Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily
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. There
Speaker 1: is no speculation that definitive on our World Order is
Speaker 1: Ian Grammer of Eurasia Group. We enjoy so much our
Speaker 1: beginning of the year analysis with his Eurasia Group, and
Speaker 1: we're thrilled Dr Bremer could join us this morning. And
Speaker 1: I'm going to start with Lebanon. I know there are
Speaker 1: many other themes to touch here as well. I want
Speaker 1: to go to Henry Kissinger's World Order, that wonderful book
Speaker 1: of a few years ago where Dr Kissinger uh speaks
Speaker 1: about the decline of the state. Lebanon is a card
Speaker 1: carrying decline of the state right now? How do they
Speaker 1: right the ship of what was once the jewel of
Speaker 1: the Levant? And my God, Tom, I mean any of
Speaker 1: us that have been to Beirut. You know, it's our
Speaker 1: favorite city in the Middle East. It's so cosmopolitan and
Speaker 1: so lively. It brings together so many different civilizations and cultures.
Speaker 1: But the government is a disaster, and I mean, frankly,
Speaker 1: you know, coronavirus doesn't even hit their top three right now,
Speaker 1: right it's a massive financial crisis, incredible economic contraction and
Speaker 1: social descent across the country, big corruption and now uh
Speaker 1: likely through mismanagement. I mean, if you see what they've
Speaker 1: done with the banking system, if you've seen what they're
Speaker 1: done with their sanitation system, it shouldn't surprise anyone that
Speaker 1: they have no capacity to deal with has of the
Speaker 1: materials um and you see the the the untold deaths,
Speaker 1: the destruction of a good swat of of the jewel
Speaker 1: of the tree end of the region just leveled yesterday,
Speaker 1: and it's it's horrifying what they can do. I mean,
Speaker 1: they're not gonna have it's hard for them to have
Speaker 1: hesblaws in the government. The IMAX has a hard time
Speaker 1: working with them, and the Gulf States are are certainly
Speaker 1: not going to provide the kind of support that they've
Speaker 1: been able to historically. How are they going to rebuilding
Speaker 1: that environment? They to go back into your book of
Speaker 1: two thousand fifteen superpower. We need to make a choice
Speaker 1: of how we project from Istanbul down to those Gulf states.
Speaker 1: How do we project what is a choice that a
Speaker 1: second term Trump or first term Biden will have to make.
Speaker 1: It feels like less involvement in the Middle East. I mean,
Speaker 1: Biden had a very solid, uh non controversial tweet yesterday
Speaker 1: is saying his heart goes out to these people. The
Speaker 1: United States needs to provide humanitarian aid. Absolutely, But I mean,
Speaker 1: compared to when my book came out, the United States
Speaker 1: is now the world's largest energy producer. Um, We're much
Speaker 1: less interested in what's going on in the Middle East
Speaker 1: than we used to. We're much more concerned about China,
Speaker 1: much more on the Pacific. So I just whether it's okay.
Speaker 1: I think it's hard to imagine the US is going
Speaker 1: to be increasing its footprint anytime soon in this region.
Speaker 1: Ian let's moved to China then, And of course the
Speaker 1: provocative act of a member of the cabinet of the
Speaker 1: Trump administration will attend Taipei, maybe the first major visit
Speaker 1: of a US representative in forty years. How will that
Speaker 1: be taken by Beijing? Well, less badly than if it
Speaker 1: was say Secretary of State Pompeo or Secretary of Defense Esper.
Speaker 1: I mean, you know you're not You're not talking about
Speaker 1: someone who is in particularly controversial in his mandate. You're
Speaker 1: gonna go over talking about coronavirus and the great response
Speaker 1: the Taiwan indeed was behind. But what we should recognize
Speaker 1: is this is all of the escalations out This is
Speaker 1: completely gratuitous, is completely unnecessary. It's not like the response
Speaker 1: on TikTok, which has a real national security concerned Huawei,
Speaker 1: where the Americans are behind in five get we need
Speaker 1: to do something. I mean those you understand why the
Speaker 1: Americans are doing that, why they're doing it now we're
Speaker 1: in the case of Taiwan, it's purely rallied around the flag,
Speaker 1: drive a spike into China's core interests right before American elections,
Speaker 1: and it makes the next couple of months very dangerous.
Speaker 1: The Chinese will certainly respond. They might respond by hitting
Speaker 1: some American companies doing business in Taiwan. They might respond
Speaker 1: with a show of military force in the region. And
Speaker 1: let's keep in mind an anti Chinese sentiment, anti mainland
Speaker 1: Chinese sentiment in Taiwan, especially on the back of the
Speaker 1: new National Security law impost in Hong Kong is incredibly
Speaker 1: high right now, So you really didn't need these tensions.
Speaker 1: I tweeted last night, let's not start a war. Let's
Speaker 1: not get into a war over Taiwan. We had a
Speaker 1: problems with China right now that we didn't need to
Speaker 1: take this step. But and you understand better than most
Speaker 1: people that come on this program, the People's Republic of
Speaker 1: China is frozen Taiwan out of multilateral organizations. And for
Speaker 1: most people in the medical industry, here's a place that
Speaker 1: seems to have handled this pandemic fantastically. They have reported
Speaker 1: just seven deaths for a population at twenty four million.
Speaker 1: And because China insists that they have no part in
Speaker 1: multilateral organizations, there has been very little done to find
Speaker 1: out why Taiwan has been successful. Isn't it a good
Speaker 1: thing the Secretary asar is actually going there to find out.
Speaker 1: I think you could do that much more effectively by
Speaker 1: having a lot of engagement at the less than secretary level.
Speaker 1: You don't need the symbolism of a cabinet secretary to
Speaker 1: do exactly what you just suggested. Also, let's keep in
Speaker 1: mind that yes, Taiwan is not allowed to join the
Speaker 1: World Health Organization or they can exchange some information because
Speaker 1: China keeps them out. And I think that's an appalling reality.
Speaker 1: Having said that, President Trump has said he's withdrawing from
Speaker 1: the World Health Organization because they're in China's pocket, And
Speaker 1: the idea that the United States president would leave the
Speaker 1: wh show in the middle of a pandemic shows that
Speaker 1: the argument that you're making is probably not at the
Speaker 1: top of President Trump's in gender right now. And there
Speaker 1: is a strange double standard here though, that I know
Speaker 1: resonates with you. When we talk about things like TikTok,
Speaker 1: the Chinese talk about theft, and people everywhere else outside
Speaker 1: of China basically laughing saying you want to talk about
Speaker 1: the theft of technology, you want to talk about these
Speaker 1: kind of things, talk about irony, And then I think
Speaker 1: it's a delicate moment whereby if you have business in China,
Speaker 1: you can no longer talk about what is happening in China.
Speaker 1: And I'm sure this is something that resonates with you
Speaker 1: directly because as far as I understand, and you have
Speaker 1: no business in China and you're able to speak company
Speaker 1: about China, and you know that if you have business there,
Speaker 1: you wouldn't be would you trying to be much more difficult?
Speaker 1: And I think it's a real problem. I mean for
Speaker 1: the banks, for the consulting firms, for all the people
Speaker 1: that ostensibly do independent research, but what can they say
Speaker 1: about China because it's going to undermine their business. I mean,
Speaker 1: you saw Lebron James, huge advocate for Black Lives Matter,
Speaker 1: but on Hong Kong he's towing the PRC line, and
Speaker 1: not that he knows anything about it. But the point
Speaker 1: is everyone that does business in China understands it's a
Speaker 1: big market and the rules change. They determine what the
Speaker 1: rules will be on TikTok specifically. You know, we need
Speaker 1: to understand that it's not just about China's national security
Speaker 1: issues and their control of data um, which you know,
Speaker 1: you have to prove that we have evidence as an
Speaker 1: open question. But it's also a reciprocity. The Chinese government
Speaker 1: does not allow key American tech firms to do business
Speaker 1: as usual in the world's largest data market. Whether you're
Speaker 1: talking about Facebook, whether you're talking about Google, whether you're
Speaker 1: talking about Wikipedia or Reddit, none of them are allowed
Speaker 1: um inside mainland China with you know, a billion one
Speaker 1: point for a billion people, uh, and a majority of
Speaker 1: them online. So I mean, why would you allow Chinese
Speaker 1: tech firms to have openness with the United States in
Speaker 1: that environment. You asked me about my book Superpower, But
Speaker 1: you know, the book that I think is more relevant
Speaker 1: for this is one I wrote about ten years ago
Speaker 1: called the End of the Free Market. And if you're
Speaker 1: in a world where the soon to the largest economy
Speaker 1: is authoritarian and state capitalists, you don't have a global
Speaker 1: free market anymore, and I did. The United States is
Speaker 1: gonna pretend that we do, and we're gonna give the
Speaker 1: Chinese complete access to the American consumer base and database.
Speaker 1: This ludicrous on its space. Iana, There's a question about
Speaker 1: how markets priced these rising US China tensions. They've been
Speaker 1: more general in nature, and when you talk about five
Speaker 1: G or tech predominance, it's it's hard to price that in.
Speaker 1: It's easier to price in a trade deal, or a
Speaker 1: trade deal that's falling apart. In Senior US and Chinese
Speaker 1: officials are getting together to discuss the progress of the
Speaker 1: Phase one trade deal. Do you expect it to be
Speaker 1: thrown out? Well, I mean, first of all, I think
Speaker 1: that the Phase one trade deal is increasingly marginal to
Speaker 1: the US China relationship. And I'm glad you've framed the
Speaker 1: question and the interview you've done with me that way,
Speaker 1: because most of the times you're talking to you guys, Um,
Speaker 1: you know, it's in the last few months, it's all
Speaker 1: been about what about the Phase one trade deal? And
Speaker 1: I understand that if we get rid of it, the
Speaker 1: tariffs are going up and that's going to affect American
Speaker 1: voters American consumers. But the reality is that the moment, no,
Speaker 1: it may well get thrown out in the next three months,
Speaker 1: especially if Trump feels like he's losing as we get
Speaker 1: closer to the election. But much more concerning is the
Speaker 1: potential that we really come to blows with the Chinese,
Speaker 1: that the mistakes lead to escalation, and then you're not
Speaker 1: talking about the Phase one deal. You're talking about you know,
Speaker 1: Ken large swats of Americans travel to China still, but
Speaker 1: we have to pull our expats out. Will it be
Speaker 1: a dangerous environment for them? Um? You know? Will will
Speaker 1: baseline trade between our two countries be disrupted? Will companies
Speaker 1: have non terror UH moves against them that make it
Speaker 1: impossible for large US companies to still do business in China?
Speaker 1: What's the future of owl? You know, for example, companies
Speaker 1: like that those things are so much broader and deeper
Speaker 1: than the continued existence of an important but you know,
Speaker 1: still modest and incremental phase one trade deal. What we
Speaker 1: do know is that there ain't no phase to trade deal.
Speaker 1: That's pretty clear. I think we can don't agree on that.
Speaker 1: And right to catch up if you're checking notes at home,
Speaker 1: all these back and foresters in Lisa Johnomy, what their
Speaker 1: talks of out as correlations and there's no one better
Speaker 1: to speak to and Andrews Sheets and Morgan Stanley not
Speaker 1: so much on bonds, not so much on equities, but
Speaker 1: the linkage is of equities, bonds, currencies come out and
Speaker 1: these Mr Sheets joins us uh this morning, Andrew Sheets,
Speaker 1: what correlations did you see in the market that give
Speaker 1: you some form of signposts to the end of the year. Yeah.
Speaker 1: So I think what's actually really fascinating is that you know,
Speaker 1: so much of the market, as you just alluded to,
Speaker 1: is is driving off of the same trade, is driving
Speaker 1: off of a long duration trade. And I think that's
Speaker 1: wrapped up everything from from the NASDAK to gold even
Speaker 1: things like emerging markets, right which I think we're historically
Speaker 1: associated as you know, these kind of deep cyclical a
Speaker 1: deep cyclical asset class. But if you look at what's
Speaker 1: driving e m uh, it's it's a very narrow rally
Speaker 1: driven by very large technology names in some ways kind
Speaker 1: of similar to to what's happening in the US. So
Speaker 1: I think there remains a dominant theme that investors are
Speaker 1: are very confident in in the yield outlook. Are are
Speaker 1: still very concerned about growth, but are are optimistic around
Speaker 1: the idea that real yields remain low for a long
Speaker 1: period of time. Well said, in the M space, turkishly
Speaker 1: or just moments ago weakens out to a seven or three.
Speaker 1: For the pros, that's a big deal, Andrew Sheets, that's
Speaker 1: all great, But the juxtaposition here is ample and Amazon
Speaker 1: to the moon versus Gold to the moon. How are
Speaker 1: safe havens playing right now? Well, I think what's actually
Speaker 1: very kind of fascinating is the way that those real
Speaker 1: yields are falling right because the nominal yield is more
Speaker 1: or less stable or just can't fall very much. And
Speaker 1: so the driver of those lower real interest rates has
Speaker 1: actually been inflation expectations going up. And and I would
Speaker 1: consider those higher inflation expectations actually consistent with kind of
Speaker 1: a better economy within more normal recovery than than the opposite.
Speaker 1: And and where I think that's important is if I
Speaker 1: think you take an asset like goal, I think a
Speaker 1: lot of people view it as as a hedge. I'm
Speaker 1: buying this because I'm worried about the state of the economy.
Speaker 1: I'm worried about the state of the world. It's going
Speaker 1: to protect my portfolio things do worse. But actually, I
Speaker 1: think the way that gold is performing is performing much
Speaker 1: more like a cyclical asset. It's it's benefiting from higher
Speaker 1: inflation expectations. It's going up when the market's going up
Speaker 1: like like is happening today. So I think that's an
Speaker 1: important thing to keep in mind with some of these
Speaker 1: assets that that they are, they might be less diversifying
Speaker 1: to each other than expected because of how they're they're
Speaker 1: performing relative to some of these factors. Andrew, you looking
Speaker 1: to reduce risk exposure At the moment, we are, Yes,
Speaker 1: I think that we still remain quite comfortable with the
Speaker 1: the overall economic recovery. And we at Morgan Stanley have
Speaker 1: been and remain and I think kind of an out
Speaker 1: of consensus V shaped recovery camp. But you know, we
Speaker 1: were coming off of a very strong performance, certainly up
Speaker 1: through July, and and you know, we've we've voiced concerned
Speaker 1: that August and September look like a more difficult environment.
Speaker 1: That I think we're losing some of the positive catalysts
Speaker 1: we had last month. We're obviously higher and prices leaving
Speaker 1: less upside to our our price targets. And even though
Speaker 1: I think overall the economic momentum is still sustainable, I'm
Speaker 1: probably most worried that we see some pausing of that
Speaker 1: economic momentum over the last over the next two months,
Speaker 1: especially in the US, where you have seen a worse
Speaker 1: COVID dynamic than our initial forecast expected. So, Andrew, what
Speaker 1: to find interesting about the thinking of more Can Stanley
Speaker 1: at the moment is that even if the recovery slows,
Speaker 1: so long as the momentum is positive and things go
Speaker 1: in the right direction, you think that sufficient for risk.
Speaker 1: Andrew Y, Well, I do think, you know, I think
Speaker 1: a couple of factors are going on. I think first
Speaker 1: is I think we kind of step back, and especially
Speaker 1: kind of step back from from the next month or so.
Speaker 1: I think I think big picture, I think we're still
Speaker 1: seeing a lot of relatively encouraging early cycle dynamics in
Speaker 1: the market. You have very easy policy, you have weak
Speaker 1: but improving data, you have relatively light investor positioning. You know,
Speaker 1: I think a reasonable amount of investor caution. These are all,
Speaker 1: I think aacteristics that are very common, you know, during
Speaker 1: or right after recessions, and I think that they ultimately
Speaker 1: mean that I think the recovery that we're seeing is
Speaker 1: going to be sustainable. That um, that this is not,
Speaker 1: you know, just a flash in the pan um. And
Speaker 1: so yes, I think the market that I would expect
Speaker 1: to have a more challenging environment over the next couple
Speaker 1: of months, but I think stepping back from that, a
Speaker 1: sustainable recovery, a very supportive policy response, I think relatively
Speaker 1: kind of balanced investor positioning. All I think argue that
Speaker 1: this will be ultimately be a sustainable recovery if we
Speaker 1: look out over the next six or twelve months. Six
Speaker 1: or twelve months is a long term and the short
Speaker 1: term we face a lot of volatility. President Trump is
Speaker 1: saying on Fox and Friends this morning that a big
Speaker 1: job number is coming on Friday, putting aside this sort
Speaker 1: of breaking with former protocol of presidents and people administration
Speaker 1: not talking about jobs data before it comes out. I'm
Speaker 1: curious about the trading activity or seeing yields on thirty
Speaker 1: year treasuries breaking out to the upside. Not much action
Speaker 1: in stock futures. How do you trade an upside surprise
Speaker 1: and labor data at this point? Does it just mean
Speaker 1: higher inflation and already baked into equities? Yeah? So, I
Speaker 1: I actually think, you know, the price action that we're
Speaker 1: seeing this morning, the price action that we saw on Monday,
Speaker 1: where you saw yields higher, yield curve steeper, and and
Speaker 1: market and equity markets higher, I think that's actually the
Speaker 1: much healthier dynamic. I think that's the much more normal dynamic.
Speaker 1: And and I think you know, we've done a lot
Speaker 1: of analysis that's all very consistent with the idea that
Speaker 1: markets are completely fine with the yields being higher uh
Speaker 1: many times, because those yields are rising in response to
Speaker 1: better economic optimism, and that better economic optimism can can
Speaker 1: easily offset challenges that might come from that slightly higher
Speaker 1: discount rate. So I actually don't see any uh inconsistency there.
Speaker 1: And I think actually the more abnormal environment is where
Speaker 1: we've been, where you've seen rising markets and really declining yields.
Speaker 1: I think that's much more unusual than the market often
Speaker 1: gives credit for the dynamic that we're seeing either this
Speaker 1: morning or or on Monday is a more normal, I
Speaker 1: think sustainable, robust dynamic for the market. And Andrew, this
Speaker 1: is one of the key narratives of the market right
Speaker 1: now that equities are pricing in optimism, that bond markets
Speaker 1: are simply ignoring, and that yields are going to rise,
Speaker 1: particularly on the longer end. But at what point does
Speaker 1: the rise and longer end yields lead to a sell
Speaker 1: off and equities based on the relative value argument that
Speaker 1: people say, where you're just there is no alternative and
Speaker 1: you've got to go into risk assets. Well, I I
Speaker 1: still think, I think big picture, I think we're actually
Speaker 1: still some ways away from that, you know. I think
Speaker 1: given where we are in the US, you know, ten
Speaker 1: year at at around fifty basis points, it certainly real
Speaker 1: yields as as you mentioned earlier, at minus a hundred
Speaker 1: basis points. I think, you know, I think you actually
Speaker 1: have you know, fifty fifty basis points plus. I think
Speaker 1: where those yields can go before you're I think generating
Speaker 1: you know, any sort of real valuation pressure and again
Speaker 1: that there's just an enormous amount of market history that
Speaker 1: if yields arising because of higher economic enthusiasm, then then
Speaker 1: you know, equity markets, credit markets can be completely fine
Speaker 1: with that. Now. I do think that dynamic you and
Speaker 1: you you mentioned though, could involve a major shift in
Speaker 1: leadership right because that the types of stocks that people
Speaker 1: are buying because they think yields will remain low for
Speaker 1: a very long period of time, I think are very
Speaker 1: different stocks than they would buy if they thought, actually
Speaker 1: the recovery was sustainable. Things are getting but maybe it
Speaker 1: might get back to normal next year, and I think
Speaker 1: that would be the big story that you've seen, you know,
Speaker 1: within the market this year, a huge divergence, a very
Speaker 1: kind of narrow market that I think a more sustainable,
Speaker 1: the more sustainable the recovery, the broader that should be,
Speaker 1: and I think it would drive potentially major leadership shifts
Speaker 1: both in the U S and globally and right to
Speaker 1: catch up. So Andre states for more constanley on the
Speaker 1: view there to reduce risk in the NIT right now,
Speaker 1: a really really important conversation if you're worried about the
Speaker 1: stresses of this pandemic Louisiana has been incredibly hit with
Speaker 1: a legitimate second spike in cases and deaths as well.
Speaker 1: They have the correct Senator to monitor his Louisiana and
Speaker 1: that is William Cassidy. Bill Cassidy, the Republican from Louisiana
Speaker 1: who long ago and far away studied medicine and long
Speaker 1: ago far away supported Mike Delcocus and Paul Sagas. Dr Cassidy,
Speaker 1: we are thrilled to have you with us today, and
Speaker 1: I want to speak about your Louisiana State University. They
Speaker 1: want to get their football season started, they want to
Speaker 1: open their college, and yet you have a pandemic. You're
Speaker 1: the expert on this in Congress. Should l s U
Speaker 1: have a football season? They're delay in the season and
Speaker 1: up until September. Obviously they're taking it as it should,
Speaker 1: but keep in mind, this pandemic may stay with us
Speaker 1: for another year or a year and a half. We're
Speaker 1: hoping vaccines become available. We don't know that. We're really
Speaker 1: asking ourselves, are we going to put everything on hold
Speaker 1: for a year and a half or are we gonna
Speaker 1: say you're out how to safely live with this and
Speaker 1: conduct our lives? I think we need to figure out
Speaker 1: how to safely live with it. It's going to take
Speaker 1: a lot of adjustment, but we have to figure out
Speaker 1: with it. Dr Cassidy our David Weston will be speaking
Speaker 1: with Dr Fauci here uh in a bit. Do you
Speaker 1: support Dr Faucci and Dr Berks's efforts on the pandemic. Yes.
Speaker 1: On the other hand, you can see that they have
Speaker 1: learned as they have gone along. I once asked Dr Fauci,
Speaker 1: do we really expect five and six year old not
Speaker 1: to go to school for another year? And within three
Speaker 1: weeks after considering, he goes No, they must go back
Speaker 1: to school. That is a wise decision. So we see
Speaker 1: the two of them evolving as we understand the scope
Speaker 1: of the epidemic. Senator, right now in Washington, d C.
Speaker 1: Everyone is focused on the idea of a second round
Speaker 1: of stimulus, of fiscal bailout for the states and local
Speaker 1: governments as the Democrats want. I'm wondering from the Republican standpoint,
Speaker 1: has the view shifted on the six hundred dollar and
Speaker 1: hands unemployment benefit extra benefit that people are getting based
Speaker 1: on the fact that President Trump has come out seemingly
Speaker 1: in support of that. So um Republicans in the Senate
Speaker 1: understand one, you have to support families through this rough patch.
Speaker 1: But if you pay people a lot more not to
Speaker 1: work than the work, that's a distance in it the work,
Speaker 1: and that's negative for the person, negative for their future
Speaker 1: employment possibilities, etcetera. Keep in mind some people, depending on
Speaker 1: your state, we're making two are more relative to what
Speaker 1: they would have earned a working now. That's not good
Speaker 1: for them. If you if you say that, oh wait,
Speaker 1: I'm not gonna work. Short term decision, that's wise. Long
Speaker 1: term you loose sen you already you lose your job skills. Statistically,
Speaker 1: the longer you're unemployed, the harder it is to render
Speaker 1: the workforce, the worse your life becomes. Sat Hold on
Speaker 1: one second there, because zealous FED President Robert Kaplan came
Speaker 1: on and said that he has heard from certain business
Speaker 1: officials that this is a concern that people aren't coming
Speaker 1: back to the workforce because of how much they're getting
Speaker 1: paid on unemployment. However, there is no data to support that,
Speaker 1: and he said in the long run, the increase in
Speaker 1: income would offset the detraction that could be felt in
Speaker 1: the short run. Is there any evidence that you've seen
Speaker 1: that points to people not entering the workforce, that businesses
Speaker 1: are unduly hampered with rehiring people due to the size
Speaker 1: of the inhanesc unemployment benefit. You know, sometimes things are
Speaker 1: so self evident that you shouldn't have to prove it.
Speaker 1: If you're paying somebody two more than they would working
Speaker 1: did not work, they're not going to work, by the way,
Speaker 1: that has been previously written about by Larry Summers and
Speaker 1: Paul Krugman, two left of center economists. And in my hometown,
Speaker 1: in my home state, you will see signs we are
Speaker 1: hiring uh. And if you talk to employers, they will
Speaker 1: talk about job applicants that are just refusing to be interviewed. Now,
Speaker 1: at some point, common sense has to rain two times
Speaker 1: more than you would make working to not work. People
Speaker 1: are going to make a rational short term decision. Why
Speaker 1: can't we compromise? I mean, you're sitting in a hospital, Dr. Cassidy,
Speaker 1: and you've got to compromise every day with a grievously
Speaker 1: ill patient. Where is the art of compromise? Where? Where?
Speaker 1: Where did it go? You know? Right now? Pelosius said
Speaker 1: that she wants her heroes act period and she's a
Speaker 1: lot and so when when Republicans. When the White House says,
Speaker 1: we will allow a six hundred dollar a week continuing
Speaker 1: for a week while we negotiate, she says no. When
Speaker 1: Republicans say, wait a second, we will allow a four
Speaker 1: hundred dollar for several for two months. Uh so, well
Speaker 1: we negotiate, she says no. She wants her entire package,
Speaker 1: a package, by the way, that mentions marijuana more than
Speaker 1: it mentions jobs. So there's a lot of policy in
Speaker 1: their unrelated to COVID that Republicans are looking at, saying, wait,
Speaker 1: we're gonna do long term policy on a short term issue. No,
Speaker 1: that okay, But Sender Cassidy, you've taken a real middle
Speaker 1: ground over even though Louisiana is now dominantly Republican, you've
Speaker 1: got an inter steing cross party heritage. Does President Trump
Speaker 1: and frankly the leader leader McConnell, do they risk giving
Speaker 1: up the Senate to the Democrats? Well, of course, we're
Speaker 1: in a tough year and it's gonna be tough one
Speaker 1: incumbents people expect more and I think that's from Pelosi's
Speaker 1: banking on again. She would rather the pain be on
Speaker 1: the unemployed. So she gets her bigger package at some point,
Speaker 1: I just remember my doctor roots we take care of
Speaker 1: the patient right now. The patient is the person who
Speaker 1: doesn't have a job and needs help, and so how
Speaker 1: do we best help them? And we can argue about
Speaker 1: marijuana at a later point. And that's my perspective. Senator,
Speaker 1: Thank you so much. Senator Cassidy there with an update
Speaker 1: on l s U football and a few other matters
Speaker 1: as well. The gentleman from Louisiana. Right now, we're gonna
Speaker 1: do what we haven't done today. We looked at the stimulus,
Speaker 1: We've looked at all the different news and horrific tragedy
Speaker 1: in Beirut, and there is this idea I made a
Speaker 1: joke about it earlier of tick talk in Microsoft to
Speaker 1: get a broader view, uh, Sarah Hendley joins US with
Speaker 1: mcquarie group on software, but a broader view, not so
Speaker 1: much bi hold cell here, but sort of on where
Speaker 1: the industry is going. Sarah, let me start with a
Speaker 1: million dollar question. There's a lot of angst about China, Huawei,
Speaker 1: TikTok and many more. Is it justified? Do we have
Speaker 1: evidence that they're playing with our software? That's a very
Speaker 1: fair question, and yes, we actually have seen history in
Speaker 1: the past of Chinese corruption of supply chain um issues,
Speaker 1: and we've a longstanding had an issue with with piracy
Speaker 1: over in China as well. But I think what you're
Speaker 1: seeing here in this particular station a situation where we're
Speaker 1: talking about TikTok is the government's perspective is that because
Speaker 1: TikTok is built using a series of algorithms that lever
Speaker 1: is the data that users are uploading into the system
Speaker 1: around their short videos, that they can apply that AI
Speaker 1: to that data for potentially nefarious purposes facial recognition, you're
Speaker 1: giving them access to your camera, You're giving them access
Speaker 1: to your microphone, location tracking, and search history tracking. So
Speaker 1: we do, indeed have a history of concerns with data privacy,
Speaker 1: software usage, software piracy with the Chinese government, and I
Speaker 1: think there are some legitimate reasons for the US government
Speaker 1: to be concerned about US consumer data usage, especially given
Speaker 1: the escalating tensions with China occurring right now. Sarah not there.
Speaker 1: Certainly there's a geopolitical issue, and this is something that
Speaker 1: President Trump has talked about and there will be discussions ongoing.
Speaker 1: But then there's a business element. Microsoft coming in and
Speaker 1: saying that it is interested in purchasing the US arm
Speaker 1: of TikTok. Yesterday, Axis reporting that Apple was getting in
Speaker 1: on it and had expressed interest. Apple rebutted that and
Speaker 1: sod that that was not the case. Sarah, do you
Speaker 1: buy that Apple would get involved or perhaps should get
Speaker 1: involved based on their efforts to get into content. I
Speaker 1: do think that every single major technology player at this
Speaker 1: point in time, when there's a forced sale of an
Speaker 1: asset that's scaling to what they're reporting to be roughly
Speaker 1: a billion dollars in revenues with fifty of US teenagers
Speaker 1: on the application, should call their bankers and should ask
Speaker 1: to be either engaged in a conversation or at least
Speaker 1: understand what the dynamics of the deal flow are in
Speaker 1: regards to the force sale of TikTok. So, certainly, I
Speaker 1: do believe that most tech companies will, should, or can
Speaker 1: take a look at this asset. But it is my
Speaker 1: opinion that Microsoft would be the most viable buyer given
Speaker 1: its history of extraordinary performance with its recent acquisitions under
Speaker 1: Satia Nadela, including LinkedIn and GitHub. What's the price that
Speaker 1: you think would be adequate for TikTok? Are the US operations?
Speaker 1: I should say I think it will be something north
Speaker 1: of billion. I mean, it isn't just stressed for sale.
Speaker 1: Time sales is a pretty large multiple, but it's not
Speaker 1: out of the ballpark of where Microsoft has paid in
Speaker 1: the past, especially if you look at geth hub and
Speaker 1: by the way, it hearkens back to what Facebook did
Speaker 1: in two thousand and fourteen was WhatsApp throwing down eighteen
Speaker 1: billion dollars on a company pre monetization. Sarah. One final
Speaker 1: question by old Sell, what's your favorite effort right now?
Speaker 1: With the moon shot we've seen in technology? Can you
Speaker 1: can you still be enthusiastic about one security? Absolutely? I
Speaker 1: think that there is a reason to look at the
Speaker 1: software sector and say, listen, this is the sector of
Speaker 1: it's enabling work from home, this is the sector of
Speaker 1: it's enabling school from home. Business continuity planning is going
Speaker 1: to continue to remain very dependent on ongoing cloud usage, security,
Speaker 1: and all linds of other important features that technology is bringing. Yes,
Speaker 1: the sector is rich, but that's driven by, as you've
Speaker 1: talked about on your show, this incredible fiscal and monetary
Speaker 1: environments that we're living in today. So yeah, there are
Speaker 1: names that I would own. I happen to really like
Speaker 1: Microsoft here and think it's a compelling buy. I also
Speaker 1: really like Service now and think it's a very very valuable,
Speaker 1: powerful recurring SASS assets in the I T operation space.
Speaker 1: Very good, Sarah Hendon, and thank you so much. With McCary,
Speaker 1: I grew up here on TikTok and the gentle politics
Speaker 1: of Massachusetts. That would be Joe Morkley, and that would
Speaker 1: be Tip O'Neil of another time and place where it
Speaker 1: was about negotiation and compromise. The former Treasury secretary joins
Speaker 1: us this morning, Jack, is the process change is a
Speaker 1: negotiation and compromise. Now the same on the hill is
Speaker 1: when you worked for the Massachusetts contingent. Well, the to
Speaker 1: be with your time of fan Seine and the negotiation
Speaker 1: has always been hard, um. But the refutal to talk
Speaker 1: when there's a crisis coming is different. Um. You know,
Speaker 1: respond to the beginning of this crisis a kind of
Speaker 1: reversion to the old by carters in spirit that when
Speaker 1: there's a crisis would come together. And in this round
Speaker 1: it's been months months that you know, the House Democrats
Speaker 1: passed the bill and the Republicans wouldn't take it up,
Speaker 1: wouldn't talk. They waited until days before people were going
Speaker 1: to lose their unemployment checks, days before they were gonna
Speaker 1: lose their protection against eviction, in order to start a conversation,
Speaker 1: and now they're surprised that they're running out of time.
Speaker 1: This is not something that you can easily do. And
Speaker 1: it's there too. They should have been working on this
Speaker 1: for two months. But now not the time to look back.
Speaker 1: It's the time to look forward. There was a little
Speaker 1: bit of encouraging news that yesterday's meeting the parties were
Speaker 1: coming together to talk about compromise, and compromise means addressing
Speaker 1: the problem, doing but things that are most important and
Speaker 1: showing the country the government from work at a time
Speaker 1: when you've got millions, millions of children living in households
Speaker 1: that can't pay the rent, and millions of children living
Speaker 1: in households that don't have enough food to crown the table.
Speaker 1: This is an emergency. We need to respond, and we
Speaker 1: need to respond now. It's already too late. It's going
Speaker 1: to take weeks for states to get benefits back up
Speaker 1: and running once they've last jack Low. The heart of
Speaker 1: the matter here, and we saw it in the primaries
Speaker 1: last night, is a reassertion of the middle ground. Do
Speaker 1: you have an optimism that the the nascent middle ground
Speaker 1: of the Democratic Party called on the edge of Scoop Jackson,
Speaker 1: the nascent middle ground of the Republican Party, which is
Speaker 1: pretty dim. Do you have an optimism they can recover
Speaker 1: through this crisis to a better place in our polity.
Speaker 1: So I think the results last night and I have
Speaker 1: to apologize and not have all the latest facts give
Speaker 1: some competing pieces of results. I was pleased to see
Speaker 1: event bothan primary and Missouri went towards a more moderate candidate, because,
Speaker 1: frankly that the thing that has driven our politics to
Speaker 1: the place where at is not equally on both sides.
Speaker 1: It's that the Republican Party has become an extreme party,
Speaker 1: meeting on its primary politics to take it to a
Speaker 1: place that makes it impossible to govern in an effective
Speaker 1: way working across party lines. I know that we've seen
Speaker 1: a number of Democratic issues shift, including you know the
Speaker 1: district the Mr O'Neill uh you know represented in part
Speaker 1: in the last cycle, two more assertive candidates who are
Speaker 1: more from the left, progressive and of the party. I
Speaker 1: think we'll see some movement in both residents. I hope
Speaker 1: the Democratic Party stays the party of the Big Tent
Speaker 1: where moderate and progressives and you know, extremes to keep
Speaker 1: focused on working together on things they can all agree on.
Speaker 1: I think that's possible. I think that the way in
Speaker 1: Antholosi is master and masterful bringing this coalition together to
Speaker 1: function effectively. So it can't happen. But it's not equal
Speaker 1: on both sides. But Mr Leui, is the democrats strategy
Speaker 1: on an unemployment benefits a smart tactic or could it
Speaker 1: actually backfire politically? Well? I think the pressure can't take
Speaker 1: of being days in man hours away from expiration created
Speaker 1: um this sense uh that let's do something to just
Speaker 1: get it through another week. When you look behind the curtain,
Speaker 1: it doesn't work that way. We have fifty three state
Speaker 1: and territory unemployment programs. They run on computer systems that
Speaker 1: are probably older than you are, and they can't be
Speaker 1: reprogrammed overnight you turned them off. It takes a while
Speaker 1: to turn them back time. You can't say we're gonna
Speaker 1: do this, We're gonna need that. You know, you need
Speaker 1: to find people can program and cope on basics to
Speaker 1: change the way they work. So the idea of a
Speaker 1: week extension once it's laughs, I don't even think works.
Speaker 1: So it was it was a tactic on the other side.
Speaker 1: But the Democrats have been doing and I think correctly
Speaker 1: is saying that it's a matter of macro economic policy.
Speaker 1: We cannot take away to support the families that can
Speaker 1: spend the money because they need to spend the money
Speaker 1: without having a terrible economic impact and in the household
Speaker 1: creating complete crisis in terms of failure and inability to
Speaker 1: feed a family and pay one. Where do these massive deficits,
Speaker 1: What are they going to do to the country's long
Speaker 1: term finances? When should we start worrying about that? Look,
Speaker 1: and I said, most of my career trying to live
Speaker 1: in that narrow middle ground is a progressive who believes
Speaker 1: government has a huge role to play, believing that would
Speaker 1: have to be able to over time player of bills
Speaker 1: in order to sustain the economy and the effort of government. Yeah,
Speaker 1: in in my view, a crisis like this is the
Speaker 1: moment when you need to dig deep into the reserves,
Speaker 1: because if you don't and the economy slows down further
Speaker 1: or goes into a depression, it causes more damage, more
Speaker 1: loss of revenue than you're spending in terms of keeping
Speaker 1: things moving, leave aside the human hardship just in terms
Speaker 1: of the economics now it can go on forever. At
Speaker 1: the end of the crisis, we're going to have a
Speaker 1: pile of bills to pay, and yes it's going to
Speaker 1: take our get to over GDP faster than the striative.
Speaker 1: That's not the end of the world, if we get
Speaker 1: back on our economic fee and have then a balanced
Speaker 1: economic program and fiscal policy going forward. I was mult
Speaker 1: troubled by the tax cut in seventeen, which spent two
Speaker 1: trillion dollars without any real purpose in my view, and
Speaker 1: doug a hole that we didn't need to dig. This
Speaker 1: is what macro economic policy is for. This is what
Speaker 1: fiscal space is for. I think we can afford it now,
Speaker 1: and frankly, I think we can afford to do what
Speaker 1: we need to do to get out of this. What
Speaker 1: we can afford to do is very much depression that happened.
Speaker 1: Secretary Louy, I'm assuming that Tip O'Neill and Joe Maulkeley
Speaker 1: never worried about the zero bound, but here we are
Speaker 1: at the zero bound. The markets are speaking, Jack, I'd
Speaker 1: like you to speak to the Wall Street right now
Speaker 1: and the global markets who have priced bonds to perfection?
Speaker 1: Is John Templeton put it years ago? What is it
Speaker 1: signal to you to see bonds priced to perfection? Look,
Speaker 1: I I think that the expectations for growth and inflation
Speaker 1: remain very moderate. Um to the extent that the large
Speaker 1: increases in debt to support government fiscal policy are concerned.
Speaker 1: It's not showing up yet in bond price is um.
Speaker 1: You know, what I think we have to be attuned
Speaker 1: to is that things are fine until they're not. And
Speaker 1: you know, my advice, which I offer to those who
Speaker 1: ask for it, is spend what you need to spend now,
Speaker 1: but be prepared to stop when the crisis is over.
Speaker 1: And you have to be clear, the crisis won't end
Speaker 1: the minute there's a vaccine. There's likely to be a
Speaker 1: recession that goes beyond the health crisis because we're gonna
Speaker 1: have a demand induced, you know, a business cycle to
Speaker 1: deal with. I mean, if people are not working and
Speaker 1: not spending normally, that's going to have an impact that
Speaker 1: goes beyond the day you get back to normal, which won't,
Speaker 1: as we know, be a day. So I think the
Speaker 1: bond markets are are are you know, looking at the
Speaker 1: current state of affairs and making the judgments that we see.
Speaker 1: What I don't understand is the equity markets. You know,
Speaker 1: where where uh, there's kind of because of being near
Speaker 1: the zero back on, there's a sense that values that
Speaker 1: can go up forever. You know. I think, I think
Speaker 1: that if I was looking for a place to caution,
Speaker 1: that's what good caution. Well stockbroker jacklu helping us out today,
Speaker 1: equity strategist Jack Blue Jack, I want to talk about
Speaker 1: the voice of conservative concern over the burgeoning debt and deficit.
Speaker 1: You've been very clear there will be a price to pay.
Speaker 1: What is the political mechanism you see to pay down
Speaker 1: the debt? As Secretary Guitner said years ago, time will
Speaker 1: heal a lot of wounds. Is it just time marching
Speaker 1: on or will there need to be an overt policy
Speaker 1: to pay down these trillions of dollars of debt. Well, Tom,
Speaker 1: let's let's just remember that while we're in this period
Speaker 1: of very low interest rates, there is the ability to
Speaker 1: support more debt than there would have benefits period of
Speaker 1: three or four percent interest rate. So if we're able
Speaker 1: to pivot when the crisis is over, and if the
Speaker 1: you know, average maturities have have have been managed to
Speaker 1: have a lot of the debt, you know, on a
Speaker 1: longer term, which they are being managed to have a
Speaker 1: lot of the debt on a longer term basis. We
Speaker 1: have some time to deal with the overhang issue. What
Speaker 1: has to happen, and this is true in any any
Speaker 1: UH fiscal scenario, is there has to be a moment
Speaker 1: when you say stop. And to me, that moment is
Speaker 1: when the economy is back on its seat, unemployment is
Speaker 1: back headed towards a normal place, when the economy can
Speaker 1: function health in a healthy way on its own. It's hard,
Speaker 1: it's hard to change if you're used to spending three
Speaker 1: and five trillion dollars, you know, to deal with the
Speaker 1: things that people think need to be dealt with. It's
Speaker 1: hard to say, now we have to start paying for
Speaker 1: what we're doing before you reduce the episode. You have
Speaker 1: to not let it become a habit to do this
Speaker 1: two years from now, three years from now. But it's
Speaker 1: not in the next three to six months. It's longer
Speaker 1: than that, I believe. And on the longer term, how
Speaker 1: much of the damage to to the workforce and businesses
Speaker 1: do you think is actually forever? That is permanent damage. Well,
Speaker 1: I think that there's different ways to look at the
Speaker 1: damage on an individual basis. You know, I worry about
Speaker 1: people who are starting out, who are losing the beginning
Speaker 1: of their career. We know that that sets you back
Speaker 1: and another generation, you know, gets there before you did,
Speaker 1: and and sometimes you never catch up, and we have
Speaker 1: to make sure we don't let that happen. I worry
Speaker 1: about people who are advanced in in their careers, who
Speaker 1: who's work that they had before the crisis may not
Speaker 1: come back and adjustment becomes more difficult. So there's going
Speaker 1: to be a lot of individual challenges to deal with.
Speaker 1: If you look at the workplace, some of these changes
Speaker 1: that we're seeing will have a lingering impact. I don't know,
Speaker 1: and no one knows whether remote work will become the norm.
Speaker 1: My own view, there's going to be a hybrid that's different.
Speaker 1: What does that mean in terms of real estate and
Speaker 1: office work. So there's going to be changes, But if
Speaker 1: we get to the point where the crisis is over,
Speaker 1: it will be managed through the normal, healthy processes of
Speaker 1: the economy. Um, we can't manage it until we get
Speaker 1: the health crisis under control, and we're not near that.
Speaker 1: The United States, Jack Louis, You're a trooper to come
Speaker 1: to us in the blackout of the Eastern Seaboard off
Speaker 1: of this horrific tropical storm. Jack Louill making the effort
Speaker 1: to be with us today. We greatly appreciate that. 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 Keane before the podcast.
Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio.