1
00:00:09,880 --> 00:00:13,800
Speaker 1: Welcome to the Bloomberg Surveillance podcast. I'm Tom Keane. Daily

2
00:00:13,960 --> 00:00:17,560
Speaker 1: we bring you insight from the best in economics, finance, investment,

3
00:00:18,000 --> 00:00:23,480
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

4
00:00:23,600 --> 00:00:27,240
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. I

5
00:00:27,240 --> 00:00:30,680
Speaker 1: would suggest the most important political conversation of the day,

6
00:00:31,160 --> 00:00:34,080
Speaker 1: Marty Walsh is from Boston, but it is a different

7
00:00:34,400 --> 00:00:37,800
Speaker 1: path than anybody else. I know, the gentleman who fought

8
00:00:37,800 --> 00:00:41,080
Speaker 1: off cancer as a child, went to BC and then

9
00:00:41,120 --> 00:00:42,920
Speaker 1: he had to root for the New England Patriots. He

10
00:00:42,960 --> 00:00:45,760
Speaker 1: appears with us today even though the Patriots are not

11
00:00:45,840 --> 00:00:48,519
Speaker 1: the patriots he and I know, and even though Brady

12
00:00:48,560 --> 00:00:51,920
Speaker 1: did better than good last night. Marty Walsh, it is

13
00:00:51,960 --> 00:00:57,160
Speaker 1: a Boston in transition. Clearly you are for President Biden.

14
00:00:57,600 --> 00:01:03,760
Speaker 1: What do the cities need from an administration day one? Uh,

15
00:01:03,840 --> 00:01:06,319
Speaker 1: the collaboration, I think is the first and first thing

16
00:01:06,360 --> 00:01:09,920
Speaker 1: that we need the most. Myself and me at Lance

17
00:01:09,959 --> 00:01:12,600
Speaker 1: Bottoms from Atlanta just didn't not bed and we talked

18
00:01:12,640 --> 00:01:14,720
Speaker 1: about the importance of having a White House that that

19
00:01:14,920 --> 00:01:19,120
Speaker 1: understands how a city works and understands the relationships that

20
00:01:19,160 --> 00:01:21,080
Speaker 1: need to happen and in the last three and a

21
00:01:21,080 --> 00:01:23,800
Speaker 1: half years, I've had no meetings, no conversations with the

22
00:01:23,800 --> 00:01:27,760
Speaker 1: White House. The White House the way currently exists is

23
00:01:27,760 --> 00:01:30,600
Speaker 1: a top down approach, and the Joe Biden White House

24
00:01:30,640 --> 00:01:34,600
Speaker 1: will be very different. Mayor Walsh, Christopher Whale, and a

25
00:01:34,640 --> 00:01:37,560
Speaker 1: good friend of the show, an expert in financial history,

26
00:01:38,040 --> 00:01:40,760
Speaker 1: just put out a photo on Twitter on Central Park

27
00:01:40,920 --> 00:01:45,160
Speaker 1: South and it's from the Trump campaign. New Yorkers are

28
00:01:45,160 --> 00:01:49,000
Speaker 1: going to suffer and that's their problem. That's been the

29
00:01:49,080 --> 00:01:53,720
Speaker 1: attitude of this president towards Democratic strongholds, and yet we

30
00:01:53,800 --> 00:01:58,080
Speaker 1: see Republican cities as well having challenges in the pandemic.

31
00:01:58,480 --> 00:02:01,480
Speaker 1: How much do you need from Washington and what will

32
00:02:01,520 --> 00:02:04,240
Speaker 1: you do with the money when you get it? Well,

33
00:02:04,240 --> 00:02:07,120
Speaker 1: when it comes to me, as mayors don't regard each

34
00:02:07,120 --> 00:02:09,600
Speaker 1: other as Democrats and Republicans. We regard each other as

35
00:02:09,639 --> 00:02:12,600
Speaker 1: mayors that run our cities, and we collectively need to

36
00:02:12,639 --> 00:02:15,280
Speaker 1: have an administration of Washington that's gonna work with us.

37
00:02:15,280 --> 00:02:18,480
Speaker 1: And I can say firsthand here in Boston, from their

38
00:02:18,520 --> 00:02:22,399
Speaker 1: early days of the pandemic right through the pandemic, there's

39
00:02:22,400 --> 00:02:25,520
Speaker 1: been no assistance from Washington. We've had to go alone

40
00:02:25,520 --> 00:02:27,880
Speaker 1: for the most party, including states, we've had to figure

41
00:02:27,880 --> 00:02:31,080
Speaker 1: out ppe we've had to figure out even thinking about

42
00:02:31,160 --> 00:02:34,000
Speaker 1: how how do we prepare our residents for the future.

43
00:02:34,040 --> 00:02:36,600
Speaker 1: As far as being careful and physical distancing and show

44
00:02:36,760 --> 00:02:42,080
Speaker 1: social distancing messages have been consistent across America. It's really important.

45
00:02:42,600 --> 00:02:45,760
Speaker 1: And then as racism read, it's ugly head in America

46
00:02:45,840 --> 00:02:49,880
Speaker 1: again and we had protests and demonstrations across the streets

47
00:02:50,000 --> 00:02:52,959
Speaker 1: around the streets in America. Uh. This White House quite

48
00:02:53,000 --> 00:02:56,880
Speaker 1: honestly just agitated and incited violence. Uh. And it's really

49
00:02:57,120 --> 00:02:59,680
Speaker 1: we need leadership right now. And in Boston, I'll tell

50
00:02:59,680 --> 00:03:02,320
Speaker 1: you a hundred and fifty nine thousand people have already

51
00:03:02,400 --> 00:03:06,040
Speaker 1: voted before election day. So there is definitely a feel

52
00:03:06,120 --> 00:03:09,400
Speaker 1: for change in the air. And it's not just democratic cities,

53
00:03:09,400 --> 00:03:12,760
Speaker 1: it's it's it's all cities across America. Mayywell's there is

54
00:03:12,760 --> 00:03:15,200
Speaker 1: a feeling of change. There's also a feeling of fear.

55
00:03:15,480 --> 00:03:17,760
Speaker 1: And my younger son last night said to me, you know,

56
00:03:17,919 --> 00:03:19,840
Speaker 1: is there going to be violence? And he's looking around

57
00:03:19,880 --> 00:03:22,720
Speaker 1: and he's seeing all of the boarded up windows around

58
00:03:22,720 --> 00:03:25,440
Speaker 1: New York City. And I believe in Boston as well,

59
00:03:25,560 --> 00:03:29,400
Speaker 1: your town, how concerned are you about violence in response

60
00:03:29,440 --> 00:03:33,520
Speaker 1: to any election outcome, particularly if President Trump is in

61
00:03:33,520 --> 00:03:36,720
Speaker 1: the lead. Given the fact that people in democratic cities

62
00:03:36,720 --> 00:03:40,000
Speaker 1: are the ones, honestly that are having boarded up windows,

63
00:03:40,880 --> 00:03:43,120
Speaker 1: just think about what the question you just asked me.

64
00:03:43,640 --> 00:03:47,040
Speaker 1: We live in the greatest country in the world, where

65
00:03:47,080 --> 00:03:50,240
Speaker 1: where freedom and democracy is what we're proud of, and

66
00:03:50,280 --> 00:03:53,840
Speaker 1: we have cities and businesses all across America putting boards

67
00:03:53,840 --> 00:03:56,680
Speaker 1: on windows worrying about violence because of the general election.

68
00:03:57,080 --> 00:04:00,440
Speaker 1: We've never seen anything like that. This is not result

69
00:04:00,520 --> 00:04:04,160
Speaker 1: of of Joe Biden and his speeches. This is a

70
00:04:04,160 --> 00:04:07,320
Speaker 1: result of a president who has failed America. This is

71
00:04:07,320 --> 00:04:10,960
Speaker 1: the result of a president whos failed American economy. He's failed,

72
00:04:11,000 --> 00:04:14,960
Speaker 1: He's failed everything that he claims he stands for. UH.

73
00:04:15,000 --> 00:04:18,719
Speaker 1: And I'm hoping that after today's election we don't see violence.

74
00:04:19,160 --> 00:04:22,200
Speaker 1: And what I'm focused on today is making sure that

75
00:04:22,240 --> 00:04:24,920
Speaker 1: people get out to vote, people can vote without intimidation,

76
00:04:25,160 --> 00:04:27,680
Speaker 1: people can vote safely, UH, And that they should be

77
00:04:27,720 --> 00:04:29,640
Speaker 1: able to do that in Boston, Massachusetts, and they should

78
00:04:29,640 --> 00:04:32,960
Speaker 1: be to do that all across America today without that fear.

79
00:04:33,040 --> 00:04:35,680
Speaker 1: I hope that's not the country that we're becoming quite honestly,

80
00:04:36,200 --> 00:04:39,840
Speaker 1: Mary wash one final question, if we would uh this morning.

81
00:04:39,880 --> 00:04:44,040
Speaker 1: Dorchester represents the heritage of a Democratic Party that has

82
00:04:44,160 --> 00:04:47,920
Speaker 1: lost so many people to the Republicans or at least

83
00:04:48,120 --> 00:04:52,200
Speaker 1: Donald Trump. What is the policy prescription you would suggest

84
00:04:52,680 --> 00:04:55,919
Speaker 1: for the Liberals in your party to get back to

85
00:04:56,040 --> 00:05:00,520
Speaker 1: the kind of voters that made Dorchester years ago. I think,

86
00:05:00,560 --> 00:05:03,279
Speaker 1: first and foremost, we need to elect Joe Biden president today.

87
00:05:03,480 --> 00:05:05,680
Speaker 1: And I think that then we go back and to

88
00:05:06,279 --> 00:05:08,480
Speaker 1: kind of look at the party and not I would

89
00:05:08,480 --> 00:05:10,919
Speaker 1: say we have to rebuild the Democratic Party, but certainly

90
00:05:10,920 --> 00:05:12,760
Speaker 1: we have to go back and get those Democrats that

91
00:05:12,839 --> 00:05:14,880
Speaker 1: used to be Democrats and pull them back into the

92
00:05:14,960 --> 00:05:17,880
Speaker 1: Democratic Party. The values of the Democratic Party of the

93
00:05:17,920 --> 00:05:20,760
Speaker 1: same values that those people the party they joined many

94
00:05:20,760 --> 00:05:23,520
Speaker 1: many years ago. And as mayor of the City of Boston,

95
00:05:23,560 --> 00:05:25,760
Speaker 1: I'm committed to doing that, and as other may as

96
00:05:25,800 --> 00:05:28,440
Speaker 1: across America were committed to bring out party back and

97
00:05:28,560 --> 00:05:31,280
Speaker 1: representing everyone. Mayor wasalh. I'd like to see it. Tom

98
00:05:31,279 --> 00:05:33,520
Speaker 1: English is pub but I believe it's shut down a

99
00:05:33,560 --> 00:05:37,799
Speaker 1: year ago. There's still one in Southie. That's all that matters. Mayor.

100
00:05:37,920 --> 00:05:42,080
Speaker 1: Thank you so much, Marty Walsh, the Mayor of Boston.

101
00:05:42,200 --> 00:05:44,480
Speaker 1: Here on a most interesting day, and again we say

102
00:05:44,520 --> 00:05:47,160
Speaker 1: good morning to Bloomberg Radio listening across the England. One

103
00:05:47,160 --> 00:05:54,200
Speaker 1: of six one f M right now in trouble is

104
00:05:54,240 --> 00:05:57,720
Speaker 1: Stephanie Kelly with Aberdeen Standard Investment. She has a really

105
00:05:58,200 --> 00:06:02,000
Speaker 1: interesting mandate at the large investment management firm of trying

106
00:06:02,000 --> 00:06:05,400
Speaker 1: to figure out what all this means for investment management

107
00:06:05,760 --> 00:06:09,320
Speaker 1: and particularly longer term money. Stephanie Kelly, thank you for

108
00:06:09,440 --> 00:06:12,280
Speaker 1: us so much for joining us today. What does this

109
00:06:12,360 --> 00:06:16,080
Speaker 1: mean for active management? How does election play into the

110
00:06:16,160 --> 00:06:20,920
Speaker 1: investment management industry next year? I think if any of

111
00:06:21,000 --> 00:06:24,799
Speaker 1: the US election illustrates just how crucial that role really

112
00:06:24,920 --> 00:06:27,280
Speaker 1: is for us A managers, because if we look at

113
00:06:27,480 --> 00:06:30,400
Speaker 1: what a Biden administration might mean with or without a

114
00:06:30,440 --> 00:06:34,640
Speaker 1: democratic majority, or indeed what happens if gets reelected, all

115
00:06:34,680 --> 00:06:36,680
Speaker 1: of those things I think are really storied about the

116
00:06:36,720 --> 00:06:39,720
Speaker 1: sector rather than necessarily just the pure index. And so

117
00:06:39,760 --> 00:06:41,240
Speaker 1: it's a time when you really need to be thinking

118
00:06:41,279 --> 00:06:44,320
Speaker 1: about what does the regulatory environment mean? And that's not

119
00:06:44,400 --> 00:06:46,960
Speaker 1: always super clear cut, it's not cut and dry, and

120
00:06:47,000 --> 00:06:50,240
Speaker 1: so understanding and actively thinking about what does regulation mean,

121
00:06:50,400 --> 00:06:52,599
Speaker 1: what does legislation mean, and which are the sectors who

122
00:06:52,600 --> 00:06:55,120
Speaker 1: win and which are the sectors who lose. That's what's

123
00:06:55,120 --> 00:06:58,760
Speaker 1: going to be the key to invest gonagement. Summarize the

124
00:06:58,880 --> 00:07:01,840
Speaker 1: state of populism. Right now we have this terrible terror

125
00:07:01,839 --> 00:07:05,760
Speaker 1: attack in Vienna, Austria, the state of populism in Austria,

126
00:07:05,960 --> 00:07:08,760
Speaker 1: in England for that matter, in Canada, and certainly with

127
00:07:08,920 --> 00:07:12,560
Speaker 1: Mr Trump in America, the state of populism on the

128
00:07:12,600 --> 00:07:15,840
Speaker 1: selection day. So I think there's a couple of ways

129
00:07:15,880 --> 00:07:18,440
Speaker 1: to think about populism. We tend to focus on right

130
00:07:18,440 --> 00:07:20,560
Speaker 1: wing populism, and I think that's been the one that's

131
00:07:20,600 --> 00:07:23,000
Speaker 1: been the most successful in recent years. Indeed, you look

132
00:07:23,000 --> 00:07:26,280
Speaker 1: at places like the French, the French Tarty seventeen elections.

133
00:07:26,360 --> 00:07:28,520
Speaker 1: We look in the US, we look to the UK

134
00:07:28,960 --> 00:07:31,800
Speaker 1: that seems to be where the kind of populism support

135
00:07:31,880 --> 00:07:34,160
Speaker 1: is growing. I think the one to watch for investors though,

136
00:07:34,720 --> 00:07:36,520
Speaker 1: is in the next kind of year or so, it's

137
00:07:36,520 --> 00:07:39,080
Speaker 1: actually Italy because although at the moment we have just

138
00:07:39,200 --> 00:07:43,200
Speaker 1: coalition which is relatively stable and for now seems quite stable.

139
00:07:43,560 --> 00:07:45,680
Speaker 1: But my fear is that that kind of is hiding

140
00:07:45,680 --> 00:07:48,240
Speaker 1: what is underneath, which is that actually the majority of

141
00:07:48,280 --> 00:07:51,800
Speaker 1: support for parties in Italy is for populist parties, and

142
00:07:51,840 --> 00:07:54,240
Speaker 1: in particular it looks as though a right wing populist

143
00:07:54,280 --> 00:07:57,320
Speaker 1: coalition could be the next government when we get to

144
00:07:57,360 --> 00:07:59,280
Speaker 1: the next selection. So that's one to watch for the

145
00:07:59,320 --> 00:08:01,679
Speaker 1: next year. It's a near term risk, but it's definitely

146
00:08:01,720 --> 00:08:04,200
Speaker 1: one to bear in mind that it leaves this permanent

147
00:08:04,280 --> 00:08:07,760
Speaker 1: kind of challenge with populism and systemic issues and cyclical

148
00:08:07,800 --> 00:08:10,200
Speaker 1: issues that make it for me quite a kind of

149
00:08:10,240 --> 00:08:13,160
Speaker 1: ever present source of president of political risk. Just not

150
00:08:13,320 --> 00:08:16,240
Speaker 1: right now. This definitely is state the obvious. There is

151
00:08:16,320 --> 00:08:18,760
Speaker 1: upside risk as well as downside risk, and I wonder

152
00:08:18,880 --> 00:08:23,600
Speaker 1: what we're learning about what populism actually means for financial markets. Well,

153
00:08:23,640 --> 00:08:25,920
Speaker 1: I think the interesting things is that, you know, we

154
00:08:26,000 --> 00:08:28,480
Speaker 1: use this kind of term populism very broad sweep. What

155
00:08:28,520 --> 00:08:31,240
Speaker 1: matters is like, what are the policies that they're incorporating

156
00:08:31,440 --> 00:08:34,880
Speaker 1: or are they making a risk event, you know, bigger

157
00:08:34,880 --> 00:08:36,640
Speaker 1: than it would be otherwise. Right to an election is

158
00:08:36,679 --> 00:08:39,360
Speaker 1: a good example. I think here we probably need to

159
00:08:39,480 --> 00:08:41,520
Speaker 1: give your away from just the populism and think more

160
00:08:41,520 --> 00:08:44,400
Speaker 1: about that polarization. Right It's not just that you've got

161
00:08:44,559 --> 00:08:46,400
Speaker 1: parties in the far right or the far left, it's

162
00:08:46,400 --> 00:08:49,400
Speaker 1: not those more centrist parties can also pull apart. And

163
00:08:49,440 --> 00:08:52,320
Speaker 1: in the US prime example, we're looking at a Democratic

164
00:08:52,320 --> 00:08:54,400
Speaker 1: party that's much further left than it was four years

165
00:08:54,400 --> 00:08:57,480
Speaker 1: ago against a Republican party which remains kind of quite

166
00:08:57,480 --> 00:09:00,319
Speaker 1: conservative at its core, although of course Trump is kind

167
00:09:00,320 --> 00:09:03,800
Speaker 1: of implemented this additional element. I think what that means

168
00:09:03,880 --> 00:09:06,120
Speaker 1: is that from one election to the next, you can

169
00:09:06,120 --> 00:09:08,360
Speaker 1: get a lot of swings, and that's where the risk

170
00:09:08,400 --> 00:09:11,040
Speaker 1: comes in for investors at the short term risk. And

171
00:09:11,080 --> 00:09:13,959
Speaker 1: then really the question, as I mentioned, it's what is

172
00:09:14,080 --> 00:09:16,160
Speaker 1: once you're over the event, once you know the result,

173
00:09:16,200 --> 00:09:18,920
Speaker 1: once the uncertainty has gone, what does regulation look like?

174
00:09:19,040 --> 00:09:20,840
Speaker 1: What does legislation look like? And what does that mean

175
00:09:20,880 --> 00:09:22,640
Speaker 1: for the companies you're investing in. That's the way we

176
00:09:22,640 --> 00:09:24,480
Speaker 1: have to think about it, Stephanie. Just to build on

177
00:09:24,600 --> 00:09:27,720
Speaker 1: that sort of connection between markets and politics, can you

178
00:09:27,760 --> 00:09:30,199
Speaker 1: give us a granular sense of the process of how

179
00:09:30,240 --> 00:09:32,920
Speaker 1: you work with investment managers, whether you're looking at long

180
00:09:33,040 --> 00:09:35,880
Speaker 1: term place or short term place based on some of

181
00:09:35,880 --> 00:09:39,400
Speaker 1: the political developments that you were just talking about. Sure,

182
00:09:39,440 --> 00:09:41,079
Speaker 1: so there's a couple of ways that we do this.

183
00:09:41,240 --> 00:09:43,480
Speaker 1: The main was when I started doing this kind of

184
00:09:43,480 --> 00:09:46,600
Speaker 1: political analysis in the asset management industry, which I have

185
00:09:46,679 --> 00:09:49,480
Speaker 1: to say, there aren't that many political economists blowing around

186
00:09:49,480 --> 00:09:52,360
Speaker 1: the asset management industry, and so I was quite struck

187
00:09:52,440 --> 00:09:54,800
Speaker 1: by the extent to which they're just weren't these frameworks

188
00:09:54,800 --> 00:09:57,440
Speaker 1: in place to think about politics. So I always say

189
00:09:57,440 --> 00:09:59,720
Speaker 1: to our investors, to our clients, you know you have

190
00:09:59,760 --> 00:10:01,720
Speaker 1: to do in scenarios. It's not enough to just have

191
00:10:01,760 --> 00:10:04,040
Speaker 1: a base case. Investors always anchor on this kind of

192
00:10:04,040 --> 00:10:06,680
Speaker 1: base case approach when it comes to politics. You have

193
00:10:06,760 --> 00:10:08,960
Speaker 1: to accept there's a lot of information you don't know.

194
00:10:09,280 --> 00:10:11,200
Speaker 1: We don't know if pauls are accurate until they've proven

195
00:10:11,240 --> 00:10:14,640
Speaker 1: accurate or inaccurate. We don't know how politicians are feeling inside.

196
00:10:14,880 --> 00:10:16,559
Speaker 1: We can do lots of engagement, we can do lots

197
00:10:16,600 --> 00:10:18,440
Speaker 1: of research, but I think the best way to think

198
00:10:18,480 --> 00:10:21,000
Speaker 1: about it is not single base case what's going to happen,

199
00:10:21,320 --> 00:10:24,400
Speaker 1: but what's the distribution of risks here? And then from

200
00:10:24,480 --> 00:10:27,200
Speaker 1: that say, okay, this is the distribution of political risks,

201
00:10:27,440 --> 00:10:30,400
Speaker 1: what happens to markets in each of those scenarios, And

202
00:10:30,440 --> 00:10:32,760
Speaker 1: then that way you have not only a distribution of

203
00:10:32,840 --> 00:10:35,319
Speaker 1: political risk, but actually of market risk, and then you

204
00:10:35,360 --> 00:10:37,920
Speaker 1: have a better understanding of how exposed you are to

205
00:10:38,080 --> 00:10:40,960
Speaker 1: a given outcome, be that Brexit, be that U. S.

206
00:10:41,040 --> 00:10:44,040
Speaker 1: China trade relations, or in d the U. S. Election. Definitely,

207
00:10:44,120 --> 00:10:47,920
Speaker 1: probably the most prominent political economists these days or moonlighting

208
00:10:47,920 --> 00:10:50,960
Speaker 1: perhaps is a political economist is rate Hio of Ridgewater.

209
00:10:51,040 --> 00:10:53,160
Speaker 1: He's been talking a lot about the rise of populism,

210
00:10:53,200 --> 00:10:56,679
Speaker 1: about the inequality, and about cash is trash, the expectation

211
00:10:57,080 --> 00:10:59,920
Speaker 1: for inflation in the United States. Do you agree with

212
00:11:00,200 --> 00:11:03,920
Speaker 1: his conclusions based on his assessment of the political landscape,

213
00:11:05,080 --> 00:11:07,200
Speaker 1: But I think that there's a there's a lot of

214
00:11:07,240 --> 00:11:09,520
Speaker 1: parts out in terms of that connection. I think we

215
00:11:09,559 --> 00:11:11,760
Speaker 1: should never kind of be too quick to rush into

216
00:11:11,760 --> 00:11:13,760
Speaker 1: what it means. And in particular, I think you know,

217
00:11:13,880 --> 00:11:16,280
Speaker 1: there tends to be in a particularly that relationship, and

218
00:11:16,320 --> 00:11:18,480
Speaker 1: I don't mean specifically to rad Dalio here, but there

219
00:11:18,520 --> 00:11:20,800
Speaker 1: tends to be this discussion that takes place whereby more

220
00:11:20,840 --> 00:11:23,840
Speaker 1: government intervention equals lots more inflation, and I think we

221
00:11:23,920 --> 00:11:25,680
Speaker 1: really need to put that in the context of what

222
00:11:25,760 --> 00:11:28,319
Speaker 1: other political kind of issues are going on. And one

223
00:11:28,360 --> 00:11:31,800
Speaker 1: big one is actually the globalization element, but also the

224
00:11:31,880 --> 00:11:34,640
Speaker 1: kind of cyclical weakness and the structural weakness. Those things

225
00:11:34,640 --> 00:11:37,040
Speaker 1: push and pull against inflation in different ways, and so

226
00:11:37,320 --> 00:11:39,559
Speaker 1: I think it's another example of where we've got to

227
00:11:39,559 --> 00:11:42,360
Speaker 1: be quite careful and kind of considered when we think

228
00:11:42,360 --> 00:11:45,120
Speaker 1: about each individual risk and how that plays into the

229
00:11:45,360 --> 00:11:48,640
Speaker 1: big macro themes, which still also rely on kind of

230
00:11:48,720 --> 00:11:51,840
Speaker 1: you know, bread and butter economics. Right, what's being produced,

231
00:11:51,840 --> 00:11:55,240
Speaker 1: what's being where's the demand, where's the supply? Thanks deephitiely

232
00:11:55,280 --> 00:11:58,440
Speaker 1: Kelly of Aberdeen Standard Investments, definitely, thank you very much.

233
00:12:02,480 --> 00:12:05,640
Speaker 1: Michael Jesus is with us with Morgan Stanley, not only

234
00:12:05,679 --> 00:12:09,520
Speaker 1: doing policy research, but with a foundational understanding of our

235
00:12:09,600 --> 00:12:13,280
Speaker 1: municipal finance. We're thrilled you could join us this morning. Michael,

236
00:12:13,600 --> 00:12:18,600
Speaker 1: every single conversation we have in your area says and

237
00:12:18,679 --> 00:12:23,640
Speaker 1: then they'll be infrastructure, and yet there's never infrastructure. What

238
00:12:23,840 --> 00:12:28,400
Speaker 1: is a political outcome you need so there can be infrastructure.

239
00:12:29,440 --> 00:12:32,000
Speaker 1: I think it is a necessary condition to get a

240
00:12:32,040 --> 00:12:36,040
Speaker 1: meaningful infrastructure package that you end up with a situation

241
00:12:36,040 --> 00:12:38,760
Speaker 1: where the Democrats take the White House and the Senate

242
00:12:38,760 --> 00:12:41,920
Speaker 1: and keep control of the House. Uh. Simply put in

243
00:12:42,280 --> 00:12:46,040
Speaker 1: a divided government scenario, there's not much legislation getting done.

244
00:12:46,720 --> 00:12:52,600
Speaker 1: Beyond perhaps another COVID relief package under certain circumstances. In

245
00:12:52,640 --> 00:12:55,040
Speaker 1: a scenario where the Republicans take control of the House

246
00:12:55,080 --> 00:12:57,320
Speaker 1: and keep the White House in the Senate, you have

247
00:12:57,480 --> 00:13:01,439
Speaker 1: the same problem that you had in every other time

248
00:13:01,760 --> 00:13:05,520
Speaker 1: that you've had complete control by the Republican Party. In theory,

249
00:13:05,840 --> 00:13:09,440
Speaker 1: they're on board with the idea of infrastructure spending. In practice,

250
00:13:09,480 --> 00:13:11,880
Speaker 1: they haven't been able to get there because they also

251
00:13:11,920 --> 00:13:15,199
Speaker 1: can't agree on raising taxes to do it. They are

252
00:13:15,240 --> 00:13:18,280
Speaker 1: against letting the deficits expand to do it. So you

253
00:13:18,400 --> 00:13:22,200
Speaker 1: end up uh to twist it up without a solution. Uh.

254
00:13:22,480 --> 00:13:25,960
Speaker 1: The Democratic Party uh sort of is obviously a little

255
00:13:25,960 --> 00:13:28,960
Speaker 1: more amenable to raising taxes are expanding deficits when it

256
00:13:28,960 --> 00:13:31,760
Speaker 1: comes to spending. So again I say it's a necessary

257
00:13:31,760 --> 00:13:34,720
Speaker 1: condition that that's the configuration that you get, uh, not

258
00:13:34,800 --> 00:13:37,120
Speaker 1: a sufficient one, because of course the Democrats are gonna

259
00:13:37,120 --> 00:13:40,880
Speaker 1: have to balance their um uh their policy priorities, and

260
00:13:40,960 --> 00:13:42,880
Speaker 1: healthcare is certainly in the mix and probably a high

261
00:13:42,880 --> 00:13:45,640
Speaker 1: priority of them. Also, Michael, there's a lot to unpack

262
00:13:45,720 --> 00:13:47,719
Speaker 1: their I think the broader theme to all of your

263
00:13:47,760 --> 00:13:51,000
Speaker 1: comments is just the risk of a divided government when

264
00:13:51,040 --> 00:13:54,240
Speaker 1: it comes to fiscal spending. How big of a downside

265
00:13:54,320 --> 00:13:56,680
Speaker 1: risk could there be the markets should there be a

266
00:13:56,720 --> 00:13:59,280
Speaker 1: divided government, because it does not appear that that's being

267
00:13:59,320 --> 00:14:02,480
Speaker 1: priced in. Yeah. Well, so the first thing to say

268
00:14:02,520 --> 00:14:06,079
Speaker 1: is that in most post election configurations here lead to

269
00:14:06,120 --> 00:14:09,920
Speaker 1: fiscal expansion. The one that concerns us is the one

270
00:14:09,960 --> 00:14:12,960
Speaker 1: where the Democrats take the White House but the Republicans

271
00:14:13,040 --> 00:14:15,280
Speaker 1: keep control of the Senate. And it's not to say

272
00:14:15,320 --> 00:14:18,520
Speaker 1: that you might never get fiscal expansion or COVID specific

273
00:14:18,559 --> 00:14:21,600
Speaker 1: relief in that situation, but that you might need a

274
00:14:21,640 --> 00:14:26,080
Speaker 1: greater demonstration from economic data or markets that such a

275
00:14:26,120 --> 00:14:28,720
Speaker 1: response is needed. And that's because we know where the

276
00:14:28,760 --> 00:14:32,000
Speaker 1: Democrats are on COVID relief. They want to go big. Uh.

277
00:14:32,120 --> 00:14:36,840
Speaker 1: Senate Republicans um are expressing skepticism that the economy needs it,

278
00:14:37,200 --> 00:14:41,760
Speaker 1: are also expressing concern about raising deficits further, and so

279
00:14:42,040 --> 00:14:46,640
Speaker 1: that disagreement manifests in that type of election outcome. And again,

280
00:14:46,640 --> 00:14:49,240
Speaker 1: you might eventually get there, but the fiscal reaction function

281
00:14:49,280 --> 00:14:52,160
Speaker 1: becomes very reactionary as opposed to proactive, which is what

282
00:14:52,400 --> 00:14:56,160
Speaker 1: markets are expecting right now. Mike, I'm really interested in

283
00:14:56,160 --> 00:14:58,720
Speaker 1: the conversations you're having with clients at the moment, if

284
00:14:58,720 --> 00:15:01,040
Speaker 1: you were to ask them you think whether they would

285
00:15:01,040 --> 00:15:04,160
Speaker 1: prefer to know the outcome of the Senate rice or

286
00:15:04,200 --> 00:15:07,280
Speaker 1: the White House White House rice ahead of time? What

287
00:15:07,360 --> 00:15:10,840
Speaker 1: do you think I'd say most clients would prefer to

288
00:15:10,840 --> 00:15:13,000
Speaker 1: know the outcome of the presidential race. Is that the

289
00:15:13,040 --> 00:15:15,680
Speaker 1: consensus is still, at least in terms of the surveys

290
00:15:15,680 --> 00:15:18,640
Speaker 1: that we've run, the consensus is still that a divided

291
00:15:18,720 --> 00:15:23,240
Speaker 1: government outcome of any type is preferable to be unified outcome,

292
00:15:23,400 --> 00:15:27,360
Speaker 1: mostly because it creates certainty around policy, or at least

293
00:15:27,400 --> 00:15:29,960
Speaker 1: that's the perception right abviously outlined an argument where I

294
00:15:29,960 --> 00:15:32,800
Speaker 1: think it's it's nuanced in a little bit different. So

295
00:15:32,840 --> 00:15:35,560
Speaker 1: I do think that that's where most investors are paying

296
00:15:35,560 --> 00:15:39,080
Speaker 1: their attention. But they are also obviously understand the difference

297
00:15:39,080 --> 00:15:41,760
Speaker 1: between the Democrats taking the White House without the Senate

298
00:15:42,400 --> 00:15:46,520
Speaker 1: versus with the Senate um and generally speaking, in our

299
00:15:46,560 --> 00:15:49,800
Speaker 1: surveys are agreeing that you get the biggest physicist boost

300
00:15:49,960 --> 00:15:53,240
Speaker 1: in that situation, Mr Jasus. The votes are in in

301
00:15:53,280 --> 00:15:56,360
Speaker 1: the judiciary, and I believe we have nine justices. At

302
00:15:56,400 --> 00:15:59,240
Speaker 1: some point here is the clerks get ready to help

303
00:15:59,600 --> 00:16:03,080
Speaker 1: justice Cony Barrett. Great, what about the Affordable Care Act?

304
00:16:03,120 --> 00:16:05,560
Speaker 1: What does a Morgan Stanley view on where the Affordable

305
00:16:05,600 --> 00:16:10,760
Speaker 1: Care Act is, say in March of two thousand twenty two. Again,

306
00:16:10,760 --> 00:16:14,160
Speaker 1: I think this is very past dependent. So, um, if

307
00:16:14,200 --> 00:16:17,320
Speaker 1: we generalize a bit, not specific to the Affordable Care Act,

308
00:16:17,400 --> 00:16:20,240
Speaker 1: but whether or not in one you're going to have

309
00:16:20,320 --> 00:16:24,640
Speaker 1: the same level of government spending on the healthcare or greater.

310
00:16:25,280 --> 00:16:29,680
Speaker 1: The situation that makes that true is the Democrats taking

311
00:16:29,680 --> 00:16:32,560
Speaker 1: the White House in the Senate, regardless of what the

312
00:16:32,560 --> 00:16:37,720
Speaker 1: Supreme Court outcome is, because one could expect a pretty

313
00:16:37,840 --> 00:16:42,280
Speaker 1: uh quick response legislatively should the Supreme Court overturn the

314
00:16:42,280 --> 00:16:45,960
Speaker 1: Affordable Care Act. Uh. In the situation where the Democrats

315
00:16:45,960 --> 00:16:47,800
Speaker 1: take the White House Republicans keep control of the Senate,

316
00:16:47,840 --> 00:16:50,040
Speaker 1: I think it gets quite a bit trickier and obviously

317
00:16:50,120 --> 00:16:54,680
Speaker 1: gets trickier, um if the Republicans maintain the White House.

318
00:16:54,680 --> 00:16:57,520
Speaker 1: So to the extent that you're looking for and certainly

319
00:16:57,520 --> 00:17:02,240
Speaker 1: are healthcarectly team looking at managed care organizations thinks the

320
00:17:02,280 --> 00:17:05,720
Speaker 1: Affordable Care Act has largely been beneficial for the bottom

321
00:17:05,760 --> 00:17:08,159
Speaker 1: line of large m c o s. The configuration that

322
00:17:08,240 --> 00:17:11,520
Speaker 1: gets you the best outcome there is the Democrats winning

323
00:17:11,520 --> 00:17:14,240
Speaker 1: the White House and the Senate. Michael, appreciate your time, says,

324
00:17:14,280 --> 00:17:15,920
Speaker 1: send up best to the team at Morgan Stanley. Why

325
00:17:15,920 --> 00:17:24,120
Speaker 1: do you Michael zesus that of Morgan Stanley right now

326
00:17:24,200 --> 00:17:26,399
Speaker 1: James Sweeney joins us with Credit Sweete. And this is

327
00:17:26,440 --> 00:17:30,160
Speaker 1: an important conversation because in the mix of the political

328
00:17:30,200 --> 00:17:34,440
Speaker 1: pundantry and frankly the financial pundantry. Mr Sweeney has been

329
00:17:34,560 --> 00:17:39,120
Speaker 1: very clear of a cautious view on American economic growth.

330
00:17:39,200 --> 00:17:42,080
Speaker 1: James Hugh still continue with the view that it will

331
00:17:42,119 --> 00:17:46,080
Speaker 1: be a struggle forward. Well, I I think it largely

332
00:17:46,119 --> 00:17:50,479
Speaker 1: depends on the stimulus outlook. And and so you know

333
00:17:50,480 --> 00:17:53,640
Speaker 1: what I'll be looking for today is do we get

334
00:17:53,640 --> 00:17:58,600
Speaker 1: a clean, sweep scenario where the stimulus expectations become clear,

335
00:17:59,200 --> 00:18:01,359
Speaker 1: or do you have something in a lot more modeled

336
00:18:01,480 --> 00:18:05,199
Speaker 1: I think effectively, what's happened in recent months is that

337
00:18:05,320 --> 00:18:08,480
Speaker 1: the big increase in deposit balances of a lot of

338
00:18:08,480 --> 00:18:11,120
Speaker 1: households and the fact that people have bought a lot

339
00:18:11,119 --> 00:18:13,600
Speaker 1: of physical goods while they haven't been buying a lot

340
00:18:13,640 --> 00:18:17,080
Speaker 1: of services has hidden some problems that the household sector

341
00:18:17,560 --> 00:18:20,639
Speaker 1: has with cash flows. If we don't get that stimulus

342
00:18:20,720 --> 00:18:23,200
Speaker 1: there are quite a few things that are going to

343
00:18:23,320 --> 00:18:27,320
Speaker 1: restrict household cash flows and incomes in the month's ahead

344
00:18:27,440 --> 00:18:31,080
Speaker 1: without new help from the government. It James, when you

345
00:18:31,119 --> 00:18:33,760
Speaker 1: say problems, can you be more specific about those problems

346
00:18:33,760 --> 00:18:37,159
Speaker 1: and why you think they are sure? Well, first, you

347
00:18:37,200 --> 00:18:43,720
Speaker 1: remember the unemployment insurance which we had supplementary unemployment insurance

348
00:18:44,160 --> 00:18:47,040
Speaker 1: during the worst part of the pandemic. It expired in

349
00:18:47,080 --> 00:18:50,480
Speaker 1: August UM. People said there would be a cliff. There

350
00:18:50,560 --> 00:18:53,639
Speaker 1: was a cliff, it fell UM. But there's another cliff

351
00:18:53,880 --> 00:18:57,480
Speaker 1: at the end of December UM, so there's more. Basically,

352
00:18:57,560 --> 00:19:01,760
Speaker 1: unemployment payments from the government will be reduced further. There's

353
00:19:01,800 --> 00:19:06,320
Speaker 1: also forbearance measures that many households have benefited from, which

354
00:19:06,359 --> 00:19:09,520
Speaker 1: will expire at the end of the year. UM. If

355
00:19:09,520 --> 00:19:12,280
Speaker 1: you look at labor income, it's very unlikely we're going

356
00:19:12,320 --> 00:19:15,480
Speaker 1: to continue to see six d to a million in

357
00:19:15,640 --> 00:19:18,720
Speaker 1: jobs growth per month. So jobs growth should be good,

358
00:19:18,800 --> 00:19:23,200
Speaker 1: but it should continue to slow. Wage growth should slow

359
00:19:23,280 --> 00:19:25,879
Speaker 1: because wage growth has been driven up by an odd

360
00:19:25,920 --> 00:19:29,159
Speaker 1: composition effect in the in the jobs data, and and

361
00:19:29,280 --> 00:19:33,080
Speaker 1: the hours worked per week should slow due to a

362
00:19:33,119 --> 00:19:36,919
Speaker 1: similar effect. So if you're in the nerdy details, UM,

363
00:19:37,000 --> 00:19:39,880
Speaker 1: a lot of them point south in the near term

364
00:19:39,880 --> 00:19:44,000
Speaker 1: in terms of the cash flows of of of households. James,

365
00:19:44,160 --> 00:19:46,200
Speaker 1: I've got to say, you just don't sound as constructive

366
00:19:46,240 --> 00:19:48,760
Speaker 1: as you were maybe a month or so ago on

367
00:19:48,840 --> 00:19:52,240
Speaker 1: this recovery. Is that a fair characterization of your development

368
00:19:52,240 --> 00:19:56,359
Speaker 1: of your ideas in the last month or so? Uh? Well,

369
00:19:56,400 --> 00:19:58,600
Speaker 1: I think I think I just see it as very

370
00:19:58,680 --> 00:20:01,520
Speaker 1: stimulus dependent in the in the near term. I name, recently,

371
00:20:02,200 --> 00:20:04,240
Speaker 1: we we are in a little bit of a slowdown

372
00:20:04,280 --> 00:20:07,720
Speaker 1: relatives to the sharp acceleration that we had in Q three,

373
00:20:07,720 --> 00:20:10,480
Speaker 1: But economy is not contracting. The economy is growing right now.

374
00:20:11,160 --> 00:20:14,960
Speaker 1: But I do think, uh, stimulus in the very short term,

375
00:20:15,040 --> 00:20:18,720
Speaker 1: something like the package that was negotiated between July and

376
00:20:19,080 --> 00:20:22,440
Speaker 1: this month is very important. And and so you know,

377
00:20:22,480 --> 00:20:25,840
Speaker 1: if you have an election outcome that makes that stimulus likely,

378
00:20:26,160 --> 00:20:28,040
Speaker 1: and I think we can be in pretty good shape.

379
00:20:28,080 --> 00:20:31,879
Speaker 1: But otherwise I think there's there's trouble also the virus.

380
00:20:31,920 --> 00:20:34,200
Speaker 1: I mean, the virus is picking up again and that's

381
00:20:34,200 --> 00:20:36,280
Speaker 1: a new headwind, and the virus is probably picking up

382
00:20:36,280 --> 00:20:39,600
Speaker 1: a little more than a lot of people expected. So um,

383
00:20:39,640 --> 00:20:43,200
Speaker 1: so we're just skittish, I would say, rather than actually

384
00:20:43,240 --> 00:20:46,439
Speaker 1: forecasting a major problem, James. That's where I wanted to go.

385
00:20:46,480 --> 00:20:49,160
Speaker 1: The virus and how much it's spreading. What high frequency

386
00:20:49,280 --> 00:20:52,600
Speaker 1: data are you looking at to gauge the response if

387
00:20:52,600 --> 00:20:54,919
Speaker 1: it isn't lockdowns. There's a lot of people expect the

388
00:20:55,040 --> 00:20:57,359
Speaker 1: US to avoid some of the lockdowns that we're seeing

389
00:20:57,359 --> 00:21:00,320
Speaker 1: in Europe. What are the measures you're looking had to

390
00:21:00,320 --> 00:21:03,679
Speaker 1: determine how much people's behavior is sort of acting in

391
00:21:03,720 --> 00:21:07,679
Speaker 1: a restrictive way on the economy. Well, sure, so, I

392
00:21:07,680 --> 00:21:09,639
Speaker 1: mean on the virus side, we we just look at

393
00:21:09,640 --> 00:21:12,720
Speaker 1: the positivity rates and the spread and you know, the

394
00:21:12,800 --> 00:21:16,520
Speaker 1: direct virus data. On the economy side, I think a

395
00:21:16,520 --> 00:21:19,520
Speaker 1: lot of this new data that we have on on

396
00:21:19,640 --> 00:21:24,440
Speaker 1: foot traffic to establishments on point of sales data. I

397
00:21:24,440 --> 00:21:27,280
Speaker 1: don't think the macro data are all that helpful, and

398
00:21:27,320 --> 00:21:30,520
Speaker 1: I think the market is somewhat accustomed to looking at

399
00:21:30,800 --> 00:21:34,240
Speaker 1: the same old indicators. But but but you can get

400
00:21:34,240 --> 00:21:36,880
Speaker 1: thrown off pretty easily. So, for instance, people have been

401
00:21:36,880 --> 00:21:40,480
Speaker 1: excited about retail sales being strong. Retail sales are goods.

402
00:21:40,520 --> 00:21:46,000
Speaker 1: Consumption consumption is GDP, but only that is actually good

403
00:21:46,720 --> 00:21:50,320
Speaker 1: services are the problem here. So looking at foot traffic

404
00:21:50,359 --> 00:21:55,119
Speaker 1: into restaurants, foot traffic into airports. Things like that, um

405
00:21:55,200 --> 00:21:58,080
Speaker 1: and and related spending numbers are what we're watching. James

406
00:21:58,080 --> 00:22:01,879
Speaker 1: Sweedie Junklat loves word diffusion, except he says it with

407
00:22:01,920 --> 00:22:05,160
Speaker 1: a fancy French accent. I don't have. And right now

408
00:22:05,200 --> 00:22:09,159
Speaker 1: the major question is if we have the haves doing

409
00:22:09,320 --> 00:22:13,479
Speaker 1: better or even prospering in this pandemic, could any of

410
00:22:13,520 --> 00:22:18,800
Speaker 1: their prosperity diffuse over to a large body of Americans

411
00:22:18,880 --> 00:22:23,120
Speaker 1: who are, to be kind economically anxious. Is there any

412
00:22:23,160 --> 00:22:27,200
Speaker 1: ability to see a diffusement of that prosperity, that income,

413
00:22:27,280 --> 00:22:31,159
Speaker 1: that wealth. Well, the problem isn't just that the income

414
00:22:31,200 --> 00:22:35,520
Speaker 1: trends are different, but the concentration of people working in

415
00:22:35,720 --> 00:22:41,200
Speaker 1: lower wage services sectors while having lost their unemployment or

416
00:22:41,240 --> 00:22:45,240
Speaker 1: their extra unemployment and you know, about to potentially be

417
00:22:46,160 --> 00:22:50,399
Speaker 1: losing their their forbearance. Um, that's trouble. So the fact

418
00:22:50,440 --> 00:22:55,200
Speaker 1: that people are buying big ticket durable goods largely imported

419
00:22:55,720 --> 00:22:58,920
Speaker 1: are not necessarily helpful, you know, to a waitress who

420
00:22:59,240 --> 00:23:02,760
Speaker 1: who isn't working, James, quite kind of shop, sir, James Sweeney,

421
00:23:02,800 --> 00:23:06,520
Speaker 1: that of credit sway. Thanks for listening to the Bloomberg

422
00:23:06,520 --> 00:23:12,480
Speaker 1: Surveillance Podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,

423
00:23:12,840 --> 00:23:17,080
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at

424
00:23:17,119 --> 00:23:21,400
Speaker 1: Tom Keane before the podcast. You can always catch us worldwide.

425
00:23:21,840 --> 00:23:22,920
Speaker 1: I'm Bloomberg Radio