Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee.
Speaker 1: We bring you insight from the best in economics, finance, investment,
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Speaker 1: the Cold Stephan Trillion, I've run the fat balance sheet
Speaker 1: joining us OUs away into the situation. Jared would at
Speaker 1: a bank for America. Jared, fantastic to catch up with you, sir.
Speaker 1: It's a delicate moment. Risk appetite and the sixth clarities
Speaker 1: of the market just done it to build over the
Speaker 1: last few weeks, and at the same time, the relationship
Speaker 1: between China and the United States breaking down. What's the
Speaker 1: message to clients at the moment, Jared, Well, yeah, it's
Speaker 1: great to be with you all. I think that the
Speaker 1: message for us is that the key thing for returns
Speaker 1: of the next several quarters is what kind of policy
Speaker 1: path we take, you know, coming out of this pandemic
Speaker 1: and charting a path forward. You know, three broad scenarios
Speaker 1: if we do just give you know, you know, extensive
Speaker 1: unemployment insurance, plug the revenue hole for states. We think
Speaker 1: that will happen, but that's the limit of what we happen.
Speaker 1: We think it's the return to the sort of secular
Speaker 1: stagnation that we're all familiar with. And the portfolios that
Speaker 1: investors have already crowded into tech and healthcare and investment
Speaker 1: grade and so on. Not huge, you know, scope who
Speaker 1: are really massive will market off of that. But the
Speaker 1: two more interesting scenarios and and the two that I
Speaker 1: think deserve much more attention, or the the sort of
Speaker 1: stagflationary effects if you do see increased friction of you know,
Speaker 1: tech regulation, friction with China, and then and then the
Speaker 1: third scenario, not stagflation, but I'm calling elevation, where we
Speaker 1: get bold new policy post globalization, shifting towards higher capex,
Speaker 1: higher R and D, new industrial policy, the kind of
Speaker 1: things that can really boost productivity and growth. And I
Speaker 1: think that's what the market is really underprising. Jared. What's
Speaker 1: so great about your academic track with theology and your
Speaker 1: PhD and philosophy is maybe you can give us a
Speaker 1: new philosophy for a new market. Is the philosophy forward
Speaker 1: and Investing in two thousand twenty one, two thousand twenty
Speaker 1: three and beyond twenty two and beyond twenty three and beyond.
Speaker 1: Is it the same as the old philosophy or is
Speaker 1: it something new? Well, I think it's absolutely something new.
Speaker 1: I mean, just look at the realignment happening in you know,
Speaker 1: and in political cultures around the world. You're seeing people, uh,
Speaker 1: you know, the populace left, the populace right coming together
Speaker 1: on propositions that they that you know, we're never up
Speaker 1: for discussion before. Just look at what the U. S.
Speaker 1: Government has done, you know, in a Republican controlled Senate,
Speaker 1: you know, expanding fiscal policy on a scale we've never
Speaker 1: seen before in US peacetime, something that nobody would have
Speaker 1: thought possible. I mean just remember the top vote in
Speaker 1: two thousand and eight when they voted down you know,
Speaker 1: that package and crushed market. And it's that on this occasion,
Speaker 1: you know, I think that that Republicans have surprised everyone
Speaker 1: with the willingness to uh, you know, grow, grow, grow
Speaker 1: the government balance sheet. Um, what's happening? You know, Uh,
Speaker 1: the same thing is happening in Europe now with you know,
Speaker 1: potential volution in terms of fiscal policy. Japan coming through
Speaker 1: with you know, eleven percent of real water fiscal stimulus.
Speaker 1: I mean, these are things that we're unthinkable even six,
Speaker 1: six or twelve months ago, and if they're followed through with,
Speaker 1: you know, they're kind of productivity boosting policies that can
Speaker 1: really uh get us to a new level. I think
Speaker 1: it requires a complete rethink of active allocation and portfolios.
Speaker 1: So so how would that make you reallocate your your
Speaker 1: your investments. Well, if we're gonna you know, if developed
Speaker 1: countries are gonna stop relying on you know, just monetary
Speaker 1: policy to to help us limp along, but invest in
Speaker 1: you know, new technology, you know, you know, incentivized corporate capex,
Speaker 1: invest in research and development. Again, I mean, there's nothing
Speaker 1: that correlates better with productivity than than R and D.
Speaker 1: So if you do see scope for productivity to rise,
Speaker 1: for you know, employment to broaden out, income inequality to decline,
Speaker 1: that's how you can see you know, really meaningfully higher
Speaker 1: GDP growth and developed economies that otherwise you know, kind
Speaker 1: of stagnated. It wanted to person. That means suddenly all
Speaker 1: the trades that everyone has hated for us so long,
Speaker 1: the you know, value stocks, the financials, you know, materials, industrials,
Speaker 1: um you know, Europe, Japan, the things that people don't
Speaker 1: own today suddenly become much more attractive in a world
Speaker 1: of higher growth and productivity. Jan what did a Bank
Speaker 1: of America with us? So? Jardy, are you telling me
Speaker 1: that this rotation into value into the six colories of
Speaker 1: this market is not just a squeeze, It has legs.
Speaker 1: I'm not telling you this is the one, John, but
Speaker 1: I'd love it would be true. But we need more
Speaker 1: to confirmation. We need more confirmation. Yeah, there's two things
Speaker 1: in in our our latest report that we flagged as
Speaker 1: things to watch to know when it's a big one.
Speaker 1: You know. Number one is the bond market. It's great
Speaker 1: to see you know, value and and and high yield
Speaker 1: in Europe rallying. But until you see confirmation from bond
Speaker 1: yields telling you that a higher growth, higher demand driven
Speaker 1: inflation is in the future, that's number one. Number two
Speaker 1: is Brett You know, when the top five stocks in
Speaker 1: the SMP are more than market cap, that's not the
Speaker 1: that's not the instide of a shiny new ball market
Speaker 1: to see a big rally. We found in our in
Speaker 1: our quantitative study that you need to see um much
Speaker 1: broad participation before you see big equity returns, right, Jared,
Speaker 1: It's amazing how rude John is on a Friday. It's
Speaker 1: just it's really really typical, folks. We'll get through it today, Jared.
Speaker 1: I I the last time I saw Ken Lewis was
Speaker 1: a Bank of America's shop in Singapore. That was a long,
Speaker 1: long time ago, and that was the last time international
Speaker 1: stocks did well. When does the international equity market finally
Speaker 1: turn on a relative or even dare say, an absolute basis. Well,
Speaker 1: the news this weekend and last week out of Japan
Speaker 1: and Europe, I think is is a really great start. Um,
Speaker 1: if you can see you know, I mean, Europe has
Speaker 1: some ways to go to verify and approve the packages
Speaker 1: that they're talking about it. But if you if you
Speaker 1: see resistance from northern European countries, uh, you know, see
Speaker 1: those dominoes fall, and we suddenly have scope for you know,
Speaker 1: some kind of debt mutualization, for some kind of continent
Speaker 1: wide fiscal policy. Then um, you know, some of the
Speaker 1: deep value trades is maybe value traps European banks, maybe
Speaker 1: most of all, are suddenly in play. From an investor
Speaker 1: point of view, things that nobody's own blows have been
Speaker 1: you know, decimated in those kind of assets in Japan
Speaker 1: as well. I mean, they relied on extreme nentary policy
Speaker 1: for so long that if Japan can start to boost
Speaker 1: you demand get out of this balance sheet recession that
Speaker 1: they've been been stuck in, and suddenly I think those
Speaker 1: assets become attractive. You've got to see follow through obviously, um,
Speaker 1: but once we get confirmation from from the market that
Speaker 1: things are really starting to turn, you see in inflation
Speaker 1: expectations turn, then I think it represents an incredible, maybe
Speaker 1: even generational buying opportunity. Jarn would Banks for America, Chared,
Speaker 1: We've got to continue this conversation. Jared's not saying this
Speaker 1: is the one PM, but it might be the dollar
Speaker 1: week the euro advances. And this for me, Tom the
Speaker 1: story at the moment, risk appetite continues to build and
Speaker 1: that dollar strength continues to fight, no question about it.
Speaker 1: Catherine Man of course, running economics at City Grow Up,
Speaker 1: and what a job Villin Powder did providing leadership there.
Speaker 1: One of his great acquisitions is Abraham Robari, who was
Speaker 1: just brilliant on Europe with a certain authority and then
Speaker 1: on foreign exchange as well. And we're thrilled that Dr
Speaker 1: Robari could join us. This morning, Abraham John mentions the
Speaker 1: yuro call one ten. John has seen this forty seven
Speaker 1: times in his lengthy career. Are we gonna get suckered
Speaker 1: again into strong euro? And then? Oops? Yes, Tom, Tom,
Speaker 1: thanks for having me on. That's exactly how we feel.
Speaker 1: So we think for the for the moment, there is
Speaker 1: a bit of upside drift in the Euro, and that's
Speaker 1: partly because there is a search in markets for undervalued
Speaker 1: assets and euros on equities btt s, and to some
Speaker 1: degree the Euro show up there. But we think this
Speaker 1: is going to be on borrow times. So even though
Speaker 1: we think there will be a little bit more upside
Speaker 1: drift in the Euro and the euro dollar for instance,
Speaker 1: we think that there won't be much more headroom and
Speaker 1: just as before, this rally will be over before long.
Speaker 1: There's a question about the other side of that trade,
Speaker 1: which is the dollar and watching the dollar continue to weaken.
Speaker 1: I was kind of shocked this morning when I came
Speaker 1: in to my living room, uh that the dollar was
Speaker 1: weakening versus even the Chinese u N there in Minby,
Speaker 1: despite the elevated tensions between the US and China, are
Speaker 1: we finally reaching a point where people have had it
Speaker 1: with the increase in the debt loads and some of
Speaker 1: what's going on in the United States and are moving
Speaker 1: away from the dollar or is this just a temporary reallocation.
Speaker 1: So from our perspective, it is probably more temporary, and
Speaker 1: there are good and bad reasons for it. I think
Speaker 1: the good reasons for why the dollar is a little
Speaker 1: bit under pressure right now is that the global investor
Speaker 1: base is getting less worried about the rest of the world.
Speaker 1: So we are seeing activity indicators in general slightly exceeding
Speaker 1: what people were expecting. But even on the health side,
Speaker 1: I think the long suffering emerging markets are seeing signs
Speaker 1: of flattening as well. So they're good reasons for the
Speaker 1: rest of the world if you like to see a
Speaker 1: little bit of dollar downside. And that also translates again
Speaker 1: into looking for what looks cheap, and US acids don't
Speaker 1: look cheap by any metric across the board. And then
Speaker 1: there are the bad reasons quote unquote. So there's some
Speaker 1: level of concern around US China attention, the debate about
Speaker 1: US debatement, and then also slowly beginning concern about the
Speaker 1: potential risk attached to the U S election so these
Speaker 1: are I think, very acute for the time being, but
Speaker 1: once again we think that's probably temporary. We think that
Speaker 1: the US still looks, as you know, among the least
Speaker 1: ugly in the in the global economy. That the likelier
Speaker 1: of a bound second growth in the US is is
Speaker 1: much higher than elsewhere. So we we think it's once
Speaker 1: again too early too to write off the dollar and
Speaker 1: call an end to the strong dollar. Even right now,
Speaker 1: it just feels like a sentiment story. It feels like
Speaker 1: a positioning story, and that's what's pushing some of these
Speaker 1: big moves over the last several weeks. It doesn't feel
Speaker 1: like it's got anything to do with right differentials, just
Speaker 1: optimism around places like Europe. Why don't you buy into
Speaker 1: the euro optimism of the last couple of weeks, Abra him, Yes,
Speaker 1: So we think there are two reasons why we're skeptical.
Speaker 1: One is exactly on that issue of risk appetite. I
Speaker 1: think a good chunk of that was that previously we
Speaker 1: had very defensive positioning, and and I think we are
Speaker 1: now at a point where positioning is by no means stretched,
Speaker 1: but it's it's no longer very defensive. So we're already
Speaker 1: at relatively neutral levels, and we do think they're significant risks. Well,
Speaker 1: let's call it the second phase of the recovery down
Speaker 1: the road, so significant risks of disappointment that could weigh
Speaker 1: on broader risk appetite, and again I think assets like
Speaker 1: yours and equities would be very vulnerable. The second has
Speaker 1: to do much more with the specific European developments. We
Speaker 1: of course had these initiatives around the EU recovery from
Speaker 1: the French, German proposals and so forth. And though we
Speaker 1: think that these are significant visible fiscal transfers supported by Germany,
Speaker 1: we don't think they're a Hamiltonian moment. We don't think
Speaker 1: this is a game changer for the Eurozone or for
Speaker 1: the euro in that it doesn't really chart the clear
Speaker 1: path going forward. It's it's dealing with the one off
Speaker 1: situation in a faily, in a fairly constrained way. So
Speaker 1: these two reasons make as skeptical that we're looking at
Speaker 1: a kind of enduring break in the euro or enduring
Speaker 1: upside for Eurozone assets. Abraham and Bowery of Silly Group
Speaker 1: with us today. Abraham is just follow up on the
Speaker 1: CP next week, just briefly might sound stupid on the
Speaker 1: surface of things, but I'm trying to work out whether
Speaker 1: more que next week is euro positive or euro negative.
Speaker 1: Which one is it. It's a very good it's a
Speaker 1: very good point. We think on balance right now more
Speaker 1: quies euro positive, and that's because you still have a
Speaker 1: risk premium, particularly for BTPs and Euro purchases. A BUREASID
Speaker 1: purchases by BCB bring down that risk premium. So in
Speaker 1: that sense we think if bTB did not increased asset purchases,
Speaker 1: in fact, the Euro would end up setting off, and
Speaker 1: so would of course in particular periphery sovereign day Abraham.
Speaker 1: You mentioned a Hamiltonian moment. Many people are thinking the
Speaker 1: Broadway play. I'm thinking about way way back, where maybe
Speaker 1: it was fractious, but Hamilton's had to deal with I'm
Speaker 1: going to say thirteen colonies or states, however you want
Speaker 1: to describe it. You can't have a Hamiltonian moment with
Speaker 1: twenty seven just have countries, can you. I am very
Speaker 1: sympathetic to your perspective. I wouldn't completely write it off
Speaker 1: for you know, very different future, but but but I
Speaker 1: think certainly this isn't it, and we're far away from it.
Speaker 1: And in this specific case, as I mentioned, it's it's
Speaker 1: one off. There's no transfer of physical powers or political
Speaker 1: powers even and we're dealing with a construct that's not
Speaker 1: even easily scaled. So I think it is very inappropriate
Speaker 1: to refer to this as as Hamiltonian. So, just going forward,
Speaker 1: to broaden out your base, cases that the dollar will
Speaker 1: resume its strengthening and you'll see a weakening in the
Speaker 1: Euro going forward, and that the dollar will end the
Speaker 1: year as the dominant currency, just as it was a
Speaker 1: couple of months ago. Is that correct? Yeah, I think broadly.
Speaker 1: But we're we have a couple of things along the way,
Speaker 1: and I think the one that obviously stems out is
Speaker 1: the U S. Election. So what we assume is that
Speaker 1: we are in a sort of late stage of the
Speaker 1: ridge recovery, but then there will be a period of
Speaker 1: uncertainty around the U S. Election, and we think that
Speaker 1: the dollar might end up be a little bit under
Speaker 1: pressure because of that, but then around the election the
Speaker 1: dollar would once again risen with uptrend as well. So
Speaker 1: are a few more absence laws, but we believe that
Speaker 1: the dollar bull market can still continue. It's John Freu,
Speaker 1: I want you to get a question in here on
Speaker 1: the CC before meeting, because I think you know, John,
Speaker 1: you looked awfully good on the lawn of the ECB
Speaker 1: building just a few years ago. I mean you were
Speaker 1: like the Frankfurst expert as well. John, what do you
Speaker 1: see from the c B? And I know you've got
Speaker 1: a question for Dr Roberry about it. Tom. I used
Speaker 1: the time my visits to the e c B really
Speaker 1: effectively because they go on tour twice a year, so
Speaker 1: I'd end up in places like Cyprus covering the European
Speaker 1: Central Bank. You've got to time these things properly. Will
Speaker 1: do that. Hopefully next year, if these get back to normal,
Speaker 1: will go on one of those ECB tours as well.
Speaker 1: That's the problem for the CB. They're already doing so much.
Speaker 1: What's the objective of the next move. You'll remember just
Speaker 1: a couple of months ago, Christine the Guard said she
Speaker 1: was not here to close spreads. She wanted to put
Speaker 1: pressure on the fiscal policymaker. What kind of pressure do
Speaker 1: you put on fiscal if you follow up next Thursday
Speaker 1: with more que, more asset purchases. Well, I think it's
Speaker 1: absolutely critical that they continue and reinforce at this next meeting,
Speaker 1: because not only are spreads still wide in in peripery
Speaker 1: sovereign DETT, but in between we've had the German court
Speaker 1: ruling with HAVE which had questions the ECB capability to
Speaker 1: do its job. So I think at this meeting it's
Speaker 1: totally essentially the DCB at least in some shape or form,
Speaker 1: reinforces its presence in in asset markets. But beyond that,
Speaker 1: also just keep in mind, unlike the fat DCP has
Speaker 1: not been particularly proactive, forceful or aggressive as Chappower likes
Speaker 1: to refer to it, we've seen a pretty steady run
Speaker 1: rate from d CD, so I think it's again important
Speaker 1: for the ECB symbolically to be active, even if kind
Speaker 1: of on a weekly basis. We don't see particularly pressure
Speaker 1: rising on on risk assets in Europe, but I think
Speaker 1: that the CB does act in some shape or form.
Speaker 1: Next week will be extremely important. Abraham mc bery city
Speaker 1: grow up on a situation in Europe and a foreign
Speaker 1: exchange market. Abraham grant a cash off the sir, thank you,
Speaker 1: send O best to it say it's so important about
Speaker 1: the US Chamber of Commerce, which I guess is a
Speaker 1: lobbying group as it's founding in nineteen o eight was
Speaker 1: an international delegation to to Japan at the time that
Speaker 1: was extraordinary, and then President Taft really driving forward the
Speaker 1: founding of the Chamber to the modern day of this
Speaker 1: controversy and that, but also the representation of business abroad.
Speaker 1: Myron Brilliant is involved with this, is head of International
Speaker 1: Affairs for the Chamber, and he joins us. Now, let's say, Myron,
Speaker 1: you and the crew where to get on Kathay Pacific
Speaker 1: tonight and Monday morning. You're in Hong Kong or in
Speaker 1: Beijing to bring a business delegation in. It's not going
Speaker 1: to be a normal meeting, isn't well, Tom, I wasn't
Speaker 1: alive in night when the US Chamber of Commerce was
Speaker 1: created by President Tafts support. But I can tell you
Speaker 1: that our mission hasn't changed. Right. We know that we
Speaker 1: have tremendous interest in selling and exporting around the world,
Speaker 1: and of course Hong Kong has been an important gateway
Speaker 1: to China and to Asia, and we do a fair
Speaker 1: amount of business sixty seven billion dollars of trade investment
Speaker 1: between Hong Kong and I'd say so if I were
Speaker 1: landing today in Hong Kong, I'd be very concerned about
Speaker 1: Hong Kong's future. We issue earlier in the week about this, okay,
Speaker 1: but this is really really important. Iron We've got a
Speaker 1: press conference coming up with the President of this afternoon.
Speaker 1: I hear Kizzier or Mr Kudlosier or somebody else's ere
Speaker 1: My Ironnew, what would you say to them about how
Speaker 1: to handle this exceptionally delicate time. Well, if the China
Speaker 1: US relationship has never been more complex, and I've been
Speaker 1: involved in it for about thirty years, I was there,
Speaker 1: uh lobbying for China's accession to the WTL and getting
Speaker 1: rid of the annual MFN status debate in the nine
Speaker 1: so I know the history here. But China US relations
Speaker 1: are much more important on a national security front, on
Speaker 1: the geostrategic front, and of course on economic terms as well.
Speaker 1: So what I would be saying is that I think
Speaker 1: China does need to have a response from the US government.
Speaker 1: Of course, the business commit doesn't want to have the
Speaker 1: claddal consequences of that, But there has been an action
Speaker 1: taken by the Chinese government that is an erosion of
Speaker 1: the one country, two systems approach that has served Hong
Speaker 1: Kong well, has served the course, Hong Kong as an
Speaker 1: international community of financial hub, a rules based economy, and
Speaker 1: I think it served China's interest well. And this action
Speaker 1: taken by China to adopt a new national security law,
Speaker 1: I think undermines that confidence and creates instability and insecurity
Speaker 1: and adds to a plafila of issues that already exists
Speaker 1: in the U S China relationship that are complex and challenging,
Speaker 1: from technology to trade to Hong Kong, obviously human rights
Speaker 1: and other issues as well well. Uncertainty is the key
Speaker 1: word here, and that was the prevailing sentiment among businesses
Speaker 1: and c suites when we saw the trade tensions ramping
Speaker 1: up between the US and China. Now there's a question
Speaker 1: of the uncertainty of whether the Phase one deal is
Speaker 1: off the table, whether we're going to see the US
Speaker 1: take measures that increased sanctions or tariffs on China. How
Speaker 1: much are you were read about that uncertainty, that lack
Speaker 1: of clarity on the US response and what China will
Speaker 1: do in retaliation of the effect on US businesses. So,
Speaker 1: first off, we very much supported UH the US administration's
Speaker 1: effort to try to address unfair trade actions through a
Speaker 1: trade negotiation, and we were very much supportive of the
Speaker 1: actions around intellectual property, around technology transfer. Of course, trying
Speaker 1: to deal with some issues that were not addressed in
Speaker 1: Phase one, like subsidies and state owned enterprise structures and
Speaker 1: things like that. However, we believe that Phase one agreement
Speaker 1: is in the interest of both China and the United
Speaker 1: States and brought out in some stability. China has not
Speaker 1: fulfilled all of its obligations under its Phase one agreement.
Speaker 1: This is gonna be another issue of tension and has
Speaker 1: emerged as one in the last few weeks. But I
Speaker 1: think that the negotiations between China United States on the
Speaker 1: trade front has been to some extent isolated from the
Speaker 1: broader political challenges in the relationship, and that's a good thing.
Speaker 1: We want to see China the United States work through
Speaker 1: these difficult trade issues because the stakes are so large
Speaker 1: for the economy of China, the United States, and of
Speaker 1: course the global economy. But that said, uh, this is
Speaker 1: an issue that is coming to the forefront because it's
Speaker 1: been a very difficult environment with COVID nineteen. The pandemic
Speaker 1: has of course created a challenge before trying to purchase
Speaker 1: all the goods they should be purchasing from the United States,
Speaker 1: and I think they've been a little slow and implementing
Speaker 1: some of their obligations around financial services in I p R,
Speaker 1: although they have taken some steps in that direction. I
Speaker 1: hope those negotiations get fully implemented. I think the Phase
Speaker 1: one agreement is something we supported very forcefully. We provided
Speaker 1: a lot of input to our government. We talked to
Speaker 1: the Chinese government about it. But there that's a four
Speaker 1: that's not a ceiling in this and there's so much
Speaker 1: more work to be done to improve the commercialationship between
Speaker 1: China the United States, and we're going to continue to
Speaker 1: be advocates in that front. Martin brilliant with full let's
Speaker 1: continuing the conversation of the US Chamber of Commis right
Speaker 1: now with a someone and I always go back, folks
Speaker 1: to his fabulous interview with Jeff Bezos of a number
Speaker 1: of the years ago. David Rubinstein with his efforts here
Speaker 1: at Bloomberg, with Leadership Live and others to speak to
Speaker 1: people directly and at length about the sensitive issues of
Speaker 1: their business. Mr Rubenstein clearly with the Carlisle Group as well,
Speaker 1: David well timed with the leadership of YouTube. I find
Speaker 1: people glued to the product, glued to YouTube. But there
Speaker 1: are real issues here, olah, the Twitter upset of the
Speaker 1: morning with the president, there's real issues of how YouTube
Speaker 1: will police itself. What did you learn well YouTube? When
Speaker 1: I talked to the CEO yesterday, Suechski Um, and she
Speaker 1: was the person who actually rented her garage to Sergey
Speaker 1: Brin and Larry Page when they were starting the company,
Speaker 1: and then she became I think later the sixteenth employee,
Speaker 1: and then later she when she was employeed there, she
Speaker 1: recommended they buy a little company called YouTube, and now
Speaker 1: it's become a behemoth. Um she Uh. It was an
Speaker 1: awkward situation in the sense that we didn't really know
Speaker 1: exactly what President Trump's executive what are said, because as
Speaker 1: I was interviewing her yesterday, it hadn't yet come out.
Speaker 1: But she basically said that they do the best they
Speaker 1: can to police the things that come on you to
Speaker 1: use the word police, but if something is inaccurate on YouTube,
Speaker 1: they try to take it down. And you have you know,
Speaker 1: I assume hundreds and hundreds of people who watch what
Speaker 1: goes on YouTube, so they can make sure that's not
Speaker 1: filled with things that are wrong or inaccurate or dangerous.
Speaker 1: I looked, David at the time that we're in with
Speaker 1: the invention of this new media property. You know, the
Speaker 1: valuations that are being put on these properties. My question
Speaker 1: of the morning, which I say to you with great
Speaker 1: respect for your for your financing of all this, are
Speaker 1: these things news organizations? Is YouTube? Is Twitter as Facebook
Speaker 1: a news organization? To David Rubinstein, well, of course, nothing
Speaker 1: rivals Bloomberg as a news organization, I would say, But
Speaker 1: there's no doubt that many, many people, particularly younger people
Speaker 1: than me, get their news from YouTube, from Twitter, from
Speaker 1: Facebook in ways that I would have found surprising the
Speaker 1: other ways. I go out and buy the newspapers every day.
Speaker 1: I still physically buy them and read them in the
Speaker 1: hard copy, but very few people do, including none of
Speaker 1: my children do. And so people get their news from
Speaker 1: these other kind of sources. So for many people, YouTube
Speaker 1: probably provides more news to people under the age of
Speaker 1: let's say thirty, than than the New York Times, the
Speaker 1: Washington Post, or the Wall Street Journal. So yes, they
Speaker 1: are news organizations in that sense, David. The idea of
Speaker 1: leadership right now has a pretty interesting meeting, especially as
Speaker 1: the Twitter spat with President Trump heats up and as
Speaker 1: we see Twitter punished in stock markets for their actions
Speaker 1: and Facebook, which has not taken similar actions, were ordered
Speaker 1: by stock investors. How do you, as both an investor
Speaker 1: as well as a watcher of how these trends are evolving,
Speaker 1: view leadership in this capacity? Where does the responsibility lie
Speaker 1: with society or some kind of great or good kind
Speaker 1: of concept or with just the bottom line? Well, two
Speaker 1: points one. Clearly, the market doesn't like controversy. So if
Speaker 1: you are in a kind of a spat with the
Speaker 1: president United States, it's probably not going to help your stock.
Speaker 1: That would be my guess. If you are saying good
Speaker 1: things about the president of the United States in this context, uh,
Speaker 1: maybe it doesn't hurt your stock. It may help your stock,
Speaker 1: But generally, uh, I think there is a responsibility of
Speaker 1: all the organizations that have this kind of dissemination of
Speaker 1: information to try to be reasonably accurate. Obviously don't want censorship,
Speaker 1: but you want people to make certain that they don't
Speaker 1: watch YouTube or Facebook and see something that is defamatory
Speaker 1: about something or something anti semitic, or or something that
Speaker 1: it deals with the racial overturns that that are just
Speaker 1: inappropriate so it's a tough, tough job, and I wouldn't
Speaker 1: want to be one of the people who had to
Speaker 1: figure out what is appropriate and what is not appropriate.
Speaker 1: But there's no doubt that as we go forward as
Speaker 1: an investor, more and more value will accree to these
Speaker 1: type of organizations because that's where people are getting their news,
Speaker 1: that's where people are watching. David. You recall that video
Speaker 1: that leaked out of Facebook a number of months ago
Speaker 1: with Mark Zuckerberg talking about Senate to Warren saying, We're
Speaker 1: prepared to go to the map if they try and
Speaker 1: break up this company. You speak to the leadership of
Speaker 1: these tech firms, can you give us a sense of
Speaker 1: the kind of things that they are worried about coming
Speaker 1: out of Washington, d C. The things that keep them
Speaker 1: up at night, the things that scather them well, um,
Speaker 1: you know Will rogers Um, the famous humorists in the
Speaker 1: I Guess nineteen thirties used to say the country is
Speaker 1: never safe when other Congresses in session. So people in
Speaker 1: Silicon Valley are always worried that Congress or the administration
Speaker 1: will do something. But as we've learned in the Microsoft
Speaker 1: lawsuit and other kinds of things, Uh, these things take
Speaker 1: a long time to get done if they're going to
Speaker 1: get done, and it's not that easy to break these
Speaker 1: companies up. On the other hand, um A T and
Speaker 1: T was broken up and Standard Oil was broken up
Speaker 1: many many years ago. So I don't see any of
Speaker 1: these companies being broken up, but they might change the
Speaker 1: way they operate, and they certainly are spending more and
Speaker 1: more time in Washington letting members of Congress ended members
Speaker 1: administration know their pluses. David Rubinstein an open question on
Speaker 1: a Friday. As we stagger into June with this pandemic,
Speaker 1: we are seeing a massive economic contraction out of the thirties.
Speaker 1: As you know, the Melon family was hugely charitable in
Speaker 1: Washington a lifetime ago. Are we going to see the
Speaker 1: combinations and the transactions that lead to combinations because of
Speaker 1: this economic depression like we saw in the thirties. Are
Speaker 1: we going to see one big roll up. Well, I
Speaker 1: don't know we'll see that, but I do think that
Speaker 1: we're going to find more and more pressure being put
Speaker 1: on the wealthiest people in the United States to give
Speaker 1: back to society, and obviously many of them are already
Speaker 1: doing that, but more and more philanthropy will be required
Speaker 1: to meet the gaps that government can no longer meet
Speaker 1: because government won't have the resource, is not going to
Speaker 1: have the budget to be able to do all the
Speaker 1: things that it has done over the last couple of years,
Speaker 1: and some more and more philanthropy will be expected. I
Speaker 1: think of these wealthy individuals who benefited from, you know,
Speaker 1: a lot of the tech uh increase in value, and
Speaker 1: I think you will see more and more pressure for
Speaker 1: for people to do more UH where government can't do it. Remember,
Speaker 1: we're running big deficits and big debt, and I think
Speaker 1: the government at some point it's just not going to
Speaker 1: be able to pay for all the things that has
Speaker 1: been paying for. David, always great to get your perspective.
Speaker 1: It's valuable thing. Thank you for joting to Guess this morning.
Speaker 1: Really appreciate your time, so audience worldwide on Bloomberg TV
Speaker 1: and on Bloomberg Radio. Alongside Michael McKay and May I'm
Speaker 1: really placed to say that back with us on this
Speaker 1: program is the Cleveland Fed President, Loretta Messa. Laretta, fantastic
Speaker 1: to have you with us back on the show. We
Speaker 1: just had a conversation with Muhammad al Arian a little bit.
Speaker 1: Earlie on Bloomberg TV for our listeners on Bloomberg Radio
Speaker 1: who may have missed that he was talking about the
Speaker 1: risk to the downside of doing more one of the
Speaker 1: downside risks for the Federal Reserve of doing even more well.
Speaker 1: The way I view what we've done so far is, remember,
Speaker 1: we saw that the financial markets were not functioning well,
Speaker 1: so we took very strong actions to make sure that
Speaker 1: the financial markets continue to function so that credit could
Speaker 1: flow the households of businesses. Without a functioning financial system,
Speaker 1: we'd have a financial stability crisis on top of a
Speaker 1: pandemic crisis. So no one would have wanted that. So
Speaker 1: our actions so far i've been I think impactful. I
Speaker 1: think you've seen the financial markets working better. I think
Speaker 1: liquidity is flowing um and I think those have been
Speaker 1: um important programs that we set up, these emergency facilities.
Speaker 1: Some of them are still to come in terms of
Speaker 1: opening for business. The terms are being negotiated um with
Speaker 1: Treasury and to make sure that the programs work well.
Speaker 1: So we that's kind of a state of play there.
Speaker 1: I think as the economy and more places begin to
Speaker 1: open up, we'll have a better sense of what the
Speaker 1: recovery is looking like, and we may have to and
Speaker 1: I expect that we'll have to support the recovery going forward,
Speaker 1: but we're really at the very beginning stages of that
Speaker 1: because there's still parts of the country that are shut down.
Speaker 1: So it really depends on what you mean by doing more.
Speaker 1: I do think there's gonna be a second phase of
Speaker 1: monetary policy, but that will be more of the supporting
Speaker 1: the recovery, supporting activity making sure that we can have
Speaker 1: a recovery that that takes hold and develops well. Presidents,
Speaker 1: let's talk about that, because quite clearly, a couple of
Speaker 1: months ago it's not a day compared to where we
Speaker 1: are now, and I think it would be hard pushed
Speaker 1: to suggest that it's about market functioning anymore. You've talked
Speaker 1: about that next phase. If the previous phase the objective
Speaker 1: was market functioning, what does the next phase look like
Speaker 1: and how are the tools different? How is the response
Speaker 1: to the federals of different? Right? So looy I view
Speaker 1: it is we you know, just think about the second quarter.
Speaker 1: The second quarter numbers when they come out are going
Speaker 1: to be very, very negative numbers. I mean, we know
Speaker 1: that we know that that was the height of the
Speaker 1: shutdown when there was no activity. In the third quarter
Speaker 1: and fourth quarter, we're gonna cease activity begin to emerge.
Speaker 1: I think some of the quarterly growth rates are going
Speaker 1: to overstate UM the what it looks like really out
Speaker 1: in the field, because we're gonna see from a base
Speaker 1: of very little activity some pickup and activity, and they're
Speaker 1: gonna look like big growth rates. But we're still going
Speaker 1: to be below where we were at the start of
Speaker 1: the year in terms of both employment and output. So
Speaker 1: I think we have to take this, you know, looking
Speaker 1: at how this is emerging, I think there's a lot
Speaker 1: of concern about um second waves of the virus. So
Speaker 1: what makes this difficult is that we have both economics
Speaker 1: going on and also a health crisis going on, and
Speaker 1: so that is that's very different than other economic shocks
Speaker 1: that we've had in the past, and so I think
Speaker 1: a lot of how the recovery goes it's going to
Speaker 1: be depended on COVID testing, the three seats, COVID testing,
Speaker 1: contract MCNE, and making sure that the capacity of the
Speaker 1: health care system and handle UM and increase in cases
Speaker 1: that every epidemiologist is telling us that we should expect
Speaker 1: over the second half of the year. That means that
Speaker 1: the recovery could be slow. Um, when you have so
Speaker 1: many people out of work, it's hard to imagine that
Speaker 1: we'd see a quick v shape recovery. I think it's
Speaker 1: gonna be slow. I think businesses are going to be
Speaker 1: thoughtful about reopening. I think people are going to be
Speaker 1: thoughtful about spending. And so what that means is that
Speaker 1: monetary policy has a role to play as we support
Speaker 1: the economy getting back to our dual mandate goals of
Speaker 1: full employment and price stability. And so that's more traditional
Speaker 1: monetary policy. And the tools that we have are our
Speaker 1: interest rate tool, which already is at zero, forward guidance
Speaker 1: which we've used before, and also asset purchases, but asset
Speaker 1: purchases not to improve market functioning, but really to support
Speaker 1: the economy as it moves forward towards full employment and
Speaker 1: christ stability. Well, markets want you to specify exactly what
Speaker 1: you're going to do. What you're going to do, of course,
Speaker 1: and I'm wondering if the June tenth meeting is a
Speaker 1: time for you to announce anything new at this point.
Speaker 1: You're fed. Cleveland FED did a study of the tailor
Speaker 1: rule and five other uh, simple rules and found that
Speaker 1: if you use those you would have the FED funds
Speaker 1: rate your target anywhere from a negative two to a
Speaker 1: negative fourteen percent. That suggests at this point you're not
Speaker 1: loose enough for the economy we have at the moment. Well,
Speaker 1: I think those rules, right are based on the dynamics
Speaker 1: and the economy, based on history and historic relationships. And
Speaker 1: if I told you that the employment rate which is
Speaker 1: now at fourteen point seven percent um, you know, when
Speaker 1: you stick that into a role, you're gonna get that
Speaker 1: kind of result from the rules. But really, right now,
Speaker 1: we're not really trying up to this point to stimulate activity. Right.
Speaker 1: The economy was shut down as an investment in our
Speaker 1: public health. Right, that was the tool that we the
Speaker 1: economic country did to sort of try to make sure
Speaker 1: that the capacity and the healthcare system could build up.
Speaker 1: More could be learned about the transmission mechanism of the
Speaker 1: of the virus. So the tool, the work that we've
Speaker 1: done so far at the FED, and I would you know,
Speaker 1: the federal government also was really to get us through
Speaker 1: the shutdown period so that when the economy began begins
Speaker 1: to reopen, that that's a point where we can support
Speaker 1: the recovery, and I think that's where the second phase
Speaker 1: that I was talking about comes into play. We're just
Speaker 1: at the beginning now of states beginning to reopen. So
Speaker 1: again I think we're talking about a future state right
Speaker 1: when we see what the recovery is starting to look
Speaker 1: like as more of a country is able to reopen,
Speaker 1: and so I think we're going to have that conversation,
Speaker 1: those conversations, but again I think that comes at a
Speaker 1: later stage when right we know a little bit more
Speaker 1: about what that recovery point is looking at, and we're
Speaker 1: collecting date all the time on how the opening reopening
Speaker 1: is going, so we have some you know, information on that,
Speaker 1: but really beginning stages of that for the country, well,
Speaker 1: you the FED have long suggested that forward guidance is
Speaker 1: kind of the next tool that you would employ. But
Speaker 1: when you look at two year Treasury note futures, they're
Speaker 1: under one percent out to the end of two thousand
Speaker 1: twenty two. And it's raised a question in people's minds
Speaker 1: on Wall Street. If you give traders just a one
Speaker 1: way bet forever, you're gonna have problems down the road.
Speaker 1: You're gonna have a taper tantrum. If everybody is in
Speaker 1: on the same trade for years and years, So I
Speaker 1: think that's always a concern when you're we're using these
Speaker 1: tools um at the zero lower bound. We always when
Speaker 1: whenever we use a tool, at least the way I
Speaker 1: approach this is we always have to think about what
Speaker 1: it looks like at the moment, but also what does
Speaker 1: it look like in the future, and how would you
Speaker 1: exit from that tool. So I always think approach policy
Speaker 1: that way, not just looking at the current moment, but
Speaker 1: also thinking about, Okay, what's the path of this going forward,
Speaker 1: and that's really going to different be decided by what
Speaker 1: happens in the economy, what does the recovery look like,
Speaker 1: how much accommodation, monetary policy, accommodation is needed, right, and
Speaker 1: then also communicating well so that we're not surprising anyone
Speaker 1: with our policy that we want we want people to
Speaker 1: understand where we're coming from, what our rationale is, but
Speaker 1: we don't want to necessarily mislead in some way by
Speaker 1: saying we know exactly what the economy, how the economy
Speaker 1: is going to evolve. And so that's when we got
Speaker 1: into earlier in the In the earlier recovery, it is
Speaker 1: about making sure that people understood that we're not prexyent,
Speaker 1: but we are going to base our policy actions on
Speaker 1: what the data is telling us about the economic outlook. Well,
Speaker 1: President Memester, at the moment, there are people worried about
Speaker 1: how big the FATS role is in clearing markets now
Speaker 1: and how big the FATS role is in setting prices.
Speaker 1: And it's been a conversation in the last several weeks
Speaker 1: with us and your colleagues, including President Williams, about yield
Speaker 1: curve control. I want to try and understand from you
Speaker 1: because this is where the confusion is on Wall Street
Speaker 1: for some people in fixed income at the moment, would
Speaker 1: yield curve control for you be something focused on the
Speaker 1: front end to the belly of the treasury curve or
Speaker 1: would you think about doing what Japan is doing, which
Speaker 1: is all the way out to ten years. Just how
Speaker 1: much control over the yield curve, so to speak, would
Speaker 1: you be looking to have, right, So, my view of
Speaker 1: yield curve control is that it really is a support
Speaker 1: for forward guidance if we were going to do it now.
Speaker 1: The Committee has discussed yield curve control as a tool
Speaker 1: back in UM during the financial crisis, and and also
Speaker 1: as part of our framework review as a tool, a
Speaker 1: potential tool, No decisions have been made on that at all. UM. Again,
Speaker 1: I don't think of that as something that would be
Speaker 1: in this phase of what we're doing to make sure
Speaker 1: that the markets continue to function. But as a tool,
Speaker 1: I think it's worth while thinking about what those tools
Speaker 1: are going to be that we can use. But right
Speaker 1: now that's a discussion for the future phase. And my
Speaker 1: own view is that if you wanted to do it, UM,
Speaker 1: you'd have to think hard about how you would implement it,
Speaker 1: and also, as I said before, how do you exit
Speaker 1: from it? Because with any of these tools right there
Speaker 1: are pros and cons of using them right now. You know,
Speaker 1: as you point out, the yield curve is very flat
Speaker 1: at the short end. So maybe with the four guides
Speaker 1: we've given already, it's not necessary to do something to
Speaker 1: emphasize at torward guides. But I don't want to take
Speaker 1: it off the table as something that's a potential for
Speaker 1: me to think about as a possible tool. I just
Speaker 1: don't see that we need it here in the space,
Speaker 1: nor do I see going forward that we necessarily would
Speaker 1: need to use it. But if we were to use it,
Speaker 1: I would view it as a reinforcement for forward guidance
Speaker 1: on the short end. Before we let you go, I
Speaker 1: have to ask you about this. There are there is
Speaker 1: the possibility we could end up in a new trade
Speaker 1: war with China, additional tariffs going on. How would that
Speaker 1: affect the economy. Have we already absorbed that or would
Speaker 1: that be a new hit to the economy? Now? Well,
Speaker 1: I think you know, whenever there's a new rising up
Speaker 1: of uncertainty, and this is another uncertainty, I think we
Speaker 1: have to take it on board as being another potential
Speaker 1: head wind to a recovery. So I think we have
Speaker 1: to just use that as part. We have to take
Speaker 1: the conditions as they are. Um, I think that we
Speaker 1: we've played this game before and sort of saw how
Speaker 1: the uncertainty did dampen um the expansion earlier, and so
Speaker 1: I think we had to just take that on board.
Speaker 1: Is this is another uncertainty attitude, incredible amount of uncertain
Speaker 1: we already have, Loretta, We've got to leave it there.
Speaker 1: I just wanted to say thank you and thank you
Speaker 1: for talking to us ahead of the blackout period before
Speaker 1: the next FED decision. Really appreciate your time and hopefully
Speaker 1: we can get you back on soon. The Cleveland Fed
Speaker 1: president that Loretta Mesta. Thanks for listening to the Bloomberg
Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keene before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio