WEBVTT - Surveillance: Increased Downside Risks With Swonk 0:00:06.320 --> 0:00:12.960 Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 Jay Lee. 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 --> 0:00:27.360 Bloomberg dot Com, and of course on the Bloomberger. Joining 0:00:27.440 --> 0:00:29.520 us now on the price action, Tony to our account 0:00:29.520 --> 0:00:33.000 of cogenity. Equity strategists right to have Tony with us 0:00:33.000 --> 0:00:35.519 on a day like this, Tony, many people trying to 0:00:35.560 --> 0:00:39.000 play politics in this market right now convinced them they shouldn't. 0:00:40.680 --> 0:00:42.800 How do you how do you guess? We don't know 0:00:42.880 --> 0:00:45.159 how people are going to vote yet. We don't know. 0:00:45.280 --> 0:00:48.080 It's kind of fifty fifty right now. Biden's in the lead, 0:00:48.159 --> 0:00:50.720 but we know not to trust the polls from the 0:00:50.800 --> 0:00:54.040 last election. We don't know what the implication of the 0:00:54.040 --> 0:00:57.160 Supreme Court nominee's going to be. We don't know if 0:00:57.200 --> 0:00:59.600 they're going to have the Senate, if the Democrats are 0:00:59.600 --> 0:01:01.960 gonna s week and have both the White House and 0:01:02.000 --> 0:01:05.160 the Senate. I just don't think it's an investable event. 0:01:05.280 --> 0:01:08.440 But what you do have is hesitance towards buying. But 0:01:08.720 --> 0:01:12.280 I don't think there's it's possible. It would be just 0:01:12.360 --> 0:01:15.400 an unadulterated gas at this point to say, Okay, I 0:01:15.440 --> 0:01:18.080 think X is gonna win and this is gonna happen, 0:01:18.400 --> 0:01:20.399 So this is what the market's going to do. You 0:01:20.440 --> 0:01:23.840 don't know what the market's gonna do and whatever outcome 0:01:23.880 --> 0:01:27.560 may come until you know how the market trades into it. 0:01:28.080 --> 0:01:31.520 And history shows that when you have a significant equity 0:01:31.560 --> 0:01:35.360 market decline in the end of September into October, it 0:01:35.520 --> 0:01:39.240 usually means, according to the net Davis research chart that 0:01:39.319 --> 0:01:43.240 I use, it usually means that the incumbent loses. So 0:01:43.319 --> 0:01:44.720 we're gonna I think the market is going to be 0:01:44.760 --> 0:01:46.959 a better tell over the course of the next month 0:01:47.280 --> 0:01:50.280 than any pundits. Tony Duar, your charm is to say 0:01:50.360 --> 0:01:52.760 we need a recession for a down market. Do you 0:01:52.800 --> 0:01:58.520 see your recession? No? I you know this is guys. 0:01:58.520 --> 0:02:01.800 Remember what creates a reset. A recession comes when you 0:02:01.840 --> 0:02:05.000 have a need for money and limited or no access 0:02:05.080 --> 0:02:09.000 to the money. We have a historic amount of excess liquidity. 0:02:09.080 --> 0:02:12.040 We have the recession, the worst of the recession than 0:02:12.040 --> 0:02:14.880 the rear view mirror, because we shut down the economy 0:02:14.960 --> 0:02:18.760 and we have a synchronized global recovery. Is it perfect 0:02:18.800 --> 0:02:23.120 and ramping? No, And I wish that everybody was employed 0:02:23.160 --> 0:02:26.440 in every small business. My kids have a small business. 0:02:26.440 --> 0:02:31.440 Every small business was doing great. But we are still having, 0:02:31.600 --> 0:02:35.400 even though it's not perfect, a synchronized global recovery, according 0:02:35.440 --> 0:02:37.200 to all the data that any of us can have. 0:02:37.840 --> 0:02:42.480 So when you combine historic excess liquidity and a synchronized 0:02:42.480 --> 0:02:44.959 global recovery. The only time I've seen the data kind 0:02:44.960 --> 0:02:47.160 of like it is is in the fall of two 0:02:47.200 --> 0:02:49.720 thousand and nine, which, as you guys know, I've been 0:02:49.720 --> 0:02:53.520 writing about. You know, the concept of corrections, Like the 0:02:53.560 --> 0:02:56.639 fall of two thousand and nine, you had four corrections 0:02:57.000 --> 0:02:59.840 that range between three and seven percent over the course 0:02:59.840 --> 0:03:02.120 of a month to month and a half after the 0:03:02.160 --> 0:03:04.800 first fifty percent move off the lower O nine and 0:03:04.840 --> 0:03:08.160 the recession was just beginning to abate and recover. It 0:03:08.240 --> 0:03:11.240 was in place. Well, given that thesis, is this the 0:03:11.280 --> 0:03:14.520 time to double down on cyclicals, which, as Tom as 0:03:14.600 --> 0:03:17.880 John pointed out, underperformed yesterday in this new type of 0:03:17.919 --> 0:03:20.880 sell off that we're seeing in response to no fiscal 0:03:20.880 --> 0:03:24.920 deal down in Washington. Listen's a great question that, yes 0:03:25.080 --> 0:03:27.640 is the answer. I would double down. That's that's an 0:03:27.639 --> 0:03:30.839 individual question, so I can't answer that for anybody. Um, 0:03:30.960 --> 0:03:33.560 is it time to add risk when you're down almost 0:03:33.600 --> 0:03:36.520 ten percent in the SMP more than that in the 0:03:36.560 --> 0:03:40.200 mega cap names, don't forget up. Until yesterday the cyclicals 0:03:40.240 --> 0:03:43.400 were so significantly outperformed. It was the theme because they 0:03:43.440 --> 0:03:47.600 were so significantly outperforming the NAZ the NAZ deck mega 0:03:47.680 --> 0:03:50.760 cap stay at home names, So clearly there was a 0:03:50.800 --> 0:03:53.280 bounce there. Towards the end of the day, you've really 0:03:53.520 --> 0:03:56.680 you've taken apart the fang stocks that they're back to 0:03:56.720 --> 0:03:59.760 where they were at May right, So you know, the 0:03:59.840 --> 0:04:02.880 idea which we've propelled and kind of took a lot 0:04:02.880 --> 0:04:06.440 of incoming for a month ago to not chase them 0:04:06.480 --> 0:04:11.240 and to advocate taking some off the table and into cyclicals. 0:04:11.280 --> 0:04:14.480 To some degree, that's been neutralized by the total drubbing 0:04:14.960 --> 0:04:18.000 in that space. These are good companies, they're not horrible companies. 0:04:18.040 --> 0:04:19.599 They have just gone up into the right too much. 0:04:20.839 --> 0:04:23.000 Tell me that rotation stole an arty tune along with 0:04:23.040 --> 0:04:25.240 the Rise and Treasury yoats as well. That's what telling 0:04:25.240 --> 0:04:27.760 you a Treasury yots topped out around about naughty basis 0:04:27.760 --> 0:04:30.320 points do you see putting together that kind of run again, 0:04:31.360 --> 0:04:33.320 I don't. I don't think you can have that kind 0:04:33.320 --> 0:04:34.800 of run in the induses. I think it's going to 0:04:34.839 --> 0:04:37.080 be a stair step higher again, like to follow two 0:04:37.080 --> 0:04:39.760 thousand and nine. Every time you had one of those corrections, 0:04:40.200 --> 0:04:42.920 you bounced back and went to a new high, only 0:04:42.960 --> 0:04:46.960 to have almost immediately another correction. There's so much uncertainty. John, 0:04:46.960 --> 0:04:49.200 I just I think the idea that we're gonna have 0:04:49.240 --> 0:04:53.000 this incredible, you know, parabolic move higher and five or 0:04:53.000 --> 0:04:55.440 six names, I thought it was really extraordinary. I saw 0:04:55.520 --> 0:04:59.880 David Costant from from Goldman Um he mentioned and it 0:05:00.040 --> 0:05:03.440 really took me by surprise that that that five companies 0:05:03.480 --> 0:05:06.680 represented over thirty five And I did the research myself 0:05:06.720 --> 0:05:11.800 after that. Actually at the time was thirty seven of 0:05:11.839 --> 0:05:15.000 the rush one thousand growth. That is the that is 0:05:15.040 --> 0:05:19.200 so far from diversification. It's extraordinary. So you you really 0:05:19.279 --> 0:05:21.920 it's gonna take time for these magat cap names to 0:05:22.040 --> 0:05:26.960 kind of um, I don't know, correct, churn, consolidate, base, 0:05:27.120 --> 0:05:30.480 whatever the name is, because there was such a concentration 0:05:30.600 --> 0:05:33.960 in them that now as they rally all those people 0:05:33.960 --> 0:05:36.400 over the last two or three months that had bought them, 0:05:36.440 --> 0:05:39.400 they're looking, they're probably gonna be looking to cut their losses, 0:05:39.800 --> 0:05:42.320 which means you're gonna have some overhead resistance. Bottom line 0:05:42.360 --> 0:05:43.760 is I think the market is just going to be 0:05:43.800 --> 0:05:46.600 in this churning phase, certainly through the end of the year. 0:05:48.040 --> 0:05:50.400 Appreciate the honestate as olwise, it's great to see you looking. 0:05:55.040 --> 0:05:57.480 Right now, we come to groups with their fears, as 0:05:57.560 --> 0:06:01.240 we witnessed yesterday until a huge answer to four seven 0:06:01.520 --> 0:06:04.360 pm James, A thing is perfect for this with everything 0:06:04.520 --> 0:06:08.159 standard Looking at long term investment, James, how do you 0:06:08.240 --> 0:06:10.520 manage fear here? What do you do on a day 0:06:10.520 --> 0:06:15.080 to day tick when the fear is so evident? Morning, Tom. 0:06:15.800 --> 0:06:18.240 We wouldn't like not to be responding to any of 0:06:18.240 --> 0:06:20.560 these short term generations, you know, we'd like to be 0:06:21.120 --> 0:06:24.240 positioned in such a way that we can ride out 0:06:24.279 --> 0:06:27.359 some of these short term storms. You know, take medium 0:06:27.440 --> 0:06:30.039 term views, be aware and cognizant of where some of 0:06:30.040 --> 0:06:33.320 the short term risks lay, and ensure that as best 0:06:33.360 --> 0:06:35.920 we can, the portfolio is robust to deal with them. 0:06:36.279 --> 0:06:38.440 I mean, it just so happens that what's happened yesterday, 0:06:39.160 --> 0:06:41.479 you know, it was fairly good for the portfolios that 0:06:41.480 --> 0:06:44.440 we're running and fairly good for the positions that we 0:06:44.560 --> 0:06:47.760 have on because we've been very cautious about being risk 0:06:47.839 --> 0:06:50.839 facing in this environment. It's very very difficult on a 0:06:50.920 --> 0:06:53.920 day to day basis. At the moment, valuation as any 0:06:53.960 --> 0:06:56.360 kind of anchor in any kind of financial market is 0:06:56.400 --> 0:07:00.440 almost impossible because things look so stretched and extreme relative 0:07:00.480 --> 0:07:05.040 to history or fundamentals. But what we see is increasingly 0:07:05.080 --> 0:07:09.080 been a market which has ignored all incoming bad news 0:07:09.120 --> 0:07:12.800 information and embraced all incoming good news information. And when 0:07:12.840 --> 0:07:16.160 that happens, very difficult to point out x ANTI what 0:07:16.280 --> 0:07:18.880 triggers will be. But when everybody's on one side of 0:07:18.880 --> 0:07:20.920 the boat, it doesn't really take much of a trigger, 0:07:21.240 --> 0:07:23.000 much of a wave to tip the boat over and 0:07:23.040 --> 0:07:27.040 everybody fall in. So we've been defensive and that yesterday 0:07:27.600 --> 0:07:32.840 was the right place to be. What does defensive look like? Yeah, 0:07:33.200 --> 0:07:36.040 there's a good question, I mean, being it's the world 0:07:36.040 --> 0:07:37.760 of one trade. There's you know, one of the banks 0:07:37.800 --> 0:07:39.320 we speak to has been calling it the world of 0:07:39.320 --> 0:07:41.400 one trade for a while and it certainly is. Some 0:07:41.440 --> 0:07:43.560 people call it row row risk on risk off funding 0:07:43.640 --> 0:07:48.080 diversification been very difficult. Um. I think it's interesting, you know, 0:07:48.120 --> 0:07:50.640 the two asset classes that I main mainly look at, 0:07:50.680 --> 0:07:55.600 which is core sovereign bonds, rate products and the FX markets. 0:07:56.120 --> 0:07:58.440 You know, sovereign bonds didn't really move yesterday, Treasury is 0:07:58.480 --> 0:08:00.400 rallied a couple of basis points. There was a lot 0:08:00.440 --> 0:08:02.600 going on in effects. I think that's been a trend 0:08:02.720 --> 0:08:06.840 recently where investors have seen bond volatility at zero, central 0:08:06.840 --> 0:08:09.200 banks trapping yields in one place and said, well where 0:08:09.280 --> 0:08:11.520 else can I go and express a view which might 0:08:11.600 --> 0:08:14.120 react to this stuff? So I think dollars, yen and 0:08:14.160 --> 0:08:18.160 Swiss francs are good places um to put risk budget 0:08:18.240 --> 0:08:20.840 to work where you can actually see some benefits if 0:08:20.880 --> 0:08:23.080 we do have a risk off period. But quite what 0:08:23.120 --> 0:08:26.000 your portfolio looks like obviously depends on exactly what talking 0:08:26.040 --> 0:08:28.960 you've got at your disposal. For US, it's definitely long duration, 0:08:29.080 --> 0:08:32.000 is favoring the U S treasury market, and it's being 0:08:32.040 --> 0:08:36.480 defensive you know short certainly MFX short, risky short video 0:08:36.559 --> 0:08:41.040 syncretically weak effects and along the current account surplus and 0:08:41.200 --> 0:08:44.160 or the flight quality currencies. Does that mean that you're 0:08:44.160 --> 0:08:49.920 betting on deflation? Um? I mean express expressly no. Do 0:08:49.960 --> 0:08:52.280 I think there's a chance that we end up in 0:08:52.320 --> 0:08:55.920 a deflationary depression. Yeah, absolutely, I think there's a chance, 0:08:56.320 --> 0:08:59.640 and I think it's very difficult. The decision tree, the 0:08:59.679 --> 0:09:02.839 problem ability tree of outcomes going forward is probably as 0:09:02.880 --> 0:09:05.760 tough tough as I've ever known, because so much is 0:09:05.800 --> 0:09:08.679 dependent on a lot of policy choices which interact with 0:09:08.720 --> 0:09:11.920 one another and which will be dictated by something as 0:09:12.240 --> 0:09:15.360 unpredictable as, for example, the virus, So really tough. I 0:09:15.400 --> 0:09:17.920 think inflation is something we just don't understand well enough 0:09:17.960 --> 0:09:19.680 to have a high conviction call, and I could see 0:09:19.720 --> 0:09:22.640 it going either way. I could see us in inflation. Equally, 0:09:22.679 --> 0:09:25.920 I could see us with really high inflation. But again 0:09:26.320 --> 0:09:30.280 recognizing that central banks are determined at the moment, I 0:09:30.400 --> 0:09:32.800 want to position for what they're doing, not what they're 0:09:32.800 --> 0:09:35.280 trying to achieve. So for now, that means they're keeping 0:09:35.400 --> 0:09:37.840 yields low, they're crushing yields, and they're keeping that as 0:09:37.840 --> 0:09:41.160 an asymmetric bet in my in my opinion, so I'm 0:09:41.200 --> 0:09:43.600 not too worried about inflation near term. I think it's 0:09:43.679 --> 0:09:46.480 definitely something that make may happen later. We welcome all 0:09:46.520 --> 0:09:49.600 of you on Bloomberg Television and Bloomberg Radio. Jonathan Ferrior, 0:09:49.679 --> 0:09:53.920 Lisa Bramwards and term keen is the most eventful Tuesday, huge, 0:09:54.200 --> 0:09:58.439 huge news or particularly out of the United Kingdom, James Athy, 0:09:58.679 --> 0:10:02.240 whether from Abydeen and James. If that's the case, and 0:10:02.320 --> 0:10:06.120 if the symmetrics and the asymmetrics are so hard to judge, 0:10:06.559 --> 0:10:12.680 what is the value or error of being in cash? Yeah, 0:10:12.720 --> 0:10:15.920 that's um. I mean go back to the start of 0:10:15.960 --> 0:10:17.439 this year and I would have said there was very 0:10:17.480 --> 0:10:20.920 little era potential era. I think that cash was a 0:10:21.000 --> 0:10:23.560 very attractive part of your portfolio because I just saw 0:10:23.640 --> 0:10:26.840 so many risks and I saw so little chance of 0:10:26.920 --> 0:10:29.839 the one true risk which you you wouldn't want to 0:10:29.880 --> 0:10:31.719 be invested in cash for. And that's really a lot 0:10:31.760 --> 0:10:34.800 of inflation today as we sit here, it's a kind 0:10:34.800 --> 0:10:37.520 of bimodal distribution. There is there is a good chance 0:10:37.520 --> 0:10:39.360 of very high inflation, there is a good chance of 0:10:39.480 --> 0:10:41.680 very low inflation, and cash is kind of good for 0:10:41.720 --> 0:10:43.960 one of those and not so good for the other. Again, 0:10:44.080 --> 0:10:48.160 diversification is key. Even if that's diversification which isn't giving 0:10:48.160 --> 0:10:51.160 you as much and more as an efficient to portfolio 0:10:51.200 --> 0:10:53.600 as it would have done through history, there is still 0:10:53.679 --> 0:10:56.040 value and diversification, and I think cash is part of that, 0:10:56.120 --> 0:10:59.760 but I definitely think pressures metals are a part of that. Today, 0:11:00.080 --> 0:11:01.839 James are going to think out loud, so go with 0:11:01.880 --> 0:11:04.240 me and forgive me for doing this. Real yields, for 0:11:04.280 --> 0:11:07.679 many people have been incredibly supportive of risk assets worldwide, 0:11:07.960 --> 0:11:11.880 but real yields have been driven by inflation expectations building up, 0:11:12.360 --> 0:11:15.400 and rates effectively being anchored by the feder Reserve. What 0:11:15.520 --> 0:11:19.160 I'm trying to understand if we reprice inflation lower and 0:11:19.200 --> 0:11:22.840 real yields actually start to go the other way for 0:11:22.880 --> 0:11:25.800 that reason, I'm just trying to get my head around this, James, 0:11:25.800 --> 0:11:28.960 what that actually means going forward for risk assets with 0:11:29.040 --> 0:11:35.000 inflation rate or at least expected inflation coming in. Yeah, unfortunately, 0:11:35.000 --> 0:11:38.920 it's still one big trade, but it's exactly as you describe. Essentially, 0:11:38.920 --> 0:11:41.800 we've seen break evens widening through the period from the 0:11:41.840 --> 0:11:46.480 March lows, which is correlated almost perfectly with risk asset recovery. 0:11:47.080 --> 0:11:50.679 Because the FED has been keeping nominal treasury yields kind 0:11:50.679 --> 0:11:53.120 of anchored around sixty basis points in tenure, that meant 0:11:53.160 --> 0:11:56.000 that real yields had to form fairly dramatically in order 0:11:56.040 --> 0:11:59.040 to get that increase in break even inflation. That's also 0:11:59.080 --> 0:12:01.960 correlated with the eyes im precious metals, which are often 0:12:02.000 --> 0:12:04.040 thought of as an inflation edge. It's one big trade. 0:12:04.080 --> 0:12:06.400 So if that gets unwound, you know what does that 0:12:06.400 --> 0:12:08.360 mean for risk assets? Well, I don't know if risk 0:12:08.400 --> 0:12:10.559 assets or the tail or the dog in that scenario. 0:12:10.600 --> 0:12:13.840 I think eat boats is equally possible. Risk assets are 0:12:13.960 --> 0:12:17.600 up here, in my opinion, largely because the central bank 0:12:17.679 --> 0:12:19.680 policy has driven them up here, not because there's some 0:12:19.760 --> 0:12:23.000 rational repricing of growth or inflation outcomes. I think break 0:12:23.080 --> 0:12:26.760 evens are up here because they're correlated with risk assets. Therefore, 0:12:26.960 --> 0:12:30.960 if there is some shock which either forces equity prices 0:12:31.040 --> 0:12:34.720 risk asset prices lower or indeed pushes real yields higher, 0:12:35.000 --> 0:12:36.760 those are both going to look like the same trade 0:12:36.760 --> 0:12:39.280 being unwound. And I think pretty much everybody is in it. 0:12:39.360 --> 0:12:42.760 That could get ugly quite quickly. James gred to catch 0:12:42.920 --> 0:12:44.640 up as always really good to hear from me. James 0:12:44.679 --> 0:12:52.319 Athy of Aberdeen Standard Investments, Great on Washington. Isaac Voltanski 0:12:52.440 --> 0:12:56.000 is a wonderful policy water At Compass Point Research. We 0:12:56.160 --> 0:13:01.280 fold in now the uproars plural that we see his Washington, Isaac, 0:13:01.320 --> 0:13:04.000 thank you so much for joining us as any policy 0:13:04.040 --> 0:13:09.160 discussion dead on the fistful side for right now. The 0:13:09.200 --> 0:13:12.640 simple answer is yes, um. Policymakers like to say that 0:13:12.720 --> 0:13:15.240 they can walk and chew gum at the same time, 0:13:15.280 --> 0:13:17.800 but in my experience that has not been the case, 0:13:18.440 --> 0:13:23.400 and the Supreme Court m developments are going to overtake 0:13:23.440 --> 0:13:25.880 the capital and they will be the topic to Jore, 0:13:26.080 --> 0:13:30.800 which means that the focus on the fiscal package, which 0:13:30.880 --> 0:13:35.400 was already waning, is effectively dead at the moment, Isaac, 0:13:35.600 --> 0:13:37.800 How can people even begin to trade this given the 0:13:37.840 --> 0:13:43.200 binary potential outcomes. In talking to clients, I find it 0:13:43.400 --> 0:13:46.960 interesting that there is still a subset in among my 0:13:47.000 --> 0:13:50.400 clients in particular, who believe there's this possibility for a 0:13:50.440 --> 0:13:53.960 grand bargain at the end of the month that covers 0:13:54.400 --> 0:13:57.960 the funding deadline as well as some of the fiscal stimulus. 0:13:58.040 --> 0:14:01.000 And I think the reality is we have been conditioned 0:14:01.120 --> 0:14:05.520 over the past ten years to expect Washington over time 0:14:05.600 --> 0:14:10.199 to eventually find its way to avoiding these fiscal clips. 0:14:11.000 --> 0:14:14.880 That assumption was proven wrong with these phase for negotiations, 0:14:15.120 --> 0:14:17.679 which I think is a mere term concern for markets. 0:14:17.679 --> 0:14:19.400 But I think it's also going to weigh on the 0:14:19.400 --> 0:14:23.480 markets longer term confidence and policy makers. Well, just to 0:14:23.480 --> 0:14:25.520 to sort of put a bow on this, Kevin's really 0:14:25.680 --> 0:14:28.960 talking about how this feels different than the normal Washington dysfunction. 0:14:29.000 --> 0:14:31.640 You're saying people have gotten conditioned to a lot of noise, 0:14:31.680 --> 0:14:33.720 a lot of messiness, and then for it all to 0:14:33.760 --> 0:14:37.840 come together. But from your discussions with policymakers paired with 0:14:37.880 --> 0:14:40.560 your discussions with people in the markets, is there a disconnect? 0:14:40.600 --> 0:14:43.880 Are people too optimistic about that neat ending this time? 0:14:45.360 --> 0:14:48.600 The simple answers, yes, there is still too much optimism 0:14:48.640 --> 0:14:51.520 regarding a fiscal package by the end of the month. 0:14:52.000 --> 0:14:55.840 Um my ill um in the policy world believe that 0:14:55.880 --> 0:14:58.960 Washington could come together because the simple reality is we 0:14:59.040 --> 0:15:01.600 need more to school support. And you don't need need 0:15:01.640 --> 0:15:04.040 to tell you that. The Chairman of the Federal Reserve 0:15:04.120 --> 0:15:07.080 will testify before Congress three times this week and he 0:15:07.240 --> 0:15:10.160 is going to suggest as much. And I think people 0:15:10.200 --> 0:15:12.720 would also make the point that the Cares Act, which 0:15:12.760 --> 0:15:16.960 was passed in March, actually worked. Isaac right now at 0:15:17.000 --> 0:15:19.440 this moment, the Prime Minister of the United Kingdom and 0:15:19.600 --> 0:15:23.200 some I'm going to say political peril is saying let's go, 0:15:23.360 --> 0:15:26.880 We're gonna reset, and Isaac to me the headline here 0:15:26.880 --> 0:15:30.520 as he's resetting from March of two thousand twenty one. 0:15:30.720 --> 0:15:34.160 Is anyone in your Washington looking out dare I say 0:15:34.200 --> 0:15:38.240 to March of two thousand twenty one. Not even close. 0:15:38.600 --> 0:15:42.200 We are focused on the next tweet. We are not 0:15:42.320 --> 0:15:44.920 focused on long term policy making. And I think that 0:15:45.000 --> 0:15:47.840 this is part of the systems failure that we that 0:15:47.920 --> 0:15:50.040 we have seen in Washington in recent years, that there 0:15:50.120 --> 0:15:54.920 is no long termism UM and that is clearly evidenced 0:15:54.920 --> 0:15:58.080 by the lack of focus on a fiscal package that 0:15:58.200 --> 0:16:01.680 would help us emerge from from this crisis. I mean, 0:16:01.720 --> 0:16:04.200 you were wined in Ohio, which is a battleground state. 0:16:04.320 --> 0:16:07.720 Is any of this cluelessness going to show up at 0:16:07.760 --> 0:16:10.680 the ballot box? Does this fold in to the political 0:16:10.760 --> 0:16:16.160 calculus of mail in ballots and November three ballots? At 0:16:16.160 --> 0:16:19.480 the moment, I think the simple answer is no. Um. 0:16:19.680 --> 0:16:24.080 The reality for many voters is that other issues are 0:16:24.120 --> 0:16:27.280 going to animate them. And that's why I believe that 0:16:27.360 --> 0:16:30.840 the Supreme Court headlines over the past few days can 0:16:30.880 --> 0:16:34.600 be played for both bases in different ways, and so 0:16:34.760 --> 0:16:37.080 that will be what the big focus is now. The 0:16:37.120 --> 0:16:40.280 point I want to make here is that as if 0:16:40.320 --> 0:16:44.600 the economy continues to show signs of weakness in certain corridors, 0:16:44.640 --> 0:16:48.000 that's clearly negative for the president because he is still viewed, 0:16:48.440 --> 0:16:50.880 at least in terms of the polling, is stronger on 0:16:51.000 --> 0:16:54.720 economic matter. So when we see economic weakness, it does 0:16:54.800 --> 0:16:58.560 accrue at least in certain battleground states to the benefit 0:16:58.560 --> 0:17:02.400 of the body campaign. I said, just finally on the polling, 0:17:02.440 --> 0:17:04.240 the story there is that there hasn't been much of 0:17:04.240 --> 0:17:07.600 a story for many people. They've identified the stability in 0:17:07.640 --> 0:17:10.520 the polls in many places. Do you still identify with 0:17:10.560 --> 0:17:15.080 stability or things changing as we get close up? I 0:17:15.160 --> 0:17:17.720 can tell you that I think that the polls will 0:17:17.800 --> 0:17:21.639 remain stable for about another week, And most of my 0:17:21.760 --> 0:17:24.280 clients as well as most of my contacts, have September 0:17:24.320 --> 0:17:27.160 twenty nine circled on their calendar. That is the first 0:17:27.160 --> 0:17:29.480 presidential debate, and I think that a lot of folks 0:17:29.520 --> 0:17:33.160 are going to get there their first real feel of 0:17:33.240 --> 0:17:37.880 this campaign that night, because up until that point, it's 0:17:37.920 --> 0:17:43.080 really just um tested sound bites that have defined this campaign. 0:17:43.440 --> 0:17:45.680 As we have two men yelling at each other from 0:17:45.680 --> 0:17:48.320 different states, and so to see them in the same 0:17:49.080 --> 0:17:51.720 form is going to be meaningful for a whole lot 0:17:51.720 --> 0:17:54.719 of voters, especially those voters in battleground states, are going 0:17:54.800 --> 0:17:58.080 to decide this thing, Isaac. From two men yet to 0:17:58.119 --> 0:18:00.280 get each other from different states to two many at 0:18:00.320 --> 0:18:03.159 each other, run in front of each other, eyes at, botasky, compas, 0:18:03.160 --> 0:18:05.639 point research and try to have eyes at. Fantastic to 0:18:05.680 --> 0:18:10.640 catch up with you right now. Arguably our most important 0:18:10.640 --> 0:18:14.199 interview of the day folding in FED policy from Chairman 0:18:14.240 --> 0:18:17.600 Paul and also our conversation tomorrow with the Vice Chairman 0:18:17.840 --> 0:18:20.679 of the FED, Richard Clara Diane swarmp Joints is of 0:18:20.720 --> 0:18:24.479 course so helpful typically on our FED day as well. Diane. 0:18:24.480 --> 0:18:26.359 I want to get to the Fed and claratave, but 0:18:26.480 --> 0:18:30.159 I first must ask you about the economic backdrop of 0:18:30.240 --> 0:18:34.040 the battleground states of the Midwest. Is the presidential debate 0:18:34.119 --> 0:18:38.360 goes to Cleveland and the wonderful case Western University. This 0:18:38.400 --> 0:18:41.080 is gonna be fascinating. What's the state of the economy 0:18:41.160 --> 0:18:47.359 in Ohio and the broader Midwest. Well, we're all suffering 0:18:47.440 --> 0:18:51.280 from the pandemic, and unemployment rates have risen quite dramatically. 0:18:51.320 --> 0:18:54.160 What most people forget is as much as Chairman Pale 0:18:54.359 --> 0:18:57.439 emphasizes that this is a low age recession, this has 0:18:57.520 --> 0:19:01.040 hit disproportionately those who can bear the burden the least. 0:19:01.359 --> 0:19:04.920 It also has hit college educated workers, and in fact, 0:19:05.000 --> 0:19:08.680 the unemployment rate is hired today for college educated workers 0:19:08.680 --> 0:19:11.880 than it was during the Great Recession. So it is 0:19:12.000 --> 0:19:14.760 a low wage recession. But it also has reached up 0:19:15.040 --> 0:19:18.040 into higher levels of education. And I think just the 0:19:18.119 --> 0:19:20.720 numbers are so allowed to get lost, are so large 0:19:20.800 --> 0:19:23.400 they get lost in translation, Diane, I've got to move 0:19:23.400 --> 0:19:26.479 forward to this important conversation with Clara tomorrow. You know, 0:19:26.640 --> 0:19:29.320 he is truly our expert on ds G E, which 0:19:29.400 --> 0:19:32.400 is a lot of fancy math. Forget the math, let's 0:19:32.440 --> 0:19:35.359 go Latin. My first question to him will be on 0:19:35.840 --> 0:19:39.920 how a central bank acts when inflation rises. Do they 0:19:39.960 --> 0:19:43.400 get out front or do they get behind expost? Where 0:19:43.440 --> 0:19:45.880 where is the FED going to be? Where are they 0:19:45.880 --> 0:19:51.840 going to act if and when they get inflation to rise. Well, 0:19:51.840 --> 0:19:53.840 clearly they don't agree on this, or they would have 0:19:53.880 --> 0:19:57.160 told us exactly what their triggers on inflation were as 0:19:57.160 --> 0:19:59.879 they shifted to forward guidance. It's still very loose, but 0:20:00.040 --> 0:20:02.320 I think what we're seeing is a FED It's not 0:20:02.400 --> 0:20:04.960 just the level of inflation moving up. But the FED 0:20:05.000 --> 0:20:06.720 would like to see is that inflation get up to 0:20:06.760 --> 0:20:08.879 sort of tune a quarter two and a half percent 0:20:09.000 --> 0:20:11.800 for a sustained period of time, which they've not been 0:20:11.840 --> 0:20:15.560 able to achieve. But also, it's such arajectory on inflation, 0:20:15.640 --> 0:20:17.680 the FED would not hesitate to act if all of 0:20:17.720 --> 0:20:20.280 a sudden inflation was moving up to two two and 0:20:20.280 --> 0:20:23.840 a half to three percent very rapidly. That delineation, that 0:20:23.960 --> 0:20:28.240 nuance makes this whole new overshooting aspect of the Fed's 0:20:28.320 --> 0:20:31.880 policy very hard to convey to the average American, let 0:20:31.880 --> 0:20:35.480 alone financial markets. If financial markets really absorbed what the 0:20:35.520 --> 0:20:38.119 FED was saying, they would accept that the Fed is saying, 0:20:38.359 --> 0:20:42.240 we're willing to shift the balance of bargaining power between 0:20:42.600 --> 0:20:45.560 Wall Street back to workers a bit and allow wages 0:20:45.600 --> 0:20:47.960 to rise as a share, and run the economy a 0:20:48.000 --> 0:20:50.920 little heat hot to allow workers to have a little 0:20:50.960 --> 0:20:53.320 more bargaining power out there for a period in time. 0:20:53.600 --> 0:20:55.639 If that really set into Wall Street would see a 0:20:55.720 --> 0:21:00.159 very different Wall Street today. So I'm how divided is 0:21:00.200 --> 0:21:05.480 this FBC right now? You know, it's mostly in the 0:21:05.520 --> 0:21:09.240 same direction, although you've seen Bullard talk about his concerns 0:21:09.240 --> 0:21:13.920 about inflation. If they were completely unison and in anonymous 0:21:14.520 --> 0:21:17.600 I'm sorry, um unanimous in terms of what they wanted, 0:21:17.680 --> 0:21:20.240 you would not have seen two dissents. You've got Neil 0:21:20.320 --> 0:21:24.480 Kashkari at the Minneapolis FED asking for much more overshooting 0:21:24.680 --> 0:21:26.720 than the FED is willing to do, and Rob Kaplan 0:21:26.800 --> 0:21:29.560 saying we weren't really ready to go to full forward guidance. 0:21:29.840 --> 0:21:33.280 Includely the chairman felt some kind of forward guidance where 0:21:33.320 --> 0:21:37.120 they commit to overshooting after the announcement at Jackson Hole 0:21:37.240 --> 0:21:41.359 was necessary. So it isn't deeply divided, but it's clearly 0:21:41.359 --> 0:21:43.439 not all on the same page. And when you're talking 0:21:43.480 --> 0:21:46.840 about overshooting on inflation, it does make a difference if 0:21:46.880 --> 0:21:50.320 you're talking about a mild overshoot or this trajectory notion. 0:21:50.640 --> 0:21:52.600 And I think this is very hard to communicate in 0:21:52.640 --> 0:21:56.400 the noise is undermining their message. It would be hot 0:21:56.400 --> 0:21:59.159 as a communicate, just as hot if you did have 0:21:59.280 --> 0:22:01.399 a broad concer census on the FMC. And I'm not 0:22:01.440 --> 0:22:03.359 in the business of making up excuses for Sham and 0:22:03.400 --> 0:22:05.440 Pale and what many people fought was a bad news 0:22:05.480 --> 0:22:07.600