WEBVTT - Surveillance: Liquidity And Solvency Critical, Kostin Says 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily 0:00:14.000 --> 0:00:17.599 we bring you insight from the best in economics, finance, investment, 0:00:18.040 --> 0:00:23.560 and international relations. Find Bloomberg Surveillance on Apple Podcasts, sun Cloud, 0:00:23.640 --> 0:00:27.280 Bloomberg dot Com, and of course on the Bloomberg. What 0:00:27.360 --> 0:00:30.200 we'renna do right now is drive forward to the Friday 0:00:30.280 --> 0:00:32.360 job recording. There's no one better to do that with. 0:00:32.520 --> 0:00:35.639 And Lewis Alexander here is with Nomura and has an 0:00:35.800 --> 0:00:39.360 esteemed career in academics out of Yale, out of Stanford 0:00:39.640 --> 0:00:42.960 and also in market economics. LOUI, I know John and 0:00:43.040 --> 0:00:45.600 Lisa want to get to what we'll see Friday, but 0:00:45.760 --> 0:00:48.559 I've got to give you a victory lap on an 0:00:48.720 --> 0:00:52.280 essay you wrote, I'm gonna guess a decade ago, maybe 0:00:52.280 --> 0:00:56.040 coming out of your public service under Secretary Geitner, where 0:00:56.080 --> 0:01:00.560 you talked about technology of the halves and I have not. 0:01:01.160 --> 0:01:05.160 You absolutely nailed at then, Dr Alexander, and now we've 0:01:05.160 --> 0:01:09.120 got the likes of Amazon borrowing at full faith and 0:01:09.160 --> 0:01:13.560 credit yields. Can technology do you just in visualize these 0:01:13.600 --> 0:01:18.360 technology giants just advancing over the coming years, in decades 0:01:18.640 --> 0:01:21.640 to ever bigger ever more dominant. So I think one 0:01:21.680 --> 0:01:24.320 of the questions of the economy of it'll last ten 0:01:24.400 --> 0:01:27.319 years has really been why hasn't productivity growth been stronger 0:01:27.880 --> 0:01:31.720 given how important and how pervasive tech has been. Look, 0:01:31.760 --> 0:01:34.039 we're going through a real time experiment of what we 0:01:34.080 --> 0:01:37.880 can really do with technology, and I think we're going 0:01:37.959 --> 0:01:41.520 to be positively surprised. So in many ways, I do 0:01:41.600 --> 0:01:44.760 think this is an opportunity for that. Um I think 0:01:44.760 --> 0:01:48.800 the question really is is the right industrial structure for 0:01:48.840 --> 0:01:52.120 that a small number of very large firms or do 0:01:52.200 --> 0:01:55.040 you want to see more competition? And that, frankly is 0:01:55.080 --> 0:01:58.240 going to be the policy debate around tech going forward. 0:01:58.760 --> 0:02:01.800 We want to understand, lou, how these companies right size 0:02:01.800 --> 0:02:04.160 themselves in the months to come, the amount of debt 0:02:04.200 --> 0:02:06.160 that many of these companies have hats to borrow, What 0:02:06.240 --> 0:02:08.120 do you expect corporate behavior to look like in the 0:02:08.160 --> 0:02:10.800 next several months, and how would it shape growth? So, look, 0:02:10.840 --> 0:02:13.120 I think it makes all the sense in the world 0:02:13.160 --> 0:02:16.080 for corporations to shore up their liquidity at this point, 0:02:16.160 --> 0:02:19.800 and capital markets are open, credit markets are open for 0:02:19.840 --> 0:02:22.120 good borrowers, and so I think it makes perfect sense 0:02:22.520 --> 0:02:25.280 for them to take advantage of that. Obviously, you're going 0:02:25.320 --> 0:02:29.640 to have some companies that are going to face losses 0:02:30.080 --> 0:02:32.960 over the near term that are very large relative to 0:02:33.000 --> 0:02:36.880 their existing equity base. You think about the you know, 0:02:37.000 --> 0:02:41.760 the auto rental companies, the airlines, they are facing fundamental 0:02:41.840 --> 0:02:44.440 challenges and that's going to be a different kettle of fish. 0:02:44.560 --> 0:02:48.000 But for most corporations who are going to be able 0:02:48.000 --> 0:02:50.880 to ride ride this out, um, it makes all the 0:02:50.880 --> 0:02:53.280 sense in the world for them to be borrowing. Louis 0:02:53.320 --> 0:02:56.440 you said that this market is open for good borrowers, 0:02:56.440 --> 0:02:59.640 and the bifurcation has never been more, never been greater, 0:02:59.680 --> 0:03:03.040 whether the good corporate borrow or a good consumer borrow. 0:03:03.080 --> 0:03:05.919 When we're seeing that bleed out in the economic numbers, 0:03:05.919 --> 0:03:08.640 with the jobless reports on Thursday as well as Friday 0:03:08.639 --> 0:03:11.200 that we're expecting this week, can the U s economy 0:03:11.280 --> 0:03:17.600 maintain some sort of growth trajectory with that divergence intact. So, like, 0:03:17.720 --> 0:03:20.560 one of the things which is different about this shock 0:03:20.680 --> 0:03:25.480 from others is how concentrated it is bisector. So those 0:03:25.520 --> 0:03:28.520 parts of the economy that depend on social contact, the 0:03:28.560 --> 0:03:32.760 most obvious ones being restaurants and entertainment and all of 0:03:32.800 --> 0:03:36.640 that are being devastated by this, other parts of the 0:03:36.680 --> 0:03:39.760 economy that are frankly much less dependent on that and 0:03:39.840 --> 0:03:42.000 can adapt to working from home and all of those 0:03:42.000 --> 0:03:46.680 things are are obviously doing much better. And it's very 0:03:46.760 --> 0:03:50.080 unusual to have a shock like this that has that disparity, 0:03:50.120 --> 0:03:53.200 So it really starts with that. I think as we 0:03:53.280 --> 0:03:55.480 come out of this, as we back away from the 0:03:55.520 --> 0:03:58.480 most extreme version of social distancing, as we learn how 0:03:58.480 --> 0:04:00.960 to do these things without and ringing the same kind 0:04:00.960 --> 0:04:04.560 of exposure, I think you will see those disparities start 0:04:04.640 --> 0:04:07.520 to diminish. But they're going to be with us for 0:04:07.560 --> 0:04:11.000 a long time. So I think the real problem is 0:04:11.760 --> 0:04:15.320 the jobs available for people who have done that stuff 0:04:15.360 --> 0:04:18.320 that depends on social distancing. They're going to be depressed 0:04:18.320 --> 0:04:22.400 for a while. So the US Budget Office came out 0:04:22.440 --> 0:04:24.400 with a projection saying that it may take nearly a 0:04:24.440 --> 0:04:27.520 decade for the US economy to recover from the shock 0:04:27.600 --> 0:04:30.400 that we just saw. What does that mean in terms 0:04:30.400 --> 0:04:33.039 of the unemployment rate going forward on a sort of 0:04:33.040 --> 0:04:36.760 sustainable basis over the next five years. So look, I 0:04:36.800 --> 0:04:40.480 think the experience we had before COVID nineteen, which suggested 0:04:40.520 --> 0:04:43.599 that we could get the unemployment rate down to very 0:04:43.640 --> 0:04:46.480 low levels without having those sorts of problems of inflation 0:04:46.520 --> 0:04:48.600 we've had in the past. I think that is relevant 0:04:48.640 --> 0:04:51.160 experience for what we're going to where we should try 0:04:51.240 --> 0:04:54.080 and get to in the long run. But look, we 0:04:54.080 --> 0:04:56.680 haven't seen unemployment at these levels since a great depression. 0:04:57.720 --> 0:05:01.360 The when we had the Great Recession a decade ago, 0:05:01.360 --> 0:05:03.640 the unemployment rate got to ten percent and it took 0:05:03.720 --> 0:05:06.240 us eight or nine years to get it down below 0:05:06.680 --> 0:05:11.839 four percent. It's over fifteen now. It's going higher before 0:05:11.920 --> 0:05:14.440 this is over. Yes, it is going to take a 0:05:14.480 --> 0:05:16.760 long time for us to get back. I'm not sure 0:05:16.760 --> 0:05:18.880 it's necessarily going to take as long as it did 0:05:19.480 --> 0:05:23.000 following the last big recession, but it's going to take 0:05:23.040 --> 0:05:26.279 a long time. This is the issue, Tom, the number 0:05:26.279 --> 0:05:30.320 one issue, and Lisa raises exactly the right question on unemployment. Tom, 0:05:30.440 --> 0:05:32.400 you and I've been talking about this together with Lisa 0:05:32.440 --> 0:05:34.680 over the last several months or so. We could approach 0:05:35.560 --> 0:05:37.520 we could have some real improvement in the back half 0:05:37.520 --> 0:05:39.040 of this year, but we could still end the year 0:05:39.360 --> 0:05:41.640 at double figures. And that's going to be unacceptable and 0:05:41.640 --> 0:05:47.120 should be unacceptable to absolutely everybody's son. Yeah, it's absolutely true, 0:05:47.160 --> 0:05:51.880 and Dr Alexander. What's so important about that observation is 0:05:52.040 --> 0:05:54.840 what it does to inequality. You know, we don't need 0:05:54.920 --> 0:05:58.120 to go on a Tuesday into the Genie coefficient and 0:05:58.160 --> 0:06:05.120 all the dynamics of inequality. But has it ever been wider? Um, 0:06:05.600 --> 0:06:07.520 You have to go back a long time for it's 0:06:07.560 --> 0:06:10.880 been worse. We've never had a shock that is more disparate. 0:06:11.480 --> 0:06:12.880 One of the things I will just not to bring 0:06:12.880 --> 0:06:14.640 it back to the employment report we're going to get 0:06:14.640 --> 0:06:19.280 on Friday. Um, we're expecting average hourly earnings to go 0:06:19.400 --> 0:06:22.400 up by one point three percentage points on a month 0:06:22.560 --> 0:06:26.359 when we lose over five million jobs. Now, how do 0:06:26.400 --> 0:06:28.800 you make sense of that? The way you make sense 0:06:28.839 --> 0:06:31.720 of that is the jobs were losing, our low edge jobs, 0:06:32.200 --> 0:06:35.839 and it hid that that disparity between what happens with 0:06:35.920 --> 0:06:39.160 average hourly earnings and the headline employment is a direct 0:06:39.200 --> 0:06:43.080 reflection of the inequality of the effects of this. And 0:06:43.160 --> 0:06:44.919 I do think that that is an aspect of this 0:06:45.080 --> 0:06:47.680 which we can't get away from, and it's going to 0:06:47.760 --> 0:06:50.960 affect the politics of this in some ways. These are 0:06:50.960 --> 0:06:52.680 trends that have been out there for a long time. 0:06:52.839 --> 0:06:56.400 They're not really new, but it is very much going 0:06:56.480 --> 0:07:00.360 to sort of highlight those problems, and I think it's 0:07:00.360 --> 0:07:03.159 going to be an important part of the election. What 0:07:03.360 --> 0:07:07.599 is the social policy that begins to nudge us away 0:07:07.640 --> 0:07:11.119 from this abrupt inequality? I mean the tradition of Yale 0:07:11.160 --> 0:07:15.600 academics is Robert Schiller and James Tobin in others where 0:07:15.600 --> 0:07:19.920 there was an advocacy for social policy. This is America 0:07:20.000 --> 0:07:23.040 that's not doing so well on social policy right now. 0:07:23.560 --> 0:07:26.880 What's the best case to begin to take us from 0:07:26.960 --> 0:07:30.920 our inequalities? UM? I think you have to try and 0:07:30.960 --> 0:07:34.760 address UM the underlying causes and start from the beginning, 0:07:34.840 --> 0:07:38.480 and a lot of that is about education, it's about 0:07:38.640 --> 0:07:42.360 access to UM social services. So one of the things 0:07:42.400 --> 0:07:46.440 that's very striking about this is the incidents of mortality 0:07:46.440 --> 0:07:50.000 around COVID nineteen is related to other conditions which are 0:07:50.000 --> 0:07:53.720 related to economic status and your access to healthcare. So 0:07:53.760 --> 0:07:56.400 I think there's some very basic things you can do UM, 0:07:56.440 --> 0:08:00.880 starting with healthcare, but also ultimately coming act to education 0:08:00.960 --> 0:08:04.040 and giving people the skills not only to have higher 0:08:04.080 --> 0:08:06.280 wage jobs, but to have jobs. Frankly, that can be 0:08:06.360 --> 0:08:10.880 done uh remotely. So one of the big disparities again 0:08:11.040 --> 0:08:14.400 is who gets who has the jobs that we can 0:08:14.440 --> 0:08:19.160 do work from home that is in some sense very 0:08:19.240 --> 0:08:23.000 much related to those same inequalities and education that are 0:08:23.040 --> 0:08:26.160 the things we have to start to address. Leu Alexander 0:08:26.280 --> 0:08:28.760 from Namura. Always great to get your thoughts on this program. 0:08:28.760 --> 0:08:35.040 Thanks for your time this morning. Regu Alexander. With this 0:08:35.160 --> 0:08:38.600 moment ago with Namura and John, the backdrop of this, 0:08:38.679 --> 0:08:42.160 if you beautifully stated, is an equity market that's got 0:08:42.200 --> 0:08:44.960 a very much real risk on field, John, do we 0:08:45.000 --> 0:08:48.160 have a wife for that? I don't have a why 0:08:48.280 --> 0:08:51.480 the Federal Reserve sequential improvement as we reopened, Tom, there 0:08:51.520 --> 0:08:53.720 are many reasons. I think there are many, wise, but 0:08:54.000 --> 0:08:55.720 I don't really have a win in a moment like this, 0:08:55.800 --> 0:08:58.720 and why we should be higher. Ectonly futures up thirteen points, 0:08:58.800 --> 0:09:01.600 up four tents of one percent. Let's talk about the 0:09:01.640 --> 0:09:03.960 equity markets. Home came. We can bring in the chief 0:09:04.040 --> 0:09:07.439 US equity strategist of Golman Sachs, a good friend of 0:09:07.480 --> 0:09:09.400 this show. I'm pleased to say David Couston is with 0:09:09.480 --> 0:09:13.120 us now. David, you've called this one unloved. I'd call 0:09:13.200 --> 0:09:16.040 it hated. This move from the bottom all the way 0:09:16.080 --> 0:09:19.440 up and through this morning what's your take at the moment. Well, 0:09:19.440 --> 0:09:23.520 it's interesting the definition between unloved and hated. I guess 0:09:23.559 --> 0:09:26.079 the indifference what Dante said is the really the the 0:09:26.360 --> 0:09:33.560 opposite of but the idea of portfolio managers. They're certainly 0:09:33.600 --> 0:09:36.559 welcomed the idea of a higher market. Most fund managers 0:09:36.679 --> 0:09:40.120 are long biased, long tilted, whether they're a long only 0:09:40.120 --> 0:09:42.360 fun mutual fund or whether hedge fund, they can have 0:09:42.400 --> 0:09:45.839 a long bias. So the rising market has certainly been 0:09:46.080 --> 0:09:50.160 been been welcomed. It's it's been unloved. You could argue 0:09:50.440 --> 0:09:54.679 your your terms hated because most fundationers haven't been positioned 0:09:55.760 --> 0:09:59.160 UH to participated fully in this in this recovery, I 0:09:59.160 --> 0:10:03.360 will certainly stay as strategistic surprise at the magnitude and 0:10:03.400 --> 0:10:06.719 the persistence of the thirty percent moved in the in 0:10:06.760 --> 0:10:10.680 the FMP five. Of course, uh, as you've talked about, 0:10:10.760 --> 0:10:13.640 no doubt and then and others. The rally has been 0:10:13.800 --> 0:10:18.640 so driven by a relatively narrow group of stocks, primarily 0:10:18.640 --> 0:10:22.240 in technology. There's helped lift the indexes, but the the 0:10:22.280 --> 0:10:26.840 underlying typical stock actually hasn't necessarily participated as much as 0:10:26.920 --> 0:10:29.800 the headline index would would would show, and so that's 0:10:29.800 --> 0:10:34.160 an issue that has been of much discussion with with 0:10:34.160 --> 0:10:37.760 with with clients and put foire managers. Now because there's 0:10:37.800 --> 0:10:40.840 one continue to own the leaders of the market. The 0:10:40.880 --> 0:10:45.920 top five concentration UH stocks never been this concentrated in history, 0:10:46.240 --> 0:10:49.560 even back in the Czech bubble of two thousand, the 0:10:49.559 --> 0:10:53.280 top five stocks then we're like eight. Now we're talking 0:10:53.280 --> 0:10:56.959 about one fifth of the market is dominated control the 0:10:57.040 --> 0:11:00.600 represented by by just five companies. So the UH we 0:11:00.640 --> 0:11:04.200 know the drivers diagnostically, and then looking forward the the 0:11:04.320 --> 0:11:08.680 idea of UH the cyclical recovery, which has certainly been 0:11:09.240 --> 0:11:11.839 been been focused in the last couple of weeks, UH 0:11:11.920 --> 0:11:15.480 in the last couple of days, frankly, but the persistence 0:11:15.520 --> 0:11:18.040 of that I would say is is I'm less confident 0:11:18.120 --> 0:11:21.560 about that. Would would focus more strategically on some of 0:11:21.559 --> 0:11:25.040 the market leaders, and whether that's in technology, whether there's 0:11:25.080 --> 0:11:28.280 more secular growth and UH stronger balance sheet, some of 0:11:28.280 --> 0:11:31.760 those characteristics UH, in my view, are more sustainable in 0:11:31.840 --> 0:11:34.520 terms of their drivers. If let's talk about that, it's 0:11:34.559 --> 0:11:37.480 important the reopening rotation has taken place over the last 0:11:37.480 --> 0:11:39.880 couple of weeks. What is it about that rotation that 0:11:39.960 --> 0:11:42.280 you don't think it's durable. What is it about it 0:11:42.320 --> 0:11:44.720 that you don't think it's sustainable? So the key issue 0:11:44.960 --> 0:11:50.160 is the rehiring rates in the United States. The idea is, 0:11:50.240 --> 0:11:53.440 you know, tragically, we have almost forty million people about 0:11:53.480 --> 0:11:57.120 for unemployment initial unemployment over the last nine weeks, and 0:11:57.400 --> 0:12:00.920 how quickly hopefully we'll be quickly, but how how quickly 0:12:01.080 --> 0:12:03.680 and how many? What percentage of those individuals who have 0:12:03.720 --> 0:12:06.880 been laid off for furloughed will be rehired by their employers? 0:12:07.520 --> 0:12:11.480 Basical assumption A lot of people have been making around uh, 0:12:11.520 --> 0:12:14.640 you know, and that will drive the economic activity. And 0:12:14.679 --> 0:12:17.880 as people UH leave shelter in place or begin to 0:12:17.960 --> 0:12:20.640 reopen some of these state economies, does that lead to 0:12:21.000 --> 0:12:24.240 more uh sustainability where you've had a big move already 0:12:24.600 --> 0:12:26.520 uh in a lot of these companies. And I would 0:12:26.640 --> 0:12:30.359 UH answer the question as follows. I prefer and recommend 0:12:30.640 --> 0:12:38.960 that you own domestically facing goods producers as contracted with 0:12:39.360 --> 0:12:42.359 services providers. So every company in the country is classified 0:12:42.360 --> 0:12:45.080 as either a goods producer or a services provider. And 0:12:45.120 --> 0:12:48.560 the lessons from China is that the leading edge of 0:12:48.600 --> 0:12:51.720 the recovery or the restarted the economy Johnathan has been 0:12:51.800 --> 0:12:56.840 led by the toms, led by the industrials, not the consumers. 0:12:56.840 --> 0:12:58.920 So we want to own us companies that are that 0:12:58.960 --> 0:13:03.880 are more business the business you know, of the goods producing. 0:13:04.000 --> 0:13:05.760 Those would be a lot of companies in the in 0:13:05.800 --> 0:13:09.480 the chemical business, uh, chemical space, the machineries of barospace. 0:13:10.080 --> 0:13:12.640 That would be your trade, if you will, your your 0:13:12.679 --> 0:13:16.760 tactical trade. But strategically still looking for stronger balance and 0:13:16.880 --> 0:13:21.439 technology to be offering better returns over time. What's interesting 0:13:21.480 --> 0:13:25.000 your David Costan is small caps. Christopher own over Statigos 0:13:25.040 --> 0:13:28.480 has a brilliant note this morning noticing the elevation of 0:13:28.559 --> 0:13:32.320 small caps, but he asked the golden sacks like question 0:13:32.800 --> 0:13:36.480 of do they on an absolute basis advance and can 0:13:36.520 --> 0:13:40.400 they even advance on a relative basis versus large caps? 0:13:40.760 --> 0:13:43.200 Do you have an affinity for small camps right now? 0:13:44.080 --> 0:13:46.839 I do not, And the reason for that is, UH, 0:13:46.920 --> 0:13:49.480 strictly on the balance sheet. We know the singular risk 0:13:49.640 --> 0:13:53.360 in this UH in this economic dislocation has been a 0:13:53.440 --> 0:13:56.560 collapse in revenues here in the second quarter as most 0:13:56.600 --> 0:13:59.160 of the country, much of the country was was at 0:13:59.200 --> 0:14:01.560 home and just the was a lot of activity and 0:14:01.600 --> 0:14:05.480 therefore liquidity and balancing strengths were key. So the FED 0:14:05.640 --> 0:14:08.400 obviously came in with many programs in terms of the 0:14:08.520 --> 0:14:11.480 UH support in the commercial paper market or in the 0:14:11.480 --> 0:14:13.720 i G market, and back in some of the small 0:14:13.760 --> 0:14:16.240 and angels in the in the high yield market, but 0:14:16.520 --> 0:14:20.480 still the liquidity and solvency or critical issues in the 0:14:20.560 --> 0:14:24.160 uncertain path of recovery, and therefore would rather own companies 0:14:24.160 --> 0:14:28.280 with stronger balanties which characteristically are larger companies as contrasted 0:14:28.320 --> 0:14:31.440 with smaller companies which typically have more leverage and UH 0:14:31.480 --> 0:14:34.040 in just they're less flexibility on the on the on 0:14:34.080 --> 0:14:37.480 the financing side. David, perhaps the theme of the year 0:14:37.800 --> 0:14:41.360 is growing disparity, whether it's in income's low and high 0:14:41.400 --> 0:14:44.240 income households, whether it's the companies that are doing well 0:14:44.280 --> 0:14:46.680 in the stock market or not doing well. And then 0:14:46.680 --> 0:14:49.240 the latest from the US Budget Department coming out and 0:14:49.280 --> 0:14:51.440 showing that the economy is not going to recover in 0:14:51.480 --> 0:14:54.400 the United States for nearly a decade from the shock 0:14:54.520 --> 0:14:57.840 that has just experienced. How long can the US equity 0:14:57.880 --> 0:15:02.640 market as a collective remain divorced from this underlying economic 0:15:02.680 --> 0:15:07.000 reality as put out there by the United States UH. 0:15:07.040 --> 0:15:12.320 As you said, it is the critical question for both 0:15:12.360 --> 0:15:17.240 society and for the investor community about the what appears 0:15:17.240 --> 0:15:20.240 to be clear dislocation between the path of what the 0:15:20.240 --> 0:15:23.240 economy is going through and where the equity markets, which 0:15:23.560 --> 0:15:25.960 we know a couple of things. Number one, the equity 0:15:26.000 --> 0:15:28.560 market is a discounting mechanism, so it looks out into 0:15:28.600 --> 0:15:30.960 the future and brings this forward. So it is clearly 0:15:30.960 --> 0:15:37.440 anticipating a steady restart, basically implying that there's not a 0:15:37.520 --> 0:15:40.480 lot of dislocation, whether that's through the you know, second 0:15:40.560 --> 0:15:43.960 viral wave, various other just it's going to basically be 0:15:44.160 --> 0:15:47.960 a steady renormal normalization of the of the process. And 0:15:48.000 --> 0:15:51.680 that is the first, you know argument and why the 0:15:51.680 --> 0:15:54.480 equity market has been rising so much. But we have 0:15:54.520 --> 0:15:57.040 to understand as well that the stock market is not 0:15:57.160 --> 0:16:00.560 a pure reflection of the economy. It's definitely much more 0:16:00.600 --> 0:16:04.600 skewed towards stronger balance sheet companies for example, Uh, it's 0:16:04.960 --> 0:16:09.120 skewed towards businesses which are more in technology. It's much 0:16:09.200 --> 0:16:11.600 less in the housing market than the rest of the economy. 0:16:11.640 --> 0:16:15.000 So there's because they're not purely uh, you know, representative 0:16:15.080 --> 0:16:18.000 one or the other. But ultimately there is you know, 0:16:18.080 --> 0:16:20.840 you mentioned there were divorced between there's been some linkage 0:16:20.880 --> 0:16:24.200 between the earnings of a company and the overall size 0:16:24.240 --> 0:16:27.400 of the economy, and the economy is basically driving revenues, 0:16:27.760 --> 0:16:31.000 and the expectation is businesses getting is getting better. You 0:16:31.040 --> 0:16:34.520 didn't quite get that, frankly, in the commentary from corporate 0:16:34.520 --> 0:16:37.560 management in the first quarter conference calls that just ended. 0:16:37.800 --> 0:16:41.280 They were generally more subdued to lots of concerns about 0:16:41.320 --> 0:16:44.160 the pace of restart And so it would suggest to 0:16:44.240 --> 0:16:47.440 me the STP valve bundered at these levels is trading 0:16:47.440 --> 0:16:49.440 at a higher level than I half at the end 0:16:49.440 --> 0:16:52.360 of the year right about, you know, roughly they'll same level. 0:16:52.440 --> 0:16:54.640 But three thousand is a target the end of the year. 0:16:54.880 --> 0:16:57.240 And if I think about the risks around this, you're 0:16:57.280 --> 0:17:01.160 looking at modest upside risk maybe five send opportunity and 0:17:01.240 --> 0:17:04.320 five foot to its thirty two. And that's basically because 0:17:04.359 --> 0:17:08.480 positioning is light neutral to light, and that's where it's 0:17:08.480 --> 0:17:13.000 been hovering. So investors have not been super embracing using you, Jonathan, 0:17:13.040 --> 0:17:15.280 your terminology, it's sort of it's, you know, a hated rally. 0:17:15.320 --> 0:17:17.840 They have not participated on the other hand, you have 0:17:17.960 --> 0:17:20.479 the concerns about the pace of the restart and can 0:17:20.520 --> 0:17:22.800 you get all these people back? Do you have a 0:17:22.840 --> 0:17:26.720 sustainable recovery in the market? Therefore, puts down at fifty 0:17:26.880 --> 0:17:29.280 would be ten percent? Is eight in metro skew somewe 0:17:29.320 --> 0:17:32.280 to the downside. Uh from the risk point of view, David, 0:17:32.280 --> 0:17:34.119 I'm happy to wrap up an interview. When you borrow 0:17:34.240 --> 0:17:36.199 a phrase of mine, I'm always happy to lend that 0:17:36.200 --> 0:17:38.880 to you. David Custod of Government Sacks, the chief US 0:17:38.920 --> 0:17:40.960 equity strategistad I have the famili is doing well. We 0:17:41.000 --> 0:17:48.399 appreciate your time this morning. We usually speak on the 0:17:48.480 --> 0:17:51.919 international relations of the in Bremer, but today we speak 0:17:51.920 --> 0:17:54.560 with Dr Bremer. If you raise your group about the 0:17:54.600 --> 0:17:58.760 international and domestic relations of a better America. All of 0:17:58.800 --> 0:18:00.919 us are in search of that and we need to 0:18:00.960 --> 0:18:03.879 fight our way through in the coming nights and days 0:18:04.280 --> 0:18:08.040 to find that better America. Dr Bremer, you were out 0:18:08.040 --> 0:18:10.640 in the streets of Manhattan last night, as we were 0:18:11.160 --> 0:18:14.200 before the curfew. It is the challenges of a New York. 0:18:14.600 --> 0:18:17.920 What is your reading of history of how we somehow 0:18:18.040 --> 0:18:22.719 get beyond looting? Well, you know, we know that looting 0:18:22.760 --> 0:18:27.520 doesn't define the protest movements. Uh, and and nor the 0:18:27.560 --> 0:18:32.639 depth of the level of disaffection that exists in the 0:18:32.760 --> 0:18:36.479 United States right now. This didn't start with Trump. Uh. 0:18:36.600 --> 0:18:40.520 It's the reason we got Trump. Indeed, is because so 0:18:40.560 --> 0:18:46.160 many Americans feel like they don't have the opportunity, that 0:18:46.240 --> 0:18:49.600 the American dream does not apply to them. Uh. Those 0:18:49.680 --> 0:18:52.200 lessons were not learned after two thousand and eight, two 0:18:52.200 --> 0:18:55.639 thousand nine. They weren't learned with the Occupy Wall Street movement. 0:18:56.160 --> 0:18:59.879 Now they've come back in much more dramatic form. And 0:19:00.040 --> 0:19:05.600 part because inequality is worse, in part because unemployment and 0:19:05.760 --> 0:19:09.200 forty million newly unemployed with their slips over the past 0:19:09.200 --> 0:19:12.719 two months, And in part because the least privileged and 0:19:12.880 --> 0:19:17.240 most particularly African Americans in the United States have suffered 0:19:17.440 --> 0:19:21.439 the most dramatically on the back of this horrible coronavirus. 0:19:21.520 --> 0:19:24.679 So you know, these things are cyclical, um, and the 0:19:24.760 --> 0:19:28.560 geopolitics and the economic cycles right now, unfortunately are lining 0:19:28.680 --> 0:19:30.879 up in a very negative way and it's going to 0:19:30.960 --> 0:19:32.800 take us a long time to dig out of this time. 0:19:33.080 --> 0:19:36.439 Dr Bremer give our international audience, and particularly our younger 0:19:36.560 --> 0:19:40.400 viewers and listeners, a primer on what Max Boot alluded 0:19:40.440 --> 0:19:44.159 to in the Washington Post yesterday, which is the similarities 0:19:44.200 --> 0:19:48.560 of the president's tech to George Wallace of another time 0:19:48.640 --> 0:19:53.360 in place. How narrow is the president's perspective or does 0:19:53.400 --> 0:19:56.520 he speak to a much, much greater part of America 0:19:56.920 --> 0:20:01.120 than Governor Wallace of Alabama? Ever? Did I do think 0:20:01.160 --> 0:20:06.080 that Trump speaks to a large percentage of disaffected Americans? 0:20:06.119 --> 0:20:11.520 What's amazing? I just mentioned unemployment, six to eight percent 0:20:11.600 --> 0:20:15.680 contraction expected an economy this year, and yet Trump's approval 0:20:15.800 --> 0:20:20.639 ratings blended at about forty two percent average polls, exactly 0:20:20.640 --> 0:20:25.000 where he was when unemployment was at record lows and 0:20:25.040 --> 0:20:28.040 when we were expecting moderate growth in the United States. 0:20:28.480 --> 0:20:32.080 That that tells you something about how much support Trump has, 0:20:32.119 --> 0:20:36.720 how strong it is, and also how fundamentally divided the 0:20:36.760 --> 0:20:39.600 country is. So if you look at Trump and his 0:20:39.800 --> 0:20:44.840 electoral game plan for November, he doesn't think that he's 0:20:45.119 --> 0:20:47.840 trying to win over black votes. I mean, he'd liked 0:20:47.880 --> 0:20:51.000 them not to vote because it gives them a better shot. 0:20:51.080 --> 0:20:55.000 But Biden's got that locked up. You know, He's not 0:20:55.160 --> 0:20:58.919 trying to pick up you know, voters in California or 0:20:58.920 --> 0:21:02.280 here in New York, city. He's gonna lose the popular vote, 0:21:02.320 --> 0:21:04.919 probably by several million, but he could still win again. 0:21:05.400 --> 0:21:09.119 And the way he wins again um is by ensuring 0:21:09.640 --> 0:21:13.080 that his base, which is narrower than Biden's but much 0:21:13.119 --> 0:21:17.840 more enthusiastic, feels like coming out to the polls, and 0:21:17.920 --> 0:21:23.000 that on the coronavirus side means don't worry about the virus, 0:21:23.400 --> 0:21:25.480 don't wear a mask. If you don't feel like it, 0:21:25.800 --> 0:21:30.119 try hydroxy chlora queen. Maybe it'll work. Get back to work. 0:21:30.560 --> 0:21:33.920 It's normal. While on the blue side of the equation 0:21:34.440 --> 0:21:38.600 it's fear, lockdown, panic, and maybe they won't mote vote 0:21:38.600 --> 0:21:42.280 as much. If you add that to proximate danger of 0:21:42.400 --> 0:21:47.639 national security, domestic tranquility, the national Guard, the military on 0:21:47.720 --> 0:21:50.800 the streets, maybe they can make voting more challenging in 0:21:50.840 --> 0:21:55.639 person in places that he really doesn't want to see turnout. 0:21:56.080 --> 0:21:57.919 And that's what the fight is going to be about 0:21:58.000 --> 0:22:00.879 in November. You'll remember, Tom, when you were at your 0:22:00.960 --> 0:22:03.359 Asia group at the beginning of the year, for the 0:22:03.400 --> 0:22:07.760 first time since I started the firm, the single top 0:22:07.920 --> 0:22:12.200 risk was a domestic us concern. It's never been true. 0:22:12.320 --> 0:22:14.680 You're right. You and I usually talk about the rest 0:22:14.720 --> 0:22:18.640 of the world, because the political risk environment usually comes 0:22:19.400 --> 0:22:22.640 from the rest of the world. But this year it's 0:22:22.720 --> 0:22:27.000 actually the feeling that the system is so badly rigged 0:22:27.440 --> 0:22:32.960 against disenfranchised white warp humdal class, against African Americans facing 0:22:33.080 --> 0:22:36.760 systemic police abuse, and that that is a real concernation. 0:22:37.359 --> 0:22:42.360 Dr Bremer. Let me bring in my colleague John Farrell. Okay, well, 0:22:42.359 --> 0:22:44.320 thanks for that, Tom. I appreciate that he had and 0:22:44.359 --> 0:22:46.760 I've spoken many times and let's build on some of that. 0:22:47.000 --> 0:22:49.680 Whether we are at an inflection point. Do you believe 0:22:49.720 --> 0:22:51.920 we are in an inflection point or were we look 0:22:51.960 --> 0:22:54.560 back at this moment with disappointment that this was just 0:22:54.600 --> 0:22:58.800 another moment in time. But I don't think that we 0:22:58.920 --> 0:23:02.560 are on the brink of civil war the way some 0:23:02.720 --> 0:23:06.840 in the mainstream media we're actually saying yesterday. And I 0:23:06.880 --> 0:23:10.280 don't believe that we're about to become an authoritarian state. 0:23:10.320 --> 0:23:13.920 The United States is not hungary. Separation and balance of 0:23:14.040 --> 0:23:18.240 powers are much stronger, the deep bureaucracy is much stronger. 0:23:18.480 --> 0:23:23.040 But um, I do think that the level of political 0:23:23.200 --> 0:23:27.560 dysfunction in the United States UM is far deeper than 0:23:27.560 --> 0:23:29.800 at any point in my lifetime. I was born in 0:23:29.880 --> 0:23:34.600