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[Applause] hi i'm mark rosano founder and ceo of c6 capital holdings coming to you from primary vision network today in the econ show we have a lot of stuff to cover there's a lot of movement in terms of rates yield inflation what does it mean coming uh going forward and what can we expect as we see rates continuing to drive higher so we're going to try to break this into again the five normal segments that we do the first one is going to be a bit more global looking at what are global central banks doing uh governments in terms of monetary fiscal stimulus what are some of the updates that we're showing for covid and the vaccine rollout then we're going to go deeper on the u.s inflation side and look at what are some of the drivers what are some of the impacts that we're seeing in the market in general then in the third segment we're going to go through jobs what is the consumer what's happening for the consumer jobs unemployment you know what are we expecting in terms of that pain on the jobs front and then we're going to look at european inflation because it's actually showing up in the numbers and what are some of those impacts that we're going to see and then wrapping up with asia and really providing some updates ahead of the chinese communist congress which kicks off on thursday which is when you'll be watching this and then we'll have a bigger round up uh next week once we have the official um printout so before we get into it please like share subscribe you know your support is greatly appreciated so just looking at this i thought these were some good charts that were coming from the bloomberg economics team from imf data so this is just looking at the g7 central bank asset purchases as a percent of increase in government debt so the government's putting out more debt to to cover their fiscal stimulus but how much of it are they able to cover so when we look at the at the uk you can see that in general for 2021 they're not going to be able to cover as much as they did or they won't be covering as much as they did in 2020. that is not to say you know that's to that's so much for the uk and us but the euro area canada japan we're seeing that increase in 2021 to try to offset some of that that stimulus now the u.s is going to get uh it's going to see a big flip especially once the it's officially passed when we think of the stimulus that will be coming out they're now rehashing on who gets it now they're saying that anybody with an income of below 80 000 is going to get the stimulus so they're still trying to hash out some of the underlying details behind that stimulus and then it will start coming into the market now this is just looking as a at a percent as an increase so obviously they're all increasing debt which is in an underlying problem because and we'll show this in a few minutes as the debt bubble gets bigger every basis point increase hurts more because no one's able to pay off all that debt at once so you're gonna have to roll it and if you roll it you're rolling more and you're layering on new debt so not only you rolling what you previously had but then you're and then you're adding on top of that that's just making your interest expense go up and up and up not just because the the interest rates are going up which they are currently but also because you just have more stuff going into the market and you need to make sure that you have someone on the other side that is going to buy it and that's where that's why we always talk about that bit to cover ratio because that's showing how much appetite is it in the market and the only way to get people to purchase it if they're not willing to show up is a higher interest rate so that's why when we when we start talking about the asset purchases there's only a certain limitation to what can actually be done in the market so this is just looking at the fed ecb you know right now there's going to be about 300 billion dollars a month purchased across these five central banks so just think about the sheer size of that so that's where we see what we went from about 350 now we're at about 300 and the fed obviously had a huge spike in april and then it started to come down and now we're we're normalizing at about 180 billion dollars a month it the que and there's it there's going to be a limitation on how much additional they can buy given the the issues that we're seeing on prices paid prices received and just where that inflation is really coming from especially when we turn to the commodities market but in general these five will be a purchasing 300 billion dollars of assets per month now coming to the global pmi and then we'll break it apart throughout the show so when we look at the global composite uh we it rose to 53.2 in february which is up from 52.3 in january and it's the second highest reading for two and a half years all of that is a net positive input prices rose at the quickest pace in september 2008 and it's a 149 month record so just putting that input prices into into uh into context and output charges to the greatest extent since the time series began in october 2009 so we're seeing a big increase in input prices a big increase in the output charges all of which is going to drive up the price of of um of goods which comes in the way of inflation as prices continue to go up so not only do we have a lower base effect after having very low prices for the not only just 2020 but also in 2019 now we also have that reflation movement commodities going higher commodities are a mixture of that supply demand dynamics where demand is starting to come back now that we get some people reopening but supply just hasn't been been able to catch up that that's one side of it now the other side employment ticked lower following no change in the previous survey average input costs rose to the greatest extent since since september 2008 leading to a father solid increase in selling prices so we're getting those selling prices but we're not getting employment and that's where we continue to talk about that wage compression because even though prices are going up we're not seeing the employment change it's actually getting worse which is the concern because if people aren't getting hired back that means that people are going to rely on more stimulus or at least more support and that support is is being buffered because prices to survive are going up so the money's coming in you're not getting wage increases if anything you're getting wage decreases because you're getting that compression but your cost of living is still going higher which is the underlying problem that we will continue to talk about then when we look at daily activity this is looking at the at the global construct you can see china is still struggling to get to some of this normalcy there's still issues with kovid obviously much smaller than most other places but there's also this this difference of we're not seeing the same type of turnaround on the trade side because there's a certain amount of normalcy that has come into the market now we've we've talked about supply dem supply recovery versus demand recovery and that supply recovery is starting to slow because prices are going up so people are looking elsewhere to find better pricing and then you still have the bottlenecks when we look at just general shipping so that is is keeping china fairly hamstrung in terms of how quickly they can rally but the other three when we look at advanced economies emerging markets and then global in general continue to have that that movement higher with emerging markets finally getting back to the previous high of pre-holiday same with the um the advanced economies getting back to where we were ahead of that holiday season now at this what we're seeing here is there's some some competition because a lot of this is being driven by the the fiscal stimulus but the jobs isn't being converted which even though we think there's going to be a continuation of things getting a little bit better this the the what makes it sticky would be seeing those jobs coming through and we're just not seeing that um that indicator showing any kind of lead the leading indicators for employment are not very positive but when we look at just the daily activity in general coming through the advanced economies you can see that we're still clustered around this you know 75 but everybody is is starting to trend in the right direction japan is as stable at this level spain is starting to slow down where uh some of the unemployment numbers were a bit surprising to the upside again again with the uh with the with the wage compression but when we look at germany starting to flatline you know france sweden same type of same type of situation where the us has seen a pretty steady increase but we think it's going to follow something similar to what we've seen with with um with spain and some of the other french countries some of the other european countries where you get that movement up and then you start to see some of this uh the stabilization at this 80 mark but we think that there is still more to go on an expansionary level of the u.s economy as we have more such more states opening up looking at the emerging market side you can see how the one the one that we've been always talking about is obviously not just china but india so india has had a nice bounce off of the beginning of the new year and now they're they're getting kind of stuck in this level and it's following something similar to what we see with this this movement back and forth because india's more impacted or emerging markets in general are more impacted from inflation because as inflation gets worse then fears start to arise and then that pushes people into advanced economies or into other currencies and that would mitigate investment and and movements into this backdrop the benefit for them is that demand for raw materials which remains very fairly strong pricing is supportive so we that this should be a solid building block to get them to that 85 because if you think about where we are you know the average here is closer to 85 where the average is closer to 75 in advanced economies so this is something where we don't see this rolling over but unless we can get these advanced economies really bumping and moving up to the next level then it's going to be difficult to see this uh normalized back to 100 especially china which is i think gonna put that that cap on global growth which is what we keep talking about and what we've been talking about since last uh last quarter and this is just looking at some of the uh the gdp estimates as we go into 2021 so here you can see the us eurozone uh have are supposed to have a strong bounce you know the ones that we remain the most concerned on are the eurozone and it's just because the the the uh covid remains sticky there's a aversion to some some some of the vaccines and these are some of those headwinds that are unless we get this big snapback that's going to put that number into question and then obviously that feeds down into the other european countries but then when we look at china and india china i think is the one that is the mo is the furthest over its skis given where the projections are and how this could normalize much closer to about six percent and maybe even five percent just given where those demand factors are and what the struggles will be now india it's going to be a matter of how how much can they keep that fiscal stimulus where it is without these inflation fears because as i was saying at the beginning of the year i thought people were a bit more aggressive for q1 than they should be and that has now come to pass where some of these indicators are starting to soften still positive not saying it isn't but that's where i think some of these numbers are just going to get re-weighted down just given some of the competing factors in the market in general and this is just looking at some of those large number of economies that expanded in q4 but now we're shrinking in q1 the question is going to be how much do they shrink in q1 and that's when we turn to india which gdp growth was positive in q4 and q1 i think the q1 is going to be a bit softer still positive but not at the same growth level just given some of the uh export import data that's come out and just some of the issues that we're seeing in some provinces versus others what just in covid and just activity on on the aggregate but in general this is going to keep that cap on on general growth in the global economy as some of these guys are are shading a little bit further to the downside and it's really driven based on that that consumer spending which remains sluggish just given where we are for covid and then where that demand is on the consumer level now this starts to look at the backdrop so this is coming from the iif and this is talking about what are some of the impacts that we're going to see if u.s rates go up so as as rates go up in the u.s tip a lot of countries will price off of us because we are what you you know the the premier risk-free if you will so if our rates are let's let's just use 1.5 percent then an emerging market or a riskier market will have to give a premium to that risk-free rate and what does that mean in terms of cost for these underlying countries if our rates go up so this is looking at the current rates 100 basis points increase 200 basis points increase this is where that deficit will widen because it's going to cost more to to to just carry on be and the reason why it'll cost more is the interest expense will go up so the inherent cost of issuing that debt will become more expensive and that's why these actual deficit ranges have continued to widen especially when we look at debt stabilizing and debt stabilizing 200 basis points higher this is where we turn to india where we see some of the bigger issues coming up because some of these are are fairly stable but india is the one that we want to look at the most and obviously brazil as well but india is the one where they could see the biggest impact if there's an inflation spike or if rates start to really go up as they continue to grind higher in the u.s and when we look at grind higher well what does that mean so this is where we look at the 30-year and then the overnight repo so the overnight repo has been struggling at this you know 10 basis points uh where the u.s 30 year continues to drift higher so we obviously had that big push from 2 percent to 2.4 that correction as the um the australian bank made it made a move saying that they were going to double their yield control uh their yield curve control and now we're starting to get that steady increase as new data points come out highlighting just where inflation is going but there's more liquidity in the market so more liquidity in the market and the fed buying as much as they're buying on the short end which is that repo side or the overnight side is is creating this competition and rates are being pushed lower as we get this this bifurcation the market of the long end versus the short end which is why we look at the whole curve the belly and the long end continue to struggle and are pointing to a bit more of a concern especially the five year where we're seeing that price in the most amount of inflation versus even the 10 and 30 year and that's when we turn to inflation expectations are showing uh shown in the gap between treasury yields and that's where we're seeing the most priced in to the five-year difference between 10-year five-year difference between 30 and five-year the five-year rate hasn't been above the 10-year since july 2008 according to factset and the gap between the two has never been as great as it was on wednesday one possibility is that the 1.9 trillion coronavirus relief package from washington uh will bring only short-term benefits and only a short-lived bump in inflation more than three-quarters of the funds likely to be approved will be spent on stimulus checks that's where we're getting this this separation between seeing where it's the inflation expectations and it's the greatest in the five year even though we're seeing some of that increase in the 10 and 30 years that bleed happens in you know comes in but the five years where tha fear is really getting up set up now this is looking at real rates versus the forward price to equity and you can see that typically as the real rates start to uh start to go positive that's when you see you see this the p the pe come down and it's really because the price of operation goes up and and if you think about the whack or the weighted average cost of capital as your borrowing goes up and your interest expense increases that's going to put a weight on just your general you know profitability that'll eat into margin and that's when we start looking at prices paid versus prices received the the companies are paying more but they're unable to pass through all of that increase which is again going to weigh on margin while their cost of cost of capital is going up now when we look at just what's happening the global free liquidity you know liquidity continues to rise and that's going to pull some of this this the the msci world year over year up but we're even starting to see some of that roll over as some of this additional liquidity in china is being pulled out but it's being maintained by the g7 as we said at the beginning of this episode which it's not going to keep us at these elevated levels it'll start to normalize down but it is still going to stay fairly elevated and will pull some of this msc msci world index a little bit higher over the near term and this liquidity is leading to a huge amount of specs so this is just looking at what is expected in 2021 and public listings by zero revenue companies valued at one billion or more and you can see that pending spec mergers are the biggest driver so far in 2021 taking us to over 15 billion in uh to start off the year strong now while all of this is happening this is gonna you know we're seeing a fallen living standards and this is that that steady decline that we keep talking about with poverty and poverty continues to become a bigger issue on a global level as these economies see their gdp shrink and they see more pressure on the inflation side and just the lack of jobs and trade that continues to come through the system so this is on the aggregate but then when we look at the breakdown country for uh you know what what is happening in the different countries you can see that we're seeing an additional decline in terms of where they are pre covid and now postcovid and it's going to be a struggle to see that close the gap given the pressure on pricing just on on the inflation side as well as just how many jobs will be available uh just as as we start to see this reopening and then the impact on workers remain uneven and that's why we keep talking about by education as well as by age because when we look at advanced economies clearly there is a bigger impact on the lower end but that also bleeds into the emerging markets where you continue to see this pressure on not on not only just the low earners but also on the younger earners and that's going to create some of this the the the problems that we keep talking about on social mobility social inequality you know the inequality levels and how does that gap get closed given the pressure that we continue to see on the income your ability to earn or your ability to continue to work up that ladder is getting compressed as the as these countries struggle on a in a pre-covered world in a post-covet world now doing a quick recap on what we're seeing in just some of the data points now this is from a scottish report so scottish data shows a single dose of covid19 vaccine offers very strong protection against hospitalization that is the biggest key because if we can keep people out of the hospital that doesn't stress the um the infrastructure that allows a certain amount of reopening a bit more comfort so this was a very positive study that was done showing the protection that's coming from these vaccines now even if you get covid you're just not getting the severity which is going to keep you out of the hospital the other side now this is looking at it uh something similar english data shows strong vaccine efficacy among health care workers aged under 65 including after a single dose so you can see the confidence interval widens out a little too much after that 50 day but when we look at this 30 day then and we we said this at the beginning of the vaccine cycle as well what is the risk if it takes longer to get the second dose so you can see that the first dose provides a you know between a 75 and 50 percent um vaccination uh effectiveness and then by the time you get to that second dose your you're close to that you know let's call it 80 to 95 percent but not only are you not going to or going to be protected but you're also going to stay out of the hospital again all of these things are net positives to getting back to a more normal existence now this was an interesting chart because france has used little of its oxford astrazeneca vaccine supply and here's where you can see just how different that supply is so the hope is there's a movement of if you're not going to use it sell it to someone else and get it into the market because there is a hesitancy of using the oxford astrazeneca many are opting for the pfizer one or some of the others that are more locally sourced and this is creating some of this strife in the market because we're seeing something similar in other parts of uh of europe i don't want to pick on just france and this is something that needs to be clarified and cleared because italy and draghi has come out saying that he's looking to push vaccinations and maybe he could be someone that's going to buy something that's going unused and then you know france can wait for their other now the problem is france continues to see an increase in covet cases or i shouldn't say a big increase but a steady increase and keeping these vaccines you know in storage is is a net problem because if they were distributed they'd be more likely to to see that decline slow down so that's a lot that we've talked about now we're going to go a bit more into detail on inflation specifically in the u.s because you know as as inflation fears go up in the u.s that means that it's going to get more expensive in other nations so you can kind of draw those conclusions from the u.s into the rest of the world [Music] you