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Speaker 1: Let's get to the optimism of the moment. We can
Speaker 1: do that with Ben Labler. That's how I had some
Speaker 1: research CEO. Ben. That note dropped in all of our
Speaker 1: inboxes over the last couple of days, and we all
Speaker 1: sat up and paid attention. A Q form mount up, Ben,
Speaker 1: Why do you see a Q form out upon the cards.
Speaker 1: I think we've all sort of been a little bit
Speaker 1: distracted by the by the election. We've just had a
Speaker 1: quite a big consolidation, I would say in the third
Speaker 1: quarter on his expectations have sort of followed the upgrade
Speaker 1: and some of these GDP forecasts we've discounted. We've had
Speaker 1: quite a big pull back. At the same time, I
Speaker 1: think a lot of indicators tell me that we've sort
Speaker 1: of discounted a lot of the election and what it's
Speaker 1: and what has done. The sort of concern on the
Speaker 1: election has prevented I think a lot of investors, who
Speaker 1: I think are still pretty cautious from repositioning as they
Speaker 1: would normally be doing in the fourth quarter for what
Speaker 1: I think is a big growth story, at least sequentially
Speaker 1: in one and you haven't seen that reallocation trade. And
Speaker 1: I think it's coming regardless of who wins the election.
Speaker 1: I mean, we're looking at four percent us GDP growth
Speaker 1: next year plus earnings growth and some obviously some segments
Speaker 1: of the economy which I or some segments of the
Speaker 1: market would I definitely be overweighting here the more cyclical
Speaker 1: ones they're gonna see. I'm going to see a lot
Speaker 1: more than that I looked then. I've been looking at
Speaker 1: the SPX chart here in the Bloomberg then, and there's
Speaker 1: been two glorious opportunities from March to tell Ben Laidler
Speaker 1: he's run, where do you find a courage? And I'm
Speaker 1: gonna get the cursor out here the fish Samuel Cares cursor.
Speaker 1: We're on July three or we're on October two? Does
Speaker 1: Ben Laidler find the courage? As we correct? Listen, corrections
Speaker 1: are I mean, we you never sort of rally remorselessly here.
Speaker 1: I mean the incremental data point though is going to
Speaker 1: continue to be positive. I mean, we all were guilty
Speaker 1: of just cutting estimates sort of too far, getting too bearish.
Speaker 1: I think that's what happened in sort of March April May.
Speaker 1: I mean, now we're in the middle of just an
Speaker 1: earnings and a GDP upgrade cycle, which in Italy is
Speaker 1: going to need probably a bit more fiscal stimulus. And
Speaker 1: I'm sure we'll sort of talk about that, but you know,
Speaker 1: the incremental data point is positive. I mean, back in April,
Speaker 1: we were looking at a twelve ninth forward earnings outlook
Speaker 1: of negative five. Now we're looking at a positive fifteen
Speaker 1: to twenty. I think we're gonna get more fiscal stimulus.
Speaker 1: I think we're gonna get a vaccine. And as I say,
Speaker 1: there are some segments of the market here which have
Speaker 1: dramatically higher have dramatic operating leverage to all of that,
Speaker 1: which I think I'm gonna lead this recovery, and they
Speaker 1: really haven't done so far. I don't John, I don't
Speaker 1: believe him. I'm still looking for an entry point. I
Speaker 1: don't care what Ben Laidler says. He's been so right, John,
Speaker 1: did you like on a Friday, how I use a
Speaker 1: surveillance cursor there, the simulcast cursor to nail down those pullbacks. Nice,
Speaker 1: well done, Thank you, Lisa. Help me help me anytime.
Speaker 1: I will take out my own surveillance cursor and the
Speaker 1: conversation forward bed. You talk about this pessimism that's baked
Speaker 1: into the market, and yet we see all this data,
Speaker 1: the economic data coming out showing the steepest recession possibly
Speaker 1: in history. And I'm looking right now, the NASDAC is
Speaker 1: up twenty eight percent year to date. I'm looking at
Speaker 1: SEP up more than eight percent. Where is that pestimism
Speaker 1: that you're talking about. So you've had I think eighty
Speaker 1: billion dollars come out of US equity mutual funds since
Speaker 1: the bottom. You look at the American Association of Individual
Speaker 1: Investors bearish, you know, six months into the rally, you've
Speaker 1: still got forty percent parish. You know, it's still way
Speaker 1: above average. I even look at the sort of famous
Speaker 1: Robin Hood's trading volume chart and that's basically the lowest
Speaker 1: it's been since, uh since March. I look at the
Speaker 1: VIX again, six months into this rally, it's still above average,
Speaker 1: and vixed futures, you know, are going higher. From here,
Speaker 1: not lower. I mean I can go on and on
Speaker 1: and on. I mean I would say that, you know,
Speaker 1: there's very few indicators actually teld me that people are positive. Men.
Speaker 1: We have a composite um investor centerent indicator which is
Speaker 1: nearly at contrarian bi levels at this point, and that's
Speaker 1: historically giving you twelve months return. So I think this
Speaker 1: is part of the story. As we rolled through the election,
Speaker 1: and we put that into sort of the backward mirror, investors,
Speaker 1: I think are going to be forced to allocate on
Speaker 1: the basis of a sort of fourteen month view into
Speaker 1: one of significant growth. Well, then that's what I think
Speaker 1: really sets you apart from the pack right now, not
Speaker 1: just the cool but the fact that you don't think
Speaker 1: this is election dependent. Why don't you think this is
Speaker 1: election dependent? Well, he I think we've priced quite a
Speaker 1: lot into the election anyway. Uh, and and be I
Speaker 1: just think you look back historically, and you know, I
Speaker 1: think we over discount elections. Uh. You know, back in
Speaker 1: twos sixteen, if you knew that Donald Trump was gonna win,
Speaker 1: what would you you know, and you thought the election
Speaker 1: was really important, you would have run off and loaded
Speaker 1: up on energy and financials and then essentially you would
Speaker 1: have had your head handed to you over the last
Speaker 1: time you're talking to me. Then I got one final
Speaker 1: question here, and again, folks, I can't say enough about
Speaker 1: you know, we're kidding in but I can't say enough
Speaker 1: about Ben Laidler's calls here going back to that ugly
Speaker 1: que four of a few years ago, Ben Layler, the
Speaker 1: money question is for those that were fortunate enough like
Speaker 1: John Pharaoh to load the boat on Amazon and Apple,
Speaker 1: do they sell shares to go to the Laidler rotation
Speaker 1: or do they hold him and use you new money
Speaker 1: to go to the Laidler rotation. That's a good question.
Speaker 1: I mean I sort of think about it a little
Speaker 1: bit of sort of structural versus sick of column I
Speaker 1: do you think that the tech train is a very
Speaker 1: uh is a very sort of structural traind I mean,
Speaker 1: they may they may under before for a quarter or
Speaker 1: two and amongst that sort of rotation into cyclicals, but
Speaker 1: you know, ultimately I think they're going to be very fine.
Speaker 1: You know, the story is just a little bit different.
Speaker 1: But as I say, I think the real operating leverage
Speaker 1: is on the cyclical side. I mean that you know,
Speaker 1: we have a reopening basket. Uh, you know, they're all
Speaker 1: losing money. There are on a third evaluation of the
Speaker 1: sort of work from home sort of tech names and
Speaker 1: and I think and it's where all the earnings upgrades
Speaker 1: have been coming from. And I think we're gonna get
Speaker 1: a double surprise here of things that are the top
Speaker 1: line improving, potentially catalyzed by by a vaccine or not.
Speaker 1: But also, you know, I think what we're missing is
Speaker 1: just a lot of costs being taken out. And I
Speaker 1: think once the economy sort of really begins to get
Speaker 1: going again, I think we're going to be stunned by
Speaker 1: the degree of earnings upgrades that we see that. And
Speaker 1: I would say these cyclicals, you know, because investors have
Speaker 1: sort of been held back by you know this this
Speaker 1: this very boring debate on fiscal stimulus and are we
Speaker 1: going to get the election, you know, second wave of
Speaker 1: vaccines that's really stopped people from going into those cyclicals.
Speaker 1: So I think you still have a huge opportunity there.
Speaker 1: It is a boring debate, but it's based to be
Speaker 1: the program at the moment. Ben, It's well, it is
Speaker 1: right if this separation here and we can talk about
Speaker 1: this John Norman, and the vide here folks, a disinflation
Speaker 1: in Europe versus inflation worries in the US is really
Speaker 1: really quite something. John Norman joins us. This is wonderful
Speaker 1: to get him before the publication of all of JP
Speaker 1: Morgan research under Joyce Chang that starts on a Friday,
Speaker 1: It filters out Michael Faroli tonight and then onto Norman's
Speaker 1: hyper detailed institutional note for Monday morning. He has had
Speaker 1: a cross asset fundamental strategy. John, The theme for me
Speaker 1: this morning is with the jump condition and Ran Menby
Speaker 1: and the optimism of Asia Pacific recovery. What is the
Speaker 1: correlation right now between the Asia indicators and the standard
Speaker 1: and Poor's five hundred good news. I think there's a
Speaker 1: reasonable correlation because both of these are moving on the
Speaker 1: prospect of a Biden victory, and I think a sweep
Speaker 1: Biden to me is both positive for the SMP and
Speaker 1: for Asian assets to the extent that you have calmer geopolitics.
Speaker 1: And of course is that if this is a Biden
Speaker 1: victory with the sweep, you're gonna have much more domestic
Speaker 1: stimulus too. So the price action across markets this morning
Speaker 1: is very suggestive to me. Of the sweep. The only
Speaker 1: thing that kind of stands out is the fact that
Speaker 1: bonos are really moving that much, and that's kind of
Speaker 1: got to kind of condition how how bullish you are
Speaker 1: on some of the value rotation trades that the people
Speaker 1: are also focused on right now. The expectation game is
Speaker 1: a movable feast. How far out are the markets pricing?
Speaker 1: Are they pricing out the next Wednesday? Are they pricing
Speaker 1: out the November three, or are they pricing out say
Speaker 1: into Q two of next year. I think the pricing
Speaker 1: out into the mid part of next year, if not beyond.
Speaker 1: The simplest way to think about what's going on in
Speaker 1: markets is they're moving from a fixation on a growth
Speaker 1: slow down, which was really what started to grip in
Speaker 1: August and September, to the idea that the cycle is
Speaker 1: gonna get rebooted through physical stimulus under democratics week. And
Speaker 1: if it is a reboot, we're talking about an expansion
Speaker 1: that's going to go on for quite a while. And
Speaker 1: we're talking about a focus on data stumbles shifting towards
Speaker 1: data strength. And I think if we put we followed
Speaker 1: the normal cyclical path, that that strength will extend well
Speaker 1: into next year if we get more more fiscal stimulus.
Speaker 1: So the market is looking quite far ahead in terms
Speaker 1: of what the stimulus does to the to the cycle's prospects. Well,
Speaker 1: let's talk about how far ahead this market is getting
Speaker 1: itself at a moment, John, This new narrative is pretty young.
Speaker 1: A couple of weeks ago I had a series of
Speaker 1: guests on this program. They would turn around to us,
Speaker 1: all all three of us, and say, contested election is
Speaker 1: the risk? Now we flipped and we're talking about a
Speaker 1: blue wife. How vulnerable is that narrative? John? But to me,
Speaker 1: the vulnerability is not really around the contested election, because
Speaker 1: I feel like the polls are shifting so far in
Speaker 1: favor of Biden that that any claims of fraud are
Speaker 1: are going to be dismissed fairly quickly. If the margins
Speaker 1: are very wide and favored of Biden in a lot
Speaker 1: of states. To me, where you have the vulnerability in
Speaker 1: terms of a narrative shift is the possibility that maybe
Speaker 1: the sin it doesn't flip. And so if Biden is
Speaker 1: the president but there's no change in control in Congress,
Speaker 1: then we're going to still be dealing with the same
Speaker 1: impass around fiscal policy that we have now, and all
Speaker 1: this optimism around the sweep and stimulus and a report
Speaker 1: of the cycle is going to collapse. So I think
Speaker 1: you really have to watch the space closely in terms
Speaker 1: of what happens with the Senate. To me, if it's
Speaker 1: a divided government, whether it's under Biden or under Trump,
Speaker 1: you do have the risk of a decent slowdown in
Speaker 1: the U. S economy and unwinding of the optimism that's
Speaker 1: been lifting markets over the past couple of weeks. So, John,
Speaker 1: you've talked about the vulnerability of the narrative. Let's talk
Speaker 1: about the market areas that might be vulnerable. These are
Speaker 1: the lungs the calls that you've got on right now,
Speaker 1: curve state, no inflation, break even's, gold, materials, healthcare equities,
Speaker 1: China equities, bond effects. Out of those calls, John, if
Speaker 1: you get that divided government, where are you uncomfortable? Well,
Speaker 1: the only ones I'm comfortable with is owning Asia, whether
Speaker 1: it's on the equity or the currency side, because I
Speaker 1: do have a high conviction view that Biden will end
Speaker 1: up winning, and that to me is supportive of these
Speaker 1: geopolitically driven trades like owning Asia, all the other trades
Speaker 1: you mentioned, the value rotation, the movement up in bond yields,
Speaker 1: the steepening, the movement higher in the SMP. This to
Speaker 1: me is quite conditional on on the sweep, because that,
Speaker 1: to me, is the only political outcome that gives you
Speaker 1: some guarantee of a meaningful fiscal stimulus. So I'd still
Speaker 1: be comfortable with the Asia recommendations as long as Biden
Speaker 1: is the president. I wouldn't be comfortable with the other
Speaker 1: stuff unless we get the sweep. So, John, I'm looking
Speaker 1: at a number of job cut announcements day after day.
Speaker 1: Yesterday A T and T. S Warner Media announced thousands
Speaker 1: of layoffs. Today, Loreal is going to be closing some
Speaker 1: stores and layoff, laying off four hundred workers. At what
Speaker 1: point does this matter to your overall bullish thesis. Well,
Speaker 1: I don't think it matters if we get additional physical stimulus,
Speaker 1: because I do believe part of the reason we're getting
Speaker 1: these layoffs is because the income support that's been moving
Speaker 1: from Washington to Main Street is starting to dry up,
Speaker 1: and and so does it need to replace that? And
Speaker 1: I think if it is replaced, of course there will
Speaker 1: be job loss is in some sectors, but they'll be
Speaker 1: job gains and others. And I think you'll see a
Speaker 1: continuous move down in the unemployment rate without the stimulus, though,
Speaker 1: I think you have to extrapolate from what's happening in
Speaker 1: terms of job losses and the loss of momentum and
Speaker 1: Joba's claims, and you do have to be concerned about
Speaker 1: a sub train quarter if not too subtrend quarters in
Speaker 1: the US and what that means for for markets. So
Speaker 1: the stimulus means is very key. Meanwhile, John, as you
Speaker 1: talk about your high conviction trades, he said your highest
Speaker 1: conviction was that Joe Biden would win the presidency in
Speaker 1: the United States. When you look at market positioning, how
Speaker 1: high is the conviction just in the positioning right now
Speaker 1: that that will be the outcome. I think the position
Speaker 1: is actually suggestive of a broader election outcome that changes
Speaker 1: control of the Senate. To to me, that's the only
Speaker 1: way you could justify the strength in in all risky markets,
Speaker 1: as well as the slight firming you've had in yields
Speaker 1: and the interest in curve steamers. That that to me
Speaker 1: is a set of trades, a set of market moves
Speaker 1: which would only be validated by the sweep. So I
Speaker 1: think investors are definitely leaning towards that, and you know,
Speaker 1: of to see the risk is that they could be disappointed. Well, John,
Speaker 1: one of the tries you think could be insulted, regardless
Speaker 1: if we get a divided government or not, it's the
Speaker 1: long China trade right now, dollar China making a move
Speaker 1: over night and return from holiday. I just wanted John
Speaker 1: your thoughts on the tolerance of the Chinese policy maker,
Speaker 1: how extended that try can get. Historically that they don't
Speaker 1: tend to let the currency appreciate more than sort of
Speaker 1: high single digits in any given years. So this is
Speaker 1: always going to be kind of a lower beta effects
Speaker 1: trade relative to what you might achieve in equities if
Speaker 1: you're bullish on the cycle, relative to what you might
Speaker 1: achieve in the equities if you're bullish on China specifically.
Speaker 1: But I do think there's a bit of room to
Speaker 1: go on this. China has a surplus and there's a
Speaker 1: structural flow into bonds and stocks related to index inclusion.
Speaker 1: And my guess is there have been some clients who
Speaker 1: have been uh less interested in investing in Asia over
Speaker 1: the past few months thinking that Trump could get reelected.
Speaker 1: So so my guess is that if you do have
Speaker 1: Biden as the president, regardless of the agressional welcome, you
Speaker 1: will see some position covering and some move back into China,
Speaker 1: which is independent of what's going on the business cycle. John.
Speaker 1: One of the great debates here. We talked to the
Speaker 1: wonderful Matthew Lozetti over Deutsche Bank here recently, and I
Speaker 1: think it's something that we've heard from Bruce Kasman and
Speaker 1: your team as well. We're in a present milieu which
Speaker 1: is an economic flatness, slowdown, and then there's a belief
Speaker 1: as you mentioned, of economic recovery in the next year.
Speaker 1: Should our listeners and viewers just discard the present and
Speaker 1: the past and just be laser focused on what's out
Speaker 1: there in two thousand twenty one? Is that basically the
Speaker 1: emotional exercise. Well, there's always an emotional component to investing.
Speaker 1: Investing is done by people, and people just can't help
Speaker 1: but be emotional. But it is important to remember what
Speaker 1: to me is the big lesson of the post GFC
Speaker 1: experiences that there are structural constraints on growth after a
Speaker 1: major financial war economic crisis. There's a need for fiscal
Speaker 1: policy to remain expansive for a long time. The policy
Speaker 1: mistake after the GFC was to let fiscal policy titan
Speaker 1: for about three years in the US after the GFC.
Speaker 1: That was part of the reason why you had such
Speaker 1: anemic growth in the US after that crisis. So I
Speaker 1: think it is worth remembering that if fiscal policy inadvertment titans,
Speaker 1: which is what we're gonna see on current legislation, will
Speaker 1: repeat the anemia of the post GFC years. If fiscal
Speaker 1: policy is loosened under a different set up in Washington,
Speaker 1: we can avoid that thing. Within the glide pass of
Speaker 1: the ten uere yield, John Norman, where is the important
Speaker 1: statistic of the ten year yield? Don't tell me it's
Speaker 1: at one point zero zero, But where where is the
Speaker 1: point where tenure yield begins to signal issues to you?
Speaker 1: To me? If tenure rates were probably close to one
Speaker 1: and a half percent, yes, I think we would have
Speaker 1: to question whether or not this is potentially doing some
Speaker 1: damage to the recovery. Of course, if the context for
Speaker 1: getting to one and a half percent is uh significant
Speaker 1: fiscal stimulus, much more on the spending side, less on
Speaker 1: the on the tax side. It's less worrisome, But I
Speaker 1: think the market should be very comfortable with a tenure
Speaker 1: rate up to one percent, maybe even after that. I
Speaker 1: think it's still too fragile recovery to think that that
Speaker 1: level of rates is helpful. But remember, the FED has
Speaker 1: a very flexible asset purchase program in place. I think
Speaker 1: they probably have some internal sense of what a helpful
Speaker 1: level of yields is versus an unhelpful level of yields.
Speaker 1: So I do have some confidence that the asset purchase
Speaker 1: program would be adjusted to make sure that rates don't
Speaker 1: stay at an unhelpful level for very long. So I
Speaker 1: think I think this problem is manageable. John Norman grants
Speaker 1: to catch ups as always send up best to it,
Speaker 1: saying John Norman that of jap markin there is stimulus,
Speaker 1: and there'll be fancy conversations today among fancy people in Washington.
Speaker 1: There is no one in Washington who covers our policy
Speaker 1: research with tangible experience and actually getting infrastructure done, like
Speaker 1: Michael Jesus. He's at Morgan Stanley, He's head of US
Speaker 1: Policy Research, but far more importantly cut his teeth out
Speaker 1: of Georgetown in municipal finance of actually getting bridges built, Michael,
Speaker 1: I want to go down to the granular here. Business
Speaker 1: Insider did a great article a year ago or so
Speaker 1: of the worst bridges in the world, and they go
Speaker 1: back to the Chester Nimits Bridge in Honolulu built in
Speaker 1: nineteen nine and stagger through the fifties up to the
Speaker 1: hemorrhage of construction we had in the nineteen seventies, and
Speaker 1: it's all worn out. With this infrastructure that we're gonna see,
Speaker 1: are those bridges and all the rest of it? Is
Speaker 1: it finally going to get fixed? I think we are
Speaker 1: a couple of steps away from that, right. So the
Speaker 1: stimulus package that's on the table, at least when it
Speaker 1: comes to So State low government's obviously a critical infrastructure there.
Speaker 1: They basically own in finance UH infrastructure assets in the US.
Speaker 1: But this first round of stimulus should have come through
Speaker 1: is about kind of plugging the hole in revenues, not
Speaker 1: providing kind of incremental infrastructure if you want infrastructure incremental.
Speaker 1: On top of that, probably the political configuration you need
Speaker 1: coming out of the election is a suite by the Democrats. Um.
Speaker 1: If that's the case, and then they would probably they
Speaker 1: would have the motive and the opportunity to pass a
Speaker 1: large infrastructure build and you could start plugging some of
Speaker 1: those holes. Uh, you know, a couple of trillion dollars
Speaker 1: plus throughout the country in terms of deferred capital needs
Speaker 1: and new capital around the country. But we're you know,
Speaker 1: there's a there's a lot of steps, a lot of
Speaker 1: notes on the decision tree before you get there. All right,
Speaker 1: So let's not talk about fixing the Nimits bridge of
Speaker 1: just yet. Tom. We'll discuss that perhaps next year. Michael.
Speaker 1: Let's talk about who doesn't get paid if there is
Speaker 1: not a near term fiscal support bill passed in Washington,
Speaker 1: d C. How much can we expect state and local
Speaker 1: governments to have to layoff in masks some of their
Speaker 1: employees because they cannot increase their deficit the way the
Speaker 1: national government can. Yeah, it's a good question, right, So
Speaker 1: let's start with some high level numbers here. Uh. We
Speaker 1: estimate that states cumulatively through the end of one are
Speaker 1: going to be short on revenues about eighty billion dollars. Uh,
Speaker 1: local governments about nineties so to seventy total. Um. How
Speaker 1: do you close those gaps? You've got austerity options, so
Speaker 1: taxing or cutting spending. You've got borrowing options, including obviously
Speaker 1: the open market, but also the MLF at the FED,
Speaker 1: which basically is going to cover for all of that.
Speaker 1: So it's uh, it's a bit of a choice here,
Speaker 1: and I expect different states will make different choices. UM.
Speaker 1: Austerity will probably be part of the picture, and layoffs
Speaker 1: will probably be part of the picture. UM. And I
Speaker 1: think borrowing will be too. It's not a great combination,
Speaker 1: but it's a middle road when all of this plays out.
Speaker 1: I suspect that states are probably waiting to see if
Speaker 1: the stimulus negotiation in DC is successful. Maybe they'll leave
Speaker 1: and hold on a couple more months to see if
Speaker 1: the election gets you a configuration that makes it successful. Um.
Speaker 1: But after that, you know, austerity has to kick in
Speaker 1: at some point. Mike, we didn't mention the fault risk.
Speaker 1: What if the day were fit into any of this.
Speaker 1: I don't think it's particularly meaningful. UM. I think this
Speaker 1: is a conversation that was perhaps legitimate to have in
Speaker 1: March and April in the teeth of all of this.
Speaker 1: But the FED opening up the MLF, which has a
Speaker 1: capacity for about fifty billion dollars of borrowing for states,
Speaker 1: means that if states effectively wanted to turn out their
Speaker 1: entire revenue shortfall. They could even they couldn't be doing
Speaker 1: in the open market. The FED is right there on
Speaker 1: the back stop. So the revenue shortfall sort of creating
Speaker 1: a jump to the fault story I don't think is
Speaker 1: particularly meaningful here. That basically is offering the option the
Speaker 1: states to push this out, spread it out over a
Speaker 1: few years if needed. Michael to the mix here of
Speaker 1: what Lisa was talking about, and I was talking about
Speaker 1: what it happens if we get sort of the same thing,
Speaker 1: but flip a Democratic president and still a Republican Senate,
Speaker 1: then what happens to this huge demand for infrastructure. Yeah,
Speaker 1: it's a good question. Our base case doesn't see in
Speaker 1: that situation that you would get an infrastructure bill. The
Speaker 1: fundamental problem on infrastructure has never been that the parties
Speaker 1: don't see the need for it. It's that they don't
Speaker 1: agree on how to finance it. And the Republican proposals
Speaker 1: always get twisted up around how do you increase spending
Speaker 1: without increasing the deficit or increasing taxes, two things that
Speaker 1: you basically can't get a majority of Republican representatives in
Speaker 1: DC to do. And then on the Democratic side. Obviously
Speaker 1: you would be you're potentially willing to do one of
Speaker 1: those two things, but in the divided government scenario, you
Speaker 1: need you need the other side to agree. So unfortunately,
Speaker 1: I think infrastructure in the type of divided government scenaria
Speaker 1: you talk about, will just continue to be subject to gridlock.
Speaker 1: Michaels Jesus got ahead from me, Sir of Morgan Stanley. Well,
Speaker 1: an eventful Friday, say the least. But what we do
Speaker 1: at Bloomberg Surveillance on Friday, on radio, on television is
Speaker 1: getting ready for the weekend, reading and get ready for
Speaker 1: the next week. Stephen Stanley is expert at that. He's
Speaker 1: won every trophy out there with AMers Pierrepoint, and we're
Speaker 1: thrilled we could get an update. Steven Stanley, what is
Speaker 1: the distinction right now? What does the update in your
Speaker 1: American economic call? Sure, well, I think you know we're
Speaker 1: slowing down. We've gone through the fast recovery phase here,
Speaker 1: We've gotten back to some percentage of normal um consumption.
Speaker 1: Spending through August was about of of pre pandemic levels,
Speaker 1: employment only a little over half the way back, and
Speaker 1: now I think we're kind of settling into um the
Speaker 1: next phase, which is going to be continued recovery, but
Speaker 1: at a slower pace. And I think, you know, there's
Speaker 1: been a lot of discussion around the stimulus, and I
Speaker 1: think in my mind that I think a lot of
Speaker 1: people are assuming that that the economy is entirely dependent
Speaker 1: on another round of stimulus like yesterday. And I think
Speaker 1: certainly more stimulus sooner would would push growth higher, but um,
Speaker 1: I think the economy can continue to recover without it
Speaker 1: in the near term. What is the partition right now
Speaker 1: in America among goods producers versus service producers. Well, it's
Speaker 1: pretty stark because the good side of the economy in
Speaker 1: many ways is back to pre pandemic levels, and even
Speaker 1: beyond it, retail sales, cordurable goods orders, um, obviously the
Speaker 1: housing sector. So they're a number of parts of the
Speaker 1: economy that are you know, I don't know, booming might
Speaker 1: be a little too strong, but but certainly very robust.
Speaker 1: And even within the service sector there's there are winners
Speaker 1: and losers, and it's really just a function of the
Speaker 1: pandemic and the restrictions that have been uh put in place.
Speaker 1: So you know, you've got some sectors that are struggling
Speaker 1: like restaurants, and then you've got other sectors that are
Speaker 1: just kind of a flat on their back, air travel, hotels.
Speaker 1: That's the story. At the moment, everyone's calling this the
Speaker 1: K shaped recovery. Now it's getting some real traction. I
Speaker 1: just wonder how extended those two legs of that K
Speaker 1: can actually get well. I think that's totally a function
Speaker 1: of the of the virus. UM. You know, if six
Speaker 1: months from now we have vaccines and effective treatments UM,
Speaker 1: which seems like a not an unrealistic scenario, UM, then
Speaker 1: you could see a quick revival in some of those
Speaker 1: sectors that are having trouble right now, even though they've
Speaker 1: made virtually no progress so far. UM. And I think
Speaker 1: that's you know, that's the difficulty that we all have
Speaker 1: in the markets and that the FED has, is that
Speaker 1: visibility is just not very far. I mean, we maybe
Speaker 1: we have a pretty good idea what things are gonna
Speaker 1: like in two or three months, but once you start
Speaker 1: talking about six months out, twelve months out, two years out, UM,
Speaker 1: you know, it could be literally that the scenario could
Speaker 1: be anything. Stephen, do you think these shifts are COVID
Speaker 1: dependent or do you think there's some permanency to them.
Speaker 1: There's certainly things that have taken place that are going
Speaker 1: to be permanent. Some structural changes in the economy that
Speaker 1: we're ongoing and have been accelerated UM. For example, the
Speaker 1: move to online retailers UM versus brick and mortar UM.
Speaker 1: That's something that's been going on for years and it's
Speaker 1: clearly been accelerated. UM. I think you know, one of
Speaker 1: the most important things perhaps is to come out of
Speaker 1: this is going to be the move toward work from home.
Speaker 1: And I think there are going to be people who
Speaker 1: uh continue to work from home or or at least
Speaker 1: work from home some days that maybe never would have
Speaker 1: happened in the absence of the pandemic. So there's certainly
Speaker 1: things that are challenging business travel maybe is permanently curtailed
Speaker 1: to a degree, will have to see UM. So yes, there,
Speaker 1: I think there will be structural changes well beyond the
Speaker 1: point at which the pandemic is a memory. Do you
Speaker 1: think that these disruptions will have material structural issues for
Speaker 1: the market. I'm thinking, for example, you talk about commercial
Speaker 1: real estate, people expecting further declines there, and then I
Speaker 1: think about regional banks and how much they own in
Speaker 1: ruth respect to commercial real estate assets. How much will
Speaker 1: you expect the FED to step in to smooth out
Speaker 1: any bumps as we go about this recovery, regardless of
Speaker 1: any fiscal support from Washington. Right. Well, I think from
Speaker 1: the Fed's perspective, they're feeling better about this crisis than
Speaker 1: the last one because we're starting with a financial system
Speaker 1: that's in much better shape. So they are. They have
Speaker 1: provided generous support to the markets, and and they stand
Speaker 1: ready at a backstop in a lot of different places. Um.
Speaker 1: And thankfully a lot of those facilities haven't really needed
Speaker 1: to be used because the markets have covered quickly. UM.
Speaker 1: So yeah, they're there. I don't think that they're just
Speaker 1: going to bail out anyone and everyone that uh you
Speaker 1: know that that needs it, because you kind of have
Speaker 1: to allow that, um, creative destruction to take place as
Speaker 1: the economy evolves. But I think that they're going to
Speaker 1: be pretty generous about providing a backstop and making sure
Speaker 1: that any adjustments like that that need to take place
Speaker 1: don't become uh you know, a structural issue, a systemic
Speaker 1: issue for the for the financial system. And they've made
Speaker 1: this clear and yesterday in the meeting minutes from the
Speaker 1: previous f o MC meeting. They talked about how they
Speaker 1: could potentially use additional QUEI acid purchases to support the economy.
Speaker 1: Are they supporting the economy at this point? How much
Speaker 1: more can suppressing ten year yields by another ten basis
Speaker 1: points do to actually get more people at work? Yeah,
Speaker 1: I'm sympathetic to that view, and it's one that I
Speaker 1: made for years. I made it the last time through.
Speaker 1: And it's interesting. There was a study that came out recently, um,
Speaker 1: that found that that central bank economists around the world
Speaker 1: put a lot more uh weight or effectiveness on uh
Speaker 1: QE purchases than non central bank you know, academic private
Speaker 1: academic economists, And I think there maybe is a blind
Speaker 1: spot there. Um. The fact is a FED that's really
Speaker 1: the only major button that they can push beyond board guidance.
Speaker 1: So they don't want to admit that it maybe isn't
Speaker 1: isn't all that helpful. But I mean, as you say,
Speaker 1: I mean, tenure yields are around seventy five basis points.
Speaker 1: I don't know that there's much marginal benefits of taking
Speaker 1: them down another ten or fifteen or twenty basis points
Speaker 1: from here. If you're just joining us on Bloomberg Radio,
Speaker 1: Bloomberg Television. Stephen Stanley with us with Amerus Pure Points. Stephen,
Speaker 1: you know politics is about jobs, maybe even jobs is
Speaker 1: about politics. What's a true unemployment rate in a mirror
Speaker 1: just twenty five days to the election? Yeah, I mean
Speaker 1: I think there we've got an eight percent unemployment rate.
Speaker 1: Then you've got about another two percent decline and labor
Speaker 1: for participation from before the pandemic, and some of those
Speaker 1: folks won't be able to come back until um, you know,
Speaker 1: until things straighten out, you know, until schools are fully
Speaker 1: open for example. Uh, and some of these businesses are
Speaker 1: able to get back to normal, and then you've got
Speaker 1: people who are only able to work part time. So
Speaker 1: probably somewhere in the in the low double digits, but
Speaker 1: it's certainly down very sharply. Um, you know from what
Speaker 1: what an all in unemployment rate would have been at
Speaker 1: the at the peak of the lockdowns when you're probably
Speaker 1: talking about something above. Stavin Stanny right to catch up,
Speaker 1: Sir Stevens. Stanny there. Thanks for listening to the Bloomberg
Speaker 1: Surveillance Podcast. Subscribe and listen to interviews on Apple pod
Speaker 1: Tests SoundCloud, or whichever podcast platform you prefer. I'm on
Speaker 1: Twitter at Tom Keane before the podcast. You can always
Speaker 1: catch us worldwide. I'm Bloomberg Radio