WEBVTT - Surveillance: Biden Plans With Bernstein 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:30.160 dot Com, and of course on the Bloomberg Terminal. Let's 0:00:30.160 --> 0:00:32.400 bring at Jared wood It now Banks America Security's head 0:00:32.600 --> 0:00:35.800 of the Research Investment Committee. Jarre's your line, not mine. 0:00:36.040 --> 0:00:38.239 We update our view on the US China shift from 0:00:38.320 --> 0:00:43.560 trade war to Capitol Wall. What does that mean, Jared? Well, hey, John, 0:00:43.560 --> 0:00:46.000 it means that, you know, this is this goes from 0:00:46.000 --> 0:00:49.800 a very narrow you know, fight around soybeans and then 0:00:49.840 --> 0:00:53.760 maybe semi conductors under the last administration too. In the future, 0:00:54.360 --> 0:00:56.720 much more open ended, all hands on deck, you know, 0:00:56.840 --> 0:01:01.440 complete follow mobilization. Well that's a year anyway. When we 0:01:01.480 --> 0:01:03.280 looked at this bill, you know, one of the things 0:01:03.280 --> 0:01:05.880 we saw is that is that although of course you 0:01:05.880 --> 0:01:09.280 guys are right, there's there's this bipartisan you know, rhetoric, 0:01:09.400 --> 0:01:12.520 there's there's some unanimity politically in Congress. I mean, Congress 0:01:12.600 --> 0:01:16.120 voted unanimously. I believe, you know, to delist Chinese A 0:01:16.200 --> 0:01:18.520 d R s from US exchanges last year. But when 0:01:18.520 --> 0:01:20.720 we look at this bill, we find something a little different. 0:01:20.720 --> 0:01:22.280 The numbers will teams that quite match up. I mean, 0:01:22.319 --> 0:01:25.080 if you think about research and development, which is undoubtedly 0:01:25.560 --> 0:01:27.800 you know, the front lines of the future of new 0:01:27.840 --> 0:01:30.319 technology and who's gonna win the future, I think the 0:01:30.400 --> 0:01:33.000 Chinese National Party Congress just to prove something like five 0:01:33.080 --> 0:01:35.520 hundred billion dollars for R and D. They've they've been 0:01:35.560 --> 0:01:37.360 beating the US on this measure for a while and 0:01:37.360 --> 0:01:41.160 really ramping up the bill that the Bide administration just produced. 0:01:41.560 --> 0:01:43.680 It's not five billion. I think it's about a hundred 0:01:43.680 --> 0:01:47.400 and eighty billion for research and development investment. And that 0:01:47.480 --> 0:01:50.440 doesn't sound like catching up to me. Such a watertime 0:01:50.560 --> 0:01:53.720 King brning to you, and I really want to congratulate you, folks. 0:01:53.720 --> 0:01:56.760 It is rare that someone at any bank puts on 0:01:56.880 --> 0:01:59.680 a research report where the world stops. I think John 0:01:59.680 --> 0:02:01.960 and I at least you can agree that when Woodard 0:02:02.000 --> 0:02:06.080 publishes really the whole global Wall Street world stops to 0:02:06.200 --> 0:02:08.600 read what he's talking about. Jared, what are you in 0:02:08.639 --> 0:02:12.120 Bank of America say about what institutions are gonna do 0:02:12.240 --> 0:02:14.840 with their cash, not what the public is gonna do, 0:02:15.200 --> 0:02:17.080 but what is Global Wall Street going to do with 0:02:17.160 --> 0:02:21.440 their cash in a boom economy. Well, they're there time 0:02:21.480 --> 0:02:23.880 there is. There's some reason for optimism because our our 0:02:24.120 --> 0:02:25.720 at Bank of America is that we're on the cusp 0:02:25.919 --> 0:02:29.280 of one of the biggest capex booms in modern history. 0:02:29.280 --> 0:02:30.359 I mean, I think you'll have to go back to 0:02:30.440 --> 0:02:33.119 Ronald Reagan to see a period over the next five 0:02:33.200 --> 0:02:36.280 years that will look, you know, uh, quite like this one. 0:02:36.360 --> 0:02:41.200 So we do expect the industrials, um technology, other firms 0:02:41.240 --> 0:02:44.280 are going to be expanding capacity rapidly. Part of that 0:02:44.320 --> 0:02:46.440 is just an organic rebound coming out of the recession, 0:02:46.600 --> 0:02:49.280 but part of it is going to be planning unmet 0:02:49.280 --> 0:02:51.919 demand that they'll want to build into for the first 0:02:51.960 --> 0:02:54.280 time in a very long time. And so we do 0:02:54.360 --> 0:02:57.280 expect that there's gonna be new building in property, plants, 0:02:57.280 --> 0:03:00.480 and equipment, I mean real fixed aff that physical investment um, 0:03:00.560 --> 0:03:03.800 not just intellectual property, not just ways to squeeze you know, 0:03:03.840 --> 0:03:06.600 more efficiency out of workers, which has been the trend 0:03:06.600 --> 0:03:09.200 for for quite time. So if we have supercent capex growth, 0:03:09.480 --> 0:03:11.800 you know, as our trend for a while. Um, you know, 0:03:11.840 --> 0:03:15.600 our commists expect our our analysts expect a wide ranging surge, 0:03:15.639 --> 0:03:17.760 and I think that's gonna be a real positive for 0:03:17.919 --> 0:03:21.519 US GDP Jared. How do you factor in potentially higher 0:03:21.600 --> 0:03:27.160 taxes on corporations with this expectation for a capex boom. 0:03:27.200 --> 0:03:29.919 It's a tricky moment. Obviously, a lot of a lot 0:03:29.960 --> 0:03:31.760 of you know, corporate leaders are going to push back 0:03:31.760 --> 0:03:33.359 about this, and I say, I think it's important to 0:03:33.400 --> 0:03:35.720 keep in mind from the from the bide administration side 0:03:35.720 --> 0:03:38.520 of things, that this is undoubtedly an opening bid. You know, 0:03:38.600 --> 0:03:40.320 you have to play a bad cop before you can 0:03:40.360 --> 0:03:43.120 play good cop. You have to show two progressives that 0:03:43.160 --> 0:03:45.440 you know, you try to to hike taxes on the 0:03:45.520 --> 0:03:48.320 rich and tack taxes on corporations, etcetera. So that when 0:03:48.320 --> 0:03:51.160 moderates UH come in and then pushed back, you can 0:03:51.160 --> 0:03:53.600 sort of make some compromises. So you know, I don't 0:03:53.600 --> 0:03:56.200 think anyone expects that the final bill, whatever does get past, 0:03:56.480 --> 0:03:59.720 will necessarily look like this. But that being said, I 0:03:59.720 --> 0:04:02.720 think everyone agrees, including corporate leaders, that if you grow 0:04:02.760 --> 0:04:05.640 the high enough, um, you know, paying a slightly higher 0:04:05.640 --> 0:04:08.800 share of taxes is a trade well worth making this 0:04:08.840 --> 0:04:12.880 is the analysis. What's the market kill? The market call 0:04:12.960 --> 0:04:14.960 is that the real openings priced then, I mean the 0:04:14.960 --> 0:04:18.560 summer spending, the wet, hot American summer that we're about 0:04:18.600 --> 0:04:20.720 to get where everyone you know goes a little that 0:04:20.800 --> 0:04:23.159 nuts for a little while. Uh is gonna feel great 0:04:23.680 --> 0:04:27.200 for the real economy. It's it's already priced into Wall Street, 0:04:27.200 --> 0:04:29.240 and it may not feel great to Wall Street. Remember April, 0:04:30.400 --> 0:04:33.680 you had the real economy in tatters and stocks, you know, 0:04:33.800 --> 0:04:35.960 ripping higher. I think we're about to see something more 0:04:36.040 --> 0:04:38.440 like the reverse in which the real economy reopened. It's 0:04:38.440 --> 0:04:40.560 a great time for people who you need to find 0:04:40.640 --> 0:04:43.400 jobs and and and markets don't really have that much 0:04:43.400 --> 0:04:45.520 actually to go on, so it could be a little 0:04:45.520 --> 0:04:48.080 bit of a digestion moment um. I think what matters 0:04:48.160 --> 0:04:51.000 more is what happens when you do see infrastructure paths. Now, 0:04:51.240 --> 0:04:52.640 we're gonna be talking about this for a while. There's 0:04:52.680 --> 0:04:54.560 gonna be a lot of political back and forth, you know, 0:04:54.600 --> 0:04:56.360 this summer around these builds. I think it's one of 0:04:56.400 --> 0:04:59.080 these unusual moments where you actually want to you know, 0:04:59.360 --> 0:05:01.800 sell the tell the rumor and buy the news like 0:05:01.920 --> 0:05:03.480 by and once you actually know what's in the bill 0:05:03.560 --> 0:05:05.520 and what can get passed and will get done, and 0:05:05.760 --> 0:05:08.320 and on on that front, I think you know investors 0:05:08.400 --> 0:05:11.240 have not at all priced anything, and and you are 0:05:11.279 --> 0:05:13.800 not ready in oppositions for for what's going to come. 0:05:14.000 --> 0:05:16.320 It's just gonna acquire a lot more analysis until we 0:05:16.360 --> 0:05:18.680 get there, Jared, I want to finish on this idea 0:05:18.800 --> 0:05:21.960 of how individuals are going to spend cash, not just corporations. 0:05:22.000 --> 0:05:24.760 And you had in your phenomenal note the idea that 0:05:24.880 --> 0:05:28.600 sixty of the excess savings, the excess cash savings the 0:05:28.680 --> 0:05:30.839 United States, about more than one and a half trillion dollars, 0:05:30.839 --> 0:05:34.200 has gone to the top of income earners. The idea 0:05:34.320 --> 0:05:37.040 here that they are less likely to spend perhaps not 0:05:37.120 --> 0:05:40.479 as inflationary as people had expected. Can you please elaborate 0:05:40.480 --> 0:05:45.000 on that absolutelyly. So. We know from history that folks 0:05:45.000 --> 0:05:46.960 who already have quite a lot of money don't tend 0:05:47.000 --> 0:05:49.480 to spend it in an aggressive way if they get 0:05:49.520 --> 0:05:51.960 a little bit more. That's not true for middle and 0:05:51.960 --> 0:05:54.560 lower income households, who are sort of hands the mouth 0:05:55.160 --> 0:05:59.760 every every paycheck matters. So historically, when you give some 0:05:59.800 --> 0:06:02.400 ext r income to the bottom brackets, you know they 0:06:02.440 --> 0:06:04.200 will send it more. And that's that's been the kind 0:06:04.200 --> 0:06:06.559 of hopes I think in the Byte administration, uh, even 0:06:06.560 --> 0:06:08.560 the Trump administration last year in terms of getting aid 0:06:08.600 --> 0:06:10.560 out to people. Well, we found in this survey is 0:06:10.600 --> 0:06:12.880 that some of the you know, some of the respondents 0:06:13.279 --> 0:06:16.559 are telling us that with the sinus checks, they're actually 0:06:16.560 --> 0:06:19.920 gonna save um most of it or or majority said 0:06:19.920 --> 0:06:21.800 that they're going to save either keep it in cash, 0:06:21.839 --> 0:06:24.680 payoff debts. Uh, you know, maybe save it in some 0:06:24.720 --> 0:06:27.320 financial assets, put it into the market, but they're not 0:06:27.320 --> 0:06:28.960 going to be spending in the real economy by the 0:06:29.040 --> 0:06:32.200 same degree that history would suggest. And that's why our 0:06:32.240 --> 0:06:35.359 comments expect, yes, a surgeon inflation this summer, you know, 0:06:35.560 --> 0:06:37.680 a bit of a wild moment, but that by next 0:06:37.680 --> 0:06:41.080 December we're back below two percent inflation. Jared, before you run, 0:06:41.200 --> 0:06:43.880 let's talk about something actual economist suggests the same, Michelle 0:06:43.920 --> 0:06:47.919 Mind leading them a million tomorrow, a million payrolls growth. 0:06:47.960 --> 0:06:51.839 What's behind it? Jarrett, I think you're seeing, I mean 0:06:52.200 --> 0:06:54.240 in in in some parts of the country where folks 0:06:54.279 --> 0:06:57.279 are are keeping it tight, uh, you know, where things 0:06:57.320 --> 0:07:00.200 haven't changed very much from you know, six or eight 0:07:00.200 --> 0:07:02.680 months ago. But other parts of the country. They reopened already, 0:07:02.720 --> 0:07:04.280 and I said, I think that's going to feed through 0:07:04.320 --> 0:07:06.480 to the job numbers because people, you know, want to 0:07:06.480 --> 0:07:08.679 get back to normal. Employers want to get back to normal, 0:07:08.720 --> 0:07:10.600 and they're not waiting for the CDC to tell them 0:07:10.600 --> 0:07:13.280 that they can. Very true, Jeff, which said that repeatedly 0:07:13.280 --> 0:07:15.240 on this show. That's for sure, Jared, What did Jared 0:07:15.280 --> 0:07:22.320 get to see you? Jo want to get from Bank America. 0:07:23.040 --> 0:07:24.920 Let's talk to the White House right now at least 0:07:24.920 --> 0:07:26.720 to say that back where us is Jared Bernstein, White 0:07:26.720 --> 0:07:30.800 House Council of Economic Advisors Member Jarget have to forgive me. 0:07:31.000 --> 0:07:33.560 The last conversation we had was about whether the bill 0:07:33.640 --> 0:07:36.320 was too much. Now we're having a conversation about whether 0:07:36.360 --> 0:07:39.559 it's too little. Two point two five trillion over eight years. 0:07:39.840 --> 0:07:42.360 Why does this get it done? This is like the 0:07:42.440 --> 0:07:45.520 Goldilocks story of economic policy. Right, it's too hot, it's 0:07:45.520 --> 0:07:50.320 too cold? Uh? The uh, the bill is UH is 0:07:50.360 --> 0:07:56.600 of a magnitude to really dig into the infrastructure deficiencies 0:07:56.640 --> 0:07:59.040 that have evolved in this country over so many years. 0:07:59.080 --> 0:08:03.080 And as people have said something, praise something, criticism, we 0:08:03.200 --> 0:08:06.720 define it infrastructure quite broidly here to include not just 0:08:06.960 --> 0:08:09.960 roads and bridges, which are essential and something the President's 0:08:10.080 --> 0:08:16.600 long talked about, but also clean energy, housing, the care economy. UM. 0:08:16.640 --> 0:08:19.360 There are many components to this bill. The factory is 0:08:19.400 --> 0:08:22.040 twenty five pages long, and of course there are a 0:08:22.080 --> 0:08:25.400 set of paid for us that more than pay for 0:08:25.520 --> 0:08:29.360 the the expenditures over over fifteen years. I want to 0:08:29.360 --> 0:08:30.920 pick out one of the numbers, jared a hundred and 0:08:30.960 --> 0:08:33.040 eighty billion, of which goes to what's billed is the 0:08:33.040 --> 0:08:36.440 biggest non defense research and development program on record. The 0:08:36.480 --> 0:08:39.319 President keeps bringing up China in the White House statement. 0:08:39.320 --> 0:08:42.000 You talk about the ambitions of an autocratic China a 0:08:42.080 --> 0:08:44.240 challenge of our time, and we've seen the Made in 0:08:44.320 --> 0:08:47.640 China plan that was released several years ago. Jared a 0:08:47.679 --> 0:08:49.360 hundred and eighty billion. It just feels like a dip 0:08:49.480 --> 0:08:50.920 in the ocean. We caught up with Bank of America 0:08:50.920 --> 0:08:52.880 about forty minutes ago on this very topic, who said 0:08:52.880 --> 0:08:55.320 exactly that it's not enough. Why do you think it is? 0:08:56.840 --> 0:08:58.840 Because I think you have to just look at a 0:08:58.840 --> 0:09:01.480 lot of other line items and not just that one. 0:09:01.640 --> 0:09:05.760 This uh, this measure, This American Jobs Plan is replete 0:09:05.800 --> 0:09:09.199 with many more tax credits and incentives for R and 0:09:09.280 --> 0:09:12.080 D and innovation that dig a lot deeper than that. 0:09:12.640 --> 0:09:15.000 There's the ones in the manufacturing space, but there's a 0:09:15.000 --> 0:09:17.520 full spate of ones in the clean energy space. When 0:09:17.559 --> 0:09:20.280 you get to electric vehicles, we do a very deep 0:09:20.360 --> 0:09:25.440 dive into incentivizing the production of not just electric vehicles, 0:09:25.440 --> 0:09:28.839 but charging station and batteries here in this country. So 0:09:28.880 --> 0:09:32.000 this is the largest play I've seen in my economic 0:09:32.080 --> 0:09:36.640 career to onshore industries, to build up nascent industries, to 0:09:36.880 --> 0:09:40.600 grab global market share in areas where we could we 0:09:40.640 --> 0:09:43.160 could beat our competitors. Jared Berson, I want to go 0:09:43.200 --> 0:09:47.000 to your claim book altogether now. The goal here is 0:09:47.040 --> 0:09:50.319 altogether now, and every report I see is a huge 0:09:50.400 --> 0:09:55.360 body of America is in support of infrastructure, etcetera. I 0:09:55.360 --> 0:09:58.400 want you to speak right now to some fancy Republican 0:09:58.840 --> 0:10:02.360 sitting fat nap in a suburb about why they should 0:10:02.400 --> 0:10:07.360 support this bill even if their senator doesn't. Well, if 0:10:07.400 --> 0:10:10.520 they do feel that way, they're they're among a significant 0:10:10.520 --> 0:10:15.400 majority of Republicans support investment in infrastructure. So uh, this 0:10:15.480 --> 0:10:18.160 is something that is widely recognized, as your own reporting 0:10:18.160 --> 0:10:20.760 has showed as a great need. I think there's been 0:10:20.760 --> 0:10:25.000 a pretty significant disconnect between Republican opposition to anything that 0:10:25.080 --> 0:10:28.480 comes from the other side and where constituents and the 0:10:28.520 --> 0:10:31.400 population is at large. And look, Joe Biden got eighty 0:10:31.400 --> 0:10:35.000 one million votes from all of America to not just 0:10:35.320 --> 0:10:39.240 uh fight with folks here, but to make sure that 0:10:39.280 --> 0:10:41.440 he meets the needs of the country. And that's what 0:10:41.600 --> 0:10:43.960 that's that's what he's doing here. What's the mix that 0:10:44.080 --> 0:10:46.480 you see and how do you respond to those on 0:10:46.520 --> 0:10:50.200 the left? What's the mix that I see in the 0:10:50.240 --> 0:10:53.760 mix within the bill? The social programs versus bridges. You know, 0:10:53.840 --> 0:10:56.800 Jinna Romando, the Secretary of Commerce has to fix a 0:10:56.840 --> 0:10:59.440 bridge in Rhode Island. Great, we all get that. But 0:10:59.600 --> 0:11:02.600 in this program, whatever anybody wants to say, there's a 0:11:02.600 --> 0:11:06.400 lot of social messaging, social hope, and plan. How do 0:11:06.440 --> 0:11:10.160 you respond to progressives that want more well, I mean, 0:11:10.640 --> 0:11:12.319 it's funny you should say that. I was just reading 0:11:12.320 --> 0:11:16.000 an article in the Washington Post where Derek Hamilton's, who's 0:11:16.000 --> 0:11:20.199 a I think quite a brilliant and also a renowned progressive, 0:11:20.360 --> 0:11:25.080 a scholar of of of racial disparities, was was pointing 0:11:25.080 --> 0:11:29.000 out that our definition of infrastructure here is broad, and 0:11:29.080 --> 0:11:32.040 it should be not only does the bill do the 0:11:32.120 --> 0:11:35.120 kinds of traditional measures we've talked about and and the 0:11:35.160 --> 0:11:38.600 clean energy and the innovation and the manufacturing part, but 0:11:38.679 --> 0:11:43.080 there's also a deep housing policy that goes after exclusionary zoning, 0:11:43.320 --> 0:11:45.640 which is something you rarely see from the federal government 0:11:45.640 --> 0:11:49.839 with a really interesting competitive program. And and and this 0:11:49.880 --> 0:11:52.600 is an area where systemic racism is embedded. If you 0:11:52.600 --> 0:11:54.800 look at how we stand up the care economy, this 0:11:54.880 --> 0:11:57.040 is something progressives care a lot about. So I think 0:11:57.080 --> 0:12:00.520 if people start looking at what's in here, they're going 0:12:00.600 --> 0:12:04.000 to recognize that it's it's plenty progressive, and especially when 0:12:04.040 --> 0:12:06.960 you get to the highly progressive tax pay for us. 0:12:07.200 --> 0:12:09.439 And I'll just point out that Gina Raimondo is going 0:12:09.440 --> 0:12:12.439 to be on Bloomberg Television today at thirty p m. 0:12:12.520 --> 0:12:14.640 To weigh in more, you know, Jared, I think there's 0:12:14.640 --> 0:12:17.680 a lot of agreement on the end goals of this 0:12:17.760 --> 0:12:20.920 two point to five trillion dollar plan. How we get there, though, 0:12:21.320 --> 0:12:23.760 is a point of contention. And there is this reputation 0:12:23.800 --> 0:12:27.719 of government funded operations being incredibly inefficient. People point the 0:12:27.800 --> 0:12:30.800 DMV waiting in line and waiting on it for hours 0:12:30.800 --> 0:12:34.040 to just speak to someone for a basic procedure. What 0:12:34.120 --> 0:12:36.240 are you telling people to ensure them that we're not 0:12:36.280 --> 0:12:39.240 going to end up with forty d m vs that 0:12:39.280 --> 0:12:43.040 are inefficient and not using money. Well, yeah, that's a 0:12:43.080 --> 0:12:45.360 great question. I have a two word answer for you, 0:12:45.480 --> 0:12:49.240 President by Ok. I worked for Vice President Biden at 0:12:49.240 --> 0:12:52.320 the time during the implementation of the Recovery Act, and 0:12:52.559 --> 0:12:55.720 he recognizes, really more than any politician I've ever worked 0:12:55.760 --> 0:12:58.559 for it. That's simply signing legislation and moving on to 0:12:58.640 --> 0:13:00.520 the next thing. You know, going to land the next 0:13:00.559 --> 0:13:03.439 airplane is not the way to go. We have to 0:13:03.760 --> 0:13:06.280 This is a passion of his. We have to show, uh, 0:13:06.360 --> 0:13:08.560 the American people who are footing the bill for this, 0:13:08.640 --> 0:13:12.600 that we are not just signing documents here, that we're 0:13:12.600 --> 0:13:15.840 paying full attention to implementation. And if you look and 0:13:15.880 --> 0:13:18.600 if you look at the distribution and production of the vaccine, 0:13:19.160 --> 0:13:21.560 I think you see good governance is back in town 0:13:21.600 --> 0:13:23.000 and at work, and you're going to see that in 0:13:23.040 --> 0:13:24.960 this plan as well. I am chucked Jarrett that you 0:13:24.960 --> 0:13:27.240 think the current president is part of the solution. Let 0:13:27.240 --> 0:13:29.480 me get to the next question. Looking forward, where's the 0:13:29.559 --> 0:13:31.680 rest of it? Where the tax hikes now? Swear what 0:13:31.679 --> 0:13:35.080 can we expect, Jared, and when I think the President 0:13:35.120 --> 0:13:37.439 said something to the tune of mid April in terms 0:13:37.440 --> 0:13:40.120 of the next part of this called the Family's Plan, 0:13:40.400 --> 0:13:42.760 And I'm not gonna get ahead of him on on 0:13:42.800 --> 0:13:45.160 the announcements in there, but don't expect you to. Just 0:13:45.200 --> 0:13:47.000 in the time we have charity, you could just characterize 0:13:47.000 --> 0:13:48.640 the effort just a little bit more clearly for us, 0:13:48.679 --> 0:13:51.120 is this a bigger redistribution effort, a big a wealthy 0:13:51.280 --> 0:13:54.320 distribution effort that's still to come in a couple of weeks. 0:13:54.400 --> 0:13:57.320 Much more in the sense of building back better, That is, 0:13:57.360 --> 0:14:00.400 this is an effort to deal to dive more deeply 0:14:00.440 --> 0:14:03.240 into the to the parts of that you see that 0:14:03.360 --> 0:14:05.240 you don't see that much in this point. We do 0:14:05.320 --> 0:14:07.560 have some care economy in here, but there's more to 0:14:07.559 --> 0:14:11.400 do there. There's education, uh, and then there's tax tax 0:14:11.600 --> 0:14:13.880 issues on the personal side of the code. So there's 0:14:13.920 --> 0:14:16.120 there's more to get back to and and we will 0:14:16.679 --> 0:14:19.480 in a matter of weeks, not months, Jered. People view 0:14:19.760 --> 0:14:22.440 this plan as being a starting point in negotiations. Picking 0:14:22.480 --> 0:14:25.200 up on the tax point are the higher taxes on 0:14:25.280 --> 0:14:28.280 corporations and individuals making more than four hundred thousand dollars 0:14:28.520 --> 0:14:32.720 non negotiable going forward. Well, the President has put that 0:14:32.840 --> 0:14:36.240 four hundred thousand line in the sand, and uh, that's 0:14:36.280 --> 0:14:39.240 something he is continually elevated. And I don't think, I 0:14:39.440 --> 0:14:41.960 don't want to say anything's non negotiable because the President 0:14:42.120 --> 0:14:45.280 is consistently shown that he's willing to reach across the 0:14:45.280 --> 0:14:47.480 aisle and try to get input from the other side. 0:14:47.960 --> 0:14:50.920 But that's been a very solid commitment of his. I 0:14:50.960 --> 0:14:53.240 think I think that the idea that we're going to 0:14:53.720 --> 0:14:56.800 just keep doing things and never paying for them. If 0:14:56.840 --> 0:14:58.920 you want to come forward with different ideas of how 0:14:58.960 --> 0:15:01.000 to pay for things as long if you recognize that 0:15:01.240 --> 0:15:03.640 four hundred k boundary, you know we're willing to listen. 0:15:04.400 --> 0:15:09.120 Dr Bernstein. Will the Congressional Budget Office score or analyze 0:15:09.360 --> 0:15:13.160 this bill and what will be their timeline? Eight years, 0:15:13.400 --> 0:15:18.960 fifteen years, or thirty years. Typically the Congressional Budget Office 0:15:19.080 --> 0:15:21.400 uses a ten year budget window, so that would be 0:15:21.440 --> 0:15:24.640 their timeline. Now, this is about an eight year spending plan, 0:15:24.760 --> 0:15:30.480 but the tax increases just continue on uh forever, So 0:15:31.000 --> 0:15:35.080 by year fifteen, the revenue razors pay for the plan. 0:15:35.760 --> 0:15:39.160 But the CBO tends to use a ten year window. Jared, 0:15:39.200 --> 0:15:41.120 It's always good to catch up, and we appreciate the 0:15:41.160 --> 0:15:44.320 on guning contributions to this probagram. Thank you for the tryansparency, 0:15:44.400 --> 0:15:52.280 Jack Bernstein. That White House Council of Economic Advices right now, 0:15:52.360 --> 0:15:54.920 Michael Wilson joins us, MIKEA. Wilson. He has been dead 0:15:54.960 --> 0:15:57.840 on with Morgan Stanley on small Camp. Michael, let me 0:15:57.920 --> 0:16:00.080 just cut to the chase. How do you adapt to 0:16:00.200 --> 0:16:04.880 adjust to Q two? Yeah, well, thanks Toime. Yeah, I 0:16:04.920 --> 0:16:07.280 think the Q two is going to be the actual 0:16:07.320 --> 0:16:10.600 reopening right. So, Um, the dream of reopening, the dream 0:16:10.640 --> 0:16:13.640 of restarting the economy is always you know, bullish, and 0:16:13.640 --> 0:16:16.960 it's a you know, because there's no prove prove it moment. Now, Um, 0:16:16.960 --> 0:16:19.720 as we actually reopen the economy, um, we're gonna have 0:16:19.760 --> 0:16:23.360 to do it. Um and execution risk goes up. So 0:16:23.440 --> 0:16:25.440 that's not the end of the bullmark is and a disaster. 0:16:25.600 --> 0:16:29.040 But at the stock level, you know, we're expecting disappointment. 0:16:29.080 --> 0:16:30.800 I mean, we think it's gonna be difficult for a 0:16:30.800 --> 0:16:32.760 lot of companies to manage this, and all by the way, 0:16:32.800 --> 0:16:35.360 some companies are gonna take advantage of it, take share 0:16:35.400 --> 0:16:37.960 and will operate quite well. So one of our recent 0:16:38.000 --> 0:16:40.760 calls is, you know, we did downgrade small caps instead 0:16:40.760 --> 0:16:42.360 a heck of a run, and it's kind of a 0:16:42.440 --> 0:16:45.800 lower quality area, and we're basically recommending that people do 0:16:46.000 --> 0:16:49.320 upgrade the portfolio bit on the quality side as we 0:16:49.360 --> 0:16:51.840 go through this reopening period in Q two and Q three. 0:16:51.920 --> 0:16:53.160 It's a fair to say you think this is a 0:16:53.240 --> 0:16:56.440 sound the news of ent Mike Well, I don't think 0:16:56.440 --> 0:16:58.480 it's to sell the news in terms of, you know, 0:16:58.480 --> 0:17:00.560 equities over bonds and that we go. I think it's 0:17:00.600 --> 0:17:03.120 more of a let's just get I mean, the low 0:17:03.200 --> 0:17:05.760 quality part of the trade has really worked, as you know, John, 0:17:05.800 --> 0:17:08.080 I mean we've been bullish from the lows on the 0:17:08.160 --> 0:17:11.040 idea that's what always happens, and low quality does really 0:17:11.080 --> 0:17:13.560 well coming off a recession. We looked at that data 0:17:13.640 --> 0:17:16.399 recently and the relative out performance of low quality over 0:17:16.480 --> 0:17:18.840 higher quality and some other things we can talk about 0:17:19.000 --> 0:17:22.280 has been extraordinary small caps over large for example, and 0:17:22.320 --> 0:17:24.159 we just want to capture that because this is the 0:17:24.200 --> 0:17:27.520 time of the recoveries in any cycle where you revert 0:17:27.600 --> 0:17:31.360 back a little consolidation and quality actually becomes more invador again, 0:17:31.359 --> 0:17:34.160 at least temporarily. A foundation for your coal. Mike, along 0:17:34.160 --> 0:17:35.640 with the rest of the team, has just been where 0:17:35.640 --> 0:17:38.280 we are on the cycle, the old playbook, the reopening, 0:17:38.280 --> 0:17:40.959 the recession playbook, the early stage part of the cycle. 0:17:41.000 --> 0:17:42.440 We've moved on from that. In your words, you and 0:17:42.520 --> 0:17:44.480 I've caught up several times on this in the last month. 0:17:44.760 --> 0:17:47.080 Now you're thinking about the duration of the cycle, the 0:17:47.119 --> 0:17:49.760 intensity of the cyclists. Well, can you add in those 0:17:49.840 --> 0:17:53.880 dynamics and why that shapes your thoughts right now? Mike, Yeah, 0:17:53.920 --> 0:17:56.439 I mean we've been waiting to write this note for 0:17:56.480 --> 0:17:59.160 a couple of years, to be honest, because we always 0:17:59.200 --> 0:18:02.040 felt that as we went into this recession, we didn't 0:18:02.040 --> 0:18:04.320 predict a pandemic, but we felt like this next recession 0:18:04.400 --> 0:18:08.040 was going to challenge policymakers because we're still very close 0:18:08.080 --> 0:18:12.160 to the zero bound, and this transition to fiscal policy 0:18:12.640 --> 0:18:15.400 um has only been accentuated by the fact that we're 0:18:15.400 --> 0:18:18.560 in a pandemic. Right there's no governor on what you know, 0:18:18.560 --> 0:18:21.240 politicians can do because it's a health crisis, and that 0:18:21.359 --> 0:18:25.080 was a perfect foil for this accelerated transition to a 0:18:25.160 --> 0:18:27.919 new regime. We think it looks very much like the 0:18:27.960 --> 0:18:30.080 post World War two period in many ways. We we 0:18:30.119 --> 0:18:32.800 wrote about this, and what that really means, bottom line, 0:18:32.920 --> 0:18:34.600 is that we're likely to have more of a boom 0:18:34.600 --> 0:18:37.960 bust type outcome the last thirty years. I mean, as 0:18:38.040 --> 0:18:40.400 rates have been coming down, the fit has been allowed 0:18:40.480 --> 0:18:43.920 to be extraordinarily accommodative, and that's why you had these 0:18:44.000 --> 0:18:47.840 long economic expansions. There was no pressure from monetary policy. 0:18:47.880 --> 0:18:51.080 But we're always shooting below trend on targets on growth 0:18:51.119 --> 0:18:54.040 and inflation. We think that's changing now and what that 0:18:54.080 --> 0:18:58.440 means is more frequent recessions. That's actually a great investment opportunity. 0:18:58.480 --> 0:19:01.080 You know what you're doing, Um, I mean that cycle 0:19:01.119 --> 0:19:03.240 analysis one oh one, And that's why we think this 0:19:03.320 --> 0:19:05.400 note is pretty important for people to read. So, Mike, 0:19:05.520 --> 0:19:07.920 how are you preparing for the bust? And when could 0:19:07.960 --> 0:19:11.080 it be? Oh? It's I mean, look, the next recession 0:19:11.119 --> 0:19:13.200 is not anytime soon. I mean, but look, let's let's 0:19:13.200 --> 0:19:16.359 talk about the last couple of expansions. Least I mean 0:19:16.400 --> 0:19:19.760 the lasted eight years. We think it's probably more like 0:19:19.760 --> 0:19:22.520 four to five years. So and so what that means 0:19:22.520 --> 0:19:24.399 in the very near term is you move out of 0:19:24.440 --> 0:19:27.720 that early cycle playbook to more of a mid cycle playbook, 0:19:28.000 --> 0:19:30.560 and that means, you know, once again, low quality tends 0:19:30.560 --> 0:19:33.000 to you know, not perform as well. As an example, 0:19:33.040 --> 0:19:35.840 small caps tend to not do as well. Um, we 0:19:35.920 --> 0:19:40.359 just upgraded consumer staples relative to consumer discretionary. Consumer discretionary 0:19:40.520 --> 0:19:43.600 tends to be the best early cycle performing group. Well, 0:19:43.640 --> 0:19:45.359 that period is probably coming to an end. So there's 0:19:45.400 --> 0:19:47.600 a lot of things to think about in your portfolio construction. 0:19:47.800 --> 0:19:50.960 How does big tech factor into this, Mike, especially considering 0:19:51.280 --> 0:19:55.040 how high the run up was and where evaluations are. Yeah, 0:19:55.080 --> 0:19:58.160 so tech is um you know, obviously from a cynical standpoint, 0:19:58.240 --> 0:20:01.080 tech should be doing quite well. Because obviously as you 0:20:01.160 --> 0:20:03.439 come out of a recession, things like semi conductors and 0:20:03.480 --> 0:20:06.080 some of the more cynical parts of tech benefit from that. 0:20:06.119 --> 0:20:08.520