Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane.
Speaker 1: Daily we bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Well
Speaker 1: we like to do with surveillance is not talked to
Speaker 1: the fancy people, all the pundans, pund training, more pundits.
Speaker 1: We like to talk to the people that they read
Speaker 1: and they listen to. One of those is Jared Bernstein
Speaker 1: and the steam career at the Center on Budget and
Speaker 1: Policy Priorities, and a senator from Delaware a few years
Speaker 1: ago discovered this and said Dr Bernstein joined the team.
Speaker 1: Jared Bernstein part of the transition team for the President elect. Jared,
Speaker 1: I know we need to break some news here, and
Speaker 1: I do want to know the Secretary Treasury is going
Speaker 1: to be, but I really want to go to transition Minutia.
Speaker 1: You are lined up I think to walk Champ and Major.
Speaker 1: You're gonna be like first dog walker for the Biden administration.
Speaker 1: What is it like being on a transition team. I
Speaker 1: think the most important thing to recognize there is that
Speaker 1: this is such a critical moment for a smooth, normal
Speaker 1: transition process to happen, And what's happening right now is
Speaker 1: anything but normal. Remember I was the chief economist to
Speaker 1: the then Vice president elect back in two thousand and eight,
Speaker 1: and at this point we were actively planning. Remember that
Speaker 1: was the Great Recession. We were actively planning for a
Speaker 1: fiscal relief package that was legislated less than four weeks
Speaker 1: after Obama and Biden took office. That's what should be
Speaker 1: happening now. But this is not normal, my friends, for
Speaker 1: this transition to be thrown off this way, and it's
Speaker 1: coming at great cost in terms of health and in
Speaker 1: terms of the economy. Okay, a delicate question, then you know,
Speaker 1: we make fun of Champion Major the dogs. Returning to
Speaker 1: the White with the President Elec Jared, what's so important
Speaker 1: here is? And what is your action plan if this
Speaker 1: is transition interrupted? Are you planning out a budget process
Speaker 1: without the knowledge of the President White House? Well, certainly
Speaker 1: we are, obviously, and you'll hear the President like talking
Speaker 1: about this, thinking about a fiscal package with great urgency
Speaker 1: one of the things he said. And by the way,
Speaker 1: President elecs, they like to wait till they're in the
Speaker 1: office to start moving legislation. He has said that is
Speaker 1: not the case when it comes to fiscal relief. That
Speaker 1: should happen in the lame Duck. And I couldn't agree more.
Speaker 1: But if you're talking about preparing for uh, the UH
Speaker 1: for for this job that he is UH, that the
Speaker 1: American people have elected him for, you've got to talk
Speaker 1: about virus control and that of course you can see
Speaker 1: the President elect is very active on planning virus control.
Speaker 1: But you know his UH Vivic Murdy, who's the former
Speaker 1: surgeon general on the covid T recently talked about how
Speaker 1: important it is to get that information in transition from
Speaker 1: folks from bunks that are currently in the White House,
Speaker 1: and that's not happening. Again, avoidable suffering to Americans in
Speaker 1: terms of healthcare and economic hardship because this transition is
Speaker 1: not occurring the way it should. Jaredy, We're lucky to
Speaker 1: have a bit of time with you this morning, so
Speaker 1: we can talk about the transition a little bit more.
Speaker 1: In just the moment, I want to talk about a
Speaker 1: fiscal plan just a bit with you. The Republican Senate
Speaker 1: was the obstacle to getting the deal that Pelosi wanted
Speaker 1: was still likely to have a Republican Senate. We have
Speaker 1: one now, will likely have one off the January as well.
Speaker 1: What is it that you think that President elect Biden
Speaker 1: can achieve the Speaker Pelosi couldn't. Well, I think the
Speaker 1: way you teed it up is exactly right. I mean,
Speaker 1: the President elect continues to talk about how people can
Speaker 1: decide to cooperate and now is is the perfect time
Speaker 1: for them to do so. We have heard positive sounds
Speaker 1: about a fiscal package from members of the Republican squad
Speaker 1: and including McConnell himself. What we're not seeing is the
Speaker 1: kinds of negotiations that the President elect has been stressing,
Speaker 1: and that needs to happen as of yesterday. You know,
Speaker 1: we have an unemployment insurance system where over twenty million
Speaker 1: people are making claims and at least twelve million we
Speaker 1: recently learned UH could lose their h support as that's
Speaker 1: as as as it expires at the at the end
Speaker 1: of the year. We have over four hundred thousand small
Speaker 1: business instead of clothes. The long term unemployment is increasing
Speaker 1: at a rate we haven't seen in the history of
Speaker 1: that series. We learned this morning that according to zip recruiter.
Speaker 1: Job growth is slowing, not just in places where the
Speaker 1: virus is surging, but in other places as well. So
Speaker 1: I think the urgency of the economic situation has and
Speaker 1: the health situation, which of course are intimately connected, just
Speaker 1: has to reach legislators. I'm an economist, I'm not a politician.
Speaker 1: I can't tell you the strategy to get them there,
Speaker 1: but I can certainly stress the urgency of this moment
Speaker 1: in that regard, Well, let's talk about the urgency and
Speaker 1: the size, because currently there is a one and a
Speaker 1: half trillion dollar spread between the two sides, and I'm
Speaker 1: not sure how that's closed, that's all, if it has,
Speaker 1: it's all in the last month. What kind of size
Speaker 1: package do you need in a moment like this, Jared,
Speaker 1: I think probably the best way to think about is
Speaker 1: start from the bottom up and start adding up what's necessary.
Speaker 1: State and local budgets are are really hurting. Remember they
Speaker 1: can't run budget deficits. UH. The unemployment insurance system, as
Speaker 1: I mentioned, needs work. Nutritional support has to be on
Speaker 1: the table. There's lots of people facing a potential evictions
Speaker 1: and foreclosures, so we need those programs to continue and
Speaker 1: to be re upped, and of course virus control is
Speaker 1: at the top of the list. Now, if you start
Speaker 1: summing that up, you'll get into the neighborhood of the
Speaker 1: Heroes Act, which is what the President elect was touting
Speaker 1: the other day. Uh and at least the second version
Speaker 1: of that was somewhere in the two to three trillion range.
Speaker 1: But let me say this, I think what matters most
Speaker 1: right now is speed. So there's speed, their size, their composition,
Speaker 1: they're all important, but I would put speed at the
Speaker 1: top of the list because I think this economy is
Speaker 1: at a precarious point. Jared, can you elaborate on that.
Speaker 1: If speed is the biggest issue right now, do you
Speaker 1: think that Democrats should cave to the Republican demand of
Speaker 1: a smaller bill and just get something anything past even
Speaker 1: it's if it's substantially less than what you think is required.
Speaker 1: You know, I just don't think cave is the word
Speaker 1: that anyone should be thinking about up there. It's actually
Speaker 1: cooperation working together to serve both the healthcare and economic
Speaker 1: needs of the American people. And you know, as the
Speaker 1: President elect has stressed, I mean, there are uh, not
Speaker 1: avoidable there are avoidable deaths that could occur if if
Speaker 1: both sides would get together and start cooperating. Now, by
Speaker 1: the way, Ron Klain, incoming chief of staff, someone who
Speaker 1: knows a lot about about about pandemics, keep winting out
Speaker 1: something the other day that I want to stress. He said,
Speaker 1: you know, yes, vaccine, that's important, it's essential. But you know,
Speaker 1: vaccine without vaccination doesn't get you very far. So along
Speaker 1: with all this other transition planning that should be happening now,
Speaker 1: the manufacturer and the distribution of the vaccine is essential
Speaker 1: planning that has to occur. And I don't think anybody
Speaker 1: needs the cave to each other to get to work
Speaker 1: on serving the American people. In that regard, Jared, given
Speaker 1: that there is some sort of bridge right now to
Speaker 1: try to get us through the next very difficult couple
Speaker 1: of months, what do you think is necessary when it
Speaker 1: comes to potential infrastructure spending, which has been something that's
Speaker 1: been sort of touted out there, and how should we
Speaker 1: pay for something like that? Yeah, that's a really uh,
Speaker 1: that's a really good question. I I think that the
Speaker 1: the we we I focus so much on relief and
Speaker 1: this fiscal bridge to the other side of the crisis.
Speaker 1: I don't think we should forget. And certainly the President
Speaker 1: ELECTA has a has an agenda that is extremely I
Speaker 1: think rich and important in this regard that simply getting
Speaker 1: to the other side of the crisis, back to where
Speaker 1: we were, isn't nearly good enough. We have to the
Speaker 1: way he puts it is build back better. That is,
Speaker 1: have a far more resilient economy on the other side
Speaker 1: of the crisis. And resiliency in the case that you're raising,
Speaker 1: has to do with investments in clean energy and infrastructure,
Speaker 1: healthcare infrastructure, safety net infrastructure, an unemployment insurance system that's
Speaker 1: up to the task, a healthcare system that's up to
Speaker 1: the task, and all of those investments I think need
Speaker 1: to be made now. In terms of pay for us,
Speaker 1: that's a discussion that's going to have to happen when
Speaker 1: the President elect becomes the president we start those negotiations.
Speaker 1: I will say that in terms of relief packages right now,
Speaker 1: it is essential to recognize that interest rates are so
Speaker 1: low and locked in at such a low rate, so
Speaker 1: government borrowing given the return on the kinds of investments
Speaker 1: I'm talking about, I mean, we can literally save lives
Speaker 1: at a and extremely uh favorable interest rate, and the
Speaker 1: idea that Congress isn't acting with urgency to do that
Speaker 1: right now, I think it's just a huge mistake. Four
Speaker 1: basis points on a ten yere Jarek right to catch up,
Speaker 1: appreciate time, come back, saying John Bernstein that at the
Speaker 1: Center on Budget and Policy, priorities made come surveillance to
Speaker 1: speak the experts on this pandemic long ago and far away.
Speaker 1: I think March. My first conversation was with an esteemed
Speaker 1: radiologist at Mount Sinai this morning, these many months on
Speaker 1: a conversation with Dr David richie's president of the Mount
Speaker 1: Sinai Hospital, a radiologist of Mount Sinai who long ago
Speaker 1: and far away actually bought radiological images snapshots of the
Speaker 1: lungs of Wuhan. That was our first important interview on
Speaker 1: this pandemic. Today, David rich joins as president of Mount
Speaker 1: Sinai Hospital in Mount Sinai, Queens. David, I looked on
Speaker 1: a hundred first Street and I count the ambulances. It's
Speaker 1: not as bad as it was in April. It's not
Speaker 1: as bad as what is in May, and yet we're
Speaker 1: hearing about increasing troubles. Give us a snapshot of Mount
Speaker 1: Sinai this Friday morning. This Friday morning, and really for
Speaker 1: the past thirty days, Mount Sawei Hospital has about fifty
Speaker 1: patients with active COVID infection UH. That is a significantly
Speaker 1: last At the peak of the crisis, there were seven
Speaker 1: hundred and seventy including patients in the tents across the streets.
Speaker 1: So it is a markedly less severe surge than what
Speaker 1: we saw in the first wave. Then why are we
Speaker 1: closing schools? Why are we seeing hospitals in North Dakota,
Speaker 1: in Utah and Idaho. So challenge is it just a
Speaker 1: new pandemic of geography or is there something different this time? Well,
Speaker 1: this time we see what's coming at US. We have
Speaker 1: testing in the region. It's certainly not as good as
Speaker 1: it needs to be in the in the long term,
Speaker 1: but we can see the positivity rates. And we didn't
Speaker 1: know back in February and March what was coming towards US.
Speaker 1: There was no capacity and then we were overwhelmed. This time,
Speaker 1: we can see the increase coming at US and take
Speaker 1: proactive public health measures in advance of effective vaccines in
Speaker 1: order to control the spread so that we don't see
Speaker 1: the incredible amount of death and excess death outside of
Speaker 1: COVID that we saw during March April and may Dr
Speaker 1: Rich good morning from London. Is it a different type
Speaker 1: of population that's being affected this time? Is this why
Speaker 1: you know fewer people are ending up in hospital or
Speaker 1: is it because of the viral load that we're seeing. Well,
Speaker 1: there there are certain things that are different about this
Speaker 1: second wave of just looking at it from our perspective.
Speaker 1: For impatients, we see that they're slightly younger, implying that
Speaker 1: we're doing a better job of protecting our elders. We
Speaker 1: see a slightly decreased length of stay, and we're very
Speaker 1: happy that the mortality rate came down from in the
Speaker 1: first wave to five point one percent in the second wave.
Speaker 1: While still a very deadly disease, this does give some
Speaker 1: hope that something that we're doing, something in terms of
Speaker 1: therapeutics or better management of oxygen levels is improving the
Speaker 1: outcome of patients. But still not a disease to take
Speaker 1: lightly at all. The World Health Organization has ruled using
Speaker 1: anti vale m desivere as a treatment has ruled against
Speaker 1: using web deservere as a treatment of COVID nineteen. What
Speaker 1: treatments are available right now that you are using well
Speaker 1: remdesse of your it does have some data that are
Speaker 1: are contradictory, but in the early phase of inpatient care,
Speaker 1: remdesivie and inpatients not yet showing their own antibody response
Speaker 1: convalescent plasma are tools that we're using. And then as
Speaker 1: the disease progresses and we see more involvement, the use
Speaker 1: of UH gluba corticoids commonly noticed steroids such as decks
Speaker 1: and methad zone and UH drugs that in the blood
Speaker 1: or prevent clotting have been very effective for us in
Speaker 1: preventing some of the complications that we saw in the
Speaker 1: first wave. Dr Richard, your thirty six years at Mount Sinai,
Speaker 1: in doing the hard work of innesesology, you have seen
Speaker 1: bed to bed. What people do I want you to
Speaker 1: speak to our audience worldwide about the emotion of the
Speaker 1: CDC yesterday basically canceled Thanksgiving or what we're seeing in
Speaker 1: London about cancel Christmas. How does a pro like you
Speaker 1: observe the political maelstrom of this pandemic. Well, it's it's
Speaker 1: very hard for many of us to see that science
Speaker 1: is not being taken in the in the proper regard
Speaker 1: throughout the really throughout the United States. I can't speak
Speaker 1: as much to the rest of the world, but it's
Speaker 1: a problem when we don't have universal acceptance by public
Speaker 1: health officials and by governments that we must mask be
Speaker 1: much socially distanced. That the Thanksgiving holiday is in many
Speaker 1: ways the worst of possible situations for spread of the inspirers,
Speaker 1: because having large groups of people indoors sharing a meal
Speaker 1: is probably the most effective way of spreading. There for
Speaker 1: something we must we must avoid. David rich mount sign
Speaker 1: I throught we could take generous time with us today.
Speaker 1: Of course it's thirty five. I think it's thirty four,
Speaker 1: maybe thirty six, excuse me, thirty six years at Mount
Speaker 1: sin I truly committed to that institution. The market on
Speaker 1: a hand, whilst founder securities equity strategist joins us right now, Anna,
Speaker 1: we started this program by talking about the cross currents
Speaker 1: for financial market participants. How do you react to the
Speaker 1: news this morning? Well, the news this morning is encouraging
Speaker 1: for equities, and like you were talking about earlier, that
Speaker 1: tugger war. It's one of those items that might be
Speaker 1: able to join the market a little bit higher, but
Speaker 1: in the near term you know, we think that equity
Speaker 1: of bolatility and equity uncertainty still remains elevated. So in
Speaker 1: the immediate term, it's it's hard to say what's gonna
Speaker 1: win out the rising COVID cases or is it gonna
Speaker 1: be this vaccine and uh, you know, perhaps rekindle stimulus
Speaker 1: talks on both ends. Maybe that's gonna be the winning factor.
Speaker 1: But you know, six months out, John, we still do
Speaker 1: think equity risk and unsearchain t will decay and equities
Speaker 1: will march higher. And I want to talk really importantly
Speaker 1: here and I want to drive it into a physics discussion.
Speaker 1: And you're you're working Yale. Do we know the coefficients
Speaker 1: right now? In this divisive week of bulls and bears?
Speaker 1: Are you flying blind or within your equation your expectations
Speaker 1: that you see Do you actually feel like you've got
Speaker 1: to handle on how the equations pieced together for us?
Speaker 1: You know, we do think we have some sense, especially
Speaker 1: you see what the rotation has been as the market
Speaker 1: has been pretty flat this week. Like you mentioned, still
Speaker 1: underneath the hood, you're seeing certain groups have a higher
Speaker 1: beta to the more positive COVID news. You're seeing more
Speaker 1: the cyclicals and the value trade out performing, and that
Speaker 1: has been the trend month to date. We think that
Speaker 1: has legs and has much longer to go in the
Speaker 1: longer term outside of six months. Okay, in the longer term.
Speaker 1: In the short term, how much of a hit could
Speaker 1: that cyclical trade take. Well, as you know, the cyclicality,
Speaker 1: it's very sensitive to economic indicators and how the economic
Speaker 1: recovery is going. So far, recovery seems to be chugging along,
Speaker 1: but we know the biggest risk it hasn't has always
Speaker 1: been what happens with the coronavirus cases isn't manageable. You know,
Speaker 1: for example in New York City, you're seeing schools close,
Speaker 1: You're seeing restaurant dining get rolled back an hour short.
Speaker 1: These things are concerning if we get them out of
Speaker 1: nationwide uh spread, the more concerned again of my policy
Speaker 1: mistikens okay, And I think that's why the biggest news
Speaker 1: perhaps of the night around this market was the gap
Speaker 1: that's emerging between the Federal Reserve Chairman Pale and the
Speaker 1: Treasury Secretary Minute in to him. I think for many
Speaker 1: people in this credit market right now, there's a worry
Speaker 1: that if the fedbacks away, you start to see a
Speaker 1: gapping out and it's signing of financial conditions that would
Speaker 1: be my concern this morning. I have to say I
Speaker 1: was surprised that I didn't see if they're moving this market.
Speaker 1: We had a bit of one eye of the night.
Speaker 1: Then we erased it pretty quickly. Oh. I think everybody
Speaker 1: in Washington at least is overwhelmed by the constitutional news.
Speaker 1: But what's so important here, John, to your good point
Speaker 1: is the fiscal stimulus timeline has been adjusted. There's no
Speaker 1: question about that. And I want to go back to beta.
Speaker 1: You mentioned beta, and let's call it sector beta. To
Speaker 1: full disclosure, folks, I don't believe in beta on individual securities.
Speaker 1: And is beta now in the beta change into two
Speaker 1: thousand twenty one? Is it an absolute change or is
Speaker 1: it a relative change? Can I still own tech? You
Speaker 1: can still own tech. But we think, you know, market
Speaker 1: can move higher. But we're thinking more pedestrian growth than
Speaker 1: we've seen in the past two or three years. So
Speaker 1: for us, the game becomes the more relative beta game.
Speaker 1: We want to know if the market is going to
Speaker 1: be more pedestrian returns and growth, well, what about underneath that,
Speaker 1: which sectors are going to have that relative outperformance? That
Speaker 1: relative beta for us, we think it's more that economically
Speaker 1: sensitive names that COVID time names. So that's what we've
Speaker 1: been recommending to investors right now. When you look out
Speaker 1: the financials part of that story on a even with
Speaker 1: the bond market doing what it's done over the last
Speaker 1: couple of weeks, it is it is John, And within
Speaker 1: financial specifically, you know the trodden and beaten down and
Speaker 1: unloved banks. You know, recently we've pounded the table and
Speaker 1: being overweight banks for a longer term trade because you know,
Speaker 1: evaluations look right for the picking and as we've seen
Speaker 1: that book to price factor has performed since March and
Speaker 1: we think it has more to go. That helps that
Speaker 1: banks argument. And you know, eventually with rates staying at zero,
Speaker 1: even if we don't get the biggest physical stimulus package,
Speaker 1: and now that we do have concerns what happens to
Speaker 1: that credit support rules off, but seeing if that maintains
Speaker 1: status quo, that's going to help bas come back, especially
Speaker 1: longer down the road we get a little reflation. We're
Speaker 1: speaking with an a hand of what Wells Fargo securities,
Speaker 1: and I want to go back to something John was
Speaker 1: talking about this rift that's emerging between the Federal Reserve
Speaker 1: and the Treasury Secretary Stephen Manuchin about this extra money
Speaker 1: that was going toward corporate bond purchases, that was going
Speaker 1: towards main street lending facilities, that was going towards musicpal
Speaker 1: bond UH purchases. I'm wondering how much this threatens the
Speaker 1: idea that the Fed can swoop in as a backstop
Speaker 1: to markets. Frankly, this has been one of the biggest
Speaker 1: arguments for equities and valuations where they are. Does this
Speaker 1: threaten that on any level? Based on the sudden inconsistency
Speaker 1: here in messaging Lisa, you know, you're right, it's absolutely
Speaker 1: a bit of a shock to here suddenly treasuring WENUS
Speaker 1: and then the Fed are taking different stances. As you mentioned,
Speaker 1: one of the reasons why we can justify such inflated
Speaker 1: equity multiples, especially on the SMP five compared to history,
Speaker 1: it's this liquidity. We've had, this monetary accommodation, and you know,
Speaker 1: now you have traging volution asking for a refund. That's
Speaker 1: unexpected because one of the one steady things we've had
Speaker 1: through a lot of this turmoil has been monetary support. Now,
Speaker 1: if that is sapped away. If companies lose their access
Speaker 1: to capital, that comes into stress for equities, and equities
Speaker 1: are likely to see a big pullback. But so far
Speaker 1: we've seen credit spreads tight well behaved both in the
Speaker 1: investment grade and the high old markets. So as long
Speaker 1: as that can remain capped, we think equity volatility stays
Speaker 1: muted as well, and you know multiples can continue and
Speaker 1: great to catch up as always, and a hand that
Speaker 1: of one stonger securities person why it works. Gott Kleiman
Speaker 1: and Jim's l or Apollo Management in a week moment
Speaker 1: took one of the best economists in the street and
Speaker 1: drag them over into the dark side of asset management
Speaker 1: economic analysis. They still touristed Slack from Deutsche Bank. Huge
Speaker 1: loss for Peter Hooper in their team, and we're thrilled
Speaker 1: that Mr Slack could join us. And this one touristed
Speaker 1: a global Wall Street question, how's it different being an
Speaker 1: economist for a massive global bank versus being an economist
Speaker 1: for asset managers? Well, the data and then ASIS is
Speaker 1: a really littlely identical. I mean trying to think about
Speaker 1: what markets are doing and where they're going. Then atisis
Speaker 1: ends up being exactly and the same. So and that
Speaker 1: sends uh, the job that we all have of trying
Speaker 1: to think about where is the economy and going, and
Speaker 1: where a financial marker is going is the same for
Speaker 1: all of us. You're at the cross section at a
Speaker 1: very interesting time that we have Dallas FED President Robert
Speaker 1: Kaplan coming out saying that he could expect a contraction
Speaker 1: even in Q for as a result of the worsening pandemic.
Speaker 1: And then you have Jim Paulson of Luthhole who just
Speaker 1: came on and says that he expects a five percent
Speaker 1: expansion in Q four. This sort of bullish attitude in
Speaker 1: markets versus the parishness of economists. Where do you come
Speaker 1: out in this divide that seems to be growing. Yeah,
Speaker 1: what it's very important to watch is the high frequency
Speaker 1: data and Jodan has claims yesterday as you also talked about,
Speaker 1: of course what's going up that means that more people
Speaker 1: are becoming unemployed. This is a yellow light for risky assets.
Speaker 1: I mean, there's something here that's going on in the
Speaker 1: economic data where the nightmare scenario for marguts would be
Speaker 1: if the unemployer rate November will begin to go higher.
Speaker 1: I mean we are still waiting for the vaccine. There
Speaker 1: is still some time before the vaccine comes. We have
Speaker 1: now more conversations about whether we need a second generation
Speaker 1: of a vaccine, and there's a lot of still question
Speaker 1: marks around how the vaccine will be both deployed and
Speaker 1: how it will function, etcetera. But the short answer to
Speaker 1: your question, Lisa is that then in the short term,
Speaker 1: it's very different from as a podcast the way normally is.
Speaker 1: Normally you have a lot of certainty about the short
Speaker 1: term and much certainty about the long term. But here
Speaker 1: it's a complete opposite. We have a much better idea
Speaker 1: about what things will look like in two thousands twenty
Speaker 1: one than what we have in the next two months.
Speaker 1: It's also and I really underestimated the resilience of the
Speaker 1: US economy and how quickly it would bounce back, and
Speaker 1: many other people did as well, and we're repeating that
Speaker 1: again as we work our way through winter. So it
Speaker 1: is the case that the US economy is more resilient
Speaker 1: than any other economy in the world. We have much
Speaker 1: more dynamic labor markets, product markets, We have more competition
Speaker 1: across all markets than literally any other country in the world.
Speaker 1: So in that sense, the dynamism of the US economy
Speaker 1: is not being impacted, at least not dramatically at the moment.
Speaker 1: That being said, the cyclical movements around that structural issue,
Speaker 1: it continued to be a risk here in the short term,
Speaker 1: and that's why some of the high frequently indicators, both
Speaker 1: of mobility you have started to go down. Also, open
Speaker 1: table restaurant bookies have also started to go down. We
Speaker 1: have some rollers. Even New York City rented mpt A
Speaker 1: data has also started to show some more weakness in
Speaker 1: the last few weeks. So we're a little bit worried
Speaker 1: about where the high frequency data is taking us at
Speaker 1: the moment. Well, let's talk about the policy composition, the
Speaker 1: policy prescription. Often on programs like this you talk about
Speaker 1: speed and size. We talked about that with Jaan Bernstein
Speaker 1: earlier this morning. Let's talk about composition. Where you would
Speaker 1: target the stimulus right now, toss them where does it
Speaker 1: need to go? I think it is highly unusual, as
Speaker 1: you also just spoke about a little while ago, there's
Speaker 1: highly unusual that you have the Federal Reserve and the
Speaker 1: Central Bank asking fiscal policy for aggressive action. I mean,
Speaker 1: as you all know, I used to work at the
Speaker 1: i n F and they're the main lesson is that
Speaker 1: the central bank should be telling polititions to spend less money.
Speaker 1: Now you both have in Europe and in the US
Speaker 1: the central bankers almost asking and pleading polsititions to spend
Speaker 1: more money, Please increase government expenditures, please cut taxes. That
Speaker 1: is just a really unusual signal and tells you how
Speaker 1: significant the messages from the Federal Reserve at the moment
Speaker 1: and telling that we do need some more supportant. It
Speaker 1: comes really from the fact that we're still ten milland
Speaker 1: jobs below today where we were in February, and that
Speaker 1: sense the holding the economy is pretty deep and that's
Speaker 1: why they need a bhiscal expansion and the call from
Speaker 1: that from the Federal Reserve is so significant. Towards into
Speaker 1: York claim charts. What has moved is service sector inflation
Speaker 1: has become service sector disinflation. What are you advising, Apollo management.
Speaker 1: Does it sustain here, does it become more disinflationary or
Speaker 1: do we just assume a reversion of that three percent
Speaker 1: level on the great service sector question. Yeah, this is
Speaker 1: a really important point time because the shock to the
Speaker 1: economy with this pandemic came to the service sector. It
Speaker 1: was restaurants, it was retailed, and therefore we saw significant
Speaker 1: declines in prices and significant declines in employment in the
Speaker 1: service sector. That's not rebounding. So that's why we're seeing
Speaker 1: in reversal of that. But historically over the last twenty years, remember,
Speaker 1: if you separate CPI into goods, inflation has basically been
Speaker 1: zero for the last twenty years. All the inflation that
Speaker 1: we have seen and most of the variation inflation has
Speaker 1: come from the service sector. That's why the unusual situation
Speaker 1: here with the service sector being a driver of inflation
Speaker 1: first to the downside, now to the upside, is something
Speaker 1: that is very important for the inflation outlogal role that
Speaker 1: we have had this compositional shift where the service sector
Speaker 1: suddenly is playing a most tychnical role re creative to
Speaker 1: the good sector. So are you framing the American economy
Speaker 1: as a return to previous trend or are we establishing
Speaker 1: a new level of trend that will be a lesser level.
Speaker 1: So in trillions of dollars, we're still one point three
Speaker 1: trillion in at least in Q three in terms of
Speaker 1: how far a where we are from getting back to
Speaker 1: the trend that we had pre pandemic. If you want
Speaker 1: to fill up completely the whole that has been treated
Speaker 1: in the last two or three quarters, then we need
Speaker 1: something more like folt trillion. This gives you some idea
Speaker 1: about what is the magnitude of fiscal need, if you will.
Speaker 1: And the question exactly is, as you're asking, well, do
Speaker 1: we want to get just back up to the trendline
Speaker 1: or do we want to fill up the whole completely
Speaker 1: the wets how quickly do we want to get the
Speaker 1: floor rate to come back to the three and a
Speaker 1: half per cent that we had in February. So in
Speaker 1: that sense and all this will depend, of course on
Speaker 1: the speed of when the vaccine will come back. But
Speaker 1: it also will depend on this issue that we also
Speaker 1: talk about all the time, if we will get another
Speaker 1: fiscal stimulus or not yet, either before the end of
Speaker 1: this year or sometime in the beginning of the new Yet,
Speaker 1: of course, as we try to plug this hole by
Speaker 1: borrowing money, there is a question of that overhang of debt,
Speaker 1: the unbelievable expansion of debt globally over the past nine months.
Speaker 1: In order to plug this hole, what that will do
Speaker 1: to growth going forward and I'm just thinking about our
Speaker 1: conversation about zombie companies. Not that long ago, twenty percent
Speaker 1: of the large US companies considered zombies. What does that
Speaker 1: do to long term growth in the United States? Do
Speaker 1: you think it's adequately priced in? So, the b I
Speaker 1: S has done a lot of work on this, and
Speaker 1: what they have repeatedly said now the possable years actually
Speaker 1: is that if we have a bigger share of companies
Speaker 1: that ultimately more unproductive and using resources, using capex, using workers,
Speaker 1: then you do run the risk that begins to have
Speaker 1: some macroeconomic implications. And on top of that comes also
Speaker 1: the other issue to your question, leadser that if you
Speaker 1: do have such a significant increase in the amount of
Speaker 1: US treasury is outstanding, what should you then be watching.
Speaker 1: You should be watching for risks of potentially talking about
Speaker 1: downgrades to the sovereign of the U S. Fitch already
Speaker 1: has US sovereign on negative watch. Should also be looking
Speaker 1: at treasury auctions, but what is a bit to coverage
Speaker 1: you're doing. You should also be looking more broadly for
Speaker 1: the demanders supplying the treasury markets. So far everything is fine,
Speaker 1: but it's pretty clear that when you think about the
Speaker 1: very significant actions from the Federal Reserve. There is some
Speaker 1: very important questions about demanders applying treasuries that we all
Speaker 1: need to think about also over the coming ones. Tolsto,
Speaker 1: what are you optimistic about next year? So I am
Speaker 1: optimistic about the vaccine and I do think it will work.
Speaker 1: But this very unusual situation where there's more clarity about
Speaker 1: two thousand twenty one then there is about the rest
Speaker 1: of two thousand twenty that is really making it very
Speaker 1: difficult when you sit with your spreadsheet and try to
Speaker 1: put together your forecast for the global economy. It does
Speaker 1: make it quite complicated to think about well, with market's
Speaker 1: trade on the bat news and the near term and
Speaker 1: the downside risks, or with markets look through that and
Speaker 1: just focus on the vaccine next year. That's why there
Speaker 1: is still a risk that things could be still a
Speaker 1: bit bumpy in the next few months before we have
Speaker 1: their final answer on the vaccine, whether this is something
Speaker 1: that will help everyone and really will be as helpful
Speaker 1: as we're all hoping at the moment. And toast them
Speaker 1: wonderful to catch up and great to see you in
Speaker 1: a new seat. Fantastic toastin's luck that now have Apollo Management.
Speaker 1: Thank you. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom
Speaker 1: Keane before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio