Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Daily
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Speaker 1: flies when you're rooting for the St. Louis Cardinals. It
Speaker 1: has been twelve years. Twelve years, says Jim Bullard is
Speaker 1: held court in St. Louis. It has been an extraordinary
Speaker 1: set of opinions by Mr Bullard over those twelve years.
Speaker 1: And of course landmark was his a number of years
Speaker 1: ago discussion of regime change and what that means for
Speaker 1: the FED. What can be said of every other president,
Speaker 1: every other governor, indeed of the various and sundry chairman,
Speaker 1: nobody nailed the dot plot like Jim Bullard. What you
Speaker 1: see now in the lousy dot plot, and everybody knows
Speaker 1: my opinion on it is right where Jim Billard thought
Speaker 1: we would be, with some real worries of disinflation and deflation.
Speaker 1: Jim Bullard joins us today, the president of the St.
Speaker 1: Louis Fed, Jim Bullard, are we so messed up? Right now?
Speaker 1: That we're finally wanting and for all going to shift
Speaker 1: to the targeting of nominal GDP instead of a real
Speaker 1: GDP analysis. I bet an advocate as you know, nominal
Speaker 1: GDP targeting and it's close cousin price level targeting. UH.
Speaker 1: The Committee is still formulating about its framework review and
Speaker 1: hopefully we'll get some statement out on that UH sometime
Speaker 1: during the rest of this year. But it's up to
Speaker 1: the Chairman to drive that process. Mr Orfan nineties year
Speaker 1: ago wrote a landmark paper I believe in the Greenspan
Speaker 1: FED about the tool kits that are out there and
Speaker 1: tool kits that are available. What does the bullard in
Speaker 1: the FED tool kit look right now? It seems like
Speaker 1: you've exhausted an awful lot of the useful tools, and
Speaker 1: I think there are other things we can still do UM,
Speaker 1: but we have deployed a lot of good tools for
Speaker 1: this situation. I think the policy response has been quite
Speaker 1: good to the pandemic, both on the monetary policy side
Speaker 1: the liquidity programs, plus a good response from the political
Speaker 1: side to get fiscal relief to those that are disrupted
Speaker 1: by the pandemic. So I think all of this has
Speaker 1: actually gone given the nature of this shock and the
Speaker 1: depth of the shock is all gone pretty well so far,
Speaker 1: and I think July onet is a good checkpoint because
Speaker 1: I've long advocated that this is the main impact would
Speaker 1: be the second quarter of and it's a third quarter
Speaker 1: will be um kind of the opposite of the first
Speaker 1: quarter first cars, a big declined third quarter will be
Speaker 1: a big increase as many businesses come back online safely
Speaker 1: in a way that keeps the pandemic under control. Jams
Speaker 1: Jonathan here. Another committee is thinking a little bit more
Speaker 1: about forward guidance. A quarta with President Meister and President
Speaker 1: Williams in the last month, and yield curve control was
Speaker 1: a bigger part of the conversation. Can you walk me
Speaker 1: through how you would characterize yeld curve control from your perspective?
Speaker 1: Is that a compliment to forward guidance or is that
Speaker 1: something bold up where you cap you to the longer end. Yeah,
Speaker 1: the US had yeld curve control during World War two UH,
Speaker 1: and then after the war UH, the exit from the
Speaker 1: yold curve control was very difficult, so it kind of
Speaker 1: ended in tears. So I think that's one of the
Speaker 1: main concerns about going in this direction. Japan as we know,
Speaker 1: has done you know, curve control. But one of the
Speaker 1: things that they wanted to do was it out of
Speaker 1: the quantitative easing program. They've they've scaled that back dramatically
Speaker 1: by just targeting yields directly. So I think there are
Speaker 1: a lot more questions and answers around the control right now.
Speaker 1: What do you think the ulptimate approach to forward godess
Speaker 1: is then, Jim Well, I think we're giving great forward
Speaker 1: guidance right now, and I think there's really no problem
Speaker 1: with where we are today. We're projecting low rates of
Speaker 1: you know, policy rate far out into the future. Longer
Speaker 1: term yields are also quite low. Global yields are quite low,
Speaker 1: so and we have the advantage in the current situation
Speaker 1: that we already built up credibility for low rates and
Speaker 1: commitments to low rates through the last crisis. In the
Speaker 1: last crisis, there was, as you might recall, coming out
Speaker 1: of that in twelve, the markets were always expecting that
Speaker 1: yields would leak back higher at any moment, and the
Speaker 1: Committee tried to fight back against that and keep yields
Speaker 1: low all up by by promising low rates further into
Speaker 1: the future. But in the end we built up a
Speaker 1: lot of credibility that we really meant it that we're
Speaker 1: going to keep rates low. And so this time we
Speaker 1: have a lot of credibility on this issue. And I think,
Speaker 1: I just think we're in great shape for right now
Speaker 1: because of the credible we built up last time around. Jim,
Speaker 1: the market definitely is buying the rates will remain low
Speaker 1: for a long time. Back in you raise the issue
Speaker 1: of asset bubbles that will come on the heels potentially
Speaker 1: of leaving rates so low for so long, given how
Speaker 1: much corporate debt issuance we have seen. What's different now? Yeah,
Speaker 1: I mean, bubbles is always always an issue, and I
Speaker 1: do keep my eye on it. But again, I'm just
Speaker 1: not seeing things that are on the same magnitude as
Speaker 1: as what happened in the late nineteen nineties. Uh, the
Speaker 1: internet so called dot com bubble that that blew up
Speaker 1: on us, and then the much more serious housing bubble
Speaker 1: in the mid two thousands that also blew up and
Speaker 1: turned into a global crisis. But I'm not seeing anything
Speaker 1: like that right now. Do keep we do watch it closely. Uh.
Speaker 1: You know, I understand that companies are taking on debt.
Speaker 1: Some of that, you know, liquidity driven to get through
Speaker 1: the pandemic. Here Um, they're drawing on lines of credit
Speaker 1: and and other sources to make sure that they can
Speaker 1: survive and thrive through a time of low UH, low
Speaker 1: revenue for their business. So um, so far, so good,
Speaker 1: But we certainly certainly watched this closely, Jim. Are there
Speaker 1: no negative consequences then to keeping rates basically at zero
Speaker 1: for the indefinite future? Yeah, you know, there's always inflation
Speaker 1: risk lurking out there, but we haven't had an inflation
Speaker 1: problem in the US or globally UH since UH, longer
Speaker 1: than most of us can remember sitting here. So um,
Speaker 1: the problem has been on the low side and the
Speaker 1: threat of disinflation or deflation on that score, I think
Speaker 1: we're also avoiding that risk, at least for now. I
Speaker 1: see tips break even moving back up in in recent weeks, UH,
Speaker 1: which seems to suggest that the Committee retains credibility around
Speaker 1: its two percent inflation target. Even though we've missed that
Speaker 1: target somewhat to the low side. It hasn't been as
Speaker 1: good as we wanted, but we have kept it relatively close,
Speaker 1: and I think we we'll be able to do that
Speaker 1: this time as well. Jim, it's not the presence of
Speaker 1: bubbles that I think gets my attention. It's the absence
Speaker 1: of creative destruction. And I want to ask you an
Speaker 1: important question, why the FETE seems to have lost confidence
Speaker 1: in the transformational powers of capitalism. Well, you'll have to
Speaker 1: talk to others. I have not lost faith in the
Speaker 1: transforational powers of capitalism. I think. Uh, what you're seeing
Speaker 1: today is tremendous adjustment by so many businesses, too unwelcome development.
Speaker 1: Where we had this disease to send upon us. We've
Speaker 1: learned a lot about it in the last ninety days. Uh.
Speaker 1: We're figuring out how to run businesses, deliver goods and
Speaker 1: services in all kinds of nooks and crannies around the
Speaker 1: economy in ways that keep everybody healthy, keep the customers safe,
Speaker 1: keep the workers safe, and still uh you know, keep
Speaker 1: household incomes up, and keep people employed. Uh. So I
Speaker 1: think we can be successful in this. To measure, there
Speaker 1: are a few businesses where where the pandemic is really
Speaker 1: throwing them a curve ball and they really have to
Speaker 1: hustle all their sleeves in order to think about how
Speaker 1: they can deliver their product in this new environment. But
Speaker 1: most businesses. I think they'll be up and running in
Speaker 1: the second half of the year. Jim might tell we
Speaker 1: appreciate the motives of the Federal Reserve to do what
Speaker 1: the committee has done over the last couple of months,
Speaker 1: but I think we do need to talk about the consequences.
Speaker 1: Once you introduce the price incentitive buyer into the credit market,
Speaker 1: you are interfering in the transformational powers of capitalism. You
Speaker 1: are stopping the money from flowing away from bad businesses
Speaker 1: the good ones. Do you not appreciate that, Jim? No,
Speaker 1: I do. But I think the key question here is
Speaker 1: UH is you know bad businesses? What do you mean
Speaker 1: by bad businesses? If they were if they were viable
Speaker 1: and successful before the pandemic came. Most of those I
Speaker 1: think are going to continue to be viable and successful
Speaker 1: in the UH in the world ahead where we have
Speaker 1: to deal with the with the disease. There maybe a
Speaker 1: few that don't manage to make that transition. I don't know,
Speaker 1: but the demand for those products is still there, and
Speaker 1: I would say for most firms there, they want to
Speaker 1: maintain liquidity during the crisis here, and they'll be able
Speaker 1: to get back up and running UH with some changes
Speaker 1: to how they deliver goods and services. In the second half,
Speaker 1: we welcome all of you extended conversation with Jim Bullard
Speaker 1: here under simulcast on Bloomberg Television in Bloomberg Radio. He
Speaker 1: is the president of St. Louis FED and has been
Speaker 1: exceptionally acute in his research over his twelve years at
Speaker 1: the FED, advancing not controversy, but just the argument of
Speaker 1: the moment. That argument of the moment, I have to
Speaker 1: revisit a dr bullet his yield curve control. And what
Speaker 1: I find so distortive here is the FED will make
Speaker 1: an action. The FED will make a statement, There'll be
Speaker 1: a speech, there'll be some form of announcement, and you
Speaker 1: know better than anyone, the market will react to that.
Speaker 1: Can't the markets adapt to yield crook curve control and
Speaker 1: diffuse any benefit of it, diminish any benefit of it.
Speaker 1: I do not think that the markets would undo what
Speaker 1: the FED is trying to do. I think it's an equilibrium.
Speaker 1: I think we've enforced that equilibrium by trying to be
Speaker 1: more transparent about the debates and ideas that are going
Speaker 1: on on the on the committee. In the analysis, I
Speaker 1: think there's a lot of give and take between markets
Speaker 1: and policymakers much different than it would have been in
Speaker 1: the very shrouded days and then I teen eighties, we
Speaker 1: barely barely said anything um to infer what was going on.
Speaker 1: So I think I think that transparency is useful. Um.
Speaker 1: I think we're wrestling with these ideas just like everyone else.
Speaker 1: But but I think that it helps inform the equilibrium
Speaker 1: to be as transparent ast But this extremely well said
Speaker 1: Dr Bullard. Now we have Dr Williams of the New
Speaker 1: York Fed and Governor Brainerd, and they've made some comments
Speaker 1: on the efficacy of yield capped. I look at you
Speaker 1: and others more circumspect as well. If we do yield
Speaker 1: curve control and we distribute that out the yield curve,
Speaker 1: and I don't know what year or month or day
Speaker 1: you're gonna extend it out to, do we set ourselves
Speaker 1: up to be more vulnerable to any given exogen is
Speaker 1: shock Uh, I'm not sure about that. You you'd have
Speaker 1: to you know, it kind of depends how you interpret
Speaker 1: the Japanese experience of the last few years, a few
Speaker 1: other kind trees that have have tried this in the
Speaker 1: modern era. UM. You know, I just think you know,
Speaker 1: right now there are more questions than answers about this,
Speaker 1: and I don't really think, uh, this is a pending
Speaker 1: thing for the committee because we're already expecting rates to
Speaker 1: be low for quite a while. So I'm not sure
Speaker 1: that you need to put caps in everything else. You've
Speaker 1: already got the lower expected rates that you desire for
Speaker 1: this situation. Very quickly. Dr Bullard, what does yield curve
Speaker 1: control mean to retirees and savers in the St. Louis District? Yeah,
Speaker 1: longstanding issue is that, uh, we should be thinking about
Speaker 1: the correct interest rates, not the lowest interest rates. And
Speaker 1: a lot of the discussion, popular discussion always always seems
Speaker 1: to assume lower rates are better. I think you do
Speaker 1: want to get to the uh, the equilibrium rate that
Speaker 1: makes sense for the current environment. Um, But the current
Speaker 1: environment is one globally a very low rates all around
Speaker 1: the world, and that's the world we're living in. I
Speaker 1: think people have adjusted to that since it's been around
Speaker 1: since two thousand, two thousand nine. President. A lot of
Speaker 1: questions coming through on the Bloomberg terminal that many people
Speaker 1: want to ask, including Mr Gaping over at Barclays, who
Speaker 1: I think recognizes what a lot of people pointed out
Speaker 1: after the last fat decision in the dot plot, why
Speaker 1: the long term dot was still at to fifty? President,
Speaker 1: But why wasn't that adjusted? And you anticipate it will
Speaker 1: be in the coming meetings. Yeah, you guys may remember,
Speaker 1: I don't put in a long term dot. I'm the
Speaker 1: only guy that doesn't do it. So I'm a rebel,
Speaker 1: maybe without a cause here, but I don't don't think
Speaker 1: we know enough to put down that long term dot,
Speaker 1: and it it affects expectations, and it affects thinking in markets. Um.
Speaker 1: But it's also the object for which there is the
Speaker 1: most uncertainty. So I would prefer not to put down uh,
Speaker 1: some kind of gas about where we're gonna be ten
Speaker 1: years from now no one knows, and talk more about
Speaker 1: the relevant time horizon for monetary policy, which is probably
Speaker 1: about two years, possibly three years at the very most. So. Um,
Speaker 1: So I'm the wrong guy to talk about the long run.
Speaker 1: President Bollard. You are the right person to talk about inflation,
Speaker 1: and you said that the FED does retain its credibility
Speaker 1: around a two percent inflation goal. Are we measuring inflation
Speaker 1: right or should we be taking into account asset price inflation,
Speaker 1: the inflation, housing costs, the inflation and medical and education
Speaker 1: costs and even food. Yeah, great, great question. The measurement
Speaker 1: issues around inflation are very serious at hashment studied extensively,
Speaker 1: but if you really get into the issues about how
Speaker 1: to construct a price index, it gets very hairy, very fast.
Speaker 1: And one thing I've just mentioned on this measurement issue
Speaker 1: but right now is that during the second quarter, you
Speaker 1: have a lot of good that were trade we're really
Speaker 1: not traded, uh, you know, in in the normal volumes
Speaker 1: that they would have been or violunes went all the
Speaker 1: way to zero. So what should you do with those
Speaker 1: in the price index? You know, because they're always weighted
Speaker 1: by the shares of expenditure. Well, the share of expenditure
Speaker 1: went to zero, so you're not going to count those
Speaker 1: prices or what are you gonna do because you have
Speaker 1: markets that kind of shut down completely in that environment.
Speaker 1: So um so, I think they're fascinating issues right now,
Speaker 1: just in the last few months about how to interpret
Speaker 1: the inflation numbers. If you look at something like the
Speaker 1: Dallas Fed trimming, which throws out the most extreme observations,
Speaker 1: is still hanging right around two percent, and I think
Speaker 1: that's probably informing the market expectations about where they think
Speaker 1: we're going to end up with inflation. Well, there's a
Speaker 1: question also about good inflation and bad inflation. A lot
Speaker 1: of people looking at the fact that wages are not
Speaker 1: increasing as quickly as some of these necessary costs that
Speaker 1: everybody faces on a regular basis. Are you seeing more
Speaker 1: bad inflation than good inflate inflation, especially as there is
Speaker 1: this protectionist shift and people do bring supply chain back home. Yeah,
Speaker 1: I think we were getting better wage growth before the pandemic.
Speaker 1: I think during the pandemic here obviously, we've asked people
Speaker 1: to stay at home invest in the national health. We've
Speaker 1: asked businesses to temporarily shut down to invest in the
Speaker 1: national health. They've received uh, probably somewhat inefficiently, but they've
Speaker 1: generally speaking, they have received relief from the federal government
Speaker 1: for their efforts to to slow down the economy. Um.
Speaker 1: So it's a little hard to measure wages or total
Speaker 1: income of households and businesses really during this time period.
Speaker 1: So I didn't think we have to wait for the
Speaker 1: dust to settle. I think the third quarter will be
Speaker 1: a transition quarter. Like I said, I think most businesses
Speaker 1: will get backed up and running and be uh actually
Speaker 1: be close to the kind of production that they had
Speaker 1: previous to the pandemic. And then a few businesses will
Speaker 1: struggle more than that. But so far, so good. I
Speaker 1: actually I think we're I think we're doing all right
Speaker 1: given the nature and size of this shock. I would
Speaker 1: say one other thing I just wanted to mention, and
Speaker 1: I don't know if you guys want to talk about that.
Speaker 1: I actually think for a public policy point of view,
Speaker 1: we should not be emphasizing vaccines and therapeutics. I hope
Speaker 1: they get they happen, and uh, you know, you know,
Speaker 1: God bless people that are working on I think they're uh,
Speaker 1: they're doing great work and everything, but these are tough
Speaker 1: scientific problems, and that affects from my point of view.
Speaker 1: I'm the I'm the economics guy that's affecting expectations and
Speaker 1: affects how people behave. So I think what you should
Speaker 1: tell people instead is, uh, we're gonna have to manage
Speaker 1: the disease. We're gonna have to manage the risk that's
Speaker 1: out there. It's unpleasant, but there's a new mortality risk,
Speaker 1: and businesses have to app Housholts have to adapt, and
Speaker 1: everyone's doing that. We know that, and we see that,
Speaker 1: but we shouldn't promise that there's some kind of goal
Speaker 1: at the end of the rainbow, President Bullard, That's exactly
Speaker 1: where I wanted to go, this idea that we have
Speaker 1: a very long road ahead of us, and there's a
Speaker 1: question about how resilient bank balance sheets are to deal
Speaker 1: with this, and it's something very much at the forefront
Speaker 1: of people's minds ahead of the stress test results that
Speaker 1: are coming out by the Federal Reserve later this week.
Speaker 1: Would you support having banks curb any dividend payments in
Speaker 1: order to shore up their balance sheets further ahead of
Speaker 1: whatever secondary effects tertiary effects we can expect from the pandemic. Yeah,
Speaker 1: this is a decided for the Board of Governors, So uh,
Speaker 1: it's separate from the Open Market Committee, which I'm on, UM,
Speaker 1: so it's not really my purview. I would comment, however,
Speaker 1: that I think markets have probably already priced this end.
Speaker 1: My sense is that, uh, you know, the Europeans have
Speaker 1: already ended dividend payments, and markets finally expect something like
Speaker 1: that to happen in the US. But but it's up
Speaker 1: to the governors onto how they want to look at that.
Speaker 1: We've got the stress test, who's also coming up shortly here,
Speaker 1: and I think that'll inform how how the governors want
Speaker 1: to go on this going forward. Jim Bullard, thank you
Speaker 1: so much, very generous of you to be with us
Speaker 1: for this extended conversation. James Bullard is the president of
Speaker 1: the St. Louis FED. Jonathan got of credit swas moves
Speaker 1: his price target from to thirty two hundred. I'm not
Speaker 1: sure if he'll like that characterization, so we'll let John
Speaker 1: tell his own story. He joins us. Now, Jonathan, good morning,
Speaker 1: Let's start with a short want why well, I mean,
Speaker 1: if there's a simple story here, it's it's not that
Speaker 1: I think that the economy is going to be magnificently better.
Speaker 1: It's that the fact that we've taken out these downside risks,
Speaker 1: all of these government actions have eliminated or at least
Speaker 1: diminished the potential for this thing to double dip down
Speaker 1: to the levels that we've seen before. So I think
Speaker 1: that the upside when we were calling for about three
Speaker 1: upside through your end, I think the upside has been limited,
Speaker 1: but the risk to the downside has been And John,
Speaker 1: you and I were talking about before we got what
Speaker 1: we went live. That the single chart that's important to me.
Speaker 1: On your Bloomberg terminal, you can see the number of
Speaker 1: bankruptcies that have been filed and if you go to
Speaker 1: max on that to see it, you know, including the
Speaker 1: downturn in O eight oh nine, that during big recessions
Speaker 1: you see a massive spike in bankruptcies, and that is
Speaker 1: not happening here at all. Businesses are not going under
Speaker 1: because of all these actions. And that's one of the
Speaker 1: reasons why I think that we're not going to double dip,
Speaker 1: even if the upside is not. There another reason why
Speaker 1: the next thirty days is so important on the policy front.
Speaker 1: What do you need to say, John, Uh, yeah, I
Speaker 1: think right, there's um, there's two big issues. I think
Speaker 1: they're important. This p p P program. This is the
Speaker 1: money that's going to small businesses to keep them afloat
Speaker 1: that rolls off at the beginning of July. And then
Speaker 1: you have this government supplement of the six dollars a
Speaker 1: month that's going to people who are unemployed, and both
Speaker 1: of those are rolling off in the month of July,
Speaker 1: the unemployment running at the end of the month. Those
Speaker 1: are going to be a real political football. And if
Speaker 1: they are not rolled over and we see the consumer
Speaker 1: whallet it takes a head that is going to be
Speaker 1: a real big problem for the economy near term, and
Speaker 1: the market will absolutely not take that well. The problem
Speaker 1: is is that Congress is not going to be debating
Speaker 1: these issues until sometime in July, so we're going to
Speaker 1: feel pretty uncomfortable about these before it gets resolved one
Speaker 1: way or another. John Go, I want to cut you
Speaker 1: some major major slack on, you know, the cheap shots
Speaker 1: the media is taken on. He was barishing. Now he's
Speaker 1: bullish and all that. But what I'm fascinated by is
Speaker 1: is what would be the next tronch of optimism from you?
Speaker 1: Where's it come on the income statement? Does it come
Speaker 1: from revenue growth doing better? Or is it corporations adapting
Speaker 1: to this pandemic, to this economic crisis and they make
Speaker 1: margins better. Which is it to get you to the
Speaker 1: next tronch of optimism? If you're asking what what would
Speaker 1: make me if I were to if we were to
Speaker 1: be talking in six months months from now and you
Speaker 1: were to say this is what happened, that that's going
Speaker 1: to make this the upside much more. It's not going
Speaker 1: to be this more liquidity because I think that we've
Speaker 1: already seen the market's response. The question is how quickly
Speaker 1: do we get back to an economy that's running at um?
Speaker 1: And so let's ask a question. When is it that
Speaker 1: that commuters are comfortable going back into New York again? Um?
Speaker 1: When is it that we're comfortable get on airplanes again? Um?
Speaker 1: When you know, when is it that we can get
Speaker 1: over twenty million people that have been unemployed back to work?
Speaker 1: And the answer to each of those is longer than
Speaker 1: you would think. So the worst cases at were the
Speaker 1: improvements equentionally off the bottom. We know that that's gonna
Speaker 1: be good. The p M this morning are gonna be good.
Speaker 1: The question is if you're looking up at the sky,
Speaker 1: not down at where you were when there was when
Speaker 1: we were staying at home, that's what's going to really
Speaker 1: drive the market. What are the banks do here? You
Speaker 1: do a great sector analysis. Where are you on the financials? Yeah?
Speaker 1: You know what I was speaking to, Susan Catskews. Our
Speaker 1: our bank analysis is terrific. I mean one of the challenges,
Speaker 1: first of all, the good news is if the economy
Speaker 1: is going from pretty well, um, the credit losses probably
Speaker 1: don't end up being as bad as as we all think,
Speaker 1: and that that's a positive story. On the other hand, UM,
Speaker 1: net interest margins for banks are are a problem longer
Speaker 1: term if you have really low interest rates. So um
Speaker 1: the banks I think are going to be a little
Speaker 1: bit more more challenging. But here's the key. The not
Speaker 1: different than the last crisis. Banks are not going to
Speaker 1: need to raise the loot of capital. There's not going
Speaker 1: to be a reregulation environment. All the really ugly stuff
Speaker 1: that happened is not there. The question is, is you
Speaker 1: know what is the profit margin profit model look like
Speaker 1: in a lower rate environment, especially one um where economic
Speaker 1: growth longer term maybe a little bit weaker. When you
Speaker 1: talk about credit losses being mitigated by the fact that
Speaker 1: we're probably not going to get shut downs and that
Speaker 1: the stimulus has mitigated the worst case scenario, I'm wondering
Speaker 1: what the increase in virus counts in places like Texas
Speaker 1: where the governor's come out and said that it's unacceptable,
Speaker 1: how quickly it's spreading, and the potential for additional shutdowns,
Speaker 1: how that factors into your thesis. Is that factored in
Speaker 1: or do you think that that's a bear case that
Speaker 1: is sort of an outlier. At this point, No said this,
Speaker 1: We are obsessing on this issue. And so my team
Speaker 1: just ransom numbers last night, and what they found was
Speaker 1: that the first of all two things are happening. The
Speaker 1: number of cases is spiking, primarily in the southern half
Speaker 1: of the US and California, and in the north in
Speaker 1: the number of new cases continues to fall um. However,
Speaker 1: the deaths are not going up anywhere or anywhere in
Speaker 1: any of the major regions. So even in areas where
Speaker 1: the case counts is going up, and a lot of
Speaker 1: people are saying is yes, but that's a delay and
Speaker 1: it's going to happen later, we don't think. So. What
Speaker 1: you're finding is that the people who are getting sick
Speaker 1: now are younger people who are going out because they're
Speaker 1: not concerned about the downsides of getting the virus. And
Speaker 1: so the people who are getting sick are not showing
Speaker 1: up in intensive care uns are at the hospital, and
Speaker 1: they're not dying. So it's very possible that we're seeing
Speaker 1: or not very possible. I think what we're seeing is
Speaker 1: pretty rational behavior. People who know that they could survive
Speaker 1: this are going out, they're living their lives, they're getting sick,
Speaker 1: but not in a way that that's going to be um,
Speaker 1: that's going to cause another shutdown. And this is what
Speaker 1: it's going to feel like in an environment where we're
Speaker 1: going to have to live with this for for a
Speaker 1: long period of time. So I think that the we're
Speaker 1: not going to be seeing a anything which looks like
Speaker 1: a national shutdown. Could we see individual local markets or
Speaker 1: city or region for a very short time maybe, but
Speaker 1: even that, I don't think it's gonna happen. If we
Speaker 1: did go and see a shutdown, that's obviously a really
Speaker 1: big problem. But I think that I don't think these
Speaker 1: numbers are inconsistent with each other. Jonathan Call, Kordi Swayze,
Speaker 1: John a pretty you're honestate transparency and your time this morning,
Speaker 1: send o best of to tell you, Kredi Swayze, Jonathan Call,
Speaker 1: Credit Swayze. Megan Green joins us now from Harvard Kennedy School.
Speaker 1: And Megan, what's so important is you synthesize the experience
Speaker 1: orients of the United Kingdom of that shock of Brexit,
Speaker 1: over the shock that we're all living now with the pandemic.
Speaker 1: How do we extract ourselves from a pandemic. Is it
Speaker 1: an act of God and we move quickly or is
Speaker 1: it going to be a long and slow process. Well, unfortunately,
Speaker 1: I think we're looking at a pretty long, slow, hard slog.
Speaker 1: You know, the data has bounced pretty quickly um in
Speaker 1: May and June in particular, so some people might be
Speaker 1: tempted to say, hey, look, this looks like a V
Speaker 1: shaped recovery. But getting the first of those who lost
Speaker 1: their jobs back into the workforce is a lot easier
Speaker 1: than getting the last back in. And and there's a
Speaker 1: host of downside risks as well, both in Europe and
Speaker 1: in the US. I mean, no one or the markets
Speaker 1: don't seem to have noticed that the number of new
Speaker 1: COVID nineteen cases in the US has gone up by
Speaker 1: in the past week. And I think that's a huge
Speaker 1: risk that isn't being priced in. We saw confusion over
Speaker 1: you know, trade with China and the US all so um,
Speaker 1: causing jitters markets. But you know, there's gonna be tree
Speaker 1: tensions as as a selection comes closer regardless of heart.
Speaker 1: Brexit is another downside risk, and none of this seems
Speaker 1: to be priced in. You know, Megan and W. T.
Speaker 1: O folks out moments ago. I think a negative eighteen
Speaker 1: percent statistic on world trade. We're still checking on that,
Speaker 1: Megan Green. I look at the slow down and the
Speaker 1: bounce back, and what it comes down to is, to
Speaker 1: use the word and efficacy of fiscal placement. The great
Speaker 1: critics of mm T would say, you can't do fiscal
Speaker 1: stimulus in a narrow, concerted manner. Can we prove that
Speaker 1: this time is the exception, this time is different. We
Speaker 1: can win with fiscal policy. Uh, fiscal policy can certainly
Speaker 1: help here. And as we look at the US stimulus pipeline,
Speaker 1: it looks like it's it's drying out, and it will
Speaker 1: make a huge difference whether we reap some of that
Speaker 1: or not in the US. But certainly, I mean, the
Speaker 1: more targeted we can make fiscal stimulus the best or
Speaker 1: The problem is we mainly have top down tools, so
Speaker 1: we've had to provide things like checks that aren't targeted
Speaker 1: at all. But I'm constantly asked whether we're doing m
Speaker 1: M T UM and m M T isn't really something
Speaker 1: you do. It's it's more kind of a school of thought.
Speaker 1: But I do think to some degree what the M
Speaker 1: M T here's get right, is that we don't have
Speaker 1: to raise the money in order to spend it. We
Speaker 1: can just deficit spend. And that's the obvious answer for
Speaker 1: any major economies who are facing incredibly low borrowing costs
Speaker 1: for the foreseeable future, like the UK and the US
Speaker 1: and even even the Eurozone to some degree. So you know,
Speaker 1: I think we are right to be deficit spending like
Speaker 1: mad to try to dig ourselves out of this hole
Speaker 1: and to try to fill the whole first of all,
Speaker 1: and then to try to prompt recovery. And yeah, Megan,
Speaker 1: the policy effort seems to be really lumpy, particularly in
Speaker 1: the United States. So caught up with Bridgewater in the
Speaker 1: last twenty four hours. So we're catching up with Bob
Speaker 1: Prince tomorrow for the Bloomberg Investment Conference. For anyone that
Speaker 1: wants to watch that the duration mismatches something they're focused on.
Speaker 1: Bob Prince over there mentioned thing that we keep applying
Speaker 1: these three months bandids to something that could last eighteen
Speaker 1: months and maybe longer. Megan, what do you make of
Speaker 1: that approach? I think that's absolutely right. In fact, I
Speaker 1: don't even think we're applying a three months band aid.
Speaker 1: We've applied a two months band aid for the most
Speaker 1: part in the US, for small companies and for those
Speaker 1: who have been laid off. And I think this is
Speaker 1: going to be a much longer, harder slog as I
Speaker 1: mentioned before. So we're either going to have to re
Speaker 1: keep re upping it and investors are going to trust
Speaker 1: that we're gonna keep re upping it, or there's going
Speaker 1: to be some kind of market dislocation. And I think
Speaker 1: there is a problem in politics. We saw in two
Speaker 1: thousand and eight two thousand nine that at a certain
Speaker 1: point policymakers start asking questions about how we're going to
Speaker 1: pay for this, And again that's a totally inappropriate question
Speaker 1: to be asking in the middle of it, and we
Speaker 1: can ask it afterwards, how we how we figured this out,
Speaker 1: and the answer is deficit spending, particularly for the US
Speaker 1: UM But you know, if we end up having policymakers
Speaker 1: wringing their hands and refusing to pass more stimulus, then
Speaker 1: that's going to have a huge impact on our recovery.
Speaker 1: And I think it will be an even longer, harder
Speaker 1: slog than it otherwise would have been. And this is
Speaker 1: why we need automatic stabilizers. I think to term programs
Speaker 1: on and also to make sure they don't get turned
Speaker 1: off too soon so that it's not a political process
Speaker 1: that just happens based on the data. And there's some
Speaker 1: work being you know, done on trying to implement automatic
Speaker 1: stabilizers in the US. Europe gets this a bit better
Speaker 1: than we do here, but hopefully we can build some
Speaker 1: of those in um for the next crisis, even if
Speaker 1: it's a bit too late for this one. Well, Megan,
Speaker 1: what worries me is that some policy make has taken
Speaker 1: their cues from markets right now because markets relevated, some
Speaker 1: people don't feel the urgency to do more. How instructive
Speaker 1: is the economic dat to itself over the last month
Speaker 1: for policy makers as they try and calibrate, well the
Speaker 1: next move should be so to be honest, most of
Speaker 1: our economic indicators are pretty backwards looking and out of
Speaker 1: date by the time they come out, but they're already
Speaker 1: starting to show a bounce. Uh. And a lot of
Speaker 1: the alternative data, high frequency data that we're looking at
Speaker 1: also shows a bounce, so that takes pressure off of
Speaker 1: policymakers as well. And as I said, it looks like
Speaker 1: a V shape recovery right now. That was always going
Speaker 1: to happen. We're always going to have the best growth
Speaker 1: figures for all kinds of things ever off of a
Speaker 1: really really low bottom um, and that will be politicized.
Speaker 1: So President Trump and the Republicans will highlight how're we've
Speaker 1: got the best growth data ever. The Democrats will highlight
Speaker 1: that it's from the worst base ever, and both sides
Speaker 1: will be right. That will be really confusing for people,
Speaker 1: and I think that will moddle the debate on whether
Speaker 1: to do more. So I don't actually think the economic
Speaker 1: data is going to be helping in the short term.
Speaker 1: And as I said, that quick bounce was inevitable, but
Speaker 1: it should slow down. It's gonna be much harder to
Speaker 1: pull people into work the longer this goes on. Megan,
Speaker 1: you said that the U s should be deficit spending
Speaker 1: like crazy? Should individuals? Should corporations be deficit spending like crazy?
Speaker 1: Because they are, They're borrowing a ton and there's a
Speaker 1: question is this just prolonging the pain that is inevitable anyway?
Speaker 1: So no, UM, sovereigns are different from households and companies
Speaker 1: and that they never die. UM, they never actually have
Speaker 1: to pay that debt back. They don't usually pay that
Speaker 1: debt back, they just roll it over um for years
Speaker 1: and years and years, and households and companies can't do that,
Speaker 1: so the same rules don't apply. Um that we have
Speaker 1: seen record corporate debt issuance, and you know, could that
Speaker 1: be a problem coming down the line. Absolutely. We we
Speaker 1: started this off with a bit of a bubble in
Speaker 1: corporate debts. At some point that will come home to roost,
Speaker 1: but not while rates are going to be pretty much
Speaker 1: at zero for the foreseeable future. I think that pushes
Speaker 1: that problem further out into the future. If the US
Speaker 1: doesn't continue fiscal stimulus with additional rounds of checks and
Speaker 1: re up to enhanced unemployment benefits, could we see this
Speaker 1: come home to roost sooner? In other words, could this
Speaker 1: bubble pop in a way that becomes problematic from markets
Speaker 1: on the economy? Oh definitely. I mean, don't forget that
Speaker 1: our economy is consumption um. And if we don't re
Speaker 1: up unemployment insurance benefits and check um, but particularly unemployment
Speaker 1: insurance benefits UM the PDP program, which has been extended
Speaker 1: a bit um, that's we're facing a cliff edge in
Speaker 1: terms of people having jobs and being able to spend
Speaker 1: on top of that, you know, I really hope we
Speaker 1: see something for state and local funding coming from the
Speaker 1: federal government. Without that, I think it would be very
Speaker 1: difficult to avoid a double differcession. So fiscal policy really
Speaker 1: will make a difference here. Mike and Green of the
Speaker 1: hob A Kennedy School, Magan, always fantastic to catch up
Speaker 1: with you. Thanks for jointing us this morning. I appreciate
Speaker 1: your time right now. Someone Washington loves to hate what's
Speaker 1: known in Washington as you get a quick read, a
Speaker 1: quick little paragraph, a little snippet of the gossip out there,
Speaker 1: and the acclaimed Christopher Krueger of Cowen goes the other way.
Speaker 1: He writes hyper detailed research notes that you swear out
Speaker 1: on a Friday evening because you know you're gonna waste
Speaker 1: an hour and a half on Saturday reading them. Mr
Speaker 1: Krueger joined us right now, Chris, I loved your research
Speaker 1: on unemployment dynamics in the swing states. To me, that's
Speaker 1: absolutely fascinated and speaks right to the fulcome of the
Speaker 1: full calm rather of this election. What do you see
Speaker 1: in those swing states right now? Well, we saw those
Speaker 1: six key states, and the six are three in the
Speaker 1: Rust Belt, three in the Sun Belt. So you've got Arizona, Florida, Michigan,
Speaker 1: North Carolina, Pennsylvania, Wisconsin. That's going to determine who's the
Speaker 1: president next year. Donald Trump won those states in sen
Speaker 1: by a little over four hundred and fifty thousand votes. Uh.
Speaker 1: And in the last thirteen weeks there have almost been
Speaker 1: nine million unemployment claims. Wow, I mean that's what is Chris,
Speaker 1: What is the pandemic overlay on the history of two
Speaker 1: thousand sixteen. How does the pandemic fold in to those
Speaker 1: six swing states? Well, I mean, I think it's it's
Speaker 1: not just the unemployment numbers here or I mean, you know,
Speaker 1: not not to be morbid, but you also have you know, enormous,
Speaker 1: enormous death tolls here. What you've also seen, particularly in
Speaker 1: a state like Florida, which is an absolute must win.
Speaker 1: If there's one state that Trump cannot afford to lose,
Speaker 1: it's Florida. Uh. And you're seeing now, Joe Biden. Uh.
Speaker 1: You know above with the five thirty eight aggregate poll numbers,
Speaker 1: outside of the margin of error, what you're seeing in
Speaker 1: Florida is that absolutely vital sixty five and older age
Speaker 1: Cohort breaking against Trump towards the Vice president. I think
Speaker 1: you have to, you know, extrapolate that that is a
Speaker 1: direct result of of the pandemic and sadly, those those
Speaker 1: death totals. Chris, how much does the employment issue suck
Speaker 1: the oxygen away from trade issues which were so important
Speaker 1: in and will likely be very much on the forefront
Speaker 1: heading into November. It's a great question. I mean, look,
Speaker 1: you know, the Iowa caucuses were, you know, less than
Speaker 1: a hundred and fifty days ago, and the President was
Speaker 1: was gearing up for a re election campaign based on prosperity,
Speaker 1: UH and security, with the China Phase one trade deal
Speaker 1: as a as a central sort of lynchpin, you know,
Speaker 1: to that re election that was going to be delivered
Speaker 1: via the MAGA rallies. And now you know, I think
Speaker 1: that the Phase one deal, which you you referenced in
Speaker 1: the beginning of the show, has become a political vulnerability
Speaker 1: for the president. I think both the vice former Vice
Speaker 1: president and President Trump are going to attempt to use
Speaker 1: China really as the ultimate bipartisan foil. Here. You have
Speaker 1: a very hawkish Congress with Hong Kong as probably the
Speaker 1: next big catalyst. Reports as well that that new quote
Speaker 1: unquote national Security law might be implemented as early as July,
Speaker 1: not as September. So I think the China narrative is
Speaker 1: going to be. UH is certainly going to stay with
Speaker 1: us through the fall and longer. He'll stay with us.
Speaker 1: It'll stay with us. The question is with the tenor
Speaker 1: of it will be and what the focus will be.
Speaker 1: There's a question about culpability. I know the Senate is
Speaker 1: holding a hearing on that later today. There's a question
Speaker 1: about tech supremacy, and then there's a question about increasing
Speaker 1: protectionism that we've seen and certainly was a major driver
Speaker 1: in sixteen. How much is that still a major driver
Speaker 1: given the economic outcome of some of the policies put
Speaker 1: in place over the past four years. I mean, I
Speaker 1: think it's really kind of it's gone, you know, you know,
Speaker 1: it's a paraphrase spinal tap, it's really gone to win eleven.
Speaker 1: Before COVID, you had a bipartisan consensus that China was
Speaker 1: was no longer a UH, you know, a strategic partner.
Speaker 1: They were a strategic competitor. And you saw that with
Speaker 1: with high text, specifically with five G. But you're going
Speaker 1: to see that later this month with new export controls.
Speaker 1: You saw that with Huawei, and you've seen that on
Speaker 1: some of the human rights issues. But now with a pandemic,
Speaker 1: you have folks like uh, you know, Tom Cotton, Republican
Speaker 1: from Arkansas, Josh Holly, Republican from Missouri, really making almost
Speaker 1: sort of a reparation style push against the Chinese Communist
Speaker 1: Party for their culpability in the pandemic. So it's really
Speaker 1: sort of across the board. Uh. And then when you
Speaker 1: look at Vice President Biden, I mean, at the time
Speaker 1: I thought it was a huge issue, but so much
Speaker 1: else was going on. Vice President Biden referred to Sherriman
Speaker 1: she as a stug in the March Democratic primary. Democrats
Speaker 1: tend to look at China more through the prism of
Speaker 1: of human rights, labor, and the environment. So it's, um,
Speaker 1: it's a pretty tough forecast really, regardless of of who
Speaker 1: wins the presidency. Chris Krieg try to catch you with you,
Speaker 1: said Chris Crocker, that of Cowen. Thanks for listening to
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm
Speaker 1: on Twitter at Tom Keene before the podcast. You can
Speaker 1: always catch us worldwide. I'm Bloomberg Radio