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tv   Bloomberg Markets European Close  Bloomberg  May 19, 2021 11:00am-12:00pm EDT

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connectivity around the world, broadband around the world. it is hard to imagine that 3 billion in the world have no access to the internet or broadband. this is going to enable that, and also forming. the other thing with ink is going to happen much sooner than space tourism, or it will be a much bigger deal in terms of revenue generation, is hypersonic flights. so any aerospace company focused on hypersonic flight we are interested in, and they tend to be value stocks. carol: there have been people who have been very vocal and public fans of you, and some now have become your critics, or they criticize having a younger investment group of analysts. what do you say to them. -- what do you say to them? cathie: i would say that --
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analysts have, and they don't have advanced agrees in cognitive computing, including bringing behavioral science into it. so many of our analysts are coming to us directly from college, and they are fully equipped with domain expertise in a way that most analysts out there, very seasoned, are not, just because they did not go to school and haven't been exposed to these new technologies. i know there are a lot of phd's out there, and he of course know a lot, but i would put any of our analysts up against the most seasoned analyst on the street when it comes to the topic of
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innovation and new technologies. that is our focus, so why wouldn't we? i think we have a competitive advantage for a few reasons. by one, our analysts, their domain expertise. number two, their willingness to engage with the communities out there through social media and give our research away, not when it is finished, but as it is evolving, so they can communicate and engage with the innovators themselves. so i think we have a competitive dynamic unmatched in the industry. carol: just to wrap up, you and i have been talking for a lot of years. this has kinda been a year that is unusual, i would say, and some regards for you. what have you learned in the past year, and what has changed -- what does change mean to you? cathie: as we were having such an incredible year last year,
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and i do think the coronavirus crisis caused it, innovation solves problems, i kept saying to everyone in the company, we must stay humble. we must stay humble, and we know this is going to come to an end. we know we are going to go through a severe correction, and we have to keep our heads down, focused on our research to keep our conviction, and drive our strategies forward. that's what has happened, keeping our heads down, hopefully staying humble, and really trying to educate people to the great opportunities available out there. get on the right side of change. this is going to be the most amazing period of my investment career, and i have been through 40 plus years, because we have never seen five innovation platforms evolve at the same time, all of them leading to exponential growth trajectories that are going to transform people's lives.
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so i think read our research, talk to our analysts on twitter if you really want to learn more , and join the ride because we believe it is going to be magnificent. carol: just quickly from the audience, do you ever get recognized in public like a celebrity? some people liken you to warren buffett. do you miss your pre-rockstar days? cathie: the answer is yes, much to my surprise. even in an island off of new zealand. but we are honored and delighted because i know it is been hard for our clients in recent months to keep the face, but many people's lives have been changed by what happened last year. they allocated resources towards our strategies, towards bitcoin,
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and they had a magnificent run, so it is gratitude we feel. of course, we are feeling very responsible this year, but that's why it is so important for us to say that what pains me more than anything as a portfolio manager is when i know our clients are selling at the bottom, and it usually is that people sell. the big capitulation is selling at the bottom, so you make a terrible mistake and you don't want to ever get in again. it just pains me, so i am praying that we don't have a lot of that. we had a lot of retention. just to correct one thing you said at the beginning, actually, as a firm we have not had one month of redemptions. the etf platform, if you go month-end to month-end, which is how we measure this sort of thing, redemptions in march were 500 million. we had positive flows in april.
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may remains to be seen. it may end up being a small, depends on what happens in these last few weeks, but if there is real capitulation, we could have a big outflow, but i think that is capitulation. carol: we are going to leave it on that. thank you so much. i know it is a crazy day. you always find time. thank you. guy: you have been listening to cathie wood, ark investment management ceo. timing is everything. a conversation there with carol massar at the "bloomberg businessweek" event. you can carry on listening to all of the great coverage we are going to have on the bloomberg. a number of takeaways from that. one, her main fund is still up 72% year on year. i know it is down 30% from the top, but it is still up quite strongly. she said bitcoin could go a little lower, but she still sees it going to $500,000. alix: clearly there is book talk
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in there, but the idea that she sees capitulation would be huge for the market and where we stabilize after that. throughout when she was talking, things like coinbase started to settle out. they were able to reopen their trades. they were having earlier issues. they are calming down a little bit eerie at those stocks are stabilizing as well, so there is -- calming down a little bit. those stocks are stabilizing as well. to hear how she things about the world, irene, talking to one of her chief economists, and -- i remember talking to one of her chief economists, and i was blown away at the way they think about things. it is quite different than the way we are used to. guy: she was talking about a different approach between what happens on wall street and the way the that her firm recruits, the way she lets her team go about their business. there are a bunch of voices out there that are influential in this space. musk clearly is one of them.
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nova gratz is another -- nova gratz -- novogratz is another. cathie wood is clearly one of them. perfect timing, and certainly making a lot of headlines. just to reiterate, her fund year on year still up by 70%. so maybe there is more downside, but still, in terms of the performance thus far, well off the highs, well off where we came in year on year. what have we got? we've got 12 minutes, a little -- sorry, 22 minutes. i need to get the math correct. alix: math is hard. guy: that's right, on a day like today, where the math is all over the place. 22 minutes until the market close. it has been a big day in europe as well. let me update you on what is happening. the ecb earlier warning of remarkable exuberance in financial markets.
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stocks are down hard today. commodities are down really hard today. crypto has bounced off its lows, but still cratering. the bund, this is certainly worth paying attention to, moving all over the place today. eu governments agreeing to allow quarantine-free travel. jetblue on the same day announcing it is going to start flying from jfk and heathrow in august. bloomberg learning as well that deutsche telekom is looking to buy a stake in t-mobile in the u.s., a bid to gain more control of that fast-growing network. to show you more of what is going on here, we are paying attention to what has been happening in the stock story. we are well-off our lows. the stoxx 600 down by 1.5%. take a look at what is been happening with volatility on both sides of the atlantic. the vix rising pretty sharply
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on your side of the pond. alix: i highlighted the remarkable exuberance that the ecb highlighted. but the nasdaq 100 down by just about 0.7%. it was the least impacted of all the indices, but still coming back from an over 1% loss, which i found to be fairly impressive. i do want to highlight the real 10 year yield headed into the fomc minutes at 2:00 because this -90 basis points what a lot of individuals wind up talking to when we talk about that inflation narrative coming back. if you have real yields continuing to decline and go lower, it means the inflation expectation, the inflation story is heating up, i that does wind up changing the kind of assets you want to own and hurt future cash flow for certain companies. that is when i am paying attention to into the 2:00 fomc. different story, brent off by 4%. a couple of things going on here which are really important to
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check in on. one is the oil inventory number in the u.s. you had a pretty solid draw in products, but a build when it comes to overall inventory. the second was a headline from the deputy eu foreign envoy, feeling confident that a nuclear deal with iran would be reached. they have not had the principals yet meeting, just the deputies and intermediaries, but a deal will definitely have a frontrunning effect on the markets. guy: let's talk about the ecb story you were just mentioning. the ecb in some ways relatively upbeat on the economic outlook, despite the financial stability risk. that's according to the central bank vice president. he spoke a little earlier to paul gordon. >> the risks looking forward are much more balanced than in the past. on the other hand, you have the speed up in terms of vaccination.
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vaccination is gaining momentum everywhere in europe. we are catching up. on the other hand, you have risks and uncertainties. the variants of the virus. what is happening in emerging markets. perhaps the focus is not going to be as much concentrated on balanced economies, and i think we have to start paying attention to what is happening in emerging markets. i think of india and brazil, summing that could have implications for the global financial markets. these are the elements that we have to look at carefully, and in the monetary policy meeting in june, they will tick into consideration all of these factors. we will have plenty of predictions, and we will take our actions accordingly. guy: paul gordon joins us now.
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what i was surprised about in terms of the review from the ecb was the relatively small size of a move that the ecb was highlighting in the united states that would produce a large and substantial impact in terms of financial conditions in europe. it really just highlights how leveraged europe has become and how fragile the outlook potentially is. how did they address these issues? how concerned do you think they really are? paul: there was something of a disconnect. a key one was eight and percent drop in u.s. equity prices that would have a financial tightening impact through higher yields in europe, equivalent to about 1/3 of the march 2020 shock when the virus hit. i did ask how the ecb would react to that, and he wouldn't
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give a direct answer except to say that they would pay close attention to it. the disconnect comes, and he was really quite focused on the upbeat economic outlook that the vaccinations are improving rapidly in europe, that the balance of risks to the upcoming outlook -- to the economic outlook is much more favorable than it was. so the suggestion is that the ecb is looking very carefully at thinking about when can we start to at least taper our emergency purchases and think about the exit maybe next year. alix: you also asked him about crypto, really apropos for what we are seeing in the market. how is he thinking about it? how is the ecb think about it? paul: well, he doesn't like it. [laughter] he did say it is not a real investment for multiple reasons. he said it is going to be very volatile, and we have seen that in the market.
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from a financial stability point of view, it is not a big issue. he pointed out that there's not a great deal of exposure among banks in the euro area to crypto assets, and it is not widely used as a form of payment, so he is not too worried doesn't, was the phrase used in the review. there is still concern that it could catch on, and that is perhaps one reason why the ecb is pushing ahead with plans for its own digital currency. alix: fair enough. thank you so much. we know you were waiting around for us, so we really appreciate your patience. let's get more on the markets now. look hit -- luke hickmore, aberdeen standard investments investment director, joins us now. what are you looking at a new market that would have a big impact? luke: the ecb have got to be really careful how they express exiting from qe. let's call it taper, inducing purchases, whatever you want to do, but this is the beginning of
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that move, the ecb preparing the market and getting ahead of it, and just letting them gently no, as we all do, that it will happen. they will exit from qe and have an impact on markets. a temperate -- a 10% correction on the s&p, i can see that, but it really depend on what is going on at the time. i've seen it happen enough that the correlation tends to be in the same way. if equities are falling, we could see yields rise as well. and all of that because of inflation. cathie wood was great, by the way. don't agree with her about inflation at all. if that inflation gathers, you fall off in the equities and the bond yields rise. that is what would normally be called a negative correlation is that relationship breaks down. guy: in terms of how much trouble europe is in at that point, and some ways what i took away from these debility report today is just how fragile europe
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is that we've got this kind of free leveraging process that has taken place during the pandemic, that has really pushed debt levels, particularly with italy, up to 150% debt to gdp. but other countries aren't far behind. the fragility is there. if you get that scenario, does this all unwind? does the positive momentum around europe unwind? luke: it's got to be a risk. the thing i worry about, that massive debt to gdp in italy is reflected across a lot of the continent. it is hard not to increase your debt after the kind of year everybody has had. how do you get out of it? how do you respond to it, and how does europe really get what it needs to in terms of socializing that debt across europe for burden sharing? until that really happens, the market is always going to be worried about when we get the next political crisis in italy, how does that impact yields and
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italian spreads. but right now, italian spreads are rocksolid. the market is not concerned about it. alix: but why? why is the market not concerned, and why is the ecb not worried about 111 basis points for the 10 year in the btp market, and then -11 basis points for the german bund? luke: i wonder when everyone is borrowing, your virginal larger borrower probably just doesn't worry people so much. they've all got to borrow to get out of the hole they've got in in terms of covid, try to get the growth back in the economy, and i think markets are kind of telling themselves that if you had a bigger problem, you will have a bigger rise on the other cited it, therefore not worrying about italian debt. that is probably fine for 1, 2, ab even three years, until we had the next -- for one, two, maybe even three years, until we
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hit the next crisis. i think we are on our fourth, maybe even fifth buy the dip, and buy the dip has been a really strong trend all year long. inflation has come along, text off -- tech stocks selloff. it has happened again and again. it can only happen so much until all of the cash on the sideline gets used up. bitcoin is going down, i think there's a lot of people have been using that as a way of leveraging themselves into the equity markets as well. the feedback loops are what worry me, and i don't know whether we get six or seven buy the dips, but it doesn't feel like there's room for many more of them. guy: we will leave it there. always greatly appreciate your time. we are gone to talk about what
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is coming up. a major develop in today for the summer tourism season in europe. the european union announcing it is going to reopen its borders to visitors who have been fully vaccinated with an approved shot. we are going to be coming from countries that are basically considered to be safe. we are accepting a formal announcement tomorrow. bloomberg's maria tadeo joins us from lisbon, where she has traveled for this announcement. walk us through the details of what we are expecting. maria: i think it is a very clear declaration of intentions that europe wants to be back for the summer, and they want to save the summer season this year. last year was chaos, and a complete disaster. they want to standardize the rules across the eu, and that means if you come from a country that has been vaccinated, that you have taken and eu approved vaccine, that you should come to europe without renting. that is a key factor because what they think is if you are an american and you want to come to europe, but it becomes really
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hard to quarantine, to do the paperwork, you are not going to come. so they are trying to incentivize people to come here. the goal very much is to make it appealing so that people come back to europe. alix: maria, really appreciate it. it is totally different and it comes to u.k. rules. kind of feels like they are operating in different worlds at the moment. let's stay with the u.k. jetblue announcing it is going to start transit lentic service later this summer, competing against bigger rivals on a lucrative route between new york and london. joining us is helane becker, senior equity analyst over at cowen. they are really undercutting in price. what is your reaction to the news? helane: i am not surprised. this has been foreshadowed for months. as early as a year ago, they
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said they wanted to go to london. they are a leisure focused airline, and they do a lot of visiting friends and relatives, but they also have a very big component of business travel, not so much the corporate's as the small and medium-sized businesses. one city that keeps coming up in all of their surveys, where you want us to fly next, is london. they will have the aircraft to be able to fly that route. it will be comfortable. i think if you look at the mint cabin, it will be a comfortable first class or business class, however you want to describe first class. i use first class, but i think everyone else says business. i think they will be relevant in the market. when you think about -- guy: helane, do you think governments are going to be ready by august when they are planning to launch? helane: i certainly hope so.
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i heard maria's comments a few moments ago, and what i would say is we thought the biden adminstration would announce an opening of the borders with the eu, europe and the u.k., for july 1. we thought that announcement would be made this week. frankly, if it is not made soon, the summer will be lost because americans are going to hawaii, going to alaska, new mexico -- alaska, to mexico, to the caribbean. they are not going to canada, which just extended the border closure for another month. they want to go to europe. greece, croatia and iceland are open. portugal, spain, france, they all want a piece of that. you see the u.s. airlines as well as the european airlines that fly to those markets with capacity as soon as the announcement are made, and the seats are taken up. americans are not going to cancel hawaii and alaska to go to europe unless they know about
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it really soon because they will have to pay penalties, and even though the airlines say no change fees, they will have to pay a differential in airfare and so on. so it better get announced really soon, or else the summer will be lost. that's my message. guy: august is not very far away. they haven't got heathrow slots for that long. do you think they get a permanent position at heathrow? how important is it that that happens? helane: i think heathrow is the place everyone wants to fly, the number one route i think in the world, or one of the top five in the world, new york to london. everyone wants to go to heathrow. i know you have gatwick express and it is easy to get downtown as well, but heathrow is the preferred airport. i do think they will be able to get into the market just over time, and i think i have to -- and i think iata will make sure
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there is room for low-fare airlines to be there, so i think so. guy: thank you very much, indeed. really appreciate your time. helane becker of cowen joining us on the jetblue announcement. i will be speaking to the ceo of jetblue, coming up here on bloomberg television. alix: that's late for you, but worth it. those pictures, by the way, of business class, first class, whatever, they look really nice, and sick evidently cheaper. i was surprised. guy: but you don't have these big corporate platforms with the miles and everything else that you're able to collect, so it is going to be interesting to see whether this is a leisure market story, going head to head maybe with virgin atlantic. i think those are the two you are really going to compare. it will be interesting to see whether they get into iag and united and american in terms of
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those markets because that is a really high-margin business. alix: totally right. it is going to be really interesting. and that is if i ever fly again. i will let you know. [laughter] we are five minutes to the close. guy: what a day it has been. we are definitely off our lows. i think that is something that is quite significant. we were just talking about buying the dip. we are off our lows, as you can see. it looks like we are going to crystallize that here in europe. we will see what the rest of the session looks like post five minutes later. details to follow -- post fed minutes later. details to follow. plus, a conversation with raphael bostic. that is coming up. this is bloomberg. ♪
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guy: we are wrapping up the wednesday session in europe.
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30 seconds until the end of regular trading. we are off our lows. week gap lower first thing this morning. around an hour ago we hit our lows. crystallizing losses in the u.s. -- in europe. feels like it has been led by a number of different things. certainly crypto outfront. it has been interesting to see the ripple effect out of the crypto market and into the more traditional markets. that certainly has been the narrative affecting the stoxx 600. it was only a couple of days ago we were talking about the market near record highs. the u.s. markets have been fading off the record highs. europe has been where the momentum is. that has come unstuck. commodities have been under pressure. what we have seen is a rotation towards the more defensive end of the market, as a result of which the minors have been hit
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hard. the london market has not underperformed. the dax is down 1.68%. the cac 40 down 1.45%. in the other asset classes, what has been happening with bunds, btp, and brent. the german 10, we have a bid today on the german 10-year. earlier we were getting to negative eight basis points. one of the biggest and fastest moves we've seen in financial markets of late has been in europe government bonds. germany bid today, btp still on offer. a weak option in the german market. keep an eye on what is happening as we track higher. we were listening and learning from the ecb in terms of their outlook. brent crude down 3.84%.
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a number of factors coming together. the three b's coming together to influence equities. the grocery sector, the food and beverage sector, the health care sector, the real estate sector, the defensive end of the market, better today. still negative. the miners have come unstuck. industrials dan -- industrials down, the car sector is down. car sales bouncing back. we have seen the auto sector under pressure. i wonder whether or not a big selloff might free up chips. maybe the minors will not be consuming quite so many. volatility has bite sharply. starting to fade. seeing this on both sides of the atlantic. that is beginning to fade.
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we have been watching what has been happened. i mentioned what has been happening in terms of the cars there narrative. european car sales bouncing back, stronger you're on your. this time last year we were in the depths of the pandemic crisis. a strong bounce back. as you can see we have come back up nicely but we are still not back up to where we were pre-pandemic. that is worth bearing in mind. the car sector is coming back. it will be interesting to see whether or not it is supply constrained. that is something we are seeing in the united states. alix: leadtimes -- chip leadtimes are 17 weeks. that leads us to the other supply chain issues. kathy wood is talking about it being deflationary. the idea that you have high prices and you get tons of supply, demand trails off and all the sudden we have lower prices. that is one part of the story. the other is we are still supply
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constrained on the commodity level, the stuff level comment on the people level. where the people level counts is the unemployment mandate from the fed. guy: yes. i cannot remember which company it was that passed under my nose a few minutes ago, raising their payment structure in terms of bringing people in. $15. more and more companies are having to pay. in some ways this is incredibly positive, because when you are struggling to hire someone, you are restricted in your ability to hire people, you want to hang onto them. what you do when you want to hang onto them? you train them? or you bring people in that are not trained and you try to train them up. that is a positive thing for the labor market in terms of the wage profile but also in terms of the skill set. it was under -- guy: it -- alix: it was under armour.
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now we have mcdonald's, under armour, amazon. bitcoins action was relevant into how we are set up today. larry summers was talking at a panel. this is what he was talking about. he has been warning about higher inflation. he says we have underestimated the risks both to financial stability as well as conventional inflation. a protracted extremely low interest rate, policy projection suggesting rates might not be raised for close to three years. trading with dangerous complacency and adjusting rates will do real damage to financial stability and the economy, very much what we have heard echoed from the ecb. it depends how you look at the labor shortage. is it a skilled labor shortage or an overall labor shortage? alix: -- guy: we have been getting comments suggesting maybe we did not get back to
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pre-pandemic levels of participation. is there going to be a point at which we do start to see the phillips curve working because people are coming back in? the last time so many economist paula labor market wrong. -- called the labor market wrong. does that happen this time around? if you do not get that phenomenon, is that something that would give the labor market a little bit of a boost? alix: lech ask -- let's ask the expert. michael mckee is speaking to atlanta fed president raphael bostic. pres. bostic: really good to see you. i'm looking forward to when i can actually be sitting right next year and having this conversation. michael: the european central bank said today in its financial stability review it sees remarkable exuberance in markets these days, which obviously
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takes us old guys back to alan greenspan's irrational exuberance. we remember what happened a few years after that. do you see any parallels to today's markets, to asset prices? pres. bostic: i do not spend a lot of time worrying about asset prices, but i will say there is a lot of drive that is driven by profits and profitability. we have seen this through the pandemic period. the markets are speaking for themselves. there is a lot of reason to be optimistic about how the economy will progress and we will have to see whether the bed that investors are making gets worn out for the next several months. michael: the ecb went on to say that spillover from equity pricing could be substantial. you take into account the effect
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u.s. markets could have on other economies around the world when you're considering policy? pres. bostic: we are the u.s. central bank so we primarily focus on the impact of our policy on the united states. it is the case that in a global economy the effects of our policies on businesses and investors worldwide will have a feedback on us. it is something we have to understand and appreciate as we think about our policy approaches. it is not the primary driver. for us we have our dual mandate of maximum employment and stable prices. that is where i try to keep most of my focus. michael: i have to ask you about one of the stories of the day. does the fed care if bitcoin or any of the other cryptocurrencies are plunging in value? pres. bostic: i think the crypto space is one that is very exciting and interesting to watch. there is a lot of volatility.
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it does not have a reach into the economy that has systemic implications for us. at this point it is personal curiosity. i watch these markets and try to understand them. watch them on bloomberg, for example. it is not something i incorporate very much into how i think about where our policy should be. michael: if you get the payment system up and running will there be any need for a fed digital currency? i know the fed is looking at it. is there any cryptocurrency in the fed future or are you going to be able to cover that with instantaneous day one transmission? michael: -- pres. bostic: how real-time growth system serves a lot of the purposes you would need to look for from a digital currency. in that regard it takes is very far down the road.
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as you know, there have been so many evolutionary developments in the digital currency to the extent we need to have a digital currency that is issued by the central banks. one of the things that has been interesting is there are lots of issues around this. questions about the relationship between the central bank and the american public that we have to sort through. that work needs to happen. it will take time to get through it. when we do we will take that information as well as what we are seeing globally to make a decision about where to move forward. michael: let's turn to monetary policy in the economy. we have not had a pandemic like this ever, at least in terms of since we have had data. in recent weeks we have had a big downside miss on jobs, and upside miss on inflation. i am wondering as you try to figure out how the economy is going to evolve, how much trust
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you can have in your forecast? pres. bostic: to start, i would say you nailed it on the head. we've never had an experience with a pandemic. there is not a pandemic response chapter in my -- we will have to be very nimble in terms of my monitoring of the economy and our policy responses. when i think about where we are from an economic perspective, the word that comes to my mind is transitional. we have gone through this pandemic, we have seen the loss of millions of jobs, and now we are transitioning out of a pandemic space into more of a recovery space. as we've gotten the public health challenge under control of vaccines and better management of social distancing and other measures, now we can turn ahead. we are transitioning out of the depths of a pandemic into a recovery period. a lot of moving parts we will have to keep tabs of.
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what i will say is i will say is i'm expecting a lot of volatility over the next few months. you mentioned in the last several months we have had data points that have not met up with expectations. that is to be expected. what that will mean is we will have to do extra work. at our bank we do lots of surveys of business leaders and communities, and we also do a lot of outreach and have one-on-one conversations with folks on the front line to get a better sense of what they are seeing, and more importantly how they are thinking about what their strategies are going to be being forward. michael: let me ask you about those conversations. let me break it into two parts. what are ceos telling you in your district about whether they can find workers, whether they are having to raise pay? pres. bostic: i am definitely
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hearing concerns. this is in the news reports all over the place that the labor market -- a lot of firms are having problems finding people to fill the slots they have available. some are responding by increasing pay. what is happening in labor markets, on the employment side is something everyone is starting to work through. here again i would say the word that comes to my mind is transitional. as we are transitioning, we have policies that were designed for the pandemic. that still is going to influence where markets are. we also have ongoing concerns about the safety in the workplace. we have issues on how we manage childcare. issues around burnout.
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i've talked to a number of workers who have said this is so stressful, i just need a break. others are going on. michael: the other half of this is if they do give raises they will have to pay for them somehow. our companies telling you they are not just raising prices -- are companies telling you they are not just raising prices but they will continue to raise prices? an ongoing acceleration. pres. bostic: this is where there is some uncertainty. most businesses i talked to who say they are having to pay more for workers are telling me they have been able to pass that through into the final price of goods in the marketplace. what they have been less clear on is whether this will be the new normal so the pace of inflation continues once we get through the summer time, and the relief payments have been spent by 70 families, and savings go but -- by so many families and
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savings go back to a normal level. this is one of the big unknowns and something i will spend a long time think attention to, whether firms believe they have a different relationship with consumers and their ability to pass on price increases. michael: i have to get to the key question early in the interview. there is definitely going to be a staring contest between you and the markets and the volatility you are talking about as we get data points over the next couple of months. i am wondering with your new framework, can the fed resist market pressure. i am sure you will say yes. the markets remember december 2018 when we had the powell reversal. pres. bostic: all i will say is yes. my job is to look at the data as it comes in, collect as much on the ground intelligence as possible, and then make a judgment about where the appropriate policy is.
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if we see significant progress towards our goals, i will be advocating for moving policy. we are not there right now. no one should take this as an expectation i'm advocating we move our policies tomorrow. we are still 8 million job short. we have not had this estate level of inflation above our target we are looking for -- we have not had the sustained level of inflation above our target we are looking for. i am going to try to be as prepared as i can for whatever happens down the road. michael: one of the questions everybody on wall street trading desks wants to know is how do you define transitory? pres. bostic: what i look for in transitory is the notion that you have a shop to the economy -- a shock to the economy on the supply-sider demand-side, it is
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clear it will resolve itself. the impacts of the shock do not have long-standing effects on how businesses and consumers view their approach to producing and buying goods. if we have an impact and it leads to temporary or contextual changes in behavior, if that behavior dissipates and we go back to where we were before, then we are transitory. if on the other hand we see it leads to a rethinking by business leaders and consumers about the patterns and their approach to buying goods, then that will look more structural. what i will tell you, and you know this, it is very difficult to identify structural changes in real-time data. this is one of the reasons why i am spending a lot of time talking to business leaders, my team is doing the same, so we can try to identify the
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structural changes as early as possible. michael: how long do you think it could take before we decide we are going back to the way it was or we have a new normal? pres. bostic: i think this will vary by industry. i am expecting a fair amount of volatility through the summer time. i think businesses are evaluating their experiences as we see the stimulus payments spent down, as we see families go through the pent-up demand period. everyone is looking to get out and be engaged in the economy. once we get that settled down, once the kids are back to school that we see how families are allocating their labor and workforce, then i think we will start to get signals from business leaders about how they are thinking about their strategies. i will continue to ask as we go through the summer, i'm expecting they will say there's a lot going on. hold on.
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starting in september and moving through the fall in the wintertime, i will start to get some signals that will allow me to answer that question. michael: i am looking forward to the next atlanta fed financial markets conference. not sure if you will have larry summers come back. he said the fed's new framework policy is too mechanical and you need to focus on overheating as the main risk to the economy. tell me where and why you might think he is wrong. pres. bostic: i think what we said in our statement is we are going to let experience be our guide. we are not going to be preemptive or proactive to stop things that may or may not happen. what we have seen over the last 10 years is that expectation that inflation was just going to emerge did not happen. policy could have an inappropriate or unintended impact on the trajectory of the
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economy. i do not think the framework says we are not -- we are not worried about overheating. what it told me is we are going to look for evidence of overheating before we move definitively. in that regard i do not think larry is saying something that different than us. he has his own style of communicating, which is very larry summers. i will not even try to replicate that. i think people should understand -- i do worry about both sides of economic performance to make sure our policy is deployed in a way that allows us to have a stable, predictable, and prosperous trajectory for growth. michael: alan blinder, who served at the fed, said he is not unsympathetic to professor
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summers because he said there is a lot of aggregate demand chasing less aggregate supply. do you feel you have a good handle on both sides of that, enough to know whether overheating is taking place in time to do something about it? pres. bostic: i do. one of the things that has been interesting about this pandemic is it has been evident early on, demand has responded much faster to the marketplace than supply has. it has taken supply time to catch up. we are seeing this in a number of different ways, whether it be semiconductors or lumbar response for housing, or even appliances and their availability for families looking to upgrade their homes. the question is not whether there is that imbalance that happens initially, it is whether that persists over time. as i've talked to business leaders, they have said many of these things are not expecting to last for an extended period, so the dynamic we are seeing now
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is not the new steady state dynamic. there is a reason to be less concerned. i want to emphasize again, this is why we talk to people on a repeated basis. i want to know whether their views on this are changing. if they are changing that will lead me to rethink my approach to where our policy should be. michael: you put in place $120 billion a month of quantitative easing. do we still need that much money? our kids are functioning, bank lending is lower. it does not seem to be adding anything to stimulus at this point. could we do with less than that and stop the economy on the same track it is today? pres. bostic: that is a fair question and something i'm talking about with my team internally. i have not come to a clear view on this.
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i think as we continue to move forward, we continue to see progress in the labor market, we see inflation at or above our target, this is a question we will have to ground ourselves in. i will have to have a view on it. i will say comment i said this in the past, i told you this, i stay open to every possible scenario. as we see the world happen, i want to make sure i am ready with a view on what adjustments should look like. as we go through the summer time and start to get some of the jobs report and see where inflation is, i will try to home down my thinking on this and be able to articulate this to our committee in a way that is hopefully compelling and leads us to a policy shift when the time is right that accomplishes the things we are hoping to. michael: your background as an
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economist is in housing and i wonder if you agree with the boston fed president who said the mortgage market does not need as much support as it is getting right now, it might be becoming a financial stability concern. is there case for tapering mortgage bond buying ahead of treasury buying? pres. bostic: that is something we will have to think about. i do not agree with eric to the stent -- what we are seeing in mortgage markets today does not come close to approximating where we were at the outset of the great financial crisis, where we had a large amount of subprime lending and a lot of fraud in the marketplace, and there was a lot of not good behavior going on. that is not happening today. what we are seeing and what i am seeing is homebuyers eagerly trying to engage in the marketplace, home sellers far less eager to put their homes on
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the market, in part because we are still in this transitional period. there is this imbalance. new home construction is struggling because of input costs. there are foundational issues in the housing market that can justify where we are today. my hope is that some of these supply issues get resolved and consumers and homeowners return to their mindset as to how frequently they want to move and how willing they are to engage in the sales market. guy: you've been listening to mike mckee speaking to atlanta fed president raphael bostic. if you want to carry on listening to the conversation, carry on watching the bloomberg businessweek event, you can always do so on your terminal. live go is the function that will take you there. we have an exclusive interview with senator shelley moore
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capito on balance of power. david westin will be taking the reins at the top of the hour on bloomberg television and radio. let me update you where we are with the price action as we come out of this program and into the next. the s&p down 1%. bitcoin now only down 13%. we are trading at 37. if you're watching on bloomberg television and radio in the united states, you will be hearing weston. aliz and i -- you will be hearing david westin. alix will be on dab digital radio. this is bloomberg. ♪
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>> from the world of politics -- >> congress is not speaking with one voice or even two voices. >> to the world of business.
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>> we are probably the best leading company in the world. >> this is "balance of power" with david westin. ♪ david: from bloomberg's world headquarters in new york to our tv and radio audiences worldwide, welcome to "balance of power." we start with a check on the markets. for that we turn to abigail doolittle. stocks are down but i was surprised the 10 year has not move that much. abigail: i was just thinking about that myself. if you take a look at stocks you would think it was a risk off day. we are off the lows. s&p 500 down 1% relative to its 1.6 decline. the bank index is still down 1.7%. even with this kind of selling in stocks, the 10 year yield is down a basis point or two. it is


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