Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily
Speaker 1: we bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
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Speaker 1: Donald joins us now with Manuelie. Francis. Let me take
Speaker 1: that headline of continued tariffs. Can you make the assumption
Speaker 1: that any new tariffs diminish our economic growth? And if
Speaker 1: that's the case, what is your run rate for the
Speaker 1: economy in the next year. Well, you know, in the
Speaker 1: economy was and put lightly booming, it was doing really well.
Speaker 1: It could take the near term headwind of additional tariffs.
Speaker 1: What would worry me heading into one is you know,
Speaker 1: we're still in the greatest economic shock over fifty years.
Speaker 1: This is not the time to be putting additional headwinds
Speaker 1: on this economy. So you would find I suspect if
Speaker 1: you move towards additional tariffs that you would have more
Speaker 1: damn ward revisions. But you know, your question is really
Speaker 1: well framed, which is what is the run rate for
Speaker 1: the economy? And what we've failed to talk about so
Speaker 1: much in COVID is what does the trend growth look
Speaker 1: like afterwards? Are we getting back to two percent growth?
Speaker 1: My suspicion is because of a lot of the damage
Speaker 1: created here, we're going to see a lot of people
Speaker 1: revising down their potential g d P numbers, and tariffs
Speaker 1: are just going to make that worse. Well. Meanwhile, though,
Speaker 1: seeking on the tariffs and the sort of deglobalization theme
Speaker 1: that we were talking about earlier with Sir Peter westmacod
Speaker 1: the idea that a deglobalization wave and increase in tariffs
Speaker 1: will increase inflation even if growth stays somewhat stagnant. Do
Speaker 1: you buy into that argument that a number of people
Speaker 1: are putting forth. Yes, we suspect that if we do
Speaker 1: see this ongoing deglobalization trend, which isn't just focused on
Speaker 1: US and China, it's happening globally, that does contribute to
Speaker 1: moderate inflationary pressures. We see tons of potential for two
Speaker 1: and a half to three percent inflation in the United States.
Speaker 1: I will say that's more US focused than it is
Speaker 1: around the rest of the world. And again, three COVID,
Speaker 1: we were really fading fighting deflation. We were looking at
Speaker 1: some two percent inflationary pressures. Now because of a supply
Speaker 1: side shock movements in US dollar commodities, the FET is
Speaker 1: going to be focusing more on what it does with
Speaker 1: slightly above to percent inflation. So now if you add
Speaker 1: on that global globalization shock, this is a very different
Speaker 1: paradigm to be implementing trade wards. It's gonna yield very
Speaker 1: different outcomes than what it did, or differently put, you know,
Speaker 1: have a different impact on the economy, worsening some of
Speaker 1: the challenges that we're probably going to face over the
Speaker 1: next two to five years. This is conventional economic wisdom, Francis,
Speaker 1: so it's not controversial. But let me ask you this
Speaker 1: question right here. Last night, the vice president had to
Speaker 1: sit across from someone who was talking about I'm doing
Speaker 1: the work that they've done, and you could see it
Speaker 1: took offense to it. He was talking about the tax
Speaker 1: regime and the tax cut that the vice president, the president,
Speaker 1: this administration had pushed through. The candidate to become the
Speaker 1: vice president, Kamala Harris said they would undo that. On
Speaker 1: day one. They said there would be no tax heights
Speaker 1: for anyone under earning under four ks. You made that
Speaker 1: clear several times, but the corporate tax rate didn't come up,
Speaker 1: not in any detail. And I wonder how you would
Speaker 1: process that if if the next couple of months they
Speaker 1: took control of the White House and the administration had
Speaker 1: the power to get this through Congress, if they undid
Speaker 1: that corporate tax cut of several years ago, how would
Speaker 1: that shift from the American economy. So you say this
Speaker 1: is conventional thinking, but actually so much of what's happening
Speaker 1: with deficits, government debt, and the rule of government that
Speaker 1: conventional thinking is being flipped on its head as we
Speaker 1: explore more things like modern monetary theory and maybe the
Speaker 1: idea that deficits aren't so bad regardless of who wins,
Speaker 1: we should be preparing for exceptionally large deficits and the
Speaker 1: highest level of government debt to GDP that we have
Speaker 1: seen in a mirror ki in history, or at least
Speaker 1: in the past two hundred years. So we're gonna be
Speaker 1: having very big conversations about what those deficits and large
Speaker 1: debt mean. From my perspective, it means no matter who wins, Yes,
Speaker 1: what they spend on will change, but you're going to
Speaker 1: see phenomenal issues at the long end of the curve,
Speaker 1: and you will see ongoing acceptance of the idea that
Speaker 1: large deficits are okay. That means a sleeping of the curve,
Speaker 1: particularly at the long end, and it probably means we
Speaker 1: need to reevaluate that rule of government in this economy.
Speaker 1: Government is going to get bigger in the US and
Speaker 1: global economy. It's probably going to become a larger employer.
Speaker 1: And I suspect that that is regardless of winds. And
Speaker 1: that's the main tradeable thing here. Not trying to game
Speaker 1: what comes out of November three or the following two
Speaker 1: weeks after that, but one of the seismic shifts that occurred,
Speaker 1: and I think really that's turning conventional thigging on its head. Well, Franstis,
Speaker 1: when we came out of the last election, it was
Speaker 1: all this happy talk about infrastructure spending, and the Trump
Speaker 1: trite turned out to be something very different. It was
Speaker 1: the tax cut trite. At the end of the day,
Speaker 1: I seen I just wonder. I'm just trying to get
Speaker 1: my hands around what this would make for the equity market,
Speaker 1: because the approach right now is a glass haft full
Speaker 1: andrew sheet some more can Stanley us in that line
Speaker 1: Overnight in an interview with US, and I just want
Speaker 1: to Francis for you whether that's a complete picture, because yes,
Speaker 1: there will be some fiscal stimulus regardless of who wins
Speaker 1: this election. But one party is talking about hiking corporate
Speaker 1: tax rights again, the other one is in I do
Speaker 1: not believe that this economy will be in a position
Speaker 1: in the next eighteen months to take any form of
Speaker 1: material tax hikes. We are sitting right now feeling really
Speaker 1: good because a lot of our economic data has shown
Speaker 1: V shaped recoveries, but a lot of that V shaped
Speaker 1: recoveries are red herrings. Housing is not behaving as it
Speaker 1: typically does. Auto is not behaving how it typically does.
Speaker 1: We have I'm looking at my Bloomberg screen here um
Speaker 1: eleven million Americans who are on claims right now, we
Speaker 1: are extremely vulnerable to any type of disruption. And yes,
Speaker 1: if things go well, we get a fiscal package, we
Speaker 1: aid Americans through the next six to twelve months, then
Speaker 1: we can absolutely continue on our road to recovery and
Speaker 1: make these tax changes. But if there is an additional shock,
Speaker 1: if there is an accident, whether it's a geopolitical or financial,
Speaker 1: then we are staring down the possibility and the growing
Speaker 1: tail risk of a double dip here. Now is not
Speaker 1: the moment for large structural changes, and it's the moment
Speaker 1: to build a bridge to the other side. We're still
Speaker 1: an incredibly vulnerable moment in the US economy. Similarly, a
Speaker 1: message for both parties at the moment, Francis fantasy to
Speaker 1: catch up. Francis don't want that of money life investment management.
Speaker 1: Thank you. Right now, We're gonna rip up the script
Speaker 1: and then rip it up again and rip it up
Speaker 1: again through the morning with Rick Davis, formerly the campaign
Speaker 1: manager for Senator McCain of Arizona and of course a
Speaker 1: Bloomberg contributor, Rick, what is the debate Commission? Like, how
Speaker 1: do the candidates and their staff like you go back
Speaker 1: and forth with the debate condition? Are you the boss
Speaker 1: or is it debate Commission the boss? Yeah, it's a
Speaker 1: it's a really hard answer because nobody's the loss. The
Speaker 1: commission sets up a bunch of rules, they pick a
Speaker 1: bunch of sites, then they sit down with the nominees
Speaker 1: of the party. They do this year's in advance, and
Speaker 1: then they sit down with the nominees of the party
Speaker 1: and they start negotiating and out of that negotiation comes
Speaker 1: some version of that schedule and those rules. Uh, some
Speaker 1: of those negotiations are directly between the two candidates. Uh.
Speaker 1: We had Lindsey Graham is our negotiator and Rama Manuel
Speaker 1: was the negotiator for Barack Obama. And we actually got
Speaker 1: so frustrated with the Debate Commission we decided we were
Speaker 1: just going to do the debates ourselves. Then we realized
Speaker 1: the logistics on that was too much, and we went
Speaker 1: back to the commission. But the rules of commission put
Speaker 1: together are meant to be standardized, and that you then
Speaker 1: create a memori Okay, but Rick the brilliantly explained huge
Speaker 1: public value. It's not a standardized time. Is the president?
Speaker 1: What's his power here as president, as candidate and with
Speaker 1: his visibility obviously in his vocal treatment, what's his ability
Speaker 1: to change the commission or make a more malleable process
Speaker 1: to get to his outcome. Yeah, you can always say no,
Speaker 1: And that's what the president is saying this morning. I
Speaker 1: would say, though, the Debate Commission would never have announced
Speaker 1: that they did agree on a virtual debate unless somebody
Speaker 1: in the Trump campaign had said yes to that. So
Speaker 1: this is another example of Donald Trump not being connected
Speaker 1: to the leadership of this campaign and and now going
Speaker 1: rogue on the Debate Commission and probably the Biden campaign
Speaker 1: because the Biden campaign was signed off on this format too.
Speaker 1: I would say we tried this in the primaries in
Speaker 1: two thousand when I ran John McCain's campaign against George W. Bush,
Speaker 1: and we didn't want to do a debate because the logistics.
Speaker 1: It was on the other side of the country and
Speaker 1: we were trying to campaign to win, and the press
Speaker 1: pressure on us to participate in that debate forced us
Speaker 1: to do a virtual debate where the two of us
Speaker 1: were in different sizes of the country, and for my purposes,
Speaker 1: that was a dis ester. Rick, Just to jump in,
Speaker 1: just some response from the campaign that I want to
Speaker 1: bring to our audience very quickly, they will pass on
Speaker 1: the sad excuse for a debate. The campaign will hold
Speaker 1: a rally instead of that remote debate. So it looks
Speaker 1: like the president in the campaign on the same page here, Rick,
Speaker 1: I just wander from your perspective with this poll just
Speaker 1: coming in from Fox News with Biden having a fifty
Speaker 1: three to forty three lead nationally, where do you see
Speaker 1: the polls right now? Because I read the polls out
Speaker 1: this morning. I've gone through the numbers multiple times, and
Speaker 1: Tom just calls up into a ball thinking about four
Speaker 1: years ago, what are they worse right now? Rick? How
Speaker 1: do you read the polls? Yeah, so, first of all,
Speaker 1: you gotta understand, polls are a static picture. They're not dynamic.
Speaker 1: They don't take people's opinions over time. They take them
Speaker 1: in one instance, so they're only accurate that day. And
Speaker 1: in a campaign that's moving around, like four years ago,
Speaker 1: where you had all these massive black swan events in October,
Speaker 1: you know, whether it was a Hollywood uh video o
Speaker 1: or Comey reopening the investigation of Hillary. The polls don't
Speaker 1: take that into consideration. They only give you a snapshot.
Speaker 1: So what we know today is that Biden has some momentum,
Speaker 1: some movement toward him since the last debate, including the
Speaker 1: period of time that that that the President contracted COVID,
Speaker 1: And it looks like some of that movement is in
Speaker 1: a new voter group, not just suburban women, but white males.
Speaker 1: And that is a signal to Trump that he may
Speaker 1: have a Trump problem with his base. Rick, how much
Speaker 1: momentum did Mike Pence give to the Trump campaign last night?
Speaker 1: You know, I think that he stabilized the Trump campaign.
Speaker 1: I mean, think about what's happened in one week. The
Speaker 1: Trump debate was a disaster a week ago for Donald Trump.
Speaker 1: He almost immediately contracted COVID and then he blew up
Speaker 1: his own negotiations over the stimulus. That's one week. That's
Speaker 1: an amazing amount of activity. And so I think last
Speaker 1: night what what Mike Pence did was something that the
Speaker 1: campaign hasn't been able to do before with the candidate,
Speaker 1: and that is stabilized the debate. His set of facts,
Speaker 1: his diagram of where the country is headed, is exactly
Speaker 1: what the Trump campaign has been selling, and he did
Speaker 1: a good job delivering that, did a very confident job.
Speaker 1: Just to wrap things up, Rick, very quickly, we had
Speaker 1: the former New York mat Rudy Giuliani on the program yesterday.
Speaker 1: Without much prompt ding or encouragement, he came out swinging.
Speaker 1: What we see today is the campaign coming out swinging
Speaker 1: against the Debate Commission. This is that classic siege mentality
Speaker 1: in the final few weeks of the campaign, every once
Speaker 1: against us. Is this a strategy that's gonna work? Rick?
Speaker 1: Is it working now? Well? You know, the bunker is
Speaker 1: a very nasty place to have to occupy. And that's
Speaker 1: where the Trump campaign is right now. Not only is
Speaker 1: their top leadership out with COVID, but the polls are
Speaker 1: turning against him. I would say one thing that sort
Speaker 1: of defies that is the nimbleness or lack there of,
Speaker 1: of Donald Trump's addressing the stimulus negotiations. He's flip floped
Speaker 1: now three times in three days. Um, there's no question
Speaker 1: that that Congress wants a stimulus. They know what the
Speaker 1: public needs and and what the Fed is requiring, and
Speaker 1: so I think that the decision making at the top
Speaker 1: has always been Donald Trump. There's no campaign that's going
Speaker 1: to get in his way. He's running the bus and
Speaker 1: the buses veering all over the road, and that does
Speaker 1: not help him collect the votes he needs for election day. Rick,
Speaker 1: wonderful to catch up to get your inside, Rick Davis
Speaker 1: that the former McCain campaign MANTAA and BLIMPA contributor Michael
Speaker 1: Moore joins us right now ahead of all of our finances.
Speaker 1: We're thrilled you could take time out from a hollacious
Speaker 1: day as well. Michael Moore, is there any evidence from
Speaker 1: your team did if you roll up in industry, profits
Speaker 1: go up. I don't know that profits go up, but
Speaker 1: is this feeling that scale matters in the asset management
Speaker 1: business as more and more of the money moves to
Speaker 1: passive so that you can't survive as a niche player.
Speaker 1: Uh not that either Eaton Vans or Morgan Stanley was
Speaker 1: exactly niche, but they weren't part of the trillion dollar
Speaker 1: club of the behemoth. And now together they joined that club.
Speaker 1: Will they add profit to Morgan Stanley's income statement? Yeah,
Speaker 1: I think that's the idea. I mean, James Gorman has
Speaker 1: really reshaped Morgan Stanley. I mean he started with the
Speaker 1: Smith Barney deal in the financial crisis, and now this
Speaker 1: year you have e Trade and you have Van and U.
Speaker 1: I think his strategy as those all can work together,
Speaker 1: and now you know, the traditional investment bank is less
Speaker 1: than half the firm Bloomberg surveillance worldwide. Michael Moore bringing
Speaker 1: up the elephant in the room. Let's go to someone
Speaker 1: with some experience on Smith Bernie Sweet. How did that go? Yeah,
Speaker 1: it's interesting Smith Barney. It's just you know that it's
Speaker 1: just a behemouth, you know, just got a tremendous amount
Speaker 1: of brokers out there, gives them immediate retail presence. Michael,
Speaker 1: I mean when you think about Morgan Stanley here, give
Speaker 1: us a sense of where their asset management business kind
Speaker 1: of ranks, uh in the world of asset management, which
Speaker 1: is facing uh pressure on fees. Yeah. I mean it
Speaker 1: was always seen UH as one of the smaller players,
Speaker 1: at least among the bank asset managers. You have Goldman
Speaker 1: and JP Morgan with huge businesses on the asset management side.
Speaker 1: Morgan Stanley was always a bit smaller, especially after the
Speaker 1: financial crisis. They sold their van camp in business uh,
Speaker 1: and you know, Gorman later said he regretted that move.
Speaker 1: So this seems to be um reversing that. And then
Speaker 1: some black Rock's got thirty something percent operating mark. Morgan
Speaker 1: Stanley is a little later on that. Obviously the goals
Speaker 1: to get operating margin up as well. How do you
Speaker 1: actually affect this, Michael Moore? You mean, today's a day
Speaker 1: where nobody talks about job cuts are overlays and overlaps.
Speaker 1: I mean, what happens to the say, two thousand people
Speaker 1: at Eaton events right right right? I think you probably
Speaker 1: will see some some overlap there, um, you know, but
Speaker 1: the thing for the banks is not just the operating margin,
Speaker 1: but the return on equity. And the really attractive uh
Speaker 1: piece of both asset management and wealth management is the
Speaker 1: capital charges are so much lower than the trading and
Speaker 1: investment banking sides of the business. So it's interesting, Michael.
Speaker 1: I'm looking at the b Q function for Morgan Stanley
Speaker 1: and look seeing that the stock is down about four
Speaker 1: point seven year today, doing better than its peers. Is
Speaker 1: that a validation Mr Gorman's focus on private wealth as
Speaker 1: opposed to maybe some of the more volatile capital markets businesses. Yeah.
Speaker 1: I think you'd have to say that, especially in a
Speaker 1: year where the traditional trading businesses have done quite well. Um.
Speaker 1: So the fact that they're holding up even in that environment,
Speaker 1: uh does seem to validate that strategy. You know, Gorman
Speaker 1: saying today that it's a happy coincidence that they're doing
Speaker 1: these deals while uh, the investment banking side of things
Speaker 1: is doing, uh, doing quite well at least in the
Speaker 1: first half. And we'll learn more on the next week
Speaker 1: on the third quarter. Michael Moore, thank you so much.
Speaker 1: Getting ready for next week as big as week of
Speaker 1: the any day swing Michael Moore ahead of our US
Speaker 1: finance team, all of our coverage of global Wall Street
Speaker 1: right now widely anticipated for you. Abby Joseph Cohen joins
Speaker 1: US with Goldman Sachs or Advisory Director and senior investment
Speaker 1: Strategy And of course the lay of the land here
Speaker 1: is when Abby Joseph Cohen tries to synthesize our economics
Speaker 1: and our finance into a belief in the equity markets.
Speaker 1: All listen, whether they agree or disagree, Abby, just simply, now,
Speaker 1: can you, at the margin acquire equities this morning? That's
Speaker 1: a terrific question Tom for traders um and the answer is,
Speaker 1: of course, it depends upon your time horizon. The Goldman
Speaker 1: Sacks House few is that SNP five is currently modestly undervalued,
Speaker 1: and of course that's based upon the straight arithmetic what
Speaker 1: we expect for corporate profits, but also very importantly what
Speaker 1: we expect from the Fed. And if you think the
Speaker 1: Fed is going to stay friendly, then there could be
Speaker 1: some room to grow in the equity market. By the way,
Speaker 1: not just in the United States, but in the other
Speaker 1: major markets as well. However, what we've discovered is that
Speaker 1: there is intense volatility and it has been rising. That
Speaker 1: is not unusual, uh, as we approach a major election
Speaker 1: in the United States, and also as we see that
Speaker 1: there has been some erratic movement with regard to fiscal policy.
Speaker 1: It's not just the Fed. We're also now looking at
Speaker 1: what happens to the stimulus bill. I think it was
Speaker 1: very clear over the last few days f O m
Speaker 1: C and other statements from the Fed that they believe
Speaker 1: we need another stimulus package. Speaker Pelosi with David Weston
Speaker 1: here in the twelve noon hour, Abby, I want to
Speaker 1: go back to when it was just so darn simple.
Speaker 1: John Templeton was there, Schreyer was there, Marylynch, Robert Kirby
Speaker 1: and they talked to lu Rue Kaiser about the simplicity
Speaker 1: of a stock market major crash, etcetera, etcetera. Now there
Speaker 1: is so much complexity, there is so much information to flow.
Speaker 1: How do you stay convict with a convict? Should call
Speaker 1: on equities? Given the complete cacophony of information that we have,
Speaker 1: you know was a market event. Basically the economy had
Speaker 1: not been afflicted by whatever was going on, So it
Speaker 1: was okay to go back to those models do a
Speaker 1: calculation about valuation. That is not the situation right now,
Speaker 1: And I have to tell you that I am quite
Speaker 1: concerned that there could be considerable downside as well, depending
Speaker 1: on any number of factors that we can't fit easily
Speaker 1: into our models. This includes what will the Congress do,
Speaker 1: what will the President say, and of course the election outcome.
Speaker 1: And so those of us who have lived our professional
Speaker 1: lives really focusing in on the math, I think should
Speaker 1: feel very humble right now, because what we recognize is
Speaker 1: that the models may not be able to properly reflect
Speaker 1: all of the volatility, not just in the markets, but
Speaker 1: in the economy, in policy, and also of course an
Speaker 1: investor sentiment one other thing. Within the equity market itself,
Speaker 1: there are wide gaps in relative valuation and that tells
Speaker 1: us something too. When markets rising, what we see is
Speaker 1: that there are just a handful of stocks that tend
Speaker 1: to drive that performance, and that of course could make
Speaker 1: the market more suspect as well and more volatile and
Speaker 1: vulnerable should there be some disappointments with regard to just
Speaker 1: a small handful of those particular issues. I mean, good
Speaker 1: morning from London. What what examples the market you think
Speaker 1: pricing in at the moment, And when you say, you know,
Speaker 1: it is very difficult to read what the U S
Speaker 1: election will bring in terms of composition of the House
Speaker 1: or even you know, giving of power if Joe Biden
Speaker 1: were to win. So how does the market react in
Speaker 1: that case? When we take a look at a lot
Speaker 1: of the surveys that are done of investors, what we're
Speaker 1: seeing is the I don't want to say presumption, but
Speaker 1: the increasing probability of let's call it the blue wave. Uh.
Speaker 1: There seems to be in probability that Mr Biden will
Speaker 1: be elected based upon polling. Uh. There is the possibility
Speaker 1: that the Senate could switch over to the Democratic column,
Speaker 1: and of course there is the presumption. This is a
Speaker 1: presumption that the House will stay blue. And what we're
Speaker 1: seeing from investors over the last several days is that
Speaker 1: a blue wave might not be such a bad thing
Speaker 1: because it would give us more certainty with regard to policy,
Speaker 1: particularly with regard to the use of fiscal policy to
Speaker 1: help our economy. At this point, the general sense is
Speaker 1: that while the economy is recovering, it is recovering slowly
Speaker 1: Number one. Number two, there are structural problems that need
Speaker 1: to be addressed in terms of long term unemployment. Some
Speaker 1: of the industries that have been very hard hit and
Speaker 1: these are things that interest rate policy writ large doesn't
Speaker 1: really help. It has to be done through fiscal policy.
Speaker 1: And so what we basically see is that investors are
Speaker 1: now looking at the possibility of movement towards the Democrats.
Speaker 1: Uh that may in fact be viewed in a positive way.
Speaker 1: And here I'm talking about not the short term modeling
Speaker 1: based upon what's happening in this year's corporate profits and
Speaker 1: so on, but rather the longer term outlook for twenty
Speaker 1: one and beyond. But what does it mean for how
Speaker 1: so let's say we do have a Biden administration was
Speaker 1: actually you know, also Democrats in the House, what does
Speaker 1: it mean for what the how the econmual will change
Speaker 1: in the US? Yeah. One of the things I believe
Speaker 1: that I've picked up anecdotally, and I stressed this as anecdotally,
Speaker 1: is that what I speak to investors, there is some
Speaker 1: uncertainty as to what the president uh plans would be
Speaker 1: in a second second term. Uh So there's not really
Speaker 1: an understanding beyond tax policy in terms of what would happen.
Speaker 1: There has been disappointment, for example, in terms of no
Speaker 1: follow up on infrastructure policy. Uh. There are concerns in
Speaker 1: terms of what would happen with regard to regulatory policy,
Speaker 1: particularly as it relates to some environmental issues. And there
Speaker 1: are also some concerns as relates to healthcare. Now, one
Speaker 1: of the things that many investors are now concerned about,
Speaker 1: as are many voters, is that we have a rise
Speaker 1: in unemployment. Fortunately, it has been moving lower. One of
Speaker 1: the reasons it's moving lower is not just because jobs
Speaker 1: are being restored. We've now restored about half of the
Speaker 1: twenty two million jobs that were lost, but we also
Speaker 1: see that people are stepping out of the labor force.
Speaker 1: And just the arithmetic of what is an unemployment rate UM,
Speaker 1: the denominator is the number of people in the labor
Speaker 1: force looking for jobs, and we see that that number
Speaker 1: has been getting smaller UM, and that is of concern
Speaker 1: um too many people. Uh. And so when we take
Speaker 1: a look at what investors are concerned about now, not
Speaker 1: much concerned about what this quarter's earnings will be your
Speaker 1: next quarter. And even for one, even though the cans
Speaker 1: the Goldman Sack's view is a little bit stronger than
Speaker 1: the consensus, the general view is that world economic growth
Speaker 1: will be jumping up fixed to eight UM next year.
Speaker 1: In part because of a low base. But what happens
Speaker 1: after that and what happens to some of the structural
Speaker 1: problems that have been unveiled by in fact, this this
Speaker 1: very difficult pandemic Joseph ConA, Goldman Sachs and Advisory director
Speaker 1: and senior investment strategist, Abby, you know, I kid about
Speaker 1: a three hour conversation. There's so many good research pieces
Speaker 1: your shop is putting out on the bigger broader view,
Speaker 1: but I really must come back to China and the collapse,
Speaker 1: the lessening of world trade. It's a serious issue. How
Speaker 1: do we fix it? It's an enormously serious issue, Tom,
Speaker 1: and we think that one of the best approaches is
Speaker 1: to work with our economic allies to fix this. And
Speaker 1: that's what the Transpacific Partnership was all about. Uh. This
Speaker 1: was a group of approximately fifteen countries with the United
Speaker 1: States at the head and other nations that are either
Speaker 1: based in Asia or do a great deal of trade
Speaker 1: in Asia, and the one exception to the membership was China.
Speaker 1: The idea was to create an economic alliance that would
Speaker 1: have some pushback against what China is trying to do.
Speaker 1: And one of the very first things that the Trump
Speaker 1: administration did upon taking office was to remove the United
Speaker 1: States from the TPP, but that organization continues on and
Speaker 1: what we basically see is that without US leadership, h
Speaker 1: the member states that remain are having a little more
Speaker 1: difficulty than they might have had in terms of pushing
Speaker 1: back against China. So I think that that was a problem. Uh.
Speaker 1: The other thing, of course, that we need to do
Speaker 1: is to make sure that we have appropriate trade alliances
Speaker 1: in other parts of the world as well, in including
Speaker 1: Europe UM. And what we have seen UH is very
Speaker 1: difficult actually to decipher in terms of how much of
Speaker 1: the deterioration in trade for the United States has been
Speaker 1: related to trade policy versus, of course the deterioration in
Speaker 1: the global economy at large. I mean, we're in a
Speaker 1: twin deficit. That's absolutely extraordinary. Stephen Roy Chuck's more Stanley
Speaker 1: and of course, as you know, Abby dr Roach at
Speaker 1: Yale University UH now really points out this this multiple
Speaker 1: deviation move in our twin deficit. Are you optimistic we
Speaker 1: can get that back to mean or is there a
Speaker 1: new permanence here to our challenge fiscal and trade deficits.
Speaker 1: You know, we can talk about the numbers Tom and
Speaker 1: I'll do that for just a moment, and to say
Speaker 1: that we have never seen numbers like this. When we
Speaker 1: look at the deficit, the best way to look at
Speaker 1: it is as a percentage of g d P, and
Speaker 1: it's currently running about which is simply astronomical. One of
Speaker 1: the big questions, however, is how are we using that deficit?
Speaker 1: Um number one and number two? Can we grow out
Speaker 1: of it? Uh? And I believe that the numbers this year,
Speaker 1: as horrifying as they are, don't really tell us as
Speaker 1: much as we need to know about the future. So,
Speaker 1: for example, if we look at the Congressional Budget Office,
Speaker 1: it looks like those deficit numbers will start moving somewhat lower. However,
Speaker 1: let's think about this, how are we using the money
Speaker 1: that we we have in terms of the fiscal stimulus
Speaker 1: and so on. If we use it to grow the economy,
Speaker 1: if we use it to provide relief where relief is needed,
Speaker 1: that is absolutely essential. Um and And so it becomes
Speaker 1: a question not just of the numbers, but what happens
Speaker 1: with him. Um. You know Steve Rhodes who I worked
Speaker 1: with as a child at the Federal Reserve in Washington
Speaker 1: many years ago. Uh, makes some very interesting points. And
Speaker 1: one of the things that I believe we need to
Speaker 1: talk about again is not just the twin deficit, but
Speaker 1: what does it mean for currency? What does it mean
Speaker 1: for the US dollar um Thus far, we are seeing
Speaker 1: that the dollar is okay, but in recent weeks and
Speaker 1: months we see that the dollar is coming off its
Speaker 1: high levels that it achieved early in twenty twenty. It's
Speaker 1: something that's worth watching because, as you well know, our
Speaker 1: treasury market often depends upon FIGN buying uh and and
Speaker 1: so we're watching that. The other thing to watch is
Speaker 1: FEIGN direct investment. That is, how much are companies directly
Speaker 1: investing in the United States. I'm not talking about portfolio
Speaker 1: stock portfolios. I'm talking about whether FEIGN companies are actually
Speaker 1: investing in the United States new factories and so on.
Speaker 1: This is not a good year to be measuring that
Speaker 1: because there's not much of that new construction going on anywhere.
Speaker 1: I mean, is the money going to the right places?
Speaker 1: I mean, you know, you said it beautifully. It needs
Speaker 1: to make sure that you're addressing the concerns in the
Speaker 1: economy so that we can grow out of this debt.
Speaker 1: Where should it go to? And are the current people
Speaker 1: in charge, you know, going to put it where it
Speaker 1: should be. So not propping up actually you know, I
Speaker 1: guess old energy or not propping up companies that wouldn't survive. Well,
Speaker 1: let's let's start pre pandemic. One of our concerns had
Speaker 1: been um where the money from the corporate tax cut went.
Speaker 1: We all know that with a sharp reduction in the
Speaker 1: effective tax rate of corporations, profit margins went up, cash
Speaker 1: levels went up, and in many industries that cash was
Speaker 1: not used for growth. Instead it was used to buy
Speaker 1: back shares increased dividends. That's great for investors short term,
Speaker 1: but long term, what investors need our companies that are
Speaker 1: using their cash and their profits to invest in the future.
Speaker 1: And we really didn't see enough of that um And
Speaker 1: so that's one thing that we're looking at which industries
Speaker 1: could be helpful. We are looking, for example, at what
Speaker 1: happens in terms of where are the future growth industries.
Speaker 1: Advanced manufacturing actually did see some increases. You know, when
Speaker 1: we talk about manufacturing, there are the differences between those
Speaker 1: things that are more commodity like and those things that
Speaker 1: are more ants, and the United States continues to do
Speaker 1: well in those categories. We need to focus there. We
Speaker 1: need to focus on infrastructure. And it's not just the
Speaker 1: roads and the bridges and the airports. As much as
Speaker 1: we need those and we need to repair those and
Speaker 1: that creates a lot of jobs. We also need to
Speaker 1: invest heavily in broadband. If we take a look at
Speaker 1: the parts of this country that are really suffering because
Speaker 1: they don't have it, it is the rural areas, and
Speaker 1: there are some urban deserts as well that don't have
Speaker 1: band coverage. Here in the City of New York ent coverage.
Speaker 1: There's some neighborhoods that don't have it. But when you
Speaker 1: go to the Midwest, you go to other parts of
Speaker 1: the country, we're looking at coverage broadband of those kids,
Speaker 1: those are not able to study remotely, Those businesses are afflicted,
Speaker 1: and you can't create as many new jobs there as
Speaker 1: you might like. I mean, I want you to stay
Speaker 1: with us, and I promise you Abby, I'm not gonna
Speaker 1: ask you about individual companies, but this is a hugely
Speaker 1: important and symbolics ory for global Wall Street international business
Speaker 1: machines will do what has been demanded for years. They
Speaker 1: are basically going to split up into two companies. They
Speaker 1: are going cloud. It is all the vogue and is Abby.
Speaker 1: Joseph Cohen mentions there is a talk of technological infrastructure
Speaker 1: is being dated and they will split that off. This
Speaker 1: is Arvin Krishna. This is a new IBM coming in
Speaker 1: in the spring of this year, creating a revolution after
Speaker 1: under performance ten years trailing IBM per year. I'm gonna
Speaker 1: call it three percent per year stock appreciation. The dividend
Speaker 1: trades like an electric utility in Germany, five or six percent,
Speaker 1: with mouldy single digit dividend growth. Abby, I don't want
Speaker 1: you to talk about IBM. You'd be put in the
Speaker 1: David Costant time out chair. But I do want you
Speaker 1: to talk about creative destruction in technology. This is one
Speaker 1: of your wheelhouses. It is in evitable that they clear
Speaker 1: out of old technologies, isn't it all of the companies
Speaker 1: in the greater technology area. Well, Tom, you are making
Speaker 1: a very valuable case, um, and one that I think
Speaker 1: has great validity. And the good fortune in the United
Speaker 1: States is a lot of the newer technologies and the
Speaker 1: leading technology companies are based here. And one of the
Speaker 1: things we of course need to encourage is this sort
Speaker 1: of creative discretion. Excuse me, creative destruction, not just in technology,
Speaker 1: but in a whole host of other industries as well.
Speaker 1: And one of the things that the pandemic has done
Speaker 1: has been to push us even more dramatically in that direction.
Speaker 1: Technology writ large is doing well in the pandemic because
Speaker 1: we all need technology to get our work done for
Speaker 1: those of us who are fortunate enough to be able
Speaker 1: to work from home. But there are so many other
Speaker 1: industries had have been terribly afflicted by this pandemic in
Speaker 1: terms of their employment and so on. And what we
Speaker 1: are seeing is that when we are emerging as we
Speaker 1: have begun to do, as this recession is easing up,
Speaker 1: and we are seeing growth now, what we are seeing, however,
Speaker 1: is that there are some industries that are lagging just
Speaker 1: because of time. I I need to get one more
Speaker 1: question in Abbey before we start your busy day, and
Speaker 1: that is a new regulation of Washington against Facebook, Apple,
Speaker 1: the winners as well. They're not going after international business
Speaker 1: with machines, which is a failed plan. We all agree
Speaker 1: with that. You and I remember across the Bloomberg terminal
Speaker 1: when the Justice Department dumped the Microphitesoft case. Are you
Speaker 1: worried about the regulation of America's technologically successful companies. I
Speaker 1: am always worried about inappropriate regulation, you know, capitalism or
Speaker 1: best with regulators who understand what the focus should be,
Speaker 1: and that is to enhance economic growth UM. And so
Speaker 1: what we have in that particular report UM is something
Speaker 1: that is an analysis. It's analysis. It's not necessarily a
Speaker 1: blueprint for what would happen in terms of regulatory moves.
Speaker 1: Recognize that it's not necessarily the Congress that will be
Speaker 1: making the ultimate decisions in this What they've done, however,
Speaker 1: is raised a number of very interesting red flags, some
Speaker 1: of them more relevant than others. But this is just
Speaker 1: the beginning of the discussion. I think there's a lot
Speaker 1: more to come. Uh. The professional regulators, of course, will
Speaker 1: be much more dramatically involved than they have been to
Speaker 1: this point. Abby, thank you so much generous of your
Speaker 1: time today, particularly on this breaking news. Abby, Joseph Cohen
Speaker 1: with Goldman Sachs. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: So subscribe and listen to interviews on Apple Podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keene before the podcast. You can always catch us
Speaker 1: worldwide I'm Bloomberg Radio