Surveillance: U.S. Jobs Recovery With Kudlow

White House. Larry, great to catch up with you, sir, after a really solid payrolls report with an unemployment rate nicely in the single digits, south of nine percent, and the number one question everyone's asking right now, Larry, what does it mean for the fiscal effort in Washington? Can you draw the line for us just join those dots? Uh? No, I really can't. I mean the conversations are going on daily and we'll continue to go on. We still have

the view. First of all, today's number eight point four percent unemployment. I just want to note I think that shows that President Trump's idea of a generous unemployment assistance plan that he's put as the executive order, but not necessarily an extravagant one. I think he's been born out to be exactly right. Eight point four percent unemployment is

really the headline story of this massive jobs improvement report. Now, regarding the discussions on the Hill, you've got a continuing resolution discussion, you've got a cares to Act or whatever you call it discussion. There are areas of agreement. There wide areas of disagreement. However, on the size and scope. We have the view that a smart package, a well targeted package, for example, helping small businesses with PPP extensions, opening schools, COVID health, uh, you know, kids and jobs

or our watchwords. Why don't we just pass a more modest package instead of a package that goes into multi trillion dollars that we don't need, and then the long term would be counter for tips. So we'll see, Johnathan, I don't want to forecast. I don't want to get in the way of the talks. The talks are continuing. But that's our basic point of view. If you agree on four or five things, let's go for it. Okay,

let's stop dilly dowling around. Let's go for it. But not the entire uh left wing agenda from the other side of the aisle. That's not acceptable. Larry You've never been afraid of making a forecast, So I'm sure you can make a forecast on the economy with us right now and tronic gates from you. Where you think the economy is going and what that means for your policy stance. Do you think this is a self sustaining recovery now,

independent of the need of further stimulus. Yeah. Look again, extending small business loans would be a good thing, and there's some other important facetts, but I do think it's self sustaining. I've said this before. What you have here is a housing boom. You have a retail sales boom, you have an automobile boom, strong consumer spending, and we're getting you know, we've recovered over half of the jobs we lost last winter. UM. Inventories have laps in the

second quarter. I think there were down three UM. So the way I see it, Jonathan, is to meet these demands housing, construction, automobiles, consumers, retailers, and so forth, we're gonna need to rebuild inventories, and that is going to add impetus to the second half growth, which will be at least and perhaps much more. I think the Atlanta Fed has said the third quarter. But anyway, uh self sustaining. Yes,

we're gonna go on for quite some time. Next year is going to be a banner year for the economy and for jobs, assuming the policy regime is pro growth with incentives. So I'm relatively optimistic. Now, I will say we have much more work to do. We're not out of the woods. We have too many people unemployed. Even though the numbers have improved radically and way ahead of expectations on Wall Street, we have more work to do. There's still way too many unemployed and much too much hardship.

I get that, but I think one has an optimistic read bound in mind. And I think, incidentally the virus numbers are helping quite a bit as they flatten that and hook lore Larry. We talked about that hardship. We talked about the disparity beneath the appricate numbers. If you and I have talked about a million times after the last several months, still a lot of pain out there. I'm just trying to gate from you there is we

have this discussion about this recovery. How comfortable you would be going into the back end of the year without an agreement with the other side. Of the aisle. Look, we can live with it. We can absolutely live with it. Um. It depends on the package. You know, a bad package would not be helpful. A smart, good package, well targeted, would be helpful. Okay. Congress wants to legislate longer run unemployment assistance. If Congress wants to put in let's say,

benefits for bonuses for re employment, uh fine. If Congress wants to help out with funding a bit on the school openings, fine, that sort of thing would be extremely positive in my judgment. Lengthening p PP for small business, sure, do we absolutely need it. No, I'm not going to precondition anything here. What's good is good independently. What's not

good is not good independently. Right now, the economy is on a self sustaining recovery path in my judgment, and we'll continue along those lines, and we'll continue to surprise on the upside. And I don't want anything to get in the way. I mean, look, one of the issues here, let's put it right on the table. It's like the elephant in the living room is the other side of the aisle. The Biden team wants a four trillion dollar tax hike. Now to me, coming off a deep and

painful pandemic contraction. That is a terrible idea. I don't care whether you're Knesian or a supply sider or what. You wouldn't be picking taxpayer wallets and purses. Stop pickpocketing their money. They need more money, not less money. I'd rather they had more money through tax cuts, tax cuts which President Trump emphasizes, UH, rather than spending measures. But

let people keep their own money. But the idea, and this is the uncertainty factor with the election looming, and it looks like a toss up right now, President Trump is gained about six or eight points after the convention. UH. The idea of a gigantic tax hike on individuals, payrolls, companies large and small, that is a hurdle for this self sustaining recovery. So I think it's important to just put that right on the table. I don't understand it.

I don't care left right Kangent supplies hire, who would show white mine would be jacking up taxes by four trillion. And this idea that it's just rich people. First of all, rich people help investment a lot, and we like to reward success in the Trump years. But The second point is middle class people will bear the brunt of any tax hike that always happens. When politicians say won't, it always happens, and they'll go deep into everybody's pockets. Wrong policy, Larry.

I'm not here to advocate for anybody, and I'm not here to talk about electoral politics with you as well. Last time I checked, the form of vice president hasn't been elected to public hethice. Right now, you guys are running the government. You have to work with the other site to some degree. I guess I want to talk about language with you. There's some language around aid for states.

I keep hearing this language that we don't want to use money for bailouts of states, and I'm trying to understand. Is there a distinction between state aid and state bailouts and how do you draw that distinction. Well, I think the President had said it well a number of times. He doesn't want to bail out in efficient government operations

at the state and local level. We have the administration has been very generous uh in nick prior packages and other means of providing aid to states, principally for COVID related reasons, but also many other reasons, including by the way, equipment for COVID reasons, and testing for COVID reasons and so forth. We've been very generous. Hundreds and hundreds of billions of dollars have been injected into state and local governments. That's fine, we needed that. We were in a pandemic emergency,

no question about it. On the other hand, end one area, for example, the President is singled out badly unfunded pensions at the state local level. We don't believe a COVID package is the right method or the right vehicle for that. There's a number of other spending issues in the other other team's proposals that have nothing to do with COVID. By our calculations, over third of their proposals are non

COVID related proposals that should be scrapped. So what President Trump would say is, if it's necessary and it's properly targeted, Jonathan, then we would probably see our way to a compromise. But at the moment, we're not there. And again I repeat what the Chief Meadows has said, what Secretary Venition has said. We agree on some areas, and if we could find four or five areas key areas, and I will once again say reopening schools and extending small business assistance.

If we agree on that, let's just pass it. Let's just have a smart, well targeted, smaller package. So what would you do, Larry, if the state level austerity begins in the federal government? What will be the response when you start to see that play out? States across America who are up against budget constraints can't use the bondmarket in the same way the federal government can. What's the response, what's the plan, what's the strategy? Well, actually, I will

just say this. The federal reserves lending facilities include a very generous tax free municipal bond lending, so states can tap into that, and so can localities. The feed has been very generous about backstopping UH tax exempt municipal type bonds, so they should make use of that. I think that's a plus, particularly if you need two or three year

type paper. Now, the other point I make is it's quite true that the damage economic damage as a result of the pandemic has damaged budgets at the federal, state and local level, no question about it. It is also true, however, revenues are coming in much stronger now, as the economy picks up steam. I think there's a lot of underestimating going on and the extent to which this recovery is

helping all finances at all levels. Revenues at the federal level have improved enormously, and they are showing great improvement at the state local level. So I think people should put that on the table, put that on the scoreboard. You know, let's not just rush into stuff. That's been one of the issues here. Let's look at things carefully and analytically and assess them and their need. What is essential, what is smart, that's fine, but what is not essential?

And just throwing money at places to fund more poor management or pension funds, that's not what we want. That's a different conversation, and it's a different moment on legislative time. That's all I'm saying. It might be worthwhile let's look at pensions, but not now, not the COVID. Let's have a separate item for that. Well, let's talk about a targeted effort then. And the airline specifically, the President of the United States said recently, will be helping the airlines.

You have to help the airlines. Arguably the most free market approach to helping the airlines is not throwing aid at them. It's having a proper testing regime at airports across America and getting that New York to London corridor, of which I've got skin of the game right now, Larry on the other side at the moment, trying to work out how to get back, how we get that reopen, and how we get these airlines back to work. I think that's the key for these companies. It's not about

throwing money at them. It's how we establish safe testing regimes. And I'm just wondering why we haven't seen a big effort publicly to make that happen, Larry. Why not, Well, because there's been a huge effort privately, and we will be um unveiling the positives of that private effort. We are in constant communications with the air air carriers. We agree with what you're suggesting with respect to testing and

taking temperature and a host of other measures. We also are working with the airlines regarding contact tracing and the feasibility of that UH without incurring too much additional expense. We're looking at telephone apps for that. We're looking at testing before you get on the plane and after you get on the plane, I mean when you land on both sides of the pond, so you won't have to have a fourteen day quarantine. We're looking very intensely at that.

All that said, I will at however, the President has said a number of times airlines are crucial. It's one of the key arteries are of economy, transportation and so forth. Um, if they need additional assistance, we stand ready to work with them to hammer out additional packages. Secretary Manution is leading that charge. So we've got information testing additional assistance on the table for the airline business. When we hear

about it, Larry, you've talked about it privately. When we start hearing about this publicly, when it is the big unveiled so to speak. UM, without a specific timetable, I would say it will be a matter of weeks, not percent, Larry, as you not having this conversation not just about big tech. Imagine there's some nervousness of about the read across from a labor market that's still doing okay and what it means for the policy effort down in Washington. Raised this

issue with you before. There is some cynical people among us and I'm sure you'll appreciate that, Larry. He believe that unless the market gaps a LOWA, there won't be any urgency down in Washington to cut a deal. Now. Is the piscal approach independent of the price action in financial markets, Larry, Well, the physical approach is not independent of the economy. But I don't see there's there's no magic special formula between the stock market, UH and a

possible additional assistance plan. There's there's no direct length, there's no formula. I wouldn't want to go there, frankly, for what it's worth, Johathan, I think you know in markets, nothing goes up in the straight line. We've had a phenomenal rally in the stock market, which itself, by the way, represents confidence in the economy later this year and next year. But the tech sector is undergoing a correction right now, and as you well know from your coverage down through

the years, that's a fairly normal item. I don't think anybody should panick. The economy is definitely definitely improving, Larry. Before we let you go, I wanted to talk about something personal with you. You and I have tried some punches over the years with me sitting care and you in that position as well. Earlier this week, you talked about recovery and been twenty five years sober, and I just wanted to say personally to you, congratulations Larry, and

thank you for sharing that story earlier this week. That's very kind of you, Jonathan. It's um. It's perhaps the greatest achievement of my life. And I'm most grateful to my friends and family, my saintly wife. I came back to faith in recovery and twelve Step meetings. I'm in touch with my friends all the time. The First Lady did a fabulous job yesterday. My hat's off tour. It's a delicate subject. She brought in people in recovery, people

who are employers and laryees in a wonderful roundtable. Again, it's a phenomenal thing that the First Lady did. I was honored to participate. I would just say, Jonathan again, thank you for noticing. Look Um. As I mentioned yesterday, there's no question I would not be where I am in this position, in this job, which is the pinnacle of my professional career and a great honor bestowed on me by the President and the First Lady. I would not be here if I weren't sober all of yours.

Thank you, sir, and thanks for being here and allowing me to interrogate you every single month as always, Larry Fancasa to catch up Larry Cardlock, the National Economic Council Director outside the White House. One of the great strengths of Bloomberg surveillance is you as we welcome you on

radio and television. Is an eclectic view of economists. We now turned the former governor of the Fellow Reserve System, Randall crossn Are truly one of our experts in financial economics, sent our partying that into the labor system as well, Randy Krasser, and you're wonderful reading of the literature. How

is our labor share doing? This is something we'll speak to Blanche Flour later, but this is something that's so important, labor getting its fair share of any economic growth presumed forward. How is our labor share? And so we certainly have seen the labor share decline over over time. Some of that is due to the way labor is U is

characterized in the in the data. Because of course, if you can make your labor income into capital gains income, your tax at a much lower rate, and so it's been a very strong incentive to try to move things into what would have in the old days been called labor income and move into categories of being called capital income.

So that accounts for part of the transition. So, just looking right now at where we are in the labor market, given this better than expected print, do you feel like there is momentum perhaps that economists have not accounted for, that they have failed to account for given the number of positive surprises in a row. Well, I think it's

great that we've gotten some positive surprises. I mean, these numbers are of such large magnitudes that, um, it's no surprise that we and we've never had something exactly like this before, that we're gonna have more misses. And so I think we're broadly in the same range of where people thought we would be. That the unemployment rate was going to spike up very significantly initially, then as the unlock occurs, you're going to have a very uh major

move down that will gradually slow down. And also, as you're mentioning before, there's an additional bump because of the census workers that will make the unemployment rate look lower this month than than otherwise. But um, we're gonna make a mistake. I'm glad. I'm glad things are better. Yeah, I mean, look, we we we all are. This has been a brutal market and it's been moving from temporary

layoffs and permanent ones. We've been talking about Coca Cola and the airlines and everybody else announcing layoffs, even the companies that are doing well. I want to go to the numbers. The confusion that Michael McKee, who is brilliant and who has been doing this for years, was displaying came from a very confusing set of data. Yesterday we had a changed method of accounting for jobless claims. Today

there are separate surveys that are coming out. Do you feel like the data itself is more confusing than it's ever been before. Well, I think that the fundamentals of the data are are the same, but it's just the movements in the data in these short amounts of time are so much larger than we're used to that of course they're going to be possibilities for um misinterpretation or

miss uh miscategorization. So I think we have to take these numbers with a little bit of a grain of salt, not because there there's something wrong with numbers, but just the movements are so large that what used to be, you know, a hundred thousand was a big movement. Now it's a million, and so it's just a very different,

different kindle of fish, Professor Cross. There there's a raging debate, and this goes more to your wheelhouse of financial economics, and over the years, the debate is on the growth rate needed given the interest rates within our fiscal policy. This is the this is the crying worry right now of those looking at our deficit build up. Give us your sense right now of the growth rate we need given the potential interest rates higher that we may experience. Are we near a point of worry or do we

need to worry outside of two thousand twenty five. I think the longer run, there's a challenge. I mean, right now, it seems that the markets are very, very willing to definance countries that have astonishingly high deficits, whether it's the US, Japan, and a number of other countries. Least of major countries.

Emerging market countries are facing enormous challenges, but there are some of the large countries like the US, are very fortunate at the moment to be seen as relatively safe, and there's a lot of money looking for those relatively safe assets. The challenges that at some point the chickens will come home to roost, that someone will say, well,

can they really pay all this off? We don't know exactly what we'll trigger that, but but I think we should be worrying about that in the UH in the intermediate, longer run and Professor the Center and Budget and Policy Priorities, they go back too and say, we have a confidence that the American system has always developed a growth rate over that interest rate glide path what Peter orzag would call the glide pass out there. There's a little bit of angst right now that that may end. How do

you feel about that? But it's UH, that's a concern now. And at least the short intermediate run interest rates are are around zero, even the tenure rate being less than one percent. I mean, that's really unprecedented UM and in many other countries we're seeing long term rates be be negative and so obviously that makes a lot of UH fiscal physical spending much more much more feasible when you

have zero or negative rates. But if and when those rates go go up, that's when the challenge will come in. I think that's going to be at least a few years off. But we shouldn't be complacent now and say, oh, well, we can just borrow forever at zero and it's no problem with that kind of attitude. You won't be borrowing for very long at zero, and that come home to

Ruth sooner. People have been saying that we haven't seen it, but people keep saying that, I do wonder, Professor, going forward, if the FED is out of tools to improve the labor market from here, well, I think you can't rely just on the FED for everything. People try to try to rely on the FED to to cure all ills. There's some things that the FED can can provide support for.

It inn front, a lot of liquidity to markets, so when things when there is market dysfunction in February March, we're very helpful and in that Right now, I think it's much more the transition. Uh, the shock of of COVID is really a fundamental shock to the structure of

the economy. I think it's much more fundamental than what happened with the global financial crisis or with nine eleven some parts of the economy are simply not going to be coming back, and we have to acknowledge that there's going to be a transition there and that's going to take time. The FED can't directly address address. Professor Crossner,

thank you so much with the Booth Schools Chicago. We're thrilled that you can join us today on this job's day, joining us NOWS and just spoke with Crossinger of the Booth Schools Chicago. We now, as we put Blanche Flower of Dartmouth College, Danny Bachlower, thrilled to have you with us. Danny, I want to go away from the wage dynamic this time around, and I want to go to your important research moving on from Richard Leyard on a happiness and age.

Our happiness has been shattered in this pandemic. Explained to us the dampening impact of a pandemic on how a society moves forward to the end of that pandemic. Great question, Um, we have evidence around the world. I think there's two big things to it. When we had the lockdown, we had a huge collapse in well being and happiness around the world of a scale that we've never seen before. And the census and the Office of Natural Statistics have tracted.

One of the things I think we're learning now is that people have adjusted a little bit to think of a big drop and then adjustment taking place, people becoming adjusted to the fact of the new world. But this is a major shock to people's thinking and behavior. And why it matters to Bloomberg listeners is whether this shock and adaptation tells us that something different is coming down

the road. Are there going to be behavioral changes. I was just thinking about what Mike just said, and there are all kinds of things that you could look at as to what's coming. I was looking this warning at Google ends and if you just put the word unemployment in, what you see is that actually the thing has started to tick back up again, decline a big rise, as as unhappiness if you like rows. So people are adapting,

they're thinking about what's coming. But I think what you'd see in the data is, I mean, this is a great set of data today is that people are fearful, and the question is are they going to take different behavior going forward? But you know, we've seen a rise in depression and loneliness of all sorts of things. We're seeing them start to adjust back again. But the question is there still a big gap and we've never seen

anything like that. Are we ready for our new top line, our new nominal g d P if we have subdued inflation, and we have let's call it subdued even pretty good economic growth as a society, are we ready for that? Well? I think I think we're potentially ready. But again, this is a huge shot to which people are adjusting. And if you think about saying to your guests, or saying to a owner of the Bank of England or to a Fed president, where are we going from here, they're

going to have to say to you Tom. It depends. It depends on the first thing that I just said is are people going to change their behavior? What's going to happen to this virus? Is a vaccine coming? And then the other thing is are people confident about what's coming forward? If you've never seen a shot downwards to your happiness like this before, are you going to start thinking in the future, Well, it's happened once, maybe it's

going to happen again. So yeah, the world is the world has changed, I think, and uh, your previous guest was right to say that, you know, this. We've never seen anything quite like this before, so forecast things difficult. Tom Danny, what's the long term effect on a potential lost generation, the idea that there's fifty five year old cohort is facing unemployment rates close to twenty and facing

a labor market virtual or otherwise that's decimated. I think that's probably the the most important question I've been trying to work and I gave testimony to the Scottish Parliament last week on exactly this this point. Think about so we're talking about firms, workers being on furlough, workers being on temporary layout, but a big chunk of kids around the world left school in June. They graduated from college.

And we know graduation from college into a bad labor market is tough, but especially think of kids coming out of high school, high school dropouts, um and there are huge social consequences to that. We had We had huge action in the thirties, there was a civilian conservation Corps. But nobody's actually really taking much action for these kids. And I think this is going to be a really stored up, huge problem for us. We tried to tackle

it in the eighties. It kind of went away, but I think that's going to be the number one problem going forward. What are we going to do about these young people? Are we going to give them a sense of hope or impose hopelessness on them? What are we going to do about them by November? Especially given the fact that we are facing a backdrop of people not being able to socialize and depression and a whole host

of other emotional issues. Nonetheless, there are no jobs. The entry level jobs have often been in the services sectors, whether it's to go work behind the counter at budget to do people rental cars or at airplanes or whatever it is, or in your local coffee shop. What jobs are going to replace those? Well, it's gonna be it's difficult to know. And obviously we've seen a big growth in delivery drivers. We've seen Amazon and Walmart and others. We've see a home delivery of foods um. I think

it's really hard to know the answer to that. I mean, it's a great question. Labor clients will always ask, but if you think, think about saying, if you ask me what jobs are going to replace those in two thousand twenty,

and the answers I have absolutely no idea. So I think their markets will sort of fix these things, but I think, you know, we're going to have to basically help people through this transition um and the fact that stimulus stopped at the end of July in the United States, I mean, well, when no one's talked about that, Eventually, at some point this stimulus and the lack of money coming into the economy, the lack of spending is going to reflect itself into the labor market, which is a

lagging indicated. So it's you know, these are tough ones, but I think going forward, it's going to be hard to see young people will do unless we do something dramatically for them. Professor blames for one final question. Claudia sam joined us earlier this morning. Always controversial. I will label her a liberal economist, and she says, look, we got to get it going. And her statistic is a six trillion dollar aid for the United States of America.

What's the Blanche Flower statistic. I don't want to get you in trouble with Dartmouth, but what's your stimulus estimate that would be appropriate? Well, I think the answer is that what we learned in the past is it's that that the issue is probably doing too little, not doing too much. I mean, Claudia has obviously been pushing these kinds of issues and has been very good on it. Um I think the answer is several trillion is going to have to have to work and have to be used.

We're still at eight I mean, okay, we're still at eight and a half percent an employed plus another point seven because of the era. I mean, these are historically high numbers. Think where we were in March. We were at three and a half, so these are really big numbers. But I think the answer is doing too little is clearly the problem. It's hard to see what the consequences are of doing too much. If you think what Claudia said,

if he did six what would it do well? It would boost the economy like crazy, and then Randy Cross right, at some point then you would have to do something about it. But doing too much is much better than doing little. Answer. We're at a time, David Blanche, thank you so much, of course at Dartmouth now on the equity market, and she has just been wonderful. Gina Martiny

Adams has tried to give perspective. She's trying to really focus on relative value versus the many hysterias it seemed to be there in this odd two thousand twenty Gina, How did we get to the point where an index four percent pullback or a selected high flyers eight percent pullback is a cause for route cratered plunge? How did we get here? That's a good question. Um, we got here by having such an extraordinary rip higher that took

a lot of people by surprise. In my opinion, this has been an ongoing issue with this bull market that began back in two thousand nine. Is every rally seems um to take most investors off guard, who are general generally have a pretty bearish outlook toward the fundamentals. Every rally starts with some degree of policy infusion liquidity takes stock significantly higher. Eventually fundamentals catch up, but never to the point where investors feel completely comfortable taking on equity

insure exposures. So that's very much the same this year. Even though this year has been anomalous and that volatility in general has been a lot higher uh than in past years, the fact that stocks have moved higher based on liquidity conditions does make investors feel uncomfortable, and so any sort of sell off is a chance to feel justified. And that's why I think you hear the headlines of you know, we've got this correction, the doom and gloom

sort of is near. This is the beginning of something horrible. You know that in a lot of ways, that's not different than the experience we've had in the last ten years. It's just amplified by extraordinary volatility and tremendous economic uncertainty that exists this year specifically, So, Gina, when I got into this business nearly thirty years ago, I think the first lesson I learned, at least internalized, was don't fight the Fed. Is that all I have to worry about here?

I mean, I know the Fed's back stopping me here. Is that all I have to really focus on. It's not all, but it should be the foundation. Um. So I do think that that is absolutely one of the most important investment tenants is the fact that liquidity provision is absolutely extraordinary. Uh. You know, the FED balance sheet simply exploded from March to June, and it's still significantly higher than it was at this time last year. We've also got rates at zero percent into perpetuity as far

as the market is concerned. So what you want to be concerned about is the point in time where economic conditions stabilized or get so strong that the FED does have to pull back on the punch bowl, because that's the most dicey time for stocks. That said, there are some underlying conditions in the equity market that do cause a little bit of pause. We're at a point in time where it's very clear that the momentum of some

of the mega cap tech stocks got two extremes. It showed up in three sectors in the SMP five hitting momentum extremes that we hadn't seen in years as of last week. So we will have to see these segments of the equity market correct if we are to sustain gains and sort of experience, you know, a continuation of the uptrend. That means that as these areas of the market correct, someone will have to see a leadership transition into other sectors. Um, So I think you do want

to watch a few other things. You do need to see economic momentum and essentially improve at least a little bit into one. If it doesn't, but then we're going to have to see greater policy infusion to keep stock prices afloat but you know, I'm trained the same way you are, a Paul apparently, because I completely believe in the notion that liquidity is extremely important and if you ignore policymakers, you're you do see your peril because it

is a huge part of investment. So what's the allocation debate? I mean, I know we don't do bi whole cell and I don't give me you know, like sixty should be fifty two, blah blah blah blah blah. But how do you allocate Gina Martin Adams now with such an unusual yield space. Yeah, I think that this has been a question also that we've been asking ourselves for an honorably longer period of time than just But of course again really amplifies this question for a lot of people

with rates reaching new loads across the yield curves. UM. You know, in my view, there is a very very compelling and strong reason to move out UM in terms of risk and move into riskier asset classes beyond treasuries. And that compelling reason is we're starting to get a sniff of an inflation regime change. Um. You also, on top of the fet obviously, the FETE is your most compelling reason. If the FETE is forcing you to take on risk, you pay attention and you take on some risk.

Of the equity market is trading cheap relative to the corporate bond market, for for example, if you compare earning zeal to corporate credit yield. But if we're going to have an inflation regime change where companies are going to diversify supply chains increasing costs, that cost is going to have to get passed onto the consumer where liquid the

conditions are extraordinarily supportive. Even in an environment where inflation is printing two to two and a half percent, the FED may not move because they're conditioned to expert deflationary conditions to prevail. Fiscal policymakers are going to throw everything they can at this crisis. All of these things line

up to a potential for an inflation regime change. If we do see an inflation regime change, that changes the dynamics of how you want to allocate in your portfolio, because it means that box moved from a long term downtrend and yield to probably a longer term uptrend in yield, And that means you do want you do want to shift the dynamics. We're seeing this argument play out in

Risk Parity Land more than anywhere right now. But I do think the alloy under question and what's worse is Paul, if you go to risk parity Land, you've got to be quarantined you come back. Gina, Martin Adams, thank you so much. Just always hugely valuable as well. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You

can always catch us worldwide. I'm Bloomberg Radio