say I can't get back to the job market because I can find accessible, affordable care. It is a missing market and we have to stand that market up, and that's what our plans do. I'm not here to advocate for anyone's policies. You clearly aren't out and that's understandable in your positions. But when it comes to tomorrow, is that a redline

for this administration? Childcare as part of a broader infrastructure package. Is that a redline? Well, you know, I'm not in a position of setting legislative redlines. I'm okay, I'm on the economics team, and I'm talking about the economic graphical President community hold on. It is at the core of everything that the President has talked about from the campaign, by the way, until through the American Jobs and Families plans, trying to get you to other privacies out to understand

that you can't negotiate on behalf of the president. But when you sit around with the form, your understanding still a core pot of communications and negotiations with Republicans, very

much so. And I think if you look again, I think one of the I don't always like to cite the polls because I think you can pick and choose what you want, But on this issue, you can't find a poll that doesn't show a majority of people saying this is really important to us to be able to access an affordable child If you actually look at the amount of income that a middle or a low income family has to pay for childcare, you're gonna start to get into ten of their income in some cases, and

that is simply unsustainable for working families. And that's why the President is targeting this issue. John, and we appreciate your time to communicate the goes of this administration and look forward to catching up soon. John burnstaining that from the White House Council of Economic Advices. We get smarter now and we win with Francisco Blanche of Bank of America's securities out of Globe Commodities and Derivatives Research. Francisco, it has been way way too long. I want you

to color now. We have all these legacy issues we're dealing with. Our collective memory of commodities are collective memories of supercycles. And you say, wait a minute, it's a split supercycle upon us, what do you mean by that? Well, Tom, thank you for having me. I think I think the there's certain there's a sector of metals and materials which is clearly in a in a supercyclical app swing, and we're seeing record prices and we'll continue see record prices

for all of the raw materials there. But when it comes to energy we are we're not and in fact, I doubt we're gonna see record prices in this cycle. I think we're just seeing cyclical upside swings across the board, although as you pointed out, we're down today in oil. But really the story is that when it comes to materials um like like timber, we are now at the point where supply is extremely low in entories are extremely low um and and demand's roaring, so prices are extraordinarily volatile.

Copper he's having in that direction with inventories declining quickly and also moving into demand ration. While as oil um primarily is still still very well supplied, OPEC is holding that capacity. So we are still trying to figure out what to do with all those spare barrels. Keeping some numbers on this forest, then Francisco, this split supercycle. Let's

deal with the metal side of it. Copper right now is at ten five on eleven K. Watch now seemingly what are you looking for through the next six months two half months? So for copper, we're looking at basically a dollar uh breton, and we think we could go as highest twenty breton if the supply of scrap metal scrap copper doesn't make it. Just say, you're modeling a double off of leemy copper. We you know, we're we're

our our official target is okay um. But we see a case over the next couple of years if we do not get enough scrap metal um coming out coming into a copper market, because remember a large chunk of the copper market of our corret is scraped right, So if we cannot scrap in off copper back into recycling, back into the market, I'm talking about the the copper that we get from past uses, not the copper that

we are mining. The copper ores. Those are very tight, so we need to keep pushing prices higher also to create more supply. And that's the that's the crazy dynamic that's garning copper right now. Um. So, so remember, copper is critical to all the applications that we have um lining up for the decorganization of transportation, to the coorganization of industry, and the decorganization of the electricity sectors. So

all of those require a lot of copper. Francis gonna champ in because we've gotta cut through these numbs a little bit more. We've got thirteen k as your base case. We've got twenty k. Is this big bolt case. Can you help us understand how big a falce rese kling of componentually is in the comper market and whether you expect that to actually materialize? Right so, so so it's about a quarter, I mean, it's it's hard to tell

at this point. Remember, um, there's a lot of different uses they are going to recycling here, and it's it's possible that happens. I um, I do think that copper is probably the most constructive commodity out there from from medals perspective. But but there are others, right, I mean, remember we are at the stage were as I said before, we just printed way too much money. Um, so we never quite had a recession when it came when it comes to goods and when it comes to the demand

for stuff and demand for industry. We already had an ip recession last year. So all of this is really booming, uh from from a most perspective, and copperate hours are actually degrading quite a bit. So so if you look at the supply of horses is declining across across Chilean prew we have elections so well and crew coming up right where where there is potential fears of sector nationalization.

And this is also the kind of behavior you start to get when prices get out of control and and government suddenly see a lot of money in this command market, the smoke coming market. So forranstans Car collective memory quickly here is that we had a China boom up to two eight. Do we have a China boom again or is demand coming from a different theme. Well, Um, the the interesting thing in the cycle is the demand is

coming really from from everywhere. I mean, for sure, we're saying strong demand from China, but also we're saying a robust, very robust consumer activity in the US. You know, you talk often to Michelle Meyer or US commist, and you know she can tell you how strong demand has been here. And part of it is just we've we've given people a lot of money to play with while they were sitting at home. Um. And and also um, also European demands actually picked up quite a bit, and and and

well this is going on, by the way. I mean, I'm sure you've noticed European carbon prices I've reached fifty years a ton or sixty doors aton, which which effectively, uh means that there's gonna be even more demand for this copper and and for some of these metals that are going to help us the carbonites. Um, because it's so expensive now to to to burn carbon fuels in in the European unions. So there's a lot of things

going on simultaneously really supporting the complex. We've got a minute left, and I want to use that by SalCo. You just one more question, Francisco, this big call on COMPA. Is this a cyclical call or a structural secular call they shift away from the fossil fuels and towards batteries, et cetera. What is it predominantly it's it's predominantly UM, it's predominantly the latter. It's it's a secular call. It should play out in a number of years, we think

at the end of the day. Um, the the initial impulse came from monetary and fiscal Uh. The secondary impulse came from from this kind of trying to taking center stage in terms of growth last year. Uh. And now we're getting the US infrastructure and DICAS decorization impulse. And with US gonna take about ten years plus two complete. So it's a secular story which will continue. It may

even slow down the organization at first. Uh. Interesting, Yes, that's a risk actually that we end up slowing down the organization at first because we just don't have the materials lined up for it. Francisco, We've got a run place to get tame was saw something else, so we can do this again. Tell him that's a massive called, Francisco, Blanche there of thanks America. Well, this is a precursor, folks, for an important conversation. Mr Kristia most interesting at IBM

for a good amount of time, think thirty years. He was the one that generated the acquisition red hat. He is, of course from his India in the Indian Institute of Technology with the academic mc work at the University of Illinois or Benas Champagne as well, truly one of our noted computer education combines. You do this with a doubt negative. Here is our Caroline Hide. I'm Caroline Hyde from Bloomberg's London headquarters for our radio listeners and for our television

viewers worldwide. IBM Chairman CEO Alvin Krishna joins us now of Anna joy to have you with us. And the reason you're joining us is because the side of products you're unfolding at your annual Think conference. And correct me if I'm wrong, but I'm feeling like AI is really the focus here. You've got, of course, what's an orchestrate with AI automating task for sales HR. You've got AI helping people access their customer data. You've got project code

net to speed up business application of AI. For our audience, where AI hybrid cloud still buzzwords, how does it change their day to day? Well, okayline, great question, and thank you for having me here. So if you think about AI, begin with A with a cash phrase, the same way as electricity helped electrification at the turn of the last century. I believe that AI is going to infuse every enterprise in every process in this century. So, now that said,

let's talk about making it real. AI is the only tool we know that can really help unlock inside from all the data we collect. So when we think about improving the service for our own customers, when we think about improving operations inside the enterprise, when we think about maybe COVID nineteen vaccinations happening at a rate and pace we've never seen. AI is what helps make all of

that happen. So you take code net a thing I'm really excited about open source five million lines of code all collected so that we can train AI to help write code itself or programming. Imagine how much productivating that will unlock all you think about our auto SQL technology to help gather data from wherever it may reside across public clouds. These are all examples of how air really comes to life but really helps unlock and delight end users.

How does it unlocked sales revenue for you? How will it speed up your own growth in revenue because you've just been bringing to your own stakeholders. Well, the fastest revenue growth in eighteen is that sustained. Um, so it we'll get sustained. I'll come to that in a moment, Caroline. The reason that we return to revenue growth is really a whole lot of work we have done over the last twelve months. We've talked about focusing our business only on hybrid cloud and AI. We have announced the spin

of Kindrel, our manage infrastructure services business. We've increased our organic investment on both R and D and sales. We have also increased our spending our acquisitions eleven over the last twelve months, and we are begging to invest in our ecosystem. All that gave us a benefit in the first quarter, and we'll see more and more benefit as we go along and into next year. But I think about AI, let's unlock a little bit. There is a salesperson. They sit there and they're trying to see what is

happening to their to their client and salesforce. Maybe an AI can look at that and say, Hey, this opportunity is progressing. What should I add into that opportunity to delight the client even more? Who else should I work with inside the enterprise in order to go back. That's where AI really helps augment human intelligence. And I use the word augment doesn't replace, but takes away the monday in tasks? Are you exactly where you need to be to unlock this sort of productivity that you speak of?

Do you need more acquisitions to be made? You just said you've been spending. I think that to unlock what I'm talking about, we have what we need. That's a question of making sure we have all the expertise and can get it in front of all the clients. UM. You know, I think today, UM, Karen Lake, the CEO of EVS, will be speaking with me. She'll talk about how AI is being used to really help the COVID

nineteen vaccinations. I think they've done like seventeen million, ten millions something like that vaccinations, and AI was really a big part of how they could get to that scale so quickly. And so I believe that we have the

right pieces to go do these things. More moon shots perhaps later, but automating operations and worrying about intelligent, pliant experience we can do now when I'm thinking about my health data as CBS is using there, when I'm thinking about the world, the US reeling from a cyber attack

on its own key infrastructure. Just yesterday we learned this, of course, and over the weekend of And how as a man who's focused on security within all of this important cybersecurity, how much of a concern is it to you for your customers, O Carline, I think you and I have spoken. I believe that cyber and cyber security is the issue of the decade. And when you say why,

it's at that hard. If value goes into the cyber infrastructure, criminals, thieves, nation actors are going to come after the cyber infrastructure. So that said, then then what do you do about it? One? I think I take a lot of comfort in the fact I think financial institutions, most healthcare institutions do take it quite seriously. However, they're all doing it on their own and each of them has their own way of

doing it. I believe we should have a government program similar to putting a man on the moon at that scale to get a public private partnership going to really take care of the cyber infrastructure. Otherwise the physical infrastructure like we saw on the Colonial pipeline, maybe victim or what is happening to the syber infrastructure that controls it. And so that's where I really believe we should go as a country. Then we have forty five seconds left.

The business environment for you for our radio and TV audiences. Supply chain how much of an issue for you as you make chips. Look, I think that there is a whole supply to involved everybody. When we think of semi conductors, that is a clear shortage. That's why we invest in things like two an anomators. But government needs to lean in also with the chip sacked and the National semic Conductor Technology Center. That said, I see spending increasing going forward.

So there is going to be pockets around the world ups and downs, but overall those optimism in the business environment. Oven Krishna always a joy to have you with us. Had so many more questions for you, but for our TV and radio audiences. IBM Chairman and CEO. We talked to a lot of people in strategy and economics and of course in politics. It is rare we talk to someone in true wealth management managing money and doing so in a time where portfolio construction is how much Ample

do you own? How much Amazon you own? Sarah Hunt has scarred from years of dealing with clients Alpine Woods Capital over portfolio of construction. Sarah, what are you doing right now? I mean, if you didn't own enough Apple and Amazon and the rest of them last year, how are you recalibrating in your portfolio right now? Well, it's an interesting question because obviously you've seen the big move in some of these tech docks, and not a positive

one in recent days. I think we were already at the beginning of the year, in January and February, thinking that things looked a little bit stretched and we're starting to look for value, but value in unusual ways. So you know, one of the stocks that we looked at is a company called acam I, and they were one of the early people using the Internet and figuring out

how to fix bottlenecks. Well, they've gotten into security, and as you mentioned earlier, securities a big market right now, and people are very concerned about the pipeline issue just exacerbates that. So they had a big part of the business that was not growing in a small part that's been growing very rapidly. That's the kind of place where we're looking for a sweet spot where we looked it looked like there was some opportunity And Sarah, what's so

important here? And I say this was great respect for the late David Swenson who all of us wren is the idea of finding sector diversification through sector selection or individual stock selection. Which is it right now? It's a combination of both really, because you've seen some very big movements under the under the indexes where you've seen some big rotation into value and into sectors like the cyclical sector and out of some of the technology sectors. Healthcare

has been a little bit of both. You've seen something very positive in some things that are not Biotech has had a very What do you do with healthcare? Well, I think that you continue to invest in it. I mean, this is clearly a space where you're going to see growth, and you're going to see continued growth as the population ages,

not just in the US but globally. But you also have to figure out how much was the pandemic a problem and how much are we going back to some sort of normal in our own healthcare system and other healthcare systems, because the healthcare system has been skewed by this global pandemic. And as you see that in the numbers, So you have to assume that at some point the numbers start to change and some of them traditional operations like hip replacements and nee replacements and all that, start

to come back a little bit stronger. But right now you're still in a little bit of limbo because you don't have what I would call some sort of normalized procedurals. Let's get to the numbers right now, and that's like one hundred down by one point nine percent, just off

sets and lows and off by two fifty points. Is this price sanction in search of a story, Sarah, or do you like this explanation the narrative that scripted the market this morning that a lot of this is just the reflationary thing leading into big tech growth and it's not good for it. Well, that's an interesting question because earlier you mentioned that Microsoft isn't really an inflation hedge,

and traditionally speaking, it's not. But do we really think that Microsoft is going to have trouble raising its prices. Like you know, the the issue about pricing is something where on the technology side, a lot of those people do have pricing power. So the question is does is that really the issue or is this really rotation out of some names that had moved very quickly and very fast.

Take a look at new Core. That stock was a bottle rock at the other day, and it's gone from fifty to a hundred in a very period of time. I think that's part of the supply chain shortages you're seeing as people start to look at that. But then they tend to extrapolate pricing for periods of time that may be too long. So there is some movement into the cyclicals. But is that movement going a little too far too fast is another question, just like it was

in tech a little too part. Let's build on that then, Sarah, the relationship you think should exist between yields rights, real yields and a broader market growth equity Specifically, I think it's a very difficult thing to say that we are going to see much much higher interest rates, even if the FED does have to raise If you think about global governments, everybody has borrowed so much money that I find it difficult to believe that rates can go back to what we used to think of in traditional on

a tenure. I think that's very difficult because it's very expensive for governments now it rates for that high. I want to dove jail two of these arguments. John, I think this is actually a brilliant conversation about portfolio construction and Sarah Hunt. When it comes down to is David Constant and Goldmen mentioned the duration framing of these big tech stocks versus a Jack Welsh like pricing power and you're saying the markets wrong. These people do have pricing

power to meet. John, that's a huge debate at the end of the summer. So b t I J like consumer staples more constanding, I think likes consumer staples. Sarah. I keep hearing firms, banks, houses that like consumer staples because they like the pricing power aspect of it. Do you I think that given where the multiples are on consumer staples, I'm not sure that they have as much pricing power as you have in some other areas. So I see the argument, but I also think that in

the end, you've got a lot of choices. Consumers do make choices. They will trade down in consumer staples in a way when budgets are tight, that they won't. You can't trade down from Microsoft to a different security system or a different I mean, I just don't. I don't see that kind of strade off happening in some of the areas that are traditionally linked to lower industries are better for them. This is like John such a flashback when Toto's Africa peaked in nineteen eight at number nineteen

on the Builtboard chart. I mean Sarah's I mean, I'm gonna get misty idea. That was beautiful, Sarah. 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