1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily 2 00:00:13,960 --> 00:00:17,560 Speaker 1: we bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,480 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg John. 5 00:00:27,520 --> 00:00:30,080 Speaker 1: As you know, we've tried to take a different tact 6 00:00:30,160 --> 00:00:33,040 Speaker 1: in this pandemic, to get away from the height and 7 00:00:33,080 --> 00:00:35,400 Speaker 1: get to the real world solutions. We've put the ball 8 00:00:35,400 --> 00:00:38,280 Speaker 1: out of the park with our next guest, without question, 9 00:00:38,640 --> 00:00:41,000 Speaker 1: our interview of the day for those of you coast 10 00:00:41,000 --> 00:00:45,479 Speaker 1: to coast and indeed worldwide scared stiff about the kids 11 00:00:45,960 --> 00:00:50,400 Speaker 1: and education. Ambigo Watson, the act as an extraordinary cvaut 12 00:00:50,440 --> 00:00:53,520 Speaker 1: of Chicago and Harvard, her tour of duty and Notre Dame, 13 00:00:53,840 --> 00:00:56,280 Speaker 1: and here she is now at Minneapolis. What you need 14 00:00:56,280 --> 00:01:00,080 Speaker 1: to know is Minneapolis owns a high ground on children 15 00:01:00,200 --> 00:01:04,920 Speaker 1: education in America. Professor, wonderful to have you um with us. 16 00:01:05,040 --> 00:01:08,640 Speaker 1: You have written on the inequalities of this virus. We 17 00:01:08,720 --> 00:01:12,160 Speaker 1: are living it now in July, August and into September, 18 00:01:12,760 --> 00:01:18,119 Speaker 1: with public school kids crushed by budgets, fiscal the rest 19 00:01:18,600 --> 00:01:22,600 Speaker 1: and fancy private school kids. Actually, maybe we'll be able 20 00:01:22,640 --> 00:01:25,520 Speaker 1: to go back to school. That's just one inequality that 21 00:01:25,560 --> 00:01:30,640 Speaker 1: we have. How do we solve this right? So, I 22 00:01:30,680 --> 00:01:33,440 Speaker 1: think that one of the things that we really want 23 00:01:33,440 --> 00:01:37,480 Speaker 1: to highlight, UM, coming out of the latest research is 24 00:01:37,520 --> 00:01:39,360 Speaker 1: something that I think is going to help us think 25 00:01:39,400 --> 00:01:43,200 Speaker 1: about the trade offs of some of the policies governors 26 00:01:43,200 --> 00:01:47,480 Speaker 1: are considering reimposing UM and of course, any progress that 27 00:01:47,520 --> 00:01:50,000 Speaker 1: we make in containing the virus is going to have 28 00:01:50,080 --> 00:01:54,400 Speaker 1: serious ramifications for our children. UM. What we want to 29 00:01:54,480 --> 00:01:58,680 Speaker 1: highlight is the fact that after a few months and 30 00:01:58,800 --> 00:02:01,760 Speaker 1: we've been weeks with this virus, we've been able to 31 00:02:01,840 --> 00:02:06,600 Speaker 1: understand what's happening to labor markets in places where different 32 00:02:06,600 --> 00:02:10,919 Speaker 1: policies have been adopted. And a really striking finding coming 33 00:02:10,919 --> 00:02:14,400 Speaker 1: out of many pieces of research I've seen this repeatedly 34 00:02:14,520 --> 00:02:19,720 Speaker 1: and very timely research seminars this early summer, is that 35 00:02:20,000 --> 00:02:24,799 Speaker 1: states that have had strict and early lockdowns are seeing 36 00:02:24,880 --> 00:02:29,040 Speaker 1: labor market changes that are really just as significant as 37 00:02:29,200 --> 00:02:32,320 Speaker 1: states that did not lock down. So what that's telling 38 00:02:32,440 --> 00:02:36,239 Speaker 1: us is that the economic impacts of the virus are 39 00:02:36,320 --> 00:02:40,600 Speaker 1: happening regardless of the specific lockdown leisure states put in place. 40 00:02:40,800 --> 00:02:43,480 Speaker 1: What we've witnessed here and John Farroll is the foreigner 41 00:02:43,520 --> 00:02:47,080 Speaker 1: from England, has really noticed this. It's without question the 42 00:02:47,240 --> 00:02:50,680 Speaker 1: gains of the stimulus has gone to Wall Street. We 43 00:02:50,720 --> 00:02:53,960 Speaker 1: saw this with Morgan Stanley's earnings and you know the 44 00:02:54,000 --> 00:02:58,119 Speaker 1: rest of them, Golden Saxon all. What is the piloticy's prescription? 45 00:02:58,280 --> 00:03:01,680 Speaker 1: You would advocate, So do we get a bit of 46 00:03:01,760 --> 00:03:08,360 Speaker 1: equality across society right now in the crisis? Yeah. So 47 00:03:08,400 --> 00:03:11,720 Speaker 1: I think with this new information that we have that 48 00:03:11,800 --> 00:03:16,359 Speaker 1: the virus contraction is hitting all states regardless of their 49 00:03:16,400 --> 00:03:21,200 Speaker 1: shutdown practices, we really see that it's imperative that support 50 00:03:21,280 --> 00:03:26,200 Speaker 1: continue for workers and small and medium sized businesses. And 51 00:03:26,240 --> 00:03:28,720 Speaker 1: I think, um some of the evidence that we're seeing 52 00:03:28,840 --> 00:03:32,840 Speaker 1: on consumer finances, so from researchers who have access to 53 00:03:33,440 --> 00:03:37,120 Speaker 1: for example, bank account and credit cards spending data. Um, 54 00:03:37,160 --> 00:03:40,320 Speaker 1: even for very low income households, we can sometimes see 55 00:03:40,320 --> 00:03:43,600 Speaker 1: them in such data. It really does look like some 56 00:03:43,760 --> 00:03:47,200 Speaker 1: of these fiscal policies have they have definitely made it 57 00:03:47,240 --> 00:03:50,480 Speaker 1: to those households. Now, that doesn't mean that that's erased 58 00:03:50,600 --> 00:03:54,280 Speaker 1: the financial hardship of the pandemic. Um for many households, 59 00:03:54,280 --> 00:03:58,400 Speaker 1: they're treading water for many households Um, they're still facing 60 00:03:58,520 --> 00:04:02,280 Speaker 1: significant financial certainty. We see that in the data that 61 00:04:02,320 --> 00:04:05,200 Speaker 1: I study that looks at food insecurity and inability to 62 00:04:05,240 --> 00:04:08,960 Speaker 1: make mortgage payments on time. But UM, we definitely it 63 00:04:08,960 --> 00:04:12,520 Speaker 1: would be an overstatement to say that those stimulus and 64 00:04:13,200 --> 00:04:16,719 Speaker 1: extended benefits packages that were in place under the Cares 65 00:04:16,720 --> 00:04:19,080 Speaker 1: Act would be an overseatement to say that they haven't 66 00:04:19,120 --> 00:04:23,120 Speaker 1: made it to main street or to many American households. 67 00:04:23,320 --> 00:04:26,039 Speaker 1: What we need is to have those policies likely continue 68 00:04:26,480 --> 00:04:29,120 Speaker 1: because we're right back where we started. In fact, we're 69 00:04:29,120 --> 00:04:31,560 Speaker 1: even we're even worse off right now in terms of 70 00:04:31,600 --> 00:04:35,080 Speaker 1: the virus, and so engaging in a second round of 71 00:04:35,120 --> 00:04:39,240 Speaker 1: such packages, UM, I think could help prevent an economic 72 00:04:39,320 --> 00:04:42,560 Speaker 1: disaster that will follow as the virus continues to spread 73 00:04:42,960 --> 00:04:45,760 Speaker 1: in the next couple of Weeksabigail, what you're saying is 74 00:04:45,839 --> 00:04:48,440 Speaker 1: so so powerful. Let me repeat it. There is no 75 00:04:48,480 --> 00:04:53,000 Speaker 1: connection between labor markets and virus protection policy. What does 76 00:04:53,040 --> 00:04:55,120 Speaker 1: that mean for reopening? There are some people that think 77 00:04:55,120 --> 00:04:57,720 Speaker 1: we could see some divergence across states, say New York, 78 00:04:58,200 --> 00:05:00,679 Speaker 1: across some of the states across the s out for instance. 79 00:05:00,680 --> 00:05:04,120 Speaker 1: So you're saying that we won't see that divergence. We 80 00:05:04,200 --> 00:05:06,720 Speaker 1: will not see nearly as much divergence as I think 81 00:05:06,720 --> 00:05:10,000 Speaker 1: people expect. I think people have current have come to 82 00:05:10,120 --> 00:05:15,440 Speaker 1: view containment policy as a trade off, um, where if 83 00:05:15,480 --> 00:05:18,479 Speaker 1: we engage in containment policy, we are going to lose 84 00:05:18,560 --> 00:05:21,080 Speaker 1: out economically, and they're they're seeing them as kind of 85 00:05:21,120 --> 00:05:24,480 Speaker 1: a one to one trade off. And what we've come 86 00:05:24,520 --> 00:05:28,200 Speaker 1: to learn is that this is much more of an investment. 87 00:05:28,360 --> 00:05:32,200 Speaker 1: If you invest in containment policy now, it pays benefits 88 00:05:32,320 --> 00:05:35,839 Speaker 1: in that your economy can open sooner and faster. And 89 00:05:35,960 --> 00:05:38,400 Speaker 1: the reason we're not seeing as much of a connection 90 00:05:38,440 --> 00:05:41,520 Speaker 1: that one to one trade off is that people are 91 00:05:41,560 --> 00:05:45,640 Speaker 1: making behavior changes on their own. Um. That's a first reason, 92 00:05:45,800 --> 00:05:48,240 Speaker 1: and so folks are just not going to go out 93 00:05:48,279 --> 00:05:50,520 Speaker 1: and they're not going to spend at the same levels 94 00:05:51,080 --> 00:05:55,000 Speaker 1: if they feel insecure about their families, safety, and their 95 00:05:55,040 --> 00:05:58,040 Speaker 1: own health. The other reason we're not seeing that divergence 96 00:05:58,040 --> 00:06:01,320 Speaker 1: that we might expect is that state economies are connected 97 00:06:01,360 --> 00:06:04,800 Speaker 1: to one another, So if one of them is very 98 00:06:04,800 --> 00:06:08,239 Speaker 1: slow down, it's going to affect other state economies throughout 99 00:06:08,400 --> 00:06:11,320 Speaker 1: the US. So what we're seeing is that the labor 100 00:06:11,360 --> 00:06:15,839 Speaker 1: market is not the same as the virus market. Abigail. 101 00:06:15,960 --> 00:06:18,479 Speaker 1: This is such an important point, and you say shutdown 102 00:06:18,600 --> 00:06:21,440 Speaker 1: orders work. They work not only to control the virus 103 00:06:21,440 --> 00:06:24,960 Speaker 1: but for the economy. That said, if there is not 104 00:06:25,120 --> 00:06:28,240 Speaker 1: some sort of lockdown, if there isn't a stricter enforcement 105 00:06:28,240 --> 00:06:31,200 Speaker 1: of some of these policies to constrain the virus, is 106 00:06:31,360 --> 00:06:35,080 Speaker 1: any extra stimulus throwing money good money after bad This 107 00:06:35,200 --> 00:06:37,400 Speaker 1: idea that the bridge to the other side is becoming 108 00:06:37,600 --> 00:06:42,200 Speaker 1: a bridge to nowhere. So I, frankly I share some 109 00:06:42,320 --> 00:06:45,279 Speaker 1: of those concerns. I see concerns that folks have about 110 00:06:45,320 --> 00:06:49,360 Speaker 1: these packages. UM. What we also see in the data 111 00:06:49,600 --> 00:06:53,960 Speaker 1: is that UM significant numbers of folks are very concerned 112 00:06:53,960 --> 00:06:57,040 Speaker 1: about their ability to continue to stay in their housing. 113 00:06:57,640 --> 00:07:02,400 Speaker 1: We know that housing disruption is significant for families that 114 00:07:02,440 --> 00:07:05,080 Speaker 1: experience it, and it would be significant for our cities 115 00:07:05,080 --> 00:07:10,000 Speaker 1: and communities. I think, in my view present preventing large 116 00:07:10,000 --> 00:07:14,239 Speaker 1: scale housing displacement when the next round of mortgage payments 117 00:07:14,240 --> 00:07:18,119 Speaker 1: and rent payments come due UM is really critical. So 118 00:07:18,520 --> 00:07:22,160 Speaker 1: some of this policy, I definitely agree. It's the challenge 119 00:07:22,200 --> 00:07:25,520 Speaker 1: to think of exactly the right level, but we need 120 00:07:25,520 --> 00:07:29,360 Speaker 1: to prevent that next wave of collapse. Professor one final 121 00:07:29,440 --> 00:07:31,760 Speaker 1: question unfair, but it is the heritage of the mini 122 00:07:31,800 --> 00:07:36,400 Speaker 1: apopas fed folks. They own pre uh school education, nursery 123 00:07:36,440 --> 00:07:40,560 Speaker 1: school education and all the benefits of that. Abigawas Act 124 00:07:40,840 --> 00:07:45,239 Speaker 1: Really simply does distance learning work for kids? I haven't 125 00:07:45,280 --> 00:07:50,480 Speaker 1: observed it. Tell me it works, please, I'm sad to 126 00:07:50,520 --> 00:07:56,000 Speaker 1: say that it does not work well, particularly for disadvantaged students. 127 00:07:56,520 --> 00:08:01,280 Speaker 1: Really striking data from Brown University looking at UM, they 128 00:08:01,320 --> 00:08:04,240 Speaker 1: actually had a study in progress, as my understanding, when 129 00:08:04,240 --> 00:08:09,120 Speaker 1: the pandemic hit, tracking students performance using UM, one of 130 00:08:09,160 --> 00:08:11,640 Speaker 1: these online math modules that I think a lot of 131 00:08:11,720 --> 00:08:13,920 Speaker 1: us have probably encountered now, even though we didn't go 132 00:08:13,960 --> 00:08:16,600 Speaker 1: to school with them when we were growing up. They 133 00:08:16,680 --> 00:08:20,040 Speaker 1: kind of were collecting this data in the background pandemic hit. 134 00:08:20,360 --> 00:08:23,280 Speaker 1: You can see how much learning loss has happened for 135 00:08:23,360 --> 00:08:28,440 Speaker 1: students overall across the board, but most significantly for students 136 00:08:28,480 --> 00:08:33,280 Speaker 1: from lower income household. So it's certainly helpful to have 137 00:08:33,400 --> 00:08:37,080 Speaker 1: in place UM, but it's not a good substitute. It's 138 00:08:37,120 --> 00:08:39,520 Speaker 1: not making up the ground UM, and I think we 139 00:08:39,559 --> 00:08:41,360 Speaker 1: need to think really seriously about how we're going to 140 00:08:41,400 --> 00:08:44,760 Speaker 1: put that back. These are again investments that we've were 141 00:08:44,800 --> 00:08:47,320 Speaker 1: gone in the last couple of months. How are we 142 00:08:47,320 --> 00:08:49,360 Speaker 1: going to make this up to our children in the 143 00:08:49,480 --> 00:08:52,679 Speaker 1: coming months and years when the pandemic has passed A 144 00:08:53,160 --> 00:08:56,080 Speaker 1: conversation we need to continue, a really pathful conversation as well. 145 00:08:56,120 --> 00:09:02,560 Speaker 1: Abigail wasn't at the of the Minneapolis FED. What we're 146 00:09:02,600 --> 00:09:04,400 Speaker 1: gonna do is get right to it right now with 147 00:09:04,480 --> 00:09:06,800 Speaker 1: a brief to get you ready for the weekend and 148 00:09:06,960 --> 00:09:09,480 Speaker 1: frankly to staggered at Q three. We can do that 149 00:09:09,760 --> 00:09:13,440 Speaker 1: with Brian Lovitt, who really filters in all sorts of 150 00:09:13,480 --> 00:09:17,960 Speaker 1: thinking as global market strategists for the large platform of investor. 151 00:09:18,240 --> 00:09:20,640 Speaker 1: Brian an open question to begin, what are you writing 152 00:09:20,720 --> 00:09:24,319 Speaker 1: on into the end of July. Well, I think the 153 00:09:24,640 --> 00:09:27,360 Speaker 1: biggest question that I keep being asked is about the 154 00:09:27,760 --> 00:09:30,440 Speaker 1: shape of the recovery. And I think that you know, 155 00:09:30,480 --> 00:09:33,440 Speaker 1: there's so much concern about whether it's V shaped, whether 156 00:09:33,480 --> 00:09:36,480 Speaker 1: it's W shaped, and whether it's you shaped, And you know, 157 00:09:36,520 --> 00:09:39,720 Speaker 1: the reality is, I think it's gonna be a prolonged, 158 00:09:39,760 --> 00:09:44,120 Speaker 1: protracted recovery, intermittent with fits and starts. But if you 159 00:09:44,240 --> 00:09:48,440 Speaker 1: go back and you look historically at different recoveries, I mean, 160 00:09:48,440 --> 00:09:50,000 Speaker 1: you can look at the one from the early two 161 00:09:50,000 --> 00:09:54,840 Speaker 1: thousand's more V shaped early es more W shaped two 162 00:09:54,840 --> 00:09:57,400 Speaker 1: thousand and eight, two thousand nine, more year shape. The 163 00:09:57,400 --> 00:10:00,480 Speaker 1: reality is markets actually did quite well, actual really did 164 00:10:00,520 --> 00:10:03,360 Speaker 1: best in that U shape. So you know, I'm I'm 165 00:10:03,480 --> 00:10:06,920 Speaker 1: expecting some volatility in the near term fits and starts 166 00:10:06,920 --> 00:10:11,280 Speaker 1: concerns about reopening. But but a protracted U shape recovery 167 00:10:11,320 --> 00:10:14,520 Speaker 1: can actually be just fine for the equity market. John, 168 00:10:14,559 --> 00:10:16,200 Speaker 1: it's hard to believe I made a mistake in the 169 00:10:16,240 --> 00:10:18,240 Speaker 1: data check that I did up top. I really need 170 00:10:18,280 --> 00:10:20,840 Speaker 1: to point out, John, that futures were the churning here 171 00:10:21,160 --> 00:10:23,559 Speaker 1: that we've seen has brought a VIX down to twenty 172 00:10:23,600 --> 00:10:27,400 Speaker 1: seven point zero eight. That's not normal. That's a real 173 00:10:27,520 --> 00:10:30,680 Speaker 1: change volatility. Though Thomas remained elevated through all of this 174 00:10:30,800 --> 00:10:33,360 Speaker 1: and hasn't corrected low up in a material way for 175 00:10:33,480 --> 00:10:35,800 Speaker 1: quite a while. And Brian's point is basically that in 176 00:10:35,840 --> 00:10:39,000 Speaker 1: the name of recovery could be sufficient for an economic 177 00:10:39,040 --> 00:10:41,800 Speaker 1: recovery to be shallow. It does not mean that this 178 00:10:41,840 --> 00:10:44,319 Speaker 1: market can't rebound quickly. Brian, Is that the point you're 179 00:10:44,320 --> 00:10:47,400 Speaker 1: trying to make here? Yeah, that's the point I'm trying 180 00:10:47,440 --> 00:10:49,200 Speaker 1: to make. I mean, we learned that coming out of 181 00:10:49,200 --> 00:10:53,360 Speaker 1: the financial crisis. Uh, you know, we investors largely bemoaned 182 00:10:53,440 --> 00:10:56,440 Speaker 1: the weak recovery for a number of years, waiting for 183 00:10:56,520 --> 00:10:59,280 Speaker 1: things to start to look good, waiting for jobs, claims 184 00:10:59,320 --> 00:11:02,040 Speaker 1: to get back to average, all these different things. By 185 00:11:02,040 --> 00:11:05,480 Speaker 1: the time all of that happened, the markets had already 186 00:11:05,520 --> 00:11:09,680 Speaker 1: staged a pretty sizeable advance. So, you know, I think 187 00:11:09,720 --> 00:11:13,120 Speaker 1: it's you know, obviously we're all monitoring mobility, we're all 188 00:11:13,160 --> 00:11:16,840 Speaker 1: monitoring reopening. I think if those things turned, you will 189 00:11:16,920 --> 00:11:20,199 Speaker 1: have volatility, and markets we should be expect uncertainty to 190 00:11:20,320 --> 00:11:23,000 Speaker 1: lead to volatility. My point is, if you're a longer 191 00:11:23,120 --> 00:11:27,400 Speaker 1: term investor, focus more on whether things are getting better 192 00:11:27,480 --> 00:11:29,760 Speaker 1: or worse rather than whether they're good or bad. Even 193 00:11:29,800 --> 00:11:34,400 Speaker 1: if they're getting better modestly slowly, markets should do well. 194 00:11:34,880 --> 00:11:37,320 Speaker 1: And remember it's going to be a very long time 195 00:11:37,400 --> 00:11:39,800 Speaker 1: until we get back to full employment, a very long 196 00:11:39,840 --> 00:11:43,320 Speaker 1: time until there's some pickup and inflation expectations, which means 197 00:11:43,360 --> 00:11:46,760 Speaker 1: policy is likely to be accommodative well into the future. Well, bun, 198 00:11:46,840 --> 00:11:48,880 Speaker 1: let's take a five year time arise, and shall we 199 00:11:48,880 --> 00:11:51,960 Speaker 1: we have had people lining up to get overweight Europe 200 00:11:52,040 --> 00:11:56,680 Speaker 1: versus the United States? Is that the right idea yeah. 201 00:11:56,720 --> 00:11:59,800 Speaker 1: And the interesting thing about the non US markets is 202 00:12:00,080 --> 00:12:02,240 Speaker 1: looks like we may be for the first time in 203 00:12:02,280 --> 00:12:05,600 Speaker 1: a while, in an environment where the dollar is stable 204 00:12:05,880 --> 00:12:09,040 Speaker 1: or dare we even say weaker. The the aftermath of 205 00:12:09,040 --> 00:12:12,200 Speaker 1: the financial crisis with strong dollar, the US emerged from 206 00:12:12,200 --> 00:12:14,840 Speaker 1: it in a better position, and it looked as if 207 00:12:14,840 --> 00:12:17,640 Speaker 1: the Federal Reserve and the Federal Reserve did ultimately raise 208 00:12:17,800 --> 00:12:20,280 Speaker 1: rates before the rest of the world did. Now you're 209 00:12:20,320 --> 00:12:22,800 Speaker 1: in an environment where the US is struggling to come 210 00:12:22,840 --> 00:12:26,040 Speaker 1: out of it. The dollar is under some pressure as 211 00:12:26,120 --> 00:12:29,480 Speaker 1: policy becomes very accommodative, and that's likely to persist. So 212 00:12:29,520 --> 00:12:33,439 Speaker 1: what that enables you to do as a US denominated investors, 213 00:12:33,480 --> 00:12:36,280 Speaker 1: a U S domiciled investor, is to start to look 214 00:12:36,320 --> 00:12:40,439 Speaker 1: to other parts of the world where valuations are more attractive. 215 00:12:40,480 --> 00:12:44,440 Speaker 1: I would say, though, within all of that, when you're 216 00:12:44,480 --> 00:12:47,760 Speaker 1: looking international, I would still favor the more growthier parts 217 00:12:47,800 --> 00:12:51,080 Speaker 1: of the market rather than looking for, you know, the 218 00:12:51,160 --> 00:12:55,120 Speaker 1: more economically sensitive parts of the market that will require 219 00:12:55,160 --> 00:12:59,199 Speaker 1: a pretty significant acceleration and economic activity. In Europe, I 220 00:12:59,240 --> 00:13:02,600 Speaker 1: would instead who are the who are the growers, Who 221 00:13:02,600 --> 00:13:04,480 Speaker 1: are the companies that are on the cutting edge of 222 00:13:04,520 --> 00:13:07,680 Speaker 1: structural changes? In society. Those are the types of names 223 00:13:07,720 --> 00:13:11,080 Speaker 1: I'd be allocating to outside of the United States. Brian, 224 00:13:11,160 --> 00:13:13,160 Speaker 1: this is such an important point, this idea of going 225 00:13:13,160 --> 00:13:15,400 Speaker 1: to Europe over the US, and that's currently been what 226 00:13:15,520 --> 00:13:17,360 Speaker 1: a lot of investors have been saying, which is why 227 00:13:17,360 --> 00:13:20,120 Speaker 1: the euro is the strongest versus the dollar since early March. 228 00:13:20,440 --> 00:13:23,040 Speaker 1: And yet we have this meeting heading into tomorrow in 229 00:13:23,160 --> 00:13:25,960 Speaker 1: Brussels that looks somewhat tenuous in terms of them actually 230 00:13:26,000 --> 00:13:29,200 Speaker 1: getting a deal done. What is the downside risk not 231 00:13:29,280 --> 00:13:32,520 Speaker 1: only to the euro but just the entire European risk 232 00:13:32,679 --> 00:13:36,920 Speaker 1: market should they fail to come to some sort of accord. Yeah, 233 00:13:36,960 --> 00:13:39,360 Speaker 1: it's a it's a great point. And you know, with 234 00:13:39,760 --> 00:13:43,359 Speaker 1: in any macent recovery, if you don't get the policy 235 00:13:43,440 --> 00:13:46,840 Speaker 1: mix right, then you know that that maycent recovery is 236 00:13:46,880 --> 00:13:49,320 Speaker 1: not going to persist for too long. So much like 237 00:13:49,400 --> 00:13:51,480 Speaker 1: in the United States, how we have to get the 238 00:13:51,480 --> 00:13:55,120 Speaker 1: policy mix right, not only monetary, fiscal and reopening. The 239 00:13:55,200 --> 00:13:58,280 Speaker 1: same can be said for Europe. And you know, perhaps 240 00:13:58,360 --> 00:14:01,000 Speaker 1: they silver lining in all of this, if we can 241 00:14:01,080 --> 00:14:04,360 Speaker 1: even find silver lining, is that this may lead us 242 00:14:04,360 --> 00:14:07,080 Speaker 1: to more Europe rather than less, And and that's what 243 00:14:07,120 --> 00:14:10,600 Speaker 1: we've all largely been clamoring for for for some time. 244 00:14:10,720 --> 00:14:14,800 Speaker 1: The Hamiltonian moment, the United States of Europe um, the 245 00:14:14,880 --> 00:14:18,880 Speaker 1: joint borrowing, the closer fiscal union, that could be a 246 00:14:18,920 --> 00:14:21,880 Speaker 1: silver lining in this. To your point, if Europe doesn't 247 00:14:21,920 --> 00:14:25,320 Speaker 1: get the policy mix right, then you know it's likely 248 00:14:25,400 --> 00:14:28,480 Speaker 1: that we'll see a number of years that look like, unfortunately, 249 00:14:28,480 --> 00:14:31,200 Speaker 1: what we saw in the aftermath of oh A. You know, 250 00:14:31,240 --> 00:14:35,160 Speaker 1: we're hopeful, and we'll be watching closely. The unicorns, the rainbows, 251 00:14:35,200 --> 00:14:37,640 Speaker 1: the lollipops we all wanted to happen. Brian, I'm conditioned 252 00:14:37,680 --> 00:14:39,960 Speaker 1: by the last ten years to be skeptical about it. 253 00:14:40,000 --> 00:14:42,440 Speaker 1: Why is it going to change? I've been so disappointed 254 00:14:42,440 --> 00:14:44,960 Speaker 1: by policymakers in Europe, and I want to re emphasize 255 00:14:44,960 --> 00:14:47,080 Speaker 1: something I said a little bit earlier. This is not 256 00:14:47,120 --> 00:14:49,800 Speaker 1: a political point. It's not about political bias. This is 257 00:14:49,800 --> 00:14:54,479 Speaker 1: a point about politics. The politicians on the continent, regardless 258 00:14:54,840 --> 00:14:56,920 Speaker 1: of whether they are on the left or the right, Brian, 259 00:14:57,000 --> 00:15:00,960 Speaker 1: they have disappointed again and again in Europe. We've seen 260 00:15:01,000 --> 00:15:02,800 Speaker 1: it on the far left in Europe, seen it on 261 00:15:02,840 --> 00:15:06,360 Speaker 1: the far right in Europe. Disappointment after disappointment. When does 262 00:15:06,400 --> 00:15:09,440 Speaker 1: it change? Yeah, I mean, we have seen disappointment. I 263 00:15:09,440 --> 00:15:12,920 Speaker 1: mean obviously less so from the European Central Bank, but 264 00:15:12,920 --> 00:15:15,640 Speaker 1: but more so from the from the elected officials. And 265 00:15:15,920 --> 00:15:19,000 Speaker 1: you know, perhaps Johnson desperate times called for desperate measures. 266 00:15:19,480 --> 00:15:23,520 Speaker 1: We we will find out, you know, let's let's wait 267 00:15:23,560 --> 00:15:26,440 Speaker 1: and see what the days bring us. But I believe that, 268 00:15:26,880 --> 00:15:30,160 Speaker 1: you know, what we've seen is incremental steps. It's you know, 269 00:15:30,200 --> 00:15:33,800 Speaker 1: it's it's been a very gradual move towards you know, 270 00:15:34,120 --> 00:15:36,480 Speaker 1: more Europe rather than less. I think, you know, if 271 00:15:36,520 --> 00:15:40,520 Speaker 1: we go back to twelve during the European deck crisis, 272 00:15:40,640 --> 00:15:43,880 Speaker 1: concerns that you know, the Union was breaking up, concerns 273 00:15:43,880 --> 00:15:46,120 Speaker 1: that they're we're going to move away from the common currency. 274 00:15:46,160 --> 00:15:48,720 Speaker 1: And yet here we are, and so we do things 275 00:15:48,760 --> 00:15:52,680 Speaker 1: incrementally around the world politically, and let's hope that directionally 276 00:15:53,120 --> 00:15:56,400 Speaker 1: those incremental steps continue to be favorable. And again my 277 00:15:56,520 --> 00:15:59,240 Speaker 1: point is maybe this becomes something of a silver lining 278 00:15:59,240 --> 00:16:01,520 Speaker 1: out of all of this. Hopefully, Brian great to catch 279 00:16:01,560 --> 00:16:04,040 Speaker 1: up my best of the team over Investco. Brian Levit 280 00:16:04,040 --> 00:16:11,040 Speaker 1: there off Investco. We never agreed, Lisa grusl me maybe 281 00:16:11,080 --> 00:16:13,920 Speaker 1: once every three weeks. Pharah and I haven't agreed since Christmas, 282 00:16:14,240 --> 00:16:17,000 Speaker 1: we all agreed, we've got to talk to Wolfgang Munch 283 00:16:17,080 --> 00:16:21,080 Speaker 1: of euro Intelligence with not only his expertise on Europe 284 00:16:21,080 --> 00:16:24,520 Speaker 1: and what it means for our political economics, but just 285 00:16:24,640 --> 00:16:30,200 Speaker 1: as importantly Wolfgang Mancho's definitive knowledge of Germany. Just Christmas, 286 00:16:31,040 --> 00:16:33,600 Speaker 1: just to clarify, thank you, goes back a lot further 287 00:16:33,600 --> 00:16:35,200 Speaker 1: than some people believe, and there was a lot of 288 00:16:35,240 --> 00:16:38,360 Speaker 1: drink involved. To wolf Mosha joins us. Now here of 289 00:16:38,400 --> 00:16:41,800 Speaker 1: course is from euro Intelligence that directed their Wolfgang Fantastic 290 00:16:42,000 --> 00:16:43,840 Speaker 1: to catch up with you, sir. There has been a 291 00:16:43,880 --> 00:16:47,440 Speaker 1: shift in Europe. Wolfgang talk to us about Chancellor miracles 292 00:16:47,440 --> 00:16:49,960 Speaker 1: shift in the last ten years. The difference in this 293 00:16:50,080 --> 00:16:53,840 Speaker 1: crisis compared to the previous crisis and watch driving it. 294 00:16:56,000 --> 00:16:59,440 Speaker 1: The difference is that in the previous crises, which she 295 00:16:59,560 --> 00:17:04,480 Speaker 1: was point blank to Uh to even discuss the possibility 296 00:17:04,640 --> 00:17:09,960 Speaker 1: of joint borrowing and a joint fiscal effort, that was 297 00:17:10,040 --> 00:17:12,600 Speaker 1: the case in two thousand twelve, and that is the 298 00:17:12,640 --> 00:17:16,000 Speaker 1: decision that then prompted Mario Dragi to to act and 299 00:17:16,160 --> 00:17:18,840 Speaker 1: as forcefully the way you did. And this was at 300 00:17:18,840 --> 00:17:22,120 Speaker 1: the time Germany was not prepared for that discussion. Her 301 00:17:22,160 --> 00:17:24,359 Speaker 1: party was not the her country was not prepared for 302 00:17:24,400 --> 00:17:27,800 Speaker 1: that discussion. And also in Germany, the Germs had framed 303 00:17:27,840 --> 00:17:30,879 Speaker 1: the euro crisis as pretty much a phisical the crisis 304 00:17:30,880 --> 00:17:35,360 Speaker 1: of irresponsibility. They you know, I disagreed with that framing, 305 00:17:35,359 --> 00:17:37,200 Speaker 1: but it was very much the way it was talked 306 00:17:37,200 --> 00:17:40,840 Speaker 1: about in Germany. The Greeks, Italians, everyone was was, you know, 307 00:17:40,920 --> 00:17:43,960 Speaker 1: we're living beyond their means. And in that in that situation, 308 00:17:43,960 --> 00:17:47,520 Speaker 1: it wasn't possible to h to act jointly. What is 309 00:17:47,560 --> 00:17:51,200 Speaker 1: different now? Where the television pictures coming from Bergamore during 310 00:17:51,200 --> 00:17:56,840 Speaker 1: the coronavirus crisis, the Germs felt really sorry for Italians 311 00:17:56,920 --> 00:18:00,240 Speaker 1: and there was a great ground swell of sympathy for 312 00:18:00,320 --> 00:18:02,840 Speaker 1: what happened and for the for the need to to 313 00:18:02,920 --> 00:18:07,040 Speaker 1: show to to show solidarity. So mac of sense that 314 00:18:07,160 --> 00:18:11,359 Speaker 1: shift in public mood quickly and decided that this is 315 00:18:11,400 --> 00:18:14,480 Speaker 1: a good moment for a joint effort. Now, one has 316 00:18:14,520 --> 00:18:17,200 Speaker 1: to be very clear, this is not Germany shifting on 317 00:18:17,400 --> 00:18:21,000 Speaker 1: euro bonds and physical federalism or any of these things. 318 00:18:21,080 --> 00:18:23,959 Speaker 1: This is not this is a one off. Michael wanted 319 00:18:24,040 --> 00:18:26,879 Speaker 1: a one of a big one of gesture, which is 320 00:18:26,920 --> 00:18:30,920 Speaker 1: why she and Macon Emmanuel mccon, President of France, agreed 321 00:18:31,040 --> 00:18:35,359 Speaker 1: this five billion proposal of a of a one time 322 00:18:35,840 --> 00:18:39,040 Speaker 1: fiscal stimulus to be stretched over a number of years. 323 00:18:39,119 --> 00:18:42,160 Speaker 1: And this is what they're discussing in Brussels today. There 324 00:18:42,200 --> 00:18:44,360 Speaker 1: is a belief wolf Gang, that that this sets the president, 325 00:18:44,440 --> 00:18:46,440 Speaker 1: that this becomes a mechanism to do the same thing 326 00:18:46,960 --> 00:18:49,480 Speaker 1: over and over again. Are you saying that won't be 327 00:18:49,520 --> 00:18:53,480 Speaker 1: the case? Absolutely, that won't be the case. The whole 328 00:18:53,600 --> 00:18:55,399 Speaker 1: legal basis for this thing is that it is a 329 00:18:55,440 --> 00:18:59,399 Speaker 1: one off. One of the big misunderstandings of you know, 330 00:18:59,440 --> 00:19:02,119 Speaker 1: in the debate is that people regard this as the 331 00:19:02,200 --> 00:19:07,199 Speaker 1: beginning of a wider process. It may do that. That 332 00:19:07,359 --> 00:19:10,120 Speaker 1: may well, but that it would have yet to happen. Legally, 333 00:19:10,160 --> 00:19:12,159 Speaker 1: this is a one office. They can't do this again. 334 00:19:13,119 --> 00:19:15,679 Speaker 1: So what what will need to happen for this to 335 00:19:15,800 --> 00:19:20,040 Speaker 1: become the first step in a multi stage process would 336 00:19:20,080 --> 00:19:22,520 Speaker 1: be for the member states of the EU to change 337 00:19:22,560 --> 00:19:25,080 Speaker 1: their treaties to say the euro bond is now part 338 00:19:25,119 --> 00:19:27,879 Speaker 1: of what we are doing. The fiscal the joint phiscal 339 00:19:27,960 --> 00:19:30,720 Speaker 1: action is part of what we're doing. And I see 340 00:19:30,760 --> 00:19:34,760 Speaker 1: absolutely zero chance of that happening. The Dutch will certainly 341 00:19:34,760 --> 00:19:37,320 Speaker 1: not agree to that, and I'm not even sure that 342 00:19:37,359 --> 00:19:39,680 Speaker 1: the Germans, even MacHale at this stage would not agree 343 00:19:39,720 --> 00:19:42,159 Speaker 1: to that. She this is what what happens now, and 344 00:19:42,200 --> 00:19:44,640 Speaker 1: Bronco is a one off, and this should be seen 345 00:19:44,680 --> 00:19:47,320 Speaker 1: as a one off, and it would be it would 346 00:19:47,359 --> 00:19:50,080 Speaker 1: be very I think reckless to think that this is 347 00:19:50,119 --> 00:19:52,440 Speaker 1: sort of the beginning of the end of the Eurozone. 348 00:19:52,480 --> 00:19:54,679 Speaker 1: You know that the euro Zone crisis that we have 349 00:19:54,840 --> 00:19:58,199 Speaker 1: kind of nailed it, we haven't nailed it much. I 350 00:19:58,200 --> 00:20:00,840 Speaker 1: want you to talk about the generational shift in the 351 00:20:01,000 --> 00:20:04,359 Speaker 1: leadership that we will see this weekend. We remember the 352 00:20:04,480 --> 00:20:07,840 Speaker 1: old horses of this development, Robert Schumann, and and and 353 00:20:07,880 --> 00:20:10,040 Speaker 1: the others who came out of World War Two under 354 00:20:10,119 --> 00:20:15,800 Speaker 1: exceptionally difficult circumstances and made this European Union. Is it 355 00:20:15,960 --> 00:20:20,919 Speaker 1: a generational shift this weekend in Brussels. I think it 356 00:20:21,040 --> 00:20:23,480 Speaker 1: is a general relations shift. This may well be one 357 00:20:23,520 --> 00:20:26,960 Speaker 1: of Angel and Marco's last last big appearances in Europe. 358 00:20:26,960 --> 00:20:28,800 Speaker 1: And in her terms to you know, she said has 359 00:20:28,800 --> 00:20:32,840 Speaker 1: another year ago. But the new generation, the new senior 360 00:20:32,880 --> 00:20:35,880 Speaker 1: guy in the room, that's clearly Mark Rutler, the Prime 361 00:20:35,920 --> 00:20:40,200 Speaker 1: Minister of the Netherlands. And there are the Austrian chancell 362 00:20:40,240 --> 00:20:43,400 Speaker 1: of Sebastian Courts. There is as a it's a generation 363 00:20:43,440 --> 00:20:47,080 Speaker 1: of younger prime ministers who you know who are I 364 00:20:47,119 --> 00:20:50,600 Speaker 1: think you mentioned Schumann and you know this generation is 365 00:20:50,680 --> 00:20:53,800 Speaker 1: very different. Generation was was marked by the Second World War. 366 00:20:54,280 --> 00:20:57,440 Speaker 1: They had they had in common a desire to build Europe. 367 00:20:58,200 --> 00:21:01,280 Speaker 1: This generation was born into the Europe and their desire 368 00:21:01,400 --> 00:21:04,040 Speaker 1: is to cove out the most for their own countries. 369 00:21:04,200 --> 00:21:07,040 Speaker 1: A very different mindset that has that has that has 370 00:21:07,080 --> 00:21:10,879 Speaker 1: governed the Council, and the Council is an incredible dealmaking machine. 371 00:21:11,240 --> 00:21:14,159 Speaker 1: They usually come together, but they're not. You know, the 372 00:21:14,680 --> 00:21:17,720 Speaker 1: spirit of the nineteen fifties is killing of their real 373 00:21:17,800 --> 00:21:20,280 Speaker 1: quick Here Wolf King, I'm wondering Mark Rudo has really 374 00:21:20,320 --> 00:21:23,480 Speaker 1: come out as the leader of the frugal for does 375 00:21:23,520 --> 00:21:26,399 Speaker 1: he have a point with his arguments against the scope 376 00:21:26,520 --> 00:21:30,679 Speaker 1: of the seven hundred and fifty billion euro plan. I 377 00:21:30,720 --> 00:21:33,240 Speaker 1: think he has a number of good arguments and lots 378 00:21:33,280 --> 00:21:36,480 Speaker 1: and lots of bad arguments. The good argument is that 379 00:21:36,920 --> 00:21:41,320 Speaker 1: um that it is absolutely wrong to preassign country allocations 380 00:21:41,320 --> 00:21:43,680 Speaker 1: to Basically they Italy needs to get eight Spains to 381 00:21:43,760 --> 00:21:46,879 Speaker 1: get eight and what happened the commission you gave that 382 00:21:47,000 --> 00:21:50,080 Speaker 1: list of the countries on what countries get, and then 383 00:21:50,119 --> 00:21:54,200 Speaker 1: they retrofitted the various criteria so that this this was 384 00:21:54,280 --> 00:21:57,320 Speaker 1: the outcome. Uh and Rotter said, this is a ridiculous 385 00:21:57,320 --> 00:21:59,639 Speaker 1: way of proceeding. This is a backward look, use backward 386 00:21:59,680 --> 00:22:02,359 Speaker 1: looking indicators. Basically, if you want to look at the 387 00:22:02,359 --> 00:22:04,199 Speaker 1: effects of the crisis, you know, we don't know the 388 00:22:04,200 --> 00:22:06,600 Speaker 1: effects of the crisis, so you have to take count data. 389 00:22:07,119 --> 00:22:09,800 Speaker 1: And the count data may suggest that Belgium should get 390 00:22:09,800 --> 00:22:12,879 Speaker 1: a bigger share because Belgian is actually suffering from the 391 00:22:12,880 --> 00:22:14,679 Speaker 1: crisis quite as quite as bad as some of the 392 00:22:14,680 --> 00:22:18,440 Speaker 1: other countries are. So that's a good point and one 393 00:22:18,560 --> 00:22:21,520 Speaker 1: that I happen to agree with. What I don't agree with, 394 00:22:22,160 --> 00:22:24,600 Speaker 1: of course, is this the general rejection of any kind 395 00:22:24,640 --> 00:22:27,960 Speaker 1: of European solidarity that everything has to be alone, which 396 00:22:27,960 --> 00:22:32,480 Speaker 1: is this position that countries me to reform as a 397 00:22:32,560 --> 00:22:35,160 Speaker 1: quit pro crow to get the money. Now I think 398 00:22:35,160 --> 00:22:37,919 Speaker 1: they should reform. To link this to the money, I 399 00:22:37,960 --> 00:22:40,520 Speaker 1: think is a mistake. So there are lots of unreasonable 400 00:22:40,520 --> 00:22:43,080 Speaker 1: aspects of it. But you know, the way the package 401 00:22:43,119 --> 00:22:47,800 Speaker 1: is designed, it has made it open to to valid criticism. 402 00:22:47,840 --> 00:22:50,040 Speaker 1: The package is trying to do too much with too 403 00:22:50,080 --> 00:22:52,920 Speaker 1: little money. It's trying to be a fiscal transfer, it's 404 00:22:52,920 --> 00:22:56,199 Speaker 1: trying to be an investment program, and it's kind of 405 00:22:56,240 --> 00:23:00,440 Speaker 1: trying to solve Italy solvency issues all with one contended 406 00:23:00,480 --> 00:23:03,520 Speaker 1: will not achieve that is five found a billion or 407 00:23:03,560 --> 00:23:06,119 Speaker 1: seven fifty billion, however it may be, however much it 408 00:23:06,160 --> 00:23:08,560 Speaker 1: maybe you're not going to solve all of that with 409 00:23:08,600 --> 00:23:12,040 Speaker 1: that one package, wolf Gang. Always appreciate your time. Stay close. 410 00:23:12,080 --> 00:23:13,600 Speaker 1: We've gotta get your back. Stating to follow up on 411 00:23:13,640 --> 00:23:16,000 Speaker 1: this going into the weekend, Wolfgang Munch on that of 412 00:23:16,080 --> 00:23:23,800 Speaker 1: euro Intelligence. Michael Mayo is with Wells Fargo. He's been 413 00:23:23,840 --> 00:23:26,920 Speaker 1: doing this more than a long time and has always 414 00:23:26,960 --> 00:23:30,920 Speaker 1: done it with a certain vigor which upsets the executives 415 00:23:31,080 --> 00:23:34,880 Speaker 1: and has required reading for everyone on the street. Mike Mayo, 416 00:23:35,040 --> 00:23:37,080 Speaker 1: great to get an update from you. Let me go 417 00:23:37,160 --> 00:23:41,600 Speaker 1: to the money question. They're lining up the accountant ducks 418 00:23:41,640 --> 00:23:44,760 Speaker 1: of losses that will be taken down the road. Do 419 00:23:44,840 --> 00:23:48,159 Speaker 1: you know what those losses will be taken down the 420 00:23:48,280 --> 00:23:53,280 Speaker 1: road or do you, like everybody else, have to wait, wait, wait, Well, 421 00:23:53,560 --> 00:23:56,280 Speaker 1: these are some of the most uncertain times, Tom that 422 00:23:56,320 --> 00:23:59,280 Speaker 1: I've seen in my three decades of covering banks. But 423 00:23:59,359 --> 00:24:02,520 Speaker 1: we do have the results in for the eight largest banks, 424 00:24:02,600 --> 00:24:06,760 Speaker 1: and the conclusion is you've seen the twin peaks of pain. 425 00:24:07,480 --> 00:24:11,439 Speaker 1: The provisions for future loan losses relative to the actual 426 00:24:11,480 --> 00:24:15,520 Speaker 1: losses these past two quarters have been the highest in history. 427 00:24:15,920 --> 00:24:19,159 Speaker 1: And the second pit bit of pain is that the 428 00:24:19,240 --> 00:24:22,080 Speaker 1: decline in the net interest margin these two past quarters 429 00:24:22,240 --> 00:24:25,280 Speaker 1: has been the biggest in history. So there's a double 430 00:24:25,320 --> 00:24:28,639 Speaker 1: barrel shotgun, you know, pointed at the banks in terms 431 00:24:28,640 --> 00:24:32,920 Speaker 1: of credit losses and NIM compression. And that's huge pain. 432 00:24:33,080 --> 00:24:36,240 Speaker 1: But let me point out like this is not two 433 00:24:36,359 --> 00:24:39,760 Speaker 1: thousand and eight. It's banks are now part of the solution, 434 00:24:40,119 --> 00:24:43,800 Speaker 1: not part of the problem. The war chest for future losses, 435 00:24:43,880 --> 00:24:47,920 Speaker 1: whatever they will be, is the highest in history at 436 00:24:47,920 --> 00:24:50,879 Speaker 1: this stage of a recession. In the past fifty years, 437 00:24:51,119 --> 00:24:54,920 Speaker 1: the reserves for the largest banks equal half the level 438 00:24:54,960 --> 00:24:58,800 Speaker 1: of the actual losses. During the global financial crisis, even 439 00:24:58,880 --> 00:25:02,280 Speaker 1: with this huge build up of you know, provisions or 440 00:25:02,280 --> 00:25:06,679 Speaker 1: reserves for future problems, banks still grew capital, still group 441 00:25:06,680 --> 00:25:09,199 Speaker 1: book value for the most part, and still for the 442 00:25:09,200 --> 00:25:12,159 Speaker 1: most part cover their dividends sometimes by one, two or 443 00:25:12,520 --> 00:25:16,320 Speaker 1: three times so. And banks are still open for business. 444 00:25:16,640 --> 00:25:21,040 Speaker 1: The growth and deposits at Bank America and JP Morgan Wow. 445 00:25:21,400 --> 00:25:23,760 Speaker 1: I mean over the past year they grew equal to 446 00:25:23,880 --> 00:25:27,320 Speaker 1: the fifth or sixth largest bank. So I give the 447 00:25:27,320 --> 00:25:31,760 Speaker 1: banks for the second quarter earnings a B plus. But 448 00:25:31,840 --> 00:25:35,200 Speaker 1: when it comes to the outlook, Tom, nobody knows. It's 449 00:25:35,200 --> 00:25:37,520 Speaker 1: a very uncertain times. You need to be ready for 450 00:25:37,600 --> 00:25:40,800 Speaker 1: a variety of scenarios. I love having you on Mike 451 00:25:40,960 --> 00:25:43,400 Speaker 1: as always. Twin peaks of pain. You have a way 452 00:25:43,480 --> 00:25:46,399 Speaker 1: with words. Pair the twin peaks of pain with the 453 00:25:46,560 --> 00:25:51,320 Speaker 1: record revenues, the record income from investment, banking and trading volumes. 454 00:25:51,520 --> 00:25:54,199 Speaker 1: How much does this bring up political risk for the 455 00:25:54,240 --> 00:25:58,040 Speaker 1: banks at a pretty unseemly time, The idea of profiting 456 00:25:58,320 --> 00:26:02,280 Speaker 1: at a time of such economic pain. Well, look, banks 457 00:26:02,320 --> 00:26:06,280 Speaker 1: are serving customers and sometimes, like in March, banks were 458 00:26:06,320 --> 00:26:10,920 Speaker 1: serving customers with record lending as revolvers were getting drawn down. 459 00:26:11,280 --> 00:26:14,840 Speaker 1: In the second quarter, banks were serving customers by issuing 460 00:26:15,000 --> 00:26:19,160 Speaker 1: debt to the capital markets. Record debt issuance uh year 461 00:26:19,200 --> 00:26:22,160 Speaker 1: to day, and it's natural that you have strong trading 462 00:26:22,480 --> 00:26:25,520 Speaker 1: that follows that. So whether you serve clients with lending 463 00:26:25,600 --> 00:26:27,920 Speaker 1: or if you serve them with capital markets, you're still 464 00:26:28,160 --> 00:26:31,560 Speaker 1: serving clients. So I'd say that criticism is more of 465 00:26:31,600 --> 00:26:35,399 Speaker 1: a twenty century criticism and the twenty one century you 466 00:26:35,480 --> 00:26:39,400 Speaker 1: know financial world. Um, if you're serving the customer, if 467 00:26:39,400 --> 00:26:42,560 Speaker 1: you're a large bank looking forward, given the uncertainty, given 468 00:26:42,560 --> 00:26:44,960 Speaker 1: the likely pain in the consumer that a lot of 469 00:26:45,000 --> 00:26:49,000 Speaker 1: big bank executives are expecting, which financial firm is best 470 00:26:49,080 --> 00:26:54,760 Speaker 1: position to increase profitability going forward? Based on these results, Well, look, 471 00:26:55,240 --> 00:26:58,240 Speaker 1: you have the twin peaks of pain. Uh. The good 472 00:26:58,280 --> 00:27:01,600 Speaker 1: news is that the reserves for those future losses you 473 00:27:01,800 --> 00:27:05,160 Speaker 1: have been built more than ever before. These are sobering times. 474 00:27:05,400 --> 00:27:08,840 Speaker 1: We expect loan losses to increase by about threefold over 475 00:27:08,880 --> 00:27:11,080 Speaker 1: the next couple of years. But the other part of 476 00:27:11,080 --> 00:27:14,360 Speaker 1: the pain, the net interest margin, should hurt the more 477 00:27:14,440 --> 00:27:18,040 Speaker 1: plain vanilla banks more than anyone else. So we're going 478 00:27:18,040 --> 00:27:21,560 Speaker 1: with the largest banks, you know, City Group, Bank America 479 00:27:21,600 --> 00:27:24,879 Speaker 1: and JP Morgan because they are more diversified, they have 480 00:27:25,040 --> 00:27:30,639 Speaker 1: more levers to pull, and digital banking. Digital banking is 481 00:27:30,680 --> 00:27:35,120 Speaker 1: being dominated by the largest banks because they have better technology. 482 00:27:35,160 --> 00:27:37,479 Speaker 1: You're seeing the market share there and you're seeing an 483 00:27:37,480 --> 00:27:41,840 Speaker 1: acceleration of their five or tenure plans into the next 484 00:27:41,920 --> 00:27:44,760 Speaker 1: year because customers have been forced out of the banks. 485 00:27:44,840 --> 00:27:48,359 Speaker 1: Mike Mayo, can you explain why Goldman Sachs wants to 486 00:27:48,400 --> 00:27:52,560 Speaker 1: be a plain vanilla bank of all the ironies, of 487 00:27:52,640 --> 00:27:56,720 Speaker 1: all the ironies, Goldman Sachs strategy has to become more 488 00:27:56,800 --> 00:27:59,920 Speaker 1: bank like. And then you see the second quarter resolve. 489 00:28:00,560 --> 00:28:05,560 Speaker 1: They knocked the cover off the ball with fantastic underwriting 490 00:28:05,640 --> 00:28:10,719 Speaker 1: against serving clients trading. The traditional roots of Goldman Sacks 491 00:28:10,800 --> 00:28:13,520 Speaker 1: really came out. So this quarter showed you that Goldman 492 00:28:13,560 --> 00:28:17,119 Speaker 1: Sacks is still Goldman Sacks like they've been over the 493 00:28:17,160 --> 00:28:19,560 Speaker 1: past hundred years, and not what they want to be 494 00:28:19,600 --> 00:28:22,200 Speaker 1: in the future. Michael Mayon, thank you so much, greatly, 495 00:28:22,280 --> 00:28:25,000 Speaker 1: greatly appreciate it. With wells fard it was always must 496 00:28:25,000 --> 00:28:28,080 Speaker 1: read on the street. Thanks for listening to the Bloomberg 497 00:28:28,160 --> 00:28:34,120 Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 498 00:28:34,480 --> 00:28:38,680 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 499 00:28:38,760 --> 00:28:43,000 Speaker 1: Tom Keane before the podcast. You can always catch us worldwide. 500 00:28:43,440 --> 00:28:44,560 Speaker 1: I'm Bloomberg Radio