Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast and I'm Tom
Speaker 1: Keene Jay Leye. We bring you insight from the best
Speaker 1: in economics, finance, investment, and international relations. Find Bloomberg Surveillance
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Speaker 1: on the Bloomberg jointing us on Bloomberg TV and m
Speaker 1: Bloomberg Radio. Larry Cardlog joining us from outside of the
Speaker 1: White House. Larry, great to catch up with you, sir,
Speaker 1: after a really solid payrolls report with an unemployment rate
Speaker 1: nicely in the single digits, south of nine percent, and
Speaker 1: the number one question everyone's asking right now, Larry, what
Speaker 1: does it mean for the fiscal effort in Washington? Can
Speaker 1: you draw the line for us just join those dots? Uh? No,
Speaker 1: I really can't. I mean the conversations are going on
Speaker 1: daily and we'll continue to go on. We still have
Speaker 1: the view. First of all, today's number eight point four
Speaker 1: percent unemployment. I just want to note I think that
Speaker 1: shows that President Trump's idea of a generous unemployment assistance
Speaker 1: plan that he's put as the executive order, but not
Speaker 1: necessarily an extravagant one. I think he's been born out
Speaker 1: to be exactly right. Eight point four percent unemployment is
Speaker 1: really the headline story of this massive jobs improvement report. Now,
Speaker 1: regarding the discussions on the Hill, you've got a continuing
Speaker 1: resolution discussion, you've got a cares to Act or whatever
Speaker 1: you call it discussion. There are areas of agreement. There
Speaker 1: wide areas of disagreement. However, on the size and scope.
Speaker 1: We have the view that a smart package, a well
Speaker 1: targeted package, for example, helping small businesses with PPP extensions,
Speaker 1: opening schools, COVID health, uh, you know, kids and jobs
Speaker 1: or our watchwords. Why don't we just pass a more
Speaker 1: modest package instead of a package that goes into multi
Speaker 1: trillion dollars that we don't need, and then the long
Speaker 1: term would be counter for tips. So we'll see, Johnathan,
Speaker 1: I don't want to forecast. I don't want to get
Speaker 1: in the way of the talks. The talks are continuing.
Speaker 1: But that's our basic point of view. If you agree
Speaker 1: on four or five things, let's go for it. Okay,
Speaker 1: let's stop dilly dowling around. Let's go for it. But
Speaker 1: not the entire uh left wing agenda from the other
Speaker 1: side of the aisle. That's not acceptable. Larry You've never
Speaker 1: been afraid of making a forecast, So I'm sure you
Speaker 1: can make a forecast on the economy with us right
Speaker 1: now and tronic gates from you. Where you think the
Speaker 1: economy is going and what that means for your policy stance.
Speaker 1: Do you think this is a self sustaining recovery now,
Speaker 1: independent of the need of further stimulus. Yeah. Look again,
Speaker 1: extending small business loans would be a good thing, and
Speaker 1: there's some other important facetts, but I do think it's
Speaker 1: self sustaining. I've said this before. What you have here
Speaker 1: is a housing boom. You have a retail sales boom,
Speaker 1: you have an automobile boom, strong consumer spending, and we're
Speaker 1: getting you know, we've recovered over half of the jobs
Speaker 1: we lost last winter. UM. Inventories have laps in the
Speaker 1: second quarter. I think there were down three UM. So
Speaker 1: the way I see it, Jonathan, is to meet these
Speaker 1: demands housing, construction, automobiles, consumers, retailers, and so forth, we're
Speaker 1: gonna need to rebuild inventories, and that is going to
Speaker 1: add impetus to the second half growth, which will be
Speaker 1: at least and perhaps much more. I think the Atlanta
Speaker 1: Fed has said the third quarter. But anyway, uh self sustaining. Yes,
Speaker 1: we're gonna go on for quite some time. Next year
Speaker 1: is going to be a banner year for the economy
Speaker 1: and for jobs, assuming the policy regime is pro growth
Speaker 1: with incentives. So I'm relatively optimistic. Now, I will say
Speaker 1: we have much more work to do. We're not out
Speaker 1: of the woods. We have too many people unemployed. Even
Speaker 1: though the numbers have improved radically and way ahead of
Speaker 1: expectations on Wall Street, we have more work to do.
Speaker 1: There's still way too many unemployed and much too much hardship.
Speaker 1: I get that, but I think one has an optimistic
Speaker 1: read bound in mind. And I think, incidentally the virus
Speaker 1: numbers are helping quite a bit as they flatten that
Speaker 1: and hook lore Larry. We talked about that hardship. We
Speaker 1: talked about the disparity beneath the appricate numbers. If you
Speaker 1: and I have talked about a million times after the
Speaker 1: last several months, still a lot of pain out there.
Speaker 1: I'm just trying to gate from you there is we
Speaker 1: have this discussion about this recovery. How comfortable you would
Speaker 1: be going into the back end of the year without
Speaker 1: an agreement with the other side. Of the aisle. Look,
Speaker 1: we can live with it. We can absolutely live with it. Um.
Speaker 1: It depends on the package. You know, a bad package
Speaker 1: would not be helpful. A smart, good package, well targeted,
Speaker 1: would be helpful. Okay. Congress wants to legislate longer run
Speaker 1: unemployment assistance. If Congress wants to put in let's say,
Speaker 1: benefits for bonuses for re employment, uh fine. If Congress
Speaker 1: wants to help out with funding a bit on the
Speaker 1: school openings, fine, that sort of thing would be extremely
Speaker 1: positive in my judgment. Lengthening p PP for small business, sure,
Speaker 1: do we absolutely need it. No, I'm not going to
Speaker 1: precondition anything here. What's good is good independently. What's not
Speaker 1: good is not good independently. Right now, the economy is
Speaker 1: on a self sustaining recovery path in my judgment, and
Speaker 1: we'll continue along those lines, and we'll continue to surprise
Speaker 1: on the upside. And I don't want anything to get
Speaker 1: in the way. I mean, look, one of the issues here,
Speaker 1: let's put it right on the table. It's like the
Speaker 1: elephant in the living room is the other side of
Speaker 1: the aisle. The Biden team wants a four trillion dollar
Speaker 1: tax hike. Now to me, coming off a deep and
Speaker 1: painful pandemic contraction. That is a terrible idea. I don't
Speaker 1: care whether you're Knesian or a supply sider or what.
Speaker 1: You wouldn't be picking taxpayer wallets and purses. Stop pickpocketing
Speaker 1: their money. They need more money, not less money. I'd
Speaker 1: rather they had more money through tax cuts, tax cuts
Speaker 1: which President Trump emphasizes, UH, rather than spending measures. But
Speaker 1: let people keep their own money. But the idea, and
Speaker 1: this is the uncertainty factor with the election looming, and
Speaker 1: it looks like a toss up right now, President Trump
Speaker 1: is gained about six or eight points after the convention. UH.
Speaker 1: The idea of a gigantic tax hike on individuals, payrolls,
Speaker 1: companies large and small, that is a hurdle for this
Speaker 1: self sustaining recovery. So I think it's important to just
Speaker 1: put that right on the table. I don't understand it.
Speaker 1: I don't care left right Kangent supplies hire, who would
Speaker 1: show white mine would be jacking up taxes by four trillion.
Speaker 1: And this idea that it's just rich people. First of all,
Speaker 1: rich people help investment a lot, and we like to
Speaker 1: reward success in the Trump years. But The second point
Speaker 1: is middle class people will bear the brunt of any
Speaker 1: tax hike that always happens. When politicians say won't, it
Speaker 1: always happens, and they'll go deep into everybody's pockets. Wrong policy, Larry.
Speaker 1: I'm not here to advocate for anybody, and I'm not
Speaker 1: here to talk about electoral politics with you as well.
Speaker 1: Last time I checked, the form of vice president hasn't
Speaker 1: been elected to public hethice. Right now, you guys are
Speaker 1: running the government. You have to work with the other
Speaker 1: site to some degree. I guess I want to talk
Speaker 1: about language with you. There's some language around aid for states.
Speaker 1: I keep hearing this language that we don't want to
Speaker 1: use money for bailouts of states, and I'm trying to understand.
Speaker 1: Is there a distinction between state aid and state bailouts
Speaker 1: and how do you draw that distinction. Well, I think
Speaker 1: the President had said it well a number of times.
Speaker 1: He doesn't want to bail out in efficient government operations
Speaker 1: at the state and local level. We have the administration
Speaker 1: has been very generous uh in nick prior packages and
Speaker 1: other means of providing aid to states, principally for COVID
Speaker 1: related reasons, but also many other reasons, including by the way,
Speaker 1: equipment for COVID reasons, and testing for COVID reasons and
Speaker 1: so forth. We've been very generous. Hundreds and hundreds of
Speaker 1: billions of dollars have been injected into state and local governments.
Speaker 1: That's fine, we needed that. We were in a pandemic emergency,
Speaker 1: no question about it. On the other hand, end one area,
Speaker 1: for example, the President is singled out badly unfunded pensions
Speaker 1: at the state local level. We don't believe a COVID
Speaker 1: package is the right method or the right vehicle for that.
Speaker 1: There's a number of other spending issues in the other
Speaker 1: other team's proposals that have nothing to do with COVID.
Speaker 1: By our calculations, over third of their proposals are non
Speaker 1: COVID related proposals that should be scrapped. So what President
Speaker 1: Trump would say is, if it's necessary and it's properly targeted, Jonathan,
Speaker 1: then we would probably see our way to a compromise.
Speaker 1: But at the moment, we're not there. And again I
Speaker 1: repeat what the Chief Meadows has said, what Secretary Venition
Speaker 1: has said. We agree on some areas, and if we
Speaker 1: could find four or five areas key areas, and I
Speaker 1: will once again say reopening schools and extending small business assistance.
Speaker 1: If we agree on that, let's just pass it. Let's
Speaker 1: just have a smart, well targeted, smaller package. So what
Speaker 1: would you do, Larry, if the state level austerity begins
Speaker 1: in the federal government? What will be the response when
Speaker 1: you start to see that play out? States across America
Speaker 1: who are up against budget constraints can't use the bondmarket
Speaker 1: in the same way the federal government can. What's the response,
Speaker 1: what's the plan, what's the strategy? Well, actually, I will
Speaker 1: just say this. The federal reserves lending facilities include a
Speaker 1: very generous tax free municipal bond lending, so states can
Speaker 1: tap into that, and so can localities. The feed has
Speaker 1: been very generous about backstopping UH tax exempt municipal type bonds,
Speaker 1: so they should make use of that. I think that's
Speaker 1: a plus, particularly if you need two or three year
Speaker 1: type paper. Now, the other point I make is it's
Speaker 1: quite true that the damage economic damage as a result
Speaker 1: of the pandemic has damaged budgets at the federal, state
Speaker 1: and local level, no question about it. It is also true, however,
Speaker 1: revenues are coming in much stronger now, as the economy
Speaker 1: picks up steam. I think there's a lot of underestimating
Speaker 1: going on and the extent to which this recovery is
Speaker 1: helping all finances at all levels. Revenues at the federal
Speaker 1: level have improved enormously, and they are showing great improvement
Speaker 1: at the state local level. So I think people should
Speaker 1: put that on the table, put that on the scoreboard.
Speaker 1: You know, let's not just rush into stuff. That's been
Speaker 1: one of the issues here. Let's look at things carefully
Speaker 1: and analytically and assess them and their need. What is essential,
Speaker 1: what is smart, that's fine, but what is not essential?
Speaker 1: And just throwing money at places to fund more poor
Speaker 1: management or pension funds, that's not what we want. That's
Speaker 1: a different conversation, and it's a different moment on legislative time.
Speaker 1: That's all I'm saying. It might be worthwhile let's look
Speaker 1: at pensions, but not now, not the COVID. Let's have
Speaker 1: a separate item for that. Well, let's talk about a
Speaker 1: targeted effort then. And the airline specifically, the President of
Speaker 1: the United States said recently, will be helping the airlines.
Speaker 1: You have to help the airlines. Arguably the most free
Speaker 1: market approach to helping the airlines is not throwing aid
Speaker 1: at them. It's having a proper testing regime at airports
Speaker 1: across America and getting that New York to London corridor,
Speaker 1: of which I've got skin of the game right now,
Speaker 1: Larry on the other side at the moment, trying to
Speaker 1: work out how to get back, how we get that reopen,
Speaker 1: and how we get these airlines back to work. I
Speaker 1: think that's the key for these companies. It's not about
Speaker 1: throwing money at them. It's how we establish safe testing regimes.
Speaker 1: And I'm just wondering why we haven't seen a big
Speaker 1: effort publicly to make that happen, Larry. Why not, Well,
Speaker 1: because there's been a huge effort privately, and we will
Speaker 1: be um unveiling the positives of that private effort. We
Speaker 1: are in constant communications with the air air carriers. We
Speaker 1: agree with what you're suggesting with respect to testing and
Speaker 1: taking temperature and a host of other measures. We also
Speaker 1: are working with the airlines regarding contact tracing and the
Speaker 1: feasibility of that UH without incurring too much additional expense.
Speaker 1: We're looking at telephone apps for that. We're looking at
Speaker 1: testing before you get on the plane and after you
Speaker 1: get on the plane, I mean when you land on
Speaker 1: both sides of the pond, so you won't have to
Speaker 1: have a fourteen day quarantine. We're looking very intensely at that.
Speaker 1: All that said, I will at however, the President has
Speaker 1: said a number of times airlines are crucial. It's one
Speaker 1: of the key arteries are of economy, transportation and so forth. Um,
Speaker 1: if they need additional assistance, we stand ready to work
Speaker 1: with them to hammer out additional packages. Secretary Manution is
Speaker 1: leading that charge. So we've got information testing additional assistance
Speaker 1: on the table for the airline business. When we hear
Speaker 1: about it, Larry, you've talked about it privately. When we
Speaker 1: start hearing about this publicly, when it is the big
Speaker 1: unveiled so to speak. UM, without a specific timetable, I
Speaker 1: would say it will be a matter of weeks, not percent, Larry,
Speaker 1: as you not having this conversation not just about big tech.
Speaker 1: Imagine there's some nervousness of about the read across from
Speaker 1: a labor market that's still doing okay and what it
Speaker 1: means for the policy effort down in Washington. Raised this
Speaker 1: issue with you before. There is some cynical people among
Speaker 1: us and I'm sure you'll appreciate that, Larry. He believe
Speaker 1: that unless the market gaps a LOWA, there won't be
Speaker 1: any urgency down in Washington to cut a deal. Now.
Speaker 1: Is the piscal approach independent of the price action in
Speaker 1: financial markets, Larry, Well, the physical approach is not independent
Speaker 1: of the economy. But I don't see there's there's no
Speaker 1: magic special formula between the stock market, UH and a
Speaker 1: possible additional assistance plan. There's there's no direct length, there's
Speaker 1: no formula. I wouldn't want to go there, frankly, for
Speaker 1: what it's worth, Johathan, I think you know in markets,
Speaker 1: nothing goes up in the straight line. We've had a
Speaker 1: phenomenal rally in the stock market, which itself, by the way,
Speaker 1: represents confidence in the economy later this year and next year.
Speaker 1: But the tech sector is undergoing a correction right now,
Speaker 1: and as you well know from your coverage down through
Speaker 1: the years, that's a fairly normal item. I don't think
Speaker 1: anybody should panick. The economy is definitely definitely improving, Larry.
Speaker 1: Before we let you go, I wanted to talk about
Speaker 1: something personal with you. You and I have tried some
Speaker 1: punches over the years with me sitting care and you
Speaker 1: in that position as well. Earlier this week, you talked
Speaker 1: about recovery and been twenty five years sober, and I
Speaker 1: just wanted to say personally to you, congratulations Larry, and
Speaker 1: thank you for sharing that story earlier this week. That's
Speaker 1: very kind of you, Jonathan. It's um. It's perhaps the
Speaker 1: greatest achievement of my life. And I'm most grateful to
Speaker 1: my friends and family, my saintly wife. I came back
Speaker 1: to faith in recovery and twelve Step meetings. I'm in
Speaker 1: touch with my friends all the time. The First Lady
Speaker 1: did a fabulous job yesterday. My hat's off tour. It's
Speaker 1: a delicate subject. She brought in people in recovery, people
Speaker 1: who are employers and laryees in a wonderful roundtable. Again,
Speaker 1: it's a phenomenal thing that the First Lady did. I
Speaker 1: was honored to participate. I would just say, Jonathan again,
Speaker 1: thank you for noticing. Look Um. As I mentioned yesterday,
Speaker 1: there's no question I would not be where I am
Speaker 1: in this position, in this job, which is the pinnacle
Speaker 1: of my professional career and a great honor bestowed on
Speaker 1: me by the President and the First Lady. I would
Speaker 1: not be here if I weren't sober all of yours.
Speaker 1: Thank you, sir, and thanks for being here and allowing
Speaker 1: me to interrogate you every single month as always, Larry
Speaker 1: Fancasa to catch up Larry Cardlock, the National Economic Council
Speaker 1: Director outside the White House. One of the great strengths
Speaker 1: of Bloomberg surveillance is you as we welcome you on
Speaker 1: radio and television. Is an eclectic view of economists. We
Speaker 1: now turned the former governor of the Fellow Reserve System,
Speaker 1: Randall crossn Are truly one of our experts in financial economics,
Speaker 1: sent our partying that into the labor system as well,
Speaker 1: Randy Krasser, and you're wonderful reading of the literature. How
Speaker 1: is our labor share doing? This is something we'll speak
Speaker 1: to Blanche Flour later, but this is something that's so important,
Speaker 1: labor getting its fair share of any economic growth presumed forward.
Speaker 1: How is our labor share? And so we certainly have
Speaker 1: seen the labor share decline over over time. Some of
Speaker 1: that is due to the way labor is U is
Speaker 1: characterized in the in the data. Because of course, if
Speaker 1: you can make your labor income into capital gains income,
Speaker 1: your tax at a much lower rate, and so it's
Speaker 1: been a very strong incentive to try to move things
Speaker 1: into what would have in the old days been called
Speaker 1: labor income and move into categories of being called capital income.
Speaker 1: So that accounts for part of the transition. So, just
Speaker 1: looking right now at where we are in the labor market,
Speaker 1: given this better than expected print, do you feel like
Speaker 1: there is momentum perhaps that economists have not accounted for,
Speaker 1: that they have failed to account for given the number
Speaker 1: of positive surprises in a row. Well, I think it's
Speaker 1: great that we've gotten some positive surprises. I mean, these
Speaker 1: numbers are of such large magnitudes that, um, it's no
Speaker 1: surprise that we and we've never had something exactly like
Speaker 1: this before, that we're gonna have more misses. And so
Speaker 1: I think we're broadly in the same range of where
Speaker 1: people thought we would be. That the unemployment rate was
Speaker 1: going to spike up very significantly initially, then as the
Speaker 1: unlock occurs, you're going to have a very uh major
Speaker 1: move down that will gradually slow down. And also, as
Speaker 1: you're mentioning before, there's an additional bump because of the
Speaker 1: census workers that will make the unemployment rate look lower
Speaker 1: this month than than otherwise. But um, we're gonna make
Speaker 1: a mistake. I'm glad. I'm glad things are better. Yeah,
Speaker 1: I mean, look, we we we all are. This has
Speaker 1: been a brutal market and it's been moving from temporary
Speaker 1: layoffs and permanent ones. We've been talking about Coca Cola
Speaker 1: and the airlines and everybody else announcing layoffs, even the
Speaker 1: companies that are doing well. I want to go to
Speaker 1: the numbers. The confusion that Michael McKee, who is brilliant
Speaker 1: and who has been doing this for years, was displaying
Speaker 1: came from a very confusing set of data. Yesterday we
Speaker 1: had a changed method of accounting for jobless claims. Today
Speaker 1: there are separate surveys that are coming out. Do you
Speaker 1: feel like the data itself is more confusing than it's
Speaker 1: ever been before. Well, I think that the fundamentals of
Speaker 1: the data are are the same, but it's just the
Speaker 1: movements in the data in these short amounts of time
Speaker 1: are so much larger than we're used to that of
Speaker 1: course they're going to be possibilities for um misinterpretation or
Speaker 1: miss uh miscategorization. So I think we have to take
Speaker 1: these numbers with a little bit of a grain of salt,
Speaker 1: not because there there's something wrong with numbers, but just
Speaker 1: the movements are so large that what used to be,
Speaker 1: you know, a hundred thousand was a big movement. Now
Speaker 1: it's a million, and so it's just a very different,
Speaker 1: different kindle of fish, Professor Cross. There there's a raging debate,
Speaker 1: and this goes more to your wheelhouse of financial economics,
Speaker 1: and over the years, the debate is on the growth
Speaker 1: rate needed given the interest rates within our fiscal policy.
Speaker 1: This is the this is the crying worry right now
Speaker 1: of those looking at our deficit build up. Give us
Speaker 1: your sense right now of the growth rate we need
Speaker 1: given the potential interest rates higher that we may experience.
Speaker 1: Are we near a point of worry or do we
Speaker 1: need to worry outside of two thousand twenty five. I
Speaker 1: think the longer run, there's a challenge. I mean, right now,
Speaker 1: it seems that the markets are very, very willing to
Speaker 1: definance countries that have astonishingly high deficits, whether it's the US, Japan,
Speaker 1: and a number of other countries. Least of major countries.
Speaker 1: Emerging market countries are facing enormous challenges, but there are
Speaker 1: some of the large countries like the US, are very
Speaker 1: fortunate at the moment to be seen as relatively safe,
Speaker 1: and there's a lot of money looking for those relatively
Speaker 1: safe assets. The challenges that at some point the chickens
Speaker 1: will come home to roost, that someone will say, well,
Speaker 1: can they really pay all this off? We don't know
Speaker 1: exactly what we'll trigger that, but but I think we
Speaker 1: should be worrying about that in the UH in the intermediate,
Speaker 1: longer run and Professor the Center and Budget and Policy Priorities,
Speaker 1: they go back too and say, we have a confidence
Speaker 1: that the American system has always developed a growth rate
Speaker 1: over that interest rate glide path what Peter orzag would
Speaker 1: call the glide pass out there. There's a little bit
Speaker 1: of angst right now that that may end. How do
Speaker 1: you feel about that? But it's UH, that's a concern now.
Speaker 1: And at least the short intermediate run interest rates are
Speaker 1: are around zero, even the tenure rate being less than
Speaker 1: one percent. I mean, that's really unprecedented UM and in
Speaker 1: many other countries we're seeing long term rates be be
Speaker 1: negative and so obviously that makes a lot of UH
Speaker 1: fiscal physical spending much more much more feasible when you
Speaker 1: have zero or negative rates. But if and when those
Speaker 1: rates go go up, that's when the challenge will come in.
Speaker 1: I think that's going to be at least a few
Speaker 1: years off. But we shouldn't be complacent now and say, oh, well,
Speaker 1: we can just borrow forever at zero and it's no
Speaker 1: problem with that kind of attitude. You won't be borrowing
Speaker 1: for very long at zero, and that come home to
Speaker 1: Ruth sooner. People have been saying that we haven't seen it,
Speaker 1: but people keep saying that, I do wonder, Professor, going forward,
Speaker 1: if the FED is out of tools to improve the
Speaker 1: labor market from here, well, I think you can't rely
Speaker 1: just on the FED for everything. People try to try
Speaker 1: to rely on the FED to to cure all ills.
Speaker 1: There's some things that the FED can can provide support for.
Speaker 1: It inn front, a lot of liquidity to markets, so
Speaker 1: when things when there is market dysfunction in February March,
Speaker 1: we're very helpful and in that Right now, I think
Speaker 1: it's much more the transition. Uh, the shock of of
Speaker 1: COVID is really a fundamental shock to the structure of
Speaker 1: the economy. I think it's much more fundamental than what
Speaker 1: happened with the global financial crisis or with nine eleven
Speaker 1: some parts of the economy are simply not going to
Speaker 1: be coming back, and we have to acknowledge that there's
Speaker 1: going to be a transition there and that's going to
Speaker 1: take time. The FED can't directly address address. Professor Crossner,
Speaker 1: thank you so much with the Booth Schools Chicago. We're
Speaker 1: thrilled that you can join us today on this job's day,
Speaker 1: joining us NOWS and just spoke with Crossinger of the
Speaker 1: Booth Schools Chicago. We now, as we put Blanche Flower
Speaker 1: of Dartmouth College, Danny Bachlower, thrilled to have you with us. Danny,
Speaker 1: I want to go away from the wage dynamic this
Speaker 1: time around, and I want to go to your important
Speaker 1: research moving on from Richard Leyard on a happiness and age.
Speaker 1: Our happiness has been shattered in this pandemic. Explained to
Speaker 1: us the dampening impact of a pandemic on how a
Speaker 1: society moves forward to the end of that pandemic. Great question, Um,
Speaker 1: we have evidence around the world. I think there's two
Speaker 1: big things to it. When we had the lockdown, we
Speaker 1: had a huge collapse in well being and happiness around
Speaker 1: the world of a scale that we've never seen before.
Speaker 1: And the census and the Office of Natural Statistics have tracted.
Speaker 1: One of the things I think we're learning now is
Speaker 1: that people have adjusted a little bit to think of
Speaker 1: a big drop and then adjustment taking place, people becoming
Speaker 1: adjusted to the fact of the new world. But this
Speaker 1: is a major shock to people's thinking and behavior. And
Speaker 1: why it matters to Bloomberg listeners is whether this shock
Speaker 1: and adaptation tells us that something different is coming down
Speaker 1: the road. Are there going to be behavioral changes. I
Speaker 1: was just thinking about what Mike just said, and there
Speaker 1: are all kinds of things that you could look at
Speaker 1: as to what's coming. I was looking this warning at
Speaker 1: Google ends and if you just put the word unemployment in,
Speaker 1: what you see is that actually the thing has started
Speaker 1: to tick back up again, decline a big rise, as
Speaker 1: as unhappiness if you like rows. So people are adapting,
Speaker 1: they're thinking about what's coming. But I think what you'd
Speaker 1: see in the data is, I mean, this is a
Speaker 1: great set of data today is that people are fearful,
Speaker 1: and the question is are they going to take different
Speaker 1: behavior going forward? But you know, we've seen a rise
Speaker 1: in depression and loneliness of all sorts of things. We're
Speaker 1: seeing them start to adjust back again. But the question
Speaker 1: is there still a big gap and we've never seen
Speaker 1: anything like that. Are we ready for our new top line,
Speaker 1: our new nominal g d P if we have subdued inflation,
Speaker 1: and we have let's call it subdued even pretty good
Speaker 1: economic growth as a society, are we ready for that? Well?
Speaker 1: I think I think we're potentially ready. But again, this
Speaker 1: is a huge shot to which people are adjusting. And
Speaker 1: if you think about saying to your guests, or saying
Speaker 1: to a owner of the Bank of England or to
Speaker 1: a Fed president, where are we going from here, they're
Speaker 1: going to have to say to you Tom. It depends.
Speaker 1: It depends on the first thing that I just said
Speaker 1: is are people going to change their behavior? What's going
Speaker 1: to happen to this virus? Is a vaccine coming? And
Speaker 1: then the other thing is are people confident about what's
Speaker 1: coming forward? If you've never seen a shot downwards to
Speaker 1: your happiness like this before, are you going to start
Speaker 1: thinking in the future, Well, it's happened once, maybe it's
Speaker 1: going to happen again. So yeah, the world is the
Speaker 1: world has changed, I think, and uh, your previous guest
Speaker 1: was right to say that, you know, this. We've never
Speaker 1: seen anything quite like this before, so forecast things difficult.
Speaker 1: Tom Danny, what's the long term effect on a potential
Speaker 1: lost generation, the idea that there's fifty five year old
Speaker 1: cohort is facing unemployment rates close to twenty and facing
Speaker 1: a labor market virtual or otherwise that's decimated. I think
Speaker 1: that's probably the the most important question I've been trying
Speaker 1: to work and I gave testimony to the Scottish Parliament
Speaker 1: last week on exactly this this point. Think about so
Speaker 1: we're talking about firms, workers being on furlough, workers being
Speaker 1: on temporary layout, but a big chunk of kids around
Speaker 1: the world left school in June. They graduated from college.
Speaker 1: And we know graduation from college into a bad labor
Speaker 1: market is tough, but especially think of kids coming out
Speaker 1: of high school, high school dropouts, um and there are
Speaker 1: huge social consequences to that. We had We had huge
Speaker 1: action in the thirties, there was a civilian conservation Corps.
Speaker 1: But nobody's actually really taking much action for these kids.
Speaker 1: And I think this is going to be a really
Speaker 1: stored up, huge problem for us. We tried to tackle
Speaker 1: it in the eighties. It kind of went away, but
Speaker 1: I think that's going to be the number one problem
Speaker 1: going forward. What are we going to do about these
Speaker 1: young people? Are we going to give them a sense
Speaker 1: of hope or impose hopelessness on them? What are we
Speaker 1: going to do about them by November? Especially given the
Speaker 1: fact that we are facing a backdrop of people not
Speaker 1: being able to socialize and depression and a whole host
Speaker 1: of other emotional issues. Nonetheless, there are no jobs. The
Speaker 1: entry level jobs have often been in the services sectors,
Speaker 1: whether it's to go work behind the counter at budget
Speaker 1: to do people rental cars or at airplanes or whatever
Speaker 1: it is, or in your local coffee shop. What jobs
Speaker 1: are going to replace those? Well, it's gonna be it's
Speaker 1: difficult to know. And obviously we've seen a big growth
Speaker 1: in delivery drivers. We've seen Amazon and Walmart and others.
Speaker 1: We've see a home delivery of foods um. I think
Speaker 1: it's really hard to know the answer to that. I mean,
Speaker 1: it's a great question. Labor clients will always ask, but
Speaker 1: if you think, think about saying, if you ask me
Speaker 1: what jobs are going to replace those in two thousand twenty,
Speaker 1: and the answers I have absolutely no idea. So I
Speaker 1: think their markets will sort of fix these things, but
Speaker 1: I think, you know, we're going to have to basically
Speaker 1: help people through this transition um and the fact that
Speaker 1: stimulus stopped at the end of July in the United States,
Speaker 1: I mean, well, when no one's talked about that, Eventually,
Speaker 1: at some point this stimulus and the lack of money
Speaker 1: coming into the economy, the lack of spending is going
Speaker 1: to reflect itself into the labor market, which is a
Speaker 1: lagging indicated. So it's you know, these are tough ones,
Speaker 1: but I think going forward, it's going to be hard
Speaker 1: to see young people will do unless we do something
Speaker 1: dramatically for them. Professor blames for one final question. Claudia
Speaker 1: sam joined us earlier this morning. Always controversial. I will
Speaker 1: label her a liberal economist, and she says, look, we
Speaker 1: got to get it going. And her statistic is a
Speaker 1: six trillion dollar aid for the United States of America.
Speaker 1: What's the Blanche Flower statistic. I don't want to get
Speaker 1: you in trouble with Dartmouth, but what's your stimulus estimate
Speaker 1: that would be appropriate? Well, I think the answer is
Speaker 1: that what we learned in the past is it's that
Speaker 1: that the issue is probably doing too little, not doing
Speaker 1: too much. I mean, Claudia has obviously been pushing these
Speaker 1: kinds of issues and has been very good on it.
Speaker 1: Um I think the answer is several trillion is going
Speaker 1: to have to have to work and have to be used.
Speaker 1: We're still at eight I mean, okay, we're still at
Speaker 1: eight and a half percent an employed plus another point
Speaker 1: seven because of the era. I mean, these are historically
Speaker 1: high numbers. Think where we were in March. We were
Speaker 1: at three and a half, so these are really big numbers.
Speaker 1: But I think the answer is doing too little is
Speaker 1: clearly the problem. It's hard to see what the consequences
Speaker 1: are of doing too much. If you think what Claudia said,
Speaker 1: if he did six what would it do well? It
Speaker 1: would boost the economy like crazy, and then Randy Cross right,
Speaker 1: at some point then you would have to do something
Speaker 1: about it. But doing too much is much better than
Speaker 1: doing little. Answer. We're at a time, David Blanche, thank
Speaker 1: you so much, of course at Dartmouth now on the
Speaker 1: equity market, and she has just been wonderful. Gina Martiny
Speaker 1: Adams has tried to give perspective. She's trying to really
Speaker 1: focus on relative value versus the many hysterias it seemed
Speaker 1: to be there in this odd two thousand twenty Gina,
Speaker 1: How did we get to the point where an index
Speaker 1: four percent pullback or a selected high flyers eight percent
Speaker 1: pullback is a cause for route cratered plunge? How did
Speaker 1: we get here? That's a good question. Um, we got
Speaker 1: here by having such an extraordinary rip higher that took
Speaker 1: a lot of people by surprise. In my opinion, this
Speaker 1: has been an ongoing issue with this bull market that
Speaker 1: began back in two thousand nine. Is every rally seems
Speaker 1: um to take most investors off guard, who are general
Speaker 1: generally have a pretty bearish outlook toward the fundamentals. Every
Speaker 1: rally starts with some degree of policy infusion liquidity takes
Speaker 1: stock significantly higher. Eventually fundamentals catch up, but never to
Speaker 1: the point where investors feel completely comfortable taking on equity
Speaker 1: insure exposures. So that's very much the same this year.
Speaker 1: Even though this year has been anomalous and that volatility
Speaker 1: in general has been a lot higher uh than in
Speaker 1: past years, the fact that stocks have moved higher based
Speaker 1: on liquidity conditions does make investors feel uncomfortable, and so
Speaker 1: any sort of sell off is a chance to feel justified.
Speaker 1: And that's why I think you hear the headlines of
Speaker 1: you know, we've got this correction, the doom and gloom
Speaker 1: sort of is near. This is the beginning of something horrible.
Speaker 1: You know that in a lot of ways, that's not
Speaker 1: different than the experience we've had in the last ten years.
Speaker 1: It's just amplified by extraordinary volatility and tremendous economic uncertainty
Speaker 1: that exists this year specifically, So, Gina, when I got
Speaker 1: into this business nearly thirty years ago, I think the
Speaker 1: first lesson I learned, at least internalized, was don't fight
Speaker 1: the Fed. Is that all I have to worry about here?
Speaker 1: I mean, I know the Fed's back stopping me here.
Speaker 1: Is that all I have to really focus on. It's
Speaker 1: not all, but it should be the foundation. Um. So
Speaker 1: I do think that that is absolutely one of the
Speaker 1: most important investment tenants is the fact that liquidity provision
Speaker 1: is absolutely extraordinary. Uh. You know, the FED balance sheet
Speaker 1: simply exploded from March to June, and it's still significantly
Speaker 1: higher than it was at this time last year. We've
Speaker 1: also got rates at zero percent into perpetuity as far
Speaker 1: as the market is concerned. So what you want to
Speaker 1: be concerned about is the point in time where economic
Speaker 1: conditions stabilized or get so strong that the FED does
Speaker 1: have to pull back on the punch bowl, because that's
Speaker 1: the most dicey time for stocks. That said, there are
Speaker 1: some underlying conditions in the equity market that do cause
Speaker 1: a little bit of pause. We're at a point in
Speaker 1: time where it's very clear that the momentum of some
Speaker 1: of the mega cap tech stocks got two extremes. It
Speaker 1: showed up in three sectors in the SMP five hitting
Speaker 1: momentum extremes that we hadn't seen in years as of
Speaker 1: last week. So we will have to see these segments
Speaker 1: of the equity market correct if we are to sustain
Speaker 1: gains and sort of experience, you know, a continuation of
Speaker 1: the uptrend. That means that as these areas of the
Speaker 1: market correct, someone will have to see a leadership transition
Speaker 1: into other sectors. Um, So I think you do want
Speaker 1: to watch a few other things. You do need to
Speaker 1: see economic momentum and essentially improve at least a little
Speaker 1: bit into one. If it doesn't, but then we're going
Speaker 1: to have to see greater policy infusion to keep stock
Speaker 1: prices afloat but you know, I'm trained the same way
Speaker 1: you are, a Paul apparently, because I completely believe in
Speaker 1: the notion that liquidity is extremely important and if you
Speaker 1: ignore policymakers, you're you do see your peril because it
Speaker 1: is a huge part of investment. So what's the allocation debate?
Speaker 1: I mean, I know we don't do bi whole cell
Speaker 1: and I don't give me you know, like sixty should
Speaker 1: be fifty two, blah blah blah blah blah. But how
Speaker 1: do you allocate Gina Martin Adams now with such an
Speaker 1: unusual yield space. Yeah, I think that this has been
Speaker 1: a question also that we've been asking ourselves for an
Speaker 1: honorably longer period of time than just But of course
Speaker 1: again really amplifies this question for a lot of people
Speaker 1: with rates reaching new loads across the yield curves. UM.
Speaker 1: You know, in my view, there is a very very
Speaker 1: compelling and strong reason to move out UM in terms
Speaker 1: of risk and move into riskier asset classes beyond treasuries.
Speaker 1: And that compelling reason is we're starting to get a
Speaker 1: sniff of an inflation regime change. Um. You also, on
Speaker 1: top of the fet obviously, the FETE is your most
Speaker 1: compelling reason. If the FETE is forcing you to take
Speaker 1: on risk, you pay attention and you take on some risk.
Speaker 1: Of the equity market is trading cheap relative to the
Speaker 1: corporate bond market, for for example, if you compare earning
Speaker 1: zeal to corporate credit yield. But if we're going to
Speaker 1: have an inflation regime change where companies are going to
Speaker 1: diversify supply chains increasing costs, that cost is going to
Speaker 1: have to get passed onto the consumer where liquid the
Speaker 1: conditions are extraordinarily supportive. Even in an environment where inflation
Speaker 1: is printing two to two and a half percent, the
Speaker 1: FED may not move because they're conditioned to expert deflationary
Speaker 1: conditions to prevail. Fiscal policymakers are going to throw everything
Speaker 1: they can at this crisis. All of these things line
Speaker 1: up to a potential for an inflation regime change. If
Speaker 1: we do see an inflation regime change, that changes the
Speaker 1: dynamics of how you want to allocate in your portfolio,
Speaker 1: because it means that box moved from a long term
Speaker 1: downtrend and yield to probably a longer term uptrend in yield,
Speaker 1: And that means you do want you do want to
Speaker 1: shift the dynamics. We're seeing this argument play out in
Speaker 1: Risk Parity Land more than anywhere right now. But I
Speaker 1: do think the alloy under question and what's worse is Paul,
Speaker 1: if you go to risk parity Land, you've got to
Speaker 1: be quarantined you come back. Gina, Martin Adams, thank you
Speaker 1: so much. Just always hugely valuable as well. Thanks for
Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to
Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.
Speaker 1: I'm on Twitter at Tom Keene before the podcast. You
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio