Surveillance: Return To Work With Dimon

before it was Shearson Lehman. The essay was so impressive a guy named Wile hired him and thus began the banking career of one James Diamond, of course, of JP Morgan, their chairman and their chief executive officer, A Baker scholar at Harvard. Jamie Diamond went from bank one out in the Midwest to Commanding Fortress Diamond at JP Morgan. Harry is on COVID with there Ed Hammond. Getting through COVID is absolutely critical and we're still in it though God

knows what looks like. There's light at the end of the tunnel, you know, by the beginning of summer or something like that. But it's not a binary subject. I think you know, Democrats Republicans are like ships passing the night. There are legitimate complaints about stuff from this bill. Has nothing to do with COVID. There are a lot of people suffering. You need help. Both are true. So if you want to go through, you go through all the detail.

Unemployed they definitely need help. Small businesses they definitely need help. People at the lower end, they definitely need help. Women who had to go home, who basically stopped working. Is that it go take care or something like that. They definitely need help. You know, does every I don't know if you know this, but like half the states revenues went up, they needn't go down. Do they need help?

You know? And we're just throwing money at people at one point, so and there will be another side to that mountain. So they should be cautious about overdoing it. Get us through the problem, get the country growing, but you know, don't try not to overdo it too much. But isn't the risk exactly that if you have places and states people that don't need help and getting to help you out of the cyst to you do create

this huge risk of inflation. And the system already has a little bit of that so if you look at which in the system that looks to us like there's a trillion dollars a trillion is unspent. That's before there's billion nine trillion nine, So there will be money. Like you know, there's a very good chance you're gonna have a game buster economy for the rest of this year and you know, easily into two. And the question is does that overheat everything? And we just don't know yet.

But I would put that on the things to worry about now. I wouldn't worry too much about it. I would worry more about COVID and nuclear war that I'd worry about that, but I would. I would suspect there's a pretty good chance you're gonna see why he's going up, and you know, people starting to worry about that at one point. Let's talk about COVID for a second. I've been very clear I would not buy ten year treasuries,

just so you know. Um On on COVID. We are obviously doing a interview in person, which is fantastic with doing it in your offices here in New York, but still largely empty as of my officers, as probably are a lot of people's offices. How important is it to a business like Jeplegan to actually have people physically coming back to work. It's very important. I mean, I look, I do think would be part of the world where a certain amount of people work from home permanently, certain sales,

certain opts, so you can track the productivity, etcetera. I think there'll be a large portion who permanently work in the office. Think of our branches, cash management, probably most the trading floors, etcetera. And there'll be some hybrids where you spent two days two weeks at home and two weeks in the officer of three weeks at home a week in the office, or three days and two days and two days three days. But so I think it will reduce the need for commercial real estate. But they

are huge weaknesses to the zoom world. I mean, most of us learned by an apprenticeship system by you know, seeing mistakes, going to trips. How do you handle a client, how do you handle the problem. So it's hard to inculcate culture and character and all those things. When you have the Zoom world spontaneous combustion, it goes away hard to manage, you know, it's hard to be very critically got fifteen people on the screen. So before it was like a deep dive question, now looks a little bit rude.

And I took a trip to California and met a hundred people all outside, all one breakfast, lunch, and dinner. It's amazing how much you want about your own business, your own bankers, your own clients, your own products. And you know, I met with Snowflake and Marcatta. What you learn about technology and systems, you're not going to do that in the zoom world. And you know, so bankers relationships. I think it's very hard to build and develop a

deeper relationship on the zoom world. So you still, you know there'll be more zooming people like me will travel just as much as I did in the past. As a win, the vaccine does become available, feel workforce, Will you make it mand a treat for people to take it if they do one of the time. It's hard to make it mandatory, and their laws about that. I think what we'd like to do is kind of have cacharroacts and sticks. We want people to take it. Think

it's a far better thing. You certainly can't make it mandatory before it's fully accessible, so that question can even be answered until June UM. But but I do think you may see some companies do it. I mean I can see an airline doing it, or a hotel company doing it. I can see some people saying if the folks in our branches aren't vaccinated and not going in

so there will be pressure. Uh. And I would say Charroton sticks not in mandatory, Jamie Diamond, JP Morgan Chairman, and see how speaking with Bloomberg's at Hammond, Let's get to Abraham rach Bary, City, Global head of Effex Analysis. Abraham, let's start with this question, who leads the global cycle? Here? Is it the United States with all its stimulus, so the prudent approach from China, So we think there is clearly a bit of a handover going on where China

was essential and early in staging the global recovery. But right now I think the weight is clearly shifting towards the US, and the types of growth numbers that we are expecting alongside many others in the US should give us some hope that even some slowing of momentum in China will allow the global recovery to power ahead pretty vigorously on on the back of and on the shoulders of the U s. Recup, Abraham, your Edward Moore so wonderful.

Edward Mores published this morning on oil, reaffirming a range bound area, and he's below the eighty dollar hysteria we're seeing right now. I get the same temperament from you and even killed what you see in the foreign exchange market. Does your world now correlate with the rest of the markets or is it separate and distinct? So they are important linkages between broader markets and the economy and foreign exchange markets, but it has effects has also been playing

to its own two. So we have seen in particular dollar trends correlate with the global recovery that all that has generally speaking been on the back foot. But of late, for instance, we have seen that when US interest rates rose quite quickly, the dollar wolves effectively pretty range bound

in G ten. And that's in part because interest rates rose elsewhere in the world almost as much as they did in the US, and because we have seen the behavior of investors focus more on equity markets and commodity markets as a primary expressional. That's called them reflation trades.

Then in foreign ex aim Abraham if the weight is shifting toward the United States and the strength in the US has led people to go further into the dollar more than perhaps I'm expected at the end of can we see the dollar materially weaken from here with the US also leading the global economic recovery. Yes, that's a very good question and one that we've dealt with intensively, and our answer is yes it can, but we need

two conditions to hold for that to play out. And condition number one and most important is we do need still a vigorous global recovery. So even if the US outperformed but the global economy it does okay, then the dollar can sell off, just as it did after the previous two global recessions. And the second is we do need US real yields and particularly US front end real yields to stay pretty low. And for that it is important that we see a fairly forceful, dubbish message from

the Fed on an ongoing basis. Do you expect that from Chairman Powell on Thursday? Abraham we afect the pretty nuanced message, so I think he will trade a fine line where he will reinforce his policy intentions. No consideration for tapering anytime soon. No intention to change hiking plans based on the recent development, but equally that he will continue to endorse the good news and that the good news are expressed in in bond deals as well. So

it's gonna be nuanced. It's not going to be a major pushback in our expectation to product the commodity market. So let's finish their Abraham and get to the commodity currencies in the fex market. At the moment, given what's happening in China, how comfortable are you with a conversation around another commodity supercycle getting along the commodity currency states

for that reason over a long time morison. So we think that the commodity currencies still have upside, and in G ten that's for us, the Australian dollar, the Norwegian corona keep dollar, and and and and and and can't as well. We wouldn't talk of the supercycle per se, but we do think they'll be vigorous demand for all kinds of commodities, for oil, on the reopening store, for industrials,

on restocking and infrastructure. Even with some slowing in in Chinese demand, we won't have the supercycle like in the two thousand's, but we think that bolts well for a further pickup in quality prices after a bit of froth comes out in in the last couple of weeks, and maybe that has a little bit further Remember I'm amazed at how when the euro comes down and comes down, granted it's within range. We had a little bit of a one nine team print here earlier this morning. What

is your twelve month call on euro? Is it tradeable or is it a mystery m hm. So we still have upside in our euro dollar forecast, and we think it will pick out nearer to one thirty sometime this year. That being said in the short term. That being said, in the shorter we think that the euro will lad and that's for two reasons. One is because European rates have lack and will lack global rates, and two because the CD has actually pushed back against the rising rates

more forcefully than in particular the Fed has. And it's a very opportune moment for the e c D because it can actually do something. It can buy more bonds, So it's a good moment for it to show to the market that is not out of ammunition. So we think the euro goes lower first, but then higher. It's Abraham, great to see, is always good to catch up, Abraham

rock Barry, their City global head of Effects Analysis. Let's bring in David Costa now goalmus Saxis chief US security strategist, David Aligned from your research, cyclicals with negative earnings and falling sound in have returned year today. Do you stick with it? The answer, Jonathan is yes, you have to be from a tactical point of view. The companies that lost money last year but are actually recovering UH this year.

That is the benefit of a tail wind from better economic activity, the vaccine you just mentioned, fiscal stimulus that we anticipate we'll get past relatively soon. All that benefits some of the cyclicals. Now that's not to say the some of the tech heavy secular growth companies will not perform well, but just from a relative near term perspective, probably the cyclicals UH will will will lead the market. It takes a strike to the mechanics of the benchmark,

doesn't it. The SMP five hundred, the overweight waiting of information technology and growth stalks. David, And if that's why you should be, how do you get to forty three hundred on a headline index. Well, I think you think of it what I think about as a Barbell strategy. So of the index SMP five hundred is technology, is he just indicated? And so that has certainly got to

be a core part of the portfolio. You're getting very strong revenue growth, uh from the a lot of these companies, and you think about it relative to pre pandemic profits, pre pandemic sales and profits. The the overall market is actually higher than it was at this time last year.

That's an important statement. The economy nominal and real basis is still a little bit smaller, but hills and earnings are back to where it was before and back the equity market now about fifty and sixtcent higher than it was twelve months ago. So looking forward, as you just indicated, where's that growth likely to come? Still likely to come in aggregate from technology, but tactically likely to be some

of the re reopening of America. So, my colleagues in the equity research we have an index, uh, the Reopening of America Index Tom you'll like that title, and basically it's at four. It's been stuck at four. So the upside is as people get vaccinated. As the economy continues to recovery, which is part of our forecast, well, that means you're getting more of these companies. Company level data will be reopening, and that's where the positive earnings revisions

is coming from. Last month, last three months, you've had ten of the eleven sectors have had positive earnest revisions. And that my view with what's leading the market higher. Our forecast a D eighty one earnings for this year, that's about seven percent higher than consensus. We think there's room for upward earnest revisions. That that's what's taking us higher. I'm looking for the reopening of America E t F, which I'm sure is coming somewhere to a store near you. David.

I am curious though. Underpinning a lot of the optimism in equity performance is this idea that we're going to get gangbusters growth in tandem with relatively low benchmark borrowing costs for the United States. At what point do higher rates pose a problem to your thesis? They say, that's a great question. The number one question we get from every client, which is about the relationship between rates and equities. So I think you want to think about it two ways,

both level and speed. And level not concerned about that. Right now we've had a fifty basis point backup and nominal rates led by a backup and really yields as you know, and so that still leaves equities under valued in the context of very low absolute level of rates. So one and round numbers, you can go to two percent, two percent and a tenure treasury yield, say multiple today at least, so you'd only be back at the long

term average relative valuation of equities versus bonds. That's if you went to two percent, not our forecast, but that gives you a sense of the if you will, the flexibility or the capacity of rates to continue to go higher and equity prices still to be in a good position. On the other hand, the speed of the backup is something we are a little concerned about. And you saw in the last month bind yields go up by a

very significant amount, more than two standard deviation move. But that you know, in context very unusual in terms of the swiftness and the magnitude of the backup, and so that usually is associated with some headwind to the equity performance. And I think that's why duration is the way to think about it. You want to have shorter duration equities.

This goes back to Jonathan's question a minute ago, which is how does that cyclicals do better they have shorter duration in terms of their cash flows than the on the duration technology stocks. I think that's the way to approach equities to the lens of fixed income. So I'm going to rip up the scripture David Coston and go and thank you for the two standard deviation view on

fixed income. We certainly lived out, including last Thursday. If short duration as cyclicals, does that mean Apple and Amazon and the rest of them are long duration and to be avoided. Well, they're longer duration, is no question about that. In terms of expectations and the faster growth, Uh, they don't shouldn't be avoided. I would think of it as the Barbell strategy. So they're quite part of the portfolio. The tech and the tech sector in particular is a

key driver. The semiconductors are expected to have uh twenty eight percent higher level of profits in twenty David. Look just because the times, David, I don't mean to interrupt it, just because of time. This is so so so important. If they have that cash level and we get a six percent, seven percent whatever g DP bubble is, it just gonna be one big share buy bic like we saw from Intel over the decade, we're gonna see we're already seen this year. We're two months into the year.

We've had near record levels of authorizations by boards to a proven an authorized share re purchases for this year. And so that's a reflection of management looking at their business for this year. Better cash flows, more flexibilion and how to spend money. That's one use of that cash is the is the biobax chairs. That will be a supporting mechanism in my opinion. But the biggest source of cash is individuals. Tom, You've had about a five hundred

billion dollar diminution reduction in money market mutual fund assets. Uh. You know in the last several months. A lot of that money at a zero rates is going into equities, and of course a lot of it's going into the spack market. You've had a hundred and seventy five SPACs this year alone, fifty six billion dollars. We're on pace to exceed last year's record level by the end of this month. Are you are you gonna do us back with you and hot us. Is that what we're looking

forward to. I'll have to Uh, I have to, I have to go ask him about that. They missed the Sullivan. I have other ideas. They're going to see it type custing government sacks chief US equity strategists. Let's get some stability on the American economy, Sarah House where us with Wells Fargo and their senior economy since Sarah, I love, I mean target just out with comp sales coming in higher than all the geniuses saw, looking for a huge statistic to come in rounded up. You say we're flushed

with cash. John just mentioned that with the stimulus, and you're gonna migrate from six point two percent higher higher? How much up are you gonna lift? I mean you're you're framing six to seven percent g d P or are we gonna shift from six percent to China like GDP? Well,

we're looking for a six percent GDP this year. And math of pickup really comes second and third quarter led by the consumer with all this fiscal stimulus flowing through and the excess savings beginning to to get sent I think when we look ahead and in terms of where the risks that forecast live Potentially they could be to the upside, just given again how much excess saving there is, and that has the potential to even get spent further

into and really still propelled growth quite strongly. In two. This is more than just a summer reopening story. Well, what's so important here is the idea of six and beyond. I mean, you are going through those calculations, as is every other house right now. Are those calculations out tents of a percent or are they out big figures? So we're looking at in terms of the overall the spending picture.

I mean, I think you can see some some pretty big figures just when you look at what's what's driving this, you know. So we've seen big figures in terms of case count declines recently, we're seen in some ways. I think the relief package that's working its way through Congress now is even bigger than Democrats may be expected they would get. And so I think you are still looking at some some pretty substantial numbers when we look at the outlook for for not just the middle of this

year but on into the latter end. When you talk about spending, it kind of speaks to John's point, who leads the next end of the cycle. The idea of you know, if we don't have China leading the dynamism and global growth, can an infrastructure spending plan in the United States, Can more spending to make energy more green throughout the world end up supercharging some kind of cycle and commodities and global growth that perhaps is not driven from China, It can certainly help. I don't know if

you can get a full another commodity supercycle. I think in many ways that the bounce we've seen is driven so much by this this pickup in demand. But you know, when we look at just what's happening with just you know, real supposable income in the household sector, and even when you layer on top of that a possible infrastructure deal, you know, these are are are one time boost. And so you whether we're we're going to continue to see that that pick up and spending I think is a

harder question. And so that could could could impede really the durability of that commodities commodities boost. But I mean, right now it's certainly filtering through into some of the inflation numbers and pointing to a sharp pick up there. Okay, so a one time boost. Let's say that the infrastructure spending or the fiscal stimulus that we get pasted in March on March fifteen, as the Democrats expect, is a

one time affair. Does that lead to longer, longer term inflation that's higher than people are currently pricing in So I think we will see inflation settle at a notably faster pace than what we saw over over the last cycle. So we'll get a pop here in the second quarter, But when we look out further, we're looking for core pc inflation to run at all over two percents, maybe roughly roughly two and a quarter over over the next

year and and a half or so. So I think that is a meaningful lift, particularly when you just think of how much the Fed has struggled with inflation over over the past decade. But it remains me seen if it if it stays persistently high, and I think to look at that, you're going to need to focus heavily

on inflation expectations. So does this become self reinforcing? Have you actually broken that mentality of low inflation that has been so pervasive over the past decade where businesses feel like they can actually price higher past higher costs on two consumers. Prices paid. I'm talking about the I s M in the last Sarah, and it was phenomenal. A sixty handle on manufacturing, that's what we want to say. Then you get into prices paid, and this has been

a trend for a while now. People were looking for eight we've got eight T six. Can you just frame

that for us, how important that is and what explains it? Well, I think it's it's hugely important, especially when you consider that last time it was that high, I was back in two thousand eight when you did have a big up chicken in commodities, but at the same time demand was absolutely taking Here this is a very different scenario, so you actually have demand ramping up markedly, and so it does suggest that again we are perhaps shifting into

a higher inflation environment. Now. Of course, most of that comes on the good side when we look at inflation in its entirety. You know, goods only account for roughly a third of of consumer spending, so we need to keep a close eye on what's happening in services. But basically we've taken away a major source of disinflationary pressure over the past decade, and we're that was really evident in yesterday's I s M Prices paid components. So Seba

for you, this is a demand story. It's not a supply side story, supply constraints all those kind of things. It's actually both. So I think immediately we are seeing we're certainly still seeing some supply constraints. I mean, you you mentioned the prices paid index, but look at what happened with the supplier to livery so that remains elevated, not quite as high as what we saw in in

the midst of the lockdowns, but still substantially elevated. As we have issues with transportation networks, issues with manufacturers getting their their staff in with COVID and keeping those assembly lines running to the to the full extent, and so it's a little bit of both. So we expect those supply disruptions to ease um at least when it comes to some of the labor challenges over over the year.

But but I think you're still going to have some bottlenecks just given how strong the goods and orders picture have been um over in recent months, It's going to take some time for those backlogs to get filled. Sara, not to what numbers in your mouth, But if we move from six point two percent to seven or dare I say ninety days of eight percent g d P, how does that change the eye part of the equation.

Do you guys have any understanding coast to coast of how corporations will invest in this boom or do they just do what they've always done, which is buy back chairs. Well, I think it's certainly supportive for the investment environment. When again you talk about some of these supply constraints, um not just from the staff. Do you see evidence of it? Is there evidence that they will invest? Well, we've already

seen very strong in investment and it's maintained stronger. So instead of hitting you know, perhaps an air pocket as you had investment pulled forward for things like information processing equipment, it's remained incredibly strong. We saw it with a durable goods report last week, the core shipments of three and a half percent, and so it seems like you are getting continued momentum where businesses are arising to meet that challenge and meet that demand and that support of investment.

This isn't just necessarily going to be the consumer propelling growth war in the year. Ad It's just been fantastic in the last particularly, thank you very much the A House Welst Fargo security economist. He needs a cup of coffee because what we do is we talked to pros in the horrific pandemic who are doing and not talking. I'm str Dolga has spent the evening and I see you at his hospital and he joins us. Now after a long shift. How is I see you different, Dr

Adulgon now versus ten months ago? It's right now. It's about the lowest that I've seen with COVID in several months. I think ten months ago we were looking at um. It was actually the middle of kind of the of

the summer, the summer surge. Around that time, we're starting to see the spring surgeon kind of a lot more patients, a lot more nursing home patients getting infected, a lot of them showing up in in in the i c u s. Right now, I would say there was only one coronavirus patient in an I see you, which is a is a good change. I think the high of it here. I clinically work in Pittsburgh, although I have a Hopkins affiliation was around the wintertime when it was

really inundated. Uh that during that winter surge, and that seems to have dissipated. And I think that's evidence that our vaccine is getting to those vulnerable populations and they're getting protected. And we've seen it in the national data when you look at nursing home deaths, nursing home cases, and I think that's going to give our hospitals a lot of rest. But in terms of capacity concern, which gives governor's possibility the nursing home success is the eighty

year old cohort, maybe the seventy year old cohort. How what is your timeline to get down to the sixty year old and to begin to benefit those forty nine and older. It's likely it's going to be different depending upon the states. So there are some states that are already moving into high risk individuals that are less than the age of sixty five. In my state of Pennsylvania, they haven't done that yet. They're still really sticking to the six and up cohort. So it's gonna take some time.

It all depends on vaccine supply. The Johnson and Johnson approval is going to help, But in the short term, we're only getting about four million doses, so it's going to take some time to trickle out. But we are getting better, we are moving faster. So I do think that that as we get into spring mid spring, we will have most of our people that are at high risk that live in the community aaccinated or have access

to the vaccine. And I think even before we cross that HERD immunity threshold will be in a very different place because we won't be worrying about hospital capacity or personal protective equipment or ventilators or any of that anymore. And I think that's really what drove a lot of the public health intervention, because we were always worried about the about keeping the curve below hospital capacity dr A delta. How concerned are you about the New York variant are I?

It's hard to know exactly how to be concerned about all of these variants. There are many of them that are kind of floating around, and there's many that we don't even have characterizts because we don't do much sequencing.

I think the New York variant is something kind of in the intermediate range that we worry about it being more contagious our vaccines are likely to still prevent what matters when it comes to these these variants or any of the original version of the virus serious disease, hospitalization, and death. So I think the existence of these various just underscores the need to accelerate vaccination to the fastest pace possible. Are we winning the race. I think we're

We're kind of keeping pace with it. But we'll see what happens to the overall number of cases right now. They have in the last ten days or so, there's been an increase of a couple percent. We don't know if that's actually a trend or if that's an aberration in the data. But as long as our cases are flatter going down, I think we're at least at least treading water and nothing and nothing serious is going to

It's not gonna undercut that. But if we just go up again, if we see, for example, the UK variant continue to increase, then I think we really need to step on the gas when it comes to vaccination. And I think we're getting better. Over two million is getting better. I think there should be no speed limit. However, when we're talking about vaccines, is a trend and better data on hospitalizations and deaths linked somehow to quarantine or do you just simply have to wait way down the road

to begin to EBB quarantines country to country. I think you're gonna have to do a lot to disentangle what goes on. And we know that social interaction spreads the virus, or the less social interaction you have, the less likely you are to have cases. But what does each added step do? That takes a while to control for, because people will voluntarily start to quarantine, people start wearing face coverings at the same time, people start to wash their hands.

A lot, mass gatherings get get canceled. All of that has a role. So you have to kind of piece apart things and try and control for all the different variables that were happening happening at the same time to know exactly what each public health intervention has and it's a hard job to know exactly what worked. Dr Dolgia. How much of a stumbling block is it the children cannot get vaccinated and probably won't be able to get vaccinated until potentially early next year. I don't think it's

really assembling block. If you look at the epidemiology we know that children are usually and greatly spared from the severe consequence of disease. There there are some exceptions, but in general they're not Some they're not at high risk, and they're not accelerators of the of the virus in the community. So with influenza, they really drive a community

transmission of influenza. They don't do this with coronavirus. So what we were trying to do with the vaccine is reduced the harm that the virus was causing, and that men going after the vulnerable populations first. So I don't think it's an obstacle. And remember there's a different risk benefit calculation when you're talking about vaccineing a nine year old versus a nine year old, and you have to really think, you know, is the vaccine but this vaccine?

Are these current vaccines the best vaccine for his child or will it be some second generation vaccine down the road that might have a less less of a side effect profile. So I think we need to do the studies. I think children will get vaccinating, but I don't think it's an obstacle to anything right now, do I know you're at the end of you arrive and night shift, So we'll let you run. Thank you Hot Works. We appreciate it. Thank you. I miss it down to that

of Jon's health kids. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am Eastern. I'm 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