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Speaker 1: It is FED day. Let's get into it. The FED
Speaker 1: coming out with its monthly meeting, FED extending Central Bank
Speaker 1: dollar ripo and swap lanes to March one, holds rates
Speaker 1: near zero. This is the headline you want, says virus
Speaker 1: poses considerable risk. Those are the red heads on the Bloomberg.
Speaker 1: We're gonna dig into it in death with our team.
Speaker 1: Look at the equity reaction, the fixing, income reaction, everything
Speaker 1: you need to know about the underlying economy. And we're
Speaker 1: gonna hear from j Powell in just about half an hour,
Speaker 1: the FED Chair taking questions about where the FED goes
Speaker 1: from here. It has been heroic in many people's eyes
Speaker 1: in fighting the effects of this coronavirus. All right, let's
Speaker 1: break it down. Got the perfect experts to give us
Speaker 1: all the context you need. Kathleen Hayes Gluble, Economics and
Speaker 1: Policy editor for Bloomberg. She's in our Bloomberg Interactive Broker
Speaker 1: Studio home base. Dave Wilson, Stocks editor for Bloomberg. He
Speaker 1: joins us from New Jersey, k h. I want to
Speaker 1: start with you, Uh, what'd you see here? We see
Speaker 1: a feder reserve that is signaling what we expected, Jason,
Speaker 1: because look, there's a considerable risk to the economy from
Speaker 1: the virus. The Fed also saying again that they're gonna
Speaker 1: keep rates very low until they're confidence that the recovery
Speaker 1: is under way. I think another more specific thing that
Speaker 1: is highlighted. In fact, it's even of our famous red
Speaker 1: hot stickies. The FED is extending uh their dollar repo
Speaker 1: and swaplinds to March thirty one. This These are the
Speaker 1: the dollar borrowing lines that the FED sets up for
Speaker 1: overseas central banks, right, so if you're leading liquidity in Japan,
Speaker 1: the UK, wherever, you can reach out to the FED.
Speaker 1: So again, I think it underscores that the FED is
Speaker 1: saying what we think. The virus unfortunately has not really
Speaker 1: lightened up its impact on the US economy, for example,
Speaker 1: that much. In some cases, it's gotten worse in the
Speaker 1: States where things are resurgent. New York of course doing
Speaker 1: a bit better. I like to always remind people of that,
Speaker 1: but uh, overall the impact is negative. I think what
Speaker 1: markets are wanting to know is what did the FED
Speaker 1: discuss about cementing, narrowing down, formalizing forward guidance. All the
Speaker 1: reports are that they're talking about it now, they've been
Speaker 1: talking about this, and what it would allow them to
Speaker 1: do is underscore that they've got an easy policy and
Speaker 1: so that will keep bond yields low and you know,
Speaker 1: the whole, the whole, the you know, the businesses will
Speaker 1: be reassured, maybe even people want to get a mortgage
Speaker 1: will be assured. Uh, and they can do that by
Speaker 1: with their forward guidance. I think we're not going to
Speaker 1: get anything specific on that until the press conference with J. Powell,
Speaker 1: because every reporter who's asking questions is going to ask
Speaker 1: about that. But so far on the headlines and probably
Speaker 1: in the policy statement that was released, which is where
Speaker 1: we get these headlines, there's there's not too much. There's
Speaker 1: not enough to be flashing it yet, right, all right,
Speaker 1: So about twenty six minutes we expect to hear from J. Powell.
Speaker 1: Uh So much more to dig into Kathleen Hayes, But
Speaker 1: first let's get to Dave Wilson. Dave talked to me
Speaker 1: about the equity reaction here. There was a nice run
Speaker 1: in the equity market ahead of this, some anticipation, and
Speaker 1: then it popped. What did you see, right? I mean
Speaker 1: you saw, you know, in the first few moments after
Speaker 1: the headlines came out, the SMP five hundred hits high
Speaker 1: the day, and then it's sort of backed off a bit,
Speaker 1: really and keeping with what it had been doing in
Speaker 1: the last half hour or so before uh the announcement.
Speaker 1: And so what you're left with is a market that's
Speaker 1: solidly higher, and as much as anything, the other big
Speaker 1: event of the day is not really roiling stocks, and
Speaker 1: that would be the testimony of the four big tech
Speaker 1: c e O S before the Half Judiciary Committee. Uh,
Speaker 1: you know, Jeff Bezos said Amazon, Tim Cook at Apple,
Speaker 1: Mark Zuckerberg at Facebook, and Sindar Pecai at Alphabet, the
Speaker 1: owner of Google. All those shares are higher at the moment,
Speaker 1: and they're helping stocks move up as they have for
Speaker 1: some time now. So it's not like what we saw
Speaker 1: the FED really changed that equation. Interesting, and we're gonna
Speaker 1: talk a lot more about tech as we go throughout
Speaker 1: the afternoon, and uh this program, we're gonna hear from
Speaker 1: Tom Giles later in the show about what he heard
Speaker 1: on Capitol Hill. Getting back to the Fed, Kathleen, what
Speaker 1: I want to go back to that second redhead that
Speaker 1: you talked about, because if it's a redhead at Bloomberg,
Speaker 1: I've been here long enough to know it's important. It's
Speaker 1: important to the broader world, is what I heard you say.
Speaker 1: Help us understand from the an investor's perspective, why this
Speaker 1: is important, what this signals to the world and and
Speaker 1: maybe more importantly, the markets. Well, one thing I'd like
Speaker 1: to point out and remind us is yesterday was day
Speaker 1: one of the FEDS to day meeting. What did they
Speaker 1: announce yesterday that they were extending until the end of
Speaker 1: the year. Seven of their nine emergency lending programs and
Speaker 1: the only two they didn't extend or weren't on the
Speaker 1: list was that they were already going to go to
Speaker 1: the end of the year or beyond. So basically it
Speaker 1: shows I think it shows us that the feder Reserve
Speaker 1: is ready to do whatever he needs. And importantly, though
Speaker 1: there remember back in June, you know, April was a
Speaker 1: terrible month, but a lot of people really thought maybe
Speaker 1: we'd be in a more of a recovery terrible second
Speaker 1: quarter rebound in the third quarter. That that has faded
Speaker 1: a bit, hasn't it. Maybe we'll get the three throw
Speaker 1: quarter rebound. But it doesn't feel like we're ready to,
Speaker 1: for example, not need more stimulus from the Fed, or
Speaker 1: for that matter, not to need more fiscal stimulus. That's
Speaker 1: something else that J. Powell probably asked a lot about
Speaker 1: at the press conference. And when we look overseas, even
Speaker 1: in countries that supposedly did better than United States, everything's fine, Well,
Speaker 1: there they have cases popping up. The virus isn't vanquished yet,
Speaker 1: and uh, it's probably not going to be vanquished for
Speaker 1: a while. And so you never know what is going
Speaker 1: to happen again in one of the countries that has
Speaker 1: access to the FEDS swap lines. It's it's like extending
Speaker 1: credit to other to foreign countries. Uh. I think it
Speaker 1: also shows this sense, well, let's extended to to March,
Speaker 1: because we don't know what's going to happen. We're not
Speaker 1: in that position now where we think, oh, we're on
Speaker 1: the verge of you know, a lot better situation for
Speaker 1: the economy, or past the worst of the virus. We're
Speaker 1: at a point where everybody is still responding to it,
Speaker 1: locking down in some cases, reopening a bit in other cases.
Speaker 1: But consumers more than ever, of course, even though they
Speaker 1: spending a lot. I want to just segue a little
Speaker 1: bit to this fiscal question, because she's gonna get pounded
Speaker 1: with that. Uh. I was speaking to Patricia Mosster this morning.
Speaker 1: She was at the New York Fed for many years.
Speaker 1: She's at Columbia University Seepa now, but she's been there,
Speaker 1: done that, you know, really hands on with the whole
Speaker 1: bond market side of it and all. She says that
Speaker 1: the reason why, and I think a lot of people
Speaker 1: say this one of the reasons the stimulus is so
Speaker 1: important and giving people the unemployment checks is so they'll
Speaker 1: keep spending money, because that's one of the things that
Speaker 1: has responded better. And without that extra money, a lot
Speaker 1: of people are likely to say, well, I got some
Speaker 1: Now I better hold onto whatever I have, especially if
Speaker 1: the unemployment benefits I've been getting are going to get cut.
Speaker 1: So and again, same thing is gonna be playing out overseas.
Speaker 1: So to come back to your original question, I just
Speaker 1: think broadly this shows the FED is still in defensive
Speaker 1: mode in the sense of waiting to see what the
Speaker 1: virus does to us, but also an offensive mode saying, well,
Speaker 1: I'm going to keep certain players on the field right
Speaker 1: to perform certain tasks because you know this game isn't
Speaker 1: over yet. Yeah. Absolutely, And so Dave Wilson, I mean
Speaker 1: I turned to you and ask how much is the
Speaker 1: market I'm glad you pointed out that the market is
Speaker 1: looking and investors looking to Capitol Hill for the tech stars,
Speaker 1: the tech CEOs. How much is the market now looking
Speaker 1: to Capitol Hill for exactly what Kathleen was talking about,
Speaker 1: which is some new fiscal stimulus. Well that really does
Speaker 1: become front center, because I mean it's Kathleen's pointing out
Speaker 1: you know, monetary policy is sort of on a track
Speaker 1: at this point, so you know, it's a matter of
Speaker 1: what's going to change, and we know that there are
Speaker 1: going to be changes in the unemployment benefits at the
Speaker 1: end of this week. Uh, even potentially if Congress and
Speaker 1: you know, the Trump administration can get together on a
Speaker 1: plan moving forward, so that becomes more of an issue,
Speaker 1: just because you know, you have the potential to see
Speaker 1: more of an effect from whatever they managed to agree on. Right,
Speaker 1: most important question, I think I know the answer, Kathleen
Speaker 1: has most important question for j pow. Wow. Oh, it's
Speaker 1: got to be for a guidance. I mean, that's gonna
Speaker 1: guess that in so many ways, and I think that
Speaker 1: might be part of the broader question. Look, there are
Speaker 1: people right now who are very concerned that we again
Speaker 1: we make it a three quarter rebound because the numbers
Speaker 1: are gonna be so beaten up in the second quarter.
Speaker 1: What are Bloomer consensus for tomorrow for the second quarter
Speaker 1: GDPs down? Some people have bigger numbers, some smaller, but
Speaker 1: they're all terrible, right, So it's not too hard to
Speaker 1: you know, to get out of the deepest pit you
Speaker 1: could possibly be in. But I think the question will
Speaker 1: be if things get worse instead of better, what can
Speaker 1: you do? You've done everything? And in that context, how
Speaker 1: much of a difference can forward guidance make? Uh? And
Speaker 1: of course the but but every Republican is gonna want
Speaker 1: to know is have we done? We have to make
Speaker 1: do more? But don't we have to worry about that?
Speaker 1: But budget deficit every day? Democrats gonna want to know
Speaker 1: why you know, no, we barely are going to get
Speaker 1: do enough we get our three and a half trillion
Speaker 1: dollar bill passed. But again I think uh. And in fact,
Speaker 1: you know reporters may ask versions of that as well.
Speaker 1: I think the most important one is are you guys done?
Speaker 1: Is there anything more you can do? And is the
Speaker 1: ball in somebody else's court like Congress? And how prescriptive
Speaker 1: do you think he will be in terms of the
Speaker 1: fiscal side, because I feel like he's pushed it a
Speaker 1: little bit. Maybe then we might have expected in terms
Speaker 1: of saying what at least he needed action obviously from
Speaker 1: Capitol Hill. Do you think he will be so forward
Speaker 1: as to be prescriptive or no, he won't be prescriptive,
Speaker 1: but you know you make I'm glad you mentioned that
Speaker 1: because it's very important. People who haven't watched the Federal
Speaker 1: Reserve as long as I have, or you have, or Dave,
Speaker 1: you know, think back, we back early for you got
Speaker 1: Bill Paul Volker, but think of Alan Greensman. He went
Speaker 1: out of his way not even to say the word,
Speaker 1: you know, fiscal or budget uh. And Jay Powell. I
Speaker 1: think people were stunned, some a little bit precautiously and
Speaker 1: some people gladly that he has been more willing to say,
Speaker 1: maybe not exactly what you need to do, but you
Speaker 1: do have to spend more money. Congress has to do something.
Speaker 1: This is the worst crisis is economy has seen, at
Speaker 1: least since the Great Depression, and that is where he
Speaker 1: has he has stood out again. I don't know what
Speaker 1: he'll be ready to say tomorrow, but I suspect that
Speaker 1: will be. Whatever you do, just do it and do
Speaker 1: it fast. People can't wait, all right, Kathleen his Global
Speaker 1: economics policyiator for Bloomberg. Great to get the instant context
Speaker 1: from you back to the FED back in anticipation of
Speaker 1: hearing from FED Chair J Powell in roughly fourteen minutes.
Speaker 1: We will take you there live. But in the meantime
Speaker 1: let's dig in a little further understand what we have
Speaker 1: heard from the FED so far and what it means,
Speaker 1: especially in the context of everything going on, all these
Speaker 1: negotiations on Capitol Hill, the role that FED has played,
Speaker 1: the world that Congress will play, and the administration, and
Speaker 1: what investors make of it. Delighted to have Ira Jersey,
Speaker 1: chief US interest rate strategist for Bloomberg Intelligence. He joins
Speaker 1: me from New Jersey and Dr Steven Skanky back with
Speaker 1: the chief economic advisor for Keel point of course, former U. S.
Speaker 1: Treasury and White House National Security Council staff member, just
Speaker 1: the guy that we want to talk to for all
Speaker 1: the context. This is a very holistic approach we're going
Speaker 1: to take to this, Ira. I want to start with you, um,
Speaker 1: from your perspective, from what you watch when it comes
Speaker 1: to interest rates and the reaction of the market. What's
Speaker 1: the most important thing to read here? So so, I
Speaker 1: think that there's two things that the FED continues to be,
Speaker 1: you know, hyper focused on the level of the coronavirus cases,
Speaker 1: so that they even added an entire sentence, which for
Speaker 1: for the FED to do that, uh and make their
Speaker 1: only significant change something to do with the coronavirus, I
Speaker 1: think is very telling. And the second thing that I
Speaker 1: think is generally important to the market is the fact
Speaker 1: that the Fed has extended their swap lines and their
Speaker 1: UH dollar repo facilities with other central banks through the
Speaker 1: end of March. And this is important because if you remember,
Speaker 1: at the beginning of this crisis in March, you had
Speaker 1: a lot of volatility with in the treasury market because um,
Speaker 1: there was not enough dollars overseas. So this will keep
Speaker 1: plenty of dollars overseas. So things like Lieboard, the London
Speaker 1: Interbrank Orford rate, as well as treasuries that are held
Speaker 1: overseas are going to be easier to fund because of
Speaker 1: that for a long time. So that that gets rid
Speaker 1: of a potential worry that maybe some of the markets
Speaker 1: would have had come September when these facilities were supposed
Speaker 1: to we're supposed to end, right, all right, Steven Skanky,
Speaker 1: come on in here. Um, let's take a step back
Speaker 1: if we can, because you have said, I think among
Speaker 1: a number of people, this seems to be the consensus
Speaker 1: that j Pal and his friends at the Federal Reserve,
Speaker 1: they've done a pretty good job. They have been on
Speaker 1: the front foot. They've been pretty active, they have made
Speaker 1: a lot of moves, and yet they come into this
Speaker 1: latest meeting. They came into this late, this meeting with
Speaker 1: the backdrop that they probably didn't anticipate or certainly didn't
Speaker 1: want to anticipate. It is not an optimistic view of
Speaker 1: the world right now. Tell me about them. Well, the
Speaker 1: fan as you, as you point out Jason, has been preemptive, proactive, aggressive.
Speaker 1: They they really are satisfied with all the things that
Speaker 1: they've done. There are certainly not satisfied with what's going
Speaker 1: on in the world, in the US economy, and so
Speaker 1: their bewilderment is is obviously something of interest. They got
Speaker 1: things going in a good way. They promised that they
Speaker 1: would do all that needed to be done, and with
Speaker 1: their two point six trillion dollars in emergency credit facilities
Speaker 1: are ready to go. Uh, they found that they didn't
Speaker 1: even have to use all that much of it because
Speaker 1: once they said that they were there, and then they
Speaker 1: extended credit a few times. Good example is the money
Speaker 1: market mutual fun liquidity facility. Some money was extended, it
Speaker 1: was paid back, the market understands the fet is standing by.
Speaker 1: All of that settled down Uh. And we were on
Speaker 1: a good trajectory from the end of April right up
Speaker 1: until pretty much the end of June when the reopenings
Speaker 1: and almost a disregard for the virus in some locations
Speaker 1: caught people by surprise. And all of the whole the
Speaker 1: virus is back and people are sick, hospitals are filling up. Uh.
Speaker 1: And that old concern comes back again. And even though
Speaker 1: we don't expect and no one expected that state and
Speaker 1: local governments were gonna shut down the way they had
Speaker 1: in March. UH, people self shutter, self, shelter in place
Speaker 1: as a result of they're concerned about being in the
Speaker 1: marketplace or the workplace. So the FETE is out there
Speaker 1: doing what it can. You know, the fact that it's
Speaker 1: added three threeion dollars would balance sheets since January. Uh, And,
Speaker 1: as you rightly point out, is committed to using its
Speaker 1: full range of tools doing all that it needs to
Speaker 1: do to support the economy in this challenging time there
Speaker 1: there and after ready. But as you also mentioned, uh, Pow,
Speaker 1: unlike his predecessors, has been pretty straight, pretty straightforward about
Speaker 1: their needing to be fiscal stimulus to do things that
Speaker 1: monetary policy cannot Uh. And that also is a source
Speaker 1: of disappointment that you know that here we are with
Speaker 1: a an immediate need for um extending some of the
Speaker 1: fiscal stimulus programs that have been previously enacted, and uh,
Speaker 1: Congress is not encouraging that it's going to happen anytime soon. No,
Speaker 1: And that certainly is the viber getting in and and
Speaker 1: let's talk if we can ira a little bit about
Speaker 1: that disconnect that and there are a number of disconnects
Speaker 1: I feel like we're looking at, especially when we look
Speaker 1: through the eyes of investors or look at investors actions here.
Speaker 1: Help me understand kind of what you see in the
Speaker 1: numbers and in the data and as you talk to
Speaker 1: your colleagues and folks on Wall Street about how the
Speaker 1: market broadly defined is reacting to this current situation, because
Speaker 1: as Steven just pointed out, it's not looking great out there,
Speaker 1: and yet here we are in a fairly optimistic dare
Speaker 1: I say enthusiastic uh investment environment? Well we lost Ara,
Speaker 1: So Steven Skanky, I'm gonna turn to you and turn
Speaker 1: back to you. Let's talk more about that. You talk
Speaker 1: to me about that disconnected if we can, because I'm
Speaker 1: I continue to be sort of bufuddled by it, do you?
Speaker 1: Or is this just how kind of markets work? That
Speaker 1: the the gap, the chasm between the kind of real
Speaker 1: life and what investors seem to be uh investing against
Speaker 1: it doesn't add up to me. It is certainly perplexing,
Speaker 1: and there's a lot of good reason to be skeptical
Speaker 1: and doubtful in all this. But but as we continue
Speaker 1: to watch it and look how the market reacts to
Speaker 1: any particular news, it's mostly driven by an expectation of
Speaker 1: getting the virus under control. Vaccines therapeutics. We saw good
Speaker 1: news announced late yesterday about some vaccine results that all
Speaker 1: the market was off a little yesterday. It's it's vow
Speaker 1: rebounding positively again today. The other thing that's been a
Speaker 1: bit of a surprise is the smp OR earnings so far.
Speaker 1: They're they're beating estimates, uh self identified estimates, guidance from
Speaker 1: the companies, and bottom up calculations of earning estimates, and
Speaker 1: they're beating them at a rate that's greater than usual
Speaker 1: that we usually see in the second quarter. So so
Speaker 1: the the rebound seems to be greater than believed. Part
Speaker 1: of it is this this peculiar bifurcation that we have
Speaker 1: going on, where the hardest hit companies are the smaller
Speaker 1: non publicly traded companies that don't have access to the
Speaker 1: credit markets that larger publicly traded companies do and UH
Speaker 1: and and some of those companies are are naturally benefiting
Speaker 1: from smaller competitives competitors just not being able to UH
Speaker 1: to continue and to hold on UM even even in
Speaker 1: the earnings outlook it I mean, we're still expecting the
Speaker 1: thirty decline and earnings for the second quarter, which is significant, extraordinary,
Speaker 1: what is better than forecast that was UM. There's been
Speaker 1: trending out there. So the chasm, the gap, what do
Speaker 1: you do and something is to frightening really to spend
Speaker 1: much time looking at it. You look beyond and sure enough,
Speaker 1: sure enough, they're they're looking to the other side and
Speaker 1: the third quarter economic rebound and some rebound in earnings
Speaker 1: in the third in court quarters and then on into well,
Speaker 1: I think there's this is I think there's a couple
Speaker 1: of things. I think one is that when you look
Speaker 1: at the bond market, right the market that I focus on,
Speaker 1: it's still telling you that there's going to be very
Speaker 1: weak economic activity and relatively low inflation for years to come.
Speaker 1: So you know, the bond market's not necessarily telling you
Speaker 1: the same thing that maybe the stock market might be
Speaker 1: on first blush. But I think one of the things
Speaker 1: that's happening with risk asset's generally everywhere is the reaction
Speaker 1: function that that the Federal Reserve and other monetary authorities
Speaker 1: globally are going to keep monetary policy easy even after
Speaker 1: the whole COVID crisis has gone right, So that's one
Speaker 1: of the things that that the Fed reiterated today at
Speaker 1: certain what you've seen in the dots back in June
Speaker 1: is the Federals are basically committing that they're going to
Speaker 1: hold rates where they are now basically zero until at
Speaker 1: least and then the markets even thinking that if they hike,
Speaker 1: it's going to be like once every six months. So
Speaker 1: you're not talking about monetary policy getting restrictive anytime in
Speaker 1: the next four or five years. So um, you know,
Speaker 1: so it does make sense that valuations, maybe based on
Speaker 1: current earnings, are you know, relatively high. But but like
Speaker 1: you're the other guest said, maybe over the next three years,
Speaker 1: earnings wind up getting back to some level that they were,
Speaker 1: say prior to uh, to the whole COVID issue. So
Speaker 1: so I think that's that that you're having this this
Speaker 1: whole um, you know, systemic difference in what you're seeing
Speaker 1: between different markets. Yeah, absolutely so, Steven Skanky taking this
Speaker 1: from a policy perspective, because you know all the levers
Speaker 1: in Washington that canon can't be pulled. Many have been,
Speaker 1: but some are slower to to act, as you alluded
Speaker 1: to with the fiscal side, and maybe the frustration even
Speaker 1: if he's not showing it on the part of j.
Speaker 1: Powell and his colleagues, what needs to happen here and
Speaker 1: why isn't it happening? It seems that there's still a
Speaker 1: certain amount of denial about the seriousness of the virus.
Speaker 1: If you even just look at the trend in and
Speaker 1: whether the presidents wearing a face mask or not. You know,
Speaker 1: for for three days in a row or three press
Speaker 1: announcements in a row, he's patting the benefits of face
Speaker 1: mask wearing, social distancing, washing your hands, uh. And then
Speaker 1: we and then we get a turn where that doesn't
Speaker 1: seem to be a priority anymore. I think there's an
Speaker 1: internal conflict in the in the White House is to
Speaker 1: the policy that they want the fact that it's the
Speaker 1: White House and the Treasury Secretary and really the White
Speaker 1: House Chief and Staff Mark Meadows and Treasury Secretary Stephen Nuton,
Speaker 1: who are negotiating with Congressional Democrats and not even including
Speaker 1: UH Senate Republican leadership. So it seems whatever they might
Speaker 1: be doing to keep them informed, they're they're certainly not
Speaker 1: part of the negotiations, and they just they just have
Speaker 1: a different view on this. They have a different perspective
Speaker 1: as to how they want to treat it, and whether
Speaker 1: that's driven by information they think to be true that
Speaker 1: others take issue with is not clear. I think the
Speaker 1: other thing is that is they had originally resisted the
Speaker 1: extra six hundred dollars a week in the unemployment insurance
Speaker 1: assistance for people unemployed because of the COVID situation and
Speaker 1: the shutdown, and because they thought it was it would
Speaker 1: be a dis incentive for people to return to work
Speaker 1: and lo and behold. Some consensus is or round fifty
Speaker 1: eight percent of those receiving that benefit or receiving more
Speaker 1: and unemployment insurance benefits than they were when they were working.
Speaker 1: UH and employers have complained, mostly anecdotally, but still low
Speaker 1: with lot enough voices that they've had probably getting people
Speaker 1: back to work, and so there was that there was
Speaker 1: a season upon that issue and how do they fix it?
Speaker 1: And regrettably, the way our unemployment insurance system has built
Speaker 1: up and jerry rigged over the years as firstly impossible
Speaker 1: to fax it in the short term. So they're trying
Speaker 1: to thread through that UH and address and obvious and
Speaker 1: obvious concern but in a way that maybe it is
Speaker 1: not really recognizing the urgency of extending those on insurance
Speaker 1: employment benefits. Yeah, it is complicated and it is very political.
Speaker 1: As you say, Dr Steven Skanky, what a treat Thank
Speaker 1: you so much. Chief Economic Advisor keel Point and former U. S.
Speaker 1: Treasury and White House National Security Council staff member joining
Speaker 1: me from d c our Jersey. Chief US interest rate
Speaker 1: strategist for Bloomberg Intelligence joining me on the phone from
Speaker 1: New Jersey. Both those guys, I know are gonna be
Speaker 1: tuned into Washington, as are we. So we just heard
Speaker 1: from j Pal down in Washington. Let's understand what he said, because,
Speaker 1: as Charlie said, the equity markets at least and specifically
Speaker 1: the SMP, they are close to their highs of the day,
Speaker 1: the major indices. Why is that so? What are we
Speaker 1: seeing in the broader economy that is continuing to give
Speaker 1: investors a lot of confidence? Yelena Scholecheva, she is with us,
Speaker 1: She is working hard today. I've heard her on our
Speaker 1: era a number of times. Sior U s economists for
Speaker 1: Bloomberg Economics. She joins on the phone as to Steve
Speaker 1: Let's chief US economists for T. S. Lombard. He's on
Speaker 1: the phone from New York City, Steve. I want to
Speaker 1: start with you. What's the most important thing, j Pal
Speaker 1: said beyond what we heard in the statement, Well, um,
Speaker 1: I think the most to me, the most interesting take
Speaker 1: um was actually the question about loans, and he he
Speaker 1: implied that the reason why there hasn't been much take
Speaker 1: up in the loans is because the markets have done
Speaker 1: well and he's got it backwards. Uh. The reason why
Speaker 1: he hasn't had a take up in the main street
Speaker 1: lending program, and that's really the lending program I'm focused
Speaker 1: on here, is because firms don't feel confident in the
Speaker 1: outlook because of the virus and and the and the
Speaker 1: curves that it can throw in terms of having any
Speaker 1: sort of a plan about business activity going forward, and
Speaker 1: small firms don't want to take on debt in that uncertainty.
Speaker 1: And I juxtaposed that against the fact that the market
Speaker 1: continues to go up, so it's wall streets moving in
Speaker 1: one direction. But the fact that there's no take up
Speaker 1: in these loans tells you that on the ground level,
Speaker 1: there is too much uncertainty about the outlook for people
Speaker 1: to be willing to take on get even in a
Speaker 1: very very favorable terms. So you lena that data. What
Speaker 1: is j Powell looking at, UH, because it's a lot
Speaker 1: of the same stuff you're looking at. How uncertain is
Speaker 1: the economy right now? Well, they have been talking about
Speaker 1: uncertainty for quite some time now, you know, Leo brainer
Speaker 1: that the Fed Governor mentioned that the outlook is UH
Speaker 1: in the middle of the fog, the fog of uncertainty
Speaker 1: right now. So that's why they haven't taken any action
Speaker 1: at this meeting. They're using this time to UH discuss
Speaker 1: what they would like to do with the policy framework
Speaker 1: UH and what they would like to do with forward guidance.
Speaker 1: I think what really happened at this meeting because there's
Speaker 1: actually nothing much they can do at this point in
Speaker 1: terms of immediate policy action, although there are some things
Speaker 1: they can improve in terms of the main street lending
Speaker 1: facility and so on. But they're using this time to
Speaker 1: kind of to come up to terms in UM in
Speaker 1: a sense of how they would like to improve forth guidance.
Speaker 1: Should they tie to UH calendar based UH kind of
Speaker 1: a statement, or should they tie to economic outcomes? So
Speaker 1: in our of you, what is happening is that they're
Speaker 1: gearing up to publish something later on this year, along
Speaker 1: with the results of the review of the framework UH,
Speaker 1: something that states, Okay, we're gonna keep rates low until
Speaker 1: an employment rate reaches five and until inflation and show
Speaker 1: significant progress towards the two goal. Right, they will put
Speaker 1: a lot of emphasis on what actually will happen, and
Speaker 1: not only on expectations that inflation will at some point
Speaker 1: reach there in send targets. So, Steve, the FED is
Speaker 1: obviously a very important input for anyone who's trying to
Speaker 1: understand the economy. UH, But it is just one thing.
Speaker 1: And I think about what's going on just up the
Speaker 1: street from where j Pal was on Capitol Hill, not
Speaker 1: just with the tech executives testifying, but also with a
Speaker 1: fight which j Pal alluded to between the two main
Speaker 1: political parties over fiscal stimulus. He spoke more, maybe than
Speaker 1: even we expected him to, about the need for that
Speaker 1: and some of the atmospherics around that. There's also a
Speaker 1: political calculus that economists are taking into account, which is
Speaker 1: an upcoming presidential election. How do you synthesize all that?
Speaker 1: How do you find the signal in the noise here? Well,
Speaker 1: I think that what he told you, uh and the
Speaker 1: way I look at policy both have fed as well
Speaker 1: as um Fiscal policy is this way. He talked about
Speaker 1: the two phases, the lockdown and the reopening. In the
Speaker 1: lockdown phase, transferring income and supporting markets is paramount, and
Speaker 1: the fiscal policy and what he alluded to about the
Speaker 1: virus determining and looking at the outcome and looking at
Speaker 1: what's going on across the sun Belt and how that
Speaker 1: is slowed the pace of economic activity. We're not really
Speaker 1: fully into that reopening phase. And what does that mean
Speaker 1: from a policy standpoint? It means that policy still has
Speaker 1: to transfer income and if you and if those in
Speaker 1: government and the fiscal side, I want to say that, well,
Speaker 1: we don't have to do that because it cons reopening
Speaker 1: and all that Okay, that's a that's a political view.
Speaker 1: It's not really backed by an economic reality, and they
Speaker 1: risk the economy slowing down by undercutting that transfer of income.
Speaker 1: Um of course, all of this is extraordinarily uncertain. If
Speaker 1: everybody gets better in Texas and Florida starting tomorrow, everything
Speaker 1: reopens and and everything takes off, or vice versa. Other states.
Speaker 1: New York is doing well, it goes in the other
Speaker 1: direction in the fall. So we're still we're not locked
Speaker 1: down like we were, but the economy still doesn't have
Speaker 1: the traction. We're pure stimulus works, and the feat is
Speaker 1: really out of bullets here in terms of transferring income.
Speaker 1: You as if the market goes down again or whatever,
Speaker 1: they he'll buy more treasuries though, expand the balance sheet.
Speaker 1: They'll do what they can. But the market was even
Speaker 1: more liquidity to help put a floor on the equity market.
Speaker 1: But that's still an income transfer program in effect, as
Speaker 1: opposed to a program that's going to stimulate and grow
Speaker 1: the economy. And the one thing I heard because is
Speaker 1: that on the policy framework and looking at it from
Speaker 1: the perspective of the minority employment and the fact and
Speaker 1: you're landed right well right, But I agree with in
Speaker 1: the U in the framework of letting inflation run a lot.
Speaker 1: Hot Hotter, I'll tell you what he's really saying, and
Speaker 1: in the order he's giving things. Employment is the lead
Speaker 1: dog here, and employment is going to be the lead
Speaker 1: dog for a long time. And just because you know,
Speaker 1: with the high class problem of unemployment being down to
Speaker 1: four at some point, looking at and already unemployment, looking
Speaker 1: at all these fraud things, they're not going to be
Speaker 1: quick to start tightening in anticipation that that four percent
Speaker 1: unemployment rate is going to create an inflation problem. They
Speaker 1: are going to let this employment go until they actually
Speaker 1: see an inflation problem, and then they'll react to it.
Speaker 1: And that's really the framework. Yeah. Interesting, interesting, really interesting breakdown.
Speaker 1: You'll in a final word to you, what's the most
Speaker 1: important data point we need to be thinking about next.
Speaker 1: I think I was actually wanted to reiterate and the
Speaker 1: FED put it in the statement, and that was quite
Speaker 1: surprised they did. The path of the economy will depend
Speaker 1: significantly on the course of the virus. They wanted to
Speaker 1: reiterate that. And at the end of the day, Uh, yeah, Well,
Speaker 1: fiscal measures aim to provide the necessary breach to whether
Speaker 1: economic turmoil. The fit is keeping interest rate flow. At
Speaker 1: the end of the day, the strength of the recovery
Speaker 1: will largely be and on containing the spread of the virus,
Speaker 1: and at that point we will need further policy support,
Speaker 1: whether from the FED or from the fiscal authority. Yeah,
Speaker 1: it is. It's I'm really glad you brought that up,
Speaker 1: because it is interesting to hear a policymaker essentially say
Speaker 1: this is a health crisis, folks. At its core, it
Speaker 1: is a health crisis, and I think sometimes we lose
Speaker 1: sight of that. All right, thank you so much for
Speaker 1: that reaction, Elena Shall Let you have a senior US
Speaker 1: economists for Bloomberg Economics and Steeplitz Chief US Economists fort T. S.
Speaker 1: Lombard a journal Now, but you let me drive. Oh no, no, no,
Speaker 1: no home, honey, please, I'll do the right revel I
Speaker 1: want to drive, just drive the questions trying drive to
Speaker 1: the close. Thanks well US Bloomberg Radio. All right, it's
Speaker 1: time for the drive to close. Already here we are
Speaker 1: at the close of trading on a very green day.
Speaker 1: As you heard Charlie Pellett mentioned. Let's get into it
Speaker 1: with Chuck Lieberman, co founder, chief investment officer of Advisor's
Speaker 1: Capital Management, twining us on the phone from Lovely Ridgewood,
Speaker 1: New Jersey, Chuck, how the heck are you? I'm doing well. Thanks, Yeah,
Speaker 1: easy to do well. I feel like when the market
Speaker 1: is I was just saying to Dave Wilson, I don't
Speaker 1: know if you heard me, uh SMP in the green.
Speaker 1: It looks like we're going to finish up in this
Speaker 1: way that it is in the green for the year.
Speaker 1: That's got to feel a little bit surprising, right, Uh. Well,
Speaker 1: you know, it's really a mixed story because obviously the
Speaker 1: tech sector things are related to UH, healthcare all or
Speaker 1: recorded levels, but there are lots of parts of the market,
Speaker 1: you know, everything related to transportation, lee sure, um, vacations, entertainment,
Speaker 1: all that stuff is still down. So it's really a
Speaker 1: tale of two cities. Yeah, it's such a good point.
Speaker 1: And you know, speaking with Steven Skanky earlier on in
Speaker 1: the show ahead of UH hearing from j Pale, and
Speaker 1: notably j Pal himself mentioned some of those travel in
Speaker 1: hospitality stocks as you said, and you know, Skanky made
Speaker 1: the really interesting point that you know, the stock market
Speaker 1: really is driven, as you say, by not just a
Speaker 1: small number of names, but also publicly traded companies that
Speaker 1: probably are able to weather this a little bit better
Speaker 1: uh than certainly some of the small businesses who have
Speaker 1: just gotten really really crushed, to say the least, amid
Speaker 1: all of this. So what do you do as an investor,
Speaker 1: knowing that bifurcation and that chasm that we talked so
Speaker 1: much about between the real economy that we're all sort
Speaker 1: of experiencing and a pretty enthusiastic stock market. Well, you
Speaker 1: gott have you gotta break it down. So in the case,
Speaker 1: for example of technology stocks, the Amazons and Netflix, uh,
Speaker 1: they have experienced a surge in the band and you've
Speaker 1: got to adjust for that rise in demand and make
Speaker 1: a judgment do the stocks today represent value? Right? And
Speaker 1: there there's a more difficult case to make because obviously
Speaker 1: demand is accelerated by a couple of years, and a
Speaker 1: case can be made that, you know, maybe Netflix is
Speaker 1: now expensive. You have a much easier time on the
Speaker 1: other side of the coin, where you look at companies
Speaker 1: that have been hurt by the pandemic and you can
Speaker 1: see when some of those companies might start to see improvement. Uh,
Speaker 1: They're all not gonna come back at the same time.
Speaker 1: Some will come back in the early phases, some will
Speaker 1: come back in the later phases. We're not terribly interested in,
Speaker 1: for example, getting into some of the airline stocks quite yet.
Speaker 1: That will probably come back a little later. But there
Speaker 1: are plenty of other parts of the market, the parts
Speaker 1: of the economy, that will come back sooner, and that's
Speaker 1: where we want to play, all right. Well, when it
Speaker 1: welcome into the mix. My partner, Scarlet Food hustling over
Speaker 1: from TV. She was watching the FED literally and talking
Speaker 1: about it. Um, So scar bring it all together for us,
Speaker 1: you like me and like Chuck. Here, we were listening
Speaker 1: pretty closely to J. Powe. We're listening pretty closely, and J.
Speaker 1: Powill sounded a little more downbeat certainly than he was
Speaker 1: in June. Given how the COVID situation has worsened in
Speaker 1: the United States, one thing that's come up a lot
Speaker 1: is how debbish the FED is, And of course that's
Speaker 1: what spurring stocks higher right now and bon yields lower.
Speaker 1: The vet's been buying treasuries and all sorts of other
Speaker 1: securities to ensure smooth market functioning. I wonder Chuck has
Speaker 1: all this intervention led us to a point where we
Speaker 1: have some kind of market dysfunction, to market still serve
Speaker 1: an important purpose in signaling anything about the economy. When
Speaker 1: the central mike is all in and providing tons and
Speaker 1: tons of liquidity to push prices higher, well, you know,
Speaker 1: their objective is not to push prices higher. The objective
Speaker 1: is to make the economy recover. And as J. Powell
Speaker 1: himself said, you know, they have to hope for the best,
Speaker 1: but they have to plan for the worst. So that's
Speaker 1: why he sounds, you know, kind of downbeat um and
Speaker 1: you know, given that he's FED chairman, it makes perfectly
Speaker 1: good sense when you think about it. You've got to
Speaker 1: think about where the opportunity is for recovery as an investor,
Speaker 1: and from our standpoint, we see, you know, the whole
Speaker 1: sectors of the economy that have been hurt pretty badly
Speaker 1: by the virus, by the pandemic, and their price for
Speaker 1: a horrible environment. But we think that some parts of
Speaker 1: them are really cheap and very attractive because, unlike the
Speaker 1: FED chairman, we can look ahead and think about the
Speaker 1: possibility of a vaccine coming this fall. He refuses to
Speaker 1: do that because again he's planning for the worst. We
Speaker 1: can think about what's more likely, and there is a
Speaker 1: good chance that the uh that a vaccine is coming
Speaker 1: probably this year. Certainly by next year, it's doubtful we'll
Speaker 1: have enough doses to really help the economy on our
Speaker 1: broad basis in but by early next year wouldn't surprise
Speaker 1: me if we have quite a bit of it. And
Speaker 1: so you know, we're thinking ahead, not about how bad
Speaker 1: things can possibly get. So chalk love talking names, as
Speaker 1: you know. So let's talk about some banks, because you know, financials,
Speaker 1: it's been a little bit of a different crisis this
Speaker 1: time around for them. Where do you find value and
Speaker 1: what do you like when it comes to the big banks? Yeah,
Speaker 1: so again, as Powell said, our banks are in really
Speaker 1: good financial shape. Uh. They've got a lot of capital.
Speaker 1: The FED change the stress tests at the last minute
Speaker 1: because of the pandemic to stress them even more, uh,
Speaker 1: and even under those circumstances, our banks are in pretty
Speaker 1: good shape. So we like the big money center banks
Speaker 1: pretty much, all of them. Uh. Even even yes, I
Speaker 1: do like wells Argo because Will's Fargo is badly Wills
Speaker 1: Fargo got hit by the pandemic and their own personal
Speaker 1: uh problems, and one coming on top of the other
Speaker 1: really depressed the stock price. I do think Wills Fargo
Speaker 1: is not only going to survive, they'll overcome it. Uh.
Speaker 1: They obviously are going to engage in a major cost
Speaker 1: reduction effort. Their costs are relatively high. They've got to
Speaker 1: earn their place back with the regulators. They're working on that.
Speaker 1: They replaced the senior management. New senior management has that
Speaker 1: as a very primary mission. UH. And so if you're patient,
Speaker 1: I think Wills Fargo is a very cheap stock that
Speaker 1: will come back very nicely. What else you like as
Speaker 1: you look across the financials, maybe mortgages. Well, in the
Speaker 1: mortgage space, you can pick up different types of exposure.
Speaker 1: For example, the fet is going out and buying mortgages
Speaker 1: Fanning May Jenny May mortgagees. Those mortgages are very safe.
Speaker 1: They sold off during the pandemic the market's panic. People
Speaker 1: were dumping securities left and right, including government guaranteed mortgages.
Speaker 1: But with a FED coming back in that space has
Speaker 1: not only stabilized, it's gone back to very healthy levels.
Speaker 1: Mortgage rates are now very low. People are refinancing a
Speaker 1: company like American Capital Agency. UH. His trading at a
Speaker 1: discount to book about book with a yield over ten
Speaker 1: in this environment where you know yet sixty basis points
Speaker 1: on a ten year treasury to be able to pick
Speaker 1: up ten on a company that owns government guaranteed mortgages
Speaker 1: is very attractive. Absolutely, absolutely, we're going to leave it there. Unfortunately,
Speaker 1: Chuck to get to the clothes. We really appreciate you
Speaker 1: joining us, Chuck Lieberman, co founder, chief investment officer of
Speaker 1: Advisor's Capital Management. Johnny's on the phone from Ridgewood. Thanks
Speaker 1: so much for listening to Blueberg Business Week. Download podcast
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