Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily
Speaker 1: we bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, sun Cloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. What
Speaker 1: we'renna do right now is drive forward to the Friday
Speaker 1: job recording. There's no one better to do that with.
Speaker 1: And Lewis Alexander here is with Nomura and has an
Speaker 1: esteemed career in academics out of Yale, out of Stanford
Speaker 1: and also in market economics. LOUI, I know John and
Speaker 1: Lisa want to get to what we'll see Friday, but
Speaker 1: I've got to give you a victory lap on an
Speaker 1: essay you wrote, I'm gonna guess a decade ago, maybe
Speaker 1: coming out of your public service under Secretary Geitner, where
Speaker 1: you talked about technology of the halves and I have not.
Speaker 1: You absolutely nailed at then, Dr Alexander, and now we've
Speaker 1: got the likes of Amazon borrowing at full faith and
Speaker 1: credit yields. Can technology do you just in visualize these
Speaker 1: technology giants just advancing over the coming years, in decades
Speaker 1: to ever bigger ever more dominant. So I think one
Speaker 1: of the questions of the economy of it'll last ten
Speaker 1: years has really been why hasn't productivity growth been stronger
Speaker 1: given how important and how pervasive tech has been. Look,
Speaker 1: we're going through a real time experiment of what we
Speaker 1: can really do with technology, and I think we're going
Speaker 1: to be positively surprised. So in many ways, I do
Speaker 1: think this is an opportunity for that. Um I think
Speaker 1: the question really is is the right industrial structure for
Speaker 1: that a small number of very large firms or do
Speaker 1: you want to see more competition? And that, frankly is
Speaker 1: going to be the policy debate around tech going forward.
Speaker 1: We want to understand, lou, how these companies right size
Speaker 1: themselves in the months to come, the amount of debt
Speaker 1: that many of these companies have hats to borrow, What
Speaker 1: do you expect corporate behavior to look like in the
Speaker 1: next several months, and how would it shape growth? So, look,
Speaker 1: I think it makes all the sense in the world
Speaker 1: for corporations to shore up their liquidity at this point,
Speaker 1: and capital markets are open, credit markets are open for
Speaker 1: good borrowers, and so I think it makes perfect sense
Speaker 1: for them to take advantage of that. Obviously, you're going
Speaker 1: to have some companies that are going to face losses
Speaker 1: over the near term that are very large relative to
Speaker 1: their existing equity base. You think about the you know,
Speaker 1: the auto rental companies, the airlines, they are facing fundamental
Speaker 1: challenges and that's going to be a different kettle of fish.
Speaker 1: But for most corporations who are going to be able
Speaker 1: to ride ride this out, um, it makes all the
Speaker 1: sense in the world for them to be borrowing. Louis
Speaker 1: you said that this market is open for good borrowers,
Speaker 1: and the bifurcation has never been more, never been greater,
Speaker 1: whether the good corporate borrow or a good consumer borrow.
Speaker 1: When we're seeing that bleed out in the economic numbers,
Speaker 1: with the jobless reports on Thursday as well as Friday
Speaker 1: that we're expecting this week, can the U s economy
Speaker 1: maintain some sort of growth trajectory with that divergence intact. So, like,
Speaker 1: one of the things which is different about this shock
Speaker 1: from others is how concentrated it is bisector. So those
Speaker 1: parts of the economy that depend on social contact, the
Speaker 1: most obvious ones being restaurants and entertainment and all of
Speaker 1: that are being devastated by this, other parts of the
Speaker 1: economy that are frankly much less dependent on that and
Speaker 1: can adapt to working from home and all of those
Speaker 1: things are are obviously doing much better. And it's very
Speaker 1: unusual to have a shock like this that has that disparity,
Speaker 1: So it really starts with that. I think as we
Speaker 1: come out of this, as we back away from the
Speaker 1: most extreme version of social distancing, as we learn how
Speaker 1: to do these things without and ringing the same kind
Speaker 1: of exposure, I think you will see those disparities start
Speaker 1: to diminish. But they're going to be with us for
Speaker 1: a long time. So I think the real problem is
Speaker 1: the jobs available for people who have done that stuff
Speaker 1: that depends on social distancing. They're going to be depressed
Speaker 1: for a while. So the US Budget Office came out
Speaker 1: with a projection saying that it may take nearly a
Speaker 1: decade for the US economy to recover from the shock
Speaker 1: that we just saw. What does that mean in terms
Speaker 1: of the unemployment rate going forward on a sort of
Speaker 1: sustainable basis over the next five years. So look, I
Speaker 1: think the experience we had before COVID nineteen, which suggested
Speaker 1: that we could get the unemployment rate down to very
Speaker 1: low levels without having those sorts of problems of inflation
Speaker 1: we've had in the past. I think that is relevant
Speaker 1: experience for what we're going to where we should try
Speaker 1: and get to in the long run. But look, we
Speaker 1: haven't seen unemployment at these levels since a great depression.
Speaker 1: The when we had the Great Recession a decade ago,
Speaker 1: the unemployment rate got to ten percent and it took
Speaker 1: us eight or nine years to get it down below
Speaker 1: four percent. It's over fifteen now. It's going higher before
Speaker 1: this is over. Yes, it is going to take a
Speaker 1: long time for us to get back. I'm not sure
Speaker 1: it's necessarily going to take as long as it did
Speaker 1: following the last big recession, but it's going to take
Speaker 1: a long time. This is the issue, Tom, the number
Speaker 1: one issue, and Lisa raises exactly the right question on unemployment. Tom,
Speaker 1: you and I've been talking about this together with Lisa
Speaker 1: over the last several months or so. We could approach
Speaker 1: we could have some real improvement in the back half
Speaker 1: of this year, but we could still end the year
Speaker 1: at double figures. And that's going to be unacceptable and
Speaker 1: should be unacceptable to absolutely everybody's son. Yeah, it's absolutely true,
Speaker 1: and Dr Alexander. What's so important about that observation is
Speaker 1: what it does to inequality. You know, we don't need
Speaker 1: to go on a Tuesday into the Genie coefficient and
Speaker 1: all the dynamics of inequality. But has it ever been wider? Um,
Speaker 1: You have to go back a long time for it's
Speaker 1: been worse. We've never had a shock that is more disparate.
Speaker 1: One of the things I will just not to bring
Speaker 1: it back to the employment report we're going to get
Speaker 1: on Friday. Um, we're expecting average hourly earnings to go
Speaker 1: up by one point three percentage points on a month
Speaker 1: when we lose over five million jobs. Now, how do
Speaker 1: you make sense of that? The way you make sense
Speaker 1: of that is the jobs were losing, our low edge jobs,
Speaker 1: and it hid that that disparity between what happens with
Speaker 1: average hourly earnings and the headline employment is a direct
Speaker 1: reflection of the inequality of the effects of this. And
Speaker 1: I do think that that is an aspect of this
Speaker 1: which we can't get away from, and it's going to
Speaker 1: affect the politics of this in some ways. These are
Speaker 1: trends that have been out there for a long time.
Speaker 1: They're not really new, but it is very much going
Speaker 1: to sort of highlight those problems, and I think it's
Speaker 1: going to be an important part of the election. What
Speaker 1: is the social policy that begins to nudge us away
Speaker 1: from this abrupt inequality? I mean the tradition of Yale
Speaker 1: academics is Robert Schiller and James Tobin in others where
Speaker 1: there was an advocacy for social policy. This is America
Speaker 1: that's not doing so well on social policy right now.
Speaker 1: What's the best case to begin to take us from
Speaker 1: our inequalities? UM? I think you have to try and
Speaker 1: address UM the underlying causes and start from the beginning,
Speaker 1: and a lot of that is about education, it's about
Speaker 1: access to UM social services. So one of the things
Speaker 1: that's very striking about this is the incidents of mortality
Speaker 1: around COVID nineteen is related to other conditions which are
Speaker 1: related to economic status and your access to healthcare. So
Speaker 1: I think there's some very basic things you can do UM,
Speaker 1: starting with healthcare, but also ultimately coming act to education
Speaker 1: and giving people the skills not only to have higher
Speaker 1: wage jobs, but to have jobs. Frankly, that can be
Speaker 1: done uh remotely. So one of the big disparities again
Speaker 1: is who gets who has the jobs that we can
Speaker 1: do work from home that is in some sense very
Speaker 1: much related to those same inequalities and education that are
Speaker 1: the things we have to start to address. Leu Alexander
Speaker 1: from Namura. Always great to get your thoughts on this program.
Speaker 1: Thanks for your time this morning. Regu Alexander. With this
Speaker 1: moment ago with Namura and John, the backdrop of this,
Speaker 1: if you beautifully stated, is an equity market that's got
Speaker 1: a very much real risk on field, John, do we
Speaker 1: have a wife for that? I don't have a why
Speaker 1: the Federal Reserve sequential improvement as we reopened, Tom, there
Speaker 1: are many reasons. I think there are many, wise, but
Speaker 1: I don't really have a win in a moment like this,
Speaker 1: and why we should be higher. Ectonly futures up thirteen points,
Speaker 1: up four tents of one percent. Let's talk about the
Speaker 1: equity markets. Home came. We can bring in the chief
Speaker 1: US equity strategist of Golman Sachs, a good friend of
Speaker 1: this show. I'm pleased to say David Couston is with
Speaker 1: us now. David, you've called this one unloved. I'd call
Speaker 1: it hated. This move from the bottom all the way
Speaker 1: up and through this morning what's your take at the moment. Well,
Speaker 1: it's interesting the definition between unloved and hated. I guess
Speaker 1: the indifference what Dante said is the really the the
Speaker 1: opposite of but the idea of portfolio managers. They're certainly
Speaker 1: welcomed the idea of a higher market. Most fund managers
Speaker 1: are long biased, long tilted, whether they're a long only
Speaker 1: fun mutual fund or whether hedge fund, they can have
Speaker 1: a long bias. So the rising market has certainly been
Speaker 1: been been welcomed. It's it's been unloved. You could argue
Speaker 1: your your terms hated because most fundationers haven't been positioned
Speaker 1: UH to participated fully in this in this recovery, I
Speaker 1: will certainly stay as strategistic surprise at the magnitude and
Speaker 1: the persistence of the thirty percent moved in the in
Speaker 1: the FMP five. Of course, uh, as you've talked about,
Speaker 1: no doubt and then and others. The rally has been
Speaker 1: so driven by a relatively narrow group of stocks, primarily
Speaker 1: in technology. There's helped lift the indexes, but the the
Speaker 1: underlying typical stock actually hasn't necessarily participated as much as
Speaker 1: the headline index would would would show, and so that's
Speaker 1: an issue that has been of much discussion with with
Speaker 1: with with clients and put foire managers. Now because there's
Speaker 1: one continue to own the leaders of the market. The
Speaker 1: top five concentration UH stocks never been this concentrated in history,
Speaker 1: even back in the Czech bubble of two thousand, the
Speaker 1: top five stocks then we're like eight. Now we're talking
Speaker 1: about one fifth of the market is dominated control the
Speaker 1: represented by by just five companies. So the UH we
Speaker 1: know the drivers diagnostically, and then looking forward the the
Speaker 1: idea of UH the cyclical recovery, which has certainly been
Speaker 1: been been focused in the last couple of weeks, UH
Speaker 1: in the last couple of days, frankly, but the persistence
Speaker 1: of that I would say is is I'm less confident
Speaker 1: about that. Would would focus more strategically on some of
Speaker 1: the market leaders, and whether that's in technology, whether there's
Speaker 1: more secular growth and UH stronger balance sheet, some of
Speaker 1: those characteristics UH, in my view, are more sustainable in
Speaker 1: terms of their drivers. If let's talk about that, it's
Speaker 1: important the reopening rotation has taken place over the last
Speaker 1: couple of weeks. What is it about that rotation that
Speaker 1: you don't think it's durable. What is it about it
Speaker 1: that you don't think it's sustainable? So the key issue
Speaker 1: is the rehiring rates in the United States. The idea is,
Speaker 1: you know, tragically, we have almost forty million people about
Speaker 1: for unemployment initial unemployment over the last nine weeks, and
Speaker 1: how quickly hopefully we'll be quickly, but how how quickly
Speaker 1: and how many? What percentage of those individuals who have
Speaker 1: been laid off for furloughed will be rehired by their employers?
Speaker 1: Basical assumption A lot of people have been making around uh,
Speaker 1: you know, and that will drive the economic activity. And
Speaker 1: as people UH leave shelter in place or begin to
Speaker 1: reopen some of these state economies, does that lead to
Speaker 1: more uh sustainability where you've had a big move already
Speaker 1: uh in a lot of these companies. And I would
Speaker 1: UH answer the question as follows. I prefer and recommend
Speaker 1: that you own domestically facing goods producers as contracted with
Speaker 1: services providers. So every company in the country is classified
Speaker 1: as either a goods producer or a services provider. And
Speaker 1: the lessons from China is that the leading edge of
Speaker 1: the recovery or the restarted the economy Johnathan has been
Speaker 1: led by the toms, led by the industrials, not the consumers.
Speaker 1: So we want to own us companies that are that
Speaker 1: are more business the business you know, of the goods producing.
Speaker 1: Those would be a lot of companies in the in
Speaker 1: the chemical business, uh, chemical space, the machineries of barospace.
Speaker 1: That would be your trade, if you will, your your
Speaker 1: tactical trade. But strategically still looking for stronger balance and
Speaker 1: technology to be offering better returns over time. What's interesting
Speaker 1: your David Costan is small caps. Christopher own over Statigos
Speaker 1: has a brilliant note this morning noticing the elevation of
Speaker 1: small caps, but he asked the golden sacks like question
Speaker 1: of do they on an absolute basis advance and can
Speaker 1: they even advance on a relative basis versus large caps?
Speaker 1: Do you have an affinity for small camps right now?
Speaker 1: I do not, And the reason for that is, UH,
Speaker 1: strictly on the balance sheet. We know the singular risk
Speaker 1: in this UH in this economic dislocation has been a
Speaker 1: collapse in revenues here in the second quarter as most
Speaker 1: of the country, much of the country was was at
Speaker 1: home and just the was a lot of activity and
Speaker 1: therefore liquidity and balancing strengths were key. So the FED
Speaker 1: obviously came in with many programs in terms of the
Speaker 1: UH support in the commercial paper market or in the
Speaker 1: i G market, and back in some of the small
Speaker 1: and angels in the in the high yield market, but
Speaker 1: still the liquidity and solvency or critical issues in the
Speaker 1: uncertain path of recovery, and therefore would rather own companies
Speaker 1: with stronger balanties which characteristically are larger companies as contrasted
Speaker 1: with smaller companies which typically have more leverage and UH
Speaker 1: in just they're less flexibility on the on the on
Speaker 1: the financing side. David, perhaps the theme of the year
Speaker 1: is growing disparity, whether it's in income's low and high
Speaker 1: income households, whether it's the companies that are doing well
Speaker 1: in the stock market or not doing well. And then
Speaker 1: the latest from the US Budget Department coming out and
Speaker 1: showing that the economy is not going to recover in
Speaker 1: the United States for nearly a decade from the shock
Speaker 1: that has just experienced. How long can the US equity
Speaker 1: market as a collective remain divorced from this underlying economic
Speaker 1: reality as put out there by the United States UH.
Speaker 1: As you said, it is the critical question for both
Speaker 1: society and for the investor community about the what appears
Speaker 1: to be clear dislocation between the path of what the
Speaker 1: economy is going through and where the equity markets, which
Speaker 1: we know a couple of things. Number one, the equity
Speaker 1: market is a discounting mechanism, so it looks out into
Speaker 1: the future and brings this forward. So it is clearly
Speaker 1: anticipating a steady restart, basically implying that there's not a
Speaker 1: lot of dislocation, whether that's through the you know, second
Speaker 1: viral wave, various other just it's going to basically be
Speaker 1: a steady renormal normalization of the of the process. And
Speaker 1: that is the first, you know argument and why the
Speaker 1: equity market has been rising so much. But we have
Speaker 1: to understand as well that the stock market is not
Speaker 1: a pure reflection of the economy. It's definitely much more
Speaker 1: skewed towards stronger balance sheet companies for example, Uh, it's
Speaker 1: skewed towards businesses which are more in technology. It's much
Speaker 1: less in the housing market than the rest of the economy.
Speaker 1: So there's because they're not purely uh, you know, representative
Speaker 1: one or the other. But ultimately there is you know,
Speaker 1: you mentioned there were divorced between there's been some linkage
Speaker 1: between the earnings of a company and the overall size
Speaker 1: of the economy, and the economy is basically driving revenues,
Speaker 1: and the expectation is businesses getting is getting better. You
Speaker 1: didn't quite get that, frankly, in the commentary from corporate
Speaker 1: management in the first quarter conference calls that just ended.
Speaker 1: They were generally more subdued to lots of concerns about
Speaker 1: the pace of restart And so it would suggest to
Speaker 1: me the STP valve bundered at these levels is trading
Speaker 1: at a higher level than I half at the end
Speaker 1: of the year right about, you know, roughly they'll same level.
Speaker 1: But three thousand is a target the end of the year.
Speaker 1: And if I think about the risks around this, you're
Speaker 1: looking at modest upside risk maybe five send opportunity and
Speaker 1: five foot to its thirty two. And that's basically because
Speaker 1: positioning is light neutral to light, and that's where it's
Speaker 1: been hovering. So investors have not been super embracing using you, Jonathan,
Speaker 1: your terminology, it's sort of it's, you know, a hated rally.
Speaker 1: They have not participated on the other hand, you have
Speaker 1: the concerns about the pace of the restart and can
Speaker 1: you get all these people back? Do you have a
Speaker 1: sustainable recovery in the market? Therefore, puts down at fifty
Speaker 1: would be ten percent? Is eight in metro skew somewe
Speaker 1: to the downside. Uh from the risk point of view, David,
Speaker 1: I'm happy to wrap up an interview. When you borrow
Speaker 1: a phrase of mine, I'm always happy to lend that
Speaker 1: to you. David Custod of Government Sacks, the chief US
Speaker 1: equity strategistad I have the famili is doing well. We
Speaker 1: appreciate your time this morning. We usually speak on the
Speaker 1: international relations of the in Bremer, but today we speak
Speaker 1: with Dr Bremer. If you raise your group about the
Speaker 1: international and domestic relations of a better America. All of
Speaker 1: us are in search of that and we need to
Speaker 1: fight our way through in the coming nights and days
Speaker 1: to find that better America. Dr Bremer, you were out
Speaker 1: in the streets of Manhattan last night, as we were
Speaker 1: before the curfew. It is the challenges of a New York.
Speaker 1: What is your reading of history of how we somehow
Speaker 1: get beyond looting? Well, you know, we know that looting
Speaker 1: doesn't define the protest movements. Uh, and and nor the
Speaker 1: depth of the level of disaffection that exists in the
Speaker 1: United States right now. This didn't start with Trump. Uh.
Speaker 1: It's the reason we got Trump. Indeed, is because so
Speaker 1: many Americans feel like they don't have the opportunity, that
Speaker 1: the American dream does not apply to them. Uh. Those
Speaker 1: lessons were not learned after two thousand and eight, two
Speaker 1: thousand nine. They weren't learned with the Occupy Wall Street movement.
Speaker 1: Now they've come back in much more dramatic form. And
Speaker 1: part because inequality is worse, in part because unemployment and
Speaker 1: forty million newly unemployed with their slips over the past
Speaker 1: two months, And in part because the least privileged and
Speaker 1: most particularly African Americans in the United States have suffered
Speaker 1: the most dramatically on the back of this horrible coronavirus.
Speaker 1: So you know, these things are cyclical, um, and the
Speaker 1: geopolitics and the economic cycles right now, unfortunately are lining
Speaker 1: up in a very negative way and it's going to
Speaker 1: take us a long time to dig out of this time.
Speaker 1: Dr Bremer give our international audience, and particularly our younger
Speaker 1: viewers and listeners, a primer on what Max Boot alluded
Speaker 1: to in the Washington Post yesterday, which is the similarities
Speaker 1: of the president's tech to George Wallace of another time
Speaker 1: in place. How narrow is the president's perspective or does
Speaker 1: he speak to a much, much greater part of America
Speaker 1: than Governor Wallace of Alabama? Ever? Did I do think
Speaker 1: that Trump speaks to a large percentage of disaffected Americans?
Speaker 1: What's amazing? I just mentioned unemployment, six to eight percent
Speaker 1: contraction expected an economy this year, and yet Trump's approval
Speaker 1: ratings blended at about forty two percent average polls, exactly
Speaker 1: where he was when unemployment was at record lows and
Speaker 1: when we were expecting moderate growth in the United States.
Speaker 1: That that tells you something about how much support Trump has,
Speaker 1: how strong it is, and also how fundamentally divided the
Speaker 1: country is. So if you look at Trump and his
Speaker 1: electoral game plan for November, he doesn't think that he's
Speaker 1: trying to win over black votes. I mean, he'd liked
Speaker 1: them not to vote because it gives them a better shot.
Speaker 1: But Biden's got that locked up. You know, He's not
Speaker 1: trying to pick up you know, voters in California or
Speaker 1: here in New York, city. He's gonna lose the popular vote,
Speaker 1: probably by several million, but he could still win again.
Speaker 1: And the way he wins again um is by ensuring
Speaker 1: that his base, which is narrower than Biden's but much
Speaker 1: more enthusiastic, feels like coming out to the polls, and
Speaker 1: that on the coronavirus side means don't worry about the virus,
Speaker 1: don't wear a mask. If you don't feel like it,
Speaker 1: try hydroxy chlora queen. Maybe it'll work. Get back to work.
Speaker 1: It's normal. While on the blue side of the equation
Speaker 1: it's fear, lockdown, panic, and maybe they won't mote vote
Speaker 1: as much. If you add that to proximate danger of
Speaker 1: national security, domestic tranquility, the national Guard, the military on
Speaker 1: the streets, maybe they can make voting more challenging in
Speaker 1: person in places that he really doesn't want to see turnout.
Speaker 1: And that's what the fight is going to be about
Speaker 1: in November. You'll remember, Tom, when you were at your
Speaker 1: Asia group at the beginning of the year, for the
Speaker 1: first time since I started the firm, the single top
Speaker 1: risk was a domestic us concern. It's never been true.
Speaker 1: You're right. You and I usually talk about the rest
Speaker 1: of the world, because the political risk environment usually comes
Speaker 1: from the rest of the world. But this year it's
Speaker 1: actually the feeling that the system is so badly rigged
Speaker 1: against disenfranchised white warp humdal class, against African Americans facing
Speaker 1: systemic police abuse, and that that is a real concernation.
Speaker 1: Dr Bremer. Let me bring in my colleague John Farrell. Okay, well,
Speaker 1: thanks for that, Tom. I appreciate that he had and
Speaker 1: I've spoken many times and let's build on some of that.
Speaker 1: Whether we are at an inflection point. Do you believe
Speaker 1: we are in an inflection point or were we look
Speaker 1: back at this moment with disappointment that this was just
Speaker 1: another moment in time. But I don't think that we
Speaker 1: are on the brink of civil war the way some
Speaker 1: in the mainstream media we're actually saying yesterday. And I
Speaker 1: don't believe that we're about to become an authoritarian state.
Speaker 1: The United States is not hungary. Separation and balance of
Speaker 1: powers are much stronger, the deep bureaucracy is much stronger.
Speaker 1: But um, I do think that the level of political
Speaker 1: dysfunction in the United States UM is far deeper than
Speaker 1: at any point in my lifetime. I was born in
Speaker 1: sixty nine sixty eight. Clearly in terms of social descent,
Speaker 1: was nearly as bad. Um. But now you also have
Speaker 1: the United States entering into an economic depression, and you
Speaker 1: have a pandemic that we're still fighting through. And indeed,
Speaker 1: all of these people out on the streets, many of
Speaker 1: whom are wearing masks, many of whom are not not
Speaker 1: engaging in social distancing. Here in New York, a lot
Speaker 1: fewer cases, a lot of other places where we're seeing
Speaker 1: these demonstrations still actually have an hour of over one
Speaker 1: point zero. In other words, the pandemic is still expanding,
Speaker 1: not under control. Um. That that's unique. And as I said,
Speaker 1: I don't think this is the beginning of the end
Speaker 1: for the United States domestically. In fact, in many ways
Speaker 1: we're gonna come out of this crisis stronger than our allies,
Speaker 1: because we've got the robust tech companies, because we export
Speaker 1: food and energy. You can't forget about that. But our
Speaker 1: ability to lead the world with soft power, to lead
Speaker 1: by example, which has been eroding steadily now for decades,
Speaker 1: certainly post the collapse of the Soviet Union in ninety one,
Speaker 1: that is at the lowest point today of our lifetimes,
Speaker 1: and that will have true, longstanding and structural effect on
Speaker 1: what the world looks like in the ability of the
Speaker 1: Americans to shape Yeah, and just sort of tying this
Speaker 1: together and quickly here, how vulnerable is the US given
Speaker 1: all the distractions domestically to some sort of international infiltration,
Speaker 1: be it a cyber at hack or disinformation that could
Speaker 1: affect the election, uh, and and disrupt the social unrest
Speaker 1: even more. I mean, of course it doesn't help. And
Speaker 1: at the margins, I think the Russians and perhaps the
Speaker 1: Iranians and Chinese will still be engaging in more propaganda
Speaker 1: fake news. Uh. You know, if you remember Black Lives
Speaker 1: Matter in TwixT the largest Facebook site was actually a
Speaker 1: Russian site. But to be very clear, the damage that
Speaker 1: is being done here is being done by ourselves. We're
Speaker 1: the ones that are so divided, We're the ones that
Speaker 1: are easier to take advantage of internationally, precisely because we
Speaker 1: don't have our own house in order. When the Russians
Speaker 1: tried the same act with the German elections, they got nowhere.
Speaker 1: And that's because the country was much less divided and
Speaker 1: always right, agathos and perspective on this program. Thanks for
Speaker 1: you want to guess this morning, I help you and
Speaker 1: yours are doing well, and that if you right a
Speaker 1: great There is the photograph if the failure of Lehman Brothers,
Speaker 1: and as the camera looks through the window, they're in
Speaker 1: the computer screen of gentlemen seeing their careers disappear. Is
Speaker 1: the Gartman uh letter. It is seven eight nine ten pages.
Speaker 1: And yes, we can talk about gold with Dennis Gartman,
Speaker 1: but maybe we should talk about the politics of the
Speaker 1: moment that make up so much of his letter, particularly
Speaker 1: in the back third as well. Mr Gartman comes to
Speaker 1: us twenty miles somewhere. It's supposed to be no protests.
Speaker 1: It's not the big city. And yet Dennis, in your
Speaker 1: neck of the Virginia Woods, there is protest, isn't there. Yes,
Speaker 1: that it's happened in Virginia Beach. It's happened in Richmond.
Speaker 1: There have been marches in Norfolk. There have been marches
Speaker 1: in Hampton. Portsmouth, where I live has not had anything,
Speaker 1: or where I live very near has not had anything.
Speaker 1: Thus far in Suffolk, where that actually do live, has
Speaker 1: had just a very peaceful march. But all around us,
Speaker 1: my my daughters in the news business in Raleigh and
Speaker 1: Raleigh has been on fire for the past couple of days.
Speaker 1: It's just that this is very frightening, very disconcerting, and
Speaker 1: I think it plays into the hands of the shy needs.
Speaker 1: I think it plays into the hands of the Russians.
Speaker 1: The Chinese are going to look at this and say, look,
Speaker 1: if the United States of America calls in troops to
Speaker 1: to quell the violence, why can't we do the same
Speaker 1: thing in Taiwan. Why can't we do the same thing
Speaker 1: in Hong Kong? And I think that's something that people
Speaker 1: have to start paying attention to. Dennis. Anyone that knows
Speaker 1: your work knows that you have a cast of Abraham
Speaker 1: Lincoln and the Elephant Party. Great, but you were one
Speaker 1: of the first and the harshest critics of this president.
Speaker 1: How does the Republican Party regroup with a one term
Speaker 1: Trump or even with a two term Trump. It's a
Speaker 1: very serious question, isn't it. And with the poll numbers
Speaker 1: coming out in the past couple of days show a
Speaker 1: very marked decline for the popularity of the president and
Speaker 1: the possibility of a democratic president and even worse, a
Speaker 1: democratic Senate, how they're going to resolve this is beyond
Speaker 1: me to be quite honest, Thank goodness, I don't have
Speaker 1: to make that decision. But it does appear that we
Speaker 1: have a president who's going to call in the troops
Speaker 1: and take a very substanti substantive law and order perspective
Speaker 1: that's going to have some support amongst his holdouts that
Speaker 1: are just absolutely trump eastas from the from the start.
Speaker 1: We'll see how that prevails with the other scent of
Speaker 1: the population. But I'm glad I don't have to be
Speaker 1: the one to make the decision. You would think that
Speaker 1: given the fact that the prospect of military troops entering
Speaker 1: America's cities might be somewhat concerning to equity investors. The
Speaker 1: tail risks are increasing and being added to each day,
Speaker 1: and yet we are seeing equity futures higher. And this
Speaker 1: has been a consistent theme, and a lot of people
Speaker 1: point to federal reserve action in particular, the also the
Speaker 1: increase of the fiscal deficit. How does this play out
Speaker 1: in markets? In other words, can fed and fiscal stimulus
Speaker 1: basically offset all of the rising tail risks and make
Speaker 1: you bullish uncertain risk assets. It makes me. The only
Speaker 1: place that I can actually be bullish, even modestly is
Speaker 1: the fact that I do think the yeld curve is
Speaker 1: going to become more positively sloped. The back end of
Speaker 1: the curve rates are going to go higher, the short
Speaker 1: end of the curve rates are going to go lower,
Speaker 1: and that's going to be beneficial to the banking industry.
Speaker 1: But otherwise, other than that, I'm hard pressed to come
Speaker 1: up with a bullish a bullish rationale. As the Lord
Speaker 1: Keys once said, though the market can remain irrational far
Speaker 1: longer than you or I can remain solvent. And the
Speaker 1: fact that the stock market has been predicated upon a
Speaker 1: bull run predicated solely upon it. As far as I
Speaker 1: can see monetary expansionary policies by the Federal Reserve and
Speaker 1: can buy other Federal by other reserve banks around the world,
Speaker 1: I guess We're not supposed to fade the Fed, but
Speaker 1: I do find it difficult being bullish. I'm I applaud
Speaker 1: those who have done it, who have gotten bullish, they
Speaker 1: have been profited, but I I find no sense in
Speaker 1: them whatsoever. Dennis, to your point, we are seeing the
Speaker 1: US yield curve widen quite substantially. The gap between thirty
Speaker 1: year and five year treasury yields now at the whitest
Speaker 1: since two thousand seventeen. What is this pricing end? Does
Speaker 1: this indicate some sort of inflation longer term? I think
Speaker 1: it does least. I think that's exactly what the market
Speaker 1: is beginning to understand that thus far, the monetary expansionary
Speaker 1: policies that have the next cent around the G seven,
Speaker 1: G A, G nine, G twelve, whatever you want to
Speaker 1: call it, have not been inflationary, but the eventually they
Speaker 1: shall be. And I think that's what's going to happen.
Speaker 1: The grain market doesn't make new lows, it starts to
Speaker 1: hold hold its own golden US dollar terms has become
Speaker 1: has has been very strong and likely to continue to
Speaker 1: be strong. We're starting to see inflationary pressures as far
Speaker 1: as labor is concerned. So I do think that that's
Speaker 1: what's happening, and I think that the yel creve gets
Speaker 1: demonstrably more positively sloped. As I said, the back end
Speaker 1: of the curve. I think rates can go up past
Speaker 1: two percent without any difficulty, and I have it's hard
Speaker 1: for me to understand that even how that we've been
Speaker 1: under two percent to begin with, because when I first
Speaker 1: started trading in the nineteen seventies, on the Board of
Speaker 1: Trade in Chicago. The long bond had a fourteen and
Speaker 1: a quarter percent coupon and you couldn't give it away.
Speaker 1: But we're gonna go back above two or three or
Speaker 1: four percent in the long bond, and at the at
Speaker 1: the short end of the curve, overnight said funds are
Speaker 1: likely to remain close to zero. So so the yel
Speaker 1: creve gets demonstrably positively sloped. Dennis Garment, too many themes
Speaker 1: here to talk about. We never even got to gold.
Speaker 1: What we're gonna do is get Mr Garment back on,
Speaker 1: folks in the coming days to speak to us about
Speaker 1: to shift in his gold call. He has been hugely
Speaker 1: tessful with golden Yen and golden Euro and he's made
Speaker 1: an important sea change there and we're gonna get him on.
Speaker 1: I promise you we're gonna get him on in the
Speaker 1: coming days. With this new slow just too hard to
Speaker 1: get to that call today, Dennis Gartman, thank you so much,
Speaker 1: of course, the legendary Gartman letter. Thanks for listening to
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm
Speaker 1: on Twitter at Tom Keane. Before the podcast, you can
Speaker 1: always catch us worldwide. I'm Bloomberg Radio.