Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jaily.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Carl
Speaker 1: Weinberg joins us now to reframe the growth debate this morning. Carl,
Speaker 1: do you do you take the entire high frequency economics
Speaker 1: view and ratchett it down? Where are you now for
Speaker 1: global growth? In US growth? Well? US growth, We think
Speaker 1: the U. S economy is doing well enough and domestic
Speaker 1: demand to outweigh the slow down in world trade, the
Speaker 1: contraction of world trade that we're actually seeing some numbers. Well,
Speaker 1: we're talking about world trade being down about half a
Speaker 1: percent year over year world global exports and that's only
Speaker 1: happened five times before in the last fifty years. So
Speaker 1: it's a notable event. US GDP growth around two point
Speaker 1: to two point three percent, largely driven by domestic demand
Speaker 1: with exports being weak. Europe dead flat right now, but
Speaker 1: on the decelerating what's your global number? I was stunned
Speaker 1: to Davos how people are some of them are framing
Speaker 1: under three percent global real economic growth, folks, that is unusual,
Speaker 1: to say the least. Yeah, the the I m F
Speaker 1: has I think two point nine, and that's a big markdown,
Speaker 1: but they have a boom going right back up in
Speaker 1: the next forecast period in right back up to three
Speaker 1: point three three point four percent, which is still a
Speaker 1: low number, but not as terrifying as two point nine.
Speaker 1: And of course what I say is when I every
Speaker 1: time I read an I m F forecast for an
Speaker 1: economic recovery, I say to myself, you know, on a
Speaker 1: basis of what you know, what's going to drive the
Speaker 1: world economy back? And it's not going to be monetary policy,
Speaker 1: it's not going to be fiscal policy, So I guess
Speaker 1: it's just going to be animal spirits. And of course
Speaker 1: missing from Davos was any explanation at all for the
Speaker 1: decline in world trade. None. So if you can't tell
Speaker 1: me why it's happening, and I can't tell you why
Speaker 1: it's happening, how can you tell me that it's over?
Speaker 1: So I'm on the gloomy side tom for the world. Well,
Speaker 1: let's talk about how frati the recovery actually has. Then,
Speaker 1: column whether something like what we see at the moment.
Speaker 1: Plank in China can really knock us off course. Well,
Speaker 1: if it turns into a big thing, it could knock
Speaker 1: us off course. But when I listened to to Lisa
Speaker 1: run down her argument, I have to say to her,
Speaker 1: you know, you know, I don't know you. I don't
Speaker 1: know anything about this disease. Nobody does. Nobody knows the
Speaker 1: extent to it, nobody knows how far it's going to go.
Speaker 1: So we can't happen if it got to be really serious.
Speaker 1: All right, Or let's look at the changes in uh
Speaker 1: and that the government has introduced. Okay, so they've extended
Speaker 1: the holiday period now to February second, so they've shut
Speaker 1: down the friday after a ten day holiday break where
Speaker 1: very few people were going to come back to work anyhow,
Speaker 1: and where a lot of firms weren't going to reopen anyhow,
Speaker 1: and then a weekend, so we really don't have a
Speaker 1: big dent to production. And of course, what we've learned
Speaker 1: in the past is when we have disasters and things
Speaker 1: like this, not only does the economy snap back quickly
Speaker 1: in the subsequent quarters, but the loss of output is
Speaker 1: less than you expect because a lot of the economy
Speaker 1: continues to to to act, to be active even though
Speaker 1: people are at work. We make utilities, we buy food,
Speaker 1: you know, the trains still run, and so forth. In
Speaker 1: this case, the trains may not run, but the point
Speaker 1: being that the hit may be smaller than the market
Speaker 1: is currently pricing in. I say maybe, because maybe tomorrow
Speaker 1: will have some serious medicine that says, this is the
Speaker 1: scariest thing since what were you talking about before tom
Speaker 1: flu epidemic. Maybe we'll get something, but for the moment,
Speaker 1: we just don't know the extent of it. So I
Speaker 1: like Lisa's hypothesis that says that people were ready to
Speaker 1: take profits anyhow this catalyzes it. But I can't make
Speaker 1: myself jump into the camp that says this is the
Speaker 1: end of world trade. Now China gets locked down for
Speaker 1: a month, that's a different story. That's a big hit
Speaker 1: to the to anyone's sitting around this table saying this
Speaker 1: is the end of world trade. I think you, folks,
Speaker 1: is going the right thing. No one around this table
Speaker 1: is going to pretend to be a doctor over the
Speaker 1: next several months or for however long this place out.
Speaker 1: What you focus on is the potential disruption to cities
Speaker 1: and the measures that the Chinese will take to stop
Speaker 1: this epidemic from spreading, and what we see so far
Speaker 1: a major cities effectively shutting down, banning travel. We see
Speaker 1: holidays being extended, and she pointed out quite rightly, it's
Speaker 1: the traditional time of the year. Whether that happens anywhere,
Speaker 1: it might just go on for a little bit longer.
Speaker 1: Walk us through our audience what they should be focused
Speaker 1: on in the coming weeks. Not pretending to be a doctor,
Speaker 1: but looking at the economics of all of this. So
Speaker 1: let's be an economy. So Wuhan is a city of
Speaker 1: eleven million people. It's bigger than New York. It's bigger
Speaker 1: than London, it's bigger than Paris, it's bigger than pretty
Speaker 1: much any other city except for others in China. But
Speaker 1: in a country of one point for a billion people,
Speaker 1: all right, it is a piece of a much larger puzzle, right,
Speaker 1: Shanghai is a bigger deal. But they're not shutting down,
Speaker 1: although there are sporadic reports of some companies are not
Speaker 1: coming back to work. So with Wuhan by itself in Hubei,
Speaker 1: which is sixty million people, roughly the population of France,
Speaker 1: still within a one point four billion person econ me,
Speaker 1: it will make a dent. But will it derail the
Speaker 1: economy and throw it into a recession. I don't think so.
Speaker 1: In two thousand three, the stars outbreak caused the estimated
Speaker 1: decline in the GDP of China about one percent in
Speaker 1: the one quarter. In one quarter, one percent to cline
Speaker 1: in GDP, and then it got back the next quarter.
Speaker 1: If you look at the four quarters from the fourth
Speaker 1: quarter of two thousand into the third quarter of two
Speaker 1: thousand and three, there's no discernible deviation of the pattern
Speaker 1: of GDP from what the season will suggest. To be clear,
Speaker 1: eight hundred people died. More than that, it was much
Speaker 1: more virulent than what we are currently experiencing. Of course,
Speaker 1: we don't know how this is going to involve. If
Speaker 1: it transpires in the same way, do you think that
Speaker 1: it could materially throw the global economic recovery? Of course,
Speaker 1: I'll just be you know, very crass about it. Eight
Speaker 1: hundred deaths, all right, is not going to throw the
Speaker 1: world economy off course, all right. It's it's a tragedy
Speaker 1: for the people involved. But at the end of the day,
Speaker 1: and I'm not a doctor, I don't play one onto
Speaker 1: v but you look like it's not how many people die,
Speaker 1: it's the measures the Chinese take to stop people from
Speaker 1: dying and shutting down Wuhan is an exceptional and it
Speaker 1: sounds brutal in the economist perspective. That's what the focus is,
Speaker 1: right and my focus is that Juhan is a big city,
Speaker 1: but in the scope of all of China and all
Speaker 1: of the world, I don't think it's enough to throw
Speaker 1: the train off the track. Carl Ainberg, thank you so much.
Speaker 1: With high frequency economics, and you know, Drew Armstrong was
Speaker 1: just brilliant this morning. With Max Neeson as well. We
Speaker 1: have trying to bring you perspective on the virus in Wuhan.
Speaker 1: We've had some wonderful comments from China. China this morning
Speaker 1: for a news standpoint really shut down with the holidays
Speaker 1: and all that. So we've gone global Withdrew Armstrong and
Speaker 1: Macneeson and right now from Geneva, Switzerland are single best
Speaker 1: World health organization. Expert Tom Millier joins us UH this morning.
Speaker 1: What are they doing at the World Health Organization today?
Speaker 1: Not only in Geneva, Tom, it's spread out across their world.
Speaker 1: What's there to do list in the Geneva Afternoon. Well, Um,
Speaker 1: the head of the w h OH right now is
Speaker 1: actually in China and Wuhan at ground zero, UH, meeting
Speaker 1: with people and uh, I mean showing that she's Uh.
Speaker 1: This is the top of the agenda right now. The
Speaker 1: biggest thing is collecting data to be able to map
Speaker 1: out the spread of the epidemic. What they really need
Speaker 1: is data not just on when the cases were reported,
Speaker 1: but data on when the symptoms, the onset of the
Speaker 1: symptoms started. Uh. And they need more complete data because
Speaker 1: any change in the number of reported cases or the
Speaker 1: number of deaths change changes the mortality. Right, do we
Speaker 1: know do we know the virology of the virus? My experiences,
Speaker 1: the mutate et cetera. And it's really hard to actually
Speaker 1: know what you're talking about. Do we have a handle
Speaker 1: on what the actual virus is? Not exactly there. That's
Speaker 1: what they're still trying to do because I in order
Speaker 1: to make any sort of treatment for the virus, they
Speaker 1: need to understand it more better. Thomas, there's also a
Speaker 1: question about the reaction in China. One of the most
Speaker 1: alarming reports that really got up markets in jitters was
Speaker 1: this idea that China doesn't have enough equipment. Isn't necessarily
Speaker 1: separating out patients with the coronavirus from other patients in
Speaker 1: hospitals just because they don't have the space. How effective
Speaker 1: has the containment process been in China, you know, regardless
Speaker 1: of the quarantine that's keeping an entire city in their homes. Yeah. Well,
Speaker 1: there's a lot of criticism about the policy because it
Speaker 1: could be that it just is too late. Uh. And
Speaker 1: I mean it's such a draconian policy, uh, keeping fifty
Speaker 1: million people in the in their places, uh, that it's
Speaker 1: raising a lot of issue. I mean, there's a lot
Speaker 1: of issues there. Um. So far they well China is
Speaker 1: trying to actually build new hospitals as we speak in Wuhan, uh.
Speaker 1: And so it's really a game of catch up, and
Speaker 1: and they don't have the facilities that they that they
Speaker 1: ideally would have at the moment. Thomas, you know better
Speaker 1: than we do about the w h O. And there
Speaker 1: is some criticism of the World Health Organization at the
Speaker 1: moment and their reluctance to declare what we're seeing playing
Speaker 1: out at China and worldwide at the moment as a
Speaker 1: public health emergency of international concern. Thomas whole are they're
Speaker 1: holding off one and two? What would happen if they
Speaker 1: do make that declaration this week? Well, it's they've said
Speaker 1: that they might decide. I mean, when they delayed making
Speaker 1: the decision, they said that they'd probably meet again within
Speaker 1: the next ten days. The thing is, it's a really
Speaker 1: political process. The w h O deal better with the
Speaker 1: scientific side of things, And what they're scared of is
Speaker 1: that countries, if they declare it UH an international public
Speaker 1: health emergency, that some countries might enact barriers to travel
Speaker 1: and trade that are more stringent than necessary. Right now,
Speaker 1: I'm wondering about the efficacy of other countries response to
Speaker 1: this virus. In other words, is there any evidence that
Speaker 1: the spread of it to a number of different nations
Speaker 1: around the world is actually causing inter country spreading person
Speaker 1: to person, not within China, but say in Vietnam or
Speaker 1: so in Korea. Yeah, so far, the evidence is really limited.
Speaker 1: Of of of the thirty some cases that have been UH,
Speaker 1: the thirty UH cases reported abroad, almost all of those
Speaker 1: were actually people who had been in Wuhan, and so
Speaker 1: so far there really isn't evidence that it's really going
Speaker 1: person to person outside of China, Tom, Thank you so much.
Speaker 1: Tom Aline with Bloomberg News in Geneva, Switzerland, with his
Speaker 1: true focus on the world health organization right now joining
Speaker 1: us with Society General Kitchus joins us on these strong
Speaker 1: correlations of the market. Kit, I'm observing that how correlated
Speaker 1: is this move off a Chinese disease, Chinese virus? It
Speaker 1: feels pretty correlated. It felt this morning as if it
Speaker 1: was just a single story stalks down. Um. Yeah, say
Speaker 1: favoring currency is strong, anything trade China sensitive or oil sensitive?
Speaker 1: Um week equities moving in the same way. Well, we'll
Speaker 1: see what happens when your equity market really gets going
Speaker 1: in Casha this afternoon. But it feels as if it's
Speaker 1: a knee joke reaction that's not correcting at the moment.
Speaker 1: Within that the bond market, where we're back to October.
Speaker 1: Lowe's John you'll know better than me on this in
Speaker 1: terms of spread dynamics as well. Is there an opportunity
Speaker 1: in bonds because you've made if you believe in low
Speaker 1: interest rates, you've made so much of a year's move
Speaker 1: in a matter of days and weeks. I mean, how
Speaker 1: do you adjust tactically to the celebration of a year's move.
Speaker 1: You you remain bullish, but you don't go and invest
Speaker 1: your entire life savings right in them. Right, there's get Look,
Speaker 1: I think we'll get ten your note. You are to
Speaker 1: back down to UM certainly the other side of one
Speaker 1: and a half percent at some point at the back
Speaker 1: end of this year. But um, you know, then if
Speaker 1: you think that we're going to move from you know,
Speaker 1: it's from I don't know, you know, one on a
Speaker 1: quarter to one and three quarters instead of one and
Speaker 1: three quarters to two, then then you know we've got
Speaker 1: another leg down. But we've done half to move and
Speaker 1: that's probably the way to think about it. But but
Speaker 1: it will take evidence in the United States that um,
Speaker 1: that the economy is is feeling this. Otherwise, you know,
Speaker 1: we're going to see money continue to go looking for
Speaker 1: certainly lower rates, lower yields in the sort of in
Speaker 1: some of some of the markets in the Far East,
Speaker 1: because growth is going to be definitely impacted. We can
Speaker 1: speculate how much this might affect the US, but the
Speaker 1: Chinese economy is going to it's going to feel this
Speaker 1: for a while. And I think it also probably puts
Speaker 1: paid to hopes of some people that you might get
Speaker 1: German government tending yields back in the positive territory or
Speaker 1: anything like that, that we're going to be stuck in
Speaker 1: negative territory for months. Let's talk about it, kid, because
Speaker 1: this is important. The recovery that we have seen very young,
Speaker 1: very fragile, and we see it in the EFO out
Speaker 1: of Germany today. German business confidence really not terrific. Just
Speaker 1: how fragile is that recovery in Europe and is it
Speaker 1: vulnerable to be knocked off course? But what you see
Speaker 1: playing gat in China right now? Kid? Yeah, yes, I mean,
Speaker 1: you know, again at the bare minimum, and we're going
Speaker 1: to lose a certain amount of time. You know, it
Speaker 1: could be a short period of time and then things
Speaker 1: get more respect to normal and the Chinese are more
Speaker 1: likely to ease monetary policy, more likely East fiscal policy
Speaker 1: on the back of this over time. But um, the
Speaker 1: momentum was just trying to shift back towards Germany, getting
Speaker 1: away from the hits from trade, from Chinese weakness, from
Speaker 1: from the auto downturn, and from the from the diesel
Speaker 1: scandal and all of those things. Was trying to feed
Speaker 1: themselves through the system. It's just going to take longer
Speaker 1: to get out of that now, and I think that's
Speaker 1: um that that puts a dampener on on everything. KIT.
Speaker 1: It's also this whole transpiring of the coronavirus and its
Speaker 1: spread is putting a damper on the whole weaker dollar story.
Speaker 1: And we're seeing the dollar the strongest since December ninth,
Speaker 1: three straight days of strengthening emerging market currencies having a
Speaker 1: bigger three day decline since November. How much does this
Speaker 1: potentially torpedo the consensus bet heading into the emerging market
Speaker 1: currencies would finally would perform in a significant way this year. UM.
Speaker 1: We we've been nervous about the outlook for emerging market
Speaker 1: currencies this year because we've got a a federatively gloomy
Speaker 1: view about how the year is going to progress for
Speaker 1: the U S economy. Emerging markets to get money really
Speaker 1: flowing into them need a combination of of of yields
Speaker 1: seeking so low rate environment plus a kind of the
Speaker 1: US economy that does okay, it grows something like a
Speaker 1: consensus at one point eight percent this year. UM. This
Speaker 1: this sort of ups the anti on the USPS and
Speaker 1: otherwise emerging markets are going to have a really rough time.
Speaker 1: If the U. S economy looks as if it's growing
Speaker 1: significantly more slowly than that as well, as you know,
Speaker 1: that'll offset any of this kind of flow in. So
Speaker 1: I think I mean, to me, the jury was out
Speaker 1: in the sense of the market was taking an optimistic
Speaker 1: view of the global economic outlook this and that was
Speaker 1: feeding into a bit of relief free m But I
Speaker 1: think that's in trouble now. Kids who are boom bust
Speaker 1: debate at doubles that we are in John and I
Speaker 1: of course drive us forward in the coming days and
Speaker 1: weeks here as well into what we see this morning,
Speaker 1: a two or three percent equity correction yields or they
Speaker 1: are two yearield one point four four seven zero. Can
Speaker 1: you hedge now? Is it is it efficacious to sit
Speaker 1: around a pro room and actually structure hedges where you
Speaker 1: either take in a premium or you pay out for
Speaker 1: the cost of doing the hedge. Um. Yes, it seems
Speaker 1: to me wise to take to take some hedges at
Speaker 1: this point because risk assets might be correcting today, but
Speaker 1: they're still pretty pretty expensive. Um. And you know, and
Speaker 1: in a sense, I mean the part that the high
Speaker 1: correlations mean that you know, the kind of that the
Speaker 1: hedge is become almost simpler in the sense that someone's
Speaker 1: gonna show me what clever hedging looks like in this environment.
Speaker 1: But I would certainly want to have bonds in my
Speaker 1: portfolio for this, for this risk, for the same job
Speaker 1: to one government debton interest rate exposure. UM, I wouldn't
Speaker 1: want a currency portfolio that had no Japanese yeen in it,
Speaker 1: even if I've been very frustrated for the whole of
Speaker 1: January so far, you know, I would want to continue
Speaker 1: to have those things because um. And at the end
Speaker 1: of the day, though, you know, the reason that we've
Speaker 1: kind of feel as if the cycle is less less
Speaker 1: significant is that the answer to everything is to ease
Speaker 1: monetary policy even further, and that gets equacy market to
Speaker 1: stabilize spreads. The stabilize gets defaults and heart of the
Speaker 1: manager at really low rate, and so we stretched the
Speaker 1: cycle out, and so the danger then comes back into
Speaker 1: the danger in those valuations directly and indirectly. John, that
Speaker 1: was the theme we heard. It is just so easy
Speaker 1: to cut rates, you know, it's it to be Trumpian,
Speaker 1: and to cut it gets harder when you start to
Speaker 1: run out of space, that's for sure. And the ECP
Speaker 1: has run out of space. Let's talk about Italy, shall
Speaker 1: we kit ten year Italian bond yields down eighteen basis
Speaker 1: points and the Euro doing nothing? Why? Um, what the Euro?
Speaker 1: Once upon a time, Once upon the same we had
Speaker 1: models where we put BTP bunts breads into into the
Speaker 1: Euro and so it would have it high. I don't
Speaker 1: think that that works when the heart of the Euro
Speaker 1: is that it's much more trade sensitive in the United States,
Speaker 1: much more. It's more China sensitive the United States. So
Speaker 1: it's bad news here. So we're we're weighing these two
Speaker 1: things against each other. Of you know, a piece of
Speaker 1: news from the Far East that definitely is euro dollar
Speaker 1: negative against piece of domestic news in Italy that that
Speaker 1: at least in terms of the bond market reaction is
Speaker 1: Euro positive. And look at the thirteen basis point falling
Speaker 1: Greek yields, by the way, as they have a rerating.
Speaker 1: So um, and those two outweigh each other. So you
Speaker 1: you you trade, you trade European politics at the momentum
Speaker 1: in the bond market. Um. And that's that's where that's
Speaker 1: where you do. In the I think in the currency market,
Speaker 1: you are short the Euro against again or short the
Speaker 1: Euro against the Swiss Frank but not you don't you
Speaker 1: don't know, you don't buy it. I'm fred kid, you
Speaker 1: thank you so much, greatly appreciate it. With society in general.
Speaker 1: Why don't you bring it? You know, do you want
Speaker 1: to get football out of the way first thing? We
Speaker 1: should probably do that first in work. I imagine that's
Speaker 1: what he's fired up about. In Shepherds Pantheon macro Economics,
Speaker 1: founder of Chief Economist, also of Newcastle. I can tell
Speaker 1: you bre exclusive on this program couple of months back
Speaker 1: that Ian gave up his season ticket to his beloved
Speaker 1: Newcastle United, and the latest news coming out of the
Speaker 1: Wall Street Journal over the weekend that the Saudis are
Speaker 1: interested in buying his beloved Newcastle United. First reaction in
Speaker 1: Shepherds and Please, my first direction is out of the
Speaker 1: frying kind into the fire. Really, you know, we're gonna
Speaker 1: potentially exchange one terrible owner for another which is backed
Speaker 1: by a man of shall we say, questionable character. So
Speaker 1: I'm not thrilled, you know, thrilled. There's a character to this, folks.
Speaker 1: For American audience, Newcastle, it's it's fun to watch. I
Speaker 1: don't know what I'm talking not east of the country.
Speaker 1: Why are they different. Saint James's part is just this
Speaker 1: phenomenal stadium with this incredible fans, like a Wrigley Field thing.
Speaker 1: But Ncass United have been a yo yo club over
Speaker 1: the last ten years or so, and I'm sure em
Speaker 1: would echo that they dropped down a leave they come
Speaker 1: back up. But the fans have always filled out the
Speaker 1: stadium no matter what. In the nineties, almost won the
Speaker 1: league a couple of times, I think second place in
Speaker 1: a premiership in the late nineties e and but until
Speaker 1: this year, as you say, something changed, people like yourself said,
Speaker 1: we've had enough about people didn't renew the season tickets.
Speaker 1: They've just had enough of this appalling ownership. So everyone
Speaker 1: has been rooting for a chain. Just just if you'd
Speaker 1: given us a list of potential owners, you know I
Speaker 1: have been some probably wouldn't have been top of the list.
Speaker 1: It definitely wouldn't have been top of the list. I
Speaker 1: do have to wonder on a daylight today, I'm sure
Speaker 1: that that football is getting you excited, but I also
Speaker 1: think I'm looking right now at the NASDAC and it's
Speaker 1: poised for its biggest daily decline if it continues nearly
Speaker 1: down two percent of the year, and we were talking
Speaker 1: about a one percent decline on Friday. Our economic it's
Speaker 1: interesting you more than football today or do you feel
Speaker 1: like today the sort of scare that's going on with
Speaker 1: the coronavirus doesn't affect the economics complex to the degree
Speaker 1: that people seem to be implying by the price action. Yeah,
Speaker 1: I mean this to me is a combination of a
Speaker 1: fear based sell off and also an excuse to take
Speaker 1: profits after the run that we've had in the markets
Speaker 1: over the last few months. So you know, if the
Speaker 1: market had been flat for the last three months, I
Speaker 1: suspect the sell off will be rather smaller on the
Speaker 1: back of the virus story. But you know, we've had
Speaker 1: a big run up, so this is an opportunity to
Speaker 1: to take come at, detect and profits and and regroup.
Speaker 1: So this is not an economic story at all. I
Speaker 1: mean from an economic perspectives, you know, the US actually
Speaker 1: have just upgraded my US forecasts. I'm I'm feeling a
Speaker 1: bit more cheerful about substantially appord right where you wanted
Speaker 1: to go. And of course this ties in whether your
Speaker 1: colleague free of Beamish as well reframe the Pantheon growth
Speaker 1: forecast for the United States and then free as work
Speaker 1: for China. What's your statistic now for the United States. Yeah, well,
Speaker 1: so you know, I've just moved up my number for
Speaker 1: this year to two percent from one and a half,
Speaker 1: which which might not sound like a huge increase, but
Speaker 1: actually two percent is not far off the growth rate
Speaker 1: that we've seen in the post crash era. We've been
Speaker 1: a little bit stronger than that, so that you know,
Speaker 1: I've got some discounting and some hit from the trade war,
Speaker 1: but most of it I think has been absorbed. And
Speaker 1: then to your point about you know, a phrase's view
Speaker 1: about China, you know, eventually we are going to see
Speaker 1: a turnaround there. You know, you can see it in
Speaker 1: the p m I s and obviously we get the
Speaker 1: next manufacturing p m I is out of China later
Speaker 1: this week. They're certainly not going down anymore. The cash
Speaker 1: in the unofficial p m I from China shot up
Speaker 1: in the last few months. We need to see that
Speaker 1: coming through in the hard data, that's for sure. But
Speaker 1: you know, you can't look at those China numbers now
Speaker 1: and say that things are still going down and eventually
Speaker 1: that that ought to be transmitting to some extent to
Speaker 1: the rest of the world as well, including the US,
Speaker 1: even though of course, you know, the tariffs are getting
Speaker 1: the way they're they're a barrier to prevent that prevents
Speaker 1: full transmission of China's incipient upturning into the US, but
Speaker 1: they don't, they don't completely stop it. So you know,
Speaker 1: I do think we're probably at the low now for
Speaker 1: the US Business surveyor the I S M and the
Speaker 1: p M I which have been terrible, but I think
Speaker 1: we're probably at the low. And my guess is that
Speaker 1: the consumer is going to keep chugging on and the
Speaker 1: housing markets looking pretty great, so I put my numbers higher.
Speaker 1: And what that means ultimately is that the labor market
Speaker 1: probably continues to tighten. And I'm kind of looking at
Speaker 1: unemployment getting towards three percent by the end of the year,
Speaker 1: which in a normally that would have the FED raising rates,
Speaker 1: but let's narrow that, you say, in the vicinity of
Speaker 1: three point zero percent, Yeah, by the end of the year, Yeah, yeah,
Speaker 1: which would be the lowest mid Well yeah, I'm going
Speaker 1: to say. Got back to Eisenharg J and I literally
Speaker 1: can't frame that the FED is consistently underestimated how low
Speaker 1: and unemployment could go without inflation or wages accelerating considerably,
Speaker 1: and in if you point out the reaction function has shifted,
Speaker 1: we could see a test of a two handle and
Speaker 1: a FED that doesn't even bludge. Well certainly not this year,
Speaker 1: that's for sure. I mean, I think what they would
Speaker 1: like to do is is just carry on the way
Speaker 1: they're said up now, which is to say we need
Speaker 1: a material change in the outlook to do anything, and
Speaker 1: then go away, you know, from from June and come
Speaker 1: back in December. But my point is that they might
Speaker 1: come back in December after the election, which they don't
Speaker 1: want to be involved in, come back after the election
Speaker 1: and say, well, hey, actually three percent unemployment. You know
Speaker 1: that that's nobody's idea of sustainable, especially if it still
Speaker 1: looks like it might go even further down, which you know,
Speaker 1: three months ago look very unlikely because the business surveys
Speaker 1: all the employment numbers that weakened substantially in the surveys,
Speaker 1: and the hard day to haven't followed, and so it
Speaker 1: looks to me like business is kind of I don't
Speaker 1: know that they overestimated how bad the hit was going
Speaker 1: to be, and actually they all growth to me, maybe
Speaker 1: you can hang around one, in which case an employment
Speaker 1: will go down. Your optimistic view of the U S
Speaker 1: economy as a direct odds of what we're seeing today
Speaker 1: in the bond market, with yield curve flattening to the
Speaker 1: most the narrowest of the year, and you're seeing yields
Speaker 1: steadily lower. What is the market getting wrong that you're
Speaker 1: getting right? Oh? You know, I don't think the market
Speaker 1: got anything wrong today. You know this this is a
Speaker 1: fair sell off inequities, and that money's got to go somewhere,
Speaker 1: so you know, it just always goes into treasuries in
Speaker 1: this environment. We simply don't know how bad this coronavirus
Speaker 1: thing is going to be. My my, my gut feeling,
Speaker 1: my my guests, I mean, you know, I'm not an epidemiologist,
Speaker 1: but my guess from what I've been reading is that
Speaker 1: actually this isn't going to be as as bad as
Speaker 1: stars was back fifteen years ago or so um, and
Speaker 1: that we're going to see a substantial rebound in stocks
Speaker 1: within the next couple of weeks, and that, of course,
Speaker 1: I think we'll then drive treasury eels back up again.
Speaker 1: If I thought heels were going to stay down here
Speaker 1: and it was going to be a much worse thing
Speaker 1: than to be a different story. But I'm pretty optimistic.
Speaker 1: What does the investment dynamic look like? You know, Johnny,
Speaker 1: I I think back to Davos and it really wasn't
Speaker 1: discussed all that much. Ian Shepherdson, you know, Okay, there's
Speaker 1: a pickup. Does investment pick up? Yeah? Well, some of
Speaker 1: it does. Um. You know, the residential component I think
Speaker 1: is going to grow double digit um. You know, for
Speaker 1: for a while. It's the business component that's that's likely
Speaker 1: to continue to be the drag. But I think that
Speaker 1: the real point here is that it's not anything like
Speaker 1: as big a drag as it looked like it was
Speaker 1: going to be a few months ago. So again, like
Speaker 1: the peril numbers have been posed in the surveys have
Speaker 1: suggested so so of the Capex orders numbers, they're not great.
Speaker 1: You know, let's be clear, they're not great. But the
Speaker 1: surveys back in the fall, we're telling us we should
Speaker 1: expect the mouthdown and that just really hasn't happened. So,
Speaker 1: you know, from a from a market perspective, you had
Speaker 1: these bad things that haven't happened. You've had the FED
Speaker 1: easing rates, You've got the FED buying sixty billion of
Speaker 1: treasury bills every month through until the second quarter of
Speaker 1: the earliest UM. That's a lot of liquidity and a
Speaker 1: lot of relatively good news on the macro front. So
Speaker 1: you know, as I said, once the once there's some
Speaker 1: clarity on the coronavirus story, I think the market rebounds substantially.
Speaker 1: I don't really see it peaking until the middle of
Speaker 1: the year, at which point I think the FED will
Speaker 1: probably stop their build purchases. In Shepherdson, thank you so
Speaker 1: much for being with us in Shepherdson Pantheon macroeconomics founder
Speaker 1: and she's economist. Right now into Iowa into the start
Speaker 1: of the political season, it's good to speak to the
Speaker 1: gentleman that was a former economic advisor to Vice President
Speaker 1: by Jared Bernstein is someone the conservatives read to get
Speaker 1: an authoritative view, a more balanced view on liberal and
Speaker 1: conservative economics, and of course he is on the edge
Speaker 1: of legendary in UH Washington, Jared, what I find so interesting,
Speaker 1: and this was a huge topic in Davos, is can
Speaker 1: the Democrats move to the middle. Do you perceive there
Speaker 1: will be a shift at some point where Democratic party
Speaker 1: economics moves over to the middle. I think that the
Speaker 1: middle itself has moved. But if you grant that, then
Speaker 1: I think the answer is yes. I think the middle
Speaker 1: today is not the same middle it was even ten
Speaker 1: years ago. Mainstream Democrats like Joe Biden or Hillary Clinton, Uh,
Speaker 1: you know, Amy klobaschar Pete Boudha judge, they feel differently
Speaker 1: about things like trade agreements, fiscal policy, UH, inequality, debt,
Speaker 1: and deficits than they did uh ten or years ago. However,
Speaker 1: the difference between them and the and the more UH
Speaker 1: liberal branch is that they believe it's going to take
Speaker 1: incremental policies to get there. You can't leap frog, you
Speaker 1: know the reality. I think it's where they're coming from. So, Jared,
Speaker 1: how do you think the Democrats, whoever the candidate is,
Speaker 1: will run against the Trump economy? That is a super
Speaker 1: big challenge, and the Trump economy will unquestionably be a
Speaker 1: tale when who are the president? Uh, they'll run against
Speaker 1: it by pointing out that the Trump economy, UH, its
Speaker 1: benefits are highly unequally distributed. Uh. There are people in
Speaker 1: places who've been left behind. Even now, in our record
Speaker 1: longest mansion. Of course, the manufacturing sector and blue collar
Speaker 1: workers there in folks Trump said he would directly help
Speaker 1: has has really performed quite badly, in no small part
Speaker 1: as a function of the trade war, which has Trump's
Speaker 1: fingerprints all over it. So we'll make a big distinction
Speaker 1: between macro and micro. So, speaking of that trade deal,
Speaker 1: the Phase one trade deals, you know sent you in
Speaker 1: our rear view mirror here. Given given us some perspective here,
Speaker 1: how would you view and characterize the Phase one trade deal.
Speaker 1: I thought it was a big nothing burger, pretty undercooked
Speaker 1: one at that. I don't really believe that the the
Speaker 1: that the Chinese is going to comply in terms of
Speaker 1: what it's going to purchase. I think the enforcement mechanisms
Speaker 1: are very clugy and complex. The fact that they did
Speaker 1: nothing on currency, uh, seems like a big strike against it.
Speaker 1: So I just don't think there's much there. And I
Speaker 1: suspect that reality wolf like then and I think market
Speaker 1: have have been partially reflected that as well. Jared, you've
Speaker 1: stayed away from the politics. You've always written just a
Speaker 1: straight economics and it's it's an economics with great respect
Speaker 1: for labor and for what I'm gonna call the tradition
Speaker 1: of democratic politics. The Atlantic has been on fire, and
Speaker 1: they had a wonderful article a few days ago on
Speaker 1: the educated elite of the Democratic Party and they've left
Speaker 1: touch with how they're gonna get elected across a broad America.
Speaker 1: And then Derrick Thompson writing in The Atlantic boomers have socialism?
Speaker 1: Why not millennials. This is a really really interesting article
Speaker 1: on the left. I say, this is great respect heared.
Speaker 1: Can the Democratic Party get comfortable with the senator from Vermont?
Speaker 1: You know, it's a great question. And I was a
Speaker 1: friend of mine was pointing out just how well Bernie
Speaker 1: Sanders did in He won fifty percent in Iowa, he
Speaker 1: won six in New Hampshire. Obviously that's the next door
Speaker 1: neighbor of his um. He's actually not uh posting those
Speaker 1: kinds of numbers now. But it's a bigger field, so
Speaker 1: I think it's an open question. My kind of working
Speaker 1: hypothesis is that one of the problems a lot of Democrats,
Speaker 1: especially the folks you're talking about, faces that we live
Speaker 1: on Twitter and the Twitter verse is just a non
Speaker 1: real kind of atmosphere where I think where democratic politics are.
Speaker 1: I think the country even primary voters are more moderate
Speaker 1: than you get if you just hung around social media.
Speaker 1: So are they moderate to the point where when Elizabeth
Speaker 1: Sanders or Bernie Sanders talks about Elizabeth Warren and Bernie
Speaker 1: Sanders talks about, uh, you know, kind of universal healthcare
Speaker 1: medicare for all, I mean, did they do you think
Speaker 1: the electric is really ready for that? And maybe the
Speaker 1: economics of that. I think the electorate is ready for
Speaker 1: that and ready for universal coverage. I think the difference
Speaker 1: is how fast the electorate us to go there. So
Speaker 1: people get spooked when you tell them they're going to
Speaker 1: lose their employer coverage, and yet people really like the
Speaker 1: idea of universal coverage and a much broader government role.
Speaker 1: So I think where uh, some of the more moderate
Speaker 1: paths resonate more at least with me, is not in
Speaker 1: where they're ultimately going, but in the speed in which
Speaker 1: they get to get there. I'm not sure that even
Speaker 1: the Democratic electorate, even the primer, believe you can leap
Speaker 1: fraud from where we are to a system that's very
Speaker 1: different quickly, and that a more incremental approach may be
Speaker 1: more realistic. Jared Bernstein, thank you so much. Thrilled to
Speaker 1: have him on today, Mr Bernstein, of course writing off
Speaker 1: and you see him in the Washington Post, particularly writing
Speaker 1: up with Dean Baker, Senior Fellow at the Center for
Speaker 1: Budget and Policy Administration. Of course, working with Vice President
Speaker 1: Biden a number of years. They go Thanks for listening
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews
Speaker 1: on Apple Podcasts, SoundCloud, or which for a podcast platform
Speaker 1: you prefer. I'm on Twitter at Tom Keane before the podcast.
Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio