Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Along
Speaker 1: with my co host of Bonnie Quinn. Every business day,
Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
Speaker 1: along with essential market moving news. Find the Bloomberg Markets
Speaker 1: Podcast on Apple Podcasts or wherever you listen to podcasts,
Speaker 1: and on Bloomberg dot com. Well, there's been a lot
Speaker 1: of movement and the senior leadership of the U. S military. Yesterday,
Speaker 1: Defense Secretary Esper was terminated by President Trump, and today
Speaker 1: political reporting that the Pentagon's acting policy chief resigned today
Speaker 1: after falling out of favor with the White House. What
Speaker 1: does its mean for our leadership of our military. There's
Speaker 1: absolutely no one better to have this discussion with than
Speaker 1: retired Navy Admiral James Tarvitis, former military commander of NATO
Speaker 1: and a Bloomberg opinion columnists Adam Well, thanks so much
Speaker 1: for joining us here. Let's start right there. Lots of turnover,
Speaker 1: starting at the top with our Secretary Defense. What is
Speaker 1: your take? There's no reason to do this kind of
Speaker 1: decapitation of the Department of Defense while we're in an
Speaker 1: inherently unsettled period of a transition. And let me tell
Speaker 1: you three things that really worried me. One is that
Speaker 1: the Secretary of Defense is very tactically involved. He or
Speaker 1: she is someone who makes the crucial individual decisions about
Speaker 1: what unit is going to deploy to Afghanistan, and we've
Speaker 1: got troops in combat all over the world. Number Two,
Speaker 1: at the operational level, kind of the theater level, he
Speaker 1: or she is a person who makes decisions about should
Speaker 1: the carrier battlegroup go to the Arabian gulfer to the
Speaker 1: South China Sea. And number three, strategically, the job of
Speaker 1: the Secretary of Defense is to work with our allies
Speaker 1: to guard the nuclear code. So what's happened is we've
Speaker 1: fired the current Secretary of Defense, who by the way,
Speaker 1: is the fourth one in four years, and they brought
Speaker 1: in a retired Army colonel. He's not qualified for the
Speaker 1: job remotely, and his name is Chris Miller, and he's
Speaker 1: going to have to try and learn the job and
Speaker 1: presumably do the job for the next seventy one days.
Speaker 1: It's dangerous. Yes, this particular person who resigned wrote a
Speaker 1: letter of resignation saying, now, as ever, our long term
Speaker 1: success depends on adhering to the US Constitution, all public
Speaker 1: servants swear to support and defend political reporting that Anderson
Speaker 1: had clashed with White House personnel and that there is
Speaker 1: expected to be several departures in the wake of Esper's firing.
Speaker 1: I mean, how how got it out could the Pentagon
Speaker 1: be by the time we know, you know exactly when
Speaker 1: President Biden is going to take office, If indeed it
Speaker 1: is a President Biden, I think we're going to see
Speaker 1: this kind of bleeding of talent across the entire administration.
Speaker 1: A lot of people have been hanging on waiting for
Speaker 1: the election. I think the majority of these folks would
Speaker 1: be will link to stay and have a reasonable sensible transition.
Speaker 1: And by the way, I've been personally involved in a
Speaker 1: number of these transitions at very high levels in the Pentagon. Normally, um,
Speaker 1: despite the rank or of an election, the two sides
Speaker 1: get together because everyone knows, especially in the Pentagon, it's
Speaker 1: about our national security. It's bigger than Republicans and Democrats.
Speaker 1: The way that doesn't seem to be how this is
Speaker 1: trending at the moment, and it is very concerning, Admiral,
Speaker 1: I'm sure you still have a plenty of contacts with
Speaker 1: the in the Pentagon. What is the thought coming out
Speaker 1: of the Pentagon of what perhaps they perceive President Trump's
Speaker 1: strategy or endgame here? Does he have one? Um, I
Speaker 1: don't think you can use the word Trump and strategy
Speaker 1: in the same sentence, and he would probably be proud
Speaker 1: of that. He's a transactional player. He's someone who is
Speaker 1: famously instinctive, operates from his gut, and at the moment,
Speaker 1: his gut is upset because he lost the allife. Let's
Speaker 1: be frank about what's happened here. Um, I'll give you
Speaker 1: the good news if I can, Paul and Bonnie. It's
Speaker 1: that the uniformed military will uniformly, uh park this off
Speaker 1: to the side. They look at this as the civilian
Speaker 1: leadership is in turmoil. But I assure you, people like
Speaker 1: General Mark Millie, the Chairman, and the Joint Chiefs, all
Speaker 1: of the chiefs of Defense, and all the way down
Speaker 1: to the most junior sailors and airmen and greens and
Speaker 1: soldiers board deployed, they just parked this off to the side.
Speaker 1: They keep their eye on the mission in front of us.
Speaker 1: They'll keep us safe. But boy, we do them a disservice,
Speaker 1: and we dishonor their volunteer spirit and their sense of
Speaker 1: mission when we let things just dissolved like this, it's
Speaker 1: it's a bad day for our national defense. Yeah. Morell
Speaker 1: is not going to be buoyed by this. Political is
Speaker 1: reporting that this potentially paves the way for Anthony Tata
Speaker 1: to take over the policy shop, so that the policy
Speaker 1: part of the Pentagon. Let's say, do you know this man?
Speaker 1: I do. He's a retired one star general. He had
Speaker 1: a respectable career in yarmed forces. Um. He is someone
Speaker 1: who has been a Trump loyalist throughout the campaign of
Speaker 1: sixteen and has been a Fox News commentator. He's extremely conservative. Um.
Speaker 1: The administration has been trying to get him confirmed, but
Speaker 1: that's been very difficult because of the whole series of
Speaker 1: inflammatory statements he has made over the years. Um. He
Speaker 1: is not the kind of balanced, uh, centrist that is
Speaker 1: necessary in a job like that, especially during a transition period.
Speaker 1: So unfortunately, I think this is not going to be
Speaker 1: a healthful choice. He's a partisan. We don't need partisanship
Speaker 1: right now. Admiral, from your experience, what do you believe
Speaker 1: our adversaries, whether it be Russia, China, Iran, North Korea.
Speaker 1: What is their view of what's happening right now? What
Speaker 1: strictly within the Pentagon. Yeah, I'll give you two words.
Speaker 1: High fives, UM in Moscow, Uh, Beijing, shun Yang, Kran, Caracas, Havana.
Speaker 1: This is exactly what our opponents hoped for. Is this
Speaker 1: kind of turbulence. They feel as though we're taking our
Speaker 1: eye off the ball. It opens the door for all
Speaker 1: kinds of mischievous behavior by Iran and the Arabian Gulf
Speaker 1: or Kim jong Na and this would be an ideal
Speaker 1: time for him to launch another long range intercontinental ballistic
Speaker 1: missile UM. Overall, this is greeted very positively and frankly.
Speaker 1: Election interference both in and is real, UM, But it
Speaker 1: was less about doing anything for Donald Trump. It was
Speaker 1: all about creating vision in our society. So let us hope,
Speaker 1: and I know this sounds like an extremely negative interview
Speaker 1: and it is, but let us hope that UM, as
Speaker 1: we get through this transition, that the two sides can
Speaker 1: come together and work through this because these are these
Speaker 1: are big issues and it is a dangerous moment for
Speaker 1: America in the world. But our adversaries know that too, Right, Admiral.
Speaker 1: I mean, they know that President Trump is potentially on
Speaker 1: the way out of this point, and so if there
Speaker 1: were to be an attack launched, it might be a
Speaker 1: very dangerous time for them to do that because there
Speaker 1: might be you know, an an unequal retaliation. Um, You've
Speaker 1: got it right that this kind of uh, destabilizing moment
Speaker 1: can cut both ways. It makes the calculus harder for
Speaker 1: our opponents. But what I would argue, Vanni is the
Speaker 1: dangerous not so much of a massive strategic level attack.
Speaker 1: It's that in this period when for apps, opponents would
Speaker 1: feel as though our military are intelligence services were distracted
Speaker 1: and somewhat decapitated. And by the way, we are to
Speaker 1: recognize their rumors that the CIA direct when the FBI
Speaker 1: director maybe fired, we are to recognize that, um, there
Speaker 1: is room for quiet, deleterious behavior. That's what concerns me. Admiral.
Speaker 1: Thank you. It's always illuminating to speak with you. Admiral
Speaker 1: James Stefrida's US Navy admiral former military commander of NATO.
Speaker 1: Oral arguments going on right now at the Supreme Court Court,
Speaker 1: shaped by President Trump, of course, hearing a challenge to
Speaker 1: the Affordable Care Act and in the last few minutes
Speaker 1: we're here in Chief Justice John Roberts and Justice spread
Speaker 1: Common are both saying they're inclined to leave the rest
Speaker 1: of the law intact even if Republic and Challenger is
Speaker 1: succeeded in validating the so called individual mandate. Let's bring
Speaker 1: in Bloomberg legal analyst and host of Bloomberg Law, June Grasso. June,
Speaker 1: I know been keeping an eye on what's going on
Speaker 1: right now at the Supreme Courtinate. Where are we beyond
Speaker 1: what I've just outlined. Well, the argument started with a
Speaker 1: standing question, and this is a legal question as to
Speaker 1: whether or not the states that are challenging this and
Speaker 1: the plaintiffs challenging this have what's called a stake in
Speaker 1: the outcome, were they injured? And a lot of the
Speaker 1: justices were questioning whether the states here really had standing
Speaker 1: to even bring this lawsuit. So that was the first barrier,
Speaker 1: so to speak. There was very little talk about the
Speaker 1: merits of it, because a lot of the justices wanted
Speaker 1: to jump from that right to whether it was severable.
Speaker 1: And as you said, two of the justices, the Chief
Speaker 1: Justice and Justice Kavanaugh, came out really strongly saying that
Speaker 1: in their opinion this was a severable thing. So that
Speaker 1: that means that if they can take away that one
Speaker 1: part of the law, they could leave the rest of
Speaker 1: the law standing and that would give them that would
Speaker 1: give him five votes for severability. So June, I think
Speaker 1: the summary here is are they going to throughout the
Speaker 1: entire Obamacare or just certain aspects of it? If you
Speaker 1: can summarize that for us, I'd be helpful, alright, So
Speaker 1: that's sever ability. The question is whether so they're challenging
Speaker 1: this one part of the law. They're saying because Congress
Speaker 1: zeroed out the tax penalty and left the mandate in
Speaker 1: with no practical consequences, then they have to strike down
Speaker 1: the whole law. That's that's the opinion of the Trump
Speaker 1: administration and the Republican States here. The comeback to that is, no,
Speaker 1: you don't have to set sever out the whole law.
Speaker 1: You don't have to throw out the whole law. You
Speaker 1: could just take out that one provision of the law
Speaker 1: and leave the law standing. And you know, the Court
Speaker 1: in its precedence has done this several times. And you heard, uh,
Speaker 1: Chief Justice John Roberts really going at one of the
Speaker 1: Texas Listitor General who is up, still up now, I think,
Speaker 1: and the Texas Lisitor General and he basically said to him,
Speaker 1: I took some notes. One second. Let me just get
Speaker 1: he said the mandate was critical. Now everything is I'm
Speaker 1: are He said, well, it's hard for me to argue
Speaker 1: that Congress intended the law to fall and didn't even
Speaker 1: try to repeal the Act. Why wouldn't Congress have repealed
Speaker 1: the Act? So that's the whole thing. If they wanted
Speaker 1: the law to fall, why wouldn't they just have taken
Speaker 1: the Act away? Which they didn't. They just took away
Speaker 1: the individual mandate. Yeah, I mean, Kabo, there was conflicting,
Speaker 1: you know, messages even from the White House right about
Speaker 1: allowing existing conditions and then taking away the individual Monday,
Speaker 1: and there was so many different messages. But that's the
Speaker 1: point here, right, if you take away the mandate, if
Speaker 1: you excise the mandate and the words of Brett Kavanaugh,
Speaker 1: then the whole law is in trouble anyway, because it
Speaker 1: sort of depends on everybody paying into it. Right. No, Actually,
Speaker 1: I mean they didn't really go into it that way.
Speaker 1: What they look at is right now they're saying, look,
Speaker 1: the individual mandate doesn't matter. Because the laws working without it,
Speaker 1: people are buying insurance. As v really Donald Varili, who
Speaker 1: was a former Solicitor general, as he argued, he said
Speaker 1: that you know the mandate it worked without it was
Speaker 1: a carat and a stick thing initially for Congress to say,
Speaker 1: you have to pay this text to get this and
Speaker 1: we have to get this law rolling. But now they
Speaker 1: found out that they don't need the stick because it's
Speaker 1: working without it. So what they're saying is you don't
Speaker 1: need this mandate to let the law work. And what
Speaker 1: Justice Kavanan Roberts are saying, yes, we can excise out this,
Speaker 1: we can take that little part out of the law
Speaker 1: and the law still stands. And you know, uh, Justice
Speaker 1: Brier really came on strong with the Texas Solicitor General
Speaker 1: and he put all these examples forwards. Supposed, you know,
Speaker 1: in the in the during the war, Congress said by
Speaker 1: bonds in law, suppose Congress has planned a tree in
Speaker 1: law or clean up the yar in law in law,
Speaker 1: but there's no penalty for doing any of that. Well,
Speaker 1: a you're gonna say that all of those laws are
Speaker 1: unconstitutional because there's no penalty attached. And a lot of
Speaker 1: the justices came out with that also, the Chief Justice
Speaker 1: and Justice Clarence Thomas and Justice Kavanaugh said, suppose you
Speaker 1: had your required to have uh American flag flying, but
Speaker 1: there's no penalty if you don't. Does that mean that,
Speaker 1: you know, you have to take down the entire law.
Speaker 1: So I think that most of the Justices are heading
Speaker 1: toward the idea that even if there is standing, which
Speaker 1: there's a question of whether or not they're standing, that
Speaker 1: still they wouldn't throw the entire law out June. Give
Speaker 1: us a sense of timing here. This is arguably one
Speaker 1: of the more important cases in front of the Supreme Court.
Speaker 1: When should we expect the ruling, Well, I would say
Speaker 1: around June. You'd expect a ruling in normal times, unless
Speaker 1: the Justices decide for some reason to speed this up.
Speaker 1: But you know, I don't really see any need to
Speaker 1: speed this up at this point. This case has been
Speaker 1: challenged so many times. This is the third time that
Speaker 1: it came up to the Supreme Court, So I don't
Speaker 1: think there's any harm in holding off on the opinion
Speaker 1: in this case. Maybe they prefer to hold off on it, actually,
Speaker 1: so um, I think we'll see it in June. All
Speaker 1: the big decisions come down at the end of the term.
Speaker 1: If the term last, when it usually does, we'll see
Speaker 1: these big decisions in June. It will be fascinating because
Speaker 1: you know, it is a court that is more shaped
Speaker 1: by President Trump, and he has boasted of getting rid
Speaker 1: of the individual mandate. But you do wonder if there
Speaker 1: won't be slippage at some point down the line, that
Speaker 1: if there isn't a penalty, then those who can't afford
Speaker 1: really to to keep up there there there, there, their
Speaker 1: insurance premiums and so on, if they won't sort of
Speaker 1: end up out of the system, and if that won't
Speaker 1: push it up for everybody else. Anyway, We'll have to
Speaker 1: see how it goes. But oral arguments are always fascinating
Speaker 1: at the Supreme Court, and June Grosso always has a
Speaker 1: great handle on what's going on. She will be back,
Speaker 1: of course, hosting Bloomberg Law, so do tune in for
Speaker 1: that for more of a summary of what happened. It's
Speaker 1: an eighty minute argument, by the way, so you know
Speaker 1: it's quick. And we also know that oral arguments of
Speaker 1: the Screme Court tend not to have a huge amount
Speaker 1: of impact over the actual decision at least that's been
Speaker 1: what's been the case in the past, but always interesting
Speaker 1: to listen to again. June Grosso, Bloomberg, Lean Land Unless
Speaker 1: and host of Bloomberg Law. All right, let's got straight
Speaker 1: to dr Amish Adulteria of Johns Hopkins University. A fantastic
Speaker 1: conversation always with the doctor Adulgia. Let's begin with the
Speaker 1: Eli Lily antibody drug dr Adlgia. After yesterday's five FISER announcement,
Speaker 1: what do we make of the ramp up of positive announcements.
Speaker 1: I think this is all a testament to the fact
Speaker 1: that when we actually start to try and invest in
Speaker 1: technological solutions to this infectious disease problems, they will bear fruit.
Speaker 1: And I think this is a lesson for other infectious
Speaker 1: disease threats, and then we will get through this COVID
Speaker 1: nineteen pandemic. It's going to still take some time with
Speaker 1: the fiser, with the even with the fiser and used
Speaker 1: with the literally drugs to get through this winter, which
Speaker 1: is going to be rough in the northern hemisphere. And uh,
Speaker 1: but but there is sort of a light at the
Speaker 1: end of the tunnel coming and we are getting getting
Speaker 1: to a point where we have much many more tools
Speaker 1: to fight this virus than we did in the beginning.
Speaker 1: Dr do give us you talk about this and then
Speaker 1: President like Biden called it a you know, a long
Speaker 1: dark winter coming up, and we're seeing the numbers just
Speaker 1: kind of go through the roof set new records. Unfortunately, um,
Speaker 1: you know, just from the New York perspective last March
Speaker 1: in April, it seemed to take you know, a month
Speaker 1: or so to start to really bend that curve. Do
Speaker 1: you think there's a simple similar scenario here or is
Speaker 1: something different about this second slash third wave. I think
Speaker 1: there's something different about this third surge because there's a
Speaker 1: lot of transmission that's going on with people's small gatherings.
Speaker 1: And I think this definitely has a lot to do
Speaker 1: with pandemic fatigue, which wasn't there during the first surge
Speaker 1: because there that was people were scared it was a
Speaker 1: new virus. The second thurde was really bars and restaurants
Speaker 1: and and and that type of activity, which this one,
Speaker 1: this third surge, is a little bit different epidemiologically, so
Speaker 1: it's gonna be much harder to control. So I don't
Speaker 1: know that we'll bend the curve of curve in all
Speaker 1: of these places around the country that are that are
Speaker 1: seeing surges. It's just it's very difficult now to get
Speaker 1: people to to comply that haven't complied. So I really
Speaker 1: fear for the worst in some places where their hospitals
Speaker 1: are already under stressed. You know, the President elect, Joe Biden,
Speaker 1: he's trying to do something, but he's limited in what
Speaker 1: he can actually do. Can he have an impact? I mean,
Speaker 1: he obviously can't do anything at a federal level. I
Speaker 1: do think he can have an impact just by bringing
Speaker 1: the moral authority of the of the presidency, which he's
Speaker 1: going to assume in in a several weeks, as well
Speaker 1: as the team that he's assembled, which can constitute some
Speaker 1: of the best minds in the field that can start
Speaker 1: to issue guidance, can start to speak to the American
Speaker 1: public and maybe with that kind of clear messaging, with
Speaker 1: a single voice, without any of the mixed messaging and
Speaker 1: the evasions and the misinformation, you may see Americans actually
Speaker 1: start to accept this information and be able to modify
Speaker 1: their activities in a way that decreases the spread of
Speaker 1: the virus. And it's also important for him to articulate
Speaker 1: how he turns his plan into actionable items that state
Speaker 1: and local health depart rents at hospitals are going to use,
Speaker 1: so people know what what to expect and know what's
Speaker 1: coming in January. So dr we had that good news
Speaker 1: from Fiser yesterday about their vaccine. Of course, there are
Speaker 1: other groups out there Moderna as well. How do you
Speaker 1: think this is gonna all play out as we get
Speaker 1: into maybe the mid part of the year. Are there
Speaker 1: gonna be a number of vaccine choices for consumers? Will
Speaker 1: doctors prescribe different vaccines for different people? How do you
Speaker 1: think that will play out? Ideally? I hope that's the case,
Speaker 1: that we have so many vaccines that we have a
Speaker 1: choice and and and what might happen is that you
Speaker 1: have more than one vaccine get emergency use approval, and
Speaker 1: you're pulling all those resources together to vaccinate the country,
Speaker 1: and you just have to keep track of who gets
Speaker 1: what vaccine, which can be logistically challenging. But I think
Speaker 1: we would be happy to be in a position where
Speaker 1: we have to have that as our problem. The other
Speaker 1: thing is is that some of these vaccines may do
Speaker 1: better in different subgroups, so we may have targeted vaccines
Speaker 1: for different groups, just like we do for influence to
Speaker 1: where we give certain types of flu vaccines to the
Speaker 1: elderly population and other types to other populations. So that
Speaker 1: would be something I would expect to see. So it's
Speaker 1: important that we continue the research and development and the
Speaker 1: clinical trials on all of the other candidates, because I
Speaker 1: don't think this is going to be a one vaccine solution.
Speaker 1: We're likely going to have many different vaccines, and the
Speaker 1: vaccine we get in a couple of years for coronavirus
Speaker 1: maybe something completely different than what we're seeing now in
Speaker 1: the clinical trials. If you don't mind talk to us
Speaker 1: a little bit about Europe right now, because we're seeing
Speaker 1: France coming very very close to i CU capacity. That
Speaker 1: is the whole entirety of France, it's already above capacity.
Speaker 1: We all have a major problem as well. In Denmark
Speaker 1: with Mink explained this to us. For those who haven't
Speaker 1: been following this story, well, you have to remember that
Speaker 1: many of these European countries, what they relied on was
Speaker 1: an economic shutdown, a lockdown type of approach without actually
Speaker 1: investing in the public health infrastructure needed to think about
Speaker 1: to be able to deal with the cases that would
Speaker 1: inevitably occur once you started to get people socially interacting.
Speaker 1: I think that there is this kind of magical thinking
Speaker 1: that this virus can just go away with with having
Speaker 1: people social distance for a period of time, and that's
Speaker 1: not the case. The virus has established itself in the
Speaker 1: human population and has a wide spectrumribilenus of many mile
Speaker 1: cases that never get big diagnosed. So when you when
Speaker 1: you lift the shutdown, when you lift a lockdown, if
Speaker 1: you don't have the ability to test, trace and isolate,
Speaker 1: if you have an expanded hospital capacity, you're going to
Speaker 1: go right back to where you were. We're nowhere near
Speaker 1: her immunity for this. And it's if this is a
Speaker 1: lesson that if you don't invest in the public health infrastructure,
Speaker 1: you will continue to make the same mistake over and
Speaker 1: over again and not have any kind of sustainable approach
Speaker 1: to controlling this virus. Doctor, you're part of one of
Speaker 1: the biggest and most well respected medical facilities in the world.
Speaker 1: Give us a sense of how the rank and file
Speaker 1: people that doctors, the nurses, the orderlies. What's the morale
Speaker 1: of those people right now as they face what again
Speaker 1: might be a very long winter. Well, it varies, and
Speaker 1: I do think think that talking to my colleagues all
Speaker 1: around the country, that this is something that everybody is
Speaker 1: dreading because we know inevitably that the cases are going
Speaker 1: to increase. We're already seeing it happened in many parts
Speaker 1: of the country that that hospitals now have more COVID
Speaker 1: patients than they ever had before outside of the New
Speaker 1: York area, and we're we're worried about it because now
Speaker 1: there's a lot of complacency in the public and people
Speaker 1: in the community don't seem to care what's happening in
Speaker 1: their own hospital. So I do think that that is
Speaker 1: demoralizing to realize that people, uh, they may clap for us,
Speaker 1: and they may call us heroes, but if they're not
Speaker 1: actually taking the actions that are not going to put
Speaker 1: us in harm's way, that are not going to put
Speaker 1: our hospitals into crisis so other medical care can't be rendered.
Speaker 1: I mean, it really is all empty applause. Yeah, I mean,
Speaker 1: it's it's it's it's a desperate situation. And also in
Speaker 1: places like nursing homes where you know, the staffing levels
Speaker 1: have gone down after all of these people worked so
Speaker 1: hard to shepherd their patients through this or to you know,
Speaker 1: to Worrett, many patients died and then you know, because
Speaker 1: these nursing homes couldn't take in new patients, they didn't
Speaker 1: have money, and staff were let go. It really is
Speaker 1: there's there's there's almost nothing good about this. No, there
Speaker 1: isn't and it's interesting. Dr amish Adology, thank you so
Speaker 1: much for joining us. We appreciate it as always. Dr Amisdaloger,
Speaker 1: Senior scholar and Infectious disease physician for the Dons Hopkins
Speaker 1: Center for Health Security at the Bloomberg School of Public Health,
Speaker 1: and of course, the Johns Hopkins Bloomberg School Public Health
Speaker 1: is supported by Michael R. Bloomberg, founder Bloomberg LP and
Speaker 1: Bloomberg Philanthropies and this radio station. So, Vonnie, some some
Speaker 1: tough tough months coming up for this pandemic here. Uh,
Speaker 1: that's tempered somewhat by the advances that our scientists and
Speaker 1: medical research folks are making in terms of therapeutics, UH
Speaker 1: and vaccine, a steepening in the yield curve, A little
Speaker 1: bit of optimism out there in the marketplace. Let's get
Speaker 1: some more color on that. We do that whenever we
Speaker 1: talk interest rates yield curves with Ira Jersey, chief US
Speaker 1: interest rate Strategies for Bloomberg Intelligence. Ira, thanks for joining us.
Speaker 1: What's the treasury market trading over the last several days
Speaker 1: and maybe even you know more than that. What's that
Speaker 1: telling you? Yeah, so there's obviously the vaccine news from
Speaker 1: yesterday was it was pretty optimistic. We're bouncing right off
Speaker 1: a pretty important technical level right now in tenure yields
Speaker 1: at around uh zero point nine six, So you know,
Speaker 1: we're talking about basis points because yields are so low,
Speaker 1: but but that's a pretty important level because that's where
Speaker 1: we got to back in June, and if we break
Speaker 1: above that, then then we could see a pretty significant move,
Speaker 1: maybe well above one percent for the first time since March. So, um, yeah,
Speaker 1: you know, the the I think as we see light
Speaker 1: at the end of the tunnel, you'll see more of
Speaker 1: this bear steepening you mentioned where the market sells off
Speaker 1: and longer term interest rates tend to go up a
Speaker 1: little bit more than, or potentially a lot more than
Speaker 1: shorter term interest rates, so that it's not not surprising
Speaker 1: that you're seeing this on kind of a more risk
Speaker 1: on tone that you've had the last couple of days.
Speaker 1: At what point, IRA, does it become less about a
Speaker 1: better economy and more about inflation. Yeah, I don't think
Speaker 1: it does. So, you know, we've seen a pretty significant
Speaker 1: rebound in inflation expectations from the lows U in the
Speaker 1: second quarter of this year, so back to basically the
Speaker 1: reins that we were in for most of twenty nineteen.
Speaker 1: So um, So I don't see inflation expectations going up
Speaker 1: a whole heck of a lot more inflation itself. The
Speaker 1: reason being that even though we might rebound, um, you know,
Speaker 1: pretty sharply in terms of growth, what really drives inflation
Speaker 1: in the U S And this is I think very
Speaker 1: underappreciated and misunderstood. It's really wages. So you need significant
Speaker 1: wage gains, and particularly wage gains by lower income sectors
Speaker 1: in order to get a sustainable uptick in inflation. Because
Speaker 1: most of what US consumers buy is actually services, and
Speaker 1: those services all most of the prices of those services
Speaker 1: is our wages. So you really need unemployment to be
Speaker 1: backed down toward you know, five percent four percent probably
Speaker 1: in order to get the lower income spectrum hired again.
Speaker 1: And uh, and also jobs being created and new business
Speaker 1: is being created to drive that inflation and inflation expectations higher.
Speaker 1: So so I don't think that that's going to happen,
Speaker 1: which which is very important actually, Vonni, because the last
Speaker 1: thing I would mention on this score is that means
Speaker 1: that if we do continue to get higher interest rates,
Speaker 1: I think it's really going to be tips, uh, tips
Speaker 1: that really do poorly in this such situation. And not
Speaker 1: because inflation is not going up, because inflation is going up,
Speaker 1: but it's because with yields moving higher, uh, really yields
Speaker 1: move much higher. So so tips actually can have a
Speaker 1: negative return even if inflation is you know, one and
Speaker 1: a half to two percent. Tell us what happened, if anything? Really,
Speaker 1: How did the treasury market react to the election news
Speaker 1: from last week? Yeah, it was volatile, Um, it didn't
Speaker 1: really move significantly out of the ranges that they were
Speaker 1: in until until yesterday when you got the news about
Speaker 1: about Fiser. You know, the market was was hadn't been
Speaker 1: anticipating I think a blue wave, and that blue wave
Speaker 1: would have probably meant that we'd have a very large
Speaker 1: fiscal stimulus, a lot more bonds outstanding. So the curve
Speaker 1: like like you had mentioned before, Paul, the curved bear
Speaker 1: steepened and anticipation of that as it looked like we
Speaker 1: were not going to get the blue wave and we'd
Speaker 1: have a split government. Um that that were unwound a
Speaker 1: little bit. And but again well within the ranges that
Speaker 1: we've been in the last three or four months. So, UM,
Speaker 1: you know. So I think at this point, and one
Speaker 1: of the things that I've been looking at is how
Speaker 1: much new supply are we likely to get? What is
Speaker 1: the next size of a fiscal stimulus? Because I think
Speaker 1: we will get a fiscal stimulus, But how and the
Speaker 1: way is that? Um is that I think that that
Speaker 1: now uh a President Biden, assuming that um, you know,
Speaker 1: he he is the ultimately the winner. UM, I think
Speaker 1: that that he will compromise with some of the moderates
Speaker 1: in the UH in the Senate on the Republican side,
Speaker 1: and you will get a reasonably big fiscal stimulus one
Speaker 1: and a half to two trillion dollars. Our baseline is
Speaker 1: around two trillion, and that will still need to be
Speaker 1: funded at least a little bit through through treasury issuance. IRA.
Speaker 1: What will be the difference if it's one trillion verses
Speaker 1: say just one point two trillion or one point five trillion. Yeah,
Speaker 1: so so that there so one trillion. It's it's interesting,
Speaker 1: So one trillion dollars when it comes to the treasury
Speaker 1: market means that they don't have to issue any new
Speaker 1: bonds because the Treasury Department right now has over a
Speaker 1: trillion dollars sitting in cash with the Federal Reserve, so
Speaker 1: they can just use that money in order to fund
Speaker 1: a small fiscal stimulus. A larger fiscal stimulus over one
Speaker 1: and a half trillion, and they'll have to continue to
Speaker 1: issue uh issue a lot of net uh net treasury
Speaker 1: bonds over the next twelve months in order to fund
Speaker 1: anything larger than about one and a half trillion UM
Speaker 1: fiscal stimulus. You know, it's interesting. We're going to get something.
Speaker 1: Is you were just mentioning your baseline is two billions,
Speaker 1: we get nothing? And if that were to occur, what
Speaker 1: do you think the treasury market would do? Yeah? So,
Speaker 1: so I think if we don't get any fiscal stimulus,
Speaker 1: I think we are priced in for some kind of
Speaker 1: fiscal stimulus, and if not, I think we do probably rally.
Speaker 1: So you wind up seeing ten uere yields back in
Speaker 1: the old range call at six eight basis points. Um,
Speaker 1: you know, so kind of pretty boring. Very briefly, the
Speaker 1: FED made a comment yesterday which was interesting because it
Speaker 1: was right after the election. Tell us how much the
Speaker 1: FED is weighing in on on this economy right now? Yeah. So,
Speaker 1: well that that was on fiscal on financial stability. So
Speaker 1: they do a quarterly financial stability report, and um, you know,
Speaker 1: in that they basically said that the virus really mattered,
Speaker 1: and um, the you know, I think that that they're
Speaker 1: worried about whether or not markets are functioning. And markets
Speaker 1: are functioning, so I think the FED can probably step
Speaker 1: away from that a little bit. All right, Ira Jersey
Speaker 1: always with the latest. Thank you so much. Our Jersey
Speaker 1: is chief US interest rate strategist for Bloomberg Intelligence on
Speaker 1: the on Market and the universe of fixton come out there.
Speaker 1: Thanks for listening to Bloomberg Markets podcast. You can subscribe
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Speaker 1: Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at
Speaker 1: pt Sweeney. Before the podcast, you can always catch us
Speaker 1: worldwide at Bloomberg radio