Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily
Speaker 1: we bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com and of course on the Bloomberg Right now.
Speaker 1: The Mayor of London City, Khan, is someone that we
Speaker 1: have spoken too many times and with it the celebration
Speaker 1: of the London economy. What he knows is the United
Speaker 1: Kingdom celebrates something America can't do, which is the return
Speaker 1: of Premier League football. His beloved Liverpool will go out
Speaker 1: in the field, no doubt, with pay cuts involved for
Speaker 1: all the players. But it's so grim and his London.
Speaker 1: The Mayor has taken a pay cut to signify to
Speaker 1: the United Kingdom the urgent need for revenues. It is
Speaker 1: a story sory for America as well. Mayorica, and thank
Speaker 1: you so much for joining us today. How urgent is
Speaker 1: it the Prime Minister Johnson assist your great city. It's
Speaker 1: really important. It's a pleasure to join you and Lisa
Speaker 1: and Bloomberg TV, but it's really important the governments across
Speaker 1: the globe, including my country, understand that the recession we're
Speaker 1: facing could very soon turn into a depression, and that's
Speaker 1: why we need an active industrial strategy as we come
Speaker 1: out of lockdown. And although the government has actually been
Speaker 1: pretty good in helping businesses in relation to staff being furloughed,
Speaker 1: they've been pretty good in the short term, they need
Speaker 1: to realize that as businesses come out of the lockdown,
Speaker 1: they need additional assistance as well. I'll give you two examples, Tom.
Speaker 1: Many public authorities have lost their tax basis from people
Speaker 1: who used to pay what we call council tax now
Speaker 1: in their jobs not paying those tax is. But also
Speaker 1: businesses who used to pay business rates have stopped paying
Speaker 1: business rates because their businesses have basically been incubated for
Speaker 1: the last three months. That means, you know, governments haven't
Speaker 1: Municipal governments haven't got the funds to provide services. So
Speaker 1: I've led by example taken a pack up. But we
Speaker 1: need the government to step in for the medium to
Speaker 1: long term to support not just municipal governments but businesses too,
Speaker 1: and I think governments across the globe will have to
Speaker 1: do this. I'm reading wolf Hall right now, Mervin King
Speaker 1: and I are rereading this Magisterial Hillary Mantell book, and
Speaker 1: it's the spirit of London Mayor in a trading environment
Speaker 1: of the sixteenth century, tell us about the need to
Speaker 1: reopen trade to London and goods and services. How critical
Speaker 1: is it to get the euros start back. How critical
Speaker 1: is it to get the airlines up and running again.
Speaker 1: It's crucial. I mean. One of the reasons why I
Speaker 1: say this, and I know you're speaking to me from
Speaker 1: New York, but you'll forgive me Learning is the greatest
Speaker 1: city in the world is because of the people who
Speaker 1: come to our city who make our city great, the students,
Speaker 1: the tourists, the investors, their businesses, their sports fan and
Speaker 1: that stopped over the last four months, and we need
Speaker 1: that to return. I'm very concerned that as the new
Speaker 1: academic year begins, many undergraduates may not come. I'm very
Speaker 1: concerned those who are multinationals who have stopped sending their
Speaker 1: staff here maybe risk averse to come in here. I'm
Speaker 1: very concerned some of our world leading theaters, which have
Speaker 1: been closed for the last four months, may not reopen
Speaker 1: until next year. And you'll know, the world is a
Speaker 1: smaller place now. Globalization has some disadvantages, but many advantages,
Speaker 1: and our strength is our diversity, and that comes from
Speaker 1: our visitors and as part of our DNA. And it's
Speaker 1: really important we safely safely open our doors again to visitors,
Speaker 1: to businesses and to investors, because we want to return
Speaker 1: to not business as usual. But I think a new
Speaker 1: normality will be recognized that actually, what this pandemic has
Speaker 1: done is shut a spotlight on the fragility of society
Speaker 1: and of our business model, and we need to make
Speaker 1: sure the new normal addresses those issues. American I will
Speaker 1: say that our colleague Jonathan Faroe reminds us of the
Speaker 1: pre eminence of London on a regular basis. I do
Speaker 1: wonder going forward about some of the social unrest that
Speaker 1: we're seeing in the biggest cities around the world, with
Speaker 1: Black Lives Matters protests in London that have been ongoing,
Speaker 1: and I'm wondering how this complicates issues that you've been
Speaker 1: calling for more police at a time with lower budgets
Speaker 1: and a time with increasing pressure on that presence. How
Speaker 1: do you go forward here? You know the thing, I'm
Speaker 1: not sure if your American viewers realized this, but the
Speaker 1: brutal killing of George Floyd didn't just have an impact
Speaker 1: in Minnesota, Minneapolis and the USA, an impact around the world,
Speaker 1: And if you're a black Londoner you could relate to
Speaker 1: the awful way George Floyd was killed, but also black
Speaker 1: people across the world could because they endure racism, discrimination
Speaker 1: and inequality. So although I fully support the Black Lives
Speaker 1: the Black Lives Matter movement, my concern has being that
Speaker 1: during a global pandemic, when you're asking people to keep
Speaker 1: their social distance, we're asking people to stay at home
Speaker 1: where they can. What they shouldn't be doing is protesting
Speaker 1: as they are allowed to do, because that may inadvertently
Speaker 1: lead to the virus spreading. But separately, you're rightly so
Speaker 1: this is highlighted that actually, even in London, the most
Speaker 1: progressive city in the world, there's racism against black people,
Speaker 1: discrimination against black people, and inequality faced by black people.
Speaker 1: And those of us in positions of parent influence can't
Speaker 1: be tone deaf to that. We've got to understand that,
Speaker 1: empathize with that, but also take steps to address that.
Speaker 1: This is a moment which I think we'd kick ourselves
Speaker 1: if we didn't take advantage of to address the structural
Speaker 1: racism that's that exist around the world in black people
Speaker 1: now too much to talk about American We truly look
Speaker 1: forward to seeing you when we revisit London soon and
Speaker 1: again a city con the Mayor of London. Right now,
Speaker 1: we have good news and that is Torsten Slock of
Speaker 1: Deutsche Bank. He and Peter Hooper have been doing absolutely
Speaker 1: spectacular work on a global basis, thinking about where we
Speaker 1: are and thinking about the ramifications of all these actions
Speaker 1: by central banks. And one of them is is overused
Speaker 1: word zombie, the idea of a zombie company, a zombie nation,
Speaker 1: or even a zombie global economy. Dr Slack joins us
Speaker 1: this morning, Torston Slack, what is the Deutsche Bank distinction
Speaker 1: when you address the word zombie is the definition of
Speaker 1: a zombie company is a company that simply has so
Speaker 1: much depth, so much leverage, that they do not have
Speaker 1: enough profits to pay for the debt servicing costs. And
Speaker 1: the problem is that since the Finanti crisis without NADA nine,
Speaker 1: we're interest rates were very low and zero. It incentivized
Speaker 1: the corporate sectors to go out and borrow. It incentivized
Speaker 1: an increase in leverage across the non financial corporate sector.
Speaker 1: So the consequence was that pet levels have gone up
Speaker 1: for the last ten years. And this was the problem
Speaker 1: even before the pandemic arrived here in March. And therefore,
Speaker 1: what was the answer from the pandemic once the virus
Speaker 1: came from pology Megan sydemic. Well, the answer was that
Speaker 1: when when that was no cash flow coming into the
Speaker 1: corporate sector, it was substituted by more debt, by more
Speaker 1: loans in i G. High yields across the board, commercial paper.
Speaker 1: And therefore we have just magnified some of these problems
Speaker 1: that we already had with a significant yf the economy
Speaker 1: being something companies even before the virus came along in March. Okay,
Speaker 1: but tourist to its stempre terian, we've got to clear
Speaker 1: the markets. Are we just simply afraid to go bankrupt? So,
Speaker 1: I mean, the problem here is that the BIS started
Speaker 1: looking at this a few years ago and we have
Speaker 1: simply just updated what they have done. If you look
Speaker 1: at the number of listed companies on exchanges in the
Speaker 1: U it's not about eight thousand companies. And look at
Speaker 1: the share of those that have higher depth servicing costs
Speaker 1: than they have profits and here processes profits before interest payments.
Speaker 1: That means that the interest coveras ratio for those companies
Speaker 1: is below one. Well, that share has now gone up,
Speaker 1: so that of all listed companies do now have that
Speaker 1: are now in a situate they're not able to service
Speaker 1: their death And this is of course something that becomes
Speaker 1: more problematic because the bigger share you have of companies
Speaker 1: that don't have enough revenue, the more it would actually
Speaker 1: hold down the potential growth rate in economy, the more
Speaker 1: it will weigh on the outlook for the economy and
Speaker 1: long run welfare and long run limits of standards of
Speaker 1: living over the next few years. Sosten, This is the
Speaker 1: key question whether we are sacrificing longer term higher growth,
Speaker 1: higher productivity for stability now in the near term. And
Speaker 1: as we repeat that again and again and again every
Speaker 1: time we come across a contraction, a pant a, make
Speaker 1: a recession, whatever it might be, does it make it
Speaker 1: more difficult to make the opposite decision. That's exactly right, John,
Speaker 1: It's a trade off between the short run. Of course,
Speaker 1: everything that fit did was correct. They did save the
Speaker 1: financial system, they did stabilize financial markets that have made
Speaker 1: sure that we don't have this significant amount of volatility intervelence.
Speaker 1: We had in much, but it has come with a
Speaker 1: number of side effects, and one side effect is exactly
Speaker 1: this issue that the lack of revenue. When the doors
Speaker 1: closed in corporate America and there were no dollars coming
Speaker 1: into the bottom line, companies turned around to borrowing markets
Speaker 1: and basically started borrowing in corporate I G. And high
Speaker 1: yields and commercial paper markets. And that was essentially magnifying
Speaker 1: a problem that we already had going into the virus.
Speaker 1: So you're absolutely right, this is increasing the share of companies.
Speaker 1: This is not only the US, this is also in Germany, France, UK,
Speaker 1: around the world. The few of course, is that we
Speaker 1: will begin to look somewhat similar to Japan in the
Speaker 1: nine nineties, where you also had very high dead levels
Speaker 1: in the corporate sector. And this is the problem down
Speaker 1: the road that can companies survive these significant amounts of debtload,
Speaker 1: the significant amounts of leverage that we now have that
Speaker 1: are being magnified accelerated upwards because of the response from
Speaker 1: the pharaohs. There's an irony baked in here. Tourist in
Speaker 1: or the more that are surprises are kept up and
Speaker 1: these companies are kept afloat with respect to higher debt loads,
Speaker 1: the more people can have confidence in investing in these
Speaker 1: even though growth is slowing. Do you expect that paradigm
Speaker 1: to continue, for these zombies to be kept alive and
Speaker 1: not allowed to go bankrupt period full stop? To Tom's point,
Speaker 1: allowing the asset prices to continue to climb despite the
Speaker 1: lack of growth, You're right, Lea. I mean, think about
Speaker 1: the FATS response to what has sort of trickered the
Speaker 1: lift in the share of companies that are zombies or
Speaker 1: they don't have enough revenue to pay for the interest
Speaker 1: statements that was triggered by low interest rates. And now
Speaker 1: not only do we again have low interest rates, but
Speaker 1: we actually also have the FAT actively buying I G
Speaker 1: and buying phone angels. And what does that mean. That
Speaker 1: means that they have also incentivized even furthermore credit extension
Speaker 1: and more leverage increase in the corporate sector. And of
Speaker 1: course you're non financials in particular have therefore resolved the
Speaker 1: problem with the lack of revenue by adding on mode.
Speaker 1: So somewhat ironically, we have exactly as Jonger said, We've
Speaker 1: been making some trade halls. In the short run, we're
Speaker 1: stabilizing things, but we still have this very important problem
Speaker 1: that we need to look at the fundamental structure of
Speaker 1: the corporate sector. And again the comparisons with Japan. Before
Speaker 1: it was all about inflation, and that's of course also
Speaker 1: still a debate, but now they're more parallels with Japan
Speaker 1: that are coming into the radar screen. That becomes very
Speaker 1: important for investors to your thinking about is it all
Speaker 1: starts in the SUP or all list stocks in the
Speaker 1: US that needs to go up, or are there very
Speaker 1: important sector differences in terms of this leverage increase that
Speaker 1: we have seen in some Texas and not another toast
Speaker 1: And this is not capitalism. We should not pretend it is.
Speaker 1: What is this So I would say, I know this
Speaker 1: might sound very academic, but I would say this is
Speaker 1: interfering with the process of creative destruction. I mean creative
Speaker 1: destruction is of course that some companies go under. Some
Speaker 1: company is open up every day on a normal day,
Speaker 1: that's about one thousand, six hundred companies in the U
Speaker 1: S that go out of business. And if you have
Speaker 1: one thousand, six hundred companies that go out of business
Speaker 1: every day in the US. Now that artificially i G
Speaker 1: spreads have been narrowed and also, credit spreads have been
Speaker 1: narrowed and the cost of capital have been lowered, which
Speaker 1: makes complete sense from a business side perspective. That's just
Speaker 1: beginning to open up a lot of questions. What does
Speaker 1: this mean for the process of creative instructions of companies
Speaker 1: give starting and companies going on too, And what does
Speaker 1: that mean then how we think about how dynamic the
Speaker 1: US economy normally is. It's already the most dynamic economy
Speaker 1: in the world, is able to generate a lot of
Speaker 1: growth and innovestative ideas and products and ways of being
Speaker 1: much more productive and other countries. But the problem is
Speaker 1: here that now, well, how is that process actually looking
Speaker 1: going forward? If you shot me have a share and
Speaker 1: a rising share of the corporate sector that is just
Speaker 1: no longer able to do those significant increases and advances
Speaker 1: innovations and in productivity that we have been so used
Speaker 1: to for all these years. Tost and fascinating conversation on
Speaker 1: one that we are going to have to continue for
Speaker 1: a tome to com Tustin's look that of Deutsche Bank.
Speaker 1: John you nicely framed that is the economics and maybe
Speaker 1: the financial discussion of a Morgan Stanley or other optimists
Speaker 1: that are out there, But then there is the reality
Speaker 1: of opening up and no one wants to open up
Speaker 1: with the agony that we've seen down south of large
Speaker 1: gatherings which maybe lead to potential infection. The Lieutenant Governor
Speaker 1: of the Empire State has provided leadership on this with
Speaker 1: her Governor Cuomo to open up in a responsible way.
Speaker 1: Lieutenant Governor Kathy Hokel joins us this morning. Lieutenant Governor,
Speaker 1: I want you to give us one anecdote of what
Speaker 1: it's like to open up state that people in the
Speaker 1: bigger cities can understand. What is one of those tension
Speaker 1: points that's been instructive for you. Well, thank you for
Speaker 1: having me on the show again. And I have been
Speaker 1: all over upstate in person, Rochester down to Jamestown. I
Speaker 1: was in Look Tiny Only and yesterday, and I'll tell
Speaker 1: you what I see. I'm seeing business owners who understand
Speaker 1: the gravity of the situation. They have been shut down,
Speaker 1: they've lost their income for three and a half months.
Speaker 1: In order to them to survive, they know that they
Speaker 1: need to first of all, create an environment that's safe,
Speaker 1: that you walk in the door, that you are six
Speaker 1: ft apart from other customers, that everybody wears the mask
Speaker 1: or you don't walk in the door, and there's disrespected
Speaker 1: on the counter shops. I've seen it everywhere. Because here's
Speaker 1: where this is fast. We are all aligned in our interests, governments,
Speaker 1: those of us who have been leading this charge. Governor
Speaker 1: Cromo first of all, wants to make sure we get
Speaker 1: it right. The business owners want to get it right.
Speaker 1: They do not want to be in the news as
Speaker 1: being the next hot spot or being uh blown in
Speaker 1: by their employees or customers as being violators. So the
Speaker 1: public interests, the business interests, and the government interests are
Speaker 1: all aligned here to get it right. So I saw
Speaker 1: countless examples walking down these streets. Business is proud to
Speaker 1: put up they're open for business signs and whilst me
Speaker 1: people back and they are being smart about it. And
Speaker 1: that's all it takes. This is not a complicated concept
Speaker 1: to doing what we've been doing while we've had this slow,
Speaker 1: well thought out, methodical reopening. And it works here. It
Speaker 1: works here, Lieutenant Governor. We hope it continues to work.
Speaker 1: But you know, we all know the hard work of
Speaker 1: this state can be undone by failures out swear, what
Speaker 1: are you doing to protect New York from the outbreaks
Speaker 1: that we're seeing in other states across this country. Yeah,
Speaker 1: the irony of this is just incredible to consider that
Speaker 1: just a few months ago we're the epicenter of this pandemic,
Speaker 1: and other states for telling their residents not to come
Speaker 1: to New York. Or if you're a New Yorker driving
Speaker 1: the Floridas for your vacation, you were told you had
Speaker 1: a quarantine for fourteen days. So it is extraordinary in
Speaker 1: the turnaround and the fact that we are now have
Speaker 1: the state with the lowest rate of in effective So, yes,
Speaker 1: we are concerned. The Governor addressed this yesterday when asked
Speaker 1: about what about places like Florida what we have in
Speaker 1: New York. It's a lot of New York residents have
Speaker 1: gone to Florida that becomes Snowberg. I guess they're technically
Speaker 1: Florida residents then, but they come back to their summer
Speaker 1: homes uh in the city, the Long Island area or upstate.
Speaker 1: And unfortunately, we are starting to see paces where they're
Speaker 1: bringing the virus now to us. And so the governor
Speaker 1: is weighing all his options to speaking to experts about
Speaker 1: what rights we have to protect us because we have
Speaker 1: suffered too long and we've come back on a long,
Speaker 1: slow road to get it right, and we're not going
Speaker 1: to take any steps backwards because of what's going on elsewhere.
Speaker 1: If we can, we can help it. You know, New
Speaker 1: Yorkers cannot go through this twice. We will get through
Speaker 1: this because we're continuing to ask people to follow the
Speaker 1: social distinct, wear the mask, and we won't end up
Speaker 1: like the other states. They're literally putting a halt order
Speaker 1: on some of the reopenings and that's that's psychologically devastating
Speaker 1: and it's horrible for the economy. Lieutenant Governor, how close
Speaker 1: are we to having to actually cut services as a
Speaker 1: result of the budget deficits in New York State? It's
Speaker 1: almost inevitable. I mean, the only life time that we're
Speaker 1: waiting for is have Congress and the President understand that
Speaker 1: you cannot have a full economic recovery in this nation
Speaker 1: without helping out states like New York there were the
Speaker 1: hardest hit. We are an economic engine that has to
Speaker 1: get some fuel back into us. And when we get
Speaker 1: that money and we get that assistance, which we believe
Speaker 1: should happen, and don't be playing politics. This is not
Speaker 1: the time to talk about red states and blue states.
Speaker 1: We are an important entity and important part of the
Speaker 1: comeback for the nation, not just our state. So there
Speaker 1: would be cutbacks. The reality is there will be cutbacks
Speaker 1: if we don't get that support from the settle government.
Speaker 1: But the governor has had conversations with the President. We're
Speaker 1: speaking to our leaders in Congress, and we hope they
Speaker 1: get it that we all want this economy to come back.
Speaker 1: And I heard you speaking about, uh, you know that
Speaker 1: the ten year decline, and you know it's going to
Speaker 1: take a long time, and it doesn't have to. We
Speaker 1: can come back much quicker and supports to settle government
Speaker 1: spending with revenues from New York since we already donor state.
Speaker 1: But we just need a little help during this time,
Speaker 1: and we expected to get it, Lieutenant Governor, very quickly.
Speaker 1: Here I had the clearest memory of the riots of
Speaker 1: nineteen sixty four in Rochester, New York. It has been
Speaker 1: a path with the courage of Nelson Rockefeller and others
Speaker 1: to provide for African Americans in this nation and in
Speaker 1: this state. Are you going to see a national holiday
Speaker 1: off of what we saw from your governor a few
Speaker 1: days ago on Juneteenth, two thousand and twenty. I can
Speaker 1: only speak to what we're doing in the state of
Speaker 1: New York, but I will tell you many times, when
Speaker 1: New York leads, others follow, whether it's the lgbt Q rights,
Speaker 1: whether it's women's rights, whether it's maybe many of the
Speaker 1: civil rights initiatives, labor rights, environment rights, all those movements
Speaker 1: started in New York. And I hope that the rest
Speaker 1: of the the nation will be aware of what we did
Speaker 1: in New York by finally giving the recognition that the
Speaker 1: African Americans deserved to have as part of an important
Speaker 1: part of their history, which was the Emancipation Proclamations finally
Speaker 1: being uh enacted and actually executed in Texas, which was
Speaker 1: a two year hold up. This is I've marched in
Speaker 1: June Chief's Paris for the last twenty five years, and
Speaker 1: I'm so delighted to see a year after year, more
Speaker 1: people coming out, more people understanding this history and understanding
Speaker 1: that the root of racism goes back centuries and it's
Speaker 1: a time to right that wrong and have a have
Speaker 1: an acknowledgment of that dark part of our history, but
Speaker 1: also realizing that we can come into a brighter area
Speaker 1: era if we become cognizant of that history and why
Speaker 1: that may still be the remnists of that are still
Speaker 1: affecting society today. Why there is systemic racism that goes
Speaker 1: back to that time. Kathy. I think we all hope
Speaker 1: we can make more progress. Fantastic to catch up with you,
Speaker 1: as always, Lieutenant Governor of New York, Kathy how called
Speaker 1: there on reopening at an important day for this nation.
Speaker 1: Let's bring in about Michael. This is this is someone
Speaker 1: that we know so well from our talk on the
Speaker 1: yield market and course on the show The Real Yield.
Speaker 1: Look for that coming up soon, folks, Bloomberg Television. Bob Michael.
Speaker 1: Where is the yield? Bob Michael? When do I get
Speaker 1: a real yield back? I know it just seems to
Speaker 1: have been another one of these casualties of the crisis.
Speaker 1: I guess we'll know things are further returning to normal
Speaker 1: when it comes back, because by then all the value
Speaker 1: will have been squeezed out of the bond market. Well,
Speaker 1: you sound like you've become more constructive in the last
Speaker 1: couple of weeks. Can you walk us through whether you
Speaker 1: have and why for sure we have and when we
Speaker 1: look at the overwhelming response by policy makers, both monetary
Speaker 1: and on the fiscal side. It's been dramatic. It's not
Speaker 1: just been a handful of developed markets. It's been in
Speaker 1: the emerging markets. In the last couple of days, you've
Speaker 1: had rate cuts out of Indonesia, You've had a rate
Speaker 1: cut out of Brazil. Uh, you had a rate cut
Speaker 1: out of Russia. I looked at where Brazil central bank
Speaker 1: rates are there two and a quarter percent. That's where
Speaker 1: the US was a year ago. So the policymakers have
Speaker 1: no interest in watching the pandemic continue to shut down
Speaker 1: the global economy. They're doing everything they can. Is this
Speaker 1: a case if there is no alternative for you that
Speaker 1: you've got to put this money to work and need
Speaker 1: to return and the assets that he used to get
Speaker 1: a return on just down there anymore, Bob? Or is
Speaker 1: it something more constructive than that. Um, it's a combination
Speaker 1: of both. I love Torsten. I was a little disappointed
Speaker 1: that in his list of zombies he didn't list the
Speaker 1: bond market, because that's where we're headed. Central banks are
Speaker 1: going to control the level of funding across the system,
Speaker 1: and it's not just front rates. With yeld curve control
Speaker 1: and unlimited amounts of quantitative ease, they can go across
Speaker 1: the curve and control the funding rate to their government,
Speaker 1: and then with purchases of credit, UH, they're controlling the
Speaker 1: funding rate UH to the corporate world as well. And
Speaker 1: of course in the US you're also seeing it with
Speaker 1: household through toalth programs and other things. So there is
Speaker 1: a commitment to bring rates down ultra low across the
Speaker 1: system until we close the output gap, and that's years away.
Speaker 1: What's the playbook then for investment for investing in a
Speaker 1: zombie world at a zombie market, both bonds as well
Speaker 1: as households and companies. Well, I think last time I
Speaker 1: was on, I said, I'm sure Tom has his Samuelson
Speaker 1: lying around, and I'm sure one of the laws in
Speaker 1: there was don't fight the Fed, and I'm not fighting
Speaker 1: the central banks or policy makers in aggregate. So rates
Speaker 1: are coming down, Uh, they've come down a lot. They're
Speaker 1: going to stay low for a while. We are going
Speaker 1: to see an acceleration and growth. But until that acceleration
Speaker 1: materially closes the output gap and you start to see
Speaker 1: any inflationary pressure, you're not going to see any talk
Speaker 1: of of raising rates. UM. So I think what you
Speaker 1: do is you can continue to extend out into credit
Speaker 1: and you try to find UH companies and borrowers that
Speaker 1: can operate UH in a world and an economy that's
Speaker 1: that's running out a fraction of what it used to. Okay, Bob,
Speaker 1: but this is critically important. And you mentioned Paul Samuels
Speaker 1: in it was a different economy, it was a different America.
Speaker 1: And the belief that's out there is your world is
Speaker 1: gains to the elite. How do we have our finance
Speaker 1: system give us gains that Paul Samuelson saw through the
Speaker 1: nineteen fifties and into the nineteen sixties for the good
Speaker 1: of society. Yeah, and and and this is one of
Speaker 1: the the effects of the overwhelming monetary response. The initial
Speaker 1: reaction is to inflate asset prices, and of course the
Speaker 1: holders of assets are in the upper echelon of the economy,
Speaker 1: and it could widen the gap between the halves and
Speaker 1: the have not. I don't know that monetary officials could
Speaker 1: have or should have done anything better. As I said
Speaker 1: in the past, I think they should start shifting the narrative.
Speaker 1: And you're seeing that out of Christine Legarde and the
Speaker 1: e C. B which is what do you want us
Speaker 1: to do? We're not the first policy response, we're the
Speaker 1: second policy response. The first policy response was for government
Speaker 1: officials to shut down their economy. Then we responded by
Speaker 1: lowering rates and creating liquidity and funding for the system.
Speaker 1: So we now have brought rates down to a level
Speaker 1: where public and private borrowers can do something with it
Speaker 1: as they recover. Let's see what they do with it.
Speaker 1: Focus your attention. There are companies going to borrow and
Speaker 1: buy dock shares and raise dividends and make acquisitions? Or
Speaker 1: are they going to invest in cat bax? And how
Speaker 1: about on the government side, what are we doing there?
Speaker 1: Are we just going to pile up the deficit? Are
Speaker 1: we going to actually invest in healthcare and infrastructure? So
Speaker 1: I think the narrative needs to change a bit here, Bob.
Speaker 1: Perhaps the narrative needs to also change around the expected
Speaker 1: returns profile at a time when you've got a lot
Speaker 1: of pensions still shooting for that seven percent bogie? What
Speaker 1: is an appropriate bogey right now? Given the interest rate environment,
Speaker 1: and given that strategy that you're just talking about investing
Speaker 1: companies that that can maneuver in a low growth world. Well,
Speaker 1: you're right that there are pension funds and their insurance
Speaker 1: companies that have long dated liabilities they have to match.
Speaker 1: And what's been interesting to me is the FED support
Speaker 1: of the curve has been in the front end, somewhat
Speaker 1: in the intermediate part of the curve, but they're dialing
Speaker 1: down their purchases in the long end. So we're seeing
Speaker 1: three curves of and the law and to me looks
Speaker 1: as though it's being left to plan sponsors, so the
Speaker 1: pension funds and insurance companies to negotiate an acceptable rate
Speaker 1: with some of the borrowers in the market. So so
Speaker 1: long credit, I don't know that you're going to get
Speaker 1: seven and a half percent there. I think you're gonna
Speaker 1: be lucky to be able to book in in the
Speaker 1: three area for an ongoing period of time. And I
Speaker 1: think that forces you to accept that everyone is committed
Speaker 1: to a recovery. UH. Other markets will continue to appreciate
Speaker 1: and this isn't the proper environment to de risk in
Speaker 1: UM so continue to hold the things that have a
Speaker 1: bit more upside, whether it's equities or privates or alternatives.
Speaker 1: And and of course that means an implicit face that
Speaker 1: policy makers will continue to get it right, Hey, Bob,
Speaker 1: and let's send with the important stuff, shall we. Sixty
Speaker 1: is left on the clock. Can we get a score
Speaker 1: from you for this weekend for Liverpool Everton? Do you
Speaker 1: realize that Premier League football has shut down but the
Speaker 1: bond market has continued to operate. Now I'm a buyer
Speaker 1: of both those markets, so the anticipation has been mouth
Speaker 1: watering for me. I'm expecting three mail Liverpool. Bob Michael
Speaker 1: always appreciate it. Tom. Do you see how that worked there?
Speaker 1: When he switches away from the bond market he gets
Speaker 1: to Liverpool, the energy just comes comes up a little bit. Yeah,
Speaker 1: I got erry. Nil. Folks were jargon free. Nil means
Speaker 1: zero like shut out. I think most people understand that. Tom.
Speaker 1: To be honest with you, Bob Michael, JP Morgan, Bob
Speaker 1: always fantastic to catch up with you. Lisa has got
Speaker 1: to get used to this. This is going to go
Speaker 1: on for the next couple of months. Thanks for listening
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews
Speaker 1: on Apple Podcasts, SoundCloud, whichever podcast platform you prefer. I'm
Speaker 1: on Twitter at Tom Keane. Before the podcast, you can
Speaker 1: always catch us worldwide. I'm Bloomberg Radio