Speaker 1: Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane
Speaker 1: Jay Lee. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberger. Joining
Speaker 1: us now on the price action, Tony to our account
Speaker 1: of cogenity. Equity strategists right to have Tony with us
Speaker 1: on a day like this, Tony, many people trying to
Speaker 1: play politics in this market right now convinced them they shouldn't.
Speaker 1: How do you how do you guess? We don't know
Speaker 1: how people are going to vote yet. We don't know.
Speaker 1: It's kind of fifty fifty right now. Biden's in the lead,
Speaker 1: but we know not to trust the polls from the
Speaker 1: last election. We don't know what the implication of the
Speaker 1: Supreme Court nominee's going to be. We don't know if
Speaker 1: they're going to have the Senate, if the Democrats are
Speaker 1: gonna s week and have both the White House and
Speaker 1: the Senate. I just don't think it's an investable event.
Speaker 1: But what you do have is hesitance towards buying. But
Speaker 1: I don't think there's it's possible. It would be just
Speaker 1: an unadulterated gas at this point to say, Okay, I
Speaker 1: think X is gonna win and this is gonna happen,
Speaker 1: So this is what the market's going to do. You
Speaker 1: don't know what the market's gonna do and whatever outcome
Speaker 1: may come until you know how the market trades into it.
Speaker 1: And history shows that when you have a significant equity
Speaker 1: market decline in the end of September into October, it
Speaker 1: usually means, according to the net Davis research chart that
Speaker 1: I use, it usually means that the incumbent loses. So
Speaker 1: we're gonna I think the market is going to be
Speaker 1: a better tell over the course of the next month
Speaker 1: than any pundits. Tony Duar, your charm is to say
Speaker 1: we need a recession for a down market. Do you
Speaker 1: see your recession? No? I you know this is guys.
Speaker 1: Remember what creates a reset. A recession comes when you
Speaker 1: have a need for money and limited or no access
Speaker 1: to the money. We have a historic amount of excess liquidity.
Speaker 1: We have the recession, the worst of the recession than
Speaker 1: the rear view mirror, because we shut down the economy
Speaker 1: and we have a synchronized global recovery. Is it perfect
Speaker 1: and ramping? No, And I wish that everybody was employed
Speaker 1: in every small business. My kids have a small business.
Speaker 1: Every small business was doing great. But we are still having,
Speaker 1: even though it's not perfect, a synchronized global recovery, according
Speaker 1: to all the data that any of us can have.
Speaker 1: So when you combine historic excess liquidity and a synchronized
Speaker 1: global recovery. The only time I've seen the data kind
Speaker 1: of like it is is in the fall of two
Speaker 1: thousand and nine, which, as you guys know, I've been
Speaker 1: writing about. You know, the concept of corrections, Like the
Speaker 1: fall of two thousand and nine, you had four corrections
Speaker 1: that range between three and seven percent over the course
Speaker 1: of a month to month and a half after the
Speaker 1: first fifty percent move off the lower O nine and
Speaker 1: the recession was just beginning to abate and recover. It
Speaker 1: was in place. Well, given that thesis, is this the
Speaker 1: time to double down on cyclicals, which, as Tom as
Speaker 1: John pointed out, underperformed yesterday in this new type of
Speaker 1: sell off that we're seeing in response to no fiscal
Speaker 1: deal down in Washington. Listen's a great question that, yes
Speaker 1: is the answer. I would double down. That's that's an
Speaker 1: individual question, so I can't answer that for anybody. Um,
Speaker 1: is it time to add risk when you're down almost
Speaker 1: ten percent in the SMP more than that in the
Speaker 1: mega cap names, don't forget up. Until yesterday the cyclicals
Speaker 1: were so significantly outperformed. It was the theme because they
Speaker 1: were so significantly outperforming the NAZ the NAZ deck mega
Speaker 1: cap stay at home names, So clearly there was a
Speaker 1: bounce there. Towards the end of the day, you've really
Speaker 1: you've taken apart the fang stocks that they're back to
Speaker 1: where they were at May right, So you know, the
Speaker 1: idea which we've propelled and kind of took a lot
Speaker 1: of incoming for a month ago to not chase them
Speaker 1: and to advocate taking some off the table and into cyclicals.
Speaker 1: To some degree, that's been neutralized by the total drubbing
Speaker 1: in that space. These are good companies, they're not horrible companies.
Speaker 1: They have just gone up into the right too much.
Speaker 1: Tell me that rotation stole an arty tune along with
Speaker 1: the Rise and Treasury yoats as well. That's what telling
Speaker 1: you a Treasury yots topped out around about naughty basis
Speaker 1: points do you see putting together that kind of run again,
Speaker 1: I don't. I don't think you can have that kind
Speaker 1: of run in the induses. I think it's going to
Speaker 1: be a stair step higher again, like to follow two
Speaker 1: thousand and nine. Every time you had one of those corrections,
Speaker 1: you bounced back and went to a new high, only
Speaker 1: to have almost immediately another correction. There's so much uncertainty. John,
Speaker 1: I just I think the idea that we're gonna have
Speaker 1: this incredible, you know, parabolic move higher and five or
Speaker 1: six names, I thought it was really extraordinary. I saw
Speaker 1: David Costant from from Goldman Um he mentioned and it
Speaker 1: really took me by surprise that that that five companies
Speaker 1: represented over thirty five And I did the research myself
Speaker 1: after that. Actually at the time was thirty seven of
Speaker 1: the rush one thousand growth. That is the that is
Speaker 1: so far from diversification. It's extraordinary. So you you really
Speaker 1: it's gonna take time for these magat cap names to
Speaker 1: kind of um, I don't know, correct, churn, consolidate, base,
Speaker 1: whatever the name is, because there was such a concentration
Speaker 1: in them that now as they rally all those people
Speaker 1: over the last two or three months that had bought them,
Speaker 1: they're looking, they're probably gonna be looking to cut their losses,
Speaker 1: which means you're gonna have some overhead resistance. Bottom line
Speaker 1: is I think the market is just going to be
Speaker 1: in this churning phase, certainly through the end of the year.
Speaker 1: Appreciate the honestate as olwise, it's great to see you looking.
Speaker 1: Right now, we come to groups with their fears, as
Speaker 1: we witnessed yesterday until a huge answer to four seven
Speaker 1: pm James, A thing is perfect for this with everything
Speaker 1: standard Looking at long term investment, James, how do you
Speaker 1: manage fear here? What do you do on a day
Speaker 1: to day tick when the fear is so evident? Morning, Tom.
Speaker 1: We wouldn't like not to be responding to any of
Speaker 1: these short term generations, you know, we'd like to be
Speaker 1: positioned in such a way that we can ride out
Speaker 1: some of these short term storms. You know, take medium
Speaker 1: term views, be aware and cognizant of where some of
Speaker 1: the short term risks lay, and ensure that as best
Speaker 1: we can, the portfolio is robust to deal with them.
Speaker 1: I mean, it just so happens that what's happened yesterday,
Speaker 1: you know, it was fairly good for the portfolios that
Speaker 1: we're running and fairly good for the positions that we
Speaker 1: have on because we've been very cautious about being risk
Speaker 1: facing in this environment. It's very very difficult on a
Speaker 1: day to day basis. At the moment, valuation as any
Speaker 1: kind of anchor in any kind of financial market is
Speaker 1: almost impossible because things look so stretched and extreme relative
Speaker 1: to history or fundamentals. But what we see is increasingly
Speaker 1: been a market which has ignored all incoming bad news
Speaker 1: information and embraced all incoming good news information. And when
Speaker 1: that happens, very difficult to point out x ANTI what
Speaker 1: triggers will be. But when everybody's on one side of
Speaker 1: the boat, it doesn't really take much of a trigger,
Speaker 1: much of a wave to tip the boat over and
Speaker 1: everybody fall in. So we've been defensive and that yesterday
Speaker 1: was the right place to be. What does defensive look like? Yeah,
Speaker 1: there's a good question, I mean, being it's the world
Speaker 1: of one trade. There's you know, one of the banks
Speaker 1: we speak to has been calling it the world of
Speaker 1: one trade for a while and it certainly is. Some
Speaker 1: people call it row row risk on risk off funding
Speaker 1: diversification been very difficult. Um. I think it's interesting, you know,
Speaker 1: the two asset classes that I main mainly look at,
Speaker 1: which is core sovereign bonds, rate products and the FX markets.
Speaker 1: You know, sovereign bonds didn't really move yesterday, Treasury is
Speaker 1: rallied a couple of basis points. There was a lot
Speaker 1: going on in effects. I think that's been a trend
Speaker 1: recently where investors have seen bond volatility at zero, central
Speaker 1: banks trapping yields in one place and said, well where
Speaker 1: else can I go and express a view which might
Speaker 1: react to this stuff? So I think dollars, yen and
Speaker 1: Swiss francs are good places um to put risk budget
Speaker 1: to work where you can actually see some benefits if
Speaker 1: we do have a risk off period. But quite what
Speaker 1: your portfolio looks like obviously depends on exactly what talking
Speaker 1: you've got at your disposal. For US, it's definitely long duration,
Speaker 1: is favoring the U S treasury market, and it's being
Speaker 1: defensive you know short certainly MFX short, risky short video
Speaker 1: syncretically weak effects and along the current account surplus and
Speaker 1: or the flight quality currencies. Does that mean that you're
Speaker 1: betting on deflation? Um? I mean express expressly no. Do
Speaker 1: I think there's a chance that we end up in
Speaker 1: a deflationary depression. Yeah, absolutely, I think there's a chance,
Speaker 1: and I think it's very difficult. The decision tree, the
Speaker 1: problem ability tree of outcomes going forward is probably as
Speaker 1: tough tough as I've ever known, because so much is
Speaker 1: dependent on a lot of policy choices which interact with
Speaker 1: one another and which will be dictated by something as
Speaker 1: unpredictable as, for example, the virus, So really tough. I
Speaker 1: think inflation is something we just don't understand well enough
Speaker 1: to have a high conviction call, and I could see
Speaker 1: it going either way. I could see us in inflation. Equally,
Speaker 1: I could see us with really high inflation. But again
Speaker 1: recognizing that central banks are determined at the moment, I
Speaker 1: want to position for what they're doing, not what they're
Speaker 1: trying to achieve. So for now, that means they're keeping
Speaker 1: yields low, they're crushing yields, and they're keeping that as
Speaker 1: an asymmetric bet in my in my opinion, so I'm
Speaker 1: not too worried about inflation near term. I think it's
Speaker 1: definitely something that make may happen later. We welcome all
Speaker 1: of you on Bloomberg Television and Bloomberg Radio. Jonathan Ferrior,
Speaker 1: Lisa Bramwards and term keen is the most eventful Tuesday, huge,
Speaker 1: huge news or particularly out of the United Kingdom, James Athy,
Speaker 1: whether from Abydeen and James. If that's the case, and
Speaker 1: if the symmetrics and the asymmetrics are so hard to judge,
Speaker 1: what is the value or error of being in cash? Yeah,
Speaker 1: that's um. I mean go back to the start of
Speaker 1: this year and I would have said there was very
Speaker 1: little era potential era. I think that cash was a
Speaker 1: very attractive part of your portfolio because I just saw
Speaker 1: so many risks and I saw so little chance of
Speaker 1: the one true risk which you you wouldn't want to
Speaker 1: be invested in cash for. And that's really a lot
Speaker 1: of inflation today as we sit here, it's a kind
Speaker 1: of bimodal distribution. There is there is a good chance
Speaker 1: of very high inflation, there is a good chance of
Speaker 1: very low inflation, and cash is kind of good for
Speaker 1: one of those and not so good for the other. Again,
Speaker 1: diversification is key. Even if that's diversification which isn't giving
Speaker 1: you as much and more as an efficient to portfolio
Speaker 1: as it would have done through history, there is still
Speaker 1: value and diversification, and I think cash is part of that,
Speaker 1: but I definitely think pressures metals are a part of that. Today,
Speaker 1: James are going to think out loud, so go with
Speaker 1: me and forgive me for doing this. Real yields, for
Speaker 1: many people have been incredibly supportive of risk assets worldwide,
Speaker 1: but real yields have been driven by inflation expectations building up,
Speaker 1: and rates effectively being anchored by the feder Reserve. What
Speaker 1: I'm trying to understand if we reprice inflation lower and
Speaker 1: real yields actually start to go the other way for
Speaker 1: that reason, I'm just trying to get my head around this, James,
Speaker 1: what that actually means going forward for risk assets with
Speaker 1: inflation rate or at least expected inflation coming in. Yeah, unfortunately,
Speaker 1: it's still one big trade, but it's exactly as you describe. Essentially,
Speaker 1: we've seen break evens widening through the period from the
Speaker 1: March lows, which is correlated almost perfectly with risk asset recovery.
Speaker 1: Because the FED has been keeping nominal treasury yields kind
Speaker 1: of anchored around sixty basis points in tenure, that meant
Speaker 1: that real yields had to form fairly dramatically in order
Speaker 1: to get that increase in break even inflation. That's also
Speaker 1: correlated with the eyes im precious metals, which are often
Speaker 1: thought of as an inflation edge. It's one big trade.
Speaker 1: So if that gets unwound, you know what does that
Speaker 1: mean for risk assets? Well, I don't know if risk
Speaker 1: assets or the tail or the dog in that scenario.
Speaker 1: I think eat boats is equally possible. Risk assets are
Speaker 1: up here, in my opinion, largely because the central bank
Speaker 1: policy has driven them up here, not because there's some
Speaker 1: rational repricing of growth or inflation outcomes. I think break
Speaker 1: evens are up here because they're correlated with risk assets. Therefore,
Speaker 1: if there is some shock which either forces equity prices
Speaker 1: risk asset prices lower or indeed pushes real yields higher,
Speaker 1: those are both going to look like the same trade
Speaker 1: being unwound. And I think pretty much everybody is in it.
Speaker 1: That could get ugly quite quickly. James gred to catch
Speaker 1: up as always really good to hear from me. James
Speaker 1: Athy of Aberdeen Standard Investments, Great on Washington. Isaac Voltanski
Speaker 1: is a wonderful policy water At Compass Point Research. We
Speaker 1: fold in now the uproars plural that we see his Washington, Isaac,
Speaker 1: thank you so much for joining us as any policy
Speaker 1: discussion dead on the fistful side for right now. The
Speaker 1: simple answer is yes, um. Policymakers like to say that
Speaker 1: they can walk and chew gum at the same time,
Speaker 1: but in my experience that has not been the case,
Speaker 1: and the Supreme Court m developments are going to overtake
Speaker 1: the capital and they will be the topic to Jore,
Speaker 1: which means that the focus on the fiscal package, which
Speaker 1: was already waning, is effectively dead at the moment, Isaac,
Speaker 1: How can people even begin to trade this given the
Speaker 1: binary potential outcomes. In talking to clients, I find it
Speaker 1: interesting that there is still a subset in among my
Speaker 1: clients in particular, who believe there's this possibility for a
Speaker 1: grand bargain at the end of the month that covers
Speaker 1: the funding deadline as well as some of the fiscal stimulus.
Speaker 1: And I think the reality is we have been conditioned
Speaker 1: over the past ten years to expect Washington over time
Speaker 1: to eventually find its way to avoiding these fiscal clips.
Speaker 1: That assumption was proven wrong with these phase for negotiations,
Speaker 1: which I think is a mere term concern for markets.
Speaker 1: But I think it's also going to weigh on the
Speaker 1: markets longer term confidence and policy makers. Well, just to
Speaker 1: to sort of put a bow on this, Kevin's really
Speaker 1: talking about how this feels different than the normal Washington dysfunction.
Speaker 1: You're saying people have gotten conditioned to a lot of noise,
Speaker 1: a lot of messiness, and then for it all to
Speaker 1: come together. But from your discussions with policymakers paired with
Speaker 1: your discussions with people in the markets, is there a disconnect?
Speaker 1: Are people too optimistic about that neat ending this time?
Speaker 1: The simple answers, yes, there is still too much optimism
Speaker 1: regarding a fiscal package by the end of the month.
Speaker 1: Um my ill um in the policy world believe that
Speaker 1: Washington could come together because the simple reality is we
Speaker 1: need more to school support. And you don't need need
Speaker 1: to tell you that. The Chairman of the Federal Reserve
Speaker 1: will testify before Congress three times this week and he
Speaker 1: is going to suggest as much. And I think people
Speaker 1: would also make the point that the Cares Act, which
Speaker 1: was passed in March, actually worked. Isaac right now at
Speaker 1: this moment, the Prime Minister of the United Kingdom and
Speaker 1: some I'm going to say political peril is saying let's go,
Speaker 1: We're gonna reset, and Isaac to me the headline here
Speaker 1: as he's resetting from March of two thousand twenty one.
Speaker 1: Is anyone in your Washington looking out dare I say
Speaker 1: to March of two thousand twenty one. Not even close.
Speaker 1: We are focused on the next tweet. We are not
Speaker 1: focused on long term policy making. And I think that
Speaker 1: this is part of the systems failure that we that
Speaker 1: we have seen in Washington in recent years, that there
Speaker 1: is no long termism UM and that is clearly evidenced
Speaker 1: by the lack of focus on a fiscal package that
Speaker 1: would help us emerge from from this crisis. I mean,
Speaker 1: you were wined in Ohio, which is a battleground state.
Speaker 1: Is any of this cluelessness going to show up at
Speaker 1: the ballot box? Does this fold in to the political
Speaker 1: calculus of mail in ballots and November three ballots? At
Speaker 1: the moment, I think the simple answer is no. Um.
Speaker 1: The reality for many voters is that other issues are
Speaker 1: going to animate them. And that's why I believe that
Speaker 1: the Supreme Court headlines over the past few days can
Speaker 1: be played for both bases in different ways, and so
Speaker 1: that will be what the big focus is now. The
Speaker 1: point I want to make here is that as if
Speaker 1: the economy continues to show signs of weakness in certain corridors,
Speaker 1: that's clearly negative for the president because he is still viewed,
Speaker 1: at least in terms of the polling, is stronger on
Speaker 1: economic matter. So when we see economic weakness, it does
Speaker 1: accrue at least in certain battleground states to the benefit
Speaker 1: of the body campaign. I said, just finally on the polling,
Speaker 1: the story there is that there hasn't been much of
Speaker 1: a story for many people. They've identified the stability in
Speaker 1: the polls in many places. Do you still identify with
Speaker 1: stability or things changing as we get close up? I
Speaker 1: can tell you that I think that the polls will
Speaker 1: remain stable for about another week, And most of my
Speaker 1: clients as well as most of my contacts, have September
Speaker 1: twenty nine circled on their calendar. That is the first
Speaker 1: presidential debate, and I think that a lot of folks
Speaker 1: are going to get there their first real feel of
Speaker 1: this campaign that night, because up until that point, it's
Speaker 1: really just um tested sound bites that have defined this campaign.
Speaker 1: As we have two men yelling at each other from
Speaker 1: different states, and so to see them in the same
Speaker 1: form is going to be meaningful for a whole lot
Speaker 1: of voters, especially those voters in battleground states, are going
Speaker 1: to decide this thing, Isaac. From two men yet to
Speaker 1: get each other from different states to two many at
Speaker 1: each other, run in front of each other, eyes at, botasky, compas,
Speaker 1: point research and try to have eyes at. Fantastic to
Speaker 1: catch up with you right now. Arguably our most important
Speaker 1: interview of the day folding in FED policy from Chairman
Speaker 1: Paul and also our conversation tomorrow with the Vice Chairman
Speaker 1: of the FED, Richard Clara Diane swarmp Joints is of
Speaker 1: course so helpful typically on our FED day as well. Diane.
Speaker 1: I want to get to the Fed and claratave, but
Speaker 1: I first must ask you about the economic backdrop of
Speaker 1: the battleground states of the Midwest. Is the presidential debate
Speaker 1: goes to Cleveland and the wonderful case Western University. This
Speaker 1: is gonna be fascinating. What's the state of the economy
Speaker 1: in Ohio and the broader Midwest. Well, we're all suffering
Speaker 1: from the pandemic, and unemployment rates have risen quite dramatically.
Speaker 1: What most people forget is as much as Chairman Pale
Speaker 1: emphasizes that this is a low age recession, this has
Speaker 1: hit disproportionately those who can bear the burden the least.
Speaker 1: It also has hit college educated workers, and in fact,
Speaker 1: the unemployment rate is hired today for college educated workers
Speaker 1: than it was during the Great Recession. So it is
Speaker 1: a low wage recession. But it also has reached up
Speaker 1: into higher levels of education. And I think just the
Speaker 1: numbers are so allowed to get lost, are so large
Speaker 1: they get lost in translation, Diane, I've got to move
Speaker 1: forward to this important conversation with Clara tomorrow. You know,
Speaker 1: he is truly our expert on ds G E, which
Speaker 1: is a lot of fancy math. Forget the math, let's
Speaker 1: go Latin. My first question to him will be on
Speaker 1: how a central bank acts when inflation rises. Do they
Speaker 1: get out front or do they get behind expost? Where
Speaker 1: where is the FED going to be? Where are they
Speaker 1: going to act if and when they get inflation to rise. Well,
Speaker 1: clearly they don't agree on this, or they would have
Speaker 1: told us exactly what their triggers on inflation were as
Speaker 1: they shifted to forward guidance. It's still very loose, but
Speaker 1: I think what we're seeing is a FED It's not
Speaker 1: just the level of inflation moving up. But the FED
Speaker 1: would like to see is that inflation get up to
Speaker 1: sort of tune a quarter two and a half percent
Speaker 1: for a sustained period of time, which they've not been
Speaker 1: able to achieve. But also, it's such arajectory on inflation,
Speaker 1: the FED would not hesitate to act if all of
Speaker 1: a sudden inflation was moving up to two two and
Speaker 1: a half to three percent very rapidly. That delineation, that
Speaker 1: nuance makes this whole new overshooting aspect of the Fed's
Speaker 1: policy very hard to convey to the average American, let
Speaker 1: alone financial markets. If financial markets really absorbed what the
Speaker 1: FED was saying, they would accept that the Fed is saying,
Speaker 1: we're willing to shift the balance of bargaining power between
Speaker 1: Wall Street back to workers a bit and allow wages
Speaker 1: to rise as a share, and run the economy a
Speaker 1: little heat hot to allow workers to have a little
Speaker 1: more bargaining power out there for a period in time.
Speaker 1: If that really set into Wall Street would see a
Speaker 1: very different Wall Street today. So I'm how divided is
Speaker 1: this FBC right now? You know, it's mostly in the
Speaker 1: same direction, although you've seen Bullard talk about his concerns
Speaker 1: about inflation. If they were completely unison and in anonymous
Speaker 1: I'm sorry, um unanimous in terms of what they wanted,
Speaker 1: you would not have seen two dissents. You've got Neil
Speaker 1: Kashkari at the Minneapolis FED asking for much more overshooting
Speaker 1: than the FED is willing to do, and Rob Kaplan
Speaker 1: saying we weren't really ready to go to full forward guidance.
Speaker 1: Includely the chairman felt some kind of forward guidance where
Speaker 1: they commit to overshooting after the announcement at Jackson Hole
Speaker 1: was necessary. So it isn't deeply divided, but it's clearly
Speaker 1: not all on the same page. And when you're talking
Speaker 1: about overshooting on inflation, it does make a difference if
Speaker 1: you're talking about a mild overshoot or this trajectory notion.
Speaker 1: And I think this is very hard to communicate in
Speaker 1: the noise is undermining their message. It would be hot
Speaker 1: as a communicate, just as hot if you did have
Speaker 1: a broad concer census on the FMC. And I'm not
Speaker 1: in the business of making up excuses for Sham and
Speaker 1: Pale and what many people fought was a bad news
Speaker 1: conference for him just the other week. But Dina, I
Speaker 1: wonder if that goes some way, to some degree to
Speaker 1: explain just why he couldn't answer some questions in a
Speaker 1: clear and transparent way exactly. This is one of the
Speaker 1: issues that we saw was that he couldn't say exactly
Speaker 1: what these triggers were. The FED clearly wanted to provide
Speaker 1: more support. You can read in his early comments that
Speaker 1: he's going to give to Congress today as testimony, says, Listen,
Speaker 1: we've done our job. It's your turn to your doing
Speaker 1: your job, Congress, and we're trying to do more. Well
Speaker 1: in expressing what the FED is trying to do more about,
Speaker 1: he can't be clear about that. And if he can't
Speaker 1: be clear because he doesn't have a unanimous vote in
Speaker 1: the FED and they don't have clear triggers, it makes
Speaker 1: it much harder to really say what this means. And
Speaker 1: we know that sort of the idea of for some
Speaker 1: time date based guidance does not work as well as
Speaker 1: actual numerical triggers, but they can't agree on what those
Speaker 1: triggers are. All this highlights the deep uncertainty about how
Speaker 1: much momentum there is in the U S economy and
Speaker 1: the global economy, as we haven't gotten rid of the
Speaker 1: virus yet, So let's talk about the balance of risks,
Speaker 1: because we're not gonna necessarily come to some sort of
Speaker 1: conclusion on on those uncertainties. Where is the balance of
Speaker 1: risk incurring more debt to have more fiscal support or
Speaker 1: entering a period of a slowing economy that could potentially
Speaker 1: head back down into a further leg lower O recession.
Speaker 1: UM sadly, I worry about it being the latter. The
Speaker 1: downside risks are great or given the complete and aptitude
Speaker 1: of Congress at this point in time to act. We
Speaker 1: know that M. J. Powell actually pointed out in his
Speaker 1: comments today that it was because of the support we
Speaker 1: had that we were able to get the rebounding growth
Speaker 1: we had. And now not only is it the course
Speaker 1: of the virus that determines the course of the economy,
Speaker 1: but now we don't have that support anymore, and we
Speaker 1: don't see any forthcoming. I think with your earlier guests,
Speaker 1: I agree that UM financial markets are very much under
Speaker 1: estimating the ability of Congress to come together, and the
Speaker 1: cocks already taking people are already going hungry. Food insecurity
Speaker 1: has picked up, and this really going into the holiday
Speaker 1: season when we like to gather a lot seasonally adjusted
Speaker 1: think about how many seasonal celebrations that we can't have
Speaker 1: this holiday season as the rate of virus cases pick up.
Speaker 1: And that's what consumers do on their own, infirms do
Speaker 1: on their own all those holiday parties that are canceled.
Speaker 1: This is going to make the two thousand and eight
Speaker 1: cancelation of parties look like a cakewalk from a corporate standpoint,
Speaker 1: and all the kinds of entertaining that usually goes on
Speaker 1: inside of restaurants that just can't occur to the same degree,
Speaker 1: and then that will have its own slowing effect on
Speaker 1: the US economy. At the same time, you're seeing the
Speaker 1: outbreak abroad in Europe pick up and these additional lockdowns
Speaker 1: in Europe. So I think this is a very dire situation.
Speaker 1: I wish that it was better. What bothers me is
Speaker 1: that we still are are going into this weakness with
Speaker 1: so many people still unemployed. Well, you can talk about
Speaker 1: people not having parties, not consuming as much. You can
Speaker 1: also talk about if states and local governments don't get
Speaker 1: the funding from Washington that they're asking for and that
Speaker 1: they say they need, how much more could public unemployment rise?
Speaker 1: I mean, how much could we see the unemployment rate
Speaker 1: significantly increase beyond current estimates? Now that's really important. We
Speaker 1: already at one point one million down still from February
Speaker 1: on state and local government employment. That number could compound.
Speaker 1: You could easily add another percent to two percent onto
Speaker 1: unemployment over the next six to twelve months um as
Speaker 1: the state and local government struggled to deal with the holes,
Speaker 1: the gaping holes in their budgets. And I think that's
Speaker 1: very important as well, because it's yet another headwind of
Speaker 1: cool temperatures and the inability to eat outside like we've
Speaker 1: seen and moving inside again, they could exacerbate the situation.
Speaker 1: I know it's tourism Dane, but just what's come up
Speaker 1: in the last number of days is some really good
Speaker 1: research on what I'm gonna call the goods services partition.
Speaker 1: I think we've never seen it before. Given a natural
Speaker 1: disaster like a pandemic, some states are good producing, agriculture producing,
Speaker 1: maybe they have room to breathe and other states or
Speaker 1: service sector, uh drive does does the federal government have
Speaker 1: to take that into account when they try to do
Speaker 1: stimulus someday? They certainly do. I mean mine. Do you
Speaker 1: want to have enough people's, enough companies still in business
Speaker 1: to be able to pick up when we can congregate again.
Speaker 1: And clearly a vaccine alone isn't a panacea, but it
Speaker 1: gets us towards that. But that's still a year away
Speaker 1: in terms of herd immunity with a vaccine. And I
Speaker 1: think it's very important to understand the need to keep
Speaker 1: these businesses. It's an eighty year trend in a discretionary
Speaker 1: spending on discretionary services that we've seen come up that
Speaker 1: we've turned on its ear. While at the same time,
Speaker 1: you have higher income household households work from home, where
Speaker 1: the idea that college educated workers aren't actually unemployed. They are,
Speaker 1: but they don't see it as visceral as you see
Speaker 1: it with layoffs. But those households that have survived so
Speaker 1: far are buying new cars, are buying boats, so buying
Speaker 1: exercise equipment. They're buying a lot of goods that have
Speaker 1: kept the economy doing much better and come back much
Speaker 1: faster in some sectors than many expected. Also, repairs and
Speaker 1: upgrades in second homes that's only something in certain certain
Speaker 1: households can afford it. Also, we've seen in the housing
Speaker 1: market as strong as it is, it embodies this inequality
Speaker 1: um and what we've seen in response to COVID so
Speaker 1: um dramatically, where you see people buying their first homes
Speaker 1: and getting more room though who can afford to be
Speaker 1: able to be further from city centers do, while those
Speaker 1: who can't are stuck and now facing eviction and john
Speaker 1: This timeline goes through what we've learned in the simulcast today,
Speaker 1: which is Prime Minister Johnson teaching us to look out
Speaker 1: the March of two thousand twenty one. I'm sorry, that's
Speaker 1: the news item today for Global Wall Street. See you
Speaker 1: in spring. Get extended below potential for many economies, including
Speaker 1: a study the out of Kingdom that I'm great to
Speaker 1: catch up when he gets to see you one of
Speaker 1: my favorites. Just throwing that out there. Thanks Swamp and
Speaker 1: Cheap Economist. Thank thank you. Thanks for listening to the
Speaker 1: Bloomberg Surveillance podcast. 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 Keane before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio