1 00:00:06,320 --> 00:00:12,960 Speaker 1: Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jay Lee. 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 --> 00:00:27,360 Speaker 1: Bloomberg dot Com, and of course on the Bloomberger. Joining 5 00:00:27,440 --> 00:00:29,520 Speaker 1: us now on the price action, Tony to our account 6 00:00:29,520 --> 00:00:33,000 Speaker 1: of cogenity. Equity strategists right to have Tony with us 7 00:00:33,000 --> 00:00:35,519 Speaker 1: on a day like this, Tony, many people trying to 8 00:00:35,560 --> 00:00:39,000 Speaker 1: play politics in this market right now convinced them they shouldn't. 9 00:00:40,680 --> 00:00:42,800 Speaker 1: How do you how do you guess? We don't know 10 00:00:42,880 --> 00:00:45,159 Speaker 1: how people are going to vote yet. We don't know. 11 00:00:45,280 --> 00:00:48,080 Speaker 1: It's kind of fifty fifty right now. Biden's in the lead, 12 00:00:48,159 --> 00:00:50,720 Speaker 1: but we know not to trust the polls from the 13 00:00:50,800 --> 00:00:54,040 Speaker 1: last election. We don't know what the implication of the 14 00:00:54,040 --> 00:00:57,160 Speaker 1: Supreme Court nominee's going to be. We don't know if 15 00:00:57,200 --> 00:00:59,600 Speaker 1: they're going to have the Senate, if the Democrats are 16 00:00:59,600 --> 00:01:01,960 Speaker 1: gonna s week and have both the White House and 17 00:01:02,000 --> 00:01:05,160 Speaker 1: the Senate. I just don't think it's an investable event. 18 00:01:05,280 --> 00:01:08,440 Speaker 1: But what you do have is hesitance towards buying. But 19 00:01:08,720 --> 00:01:12,280 Speaker 1: I don't think there's it's possible. It would be just 20 00:01:12,360 --> 00:01:15,400 Speaker 1: an unadulterated gas at this point to say, Okay, I 21 00:01:15,440 --> 00:01:18,080 Speaker 1: think X is gonna win and this is gonna happen, 22 00:01:18,400 --> 00:01:20,399 Speaker 1: So this is what the market's going to do. You 23 00:01:20,440 --> 00:01:23,840 Speaker 1: don't know what the market's gonna do and whatever outcome 24 00:01:23,880 --> 00:01:27,560 Speaker 1: may come until you know how the market trades into it. 25 00:01:28,080 --> 00:01:31,520 Speaker 1: And history shows that when you have a significant equity 26 00:01:31,560 --> 00:01:35,360 Speaker 1: market decline in the end of September into October, it 27 00:01:35,520 --> 00:01:39,240 Speaker 1: usually means, according to the net Davis research chart that 28 00:01:39,319 --> 00:01:43,240 Speaker 1: I use, it usually means that the incumbent loses. So 29 00:01:43,319 --> 00:01:44,720 Speaker 1: we're gonna I think the market is going to be 30 00:01:44,760 --> 00:01:46,959 Speaker 1: a better tell over the course of the next month 31 00:01:47,280 --> 00:01:50,280 Speaker 1: than any pundits. Tony Duar, your charm is to say 32 00:01:50,360 --> 00:01:52,760 Speaker 1: we need a recession for a down market. Do you 33 00:01:52,800 --> 00:01:58,520 Speaker 1: see your recession? No? I you know this is guys. 34 00:01:58,520 --> 00:02:01,800 Speaker 1: Remember what creates a reset. A recession comes when you 35 00:02:01,840 --> 00:02:05,000 Speaker 1: have a need for money and limited or no access 36 00:02:05,080 --> 00:02:09,000 Speaker 1: to the money. We have a historic amount of excess liquidity. 37 00:02:09,080 --> 00:02:12,040 Speaker 1: We have the recession, the worst of the recession than 38 00:02:12,040 --> 00:02:14,880 Speaker 1: the rear view mirror, because we shut down the economy 39 00:02:14,960 --> 00:02:18,760 Speaker 1: and we have a synchronized global recovery. Is it perfect 40 00:02:18,800 --> 00:02:23,120 Speaker 1: and ramping? No, And I wish that everybody was employed 41 00:02:23,160 --> 00:02:26,440 Speaker 1: in every small business. My kids have a small business. 42 00:02:26,440 --> 00:02:31,440 Speaker 1: Every small business was doing great. But we are still having, 43 00:02:31,600 --> 00:02:35,400 Speaker 1: even though it's not perfect, a synchronized global recovery, according 44 00:02:35,440 --> 00:02:37,200 Speaker 1: to all the data that any of us can have. 45 00:02:37,840 --> 00:02:42,480 Speaker 1: So when you combine historic excess liquidity and a synchronized 46 00:02:42,480 --> 00:02:44,959 Speaker 1: global recovery. The only time I've seen the data kind 47 00:02:44,960 --> 00:02:47,160 Speaker 1: of like it is is in the fall of two 48 00:02:47,200 --> 00:02:49,720 Speaker 1: thousand and nine, which, as you guys know, I've been 49 00:02:49,720 --> 00:02:53,520 Speaker 1: writing about. You know, the concept of corrections, Like the 50 00:02:53,560 --> 00:02:56,639 Speaker 1: fall of two thousand and nine, you had four corrections 51 00:02:57,000 --> 00:02:59,840 Speaker 1: that range between three and seven percent over the course 52 00:02:59,840 --> 00:03:02,120 Speaker 1: of a month to month and a half after the 53 00:03:02,160 --> 00:03:04,800 Speaker 1: first fifty percent move off the lower O nine and 54 00:03:04,840 --> 00:03:08,160 Speaker 1: the recession was just beginning to abate and recover. It 55 00:03:08,240 --> 00:03:11,240 Speaker 1: was in place. Well, given that thesis, is this the 56 00:03:11,280 --> 00:03:14,520 Speaker 1: time to double down on cyclicals, which, as Tom as 57 00:03:14,600 --> 00:03:17,880 Speaker 1: John pointed out, underperformed yesterday in this new type of 58 00:03:17,919 --> 00:03:20,880 Speaker 1: sell off that we're seeing in response to no fiscal 59 00:03:20,880 --> 00:03:24,920 Speaker 1: deal down in Washington. Listen's a great question that, yes 60 00:03:25,080 --> 00:03:27,640 Speaker 1: is the answer. I would double down. That's that's an 61 00:03:27,639 --> 00:03:30,839 Speaker 1: individual question, so I can't answer that for anybody. Um, 62 00:03:30,960 --> 00:03:33,560 Speaker 1: is it time to add risk when you're down almost 63 00:03:33,600 --> 00:03:36,520 Speaker 1: ten percent in the SMP more than that in the 64 00:03:36,560 --> 00:03:40,200 Speaker 1: mega cap names, don't forget up. Until yesterday the cyclicals 65 00:03:40,240 --> 00:03:43,400 Speaker 1: were so significantly outperformed. It was the theme because they 66 00:03:43,440 --> 00:03:47,600 Speaker 1: were so significantly outperforming the NAZ the NAZ deck mega 67 00:03:47,680 --> 00:03:50,760 Speaker 1: cap stay at home names, So clearly there was a 68 00:03:50,800 --> 00:03:53,280 Speaker 1: bounce there. Towards the end of the day, you've really 69 00:03:53,520 --> 00:03:56,680 Speaker 1: you've taken apart the fang stocks that they're back to 70 00:03:56,720 --> 00:03:59,760 Speaker 1: where they were at May right, So you know, the 71 00:03:59,840 --> 00:04:02,880 Speaker 1: idea which we've propelled and kind of took a lot 72 00:04:02,880 --> 00:04:06,440 Speaker 1: of incoming for a month ago to not chase them 73 00:04:06,480 --> 00:04:11,240 Speaker 1: and to advocate taking some off the table and into cyclicals. 74 00:04:11,280 --> 00:04:14,480 Speaker 1: To some degree, that's been neutralized by the total drubbing 75 00:04:14,960 --> 00:04:18,000 Speaker 1: in that space. These are good companies, they're not horrible companies. 76 00:04:18,040 --> 00:04:19,599 Speaker 1: They have just gone up into the right too much. 77 00:04:20,839 --> 00:04:23,000 Speaker 1: Tell me that rotation stole an arty tune along with 78 00:04:23,040 --> 00:04:25,240 Speaker 1: the Rise and Treasury yoats as well. That's what telling 79 00:04:25,240 --> 00:04:27,760 Speaker 1: you a Treasury yots topped out around about naughty basis 80 00:04:27,760 --> 00:04:30,320 Speaker 1: points do you see putting together that kind of run again, 81 00:04:31,360 --> 00:04:33,320 Speaker 1: I don't. I don't think you can have that kind 82 00:04:33,320 --> 00:04:34,800 Speaker 1: of run in the induses. I think it's going to 83 00:04:34,839 --> 00:04:37,080 Speaker 1: be a stair step higher again, like to follow two 84 00:04:37,080 --> 00:04:39,760 Speaker 1: thousand and nine. Every time you had one of those corrections, 85 00:04:40,200 --> 00:04:42,920 Speaker 1: you bounced back and went to a new high, only 86 00:04:42,960 --> 00:04:46,960 Speaker 1: to have almost immediately another correction. There's so much uncertainty. John, 87 00:04:46,960 --> 00:04:49,200 Speaker 1: I just I think the idea that we're gonna have 88 00:04:49,240 --> 00:04:53,000 Speaker 1: this incredible, you know, parabolic move higher and five or 89 00:04:53,000 --> 00:04:55,440 Speaker 1: six names, I thought it was really extraordinary. I saw 90 00:04:55,520 --> 00:04:59,880 Speaker 1: David Costant from from Goldman Um he mentioned and it 91 00:05:00,040 --> 00:05:03,440 Speaker 1: really took me by surprise that that that five companies 92 00:05:03,480 --> 00:05:06,680 Speaker 1: represented over thirty five And I did the research myself 93 00:05:06,720 --> 00:05:11,800 Speaker 1: after that. Actually at the time was thirty seven of 94 00:05:11,839 --> 00:05:15,000 Speaker 1: the rush one thousand growth. That is the that is 95 00:05:15,040 --> 00:05:19,200 Speaker 1: so far from diversification. It's extraordinary. So you you really 96 00:05:19,279 --> 00:05:21,920 Speaker 1: it's gonna take time for these magat cap names to 97 00:05:22,040 --> 00:05:26,960 Speaker 1: kind of um, I don't know, correct, churn, consolidate, base, 98 00:05:27,120 --> 00:05:30,480 Speaker 1: whatever the name is, because there was such a concentration 99 00:05:30,600 --> 00:05:33,960 Speaker 1: in them that now as they rally all those people 100 00:05:33,960 --> 00:05:36,400 Speaker 1: over the last two or three months that had bought them, 101 00:05:36,440 --> 00:05:39,400 Speaker 1: they're looking, they're probably gonna be looking to cut their losses, 102 00:05:39,800 --> 00:05:42,320 Speaker 1: which means you're gonna have some overhead resistance. Bottom line 103 00:05:42,360 --> 00:05:43,760 Speaker 1: is I think the market is just going to be 104 00:05:43,800 --> 00:05:46,600 Speaker 1: in this churning phase, certainly through the end of the year. 105 00:05:48,040 --> 00:05:50,400 Speaker 1: Appreciate the honestate as olwise, it's great to see you looking. 106 00:05:55,040 --> 00:05:57,480 Speaker 1: Right now, we come to groups with their fears, as 107 00:05:57,560 --> 00:06:01,240 Speaker 1: we witnessed yesterday until a huge answer to four seven 108 00:06:01,520 --> 00:06:04,360 Speaker 1: pm James, A thing is perfect for this with everything 109 00:06:04,520 --> 00:06:08,159 Speaker 1: standard Looking at long term investment, James, how do you 110 00:06:08,240 --> 00:06:10,520 Speaker 1: manage fear here? What do you do on a day 111 00:06:10,520 --> 00:06:15,080 Speaker 1: to day tick when the fear is so evident? Morning, Tom. 112 00:06:15,800 --> 00:06:18,240 Speaker 1: We wouldn't like not to be responding to any of 113 00:06:18,240 --> 00:06:20,560 Speaker 1: these short term generations, you know, we'd like to be 114 00:06:21,120 --> 00:06:24,240 Speaker 1: positioned in such a way that we can ride out 115 00:06:24,279 --> 00:06:27,359 Speaker 1: some of these short term storms. You know, take medium 116 00:06:27,440 --> 00:06:30,039 Speaker 1: term views, be aware and cognizant of where some of 117 00:06:30,040 --> 00:06:33,320 Speaker 1: the short term risks lay, and ensure that as best 118 00:06:33,360 --> 00:06:35,920 Speaker 1: we can, the portfolio is robust to deal with them. 119 00:06:36,279 --> 00:06:38,440 Speaker 1: I mean, it just so happens that what's happened yesterday, 120 00:06:39,160 --> 00:06:41,479 Speaker 1: you know, it was fairly good for the portfolios that 121 00:06:41,480 --> 00:06:44,440 Speaker 1: we're running and fairly good for the positions that we 122 00:06:44,560 --> 00:06:47,760 Speaker 1: have on because we've been very cautious about being risk 123 00:06:47,839 --> 00:06:50,839 Speaker 1: facing in this environment. It's very very difficult on a 124 00:06:50,920 --> 00:06:53,920 Speaker 1: day to day basis. At the moment, valuation as any 125 00:06:53,960 --> 00:06:56,360 Speaker 1: kind of anchor in any kind of financial market is 126 00:06:56,400 --> 00:07:00,440 Speaker 1: almost impossible because things look so stretched and extreme relative 127 00:07:00,480 --> 00:07:05,040 Speaker 1: to history or fundamentals. But what we see is increasingly 128 00:07:05,080 --> 00:07:09,080 Speaker 1: been a market which has ignored all incoming bad news 129 00:07:09,120 --> 00:07:12,800 Speaker 1: information and embraced all incoming good news information. And when 130 00:07:12,840 --> 00:07:16,160 Speaker 1: that happens, very difficult to point out x ANTI what 131 00:07:16,280 --> 00:07:18,880 Speaker 1: triggers will be. But when everybody's on one side of 132 00:07:18,880 --> 00:07:20,920 Speaker 1: the boat, it doesn't really take much of a trigger, 133 00:07:21,240 --> 00:07:23,000 Speaker 1: much of a wave to tip the boat over and 134 00:07:23,040 --> 00:07:27,040 Speaker 1: everybody fall in. So we've been defensive and that yesterday 135 00:07:27,600 --> 00:07:32,840 Speaker 1: was the right place to be. What does defensive look like? Yeah, 136 00:07:33,200 --> 00:07:36,040 Speaker 1: there's a good question, I mean, being it's the world 137 00:07:36,040 --> 00:07:37,760 Speaker 1: of one trade. There's you know, one of the banks 138 00:07:37,800 --> 00:07:39,320 Speaker 1: we speak to has been calling it the world of 139 00:07:39,320 --> 00:07:41,400 Speaker 1: one trade for a while and it certainly is. Some 140 00:07:41,440 --> 00:07:43,560 Speaker 1: people call it row row risk on risk off funding 141 00:07:43,640 --> 00:07:48,080 Speaker 1: diversification been very difficult. Um. I think it's interesting, you know, 142 00:07:48,120 --> 00:07:50,640 Speaker 1: the two asset classes that I main mainly look at, 143 00:07:50,680 --> 00:07:55,600 Speaker 1: which is core sovereign bonds, rate products and the FX markets. 144 00:07:56,120 --> 00:07:58,440 Speaker 1: You know, sovereign bonds didn't really move yesterday, Treasury is 145 00:07:58,480 --> 00:08:00,400 Speaker 1: rallied a couple of basis points. There was a lot 146 00:08:00,440 --> 00:08:02,600 Speaker 1: going on in effects. I think that's been a trend 147 00:08:02,720 --> 00:08:06,840 Speaker 1: recently where investors have seen bond volatility at zero, central 148 00:08:06,840 --> 00:08:09,200 Speaker 1: banks trapping yields in one place and said, well where 149 00:08:09,280 --> 00:08:11,520 Speaker 1: else can I go and express a view which might 150 00:08:11,600 --> 00:08:14,120 Speaker 1: react to this stuff? So I think dollars, yen and 151 00:08:14,160 --> 00:08:18,160 Speaker 1: Swiss francs are good places um to put risk budget 152 00:08:18,240 --> 00:08:20,840 Speaker 1: to work where you can actually see some benefits if 153 00:08:20,880 --> 00:08:23,080 Speaker 1: we do have a risk off period. But quite what 154 00:08:23,120 --> 00:08:26,000 Speaker 1: your portfolio looks like obviously depends on exactly what talking 155 00:08:26,040 --> 00:08:28,960 Speaker 1: you've got at your disposal. For US, it's definitely long duration, 156 00:08:29,080 --> 00:08:32,000 Speaker 1: is favoring the U S treasury market, and it's being 157 00:08:32,040 --> 00:08:36,480 Speaker 1: defensive you know short certainly MFX short, risky short video 158 00:08:36,559 --> 00:08:41,040 Speaker 1: syncretically weak effects and along the current account surplus and 159 00:08:41,200 --> 00:08:44,160 Speaker 1: or the flight quality currencies. Does that mean that you're 160 00:08:44,160 --> 00:08:49,920 Speaker 1: betting on deflation? Um? I mean express expressly no. Do 161 00:08:49,960 --> 00:08:52,280 Speaker 1: I think there's a chance that we end up in 162 00:08:52,320 --> 00:08:55,920 Speaker 1: a deflationary depression. Yeah, absolutely, I think there's a chance, 163 00:08:56,320 --> 00:08:59,640 Speaker 1: and I think it's very difficult. The decision tree, the 164 00:08:59,679 --> 00:09:02,839 Speaker 1: problem ability tree of outcomes going forward is probably as 165 00:09:02,880 --> 00:09:05,760 Speaker 1: tough tough as I've ever known, because so much is 166 00:09:05,800 --> 00:09:08,679 Speaker 1: dependent on a lot of policy choices which interact with 167 00:09:08,720 --> 00:09:11,920 Speaker 1: one another and which will be dictated by something as 168 00:09:12,240 --> 00:09:15,360 Speaker 1: unpredictable as, for example, the virus, So really tough. I 169 00:09:15,400 --> 00:09:17,920 Speaker 1: think inflation is something we just don't understand well enough 170 00:09:17,960 --> 00:09:19,680 Speaker 1: to have a high conviction call, and I could see 171 00:09:19,720 --> 00:09:22,640 Speaker 1: it going either way. I could see us in inflation. Equally, 172 00:09:22,679 --> 00:09:25,920 Speaker 1: I could see us with really high inflation. But again 173 00:09:26,320 --> 00:09:30,280 Speaker 1: recognizing that central banks are determined at the moment, I 174 00:09:30,400 --> 00:09:32,800 Speaker 1: want to position for what they're doing, not what they're 175 00:09:32,800 --> 00:09:35,280 Speaker 1: trying to achieve. So for now, that means they're keeping 176 00:09:35,400 --> 00:09:37,840 Speaker 1: yields low, they're crushing yields, and they're keeping that as 177 00:09:37,840 --> 00:09:41,160 Speaker 1: an asymmetric bet in my in my opinion, so I'm 178 00:09:41,200 --> 00:09:43,600 Speaker 1: not too worried about inflation near term. I think it's 179 00:09:43,679 --> 00:09:46,480 Speaker 1: definitely something that make may happen later. We welcome all 180 00:09:46,520 --> 00:09:49,600 Speaker 1: of you on Bloomberg Television and Bloomberg Radio. Jonathan Ferrior, 181 00:09:49,679 --> 00:09:53,920 Speaker 1: Lisa Bramwards and term keen is the most eventful Tuesday, huge, 182 00:09:54,200 --> 00:09:58,439 Speaker 1: huge news or particularly out of the United Kingdom, James Athy, 183 00:09:58,679 --> 00:10:02,240 Speaker 1: whether from Abydeen and James. If that's the case, and 184 00:10:02,320 --> 00:10:06,120 Speaker 1: if the symmetrics and the asymmetrics are so hard to judge, 185 00:10:06,559 --> 00:10:12,680 Speaker 1: what is the value or error of being in cash? Yeah, 186 00:10:12,720 --> 00:10:15,920 Speaker 1: that's um. I mean go back to the start of 187 00:10:15,960 --> 00:10:17,439 Speaker 1: this year and I would have said there was very 188 00:10:17,480 --> 00:10:20,920 Speaker 1: little era potential era. I think that cash was a 189 00:10:21,000 --> 00:10:23,560 Speaker 1: very attractive part of your portfolio because I just saw 190 00:10:23,640 --> 00:10:26,840 Speaker 1: so many risks and I saw so little chance of 191 00:10:26,920 --> 00:10:29,839 Speaker 1: the one true risk which you you wouldn't want to 192 00:10:29,880 --> 00:10:31,719 Speaker 1: be invested in cash for. And that's really a lot 193 00:10:31,760 --> 00:10:34,800 Speaker 1: of inflation today as we sit here, it's a kind 194 00:10:34,800 --> 00:10:37,520 Speaker 1: of bimodal distribution. There is there is a good chance 195 00:10:37,520 --> 00:10:39,360 Speaker 1: of very high inflation, there is a good chance of 196 00:10:39,480 --> 00:10:41,680 Speaker 1: very low inflation, and cash is kind of good for 197 00:10:41,720 --> 00:10:43,960 Speaker 1: one of those and not so good for the other. Again, 198 00:10:44,080 --> 00:10:48,160 Speaker 1: diversification is key. Even if that's diversification which isn't giving 199 00:10:48,160 --> 00:10:51,160 Speaker 1: you as much and more as an efficient to portfolio 200 00:10:51,200 --> 00:10:53,600 Speaker 1: as it would have done through history, there is still 201 00:10:53,679 --> 00:10:56,040 Speaker 1: value and diversification, and I think cash is part of that, 202 00:10:56,120 --> 00:10:59,760 Speaker 1: but I definitely think pressures metals are a part of that. Today, 203 00:11:00,080 --> 00:11:01,839 Speaker 1: James are going to think out loud, so go with 204 00:11:01,880 --> 00:11:04,240 Speaker 1: me and forgive me for doing this. Real yields, for 205 00:11:04,280 --> 00:11:07,679 Speaker 1: many people have been incredibly supportive of risk assets worldwide, 206 00:11:07,960 --> 00:11:11,880 Speaker 1: but real yields have been driven by inflation expectations building up, 207 00:11:12,360 --> 00:11:15,400 Speaker 1: and rates effectively being anchored by the feder Reserve. What 208 00:11:15,520 --> 00:11:19,160 Speaker 1: I'm trying to understand if we reprice inflation lower and 209 00:11:19,200 --> 00:11:22,840 Speaker 1: real yields actually start to go the other way for 210 00:11:22,880 --> 00:11:25,800 Speaker 1: that reason, I'm just trying to get my head around this, James, 211 00:11:25,800 --> 00:11:28,960 Speaker 1: what that actually means going forward for risk assets with 212 00:11:29,040 --> 00:11:35,000 Speaker 1: inflation rate or at least expected inflation coming in. Yeah, unfortunately, 213 00:11:35,000 --> 00:11:38,920 Speaker 1: it's still one big trade, but it's exactly as you describe. Essentially, 214 00:11:38,920 --> 00:11:41,800 Speaker 1: we've seen break evens widening through the period from the 215 00:11:41,840 --> 00:11:46,480 Speaker 1: March lows, which is correlated almost perfectly with risk asset recovery. 216 00:11:47,080 --> 00:11:50,679 Speaker 1: Because the FED has been keeping nominal treasury yields kind 217 00:11:50,679 --> 00:11:53,120 Speaker 1: of anchored around sixty basis points in tenure, that meant 218 00:11:53,160 --> 00:11:56,000 Speaker 1: that real yields had to form fairly dramatically in order 219 00:11:56,040 --> 00:11:59,040 Speaker 1: to get that increase in break even inflation. That's also 220 00:11:59,080 --> 00:12:01,960 Speaker 1: correlated with the eyes im precious metals, which are often 221 00:12:02,000 --> 00:12:04,040 Speaker 1: thought of as an inflation edge. It's one big trade. 222 00:12:04,080 --> 00:12:06,400 Speaker 1: So if that gets unwound, you know what does that 223 00:12:06,400 --> 00:12:08,360 Speaker 1: mean for risk assets? Well, I don't know if risk 224 00:12:08,400 --> 00:12:10,559 Speaker 1: assets or the tail or the dog in that scenario. 225 00:12:10,600 --> 00:12:13,840 Speaker 1: I think eat boats is equally possible. Risk assets are 226 00:12:13,960 --> 00:12:17,600 Speaker 1: up here, in my opinion, largely because the central bank 227 00:12:17,679 --> 00:12:19,680 Speaker 1: policy has driven them up here, not because there's some 228 00:12:19,760 --> 00:12:23,000 Speaker 1: rational repricing of growth or inflation outcomes. I think break 229 00:12:23,080 --> 00:12:26,760 Speaker 1: evens are up here because they're correlated with risk assets. Therefore, 230 00:12:26,960 --> 00:12:30,960 Speaker 1: if there is some shock which either forces equity prices 231 00:12:31,040 --> 00:12:34,720 Speaker 1: risk asset prices lower or indeed pushes real yields higher, 232 00:12:35,000 --> 00:12:36,760 Speaker 1: those are both going to look like the same trade 233 00:12:36,760 --> 00:12:39,280 Speaker 1: being unwound. And I think pretty much everybody is in it. 234 00:12:39,360 --> 00:12:42,760 Speaker 1: That could get ugly quite quickly. James gred to catch 235 00:12:42,920 --> 00:12:44,640 Speaker 1: up as always really good to hear from me. James 236 00:12:44,679 --> 00:12:52,319 Speaker 1: Athy of Aberdeen Standard Investments, Great on Washington. Isaac Voltanski 237 00:12:52,440 --> 00:12:56,000 Speaker 1: is a wonderful policy water At Compass Point Research. We 238 00:12:56,160 --> 00:13:01,280 Speaker 1: fold in now the uproars plural that we see his Washington, Isaac, 239 00:13:01,320 --> 00:13:04,000 Speaker 1: thank you so much for joining us as any policy 240 00:13:04,040 --> 00:13:09,160 Speaker 1: discussion dead on the fistful side for right now. The 241 00:13:09,200 --> 00:13:12,640 Speaker 1: simple answer is yes, um. Policymakers like to say that 242 00:13:12,720 --> 00:13:15,240 Speaker 1: they can walk and chew gum at the same time, 243 00:13:15,280 --> 00:13:17,800 Speaker 1: but in my experience that has not been the case, 244 00:13:18,440 --> 00:13:23,400 Speaker 1: and the Supreme Court m developments are going to overtake 245 00:13:23,440 --> 00:13:25,880 Speaker 1: the capital and they will be the topic to Jore, 246 00:13:26,080 --> 00:13:30,800 Speaker 1: which means that the focus on the fiscal package, which 247 00:13:30,880 --> 00:13:35,400 Speaker 1: was already waning, is effectively dead at the moment, Isaac, 248 00:13:35,600 --> 00:13:37,800 Speaker 1: How can people even begin to trade this given the 249 00:13:37,840 --> 00:13:43,200 Speaker 1: binary potential outcomes. In talking to clients, I find it 250 00:13:43,400 --> 00:13:46,960 Speaker 1: interesting that there is still a subset in among my 251 00:13:47,000 --> 00:13:50,400 Speaker 1: clients in particular, who believe there's this possibility for a 252 00:13:50,440 --> 00:13:53,960 Speaker 1: grand bargain at the end of the month that covers 253 00:13:54,400 --> 00:13:57,960 Speaker 1: the funding deadline as well as some of the fiscal stimulus. 254 00:13:58,040 --> 00:14:01,000 Speaker 1: And I think the reality is we have been conditioned 255 00:14:01,120 --> 00:14:05,520 Speaker 1: over the past ten years to expect Washington over time 256 00:14:05,600 --> 00:14:10,199 Speaker 1: to eventually find its way to avoiding these fiscal clips. 257 00:14:11,000 --> 00:14:14,880 Speaker 1: That assumption was proven wrong with these phase for negotiations, 258 00:14:15,120 --> 00:14:17,679 Speaker 1: which I think is a mere term concern for markets. 259 00:14:17,679 --> 00:14:19,400 Speaker 1: But I think it's also going to weigh on the 260 00:14:19,400 --> 00:14:23,480 Speaker 1: markets longer term confidence and policy makers. Well, just to 261 00:14:23,480 --> 00:14:25,520 Speaker 1: to sort of put a bow on this, Kevin's really 262 00:14:25,680 --> 00:14:28,960 Speaker 1: talking about how this feels different than the normal Washington dysfunction. 263 00:14:29,000 --> 00:14:31,640 Speaker 1: You're saying people have gotten conditioned to a lot of noise, 264 00:14:31,680 --> 00:14:33,720 Speaker 1: a lot of messiness, and then for it all to 265 00:14:33,760 --> 00:14:37,840 Speaker 1: come together. But from your discussions with policymakers paired with 266 00:14:37,880 --> 00:14:40,560 Speaker 1: your discussions with people in the markets, is there a disconnect? 267 00:14:40,600 --> 00:14:43,880 Speaker 1: Are people too optimistic about that neat ending this time? 268 00:14:45,360 --> 00:14:48,600 Speaker 1: The simple answers, yes, there is still too much optimism 269 00:14:48,640 --> 00:14:51,520 Speaker 1: regarding a fiscal package by the end of the month. 270 00:14:52,000 --> 00:14:55,840 Speaker 1: Um my ill um in the policy world believe that 271 00:14:55,880 --> 00:14:58,960 Speaker 1: Washington could come together because the simple reality is we 272 00:14:59,040 --> 00:15:01,600 Speaker 1: need more to school support. And you don't need need 273 00:15:01,640 --> 00:15:04,040 Speaker 1: to tell you that. The Chairman of the Federal Reserve 274 00:15:04,120 --> 00:15:07,080 Speaker 1: will testify before Congress three times this week and he 275 00:15:07,240 --> 00:15:10,160 Speaker 1: is going to suggest as much. And I think people 276 00:15:10,200 --> 00:15:12,720 Speaker 1: would also make the point that the Cares Act, which 277 00:15:12,760 --> 00:15:16,960 Speaker 1: was passed in March, actually worked. Isaac right now at 278 00:15:17,000 --> 00:15:19,440 Speaker 1: this moment, the Prime Minister of the United Kingdom and 279 00:15:19,600 --> 00:15:23,200 Speaker 1: some I'm going to say political peril is saying let's go, 280 00:15:23,360 --> 00:15:26,880 Speaker 1: We're gonna reset, and Isaac to me the headline here 281 00:15:26,880 --> 00:15:30,520 Speaker 1: as he's resetting from March of two thousand twenty one. 282 00:15:30,720 --> 00:15:34,160 Speaker 1: Is anyone in your Washington looking out dare I say 283 00:15:34,200 --> 00:15:38,240 Speaker 1: to March of two thousand twenty one. Not even close. 284 00:15:38,600 --> 00:15:42,200 Speaker 1: We are focused on the next tweet. We are not 285 00:15:42,320 --> 00:15:44,920 Speaker 1: focused on long term policy making. And I think that 286 00:15:45,000 --> 00:15:47,840 Speaker 1: this is part of the systems failure that we that 287 00:15:47,920 --> 00:15:50,040 Speaker 1: we have seen in Washington in recent years, that there 288 00:15:50,120 --> 00:15:54,920 Speaker 1: is no long termism UM and that is clearly evidenced 289 00:15:54,920 --> 00:15:58,080 Speaker 1: by the lack of focus on a fiscal package that 290 00:15:58,200 --> 00:16:01,680 Speaker 1: would help us emerge from from this crisis. I mean, 291 00:16:01,720 --> 00:16:04,200 Speaker 1: you were wined in Ohio, which is a battleground state. 292 00:16:04,320 --> 00:16:07,720 Speaker 1: Is any of this cluelessness going to show up at 293 00:16:07,760 --> 00:16:10,680 Speaker 1: the ballot box? Does this fold in to the political 294 00:16:10,760 --> 00:16:16,160 Speaker 1: calculus of mail in ballots and November three ballots? At 295 00:16:16,160 --> 00:16:19,480 Speaker 1: the moment, I think the simple answer is no. Um. 296 00:16:19,680 --> 00:16:24,080 Speaker 1: The reality for many voters is that other issues are 297 00:16:24,120 --> 00:16:27,280 Speaker 1: going to animate them. And that's why I believe that 298 00:16:27,360 --> 00:16:30,840 Speaker 1: the Supreme Court headlines over the past few days can 299 00:16:30,880 --> 00:16:34,600 Speaker 1: be played for both bases in different ways, and so 300 00:16:34,760 --> 00:16:37,080 Speaker 1: that will be what the big focus is now. The 301 00:16:37,120 --> 00:16:40,280 Speaker 1: point I want to make here is that as if 302 00:16:40,320 --> 00:16:44,600 Speaker 1: the economy continues to show signs of weakness in certain corridors, 303 00:16:44,640 --> 00:16:48,000 Speaker 1: that's clearly negative for the president because he is still viewed, 304 00:16:48,440 --> 00:16:50,880 Speaker 1: at least in terms of the polling, is stronger on 305 00:16:51,000 --> 00:16:54,720 Speaker 1: economic matter. So when we see economic weakness, it does 306 00:16:54,800 --> 00:16:58,560 Speaker 1: accrue at least in certain battleground states to the benefit 307 00:16:58,560 --> 00:17:02,400 Speaker 1: of the body campaign. I said, just finally on the polling, 308 00:17:02,440 --> 00:17:04,240 Speaker 1: the story there is that there hasn't been much of 309 00:17:04,240 --> 00:17:07,600 Speaker 1: a story for many people. They've identified the stability in 310 00:17:07,640 --> 00:17:10,520 Speaker 1: the polls in many places. Do you still identify with 311 00:17:10,560 --> 00:17:15,080 Speaker 1: stability or things changing as we get close up? I 312 00:17:15,160 --> 00:17:17,720 Speaker 1: can tell you that I think that the polls will 313 00:17:17,800 --> 00:17:21,639 Speaker 1: remain stable for about another week, And most of my 314 00:17:21,760 --> 00:17:24,280 Speaker 1: clients as well as most of my contacts, have September 315 00:17:24,320 --> 00:17:27,160 Speaker 1: twenty nine circled on their calendar. That is the first 316 00:17:27,160 --> 00:17:29,480 Speaker 1: presidential debate, and I think that a lot of folks 317 00:17:29,520 --> 00:17:33,160 Speaker 1: are going to get there their first real feel of 318 00:17:33,240 --> 00:17:37,880 Speaker 1: this campaign that night, because up until that point, it's 319 00:17:37,920 --> 00:17:43,080 Speaker 1: really just um tested sound bites that have defined this campaign. 320 00:17:43,440 --> 00:17:45,680 Speaker 1: As we have two men yelling at each other from 321 00:17:45,680 --> 00:17:48,320 Speaker 1: different states, and so to see them in the same 322 00:17:49,080 --> 00:17:51,720 Speaker 1: form is going to be meaningful for a whole lot 323 00:17:51,720 --> 00:17:54,719 Speaker 1: of voters, especially those voters in battleground states, are going 324 00:17:54,800 --> 00:17:58,080 Speaker 1: to decide this thing, Isaac. From two men yet to 325 00:17:58,119 --> 00:18:00,280 Speaker 1: get each other from different states to two many at 326 00:18:00,320 --> 00:18:03,159 Speaker 1: each other, run in front of each other, eyes at, botasky, compas, 327 00:18:03,160 --> 00:18:05,639 Speaker 1: point research and try to have eyes at. Fantastic to 328 00:18:05,680 --> 00:18:10,640 Speaker 1: catch up with you right now. Arguably our most important 329 00:18:10,640 --> 00:18:14,199 Speaker 1: interview of the day folding in FED policy from Chairman 330 00:18:14,240 --> 00:18:17,600 Speaker 1: Paul and also our conversation tomorrow with the Vice Chairman 331 00:18:17,840 --> 00:18:20,679 Speaker 1: of the FED, Richard Clara Diane swarmp Joints is of 332 00:18:20,720 --> 00:18:24,479 Speaker 1: course so helpful typically on our FED day as well. Diane. 333 00:18:24,480 --> 00:18:26,359 Speaker 1: I want to get to the Fed and claratave, but 334 00:18:26,480 --> 00:18:30,159 Speaker 1: I first must ask you about the economic backdrop of 335 00:18:30,240 --> 00:18:34,040 Speaker 1: the battleground states of the Midwest. Is the presidential debate 336 00:18:34,119 --> 00:18:38,360 Speaker 1: goes to Cleveland and the wonderful case Western University. This 337 00:18:38,400 --> 00:18:41,080 Speaker 1: is gonna be fascinating. What's the state of the economy 338 00:18:41,160 --> 00:18:47,359 Speaker 1: in Ohio and the broader Midwest. Well, we're all suffering 339 00:18:47,440 --> 00:18:51,280 Speaker 1: from the pandemic, and unemployment rates have risen quite dramatically. 340 00:18:51,320 --> 00:18:54,160 Speaker 1: What most people forget is as much as Chairman Pale 341 00:18:54,359 --> 00:18:57,439 Speaker 1: emphasizes that this is a low age recession, this has 342 00:18:57,520 --> 00:19:01,040 Speaker 1: hit disproportionately those who can bear the burden the least. 343 00:19:01,359 --> 00:19:04,920 Speaker 1: It also has hit college educated workers, and in fact, 344 00:19:05,000 --> 00:19:08,680 Speaker 1: the unemployment rate is hired today for college educated workers 345 00:19:08,680 --> 00:19:11,880 Speaker 1: than it was during the Great Recession. So it is 346 00:19:12,000 --> 00:19:14,760 Speaker 1: a low wage recession. But it also has reached up 347 00:19:15,040 --> 00:19:18,040 Speaker 1: into higher levels of education. And I think just the 348 00:19:18,119 --> 00:19:20,720 Speaker 1: numbers are so allowed to get lost, are so large 349 00:19:20,800 --> 00:19:23,400 Speaker 1: they get lost in translation, Diane, I've got to move 350 00:19:23,400 --> 00:19:26,479 Speaker 1: forward to this important conversation with Clara tomorrow. You know, 351 00:19:26,640 --> 00:19:29,320 Speaker 1: he is truly our expert on ds G E, which 352 00:19:29,400 --> 00:19:32,400 Speaker 1: is a lot of fancy math. Forget the math, let's 353 00:19:32,440 --> 00:19:35,359 Speaker 1: go Latin. My first question to him will be on 354 00:19:35,840 --> 00:19:39,920 Speaker 1: how a central bank acts when inflation rises. Do they 355 00:19:39,960 --> 00:19:43,400 Speaker 1: get out front or do they get behind expost? Where 356 00:19:43,440 --> 00:19:45,880 Speaker 1: where is the FED going to be? Where are they 357 00:19:45,880 --> 00:19:51,840 Speaker 1: going to act if and when they get inflation to rise. Well, 358 00:19:51,840 --> 00:19:53,840 Speaker 1: clearly they don't agree on this, or they would have 359 00:19:53,880 --> 00:19:57,160 Speaker 1: told us exactly what their triggers on inflation were as 360 00:19:57,160 --> 00:19:59,879 Speaker 1: they shifted to forward guidance. It's still very loose, but 361 00:20:00,040 --> 00:20:02,320 Speaker 1: I think what we're seeing is a FED It's not 362 00:20:02,400 --> 00:20:04,960 Speaker 1: just the level of inflation moving up. But the FED 363 00:20:05,000 --> 00:20:06,720 Speaker 1: would like to see is that inflation get up to 364 00:20:06,760 --> 00:20:08,879 Speaker 1: sort of tune a quarter two and a half percent 365 00:20:09,000 --> 00:20:11,800 Speaker 1: for a sustained period of time, which they've not been 366 00:20:11,840 --> 00:20:15,560 Speaker 1: able to achieve. But also, it's such arajectory on inflation, 367 00:20:15,640 --> 00:20:17,680 Speaker 1: the FED would not hesitate to act if all of 368 00:20:17,720 --> 00:20:20,280 Speaker 1: a sudden inflation was moving up to two two and 369 00:20:20,280 --> 00:20:23,840 Speaker 1: a half to three percent very rapidly. That delineation, that 370 00:20:23,960 --> 00:20:28,240 Speaker 1: nuance makes this whole new overshooting aspect of the Fed's 371 00:20:28,320 --> 00:20:31,880 Speaker 1: policy very hard to convey to the average American, let 372 00:20:31,880 --> 00:20:35,480 Speaker 1: alone financial markets. If financial markets really absorbed what the 373 00:20:35,520 --> 00:20:38,119 Speaker 1: FED was saying, they would accept that the Fed is saying, 374 00:20:38,359 --> 00:20:42,240 Speaker 1: we're willing to shift the balance of bargaining power between 375 00:20:42,600 --> 00:20:45,560 Speaker 1: Wall Street back to workers a bit and allow wages 376 00:20:45,600 --> 00:20:47,960 Speaker 1: to rise as a share, and run the economy a 377 00:20:48,000 --> 00:20:50,920 Speaker 1: little heat hot to allow workers to have a little 378 00:20:50,960 --> 00:20:53,320 Speaker 1: more bargaining power out there for a period in time. 379 00:20:53,600 --> 00:20:55,639 Speaker 1: If that really set into Wall Street would see a 380 00:20:55,720 --> 00:21:00,159 Speaker 1: very different Wall Street today. So I'm how divided is 381 00:21:00,200 --> 00:21:05,480 Speaker 1: this FBC right now? You know, it's mostly in the 382 00:21:05,520 --> 00:21:09,240 Speaker 1: same direction, although you've seen Bullard talk about his concerns 383 00:21:09,240 --> 00:21:13,920 Speaker 1: about inflation. If they were completely unison and in anonymous 384 00:21:14,520 --> 00:21:17,600 Speaker 1: I'm sorry, um unanimous in terms of what they wanted, 385 00:21:17,680 --> 00:21:20,240 Speaker 1: you would not have seen two dissents. You've got Neil 386 00:21:20,320 --> 00:21:24,480 Speaker 1: Kashkari at the Minneapolis FED asking for much more overshooting 387 00:21:24,680 --> 00:21:26,720 Speaker 1: than the FED is willing to do, and Rob Kaplan 388 00:21:26,800 --> 00:21:29,560 Speaker 1: saying we weren't really ready to go to full forward guidance. 389 00:21:29,840 --> 00:21:33,280 Speaker 1: Includely the chairman felt some kind of forward guidance where 390 00:21:33,320 --> 00:21:37,120 Speaker 1: they commit to overshooting after the announcement at Jackson Hole 391 00:21:37,240 --> 00:21:41,359 Speaker 1: was necessary. So it isn't deeply divided, but it's clearly 392 00:21:41,359 --> 00:21:43,439 Speaker 1: not all on the same page. And when you're talking 393 00:21:43,480 --> 00:21:46,840 Speaker 1: about overshooting on inflation, it does make a difference if 394 00:21:46,880 --> 00:21:50,320 Speaker 1: you're talking about a mild overshoot or this trajectory notion. 395 00:21:50,640 --> 00:21:52,600 Speaker 1: And I think this is very hard to communicate in 396 00:21:52,640 --> 00:21:56,400 Speaker 1: the noise is undermining their message. It would be hot 397 00:21:56,400 --> 00:21:59,159 Speaker 1: as a communicate, just as hot if you did have 398 00:21:59,280 --> 00:22:01,399 Speaker 1: a broad concer census on the FMC. And I'm not 399 00:22:01,440 --> 00:22:03,359 Speaker 1: in the business of making up excuses for Sham and 400 00:22:03,400 --> 00:22:05,440 Speaker 1: Pale and what many people fought was a bad news 401 00:22:05,480 --> 00:22:07,600 Speaker 1: conference for him just the other week. But Dina, I 402 00:22:07,640 --> 00:22:10,320 Speaker 1: wonder if that goes some way, to some degree to 403 00:22:10,359 --> 00:22:12,760 Speaker 1: explain just why he couldn't answer some questions in a 404 00:22:12,800 --> 00:22:18,399 Speaker 1: clear and transparent way exactly. This is one of the 405 00:22:18,440 --> 00:22:21,440 Speaker 1: issues that we saw was that he couldn't say exactly 406 00:22:21,480 --> 00:22:24,720 Speaker 1: what these triggers were. The FED clearly wanted to provide 407 00:22:24,760 --> 00:22:27,359 Speaker 1: more support. You can read in his early comments that 408 00:22:27,400 --> 00:22:30,320 Speaker 1: he's going to give to Congress today as testimony, says, Listen, 409 00:22:30,440 --> 00:22:32,560 Speaker 1: we've done our job. It's your turn to your doing 410 00:22:32,640 --> 00:22:35,480 Speaker 1: your job, Congress, and we're trying to do more. Well 411 00:22:35,480 --> 00:22:37,760 Speaker 1: in expressing what the FED is trying to do more about, 412 00:22:37,840 --> 00:22:40,400 Speaker 1: he can't be clear about that. And if he can't 413 00:22:40,440 --> 00:22:42,960 Speaker 1: be clear because he doesn't have a unanimous vote in 414 00:22:42,960 --> 00:22:45,760 Speaker 1: the FED and they don't have clear triggers, it makes 415 00:22:45,800 --> 00:22:48,919 Speaker 1: it much harder to really say what this means. And 416 00:22:48,920 --> 00:22:51,480 Speaker 1: we know that sort of the idea of for some 417 00:22:51,560 --> 00:22:55,080 Speaker 1: time date based guidance does not work as well as 418 00:22:55,160 --> 00:22:58,880 Speaker 1: actual numerical triggers, but they can't agree on what those 419 00:22:58,880 --> 00:23:02,159 Speaker 1: triggers are. All this highlights the deep uncertainty about how 420 00:23:02,200 --> 00:23:04,359 Speaker 1: much momentum there is in the U S economy and 421 00:23:04,400 --> 00:23:06,800 Speaker 1: the global economy, as we haven't gotten rid of the 422 00:23:06,880 --> 00:23:09,200 Speaker 1: virus yet, So let's talk about the balance of risks, 423 00:23:09,240 --> 00:23:11,119 Speaker 1: because we're not gonna necessarily come to some sort of 424 00:23:11,119 --> 00:23:15,359 Speaker 1: conclusion on on those uncertainties. Where is the balance of 425 00:23:15,480 --> 00:23:18,919 Speaker 1: risk incurring more debt to have more fiscal support or 426 00:23:19,040 --> 00:23:22,280 Speaker 1: entering a period of a slowing economy that could potentially 427 00:23:22,560 --> 00:23:25,560 Speaker 1: head back down into a further leg lower O recession. 428 00:23:28,000 --> 00:23:30,600 Speaker 1: UM sadly, I worry about it being the latter. The 429 00:23:30,640 --> 00:23:34,720 Speaker 1: downside risks are great or given the complete and aptitude 430 00:23:34,760 --> 00:23:37,080 Speaker 1: of Congress at this point in time to act. We 431 00:23:37,200 --> 00:23:39,840 Speaker 1: know that M. J. Powell actually pointed out in his 432 00:23:39,960 --> 00:23:43,280 Speaker 1: comments today that it was because of the support we 433 00:23:43,400 --> 00:23:46,200 Speaker 1: had that we were able to get the rebounding growth 434 00:23:46,240 --> 00:23:48,600 Speaker 1: we had. And now not only is it the course 435 00:23:48,640 --> 00:23:51,040 Speaker 1: of the virus that determines the course of the economy, 436 00:23:51,280 --> 00:23:53,960 Speaker 1: but now we don't have that support anymore, and we 437 00:23:54,040 --> 00:23:57,040 Speaker 1: don't see any forthcoming. I think with your earlier guests, 438 00:23:57,080 --> 00:23:59,920 Speaker 1: I agree that UM financial markets are very much under 439 00:24:00,119 --> 00:24:02,960 Speaker 1: estimating the ability of Congress to come together, and the 440 00:24:03,000 --> 00:24:06,879 Speaker 1: cocks already taking people are already going hungry. Food insecurity 441 00:24:06,880 --> 00:24:09,920 Speaker 1: has picked up, and this really going into the holiday 442 00:24:09,920 --> 00:24:13,000 Speaker 1: season when we like to gather a lot seasonally adjusted 443 00:24:13,080 --> 00:24:16,560 Speaker 1: think about how many seasonal celebrations that we can't have 444 00:24:16,680 --> 00:24:20,680 Speaker 1: this holiday season as the rate of virus cases pick up. 445 00:24:20,880 --> 00:24:23,439 Speaker 1: And that's what consumers do on their own, infirms do 446 00:24:23,480 --> 00:24:25,880 Speaker 1: on their own all those holiday parties that are canceled. 447 00:24:26,080 --> 00:24:27,920 Speaker 1: This is going to make the two thousand and eight 448 00:24:28,200 --> 00:24:32,440 Speaker 1: cancelation of parties look like a cakewalk from a corporate standpoint, 449 00:24:32,720 --> 00:24:35,199 Speaker 1: and all the kinds of entertaining that usually goes on 450 00:24:35,359 --> 00:24:38,920 Speaker 1: inside of restaurants that just can't occur to the same degree, 451 00:24:39,280 --> 00:24:42,199 Speaker 1: and then that will have its own slowing effect on 452 00:24:42,280 --> 00:24:44,760 Speaker 1: the US economy. At the same time, you're seeing the 453 00:24:44,800 --> 00:24:48,480 Speaker 1: outbreak abroad in Europe pick up and these additional lockdowns 454 00:24:48,720 --> 00:24:51,520 Speaker 1: in Europe. So I think this is a very dire situation. 455 00:24:51,880 --> 00:24:54,320 Speaker 1: I wish that it was better. What bothers me is 456 00:24:54,359 --> 00:24:57,040 Speaker 1: that we still are are going into this weakness with 457 00:24:57,119 --> 00:24:59,680 Speaker 1: so many people still unemployed. Well, you can talk about 458 00:24:59,720 --> 00:25:02,320 Speaker 1: people not having parties, not consuming as much. You can 459 00:25:02,359 --> 00:25:04,800 Speaker 1: also talk about if states and local governments don't get 460 00:25:04,800 --> 00:25:07,199 Speaker 1: the funding from Washington that they're asking for and that 461 00:25:07,240 --> 00:25:10,880 Speaker 1: they say they need, how much more could public unemployment rise? 462 00:25:10,960 --> 00:25:12,960 Speaker 1: I mean, how much could we see the unemployment rate 463 00:25:13,119 --> 00:25:19,080 Speaker 1: significantly increase beyond current estimates? Now that's really important. We 464 00:25:19,200 --> 00:25:23,080 Speaker 1: already at one point one million down still from February 465 00:25:23,080 --> 00:25:26,960 Speaker 1: on state and local government employment. That number could compound. 466 00:25:27,240 --> 00:25:30,520 Speaker 1: You could easily add another percent to two percent onto 467 00:25:30,640 --> 00:25:34,160 Speaker 1: unemployment over the next six to twelve months um as 468 00:25:34,240 --> 00:25:37,160 Speaker 1: the state and local government struggled to deal with the holes, 469 00:25:37,240 --> 00:25:40,359 Speaker 1: the gaping holes in their budgets. And I think that's 470 00:25:40,440 --> 00:25:43,520 Speaker 1: very important as well, because it's yet another headwind of 471 00:25:43,600 --> 00:25:47,200 Speaker 1: cool temperatures and the inability to eat outside like we've 472 00:25:47,240 --> 00:25:51,360 Speaker 1: seen and moving inside again, they could exacerbate the situation. 473 00:25:51,720 --> 00:25:53,919 Speaker 1: I know it's tourism Dane, but just what's come up 474 00:25:53,920 --> 00:25:56,040 Speaker 1: in the last number of days is some really good 475 00:25:56,080 --> 00:25:59,879 Speaker 1: research on what I'm gonna call the goods services partition. 476 00:26:00,080 --> 00:26:02,679 Speaker 1: I think we've never seen it before. Given a natural 477 00:26:02,720 --> 00:26:07,240 Speaker 1: disaster like a pandemic, some states are good producing, agriculture producing, 478 00:26:07,480 --> 00:26:09,920 Speaker 1: maybe they have room to breathe and other states or 479 00:26:10,000 --> 00:26:14,720 Speaker 1: service sector, uh drive does does the federal government have 480 00:26:14,840 --> 00:26:17,240 Speaker 1: to take that into account when they try to do 481 00:26:17,320 --> 00:26:23,240 Speaker 1: stimulus someday? They certainly do. I mean mine. Do you 482 00:26:23,240 --> 00:26:26,400 Speaker 1: want to have enough people's, enough companies still in business 483 00:26:26,400 --> 00:26:28,760 Speaker 1: to be able to pick up when we can congregate again. 484 00:26:28,800 --> 00:26:31,919 Speaker 1: And clearly a vaccine alone isn't a panacea, but it 485 00:26:31,960 --> 00:26:34,679 Speaker 1: gets us towards that. But that's still a year away 486 00:26:34,760 --> 00:26:38,199 Speaker 1: in terms of herd immunity with a vaccine. And I 487 00:26:38,200 --> 00:26:41,080 Speaker 1: think it's very important to understand the need to keep 488 00:26:41,119 --> 00:26:45,560 Speaker 1: these businesses. It's an eighty year trend in a discretionary 489 00:26:45,600 --> 00:26:48,760 Speaker 1: spending on discretionary services that we've seen come up that 490 00:26:48,800 --> 00:26:51,440 Speaker 1: we've turned on its ear. While at the same time, 491 00:26:51,720 --> 00:26:55,000 Speaker 1: you have higher income household households work from home, where 492 00:26:55,040 --> 00:26:58,480 Speaker 1: the idea that college educated workers aren't actually unemployed. They are, 493 00:26:58,520 --> 00:27:00,840 Speaker 1: but they don't see it as visceral as you see 494 00:27:00,840 --> 00:27:03,480 Speaker 1: it with layoffs. But those households that have survived so 495 00:27:03,600 --> 00:27:06,400 Speaker 1: far are buying new cars, are buying boats, so buying 496 00:27:06,440 --> 00:27:09,159 Speaker 1: exercise equipment. They're buying a lot of goods that have 497 00:27:09,400 --> 00:27:12,720 Speaker 1: kept the economy doing much better and come back much 498 00:27:12,800 --> 00:27:16,000 Speaker 1: faster in some sectors than many expected. Also, repairs and 499 00:27:16,080 --> 00:27:19,879 Speaker 1: upgrades in second homes that's only something in certain certain 500 00:27:20,400 --> 00:27:23,439 Speaker 1: households can afford it. Also, we've seen in the housing 501 00:27:23,480 --> 00:27:26,959 Speaker 1: market as strong as it is, it embodies this inequality 502 00:27:27,200 --> 00:27:29,960 Speaker 1: um and what we've seen in response to COVID so 503 00:27:30,320 --> 00:27:33,399 Speaker 1: um dramatically, where you see people buying their first homes 504 00:27:33,440 --> 00:27:35,439 Speaker 1: and getting more room though who can afford to be 505 00:27:35,520 --> 00:27:38,320 Speaker 1: able to be further from city centers do, while those 506 00:27:38,320 --> 00:27:41,680 Speaker 1: who can't are stuck and now facing eviction and john 507 00:27:41,720 --> 00:27:44,760 Speaker 1: This timeline goes through what we've learned in the simulcast today, 508 00:27:45,040 --> 00:27:48,360 Speaker 1: which is Prime Minister Johnson teaching us to look out 509 00:27:48,400 --> 00:27:51,120 Speaker 1: the March of two thousand twenty one. I'm sorry, that's 510 00:27:51,160 --> 00:27:55,000 Speaker 1: the news item today for Global Wall Street. See you 511 00:27:55,040 --> 00:27:58,680 Speaker 1: in spring. Get extended below potential for many economies, including 512 00:27:58,680 --> 00:28:01,359 Speaker 1: a study the out of Kingdom that I'm great to 513 00:28:01,400 --> 00:28:03,199 Speaker 1: catch up when he gets to see you one of 514 00:28:03,240 --> 00:28:05,960 Speaker 1: my favorites. Just throwing that out there. Thanks Swamp and 515 00:28:06,040 --> 00:28:09,240 Speaker 1: Cheap Economist. Thank thank you. Thanks for listening to the 516 00:28:09,240 --> 00:28:15,760 Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 517 00:28:16,119 --> 00:28:20,320 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 518 00:28:20,400 --> 00:28:24,640 Speaker 1: Tom Keane before the podcast. You can always catch us worldwide. 519 00:28:25,080 --> 00:28:26,160 Speaker 1: I'm Bloomberg Radio