Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily
Speaker 1: we bring you insight from the best in economics, finance, investment,
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Speaker 1: Jared Bernstein's joins us to say he's a member of
Speaker 1: the White House Council of Economic Advisors for President Biden.
Speaker 1: Barely describes his public service to liberals and conservatives. He
Speaker 1: is one of the liberal economists that conservatives are forced
Speaker 1: to read. They've been doing that for decades with his
Speaker 1: work in Washington, and he joins us now representing, of course,
Speaker 1: the Biden administration. Jared, can you apply stimulus in a
Speaker 1: narrow enough way to help those so beleaguered in this economy?
Speaker 1: Sure we can. In fact, much of what's in the
Speaker 1: American rescue plan is targeted at those at the bottom
Speaker 1: leg of this K shaped recovery, meaning that this is
Speaker 1: a recovery where many folks never missed a paycheck did.
Speaker 1: We're able to work from home and so on, while
Speaker 1: so many others were stuck bearing the brunt of the
Speaker 1: pandemic and the economic crisis. For example, we expand a
Speaker 1: child tax credit, make it fully refundable. According to a
Speaker 1: Columbia Poverty analysis group, this reduces child poverty by fifty percent.
Speaker 1: That's some pretty top shelf targeting from my perspective. We
Speaker 1: have a history here of decades of what I'm gonna
Speaker 1: call lockey in individualism. John Taylor of Stanford, clearly a
Speaker 1: conservative economist, shows the value Jared Bernstein of automatic stabilizers
Speaker 1: that benefit all of us, where the halves are benefited
Speaker 1: by the stabilization of they have not explained in this
Speaker 1: natural disaster how they have us will benefit by stimulus,
Speaker 1: for they have nots Yeah, no, I think first of all,
Speaker 1: one thing to recognize is that our automatic stabilizers often
Speaker 1: shut off too quickly. So one of the things we
Speaker 1: ought to do, and that's a problem that we've had.
Speaker 1: Is one of the reasons why the American rescue plan
Speaker 1: is so urgent, because we've had these kinds of air
Speaker 1: pockets created by the kind of wait and see what
Speaker 1: happens next, so we get behind the curve. What we
Speaker 1: need to do is make sure our automatic stabilizers are
Speaker 1: kicking in with the alacrity that we need them. To
Speaker 1: that's embedded in this plan. Yeah. Look, this is a
Speaker 1: matter of uh, you know, if GDP is a spectator
Speaker 1: sport for half the economy, Uh, it's simply not going
Speaker 1: to achieve the goals of the Biden Harris administration. So
Speaker 1: we have to start building the policy architecture the kind
Speaker 1: of connective tissue that reconnects GDP growth to the prosperity
Speaker 1: of all within a special sensitivity to racial equity. And
Speaker 1: that's in this plan. It's also the more broad building
Speaker 1: back Better plan that's coming later. So alright, let's get
Speaker 1: to those two issues into a distinction. Here. This eight
Speaker 1: and then the stimulus Is this just the eight package
Speaker 1: it package and the stimulus packages coming lights out. I
Speaker 1: definitely think of this much more in terms of relief,
Speaker 1: at least initially than stimulus and the sense of there
Speaker 1: are a lot of people who can't go back to
Speaker 1: work untold. Uh, you know, it's safe to go back
Speaker 1: in the water. So one of the key parts, of
Speaker 1: course of the rescue plan. I heard you guys talking
Speaker 1: about the European Union. They've had great trouble with us,
Speaker 1: and it's reflected in their economy, is to not only
Speaker 1: control the virus, but producing distribute the vaccine in a
Speaker 1: way that is obviously much more driven by science, much
Speaker 1: more organized, has a much clear federal presidents than was
Speaker 1: heretofore the case. The connection, as I'm sure your team
Speaker 1: well knows, between controlling the virus, distributing the vaccine, and
Speaker 1: finally launching a robust recovery is extremely tight, and we
Speaker 1: cannot drop the ball on that. That's where President Biden
Speaker 1: is coming from. That's why the urgency of acting now
Speaker 1: is so acute for him. So let's talk relief to stimulus.
Speaker 1: We understand the relief pomp. We've talked about this bill
Speaker 1: many times. What does the stimulus bill down the road
Speaker 1: look like? Jared, You know, I guess I wouldn't think
Speaker 1: of it so much as a stimulus bill. I think
Speaker 1: down the road, with the help of the rescue Plan,
Speaker 1: the economy should be moving uh in direction we needed to.
Speaker 1: I think again, this gets to the point I was
Speaker 1: making a second ago. It's not enough to have GDP
Speaker 1: growing a trend. We have to make sure that it's
Speaker 1: reaching people who have heretofore been left behind. So now
Speaker 1: we're talking about more structural changes to the economy. Standing
Speaker 1: up a childcare sector that's really never existed in this country,
Speaker 1: to give parents a chance to get into the job
Speaker 1: market if that's what they want to do. Uh. Finally
Speaker 1: taking a real stab at clean energy, making sure that
Speaker 1: we deal with the kind of racial inequities that have
Speaker 1: plagued this economy so long, in the air of housing
Speaker 1: and criminal justice, for example. That's the kind of broader,
Speaker 1: more structural change. I think you have to distinguish between
Speaker 1: cyclical and structural, and I think the latter is more
Speaker 1: of a structural, uh approach. So in order to get there,
Speaker 1: what's more important for the economic recovery FO checks to
Speaker 1: each family or local and state aid. You know, this
Speaker 1: is just we just can't do either are in this case.
Speaker 1: And I think that's a good example, because you know,
Speaker 1: we are in a set of discussions with Republicans who
Speaker 1: in many cases very much share the urgency that we do,
Speaker 1: but sort of want to take a different route to
Speaker 1: get there. And I think the key to the rescue plan,
Speaker 1: as as the President has articulated, is that it really
Speaker 1: is calibrated to meet all the various different needs that
Speaker 1: we face right now. Families are struggling, they need those checks,
Speaker 1: which By the way, we just got polling data clocking
Speaker 1: in about seventy cent approval. But the state and local
Speaker 1: sector has to get help to reopen schools and to
Speaker 1: finally distribute the distribute the vaccine, control the virus and
Speaker 1: put COVID nineteen behind us. Jared, how important is it
Speaker 1: to push as much as possible into this bill due
Speaker 1: to the lack of consensus, the lack of any kind
Speaker 1: of agreement between Republicans and Democrats on the Hill to
Speaker 1: get some of those structural changes through that you're talking about,
Speaker 1: especially if there isn't the onus on getting economic growth.
Speaker 1: You know, I I gotta say, I think that the
Speaker 1: bipartisan support for UH, this kind of UH, this kind
Speaker 1: of relief is actually much broader than you might think.
Speaker 1: Now there's the Hill. That's one thing, and I get
Speaker 1: what you're saying, But in fact, again these polling results
Speaker 1: show that something like two thirds of the American people
Speaker 1: support UH, the president's approach, with the majority of Republicans.
Speaker 1: But it's also if you look at the Business Roundtable,
Speaker 1: the Chamber of Commerce folks you have on your show,
Speaker 1: they support this plan. If you look at Republican mayors
Speaker 1: across the Land. They support this plan. Trump's former chief economist,
Speaker 1: Kevin Hassett, Glenn Hubbard, Bush's former chief economists, they support
Speaker 1: the plan. So it's it's a much broader sense of
Speaker 1: the urgency of the relief. And I think what we're
Speaker 1: arguing about in Washington are a set of details that
Speaker 1: you know, they're important to policy wanks like me and you,
Speaker 1: but for the American people, Uh, they just need to
Speaker 1: get get relief out there, you know, as soon as
Speaker 1: as soon as possible. JAREDA don't mean to be flipped
Speaker 1: about it, but you'd expect the approval writing for checks
Speaker 1: from the government going out to individuals to be high anyway,
Speaker 1: wouldn't you. Yeah, I mean I think I think that
Speaker 1: that doesn't mean it's a bad thing. In other words,
Speaker 1: this is a time when I think we really have
Speaker 1: to look at the kinds of short falls Americans are facing.
Speaker 1: You know, these checks have gotten a lot of flak.
Speaker 1: If you look at a family with seventy five thousand dollars,
Speaker 1: for example, many of these folks have savings or savings raids.
Speaker 1: This is not well known. I looked at this the
Speaker 1: other day. If you look at people who have zero
Speaker 1: or near zero savings raids, you get pretty quickly up
Speaker 1: to income levels around even higher. Now, many of these
Speaker 1: folks are engaged in mortgage moratoria or rent a uh
Speaker 1: temporary not rent moratoria. That means that they are accumulating
Speaker 1: significant debt. At some point when these moratoria and UH
Speaker 1: and and forbearance on mortgages uh and these families are
Speaker 1: gonna face massive debts. So the idea that some of
Speaker 1: this uh, some of some of these direct payments are
Speaker 1: saved and not spent initially is actually a feature, not
Speaker 1: a bug. What we've seen in earlier round is that
Speaker 1: they're initially saved and then when these families hit an
Speaker 1: air pocket, there's there. They're spent. And there are middle
Speaker 1: class families who are struggling here. Jared, one final question.
Speaker 1: You and I have known each other for years. I've
Speaker 1: always asked this question of people. When a new president
Speaker 1: is minted, a president has you into the oval office
Speaker 1: or around a table. He's sitting on the couch. And
Speaker 1: there is a way any given president takes in economic data,
Speaker 1: economic advice, economic perspective. What is the Biden method in
Speaker 1: the oval office? It's a great question. He sits in
Speaker 1: a chair, we sit on a couch. And what he
Speaker 1: does is he asks us our economic advice, and he
Speaker 1: absorbs it through what I think of as kind of
Speaker 1: a political political economy filter. That is, he's he's not
Speaker 1: looking to me to give him political advice. Once when
Speaker 1: I did so, he reminded me that I couldn't be
Speaker 1: elected dog catcher. I mean he did it in a
Speaker 1: nice way. Um, so he's very Joe Biden has has
Speaker 1: just really sharp political antenna, and you know, he knows
Speaker 1: what he knows, he knows he doesn't know, so he
Speaker 1: comes to us for political advice and then he thinks
Speaker 1: through the political machinations to get to the economic place
Speaker 1: that meets his vision. Chad, final question from me, and
Speaker 1: I've sort of got to talk about this. Do you
Speaker 1: think seventy five dollars for a family isn't enough in America?
Speaker 1: You know, I think it's hard to say a blanket
Speaker 1: statement like that, but I can tell you this, there
Speaker 1: are lots of families with that income level who have
Speaker 1: struggled to make ends meet, to keep roofs over their head,
Speaker 1: to meet not only their basic needs, but to meet
Speaker 1: their aspirations to send their kids to college. To pay
Speaker 1: for affordable childcare. And as you know, it's not just
Speaker 1: the level, it's the derivatives. So you know, families who
Speaker 1: are at that level and they're stuck at that level
Speaker 1: even though they're working hard. The economy is increasingly productive.
Speaker 1: They see the stock market going up, they see wealth accumulation.
Speaker 1: You know, we know that the bottom half of families
Speaker 1: have almost zero in terms of equity in the streets.
Speaker 1: Just to jump here, because we only have about a
Speaker 1: couple of minutes, and I need to get this follow
Speaker 1: up in as a family growing up, there years where
Speaker 1: we had folest than that. So believe me, I understand
Speaker 1: what you're talking about here. But this goes beyond pandemic relief.
Speaker 1: You're talking about a real ideological shift in the role
Speaker 1: of government. And if you want bipartisan agreement, Dan and
Speaker 1: d C. That's a big oscar, isn't it, Jared? I mean,
Speaker 1: it isn't it isn't I mean I I think that
Speaker 1: the role of government has to be to provide opportunities
Speaker 1: for not just low but for middle and upper middle
Speaker 1: class families to get ahead, for them to reap some
Speaker 1: of the benefits of the productivity that they're helping to generate,
Speaker 1: they're helping to bake a bigger, bigger pie. They should
Speaker 1: get bigger slices, you know, whatever their income level is.
Speaker 1: But the problem is that those bigger slices have only
Speaker 1: been going to the narrow top top one, top five
Speaker 1: per cent. So I think the key here is partially
Speaker 1: the levels. And we talked about that family is being
Speaker 1: able to meet their aspirations, but the idea that if
Speaker 1: you're playing by the rules, you ought to get ahead.
Speaker 1: And again, I think that policy architecture, that connective tissue
Speaker 1: has been torn over the years by policies that's been
Speaker 1: very insensitive to those in the middle class and down,
Speaker 1: and we're trying to We're gonna try to fix that, Jod.
Speaker 1: I look forward to continue in the conversation with you.
Speaker 1: We appreciate times. Thank you, Jap besting that of the
Speaker 1: White House Council of Economic Advices joining us now from
Speaker 1: Jared Bernstein and the Biden administration. The academic William Dudley
Speaker 1: joins us, of course, his work at Golden Sacks for
Speaker 1: years and then at the New York Fed. We're thrilled
Speaker 1: that Bill Dudley could join us. Writing for Bloomberg opinion today,
Speaker 1: Bill Dudley, I I look at where we are in
Speaker 1: the greater theme of things, and there's going to be
Speaker 1: a point now, maybe a point in the future, where
Speaker 1: the day to day work of the FED to support
Speaker 1: the economy is over and they begin to pull away
Speaker 1: from the monthly fundings that they're doing, they pull away
Speaker 1: from the jargon in the speeches of providing ultra accommodation.
Speaker 1: Are we close to that moment? No, the FED basically
Speaker 1: has told us that sure, police said is premature to
Speaker 1: be talking about even beginning to, you know, wind down
Speaker 1: the rate of acid purchases. So the FED is not
Speaker 1: probably can do anything different at least until late fall
Speaker 1: early next year. Well, that may be the policy as well.
Speaker 1: But then we go FED meeting to FED meeting. You've
Speaker 1: been in the crucible to this, Bill Dudley. Little sentences
Speaker 1: are given out in speeches from say Cleveland, from St.
Speaker 1: Kansas City, from San Francisco, or from the pressures you
Speaker 1: faced in New York. Are we gonna see theory come
Speaker 1: out in the speeches of federal officers in the coming months. Well,
Speaker 1: it really depends on you know, how strong and the
Speaker 1: rebound in the economy is. I mean, what we're hoping
Speaker 1: is people get vaccinated, and once people get vaccinated, social
Speaker 1: distancing can be relaxed, the e commy can be reopened.
Speaker 1: And when that happens, the economy should accelerate pretty sharply
Speaker 1: because you're gonna have a big increase in demand and
Speaker 1: uh in the leisure and hospitality area in particular. People
Speaker 1: are gonna go to movies, they're gonna restaurants, are gonna travel.
Speaker 1: So that could be a pretty strong second half of
Speaker 1: the year if things go well, and I think at
Speaker 1: that point then people will start at the FED will
Speaker 1: start to you know, begin to think about it. Okay,
Speaker 1: how do we start to uh pull pull back? But
Speaker 1: the FED doesn't want to pull back prematurely because there's
Speaker 1: still nine million people that have lost their jobs since
Speaker 1: the pandemic started, and so they don't want to pull
Speaker 1: back too early because they did. If they do, Bonnils
Speaker 1: go up, stock Mark goes down. That titans financial conditions
Speaker 1: and that makes it harder for the FED to achieve
Speaker 1: its objectives as we get closer to running the economy.
Speaker 1: Hot Bell, there's a question of financial stability risks and
Speaker 1: how you measure it in a time of shadow banking,
Speaker 1: at a time of robin hood traders, at a time
Speaker 1: of other structural changes to the market. You put out
Speaker 1: a column about this. Do you think the FED is
Speaker 1: gauging systemic risk correctly as they look forward to and
Speaker 1: perhaps hotter economy. Well, I think the problem that they
Speaker 1: have is that at some point they are going to
Speaker 1: have to turn the dial back away from you know,
Speaker 1: significant accommodation. And when they touch that dial, when they're
Speaker 1: perceived too about to touch that dial, markets are gonna react.
Speaker 1: So I think it's gonna be very difficult for the
Speaker 1: FED to avoid a you know, a bond taper tantrum. Uh.
Speaker 1: You know, you're either all in or you're not. And
Speaker 1: at some point the Fed is not gonna be all in.
Speaker 1: And when that happens, markets are going to react. And
Speaker 1: some of the risks that you put out there in
Speaker 1: this column that you wrote this morning for Bloomberg Opinion,
Speaker 1: you mentioned mutual funds and ways to protect against runs
Speaker 1: on these particular funds. Do you actually view this as
Speaker 1: a real viable risk going forward if there is some
Speaker 1: sort of taper tantrum like you're saying, Well, it depends
Speaker 1: on how violent it is. But you know the problem
Speaker 1: we have is we have mutual funds that are vested
Speaker 1: in very a liquid asset classes like high you'ld dead,
Speaker 1: and yet we offer these mutual funds and we basically
Speaker 1: tell people they get their money out overnight, and you
Speaker 1: can't actually and a lot of people show up at
Speaker 1: that mutual fund to get their money back. The market
Speaker 1: really can't absorb that much mutual bonds being sold into
Speaker 1: the market. So it makes sense for a liquid mutual
Speaker 1: funds to basically tell people, no, you don't get overnight liquidity,
Speaker 1: get weakly liquidity or monthly liquidity, and that gives the
Speaker 1: mutual fund manager time to actually liquidate their assets in
Speaker 1: an orderly way so that you don't have the fire
Speaker 1: sale of assets, which which which would obviously depress prices
Speaker 1: even further. Bill an unfair question, but you know I'm
Speaker 1: legendary for that, So I'm gonna go with the John
Speaker 1: emails in from Capri and says asked Dudley about drag Bill, Dudley,
Speaker 1: you would be on the short list of technocrats that
Speaker 1: would take over the American government if we were in
Speaker 1: political crisis. We all know that. I mean, you Secretary
Speaker 1: yelling Mr Brannankey, Dr Brannankey, and and and the rest.
Speaker 1: Bill Dudley, what is your perspective on what drag is
Speaker 1: being asked to do? How do guys like you turn
Speaker 1: into politicians? Is it doable? Well? Mario Draggy is extraordinarily skilled,
Speaker 1: not just as a commist but also as a diplomat,
Speaker 1: So he has the I think the political skills to
Speaker 1: actually take out political position. You know. I think you
Speaker 1: saw that in terms of how he handled the European
Speaker 1: Central Bank during the European crisis. Uh, you know what,
Speaker 1: We'll do whatever it takes. And that was and it
Speaker 1: will be enough. And that was a very very important
Speaker 1: Stephen that showed I think that a lot of sensitivity
Speaker 1: to the political side of things. So I think if
Speaker 1: he were, you know, put in power in Italy to
Speaker 1: try to, you know, be a party of unity, I
Speaker 1: think you'd be effective in that job. But that's probably
Speaker 1: because who he is as a person, not because he
Speaker 1: is a former central banker. A paradigm shift, and Tom
Speaker 1: Bill is absolutely right. If you think back when Tricia
Speaker 1: left and drug stepped up, Tricia had been hiking rates
Speaker 1: a couple of times over the previous few years. I
Speaker 1: think my memory serves correct our way, and I think
Speaker 1: again in and then drug came on board, and the
Speaker 1: idea of taking rates negative at the ECB, at a
Speaker 1: large central bank like that, wasn't really in the conversation
Speaker 1: at all, Tom. The idea of buying corporate credit wasn't
Speaker 1: really in the conversation. The idea of getting Germany to
Speaker 1: come along for the ride, and by softeign debt not
Speaker 1: part of the conversation. Bill it was apparent on shift.
Speaker 1: And I'm just wonder in your mind whether we have
Speaker 1: taken this too far at central banks. Well, we won't
Speaker 1: know for a while, but clearly the central banks have
Speaker 1: done extraordinary things to support economic activity during an extraordinary pandemic.
Speaker 1: And how this plays out in the long run, you know,
Speaker 1: it's really you know, as they say, too soon to
Speaker 1: tell the economist and you though, do you think you
Speaker 1: sacrifice the dynamism of an economy when the central bank
Speaker 1: takes a bigger role in the white has done well?
Speaker 1: I do think we have to worry a little bit
Speaker 1: about you know, very very low interest rates, basically you know,
Speaker 1: keeping companies afloat that probably shouldn't be afloat. You know,
Speaker 1: there's a so called zombie companies because that can actually
Speaker 1: interfere with the real allocation of capital from bad uses
Speaker 1: to better uses. So we'll have to see how it goes.
Speaker 1: I mean the good news is the u AS economy
Speaker 1: is pretty dyna dynamic, uh, and so capital does sort
Speaker 1: of moved to its best use. So I would say
Speaker 1: at this point, I'm not that worried about it. But
Speaker 1: you know, again, we've never done we've never done this before.
Speaker 1: We don't have any experience in terms of what the
Speaker 1: recovery will actually look like. So I think it's really
Speaker 1: premature to be be able to say, oh, geez, I
Speaker 1: know this is gonna work. Bill, just real quick, care
Speaker 1: before we let you go, How do you view the
Speaker 1: games top saga that we've seen over the past couple
Speaker 1: of weeks. Was this evidence of froth? Well, I don't know.
Speaker 1: You know, I don't know if it's evidence of froth.
Speaker 1: I think it was bad judgment. I mean, you know,
Speaker 1: you really shouldn't buy assets when they're well above their
Speaker 1: intrinsic value. If you do that, you're probably going to
Speaker 1: lose money eventually, because eventually there's going to be more
Speaker 1: sellers than buyers. I mean to make money in game
Speaker 1: stock when it's selling it two hundred dollars of share.
Speaker 1: The only way you're gonna make money is if there's
Speaker 1: there's other people to come in behind you to buy
Speaker 1: the stock at even and push it to even higher levels.
Speaker 1: That seems like not a very sound proposition when when
Speaker 1: you know the intrinsic value of the company is much lower.
Speaker 1: Great to catch up, as always, come back soon. Bill Dunting,
Speaker 1: that bloom bag opinion columnist and former New York Fed president,
Speaker 1: the Dirty Little Secret votes because the cell side is
Speaker 1: not only about price targets and enthusiasm about up here
Speaker 1: down there, but it's about the density of the note.
Speaker 1: Thomas Forte is a d A. Davidson in rights, brilliantly
Speaker 1: thick notes about the details of a company. Tom Forte,
Speaker 1: thanks for joining us. I want to go right to
Speaker 1: your thoughts on third party where you notice this new
Speaker 1: dominance of third party Explain to our audience while you
Speaker 1: have a persistent buy off the dominance of Amazon embracing
Speaker 1: in other sellers. So if you think about and the
Speaker 1: importance of third party sales on Amazon, it's more profitable
Speaker 1: when businesses and individuals sell products on Amazon than when
Speaker 1: Amazon sells the products itself. Additionally, I think it puts
Speaker 1: a lot of the antitrust heat off of the company.
Speaker 1: I still think there is very significant But if you
Speaker 1: look at Tom for example, when they reported their Black
Speaker 1: Friday Cyber Monday sales, they focused on the amount of
Speaker 1: money third party sellers made selling on Amazon, not Amazon itself.
Speaker 1: I think it's very important Tom. This raises regulatory risk,
Speaker 1: though in a big way. If you think about the
Speaker 1: big railway railway bearers, they were utilities, they were necessities.
Speaker 1: This becomes the same thing, the same argument that any
Speaker 1: company has to join forces with Amazon and use its
Speaker 1: infrastructure in order to get ahead. What kind of regulatory
Speaker 1: risk does this type of dominance create. The good news
Speaker 1: for Amazon in that regard is Walmart is starting to
Speaker 1: step up its game in terms of marketplaces, Target is
Speaker 1: still very well behind, so Amazon can show that there
Speaker 1: are now more marketplaces that sellers can offer their products on.
Speaker 1: But I do think the challenge for anti competitive against
Speaker 1: Amazon is how can they prove consumer harm? How can
Speaker 1: they prove that this third party effort by Amazon is
Speaker 1: using prices to the consumer. And I think that will
Speaker 1: be a challenge as far as antitrust action goes against
Speaker 1: Amazon something. Do you think bezel stepping aside take some
Speaker 1: heat off them a little bit on the regulatary side.
Speaker 1: I think putting Andy Jesse head of their largest services
Speaker 1: effort AWS instead of Jeff Wilkie, who announced his retirement
Speaker 1: last year and was head of retail, does take some
Speaker 1: heat off because Amazon again can tell the story of
Speaker 1: we're enabling individuals and businesses to make money selling an
Speaker 1: Amazon rather than we're making all this money ourselves selling
Speaker 1: our own products. To tell me the optic shift is
Speaker 1: the strategy. The strategy does not shift. I think this
Speaker 1: was a declaration by Amazon that they're warmly embracing services.
Speaker 1: So I think about cloud computing services. Andy Jesse has
Speaker 1: led that effort since two thousand six launch. I think
Speaker 1: about services in retail, enabling people to sell an Amazon
Speaker 1: if they want, delivery services, offering us to advertising services
Speaker 1: and then healthcare in the future. Amazon pharmacy, in my opinion,
Speaker 1: is only the beginning. Okay, well, let's let's double barrel
Speaker 1: this time for to day pharmacy and advertising. Nobody's talking
Speaker 1: about and they're smaller they're off the radar, their single
Speaker 1: digit rounding yarrors. How do they become double digit success? Okay,
Speaker 1: so let's talk about healthcare. I look at two internal
Speaker 1: initiatives by the company, COVID night team testing for employees
Speaker 1: and health clinics for employees families. Those could eventually become
Speaker 1: customer facing broader initiatives. Advertising on Amazon is very important.
Speaker 1: They have their Roku type service, IMDbTV, they have their
Speaker 1: streaming Thursday Night football, and they have advertising within their
Speaker 1: e commerce platform. And I think that will continue to
Speaker 1: grow over time. Investors will look at Amazon and advertising
Speaker 1: the way we used to look at ABC, CBS, Fox
Speaker 1: as far as a must buy for everyone, including retailers
Speaker 1: to advertise on Amazon. You already see Coals advertising on
Speaker 1: Amazon as an example. Meanwhile, going forward, there's a question
Speaker 1: of how much more of a threat Amazon is to
Speaker 1: the Microsoft Oracles, Google's given the fact that Andy Jazzy
Speaker 1: is likely to put that much more emphasis on a
Speaker 1: w S. Do you think that that threat is getting
Speaker 1: baked into markets or do you think that people are
Speaker 1: kind of underplaying it right now? Excellent question and the
Speaker 1: most important data point yesterday, other than Amazon reporting profits,
Speaker 1: there were twice expectations was the very significant operating lass
Speaker 1: Google reported for its cloud computing effort. So I do
Speaker 1: think that Microsoft is a real challenge for Amazon. But
Speaker 1: to the extent maybe that they can throw it off Google,
Speaker 1: that would be a huge long term win for the company.
Speaker 1: You sticking at in on fifty tone, Yes, all right,
Speaker 1: just skin, don't let them come on, Tom, just Tom.
Speaker 1: We need a price target raise right now, seriously. Okay, Tom, Well,
Speaker 1: when the cash flows higher, the price target will go up.
Speaker 1: There we go unless stay, Unless they announced that something
Speaker 1: happened sales wise over the last hours. I don't have
Speaker 1: evidence of higher. We're asking everybody whose name is Tom,
Speaker 1: what do you think of Brady in the Super Bowl?
Speaker 1: Lisa's in love of them. What do you think you're
Speaker 1: gonna give Brady some love? I think that I respect
Speaker 1: Brady the way I respected Michael Jordan as a Chicago
Speaker 1: sports fan, uh and never underestimate him. But Patrick Mahomes
Speaker 1: is amazing, and it breaks my heart the Chicago Bears
Speaker 1: picture Binsky over Mahomes. There we go there. I mean,
Speaker 1: that's why forty is just so large on Amazon. Tom,
Speaker 1: Thank you? Do you want to get from d I
Speaker 1: Dins and senior research analysts Christian Bitterley joins us our
Speaker 1: private She's been listening to all of this talk here,
Speaker 1: and what it really comes down to is a rationalization
Speaker 1: of the walls of worry out there, the driver market higher.
Speaker 1: Christian Bitterly, very simply here in your really bright note,
Speaker 1: you talk about the walls of cash, the horde, the
Speaker 1: pile of cash that's out there. How big is the pile? Yeah,
Speaker 1: So this is I mean, it's really interesting because we
Speaker 1: hear all these stories about kind of the exuberance in
Speaker 1: the market, retail investors pouring into the market, but one
Speaker 1: of the trends that we've been watching really closely is
Speaker 1: a lot of cash on the sidelines. We see this
Speaker 1: from our investors and you can There's really two things
Speaker 1: that I think are important to note when you're talking
Speaker 1: about some of the conservativism out there. So right now,
Speaker 1: it's about fient of US financial household assets are in cash.
Speaker 1: So when you go into different segments, this is about
Speaker 1: thet of certain portfolios held in cash. And what we're
Speaker 1: having we're having conversations with our clients right now about
Speaker 1: strategic cash holding. What do you need in terms of
Speaker 1: strategic cash. There isn't a right answer, as this is
Speaker 1: a very personal question, but what we're finding is people
Speaker 1: are basically taking that amount, that strategic amount, and multiplying
Speaker 1: it by ten times. So when you add up right
Speaker 1: now now the amount of cash sitting in money market
Speaker 1: funds across retail and institutional, it gets you to around
Speaker 1: twenty five of the S and P five market capitalization.
Speaker 1: So there is a lot of cash sitting on the
Speaker 1: sidelines that quite honestly has been a hangover from the
Speaker 1: global financial crisis. This is this is cash that has
Speaker 1: been out there for quite some time, and the savings
Speaker 1: rate has gone up and is about twice as much
Speaker 1: as the average over the past decade, I believe. I
Speaker 1: was just looking at some statistics this morning, Kristen. When
Speaker 1: your clients call you up and they say, yeah, we
Speaker 1: hear what you're saying about investing in risk here assets
Speaker 1: and stocks, and yet what just happened with game Stop.
Speaker 1: Does this indicate some sort of instability that could cause
Speaker 1: broader ripples? What do you tell them? So, I think
Speaker 1: there's two different things. I think one we have to
Speaker 1: look at the state of the economy, and then two
Speaker 1: we have to look at. Do fundamentals matter? So state
Speaker 1: of the economy, as you just mentioned, we have personal
Speaker 1: balance sheets are in good shape, right, so two times
Speaker 1: the average saving rate is what we saw last year,
Speaker 1: so around people have been restructuring their balance sheets, they've
Speaker 1: been refinancing mortgages. So you have the individual in a
Speaker 1: really good shape. And in terms of the economy, obviously
Speaker 1: the biggest risk is COVID, but we're anticipating rates of
Speaker 1: around five percent g VP growth over the next two years,
Speaker 1: and that is really remarkable. The other question is really
Speaker 1: around market volatility, right, So one is are we in
Speaker 1: good shape from an economic standpoint, from a cash standpoint,
Speaker 1: from an individual standpoint, yes, do fund demouncials matter? I
Speaker 1: think that's a resounding yes. But that does not mean
Speaker 1: that technicals don't drive the market in the short term.
Speaker 1: And now we have technicals to think about in terms
Speaker 1: of option volumes. Look at the records that we broke
Speaker 1: in January, which obviously means leverage and these scenarios, while
Speaker 1: they're short lives, are becoming more frequent, I think for
Speaker 1: a variety of reasons. So the first is democratization of
Speaker 1: the stock market, which honestly is fantastic. One of the
Speaker 1: biggest reasons for wealth inequality the fact that wealthy people
Speaker 1: own the majority of financial assets, and we want more
Speaker 1: people to invest, not less. But the thing is is
Speaker 1: there's obviously a difference between investing, speculation and trading. The
Speaker 1: other considerations are also we have a plunge in the
Speaker 1: cost of trading, which makes higher turnover. This is becoming
Speaker 1: more frictionless to the average investor time and capital COVID nineteen.
Speaker 1: The work from home, we have more screen time, which
Speaker 1: means more time paying to attention to the market, to
Speaker 1: more time trading, and there's often more leverage in the
Speaker 1: system due to this options activity. So I think the
Speaker 1: answer is fundamentals absolutely do matter. There are areas to
Speaker 1: invest in the market, but we expect higher volatility and
Speaker 1: don't ignore some of these technical pressures which are going
Speaker 1: to be here to stay. John, what are fundamentals right now?
Speaker 1: I'm serious, Like, what fundamentals are we even talking about
Speaker 1: it a certain point, Yes, Tom, I totally disagree. I
Speaker 1: think fundamentals are huge, but which fundamentals? I mean, how
Speaker 1: do you even evaluate price to earnings when you talk
Speaker 1: about yields as low as they are a serious question. Well,
Speaker 1: this is for Kristan, but you can't do it off
Speaker 1: a sharp ratio because you don't know where the risk
Speaker 1: free return is. You have to plug in John a
Speaker 1: fictional number. Christian, you get fund a work please? Yeah,
Speaker 1: So I think fundamentals. Where where do we find fundamentals
Speaker 1: and how are we thinking about that in portfolio construction.
Speaker 1: So the number one area where this comes into play
Speaker 1: is what we're calling overcoming financial repressions. So this idea
Speaker 1: that yields are low for longer right racer or low
Speaker 1: free longer, and that means that you have your average
Speaker 1: investor looking at like a sixty forty portfolio that's not
Speaker 1: going to achieve their objectives. So that has to move
Speaker 1: up the risk spectrum in terms of the seventy thirty.
Speaker 1: And this is where fundamentals are super critical. So an
Speaker 1: area of the market where fundamentals look good from an
Speaker 1: entry point and also historical fundamentals are really strong is
Speaker 1: an area like global dividend growers. So returning our focus
Speaker 1: to global companies with strong three cash flow generation, strong
Speaker 1: balance sheets, you're basically achieving a yield of three to
Speaker 1: four percent, which given we're rate star is very attractive.
Speaker 1: And then when you think of the underperformance and some
Speaker 1: of this mean reversion that we talked about in market,
Speaker 1: these thoughts have lagged because of all of the high
Speaker 1: flying COVID winners that have really benefited from that momentum.
Speaker 1: So that's an area where I think you're achieving attractive
Speaker 1: yields and you're also there's a strong fundamental story that
Speaker 1: these companies are strong. And here to say Kristin Greits,
Speaker 1: catch up, Christin Bidley, Death Off City Private. Thank you.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg Radio.