Speaker 1: Welcome to the Bloomberg Surveillance Podcast and I'm Tom Keene
Speaker 1: Jay Lee. We bring you insight from the best in economics, finance, investment,
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Speaker 1: Bloomberg Television and on radio on police to say, it's
Speaker 1: an Ay cud Low National Economic Council Director, Larry. I
Speaker 1: appreciate your time this morning, sir, so thank you. Let's
Speaker 1: start with that stimulus conversation, the latest update, please, Larry,
Speaker 1: where are we well? The ball is not moving much
Speaker 1: right now. I mean, the two sides are still talking
Speaker 1: and the committee chairs in the Senate and House, the
Speaker 1: relevant committees, they're talking on a lot of these issues appropriations,
Speaker 1: small business, banking and so forth and so on. So
Speaker 1: there's a that's a good thing. On the other hand,
Speaker 1: there's still policy issues that divide the two times the
Speaker 1: two teams. UM President mentioned some of them last night. Uh,
Speaker 1: he doesn't want to bail out poorly run states and
Speaker 1: local governments and their pension funds and so forth, So
Speaker 1: that's an issue. There are other policy issues that remain unresolved.
Speaker 1: So it's very difficult. The clock is taking, as you know,
Speaker 1: be very difficult. Um, even if you had a deal
Speaker 1: the next few days, you've got to go through the
Speaker 1: committee print and then you've got to have votes in
Speaker 1: the House and the Senate. So it's not gonna be easy.
Speaker 1: I don't want to predict anything. I'm just saying, Uh,
Speaker 1: there's more agreement than there was a while back. There
Speaker 1: are still policy disagreements, UM, some numerical disagreements. So we'll
Speaker 1: see it's still up for grabs. Well, let's stop with
Speaker 1: numerical then we get to substance, Larry, what numerical disagreement
Speaker 1: is the right now? Well, I think that in specific areas.
Speaker 1: I mean, I'm not going to get involved in negotiating
Speaker 1: Jonathan this morning, but in specific areas there are numerical issues. Now.
Speaker 1: President Trump, for example, has said, for let's say the checks,
Speaker 1: the mailed out checks for economic assistance. Uh, he's willing
Speaker 1: to bid higher on that. He has no problem. Uh,
Speaker 1: he's willing to go with P p P for these
Speaker 1: small businesses, Uh, no problem. He's willing to help the airlines,
Speaker 1: no problem on that score. He's always been willing to
Speaker 1: do these things. He's willing to help the schools as
Speaker 1: they of course transition and renovate, to make school openings
Speaker 1: UH safe and you know, cover the health guidelines. He's
Speaker 1: willing to do that. He's not willing, though, to pour
Speaker 1: lots of money into various healthcare schemes that might benefit
Speaker 1: folks who are not US citizens. He has a big
Speaker 1: problem with that. I just mentioned some of the state
Speaker 1: and local issues and the pension issue, and there are
Speaker 1: other issues at stake. UM. One thing that's interesting that's
Speaker 1: come up UM in the in the Munition Secretary munition
Speaker 1: proposal called the Republican Proposal. We are very much we're
Speaker 1: keen on on shoring for all kinds of supply chains,
Speaker 1: including pharmaceuticals and related equipment. That's very dar and important,
Speaker 1: and we would like to reward companies that either come
Speaker 1: to the US for the first time or moved back
Speaker 1: from China or wherever. So we proposed investment tax credits.
Speaker 1: Apparently the other side doesn't like that. We've also proposed
Speaker 1: deductions for restaurant meals and other forms of hospitality and entertainment.
Speaker 1: Apparently the numbers there are sticking points, so I can't
Speaker 1: go through the entire list. I'm just gonna say, still issues.
Speaker 1: I think many people feel like we're just going around
Speaker 1: in circles at the moment, Larryous, we drift towards the election.
Speaker 1: One question that's being asked by by many, in fact,
Speaker 1: is whether both sides are negotiating and good faith. Now,
Speaker 1: of course you're not gonna say that about yourself, but
Speaker 1: I do want to do you think the other side
Speaker 1: is nicko shanning and good faith? Do you think speak
Speaker 1: Speaker Pelosi is negoshanning and good faithful? Or is this
Speaker 1: just political postering with Eleven Diace to go, Well, look,
Speaker 1: I'm not a political analyst. Uh. I don't do personal stuff.
Speaker 1: I can't get into everybody's said. I'm just gonna assume
Speaker 1: that we've been at this since July or mid July,
Speaker 1: that there is good faith at this point. I'm not
Speaker 1: even sure what that means. Look, there's very hard headed,
Speaker 1: experienced professional people engaged in the discussions. There are veterans,
Speaker 1: all right. Speaker Pelosi is a veteran. UH. Mr Mnusian
Speaker 1: is a terrific money man. He knows the budget story
Speaker 1: up and down, including taxes. UH. Senator McConnell is a
Speaker 1: very crafty, wiley veteran in these games. So they are engaged,
Speaker 1: they are talking, Jonathan, and I will ascribe how about this,
Speaker 1: I will ascribe good faith to all sides. I'm not
Speaker 1: going to pick away on that. Let just see that
Speaker 1: the President's done that for you. Sure. Well, Look the
Speaker 1: President said yesterday evening Nancy Pelosi doesn't want to approve
Speaker 1: anythink because she thinks it will help her politically. Not
Speaker 1: too well. I'll leave that to the president. That's his view.
Speaker 1: That's his view, and I don't have a I don't
Speaker 1: have I'm a policy guy, Jonathan, I don't have a
Speaker 1: view on that. I appreciate that. All I all I
Speaker 1: want to say is this. We are in a very
Speaker 1: very strong recovery. The v shape recovery is coming on
Speaker 1: very strong. We had phenomenal numbers yesterday on following on
Speaker 1: employment clients and rising existing home sales um. But there
Speaker 1: are areas of this economy that could benefit from assistance.
Speaker 1: I acknowledge that I don't think the recovery depends on assistance,
Speaker 1: but the p PP lending for small businesses would be
Speaker 1: very helpful. UH. President Trump took the lead awhile back
Speaker 1: on providing UH federal unemployment assistance by an executive order
Speaker 1: with a plus am the states. It would be very
Speaker 1: helpful if Congress appropriated that in some form a way.
Speaker 1: There's unspent funds all over the place from last Springs Bill.
Speaker 1: Why not repurpose that and legislated put it in you know, codified.
Speaker 1: It's not forever. It might be three months or six months.
Speaker 1: That could help Americans. We need the airlines. That could
Speaker 1: help the economy, put people back to work, get kids
Speaker 1: back to school. So I just, you know, sometimes thinks
Speaker 1: instead of these two thousand page bills with gargan numbers,
Speaker 1: why not just have you know, separate votes on specific items.
Speaker 1: That's the way appropriations used to be many decades. I
Speaker 1: have to have to say, you sound a lot more
Speaker 1: like a Senate Republican than you do a member of
Speaker 1: this administration, because that sounds like the position of Leader
Speaker 1: McConnell when you say the V shaped economy is coming
Speaker 1: on very strong. If I'm a Senate Republican right now,
Speaker 1: I'm wondering, Okay, if marries right, why do we need
Speaker 1: a two trillion dollar package? The V shaped recovery is
Speaker 1: coming along very strong? Why do we well, let me say.
Speaker 1: I have many many friends amongst center Republicans, and I
Speaker 1: speak at their breakfast at lunches all the time. But
Speaker 1: I am uh the NYC director for President Trump, who
Speaker 1: has given me a great opportunity, uh, and I'm doing
Speaker 1: my best to help him out on all these issues.
Speaker 1: So don't don't suggest that I'm on one side for another.
Speaker 1: By the way, well, Larry, you give me just the
Speaker 1: president's position, and at the moment, there is no deal
Speaker 1: life between the president's position. In mind, I support him entirely.
Speaker 1: I'm giving you his thoughts on why the numbers don't
Speaker 1: add up and why these policies don't yet work. That's
Speaker 1: the best I can do. I'm not going to predict
Speaker 1: an outcomes, Ouathan, Yes, maybe no, maybe. I mean, I'm
Speaker 1: not here to do that. I just give you a
Speaker 1: lay of the land, and I appreciate you doing that.
Speaker 1: Did lead the McConnell's how the White House not to
Speaker 1: accept a deal, I I am not aware of that.
Speaker 1: I am not aware of that, because reportedly he told
Speaker 1: colleagues that he had told the White House to exactly that,
Speaker 1: not to accept the deal. The president seems to according
Speaker 1: to Chief of Staff Mark Meadows that he can lean
Speaker 1: on Senate Republicans, and from where I'm sitting and where
Speaker 1: others are as well, it doesn't seem to be any
Speaker 1: evidence of that, Larry, Why the confidence that you can
Speaker 1: lean on Senate Republicans to possibile that big What I've
Speaker 1: heard from the President we are a long meeting Wednesday.
Speaker 1: What I've heard from Chief Meadows and what I've heard
Speaker 1: from Secretary Minution is that Leader McConnell and the GOP
Speaker 1: conference in this Senate would be willing to support a
Speaker 1: bill as long as it is a genuinely by partisan
Speaker 1: bill and that their asks are included. For example, we
Speaker 1: haven't talked about liability insurance. That is a controversial matter
Speaker 1: with the House team, but it's an important key ask
Speaker 1: for the Senate Republicans. If there's a genuinely bipartisan bill.
Speaker 1: Leader McConnell has said, uh, and I've heard it from
Speaker 1: the President Mark Meadows notion, Um, they go along with it.
Speaker 1: So I'll just leave it there. I can't speak for once,
Speaker 1: I can't speak for Mr McConnell, but I'm just saying
Speaker 1: that's what i've heard onlinability protection. Have you made any
Speaker 1: progress whatsoever in the last month with House Democrats. Jonathan,
Speaker 1: I'm not going to get involved in that sort of thing.
Speaker 1: You know. I can't do that. I'm not gonna again.
Speaker 1: We not, Larry. I mean, you've you've given me enough
Speaker 1: information so far on how the talks are going. I'm
Speaker 1: just trying to work out whether you've made any progress
Speaker 1: on that particular topic. And it seems to be a
Speaker 1: huge sticking point for negotiations. Because you're such a great
Speaker 1: journalist and I'd love to give you as much information
Speaker 1: as possible, but I cannot include you in the negotiations. Larry,
Speaker 1: what's the plan? B Once you walk away, You've seen
Speaker 1: this a million times. At some point you realize nothing
Speaker 1: gets done. Well, look, we have an election in what
Speaker 1: eleven days? Yeah, the clock is ticking. The clock is ticking.
Speaker 1: I mean, just mechanically, mechanically, it takes a while. You've
Speaker 1: got to vote in both houses. You might have to
Speaker 1: have a conference vote. Now, that could be done fast,
Speaker 1: but you know, we take it there too. Just writing
Speaker 1: up the legislative print of a two thousand plus page
Speaker 1: bill takes time. And then you have the issue of
Speaker 1: the operational executions. All right, Uh, I don't know that
Speaker 1: that could be done, mailing checks, re engaging the lending
Speaker 1: programs for small businesses. Um, we would do the best
Speaker 1: we can. Secretary Munition did a heck of a job
Speaker 1: last spring, but I don't know between now and the election,
Speaker 1: So those are still dangling in the air. Well, Larry,
Speaker 1: if you can't get it done now, and this is
Speaker 1: my final question, you've given us so much time this morning,
Speaker 1: and I appreciate that, thank you. It doesn't look like
Speaker 1: you've made a lot of progress on state aid. It
Speaker 1: doesn't look like you've made a lot of progression on
Speaker 1: liability protections. You can't confirm or tonight that right now.
Speaker 1: If you can't get us done in the next eleven days,
Speaker 1: why would you be able to get this done before January. Well,
Speaker 1: we're gonna take this a day at a time. The
Speaker 1: election results well undoubtedly bear heavilyer on this. And remember,
Speaker 1: of course, the Congress is still in session. There's a
Speaker 1: so called lane duck session that will come up. You've
Speaker 1: got a judicial vote coming I believe next week. With
Speaker 1: respect him, Miss Barrett, highly qualified, terrific candidate for the
Speaker 1: Supreme Court. So it's tricky business, and the clock is ticking,
Speaker 1: so we will see. I don't want to make any predictions.
Speaker 1: What I do know is this, Jonathan, the economy is
Speaker 1: running faster and hotter than almost any but he thought possible.
Speaker 1: And as President Trump said last night with great clarity,
Speaker 1: he is not going to allow tax hikes or regulatory hikes.
Speaker 1: He's for lowering taxes and regulation. He completely opposes a
Speaker 1: government takeover of healthcare. He completely opposes an end to
Speaker 1: oil and natural gas, which would be devastating for the economy.
Speaker 1: You've got economists, distinguished economists at the Hoover Institute, Stanford,
Speaker 1: who say those policy would lose ten percent of g
Speaker 1: d P five million jobs. Middle class families with the
Speaker 1: dollars their whole increase under Trump, which was a record increase.
Speaker 1: That's what the president opposes. He doesn't see a dark winner.
Speaker 1: He's he's an optimistic recovery and prosperity. Uh. The other
Speaker 1: team looks to me like very pessimism and a stagnation,
Speaker 1: uh decline scenario. Those came out in the debate last night,
Speaker 1: and I think that it's gonna bear heavily on November
Speaker 1: as results. Larry, if I was leading McConnell right now,
Speaker 1: here and you talk about the hot economy, I'd be
Speaker 1: asking why on earth do we need a two trillion
Speaker 1: dollar package. Larry, It's great to catch up with you
Speaker 1: as always, and I appreciate your time this morning and
Speaker 1: hopefully we can catch up on payrolls Friday after the election.
Speaker 1: Sir Larry Catlo, National Economic Council Director, A special thanks,
Speaker 1: of course, also to Bloomberg Radio listeners as well. So
Speaker 1: if you have any interest in hydrocarbons, any interest in
Speaker 1: the future of this great debate, not out to November,
Speaker 1: not out of the inauguration, but how about ten years,
Speaker 1: we have the correct guest for good conversation. We rip
Speaker 1: up the script with left Sony best Laws of course
Speaker 1: Wall Street we contributor and truly one of the world's
Speaker 1: experts on natural guests dynamics as well. SONA thank you
Speaker 1: so much for joining us. What is the political economics
Speaker 1: of the less oil? These two candidates were talking about?
Speaker 1: What is your timeline to What is really interesting is
Speaker 1: that the candidates are talking about it, but the markets
Speaker 1: are taking care of it themselves. You had the BPCO
Speaker 1: on recently, and also the way the market is going
Speaker 1: right now and the way people are behaving. Every utility
Speaker 1: company is increasing the share of it's renewable energy within
Speaker 1: its own energy um energy use. In the US, if
Speaker 1: you go to Texas, the largest growth sector in energy
Speaker 1: in Texas is in fact renewable energy, solar energy. You
Speaker 1: go into the Middle East, the largest investments that are
Speaker 1: going on in the Middle East in Saudi in u A,
Speaker 1: in solar. So the point that is really interesting that
Speaker 1: was missed last night was the fact that people are
Speaker 1: already investing in solar or inac in Windsor. I was
Speaker 1: in the Washington News Beer of Bloomberg with Spencer Abraham
Speaker 1: long ago and far away our Secretary of Energy for
Speaker 1: Bush the Younger, the day we discovered that America really
Speaker 1: doesn't have a national oil policy. Do we need one?
Speaker 1: You know, there there was a time when we needed
Speaker 1: an oil policy and energy policy when energy was such
Speaker 1: a huge part of the economy. Remember when we started,
Speaker 1: you know, when we actually did have an energy policy
Speaker 1: at one point, or we what we call energy policy,
Speaker 1: was when energy was more like fifteen percent of the economy,
Speaker 1: maybe ten percent. Today, the size of the energy sector,
Speaker 1: which is really the mainly the oil and gas sector
Speaker 1: in the US, is close to three, and so energy,
Speaker 1: while being very important, is not where it was compared
Speaker 1: to health sector, compared to technology, compared to the other
Speaker 1: sectors that have been growing. So it's not that we
Speaker 1: don't need energy to lubricate and to use our in
Speaker 1: our in our parts and in our manufacturing, but it
Speaker 1: is not exactly as important as it was at the
Speaker 1: period that you're talking about, and when I started working
Speaker 1: on energy in my career well after, let's talk about
Speaker 1: where you think we're going. Right now, we're producing about
Speaker 1: tamillion pounds of all a day in the United States.
Speaker 1: What do you think the trajectory is of all of
Speaker 1: this actually is over the next five to ten years.
Speaker 1: I think, as Vice President Biden said, it is going
Speaker 1: to be a transition. It has been a very slow transition.
Speaker 1: When I started again working on this transition, it was
Speaker 1: almost like twenty years ago, UM natural gas was taking
Speaker 1: um a little bit more share from oil, but it
Speaker 1: was pretty slow. As we've seen in the last two years,
Speaker 1: natural gas has taken a bigger share from coal and oil,
Speaker 1: and solar and wind are taking a bigger share from
Speaker 1: everything else. So the transition could could be a while.
Speaker 1: As you as we see the electric cars have been
Speaker 1: a little bit slower to come to market. Tesla obviously
Speaker 1: has been fabulous, and other cars are still having technical
Speaker 1: problems when they come in. But if you look at
Speaker 1: the economy moving forward, I would think that whether it
Speaker 1: is ten years or fifteen years or twenty five years,
Speaker 1: there will be a transition that with faster and faster
Speaker 1: growth towards uneibles as the technology that is helping with
Speaker 1: batteries help us move in that direction much faster. It's fun.
Speaker 1: Has the pandemic accelerated that shift? You know, the pandemic
Speaker 1: hasn't slowed it down the side. I think what is
Speaker 1: really interesting is that oil and gas got slowed down
Speaker 1: with the pandemic, right and generally the economy slowed down,
Speaker 1: which meant that you were using energy less. In fact,
Speaker 1: the President last night said that we have cleaned area,
Speaker 1: and the reason is because our economy is not a
Speaker 1: full capacity. Of course, air gets to be cleaner if
Speaker 1: you're not drive in as much and not using your factories.
Speaker 1: But but renewable energy investments have been going pretty close
Speaker 1: to schedule, maybe delayed a little bit, but much faster
Speaker 1: than the oil and gas investments that were in the
Speaker 1: works before COVID. That's a lot of this begs the
Speaker 1: question what we need the government to do here? If,
Speaker 1: as you say, that private companies are heading in this
Speaker 1: direction anyway, you know what the government could do is
Speaker 1: we had some we had a lot of support for
Speaker 1: cooling gas industry over the last twenty thirty years, and
Speaker 1: if some of that could also move more into the
Speaker 1: into the renewable energy, I think it would be really
Speaker 1: really helpful. Also in terms of the government having clear
Speaker 1: policies on on regulation and making it easier to invest
Speaker 1: in infrastructure and in energy, particularly renewable energy, could make
Speaker 1: it easier. As you know, the regulation that has had
Speaker 1: been and the looked around solar energy has been very confusing.
Speaker 1: It has been on off, on, off, on off, and
Speaker 1: it has affected consumers. So having something that is clear
Speaker 1: and long term would help the industry. Let's end on
Speaker 1: infrastructure more broadly. Four years ago, after the election, the
Speaker 1: Trump Trade, the so called Trump trade was all about
Speaker 1: infrastructure spending. Wasn't just about tax cuts, It's all about
Speaker 1: infrastructure spending. Then if started, it just did not happen.
Speaker 1: Why does it not happen in America? Why can't we
Speaker 1: make it happen. You know, I think, Um, it's interesting
Speaker 1: because two thousand eight it did not happen either, Right,
Speaker 1: there was a moment where we could have put some
Speaker 1: of the money that came into the economy, um, into
Speaker 1: the doctor. As you said, it didn't happen during the
Speaker 1: last four years. I'm actually more optimistic Jonathan about the
Speaker 1: next four years. I think this is a time where
Speaker 1: post COVID. COVID has had a lot of physical and
Speaker 1: psychological impact on people, but this might be the time
Speaker 1: where in fact, you have industry, you have the financial sector,
Speaker 1: and you have the government coming together to build infrastructure.
Speaker 1: And I think that some of the delays we could
Speaker 1: blame on on all kinds of things, but the biggest
Speaker 1: problems about infrastructure in our country is that, you know,
Speaker 1: sort of federal versus states issues and some of the
Speaker 1: regulation that has delayed infrastructure. And that could be something
Speaker 1: that the Democrats come together with the Republicans and health
Speaker 1: resolves so that our roads and bridges do catch up
Speaker 1: with the Chinese. I mean, it is really interesting how
Speaker 1: in the last especially post COVID, how the Chinese have
Speaker 1: continued with their infrastructure but also continued investing in their
Speaker 1: new financial structure. We're still in a financial structure which
Speaker 1: is the old mode. Whereas they're bringing in digital currency,
Speaker 1: they're bringing in um you know, clean energy, they're bringing
Speaker 1: in new infrastructure, they're being in new health policy. Is
Speaker 1: so I think it is time, if we want to
Speaker 1: be number one, to to bring all of those things
Speaker 1: together and to the forefront. It's interesting to me how
Speaker 1: much the rest of the world is waiting for the
Speaker 1: US to come out with some sort of fiscal support bill.
Speaker 1: How this affects Europe, it affects emerging markets. How much
Speaker 1: does the recovery in the developing world in particular hinge
Speaker 1: on the US passing fiscal stimulus. Well, I mean, if
Speaker 1: we have something like a tweet trillion UH fiscal stimulus,
Speaker 1: it will be large. It will impact other countries. But
Speaker 1: also what has happened over the last week or two
Speaker 1: in Washington with the World Bank IMF meetings, as you
Speaker 1: could see, was relatively i would say, hugely different than
Speaker 1: what tom Kin and I have experienced before with the
Speaker 1: i m F. We also have, in addition to the
Speaker 1: US stimulus, the IMF head and the chief economist of
Speaker 1: the I M S saying that countries should start borrowing
Speaker 1: a lot more. That is the exact opposite of the
Speaker 1: austerity plants that you had for the last twenty thirty
Speaker 1: years by the I m F. So if you put
Speaker 1: that together with our stimulus, I think it could be
Speaker 1: a very interesting period of higher growth in the economies
Speaker 1: of across the clock plus interest rates and in fact
Speaker 1: not go into a negative zone. And we might be
Speaker 1: going faster into a period of inflation with the kind
Speaker 1: of death that is getting accumulated and will continue to
Speaker 1: get accumulated. So we might have different problems on our
Speaker 1: hands very soon. I'm started very quickly here you are
Speaker 1: of Iran. Is President Biden's strategy with Iran the same
Speaker 1: as President Obama's? You know, I think that that countries
Speaker 1: are evolving. I'm not sure if his policy is the same.
Speaker 1: I think his policy is to engage just his life,
Speaker 1: like he said last night, with with the allies, so
Speaker 1: that the approach to Iran will be an approach that
Speaker 1: brings together all allies together and it's not just one
Speaker 1: country versus another country. And if you do bring it
Speaker 1: run back into society, into the normal society and the
Speaker 1: normal economy. I think that region could be in a
Speaker 1: much better place than it is today after bachelors. Always
Speaker 1: fantastic to catch up with you, Thanks for your time
Speaker 1: of Rock Creek Group and Bloomberg Wall Street Week contributor
Speaker 1: joining us now on this market. A lot to Childood
Speaker 1: j H C m C a fund manager, A lot
Speaker 1: of fantastic to catch up with you. As always, this
Speaker 1: credit market spread to tight treasury yehs a low, they
Speaker 1: been higher this week. Fixed income, it's been a huge
Speaker 1: trade through. Do you think it's gonna break anytime soon?
Speaker 1: Good morning? All Well, it's hard to tell whether it
Speaker 1: breaks or not, but you can't. I mean, this is
Speaker 1: a mistake. I think many people too. They're very short
Speaker 1: term oriented and if you think of running portfolios, they're
Speaker 1: they're like tankers you've hid, just shift them overnight. So
Speaker 1: will the market break? You know? I think the market
Speaker 1: is getting expensive and I do think if you dissect
Speaker 1: the credit market, its fortunes are closely tied to whether
Speaker 1: economic growth happens and what kind of a stimulus package passes.
Speaker 1: So I think that's a possibility. Yes, Lolly, what's so
Speaker 1: important to me? And it's great to have you on
Speaker 1: with the Matthew conversation is in Japan, we are witnessing
Speaker 1: almost a lassitude where the dynamics have been sucked out
Speaker 1: of the fixed income market for various reasons. Is that
Speaker 1: going to be the surprise a year and two years
Speaker 1: forward that we migrate from bond and fixed income dynamics
Speaker 1: to a much more static market. It's possible. But look,
Speaker 1: there are differences between the Japanese markets in the US markets. Um.
Speaker 1: The investor based is different, the indices are different, um.
Speaker 1: So they're absolutely notable differences. The key point is they've
Speaker 1: been fighting with low rate for an extended period of
Speaker 1: time and a little to no inflation. Can that happen here? Sure?
Speaker 1: I mean I think Cathy hits Kathy Jones hit the
Speaker 1: right point, which is, you know, we're talking about rising
Speaker 1: ten year rates and blah blah blah. Look, people were
Speaker 1: talking about a four year and four percent ten year
Speaker 1: not that long ago, right for not thinking like maybe
Speaker 1: one percent, Max, I think it is entirely possible, it's
Speaker 1: lower for longer. It is entirely, entirely possible. And what's amazingly,
Speaker 1: says as Cathy Jones stretch and he flapped, there was extraordinary,
Speaker 1: Thank you Tom, that it definitely was extraordinary, which brings
Speaker 1: me to credit spread slyly. One reason why I always
Speaker 1: love having you on is because you're very realistic about
Speaker 1: the fundamental picture and struggle with pairing it with the
Speaker 1: unlimited or seemingly liquidity from central banks. How do you
Speaker 1: retain that bearish view in light of the fact the
Speaker 1: FED is backstopping this market and don't fight the Fed
Speaker 1: is the predominant feeling across the street. So it's actually interesting.
Speaker 1: I'll tell you how we're constructing, how we're thinking about it,
Speaker 1: but this don't fight the Fed. I think it's very
Speaker 1: interesting because I think one of the possible mistakes the
Speaker 1: market is making for the future is now I think
Speaker 1: everybody now bigs in that the corporate bond purchasing is
Speaker 1: now in the tool kits, as you know, as J.
Speaker 1: Powell talks about. But there may be a nuance in
Speaker 1: this crisis versus the global financial crisis, which is this
Speaker 1: was a global pandemic and it's hit everybody at the
Speaker 1: same time. It wasn't there was no bad actor. So
Speaker 1: I will warn the market that in the future when
Speaker 1: we have another crisis, which we will cycles still happen
Speaker 1: regardless of what other people say it is entirely possible
Speaker 1: that corporate bonds may not be in the tools. I
Speaker 1: just want to make sure I plant that feet in
Speaker 1: people's mind. The second piece is how do we construct
Speaker 1: the portfolios. Look, I think investment grade has gone really expensive,
Speaker 1: well in duration investment grade. I think what you need
Speaker 1: to do is pick the companies that are actually on
Speaker 1: a path to de leverage. There are not a whole
Speaker 1: lot of them, and take duration risk on those. It's
Speaker 1: a bad credit picking, Hi, you we're still playing the liquidity,
Speaker 1: which is the refinancing theme. So buy the bonds that
Speaker 1: are callable in good quality companies. The rest of the
Speaker 1: high yield is challenging. And just because you guys talked
Speaker 1: about math and you knew I was going to talk
Speaker 1: about statistics, let me walk you through one thing. High
Speaker 1: yield average index spread in the US is four hundred
Speaker 1: and ninety today. Okay, let's just assume to beat that
Speaker 1: index you have to back for companies that are in
Speaker 1: the five eight hundred basis points in spread range. That's
Speaker 1: only of the US high yield index, And out of
Speaker 1: that twenty per cent, nearly half half is energy, leisure,
Speaker 1: capital goods that are at the epic center of coronavirus
Speaker 1: related slowdown and stimmulus stainments. This is why you can't
Speaker 1: disentangle high yield fundamentals from the economic recovery. So let's
Speaker 1: start with investment gride and then we got to high
Speaker 1: yield because you set a couple of things there. The
Speaker 1: companies with an investment grade on the path towards the leveraging.
Speaker 1: You said there weren't, manny, where'd you find them? They're
Speaker 1: not that many, but there are a few companies that
Speaker 1: have basically learned their lesson and they're gonna be leveraged.
Speaker 1: I mean they are basically selling assets and they're making
Speaker 1: sure they are working down their leverage and either that
Speaker 1: we're basically when people were talking about that, there were
Speaker 1: you know, three four for and a half times levered
Speaker 1: pre chronicle virus crisis, where the market was a little
Speaker 1: bit criticizing. Okay, it's started the leverage now because the
Speaker 1: good times may not last. I think those companies are
Speaker 1: really working towards working down that leverage now. There is
Speaker 1: a point that I think there are some there is
Speaker 1: a narrative in the market which I don't agree with,
Speaker 1: which is this golden age of bond investor, because now
Speaker 1: that people have put on the seat, they're gonna be leverage.
Speaker 1: Let me point this out. Large companies are not borrowing
Speaker 1: from banks. They're going to the bond market. The biggest
Speaker 1: difference between bank and the bond market is bank that
Speaker 1: is table at par with no penalty. You can't do
Speaker 1: that with the bond market. So what are your I
Speaker 1: G or high yield? What the companies are banking on
Speaker 1: future IBADOG growth or asset sales to de leverage. Again,
Speaker 1: that is highly highly dependent on the economic growth, Lilly,
Speaker 1: our preferreds a legitimate yield equivalent or do they have
Speaker 1: too much of an equity component? I think preferred if
Speaker 1: you find you know, there are some fixed for life
Speaker 1: preferred that are very high coupon, and you know, I
Speaker 1: think as the company is through the pandemic, none of
Speaker 1: these things are going to get cold. So at least
Speaker 1: until you get a better picture of the outlook, there
Speaker 1: are decent places to be yes, Lally, is there any
Speaker 1: trade to be had in the eleven days left before
Speaker 1: the U S Election? No? I mean it's it's these
Speaker 1: things are very hard. But the market is similar to
Speaker 1: the equity market. There is a general trade that's happening,
Speaker 1: which is stimulus induced. Right, whichever party wins, it's likely
Speaker 1: we're gonna have a stimulus. The question is how big
Speaker 1: it's going to be. And you can see it the
Speaker 1: companies that may get the better from the stimulus. You
Speaker 1: can see the stocks and also on the bond market
Speaker 1: a little bit of a movement, but nothing does. It's
Speaker 1: not recommending. It's not the golden age of credit. Was
Speaker 1: I've got to ask, was that a little bit of
Speaker 1: shade a page Jim and Greg Peter's in the last
Speaker 1: couple of weeks trouble Hold on, Hold on a second,
Speaker 1: hold on, No, I'm not actually calling anybody out. I
Speaker 1: have heard that narrative. I'm not sure they're one of them,
Speaker 1: so I can't really open. Okay, I'm just wondering if
Speaker 1: I should tee them up for a conversation at the
Speaker 1: nine o'clock in the next couple of weeks, so that
Speaker 1: I thank you as always seriously trying to start some
Speaker 1: what we've tried to do it on a Friday. This
Speaker 1: is really really important, is trying to understand that yes,
Speaker 1: we do economics, finance, investment, Yes we do politics, and
Speaker 1: we do it with fancy ties and suits and dresses.
Speaker 1: As we talked to the bloomer elite of the world,
Speaker 1: and we've forgotten not that there's a whole bunch of
Speaker 1: other people out there helping us with that has been
Speaker 1: Patrick Foy. Pet Foy is with a small shop called
Speaker 1: the Metropolitan Metropolitan Transit Authority where he is chairman and CEO.
Speaker 1: And pet I want to go right down to the basics.
Speaker 1: So last time you were on, we talked about a
Speaker 1: bus driver moving people around Northern Central Park. How about
Speaker 1: Radigan Hendy Hartley Woods in Augustine doing what you guys
Speaker 1: do every day, which is jumping on tracks of moving railroads. Yeah,
Speaker 1: those five tom those five Long Island Railroad employees on
Speaker 1: Wednesday at the Long Island Railroad East New York station,
Speaker 1: save the man's life mt A. People do that regularly. Uh.
Speaker 1: They were the right five men on the on the
Speaker 1: on the spot. They called the train dispatchers, stop the trains.
Speaker 1: They were flaggers, so they knew what they knew what
Speaker 1: to do, jumped down and brought the man up to
Speaker 1: up the safety. It have been a terrible situation had
Speaker 1: they not been there, had they not been used their
Speaker 1: training and their brave ray and courage saved the man's life.
Speaker 1: Incredible public You are distracted by getting billions in aid
Speaker 1: from this natural disaster along with other cities nationwide. What
Speaker 1: is your message to the elites of Washington this morning
Speaker 1: on your need to get a check in the mail?
Speaker 1: But there are three reasons the MTA needs twelve billion dollars.
Speaker 1: One is jobs, jobs, jobs, the second is social equity,
Speaker 1: and the third is environment. I described last time I
Speaker 1: was on the drastic cuts we may be forced to
Speaker 1: make in service of the fifth reduction on subways and busses,
Speaker 1: up the fifty percent on Long Island Railroad and Metro
Speaker 1: North and laying off eight to nine thousand colleagues our
Speaker 1: preliminary estimates. If we were if our hand were forced
Speaker 1: then we had to do, that would be a reduction
Speaker 1: and economic activity in the New York region of about
Speaker 1: a hundred billion dollars and a reduction of about three
Speaker 1: hundred and fifty thousand jobs, including three hundred thousand jobs
Speaker 1: in New York. From a social equity point of view,
Speaker 1: right now, we're carrying on subway and busses about three
Speaker 1: million customers a day. That's up substantially from the depths
Speaker 1: of pandemic. But those are workers who can't work remotely,
Speaker 1: who can't telecommute, and there were essential workers. And just
Speaker 1: as mt A workers at subways, buses, Long Island Railroad
Speaker 1: and Metro North or heroes carrying heroes during the depths
Speaker 1: of the pandemic, they continue to do that. The people
Speaker 1: were carrying don't have the option of a car, they
Speaker 1: don't have an option of working from home. And it's
Speaker 1: a matter of social equity. And lastly, there's a limit.
Speaker 1: We're now carrying about ninety percent of pre pandemic passenger
Speaker 1: car and truck volumes on our bridges and tunnels mighty percent.
Speaker 1: There's a limit to how many cars and trucks can
Speaker 1: come into the City of New York, can come into Manhattan.
Speaker 1: We're near reaching that limit. So from the point of
Speaker 1: view of jobs, social equity in the environment, we need
Speaker 1: this funding as a first order priority. Okay, so what's
Speaker 1: your absolute deadline when it comes to making these cuts.
Speaker 1: What's your deadline for getting this funding. So at LISA,
Speaker 1: like any organization, we're on a calendar year. We will
Speaker 1: present a plan and a budget to our board in November.
Speaker 1: The board will vote on it in December. It's got
Speaker 1: to be adopted in December, and obviously bond investors and
Speaker 1: credit rating agencies and folks like yourselves are going to
Speaker 1: be looking at that process. So we really need funding
Speaker 1: and certainty about funding uh early to mid December at
Speaker 1: the at the absolute latest. If a bill doesn't. We've
Speaker 1: been obviously watching the sausage making going on in Washington,
Speaker 1: and we really urge the Senate Republican leadership to support
Speaker 1: funding for mass transit as well as the State of
Speaker 1: New York. In the City of New York. If we
Speaker 1: don't get that, the m t A may be forced
Speaker 1: our hand, may be forced to make drastic draponent and
Speaker 1: service cuts until weigh off thousands of people. The economics,
Speaker 1: social equity, and environmental consequences of that will be dum
Speaker 1: at it. I have to say, Pat, as a lifelong
Speaker 1: New Yorker born and raised, Yes, wridership has increased from
Speaker 1: the depths of the pandemic, but is far below anything
Speaker 1: it has been in recent memory. Given the fact that
Speaker 1: the m t A, the subway system, etcetera is the
Speaker 1: lifeblood of New York City, is New York City dying now?
Speaker 1: New York City is not not dying. New York City
Speaker 1: is experiencing a tough time. New York was the epicenter
Speaker 1: of the pandemic. Frankly the United States in the world,
Speaker 1: thanks the Governor Clomo's leadership that uh, you know, we've
Speaker 1: broken the curve. Havn't uh we've broken the curve, right,
Speaker 1: The curves been broken. Infection rates are are low. Other
Speaker 1: parts of the country. You're experiencing spikes. New York City
Speaker 1: is going through a tough time. New York City has
Speaker 1: gone through tough times before the nineteen pandemic hind eleven,
Speaker 1: Superstorm Sandy. I've lived here all my life in New York.
Speaker 1: The city will survive. Other cities New York, London, Milan, Bombay,
Speaker 1: Bombay have gone through pandemics in the past. New York
Speaker 1: will get through us. But to get through what the
Speaker 1: m t A has got to be funded. It is
Speaker 1: the circulatory system of the New York City Regional eCOM.
Speaker 1: Pet Forward. Thank you so much for the Metropolitan Transit Authority,
Speaker 1: their chairman, and their c Thanks for listening to the
Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple podcasts. SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keane before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio