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: A delicate conversation when you are a member of the
Speaker 1: Federal Reserve system, as Charles Plosser was at the Philadelphia FED.
Speaker 1: You are delicate even in retirement about the FED. We
Speaker 1: asked Dr Plosser now not to be delicate. Charles Plosser,
Speaker 1: you invented real business cycle theory. Kindling and Prescott got
Speaker 1: the Nobel Prize, but you and Long came up with
Speaker 1: the phrase and came up with the theory. There is
Speaker 1: now a raging debate in your racket over the theoretical
Speaker 1: qualifications of miss Shelton to join the FED. Is a governor?
Speaker 1: Your theory has been criticized. Ben pretty gott a Nobel
Speaker 1: prize out of it with Kindlan and Prescott. Does Judy
Speaker 1: Shelton have a theory? Gee, Tom, I don't know. I
Speaker 1: think obviously she is very popular in some circles, uh,
Speaker 1: not so popular in others. But you know, I have
Speaker 1: to I have to say that. You know, during the
Speaker 1: course of the history, the Board of Governors has had
Speaker 1: many people of many different stripes and perspectives and on
Speaker 1: economics and macro economics. So I think that um uh,
Speaker 1: if you if you think Judy Sheldon is a great
Speaker 1: economist gonna be a great FED governor, then that's fine.
Speaker 1: If you think that's not the case, then my guess
Speaker 1: is she we'll have gros three little impact overall on
Speaker 1: the way policies proceed. So yeah, I think debates not
Speaker 1: a bad thing. So I tend to be a little
Speaker 1: more open minded about about the willingness of the institution
Speaker 1: to ah to respond to these sorts of episodes. So
Speaker 1: I you know, she wouldn't have been my first pick,
Speaker 1: But you know, I'm not sure the consequences are terribly
Speaker 1: serious one way or another. Dr plus are the real
Speaker 1: business cycle theory always is out a theory of exogynous shocks.
Speaker 1: You've been given your exogynous shock with a deficit. What
Speaker 1: will these trillion dollars of deficits due to our financial system?
Speaker 1: And is there a certitude that we will see inflation? Well,
Speaker 1: there's never a certain certain certain certain suit about anything
Speaker 1: in the future. But I do think that we've had
Speaker 1: a very serious shot to the system, probably due to
Speaker 1: the shutdown and the coronavirus UH. And I think that
Speaker 1: the large ets will have their own set of consequences.
Speaker 1: We were already in a situation where UH fiscal policy
Speaker 1: UH that being conducted in this country was not was
Speaker 1: not sustainable, and this is just kind of make matters
Speaker 1: even more challenging. So I think there's a real problem.
Speaker 1: We've got a real problem. I think that ah and
Speaker 1: and my real problem is is not is not just
Speaker 1: the fiscal policy, but how the FED response to that
Speaker 1: fiscal policy and the pressures they're going to be under
Speaker 1: to engage in UH butys policy and support supporting physical
Speaker 1: policy in ways it may be detrimental for the FED
Speaker 1: and for the account as a whole. What would be
Speaker 1: the best way for the FED to execute a lessoning
Speaker 1: of the balance sheet? Well, I think they're there a
Speaker 1: variety of views on that. My preference was would would
Speaker 1: be to let them just continue to run this thing off,
Speaker 1: to stop increasing the balance sheet. It seems like they
Speaker 1: increase the balancing a lot. In a financial crisis. They
Speaker 1: promist we would they promised exit and it never happened,
Speaker 1: and now it's fifty present, bigger than it was after
Speaker 1: the Great Crisis, the financial crisis. So um, I'm not
Speaker 1: sure where this is going. And I think they need
Speaker 1: to declare their independence and regained control of monetary policies. Uh.
Speaker 1: That's independent of the fiscal pressures that they're going to
Speaker 1: be under. Plus of Richard Fisher wants to punch. They
Speaker 1: just don't make them like you guys anymore on the
Speaker 1: fom C. Do you think we are suffering from groupthink
Speaker 1: at the Federal Reserve? Well, there's always a there's always
Speaker 1: a bit of that at any institution. Uh, And I
Speaker 1: am worried that there's not enough pushback on things. I mean,
Speaker 1: we we argued back in two thousand nine, ten eleven
Speaker 1: the problems that we were going to get into que
Speaker 1: and the dangers of the large ballot sheet and the
Speaker 1: risk of it being abused by the fiscal authorities, and
Speaker 1: the difficulty we were going to face and getting out
Speaker 1: of it, and nobody wanted to listen then. And now
Speaker 1: we're back in the same boat, except it's bigger and
Speaker 1: the risk are greater. And so I think that it
Speaker 1: would be wise upon the BED, particularly now, to be
Speaker 1: more articular about what the exit ramp books like from
Speaker 1: all this and how they're going to get out from
Speaker 1: under it. And the abuse of the BED for fiscal
Speaker 1: policy purposes is even larger now than it was then.
Speaker 1: And I'm not I'm afraid that you know, it's not
Speaker 1: looking good and I don't and I'm concerned the FED
Speaker 1: doesn't push back enough. Charlie. I'm interested in this word
Speaker 1: abuse because the Federal Reserve, a lot of people would
Speaker 1: consider they are enabling this deliberately. This is an objective
Speaker 1: to work with the Treasury, to work with fiscal authorities,
Speaker 1: and not just the FED, but globally and many economists, Charlie,
Speaker 1: considering that the optimal way of conducting policy right now.
Speaker 1: This is what abuse, these words, these phrases. This isn't good, Charlie.
Speaker 1: Why is it not good? Can communicate that really clearly.
Speaker 1: It's it's not good because the FED was granted independence
Speaker 1: in order to be able to conduct policy for the
Speaker 1: long run and to conduct policy independent of policy and
Speaker 1: partisan politics. And what we see now is when you
Speaker 1: lose that independence, when you become more susceptible to politicization,
Speaker 1: then the decisions will no longer necessarily be about the
Speaker 1: best interests of the economy. But whoever happens to have
Speaker 1: political power, either in Congress or the administration, Charlie, are
Speaker 1: we already there when it comes to asset price inflation?
Speaker 1: You've got FED officials that have been pretty sanguine about Yeah,
Speaker 1: I'm worried that we we The FED is enabling this,
Speaker 1: maybe not intentionally, but indirectly they are enabling the ability
Speaker 1: of of of this thing to go on and encouraging
Speaker 1: uh expectations from the marketplace in other parts of the
Speaker 1: economy that the FED is the restuer, not just a
Speaker 1: last resort but a first resort. And Congress has used
Speaker 1: the beds balance sheet to fund the Transportation Bill, and
Speaker 1: in two thousands fifteen they used to do in this
Speaker 1: crisis to have the FED to lending on behalf of
Speaker 1: the treasury instead of having the Treasury do it. They
Speaker 1: have you know, they funded into the super Financed Protection
Speaker 1: Agency out of the FED budget, but with no authority
Speaker 1: by the FED. So they are examples of how the
Speaker 1: fiscal authorities are abusing the Fed's balance sheet, and the
Speaker 1: FED has allowed this to happen without much pushback. They're
Speaker 1: operating regime of this large ballot sheet and their unwillingness
Speaker 1: to shrink it. And there the expectations they've set up
Speaker 1: with the financial markets of backing failures and polatility is
Speaker 1: all part of the play here too, as part of
Speaker 1: the actions that are supporting and encouraging um. This lack
Speaker 1: of independence I think dangerous from a philosophical perspective. People
Speaker 1: talk about the dangers of a FED or a central
Speaker 1: bank not being politically independent. From an economic perspective, what
Speaker 1: are the negative consequences from the fact that the FED
Speaker 1: has taken the actions that it has, to your view,
Speaker 1: perhaps too much in tandem with the Treasury Department and
Speaker 1: the U S administration. One of the dangers the dangers
Speaker 1: are losing control both inflation and political independence. I mean,
Speaker 1: look what the history of of central banking and politic
Speaker 1: is not a is not a pretty one. That those
Speaker 1: countries where central banks have become arms of the political
Speaker 1: or administrative authorities and used the substitute for sound fiscal
Speaker 1: policies and encourage money creation is the history is terrible.
Speaker 1: I mean, the empirical evidence is this waught with hyper
Speaker 1: inflations with Zimbabwe or Germany. You just go down the
Speaker 1: list Argentina. I mean, you just go down the list
Speaker 1: and see what happened when the central banks become pawns
Speaker 1: of the political authorities. But Charles, we did not see that.
Speaker 1: Let's be clear here, they're coming out of the crisis,
Speaker 1: many look for higher inflation and it didn't occur. Did
Speaker 1: it just go over on the balance sheet side to assets.
Speaker 1: Did we just simply move the dynamics of price over
Speaker 1: to asset inflation. Well? Perhaps, But really what happened was
Speaker 1: when the FED people said, the FRED pretty money. But
Speaker 1: mostly what it did was put reserves in the banking
Speaker 1: system that sat there. Part of the problem and the puzzle,
Speaker 1: I think, and one of the things that I think
Speaker 1: is problematic for the future is that money supply growth,
Speaker 1: money in circulation. After the Great Financial Crisis, all that
Speaker 1: stuff that FED printed sat in the banks. It didn't
Speaker 1: circulate very much, so there was no big increase in
Speaker 1: the money. I think that's an interesting puzzle. May have
Speaker 1: to do with interest on reserves and other things. That
Speaker 1: hasn't answered this question yet. But if you look at
Speaker 1: what's happened in the last three months, unlike the Great
Speaker 1: Financial Crisis when the bed blew up its ballacy, in
Speaker 1: this episode, there's been a huge increase in money. I
Speaker 1: don't know whether it's going to lead to a different
Speaker 1: outcome or not. It depends on what the Fed does.
Speaker 1: But I think that, um, that's part of the puzzle
Speaker 1: and part of the thing that the Dead's not really
Speaker 1: hasn't really addressed in its review of what their new
Speaker 1: strategy has been to be. I mean, they've tried, after
Speaker 1: much criticism, they tried to get inflation up to or
Speaker 1: claim they were because the zero interest rates for what
Speaker 1: seven years almost and inflation didn't rise. So now they're
Speaker 1: talking about a new strategy where they're gonna plan on
Speaker 1: overshooting inflated well, I mean they haven't even be able
Speaker 1: to get it too with zero interest rates for seven years,
Speaker 1: So what's wrong? That's the elephant in the room here
Speaker 1: that the Fed needs to address, not some refined view
Speaker 1: of inflation averaging versus in place of targeting or whatever.
Speaker 1: I think they need a more fundamental thing about what
Speaker 1: their policies. Maybe it's like I said, the interest wrong
Speaker 1: reserves or a large balance sheet, all those things impact
Speaker 1: how the how monetary policy works for that Chairman, Pal's
Speaker 1: happy you're not on that f o MC today. As
Speaker 1: that mating begins, childs, we've gotta leave it there. It's
Speaker 1: fantastic to catch up. This always fortunate to speak to
Speaker 1: your child's plus to that the former Philadelphia Fed president.
Speaker 1: Right now, let's jump start this discussion and do it
Speaker 1: through the prism of experience of Tobias Levkovic at City Group.
Speaker 1: It helps. He was a sell side analyst. He knows
Speaker 1: the granularity of corporations and of course the bigger view
Speaker 1: at City Group on the stock market. Tobias, have you
Speaker 1: changed your view in the last number of days? On
Speaker 1: the last number of days, we think the market and
Speaker 1: we have thought the market was a bit ahead of itself, Um,
Speaker 1: in the sense that the expectations were powerful recovery on
Speaker 1: earnings without kind of bumps along the way back to
Speaker 1: some degree by quote unquote the power put um. I
Speaker 1: was looking to your private conversation about the bond market, Um,
Speaker 1: and the bond mark is actually something that two different messages.
Speaker 1: If you all you did was look at the U
Speaker 1: S tenure yield, you would say it is disbelieving. If
Speaker 1: you like in the recovery. But if you were looking
Speaker 1: at the US tenure break evens, they continue to move higher.
Speaker 1: So there is an expectation for something happening, at least
Speaker 1: in the pricing side. Are you seeing that in the
Speaker 1: equity space. I mean, I'm looking at revenue shortfalls at
Speaker 1: three revenue shortfalls at McDonald's. I mean, are you just
Speaker 1: baking that into your two thousand? Yeah? We are. We
Speaker 1: having to look. We're we're looking for earnings to this
Speaker 1: year in the one five range and then one fifty
Speaker 1: next year. Consensus for next year is one sixty four,
Speaker 1: and a survey we did in late June is over
Speaker 1: forty institutions suggested that seventy of them believe that one
Speaker 1: sixty four is too high. On the other end, people
Speaker 1: heart chasing momentum because they need to perform. So certain
Speaker 1: stalks are carrying further. They're jumping in even if they
Speaker 1: don't necessarily like it um, but they feel they have
Speaker 1: to be. To quote in New York Claudo, you've gotta
Speaker 1: be in it to win it. It's about what do
Speaker 1: you think of the argument that, because we've got narrow breadth,
Speaker 1: this is a fragile rally. Do you agree with that,
Speaker 1: not directly. Um, Look, there are some large cap tech
Speaker 1: names that are clearly leading the market in the sense
Speaker 1: that people wanted secular growth with bulletproof balance sheets and
Speaker 1: pre cast flew generation the kind of a defensive trade.
Speaker 1: But for example of the second quarter, A hundred twenty
Speaker 1: six names in the SMP five beat the SMP five
Speaker 1: hundred by more than ten percentage points. So it's not
Speaker 1: like only five names did well. A D twenty one
Speaker 1: did poorly, and I think that's kind of missed in
Speaker 1: the what I would call the narrative out there. Well,
Speaker 1: let's add to the narrative big tech turningsis Thursday. What's
Speaker 1: the data bias Lefkovitch guide at this point, Well, I
Speaker 1: think people are looking for the actually some disappointment because
Speaker 1: the expectations are high. The work from home the construct
Speaker 1: has generated some particular business trends that it really accelerated
Speaker 1: trends that we're going before. So the idea of online
Speaker 1: shopping versus in store shopping has been a trend for
Speaker 1: a while, but we've probably moved it forward two years
Speaker 1: because the pandemic, telehealth, the same thing, cloud computing, all
Speaker 1: these things were ready very much moving along. All we've
Speaker 1: really done is supercharge that that's beat to bias. In meantime,
Speaker 1: one of the big stories of the past week has
Speaker 1: been the weaker dollar, the dollar following to the weakest
Speaker 1: according versus it's a competitor currencies since two thousand eighteen.
Speaker 1: How does this factor intro equity strategy. So it's actually
Speaker 1: quite importantly. So if I look at um a budget
Speaker 1: deficits percent of GDP, it's pretty been pretty good lead
Speaker 1: indicator for many years now for the dollar, and it
Speaker 1: was suggesting the weakness are ready prior even to the pandemic.
Speaker 1: But I think as the pandemic occurred, people went for
Speaker 1: the safety of the dollar. They rent for the safety
Speaker 1: of treasuries. UM, the beliefing, hey, this is the economy
Speaker 1: in the world. Um, they're going to have significant support
Speaker 1: systems of the fiscal or or monetary stimulus, and there's
Speaker 1: a place to hide. As we're starting to reopen the economy.
Speaker 1: And even with these kind of awful lumps in terms
Speaker 1: of outbreaks, UM, it's unlikely we're gonna shut down the
Speaker 1: economy the same way we did March A from and
Speaker 1: me again, it's just too expensive. UM. From an economic perspective,
Speaker 1: too many job losses and not to mention some of
Speaker 1: the social ills that come out of in terms of
Speaker 1: mental health, domestic confused, things like that. So it's unlikely
Speaker 1: you'll see that kind of stupdown. You may see sporadic
Speaker 1: ones or regionally focused ones, but not in entire countries.
Speaker 1: And in that sense, um, you're looking at environment where
Speaker 1: the dollar doesn't have to be at safe haven when
Speaker 1: that pulls back. Historically, emerging markets of perform in the US. Historically,
Speaker 1: certain groups that are even though they have large international
Speaker 1: sales like pharma or semifectors, actually don't do as well
Speaker 1: um with a week in dollar. And then there are
Speaker 1: other ones that do particularly well, more commodity orient energy, materials, etcetera. Um,
Speaker 1: So there are you know, aspects to the dollars that
Speaker 1: are quite important. So in other words, is this the
Speaker 1: playbook that you're going to the idea that we're going
Speaker 1: to have a week or dollar going forth it will
Speaker 1: continue to weekend given the fact that given the parameters
Speaker 1: that you just laid out, and that people should be
Speaker 1: going into merging markets and staying away from the multinationals
Speaker 1: not necessarily Again, I said multinationals like and take advantage
Speaker 1: and take a look at semi knectors, take a look
Speaker 1: at Farmer their multinationally have large exposure to international sales
Speaker 1: that they actually do poorly when the dollar weekends. Um,
Speaker 1: and they do better when the dollar strength, which is
Speaker 1: not consistent with kind of the intuitivelopment of what it
Speaker 1: does think of an international sales with the dollar weekends
Speaker 1: will actually translate to higher remedies in the US if
Speaker 1: they don't trade that way. Um we can. Every real's
Speaker 1: entitled to their misperceptions, but um, we actually look it
Speaker 1: happen stocks straight tobias away from Fortress Corbett. Your thoughts
Speaker 1: on the big banks, Um, Look, they're they're an area
Speaker 1: that investors have disliked for a while. Um. Initially it
Speaker 1: was the shape that yel curve concerns about credit loss
Speaker 1: provisions in in kind of a bad economy. But they're
Speaker 1: willing to trade up some other cyclicals around that. So
Speaker 1: you know, we wonder if there's something even more um
Speaker 1: disturbing an investor's mindsets. Maybe this acceleration I talked about
Speaker 1: and trends pushes more towards fintech. But but I think
Speaker 1: the stocks themselves look very very attractively valued right now
Speaker 1: in the banks. Um the you know, again, if if
Speaker 1: the world isn't as awful as everybody thinks them, the
Speaker 1: credit lost provisions of an over provisioned um and you know,
Speaker 1: there still is business activity out there, either large corporations,
Speaker 1: the need to borrow money. The credit card businesses is
Speaker 1: you know, are generally doing well as people are buying
Speaker 1: things online using their cards, either debit or credit. So
Speaker 1: it's kind of hard to to kind of get a
Speaker 1: sense that things are awful awful in banks. There is
Speaker 1: some concern. I believe that the elections, maybe um, if
Speaker 1: the Democrats take um, the Senate as well as the
Speaker 1: White House, and maybe there'll be some more kind of
Speaker 1: big bashing. But um, you know these are these are
Speaker 1: more speculation than anything. Kind of really at this point,
Speaker 1: great to catch up with these Lekevich that city. Chris
Speaker 1: Krueger is a Cowen and he has a reputation for
Speaker 1: exquisite layout of the detail. He did that in June
Speaker 1: for Cowen of the many previous trillion dollars of stimulus.
Speaker 1: I'm sure you'll do it again in August. Chris Kruger
Speaker 1: joins us. Now, Chris, what is the detail you're most
Speaker 1: focused on as we staggered as some kind of agreement. Yeah, well,
Speaker 1: good morning, thanks for having me back. I mean, I
Speaker 1: think that the big question here, the crux of this
Speaker 1: Phase four bill is going to be the expiring six
Speaker 1: hundred dollar weekly unemployment insurance payments, which which ended last
Speaker 1: which ended this this weekend. The House Democrats want to
Speaker 1: extend that for six months at six dollars. The Republican
Speaker 1: plan from last night would take that six hundred dollars
Speaker 1: down to two hundred dollars through September and then basically
Speaker 1: kick it to the states for the states to figure
Speaker 1: out how to cap it at previous wages. I mean,
Speaker 1: I think there's there's no real surprise from the bid
Speaker 1: ask where we are. Uh The House Democrats put up
Speaker 1: over three trillion dollars over two months ago, and I
Speaker 1: think it will be one of the great political what ifs.
Speaker 1: You know, why President Trump and the Republicans didn't sort
Speaker 1: of embrace a three trillion dollar stimulus two months ago,
Speaker 1: whereas now we're we're steering off of fiscal cliff for
Speaker 1: over twenty million Americans, and we're probably somewhere in the
Speaker 1: trillion to one and a half trillion dollar ballpark, Chris,
Speaker 1: from an economic perspective, let alone a political one, is
Speaker 1: there any argument that you believe in that you think
Speaker 1: is legitimate against having a six hundred dollar unemployment benefit continue,
Speaker 1: the enhanced unemployment benefit continue for the next couple of months. Well,
Speaker 1: the real pushback has been from UH a number of
Speaker 1: White House advisors and Senate Republicans. If you recall, Phase
Speaker 1: three in March almost fell apart over the six hundred
Speaker 1: dollar weekly supplemental various studies have shown that, you know,
Speaker 1: as much as five five out of the six folks
Speaker 1: are getting effectively a raised from their previous salary from
Speaker 1: from January. This is really, though, the key um, the
Speaker 1: key controversy with the bill. Republicans will get the liability shield,
Speaker 1: Democrats will get some chunk of money to go to
Speaker 1: states and municipalities. The six hundred dollar unemployment UH fiscal
Speaker 1: cliff is the real is the real question, Chris, is
Speaker 1: an interim bill at this point dead on arrival? Do
Speaker 1: you see any prospect for that down in Washington? It
Speaker 1: could happen, right sort of. The old saying is whenever
Speaker 1: Washington finds itself on the edge of a fiscal cliff,
Speaker 1: they tend to build more land. UM, so perhaps doing
Speaker 1: an extension of the six hundred dollar weekly payments maybe
Speaker 1: through September that because you will have another cliff when
Speaker 1: the fiscal year begins on October one, Right, you'll have
Speaker 1: to pass some kind of bill to keep the government
Speaker 1: from shutting down. So maybe tying it to that. But
Speaker 1: that's gonna be that's gonna come under intense pressure from UH.
Speaker 1: You know a number of fiscal hawks who have all
Speaker 1: of a sudden return to Washington after two years of hibernation.
Speaker 1: How does being a fiscal huwk poll in America at
Speaker 1: the moment, Chris amongst some of these constituencies, you know,
Speaker 1: I've I've, like I said earlier, I think that that
Speaker 1: you know, it's going to be one of the great
Speaker 1: political what ifs on that Heroes package over three trillion
Speaker 1: dollars from UH that the House Democrats sponsored over and
Speaker 1: past over two months ago. I think it's it's it's
Speaker 1: quite regional, you see, but candidly, the the the Senate
Speaker 1: Republicans who are most vocal on this are not running
Speaker 1: for reelection, right, they have staggered terms, so that maybe
Speaker 1: answers your question. This is the question, and I want
Speaker 1: to sort of double down on what John was talking about,
Speaker 1: this idea of what political benefit is they're going against
Speaker 1: some sort of big fiscal stimulus at this point, how
Speaker 1: is the idea of an ongoing enhanced unemployment benefit polling
Speaker 1: among Republicans? I haven't seen specific polling relative to Republicans.
Speaker 1: I mean there is a real belief among Senate Republicans though,
Speaker 1: that this extension of the six hundred dollars is keeping
Speaker 1: um is keeping the economy back, meaning that people would
Speaker 1: rather stay at home and collect the six hundred dollars
Speaker 1: on top of their state payments as opposed to going
Speaker 1: back into the workforce and looking for jobs. Chris, what
Speaker 1: are you going to look for today in the next
Speaker 1: twenty four hours in Washington? The whole cable media frenzy,
Speaker 1: the newspaper frenzy, et cetera. What is Chris Krueger most
Speaker 1: focused on? Well, I mean it is a bit of
Speaker 1: a crazed week here. I mean you you have the
Speaker 1: ongoing funeral of of of the late John Lewis, you
Speaker 1: have the big tech hearing tomorrow, You obviously have the
Speaker 1: FED as well. So I don't expect much on Phase
Speaker 1: four today. The primary negotiators, though, are pretty much the
Speaker 1: same from Phase three, with the exception of now Mark Meadows,
Speaker 1: the White House Chief of Staff is sort of a
Speaker 1: co head along with the Treasury Secretary. But then it's
Speaker 1: you know, the the the actors we've seen before, McConnell, Pelosi, Schumer, Um.
Speaker 1: So you know, at some point I suspect we will
Speaker 1: have a meeting at the White House, which will probably predictably,
Speaker 1: you know, go sideways. I think, as you know, you
Speaker 1: you want to keep those five folks in a room.
Speaker 1: I think injecting the president into these talks. You know,
Speaker 1: we've seen that the last couple of times, and it inevitably,
Speaker 1: you know, causes a negative tape bomb that also could
Speaker 1: be a positive, right, That's sort of how the sausage
Speaker 1: is made here, so we'll see it unfold this. I
Speaker 1: would say though, that this has a lack of urgency
Speaker 1: that the previous negotiations had, and I think some of
Speaker 1: that is because you know, we're not opening limit down
Speaker 1: every morning anymore. We need the market to do the
Speaker 1: hard work. It's depressing. Chris, Thank you, sir, Chris Krueger.
Speaker 1: Col I'm Washingham Research, Great managing tire writ right now
Speaker 1: a serious conversation, but we must digress at the top
Speaker 1: with a Lieutenant Governor of the Empire State Counthy Hokel
Speaker 1: is a pride of Buffalo, and she knows quite well
Speaker 1: that nothing really matters except for the movie The Natural.
Speaker 1: The Natural was filmed in Buffalo. It was a hugely
Speaker 1: important emotional vision of old baseball parks, and then Buffalo
Speaker 1: went on to build the jewel of minor league baseball,
Speaker 1: pilot Field, which is now where the Toronto Blue Jays
Speaker 1: will play. Bloomberg Surveillance is of course sent a note
Speaker 1: to Toronto saying, You've got to be kidding me. Hoco
Speaker 1: has to throw out the first pitch. Lieutenant Governor, Will
Speaker 1: you throw out the first pitch for the Toronto Blue Jays? Oh?
Speaker 1: If asked, I will serve and I'll get out there
Speaker 1: start pricing every But I've been known for even single
Speaker 1: aid teams to stand along the New York States through
Speaker 1: a practicing if I just don't embarrass my state and
Speaker 1: my family. So I'm not good at it, but I
Speaker 1: take it very seriously. I watched videos of other first pitches,
Speaker 1: and uh, you know, I just don't want to bring
Speaker 1: any uh. Stop you're being political. You don't want to
Speaker 1: do a fauci. Let's leave it at that. Too many
Speaker 1: you don't want to any other allan, Yeah, you don't
Speaker 1: want to do a thought. I got it. Look, there's
Speaker 1: we don't have enough time here when there's so many
Speaker 1: serious issues. You're gonna get a hundred billion dollars of
Speaker 1: school aid from the Republican stimulus? Is that enough? What
Speaker 1: a joke? I mean, seriously, you know when you see
Speaker 1: see the Republicans now have this crisis in their own states.
Speaker 1: I mean a couple of months ago they were saying,
Speaker 1: and I'm not making this up, Mitch McConnell said, there'll
Speaker 1: be no blue state ballots. And that's when it was
Speaker 1: New York and New Jersey and Connecticut. In California, Well, today,
Speaker 1: because no one followed the playbook that Governor Cuomo handed
Speaker 1: them on how to manage a pandemic, we have a
Speaker 1: crisis in the red states Florida, Arizona, Texas, etcetera. So
Speaker 1: to think that that's going to be enough money for
Speaker 1: the rest of the country and New York State in particular,
Speaker 1: it's paltry. It's embarrassment, and there's no way that schools
Speaker 1: can open safely if we don't get more assistance from
Speaker 1: the federal government. Don't even be talking about a trillion
Speaker 1: dollar plan. That's how much should be going to the
Speaker 1: state local governments period for getting everything else. I mean,
Speaker 1: that's that's the baseline, just for state local in order
Speaker 1: for us to make up for fourteen billion dollars in
Speaker 1: lost revenue five billion dollars in additional expenses which continue
Speaker 1: to climb every day. So so don't you don't embarrass yourselves. Washington,
Speaker 1: get your act together, and if the center Republicans can't
Speaker 1: get their unity in their caucus, then turn it over
Speaker 1: to Chuck schumerk will get the job done, Lieutenant Governor.
Speaker 1: A lot of economists agree with you that the states
Speaker 1: very much need a pretty big fiscal bailout or some
Speaker 1: sort of fiscal support. There is a question though, about
Speaker 1: what the states can be doing with respect to luring
Speaker 1: back businesses once the pandemic is over. Midtown is a
Speaker 1: ghost town. People are leaving the state, people are leaving
Speaker 1: the city. What economic plans do you have a are
Speaker 1: you talking about to try to bring businesses and residents
Speaker 1: back at Leasta, you hit right on it. I mean, normally,
Speaker 1: the state of New York is very generous in terms
Speaker 1: of incentivizing businesses from Buffalo to Manhattan, and we understand
Speaker 1: that that's part of our job, is an opportunity for
Speaker 1: businesses to thrive and create jobs. That's the bottom line,
Speaker 1: get people back to work. If we do not get
Speaker 1: that assistance from the state, from the federal government, how
Speaker 1: are we going to continue funding the economic development plans
Speaker 1: that I oversee its chair of the regur money we
Speaker 1: have to do it. I don't mean to interrupt, but
Speaker 1: as you well know, there's twelve Republicans upstate in New
Speaker 1: York who are fighting for their political life. Are Republicans
Speaker 1: and Democrats in New York State on the same page,
Speaker 1: or frankly in Arkansas? Are they on the same page
Speaker 1: as saying? Do the elites in Washington wake up? I
Speaker 1: just don't see the calendar immediacy in Washington. Yeah. I
Speaker 1: don't know what planet they're living on, Tom, I really don't.
Speaker 1: Have they not been seeing the overcrowding and hospitals and
Speaker 1: people in other states just searching for the ppe that
Speaker 1: we had to go through that don't they understand that.
Speaker 1: What's what's the unemployment rate in Buffalo? Right now? I
Speaker 1: don't have a clue. What's the unemployment rate in your Buffalo?
Speaker 1: I'll tell you state. Why did six percent Buffalo? It's
Speaker 1: probably closer to and for them to say that they're
Speaker 1: going to cut unemployment insurance, I'm sorry. A year ago
Speaker 1: in New York State, we had a four percent unemployment rate.
Speaker 1: Great success of the CuMo administration. People were working. They're
Speaker 1: assuming that people want to now stay home. People that
Speaker 1: are just being lazy and they don't want to get
Speaker 1: back to work because they can collect six hundred dollars
Speaker 1: a week. They can't get back to work because the
Speaker 1: hotels are not open. There's no jobs for them. They
Speaker 1: want to get back and then okay, down the through
Speaker 1: way to the late Great Barbarabie Connabal Great. He wanted
Speaker 1: fiscal prudence around the federal government. What's the certitude for
Speaker 1: conservatives that we're gonna pay back all this debt down
Speaker 1: the road. Our economy will come back and it will
Speaker 1: come back roaring if we can get the assistance from
Speaker 1: the federal government to get us through a one hundred
Speaker 1: year pandemic. This is not something we asked for on
Speaker 1: a regular basis, even though we do know that New
Speaker 1: York State sends about thirty billion more to Washington annually
Speaker 1: compared to what we get back. And you look at
Speaker 1: a state like Kentucky that's a taker. We're a giver.
Speaker 1: So we're not even trying to settle that score. We're
Speaker 1: just saying, can you help us out. Federal government, like
Speaker 1: other national governments around the planet, they don't leave the
Speaker 1: individual provinces of different countries defend for themselves. Don't do
Speaker 1: that here. States. We need a federal response, we needed
Speaker 1: since the beginning, and and heaven help us if you're
Speaker 1: not figuring out a federal response to getting this this
Speaker 1: vaccine out there once it's developed. We have to make
Speaker 1: sure that they're developing that now, make sure it's going
Speaker 1: to be available for everybody in both the Defense Defense
Speaker 1: Production Act. Don't leave it up to every individual company
Speaker 1: to try and go to the the marketing commercial life that
Speaker 1: this needs to be a federal government response or else
Speaker 1: we'll never get our economy. Back to Cathy forty five seconds,
Speaker 1: forgive me for keeping this one type. If you don't
Speaker 1: get the A G one, how quickly does the state
Speaker 1: level austerity begin in New York almost immediately. We are
Speaker 1: counting on this. We need that money out to give
Speaker 1: to our schools so they can have the PP and
Speaker 1: the disinfecting and and rent additional space or wherever they
Speaker 1: need to do, just to get our kids back to school.
Speaker 1: And guess what if our kids don't get back to school,
Speaker 1: the economy doesn't go back because who's watching the kids
Speaker 1: when the parents go to work. And this always falls
Speaker 1: on the shoulders of women. Senator Gillibrand and I tour
Speaker 1: the States of the last couple of days, going to
Speaker 1: cities large and small, talking about a childcare crisis that
Speaker 1: is going to hold back our recovery and settle dollars
Speaker 1: going to assist with that. Well, it's going to start
Speaker 1: hurting almost immediately, Lieutenant Governor, I appreciate your time place
Speaker 1: come back to Autenant, Governor of New York. That Kathee,
Speaker 1: it is all rage and of course of govos each
Speaker 1: and every year there is a theme that becomes so
Speaker 1: in Paul. I don't know where E. S g B
Speaker 1: came in, but it wasn't last year. What happened last
Speaker 1: year is it reached a massive pre pandemic critical mass
Speaker 1: and was so stunning as an eighteen year Uh, Davos Watcher,
Speaker 1: maybe fifteen years excuse me, Davos Watcher, is it was
Speaker 1: a real conviction to it this time around. I give
Speaker 1: a shout at the Bank of America, who I did
Speaker 1: a panel with on E s G Environmental, social and
Speaker 1: corporate governance. Matthew Winkler is how I go to Davos.
Speaker 1: He's the former editor in chief, editor in chief emeritus
Speaker 1: and but very much working as usual fifteen hour a
Speaker 1: day for Bloomberg, still penning an essay on E s G.
Speaker 1: And Matt you say, there's a real persistency to E
Speaker 1: s G being acknowledged by the street. Is profitable, Tom,
Speaker 1: It's always good to be with you. Um. Yes, Uh.
Speaker 1: It's a long term trend, but it's accentuated by COVID nineteen.
Speaker 1: And what we're seeing right now this year is E
Speaker 1: s T is where the profits are. So what that
Speaker 1: means is, if you like doing the right thing, increasingly
Speaker 1: is the smartest bet. Why is that evident? Well, if
Speaker 1: you just looked at the broad market, which is I shares,
Speaker 1: exchange traded funds, if you look at the ones that
Speaker 1: are invested in E s G. They're dramatically outperforming the
Speaker 1: SMP five index. Uh no, lesser light if you will.
Speaker 1: Then al Gore recently told a conference held but Bloomberg that, um,
Speaker 1: it is ever clearer that sustainable technologies are super and better.
Speaker 1: And so when you look at actually you know the
Speaker 1: performance of companies, which we can do on the Bloomberg
Speaker 1: my colleagues Chinpay and I. You know, there are more
Speaker 1: than three dozen companies generating at least fifty of their
Speaker 1: revenue from clean energy products or clean technology, and as
Speaker 1: a group, their sales are going to grow this year
Speaker 1: or so. And that's a marked contrast to say the
Speaker 1: SMP five Energy and Deck, which is the benchmark for
Speaker 1: fossil fuel. And those companies are going to have residented
Speaker 1: clients of about this year, and their growth in the
Speaker 1: next two years it's going to be much less than
Speaker 1: the s G crowd. Matt, you mentioned L. L. Gore.
Speaker 1: You mentioned L. Gore. I believe he's a Democrat, something
Speaker 1: about a hanging chad. Years ago. His e s G
Speaker 1: become a Republican theme as well. Well. If you're an investor,
Speaker 1: you don't presumably care so much about politics or ideology.
Speaker 1: What you care about is total return. So if you
Speaker 1: look at the total return, which I think Republicans and
Speaker 1: Democrats alike are interested in, the total return over five years,
Speaker 1: two years, one year, you know, pick any period really
Speaker 1: since two thousand fifteen, and the E. S G company's
Speaker 1: total return is staggeringly better than the fossil fuel crowd.
Speaker 1: So if you want to make money, um, you know
Speaker 1: and stay rich. Uh, this has been a good trade. Um,
Speaker 1: and not just you know, this year, but uh, really
Speaker 1: over a longer term period. So why is that happening.
Speaker 1: It's because, as Gore said, the growth is in alternative energy.
Speaker 1: That's where investors increasingly are getting most excited, and that's
Speaker 1: where the innovation is, whereas in fossil fuel it's basically
Speaker 1: the same over and over again. That goes back to
Speaker 1: the revenue line, the revenue dynamical we've been talking about. Yeah,
Speaker 1: it's interesting, Matt. I'm wondering have you noticed a difference
Speaker 1: maybe either in performance of stocks or willingness of companies
Speaker 1: to embrace E s G post you know, in the
Speaker 1: context of this new world we're in here with the pandemic. Well, again,
Speaker 1: if you go to the Bloomberg and this is something
Speaker 1: my colleague Shouldntay does all the time, and look at
Speaker 1: their trajectory of the exchange traded funds that are invested
Speaker 1: in the s G and the exchange traded funds invested
Speaker 1: saying fossil fuel, it's dramatic. I mean, the divergence is dramatic.
Speaker 1: So what that shows you is slow of funds consistently,
Speaker 1: robustly is slowing into e s G, whereas fossil fuel
Speaker 1: is the same old, same old, and it's relatively stable,
Speaker 1: but there's no growth there. So that's where the excitement is.
Speaker 1: And you know, one really dramatic example of this, and
Speaker 1: you know, I don't want to belabor this point because
Speaker 1: I have before on the show, is if you look
Speaker 1: at the gap between a Ramco that's the Saudi Arabian
Speaker 1: oil company that still is the world's most valuable company
Speaker 1: went public in December more, you know, right after its
Speaker 1: I p O was worth more than two trillion dollars. Well,
Speaker 1: what's happened since then? The gap between a Ramco and Tesla,
Speaker 1: which I don't need to advertise, has has narrowed by
Speaker 1: about five billion dollars. That's that's a really dramatic uh.
Speaker 1: You know, situation if you like. Now, what's interesting about
Speaker 1: that is that five billion dollars is a little more
Speaker 1: than the four hundred and sixty seven billion value of
Speaker 1: the world's ninth largest company. That would be Berkshire Hathaway,
Speaker 1: created by Warren Buffett, once the world's richest man. He's
Speaker 1: the avatar of value investing. He's so far shown no
Speaker 1: inclination to move towards if so far, but it's really
Speaker 1: an indication of the sign of the time. See you
Speaker 1: see Paul, Matt brings this up. I loaded the boat
Speaker 1: double leverage on a railco. What a nightmare that's been
Speaker 1: exactly right. Hey Matt, thanks, uh thanks, thanks so much
Speaker 1: for joining us. We appreciate it. Matt Winkler, co founder
Speaker 1: of Bloomberg News and Bloomberg Editor in Chief emeritus. Thanks
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen
Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform
Speaker 1: you prefer. I'm on Twitter at Tom Mean before the podcast.
Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio