Speaker 1: Welcome to the Bloomberg Surveillance Podcast, and I'm Tom Keene
Speaker 1: Jay Leie. We bring you insight from the best in economics, finance, investment,
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Speaker 1: New York City for our audience worldwide. For the White
Speaker 1: House is gear on the jobs report, I'm very pleased
Speaker 1: to say. On Bloomberg TV and Bloomberg Radio. We're joined
Speaker 1: by Larry Cardlo, National Economic Council Director Larry fantastic to
Speaker 1: catch up with you. Sir. You're looking well, let's get
Speaker 1: straight to it. Payrolls looking good. What does that payrolls
Speaker 1: report mean for the talks that you guys are having
Speaker 1: on Capitol Hill on the next steps of the fiscal policy. Well, look,
Speaker 1: I think the continued rise in payrolls and and bear
Speaker 1: in mind, Jonathan, you know this is a hotspot par
Speaker 1: Row report. This is July twining it to eighteen, and
Speaker 1: the surging hotspots in the South and West and some
Speaker 1: other places began in the back end of June and
Speaker 1: lasted through July. You know, there was some pullback of
Speaker 1: reopenings and so forth, and yet, and yet we still
Speaker 1: got one point eight million with a big decline, almost
Speaker 1: a full percentage point drop in the unemployment rate, which
Speaker 1: will move to single digits easily in the summer and fall.
Speaker 1: So I think that's a very key point just in
Speaker 1: terms of the economy. Now, how that reacts, how that
Speaker 1: reflects on the talks. The talks are rather stalemated right now.
Speaker 1: It was a better tone earlier this week, but through
Speaker 1: last evening there hadn't been any breakthroughs. That's unfortunate. However,
Speaker 1: the President has said several times in the last forty
Speaker 1: eight hours, and I can attest to it because I'm
Speaker 1: working on it. He's going to use executive orders, administrative discretion,
Speaker 1: the full powers of the fellow government in order to
Speaker 1: get certain priorities through, for example, a payroll tax cut,
Speaker 1: which will incentivize work returning to work, uh and also
Speaker 1: give a bonus to those stalwarts who stayed on the job.
Speaker 1: We'd like to reform unemployment. We'd like to put in
Speaker 1: benefits for reemployment or some kind of business retention credits.
Speaker 1: We want to make sure the eviction moratorium continues a pace.
Speaker 1: We think the executive branch can do that. We think
Speaker 1: he has the authority to do that. We are exploring
Speaker 1: and drafting documents as you and I speak this morning,
Speaker 1: and people should take it very, very seriously. If the
Speaker 1: Democrats side don't want to get it done certain essentials,
Speaker 1: we will get it done to make sure that folks
Speaker 1: go back to work, to make sure that kids can
Speaker 1: go back to school, and to make sure that this
Speaker 1: V shaped recovery continues well through this year. Well, Arry,
Speaker 1: I'll stay away from the V shape predictions. Let's stick
Speaker 1: to policy and what you kind suprupt to with the money.
Speaker 1: For a threat to be credible, we have to test
Speaker 1: the credibility of that threat. Now I'm trying to understand
Speaker 1: if you can do this, why haven't you done it?
Speaker 1: If you can do something with executive powers, what are
Speaker 1: you waiting for? Well, stay tuned. I mean, look, we've
Speaker 1: been in a negotiation that has to come first. I'll
Speaker 1: say is stay tuned. The President, I'm sure we'll be
Speaker 1: weighing in with his own views as the day goes on.
Speaker 1: Would you have a deadline, Larry, is at the end
Speaker 1: of the day the talk scheduled for today. If they're
Speaker 1: not successful, I need some color hit do you have
Speaker 1: talk scheduled for today on Capitol Hill. I'm sure there
Speaker 1: will be talks, whether formally or informally. I have no
Speaker 1: doubt about that. Uh, Chief Mark Meadows. So the other day,
Speaker 1: if we didn't get it done by Friday, we may
Speaker 1: not get it done at all. Um, I think he's
Speaker 1: just being realistic about that. Secretary Manuchtion is in their
Speaker 1: pitching away. But you know a lot of the other
Speaker 1: teams asks are just not realistic. They lack common sense
Speaker 1: and um a lot of it. You know, probably as
Speaker 1: much as a trillion dollars was obligated that unspent through
Speaker 1: the March Cares Act. So we've been able to repurpose that.
Speaker 1: So look, we're you know, there's a process here understud
Speaker 1: sesses negotiations. But the President is said with great clarity
Speaker 1: in the last two days, if need be, he is
Speaker 1: more than happy. Indeed, I think he would like to
Speaker 1: use executive authority to get things done. Look, we stand
Speaker 1: for lower taxes and rollback of regulations and fair loves.
Speaker 1: There our principles I'm going to get He is not
Speaker 1: going to give that back because of the Calcagant House
Speaker 1: of Representatives. Executive authority, executive authority. If you don't have
Speaker 1: a successful breakthrough by the end of today, are you
Speaker 1: going to do it or not? Are we're going to
Speaker 1: carry on having this conversation through to next week? Well, Jonathan,
Speaker 1: we might. You know, I'm always willing to talk to
Speaker 1: you if you want to talk next week. I'd love
Speaker 1: to talk next week. I don't want to second guess
Speaker 1: what the President is going to do. Uh, he's a
Speaker 1: very good communicator, and you can be assured he will
Speaker 1: be out and about today and probably tomorrow talking about this.
Speaker 1: It will beyond his time. I'm not here to announce anything.
Speaker 1: It's up to him. Well, it's not in our time,
Speaker 1: is it. And to be fair, it's not on the
Speaker 1: presidency either, Larry, because the real deadline was last week
Speaker 1: when the enhanced unemployment benefits expired. This south impost Friday
Speaker 1: deadline was about politicians too scared to go home and
Speaker 1: face the embarrassment of not getting a deal done on
Speaker 1: Capitol Hill. So we can talk about the scope for
Speaker 1: compromising now. So let's do that. As far as I understand,
Speaker 1: the Republicans in the White House has offered four hundred
Speaker 1: dollars per week. It enhanced unemployment benefits. Democrats are a
Speaker 1: six hundred. They're pushing back. As far as I understand,
Speaker 1: you're offering two hundred billion for state aid. The Democrats
Speaker 1: want a trilliant they're pushing back. The spread right now
Speaker 1: is still two trillion dollars. Where's the scope for compromise?
Speaker 1: Larry Well, Jonathan, much as I might like to, um,
Speaker 1: I'm really not here this morning to negotiate with you.
Speaker 1: All right, I'm gonna let the negotiators fully understood, but
Speaker 1: send a message to the American You guys are going
Speaker 1: to do the right thing. And while you're willing to
Speaker 1: get something done instead of nothing. Uh well, it looks
Speaker 1: that something has to be good. It has to be smart,
Speaker 1: it has to be efficient, and it has to have
Speaker 1: job and economic growth incentives. That's something. And again, the
Speaker 1: President has a clear set of growth principles and he
Speaker 1: is more than willing to help where help is necessary.
Speaker 1: Throughout the economy, there's still hardship. You know, good jobs
Speaker 1: numbers Today we have a lot of numbers. I s
Speaker 1: m s are booming, inventories are falling, car sales are surging.
Speaker 1: That tells you this is a self sustaining recovery. We
Speaker 1: want to keep it that way. His message is gonna
Speaker 1: be lower taxes, smart spending, and uh continued deregulation as
Speaker 1: well as fair trade deals. So that's his principles, and
Speaker 1: we could use a lot of executive authority. As I said,
Speaker 1: it's being drafted right now. I'm not going to negotiate here.
Speaker 1: I'm just saying, if you just want to, that's what
Speaker 1: I want to understand. The balance of risk is is
Speaker 1: one of those amorphous phrases about let me put it
Speaker 1: better way, then what's the biggest risk for you? Now?
Speaker 1: The risk? Please let me finish my sense. I'm just saying,
Speaker 1: if if the Congress does not act, if there's no deal,
Speaker 1: and right now it doesn't look that great, then the
Speaker 1: president will take his own actions. The solution here is
Speaker 1: to come to a pro growth, the common sense, pragmatic compromise.
Speaker 1: Thus far that has been elusive, And in that case,
Speaker 1: the president, who is a great leader and makes good
Speaker 1: on his promises, will exercise his leadership and all of
Speaker 1: his executive federal authorities. You can count on that. You
Speaker 1: can take that to the bank. The one thing you
Speaker 1: didn't though, Larry, was what you guys would do with
Speaker 1: executive powers on state aid. I've spoken to New York State.
Speaker 1: They've told me, if they don't get the aid, the
Speaker 1: austerity begins immediately. Now, you're an economisty, it's got way
Speaker 1: more experience than Night on Wall Street going back decades.
Speaker 1: You know that the federal government is the only one
Speaker 1: right now that cann act countercyclically. States do not have
Speaker 1: that benefit. They do not have that option. And you
Speaker 1: also know if they don't get that aid, the austerity
Speaker 1: starts immediately. So as the administration of the government, we've
Speaker 1: got to understand what's the federal strategy when the state
Speaker 1: level austerity kicks in because we can't find an agreement
Speaker 1: on state aid. You know, it's hard to say, Jonathan,
Speaker 1: that the Cares Bill and other bills in the last
Speaker 1: three or four months is austerity. I mean, we've put
Speaker 1: out right three and a half trillion dollars of fiscal
Speaker 1: assistance in many forms. The Federal Reserve all in has
Speaker 1: put out over seven trillion dollars through the any supply
Speaker 1: and their lending facilities. This is not austerity. I mean,
Speaker 1: that's what from the federal government. Larry, I'm not suggesting
Speaker 1: it will be I'm saying from states, they will have
Speaker 1: to come the states. The states, I will say this
Speaker 1: because of the pandemic contraction. The income statements of state
Speaker 1: and local governments and the federal government have deteriorated absolutely. Now,
Speaker 1: what is the solution. Some of the solution is an aid.
Speaker 1: Some of the solution is economic growth, where the revenues
Speaker 1: will start pouring in and more people go back to
Speaker 1: work and they pay taxes and so do businesses. We
Speaker 1: have given the states, through prior deals, literally hundreds and
Speaker 1: hundreds of billions of dollars. Now I don't want to
Speaker 1: second guess. I'm not here to negotiate. We are looking
Speaker 1: at all of these asks from our friends across the aisle.
Speaker 1: I know the President is especially interested in make be
Speaker 1: sure there are sufficient resources to get the kids back
Speaker 1: to school. If we apply the guidelines of distancing and
Speaker 1: masking and testing and good hygiene, the kids can get
Speaker 1: back to school. If the school need more equipment, if
Speaker 1: there's COVID related expenses, I think there's a chance to
Speaker 1: President would be happy to pitch in. But the bill
Speaker 1: that we have been given from the other team goes way,
Speaker 1: way way beyond that, and there's a lot of Democrat
Speaker 1: asks that simply don't make sense. Uh, certainly not in
Speaker 1: the present context, and so we have to separate that out.
Speaker 1: It's not so simple to just say there's fiscal austerity
Speaker 1: in the states. Hundreds and hundreds of billions trillions of
Speaker 1: dollars have now passed from federal to states. So let's
Speaker 1: try to be smart and efficient, and let's target again.
Speaker 1: I want to target people getting back to work, target
Speaker 1: kids going back to school. I want to target and
Speaker 1: o woymen incentives, not unemploying incentives. I want to target
Speaker 1: reemployment incentives. I want to make sure that people do
Speaker 1: not get evicted from their apartments or their homes. These
Speaker 1: are things we may be able to do through executive
Speaker 1: authority because the Congress can seem to get together for
Speaker 1: a Bible. Let's let's see if it happen to get
Speaker 1: it done, grows, grows, schools, jobs, kids. Let me make
Speaker 1: this real simple, and we will do whatever federal levels
Speaker 1: we have at our disposal. That is the President's pledge,
Speaker 1: and you'll hear plenty from him. Larry coming hours and
Speaker 1: days I've set across from you. I know you're a
Speaker 1: good man. I know that you want the best for
Speaker 1: the American people. I've also watched what it's like to
Speaker 1: watch your dad come home because the business has got
Speaker 1: to close. I've watched what happened when the house has
Speaker 1: to be sold and your family has got to move in,
Speaker 1: and moving with the relevant with a relative. I know
Speaker 1: that feels like the economic pain that people are going
Speaker 1: through in this country at the moment. And Larry, what
Speaker 1: really upsets me, and I think it's borderline embarrassing, is
Speaker 1: that this equity market was lower. I think you and
Speaker 1: i'd have a different conversation, wouldn't we There'd be much
Speaker 1: more urgency. And what I don't understand is the lack
Speaker 1: of urgency right now, Larry, I just don't understand it.
Speaker 1: If you can do these things to make the lives
Speaker 1: of people better, why weren't they done yesterday? Jonathan, let
Speaker 1: me say this. Look, Uh, I'm a bleeding hard to Okay,
Speaker 1: I'm a Jack Kemp bleading hard conservative on the supply side.
Speaker 1: You can't measure these things and just dollars spent. I mean,
Speaker 1: we know this, we know this. You put in three
Speaker 1: and a half trillion dollars already. The other team wants
Speaker 1: another three or four trillion dollars. Is that the answer?
Speaker 1: There are other better targeted ways. I want everybody to
Speaker 1: go back to work. You know, we've created over nine
Speaker 1: million jobs. We're clawed back about of the terrible laws
Speaker 1: from the pandemic to Larry if you wanted to go
Speaker 1: and eat with me, to like we can't even inside
Speaker 1: a restaurant in New York City. Come on, you gotta
Speaker 1: the only ask I have right now? Sure you let
Speaker 1: me finish my car. You had a little you had
Speaker 1: a little sermon at and I enjoyed it very much.
Speaker 1: And I respectfully that wasn't a sermon. That was meeting person.
Speaker 1: And you understand, Please, can are many other ways to
Speaker 1: deal with these problems. Okay, throwing money at them is
Speaker 1: not only the answer. You have to create economic growth incentives.
Speaker 1: But look, we are willing to spend money. I mean,
Speaker 1: that's not the point. The President himself has endorsed another
Speaker 1: round of direct mail checks. He has endorsed that. He
Speaker 1: has also endorsed continued unemployment assistance. The question is what
Speaker 1: is the overall policy to make sure that it makes
Speaker 1: sense that there are incentives to go back to work.
Speaker 1: And we have a very full fledged plan to do
Speaker 1: exactly that. We want to reward people and the businesses
Speaker 1: that work for to go back to work. We will
Speaker 1: extend the p P P. That is part of our package. Again,
Speaker 1: I'm not going to negotiate, but that's in our mix.
Speaker 1: We have retention credits for new jobs, we have benefits
Speaker 1: for reemployment. We want to cut the payroll tax, which
Speaker 1: would give existing workers a tremendous boosting income. I think
Speaker 1: with even in five months it would still be twelve
Speaker 1: dollars a year or more. All Right, people who are
Speaker 1: not working can go back to work and realize they're
Speaker 1: after tax wage is higher than the unemployment. That's a
Speaker 1: good thing. So we gotta be smart. It's not just
Speaker 1: a question. You know, I'm not gonna seed the ground
Speaker 1: of compassion. We are all compassion, We all want everybody.
Speaker 1: We all know people, families, cousins, kids, neighbors who have
Speaker 1: been damaged by this terrible pandemic. Correction, Uh, that's we
Speaker 1: know that. And we've been working on this now for
Speaker 1: five months at warp speed. We are even at the
Speaker 1: point now where six or seven companies aided by federal money,
Speaker 1: large chunks of it, are in phase three of vaccination testing.
Speaker 1: Which is a huge part of the story. And as
Speaker 1: far as getting the kids back to school, in addition
Speaker 1: to the masking and the distancing and the hygiene and
Speaker 1: so forth, we are willing. We have it in our
Speaker 1: negotiating position, a good deal of money, well over a
Speaker 1: hundred billion dollars to happen got to school. So we're
Speaker 1: trying to target things, but we're not going to allow
Speaker 1: a transformation of the economy whereby the government and its
Speaker 1: planners run everything, healthcare, energy, you name. We are not
Speaker 1: going to go down that road. We've tried that in
Speaker 1: the past and it does not work. You have to
Speaker 1: be smart. You have to focus on the incentive model
Speaker 1: of growth, and then we will see the successes. We've
Speaker 1: had plenty of economic comebacks in this country. Throwing money
Speaker 1: at every problem of them is not the best course
Speaker 1: of action. Let's be smart, let's be efficient, and let's
Speaker 1: provide incentives. And again, if we can't get a compromise
Speaker 1: the way we did last March, then the President will
Speaker 1: act with his own executive powers. And let me tell
Speaker 1: you it's not a bluff funny question, because I'm gonna
Speaker 1: get in trouble with the White House for keeping you
Speaker 1: too long, Glarry. What am I going to see first
Speaker 1: executive action on all the things you describe or sanctions
Speaker 1: on Carrie Lamb Jonathan, those are completely disconnected. I'm not
Speaker 1: going to respond to that to expect annotment on that
Speaker 1: a little bit later. Jonathan, I'm not here to talk
Speaker 1: about those. We have already UH done an executive order
Speaker 1: with respect to UM sanctions on Hong Kong and China
Speaker 1: for their many misdeeds, not only taking away the freedom
Speaker 1: of Hong Kong and breaking a fifty year deal. But
Speaker 1: Chinese have to be held accountable on their bad behavior
Speaker 1: during the pandemic. They're bad human rights records, what they're
Speaker 1: doing militarily in the China in the South China Sea. Uh.
Speaker 1: And we are putting out as you probably know, we
Speaker 1: are going to protect American investors with a much tougher
Speaker 1: approach with respect to the auditing of Chinese public companies
Speaker 1: and the Public Accounting Board and the SEC. We had
Speaker 1: a treasury or we're a financial working group. We just
Speaker 1: published this stuff. We're gonna give one year to shape
Speaker 1: up on the audits and on the working papers behind
Speaker 1: the audits to see if they deserve a listing on
Speaker 1: American exchanges. We have to protect our own investors, we
Speaker 1: have to protect our national security. Those are tough, gritty issues,
Speaker 1: and we're making progress. Those are separate issues, however, from
Speaker 1: these fiscal negotiations. Larry, I know you remand with a
Speaker 1: good hop and I appreciate your time every First Friday
Speaker 1: whenever we get the pay rolls report. I'm ready to
Speaker 1: a good sport. Thanks for you wanting us, and I
Speaker 1: hope for the best a little bit like to as well.
Speaker 1: Larry caldlaf nationally Canomy Council's director. Right now linking much
Speaker 1: of this report back into the financial Marcus Jeffrey Rosenberg
Speaker 1: joins US portfolio manager of the Systematic Multi Strategy Fund. Jeff,
Speaker 1: let's get systematic right now. And that I see higher yields.
Speaker 1: Is it a modest adjustment or can you say that
Speaker 1: we will pull back from those lower nominal yields of
Speaker 1: the last number of days. I think it's a really
Speaker 1: modest adjustment, Tom, and I think earlier you really nailed
Speaker 1: it when you linked the report not to the implications
Speaker 1: for monetary policy, but to the implications for fiscal policy.
Speaker 1: So when you're looking at the bond market, and the
Speaker 1: yield reaction. You really got to go out a lot
Speaker 1: of decimal points to see a reaction to this report,
Speaker 1: because this isn't really about influencing monetary policy, because monetary
Speaker 1: policy has been very clear that it is going to
Speaker 1: be highly accommodated, that they're going back to trying to
Speaker 1: get the economy to run hot. So you needed to
Speaker 1: have a very very big number here, and even if
Speaker 1: you had a big number, I'm not sure that would
Speaker 1: have changed the monetary policy outlook. This is much more
Speaker 1: about influencing the market direction is taking its direction from
Speaker 1: fiscal policy and and to what you talked about earlier.
Speaker 1: You know, I think this is a little bit more
Speaker 1: of a positive report that makes it a little bit
Speaker 1: harder to argue for the really big project, the really
Speaker 1: big program, Well we'll see where that plays out, but
Speaker 1: it is much more about fiscal policy. We welcome all
Speaker 1: of you on Bloomberg Radio, Bloomberg Television. It is Bloomberg Surveillance.
Speaker 1: It's about conversation. Jeffrey Rosenberg with us with black Rock.
Speaker 1: David blanche Flower of Dartmouth College will join us here.
Speaker 1: Really looking forward to talking to blanch Flower about the
Speaker 1: quality of these jobs. Lisa, Yeah, I gotta say, Jeff,
Speaker 1: you were talking about the idea of Washington, d C
Speaker 1: And the need for fiscal stimulus and time. We've been
Speaker 1: talking about that all morning. But Jeff, right now, it
Speaker 1: seems like there isn't a ton of urgency based in
Speaker 1: the fact that Republicans are going home and there might
Speaker 1: be some sort of executive order. This report isn't going
Speaker 1: to light of fire. Is the market to sanguine about
Speaker 1: the idea of another round of fiscal support? Well, I
Speaker 1: think there's a lot of uncertainty now, and I think
Speaker 1: if anything, you look at the report and it adds
Speaker 1: to that uncertainty. You know, the market is expecting some
Speaker 1: kind of compromise, some kind of deal. Perhaps they were
Speaker 1: leaning towards the higher end. I think that's going to
Speaker 1: challenge this. I think eventually the market is expecting some
Speaker 1: kind of next round program to come through. And today's
Speaker 1: payroll report, you know, it still gives a bit of ammunition.
Speaker 1: You know, we talked about the ten point to percent
Speaker 1: unemployment rate. You know, we're making progress, but it also
Speaker 1: highlights just the significant amount of damage that has been
Speaker 1: done and continues to impact people. That is the argument
Speaker 1: for another program here, how do you use the economic
Speaker 1: data that we get to decide how to trade? So,
Speaker 1: you know, it's been a big challenge because the economic
Speaker 1: data is just so dramatic. Let's just take the payroll
Speaker 1: report itself here. You know, we came in kind of
Speaker 1: pretty close to the expectations, but the range of those
Speaker 1: expectations is greater than than anything you've seen in any time.
Speaker 1: That the inflows and outflows are orders of magnitude greater,
Speaker 1: and the variability around the expectations ranged from you know,
Speaker 1: minus six over three million. So what it means is
Speaker 1: that when you look at economic data relative you know,
Speaker 1: what we what we emphasize is the surprise. Well, what
Speaker 1: what the uncertainty means is it's much harder to gauge
Speaker 1: what is that surprise level? And so your your impact
Speaker 1: of any economic data relative to expectations because you don't
Speaker 1: know how to anchor those expectations all have to be
Speaker 1: very dampened relative to two kind of more normal periods, Jeff.
Speaker 1: Within the mathematics of all this is a point where
Speaker 1: you shift from a yield study to a price study.
Speaker 1: And certainly in the tension this week, I've seen that
Speaker 1: are we now at a point where people are just
Speaker 1: buying full faith and credit just because they're buying it
Speaker 1: and they'll take it at any price, and price matters up,
Speaker 1: Up we go in the bid well in terms of
Speaker 1: the safe assets. When you talk about you know, full
Speaker 1: faith and credit is really about treasuries and treasury yields,
Speaker 1: you know, it's it's about monetary policy and monetary policy expectations.
Speaker 1: We we've really changed the functioning of fixed income markets.
Speaker 1: How we set prices is a lot less about you know,
Speaker 1: what do these economic numbers mean about expected inflation and
Speaker 1: short term movements. It's much more first about what does
Speaker 1: it mean to the policy response, because the policy today
Speaker 1: is moving towards a contemplation of full outright control called
Speaker 1: yield curve control of the bond market, and so it's
Speaker 1: really much more about our assessment of what does this
Speaker 1: do about the change in policy, less about the economic
Speaker 1: data a directly impacting trading, and so it's it's a
Speaker 1: very different kind of environment for setting of interest rates
Speaker 1: by the bond market. Is that where are you on
Speaker 1: a call on the bonds? I mean you're running a
Speaker 1: systematic portfolio and there's the Carnegie Mellon matthewist to it.
Speaker 1: I get all that, but what is your call on
Speaker 1: the full faith and credit market, Jeff Well, the call
Speaker 1: is that the policy is very clear, and the policy
Speaker 1: is maintain market fund functioning and then pivoting towards accommodation.
Speaker 1: And so what that means is we're going to have
Speaker 1: very low interest rates for a very long time. Zero
Speaker 1: interest rate policy is going to be with us for
Speaker 1: a very long time. I don't think we're going to
Speaker 1: go and see negative interest rates, but the control of
Speaker 1: the long term interest rates is very much part of
Speaker 1: the policy. And so you're looking at a period of
Speaker 1: very low interest rates front and interest rates basically pegged
Speaker 1: and functioning like a surrogate for cash, and long term
Speaker 1: interest rates really under of the thumb of monetary policy
Speaker 1: until we can start to see some real progress on inflation.
Speaker 1: And until then it's it's a it's a low and
Speaker 1: stable interest rate environment. If you just joined us. We're
Speaker 1: speaking with Jeff Rosenberg of black Rock following a better
Speaker 1: than expected jobs report. Initially there was a pop inequity futures.
Speaker 1: There is a roll over at this point as people
Speaker 1: dig a little bit further, a little bit deeper down
Speaker 1: into the negative and tenure yields initially popped up, but
Speaker 1: are little change, just a tiny bit. Jeff, talking about inflation,
Speaker 1: we've been really focused on real rates in the United
Speaker 1: States at negative one point one percent all time lows. Question,
Speaker 1: how low can they go? What's the answer? Well, you know,
Speaker 1: a lot of the movement in the real interest rates
Speaker 1: is pricing in a recovery in inflation and inflation expectations,
Speaker 1: while at the same time, the FED is basically pegging
Speaker 1: nominal interest rates, you know, so we we could see
Speaker 1: that move a little bit more, but it's very unlikely
Speaker 1: that we're going to see significant increases in inflation exp
Speaker 1: dictations absent significant increases in actual or perceived inflation pressures,
Speaker 1: and we're very far away from that. The COVID shock
Speaker 1: is a massive disinflationary shock, and so what we're seeing
Speaker 1: in terms of those negative real interest rates is really
Speaker 1: a recovery off of those extremes and a little bit
Speaker 1: fueled by some of the short term recovery in terms
Speaker 1: of commodity prices. But we are still in a very
Speaker 1: low interest, low inflationary environment, and until we break that environment,
Speaker 1: which I don't think it's happening anytime. In the short run,
Speaker 1: We're not going to see significant changes there. Jeffrey Rosenberg,
Speaker 1: thank you so much. With black Rock. Right now we
Speaker 1: go to Hanover, New Hampshire. David blanch Flower, is it
Speaker 1: with Dartmouth College. David blanch Flower is definitive on wages.
Speaker 1: David blanch Flower is definitive on the nuances of our
Speaker 1: employment and are underemployment as well? Danny blanch Flower. Wonderful
Speaker 1: to have you with us today. How underemployed is America? Well,
Speaker 1: it certainly is, although we've seen a decline in that
Speaker 1: in the data now. I mean, the reality is that
Speaker 1: the unemployment numbers have really come down. Under employment, which
Speaker 1: is reflected in U six has come down a little bit.
Speaker 1: But what we're going to see is we just don't
Speaker 1: have very great measures of that. So the question is
Speaker 1: if people go back to work, are they going to
Speaker 1: get the same hours and the same income as they
Speaker 1: had in the past, or are they going to have
Speaker 1: less hours and less income? And that looks to be
Speaker 1: the thing we're going to need to look at. You know,
Speaker 1: if you're a restaurant work over, the restaurant opens, are
Speaker 1: you going to get the same amount of work as
Speaker 1: you had in the past, So I think the underemployment
Speaker 1: story is something we need to watch. But this is
Speaker 1: definitively a good a good report better than probably I expected,
Speaker 1: on every on every component, so that establishment that data
Speaker 1: is good. The household data is good, employment, population rates up,
Speaker 1: the label force participations up. So so these are good numbers.
Speaker 1: But the question obviously is what and state by state
Speaker 1: and what happens down the road when and if the
Speaker 1: stimulus and payments run out Within your study at the
Speaker 1: Bank of England, and granted the United Kingdom is a
Speaker 1: different economy, what is the risk of a one month
Speaker 1: of a better report? Can you extrapolate it out or
Speaker 1: do you just simply have to wait for the first
Speaker 1: week of September. Well, I think this is this is
Speaker 1: unprecedented territory. We've never seen anything, any dip of the
Speaker 1: kind that we saw, not even so much necessarily the
Speaker 1: scale of the dip, but the speed. So there's really
Speaker 1: no precedent. And Mike was talking about what happens state
Speaker 1: by state, We yet to know that. But I think
Speaker 1: I do think you're right that what we have to
Speaker 1: very carefully do is watch things month by month um
Speaker 1: and see where we go. I mean, I have nothing
Speaker 1: in the past really to help me with this, but
Speaker 1: this is this is encouraging and the government is going
Speaker 1: to be able to say, look, you know, recovery, recovery
Speaker 1: is coming. The question is, you know, are we headed
Speaker 1: towards a cliff? That's the question. We don't know, and
Speaker 1: we're going to have to watch and wait and see
Speaker 1: if there is a second Is there a second round
Speaker 1: of the virus? Is there a second round of layoffs
Speaker 1: from firms? I mean, we're still at the point of
Speaker 1: ten unemployment rate plus, which people haven't talked about. Plus
Speaker 1: another point for that misclassification this month. It's not as
Speaker 1: big as it was, but my reading is that you
Speaker 1: had another percentage point because people wrongly were classified as
Speaker 1: as employed was really they were unemployed. Denny. One idea
Speaker 1: of yours that I absolutely love is this idea of
Speaker 1: walk about economics. This idea that you get away from
Speaker 1: the charts, you get away from the formulas, and you
Speaker 1: walk around and you take a look at how it
Speaker 1: feels and what it looks like. And you said back
Speaker 1: in two thousand and eight, if policymakers have been able
Speaker 1: to do that, they would have come up with a
Speaker 1: very different result. Right now, what is walk about economics
Speaker 1: telling you? The first thing walk about Economics tells you
Speaker 1: is that we're not doing much walking about. I call
Speaker 1: it now the economics are walking about the Internet. Right.
Speaker 1: But I think the answer is that we're hearing I mean,
Speaker 1: it's really important to get too deep within the numbers.
Speaker 1: We are hearing recovery, but actually we're hearing slowing coming
Speaker 1: in big states like Arizona and Texas and Florida. And
Speaker 1: the question is does our sense of what's happening the
Speaker 1: reports the Pulse survey that the census is doing and
Speaker 1: that report was rather more weak if you like them this,
Speaker 1: So I think we have to look and do what
Speaker 1: Blumberg is fantastic at. Talk to people, talk to people
Speaker 1: on the ground, talk to employers, and say to them
Speaker 1: what's going on. I mean, I've heard stories saying big
Speaker 1: firms are doing okay, small firms are doing okay. The
Speaker 1: story is about mid sized firms. How are they doing?
Speaker 1: So I think that that back to back to Tom's question,
Speaker 1: do we know what's going on the answer is we don't.
Speaker 1: But the right thing to do listen Bloomer, because oh
Speaker 1: my goodness, we did not pay him. I promised a
Speaker 1: job advert But but it's really very good at this
Speaker 1: And certainly in two thousand and eight, if people have
Speaker 1: done the economics are walking about, they would have seen
Speaker 1: the recession much more than economists who were playing with
Speaker 1: their silly models are missed it entirely. But it was
Speaker 1: absolutely clear when you talk to employers and you talked
Speaker 1: to people, they saw this thing coming. So I think
Speaker 1: we have to be very mindful of using that market
Speaker 1: intelligence to tell us where we're going. And this report
Speaker 1: I think is a little more positive than the market intelligences.
Speaker 1: But let's see where we go. And there's a question
Speaker 1: also of something Tom keeps talking about rightly so, which
Speaker 1: is the income inequality. And initially during the pandemic, people
Speaker 1: were saying this was going to be exacerbated dramatically by
Speaker 1: the COVID era. Do we still feel that way based
Speaker 1: on the fact that a lot of the lower wage
Speaker 1: jobs are coming back as the economy comes back online. Well,
Speaker 1: we are. I mean, we we're seeing across the board
Speaker 1: change ages and I was just looking at this, but
Speaker 1: but we're certainly still seeing very much higher rates for
Speaker 1: U African Americans, for Hispanics, for less less less educated.
Speaker 1: First two points. First of all those folks are the
Speaker 1: ones who also disproportionately have this error, which means you
Speaker 1: top the numbers up. There are also the people who
Speaker 1: disproportionately are impacted by by under employment, and you see
Speaker 1: this big inequality. But one story I think we all
Speaker 1: have to get to is in a period of lockdown
Speaker 1: where people have been temporarily laid off and furloughed, what
Speaker 1: about young people? What about the youngsters who left school
Speaker 1: in June's going to hire those and they're missing out
Speaker 1: on these numbers. We're going to start to see them
Speaker 1: coming through. But the story about minority unemployment, less skilled
Speaker 1: on what are those kids going to be doing? And general?
Speaker 1: In some sense, I think the social unrest we've seen
Speaker 1: is a function of young people have nothing to do.
Speaker 1: And literally a new history is from Blanchard in summers
Speaker 1: there as well, Danny, I want to take the time
Speaker 1: here and rip up the script and I want to
Speaker 1: talk to you. I I've had the privileged folks of
Speaker 1: standing with Mr Blanche Flower in his lecture halls at
Speaker 1: Dartmouth and Warble and gaily to the assembled Danny does
Speaker 1: virtual learning work not only at the Dartmouth level but
Speaker 1: down to kindergarten. Do you think this nation can actually
Speaker 1: virtually teach art students? Well, I can talk to the
Speaker 1: classes that I taught in the in the spring, and
Speaker 1: I'm about to go and teach again. I think they
Speaker 1: went extremely well. We put a lot of resources into it. Um.
Speaker 1: I think it was very really pretty successful. I'm not
Speaker 1: so sure about how you're going to deal with eight
Speaker 1: year olds and ten year olds, UM, But I think
Speaker 1: on the model for the university student, I think has
Speaker 1: changed the world. It's changed the campus experience. I mean,
Speaker 1: it was very active. And I've got a class of
Speaker 1: fifty fifty students who are coming to in the in
Speaker 1: the full and I'm going to teach them about you
Speaker 1: know what, what Bloomberg does the economics is walking about
Speaker 1: and we can do it pretty well. And there's there's
Speaker 1: people in China, there's people in Argentina. So I think
Speaker 1: that it's pretty good. But it's it goes because it's
Speaker 1: been successful. It's going to challenge this higher education model.
Speaker 1: The question is down down the line, what are you
Speaker 1: gonna do for for the young ones, and I think
Speaker 1: that's a greater challenge. David was they need more hand holding.
Speaker 1: But I think our students, certainly at the Darmoud level,
Speaker 1: we've done pretty down well, I think, and it's gone well.
Speaker 1: Now we've got to leave it there. David Blanchwards, thank
Speaker 1: you so much for Darmouth's perspective, and of course on
Speaker 1: this historic job stake, Tiffany wildly demands that you only
Speaker 1: come on at so she is a full hour to
Speaker 1: digest what has been row Tifficty. In the hour that
Speaker 1: you've had since the jobs report out at PIMCO, what
Speaker 1: could you slice? What can you dice here? What is
Speaker 1: the observation you have? Well, thanks for having me on, Tom.
Speaker 1: I'm not sure. I'm not sure about the demands, but um,
Speaker 1: you know, I think in terms of the report today,
Speaker 1: I mean, clearly it was a it was a stronger
Speaker 1: than expected report. Um, but I think we have to
Speaker 1: keep in mind here that the state is lagging in
Speaker 1: terms of when it says that July report, it really
Speaker 1: means halfway through July because that's when the survey has taken.
Speaker 1: So it's really capturing halfway through June to halfway through July.
Speaker 1: And there was still some momentum in the labor market
Speaker 1: at that time. But what we've seen, you know, we
Speaker 1: look at a lot of what we call higher frequency
Speaker 1: data now because this virus crisis has been so fast moving,
Speaker 1: and what we see across a range of that data
Speaker 1: is that momentum has slowed, you know, quite dramatically flattened out,
Speaker 1: quite dramatically. Um. You know, in July as the whole month.
Speaker 1: So I think in August you're gonna see, um, you're
Speaker 1: gonna see even more slowly you know, report for for
Speaker 1: jobs most sort of inside baseball, but I'll go there.
Speaker 1: The next report obviously will be what it will be.
Speaker 1: But are you suggesting we could see substantial revisions to
Speaker 1: this good report? Um? I mean, certainly revisions are are possible. Um.
Speaker 1: You know, I think I think it's you know, we
Speaker 1: did see in the high frequency data though there was
Speaker 1: still some momentum in jobs at the end of June. Um.
Speaker 1: You know, maybe we could have seen a little bit
Speaker 1: of noise as a result of of the uh the
Speaker 1: July fourth holiday. Um. But I think in August what's
Speaker 1: clear is that labor market momentum has has has very
Speaker 1: much slowed. I mean, we could see a you know,
Speaker 1: kind of net zero job gains there, you know. But
Speaker 1: I think maybe what's more important about this report, unfortunately,
Speaker 1: is about how it impacts negotiations for the ongo you know,
Speaker 1: for the stimulus bill that we could see at a
Speaker 1: Washington you know. And although you know, we currently expect
Speaker 1: you know, around one and a half to two trillion bill,
Speaker 1: I certainly think that this report was stronger probably at
Speaker 1: a minimum, gives those thirty or so Republicans who kind
Speaker 1: of opposed any deal it to them sort of a
Speaker 1: stronger position to stand on, you know. But again, it's
Speaker 1: we have to revert as a lagging report, so it
Speaker 1: doesn't change the fact that things have slowed down even
Speaker 1: since uh this data was captured. So given that it's
Speaker 1: a lagging report, Tiffany, and given that we have a
Speaker 1: pretty good feel when we look at the high frequency
Speaker 1: data that the momentum is slowing across the economy, including
Speaker 1: the jobs market. Um, what do you think this fiscal
Speaker 1: stimulus bill needs to include? Does it need to include
Speaker 1: you know, state and look, municipal support. Um? I mean
Speaker 1: so yeah, certainly, um so many state and you know,
Speaker 1: virtually all states require uh you know, balanced budgets, so
Speaker 1: they're not like the federal government where they can issue
Speaker 1: debt to fund to deficit. So all of that means
Speaker 1: that the massive hole that's been blown in state budgets
Speaker 1: as a result of lower revenues because businesses are closed,
Speaker 1: you know, that just means that they have to reduce spending.
Speaker 1: And what do states reduce spending on. It's things like services,
Speaker 1: so education, um, you know, a garbage pickup, fire and
Speaker 1: leaves and things like that. So ultimately, unless uh, you know,
Speaker 1: the government, the federal government steps in with some funding
Speaker 1: for states, you know, there they are going to have
Speaker 1: to slash those budgets. That's going to be a drag
Speaker 1: on the broader economy, uh you know, and so of
Speaker 1: course we want to see that. I think the other
Speaker 1: thing that's really important about you know, getting in this
Speaker 1: bill is a continuation of the unemployment that the kind
Speaker 1: of booster, if you will, emergency unemployment insurance benefits which
Speaker 1: were six hundred dollars a week. You know, they probably
Speaker 1: do go down a little bit, but I think it's
Speaker 1: really important that we see those that we're already seeing
Speaker 1: a lapse in coverage of that six D six hundred
Speaker 1: dollars a week because it expired at the end of July.
Speaker 1: So it'll be really interesting to see how consumers, you know,
Speaker 1: start to react with their spending not getting that extra
Speaker 1: six dollars a week. What what would be the jump
Speaker 1: if August colors like you're saying, what would be the
Speaker 1: jump of the unemployment rate? Are we talking about, you know,
Speaker 1: nuancing tenths of a percentage point? Are you talking, antiffany
Speaker 1: about a real reversal to a more grim unemployment rate?
Speaker 1: You know now that the high frequency of data that
Speaker 1: we look at is again a slowing of momentum. So
Speaker 1: it's not that it's employment is outright falling yet at
Speaker 1: least we're not seeing that. We're basically seeing kind of
Speaker 1: flat I think. Yeah, So if you if you think
Speaker 1: about just the change of employment, I think it very
Speaker 1: well could be something closer to flat um. And then
Speaker 1: that would suggest, you know, nuances in the participation rate
Speaker 1: or whatever the unemployment. This is well said, brilliant, maybe
Speaker 1: the smartest thing I've heard all the morning from a
Speaker 1: lot of smart people. Flat isn't acceptable, right, Yeah, I
Speaker 1: mean we need to see continued improvement. I mean, even
Speaker 1: with this report it was better than many expected, but
Speaker 1: we've only seen of the jobs lost in August and
Speaker 1: April recouped, and that's not you know, and we're the
Speaker 1: unemployment rate right now is still above where you know
Speaker 1: where kind of the highest that it got after the
Speaker 1: two thousand eight financial crisis. So ultimately, we want to
Speaker 1: road to recovery here and we're we're not We're still
Speaker 1: not close to being fully recovered. Um, you know, so
Speaker 1: at this point, flat is not acceptable. All right, So Tiffany,
Speaker 1: as you put all this into your Pimpco economic model,
Speaker 1: give us a sense of how you think the economy
Speaker 1: is gonna kind of, you know, kind of recover in
Speaker 1: terms of you know, the remainder this year going into well,
Speaker 1: I mean, ultimately, we had always expected, you know, kind
Speaker 1: of a boost of activity right as the economy reopened,
Speaker 1: and we got that, and that was actually stronger than
Speaker 1: we had hoped because of the fiscal stimulus measures that
Speaker 1: really amped that up. And after that we thought, you know,
Speaker 1: things will flatten off, but we still will get growth.
Speaker 1: It will be a longer recovery. Um. You know, I
Speaker 1: think that broad baseline is still intact. I think one
Speaker 1: thing that is good news though, is because we've you know,
Speaker 1: seen some flattening out or um, you know, even a
Speaker 1: little bit more weakness and the high frequency data, you know,
Speaker 1: I think that has moved our congressional leaders to provide
Speaker 1: more stimulus for I'm Washington and from the federal government.
Speaker 1: The question is the timing on that, so that will
Speaker 1: help growth in the fourth quarter, I think, um, you know,
Speaker 1: but we continue to expect it to see a long
Speaker 1: road from here with you know, the unemployment rate not
Speaker 1: getting back to kind of where we pre crisis levels,
Speaker 1: to where we were, you know, until I think at
Speaker 1: the early use at the earliest, maybe even a little
Speaker 1: bit after that. So it's still a long road unfortunately. Tiffany,
Speaker 1: thank you so much. Tiffany welding with us week him.
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.