Surveillance: S&P Not In Bubble, Patterson Says

a director of investment research. Rebecca. Fantastic to start the show with you today, so thank you for joining us. Let's start with that one little line from Chairman Powell, the run up in Bonnio to statement of confidence. Do you agree with that for now? Absolutely? Yes. I mean you're having a huge fiscal stimulus, huge monetary stimulus. Um. It's not surprising given the issuance coming and the recovery coming, that bond yields are going to be higher and we're

going to see the curve steeper. Rebecca, your colleague Bob Prince has talked about the chair lenges of working at the zero bound. I think we're creeping away from zero bound. How urgent is it for the investment community to get back to normal? Well, we can actually calculate a real sharp ratio. I mean, can we sustain this artificiality we're in, or does Ray Dalio, Bob Prince and Rebecca Petterson have

to get back to something different. Well, we like to think that we can find opportunities regardless of the economic environment we're in, so we don't need to get back to something different. But certainly a lot of investors would be thrilled to have bond yields that could give them some income and return and diversification the way it did decades ago. I don't think we're going to get to

that place anytime soon. Um. You know, as you all talked about at the top of the hour, Chairman Pale is being very clear that he's not unhappy with rising bond yields for now. He is very happy to see

inflation coming back. And I think that's the big thing we want to be watching this year is do we get an inflation surprise us on the upside thanks to everything we're seeing, the recovering economy, the fiscal and monetary stimulus, the new FED framework, and as you just mentioned, and this is a secondary factor but still really important, what we're seeing with global supply chains. It's going to be a longer background factor, but it's definitely an inflationary one.

All right, we'll get to that in one second. I do want to ask you about Ray Dalio, your colleague, speaking earlier this week in a LinkedIn post, saying that about five percent of the top one tho SMP stocks. Uh what top with thousand stocks in the United States, I should say, are in bubble territory. How does this end? Do these continue to climb upward or can they sort

of be deflated without a broader correction? Well, agreed. We we try to look for bubbles all the time across every asset class, and as Ray said, we see maybe as much as ten or fifteen percent actually of total US stocks in what we define as bubble territory. These are mainly smaller emerging technology companies, often that have not had sustained profits yet, um a lot of leverage money

going into these things. You know, bubbles can keep going up in the short term, but when you see all these indicators aligning, it tells you that their days are numbered. While a takedown the broader market, given how small this is, it doesn't need to, but it's definitely something we're keeping an eye on overall, the total SMP does not appear to be in a bubble in our view, you know, Rebecca, I'm gonna be honest here, Rydal you can pontificate about bitcoin,

but he and I are. Knowledge on currency equivalences is about zero. And I'm going to suggest Mr Dale, you probably got a brief from the adult in the rum, Rebecca Patterson on currency equivalency? How can bitcoin be a currency? What is it? I wouldn't call bitcoin an alternative currency. I think if anything, it's an alternative to gold or

a digital gold. I think that would be the better comparison. UM. You know, you do have the same or similar supply constraints, and it is something that investors have been looking to as they worry about fiat currencies being devalued by all this central bank printing. But bitcoin, you know, look, it's if you're speculating on it. A lot of people out

there have made a lot of money on it. UM As an institutional investor, I think we don't know yet if it's going to be digital gold it Maybe it may be over time, but I don't think we can say that with confidence yet, And that affects our view on whether or not we think our clients should own it all right, so going forward will be the trigger that will signify that this is digital gold, and we'll give a green light to Bridgewater to start investing client

money in it. Well, I don't think there's one green light that would have Bridgewater invest in it, but I think there are a couple of things we'd definitely be watching carefully. First, we wanted to see lower volatility. I mean, right now, bitcoin can move ten percent on a tweet. That's not exactly a storehold of wealth for most institutional investors. So the volatility of bitcoin is about ten times that of your dollar, it's still double that of the Venezuelan bolivar.

So that gives you an idea. You want to see a lower volatility, more stable asset if you want to consider it as a store old of wealth, of diversifier. I think. Secondly, and these are related, you want to see greater liquidity, and I think, and that takes me the third thing, which is regulatory certainty. The more you get a real regulatory ecosystem developing around bitcoin and other cryptocurrencies, the more other types of investors are going to be

comfortable coming in. That's going to bring the liquidity, that's going to reduce the volatility. So I guess if there were one thing I were watching first, it would be seeing more regulatory certainty, and I'm not sure when that's going to come in the US. Really important comments Rebect, We're always great to catch you out with you. Thank you, Rebettica Pacis, and that Rich Water, director of Investment Research.

Right now. Of the politics at the moment, it's a very important to speak to a politician who actually had a payroll of meat and worked in a company. It is Charter any X Films of Milton, Wisconsin. Brian Style knows it well. A Republican from Wisconsin. Think Paul Ryan's old district Conection Style. What does business need from Washington? Now we've got to find a middle ground. We're gonna get a stimulus, you're not in power. What does business

need from Washington? I think number one, we need to see our schools reopened. I talked to employers across the country. One of their largest struggles is finding workers. Our labor participation rate in the United States just over six is about the lowest since the Carter administration. The number of things, number one thing we can do to free up the labor market is to get our children back in school. Allow a lot of these parents with young children to

return to the workforce. The vaccination program is clearly succeeding. Where do you perceive your district, the southern part of Wisconsin. Where do you perceive at the end of this summer? Hopefully we keep making progress. More and more folks sixty five years and older are getting their vaccines. My mom and dad got their first vaccine in line. I think this is a positive sign. We're also seeing the numbers

of total COVID P sittivity come down. That's positive. If we continue to see this, we're moving in the right direction. And again, I think this is further evidence that we need to get our children back in school, and I think that's the number one thing we can do for our economy across the country. As a parent of two boys who are school age, I agree with you. It has definitely been a devastating year to have them out

of school. In order to get the economy backup and running, pretty much across the board, people agree that there needs to be some sort of assistance. How do you feel about this? One point nine trillion dollar plan, given your position, your history with the manufacturing industry, and your expectation and hope of further edification of these areas later on in the year, potentially, I'm very concerned that there's a mismatch with the fiscal policy here in Washington, d c. Against

the needs that are needed in our country. We need to make sure that we're driving forward with the vaccine. But what we don't need to do is overstimulate the economy with excessive spending that's not relative to the actual coronavirus. For example, in this bill, out of the billions of dollars being put towards education, only five per cent of the fun from this bill will be spent in one

We need to reopen our schools. Today, what we're seeing as a one point nine trillion dollar liberal wish list rather than a targeted in direct But I don't mean to interrupt here, but Coxon, this is really really important. Do you support the Democrats in the allocation to small business and individual income replacement, income substitution, in rent substitution.

Right now, what we're seeing is rather than a targeted approach, we're seeing abroad brushstrokes, so individuals will receive checks where maybe the couple together will be making over two hundred thousand dollars. That's far in excess of what's actually needed. We needed to have this targeted to those people who have been negatively impacted. Congressman, a lot of people are saying, though, look, borrowing costs are so low. Yes, they're rising, there's still

historically low for the United States. Why not borrow now? Get our economy running hot and generate the economic growth that can pay down all this step more easily and not potentially risk people staying out of work for longer. I mean, how much do you rely on that type of argument? I think these are the questions that we're gonna have to have for Chairman Powell and Committee today. The question is are we going to overheat the economy again?

We got to remember that over the past twelve months, Congress has allocated over four trillion dollars related to coronavirus. Of that, three trillion has been spent, one trillion has yet to be spent. Adding another one point nine trillion on top of that begins to leverage the future of our children and grandchildren will ultimately be held to pay for this debt. What do you think constraints further spending? Congressman, what do you think it is? Do you think it

is the bond market rates? Do you think it is inflation? What do you think ultimately should constrain spending down in Washington? I think you need to have a needs based approach as we're looking at funds to reopen our schools. I'm supportive of getting the fund to reopen our schools today, but in a bill like this, we're looking at only five percent of those funds for education being spent this year.

So that's a broad brush stroke approach rather than targeting the need of today making sure we're rolling out the vaccine, reopening our economy safely. So it's it fair to say it would be ideological. It would be political and not financial. The constraints around what you think we should and should not do well. I think what we've seen before is

an approach to a needs based approach. So when you saw congress past five coronavirus relief bills, all in a bipartisan fashion, it was driven by the needs of the country. This bill that we're looking at, one point nine trillion dollar bill that by all indications, will be a party line vote here in Washington, d C. Is not focused on the needs of the country. It's focused on political priorities of the Democrats that they're trying to advance under

the guise of coronavirus relief. Do you feel penerless to stop it. We're having conversations trying to win the hearts and minds of individuals and have them call their elected representatives. This is not a done deal until it passes. We need to make sure everyone understands what's in this bill so that they can call their representatives and see if we can put a stop to this trying. The problem you've got, Congressman, forgive me, sir, is that the electorate

like kit done. They looking at the poll link. Well, it's one thing to to to like free money. I don't have a problem with and understand it's not hard to understand that people like receiving a check from the

federal government. But at sometime we have to have an adult conversation that that check eventually comes back and do I'm very concerned about what our debt situation here is in the United States America approaching thirty trillion dollars and if we enter an inflationary period, payments on that debt will begin to squeeze important domestic spending. Congressman to come as you need to continue, Thank you, sir, fat time bron style that of Wisconsin. We've got a thirty year

buying out six basis points. It's a huge move two point to four percent rounded up. David Leebos is very aware of that at JP Morgan Asset Manager. David, Let's go right there where the data is moving. What is the signal of the long end of the curve, far out the curb moving to a higher yield and reduced prices.

So I think what you're seeing is as we get more and more evidence that the reflation trade is taking hold and the economy is really reopening here and then should continue to reopen over the course of the coming months, you're you're seeing assets begin to reprice and you know, frankly below one percent on the tenure where the thirty year has been trading. Those rates were reflecting a world

where we were still in lockdown. And I think what you're seeing is that investors are finally beginning to wake up to the fact is going to be a year where the global economy booms were We're getting more stimulus here in the United States. It sounds like policy makers around the world are going to remain accommodative over the

course of the next twelve months. And I think again, you know, fixed income was was too rich for that type of environment, and so again, very healthy repricing and a pretty positive story when you take a step back and think about what's really going on here, and sometimes talking to clients it's like therapy. You've got to keep them in the market, tell them why they've got to stay in the market. What's the conversation light right now?

So you make a great point about the wall of worry, and and many have fallen off that wall when when trying to climate um, the conversation right now is really about inflation and how the FED is going to respond.

I think the FED obviously was was spectacular in what they did in in terms of opening the credit facilities and re engaging with with fairly significant q E. But when we think about that that shift in their framework to an approach characterized by average inflation targeting, nobody really

knows what that's going to look like. It's very difficult to build expectations around how the FED is going to respond, and so the biggest concern right now is effectively the inverse of what we talked about for the better part of the prior cycle. I mean, how many times did did we have the conversation of the FED wants to raise rates and the market says no way. Um, we're beginning to see the opposite, right the market is beginning to say how long will the FED stand? Pat are

there forecasts realistic? That's really what's being called into question and dominating client conversations right now. So dominating the conversations we had, oh yeah coming into twenty one. In fact, for most of the back half was about the bomb how strategy having a second growth on one side, having a signal county on the other, as that whiting as that till that emphasis shifted divide. You know, we we

are increasingly adding more cyclical assets to portfolios. But the one thing we do recognize is that big bursts in in cyclicality and big bursts and value tend to be relatively short lived. If you go back to really the only sustained period of value out performance was what we saw in the early two thousands. The rest of the time it tends to be you know, here today and gone tomorrow, so taking a bit more exposure on the

cyclical side. We do think that those assets remain attractive on a relative valuation basis and should do pretty well given our expectations for the economy this year. But importantly not running away from growth, if anything, rethinking the composition of our growth exposure. We still like tech for the long run, We still like healthcare for the long run.

We just don't want to own those super growthy mega cap names that obviously performed so well in We think that those might tread water here, David, we were talking about Cathy Wood earlier, the poster child for some of these high flyers, particularly in the text space, and in her interview yesterday with Bloomberg, she said, the strongest bull markets I've been in are built on walls of worry. Do you agree? Do we have enough of a wall of worry to keep this bullvarket going? Absolutely? I think

you know. When when I was on a few weeks ago, one of the things we talked about was the fact that a pullback was becoming consensus. Right. People are very skeptical about the durability of what's happening in markets, and to me that that's always, you know, a pretty positive signal. So I think as long as people are asking the questions, how is the FED going to respond, what is inflation going to look like, what's the outlook for fiscal policy?

Are we going to overheat? I mean, these are very relevant questions for investors to be asking at the current juncture. And I think at the end of the day, again, as long as we're viewing this rally with it with a healthy amount of skepticism, that suggests to me that it continues to have legs. We are not necessarily seeing outside of certain pockets in the market, really that that amount of it, or that that exuberance that makes us uncomfortable.

We think everybody's still pretty measured, and again that makes us pretty positive on risk assets as we look across the next twelve eighteen months. David, thank you. I love how committed David Lebovitz is the JP Morgan Blue Wolves. Doesn't that just work just right? It's Jamie's so proud, David, Thank you, David Levitz there JP Morgan as in management.

Thank you. I know we this time that we will create also the Office of the National Director of Food and Nutrition at the White House, almost with a seat on the National Security Council next to the President, and making sure that we bring the resources of every single department. Food is more than the U, S the A. We have all learned from the pandemic and we will never be the same after this pandemic is over. Jose Andres

their World Central Kitchen. Of course. David Rubinstein show Peer to Peer Conversation tonight nine pm and Mr Rubinstein joins us right now. David, thank you so much for joining us interview because Lisa and I have viscerally seen the hunger on the streets of New York. How are we different in this pandemic? How are we different after this pandemic?

According to Mr andreas Well, his view is that is amazing that in a country as wealthy as ours, we don't really distribute food very well in a situation like this. Who would have thought you'd have gigantic food lines in Dallas or Los Angeles with people who are middle class not having enough food. So he's worried about it, and what he'd like to do is to have a White House advisor on food near the President who can really focus on on the food distribution and make sure that

people have appropriate types of food. Um. As you know, he's a great chef, a world class chef, but he's spending most of his time now on humanitarian types efforts, including feeding people around the world when there are tragedies in their countries. We have obesity in America because food is so darn cheap. If I go to asle five of my fancy whole foods, there's fourteen choices of rice. Thirteen choice is a mustard. How do we translate that

to an empoverished world. Well, that's the problem in whole foods, which I think is great is uh is terrific for people that can afford it, But many people in this country and around the world really can't afford something like that. And it's a sad situation where when you have, even in this country, a crisis like the pandemic, you have to feed people who normally have food and access to food. We don't really have a very good distribution system for

a pandemic like this. Well, David, it goes beyond just the pandemic. I mean, I'm thinking about food deserts, and that was definitely raised as an issue is people can't necessarily even buy easily some of the fresh foods that you're talking about. You said appropriate foods, right, it's not just anything to eat, it's something that will actually be healthy. I mean, what is Joss Andres proposing about what to do with those food desserts that we're seeing in many

areas around the country. Well, there's no one simple answer. One of the things he points out is that there hasn't been a food conference or nutrition conference in the White House for fifty years, and he thinks it would be a good idea. He thinks the Department of aggriga Ulture shouldn't be the only people worrying about food, and he wants to make certain that people eat healthy food.

Even if you have people who are not wealthy and they get enough food to eat, that's not the same as eating healthy food which enable them to live longer. At the moment, upper income people are focused more on healthy food than people who are at the bottom of the economic structure. There's also a question about the inflation that we've seen in food prices and some measures up to the highest levels since two thousand and thirteen. How

does this affect the discussion. Well, there's no doubt that it makes it more difficult for people at the bottom to eat adequately. In the end, what everybody wants to do is to live a healthy and happy life, and one of the best ways of doing that is eating well and and eating healthy. And he's focused on that. It's an interesting phenomenon that he could make a lot of money as a restaurant tour He has about fifty restaurants.

He's closed many of them because of the pandemic. But he's focused on his World's Central Kitchen, which goes to any place in the world that has a starvation problem and tries to feed these people without really a lot of government assistance. David Mr Solomon Goldman Sex is speaking right now at the credits WE conference, and he touches upon something that is immediate with your years of perspective.

With the hundreds and hundreds of companies at Carlisle Group has advised where are you on this shift to work from home? HSBC says they will trim their office square footage. Mr Solomon says remote work is not a new normal. Just in ambiration your thoughts, please, I don't think it's likely that we're gonna go back in the next five years or so, or even ten years to the work pattern we've had before. It's amazing that in one year we've learned that we can work at home and work remotely.

So I think most employers will probably be happy to have their employees work remotely for some time. I think there is a value of going to the office seeing your colleagues, particularly for younger people who need mentorship. But I think we've changed the way we've worked dramatically and probably forever as a result of the pandemic. David, congratulations on getting your first shot this week for the vaccination.

I know Tom Keene has had both of his, and it's a very exciting time, sort of seeing the light potentially of a normal world emerging. When do you hope to get back to the office to see your employees there with a bit more normalcy. I think it's unlikely that employees at financial service firms and and and office firms on the kind of that I work at, are probably going to go back in any real measurable way until the fall, and it may not even be until

next year. Nobody knows for certain, but I don't think anybody is thinking they're gonna go back five days a week the way they did before, or like me, travel as much as we did before. You can do so much with this kind of technology, So I think the days of my traveling two forty days a year around the world are probably over. David rubin Sein, thank you

so much to healthy and we appreciate your guidance. Carlisle Group, co founder and co chair Peer to Peer Conversations, Always Enlightening on Bloomberg Television tonight at nine pm in New York. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten a m. 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