1 00:00:09,880 --> 00:00:13,880 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jelie. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,159 Speaker 1: Bloomberg dot Com, and of course on the bloom We 5 00:00:27,200 --> 00:00:30,479 Speaker 1: saw the pictures of beaches open over the weekend and 6 00:00:30,520 --> 00:00:33,080 Speaker 1: the beaches were packed, and I made the point in 7 00:00:33,120 --> 00:00:35,720 Speaker 1: the last twenty four hours, and I think how that 8 00:00:35,840 --> 00:00:37,800 Speaker 1: made you feel probably tell us a lot about what 9 00:00:37,840 --> 00:00:40,680 Speaker 1: you think about this market. For many people, it triggered 10 00:00:40,680 --> 00:00:43,640 Speaker 1: fears of a second way. For others, it fueled hopes 11 00:00:43,680 --> 00:00:47,640 Speaker 1: that will reopen quicker and better than expected. To bring 12 00:00:47,720 --> 00:00:49,559 Speaker 1: someone int who can give us more clarity on what 13 00:00:49,600 --> 00:00:51,760 Speaker 1: he thinks on that situation. I'm really pleased to say 14 00:00:51,760 --> 00:00:54,560 Speaker 1: that Judy Mamanuel joined us now of BT. I g Judy, 15 00:00:54,560 --> 00:00:57,840 Speaker 1: and let's talk about that. Did the weekend's photographs, the 16 00:00:57,880 --> 00:01:01,120 Speaker 1: pictures of people getting back to normal, did it trigger 17 00:01:01,400 --> 00:01:04,200 Speaker 1: phase of a second wave or fuel hopes that we 18 00:01:04,240 --> 00:01:10,240 Speaker 1: can normalize faster. I think it actually fueled both. John. Uh. 19 00:01:10,280 --> 00:01:13,760 Speaker 1: You know, it's first of all, it's very clear that 20 00:01:13,840 --> 00:01:16,559 Speaker 1: the last several months have made this a more emotional 21 00:01:16,600 --> 00:01:19,600 Speaker 1: time than usual. But I think when when people saw 22 00:01:19,680 --> 00:01:24,560 Speaker 1: those pictures, you had both you know, and again somewhat 23 00:01:24,600 --> 00:01:28,160 Speaker 1: dependent on the state you live in, whether the cases 24 00:01:28,200 --> 00:01:31,319 Speaker 1: are rising or falling, and how the progress is, but 25 00:01:31,480 --> 00:01:34,360 Speaker 1: it really drew out emotions. And then if you look 26 00:01:34,360 --> 00:01:37,200 Speaker 1: at the weather, it was reasonably nice across the country, 27 00:01:37,240 --> 00:01:40,720 Speaker 1: which I think has sort of fed into the optimism 28 00:01:40,800 --> 00:01:44,600 Speaker 1: of share prices in the last several days. All right, 29 00:01:44,640 --> 00:01:48,320 Speaker 1: so let's talk Julianne about the emotion in stocks right now? 30 00:01:48,360 --> 00:01:52,560 Speaker 1: What kind of reopening our equity investors pricing in one 31 00:01:52,600 --> 00:01:55,960 Speaker 1: that is steady and contained and doesn't include a second 32 00:01:56,000 --> 00:01:58,920 Speaker 1: wave or is it something that comes and fits and starts, 33 00:01:58,920 --> 00:02:02,960 Speaker 1: but at least as a beginning, so it feels to 34 00:02:03,120 --> 00:02:06,639 Speaker 1: us as if it's more a fits and starts type 35 00:02:06,680 --> 00:02:10,160 Speaker 1: of issue. We've called this the potential for you know, 36 00:02:10,200 --> 00:02:13,120 Speaker 1: everyone's using letters to describe the recovery. We call it 37 00:02:13,120 --> 00:02:16,880 Speaker 1: a bathtub shape recovery, so that you know, you basically 38 00:02:16,919 --> 00:02:22,400 Speaker 1: the US extended sort of into one, as it were. Um. 39 00:02:22,440 --> 00:02:26,280 Speaker 1: But what really matters, I think, as much as the 40 00:02:26,360 --> 00:02:31,920 Speaker 1: recovery itself, is what people are pricing in with regard 41 00:02:31,960 --> 00:02:35,800 Speaker 1: to the medicine and where stocks are right now, uh 42 00:02:35,840 --> 00:02:39,639 Speaker 1: to us, you know, basically indicates that people are believing 43 00:02:40,000 --> 00:02:43,959 Speaker 1: that there will be some sort of vaccine not necessarily 44 00:02:44,000 --> 00:02:47,560 Speaker 1: available for this fall, implying that there could be a 45 00:02:47,600 --> 00:02:51,360 Speaker 1: second wave, but certainly for you know, the fall of 46 00:02:53,960 --> 00:02:56,519 Speaker 1: the big challenge for so many people, most investors in 47 00:02:56,560 --> 00:02:59,359 Speaker 1: the security market right now, Julian is finding that right 48 00:02:59,400 --> 00:03:04,200 Speaker 1: balance elebrating your exposure to cyclicality to safety. How do 49 00:03:04,240 --> 00:03:06,280 Speaker 1: you balance those two things right now? We just saw 50 00:03:06,320 --> 00:03:10,360 Speaker 1: this classic risk one move yesterday with a huge cyclical till, 51 00:03:10,840 --> 00:03:13,600 Speaker 1: the stay at home stocks, the likes of Netflix lower, 52 00:03:13,680 --> 00:03:17,160 Speaker 1: the reopening names, the likes of Delta, the airlines ripping higher. 53 00:03:17,320 --> 00:03:19,560 Speaker 1: How do you want to balance between the two going 54 00:03:19,560 --> 00:03:23,840 Speaker 1: forward from here? Julian, So it's been our view and 55 00:03:23,880 --> 00:03:25,760 Speaker 1: and we've looked at a lot of data going back 56 00:03:25,840 --> 00:03:28,680 Speaker 1: the last thirty or forty years, and what we saw 57 00:03:28,880 --> 00:03:32,960 Speaker 1: is with the remarkable consistency the stocks and sectors that 58 00:03:33,040 --> 00:03:36,440 Speaker 1: were under performers during the bear market phase, once you 59 00:03:36,560 --> 00:03:39,640 Speaker 1: transition to a ball market tended to be the leaders. 60 00:03:39,920 --> 00:03:42,640 Speaker 1: Now we're not entirely sold on the fact that you've 61 00:03:42,760 --> 00:03:46,400 Speaker 1: gone into a new ball market. Um, you know, we 62 00:03:46,480 --> 00:03:49,920 Speaker 1: actually think that at around this level of three thousand 63 00:03:49,960 --> 00:03:52,280 Speaker 1: and SPX, you probably need to do a bit of 64 00:03:52,320 --> 00:03:56,120 Speaker 1: work time wise. But in order to sort of account 65 00:03:56,160 --> 00:03:58,920 Speaker 1: for that risk, and we've seen this the last several weeks, 66 00:03:59,360 --> 00:04:03,560 Speaker 1: is that people are rotating into small caps, into energy, 67 00:04:03,680 --> 00:04:07,600 Speaker 1: into financials and taking some chips off the table, uh, 68 00:04:07,680 --> 00:04:10,240 Speaker 1: from the shelter and play stocks. And we think that's 69 00:04:10,240 --> 00:04:14,320 Speaker 1: a prudence strategy to keep to keep doing. Jenny, what 70 00:04:14,320 --> 00:04:16,680 Speaker 1: would give you more confidence that that move was durable, 71 00:04:16,720 --> 00:04:19,039 Speaker 1: that that rally was sustainable, that it's more than just 72 00:04:19,080 --> 00:04:25,920 Speaker 1: a squeeze. Uh. If if a number of companies went 73 00:04:25,960 --> 00:04:30,599 Speaker 1: into Phase three trials would be a first thing. A 74 00:04:30,720 --> 00:04:34,839 Speaker 1: second thing is if Washington would listen to Chairman Powell, 75 00:04:35,080 --> 00:04:38,839 Speaker 1: who has been adamantly for the last month insisting that 76 00:04:39,120 --> 00:04:42,800 Speaker 1: more fiscal stimulus is necessary, particularly when you look at 77 00:04:42,920 --> 00:04:47,360 Speaker 1: at small business USA. The time to put politics aside 78 00:04:47,560 --> 00:04:50,480 Speaker 1: was a long time ago, and you know, from our 79 00:04:50,520 --> 00:04:53,520 Speaker 1: point of view, they need to, you know, consider how 80 00:04:53,560 --> 00:04:56,560 Speaker 1: that package is going to look before the fall. Um. 81 00:04:56,760 --> 00:05:00,520 Speaker 1: Those are probably the biggest things for US. I was 82 00:05:00,560 --> 00:05:03,600 Speaker 1: struck this morning by something that Bank of America Global 83 00:05:03,640 --> 00:05:06,800 Speaker 1: Research put out they said, Hoping that either fundamentals will 84 00:05:06,800 --> 00:05:10,120 Speaker 1: improve at record speed or that they simply don't matter 85 00:05:10,320 --> 00:05:13,800 Speaker 1: is a real risk given markets inability to decouple from 86 00:05:13,800 --> 00:05:16,960 Speaker 1: recessions in the last ninety years. I'm struck by what 87 00:05:17,000 --> 00:05:19,000 Speaker 1: you said, Julie, and the fact that people are looking 88 00:05:19,000 --> 00:05:22,880 Speaker 1: at the medicine perhaps not the underlying fundamentals. How much 89 00:05:23,200 --> 00:05:27,120 Speaker 1: does the FOMO rally. Does this incredible boost risk assets 90 00:05:27,240 --> 00:05:30,760 Speaker 1: right now decrease some of the pressure on policymakers to 91 00:05:30,800 --> 00:05:37,280 Speaker 1: continue with the medicine? Well, I know, the medical aspect 92 00:05:37,360 --> 00:05:40,120 Speaker 1: of it has got to be sort of full speed ahead. 93 00:05:40,160 --> 00:05:41,960 Speaker 1: And I think if you look at the last couple 94 00:05:41,960 --> 00:05:46,640 Speaker 1: of days, several other companies announcing that they felt good about, 95 00:05:46,800 --> 00:05:49,880 Speaker 1: you know, moving into face. No excuse me, Juliet, when 96 00:05:49,880 --> 00:05:53,599 Speaker 1: I say medicine, I'm talking about the fiscal medicine, the 97 00:05:53,640 --> 00:05:59,320 Speaker 1: idea of policy coming out of Washington's getting together. Yes, yeah, Well, 98 00:05:59,440 --> 00:06:02,560 Speaker 1: so you know this is an election here, Lisa, and 99 00:06:02,680 --> 00:06:05,960 Speaker 1: you certainly have a lull right now, given the fact 100 00:06:05,960 --> 00:06:08,840 Speaker 1: that the equity markets have moved where they have. But 101 00:06:09,400 --> 00:06:12,520 Speaker 1: another aspect of it is that certainly what we've seen 102 00:06:12,560 --> 00:06:15,159 Speaker 1: in the last several weeks, is it ratcheting up of 103 00:06:15,240 --> 00:06:18,520 Speaker 1: pressure with regard to China, and that is something that 104 00:06:18,680 --> 00:06:20,920 Speaker 1: sort of, you know, is one of the caps in 105 00:06:21,160 --> 00:06:24,839 Speaker 1: the marketplace as well. We actually think that as the 106 00:06:24,960 --> 00:06:29,840 Speaker 1: data continues to it's not going to improve dramatically, you know. Certainly, 107 00:06:29,960 --> 00:06:33,640 Speaker 1: Jamie Diamond coming out and saying that a rebound, a 108 00:06:33,720 --> 00:06:38,680 Speaker 1: stronger rebound is looking more likely, is encouraging. But the 109 00:06:38,680 --> 00:06:42,279 Speaker 1: fact is is that the employment situation and small business 110 00:06:42,279 --> 00:06:46,320 Speaker 1: America is still very much you know, at risk. And 111 00:06:46,400 --> 00:06:48,839 Speaker 1: the closer you get to the fall and the closer 112 00:06:48,880 --> 00:06:51,720 Speaker 1: you get to the election, the more imperative is going 113 00:06:51,800 --> 00:06:55,360 Speaker 1: to be forgiven that those are the constituents who are 114 00:06:55,360 --> 00:06:58,279 Speaker 1: going to be casting ballot um, you know, to to 115 00:06:58,400 --> 00:07:02,280 Speaker 1: really do a bit more to get us through to 116 00:07:02,480 --> 00:07:06,520 Speaker 1: where we're at the point next year where you actually 117 00:07:06,600 --> 00:07:11,320 Speaker 1: do get a more durable recovery. You mentioned China, and 118 00:07:11,360 --> 00:07:14,000 Speaker 1: this is a key ingredient to markets right now. So far, 119 00:07:14,120 --> 00:07:17,040 Speaker 1: I can find a little evidence of worry that this 120 00:07:17,240 --> 00:07:20,200 Speaker 1: escalation and tensions between the US and China is leading 121 00:07:20,240 --> 00:07:23,240 Speaker 1: to any dampening in the risk on trade. Do you 122 00:07:23,280 --> 00:07:26,840 Speaker 1: think that right now investors are overly complacent that we're 123 00:07:26,840 --> 00:07:28,720 Speaker 1: not going to see a ramping up of tensions that 124 00:07:28,800 --> 00:07:31,800 Speaker 1: will have a drag on global growth, especially heading into 125 00:07:31,800 --> 00:07:36,840 Speaker 1: the election. Well, I think it's it's it's probably more 126 00:07:37,000 --> 00:07:40,680 Speaker 1: bluster heading into the election. Um. But if you actually 127 00:07:40,680 --> 00:07:43,120 Speaker 1: look at the options market, which as you know, we do, 128 00:07:43,720 --> 00:07:47,840 Speaker 1: what you've seen again is that the the hedging for 129 00:07:47,920 --> 00:07:51,760 Speaker 1: the term just past the election has become cautionary. Again. 130 00:07:51,800 --> 00:07:56,160 Speaker 1: Downside puts have become very expensive relative to upside calls, 131 00:07:56,400 --> 00:07:59,200 Speaker 1: which tells you that the risk, particularly with regard to 132 00:07:59,320 --> 00:08:04,400 Speaker 1: your polity, is more an issue. And we think that's applicable, 133 00:08:04,520 --> 00:08:09,920 Speaker 1: you know, regardless of who wins the election in November. Julian, 134 00:08:09,960 --> 00:08:11,800 Speaker 1: always great to catch up with you send our best 135 00:08:11,800 --> 00:08:13,720 Speaker 1: of the family. Weren't you brilliant to hear from your 136 00:08:13,760 --> 00:08:19,200 Speaker 1: Julian and many were there of BT I g to 137 00:08:19,240 --> 00:08:21,480 Speaker 1: talk about the bond market. Let's bring in a good 138 00:08:21,480 --> 00:08:24,040 Speaker 1: friend of this program, Kathy Jones of SHOs Schwab. Kathy, 139 00:08:24,120 --> 00:08:27,040 Speaker 1: fantastic to have you with us. I've been thinking about 140 00:08:27,120 --> 00:08:29,320 Speaker 1: what I know you've been thinking about, what would create 141 00:08:29,360 --> 00:08:32,000 Speaker 1: the most amount of pain in this market for the 142 00:08:32,040 --> 00:08:36,680 Speaker 1: most amount of people. Inflation? How underpriced is inflation coming 143 00:08:36,720 --> 00:08:41,160 Speaker 1: out of this as we reopened, Kathy. Oh, it's really underpriced. 144 00:08:41,200 --> 00:08:43,240 Speaker 1: And you know, let me be clear, we're not looking 145 00:08:43,360 --> 00:08:45,560 Speaker 1: for a lot of inflation. We have to get through 146 00:08:45,600 --> 00:08:49,320 Speaker 1: the deflation before we get to worrying about the inflation. 147 00:08:49,800 --> 00:08:52,760 Speaker 1: But when you look at the way the markets priced 148 00:08:52,840 --> 00:08:56,760 Speaker 1: right now, there's really no there's no expectation built into 149 00:08:56,800 --> 00:09:00,400 Speaker 1: the bond market of inflation, and so it's a huge 150 00:09:00,400 --> 00:09:03,160 Speaker 1: concern that keeps coming up with our clients, even though 151 00:09:03,320 --> 00:09:05,839 Speaker 1: we think it's a couple of years down the road, 152 00:09:05,880 --> 00:09:09,079 Speaker 1: if it's out there at all. It just seems to 153 00:09:09,120 --> 00:09:11,840 Speaker 1: be some confidence, much more so about the front end 154 00:09:11,880 --> 00:09:13,559 Speaker 1: of any yield curve at the moment, Cathy, And for 155 00:09:13,640 --> 00:09:16,439 Speaker 1: good reason as well. It's really anchored central banks are 156 00:09:16,440 --> 00:09:18,240 Speaker 1: just going to sit there for a long long time. 157 00:09:18,400 --> 00:09:20,360 Speaker 1: It seems to be a lot more uncertainty about the 158 00:09:20,400 --> 00:09:23,400 Speaker 1: longer end have a ten year and out response to 159 00:09:23,440 --> 00:09:26,040 Speaker 1: any pick up in inflation, Cathy, What are your thoughts 160 00:09:26,040 --> 00:09:28,400 Speaker 1: on that at the moment, particularly specifically here in the 161 00:09:28,400 --> 00:09:34,240 Speaker 1: treasury market. Yeah, I think that there is the expectation 162 00:09:34,360 --> 00:09:37,120 Speaker 1: that a worst case scenario, the Fed goes to yield 163 00:09:37,120 --> 00:09:41,200 Speaker 1: curve control, and that keeps the short intermediate term at 164 00:09:41,280 --> 00:09:44,560 Speaker 1: least anchored, and that they would take whatever moves they 165 00:09:44,559 --> 00:09:47,680 Speaker 1: would need to take in order to anchor the long 166 00:09:47,800 --> 00:09:50,000 Speaker 1: end of the curve as well as much as they 167 00:09:50,080 --> 00:09:53,720 Speaker 1: did in that post World War two era. UM. But 168 00:09:53,800 --> 00:09:55,600 Speaker 1: I do think that, you know, for people who are 169 00:09:55,640 --> 00:09:59,160 Speaker 1: worried about inflation or at this this point, the cheapest 170 00:09:59,200 --> 00:10:03,400 Speaker 1: way to hedge it is probably tips. Um There there's 171 00:10:03,559 --> 00:10:07,360 Speaker 1: almost no yield. In some cases they have negative yields, 172 00:10:07,400 --> 00:10:10,520 Speaker 1: but um in terms of hedging tail rift tips are 173 00:10:10,520 --> 00:10:13,560 Speaker 1: a very efficient way to do that. And we do 174 00:10:13,679 --> 00:10:16,760 Speaker 1: see people kind of barbelling their portfolio, so they're buying 175 00:10:16,840 --> 00:10:19,679 Speaker 1: kind of short term credit and long term tips as 176 00:10:19,760 --> 00:10:24,320 Speaker 1: a way to play both ends of the spectrum. I'm 177 00:10:24,320 --> 00:10:27,000 Speaker 1: struggling to understand that where the inflation would come from. 178 00:10:27,000 --> 00:10:30,160 Speaker 1: People talking about how money printing in the past hasn't 179 00:10:30,240 --> 00:10:33,000 Speaker 1: led to inflation. Certainly we didn't see it after two 180 00:10:33,240 --> 00:10:36,680 Speaker 1: and eight. I do wonder though, whether the trade issues 181 00:10:36,720 --> 00:10:39,360 Speaker 1: and the deglobalization that we were talking about early on 182 00:10:39,400 --> 00:10:43,559 Speaker 1: the program will lead to inflation. The idea that overseas 183 00:10:43,760 --> 00:10:46,760 Speaker 1: production was cheaper, you bring it back on shore, it 184 00:10:46,800 --> 00:10:49,520 Speaker 1: gets more expensive. How much is that driving the sort 185 00:10:49,559 --> 00:10:52,920 Speaker 1: of barbel idea that you have. There's quite a bit 186 00:10:52,960 --> 00:10:55,800 Speaker 1: of thought about that. Um, I'm a little bit skeptical 187 00:10:55,880 --> 00:11:00,480 Speaker 1: that companies are really going to reshore that much because 188 00:11:01,080 --> 00:11:03,640 Speaker 1: it's still going to be a big leap in terms 189 00:11:03,640 --> 00:11:06,520 Speaker 1: of their costs, and can they really pass those costs 190 00:11:06,600 --> 00:11:11,359 Speaker 1: on to consumers and um, and not just hurt their margins. 191 00:11:11,360 --> 00:11:15,080 Speaker 1: So I could see that you'll see some movement of 192 00:11:15,520 --> 00:11:18,920 Speaker 1: concentration out of China, as we've already seen, but a 193 00:11:18,920 --> 00:11:21,480 Speaker 1: lot of it is still going to places that the 194 00:11:21,640 --> 00:11:24,680 Speaker 1: labor costs are cheaper and you still have sort of 195 00:11:24,679 --> 00:11:28,920 Speaker 1: this access to global supply chains a Latin America, obviously 196 00:11:29,200 --> 00:11:32,439 Speaker 1: the rest of Southeast Asia. So you know, if it's 197 00:11:32,440 --> 00:11:34,760 Speaker 1: going to happen, if the globalization is going to happen, 198 00:11:34,800 --> 00:11:37,559 Speaker 1: I think it's a long term process, just a globalization 199 00:11:37,800 --> 00:11:41,160 Speaker 1: was so, Um, we're just not seeing the kind of 200 00:11:41,240 --> 00:11:45,280 Speaker 1: inputs to inflation that I think will produce it in 201 00:11:45,320 --> 00:11:49,600 Speaker 1: the next year two or probably even three. But at 202 00:11:49,640 --> 00:11:51,959 Speaker 1: some point down the road, you know, there's always a 203 00:11:52,000 --> 00:11:55,559 Speaker 1: possibility it could materialize, and I frankly think central banks 204 00:11:55,559 --> 00:11:58,280 Speaker 1: would welcome it, right, they'd be very tolerant of an 205 00:11:58,320 --> 00:12:02,120 Speaker 1: overshoot on inflation at this age of the game. Well, 206 00:12:02,160 --> 00:12:04,440 Speaker 1: that's the point, isn't it, Kathy, that'd be tolerant of it. 207 00:12:04,679 --> 00:12:07,520 Speaker 1: Let's talk about that reaction function, how they would respond 208 00:12:07,559 --> 00:12:09,600 Speaker 1: to any of this. Do you think they'd respond at all? 209 00:12:11,360 --> 00:12:14,120 Speaker 1: Not initially, um, you know, if you think that the 210 00:12:14,320 --> 00:12:17,600 Speaker 1: safe for the FED. They've undershot their inflation target for 211 00:12:17,800 --> 00:12:20,800 Speaker 1: I don't know how many years now. UM. We've heard 212 00:12:20,880 --> 00:12:23,640 Speaker 1: from Powell that you know, the emphasis on this is 213 00:12:23,679 --> 00:12:27,040 Speaker 1: a symmetric target at two percent on the core PCE 214 00:12:27,160 --> 00:12:30,760 Speaker 1: or really whatever measure UM you want to use. And 215 00:12:30,840 --> 00:12:34,200 Speaker 1: so I think they would be quite tolerant if UM, 216 00:12:34,800 --> 00:12:37,719 Speaker 1: because I think the central banks believe the inflation is 217 00:12:37,760 --> 00:12:40,319 Speaker 1: the problem they can solve. They've done this in the past, 218 00:12:40,400 --> 00:12:43,520 Speaker 1: they know what it takes, UM, and so this is 219 00:12:43,559 --> 00:12:46,320 Speaker 1: not their big concern. That deflation is the bigger concern. 220 00:12:46,400 --> 00:12:48,520 Speaker 1: So I think they would let it run for a 221 00:12:48,559 --> 00:12:51,040 Speaker 1: bit as long as it was a mild acceleration and 222 00:12:51,120 --> 00:12:55,800 Speaker 1: not a runaway acceleration. Let's talk about another problem that 223 00:12:55,800 --> 00:12:58,120 Speaker 1: the federers are of another central banks can't solve, or 224 00:12:58,160 --> 00:13:00,640 Speaker 1: perhaps have been unwilling to solve, and that's bankruptcy. And 225 00:13:00,679 --> 00:13:04,040 Speaker 1: John and I were talking about this earlier, this idea 226 00:13:04,160 --> 00:13:07,680 Speaker 1: that is there any discomfort emerging from f O m 227 00:13:07,679 --> 00:13:11,240 Speaker 1: C members given the fact that we're seeing a rally 228 00:13:11,400 --> 00:13:14,520 Speaker 1: in the riskiest debt this month, which is actually outperforming 229 00:13:14,559 --> 00:13:18,280 Speaker 1: safer notes as investors get more complacent that they'll be 230 00:13:18,320 --> 00:13:21,840 Speaker 1: back stopped by the FED and fiscal stimulus. I'm wondering 231 00:13:22,040 --> 00:13:25,520 Speaker 1: how much that disconnect has led to elevated prices. In 232 00:13:25,559 --> 00:13:27,400 Speaker 1: other words, how much pain are people going to feel 233 00:13:27,400 --> 00:13:31,280 Speaker 1: who are buying triple C bonds right now. Yeah, it's 234 00:13:31,280 --> 00:13:33,880 Speaker 1: been quite remarkable to me how people have sort of 235 00:13:33,920 --> 00:13:37,600 Speaker 1: piled in UM because of the perception that the FED 236 00:13:37,679 --> 00:13:40,040 Speaker 1: is going to buy the whole high heal bond market. 237 00:13:40,160 --> 00:13:42,240 Speaker 1: I mean, if you if you listen to what they 238 00:13:42,280 --> 00:13:44,360 Speaker 1: said and look at the term sheet, they're not buying 239 00:13:44,360 --> 00:13:47,800 Speaker 1: the entire market. I can see that spreads were so 240 00:13:47,880 --> 00:13:51,480 Speaker 1: elevated that they needed to come down that. I think 241 00:13:51,480 --> 00:13:54,160 Speaker 1: that that makes sense. Just the provision of liquidity help that. 242 00:13:54,920 --> 00:13:57,319 Speaker 1: But you know, they've been very specific about buying some 243 00:13:57,480 --> 00:14:01,440 Speaker 1: fallen angels UM a small all amount, a limited amount 244 00:14:01,480 --> 00:14:05,320 Speaker 1: of e TF. But you know, people are trained now. 245 00:14:05,400 --> 00:14:08,480 Speaker 1: I think there's just conditioned now if the fet is 246 00:14:08,520 --> 00:14:11,079 Speaker 1: buying it. They're buying it, and the perception is that 247 00:14:11,120 --> 00:14:14,080 Speaker 1: the FETE is supporting the high yield market broadly speaking, 248 00:14:14,520 --> 00:14:16,480 Speaker 1: and a lot of people have running. If you look 249 00:14:16,520 --> 00:14:20,160 Speaker 1: at the assets under management and some of the bigger 250 00:14:20,200 --> 00:14:24,880 Speaker 1: e t F they've jumped in the last couple of weeks, 251 00:14:24,920 --> 00:14:29,280 Speaker 1: so clearly a lot of people are chasing the trade. Yeah, 252 00:14:29,320 --> 00:14:31,600 Speaker 1: it's been shocking to me. I've been watching h y G, 253 00:14:31,840 --> 00:14:34,760 Speaker 1: the Black Rock High Old bondy TF. It's seen nearly 254 00:14:34,880 --> 00:14:37,800 Speaker 1: two billion dollars of the influence over the past week, 255 00:14:38,120 --> 00:14:40,680 Speaker 1: more than five billion dollars so far year. Today, I'm 256 00:14:40,680 --> 00:14:43,040 Speaker 1: just wondering, are you selling this? Are you basically saying 257 00:14:43,360 --> 00:14:46,080 Speaker 1: we're out, We're done. We think you guys are overpricing 258 00:14:46,080 --> 00:14:48,480 Speaker 1: the FED put and right now we just want to 259 00:14:48,560 --> 00:14:52,360 Speaker 1: hide out an investment grade and treasuries well, we definitely 260 00:14:52,400 --> 00:14:56,440 Speaker 1: prefer investment grade UM and at the shorter end, you know, 261 00:14:56,480 --> 00:14:58,640 Speaker 1: one to five years, which is what the FET is 262 00:14:58,680 --> 00:15:02,520 Speaker 1: buying on. On the higher we're neutral, but we're being 263 00:15:02,560 --> 00:15:06,000 Speaker 1: really cautious because a lot of these companies won't qualify 264 00:15:06,160 --> 00:15:09,520 Speaker 1: for the FENS program. UM. We do look for defaults 265 00:15:09,600 --> 00:15:12,120 Speaker 1: to pick up maybe and as high as ten percent 266 00:15:13,000 --> 00:15:16,240 Speaker 1: in the speculative default, and we think recovery rates are 267 00:15:16,280 --> 00:15:19,720 Speaker 1: going to be low so UM, particularly with you know, 268 00:15:19,760 --> 00:15:22,760 Speaker 1: the triple cs and the very low rated bonds UM, 269 00:15:22,840 --> 00:15:26,920 Speaker 1: we would definitely be out of that me, Lisa, this 270 00:15:27,000 --> 00:15:28,480 Speaker 1: is the pain trade, isn't it? And we saw it 271 00:15:28,560 --> 00:15:30,800 Speaker 1: play out in Europe over the last ten years. Once 272 00:15:30,800 --> 00:15:33,320 Speaker 1: the central bank gets involved in an asset class, it's 273 00:15:33,360 --> 00:15:36,800 Speaker 1: totally divorced from fundamentals. You can get spreads grinding tighter 274 00:15:37,320 --> 00:15:39,520 Speaker 1: even as the economy hardly picks up. We saw that 275 00:15:39,560 --> 00:15:42,120 Speaker 1: over the last ten years, and I do wonder, Lisa, 276 00:15:42,160 --> 00:15:44,760 Speaker 1: whether that is the playbook this time around, or whether 277 00:15:44,800 --> 00:15:51,080 Speaker 1: things are somewhat different. You can't have fed money preventing bankruptcies. 278 00:15:51,200 --> 00:15:54,400 Speaker 1: There's only so long that asset prices can remain elevated 279 00:15:54,400 --> 00:15:57,320 Speaker 1: at a time when these companies are getting no revenues. 280 00:15:57,360 --> 00:15:59,720 Speaker 1: That's what I'm struggling with, and the idea that some 281 00:15:59,760 --> 00:16:04,280 Speaker 1: of these companies are putting up islands and cruise ships 282 00:16:04,280 --> 00:16:06,600 Speaker 1: in order to raise more money and stay alive. At 283 00:16:06,600 --> 00:16:09,280 Speaker 1: a certain point the time runs out, which I guess, Cathy, 284 00:16:09,360 --> 00:16:12,280 Speaker 1: that's my question. What's sort of the tipping point at 285 00:16:12,280 --> 00:16:15,680 Speaker 1: which these companies become insolvent and no amount of fedbackstop 286 00:16:15,720 --> 00:16:19,640 Speaker 1: can help them. Yeah, I think it's coming, you know, 287 00:16:19,680 --> 00:16:23,160 Speaker 1: I think it will probably materialize later this year. Um, 288 00:16:23,160 --> 00:16:25,560 Speaker 1: we're not seeing the revenue pickup that a lot of 289 00:16:25,600 --> 00:16:28,960 Speaker 1: these companies need. A lot have been living on rolling 290 00:16:29,000 --> 00:16:31,680 Speaker 1: over short term debt in the bank loan market, and 291 00:16:31,720 --> 00:16:36,400 Speaker 1: that that market is has deteriorated pretty quickly. So I 292 00:16:36,440 --> 00:16:38,760 Speaker 1: think it's coming later this year. For the really low 293 00:16:38,840 --> 00:16:41,960 Speaker 1: rated credits. This has been the initial kind of euphoric 294 00:16:42,120 --> 00:16:47,600 Speaker 1: move of recovery off of you know, spreads at over treasuries, 295 00:16:47,680 --> 00:16:49,720 Speaker 1: and now they've come down to something that's you know, 296 00:16:50,280 --> 00:16:55,200 Speaker 1: closer to realistic, I guess, given the backdrop. But even um, 297 00:16:55,240 --> 00:16:58,800 Speaker 1: even if if the whole country opens up, and even 298 00:16:58,840 --> 00:17:00,880 Speaker 1: if you know, we start to see recovery, I think 299 00:17:00,960 --> 00:17:03,000 Speaker 1: some of those companies just can't make it. Their debts 300 00:17:03,040 --> 00:17:06,080 Speaker 1: are too high. They're not going to recover um to 301 00:17:06,200 --> 00:17:10,480 Speaker 1: profitability anytime soon. And I think their leverage ratios just 302 00:17:10,600 --> 00:17:13,919 Speaker 1: got two out of control. So I think it's coming 303 00:17:14,000 --> 00:17:18,280 Speaker 1: probably late this year. Cathy Jones will continue the conversation, 304 00:17:18,320 --> 00:17:25,239 Speaker 1: no doubt. Kathy from Cha Shwa Lisa, just a lot 305 00:17:25,280 --> 00:17:27,359 Speaker 1: of optimism over the last couple of days relative to 306 00:17:27,359 --> 00:17:29,679 Speaker 1: where we were several weeks ago about how quickly we 307 00:17:29,760 --> 00:17:32,560 Speaker 1: can reopen, but not only that, how quickly we can 308 00:17:32,560 --> 00:17:35,960 Speaker 1: get back to normal. Yeah, if you look at the 309 00:17:36,000 --> 00:17:39,560 Speaker 1: pictures over the weekend, the pandemics over John, that's apparent 310 00:17:39,680 --> 00:17:43,040 Speaker 1: from the Lake of Ozarks. Apparently as everybody gathers in 311 00:17:43,359 --> 00:17:46,919 Speaker 1: and crowds pools. My question is, are we going to 312 00:17:47,040 --> 00:17:50,199 Speaker 1: see a second wave of infection in two weeks that 313 00:17:50,240 --> 00:17:52,320 Speaker 1: will reverse what we've seen, or is this going to 314 00:17:52,440 --> 00:17:54,639 Speaker 1: give fuel to people who think that perhaps some of 315 00:17:54,680 --> 00:17:57,840 Speaker 1: the shutdowns have been overdone, giving more of a lift 316 00:17:58,040 --> 00:18:01,040 Speaker 1: to equity market. It's a big question mark and ultimately 317 00:18:01,640 --> 00:18:04,040 Speaker 1: it will be one of the determining factors of what's 318 00:18:04,040 --> 00:18:08,679 Speaker 1: to come this summer. Let's have that conversation on reopening 319 00:18:08,720 --> 00:18:11,119 Speaker 1: the conversation of the Morning on that very topic. I'm 320 00:18:11,160 --> 00:18:13,320 Speaker 1: pleased to say that the fifty four mayor of Boston 321 00:18:13,400 --> 00:18:16,639 Speaker 1: joins us now. Ma't Marty Welsh, Mr Maynor, fantastic to 322 00:18:16,640 --> 00:18:18,560 Speaker 1: have you with us on the program. I'd love to 323 00:18:18,560 --> 00:18:21,000 Speaker 1: get your thoughts on this. There is so much discussion 324 00:18:21,000 --> 00:18:23,160 Speaker 1: at the federal level, how quickly we should open up 325 00:18:23,320 --> 00:18:25,240 Speaker 1: At the state level, can you talk to us about 326 00:18:25,240 --> 00:18:28,239 Speaker 1: the city level why Boston needs to go at its 327 00:18:28,280 --> 00:18:30,760 Speaker 1: own pace. I mean, first of all, thank you for 328 00:18:30,800 --> 00:18:34,040 Speaker 1: having me this morning. Or secondly, I think that Boston 329 00:18:34,119 --> 00:18:36,800 Speaker 1: is a very densely populated city. We're about seven hundred 330 00:18:36,840 --> 00:18:40,960 Speaker 1: thousand people and about forty seven square miles. Every day 331 00:18:41,320 --> 00:18:44,560 Speaker 1: when we're in normal circumstances, are city doubles in size 332 00:18:44,880 --> 00:18:47,040 Speaker 1: for people coming in to go to work here in Boston. 333 00:18:47,440 --> 00:18:49,840 Speaker 1: And during college season, we had another hundred and fifty 334 00:18:49,880 --> 00:18:52,720 Speaker 1: to two hundred thousand college students in our city, graduate 335 00:18:52,760 --> 00:18:55,359 Speaker 1: students that are learning here in the city of Boston. 336 00:18:55,560 --> 00:18:57,920 Speaker 1: So what I want to make sure is is we reopen, 337 00:18:58,000 --> 00:19:01,159 Speaker 1: we get it right. I'm and about a second surge, 338 00:19:01,640 --> 00:19:03,959 Speaker 1: and I don't think that our economy and necessarily can 339 00:19:04,000 --> 00:19:06,520 Speaker 1: handle a second surge and a complete shutdown. So I 340 00:19:06,560 --> 00:19:08,760 Speaker 1: think it's very important that as we as we reopened, 341 00:19:08,760 --> 00:19:12,200 Speaker 1: whether it's office buildings or manufacturing or whatever it might be, 342 00:19:12,280 --> 00:19:14,800 Speaker 1: that we do it in a in a very thoughtful, 343 00:19:15,080 --> 00:19:18,240 Speaker 1: methodical approach, so that we so we don't have to 344 00:19:18,720 --> 00:19:22,680 Speaker 1: in the event of a second surge. Again. Well, it's 345 00:19:22,680 --> 00:19:24,720 Speaker 1: just in terms of the education system. And you've touched 346 00:19:24,760 --> 00:19:27,200 Speaker 1: on that, let's expand on it. What's the city prepared 347 00:19:27,200 --> 00:19:29,159 Speaker 1: for just in terms of how quickly we can get 348 00:19:29,200 --> 00:19:33,600 Speaker 1: the schools reopened. Well, the colleges and universities are making 349 00:19:33,720 --> 00:19:36,400 Speaker 1: having conversations now. Uh, some of them have already made 350 00:19:36,440 --> 00:19:38,640 Speaker 1: statements that they'll be back in August, and I hope 351 00:19:38,680 --> 00:19:41,920 Speaker 1: they are. Uh. They're talking about doing massive testing and 352 00:19:42,040 --> 00:19:46,080 Speaker 1: tracing and also potential ices self isolation and if if 353 00:19:46,080 --> 00:19:48,600 Speaker 1: somebody tests positive. You know, it's a big part of 354 00:19:48,600 --> 00:19:50,440 Speaker 1: our economy here in the city of Boston. It's a 355 00:19:50,520 --> 00:19:53,040 Speaker 1: large employer in these college students that come in and 356 00:19:53,080 --> 00:19:55,000 Speaker 1: spend a lot of money in our city. They in 357 00:19:55,040 --> 00:19:58,160 Speaker 1: our restaurants, they shop on our store. So it would 358 00:19:58,200 --> 00:20:00,560 Speaker 1: be great to see schools open. But the way that's 359 00:20:00,600 --> 00:20:03,640 Speaker 1: really important for me anyways, Mayor, is to make sure 360 00:20:03,720 --> 00:20:05,560 Speaker 1: that they're healthy as well. I mean this this is 361 00:20:05,600 --> 00:20:08,960 Speaker 1: in health, health care, adversity, economy. This all has to 362 00:20:09,000 --> 00:20:12,000 Speaker 1: be together. Public health is vitally employed. Right now as 363 00:20:12,000 --> 00:20:14,600 Speaker 1: you move forward, Uh, you know, nearly over three hundred 364 00:20:14,600 --> 00:20:18,000 Speaker 1: thousand people have lost their life. Assume me three three 365 00:20:18,160 --> 00:20:21,080 Speaker 1: thousand people lost life in the world A hundred hundred 366 00:20:21,080 --> 00:20:23,640 Speaker 1: thou in the United States of America, and quite honestly, 367 00:20:23,880 --> 00:20:25,960 Speaker 1: if we didn't take all the precautions that we did 368 00:20:26,200 --> 00:20:28,359 Speaker 1: over the last three months, that number would be five greater. 369 00:20:28,880 --> 00:20:32,480 Speaker 1: In Massachusetts, were the fourth highest state for the number 370 00:20:32,480 --> 00:20:34,439 Speaker 1: of cases, in the third highest state for deaths. And 371 00:20:34,960 --> 00:20:36,840 Speaker 1: that's not where you want to be. And it's important 372 00:20:36,840 --> 00:20:39,920 Speaker 1: that we take continue to take this serious and now 373 00:20:40,040 --> 00:20:43,600 Speaker 1: is not the time to let our guy down. Mr Mayer. 374 00:20:43,640 --> 00:20:48,280 Speaker 1: I'm wondering whether reopening plans can be determined locally, city 375 00:20:48,280 --> 00:20:50,800 Speaker 1: by city, or whether in order to be effective they 376 00:20:50,880 --> 00:20:54,320 Speaker 1: really have to be federally coordinated. I don't think they 377 00:20:54,320 --> 00:20:57,679 Speaker 1: did federally coordinated. I think they have to be state coordinated, 378 00:20:57,720 --> 00:21:00,160 Speaker 1: and I think they have to be almost in in 379 00:21:00,280 --> 00:21:02,439 Speaker 1: massagus as we usually go by cities and towns. But 380 00:21:02,640 --> 00:21:05,560 Speaker 1: if you can do about county uh in Massachusetts, the 381 00:21:05,600 --> 00:21:08,200 Speaker 1: two of the highest counties that have the highest number 382 00:21:08,200 --> 00:21:10,840 Speaker 1: of cases of Middlesex County in southak County, we're in 383 00:21:10,840 --> 00:21:14,040 Speaker 1: southa County and Middlesexes next door. If there's an opportunity 384 00:21:14,080 --> 00:21:15,920 Speaker 1: for us to look at kind of the approach of 385 00:21:15,960 --> 00:21:18,239 Speaker 1: New York was looking at letting some counties open up 386 00:21:18,920 --> 00:21:21,959 Speaker 1: ease and restrictions. You have rural and and and uh 387 00:21:22,359 --> 00:21:26,320 Speaker 1: and in suburban areas, uh you know, uh so, so 388 00:21:26,359 --> 00:21:29,920 Speaker 1: it really is important to think about the thought fulm 389 00:21:29,920 --> 00:21:32,760 Speaker 1: when you think about reopening. You can't just blankely reopen 390 00:21:32,800 --> 00:21:36,520 Speaker 1: across the country. You know, Massachusetts, Michigan, New York, New Jersey, 391 00:21:36,560 --> 00:21:39,040 Speaker 1: the highest states. What we're dealing with a different The 392 00:21:39,160 --> 00:21:42,040 Speaker 1: challenges in our states are a lot different than than Wyoming, 393 00:21:42,119 --> 00:21:44,879 Speaker 1: North Dakota, South Dakota, and and and and you know 394 00:21:44,920 --> 00:21:49,639 Speaker 1: maybe uh Louisville, so Kentucky, I should say. So, I 395 00:21:49,720 --> 00:21:51,560 Speaker 1: don't think it can be a state by state. It 396 00:21:51,600 --> 00:21:55,160 Speaker 1: has to be um can't. It can't be by the country. 397 00:21:55,240 --> 00:21:56,760 Speaker 1: Should say, it has to be state by state. And 398 00:21:56,760 --> 00:21:59,560 Speaker 1: we're also sharing best practices. So what I watched is 399 00:21:59,600 --> 00:22:01,439 Speaker 1: going on in Seattle. I watched going in l a 400 00:22:01,520 --> 00:22:04,760 Speaker 1: and New York, in Houston and Austin places like that. 401 00:22:05,000 --> 00:22:08,000 Speaker 1: In Chicago, and I make decisions. Sometimes my decisions are 402 00:22:08,000 --> 00:22:09,720 Speaker 1: based on what they're doing or where they're out on 403 00:22:09,760 --> 00:22:12,080 Speaker 1: the surgery for ahead of them, they follow us, and 404 00:22:12,119 --> 00:22:16,360 Speaker 1: when we follow them, it's about sharing better practices. Mr 405 00:22:16,400 --> 00:22:19,600 Speaker 1: mayor based on your experience with the virology here, I'm 406 00:22:19,640 --> 00:22:23,919 Speaker 1: wondering whether you think that the data backs up the 407 00:22:24,040 --> 00:22:27,560 Speaker 1: reopening enthusiasm that we saw across the country over the weekend. 408 00:22:28,720 --> 00:22:30,720 Speaker 1: I think that the data backs up the reopening, and 409 00:22:30,800 --> 00:22:34,000 Speaker 1: for follow it, I think it's not being followed consistently 410 00:22:34,000 --> 00:22:36,119 Speaker 1: across the country. I think that you know, the data 411 00:22:36,200 --> 00:22:39,880 Speaker 1: shows that we don't have fourteen day declines and people 412 00:22:39,920 --> 00:22:43,280 Speaker 1: feeling the precture reopened. And I appreciate that. I'm elected 413 00:22:43,280 --> 00:22:45,960 Speaker 1: official of mayor Boston for seven years. Uh and and 414 00:22:46,800 --> 00:22:49,359 Speaker 1: I can feel the precture sometimes, but it's not about 415 00:22:49,359 --> 00:22:51,640 Speaker 1: the pressure. It's about doing the right thing. Uh. There's 416 00:22:51,640 --> 00:22:54,080 Speaker 1: no difference between reopening and shutting down. When you make 417 00:22:54,119 --> 00:22:56,760 Speaker 1: a decision shutdown a city, which not many people have 418 00:22:56,760 --> 00:22:59,760 Speaker 1: had to do in the last hundred years. Quite honestly, 419 00:23:00,280 --> 00:23:03,119 Speaker 1: their difficult decisions. As we think about reopening all of 420 00:23:03,160 --> 00:23:04,960 Speaker 1: the work that was done over the last three months, 421 00:23:04,960 --> 00:23:08,159 Speaker 1: whether it's in Boston or in the Ozarks, how do 422 00:23:08,160 --> 00:23:10,840 Speaker 1: you can't just let that go by? Just reopening because 423 00:23:10,840 --> 00:23:12,440 Speaker 1: people want to be out in the sun. It's not 424 00:23:12,520 --> 00:23:14,399 Speaker 1: it's not a safe way to do it. Because the 425 00:23:14,480 --> 00:23:16,600 Speaker 1: data will show us again if there's a second surge, 426 00:23:16,840 --> 00:23:18,600 Speaker 1: if that surge could be worse than the first one, 427 00:23:19,119 --> 00:23:22,719 Speaker 1: and that's where the problems will come into play. Well, 428 00:23:22,760 --> 00:23:24,880 Speaker 1: it's just in the forty five seconds we have left 429 00:23:24,880 --> 00:23:27,520 Speaker 1: with you, I think it's important to touch on austerity. 430 00:23:27,560 --> 00:23:29,280 Speaker 1: The good news is that the budget was in good 431 00:23:29,280 --> 00:23:32,360 Speaker 1: shape in Boston coming into this particular crisis. Coming out 432 00:23:32,359 --> 00:23:34,240 Speaker 1: of it. There's a real fair about state and city 433 00:23:34,320 --> 00:23:38,680 Speaker 1: level austerity. Could you set expectations for us appropriately? Appropriately, 434 00:23:39,080 --> 00:23:41,120 Speaker 1: I mean, I think we've had seven years of incredible 435 00:23:41,119 --> 00:23:43,440 Speaker 1: growth in the City of Boston. In this coming year, 436 00:23:43,480 --> 00:23:46,320 Speaker 1: what we're gonna do is preserve the important pieces of 437 00:23:46,359 --> 00:23:49,480 Speaker 1: the budget. We're going to be making investments in education, investments, 438 00:23:49,520 --> 00:23:51,679 Speaker 1: and housing, but we still have to have a balance, 439 00:23:51,680 --> 00:23:54,800 Speaker 1: responsible budget, so there will be cuts across the board 440 00:23:54,840 --> 00:23:56,840 Speaker 1: in the City of Boston. Our final budget will be 441 00:23:56,920 --> 00:23:59,399 Speaker 1: voted around sometime in the next three weeks here, and 442 00:23:59,400 --> 00:24:01,719 Speaker 1: we're working right now without Boston City Council to come 443 00:24:01,800 --> 00:24:03,719 Speaker 1: up with the final products. So it won't be as 444 00:24:03,920 --> 00:24:06,480 Speaker 1: it won't be as row as the budget as as 445 00:24:06,520 --> 00:24:08,879 Speaker 1: as last year was. But hopefully we get out of 446 00:24:08,880 --> 00:24:13,400 Speaker 1: this safely and next year we're going back to prosperity again. Marty. 447 00:24:13,480 --> 00:24:15,280 Speaker 1: I hope this is a conversation we can continue. I 448 00:24:15,280 --> 00:24:17,120 Speaker 1: look forward to doing that with you over the next 449 00:24:17,160 --> 00:24:19,159 Speaker 1: several months on this particular topic, because I think it's 450 00:24:19,160 --> 00:24:22,359 Speaker 1: a really important conversation. Boston's Mayda there, Marty Welsh on 451 00:24:22,520 --> 00:24:30,480 Speaker 1: reopening in Boston as we shift gears to China very 452 00:24:30,560 --> 00:24:34,399 Speaker 1: much also in the focus right now, and I'm so pleased, 453 00:24:34,440 --> 00:24:38,400 Speaker 1: say Leland Miller of the China Beige Book CEO joins us. 454 00:24:38,520 --> 00:24:42,600 Speaker 1: Now so hard to parse the noise from the reality 455 00:24:42,640 --> 00:24:44,960 Speaker 1: when it comes to some of the saber rattling between 456 00:24:45,000 --> 00:24:49,359 Speaker 1: the US and China. Leland, what measures being currently proposed 457 00:24:49,359 --> 00:24:55,600 Speaker 1: by US Congress should traders should analysts be taking more seriously? Well, 458 00:24:55,640 --> 00:24:57,840 Speaker 1: there are a couple of different things happening right now, 459 00:24:57,840 --> 00:24:59,840 Speaker 1: and I think that's one of the reasons why people 460 00:25:00,320 --> 00:25:03,520 Speaker 1: are a little bit complacent about what's what's really an 461 00:25:03,640 --> 00:25:07,160 Speaker 1: enormous downside risk to markets over the coming weeks and months. 462 00:25:07,280 --> 00:25:10,560 Speaker 1: Uh Potus has come out and said, Uh, we're gonna 463 00:25:10,600 --> 00:25:11,600 Speaker 1: make a big and you know, I'm gonna make a 464 00:25:11,600 --> 00:25:14,040 Speaker 1: big announcement on Friday. The presumption is he's gonna come 465 00:25:14,040 --> 00:25:17,520 Speaker 1: out with some sanctions and some other some other threatening moves. 466 00:25:17,640 --> 00:25:21,000 Speaker 1: UH Congress has come out with a bill that is 467 00:25:21,000 --> 00:25:23,760 Speaker 1: actually quite aggressive and then its sanctions individuals, but it 468 00:25:23,840 --> 00:25:27,760 Speaker 1: also sanctioned Chinese banks that assist those individuals and cracking 469 00:25:27,800 --> 00:25:30,840 Speaker 1: down on the Hong Kong protests and and so you've 470 00:25:30,840 --> 00:25:34,240 Speaker 1: got these sanctions looming over over markets. But the bigger 471 00:25:34,320 --> 00:25:37,240 Speaker 1: deal is actually the question of special status for Hong Kong. 472 00:25:37,640 --> 00:25:40,320 Speaker 1: So Hong Kong has a special relationship with the United 473 00:25:40,359 --> 00:25:43,000 Speaker 1: States in that UH, we don't treat it like mainland 474 00:25:43,080 --> 00:25:46,840 Speaker 1: China said, it's sufficiently autonomous from China to treat it differently, 475 00:25:47,080 --> 00:25:50,159 Speaker 1: and the State Department has to make an annual certification 476 00:25:50,480 --> 00:25:53,160 Speaker 1: that that remains the case. This has always been sort 477 00:25:53,160 --> 00:25:55,640 Speaker 1: of performer for years and years and years. Now it's 478 00:25:55,640 --> 00:25:58,800 Speaker 1: a big question. And if this passes, if these Article 479 00:25:58,880 --> 00:26:03,240 Speaker 1: twenties three sedition laws are jammed through Hong Kong from Beijing, 480 00:26:03,480 --> 00:26:06,080 Speaker 1: there's a very good chance. But we will see the 481 00:26:06,160 --> 00:26:10,000 Speaker 1: certification from the State Department, and that the certification will 482 00:26:10,080 --> 00:26:12,720 Speaker 1: likely lead at some point in the near future to 483 00:26:12,880 --> 00:26:16,440 Speaker 1: special status removal, although the president will have the ability 484 00:26:16,520 --> 00:26:19,800 Speaker 1: to make that bigger or or or lesser, depending on 485 00:26:19,840 --> 00:26:22,080 Speaker 1: how he wants to to run this. So a lot 486 00:26:22,240 --> 00:26:25,040 Speaker 1: of things and a lot of risks coming from from 487 00:26:25,080 --> 00:26:29,480 Speaker 1: these actions. Leland, who would that hurt more provoking the 488 00:26:29,520 --> 00:26:34,320 Speaker 1: special trading status the US or China? Well, you know, 489 00:26:34,400 --> 00:26:37,280 Speaker 1: it's not really gonna hurt China directly. It's gonna hurt 490 00:26:37,280 --> 00:26:39,879 Speaker 1: Hong Kong. And that's the main problem with this is 491 00:26:39,920 --> 00:26:43,080 Speaker 1: that most people in Hong Kong are very, very opposed 492 00:26:43,359 --> 00:26:46,399 Speaker 1: to the fact that Beijing is stamping out their liberty 493 00:26:46,480 --> 00:26:49,520 Speaker 1: and and and doing away with one country, two systems. 494 00:26:49,720 --> 00:26:53,680 Speaker 1: That's why this isn't an automatic move uh in regards 495 00:26:53,680 --> 00:26:57,040 Speaker 1: to Article twenty three. But I think the United States 496 00:26:57,040 --> 00:26:59,480 Speaker 1: will have to move forward. Is particularly if you start 497 00:26:59,520 --> 00:27:03,040 Speaker 1: seeing a restive actions UH when the NPC, when the 498 00:27:03,080 --> 00:27:06,080 Speaker 1: National People's Congress language is announced, you'll have a question 499 00:27:06,119 --> 00:27:09,600 Speaker 1: of whether it's going to be uh, you know, softly introduced, 500 00:27:09,640 --> 00:27:12,439 Speaker 1: or whether you immediately see the security services pulling people 501 00:27:12,520 --> 00:27:15,679 Speaker 1: out of their houses in preparation for you know, Tanneman 502 00:27:15,720 --> 00:27:19,840 Speaker 1: Square anniversaries next week. It's a huge political anniversary. So 503 00:27:20,119 --> 00:27:22,480 Speaker 1: depending on how the Chinese handle this, you could see 504 00:27:22,520 --> 00:27:25,639 Speaker 1: a very fierce reaction in a matter of days, or 505 00:27:25,680 --> 00:27:27,720 Speaker 1: you could see this as a slow boil through the 506 00:27:27,760 --> 00:27:35,280 Speaker 1: next couple of months. Leland, Why is Beijing doing this now? Well, 507 00:27:35,440 --> 00:27:37,640 Speaker 1: I think that it's tempting to look at this through 508 00:27:37,680 --> 00:27:40,800 Speaker 1: the prism of US China relations and and and certainly 509 00:27:40,840 --> 00:27:43,159 Speaker 1: there's an element of this, But the reality is that 510 00:27:43,560 --> 00:27:47,600 Speaker 1: in September, Hong Kong has legislative council elections, and just 511 00:27:47,680 --> 00:27:49,960 Speaker 1: like the lower elections that were held a number of 512 00:27:50,000 --> 00:27:53,159 Speaker 1: months ago, pro Beijing forces look like they're going to 513 00:27:53,240 --> 00:27:55,719 Speaker 1: be very very poorly. So if you're ever going to 514 00:27:55,760 --> 00:27:59,120 Speaker 1: sort of tighten the screws and put in uh some 515 00:27:59,119 --> 00:28:02,120 Speaker 1: some stronger laws to give Beijing control and make sure 516 00:28:02,160 --> 00:28:04,679 Speaker 1: that Beijing is not embarrassed in September, you really have 517 00:28:04,840 --> 00:28:07,720 Speaker 1: to act now this summer in order to change the 518 00:28:07,800 --> 00:28:10,800 Speaker 1: landscape so that Beijing is not embarrassed in September. So 519 00:28:10,880 --> 00:28:13,720 Speaker 1: a combination of what's happening externally and what's happening in 520 00:28:13,760 --> 00:28:17,440 Speaker 1: Hong Kong domestically has created this window where Beijing has 521 00:28:17,480 --> 00:28:19,960 Speaker 1: to act, and probably act aggressively, if it wants to 522 00:28:20,040 --> 00:28:22,439 Speaker 1: change what's going to happen in the fall. And it 523 00:28:22,480 --> 00:28:26,240 Speaker 1: looks like that's what it's doing right now. John and 524 00:28:26,320 --> 00:28:28,800 Speaker 1: I were talking throughout the morning about how markets are 525 00:28:28,800 --> 00:28:31,320 Speaker 1: pretty much shrugging off a repeat of what we saw 526 00:28:31,359 --> 00:28:34,760 Speaker 1: in recent years with respect to the rising tensions between 527 00:28:34,760 --> 00:28:37,720 Speaker 1: the US and China over trade. A lot of people 528 00:28:37,760 --> 00:28:41,400 Speaker 1: saying Phase one trade agreement still on both countries needed, 529 00:28:41,680 --> 00:28:44,200 Speaker 1: you're saying it's basically dead in the water. Why do 530 00:28:44,240 --> 00:28:48,440 Speaker 1: you say that? Well, look, when when people hear sanctions, 531 00:28:48,440 --> 00:28:50,240 Speaker 1: if they're they're right to sort of, you know, roll 532 00:28:50,280 --> 00:28:52,640 Speaker 1: their eyes a little bit, say how meaningful are these 533 00:28:52,640 --> 00:28:55,280 Speaker 1: sanctions to be? Is the Congress or is President Trump 534 00:28:55,320 --> 00:28:57,840 Speaker 1: really going to sanction since it's a very high level 535 00:28:57,920 --> 00:29:01,920 Speaker 1: pulp of bureau members, uh, you know, free their assets, 536 00:29:01,960 --> 00:29:04,280 Speaker 1: do some some some big time moves on the sanction side. 537 00:29:04,560 --> 00:29:06,720 Speaker 1: Probably not at least right now. So they're right to 538 00:29:06,800 --> 00:29:09,880 Speaker 1: not take sanctions too seriously quite yet. But the special 539 00:29:09,880 --> 00:29:12,240 Speaker 1: status is a really big deal. And if the United 540 00:29:12,240 --> 00:29:15,760 Speaker 1: States uh pulls that back, then it changes the US 541 00:29:16,400 --> 00:29:21,120 Speaker 1: China relationship quite significantly. And look, the this it reflects 542 00:29:21,160 --> 00:29:24,560 Speaker 1: the overall deterioration of the U. S. China relationship going 543 00:29:24,560 --> 00:29:27,040 Speaker 1: into the fault. I mean, it's getting very, very toxic, 544 00:29:27,120 --> 00:29:29,880 Speaker 1: and you know, My belief is it's going to be 545 00:29:30,000 --> 00:29:32,480 Speaker 1: very hard for the President to stand by the Phase 546 00:29:32,520 --> 00:29:36,040 Speaker 1: one deal when he's not seeing the deal filled. He's 547 00:29:36,040 --> 00:29:39,040 Speaker 1: going into a very rough election season. China is the 548 00:29:39,080 --> 00:29:41,640 Speaker 1: topic of the day. Whose means to China, you know, 549 00:29:41,640 --> 00:29:44,400 Speaker 1: as the the guy is gonna win this, and he's 550 00:29:44,400 --> 00:29:46,200 Speaker 1: gonna have to stand by the deal until he can't. 551 00:29:46,240 --> 00:29:48,120 Speaker 1: So I think Phase one is in real trouble. I 552 00:29:48,160 --> 00:29:51,320 Speaker 1: think it's likely we don't see it survive the election. 553 00:29:51,800 --> 00:29:54,200 Speaker 1: And uh, this is just a reflection of the overall 554 00:29:54,360 --> 00:29:59,280 Speaker 1: toxicity of the relationship right now. Lelan Miller, CEO of 555 00:29:59,360 --> 00:30:01,320 Speaker 1: China Page, thank you so much for being with us. 556 00:30:01,680 --> 00:30:05,840 Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and 557 00:30:05,920 --> 00:30:11,240 Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast 558 00:30:11,320 --> 00:30:15,520 Speaker 1: platform you prefer. I'm on Twitter at Tom Keene before 559 00:30:15,560 --> 00:30:19,800 Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg Radio.