tv Bloomberg Surveillance Bloomberg December 28, 2021 8:00am-9:00am EST
♪ >> you're going to have to get the call right for whether the market or the economy can observe rate hikes. >> this is such a flat curve to start hiking. >> it has to respond more aggressively to inflation. >> i feel confident the fed is more right than the markets in terms of tightening. >> it is relatively high. announcer: this is "bloomberg surveillance" with john keene, jonathan ferro and lisa abramowicz. jonathan: from new york city and audience worldwide good morning. this is "bloomberg surveillance" live on tv and radio alongside kailey leinz and matt miller, i
am jonathan ferro. s&p market up 13. kailey in america where the cdc made the decision to ease the disruption associated with the virus. kailey: five-day isolation now instead of 10. that will be welcome words to hear for corporate america dealing with labor shortages having to shut businesses and cancel flights due to lack of staffing. it is a step toward normal in treating this less like something that needs to be treated in a particular way versus any other illness. jonathan: goldman sachs on board. let's get back to the office and the banks on wall street. that one is making a big push into next year. kailey: goldman was saying people are coming back. they were one of the earliest to do so at a time when wells fargo has not brought everyone back. they pushed that back indefinitely. goldman taking stock of the moment. they are requiring employees to be boosted by the first of february and making them test twice a week. to the office with caveats. jonathan: we speculated through
about this through the summer. for the likes to be fully vaccinated it does include the booster. matt: absolutely. i travel to spain and back and they were already checking to see if i have the booster. kailey made an important point earlier which is in a lot of companies are going to be stricter than the cdc guidelines. we also had a viewer on twitter who wrote and said, apple is going to make its own policy and it is going to be stronger than the cdc guidelines as well. banks, retailers, restaurants, airlines, they are going to be able to make more conservative policy than the cdc guidelines and that is import to keep in mind. jonathan: futures up 14 on the s&p advancing one third of 1%. record high yesterday. 69th all-time high on the s&p 500 for 2021 and that became 70.
yields not doing much. crude up 1.6%. euro-dollar, someone help out matt miller. what do you need it to be? what do you need? matt: to be fair, when i moved over here in november 2016 i think we were around $105 so it is better. i saw it up in the $120s and i thought it would be more lucrative if it climbed. i have been watching it more closely. jonathan: i think coming into 2021 it was one of the things that did not work. people thought we would have the global synchronized backdrop of growth which would lead to a weekend at dollar. that lasted about five minutes and what we have had is a stronger dollar off the back of what happened to the euro. kailey: it punches a lot of the
calls in the face but not the only one that did not work out. the call was out for value to outperform growth which did not work out. it actually underperformed. same with small caps versus large, u.s. versus the rest of the world. all of those things that were supposed to be the story were not. do the rotations started take hold in the year ahead? kailey: let's start that with patrick armstrong, chief investment officer at plurimi wealth. the things set to come under pressure into 2022, what pockets are you avoiding? patrick: i think it is not going to be a year where you want to get rich. the last three years we have had massive liquidity, central banks buying trillions of bonds, and it is going to be an environment where liquidity is taken out of the system. i think the meme stocks, the high-growth earning stocks, they come under pressure. i think there's going to continue. if you're making an investment for 2022, you want to have a
valuation thesis. you have to understand his company is generating cash flow, earnings, and not ruling out all tech companies. i think the companies at the most extreme multiples are going to be category killers but that is five years out. i think those are going to come under pressure as a gets removed. kailey: what about the other tech companies some may put in the quality basket? the likes of apple which is approaching $3 trillion in valuation. they are consistently strong growers. to bet against the u.s. are you also saying you expect the large heavyweights to start lagging? patrick: where i have got exposure is the heavyweights. i am comfortable with apple. we sold apple in february which looked like good timing. we bought it again a month ago so i am back into apple and i own meta, alphabet.
but i am taking it with the big cap tech companies because the cash flows are enormous. i feel comfortable to own them but there are companies where stocks are trading 30%, 50% premium in the u.s. versus listed in japan or europe. the more traditional sectors that are not tech oriented is where i am. matt: i am sure you are not betting against the united states but on other countries where you see undervalued assets. where is that? patrick: i have been talking about it for a year. the companies have performed incredibly well and every time i have been on your show the last 15 months i talk about -- i don't get my head around trading four times earnings. how negative do things have to get for shipping rates to really
make it be a four times earnings? it is probably up 60% per earnings are growing as fast and it is incredibly cheap. i do think if a structure spending will happen in the united states. i think europe will get around infrastructure spending, japan as well. i think steel is cheap. companies trading at six times earnings. there are companies benefiting from the global recovery but they are trading at very low multiples and they have higher potential in my opinion. jonathan: of those companies, some of the energy players seeing huge demand for goods and the underlying product or service has seen a great gain in price. have you seen the corresponding discipline it comes to building out capacity? that has been the worry of the shipping industry in the previous decades, what is happened in mining and energy. is that what is different this time around?
they have not made those big investments in capacity that could haunt them in years to come? patrick: they haven't. they are producing tons of cash flow. it is always a miss when a ceo does not know what to do with it. expanding and consuming these profits at great rates. none of this -- they are not talking about this. they know this is a cyclical windfall that they are monetizing. i think it will lead to consolidation in the industry which may streamline capacity and give more pricing power. i think those expenditures make sense. you can preserve your profit margins with that. i don't think a massive buildout is what any ceo is talking about. they are being built but these taking years as well. kailey: i noticed as well you say you want to own volatility in the year ahead. why and how specifically? patrick: qe what it does is unclear. nobody knows unequivocally what
it does for the economy. probably gives a boost, confidence when times are scary. qe brings out animal spirit and provokes investment. but what it does 100% volatility. as qe gets removed the market forces will be allowed to be -- when something happened in the past usually got a selloff. over the last few years buying opportunities lasted days rather than months. i think there will be selloffs that will last a few months where you get official correction and some things get cheap and that provokes buyers. but there will not be the wall of money chasing every single selloff and when you can have dips, that is the definition of volatility. i don't think those will be suppressed as much as qe gets removed to the first quarter of next year. jonathan: i want to go on what you said would spark disruption. what we saw was no real disruption until rates got
through positive 1%. we started to see balance sheet reduction in not just the unwind of qe and that purchases. he said that could happen this time around before we get to those points. patrick: there is bound to be. the thing that has kept me in equities is there are three pillars and thank god i look at them. i worry about valuations. the s&p 500 is at 3.5 times sales. massive liquidity, negative real yields and earnings growth, while those remain in place equities move higher. i don't think we need real yields at 1% to evoke a correction if we get less than .5%, i think that will provoke multiple contractions and i think it will be the highest growth companies with the most extreme multiples impacted the most. companies trading at 30 times earnings are expensive but you can see how big those companies go into multiples. jonathan: before you run let me
squeeze this in. guy johnson and i used to talk about this all the time. i am not a big fan of stock split but does this company need one? patrick: it precludes retail investing in europe. i don't know if it would incrementally create demand but definitely. that would open the potential shareholder base. jonathan: patrick, thank you. patrick armstrong, plurimi wealth. for those who do not know in danish corona. up one third of 1%. the days we used to do in said business, do you remember that? matt: in copenhagen?
jonathan: i will do that with you. is that the big one? futures up 13. i am being told the move. from new york, this is bloomberg. ♪ ritika: i am ready because good death. a new study says being infected with omicron can strengthen the delta strain. it comes from researchers in south africa where omicron was first detected. it suggests the likelihood of someone infected being infected by delta is shortened. cdc shortened isolation times for those no longer experiencing symptoms. the new isolation is five days, half of what it was. the cdc said after isolation people should still wear a mask another five days when around people. goldman sachs standing by its office return plan despite surging infection rates in new york.
the firm will make vaccination booster shots compulsory. goldman told the u.s. workforce anyone entering offices must get a booster by february 1 if they are eligible. cathie wood's arc innovation is missing out on the christmassy garrett. they fell 1.7% yesterday. heading for the worst performance in 2014. last year up over 100%. global news 24 hours a day on air and on quicktake by bloomberg. powered by more then 2700 journalists and analysts in over 120 countries. i am ritika gupta and this is bloomberg. ♪
of leverage they put on the last 18 months is extraordinary. they need to focus on paying down the debt. jonathan: that was senior portfolio manager at invesco. with kailey leinz and matt miller i am jonathan ferro. all-time highs yesterday in the equity market and set for more of the same in one hour. yields higher by almost one basis point. euro-dollar unchanged at 113.29. a big change in the last 24 hours for the united states. the cdc issuing new guidance for isolation for anyone who has covid-19. it will be five days not 10. for the airlines this is what they wanted. helene becker joins us now. you can tell something was coming and it came big time. how important is that move from 10 days down to five?
how big of a difference would it make? helene: thank you for having me. i think it is very important. it is cutting that time in half meaning they can get cruz back in the air quicker. as the new variant is going through the u.s. it is affecting everyone including airlines and they don't want to be stuck in hotel rooms either. getting them back in the air quickly is hugely helpful. matt: personnel costs are high. i don't know if they are number one or number two, fuel would have to be up there as well. what do you expect for 2022 in terms of jet fuel? helene: we are looking at inflationary pressures in three or four areas. one of them is jet fuel. we are around 215, 230 depending on the day of the week. that is when inflationary cost.
the other you mentioned, labor. many of the airlines have open contracts. american, delta and united have open pilot contracts. we are expecting inflationary pressure maybe not in the captain levels where you have 15 year employees but certainly in the starting wage range. we are expecting that to go up to attract people to the profession and expecting airport costs to continue to go up because airports are financed with bonds. those have to be paid regardless and the revenue for airports comes from three sources, parking fees, rental car fees and the retail stores. many of them have shut or reduced hours because of the pandemic and reduced flying. the third is landing fees. with fewer flights landing fees have come down and then maintenance costs are going up
because the aircraft in the air still need to go through regular maintenance. we are looking at significant inflationary pressure for the industry. we are looking at demand being strong, at least we think it will be strong picking up around the summer and we are expecting two years worth of demand in international markets. we are looking at price improvement that should enable the airlines to draw pre-cash flow, especially since many deferred delivery of aircraft to 2023, 2025 time frame. they can focus on paying that debt which we think they need to do. i heard matt's comments earlier, they need to improve the balance sheets. matt: the costs are going up,
balance sheets need to be improved, and yesterday these airlines have taken out a lot of debt that they need to pay down. are they going to be able to do that? does 2022 look good for beefing it back up? helene: the way to think about that debt is they have big cash positions, too. they have not spent all the cash on the balance sheet that they took down. some of that debt was kind of warehoused that would enable them to go to the pandemic because nobody expected a straight line up to the right. everybody expected it to be choppy and lumpy. they could do three things. one, they can use some capital pay down the debt as it comes due. two, you have natural debt repayment. and three, they can use cash to acquire aircraft they have coming this year. i mean, i said before they
deferred delivery but they still have some capex to consider. they can use cash to pay that capex and that reduces debt as well. kailey: given the different debt levels and balances between international and domestic exposure and capacity who do you think is best positioned going into 2022? helene: our top pick for mainland airlines is united. they are 50% exposed to domestic, 50% international and we think they will have a pretty good summer. that would be our top pick. when you think about american airlines people worry about the balance sheet but they are just -- they don't have significant cap acts or big debt until 2023. we think they will be able to
pay down debt. southwest and delta have what i consider to be fortress balance sheet so we think they will do well. delta has a pretty good situation with their labor even though pilot contract is open. they have no other unions so they pay industry average wages. but they can adjust based on productivity and so on. they are in a good position. jonathan: wonderful to catch up with you. helene becker, thank you. some airlines broadly positive. mildly positive after being lower yesterday. the equity market in the united states. let's go to the current guidance from the cdc. fresh guidance the last 24 hours. isolation cut from 10 to five but you since of the interesting about company's going further and this is where attention could be. if you are an airline, this is what they wanted. let's go.
for other companies i wonder how many of them will require a negative test to come into the building because as you know, and many others now, we have friends who have had covid and carried on testing positive for weeks and weeks. but the cdc say 10 to fiv if you have no symptoms. there will be companies that do require a negative test. matt: and countries as well. keep in mind people in this industry are moving between borders and may have to show covid negative tests, especially if the tested positive five days ago. the cdc issues guidelines for the u.s. but not globally. it will be interesting to see what other companies and countries require as well. jonathan: i think we have taken an important step toward treating this differently. a step toward normalcy perhaps.
jonathan: 69 record highs of the year so far on the s&p 500 could become 70. the equity market is up 12. yields are going nowhere. euro-dollar going nowhere. crude positive up to 76.55. the cdc decision for some people is a bullish call. matt: absolutely, because of the problems businesses have had with employees being out for a full 10 days, at least 10 days after testing positive and they shut down services some companies have shut down production and some companies have shut down retail outlets. if they can reduce that to five
days, and the cdc says you can, that obviously opens up a chance for them to do more business and raise more revenue and profit as well. jonathan: and makes it may be easier to forecast the economy. let's talk with the chief economic advisor at bree capital. john, it's good to see you. what are you focused on? >> i think the main focus is the inflation story. as early as april of last year, we warned we were going to have an inflation event. it would negatively with the virus in the government measures would negatively hit the supply side. the supply chains have been hit harder, more prolonged than we imagined. on the others coming we are going to get massive demand
stimulus that was monetary financed and we certainly had that. as a result, it's been a far more elevated inflation rate than anyone expected, almost 7%. it will be 7% when the december numbers come in. how much this -- does that inflation rate moderate and what is the policy response? i don't believe inflation will wind itself down to 2% with little action from the fed. i think inflation expect patients are getting embedded. your previous guests talked about the pressures on the airline industry which is an example of the cost pressures that companies are able to pass along in this environment. i think inflation story is the most important and i think it will be close to 4% in the fed will end up taking more steps as it signaled at the last meeting than people have been expecting.
jonathan: you are looking for 7% inflation into next year and the policy response that would shake that move lower. the expectation now is three hikes next year, does that achieve anything? >> i think it starts off as a signal. i think key thing was for the fed to record as the problem. i don't think they fully recognized the problem at the last press conference but i think they need to get rid of the transitory language and putting in three hikes that were supported by 13 members of the committee as opposed to the one hike on the last dot plot back in november which was a split decision. it is an important signal. i think the good thing would be if that move came in march.
i wind down of the asset purchases ends in mid march and i think the next decision date is march 16 so if the fed were to raise rates on march 16, it would be a signal and the next signal would be start letting the balance sheet and perhaps do that as soon as june of next year. will that be enough? bubbly not, but is important the fed recognizes the problem and starts to take steps and that makes companies begin to spend. should price increases not be part of our process for making profits? we've got cost pressures right now. for companies raising prices by even more than the cost going up and widening profit margins, that is relatively unusual and different from the inflation environment we had in the 1970's. i think those signals are very
important to start reframing the decision-making process. by itself, i think there will be more rate hikes into 2023 and more being signal i the dot plot but on the others, the economy will still be rolling along because the higher rates will not hurt the economy. taking some demand that will not slow growth or create any slack in the labor market. there are plenty of jobs out there and all of this covid protocol will make it harder to fill positions. kailey: so use -- so you are saying the fed will have to react more positively? >> the policy mistake was keeping the policy measures in place to long. there was no need to have continued purchasing at 120 billion dollars per month
through the end of this year. they only started that to wind down the adjustment in november. that was one policy mistake. the fed could have signaled that inflation wasn't going to be transient or they wouldn't let it be anything other than transitory bike recognizing the problem. there was some mischaracterization with a lot of focus on a handful of items even as the data showed it was broadening out and the inflation pressures have broadened out and you cannot talk down the inflation problem. a credible fed has to talk against the inflation problem and take action. kailey: rent -- matt brought up retiring the transitory terminology in the fed president -- in the president had several seats to be filled.
does that ship policy going forward? >> it could and it could shift the balance to the detriment of the outlook. it could shift the balance of to the detriment of this administration. the thought that somehow having dovish members of the committee, less inclined to raise interest rates, would be more focused on things other than inflation. they say that somehow helps the administration and that is a false choice. what we need are people with some experience with inflation, some strong academic background on the inflation front. we need strong people on financial regulations. the other problem especially with the vice chair for financial supervision open, will be the potential impact on the market of unwinding faulty accommodation that's been in
place too long. good choices could certainly help this and push them but bad choices can make the problem worse. matt: you bring up an important point with regards to experience and you are sprightly young man on the football pitch but you were around during the 1980's when we saw real inflation and you were advising the bank of england and the federal reserve bank of new york. what can the fed do other than simply raise rates in order to fight inflation? >> it's about signaling and it's about saying what your priorities are. as well as taking action. an important signal will be starting to wind down this balance sheet.
the fed is not going to stop selling assets but they could wind down between $1 trillion and one point $5 trillion by stopping reinvestment and putting relatively high caps to that runoff each month. that will be an important signal. it really is about the signaling. to backup the rate action so that -- we heard one of the instruments that fed that -- that the fed has its asset purchases, rates and forward guidance. put all of those into action and if the fed was to talk about asset sales as opposed to asset runoff, that would be a real move. i think taking action on the balance sheet in june which i think could happen would be a strong signal. once the inflation genie is out of the bottle, it just doesn't
easily go back in again. it's a very difficult trick. jonathan: i think we can think about the noise of the market and you said they should sell assets. can you imagine what would happen if they sold assets? what would happen if they said we are going to sell? >> especially if they were to say let's sell the mortgage assets because we want only a treasury portfolio or what we invest in treasuries. i think the key thing is telling the markets in advance and guiding the markets to that step it would tighten financial conditions and it would help
them pull off this's impossible scenario of tightening policy without tightening financial conditions and that's not possible. it's like trying to make an omelette without breaking eggs. financial conditions will have to be tight and selling would tighten them. it's not going to happen. one thing we can count on is that the fed is not going to to be doing an early end to investments. they want to allow assets to run off fairly weakly after the fed starts hiking rates. i think that would be a good step in the right direction.
in all, i think households will remain favorable to stomach the higher prices. kailey: the chief economist talking about people who own homes. you have to have a lot of wealth to buy a home right now in the market continues to be hot and that's true in the new york tri-state area. matt: i think across the country the market has been hot. prices have just gone up up and away. question i have is how can your average american -- we showed clips yesterday of kamala harris talking about real americans and working people. how can they afford to buy a home in this market? it's unbelievably expensive. you've got low mortgage rates which is helping people get into the market but still, the kind of increases we have seen, 20%,
30% price increases year-over-year just make me wonder about the affordability. kailey: many people are getting priced out but rents are going up as well. let's talk about this with the ceo of brown friedman. this market has been incredibly hot and we saw a record quarter of sales in new york city. will that continue going into the new year? >> i think we may have a slowdown. the fed announced rates will probably go up so we may see a little slow down but some light is diminished. demand is so heightened. 2021 has been a phenomenal year in housing and touch of that is attributable to the effect of the vaccine came at a year ago. people are feeling very
comfortable and returning to cities and they believe in the home buying process. we are seeing millennials by which in the past, they were the unburdened group that didn't want commitment and now millennials are buying in the fastest-growing of the segment is the hispanic community which is fantastic. bonuses are really good so i think we will continue to see spending but it may slow down simply because supply is shrinking bit. kailey: won't that drive more people into the renting market? you aren't necessarily met with an easier picture when it comes to the rental market. >> who knew? two years ago, the rental market was a whole different scenario and now there is no advantages in renting. you're not getting any months free, occupancy is very tight right now so i think people are
feeling more inspired by the fact that they want a full on commitment and want to make the home their own. many friends rented in new york city for a long time and decided to pull out and purchase. they wanted to invest in something that was their own where they could raise their kids and make it specific to their needs and i think rentals are great and a lot of people are moving here because microsoft is opening an office and google as another office and disney. there are many young people moving here and rentals provide temporary housing for the long term, i think people feel more comfortable buying, investing. it's a sacred investment stop it's such an emotional commodity and covid will always be something we have to contend with. fear is probably the most unreasonable emotion and we saw with that did of the pandemic. matt: it's great to have a home,
not just a house. they want part of the american dream. in terms of the taxes in the tri-state area and california as well and in some markets, whether or not you get a deduction raised is kind of a crapshoot but is there any other way that will change? why are the taxes so high around new york and new jersey? >> this is a real challenge. we've had irresponsible legislation in albany and there has been this mindset of wanting to gain twitter followers versus responsible tax policy. i think we have a new city council coming in january which will be helpful because they determine the budget for new york. we have a new mayor which is fantastic who wants to work together with teachers and
creating affordable housing with the business community which is something we desperately need. we have to things -- think about things like the 420 a and we hope the governor will include that in her budget step there are so many different things. we are tired of divisiveness and tax the rich and driving people out of new york. we want people to come back to new york and we want tourism and we are pro business so there is a new mindset coming in. i think taxes have to be treated with an economic mindset we don't want to punish people. don't demonize the wealthy and i think that is the aoc mindset of tax the rich, wearing that to the met gala was divisive and i think we have to be more responsible and i think we will do that next year. matt: i hope. >> for your sake, matt. kailey: this is personal for matt miller. matt: a lot of people are
divisive in this day and age and is not a good thing. the term rich is also relative. if you're raising a family of four in the new york suburban area and making $250,000 per year, it's still a bit of a struggle. >> it's very much a struggle. there is a lot of people who are wealthy who do so many things who are philanthropic and do things to help people and help build affordable housing want to improve our environment. i don't think throwing labels on people just because they are wealthy is helpful step i think we have to have a new way of looking at things and work to gather as a community to make new york stronger stuff we don't need to put labels on people. i think slogan policy sucks and we have to create a new environment. we kind of want to work together
and most people are in this moderate path of doing the right thing. hopefully, 22 will be this new day for all of us. kailey: we would all like to have less political part -- partisanship. thank you so much. i know you are feeling these taxes to move to new york in what a couple of weeks? matt: a week from friday. like 10 days from now. i'm excited about it and the taxes are what they are and i'm looking for fantastic services but on another note, have you seen this new amazon movie about the ricardo's? kailey: i haven't but i saw them filming it in new york a few months ago. matt: i saw it and it was really good. i'm not sure if you have ever
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the countdown to the open starts right now. ♪ >> everything you need to get set for the start of u.s. trading step this is bloomberg, the open with jonathan ferro. jonathan: from new york, we begin with the road to normalcy taking a detour. >> it was clearly a curveball to the end of the year. >> we are still feeling the virus here. >> the bigger question is what regime are we going into next year? >> people can't go to work if they have the virus. >> what is the economic implication of omicron. it will have an economic impact whether it's deadly, more inflation, not les