INSIDE ECONOMICS

Mark Zandi:                      Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics. And I'm joined today by my two colleagues, my trusted colleagues Ryan Sweet. Ryan is the head of real-time economics. Ryan, good to see you. How are you?

Ryan Sweet:                      I'm doing well. How are you, Mark?

Mark Zandi:                      Yeah. Are you ever not doing well Ryan? That's like your standard, "I'm fine." You're good.

Ryan Sweet:                      Everything's great. Except for my two youngest kids are home today. 

Mark Zandi:                      Why?

Ryan Sweet:                      Our schools closed.

Mark Zandi:                      Unexpectedly or?

Ryan Sweet:                      They have like a teacher in service day. These things pop up from time to time. And then we're scrambling with two screaming little children. 

Mark Zandi:                      Right. Right. Well, yeah. You're made for that stuff, Ryan. Yeah. I know. And I got Cris deRitis deputy chief economist. Hi, Chris. 

Cris deRitis:                       Hi, Mark. How are you?

Mark Zandi:                      What happened your red shirt, your Ferrari shirt?

Cris deRitis:                       I'm mixing it up.

Mark Zandi:                      Is that like a pullover? What are you wearing today like a green? 

Cris deRitis:                       It's got this hood here.

Mark Zandi:                      It's a hoodie. He's got a hoodie. 

Cris deRitis:                       It's hoodie. There you go. 

Mark Zandi:                      Very good. And how was your week, Cris?

Cris deRitis:                       So far so good.

Mark Zandi:                      Oh, yeah.

Cris deRitis:                       Well, I guess it's almost over here. It's almost over. 

Mark Zandi:                      Hey, I was in Washington again this week. And I'll have to report that I spent a day there. Traffic is back to normal. I can't tell the difference.

Cris deRitis:                       Really?

Mark Zandi:                      No. Remember I was there, I don't know, back in July or something?

Cris deRitis:                       Yeah.

Mark Zandi:                      In July. And it felt really quite dead to me.

Cris deRitis:                       Ghost town. Yeah.

Mark Zandi:                      Not this time. It was happening. And last night I went to get my haircut. I like three hairs on my head. I got the three hairs cut. So I get my hair cut in Westchester, that's where our offices here out in suburban Philly. And I'll have to traffic was horrendous. It was horrendous at 5:30.

Ryan Sweet:                      Yeah. You saw that street closed down for all the restaurants?

Cris deRitis:                       No.

Mark Zandi:                      Maybe that was what was going on.

Cris deRitis:                       That's something back up. 

Ryan Sweet:                      That's back up? 

Cris deRitis:                       Yeah.

Mark Zandi:                      Oh, yeah. No. The main thoroughfare was open. Yeah. So just feels like things are coming back to life. 

Cris deRitis:                       Yeah. But don't build these up, right? In our back end normal index. 

Ryan Sweet:                      The mobility is up. 

Mark Zandi:                      And we have a guest today, Emilie Mazzacurati. Emily good to see you. How are you? 

Emilie Mazzacurati:        Hi, Mark. I am good. Thanks. How are you? 

Mark Zandi:                      I'm always good. I'm always good as you can tell. So Emilie, you're speaking to us from Paris?

Emilie Mazzacurati:        I am. So it's very much the end of the day here which is almost over.

Mark Zandi:                      So that picture I see behind you that's just a screen, that's not real life then?

Emilie Mazzacurati:        I always have my Berkeley California background with me. Yes.

Mark Zandi:                      I was going to say that looks like California. That does not look like a Paris.

Emilie Mazzacurati:        The sun is always shining behind me.

Mark Zandi:                      I was going to say that does not look like Paris on November 12th 2021. Yeah. It's probably getting pretty dark.

Emilie Mazzacurati:        Paris is foggy and cold.

Mark Zandi:                      Yeah. Well, Emilie we're very happy to have you here on Inside Economics talking about climate change. That's going to be the big topic for today's discussion. Good timing, right? COP26 didn't that end today, I believe?

Emilie Mazzacurati:        You can say that. It's supposed to end in a couple of hours. The negotiations typically they run late, but yeah. I was just in Glasgow. So maybe we can talk about that a little bit. 

Mark Zandi:                      Oh, great. You were there? Okay. So we're going to come back to you and really dive into that. Really try to get a sense of what came out of that confab, but it's good to have you. Tell us about yourself Emilie, you joined Moody's when Moody's bought Four Twenty Seven your company, a Berkeley based company. Oh, by the way I didn't want to tell everyone, because I want to speak a little French. I want you to tell me what you think of this. You got a master's from a political science from, here you go ready? [foreign language 00:04:14]. How about that? Is that good?

Emilie Mazzacurati:        Beautiful. That was awesome.

Mark Zandi:                      I can't do that again. And then you got a Master's of Public Policy at UC Berkeley, which is a great place to get a degree in Public Policy. That is a wonderful university. Did you ever have Christy Romer? Did you ever have her as a course economist? She was CEA chair under Obama Council of Economic Advisers. Did you have her?

Emilie Mazzacurati:        Doesn't ring a bell.

Mark Zandi:                      What about Robert Reich?

Emilie Mazzacurati:        Yes. 

Mark Zandi:                      You had Robert Reich?

Emilie Mazzacurati:        Yes.

Mark Zandi:                      Oh, you did.

Emilie Mazzacurati:        We did one with Robert Reich. Yeah.

Mark Zandi:                      What do you think of Dr. Reich? We are going to get to know your politics right away right now. We can nail you.

Cris deRitis:                       Cards on the table.

Emilie Mazzacurati:        I read in the cabin to the cabinet. Is that the name of his book? The summer before I flew to the US and ended up making my life here. And love that book. And I enjoyed the class too. I was very much about politics the rest of the program was very analytical economics and then statistics, which was great and what I was coming for, but I did enjoy the political angle of what Robert Reich was bringing.

Mark Zandi:                      Yeah. He's a really good guy. I run across him once a year or so. And it's just always a pleasure to listen to him. He's very, very articulate. Certainly on issues of income, and wealth, and equality. He's very good on that. Well, that's great. And I have a link to UC Berkeley. I'm on the board of advisors for the Turner Real Estate Center. So they have a really good set of researchers on, Californian real estate, obviously. 

Emilie Mazzacurati:        I have no issue there whatsoever.

Mark Zandi:                      I'm on the advisory board there, which lets me link into Berkeley. I wasn't able to go out to Berkeley this year for that though. But anyway, it's great to have you. Tell us your backstory Emilie? Tell us about Four Twenty Seven, how you started that? And I should ask, what is Four Twenty Seven mean anyway? I'm sure there's a meaning to that.

Emilie Mazzacurati:        There is a meaning. So I'm going to backtrack even more before Four Twenty Seven.

Mark Zandi:                      Okay. Great. Yeah.

Emilie Mazzacurati:        I did my Master's Public policy in Berkeley, and I fell in love with cap-and-trade while I was doing my Masters, because why not, right? So cap-and-trade is using markets to reduce carbon emissions by letting the market set the price of where is it most efficient to reduce carbon emissions. And I worked on carbon markets, climate policy for a number of years after that for a company that was specialized on forecasting, supply and demand for carbon trading instruments. So in Europe, in parts of the US, they were carbon markets. And I was helping translate policy, regulatory, and political developments into signals for the markets. Was the cap-and-trade bill going to pass? And what might it look like? What was going to be the price on that market? What did that then mean for oil and gas sector utilities, which was good fun for a while until the cap-and-trade bill in Congress went to hell, that was back in 2010 April 24th. You want to know when exactly that happened. And about the same-

Mark Zandi:                      A dagger in the heart.

Emilie Mazzacurati:        Right. Yeah. Still hurting from it. And around the same time the company that I worked for was acquired and I decided it was time to move on both from the company that I worked with, but what I was working on because clearly the US was not committed to climate policy. And again, we're talking 11 years ago. And there was a lot of science that was starting to come out around the fact that we had a lot of physical impacts that we weren't going to experience regardless, that climate change was locked in to a certain extent, because we had already put so much emissions in the atmosphere. And so that was the impetus to create Four Twenty Seven.

                                             I wanted to work on adaptation, and the physical climate risk, and help businesses, investors, corporates understand what the science was saying and what data was available for them to embed into decisions and risk management. So long story short the name Four Twenty Seven is a reference to California's greenhouse gas emission reduction targets for 2020. So it's 427 million tones of carbon dioxide, which California was going to more than meets be well below in terms of emissions except for the wildfires, which put our emissions through the roof again. So physical risk caught up with transition risk. So that was the transition going from doing political policy analysis to helping translate science for my clients who I knew well and I knew what data they needed, but much more focused on physical risk.

Mark Zandi:                      So you started Four Twenty Seven in the, what about a decade ago then?

Emilie Mazzacurati:        In 2012. Yes. 

Mark Zandi:                      2012. Okay.

Emilie Mazzacurati:        The aha moment was actually being in New York right before Hurricane Sandy and then seeing the aftermath of Hurricane Sandy, and seeing the New York Stock Exchange close for three days. And say, "Those people are so smart and they have so much money, how could they not know that there was going to happen. Something's missing here."

Mark Zandi:                      You're mistaken that they're actually correlated things what you are saying, sorry?

Emilie Mazzacurati:        I was wondering where you were going with that for a minute. 

Mark Zandi:                      Yeah. Yeah. Well, that's interesting. And then you sold Four Twenty Seven to Moody's when, was it now two years ago or so?

Emilie Mazzacurati:        Yeah. 2019. So then there was a lot of hard work and people giving us weird looks, why do you think I should care about climate data? And then the world started caring about climate data, and including a strong interest from Moody's both from the credit ratings agency part and the analytics. And sold and then have been working on really integrating climate across everything that we do over the past couple of years now.

Mark Zandi:                      Right. As you said, you're now running all of, you're the global head of climate risk solutions for the entire Moody's organization. And then there's a lot of moving parts here that are all evolving very quickly and you're managing that evolution? 

Emilie Mazzacurati:        Lots of moving parts especially with the recent acquisition of RMS, the cat modeling farm which is adding a ton of capabilities and really sophisticated models on extreme weather events, and the financial, and economic impacts of those events. So a lot of fun work ahead.

Mark Zandi:                      Yeah. It's great to have you this is a, obviously very important for the initiative for Moody's, but obviously this is going to be key to driving lots of things going forward. Can I ask before we move on about your name Mazzacurati, is that a French name?

Emilie Mazzacurati:        That is not a French name. My grandfather was Italian. 

Mark Zandi:                      Okay. Cris knew that. Did you know that Cris?

Cris deRitis:                       Yeah. For sure. For sure.

Mark Zandi:                      So how would you say Mazzacurati, am I saying it right?

Emilie Mazzacurati:        What I love is when people ask me in the US how to Mazzacurati in French, there's no good answer to that.

Mark Zandi:                      That's a great one.

Emilie Mazzacurati:        In Italian it would be Mazzacurati.

Mark Zandi:                      I like that. 

Cris deRitis:                       Yeah.

Mark Zandi:                      How do you answer that when they say how do I say it in French?

Emilie Mazzacurati:        I say the French can't say either.

Mark Zandi:                      Yeah. You right. That's funny. [foreign language 00:12:27] I don't know.

Emilie Mazzacurati:        I don't know.

Mark Zandi:                      All right. Very good. Well, so good to have you. Well, you laid out a lot of things that we want to dive into more deeply in just a few minutes, but as per tradition on Inside Economics we start with the economic data and statistics or any statistics. I know you might have some climate statistics, you might want to play this game with, we have a game here where we state a statistic and let the other folks try to figure that statistic out. I'll have to say I'm probably the best at this game, Emilie. No. I'm only kidding. See Ryan's very quiet. He's very humble. 

Cris deRitis:                       He's second best. 

Mark Zandi:                      Maybe. No. I think Ryan is the top dog here.

Cris deRitis:                       Yeah. For sure.

Mark Zandi:                      Yeah. All right. Well, given that he's the top dog. Hey, Ryan, what's your statistic of the week?

Ryan Sweet:                      Well, we have to go with something inflation related, because that's top of mind. So that's a hint, 51%?

Mark Zandi:                      51%. That's not like energy. Go ahead. Go ahead Cris. Do you have guess already?

Cris deRitis:                       I was thinking of your energies and gasoline.

Ryan Sweet:                      Nope.

Mark Zandi:                      Because you're saying that Cris, because energy prices saw the biggest increase, everything rose. Inflation rose across the board, but most for gasoline energy prices. So you thought maybe that was 51% and Ryan that's not the answer?

Ryan Sweet:                      No. Think outside the CPI report.

Mark Zandi:                      Outside. Oh, okay. 

Ryan Sweet:                      51% highest on record.

Mark Zandi:                      Okay. Does this go back to the NFIB survey? The Small Business Survey? 

Ryan Sweet:                      Two marks.

Mark Zandi:                      Okay. Next the Federation of Independent Business is that the percent of respondents that are raising prices?

Ryan Sweet:                      Very close. Plan to raise prices.

Mark Zandi:                      Plan to raise prices. 

Cris deRitis:                       I think that's a cowbell.

Emilie Mazzacurati:        Okay. That was impressive 

Mark Zandi:                      No, wait. He didn't say yes. He just kind of shaking his head.

Ryan Sweet:                      Yes, sir. You're right. 

Mark Zandi:                      Wow. Oh, come on. We need some excitement.

Cris deRitis:                       Cowbell.

Mark Zandi:                      Come on. Bring out the cowbell.

Emilie Mazzacurati:        Yeah. No. Impressive.

Ryan Sweet:                      There you go.

Mark Zandi:                      We got a cowbell.

Emilie Mazzacurati:        You have a cowbell.

Mark Zandi:                      Emilie, only when I get it right though. Not these other guys. Only when I get it right. Okay. All right. So you're saying in the National Federation of Independent Business Small Business Survey, mostly survey 51% of respondents said that they plan to raise prices and you're saying that is the highest on record?

Ryan Sweet:                      Yeah. The next highest was back in 2008 when we had that big spike in oil prices, but other than that this thing is by far in a away the highest on record. And the survey goes back to the early 1980s.

Mark Zandi:                      Early 1980s. So in that high inflationary period?

Ryan Sweet:                      Exactly.

Mark Zandi:                      Right. Well, let me ask you this Ryan what do you make of the, give us a sense of the, well, that was a good number, but the Marquee statistic last week was the release of the consumer price inflation for the United States for October. Tell us about that and in how you interpret what the report is saying?

Ryan Sweet:                      So why I picked the 51% is that it actually does a pretty good job in leading. It's a good leading indicator for core inflation and it suggests that we haven't peaked on a year over year basis. We'll likely peak 6% early next year, but back to our CPI, like you mentioned before everything rose. It was across the board. It wasn't just, we talked about before the reopening components lodging away from home, rental car prices, sporting events, things like that are more likely a one time event. It started abroad now it's really across the board that you're starting to see inflationary pressure. So if you strip out use a new car prices, the reopening effect energy the CPI was still up 0.4% month over month, which is an acceleration from what we saw last few months.

Mark Zandi:                      Okay. So let me ask you this and Cris, I'm going to ask you the same question. What's behind this surge in inflation? Fundamentally, what's going on here? 

Ryan Sweet:                      Demand. Demand is just really strong across the board. It's like a release of penance demand for consumer services, goods. It's all really-

Mark Zandi:                      Disagree. Totally. Totally disagree. Yeah.

Ryan Sweet:                      Lets see what Cris says.

Cris deRitis:                       I'd say the opposite. Lack of supply.

Mark Zandi:                      Lack of supply, it's not demand. Chris, what do you say? I don't want to listen to Ryan anymore?

Cris deRitis:                       Lack of supply. For sure. Yeah. Demand is bad. Certainly, if demand was still low you wouldn't have it, but right now why we're seeing the surges is the supply side for certain, right? Energy, all the goods, supply chain effects, ports, everything is surged up.

Ryan Sweet:                      You still buying into the cost push inflation?

Mark Zandi:                      It's shortages. I can't buy a car. There 75,000 cars on a dealer lot because they can't produce cars, because of a ship shortage, because Malaysian ship plants shut down because of Delta. You're right. If demand was weak you wouldn't see inflation and demand for goods in particular has been strong. For services it's still below pre pandemic levels by orders of magnitude. And the other thing I point out is demand growth really slowed because of Delta. GDP growth obviously that's more than just a demand, but a big part of its demand consumption that was much weaker in the third quarter because of Delta. No, am I convincing you?

Ryan Sweet:                      No. Not at all. I think it's almost like a combination. I think there's some supply issues still going on thus contributing to it, but if you look, maybe you can explain to me how supply chain issues are sporting emission prices to go up 8% month over month?

Mark Zandi:                      I tell you. Here's how I would answer that question. The answer to that question is the Delta wave of the pandemic because the Delta wave of the pandemic did significant damage to the global supply chains and to the labor markets. So on the supply chain side, and because Delta was particularly hard on Asia, Southeast Asia, where all the supply chains begin. And so that's why we see shortages for vehicles, and furniture, you name the product. And its demand destruction they can't sell because there's no supply. And shortages and higher prices, and then of course it scrambled the labor market more people got sick, couldn't go to work, to care sick people, fearful of getting sick.

                                             So you had all these open positions particularly in the industry you're just articulate recreational activities, leisure and hospitality, personal services. So that's where you're seeing the wage growth. That's where the wage growth has been strongest, because people just haven't been going back to work and because of the Delta wave. And the businesses in those industries are passing that along to consumer. So in my mind, the fundamental reason for the acceleration inflation to the degree that we observed is the Delta wave. It's a supply shock. It nailed demand, it hurt demand, and it caused inflationary pressures to develop a very classic kind of supply shock.

Ryan Sweet:                      I was on board that whole argument for the last several months, but now in October you're starting to see signs that it's not just supply it's also demand pull. Look at owners equivalent rent.

Mark Zandi:                      Rent grows, that's supply and demand, but actually more supply than demand, but we'll come back to that. But what else other than rent growth? Because I agree rent growth is going to accelerate.

Ryan Sweet:                      Everything's going to start to decelerate soon. Because the pandemic didn't repeal the law of demand. Demand is going to start to weaken in response to these higher prices.

Mark Zandi:                      So is your argument inventory build on the part of businesses, is that the demand you're citing the extra or the accelerated demand folks wanting to?

Ryan Sweet:                      Inventories are really, really lean. You can't get a car, but also if you look at container traffic going through the Port of Long Beach it's significantly higher than it was in 2019. So, that's not necessarily supply sheet. They just can't process the amount of demand there is for these containers. 

Cris deRitis:                       That's a supply issue.

Mark Zandi:                      It's like looking at the stars and trying to come up with a unified theory of what's going on with the stars. And the best explanation, and maybe it's wrong I don't know, but it's the best explanation for what's going on here is the Delta wave. It scrambled supply chains, it scrambled labor markets, it's also affected the composition of demand which is also important, right? It jacked up the demand for stuff, your vehicles, and furniture, everything I got on my back deck out here and nailed a certain demand for services. A total demand, total consumer spending that still not even quite back to where you would have thought it would be if there was no pandemic. Overall demand. Overall demand.

                                             So the compensation is within, but it's about the Delta wave. But this is really important, right? Because this gives you a sense of where inflation is headed. If you buy into my theory of inflation, my looking into the stars theory of inflation that says, okay. The Delta wave is now fading, assuming the pandemic continues to fade then the worst of the inflationary pressures are at hand. No, maybe it lasts another month or two I don't know, because it takes a while to unscramble things, but by early next year we should see definitive signs of inflation moderating, if my theory is right.

Ryan Sweet:                      I agree with you. 

Mark Zandi:                      Oh, you do?

Ryan Sweet:                      Yeah. I know you do. I would argue that you're starting to see more demand pull inflation that's temporary, people aren't going to, there's a lot of demand for restaurants and going to sporting events we'll get through that. We'll work through that pretty quickly. 

Mark Zandi:                      Yeah. Emily, you want to settle this?

Emilie Mazzacurati:        No, but I'll throw in a statistics if you want to try to guess?

Mark Zandi:                      Yeah. Yeah. Yeah. Fire away. Yeah. Are you changing subjects on this though?

Emilie Mazzacurati:        I am. I am changing subjects. I'm getting a little closer to my heart. Love that I don't care about inflation.

Mark Zandi:                      Okay. Can I ask that before we go to the if you're going to change subjects, I'm guessing you're going to go to climate change on your statistics?

Emilie Mazzacurati:        That's a wild guess, but yes. 

Mark Zandi:                      Okay. So why don't you wait, because that's a good segue into our conversation around climate issues. And let's just finish this conversation around, well, inflation in the statistics. So I'm going to turn to Cris next. Cris.

Cris deRitis:                       All right.

Mark Zandi:                      Do you have an inflation statistic? 

Cris deRitis:                       Yes.

Mark Zandi:                      Okay. Is it support my view or Ryan's view?

Cris deRitis:                       It actually supports Emily's.

Mark Zandi:                      Oh, okay.

Cris deRitis:                       It's got a climate change factor in it. 

Mark Zandi:                      Oh, it does? Okay. Go ahead. Go fire away.

Cris deRitis:                       So Ryan's complained that I make these too easy. So this one I dug into the bottles. So you get what you asked for Ryan. 2.1% and 5.6%?

Ryan Sweet:                      Year over year or month over month?

Cris deRitis:                       Both. One is month over month. one is year over year.

Ryan Sweet:                      This is tied climate change?

Cris deRitis:                       Well, I'm going to tie it to climate change. It's an inflation. So those are two inflation.

Emilie Mazzacurati:        Energy prices. 

Cris deRitis:                       No. Not energy. Not energy.

Ryan Sweet:                      The PPI or CPI?

Cris deRitis:                       The CPI. 

Mark Zandi:                      And it is the price for, you're talking about the change in the price for some good or service. Right, Cris?

Cris deRitis:                       Yes.

Mark Zandi:                      You're not allowed to take a drink in the middle of your question. 

Cris deRitis:                       Okay. All right.

Mark Zandi:                      You weren't drinking Wawa coffee? 

Cris deRitis:                       I wouldn't say it was hint by the way, sorry. Go ahead.

Mark Zandi:                      Oh, there was a hint. Okay. 

Ryan Sweet:                      Coffee prices?

Cris deRitis:                       Yes. Roasty coffee up 2.1% in one month. 

Ryan Sweet:                      He picked that because complaining that his cost were going up.

Mark Zandi:                      Yeah. Okay. 

Cris deRitis:                       Yeah. Inflation's personal. That's one. So yeah. That's part of it, but the reasons why coffee prices have gone up are twofold. One is supply chain effects. The other is climate change related. Brazil had a terrible season of drought and flood, or drought and frost. And so they've cut production, then Vietnam, who's the second biggest producer of coffee has supply chain issues. So you got everything.

Mark Zandi:                      Yeah. That's a good one. So coffee prices were up 2.1% October over September, and they were up 5.6% thing over the year?

Cris deRitis:                       5.6%. Yeah. And it's going to get worse actually, because those are the consumer prices, but the producer prices, the commodity price is up 100%. It just accelerated today actually. Grew up substantially.

Emilie Mazzacurati:        And that's just the trend because coffee is one of those crops that are very much a threat from changing precipitation, and weather patterns, and pests, and trap, and you name it, right?

Cris deRitis:                       Exactly. Exactly.

Mark Zandi:                      Right. Right.

Cris deRitis:                       Its all related.

Emilie Mazzacurati:        Did I steal your punching line?

Cris deRitis:                       No. No. That was all good.

Mark Zandi:                      I can see you gave that some thought, that was a really good one. 

Cris deRitis:                       On my way to Wawa. Yeah.

Mark Zandi:                      Okay. I got another inflation, CPI inflation. This might be a little hard so feel free to quiz me. 3.1% and it's two different statistics that are 3.1%. And now that I just said that I forget one of the statistics are.

Cris deRitis:                       Hold on one second.

Mark Zandi:                      Oh, okay. Now, I remember. Go ahead.

Cris deRitis:                       I know a 3.1%. I don't know if it's yours, but that's owners equivalent rent. 

Mark Zandi:                      Was that up to 3.1%?

Cris deRitis:                       3.1% year over year.

Mark Zandi:                      Oh, okay. So there's three 3.1% in the report. And this is an important going back to Ryan's point. Ryan Was I too hard on you?

Ryan Sweet:                      No. No. No. You were never too hard.

Mark Zandi:                      We're good? You're still my friend? Okay. All right. Okay. So let's go back to rent growth in the acceleration there. Did you want to, Cris, talk about that what's going on with rent growth?

Cris deRitis:                       So rent growth also two points, I have note here, 2.7% year over year. So both were a point 4% month over month.

Mark Zandi:                      I'm sorry. 3.1 was what then?

Cris deRitis:                       3.1 was the owners equivalent rent.

Mark Zandi:                      Oh, I see. 

Cris deRitis:                       And rents are 2.7.

Mark Zandi:                      Owners equivalent is rent of a home's the equivalent, how does the BLS, Bureau Labor Statistics measures the cost of owning a home is through the implicit rent that the homeowner would pay and that's called a homeowner's equivalent rent. And that was up 3.1%?

Cris deRitis:                       Correct.

Mark Zandi:                      Year over a year. And if you rent your home that was up 2.7%?

Cris deRitis:                       Like rent to a tenant its 2.7. That's right. So pretty close to each other. Both were up point 4% in the month though, right? So that's a healthy gain, that's accelerating. Those year over years are still though not at the level that we had prior to the pandemic, right? So you see things increasing here and they will continue to increase in terms of the rate of change, but because prices have been going up, but hasn't fully caught up. So I see this certainly as a tailwind going forward. 

Mark Zandi:                      Yeah. And on this I would argue, it's always demand and supply when it comes to price, but when we're talking about rent growth-

Ryan Sweet:                      Did you want to say that again, it's always the demand and supply?

Mark Zandi:                      Yeah. I did say that. I did say that. We wouldn't have these price increases if demand was weak that's for sure. 

Cris deRitis:                       Sure.

Mark Zandi:                      But even on the rent growth, I would consider that to be more supply side issues than a demand side issue that supply of new housing both for rent and for sale has been very constrained post financial crisis for more than a decade since the housing bust. We just have not been putting up enough homes to meet even the weak demand that existed early on in the period after the financial crisis. And so vacancy rates have continued to decline. And I think vacancy rates across the housing stock for rent and for sale together is pretty close to an all time low. And I consider that a supply side issue. Would you, Cris?

Cris deRitis:                       Yeah. Certainly. Certainly. And demand factors in there to Ryan.

Ryan Sweet:                      Yeah. Absolutely.

Mark Zandi:                      Yeah. And then may be because pandemic-

Emilie Mazzacurati:        Yeah. But there is only so much housing you can consume, right? So it is a supply issue.

Mark Zandi:                      Yeah. Yeah. There's a demand component in the sense that with the pandemic winding down I think you've seen households form, right? Millennials doubled up when the pandemic was raging. They went back to their parents home and now they're striking out and they rent in whatever, generally as opposed to buy. So you have seen some pickup in demand, but it's bumping up against very, very limited supply. And get these red increases in person versus.

Ryan Sweet:                      Okay. So you got another 3.1?

Mark Zandi:                      I do. I've got two more actually. I've got two more. They're difficult, they're difficult, but they're I think instructive. I picked them for reasons of instruction.

Cris deRitis:                       You've got it, Ryan?

Ryan Sweet:                      I got one.

Mark Zandi:                      Oh, what's that? 

Ryan Sweet:                      Rental car prices. They were up 3.1%.

Mark Zandi:                      No. That's a good one though. I'll give you, so going back to what Cris said a little bit ago about we're just getting catching back up to, inflation is pre-pandemic. So there was a period, a year ago when prices were getting cut, or inflation was very low. So it's to some degree what economists call a base effect is influencing these numbers, right? So is that as a hint what do you think 3.1% is?

Ryan Sweet:                      The change in the CPI from two years ago.

Mark Zandi:                      Exactly. Core CPI. Core CPI, consumer price inflation X food and energy, which economists focus on because that's the best predictor of future inflation. That is up 3.1% on an annualized basis over the past two year. So take October this year the bad number compared to October 2019. Calculate the average annual growth and is 3.1%. And then in my mind-

Cris deRitis:                       Still high.

Mark Zandi:                      Yeah. It's still high, but in my mind that's reality. That's where inflation actually is.

Cris deRitis:                       Sure. Sure. 

Mark Zandi:                      I don't know. Ryan, would you agree with that?

Ryan Sweet:                      Yeah. I would agree with that.

Mark Zandi:                      Okay. In target CPI inflation where the Fed wants it, I'd say is as high as 2.5%, right?

Cris deRitis:                       Correct.

Mark Zandi:                      So we're 60.6% basis points off even in this hair on fire inflation is high I'd say 3.1. So that's my three point I'll give you, there's one more 3.1. You'll never get this. Should I tell you what it is?

Ryan Sweet:                      Just give us a hint.

Mark Zandi:                      Here. I'll give you hint. I'll give you hint. I'll give you a hint. Comes from the Cleveland flag, clearly Ryan might get this?

Ryan Sweet:                      The trim.

Mark Zandi:                      You got it.

Ryan Sweet:                      Median.

Mark Zandi:                      The median inflation rate. So this is kind of cool. Cleveland Fed has a website they publish different measures of inflation. One of the things Cleveland Fed focuses on is inflation. You total up all the goods and services, look at across all the products and services. And there's a, I don't know how many of the track, Ryan, do you know the BLS how many they released?

Ryan Sweet:                      You don't have to tell me. It's a lot.

Mark Zandi:                      It's like a lot. Hundreds. Then they calculate the growth in prices over the past year and they look at the price of the product or services that's in the middle of that distribution, the median. And the median CPI increase is 3.1%, which also gives me confidence that we're going to go back in here pretty quickly.

Ryan Sweet:                      So if you were in Powell shoes would you start raising interest rates sooner? 

Mark Zandi:                      Absolutely not. What I would do, what I would do, no. No. No. This is a supply shock that has not affected inflation expectations therefore I should be focused on the growth aspect of the supply shock. I should be thinking about how do I get this economy back to one point. Inflation expectation started to rise I'm with you. Here's one thing I will say though in that regard I could be wrong. I could be wrong. If I'm wrong to guard against that possibility I would start if I were him, guiding the market to their expectations for a rate increase sooner than the market has been expecting now. So right now the market or at least before the CPI report, the market was expecting 225 basis point increases in the federal funds rate beginning sometime this time next year. Is that the same Ryan?

Ryan Sweet:                      No. It's up to three now.

Mark Zandi:                      It's up to three. So that's exactly what I would do. I would ratify that if I were him. I'd say, "Yeah. Sounds about right to me. Maybe even four." Kind of bring it forward a little bit.

Cris deRitis:                       You can't pull the trigger too soon. 

Mark Zandi:                      Do you agree with that, Ryan?

Ryan Sweet:                      Yeah. I was saying I was shocked because you have a tendency to lean a little bit more hawkish. 

Mark Zandi:                      Oh, I do?

Ryan Sweet:                      Yeah.

Mark Zandi:                      Do you agree, Cris? Yeah.

Cris deRitis:                       Oh, yeah. Usually a little bit more hawkish.

Mark Zandi:                      Relative to you guys. You guys are flaming doves.

Cris deRitis:                       Flaming doves. We got our title.

Mark Zandi:                      Oh, we got our title. Now we got to find, Emily we'll fill you in on what that means a little later, but we have to come up with a pithy title, flaming doves. That's a good one. All right. Okay. We got to move on. Emilie, what's your statistic?

Emilie Mazzacurati:        All right. It is 7%.

Mark Zandi:                      7%. And it's related to climate change.

Cris deRitis:                       Is it something came up recently or.

Mark Zandi:                      I think I know. I'm going to guess. I'm going to guess. Get the cowbell out, Ryan.

Ryan Sweet:                      There's no way you're getting this one.

Emilie Mazzacurati:        The first shot.

Mark Zandi:                      7% of the world's population is at a high risk of some type of physical event.

Emilie Mazzacurati:        You are way below. Way, we have like 70% of the population at risk of flood.

Mark Zandi:                      Oh, my gosh. Really?

Emilie Mazzacurati:        So no. No. I'm going to guide you a little closer. It's more related to energy and it's been a clinic statistic.

Mark Zandi:                      Okay. 7% of electricity production comes from wind. No?

Emilie Mazzacurati:        I wish I had that on top of my head.

Mark Zandi:                      She's thinking, "That could be right, but that's not what I'm thinking."

Cris deRitis:                       Is this growth rate?

Emilie Mazzacurati:        It may or may not be right.

Cris deRitis:                       Is it a growth Rate?

Emilie Mazzacurati:        No. It's a percent of stable thing, but look on the dark side is my hint here.

Mark Zandi:                      Look on the dark side. Oh, my goodness. Emilie goes Dark very quickly. Ryan, you got any ideas here, any clues? Can you give us another clue without giving it away Emilie, or we see what we get?

Emilie Mazzacurati:        Sure. No. No. No. It's global. It's a global statistic and it has to do with subsidies. Okay. I almost gave it away, but not completely.

Mark Zandi:                      Oh, subsidies. Is that the total fiscal subsidy provided by governments for climate risk mitigation?

Emilie Mazzacurati:        I wish.

Ryan Sweet:                      No, but for fossil fuel. 

Emilie Mazzacurati:        Yeah. It's fossil fuel. Ryan got it. Yeah. Yeah. 

Mark Zandi:                      What is it?

Emilie Mazzacurati:        The global total fossil fuel subsidies per the IMF for 2020. So that's $5.9 trillion globally. And in the US I believe the number is 20 billion a year. So we're behind China, Saudi Arabia, and Iran in terms of how much money we put into fossil fuels, but it's just like how much do we want to shoot ourselves in the foot when it comes to climate change.

Mark Zandi:                      7% Of what, of GDP or 7% of?

Emilie Mazzacurati:        Yeah. Yeah. Of global GDP. 

Mark Zandi:                      That's an amazing statistic. Yeah. Wow. And is it going down or do you know is it changing? 

Emilie Mazzacurati:        Not in a meaningful fashion. Certainly not in the US. Probably going up if anything. So if your next question is how are we doing with the climate negotiation at COP?

Mark Zandi:                      Yeah. That would be my next question. I was moving to a big topic. How are we doing?

Emilie Mazzacurati:        Well, think about it, right? So there's so much at stake for the fossil fuel industry not just the subsidies, but also their ability to function and sell. There are more representatives from the fossil fuel industry than government at COP right now. Now, granted those representatives from the fossil fuel industry are not in the room drafting their language from the final agreement themselves. But that gives you a flavor for what's going on. So the negotiations are making progress. We're expecting a time of recording, they're supposed to finish up in about an hour and a half. I don't think that's going to happen. They usually stop the clock as we say and run longer over the weekend. They're supposed to agree on how we're going to reach the Paris Agreement targets. So how we're going to reduce emissions enough that we can keep global warming to well below 2° is the Paris language, preferably to 1.5°C. So, that's the global temperature increase. And there is something about reducing fossil fuel and reducing subsidies, but I'm not sure it's going to be quite as biting as we need to really reduce emissions.

Mark Zandi:                      You said you were there, you attended COP26?

Emilie Mazzacurati:        Sideshow not part of the negotiations, but there's a lot of people who get together around the negotiation on the fringes, the off festival if you want. Lots of conferences where we talk about the future of the world, how the financial markets are integrating, climate risk and what are the big topics? So it's also big events for people who care about climate even if we're not in the room arguing over where the comma should go in that sentence.

Mark Zandi:                      So let me ask coming out of that do you feel more hopeful or not regarding the world's commitment to addressing this issue?

Emilie Mazzacurati:        So it's a hard question. I'm hopeful with some of the improvements and momentum that's been created around this specific year's COP. So Mark Carney, former chair of the Bank of England and of the FSB, has been pushing financial markets a lot to get banks, and investors, and corporations to take commitments to reduce their emissions to what we call net zero. So it's take them down as far as you can. And for the things that you really can't obey if you're allowed to buy offsets or to make up for those emissions otherwise. And there's been a big take out in the market, dozens of the largest banks and investors on the market, tons of corporations including Moody's as a corporation our employer. 

                                             Committing to reduce emissions to zero, essentially by 2040, 2050 depending on who you talk to. So that's really impressive. And that has given me hope in a way that I hadn't had in a long time to be frank, but what I still find concerning is I'm not sure we're seeing the same level of commitments from governments to really reorient their policy and economic systems including subsidies and all the other things that governments can do to reduce emissions. So there's still a lot of politics and a lot of protecting economic interests. It's a short term economic interest over long term welfare of the world.

Mark Zandi:                      Okay. So is that a really big deal though, financial institutions going to net zero? It's not like financial institutions produce a lot of CO2. I know for each company it takes effort and energy, and you have to be focused on accomplishing that. So I'm not diminishing that accomplishment, but in the grand scheme of things that can't be that important really, is it? 

Emilie Mazzacurati:        Well, that's a great question. So that's what's interesting about those commitments is this isn't about whether a bank is going to be able to change the light bulbs and buy only renewable electricity, because I'm with you I don't care. I care a little bit, but no, that's not what the stakes are. It's about whether their portfolios are aligned with the Paris commitments, with those net zero targets. And so what this means is that every bank and every investor becomes the COP. The banks are chasing their clients, their lenders, their investing corporations to help them, or incentivize them, or scare them into actually taking in delivering on those net zero targets.

Mark Zandi:                      So are you saying, just so make sure I have this right. You're saying that I'm a bank, I'm lending to all these different companies and households. And I'm looking at their carbon footprint and I'm changing my pricing in my underwriting decisions so that my lending to these institutions will result in net zero, if I look at my portfolio that is driving that the carbon emissions to net zero for that portfolio? Is that what you're saying?

Emilie Mazzacurati:        That is exactly right. And we're not completely there yet in terms of banks changing their pricing policy or, what we're starting to see those signals where banks, or investors might move, just pass on a real estate deal for example, where they feel that the building is so carbon intensive. There's no way it's going to get net zero and they're really trying to focus their assets on doing that transition. And so there's a sort of an easy and not so great approach which is ditching everything that's carbon intensive. And that's not great because not everyone on the market thinks about net zero and carbon emissions. So that just means you're going to have a two tiered market with a number of institutions holding all the dirty business and then the global institutions looking good holding only green and clean businesses. The better approach is for them to work with their clients and help them including with financing, help them transition and reduce their emissions.

Mark Zandi:                      That's an interesting idea it just doesn't feel like it's going to work. Because financial institutions are motivated, all businesses buy returns and they're going to lend to where they get the highest returns, their returns, their own returns for their own balance sheet. So what's the mechanism, the incentive, the economic rationale for them to actually do this other than getting browbeaten by Carney or some other government agency?

Emilie Mazzacurati:        Yeah. So peer pressure, regulation, customer expectations, not to be understated. Survival of the species comes to mind as one of the drivers. And I know this usually factor in economic decisions, but we've actually come to the point where some of the largest banks are making it a policy because they will tell you, "What's the point of climate stress testing my portfolio for four degree world. We're just one function." So it's also a way to manage their own risk, because right now it's a voluntary commitment that they're taking, that there is an expectation that at some point probably too late and therefore probably too fast governments will take action and then it will become required. And if they have to do it fast it's going to be really brutal and create a lot of stress on the economy.

Mark Zandi:                      Interesting. So you're saying they're going to prepare for the possibility that they're required by their own regulators or central banks to price for CO2, the carbon footprint of their clients, or their customers, or their borrowers. And if they're not preparing for that now then they will get wrong footed they'll have a problem down the road?

Emilie Mazzacurati:        Right. And also if you believe that we need to address climate change then at some point we need to transition away from fossil fuel and for those who haven't they're going to be left holding the bag. 

Mark Zandi:                      But Emilie-

Emilie Mazzacurati:        So there's self interest there.

Mark Zandi:                      Yeah. But your statistic was that 7% of global GDP goes to subsidizing fossil fuels and that has not changed appreciably. Why in the world do we think that governments are then going to turn around and tell their banking and financial institutions you got a price for the CO2 emissions, for carbon footprints? Does that sound realistic? Do you buy into that? Do you really think that's going to happen? 

Emilie Mazzacurati:        But that's why I have mixed feelings. Again, we go back to survival of the species, right? We got to do something, and yeah. It's going to cost money, but the stakes are so big that it is actually worth it. Do I believe that the governments that are in the room right now making decisions that they have to deal with and implement are going to do everything that needs to be done? We're humans and fallible. And no, they might not get to it. And then to your question, is this going to turn into a giant green washing party where everybody says they're going to make those commitments? And they're like, "Yeah. We'll worry about it in 2049 for the 2050 targets." This is where my job comes in as a provider of data and market intelligence and so trying to provide transparency, trying to help with accountability, with banks, investors, governments understand what companies are doing, but at the end of the day everybody needs to do their piece. And it goes again, short term economic self interest. 

Mark Zandi:                      I'm an economist, right? I have a hard time getting my mind that that's going to work. I hear you, but let me ask you this why if we're going to, as an economist feels like to me the most straightforward way to address climate change is just price carbon. You did cap-and-trade, but why not just a carbon tax? That's kind of easy, right? That's really easy to implement. We know how to do it. It generates a boatload of revenue. It's going to affect CO2 emissions. We could take that revenue, give it back to individuals particularly low income households, because I understand it will be regressive kind of tax. Low income households will suffer more because they consume more of their, consumption goes to energy intensive kinds of spending. If we're going to expend all this political energy on something like getting the financial institutions to price for CO2 emissions, why wouldn't we just go to the most obvious thing and pass carbon taxes?

Emilie Mazzacurati:        I am entirely with you. Spent five years of my life writing reports about the intricacies of the politics, and the market dynamics of cap-and-trade. And yes, please give me a tax. It's so much easier. The politics are not so good in the US. So cap-and-trade was, in economic terms, it's supposed to be even better than a tax because then you have the perfect marginal cost of reducing emissions. And the market sorts itself out and you get Brazil to stop burning the forest. And that allows others to continue doing certain things. In practice it's a mess and we still didn't get it through Congress. So back to square one, can we please have a tax?

Mark Zandi:                      Let me say a question, I know Canada, there's examples around the world, but Canada is one that comes to my mind. They have a carbon tax, right? Do you have any sense of how that's working? If that's been successful in getting CO2 emissions down? Or do I have that wrong?

Emilie Mazzacurati:        So last I checked there was sort of a carbon tax in Alberta, the Canadian government's strikes me as like Australia, like the US, one of those countries that's been just flip flopping from one election to the next. Yes. We're serious about climate change. No. We really don't believe in it. Don't care. Let's pour more subsidies into oil and gas. Would you see any discernible effects? Not necessarily. The problem with cap-and-trade is that governments meddle with the rules so much that the price stays very low and so that defeats the purpose.

Mark Zandi:                      Let me ask you quite another question. This is more parochial because we're in economics. We produce lots of scenarios, lots of forecasts. And one of the things that we're trying to do is define the climate risk assumptions that go into our baseline worldview. So we say, "Here's what we think the economy is going to do across all the different countries of the world, different regions of the world." We have all kinds of assumptions around monetary policy, fiscal policy, the pandemic obviously. Cris does a lot work to try to understand the epidemiology, the pandemic, and what that means vaccines, so we got a lot of assumptions. But so far historically, we've had implicitly climate risk assumptions, but not explicit ones. So we are making it clear what are the underlying climate risk assumptions that we're using in our worldview in our forecasts and one of the key assumptions that we've been debating is around where, and again, this is the baseline. So this is the most likely scenario and then there's a distribution of possible outcomes pretty wide here, but in the middle of the distribution what is the temperature rise going to be? And as you pointed out under the Paris accord back I guess it was six years ago, there was a commitment to limit the temperature increase to 1.5°C.

                                             And if we did that then we kind of dodged the most significant bullets here around climate risk. Right now our thinking is, well, 1.5 seems like not a baseline kind of forecast. So we're thinking somewhere between 2°C to 2.5°C increase which if that's the case we're going to see some significant problems related to climate risk. Do you have a view on that? Can you help us out here? What do you think? If you were in our shoes thinking about that, and by the way, this is important for our forecast, because to get to whatever degree, because this affects property loss, and chronic physical risk. And it affects a lot of different things that are key to the economic outlook. Productivity, so forth and so on. If you were in our shoes how would you think about this? What would your assumption be?

Emilie Mazzacurati:        Yeah. So I have a view and I have data too.

Mark Zandi:                      Oh, great. Okay. It's perfect. 

Emilie Mazzacurati:        I believe right now we're on track business as usual at best towards 2.7, which is really high. And even that is the median, because when you look at the full range. We don't know exactly, right? So we're still learning the science of how greenhouse gas drive different impacts around the world and how quickly we are warming, we're actually warming than we thought because we're melting the ice sheet. There's all kinds of things that are reinforcing the warming. So 2.7, 3.1 that's the business's usual baseline that probably should be factoring in and that comes with a lot of impacts in terms of physical risk. Some of those are easier to model than others, right? So you're looking at, and I know your teams do that very well, but looking at impacts on real estate prices from sea level rise, looking at impacts on productivity, and agricultural output from chronic changing temperature.

                                             And some of these other impacts are harder to forecast. Because when you look at extreme weather events we know that we're going to get more hurricanes and that they're, we know we're going to get hurricanes that are more intense not necessarily more of them. We don't know when. We don't know where they're going to hit, we don't know how big again they are. So, that's harder to forecast. And then there's all the secondary impacts that we're not even looking at right now in terms of water stress, how is that going to affect the California and the Texas economy? Is California going to continue to produce as much agricultural products? What does that mean for local real estate markets when all the water dries off, and we stopped producing food, and beverage also big industry? Data centers need a lot of water. What happens when you get more migration? 

Mark Zandi:                      Crypto produce, right? They need a lot electricity, right? Cris know this. Cris is a very avid crypto miner and trader.

Cris deRitis:                       Only green crypto though. Only green. 

Mark Zandi:                      His carbon footprint is really, Emilie, if you want to get the world's carbon footprint you got to focus on Cris. Just focus on him.

Emilie Mazzacurati:        You'll get a call from me along Cris? No, but you get the picture, right? Business as usual looks bad in [crosstalk 00:56:38].

Mark Zandi:                      When you say business as usual that means no change in policy, no change in technology, is that business as usual for you? 

Emilie Mazzacurati:        Yeah. That means continuing what you do the way we do it pretty much. And then you add the scenarios where we actually get our act together soon, or we get our act together late. And when it's late then we need to do a lot more faster and that's where all hell broke loose in terms of the impacts, the economic impacts. So there is an economic benefit to making those decisions even if they have those short term costs on carbon, because you're avoiding a lot of impacts and economic cost long term. And that goes back to what Mark Carney coined that expression, the tragedy of the horizon, right? We know climate change is coming, but it's out of the economy and financial horizon and therefore it's easier to make decisions today that make money and even if they don't address them on per issue.

Mark Zandi:                      Yeah. Yeah. Okay. But your baseline for assumption can't be one point, excuse me, 2.7°C to 3.1°C, because you got to be assuming some policy response, some technological advance. People are focused on how do I mitigate CO2 in the environment? And there's all kinds of new technologies that are being worked on and got to assume that something is going to have some impact here. So if you were asked would you settle on to 2.7, 3.1 or would something lower than that?

Emilie Mazzacurati:        2.7 is reasonable given what we see. If you want to be a little more optimistic and you look at all the net zero commitments that have been taken recently I think we're at 1.9, or 1.8. So that's a lot better. That's still a lot of physical impacts, but certainly gets us closer to the 1.5 target. 

Mark Zandi:                      Okay. Cris, where's your sense of this, Cris deRitis? Because I know you've been thinking about this in terms of the underlying assumptions, have you come to any kind of view on this issue?

Cris deRitis:                       Well, my view is that it's complicated. A lot of numbers get thrown around. And even there's a lot that forecast of what happens under current policies. There's quite a range, right? 2.7, there's 3.1, 3.2. We've been using the NGFS. That's the Network for Greening of the Financial System scenarios. These were published last June. Basically, doing a weighted average of those various forecasts. So under that set of scenarios, but no policy action is actually assuming 3.2%, oh, 3.2°C increase by the end of 2100. And the other scenarios basically gets you to 1.7, 1.8. So the way I've been thinking of it I kind of flipped the coin and say either we're going to go down the path of no change, right? Or we're going to do something, some mix of policy and technology. I don't know what that mix looks like. So I settled on 50/50 between we don't do anything and we do something and that gets you to 2.5°C. So that's how I've been thinking about it, but that's a very naive type of view. 

Mark Zandi:                      Hey, Emilie, so we're working on this right now. Would you mind if we kind of connect with you on this and just get your perspective once we nail this-

Emilie Mazzacurati:        Yeah. Of course. 

Mark Zandi:                      You should see the email chain between Cris, I and Gaurav Ganguly 01:00:07], our economist in Europe, and Chris Lafakis 01:00:11 and Brison, Mike Brison. It's like I can't keep track of the email debate. 

Emilie Mazzacurati:        Yeah. No. Please. Please happy to join in.

Mark Zandi:                      Okay. Hey, a couple quick questions kind of lightning round because I know we're running out of time. On Four Twenty Seven now part of Moody's. So Four Twenty Seven the name has been retired part of Moody's, but you're still doing the same kind of scoring of different types of physical risks, everything from flooding to sea level rise to whatever tornadoes. Also, other non-climate related, right? Like earthquakes and that kind of thing, I believe. Of all the different risks that you're scoring which is the hardest to score, to get a grip on?

Emilie Mazzacurati:        Oh, that's a great question. Yeah. So I thought you were going to ask what's the most important one?

Mark Zandi:                      Okay. That's even a better question.

Emilie Mazzacurati:        No. No. And they're kind of related, right? 

Mark Zandi:                      Yeah.

Emilie Mazzacurati:        So what risk is as our friends at RMS calls them, floods, sea level rise. So fluvial, pluvial, coastal flood. So floods from rivers spilling out, floods from too much rain, floods from the oceans rising, and storm surges in particular during hurricanes it's the biggest risk. It's also where you need the most sophistication in really digging deep to understand the dynamics of how water is going to move, and when, and how long it's going to stay. And that's also where we have the greatest exposure globally. I mentioned earlier 30% of the population globally has exposure to flood. 

                                             You've got entire regions in Asia Pacific, you've got east coast in the US that's super exposed. And also a lot of uncertainty because sea level rise is happening faster than we'd like in many ways. And it's also one of those risks where even if we fix, even if we go to 1.5, 1.8, there's a number of processes that are in play that we may not be able to stop. And so sea level wise we might just need to live with and that's going to redefine the coastlines over many decades and centuries, but it's really going to change the maps and where we live, where humanity lives on the planet.

Mark Zandi:                      Right. One last question. Build back better, this is the piece of legislation that says in Congress now being debated and it includes a sizable amount of money for different climate risk related act policies, everything from more subsidy for electric vehicles to solar panels and a bunch of different stuff. What do you think? What's your sense of that any perspective on the bill back better? If you were a senator in the US Congress would you vote for it?

Emilie Mazzacurati:        Well, that's an easy one. Yes. I'm bigger on investment and infrastructure. One of the most interesting things that I've seen in that bill is the $47 billion going to resilience and adaptation investments. So this is not about these or reducing emissions. This is really about preparing ourselves for the impacts. Again, sea level rise and storms and wildfires that we're seeing already across the US. And then I think there's a lot more in the spending bill that's going to come in terms of carbon emission. So we need to see what happens with that one.

Mark Zandi:                      Hey, Cris and Ryan, any questions for Emilie while you have her? Anything that I missed that you're dying to ask? Any pushback? Is there anything she said?

Ryan Sweet:                      I was hoping she's going to end on a positive note. We usually try to end on an upbeat note.

Mark Zandi:                      Can we be upbeat, Emilie? Come on, just try it please, give us a bone?

Emilie Mazzacurati:        Sorry. That's not part of my job. No. I think we can do it. You said it earlier Mark, right? There's commitment from the market. There's technology. We can't just rely on a silver bullet, but there is technology improvements. Okay. Good news. We can make water out of thin air. Isn't that a cool technology? You can have water panels, like solar panels and you get the humidity and you create water in the middle of the desert.

Mark Zandi:                      Yeah. Okay. Well, that was kind of thin, but okay. We'll go with it. Hey, but I tend to be optimistic about this kind of thing, because I've seen big problems as you can tell. I've been around a while and we've had our share of problems leading up to climate risk. And when push comes to shove somehow someway I can't quite figure it out we come together and we solve the problem. And I suspect that's going to be the case here that we don't know what technological changes are dead ahead of us, but technology tends to bail us out particularly when we put our mind to it. So I think it's prudent to be cautious and think about the downside, because that gets you moving on trying to solve these problems. But at the end of the day I think we're going to figure out a way around this. I wish we would tax carbon though, because if we did that and really light a fire under people to figure out the technology.

Emilie Mazzacurati:        It would turn technology a lot more attractive. So yeah, let's invest in technologies.

Mark Zandi:                      Let's do it. Okay. Well, we'll thank, I'm sorry, Ryan, was there anything you wanted to ask Emilie? No. Okay. 

Ryan Sweet:                      I was just asking for something positive. 

Mark Zandi:                      Oh, yeah. That's right. Yep. Cris, anything you wanted to ask Emilie?

Cris deRitis:                       Well, just on the last note. My question was are we better off actually investing in technology, putting those dollars that were pledging to research and all sorts of pledges around carbon targets, is the society better off just taking that and plowing it into more research and development? Are we trying to work with current solutions that maybe are far less efficient than something new? 

Emilie Mazzacurati:        I think usually there's a mix of both. And I don't think it's an either or right. We need to use what we have because we need reductions now. And we need to invest because we need to do more in the future. So there's both.

Mark Zandi:                      Very diplomatic. Thank you.

Cris deRitis:                       Yeah. Very nicely done.

Emilie Mazzacurati:        No. I mean it. I'm not trying to make people happy.

Ryan Sweet:                      That's a very deRitis response. 

Cris deRitis:                       That's why I like it. 

Mark Zandi:                      Yeah. Well, you guys might have noticed I didn't advertise my Twitter handle this time, but I'm going to do it now, @MarkZandi. I'm on Twitter. Emily, are you on Twitter?

Cris deRitis:                       Yes. @EMazzacurati.

Mark Zandi:                      I am definitely going to follow you. I need to follow you. So I'm going to do it, but only if you follow me, Emily.

Cris deRitis:                       Of course Mark you're my next on Twitter.

Mark Zandi:                      Thank you. That's so funny. All right. Well, thanks so much for joining us. It was a very informative conversation. A little depressing, but that's the nature of the beast here. But thank you again. And with that we're going to call this a podcast. See you next week.