Inflation & Interest Rate Expectations: Intensifying Risk or a Temporary Spike?Inflation&InterestRateExpectations:IntensifyingRiskoraTemporarySpike?

Read the transcript

• –

  >> This next session is in three parts. We have two esteemed speakers to give some commentary first. Then we've got some investors responding to that. And then, finally, we'll bring all of those four people together again. So I'd now like to introduce our speakers. Robert Tipp is Chief Investment Strategist and Head of Global Bonds at PGIM Fixed Income, which manages $902 billion. Sushil Wadhwani is Chief Investment Officer of QMAW based in London, which is also part of the PGIM stable. Sushil was previously a member of the Monetary Policy Committee at the Bank of England. And I think having these two speakers together demonstrates the complexity of the topic and the importance of playing out different scenarios as we tease out the similarities and differences in their views. So now I'd like to welcome those two speakers onto our virtual stage. Robert and Sushil, welcome.

  >> Hello.

  >> Good to be here.

  >> So, Robert, let's start with you. I mean, we heard that last session with Patrick's views on inflation. Is high inflation here to stay in your view? Or is it a blip in what is more a secular downturn?

  >> Well, it would be a blip except markets, you know, don't know it's a blip until it's over. And so, you know, what you see with something like this, which is a powerful surge in growth, basically like we've never seen in our lifetimes, I mean, after a sudden stop in activity, we have booming growth and, along with that, these really serious bottlenecks in certain goods that are, you know, causing surges in prices and rapidly changing preferences of consumers. You know, what are they doing? That mix, the basket is shifting rapidly; and you're seeing prices go up. So investors are shocked, and we haven't seen that. So investors don't know how long this is going to last. And so the markets tend to take what's happening, right, so that part of you know, acknowledging it and having some shock value make sense, but we know that markets tend to have a recency bias and they tend to extrapolate. And they see what's going on, and they're extrapolating it out into the distant future and moving the entire yield curve and basically pushing in a pricing that assumes, you know, a decent odds that a significant part of this is going to be permanent. And I think that's probably ill-founded because one of the empirical relationships that's very powerful is by country and globally that demographic drivers are quite disinflationary. And then prior to even the last 50 years that inflation tended to be quite contained. So it's actually quite difficult to get high inflation. And for the last 30 years, we've seen progressively country after country, including rapidly growing dynamic countries like Australia, see central bankers frustrated with the low levels of inflation and their economic outcomes. So to make a long story short, I think we're in a cresting this year where you have very hot activity, a lot of bottlenecks and economic activity, extremely robust through the middle of this year. And then that begins to crest and trail off over the course of the next 12 to 24 months. On the far side of that, a lot of countries will be doing fiscal retrenchment. And the demographics will have moved on quite a bit over, you know, the four-year window that, you know, we're let's say looking at. And you're going to end up in a more sluggish environment probably than what we were in, in 2019. So that's a long temporary. But, yes, I think it is going to be temporary.

  >> Thanks.

  >> The markets tend to be forward looking. Yeah. So it's, you know, we're thinking ahead.

  >> Before we got to you, Sushil, I'll just give you the results of the poll that we asked in the break. And inflation has come out on top as the biggest risk that investors are facing in their portfolios right now with 51% of people saying that is their biggest risk, followed by volatility of markets at 21, geopolitical risk at 13% and then climate risk 8 and liquidity 7. So this is front of mind for investors at 51%. Sushil, you've got a slightly different view to Robert. What's your outlook for inflation?

  >> I'm very grateful to be here. Good morning, good afternoon, good evening, wherever you are. Now, key thing I should emphasize is how uncertain I feel. The macro outlook is more uncertain than I -- you know, I've contemplated for at least 25 years. And I think that's a key thing to bear in mind. But you've got these very clever people at the Fed. You've got someone like Robert with an enviable track record telling us that inflation is going to be transient. Somehow, I'm less certain. And I think the key question is not whether inflation in 2022 will be lower than in 2021. I think there are a number of temporary factors this year, which will go away. And, therefore, inflation in '22 is highly likely to be lower than this year. But the issue really is whether inflation in '22, and perhaps '23 stays uncomfortably high. That's what matters for markets. And it could stay uncomfortably high either because some of these transient factors take longer to unwind than people are saying or that the starting point of inflation in '21 is higher than people think. And if I look at the factors that are supposedly temporary, the first thing that comes to mind is people telling me that this labor shortage that we're seeing is going to be temporary. I'm much less convinced of that. You know, of course, you know, we all know that unemployment benefits will change in September in the US. But I have a strong belief that quite a lot of the labor market mismatch we're seeing, you know, vacancies high in some sectors and jobs unemployment high in other sectors is actually due to structural changes caused by the pandemic. And in that situation, we know historically that mismatch can take years to unwind. And the result can be higher wage inflation than you think. And wage inflation may stay high. Also, because, you know, essentially, there are other changes going on at the same time. Even though Congress didn't approve a rise in the minimum wage, I'm struck by how the mood music around the minimum wage has changed. So you've had some states enact it. You've had some companies voluntarily say that they want an increase in minimum wage. And in this situation, I think the key risk is that you will end up disanchoring expectations because the longer that inflation stays up and the less reactive, the less preemptive that the Fed is, and the Fed has committed to being reactive, the greater the risk that you disanchor inflation expectations. And that, fundamentally, is why I'm uncertain about the inflation outlook.

  >> Thank you, Sushil. And I think that's an important part that even professional investors with your pedigree are uncertain during this time. I just want to draw on your experience also working as a central banker what is the -- what is the trigger, really, for central banks to hike interest rates? And in your view, you know, when will that happen?

  >> So I don't think any central banker would be looking at one particular data point. Certainly, when I was at the Bank of England, every month, the week before our policy meeting, we got a data book which had over 1000 data releases. And we would then spend six hours going through that data book with our staff. And the reason you do that is any individual data point is very noisy. And, therefore, it's incredibly important to essentially try and distill the essence of what's going on. You look at the broad sweep of information. So I don't think there'll be a single piece of data. Now, in terms of the Fed, they've essentially locked themselves in because of this new AIT regime. And so I would have thought that if the data gets uncomfortable for them through 2021, then the first thing that they will do is they'll bring forward the likely beginning of tapering. So currently, the market consensus is that tapering starts in Jan '22. That may come forward a little bit. And I would have thought the last set of Fed minutes they were already beginning to hint at that. The key issue, though, is what happens to short-term interest rate expectations. At the moment the Fed is signaling that rates don't go up till early '24, and that's what could change; and that's what could have a very, very meaningful market impact. And that's what we need to watch out for. Now, I think the earliest that the Fed changes its mind in terms of signaling about short-term interest rates is the middle of '22. And the reason I picked that date is it gives them enough time to observe the data to see how transient inflation has proved to be. And it's also past the reappointment or the appointment of a new Fed chairperson, which takes place in February next year. And, therefore, it seems to me it makes sense to kind of wait till May or June, before you start signaling something different in terms of short-term interest rates.

  >> Thank you, Sushil. And, of course, you know, the important thing for investors listening in is how these market environments are impacting the risks and returns and opportunities for investments. So we might just turn to that for a moment. Robert, can you comment on, you know, from where you sit as a fixed income specialist and maybe also comment on Patrick's view that emerging markets, you know, are attractive, and he even mentioned emerging markets fixed income. Just having a sound issue with you, Robert. I'm not sure if you are muted.

  >> Yeah. I had muted myself so as to politely not make any noises. But I went a little bit too far with that, maybe. Thank you. I did hear the question, though, and I am paying attention. So I think that there are a lot of opportunities in the market. And I think the biggest challenge for investors has been in recent years, as the demographics have aged, as there have been worker shortages if central bankers who have struggled to hit their inflation targets, as there have been bubbles bursting and so on that, on average, the markets have delivered. And an investor's biggest challenge has been staying at their strategic asset allocations. They've tended to think equities were getting overvalued, that bonds are getting overvalued. And they'd ended up losing what 80% of the time is an actual diversification benefit between bonds and stocks and the fact that bonds have outperformed cash and stocks outperform bonds. So what I think is going on right now is there's a lot of fear about the future. But the general range of rates has continued to fall. And every time there's been a calamity, the range for rates has taken another leg down in countries like Australia, the United States and so on. And so what I think is going to happen here is, to Sushil's point, it's absolutely true there's very little price stand [phonetic] in the next 24 months, say in the United States or for a few years and in Australia in terms of rate hikes. And that could be wrong. I mean, I think that you could get back to full employment in a year or two. And then people will have a much more legitimate reason to wonder about whether there will be lift-off because these central bankers love to have interest rates well above their effective lower bound. So the first two years of the curve may be too low and not reflecting the risk of that because economies are doing great. The thing that I take issue with is the fact that the forward rates are over 2% in so many developed economies. And I think that, you know, a Fed funds rate, target rate in Australia, cash, the repo rate in Europe and so on, they're likely to be very, very low. And in the case of the US or the ECB, you may not get rate hikes for years because PC has very rarely hit and exceeded 2% in the United States, and the Fed clearly wants to get past COVID and see that they're on track to average 2%. The forwards, five year, five year Treasury rates are over 2%, suggesting that, you know, 150 basis points of rate hikes and a yield premium beyond that is in the bag. And the same is true in Australia and elsewhere. I don't think that's likely. And in Europe, there's over 100 basis points of slope in the forward curve over the next 10 years. They've had a backup in rates. So I think fixed income is well-poised for rates to contribute to solid returns. Emerging markets are really, you know, in some rare cases where the markets trade more like developed markets like Eastern Europe, like a Hungary Poland or Southeast Asian markets, credit quality is high. They trade more like a developed country markets, and risks are low and there'll be good core holdings. But for Africa, Latin America, their fundamental goals were challenged going into COVID. And they are much more challenged coming out of COVID. So I think there will be good returns. But it will be more challenging to capture those in hard currency, in currencies themselves. And in local markets, the curves there are spectacularly cheap, literally hundreds of basis points of rate hikes priced in, in South Africa, Chile, Colombia, Brazil, huge rate cycles which may not be realized. So I think there are very good opportunities there, but it's going to be much more challenging than it has been at some other points in the past.

  >> Thanks, Robert. And we're going to discuss emerging markets a little bit more tomorrow, particularly Asia. Sushil, want to give you a chance to comment, though, on emerging markets and also something else that Patrick mentioned in the opening address, which was commodities. And when we were preparing for this, you mentioned to me that, you know, the 15 years you've been managing money, on average, your allocation to commodities is zero, and it's currently at 35%. So, clearly, that's something that that you've been looking at very closely. So, if you could, comment, please, on both emerging markets and commodity allocations.

  >> Yes. So, essentially, in terms of how we allocate money in this environment, I think the key thing to emphasize is the uncertainty of the macro environment. You know, when I joined the Bank of England, the first thing the late Eddie George, who was then Governor of the Bank of England, said to me was that, you must never forget to recognize what you don't know. And I feel that very strongly about the current macro environment, which is why I hesitate about sort of bold recommendations that emerging markets or gold are going to be protective of portfolios if you get inflation. And I think the person from OTPP asked the appropriate question, which is, it depends on what scenario you end up with, in terms of the -- what central banks do. And if you look either at emerging market equities or gold, then if you go into next year and it -- and the Fed is right and inflation turns out to be transient, then I think both gold and emerging markets can do well in that scenario. If on the other hand, the Fed turns aggressive and, you know, for the reasons I gave, if they're surprised by the level of inflation in the second half of '22, the Fed odds-on is going to turn aggressive. In that scenario, I would imagine that's really bad for emerging market equities and gold. And, therefore, be careful about just locking away so-called hedges in your portfolio because, actually, the key thing is to be agile. I think what you need to do in a very uncertain environment is to be agile, rather than get fixated on a particular hedge. Now, in that same spirit, Amanda, we are only tactically long commodities. And perhaps I should explain why we are long commodities. We are long in part because we see evidence of inventories being very low in many, many commodity markets. So looking at the 36 commodity markets we trade within our portfolio -- and, remember, we can go long or short. That's why, you know, the 15-year average is zero. More than half our commodity markets are in what is called backwardation, where the -- where, in essence, the futures price is lower than the current price because there's a kind of scarcity premium. Now, if you combine that with the situation where in a very plausibly demand is going to stay higher than supply globally for commodities for some months to come, you can then see why they may be some short-term pricing pressure upwards on commodity prices. Having said that, I would also be agile about our commodity exposure. Two reasons: It seems to me China is prioritizing financial stability over growth, and that is a warning sign for commodities. And the second reason is the central banks again. If the central banks get hawkish next year, that could be terrible news for, say, the industrial metals that they were very long at the moment. And, therefore, we continue to expect to need to be agile in this very tricky macro environment.

  >> Thank you very much. Robert, we've got one question here from the audience which I'll direct to you. And then we'll give you guys a 10-minute break before we bring you back on screen. It's a question from Justin Lowe, who's a fixed income analyst at Sunsuper, which, as you may know, is merging with QSuper later in the year to become Australia's largest super fund. And Justin says, Robert, would you consider asset price inflation as risk that flows into the broader economy?

  >> Yes. Sushil -- make sure I've unmuted myself. Yes, I have -- I'm sure will have more to say on this than I. But I think Janet Yellen, when she was appointed to the Fed, recognized that one of the biggest drivers of growing inequality I think was this process of having booms and busts in the markets, that investors, that your top 10% tends to recover, and in some ways dollar-cost averaging through it almost accelerates their wealth differential whereas what we saw like in the financial crisis is people come into the stock market, they get wiped out, they take their money out, and then they -- the gap grows as they don't go back in. So asset bubbles have a huge toll on Main Street. And so the central banks are aware of that. But I think they're erring on the side of taking too much bubble risk. And so I think this approach of targeting unrealistically high inflation targets say of 2% where someplace like the eurozone clearly only seems to deliver 1%, Japan only delivers zero. Given the underlying fundamentals there, the United States seems to deliver 16 17, which I would think would be close enough to 2, but it's not close enough for the Fed. And what's going on in Australia is not close enough to the 2 or 3 range. And here you have asset inflation hurting the average person. So I think macro Prudential helps on that front. But I really think that they would be well-served to go to a more common sensical price stability objective rather than a strict numerical target.

  >> Well, thank you, Robert.

  >> Asset bubbles are real risk. Yeah.

  >> Thank you very much, Robert. And thank you, Sushil. We're going to come back to you in a few minutes time, but now it's my pleasure to introduce two esteemed investors to make some comments on what they've heard so far through the conference and to discuss their views on the inflationary environment and the impact on their portfolios. So Geoffrey Rubin is Chief Investment Strategist at CPP investments, which manages 475 billion Canadian dollars. Mark Fawcett is the Chief Investment Officer of NEST, the UK defined contribution scheme. And Mark brings a unique perspective to this conversation having worked in Japan for many years as the head of Japanese equities at Gartmore in the '90s. So welcome to you both.

  >> Good to see you, Amanda.

  >> Good to see you.

  >> Good Afternoon.

  >> And you, Mark.

  >> Evening in your case.

  >> So, Mark, let's start with you. As I mentioned, you worked in Japan in the '90s managing Japanese equities. Is this an all too familiar conversation for you around inflation? What's your view of what you've heard so far today, and what do you think about the inflationary environment?

  >> Yeah. And we're all sort of products of our own experience. So having grown up in UK in the '70s where inflation was rampant and, you know, we had a lot of supply side issues with very strong trade unions, you know, you kind of have this fear of inflation. And when you live in Japan for five, six years where there were a lot of deflationary pressures, which Patrick and Robert, in particular, alluded to already, and I think there are two things. One is the demographics. You know, with societies getting older on average, that does tend to lead to less consumption and a rising savings rate and just some deflationary pressures. And then, secondly, when fiscal -- there's massive fiscal expansion, people aren't stupid. They know that at some point taxes are going to go up in the future. And this spending has got to be paid for. And while obviously we're going to have a really strong bounce back in some countries post pandemic but a pent up demand with just the relief of getting out, I think beyond that, that the sort of deflationary forces, this realization that you're going to have to pay more taxes in the future will hold back that demand side. So then the key question is about the supply side. And I completely agree with Patrick, that central banks will be very cautious about letting supply side factors drive inflation because that's what -- when inflation becomes endemic and inflationary expectations are sort of built in. But the experience -- my experience in Japan is it's quite hard to build up those inflationary expectations. Having said that, you know, the US economy in particular is much more dynamic. It's much younger. And, therefore, maybe that's the place we obviously will be looking at and thinking about, is that core inflation going to rise on a permanent basis.

  >> Thank you, Mark. Geoff, CPP is famous for its scenario planning. What are you looking at the moment in terms of these inflationary expectations and different scenarios that you're testing? And I also want you to comment on this point by Sushil, that agility is important at the moment in terms of allocations. Can you tell us what your thinking is there?

  >> Yeah. Certainly. And this is fun. This is exciting. Jobs are getting exciting again, which is great. But, actually, we'll start with something pretty boring, which is I agree entirely with Robert that the base case here is I think one of relatively transitory inflation pressure against a backdrop of disinflationary longer term trends. I think that's right as a base case. And I agree with Sushil that the action is not around the base case, it's around the uncertainty and that there is real prospect for policy mistake. And the reason why it is so important for us as investors is that unanchored inflation to the high side is something our portfolios are just not designed to perform in. And as investors, I think it's really clear that we can't do our jobs well without anticipating the impact of policy intervention. I think the entire experience that we've had in markets over the last year is evidence that it was policy intervention, not fundamental economic supply and demand, that drove the market reaction over the last year. So we as investors need to think about policy intervention. And we as investors aren't terribly good at anticipating policy intervention. Heck. The policymakers can't predict what the policy intervention is going to look like. Try sticking -- try sticking policy decisions and discipline into a DCF model and it's not going to turn out well. We have this extraordinary experience of performance in the post Volcker regime. And that kind of central bank credibility and policy credibility has been an extraordinary backdrop for the investment decisions that we've made over the last couple of decades. It seems curious that that would in any way be squandered. But let's face it. The reality is mechanisms of discipline seem to be eroding in this current marketplace. Politically, there seems to be very little pressure to have the kind of fiscal and monetary discipline in place that I think is consistent with inflation targeting of the type that we've seen so successfully. So I think our base case very much is one of continued control and continued perseverance and persistence of a inflation targeting and stable economic regime. We don't believe it will end. But if it does, end, it will probably end badly for portfolios like ours. I think the suggestions around things like commodities and inflation linkers are interesting on the margins for portfolios such as ours. But for the long-horizon investor, I think a material persistent allocation to commodities is probably not consistent with the kinds of portfolios we want to design. And on the inflation linker side, there's always this issue of investors like us wanting to sell insurance, not buy insurance over the long-term. So in that context, over very long horizons, a sustained allocation of inflation-linked bonds is something to call into question as well. A couple of issues, though, that haven't yet arisen in the conversation this morning I think are worth touching on. One is this -- the prevalence that the preponderance of uncertainty around inflation versus growth as I think a well-understood and critical impacts on the correlation between nominal bonds and equities. I think that negative correlation that we've all benefited from in designing our portfolios over the last few decades really relied on the uncertainty of growth dominating uncertainty in inflation. To the extent that uncertainty in inflation dominates over the next few years, we should anticipate a positive degree of correlation between nominal bonds and growth. And that's a real problem for portfolio design. Nominal bonds were the fundamental, most prevalent element of our diversification strategy. And to the extent that is diminished, that's a big deal for us in sorting through our portfolios in ways that maintains a given level of risk. A second note is this entire conversation needs to be very carefully thought about in the context of our own unique institutional circumstances. So this issue of both shorter term and longer term inflation considerations is going to have very different impacts for different investors. We, at CPPIB have a curious liability structure that is actually modestly supported or helped by rising inflation. It's just a curiosity of the way that our liability structure is put in place. That's important for us as we think about and grapple with inflation. We had that hedge in place. We're a Canadian dollar denominated investor, and all of the conversation that we had around commodity prices flows through our translated results from overseas. And, finally, we're growing fund. And, again, it's a product of our circumstance. But because of that growth, rising nominal rates and inflation in the short-term might be painful. But with the scenario analysis you described, Amanda, we can think about what that means for our longer dated prospects. And a higher rate environment over longer terms might actually be beneficial for us because of the growth in our funds. So I think it's an important lesson to anticipate what all of this conversation means for each of our individual portfolios because the responses might be very different.

  >> Thanks, Geoff. Good, good point. And I'm interested to hear Robert comment on that bonds versus growth conversation as well. But we've got a session coming up looking at the amount of debt in the globe at the moment, which is $281 trillion, a new record at the end of 2020; or 355% of GDP. So I'm interested to know to what extent this is a concern for you and for you both and how that impacts your outlook for your portfolio. Mark, might start that question with you.

  >> Well, it probably depends. I mean, I'm not a big fan of long-term economic forecasting. I think it's bit like long-term weather forecasting. It's difficult if not impossible. And -- but, you know, there's this modern monetary theory which says it's not a problem. So MMT -- so we have something in the UK which apparently didn't exist which is the magic money tree, which happens to have the same acronym, but apparently it does exist. And it's all fine. I would say we are, in some senses concerned. But like Geoff, you know, we are a long -- long-term investors. We are growing. And as a result, we don't have any government bonds in our portfolio, domestic -- developed market government bonds in our portfolio. And I think, you know, that's where most of our money printing, most of the issuance has been. So I'm very comfortable with that position of not having those long-term, develop market government bonds in the portfolio. For emerging markets, the issuance has definitely been a lot less. And we're comfortable holding emerging market debt. But is it going to suppress growth long-term? As I said earlier, I think there will be some deflationary impact as a result of the massive issuance because at some point it's got to be at least partially paid for. That'd be my quick summary. I just wanted -- I mean, I agree with most of what Geoff said. I suppose one of the things that, you know, the benign inflationary environment we've had over the last 20, 30 years, is it due to central banks, or is it due to things like technology, globalization, really? So there's been some systemic forces driving down inflation. So I'm not sure I'd give credit central banks quite as much credit as all that.

  >> Thanks, Mark. And, Geoff, I might just get you to comment on this debt question. And then we'll bring Sushil and Robert back into the conversation for the last five or so minutes.

  >> Sure. Yeah. On the debt. Look. I think the aggregate stats, Amanda, that you pointed to are interesting but only a starting point for our analysis. I think that that aggregate number really needs to be unpacked as investors. For example, a lot of that local currency sovereign debt, in terms of sustainability, it's not an issue so much as the real value of repayment when it happens for him. Or this dovetails with the conversation we're having around inflation, and obviously local currency issuers can effectively monetize or print in order to ensure that they can effectively repay their debt. It'll just have diminished real value when repaid. So I think there are elements and pockets of that debt story, Amanda, that we really need to tackle and come to grips with. We are very enthusiastic about including debt, credit allocations into our investment strategy; and that's in both domestic and emerging markets. I think as we think about, as we contemplate what that means for the portfolio longer term, I think issues of the typical issues of credit cyclicality are ones that we need to anticipate. It seems that with each passing credit cycle we discover some of the difficulties of perfecting interests and working out problems. And we can't -- we'd be foolish to expect anything otherwise. In the next credit cycle, there are areas and elements of our credit strategy that just aren't tested and proven with a significant cyclical downturn. And we're going to have to figure that out when it indeed arises. So I think the backdrop you mentioned in the very highest level certainly drives us to dig deeper, but we're quite convinced that we can find those areas for our credit portfolio that really will help enhance our overall investment portfolio.

  >> Great. Thank you, Geoff and Mark. I'm going to bring Sushil and Robert back into the conversation to make some comments on what they've heard from these investors. Robert, starting with you, you know, some of the points that Geoff made, I think are right up your alley. So, you know, what are you thinking about these correlations about the bonds that are versus -- versus growth concerns that Geoff has?

  >> Yeah. Yeah. Let me comment on two things. The first one would be, on the correlations, I think that the times when bonds have tended to be a poor hedge on economic risk are, number one, after a crisis. So once we had had the rally last year down to a 45 basis point 10-year note, they're not very good hedge for anything at that point. They don't really have room to run in an economy where a central bank is not going to go into negative rates. But once you've backed up to the point where we are right now, locally, we're having positive correlation between stocks and stocks on -- stocks and bonds on a day-to-day basis, which is a negative. But if it turned out the bottom dropped out of the economy right here, you would see a big rally in bonds. So I think you're -- 80% of the time that's the way it tends to be. The time to worry about that correlation is when rates are low. The other thing I would comment on is the debt levels. And one consistent trend that we've seen across economies the last 50 years is rising debt to GDP levels. And I think there has been a concern that the debt in and of itself would somehow create inflation; the debt somehow in itself, would push up interest rates. But I think that what we've seen in economies that can carry the debt, right, if you jump the rails and you become Zimbabwe or Venezuela or Argentina, it's different. But if you're perceived as being able to carry the debt, and you're in that category, the more debt in the economy, it almost feels like the lower the interest rate has to be. The equilibrium interest rate of what the economy can afford seems to drop as the debt burdens go up. And then the last thing on the commodities and tips and so on, I think that's one area of where Sushil and I when we are talking came into alignment. And also that you were mentioning that there shouldn't be a static allocation to commodities. And I think we all agree on that. But I think that's a good point for me to hand it over to Sushil.

  >> Well, thank you very much. First, I wanted to thank both Geoff and Mark. I agree with virtually everything both of them said, so I have very little to dissent. And thank you for your wise remarks. But, Amanda, I thought I'd just pick up a couple of things you said, one on debt and the other on the correlation point. So on debt, I actually think this sort of compounds the uncertainty and the macro risks. So when I was still an undergraduate student, I was taught that inflation is always and everywhere a monetary phenomenon because, obviously, that's what the famous Nobel Prize winning economist Milton Friedman propounded. And then some of my other teachers taught me that inflation is always and everywhere a political phenomenon. And they made the point that, obviously, political institutions really mattered in terms of sustained inflation. And, somehow, we've forgotten both statements. In the last 20 years because inflation has tended to surprise on the downside, inflation has suddenly become a real phenomenon which, you know, would make some of my teachers turn in their graves. Inflation is now suddenly about demography or technology, you know, real things while you know, the textbooks still say it's about other things. And I wonder whether what you need is you need a catalytic event to remind markets of how important monetary factors are, and I wonder whether the country -- where the catalytic event is going to come in over the next two or three years is the country where I live in, which is the United Kingdom. And this does tie back to the debt question because, obviously, public debt has gone up a lot. Public debt to GDP ratio has gone up a lot. We have a prime minister who has zero appetite to raise taxes. He has enormous appetite to increase public spending. And I would have thought if he if he thought that the central bank was getting ready to raise interest rates, the central bank will suddenly find it's got a new target. So the inflation target could be jettisoned. And they could get a nominal GDP target, which would be a backdoor way of essentially increasing the inflation target. And I wondered, if that were to happen -- and the causal factor there would be this very high level of debt we've got where the markets would wake up and smell the coffee and realize the inflationary risks which are latent in the current macro environment. And then, of course, you get a big change in the bond equity correlation, which should be sustained. So I'm quite a sort of anorak about it. I don't know if that translates outside the UK. But when I was still an academic at the London School of Economics, I did look at this bond equity correlation over 300 years. And it's very, very dependent on the monetary regime you're in. And my fear is that, if you get a different monetary regime, we get this sustained change in correlation. I better stop there. I went on too long.

  >> Thank you, Sushil. And, unfortunately, we do only have 30 seconds left. But we've had -- we've got two questions from the audience that I do just want to read out. And I don't think we'll have time to answer them. Perhaps, Geoff, if you can give a 30-second answer. One of them is directed at you. But what we will do is we'll get these questions answered and put on our content hub for people to review after the conference. But Bill Lee, who's the CIO of New York Presbyterian Hospital asks, It appears that certain us pension plans are less exposed to inflationary interest rate changes under inflationary scenarios. Should those plans adjust the inflationary defensive posture? And as I mentioned, we will get that question answered. But, Geoff, there's one directed at you from Tom Lasky, who is co-head of Portfolio Strategy at USS, the largest fund in the UK. What are the scenarios that would see persistently positive stock bond correlation? And if you can answer that in minus 15 seconds, that would be excellent.

  >> Yeah. Thanks for the question. I think -- I think regimes in which uncertainty around inflation dominates uncertainty around growth. To the extent that market participants are deeply concerned with and realize there's significant volatility in inflation, up and down, those are the circumstances where we would expect to see equity and nominal fixed income correlations be meaningfully positive. And the reason is that the impact-to-discount rates, that inflation uncertainty it's driving is common to both of those asset classes. And as that volatility feeds through an evaluation, we would expect that we'll hit all asset classes, both equity and fixed income.

  >> Well, I'm sorry that we've run out of time and certainly much more that we could discuss. But I'd love to thank Robert, Sushil, Geoff and Mark, calling in from New York, London and Toronto. Thank you very much for your participation.