WEBVTT - Surveillance: Examining Economic Resilience 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jai Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.680 Bloomberg dot Com, and of course, on the Bloomberg Right 0:00:27.680 --> 0:00:30.040 now on the September eleventh, as we spoke to Tomas 0:00:30.080 --> 0:00:33.960 showed of KBW earlier, we now speak with b MP 0:00:34.120 --> 0:00:38.279 Parry by USA, Jean Eve Phileng He joins us right now. 0:00:38.320 --> 0:00:40.680 We're thrilled that he could be with us today. Johnny. 0:00:41.040 --> 0:00:43.480 The commitment of b MP Parry bout in New York 0:00:43.520 --> 0:00:46.879 City has been steadfast. Give us your thoughts on this 0:00:47.120 --> 0:00:51.760 nineteenth anniversary of this tragedy. Thank you, Thank you hard 0:00:51.760 --> 0:00:54.800 for having me by the way today. I would like 0:00:54.840 --> 0:00:58.640 to stop this morning and really acknowledging the significance of 0:00:58.760 --> 0:01:03.960 today's date, remembering those were lost on September eleven, two 0:01:03.960 --> 0:01:08.000 thousand and one. UM, this is going to be forever 0:01:08.280 --> 0:01:12.920 in our memory and UH and obviously particularly in UH 0:01:13.000 --> 0:01:16.240 in New York City. Look, Johnny, if at the uniqueness 0:01:16.240 --> 0:01:19.000 of this in the pandemic, and that speaks to what 0:01:19.160 --> 0:01:22.000 every business is doing which is ear to the ground, 0:01:22.080 --> 0:01:25.399 trying to feel what business is doing. JP Morgan bringing 0:01:25.440 --> 0:01:29.120 sales and trading back headlining today, what would be the 0:01:29.240 --> 0:01:33.120 action of BMP Perry but in North America in the 0:01:33.200 --> 0:01:36.720 coming weeks. Well, you know, in my position, obviously safety 0:01:36.720 --> 0:01:41.760 of employees is my absolute priority. However, we've started, you know, 0:01:42.120 --> 0:01:45.920 returned to the office plan, but it's gradually it's faced in. 0:01:46.080 --> 0:01:49.680 We're using rotation and uh to give you a sense, 0:01:49.920 --> 0:01:53.480 at the peak of the pandemic, we were probably of 0:01:53.520 --> 0:01:56.760 the staff working from home. Today we're eight to five 0:01:56.800 --> 0:01:59.760 percent of the staff still working from home. I'm expecting 0:01:59.760 --> 0:02:02.560 this to stay probably the way it is Untilia end 0:02:02.600 --> 0:02:08.480 and with a reasss where the pandemic is early in Johnny, 0:02:08.480 --> 0:02:10.440 if let's talk about something that I guess it's hard 0:02:10.480 --> 0:02:12.240 to do, but let's pretend, just for the sake of 0:02:12.280 --> 0:02:15.920 this argument, this conversation, that the pandemic goes away. Perhaps 0:02:15.919 --> 0:02:17.680 we have a vaccine in the next twelve months and 0:02:17.720 --> 0:02:20.960 it's widely distributed. What do you think will change permanently 0:02:21.040 --> 0:02:24.520 for you operating in New York City. Well, I would 0:02:24.520 --> 0:02:28.160 say the remote working I believe, uh, it's going to 0:02:28.240 --> 0:02:30.440 be part of the new normal even under the scenario 0:02:30.520 --> 0:02:34.360 you just described, John, As you know, we've we've discovered 0:02:34.360 --> 0:02:38.839 we can be so effective serving clients communicating uh during 0:02:38.880 --> 0:02:41.720 the pandemic. By the way, make no mistakes, I miss 0:02:41.800 --> 0:02:44.680 the face to face interaction. I wish, by the way, 0:02:44.760 --> 0:02:46.840 like we always do, I would be with you in 0:02:46.880 --> 0:02:49.880 the studio in person, but it's here to stay. I 0:02:50.000 --> 0:02:54.040 see another trend in terms of smaller real estate footprints 0:02:54.080 --> 0:02:58.520 in the dance urban areas consequence of more digitalization and 0:02:58.600 --> 0:03:01.600 working from home. Are you see business traveling will be 0:03:01.680 --> 0:03:05.239 dramatically different as there already reassess you know, the need 0:03:05.320 --> 0:03:08.040 to really uh you know, travel around the world, even 0:03:08.040 --> 0:03:09.920 though I would love to host you are in Paris 0:03:09.960 --> 0:03:13.440 one of these days. And from my clients, UM, I 0:03:13.520 --> 0:03:16.360 see an interesting trend and it's been back on force, 0:03:16.480 --> 0:03:19.760 but particularly for the US clients that are more international, 0:03:20.280 --> 0:03:24.360 A really a real willingness to for realdomistication of supply chains. 0:03:24.440 --> 0:03:29.399 For economics, I would say, um, independence as well as 0:03:29.440 --> 0:03:33.640 you know, job creation reasons A lot to unpack their 0:03:33.680 --> 0:03:36.800 John Age. Let's just talk about things operationally very briefly. 0:03:36.840 --> 0:03:39.200 We've seen with debt issuance, for instance, that supplies just 0:03:39.280 --> 0:03:41.440 kept coming through even in the summer, and I guess 0:03:41.440 --> 0:03:44.280 that's an example that we can work from home and 0:03:44.320 --> 0:03:46.800 we can get that death supply way in an efficient way, 0:03:46.920 --> 0:03:49.880 even in August, and perhaps even in places like Europe 0:03:49.880 --> 0:03:52.720 as well. I just wonder from an operational standpoint, what 0:03:52.800 --> 0:03:56.440 you did find difficult working from home? What a bank 0:03:56.480 --> 0:04:00.200 found hard to do well? I would say what at 0:04:00.200 --> 0:04:03.200 BNP pied by. We were probably fortunate to be already 0:04:03.360 --> 0:04:06.840 very you know, very digital, but still you know too 0:04:07.320 --> 0:04:09.960 nobody was ready to have this amount of staff working 0:04:10.000 --> 0:04:12.280 from home, and it was a one investing in bandwidth, 0:04:12.360 --> 0:04:17.200 small lap tops and um and and making sure rationally uh, 0:04:17.360 --> 0:04:20.360 you know, activities like you know, trading and payments and 0:04:20.640 --> 0:04:24.400 and clearing would continue to be uh to to to 0:04:24.400 --> 0:04:28.120 to be fine. Another dimension of working from home is, uh, 0:04:28.200 --> 0:04:32.800 it's actually it's harder, you know, somewhere somewhat because it's 0:04:32.920 --> 0:04:35.800 chop chop shop. You don't have much time between meetings, 0:04:35.839 --> 0:04:38.039 and you know, some some of our staff you know, 0:04:38.080 --> 0:04:40.840 at times, you know, might have felt isolated, and we're 0:04:40.960 --> 0:04:44.920 here to provide the support and hopefully the psychological support. However, 0:04:45.880 --> 0:04:48.800 I think a significant part of my staff like the 0:04:49.120 --> 0:04:53.320 getting closer to the communities. Know, the main fear of staff, 0:04:53.360 --> 0:04:56.240 by the way, is public transportation coming to the office 0:04:56.279 --> 0:04:59.200 and making sure the office is safe here. And John 0:04:59.240 --> 0:05:02.719 to your point, another real investment we had to make, 0:05:02.800 --> 0:05:06.080 we all had to make, is to make the workplace safer, 0:05:06.720 --> 0:05:10.000 much more adapted to this new fare of working. Johnny, 0:05:10.160 --> 0:05:12.599 that's that's a really good description of the day to 0:05:12.680 --> 0:05:16.000 day challenges is people try to get back to work 0:05:16.040 --> 0:05:18.640 in this current environment. On a broader sense, you talk 0:05:18.680 --> 0:05:22.160 about the red domestication of supply chains, there's also this 0:05:22.360 --> 0:05:25.719 d globalization wave that's been enhanced and the tensions that 0:05:25.720 --> 0:05:28.760 have been exacerbated by the pandemic. Do you feel it 0:05:28.920 --> 0:05:32.920 being a French bank operating in the US. Obviously we 0:05:32.960 --> 0:05:36.720 do feel it most importantly for me or clients feel it. 0:05:36.920 --> 0:05:40.520 And um, you know b antipipis headquartered in France, but 0:05:40.560 --> 0:05:44.400 it's rereally European bank today. Then we we we obviously 0:05:44.440 --> 0:05:48.560 have to make sure we can support clients, help clients 0:05:48.600 --> 0:05:52.080 managing this uncertainty you just you just described, you know, 0:05:52.279 --> 0:05:59.560 an area of increased activity because of this uncertainty and unstability. 0:05:59.600 --> 0:06:02.920 At times, lactility has been a real high demand in 0:06:03.000 --> 0:06:08.880 terms of hedging, you know, protection strategies across rates, currencies, commodities, 0:06:08.960 --> 0:06:12.680 and equities. Going forward. There's also a question of the 0:06:12.720 --> 0:06:15.520 consumer strength versus the investment bank. John I was talking 0:06:15.560 --> 0:06:19.520 about the robust issuance of corporate debt record August for that. 0:06:19.839 --> 0:06:21.920 Do you expect the consumer to take on more of 0:06:21.960 --> 0:06:24.440 that as we do see this ongoing strength and consumer 0:06:24.520 --> 0:06:26.679 spending or do you think that those who are putting 0:06:26.720 --> 0:06:29.239 faith in that perhaps the JP Morgan's and the Golden 0:06:29.240 --> 0:06:32.000 Saccess of the world have gotten ahead of themselves. Well, 0:06:32.279 --> 0:06:36.000 I think that's that's a very important point and important 0:06:36.080 --> 0:06:39.240 question here. Well on on on the capital markets, by 0:06:39.240 --> 0:06:42.320 the way, you're right, it's it's been, uh, it's been. 0:06:42.880 --> 0:06:46.240 It's it's been amazing in terms of how active they've 0:06:46.320 --> 0:06:49.640 been across your mention earlier, you know, high yield, high 0:06:49.640 --> 0:06:55.480 grade across all asset classies CEO Seattle's infrastructure project finance. Um. 0:06:55.960 --> 0:06:59.760 The what I see still I see a contrast between 0:06:59.800 --> 0:07:02.040 the very active capital markets and what I would call 0:07:02.120 --> 0:07:07.279 the real economy and how consumer confidence and consumers spending 0:07:07.400 --> 0:07:09.520 is going to be evolving of the next few months. 0:07:09.840 --> 0:07:11.720 Is really going to be depending on what John was 0:07:11.800 --> 0:07:15.600 mentioning before, how the pandemic is being managed and how 0:07:15.760 --> 0:07:18.680 fast do we managed to get a vaccine? And I 0:07:18.760 --> 0:07:23.200 would say, and only making it work, but distributing it widely. 0:07:23.360 --> 0:07:26.240 And I think that the whole constumer dynamic dynamic will 0:07:26.240 --> 0:07:30.040 be there as BNP Pariba. And again my life keeps 0:07:30.080 --> 0:07:34.040 me very modest but or integrated diversified business model, you know, 0:07:34.320 --> 0:07:39.760 retail wholesale help us manage you know, the various factors 0:07:39.800 --> 0:07:44.720 and trends, you know, consumer investment, banking, corporate institutional uh 0:07:45.120 --> 0:07:48.680 that you know obviously have been fluctuating depending on day 0:07:48.720 --> 0:07:51.920 to day conditions. Johnny, if I think the Mackenzie have 0:07:52.080 --> 0:07:54.920 called this the great acceleration, and I just wanted from 0:07:55.000 --> 0:07:58.200 your standpoint where E. S G fits into that great acceleration? 0:07:58.280 --> 0:08:00.280 How much emphasis has been put on that in the 0:08:00.360 --> 0:08:03.440 last couple of months Moving forward, it's been you know, 0:08:03.760 --> 0:08:06.120 s G has been in the map already for many 0:08:06.200 --> 0:08:09.480 many years. We actually this year have exceeded the one 0:08:09.640 --> 0:08:15.520 trillion of you know, green bond systemability financing issuance around 0:08:15.560 --> 0:08:19.360 the world. Uh. The pandemic has been an accelerator, as 0:08:19.440 --> 0:08:22.840 you know, we've all probably better understand figured out the 0:08:23.040 --> 0:08:27.320 impact on our communities, health economies. And by the way, 0:08:27.720 --> 0:08:31.640 I've seen this trend both on the investor and issue side. 0:08:32.320 --> 0:08:34.920 B ANDP BNP piable one of the only ones, but 0:08:35.080 --> 0:08:39.200 we've been a pioneer in insistainable finance. Today we lead 0:08:39.640 --> 0:08:42.760 in the table rankings in terms of floans uh in 0:08:42.920 --> 0:08:46.560 terms of bonds, and we raised recently actually were one 0:08:46.600 --> 0:08:50.280 of the first banks to structure systemability link derivative. Then 0:08:50.320 --> 0:08:53.240 it's really been part of the product offering. And I 0:08:53.320 --> 0:08:55.520 think it's a trend that is going to be reinforcing 0:08:55.559 --> 0:08:59.000 itself over the of the weeks, in the month major 0:08:59.080 --> 0:09:01.160 I want to expressial here and as E s G 0:09:01.640 --> 0:09:05.320 on the s of E s G is actually taking 0:09:05.520 --> 0:09:09.800 more and more visibility. You know, on the social side, 0:09:10.240 --> 0:09:13.920 you've seen you know, COVID nineteen Waiste cubones becoming much 0:09:14.000 --> 0:09:17.360 more of a factor. Here. We at BNP actually underworld 0:09:17.920 --> 0:09:22.719 large transactions in Europe and in Latin America for you know, 0:09:23.000 --> 0:09:27.240 very committed supernationals, institutionals and even banks are getting into 0:09:27.400 --> 0:09:30.800 this this tream. We're lucky to have you on the 0:09:30.880 --> 0:09:33.360 program with us this morning. Johnny, Thank you Johnny's filly 0:09:33.400 --> 0:09:41.840 on US CEO. Thank you, sir, oh we care about 0:09:41.920 --> 0:09:44.040 on this September eleventh, and we are thrilled to have 0:09:44.200 --> 0:09:48.000 with this Michael Show market Field Asset Management. He's one 0:09:48.040 --> 0:09:52.000 of our most astute conversations on the view forward. Michael, 0:09:52.080 --> 0:09:56.920 give us your sense of enthusiasm to own equities right now? 0:09:57.840 --> 0:10:00.160 You know, it is kind of slip send some of 0:10:00.200 --> 0:10:04.160 the measures um that I think track older, older, more 0:10:04.280 --> 0:10:07.960 established investors that show plenty of skepticism, the AII being 0:10:08.000 --> 0:10:11.199 the clearest. You know, outflows some mutual funds and e 0:10:11.280 --> 0:10:13.360 T f UM you know, have been significant for the 0:10:13.440 --> 0:10:16.679 last few weeks, and yet at the same time very obviously, 0:10:16.960 --> 0:10:18.319 you know, the end of the summer saw of this 0:10:18.480 --> 0:10:21.880 mad rush into a limited pocket of the US equity market. 0:10:21.920 --> 0:10:24.559 I mean, just a crazy rush. I mean it's just interesting, 0:10:24.640 --> 0:10:26.719 to say the least, what will be the what will 0:10:26.760 --> 0:10:28.480 be the next catalyst? Do we go to the FED 0:10:28.600 --> 0:10:31.840 meeting here mid September. No, I think the FED has 0:10:31.880 --> 0:10:34.120 sort of taken itself out of the equation, you know, 0:10:34.160 --> 0:10:36.559 I think Al was very clear that Jackson Hole that 0:10:36.679 --> 0:10:38.640 that the FED is going to be following the current 0:10:38.720 --> 0:10:42.199 policy for the you know, for the foreseeable for the 0:10:42.280 --> 0:10:44.720 foreseeable future. Now, I think it's going to be more 0:10:44.760 --> 0:10:48.280 about the resilience, the internal resilience of the equity market itself, 0:10:48.640 --> 0:10:51.240 whether support at the fifty day, particularly for an ASDA 0:10:51.400 --> 0:10:53.800 one holds, you know, and if it does, and I 0:10:53.880 --> 0:10:56.280 think this is just a consolidation that goes on, you know, 0:10:56.440 --> 0:10:58.560 goes on and breaks to the upside at some point 0:10:58.640 --> 0:11:01.200 in Q four or you know, if that's fifty day 0:11:01.240 --> 0:11:04.960 gives way, then then you potentially have more internal selling 0:11:05.000 --> 0:11:08.319 fressure in the most popular parts of the US equity market, 0:11:08.679 --> 0:11:11.120 or we can get a broader rebound in this equity 0:11:11.160 --> 0:11:13.599 market and the leadership rotates to our swear. Michael, do 0:11:13.640 --> 0:11:15.360 you think we can establish that in the coming weeks 0:11:15.400 --> 0:11:17.760 and months? You know, I do because I I you look, 0:11:17.800 --> 0:11:21.120 it's only a five days sell off now, um, you know, 0:11:21.200 --> 0:11:23.559 so it's not really a very long one. But you 0:11:23.640 --> 0:11:26.079 know what is notable is is some things have not 0:11:26.280 --> 0:11:28.640 gone down. Most of the cyclical sectors in the US 0:11:28.720 --> 0:11:33.559 of sidestep this transportation, um, most of the industrials, a 0:11:33.679 --> 0:11:36.160 market like Japan, you know, which again is very sort 0:11:36.160 --> 0:11:39.360 of cyclical, has shown absolutely no interest in, you know, 0:11:39.480 --> 0:11:42.120 in this sort of mini in this mini correction. And 0:11:42.440 --> 0:11:45.559 I always think that not going down UM is the 0:11:45.679 --> 0:11:49.959 first sign that something is moving towards is moving towards leadership. 0:11:50.000 --> 0:11:51.400 So I think we do have some hints of that. 0:11:51.880 --> 0:11:53.679 I think, as they say, you know, for that stuff 0:11:53.720 --> 0:11:56.400 to break out, I think you need the nastack to 0:11:56.440 --> 0:11:59.120 be ranged found. I think if the nastac actually broke down, 0:12:00.160 --> 0:12:02.840 it does enough damage to people that that there's probably 0:12:02.920 --> 0:12:07.000 a you know, a temptation to generally liquidate UM. And 0:12:07.080 --> 0:12:09.959 then you be talking about relative performance by not going 0:12:10.040 --> 0:12:12.520 down as much as the overall market, which isn't quite 0:12:12.559 --> 0:12:14.760 as good as breaking out. Michael, what do you think 0:12:14.760 --> 0:12:18.840 the big distinction is between you and a long tech crowd? Um? 0:12:20.120 --> 0:12:21.960 You know, I think I think partly I've been wrong 0:12:22.040 --> 0:12:26.480 for a lot of years about estimated texts text opportunity, 0:12:26.600 --> 0:12:29.719 But I do think that that people have missed the 0:12:29.800 --> 0:12:32.400 degree to which be what I call the jewable goods 0:12:32.440 --> 0:12:35.880 economy globally has really been a beneficiary of this COVID 0:12:35.960 --> 0:12:39.120 crisis that the the the personal sector of the corporate 0:12:39.200 --> 0:12:43.360 sector has been forced or encouraged to spend significant amounts 0:12:43.440 --> 0:12:48.240 on on on on retooling itself. Um, that that is 0:12:48.400 --> 0:12:52.920 a I believe a sustainable, a sustainable change in behavior. Michael, 0:12:52.920 --> 0:12:56.640 how much do you change positioning ahead of the US election? Um? 0:12:56.920 --> 0:13:00.280 Not a great deal for for myself. I think whichever 0:13:00.400 --> 0:13:03.599 party gets control, Um, you know, isn't you know? I 0:13:03.679 --> 0:13:06.160 think there degrees of fiscal support, but I think both 0:13:06.480 --> 0:13:08.640 are going to be generally fiscal supportive. It's not that 0:13:08.760 --> 0:13:12.959 we have austerity versus spending between you know, between the 0:13:13.040 --> 0:13:15.640 two parties. And I don't think monetary policy changes a 0:13:15.679 --> 0:13:18.600 great deal. You know, we haven't yet seen the market 0:13:18.679 --> 0:13:20.559 show a clear preference if you went back to two 0:13:20.600 --> 0:13:23.560 thousand and sixteen. By now we knew of the market 0:13:23.720 --> 0:13:27.160 wanted Hillary Clinton to win and Trump to lose. Ironically, 0:13:27.200 --> 0:13:30.200 it changed its mind three hours after the election result. 0:13:30.280 --> 0:13:33.600 But but sen with a with a with an example 0:13:33.679 --> 0:13:37.199 of a very sort of politically driven equity market. You know, 0:13:37.240 --> 0:13:39.920 I think right now the non political factors are bigger 0:13:39.920 --> 0:13:42.520 than the political factors, which is kind of interesting considering 0:13:42.559 --> 0:13:45.080 the fact that a lot of people are indicating an 0:13:45.160 --> 0:13:49.360 increase in volatility bets around that November three election. When 0:13:49.360 --> 0:13:51.880 you talk about fiscal preference. Meanwhile, we're getting no fiscal 0:13:51.920 --> 0:13:55.040 deal whatsoever in Washington without really a sign that there's 0:13:55.080 --> 0:13:57.080 going to be one. How much of a sell off 0:13:57.200 --> 0:13:59.199 do you expect if we really get a breakdown and 0:13:59.280 --> 0:14:01.880 talks and does look very unlikely that we get anything 0:14:01.920 --> 0:14:04.599 out of the election. Well, you know, we still have 0:14:04.640 --> 0:14:07.000 a lot of monetary support. Um. And I think that 0:14:07.160 --> 0:14:10.040 part of the economy that is that is most affected 0:14:10.120 --> 0:14:12.079 by the failure to get a deal done is not 0:14:12.240 --> 0:14:15.640 that widely represented within you know, within the equity market. 0:14:15.720 --> 0:14:19.240 So so far the market has been patient. Um. I 0:14:19.320 --> 0:14:22.120 think there is a belief that something, you know, something 0:14:22.240 --> 0:14:24.800 will get done, and even without a stimulus still being done. 0:14:25.280 --> 0:14:27.560 You know. I think the extension to the debt ceiling 0:14:27.640 --> 0:14:29.160 means that, you know, we're not dealing with the kind 0:14:29.200 --> 0:14:31.400 of fiscal cliff risk that we had, you know, that 0:14:31.480 --> 0:14:34.760 we had several years ago. So I don't yet seaber 0:14:34.840 --> 0:14:38.000 market showing a great deal of you a great deal 0:14:38.040 --> 0:14:40.960 of concern about that. Yeah, I wonder. I wonder Michael, 0:14:40.960 --> 0:14:43.520 whether that's actually because of the data so far, that 0:14:43.600 --> 0:14:46.720 the data hasn't broken down and the recovery has continued. 0:14:46.960 --> 0:14:51.320 What would your read beyond that? Look, I think that's true. Um, 0:14:51.840 --> 0:14:55.480 I think that that, um, you know, I mean my 0:14:55.840 --> 0:14:57.880 view of the US economy is you have a labor 0:14:58.000 --> 0:15:00.880 market which is you know, back to the early teens 0:15:00.960 --> 0:15:03.320 and somewhere between two thousand and twelve and two thousand 0:15:03.360 --> 0:15:06.200 and fourteen, depending on which metric you look at, you know, 0:15:06.360 --> 0:15:09.520 with much much more fiscal support even without a new 0:15:09.560 --> 0:15:12.920 stimulus bill, and much much looser monetary policy than we have. So, 0:15:13.600 --> 0:15:16.000 you know, I really think that that the U. S 0:15:16.080 --> 0:15:20.800 economy has enough support without a new um, without a 0:15:20.880 --> 0:15:24.440 new without a new stimulus spill um. You know, as 0:15:24.480 --> 0:15:26.640 far as the equity market is concerned. Now, you may 0:15:26.720 --> 0:15:29.360 have social concerns that don't get addressed and need to 0:15:29.480 --> 0:15:31.400 you know, you know, need that money. But maybe you know, 0:15:31.720 --> 0:15:34.640 issues of genuine poverty and hardship, but that's not what 0:15:34.800 --> 0:15:36.520 drives the S and P five hundred. The S and 0:15:36.560 --> 0:15:40.160 P five hundred is not controlled by sociologists. It's controlled 0:15:40.240 --> 0:15:43.560 by investors, and they really have a different outlook on 0:15:43.760 --> 0:15:46.680 on what needs to get done. Michael Craig to catch up, 0:15:46.800 --> 0:15:48.800 stay well one your Michael Shower there of market Field 0:15:48.800 --> 0:15:56.040 Asset Management. Thank you, sir, thank you very much. Right 0:15:56.120 --> 0:15:58.320 now to give us an update on the economy, and 0:15:58.400 --> 0:16:01.240 maybe it is the resilience you give the American economic 0:16:01.360 --> 0:16:05.560 experience is Michael Faroli of JP Morgan his service to 0:16:05.680 --> 0:16:10.040 economics over the recent years has been absolutely extraordinary, particularly 0:16:10.200 --> 0:16:14.600 in the measurement of what our potential is. Michael Faroli, 0:16:14.760 --> 0:16:21.000 what is the potential GDP calculation of America given a pandemic? 0:16:21.240 --> 0:16:24.840 Is it possible to calculate that? So, like a lot 0:16:24.880 --> 0:16:27.040 of things, including inflation, right now, there's a lot of 0:16:27.120 --> 0:16:29.400 noise that it is going to take some time to 0:16:30.400 --> 0:16:32.360 let filter through before we get a better sense of 0:16:32.440 --> 0:16:35.640 how things are involving. Now. Has the pandemic affected trend 0:16:35.720 --> 0:16:38.800 growth in the US? UH? Perhaps? I think there's still 0:16:38.880 --> 0:16:40.560 quite a bit of debate about that. I think one 0:16:40.560 --> 0:16:42.240 of the easy things to say is that we've had 0:16:42.280 --> 0:16:45.280 a period of slower capital spending in the middle part 0:16:45.320 --> 0:16:49.560 of this year, which will hold back productivity growth. That said, 0:16:49.600 --> 0:16:53.320 capital spending, like many other aspects of alluate demand, is 0:16:53.400 --> 0:16:57.040 recovering pretty nicely in the third quarters. So that's why 0:16:57.080 --> 0:17:00.120 I think it's probably wise the whole judgment here, or 0:17:00.120 --> 0:17:01.920 at least a few more months to see where things 0:17:01.960 --> 0:17:07.800 settle before radically rechanging one's view of potential GDP growth. Mike, 0:17:07.800 --> 0:17:10.560 are you surprised by how balanced the inflation debate is 0:17:10.680 --> 0:17:14.720 right now? I would have expected overwhelmingly a consensus around disinflation, 0:17:14.800 --> 0:17:17.000 and that's not what we experience in any given day 0:17:17.040 --> 0:17:19.720 on this program. What are you experiencing in the conversations 0:17:19.760 --> 0:17:23.080 you're having? So, I do think most people that I 0:17:23.160 --> 0:17:25.959 speak with are on the distant are in the disinflationary 0:17:26.119 --> 0:17:28.639 or low inflation camp. But I think it's reasonable that 0:17:28.680 --> 0:17:30.439 there are going to be two sides this debate, because 0:17:30.680 --> 0:17:34.119 conceptually the pandemic is both a supply shock and a 0:17:34.200 --> 0:17:36.600 demand shock at the same time, and so at least 0:17:36.880 --> 0:17:40.159 from first principles, there's no necessary reason to think that 0:17:40.840 --> 0:17:42.359 one side or the other is going to hold this 0:17:42.440 --> 0:17:46.080 way here. I believe in part the reason I'm more 0:17:46.119 --> 0:17:49.440 in the disinflationary or low inflationary camp is that while 0:17:49.560 --> 0:17:55.440 the supply constraints were temporary, particularly concentrated in the second quarter, 0:17:56.440 --> 0:17:59.280 the slowness and the weakness and aggregate demand looks like 0:17:59.359 --> 0:18:02.000 it's going to be enduring for longer than that. In 0:18:02.080 --> 0:18:04.440 other words, the unemployment rate, while it's come down quote 0:18:04.520 --> 0:18:07.520 nicely in recent months probably will be elevated, we think 0:18:07.560 --> 0:18:10.240 for several quarters, and so that's why I think on 0:18:10.400 --> 0:18:12.760 net the evidence is going to lead us towards a 0:18:12.840 --> 0:18:16.679 low inflation outcomes for the next few years. The Federal 0:18:16.720 --> 0:18:19.919 Reserve Michael have said repeatedly that they've shifted the framework, 0:18:20.240 --> 0:18:22.800 the reaction function has changed. Have made the argument over 0:18:22.880 --> 0:18:26.359 the last twelve months tolerating car inflation is not the 0:18:26.400 --> 0:18:33.280 same as engineering car inflation. Are there any policy moves left, Mike, Uh, 0:18:34.160 --> 0:18:37.280 that's a great question. So you know, there are a 0:18:37.359 --> 0:18:40.680 few things they could do to bolster their recent move 0:18:40.800 --> 0:18:43.399 and their recent change in their framework. None of them 0:18:43.440 --> 0:18:46.119 are going to be home runs here. So they can 0:18:46.200 --> 0:18:49.040 obviously tell the market that they're not going to high 0:18:49.119 --> 0:18:53.320 rates until inflation gets above two, which is fine, will 0:18:53.359 --> 0:18:56.679 probably eventually do that. The market is not even pricing 0:18:56.760 --> 0:19:00.040 in hikes until to begin with, so it's not like 0:19:00.359 --> 0:19:02.480 this isn't like two thousand nine can where the market 0:19:02.600 --> 0:19:05.480 was really chopping at the bit to price rad hikes 0:19:05.600 --> 0:19:07.480 nine months in the future. Right now, I think the 0:19:07.520 --> 0:19:10.320 market has learned that lesson, so that well, that's that's 0:19:10.320 --> 0:19:13.080 good that the markets learning that lesson. It also reduces 0:19:13.160 --> 0:19:15.840 how much. Uh, these types of moves, by the fact, 0:19:15.880 --> 0:19:19.040 can really provide further fur the stingless Michael Faroli of 0:19:19.160 --> 0:19:21.920 JP Morgan And of course they're huge investment on Park 0:19:22.000 --> 0:19:25.400 Avenue and new facilities, their belief in New York City. 0:19:25.600 --> 0:19:29.840 Right now, many images here from a very different nineteen 0:19:30.080 --> 0:19:34.159 remembrance of September eleventh. Right now, Vice President Pence and 0:19:34.720 --> 0:19:39.240 Karen Pence walking into the ceremonies again very much pandemic affected. 0:19:39.560 --> 0:19:43.680 We just saw images of Vice President Biden and Dr 0:19:43.760 --> 0:19:46.600 Biden along with a former mayor of New York, Michael Bloomberg. 0:19:46.920 --> 0:19:49.200 I believe I saw a Governor Cuomo there as well. 0:19:49.720 --> 0:19:52.040 I must say, Lisa Brow, it's a little there's Vice 0:19:52.080 --> 0:19:55.000 President Biden. For those of you on radio, Uh, the 0:19:55.119 --> 0:19:58.960 images here are uh quite poignant, Lisa Bromo, it's for 0:19:59.000 --> 0:20:01.200 those on radio and t t V. It's just a 0:20:01.280 --> 0:20:04.000 whole lot harder to do this this year because of 0:20:04.080 --> 0:20:06.880 all those masks, especially when you look at the concept 0:20:07.000 --> 0:20:09.359 of mourning. When you look at the concept of resilience, 0:20:09.440 --> 0:20:12.360 usually it has to do with coming together, being face 0:20:12.480 --> 0:20:15.840 to face, being close, and that has been shattered by 0:20:16.080 --> 0:20:20.159 the pandemic. These images also raise a question about the recovery, 0:20:20.560 --> 0:20:23.760 and Michael Faroli, I do wonder what we're seeing with 0:20:23.880 --> 0:20:26.680 respect the recovery of the labor market. I don't think 0:20:26.720 --> 0:20:30.440 we made enough of yesterday's employment figures, the jobless filings 0:20:30.640 --> 0:20:33.240 that came in higher than expected, with the number of 0:20:33.359 --> 0:20:39.879 individuals receiving unemployment benefits actually increasing week over week. Michael, 0:20:40.040 --> 0:20:43.080 is this a significant data point that marks a turning, 0:20:43.600 --> 0:20:46.000 a sort of souring of the labor market that has 0:20:46.040 --> 0:20:49.400 been recovering at a pretty fast speed. So I think 0:20:49.480 --> 0:20:52.400 that's fair to UH. I think it's a fair response. 0:20:52.720 --> 0:20:55.720 One problem, though, is that these jobless benefit numbers, the 0:20:55.760 --> 0:20:58.840 weekly claims numbers, have been a bit skewed in recent 0:20:59.040 --> 0:21:03.320 months by issue use with processing of filings. UH, and 0:21:03.400 --> 0:21:06.280 a lot of those continuing claims that you mentioned is 0:21:06.359 --> 0:21:10.800 for this pandemic unemployment assistance program, which the reporting by 0:21:11.240 --> 0:21:13.720 the jobless claims numbers are reported by the fifty states 0:21:14.000 --> 0:21:17.600 and aggregated together, and how those states are reporting that 0:21:17.720 --> 0:21:22.240 has been not a very clean process. And so while 0:21:22.480 --> 0:21:24.000 on the face of it, I agree with you that 0:21:24.200 --> 0:21:26.720 it's not a it's not healthful indicator that we stalled 0:21:26.800 --> 0:21:29.520 in the progress we're seeing in those claims numbers. That 0:21:29.640 --> 0:21:32.720 hasn't been a perfect indicator in recent months. If we 0:21:32.880 --> 0:21:35.560 don't get another round of fiscal support, where will we 0:21:35.720 --> 0:21:39.520 end the year with respect to the unemployment rate? So 0:21:40.080 --> 0:21:42.919 we have something in the high sevens, I think without 0:21:43.359 --> 0:21:46.480 further fiscal support, that could be in the remain in 0:21:46.520 --> 0:21:49.320 the low aids. UH. That said, you know, look, I 0:21:49.400 --> 0:21:53.320 think the response that we're seeing in in Capitol Hill. 0:21:53.680 --> 0:21:55.920 You know, I wouldn't want to say fiscal policy is 0:21:56.440 --> 0:22:00.160 perfectly endogenous with respect to economic developments. But I think 0:22:00.560 --> 0:22:03.399 the fact that the economy has been performing well or 0:22:03.440 --> 0:22:06.399 better than expected, let's say over the summer months, may 0:22:06.480 --> 0:22:10.200 have reduced some of that urgency UH in Washington to 0:22:10.240 --> 0:22:12.120 deliver more stimulus. So I think we have to take 0:22:13.040 --> 0:22:15.440 the lack of stiulus or lack of progress in stingulas 0:22:15.720 --> 0:22:18.320 alongside with the better numbers together when we look at 0:22:18.359 --> 0:22:20.200 how the economy is evolving here as we go into 0:22:20.200 --> 0:22:24.360 the fall. Michael Ferrati writes a cash up Jpmugan Securities 0:22:24.400 --> 0:22:32.160 Chief US Economists. It is September eleven, and Thomas showed 0:22:32.240 --> 0:22:34.800 visits with us each year. Of course, his tour of 0:22:34.920 --> 0:22:39.320