Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie hort Ern. Join us each
Speaker 2: day for insight from the best in markets, economics, and
Speaker 2: geopolitics from our global headquarters in New York City. We
Speaker 2: are live on Bloomberg Television weekday mornings from six to
Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify
Speaker 2: or anywhere else you listen, and as always on the
Speaker 2: Bloomberg Terminal and the Bloomberg Business app. Andrew Seeds of
Speaker 2: Morgan Stanley in the Soft Landing camp Self landings don't
Speaker 2: have to play out in a straight line. This is
Speaker 2: a tricky window where risk around growth are skewed to
Speaker 2: the downside. A few false negatives in the data can
Speaker 2: lead to belts of volatility. Andrew joins us now for more. Andrew,
Speaker 2: welcome to the program. Let's start with that phrase, soft landing.
Speaker 2: What does it mean to you?
Speaker 1: Good morning? It's great to be here.
Speaker 3: So for us it means inflation coming down, the FED easing,
Speaker 3: and no recession. And that's you know, very much what
Speaker 3: Morgan Stanley has been forecasting what we continue to forecast,
Speaker 3: and I think that's what I think, fortunately, we've.
Speaker 1: Been seeing from the data.
Speaker 3: I think we were in a critical window over September
Speaker 3: and still in October where you know, the market's going
Speaker 3: to be more vulnerable to weaker data because the FED
Speaker 3: and the ECB haven't really gotten underway yet with rate cuts.
Speaker 3: But I think so far that data has come in
Speaker 3: pretty solid, and I think that supports the soft landing view.
Speaker 2: Andrew, do you refer to some of the data as
Speaker 2: a few false negatives potentially in our future? Can we
Speaker 2: talk about the data we had through the summer and
Speaker 2: at the other side, which one was the head fake,
Speaker 2: the deceleration in jombs through the summer, or the reacceleration
Speaker 2: we saw on Friday.
Speaker 3: Yeah, so I think it was potentially this kind of
Speaker 3: rise in the unemployment rate. And this has been something
Speaker 3: that's in a lot of focus because you know, over
Speaker 3: a long period of time, it's consistently been one of
Speaker 3: the more worry cyclical indicators for markets. You know, once
Speaker 3: the unemployment rate has rise, it's almost kind of too
Speaker 3: late at that point.
Speaker 1: That's one of the last.
Speaker 3: Indicators historically to crack, and at that point it's very
Speaker 3: bad for equities and credit, and I think that's what
Speaker 3: the market was concerned about. You had concerns about triggering
Speaker 3: the SAM rule, You had concerns at the unemployment rate
Speaker 3: was already going up, and yet the FED as of
Speaker 3: the July meeting had still kept rates on hold.
Speaker 1: Now you know, there was another view there, and that
Speaker 1: was the.
Speaker 3: View closer to the view of Morgan Stanley's economist, which
Speaker 3: is at the unemployment rate was giving somewhat potentially kind
Speaker 3: of misleading signals because of the shape of the labor
Speaker 3: market the fact that participation was actually quite strong, that
Speaker 3: was kind of confounding the.
Speaker 1: Picture a bit. But we really didn't know.
Speaker 3: And even you know, heading into the other week with
Speaker 3: the the latest non farm payroll number, you had a
Speaker 3: really wide set of expectations going into that number, and
Speaker 3: the usually wide set. So I think the number we
Speaker 3: got was was good. We were at one hundred and
Speaker 3: sixty thousand at Morgan Stanley. We got a better number
Speaker 3: than that. And also I think given some of these
Speaker 3: very kind of unfortunate track natural disasters that we're seeing
Speaker 3: in the US, that could make the next several data
Speaker 3: prints more uncertain. So I think the fact that we
Speaker 3: got one solid reading for the economy or another solid
Speaker 3: reading on jobs is quite helpful for I think assuring
Speaker 3: the market that for now the economy is still in
Speaker 3: an okay place.
Speaker 4: Even with those prints. It's interesting to look, Andrew at
Speaker 4: how FED language hasn't changed. They are still talking about
Speaker 4: a balanced approach. Balanced is the new buzzword. Collin said
Speaker 4: it yesterday. Jefferson said it too. And we have an
Speaker 4: Atlanta GDP now tracker at three point two percent. If
Speaker 4: it is a FED that is still biased to cut
Speaker 4: with a strong economy, how positive is that for risk asses?
Speaker 3: Yeah, so we do think we're still in a good
Speaker 3: is good environment, you know you mentioned correctly.
Speaker 1: We also followed that Atlanta FED tracker.
Speaker 3: We think it's been a great indicator recently and it
Speaker 3: is suggesting a very strong US economy.
Speaker 1: But I think the other.
Speaker 3: Important thing is inflation is really looking like it's getting
Speaker 3: back under control.
Speaker 1: That kind of the battle against.
Speaker 3: Inflation has been one and if you look at forward
Speaker 3: looking inflation expectations from the interest rate market, say over
Speaker 3: the next two years, those are kind of below. Those
Speaker 3: are implying a number below what the FED is targeting.
Speaker 3: So if we think about kind of historical performance patterns,
Speaker 3: certainly historical patterns for credit, you know, a scenario where
Speaker 3: the economy is holding up better, where the FED is
Speaker 3: cutting more gradually towards neutral, which is what we're forecasting
Speaker 3: at Morgan Stanley. We think from this point on they're
Speaker 3: doing twenty five basis point cuts. That's been a much
Speaker 3: better kind of trade off for risky assets than one
Speaker 3: where growth is weakening more and you're getting a lot
Speaker 3: more FED cuts. So I think the scenario that we're
Speaker 3: getting in the data is very much tracking closer to
Speaker 3: that better soft landing base case that.
Speaker 4: Scenario lay out. It's happening in the treasury market, that
Speaker 4: repricing has happened since Friday, but Andrew, in the corporate
Speaker 4: credit market, the repricing hasn't happened. Investment grade spreads are
Speaker 4: still at eighty three basis points, exactly where they were
Speaker 4: on Friday. Are you surprised by the resilience the unmovedness
Speaker 4: of this market.
Speaker 3: Well, you know, look, spreads, spreads are tight, but our
Speaker 3: view at Morgan Stanley has been that spreads should be
Speaker 3: tighted that we're in an environment of better than expected fundamentals.
Speaker 3: We think soft landing is an unusually good backdrop for credit.
Speaker 1: Credit likes moderation.
Speaker 3: A soft landing is all about moderation and growth and
Speaker 3: inflation and monetary policy.
Speaker 1: And you still have very good technicals, You still.
Speaker 3: Have very strong demand relative to supply in the market,
Speaker 3: and better than average fundamentals. Better than average technicals probably
Speaker 3: should mean, you know, tighter than average, richer than average valuation.
Speaker 3: So I think another important factor, and I'm glad you
Speaker 3: linked it to yields, is we do think we're in
Speaker 3: an environment where higher yields are good for spreads, That
Speaker 3: higher yields are bringing in more demand from insurers, from
Speaker 3: pension front funds, from a lot of the buyers who've
Speaker 3: been really driving the market over the last year. And
Speaker 3: so you know, with the yields going up to four percent,
Speaker 3: all of a sudden, that same spread hits a lot
Speaker 3: more yield bug for those buyers.
Speaker 5: Andrew, right now, we're dealing an environment where there's a
Speaker 5: number of potential risks in the United States. There's the
Speaker 5: politics potentially we're not going to know for days weeks,
Speaker 5: and we could see a contested election. Then there's the geopolitics.
Speaker 5: We see in the short term increase in the oil price.
Speaker 5: What is the biggest catalyst to potentially your soft landing scenario.
Speaker 3: Well, I do think, you know, understandably, I think the
Speaker 3: US election is going to and will get a lot
Speaker 3: of that focus. You know, I think you are facing
Speaker 3: a close election, that's one important factor, and between two
Speaker 3: candidates with very very different policy agendas and policy proposals,
Speaker 3: and so, you know, I think in terms of thinking
Speaker 3: about factors that are not just going to affect the
Speaker 3: market over the next next month, and we are less
Speaker 3: than a month away from the US election, but also
Speaker 3: really going to potentially affect how investors think about pricing
Speaker 3: into next year, I do think the US election probably
Speaker 3: stands out as a really important factor, and and that's
Speaker 3: why certainly, you know, at Morgan Stanley we've been devoting
Speaker 3: a lot of our effort to trying to understand the
Speaker 3: issues around it and research related to election implications.
Speaker 5: Do you think the market right now is properly hedged
Speaker 5: for a scenario where the election might be contested.
Speaker 1: Well, I think that's it's difficult to say.
Speaker 3: I mean, I think we have seen some increase in
Speaker 3: volatility around the month of November but it's also a
Speaker 3: factor where this is an issue.
Speaker 1: I mean, I'll talk about the election more.
Speaker 3: Generally, that is a kind of an unknown heading into
Speaker 3: heading into next month. The markets had this on their
Speaker 3: calendar for a long period of time. I think a
Speaker 3: lot of investors in our meetings cite the election as
Speaker 3: a major source of uncertainty.
Speaker 1: So, you know, I do think.
Speaker 3: We as much as it's fair to say that the
Speaker 3: election is bringing up the potential for volatility, is bringing
Speaker 3: the potential for uncertainty, I think it's also possible. You know,
Speaker 3: it's also fair to say that investors are very aware
Speaker 3: of this and that they are they're going in with
Speaker 3: their eyes open.
Speaker 1: Now. You know.
Speaker 3: Again, I think it's a factor that we also when
Speaker 3: we look out into twenty twenty five, and you know,
Speaker 3: again we're pretty optimistic, say on more m and a
Speaker 3: activity in the market. You know, we actually think that
Speaker 3: moving past the election, just kind of having this once
Speaker 3: this question is resolved, that that can be a positive
Speaker 3: catalyst in certain ways. So that can help, we think
Speaker 3: trigger more corporate activity, and that there are some you know,
Speaker 3: some risks associated with it, but also some positives As
Speaker 3: you move past the event.
Speaker 2: You're not the only one who's said that. Andrew appreciate it.
Speaker 2: Andrew sheets the more constanting Camra Dawson of New Edge Wealth,
Speaker 2: saying we would not be surprised to see continued volatility
Speaker 2: in the near term as risk assets are going into
Speaker 2: this historically high volatility month price for perfection. The volatility
Speaker 2: is unlikely to be ctist clinics caatis clissmic given the
Speaker 2: backdrop of strong economic growth and a shift to more
Speaker 2: supportive monetary policy. With a very long word, Cameron Dawson
Speaker 2: joins us now for more easy to write than say
Speaker 2: out loud. Cameron, thanks for that, put it in just
Speaker 2: for you, Thank you very much. Let's talk about this
Speaker 2: run we've seen in some of these individual names and
Speaker 2: video has had a massive run five days of gains,
Speaker 2: and for some people they're reflecting on the first half
Speaker 2: of this year where we had this big boost in
Speaker 2: inflation turned out to be a bit of a head fake.
Speaker 2: We started to think about high rates for longer, and
Speaker 2: tech stocks really started to perform and we reached in
Speaker 2: for that playbook all over again.
Speaker 6: It is interesting to see the equal weight S and
Speaker 6: P five hundred, which has been doing better over the
Speaker 6: last couple of months start to roll over on a
Speaker 6: relative basis, which just suggests that maybe there's this narrowness
Speaker 6: creeping back into the market. And you see it within
Speaker 6: the tech sector itself. Look at video being strong driving semiconductors,
Speaker 6: but flip the page to software. Microsoft is breaking down.
Speaker 6: It's now below it's two hundred day moving average. So
Speaker 6: even within the all great tech sector, there are pockets
Speaker 6: of weakness being held up by just a couple of names.
Speaker 2: Is this all about red cup expectations? Is that in
Speaker 2: the drive and see or is it something else?
Speaker 6: We think it's the confluence of everything if you take
Speaker 6: a step back and appreciate the fact that you have
Speaker 6: strong economic growth. Look at Atlanta fed GDP now at
Speaker 6: three point two percent, supported by fiscal deficits. As if
Speaker 6: we're in a crisis now with the bond market pricing
Speaker 6: in the largest non recessionary cutting cycle in forty years,
Speaker 6: What is rate or what are risk assets not to like?
Speaker 6: And we think that's why you see credit spread so tight.
Speaker 6: The b DOUBLEA credit spread is now one hundred basis points,
Speaker 6: nearly at the lows that we saw in twenty twenty one.
Speaker 6: Equity valuations twenty one and a half times. That's at
Speaker 6: nearly the highs we saw in twenty twenty one. So
Speaker 6: these markets are priced for perfection, but that's because the
Speaker 6: backdrop is quite nearly perfect. The question is can it
Speaker 6: last and where does it go from here?
Speaker 4: Does earning season help? With expectations of under five percent
Speaker 4: growth your rear, that's relative to what we've seen before,
Speaker 4: kind of a low bar.
Speaker 6: It is a low bar because you've also seen those
Speaker 6: estimates get trimmed going into this earning season, so maybe
Speaker 6: we can jump over this lower bar. The thing that's
Speaker 6: interesting is over the last two months you've actually seen
Speaker 6: twenty twenty five estimates get trimmed as well. We think
Speaker 6: that's why markets have stalled out over the last couple
Speaker 6: of months.
Speaker 7: They've been relatively flat.
Speaker 6: So you do need to see earning sestments continue to rise,
Speaker 6: we think, in order to support the market. The one
Speaker 6: thing that has been the key underlying support for this
Speaker 6: market since the beginning of twenty twenty two is rising
Speaker 6: twelve month forward earning sestments.
Speaker 7: That is absolutely critical to maintain, and.
Speaker 4: You've seen that in seventy two percent of the companies.
Speaker 4: That's according to Bank of America are expected to grow
Speaker 4: their EPs. That's some good breath, but as John was
Speaker 4: just describing, the market doesn't have breath at this very moment.
Speaker 7: Do you expect that to change? It's certainly the hope
Speaker 7: of a lot of people.
Speaker 6: And if you look into next year's earnings estments for
Speaker 6: twenty twenty five, the market has priced in the mag
Speaker 6: seven decelerating materially and the rest of the market accelerating
Speaker 6: in their earnings growth. But in a way that actually
Speaker 6: creates a high bar for the rest of the market
Speaker 6: to deliver because you have these big accelerations in earnings
Speaker 6: growth which are already priced in and forecasted.
Speaker 2: So the banks would put on Friday, and we're all
Speaker 2: reflecting on what we heard maybe two weeks ago when
Speaker 2: we heard from Alli Financial warn about credit risk, and
Speaker 2: we heard from Dan Pinto JP Morgan. We talked about
Speaker 2: lower interest rates maybe weighing go on that interest income.
Speaker 2: What do you think is going to be the standout
Speaker 2: theme for this reporting season for some of the banks,
Speaker 2: both big and small.
Speaker 6: I think it all comes back to the credit risk question,
Speaker 6: which is the underlying question that we've all been asking.
Speaker 6: Is the economic data overstating the strength of this economy,
Speaker 6: and the message from the banks will be important because
Speaker 6: they'll give us a notion about small businesses, they'll give
Speaker 6: us a notion about consumers.
Speaker 7: And if we continue to see.
Speaker 6: Credit risks bubble up, look at default rates within consumers.
Speaker 6: That's where ALI was flagging back a couple of weeks ago.
Speaker 6: If you continue to see that, it would question some
Speaker 6: of this headline data necessarily not being as strong as
Speaker 6: maybe it looks on the surface.
Speaker 2: In the Wait a little bit, Jack Caffrey, JP Morgan
Speaker 2: mentioned this yesterday. It's very unusual to see defaults on
Speaker 2: auto loans. If you go back to GFC, I remember
Speaker 2: all the stories we tell the car was the last thing.
Speaker 2: It was the one thing you held on, so you
Speaker 2: always made that payment.
Speaker 1: What could that be about.
Speaker 6: It's partially a function of the price increases that we
Speaker 6: saw coming out of the pandemic. It's partially a function
Speaker 6: of people reaching for cars coming out of the pandemic,
Speaker 6: but it also likely reflects the true K shaped economy.
Speaker 6: It's usually the lower income consumer that's more likely to
Speaker 6: finance their cars and have floating rate debt overall, with
Speaker 6: credit cards, we do know that the low income consumer
Speaker 6: is under pressure and the one thing that is keeping
Speaker 6: them above water is this jobs market. It's pretty incredible
Speaker 6: that you're seeing this huge uptick in default with a
Speaker 6: relatively robust jobs market.
Speaker 7: Look at where the unemployment rate is.
Speaker 6: If that goes up any higher, this could actually have
Speaker 6: default in that cohort of consumers that would be in
Speaker 6: line with the GFC, even though consensus seems to be
Speaker 6: that we're not going to have a consumer led kind
Speaker 6: of recession in this cycle. So I think it is
Speaker 6: incredibly unique, but it is certainly something that catches our
Speaker 6: e that makes us question the data.
Speaker 4: That is one of those things again just out of
Speaker 4: line with an economy that's been driven by consumer spending.
Speaker 4: You also see it in some of these companies in
Speaker 4: just the past month. Pepsi, Constellation, Nike, Fedaches, rh Hormal,
Speaker 4: Dollar Tree, Lululemon have all cut their sales or earnings
Speaker 4: again just in the past month.
Speaker 7: Is there a sector.
Speaker 4: Because this has continued to be a problem for this
Speaker 4: equity market of staples of packaged food companies that you
Speaker 4: just can't buy until we figure out what's happening with
Speaker 4: the consumer.
Speaker 6: I think it's all a reflection of this fading pricing power,
Speaker 6: and that comes squarely to head with what we're seeing
Speaker 6: within forecasts for earnings, because earnings are forecasted to actually
Speaker 6: accelerate next.
Speaker 7: Year on the revenue line.
Speaker 6: If you see fading pricing power companies effectively saying we
Speaker 6: want to raise prices, but consumers are pushing back because
Speaker 6: they can't take it anymore. That suggests that you'll actually
Speaker 6: see a deceleration in revenue next year, which is certainly
Speaker 6: not what's being priced in.
Speaker 4: Does that cap just how bullish you can be on
Speaker 4: an overall equity market which with otherwise has good fundamental
Speaker 4: growth in the economy behind it.
Speaker 6: We don't think it would be be the end of
Speaker 6: the world or a two reaching of a base case
Speaker 6: to expect relatively flat returns in twenty twenty five. It's
Speaker 6: not enough to say get out of your equities and
Speaker 6: run for the hills. It's just to appreciate that if
Speaker 6: that twelve month forward earnings number starts to flatline, it's
Speaker 6: likely that returns flat line. It looks a lot more
Speaker 6: like a year like twenty fifteen or twenty eighteen, or
Speaker 6: the market chopped sideways. And the good news in that
Speaker 6: is it effectively allowed you to grow into very fulsome
Speaker 6: valuation multiples, which is where we are today.
Speaker 5: Cameron, I hate to be the debbie downer, but what
Speaker 5: if tariff Man comes back?
Speaker 7: What if forward earnings actually look like for these companies.
Speaker 6: We didn't necessarily see it impact company earnings in a
Speaker 6: material way in twenty eighteen because it was far more pocketed.
Speaker 6: If we have broad tariffs, though, this is certainly something
Speaker 6: that could challenge the earnings picture because we do know
Speaker 6: it's effectively a regressive tax.
Speaker 7: We do know it does lower consumption.
Speaker 6: It's less of an inflation risk and more of the
Speaker 6: fact that it would dampen consumption, which then, of course
Speaker 6: would cause you to question earning sestements and that would
Speaker 6: be a source of volatility for equities.
Speaker 5: I meant, too, the debbie downer on the earnings estimates.
Speaker 5: Do you think companies are going to have to focus
Speaker 5: on this in this quarter because it is just around
Speaker 5: the block in terms of what this election is going
Speaker 5: to look like.
Speaker 6: We've already been hearing from companies over the last let's
Speaker 6: call it three four months that they've been delaying some
Speaker 6: capital spending, they've been delaying some hiring decisions, because of
Speaker 6: election uncertainty, So certainly that is something that's weighing on
Speaker 6: their mind whether or not they're going to absolutely make
Speaker 6: changes because of the election going into this earning season,
Speaker 6: they'll probably say, we have to wait and see.
Speaker 2: Think about how wide the rank is for twenty twenty
Speaker 2: five a sweep fre either side. We can have a
Speaker 2: corporate taxt right of what twenty eight percent on the
Speaker 2: one side and fifteen percent on the other with conditions,
Speaker 2: What does that look like for you? Just how wide
Speaker 2: is the range for twenty twenty five?
Speaker 7: Completely massive?
Speaker 6: And I think that what we have to appreciate is
Speaker 6: that both sides what they have in common is that
Speaker 6: they're talking about higher deficit spending and growth dampening policies.
Speaker 6: So on one side you get growth dampening from tariffs
Speaker 6: and potential immigration. The other side you get potential growth
Speaker 6: dampening on higher corporate taxes, which just means that we
Speaker 6: then have to turn our minds to the bond market
Speaker 6: and how does the bond market digest all of this.
Speaker 6: We do know that the bond market did not like
Speaker 6: the higher treasury issuance in the third quarter twenty twenty three.
Speaker 6: Treasury yields went up by one hundred and fifty basis
Speaker 6: points and valuations within the equity market hated it. So
Speaker 6: we do think that instead of this idea by the
Speaker 6: rumor sell the news with the election, that the election
Speaker 6: itself could be a source of volatility if it results
Speaker 6: in a sweep.
Speaker 2: That could be charactistmic camera, thank you, Did I do
Speaker 2: that right?
Speaker 8: Yeah?
Speaker 1: Thank you? All right?
Speaker 2: Second guard Cameron Dason and new h Wow Cameron, thank
Speaker 2: you very much. So here's the latest fame of bracing
Speaker 2: for Milton's landfall. Already stretched thin following how Urricane Helene.
Speaker 2: The agency is preparing for a three billion dollars deficit
Speaker 2: by temporary but the government says it has the resources
Speaker 2: to meet immediate needs. The former FEMA administrator, Craig Fugu,
Speaker 2: joins us now he let the agency under the Obama administration. Craig,
Speaker 2: thank you for giving us your time this morning. We
Speaker 2: recall also some of the work that you did with
Speaker 2: Governor Jeff Bush back in the early two thousands, and
Speaker 2: maybe we can start the conversation there of the hurricane
Speaker 2: seasons that you oversaw in two thousand and four, five six.
Speaker 2: When you think back to that period. What's different about
Speaker 2: the hurricane seasons now that we have to confront in Florida.
Speaker 8: Well, I think we're just seeing rapid tentification that we
Speaker 8: haven't seen before in history. So when you look at
Speaker 8: going back just ten years, how many storms went from
Speaker 8: a tropical system to a Category by hurricane in less
Speaker 8: than a couple of days. And so, you know, I
Speaker 8: think we're having to just get ready for these more
Speaker 8: intense hurricanes as they're approaching and maybe.
Speaker 1: Not have the leak time. The good thing.
Speaker 8: About Milton is there's been a lot of time to
Speaker 8: get ready. Many people started evacuating as early as Sunday,
Speaker 8: So this is a little bit different than a storm
Speaker 8: that just popped up. They had time to get ready,
Speaker 8: but it will not reduce the impacts.
Speaker 5: Craig, let's talk about the FEMA response. Are they prepared?
Speaker 1: Yeah? I get this question a lot.
Speaker 8: And as bad as Selene was, FEMA has a lot
Speaker 8: more resources, a lot more capability, and they're not going
Speaker 8: to have to stop.
Speaker 1: The response in Hurricane Helene.
Speaker 8: That's I think a big concern for people in that
Speaker 8: area that while the national media has focused now on
Speaker 8: what Milton's about to do, FEMA is still working and
Speaker 8: supporting the governors in the states that have already been hit.
Speaker 8: And again, the party in any of these disasters will
Speaker 8: be always life saving, life sustaining, and getting communities stabilized
Speaker 8: to set the stage for long term recovery.
Speaker 5: FEMA recently said that they have only nine percent left
Speaker 5: of their personnel reserves, that's about twelve hundred people. Where
Speaker 5: do they look then, in terms of getting the bodies
Speaker 5: they need to go to these areas that are going
Speaker 5: to be hit.
Speaker 8: Well, those numbers really referred to staffing required for long
Speaker 8: term recovery. The initial response teams reset between disasters. FEMA
Speaker 8: has a lot of capability to reprioritize their resources as
Speaker 8: well as employ people from the headquarters. We did this
Speaker 8: in Superstorm Sandy. If EMA needs to, and given the
Speaker 8: size and impact of what Milton looks to do, I
Speaker 8: would imagine there's going to be a lot of people
Speaker 8: redeployed across the nation the support the state of Florida.
Speaker 5: Is the current funding enough or do you think Congress
Speaker 5: is going to be forced back into session and get
Speaker 5: off the campaign trails?
Speaker 8: Well, right now, FEMA does have money to do the
Speaker 8: initial response and provide support to the survivors.
Speaker 1: I think the bigger.
Speaker 8: Question is going to be the level of funding required
Speaker 8: for long term recovery, the permanent work. And that's not
Speaker 8: just going to be FEMA. There'll be a lot of
Speaker 8: federal agencies that will need additional funding to support the
Speaker 8: recoveries from these previous storms and disasters as well as
Speaker 8: what we're about to see with her Kane Melton.
Speaker 4: And it's not even just those storms, Craig before it,
Speaker 4: it was wildfires out west that also required FEMA money.
Speaker 4: So you get to this point, as John mentioned, a
Speaker 4: three billion dollar deficit. Does there need to be a
Speaker 4: structural change with FEMA and its funding to ensure that
Speaker 4: it can continue to deal with successive climate issues.
Speaker 8: Well, this was a situation we actually faced it in
Speaker 8: the Bomb administration and then Speaker Ryan and at that
Speaker 8: time OMB Director Jack lou had come up with a
Speaker 8: way to increase FEMA's funding, but it was always based
Speaker 8: upon the past storms, the past disasters. So the problem
Speaker 8: is is we get bigger and more intense disasters with
Speaker 8: little break between them. We really need to look at
Speaker 8: a funding mechanism going forward. But I think it's critical
Speaker 8: we understand this is your federal tax dollars. This is
Speaker 8: increasing cost to the budget that does not seem to
Speaker 8: be slowing down. It's growing rapidly, and it's far beyond
Speaker 8: just what FEMA programs are being taxed with. So for
Speaker 8: the federal taxpayer, we're seeing a tremendous trans for a
Speaker 8: risk to the taxpayer where previously insurance covered this, and
Speaker 8: as the insurance markets are no longer able to provide
Speaker 8: affordable or available insurance due to these increasing impacts, we're
Speaker 8: seeing this transfer risk to the taxpayer and that's going
Speaker 8: to grow. And I don't know if we have answers
Speaker 8: for that yet.
Speaker 7: What does that mean?
Speaker 4: Craig from when these areas get rebuilt that are still
Speaker 4: under risk, a place like Tampa also had impact from
Speaker 4: Helen Now again Milton, when government agencies, when FEMA, when
Speaker 4: others go in to rebuild these areas, does it need
Speaker 4: to look different this time because they are under constant threat.
Speaker 1: The answer is yes, And.
Speaker 8: FEMA has for a long time been focused on rebuilding better,
Speaker 8: not just putting things back. But the challenge is we're
Speaker 8: going to have to not only just put it back better,
Speaker 8: We're going to have to build it for the future risk,
Speaker 8: and that isn't going to be inexpensive. The other problem
Speaker 8: I see is that we're going to increasingly see it
Speaker 8: transfer risk to government run programs like the Citizens Insurance
Speaker 8: program in Florida, because commercial assurance is finding extremely difficult
Speaker 8: to be able to stay in these markets where it's
Speaker 8: affordable product given their extreme exposures.
Speaker 2: It's a conversation we had earlier this morning, just devastating. Craig,
Speaker 2: appreciate your time this morning. Thank you, sir, Craig Fuget there,
Speaker 2: the former FEMA administrator. This is the Bloomberg Surveillance Podcast,
Speaker 2: bringing you the best in markets, economics, and geopolitics. You
Speaker 2: can watch the show live on Bloomberg TV weekday mornings
Speaker 2: from six am to nine am Eastern. Subscribe to the
Speaker 2: podcast on Apple, Spotify, or anywhere else you listen, and
Speaker 2: as always, on the Bloomberg Terminal and the Bloomberg Business
Speaker 2: app