WEBVTT - Surveillance: Stimulus Talks With Kudlow 0:00:03.360 --> 0:00:12.640 Ye. Welcome to the Bloomberg Surveillance Podcast and I'm Tom 0:00:12.720 --> 0:00:15.720 Keene Jay Lee. We bring you insight from the best 0:00:15.800 --> 0:00:21.240 in economics, finance, investment, and international relations. Find Bloomberg Surveillance 0:00:21.280 --> 0:00:25.720 on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course, 0:00:26.040 --> 0:00:30.200 on the Bloomberg audience worldwide on Bloomberg TV and Bloomberg Radio. 0:00:30.240 --> 0:00:31.960 We can get the White House reactions this and number. 0:00:32.000 --> 0:00:33.720 I'm very pleased to say that joining us now is 0:00:33.760 --> 0:00:38.600 Larry Cudlow, National Economic Council Director. Larry, let's start right 0:00:38.600 --> 0:00:43.400 there downside surprise on the payrolls report. People we speak 0:00:43.479 --> 0:00:46.040 to in the last hour, the last ninety minutes will 0:00:46.040 --> 0:00:48.440 say the same thing. This makes it more likely to 0:00:48.479 --> 0:00:50.879 get a deal down in d C. Does it make 0:00:50.880 --> 0:00:54.840 it a difference to you, Larry? Well, look, I just 0:00:54.880 --> 0:00:58.160 want to say, I don't think this is such a 0:00:58.200 --> 0:01:01.960 bad jobs report. Okay, it may have come in a 0:01:02.080 --> 0:01:06.559 wee bid under expectations, but I don't know what that means. 0:01:06.880 --> 0:01:10.800 Six point seven percent unemployment rate is big news. The 0:01:10.880 --> 0:01:16.160 CBO and others didn't expect single digits until early so 0:01:16.240 --> 0:01:18.760 we got the single digits the last couple of months. 0:01:18.800 --> 0:01:22.720 Six point seven and incidentally importantly to everybody, UH, if 0:01:22.760 --> 0:01:27.040 you look under the hood, the biggest drops in unemployment 0:01:27.400 --> 0:01:32.640 were in the minority groups African Americans, Hispanics, Asians, and 0:01:32.720 --> 0:01:35.520 let me adds not a minority group, it's a majority group. 0:01:35.840 --> 0:01:39.280 Another big drop in unemployment came from women. That is 0:01:39.319 --> 0:01:41.600 not just people leaving the labor for us, I beg 0:01:41.680 --> 0:01:45.360 to differ. We also scored in the household survey. Private 0:01:45.440 --> 0:01:49.880 jobs were up nearly five hundred thousand. That's a strong number. 0:01:50.240 --> 0:01:54.360 And it's true we have ten million unemployed. I understand 0:01:54.360 --> 0:01:57.120 that there's still a lot of hardship left, no question. However, 0:01:57.520 --> 0:01:59.920 let's keep in mind that the peak of that number 0:02:00.080 --> 0:02:02.440 is twenty three million. And when we look at the 0:02:02.480 --> 0:02:05.200 other statistics, and I'm sure you will want to know 0:02:05.520 --> 0:02:10.280 talk about that. Other statistics on retail sales and housing 0:02:10.360 --> 0:02:15.800 and capex UH are very strong. And Atlanta f GDP 0:02:15.919 --> 0:02:19.520 now is looking for Q four. That's their number, not ours. 0:02:19.560 --> 0:02:22.359 But I'm just saying I think the economy is very 0:02:22.440 --> 0:02:24.760 much in a V shape percovery. The P M I 0:02:24.919 --> 0:02:26.959 s were strong, the I S M s were strong. 0:02:27.200 --> 0:02:30.440 So let's put this in some perspective. The job numbers 0:02:30.480 --> 0:02:34.200 are not the only stat and six point seven cent 0:02:34.320 --> 0:02:37.760 unemployment is awful good number. So Larry, you and I 0:02:37.760 --> 0:02:40.120 could debate the state of the economy. I think what 0:02:40.200 --> 0:02:42.679 matters is how you read the economy, how the administration 0:02:42.720 --> 0:02:45.040 sees the economy, and what it means, how it put 0:02:45.120 --> 0:02:47.960 together a policy package. So Larry, talk to me about it. 0:02:48.000 --> 0:02:51.280 Where are you on stimulus talks right now? Well, I 0:02:51.320 --> 0:02:55.239 think what we've got, um, senter McConnell's talking to House 0:02:55.240 --> 0:02:59.839 Speaker Pelosi. Our team is of course in touch part 0:03:00.040 --> 0:03:05.760 clearly with Senator McConnell and UH Republican House Leader Kevin McCarthy. UM, 0:03:05.800 --> 0:03:08.720 people are glad to see that the other team has 0:03:08.760 --> 0:03:12.560 come down in its numbers. On the other hand, there 0:03:12.600 --> 0:03:17.880 are still policy differences that remain. Um. I think Mitch 0:03:17.919 --> 0:03:21.240 McConnell sounds to me I've known him quite some time, 0:03:21.280 --> 0:03:24.600 a little more optimistic. But I can't say one way 0:03:24.680 --> 0:03:26.360 or other what the outcome is going to be. I 0:03:26.400 --> 0:03:29.320 don't want to dare predict that. I will add this 0:03:29.400 --> 0:03:32.840 point from our standpoint, and I think Santor McConell agrees 0:03:32.880 --> 0:03:35.640 with this. We have for many many months. You and 0:03:35.680 --> 0:03:40.200 I've talked about it. Here, she'll argue for targeted assistance. 0:03:40.320 --> 0:03:44.040 Targeted assistance in a few key areas. One is the 0:03:44.120 --> 0:03:48.200 small businesses to resurrect the p p P. Two is 0:03:48.560 --> 0:03:53.000 unemployment assistance, because we're going to continue, as you have noted, 0:03:53.440 --> 0:03:56.760 we still have a lot of hardship in the unemployment area. 0:03:56.840 --> 0:04:03.560 That's tough stuff. Uh. School COVID related spending is good. Um, 0:04:03.560 --> 0:04:06.360 maybe certain industries have to be helped out. And I 0:04:06.360 --> 0:04:08.960 will add to that. In terms of the figures that 0:04:09.000 --> 0:04:13.000 are flowing around, you've got roughly four hundred and fifty 0:04:13.000 --> 0:04:17.760 billion dollars available from unspent treasury funds and a hundred 0:04:17.720 --> 0:04:22.160 and thirty five billion dollars available from unspent PPP funds. 0:04:22.200 --> 0:04:24.840 Now in round numbers, i'm gonna call that six hundred 0:04:24.880 --> 0:04:28.120 billion plus or minus. It would be good to use 0:04:28.279 --> 0:04:34.160 that money, which has already been appropriated once, use it 0:04:34.200 --> 0:04:41.360 to redeploy it um and reappropriate it. And in a sense, uh, 0:04:41.400 --> 0:04:44.159 in a sense, the bookkeeping is okay, you're not really 0:04:44.200 --> 0:04:49.919 adding above what the legislators suggested way back last winter 0:04:49.960 --> 0:04:51.719 and a little bit this summer. There's this a good 0:04:51.760 --> 0:04:54.080 way to do that around six I'm not going to 0:04:54.160 --> 0:04:56.560 get into a numbers game. That's up the Center McConnell, 0:04:56.640 --> 0:04:59.320 Speaker Pelosi. I'm just saying, get into a numbers game 0:04:59.400 --> 0:05:05.400 right now. I'm just saying, there's a key targeted areas 0:05:05.440 --> 0:05:11.559 that could be funded by redeployed appropriations hundred and sixty billion. 0:05:11.720 --> 0:05:14.000 That's the State eight in the bipartisan plan. This has 0:05:14.000 --> 0:05:15.720 been a story for the last several months. Let's just 0:05:15.760 --> 0:05:18.320 get right down to it. That has been the red 0:05:18.360 --> 0:05:22.159 line for Senate Republicans. State eight. Have we moved the 0:05:22.200 --> 0:05:26.520 dial on that story, Larry, I don't know. Senator O'Connell 0:05:26.560 --> 0:05:30.440 has indicated that he's not happy with that part of 0:05:30.600 --> 0:05:35.400 the bipartisan group or the Speaker Pelosi, he's not happy 0:05:35.400 --> 0:05:39.120 with it. I'm going to leave that those are his decisions. Um, 0:05:39.160 --> 0:05:41.200 he's never been happy with a big bail out of 0:05:41.240 --> 0:05:43.920 states and localities. A lot of these blue states are 0:05:43.920 --> 0:05:48.360 poorly managed pension funds and so forth. COVID related funding 0:05:49.120 --> 0:05:54.520 is um very popular. That's different though, than a broad based, 0:05:55.080 --> 0:05:59.040 so huge omnibus appropriation to states and localities. I will 0:05:59.120 --> 0:06:02.720 leave that to Center McConnell. But I'm just saying, um, 0:06:02.800 --> 0:06:06.720 that's always been a difficult hurdle to get through. Well, 0:06:06.760 --> 0:06:09.200 you representing the administration this morning without lucky to have 0:06:09.320 --> 0:06:11.320 you with the President sign a bill that has a 0:06:11.400 --> 0:06:15.440 hundred and sixty billion dollars of state aided it. I 0:06:15.480 --> 0:06:18.560 wouldn't be able to say that. You'll have to ask him. 0:06:19.000 --> 0:06:21.600 I was with him last evening talking about the job 0:06:21.680 --> 0:06:25.799 numbers and related matters. Um, the President is in favor 0:06:26.320 --> 0:06:29.520 of a new assistance package. Okay, he is in favor 0:06:29.560 --> 0:06:34.120 of that, but the details, the targeting that I discussed 0:06:34.160 --> 0:06:37.839 earlier is absolutely crucial. And as you know, Jonathan, the 0:06:37.880 --> 0:06:43.760 President has always opposed a large scale appropriation for state 0:06:43.880 --> 0:06:48.360 and local governments that he President Trump believes have been 0:06:48.400 --> 0:06:54.120 mismanaged for many years. This idea that these states have 0:06:54.200 --> 0:06:56.479 been mismanaged, Larry, is that what this all comes down 0:06:56.480 --> 0:07:00.400 to a political debate about what you guys see as 0:07:00.440 --> 0:07:03.880 the mismanagement of state finances at a time when we're 0:07:03.880 --> 0:07:07.000 in a pandemic. We're seeing more restrictions in California, New 0:07:07.080 --> 0:07:09.120 York and by the way, in Republican states as well. 0:07:09.760 --> 0:07:11.800 Is this what it's going to come down to, Larry. 0:07:12.400 --> 0:07:15.960 I don't know that. I don't want to declare that 0:07:16.600 --> 0:07:20.400 I want to go back to targeted assistance, particularly small 0:07:20.440 --> 0:07:26.720 businesses unemployment assistance. These are temporary measures. UM and COVID 0:07:26.760 --> 0:07:31.560 relations dealing matters can be each other. Larry. That doesn't 0:07:31.600 --> 0:07:34.760 sound the deal. That doesn't sound like a compromise, Jonathan. 0:07:35.000 --> 0:07:36.800 I'm not going to make a deal with you. I 0:07:36.840 --> 0:07:39.440 hope you understand that. I don't expect to. I don't 0:07:39.440 --> 0:07:46.600 expect to negotiate with me. But the two plans for 0:07:46.760 --> 0:07:52.960 just planet five hundreds of sixty, Larry, don't do that. 0:07:53.040 --> 0:07:54.840 Come on, let's finish on a good note. We've had 0:07:54.880 --> 0:07:56.840 We've done really well for three or four years. My 0:07:56.920 --> 0:07:59.160 position not taught to each other like that. I'll give 0:07:59.160 --> 0:08:01.400 you the time, Jeff, just laying out the question. We've 0:08:01.400 --> 0:08:04.280 got two plans and nine intered eight billion dollar proposal 0:08:04.680 --> 0:08:09.000 and a five billion dollar proposal in the biparlisan proposal 0:08:09.160 --> 0:08:11.600 is a hundred and sixty billion dollars of state eight Larry. 0:08:11.640 --> 0:08:13.440 That's what it's going to come down. So we can 0:08:13.480 --> 0:08:16.200 either make a deal in the middle or we can 0:08:16.880 --> 0:08:19.360 and it doesn't sound like we can. Can you convince 0:08:19.440 --> 0:08:25.720 the audience otherwise? I can only give you the facts, Okay, 0:08:25.760 --> 0:08:29.320 as I've laid them out, and as I've said, the 0:08:29.320 --> 0:08:34.160 president's view, the majority leader's view, Mrs McConnell, my view 0:08:34.200 --> 0:08:37.719 is certainly Steve Minution's view over a treasury as we 0:08:38.080 --> 0:08:41.880 UH have targeted areas of assistance that we think would 0:08:41.880 --> 0:08:47.800 strengthen the economy, and those include most particularly um p 0:08:48.000 --> 0:08:51.520 PP for small businesses which are in need dealing with 0:08:51.600 --> 0:08:54.960 COVID spikes that we expect even more in the Christmas 0:08:54.960 --> 0:09:00.520 holiday season, and some unemployment assistance which also we would 0:09:00.559 --> 0:09:04.080 like to have again to get us through UH the 0:09:04.240 --> 0:09:09.760 COVID UH spikes and recovery elsewhere is pretty strong. Now 0:09:09.880 --> 0:09:13.880 let me add this point. Help is on the way. 0:09:14.080 --> 0:09:19.280 The vaccines will be distributed. Early distribution in a week 0:09:19.640 --> 0:09:23.920 or two. Okay, I was at Vice President Pence's COVID 0:09:24.120 --> 0:09:27.760 task Force a week or two. They are expecting, these 0:09:27.760 --> 0:09:31.520 are the experts UH at least twenty million by the 0:09:31.600 --> 0:09:34.840 end of December, and at least another twenty million to 0:09:34.840 --> 0:09:38.200 get the forty million by January, on their way to 0:09:38.280 --> 0:09:42.880 one hundred million in March. Now that becomes awfully important, 0:09:43.040 --> 0:09:46.640 not only for the health and safety of Americans, but 0:09:46.840 --> 0:09:51.360 also it will help keep businesses open, which is our view, 0:09:51.400 --> 0:09:54.320 we do not want businesses closed, and it will help 0:09:54.400 --> 0:09:58.400 keep schools open, which is our view as President Trump's you, 0:09:58.679 --> 0:10:01.880 we do not want school uh closed. So that is 0:10:01.920 --> 0:10:06.080 going to be an enormous boost. And we have to 0:10:06.160 --> 0:10:10.480 kind of lean through this period of the spiking COVID. 0:10:10.520 --> 0:10:12.920 We get that, that's what our experts are telling us. 0:10:13.200 --> 0:10:16.720 But help is on the way. And um, we have 0:10:16.840 --> 0:10:21.320 this massive program, Operation Warp Speed, which is panning out 0:10:21.720 --> 0:10:23.880 and then it's gonna be great boon for America. Is 0:10:23.920 --> 0:10:26.960 gonna be great boon for the American economy. So coming 0:10:27.000 --> 0:10:30.560 back to the stimulus package, I'm gonna say again we 0:10:30.720 --> 0:10:36.400 see important targeted areas, most particularly I'll narrow it down 0:10:36.400 --> 0:10:41.199 to a couple, frankly, most particularly small businesses. The p 0:10:41.360 --> 0:10:45.800 p P program, which probably saved fifty million jobs. In fact, 0:10:46.240 --> 0:10:49.720 the temporary lawyoups. Now roughly two thirds of them have 0:10:49.840 --> 0:10:53.320 gone back to work, which is terrific. Um. Secondly, some 0:10:53.440 --> 0:10:58.280 unemployment assistance because as I've acknowledged, despite much better than 0:10:58.360 --> 0:11:01.360 expected jobs numbers for the last seven months, there are 0:11:01.400 --> 0:11:03.440 still hardships that we need to help out on that. 0:11:03.600 --> 0:11:06.320 I would say those are the two biggest and perhaps 0:11:06.600 --> 0:11:10.800 COVID related assistance UM to schools. We want to keep 0:11:10.840 --> 0:11:13.040 the schools open. We want to keep the business open. 0:11:13.480 --> 0:11:17.000 We've got a strong economy and retail sales and housing 0:11:17.280 --> 0:11:20.280 and capital goods and durable good sales. One of my 0:11:20.400 --> 0:11:22.840 favorite best indicators I've seen. I get a lot of 0:11:22.880 --> 0:11:27.280 material from the Wall Street friends. Uh Ed Hyman, one 0:11:27.280 --> 0:11:31.240 of the top economists, has a Christmas Tree survey. Christmas. 0:11:31.280 --> 0:11:33.719 He's a wonderful guy as a brilliant guy. He has 0:11:33.800 --> 0:11:37.360 his Christmas Tree survey. It's up twenty nine percent year 0:11:37.440 --> 0:11:41.320 over year. That's a good holiday spirit number. That tells 0:11:41.400 --> 0:11:46.280 me we are in fact in the v shape recovery. Larry, 0:11:46.320 --> 0:11:48.640 I gave you three full minutes then, so you and 0:11:48.679 --> 0:11:51.440 I can finish on good terms. One final question, sir. 0:11:51.800 --> 0:11:54.679 We've gone back and forth together for three or four years, 0:11:54.720 --> 0:11:56.959 sometimes with a little bit of rough and tumble. We've 0:11:56.960 --> 0:11:59.760 always got our points across. Let me give the opportunity 0:11:59.800 --> 0:12:03.080 to do one final thing for your success. What's advice? 0:12:03.160 --> 0:12:08.920 Full of them? I've never met him. Um, I'm not 0:12:08.960 --> 0:12:12.040 gonna give him policy advice because I fear we have 0:12:12.160 --> 0:12:16.600 some significant disagreements. But we're in a honeymoon period of sorts. Look, 0:12:17.080 --> 0:12:20.360 anyc director is a fabulous job. It's a great honor 0:12:20.400 --> 0:12:22.920 for me to have had that. It's a great honor 0:12:22.960 --> 0:12:25.840 for me to serve our country as well as this president. 0:12:26.720 --> 0:12:31.120 NBC is a very powerful UH Council. It gets involved 0:12:31.120 --> 0:12:35.680 in nearly every aspect of economic, life, of trade, life 0:12:35.760 --> 0:12:39.800 of national security matters. As sits on the National Security Council, 0:12:40.280 --> 0:12:44.160 it is involved across the board almost every conceivable thing 0:12:44.679 --> 0:12:47.560 in the NBC. It's a great job. I wish him luck, 0:12:48.080 --> 0:12:51.400 I do. I pray for him. I do um he 0:12:51.559 --> 0:12:53.920 better be ready to work hard hours. But I'm sure 0:12:53.920 --> 0:12:57.120 he knows that he has served in government before. It's 0:12:57.120 --> 0:13:00.240 a terrific job, and I am blessed to have held 0:13:00.280 --> 0:13:03.040 that job for nearly three years. As I say, it's 0:13:03.040 --> 0:13:05.720 a high point in my professional career. And I've always 0:13:05.720 --> 0:13:08.920 thanked President Trump on that, and I thank everybody else 0:13:08.960 --> 0:13:11.800 for the opportunity to do this. I just loved the job, 0:13:13.679 --> 0:13:15.760 and we thank you for your contribution to this program. 0:13:15.800 --> 0:13:17.800 Larry Cudlo, Thank you, sir. I have a good Christmas 0:13:17.800 --> 0:13:19.679 and we don't catch up. Larry Cudlo. They're the National 0:13:19.720 --> 0:13:27.080 Economic Council directed from the market. You want to us now, 0:13:27.120 --> 0:13:31.120 pre A misraa TV Securities global head of Rates Strategy, Preyer, 0:13:31.320 --> 0:13:33.880 the number in about one hour and twenty five minutes. 0:13:33.920 --> 0:13:36.480 Does it matter to you? It doesn't matter. I think 0:13:36.520 --> 0:13:40.320 I've been watching the momentum. Clearly that December number is 0:13:40.320 --> 0:13:42.679 going to matter more because that's when the COVID restrictions 0:13:42.679 --> 0:13:46.320 should show up in the data. But our economists do 0:13:46.440 --> 0:13:49.120 have a much weaker number, and I think this market 0:13:49.160 --> 0:13:51.760 that's forward looking, that's pricing in the end of the 0:13:51.960 --> 0:13:54.160 you know, the light at the end of the tunney, 0:13:54.200 --> 0:13:58.120 if the tunnel is long, and you know, scary because 0:13:58.160 --> 0:14:02.800 we're heading into a period of weaker economic growth. I 0:14:02.800 --> 0:14:05.000 think the market, that at least the rates market, is 0:14:05.000 --> 0:14:08.320 not pricing in much of that weakness. The tenure is 0:14:08.400 --> 0:14:10.600 almost at one percent, so I think the market is 0:14:10.600 --> 0:14:14.480 really pricing in this vaccine fuel recovery stimulus. Well, we 0:14:14.520 --> 0:14:17.680 may have to deal with a lower growth environment and 0:14:17.720 --> 0:14:20.160 the FED doing more, so I think you actually do 0:14:20.280 --> 0:14:22.240 get a reaction in the rates market if it's anything 0:14:22.320 --> 0:14:25.320 less than four hundred, three hundred thousand, and our economists 0:14:25.320 --> 0:14:28.120 of two hundred thousand, So we're actually going into this 0:14:28.320 --> 0:14:31.280 number long treasurees. Prea, I gotta make some money here. 0:14:31.320 --> 0:14:34.000 The kids wanted a twenty Christmas tree, so you know, 0:14:34.080 --> 0:14:37.480 I get broke the bank yesterday. What I want to know, Prea, 0:14:37.640 --> 0:14:40.200 is do I step in here and buy fixed income 0:14:40.280 --> 0:14:44.080 by bonds, notes and bills because we've had a nice 0:14:44.160 --> 0:14:46.720 move in yield and now is the opportunity to look 0:14:46.720 --> 0:14:50.680 for lower yields later. I think so yes. I don't 0:14:50.680 --> 0:14:53.040 know if it's going to get you your your Christmas tree, 0:14:53.240 --> 0:14:54.960 but I think you have to buy a lot more 0:14:55.160 --> 0:14:58.600 treasuries just because the the extent of rate move I'm 0:14:58.600 --> 0:15:00.640 looking for is like twenty base points. You know, do 0:15:00.720 --> 0:15:03.880 we get to seventy eight basis points on the tenure? 0:15:04.200 --> 0:15:06.680 So so there is a floor. We're just very low, 0:15:07.040 --> 0:15:09.280 you know, close to zero. But I do think we've 0:15:09.320 --> 0:15:12.840 sold off in treasuries pricing in all the good news 0:15:12.880 --> 0:15:15.360 out there. There is a key FED meeting coming up, 0:15:15.400 --> 0:15:17.800 and our views that they're going to make Quei state 0:15:17.880 --> 0:15:20.880 contingent and they're going to extend the average maturity of 0:15:20.960 --> 0:15:23.600 QUIE purchases. They just kind of have to do it, 0:15:23.720 --> 0:15:27.040 the markets forcing them to do it, and they've realized 0:15:27.080 --> 0:15:29.480 that they could be longer term scarring. We still have 0:15:29.560 --> 0:15:32.280 so much uncertainty about the vaccine, So I think rates 0:15:32.280 --> 0:15:34.720 have sort of priced in too much of that good news, 0:15:34.720 --> 0:15:36.240 and we haven't quite priced in that we have a 0:15:36.240 --> 0:15:39.880 long way to go before that COVID recovery is is 0:15:39.960 --> 0:15:42.680 upon us. Built a little bit on this idea that 0:15:42.720 --> 0:15:45.720 the market is forcing the FED to extend the duration 0:15:45.880 --> 0:15:48.000 of its purchases. I'm looking right now at a tenure 0:15:48.400 --> 0:15:52.160 zero point nine two six percent, not exactly screaming we're 0:15:52.240 --> 0:15:55.960 running away with higher yield that could potentially threaten financial conditions. 0:15:56.320 --> 0:15:59.000 Why do you think that they are forcing the Fed's hand? 0:15:59.080 --> 0:16:01.280 And what does bond what do boundary able to do 0:16:01.640 --> 0:16:05.240 if they do not confirm the market's expectation. So I'm 0:16:05.240 --> 0:16:08.040 going to say the FED is the only marginal buyer 0:16:08.120 --> 0:16:11.520 of treasuries right right now, particularly in the long end. 0:16:11.720 --> 0:16:13.640 You know, the front end is so anchored by the 0:16:13.680 --> 0:16:17.080 FED because of their faith policy, because of just inflation 0:16:17.160 --> 0:16:19.840 being low, that if investors want to be in treasuries, 0:16:19.840 --> 0:16:21.960 they want to be in that front end. Meanwhile, the 0:16:22.080 --> 0:16:24.320 U S treasuries is showing a lot of long dated 0:16:24.400 --> 0:16:27.160 paper and that's really only happened in the last few 0:16:27.200 --> 0:16:31.000 months that they've you know, they've increased long end coupon 0:16:31.040 --> 0:16:34.800 sizes significantly. So the market right now is expecting the 0:16:34.840 --> 0:16:37.360 Fed to do something in December, which is why we're 0:16:37.400 --> 0:16:41.160 at one percent. If that meeting happens with nothing, I 0:16:41.200 --> 0:16:44.960 think we're breaking through that one. You know, do are 0:16:44.960 --> 0:16:48.040 we the brink of a taper tantrum? And I think 0:16:48.040 --> 0:16:50.960 the Fed knows that, which is why we expect them 0:16:51.000 --> 0:16:52.880 to come in and sort of tell us that they're 0:16:52.880 --> 0:16:56.040 going to keep conditions accommodative. It's a wife from your remit, 0:16:56.120 --> 0:16:58.240 but I'm going to go there. Are we back to 0:16:58.320 --> 0:17:02.360 two thousand five and two thousands six of the silly 0:17:02.440 --> 0:17:05.920 season of parsing out every hundreds of a basis point 0:17:06.400 --> 0:17:10.239 of investment grade, high yield leverage loan yield? I mean, 0:17:10.280 --> 0:17:15.040 are we back to the silliness of reaching out for yield? Yeah? 0:17:15.080 --> 0:17:17.040 I don't know if you call it silliness, but we 0:17:17.119 --> 0:17:20.760 are in a very serious reach for yield environment. And 0:17:20.800 --> 0:17:23.400 the question is that sometimes people don't understand the risk 0:17:23.440 --> 0:17:28.360 they're taking, but they're forced into different alternative assets. Um, yes, 0:17:28.440 --> 0:17:31.600 I think we're you know, I would suggest people should 0:17:31.640 --> 0:17:35.560 do credit work because defaultress is miss priced in certain products. 0:17:35.560 --> 0:17:38.040 But in the investment grade sector where you're not worried 0:17:38.040 --> 0:17:41.080 about default risk and you're not worried about interest rates 0:17:41.080 --> 0:17:44.560 going higher, I think like anything is fair game in 0:17:44.680 --> 0:17:46.800 terms of how do I get that extra yield. And 0:17:46.840 --> 0:17:50.200 we're seeing it in people selling volatility at historic laws. 0:17:50.520 --> 0:17:53.840 People are selling ball, They're taking spread risk, they're taking 0:17:53.840 --> 0:17:56.320 effects risk. So I think if interest rates are not 0:17:56.359 --> 0:17:57.960 going to give you that return, you're going to have 0:17:58.040 --> 0:18:00.040 to go into other products to get that written on. 0:18:00.440 --> 0:18:03.240 And you know that's the intended consequence of QUI. That's 0:18:03.280 --> 0:18:06.480 what the portfolio balance channel is. You take duration risk out, 0:18:06.520 --> 0:18:09.600 the central bank takes duration risk out and force investors 0:18:09.600 --> 0:18:12.360 into the risk spectrum, and the hope is that that 0:18:12.800 --> 0:18:17.359 translates somewhere into an economic recovery and then everything makes sense. 0:18:17.840 --> 0:18:19.919 I mean, there's a big hope in there that you 0:18:19.960 --> 0:18:23.720 don't see this disconnect between the economy and markets. We 0:18:23.800 --> 0:18:26.080 all hope it makes sense. In the end, we spent 0:18:26.119 --> 0:18:29.240 ten years debating whether it made sense. A decade ago prayer, 0:18:29.320 --> 0:18:35.840 Thank you, TV Securities. I'm gonna put it on a 0:18:35.960 --> 0:18:40.359 terminal at nine strength in Chinese Yuan, that just racing 0:18:40.440 --> 0:18:43.600 since June, and we see that across the Pacific rim folding. 0:18:43.640 --> 0:18:46.359 All this in has been chatting in all of Morgan 0:18:46.440 --> 0:18:50.760 Stanley Economics. The leadership of Allen Zetner, their chief US economists, 0:18:50.760 --> 0:18:54.040 has been extraordinary to try to figure out the ebbs 0:18:54.080 --> 0:18:57.479 and flows of g d P and how it folds 0:18:57.480 --> 0:19:01.720 into appending jobs report early in January of next year. 0:19:01.840 --> 0:19:05.920 Msentner joins us this morning, Ellen, by great definition, today's 0:19:06.960 --> 0:19:11.359 discussion today's jobs report really is a look back. What 0:19:11.600 --> 0:19:15.360 is the data you see now for the January report? 0:19:15.640 --> 0:19:20.120 What does December look like? Yeah, So as we rolled forward, 0:19:20.160 --> 0:19:24.320 I think we continue to see job growth slow here. Um. 0:19:24.359 --> 0:19:26.600 I think we do still hang on to some net 0:19:26.680 --> 0:19:30.760 job gains because the economy isn't shut down broadly as 0:19:30.800 --> 0:19:34.280 we did earlier this year. Um, but certainly the amount 0:19:34.320 --> 0:19:37.240 of folks coming back to the labor market and absolutely 0:19:37.240 --> 0:19:40.320 in that service side of the economy, Um, it just 0:19:40.400 --> 0:19:42.240 has to slow further. I mean, it's going to be 0:19:42.280 --> 0:19:46.119 a difficult winter. We know this, We're married to this idea. 0:19:46.200 --> 0:19:48.800 We're all disappointed in what the winter is going to 0:19:48.920 --> 0:19:52.840 look like. But these peril reports are getting overshadowed by 0:19:53.000 --> 0:19:56.560 positive news on the vaccine front and the fiscal headlines. 0:19:57.400 --> 0:20:01.520 Are we going to see services dison, inflations stay where 0:20:01.520 --> 0:20:05.280 it is with a slowdown in the service sector, or 0:20:05.280 --> 0:20:09.720 do we get back to normal inflation dynamics between services 0:20:09.760 --> 0:20:13.240 and goods. Well, that's those. So those are the two 0:20:13.240 --> 0:20:16.200 biggest drivers of our inflation forecast for next year. I 0:20:16.240 --> 0:20:20.040 mean goods inflation has been driving the numbers this year 0:20:20.080 --> 0:20:22.720 because the good side of the economy that has been 0:20:22.720 --> 0:20:26.760 growing and driving output, that consumer demand for durable goods. 0:20:26.840 --> 0:20:29.479 But next year, as we roll into next year and 0:20:29.640 --> 0:20:32.880 activity starts to pick up, as we move further through 0:20:32.920 --> 0:20:36.520 getting the vaccine rolled out and activity picking up, that 0:20:36.640 --> 0:20:40.240 services side does come back. And that is the lion's 0:20:40.280 --> 0:20:42.800 share of consumer demand. It's the lion share and what 0:20:42.880 --> 0:20:47.080 drives the price indusease. So goods prices decelerating, but services 0:20:47.119 --> 0:20:51.040 prices pick up. Services prices representing the bulk of the 0:20:51.080 --> 0:20:55.399 price induseries means inflation will be higher next year. Ellen. 0:20:55.640 --> 0:20:57.840 Everyone is saying that the economy will come back in 0:20:59.000 --> 0:21:01.159 and certainly that is in census, and it's easy to 0:21:01.200 --> 0:21:03.240 see how that could be. The case, but the post 0:21:03.240 --> 0:21:07.200 pandemic economy will look quite different in terms of consolidation 0:21:07.280 --> 0:21:10.520 of companies being stronger and bigger at the top and 0:21:10.560 --> 0:21:12.800 the smaller companies that have gone out of business. What 0:21:12.840 --> 0:21:16.880 does that mean longer term for the labor market. Yeah, 0:21:16.880 --> 0:21:20.040 so you know, the small businesses are the driver of 0:21:20.040 --> 0:21:23.240 of job growth UM and part of the loss of 0:21:23.280 --> 0:21:26.520 wage bargaining power over time has been the rise of 0:21:26.600 --> 0:21:30.960 mega companies and company density uh. And so that is 0:21:31.000 --> 0:21:35.080 something that when you add that to the other inequities 0:21:35.080 --> 0:21:38.359 that have been exposed further exposed by COVID On the 0:21:38.400 --> 0:21:42.359 household side, I think it's a heavy lift that the 0:21:42.400 --> 0:21:44.840 Democratic Party is going to focus on in terms of 0:21:44.880 --> 0:21:49.199 that fiscal policy activism that overall tries to raise the 0:21:49.320 --> 0:21:52.480 labor share of of profits UM and that is has 0:21:52.520 --> 0:21:55.920 been part of our longer run thesis on wise inflation 0:21:56.080 --> 0:21:58.520 over the long run would be structurally higher. I think 0:21:58.560 --> 0:22:01.080 that's going to be the focus going forward, not just 0:22:01.119 --> 0:22:04.960 household inequities, but inequities on the business side as well. 0:22:06.200 --> 0:22:08.080 And we spend a lot of time on programs like 0:22:08.119 --> 0:22:10.719 this beating up on the south side, I have to say, 0:22:10.800 --> 0:22:13.639 let's just take a moment to really talk about. One 0:22:13.720 --> 0:22:16.280 of the calls coming out of this crisis, and that 0:22:16.320 --> 0:22:18.800 was from you and the team that this recovery would 0:22:18.800 --> 0:22:21.920 be quick, This recovery would be sharp, it would look 0:22:21.960 --> 0:22:24.040 like a v And that was something we heard from 0:22:24.040 --> 0:22:27.120 politicians down in Washington. But many people just did not believe. 0:22:27.560 --> 0:22:30.000 This has been so underappreciated in the same way the 0:22:30.000 --> 0:22:33.280 equity market record highs are hated. And what did everyone 0:22:33.280 --> 0:22:35.399 get wrong? What do we learn from the lesson and 0:22:35.400 --> 0:22:38.680 how do we apply it for the months still to come. Well, 0:22:38.720 --> 0:22:41.560 I think you know, from for me, there's a there's 0:22:41.600 --> 0:22:45.600 a story that's missing in that that V shape recovery. Um. 0:22:45.680 --> 0:22:47.720 And to me, it's you know, when you open up 0:22:47.800 --> 0:22:52.720 from nothing to something, it's a very big jumping activity. Uh. 0:22:52.720 --> 0:22:56.080 And this was not a cyclical downturn. This is very 0:22:56.119 --> 0:23:00.280 structural downturn. So the way the virus would play out away, 0:23:00.400 --> 0:23:03.200 vaccine development would play out the way the economy and 0:23:03.480 --> 0:23:07.520 opens up. That's what's dictating that V shape in the economy. 0:23:07.600 --> 0:23:10.600 Where I am still greatly disappointed and where I think 0:23:10.600 --> 0:23:13.000 there's still a lot of heavy lifting to do is 0:23:13.040 --> 0:23:16.280 exactly what share Pal and the feather looking at as well. 0:23:16.320 --> 0:23:19.639 I'm looking at women's labor force participation rates, I'm looking 0:23:19.640 --> 0:23:23.600 at the unemployment rate of minority communities, of the unemployment 0:23:23.680 --> 0:23:26.200 rate of those that are concentrated in low wage paying 0:23:26.240 --> 0:23:29.280 service sectors. That you're going to see longer term damage 0:23:29.320 --> 0:23:31.480