Surveillance: Vaccines & Variants With JHU

save you. Don't worry. You've asked the important question. Is this just a little correction or is this a transition into something bigger? Which one is it? Jonathan, We think it is a just a pause as opposed to a phase transition. Really two reasons behind that. Number one is we think there's this portcoll between or we're calling Horizon one and Horizon to Horizon one is the reopening investment Horizon the gra usual mobility increases, more flights and and

more mobility across cities. Horizon too, is what happens once we're already there, once that reopening occurred. And so we do think that the fits and starts that we're seeing in Horizon one will have corrections like this, And we also think that probably a little nuance here is the bond market is likely already pricing in horizon to the eternal value of FED funds likely lower, as well as general productivity and demographics weaker. So we think this this

push pull continue, but we're still bullish. We're still sticking with that that that growth mentality. Eric, you're write an extremely sober adult note. We don't see enough of those. It's from a button down banker with belt and suspenders. I get it. When there's a phase transition, how do you know when to make that transition to a different portfolio allocation. The biggest thing that we're focused on early

three variables. Number one is the dollar, and what we're looking at the dollar is a is a rise above ninety for ninety four and a half the d X Y or one twelve in the trade WAD Dollar Index. Number two would be the tenure. We think a test of let's call it one tin down to one percent, that would signify that the bond market is pricing and really worse rising to by our parlance. And I think the final is going to be our viewpoint, and earnings is mentioned earlier, and Toto does a great job of

this talking about rate of change. We are in a very delicate position right now with in terms of both revenue forecasts as well as earnings forecast. If we see some deterioration there as we get deeper into this recording season, that was signified to us that we need to come off that growth mindset, that that pro risk mindset in the more of a of a neutral position. That's where

our biases right now. Eric, you have bond guys like Jeff Gunlock of Double Line saying that stocks are attractive on a relative basis because a one on the tenure doesn't make sense. How are you thinking about relative value? Yeah, it's a great question, Taylor. Basically two things we're looking at. Number one is if you look at the risk premium, so wonkish term and basically shore there's a difference between you know, the dividend yield of global equities versus UH

tenure or even global global rates. It's really attractive. Stocks look very attractive versus fixed income versus their own history. Stocks are is certainly in the top quartile of expensive, So we think fair value for the tenure, Taylor is likely around one sixty one. Doesn't mean we have to get there immediately, but our viewpoint is a gradual re retracing,

if you will. Upward in bondyls suggest that that stocks probably had a little more value here, but you have to look at them on both an absolute basis, from a relative value standpoint, on a risk premium basis as well versus their own history. So relative values certainly favors equities that were fixed incoming. Eric, what on earth is fair value in a bond market with a huge monster sized and sensitive by a price in sensitive buy? What's fair value in the treasury market these days? How do

we even come up with that? They're almost are three waves of buyers, Jonathan. You have you have the general speculations of people making making bets on where ten years ago. You have hedgers in terms of mortgage as well as as pension pension bars, and you have i'd say, just a steady drumbeat of FED participation. So tough to have

an edge on speculators. But if you look at what's happening in the mortgage market, if you know what's happening with with respect to pension funds, those liabilities are getting more expensive, So that's almost like that that short gamma position continues to grow. That means people are stepping back into the bond market. So again we think that position gets cleaned up and a gradual retracement up to that

one sixty level is more likely. But again it will happen on a on a very phased, very gradual basis. All Right, we've gotta naven that it's gonna catch up set right now in the pandemic. It has been a joy to speak to Buck then Sadi with Johns Hopkins or expertise and emergency medicine. I want to go there today back the instead of the geography that you are expert at in emergency rooms at the Johns Hopkins Hospital, there's gotta be a certain percentage of people working there

who are unvaccinated. There's got to be a certain percentage of people coming into the emergency room unvaccinated. What do you do the regarding employees of John's Hopkins Hospital. We are vaccinated. We all do show our vaccine status um that is now documented and recorded regarding unvaccinated patients, that we have that knowledge on who's vaccinated and who's not. My practice is to gown up and be ready if I'm unsure of their vaccine status or their COVID status. Doctor.

I was very surprised to read the following state in the New York Times that around six workers in the city's public hospital system of vaccinated. Given what's happened in the last year, I would have expected that number to be far, far higher. Where is that resistance coming from, doctor, So we feel like a lot of that resistance is

coming from our ancillary services. UM. There are still individuals who, despite working in public health hospitals UM, have misconceptions or concerns around But the medical systems have vaccine hesitancy, have UM, you know, victims of misinformation, and so it is really difficult to prove a counter factual. And that is something we're still struggling with in all sectors of society, not just public health hospitals. Don't to many people are characterizing

this is a political party issue. Do you think that's helpful? It is not. This is not a political party issue. This is not a national issue. This is a global issue that affects every single one of us. Until we reduce the amount of circulating virus and we get vaccinated, we don't get to return back to normal. And it's as simple as that, doctor. Are the vaccines effective against delta? Vaccines are effectivigates delta. It is very common to see

individuals who still get sick despite having vaccines. We see this every year with the flu um the fator vaccines that they show a scent effectiveness two we after getting your second dose. But that does mean that twelve out of a hundred people will potentially still get the illness. But we know that it's the disease faring vaccines. They're less likely to be sivilial, less likely tendive, and the I see, less likely to die. What do you think it's going to take to see if schools can reopen

or not. In the fall, we were having a conversation here that the markets perhaps might actually believe that something is wrong if schools don't reopen. If that is the catalyst, what do you think it takes for us to get there? You know, I think we've learned a lot about how to reopen school safety. In the spring of this year,

my daughter's school open. They used pods that they you know, stegreg They created pods of play um classrooms didn't interact those temperature checks yes, you know, it's a bit strange taking your child into a temperature check every morning. But I felt perfectly safe that my child was in school with the precautions that were put in place. But I want to talk to you about the too alogy and microbiology because I just don't buy this for a minute.

We cured ourselves from the horrific child killer diphtheria. I was on the back end of polio, Taylor, I believe her amery mentioned earlier Senator McConnell's battle personally with polio. I don't buy it for a minute that we haven't done this before from bacteria. We got vaccinated. From VERA viruses, we got vaccinated. What's different this time on? There's nothing different.

Vaccine innovations of it ahead of the curve um. Luckily, we had the mr and A vaccine studies that we're done for cancer drugs, which allowed us to find a suitable vector um for all the vaccine and implement it rapidly. We also do have viral back to vaccines as well, which are extremely innovative UM, so nothing is different. We have actually used all of our lessons learned and applied

them to the COVID N pandemic the challenges therapeutics. So with bacteria, we have to biotics that affects the ability of the bacteria to reproduce and stop infection. Viruses have always been more trippy, tricky due to the way that they replicate. How do we incentivize these people? I mean people are saying, give them money, do this, do this, do this. How do we get this fixed in a Joe Biden speed? So there is two groups. There is

the hardcore conspiracy theories vaccines. They're you cannot change right, I got it, I got it. But the majority of the people are people that have a underestimated their vulnerability to getting sick, second, overestimated the side effects of the vaccine, and because they're kind of just lost, they have just do nothing. Now that is a group that we target.

We to promote positive messaging around the vaccine. We need to educate people with clear, concise facts about the true risks of vaccination and stop over inflating the few side effects that have been seen all the ice later cases in social media. Do you think full authorization would have pushed this issue forward and move away from just emergency

youth authorization of these vaccines. Unfortunately, yes, right. So I think for the lay public, the difference between full authorization and emergency youth authorization is one of the big sticking points in their vaccine confidence. The truth of the matter is the way that these studies were conducted was rigorous, just as we would have conducted any other new drug

intervention study. UM. Due to the national reporting software, the v A R EER software from CDC, we have national reporting on vaccine side effects, which is phenomenal, and the use case here is in the millions. And so I think that having that sticky label that says this is fully authorized, I think will improve people's confidence, although scientifically it is unnecessary. Don't We appreciate your effort, that's for sure. Thank you very much for being with us this morning.

Dr Bacti, Han Sarti. There, John's Hopkins Universe, the Associate Professor of Emergency Medicine, on some of the issues time, and those issues are always far more complex than some people might want to debate. Right now, we go to your content where content is king Michael Nathanson with Craig Moffatt. Moffatt Nathanson has just been spectacular on all of this stuff that we watch at home. And is there really an opportunity to make money at it? Michael Nathanson, where's

the profit? Magnan Decide ellsse E says, it's all about profit. It's all about getting out there and making money. Is there an identifiable profit in the streaming business at this point? There isn't how the profit is going back to the consumer given all the discount it's being done. The consumer is grabbing the profit and companies to subsidize from consumers content habits. At this point, Comcast was able to make that shift in cable TV to get the real profit

to real cash flow. Do you model an equivalency year to what comcasted in cable TV or is this time different? This time is different, Tom, We Netflix a goiling company. The next three or four years, every people will make money money to define this free cash flow, we just see big black holes everywhere, right, And that's why you had Discovery Warners Merge. That's why Comcast by comes rumored

to get together. These businesses are really capital intensive. I don't think that's the same dynamics as the linear businesses that we all do pring years. And Michael, this seems to be abroad sectical and That's what gets my attention here. This is neutral Netflix, neutral Weald Disney Company, neutral road coude. You see this across the board, head, Jonathan. The problem is, and I think it's to your previous guest stuff the cost of money. You've got to look out five ten

years to see evaluation here be supportive to me. It's just a long way to go, and everyone's so confident about their data points that I just think the other side of this trade, right, I mean, we know streaming is the future, but the market has overpriced these assets and I'm just gonna wait for a better entry points at this point in time. Let's talk about that. What would it take for you to say I'm wrong? Always a good exercise, Michael. What would it take in the

coming year? Is there anything? Well? I would say a couple of things. One is our view is that the US is a very competitive market and it's hard to eat profits out in the U s streaming business. I think you need to see more people move into the sidelines, right.

You would see more consolidation. You would see Apple on Amazon, you know, kind of step back and you would start to see you need Netflix to start growing more quickly in the US, which would point to a higher upside you know, penetration case, right, So I think here you need competition to lessen and you need um you know,

growth actually starts re accelerating against That's one. And then secondly, I think internationally, you really need to see some of the developing markets where there's very low were pricing really start to show science of pricing power. So those are to me the two things. Because you know, the profits right now are in the US potentially, and the growth is coming from low market places like India, low price pricing markets, they just don't have great returns on invested capital.

And Michael, I've heard this a lot. The US customer is more profitable than an international customer. How do we get them to be even? How long does that take? Well, it goes to you know, a big part of the chaction story is developing markets, right, So you have Latin America and age specific as the drivers of growth. But those price points are really low, right. The rest of the world price point outside Europe could be one half

to one third price of American customers. So it's just can get a long time tailor for pricing to start elevating, right, that's and before the pricing can elevate, you need to give consumers a ton of content to make the product sticky, right, So you need to an invest and this is the

biggest challenge. You to invest tons of dollions of dollars, billions of dollars to make the content except you sticky enough so hold on to customers and then too drive pricing right, So it takes years investment to get to that place which you start raising pricing again. The other point that you made pretty well is about consolidation. I was reading another of your colleagues notes talking about Amazon purchasing MGM for about eight and a half billion dollars.

Why is it Netflix making more purchases should they be What does consolidation in the industry look like to you? Yeah, there's not a lot they can do. I mean, the biggest, the biggest reason why you make a better on MGM is for franchises. Right. The speed of which Disney built out the director consumer business is due to the speed tied to their ability to really lift Marble Pixar, Star Wars Universe in streaming. So but there's just not a lot of franchises like that still available MGM has a

few you Netflix w are going to do this? Uh, MGM is really not a lot that that I see. Now what's we bought? Um? I worry, you know, as the analysts covering the industry, that you're gonna see Apple on Amazon for even more money to work in streaming because you know they have other reasons to do it besides trying to make a profit. Michael, just a bit of a tricky line this morning, so we're gonna have

to cut it short. But you know, we always enjoy catching up with the sir, and we enjoy your work too. Send up regards to the team that was Michael Nathans and Muffin Nathans and senior research analysts. This is a joy because he has done public service for America across so many areas, including ambassadors to Japan and now Senator from his very much his Tennessee, Bill Haggerty joins us

the Republican from Tennessee. This morning, Senator Haggerty, I have to go to the stunning Washington Post analysis this morning of the unvaccinated. You are eating spokesman on this. How are you going to convince the unvaccinated of your Tennessee to get it together and get vaccinated. I think we're off to incredibly a good start thanks to Operation Warp Speed. I don't think there's enough credit given to the progress that we made here at an imprecedented level here in America.

In Tennessee. I've been very clear. I've taken the vaccine. My mother, who is eighty nine years old, is taking the vaccine. I lead by example. Uh. We continue to encourage people to make its personal choice for folks, of course, but I've certainly been clear that I've looked at the data, and I think the right decision, certainly for me and my family was to do just that. How do you sell? And we talked to french Hill a little rock the other day with the same challenges. I would suggest Arkansas

frankly a grimmer story than any Tennessee. But what's the prescription you have with your knowledge of Nashville media and Tennessee business, what's the prescription. What's the plan to jump start this? As we hear from President Biden, I think that you know, as we look at where we're headed right now, Uh, the numbers continue to look much better spitality, and we just need to continue to talk about that positive outcome, that positive result, and encourage people to continue

to get behind it. As school reopens, things get back into the swing of things, will probably see another pick up in inoculation. One final question on the Senator, because I know Taylor Riggs has some important questions as well. Senator Haggerty, what do you need from former President Trump to send a message to the unvaccinated? President Trump is having a hard time sending any messages thanks to the censorship of a big tech His normal means of communication

has been incredibly stifled. I think that's incredibly troubling. Um in terms of his message to people, he was no one worked harder than President Trump to put a vaccine in place. I think people know that. I think he can convey that, but he put it from innocent amount of work in place, with operation work speed to make this fact seem possible, not only for America but for the rest of the world. I think that's an incredible example. He should talk about that when he can. Senator A

pivot with me, if you will please to infrastructure. What is the past to a bipartisan five hundred and seventy nine billion dollar infrastructure deal? Very hard to say, uh, you know, Chuck Schumer today is planning to put a procedural vote in place to start the process on this. Yet we haven't seen any text. We don't know the content of it. I haven't seen anything. You know, this sounds remarkably similar to something that we've all seen before. You remember, you have to pass the bill before you

can see what's in it. Obamacare two point oh, that didn't work out well for America. So we have a lot, a lot to see in a lot more work that needs to be done before I can comment on exactly you know what's in the bill and how we should proceed on it. Is this two path approach still the right way to go? Well, certainly not the path that I would take. You know, I'm a businessman my entire career. You know, I step back and look at this and say,

what's happening here. You've got a two path process, one that you know, a lot of effort has gone into play. I think I respect my colleagues who have worked hard to put a bipartisan plan in place. But as you know, when you negotiate a deal, often what's even more important is what you negotiate out of a deal. Yet, we've got the Biden administration, We've got Nancy Pelosi and Chuck Schumer talking about pushing everything that was negotiated out of

the deal right alongside. In fact, Nancy Pelosia said that she's not going to even look at the bipartisan deal unless the not, you know, completely partisan reconciliation package is put forward to I wouldn't call it a reconciliation package. Is just another reckless tax and spending program that they're trying to show through a massive program, something that we've never seen before, and I think it's going to have devastating effects in the economy. So I'm very concerned about

enabling this partisan package to go through. Under the guise of a partisan infrastructure package, it's far smaller. Senator Hackety, I am fascinated what your prescription is for your Republican party. So many of the interviews we have with Republicans and with Democrats, is a liberal trunch of the Democratic Party really troubling for moderate Democrats. Do the Republicans respond to that by being more staunchly conservative or by moving to

a Lamar Alexander like middle. I think what we need to do is continue to convey what's actually happening here. We need more business people like me in Washington. I think that's the that's the point. We have a hard time conveying the essence of what's occurring here, but right now what we're doing. Because we've already seen at one point nine trillion dollar package moved through a holy partisan basis back in March of this year. That's roughly ten

percent of our GDP. They're talking now about dumping more of our GDP into this so called infrastructure package. It's going to be massively inflationary. We need to convey that when you hear we hear moderate Democrats like Joe Manchin say he doesn't want to put something through that isn't paid for, he doesn't want to increase the debt. These are things that we need to push back on and say, well,

it's gonna pay for itself. You've got to look at how they're talking about paying for it, and they're talking about crushing taxes on job creators. They're talking about killing capital formation by putting capital gains taxes in place. Those types of policies are going to be devastating to our economy. The American public is smart enough to understand this. We need more business people talking about this in a way

that's rational and easy to understand. Senator Haggerty, I wasnt gonna bring this up, but you mentioned private business in Washington. I need you to comment this morning on the jelling of the private equity Gentleman from Los Angeles, Tom Barrick, what were your thoughts when you've heard of these actions by Justice? Well, I've only seen a headline or two, so I don't know you know anything about the specifics of the content of this case or what it has

to do with private equity. Well, it doesn't have to do with private equity, but certainly it is of note here as well. Senator Haggerty, thank you so much for joining us today. Bill Haggerty, he is of Tennessee, greatly appreciate that. John. I got to Thomas Kostall, go to Thomas Costard right out, pick Day to save me as well. Uh,

Jimmy ealism might your boundaries toime boundaries? Thomas Costard pick Day wealth joining us right now and within his within his research, I'm gonna are you within his research note is a really really important observation on America's savings pile he's optimistic we're going to spend a little bit of that savings pile over the next year to advance the American economy. But Thomas cost is what happens in a

couple of years to that still massive savings pile. Right So the savings pile right now is around two point five trillion dollars, and so the question for the economy is how much will be spent within the next year

and within the next few years. Actually, I think, you know, a small amount of that will be spent by about a small amount, which I think will be around ten to with the next year, But ten to pcent of a big savings it's still a big amount of consumer spending which will be uh, you know, flowing into the

economy in the next few months. And that's why I'm quite cautiously optimistic about the US consumer and therefore US GDP in the coming month, even though we're going to see it this oleation in growth, that's for sure, but I think the US consumer will stay quite quite resilience. Do you believe that our savings pile, as you call it, has a permanent feature to it, that it's a permanent fixture of how we believe and think, well, I do

think that. Yes, indeed, I think some of that, you know, part of the savings went into the equity market, went into long term savings and will probably not go back into the economy, but I think, you know, part of it will be spent point number one. And also I do believe in credit card lending. I think credit card lending has also some upside potential in the coming weeks

and months, and that will also support consumer spending. If we get you know, say fifty to wander billing more in credit card lending, that would be very helpful for growth. Because you're right, and we we have, you know, a lot of tail winds are going to fade in the second half of the year, including the reopening um, the fiscal support, so things like that. We also have some headwinds from the delta variant, but I think the US

consumer will be able to be a resilient. It's almost to what a great you think you four is going to shake the outlook for the whole cycle, not just the following year, the year after, but the whole cycle, right right. So the thing with the US cycle is that we're going back to potential growth, right, So we're going back to the trajectory before the pandemic, and that that matters because that's usually a signal that we're mid cycle.

And we know that when we're mid cycle, growth is getting harder to get and the situation becomes more fragile, more difficult, more you know, they're more risks. So it is true that two could see more risks. However, again, I think you know, the US consumer can propel growth.

I also think we could have more lending in the economy, very commony, defencial conditions despite the FED, the FED stap ring, and so that could help sustain growth going forward, even though from a pure metric perspective we're already mid cycle and we have more risks. So Thomas, potential, what is potential in the US economy? What is it now? Two sub too? Yeah, I don't think potential growth has changed that much. I think it's still around two percent. The

problem is again that we have you know, weak demographics. Um. You know, birthrate is especially a concern. I think we don't have enough babies uh in the US, but also I think in Europe as well, and that's definitely an impedimental growth. And with regards to innovation. Innovation is there, and it's actually even more prevalent in the US than in Europe. But still I think innovation is still failing to really broaden out and to spread through the economy.

I think that's that's the problem. So productivity growth may pick up, but it won't be a massive pickup going forward. Are you confident that peak inflation is also behind us? Right? So regarding inflation, it's a bit complicated. Um. Right now we have the bottleneck inflation, so we have you know, Scott, you have some products. But next year we'll have the cyclical inflation because usually inflation comes with a lag, so you have the recovering growth and then one year later

you have the bounds in inflation. And so twenty two may still see inflation above two percent for for cyclical reasons. The real question is about three and then I think that the jury is out. I think some deflationary forces still apply, but I keep an open mind because you know, two forces them watching our globalization and especially the US China tention, which could lead to potentially in erosion in

globalization and more inflation in the US. And also, um, the the share of labor in the economy and whether wages are go up more. But I think that's that's a topic for another day. I know I'm simplifying this, so so bear with me. You've had a few senators come out and saying that this inflation is effectively attacks so you've taken away all of those wage gains that you describe because of that inflation. How do you think

about that? Right? I don't think wages are a threat to inflation until we get to say around five ish or or more on on on on wage growth. And you know we're not there. We're at three point two on the Atlanta Fed medium wage growth numbers, so we're still well below levels that could be dangerous for inflation in the sense that they will lead to a self perpetuation of inflation above two percent. So you know, we're not in the danger zone for in terms of wage growth.

And actually I think wage growth still has room to go up without threatening inflation. How is how do you get wage You get back to a constructive and positive real wage and it does not affect inflation, right. I think the correlation between wages and inflation is actually much more fragile and much more uh, you know, tenuous and

slim than widely appreciated. I think the real danger comes above five percent on wage growth, and especially in the Atlanta Fed medium wage You have to look at medium wages. Really it's how you know someone staying in the labor force and was staying in the same job, how he is or heard wage compares through time. I think that

that's that that's the key indicator. And so to me, the condicator is the Atlanta Fed medium wage growth number, and again it's we are at three point two percent right now year on year, and it's still very quite soft. So I would not wear until we reach say five five percent. We're not there yet, and Johnna run right on the Atlantic, but I totally agree with Thomas on this on the median aspect of wage growth, We're not We got to get back to three point six percent,

John Ferro, to really get there. We're not there yet. Sometime I'm smiling because only economists called five percent wage growth, thanks us. Will you find anyone else that calls five percent dangerous? Thomas? Just let's finish there for a lot of people who might have accidentally tuned in this morning trying to find something else, maybe some sports. I don't know, and stumbled across some economists talking about the labor market.

What's dangerous about a five wage hike? Right, because then it starts to affect inflation expectations and you have also, you know, wage gains starting to outpaces productivity. So this is based I mean, this reasoning that I have is also based on historical relationships. You know, we have to go back, you know, in time to see wage growth

above you know, five percent, I think in the early nineties. Uh, and then you had inflation sustainably above two percent, and it was a time when actually central banks were struggling to bring down inflation. I think right now the problem is that they're trying to move it up. Uh. And so I think those days of the early ninety nineties are probably gone and they're unlikely to go back. But I might be wrong, but so far I don't see them.

It's almost a picked wealth management sing Us economist's Thomas got to catch up, said, thank you. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud,

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