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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jelie.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. After

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Speaker 1: the rally of the last couple of weeks, we're really

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Speaker 1: happy to say we can kick up this morning's program

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Speaker 1: on Bloomberg TV and on Bloomberg Radio with Bob Dol

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Speaker 1: of New vn Asset Management, the chief equity strategist. Bob,

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Speaker 1: the breadth has improved, at least coming into today. But

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Speaker 1: for every Jp Morgan, there is a car rental cup

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Speaker 1: company that is absolutely ripped. And I think a lot

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Speaker 1: of people are trying to work out the distinction between

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Speaker 1: a durable rotation and an unsustainable speculative rally over the

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Speaker 1: last two months, which one is at the moment For you, Bob,

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Speaker 1: at the moment in the short term, it's there's this

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Speaker 1: little speculation. I think the market's a little ahead of self.

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Speaker 1: But but but remember the stock market went down thirty

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Speaker 1: and a little more than a month before we got

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Speaker 1: hardly any bad news about the economy. The stock market

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Speaker 1: is a forward looking discounting mechanism, and its rise now

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Speaker 1: is telling us things are going to be better down

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Speaker 1: the line for most businesses. Some won't come back, but

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Speaker 1: for most businesses. UM, given the flood of monetary and

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Speaker 1: fiscal policy, the amount of cash that's slashing around the whole,

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Speaker 1: Tina and Fomo arguments, that's what's pushing pushing stock higher.

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Speaker 1: They need arrest. Maybe today's that rest. We'll see how

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Speaker 1: long it left. Robert dal there's the acclaimed doll meter,

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Speaker 1: and the doll meter, folks, is the enthusiasm on board?

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Speaker 1: What do you see in volume? What do you see enthusiasm?

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Speaker 1: What does new vins and flows about whether this this

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Speaker 1: lift is loved or unloved and it is all mediocre.

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Speaker 1: That is the volume. You pointed that out a couple

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Speaker 1: of minutes ago. What we are seeing if you look

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Speaker 1: inside volume, tom is upside volume is dominating downside volume,

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Speaker 1: and so that's encouraging despite the fact that over all

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Speaker 1: volume numbers aren't as strong as you might like. As

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Speaker 1: you know, some of the reason stocks are going up

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Speaker 1: short covering a lot of shorts put out there when

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Speaker 1: it looked like um, this thing was gonna go down

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Speaker 1: quote forever, and they're still covering. Bob, I'm struggling to uh,

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Speaker 1: struggling with the idea of Fomo and Tina, which makes

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Speaker 1: sense given the fact that we are seeing an incredible

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Speaker 1: amount of support from the Federal Reserve and from Congress.

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Speaker 1: Trying to pair that with the idea that shares of

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Speaker 1: Hurts and J. C. Penny and Chesapeake surged yesterday. These

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Speaker 1: companies are all bankrupt or on the brink of bankruptcies.

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Speaker 1: The shares of Hurts, for example, doubling yesterday. Why because

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Speaker 1: can you give us a sense of whether this is

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Speaker 1: perhaps a harbinger of excessively frall the behavior that needs

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Speaker 1: to get blown off in a little bit in order

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Speaker 1: to make you confident to go back in. Yes, I

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Speaker 1: think the fact that those kinds of stock now a

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Speaker 1: lot in those three stocks were short covering, no question

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Speaker 1: about it, and that just pushes up because that then

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Speaker 1: the sellers just step out of the way and we

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Speaker 1: get the wish up. But that is a sign in

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Speaker 1: the short term, there's a little speculation going along. People

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Speaker 1: are looking around and say, Okay, what hasn't moved, Let

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Speaker 1: me go buy some of that the FOMO and TENA

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Speaker 1: arguments are not great long term environment. You want buy

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Speaker 1: somebody buying a stock because they've done their homework and

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Speaker 1: they liked the earnings and they like the valuation, not

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Speaker 1: because they just think it's going to go up, and

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Speaker 1: so I better get in. Let's talk about what's fueling

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Speaker 1: that outside of Central Bank Monechy policy and the stimulus

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Speaker 1: we've seen. But there's a huge focus on reopening here

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Speaker 1: in New York City and globally. And if you go

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Speaker 1: from shutdown to reopen, of course, naturally the data sequentially

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Speaker 1: will improve month or month. But I'm interested in the

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Speaker 1: positive surprises. Macy's reporting earlier this morning that they've reopened

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Speaker 1: stores and they're performing better than anticipated. Are you seeing

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Speaker 1: enough positive surprises outside of the sequence your month on

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Speaker 1: month improvement improvement beyond what you expected? Bob, Yes, faster

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Speaker 1: and bigger on the improvement side, no question about it.

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Speaker 1: But but I think of lifts announcement last week. Months

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Speaker 1: over month, our rides are up. Wow, I'm impressed, but

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Speaker 1: don't forget they're down from a year ago. There are

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Speaker 1: a lot of those kind of comparisons where the other

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Speaker 1: month over month, of the quarter over quarter are going

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Speaker 1: to look phenomenal. We'll see that for third quarter g

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Speaker 1: d P and probably fourth quarter g d P the

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Speaker 1: numbers be a big bounce from where we were. But

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Speaker 1: don't forget we're still I say, we've moved from the

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Speaker 1: tenth to the third sub basement. We've not yet found

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Speaker 1: new high economic ground. That's going to be many quarters

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Speaker 1: down the line. Well, but we got to appreciate them.

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Speaker 1: What is the dominant driver of markets right now? Will

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Speaker 1: it be the sequential improvement that we see in Macy's

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Speaker 1: and other companies as well, or will it be the

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Speaker 1: limits of normalization in the short term. It's certainly the former,

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Speaker 1: and I think the trillion dollar question is when it

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Speaker 1: starts to rotate to be the latter. Bob, how do

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Speaker 1: you see that plan out? I think it's frankly both.

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Speaker 1: I'm not dodging a question. I think it's both. And

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Speaker 1: then when you overlay what we talked about before, the

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Speaker 1: most gargageant and quickest policy response to a problem in

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Speaker 1: modern times, even since Tom's been around, you haven't seen

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Speaker 1: this before. It's just gargageland. You put that all together,

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Speaker 1: it is very powerful. So you're getting both of those

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Speaker 1: data elements, Jonathan. But we are going to be hearing

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Speaker 1: from the Senate Finance Committee to debating re upping some

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Speaker 1: of the enhanced unemployment benefits. A lot of people saying

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Speaker 1: that the market is pricing in that there will be

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Speaker 1: an extension. What kind of disappointment do you expect or

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Speaker 1: upside surprise if the Senate acts one way or another

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Speaker 1: on these unemployment benefits. I think the market is expecting

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Speaker 1: another biddle um, including those the benefits you just mentioned.

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Speaker 1: Needless to say, the employment report of last Friday has

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Speaker 1: to call in the question do we need another stimulus package?

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Speaker 1: But I think Nancy Pelosi wants once. She told us

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Speaker 1: that a month ago, with a three trillion dollar trial

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Speaker 1: balloon and the presidencies November coming up on his calendar

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Speaker 1: all too quick, and he wants a bill as well.

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Speaker 1: So maybe it's a smaller bill a trillion. I can't

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Speaker 1: believe I'm saying that smaller, but smaller than we might

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Speaker 1: have gotten otherwise. But there's gonna be some stuff from

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Speaker 1: both sides. We will get some extension of the employment benefits,

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Speaker 1: in my judgment, will get something, uh, some litigation help

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Speaker 1: for from the Republican side, and we'll get some state

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Speaker 1: and local aid from the Democratic side. It will be

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Speaker 1: a little bit of Christmas tree bill, and we'll get

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Speaker 1: one done. But there'll be a lot of longer heads

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Speaker 1: between here and there. Always got to catch my best

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Speaker 1: to even to say anti even yours is wilp up

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Speaker 1: to all of no vain. John, It's so good for

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Speaker 1: me to be at home here in New York because

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Speaker 1: I'm near my vast library. I had the intern here

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Speaker 1: and go back deep into the archives. And John in

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Speaker 1: Olivier Blanchard Macroeconomics, my audition is a little younger is John.

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Speaker 1: On page ninety four, here is Professor Blanchard. May I

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Speaker 1: quote John, of course, And when and when you feel

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Speaker 1: really confident, put on a bow tie and go explain

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Speaker 1: events on TV. Why do so many TV economists actually

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Speaker 1: wear bow ties? Is a mystery the gospel according to

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Speaker 1: Olivier Blanchard, of course, out of his classic And that's

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Speaker 1: the quote out of his classic book on economics. He

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Speaker 1: is Olivier Blanchard, of course, And his steam tenure at

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Speaker 1: the International Monetary Fund is chief Economists studying under Stanley

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Speaker 1: Fisher at his Massachusetts Institute of Technology, and now at

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Speaker 1: the Peterson Institute Holding Court with Adam Pose and Professor

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Speaker 1: Blanchard honored to have you with us today. You are definitive,

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Speaker 1: and you have been wonderful. You have been definitive Olivier

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Speaker 1: in saying we must have the courage to reflate. With

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Speaker 1: the years that you've studied this topic, do we have

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Speaker 1: the ability, led by Jerome Powell, to reflate ourselves out

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Speaker 1: of this low interest rate regime? I do not care

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Speaker 1: too much about what happens to interest rates. I care

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Speaker 1: about what happens to the economy. And it may well

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Speaker 1: be that we need to have a low rates for

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Speaker 1: a long time. That's not a catastrophe. But on your

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Speaker 1: on your question, yes, I think we can reflate. I

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Speaker 1: think we can go back not quite to the old normal,

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Speaker 1: but to something not far from it. And we can

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Speaker 1: probably go the fairly quickly, you wrote, Olivier, And you

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Speaker 1: spoke at the American Economic Association a year and so ago,

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Speaker 1: a year and a half ago about our public debt?

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Speaker 1: Are we national using our public debt? Have we messed

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Speaker 1: up our bond markets so much with this fat action

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Speaker 1: that it's ere reparable? Well, this we surely disagree I

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Speaker 1: think there are two issues. The level of debt, and

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Speaker 1: I think we were wise in this case to spend

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Speaker 1: what we needed to spend. And yes, they will be

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Speaker 1: hired debt later, but it's not catastrophic at all because

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Speaker 1: the interest rates are low. And then on the central banks,

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Speaker 1: they did what they had to do, which is they're

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Speaker 1: not trying to make life nice for the government, that

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Speaker 1: basically trying to put the economy up. And the result

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Speaker 1: of this is that they have a low rates, which

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Speaker 1: is the right thing to do, and one of the

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Speaker 1: channels is that it makes for life of the government

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Speaker 1: a bit better than it would otherwise. So yes, I

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Speaker 1: think both both fiscal and the much authorities at this

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Speaker 1: stage in most countries are doing the right thing. I'm

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Speaker 1: not to be worried, Tom Kane. Can we just confirm

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Speaker 1: that you don't actually have an internship and turn at

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Speaker 1: home and Mrs Kane is the one that you going

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Speaker 1: to get the books from the next show you. No,

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Speaker 1: we're very lucky. We were going to do an extern

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Speaker 1: and a virtual intern kind of thing like a lot

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Speaker 1: of corporations are doing. And we are able to desanitize

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Speaker 1: the house so that we're able to get an intern in.

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Speaker 1: That's very thoughtful of you, Tom that it's very thoughtful.

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Speaker 1: I imagine HR is going to reach out very shortly

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Speaker 1: to find out what on earth is going gone at

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Speaker 1: Kasa Kane very shortly. Olivia's fantastic to have you with

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Speaker 1: us on the program. Toma's question on debt, I think

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Speaker 1: is an important one. We have the debt on the

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Speaker 1: official sector balance sheets, and then we have the debt

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Speaker 1: that has increased on private sector balance sheets. I want

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Speaker 1: to post the following question to you, thinking about the

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Speaker 1: latter and not the former. A lot of companies are

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Speaker 1: taken on a significant amount of debt over the last

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Speaker 1: several months, Olivia, how does that shape your thoughts about

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Speaker 1: how this economy recovers over the next several years. I

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Speaker 1: think that's one of the issues we have to watch

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Speaker 1: out for. I think it's more of an issue for

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Speaker 1: small and medium size firms, and there they some of

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Speaker 1: them should be given a break. I mean they accummulated

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Speaker 1: debt because they had cost, even because they were close,

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Speaker 1: but they still had cost. Then there should be a

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Speaker 1: way of helping them out. Um this could be done

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Speaker 1: by just forgetting some of the debt to the extent

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Speaker 1: that they owe it to a state, or it could

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Speaker 1: be that they may need to restructure, and then the

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Speaker 1: that has to be uh, you know, the decreased in

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Speaker 1: value of forgotten or forgiven. I think that's one of

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Speaker 1: the issues that we're going to have to deal with.

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Speaker 1: There are going to be many small firms which are

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Speaker 1: going to be in trouble because partly because of the

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Speaker 1: debt they had before, but also because of the debt

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Speaker 1: they have accumulated since then. So one of the issues

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Speaker 1: which I wanted to discuss review is and one of

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Speaker 1: the things that we have pushed with two colleagues is

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Speaker 1: the notion that the normal way of restructuring, that which

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Speaker 1: is a fairly heavy way, may well be overwhelmed by

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Speaker 1: the amount of of of of potential restructuring which are

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Speaker 1: going to have to be done. And so one of

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Speaker 1: the things that we propose is a simpler restructuring process

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Speaker 1: in which at least the part of the debt which

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Speaker 1: is due to the state would be basically automatically adjusted

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Speaker 1: rather than as a result of bargaining between the state,

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Speaker 1: the firm and the banks. But in short, this is

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Speaker 1: a big issue, I think mostly from the small and

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Speaker 1: medium sized firms, Olivia, Let's build on what you're saying

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Speaker 1: on the proposal, where there's sort of a mathematical haircut

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Speaker 1: that all debt owners have to take and that companies

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Speaker 1: can just accept into their balance sheets in order to

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Speaker 1: reduce their debtload. What kind of disruption would that lead

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Speaker 1: given the fact that the holders of this debt are pensions,

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Speaker 1: are foundations, our state and local governments, the fact that

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Speaker 1: this is not a zero sum it's not it's not

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Speaker 1: that you can just sort of cut one side of

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Speaker 1: the balance sheet and everything is fine, I think, right,

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Speaker 1: and when when you decrease the value of the debt,

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Speaker 1: you make the debtataf, but you make the creditor works

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Speaker 1: of Uh, it's very hard to know how many firms

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Speaker 1: will have to be restructured. When we're talking about very

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Speaker 1: large firms, then that becomes a big issue for the

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Speaker 1: phones which hold the debt. I think here we're talking

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Speaker 1: about the very large number of very small firms, and

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Speaker 1: in many cases these firms are valuable. I mean, if

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Speaker 1: you take restaurants, you know, once the pandemic is gone

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Speaker 1: and physical distancing is not an issue, restaurants should be

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Speaker 1: able to do more that's what they were doing, so

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Speaker 1: what we need to forgive is a relatively small amount

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Speaker 1: of that. My sense, it's very hard to do computations

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Speaker 1: at this stage. But my sense is if we were

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Speaker 1: to restructure the debt of the small and medium sized

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Speaker 1: firms which need to be structuring, which is clearly not

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Speaker 1: all of them, this is something which is very tractable

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Speaker 1: for whoever holds holds the debt. On the other side,

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Speaker 1: for the small and medium sized firms, it's the banks,

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Speaker 1: and the banks are aware before the before the virus came,

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Speaker 1: We're in fairly good shape from that point of view,

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Speaker 1: so they can absorb is my sense, the lost that

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Speaker 1: would come from restructuring, but that of the small firms.

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Speaker 1: Professor Blanchard Bloomberg. Surveillance is talked of Paul Dagui of

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Speaker 1: LS Villa and Powder. Of course, about the changes in Europe,

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Speaker 1: we have seen McCraw and Merkele really speak about a

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Speaker 1: new unified fiscal effort in Europe. Do you buy it?

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Speaker 1: Are we going to see finally some form of mutualization

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Speaker 1: and union on the fiscal side in Europe? We are

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Speaker 1: going to see some form of mutualization and transfers in

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Speaker 1: the project which is in play, will happen in what

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Speaker 1: form exactly. I don't know whether it will come in

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Speaker 1: time to help with COVID recovery. I'm skeptical that it

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Speaker 1: will have a phone that the people who pushed it

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Speaker 1: in the first place. Uh is it going to have

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Speaker 1: a phone now? I'm not sure, but it is still

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Speaker 1: an enormous first step. It's actually two steps. What I

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Speaker 1: was hoping for was mutualization, the issuance of that by

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Speaker 1: the EU in some form, and that's going to happen.

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Speaker 1: But they did more than that. You know. I thought

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Speaker 1: that they would do this and then they would basically

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Speaker 1: just have each country get to chair of the debt

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Speaker 1: of the proceeds from the debt sale, and go from there.

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Speaker 1: But the plan as it is has mutualization and transfers,

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Speaker 1: which is that some countries will get more than they

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Speaker 1: are sharing they if they if they can justify it.

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Speaker 1: This is very ambitious. I suspect the final product, as always,

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Speaker 1: is not going to be exactly what we dreamed of.

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Speaker 1: But yes, I think symbolically it's terribly important. Once a

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Speaker 1: program like this is in place, once the EU budget,

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Speaker 1: can you know the you can issue that on its

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Speaker 1: own and use them on the in virus, whereas they

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Speaker 1: hard to go back. So again it's going to be

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Speaker 1: very bumpy. But this is genuine progress. This's church Olivia

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Speaker 1: Blanchard at the Parison Institute, Olivia, fantastic to catch up

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Speaker 1: the Thank you very much for your input. We forward

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Speaker 1: to getting back on the show right now. The number

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Speaker 1: one guy in the world on cycle research. This is

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Speaker 1: really important research. Economists have an immense respect for it

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Speaker 1: and that it is so different than the way most

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Speaker 1: economists look at the world. He has Latchman, a thon

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Speaker 1: of E. C. R. I. Eckery as well. Latchman, right

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Speaker 1: now you are seeing an upturn. How up is the upturn?

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Speaker 1: It's up, there's no doubt about it. Uh And on

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Speaker 1: the NBR and the time it takes for them to

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Speaker 1: data recession, which they said the peaked in February, that's

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Speaker 1: lightning speed. I think they had to do it because

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Speaker 1: the end of the recession is already in sight and

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Speaker 1: so they had to really get off off their seat

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Speaker 1: and and and date the peak. The stock price upturn

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Speaker 1: you guys are talking about, it's completely consistent with the

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Speaker 1: economy cyclical fundamentals. It was this was a super deep recession.

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Speaker 1: In early April ten weeks ago. We put out of

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Speaker 1: peace publicly. It's a nasty, short and bitter recession. It's

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Speaker 1: it's the end. The end is happening this summer. Uh.

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Speaker 1: And it's just because we had such a sharp decline that, um,

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Speaker 1: even a partial opening of the economy is going to

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Speaker 1: lift us off those loads and we're gonna have We're

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Speaker 1: gonna begin a recovery. It does not mean we're recovered.

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Speaker 1: We have a long way to go. Well, last one,

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Speaker 1: let's talk about that. You are an economic storian as well,

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Speaker 1: and I just wonder what the parallels are for a

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Speaker 1: moment like this and the risk of extrapolating the early

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Speaker 1: performance out too far, far too quickly. Yeah, you don't

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Speaker 1: even have to go you don't even have to be

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Speaker 1: much of an historian. Just think about this century. Okay,

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Speaker 1: everybody is hoping that it's oh, nine ten, when we

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Speaker 1: had a cyclical recovery that really was pretty self feeding.

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Speaker 1: I mean, look, we had two or three steps forward,

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Speaker 1: one step back, but generally, uh, it was a growing,

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Speaker 1: a continue recovery. Contrast that to the recovery out of

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Speaker 1: two thousand and one UH. People may forget that the

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Speaker 1: recession began before the nine eleven attacks. It began a

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Speaker 1: couple of quarters before UH. And so right after the

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Speaker 1: lows that we're seen in the market in September of

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Speaker 1: one UH, the market really took off. The recession ended

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Speaker 1: by November, and we had a rally okay, pretty good,

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Speaker 1: consistent with an end of recession. But then, and here's

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Speaker 1: where it gets a little nuanced, the cycle. While the

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Speaker 1: recovery technically continued, the economy began to decelerate again. It's

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Speaker 1: what we call a growth rate cycle slowdown. And the

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Speaker 1: market itself, perhaps related to the valuations, went down to

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Speaker 1: a new low in October vote two. So right now

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Speaker 1: it could go actually either way. This could still be

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Speaker 1: an O one oh three scenario, which would technically still

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Speaker 1: be a business cycle recovery, but a lot riskier for

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Speaker 1: market participants. M One hallmark of this entire period has

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Speaker 1: been insecurity, whether it's people being insecure after having just

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Speaker 1: lost their jobs, lost some one they loved from the

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Speaker 1: illness from the pandemic, or for economists or seeing their

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Speaker 1: projections just absolutely shattered. And I'm wondering how insecure you

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Speaker 1: are about projections, and frankly about the economic data that's

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Speaker 1: coming out with that huge miss on Friday with the

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Speaker 1: jobs report, and just how instructive this data is. I mean,

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Speaker 1: do you have confidence in these figures on direction? Yeah, So,

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Speaker 1: as Tom said in the lead in, we're a little

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Speaker 1: different than a lot of other economists. Look, I know

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Speaker 1: there's a warning label on all economic data that is produced,

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Speaker 1: uh in I mean, market prices are what they are,

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Speaker 1: survey data are what they are, government data, Hey, it's

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Speaker 1: going to be revised. And you see some of the

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Speaker 1: things that are going on with the unemployment data. We

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Speaker 1: do have, uh a recovery in employment, but it's hardly recovered.

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Speaker 1: It's just a little bit off of the lows. And

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Speaker 1: when we look at the nature of this recovery, those

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Speaker 1: cyclical indicators, I have high conviction that this recovery is

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Speaker 1: taking shape. There's a whole bunch of other dynamics that

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Speaker 1: are coming in that are on the positive side, with

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Speaker 1: the industrial cycle having having bottom globally, which are going

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Speaker 1: to help. And on the negative side, you you were

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Speaker 1: alluding to some confidence. I think that's that's gonna weigh

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Speaker 1: on on on the pace of recovery. As will the

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Speaker 1: nature of the job losses. Look, the vast majority of

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Speaker 1: the job losses are in services. That's a completely different

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Speaker 1: cyclical dynamic. On the recovery. Yeah, last monme, we got

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Speaker 1: to continue this conversation Lashman actifon of a c I

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Speaker 1: on the recovery that we started to say very very

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Speaker 1: early stages of this recovery. And I think a lot

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Speaker 1: of people feel the same way about the data we've

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Speaker 1: had so far. Joining us now brought her Java thrilled

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Speaker 1: that she could be with us. Uh this morning. What's

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Speaker 1: the single chart right now, Sabad that describes the fixed

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Speaker 1: income market to you? Is it a spread or is

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Speaker 1: it a dynamic? As it a scattered our chart, what's

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Speaker 1: the chart that says it all to you right now? Well,

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Speaker 1: for me, I think it's the steepness of the five

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Speaker 1: thirties part of the curve. I think that that you know,

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Speaker 1: that part of the curve has deep and quite dramatically,

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Speaker 1: and I'm very much aligned with that. She view that

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Speaker 1: over the near term, the five thirties part of the

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Speaker 1: curve seems to have gotten a little ahead of itself,

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Speaker 1: and it seems to be in our in our publication,

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Speaker 1: we we point out, it's more correlated with equities than

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Speaker 1: any of the fundamental drivers that you would assigned to

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Speaker 1: the steepness of the curve. So you know, typically under

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Speaker 1: this orcumstansus in an environment, especially heading into the into

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Speaker 1: the FED meeting, you should see a pause in this stepning.

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Speaker 1: And that's exactly what you're seeing in the place action today.

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Speaker 1: About just to build on that, what's the biggest headwind

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Speaker 1: or several headwinds that you see to further statements in

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Speaker 1: the treasury curve. Well, I think the headwind is of

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Speaker 1: course going to be weakness in the data. I think

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Speaker 1: a lot of exuberances is built into the market, both

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Speaker 1: in the in the in risky assets as well as

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Speaker 1: in the bound market. And really the risk is that

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Speaker 1: if we do see a reversal in the data, if

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Speaker 1: you do see weakness, then you should start seeing um,

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Speaker 1: you know, some some a little bit more of a

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Speaker 1: bull flattening of the curve, I led by the back

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Speaker 1: in a rally led by the back, and like you're

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Speaker 1: seeing today. So let's the boutary. You don't think this

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Speaker 1: is a supply side story about extra supply from the

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Speaker 1: treasury over the last couple of months, you think this

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Speaker 1: is just a risk appetite story that has led to

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Speaker 1: people fleeing the tens and thirties part of the curve

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Speaker 1: is that the dominant driver for you. I think it's

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Speaker 1: a combination of factors. One, it's the supply story. Cul

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Speaker 1: We've seen a lot of supply intense twenties and thirties

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Speaker 1: from the treasury, a lot more than the market and

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Speaker 1: had anticipated. The second is you're starting to see a

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Speaker 1: decent amount of deepening in the bond curve because of

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Speaker 1: stimulu cntiscal packages there so as global yield curve steep

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Speaker 1: and I think that that gives more room for treasury

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Speaker 1: yields to UH to steepen as well. And and third,

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Speaker 1: I think it's it's it's a fundamental story with the

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Speaker 1: front end tag to that expectations. When you see good

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Speaker 1: UH sort of positive developments either on the data front

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Speaker 1: or in risky assets, you should see the five studies

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Speaker 1: part of the curve steepened um and bound to bondy

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Speaker 1: yields to rise. On the optimism, I gotta say this

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Speaker 1: market confounds me in many ways because if you have

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Speaker 1: globally countries selling record amounts of debt, it is going

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Speaker 1: to slow growth going forward. This a lot of economists

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Speaker 1: have been talking about inflation expectations are basically flat. Is

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Speaker 1: is the steepening in the yield curve hinting at more

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Speaker 1: inflation or is this the return of bond vigilantes? You know,

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Speaker 1: are you going to get people pushing back and saying

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Speaker 1: your debt is not worth what you think it is

432
00:24:12,440 --> 00:24:14,560
Speaker 1: because you are selling so much of it and your

433
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Speaker 1: economy isn't as strong. That's very good question, Lise. I

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Speaker 1: think that you know. For me, the focus is is

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00:24:21,440 --> 00:24:25,320
Speaker 1: going to be on inflation and inflation expectations. I think

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00:24:25,400 --> 00:24:29,200
Speaker 1: broadly speaking, the tenure part of the curve and beyond

437
00:24:29,320 --> 00:24:32,600
Speaker 1: should really trade very much in line with fundamentals. If

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00:24:32,640 --> 00:24:35,040
Speaker 1: you do see a steepening of the curve either the

439
00:24:35,080 --> 00:24:37,720
Speaker 1: two stents of the five stirties, in the back of

440
00:24:38,080 --> 00:24:41,960
Speaker 1: rise in inflation as well as inflation expectations, then I

441
00:24:41,960 --> 00:24:44,719
Speaker 1: think that's a good thing. I mean, the topic of

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00:24:44,760 --> 00:24:47,760
Speaker 1: bond vigilantees, I think it's being is being played out

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00:24:48,200 --> 00:24:52,560
Speaker 1: more around the supply episode. So when you see supply

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Speaker 1: coming into the market, the market participants want wanted a

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00:24:55,600 --> 00:24:58,200
Speaker 1: little bit of a concession, but Broadly speaking, I don't

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00:24:58,200 --> 00:25:00,160
Speaker 1: think that's the real story. The real story is going

447
00:25:00,160 --> 00:25:03,280
Speaker 1: to be on the inflation as well as inflation expectations.

448
00:25:03,280 --> 00:25:06,120
Speaker 1: That as long as we see a gradual repressing higher

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00:25:06,160 --> 00:25:09,200
Speaker 1: of inflation expectations, than the Fed's going to be tolerant

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00:25:09,240 --> 00:25:11,840
Speaker 1: of a steeper curve. Sabadra. I'm looking right now at

451
00:25:11,840 --> 00:25:15,480
Speaker 1: a tenure yield of zero point eight three per cent.

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00:25:16,040 --> 00:25:19,040
Speaker 1: What's the upper end that the Fed will tolerate. Do

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00:25:19,080 --> 00:25:21,679
Speaker 1: we have a sense of how high they would like

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00:25:21,760 --> 00:25:24,359
Speaker 1: to even see it go versus the expense of the

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00:25:24,440 --> 00:25:28,080
Speaker 1: United States to actually manage its debt at those higher costs.

456
00:25:29,520 --> 00:25:33,280
Speaker 1: I think that that's really the crucial question in this

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00:25:33,400 --> 00:25:37,440
Speaker 1: particular UH cycle, in this particular recession, is that you've

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00:25:37,480 --> 00:25:42,119
Speaker 1: seen a tremendous amount of fiscal stimulus, and deficits are

459
00:25:42,160 --> 00:25:45,359
Speaker 1: at close to three point four for for trillion for

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00:25:45,440 --> 00:25:48,280
Speaker 1: this and you're you're going to see that continued to

461
00:25:48,359 --> 00:25:51,040
Speaker 1: rise over the upcoming years. So so the FED is

462
00:25:51,080 --> 00:25:54,560
Speaker 1: definitely concerned about um you know, yes, it's not part

463
00:25:54,600 --> 00:25:56,920
Speaker 1: of their mandate, but I think, um, you know, they

464
00:25:56,920 --> 00:26:01,240
Speaker 1: are focused on the the first sat of the equation.

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00:26:01,640 --> 00:26:04,240
Speaker 1: So for the most part, I think that UM. You know,

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00:26:04,280 --> 00:26:07,879
Speaker 1: broadly speaking, the FED is going to be UM is

467
00:26:07,920 --> 00:26:13,040
Speaker 1: supportive and keep yield someone anchored under these circumstances, Sat

468
00:26:13,240 --> 00:26:20,280
Speaker 1: Jampa of selk Jen on this bombs market. Mackenzie Global

469
00:26:20,359 --> 00:26:23,639
Speaker 1: Research has been absolutely stunning. This is the Mackenzie Global

470
00:26:23,720 --> 00:26:28,960
Speaker 1: Institute of the depth of their research country to country

471
00:26:29,000 --> 00:26:32,880
Speaker 1: on issues such as poverty and the labor economy. They

472
00:26:33,000 --> 00:26:36,760
Speaker 1: absolutely own the high ground on this. Susan Lawn out

473
00:26:36,760 --> 00:26:41,080
Speaker 1: of Northwestern and Stanford is with the Mackenzie Global Institute. Susan,

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00:26:41,160 --> 00:26:44,960
Speaker 1: I got one question, it's I'm thrilled you're on. Is

475
00:26:45,160 --> 00:26:52,280
Speaker 1: our social theory working? Are lockey in individualistic theory in Washington?

476
00:26:52,680 --> 00:26:55,760
Speaker 1: Every man for hisself and we're gonna get through this

477
00:26:55,840 --> 00:26:59,960
Speaker 1: without being like Europe, without being socialized? Is that theory

478
00:27:00,160 --> 00:27:04,280
Speaker 1: working in this depression hid time, I'm thrilled to be here. Well,

479
00:27:04,320 --> 00:27:08,480
Speaker 1: I wouldn't characterize that as the US response. I think

480
00:27:08,560 --> 00:27:12,280
Speaker 1: that we have been staying at home now for two

481
00:27:12,320 --> 00:27:16,440
Speaker 1: and a half months. We have the Cares Act, which

482
00:27:16,520 --> 00:27:21,320
Speaker 1: provided unemployment benefits for freelancers and gig economy workers. For

483
00:27:21,359 --> 00:27:26,760
Speaker 1: the first time, we've provided individuals with direct payments from

484
00:27:26,760 --> 00:27:31,440
Speaker 1: the government so I actually think that our response, you've

485
00:27:31,480 --> 00:27:36,080
Speaker 1: got to look at it, strengthened thecial safety net in

486
00:27:36,119 --> 00:27:39,000
Speaker 1: the US, which is pretty weak. I mean, you've got

487
00:27:39,000 --> 00:27:42,040
Speaker 1: a great global reach on this. Is Europe doing it

488
00:27:42,119 --> 00:27:45,640
Speaker 1: better than us or not? Well, I hate to say

489
00:27:45,680 --> 00:27:48,679
Speaker 1: Europe is doing it better than US. Europe has employced

490
00:27:48,680 --> 00:27:52,320
Speaker 1: a lot of programs to enable employers to get money

491
00:27:52,359 --> 00:27:56,080
Speaker 1: from the government not to layoff workers. Now we've tried

492
00:27:56,119 --> 00:27:58,919
Speaker 1: to do that in the US with the Cares Act

493
00:27:59,440 --> 00:28:03,359
Speaker 1: by tell in small businesses, for instance, you can access

494
00:28:03,520 --> 00:28:06,560
Speaker 1: the p p P program, but you can't lay off workers.

495
00:28:06,800 --> 00:28:09,480
Speaker 1: But Europe has had these in place for decades, and

496
00:28:09,520 --> 00:28:14,120
Speaker 1: that's why in the last big crisis, the financial crisis, Germany,

497
00:28:14,200 --> 00:28:18,679
Speaker 1: for instance, never thought its unemployment rate skyrocket like we

498
00:28:18,720 --> 00:28:22,440
Speaker 1: did in the US to so we might want to

499
00:28:22,520 --> 00:28:24,400
Speaker 1: learn in the future it makes a lot more sense

500
00:28:24,440 --> 00:28:26,760
Speaker 1: to keep someone on the job and subsidize them for

501
00:28:26,840 --> 00:28:30,760
Speaker 1: working than paying them to sit at home. Susan statistic

502
00:28:30,800 --> 00:28:33,400
Speaker 1: that you pointed out was that one third of all

503
00:28:33,480 --> 00:28:37,439
Speaker 1: jobs in America may be vulnerable, and about eighty percent

504
00:28:37,520 --> 00:28:41,640
Speaker 1: of those are held by low income individuals. I'm wondering

505
00:28:41,920 --> 00:28:45,320
Speaker 1: what the broader effect is by the widening income gap

506
00:28:45,400 --> 00:28:47,800
Speaker 1: that we're seeing in the United States going forward, both

507
00:28:47,800 --> 00:28:51,560
Speaker 1: from an economic growth perspective as well as policy well,

508
00:28:51,600 --> 00:28:54,200
Speaker 1: I think it is a big concern. We know that

509
00:28:54,240 --> 00:28:57,160
Speaker 1: we've had a lot of the population, a lot of

510
00:28:57,160 --> 00:29:00,800
Speaker 1: people working who haven't seen real rage growth for decades now,

511
00:29:01,280 --> 00:29:04,960
Speaker 1: and it looks like COVID could worsen that. You've also

512
00:29:05,040 --> 00:29:07,960
Speaker 1: done some reacent analysis looking at how many of the

513
00:29:08,200 --> 00:29:13,640
Speaker 1: workers displaced from COVID may ultimately be displaced from automation

514
00:29:13,880 --> 00:29:17,440
Speaker 1: and AI, and there's pretty significant overlap. So for some

515
00:29:17,520 --> 00:29:20,640
Speaker 1: of these workers, their job may not come back. This

516
00:29:20,680 --> 00:29:24,280
Speaker 1: may not be temporary but rather permanent, and that just

517
00:29:24,440 --> 00:29:28,440
Speaker 1: means that the US needs, more badly than ever, a

518
00:29:28,480 --> 00:29:34,480
Speaker 1: true coordinated program for helping individuals learn new skills, get

519
00:29:34,680 --> 00:29:37,920
Speaker 1: into the jobs that are growing, and get out of hospitality,

520
00:29:38,040 --> 00:29:41,800
Speaker 1: food service, you know, retail clerks and so on. So

521
00:29:42,120 --> 00:29:44,400
Speaker 1: there are some talk, there is some talk rather of

522
00:29:44,400 --> 00:29:47,400
Speaker 1: a new industrial policy in the United States. Mr Bob

523
00:29:47,480 --> 00:29:50,120
Speaker 1: Lightheiser has talked about that, and Bassett Lightheiser is reflected

524
00:29:50,160 --> 00:29:51,920
Speaker 1: on it. As we discussed a little bit more about

525
00:29:51,920 --> 00:29:55,200
Speaker 1: repatriating supply chains. Is that the direction of travel that

526
00:29:55,280 --> 00:29:58,320
Speaker 1: you see things going in Wow, I can't believe we

527
00:29:58,360 --> 00:30:01,440
Speaker 1: would use those words and connection with the US, but

528
00:30:01,560 --> 00:30:03,920
Speaker 1: whatever you want to call it, Yeah, I think that

529
00:30:04,040 --> 00:30:07,920
Speaker 1: is the direction of travel. I think that the concept

530
00:30:08,120 --> 00:30:13,200
Speaker 1: of what is essential for economic security has broadened used

531
00:30:13,200 --> 00:30:15,760
Speaker 1: to mean airplanes and tanks, and I think now it

532
00:30:15,840 --> 00:30:20,200
Speaker 1: might mean masks and pharmaceuticals. Mask and pharmaceutical was just

533
00:30:20,240 --> 00:30:22,520
Speaker 1: perhaps justified when you say series, and I think it's

534
00:30:22,560 --> 00:30:24,240
Speaker 1: elsewhere that a lot of people are looking to see

535
00:30:24,480 --> 00:30:28,320
Speaker 1: whether this goes beyond just pharmaceuticals and healthcare goods to

536
00:30:28,360 --> 00:30:29,840
Speaker 1: make sure that we don't have to face this kind

537
00:30:29,840 --> 00:30:32,400
Speaker 1: of crisis in this way Once again, is it broader

538
00:30:32,400 --> 00:30:34,920
Speaker 1: than that? Do you think it is? Well? I think

539
00:30:35,000 --> 00:30:39,160
Speaker 1: that with research that we had done um last year,

540
00:30:39,240 --> 00:30:42,000
Speaker 1: and indeed we're gonna be releasing something in July, so

541
00:30:42,240 --> 00:30:45,960
Speaker 1: stay tuned Tom for our latest look at what's happening

542
00:30:45,960 --> 00:30:48,720
Speaker 1: with global supply chains. But look, I think the trends

543
00:30:48,760 --> 00:30:53,480
Speaker 1: have been towards regionalizing supply chains in many industries anyway,

544
00:30:53,960 --> 00:30:56,440
Speaker 1: and this has been happening for the last ten years.

545
00:30:56,520 --> 00:31:00,280
Speaker 1: Currently because wages in China have risen apparently, but because

546
00:31:00,400 --> 00:31:03,160
Speaker 1: Chinese consumers buy a lot. So now a lot of

547
00:31:03,240 --> 00:31:05,640
Speaker 1: companies that are in China are actually just there to

548
00:31:06,040 --> 00:31:10,120
Speaker 1: sell to Chinese consumers. So a bunch of factors had

549
00:31:10,400 --> 00:31:13,800
Speaker 1: had started to put global supply chains employee, and one

550
00:31:13,840 --> 00:31:17,960
Speaker 1: big trend was regionalizing. Now that doesn't mean the production

551
00:31:18,000 --> 00:31:20,560
Speaker 1: coming back to the US per se. It could be

552
00:31:20,640 --> 00:31:25,000
Speaker 1: Mexico at Turkey and Poland for Europe and so on.

553
00:31:25,240 --> 00:31:28,800
Speaker 1: But I think that it's possible that coming out of this,

554
00:31:29,400 --> 00:31:34,200
Speaker 1: beyond pharmaceuticals and Ppe, Congress maybe looking at things like

555
00:31:34,320 --> 00:31:39,560
Speaker 1: semiconductors or rare earths or other strategic goods that they

556
00:31:39,600 --> 00:31:43,160
Speaker 1: want to make sure the US would have um access

557
00:31:43,200 --> 00:31:47,240
Speaker 1: to in any kind of global economic conditions. Susan, fantastic

558
00:31:47,240 --> 00:31:49,840
Speaker 1: to get your thoughts on some really important subjects that

559
00:31:49,840 --> 00:31:52,520
Speaker 1: go beyond the immediate crisis that we've been living through.

560
00:31:52,520 --> 00:31:56,760
Speaker 1: Susan landon McKinsey Global Institute. Thanks for listening to the

561
00:31:56,760 --> 00:32:01,200
Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen and to interviews on

562
00:32:01,280 --> 00:32:07,120
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm

563
00:32:07,120 --> 00:32:10,440
Speaker 1: on Twitter at Tom Keane. Before the podcast, you can

564
00:32:10,480 --> 00:32:13,680
Speaker 1: always catch us worldwide. I'm Bloomberg Radio