1
00:00:09,880 --> 00:00:13,800
Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Ley.

2
00:00:13,960 --> 00:00:17,560
Speaker 1: We bring you insight from the best in economics, finance, investment,

3
00:00:18,000 --> 00:00:23,520
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

4
00:00:23,600 --> 00:00:27,080
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. We

5
00:00:27,200 --> 00:00:30,960
Speaker 1: begin the program this morning with Anna Hand of Wells Fargo,

6
00:00:31,040 --> 00:00:33,479
Speaker 1: the equity strategist over there. And I know that in

7
00:00:33,560 --> 00:00:37,680
Speaker 1: the short term you are cautious. Longer term you are

8
00:00:37,800 --> 00:00:41,160
Speaker 1: firmly in the risk on camp. Can you tell me why? Thanks? John,

9
00:00:41,400 --> 00:00:44,440
Speaker 1: Well Even with three opening being slowing down in key

10
00:00:44,440 --> 00:00:48,360
Speaker 1: areas such as Texas, you're seeing nationwide that it's continuing

11
00:00:48,720 --> 00:00:52,160
Speaker 1: and the consumer spending is coming back, that demand has

12
00:00:52,200 --> 00:00:55,160
Speaker 1: been pent up. So as I persist, we think that

13
00:00:55,240 --> 00:00:58,560
Speaker 1: the risk seeking and the equity ride could continue. And

14
00:00:58,760 --> 00:01:00,800
Speaker 1: what do you take away from the still closes that

15
00:01:00,800 --> 00:01:03,960
Speaker 1: we've seen from the reopening process hitting poles in Plaicus

16
00:01:04,040 --> 00:01:07,520
Speaker 1: light Texas. It's certainly concerning, John, you know, especially with

17
00:01:07,600 --> 00:01:10,440
Speaker 1: Texas being one of the largest GDP contributors to the

18
00:01:10,560 --> 00:01:14,360
Speaker 1: national GDP. That is uh, it's concerning. But where it

19
00:01:14,440 --> 00:01:17,399
Speaker 1: really needs to impact is it going to lead to

20
00:01:17,640 --> 00:01:23,120
Speaker 1: several other states closing down officially re uh re putting

21
00:01:23,160 --> 00:01:27,360
Speaker 1: in those quarantine measures, and if that happens to us,

22
00:01:27,400 --> 00:01:30,280
Speaker 1: that's really going to set back the economic recovery that

23
00:01:30,440 --> 00:01:34,679
Speaker 1: had been going on since April. And I want to

24
00:01:34,680 --> 00:01:37,880
Speaker 1: go back to your derivatives work years ago and particularly

25
00:01:37,959 --> 00:01:41,440
Speaker 1: almost back to your physics and dynamics at Yale University

26
00:01:41,880 --> 00:01:45,440
Speaker 1: and real simple, what's the bet of the market right now?

27
00:01:45,560 --> 00:01:49,560
Speaker 1: What's the exposure of the market right now into the summer.

28
00:01:50,640 --> 00:01:54,360
Speaker 1: You say exposure, You're thinking risk exposure, I'm guessing. So

29
00:01:54,480 --> 00:01:57,120
Speaker 1: if you think about that, there are people who are

30
00:01:57,200 --> 00:02:00,480
Speaker 1: positioned for the upside, but it's not this uh you

31
00:02:00,680 --> 00:02:03,520
Speaker 1: fork reach for all grab. You still have a lot

32
00:02:03,560 --> 00:02:07,040
Speaker 1: of people putting on protection and being cautious because, to

33
00:02:07,120 --> 00:02:09,640
Speaker 1: be frank, you know, March was only three months ago,

34
00:02:09,760 --> 00:02:13,040
Speaker 1: and it really hurts some investors. On the other hand,

35
00:02:13,360 --> 00:02:16,480
Speaker 1: you have those that are been piling into the markets.

36
00:02:16,560 --> 00:02:18,680
Speaker 1: You look at the retail flow. We look at some

37
00:02:18,800 --> 00:02:21,720
Speaker 1: robin Hood data and you see that people are eager

38
00:02:21,760 --> 00:02:25,960
Speaker 1: to participate in this rally. So you have two warring forces.

39
00:02:26,320 --> 00:02:29,119
Speaker 1: Our view is still that risk one and longer term

40
00:02:29,160 --> 00:02:32,480
Speaker 1: equities will be higher what's really interesting area and I'm

41
00:02:32,480 --> 00:02:34,359
Speaker 1: glad you bring it up. And it goes back, folks

42
00:02:34,360 --> 00:02:36,320
Speaker 1: to what's called a rehedge, where you go out and

43
00:02:36,360 --> 00:02:39,360
Speaker 1: you have to reset up your belief structure three months

44
00:02:39,400 --> 00:02:43,000
Speaker 1: out or six months out. Do you anticipate more volatility

45
00:02:43,120 --> 00:02:47,359
Speaker 1: and equities is institutions and hedge funds have to struggle

46
00:02:47,400 --> 00:02:50,640
Speaker 1: to rehedge to reset their bets. We do think that

47
00:02:50,680 --> 00:02:53,400
Speaker 1: the couple of months ahead will be volatile, and when

48
00:02:53,400 --> 00:02:56,280
Speaker 1: you look at the dryms market, the term structure on

49
00:02:56,320 --> 00:02:59,520
Speaker 1: the SMP options, it's looking like we're gonna have some

50
00:02:59,600 --> 00:03:03,840
Speaker 1: choppes and elevated vix could persist for some time. That

51
00:03:03,960 --> 00:03:07,840
Speaker 1: being said, what's given us confidence in our equity play

52
00:03:07,960 --> 00:03:11,240
Speaker 1: is that you see credit spreads remaining rather tight. And

53
00:03:11,320 --> 00:03:14,520
Speaker 1: even as credit spreads marine tight, that keeps a cap

54
00:03:14,600 --> 00:03:17,520
Speaker 1: on those equity balls. So it lets us be more

55
00:03:17,560 --> 00:03:21,880
Speaker 1: confident telling investors to continue that risk on value play. UH.

56
00:03:21,919 --> 00:03:24,519
Speaker 1: And yesterday we got the results from the Federal Reserve

57
00:03:24,600 --> 00:03:28,519
Speaker 1: stressed tests of the US banks. It was actually somewhat surprising,

58
00:03:28,680 --> 00:03:32,000
Speaker 1: and it came with a possible review further of the

59
00:03:32,080 --> 00:03:34,840
Speaker 1: capital plans of the big banks later this year. The

60
00:03:34,840 --> 00:03:38,839
Speaker 1: FED is requiring banks to resubmit those Does that uncertainty

61
00:03:38,880 --> 00:03:42,360
Speaker 1: give you any pause about investing in financials? Given the

62
00:03:42,400 --> 00:03:44,920
Speaker 1: fact that their dividends are capped, they're not going to

63
00:03:45,000 --> 00:03:47,560
Speaker 1: be buying back any shares through at least the third quarter,

64
00:03:47,920 --> 00:03:50,000
Speaker 1: and there does seem to be a feeling there could

65
00:03:50,080 --> 00:03:52,840
Speaker 1: be additional measures taken in the very near future. You

66
00:03:53,120 --> 00:03:55,200
Speaker 1: have a great point, Linsa, and let me start with

67
00:03:55,240 --> 00:03:58,240
Speaker 1: the dividends. So they cap dividends and they tie those

68
00:03:58,280 --> 00:04:01,400
Speaker 1: dividends to the income stream. But I think them being

69
00:04:01,440 --> 00:04:04,360
Speaker 1: able to pay out mostly the third quarter is something

70
00:04:04,400 --> 00:04:07,800
Speaker 1: we expected. You know, we weren't expecting this huge raising dividends,

71
00:04:07,840 --> 00:04:10,200
Speaker 1: so it's not the worst news for us, and then

72
00:04:10,240 --> 00:04:13,280
Speaker 1: slashing buy backs and saying no buy back third quarter.

73
00:04:13,720 --> 00:04:16,200
Speaker 1: I would say the consensus view was mostly no buy

74
00:04:16,240 --> 00:04:18,480
Speaker 1: backs for the rest of this year, So that was

75
00:04:18,600 --> 00:04:22,480
Speaker 1: rather expected. What was unprecedented was that they're going to

76
00:04:22,560 --> 00:04:26,680
Speaker 1: ask for another review a resubmitting of that capital plan

77
00:04:26,760 --> 00:04:30,200
Speaker 1: in September. But you know, frankly, it's kind of like

78
00:04:30,279 --> 00:04:32,960
Speaker 1: getting a test graded and getting it back with all

79
00:04:33,000 --> 00:04:35,239
Speaker 1: these red marks. If you get a chance to review

80
00:04:35,279 --> 00:04:38,320
Speaker 1: and resubmit, it could actually help and be something to

81
00:04:38,360 --> 00:04:43,120
Speaker 1: look forward to in September as another catalyst. Alright, and

82
00:04:43,240 --> 00:04:45,360
Speaker 1: I just broadening out a little bit. We want to

83
00:04:45,360 --> 00:04:47,960
Speaker 1: look at the risks heading into November. There was a

84
00:04:47,960 --> 00:04:50,960
Speaker 1: time when in a political year, an election year, the

85
00:04:51,000 --> 00:04:52,760
Speaker 1: election would be on the forefront of a lot of

86
00:04:52,760 --> 00:04:55,279
Speaker 1: people's minds. Right now it seems to be on the

87
00:04:55,279 --> 00:04:57,240
Speaker 1: back burner. At what point when we start to see

88
00:04:57,279 --> 00:05:02,560
Speaker 1: election risk bleed into the market action, I think actually

89
00:05:02,600 --> 00:05:05,200
Speaker 1: it's already starting to breathe bleed into the market, Lisa.

90
00:05:05,920 --> 00:05:08,919
Speaker 1: It certainly has been the backburning, like you said, because

91
00:05:08,920 --> 00:05:12,320
Speaker 1: of the coronavirus and the reopening the economy. But more

92
00:05:12,360 --> 00:05:15,560
Speaker 1: and more you're seeing this all being tied together. As

93
00:05:15,600 --> 00:05:19,400
Speaker 1: President Trump is handling the coronavirus situation that affects his

94
00:05:19,440 --> 00:05:23,159
Speaker 1: popularity in the polls, and as Canada Biden has become

95
00:05:23,720 --> 00:05:26,400
Speaker 1: more and more likely to win the presidential seat. It

96
00:05:26,440 --> 00:05:30,000
Speaker 1: comes into question, what if the Dems take a full sweep.

97
00:05:30,360 --> 00:05:33,480
Speaker 1: If that happens, the changes in the new economic plan

98
00:05:33,600 --> 00:05:36,320
Speaker 1: you see from that side, that could come a lot

99
00:05:36,440 --> 00:05:39,880
Speaker 1: faster than expected. So the domestic political rest to us

100
00:05:40,000 --> 00:05:42,320
Speaker 1: looks a bit under priced, and we're gonna be watching

101
00:05:42,360 --> 00:05:45,040
Speaker 1: that carefully as it develops. It's Tom King. This has

102
00:05:45,080 --> 00:05:46,839
Speaker 1: been one of these stories that has come on the

103
00:05:46,880 --> 00:05:49,440
Speaker 1: right down a massive way in the last week the election,

104
00:05:49,760 --> 00:05:53,600
Speaker 1: just more and more people discussing the potential outcome come November.

105
00:05:53,800 --> 00:05:55,839
Speaker 1: And I always think that sometimes the market gets like

106
00:05:55,880 --> 00:05:58,240
Speaker 1: a distracted toddler which can only focus on one thing.

107
00:05:58,240 --> 00:06:00,440
Speaker 1: And the one thing this market is focused don't come

108
00:06:00,480 --> 00:06:03,480
Speaker 1: November is the tax cut and whether the tax cut

109
00:06:03,520 --> 00:06:06,279
Speaker 1: gets reversed and the Republicans lose the Senate. That seems

110
00:06:06,320 --> 00:06:10,800
Speaker 1: to be overwhelmingly the single focus of market participants going

111
00:06:10,839 --> 00:06:13,960
Speaker 1: into November. Well that's maybe the focus of the participants,

112
00:06:13,960 --> 00:06:16,839
Speaker 1: and maybe that's typical John of elections to worry about

113
00:06:16,880 --> 00:06:21,360
Speaker 1: the tax ramifications of all Democrat House, Senate, White House

114
00:06:21,400 --> 00:06:25,760
Speaker 1: as well, or any of the combinations the permutations you

115
00:06:25,800 --> 00:06:29,279
Speaker 1: can get. But what is so important here, folks about

116
00:06:29,320 --> 00:06:33,839
Speaker 1: the tax ramifications is all the other distractions as well.

117
00:06:34,120 --> 00:06:38,000
Speaker 1: And one of the great overlays here for equity investors

118
00:06:38,279 --> 00:06:42,600
Speaker 1: will be some form if I'm elected free beer, fiscal stimulus.

119
00:06:42,680 --> 00:06:46,520
Speaker 1: We may even get two tranches of fiscal stimulus before

120
00:06:46,560 --> 00:06:51,039
Speaker 1: the election. How does that fiscal stimulus play into the

121
00:06:51,160 --> 00:06:54,920
Speaker 1: Powell put the ability the FED to prop up equities.

122
00:06:55,320 --> 00:06:58,360
Speaker 1: I think it helps the power put really and you know,

123
00:06:58,440 --> 00:07:01,000
Speaker 1: if you've seen how Trim and Power has spoken in

124
00:07:01,040 --> 00:07:04,599
Speaker 1: the past off M meetings, he's asking for more fiscal aids,

125
00:07:04,640 --> 00:07:07,000
Speaker 1: saying that we've done this much on the monetary side,

126
00:07:07,000 --> 00:07:09,920
Speaker 1: but we need more. So right now where we put it,

127
00:07:10,120 --> 00:07:13,320
Speaker 1: we think definitely, Uh, it's better than a coin flip

128
00:07:13,480 --> 00:07:15,480
Speaker 1: to say that we're going to get more stimulus, but

129
00:07:15,560 --> 00:07:18,080
Speaker 1: in what form looks like it's probably going to take

130
00:07:18,080 --> 00:07:21,240
Speaker 1: more like a state and local for aid there, but

131
00:07:21,680 --> 00:07:23,800
Speaker 1: we don't know yet. We're gonna have to see when

132
00:07:23,880 --> 00:07:26,920
Speaker 1: Congress reconvenes in July, and that's going to help the

133
00:07:27,000 --> 00:07:30,280
Speaker 1: economic recovery for sure. And thank you great to get

134
00:07:30,280 --> 00:07:31,840
Speaker 1: you on the program and gotta get you back soon.

135
00:07:31,880 --> 00:07:34,800
Speaker 1: Anna hand there of Wells Faco on the secondy market

136
00:07:38,320 --> 00:07:40,360
Speaker 1: to set up our guest right now, and we're about

137
00:07:40,360 --> 00:07:42,640
Speaker 1: a perfect guest for you to reframe for the weekend

138
00:07:42,720 --> 00:07:45,720
Speaker 1: and for the second half of two thousand twenty. There's

139
00:07:45,720 --> 00:07:47,520
Speaker 1: not much of a data check because there's not much

140
00:07:47,560 --> 00:07:50,360
Speaker 1: going on. Futures negative too, but I'm going to point

141
00:07:50,360 --> 00:07:53,720
Speaker 1: out the four decimal points for the two year yield

142
00:07:53,800 --> 00:07:58,800
Speaker 1: point one, seven, five nine. It will be amazing to

143
00:07:58,840 --> 00:08:01,120
Speaker 1: see if the two year yield breaks down with the

144
00:08:01,200 --> 00:08:04,520
Speaker 1: stability we've seen. Brett shoot, he follows that kind of stuff.

145
00:08:04,520 --> 00:08:07,960
Speaker 1: He's with Northwestern Mutual and looks at the placement of

146
00:08:08,040 --> 00:08:12,680
Speaker 1: investment for Northwestern clients nationwide. Brought thrilled to have you

147
00:08:12,760 --> 00:08:14,720
Speaker 1: with us, and I want to go like c f

148
00:08:14,800 --> 00:08:17,000
Speaker 1: A one on one, I'd call it as well, let's

149
00:08:17,040 --> 00:08:20,240
Speaker 1: go to first principles. Why is watching the two year

150
00:08:20,320 --> 00:08:24,600
Speaker 1: yield important right now? Well, I guess I I bring

151
00:08:24,600 --> 00:08:26,679
Speaker 1: it back to kind of a lot of the comments

152
00:08:26,680 --> 00:08:30,320
Speaker 1: on the disconnect supposedly between the market and the economy

153
00:08:30,800 --> 00:08:32,520
Speaker 1: and what that means. And I guess to me, as

154
00:08:32,559 --> 00:08:34,480
Speaker 1: you think about that two year yield, i'd also point

155
00:08:34,480 --> 00:08:36,160
Speaker 1: out the ten ye yields of point stuff and percent.

156
00:08:36,640 --> 00:08:40,280
Speaker 1: So the question of why our equities still up, I

157
00:08:40,280 --> 00:08:42,559
Speaker 1: think is answer a lot by those competing yields, because

158
00:08:42,559 --> 00:08:46,120
Speaker 1: to me, relative valuation is more important than absolute evaluation.

159
00:08:46,400 --> 00:08:49,040
Speaker 1: Um Our clients have to put their um our advisa

160
00:08:49,160 --> 00:08:51,320
Speaker 1: and to put their clients money somewhere. And when yield

161
00:08:51,360 --> 00:08:54,320
Speaker 1: to that low, you have a stock market that's more supported, right,

162
00:08:54,720 --> 00:08:56,880
Speaker 1: and so to me, the yield are gonna stay low

163
00:08:56,960 --> 00:08:59,680
Speaker 1: for some time, and I think the Federal Reserve absolutely

164
00:08:59,720 --> 00:09:01,920
Speaker 1: wants to keep them there and they want you to

165
00:09:02,080 --> 00:09:04,560
Speaker 1: buy stocks as a result. And that's the difference in

166
00:09:04,559 --> 00:09:06,920
Speaker 1: my career over the past twenty six years, I've seen

167
00:09:06,920 --> 00:09:09,959
Speaker 1: a much more active fe are reserved, a federal reserve

168
00:09:10,000 --> 00:09:12,280
Speaker 1: that cares about where markets are at, a federal reserve

169
00:09:12,320 --> 00:09:14,040
Speaker 1: that wants you to take risk, and they'll continue to

170
00:09:14,040 --> 00:09:16,360
Speaker 1: try to get you to take risk and brand your clients.

171
00:09:16,360 --> 00:09:18,680
Speaker 1: I'm sure one yield enhancing strategy is given where the

172
00:09:18,679 --> 00:09:20,319
Speaker 1: front end of the Yolk curve is given, whether the

173
00:09:20,360 --> 00:09:22,679
Speaker 1: long end of the yeld curve is as well. What

174
00:09:22,720 --> 00:09:25,360
Speaker 1: do you suggest they should do in an environment of

175
00:09:25,440 --> 00:09:28,800
Speaker 1: zero rates for the foreseeable future. Yeah, that's the really

176
00:09:28,840 --> 00:09:31,719
Speaker 1: difficult question, because, um, you know, if you stretch for risk,

177
00:09:31,760 --> 00:09:33,480
Speaker 1: you can get caught off sides if you have risk

178
00:09:33,559 --> 00:09:35,800
Speaker 1: on in both sides of your portfolio. And so we

179
00:09:35,880 --> 00:09:38,080
Speaker 1: do have an overweight to equities. We have tilted it

180
00:09:38,120 --> 00:09:40,400
Speaker 1: towards that, um, but we're making sure on the opposite

181
00:09:40,440 --> 00:09:42,560
Speaker 1: side of the equation that we're not taking too much risk.

182
00:09:42,920 --> 00:09:45,240
Speaker 1: And I think where people really get caught is where

183
00:09:45,280 --> 00:09:47,600
Speaker 1: they actually are loaded up on risk on both sides.

184
00:09:48,280 --> 00:09:51,160
Speaker 1: And so right now, um, you know, given where yields are,

185
00:09:51,240 --> 00:09:54,079
Speaker 1: we we aren't stretching for yield there, but we are

186
00:09:54,160 --> 00:09:57,880
Speaker 1: overweighting equities because we do believe the path of least resistance,

187
00:09:58,160 --> 00:10:00,640
Speaker 1: even with all the virus conversation that we has had,

188
00:10:00,760 --> 00:10:03,800
Speaker 1: is still higher and so it's always playing off. Let's

189
00:10:03,800 --> 00:10:06,360
Speaker 1: talk about how you'll overweight in equities if we can.

190
00:10:06,760 --> 00:10:09,480
Speaker 1: What is overweight in equities mean? Right now, you're taking

191
00:10:09,480 --> 00:10:11,640
Speaker 1: the sign of a county on are you adding to

192
00:10:11,640 --> 00:10:13,439
Speaker 1: to that? In the tips we've seen over the last

193
00:10:13,480 --> 00:10:15,840
Speaker 1: couple of days, you stay in long the more so

194
00:10:15,960 --> 00:10:18,280
Speaker 1: co defensive parts of this market, which some people now

195
00:10:18,360 --> 00:10:20,800
Speaker 1: consider to be solfware stocks. What do you do when

196
00:10:20,840 --> 00:10:22,480
Speaker 1: you drive a white stocks? What does that look like?

197
00:10:23,400 --> 00:10:25,240
Speaker 1: So right now we have a foot in both camps,

198
00:10:25,360 --> 00:10:27,760
Speaker 1: and so when we added back at the end of

199
00:10:27,840 --> 00:10:30,480
Speaker 1: March early April, we did add more tostick locality, but

200
00:10:30,559 --> 00:10:32,800
Speaker 1: we still do have an overweight to large cap. I

201
00:10:32,800 --> 00:10:34,760
Speaker 1: guess that's more of the timing type of mechanism. I

202
00:10:34,800 --> 00:10:37,240
Speaker 1: think if you look out the next few years, you

203
00:10:37,280 --> 00:10:40,280
Speaker 1: will see parts of the market that have underperformed will

204
00:10:40,280 --> 00:10:43,400
Speaker 1: actually do better as the economy continues to climb or

205
00:10:43,440 --> 00:10:45,800
Speaker 1: to walk out of this economic value that COVID created.

206
00:10:46,000 --> 00:10:48,800
Speaker 1: Actually we created this economic valley, but actually broad based

207
00:10:48,800 --> 00:10:51,480
Speaker 1: social distancing. And now I know there's parts of the

208
00:10:51,520 --> 00:10:54,040
Speaker 1: economy that are closing, but on the opposite side, there's

209
00:10:54,080 --> 00:10:56,880
Speaker 1: other parts that are reopening. And we think a nationwide

210
00:10:56,880 --> 00:10:59,600
Speaker 1: lockdown is a slim probability, which I think you can

211
00:10:59,640 --> 00:11:02,360
Speaker 1: bind at with what the fet is doing and not

212
00:11:02,440 --> 00:11:05,160
Speaker 1: let's not forget that each morning we wake up and

213
00:11:05,200 --> 00:11:08,600
Speaker 1: we find out that we have better ideas of treatments, um,

214
00:11:08,640 --> 00:11:11,360
Speaker 1: we we have vaccines that are progressing, And so that

215
00:11:11,360 --> 00:11:13,560
Speaker 1: would be the ultimate endgame where you would actually see

216
00:11:13,720 --> 00:11:15,760
Speaker 1: a pretty heavy market rally, I suppose, And I think

217
00:11:15,760 --> 00:11:18,600
Speaker 1: that's what keeping stocks afloat. And when you talk about

218
00:11:18,720 --> 00:11:22,040
Speaker 1: betting on some of the less well loved stocks, like

219
00:11:22,080 --> 00:11:24,400
Speaker 1: some of the smaller cap or some of the more

220
00:11:24,440 --> 00:11:27,080
Speaker 1: beaten up sectors, I'm trying to pair that with the

221
00:11:27,120 --> 00:11:29,640
Speaker 1: idea that the bankruptcy right right now has risen to

222
00:11:29,679 --> 00:11:32,160
Speaker 1: the highest level since two thousand and nine and expected

223
00:11:32,160 --> 00:11:35,120
Speaker 1: to continue to increase as even though companies are able

224
00:11:35,160 --> 00:11:37,920
Speaker 1: to access credit and are propped up by the Federal Reserve,

225
00:11:38,200 --> 00:11:41,760
Speaker 1: they still are failing given the lack of demand. How

226
00:11:41,800 --> 00:11:45,760
Speaker 1: are you avoiding these pitfalls going forward? I mean, if

227
00:11:45,760 --> 00:11:47,920
Speaker 1: you look historical, I think small caps performed well coming

228
00:11:47,920 --> 00:11:50,200
Speaker 1: out of every recession, and so I would imagine that

229
00:11:50,240 --> 00:11:51,640
Speaker 1: if I looked back, I would find that to be

230
00:11:51,679 --> 00:11:53,880
Speaker 1: the case that there would be bankruptcies rising during the

231
00:11:53,920 --> 00:11:56,520
Speaker 1: same time period. And so you know, certainly we have

232
00:11:56,600 --> 00:12:00,480
Speaker 1: active managers. We also do use e t fs, But

233
00:12:00,600 --> 00:12:03,080
Speaker 1: in general, I guess that's that's kind of details to

234
00:12:03,080 --> 00:12:07,079
Speaker 1: the overall I think acid class performance. And I think historically, um,

235
00:12:07,080 --> 00:12:09,120
Speaker 1: when real rates are negative on the Federal Reserve is

236
00:12:09,440 --> 00:12:10,920
Speaker 1: trying to keep them there, which they're going to do

237
00:12:11,000 --> 00:12:13,440
Speaker 1: for some time, and when the economy begins to climb

238
00:12:13,480 --> 00:12:17,160
Speaker 1: out of the whole um, small caps typically performed fairly well. Uh.

239
00:12:17,200 --> 00:12:18,840
Speaker 1: And so I don't know if I have a perfect

240
00:12:18,840 --> 00:12:22,439
Speaker 1: answer for you, um, but I think that's kind of

241
00:12:21,480 --> 00:12:25,280
Speaker 1: the the detail to the overall ascid allocation and the

242
00:12:25,320 --> 00:12:28,160
Speaker 1: asset class climbing out of that valley. And let's keep

243
00:12:28,160 --> 00:12:31,319
Speaker 1: in mind they've been under your optimism. Excuse me, but

244
00:12:31,480 --> 00:12:33,960
Speaker 1: your your your optimism very much is reflected by a

245
00:12:33,960 --> 00:12:36,360
Speaker 1: lot of individuals, and I think you're not alone in

246
00:12:36,480 --> 00:12:39,520
Speaker 1: feeling that ultimately we will come to the other side.

247
00:12:39,800 --> 00:12:42,400
Speaker 1: There will be a vaccine, we will get through this

248
00:12:42,600 --> 00:12:45,160
Speaker 1: and re emerge on the other side in some form

249
00:12:45,240 --> 00:12:48,240
Speaker 1: in the nazo distant future. What are you baking into

250
00:12:48,280 --> 00:12:51,360
Speaker 1: that assumption? When do we get the vaccine? Do we

251
00:12:51,440 --> 00:12:55,640
Speaker 1: get another fiscal rescue package and perhaps a re upping

252
00:12:56,160 --> 00:13:00,480
Speaker 1: of the stimmly enhanced unemployment benefits? Sure those things one,

253
00:13:00,520 --> 00:13:02,760
Speaker 1: I'm not for sure my optimism is shared. So I

254
00:13:02,840 --> 00:13:05,160
Speaker 1: look at the Bank of America surveys, I look at

255
00:13:05,200 --> 00:13:07,800
Speaker 1: what hedge funds and pensions fund managers are doing, and

256
00:13:07,840 --> 00:13:09,800
Speaker 1: I'm not so sure. I see the optimism that everybody's

257
00:13:09,800 --> 00:13:12,080
Speaker 1: thinks is out there. I look at the American Association

258
00:13:12,120 --> 00:13:15,400
Speaker 1: of the Individual Investors, I see the Barish survey um

259
00:13:15,720 --> 00:13:17,360
Speaker 1: and the and then the number of bulls being low.

260
00:13:17,720 --> 00:13:19,880
Speaker 1: I think right now, the reason why the market rallies

261
00:13:19,880 --> 00:13:22,199
Speaker 1: every time there's a dip is because people are waking

262
00:13:22,240 --> 00:13:24,320
Speaker 1: up and realizing that you may actually get that vaccine

263
00:13:24,320 --> 00:13:27,360
Speaker 1: which people were skeptical about. If it continues to stretch

264
00:13:27,400 --> 00:13:30,559
Speaker 1: past the next you know, six months to nine months.

265
00:13:30,640 --> 00:13:34,680
Speaker 1: I think then my bullish optimism may be wrong. UM,

266
00:13:34,720 --> 00:13:36,560
Speaker 1: but I'm not for sure, and I guess I bring

267
00:13:36,600 --> 00:13:39,000
Speaker 1: it back to common sense if we don't go back

268
00:13:39,040 --> 00:13:43,319
Speaker 1: to a nationwide lockdown with central banks doing what they're doing. UM.

269
00:13:43,360 --> 00:13:45,840
Speaker 1: You know, I think the market is at least supported,

270
00:13:45,880 --> 00:13:48,640
Speaker 1: and I get the benefit of a little bit more

271
00:13:48,640 --> 00:13:50,760
Speaker 1: of an intermediate term time rise. And then perhaps many

272
00:13:50,760 --> 00:13:53,840
Speaker 1: of your guests who come on their show get of

273
00:13:54,080 --> 00:13:58,200
Speaker 1: Northwestern Mutual Chief investment strategies brand fantastic to catch up

274
00:13:58,200 --> 00:14:03,920
Speaker 1: with you. Thank you Kenley on joining us nap from right.

275
00:14:04,000 --> 00:14:07,040
Speaker 1: Can don't worry, I'm starting the interview, not Tom. What

276
00:14:07,120 --> 00:14:11,000
Speaker 1: have we left from the Federal Reserve yesterday evening? It's unprecedented. UM.

277
00:14:11,200 --> 00:14:16,600
Speaker 1: I think what was released yesterday was enormous insight about

278
00:14:16,640 --> 00:14:21,320
Speaker 1: the Federal Reserves, views about the US economy and also

279
00:14:21,360 --> 00:14:26,440
Speaker 1: the sensitivity to the coronavirus. It also was insights in

280
00:14:26,560 --> 00:14:31,840
Speaker 1: terms of what the expectations under scenarios of loan losses

281
00:14:31,920 --> 00:14:35,440
Speaker 1: for the banks and then in terms of return of capital.

282
00:14:35,720 --> 00:14:39,720
Speaker 1: But it was absolutely fascinating to see the narrative that

283
00:14:39,760 --> 00:14:43,640
Speaker 1: the Fed has looking out from today, not only over

284
00:14:43,920 --> 00:14:47,600
Speaker 1: the rest of this year but one, and there was

285
00:14:47,680 --> 00:14:52,000
Speaker 1: much more language and scenarios not only to a U shape,

286
00:14:52,400 --> 00:14:56,720
Speaker 1: not a V shape, but a W scenario where hopefully

287
00:14:56,760 --> 00:14:59,920
Speaker 1: not we don't from the second prize of COVID ninety.

288
00:15:00,920 --> 00:15:04,560
Speaker 1: But the FED has been thinking about this and deliberated yesterday.

289
00:15:04,880 --> 00:15:07,520
Speaker 1: So I think that's important as the economy. Can you

290
00:15:07,600 --> 00:15:10,240
Speaker 1: absolutely nail this as you always do. I mean, I

291
00:15:10,280 --> 00:15:13,480
Speaker 1: was thunderstruck by the language we saw from Randall, course

292
00:15:13,800 --> 00:15:17,000
Speaker 1: and the rest of the team. Why did they do that? Ken?

293
00:15:17,120 --> 00:15:20,520
Speaker 1: What's the back story on the why where there was

294
00:15:20,600 --> 00:15:25,640
Speaker 1: so much ambiguity and mystery out past a September tom

295
00:15:25,640 --> 00:15:29,040
Speaker 1: It's a great question, And there was two thags. One,

296
00:15:29,240 --> 00:15:33,000
Speaker 1: they had to have a narrative that linked, you know,

297
00:15:33,120 --> 00:15:36,800
Speaker 1: over ten years stress tests that didn't look at an

298
00:15:36,800 --> 00:15:41,360
Speaker 1: economy where unemployment was far greater than their adverse scenario

299
00:15:41,520 --> 00:15:47,400
Speaker 1: of ten point three unemployment. Second, we're looking at unemployment

300
00:15:47,960 --> 00:15:51,600
Speaker 1: that is not likely to recover what job growth in

301
00:15:51,640 --> 00:15:54,920
Speaker 1: the Fed's view, but over a longer period of time.

302
00:15:55,800 --> 00:15:58,600
Speaker 1: And that has led to what does this mean in

303
00:15:58,760 --> 00:16:01,960
Speaker 1: terms of the health of the banking system and what

304
00:16:02,240 --> 00:16:06,040
Speaker 1: can the FED do? Even though on the tenure framework.

305
00:16:06,320 --> 00:16:09,440
Speaker 1: They are strong, but the FED just doesn't know what

306
00:16:09,560 --> 00:16:12,000
Speaker 1: the outlook is for the rest of this year next year,

307
00:16:12,560 --> 00:16:16,960
Speaker 1: so that brings in their actions as we know, which

308
00:16:17,000 --> 00:16:23,520
Speaker 1: is to limit essentially to only dividend dividends but no

309
00:16:23,640 --> 00:16:29,720
Speaker 1: dividend increase, pullback sevent their capital return, no stock repurchases.

310
00:16:30,240 --> 00:16:33,240
Speaker 1: And by the way banks from the largest ones JP

311
00:16:33,400 --> 00:16:36,720
Speaker 1: Morgan to the to those of the thirty three. We

312
00:16:36,800 --> 00:16:41,000
Speaker 1: want to continue this conversation with the FED banks supervisors

313
00:16:41,720 --> 00:16:45,440
Speaker 1: looking at data and look for the capital plans by year,

314
00:16:45,520 --> 00:16:50,720
Speaker 1: and that's an amazing reference exactly I wanted to go

315
00:16:50,960 --> 00:16:53,240
Speaker 1: is exactly the idea of what they're going to be

316
00:16:53,320 --> 00:16:57,520
Speaker 1: doing later on. How concerning is the additional capital plan

317
00:16:58,000 --> 00:17:00,640
Speaker 1: that the FED has asked banks to read submit, which

318
00:17:00,640 --> 00:17:03,720
Speaker 1: Alice Williams of Bloomberg Intelligence has said is a broad

319
00:17:03,840 --> 00:17:06,800
Speaker 1: negative for the banking sector. Well, we already know in

320
00:17:06,920 --> 00:17:09,800
Speaker 1: terms of at least what they're planned for this year

321
00:17:09,800 --> 00:17:12,119
Speaker 1: for dividends and no buy backs. But it brings you

322
00:17:12,160 --> 00:17:16,359
Speaker 1: back to the July earnings coming up with loan losses,

323
00:17:16,440 --> 00:17:21,119
Speaker 1: and the projected loan losses on their historical framework was

324
00:17:21,480 --> 00:17:25,919
Speaker 1: four hundred thirty three billion and when you get into

325
00:17:25,960 --> 00:17:31,520
Speaker 1: the COVID nineteen scenarios, you're looking anywhere from six hundred

326
00:17:31,560 --> 00:17:35,040
Speaker 1: to over seven hundred million, you know. So it's it's

327
00:17:35,240 --> 00:17:39,560
Speaker 1: the fet is recognizing that banks are going to see,

328
00:17:39,720 --> 00:17:45,520
Speaker 1: especially in three areas related to commercial loans, credit cards,

329
00:17:45,800 --> 00:17:50,960
Speaker 1: and real estate, that there's incredible uncertainty about the economy,

330
00:17:51,040 --> 00:17:54,080
Speaker 1: the labor market, and there's going to be loan losses.

331
00:17:54,800 --> 00:17:58,840
Speaker 1: So I think the fet of course, is being realistic

332
00:17:59,320 --> 00:18:03,320
Speaker 1: to it's a new environment. And even though the even

333
00:18:03,400 --> 00:18:07,280
Speaker 1: though before March the banks look to be very strong,

334
00:18:07,680 --> 00:18:10,000
Speaker 1: they're going to be much more conservative than the c

335
00:18:10,240 --> 00:18:13,360
Speaker 1: suite or the CEOs of the larger banks about their

336
00:18:13,359 --> 00:18:16,480
Speaker 1: capital can The reaction in markets has been relatively muted.

337
00:18:16,480 --> 00:18:18,840
Speaker 1: We are seeing Wells Fargo shares down about three percent

338
00:18:18,880 --> 00:18:22,200
Speaker 1: ahead of the trading day opening, but that doesn't take

339
00:18:22,240 --> 00:18:25,600
Speaker 1: away yesterday's nearly five percent gain. It seems like people

340
00:18:25,600 --> 00:18:28,680
Speaker 1: are pretty sanguine about the measures that the FED has taken.

341
00:18:29,119 --> 00:18:31,159
Speaker 1: Do you agree or do you think that there is

342
00:18:31,359 --> 00:18:34,600
Speaker 1: more potential downside for bank stocks? So when you get

343
00:18:34,640 --> 00:18:37,480
Speaker 1: to that category of capital return, I don't think there's

344
00:18:37,520 --> 00:18:41,280
Speaker 1: big no surprises here. There is a threshold in terms

345
00:18:41,320 --> 00:18:45,560
Speaker 1: of computed net income to dividends or the payout ratio,

346
00:18:45,640 --> 00:18:49,560
Speaker 1: and Wells Fargo may not need it in terms of

347
00:18:50,119 --> 00:18:55,399
Speaker 1: their ratio NT. But overall, the market, the equity market

348
00:18:55,560 --> 00:18:59,960
Speaker 1: and investors see the banks as of really a try

349
00:19:00,160 --> 00:19:04,639
Speaker 1: the value and and trading at discounts to net tangible

350
00:19:04,680 --> 00:19:09,080
Speaker 1: book value. UH. They are the ultimate cyclical stocks in

351
00:19:09,119 --> 00:19:13,439
Speaker 1: the market, and I think looking beyond the next six months,

352
00:19:13,920 --> 00:19:18,040
Speaker 1: banks are likely to do much better and given the

353
00:19:18,119 --> 00:19:21,719
Speaker 1: protection from the FED and their capital requirements, there's not

354
00:19:21,840 --> 00:19:25,199
Speaker 1: that much more downside unless the loan classes are going

355
00:19:25,240 --> 00:19:29,080
Speaker 1: to be incredibly higher than even what the FED is projected.

356
00:19:29,920 --> 00:19:32,240
Speaker 1: One final quick question here, what's all this mean for

357
00:19:32,320 --> 00:19:34,680
Speaker 1: James Diamond, Brian Moyning and and the rest of the guys?

358
00:19:34,720 --> 00:19:37,680
Speaker 1: Mean what you know? Like what how do they respond

359
00:19:37,720 --> 00:19:41,560
Speaker 1: to this? As they wander into July, their their spirit

360
00:19:41,600 --> 00:19:44,160
Speaker 1: and comments are going to be about phase two, which

361
00:19:44,240 --> 00:19:48,200
Speaker 1: is the road to recovery. The first phase was taking

362
00:19:48,240 --> 00:19:51,119
Speaker 1: care of employees and customers. Now they have to be

363
00:19:51,200 --> 00:19:54,520
Speaker 1: bank executives and do the hard work in terms of

364
00:19:54,800 --> 00:19:58,080
Speaker 1: making sure that they can communicate the strength of their

365
00:19:58,080 --> 00:20:02,440
Speaker 1: balance sheet, their ability to manage credit risk and their

366
00:20:02,480 --> 00:20:07,080
Speaker 1: ability really to manage all the businesses, including the capital markets.

367
00:20:07,359 --> 00:20:10,240
Speaker 1: So they're going to be positive. But uh, you know,

368
00:20:10,600 --> 00:20:13,080
Speaker 1: given what we've read from the FED. Yet you know

369
00:20:13,200 --> 00:20:16,159
Speaker 1: today it's really hard for any of these banks to

370
00:20:16,240 --> 00:20:21,920
Speaker 1: look out and give any ability to project what their

371
00:20:21,960 --> 00:20:25,040
Speaker 1: businesses will do on performance by your end. So it's

372
00:20:25,040 --> 00:20:28,320
Speaker 1: gonna be a fascinating ride for six months, Tom John,

373
00:20:28,680 --> 00:20:32,200
Speaker 1: you know, just related to the dynamics of the US

374
00:20:32,240 --> 00:20:35,840
Speaker 1: economy and global how it filters to banks and as

375
00:20:35,920 --> 00:20:38,920
Speaker 1: investors as we look at the profile of these stocks

376
00:20:39,160 --> 00:20:42,400
Speaker 1: and also the return we get as investors. Couldn't agree more.

377
00:20:42,480 --> 00:20:45,439
Speaker 1: Ken really well summarized Kenneth Lee on their CFR right,

378
00:20:45,480 --> 00:20:52,480
Speaker 1: Global Director of Industry and Equity Research. This is a

379
00:20:52,560 --> 00:20:54,920
Speaker 1: joy right now to bring in bread sets Or to

380
00:20:54,960 --> 00:20:58,080
Speaker 1: stays with the CONSOL on Foreign Relations barely does justice

381
00:20:58,440 --> 00:21:01,679
Speaker 1: to coming out of Harvard ce Poet Oxford, where he

382
00:21:01,800 --> 00:21:05,200
Speaker 1: was a young guy and the papers came off the screen.

383
00:21:05,680 --> 00:21:09,280
Speaker 1: That happens very rarely that somebody writes papers and they

384
00:21:09,320 --> 00:21:12,199
Speaker 1: come out of the screen. And that's what young Setsor

385
00:21:12,320 --> 00:21:16,000
Speaker 1: did at a most early age. He served the nation

386
00:21:16,040 --> 00:21:19,480
Speaker 1: at Treasury. He joins US today. Tannem bomb fellow at

387
00:21:19,560 --> 00:21:23,520
Speaker 1: CFR Brad Richard Hass has out right now my book

388
00:21:23,520 --> 00:21:27,400
Speaker 1: of the summer, The World. It is a wonderful, simple,

389
00:21:27,800 --> 00:21:33,000
Speaker 1: straight talking book on international relations. What would you frame

390
00:21:33,200 --> 00:21:38,360
Speaker 1: is the setser future of our international relations? If it's

391
00:21:38,400 --> 00:21:42,399
Speaker 1: not Washington consensus, what is it? Oh, I'll give you

392
00:21:42,440 --> 00:21:44,760
Speaker 1: a classic dodge. I mean, I honestly think it is

393
00:21:44,920 --> 00:21:50,359
Speaker 1: way too early to tell. Uh, the choices that will

394
00:21:50,560 --> 00:21:57,240
Speaker 1: frame the post pandemic economic future haven't really been made. Obviously,

395
00:21:57,280 --> 00:22:01,880
Speaker 1: the outcome here in November matters, but I think there's

396
00:22:01,960 --> 00:22:07,560
Speaker 1: a still a broad set of policy decisions on trade,

397
00:22:08,280 --> 00:22:15,240
Speaker 1: on American alliances, on the relationship with China that will

398
00:22:15,240 --> 00:22:19,920
Speaker 1: be central to the post pandemic world, and we're only beginning,

399
00:22:20,080 --> 00:22:24,960
Speaker 1: I think to lay those out. I look, Brad, at

400
00:22:25,080 --> 00:22:28,720
Speaker 1: where we are, and after this election, the day after

401
00:22:28,760 --> 00:22:33,240
Speaker 1: this election, what will be the best practice to resurrect

402
00:22:33,400 --> 00:22:37,760
Speaker 1: our State Department from where we've been the last administration.

403
00:22:38,040 --> 00:22:42,879
Speaker 1: Whether it's a second Trump term or a new Biden term, Well,

404
00:22:42,920 --> 00:22:46,000
Speaker 1: it's a lot easier to imagine the process with a

405
00:22:46,080 --> 00:22:51,159
Speaker 1: new Biden term. Let by a I have every reason

406
00:22:51,200 --> 00:22:55,439
Speaker 1: to think that that Joe Biden would pick a very strong,

407
00:22:55,960 --> 00:23:00,359
Speaker 1: very well respected secretary of State. But I think Biden

408
00:23:00,480 --> 00:23:05,200
Speaker 1: has made it very clear that he would prioritize America's

409
00:23:05,280 --> 00:23:12,080
Speaker 1: ties to his traditional allies, and at least in the

410
00:23:12,160 --> 00:23:15,280
Speaker 1: first six months, I think that that would be a

411
00:23:15,359 --> 00:23:19,680
Speaker 1: relatively easy to orchestrate, in the sense that there would

412
00:23:19,680 --> 00:23:23,240
Speaker 1: be an enormous appetite on the part of America's traditional

413
00:23:23,240 --> 00:23:27,919
Speaker 1: allies to work more closely with a new administration. The

414
00:23:27,960 --> 00:23:30,880
Speaker 1: hard part comes when it needs to sort of define

415
00:23:30,960 --> 00:23:34,360
Speaker 1: the substance of the new relationship. But you know, there's

416
00:23:34,400 --> 00:23:36,840
Speaker 1: some pretty obvious things that Biden could do to get

417
00:23:37,720 --> 00:23:42,119
Speaker 1: relations off on a better foot. I mean, narrowing trade

418
00:23:42,200 --> 00:23:45,960
Speaker 1: conflicts to focus on China and settling some of the

419
00:23:46,040 --> 00:23:50,320
Speaker 1: outstanding trade tensions with Europe is for example, a fairly obvious.

420
00:23:51,359 --> 00:23:53,719
Speaker 1: But there's a question going forward how much we are

421
00:23:53,760 --> 00:23:56,720
Speaker 1: going to continue with the de globalization that we seem

422
00:23:56,760 --> 00:24:00,240
Speaker 1: to be talking about at least, if not effectuating over

423
00:24:00,280 --> 00:24:03,160
Speaker 1: the past few years. I'm wondering to what degree you're

424
00:24:03,200 --> 00:24:08,520
Speaker 1: seeing us rejigger supply chains away from China, redomesticate them

425
00:24:08,560 --> 00:24:10,080
Speaker 1: in a way that a lot of people have been

426
00:24:10,080 --> 00:24:15,800
Speaker 1: calling for. Well. To be honest, right now, the the

427
00:24:15,880 --> 00:24:18,960
Speaker 1: data is telling us the opposite story. So there's a

428
00:24:19,119 --> 00:24:24,880
Speaker 1: disconnect between the discussion of deglobalization and the reality which

429
00:24:24,920 --> 00:24:29,040
Speaker 1: is right now in some ways the world is more sinocentric.

430
00:24:29,960 --> 00:24:38,320
Speaker 1: US production is still down so hindered by the state

431
00:24:38,400 --> 00:24:41,680
Speaker 1: of the pandemic in the United States, while Chinese production

432
00:24:43,000 --> 00:24:46,080
Speaker 1: is more or less back at capacity. So what you

433
00:24:46,160 --> 00:24:48,399
Speaker 1: see is that this is not just for the US.

434
00:24:48,480 --> 00:24:53,000
Speaker 1: Around the world, UM imports are down, but imports from

435
00:24:53,080 --> 00:24:57,440
Speaker 1: China are down less than overall imports, So Chinese imports

436
00:24:57,480 --> 00:25:01,280
Speaker 1: are increasing in market share. And in the past couple

437
00:25:01,320 --> 00:25:05,560
Speaker 1: of months of US and Chinese data, imports from China

438
00:25:05,640 --> 00:25:09,119
Speaker 1: have been flat, whereas you know at the beginning of

439
00:25:09,160 --> 00:25:12,600
Speaker 1: the year they were down. So I think you know

440
00:25:12,640 --> 00:25:15,800
Speaker 1: in the first instance that the pandemic and the way

441
00:25:15,840 --> 00:25:19,920
Speaker 1: the pandemic has moved around the world has at least

442
00:25:19,960 --> 00:25:23,800
Speaker 1: in the second quarter, reinforced dependence on China. There are

443
00:25:24,359 --> 00:25:27,400
Speaker 1: China's the global center of mask production right now, and

444
00:25:27,800 --> 00:25:35,199
Speaker 1: everybody is welcome in that rise helping me demand. So

445
00:25:35,359 --> 00:25:38,160
Speaker 1: my my view is that if you really are serious

446
00:25:38,440 --> 00:25:45,800
Speaker 1: about reducing supply chain dependence, it will take policies that

447
00:25:46,000 --> 00:25:50,960
Speaker 1: actively promote that outcome, whether that's how the US procures

448
00:25:51,000 --> 00:25:57,800
Speaker 1: medical equipment, or whether at some other measures that support

449
00:25:57,960 --> 00:26:02,520
Speaker 1: increased resilience. UH. At the current exchange rate. With China

450
00:26:02,640 --> 00:26:07,120
Speaker 1: up and running, the natural pressure is actually towards reinforced dependence.

451
00:26:09,640 --> 00:26:12,840
Speaker 1: Just real quick, twenty seconds. Would you basically consolidate this

452
00:26:12,920 --> 00:26:15,840
Speaker 1: by saying that the tariffs have failed so far to

453
00:26:16,160 --> 00:26:20,760
Speaker 1: reduce international dependency between the U S and China. No,

454
00:26:20,800 --> 00:26:23,280
Speaker 1: I wouldn't say that. I think you know. The tariffs

455
00:26:23,400 --> 00:26:26,879
Speaker 1: clearly what the arrists failed to bring production back to

456
00:26:26,920 --> 00:26:30,800
Speaker 1: the United States, the production the tariffs were reasonably effective

457
00:26:30,800 --> 00:26:35,160
Speaker 1: and creating an incentive to move some production to Vietnam.

458
00:26:35,320 --> 00:26:38,280
Speaker 1: Imports from China would be down about a hundred two

459
00:26:38,560 --> 00:26:43,520
Speaker 1: d and fifty billion ballpark below where they were before

460
00:26:43,560 --> 00:26:46,560
Speaker 1: the tariffs. So the tariffs had an effect, but some

461
00:26:46,680 --> 00:26:52,320
Speaker 1: of that effect is sort of strangely currently being undone

462
00:26:52,880 --> 00:26:55,000
Speaker 1: by the course of the pandemic and the fact that

463
00:26:55,080 --> 00:26:58,639
Speaker 1: the Chinese productions and chain got back up and running

464
00:26:58,680 --> 00:27:02,639
Speaker 1: before everyone else. Brad Setser cfr Fellow, thank you so

465
00:27:02,720 --> 00:27:05,800
Speaker 1: much for being with us as always, wonderful to hear

466
00:27:05,800 --> 00:27:11,960
Speaker 1: your insights well. The joys this year in the past

467
00:27:12,000 --> 00:27:15,479
Speaker 1: twelve months was to swore right down to Washington, this

468
00:27:15,520 --> 00:27:19,280
Speaker 1: is pre pandemic and wander into a building and see

469
00:27:19,320 --> 00:27:25,720
Speaker 1: a wonderfully, wonderfully reinvigorated International Institute for Finance. And this

470
00:27:25,760 --> 00:27:28,760
Speaker 1: is under the leadership of Tim Adams. He is out

471
00:27:28,800 --> 00:27:32,800
Speaker 1: of Kentucky. Tim Adams serving the nation at Treasury and

472
00:27:32,880 --> 00:27:38,320
Speaker 1: took on the wonderful job at ii F, the consortium

473
00:27:38,359 --> 00:27:43,840
Speaker 1: of all the banks worldwide, truly reinvigorating that important institution.

474
00:27:43,880 --> 00:27:47,359
Speaker 1: And we're thrilled the Tim Adams could join us this morning. Tim,

475
00:27:47,520 --> 00:27:50,440
Speaker 1: how is ii F doing in a pandemic? I mean,

476
00:27:50,480 --> 00:27:55,400
Speaker 1: I guess you go virtual, but if any of our

477
00:27:55,440 --> 00:27:59,720
Speaker 1: listeners groups wants to get together, there's nothing like physical

478
00:28:00,000 --> 00:28:03,800
Speaker 1: intect is there. Hey? Tom, thanks for having me. And

479
00:28:03,840 --> 00:28:06,040
Speaker 1: that's probably the best intro I think I've ever had.

480
00:28:06,720 --> 00:28:09,879
Speaker 1: You know, about fourteen fifteen weeks ago we went virtual.

481
00:28:10,000 --> 00:28:12,800
Speaker 1: We've done forty events over the period of times six

482
00:28:12,800 --> 00:28:16,480
Speaker 1: thousand participants, so we didn't miss a beat. We're able

483
00:28:16,520 --> 00:28:19,359
Speaker 1: to function from home from our basements or garages, our attict.

484
00:28:19,760 --> 00:28:22,400
Speaker 1: I do miss my colleagues. I'm miss seeing our clients

485
00:28:22,400 --> 00:28:25,080
Speaker 1: and our around the world, and I look forward to

486
00:28:25,080 --> 00:28:27,120
Speaker 1: being able to do that, but we're out there functioning

487
00:28:27,160 --> 00:28:30,840
Speaker 1: every day. Tim, one of the great questions, and there's

488
00:28:30,880 --> 00:28:34,080
Speaker 1: a stress test in the global issue in European banking

489
00:28:34,119 --> 00:28:36,879
Speaker 1: and that in the big banks, the ones that you

490
00:28:36,960 --> 00:28:39,880
Speaker 1: spend a lot of time talking to, is we're all

491
00:28:39,960 --> 00:28:45,840
Speaker 1: waiting for consolidation. Does this disease, this virus, this pandemic,

492
00:28:46,320 --> 00:28:49,680
Speaker 1: does it speed up that process or does it delay

493
00:28:49,760 --> 00:28:55,920
Speaker 1: the process of global banking consolidation? A good question, Tom,

494
00:28:55,920 --> 00:28:58,600
Speaker 1: I think in in the short term we're all firefighting.

495
00:28:58,640 --> 00:29:01,480
Speaker 1: We're ensuring the capital continues to flow to the real economy.

496
00:29:01,520 --> 00:29:03,160
Speaker 1: But I think once we come out of that, the

497
00:29:03,240 --> 00:29:05,880
Speaker 1: arresting issue that we need consolidation, I think we're gonna

498
00:29:05,920 --> 00:29:08,240
Speaker 1: see it in Europe. We've seen a couple of announcements

499
00:29:08,440 --> 00:29:10,760
Speaker 1: UH in the Gold States over the last couple of

500
00:29:10,840 --> 00:29:12,800
Speaker 1: days and large banks consoliday, and we're going to see

501
00:29:12,800 --> 00:29:15,600
Speaker 1: in Asia and the US has been consolidating for twenty

502
00:29:15,640 --> 00:29:18,480
Speaker 1: or thirty years in that process will continue, if not accelerate.

503
00:29:19,320 --> 00:29:21,000
Speaker 1: So Tim, I guess I have to admit not being

504
00:29:21,040 --> 00:29:23,479
Speaker 1: a banking expert, but I've read a lot of the research.

505
00:29:23,600 --> 00:29:25,200
Speaker 1: This morning, I was a little bit surprised that the

506
00:29:25,880 --> 00:29:28,640
Speaker 1: you know, the Federal Reserve added some new rules that

507
00:29:28,640 --> 00:29:30,640
Speaker 1: could limit dividends and buy backs because I thought the

508
00:29:30,680 --> 00:29:33,400
Speaker 1: stress test the banks came through in pretty good shape.

509
00:29:33,400 --> 00:29:36,520
Speaker 1: I've been told by bank analys and fund managers that

510
00:29:36,560 --> 00:29:38,560
Speaker 1: the banks are much better shape now than they were

511
00:29:38,600 --> 00:29:41,719
Speaker 1: going into the two thousand and eight financial crisis. How

512
00:29:41,720 --> 00:29:44,360
Speaker 1: do you kind of play that or what's what's your

513
00:29:44,360 --> 00:29:47,600
Speaker 1: take on that? Well? Yeah, first of all, the said

514
00:29:47,640 --> 00:29:51,120
Speaker 1: said quite explicitly, where the sources strength for the economy

515
00:29:51,240 --> 00:29:54,240
Speaker 1: rather than the source of the problem. So very different

516
00:29:54,280 --> 00:29:56,520
Speaker 1: in two thousand and eight two thousand nine, and in

517
00:29:56,560 --> 00:29:59,760
Speaker 1: the intervening period, we've raised globally almost four trillion dollars

518
00:29:59,800 --> 00:30:03,440
Speaker 1: worth capital, So the banks are well capitalized, lending is up,

519
00:30:03,560 --> 00:30:06,720
Speaker 1: the US deposits are up, and we're channeling resource to

520
00:30:06,760 --> 00:30:09,880
Speaker 1: real economy. But distress does showed that we need to

521
00:30:09,880 --> 00:30:16,080
Speaker 1: continue to husband resources for potential downtime going forward. So

522
00:30:16,120 --> 00:30:20,000
Speaker 1: it's a sense that this is a precautionary measure, because

523
00:30:20,000 --> 00:30:21,280
Speaker 1: says I look at some of the big banks that

524
00:30:21,400 --> 00:30:23,720
Speaker 1: JP Morgan's, the Bank of Americans of the world, the

525
00:30:23,760 --> 00:30:28,920
Speaker 1: balance sheets look pretty rock solid to me. I completely agree.

526
00:30:28,960 --> 00:30:31,920
Speaker 1: I think this is being just cautionary. That's the fed's job,

527
00:30:32,200 --> 00:30:35,000
Speaker 1: and I must applauded to FED. J. Pale and Randy

528
00:30:35,080 --> 00:30:37,720
Speaker 1: Quarrels another done a remarkable job in this period of time.

529
00:30:37,920 --> 00:30:40,480
Speaker 1: It is precautionary. I think it makes the makes sense

530
00:30:40,480 --> 00:30:42,680
Speaker 1: that the stock price had taken up this morning. We

531
00:30:42,720 --> 00:30:45,400
Speaker 1: saw the same thing in Europe when similar measures are

532
00:30:45,400 --> 00:30:47,960
Speaker 1: put in place. But it is time for caution, and

533
00:30:48,000 --> 00:30:52,520
Speaker 1: this is extreme caution. I applaud to FED efforts. Tim Adams,

534
00:30:52,520 --> 00:30:59,080
Speaker 1: how is the relationship of our August politicians with the bankers?

535
00:30:59,320 --> 00:31:01,880
Speaker 1: What was it five years ago? Four years ago we

536
00:31:01,960 --> 00:31:06,080
Speaker 1: had bankers lined up swearing in in Congress and all

537
00:31:06,120 --> 00:31:11,160
Speaker 1: that is the relationship proved a bit. Oh, the relationship

538
00:31:11,240 --> 00:31:13,280
Speaker 1: is much better and we have a great relationship with

539
00:31:13,320 --> 00:31:17,040
Speaker 1: the administration also members of Congress. You know, again, Tom,

540
00:31:17,080 --> 00:31:20,000
Speaker 1: we're part of the solution. We're channeling capital to the

541
00:31:20,040 --> 00:31:22,920
Speaker 1: real economy. Lending is up, deposits are up. You know,

542
00:31:23,000 --> 00:31:27,080
Speaker 1: we have visions in place for relief, for auto relief.

543
00:31:27,160 --> 00:31:30,120
Speaker 1: So yes, well, no, that that's very fair that the

544
00:31:30,120 --> 00:31:33,600
Speaker 1: Trump administration I think has been very much pro sort

545
00:31:33,640 --> 00:31:36,960
Speaker 1: of corporation. And while students that how do you, Tim,

546
00:31:37,200 --> 00:31:40,880
Speaker 1: and with your wonderful political attun nous, how do you

547
00:31:41,240 --> 00:31:46,720
Speaker 1: feel the banks will adapt to the protests across this

548
00:31:46,960 --> 00:31:50,640
Speaker 1: nation that are much more social, Not so much black

549
00:31:50,680 --> 00:31:54,440
Speaker 1: lives matter, but all lives matter. How will the banks

550
00:31:54,840 --> 00:31:59,920
Speaker 1: immediately adapt to that? That's a great question, Tom. You know,

551
00:32:00,000 --> 00:32:03,400
Speaker 1: if you look at Jamie Diamond, who headed the Business

552
00:32:03,560 --> 00:32:06,960
Speaker 1: poun Table for the past three years, he among other

553
00:32:07,000 --> 00:32:09,880
Speaker 1: corporate leaders are looking for ways to promote diversity within

554
00:32:09,920 --> 00:32:13,520
Speaker 1: their own institutions. We need to reach out to forgotten communities,

555
00:32:13,640 --> 00:32:17,440
Speaker 1: those who feel that not only economy but socially they've

556
00:32:17,440 --> 00:32:19,760
Speaker 1: been left behind. We need to do a better job there,

557
00:32:19,800 --> 00:32:22,600
Speaker 1: without question, and that's made the real challenge before us.

558
00:32:22,800 --> 00:32:25,360
Speaker 1: What I find Tim HadAM so important here has There's

559
00:32:25,400 --> 00:32:28,800
Speaker 1: been some true leadership and indeed governance on this by

560
00:32:28,840 --> 00:32:33,160
Speaker 1: selected bankers, but it's got to get much broader within banking,

561
00:32:33,200 --> 00:32:36,800
Speaker 1: even farther beyond the the II F Are you optimistic

562
00:32:36,840 --> 00:32:40,560
Speaker 1: bankers could do that? I'm optimistic that we can be

563
00:32:40,600 --> 00:32:43,080
Speaker 1: a part of the solution, without question. I've not a

564
00:32:43,160 --> 00:32:45,400
Speaker 1: number of some calls this week where the top topic

565
00:32:45,520 --> 00:32:47,640
Speaker 1: was how can we play a positive role in society?

566
00:32:47,680 --> 00:32:50,680
Speaker 1: Not just in capital formation and lending, but how can

567
00:32:50,720 --> 00:32:55,120
Speaker 1: we be a real agent of change? Yeah, yes, absolutely.

568
00:32:55,400 --> 00:32:57,680
Speaker 1: One of the reasons folks, I hope this pandemic ends

569
00:32:57,760 --> 00:32:59,720
Speaker 1: is so I can do a Swarry in Washington with

570
00:32:59,760 --> 00:33:02,840
Speaker 1: Tim Adams in the ii F. It is an important

571
00:33:02,880 --> 00:33:07,080
Speaker 1: meeting with a lot of really really good expert discussion.

572
00:33:07,120 --> 00:33:11,320
Speaker 1: Tim Adams he is the CEO of the International Institute

573
00:33:11,680 --> 00:33:15,720
Speaker 1: for Finance. Thanks for listening to the Bloomberg Surveillance podcast.

574
00:33:16,080 --> 00:33:21,000
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

575
00:33:21,160 --> 00:33:25,480
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom

576
00:33:25,600 --> 00:33:29,480
Speaker 1: Keane before the podcast. You can always catch us worldwide.

577
00:33:29,920 --> 00:33:31,000
Speaker 1: I'm Bloomberg Radio