Speaker 1: Ye. Welcome to the Bloomberg Surveillance Podcast and I'm Tom
Speaker 1: Keene Jay Lee. 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: We can get the White House reactions this and number.
Speaker 1: I'm very pleased to say that joining us now is
Speaker 1: Larry Cudlow, National Economic Council Director. Larry, let's start right
Speaker 1: there downside surprise on the payrolls report. People we speak
Speaker 1: to in the last hour, the last ninety minutes will
Speaker 1: say the same thing. This makes it more likely to
Speaker 1: get a deal down in d C. Does it make
Speaker 1: it a difference to you, Larry? Well, look, I just
Speaker 1: want to say, I don't think this is such a
Speaker 1: bad jobs report. Okay, it may have come in a
Speaker 1: wee bid under expectations, but I don't know what that means.
Speaker 1: Six point seven percent unemployment rate is big news. The
Speaker 1: CBO and others didn't expect single digits until early so
Speaker 1: we got the single digits the last couple of months.
Speaker 1: Six point seven and incidentally importantly to everybody, UH, if
Speaker 1: you look under the hood, the biggest drops in unemployment
Speaker 1: were in the minority groups African Americans, Hispanics, Asians, and
Speaker 1: let me adds not a minority group, it's a majority group.
Speaker 1: Another big drop in unemployment came from women. That is
Speaker 1: not just people leaving the labor for us, I beg
Speaker 1: to differ. We also scored in the household survey. Private
Speaker 1: jobs were up nearly five hundred thousand. That's a strong number.
Speaker 1: And it's true we have ten million unemployed. I understand
Speaker 1: that there's still a lot of hardship left, no question. However,
Speaker 1: let's keep in mind that the peak of that number
Speaker 1: is twenty three million. And when we look at the
Speaker 1: other statistics, and I'm sure you will want to know
Speaker 1: talk about that. Other statistics on retail sales and housing
Speaker 1: and capex UH are very strong. And Atlanta f GDP
Speaker 1: now is looking for Q four. That's their number, not ours.
Speaker 1: But I'm just saying I think the economy is very
Speaker 1: much in a V shape percovery. The P M I
Speaker 1: s were strong, the I S M s were strong.
Speaker 1: So let's put this in some perspective. The job numbers
Speaker 1: are not the only stat and six point seven cent
Speaker 1: unemployment is awful good number. So Larry, you and I
Speaker 1: could debate the state of the economy. I think what
Speaker 1: matters is how you read the economy, how the administration
Speaker 1: sees the economy, and what it means, how it put
Speaker 1: together a policy package. So Larry, talk to me about it.
Speaker 1: Where are you on stimulus talks right now? Well, I
Speaker 1: think what we've got, um, senter McConnell's talking to House
Speaker 1: Speaker Pelosi. Our team is of course in touch part
Speaker 1: clearly with Senator McConnell and UH Republican House Leader Kevin McCarthy. UM,
Speaker 1: people are glad to see that the other team has
Speaker 1: come down in its numbers. On the other hand, there
Speaker 1: are still policy differences that remain. Um. I think Mitch
Speaker 1: McConnell sounds to me I've known him quite some time,
Speaker 1: a little more optimistic. But I can't say one way
Speaker 1: or other what the outcome is going to be. I
Speaker 1: don't want to dare predict that. I will add this
Speaker 1: point from our standpoint, and I think Santor McConell agrees
Speaker 1: with this. We have for many many months. You and
Speaker 1: I've talked about it. Here, she'll argue for targeted assistance.
Speaker 1: Targeted assistance in a few key areas. One is the
Speaker 1: small businesses to resurrect the p p P. Two is
Speaker 1: unemployment assistance, because we're going to continue, as you have noted,
Speaker 1: we still have a lot of hardship in the unemployment area.
Speaker 1: That's tough stuff. Uh. School COVID related spending is good. Um,
Speaker 1: maybe certain industries have to be helped out. And I
Speaker 1: will add to that. In terms of the figures that
Speaker 1: are flowing around, you've got roughly four hundred and fifty
Speaker 1: billion dollars available from unspent treasury funds and a hundred
Speaker 1: and thirty five billion dollars available from unspent PPP funds.
Speaker 1: Now in round numbers, i'm gonna call that six hundred
Speaker 1: billion plus or minus. It would be good to use
Speaker 1: that money, which has already been appropriated once, use it
Speaker 1: to redeploy it um and reappropriate it. And in a sense, uh,
Speaker 1: in a sense, the bookkeeping is okay, you're not really
Speaker 1: adding above what the legislators suggested way back last winter
Speaker 1: and a little bit this summer. There's this a good
Speaker 1: way to do that around six I'm not going to
Speaker 1: get into a numbers game. That's up the Center McConnell,
Speaker 1: Speaker Pelosi. I'm just saying, get into a numbers game
Speaker 1: right now. I'm just saying, there's a key targeted areas
Speaker 1: that could be funded by redeployed appropriations hundred and sixty billion.
Speaker 1: That's the State eight in the bipartisan plan. This has
Speaker 1: been a story for the last several months. Let's just
Speaker 1: get right down to it. That has been the red
Speaker 1: line for Senate Republicans. State eight. Have we moved the
Speaker 1: dial on that story, Larry, I don't know. Senator O'Connell
Speaker 1: has indicated that he's not happy with that part of
Speaker 1: the bipartisan group or the Speaker Pelosi, he's not happy
Speaker 1: with it. I'm going to leave that those are his decisions. Um,
Speaker 1: he's never been happy with a big bail out of
Speaker 1: states and localities. A lot of these blue states are
Speaker 1: poorly managed pension funds and so forth. COVID related funding
Speaker 1: is um very popular. That's different though, than a broad based,
Speaker 1: so huge omnibus appropriation to states and localities. I will
Speaker 1: leave that to Center McConnell. But I'm just saying, um,
Speaker 1: that's always been a difficult hurdle to get through. Well,
Speaker 1: you representing the administration this morning without lucky to have
Speaker 1: you with the President sign a bill that has a
Speaker 1: hundred and sixty billion dollars of state aided it. I
Speaker 1: wouldn't be able to say that. You'll have to ask him.
Speaker 1: I was with him last evening talking about the job
Speaker 1: numbers and related matters. Um, the President is in favor
Speaker 1: of a new assistance package. Okay, he is in favor
Speaker 1: of that, but the details, the targeting that I discussed
Speaker 1: earlier is absolutely crucial. And as you know, Jonathan, the
Speaker 1: President has always opposed a large scale appropriation for state
Speaker 1: and local governments that he President Trump believes have been
Speaker 1: mismanaged for many years. This idea that these states have
Speaker 1: been mismanaged, Larry, is that what this all comes down
Speaker 1: to a political debate about what you guys see as
Speaker 1: the mismanagement of state finances at a time when we're
Speaker 1: in a pandemic. We're seeing more restrictions in California, New
Speaker 1: York and by the way, in Republican states as well.
Speaker 1: Is this what it's going to come down to, Larry.
Speaker 1: I don't know that. I don't want to declare that
Speaker 1: I want to go back to targeted assistance, particularly small
Speaker 1: businesses unemployment assistance. These are temporary measures. UM and COVID
Speaker 1: relations dealing matters can be each other. Larry. That doesn't
Speaker 1: sound the deal. That doesn't sound like a compromise, Jonathan.
Speaker 1: I'm not going to make a deal with you. I
Speaker 1: hope you understand that. I don't expect to. I don't
Speaker 1: expect to negotiate with me. But the two plans for
Speaker 1: just planet five hundreds of sixty, Larry, don't do that.
Speaker 1: Come on, let's finish on a good note. We've had
Speaker 1: We've done really well for three or four years. My
Speaker 1: position not taught to each other like that. I'll give
Speaker 1: you the time, Jeff, just laying out the question. We've
Speaker 1: got two plans and nine intered eight billion dollar proposal
Speaker 1: and a five billion dollar proposal in the biparlisan proposal
Speaker 1: is a hundred and sixty billion dollars of state eight Larry.
Speaker 1: That's what it's going to come down. So we can
Speaker 1: either make a deal in the middle or we can
Speaker 1: and it doesn't sound like we can. Can you convince
Speaker 1: the audience otherwise? I can only give you the facts, Okay,
Speaker 1: as I've laid them out, and as I've said, the
Speaker 1: president's view, the majority leader's view, Mrs McConnell, my view
Speaker 1: is certainly Steve Minution's view over a treasury as we
Speaker 1: UH have targeted areas of assistance that we think would
Speaker 1: strengthen the economy, and those include most particularly um p
Speaker 1: PP for small businesses which are in need dealing with
Speaker 1: COVID spikes that we expect even more in the Christmas
Speaker 1: holiday season, and some unemployment assistance which also we would
Speaker 1: like to have again to get us through UH the
Speaker 1: COVID UH spikes and recovery elsewhere is pretty strong. Now
Speaker 1: let me add this point. Help is on the way.
Speaker 1: The vaccines will be distributed. Early distribution in a week
Speaker 1: or two. Okay, I was at Vice President Pence's COVID
Speaker 1: task Force a week or two. They are expecting, these
Speaker 1: are the experts UH at least twenty million by the
Speaker 1: end of December, and at least another twenty million to
Speaker 1: get the forty million by January, on their way to
Speaker 1: one hundred million in March. Now that becomes awfully important,
Speaker 1: not only for the health and safety of Americans, but
Speaker 1: also it will help keep businesses open, which is our view,
Speaker 1: we do not want businesses closed, and it will help
Speaker 1: keep schools open, which is our view as President Trump's you,
Speaker 1: we do not want school uh closed. So that is
Speaker 1: going to be an enormous boost. And we have to
Speaker 1: kind of lean through this period of the spiking COVID.
Speaker 1: We get that, that's what our experts are telling us.
Speaker 1: But help is on the way. And um, we have
Speaker 1: this massive program, Operation Warp Speed, which is panning out
Speaker 1: and then it's gonna be great boon for America. Is
Speaker 1: gonna be great boon for the American economy. So coming
Speaker 1: back to the stimulus package, I'm gonna say again we
Speaker 1: see important targeted areas, most particularly I'll narrow it down
Speaker 1: to a couple, frankly, most particularly small businesses. The p
Speaker 1: p P program, which probably saved fifty million jobs. In fact,
Speaker 1: the temporary lawyoups. Now roughly two thirds of them have
Speaker 1: gone back to work, which is terrific. Um. Secondly, some
Speaker 1: unemployment assistance because as I've acknowledged, despite much better than
Speaker 1: expected jobs numbers for the last seven months, there are
Speaker 1: still hardships that we need to help out on that.
Speaker 1: I would say those are the two biggest and perhaps
Speaker 1: COVID related assistance UM to schools. We want to keep
Speaker 1: the schools open. We want to keep the business open.
Speaker 1: We've got a strong economy and retail sales and housing
Speaker 1: and capital goods and durable good sales. One of my
Speaker 1: favorite best indicators I've seen. I get a lot of
Speaker 1: material from the Wall Street friends. Uh Ed Hyman, one
Speaker 1: of the top economists, has a Christmas Tree survey. Christmas.
Speaker 1: He's a wonderful guy as a brilliant guy. He has
Speaker 1: his Christmas Tree survey. It's up twenty nine percent year
Speaker 1: over year. That's a good holiday spirit number. That tells
Speaker 1: me we are in fact in the v shape recovery. Larry,
Speaker 1: I gave you three full minutes then, so you and
Speaker 1: I can finish on good terms. One final question, sir.
Speaker 1: We've gone back and forth together for three or four years,
Speaker 1: sometimes with a little bit of rough and tumble. We've
Speaker 1: always got our points across. Let me give the opportunity
Speaker 1: to do one final thing for your success. What's advice?
Speaker 1: Full of them? I've never met him. Um, I'm not
Speaker 1: gonna give him policy advice because I fear we have
Speaker 1: some significant disagreements. But we're in a honeymoon period of sorts. Look,
Speaker 1: anyc director is a fabulous job. It's a great honor
Speaker 1: for me to have had that. It's a great honor
Speaker 1: for me to serve our country as well as this president.
Speaker 1: NBC is a very powerful UH Council. It gets involved
Speaker 1: in nearly every aspect of economic, life, of trade, life
Speaker 1: of national security matters. As sits on the National Security Council,
Speaker 1: it is involved across the board almost every conceivable thing
Speaker 1: in the NBC. It's a great job. I wish him luck,
Speaker 1: I do. I pray for him. I do um he
Speaker 1: better be ready to work hard hours. But I'm sure
Speaker 1: he knows that he has served in government before. It's
Speaker 1: a terrific job, and I am blessed to have held
Speaker 1: that job for nearly three years. As I say, it's
Speaker 1: a high point in my professional career. And I've always
Speaker 1: thanked President Trump on that, and I thank everybody else
Speaker 1: for the opportunity to do this. I just loved the job,
Speaker 1: and we thank you for your contribution to this program.
Speaker 1: Larry Cudlo, Thank you, sir. I have a good Christmas
Speaker 1: and we don't catch up. Larry Cudlo. They're the National
Speaker 1: Economic Council directed from the market. You want to us now,
Speaker 1: pre A misraa TV Securities global head of Rates Strategy, Preyer,
Speaker 1: the number in about one hour and twenty five minutes.
Speaker 1: Does it matter to you? It doesn't matter. I think
Speaker 1: I've been watching the momentum. Clearly that December number is
Speaker 1: going to matter more because that's when the COVID restrictions
Speaker 1: should show up in the data. But our economists do
Speaker 1: have a much weaker number, and I think this market
Speaker 1: that's forward looking, that's pricing in the end of the
Speaker 1: you know, the light at the end of the tunney,
Speaker 1: if the tunnel is long, and you know, scary because
Speaker 1: we're heading into a period of weaker economic growth. I
Speaker 1: think the market, that at least the rates market, is
Speaker 1: not pricing in much of that weakness. The tenure is
Speaker 1: almost at one percent, so I think the market is
Speaker 1: really pricing in this vaccine fuel recovery stimulus. Well, we
Speaker 1: may have to deal with a lower growth environment and
Speaker 1: the FED doing more, so I think you actually do
Speaker 1: get a reaction in the rates market if it's anything
Speaker 1: less than four hundred, three hundred thousand, and our economists
Speaker 1: of two hundred thousand, So we're actually going into this
Speaker 1: number long treasurees. Prea, I gotta make some money here.
Speaker 1: The kids wanted a twenty Christmas tree, so you know,
Speaker 1: I get broke the bank yesterday. What I want to know, Prea,
Speaker 1: is do I step in here and buy fixed income
Speaker 1: by bonds, notes and bills because we've had a nice
Speaker 1: move in yield and now is the opportunity to look
Speaker 1: for lower yields later. I think so yes. I don't
Speaker 1: know if it's going to get you your your Christmas tree,
Speaker 1: but I think you have to buy a lot more
Speaker 1: treasuries just because the the extent of rate move I'm
Speaker 1: looking for is like twenty base points. You know, do
Speaker 1: we get to seventy eight basis points on the tenure?
Speaker 1: So so there is a floor. We're just very low,
Speaker 1: you know, close to zero. But I do think we've
Speaker 1: sold off in treasuries pricing in all the good news
Speaker 1: out there. There is a key FED meeting coming up,
Speaker 1: and our views that they're going to make Quei state
Speaker 1: contingent and they're going to extend the average maturity of
Speaker 1: QUIE purchases. They just kind of have to do it,
Speaker 1: the markets forcing them to do it, and they've realized
Speaker 1: that they could be longer term scarring. We still have
Speaker 1: so much uncertainty about the vaccine, So I think rates
Speaker 1: have sort of priced in too much of that good news,
Speaker 1: and we haven't quite priced in that we have a
Speaker 1: long way to go before that COVID recovery is is
Speaker 1: upon us. Built a little bit on this idea that
Speaker 1: the market is forcing the FED to extend the duration
Speaker 1: of its purchases. I'm looking right now at a tenure
Speaker 1: zero point nine two six percent, not exactly screaming we're
Speaker 1: running away with higher yield that could potentially threaten financial conditions.
Speaker 1: Why do you think that they are forcing the Fed's hand?
Speaker 1: And what does bond what do boundary able to do
Speaker 1: if they do not confirm the market's expectation. So I'm
Speaker 1: going to say the FED is the only marginal buyer
Speaker 1: of treasuries right right now, particularly in the long end.
Speaker 1: You know, the front end is so anchored by the
Speaker 1: FED because of their faith policy, because of just inflation
Speaker 1: being low, that if investors want to be in treasuries,
Speaker 1: they want to be in that front end. Meanwhile, the
Speaker 1: U S treasuries is showing a lot of long dated
Speaker 1: paper and that's really only happened in the last few
Speaker 1: months that they've you know, they've increased long end coupon
Speaker 1: sizes significantly. So the market right now is expecting the
Speaker 1: Fed to do something in December, which is why we're
Speaker 1: at one percent. If that meeting happens with nothing, I
Speaker 1: think we're breaking through that one. You know, do are
Speaker 1: we the brink of a taper tantrum? And I think
Speaker 1: the Fed knows that, which is why we expect them
Speaker 1: to come in and sort of tell us that they're
Speaker 1: going to keep conditions accommodative. It's a wife from your remit,
Speaker 1: but I'm going to go there. Are we back to
Speaker 1: two thousand five and two thousands six of the silly
Speaker 1: season of parsing out every hundreds of a basis point
Speaker 1: of investment grade, high yield leverage loan yield? I mean,
Speaker 1: are we back to the silliness of reaching out for yield? Yeah?
Speaker 1: I don't know if you call it silliness, but we
Speaker 1: are in a very serious reach for yield environment. And
Speaker 1: the question is that sometimes people don't understand the risk
Speaker 1: they're taking, but they're forced into different alternative assets. Um, yes,
Speaker 1: I think we're you know, I would suggest people should
Speaker 1: do credit work because defaultress is miss priced in certain products.
Speaker 1: But in the investment grade sector where you're not worried
Speaker 1: about default risk and you're not worried about interest rates
Speaker 1: going higher, I think like anything is fair game in
Speaker 1: terms of how do I get that extra yield. And
Speaker 1: we're seeing it in people selling volatility at historic laws.
Speaker 1: People are selling ball, They're taking spread risk, they're taking
Speaker 1: effects risk. So I think if interest rates are not
Speaker 1: going to give you that return, you're going to have
Speaker 1: to go into other products to get that written on.
Speaker 1: And you know that's the intended consequence of QUI. That's
Speaker 1: what the portfolio balance channel is. You take duration risk out,
Speaker 1: the central bank takes duration risk out and force investors
Speaker 1: into the risk spectrum, and the hope is that that
Speaker 1: translates somewhere into an economic recovery and then everything makes sense.
Speaker 1: I mean, there's a big hope in there that you
Speaker 1: don't see this disconnect between the economy and markets. We
Speaker 1: all hope it makes sense. In the end, we spent
Speaker 1: ten years debating whether it made sense. A decade ago prayer,
Speaker 1: Thank you, TV Securities. I'm gonna put it on a
Speaker 1: terminal at nine strength in Chinese Yuan, that just racing
Speaker 1: since June, and we see that across the Pacific rim folding.
Speaker 1: All this in has been chatting in all of Morgan
Speaker 1: Stanley Economics. The leadership of Allen Zetner, their chief US economists,
Speaker 1: has been extraordinary to try to figure out the ebbs
Speaker 1: and flows of g d P and how it folds
Speaker 1: into appending jobs report early in January of next year.
Speaker 1: Msentner joins us this morning, Ellen, by great definition, today's
Speaker 1: discussion today's jobs report really is a look back. What
Speaker 1: is the data you see now for the January report?
Speaker 1: What does December look like? Yeah, So as we rolled forward,
Speaker 1: I think we continue to see job growth slow here. Um.
Speaker 1: I think we do still hang on to some net
Speaker 1: job gains because the economy isn't shut down broadly as
Speaker 1: we did earlier this year. Um, but certainly the amount
Speaker 1: of folks coming back to the labor market and absolutely
Speaker 1: in that service side of the economy, Um, it just
Speaker 1: has to slow further. I mean, it's going to be
Speaker 1: a difficult winter. We know this, We're married to this idea.
Speaker 1: We're all disappointed in what the winter is going to
Speaker 1: look like. But these peril reports are getting overshadowed by
Speaker 1: positive news on the vaccine front and the fiscal headlines.
Speaker 1: Are we going to see services dison, inflations stay where
Speaker 1: it is with a slowdown in the service sector, or
Speaker 1: do we get back to normal inflation dynamics between services
Speaker 1: and goods. Well, that's those. So those are the two
Speaker 1: biggest drivers of our inflation forecast for next year. I
Speaker 1: mean goods inflation has been driving the numbers this year
Speaker 1: because the good side of the economy that has been
Speaker 1: growing and driving output, that consumer demand for durable goods.
Speaker 1: But next year, as we roll into next year and
Speaker 1: activity starts to pick up, as we move further through
Speaker 1: getting the vaccine rolled out and activity picking up, that
Speaker 1: services side does come back. And that is the lion's
Speaker 1: share of consumer demand. It's the lion share and what
Speaker 1: drives the price indusease. So goods prices decelerating, but services
Speaker 1: prices pick up. Services prices representing the bulk of the
Speaker 1: price induseries means inflation will be higher next year. Ellen.
Speaker 1: Everyone is saying that the economy will come back in
Speaker 1: and certainly that is in census, and it's easy to
Speaker 1: see how that could be. The case, but the post
Speaker 1: pandemic economy will look quite different in terms of consolidation
Speaker 1: of companies being stronger and bigger at the top and
Speaker 1: the smaller companies that have gone out of business. What
Speaker 1: does that mean longer term for the labor market. Yeah,
Speaker 1: so you know, the small businesses are the driver of
Speaker 1: of job growth UM and part of the loss of
Speaker 1: wage bargaining power over time has been the rise of
Speaker 1: mega companies and company density uh. And so that is
Speaker 1: something that when you add that to the other inequities
Speaker 1: that have been exposed further exposed by COVID On the
Speaker 1: household side, I think it's a heavy lift that the
Speaker 1: Democratic Party is going to focus on in terms of
Speaker 1: that fiscal policy activism that overall tries to raise the
Speaker 1: labor share of of profits UM and that is has
Speaker 1: been part of our longer run thesis on wise inflation
Speaker 1: over the long run would be structurally higher. I think
Speaker 1: that's going to be the focus going forward, not just
Speaker 1: household inequities, but inequities on the business side as well.
Speaker 1: And we spend a lot of time on programs like
Speaker 1: this beating up on the south side, I have to say,
Speaker 1: let's just take a moment to really talk about. One
Speaker 1: of the calls coming out of this crisis, and that
Speaker 1: was from you and the team that this recovery would
Speaker 1: be quick, This recovery would be sharp, it would look
Speaker 1: like a v And that was something we heard from
Speaker 1: politicians down in Washington. But many people just did not believe.
Speaker 1: This has been so underappreciated in the same way the
Speaker 1: equity market record highs are hated. And what did everyone
Speaker 1: get wrong? What do we learn from the lesson and
Speaker 1: how do we apply it for the months still to come. Well,
Speaker 1: I think you know, from for me, there's a there's
Speaker 1: a story that's missing in that that V shape recovery. Um.
Speaker 1: And to me, it's you know, when you open up
Speaker 1: from nothing to something, it's a very big jumping activity. Uh.
Speaker 1: And this was not a cyclical downturn. This is very
Speaker 1: structural downturn. So the way the virus would play out away,
Speaker 1: vaccine development would play out the way the economy and
Speaker 1: opens up. That's what's dictating that V shape in the economy.
Speaker 1: Where I am still greatly disappointed and where I think
Speaker 1: there's still a lot of heavy lifting to do is
Speaker 1: exactly what share Pal and the feather looking at as well.
Speaker 1: I'm looking at women's labor force participation rates, I'm looking
Speaker 1: at the unemployment rate of minority communities, of the unemployment
Speaker 1: rate of those that are concentrated in low wage paying
Speaker 1: service sectors. That you're going to see longer term damage
Speaker 1: from this, and so I do think that there is
Speaker 1: a great need and focus on further fiscal support so
Speaker 1: that these longer term unemployed folks don't leave the labor
Speaker 1: market all together. Because if that's the case, then it
Speaker 1: doesn't matter that we've got a V shape recovery. It's
Speaker 1: going to matter that longer run potential growth has been advantage.
Speaker 1: So this is important, Adam. The big call from Marcin
Speaker 1: Stanley was this V shaped recovery at the headline level.
Speaker 1: The complication you're talking about is the disparency beneath. Have
Speaker 1: we already done sufficient damage that it could take years,
Speaker 1: maybe even a decade to recover from what we've experienced
Speaker 1: that or can we actually do something about it? No?
Speaker 1: I think we can do something about it. I mean,
Speaker 1: the the biggest way that that you can UH affect
Speaker 1: help those underlying UH components of the labor market is
Speaker 1: by running a tight labor market, meaning a hot economy,
Speaker 1: very easy monetary policy, accommodation, targeted fiscal policies right up front,
Speaker 1: more as clearly needed. Uh, and we expect more to come. Um.
Speaker 1: But those kinds of things can get you as kind
Speaker 1: of a labor market, so as low of an unemployment
Speaker 1: rate as possible, as quickly as possible, And we do
Speaker 1: think by the end of with that kind of focus,
Speaker 1: we can push the unemployment rate down back down to
Speaker 1: around four percent, so getting close to the Fed's goal
Speaker 1: of maximum employment. But without that, you know, I think
Speaker 1: the literature, there's a there's a broad body of literature
Speaker 1: that shows that if you have a sluggish recovery after
Speaker 1: a deep downturn, that you do see permanent scarring to
Speaker 1: the economy. So I can't stress enough that we need
Speaker 1: to be doing all of this upfront now in order
Speaker 1: to push the unemployment right down as quickly as possible
Speaker 1: and get those folks back reattached to the labor market
Speaker 1: and re employed. Ellen, given the high flying stocks, given
Speaker 1: the fact that equity markets are at new highs again
Speaker 1: and again, does that complicate the urgency to try to
Speaker 1: get something done? As you say, on the fiscal side,
Speaker 1: in other words, is the high the high valuation of
Speaker 1: equities actually hampering the fundamental recovery of the economy. Uh. Well,
Speaker 1: the hampering the fundamental recovery, uh No, but hampering what
Speaker 1: typically are drivers of Congress to act quickly. Yes. Uh.
Speaker 1: And you know there's there's nothing like good old market
Speaker 1: volatility and sell off and really bad data coming in
Speaker 1: to get Congress to act quickly. Uh. And we've just
Speaker 1: not been forced by that. We're trying to before looking
Speaker 1: here and call for fiscal you know, further fiscal support
Speaker 1: before we see broad swass of the labor market gets
Speaker 1: sent back home if the the virus tightens its grip
Speaker 1: over the winter, uh, and we see further shutdowns. Um.
Speaker 1: But certainly, you know, if we got that negative payroll's
Speaker 1: print today, which we're not expecting. Um. But as John
Speaker 1: pointed out, there's a big spread and there are some
Speaker 1: expectations for a negative number, certainly that would impress urgency
Speaker 1: upon Congress to do something. I think the bizarre thing
Speaker 1: out of today's payroll print print is if it is
Speaker 1: a bad print, folks might take that as a good
Speaker 1: thing because it might push Congress to act. Ellen. I
Speaker 1: want you to help your colleague Mike's Mike Wilson. I
Speaker 1: know he listens, he hangs on your every word. But
Speaker 1: I want you to play equity strategist right now because
Speaker 1: it is part of economics. Nance deck went a hundred off.
Speaker 1: The financial crisis trend is out three standard deviations. It's
Speaker 1: an exceptionally elegant chart and it shows the monetary and
Speaker 1: fiscal of the nation, which is driven equities. There's no
Speaker 1: question about that. Do you just assume a mean mean
Speaker 1: reversion of equities within a five or ten year view?
Speaker 1: Is that just part of your playbook that you got
Speaker 1: to tell Mike Wilson about. Yeah, I don't think I
Speaker 1: give him advice on where equities will be. And as
Speaker 1: you know, when economists put on a strategist had it
Speaker 1: can be pretty dangerous. Um. But he's gonna target on
Speaker 1: SMP at the end of next year, and I think
Speaker 1: where I think people are going to be surprised at
Speaker 1: how much economic activity we pick back up over the
Speaker 1: course of the year as we're rolling out the vaccine.
Speaker 1: I can tell you from just a personal experience, as
Speaker 1: soon as the efficacy rates of the vaccine began getting
Speaker 1: reported that we're so positive. Um, you try to pick
Speaker 1: any summer travel place and have it with a with
Speaker 1: a with a healthy cancelation policy. Uh. And the two
Speaker 1: of the top three places we wanted to go to
Speaker 1: more already booked. People were booking that quickly. So I
Speaker 1: think we will be surprised at how quickly activity comes back,
Speaker 1: and I think investors are looking forward to that. That's
Speaker 1: a very yesterday, Ellen, thank you, and thank you for
Speaker 1: phenomenal guidance through much of this year. Allen Setta of
Speaker 1: Morgan Stanley, thank you very much. Were on policy is
Speaker 1: John Farrell mentions a key topic with Mr Caudlow, Henrietta
Speaker 1: tres joins us. Henrietta is the ink drying on a
Speaker 1: stimulus bill right now? Are you that certain it can
Speaker 1: get done? I've actually I felt pretty great about it. Honestly.
Speaker 1: I know that's crazy talk after the last six months
Speaker 1: of inaction, but um, I don't think there's a question
Speaker 1: of whether or not we're going to get a bill anymore.
Speaker 1: I think it's what is the size and scope going
Speaker 1: to be. So I am optimistic. I would say low
Speaker 1: and six that we get a bill done in the
Speaker 1: next two weeks. Okay, I'm looking right now. The tenure
Speaker 1: Yield believes your message. Right now, Yields breaking out, as
Speaker 1: John was pointing out earlier, almost now up to basis
Speaker 1: points as people price in the greater likelihood of some
Speaker 1: sort of fiscal support package passed in Washington on the
Speaker 1: heels of this labor market report. Do you believe that Henrietta,
Speaker 1: that this was a bad enough report to push any
Speaker 1: of the laggards on the Capitol Hill into passing something.
Speaker 1: I really do. I had an interesting conversation with a
Speaker 1: client yesterday who is still sort of looking at stimulus
Speaker 1: is unnecessary and saying, you know, the market clearly doesn't
Speaker 1: need stimulus. And I think that's an outdated way of
Speaker 1: thinking about how DC considers economic policy. This is an
Speaker 1: anomaly under the Trump administration that anyone cared about the
Speaker 1: stock market in Washington, d C. It's about the fundamental data.
Speaker 1: It's about the jobs data, it's about the unemployment NUBER,
Speaker 1: it'spect GDP data. It's slow moving, but it's exactly that.
Speaker 1: It's kind of print that makes members in d C say,
Speaker 1: oh right, I mean us their stantial amount of unemployed,
Speaker 1: were massive increase in COVID. We're going into the holidays,
Speaker 1: We're not going to be here for another month and
Speaker 1: a half something now. Package expect it will be somewhere
Speaker 1: in the six billion dollar range. That includes three hundred
Speaker 1: billion dollars roughly in money that has already been allocated
Speaker 1: in previous iterations of stimulus, whether the Care's Act or
Speaker 1: the p p P program or the E s F
Speaker 1: programs at the Fed and Treasury level. But there's gonna
Speaker 1: be somewhere in the range of about three hundred billion
Speaker 1: dollars in new funding that goes out just to extend
Speaker 1: the pandemic unemployment assistance. Where does McConnell stand, just Henriette,
Speaker 1: I'm wondering the key sticking points we've been talking about
Speaker 1: all morning and frankly for a couple of months now
Speaker 1: is the funding to state and local governments. What's sort
Speaker 1: of the tipping point for McConnell to get on board
Speaker 1: with this nine eight billion dollar bipartisan agreement or something
Speaker 1: that still includes some aid to state and local governments.
Speaker 1: State and local is absolutely the sticking point, because you
Speaker 1: still have this divide mentality amongst Midwestern senator in the
Speaker 1: red blue state divide. But I think if you can
Speaker 1: drill down and stop discussing just state and local broadly,
Speaker 1: but get into schools need this aid, specifically buses, rail transit,
Speaker 1: um subways. These programs are going to lay off ten
Speaker 1: thousand workers. They're slashing um their provided provisions by in
Speaker 1: d C, in New York, in Chicago, they are making
Speaker 1: a lot of noise at the transit level. So I
Speaker 1: think if you can start talking about transit funding and
Speaker 1: specific segment, come on, Henrietta, Henrietta, I take issue with
Speaker 1: this after talking to Patrick Foyd, Washington hates transportation because
Speaker 1: they're Democrats in big cities. Is that going to change
Speaker 1: in the next forty eight hours? I think I think
Speaker 1: there's enough of a push, honestly to get you a
Speaker 1: small basket of funding for those sectors include air lines.
Speaker 1: By the way, um, there's you know, a long way
Speaker 1: to go there. But I do think that fundamental unders
Speaker 1: and there is something that has shifted in the last
Speaker 1: couple of months. Yes, and it's a bit of disruption
Speaker 1: on your line, but we'll stick with it because this
Speaker 1: conversation is important. How important are the things that we're
Speaker 1: discussing right now to the January five runoffs in Georgia.
Speaker 1: I think that's a really critical question. Obviously. Um, it's
Speaker 1: important because you need to. It's enough funding to keep
Speaker 1: Democrats at home and not enough to alienate your Republican base.
Speaker 1: So that package that I just walked through, roughly six
Speaker 1: hundred billion dollars or so in spending, does just that.
Speaker 1: It's no bail out. There's no three D six hundred
Speaker 1: dollars a week unemployment insurance booster at the federal level,
Speaker 1: no direct payment to individuals, none of that, you know,
Speaker 1: democratic socialist minded stuff that will get the Republican senators
Speaker 1: in trouble Senators per New and Laffler. But it is
Speaker 1: also enough to provide aid to the Democrats or the
Speaker 1: members of the Georgia community who needed the most, mostly
Speaker 1: in that unemployment insurance aid, to get them to potentially
Speaker 1: stay home. This is going to be the largest turnout
Speaker 1: runoff in the state of Georgia. Per the electoral officials expectations.
Speaker 1: The margins are exceedingly tight. UM. The latest data shows
Speaker 1: that as Up is up fifty to produce forty eight,
Speaker 1: whereas Warnock is up fifty two too lawful forty five
Speaker 1: UM in the polls and Georgia polls. For what it's worth,
Speaker 1: we're pretty accurate in November. So, um, there needs to
Speaker 1: be a concerted effort to turn out the Republican base,
Speaker 1: which means the stimulus needs to be relatively small, but
Speaker 1: there needs to be enough to keep the Democrats home
Speaker 1: as well, which creates some concern around whether President Trump
Speaker 1: should or should not go to Georgia. UM or whether
Speaker 1: or not they should or should not passed even a
Speaker 1: minimal stimulus bill this cycle. I so I think they will.
Speaker 1: I think that's threading the needle from McConnell's perspective, and
Speaker 1: that's what they'll get. This is not part of the
Speaker 1: conversation on Wall Street, Henrietta. It barely comes up. The
Speaker 1: outlooks for one hardly even include January five. There is
Speaker 1: just an assumption that we have a divided government down
Speaker 1: in Washington, d C. Do you think that's a mistake. Well,
Speaker 1: if we do see the Democrats pick up the next
Speaker 1: two seats in Georgia, there will be the definition of
Speaker 1: divided in the is not a function majority. Um, We're
Speaker 1: gonna need to watch the teams at risks for flipping sides.
Speaker 1: That would be maybe Lisa Murkowski or Joe Mansion, a
Speaker 1: Democrat out of West Virginia. Um, you're gonna look at
Speaker 1: a sixty vote threshold for any legislation, regardless of what
Speaker 1: happens in Georgia. In my opinion, Um, that is what
Speaker 1: President of Like Biden is signaling. He will make in
Speaker 1: State of the Union address about his inaugural speech about
Speaker 1: and concentrate on exclusively the coronavirus, on the need for stimulus,
Speaker 1: and that will occupy all of the first quarter at
Speaker 1: least until they get it. And then if there is
Speaker 1: a fifty seat Democratic uh you know, quote unquote majority,
Speaker 1: they'll try to pursue things like reconciliation instructions and get
Speaker 1: more funding. But you're not gonna see any more legislation pass.
Speaker 1: So I encourage our clients to focus on things that
Speaker 1: can change at the regulatory level. And then of course
Speaker 1: trade policy US China, relations to US EU, relations to
Speaker 1: US Japan. That's the focus for the future. It's a
Speaker 1: conversation for another time, Henriet said, we always enjoy catching
Speaker 1: up with you. Thank you and read traice that Vati Potus,
Speaker 1: the director of Economic Policy, Thanks for listening to the
Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple podcasts. SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keane before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio