Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily
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Speaker 1: the phrase financial repression, that is a good secuite year
Speaker 1: into William Gross the world would stop when he worked
Speaker 1: at PIMCO for a monthly newsletter. He has been in
Speaker 1: a kind retirement where his golf game has uh. I
Speaker 1: believe reports have it has improved. But we're thrilled that
Speaker 1: Bill Gross would join us today. And here is why
Speaker 1: the New Normal is one of the great calls of
Speaker 1: the decade. There's Steve Major at HSBC, Gary Shilling with
Speaker 1: his call on deflation and disinflation, and then there was
Speaker 1: Gross in ll area in the New Normal. Bill, if
Speaker 1: you look back over ten years to the advent of
Speaker 1: the New normal, now you've got a pandemic overlay. Do
Speaker 1: we escape your new normal at any point? Oh? I
Speaker 1: think we began to escape it um and and and
Speaker 1: perhaps we will continue to do so. You know, the
Speaker 1: new normal was was based on a slower economy, lower
Speaker 1: influence in incorporated globalization to some extent, demographics. I think
Speaker 1: that demographic influence continues. Globalization has actually turned into deglobalization,
Speaker 1: which is not deflationary but inflationary. So that's been a
Speaker 1: change outside the pandemic. And of course the pandemic is
Speaker 1: not um has not helped globalization. It's actually accelerated deglobalization,
Speaker 1: so too to some extent, Yes, the virus is changing
Speaker 1: things rather bill any number of things to talk about,
Speaker 1: But I've got to go to your memo today where
Speaker 1: you talk about a six trillion dollar deficit. We've heard
Speaker 1: this from other sources. The great economist Claudiasm has made
Speaker 1: clear we need much much more deficit coverage. What does
Speaker 1: your world do? What does the bond world do if
Speaker 1: we get out to three, four, five, and six trillion
Speaker 1: dollar deficits? Well, the bond world at the moment, uh,
Speaker 1: you know, it is a melding of of the Fed
Speaker 1: and the Treasury. Uh you know. To my way of thinking,
Speaker 1: this this sounds rather derogatory, but the you know, the
Speaker 1: Fed is and the Treasury is wagging it. And to
Speaker 1: a certain extent, if if the Treasury wants money, if
Speaker 1: they want four or five six trillion, and the FED
Speaker 1: will provide it through uh MMT and through uh through purchases,
Speaker 1: which they've done. Now do I endorse that? Know? Is
Speaker 1: that a constructive thing down the road? Probably not? Does
Speaker 1: it inflationary? Probably yes, we'll have to see, but it
Speaker 1: hasn't been in Japan. But I think that we've melded
Speaker 1: fiscal and monetary, and I think rather permanently. Now. Um, Yeah,
Speaker 1: deficits can increase, but gosh, Tom, we're at pent of
Speaker 1: GDP already and it goes to at some point, as
Speaker 1: others point out, if the if the FEDS stays out
Speaker 1: of it or or their influence, then inflation is gonna
Speaker 1: come back. In any case, we've had inflation with financial
Speaker 1: assets and with commodities, and so let's just come back
Speaker 1: in another form. Bill. I remember the day where you
Speaker 1: recommended the Procter and Gamble dividend in the bond world
Speaker 1: fell off its collective chair. Now we have permanence of
Speaker 1: gross financial repression. I'm gonna give you great credit for
Speaker 1: coming up with that concept. Do we have an asset
Speaker 1: bubble or bubbles plural? Because we have your financial repression? Oh?
Speaker 1: I think so? Um, And we have an asset bubble
Speaker 1: because interest rates are near zero and negative and uh,
Speaker 1: many parts of the world and that at least to
Speaker 1: my way of thinking, you know, through even in discount
Speaker 1: models and so on, have inflated growth stocks and anything
Speaker 1: that you know have profits far in the future, better
Speaker 1: growing fast. So um. So yeah. But financial repression, if
Speaker 1: we want to speak to that, is something that's always
Speaker 1: been swept under the rug by, not only by Powell
Speaker 1: but by Yelling and Bernankey, etcetera. It's something that can
Speaker 1: be fixed at a later point because you know, prior
Speaker 1: fed share persons have either focused on inflation or focused
Speaker 1: on you know, revigorating the economy and to the extent
Speaker 1: that the retirees and to the extent of pension funds
Speaker 1: and savers so to speak, or being hurt. Well, that
Speaker 1: can just wait. But at some point it can't. And
Speaker 1: I think we're beginning to see that. I mean, we
Speaker 1: don't have to talk about prudential or insurance companies or banks. Uh,
Speaker 1: we can talk about mom pop on main Street in
Speaker 1: des Moine, Iowa, where um, they have no more savings
Speaker 1: and they're not able to earn money on whatever they
Speaker 1: have left, and uh, you know, the problem year by year, uh,
Speaker 1: just getting increasingly greater, and I think ultimately that becomes
Speaker 1: the the real chink in the armor of this entire
Speaker 1: financial complex. Bill Jonathan Hare always enjoy your right thing,
Speaker 1: and you've never hit in your personality when you do right.
Speaker 1: I do think however, today, when people read this investment outlook,
Speaker 1: the investment calls within, it aren't the things that are
Speaker 1: going to jump out at them. It's the things you
Speaker 1: write about your family. And I ask you this question, Bill,
Speaker 1: with the deep amount of respect for your career, what's
Speaker 1: behind that this morning as you put this out. Well,
Speaker 1: I've always wanted to let people know who I am, um,
Speaker 1: and to the extent that they know who you are,
Speaker 1: and there's a certain amount of honesty in talking about
Speaker 1: yourself and your life. Then, you know, to my way
Speaker 1: of thinking, it always translated into a an equal amount
Speaker 1: of honesty in terms of the investment world. And yeah,
Speaker 1: I think it's always been an autobiographical type of thing.
Speaker 1: I didn't want to write a book about my life,
Speaker 1: but to a certain extent, these outlooks, um, you know,
Speaker 1: outline my life as as I've moved along in the
Speaker 1: current one where I talk about my son's tattoos. Um,
Speaker 1: you know, I think it's pretty interesting. That's a topical,
Speaker 1: uh piece of information, not only for my family, but
Speaker 1: for society. And uh, you know, uh to the extent
Speaker 1: the readers like it. Find if they don't like it,
Speaker 1: then some don't, then that's fine too. Well. Bill, you
Speaker 1: know that many people are interested in your life. And
Speaker 1: once again, with a deep amount of respect for the
Speaker 1: family members that might read this and be terribly upset,
Speaker 1: you do refer to your son as a disappointment. And
Speaker 1: I'm trying to understand from you look happy right now
Speaker 1: as we talk, hugely successful, and when people read this,
Speaker 1: they might just be thinking, Bill, sounds really bitter and unhappy.
Speaker 1: What would you respond to them if they asked you that? Well,
Speaker 1: I you know, I talked about tattoo as I said,
Speaker 1: he was a disappointment in terms of tattoos, and that, um,
Speaker 1: you know, that doesn't mean he necessarily a disappointment as
Speaker 1: a son. Didn't have enough room and space for that.
Speaker 1: But you know, I talked about my early two kids
Speaker 1: as well, relatively tattooed free and uh, something funny to
Speaker 1: talk about, especially the tattoo on the inside of my
Speaker 1: Son's lip. Who you know at least is here is
Speaker 1: the sun didn't get a forty niners tattoo. That's the
Speaker 1: real issue, and you're gonna go get a tots tattoo.
Speaker 1: I do want to say, just going back to the
Speaker 1: investment thesis bill and the idea that you're making an
Speaker 1: analogy of the tattoo on the global economy that can't
Speaker 1: be removed for a very long time. And you talk
Speaker 1: about how you expect the bulk of stimulus have already
Speaker 1: occurred and that it's time to get more defensive. What
Speaker 1: does it mean to get defensive with yields so low
Speaker 1: right now? Well, a number of things, and yes that
Speaker 1: I think the tattoo, uh, you know it's applicable to
Speaker 1: the global economy. Tattoo is a discoloring of the skin.
Speaker 1: And and certainly the global economy has been discolored by UH,
Speaker 1: by the virus, and things have changed in many ways
Speaker 1: as you've spoken to you know, certainly in the past
Speaker 1: half hour. What does it mean, uh, in terms of
Speaker 1: investments and defensive yield types of investments. I'm always amazed,
Speaker 1: and I don't discount the phenomen gonna gross stocks and
Speaker 1: and the fangs and the Big five as I call them,
Speaker 1: UM and others. Because you know, as real interest rates
Speaker 1: have declined in the US to amazing in the five
Speaker 1: years to a minus a hundred and thirty basis points,
Speaker 1: much more than other countries, then you know this diving
Speaker 1: a discount models would account for that and make gross
Speaker 1: stocks too much better than certainly other investments in the
Speaker 1: US and and and and globally. Um. But in terms
Speaker 1: of dividends, I'm always amazed that others don't recognize it.
Speaker 1: If you can borrow money at U zero and one percent,
Speaker 1: and investors can probably borrow it at two percent on margin,
Speaker 1: then a relatively stable seven to eight percent investment, call
Speaker 1: it the tobacco stock. Are you know where I gravitated
Speaker 1: to some natural gas pipeline stocks with relatively firm dividends
Speaker 1: This perform US and and if you compound that uh
Speaker 1: six or seven percent a year relative to your bar
Speaker 1: and right, well that's uh, it's almost as good as
Speaker 1: a gross stock. Not as good as an Amazon, but
Speaker 1: pretty good a stable investor bill. Just real quick, here
Speaker 1: are you saying that leverage is good in this kind
Speaker 1: of environment given how low rates are? Oh? For sure,
Speaker 1: you know, you've got a lever and to the extent
Speaker 1: that leverage comes back and snaps you, it does that
Speaker 1: one Central Banks raised rates and of course, uh, you know,
Speaker 1: I don't think and O there's and most don't think
Speaker 1: that rates will be raised for a long long time. So, yes,
Speaker 1: you've got to be able to borrow money. You can
Speaker 1: do that with closed and funds that lever you can
Speaker 1: do that with you know, margin at your own account. Uh.
Speaker 1: Whenever you lever, however, you want to do it safely
Speaker 1: because as we know, ultimately leverage is destructive and the
Speaker 1: fore runner of a bear market as opposed to a
Speaker 1: bull market. Bill always appreciate transparency and you're always generous
Speaker 1: with the time. Thanks for you wanting to us today.
Speaker 1: Bill gross that honest and an outlook that he released
Speaker 1: earlier this morning. Let's use every second we have with
Speaker 1: Dana eyes here and with wet Bush securities. I'm sure
Speaker 1: most of our audience on radio and television no of
Speaker 1: his enthusiasm for technology. Dan, we want to talk to
Speaker 1: you about China, America and technology, and yes, talk tick
Speaker 1: and all that, but Dana, I've just reaffirmed for is
Speaker 1: your bullishness on these belieguered texts. Right now, is this
Speaker 1: the mother of all by the dip opportunities in Apple,
Speaker 1: in Amazon and the others. Yeah, Look, I do it
Speaker 1: as a golden buying opportunity because in my opinion, we're
Speaker 1: still in the sixth inning of a rerating in tech
Speaker 1: and this is just a healthy pull back. I still
Speaker 1: view twenty percent higher for text stocks and sign names
Speaker 1: over the next six nine months. And when you say
Speaker 1: that to clients in a zoom meeting whatever it is
Speaker 1: these days, higher, what did they say back? Right now?
Speaker 1: M most of the questions are which are the names?
Speaker 1: Who in software do you own? Where the text teams?
Speaker 1: Because John, what I would tell you is it's it's
Speaker 1: to the one ratio investors were going to do the
Speaker 1: work on who the winners are rad and hit the
Speaker 1: panic button and sound that's in twenty plus years covering
Speaker 1: tech in terms of just from a scale white knuckles
Speaker 1: from my perscus. I think that your band cast this
Speaker 1: question the last week or so down. So let me
Speaker 1: ask him of you the distinction between the tech revolution
Speaker 1: and a bubble. A bubble which I you know I was.
Speaker 1: I was an analyst through nine and two thousands. It
Speaker 1: was all about secular themes that might happen in the
Speaker 1: stocks were massively over and play with no profitable business models. Now,
Speaker 1: the secular themes you here to say, in my opinion,
Speaker 1: the most transformational tech teams that I've seen in twenty
Speaker 1: plus years terms of Cloud, five G, cybersecurity and others.
Speaker 1: And these numbers now are starting reflected. That's the difference.
Speaker 1: The secular themes are here and they're on the horizon.
Speaker 1: It's not on the common a hoop. And I think
Speaker 1: that's the difference, and that's why this continues to be
Speaker 1: a powerdigm change in terms of valuations or tech doctor.
Speaker 1: And I don't view these last week or two is
Speaker 1: the end or some sort of sign about bubble. And
Speaker 1: there are a lot of people who would agree with you.
Speaker 1: They would say that the tops page on top tic,
Speaker 1: as Tom might put it, would do really well and
Speaker 1: could drive revenue. But what multiples makes sense? I mean,
Speaker 1: how high can we go at this point? Yeah? I
Speaker 1: think that that's where I think a lot of these
Speaker 1: names chapter you. It is some of the parts as
Speaker 1: well as ultimately what numbers look like in a normalized
Speaker 1: state when we look out over next twelve d eight months,
Speaker 1: and a lot of these growth stories they've been accelerated
Speaker 1: by one to two years, sometimes two to three years,
Speaker 1: so that these are still a digestion process. And somebody's
Speaker 1: work from home names a zoom a document sign and
Speaker 1: the scale or some the core cybersecurity. And when you
Speaker 1: look at large top path, I mean the stronger getting stronger,
Speaker 1: and I think we go into earnings in terms of
Speaker 1: three Q that's gonna be another Pattle's higher in my opinion,
Speaker 1: And Dan, I want to rip the script right now.
Speaker 1: This is really important. Cisco and Oracle are you know,
Speaker 1: to amateurs like me, are tech companies, but they're really not.
Speaker 1: Their hardware companies up nine nine percent per year for
Speaker 1: the last decade, which is MOULDI compared to the group
Speaker 1: you following. How bad do you perceive Lawrence Ellison wants
Speaker 1: to be like the other guys? Well, I mean that's
Speaker 1: the TikTok deal. It's on the outside looking in and
Speaker 1: for for Allison Oracle that was once there. I mean,
Speaker 1: this is an opportunity for them from a TikTok perspective,
Speaker 1: to topsy partner and get in the game and getting
Speaker 1: that conversation. But but I continue to view this as
Speaker 1: a massive head scratcher in terms of Oracle looking at
Speaker 1: the deal and obviously a partnership which is totally different
Speaker 1: than outright said, which continues to be the issue Dan
Speaker 1: a head scratcher, and yet Oracle shares uh in pre
Speaker 1: are con trading up more than nine percent. Isn't this
Speaker 1: the kind of activity that would point at some of
Speaker 1: the frost that you're rejecting basically the idea. People don't
Speaker 1: understand it. They don't even understand how real it is.
Speaker 1: They don't even understand what kind of deal this is.
Speaker 1: And yet Bio Oracle, well, no, I think that that's
Speaker 1: why I don't have to distinguish between is your car
Speaker 1: frad and fundamental drivers. And I think this is an
Speaker 1: example of it's it's a head scratch and some theorical
Speaker 1: partnership and alter in what that even means and if
Speaker 1: it ultimately gets approved by the White House. And this
Speaker 1: is nachas all noise because it's not a salid investiture.
Speaker 1: But that's why it's an investor. I think you gotta see,
Speaker 1: you've got to go through the noise and look at
Speaker 1: the fundamental drivers like you loo can name like Apple
Speaker 1: to five you supercycle. I think it's a once in
Speaker 1: a decade cycle. That's why you own that mean others
Speaker 1: might have throught. We saw that with Slack over the
Speaker 1: last week or two, so I think you have to
Speaker 1: look at the individual stories. It's not just a rising
Speaker 1: tide to with tall boats. Then you mentioned Apple. We
Speaker 1: don't do this often, but let's do it now. Can
Speaker 1: you just talk to me about the middle of March
Speaker 1: when you dropped your price target but you maintained that
Speaker 1: outperform rating. I just want to give you a victory
Speaker 1: lap for that down because when we were in those
Speaker 1: depths of March, people just decided that was it. This
Speaker 1: bullmarket was over, and Dan, you just stuck with it
Speaker 1: with the big tech names. What was the lesson from
Speaker 1: that moment, No, I appreciate. Look, the lesson from that
Speaker 1: moment is it was all about the installed base and
Speaker 1: seeing the forest of the trees and understanding that this
Speaker 1: was a panic sell off and if you just sort
Speaker 1: of stuck to those fundamental drivers, the stock was going
Speaker 1: to reread further up and and and that's why I
Speaker 1: view when you look at Apple, and obviously we've talked
Speaker 1: about many times over the last five six years many
Speaker 1: times that they were dead from a growth perspective, but
Speaker 1: you had to come back. Look, and that's why the
Speaker 1: heaters will heat. But it just creates the opportunity. In
Speaker 1: my opinion, I think still think one basks up on
Speaker 1: the down fantastic to catch up with you as a
Speaker 1: white down if stet of wet Bush joining. So Francis
Speaker 1: Donald with manual life asset management doing wonderful work across
Speaker 1: the entire equation of economics. Francis Donald, are the airlines
Speaker 1: and outlier or can you actually see US economic growth
Speaker 1: slowing into the end of the year. Oh, certainly the
Speaker 1: momentum constall are you a first deriva ever second revative
Speaker 1: type of guide? Tom, Really, this is an incredibly interesting
Speaker 1: recovery because you can take a sector and make a
Speaker 1: story out of it, or you can also pick strect
Speaker 1: sectors that are doing very well. Anything in the manufacturing
Speaker 1: space we're gonna end up with and I hate to
Speaker 1: use the letter shape recovery, it seems pretty simplific, but
Speaker 1: we're going to end up with a K shape recovery here,
Speaker 1: which is that segments of the economy like airlines are
Speaker 1: going to do really poorly and you're also going to
Speaker 1: have areas like in inductrial manufacturers going to do well.
Speaker 1: So you can have any analysts on they'll take a
Speaker 1: sector they can make a story out of it, really
Speaker 1: careful about disaggregating what's the happening, and at least so
Speaker 1: there's a new alphabet out there now, it's a K
Speaker 1: shaped recovery. According to Msdonald, I know because of your
Speaker 1: support of Arsenal, it's going to be an A shaped
Speaker 1: recovery here in about twelve weeks. Absolutely are G shaped
Speaker 1: recovery for the gunners, I will say Francis, though, you know,
Speaker 1: talking about the airlines is emblematic. One thing that has
Speaker 1: been constant has been airlines layoffs of employees, and they're
Speaker 1: planning to do another round of possibly tens hundreds of
Speaker 1: thousands of layoffs once they're aid from the government and
Speaker 1: the federal government wears out. And and to Tom's point,
Speaker 1: this is probably why they don't want to get a bailout.
Speaker 1: They don't want the strings attached. They don't have the
Speaker 1: strings attached from the capital markets. How much is that
Speaker 1: being factored into some of the projections for the economy,
Speaker 1: The fact that some of these big employers still have
Speaker 1: layoffs to make that haven't necessarily been even announced. Yet.
Speaker 1: Once again, we're using one sector to really paint an
Speaker 1: excellent example for what's happened underlying the surface, and that
Speaker 1: is we really have to employment shocks in the US
Speaker 1: and global economy. We had those eight percent of those
Speaker 1: who were initially laid off forward towards your job losses temporary,
Speaker 1: and now that number is falling quickly. We have, you know,
Speaker 1: eight hundred thousands of a million Americans a week who
Speaker 1: are filing for unemployment insurance. Those job losses are not
Speaker 1: going to be temporary. Those are more like two thousand
Speaker 1: one or two thousand eight style recessions. So even those
Speaker 1: who were told their job loss would be temporary may
Speaker 1: become permanent. My suspicion is actually, even though we have
Speaker 1: fewer people are unemployed now, the composition of the labor
Speaker 1: market is actually much less healthy now in August September
Speaker 1: than it was in April. So we really have to
Speaker 1: move away from that headline figure pay attention to the
Speaker 1: quality underlying the surface. Well, Francis, let's build on that
Speaker 1: just a little bit more. The composition of this economy
Speaker 1: going forward, capital economics in the last twenty four hours.
Speaker 1: That a nice little job on this. It's not about
Speaker 1: the recovery for the next six or twelve months. It's
Speaker 1: about the permanent changes of this economy and the sector
Speaker 1: makeup of it, and the shifts the permanent shifts were witnessing.
Speaker 1: Can you speak to the Francis. Yes, it's a huge
Speaker 1: challenge if you're an asset manager, because you know there's
Speaker 1: another five to COVID and we don't know when it is,
Speaker 1: and we don't even know what unlocks it. I would
Speaker 1: argue it's not even a vaccine, it's just you know,
Speaker 1: reduction in the fatality rate. So what do you do.
Speaker 1: You have to trade tactical portfolios, but ultimately focus on
Speaker 1: the long term trend. Now there will be those who
Speaker 1: are going to focus on behavioral changes or composition of
Speaker 1: the economy changes. My view is a macroeconomist is to
Speaker 1: say what's fundamentally changed here, And what's fundamentally changed is
Speaker 1: that we're going to have base bottom interest rates for
Speaker 1: at least five years and possibly longer. We're going to
Speaker 1: have extraordinarily large government deficits and debt to GDP, and
Speaker 1: we've entered this new paradigm, particularly in North America, where
Speaker 1: a government issues a bond and a central bank buys it.
Speaker 1: So we can call that all types of different things.
Speaker 1: But I'm a little bit like debt monetization to me.
Speaker 1: So these are the structural trends that have really affected
Speaker 1: our financial system. And sure you can be excited about
Speaker 1: digilization of the economy or or the end of malls,
Speaker 1: but what really starts seeing are addressing. The way that
Speaker 1: I'm thinking about my portfolio is what do we do
Speaker 1: when government bonds are doing us a negative return and
Speaker 1: we have to make are you predicting it? Are you
Speaker 1: predicting negative interest rates just because of the structural challenges, well,
Speaker 1: not predicting negative interest rates in the United States, So
Speaker 1: I suspect they're The probability is signed by the market
Speaker 1: is still probably too low. But we have of the
Speaker 1: global government bond universe that's negative yielding. So if you're
Speaker 1: an asset manager and you have to allocate the global
Speaker 1: government bonds, this is an asset class that has lost
Speaker 1: a huge amount of appeal, So you have to rotate
Speaker 1: into another asset class. You have to generate your six
Speaker 1: to seven percent. It means We're going to see big
Speaker 1: flows into under own asset classes, more flows in international
Speaker 1: and more flows into emerging market debt high yield. This
Speaker 1: is why these sectors are doing fundamentally well, because we
Speaker 1: have to put the money somewhere doesn't exist in the
Speaker 1: traditional global government bond asset class anymore. So, Francis, you're
Speaker 1: talking about how the labor market looks less healthy now,
Speaker 1: and you're talking about places to allocate your money based
Speaker 1: on low yielding the yield low yielding regime that we're in,
Speaker 1: when real fundamentals matter anymore anymore or again? Um I
Speaker 1: I hope soon because I like my job as someone
Speaker 1: who does fundamental analysis. But I will say, you know,
Speaker 1: we talk about this disconnect between the economy and the
Speaker 1: stock market. I'm not so convinced the disconnected as large
Speaker 1: as people believe. It is the reason that I, you know,
Speaker 1: really give in to this idea that we do have
Speaker 1: a K shape recovery is because it's a simplific way
Speaker 1: to highlight manufacturing is really doing quite fine. We press
Speaker 1: a button, our conveyor belts come back on. They do
Speaker 1: not have to operate with social distancing in effect. That's
Speaker 1: critical because manufacturing is only ten percent of the economy,
Speaker 1: but its forty to fift of earnings the market cap
Speaker 1: in the SMP. So the segment of the economy that's
Speaker 1: actually doing really well and is V shaped is the
Speaker 1: one that's most tied to the stock market. Job services
Speaker 1: are less in the stock market, So this K shape
Speaker 1: recovery actually becomes a fundamental investment thesis, and it helps
Speaker 1: to explain some, not all, of this disconnect. You see, Francis,
Speaker 1: this is some and Pool. It's not about whether fundamentals
Speaker 1: matter or not. It's about how they matter going forward
Speaker 1: from here, and how they matter for central banks as
Speaker 1: well twenty years ago, for the last I don't know,
Speaker 1: a hundred years, for the Federal Reserve, the story has
Speaker 1: always been when things get bad, you cut rights, and
Speaker 1: when things get better, you hike them. The new story
Speaker 1: at the Federal Reserve is when things get bad, you
Speaker 1: cut rights and throw everything at it, and when things
Speaker 1: get better, maybe you do nothing. And Francis, that's something
Speaker 1: we've still got to get our hands around, possibly for
Speaker 1: the next decade or so. How are you thinking about
Speaker 1: this shift at the Fed? Well, effectively, with that translates too,
Speaker 1: is I spend an awful lot more time thinking about
Speaker 1: fiscal policy than I do monetary policy. It also means,
Speaker 1: for example, when I'm generating five year forecasts, I actually
Speaker 1: have some moderate inflationary pressures in my forecast, but I
Speaker 1: don't have higher policy rates and I don't have materially
Speaker 1: higher rates in the market between your tenure. Why is
Speaker 1: that Because we have this disconnect, now we can allow
Speaker 1: for higher inflation and not necessarily mean that that the
Speaker 1: entire interest rates. And this is a paradigm shift in
Speaker 1: the way that we see those two factors playing together.
Speaker 1: But ultimately what it means is is known for a
Speaker 1: long time, monetary policy is a very blunt instrument. It's
Speaker 1: one tool across the full economy. The shift here, and
Speaker 1: you know, I mean my career off of commenting on
Speaker 1: central bank that is kind of the old world. The
Speaker 1: new world is how is siscal policy going to target
Speaker 1: specific sectors that need help? And how will pascal policy
Speaker 1: and issuance affect the shape of the curve? What are
Speaker 1: wages gonna do here in the Donald new world? Amazon
Speaker 1: with a hundred thousand jobs today as a round number,
Speaker 1: it's eleven of the workforce. It's probably a greater percent
Speaker 1: of the cardboard box force is well fifteen bucks an
Speaker 1: hour with benefits? Does that get it done? I mean, Francis,
Speaker 1: what does what do wages do? In your new world?
Speaker 1: So wages is the one component of the election that
Speaker 1: I think matters more than even say tax types or
Speaker 1: tax cuts for example. So if we do get this
Speaker 1: new composition of government, then we're going to be talking
Speaker 1: differently about healthcare. I use the benefits that you're alluding to.
Speaker 1: Are we getting a minimum wages fifteen dollars? In this
Speaker 1: new paradigm? We're going to see two courses. We're going
Speaker 1: to see higher corporate concentration, which means they're going to
Speaker 1: have more pricing power but also more abilities to price
Speaker 1: their own labor. But we're also going to have a
Speaker 1: focus on redistributive policies demands for higher wages, but they're
Speaker 1: probably going to be fighting against each other. Ultimately. I
Speaker 1: am in a moderate inflation camp. I do think wages
Speaker 1: are going to move up moderately through this period, but
Speaker 1: we probably need to think about how they get there
Speaker 1: in a different way than we have historically, which was
Speaker 1: all Philip's curve and you know output gaps. No, the
Speaker 1: new world is one where we're probably going to be
Speaker 1: making sort of sort of more manual changes to the
Speaker 1: way we look at insplation, like Francis grib to catch
Speaker 1: up as always, fransics Donald the of manual Life Asset Management.
Speaker 1: Right now, Lisa brand Wins and I really want to
Speaker 1: get to something that's very visceral for both of us,
Speaker 1: and that is the transportation challenges that we see across
Speaker 1: New York. That is a Metropolitan Transit authority. You can
Speaker 1: do that with pet Foy and you can do all
Speaker 1: the suit and type stuff, or you can read Jennifer
Speaker 1: Gunnerman's fantabulous article in the New Yorker magazine on driving
Speaker 1: the bus across Central Park North through this pandemic. It
Speaker 1: is extraordinary journalism. And Petfoy, I know you saw that
Speaker 1: article about one of your bus drivers, Terence Lane as well.
Speaker 1: I love deep in the article where they say, and
Speaker 1: I'm gonna paraphrase Fosts, the policeman seeing when you're needed,
Speaker 1: the fireman see you when you're needed. But the bus
Speaker 1: driver and all of your mt A, you guys see
Speaker 1: us each and every day. That's Tom h n t
Speaker 1: A employees UH performed heroically during the pandemic, as they
Speaker 1: did after nine eleven, as they did after Superstorm Sandy. Obviously,
Speaker 1: the coronavirus exactive or an incredible pull across across New
Speaker 1: York UH and at the mt AT one of our
Speaker 1: colleagues passed away from the virus. New York was the epicenter.
Speaker 1: But a heroic work of men and women working on
Speaker 1: subways and buses and Metro North and Long Island railroad
Speaker 1: and accessor ride and bridges and tunnels is extraordinary. And
Speaker 1: each of those men and women played an incredible role
Speaker 1: in supporting New York and moving first responders and essential
Speaker 1: employees during the pandemic, which I'll remind your viewers is continuing.
Speaker 1: What's so important here is with the funding shortfall, and
Speaker 1: if you do not get aid from various larger governments,
Speaker 1: how many layoffs do you perceive? But we are asking
Speaker 1: the federal government for an additional twelve billion dollars, which
Speaker 1: is the amount of loss we will have in the
Speaker 1: remainder of and into ridership is down. It's down, actually subways, buses,
Speaker 1: Mentro North and Long Island significantly greater than during the
Speaker 1: Great Depression, which which is which is extraordinary. If we
Speaker 1: don't get federal aid, and that's really in come in
Speaker 1: upon the Republican Senate leadership UH to to move that,
Speaker 1: to move that bill and move that funding. UH. We
Speaker 1: may have to cut subway and bus service up the
Speaker 1: seventy and Way off about seventy employees, and up to
Speaker 1: fifty service reduction on Metro North on Long Island Railroad.
Speaker 1: Those cuts would be devastating and frankly, the the m
Speaker 1: t A is really the circulatory system of the New
Speaker 1: York City regional economy, and jobs will not be created,
Speaker 1: the recovery will be stunted and thwarted if we don't
Speaker 1: get that level of funding. I also just want to
Speaker 1: point out the following. The Chicago Transit Authority, important and
Speaker 1: well run agency pre pandemic, carried on an average day
Speaker 1: about two point five million customers last week in the
Speaker 1: in the in the throes of the pandemic, we carry
Speaker 1: two point six million. UH. So that's a pre pandemic
Speaker 1: UH comparison on on the in the case of Chicago
Speaker 1: and during the pandemic in the case of the n
Speaker 1: t A, And it just demonstrates how important the m
Speaker 1: t A is. UH. If If we don't get that
Speaker 1: funding and have to make those cuts, it will have
Speaker 1: a significant drastic effect on the New York economy. Top
Speaker 1: somebody Pad who grew up in New York City riding
Speaker 1: the subway system and who has seen it through this
Speaker 1: through the eighties through the nineties. There is a fear
Speaker 1: that we're heading back to another era with the subway system.
Speaker 1: How realistic is it that we are going to make
Speaker 1: those cuts. I mean, a lot of people hear what
Speaker 1: you're saying and just sort of chalk it up as
Speaker 1: a negotiating tactic. Are we on the brink of heading
Speaker 1: back to the eighties and the nineties for the subway system?
Speaker 1: It's not a negotiating attact, Lisa. We've been downgraded again.
Speaker 1: The rating agencies are not not political figures. They're calling
Speaker 1: it as as we see it. UH. Going into the
Speaker 1: into we expected an eighty million dollars surplus. We expected
Speaker 1: to take hundreds of millions of dollars out of the
Speaker 1: expense space of the m t A UH. We we've
Speaker 1: done that. We expect to take an additional billion out
Speaker 1: in h one. But this is not a negotiating uh
Speaker 1: MET measure. We have a twelve billion dollar deficit. We've
Speaker 1: got to face. The only level of government that can
Speaker 1: fund that is the federal government. Uh, every state and
Speaker 1: every city has broke, including the State of New York,
Speaker 1: in the City of New York. And it's only the
Speaker 1: federal government. This is a national crisis that requires a
Speaker 1: national solution. Pat Given that financial backdrop, how do you
Speaker 1: plan on deploying the resources to enforce the new mandate
Speaker 1: to wear masks on the subways and buses or face
Speaker 1: a fifty dollar fine? So it's it's it's a great question.
Speaker 1: So the mask fine provision went into effect this morning.
Speaker 1: We've been serving our customers physically, counting mass compliance before
Speaker 1: today was about on buses, on subways, well over ninety
Speaker 1: on Metro North and Long Island Railroad. I spent the
Speaker 1: morning this morning with the m T a masked task Force.
Speaker 1: I wrote the e UH in Queens from Jamaica that
Speaker 1: got of if it's seventy four Street and Roosevelt Dave
Speaker 1: and you took the seven, then got on the UH
Speaker 1: the four of the five from a Grand Central down
Speaker 1: to what the Bowling Green, which is where the NBA's
Speaker 1: office is. I will tell you that of the thousands
Speaker 1: of people we saw this morning, there was only one
Speaker 1: without a mask. My colleagues and I handed out probably
Speaker 1: a couple of hundred masks to people so who already
Speaker 1: had them so they'd have them for tomorrow. Masker and
Speaker 1: are available from station agents. They are also being distributed
Speaker 1: by Long Island Railroad and metro work. Our goal is
Speaker 1: not to find anybody. This is not a revenue matter. UH.
Speaker 1: It's in the it's in the interest of public health,
Speaker 1: protecting our customers UH and our employees. Wearing a mask
Speaker 1: is the most important thing to do that we don't know.
Speaker 1: We were not looking to issue a lot of fines
Speaker 1: that we're out of time, but we say congratulations to
Speaker 1: you and all the essential workers of your mt A.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on Apple Podcasts, so Cloud, or whichever
Speaker 1: podcast platform you prefer. I'm on Twitter at Tom Keene
Speaker 1: before the podcast. You can always catch us worldwide. I'm
Speaker 1: Bloomberg Radio.