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Speaker 1: Welcome to the Bloomberg Surveillance podcast home term Keene Dearly.

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Speaker 1: We bring you insight from the best in economic ex

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Speaker 1: financed investment, and international relations. Find Bloomberg Surveillance on Apple Podcasts,

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Speaker 1: sound Cloud, Bloomberg dot Com, and of course on the Bloomberg.

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Speaker 1: Let's get to the optimism of the moment. We can

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Speaker 1: do that with Ben Labler. That's how I had some

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Speaker 1: research CEO. Ben. That note dropped in all of our

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Speaker 1: inboxes over the last couple of days, and we all

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Speaker 1: sat up and paid attention. A Q form mount up, Ben,

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Speaker 1: Why do you see a Q form out upon the cards.

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Speaker 1: I think we've all sort of been a little bit

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Speaker 1: distracted by the by the election. We've just had a

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Speaker 1: quite a big consolidation, I would say in the third

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Speaker 1: quarter on his expectations have sort of followed the upgrade

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Speaker 1: and some of these GDP forecasts we've discounted. We've had

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Speaker 1: quite a big pull back. At the same time, I

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Speaker 1: think a lot of indicators tell me that we've sort

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Speaker 1: of discounted a lot of the election and what it's

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Speaker 1: and what has done. The sort of concern on the

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Speaker 1: election has prevented I think a lot of investors, who

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Speaker 1: I think are still pretty cautious from repositioning as they

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Speaker 1: would normally be doing in the fourth quarter for what

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Speaker 1: I think is a big growth story, at least sequentially

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Speaker 1: in one and you haven't seen that reallocation trade. And

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Speaker 1: I think it's coming regardless of who wins the election.

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Speaker 1: I mean, we're looking at four percent us GDP growth

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Speaker 1: next year plus earnings growth and some obviously some segments

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Speaker 1: of the economy which I or some segments of the

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Speaker 1: market would I definitely be overweighting here the more cyclical

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Speaker 1: ones they're gonna see. I'm going to see a lot

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Speaker 1: more than that I looked then. I've been looking at

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Speaker 1: the SPX chart here in the Bloomberg then, and there's

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Speaker 1: been two glorious opportunities from March to tell Ben Laidler

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Speaker 1: he's run, where do you find a courage? And I'm

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Speaker 1: gonna get the cursor out here the fish Samuel Cares cursor.

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Speaker 1: We're on July three or we're on October two? Does

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Speaker 1: Ben Laidler find the courage? As we correct? Listen, corrections

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Speaker 1: are I mean, we you never sort of rally remorselessly here.

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Speaker 1: I mean the incremental data point though is going to

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Speaker 1: continue to be positive. I mean, we all were guilty

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Speaker 1: of just cutting estimates sort of too far, getting too bearish.

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Speaker 1: I think that's what happened in sort of March April May.

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Speaker 1: I mean, now we're in the middle of just an

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Speaker 1: earnings and a GDP upgrade cycle, which in Italy is

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Speaker 1: going to need probably a bit more fiscal stimulus. And

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Speaker 1: I'm sure we'll sort of talk about that, but you know,

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Speaker 1: the incremental data point is positive. I mean, back in April,

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Speaker 1: we were looking at a twelve ninth forward earnings outlook

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Speaker 1: of negative five. Now we're looking at a positive fifteen

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Speaker 1: to twenty. I think we're gonna get more fiscal stimulus.

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Speaker 1: I think we're gonna get a vaccine. And as I say,

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Speaker 1: there are some segments of the market here which have

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Speaker 1: dramatically higher have dramatic operating leverage to all of that,

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Speaker 1: which I think I'm gonna lead this recovery, and they

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Speaker 1: really haven't done so far. I don't John, I don't

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Speaker 1: believe him. I'm still looking for an entry point. I

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Speaker 1: don't care what Ben Laidler says. He's been so right, John,

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Speaker 1: did you like on a Friday, how I use a

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Speaker 1: surveillance cursor there, the simulcast cursor to nail down those pullbacks. Nice,

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Speaker 1: well done, Thank you, Lisa. Help me help me anytime.

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Speaker 1: I will take out my own surveillance cursor and the

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Speaker 1: conversation forward bed. You talk about this pessimism that's baked

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Speaker 1: into the market, and yet we see all this data,

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Speaker 1: the economic data coming out showing the steepest recession possibly

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Speaker 1: in history. And I'm looking right now, the NASDAC is

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Speaker 1: up twenty eight percent year to date. I'm looking at

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Speaker 1: SEP up more than eight percent. Where is that pestimism

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Speaker 1: that you're talking about. So you've had I think eighty

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Speaker 1: billion dollars come out of US equity mutual funds since

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Speaker 1: the bottom. You look at the American Association of Individual

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Speaker 1: Investors bearish, you know, six months into the rally, you've

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Speaker 1: still got forty percent parish. You know, it's still way

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Speaker 1: above average. I even look at the sort of famous

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Speaker 1: Robin Hood's trading volume chart and that's basically the lowest

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Speaker 1: it's been since, uh since March. I look at the

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Speaker 1: VIX again, six months into this rally, it's still above average,

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Speaker 1: and vixed futures, you know, are going higher. From here,

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Speaker 1: not lower. I mean I can go on and on

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Speaker 1: and on. I mean I would say that, you know,

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Speaker 1: there's very few indicators actually teld me that people are positive. Men.

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Speaker 1: We have a composite um investor centerent indicator which is

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Speaker 1: nearly at contrarian bi levels at this point, and that's

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Speaker 1: historically giving you twelve months return. So I think this

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Speaker 1: is part of the story. As we rolled through the election,

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Speaker 1: and we put that into sort of the backward mirror, investors,

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Speaker 1: I think are going to be forced to allocate on

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Speaker 1: the basis of a sort of fourteen month view into

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Speaker 1: one of significant growth. Well, then that's what I think

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Speaker 1: really sets you apart from the pack right now, not

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Speaker 1: just the cool but the fact that you don't think

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Speaker 1: this is election dependent. Why don't you think this is

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Speaker 1: election dependent? Well, he I think we've priced quite a

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Speaker 1: lot into the election anyway. Uh, and and be I

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Speaker 1: just think you look back historically, and you know, I

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Speaker 1: think we over discount elections. Uh. You know, back in

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Speaker 1: twos sixteen, if you knew that Donald Trump was gonna win,

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Speaker 1: what would you you know, and you thought the election

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Speaker 1: was really important, you would have run off and loaded

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Speaker 1: up on energy and financials and then essentially you would

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Speaker 1: have had your head handed to you over the last

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Speaker 1: time you're talking to me. Then I got one final

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Speaker 1: question here, and again, folks, I can't say enough about

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Speaker 1: you know, we're kidding in but I can't say enough

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Speaker 1: about Ben Laidler's calls here going back to that ugly

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Speaker 1: que four of a few years ago, Ben Layler, the

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Speaker 1: money question is for those that were fortunate enough like

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Speaker 1: John Pharaoh to load the boat on Amazon and Apple,

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Speaker 1: do they sell shares to go to the Laidler rotation

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Speaker 1: or do they hold him and use you new money

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Speaker 1: to go to the Laidler rotation. That's a good question.

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Speaker 1: I mean I sort of think about it a little

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Speaker 1: bit of sort of structural versus sick of column I

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Speaker 1: do you think that the tech train is a very

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Speaker 1: uh is a very sort of structural traind I mean,

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Speaker 1: they may they may under before for a quarter or

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Speaker 1: two and amongst that sort of rotation into cyclicals, but

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Speaker 1: you know, ultimately I think they're going to be very fine.

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Speaker 1: You know, the story is just a little bit different.

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Speaker 1: But as I say, I think the real operating leverage

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Speaker 1: is on the cyclical side. I mean that you know,

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Speaker 1: we have a reopening basket. Uh, you know, they're all

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Speaker 1: losing money. There are on a third evaluation of the

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Speaker 1: sort of work from home sort of tech names and

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Speaker 1: and I think and it's where all the earnings upgrades

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Speaker 1: have been coming from. And I think we're gonna get

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Speaker 1: a double surprise here of things that are the top

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Speaker 1: line improving, potentially catalyzed by by a vaccine or not.

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Speaker 1: But also, you know, I think what we're missing is

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Speaker 1: just a lot of costs being taken out. And I

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Speaker 1: think once the economy sort of really begins to get

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Speaker 1: going again, I think we're going to be stunned by

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Speaker 1: the degree of earnings upgrades that we see that. And

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Speaker 1: I would say these cyclicals, you know, because investors have

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Speaker 1: sort of been held back by you know this this

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Speaker 1: this very boring debate on fiscal stimulus and are we

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Speaker 1: going to get the election, you know, second wave of

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Speaker 1: vaccines that's really stopped people from going into those cyclicals.

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Speaker 1: So I think you still have a huge opportunity there.

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Speaker 1: It is a boring debate, but it's based to be

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Speaker 1: the program at the moment. Ben, It's well, it is

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Speaker 1: right if this separation here and we can talk about

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Speaker 1: this John Norman, and the vide here folks, a disinflation

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Speaker 1: in Europe versus inflation worries in the US is really

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Speaker 1: really quite something. John Norman joins us. This is wonderful

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Speaker 1: to get him before the publication of all of JP

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Speaker 1: Morgan research under Joyce Chang that starts on a Friday,

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Speaker 1: It filters out Michael Faroli tonight and then onto Norman's

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Speaker 1: hyper detailed institutional note for Monday morning. He has had

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Speaker 1: a cross asset fundamental strategy. John, The theme for me

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Speaker 1: this morning is with the jump condition and Ran Menby

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Speaker 1: and the optimism of Asia Pacific recovery. What is the

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Speaker 1: correlation right now between the Asia indicators and the standard

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Speaker 1: and Poor's five hundred good news. I think there's a

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Speaker 1: reasonable correlation because both of these are moving on the

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Speaker 1: prospect of a Biden victory, and I think a sweep

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Speaker 1: Biden to me is both positive for the SMP and

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Speaker 1: for Asian assets to the extent that you have calmer geopolitics.

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Speaker 1: And of course is that if this is a Biden

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Speaker 1: victory with the sweep, you're gonna have much more domestic

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Speaker 1: stimulus too. So the price action across markets this morning

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Speaker 1: is very suggestive to me. Of the sweep. The only

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Speaker 1: thing that kind of stands out is the fact that

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Speaker 1: bonos are really moving that much, and that's kind of

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Speaker 1: got to kind of condition how how bullish you are

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Speaker 1: on some of the value rotation trades that the people

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Speaker 1: are also focused on right now. The expectation game is

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Speaker 1: a movable feast. How far out are the markets pricing?

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Speaker 1: Are they pricing out the next Wednesday? Are they pricing

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Speaker 1: out the November three, or are they pricing out say

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Speaker 1: into Q two of next year. I think the pricing

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Speaker 1: out into the mid part of next year, if not beyond.

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Speaker 1: The simplest way to think about what's going on in

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Speaker 1: markets is they're moving from a fixation on a growth

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Speaker 1: slow down, which was really what started to grip in

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Speaker 1: August and September, to the idea that the cycle is

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Speaker 1: gonna get rebooted through physical stimulus under democratics week. And

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Speaker 1: if it is a reboot, we're talking about an expansion

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Speaker 1: that's going to go on for quite a while. And

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Speaker 1: we're talking about a focus on data stumbles shifting towards

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Speaker 1: data strength. And I think if we put we followed

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Speaker 1: the normal cyclical path, that that strength will extend well

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Speaker 1: into next year if we get more more fiscal stimulus.

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Speaker 1: So the market is looking quite far ahead in terms

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Speaker 1: of what the stimulus does to the to the cycle's prospects. Well,

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Speaker 1: let's talk about how far ahead this market is getting

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Speaker 1: itself at a moment, John, This new narrative is pretty young.

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Speaker 1: A couple of weeks ago I had a series of

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Speaker 1: guests on this program. They would turn around to us,

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Speaker 1: all all three of us, and say, contested election is

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Speaker 1: the risk? Now we flipped and we're talking about a

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Speaker 1: blue wife. How vulnerable is that narrative? John? But to me,

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Speaker 1: the vulnerability is not really around the contested election, because

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Speaker 1: I feel like the polls are shifting so far in

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Speaker 1: favor of Biden that that any claims of fraud are

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Speaker 1: are going to be dismissed fairly quickly. If the margins

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Speaker 1: are very wide and favored of Biden in a lot

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Speaker 1: of states. To me, where you have the vulnerability in

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Speaker 1: terms of a narrative shift is the possibility that maybe

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Speaker 1: the sin it doesn't flip. And so if Biden is

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Speaker 1: the president but there's no change in control in Congress,

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Speaker 1: then we're going to still be dealing with the same

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Speaker 1: impass around fiscal policy that we have now, and all

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Speaker 1: this optimism around the sweep and stimulus and a report

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Speaker 1: of the cycle is going to collapse. So I think

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Speaker 1: you really have to watch the space closely in terms

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Speaker 1: of what happens with the Senate. To me, if it's

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Speaker 1: a divided government, whether it's under Biden or under Trump,

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Speaker 1: you do have the risk of a decent slowdown in

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Speaker 1: the U. S economy and unwinding of the optimism that's

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Speaker 1: been lifting markets over the past couple of weeks. So, John,

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Speaker 1: you've talked about the vulnerability of the narrative. Let's talk

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Speaker 1: about the market areas that might be vulnerable. These are

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Speaker 1: the lungs the calls that you've got on right now,

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Speaker 1: curve state, no inflation, break even's, gold, materials, healthcare equities,

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Speaker 1: China equities, bond effects. Out of those calls, John, if

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Speaker 1: you get that divided government, where are you uncomfortable? Well,

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Speaker 1: the only ones I'm comfortable with is owning Asia, whether

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Speaker 1: it's on the equity or the currency side, because I

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Speaker 1: do have a high conviction view that Biden will end

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Speaker 1: up winning, and that to me is supportive of these

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Speaker 1: geopolitically driven trades like owning Asia, all the other trades

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Speaker 1: you mentioned, the value rotation, the movement up in bond yields,

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Speaker 1: the steepening, the movement higher in the SMP. This to

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Speaker 1: me is quite conditional on on the sweep, because that,

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Speaker 1: to me, is the only political outcome that gives you

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Speaker 1: some guarantee of a meaningful fiscal stimulus. So I'd still

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Speaker 1: be comfortable with the Asia recommendations as long as Biden

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Speaker 1: is the president. I wouldn't be comfortable with the other

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Speaker 1: stuff unless we get the sweep. So, John, I'm looking

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Speaker 1: at a number of job cut announcements day after day.

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Speaker 1: Yesterday A T and T. S Warner Media announced thousands

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Speaker 1: of layoffs. Today, Loreal is going to be closing some

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Speaker 1: stores and layoff, laying off four hundred workers. At what

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Speaker 1: point does this matter to your overall bullish thesis. Well,

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Speaker 1: I don't think it matters if we get additional physical stimulus,

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Speaker 1: because I do believe part of the reason we're getting

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Speaker 1: these layoffs is because the income support that's been moving

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Speaker 1: from Washington to Main Street is starting to dry up,

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Speaker 1: and and so does it need to replace that? And

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Speaker 1: I think if it is replaced, of course there will

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Speaker 1: be job loss is in some sectors, but they'll be

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Speaker 1: job gains and others. And I think you'll see a

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Speaker 1: continuous move down in the unemployment rate without the stimulus, though,

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Speaker 1: I think you have to extrapolate from what's happening in

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Speaker 1: terms of job losses and the loss of momentum and

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Speaker 1: Joba's claims, and you do have to be concerned about

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Speaker 1: a sub train quarter if not too subtrend quarters in

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Speaker 1: the US and what that means for for markets. So

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Speaker 1: the stimulus means is very key. Meanwhile, John, as you

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Speaker 1: talk about your high conviction trades, he said your highest

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Speaker 1: conviction was that Joe Biden would win the presidency in

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Speaker 1: the United States. When you look at market positioning, how

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Speaker 1: high is the conviction just in the positioning right now

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Speaker 1: that that will be the outcome. I think the position

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Speaker 1: is actually suggestive of a broader election outcome that changes

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Speaker 1: control of the Senate. To to me, that's the only

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Speaker 1: way you could justify the strength in in all risky markets,

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Speaker 1: as well as the slight firming you've had in yields

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Speaker 1: and the interest in curve steamers. That that to me

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Speaker 1: is a set of trades, a set of market moves

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Speaker 1: which would only be validated by the sweep. So I

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Speaker 1: think investors are definitely leaning towards that, and you know,

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Speaker 1: of to see the risk is that they could be disappointed. Well, John,

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Speaker 1: one of the tries you think could be insulted, regardless

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Speaker 1: if we get a divided government or not, it's the

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Speaker 1: long China trade right now, dollar China making a move

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Speaker 1: over night and return from holiday. I just wanted John

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Speaker 1: your thoughts on the tolerance of the Chinese policy maker,

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Speaker 1: how extended that try can get. Historically that they don't

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Speaker 1: tend to let the currency appreciate more than sort of

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Speaker 1: high single digits in any given years. So this is

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Speaker 1: always going to be kind of a lower beta effects

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Speaker 1: trade relative to what you might achieve in equities if

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Speaker 1: you're bullish on the cycle, relative to what you might

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Speaker 1: achieve in the equities if you're bullish on China specifically.

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Speaker 1: But I do think there's a bit of room to

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Speaker 1: go on this. China has a surplus and there's a

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Speaker 1: structural flow into bonds and stocks related to index inclusion.

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Speaker 1: And my guess is there have been some clients who

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Speaker 1: have been uh less interested in investing in Asia over

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Speaker 1: the past few months thinking that Trump could get reelected.

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Speaker 1: So so my guess is that if you do have

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Speaker 1: Biden as the president, regardless of the agressional welcome, you

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Speaker 1: will see some position covering and some move back into China,

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Speaker 1: which is independent of what's going on the business cycle. John.

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Speaker 1: One of the great debates here. We talked to the

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Speaker 1: wonderful Matthew Lozetti over Deutsche Bank here recently, and I

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Speaker 1: think it's something that we've heard from Bruce Kasman and

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Speaker 1: your team as well. We're in a present milieu which

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Speaker 1: is an economic flatness, slowdown, and then there's a belief

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Speaker 1: as you mentioned, of economic recovery in the next year.

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Speaker 1: Should our listeners and viewers just discard the present and

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Speaker 1: the past and just be laser focused on what's out

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Speaker 1: there in two thousand twenty one? Is that basically the

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Speaker 1: emotional exercise. Well, there's always an emotional component to investing.

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Speaker 1: Investing is done by people, and people just can't help

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Speaker 1: but be emotional. But it is important to remember what

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Speaker 1: to me is the big lesson of the post GFC

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Speaker 1: experiences that there are structural constraints on growth after a

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Speaker 1: major financial war economic crisis. There's a need for fiscal

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Speaker 1: policy to remain expansive for a long time. The policy

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Speaker 1: mistake after the GFC was to let fiscal policy titan

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Speaker 1: for about three years in the US after the GFC.

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Speaker 1: That was part of the reason why you had such

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Speaker 1: anemic growth in the US after that crisis. So I

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Speaker 1: think it is worth remembering that if fiscal policy inadvertment titans,

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Speaker 1: which is what we're gonna see on current legislation, will

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Speaker 1: repeat the anemia of the post GFC years. If fiscal

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Speaker 1: policy is loosened under a different set up in Washington,

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Speaker 1: we can avoid that thing. Within the glide pass of

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Speaker 1: the ten uere yield, John Norman, where is the important

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Speaker 1: statistic of the ten year yield? Don't tell me it's

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Speaker 1: at one point zero zero, But where where is the

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Speaker 1: point where tenure yield begins to signal issues to you?

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Speaker 1: To me? If tenure rates were probably close to one

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Speaker 1: and a half percent, yes, I think we would have

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Speaker 1: to question whether or not this is potentially doing some

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Speaker 1: damage to the recovery. Of course, if the context for

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Speaker 1: getting to one and a half percent is uh significant

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Speaker 1: fiscal stimulus, much more on the spending side, less on

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Speaker 1: the on the tax side. It's less worrisome, But I

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Speaker 1: think the market should be very comfortable with a tenure

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Speaker 1: rate up to one percent, maybe even after that. I

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Speaker 1: think it's still too fragile recovery to think that that

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Speaker 1: level of rates is helpful. But remember, the FED has

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Speaker 1: a very flexible asset purchase program in place. I think

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Speaker 1: they probably have some internal sense of what a helpful

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Speaker 1: level of yields is versus an unhelpful level of yields.

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Speaker 1: So I do have some confidence that the asset purchase

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Speaker 1: program would be adjusted to make sure that rates don't

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Speaker 1: stay at an unhelpful level for very long. So I

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Speaker 1: think I think this problem is manageable. John Norman grants

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Speaker 1: to catch ups as always send up best to it,

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Speaker 1: saying John Norman that of jap markin there is stimulus,

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Speaker 1: and there'll be fancy conversations today among fancy people in Washington.

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Speaker 1: There is no one in Washington who covers our policy

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Speaker 1: research with tangible experience and actually getting infrastructure done, like

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Speaker 1: Michael Jesus. He's at Morgan Stanley, He's head of US

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Speaker 1: Policy Research, but far more importantly cut his teeth out

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Speaker 1: of Georgetown in municipal finance of actually getting bridges built, Michael,

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Speaker 1: I want to go down to the granular here. Business

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Speaker 1: Insider did a great article a year ago or so

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Speaker 1: of the worst bridges in the world, and they go

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Speaker 1: back to the Chester Nimits Bridge in Honolulu built in

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Speaker 1: nineteen nine and stagger through the fifties up to the

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Speaker 1: hemorrhage of construction we had in the nineteen seventies, and

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Speaker 1: it's all worn out. With this infrastructure that we're gonna see,

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Speaker 1: are those bridges and all the rest of it? Is

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Speaker 1: it finally going to get fixed? I think we are

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Speaker 1: a couple of steps away from that, right. So the

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Speaker 1: stimulus package that's on the table, at least when it

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Speaker 1: comes to So State low government's obviously a critical infrastructure there.

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Speaker 1: They basically own in finance UH infrastructure assets in the US.

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Speaker 1: But this first round of stimulus should have come through

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Speaker 1: is about kind of plugging the hole in revenues, not

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Speaker 1: providing kind of incremental infrastructure if you want infrastructure incremental.

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Speaker 1: On top of that, probably the political configuration you need

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Speaker 1: coming out of the election is a suite by the Democrats. Um.

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Speaker 1: If that's the case, and then they would probably they

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Speaker 1: would have the motive and the opportunity to pass a

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Speaker 1: large infrastructure build and you could start plugging some of

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Speaker 1: those holes. Uh, you know, a couple of trillion dollars

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Speaker 1: plus throughout the country in terms of deferred capital needs

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Speaker 1: and new capital around the country. But we're you know,

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Speaker 1: there's a there's a lot of steps, a lot of

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Speaker 1: notes on the decision tree before you get there. All right,

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Speaker 1: So let's not talk about fixing the Nimits bridge of

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Speaker 1: just yet. Tom. We'll discuss that perhaps next year. Michael.

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Speaker 1: Let's talk about who doesn't get paid if there is

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Speaker 1: not a near term fiscal support bill passed in Washington,

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Speaker 1: d C. How much can we expect state and local

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Speaker 1: governments to have to layoff in masks some of their

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Speaker 1: employees because they cannot increase their deficit the way the

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Speaker 1: national government can. Yeah, it's a good question, right, So

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Speaker 1: let's start with some high level numbers here. Uh. We

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Speaker 1: estimate that states cumulatively through the end of one are

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Speaker 1: going to be short on revenues about eighty billion dollars. Uh,

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Speaker 1: local governments about nineties so to seventy total. Um. How

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Speaker 1: do you close those gaps? You've got austerity options, so

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Speaker 1: taxing or cutting spending. You've got borrowing options, including obviously

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Speaker 1: the open market, but also the MLF at the FED,

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Speaker 1: which basically is going to cover for all of that.

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Speaker 1: So it's uh, it's a bit of a choice here,

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Speaker 1: and I expect different states will make different choices. UM.

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Speaker 1: Austerity will probably be part of the picture, and layoffs

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Speaker 1: will probably be part of the picture. UM. And I

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Speaker 1: think borrowing will be too. It's not a great combination,

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Speaker 1: but it's a middle road when all of this plays out.

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Speaker 1: I suspect that states are probably waiting to see if

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Speaker 1: the stimulus negotiation in DC is successful. Maybe they'll leave

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Speaker 1: and hold on a couple more months to see if

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Speaker 1: the election gets you a configuration that makes it successful. Um.

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Speaker 1: But after that, you know, austerity has to kick in

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Speaker 1: at some point. Mike, we didn't mention the fault risk.

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Speaker 1: What if the day were fit into any of this.

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Speaker 1: I don't think it's particularly meaningful. UM. I think this

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Speaker 1: is a conversation that was perhaps legitimate to have in

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Speaker 1: March and April in the teeth of all of this.

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Speaker 1: But the FED opening up the MLF, which has a

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Speaker 1: capacity for about fifty billion dollars of borrowing for states,

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Speaker 1: means that if states effectively wanted to turn out their

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Speaker 1: entire revenue shortfall. They could even they couldn't be doing

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Speaker 1: in the open market. The FED is right there on

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Speaker 1: the back stop. So the revenue shortfall sort of creating

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Speaker 1: a jump to the fault story I don't think is

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Speaker 1: particularly meaningful here. That basically is offering the option the

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Speaker 1: states to push this out, spread it out over a

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Speaker 1: few years if needed. Michael to the mix here of

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Speaker 1: what Lisa was talking about, and I was talking about

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Speaker 1: what it happens if we get sort of the same thing,

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Speaker 1: but flip a Democratic president and still a Republican Senate,

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Speaker 1: then what happens to this huge demand for infrastructure. Yeah,

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Speaker 1: it's a good question. Our base case doesn't see in

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Speaker 1: that situation that you would get an infrastructure bill. The

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Speaker 1: fundamental problem on infrastructure has never been that the parties

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Speaker 1: don't see the need for it. It's that they don't

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Speaker 1: agree on how to finance it. And the Republican proposals

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Speaker 1: always get twisted up around how do you increase spending

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Speaker 1: without increasing the deficit or increasing taxes, two things that

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Speaker 1: you basically can't get a majority of Republican representatives in

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Speaker 1: DC to do. And then on the Democratic side. Obviously

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Speaker 1: you would be you're potentially willing to do one of

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Speaker 1: those two things, but in the divided government scenario, you

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Speaker 1: need you need the other side to agree. So unfortunately,

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Speaker 1: I think infrastructure in the type of divided government scenaria

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Speaker 1: you talk about, will just continue to be subject to gridlock.

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Speaker 1: Michaels Jesus got ahead from me, Sir of Morgan Stanley. Well,

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Speaker 1: an eventful Friday, say the least. But what we do

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Speaker 1: at Bloomberg Surveillance on Friday, on radio, on television is

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Speaker 1: getting ready for the weekend, reading and get ready for

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Speaker 1: the next week. Stephen Stanley is expert at that. He's

432
00:22:36,200 --> 00:22:38,640
Speaker 1: won every trophy out there with AMers Pierrepoint, and we're

433
00:22:38,640 --> 00:22:41,440
Speaker 1: thrilled we could get an update. Steven Stanley, what is

434
00:22:41,480 --> 00:22:44,520
Speaker 1: the distinction right now? What does the update in your

435
00:22:44,560 --> 00:22:49,159
Speaker 1: American economic call? Sure, well, I think you know we're

436
00:22:49,200 --> 00:22:53,400
Speaker 1: slowing down. We've gone through the fast recovery phase here,

437
00:22:53,480 --> 00:22:57,040
Speaker 1: We've gotten back to some percentage of normal um consumption.

438
00:22:57,119 --> 00:23:01,399
Speaker 1: Spending through August was about of of pre pandemic levels,

439
00:23:01,440 --> 00:23:05,480
Speaker 1: employment only a little over half the way back, and

440
00:23:05,600 --> 00:23:08,800
Speaker 1: now I think we're kind of settling into um the

441
00:23:08,920 --> 00:23:11,480
Speaker 1: next phase, which is going to be continued recovery, but

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00:23:11,600 --> 00:23:13,920
Speaker 1: at a slower pace. And I think, you know, there's

443
00:23:13,920 --> 00:23:16,840
Speaker 1: been a lot of discussion around the stimulus, and I

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00:23:16,920 --> 00:23:20,760
Speaker 1: think in my mind that I think a lot of

445
00:23:20,840 --> 00:23:26,240
Speaker 1: people are assuming that that the economy is entirely dependent

446
00:23:26,320 --> 00:23:29,640
Speaker 1: on another round of stimulus like yesterday. And I think

447
00:23:29,800 --> 00:23:35,240
Speaker 1: certainly more stimulus sooner would would push growth higher, but um,

448
00:23:36,000 --> 00:23:39,399
Speaker 1: I think the economy can continue to recover without it

449
00:23:39,520 --> 00:23:41,639
Speaker 1: in the near term. What is the partition right now

450
00:23:41,680 --> 00:23:47,159
Speaker 1: in America among goods producers versus service producers. Well, it's

451
00:23:47,200 --> 00:23:49,560
Speaker 1: pretty stark because the good side of the economy in

452
00:23:49,680 --> 00:23:53,160
Speaker 1: many ways is back to pre pandemic levels, and even

453
00:23:53,200 --> 00:23:58,000
Speaker 1: beyond it, retail sales, cordurable goods orders, um, obviously the

454
00:23:58,080 --> 00:24:01,119
Speaker 1: housing sector. So they're a number of parts of the

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00:24:01,200 --> 00:24:04,199
Speaker 1: economy that are you know, I don't know, booming might

456
00:24:04,280 --> 00:24:07,240
Speaker 1: be a little too strong, but but certainly very robust.

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00:24:07,800 --> 00:24:10,320
Speaker 1: And even within the service sector there's there are winners

458
00:24:10,359 --> 00:24:12,399
Speaker 1: and losers, and it's really just a function of the

459
00:24:12,880 --> 00:24:16,359
Speaker 1: pandemic and the restrictions that have been uh put in place.

460
00:24:16,480 --> 00:24:20,720
Speaker 1: So you know, you've got some sectors that are struggling

461
00:24:20,920 --> 00:24:23,280
Speaker 1: like restaurants, and then you've got other sectors that are

462
00:24:23,359 --> 00:24:26,560
Speaker 1: just kind of a flat on their back, air travel, hotels.

463
00:24:26,960 --> 00:24:29,800
Speaker 1: That's the story. At the moment, everyone's calling this the

464
00:24:29,880 --> 00:24:32,639
Speaker 1: K shaped recovery. Now it's getting some real traction. I

465
00:24:32,720 --> 00:24:34,920
Speaker 1: just wonder how extended those two legs of that K

466
00:24:35,440 --> 00:24:39,200
Speaker 1: can actually get well. I think that's totally a function

467
00:24:39,280 --> 00:24:42,480
Speaker 1: of the of the virus. UM. You know, if six

468
00:24:42,560 --> 00:24:46,800
Speaker 1: months from now we have vaccines and effective treatments UM,

469
00:24:47,240 --> 00:24:52,720
Speaker 1: which seems like a not an unrealistic scenario, UM, then

470
00:24:52,800 --> 00:24:55,200
Speaker 1: you could see a quick revival in some of those

471
00:24:55,280 --> 00:24:59,160
Speaker 1: sectors that are having trouble right now, even though they've

472
00:24:59,240 --> 00:25:02,880
Speaker 1: made virtually no progress so far. UM. And I think

473
00:25:03,000 --> 00:25:05,200
Speaker 1: that's you know, that's the difficulty that we all have

474
00:25:05,320 --> 00:25:07,080
Speaker 1: in the markets and that the FED has, is that

475
00:25:07,680 --> 00:25:10,760
Speaker 1: visibility is just not very far. I mean, we maybe

476
00:25:10,800 --> 00:25:12,400
Speaker 1: we have a pretty good idea what things are gonna

477
00:25:12,480 --> 00:25:14,880
Speaker 1: like in two or three months, but once you start

478
00:25:14,920 --> 00:25:18,400
Speaker 1: talking about six months out, twelve months out, two years out, UM,

479
00:25:19,000 --> 00:25:22,000
Speaker 1: you know, it could be literally that the scenario could

480
00:25:22,000 --> 00:25:25,480
Speaker 1: be anything. Stephen, do you think these shifts are COVID

481
00:25:25,480 --> 00:25:27,840
Speaker 1: dependent or do you think there's some permanency to them.

482
00:25:28,840 --> 00:25:31,560
Speaker 1: There's certainly things that have taken place that are going

483
00:25:31,640 --> 00:25:34,119
Speaker 1: to be permanent. Some structural changes in the economy that

484
00:25:34,200 --> 00:25:37,440
Speaker 1: we're ongoing and have been accelerated UM. For example, the

485
00:25:37,520 --> 00:25:42,800
Speaker 1: move to online retailers UM versus brick and mortar UM.

486
00:25:42,960 --> 00:25:44,920
Speaker 1: That's something that's been going on for years and it's

487
00:25:44,960 --> 00:25:48,320
Speaker 1: clearly been accelerated. UM. I think you know, one of

488
00:25:48,400 --> 00:25:50,680
Speaker 1: the most important things perhaps is to come out of

489
00:25:50,760 --> 00:25:52,920
Speaker 1: this is going to be the move toward work from home.

490
00:25:53,000 --> 00:25:54,439
Speaker 1: And I think there are going to be people who

491
00:25:55,040 --> 00:25:57,480
Speaker 1: uh continue to work from home or or at least

492
00:25:57,520 --> 00:26:00,639
Speaker 1: work from home some days that maybe never would have

493
00:26:00,720 --> 00:26:04,000
Speaker 1: happened in the absence of the pandemic. So there's certainly

494
00:26:04,080 --> 00:26:08,440
Speaker 1: things that are challenging business travel maybe is permanently curtailed

495
00:26:08,480 --> 00:26:11,280
Speaker 1: to a degree, will have to see UM. So yes, there,

496
00:26:11,320 --> 00:26:14,520
Speaker 1: I think there will be structural changes well beyond the

497
00:26:14,560 --> 00:26:18,040
Speaker 1: point at which the pandemic is a memory. Do you

498
00:26:18,119 --> 00:26:22,240
Speaker 1: think that these disruptions will have material structural issues for

499
00:26:22,400 --> 00:26:24,720
Speaker 1: the market. I'm thinking, for example, you talk about commercial

500
00:26:24,760 --> 00:26:27,520
Speaker 1: real estate, people expecting further declines there, and then I

501
00:26:27,560 --> 00:26:30,280
Speaker 1: think about regional banks and how much they own in

502
00:26:30,400 --> 00:26:34,000
Speaker 1: ruth respect to commercial real estate assets. How much will

503
00:26:34,040 --> 00:26:36,920
Speaker 1: you expect the FED to step in to smooth out

504
00:26:37,040 --> 00:26:40,320
Speaker 1: any bumps as we go about this recovery, regardless of

505
00:26:40,320 --> 00:26:44,000
Speaker 1: any fiscal support from Washington. Right. Well, I think from

506
00:26:44,040 --> 00:26:48,239
Speaker 1: the Fed's perspective, they're feeling better about this crisis than

507
00:26:48,320 --> 00:26:51,560
Speaker 1: the last one because we're starting with a financial system

508
00:26:51,600 --> 00:26:54,399
Speaker 1: that's in much better shape. So they are. They have

509
00:26:54,520 --> 00:26:59,240
Speaker 1: provided generous support to the markets, and and they stand

510
00:26:59,440 --> 00:27:02,920
Speaker 1: ready at a backstop in a lot of different places. Um.

511
00:27:03,160 --> 00:27:05,840
Speaker 1: And thankfully a lot of those facilities haven't really needed

512
00:27:05,880 --> 00:27:08,880
Speaker 1: to be used because the markets have covered quickly. UM.

513
00:27:09,400 --> 00:27:11,359
Speaker 1: So yeah, they're there. I don't think that they're just

514
00:27:11,400 --> 00:27:15,399
Speaker 1: going to bail out anyone and everyone that uh you

515
00:27:15,480 --> 00:27:18,359
Speaker 1: know that that needs it, because you kind of have

516
00:27:18,520 --> 00:27:23,000
Speaker 1: to allow that, um, creative destruction to take place as

517
00:27:23,119 --> 00:27:26,359
Speaker 1: the economy evolves. But I think that they're going to

518
00:27:26,440 --> 00:27:29,960
Speaker 1: be pretty generous about providing a backstop and making sure

519
00:27:30,040 --> 00:27:32,880
Speaker 1: that any adjustments like that that need to take place

520
00:27:33,080 --> 00:27:37,160
Speaker 1: don't become uh you know, a structural issue, a systemic

521
00:27:37,200 --> 00:27:39,360
Speaker 1: issue for the for the financial system. And they've made

522
00:27:39,400 --> 00:27:41,639
Speaker 1: this clear and yesterday in the meeting minutes from the

523
00:27:41,720 --> 00:27:45,119
Speaker 1: previous f o MC meeting. They talked about how they

524
00:27:45,160 --> 00:27:50,119
Speaker 1: could potentially use additional QUEI acid purchases to support the economy.

525
00:27:50,240 --> 00:27:52,880
Speaker 1: Are they supporting the economy at this point? How much

526
00:27:53,000 --> 00:27:56,119
Speaker 1: more can suppressing ten year yields by another ten basis

527
00:27:56,200 --> 00:27:59,480
Speaker 1: points do to actually get more people at work? Yeah,

528
00:27:59,680 --> 00:28:01,720
Speaker 1: I'm sympathetic to that view, and it's one that I

529
00:28:01,840 --> 00:28:03,880
Speaker 1: made for years. I made it the last time through.

530
00:28:03,960 --> 00:28:07,760
Speaker 1: And it's interesting. There was a study that came out recently, um,

531
00:28:08,119 --> 00:28:11,639
Speaker 1: that found that that central bank economists around the world

532
00:28:12,040 --> 00:28:16,760
Speaker 1: put a lot more uh weight or effectiveness on uh

533
00:28:17,119 --> 00:28:21,320
Speaker 1: QE purchases than non central bank you know, academic private

534
00:28:21,359 --> 00:28:24,359
Speaker 1: academic economists, And I think there maybe is a blind

535
00:28:24,440 --> 00:28:27,520
Speaker 1: spot there. Um. The fact is a FED that's really

536
00:28:27,600 --> 00:28:32,600
Speaker 1: the only major button that they can push beyond board guidance.

537
00:28:32,680 --> 00:28:36,480
Speaker 1: So they don't want to admit that it maybe isn't

538
00:28:36,600 --> 00:28:39,080
Speaker 1: isn't all that helpful. But I mean, as you say,

539
00:28:39,120 --> 00:28:41,720
Speaker 1: I mean, tenure yields are around seventy five basis points.

540
00:28:42,480 --> 00:28:44,560
Speaker 1: I don't know that there's much marginal benefits of taking

541
00:28:44,600 --> 00:28:47,200
Speaker 1: them down another ten or fifteen or twenty basis points

542
00:28:47,240 --> 00:28:49,520
Speaker 1: from here. If you're just joining us on Bloomberg Radio,

543
00:28:49,560 --> 00:28:53,120
Speaker 1: Bloomberg Television. Stephen Stanley with us with Amerus Pure Points. Stephen,

544
00:28:53,160 --> 00:28:56,600
Speaker 1: you know politics is about jobs, maybe even jobs is

545
00:28:56,640 --> 00:28:59,920
Speaker 1: about politics. What's a true unemployment rate in a mirror

546
00:29:00,640 --> 00:29:04,720
Speaker 1: just twenty five days to the election? Yeah, I mean

547
00:29:04,760 --> 00:29:08,760
Speaker 1: I think there we've got an eight percent unemployment rate.

548
00:29:08,880 --> 00:29:12,280
Speaker 1: Then you've got about another two percent decline and labor

549
00:29:12,320 --> 00:29:15,040
Speaker 1: for participation from before the pandemic, and some of those

550
00:29:15,120 --> 00:29:19,560
Speaker 1: folks won't be able to come back until um, you know,

551
00:29:19,720 --> 00:29:22,560
Speaker 1: until things straighten out, you know, until schools are fully

552
00:29:22,600 --> 00:29:25,360
Speaker 1: open for example. Uh, and some of these businesses are

553
00:29:25,360 --> 00:29:28,600
Speaker 1: able to get back to normal, and then you've got

554
00:29:28,640 --> 00:29:32,240
Speaker 1: people who are only able to work part time. So

555
00:29:32,920 --> 00:29:35,800
Speaker 1: probably somewhere in the in the low double digits, but

556
00:29:35,960 --> 00:29:40,200
Speaker 1: it's certainly down very sharply. Um, you know from what

557
00:29:40,560 --> 00:29:43,200
Speaker 1: what an all in unemployment rate would have been at

558
00:29:43,240 --> 00:29:45,640
Speaker 1: the at the peak of the lockdowns when you're probably

559
00:29:45,760 --> 00:29:51,239
Speaker 1: talking about something above. Stavin Stanny right to catch up,

560
00:29:51,240 --> 00:29:55,320
Speaker 1: Sir Stevens. Stanny there. Thanks for listening to the Bloomberg

561
00:29:55,360 --> 00:29:59,880
Speaker 1: Surveillance Podcast. Subscribe and listen to interviews on Apple pod

562
00:30:00,040 --> 00:30:05,280
Speaker 1: Tests SoundCloud, or whichever podcast platform you prefer. I'm on

563
00:30:05,360 --> 00:30:08,880
Speaker 1: Twitter at Tom Keane before the podcast. You can always

564
00:30:08,960 --> 00:30:11,720
Speaker 1: catch us worldwide. I'm Bloomberg Radio