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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Along

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Speaker 1: with my co host of Bonnie Quinn. Every business day,

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Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,

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Speaker 1: along with essential market moving news. Find the Bloomberg Markets

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Speaker 1: Podcast on Apple Podcasts or wherever you listen to podcasts,

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Speaker 1: and on Bloomberg dot com. Well, there's been a lot

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Speaker 1: of movement and the senior leadership of the U. S military. Yesterday,

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Speaker 1: Defense Secretary Esper was terminated by President Trump, and today

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Speaker 1: political reporting that the Pentagon's acting policy chief resigned today

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Speaker 1: after falling out of favor with the White House. What

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Speaker 1: does its mean for our leadership of our military. There's

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Speaker 1: absolutely no one better to have this discussion with than

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Speaker 1: retired Navy Admiral James Tarvitis, former military commander of NATO

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Speaker 1: and a Bloomberg opinion columnists Adam Well, thanks so much

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Speaker 1: for joining us here. Let's start right there. Lots of turnover,

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Speaker 1: starting at the top with our Secretary Defense. What is

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Speaker 1: your take? There's no reason to do this kind of

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Speaker 1: decapitation of the Department of Defense while we're in an

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Speaker 1: inherently unsettled period of a transition. And let me tell

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Speaker 1: you three things that really worried me. One is that

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Speaker 1: the Secretary of Defense is very tactically involved. He or

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Speaker 1: she is someone who makes the crucial individual decisions about

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Speaker 1: what unit is going to deploy to Afghanistan, and we've

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Speaker 1: got troops in combat all over the world. Number Two,

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Speaker 1: at the operational level, kind of the theater level, he

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Speaker 1: or she is a person who makes decisions about should

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Speaker 1: the carrier battlegroup go to the Arabian gulfer to the

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Speaker 1: South China Sea. And number three, strategically, the job of

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Speaker 1: the Secretary of Defense is to work with our allies

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Speaker 1: to guard the nuclear code. So what's happened is we've

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Speaker 1: fired the current Secretary of Defense, who by the way,

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Speaker 1: is the fourth one in four years, and they brought

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Speaker 1: in a retired Army colonel. He's not qualified for the

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Speaker 1: job remotely, and his name is Chris Miller, and he's

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Speaker 1: going to have to try and learn the job and

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Speaker 1: presumably do the job for the next seventy one days.

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Speaker 1: It's dangerous. Yes, this particular person who resigned wrote a

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Speaker 1: letter of resignation saying, now, as ever, our long term

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Speaker 1: success depends on adhering to the US Constitution, all public

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Speaker 1: servants swear to support and defend political reporting that Anderson

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Speaker 1: had clashed with White House personnel and that there is

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Speaker 1: expected to be several departures in the wake of Esper's firing.

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Speaker 1: I mean, how how got it out could the Pentagon

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Speaker 1: be by the time we know, you know exactly when

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Speaker 1: President Biden is going to take office, If indeed it

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Speaker 1: is a President Biden, I think we're going to see

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Speaker 1: this kind of bleeding of talent across the entire administration.

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Speaker 1: A lot of people have been hanging on waiting for

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Speaker 1: the election. I think the majority of these folks would

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Speaker 1: be will link to stay and have a reasonable sensible transition.

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Speaker 1: And by the way, I've been personally involved in a

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Speaker 1: number of these transitions at very high levels in the Pentagon. Normally, um,

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Speaker 1: despite the rank or of an election, the two sides

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Speaker 1: get together because everyone knows, especially in the Pentagon, it's

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Speaker 1: about our national security. It's bigger than Republicans and Democrats.

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Speaker 1: The way that doesn't seem to be how this is

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Speaker 1: trending at the moment, and it is very concerning, Admiral,

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Speaker 1: I'm sure you still have a plenty of contacts with

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Speaker 1: the in the Pentagon. What is the thought coming out

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Speaker 1: of the Pentagon of what perhaps they perceive President Trump's

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Speaker 1: strategy or endgame here? Does he have one? Um, I

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Speaker 1: don't think you can use the word Trump and strategy

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Speaker 1: in the same sentence, and he would probably be proud

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Speaker 1: of that. He's a transactional player. He's someone who is

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Speaker 1: famously instinctive, operates from his gut, and at the moment,

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Speaker 1: his gut is upset because he lost the allife. Let's

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Speaker 1: be frank about what's happened here. Um, I'll give you

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Speaker 1: the good news if I can, Paul and Bonnie. It's

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Speaker 1: that the uniformed military will uniformly, uh park this off

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Speaker 1: to the side. They look at this as the civilian

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Speaker 1: leadership is in turmoil. But I assure you, people like

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Speaker 1: General Mark Millie, the Chairman, and the Joint Chiefs, all

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Speaker 1: of the chiefs of Defense, and all the way down

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Speaker 1: to the most junior sailors and airmen and greens and

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Speaker 1: soldiers board deployed, they just parked this off to the side.

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Speaker 1: They keep their eye on the mission in front of us.

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Speaker 1: They'll keep us safe. But boy, we do them a disservice,

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Speaker 1: and we dishonor their volunteer spirit and their sense of

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Speaker 1: mission when we let things just dissolved like this, it's

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Speaker 1: it's a bad day for our national defense. Yeah. Morell

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Speaker 1: is not going to be buoyed by this. Political is

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Speaker 1: reporting that this potentially paves the way for Anthony Tata

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Speaker 1: to take over the policy shop, so that the policy

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Speaker 1: part of the Pentagon. Let's say, do you know this man?

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Speaker 1: I do. He's a retired one star general. He had

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Speaker 1: a respectable career in yarmed forces. Um. He is someone

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Speaker 1: who has been a Trump loyalist throughout the campaign of

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Speaker 1: sixteen and has been a Fox News commentator. He's extremely conservative. Um.

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Speaker 1: The administration has been trying to get him confirmed, but

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Speaker 1: that's been very difficult because of the whole series of

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Speaker 1: inflammatory statements he has made over the years. Um. He

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Speaker 1: is not the kind of balanced, uh, centrist that is

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Speaker 1: necessary in a job like that, especially during a transition period.

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Speaker 1: So unfortunately, I think this is not going to be

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Speaker 1: a healthful choice. He's a partisan. We don't need partisanship

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Speaker 1: right now. Admiral, from your experience, what do you believe

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Speaker 1: our adversaries, whether it be Russia, China, Iran, North Korea.

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Speaker 1: What is their view of what's happening right now? What

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Speaker 1: strictly within the Pentagon. Yeah, I'll give you two words.

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Speaker 1: High fives, UM in Moscow, Uh, Beijing, shun Yang, Kran, Caracas, Havana.

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Speaker 1: This is exactly what our opponents hoped for. Is this

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Speaker 1: kind of turbulence. They feel as though we're taking our

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Speaker 1: eye off the ball. It opens the door for all

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Speaker 1: kinds of mischievous behavior by Iran and the Arabian Gulf

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Speaker 1: or Kim jong Na and this would be an ideal

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Speaker 1: time for him to launch another long range intercontinental ballistic

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Speaker 1: missile UM. Overall, this is greeted very positively and frankly.

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Speaker 1: Election interference both in and is real, UM, But it

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Speaker 1: was less about doing anything for Donald Trump. It was

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Speaker 1: all about creating vision in our society. So let us hope,

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Speaker 1: and I know this sounds like an extremely negative interview

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Speaker 1: and it is, but let us hope that UM, as

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Speaker 1: we get through this transition, that the two sides can

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Speaker 1: come together and work through this because these are these

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Speaker 1: are big issues and it is a dangerous moment for

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Speaker 1: America in the world. But our adversaries know that too, Right, Admiral.

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Speaker 1: I mean, they know that President Trump is potentially on

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Speaker 1: the way out of this point, and so if there

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Speaker 1: were to be an attack launched, it might be a

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Speaker 1: very dangerous time for them to do that because there

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Speaker 1: might be you know, an an unequal retaliation. Um, You've

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Speaker 1: got it right that this kind of uh, destabilizing moment

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Speaker 1: can cut both ways. It makes the calculus harder for

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Speaker 1: our opponents. But what I would argue, Vanni is the

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Speaker 1: dangerous not so much of a massive strategic level attack.

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Speaker 1: It's that in this period when for apps, opponents would

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Speaker 1: feel as though our military are intelligence services were distracted

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Speaker 1: and somewhat decapitated. And by the way, we are to

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Speaker 1: recognize their rumors that the CIA direct when the FBI

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Speaker 1: director maybe fired, we are to recognize that, um, there

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Speaker 1: is room for quiet, deleterious behavior. That's what concerns me. Admiral.

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Speaker 1: Thank you. It's always illuminating to speak with you. Admiral

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Speaker 1: James Stefrida's US Navy admiral former military commander of NATO.

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Speaker 1: Oral arguments going on right now at the Supreme Court Court,

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Speaker 1: shaped by President Trump, of course, hearing a challenge to

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Speaker 1: the Affordable Care Act and in the last few minutes

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Speaker 1: we're here in Chief Justice John Roberts and Justice spread

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Speaker 1: Common are both saying they're inclined to leave the rest

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Speaker 1: of the law intact even if Republic and Challenger is

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Speaker 1: succeeded in validating the so called individual mandate. Let's bring

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Speaker 1: in Bloomberg legal analyst and host of Bloomberg Law, June Grasso. June,

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Speaker 1: I know been keeping an eye on what's going on

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Speaker 1: right now at the Supreme Courtinate. Where are we beyond

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Speaker 1: what I've just outlined. Well, the argument started with a

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Speaker 1: standing question, and this is a legal question as to

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Speaker 1: whether or not the states that are challenging this and

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Speaker 1: the plaintiffs challenging this have what's called a stake in

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Speaker 1: the outcome, were they injured? And a lot of the

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Speaker 1: justices were questioning whether the states here really had standing

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Speaker 1: to even bring this lawsuit. So that was the first barrier,

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Speaker 1: so to speak. There was very little talk about the

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Speaker 1: merits of it, because a lot of the justices wanted

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Speaker 1: to jump from that right to whether it was severable.

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Speaker 1: And as you said, two of the justices, the Chief

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Speaker 1: Justice and Justice Kavanaugh, came out really strongly saying that

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Speaker 1: in their opinion this was a severable thing. So that

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Speaker 1: that means that if they can take away that one

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Speaker 1: part of the law, they could leave the rest of

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Speaker 1: the law standing and that would give them that would

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Speaker 1: give him five votes for severability. So June, I think

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Speaker 1: the summary here is are they going to throughout the

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Speaker 1: entire Obamacare or just certain aspects of it? If you

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Speaker 1: can summarize that for us, I'd be helpful, alright, So

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Speaker 1: that's sever ability. The question is whether so they're challenging

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Speaker 1: this one part of the law. They're saying because Congress

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Speaker 1: zeroed out the tax penalty and left the mandate in

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Speaker 1: with no practical consequences, then they have to strike down

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Speaker 1: the whole law. That's that's the opinion of the Trump

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Speaker 1: administration and the Republican States here. The comeback to that is, no,

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Speaker 1: you don't have to set sever out the whole law.

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Speaker 1: You don't have to throw out the whole law. You

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Speaker 1: could just take out that one provision of the law

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Speaker 1: and leave the law standing. And you know, the Court

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Speaker 1: in its precedence has done this several times. And you heard, uh,

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Speaker 1: Chief Justice John Roberts really going at one of the

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Speaker 1: Texas Listitor General who is up, still up now, I think,

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Speaker 1: and the Texas Lisitor General and he basically said to him,

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Speaker 1: I took some notes. One second. Let me just get

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Speaker 1: he said the mandate was critical. Now everything is I'm

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Speaker 1: are He said, well, it's hard for me to argue

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Speaker 1: that Congress intended the law to fall and didn't even

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Speaker 1: try to repeal the Act. Why wouldn't Congress have repealed

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Speaker 1: the Act? So that's the whole thing. If they wanted

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Speaker 1: the law to fall, why wouldn't they just have taken

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Speaker 1: the Act away? Which they didn't. They just took away

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Speaker 1: the individual mandate. Yeah, I mean, Kabo, there was conflicting,

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Speaker 1: you know, messages even from the White House right about

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Speaker 1: allowing existing conditions and then taking away the individual Monday,

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Speaker 1: and there was so many different messages. But that's the

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Speaker 1: point here, right, if you take away the mandate, if

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Speaker 1: you excise the mandate and the words of Brett Kavanaugh,

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Speaker 1: then the whole law is in trouble anyway, because it

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Speaker 1: sort of depends on everybody paying into it. Right. No, Actually,

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Speaker 1: I mean they didn't really go into it that way.

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Speaker 1: What they look at is right now they're saying, look,

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Speaker 1: the individual mandate doesn't matter. Because the laws working without it,

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Speaker 1: people are buying insurance. As v really Donald Varili, who

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Speaker 1: was a former Solicitor general, as he argued, he said

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Speaker 1: that you know the mandate it worked without it was

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Speaker 1: a carat and a stick thing initially for Congress to say,

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Speaker 1: you have to pay this text to get this and

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Speaker 1: we have to get this law rolling. But now they

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Speaker 1: found out that they don't need the stick because it's

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Speaker 1: working without it. So what they're saying is you don't

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Speaker 1: need this mandate to let the law work. And what

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Speaker 1: Justice Kavanan Roberts are saying, yes, we can excise out this,

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Speaker 1: we can take that little part out of the law

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Speaker 1: and the law still stands. And you know, uh, Justice

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Speaker 1: Brier really came on strong with the Texas Solicitor General

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Speaker 1: and he put all these examples forwards. Supposed, you know,

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Speaker 1: in the in the during the war, Congress said by

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Speaker 1: bonds in law, suppose Congress has planned a tree in

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Speaker 1: law or clean up the yar in law in law,

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Speaker 1: but there's no penalty for doing any of that. Well,

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Speaker 1: a you're gonna say that all of those laws are

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Speaker 1: unconstitutional because there's no penalty attached. And a lot of

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Speaker 1: the justices came out with that also, the Chief Justice

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Speaker 1: and Justice Clarence Thomas and Justice Kavanaugh said, suppose you

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Speaker 1: had your required to have uh American flag flying, but

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Speaker 1: there's no penalty if you don't. Does that mean that,

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Speaker 1: you know, you have to take down the entire law.

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Speaker 1: So I think that most of the Justices are heading

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Speaker 1: toward the idea that even if there is standing, which

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Speaker 1: there's a question of whether or not they're standing, that

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Speaker 1: still they wouldn't throw the entire law out June. Give

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Speaker 1: us a sense of timing here. This is arguably one

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Speaker 1: of the more important cases in front of the Supreme Court.

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Speaker 1: When should we expect the ruling, Well, I would say

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Speaker 1: around June. You'd expect a ruling in normal times, unless

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Speaker 1: the Justices decide for some reason to speed this up.

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Speaker 1: But you know, I don't really see any need to

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Speaker 1: speed this up at this point. This case has been

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Speaker 1: challenged so many times. This is the third time that

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Speaker 1: it came up to the Supreme Court, So I don't

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Speaker 1: think there's any harm in holding off on the opinion

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Speaker 1: in this case. Maybe they prefer to hold off on it, actually,

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Speaker 1: so um, I think we'll see it in June. All

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Speaker 1: the big decisions come down at the end of the term.

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Speaker 1: If the term last, when it usually does, we'll see

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Speaker 1: these big decisions in June. It will be fascinating because

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Speaker 1: you know, it is a court that is more shaped

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Speaker 1: by President Trump, and he has boasted of getting rid

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Speaker 1: of the individual mandate. But you do wonder if there

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Speaker 1: won't be slippage at some point down the line, that

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Speaker 1: if there isn't a penalty, then those who can't afford

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Speaker 1: really to to keep up there there there, there, their

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Speaker 1: insurance premiums and so on, if they won't sort of

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Speaker 1: end up out of the system, and if that won't

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Speaker 1: push it up for everybody else. Anyway, We'll have to

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Speaker 1: see how it goes. But oral arguments are always fascinating

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Speaker 1: at the Supreme Court, and June Grosso always has a

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Speaker 1: great handle on what's going on. She will be back,

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Speaker 1: of course, hosting Bloomberg Law, so do tune in for

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Speaker 1: that for more of a summary of what happened. It's

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Speaker 1: an eighty minute argument, by the way, so you know

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Speaker 1: it's quick. And we also know that oral arguments of

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Speaker 1: the Screme Court tend not to have a huge amount

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Speaker 1: of impact over the actual decision at least that's been

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Speaker 1: what's been the case in the past, but always interesting

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Speaker 1: to listen to again. June Grosso, Bloomberg, Lean Land Unless

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Speaker 1: and host of Bloomberg Law. All right, let's got straight

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Speaker 1: to dr Amish Adulteria of Johns Hopkins University. A fantastic

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Speaker 1: conversation always with the doctor Adulgia. Let's begin with the

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Speaker 1: Eli Lily antibody drug dr Adlgia. After yesterday's five FISER announcement,

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Speaker 1: what do we make of the ramp up of positive announcements.

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Speaker 1: I think this is all a testament to the fact

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Speaker 1: that when we actually start to try and invest in

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Speaker 1: technological solutions to this infectious disease problems, they will bear fruit.

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Speaker 1: And I think this is a lesson for other infectious

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Speaker 1: disease threats, and then we will get through this COVID

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Speaker 1: nineteen pandemic. It's going to still take some time with

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Speaker 1: the fiser, with the even with the fiser and used

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Speaker 1: with the literally drugs to get through this winter, which

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Speaker 1: is going to be rough in the northern hemisphere. And uh,

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Speaker 1: but but there is sort of a light at the

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Speaker 1: end of the tunnel coming and we are getting getting

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Speaker 1: to a point where we have much many more tools

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Speaker 1: to fight this virus than we did in the beginning.

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Speaker 1: Dr do give us you talk about this and then

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Speaker 1: President like Biden called it a you know, a long

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Speaker 1: dark winter coming up, and we're seeing the numbers just

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Speaker 1: kind of go through the roof set new records. Unfortunately, um,

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Speaker 1: you know, just from the New York perspective last March

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Speaker 1: in April, it seemed to take you know, a month

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Speaker 1: or so to start to really bend that curve. Do

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Speaker 1: you think there's a simple similar scenario here or is

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Speaker 1: something different about this second slash third wave. I think

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Speaker 1: there's something different about this third surge because there's a

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Speaker 1: lot of transmission that's going on with people's small gatherings.

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Speaker 1: And I think this definitely has a lot to do

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Speaker 1: with pandemic fatigue, which wasn't there during the first surge

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Speaker 1: because there that was people were scared it was a

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Speaker 1: new virus. The second thurde was really bars and restaurants

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Speaker 1: and and and that type of activity, which this one,

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Speaker 1: this third surge, is a little bit different epidemiologically, so

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Speaker 1: it's gonna be much harder to control. So I don't

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Speaker 1: know that we'll bend the curve of curve in all

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Speaker 1: of these places around the country that are that are

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Speaker 1: seeing surges. It's just it's very difficult now to get

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Speaker 1: people to to comply that haven't complied. So I really

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Speaker 1: fear for the worst in some places where their hospitals

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Speaker 1: are already under stressed. You know, the President elect, Joe Biden,

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Speaker 1: he's trying to do something, but he's limited in what

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Speaker 1: he can actually do. Can he have an impact? I mean,

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Speaker 1: he obviously can't do anything at a federal level. I

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Speaker 1: do think he can have an impact just by bringing

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Speaker 1: the moral authority of the of the presidency, which he's

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Speaker 1: going to assume in in a several weeks, as well

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Speaker 1: as the team that he's assembled, which can constitute some

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Speaker 1: of the best minds in the field that can start

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Speaker 1: to issue guidance, can start to speak to the American

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Speaker 1: public and maybe with that kind of clear messaging, with

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Speaker 1: a single voice, without any of the mixed messaging and

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Speaker 1: the evasions and the misinformation, you may see Americans actually

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Speaker 1: start to accept this information and be able to modify

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Speaker 1: their activities in a way that decreases the spread of

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Speaker 1: the virus. And it's also important for him to articulate

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Speaker 1: how he turns his plan into actionable items that state

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Speaker 1: and local health depart rents at hospitals are going to use,

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Speaker 1: so people know what what to expect and know what's

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Speaker 1: coming in January. So dr we had that good news

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Speaker 1: from Fiser yesterday about their vaccine. Of course, there are

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Speaker 1: other groups out there Moderna as well. How do you

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Speaker 1: think this is gonna all play out as we get

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Speaker 1: into maybe the mid part of the year. Are there

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Speaker 1: gonna be a number of vaccine choices for consumers? Will

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Speaker 1: doctors prescribe different vaccines for different people? How do you

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Speaker 1: think that will play out? Ideally? I hope that's the case,

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Speaker 1: that we have so many vaccines that we have a

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Speaker 1: choice and and and what might happen is that you

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Speaker 1: have more than one vaccine get emergency use approval, and

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Speaker 1: you're pulling all those resources together to vaccinate the country,

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Speaker 1: and you just have to keep track of who gets

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Speaker 1: what vaccine, which can be logistically challenging. But I think

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Speaker 1: we would be happy to be in a position where

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Speaker 1: we have to have that as our problem. The other

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Speaker 1: thing is is that some of these vaccines may do

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Speaker 1: better in different subgroups, so we may have targeted vaccines

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Speaker 1: for different groups, just like we do for influence to

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Speaker 1: where we give certain types of flu vaccines to the

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Speaker 1: elderly population and other types to other populations. So that

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Speaker 1: would be something I would expect to see. So it's

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Speaker 1: important that we continue the research and development and the

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Speaker 1: clinical trials on all of the other candidates, because I

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Speaker 1: don't think this is going to be a one vaccine solution.

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Speaker 1: We're likely going to have many different vaccines, and the

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Speaker 1: vaccine we get in a couple of years for coronavirus

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Speaker 1: maybe something completely different than what we're seeing now in

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Speaker 1: the clinical trials. If you don't mind talk to us

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Speaker 1: a little bit about Europe right now, because we're seeing

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Speaker 1: France coming very very close to i CU capacity. That

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Speaker 1: is the whole entirety of France, it's already above capacity.

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Speaker 1: We all have a major problem as well. In Denmark

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Speaker 1: with Mink explained this to us. For those who haven't

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Speaker 1: been following this story, well, you have to remember that

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Speaker 1: many of these European countries, what they relied on was

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Speaker 1: an economic shutdown, a lockdown type of approach without actually

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Speaker 1: investing in the public health infrastructure needed to think about

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Speaker 1: to be able to deal with the cases that would

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Speaker 1: inevitably occur once you started to get people socially interacting.

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Speaker 1: I think that there is this kind of magical thinking

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Speaker 1: that this virus can just go away with with having

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Speaker 1: people social distance for a period of time, and that's

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Speaker 1: not the case. The virus has established itself in the

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Speaker 1: human population and has a wide spectrumribilenus of many mile

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Speaker 1: cases that never get big diagnosed. So when you when

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Speaker 1: you lift the shutdown, when you lift a lockdown, if

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Speaker 1: you don't have the ability to test, trace and isolate,

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Speaker 1: if you have an expanded hospital capacity, you're going to

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Speaker 1: go right back to where you were. We're nowhere near

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Speaker 1: her immunity for this. And it's if this is a

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Speaker 1: lesson that if you don't invest in the public health infrastructure,

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Speaker 1: you will continue to make the same mistake over and

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Speaker 1: over again and not have any kind of sustainable approach

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Speaker 1: to controlling this virus. Doctor, you're part of one of

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Speaker 1: the biggest and most well respected medical facilities in the world.

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Speaker 1: Give us a sense of how the rank and file

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Speaker 1: people that doctors, the nurses, the orderlies. What's the morale

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Speaker 1: of those people right now as they face what again

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Speaker 1: might be a very long winter. Well, it varies, and

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Speaker 1: I do think think that talking to my colleagues all

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Speaker 1: around the country, that this is something that everybody is

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Speaker 1: dreading because we know inevitably that the cases are going

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Speaker 1: to increase. We're already seeing it happened in many parts

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Speaker 1: of the country that that hospitals now have more COVID

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Speaker 1: patients than they ever had before outside of the New

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Speaker 1: York area, and we're we're worried about it because now

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Speaker 1: there's a lot of complacency in the public and people

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Speaker 1: in the community don't seem to care what's happening in

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Speaker 1: their own hospital. So I do think that that is

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Speaker 1: demoralizing to realize that people, uh, they may clap for us,

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Speaker 1: and they may call us heroes, but if they're not

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Speaker 1: actually taking the actions that are not going to put

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Speaker 1: us in harm's way, that are not going to put

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Speaker 1: our hospitals into crisis so other medical care can't be rendered.

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Speaker 1: I mean, it really is all empty applause. Yeah, I mean,

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Speaker 1: it's it's it's it's a desperate situation. And also in

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Speaker 1: places like nursing homes where you know, the staffing levels

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Speaker 1: have gone down after all of these people worked so

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Speaker 1: hard to shepherd their patients through this or to you know,

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Speaker 1: to Worrett, many patients died and then you know, because

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Speaker 1: these nursing homes couldn't take in new patients, they didn't

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Speaker 1: have money, and staff were let go. It really is

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Speaker 1: there's there's there's almost nothing good about this. No, there

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Speaker 1: isn't and it's interesting. Dr amish Adology, thank you so

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Speaker 1: much for joining us. We appreciate it as always. Dr Amisdaloger,

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Speaker 1: Senior scholar and Infectious disease physician for the Dons Hopkins

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Speaker 1: Center for Health Security at the Bloomberg School of Public Health,

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Speaker 1: and of course, the Johns Hopkins Bloomberg School Public Health

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Speaker 1: is supported by Michael R. Bloomberg, founder Bloomberg LP and

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Speaker 1: Bloomberg Philanthropies and this radio station. So, Vonnie, some some

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Speaker 1: tough tough months coming up for this pandemic here. Uh,

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Speaker 1: that's tempered somewhat by the advances that our scientists and

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Speaker 1: medical research folks are making in terms of therapeutics, UH

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Speaker 1: and vaccine, a steepening in the yield curve, A little

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Speaker 1: bit of optimism out there in the marketplace. Let's get

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Speaker 1: some more color on that. We do that whenever we

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Speaker 1: talk interest rates yield curves with Ira Jersey, chief US

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Speaker 1: interest rate Strategies for Bloomberg Intelligence. Ira, thanks for joining us.

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Speaker 1: What's the treasury market trading over the last several days

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Speaker 1: and maybe even you know more than that. What's that

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Speaker 1: telling you? Yeah, so there's obviously the vaccine news from

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Speaker 1: yesterday was it was pretty optimistic. We're bouncing right off

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Speaker 1: a pretty important technical level right now in tenure yields

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Speaker 1: at around uh zero point nine six, So you know,

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Speaker 1: we're talking about basis points because yields are so low,

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Speaker 1: but but that's a pretty important level because that's where

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Speaker 1: we got to back in June, and if we break

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Speaker 1: above that, then then we could see a pretty significant move,

430
00:23:37,720 --> 00:23:42,360
Speaker 1: maybe well above one percent for the first time since March. So, um, yeah,

431
00:23:42,640 --> 00:23:45,560
Speaker 1: you know, the the I think as we see light

432
00:23:45,640 --> 00:23:47,200
Speaker 1: at the end of the tunnel, you'll see more of

433
00:23:47,280 --> 00:23:50,400
Speaker 1: this bear steepening you mentioned where the market sells off

434
00:23:50,560 --> 00:23:52,879
Speaker 1: and longer term interest rates tend to go up a

435
00:23:52,960 --> 00:23:55,959
Speaker 1: little bit more than, or potentially a lot more than

436
00:23:56,000 --> 00:23:58,879
Speaker 1: shorter term interest rates, so that it's not not surprising

437
00:23:58,920 --> 00:24:01,040
Speaker 1: that you're seeing this on kind of a more risk

438
00:24:01,119 --> 00:24:02,880
Speaker 1: on tone that you've had the last couple of days.

439
00:24:03,200 --> 00:24:05,840
Speaker 1: At what point, IRA, does it become less about a

440
00:24:05,920 --> 00:24:09,560
Speaker 1: better economy and more about inflation. Yeah, I don't think

441
00:24:09,600 --> 00:24:12,719
Speaker 1: it does. So, you know, we've seen a pretty significant

442
00:24:12,760 --> 00:24:16,240
Speaker 1: rebound in inflation expectations from the lows U in the

443
00:24:16,320 --> 00:24:19,240
Speaker 1: second quarter of this year, so back to basically the

444
00:24:19,320 --> 00:24:22,320
Speaker 1: reins that we were in for most of twenty nineteen.

445
00:24:22,440 --> 00:24:25,760
Speaker 1: So um, So I don't see inflation expectations going up

446
00:24:25,800 --> 00:24:28,119
Speaker 1: a whole heck of a lot more inflation itself. The

447
00:24:28,400 --> 00:24:31,960
Speaker 1: reason being that even though we might rebound, um, you know,

448
00:24:32,040 --> 00:24:36,000
Speaker 1: pretty sharply in terms of growth, what really drives inflation

449
00:24:36,040 --> 00:24:37,479
Speaker 1: in the U S And this is I think very

450
00:24:37,560 --> 00:24:41,919
Speaker 1: underappreciated and misunderstood. It's really wages. So you need significant

451
00:24:41,960 --> 00:24:45,640
Speaker 1: wage gains, and particularly wage gains by lower income sectors

452
00:24:45,920 --> 00:24:49,359
Speaker 1: in order to get a sustainable uptick in inflation. Because

453
00:24:49,440 --> 00:24:55,000
Speaker 1: most of what US consumers buy is actually services, and

454
00:24:55,080 --> 00:24:57,680
Speaker 1: those services all most of the prices of those services

455
00:24:58,280 --> 00:25:01,560
Speaker 1: is our wages. So you really need unemployment to be

456
00:25:01,880 --> 00:25:05,520
Speaker 1: backed down toward you know, five percent four percent probably

457
00:25:05,520 --> 00:25:08,800
Speaker 1: in order to get the lower income spectrum hired again.

458
00:25:09,000 --> 00:25:12,399
Speaker 1: And uh, and also jobs being created and new business

459
00:25:12,480 --> 00:25:16,280
Speaker 1: is being created to drive that inflation and inflation expectations higher.

460
00:25:16,359 --> 00:25:17,960
Speaker 1: So so I don't think that that's going to happen,

461
00:25:18,000 --> 00:25:21,760
Speaker 1: which which is very important actually, Vonni, because the last

462
00:25:21,760 --> 00:25:23,680
Speaker 1: thing I would mention on this score is that means

463
00:25:23,680 --> 00:25:25,760
Speaker 1: that if we do continue to get higher interest rates,

464
00:25:26,080 --> 00:25:29,560
Speaker 1: I think it's really going to be tips, uh, tips

465
00:25:29,640 --> 00:25:32,639
Speaker 1: that really do poorly in this such situation. And not

466
00:25:32,800 --> 00:25:35,600
Speaker 1: because inflation is not going up, because inflation is going up,

467
00:25:35,800 --> 00:25:39,399
Speaker 1: but it's because with yields moving higher, uh, really yields

468
00:25:39,400 --> 00:25:41,560
Speaker 1: move much higher. So so tips actually can have a

469
00:25:41,640 --> 00:25:44,359
Speaker 1: negative return even if inflation is you know, one and

470
00:25:44,359 --> 00:25:49,000
Speaker 1: a half to two percent. Tell us what happened, if anything? Really,

471
00:25:49,080 --> 00:25:52,000
Speaker 1: How did the treasury market react to the election news

472
00:25:52,480 --> 00:25:56,240
Speaker 1: from last week? Yeah, it was volatile, Um, it didn't

473
00:25:56,280 --> 00:25:59,199
Speaker 1: really move significantly out of the ranges that they were

474
00:25:59,240 --> 00:26:02,960
Speaker 1: in until until yesterday when you got the news about

475
00:26:03,000 --> 00:26:06,239
Speaker 1: about Fiser. You know, the market was was hadn't been

476
00:26:06,280 --> 00:26:10,840
Speaker 1: anticipating I think a blue wave, and that blue wave

477
00:26:10,920 --> 00:26:13,280
Speaker 1: would have probably meant that we'd have a very large

478
00:26:13,320 --> 00:26:16,800
Speaker 1: fiscal stimulus, a lot more bonds outstanding. So the curve

479
00:26:17,520 --> 00:26:20,320
Speaker 1: like like you had mentioned before, Paul, the curved bear

480
00:26:20,359 --> 00:26:22,680
Speaker 1: steepened and anticipation of that as it looked like we

481
00:26:22,760 --> 00:26:24,320
Speaker 1: were not going to get the blue wave and we'd

482
00:26:24,359 --> 00:26:28,040
Speaker 1: have a split government. Um that that were unwound a

483
00:26:28,119 --> 00:26:30,359
Speaker 1: little bit. And but again well within the ranges that

484
00:26:30,440 --> 00:26:33,040
Speaker 1: we've been in the last three or four months. So, UM,

485
00:26:33,520 --> 00:26:34,879
Speaker 1: you know. So I think at this point, and one

486
00:26:34,920 --> 00:26:36,560
Speaker 1: of the things that I've been looking at is how

487
00:26:36,680 --> 00:26:39,080
Speaker 1: much new supply are we likely to get? What is

488
00:26:39,160 --> 00:26:41,199
Speaker 1: the next size of a fiscal stimulus? Because I think

489
00:26:41,480 --> 00:26:44,119
Speaker 1: we will get a fiscal stimulus, But how and the

490
00:26:44,440 --> 00:26:47,200
Speaker 1: way is that? Um is that I think that that

491
00:26:47,359 --> 00:26:52,000
Speaker 1: now uh a President Biden, assuming that um, you know,

492
00:26:52,119 --> 00:26:54,880
Speaker 1: he he is the ultimately the winner. UM, I think

493
00:26:54,920 --> 00:26:57,560
Speaker 1: that that he will compromise with some of the moderates

494
00:26:57,640 --> 00:26:59,960
Speaker 1: in the UH in the Senate on the Republican side,

495
00:27:00,119 --> 00:27:03,320
Speaker 1: and you will get a reasonably big fiscal stimulus one

496
00:27:03,320 --> 00:27:05,440
Speaker 1: and a half to two trillion dollars. Our baseline is

497
00:27:05,440 --> 00:27:09,480
Speaker 1: around two trillion, and that will still need to be

498
00:27:09,600 --> 00:27:14,200
Speaker 1: funded at least a little bit through through treasury issuance. IRA.

499
00:27:15,160 --> 00:27:18,840
Speaker 1: What will be the difference if it's one trillion verses

500
00:27:18,920 --> 00:27:22,360
Speaker 1: say just one point two trillion or one point five trillion. Yeah,

501
00:27:22,440 --> 00:27:24,600
Speaker 1: so so that there so one trillion. It's it's interesting,

502
00:27:24,680 --> 00:27:26,679
Speaker 1: So one trillion dollars when it comes to the treasury

503
00:27:26,720 --> 00:27:28,280
Speaker 1: market means that they don't have to issue any new

504
00:27:28,359 --> 00:27:31,480
Speaker 1: bonds because the Treasury Department right now has over a

505
00:27:31,560 --> 00:27:34,760
Speaker 1: trillion dollars sitting in cash with the Federal Reserve, so

506
00:27:34,800 --> 00:27:37,440
Speaker 1: they can just use that money in order to fund

507
00:27:37,480 --> 00:27:40,679
Speaker 1: a small fiscal stimulus. A larger fiscal stimulus over one

508
00:27:40,720 --> 00:27:42,840
Speaker 1: and a half trillion, and they'll have to continue to

509
00:27:43,480 --> 00:27:47,840
Speaker 1: issue uh issue a lot of net uh net treasury

510
00:27:47,880 --> 00:27:50,120
Speaker 1: bonds over the next twelve months in order to fund

511
00:27:50,200 --> 00:27:53,800
Speaker 1: anything larger than about one and a half trillion UM

512
00:27:54,000 --> 00:27:58,160
Speaker 1: fiscal stimulus. You know, it's interesting. We're going to get something.

513
00:27:58,240 --> 00:28:00,719
Speaker 1: Is you were just mentioning your baseline is two billions,

514
00:28:02,000 --> 00:28:04,480
Speaker 1: we get nothing? And if that were to occur, what

515
00:28:04,560 --> 00:28:06,680
Speaker 1: do you think the treasury market would do? Yeah? So,

516
00:28:06,840 --> 00:28:08,680
Speaker 1: so I think if we don't get any fiscal stimulus,

517
00:28:08,720 --> 00:28:10,200
Speaker 1: I think we are priced in for some kind of

518
00:28:10,280 --> 00:28:13,720
Speaker 1: fiscal stimulus, and if not, I think we do probably rally.

519
00:28:13,800 --> 00:28:15,560
Speaker 1: So you wind up seeing ten uere yields back in

520
00:28:15,600 --> 00:28:19,040
Speaker 1: the old range call at six eight basis points. Um,

521
00:28:19,200 --> 00:28:22,879
Speaker 1: you know, so kind of pretty boring. Very briefly, the

522
00:28:22,920 --> 00:28:25,119
Speaker 1: FED made a comment yesterday which was interesting because it

523
00:28:25,119 --> 00:28:27,720
Speaker 1: was right after the election. Tell us how much the

524
00:28:27,760 --> 00:28:30,600
Speaker 1: FED is weighing in on on this economy right now? Yeah. So,

525
00:28:30,880 --> 00:28:34,000
Speaker 1: well that that was on fiscal on financial stability. So

526
00:28:34,080 --> 00:28:37,399
Speaker 1: they do a quarterly financial stability report, and um, you know,

527
00:28:37,480 --> 00:28:40,040
Speaker 1: in that they basically said that the virus really mattered,

528
00:28:40,120 --> 00:28:44,840
Speaker 1: and um, the you know, I think that that they're

529
00:28:44,920 --> 00:28:47,960
Speaker 1: worried about whether or not markets are functioning. And markets

530
00:28:48,000 --> 00:28:50,320
Speaker 1: are functioning, so I think the FED can probably step

531
00:28:50,400 --> 00:28:52,760
Speaker 1: away from that a little bit. All right, Ira Jersey

532
00:28:52,880 --> 00:28:55,800
Speaker 1: always with the latest. Thank you so much. Our Jersey

533
00:28:55,920 --> 00:28:59,600
Speaker 1: is chief US interest rate strategist for Bloomberg Intelligence on

534
00:28:59,840 --> 00:29:02,719
Speaker 1: the on Market and the universe of fixton come out there.

535
00:29:04,480 --> 00:29:07,880
Speaker 1: Thanks for listening to Bloomberg Markets podcast. You can subscribe

536
00:29:07,960 --> 00:29:11,440
Speaker 1: and listen to interviews at Apple Podcasts or whatever podcast

537
00:29:11,520 --> 00:29:14,719
Speaker 1: platform you prefer. I'm Bonnie Quinn, I'm on Twitter at

538
00:29:14,760 --> 00:29:17,080
Speaker 1: Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at

539
00:29:17,120 --> 00:29:20,000
Speaker 1: pt Sweeney. Before the podcast, you can always catch us

540
00:29:20,040 --> 00:29:21,440
Speaker 1: worldwide at Bloomberg radio