1 00:00:09,840 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily 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 --> 00:00:27,000 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg And 5 00:00:27,120 --> 00:00:30,160 Speaker 1: we start with sometime the economic data. The July report 6 00:00:30,200 --> 00:00:33,600 Speaker 1: on Empire manufacturing from New York turns positive for the 7 00:00:33,640 --> 00:00:38,320 Speaker 1: first time since February seventeen, point to a significant increase there. 8 00:00:38,400 --> 00:00:41,640 Speaker 1: And we see new orders, production and even employment turns 9 00:00:41,680 --> 00:00:44,479 Speaker 1: slightly positive. So that is New York. What is happening 10 00:00:44,479 --> 00:00:48,360 Speaker 1: in Pennsylvania and the second district of the Federal Reserve 11 00:00:48,840 --> 00:00:51,559 Speaker 1: joining us now is Patrick Harker. He is the president 12 00:00:51,720 --> 00:00:54,440 Speaker 1: of the Philadelphia Fed. Good morning to you, Pat, and 13 00:00:54,520 --> 00:00:57,000 Speaker 1: thanks for joining us. Uh. I want to ask you 14 00:00:57,320 --> 00:01:00,000 Speaker 1: off the top, how things are going in the Pennsylvania area. 15 00:01:00,160 --> 00:01:02,320 Speaker 1: I know that the COVID case rate has risen a 16 00:01:02,360 --> 00:01:05,160 Speaker 1: little bit. Are you concerned that you fall back into 17 00:01:05,160 --> 00:01:08,240 Speaker 1: the same situation that we're seeing in the Sunbelt states? 18 00:01:09,200 --> 00:01:11,480 Speaker 1: So in the Try state region Pennsylvania, New Jersey and 19 00:01:11,480 --> 00:01:14,160 Speaker 1: Delaware that we cover, we have seen a little bit 20 00:01:14,160 --> 00:01:18,039 Speaker 1: of an uptick in the COVID cases, but the governors 21 00:01:18,080 --> 00:01:22,360 Speaker 1: have taken action to slow the uh the opening a 22 00:01:22,400 --> 00:01:25,200 Speaker 1: little bit, so I'm not that concerned right now. I 23 00:01:25,240 --> 00:01:29,040 Speaker 1: think the generally the virus is pretty well controlled here. 24 00:01:29,080 --> 00:01:31,520 Speaker 1: It's still a tragedy and there's still a lot of 25 00:01:31,560 --> 00:01:33,880 Speaker 1: work to be done, but I'm not very worried at 26 00:01:33,880 --> 00:01:37,200 Speaker 1: this point for this region. What's your view of the 27 00:01:37,200 --> 00:01:40,039 Speaker 1: economics of the region. How hard have you been hit? 28 00:01:40,080 --> 00:01:43,920 Speaker 1: How hard are you going to be So the region 29 00:01:44,319 --> 00:01:47,800 Speaker 1: is defacturing sector has bounced back. We saw our last 30 00:01:47,800 --> 00:01:52,200 Speaker 1: report last month. We are seeing some good news there. 31 00:01:52,920 --> 00:01:56,240 Speaker 1: We are particularly the city of Philadelphia itself is predominantly 32 00:01:56,360 --> 00:02:00,360 Speaker 1: edge and meds, and I'm concerned about those. Are not 33 00:02:00,440 --> 00:02:03,400 Speaker 1: just about the large medical institutions which have lost a 34 00:02:03,400 --> 00:02:08,480 Speaker 1: lot of revenue because of elective procedures being curtailed or delayed, 35 00:02:08,800 --> 00:02:11,520 Speaker 1: but also in the royal communities here. Those royal health 36 00:02:11,560 --> 00:02:15,799 Speaker 1: systems have been hurt quite badly through this process. What 37 00:02:15,880 --> 00:02:19,160 Speaker 1: about the overall US economy Now that we've seen this 38 00:02:19,280 --> 00:02:23,359 Speaker 1: flare up across much of the country, are you revising 39 00:02:23,440 --> 00:02:27,000 Speaker 1: your economic forecast or your outlook? So prior to this, 40 00:02:27,080 --> 00:02:29,839 Speaker 1: we saw a pretty big hit and queue first half 41 00:02:29,880 --> 00:02:32,839 Speaker 1: of this year, probably about in GDP in the first half. 42 00:02:32,880 --> 00:02:35,560 Speaker 1: We thought it would bounce back around in the second half, 43 00:02:35,960 --> 00:02:40,720 Speaker 1: ending around six down in GDP for the year and 44 00:02:40,840 --> 00:02:43,880 Speaker 1: unemployment around ten percent. We are revising it right now 45 00:02:43,960 --> 00:02:49,240 Speaker 1: because with the virus surging in the south and southwest 46 00:02:49,280 --> 00:02:52,120 Speaker 1: of the country, we are concerned about that. I'm very 47 00:02:52,120 --> 00:02:54,200 Speaker 1: concerned about that. So this is going to be a 48 00:02:54,240 --> 00:02:57,280 Speaker 1: slow recovery. Until we get the virus under control, we 49 00:02:57,320 --> 00:03:00,400 Speaker 1: can't get the economy back to full throttle. You mentioned 50 00:03:00,440 --> 00:03:02,840 Speaker 1: EDS and meds. The EDS part of it is your specialty. 51 00:03:02,840 --> 00:03:06,120 Speaker 1: You came up as an educator. How important is it 52 00:03:06,160 --> 00:03:09,920 Speaker 1: to get the schools open? How important to the economy 53 00:03:09,960 --> 00:03:13,640 Speaker 1: this fault. It's very important, but we have to do 54 00:03:13,720 --> 00:03:17,280 Speaker 1: it carefully because we don't want to put people at risk. 55 00:03:17,600 --> 00:03:20,560 Speaker 1: You start, for example, we know that in a child 56 00:03:20,600 --> 00:03:25,480 Speaker 1: care business, about half the child care institutions, many of 57 00:03:25,480 --> 00:03:29,320 Speaker 1: them are small uh companies that are taking care of children, 58 00:03:29,760 --> 00:03:32,880 Speaker 1: about half of them closed, and the remaining ones they 59 00:03:32,960 --> 00:03:36,920 Speaker 1: lost about at least fifty capacity in remaining open. So 60 00:03:37,080 --> 00:03:40,960 Speaker 1: it's just simply if people can't find care for their 61 00:03:41,040 --> 00:03:43,560 Speaker 1: children or be able to get their children to school, 62 00:03:43,920 --> 00:03:46,160 Speaker 1: they're gonna have a hard time working. And particularly in 63 00:03:46,160 --> 00:03:50,200 Speaker 1: a knowledge economy where people's productivity is really their knowledge, 64 00:03:50,760 --> 00:03:54,080 Speaker 1: if they're concerned about their children and that's weighing on 65 00:03:54,120 --> 00:03:57,200 Speaker 1: their mind, it's human nature, they're going to be less productive. 66 00:03:57,360 --> 00:03:59,600 Speaker 1: So I think it's very important, but we can't do 67 00:03:59,640 --> 00:04:02,200 Speaker 1: it in a way that puts the children or the 68 00:04:02,240 --> 00:04:05,160 Speaker 1: communities at risk. Obviously a lot of risks for the 69 00:04:05,160 --> 00:04:08,440 Speaker 1: economy that don't seem to be reflected in equity prices. 70 00:04:08,520 --> 00:04:11,640 Speaker 1: Are you concerned about the level of stocks at this 71 00:04:11,720 --> 00:04:14,119 Speaker 1: point and whether or not it's sustainable or we might 72 00:04:14,160 --> 00:04:16,040 Speaker 1: be seeing a bubble that could pop and take the 73 00:04:16,040 --> 00:04:19,719 Speaker 1: economy with it. So the equity market, the stock market 74 00:04:19,920 --> 00:04:22,720 Speaker 1: is a measure we look at, but I often remind 75 00:04:22,720 --> 00:04:25,159 Speaker 1: myself it's not the real economy. So for me as 76 00:04:25,200 --> 00:04:28,640 Speaker 1: a policy maker, I'm looking at the signals coming from 77 00:04:28,640 --> 00:04:32,000 Speaker 1: the real economy, employment data, inflation data, and so forth. 78 00:04:32,360 --> 00:04:36,039 Speaker 1: That is my main concern right now. Well, do you 79 00:04:36,080 --> 00:04:37,880 Speaker 1: think there is any role for the FED though, in 80 00:04:38,839 --> 00:04:43,240 Speaker 1: perhaps controlling the rise of equities at this point? At 81 00:04:43,240 --> 00:04:45,599 Speaker 1: this point we had the FED had that we had 82 00:04:45,680 --> 00:04:49,400 Speaker 1: to act early and aggressively to help stem the damage 83 00:04:49,560 --> 00:04:53,200 Speaker 1: from this unprecedented pandemic. And we did that, and so 84 00:04:53,440 --> 00:04:56,239 Speaker 1: that was job one. Now as we start to climb 85 00:04:56,279 --> 00:04:59,400 Speaker 1: out of this, hopefully sooner rather than later, we will 86 00:04:59,480 --> 00:05:04,120 Speaker 1: address other issues. But we had to act to secure 87 00:05:04,160 --> 00:05:06,440 Speaker 1: the economy and helps save as much of the economic 88 00:05:06,480 --> 00:05:10,000 Speaker 1: infrastructure in the country as we could. What more can 89 00:05:10,080 --> 00:05:14,000 Speaker 1: the Fed do? Lele Brainerd suggested yesterday that you let 90 00:05:14,160 --> 00:05:17,400 Speaker 1: the economy run hot for a while and explicitly say 91 00:05:17,480 --> 00:05:21,279 Speaker 1: you're going to let it inflation rise. Is that a 92 00:05:21,320 --> 00:05:24,040 Speaker 1: strategy on the table for you? So we've been saying 93 00:05:24,040 --> 00:05:26,400 Speaker 1: for a long time that the two percent inflation goal 94 00:05:26,520 --> 00:05:29,599 Speaker 1: is symmetric, which means we should overshoot it. We're having 95 00:05:29,600 --> 00:05:33,080 Speaker 1: a difficult time doing that. Like all developed economies, UM 96 00:05:33,120 --> 00:05:37,320 Speaker 1: supported the idea of letting inflation get above two before 97 00:05:37,400 --> 00:05:40,039 Speaker 1: we take any action with respect to the FED fund try. 98 00:05:40,960 --> 00:05:42,800 Speaker 1: Do you think that at this point the FED can 99 00:05:42,839 --> 00:05:44,800 Speaker 1: do a lot to stimulate the economy or is it 100 00:05:44,880 --> 00:05:48,120 Speaker 1: really up to washing it In the fiscal side, I 101 00:05:48,160 --> 00:05:49,920 Speaker 1: think there are things we can do. Our tool can 102 00:05:50,000 --> 00:05:53,880 Speaker 1: we continue to lend and we have that authority, But yeah, 103 00:05:53,920 --> 00:05:56,360 Speaker 1: I think the main issues that we're facing right now 104 00:05:56,800 --> 00:05:58,599 Speaker 1: tend to be on the fiscal side of the House. 105 00:05:58,640 --> 00:06:01,160 Speaker 1: I would agree with that. What would you like to 106 00:06:01,240 --> 00:06:03,440 Speaker 1: see what's the most important thing to come out of 107 00:06:03,440 --> 00:06:05,120 Speaker 1: watching them? What kind of aid? I know you don't 108 00:06:05,160 --> 00:06:07,720 Speaker 1: want to mention a specific program, but what kind of thing? 109 00:06:07,839 --> 00:06:11,080 Speaker 1: Where's the economy weakest that needs help? So I think 110 00:06:11,080 --> 00:06:12,919 Speaker 1: a couple of things I worry about, And again I 111 00:06:12,920 --> 00:06:14,920 Speaker 1: don't want to tell Congress what to do, but there 112 00:06:14,960 --> 00:06:17,320 Speaker 1: are things I worry about. One is a cliff effect 113 00:06:17,320 --> 00:06:20,440 Speaker 1: of unemployment insurance. Yes, there is a need to get 114 00:06:20,440 --> 00:06:22,440 Speaker 1: people back to work, and people want to go back 115 00:06:22,440 --> 00:06:25,360 Speaker 1: to work, but we can't just cut it off because 116 00:06:25,360 --> 00:06:27,640 Speaker 1: if we cut it off, people stop spending and that 117 00:06:27,640 --> 00:06:31,080 Speaker 1: will be a hit on the economy. Second, we're seeing 118 00:06:31,080 --> 00:06:33,480 Speaker 1: the same kind of cliff effect with state and local 119 00:06:33,520 --> 00:06:36,400 Speaker 1: governments if they start laying off lots of people. We 120 00:06:36,440 --> 00:06:39,440 Speaker 1: talk a lot about anchor institutions. Well, one of the 121 00:06:39,480 --> 00:06:42,760 Speaker 1: big anchor institutions in our economy are state and local governments, 122 00:06:43,040 --> 00:06:46,440 Speaker 1: so they need some help. So those are two that 123 00:06:46,480 --> 00:06:49,919 Speaker 1: I think are really important, and the third that I 124 00:06:49,960 --> 00:06:52,160 Speaker 1: worry about, and we're doing a lot of work to 125 00:06:52,240 --> 00:06:57,000 Speaker 1: defed on is small businesses. How to maintain the strength 126 00:06:57,000 --> 00:07:00,760 Speaker 1: of small businesses, particularly for a minority can. The National 127 00:07:00,760 --> 00:07:03,599 Speaker 1: Bureau of Economic Research recently put out a report saying 128 00:07:04,240 --> 00:07:08,960 Speaker 1: it's about of black owned small businesses have closed during 129 00:07:08,960 --> 00:07:13,320 Speaker 1: this pandemic. This is not only decimating to those businesses, 130 00:07:13,360 --> 00:07:15,920 Speaker 1: but to the communities they serve. Well, what can the 131 00:07:15,960 --> 00:07:18,679 Speaker 1: FED do? Are you are banking supervisors? Yesterday in his speech, 132 00:07:18,720 --> 00:07:22,200 Speaker 1: you were critical of the paycheck Protection program for we 133 00:07:22,360 --> 00:07:26,320 Speaker 1: focused more on bank relationships rather than need How how 134 00:07:26,320 --> 00:07:29,240 Speaker 1: do you redesign that or where can the FED act? Well? 135 00:07:29,240 --> 00:07:31,520 Speaker 1: I would say I was critical. What I was saying 136 00:07:31,640 --> 00:07:34,320 Speaker 1: is that a lot of these micro enterprises, that is, 137 00:07:34,440 --> 00:07:37,000 Speaker 1: enterprises with less than five employees, and we have lots 138 00:07:37,040 --> 00:07:39,800 Speaker 1: of those in Phildelphia all around the country, they don't 139 00:07:39,800 --> 00:07:43,280 Speaker 1: have banking relationships because for a lot of reasons, they 140 00:07:43,280 --> 00:07:48,160 Speaker 1: don't necessarily trust the institutions. That's the root problem. We 141 00:07:48,280 --> 00:07:51,520 Speaker 1: have to solve that problem to get I don't accept 142 00:07:51,880 --> 00:07:54,600 Speaker 1: the fact that people don't have a banking relationship as 143 00:07:54,600 --> 00:07:56,800 Speaker 1: the status quad and we should just accept We should 144 00:07:56,800 --> 00:08:00,000 Speaker 1: work on that. We should bring people into the system 145 00:08:00,120 --> 00:08:02,480 Speaker 1: so that they can have access to things like PPP 146 00:08:02,680 --> 00:08:06,160 Speaker 1: programs and just have lower fees and better service to 147 00:08:06,240 --> 00:08:09,160 Speaker 1: build their businesses. Before I let you go, I want 148 00:08:09,160 --> 00:08:11,640 Speaker 1: to ask you how you're following the economy these days. 149 00:08:11,640 --> 00:08:14,040 Speaker 1: We've had two better than expected jobs reports. Do you 150 00:08:14,080 --> 00:08:16,440 Speaker 1: think we get the same thing for the month of July? 151 00:08:16,560 --> 00:08:20,480 Speaker 1: And doesn't really matter. It will depend because of what's 152 00:08:20,520 --> 00:08:25,360 Speaker 1: happening with resurgence of the virus. I'm a little skeptical 153 00:08:25,400 --> 00:08:27,520 Speaker 1: that we're going to see as good a job's report, 154 00:08:27,680 --> 00:08:31,000 Speaker 1: but we'll see. But it all comes down to right now, 155 00:08:31,240 --> 00:08:35,040 Speaker 1: controlling the virus. The health of the economy is dependent 156 00:08:35,160 --> 00:08:37,400 Speaker 1: on the health of all of us, and until we 157 00:08:37,440 --> 00:08:39,640 Speaker 1: get the virus under control, we're not going to get 158 00:08:39,640 --> 00:08:41,720 Speaker 1: the economy back to where we all wanted to be. 159 00:08:42,040 --> 00:08:44,400 Speaker 1: You mentioned the fact that we're coming up on this 160 00:08:44,480 --> 00:08:47,760 Speaker 1: fiscal cliff in July. In the end of September, we're 161 00:08:47,760 --> 00:08:51,040 Speaker 1: going to have a lot of your lending programs expired. 162 00:08:51,120 --> 00:08:54,680 Speaker 1: You anticipate at this point they continue. Potentially, it will 163 00:08:54,720 --> 00:08:56,520 Speaker 1: depend on what the state of the economy is at 164 00:08:56,559 --> 00:08:59,679 Speaker 1: that time. Right Thanks very much to Patrick Harker, the 165 00:08:59,679 --> 00:09:03,040 Speaker 1: president of the Philadelphia Fed. Thanks for joining us today. 166 00:09:06,280 --> 00:09:10,200 Speaker 1: It is about Ireland and the bomb show announcement this 167 00:09:10,280 --> 00:09:14,080 Speaker 1: morning on Apple Computer was wonderful about this, as we 168 00:09:14,120 --> 00:09:18,000 Speaker 1: have with us the Finance Minister of Ireland, Pascal Donahoe. 169 00:09:18,160 --> 00:09:21,240 Speaker 1: And what is so interesting of Mr Donahoe is his 170 00:09:21,320 --> 00:09:26,240 Speaker 1: truck from Trinity College in Dublin to real corporate, multinational 171 00:09:26,320 --> 00:09:29,920 Speaker 1: work in the United Kingdom for Procter and Gamble years ago. 172 00:09:30,080 --> 00:09:34,920 Speaker 1: He has lived the multinational nous of the United Kingdom, 173 00:09:35,000 --> 00:09:38,600 Speaker 1: of the Republic of Ireland, indeed of Luxembourg in Europe. 174 00:09:38,880 --> 00:09:41,280 Speaker 1: Finance Minister, we are thrilled to have you with us. 175 00:09:41,280 --> 00:09:46,000 Speaker 1: Welcome to Bloomberg surveillance. Were you surprised by this huge, 176 00:09:46,520 --> 00:09:51,480 Speaker 1: huge win for your nation and for Tim Cook and Cupertino? Well, 177 00:09:51,520 --> 00:09:55,400 Speaker 1: I always believe such an outcome was possible. And Ireland 178 00:09:55,520 --> 00:09:59,120 Speaker 1: has been very clear now over many many years that 179 00:09:59,400 --> 00:10:03,559 Speaker 1: we do not make special tax agreements with any company 180 00:10:03,640 --> 00:10:07,319 Speaker 1: big small here in our country, and all taxpayers are 181 00:10:07,320 --> 00:10:11,360 Speaker 1: treated equally. We really value the relationship that we have 182 00:10:11,440 --> 00:10:14,240 Speaker 1: with an employers such as Apple, like we value the 183 00:10:14,280 --> 00:10:17,440 Speaker 1: relationship that we have with all employers in Ireland and 184 00:10:17,520 --> 00:10:20,640 Speaker 1: we do not do special deals for them. And this 185 00:10:20,920 --> 00:10:24,800 Speaker 1: ruling here today is a recognition of US Minister, you 186 00:10:24,920 --> 00:10:28,280 Speaker 1: have lived this with p and years ago. I want 187 00:10:28,320 --> 00:10:31,880 Speaker 1: you to explain to those of continental Europe and frankly 188 00:10:31,960 --> 00:10:36,680 Speaker 1: those of you worldwide, that appropriate tax policy for multi 189 00:10:36,880 --> 00:10:43,520 Speaker 1: nationals is not theft from the general taxpayer. Well, I 190 00:10:43,559 --> 00:10:49,120 Speaker 1: believe it's absolutely imperrasive that big companies are taxed effectively 191 00:10:49,280 --> 00:10:52,760 Speaker 1: and they are taxed fairly. And I also believe that 192 00:10:52,840 --> 00:10:55,839 Speaker 1: for very big and very big digital companies, how we 193 00:10:55,880 --> 00:10:58,280 Speaker 1: are going to tax them in the future is also 194 00:10:58,400 --> 00:11:02,480 Speaker 1: going to change. But what was so important about this 195 00:11:02,559 --> 00:11:07,400 Speaker 1: particular issue is an allegation was made that we were 196 00:11:07,440 --> 00:11:11,840 Speaker 1: in some way treating Apple differently to other taxpayers that 197 00:11:11,880 --> 00:11:15,679 Speaker 1: will be here in Ireland. This matter ultimately ended up 198 00:11:15,720 --> 00:11:18,320 Speaker 1: in the General Court of the European Union and it's 199 00:11:18,360 --> 00:11:21,400 Speaker 1: been settled in the way that you've now described. So 200 00:11:21,520 --> 00:11:25,199 Speaker 1: the message from me, it's a finance minister here in Europe, 201 00:11:25,760 --> 00:11:30,079 Speaker 1: is that companies, whether they're from Europe, America already well 202 00:11:30,360 --> 00:11:33,319 Speaker 1: or else in the world, have to be taxed effectively 203 00:11:33,520 --> 00:11:36,719 Speaker 1: and fairly. And this was a really important issue for 204 00:11:36,760 --> 00:11:40,280 Speaker 1: our tax code here in Irelands, moving from taxing to spending. 205 00:11:40,320 --> 00:11:42,400 Speaker 1: There's a big question. You are the president you're the 206 00:11:42,400 --> 00:11:45,240 Speaker 1: head of a group of nineteen finance ministers. They will 207 00:11:45,280 --> 00:11:48,760 Speaker 1: all get together this weekend for that European Commission meeting 208 00:11:48,760 --> 00:11:51,040 Speaker 1: where they're gonna be speaking about that key trillion dollar 209 00:11:51,120 --> 00:11:53,680 Speaker 1: trillion euro budget as well as the seven dred and 210 00:11:53,720 --> 00:11:57,839 Speaker 1: fifty euro billion euro plan that has been proposed. How 211 00:11:57,880 --> 00:12:00,800 Speaker 1: much pushback are you hearing from the frugal for and 212 00:12:00,840 --> 00:12:04,920 Speaker 1: what has been proposed and bringing that fiscal stimulus down. Yes, 213 00:12:05,000 --> 00:12:07,760 Speaker 1: there is a diversity of debate in relation to this 214 00:12:07,800 --> 00:12:12,440 Speaker 1: particular project within Europe and inside the European Union, But 215 00:12:12,640 --> 00:12:14,760 Speaker 1: very broadly, the point I would make to you and 216 00:12:14,880 --> 00:12:18,079 Speaker 1: to all your viewers across the world if this is 217 00:12:18,120 --> 00:12:25,280 Speaker 1: a really signature example of Europe deepening its economic architecture 218 00:12:25,800 --> 00:12:29,880 Speaker 1: and deepening and making stronger the foundations of the Euro 219 00:12:30,520 --> 00:12:33,560 Speaker 1: and we are doing us to strengthen the ability of 220 00:12:33,600 --> 00:12:37,120 Speaker 1: our own economies here in Europe to respond back to 221 00:12:37,360 --> 00:12:40,880 Speaker 1: the economic shock of COVID and because this is such 222 00:12:40,920 --> 00:12:43,120 Speaker 1: a big project, of course of our different views in 223 00:12:43,160 --> 00:12:46,600 Speaker 1: relation to us, but I do believe that within the 224 00:12:46,640 --> 00:12:49,640 Speaker 1: European Union will reach agreement on the matter and the 225 00:12:49,679 --> 00:12:53,800 Speaker 1: concerns that my colleagues and friends have amongst some countries 226 00:12:53,880 --> 00:12:56,439 Speaker 1: for God, in the scale of the fond and how 227 00:12:56,520 --> 00:13:00,560 Speaker 1: this money can be used effectively and transparently. I believe 228 00:13:00,640 --> 00:13:04,880 Speaker 1: what creativity and imagination in the coming days are maybe weaker, 229 00:13:04,960 --> 00:13:08,400 Speaker 1: so we'll find a way of reaching agreement. Mr Dannio, 230 00:13:08,440 --> 00:13:09,880 Speaker 1: I want to go back to Apple. I think the 231 00:13:09,880 --> 00:13:12,120 Speaker 1: sovereignty issue here and frankly as to do with the 232 00:13:12,120 --> 00:13:15,440 Speaker 1: weekend meetings, but the sovereigny issue here is absolutely critical. 233 00:13:15,800 --> 00:13:18,800 Speaker 1: Frankly going back to Trinity College and Elizabeth the First 234 00:13:19,120 --> 00:13:22,439 Speaker 1: and the formation of liberty in Ireland. What this decision 235 00:13:22,880 --> 00:13:26,200 Speaker 1: is really about, folding into all the different meetings that 236 00:13:26,280 --> 00:13:31,040 Speaker 1: are you howners, is about sovereignty of nations to make 237 00:13:31,120 --> 00:13:34,720 Speaker 1: their own laws. What does it mean for Brussels to 238 00:13:34,840 --> 00:13:40,800 Speaker 1: see this victory by you today. Well, actually, I believe 239 00:13:40,800 --> 00:13:43,040 Speaker 1: in the puding of sovereignty and I believe in the 240 00:13:43,040 --> 00:13:47,199 Speaker 1: sharing of sovereignty. I'm a passionate supporter of the European project. 241 00:13:47,640 --> 00:13:50,800 Speaker 1: I'm a deep believer in the process of European integration 242 00:13:50,880 --> 00:13:53,400 Speaker 1: that we have and they need to look at how 243 00:13:53,440 --> 00:13:56,320 Speaker 1: we can strengthen it in the future. So I would 244 00:13:56,320 --> 00:13:59,679 Speaker 1: actually regularly make the case here in Ireland and to 245 00:13:59,760 --> 00:14:02,480 Speaker 1: crawl us Europe and indeed across the world that the 246 00:14:02,520 --> 00:14:07,600 Speaker 1: European project about economically and politically, it's an extraordinary achievement 247 00:14:07,800 --> 00:14:11,080 Speaker 1: that from my point of view personally and politically, I 248 00:14:11,160 --> 00:14:13,760 Speaker 1: want to protect and want to secure us and I 249 00:14:13,800 --> 00:14:17,440 Speaker 1: want to grow within the future. And Commissioner Vestigure is 250 00:14:17,520 --> 00:14:20,560 Speaker 1: a commissioner that I have huge respect for who I 251 00:14:20,600 --> 00:14:23,960 Speaker 1: look forward to working with again in the future. Um 252 00:14:24,080 --> 00:14:27,520 Speaker 1: that said, there are always a number of particular areas 253 00:14:27,680 --> 00:14:30,520 Speaker 1: in terms of how decisions are made and then how 254 00:14:30,560 --> 00:14:34,400 Speaker 1: they're implemented that are always going to matter to individual 255 00:14:34,520 --> 00:14:37,840 Speaker 1: nation states. And from our point of view, the reason 256 00:14:37,920 --> 00:14:41,440 Speaker 1: this was so important is that it create the inference 257 00:14:41,640 --> 00:14:44,960 Speaker 1: that we used our national sovereignty in some way to 258 00:14:45,000 --> 00:14:48,120 Speaker 1: get favorable treatment to a company. That wasn't the case. 259 00:14:48,400 --> 00:14:51,560 Speaker 1: It's been recognized by the routing here this morning. But 260 00:14:51,640 --> 00:14:53,720 Speaker 1: you know, I make all these this case, and I 261 00:14:53,840 --> 00:14:57,000 Speaker 1: make that argument though in the context of somebody who 262 00:14:57,040 --> 00:15:00,680 Speaker 1: is a European politician believes in the europe Union and 263 00:15:00,800 --> 00:15:04,880 Speaker 1: the sharing of sovereignty. But inside that architecture, countries still 264 00:15:04,920 --> 00:15:09,040 Speaker 1: have roles, their duties and their responsibilities. And that's why 265 00:15:09,080 --> 00:15:12,320 Speaker 1: this hearing was so important. Finance minister, thank you so 266 00:15:12,400 --> 00:15:14,680 Speaker 1: much for joining us this morning. Pasco Donajo is the 267 00:15:14,720 --> 00:15:19,400 Speaker 1: Irish Finance Minister. Off of this extraordinary ruling out of 268 00:15:19,520 --> 00:15:28,880 Speaker 1: Luxembourg on Apple computer. Daniel Tannebaum is expert hit what 269 00:15:29,040 --> 00:15:35,480 Speaker 1: financial companies do given sanction rules and law changes. He's 270 00:15:35,520 --> 00:15:38,480 Speaker 1: with Oliver Wyman after a distinguished career. He's got a 271 00:15:38,520 --> 00:15:41,920 Speaker 1: fancy title of America's and a financial crime leader. But 272 00:15:42,120 --> 00:15:45,280 Speaker 1: mostly what he does is going to rooms and say, okay, 273 00:15:45,320 --> 00:15:48,360 Speaker 1: here your options. Dan Tannebaum, what are the options for 274 00:15:48,400 --> 00:15:52,240 Speaker 1: American banking is they sit two blocks from the Mandarin 275 00:15:52,320 --> 00:15:56,520 Speaker 1: Hotel in Hong Kong. Thanks Tom. It's it's gonna be 276 00:15:56,560 --> 00:15:59,960 Speaker 1: a tough morning or day for for US banks opera 277 00:16:00,080 --> 00:16:02,920 Speaker 1: rating in Hong Kong as they really think about what 278 00:16:02,960 --> 00:16:06,080 Speaker 1: this could mean. I think it's really important to note, though, 279 00:16:06,080 --> 00:16:09,800 Speaker 1: that sanctions weren't actually levied yesterday, but a framework was 280 00:16:09,880 --> 00:16:13,320 Speaker 1: essentially established through the signing of the Hong Kong Autonomy Act. 281 00:16:13,840 --> 00:16:17,480 Speaker 1: But if these sanctions are put forth um like many 282 00:16:17,560 --> 00:16:19,400 Speaker 1: think they could be, and these were very much a 283 00:16:19,400 --> 00:16:22,880 Speaker 1: blunt instrument rather than a surgical use of sanctions in 284 00:16:22,960 --> 00:16:27,520 Speaker 1: a very sensitive market. Um it would be nearly impossible 285 00:16:27,720 --> 00:16:30,080 Speaker 1: for a US bank to be able to comply with 286 00:16:30,240 --> 00:16:34,040 Speaker 1: U S sanctions and Chinese law simultaneously. Well down, this 287 00:16:34,120 --> 00:16:36,040 Speaker 1: is the issue. I'm trying to understand the scale, the 288 00:16:36,080 --> 00:16:38,440 Speaker 1: magnitude of the issue before us right now. And let's 289 00:16:38,480 --> 00:16:39,960 Speaker 1: just think this out. I don't want to get you 290 00:16:39,960 --> 00:16:41,800 Speaker 1: in trouble with any clients. Let's say there's a bank 291 00:16:41,840 --> 00:16:43,840 Speaker 1: that starts with an H and to the C. They 292 00:16:43,840 --> 00:16:47,400 Speaker 1: have a headquarters in London and a huge presence. I'm 293 00:16:47,440 --> 00:16:50,840 Speaker 1: thinking banks, nay, many banks. We're trying to keep down 294 00:16:50,880 --> 00:16:54,200 Speaker 1: out of trouble. Down. Let's say that bank services a 295 00:16:54,440 --> 00:16:58,280 Speaker 1: particular client that comes under these sanctions. What did they do? 296 00:17:00,120 --> 00:17:02,280 Speaker 1: I mean, we've talked about this on the show before. 297 00:17:02,400 --> 00:17:05,639 Speaker 1: I mean, realistically, they're going to have to pick which 298 00:17:05,800 --> 00:17:09,600 Speaker 1: regulatory regime can end up hurting them the most. Now, 299 00:17:10,080 --> 00:17:14,000 Speaker 1: I do think there's some cause for caution on all 300 00:17:14,040 --> 00:17:17,240 Speaker 1: of this, because I mean we're potentially a year away 301 00:17:17,320 --> 00:17:20,760 Speaker 1: from actually seeing any real designations under this program. If 302 00:17:20,760 --> 00:17:22,560 Speaker 1: you get into the nuts and bolts of what was 303 00:17:22,640 --> 00:17:27,080 Speaker 1: signed yesterday, the administration have ninety days to identify targets 304 00:17:27,119 --> 00:17:30,200 Speaker 1: where designating then they have to inform Congress if any 305 00:17:30,240 --> 00:17:34,000 Speaker 1: foreign banks carried out business with the aforementioned targets um 306 00:17:34,080 --> 00:17:36,000 Speaker 1: and they have a year to do that. So you're 307 00:17:36,000 --> 00:17:40,359 Speaker 1: talking potentially October one before you may begin to see 308 00:17:40,440 --> 00:17:44,240 Speaker 1: any banking related restrictions or more serious sanctions that get 309 00:17:44,320 --> 00:17:47,800 Speaker 1: rolled out. Potentially, Dan, the sanctions haven't been levied yet. 310 00:17:47,840 --> 00:17:50,560 Speaker 1: You made a point of that, and clearly, uh, this 311 00:17:50,760 --> 00:17:54,320 Speaker 1: is just amping up the arsenal the President Trump potentially 312 00:17:54,320 --> 00:17:56,560 Speaker 1: could have. Can you give a sense of why now, 313 00:17:56,640 --> 00:17:59,760 Speaker 1: because initially a President Trump didn't have that strong of 314 00:17:59,760 --> 00:18:03,720 Speaker 1: a action publicly to the incursions in Hong Kong's autonomy. 315 00:18:03,960 --> 00:18:08,000 Speaker 1: And this came, according to some people, sort of suddenly, Well, 316 00:18:08,040 --> 00:18:10,080 Speaker 1: I mean it didn't. It didn't. Let's let's remember what 317 00:18:10,119 --> 00:18:14,439 Speaker 1: he signed yesterday. It was a very very bipartisan piece 318 00:18:14,600 --> 00:18:17,359 Speaker 1: of legislation passed in both the House and Senate that 319 00:18:17,560 --> 00:18:21,159 Speaker 1: forced the president's hand. He was essentially given no choice 320 00:18:21,160 --> 00:18:24,399 Speaker 1: in a veto proof majority to sign the legislation that 321 00:18:24,440 --> 00:18:27,600 Speaker 1: came across his desk. So Congress is the one that 322 00:18:27,720 --> 00:18:32,440 Speaker 1: acted and forced the administration to do something. They signed something, 323 00:18:32,480 --> 00:18:35,399 Speaker 1: but haven't necessarily done anything yet. And I think the 324 00:18:35,440 --> 00:18:39,320 Speaker 1: next step where the administration have to identify targets. That's 325 00:18:39,359 --> 00:18:41,919 Speaker 1: the real sensitive piece here. But I don't think it 326 00:18:42,000 --> 00:18:45,439 Speaker 1: was necessarily suddenly. Um. He definitely was delayed for a 327 00:18:45,440 --> 00:18:47,320 Speaker 1: few weeks, and I think the timing was the UK 328 00:18:47,400 --> 00:18:51,359 Speaker 1: announcement yesterday of of excluding a certain tech company from 329 00:18:51,400 --> 00:18:54,840 Speaker 1: from involvement in their five G market. UM was you know, 330 00:18:54,880 --> 00:18:57,280 Speaker 1: this has been a bad week in terms of Western 331 00:18:57,359 --> 00:19:00,960 Speaker 1: China relation to John's correct delicate questioning of what a 332 00:19:01,040 --> 00:19:03,920 Speaker 1: given bank would do. Look at the margin, this stops 333 00:19:04,440 --> 00:19:08,040 Speaker 1: marginal Hong Kong growths for the financial system of the West. 334 00:19:08,640 --> 00:19:11,480 Speaker 1: Where do they go when they move from stopping the 335 00:19:11,520 --> 00:19:15,560 Speaker 1: marginal growth of headcount over to we've got to adjust 336 00:19:15,680 --> 00:19:20,160 Speaker 1: at the margin or completely an exit Hong Kong. Where 337 00:19:20,160 --> 00:19:23,480 Speaker 1: would you just suggest they go to? I mean there's 338 00:19:23,520 --> 00:19:25,919 Speaker 1: no I mean this is still somewhat fresh, so I 339 00:19:25,960 --> 00:19:28,240 Speaker 1: don't think there is a clear answer of where you'd 340 00:19:28,240 --> 00:19:29,720 Speaker 1: go to. I know there's a lot of people in 341 00:19:29,760 --> 00:19:32,480 Speaker 1: Singapore that are excited of what this could potentially mean 342 00:19:32,560 --> 00:19:35,560 Speaker 1: for the further growth of Singapore as a financial services 343 00:19:35,640 --> 00:19:39,400 Speaker 1: hub UM, which is a potentially a logical move from 344 00:19:39,400 --> 00:19:43,000 Speaker 1: a regulatory standpoint In otherwise, UM there's no clear answer. 345 00:19:43,040 --> 00:19:46,200 Speaker 1: I don't think anyone is evacuating the Hong Kong market yet, 346 00:19:46,200 --> 00:19:48,480 Speaker 1: and I think any moves and doing so could be 347 00:19:48,560 --> 00:19:51,920 Speaker 1: viewed as premature depending on the business. But this is 348 00:19:51,960 --> 00:19:54,160 Speaker 1: what a lot of banks, similar to those that we're 349 00:19:54,200 --> 00:19:58,120 Speaker 1: looking at Bregg's post Brexit locations had to do, may 350 00:19:58,160 --> 00:20:01,600 Speaker 1: need to begin spinning up our plan if this escalates. 351 00:20:02,040 --> 00:20:04,199 Speaker 1: Do we stay in Hong Kong or do we actually 352 00:20:04,240 --> 00:20:06,840 Speaker 1: have to potentially move? I would point out, folks, a 353 00:20:06,880 --> 00:20:10,280 Speaker 1: trip from Song Kong to Singapore is almost four hours. 354 00:20:10,320 --> 00:20:12,760 Speaker 1: You're on the plane and you're like, really, it's like 355 00:20:12,880 --> 00:20:16,880 Speaker 1: literally New York. It's a lot farther away than anybody imagines. There, 356 00:20:16,960 --> 00:20:20,920 Speaker 1: Dan give us an update than on what your council 357 00:20:20,960 --> 00:20:24,920 Speaker 1: would be to banks right now. I mean, I think 358 00:20:24,920 --> 00:20:29,360 Speaker 1: it's keeping aware of what's happening. The one missed opportunity 359 00:20:29,359 --> 00:20:32,240 Speaker 1: in all of this was the US again went and 360 00:20:32,320 --> 00:20:36,320 Speaker 1: alone set forth the unilateral sanctions package that there weren't 361 00:20:36,320 --> 00:20:40,080 Speaker 1: other countries latching onto, which does make it harder, um 362 00:20:40,119 --> 00:20:43,840 Speaker 1: have you as you have these more significant business decisions 363 00:20:43,840 --> 00:20:47,000 Speaker 1: that have to be made. I think trying to establish 364 00:20:47,160 --> 00:20:50,840 Speaker 1: what this could potentially mean looking at the China response, 365 00:20:50,920 --> 00:20:53,159 Speaker 1: which thus far has been focused similar to what it 366 00:20:53,240 --> 00:20:56,600 Speaker 1: was last week with the designation of Marco Rubio and 367 00:20:56,640 --> 00:21:00,199 Speaker 1: Ted Cruz for in response to weaker sanctions. UH. The 368 00:21:00,320 --> 00:21:04,119 Speaker 1: Chinese response has been at least relatively measured, given I 369 00:21:04,119 --> 00:21:07,679 Speaker 1: think they're aware that nothing has really happened yet, but 370 00:21:07,840 --> 00:21:10,840 Speaker 1: companies need to begin to prepare to understand how they 371 00:21:10,880 --> 00:21:14,400 Speaker 1: can operate in both markets UM without you know, completely 372 00:21:14,480 --> 00:21:18,159 Speaker 1: running a foul of the other side. And there aren't 373 00:21:18,200 --> 00:21:21,760 Speaker 1: any clear answers yet given you know, everyone's still decomposing 374 00:21:21,800 --> 00:21:24,760 Speaker 1: this Executive Order and the Autonomy Act and what it 375 00:21:24,800 --> 00:21:27,320 Speaker 1: could potentially mean. Well, Dan, you've now, dear. I think 376 00:21:27,320 --> 00:21:30,000 Speaker 1: the era of sitting on the fence for many of 377 00:21:30,000 --> 00:21:33,800 Speaker 1: these companies who won their hand in both regions without 378 00:21:33,880 --> 00:21:36,720 Speaker 1: really coming out and saying what they think about the situation, 379 00:21:37,080 --> 00:21:41,000 Speaker 1: that's over, isn't it. It does seem like that's over. 380 00:21:41,160 --> 00:21:44,000 Speaker 1: I think the relations between US and China have only 381 00:21:44,040 --> 00:21:47,080 Speaker 1: continued to worsen over the last few months. UM. And 382 00:21:47,160 --> 00:21:51,399 Speaker 1: for banks that have grown their business in the APAC region, 383 00:21:51,640 --> 00:21:54,960 Speaker 1: those that are have significant business in the US, UM, 384 00:21:55,000 --> 00:21:56,960 Speaker 1: I don't know if they necessarily need to make any 385 00:21:57,040 --> 00:22:00,639 Speaker 1: choices in the near term, but obviously this does pose 386 00:22:00,680 --> 00:22:04,400 Speaker 1: a threat to the growth of the business UM going forward. 387 00:22:04,880 --> 00:22:06,960 Speaker 1: Dan Tannebaum, great to catch up with you. Out of 388 00:22:07,000 --> 00:22:10,200 Speaker 1: a woman, Partner in America's Anti financial crimes head, joining 389 00:22:10,280 --> 00:22:15,800 Speaker 1: us on the latest out of Hong Kong. Bank of 390 00:22:15,840 --> 00:22:20,359 Speaker 1: America has a franchise in research of trying to figure 391 00:22:20,359 --> 00:22:24,280 Speaker 1: out the pulse of the by side, John, at any time, 392 00:22:24,359 --> 00:22:27,080 Speaker 1: this is an important conversation, and I would say in 393 00:22:27,119 --> 00:22:30,040 Speaker 1: the history of Bank of America's research, there's never been 394 00:22:30,040 --> 00:22:32,359 Speaker 1: a more important time in this a pandemic than to 395 00:22:32,520 --> 00:22:36,160 Speaker 1: figure out what the people scared stiff about the actual 396 00:22:36,200 --> 00:22:38,440 Speaker 1: assumption or thinking happy to say we can bring Jack 397 00:22:38,520 --> 00:22:40,879 Speaker 1: Wood it in now. Bank of America Securities head of 398 00:22:40,960 --> 00:22:43,760 Speaker 1: a research investment committee, Jared, always great to catch up 399 00:22:43,800 --> 00:22:46,360 Speaker 1: with you, sir. Just how under round is that cyclical 400 00:22:46,359 --> 00:22:48,280 Speaker 1: part of the market and what will it take to 401 00:22:48,400 --> 00:22:51,840 Speaker 1: get a durable rotation, one that lasts longer than twenty 402 00:22:51,840 --> 00:22:58,000 Speaker 1: four hours? Yeah, no, it's look the big cyclical assets 403 00:22:58,320 --> 00:23:01,040 Speaker 1: the Europe the you know, the the value stocks, the 404 00:23:01,080 --> 00:23:04,080 Speaker 1: financials either are some of the most hated assets in 405 00:23:04,119 --> 00:23:07,760 Speaker 1: the world. You have um, everyone crowded into essentially just 406 00:23:07,840 --> 00:23:11,600 Speaker 1: one trade, which is which is tech. And our contention 407 00:23:11,640 --> 00:23:13,600 Speaker 1: is that on the one hand, it's not quite as 408 00:23:13,640 --> 00:23:17,440 Speaker 1: dangerous at this moment to own tech is as it 409 00:23:17,560 --> 00:23:20,199 Speaker 1: might might seem. For one thing, a lot of these 410 00:23:20,200 --> 00:23:23,200 Speaker 1: stocks turned out to be quite more defensive than than 411 00:23:23,440 --> 00:23:26,000 Speaker 1: history would suggest. But at the same time, we do 412 00:23:26,080 --> 00:23:30,199 Speaker 1: see one big risk to the very crowded positioning that 413 00:23:30,200 --> 00:23:32,080 Speaker 1: that everyone has in place, and that's the risk of 414 00:23:32,119 --> 00:23:35,359 Speaker 1: a genuine um economic rebound, not just a return to 415 00:23:35,480 --> 00:23:39,480 Speaker 1: form of the kind of secular stagnations low growth, low inflation, 416 00:23:39,680 --> 00:23:42,280 Speaker 1: but in the in the instance of a genuine economic 417 00:23:42,400 --> 00:23:45,720 Speaker 1: uplift cause maybe maybe a huge surge and research and development, 418 00:23:45,760 --> 00:23:48,040 Speaker 1: hu surgeon, corporate capex, the kind of things that can 419 00:23:48,080 --> 00:23:51,040 Speaker 1: really boost productivity. If you get that kind of macro environment, 420 00:23:51,080 --> 00:23:53,199 Speaker 1: something we've been writing about in recent months, then that 421 00:23:53,240 --> 00:23:55,399 Speaker 1: would be a big risk to the crowded trade that 422 00:23:55,400 --> 00:23:57,840 Speaker 1: everyone has in place. Did you You've got a wonderful 423 00:23:57,880 --> 00:24:00,679 Speaker 1: double degree philosophy and theology. I want you to go 424 00:24:00,720 --> 00:24:03,639 Speaker 1: all Voltaire on me right now and explain to me 425 00:24:03,680 --> 00:24:07,119 Speaker 1: the panic and the institutional buy side over where the 426 00:24:07,160 --> 00:24:12,959 Speaker 1: actual assumption is going. The math doesn't work, It doesn't. 427 00:24:12,960 --> 00:24:14,800 Speaker 1: It is a you know, it is an existential risk. 428 00:24:14,800 --> 00:24:17,000 Speaker 1: Maybe we talk about you know, Heideger and side for 429 00:24:17,040 --> 00:24:20,080 Speaker 1: a minute, but you know, the math doesn't work in 430 00:24:20,080 --> 00:24:24,040 Speaker 1: the long term. I think that's why people are increasingly pushing, 431 00:24:24,280 --> 00:24:26,920 Speaker 1: you know, out of treasuries, out of out of observation, 432 00:24:27,280 --> 00:24:30,320 Speaker 1: into more equity like investments, into parts of the credit 433 00:24:30,320 --> 00:24:32,480 Speaker 1: market that have a little more risk in them because 434 00:24:32,720 --> 00:24:35,000 Speaker 1: the bottling. They have to get some yield somewhere. That's 435 00:24:35,000 --> 00:24:36,600 Speaker 1: a big theme for us lately where you can go 436 00:24:36,600 --> 00:24:38,960 Speaker 1: when yields are low. And I think the good news 437 00:24:39,040 --> 00:24:40,879 Speaker 1: is that that the support from the FED, the support 438 00:24:40,880 --> 00:24:43,399 Speaker 1: from fiscal authorities has made some of those act that 439 00:24:43,440 --> 00:24:45,880 Speaker 1: classes a little bit safer than they work and uh 440 00:24:45,880 --> 00:24:48,600 Speaker 1: and you can buy alongside. We can talk about moral hazard, 441 00:24:48,600 --> 00:24:51,240 Speaker 1: we can talk about long term solvency issues out on 442 00:24:51,280 --> 00:24:53,320 Speaker 1: the horizon, but I think for the moment, what we're 443 00:24:53,359 --> 00:24:55,359 Speaker 1: seeing from a lot of investors, both in terms of 444 00:24:56,119 --> 00:25:01,520 Speaker 1: um you know, uh, households institutions every when really are 445 00:25:01,520 --> 00:25:04,680 Speaker 1: looking increasingly as in these alternative asset classes and risk 446 00:25:04,800 --> 00:25:06,639 Speaker 1: your parts of the credit market because they do have 447 00:25:06,680 --> 00:25:08,720 Speaker 1: to get a yield pick up somewhere. Yeah, Jared, you 448 00:25:08,760 --> 00:25:10,760 Speaker 1: could look at philosophy, or you could look at there 449 00:25:10,800 --> 00:25:13,119 Speaker 1: is no alternative and the bottom line. And the bottom 450 00:25:13,160 --> 00:25:15,720 Speaker 1: line is, as you pointed out in your research, sent 451 00:25:16,880 --> 00:25:19,560 Speaker 1: of SMP five hundred stocks are paying dividends that are 452 00:25:19,640 --> 00:25:23,640 Speaker 1: higher than treasury yields. How long it can this subsist? 453 00:25:23,760 --> 00:25:27,440 Speaker 1: How long can these companies keep such high dividends relative 454 00:25:27,480 --> 00:25:31,320 Speaker 1: to benchmark borrowing costs without at least something giving and 455 00:25:31,359 --> 00:25:35,679 Speaker 1: that gap compressing one way or another. Well, historically that 456 00:25:35,720 --> 00:25:38,840 Speaker 1: gap has fallen when an economic conditions recover. And I 457 00:25:38,840 --> 00:25:42,560 Speaker 1: think that's a function actually more of of treasure yields 458 00:25:42,640 --> 00:25:46,600 Speaker 1: rising than of you know, dividends falling. Um, that's that's 459 00:25:46,600 --> 00:25:48,679 Speaker 1: certainly happened in the last three or four you know, 460 00:25:48,680 --> 00:25:52,240 Speaker 1: big economic cycles. You saw that that ratio decline. But um, 461 00:25:52,280 --> 00:25:54,359 Speaker 1: we think that you know, one wrinkle in the in 462 00:25:54,400 --> 00:25:57,159 Speaker 1: the in the in the story today is that it 463 00:25:57,200 --> 00:26:00,200 Speaker 1: does seem really difficult to imagine how treasury yields could 464 00:26:00,280 --> 00:26:02,840 Speaker 1: could rise sharply, if for no other reason than because 465 00:26:03,200 --> 00:26:06,000 Speaker 1: everyone expects the said to join other central banks in 466 00:26:06,359 --> 00:26:09,400 Speaker 1: yield curve control. Um. You know, maybe a little bit 467 00:26:09,560 --> 00:26:13,239 Speaker 1: later rather than sooner. But um, if it's not you know, 468 00:26:14,560 --> 00:26:18,200 Speaker 1: if it's not that you know, yield rising, UM, it's 469 00:26:18,240 --> 00:26:23,159 Speaker 1: the other thing. It's the prospect of increasing central UH 470 00:26:23,920 --> 00:26:27,240 Speaker 1: infuence to fund you know, expansive new investments, which would 471 00:26:27,240 --> 00:26:29,560 Speaker 1: be really bullish for growth who would also be painful 472 00:26:29,600 --> 00:26:32,240 Speaker 1: for for treasury owners. And for that reason, that's why 473 00:26:32,240 --> 00:26:34,200 Speaker 1: we say that, you know, it's all essentially one big 474 00:26:34,240 --> 00:26:37,080 Speaker 1: trade either your long duration, your long technology, your long 475 00:26:37,160 --> 00:26:40,840 Speaker 1: defensives in various ways, or you're starting to look for 476 00:26:40,920 --> 00:26:43,480 Speaker 1: avenues to bet on a men equal you know, economic 477 00:26:43,520 --> 00:26:46,840 Speaker 1: rebound Jared. There's also the other thing of companies cutting 478 00:26:46,840 --> 00:26:49,600 Speaker 1: their dividends. How concerned are you about the fact that 479 00:26:49,600 --> 00:26:52,199 Speaker 1: we've seen companies cut their dividends the fastest pace on 480 00:26:52,280 --> 00:26:54,800 Speaker 1: records so far this year, with a likelihood that that's 481 00:26:54,840 --> 00:26:57,240 Speaker 1: going to continue in some shape or form going forward. 482 00:26:59,160 --> 00:27:02,000 Speaker 1: It's it's possible. We're not We're not overly concerned about that, 483 00:27:02,040 --> 00:27:04,359 Speaker 1: I think at this moment um if for another reason, 484 00:27:04,560 --> 00:27:08,000 Speaker 1: because the the amount of policy support that's come online 485 00:27:08,000 --> 00:27:10,679 Speaker 1: has UM made you know, some of those cuts I 486 00:27:10,680 --> 00:27:15,240 Speaker 1: think unnecessary. There's there's certainly pressure political pressure UM, maybe 487 00:27:15,240 --> 00:27:18,720 Speaker 1: some pressure from shareholders UH to shore balance sheets um 488 00:27:18,880 --> 00:27:20,959 Speaker 1: in our in our Fundanager survey this month, you know, 489 00:27:21,440 --> 00:27:24,639 Speaker 1: a lot of institutional investors continue to say, you know, 490 00:27:24,680 --> 00:27:27,359 Speaker 1: increasing buybacks, increasing dividends was at the very bottom of 491 00:27:27,359 --> 00:27:30,040 Speaker 1: our list of priorities, which is very understandable at this 492 00:27:30,080 --> 00:27:32,560 Speaker 1: moment in the business cycle. But um as as a 493 00:27:32,560 --> 00:27:34,880 Speaker 1: medium term question and longer, we don't expect a lot 494 00:27:34,920 --> 00:27:36,560 Speaker 1: of a lot of cuts on that account. In fact, 495 00:27:36,720 --> 00:27:39,399 Speaker 1: one reason we're suggesting investors start to take a look 496 00:27:39,640 --> 00:27:43,320 Speaker 1: just take a peek at European banks, for example, maybe 497 00:27:43,320 --> 00:27:45,720 Speaker 1: add to your watch lists because there is a prospect 498 00:27:45,840 --> 00:27:50,040 Speaker 1: of of of dividends coming. Lack of conviction here, take 499 00:27:50,080 --> 00:27:54,000 Speaker 1: a look take pay. Now, let's pretend McClure and you 500 00:27:54,040 --> 00:27:56,440 Speaker 1: called me up and you say, take a look, take 501 00:27:56,480 --> 00:27:59,359 Speaker 1: a peek. What is that main Jared, Well, I know 502 00:27:59,400 --> 00:28:01,199 Speaker 1: I'm being caged because they are. They are, you know, 503 00:28:01,240 --> 00:28:03,320 Speaker 1: some of the least owned assets in the world. Our 504 00:28:03,359 --> 00:28:05,880 Speaker 1: contention is that there's a really great value opportunity there 505 00:28:05,880 --> 00:28:08,520 Speaker 1: if things continue to go well in Europe with regards 506 00:28:08,520 --> 00:28:11,080 Speaker 1: to you know, fiscal policy, and and then you know, 507 00:28:11,320 --> 00:28:13,960 Speaker 1: as as maybe they get permission to pay dividends. Again, 508 00:28:14,720 --> 00:28:18,239 Speaker 1: that's a really profound opportunity. Okay, John, we're gonna leave 509 00:28:18,240 --> 00:28:19,680 Speaker 1: it there. Always grid to catch out with you. My 510 00:28:19,720 --> 00:28:22,000 Speaker 1: best set of say job, what of that banks American? 511 00:28:22,280 --> 00:28:26,440 Speaker 1: Thanks for listening to the Bloomberg Surveillance Podcast. Subscribe and 512 00:28:26,480 --> 00:28:31,840 Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast 513 00:28:31,880 --> 00:28:36,119 Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before 514 00:28:36,119 --> 00:28:39,960 Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg 515 00:28:40,080 --> 00:28:40,360 Speaker 1: Radio