Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you
Speaker 1: along with my co host Lisa Brahma Wicks. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money. Whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. Paul this week starts the marking
Speaker 1: period of are we seeing a hopium trade or is
Speaker 1: there something real underpinning this. We're seeing a real beginning
Speaker 1: of a of a reopening and a lot of people
Speaker 1: gaining optimism that perhaps we will get a sharper rebound
Speaker 1: than some people had expected. It's sort of a V
Speaker 1: shaped recovery and in V shaped recovery expectations um Joining
Speaker 1: us now to discuss Jim Bianco, President and founder of
Speaker 1: Bianco Research based in Chicago, also a contributor to Bloomberg Opinion.
Speaker 1: I love speaking with Jim. You always have a great
Speaker 1: contrarian but apt view of multi asset class perspective, but
Speaker 1: with a focus the bond market right now, what you're
Speaker 1: seeing is it more hope than reality? I'm afraid that
Speaker 1: there's a little bit more hope in here than the reality.
Speaker 1: And here's why. If you go back to two thousand eight,
Speaker 1: at the worst point of that recession, you had output
Speaker 1: at nine of what it was in two thousand seven,
Speaker 1: you only had a four percent contraction, and output um
Speaker 1: in the Great Depression, you actually had a sevent of
Speaker 1: the output that you had at high. If you go
Speaker 1: with the consensus figures, we should have about an eleven
Speaker 1: or twelve percent contraction at the end of the second quarter.
Speaker 1: Then comes the rebound. Okay, we got to get back
Speaker 1: to where we were. We gotta get back to night
Speaker 1: and that's would just put us at a two thousand
Speaker 1: eight type recession. We gotta get back to percent of
Speaker 1: where we were to have a garden variety recession. So
Speaker 1: when I look at things like the mobility numbers, the
Speaker 1: open table numbers, the consumption of gasoline numbers, these numbers
Speaker 1: are nowhere near getting back to just two percent of
Speaker 1: where they were in January. There's still twenty or thirty
Speaker 1: percent below. And I'm worried that we're not going to
Speaker 1: get all the way back. And I'll give you one
Speaker 1: more um uh statistics Yesterday we had two point one
Speaker 1: million people file for initial unemployment claims. If you add
Speaker 1: in the pandemic insurance for the gig workers, it's more
Speaker 1: like three million. And I got this from Mike McKee.
Speaker 1: He tweeted this out yesterday. Look, we're ten weeks into
Speaker 1: the pandemic, and last week the Connecticut became the fiftieth
Speaker 1: state to be in some stage of restarting their economy.
Speaker 1: If we still had two million people file for claims
Speaker 1: last week when everybody restarted, those are probably permanently lost jobs.
Speaker 1: Those are probably not temporarily furlough jobs because of the
Speaker 1: pandemic that happened leer in the pandemic. That really leads
Speaker 1: up me to believe, yeah, we'll get back to where
Speaker 1: we were. But that's still a bad recession, and I
Speaker 1: think that's gonna be a big disappointment for a lot
Speaker 1: of people. So, Jim, I guess a new term for
Speaker 1: me and for many UH investors this week was yield
Speaker 1: curve control. What does yield curve control? Me to you,
Speaker 1: and you think it's a good idea slash strategy, yield
Speaker 1: curve control, it goes by another phrase called price fixing.
Speaker 1: That's the price they set the price. They've already done
Speaker 1: it on the front end of the yeld curve. They
Speaker 1: set it at zero, and now we're talking about them
Speaker 1: setting the price further out the yeld curve, and then
Speaker 1: they would say with their balance sheet they would use
Speaker 1: it in an unlimited way. Hopefully wouldn't be unlimited, that
Speaker 1: they would ensure that that price would be set. Price
Speaker 1: fixing has never worked. Now to be charitable about it,
Speaker 1: the day you set the price is probably close to
Speaker 1: the proper value um, just like Japan did in two
Speaker 1: thousand and sixteen when they set the price of their
Speaker 1: tenure yield at zero. But then over time, the economy will,
Speaker 1: you know, expand contract investor preferences will change, things will
Speaker 1: be different, But what won't change is the interest rate
Speaker 1: that will be the same every single day, and eventually,
Speaker 1: over time it becomes the wrong interest rate and it
Speaker 1: winds up causing more problems than it's worth. So I'm
Speaker 1: very worried. I think if the FED words to study
Speaker 1: the Japanese example of yield curve control, or the example
Speaker 1: that they did during World War two from seven they
Speaker 1: did yield curve control, it largely didn't work. But yet
Speaker 1: I think the reason they're doing it is because they
Speaker 1: don't want to go to negative interest rates, another scheme
Speaker 1: that doesn't work, and this one is kind of like
Speaker 1: a negative interest rates light, you know, and it just
Speaker 1: gets them to be able to say that they're doing something,
Speaker 1: but they're not doing the draconian thing of negative interest rates.
Speaker 1: But nevertheless, it's still not a good policy, and I
Speaker 1: hope that they don't follow through on it. Well's showing
Speaker 1: the limits of monetary policy at a time when people
Speaker 1: are saying fiscal policy is necessary. And we've gotten that,
Speaker 1: and this was evident in the consumer income numbers that
Speaker 1: we received today, where we actually saw saw incomes rise
Speaker 1: by ten and a half percent in April, people attributing
Speaker 1: this to the enhanced unemployment benefits. When will we start
Speaker 1: to see this in spending which actually was worse than expectations.
Speaker 1: We're seeing people put this money in savings or by
Speaker 1: basic necessities, but it really isn't bleeding into overall consumption yet. Yeah,
Speaker 1: you know what's consistent with that. Number two is the
Speaker 1: University of Chicago study that said scent of the people
Speaker 1: that are now getting unemployment insurance, and remember there's an
Speaker 1: extra six hundred dollars a week from the federal government.
Speaker 1: In there are actually making more money off of unemployment
Speaker 1: insurance than they did in their job, and that's what
Speaker 1: you see in those personal consumption numbers. I think really
Speaker 1: the reason that you're seeing the spending is are the
Speaker 1: spending not kick in is we know that that's going
Speaker 1: to end in a couple of months unless it's renewed. Uh.
Speaker 1: And so yeah, I'm you know, I'm I'm happy that
Speaker 1: I'm getting more money on unemployment than I didn't, uh,
Speaker 1: than when I was working. But I know that that's
Speaker 1: not forever. And I think once there's a permanent resolution
Speaker 1: to that, either it gets extended for a long period
Speaker 1: of time or doesn't, is going to determine how people spend. Hey, Jim,
Speaker 1: thanks much for joining us. We always appreciate your perspective.
Speaker 1: Jim Bianco, President and founder Bianco Research. Jim is also
Speaker 1: a contributor to Bloomberger Opinion, giving us his thoughts on
Speaker 1: kind of the FED, the economy, and what is to
Speaker 1: come for the US economy. This is Bloomberg Markets with
Speaker 1: Lisa A. Bramoeds and Paul's Wheeney on Bloomberg Radio. While
Speaker 1: we are awaiting a press conference from President Trump sometime
Speaker 1: later today. One of the many topics likely to be
Speaker 1: addressed will be the rising tensions between the US and China.
Speaker 1: Whenever we want to get smart on China, we welcome
Speaker 1: our guest, Leland Miller. Leland is the CEO of China
Speaker 1: Basebook International. So, Leland, I hate to put you on
Speaker 1: the spot. What do you think we could possibly hear
Speaker 1: from President Trump today as it relates to the current
Speaker 1: state of US Chinese relations. Well, look, the issue of
Speaker 1: the day is Hong Kong, and I think it's important
Speaker 1: to understand the landscape has changed dramatically over the past
Speaker 1: several weeks. So, first, Beijing pushed through Article twenty three
Speaker 1: uh sedition laws in Hong Kong. It's a process, but
Speaker 1: they've announced it's happening. It's coming out of the National
Speaker 1: People's Congress. The State Department, the U S State Department
Speaker 1: has responded by the certifying Hong Kong as an autonomous
Speaker 1: entity uh SO, saying there's no difference between Hong Kong
Speaker 1: and China based on its review. What this is essentially
Speaker 1: done is is set the two sides up to see
Speaker 1: how much is this going to escalate and President Trump
Speaker 1: has as president today, he's going to UH layout the
Speaker 1: fact that that the situation has changed. The United States
Speaker 1: is prepared to to escalate in some dramatic ways if
Speaker 1: it's these Hong Kong changed dramatically on the ground. But
Speaker 1: I think right now you're at a point in which
Speaker 1: each side is looking at each other and saying, we're
Speaker 1: going to see how bad this gets, and we're going
Speaker 1: to react based on some of the realities on the
Speaker 1: ground rather than rather than the initial step of of
Speaker 1: the laws going into effect. What are some of the
Speaker 1: USS options in getting tough with China right now? Well, look,
Speaker 1: you can you have nuclear options that the the White
Speaker 1: House is is not ready to go to. But I
Speaker 1: think the more realistic ones are requirement and leads a
Speaker 1: requirement changes. UH. There's a lot of worries about extradition,
Speaker 1: UM and and and ways of the Chinese will take
Speaker 1: advantage of the new laws to basically disappear people that
Speaker 1: needs to the extraditions and major topic. UH. Sanctions are
Speaker 1: going to be on the table, particularly financial sanctions. And
Speaker 1: then of course tariffs are looming in the background. You know,
Speaker 1: the President loves tariffs. This doesn't mean they're ready to
Speaker 1: actually uh commit to to hiking tariffs and and to
Speaker 1: revoking special status. Uh they don't appear to be there yet,
Speaker 1: but it means that the president has to lay out
Speaker 1: the landscape, here's what we've got on the table, and
Speaker 1: then sort of bait their Beijing to to behave within
Speaker 1: then the construct of the new system leland with any
Speaker 1: sense of why China is taking this harder more, uh
Speaker 1: sterner stands towards Hong Kong right now? Is there anything
Speaker 1: unique in the in the timing here. Yeah, you know,
Speaker 1: it's there's a there's a tendency to look at everything
Speaker 1: through the US China leads, and and it's not that
Speaker 1: they're even't a US China angle here, but this is basically, uh,
Speaker 1: a reaction to Hong Kong's domestic political schedule. You have,
Speaker 1: you have legislative Council elections in September, and if those proceed,
Speaker 1: pro Beijing forces are going to get demolished. So Beijing
Speaker 1: had an option of either postponing or suspending or getting
Speaker 1: rid of those elections, or else moving in the summer
Speaker 1: window to push forward Article twenty three, which will essentially
Speaker 1: make it illegal to do anything promoting secessions. Addition, treason
Speaker 1: gives them wide uh, you know, a wide variety of
Speaker 1: options to be able to ensure that people they don't
Speaker 1: like don't rise to power in Hong Kong. So this
Speaker 1: is their window. They're moving on it. It just happens
Speaker 1: to be the very critical time in the US China
Speaker 1: relationship as well. So everything is a reaction everything else.
Speaker 1: You said it earlier, and you said this number of
Speaker 1: times that you think that the Phase one trade deal
Speaker 1: is going to get torpedoed later this year. We were
Speaker 1: speaking with a number of people from the Trump administration.
Speaker 1: That doesn't seem to be on the table right now.
Speaker 1: There seems to be a cautiousness about going that route.
Speaker 1: What do you think would make that change? Well, I
Speaker 1: think the reality on the ground is the Chinese can't
Speaker 1: live up to the terms of the deal. And you
Speaker 1: can say that some of its COVID or a lot
Speaker 1: of its COVID. Uh, you could say part of it
Speaker 1: was an unrealistic deal. But going into the fall, we're
Speaker 1: entering the most toxic period in US China relations since
Speaker 1: its Tenement Square is back in. I think things are
Speaker 1: gonna get really, really tough and As a result, it's
Speaker 1: gonna be very difficult for the President to stick by
Speaker 1: a deal, particularly with the Chinese, particularly when they're not
Speaker 1: adhering to most of it. They're hitting some targets, they
Speaker 1: may even exceed a few targets on the agricultural side,
Speaker 1: but in order to back the deal, the President is
Speaker 1: going to have a lot of pressure on him to
Speaker 1: to to to condemn the Chinese and will walk away
Speaker 1: from it. And I think that sooner rather than later.
Speaker 1: That actually gets to it's interesting Leland, I think real quickly.
Speaker 1: My question, I guess is just one. Is there really
Speaker 1: anything that we can do to prevent Hong Kong from
Speaker 1: really becoming a significantly a part of China and really
Speaker 1: lose It's it's an independence in internationalism. Uh No, we
Speaker 1: have no way of stopping what's happening, but we can
Speaker 1: affect how it looks. So one of the reasons why
Speaker 1: I wouldn't expect to see the full range of options
Speaker 1: laid out today, or at least uh pushed out today,
Speaker 1: is that the United States has an ability to affect
Speaker 1: how aggressively the Chinese act in Hong Kong, even if
Speaker 1: when Article twenty three is a reality on the ground.
Speaker 1: If people are disappearing left and right, particularly you know,
Speaker 1: next week is a tenement UH anniversary. UH. That will
Speaker 1: be extremely incendiary. If this law applies retroactively, it would
Speaker 1: be it would encompass all the people who can participate
Speaker 1: in democracy protests for the last couple of years. It
Speaker 1: would be extremely incendiary. Really worry people on the ground
Speaker 1: in Hong Kong, even more so than than than in
Speaker 1: this case. Now. So the United States, by keeping active,
Speaker 1: by keeping aggressive, but keeping its options open, can affect
Speaker 1: the way this plays out on the ground. It can't
Speaker 1: reverse it, but can affect how it looks, you know,
Speaker 1: six months or a year from now. Leland Miller, thank
Speaker 1: you so much for being with us. As always, your
Speaker 1: insights are incredibly valuable. Leland Miller, chief executive Officer of
Speaker 1: China beige Book International. This is Bloomberg Markets with Lisa
Speaker 1: Ramowitz and Paul Sweeney on Bloomberg Radio. The market has
Speaker 1: been buffeted recently by a series of economic data that
Speaker 1: show a brutal reality, as well as the incredible policy
Speaker 1: response that has fueled optimism in markets, and now increasingly
Speaker 1: a focus on growing tensions between the US and China.
Speaker 1: There is no one better to speak about all of
Speaker 1: these things in the intersection of them, the Nathan Sheets,
Speaker 1: chief economist and head of macroeconomic research at PIGEM Fixed
Speaker 1: Income with more than eight hundred billion dollars under management,
Speaker 1: who has worked at the FED working on some of
Speaker 1: these emergency programs during the last financial crisis, as well
Speaker 1: as in the Treasury Department, working internationally with a front
Speaker 1: eye view in the possible issues that may arise there. Nathan,
Speaker 1: thank you so much for being with us. We have
Speaker 1: talked so much about the policy response. I want to
Speaker 1: shift gears in terms of the US's response to China
Speaker 1: and from a financial perspective, how worried market watchers should
Speaker 1: be about the escalating tensions right now between the U
Speaker 1: S and China. The US China relationship is clearly a
Speaker 1: first order risk for the economy and for the markets.
Speaker 1: I think we saw last year with the trade war,
Speaker 1: and I think that this escalation and the tensions between
Speaker 1: the United States and China UH that we're seeing in
Speaker 1: recent weeks here also holds some very significant rest we
Speaker 1: need to worry about. UH. Now, my expectation is the
Speaker 1: President Trump is going to try to keep this mainly
Speaker 1: in the field of rhetoric between now and the election,
Speaker 1: but the possibility that he missteps, the possibility that Congress
Speaker 1: forces his hand, or the possibility that the Chinese react
Speaker 1: more vigorously than what the administration is expecting. I think
Speaker 1: all of those possibilities um wold meaningful risks, and I
Speaker 1: think our our our concrete uh, you know, risks that
Speaker 1: we need to be thinking hard about as we as
Speaker 1: we consider the markets over the next six months. All right,
Speaker 1: so we've got that to worry about it. But we
Speaker 1: also have the reopening, if you will, Nathan of America.
Speaker 1: It's kind of on a state by state basis, region
Speaker 1: by region basis. What is your expectation for how this
Speaker 1: reopening goes and what it might mean for economic economic
Speaker 1: activity and a potential rebound later in the year. So
Speaker 1: I am persuaded that the geographical diversity and heterogeneity that
Speaker 1: you described that different regions are opening up at different
Speaker 1: paces is likely to be a feature of the US
Speaker 1: economy that is somewhat supportive of recovery. And to emphasize that,
Speaker 1: I think right now much of the industrial northeast of
Speaker 1: the country is still pretty well locked down, but there
Speaker 1: are broad swaths of the south, the Midwest, and the
Speaker 1: western part of the country where the economy is moving
Speaker 1: back toward normal at a pretty pretty rapid rate. So
Speaker 1: when I put all of this together, it gives me
Speaker 1: maybe a little bit more confidence than I had a
Speaker 1: few weeks ago that the US economy is going to
Speaker 1: be able to achieve a gradual U shaped recovery. I
Speaker 1: don't expect the level of GDP to be back to
Speaker 1: where it was at the end of two thousand nineteen
Speaker 1: until a well ended but I think a gradual recovery
Speaker 1: growth in the second half of the year is is
Speaker 1: a pretty reasonable baseline, and I think it's the one
Speaker 1: that's being priced in UH in UH in the markets
Speaker 1: at this stage. The hallmark of this downturn is the
Speaker 1: unemployment rate, which has been so ching and may reach
Speaker 1: with some expect to this month and figures that come
Speaker 1: out next Friday, a week from today. I'm struggling to
Speaker 1: understand the skills gap that emerges and how we closed
Speaker 1: at the idea that a lot of these jobs will
Speaker 1: not come back in the same form and that people
Speaker 1: will have to get rehired in new roles that require
Speaker 1: new skills. How long do you think that takes and
Speaker 1: what could speed it up? In in my view, the
Speaker 1: three big questions that characterize this UH this recovery, and
Speaker 1: I think frame the risks around them or first, UH,
Speaker 1: what happens with the virus? Second, what happens in terms
Speaker 1: of psychology of of consumers? And the third one is
Speaker 1: is exactly this issue that you're highlighting through this period
Speaker 1: to what extent has the underlying structure of the economy
Speaker 1: been damaged? How many workers are there that are not
Speaker 1: going to be able to go back to their jobs
Speaker 1: and their skills are diminishing. How many firms that were
Speaker 1: previous to sleep productive will now be bankrupt and as
Speaker 1: a result of that, unable to produce. I think it
Speaker 1: is very much The answer is very much an open issue.
Speaker 1: But I think what we can say is the faster
Speaker 1: we're able to get back, the better the virus proceeds,
Speaker 1: that the less damage will see over the medium to
Speaker 1: long run UH in the economy. I think the other
Speaker 1: point that's important here is I think that the stimulus
Speaker 1: that the Fed and in Congress have put in place
Speaker 1: will also help buffer the downside and help drive a
Speaker 1: stronger recovery than might occur otherwise. So I guess I
Speaker 1: would say I'm cautiously optimistic that we won't see long
Speaker 1: live damage, but we're still in a place where there's
Speaker 1: a lot of uncertainty surrounding those assessments. Nathan, you mentioned
Speaker 1: fiscal stimulus. We've gotten a couple of rounds so far.
Speaker 1: I guess the the next one eventually might be something
Speaker 1: along the lines at the House pass the three trillion
Speaker 1: dollar stimulus bill. How important is another round the fiscal stimulus,
Speaker 1: particularly one that focuses on states and local municipalities as
Speaker 1: many governors have called for. So I I do expect
Speaker 1: that we will see another fiscal stimulus bill. I think
Speaker 1: that he needs to replenish the p p P program
Speaker 1: for the small businesses, to extend the unemployment benefits, and
Speaker 1: as you say, to do something for the standard local governments.
Speaker 1: I think that that is UH will be compelling and
Speaker 1: Congress will see that as something that is is unavoidable.
Speaker 1: That said, I don't think we're going to see a
Speaker 1: three trillion dollar package. My guess is there would be
Speaker 1: more in the one to one and a half trillion
Speaker 1: dollar range UH, and I would expect that Congress would
Speaker 1: approve that probably late June or into the first half
Speaker 1: of July. Nathan twenty seconds. I'm just wondering. Right now
Speaker 1: we're seeing a FED balance sheet at seven point one
Speaker 1: trillion dollars. Where do you think it gets by the
Speaker 1: end of the year. Well, I think it's going to
Speaker 1: be probably close to ten trillion, a little bit below that.
Speaker 1: But you know what we're seeing now is market stabilization, Quewie.
Speaker 1: I think come the middle of the year we're going
Speaker 1: to see monetary policy of it with the focus on
Speaker 1: the dual mandate, and that the FAT is going to
Speaker 1: be buying so close to ten trillion by the end
Speaker 1: of the year, and uh, you know who knows in
Speaker 1: coming years. Nathan, Thanks so much for joining us. We
Speaker 1: always appreciate your insights. Nathan Sheet's chief economists ahead of
Speaker 1: macro economic research at JIM Fixed Income, based in Newark,
Speaker 1: New Jersey. Thanks for listening to the Bloomberg pan L podcast.
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
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Speaker 1: I'm on Twitter at Lisa A. Bramwoit's one before the podcast.
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