1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom keene Jaily. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,480 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,400 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Well, 5 00:00:27,480 --> 00:00:29,200 Speaker 1: let us get right to it. We've got lots in 6 00:00:29,280 --> 00:00:31,760 Speaker 1: store here on our simulcast, and we welcome all of 7 00:00:31,800 --> 00:00:35,159 Speaker 1: you right now. The Secretary of Labor of the United States, 8 00:00:35,400 --> 00:00:38,199 Speaker 1: Eugene Scalia. Of course, we're thrilled to have you on, 9 00:00:38,400 --> 00:00:42,920 Speaker 1: Mr Secretary, after this Supreme Court decision, how will the 10 00:00:43,000 --> 00:00:49,640 Speaker 1: Department of Labor adapt and adjust immediately to this historic decision? Well, Tom, 11 00:00:49,680 --> 00:00:51,760 Speaker 1: good to be with you, and yes, it is an 12 00:00:51,760 --> 00:00:56,440 Speaker 1: important decision the Court issued yesterday. We at the Labor 13 00:00:56,480 --> 00:01:00,520 Speaker 1: Department don't have primary responsibility for a minister during that 14 00:01:00,600 --> 00:01:03,880 Speaker 1: particular law. The Equal Employment Opportunity Commission, the e o 15 00:01:04,040 --> 00:01:07,600 Speaker 1: C is the agency charge with administering Title seven. But 16 00:01:07,600 --> 00:01:11,800 Speaker 1: we're certainly reading through the Court's decision and the Court 17 00:01:11,840 --> 00:01:15,400 Speaker 1: has ruled and will adhere to that. I mean, it's 18 00:01:15,520 --> 00:01:18,679 Speaker 1: very important here to understand, Mr Secretary, that you will 19 00:01:18,800 --> 00:01:22,480 Speaker 1: set the tone and we would suggest that Gene Scalley 20 00:01:22,560 --> 00:01:26,959 Speaker 1: has been doing that for years. Mr Secretary, there's ideas 21 00:01:27,040 --> 00:01:32,000 Speaker 1: here of religious exemption to the normal labor of this 22 00:01:32,160 --> 00:01:36,560 Speaker 1: country that businesses can say, no, we digress from this ruling, 23 00:01:36,560 --> 00:01:38,680 Speaker 1: We're not going to do it. Do you think that 24 00:01:38,760 --> 00:01:42,560 Speaker 1: will be evident immediately? And how should E O C 25 00:01:42,880 --> 00:01:45,880 Speaker 1: or labor respond? Well, Tom, I think that was one 26 00:01:45,920 --> 00:01:50,880 Speaker 1: of the issues that Justice Gorsage, in his opinion for 27 00:01:50,880 --> 00:01:55,360 Speaker 1: the majority side, stepped a little bit. He acknowledged that 28 00:01:56,200 --> 00:02:02,360 Speaker 1: people of faith and religious institutions particularly uh might be 29 00:02:02,800 --> 00:02:06,560 Speaker 1: affected more than other institutions by this decision. Uh, uh 30 00:02:06,640 --> 00:02:09,120 Speaker 1: and and uh, and he said that's an issue that 31 00:02:09,160 --> 00:02:11,560 Speaker 1: will address some other day. So I think that was 32 00:02:11,560 --> 00:02:15,799 Speaker 1: one of the issues that decision potentially raises that Uh, Well, 33 00:02:15,840 --> 00:02:19,959 Speaker 1: we'll get addressed by the courts down the road. The 34 00:02:19,960 --> 00:02:22,480 Speaker 1: major the dissenters would have liked the court to address 35 00:02:22,520 --> 00:02:25,760 Speaker 1: that more fully, but the majority didn't. And so we'll 36 00:02:26,040 --> 00:02:28,200 Speaker 1: we'll take a closer look and see what implications that 37 00:02:28,240 --> 00:02:31,440 Speaker 1: has for our programs. Mr Secretary, thank you for addressing 38 00:02:31,800 --> 00:02:37,320 Speaker 1: these issues. The issue right now, Sir, is double digit unemployment. 39 00:02:37,680 --> 00:02:41,240 Speaker 1: Give us an update on what your micro data sees 40 00:02:41,600 --> 00:02:46,000 Speaker 1: of a depression level joblessness in America. Well, Tom, I 41 00:02:46,919 --> 00:02:50,480 Speaker 1: have to say, I think the comparisons to the Depression 42 00:02:50,480 --> 00:02:54,919 Speaker 1: only get you so far. We have had very high unemployment. 43 00:02:54,919 --> 00:02:58,959 Speaker 1: We've had too many Americans put out of work, uh, 44 00:02:59,000 --> 00:03:00,600 Speaker 1: and we know the hardship that's meant for them and 45 00:03:00,639 --> 00:03:02,640 Speaker 1: their families. At the same time, we got here by 46 00:03:02,639 --> 00:03:06,160 Speaker 1: a very different route than we got into the Great Depression, 47 00:03:06,160 --> 00:03:08,240 Speaker 1: and I think the jobs report we put out what 48 00:03:08,320 --> 00:03:10,840 Speaker 1: ten eleven days ago suggest that we're going to come 49 00:03:10,840 --> 00:03:13,440 Speaker 1: out of it by a different route. That we put 50 00:03:13,639 --> 00:03:16,120 Speaker 1: two point five million Americans back to work in the 51 00:03:16,200 --> 00:03:18,720 Speaker 1: month of May, and I think that's a trend that's 52 00:03:18,720 --> 00:03:21,640 Speaker 1: contuning right now. As you know, that data was a 53 00:03:21,720 --> 00:03:25,880 Speaker 1: month old. Uh. There's been a lot of reopening since then, 54 00:03:26,200 --> 00:03:28,360 Speaker 1: so I think people are getting back to work. It is, 55 00:03:28,400 --> 00:03:30,960 Speaker 1: of course important that that happened safely, and that's something 56 00:03:31,000 --> 00:03:33,160 Speaker 1: we keep an eye on. But I think we're making 57 00:03:33,200 --> 00:03:36,840 Speaker 1: real headway on the employment picture right now. Let's talk 58 00:03:36,880 --> 00:03:39,160 Speaker 1: about that, miss the Secretary, do you see any evidence 59 00:03:39,320 --> 00:03:42,320 Speaker 1: right now whatsoever that the enhanced unemployment benefits that were 60 00:03:42,320 --> 00:03:46,280 Speaker 1: past is holding back re hir Rank, we hear uh, John. 61 00:03:46,280 --> 00:03:49,760 Speaker 1: We hear concerns about that, raised UH anecdotally by a 62 00:03:49,840 --> 00:03:53,640 Speaker 1: number of employers. That point that they make is that 63 00:03:54,000 --> 00:03:57,520 Speaker 1: with the enhanced unemployment benefit provided by the federal government, 64 00:03:57,560 --> 00:03:59,680 Speaker 1: which is UH six hundred dollars a week, you put 65 00:03:59,720 --> 00:04:02,400 Speaker 1: that on top of the state benefit, and people can 66 00:04:02,440 --> 00:04:05,920 Speaker 1: be making between fifty and fifty five thousand dollars on 67 00:04:05,960 --> 00:04:11,360 Speaker 1: an annualized basis on unemployment, which is obviously significantly more 68 00:04:11,360 --> 00:04:13,880 Speaker 1: than one typically sees. And the concern is they'll not 69 00:04:13,920 --> 00:04:16,120 Speaker 1: return to work. What we'll keep an eye on that. 70 00:04:16,120 --> 00:04:19,279 Speaker 1: That benefit, as you know, expires at the end of July. UH. 71 00:04:19,400 --> 00:04:22,960 Speaker 1: Congress set that sunset in anticipation that we wouldn't be 72 00:04:23,000 --> 00:04:25,719 Speaker 1: shutting down our economy at that point. We'd have reopened 73 00:04:25,760 --> 00:04:27,880 Speaker 1: it and we'd want people to be going back to work. 74 00:04:27,960 --> 00:04:29,960 Speaker 1: And Mr Secretary, I remember when we spoke to you 75 00:04:30,040 --> 00:04:33,280 Speaker 1: last you said that you do expect those enhanced unemployment 76 00:04:33,279 --> 00:04:35,960 Speaker 1: benefits to expire in July, and we have heard the 77 00:04:36,000 --> 00:04:39,960 Speaker 1: same from other administration officials. What could make you change 78 00:04:40,080 --> 00:04:43,280 Speaker 1: your view? In other words, what data could come in 79 00:04:43,400 --> 00:04:46,240 Speaker 1: weaker than expected that would make you think, you know what, 80 00:04:46,680 --> 00:04:49,559 Speaker 1: even if people are making more than they had previously made. 81 00:04:49,800 --> 00:04:52,240 Speaker 1: It doesn't mean that they necessarily aren't going back to 82 00:04:52,240 --> 00:04:54,159 Speaker 1: work because they don't want to, and at least they 83 00:04:54,160 --> 00:04:56,280 Speaker 1: can continue to pay their rent. Well, I think those 84 00:04:56,320 --> 00:05:01,440 Speaker 1: are a couple of different questions. Will look a variety 85 00:05:01,440 --> 00:05:04,320 Speaker 1: of data coming in, as you know, obviously, on July two, 86 00:05:04,400 --> 00:05:07,080 Speaker 1: we'll put Art put out our report for June. I 87 00:05:07,160 --> 00:05:10,320 Speaker 1: think that report will show many more jobs added to 88 00:05:10,320 --> 00:05:14,360 Speaker 1: the economy. But let's look at that report, watch other trends, UH, 89 00:05:14,400 --> 00:05:17,919 Speaker 1: and see what additionals additional measures may be needed. I 90 00:05:18,000 --> 00:05:21,120 Speaker 1: don't think that, uh, it's going to be continuing that 91 00:05:21,160 --> 00:05:25,599 Speaker 1: six benefit, which again was a very important, valuable benefit 92 00:05:25,640 --> 00:05:28,800 Speaker 1: for American workers while we were closing our economy, but 93 00:05:29,240 --> 00:05:32,920 Speaker 1: it was a blunt instrument UH that was adopted UH 94 00:05:33,000 --> 00:05:36,240 Speaker 1: in March as things were closing so quickly in light 95 00:05:36,279 --> 00:05:38,599 Speaker 1: of some real limitations that the states had in their 96 00:05:39,000 --> 00:05:42,360 Speaker 1: unemployment insurance systems. I think we've learned a lot since then, 97 00:05:42,800 --> 00:05:45,120 Speaker 1: and I don't see that as the policy going forward. 98 00:05:45,800 --> 00:05:48,240 Speaker 1: Let's talk about the policy going forward. Repulsed this morning 99 00:05:48,279 --> 00:05:50,800 Speaker 1: of a one trillion dollar infrastructure program. It's the sectary. 100 00:05:50,839 --> 00:05:54,000 Speaker 1: Are you working with the Department of Transportation on that plan. 101 00:05:54,480 --> 00:05:58,320 Speaker 1: Their discussions obviously, as you would want throughout the administration 102 00:05:58,400 --> 00:06:03,680 Speaker 1: about what the right steps are for the economy. And 103 00:06:03,960 --> 00:06:09,400 Speaker 1: we certainly appreciate the UH implications that infrastructure bill could 104 00:06:09,440 --> 00:06:12,720 Speaker 1: have throughout the economy, including for employment, and and those 105 00:06:12,760 --> 00:06:16,039 Speaker 1: are among the things that are being talked about. Infrastructure 106 00:06:16,080 --> 00:06:18,280 Speaker 1: one of them. And once Triti in dollar plan, well, 107 00:06:18,320 --> 00:06:22,320 Speaker 1: there's been different numbers put on it. Um John, I'll 108 00:06:22,320 --> 00:06:24,400 Speaker 1: just leave it at saying that certainly something that's being 109 00:06:24,440 --> 00:06:27,840 Speaker 1: talked about, and there's been some interest and expressed in it. 110 00:06:28,360 --> 00:06:30,479 Speaker 1: But we're watching the economy. You know. One of the 111 00:06:30,520 --> 00:06:33,280 Speaker 1: things that I've said on this show before is one 112 00:06:33,279 --> 00:06:36,360 Speaker 1: of the real marks of the virus is how swiftly 113 00:06:36,400 --> 00:06:38,680 Speaker 1: things have changed. And so I think it's important to 114 00:06:38,680 --> 00:06:41,760 Speaker 1: take the time now to watch the economy, developed watch 115 00:06:41,800 --> 00:06:44,440 Speaker 1: the reopening, see how it progresses, and not rush in 116 00:06:45,000 --> 00:06:47,000 Speaker 1: UH to a play from the playbook that we used 117 00:06:47,000 --> 00:06:49,039 Speaker 1: back in March, for example. But we'd love to carry 118 00:06:49,040 --> 00:06:51,000 Speaker 1: on the conversation, say so, hopefully we can get you 119 00:06:51,000 --> 00:06:54,120 Speaker 1: back on soon. Because this labor market healed quickly in 120 00:06:54,120 --> 00:06:56,120 Speaker 1: the first month. I'm not sure how many economists think 121 00:06:56,120 --> 00:06:57,760 Speaker 1: it will continue very quickly, and we'd love to get 122 00:06:57,800 --> 00:06:59,919 Speaker 1: your input on a continued basis of the day to 123 00:07:00,080 --> 00:07:02,800 Speaker 1: tinues to come through Eugene Scalia that the U S. 124 00:07:02,800 --> 00:07:07,839 Speaker 1: Secretary of Labor on this labor market and the club economy. 125 00:07:10,160 --> 00:07:12,280 Speaker 1: For those of us of a certain vintage, there's a 126 00:07:12,320 --> 00:07:15,760 Speaker 1: way that you read research on the street. At JP Morgan. 127 00:07:15,920 --> 00:07:18,520 Speaker 1: The way was always Friday evening. You would get the 128 00:07:18,560 --> 00:07:21,760 Speaker 1: report from Robert Melman, and it would ruin your Friday 129 00:07:21,760 --> 00:07:24,440 Speaker 1: evening because you would start reading it and you'd have 130 00:07:24,480 --> 00:07:27,880 Speaker 1: to go for fifteen or even twenty pages. The tradition 131 00:07:27,960 --> 00:07:32,040 Speaker 1: continues with Michael Faroli putting together a jewel of a 132 00:07:32,120 --> 00:07:35,640 Speaker 1: report for Global Wall Street every Friday evening. He joins 133 00:07:35,720 --> 00:07:39,360 Speaker 1: us now the chief US economists for JP Morgan. Michael, 134 00:07:39,440 --> 00:07:43,320 Speaker 1: what you're looking at on the consumer are little micro 135 00:07:43,520 --> 00:07:48,240 Speaker 1: details like charge card dynamics. What do you see right 136 00:07:48,280 --> 00:07:52,640 Speaker 1: now from the American consumer? Well, what we see in 137 00:07:52,720 --> 00:07:56,239 Speaker 1: May was a pretty nice rebound from the depths of April. 138 00:07:56,760 --> 00:07:58,760 Speaker 1: We see that in a variety of metrics, as you 139 00:07:58,880 --> 00:08:02,680 Speaker 1: mentioned at Daily uh Dad, on charge cards, a number 140 00:08:02,720 --> 00:08:05,880 Speaker 1: of other indicators which seemed just as I said, a 141 00:08:05,960 --> 00:08:08,760 Speaker 1: very strong rebound in May we'll find out an hour's 142 00:08:08,760 --> 00:08:11,200 Speaker 1: time exactly how strong. And it looks like that was 143 00:08:11,240 --> 00:08:15,640 Speaker 1: continuing into into June. We already have a strong indication 144 00:08:15,680 --> 00:08:19,160 Speaker 1: of this rebound in May auto sales report, which increased 145 00:08:19,240 --> 00:08:22,960 Speaker 1: for two uh So, you know, I think, in line 146 00:08:22,960 --> 00:08:26,360 Speaker 1: with the comments earlier, the early part of this recovery 147 00:08:26,360 --> 00:08:28,920 Speaker 1: are going to be in a way easy because you're 148 00:08:28,920 --> 00:08:31,280 Speaker 1: coming off of such little levels, and I think the 149 00:08:31,320 --> 00:08:35,240 Speaker 1: easy part should be made June, perhaps July. I think 150 00:08:35,240 --> 00:08:39,280 Speaker 1: after that the story gets a little more interesting. But 151 00:08:39,400 --> 00:08:41,520 Speaker 1: it does look like they should be pretty strong for 152 00:08:41,600 --> 00:08:43,959 Speaker 1: real consumer sending. So let's get to like some of Mike. 153 00:08:44,080 --> 00:08:46,880 Speaker 1: Let's just jump out to Walker's late August going into September. 154 00:08:46,960 --> 00:08:50,120 Speaker 1: If we haven't passed another bill down in Washington to 155 00:08:50,160 --> 00:08:52,840 Speaker 1: how this economy to support people who are unemployed in 156 00:08:52,840 --> 00:08:58,400 Speaker 1: a bigger way, to incentifize corporates to rehid workers. What happens, Well, 157 00:08:58,440 --> 00:09:02,560 Speaker 1: it's not necessarily the death metal of recovery, but I 158 00:09:02,600 --> 00:09:06,760 Speaker 1: think further stimulus would be nice insurance against a relapse 159 00:09:06,840 --> 00:09:09,240 Speaker 1: into more economic weakness. We know for a fact that 160 00:09:09,440 --> 00:09:12,559 Speaker 1: given the current policy environment, you're gonna have a pretty 161 00:09:12,600 --> 00:09:16,440 Speaker 1: big decline in real disposable income in the third quarter. 162 00:09:16,480 --> 00:09:18,920 Speaker 1: And the reason is you pack so much of that 163 00:09:19,000 --> 00:09:22,000 Speaker 1: stimulus into the second quarter, whether it's the stimulus, checks, 164 00:09:22,360 --> 00:09:27,840 Speaker 1: expanded unemployment benefits, the paycheck protection program. And so we 165 00:09:27,960 --> 00:09:31,120 Speaker 1: really have to be confident that the economy has its 166 00:09:31,160 --> 00:09:34,120 Speaker 1: own recovery dynamics in place for there to be no 167 00:09:34,240 --> 00:09:36,600 Speaker 1: need for further fiscal stimulus. I don't think it's an 168 00:09:36,640 --> 00:09:39,800 Speaker 1: absolute necessity or a certainty that we need it, but 169 00:09:39,840 --> 00:09:43,240 Speaker 1: it certainly would be nice insurance against against the relap 170 00:09:43,280 --> 00:09:46,400 Speaker 1: into relapse into further weakness as we get into the 171 00:09:46,440 --> 00:09:49,120 Speaker 1: late summer. So my cow past established a signpost to 172 00:09:49,160 --> 00:09:52,800 Speaker 1: determine whether we need the extra package or not. The government, 173 00:09:52,800 --> 00:09:54,840 Speaker 1: the administration down in Washington, are going to take the 174 00:09:54,840 --> 00:09:56,600 Speaker 1: next month to look over the day, to pour over 175 00:09:56,640 --> 00:09:59,040 Speaker 1: the data and draw conclusion as to what we do 176 00:09:59,120 --> 00:10:03,360 Speaker 1: and donate. Is that too early? Uh So? I think 177 00:10:03,360 --> 00:10:05,760 Speaker 1: part of the problem here is, you know, the classic 178 00:10:05,840 --> 00:10:10,720 Speaker 1: fool in the shower, uh challenge with setting either fiscal 179 00:10:10,800 --> 00:10:14,280 Speaker 1: or monetary policy when it actually lack. And so if 180 00:10:14,320 --> 00:10:17,959 Speaker 1: we have to wait until we actually see the data 181 00:10:18,000 --> 00:10:21,079 Speaker 1: in the late summer early fall, it may be too late. 182 00:10:21,120 --> 00:10:24,720 Speaker 1: Given the implementation lacks and so forth. So, uh, you know, 183 00:10:24,760 --> 00:10:28,000 Speaker 1: Congress and the Fed have a tough job here, which 184 00:10:28,040 --> 00:10:31,720 Speaker 1: is to make a judgment on what the economy is 185 00:10:31,720 --> 00:10:34,959 Speaker 1: going to look like. And we fourth quarter and act now, 186 00:10:35,000 --> 00:10:37,880 Speaker 1: and I think if we wait until late July, that 187 00:10:38,000 --> 00:10:41,160 Speaker 1: may may not pass that test of being a little 188 00:10:41,160 --> 00:10:44,080 Speaker 1: forward looking in how we set policy. And this goes 189 00:10:44,120 --> 00:10:46,559 Speaker 1: to where actually exactly where I wanted to go, this 190 00:10:46,600 --> 00:10:49,840 Speaker 1: idea that yes, the economy is recovering, but there still 191 00:10:49,880 --> 00:10:53,679 Speaker 1: are more than twenty million Americans collecting unemployment benefits. There's 192 00:10:53,679 --> 00:10:57,280 Speaker 1: still are companies going bankrupt at an accelerating pace, depending 193 00:10:57,360 --> 00:11:00,240 Speaker 1: on which part of the economy you're looking at. And 194 00:11:00,280 --> 00:11:03,240 Speaker 1: it raises a question of whether the rebound that we're 195 00:11:03,280 --> 00:11:07,000 Speaker 1: seeing is largely confined to markets or whether the economy 196 00:11:07,120 --> 00:11:09,959 Speaker 1: is keeping pace. And I'm wondering, from your perspective, Mike, 197 00:11:10,000 --> 00:11:12,720 Speaker 1: given the fact that you try to square the markets 198 00:11:12,800 --> 00:11:16,400 Speaker 1: with the economy, how much of the federal reserve stimulus, 199 00:11:16,480 --> 00:11:18,640 Speaker 1: of the of the rebound that we're seeing in stock 200 00:11:18,679 --> 00:11:21,120 Speaker 1: and bond prices, how much of that is getting into 201 00:11:21,160 --> 00:11:24,160 Speaker 1: the real economy. So the first thing I would say 202 00:11:24,200 --> 00:11:26,920 Speaker 1: is it does look like the real economy, UH turned 203 00:11:26,960 --> 00:11:29,200 Speaker 1: the corner in May. I think we should see some 204 00:11:29,240 --> 00:11:32,120 Speaker 1: confirmation of that later this morning. We already saw that 205 00:11:32,200 --> 00:11:36,120 Speaker 1: in the jobs datas, and the economy is picking up. UH. Now, 206 00:11:36,160 --> 00:11:40,120 Speaker 1: it is true that when it comes to markets, publicly 207 00:11:40,160 --> 00:11:43,920 Speaker 1: traded companies probably employ only about a third of the workforce. 208 00:11:43,960 --> 00:11:47,040 Speaker 1: So that leaves about two thirds of the workforce that 209 00:11:47,200 --> 00:11:51,520 Speaker 1: is employed by companies that aren't listed on the stock exchanges, 210 00:11:51,520 --> 00:11:54,360 Speaker 1: so that don't have listed bonds at the FETE is buying. 211 00:11:55,080 --> 00:11:58,520 Speaker 1: That doesn't mean, of course, that the that actions don't 212 00:11:58,520 --> 00:12:00,560 Speaker 1: have trickled on effects to the rest of the economy. 213 00:12:00,880 --> 00:12:03,760 Speaker 1: And of course some of those actions will support UH 214 00:12:03,880 --> 00:12:07,760 Speaker 1: non corporate behavior for example, for example, lower mortgage rates. Certainly, 215 00:12:07,800 --> 00:12:10,880 Speaker 1: the housing sector is one area the economy that looks 216 00:12:10,880 --> 00:12:14,120 Speaker 1: like it's holding in reasonably well here, and I think 217 00:12:14,240 --> 00:12:17,120 Speaker 1: a little mortgage rates have to have some some role 218 00:12:17,160 --> 00:12:20,520 Speaker 1: in that. So it's true that you know, Look, I 219 00:12:20,520 --> 00:12:23,600 Speaker 1: think what you're gonna hear from Powell later this morning 220 00:12:23,720 --> 00:12:28,880 Speaker 1: is that the Fed's actions are designed entirely to help Americans, 221 00:12:28,920 --> 00:12:32,800 Speaker 1: American households. And you know that said, there are only 222 00:12:32,840 --> 00:12:36,240 Speaker 1: limited tools that the FED has to to support the comedy, Michael. 223 00:12:36,360 --> 00:12:38,840 Speaker 1: I know that Bruce Casman has a bottle and there's 224 00:12:38,840 --> 00:12:41,120 Speaker 1: a genie in it on his desk, but I'm sorry 225 00:12:41,120 --> 00:12:44,000 Speaker 1: the genies out of the bottle. Let's pretend we're at 226 00:12:44,040 --> 00:12:47,840 Speaker 1: the Booth School seminar in Manhattan. Must attend, folks for 227 00:12:47,920 --> 00:12:50,760 Speaker 1: anyone in economics, and we have to look at the 228 00:12:50,840 --> 00:12:56,960 Speaker 1: central bank history of buying stuff. They can't stop, can they? 229 00:12:57,040 --> 00:13:00,959 Speaker 1: Once they start? It's really really hard to say no 230 00:13:01,480 --> 00:13:04,800 Speaker 1: to buying the next marginal bond or in some banks history, 231 00:13:05,080 --> 00:13:08,560 Speaker 1: to buy the next marginal share of Apple computer. Do 232 00:13:08,600 --> 00:13:13,280 Speaker 1: you have any confidence that this FED can behave well? 233 00:13:13,760 --> 00:13:15,960 Speaker 1: So to think? Two points I would make at least 234 00:13:16,000 --> 00:13:18,040 Speaker 1: one is that the FED has stopped in the past. 235 00:13:18,840 --> 00:13:21,400 Speaker 1: After QUE three, we had to took a taper tantrum 236 00:13:21,400 --> 00:13:23,839 Speaker 1: for them to stop, but they were able to h 237 00:13:24,320 --> 00:13:28,000 Speaker 1: pull that off. Uh. Secondly, and maybe something that the 238 00:13:28,000 --> 00:13:31,400 Speaker 1: markets aren't fully appreciating here is that the two corporate 239 00:13:31,400 --> 00:13:35,079 Speaker 1: credit facilities which have received so much attention over the 240 00:13:35,120 --> 00:13:38,040 Speaker 1: past twenty four hours, those are set to expire on 241 00:13:38,120 --> 00:13:42,040 Speaker 1: September three. And so the FED, I think deliberately here 242 00:13:42,160 --> 00:13:47,360 Speaker 1: when they implemented these programs in March set expiration dates 243 00:13:47,400 --> 00:13:50,240 Speaker 1: because they didn't want them to be lingering on now. 244 00:13:50,280 --> 00:13:52,440 Speaker 1: Of course they can extend to those expiration dates, but 245 00:13:52,440 --> 00:13:54,760 Speaker 1: it will take a judgment of the committee that economy 246 00:13:54,840 --> 00:13:57,079 Speaker 1: is under performing. So I do think the Fed made 247 00:13:57,120 --> 00:14:02,720 Speaker 1: a reasonable program design choice here whereby UH these should 248 00:14:02,720 --> 00:14:06,960 Speaker 1: be self expiring provided the economy is in a decent 249 00:14:06,960 --> 00:14:09,199 Speaker 1: position by the end of the third quarter. Mike, what 250 00:14:09,240 --> 00:14:11,000 Speaker 1: would you ask J Powell today if you were on 251 00:14:11,040 --> 00:14:13,400 Speaker 1: the Senate Banking Committee? I think one thing I would 252 00:14:13,400 --> 00:14:15,959 Speaker 1: ask him is why so there's been some indication that 253 00:14:16,320 --> 00:14:18,640 Speaker 1: that is the next big step is going to come 254 00:14:18,679 --> 00:14:20,920 Speaker 1: in September? I would I would ask him why wait 255 00:14:20,960 --> 00:14:23,800 Speaker 1: until September? Why not act last week? Or why not 256 00:14:23,920 --> 00:14:27,680 Speaker 1: act in late July. Yes, we don't know the shape 257 00:14:27,680 --> 00:14:30,480 Speaker 1: of the recovery in two or three years from now, 258 00:14:31,000 --> 00:14:33,600 Speaker 1: but it's almost certain to be um in a rather 259 00:14:33,680 --> 00:14:36,119 Speaker 1: depressed state. So I would I would ask him why 260 00:14:36,360 --> 00:14:40,640 Speaker 1: why wait this program get ahead? From me? I'm sure 261 00:14:40,720 --> 00:14:42,760 Speaker 1: you'd have more than one question my Ferrati that of 262 00:14:42,920 --> 00:14:50,400 Speaker 1: Jack Mulligan, the chief US economist. If you're ever so lucky. 263 00:14:50,520 --> 00:14:54,480 Speaker 1: In science, you can read Leninger's bio chemistry and say, well, 264 00:14:54,520 --> 00:14:57,040 Speaker 1: I sort of wandered by it. Then there are others 265 00:14:57,080 --> 00:15:00,920 Speaker 1: that master it. Peter Hoe tested that l and then 266 00:15:00,920 --> 00:15:05,560 Speaker 1: in biochemistry at Rockefeller University and then onto wild Cornell. 267 00:15:05,760 --> 00:15:10,880 Speaker 1: He is, without question with Mr Fauci, our leader on vaccines. 268 00:15:10,960 --> 00:15:15,640 Speaker 1: Peter Hotez joins us this morning from Baylor at University. Peter, 269 00:15:15,840 --> 00:15:19,640 Speaker 1: I take great issue with the media silliness over the 270 00:15:19,720 --> 00:15:24,640 Speaker 1: second wave. It's a three variable differential equation. Are we 271 00:15:24,760 --> 00:15:27,640 Speaker 1: looking at a second wave or is it just the 272 00:15:27,760 --> 00:15:33,120 Speaker 1: normative expansion of a virus in pandemic? Well, I can 273 00:15:33,240 --> 00:15:36,080 Speaker 1: uh really articulate. First of all, thanks for having me, 274 00:15:36,120 --> 00:15:39,120 Speaker 1: and I think you're the only major news anchor that 275 00:15:39,160 --> 00:15:43,920 Speaker 1: knows what managers biochemistry is though. That's really cool. Uh. 276 00:15:43,960 --> 00:15:48,280 Speaker 1: With regards to uh, what's happening here in Texas, what 277 00:15:48,360 --> 00:15:51,400 Speaker 1: happened was we did a good job. Initially. We we 278 00:15:51,440 --> 00:15:54,120 Speaker 1: saw what was happening in New York. We went on 279 00:15:55,040 --> 00:15:59,720 Speaker 1: lockdown and in the middle of March and we did everything. 280 00:16:00,160 --> 00:16:03,080 Speaker 1: We never got that surge like you saw in New York. 281 00:16:03,920 --> 00:16:06,280 Speaker 1: But then we couldn't keep it together. We couldn't hold 282 00:16:06,280 --> 00:16:08,760 Speaker 1: it together. The modelers told us we had to keep 283 00:16:08,800 --> 00:16:11,600 Speaker 1: this in place throughout the month of May. We opened 284 00:16:11,600 --> 00:16:14,800 Speaker 1: it up towards the end of April, and now we're 285 00:16:14,840 --> 00:16:16,960 Speaker 1: seeing a massive resurgence. So I don't know if so 286 00:16:17,040 --> 00:16:21,040 Speaker 1: much as the second wave meaning reintroduction, is just that 287 00:16:21,120 --> 00:16:24,240 Speaker 1: we never we never brought it down to zero to 288 00:16:24,360 --> 00:16:27,360 Speaker 1: containment mode like we could have. And now the numbers 289 00:16:27,360 --> 00:16:31,359 Speaker 1: are flaming precipitously in Houston and Dallas and in Arizona. 290 00:16:31,400 --> 00:16:36,680 Speaker 1: Now also, you were scrambling to acquire to invent to 291 00:16:36,720 --> 00:16:40,240 Speaker 1: give us a vaccine. Give us an update. Yeah, so 292 00:16:40,280 --> 00:16:45,400 Speaker 1: we have. We're we've developed a low cost recombinant protein 293 00:16:45,480 --> 00:16:49,480 Speaker 1: vaccine made any East. The same technology used to make 294 00:16:49,520 --> 00:16:52,640 Speaker 1: the recombinant hepatitis the vaccine used all over the world, 295 00:16:52,680 --> 00:16:55,760 Speaker 1: and it's made locally in India and Brazil and Indonesia 296 00:16:55,800 --> 00:16:59,240 Speaker 1: and Bangladesh, and we decided we're going to use that 297 00:16:59,360 --> 00:17:03,920 Speaker 1: technology to make a low cost, affordable, highly accessible COVID 298 00:17:04,040 --> 00:17:07,520 Speaker 1: nineteen vaccine. And it's going great guns. It looks really promising, 299 00:17:07,560 --> 00:17:10,720 Speaker 1: and we've been engaging the Food and Drug Administration to 300 00:17:10,760 --> 00:17:13,400 Speaker 1: move that along and we think this could be one 301 00:17:13,400 --> 00:17:16,919 Speaker 1: of the first global health vaccines used. All of the 302 00:17:17,359 --> 00:17:21,199 Speaker 1: US used everywhere and made locally. So the problem is 303 00:17:21,200 --> 00:17:23,920 Speaker 1: we're not a farmer company, so we don't get all 304 00:17:23,960 --> 00:17:27,040 Speaker 1: the stuff that you hear about what the operation works 305 00:17:27,119 --> 00:17:30,720 Speaker 1: feed companies. In terms of big time government assistance, we're 306 00:17:30,720 --> 00:17:33,600 Speaker 1: getting some from the n i H. But you know 307 00:17:33,600 --> 00:17:36,560 Speaker 1: we're raising money privately too, and hopefully we're gonna enough 308 00:17:36,640 --> 00:17:38,879 Speaker 1: the big partnership with India. We hope in the in 309 00:17:38,880 --> 00:17:41,640 Speaker 1: the coming days of the week dr Hotels. We saw 310 00:17:41,800 --> 00:17:45,239 Speaker 1: from Moderna's CEO that they're expecting that a vaccine, if 311 00:17:45,280 --> 00:17:49,160 Speaker 1: all things go well, could be ready by Thanksgiving. I'm wondering, 312 00:17:49,240 --> 00:17:52,400 Speaker 1: for your perspective on the front lines, how close are we. 313 00:17:52,480 --> 00:17:55,119 Speaker 1: I mean, what's the time frame not only forgetting a 314 00:17:55,200 --> 00:17:58,320 Speaker 1: vaccine that is effective and has proven safe, but also 315 00:17:58,400 --> 00:18:02,000 Speaker 1: can be widely distributed as your talking about. Yeah, certainly 316 00:18:02,040 --> 00:18:04,919 Speaker 1: not by Thanksgiving. What's going to happen is you're going 317 00:18:05,000 --> 00:18:07,679 Speaker 1: to UH and you we're going to see a number 318 00:18:07,720 --> 00:18:11,560 Speaker 1: of the warp speed vaccines enter into UH Phase three 319 00:18:11,640 --> 00:18:16,240 Speaker 1: clinical trials beginning in July UH and then it's probably 320 00:18:16,280 --> 00:18:18,320 Speaker 1: gonna take about a year to collect all of the 321 00:18:18,440 --> 00:18:21,480 Speaker 1: data that we need UH to show that the vaccines 322 00:18:21,520 --> 00:18:24,760 Speaker 1: actually work and that the vaccines are actually safe. And 323 00:18:24,840 --> 00:18:27,080 Speaker 1: that's the part you can't rush. I mean, oftentimes this 324 00:18:27,160 --> 00:18:29,440 Speaker 1: is sort of in the biotechs do this, and even 325 00:18:29,640 --> 00:18:32,399 Speaker 1: the White House does this. They they frame this as 326 00:18:32,440 --> 00:18:35,320 Speaker 1: a manufacturing issue. That like, they talk about it in 327 00:18:35,359 --> 00:18:38,320 Speaker 1: the same context that we'll talk about making ventilators or 328 00:18:38,400 --> 00:18:42,119 Speaker 1: diagnostics kits. And it's not the same. Yes, there are 329 00:18:42,160 --> 00:18:45,280 Speaker 1: manufacturing issues, but the big hurdle is you need to 330 00:18:45,359 --> 00:18:47,320 Speaker 1: give it the time to show that it works and 331 00:18:47,359 --> 00:18:50,960 Speaker 1: it's safe. Uh. And that means doing a thirty person 332 00:18:51,160 --> 00:18:53,800 Speaker 1: study and I don't I don't see a path by 333 00:18:53,800 --> 00:18:57,439 Speaker 1: which you can collect enough safety and data showing that 334 00:18:57,480 --> 00:18:59,800 Speaker 1: it works before the end of the year. So I 335 00:19:00,200 --> 00:19:02,400 Speaker 1: more likely in the in the middle of next year 336 00:19:02,400 --> 00:19:04,520 Speaker 1: at the earliest. And even then that would be a 337 00:19:04,560 --> 00:19:07,080 Speaker 1: world dance speed record. But I don't know where these 338 00:19:07,680 --> 00:19:09,080 Speaker 1: you know, some of the c e O s and 339 00:19:09,160 --> 00:19:11,359 Speaker 1: some of the some of the people coming out of 340 00:19:11,359 --> 00:19:12,919 Speaker 1: the White House day we're going to have it by 341 00:19:12,960 --> 00:19:15,280 Speaker 1: the fall. I just don't see how that can happen. 342 00:19:15,720 --> 00:19:18,400 Speaker 1: Doctor appreciate time this morning. As always, I'm looking forward 343 00:19:18,400 --> 00:19:19,920 Speaker 1: to getting you back on the program that was Dr 344 00:19:19,920 --> 00:19:26,760 Speaker 1: Peter hot As that of the Baylor College of Medicine, 345 00:19:27,600 --> 00:19:30,439 Speaker 1: Chairman on the Hill for two days. Used to be 346 00:19:30,480 --> 00:19:32,760 Speaker 1: called a Humphrey Hawkins. You can't remember what they call 347 00:19:32,800 --> 00:19:35,480 Speaker 1: it right now. Always interesting to get the Q and 348 00:19:35,520 --> 00:19:39,000 Speaker 1: I always different from the Senate versus the rabble in 349 00:19:39,080 --> 00:19:41,399 Speaker 1: the House. It'll be interesting to see you. Wonder if 350 00:19:41,400 --> 00:19:45,639 Speaker 1: they'll address negative interest rates somehow. I don't think it 351 00:19:45,680 --> 00:19:48,160 Speaker 1: will come up. We can do that with our guests. 352 00:19:48,240 --> 00:19:51,560 Speaker 1: Kenneth Rogoff joins us, of course, at Harvard University. He 353 00:19:51,720 --> 00:19:55,280 Speaker 1: has been a wonderful supporter of Bloomberg on the Economy 354 00:19:55,280 --> 00:19:58,359 Speaker 1: and Bloomberg Surveillance over the years, and we're thrilled that 355 00:19:58,440 --> 00:20:00,840 Speaker 1: he could join us right now. Can I have to 356 00:20:00,880 --> 00:20:04,960 Speaker 1: ask you about your courageous book, The Curse of Cash, Folks. 357 00:20:05,000 --> 00:20:06,960 Speaker 1: It was my book of the Year a few years ago. 358 00:20:07,520 --> 00:20:12,280 Speaker 1: Ever important now can give us an update on the 359 00:20:12,400 --> 00:20:17,480 Speaker 1: efficacy of negative interest rates in the United Kingdom and 360 00:20:17,520 --> 00:20:22,000 Speaker 1: in the United States of America, given how their financial 361 00:20:22,119 --> 00:20:26,480 Speaker 1: systems are so different from Europe, would negative interest rates 362 00:20:26,560 --> 00:20:32,280 Speaker 1: help well? Right now? There's so much going on. I 363 00:20:32,720 --> 00:20:34,600 Speaker 1: don't think it would be a good idea to do 364 00:20:34,720 --> 00:20:39,640 Speaker 1: something so experimental this minute, But if in two years 365 00:20:39,720 --> 00:20:45,160 Speaker 1: after the government is you know, gone through many more 366 00:20:45,240 --> 00:20:50,520 Speaker 1: stimulus spending measures, after the fellow reserve has you know, 367 00:20:50,680 --> 00:20:54,520 Speaker 1: basically tried to guarantee ever been a credit provider of 368 00:20:54,680 --> 00:20:57,600 Speaker 1: last resort in the economy for a long time, if 369 00:20:57,600 --> 00:21:01,200 Speaker 1: things still aren't growing, if the interest rates are very low, 370 00:21:01,720 --> 00:21:05,560 Speaker 1: I absolutely think that this should be on the table. 371 00:21:05,680 --> 00:21:08,159 Speaker 1: It's just silly to take it off the table. And 372 00:21:08,480 --> 00:21:10,119 Speaker 1: yes it would work it but it has to be 373 00:21:10,160 --> 00:21:13,000 Speaker 1: done the right way. I don't think even Europe has 374 00:21:13,000 --> 00:21:14,879 Speaker 1: done it the right way. You have to deal with 375 00:21:14,960 --> 00:21:18,920 Speaker 1: cash hoarding, uh so that you can make interest rates 376 00:21:19,080 --> 00:21:22,840 Speaker 1: very negative. But let it be noted that the studies 377 00:21:22,920 --> 00:21:26,239 Speaker 1: coming out of the European Central Bank have by and 378 00:21:26,359 --> 00:21:30,560 Speaker 1: large been finding that negative interest rates have worked fairly well, 379 00:21:31,000 --> 00:21:35,560 Speaker 1: haven't caused the problems people said. There has been passed 380 00:21:35,600 --> 00:21:39,240 Speaker 1: through in the banking sector from you know, certainly the 381 00:21:39,280 --> 00:21:43,080 Speaker 1: healthy banks, and they find the effects on investment are 382 00:21:43,200 --> 00:21:46,440 Speaker 1: very similar to normal monetary policy. And I think that's 383 00:21:46,480 --> 00:21:48,679 Speaker 1: what we could expect in the United States and the 384 00:21:48,720 --> 00:21:55,160 Speaker 1: United Kingdom. Are we nationalizing our bond market? I mean 385 00:21:55,240 --> 00:21:57,760 Speaker 1: that's the question that Chairman Paul is going to get 386 00:21:58,000 --> 00:22:01,520 Speaker 1: from the Senate today, all all of these different programs, 387 00:22:01,520 --> 00:22:05,120 Speaker 1: including announcement yesterday that they will in some way and 388 00:22:05,200 --> 00:22:08,480 Speaker 1: let's say it's efficacious, they will buy corporate bonds troubled 389 00:22:08,480 --> 00:22:11,760 Speaker 1: and less troubled. Keen, is it anything but a mass 390 00:22:12,040 --> 00:22:17,800 Speaker 1: nationalization of our debt? Well, it depends on what happens next. 391 00:22:18,400 --> 00:22:22,640 Speaker 1: So if it turns out that things get better pretty quickly, 392 00:22:23,359 --> 00:22:27,080 Speaker 1: this clearly will you look like a pretty low cost 393 00:22:27,200 --> 00:22:30,480 Speaker 1: move that had a big benefit. But you know, it's funny. 394 00:22:30,760 --> 00:22:35,440 Speaker 1: Usually in crises before this, uh, they would say, well, 395 00:22:36,320 --> 00:22:39,400 Speaker 1: here's a company that we think is solvent, but there's 396 00:22:39,440 --> 00:22:42,760 Speaker 1: a liquidity problem. So we're going to provide liquidity and 397 00:22:42,800 --> 00:22:45,320 Speaker 1: make sure that they can still get financing and not 398 00:22:45,520 --> 00:22:48,960 Speaker 1: needlessly go bankrupt. That's, you know, usually the main idea. 399 00:22:49,440 --> 00:22:52,560 Speaker 1: The thing is, if the virus goes on, there are 400 00:22:52,560 --> 00:22:57,399 Speaker 1: a lot of companies that will need to change radically. 401 00:22:58,000 --> 00:23:01,280 Speaker 1: They will be liquid because of the FED, but not 402 00:23:01,480 --> 00:23:04,160 Speaker 1: solve it because of the virus. And I think they're 403 00:23:04,160 --> 00:23:06,840 Speaker 1: going to run into trouble. They're taking a gamble. It's 404 00:23:06,880 --> 00:23:13,240 Speaker 1: a smart gamble perhaps, but absolutely it's a gamble. Of course, 405 00:23:13,320 --> 00:23:15,879 Speaker 1: this can't go on forever. You can't just have the 406 00:23:15,920 --> 00:23:19,680 Speaker 1: taxpayer guarantee every credit in the economy, but you could 407 00:23:19,680 --> 00:23:22,080 Speaker 1: also have good morning, Professor Rogolf, you could also have 408 00:23:22,520 --> 00:23:25,000 Speaker 1: a situation where you have a second wave, but actually 409 00:23:25,040 --> 00:23:28,200 Speaker 1: it's only pockets of the economy that are closed down. 410 00:23:28,280 --> 00:23:30,399 Speaker 1: And you know, how likely is it that we have 411 00:23:30,440 --> 00:23:32,960 Speaker 1: a second lockdown like we saw in the last couple 412 00:23:33,000 --> 00:23:35,520 Speaker 1: of months. Well, that's a very good point. I mean, 413 00:23:35,840 --> 00:23:39,640 Speaker 1: I don't know. I mean I think I wonder if 414 00:23:39,680 --> 00:23:42,040 Speaker 1: we had to do it again, if we locked down 415 00:23:42,080 --> 00:23:45,240 Speaker 1: in the same way. There's certainly lots of papers floating 416 00:23:45,240 --> 00:23:48,320 Speaker 1: around saying that they're smarter ways to do it. I 417 00:23:48,320 --> 00:23:50,800 Speaker 1: don't know. Uh, you know, and it's not just what 418 00:23:50,840 --> 00:23:54,720 Speaker 1: the government does. That's how people react. So clearly, if 419 00:23:54,760 --> 00:24:00,199 Speaker 1: they're just localized problems that can be contained, it not 420 00:24:00,359 --> 00:24:04,800 Speaker 1: an issue. But the likelihood of a major second wave, 421 00:24:05,000 --> 00:24:08,000 Speaker 1: you know, from the epidemiologists I speak to, is very 422 00:24:08,080 --> 00:24:12,000 Speaker 1: very high going into late fall and winter. I mean, 423 00:24:13,119 --> 00:24:16,160 Speaker 1: maybe we'll be able to deal with it better, but 424 00:24:16,200 --> 00:24:19,600 Speaker 1: you know that that's that's the concern. Uh. And you know, 425 00:24:20,000 --> 00:24:22,800 Speaker 1: even something that was enough to scare people back into 426 00:24:22,840 --> 00:24:27,920 Speaker 1: their houses, So there there's there's some things like restaurants, hotels, 427 00:24:28,160 --> 00:24:33,720 Speaker 1: cruise ships and things which feed into those which are 428 00:24:33,760 --> 00:24:37,520 Speaker 1: just going to need to be restructured, and so UH 429 00:24:37,560 --> 00:24:39,840 Speaker 1: the questions how far that's going to go. Are we 430 00:24:39,920 --> 00:24:42,960 Speaker 1: going to still be in cities the same way that 431 00:24:43,040 --> 00:24:46,560 Speaker 1: we were we go to smaller and middle size cities. 432 00:24:46,640 --> 00:24:49,280 Speaker 1: I don't know. I suspect there's gonna be a lot 433 00:24:49,359 --> 00:24:53,160 Speaker 1: of restructuring. And we haven't mentioned the political change, which 434 00:24:53,200 --> 00:24:56,879 Speaker 1: is going to certainly have an impact on UH corporations. 435 00:24:56,920 --> 00:24:59,840 Speaker 1: I mean, I don't think this is just you know, 436 00:25:00,400 --> 00:25:02,800 Speaker 1: I think we're going to see an acceleration of the 437 00:25:02,880 --> 00:25:07,920 Speaker 1: movement for redistribution of income deglobalization. These are going to 438 00:25:08,000 --> 00:25:10,800 Speaker 1: have impacts on some firms and they're not all going 439 00:25:10,840 --> 00:25:15,160 Speaker 1: to remain in business. We've been talking about deglobalization quite 440 00:25:15,160 --> 00:25:17,440 Speaker 1: some time. Do you think it will be a very 441 00:25:17,480 --> 00:25:21,080 Speaker 1: stark globalization and you know, or are we going to 442 00:25:21,520 --> 00:25:23,760 Speaker 1: quickly get back to normal? I don't want to use 443 00:25:23,760 --> 00:25:25,480 Speaker 1: the word quickly, but you know, how long will it 444 00:25:25,520 --> 00:25:28,800 Speaker 1: take to go back to more normal? I mean, we've 445 00:25:28,840 --> 00:25:33,400 Speaker 1: had waves of globalization and deglobalization in the past, and 446 00:25:33,520 --> 00:25:36,159 Speaker 1: my views that we were headed for a wave of 447 00:25:36,240 --> 00:25:42,080 Speaker 1: deglobalization anyway for political reasons, not economic reasons. Uh, you know, 448 00:25:42,240 --> 00:25:45,919 Speaker 1: the Trump Sanders two thousand and sixteen kind of catalyzed that, 449 00:25:46,760 --> 00:25:49,320 Speaker 1: and this is gonna make that go further. They're going 450 00:25:49,359 --> 00:25:53,200 Speaker 1: to be things brought on shore for national security reasons, 451 00:25:53,680 --> 00:25:55,080 Speaker 1: and then there's going to be a lot of other 452 00:25:55,240 --> 00:25:59,840 Speaker 1: things brought on shore supposedly for national security reasons, like 453 00:26:00,119 --> 00:26:04,760 Speaker 1: Canadian steel, but you know not, and so I think 454 00:26:04,760 --> 00:26:08,360 Speaker 1: it'll be pretty pretty significant. A lot of countries are 455 00:26:08,400 --> 00:26:14,000 Speaker 1: are are nervous after this and again this push you know, 456 00:26:14,080 --> 00:26:17,600 Speaker 1: to try to um say strength and labor unions in 457 00:26:17,640 --> 00:26:21,320 Speaker 1: the United States. That's hard to do when you remain 458 00:26:21,480 --> 00:26:26,440 Speaker 1: very highly globalized, right Ken, I know that at Harvard 459 00:26:26,480 --> 00:26:29,600 Speaker 1: for years, you've studied the course, you've taught the course 460 00:26:29,720 --> 00:26:33,840 Speaker 1: rather free lunch three oh two? Can you explain the 461 00:26:33,920 --> 00:26:38,400 Speaker 1: free lunch of forever at the zero bound? The dot 462 00:26:38,480 --> 00:26:41,359 Speaker 1: plot chart goes out two years at the zero bound. 463 00:26:41,720 --> 00:26:45,159 Speaker 1: Who knows after that? And all of our viewers and 464 00:26:45,240 --> 00:26:49,240 Speaker 1: listeners instinctively know there's got to be a price to 465 00:26:49,320 --> 00:26:53,520 Speaker 1: that free lunch at the zero bone? What is the price? Well, 466 00:26:53,600 --> 00:26:56,520 Speaker 1: I mean, it depends on what we do. Obviously, so 467 00:26:56,880 --> 00:27:01,320 Speaker 1: I mean, I think right now the global normal global 468 00:27:01,400 --> 00:27:07,160 Speaker 1: real interest rate is negative. And so given that inflations 469 00:27:07,440 --> 00:27:10,720 Speaker 1: very low, and that they're not prepared to use negative 470 00:27:10,760 --> 00:27:14,480 Speaker 1: interest rates, which is really the only way to raise 471 00:27:14,560 --> 00:27:17,760 Speaker 1: inflation to target or above target if they wanted to, 472 00:27:18,800 --> 00:27:20,800 Speaker 1: I think interest rates are going to set at zero 473 00:27:20,880 --> 00:27:24,959 Speaker 1: for a long time. The concern really is this idea 474 00:27:25,040 --> 00:27:29,560 Speaker 1: that therefore, UH companies can borrow as much as they 475 00:27:29,600 --> 00:27:32,640 Speaker 1: want and the government will bail them out. The government 476 00:27:32,720 --> 00:27:34,960 Speaker 1: can borrow as much as it wants and the settle 477 00:27:35,080 --> 00:27:39,040 Speaker 1: Reserve will baild it out, And of course that is nonsense. 478 00:27:39,160 --> 00:27:41,800 Speaker 1: Their limits to these things. We're doing the right thing now, 479 00:27:42,280 --> 00:27:45,480 Speaker 1: but of course they can't go on forever. I suspect 480 00:27:45,640 --> 00:27:48,080 Speaker 1: we're going to see it go on for a long time. 481 00:27:48,400 --> 00:27:54,679 Speaker 1: Can roll off with this right now. And Richards is 482 00:27:54,680 --> 00:27:59,920 Speaker 1: Whether's Fidelity Internationals. He has a fabulous acuity about investment 483 00:28:00,000 --> 00:28:03,159 Speaker 1: management and about the trends that we see in finance 484 00:28:03,560 --> 00:28:06,840 Speaker 1: and economics. And Richards, I want to talk to you 485 00:28:07,000 --> 00:28:11,840 Speaker 1: about the quiet, silent thing that's out there. It's witnessed 486 00:28:11,840 --> 00:28:14,359 Speaker 1: in the new dot plot, which is a flat line 487 00:28:14,359 --> 00:28:17,760 Speaker 1: at the zero bound out two years Fotty b roll 488 00:28:17,960 --> 00:28:21,399 Speaker 1: In Oil just told us oil demand out two years 489 00:28:21,480 --> 00:28:25,760 Speaker 1: will suffer, and that is people like you have to 490 00:28:25,880 --> 00:28:30,520 Speaker 1: recalibrate what we're going to return long term. Are you 491 00:28:30,600 --> 00:28:35,040 Speaker 1: working at fidelity with an actual assumption under four percent 492 00:28:35,119 --> 00:28:40,120 Speaker 1: per year return? M and interesting, interesting question. I mean, 493 00:28:40,160 --> 00:28:42,360 Speaker 1: I think, I think what you're going to see is 494 00:28:42,440 --> 00:28:46,000 Speaker 1: quite a wide dispersion of returns what the overall aggregate 495 00:28:46,080 --> 00:28:49,720 Speaker 1: comes out to. It's, as we all know, in this environment, 496 00:28:49,720 --> 00:28:51,640 Speaker 1: who can predict anything. I'm not going to pretend I'll 497 00:28:51,680 --> 00:28:54,960 Speaker 1: have the crystal ball on that or undebitedly seeing is 498 00:28:55,520 --> 00:28:58,320 Speaker 1: a much greater disparity between those who've got the cash 499 00:28:58,360 --> 00:29:01,120 Speaker 1: flow of those who got the balance sheet and those 500 00:29:01,280 --> 00:29:04,600 Speaker 1: who do not. And to try and sort of bring 501 00:29:04,640 --> 00:29:07,080 Speaker 1: that back to real life, if you look at, for example, 502 00:29:07,200 --> 00:29:10,480 Speaker 1: what the if you look at insurance company balance sheet 503 00:29:10,640 --> 00:29:14,440 Speaker 1: right now and you look at the proportion of higher 504 00:29:14,520 --> 00:29:17,160 Speaker 1: yielding assets that will typically be on it because of 505 00:29:17,200 --> 00:29:20,720 Speaker 1: the way the accounting allows them to get a better 506 00:29:22,000 --> 00:29:24,080 Speaker 1: a lot of capital up if you like, from high 507 00:29:24,120 --> 00:29:27,320 Speaker 1: yield versus equity. For example, the FED action has a 508 00:29:27,440 --> 00:29:32,400 Speaker 1: very direct impact on how robust that bounce sheet looks. 509 00:29:32,800 --> 00:29:35,720 Speaker 1: So there's an awful lot as I mentioned earlier about 510 00:29:35,720 --> 00:29:38,360 Speaker 1: this smoothing at the bottom of the v that has 511 00:29:38,360 --> 00:29:41,000 Speaker 1: a direct impact on how certain sectors and has certain 512 00:29:41,040 --> 00:29:44,680 Speaker 1: stocks within those sectors are resilient or not coming through this, 513 00:29:44,800 --> 00:29:47,920 Speaker 1: which makes it really a stock pickers market. Okay, it's 514 00:29:47,920 --> 00:29:50,320 Speaker 1: a start pickers market. But and Richards, I want to 515 00:29:50,360 --> 00:29:54,720 Speaker 1: go back to the long term responsibilities of investment houses, 516 00:29:54,840 --> 00:29:56,880 Speaker 1: like you know, your work with M and G years 517 00:29:56,880 --> 00:30:00,280 Speaker 1: ago and your work now with Fidelity. Yesterday we had 518 00:30:00,280 --> 00:30:03,720 Speaker 1: a California bomb show where we've decided we're going to 519 00:30:03,880 --> 00:30:08,680 Speaker 1: leverage up to make the bogey to pay retirees. That's 520 00:30:08,680 --> 00:30:11,920 Speaker 1: not in any of the textbooks, is it. No, it's 521 00:30:11,960 --> 00:30:14,760 Speaker 1: absolutely not. And I think some of your other guests 522 00:30:14,800 --> 00:30:17,959 Speaker 1: this morning, as as a real live economists rather than 523 00:30:18,040 --> 00:30:20,920 Speaker 1: humble practitioners like me, well we'll have a really good 524 00:30:20,920 --> 00:30:23,720 Speaker 1: insight into the complexities of some of that stuff. No, 525 00:30:23,800 --> 00:30:26,120 Speaker 1: we are absolutely in new territory. And there is a 526 00:30:26,160 --> 00:30:29,080 Speaker 1: strong argument that can be made that if you're a 527 00:30:29,080 --> 00:30:32,560 Speaker 1: government or another entity and you can borrow along at 528 00:30:32,560 --> 00:30:35,920 Speaker 1: practically zero interest rates, actually you can get a lot 529 00:30:35,960 --> 00:30:39,120 Speaker 1: of productive capacity out of that. It just depends what 530 00:30:39,280 --> 00:30:41,000 Speaker 1: you put that into So it comes back to the 531 00:30:41,120 --> 00:30:43,720 Speaker 1: use of the capital as much of the simple act 532 00:30:43,760 --> 00:30:46,800 Speaker 1: of borrowing, which will clearly determine the returns because we 533 00:30:46,840 --> 00:30:51,120 Speaker 1: don't really know how is consumption, how is a basic 534 00:30:51,200 --> 00:30:53,960 Speaker 1: economic consumption model going to be affected by what we've 535 00:30:54,000 --> 00:30:57,040 Speaker 1: come through, And until we know what the job recreation 536 00:30:57,240 --> 00:30:59,800 Speaker 1: is after this, when everyone comes off the government schemes, 537 00:31:00,040 --> 00:31:02,320 Speaker 1: it's really difficult to see how the consumer is going 538 00:31:02,360 --> 00:31:05,000 Speaker 1: to respond and how the consumer response is going to 539 00:31:05,080 --> 00:31:08,560 Speaker 1: have a huge impact on whether some previously viable business 540 00:31:08,600 --> 00:31:11,440 Speaker 1: models are still viable in the future. But if you 541 00:31:11,520 --> 00:31:14,880 Speaker 1: have a viable business model and you can bet or low, 542 00:31:15,600 --> 00:31:18,560 Speaker 1: then then clearly you have the chance to generate really 543 00:31:18,560 --> 00:31:21,000 Speaker 1: good returns out of this. And talk to me a 544 00:31:21,000 --> 00:31:24,760 Speaker 1: little bit about dividend cuts and how actually impacts investor 545 00:31:24,840 --> 00:31:29,600 Speaker 1: decision making. So dividend cuts are you know, the signaling 546 00:31:29,600 --> 00:31:32,120 Speaker 1: around dividend cuts are one of probably the most challenging 547 00:31:32,240 --> 00:31:35,400 Speaker 1: things that we have to manage because dividends have been 548 00:31:35,440 --> 00:31:38,840 Speaker 1: a large proportion of total return over the years, and 549 00:31:38,880 --> 00:31:43,080 Speaker 1: that ability to reinvest those dividends and the compounding effect 550 00:31:43,160 --> 00:31:46,800 Speaker 1: from that. There's been quite a lot of signaling from 551 00:31:47,040 --> 00:31:49,240 Speaker 1: quite a lot of the companies that we look at 552 00:31:49,240 --> 00:31:52,120 Speaker 1: where they have cut dividends, but it's in the recognition 553 00:31:52,520 --> 00:31:55,920 Speaker 1: that it's not necessarily one and done, that there is 554 00:31:55,960 --> 00:31:59,600 Speaker 1: a hope on an expectation as the broader economic environment normalized, 555 00:31:59,640 --> 00:32:02,800 Speaker 1: whenever that might happen, that a return to some level 556 00:32:02,920 --> 00:32:06,840 Speaker 1: of dividend plus some level of dividend growth is an expectation. 557 00:32:07,000 --> 00:32:09,320 Speaker 1: So there is there is a feeling that not all 558 00:32:09,360 --> 00:32:13,320 Speaker 1: the dividend cuts are clearly permanent, but some will be. 559 00:32:13,720 --> 00:32:15,680 Speaker 1: And that's where it comes back to looking at the 560 00:32:15,680 --> 00:32:18,120 Speaker 1: resilience of the balance sheet, looking at the cash that 561 00:32:18,160 --> 00:32:21,160 Speaker 1: has been raised through equity issues, looking at what the 562 00:32:21,240 --> 00:32:23,920 Speaker 1: underlying cash flow is. I think what we have to 563 00:32:24,000 --> 00:32:27,080 Speaker 1: be really careful about when we pull all of that 564 00:32:27,200 --> 00:32:30,720 Speaker 1: together into a portfolio is to make sure that when 565 00:32:30,760 --> 00:32:33,760 Speaker 1: we are when we are selling our investment products and 566 00:32:33,880 --> 00:32:36,920 Speaker 1: when investors are buying it, for example, an income funds, 567 00:32:36,960 --> 00:32:40,280 Speaker 1: that they really understand is the income that is being 568 00:32:40,280 --> 00:32:43,280 Speaker 1: paid out true income or is there is there an 569 00:32:43,320 --> 00:32:47,000 Speaker 1: element of capital distribution within that? Because I think that's 570 00:32:47,040 --> 00:32:49,520 Speaker 1: the risk as an individual investor that you can get 571 00:32:49,560 --> 00:32:52,440 Speaker 1: into when you start to actually look at that income 572 00:32:52,480 --> 00:32:55,440 Speaker 1: paying funds. Are you really sure you understand what you're 573 00:32:55,480 --> 00:32:58,920 Speaker 1: buying within that? So it's not an easy and simple scenario. Here. 574 00:33:00,760 --> 00:33:05,360 Speaker 1: Has active management, you know, shown its value during the crisis. 575 00:33:06,960 --> 00:33:08,720 Speaker 1: I think it really has. I mean, when we've looked 576 00:33:08,760 --> 00:33:11,720 Speaker 1: across I mean, you know, obviously generalities are always difficult, 577 00:33:11,720 --> 00:33:13,960 Speaker 1: and I look at the funds that we look after, 578 00:33:14,520 --> 00:33:17,600 Speaker 1: and we've definitely seen the types of funds that have 579 00:33:17,640 --> 00:33:21,600 Speaker 1: a wider REMIT, that have a stronger thematic edge to 580 00:33:21,800 --> 00:33:26,520 Speaker 1: them and perform better. And in particular, funds with a 581 00:33:26,640 --> 00:33:29,240 Speaker 1: kind of e s G tilt to them r s 582 00:33:29,280 --> 00:33:31,719 Speaker 1: G ratings stocks that we rate more highly in our 583 00:33:31,720 --> 00:33:36,520 Speaker 1: own proprietary s G rating system unquestionably outperformed both on 584 00:33:36,560 --> 00:33:39,480 Speaker 1: the equity side and interestingly on the debt side through 585 00:33:39,520 --> 00:33:41,640 Speaker 1: the crisis. It's certain, you know, it's a relatively short 586 00:33:41,680 --> 00:33:43,920 Speaker 1: time period to look at that in but that has 587 00:33:43,960 --> 00:33:48,680 Speaker 1: been supported by data from other other types of index 588 00:33:48,720 --> 00:33:51,000 Speaker 1: providers and so forth. So I think it does show 589 00:33:51,000 --> 00:33:53,440 Speaker 1: you that active management done in the right way can 590 00:33:53,560 --> 00:33:56,680 Speaker 1: really add value through this. But obviously it is quite 591 00:33:56,720 --> 00:34:00,880 Speaker 1: specific to individual themes, to individual types of mandates that 592 00:34:01,040 --> 00:34:04,240 Speaker 1: you have. But we're certainly comfortable and we've seen ourselves 593 00:34:04,360 --> 00:34:07,200 Speaker 1: in net influ all through this year, pretty much into 594 00:34:07,200 --> 00:34:10,200 Speaker 1: our active fonds, so it's an interesting picture. And thanks 595 00:34:10,200 --> 00:34:12,800 Speaker 1: so much, And which was their fidelity at international? Thanks 596 00:34:12,800 --> 00:34:17,040 Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen 597 00:34:17,280 --> 00:34:22,600 Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform 598 00:34:22,719 --> 00:34:27,000 Speaker 1: you prefer. I'm on Twitter at Tom Keane before the podcast. 599 00:34:27,080 --> 00:34:30,560 Speaker 1: You can always catch us worldwide. 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