Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jelie.
Speaker 1: We bring you insight from the best in economics, finance, investment,
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Speaker 1: saw the pictures of beaches open over the weekend and
Speaker 1: the beaches were packed, and I made the point in
Speaker 1: the last twenty four hours, and I think how that
Speaker 1: made you feel probably tell us a lot about what
Speaker 1: you think about this market. For many people, it triggered
Speaker 1: fears of a second way. For others, it fueled hopes
Speaker 1: that will reopen quicker and better than expected. To bring
Speaker 1: someone int who can give us more clarity on what
Speaker 1: he thinks on that situation. I'm really pleased to say
Speaker 1: that Judy Mamanuel joined us now of BT. I g Judy,
Speaker 1: and let's talk about that. Did the weekend's photographs, the
Speaker 1: pictures of people getting back to normal, did it trigger
Speaker 1: phase of a second wave or fuel hopes that we
Speaker 1: can normalize faster. I think it actually fueled both. John. Uh.
Speaker 1: You know, it's first of all, it's very clear that
Speaker 1: the last several months have made this a more emotional
Speaker 1: time than usual. But I think when when people saw
Speaker 1: those pictures, you had both you know, and again somewhat
Speaker 1: dependent on the state you live in, whether the cases
Speaker 1: are rising or falling, and how the progress is, but
Speaker 1: it really drew out emotions. And then if you look
Speaker 1: at the weather, it was reasonably nice across the country,
Speaker 1: which I think has sort of fed into the optimism
Speaker 1: of share prices in the last several days. All right,
Speaker 1: so let's talk Julianne about the emotion in stocks right now?
Speaker 1: What kind of reopening our equity investors pricing in one
Speaker 1: that is steady and contained and doesn't include a second
Speaker 1: wave or is it something that comes and fits and starts,
Speaker 1: but at least as a beginning, so it feels to
Speaker 1: us as if it's more a fits and starts type
Speaker 1: of issue. We've called this the potential for you know,
Speaker 1: everyone's using letters to describe the recovery. We call it
Speaker 1: a bathtub shape recovery, so that you know, you basically
Speaker 1: the US extended sort of into one, as it were. Um.
Speaker 1: But what really matters, I think, as much as the
Speaker 1: recovery itself, is what people are pricing in with regard
Speaker 1: to the medicine and where stocks are right now, uh
Speaker 1: to us, you know, basically indicates that people are believing
Speaker 1: that there will be some sort of vaccine not necessarily
Speaker 1: available for this fall, implying that there could be a
Speaker 1: second wave, but certainly for you know, the fall of
Speaker 1: the big challenge for so many people, most investors in
Speaker 1: the security market right now, Julian is finding that right
Speaker 1: balance elebrating your exposure to cyclicality to safety. How do
Speaker 1: you balance those two things right now? We just saw
Speaker 1: this classic risk one move yesterday with a huge cyclical till,
Speaker 1: the stay at home stocks, the likes of Netflix lower,
Speaker 1: the reopening names, the likes of Delta, the airlines ripping higher.
Speaker 1: How do you want to balance between the two going
Speaker 1: forward from here? Julian, So it's been our view and
Speaker 1: and we've looked at a lot of data going back
Speaker 1: the last thirty or forty years, and what we saw
Speaker 1: is with the remarkable consistency the stocks and sectors that
Speaker 1: were under performers during the bear market phase, once you
Speaker 1: transition to a ball market tended to be the leaders.
Speaker 1: Now we're not entirely sold on the fact that you've
Speaker 1: gone into a new ball market. Um, you know, we
Speaker 1: actually think that at around this level of three thousand
Speaker 1: and SPX, you probably need to do a bit of
Speaker 1: work time wise. But in order to sort of account
Speaker 1: for that risk, and we've seen this the last several weeks,
Speaker 1: is that people are rotating into small caps, into energy,
Speaker 1: into financials and taking some chips off the table, uh,
Speaker 1: from the shelter and play stocks. And we think that's
Speaker 1: a prudence strategy to keep to keep doing. Jenny, what
Speaker 1: would give you more confidence that that move was durable,
Speaker 1: that that rally was sustainable, that it's more than just
Speaker 1: a squeeze. Uh. If if a number of companies went
Speaker 1: into Phase three trials would be a first thing. A
Speaker 1: second thing is if Washington would listen to Chairman Powell,
Speaker 1: who has been adamantly for the last month insisting that
Speaker 1: more fiscal stimulus is necessary, particularly when you look at
Speaker 1: at small business USA. The time to put politics aside
Speaker 1: was a long time ago, and you know, from our
Speaker 1: point of view, they need to, you know, consider how
Speaker 1: that package is going to look before the fall. Um.
Speaker 1: Those are probably the biggest things for US. I was
Speaker 1: struck this morning by something that Bank of America Global
Speaker 1: Research put out they said, Hoping that either fundamentals will
Speaker 1: improve at record speed or that they simply don't matter
Speaker 1: is a real risk given markets inability to decouple from
Speaker 1: recessions in the last ninety years. I'm struck by what
Speaker 1: you said, Julie, and the fact that people are looking
Speaker 1: at the medicine perhaps not the underlying fundamentals. How much
Speaker 1: does the FOMO rally. Does this incredible boost risk assets
Speaker 1: right now decrease some of the pressure on policymakers to
Speaker 1: continue with the medicine? Well, I know, the medical aspect
Speaker 1: of it has got to be sort of full speed ahead.
Speaker 1: And I think if you look at the last couple
Speaker 1: of days, several other companies announcing that they felt good about,
Speaker 1: you know, moving into face. No excuse me, Juliet, when
Speaker 1: I say medicine, I'm talking about the fiscal medicine, the
Speaker 1: idea of policy coming out of Washington's getting together. Yes, yeah, Well,
Speaker 1: so you know this is an election here, Lisa, and
Speaker 1: you certainly have a lull right now, given the fact
Speaker 1: that the equity markets have moved where they have. But
Speaker 1: another aspect of it is that certainly what we've seen
Speaker 1: in the last several weeks, is it ratcheting up of
Speaker 1: pressure with regard to China, and that is something that
Speaker 1: sort of, you know, is one of the caps in
Speaker 1: the marketplace as well. We actually think that as the
Speaker 1: data continues to it's not going to improve dramatically, you know. Certainly,
Speaker 1: Jamie Diamond coming out and saying that a rebound, a
Speaker 1: stronger rebound is looking more likely, is encouraging. But the
Speaker 1: fact is is that the employment situation and small business
Speaker 1: America is still very much you know, at risk. And
Speaker 1: the closer you get to the fall and the closer
Speaker 1: you get to the election, the more imperative is going
Speaker 1: to be forgiven that those are the constituents who are
Speaker 1: going to be casting ballot um, you know, to to
Speaker 1: really do a bit more to get us through to
Speaker 1: where we're at the point next year where you actually
Speaker 1: do get a more durable recovery. You mentioned China, and
Speaker 1: this is a key ingredient to markets right now. So far,
Speaker 1: I can find a little evidence of worry that this
Speaker 1: escalation and tensions between the US and China is leading
Speaker 1: to any dampening in the risk on trade. Do you
Speaker 1: think that right now investors are overly complacent that we're
Speaker 1: not going to see a ramping up of tensions that
Speaker 1: will have a drag on global growth, especially heading into
Speaker 1: the election. Well, I think it's it's it's probably more
Speaker 1: bluster heading into the election. Um. But if you actually
Speaker 1: look at the options market, which as you know, we do,
Speaker 1: what you've seen again is that the the hedging for
Speaker 1: the term just past the election has become cautionary. Again.
Speaker 1: Downside puts have become very expensive relative to upside calls,
Speaker 1: which tells you that the risk, particularly with regard to
Speaker 1: your polity, is more an issue. And we think that's applicable,
Speaker 1: you know, regardless of who wins the election in November. Julian,
Speaker 1: always great to catch up with you send our best
Speaker 1: of the family. Weren't you brilliant to hear from your
Speaker 1: Julian and many were there of BT I g to
Speaker 1: talk about the bond market. Let's bring in a good
Speaker 1: friend of this program, Kathy Jones of SHOs Schwab. Kathy,
Speaker 1: fantastic to have you with us. I've been thinking about
Speaker 1: what I know you've been thinking about, what would create
Speaker 1: the most amount of pain in this market for the
Speaker 1: most amount of people. Inflation? How underpriced is inflation coming
Speaker 1: out of this as we reopened, Kathy. Oh, it's really underpriced.
Speaker 1: And you know, let me be clear, we're not looking
Speaker 1: for a lot of inflation. We have to get through
Speaker 1: the deflation before we get to worrying about the inflation.
Speaker 1: But when you look at the way the markets priced
Speaker 1: right now, there's really no there's no expectation built into
Speaker 1: the bond market of inflation, and so it's a huge
Speaker 1: concern that keeps coming up with our clients, even though
Speaker 1: we think it's a couple of years down the road,
Speaker 1: if it's out there at all. It just seems to
Speaker 1: be some confidence, much more so about the front end
Speaker 1: of any yield curve at the moment, Cathy, And for
Speaker 1: good reason as well. It's really anchored central banks are
Speaker 1: just going to sit there for a long long time.
Speaker 1: It seems to be a lot more uncertainty about the
Speaker 1: longer end have a ten year and out response to
Speaker 1: any pick up in inflation, Cathy, What are your thoughts
Speaker 1: on that at the moment, particularly specifically here in the
Speaker 1: treasury market. Yeah, I think that there is the expectation
Speaker 1: that a worst case scenario, the Fed goes to yield
Speaker 1: curve control, and that keeps the short intermediate term at
Speaker 1: least anchored, and that they would take whatever moves they
Speaker 1: would need to take in order to anchor the long
Speaker 1: end of the curve as well as much as they
Speaker 1: did in that post World War two era. UM. But
Speaker 1: I do think that, you know, for people who are
Speaker 1: worried about inflation or at this this point, the cheapest
Speaker 1: way to hedge it is probably tips. Um There there's
Speaker 1: almost no yield. In some cases they have negative yields,
Speaker 1: but um in terms of hedging tail rift tips are
Speaker 1: a very efficient way to do that. And we do
Speaker 1: see people kind of barbelling their portfolio, so they're buying
Speaker 1: kind of short term credit and long term tips as
Speaker 1: a way to play both ends of the spectrum. I'm
Speaker 1: struggling to understand that where the inflation would come from.
Speaker 1: People talking about how money printing in the past hasn't
Speaker 1: led to inflation. Certainly we didn't see it after two
Speaker 1: and eight. I do wonder though, whether the trade issues
Speaker 1: and the deglobalization that we were talking about early on
Speaker 1: the program will lead to inflation. The idea that overseas
Speaker 1: production was cheaper, you bring it back on shore, it
Speaker 1: gets more expensive. How much is that driving the sort
Speaker 1: of barbel idea that you have. There's quite a bit
Speaker 1: of thought about that. Um, I'm a little bit skeptical
Speaker 1: that companies are really going to reshore that much because
Speaker 1: it's still going to be a big leap in terms
Speaker 1: of their costs, and can they really pass those costs
Speaker 1: on to consumers and um, and not just hurt their margins.
Speaker 1: So I could see that you'll see some movement of
Speaker 1: concentration out of China, as we've already seen, but a
Speaker 1: lot of it is still going to places that the
Speaker 1: labor costs are cheaper and you still have sort of
Speaker 1: this access to global supply chains a Latin America, obviously
Speaker 1: the rest of Southeast Asia. So you know, if it's
Speaker 1: going to happen, if the globalization is going to happen,
Speaker 1: I think it's a long term process, just a globalization
Speaker 1: was so, Um, we're just not seeing the kind of
Speaker 1: inputs to inflation that I think will produce it in
Speaker 1: the next year two or probably even three. But at
Speaker 1: some point down the road, you know, there's always a
Speaker 1: possibility it could materialize, and I frankly think central banks
Speaker 1: would welcome it, right, they'd be very tolerant of an
Speaker 1: overshoot on inflation at this age of the game. Well,
Speaker 1: that's the point, isn't it, Kathy, that'd be tolerant of it.
Speaker 1: Let's talk about that reaction function, how they would respond
Speaker 1: to any of this. Do you think they'd respond at all?
Speaker 1: Not initially, um, you know, if you think that the
Speaker 1: safe for the FED. They've undershot their inflation target for
Speaker 1: I don't know how many years now. UM. We've heard
Speaker 1: from Powell that you know, the emphasis on this is
Speaker 1: a symmetric target at two percent on the core PCE
Speaker 1: or really whatever measure UM you want to use. And
Speaker 1: so I think they would be quite tolerant if UM,
Speaker 1: because I think the central banks believe the inflation is
Speaker 1: the problem they can solve. They've done this in the past,
Speaker 1: they know what it takes, UM, and so this is
Speaker 1: not their big concern. That deflation is the bigger concern.
Speaker 1: So I think they would let it run for a
Speaker 1: bit as long as it was a mild acceleration and
Speaker 1: not a runaway acceleration. Let's talk about another problem that
Speaker 1: the federers are of another central banks can't solve, or
Speaker 1: perhaps have been unwilling to solve, and that's bankruptcy. And
Speaker 1: John and I were talking about this earlier, this idea
Speaker 1: that is there any discomfort emerging from f O m
Speaker 1: C members given the fact that we're seeing a rally
Speaker 1: in the riskiest debt this month, which is actually outperforming
Speaker 1: safer notes as investors get more complacent that they'll be
Speaker 1: back stopped by the FED and fiscal stimulus. I'm wondering
Speaker 1: how much that disconnect has led to elevated prices. In
Speaker 1: other words, how much pain are people going to feel
Speaker 1: who are buying triple C bonds right now. Yeah, it's
Speaker 1: been quite remarkable to me how people have sort of
Speaker 1: piled in UM because of the perception that the FED
Speaker 1: is going to buy the whole high heal bond market.
Speaker 1: I mean, if you if you listen to what they
Speaker 1: said and look at the term sheet, they're not buying
Speaker 1: the entire market. I can see that spreads were so
Speaker 1: elevated that they needed to come down that. I think
Speaker 1: that that makes sense. Just the provision of liquidity help that.
Speaker 1: But you know, they've been very specific about buying some
Speaker 1: fallen angels UM a small all amount, a limited amount
Speaker 1: of e TF. But you know, people are trained now.
Speaker 1: I think there's just conditioned now if the fet is
Speaker 1: buying it. They're buying it, and the perception is that
Speaker 1: the FETE is supporting the high yield market broadly speaking,
Speaker 1: and a lot of people have running. If you look
Speaker 1: at the assets under management and some of the bigger
Speaker 1: e t F they've jumped in the last couple of weeks,
Speaker 1: so clearly a lot of people are chasing the trade. Yeah,
Speaker 1: it's been shocking to me. I've been watching h y G,
Speaker 1: the Black Rock High Old bondy TF. It's seen nearly
Speaker 1: two billion dollars of the influence over the past week,
Speaker 1: more than five billion dollars so far year. Today, I'm
Speaker 1: just wondering, are you selling this? Are you basically saying
Speaker 1: we're out, We're done. We think you guys are overpricing
Speaker 1: the FED put and right now we just want to
Speaker 1: hide out an investment grade and treasuries well, we definitely
Speaker 1: prefer investment grade UM and at the shorter end, you know,
Speaker 1: one to five years, which is what the FET is
Speaker 1: buying on. On the higher we're neutral, but we're being
Speaker 1: really cautious because a lot of these companies won't qualify
Speaker 1: for the FENS program. UM. We do look for defaults
Speaker 1: to pick up maybe and as high as ten percent
Speaker 1: in the speculative default, and we think recovery rates are
Speaker 1: going to be low so UM, particularly with you know,
Speaker 1: the triple cs and the very low rated bonds UM,
Speaker 1: we would definitely be out of that me, Lisa, this
Speaker 1: is the pain trade, isn't it? And we saw it
Speaker 1: play out in Europe over the last ten years. Once
Speaker 1: the central bank gets involved in an asset class, it's
Speaker 1: totally divorced from fundamentals. You can get spreads grinding tighter
Speaker 1: even as the economy hardly picks up. We saw that
Speaker 1: over the last ten years, and I do wonder, Lisa,
Speaker 1: whether that is the playbook this time around, or whether
Speaker 1: things are somewhat different. You can't have fed money preventing bankruptcies.
Speaker 1: There's only so long that asset prices can remain elevated
Speaker 1: at a time when these companies are getting no revenues.
Speaker 1: That's what I'm struggling with, and the idea that some
Speaker 1: of these companies are putting up islands and cruise ships
Speaker 1: in order to raise more money and stay alive. At
Speaker 1: a certain point the time runs out, which I guess, Cathy,
Speaker 1: that's my question. What's sort of the tipping point at
Speaker 1: which these companies become insolvent and no amount of fedbackstop
Speaker 1: can help them. Yeah, I think it's coming, you know,
Speaker 1: I think it will probably materialize later this year. Um,
Speaker 1: we're not seeing the revenue pickup that a lot of
Speaker 1: these companies need. A lot have been living on rolling
Speaker 1: over short term debt in the bank loan market, and
Speaker 1: that that market is has deteriorated pretty quickly. So I
Speaker 1: think it's coming later this year. For the really low
Speaker 1: rated credits. This has been the initial kind of euphoric
Speaker 1: move of recovery off of you know, spreads at over treasuries,
Speaker 1: and now they've come down to something that's you know,
Speaker 1: closer to realistic, I guess, given the backdrop. But even um,
Speaker 1: even if if the whole country opens up, and even
Speaker 1: if you know, we start to see recovery, I think
Speaker 1: some of those companies just can't make it. Their debts
Speaker 1: are too high. They're not going to recover um to
Speaker 1: profitability anytime soon. And I think their leverage ratios just
Speaker 1: got two out of control. So I think it's coming
Speaker 1: probably late this year. Cathy Jones will continue the conversation,
Speaker 1: no doubt. Kathy from Cha Shwa Lisa, just a lot
Speaker 1: of optimism over the last couple of days relative to
Speaker 1: where we were several weeks ago about how quickly we
Speaker 1: can reopen, but not only that, how quickly we can
Speaker 1: get back to normal. Yeah, if you look at the
Speaker 1: pictures over the weekend, the pandemics over John, that's apparent
Speaker 1: from the Lake of Ozarks. Apparently as everybody gathers in
Speaker 1: and crowds pools. My question is, are we going to
Speaker 1: see a second wave of infection in two weeks that
Speaker 1: will reverse what we've seen, or is this going to
Speaker 1: give fuel to people who think that perhaps some of
Speaker 1: the shutdowns have been overdone, giving more of a lift
Speaker 1: to equity market. It's a big question mark and ultimately
Speaker 1: it will be one of the determining factors of what's
Speaker 1: to come this summer. Let's have that conversation on reopening
Speaker 1: the conversation of the Morning on that very topic. I'm
Speaker 1: pleased to say that the fifty four mayor of Boston
Speaker 1: joins us now. Ma't Marty Welsh, Mr Maynor, fantastic to
Speaker 1: have you with us on the program. I'd love to
Speaker 1: get your thoughts on this. There is so much discussion
Speaker 1: at the federal level, how quickly we should open up
Speaker 1: At the state level, can you talk to us about
Speaker 1: the city level why Boston needs to go at its
Speaker 1: own pace. I mean, first of all, thank you for
Speaker 1: having me this morning. Or secondly, I think that Boston
Speaker 1: is a very densely populated city. We're about seven hundred
Speaker 1: thousand people and about forty seven square miles. Every day
Speaker 1: when we're in normal circumstances, are city doubles in size
Speaker 1: for people coming in to go to work here in Boston.
Speaker 1: And during college season, we had another hundred and fifty
Speaker 1: to two hundred thousand college students in our city, graduate
Speaker 1: students that are learning here in the city of Boston.
Speaker 1: So what I want to make sure is is we reopen,
Speaker 1: we get it right. I'm and about a second surge,
Speaker 1: and I don't think that our economy and necessarily can
Speaker 1: handle a second surge and a complete shutdown. So I
Speaker 1: think it's very important that as we as we reopened,
Speaker 1: whether it's office buildings or manufacturing or whatever it might be,
Speaker 1: that we do it in a in a very thoughtful,
Speaker 1: methodical approach, so that we so we don't have to
Speaker 1: in the event of a second surge. Again. Well, it's
Speaker 1: just in terms of the education system. And you've touched
Speaker 1: on that, let's expand on it. What's the city prepared
Speaker 1: for just in terms of how quickly we can get
Speaker 1: the schools reopened. Well, the colleges and universities are making
Speaker 1: having conversations now. Uh, some of them have already made
Speaker 1: statements that they'll be back in August, and I hope
Speaker 1: they are. Uh. They're talking about doing massive testing and
Speaker 1: tracing and also potential ices self isolation and if if
Speaker 1: somebody tests positive. You know, it's a big part of
Speaker 1: our economy here in the city of Boston. It's a
Speaker 1: large employer in these college students that come in and
Speaker 1: spend a lot of money in our city. They in
Speaker 1: our restaurants, they shop on our store. So it would
Speaker 1: be great to see schools open. But the way that's
Speaker 1: really important for me anyways, Mayor, is to make sure
Speaker 1: that they're healthy as well. I mean this this is
Speaker 1: in health, health care, adversity, economy. This all has to
Speaker 1: be together. Public health is vitally employed. Right now as
Speaker 1: you move forward, Uh, you know, nearly over three hundred
Speaker 1: thousand people have lost their life. Assume me three three
Speaker 1: thousand people lost life in the world A hundred hundred
Speaker 1: thou in the United States of America, and quite honestly,
Speaker 1: if we didn't take all the precautions that we did
Speaker 1: over the last three months, that number would be five greater.
Speaker 1: In Massachusetts, were the fourth highest state for the number
Speaker 1: of cases, in the third highest state for deaths. And
Speaker 1: that's not where you want to be. And it's important
Speaker 1: that we take continue to take this serious and now
Speaker 1: is not the time to let our guy down. Mr Mayer.
Speaker 1: I'm wondering whether reopening plans can be determined locally, city
Speaker 1: by city, or whether in order to be effective they
Speaker 1: really have to be federally coordinated. I don't think they
Speaker 1: did federally coordinated. I think they have to be state coordinated,
Speaker 1: and I think they have to be almost in in
Speaker 1: massagus as we usually go by cities and towns. But
Speaker 1: if you can do about county uh in Massachusetts, the
Speaker 1: two of the highest counties that have the highest number
Speaker 1: of cases of Middlesex County in southak County, we're in
Speaker 1: southa County and Middlesexes next door. If there's an opportunity
Speaker 1: for us to look at kind of the approach of
Speaker 1: New York was looking at letting some counties open up
Speaker 1: ease and restrictions. You have rural and and and uh
Speaker 1: and in suburban areas, uh you know, uh so, so
Speaker 1: it really is important to think about the thought fulm
Speaker 1: when you think about reopening. You can't just blankely reopen
Speaker 1: across the country. You know, Massachusetts, Michigan, New York, New Jersey,
Speaker 1: the highest states. What we're dealing with a different The
Speaker 1: challenges in our states are a lot different than than Wyoming,
Speaker 1: North Dakota, South Dakota, and and and and you know
Speaker 1: maybe uh Louisville, so Kentucky, I should say. So, I
Speaker 1: don't think it can be a state by state. It
Speaker 1: has to be um can't. It can't be by the country.
Speaker 1: Should say, it has to be state by state. And
Speaker 1: we're also sharing best practices. So what I watched is
Speaker 1: going on in Seattle. I watched going in l a
Speaker 1: and New York, in Houston and Austin places like that.
Speaker 1: In Chicago, and I make decisions. Sometimes my decisions are
Speaker 1: based on what they're doing or where they're out on
Speaker 1: the surgery for ahead of them, they follow us, and
Speaker 1: when we follow them, it's about sharing better practices. Mr
Speaker 1: mayor based on your experience with the virology here, I'm
Speaker 1: wondering whether you think that the data backs up the
Speaker 1: reopening enthusiasm that we saw across the country over the weekend.
Speaker 1: I think that the data backs up the reopening, and
Speaker 1: for follow it, I think it's not being followed consistently
Speaker 1: across the country. I think that you know, the data
Speaker 1: shows that we don't have fourteen day declines and people
Speaker 1: feeling the precture reopened. And I appreciate that. I'm elected
Speaker 1: official of mayor Boston for seven years. Uh and and
Speaker 1: I can feel the precture sometimes, but it's not about
Speaker 1: the pressure. It's about doing the right thing. Uh. There's
Speaker 1: no difference between reopening and shutting down. When you make
Speaker 1: a decision shutdown a city, which not many people have
Speaker 1: had to do in the last hundred years. Quite honestly,
Speaker 1: their difficult decisions. As we think about reopening all of
Speaker 1: the work that was done over the last three months,
Speaker 1: whether it's in Boston or in the Ozarks, how do
Speaker 1: you can't just let that go by? Just reopening because
Speaker 1: people want to be out in the sun. It's not
Speaker 1: it's not a safe way to do it. Because the
Speaker 1: data will show us again if there's a second surge,
Speaker 1: if that surge could be worse than the first one,
Speaker 1: and that's where the problems will come into play. Well,
Speaker 1: it's just in the forty five seconds we have left
Speaker 1: with you, I think it's important to touch on austerity.
Speaker 1: The good news is that the budget was in good
Speaker 1: shape in Boston coming into this particular crisis. Coming out
Speaker 1: of it. There's a real fair about state and city
Speaker 1: level austerity. Could you set expectations for us appropriately? Appropriately,
Speaker 1: I mean, I think we've had seven years of incredible
Speaker 1: growth in the City of Boston. In this coming year,
Speaker 1: what we're gonna do is preserve the important pieces of
Speaker 1: the budget. We're going to be making investments in education, investments,
Speaker 1: and housing, but we still have to have a balance,
Speaker 1: responsible budget, so there will be cuts across the board
Speaker 1: in the City of Boston. Our final budget will be
Speaker 1: voted around sometime in the next three weeks here, and
Speaker 1: we're working right now without Boston City Council to come
Speaker 1: up with the final products. So it won't be as
Speaker 1: it won't be as row as the budget as as
Speaker 1: as last year was. But hopefully we get out of
Speaker 1: this safely and next year we're going back to prosperity again. Marty.
Speaker 1: I hope this is a conversation we can continue. I
Speaker 1: look forward to doing that with you over the next
Speaker 1: several months on this particular topic, because I think it's
Speaker 1: a really important conversation. Boston's Mayda there, Marty Welsh on
Speaker 1: reopening in Boston as we shift gears to China very
Speaker 1: much also in the focus right now, and I'm so pleased,
Speaker 1: say Leland Miller of the China Beige Book CEO joins us.
Speaker 1: Now so hard to parse the noise from the reality
Speaker 1: when it comes to some of the saber rattling between
Speaker 1: the US and China. Leland, what measures being currently proposed
Speaker 1: by US Congress should traders should analysts be taking more seriously? Well,
Speaker 1: there are a couple of different things happening right now,
Speaker 1: and I think that's one of the reasons why people
Speaker 1: are a little bit complacent about what's what's really an
Speaker 1: enormous downside risk to markets over the coming weeks and months.
Speaker 1: Uh Potus has come out and said, Uh, we're gonna
Speaker 1: make a big and you know, I'm gonna make a
Speaker 1: big announcement on Friday. The presumption is he's gonna come
Speaker 1: out with some sanctions and some other some other threatening moves.
Speaker 1: UH Congress has come out with a bill that is
Speaker 1: actually quite aggressive and then its sanctions individuals, but it
Speaker 1: also sanctioned Chinese banks that assist those individuals and cracking
Speaker 1: down on the Hong Kong protests and and so you've
Speaker 1: got these sanctions looming over over markets. But the bigger
Speaker 1: deal is actually the question of special status for Hong Kong.
Speaker 1: So Hong Kong has a special relationship with the United
Speaker 1: States in that UH, we don't treat it like mainland
Speaker 1: China said, it's sufficiently autonomous from China to treat it differently,
Speaker 1: and the State Department has to make an annual certification
Speaker 1: that that remains the case. This has always been sort
Speaker 1: of performer for years and years and years. Now it's
Speaker 1: a big question. And if this passes, if these Article
Speaker 1: twenties three sedition laws are jammed through Hong Kong from Beijing,
Speaker 1: there's a very good chance. But we will see the
Speaker 1: certification from the State Department, and that the certification will
Speaker 1: likely lead at some point in the near future to
Speaker 1: special status removal, although the president will have the ability
Speaker 1: to make that bigger or or or lesser, depending on
Speaker 1: how he wants to to run this. So a lot
Speaker 1: of things and a lot of risks coming from from
Speaker 1: these actions. Leland, who would that hurt more provoking the
Speaker 1: special trading status the US or China? Well, you know,
Speaker 1: it's not really gonna hurt China directly. It's gonna hurt
Speaker 1: Hong Kong. And that's the main problem with this is
Speaker 1: that most people in Hong Kong are very, very opposed
Speaker 1: to the fact that Beijing is stamping out their liberty
Speaker 1: and and and doing away with one country, two systems.
Speaker 1: That's why this isn't an automatic move uh in regards
Speaker 1: to Article twenty three. But I think the United States
Speaker 1: will have to move forward. Is particularly if you start
Speaker 1: seeing a restive actions UH when the NPC, when the
Speaker 1: National People's Congress language is announced, you'll have a question
Speaker 1: of whether it's going to be uh, you know, softly introduced,
Speaker 1: or whether you immediately see the security services pulling people
Speaker 1: out of their houses in preparation for you know, Tanneman
Speaker 1: Square anniversaries next week. It's a huge political anniversary. So
Speaker 1: depending on how the Chinese handle this, you could see
Speaker 1: a very fierce reaction in a matter of days, or
Speaker 1: you could see this as a slow boil through the
Speaker 1: next couple of months. Leland, Why is Beijing doing this now? Well,
Speaker 1: I think that it's tempting to look at this through
Speaker 1: the prism of US China relations and and and certainly
Speaker 1: there's an element of this, But the reality is that
Speaker 1: in September, Hong Kong has legislative council elections, and just
Speaker 1: like the lower elections that were held a number of
Speaker 1: months ago, pro Beijing forces look like they're going to
Speaker 1: be very very poorly. So if you're ever going to
Speaker 1: sort of tighten the screws and put in uh some
Speaker 1: some stronger laws to give Beijing control and make sure
Speaker 1: that Beijing is not embarrassed in September, you really have
Speaker 1: to act now this summer in order to change the
Speaker 1: landscape so that Beijing is not embarrassed in September. So
Speaker 1: a combination of what's happening externally and what's happening in
Speaker 1: Hong Kong domestically has created this window where Beijing has
Speaker 1: to act, and probably act aggressively, if it wants to
Speaker 1: change what's going to happen in the fall. And it
Speaker 1: looks like that's what it's doing right now. John and
Speaker 1: I were talking throughout the morning about how markets are
Speaker 1: pretty much shrugging off a repeat of what we saw
Speaker 1: in recent years with respect to the rising tensions between
Speaker 1: the US and China over trade. A lot of people
Speaker 1: saying Phase one trade agreement still on both countries needed,
Speaker 1: you're saying it's basically dead in the water. Why do
Speaker 1: you say that? Well, look, when when people hear sanctions,
Speaker 1: if they're they're right to sort of, you know, roll
Speaker 1: their eyes a little bit, say how meaningful are these
Speaker 1: sanctions to be? Is the Congress or is President Trump
Speaker 1: really going to sanction since it's a very high level
Speaker 1: pulp of bureau members, uh, you know, free their assets,
Speaker 1: do some some some big time moves on the sanction side.
Speaker 1: Probably not at least right now. So they're right to
Speaker 1: not take sanctions too seriously quite yet. But the special
Speaker 1: status is a really big deal. And if the United
Speaker 1: States uh pulls that back, then it changes the US
Speaker 1: China relationship quite significantly. And look, the this it reflects
Speaker 1: the overall deterioration of the U. S. China relationship going
Speaker 1: into the fault. I mean, it's getting very, very toxic,
Speaker 1: and you know, My belief is it's going to be
Speaker 1: very hard for the President to stand by the Phase
Speaker 1: one deal when he's not seeing the deal filled. He's
Speaker 1: going into a very rough election season. China is the
Speaker 1: topic of the day. Whose means to China, you know,
Speaker 1: as the the guy is gonna win this, and he's
Speaker 1: gonna have to stand by the deal until he can't.
Speaker 1: So I think Phase one is in real trouble. I
Speaker 1: think it's likely we don't see it survive the election.
Speaker 1: And uh, this is just a reflection of the overall
Speaker 1: toxicity of the relationship right now. Lelan Miller, CEO of
Speaker 1: China Page, thank you so much for being with us.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform you prefer. I'm on Twitter at Tom Keene before
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg Radio.