1
00:00:09,880 --> 00:00:13,800
Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Ley.

2
00:00:13,960 --> 00:00:17,560
Speaker 1: We bring you insight from the best in economics, finance, investment,

3
00:00:18,000 --> 00:00:23,520
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

4
00:00:23,600 --> 00:00:27,480
Speaker 1: Bloomberg dot com, and of course on the Bloomberg Gapitla

5
00:00:27,520 --> 00:00:32,680
Speaker 1: Santos joins US now an asset management Global Market Strategies anytime, Gabby,

6
00:00:32,720 --> 00:00:34,600
Speaker 1: you are welcome in London. You know that. Let's just

7
00:00:34,640 --> 00:00:36,960
Speaker 1: start with this market. What are you more concerned about

8
00:00:36,960 --> 00:00:39,920
Speaker 1: this morning? We wake up, Fiscal talks breaking down state side,

9
00:00:39,960 --> 00:00:44,600
Speaker 1: the other side of the Atlantic, more restrictions in Europe. Well,

10
00:00:44,640 --> 00:00:48,040
Speaker 1: thank you John for the invitation. Um. In terms of

11
00:00:48,080 --> 00:00:51,640
Speaker 1: the markets, um, So, I think we're trying to wrestle

12
00:00:51,680 --> 00:00:54,880
Speaker 1: with two things at the same time here. The first

13
00:00:55,000 --> 00:00:58,080
Speaker 1: is as long term investors were trying to position for

14
00:00:58,280 --> 00:01:01,160
Speaker 1: where we're going over the next couple of years, which

15
00:01:01,240 --> 00:01:05,080
Speaker 1: is we're in a brand new economic cycle, one that's

16
00:01:05,160 --> 00:01:08,080
Speaker 1: coming with a lot of monetary and fiscal support that

17
00:01:08,160 --> 00:01:11,640
Speaker 1: does not seem to be going away anytime soon, and

18
00:01:11,680 --> 00:01:15,679
Speaker 1: one that's much more regionally diversified. For that reason, so

19
00:01:15,720 --> 00:01:21,360
Speaker 1: we're trying to position early cycle that's overweighting equities, overweighting credit,

20
00:01:21,440 --> 00:01:24,640
Speaker 1: and keeping it very regionally diversified. But we have to

21
00:01:24,720 --> 00:01:28,200
Speaker 1: square that with some of these more short term concerns

22
00:01:28,200 --> 00:01:30,520
Speaker 1: over the next couple of months, around the path of

23
00:01:30,560 --> 00:01:35,120
Speaker 1: the virus, around when we get more fiscal support. And

24
00:01:35,160 --> 00:01:37,360
Speaker 1: for that, I think you want to be a little

25
00:01:37,400 --> 00:01:40,480
Speaker 1: bit less overweight than you normally would, so you think

26
00:01:40,480 --> 00:01:43,319
Speaker 1: about sizing the positions, and then you still want to

27
00:01:43,400 --> 00:01:46,360
Speaker 1: keep a certain amount of duration and to offset some

28
00:01:46,440 --> 00:01:50,279
Speaker 1: of the short term uncertainty here. But overall, we're still

29
00:01:50,280 --> 00:01:53,400
Speaker 1: thinking of an early cycle playbook looking through some of

30
00:01:53,440 --> 00:01:56,640
Speaker 1: the short term noise. Gabriel and we oscillate back and

31
00:01:56,720 --> 00:01:59,600
Speaker 1: forth between technology, large cap you know, you know the

32
00:01:59,680 --> 00:02:04,800
Speaker 1: drill NASA is three stocks, okay, great, and then we

33
00:02:04,840 --> 00:02:07,640
Speaker 1: go over to what institutional Wall Street wants to see,

34
00:02:07,960 --> 00:02:11,000
Speaker 1: small cap international, you know, the drill you're living in.

35
00:02:11,480 --> 00:02:15,600
Speaker 1: When do we get that shift? Yes, and and I

36
00:02:15,639 --> 00:02:19,000
Speaker 1: mean to the credit of large cap technology stocks. There

37
00:02:19,040 --> 00:02:21,400
Speaker 1: there is a reason they've done so well. It is

38
00:02:21,480 --> 00:02:25,040
Speaker 1: logical they contribute at this point close to a quarter

39
00:02:25,880 --> 00:02:29,240
Speaker 1: of earnings growth for the SMP five hundred. That's much

40
00:02:29,280 --> 00:02:31,600
Speaker 1: more in line with their representation in the index at

41
00:02:31,639 --> 00:02:34,120
Speaker 1: this point, so very different than the dot com bubble.

42
00:02:34,400 --> 00:02:37,320
Speaker 1: They have been doing very well during COVID seeing we're

43
00:02:37,320 --> 00:02:40,400
Speaker 1: expecting positive earnings growth for the tech Scepter in the

44
00:02:40,480 --> 00:02:43,560
Speaker 1: third quarter. But I think we're all falling victims to

45
00:02:43,639 --> 00:02:46,600
Speaker 1: a bit of a recency bias here, thinking that will

46
00:02:46,680 --> 00:02:49,960
Speaker 1: forever live in this virtual world, and we just don't

47
00:02:49,960 --> 00:02:52,120
Speaker 1: think that's the case. We have to believe that at

48
00:02:52,160 --> 00:02:54,160
Speaker 1: some point we'll be able to leave the virus behind

49
00:02:54,560 --> 00:02:56,639
Speaker 1: and we will want to go back to some sort

50
00:02:56,680 --> 00:03:00,560
Speaker 1: of real interaction at some point in the future. Um

51
00:03:00,639 --> 00:03:03,440
Speaker 1: and and the truth is, cyclical stocks are prices if

52
00:03:03,440 --> 00:03:06,280
Speaker 1: we would never get back to that real life. So

53
00:03:06,320 --> 00:03:13,680
Speaker 1: we are looking at valuation opportunities in things like industrials, materials, financials, um,

54
00:03:13,800 --> 00:03:17,680
Speaker 1: residential and office reads. Uh really to to try to

55
00:03:17,720 --> 00:03:21,720
Speaker 1: take advantage of that dislocation thinking about the next couple

56
00:03:21,720 --> 00:03:26,359
Speaker 1: of years residential and office rates. That is brave Cariel Santos.

57
00:03:26,400 --> 00:03:29,280
Speaker 1: I'm wondering the out you want to you want to elaborate,

58
00:03:29,800 --> 00:03:34,120
Speaker 1: I do, okay, carry on, because I do think it's

59
00:03:34,160 --> 00:03:37,800
Speaker 1: a it's a great example of this recency bias when

60
00:03:37,840 --> 00:03:40,560
Speaker 1: we look at the read sector um. The only thing

61
00:03:40,560 --> 00:03:43,520
Speaker 1: that's really done well this year is industrial rates going

62
00:03:43,560 --> 00:03:46,440
Speaker 1: along with the e commerce theme because there's been so

63
00:03:46,520 --> 00:03:49,360
Speaker 1: much spending on things like warehouses, going along with the

64
00:03:49,360 --> 00:03:54,760
Speaker 1: tech theme with digital storage. And then you have every

65
00:03:54,800 --> 00:03:58,680
Speaker 1: other kind of read in deep negative territory, and I

66
00:03:58,720 --> 00:04:01,440
Speaker 1: think you have a sweet spot there with residential and

67
00:04:01,600 --> 00:04:07,680
Speaker 1: office where it's not an existential threat unlike retail reads um,

68
00:04:07,720 --> 00:04:10,800
Speaker 1: and you do have the ability of people to eventually

69
00:04:10,840 --> 00:04:14,200
Speaker 1: go back to the office. We are very big proponents

70
00:04:14,280 --> 00:04:17,799
Speaker 1: of office culture. We think that's very, very important. Maybe

71
00:04:17,800 --> 00:04:20,839
Speaker 1: you have a more flexible arrangement, but it's not something

72
00:04:20,839 --> 00:04:24,000
Speaker 1: that you write off altogether. And remember, as a business,

73
00:04:24,040 --> 00:04:27,320
Speaker 1: you still need to have availability for all of your

74
00:04:27,360 --> 00:04:30,120
Speaker 1: employees to come in. So I think that's a great

75
00:04:30,160 --> 00:04:32,880
Speaker 1: example of a dislocation that's happened beneath the market that

76
00:04:32,880 --> 00:04:35,800
Speaker 1: we don't think is justified get realized. So many people

77
00:04:35,880 --> 00:04:38,040
Speaker 1: have come on the show and they talk about how

78
00:04:38,080 --> 00:04:41,440
Speaker 1: financials feel underpriced, especially given the fact that we will

79
00:04:41,480 --> 00:04:45,159
Speaker 1: eventually get a recovery. They just reported earnings. JP Morgan

80
00:04:45,240 --> 00:04:48,479
Speaker 1: at Your Bank beat expectations, so did a host of

81
00:04:48,480 --> 00:04:51,520
Speaker 1: other banks, and yet their shares have gotten still beaten up.

82
00:04:51,640 --> 00:04:56,040
Speaker 1: Why yes, And I think that's an interesting point about

83
00:04:56,040 --> 00:05:00,960
Speaker 1: the uniqueness of this cycle versus previous cycles. Um, we

84
00:05:01,080 --> 00:05:04,040
Speaker 1: have fresh in our minds. Last cycle, the financial sector

85
00:05:04,200 --> 00:05:07,920
Speaker 1: was really at the epicenter an existential threat, and that's

86
00:05:07,960 --> 00:05:11,480
Speaker 1: just not the case this time. The troubles elsewhere in travel,

87
00:05:11,560 --> 00:05:14,760
Speaker 1: leisure and hospitality, so it's not an existential threat for

88
00:05:14,800 --> 00:05:18,080
Speaker 1: the financial sector. What we're missing is really a catalyst

89
00:05:18,400 --> 00:05:22,920
Speaker 1: to get stock prices off of their still bear market territory. Um.

90
00:05:23,040 --> 00:05:26,279
Speaker 1: We were thinking that the decrease in loan loss provisions

91
00:05:26,320 --> 00:05:29,320
Speaker 1: could be that catalyst because it signals the potential for

92
00:05:29,480 --> 00:05:33,320
Speaker 1: bottoming in earnings for the big banks. I think the

93
00:05:33,360 --> 00:05:36,040
Speaker 1: trouble is just the messaging around that being still a

94
00:05:36,040 --> 00:05:38,640
Speaker 1: bit uncertain and a bit dependent on the path of

95
00:05:38,640 --> 00:05:41,599
Speaker 1: the virus and more fiscal support. But once we get

96
00:05:41,640 --> 00:05:44,960
Speaker 1: more visibility, then you should have a recovery in the

97
00:05:44,960 --> 00:05:49,600
Speaker 1: path of financial stocks. Yeah, we've gotta leave it there.

98
00:05:49,680 --> 00:05:58,240
Speaker 1: Looking forward to seeing you in London. Thank you. Why not?

99
00:05:58,360 --> 00:06:03,440
Speaker 1: Christopher Karski joins us with Oppenheimer Managing director senior analysts

100
00:06:03,640 --> 00:06:06,400
Speaker 1: on the banks, and he's got a very nuanced opinion

101
00:06:06,440 --> 00:06:10,240
Speaker 1: here on the banks, Chris, what's the difference the distinction

102
00:06:10,920 --> 00:06:16,200
Speaker 1: between Morgan Stanley and Golden Sax. Well, actually I put

103
00:06:16,240 --> 00:06:21,160
Speaker 1: them together. I put them more together than apart in

104
00:06:21,480 --> 00:06:25,640
Speaker 1: the sense that you know, compared to the ordinary commercial banks,

105
00:06:25,720 --> 00:06:30,800
Speaker 1: they have a very small UH loan portfolio. So what's

106
00:06:30,880 --> 00:06:34,400
Speaker 1: interesting about those companies is that they're benefiting from the

107
00:06:34,520 --> 00:06:38,600
Speaker 1: very active capital markets and capital raising a right, So

108
00:06:38,720 --> 00:06:41,159
Speaker 1: trading this quarter and actually for each of the first

109
00:06:41,200 --> 00:06:44,640
Speaker 1: three quarters, trading was up about year on year. But

110
00:06:44,720 --> 00:06:47,200
Speaker 1: when you you know, for the banks, and I think

111
00:06:47,200 --> 00:06:50,040
Speaker 1: the banks are oversold and people are overly worried about

112
00:06:50,080 --> 00:06:54,159
Speaker 1: the credit risk UH in their loan portfolios. But however

113
00:06:54,200 --> 00:06:56,920
Speaker 1: you feel about that, you know, basically Goldman and Morgan

114
00:06:56,960 --> 00:06:59,560
Speaker 1: Stanley are going to miss that party for the most part,

115
00:07:00,160 --> 00:07:03,200
Speaker 1: because you know that they Goldman and Morgan Stanley have

116
00:07:03,240 --> 00:07:05,960
Speaker 1: a loan portfolio that is like between one and one

117
00:07:06,000 --> 00:07:10,000
Speaker 1: and a half times tangible book or two times their capital,

118
00:07:10,160 --> 00:07:13,520
Speaker 1: whereas like most banks have a portfolio and portfolio that's

119
00:07:13,560 --> 00:07:17,360
Speaker 1: like six seven, eight times. You know, they're they're tangible capital.

120
00:07:18,080 --> 00:07:20,400
Speaker 1: And on top of that, if you compare Morgan Stanley

121
00:07:20,440 --> 00:07:23,000
Speaker 1: and Goldman, you know they don't have a lot of

122
00:07:23,040 --> 00:07:26,520
Speaker 1: credit cards, they don't have any small business lending. You know,

123
00:07:27,040 --> 00:07:30,360
Speaker 1: Goldman Stacks and Morgan Stanley both basically lend to either

124
00:07:30,480 --> 00:07:35,560
Speaker 1: wealthy people or two large institutional companies, either they're public

125
00:07:35,680 --> 00:07:38,320
Speaker 1: or sponsor backed. Chris, So what are you is what

126
00:07:38,360 --> 00:07:41,760
Speaker 1: you're saying that Goldman Stacts and Morgan Stanley are less

127
00:07:41,760 --> 00:07:45,920
Speaker 1: well positioned for the upcoming recovery that we may see

128
00:07:45,960 --> 00:07:48,360
Speaker 1: in the global economy, and that the likes of JP Morgan,

129
00:07:48,360 --> 00:07:51,560
Speaker 1: Bank of America and even whilst Fargo may be better positioned.

130
00:07:52,680 --> 00:07:54,880
Speaker 1: Now well, I would say, look, as long as we're

131
00:07:54,880 --> 00:07:57,920
Speaker 1: in this kind of uncertain environment, I think Goldman and

132
00:07:58,000 --> 00:08:01,280
Speaker 1: Morgan Stanley are absolutely little low or risk way to

133
00:08:01,320 --> 00:08:04,480
Speaker 1: play financials, right. I mean they can be that the

134
00:08:04,560 --> 00:08:07,240
Speaker 1: chickens way of playing financials because you don't have a

135
00:08:07,280 --> 00:08:10,960
Speaker 1: big loan portfolio. On the other hand, like if if

136
00:08:11,000 --> 00:08:14,320
Speaker 1: if you heard that there was a vaccine that is

137
00:08:14,320 --> 00:08:17,240
Speaker 1: safe and effective and you heard that tomorrow, then you

138
00:08:17,280 --> 00:08:20,680
Speaker 1: would probably be do much better in kind of the

139
00:08:20,720 --> 00:08:24,440
Speaker 1: beat up lending banks because they're down a whole bunch

140
00:08:24,560 --> 00:08:27,200
Speaker 1: more and you know they would be affected more. Christ,

141
00:08:27,880 --> 00:08:31,320
Speaker 1: what's the catalyst for the rally in financials that so

142
00:08:31,360 --> 00:08:35,480
Speaker 1: many people are expecting. Well, ultimately it'll be when they

143
00:08:35,520 --> 00:08:38,680
Speaker 1: get to buy back stock again, right, because the valuations

144
00:08:38,720 --> 00:08:44,160
Speaker 1: are really trodden down. But the the the the the,

145
00:08:44,200 --> 00:08:47,720
Speaker 1: you know, their underlying level of profitability is still pretty good.

146
00:08:47,760 --> 00:08:51,000
Speaker 1: I mean there's been some pressure. Uh, there's been pressure

147
00:08:51,000 --> 00:08:54,360
Speaker 1: on bank earnings from interest rates coming down. And the

148
00:08:54,400 --> 00:08:56,320
Speaker 1: other thing that we saw, you know, with the big

149
00:08:56,320 --> 00:08:58,920
Speaker 1: banks is that you know, people have paid their credit

150
00:08:58,920 --> 00:09:03,640
Speaker 1: cards down like twelve since March, and you know, credit

151
00:09:03,640 --> 00:09:06,960
Speaker 1: card loans are obviously kind of the highest yielding earning

152
00:09:07,000 --> 00:09:11,120
Speaker 1: assets that banks have. So that's all pressured revenues. Right.

153
00:09:11,480 --> 00:09:14,920
Speaker 1: But the good thing is, like the bank credit quality

154
00:09:15,040 --> 00:09:18,800
Speaker 1: has thus far been way, way, way better than anybody expected.

155
00:09:18,880 --> 00:09:22,200
Speaker 1: So right, So I mean that banks aren't in trouble

156
00:09:22,240 --> 00:09:24,760
Speaker 1: on that front, Chris, let's sum this up. We've had

157
00:09:24,800 --> 00:09:28,480
Speaker 1: a bunch of bank earnings. Is John Ferrell mentions we're

158
00:09:28,480 --> 00:09:31,960
Speaker 1: gonna move forward? Are we going to have more eaten vances?

159
00:09:32,080 --> 00:09:35,760
Speaker 1: Is there a massive desire too big to fail super

160
00:09:35,800 --> 00:09:39,240
Speaker 1: regionals regionals and on down? Is there a new need

161
00:09:39,520 --> 00:09:45,000
Speaker 1: for scale which simply means combinations? Uh? I mean our

162
00:09:46,320 --> 00:09:49,600
Speaker 1: it's it's long overdue, certainly in the banking sector, you know.

163
00:09:49,679 --> 00:09:53,880
Speaker 1: I mean, we have an artificially fragmented banking sector because

164
00:09:53,960 --> 00:09:57,040
Speaker 1: until the nineteen eighties you couldn't bank in more than

165
00:09:57,120 --> 00:09:59,840
Speaker 1: one state, you know, so compared to any other country

166
00:09:59,840 --> 00:10:02,880
Speaker 1: in the world, are our banking sector is just way

167
00:10:02,880 --> 00:10:08,040
Speaker 1: too fragmented. And you know, so that that makes sense. Um,

168
00:10:08,080 --> 00:10:11,480
Speaker 1: you know, I don't think you'll see a giant M

169
00:10:11,520 --> 00:10:14,040
Speaker 1: and a wave near term. I think you'll see some,

170
00:10:14,280 --> 00:10:19,960
Speaker 1: I think, but I think it'll be still episodic and sporadic. Chris,

171
00:10:20,000 --> 00:10:22,079
Speaker 1: just a final question for me, how much of these

172
00:10:22,160 --> 00:10:27,000
Speaker 1: names propped up by the fiscal effort down in Washington. Well, actually,

173
00:10:27,080 --> 00:10:30,120
Speaker 1: I think the much bigger impact is just that white

174
00:10:30,160 --> 00:10:33,280
Speaker 1: collar layoffs haven't been that big, you know. And the

175
00:10:33,320 --> 00:10:35,560
Speaker 1: thing is, if you look at like big bank credit

176
00:10:35,559 --> 00:10:42,840
Speaker 1: card portfolios, over eight of the borrowers have Phyco scores

177
00:10:42,880 --> 00:10:47,679
Speaker 1: over six eight. So then that's roughly average. So is

178
00:10:48,080 --> 00:10:50,280
Speaker 1: of of the borrowers are in the upper half of

179
00:10:50,320 --> 00:10:53,480
Speaker 1: the income scale. And if you look at, unfortunately the

180
00:10:53,520 --> 00:10:56,040
Speaker 1: people who have gotten hit by COVID, it's mainly lower

181
00:10:56,040 --> 00:10:59,520
Speaker 1: income people who are not bank customers, you know, I

182
00:10:59,520 --> 00:11:04,720
Speaker 1: think are really way underestimate how much the the the

183
00:11:04,960 --> 00:11:10,520
Speaker 1: bank customer has moved upscale. I mean it's just, uh,

184
00:11:10,559 --> 00:11:12,440
Speaker 1: you know, with a stress test and so on, you

185
00:11:12,480 --> 00:11:16,359
Speaker 1: basically can't lend to the lower half of the income spectrum,

186
00:11:16,400 --> 00:11:19,120
Speaker 1: and that's what's gotten hit. So I actually think people

187
00:11:19,120 --> 00:11:25,400
Speaker 1: have way overplayed the importance of the of of of

188
00:11:25,400 --> 00:11:28,959
Speaker 1: of those uh those programs. Mind you, the p p P,

189
00:11:29,320 --> 00:11:33,360
Speaker 1: I think kept you know, hundreds of thousands of small

190
00:11:33,400 --> 00:11:36,760
Speaker 1: businesses afloat when it you know, when when lots of people,

191
00:11:36,760 --> 00:11:38,600
Speaker 1: I think in April and May were thinking, oh god,

192
00:11:38,840 --> 00:11:41,120
Speaker 1: we've gotten just gotta shut down, you know. So I

193
00:11:41,120 --> 00:11:43,200
Speaker 1: think it's just a slight contradiction there, Chris. At the

194
00:11:43,240 --> 00:11:46,400
Speaker 1: end of your response, then well, I think the p

195
00:11:46,520 --> 00:11:49,480
Speaker 1: p P help, But I think it actually, I mean,

196
00:11:49,559 --> 00:11:51,920
Speaker 1: if if you if you really look at you know,

197
00:11:52,000 --> 00:11:55,840
Speaker 1: why has the bank's credit experience been so good. It's

198
00:11:55,960 --> 00:11:59,800
Speaker 1: because basically, you know, in a C car world, they

199
00:11:59,800 --> 00:12:02,360
Speaker 1: can longer really lend to lower income people. They have

200
00:12:02,440 --> 00:12:06,679
Speaker 1: to lend to people of means. Chris, right to catch up.

201
00:12:06,720 --> 00:12:10,160
Speaker 1: Appreciate your time. Interesting perspective, Chris Cantaski that of Alpenheimer

202
00:12:10,200 --> 00:12:15,080
Speaker 1: on some of these big names. It is a time

203
00:12:15,120 --> 00:12:17,960
Speaker 1: of year where we set our calendars. That always means

204
00:12:18,000 --> 00:12:21,520
Speaker 1: Francine la Croix and myself in Washington for the meetings

205
00:12:21,520 --> 00:12:25,400
Speaker 1: of David mel Passes, World Bank and MS Gorgiavaz International

206
00:12:25,400 --> 00:12:28,360
Speaker 1: Monetary Fund. And one of the high points live in

207
00:12:28,400 --> 00:12:32,000
Speaker 1: the atrium of the i m F is Vitor Gaspar

208
00:12:32,200 --> 00:12:35,400
Speaker 1: with the International Monetary Fund. He is Director of Fiscal

209
00:12:35,440 --> 00:12:38,000
Speaker 1: Affairs and of course steeped and the tumult of the

210
00:12:38,040 --> 00:12:41,880
Speaker 1: economics of his Portugal. We're thrilled that Dr Gaspar could

211
00:12:41,920 --> 00:12:45,840
Speaker 1: join us for an update this morning. I loved your summary,

212
00:12:46,040 --> 00:12:48,120
Speaker 1: ve Tory. You went right to the heart of it,

213
00:12:48,559 --> 00:12:52,640
Speaker 1: which is when private is on its back in a pandemic,

214
00:12:52,880 --> 00:12:56,559
Speaker 1: it is public investment to the rescue. Why is this

215
00:12:56,640 --> 00:13:01,000
Speaker 1: so difficult? Why is it so hard to commit public

216
00:13:01,200 --> 00:13:08,800
Speaker 1: investment in democracies? Uh so, thanks for having me, Tom.

217
00:13:09,520 --> 00:13:13,560
Speaker 1: We do make a very strong case for public investment

218
00:13:13,720 --> 00:13:18,720
Speaker 1: in the fiscal monitor. We argue that in moments of

219
00:13:18,840 --> 00:13:24,040
Speaker 1: extreme uncertainty like that which is caused by COVID nineteen,

220
00:13:24,600 --> 00:13:29,440
Speaker 1: public investment allows for a breage over the uncertainty and

221
00:13:29,520 --> 00:13:36,000
Speaker 1: provides the private sector with opportunities for profitable investment. Specifically,

222
00:13:36,160 --> 00:13:41,559
Speaker 1: we estimate that multipliers are elevated under the circumstances of

223
00:13:41,679 --> 00:13:47,520
Speaker 1: one percent of GDP. Expansion in public investment in advanced

224
00:13:47,520 --> 00:13:51,560
Speaker 1: and emerging market economies would lead to an increasing GDP

225
00:13:51,679 --> 00:13:56,439
Speaker 1: of two point seven percent because it would motivate private

226
00:13:56,480 --> 00:14:02,439
Speaker 1: investment to increase by ten percent. And more importantly, private

227
00:14:02,480 --> 00:14:05,920
Speaker 1: and public investment would lead to employment creation of between

228
00:14:06,800 --> 00:14:10,839
Speaker 1: twenty and thirty three million jobs. According to our estimates,

229
00:14:11,280 --> 00:14:18,920
Speaker 1: public investment is always difficult, tom because the payoff normally

230
00:14:19,080 --> 00:14:25,880
Speaker 1: comes later. It's only when public investment affects potential output

231
00:14:26,520 --> 00:14:30,200
Speaker 1: the benefits come to fruition, and that takes time, and

232
00:14:30,240 --> 00:14:34,480
Speaker 1: the political systems around the world are not patient. Yeah,

233
00:14:34,480 --> 00:14:36,320
Speaker 1: I want to in the time that we've got left,

234
00:14:36,400 --> 00:14:40,280
Speaker 1: Dr Gaspar talk about the little g There is a

235
00:14:40,400 --> 00:14:45,000
Speaker 1: great assumption in our crisis, with the expansion of fiscal deficits,

236
00:14:45,000 --> 00:14:48,680
Speaker 1: the expansion of trade deficits and selected countries that we

237
00:14:48,720 --> 00:14:52,920
Speaker 1: will quote unquote grow our way out of this. How

238
00:14:52,920 --> 00:14:56,920
Speaker 1: do you respond to that maximum? So we do have

239
00:14:57,240 --> 00:15:01,000
Speaker 1: for the first time since the start of co feed nineteen,

240
00:15:01,120 --> 00:15:04,040
Speaker 1: we have a medium term projections, so we can actually

241
00:15:04,080 --> 00:15:09,600
Speaker 1: answer your question, we do see some permanent scarring in

242
00:15:09,720 --> 00:15:14,680
Speaker 1: terms of the level of output, but not in terms

243
00:15:14,720 --> 00:15:18,000
Speaker 1: of the growth rate. So basically there's a permanent loss,

244
00:15:18,320 --> 00:15:22,360
Speaker 1: but the growth rate regains. That is crucial for the

245
00:15:22,400 --> 00:15:25,680
Speaker 1: public debt to GDP ratio going forward. We see this

246
00:15:26,000 --> 00:15:31,360
Speaker 1: jump up in UH twenty twenty UH public that goes

247
00:15:31,400 --> 00:15:37,560
Speaker 1: from of GDP to ninety eight point seven. At world level,

248
00:15:37,680 --> 00:15:41,680
Speaker 1: it's a very strong jump up, but way tom countries,

249
00:15:41,720 --> 00:15:44,720
Speaker 1: like in countries like the US or the UK, the

250
00:15:44,880 --> 00:15:49,400
Speaker 1: jump up is even greater at more than of g

251
00:15:49,560 --> 00:15:55,760
Speaker 1: d P. But going forward, very low interest rates for

252
00:15:55,960 --> 00:16:01,480
Speaker 1: long and the rebound in economic activity means that the

253
00:16:01,680 --> 00:16:08,720
Speaker 1: contribution of the interest payments and growth actually helps public

254
00:16:08,760 --> 00:16:12,720
Speaker 1: debt coming down. And there is also a correction in

255
00:16:12,800 --> 00:16:18,560
Speaker 1: our baseline of the primary UH primary deficit. The primary

256
00:16:18,560 --> 00:16:22,960
Speaker 1: deficit comes down and the debt level at world level

257
00:16:23,480 --> 00:16:26,760
Speaker 1: stabilizes at the round of GDP. If I could fold

258
00:16:26,840 --> 00:16:30,800
Speaker 1: one final question into what we've observed this morning in Europe,

259
00:16:31,160 --> 00:16:36,520
Speaker 1: which is a real reaffirmation of disinflationary tendencies VET or

260
00:16:36,640 --> 00:16:41,960
Speaker 1: gaspar on the experiment of negative interest rates, how has

261
00:16:42,040 --> 00:16:49,920
Speaker 1: that worked? Look? Central banks have for many years developed

262
00:16:50,280 --> 00:16:55,280
Speaker 1: UH monetary policy strategies based on a monetary transmission mechanism

263
00:16:55,840 --> 00:17:02,280
Speaker 1: that relies on interest rates. Now and inflation is very low.

264
00:17:02,480 --> 00:17:07,200
Speaker 1: When infest rates are very low, their constraints on the

265
00:17:07,240 --> 00:17:13,879
Speaker 1: traditional monetary transmission mechanism that does UH. That does bring

266
00:17:14,600 --> 00:17:19,560
Speaker 1: additional uncertainty. We have less knowledge about the transmission mechanisms

267
00:17:19,640 --> 00:17:22,960
Speaker 1: under those circumstances, and that's one of the reasons why

268
00:17:22,960 --> 00:17:26,359
Speaker 1: central banks around the world are conducting U monetary post

269
00:17:26,440 --> 00:17:29,600
Speaker 1: strategy refused. I mean, it's very interesting, videar gasp why

270
00:17:29,680 --> 00:17:33,440
Speaker 1: there was a really important point. We have less information.

271
00:17:33,800 --> 00:17:36,560
Speaker 1: I can't say enough about the three publications of the

272
00:17:36,600 --> 00:17:39,560
Speaker 1: i m F. Always that there are October meetings. The

273
00:17:39,600 --> 00:17:42,240
Speaker 1: blue book gets all the press, all the glory. The

274
00:17:42,359 --> 00:17:45,919
Speaker 1: mathiness of the Green book on financial stability is important,

275
00:17:46,400 --> 00:17:49,480
Speaker 1: but the benchmark of this is the balance sheet. Is

276
00:17:49,480 --> 00:17:52,560
Speaker 1: witnessed by Vitor gas Bars work at the i m

277
00:17:52,640 --> 00:17:55,040
Speaker 1: F on fiscal affairs. I urge any of you to

278
00:17:55,119 --> 00:18:03,600
Speaker 1: consider that at the i m F is well. It

279
00:18:03,800 --> 00:18:06,920
Speaker 1: is always good to speak with Jared Bernstein is wonderful

280
00:18:06,960 --> 00:18:10,440
Speaker 1: work in think tanks over the Year's Economic Policy Institute

281
00:18:10,440 --> 00:18:14,680
Speaker 1: and now Center on Budget and policy priorities. Of course

282
00:18:14,720 --> 00:18:19,720
Speaker 1: his advice to Vice President Biden when Vice President Biden

283
00:18:19,800 --> 00:18:23,040
Speaker 1: was Vice president, and still advising Mr Biden as we

284
00:18:23,119 --> 00:18:26,240
Speaker 1: go nineteen days to the election. Jared, thank you so

285
00:18:26,320 --> 00:18:29,560
Speaker 1: much for being with us. I want to frame out

286
00:18:29,600 --> 00:18:35,480
Speaker 1: the hope that's out there by many, including Republicans, of

287
00:18:36,040 --> 00:18:40,959
Speaker 1: stimulus after an inauguration day in January. Now, I know

288
00:18:41,040 --> 00:18:43,160
Speaker 1: you and I are going to say, well, we don't

289
00:18:43,160 --> 00:18:45,280
Speaker 1: know what's going to happen. Let's assume we don't know

290
00:18:45,359 --> 00:18:50,280
Speaker 1: what's gonna happen, but away from President Biden or away

291
00:18:50,320 --> 00:18:55,840
Speaker 1: from President Trump. February one, What is the most efficacious

292
00:18:55,920 --> 00:19:03,200
Speaker 1: stimulus for Jared Bernstein? The biggest bang for the buck.

293
00:19:03,280 --> 00:19:06,240
Speaker 1: That is, it gets the resources to people who will

294
00:19:06,400 --> 00:19:10,840
Speaker 1: spend not says and two businesses that are tetering on

295
00:19:10,920 --> 00:19:13,600
Speaker 1: the edge, and the state and local governments who have

296
00:19:13,680 --> 00:19:16,760
Speaker 1: to balance their budgets every year. And it doesn't waste

297
00:19:16,760 --> 00:19:20,679
Speaker 1: a dollar of stimulus on low multiplier kinds of projects

298
00:19:20,720 --> 00:19:24,840
Speaker 1: to uh, you know, high end tax cuts or corporations

299
00:19:24,880 --> 00:19:28,000
Speaker 1: that don't need the help. So that speaks to nutritional

300
00:19:28,119 --> 00:19:31,320
Speaker 1: support as I mentioned, state and local budget enhanced do

301
00:19:31,480 --> 00:19:35,320
Speaker 1: I benefits, anti eviction, those kinds of those kinds of

302
00:19:35,320 --> 00:19:40,000
Speaker 1: policies to people towards Trump in a way from Biden,

303
00:19:40,119 --> 00:19:45,800
Speaker 1: there is a distrust that the stimulus will be spent appropriately.

304
00:19:46,640 --> 00:19:50,720
Speaker 1: In your experience, Jared and your huge Beltway insider, can

305
00:19:50,720 --> 00:19:56,520
Speaker 1: Washington put enough monitoring on moneies to cities, moneies to

306
00:19:56,800 --> 00:20:01,800
Speaker 1: states to be confident it's spent a apriatly. Yeah, really

307
00:20:01,840 --> 00:20:05,600
Speaker 1: important question. He's too often Washington passes things, legislates things,

308
00:20:05,640 --> 00:20:07,439
Speaker 1: and then it just gets out of the way, and

309
00:20:07,520 --> 00:20:10,840
Speaker 1: that's a recipe for waste. Well, look, this is where

310
00:20:10,880 --> 00:20:15,639
Speaker 1: Biden's muscle memory really comes into when he when he

311
00:20:15,840 --> 00:20:20,560
Speaker 1: uh when he oversaw the implementation execution of Recovery Act

312
00:20:20,560 --> 00:20:23,720
Speaker 1: back in O nine and ten. Not only were there

313
00:20:23,760 --> 00:20:26,840
Speaker 1: a set of controls set up, there was what was

314
00:20:26,880 --> 00:20:29,680
Speaker 1: called the rat board, which is transparency board to make

315
00:20:29,760 --> 00:20:33,399
Speaker 1: sure the dollars were appropriately spent. Biden was literally on

316
00:20:33,440 --> 00:20:36,480
Speaker 1: the phone to small town mayors who couldn't understand why

317
00:20:36,520 --> 00:20:40,480
Speaker 1: the Vice president is called them explaining what needed to

318
00:20:40,520 --> 00:20:44,320
Speaker 1: happen with their fiscal relief checks. So it really isn't

319
00:20:44,320 --> 00:20:47,280
Speaker 1: matter of execution, and that's something to be highly highly valued.

320
00:20:47,520 --> 00:20:54,000
Speaker 1: Will President Biden raise our taxes. He's been very clear

321
00:20:54,040 --> 00:20:58,640
Speaker 1: about this. The tax increases only affect those above four

322
00:20:58,720 --> 00:21:02,880
Speaker 1: hundred thousand age e I justice gross income, unless we're

323
00:21:02,880 --> 00:21:06,160
Speaker 1: talking about the capital games increase. That doesn't kick into

324
00:21:06,240 --> 00:21:09,560
Speaker 1: the threshold above a million. And he has been extremely

325
00:21:09,680 --> 00:21:12,720
Speaker 1: rigorous in his instructions to his team to make sure

326
00:21:12,920 --> 00:21:16,840
Speaker 1: interests don't go up a dime below below those thresholds.

327
00:21:16,960 --> 00:21:19,640
Speaker 1: We welcome all of you from sea to shining sea.

328
00:21:19,840 --> 00:21:24,320
Speaker 1: With a question for Jared Burnstein that comes up occasionally, Uh, Jared,

329
00:21:24,800 --> 00:21:26,879
Speaker 1: and that is Okay, you've got a four hundred thousand

330
00:21:26,960 --> 00:21:30,800
Speaker 1: a g I. But that's a different statistic in fancy

331
00:21:30,880 --> 00:21:35,520
Speaker 1: Connecticut than it is in pick another state. Let's take Idaho,

332
00:21:35,560 --> 00:21:40,719
Speaker 1: a very republican state. Why can't we set a tax

333
00:21:40,960 --> 00:21:46,479
Speaker 1: hurdle rate to higher taxes based on where a person

334
00:21:46,600 --> 00:21:50,000
Speaker 1: lives and what the expenses are there. Why can't we

335
00:21:50,040 --> 00:21:51,960
Speaker 1: do that? We put a guy in the move you

336
00:21:52,000 --> 00:21:54,080
Speaker 1: know to me, I'll tell you, I hear where you're

337
00:21:54,119 --> 00:21:56,480
Speaker 1: coming from, and you're absolutely right. You know, prices and

338
00:21:56,520 --> 00:22:01,280
Speaker 1: income is different across state. But complexity you add to

339
00:22:01,280 --> 00:22:04,160
Speaker 1: the tax code is a recipe for avoid def in evasion.

340
00:22:04,840 --> 00:22:08,040
Speaker 1: The all kinds of people trying to establish their address

341
00:22:08,080 --> 00:22:11,840
Speaker 1: in the most favorable places. If you go at route Oh,

342
00:22:11,880 --> 00:22:14,200
Speaker 1: come on you, but we do this in Florida. I mean,

343
00:22:14,240 --> 00:22:17,040
Speaker 1: you know everybody's down there. You know x a number

344
00:22:17,080 --> 00:22:18,720
Speaker 1: of days a hundred eighty two days a year to

345
00:22:18,720 --> 00:22:20,840
Speaker 1: get a stuff. Mean, you come on, Jared, you could

346
00:22:20,840 --> 00:22:25,040
Speaker 1: set up rules so that four hundred thousand and Idaho

347
00:22:25,400 --> 00:22:28,320
Speaker 1: is four eight two thousand, three hundred dollars in some

348
00:22:28,800 --> 00:22:32,600
Speaker 1: tony suburban New Jersey. I mean, I do think you're

349
00:22:32,640 --> 00:22:35,680
Speaker 1: onto something here. I probably wouldn't go. I'm just looking

350
00:22:35,720 --> 00:22:38,440
Speaker 1: for a job. I mean, if the if Biden wins, Jared,

351
00:22:38,480 --> 00:22:40,199
Speaker 1: you gotta get me. You know, I just want to

352
00:22:40,200 --> 00:22:44,560
Speaker 1: go down and a clean waste Bascus for you. First

353
00:22:44,600 --> 00:22:47,080
Speaker 1: of all, you need to stay where you are. Yesterday

354
00:22:47,200 --> 00:22:49,480
Speaker 1: I wanted to tell you this yesterday was driving around it.

355
00:22:49,520 --> 00:22:52,000
Speaker 1: But on your show I learned five things in about

356
00:22:52,000 --> 00:22:54,800
Speaker 1: three minutes listening to you and your colleagues. So you

357
00:22:54,840 --> 00:22:57,200
Speaker 1: gotta keep doing what you're doing. Listen. One point you're

358
00:22:57,200 --> 00:22:59,200
Speaker 1: making here, I really want to lean into because it's

359
00:22:59,240 --> 00:23:02,800
Speaker 1: something that by also values highly here, and that's a

360
00:23:02,800 --> 00:23:06,800
Speaker 1: tax compliance we have defunded the I R S UH,

361
00:23:06,960 --> 00:23:10,439
Speaker 1: the auditing function is UH is a fraction of what

362
00:23:10,520 --> 00:23:13,920
Speaker 1: it used to be, and we're leaving hundreds of billions

363
00:23:13,920 --> 00:23:16,959
Speaker 1: of taxes on the table. And the tax gap these

364
00:23:17,000 --> 00:23:19,960
Speaker 1: are not These are not taxes avoided. These are taxes evaded.

365
00:23:20,160 --> 00:23:22,120
Speaker 1: So getting the I R s back in the business

366
00:23:22,119 --> 00:23:25,679
Speaker 1: of enforcing the code is really important. I want you

367
00:23:25,720 --> 00:23:28,760
Speaker 1: to speak to Republicans, and let's just say there's a

368
00:23:28,760 --> 00:23:32,240
Speaker 1: set of Republicans, possibly they don't want to vote for

369
00:23:32,240 --> 00:23:35,320
Speaker 1: their candidate. I want you to sell them right now

370
00:23:35,920 --> 00:23:39,200
Speaker 1: of doing what Mrs McCain is doing, which is waltzing

371
00:23:39,280 --> 00:23:44,399
Speaker 1: across the aisle, sell them right now. Mr Bernstein, I

372
00:23:44,440 --> 00:23:46,920
Speaker 1: guess I would say that if if you look at there,

373
00:23:46,960 --> 00:23:49,239
Speaker 1: if you're in the financial folks who are listening, if

374
00:23:49,240 --> 00:23:51,840
Speaker 1: you're in the financial markets, if you're in the household sector,

375
00:23:51,840 --> 00:23:54,600
Speaker 1: I from the business sector, UH, you have to ask

376
00:23:54,640 --> 00:23:57,719
Speaker 1: yourself two things. First, the old Ronald Reagan question, are

377
00:23:57,760 --> 00:24:00,560
Speaker 1: you better off than you were four years ago? Uh?

378
00:24:00,560 --> 00:24:03,639
Speaker 1: And if you're someone who is struggling with employment, with

379
00:24:03,720 --> 00:24:07,560
Speaker 1: health care, with with sending your kids back to school,

380
00:24:07,640 --> 00:24:12,080
Speaker 1: with some of the existential fallout from this virus and

381
00:24:12,160 --> 00:24:14,920
Speaker 1: the epic failure of the Trump administration. The answer is

382
00:24:14,960 --> 00:24:16,960
Speaker 1: going to be no to that. But don't just ask

383
00:24:17,000 --> 00:24:19,760
Speaker 1: yourself that, ask yourself if we can take four more

384
00:24:19,920 --> 00:24:24,679
Speaker 1: years of this Trump being chaos, of this dysfunctional government governance,

385
00:24:25,040 --> 00:24:30,440
Speaker 1: of this massive hostility to other countries and our trading partners. Uh.

386
00:24:30,480 --> 00:24:32,840
Speaker 1: And you know, I think the answer to that is

387
00:24:33,040 --> 00:24:35,480
Speaker 1: to both of those questions is now, is Jared Versing

388
00:24:35,480 --> 00:24:37,960
Speaker 1: You've done a lifetime of work on this, on policy,

389
00:24:38,000 --> 00:24:40,760
Speaker 1: on medical and of course the judiciary will be looking

390
00:24:40,800 --> 00:24:44,480
Speaker 1: at the Affordable Care Act here at some point I

391
00:24:44,520 --> 00:24:46,960
Speaker 1: want you to address the idea now that the Affordable

392
00:24:47,040 --> 00:24:50,640
Speaker 1: Care Act tilts us towards the socialism of medicine, does

393
00:24:50,680 --> 00:24:54,520
Speaker 1: it not even close? I mean, the Affordable Care Act

394
00:24:55,119 --> 00:24:58,399
Speaker 1: was in part constructed so that those who wanted to

395
00:24:58,520 --> 00:25:01,280
Speaker 1: keep their private insurers in place could do something, and

396
00:25:01,359 --> 00:25:04,480
Speaker 1: that was a that was a key value of that

397
00:25:04,520 --> 00:25:06,480
Speaker 1: because actually, if you ask people if you want, you know,

398
00:25:06,560 --> 00:25:09,159
Speaker 1: something like Medicare for all, people will say yes, But

399
00:25:09,200 --> 00:25:13,040
Speaker 1: then they'll also insist that they keep their accent their

400
00:25:13,119 --> 00:25:15,879
Speaker 1: current situations. So you really have to try to square

401
00:25:15,920 --> 00:25:17,800
Speaker 1: that circle. You're going to try to meet people where

402
00:25:17,800 --> 00:25:20,679
Speaker 1: they are and uh you know, at the end of

403
00:25:20,680 --> 00:25:23,399
Speaker 1: the day, the private insurers and many of the doctors

404
00:25:23,440 --> 00:25:26,120
Speaker 1: in hospitals actually supported the A C A. And some

405
00:25:26,200 --> 00:25:28,320
Speaker 1: people would do that it's a feature, some would do

406
00:25:28,400 --> 00:25:31,240
Speaker 1: it as a bug. But once you add a public

407
00:25:31,280 --> 00:25:34,440
Speaker 1: option to the program, which is what what the Vice

408
00:25:34,560 --> 00:25:36,640
Speaker 1: President Biden wants to do, that I don't really think

409
00:25:36,640 --> 00:25:39,600
Speaker 1: you have the best of both worlds. Too. Short of conversation,

410
00:25:39,680 --> 00:25:42,000
Speaker 1: Jared Bursting, thank you so much with the Center on

411
00:25:42,119 --> 00:25:45,359
Speaker 1: Budget and Policy Priorities and of course his advice and

412
00:25:45,400 --> 00:25:49,879
Speaker 1: assistance to uh Mr Biden of A Delaware. Thanks for

413
00:25:49,960 --> 00:25:54,359
Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to

414
00:25:54,520 --> 00:25:59,760
Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you

415
00:25:59,880 --> 00:26:04,040
Speaker 1: for refer I'm on Twitter at Tom Keane before the podcast.

416
00:26:04,080 --> 00:26:07,600
Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio.