Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily
Speaker 1: we bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg And
Speaker 1: we start with sometime the economic data. The July report
Speaker 1: on Empire manufacturing from New York turns positive for the
Speaker 1: first time since February seventeen, point to a significant increase there.
Speaker 1: And we see new orders, production and even employment turns
Speaker 1: slightly positive. So that is New York. What is happening
Speaker 1: in Pennsylvania and the second district of the Federal Reserve
Speaker 1: joining us now is Patrick Harker. He is the president
Speaker 1: of the Philadelphia Fed. Good morning to you, Pat, and
Speaker 1: thanks for joining us. Uh. I want to ask you
Speaker 1: off the top, how things are going in the Pennsylvania area.
Speaker 1: I know that the COVID case rate has risen a
Speaker 1: little bit. Are you concerned that you fall back into
Speaker 1: the same situation that we're seeing in the Sunbelt states?
Speaker 1: So in the Try state region Pennsylvania, New Jersey and
Speaker 1: Delaware that we cover, we have seen a little bit
Speaker 1: of an uptick in the COVID cases, but the governors
Speaker 1: have taken action to slow the uh the opening a
Speaker 1: little bit, so I'm not that concerned right now. I
Speaker 1: think the generally the virus is pretty well controlled here.
Speaker 1: It's still a tragedy and there's still a lot of
Speaker 1: work to be done, but I'm not very worried at
Speaker 1: this point for this region. What's your view of the
Speaker 1: economics of the region. How hard have you been hit?
Speaker 1: How hard are you going to be So the region
Speaker 1: is defacturing sector has bounced back. We saw our last
Speaker 1: report last month. We are seeing some good news there.
Speaker 1: We are particularly the city of Philadelphia itself is predominantly
Speaker 1: edge and meds, and I'm concerned about those. Are not
Speaker 1: just about the large medical institutions which have lost a
Speaker 1: lot of revenue because of elective procedures being curtailed or delayed,
Speaker 1: but also in the royal communities here. Those royal health
Speaker 1: systems have been hurt quite badly through this process. What
Speaker 1: about the overall US economy Now that we've seen this
Speaker 1: flare up across much of the country, are you revising
Speaker 1: your economic forecast or your outlook? So prior to this,
Speaker 1: we saw a pretty big hit and queue first half
Speaker 1: of this year, probably about in GDP in the first half.
Speaker 1: We thought it would bounce back around in the second half,
Speaker 1: ending around six down in GDP for the year and
Speaker 1: unemployment around ten percent. We are revising it right now
Speaker 1: because with the virus surging in the south and southwest
Speaker 1: of the country, we are concerned about that. I'm very
Speaker 1: concerned about that. So this is going to be a
Speaker 1: slow recovery. Until we get the virus under control, we
Speaker 1: can't get the economy back to full throttle. You mentioned
Speaker 1: EDS and meds. The EDS part of it is your specialty.
Speaker 1: You came up as an educator. How important is it
Speaker 1: to get the schools open? How important to the economy
Speaker 1: this fault. It's very important, but we have to do
Speaker 1: it carefully because we don't want to put people at risk.
Speaker 1: You start, for example, we know that in a child
Speaker 1: care business, about half the child care institutions, many of
Speaker 1: them are small uh companies that are taking care of children,
Speaker 1: about half of them closed, and the remaining ones they
Speaker 1: lost about at least fifty capacity in remaining open. So
Speaker 1: it's just simply if people can't find care for their
Speaker 1: children or be able to get their children to school,
Speaker 1: they're gonna have a hard time working. And particularly in
Speaker 1: a knowledge economy where people's productivity is really their knowledge,
Speaker 1: if they're concerned about their children and that's weighing on
Speaker 1: their mind, it's human nature, they're going to be less productive.
Speaker 1: So I think it's very important, but we can't do
Speaker 1: it in a way that puts the children or the
Speaker 1: communities at risk. Obviously a lot of risks for the
Speaker 1: economy that don't seem to be reflected in equity prices.
Speaker 1: Are you concerned about the level of stocks at this
Speaker 1: point and whether or not it's sustainable or we might
Speaker 1: be seeing a bubble that could pop and take the
Speaker 1: economy with it. So the equity market, the stock market
Speaker 1: is a measure we look at, but I often remind
Speaker 1: myself it's not the real economy. So for me as
Speaker 1: a policy maker, I'm looking at the signals coming from
Speaker 1: the real economy, employment data, inflation data, and so forth.
Speaker 1: That is my main concern right now. Well, do you
Speaker 1: think there is any role for the FED though, in
Speaker 1: perhaps controlling the rise of equities at this point? At
Speaker 1: this point we had the FED had that we had
Speaker 1: to act early and aggressively to help stem the damage
Speaker 1: from this unprecedented pandemic. And we did that, and so
Speaker 1: that was job one. Now as we start to climb
Speaker 1: out of this, hopefully sooner rather than later, we will
Speaker 1: address other issues. But we had to act to secure
Speaker 1: the economy and helps save as much of the economic
Speaker 1: infrastructure in the country as we could. What more can
Speaker 1: the Fed do? Lele Brainerd suggested yesterday that you let
Speaker 1: the economy run hot for a while and explicitly say
Speaker 1: you're going to let it inflation rise. Is that a
Speaker 1: strategy on the table for you? So we've been saying
Speaker 1: for a long time that the two percent inflation goal
Speaker 1: is symmetric, which means we should overshoot it. We're having
Speaker 1: a difficult time doing that. Like all developed economies, UM
Speaker 1: supported the idea of letting inflation get above two before
Speaker 1: we take any action with respect to the FED fund try.
Speaker 1: Do you think that at this point the FED can
Speaker 1: do a lot to stimulate the economy or is it
Speaker 1: really up to washing it In the fiscal side, I
Speaker 1: think there are things we can do. Our tool can
Speaker 1: we continue to lend and we have that authority, But yeah,
Speaker 1: I think the main issues that we're facing right now
Speaker 1: tend to be on the fiscal side of the House.
Speaker 1: I would agree with that. What would you like to
Speaker 1: see what's the most important thing to come out of
Speaker 1: watching them? What kind of aid? I know you don't
Speaker 1: want to mention a specific program, but what kind of thing?
Speaker 1: Where's the economy weakest that needs help? So I think
Speaker 1: a couple of things I worry about, And again I
Speaker 1: don't want to tell Congress what to do, but there
Speaker 1: are things I worry about. One is a cliff effect
Speaker 1: of unemployment insurance. Yes, there is a need to get
Speaker 1: people back to work, and people want to go back
Speaker 1: to work, but we can't just cut it off because
Speaker 1: if we cut it off, people stop spending and that
Speaker 1: will be a hit on the economy. Second, we're seeing
Speaker 1: the same kind of cliff effect with state and local
Speaker 1: governments if they start laying off lots of people. We
Speaker 1: talk a lot about anchor institutions. Well, one of the
Speaker 1: big anchor institutions in our economy are state and local governments,
Speaker 1: so they need some help. So those are two that
Speaker 1: I think are really important, and the third that I
Speaker 1: worry about, and we're doing a lot of work to
Speaker 1: defed on is small businesses. How to maintain the strength
Speaker 1: of small businesses, particularly for a minority can. The National
Speaker 1: Bureau of Economic Research recently put out a report saying
Speaker 1: it's about of black owned small businesses have closed during
Speaker 1: this pandemic. This is not only decimating to those businesses,
Speaker 1: but to the communities they serve. Well, what can the
Speaker 1: FED do? Are you are banking supervisors? Yesterday in his speech,
Speaker 1: you were critical of the paycheck Protection program for we
Speaker 1: focused more on bank relationships rather than need How how
Speaker 1: do you redesign that or where can the FED act? Well?
Speaker 1: I would say I was critical. What I was saying
Speaker 1: is that a lot of these micro enterprises, that is,
Speaker 1: enterprises with less than five employees, and we have lots
Speaker 1: of those in Phildelphia all around the country, they don't
Speaker 1: have banking relationships because for a lot of reasons, they
Speaker 1: don't necessarily trust the institutions. That's the root problem. We
Speaker 1: have to solve that problem to get I don't accept
Speaker 1: the fact that people don't have a banking relationship as
Speaker 1: the status quad and we should just accept We should
Speaker 1: work on that. We should bring people into the system
Speaker 1: so that they can have access to things like PPP
Speaker 1: programs and just have lower fees and better service to
Speaker 1: build their businesses. Before I let you go, I want
Speaker 1: to ask you how you're following the economy these days.
Speaker 1: We've had two better than expected jobs reports. Do you
Speaker 1: think we get the same thing for the month of July?
Speaker 1: And doesn't really matter. It will depend because of what's
Speaker 1: happening with resurgence of the virus. I'm a little skeptical
Speaker 1: that we're going to see as good a job's report,
Speaker 1: but we'll see. But it all comes down to right now,
Speaker 1: controlling the virus. The health of the economy is dependent
Speaker 1: on the health of all of us, and until we
Speaker 1: get the virus under control, we're not going to get
Speaker 1: the economy back to where we all wanted to be.
Speaker 1: You mentioned the fact that we're coming up on this
Speaker 1: fiscal cliff in July. In the end of September, we're
Speaker 1: going to have a lot of your lending programs expired.
Speaker 1: You anticipate at this point they continue. Potentially, it will
Speaker 1: depend on what the state of the economy is at
Speaker 1: that time. Right Thanks very much to Patrick Harker, the
Speaker 1: president of the Philadelphia Fed. Thanks for joining us today.
Speaker 1: It is about Ireland and the bomb show announcement this
Speaker 1: morning on Apple Computer was wonderful about this, as we
Speaker 1: have with us the Finance Minister of Ireland, Pascal Donahoe.
Speaker 1: And what is so interesting of Mr Donahoe is his
Speaker 1: truck from Trinity College in Dublin to real corporate, multinational
Speaker 1: work in the United Kingdom for Procter and Gamble years ago.
Speaker 1: He has lived the multinational nous of the United Kingdom,
Speaker 1: of the Republic of Ireland, indeed of Luxembourg in Europe.
Speaker 1: Finance Minister, we are thrilled to have you with us.
Speaker 1: Welcome to Bloomberg surveillance. Were you surprised by this huge,
Speaker 1: huge win for your nation and for Tim Cook and Cupertino? Well,
Speaker 1: I always believe such an outcome was possible. And Ireland
Speaker 1: has been very clear now over many many years that
Speaker 1: we do not make special tax agreements with any company
Speaker 1: big small here in our country, and all taxpayers are
Speaker 1: treated equally. We really value the relationship that we have
Speaker 1: with an employers such as Apple, like we value the
Speaker 1: relationship that we have with all employers in Ireland and
Speaker 1: we do not do special deals for them. And this
Speaker 1: ruling here today is a recognition of US Minister, you
Speaker 1: have lived this with p and years ago. I want
Speaker 1: you to explain to those of continental Europe and frankly
Speaker 1: those of you worldwide, that appropriate tax policy for multi
Speaker 1: nationals is not theft from the general taxpayer. Well, I
Speaker 1: believe it's absolutely imperrasive that big companies are taxed effectively
Speaker 1: and they are taxed fairly. And I also believe that
Speaker 1: for very big and very big digital companies, how we
Speaker 1: are going to tax them in the future is also
Speaker 1: going to change. But what was so important about this
Speaker 1: particular issue is an allegation was made that we were
Speaker 1: in some way treating Apple differently to other taxpayers that
Speaker 1: will be here in Ireland. This matter ultimately ended up
Speaker 1: in the General Court of the European Union and it's
Speaker 1: been settled in the way that you've now described. So
Speaker 1: the message from me, it's a finance minister here in Europe,
Speaker 1: is that companies, whether they're from Europe, America already well
Speaker 1: or else in the world, have to be taxed effectively
Speaker 1: and fairly. And this was a really important issue for
Speaker 1: our tax code here in Irelands, moving from taxing to spending.
Speaker 1: There's a big question. You are the president you're the
Speaker 1: head of a group of nineteen finance ministers. They will
Speaker 1: all get together this weekend for that European Commission meeting
Speaker 1: where they're gonna be speaking about that key trillion dollar
Speaker 1: trillion euro budget as well as the seven dred and
Speaker 1: fifty euro billion euro plan that has been proposed. How
Speaker 1: much pushback are you hearing from the frugal for and
Speaker 1: what has been proposed and bringing that fiscal stimulus down. Yes,
Speaker 1: there is a diversity of debate in relation to this
Speaker 1: particular project within Europe and inside the European Union, But
Speaker 1: very broadly, the point I would make to you and
Speaker 1: to all your viewers across the world if this is
Speaker 1: a really signature example of Europe deepening its economic architecture
Speaker 1: and deepening and making stronger the foundations of the Euro
Speaker 1: and we are doing us to strengthen the ability of
Speaker 1: our own economies here in Europe to respond back to
Speaker 1: the economic shock of COVID and because this is such
Speaker 1: a big project, of course of our different views in
Speaker 1: relation to us, but I do believe that within the
Speaker 1: European Union will reach agreement on the matter and the
Speaker 1: concerns that my colleagues and friends have amongst some countries
Speaker 1: for God, in the scale of the fond and how
Speaker 1: this money can be used effectively and transparently. I believe
Speaker 1: what creativity and imagination in the coming days are maybe weaker,
Speaker 1: so we'll find a way of reaching agreement. Mr Dannio,
Speaker 1: I want to go back to Apple. I think the
Speaker 1: sovereignty issue here and frankly as to do with the
Speaker 1: weekend meetings, but the sovereigny issue here is absolutely critical.
Speaker 1: Frankly going back to Trinity College and Elizabeth the First
Speaker 1: and the formation of liberty in Ireland. What this decision
Speaker 1: is really about, folding into all the different meetings that
Speaker 1: are you howners, is about sovereignty of nations to make
Speaker 1: their own laws. What does it mean for Brussels to
Speaker 1: see this victory by you today. Well, actually, I believe
Speaker 1: in the puding of sovereignty and I believe in the
Speaker 1: sharing of sovereignty. I'm a passionate supporter of the European project.
Speaker 1: I'm a deep believer in the process of European integration
Speaker 1: that we have and they need to look at how
Speaker 1: we can strengthen it in the future. So I would
Speaker 1: actually regularly make the case here in Ireland and to
Speaker 1: crawl us Europe and indeed across the world that the
Speaker 1: European project about economically and politically, it's an extraordinary achievement
Speaker 1: that from my point of view personally and politically, I
Speaker 1: want to protect and want to secure us and I
Speaker 1: want to grow within the future. And Commissioner Vestigure is
Speaker 1: a commissioner that I have huge respect for who I
Speaker 1: look forward to working with again in the future. Um
Speaker 1: that said, there are always a number of particular areas
Speaker 1: in terms of how decisions are made and then how
Speaker 1: they're implemented that are always going to matter to individual
Speaker 1: nation states. And from our point of view, the reason
Speaker 1: this was so important is that it create the inference
Speaker 1: that we used our national sovereignty in some way to
Speaker 1: get favorable treatment to a company. That wasn't the case.
Speaker 1: It's been recognized by the routing here this morning. But
Speaker 1: you know, I make all these this case, and I
Speaker 1: make that argument though in the context of somebody who
Speaker 1: is a European politician believes in the europe Union and
Speaker 1: the sharing of sovereignty. But inside that architecture, countries still
Speaker 1: have roles, their duties and their responsibilities. And that's why
Speaker 1: this hearing was so important. Finance minister, thank you so
Speaker 1: much for joining us this morning. Pasco Donajo is the
Speaker 1: Irish Finance Minister. Off of this extraordinary ruling out of
Speaker 1: Luxembourg on Apple computer. Daniel Tannebaum is expert hit what
Speaker 1: financial companies do given sanction rules and law changes. He's
Speaker 1: with Oliver Wyman after a distinguished career. He's got a
Speaker 1: fancy title of America's and a financial crime leader. But
Speaker 1: mostly what he does is going to rooms and say, okay,
Speaker 1: here your options. Dan Tannebaum, what are the options for
Speaker 1: American banking is they sit two blocks from the Mandarin
Speaker 1: Hotel in Hong Kong. Thanks Tom. It's it's gonna be
Speaker 1: a tough morning or day for for US banks opera
Speaker 1: rating in Hong Kong as they really think about what
Speaker 1: this could mean. I think it's really important to note, though,
Speaker 1: that sanctions weren't actually levied yesterday, but a framework was
Speaker 1: essentially established through the signing of the Hong Kong Autonomy Act.
Speaker 1: But if these sanctions are put forth um like many
Speaker 1: think they could be, and these were very much a
Speaker 1: blunt instrument rather than a surgical use of sanctions in
Speaker 1: a very sensitive market. Um it would be nearly impossible
Speaker 1: for a US bank to be able to comply with
Speaker 1: U S sanctions and Chinese law simultaneously. Well down, this
Speaker 1: is the issue. I'm trying to understand the scale, the
Speaker 1: magnitude of the issue before us right now. And let's
Speaker 1: just think this out. I don't want to get you
Speaker 1: in trouble with any clients. Let's say there's a bank
Speaker 1: that starts with an H and to the C. They
Speaker 1: have a headquarters in London and a huge presence. I'm
Speaker 1: thinking banks, nay, many banks. We're trying to keep down
Speaker 1: out of trouble. Down. Let's say that bank services a
Speaker 1: particular client that comes under these sanctions. What did they do?
Speaker 1: I mean, we've talked about this on the show before.
Speaker 1: I mean, realistically, they're going to have to pick which
Speaker 1: regulatory regime can end up hurting them the most. Now,
Speaker 1: I do think there's some cause for caution on all
Speaker 1: of this, because I mean we're potentially a year away
Speaker 1: from actually seeing any real designations under this program. If
Speaker 1: you get into the nuts and bolts of what was
Speaker 1: signed yesterday, the administration have ninety days to identify targets
Speaker 1: where designating then they have to inform Congress if any
Speaker 1: foreign banks carried out business with the aforementioned targets um
Speaker 1: and they have a year to do that. So you're
Speaker 1: talking potentially October one before you may begin to see
Speaker 1: any banking related restrictions or more serious sanctions that get
Speaker 1: rolled out. Potentially, Dan, the sanctions haven't been levied yet.
Speaker 1: You made a point of that, and clearly, uh, this
Speaker 1: is just amping up the arsenal the President Trump potentially
Speaker 1: could have. Can you give a sense of why now,
Speaker 1: because initially a President Trump didn't have that strong of
Speaker 1: a action publicly to the incursions in Hong Kong's autonomy.
Speaker 1: And this came, according to some people, sort of suddenly, Well,
Speaker 1: I mean it didn't. It didn't. Let's let's remember what
Speaker 1: he signed yesterday. It was a very very bipartisan piece
Speaker 1: of legislation passed in both the House and Senate that
Speaker 1: forced the president's hand. He was essentially given no choice
Speaker 1: in a veto proof majority to sign the legislation that
Speaker 1: came across his desk. So Congress is the one that
Speaker 1: acted and forced the administration to do something. They signed something,
Speaker 1: but haven't necessarily done anything yet. And I think the
Speaker 1: next step where the administration have to identify targets. That's
Speaker 1: the real sensitive piece here. But I don't think it
Speaker 1: was necessarily suddenly. Um. He definitely was delayed for a
Speaker 1: few weeks, and I think the timing was the UK
Speaker 1: announcement yesterday of of excluding a certain tech company from
Speaker 1: from involvement in their five G market. UM was you know,
Speaker 1: this has been a bad week in terms of Western
Speaker 1: China relation to John's correct delicate questioning of what a
Speaker 1: given bank would do. Look at the margin, this stops
Speaker 1: marginal Hong Kong growths for the financial system of the West.
Speaker 1: Where do they go when they move from stopping the
Speaker 1: marginal growth of headcount over to we've got to adjust
Speaker 1: at the margin or completely an exit Hong Kong. Where
Speaker 1: would you just suggest they go to? I mean there's
Speaker 1: no I mean this is still somewhat fresh, so I
Speaker 1: don't think there is a clear answer of where you'd
Speaker 1: go to. I know there's a lot of people in
Speaker 1: Singapore that are excited of what this could potentially mean
Speaker 1: for the further growth of Singapore as a financial services
Speaker 1: hub UM, which is a potentially a logical move from
Speaker 1: a regulatory standpoint In otherwise, UM there's no clear answer.
Speaker 1: I don't think anyone is evacuating the Hong Kong market yet,
Speaker 1: and I think any moves and doing so could be
Speaker 1: viewed as premature depending on the business. But this is
Speaker 1: what a lot of banks, similar to those that we're
Speaker 1: looking at Bregg's post Brexit locations had to do, may
Speaker 1: need to begin spinning up our plan if this escalates.
Speaker 1: Do we stay in Hong Kong or do we actually
Speaker 1: have to potentially move? I would point out, folks, a
Speaker 1: trip from Song Kong to Singapore is almost four hours.
Speaker 1: You're on the plane and you're like, really, it's like
Speaker 1: literally New York. It's a lot farther away than anybody imagines. There,
Speaker 1: Dan give us an update than on what your council
Speaker 1: would be to banks right now. I mean, I think
Speaker 1: it's keeping aware of what's happening. The one missed opportunity
Speaker 1: in all of this was the US again went and
Speaker 1: alone set forth the unilateral sanctions package that there weren't
Speaker 1: other countries latching onto, which does make it harder, um
Speaker 1: have you as you have these more significant business decisions
Speaker 1: that have to be made. I think trying to establish
Speaker 1: what this could potentially mean looking at the China response,
Speaker 1: which thus far has been focused similar to what it
Speaker 1: was last week with the designation of Marco Rubio and
Speaker 1: Ted Cruz for in response to weaker sanctions. UH. The
Speaker 1: Chinese response has been at least relatively measured, given I
Speaker 1: think they're aware that nothing has really happened yet, but
Speaker 1: companies need to begin to prepare to understand how they
Speaker 1: can operate in both markets UM without you know, completely
Speaker 1: running a foul of the other side. And there aren't
Speaker 1: any clear answers yet given you know, everyone's still decomposing
Speaker 1: this Executive Order and the Autonomy Act and what it
Speaker 1: could potentially mean. Well, Dan, you've now, dear. I think
Speaker 1: the era of sitting on the fence for many of
Speaker 1: these companies who won their hand in both regions without
Speaker 1: really coming out and saying what they think about the situation,
Speaker 1: that's over, isn't it. It does seem like that's over.
Speaker 1: I think the relations between US and China have only
Speaker 1: continued to worsen over the last few months. UM. And
Speaker 1: for banks that have grown their business in the APAC region,
Speaker 1: those that are have significant business in the US, UM,
Speaker 1: I don't know if they necessarily need to make any
Speaker 1: choices in the near term, but obviously this does pose
Speaker 1: a threat to the growth of the business UM going forward.
Speaker 1: Dan Tannebaum, great to catch up with you. Out of
Speaker 1: a woman, Partner in America's Anti financial crimes head, joining
Speaker 1: us on the latest out of Hong Kong. Bank of
Speaker 1: America has a franchise in research of trying to figure
Speaker 1: out the pulse of the by side, John, at any time,
Speaker 1: this is an important conversation, and I would say in
Speaker 1: the history of Bank of America's research, there's never been
Speaker 1: a more important time in this a pandemic than to
Speaker 1: figure out what the people scared stiff about the actual
Speaker 1: assumption or thinking happy to say we can bring Jack
Speaker 1: Wood it in now. Bank of America Securities head of
Speaker 1: a research investment committee, Jared, always great to catch up
Speaker 1: with you, sir. Just how under round is that cyclical
Speaker 1: part of the market and what will it take to
Speaker 1: get a durable rotation, one that lasts longer than twenty
Speaker 1: four hours? Yeah, no, it's look the big cyclical assets
Speaker 1: the Europe the you know, the the value stocks, the
Speaker 1: financials either are some of the most hated assets in
Speaker 1: the world. You have um, everyone crowded into essentially just
Speaker 1: one trade, which is which is tech. And our contention
Speaker 1: is that on the one hand, it's not quite as
Speaker 1: dangerous at this moment to own tech is as it
Speaker 1: might might seem. For one thing, a lot of these
Speaker 1: stocks turned out to be quite more defensive than than
Speaker 1: history would suggest. But at the same time, we do
Speaker 1: see one big risk to the very crowded positioning that
Speaker 1: that everyone has in place, and that's the risk of
Speaker 1: a genuine um economic rebound, not just a return to
Speaker 1: form of the kind of secular stagnations low growth, low inflation,
Speaker 1: but in the in the instance of a genuine economic
Speaker 1: uplift cause maybe maybe a huge surge and research and development,
Speaker 1: hu surgeon, corporate capex, the kind of things that can
Speaker 1: really boost productivity. If you get that kind of macro environment,
Speaker 1: something we've been writing about in recent months, then that
Speaker 1: would be a big risk to the crowded trade that
Speaker 1: everyone has in place. Did you You've got a wonderful
Speaker 1: double degree philosophy and theology. I want you to go
Speaker 1: all Voltaire on me right now and explain to me
Speaker 1: the panic and the institutional buy side over where the
Speaker 1: actual assumption is going. The math doesn't work, It doesn't.
Speaker 1: It is a you know, it is an existential risk.
Speaker 1: Maybe we talk about you know, Heideger and side for
Speaker 1: a minute, but you know, the math doesn't work in
Speaker 1: the long term. I think that's why people are increasingly pushing,
Speaker 1: you know, out of treasuries, out of out of observation,
Speaker 1: into more equity like investments, into parts of the credit
Speaker 1: market that have a little more risk in them because
Speaker 1: the bottling. They have to get some yield somewhere. That's
Speaker 1: a big theme for us lately where you can go
Speaker 1: when yields are low. And I think the good news
Speaker 1: is that that the support from the FED, the support
Speaker 1: from fiscal authorities has made some of those act that
Speaker 1: classes a little bit safer than they work and uh
Speaker 1: and you can buy alongside. We can talk about moral hazard,
Speaker 1: we can talk about long term solvency issues out on
Speaker 1: the horizon, but I think for the moment, what we're
Speaker 1: seeing from a lot of investors, both in terms of
Speaker 1: um you know, uh, households institutions every when really are
Speaker 1: looking increasingly as in these alternative asset classes and risk
Speaker 1: your parts of the credit market because they do have
Speaker 1: to get a yield pick up somewhere. Yeah, Jared, you
Speaker 1: could look at philosophy, or you could look at there
Speaker 1: is no alternative and the bottom line. And the bottom
Speaker 1: line is, as you pointed out in your research, sent
Speaker 1: of SMP five hundred stocks are paying dividends that are
Speaker 1: higher than treasury yields. How long it can this subsist?
Speaker 1: How long can these companies keep such high dividends relative
Speaker 1: to benchmark borrowing costs without at least something giving and
Speaker 1: that gap compressing one way or another. Well, historically that
Speaker 1: gap has fallen when an economic conditions recover. And I
Speaker 1: think that's a function actually more of of treasure yields
Speaker 1: rising than of you know, dividends falling. Um, that's that's
Speaker 1: certainly happened in the last three or four you know,
Speaker 1: big economic cycles. You saw that that ratio decline. But um,
Speaker 1: we think that you know, one wrinkle in the in
Speaker 1: the in the in the story today is that it
Speaker 1: does seem really difficult to imagine how treasury yields could
Speaker 1: could rise sharply, if for no other reason than because
Speaker 1: everyone expects the said to join other central banks in
Speaker 1: yield curve control. Um. You know, maybe a little bit
Speaker 1: later rather than sooner. But um, if it's not you know,
Speaker 1: if it's not that you know, yield rising, UM, it's
Speaker 1: the other thing. It's the prospect of increasing central UH
Speaker 1: infuence to fund you know, expansive new investments, which would
Speaker 1: be really bullish for growth who would also be painful
Speaker 1: for for treasury owners. And for that reason, that's why
Speaker 1: we say that, you know, it's all essentially one big
Speaker 1: trade either your long duration, your long technology, your long
Speaker 1: defensives in various ways, or you're starting to look for
Speaker 1: avenues to bet on a men equal you know, economic
Speaker 1: rebound Jared. There's also the other thing of companies cutting
Speaker 1: their dividends. How concerned are you about the fact that
Speaker 1: we've seen companies cut their dividends the fastest pace on
Speaker 1: records so far this year, with a likelihood that that's
Speaker 1: going to continue in some shape or form going forward.
Speaker 1: It's it's possible. We're not We're not overly concerned about that,
Speaker 1: I think at this moment um if for another reason,
Speaker 1: because the the amount of policy support that's come online
Speaker 1: has UM made you know, some of those cuts I
Speaker 1: think unnecessary. There's there's certainly pressure political pressure UM, maybe
Speaker 1: some pressure from shareholders UH to shore balance sheets um
Speaker 1: in our in our Fundanager survey this month, you know,
Speaker 1: a lot of institutional investors continue to say, you know,
Speaker 1: increasing buybacks, increasing dividends was at the very bottom of
Speaker 1: our list of priorities, which is very understandable at this
Speaker 1: moment in the business cycle. But um as as a
Speaker 1: medium term question and longer, we don't expect a lot
Speaker 1: of a lot of cuts on that account. In fact,
Speaker 1: one reason we're suggesting investors start to take a look
Speaker 1: just take a peek at European banks, for example, maybe
Speaker 1: add to your watch lists because there is a prospect
Speaker 1: of of of dividends coming. Lack of conviction here, take
Speaker 1: a look take pay. Now, let's pretend McClure and you
Speaker 1: called me up and you say, take a look, take
Speaker 1: a peek. What is that main Jared, Well, I know
Speaker 1: I'm being caged because they are. They are, you know,
Speaker 1: some of the least owned assets in the world. Our
Speaker 1: contention is that there's a really great value opportunity there
Speaker 1: if things continue to go well in Europe with regards
Speaker 1: to you know, fiscal policy, and and then you know,
Speaker 1: as as maybe they get permission to pay dividends. Again,
Speaker 1: that's a really profound opportunity. Okay, John, we're gonna leave
Speaker 1: it there. Always grid to catch out with you. My
Speaker 1: best set of say job, what of that banks American?
Speaker 1: Thanks for listening to the Bloomberg Surveillance Podcast. Subscribe and
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Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before
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Speaker 1: Radio