WEBVTT - Surveillance: Stimulus Bets With Lew 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily 0:00:13.960 --> 0:00:17.560 we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.240 Bloomberg dot Com, and of course on the Bloomberg. There 0:00:27.360 --> 0:00:31.159 is no speculation that definitive on our World Order is 0:00:31.200 --> 0:00:34.440 Ian Grammer of Eurasia Group. We enjoy so much our 0:00:34.520 --> 0:00:37.320 beginning of the year analysis with his Eurasia Group, and 0:00:37.360 --> 0:00:40.520 we're thrilled Dr Bremer could join us this morning. And 0:00:40.600 --> 0:00:42.400 I'm going to start with Lebanon. I know there are 0:00:42.400 --> 0:00:45.239 many other themes to touch here as well. I want 0:00:45.280 --> 0:00:48.840 to go to Henry Kissinger's World Order, that wonderful book 0:00:49.159 --> 0:00:52.960 of a few years ago where Dr Kissinger uh speaks 0:00:53.000 --> 0:00:57.680 about the decline of the state. Lebanon is a card 0:00:57.880 --> 0:01:02.240 carrying decline of the state right now? How do they 0:01:02.400 --> 0:01:05.399 right the ship of what was once the jewel of 0:01:05.440 --> 0:01:09.280 the Levant? And my God, Tom, I mean any of 0:01:09.360 --> 0:01:11.560 us that have been to Beirut. You know, it's our 0:01:11.600 --> 0:01:14.440 favorite city in the Middle East. It's so cosmopolitan and 0:01:14.600 --> 0:01:18.920 so lively. It brings together so many different civilizations and cultures. 0:01:19.280 --> 0:01:22.440 But the government is a disaster, and I mean, frankly, 0:01:22.840 --> 0:01:27.240 you know, coronavirus doesn't even hit their top three right now, 0:01:27.400 --> 0:01:31.280 right it's a massive financial crisis, incredible economic contraction and 0:01:31.520 --> 0:01:37.080 social descent across the country, big corruption and now uh 0:01:37.400 --> 0:01:40.280 likely through mismanagement. I mean, if you see what they've 0:01:40.319 --> 0:01:42.640 done with the banking system, if you've seen what they're 0:01:42.640 --> 0:01:46.440 done with their sanitation system, it shouldn't surprise anyone that 0:01:46.520 --> 0:01:49.800 they have no capacity to deal with has of the 0:01:49.960 --> 0:01:54.880 materials um and you see the the the untold deaths, 0:01:55.520 --> 0:01:59.520 the destruction of a good swat of of the jewel 0:01:59.560 --> 0:02:04.680 of the tree end of the region just leveled yesterday, 0:02:04.800 --> 0:02:08.840 and it's it's horrifying what they can do. I mean, 0:02:08.840 --> 0:02:10.560 they're not gonna have it's hard for them to have 0:02:10.639 --> 0:02:12.960 hesblaws in the government. The IMAX has a hard time 0:02:13.040 --> 0:02:16.400 working with them, and the Gulf States are are certainly 0:02:16.400 --> 0:02:19.280 not going to provide the kind of support that they've 0:02:19.320 --> 0:02:21.880 been able to historically. How are they going to rebuilding 0:02:21.919 --> 0:02:24.280 that environment? They to go back into your book of 0:02:24.320 --> 0:02:28.160 two thousand fifteen superpower. We need to make a choice 0:02:28.200 --> 0:02:32.960 of how we project from Istanbul down to those Gulf states. 0:02:33.000 --> 0:02:35.679 How do we project what is a choice that a 0:02:35.800 --> 0:02:39.280 second term Trump or first term Biden will have to make. 0:02:40.280 --> 0:02:43.320 It feels like less involvement in the Middle East. I mean, 0:02:43.360 --> 0:02:48.280 Biden had a very solid, uh non controversial tweet yesterday 0:02:48.360 --> 0:02:50.760 is saying his heart goes out to these people. The 0:02:50.880 --> 0:02:55.200 United States needs to provide humanitarian aid. Absolutely, But I mean, 0:02:55.240 --> 0:02:58.360 compared to when my book came out, the United States 0:02:58.480 --> 0:03:02.799 is now the world's largest energy producer. Um, We're much 0:03:02.880 --> 0:03:05.239 less interested in what's going on in the Middle East 0:03:05.240 --> 0:03:07.639 than we used to. We're much more concerned about China, 0:03:07.800 --> 0:03:12.360 much more on the Pacific. So I just whether it's okay. 0:03:13.200 --> 0:03:15.280 I think it's hard to imagine the US is going 0:03:15.320 --> 0:03:18.360 to be increasing its footprint anytime soon in this region. 0:03:18.520 --> 0:03:20.720 Ian let's moved to China then, And of course the 0:03:20.800 --> 0:03:23.040 provocative act of a member of the cabinet of the 0:03:23.080 --> 0:03:27.240 Trump administration will attend Taipei, maybe the first major visit 0:03:27.480 --> 0:03:30.760 of a US representative in forty years. How will that 0:03:30.840 --> 0:03:35.880 be taken by Beijing? Well, less badly than if it 0:03:36.120 --> 0:03:42.880 was say Secretary of State Pompeo or Secretary of Defense Esper. 0:03:43.040 --> 0:03:45.680 I mean, you know you're not You're not talking about 0:03:45.760 --> 0:03:50.000 someone who is in particularly controversial in his mandate. You're 0:03:50.000 --> 0:03:53.320 gonna go over talking about coronavirus and the great response 0:03:53.600 --> 0:03:57.040 the Taiwan indeed was behind. But what we should recognize 0:03:57.080 --> 0:04:00.520 is this is all of the escalations out This is 0:04:00.560 --> 0:04:06.360 completely gratuitous, is completely unnecessary. It's not like the response 0:04:06.440 --> 0:04:10.480 on TikTok, which has a real national security concerned Huawei, 0:04:10.480 --> 0:04:13.400 where the Americans are behind in five get we need 0:04:13.400 --> 0:04:16.120 to do something. I mean those you understand why the 0:04:16.200 --> 0:04:19.200 Americans are doing that, why they're doing it now we're 0:04:19.240 --> 0:04:23.480 in the case of Taiwan, it's purely rallied around the flag, 0:04:24.120 --> 0:04:29.719 drive a spike into China's core interests right before American elections, 0:04:29.720 --> 0:04:32.239 and it makes the next couple of months very dangerous. 0:04:32.240 --> 0:04:35.559 The Chinese will certainly respond. They might respond by hitting 0:04:35.560 --> 0:04:39.279 some American companies doing business in Taiwan. They might respond 0:04:40.200 --> 0:04:43.400 with a show of military force in the region. And 0:04:43.640 --> 0:04:46.880 let's keep in mind an anti Chinese sentiment, anti mainland 0:04:47.000 --> 0:04:50.279 Chinese sentiment in Taiwan, especially on the back of the 0:04:50.360 --> 0:04:54.719 new National Security law impost in Hong Kong is incredibly 0:04:54.880 --> 0:04:59.160 high right now, So you really didn't need these tensions. 0:04:59.200 --> 0:05:02.840 I tweeted last night, let's not start a war. Let's 0:05:02.839 --> 0:05:05.080 not get into a war over Taiwan. We had a 0:05:05.279 --> 0:05:08.040 problems with China right now that we didn't need to 0:05:08.080 --> 0:05:10.760 take this step. But and you understand better than most 0:05:10.760 --> 0:05:12.840 people that come on this program, the People's Republic of 0:05:12.920 --> 0:05:16.000 China is frozen Taiwan out of multilateral organizations. And for 0:05:16.040 --> 0:05:19.960 most people in the medical industry, here's a place that 0:05:20.040 --> 0:05:24.200 seems to have handled this pandemic fantastically. They have reported 0:05:24.240 --> 0:05:27.080 just seven deaths for a population at twenty four million. 0:05:27.440 --> 0:05:31.320 And because China insists that they have no part in 0:05:31.400 --> 0:05:34.919 multilateral organizations, there has been very little done to find 0:05:34.920 --> 0:05:38.200 out why Taiwan has been successful. Isn't it a good 0:05:38.240 --> 0:05:42.040 thing the Secretary asar is actually going there to find out. 0:05:44.360 --> 0:05:47.880 I think you could do that much more effectively by 0:05:47.920 --> 0:05:51.880 having a lot of engagement at the less than secretary level. 0:05:51.920 --> 0:05:55.120 You don't need the symbolism of a cabinet secretary to 0:05:55.200 --> 0:05:58.400 do exactly what you just suggested. Also, let's keep in 0:05:58.440 --> 0:06:01.800 mind that yes, Taiwan is not allowed to join the 0:06:01.839 --> 0:06:06.000 World Health Organization or they can exchange some information because 0:06:06.360 --> 0:06:10.000 China keeps them out. And I think that's an appalling reality. 0:06:10.360 --> 0:06:15.440 Having said that, President Trump has said he's withdrawing from 0:06:15.480 --> 0:06:19.880 the World Health Organization because they're in China's pocket, And 0:06:19.960 --> 0:06:22.600 the idea that the United States president would leave the 0:06:22.760 --> 0:06:26.640 wh show in the middle of a pandemic shows that 0:06:26.720 --> 0:06:29.800 the argument that you're making is probably not at the 0:06:29.839 --> 0:06:32.520 top of President Trump's in gender right now. And there 0:06:32.560 --> 0:06:34.520 is a strange double standard here though, that I know 0:06:34.640 --> 0:06:37.320 resonates with you. When we talk about things like TikTok, 0:06:37.640 --> 0:06:41.120 the Chinese talk about theft, and people everywhere else outside 0:06:41.120 --> 0:06:43.840 of China basically laughing saying you want to talk about 0:06:43.839 --> 0:06:46.440 the theft of technology, you want to talk about these 0:06:46.520 --> 0:06:49.360 kind of things, talk about irony, And then I think 0:06:49.400 --> 0:06:52.960 it's a delicate moment whereby if you have business in China, 0:06:53.040 --> 0:06:55.159 you can no longer talk about what is happening in China. 0:06:55.320 --> 0:06:56.960 And I'm sure this is something that resonates with you 0:06:57.040 --> 0:06:59.240 directly because as far as I understand, and you have 0:06:59.279 --> 0:07:02.080 no business in China and you're able to speak company 0:07:02.080 --> 0:07:04.960 about China, and you know that if you have business there, 0:07:05.160 --> 0:07:08.520 you wouldn't be would you trying to be much more difficult? 0:07:08.600 --> 0:07:10.640 And I think it's a real problem. I mean for 0:07:10.680 --> 0:07:12.800 the banks, for the consulting firms, for all the people 0:07:12.840 --> 0:07:16.440 that ostensibly do independent research, but what can they say 0:07:16.480 --> 0:07:18.880 about China because it's going to undermine their business. I mean, 0:07:18.880 --> 0:07:23.080 you saw Lebron James, huge advocate for Black Lives Matter, 0:07:23.120 --> 0:07:26.560 but on Hong Kong he's towing the PRC line, and 0:07:26.680 --> 0:07:28.679 not that he knows anything about it. But the point 0:07:28.800 --> 0:07:32.000 is everyone that does business in China understands it's a 0:07:32.000 --> 0:07:35.800 big market and the rules change. They determine what the 0:07:35.880 --> 0:07:39.680 rules will be on TikTok specifically. You know, we need 0:07:39.760 --> 0:07:43.160 to understand that it's not just about China's national security 0:07:43.920 --> 0:07:47.240 issues and their control of data um, which you know, 0:07:47.320 --> 0:07:49.400 you have to prove that we have evidence as an 0:07:49.400 --> 0:07:53.120 open question. But it's also a reciprocity. The Chinese government 0:07:53.160 --> 0:07:56.880 does not allow key American tech firms to do business 0:07:56.960 --> 0:08:00.480 as usual in the world's largest data market. Whether you're 0:08:00.480 --> 0:08:04.000 talking about Facebook, whether you're talking about Google, whether you're 0:08:04.000 --> 0:08:07.720 talking about Wikipedia or Reddit, none of them are allowed 0:08:08.200 --> 0:08:11.800 um inside mainland China with you know, a billion one 0:08:11.880 --> 0:08:15.200 point for a billion people, uh, and a majority of 0:08:15.240 --> 0:08:20.040 them online. So I mean, why would you allow Chinese 0:08:20.080 --> 0:08:24.000 tech firms to have openness with the United States in 0:08:24.040 --> 0:08:26.680 that environment. You asked me about my book Superpower, But 0:08:26.720 --> 0:08:28.400 you know, the book that I think is more relevant 0:08:28.400 --> 0:08:30.160 for this is one I wrote about ten years ago 0:08:30.200 --> 0:08:33.120 called the End of the Free Market. And if you're 0:08:33.200 --> 0:08:36.119 in a world where the soon to the largest economy 0:08:36.520 --> 0:08:40.000 is authoritarian and state capitalists, you don't have a global 0:08:40.040 --> 0:08:42.640 free market anymore, and I did. The United States is 0:08:42.640 --> 0:08:45.000 gonna pretend that we do, and we're gonna give the 0:08:45.080 --> 0:08:49.840 Chinese complete access to the American consumer base and database. 0:08:50.200 --> 0:08:54.240 This ludicrous on its space. Iana, There's a question about 0:08:54.320 --> 0:08:58.280 how markets priced these rising US China tensions. They've been 0:08:58.360 --> 0:09:00.800 more general in nature, and when you talk about five 0:09:00.920 --> 0:09:04.760 G or tech predominance, it's it's hard to price that in. 0:09:04.960 --> 0:09:07.960 It's easier to price in a trade deal, or a 0:09:08.000 --> 0:09:10.600 trade deal that's falling apart. In Senior US and Chinese 0:09:10.600 --> 0:09:13.360 officials are getting together to discuss the progress of the 0:09:13.360 --> 0:09:16.040 Phase one trade deal. Do you expect it to be 0:09:16.080 --> 0:09:19.160 thrown out? Well, I mean, first of all, I think 0:09:19.200 --> 0:09:23.160 that the Phase one trade deal is increasingly marginal to 0:09:23.280 --> 0:09:26.079 the US China relationship. And I'm glad you've framed the 0:09:26.200 --> 0:09:28.760 question and the interview you've done with me that way, 0:09:28.800 --> 0:09:31.959 because most of the times you're talking to you guys, Um, 0:09:32.000 --> 0:09:34.320 you know, it's in the last few months, it's all 0:09:34.400 --> 0:09:37.200 been about what about the Phase one trade deal? And 0:09:37.240 --> 0:09:39.640 I understand that if we get rid of it, the 0:09:39.679 --> 0:09:42.000 tariffs are going up and that's going to affect American 0:09:42.120 --> 0:09:46.319 voters American consumers. But the reality is that the moment, no, 0:09:46.800 --> 0:09:49.800 it may well get thrown out in the next three months, 0:09:49.880 --> 0:09:53.880 especially if Trump feels like he's losing as we get 0:09:53.920 --> 0:09:57.640 closer to the election. But much more concerning is the 0:09:57.679 --> 0:10:01.080 potential that we really come to blows with the Chinese, 0:10:01.120 --> 0:10:05.200 that the mistakes lead to escalation, and then you're not 0:10:05.240 --> 0:10:07.840 talking about the Phase one deal. You're talking about you know, 0:10:07.960 --> 0:10:11.839 Ken large swats of Americans travel to China still, but 0:10:11.960 --> 0:10:14.040 we have to pull our expats out. Will it be 0:10:14.040 --> 0:10:17.760 a dangerous environment for them? Um? You know? Will will 0:10:17.840 --> 0:10:22.040 baseline trade between our two countries be disrupted? Will companies 0:10:22.360 --> 0:10:26.400 have non terror UH moves against them that make it 0:10:26.440 --> 0:10:29.960 impossible for large US companies to still do business in China? 0:10:30.040 --> 0:10:33.120 What's the future of owl? You know, for example, companies 0:10:33.120 --> 0:10:36.280 like that those things are so much broader and deeper 0:10:36.480 --> 0:10:40.480 than the continued existence of an important but you know, 0:10:40.600 --> 0:10:43.800 still modest and incremental phase one trade deal. What we 0:10:43.840 --> 0:10:46.040 do know is that there ain't no phase to trade deal. 0:10:46.240 --> 0:10:48.520 That's pretty clear. I think we can don't agree on that. 0:10:48.640 --> 0:10:56.800 And right to catch up if you're checking notes at home, 0:10:56.880 --> 0:10:59.520 all these back and foresters in Lisa Johnomy, what their 0:10:59.600 --> 0:11:02.160 talks of out as correlations and there's no one better 0:11:02.200 --> 0:11:05.000 to speak to and Andrews Sheets and Morgan Stanley not 0:11:05.120 --> 0:11:07.840 so much on bonds, not so much on equities, but 0:11:07.920 --> 0:11:10.760 the linkage is of equities, bonds, currencies come out and 0:11:10.800 --> 0:11:13.720 these Mr Sheets joins us uh this morning, Andrew Sheets, 0:11:13.720 --> 0:11:16.280 what correlations did you see in the market that give 0:11:16.320 --> 0:11:20.319 you some form of signposts to the end of the year. Yeah. 0:11:20.440 --> 0:11:23.280 So I think what's actually really fascinating is that you know, 0:11:23.360 --> 0:11:25.320 so much of the market, as you just alluded to, 0:11:25.520 --> 0:11:28.320 is is driving off of the same trade, is driving 0:11:28.320 --> 0:11:31.600 off of a long duration trade. And I think that's 0:11:31.600 --> 0:11:36.040 wrapped up everything from from the NASDAK to gold even 0:11:36.080 --> 0:11:39.120 things like emerging markets, right which I think we're historically 0:11:39.160 --> 0:11:43.840 associated as you know, these kind of deep cyclical a 0:11:43.920 --> 0:11:46.440 deep cyclical asset class. But if you look at what's 0:11:46.520 --> 0:11:50.480 driving e m uh, it's it's a very narrow rally 0:11:50.720 --> 0:11:54.800 driven by very large technology names in some ways kind 0:11:54.800 --> 0:11:57.079 of similar to to what's happening in the US. So 0:11:57.600 --> 0:12:01.360 I think there remains a dominant theme that investors are 0:12:01.360 --> 0:12:04.800 are very confident in in the yield outlook. Are are 0:12:04.840 --> 0:12:08.760 still very concerned about growth, but are are optimistic around 0:12:08.800 --> 0:12:11.040 the idea that real yields remain low for a long 0:12:11.080 --> 0:12:13.520 period of time. Well said, in the M space, turkishly 0:12:13.640 --> 0:12:15.920 or just moments ago weakens out to a seven or three. 0:12:15.960 --> 0:12:18.439 For the pros, that's a big deal, Andrew Sheets, that's 0:12:18.480 --> 0:12:21.800 all great, But the juxtaposition here is ample and Amazon 0:12:21.840 --> 0:12:25.000 to the moon versus Gold to the moon. How are 0:12:25.120 --> 0:12:29.000 safe havens playing right now? Well, I think what's actually 0:12:29.120 --> 0:12:32.520 very kind of fascinating is the way that those real 0:12:32.640 --> 0:12:36.880 yields are falling right because the nominal yield is more 0:12:36.960 --> 0:12:39.840 or less stable or just can't fall very much. And 0:12:39.920 --> 0:12:44.920 so the driver of those lower real interest rates has 0:12:44.920 --> 0:12:48.520 actually been inflation expectations going up. And and I would 0:12:48.559 --> 0:12:52.280 consider those higher inflation expectations actually consistent with kind of 0:12:52.280 --> 0:12:56.360 a better economy within more normal recovery than than the opposite. 0:12:56.440 --> 0:12:58.560 And and where I think that's important is if I 0:12:58.600 --> 0:13:00.400 think you take an asset like goal, I think a 0:13:00.400 --> 0:13:02.640 lot of people view it as as a hedge. I'm 0:13:02.679 --> 0:13:04.920 buying this because I'm worried about the state of the economy. 0:13:04.920 --> 0:13:06.440 I'm worried about the state of the world. It's going 0:13:06.440 --> 0:13:09.560 to protect my portfolio things do worse. But actually, I 0:13:09.559 --> 0:13:12.360 think the way that gold is performing is performing much 0:13:12.400 --> 0:13:14.880 more like a cyclical asset. It's it's benefiting from higher 0:13:14.880 --> 0:13:17.840 inflation expectations. It's going up when the market's going up 0:13:17.920 --> 0:13:20.120 like like is happening today. So I think that's an 0:13:20.120 --> 0:13:21.839 important thing to keep in mind with some of these 0:13:21.880 --> 0:13:24.880 assets that that they are, they might be less diversifying 0:13:24.920 --> 0:13:27.720 to each other than expected because of how they're they're 0:13:27.720 --> 0:13:30.160 performing relative to some of these factors. Andrew, you looking 0:13:30.200 --> 0:13:33.400 to reduce risk exposure At the moment, we are, Yes, 0:13:33.480 --> 0:13:35.920 I think that we still remain quite comfortable with the 0:13:35.920 --> 0:13:39.160 the overall economic recovery. And we at Morgan Stanley have 0:13:39.320 --> 0:13:41.840 been and remain and I think kind of an out 0:13:41.840 --> 0:13:45.200 of consensus V shaped recovery camp. But you know, we 0:13:45.200 --> 0:13:48.640 were coming off of a very strong performance, certainly up 0:13:48.640 --> 0:13:51.439 through July, and and you know, we've we've voiced concerned 0:13:51.480 --> 0:13:55.040 that August and September look like a more difficult environment. 0:13:55.080 --> 0:13:57.640 That I think we're losing some of the positive catalysts 0:13:57.679 --> 0:14:00.920 we had last month. We're obviously higher and prices leaving 0:14:01.000 --> 0:14:04.280 less upside to our our price targets. And even though 0:14:04.440 --> 0:14:07.600 I think overall the economic momentum is still sustainable, I'm 0:14:07.640 --> 0:14:09.880 probably most worried that we see some pausing of that 0:14:10.000 --> 0:14:12.720 economic momentum over the last over the next two months, 0:14:12.840 --> 0:14:15.839 especially in the US, where you have seen a worse 0:14:16.000 --> 0:14:19.440 COVID dynamic than our initial forecast expected. So, Andrew, what 0:14:19.520 --> 0:14:22.400 to find interesting about the thinking of more Can Stanley 0:14:22.440 --> 0:14:24.600 at the moment is that even if the recovery slows, 0:14:24.600 --> 0:14:27.160 so long as the momentum is positive and things go 0:14:27.200 --> 0:14:30.280 in the right direction, you think that sufficient for risk. 0:14:30.680 --> 0:14:33.560 Andrew Y, Well, I do think, you know, I think 0:14:33.560 --> 0:14:36.080 a couple of factors are going on. I think first 0:14:36.200 --> 0:14:38.600 is I think we kind of step back, and especially 0:14:38.680 --> 0:14:41.000 kind of step back from from the next month or so. 0:14:41.080 --> 0:14:43.480 I think I think big picture, I think we're still 0:14:43.520 --> 0:14:49.000 seeing a lot of relatively encouraging early cycle dynamics in 0:14:49.040 --> 0:14:52.120 the market. You have very easy policy, you have weak 0:14:52.200 --> 0:14:56.760 but improving data, you have relatively light investor positioning. You know, 0:14:56.800 --> 0:14:59.560 I think a reasonable amount of investor caution. These are all, 0:14:59.600 --> 0:15:02.760 I think aacteristics that are very common, you know, during 0:15:03.080 --> 0:15:05.800 or right after recessions, and I think that they ultimately 0:15:05.840 --> 0:15:07.600 mean that I think the recovery that we're seeing is 0:15:08.200 --> 0:15:11.160 going to be sustainable. That um, that this is not, 0:15:11.360 --> 0:15:13.920 you know, just a flash in the pan um. And 0:15:13.960 --> 0:15:16.480 so yes, I think the market that I would expect 0:15:16.560 --> 0:15:19.200 to have a more challenging environment over the next couple 0:15:19.240 --> 0:15:21.320 of months, but I think stepping back from that, a 0:15:21.360 --> 0:15:25.880 sustainable recovery, a very supportive policy response, I think relatively 0:15:26.000 --> 0:15:29.560 kind of balanced investor positioning. All I think argue that 0:15:29.640 --> 0:15:32.080 this will be ultimately be a sustainable recovery if we 0:15:32.120 --> 0:15:34.400 look out over the next six or twelve months. Six 0:15:34.480 --> 0:15:36.160 or twelve months is a long term and the short 0:15:36.240 --> 0:15:39.280 term we face a lot of volatility. President Trump is 0:15:39.280 --> 0:15:41.400 saying on Fox and Friends this morning that a big 0:15:41.520 --> 0:15:45.120 job number is coming on Friday, putting aside this sort 0:15:45.160 --> 0:15:48.520 of breaking with former protocol of presidents and people administration 0:15:48.600 --> 0:15:51.800 not talking about jobs data before it comes out. I'm 0:15:51.840 --> 0:15:55.080 curious about the trading activity or seeing yields on thirty 0:15:55.120 --> 0:15:58.120 year treasuries breaking out to the upside. Not much action 0:15:58.600 --> 0:16:02.360 in stock futures. How do you trade an upside surprise 0:16:02.440 --> 0:16:04.560 and labor data at this point? Does it just mean 0:16:04.840 --> 0:16:08.520 higher inflation and already baked into equities? Yeah? So, I 0:16:08.520 --> 0:16:10.800 I actually think, you know, the price action that we're 0:16:10.800 --> 0:16:14.800 seeing this morning, the price action that we saw on Monday, 0:16:14.880 --> 0:16:19.600 where you saw yields higher, yield curve steeper, and and 0:16:19.720 --> 0:16:22.040 market and equity markets higher, I think that's actually the 0:16:22.080 --> 0:16:25.360 much healthier dynamic. I think that's the much more normal dynamic. 0:16:25.440 --> 0:16:27.160 And and I think you know, we've done a lot 0:16:27.200 --> 0:16:29.520 of analysis that's all very consistent with the idea that 0:16:29.600 --> 0:16:33.520 markets are completely fine with the yields being higher uh 0:16:34.120 --> 0:16:37.240 many times, because those yields are rising in response to 0:16:37.360 --> 0:16:40.920 better economic optimism, and that better economic optimism can can 0:16:40.960 --> 0:16:44.160 easily offset challenges that might come from that slightly higher 0:16:44.160 --> 0:16:48.880 discount rate. So I actually don't see any uh inconsistency there. 0:16:48.880 --> 0:16:52.680 And I think actually the more abnormal environment is where 0:16:52.680 --> 0:16:56.240 we've been, where you've seen rising markets and really declining yields. 0:16:56.280 --> 0:16:58.800 I think that's much more unusual than the market often 0:16:58.800 --> 0:17:01.400 gives credit for the dynamic that we're seeing either this 0:17:01.440 --> 0:17:04.119 morning or or on Monday is a more normal, I 0:17:04.119 --> 0:17:07.119 think sustainable, robust dynamic for the market. And Andrew, this 0:17:07.160 --> 0:17:08.679 is one of the key narratives of the market right 0:17:08.680 --> 0:17:11.359 now that equities are pricing in optimism, that bond markets 0:17:11.359 --> 0:17:13.360 are simply ignoring, and that yields are going to rise, 0:17:13.359 --> 0:17:16.160 particularly on the longer end. But at what point does 0:17:16.160 --> 0:17:19.040 the rise and longer end yields lead to a sell 0:17:19.080 --> 0:17:21.679 off and equities based on the relative value argument that 0:17:21.720 --> 0:17:23.960 people say, where you're just there is no alternative and 0:17:24.000 --> 0:17:26.159 you've got to go into risk assets. Well, I I 0:17:26.440 --> 0:17:28.639 still think, I think big picture, I think we're actually 0:17:28.680 --> 0:17:30.640 still some ways away from that, you know. I think 0:17:30.840 --> 0:17:32.720 given where we are in the US, you know, ten 0:17:32.760 --> 0:17:35.560 year at at around fifty basis points, it certainly real 0:17:35.680 --> 0:17:38.399 yields as as you mentioned earlier, at minus a hundred 0:17:38.400 --> 0:17:41.040 basis points. I think, you know, I think you actually 0:17:41.080 --> 0:17:44.399 have you know, fifty fifty basis points plus. I think 0:17:44.440 --> 0:17:47.400 where those yields can go before you're I think generating 0:17:47.480 --> 0:17:50.399 you know, any sort of real valuation pressure and again 0:17:50.440 --> 0:17:52.840 that there's just an enormous amount of market history that 0:17:52.880 --> 0:17:57.760 if yields arising because of higher economic enthusiasm, then then 0:17:58.000 --> 0:18:00.680 you know, equity markets, credit markets can be completely fine 0:18:00.680 --> 0:18:02.720 with that. Now. I do think that dynamic you and 0:18:02.880 --> 0:18:05.639 you you mentioned though, could involve a major shift in 0:18:05.920 --> 0:18:09.080 leadership right because that the types of stocks that people 0:18:09.119 --> 0:18:11.200 are buying because they think yields will remain low for 0:18:11.240 --> 0:18:13.240 a very long period of time, I think are very 0:18:13.280 --> 0:18:15.919 different stocks than they would buy if they thought, actually 0:18:15.920 --> 0:18:18.320 the recovery was sustainable. Things are getting but maybe it 0:18:18.400 --> 0:18:20.520 might get back to normal next year, and I think 0:18:20.600 --> 0:18:22.840 that would be the big story that you've seen, you know, 0:18:22.920 --> 0:18:25.520 within the market this year, a huge divergence, a very 0:18:25.600 --> 0:18:28.439 kind of narrow market that I think a more sustainable, 0:18:28.760 --> 0:18:31.439 the more sustainable the recovery, the broader that should be, 0:18:31.480 --> 0:18:34.080 and I think it would drive potentially major leadership shifts 0:18:34.119 --> 0:18:36.760 both in the U S and globally and right to 0:18:36.800 --> 0:18:39.200 catch up. So Andre states for more constanley on the 0:18:39.280 --> 0:18:46.720 view there to reduce risk in the NIT right now, 0:18:47.000 --> 0:18:51.480 a really really important conversation if you're worried about the 0:18:51.520 --> 0:18:55.439 stresses of this pandemic Louisiana has been incredibly hit with 0:18:55.520 --> 0:19:00.280 a legitimate second spike in cases and deaths as well. 0:19:00.440 --> 0:19:04.040 They have the correct Senator to monitor his Louisiana and 0:19:04.080 --> 0:19:08.160 that is William Cassidy. Bill Cassidy, the Republican from Louisiana 0:19:08.200 --> 0:19:11.280 who long ago and far away studied medicine and long 0:19:11.320 --> 0:19:16.320 ago far away supported Mike Delcocus and Paul Sagas. Dr Cassidy, 0:19:16.320 --> 0:19:18.760 we are thrilled to have you with us today, and 0:19:18.800 --> 0:19:22.760 I want to speak about your Louisiana State University. They 0:19:22.800 --> 0:19:25.879 want to get their football season started, they want to 0:19:25.920 --> 0:19:30.080 open their college, and yet you have a pandemic. You're 0:19:30.119 --> 0:19:34.000 the expert on this in Congress. Should l s U 0:19:34.480 --> 0:19:38.199 have a football season? They're delay in the season and 0:19:38.440 --> 0:19:41.479 up until September. Obviously they're taking it as it should, 0:19:41.960 --> 0:19:45.800 but keep in mind, this pandemic may stay with us 0:19:45.840 --> 0:19:48.960 for another year or a year and a half. We're 0:19:49.080 --> 0:19:53.679 hoping vaccines become available. We don't know that. We're really 0:19:53.720 --> 0:19:57.560 asking ourselves, are we going to put everything on hold 0:19:57.600 --> 0:19:59.760 for a year and a half or are we gonna 0:19:59.800 --> 0:20:02.760 say you're out how to safely live with this and 0:20:02.800 --> 0:20:05.640 conduct our lives? I think we need to figure out 0:20:05.680 --> 0:20:08.200 how to safely live with it. It's going to take 0:20:08.240 --> 0:20:10.600 a lot of adjustment, but we have to figure out 0:20:11.480 --> 0:20:14.480 with it. Dr Cassidy our David Weston will be speaking 0:20:14.480 --> 0:20:17.560 with Dr Fauci here uh in a bit. Do you 0:20:17.640 --> 0:20:22.920 support Dr Faucci and Dr Berks's efforts on the pandemic. Yes. 0:20:23.280 --> 0:20:25.240 On the other hand, you can see that they have 0:20:25.400 --> 0:20:28.640 learned as they have gone along. I once asked Dr Fauci, 0:20:28.720 --> 0:20:31.520 do we really expect five and six year old not 0:20:31.600 --> 0:20:34.480 to go to school for another year? And within three 0:20:34.520 --> 0:20:37.080 weeks after considering, he goes No, they must go back 0:20:37.080 --> 0:20:40.560 to school. That is a wise decision. So we see 0:20:40.600 --> 0:20:44.240 the two of them evolving as we understand the scope 0:20:44.359 --> 0:20:47.480 of the epidemic. Senator, right now in Washington, d C. 0:20:47.760 --> 0:20:50.640 Everyone is focused on the idea of a second round 0:20:50.640 --> 0:20:53.359 of stimulus, of fiscal bailout for the states and local 0:20:53.400 --> 0:20:57.600 governments as the Democrats want. I'm wondering from the Republican standpoint, 0:20:57.640 --> 0:20:59.879 has the view shifted on the six hundred dollar and 0:21:00.000 --> 0:21:03.880 hands unemployment benefit extra benefit that people are getting based 0:21:03.880 --> 0:21:06.360 on the fact that President Trump has come out seemingly 0:21:06.359 --> 0:21:11.199 in support of that. So um Republicans in the Senate 0:21:11.320 --> 0:21:14.840 understand one, you have to support families through this rough patch. 0:21:15.400 --> 0:21:17.639 But if you pay people a lot more not to 0:21:17.720 --> 0:21:20.480 work than the work, that's a distance in it the work, 0:21:20.560 --> 0:21:23.399 and that's negative for the person, negative for their future 0:21:23.440 --> 0:21:27.560 employment possibilities, etcetera. Keep in mind some people, depending on 0:21:27.600 --> 0:21:32.760 your state, we're making two are more relative to what 0:21:32.880 --> 0:21:36.000 they would have earned a working now. That's not good 0:21:36.040 --> 0:21:38.360 for them. If you if you say that, oh wait, 0:21:38.400 --> 0:21:41.560 I'm not gonna work. Short term decision, that's wise. Long 0:21:41.680 --> 0:21:45.320 term you loose sen you already you lose your job skills. Statistically, 0:21:45.320 --> 0:21:48.040 the longer you're unemployed, the harder it is to render 0:21:48.119 --> 0:21:51.840 the workforce, the worse your life becomes. Sat Hold on 0:21:51.840 --> 0:21:55.040 one second there, because zealous FED President Robert Kaplan came 0:21:55.040 --> 0:21:57.159 on and said that he has heard from certain business 0:21:57.160 --> 0:21:59.720 officials that this is a concern that people aren't coming 0:21:59.760 --> 0:22:01.920 back to the workforce because of how much they're getting 0:22:01.920 --> 0:22:05.000 paid on unemployment. However, there is no data to support that, 0:22:05.040 --> 0:22:07.600 and he said in the long run, the increase in 0:22:07.600 --> 0:22:11.080