Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Should
Speaker 1: we talk to somebody who actually manages real money? I mean,
Speaker 1: that's part of the charm of Bob Michael and others here.
Speaker 1: There's people that are strategists only, and then there's people
Speaker 1: that actually enjoy losing money when things go wrong. This
Speaker 1: dog log normal, I mean, Jim Karen join us in
Speaker 1: New York. Morgan Stanley Investment Management, Fixed Income Portfolio Manage
Speaker 1: to Jim, Great to see you. Let's talk about some
Speaker 1: of the challenges out there at the moment. Are you
Speaker 1: happy with some of the toad has been deployed? Um?
Speaker 1: Not not from the fat not so far. I mean
Speaker 1: interest rate cutting, interest rates, it's like you know, bringing
Speaker 1: a knife to a gunfight, you know at this point,
Speaker 1: because it's really about the credit markets. And you know,
Speaker 1: what we apply whenever these crisis events happen is what
Speaker 1: we call a triple A framework. And the triple A
Speaker 1: framework is affordability of credit, accessibility of credit, and then
Speaker 1: risk appetite. All three of these have to have to
Speaker 1: work together. Affordability, the FED can lower interest rates, and
Speaker 1: as as you're bringing up earlier, interest rates are actually
Speaker 1: lower for investment grade credit to day, so the borrowing
Speaker 1: costs is low and that's good. Um, the accessibility. Are
Speaker 1: the capital markets open? Are they able to issue their
Speaker 1: debt that needs to get going again? And then will
Speaker 1: people actually buy those bonds? Is the other question, Jim,
Speaker 1: How worries should I be about the small to medium
Speaker 1: sized enterprises? Otherwise viable business has gone through a really,
Speaker 1: really tough time right now. Can they make it to
Speaker 1: the middle of the year. Isn't that actually a big question? So, Jonathan,
Speaker 1: I'm glad you're talking about that. Not a lot of
Speaker 1: people are. That is the most important thing that we
Speaker 1: should talk about at this point. The large corporations and
Speaker 1: investment grade and all these indices, they can access to
Speaker 1: capital markets, plenty of liquidity. They have no problems. Small
Speaker 1: and midsized business. This is a life blood of the U.
Speaker 1: S economy. They employ six the people. This is jobs.
Speaker 1: Jobs feeds into consumption. Consumption feeds into g D p.
Speaker 1: What we need to see is more support mechanisms for
Speaker 1: these for these businesses to get bridge loans, because these
Speaker 1: are these are as. I like to say, these are
Speaker 1: ten thousand companies that borrow from ten thousand banks that
Speaker 1: you've never heard of, that really are the lifeblood. But
Speaker 1: Jim Karen, how do you do the X axis if
Speaker 1: we're talking about a medical event. I mean, to be fair,
Speaker 1: this virus could be good news, clear itself medically from
Speaker 1: a realological standpoint in weeks and we move on. I
Speaker 1: doubt that, but hey, that's one theory. How do you
Speaker 1: do the X axis of assistance to small business? Well,
Speaker 1: I think you overdo it to to make sure that
Speaker 1: we don't have a big problem. Right. So, so so
Speaker 1: the way that you do these things is you have
Speaker 1: to start to come up with these lending problems, Like
Speaker 1: the ECB has a nice toolkit to lend directly to
Speaker 1: these small and midsized enterprise. The way that it works,
Speaker 1: you know, for the FED is they may have to
Speaker 1: open up certain programs where they tell the big banks,
Speaker 1: like remember remember September two thousand, A team we had
Speaker 1: a big spike and repo rates. That's the big banks,
Speaker 1: not lending to the small banks, who then lent to
Speaker 1: the who then lent to small business. What we need
Speaker 1: to do is have some regulatory changes to make sure
Speaker 1: liquidity is flowing so that these small businesses can roll
Speaker 1: over their loans and these midsize and small banks can
Speaker 1: also continue to make these bridge loans and make sure
Speaker 1: that their backstop so that the credit can continue to flow.
Speaker 1: And if that, if that works over the next couple
Speaker 1: of months, we get through the virus, then we have
Speaker 1: a viable business to bounce back. If not, we don't
Speaker 1: have a viable business. This is critical. It's called building
Speaker 1: the bridge to get to the middle of the year.
Speaker 1: We've got a health shock, a health crisis. It will pass,
Speaker 1: and it probably will pass by the middle of this year.
Speaker 1: It all depends on what state these small and medium
Speaker 1: sized enterprises are actually in once we get there, and
Speaker 1: that will define the shape of the recovery. Absolutely that
Speaker 1: will define the upslope. I want to get my hands
Speaker 1: around the risk we face between now and then. If
Speaker 1: I don't see these tools deployed, are we talking about
Speaker 1: bankruptcys and sames? Are we talking about airlines going under?
Speaker 1: I don't want to lay on thick. This show has
Speaker 1: been really, really careful over the last couple of weeks,
Speaker 1: just to be very, very delicate about the position we're in.
Speaker 1: But I think that questions we need to ask you. Yeah,
Speaker 1: So so it goes back to risk, appetite and willingness
Speaker 1: to land. Right. So what we see here is that
Speaker 1: demand is not being destroyed, but it's being delayed. I mean,
Speaker 1: we we came into this event, you know, with relatively
Speaker 1: strong footing, and I think that most people would see
Speaker 1: this as a viable opportunity to make these loans to
Speaker 1: get people to the middle of the year, because it's
Speaker 1: gonna be a good it's gonna be a good investment,
Speaker 1: it's gonna be a good opportunity. So it's not like
Speaker 1: this is ah, this is an event that took place
Speaker 1: and we don't know what the end looks like. We
Speaker 1: believe that we do know what the end looks like.
Speaker 1: It's a question of the time and the passing the virus.
Speaker 1: Really important observation, John. This came after my six hour
Speaker 1: day yesterday. My last interview was with Alan Blinder of Princeton,
Speaker 1: the former vice chair and LISA vice chairman. Blinder was
Speaker 1: adamant Okay, it's a supply shock, it's a virus, but
Speaker 1: guess what, it's still a demand discussion, is Mr Karen mentioned? Well, absolutely,
Speaker 1: because whether people are going to travel matters with these
Speaker 1: companies and whether they're going to survive. I'm wondering there
Speaker 1: was so much discussion about lending moving away from banks
Speaker 1: to private equity, to private credit to smaller firms, and
Speaker 1: isn't this sort of stress testing them. Aren't they supposed
Speaker 1: to be swooping in here and actually fulfilling their function.
Speaker 1: So at least this is this is a good point here, right,
Speaker 1: So the regulatory environment has pushed these the banks out
Speaker 1: of that business and it's gone more to the private side,
Speaker 1: more to private equity and things like that to create financing. Well,
Speaker 1: these these guys are not the JP Morgan's, They're not
Speaker 1: the Bank of American's right there. Not the big banks
Speaker 1: that have to make these loans or that you can
Speaker 1: regulate to force them to make these loans. These are
Speaker 1: private entities. So the liquidity may not be asked forthcoming.
Speaker 1: But in some senses, some of these private equity firms
Speaker 1: have so much capital that's willing to deploy that they
Speaker 1: may do it on an opportunistic basis, but not on
Speaker 1: a regulatory, you know basis. So in other words, the
Speaker 1: FED loses control as the overall regulator of the banks
Speaker 1: to actually enact this policy. So it's really now up
Speaker 1: to the animal spirits to, you know, to actually take
Speaker 1: this on. There's also a question of how much time
Speaker 1: some of these businesses have until they run out of
Speaker 1: cash or face material debt maturities. Do we have a
Speaker 1: sense of that because in China there were statistics that
Speaker 1: a lot of companies, millions even could run out of
Speaker 1: cash in six days, right, So we don't We don't
Speaker 1: have good data on the small and midsized businesses, right
Speaker 1: because Wall Street typically you know, looks at large cap
Speaker 1: companies and that's and that's typically the way it goes.
Speaker 1: But what I do know is that more small in
Speaker 1: mid sized businesses. You know a lot of these a
Speaker 1: lot of these businesses put you know that they're working
Speaker 1: capitals their credit card, right, they put things on their
Speaker 1: credit card, they pay off their bills at the end
Speaker 1: of the month. So really what we have to start
Speaker 1: to look for is stresses maybe in some of the
Speaker 1: asset BacT markets that you know, the credit card markets
Speaker 1: and loan markets. In those ways, we have to start
Speaker 1: to be a little bit more creative to see how
Speaker 1: these small and midsized businesses access the credit markets and
Speaker 1: access liquidity. And that's what we need to be supportive of.
Speaker 1: So far, what I can tell you is I'm not
Speaker 1: seeing any stresses in the repo market, which is good,
Speaker 1: really really good news. So this is not looking like
Speaker 1: two thousand and eight. This is not a systemic event
Speaker 1: at this point. All I'm bringing up are the sign
Speaker 1: posts of risk that we should start to look at. Um.
Speaker 1: So far, so good, but we also have to start
Speaker 1: to look at some of the credit card data and
Speaker 1: some of the loan defaults and things like that in
Speaker 1: the smaller sized in the smaller size banks. Jim, let's
Speaker 1: talk about these markets and get a co from you. Ny.
Speaker 1: Basis points is the yield on the US tenure treasury?
Speaker 1: Should I get used to these kind of numbers now?
Speaker 1: The treasury market, I got used to it pretty quickly
Speaker 1: out from Germany and Europe and Japan. Do I need
Speaker 1: to get used to that hit in the United States?
Speaker 1: I think, sadly the answer is yes, especially if the
Speaker 1: FED by most economists now we're calling for another fifty
Speaker 1: basis point rate cut, you know, relatively soon. So if
Speaker 1: the Fed funds rates at you know, fifty basis points
Speaker 1: in you know, a couple of months time, or say
Speaker 1: maybe even weeks time. Um, Yeah, you're gonna be looking
Speaker 1: at the tenure note around one percent. Could the yield
Speaker 1: curve steep? And yes, Um, is inflation going to come
Speaker 1: back in any big way to to push longer term
Speaker 1: yield higher anytime soon? Probably not so. And if we're
Speaker 1: looking at higher yields, we have to look towards the
Speaker 1: second half of the year hard to see what the
Speaker 1: path of the virus actually takes. But the answer is
Speaker 1: absolutely these are just numbers, right, one percent not imagine
Speaker 1: it's just the number ninety bass point nine bays, But
Speaker 1: it's just a number. It could go lower, um, But
Speaker 1: but I think there are limitations before it starts to
Speaker 1: actually hurt the markets much. It's the fetes that imply, oh, absolutely,
Speaker 1: you think another twenty five. Well, I, you know, I
Speaker 1: can't make a call on whether they go twenty five
Speaker 1: or not. It's gonna depend on what's happening in all
Speaker 1: the other markets. But I I don't I don't rule
Speaker 1: that out. Jim Cannon to catch up near this morning
Speaker 1: moldering Stanley Investment Management Fixed Incomepan folio manager. The idea
Speaker 1: tell them that the fetty still implay after the fifty
Speaker 1: extraordinary absolute extrema weeks away. I love what Mr Karen said.
Speaker 1: They're about forget full faith and credit and look at
Speaker 1: the credit markets. Is the point over the next number
Speaker 1: of weeks headline across the Bloomberg. And this really shows
Speaker 1: not the specificity of cancelations, but there are two or
Speaker 1: three different pilgrimages in Saudi Arabia and the amra Is.
Speaker 1: It's it's considered like a secondary pilgrimage because it's not compulsory,
Speaker 1: but it's where anybody goes to Mecca. And they've canceled
Speaker 1: the entire omber pilgrimage moment in Saudi Arabia. That's a
Speaker 1: big deal. It's a broader statement than just canceling one
Speaker 1: specific thing like the I M Fringe series put together
Speaker 1: tho it's a series of gatherings that ultimately of being canceled.
Speaker 1: And this is playing into the economic impact, not just
Speaker 1: in the Middle Eas, not just in Asia, but all
Speaker 1: little perspective. This morning, as we bring in our good
Speaker 1: guest Howard Dean of Courses, Dr Dean of Albert Einstein
Speaker 1: Medical School, the former governor of Vermont, and he and
Speaker 1: I are of a vintage where we remember the extraordinary
Speaker 1: events of ninety two, which was George McGovern and I
Speaker 1: would point out Dr Dean that it was the six
Speaker 1: Amendment where it was guaranteed that the ut of America
Speaker 1: would show up and vote. They didn't show up yesterday,
Speaker 1: did they, Dr Dean? No, they didn't. And I'm stretching
Speaker 1: in my head and figuring out why. I've been reading
Speaker 1: Twitter as I often do, and there's a lot of
Speaker 1: young people on Twitter expressing disappointment because many of them
Speaker 1: are for Bernie, but they didn't vote. And I don't
Speaker 1: understand why. I don't get this. They have a candidate
Speaker 1: that's very exciting for them. It doesn't happen all the time.
Speaker 1: Young people elected Barack Obama in two thousand and eight,
Speaker 1: the only time in my lifetime where more people under
Speaker 1: thirty five voter than over sixty five. So I do
Speaker 1: not understand what's going on. I would suggest Vice President
Speaker 1: Biden is not doesn't have the former president's electricity of
Speaker 1: speaking and events and all that does Vice President by
Speaker 1: need the youth vote to defeat Donald Trump? I think
Speaker 1: he does. Um, we weren't party really is young, dark,
Speaker 1: and female. I mean, if you look at the Three
Speaker 1: Paths election in two thousand eighteen, two thousand seventeen in Virginia.
Speaker 1: In two thousand nineteen in Virginia, the legislators were transformed. Uh,
Speaker 1: and the average age I think of the Democratic Caucus
Speaker 1: went down about ten years in the single election in
Speaker 1: the House. So, but our core group is young, of color,
Speaker 1: and female, and so we need those groups to turn out.
Speaker 1: If those groups turn out, we went. If they don't
Speaker 1: turn out, we lose. It's just as simple as that. Well,
Speaker 1: how would let's talk about what was actually happening out
Speaker 1: the former Vice president Joe Biden. It was the African
Speaker 1: American vote overwhelmingly in his faith and now two months
Speaker 1: ago it fount like that would be the story. But
Speaker 1: eight days ago it felt like that maybe some of
Speaker 1: that was slipping. What has happened in the last seven days,
Speaker 1: It's not entirely clear, but it's more than the African
Speaker 1: American But the African American votes started all this in
Speaker 1: South Carolina, but donal throughout the South. He just got
Speaker 1: enormous numbers. And I can't conclude anything but this is
Speaker 1: this association with the only African American president we've ever
Speaker 1: had in this country. Um. But there's more to it
Speaker 1: than that. Uh to win in places like Texas. Uh
Speaker 1: and in Massachusetts, which is just shocking. In Minnesota that
Speaker 1: was not the African American vote that carried him. There
Speaker 1: was others. UM. I think some of this is just
Speaker 1: voters saying, look, we've had enough of the drama and
Speaker 1: the corruption and the every day Let's just get somebody
Speaker 1: who's we know. And even if it's Joe, who may
Speaker 1: not be that exciting when he showed he could win
Speaker 1: in South Carolina currently struck a struck a match. I.
Speaker 1: I've never seen anything like this in eleven decades, I
Speaker 1: mean eleven cycles. Here. Do you expect in the next
Speaker 1: four hours that this race goes down to two? No,
Speaker 1: Elizabeth is probably going to stay in. She thinks it's
Speaker 1: gonna be a broker convention and she can be the peacemaker. UM.
Speaker 1: I don't know what Mike Bloomberg is going to do,
Speaker 1: of course, Uh. I think he's considering his options. He
Speaker 1: has enough money to stay in as long as he
Speaker 1: wants to, and his goals are really broader than just
Speaker 1: becoming president. His ads have been absolutely fantastic in terms
Speaker 1: of ripping up Trump, and you know, he gets a
Speaker 1: great he gets it's a big discount on those ads
Speaker 1: as long as he's a candidate. So I have no
Speaker 1: idea what either one of them are going to do.
Speaker 1: And so far as I've assumed, it's going to be
Speaker 1: a four person race into the next big weekend, because
Speaker 1: I've been asked about this before and I've said repeatedly,
Speaker 1: we're not going to know until two weeks and the
Speaker 1: the next week is important to Michigan and big states
Speaker 1: like that. So this is not over by any speci
Speaker 1: of imagination. Yeah, and Dr Dean Michael Bloomberg has said
Speaker 1: he's come out and said, uh that the only way
Speaker 1: that he could win is in a contest, contested convention
Speaker 1: where the super delegates come together and meet Michael Bloomberg,
Speaker 1: founder and Geordie owner of Bloomberg LP. I'm wondering, from
Speaker 1: your perspective, what is the likelihood that we will get
Speaker 1: a candidate determined by a brokered convention which has not
Speaker 1: been used for decades, Not since nineteen fifty two. I
Speaker 1: think it's very unlikely. Um. Frankly, the optics is that
Speaker 1: are awful. Whoever the losing candidate would be in a
Speaker 1: broken convention with their supporters would have a very hard
Speaker 1: time getting behind the winner. Um. I just am not
Speaker 1: for brokered conventions. The super delegates has never elected a president.
Speaker 1: Has always been done without this help of the super delegates.
Speaker 1: Super delegates really are only there elect will attend the convention,
Speaker 1: which they didn't used to do until they were super delegates.
Speaker 1: Howard Dean, what kind of vice president does a seventies
Speaker 1: something year old gentleman from Delaware need? I mean, what's
Speaker 1: I mean? I know it's way too premature to talk
Speaker 1: vice president. What What's And Bernie has already said this.
Speaker 1: Bernie has said we cannot have two old white guys
Speaker 1: at the top of the ticket. He's absolutely right. I'm
Speaker 1: hoping we're gonna have a young woman of color on
Speaker 1: the ticket. I can think of a number in the
Speaker 1: governor of New Mexico is a Hispanic. As a Senator
Speaker 1: from Nevada, Stacy Abrams, of course, is highly well thought of.
Speaker 1: So there are plenty of well qualified women. I think
Speaker 1: it's important that we have a woman and I think
Speaker 1: it's probably what's your okay, great, but you know some
Speaker 1: people listening this would say you're gonna hand President Trump
Speaker 1: a second term. I mean, maybe that's President Trump's greatest hope.
Speaker 1: What is the evidence America will actually elect a woman
Speaker 1: as president or vice president? This is not just about winning,
Speaker 1: it's also about change in the country and if we
Speaker 1: have to be run fear of voters who won't vote
Speaker 1: for women, and this country is in deep trouble. All
Speaker 1: those people are already voting for Trump and we're not
Speaker 1: going to get their votes back. I've never thought that
Speaker 1: the way of winning this election is to take to
Speaker 1: a few Trump votes back. There will be some. The
Speaker 1: way of winning this election is to gin up our
Speaker 1: base like crazy and give young people, people of color,
Speaker 1: and women are reason to vote. Now, that's what's so
Speaker 1: disturbing about yesterday. That's really remarkable with Joe Biden did,
Speaker 1: but it's incredibly disturbing the young people didn't vote, and
Speaker 1: it didn't just hurt Bernie Sanders, that hurt everybody. It's
Speaker 1: sat or even having this conversation. I'm used to female
Speaker 1: leaders in the UK. We've had female prime ministers, we've
Speaker 1: had leading Dr Dean has got decades. It's a simple observation.
Speaker 1: I think it's satur revenues conversation. Howard, let's talk about
Speaker 1: drumming up the base. I thought the base was fired up.
Speaker 1: I thought it has been for the last three or
Speaker 1: four years. Have we got to get the guys in
Speaker 1: the middle. The guys in the middle are going to
Speaker 1: probably vote with us, especially with the candidate like buying
Speaker 1: because they're sick of Trump. But I don't again, I don't.
Speaker 1: I think you win races by firing up your base.
Speaker 1: That's how Obama one um, you know so, I I
Speaker 1: think that's the key. Now, the guys in the middle,
Speaker 1: you know, they'll they'll they make up their own decisions. Look,
Speaker 1: we can't stand for nothing as a party. I don't
Speaker 1: want to be like Jeremy Corban because that was obviously
Speaker 1: a disaster, but we do have to stand for something.
Speaker 1: Dr Dean. I have to wonder. One big question has
Speaker 1: been turnout and how much can we read into the
Speaker 1: levels of turnout that we've gotten within these uh these
Speaker 1: early votes A lot. I am stunned and thrilled with
Speaker 1: the turnout among African Americans were stunned and thrilled by
Speaker 1: Bernie's turnout in Nevada among Latinos. So this is clearly
Speaker 1: really important part. I'm not worried about turnout among people
Speaker 1: of color. I am worried about people young people. Uh.
Speaker 1: And this is that yesterday's result made me, makes me
Speaker 1: very nervous, and I think we have some work to do.
Speaker 1: How do we greatly value your Thank you so much?
Speaker 1: He's a former chairman of the d n C. The
Speaker 1: consensus for the private sector Friday is a hundred and
Speaker 1: sixty thousand. I love this. We can just about throw
Speaker 1: that out the window too. So there you go from
Speaker 1: Peter book far to get an excellence on which part
Speaker 1: of this we should throw out the window, we go
Speaker 1: to Julia Cornado, of course, how to give us perspective? Julie,
Speaker 1: I thought of you yesterday, I mean the historic moment
Speaker 1: of an emergency FED rate cut, with your work at
Speaker 1: the FED and with your wonderful academics at Texas, how
Speaker 1: did you frame the historical moment of that fifty basis
Speaker 1: point cut? Well? Come, it was, you know, we had
Speaker 1: anticipated and given the signal of the G seven call,
Speaker 1: we thought they wouldn't want to not deliver um. It's
Speaker 1: it's I think we saw the market reaction was not Uh,
Speaker 1: it's a panasy monetary policy in this situation is not
Speaker 1: going to fix the problem. The laryngitis at your fighting fighting, Julia,
Speaker 1: is it kinesiean or monitorist laryngitis? Well, but I'm hoping
Speaker 1: he's not coronavirus. Well, we'll get a test it. We'll
Speaker 1: get official surveillance test kit for your Thank you for
Speaker 1: being a trooper and being out with us. Let's go
Speaker 1: here a bit more dr Coronado and then we'll cut
Speaker 1: it short so you can go have a drama scotch
Speaker 1: to get through the morning. Julia. When we when we
Speaker 1: look at the economics of the moment, how do you
Speaker 1: extrapolate forward? I mean, your timeline becomes so changed. How
Speaker 1: do you look forward one week or to the Friday
Speaker 1: jobs report or even at one quarter. Well, as you mentioned,
Speaker 1: the job report is going to be a little bit stale.
Speaker 1: Um and you know, the sectors that we're gonna look
Speaker 1: for in the coming months will be say, leisure and hospitality, travel.
Speaker 1: These sectors are going to be tremendously hit in the
Speaker 1: next few months, both in spending probably bleeding into hiring.
Speaker 1: So we are going to see us slowdown in activity
Speaker 1: in Q two. We're going to say this in claims
Speaker 1: in the next couple of weeks that claims are going
Speaker 1: to start to lift a little bit high. Here, we
Speaker 1: could probably see a little lifting claims. Yes, Um, you know,
Speaker 1: we think about the sectors that are going to be hit.
Speaker 1: Some of these people aren't going to be eligible for
Speaker 1: an unemployment insurance. You're going to see probably the hourly
Speaker 1: workers get laid off first. So um, it may not
Speaker 1: show up in entirely in claims, but you you know,
Speaker 1: you you probably would expect a little bit of a
Speaker 1: lifting claims. Yes, Junia, it's been such a big focus
Speaker 1: of this program over the last couple of weeks. How
Speaker 1: do we support the small and medium sized enterprises to
Speaker 1: make sure they don't have to lay off people for
Speaker 1: what could be just a temporary economic shock. How do
Speaker 1: we do that? That's really a fiscal question. I mean,
Speaker 1: we really need a coordinated fiscal response here. We need
Speaker 1: some liquidity, maybe through the Small Business Administration, through SEMA.
Speaker 1: You know, there's all kinds of ways that the federal
Speaker 1: government could get money in a targeted fashion to affected areas.
Speaker 1: I don't see any evidence that the administration has plans
Speaker 1: for that. Um I think we need to start talking
Speaker 1: about that, because why let this economic hit sort of
Speaker 1: spread and deep and in the way you're describing if
Speaker 1: you want to ensure this this shock Julia as a
Speaker 1: former FED researcher at the Central Bank in Washington. I'm
Speaker 1: just trying to understand how they're modeling out the potential
Speaker 1: effects of the coronavirus, what data they're looking at, what
Speaker 1: they're responding to. Clearly they were responding to a material
Speaker 1: shift and expectations going forward stocks trying to take that
Speaker 1: and figure out whether that means recession? How likely do
Speaker 1: you think that is the outcome here? So I think
Speaker 1: modeling the direct effects is easier, say, you know, you
Speaker 1: can think about the interruption and activity in certain sectors,
Speaker 1: what we're seeing, how it's likely to spread. The knock
Speaker 1: on effects through confidence are the things that the FED
Speaker 1: is trying to ensure again, right, the hit to consumer confidence,
Speaker 1: a broader sense of you know, pull back in business
Speaker 1: investment in consumers ending. So I think that's what the
Speaker 1: FET is trying to keep on the tracks, which has
Speaker 1: been pretty good in recent years, very resilient to a
Speaker 1: lot of bad news. So I think that's the aim um.
Speaker 1: If that gets hit and we see consumers just sort
Speaker 1: of hunker down, then you're in trouble. Dr. Cornado and
Speaker 1: micro economics. One of the great great moments is when
Speaker 1: you have to try to figure out income and substitution
Speaker 1: effects and at least to all sorts of ambiguities. What's
Speaker 1: the arch ambiguity for chairman power right now? Is it
Speaker 1: ambiguity about the dollar? About no inflation? Yes, inflation? I mean,
Speaker 1: what's the unknown out there for the chairman? Well, and
Speaker 1: Thomas's you know, you're you're putting your finger on it.
Speaker 1: The income and substitution effects in an older society, lower
Speaker 1: interest rates can be you know, more painful to the
Speaker 1: older generation replying on that income, and they can you know,
Speaker 1: sometimes have to save more as a result, so you
Speaker 1: get less bang for your buck. Mine, Julia, you're you're
Speaker 1: being come on, get the piece of chalk in your
Speaker 1: hand to get some vixed vapor rub to get you
Speaker 1: through the day. Dr Coronado, you're in a classroom right
Speaker 1: now and you're looking at an actuarial assumption that's going
Speaker 1: to four percent or even three point eight percent. That's
Speaker 1: gonna turn on its head our American financial society, isn't it?
Speaker 1: It will? Yes, and we are I mean, Tom yesterday
Speaker 1: was a dramatic day. The drop in yields at the
Speaker 1: ten year point below one per cent um. It's astonishing
Speaker 1: where we are. And of course for the FED, you know,
Speaker 1: forget the income and substitution effects. They're out of AMMO.
Speaker 1: You know, they're they're running out of tools. Uh and uh.
Speaker 1: And that's that's I think there may be that kind
Speaker 1: of existential worry in the markets, this realization that, oh
Speaker 1: my goodness, here we are now even the FED is
Speaker 1: out of AMMO. Are we questioning the Fed? Put Um?
Speaker 1: I think there's a little bit more underlying concern about
Speaker 1: that now. I mean, obviously the Fed can do KWIE
Speaker 1: and they will if they have to. Um. You know,
Speaker 1: the impact of that is less powerful when yields are
Speaker 1: already as low as they are, so, you know, I
Speaker 1: a lot of the clients I talked to, Yeah, there's
Speaker 1: a lot more discussion about what comes next, what's the
Speaker 1: FED gonna do and what is the impact going to be?
Speaker 1: You know, we have a real shock here, this coronavirus.
Speaker 1: It's transitory, but it's real. We know it's going to
Speaker 1: hit the economy, so you know, the the ability of
Speaker 1: the FED to ensure us against this. You know, I
Speaker 1: was hoping with the G seven announcement that we were
Speaker 1: seeing more evidence of the kind of fiscal monetary coordination
Speaker 1: that we're gonna need when we get a real shock
Speaker 1: that's the deeral lower bound. But we really didn't seem
Speaker 1: much follow through on the fiscal side, certainly not in
Speaker 1: the US. So you know, I think that's the realities
Speaker 1: that fiscal policy makers are going to have to pick
Speaker 1: up the ball here. Julia, you're a trooper to be
Speaker 1: with today. Nurse Amy emails in Dr Coronado and suggests
Speaker 1: you go to the Joe Koi School and Hospital uh
Speaker 1: there for your your laryngitis, and she recommends you put
Speaker 1: vix on your eyelids, and that's usually a good way
Speaker 1: on your eyelid. That's from the Joe. She she's a
Speaker 1: nurse staph nurse of the front. That's from you know,
Speaker 1: that's from Dr. Thank you. Coming out of the macro
Speaker 1: policy prospectives, President I found out our guests come on
Speaker 1: with us when they're sick, and you know, it's really
Speaker 1: because they de tended to be on a program, and
Speaker 1: I think that's a beautiful thing. Did we pair We
Speaker 1: probably dated. Jared Burstein with us right now. And if
Speaker 1: you're curious about Vice President Biden's path forward on economics
Speaker 1: and policy, there's no one better to speak to you,
Speaker 1: senior fellow Center and Budget and Policy Administration, UM Policy Priorities,
Speaker 1: former chief economists of course, with the Vice President, Jared.
Speaker 1: Did you speak to the Vice President last night or
Speaker 1: in the recent days and how's he doing. I haven't, Uh,
Speaker 1: he's been a little busy. I've talked to folks on
Speaker 1: the campaign, and I thought what was interesting to me
Speaker 1: is that these folks were feeling strong even before South Carolina.
Speaker 1: They believe that South Carolina was going to turn the
Speaker 1: tithes and events have proven them correct. Define establishment Democratic
Speaker 1: Party economics and how it can defeat the president of
Speaker 1: the United States. There has to be a strategy. My
Speaker 1: guess is after four years ago it will be more overt.
Speaker 1: What will that strategy be to defeat Donald Trump? So
Speaker 1: that's a two part question. Let me start with the
Speaker 1: first part, which is easier, about the economic I think
Speaker 1: the way to think about the economics in this case
Speaker 1: is building on what exists versus introducing a lot of
Speaker 1: new things. So if you listen to Biden's agenda, he's
Speaker 1: talking about building on the Affordable Care Act, planning a
Speaker 1: path towards universal coverage, but not trying to leap frog
Speaker 1: there quickly. If you look at his progressive tax ideas,
Speaker 1: they're building on the code as it exists. How did
Speaker 1: that beat Donald Trump? Well, it's a return to a
Speaker 1: more established, normal set of procedures, and it's a belief
Speaker 1: that what the country craves is a lot less chaos
Speaker 1: and a lot more order from someone who's had a
Speaker 1: lot of experience in government. One thing that marked the
Speaker 1: primaries was the lack of younger voters turning out. And
Speaker 1: this is the reason perhaps that some people are pointing
Speaker 1: to Sanders not performing as well as he was expected to.
Speaker 1: And I'm just wondering, if you take this forward, and
Speaker 1: you take this idea that we're probably going to see
Speaker 1: Bernie Sanders still very much in the race, how significant
Speaker 1: is it to you that we've got a two party,
Speaker 1: two candidate race at this point where one of them
Speaker 1: ignites the younger voters, which is the key democraphic and
Speaker 1: it's not Joe Biden. What does it say about Joe
Speaker 1: Biden's chances? I think what it says is all of
Speaker 1: the function of something nobody knows the answer to which
Speaker 1: is that if Joe Biden ends up being the nominee,
Speaker 1: and you make a great point, this is ain't done yet,
Speaker 1: will those voters switch over or will they sit on
Speaker 1: their hands. It's kind of a protest vote. I think
Speaker 1: the anxiety about Trump having four more years is enough
Speaker 1: to keep people from sitting on their hands in that context.
Speaker 1: But that is the big question. There's another question to
Speaker 1: which is that Bernie Sanders also still has quite a
Speaker 1: bit of support and quite a few votes. How likely
Speaker 1: is it that we're heading toward a brokered convention, a
Speaker 1: sort of worst case scenario for Democrats trying to give
Speaker 1: voters conviction that they actually had a choice in who
Speaker 1: ended up being the candidate. You know, it's a fair question.
Speaker 1: I gotta say, I'm an economist that I don't know
Speaker 1: that I have a great answer for you. I will
Speaker 1: say this, one thing that really struck me about last
Speaker 1: night's vote is that late deciders broke towards Biby. That
Speaker 1: happened even in Massachusetts state, eating campaign a lot where
Speaker 1: he beat uh Center Warren. So that leads me to
Speaker 1: believe that there is an electability case to be made.
Speaker 1: Their people are people are just thinking that he's the
Speaker 1: one who can most reliably be Trump, and I think
Speaker 1: that probably does put some wind in the final Gared,
Speaker 1: you're not doing market economics where you're gaming tense of
Speaker 1: a percent and real GDP, etcetera. But how do you
Speaker 1: envision the economy going into it? It's you know the
Speaker 1: folks that GDP statistics come out. I don't have it
Speaker 1: in front of me job, but Jared, but I'm going
Speaker 1: to suggest we're gonna get a g d V reports
Speaker 1: three days before the election, whatever, but we're gonna have
Speaker 1: a two percent economy or could it be gloomier to
Speaker 1: the benefit of a Democratic candidate. Certainly, the coronavirus is
Speaker 1: a huge concern. I saw and I said pole this
Speaker 1: morning that I must admit surprise me, which is that
Speaker 1: the coronavirus impact was high on the minds of lots
Speaker 1: of voters, and by the way, that tended to break
Speaker 1: towards Biden. Uh So, it is Uh, definitely likely. I
Speaker 1: would say that the economy will be growing considerably slower,
Speaker 1: well below trend by the time when people are making
Speaker 1: up their votes. And by the way, if, if, even
Speaker 1: if we we don't have to have a recession for
Speaker 1: unemployment to start to rise. This grossery is cut by half,
Speaker 1: which is the Goldman Sachs forecastpoy R could be closer
Speaker 1: to and that's still low, but it's half point about
Speaker 1: where we are, and we'll be watching claims tomorrow on that.
Speaker 1: Jared Bernstein, thank you so much, greatly, appreciate your time.
Speaker 1: Looking forward to seeing you in Washington again. Of course,
Speaker 1: Dr Bernstein with the Vice President a number of years
Speaker 1: ago with the Obama administration right now comments in a
Speaker 1: well timed discussion with David Rubinstein. You know him, of
Speaker 1: course from Carlisle. Some of you will know him from
Speaker 1: some of his public service, particularly with the administration of
Speaker 1: UH President Carter. This was a few years ago, and
Speaker 1: now he has become a TV star with piercing interviews
Speaker 1: with an eclectic group of world thought leaders and decision makers.
Speaker 1: And I always bring up, of course, is I thought
Speaker 1: definitive interview with Mr Bezos. Um it will be tonight
Speaker 1: nine o'clock on Bloomberg Television. I want to begin first
Speaker 1: with Mr Rubinstein talking to his good guest, the governor
Speaker 1: of Saudi Arabia's sovereign Well It's fund. Let's listen in.
Speaker 1: Now you have said, I think publicly you would like
Speaker 1: it to be the largest sovereign wealth fund in the
Speaker 1: world at some point, and you like it to get
Speaker 1: to a trillion dollars to trillion trillion dollars. So when
Speaker 1: do you think you'll be able to get to two
Speaker 1: trillion dollars? The number looks really big because you know
Speaker 1: the largest Southern well fund today is about one trillion. Uh.
Speaker 1: We think that it's very much achievable by twenty thirty.
Speaker 1: All those different things require a big staff to manage.
Speaker 1: How big is the p i F staff today? When
Speaker 1: we started this was forty people today of more than
Speaker 1: seven hundred by year, and alatargetists to have more than
Speaker 1: one thousand full time employees. M P if this deserves
Speaker 1: at least a one hour conversation, it could be one
Speaker 1: of those panels where I would discuss this in Mr Rubinstein. Instead,
Speaker 1: we've got too few minutes to talk about this, David,
Speaker 1: there's any number of ways to go here with this
Speaker 1: effort by Saudi Arabia, what makes this effort of a
Speaker 1: sovereign wealth fund different from so many others were aware of? Well,
Speaker 1: this sovereign wealth fund came out of the blue in
Speaker 1: many respects. Some of the well known sovereign wealth funds
Speaker 1: like the Kuwait Investment Authority, the Abu Dhabi Investment Authority,
Speaker 1: the Government of Singapore Investment Company, they have been around
Speaker 1: for decades, generations in some cases. The Sovereign Wealth Fund
Speaker 1: and Saudi Arabia is relatively new, while Um the head
Speaker 1: of it, Mr Al Romanon has um been the head
Speaker 1: just for a couple of years. It actually was started
Speaker 1: p i F Fund in seventy one, but it was
Speaker 1: relatively under his leadership. It's now becoming, as he hopes,
Speaker 1: one of the biggest in the world. He was an
Speaker 1: investment a commercial banker in Saudi Arabia. He's a native
Speaker 1: of Saudi Arabia and he was picked by MBS to
Speaker 1: leave the p i F Fund and he's built it
Speaker 1: up into a very very considerable force. Obviously, the I
Speaker 1: p O of Saudi Aramco given it more resources, and
Speaker 1: I should say he was also appointed to be the
Speaker 1: chairman of Saudi ARAMCO in addition to the job he
Speaker 1: now has as being the head of p IF, So
Speaker 1: he's got two big jobs in Saudi Arabia. Now. Is
Speaker 1: the Sovereign Wealth Fund a bolt on to the House
Speaker 1: of Flizara, bolt onto the royal family or can it
Speaker 1: be discreet and also separate from the social debates of
Speaker 1: the kingdom. Well, they've hired a lot of investment professionals
Speaker 1: from the West, so they have a lot of people
Speaker 1: as well from Saudi Arabia. It's designed to get the
Speaker 1: highest rate of return that you can legally do without
Speaker 1: taking undue risk. But it also has a different mission.
Speaker 1: They also want to uh uh have people come into
Speaker 1: Saudi Arabian invest there, so they might invest with people
Speaker 1: who will invest in the kingdom as well as people
Speaker 1: who will invest and get good rates returning outside. So
Speaker 1: it's got a dual mission in that sense. Just because
Speaker 1: of time, David Rue was saying, give us one vignette
Speaker 1: of this important conversation. What was something that surprised you
Speaker 1: from the governor. I think it's surprising that he doesn't
Speaker 1: seem to be under undue stress. I mean, if him
Speaker 1: on my case. So I was running as the chairman
Speaker 1: of the Saudi Aramco and also running the p IF
Speaker 1: and and and MBS is deeply involved in both of them.
Speaker 1: You think he would have been under more stress, but
Speaker 1: he seems to be relatively relaxed about what he's doing
Speaker 1: and I think a very engaging person. He's come to
Speaker 1: be well known in the investment world in recent years.
Speaker 1: In fact, we did this interview at a large private
Speaker 1: equity conference, and um, you know he tends private equity conferences.
Speaker 1: He's involved in a lot of investments directly. He's on
Speaker 1: the board of Uber, where the fund made a direct
Speaker 1: investment before they went into division fund, and he is
Speaker 1: the person who, with MBS, made the decision to I
Speaker 1: went to the Vision Division Fund, the first one that
Speaker 1: they committed forty five billion dollars to it. David Rubinstein
Speaker 1: one final question. You were brought up in a regime
Speaker 1: of six, seven and eight percent rates. I don't want to,
Speaker 1: you know, give away Mr Rubenstein's young age, but this
Speaker 1: was a few years ago. How does your world spin
Speaker 1: with a ten year yield of point nine five to two.
Speaker 1: It's hard to believe because you're referring to days when
Speaker 1: I was in the cart administration, when interest rates were
Speaker 1: much much higher. It's hard to believe that the Treasury
Speaker 1: is now below one one point oh, but that's the
Speaker 1: world we live in, and I suspect it could go
Speaker 1: lower because I'm not sure we've seen the last of
Speaker 1: the interest rates declines from the from the Federal Reserve. David,
Speaker 1: Thank you so much, David Rubinstein. Peer to peer conversations
Speaker 1: with a gentleman from the Carlisle Group. This is an
Speaker 1: extremely important interview, particularly for our global audience, Saudi Arabia's
Speaker 1: public investment funds, Yassir al Ramaya and their governor. Thanks
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen
Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform
Speaker 1: you prefer. I'm on Twitter at Tom Keene before the podcast.
Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio