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Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you

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Speaker 1: along with my co host Lisa Brahma Wicks. Each day

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Speaker 1: we bring you the most noteworthy and useful interviews for

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Speaker 1: you and your money. Whether at the grocery store or

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Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple

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Speaker 1: podcast or wherever you listen to podcasts, as well as

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Speaker 1: at Bloomberg dot com. Paul this week starts the marking

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Speaker 1: period of are we seeing a hopium trade or is

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Speaker 1: there something real underpinning this. We're seeing a real beginning

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Speaker 1: of a of a reopening and a lot of people

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Speaker 1: gaining optimism that perhaps we will get a sharper rebound

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Speaker 1: than some people had expected. It's sort of a V

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Speaker 1: shaped recovery and in V shaped recovery expectations um Joining

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Speaker 1: us now to discuss Jim Bianco, President and founder of

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Speaker 1: Bianco Research based in Chicago, also a contributor to Bloomberg Opinion.

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Speaker 1: I love speaking with Jim. You always have a great

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Speaker 1: contrarian but apt view of multi asset class perspective, but

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Speaker 1: with a focus the bond market right now, what you're

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Speaker 1: seeing is it more hope than reality? I'm afraid that

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Speaker 1: there's a little bit more hope in here than the reality.

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Speaker 1: And here's why. If you go back to two thousand eight,

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Speaker 1: at the worst point of that recession, you had output

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Speaker 1: at nine of what it was in two thousand seven,

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Speaker 1: you only had a four percent contraction, and output um

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Speaker 1: in the Great Depression, you actually had a sevent of

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Speaker 1: the output that you had at high. If you go

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Speaker 1: with the consensus figures, we should have about an eleven

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Speaker 1: or twelve percent contraction at the end of the second quarter.

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Speaker 1: Then comes the rebound. Okay, we got to get back

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Speaker 1: to where we were. We gotta get back to night

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Speaker 1: and that's would just put us at a two thousand

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Speaker 1: eight type recession. We gotta get back to percent of

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Speaker 1: where we were to have a garden variety recession. So

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Speaker 1: when I look at things like the mobility numbers, the

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Speaker 1: open table numbers, the consumption of gasoline numbers, these numbers

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Speaker 1: are nowhere near getting back to just two percent of

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Speaker 1: where they were in January. There's still twenty or thirty

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Speaker 1: percent below. And I'm worried that we're not going to

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Speaker 1: get all the way back. And I'll give you one

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Speaker 1: more um uh statistics Yesterday we had two point one

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Speaker 1: million people file for initial unemployment claims. If you add

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Speaker 1: in the pandemic insurance for the gig workers, it's more

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Speaker 1: like three million. And I got this from Mike McKee.

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Speaker 1: He tweeted this out yesterday. Look, we're ten weeks into

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Speaker 1: the pandemic, and last week the Connecticut became the fiftieth

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Speaker 1: state to be in some stage of restarting their economy.

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Speaker 1: If we still had two million people file for claims

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Speaker 1: last week when everybody restarted, those are probably permanently lost jobs.

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Speaker 1: Those are probably not temporarily furlough jobs because of the

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Speaker 1: pandemic that happened leer in the pandemic. That really leads

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Speaker 1: up me to believe, yeah, we'll get back to where

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Speaker 1: we were. But that's still a bad recession, and I

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Speaker 1: think that's gonna be a big disappointment for a lot

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Speaker 1: of people. So, Jim, I guess a new term for

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Speaker 1: me and for many UH investors this week was yield

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Speaker 1: curve control. What does yield curve control? Me to you,

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Speaker 1: and you think it's a good idea slash strategy, yield

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Speaker 1: curve control, it goes by another phrase called price fixing.

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Speaker 1: That's the price they set the price. They've already done

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Speaker 1: it on the front end of the yeld curve. They

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Speaker 1: set it at zero, and now we're talking about them

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Speaker 1: setting the price further out the yeld curve, and then

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Speaker 1: they would say with their balance sheet they would use

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Speaker 1: it in an unlimited way. Hopefully wouldn't be unlimited, that

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Speaker 1: they would ensure that that price would be set. Price

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Speaker 1: fixing has never worked. Now to be charitable about it,

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Speaker 1: the day you set the price is probably close to

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Speaker 1: the proper value um, just like Japan did in two

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Speaker 1: thousand and sixteen when they set the price of their

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Speaker 1: tenure yield at zero. But then over time, the economy will,

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Speaker 1: you know, expand contract investor preferences will change, things will

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Speaker 1: be different, But what won't change is the interest rate

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Speaker 1: that will be the same every single day, and eventually,

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Speaker 1: over time it becomes the wrong interest rate and it

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Speaker 1: winds up causing more problems than it's worth. So I'm

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Speaker 1: very worried. I think if the FED words to study

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Speaker 1: the Japanese example of yield curve control, or the example

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Speaker 1: that they did during World War two from seven they

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Speaker 1: did yield curve control, it largely didn't work. But yet

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Speaker 1: I think the reason they're doing it is because they

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Speaker 1: don't want to go to negative interest rates, another scheme

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Speaker 1: that doesn't work, and this one is kind of like

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Speaker 1: a negative interest rates light, you know, and it just

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Speaker 1: gets them to be able to say that they're doing something,

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Speaker 1: but they're not doing the draconian thing of negative interest rates.

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Speaker 1: But nevertheless, it's still not a good policy, and I

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Speaker 1: hope that they don't follow through on it. Well's showing

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Speaker 1: the limits of monetary policy at a time when people

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Speaker 1: are saying fiscal policy is necessary. And we've gotten that,

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Speaker 1: and this was evident in the consumer income numbers that

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Speaker 1: we received today, where we actually saw saw incomes rise

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Speaker 1: by ten and a half percent in April, people attributing

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Speaker 1: this to the enhanced unemployment benefits. When will we start

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Speaker 1: to see this in spending which actually was worse than expectations.

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Speaker 1: We're seeing people put this money in savings or by

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Speaker 1: basic necessities, but it really isn't bleeding into overall consumption yet. Yeah,

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Speaker 1: you know what's consistent with that. Number two is the

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Speaker 1: University of Chicago study that said scent of the people

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Speaker 1: that are now getting unemployment insurance, and remember there's an

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Speaker 1: extra six hundred dollars a week from the federal government.

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Speaker 1: In there are actually making more money off of unemployment

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Speaker 1: insurance than they did in their job, and that's what

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Speaker 1: you see in those personal consumption numbers. I think really

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Speaker 1: the reason that you're seeing the spending is are the

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Speaker 1: spending not kick in is we know that that's going

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Speaker 1: to end in a couple of months unless it's renewed. Uh.

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Speaker 1: And so yeah, I'm you know, I'm I'm happy that

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Speaker 1: I'm getting more money on unemployment than I didn't, uh,

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Speaker 1: than when I was working. But I know that that's

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Speaker 1: not forever. And I think once there's a permanent resolution

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Speaker 1: to that, either it gets extended for a long period

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Speaker 1: of time or doesn't, is going to determine how people spend. Hey, Jim,

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Speaker 1: thanks much for joining us. We always appreciate your perspective.

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Speaker 1: Jim Bianco, President and founder Bianco Research. Jim is also

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Speaker 1: a contributor to Bloomberger Opinion, giving us his thoughts on

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Speaker 1: kind of the FED, the economy, and what is to

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Speaker 1: come for the US economy. This is Bloomberg Markets with

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Speaker 1: Lisa A. Bramoeds and Paul's Wheeney on Bloomberg Radio. While

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Speaker 1: we are awaiting a press conference from President Trump sometime

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Speaker 1: later today. One of the many topics likely to be

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Speaker 1: addressed will be the rising tensions between the US and China.

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Speaker 1: Whenever we want to get smart on China, we welcome

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Speaker 1: our guest, Leland Miller. Leland is the CEO of China

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Speaker 1: Basebook International. So, Leland, I hate to put you on

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Speaker 1: the spot. What do you think we could possibly hear

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Speaker 1: from President Trump today as it relates to the current

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Speaker 1: state of US Chinese relations. Well, look, the issue of

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Speaker 1: the day is Hong Kong, and I think it's important

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Speaker 1: to understand the landscape has changed dramatically over the past

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Speaker 1: several weeks. So, first, Beijing pushed through Article twenty three

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Speaker 1: uh sedition laws in Hong Kong. It's a process, but

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Speaker 1: they've announced it's happening. It's coming out of the National

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Speaker 1: People's Congress. The State Department, the U S State Department

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Speaker 1: has responded by the certifying Hong Kong as an autonomous

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Speaker 1: entity uh SO, saying there's no difference between Hong Kong

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Speaker 1: and China based on its review. What this is essentially

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Speaker 1: done is is set the two sides up to see

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Speaker 1: how much is this going to escalate and President Trump

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Speaker 1: has as president today, he's going to UH layout the

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Speaker 1: fact that that the situation has changed. The United States

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Speaker 1: is prepared to to escalate in some dramatic ways if

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Speaker 1: it's these Hong Kong changed dramatically on the ground. But

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Speaker 1: I think right now you're at a point in which

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Speaker 1: each side is looking at each other and saying, we're

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Speaker 1: going to see how bad this gets, and we're going

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Speaker 1: to react based on some of the realities on the

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Speaker 1: ground rather than rather than the initial step of of

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Speaker 1: the laws going into effect. What are some of the

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Speaker 1: USS options in getting tough with China right now? Well, look,

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Speaker 1: you can you have nuclear options that the the White

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Speaker 1: House is is not ready to go to. But I

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Speaker 1: think the more realistic ones are requirement and leads a

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Speaker 1: requirement changes. UH. There's a lot of worries about extradition,

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Speaker 1: UM and and and ways of the Chinese will take

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Speaker 1: advantage of the new laws to basically disappear people that

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Speaker 1: needs to the extraditions and major topic. UH. Sanctions are

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Speaker 1: going to be on the table, particularly financial sanctions. And

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Speaker 1: then of course tariffs are looming in the background. You know,

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Speaker 1: the President loves tariffs. This doesn't mean they're ready to

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Speaker 1: actually uh commit to to hiking tariffs and and to

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Speaker 1: revoking special status. Uh they don't appear to be there yet,

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Speaker 1: but it means that the president has to lay out

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Speaker 1: the landscape, here's what we've got on the table, and

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Speaker 1: then sort of bait their Beijing to to behave within

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Speaker 1: then the construct of the new system leland with any

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Speaker 1: sense of why China is taking this harder more, uh

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Speaker 1: sterner stands towards Hong Kong right now? Is there anything

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Speaker 1: unique in the in the timing here. Yeah, you know,

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Speaker 1: it's there's a there's a tendency to look at everything

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Speaker 1: through the US China leads, and and it's not that

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Speaker 1: they're even't a US China angle here, but this is basically, uh,

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Speaker 1: a reaction to Hong Kong's domestic political schedule. You have,

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Speaker 1: you have legislative Council elections in September, and if those proceed,

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Speaker 1: pro Beijing forces are going to get demolished. So Beijing

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Speaker 1: had an option of either postponing or suspending or getting

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Speaker 1: rid of those elections, or else moving in the summer

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Speaker 1: window to push forward Article twenty three, which will essentially

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Speaker 1: make it illegal to do anything promoting secessions. Addition, treason

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Speaker 1: gives them wide uh, you know, a wide variety of

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Speaker 1: options to be able to ensure that people they don't

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Speaker 1: like don't rise to power in Hong Kong. So this

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Speaker 1: is their window. They're moving on it. It just happens

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Speaker 1: to be the very critical time in the US China

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Speaker 1: relationship as well. So everything is a reaction everything else.

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Speaker 1: You said it earlier, and you said this number of

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Speaker 1: times that you think that the Phase one trade deal

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Speaker 1: is going to get torpedoed later this year. We were

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Speaker 1: speaking with a number of people from the Trump administration.

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Speaker 1: That doesn't seem to be on the table right now.

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Speaker 1: There seems to be a cautiousness about going that route.

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Speaker 1: What do you think would make that change? Well, I

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Speaker 1: think the reality on the ground is the Chinese can't

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Speaker 1: live up to the terms of the deal. And you

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Speaker 1: can say that some of its COVID or a lot

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Speaker 1: of its COVID. Uh, you could say part of it

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Speaker 1: was an unrealistic deal. But going into the fall, we're

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Speaker 1: entering the most toxic period in US China relations since

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Speaker 1: its Tenement Square is back in. I think things are

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Speaker 1: gonna get really, really tough and As a result, it's

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Speaker 1: gonna be very difficult for the President to stick by

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Speaker 1: a deal, particularly with the Chinese, particularly when they're not

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Speaker 1: adhering to most of it. They're hitting some targets, they

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Speaker 1: may even exceed a few targets on the agricultural side,

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Speaker 1: but in order to back the deal, the President is

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Speaker 1: going to have a lot of pressure on him to

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Speaker 1: to to to condemn the Chinese and will walk away

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Speaker 1: from it. And I think that sooner rather than later.

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Speaker 1: That actually gets to it's interesting Leland, I think real quickly.

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Speaker 1: My question, I guess is just one. Is there really

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Speaker 1: anything that we can do to prevent Hong Kong from

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Speaker 1: really becoming a significantly a part of China and really

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Speaker 1: lose It's it's an independence in internationalism. Uh No, we

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Speaker 1: have no way of stopping what's happening, but we can

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Speaker 1: affect how it looks. So one of the reasons why

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Speaker 1: I wouldn't expect to see the full range of options

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Speaker 1: laid out today, or at least uh pushed out today,

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Speaker 1: how aggressively the Chinese act in Hong Kong, even if

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Speaker 1: when Article twenty three is a reality on the ground.

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Speaker 1: If people are disappearing left and right, particularly you know,

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Speaker 1: next week is a tenement UH anniversary. UH. That will

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Speaker 1: be extremely incendiary. If this law applies retroactively, it would

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Speaker 1: be it would encompass all the people who can participate

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Speaker 1: in democracy protests for the last couple of years. It

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Speaker 1: would be extremely incendiary. Really worry people on the ground

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Speaker 1: in Hong Kong, even more so than than than in

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Speaker 1: this case. Now. So the United States, by keeping active,

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Speaker 1: by keeping aggressive, but keeping its options open, can affect

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Speaker 1: the way this plays out on the ground. It can't

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Speaker 1: reverse it, but can affect how it looks, you know,

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Speaker 1: six months or a year from now. Leland Miller, thank

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Speaker 1: you so much for being with us. As always, your

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Speaker 1: insights are incredibly valuable. Leland Miller, chief executive Officer of

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Speaker 1: China beige Book International. This is Bloomberg Markets with Lisa

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Speaker 1: Ramowitz and Paul Sweeney on Bloomberg Radio. The market has

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Speaker 1: been buffeted recently by a series of economic data that

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Speaker 1: show a brutal reality, as well as the incredible policy

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Speaker 1: response that has fueled optimism in markets, and now increasingly

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Speaker 1: a focus on growing tensions between the US and China.

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Speaker 1: There is no one better to speak about all of

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Speaker 1: these things in the intersection of them, the Nathan Sheets,

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Speaker 1: chief economist and head of macroeconomic research at PIGEM Fixed

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Speaker 1: Income with more than eight hundred billion dollars under management,

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Speaker 1: who has worked at the FED working on some of

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Speaker 1: these emergency programs during the last financial crisis, as well

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Speaker 1: as in the Treasury Department, working internationally with a front

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Speaker 1: eye view in the possible issues that may arise there. Nathan,

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Speaker 1: thank you so much for being with us. We have

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Speaker 1: talked so much about the policy response. I want to

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Speaker 1: shift gears in terms of the US's response to China

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Speaker 1: and from a financial perspective, how worried market watchers should

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Speaker 1: be about the escalating tensions right now between the U

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Speaker 1: S and China. The US China relationship is clearly a

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Speaker 1: first order risk for the economy and for the markets.

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Speaker 1: I think we saw last year with the trade war,

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Speaker 1: and I think that this escalation and the tensions between

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Speaker 1: the United States and China UH that we're seeing in

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Speaker 1: recent weeks here also holds some very significant rest we

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Speaker 1: need to worry about. UH. Now, my expectation is the

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Speaker 1: President Trump is going to try to keep this mainly

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Speaker 1: in the field of rhetoric between now and the election,

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Speaker 1: but the possibility that he missteps, the possibility that Congress

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Speaker 1: forces his hand, or the possibility that the Chinese react

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Speaker 1: more vigorously than what the administration is expecting. I think

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Speaker 1: all of those possibilities um wold meaningful risks, and I

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Speaker 1: think our our our concrete uh, you know, risks that

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Speaker 1: we need to be thinking hard about as we as

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Speaker 1: we consider the markets over the next six months. All right,

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Speaker 1: so we've got that to worry about it. But we

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Speaker 1: also have the reopening, if you will, Nathan of America.

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Speaker 1: It's kind of on a state by state basis, region

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Speaker 1: by region basis. What is your expectation for how this

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Speaker 1: reopening goes and what it might mean for economic economic

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Speaker 1: activity and a potential rebound later in the year. So

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Speaker 1: I am persuaded that the geographical diversity and heterogeneity that

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Speaker 1: you described that different regions are opening up at different

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Speaker 1: paces is likely to be a feature of the US

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Speaker 1: economy that is somewhat supportive of recovery. And to emphasize that,

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Speaker 1: I think right now much of the industrial northeast of

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Speaker 1: the country is still pretty well locked down, but there

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Speaker 1: are broad swaths of the south, the Midwest, and the

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Speaker 1: western part of the country where the economy is moving

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Speaker 1: back toward normal at a pretty pretty rapid rate. So

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Speaker 1: when I put all of this together, it gives me

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Speaker 1: maybe a little bit more confidence than I had a

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Speaker 1: few weeks ago that the US economy is going to

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Speaker 1: be able to achieve a gradual U shaped recovery. I

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Speaker 1: don't expect the level of GDP to be back to

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Speaker 1: where it was at the end of two thousand nineteen

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Speaker 1: until a well ended but I think a gradual recovery

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Speaker 1: growth in the second half of the year is is

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Speaker 1: a pretty reasonable baseline, and I think it's the one

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Speaker 1: that's being priced in UH in UH in the markets

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Speaker 1: at this stage. The hallmark of this downturn is the

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Speaker 1: unemployment rate, which has been so ching and may reach

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Speaker 1: with some expect to this month and figures that come

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Speaker 1: out next Friday, a week from today. I'm struggling to

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Speaker 1: understand the skills gap that emerges and how we closed

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Speaker 1: at the idea that a lot of these jobs will

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Speaker 1: not come back in the same form and that people

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Speaker 1: will have to get rehired in new roles that require

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Speaker 1: new skills. How long do you think that takes and

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Speaker 1: what could speed it up? In in my view, the

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Speaker 1: three big questions that characterize this UH this recovery, and

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Speaker 1: I think frame the risks around them or first, UH,

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Speaker 1: what happens with the virus? Second, what happens in terms

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Speaker 1: of psychology of of consumers? And the third one is

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Speaker 1: is exactly this issue that you're highlighting through this period

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Speaker 1: to what extent has the underlying structure of the economy

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Speaker 1: been damaged? How many workers are there that are not

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Speaker 1: going to be able to go back to their jobs

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Speaker 1: and their skills are diminishing. How many firms that were

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Speaker 1: previous to sleep productive will now be bankrupt and as

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Speaker 1: a result of that, unable to produce. I think it

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Speaker 1: is very much The answer is very much an open issue.

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Speaker 1: But I think what we can say is the faster

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Speaker 1: we're able to get back, the better the virus proceeds,

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Speaker 1: that the less damage will see over the medium to

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Speaker 1: long run UH in the economy. I think the other

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Speaker 1: point that's important here is I think that the stimulus

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Speaker 1: that the Fed and in Congress have put in place

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Speaker 1: will also help buffer the downside and help drive a

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Speaker 1: stronger recovery than might occur otherwise. So I guess I

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Speaker 1: would say I'm cautiously optimistic that we won't see long

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Speaker 1: live damage, but we're still in a place where there's

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Speaker 1: a lot of uncertainty surrounding those assessments. Nathan, you mentioned

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Speaker 1: fiscal stimulus. We've gotten a couple of rounds so far.

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Speaker 1: I guess the the next one eventually might be something

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Speaker 1: along the lines at the House pass the three trillion

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Speaker 1: dollar stimulus bill. How important is another round the fiscal stimulus,

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Speaker 1: particularly one that focuses on states and local municipalities as

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Speaker 1: many governors have called for. So I I do expect

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Speaker 1: that we will see another fiscal stimulus bill. I think

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Speaker 1: that he needs to replenish the p p P program

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Speaker 1: for the small businesses, to extend the unemployment benefits, and

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Speaker 1: as you say, to do something for the standard local governments.

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Speaker 1: I think that that is UH will be compelling and

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Speaker 1: Congress will see that as something that is is unavoidable.

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Speaker 1: That said, I don't think we're going to see a

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Speaker 1: three trillion dollar package. My guess is there would be

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Speaker 1: more in the one to one and a half trillion

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Speaker 1: dollar range UH, and I would expect that Congress would

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Speaker 1: approve that probably late June or into the first half

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Speaker 1: of July. Nathan twenty seconds. I'm just wondering. Right now

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Speaker 1: we're seeing a FED balance sheet at seven point one

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Speaker 1: trillion dollars. Where do you think it gets by the

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Speaker 1: end of the year. Well, I think it's going to

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Speaker 1: be probably close to ten trillion, a little bit below that.

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Speaker 1: But you know what we're seeing now is market stabilization, Quewie.

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Speaker 1: I think come the middle of the year we're going

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Speaker 1: to see monetary policy of it with the focus on

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Speaker 1: the dual mandate, and that the FAT is going to

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Speaker 1: be buying so close to ten trillion by the end

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Speaker 1: of the year, and uh, you know who knows in

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Speaker 1: coming years. Nathan, Thanks so much for joining us. We

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Speaker 1: always appreciate your insights. Nathan Sheet's chief economists ahead of

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Speaker 1: macro economic research at JIM Fixed Income, based in Newark,

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Speaker 1: New Jersey. Thanks for listening to the Bloomberg pan L podcast.

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Speaker 1: You can subscribe and listen to interviews at Apple Podcasts

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Speaker 1: or whatever podcast platform you prefer. Paul Sweeney, I'm on

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Speaker 1: Twitter at p T. Sweeney. I'm Lisa abram Woy. It's

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Speaker 1: I'm on Twitter at Lisa A. Bramwoit's one before the podcast.

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Speaker 1: You can always catch us worldwide on'm Bloomberg radioh