WEBVTT - Surveillance: Frictionless Trading With Friedman 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Daily 0:00:13.960 --> 0:00:17.560 we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.800 Bloomberg dot Com, and of course on the Bloomberg. Joining 0:00:27.880 --> 0:00:31.080 us now a Dina Freedman. She's a NAZDAK president and 0:00:31.160 --> 0:00:34.280 chief executive officer Adena. I just saw you on CNBC 0:00:34.400 --> 0:00:36.959 do the Earnings Act. I want to move on from that. 0:00:37.200 --> 0:00:41.160 This primal scream I here right now across global Wall 0:00:41.200 --> 0:00:44.080 Street is that everything is free. As you well know, 0:00:44.240 --> 0:00:48.479 in retail things of running muck. We've got free trades, 0:00:48.560 --> 0:00:51.600 free trades and all of this trading. There's becoming a 0:00:51.680 --> 0:00:56.520 new distrust. Almost of our business is done for retail 0:00:56.640 --> 0:01:00.440 in America. Are you concerned that retails getting a fair 0:01:00.520 --> 0:01:04.840 deal in this new high speed online economy. Well, I 0:01:05.200 --> 0:01:09.120 definitely think that the environment for retail investing has really 0:01:09.200 --> 0:01:12.880 been been pretty pretty great over the last ten years. Frankly, 0:01:12.920 --> 0:01:15.440 I think that you know, the fees that retail has 0:01:15.440 --> 0:01:18.280 had to pay to be able to enter the markets, 0:01:18.319 --> 0:01:20.840 the democratization of the markets by allowing them to have 0:01:20.959 --> 0:01:23.120 direct access to the markets over the last ten to 0:01:23.200 --> 0:01:25.520 twenty years has really been, you know, a key trend 0:01:25.880 --> 0:01:28.120 that has driven I was in the US markets, but 0:01:28.200 --> 0:01:30.440 so I I do think that's a longer term trend. 0:01:30.480 --> 0:01:32.600 The fact that that the commissions have gone to free 0:01:32.640 --> 0:01:36.720 certainly has driven more demand within the retail environment UM 0:01:36.720 --> 0:01:38.959 and retail investors coming into the moment. Is it a 0:01:39.040 --> 0:01:40.560 free lunch? I mean, this is the key thing. And 0:01:40.600 --> 0:01:42.759 I go back, of course to our relationship at DINA 0:01:42.800 --> 0:01:46.120 with Arthur Levitt and his respect for the individual investor 0:01:46.200 --> 0:01:49.120 thirty years ago. Is it a free lunch? I mean 0:01:49.160 --> 0:01:51.360 a Schwab says it's free. T d A Merit Trade 0:01:51.360 --> 0:01:54.760 says it free. You can trade NASTAC shares and it's free. 0:01:54.960 --> 0:01:57.800 Is it a free lunch? Well, I, first of all, 0:01:58.160 --> 0:02:00.760 it really is free for retail UM and I was. 0:02:00.920 --> 0:02:04.480 I was at NASZAC with Arthur Lovitts during his tenure, 0:02:04.560 --> 0:02:06.720 and I do think that he really was on a 0:02:06.760 --> 0:02:09.120 mission to make it so we democratize access at the 0:02:09.160 --> 0:02:11.600 capital markets, and I think he went a long way 0:02:11.639 --> 0:02:14.520 in that regard. The online brokers have done an enormous 0:02:14.560 --> 0:02:17.960 amount to create services that really do benefit retail, and 0:02:18.000 --> 0:02:19.560 I do think that at the end of the day, 0:02:19.600 --> 0:02:22.040 they are getting a good experience. The spreads in our 0:02:22.080 --> 0:02:24.959 markets are extremely narrow, which means they are getting good 0:02:24.960 --> 0:02:28.440 executions and they are now not having to pay commissions 0:02:28.480 --> 0:02:31.639 against and to those retail brokers to gain access to 0:02:31.680 --> 0:02:34.800 the markets. So for them it really is free active Adina, 0:02:34.919 --> 0:02:38.000 the spreads might be narrow. Are there sufficient protections against 0:02:38.160 --> 0:02:41.440 losses in companies, say in China that are filing for 0:02:41.480 --> 0:02:44.040 I p O S here and trading without necessarily the 0:02:44.080 --> 0:02:47.480 same types of oversight the U S companies face. Yeah, 0:02:47.480 --> 0:02:49.640 and that's actually something that we have been in active 0:02:49.639 --> 0:02:52.679 dialogue with the SEC about we UM. We encourage them 0:02:52.680 --> 0:02:55.760 to have a round table recently with the experts, whether 0:02:56.000 --> 0:03:00.720 the underwriter's accounting firms, the lawyers, the SEC itself and NASAC, 0:03:00.840 --> 0:03:02.799 WE and all the ex changes we play a big 0:03:02.880 --> 0:03:05.240 role together and trying to make sure that we've create 0:03:05.280 --> 0:03:08.480 the right disclosure regime for companies coming to the US 0:03:08.560 --> 0:03:12.000 and including companies from China. There are some differences in 0:03:12.120 --> 0:03:15.720 terms of the disclosure obligations that UM that companies have 0:03:15.919 --> 0:03:18.800 coming from China as well as UM some reduced oversight 0:03:18.880 --> 0:03:22.359 that's on the accounting firms that that UM support these companies. 0:03:22.360 --> 0:03:24.760 So that's an area that we are focused on and 0:03:24.760 --> 0:03:27.280 trying to create positive change. I think the SEC is 0:03:27.280 --> 0:03:30.320 also focused on it UM, but those that requires some 0:03:30.919 --> 0:03:33.560 diplomacy between the United States and China, and it's something 0:03:33.600 --> 0:03:37.440 we've really been encouraging them to really to to focus on. aDNA. 0:03:37.480 --> 0:03:40.120 You've been incredibly proactive about all of this. Can you 0:03:40.160 --> 0:03:43.400 just walk us through what you have actually done specifically? Yeah, 0:03:43.440 --> 0:03:46.360 so we we have we have definitely had some concern 0:03:46.760 --> 0:03:48.320 that we want to make sure that we can play 0:03:48.320 --> 0:03:51.800 our role in addressing. So we've increased the our our 0:03:51.880 --> 0:03:55.200 oversight of the accounting firms that are being used by 0:03:55.240 --> 0:03:58.520 the by the Chinese companies. We we normally really have 0:03:58.760 --> 0:04:01.120 rely on the SEC for the but at the same time, 0:04:01.440 --> 0:04:02.920 we do want to make sure that we have some 0:04:03.000 --> 0:04:05.520 oversight over the quality the accounting firms that are being used. 0:04:05.760 --> 0:04:07.920 The second thing is we are requiring at least one 0:04:07.960 --> 0:04:10.800 member of the management team or consultant to the management 0:04:10.840 --> 0:04:13.800 team to have US public company experience. And the third 0:04:13.800 --> 0:04:16.400 thing is we have actually increased the public float requirement 0:04:16.440 --> 0:04:18.919 for companies that are listening from China. And all of 0:04:18.920 --> 0:04:21.320 those three things are things that we can achieve, but 0:04:21.440 --> 0:04:24.320 it's really a broader ecosystem issue that we're trying to 0:04:24.360 --> 0:04:27.160 make sure that that the government is working with the 0:04:27.279 --> 0:04:29.440 Chinese government to address. I mean, I mean this the 0:04:29.480 --> 0:04:32.000 backdrop for this, folks, is really important. Here. It's the 0:04:32.040 --> 0:04:34.440 Ali Bob and the up war over Grand Cayman Islands 0:04:34.480 --> 0:04:37.880 island positioning, you know, up to years ago, etcetera. But 0:04:37.960 --> 0:04:40.600 then Adina, you've got the recent wire card train wreck 0:04:40.680 --> 0:04:44.000 in Germany as well. This is really important. Do you 0:04:44.080 --> 0:04:47.440 and your other markets do you feel the sec is 0:04:47.520 --> 0:04:51.360 ambrogating its duty? Well, I think that the SEC IS 0:04:51.800 --> 0:04:54.279 has an enormous amount of responsibility and they take it 0:04:54.360 --> 0:04:57.720 extremely seriously in terms of the disclosure obligations that they 0:04:57.720 --> 0:05:00.640 place in companies that choose to listen to the United States. UM. 0:05:00.640 --> 0:05:03.080 I do think that they do an excellent job, frankly 0:05:03.440 --> 0:05:07.279 of managing those disclosure obligations and reviewing the companies, being 0:05:07.360 --> 0:05:10.840 very proactive and um writing back questions and comments to 0:05:10.920 --> 0:05:14.120 companies with their filings and it is it is a 0:05:14.200 --> 0:05:17.359 huge part of their role. But but Dina aunt is 0:05:17.440 --> 0:05:20.320 doing Shanghai and Hong Kong. I think I can't remember 0:05:20.560 --> 0:05:25.520 which markets. They're not doing you, They're not doing ny S, e. Etcetera. Okay, great, 0:05:26.120 --> 0:05:28.320 is that a loss for you? Do you care that 0:05:28.360 --> 0:05:31.200 you didn't get the aunt? I p O. I think 0:05:31.240 --> 0:05:33.760 that we should look at the U S Markets as 0:05:33.800 --> 0:05:36.119 really the place where any company from around the world 0:05:36.120 --> 0:05:38.240 will want would want to come and go public. So 0:05:38.279 --> 0:05:40.360 I think that we would like to see you every 0:05:40.360 --> 0:05:42.680 company from around the world choose to listening. Okay, but 0:05:42.720 --> 0:05:44.400 then what are you gonna do about it? Besides, you know, 0:05:44.440 --> 0:05:46.719 the president's out there with the politics of the moment, 0:05:46.760 --> 0:05:49.520 and maybe President Biden President Trump next term will be 0:05:49.560 --> 0:05:52.120 the same way. I don't mean to disparage them, but 0:05:52.200 --> 0:05:56.359 what can you do proactively to maintain America is a 0:05:56.440 --> 0:06:00.480 place to do capitalism? Yeah? Well, first of all, are 0:06:00.480 --> 0:06:02.720 we are the engine of capitalism here in the United States, 0:06:02.760 --> 0:06:04.479 and we're really proud of that role. We want to 0:06:04.480 --> 0:06:06.919 make sure we create a frictionalist trading environment, but we 0:06:06.960 --> 0:06:09.080 also want to make sure we have a really high 0:06:09.160 --> 0:06:12.440 quality disclosure regime that we operate under here in the 0:06:12.480 --> 0:06:14.640 United States. And that's really a combination of the role 0:06:14.640 --> 0:06:17.640 of the SEC, the role of the exchanges, and the 0:06:17.720 --> 0:06:20.240 role of the underwriters and accounting firms as they play 0:06:20.240 --> 0:06:22.840 play their part escape keepers as well. And I think 0:06:22.880 --> 0:06:24.400 that that's something that we have to make sure we 0:06:24.440 --> 0:06:27.200 create that balance, making sure that we have the right 0:06:27.320 --> 0:06:29.760 kind of quality that coming into the United States, but 0:06:29.839 --> 0:06:32.760 also making the capital markets and maintaining them as open 0:06:32.839 --> 0:06:35.520 capital markets for the world. UM, it is a fine 0:06:35.520 --> 0:06:38.880 balance to strike right now, Adina, Have you rejected certain 0:06:38.920 --> 0:06:41.360 I p o s based on the disclosures even if 0:06:41.400 --> 0:06:44.960 the SEC maybe hasn't weighed in. Um, we definitely have 0:06:45.200 --> 0:06:47.200 we go through a second level of review, and we 0:06:47.279 --> 0:06:51.440 do absolutely reject companies that we don't think meet our standards, 0:06:51.480 --> 0:06:53.720 even if they've gone through the disclosure process with the 0:06:53.760 --> 0:06:55.760 SEC as the defense as to catch you out of 0:06:55.760 --> 0:06:57.080 you today, Thank you very much. What you want to 0:06:57.080 --> 0:06:59.719 get to data, Freedman. That that's that, President, And see 0:07:00.080 --> 0:07:13.880 eight right now on the gyrations of the commodity space, 0:07:14.040 --> 0:07:18.000 and it is a deceptive space. The Bloomberg Commodity Index 0:07:18.120 --> 0:07:22.679 is actually really good math and it's about eighteen percent gold, 0:07:22.880 --> 0:07:25.800 and with gold of the moon, clearly that index has 0:07:25.840 --> 0:07:28.040 done better. But what about the rest of the space. 0:07:28.080 --> 0:07:32.120 Francisco Blanche is head of Global commodities and derivatives and 0:07:32.240 --> 0:07:35.280 owns gold up to his eyeballs. He's like gold singer 0:07:35.360 --> 0:07:38.040 in the early Bond movie and he joins us this 0:07:38.080 --> 0:07:41.200 morning as well, Franstanco Blanche. Let's get gold out of 0:07:41.240 --> 0:07:44.680 the way here. Is it dominating all of commodity and 0:07:45.160 --> 0:07:48.400 analysis right now? Are the index is no good just 0:07:48.520 --> 0:07:54.800 because of gold? Uh? It makes me last. Uh Look 0:07:55.080 --> 0:08:00.600 it's uh, we're having old precious metals ripping here. But 0:08:00.720 --> 0:08:04.200 also frankly we've had a pretty good run on industrial medals. 0:08:04.840 --> 0:08:06.880 And then then the one commodity hasn't moved all that 0:08:06.960 --> 0:08:09.520 much has been oil, which has been pretty stable around 0:08:09.520 --> 0:08:12.760 the forty forty fiveular level for for a few for 0:08:12.840 --> 0:08:15.240 a few weeks now. But but yes, there's a lot 0:08:15.240 --> 0:08:17.680 of focus on precess medals, also a lot of focus 0:08:17.800 --> 0:08:19.440 on what China is gonna do next in terms of 0:08:19.680 --> 0:08:23.960 infrastructure and the big pool from from China from a 0:08:24.000 --> 0:08:26.720 resources perspective. So so I think I think you can 0:08:27.040 --> 0:08:31.160 you know, there's a reflation story going on, um and 0:08:31.360 --> 0:08:34.240 uh and obviously called this is the biggest beneficiary because 0:08:34.320 --> 0:08:36.520 of of of a lot of micro factors that have 0:08:37.000 --> 0:08:39.439 that have been piling up to support it right, So, 0:08:40.080 --> 0:08:41.800 so I don't think it's the only story and commodities. 0:08:41.840 --> 0:08:44.600 I also think that industrial medals are are tacking up 0:08:44.600 --> 0:08:48.000 and an oil is kind of waiting on the sidelines 0:08:48.640 --> 0:08:52.000 until until we get a bigger uptake and economic activity. 0:08:52.080 --> 0:08:56.160 That that's I think the reality for oil UM Francisco crisis. 0:08:56.160 --> 0:08:58.320 Hold on a second therapy because there's a sweet spot 0:08:58.360 --> 0:09:01.120 between industrial medals and press just metals, and that is silver, 0:09:01.200 --> 0:09:03.480 which is on a tear. How much do you see 0:09:03.520 --> 0:09:05.680 that escalating at this point? Can you give us some 0:09:05.720 --> 0:09:09.600 calls both on silver and gold in the upcoming months? Um? So, 0:09:09.760 --> 0:09:11.920 we we've we've maintained a twenty plug to our target 0:09:11.960 --> 0:09:15.400 on silver. UM. I mean obviously the uh one of 0:09:15.480 --> 0:09:19.240 the things that that silver is good for is solar panels. 0:09:19.280 --> 0:09:21.920 And what we are saying is that a large portion 0:09:22.000 --> 0:09:25.600 of all this money going into infrastructure is going into 0:09:25.920 --> 0:09:29.240 what some people label the energy transition, and of energy 0:09:29.240 --> 0:09:31.319 transition means we're going to be using a lot more 0:09:31.320 --> 0:09:34.199 silver for a lot of this. This uses the same 0:09:34.240 --> 0:09:36.840 thing applies to copper, by the way, so think about 0:09:36.880 --> 0:09:39.880 think about the energy transistent medals, what we call the 0:09:39.920 --> 0:09:49.520 myths the metals in future energy technologies, copper, um uh, lysthium, cobalt, 0:09:50.200 --> 0:09:53.480 uh silver itself. So silver is getting is getting very hot, 0:09:53.520 --> 0:09:56.040 partly because of that, it's a combination, and it's also 0:09:56.760 --> 0:09:59.599 also some people put as a supportman's gold. It's just 0:09:59.800 --> 0:10:01.360 some being a little easier to buy. But I mean, 0:10:01.440 --> 0:10:03.000 I don't quite buy that argument. But I think I 0:10:03.040 --> 0:10:06.880 think there's certainly that that accelerating trend on silver. I 0:10:06.920 --> 0:10:09.719 also think both platinum colladium pretty great. Platinum has has 0:10:09.760 --> 0:10:12.280 a long way to go here as well. So Francisco, 0:10:13.200 --> 0:10:15.160 we should say that Tom has been outfitting his entire 0:10:15.200 --> 0:10:18.040 apartment in solar panels, so he's been attributing to the 0:10:18.080 --> 0:10:21.839 arise in silver. There's a question of whether the industrial 0:10:21.880 --> 0:10:25.679 medals can continue to rally in tandem with weakening oil. 0:10:25.760 --> 0:10:28.240 The idea that you could have demand for building but 0:10:28.320 --> 0:10:31.400 not necessarily a commensurate demand for crude. Could you see 0:10:31.400 --> 0:10:36.000 that happening. It's it's happening to some extent, right because, 0:10:36.040 --> 0:10:38.120 as we said, a lot of the infrastructure packages that 0:10:38.160 --> 0:10:40.760 are coming through, and like I said, pretty great China, 0:10:41.280 --> 0:10:44.840 I think are are are going to to boost that 0:10:44.960 --> 0:10:49.520 kind of spending. But COVID is primarily a mobility crisis. Um. 0:10:49.679 --> 0:10:53.600 The more we move, the more COVID spreads, and and 0:10:53.760 --> 0:10:58.920 that's I think a fact that hopefully has been has 0:10:58.960 --> 0:11:02.360 been shown in different ways now. So so my senses 0:11:02.400 --> 0:11:04.439 that until we have a vaccine or a cure or 0:11:04.480 --> 0:11:07.400 connection of both, we're gonna have to keep limiting our mobility. 0:11:07.600 --> 0:11:10.840 And that's not great for oil. Um. We still think 0:11:10.880 --> 0:11:13.040 that demand will be ninety eight million bells a day 0:11:13.080 --> 0:11:16.000 for next year on average, but again it should have 0:11:16.000 --> 0:11:18.200 been a hundreds and three. So we're gonna be maybe 0:11:18.280 --> 0:11:21.320 five or six million bells a day away from the 0:11:21.440 --> 0:11:23.400 level of demand that we should have seen next year, 0:11:24.240 --> 0:11:27.600 all the things being equal. For instance, so what is 0:11:27.640 --> 0:11:31.520 the instability to e M here to commodity e M 0:11:31.520 --> 0:11:35.160 How close are we to where your world folds over 0:11:35.360 --> 0:11:41.360 into the fiscal world of these e M nations? Um. 0:11:41.400 --> 0:11:44.000 So I mean I think if you look at if 0:11:44.040 --> 0:11:47.959 you look at Russia, Russia's reasonable economic shape um, their 0:11:48.120 --> 0:11:51.520 budget break even is in the mid forties for oil. 0:11:52.160 --> 0:11:54.800 So with cool oil having rallied back into forty three 0:11:54.840 --> 0:11:59.280 fortifilar range, they are their reasonable shape um. All the 0:11:59.360 --> 0:12:03.400 emerging mark it's not so much. Remember countries like Saudi 0:12:03.440 --> 0:12:05.760 Arabia have a much higher break even so so they're 0:12:05.760 --> 0:12:08.680 gonna struggle more. And then other countries which are heavily 0:12:08.679 --> 0:12:12.560 reliable on things like iron ore or agricultural commornities like 0:12:12.600 --> 0:12:17.040 Brazil are in better shape because you know, um iron 0:12:17.080 --> 0:12:18.600 or has been one of the one of the stellar 0:12:18.679 --> 0:12:22.040 commodities in the past in the past year, so iron 0:12:22.080 --> 0:12:24.160 eors really is really wrapped here, so that's kind of 0:12:24.160 --> 0:12:27.200 benefiting Brazil as well. So so I think for the 0:12:27.200 --> 0:12:31.040 most part it's oiled nations, and it's those oil nations 0:12:31.040 --> 0:12:33.720 that have not adjusted their their budgets. Uh And and 0:12:33.800 --> 0:12:37.000 Saudi Arabia comes from probably at the Fund, but also 0:12:37.040 --> 0:12:40.960 many others in in Africa and Venezuela obviously and what 0:12:41.040 --> 0:12:44.440 have you to sort of visits, visit Francisco blind thank 0:12:44.440 --> 0:12:48.079 you so much with Bank of America of course on commodities. 0:12:56.960 --> 0:13:01.120 Michael jesus Is does public policy from Morgan Stanley, but 0:13:01.200 --> 0:13:05.240 he does it through a wonderful prism of municipal credit. 0:13:05.400 --> 0:13:08.520 It really helps to be a credit analyst before you 0:13:08.600 --> 0:13:11.920 spout about public policy. Michael's thrilled to have you on. 0:13:12.160 --> 0:13:15.599 Let's start with a desperation. How desperate are states and 0:13:15.760 --> 0:13:21.480 locals to this aid? How bad do they need it? Uh? 0:13:21.520 --> 0:13:24.200 They need it pretty badly, but not nearly as badly 0:13:24.520 --> 0:13:27.840 as they would have if the FED hadn't come through 0:13:28.160 --> 0:13:32.360 with the Municipal Liquidity Facility the mL left. So by 0:13:32.400 --> 0:13:37.040 our estimate, state and local government um or our state 0:13:37.120 --> 0:13:41.199 deficits through the end of fiscal one range anywhere from 0:13:41.200 --> 0:13:45.480 a d eighty billion to three seventy five billion UH, 0:13:45.480 --> 0:13:48.600 and the FED MLFT back stop is making roughly two 0:13:49.040 --> 0:13:52.959 fifty billion dollars available for states. So in theory, before 0:13:53.000 --> 0:13:56.760 you undertake any austerity measures, you can basically punt most 0:13:56.800 --> 0:13:59.640 of that budget deficit. You could turn it out about 0:13:59.679 --> 0:14:02.920 three years just with the mL LEFT. But the austerity 0:14:02.960 --> 0:14:05.080 in itself is important, right because if you do have 0:14:05.120 --> 0:14:08.120 to undertake the austerity or that borrowing, you probably see 0:14:08.160 --> 0:14:11.079 credit downgrades, you see a drag on the broader macro 0:14:11.160 --> 0:14:16.040 economy through staton local government layoffs. So it's it's obviously 0:14:16.080 --> 0:14:20.040 much better for investors if the care IF cares to 0:14:20.320 --> 0:14:23.240 what Congress is negotiating right now, put something like two 0:14:23.440 --> 0:14:26.280 dred and fifty to five hundred billion dollars in state 0:14:26.320 --> 0:14:29.240 and local aid into the bill, and actually that's where 0:14:29.240 --> 0:14:30.840 we think they're gonna end up. So I think at 0:14:30.840 --> 0:14:32.440 the end of the day, a few weeks from now, 0:14:32.720 --> 0:14:34.600 you're going to see this problem, I don't want to 0:14:34.640 --> 0:14:38.360 say solved, but largely mitigated, kind of taking the state 0:14:38.440 --> 0:14:41.520 of state credit back to where it was in January 0:14:41.560 --> 0:14:43.600 February of this year. So, in other words, a two 0:14:43.680 --> 0:14:46.600 hundred and fifty to five hundred billion dollar allocation to 0:14:46.680 --> 0:14:49.600 state's municipalities in the next round of the Cares Act 0:14:49.640 --> 0:14:52.440 will be sufficient to totally offset the damage from the 0:14:52.440 --> 0:14:57.280 pandemic to state finances. Is that what you're saying. Yeah, 0:14:57.280 --> 0:14:59.920 I think that's more or less correct, right, And totally 0:15:00.080 --> 0:15:04.800 totally offset is probably too strong award, but uh, you 0:15:05.320 --> 0:15:09.160 largely fill in that gap. Um. Now, of course, if 0:15:09.200 --> 0:15:11.560 we're wrong in our own estimate about how the rest 0:15:11.600 --> 0:15:14.880 of the pandemic plays out, If um, you know, if 0:15:14.880 --> 0:15:18.240 the vaccines don't get us to HERD immunity by the 0:15:18.280 --> 0:15:22.640 first half of next year, then you'd expect a continuation 0:15:23.360 --> 0:15:27.720 of revenue shortfalls, further impressuring budgets. But if we are 0:15:27.760 --> 0:15:30.360 comfortable with the assumption, and we are Morgan family, that 0:15:30.360 --> 0:15:32.720 you're going to be able to achieve that by the 0:15:32.760 --> 0:15:36.280 first half of next year, then yes, this is a 0:15:36.360 --> 0:15:39.280 substantial mitigan to the stress that's opened up for state 0:15:39.400 --> 0:15:42.160 local finances. Michael, let's get to the substance of the 0:15:42.200 --> 0:15:44.560 current debate down in Washington. Day say, there seems to 0:15:44.600 --> 0:15:47.600 be a general broad agreement on sending more stimulus checks 0:15:47.600 --> 0:15:51.440 to Americans, on extending the enhanced unemployment benefits to some 0:15:51.520 --> 0:15:54.000 degree at least. Where's the big sticking point that you 0:15:54.040 --> 0:15:59.400 expect to emerge in the coming week of negotiations. Yeah, 0:15:59.400 --> 0:16:01.880 I'd say they're there's kind of there's a few different 0:16:01.880 --> 0:16:04.920 sticking points. One is on the absolute size, ever, but 0:16:05.000 --> 0:16:07.840 Republicans seem keen to want to keep that headline number 0:16:07.880 --> 0:16:10.760 relatively low to appease some of the depths of hawks 0:16:10.880 --> 0:16:14.440 Uh and their caucus. The marker they've laid down is 0:16:14.520 --> 0:16:16.480 we don't want to see more than a trillion dollars. 0:16:16.720 --> 0:16:20.240 I think practically speaking, there's a good chance that that 0:16:20.320 --> 0:16:22.440 number is going to have to come up a little 0:16:22.480 --> 0:16:25.640 bit to accommodate what everyone wants. Right, if we filter 0:16:25.720 --> 0:16:30.160 this down to what's bipartisan, what addresses the pandemic impact directly, 0:16:30.200 --> 0:16:33.480 and what are things that can be done without impacting 0:16:33.880 --> 0:16:36.680 the budget baseline over the long term. You know, it's 0:16:36.680 --> 0:16:39.080 still a filter that allows for things like you mentioned, 0:16:39.560 --> 0:16:42.760 stimulus checks, state and local government aid, an extension of 0:16:42.800 --> 0:16:47.880 supplemental unemployment benefits. Uh And therefore a trillion dollars probably 0:16:47.880 --> 0:16:51.160 looks more like the floor of what's going to happen here. Uh. 0:16:51.320 --> 0:16:54.520 So they think that's that seems like a red line, 0:16:54.520 --> 0:16:56.120 but it's going to have to move a little bit. 0:16:56.560 --> 0:16:59.400 The size of the extra unemployment checks is is it 0:16:59.440 --> 0:17:01.160 seems like a red line, but it's probably going to 0:17:01.240 --> 0:17:05.320 have to move a little bit. Um. Ultimately, there's enough 0:17:05.359 --> 0:17:08.320 agreement around those issues in principle that we're pretty confident 0:17:08.320 --> 0:17:10.240 you're going to see an agreement here over the next 0:17:10.280 --> 0:17:11.960 two to three weeks. Tom, I think this is the 0:17:12.000 --> 0:17:15.160 really important aspect of this, that the concepts themselves aren't 0:17:15.160 --> 0:17:18.600 really being debated. It's about size. If they were negotiating 0:17:18.640 --> 0:17:21.600 the concepts themselves and had broad disagreements over them, I 0:17:21.600 --> 0:17:23.080 think it would be difficult to get a deal and 0:17:23.119 --> 0:17:25.119 get a deal quickly. We actually saw this in Europe 0:17:25.119 --> 0:17:28.280 a very similar story. The Netherlands weren't debating the concept 0:17:28.359 --> 0:17:30.480 that we're debating the size, and when you see that 0:17:30.480 --> 0:17:33.240 plan get in negotiations, I think you can be confident 0:17:33.359 --> 0:17:35.080 that we can come to a deal. Someone needs to 0:17:35.119 --> 0:17:37.119 come down a bit, someone needs to come up a bit. 0:17:37.200 --> 0:17:40.199 We meet somewhere in the middle. If it was about concepts, 0:17:40.440 --> 0:17:42.680 I'd be much more nervous. I would. I would agree 0:17:42.680 --> 0:17:44.560 with that, John, But I think it's a huge difference 0:17:44.600 --> 0:17:47.359 between europe and American. Michael. This goes to the labor 0:17:47.440 --> 0:17:52.240 component of our municipal finance. Do you just presume layoffs 0:17:52.640 --> 0:17:55.040 at the federal, at the state, and at the many 0:17:55.119 --> 0:18:00.479 cities level. Well, I think there's probably going to be 0:18:00.520 --> 0:18:03.639 some degree of that, and it tends to sort of, 0:18:03.720 --> 0:18:05.520 at least at the state and local level, it tends 0:18:05.560 --> 0:18:09.280 to kind of lag the real economy. Um. Now, I 0:18:09.320 --> 0:18:12.399 think if we get the appropriation that we think you're 0:18:12.440 --> 0:18:15.840 going to get, those layoffs become a much lighter touch. 0:18:17.119 --> 0:18:20.280 But yeah, I mean, I think you can't dismiss the 0:18:20.359 --> 0:18:24.040 idea that there wouldn't be any layoffs whatsoever. But this 0:18:24.119 --> 0:18:26.600 is really about mitigating that effect in the drag on 0:18:26.640 --> 0:18:29.600 the state, local sector, on the on the broader economic 0:18:29.640 --> 0:18:33.040 recovery over time. I think that's heavily influencing the debate 0:18:33.080 --> 0:18:36.360 in Washington, d C. You have plenty of Republicans who 0:18:36.359 --> 0:18:40.040 are very reticent initially to extend any aid to state 0:18:40.040 --> 0:18:42.720 and local governments, right You that Mitch McConnell talking about 0:18:42.760 --> 0:18:47.520 bankruptcy as a solution, but it seems to have crept 0:18:47.520 --> 0:18:49.960 in is that there are plenty of Republican states that 0:18:50.000 --> 0:18:52.440 had big budget gaps, not just because COVID, but because 0:18:52.440 --> 0:18:55.720 the oil price is going down, and there's an understanding 0:18:55.800 --> 0:18:58.600 that the sort of negative feedback loop on the economy 0:18:58.920 --> 0:19:01.199 um keeps going if you don't fill in some of 0:19:01.200 --> 0:19:03.920 these budget gaps. Some of the more toxic language isn't 0:19:03.960 --> 0:19:06.200 a part of the conversation right now. Michael Zess great 0:19:06.200 --> 0:19:09.680 to cash Oo Morgan Stanley's head of US Public Policy Research, 0:19:09.720 --> 0:19:21.720 and were delighted to be joined now by Sir Howard 0:19:21.760 --> 0:19:25.480 Davies is not West Group chairman and actually not West 0:19:25.840 --> 0:19:29.720 Group because you rebranded today. Sir Howard's actually also congratulations 0:19:29.800 --> 0:19:33.600 on that. I mean, first, just on on this consulate 0:19:34.119 --> 0:19:38.280 Um you know story in Houston. Are we assuming that 0:19:38.359 --> 0:19:41.399 things between the US and China, that China and the 0:19:41.440 --> 0:19:46.040 rest of the world will actually escalate on intellectual property issues. Well, 0:19:46.080 --> 0:19:48.639 it's a it's a difficult one for me to answer, 0:19:48.680 --> 0:19:51.600 because some citys, of course say there's not much intellectual 0:19:51.680 --> 0:19:55.000 property in banking, and I think that the financial sector 0:19:55.040 --> 0:19:57.000 has not been particularly affected by this issue. But I 0:19:57.000 --> 0:20:00.760 do know that many companies are concerned that their intellectual 0:20:00.800 --> 0:20:07.359 property has been well whether stolen is the right word, 0:20:07.440 --> 0:20:11.480 but has been used by by Chinese competitors. What I 0:20:11.560 --> 0:20:15.520 find is slightly surprising is that this is something that's 0:20:15.640 --> 0:20:18.479 taken place in a consulate. I mean, most Western countries 0:20:18.520 --> 0:20:21.240 consulates are involved in issuing visas, they're not involved in 0:20:21.240 --> 0:20:25.320 industrial espionage, but it looks as if the Americans do 0:20:25.440 --> 0:20:28.480 have some reason to think that's the case. I would say, however, 0:20:28.520 --> 0:20:33.119 that these kind of tipped for tat closures of offices 0:20:33.600 --> 0:20:37.320 are things which are quite easy to do, and sometimes 0:20:37.320 --> 0:20:39.520 they are almost like a safety valve if you like, 0:20:40.200 --> 0:20:42.560 you know, so you close something, they close one of yours, 0:20:42.560 --> 0:20:45.080 and you know everybody's made that point. But it will 0:20:45.080 --> 0:20:46.959 be interestly to see if there's something more to it 0:20:47.000 --> 0:20:50.360 than that. If it's just a reciprocal closures of consulates, 0:20:50.359 --> 0:20:53.800 then it's probably a relatively minor question. How does COVID 0:20:53.880 --> 0:20:56.280 nineteen actually change the trade war between the U S 0:20:56.320 --> 0:20:59.440 and China? Does it make it less likely that we'll 0:20:59.440 --> 0:21:02.359 see a real, you know, second trade war or continuation 0:21:02.520 --> 0:21:06.280 of because of the already depressed state of the world economy. Well, 0:21:06.280 --> 0:21:10.399 it raises the stakes, of course, because when everything's going well, 0:21:11.119 --> 0:21:14.760 you know, governments feel that they can perhaps make make 0:21:14.840 --> 0:21:19.560 gestures or make political points in the trade area without 0:21:19.640 --> 0:21:23.840 too much damage. I think what the COVID situation means 0:21:23.960 --> 0:21:27.480 is that you're playing with fire here because you're operating 0:21:27.560 --> 0:21:32.760 against a rather fragile economic background anyway, and therefore taking 0:21:33.640 --> 0:21:39.200 tough trade measures, imposing tariffs is going to be potentially 0:21:39.320 --> 0:21:43.520 more damaging than it would be if trade is otherwise buoyant. 0:21:43.880 --> 0:21:46.080 So I think that's the way in which it affected. 0:21:46.840 --> 0:21:49.520 Sir Howard, I must turn to this historic moment for 0:21:49.600 --> 0:21:52.720 Europe that we saw over the weekend. You are qualified 0:21:52.720 --> 0:21:55.080 to speak on this with your tenure of duty, your 0:21:55.119 --> 0:21:57.920 tour of duty rather at siance PO, and of course 0:21:57.960 --> 0:22:00.639 with your work at the London School of Economic Is 0:22:00.680 --> 0:22:04.160