WEBVTT - Kocherlakota: Fed Needs to Target Employment, Not Inflation 0:00:01.400 --> 0:00:04.120 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along 0:00:04.120 --> 0:00:06.240 with my co host of Bonnie Quinn. Every business day 0:00:06.240 --> 0:00:10.360 we bring you interviews from CEOs, market pros, and Bloomberg experts, 0:00:10.400 --> 0:00:13.600 along with essential market moving news. Find the Bloomberg Markets 0:00:13.600 --> 0:00:17.000 Podcast on Apple Podcasts or wherever you listen to podcasts, 0:00:17.000 --> 0:00:22.680 and on Bloomberg dot Com. Time for Bloomberg Opinion Today, 0:00:22.680 --> 0:00:27.440 we're joined by Narayana Cuta, Lakota, former Minneapolis FED president 0:00:27.440 --> 0:00:31.160 and Bloomberg Opinion colums. He's also professor of economics at 0:00:31.160 --> 0:00:34.440 the University of Rochester. Uh Nariana, thanks so much for 0:00:34.520 --> 0:00:37.440 joining us. We really appreciate you coming on today. It's 0:00:37.479 --> 0:00:39.599 gonna be a busy day for FED watchers today. We've 0:00:39.640 --> 0:00:41.479 got the statement at two pm Wall Street time, and 0:00:41.479 --> 0:00:45.080 then FED Chairman pals Uh press conference at two thirty. 0:00:45.280 --> 0:00:48.360 What do you expect to hear most notably from Chairman 0:00:48.360 --> 0:00:53.000 Pal's comments, Well, I think what we're waiting to hear 0:00:53.360 --> 0:00:57.560 is largely about, um, what was the FED talking about 0:00:57.560 --> 0:00:59.920 of the meeting? And you know, this has a meeting 0:01:00.120 --> 0:01:02.720 where the FED is going to be talking about what's 0:01:02.720 --> 0:01:05.319 going to happen in the future. I don't expect much 0:01:05.400 --> 0:01:07.720 change in terms of monetary policy or in the statement 0:01:08.000 --> 0:01:11.039 UM at this time. But I think that the FED 0:01:11.160 --> 0:01:13.880 probably spent day a couple of a couple of days 0:01:13.920 --> 0:01:17.600 of very spotful reflection on what are their tools, how 0:01:17.640 --> 0:01:21.200 can they best use them? And UM, I'm hoping that 0:01:21.319 --> 0:01:24.480 Chair Arman Powell will give us a little bit of 0:01:24.880 --> 0:01:28.560 heads up about how that all those conversations went. What 0:01:28.880 --> 0:01:34.039 might be done about forward guidance? Arianna, Well, UM, I 0:01:34.080 --> 0:01:38.560 think vannie to that. I think for guidance is UM 0:01:39.600 --> 0:01:42.240 something that the FED used during the last recovery. I 0:01:42.400 --> 0:01:44.880 think they were buying large pleas with how it went. 0:01:45.480 --> 0:01:49.440 But I think that the FED tried out what was 0:01:49.480 --> 0:01:52.600 called calendar based guidance, where they talked about keeping rates 0:01:52.600 --> 0:01:56.280 full low for a particular fixed period of time. I 0:01:56.360 --> 0:01:59.320 doubt we're gonna see that UM coming down the pike 0:01:59.440 --> 0:02:02.640 because the problem that is you get is you get 0:02:02.720 --> 0:02:05.560 new information, you get to change that guidance, and changing 0:02:05.560 --> 0:02:09.960 it is it turns out to be pretty challenging. So 0:02:10.000 --> 0:02:12.160 what I think the FIT is likely to aim for 0:02:12.480 --> 0:02:15.120 is UM what we we we call and said, state 0:02:15.200 --> 0:02:19.040 based guidance, where they talk about the conditions under which 0:02:19.680 --> 0:02:22.320 they're likely to to raise rates. Now, I don't to 0:02:22.360 --> 0:02:25.040 be clear, I don't think anyone expects a rate increase 0:02:25.160 --> 0:02:31.440 becoming certainly any time even the next calendar one and 0:02:31.160 --> 0:02:35.480 and and probably not even in throughout two. So but 0:02:35.840 --> 0:02:39.880 I think it's the reason this matters is UH, it 0:02:39.960 --> 0:02:44.360 affects the path of medium term interest rates. So UM, 0:02:44.400 --> 0:02:46.240 if the Fed says it's going to keep rates flow 0:02:46.600 --> 0:02:50.840 um until say, inflation returns to well about two that 0:02:51.040 --> 0:02:55.040 feeds into something different in terms of of of the 0:02:55.080 --> 0:02:57.919 power of medium term interest rates and that that can 0:02:57.919 --> 0:03:01.600 help stimulate the economy. Marianna, you're out with a column 0:03:01.600 --> 0:03:04.880 recently the entitled the FED needs to focus on employment. 0:03:05.080 --> 0:03:10.080 How do you believe they should focus on employment? Yeah, Paul, 0:03:10.160 --> 0:03:14.240 I think that, UM. A lot of the discussion that 0:03:14.320 --> 0:03:17.680 you'll hear among FED watchers is UH, and from FED 0:03:17.680 --> 0:03:21.840 communication as well, is that they're talking about and thinking 0:03:21.919 --> 0:03:24.880 about communicating through the inflation rate. So as saying as 0:03:25.080 --> 0:03:28.639 I just articulated that they're UM their way, they way 0:03:28.760 --> 0:03:32.400 you formula for guidances, We're gonna keep rates low intil 0:03:32.440 --> 0:03:36.040 inflation has returned to two percent in the sustainable way, 0:03:36.160 --> 0:03:39.760 or or maybe we've relying for an over food. I 0:03:39.840 --> 0:03:42.320 understand why they're doing that. Um. I think that will 0:03:42.440 --> 0:03:45.240 communicate that they're keeping rates lower for longer than maybe 0:03:45.240 --> 0:03:49.960 than people would expect. At the same time, inflation is 0:03:50.000 --> 0:03:54.320 a challenging marker for for households to figure out. They 0:03:54.360 --> 0:03:56.120 might not think of their ways being able to keep 0:03:56.200 --> 0:03:58.600 up with higher inflation, and so there's a lot of 0:03:58.640 --> 0:04:01.800 evidence is on that is very mixed. I would say 0:04:01.800 --> 0:04:05.920 in the economics literature about will hire inflation signing higher 0:04:05.920 --> 0:04:08.080 inflation and lead people to cut back on spending or 0:04:08.120 --> 0:04:11.840 lead them to spend more. Whereas saying you're going to 0:04:11.960 --> 0:04:14.560 be focusing on employment, We're going to keep rates low 0:04:14.640 --> 0:04:19.480 until unemployment returns to let's say four UM, that will 0:04:19.640 --> 0:04:22.920 tell people, Okay, the FED is there until the recovery 0:04:23.000 --> 0:04:27.440 is really complete and UM, and a low unemployment is 0:04:27.480 --> 0:04:34.880 obviously UM something that everyone associates with with positive economic news. Norianna, 0:04:35.200 --> 0:04:40.159 what kind of fiscal stimulus would help to maybe have 0:04:40.240 --> 0:04:42.520 the economy avoids some of the structural employment that we 0:04:42.560 --> 0:04:50.200 are definitely going to see. Yeah, I think that, UM, 0:04:50.240 --> 0:04:51.800 there's I should think there should be more of a 0:04:51.839 --> 0:04:53.960 sense that this is likely to be a long, longer 0:04:54.120 --> 0:04:57.080 term issue. Um. You know, and I think you see 0:04:57.120 --> 0:04:58.839 some of them in gry eucratic side, that you have 0:04:58.960 --> 0:05:01.880 some recognition along those line. I think we should. There 0:05:01.880 --> 0:05:04.520 should be a recognition as well that the problem the 0:05:04.520 --> 0:05:08.800 economy is not uh, people feeling flushed with that six 0:05:09.200 --> 0:05:13.560 dollars um extra benefit and so when they're staying home 0:05:13.560 --> 0:05:15.160 and not well, not willing to work. The problem of 0:05:15.160 --> 0:05:18.880 the economy is not enough demand. That that low demand 0:05:19.120 --> 0:05:22.919 is because of public health concerns UM. And so the 0:05:23.000 --> 0:05:24.919 role of government, I think in the situation is to 0:05:24.960 --> 0:05:27.640 try to stimulate demand, and the best way to do that, 0:05:27.760 --> 0:05:32.880 I think is by keeping unemployment insurance UM, extending those benefits, 0:05:32.920 --> 0:05:37.640 extending the extra benefits. So that's interesting. I mean, you 0:05:37.680 --> 0:05:40.520 get a sense that there's appetite in Washington, given what 0:05:40.560 --> 0:05:43.200 you've heard and read and folks you've spoken to, that 0:05:43.320 --> 0:05:47.560 there is that support for more stimulus. Here appears this 0:05:47.800 --> 0:05:51.360 around appears to be much much more political than the 0:05:51.400 --> 0:05:53.440 most recent or third round where we got the three 0:05:53.480 --> 0:05:57.400 trillion dollars. So you know, I was answering that should 0:05:57.440 --> 0:06:01.400 not the will part of the question, um, what will happen? 0:06:01.440 --> 0:06:04.359 You know, politics not my forte, but I agree with 0:06:04.360 --> 0:06:08.680 you completely. We've see a lot of polarization here. Um, 0:06:08.720 --> 0:06:11.320 I think that you're you're gonna you're hearing more of 0:06:11.400 --> 0:06:14.600 the concerns about boy, the dead is getting big. This 0:06:14.640 --> 0:06:16.760 is just the wrong time to have those concerns and 0:06:17.720 --> 0:06:20.320 continues to be a time of very high unemployment and 0:06:20.320 --> 0:06:23.680 that highnemployment. I think the challenge for a lot of 0:06:23.680 --> 0:06:25.440 people on the on the Republican side of the aisles 0:06:25.480 --> 0:06:27.719 they see the unemployment is coming from the fact that 0:06:28.480 --> 0:06:32.400 UM unplay insurance benefits are really high, and so that 0:06:32.720 --> 0:06:36.479 is encouraging people in want to work, Whereas I think 0:06:36.480 --> 0:06:39.800 it remains clear that the problem facing the economy is 0:06:39.920 --> 0:06:44.560 that there's not enough demand out there. And um, if 0:06:44.560 --> 0:06:47.880 there were more demand, there would be more hiring and uh, 0:06:48.200 --> 0:06:50.760 and we'd have, you know, we'd have better, better economic 0:06:50.760 --> 0:06:54.720 conditions going forward. Uh. But that's where we were reverted, 0:06:54.800 --> 0:06:58.480 I think, unfortunately to the discussions we had in Congress 0:06:58.520 --> 0:07:01.760 in in the latter part of out None twenty eleven, 0:07:01.760 --> 0:07:05.159 where the debt um, the overhang of the of large 0:07:05.760 --> 0:07:10.080 apparently large government debt um really forestalled a lot of 0:07:10.360 --> 0:07:15.840 needed stimulus. So Marianna, I mean you can't stimulate demand 0:07:16.080 --> 0:07:19.760 in a pandemic if people don't want to go outside. Therefore, 0:07:20.760 --> 0:07:24.040 and I'm making, you know, a second jump here, should 0:07:24.320 --> 0:07:28.239 politicians be worried about, you know, spending fiscally at times 0:07:28.240 --> 0:07:31.280 like this or or or or you know, is the 0:07:31.360 --> 0:07:35.120 GOP position correct that you can't you know, bankrupt and economy. 0:07:36.360 --> 0:07:40.080 So so the as a lot of interest rates remain low, 0:07:40.320 --> 0:07:42.440 and as long as people expect interest rates to remain low, 0:07:42.480 --> 0:07:46.160 you're not close to bankrupting the economy. So the right always, 0:07:46.200 --> 0:07:48.000 I think the right way to be thinking about government 0:07:48.040 --> 0:07:50.640 debt is through the lens of prices and not quantities. 0:07:50.680 --> 0:07:53.560 And so as long as we have such demand for 0:07:53.600 --> 0:07:55.960 government debt as we see out there, you know, real 0:07:56.080 --> 0:07:59.560 yields or mean is ridiculously low as they are, we're 0:07:59.560 --> 0:08:04.240 not seeing a situation government is too high. I think, Um, 0:08:04.280 --> 0:08:09.840 there's a very nice paper um economist Guel Lauren Zone, 0:08:10.080 --> 0:08:13.520 Ronica Gary Eri would big Straw and von Burying. They 0:08:13.640 --> 0:08:15.920 make it clear that the way they think about this 0:08:16.120 --> 0:08:20.040 is we've got multiple sectors in the economy, and by 0:08:20.120 --> 0:08:23.000 stimulating demand, what we can stimulate the demand for the 0:08:23.040 --> 0:08:25.240 goods in the services that people can go out and 0:08:25.280 --> 0:08:31.200 buy Nrianna Colt Lakota, thank you, Bloomberg opinion columnist, a 0:08:31.280 --> 0:08:34.079 little bit of news to bring you. Boeing says that 0:08:34.280 --> 0:08:37.680 it is going to lay off nineteen thousand people. That's 0:08:37.720 --> 0:08:41.360 almost ten percent of its workforce, well between eight and 0:08:41.400 --> 0:08:44.200 nine percent right now, but yeah, it's a wow number. Pole. 0:08:44.760 --> 0:08:49.040 Nineteen thousand jobs is what is expecting. It had given 0:08:49.080 --> 0:08:52.520 a range of around sixteen thousand. But I guess you know, 0:08:52.640 --> 0:08:54.760 it's what are you going to do if your planes 0:08:54.880 --> 0:08:57.280 aren't being bought and if they can't even get up 0:08:57.320 --> 0:08:59.760 in the air in this environment, you can't exactly keep 0:08:59.760 --> 0:09:01.840 paying people, I suppose. Yeah, that's what we heard from 0:09:01.880 --> 0:09:04.480 Brooks Sutherland and even Daniel DeMartino Booth talking about that. 0:09:04.559 --> 0:09:06.520 And now the job losses are starting to hit the 0:09:06.640 --> 0:09:09.800 white collar workers and they have just proportionate share of 0:09:09.880 --> 0:09:12.679 consumer spend, and so that kind of dovetails into the 0:09:13.120 --> 0:09:17.240 conservative economic out look, another data point for the Fed. Yeah, 0:09:17.360 --> 0:09:20.080 and it really speaks to structural unemployment because of Boeing 0:09:20.160 --> 0:09:22.559 is eliminating nineteen thousand jobs this year. How many of 0:09:22.600 --> 0:09:25.600 those jobs that had been created in the economy will 0:09:25.640 --> 0:09:28.600 ever come back? All right, let's move to big tech. 0:09:28.960 --> 0:09:32.160 Maybe there's hope in big tech, but today, at least 0:09:32.200 --> 0:09:33.839 we were moving to big tech because we're going to 0:09:33.960 --> 0:09:37.920 talk about the congressional hearing that's beginning in about ten minutes. 0:09:38.000 --> 0:09:40.760 We'll have four of the big CEOs, including Jeff Bezos, 0:09:40.800 --> 0:09:43.360 who's never testified in front of Congress before, and of 0:09:43.400 --> 0:09:46.680 course Tim Coke of Apple, Alphabets, Sounder, Phi, and Mark 0:09:46.760 --> 0:09:50.920 Zuckerberg of Facebook appearing before the committee. Let's bring in 0:09:51.040 --> 0:09:52.760 Jen Reid to talk to us about what we might 0:09:52.920 --> 0:09:56.040 expect out of today. She's senior Litigation and idolst at 0:09:56.160 --> 0:10:00.079 Bloomberg Intelligence. Jen, from what angle can be ex like 0:10:00.280 --> 0:10:04.880 the most you know attacks on these CEOs? You know, 0:10:05.040 --> 0:10:08.400 I think it'll be different for each CEO because the 0:10:08.559 --> 0:10:11.319 issues that each company has, at least in the antitrust 0:10:11.440 --> 0:10:15.120 world are really different and their businesses are quite different. Um, 0:10:15.520 --> 0:10:18.880 So getting into the nitty gritty, it'll be different. But Bonnie, 0:10:18.960 --> 0:10:22.360 I think overall, there's a lot of concern about data 0:10:22.840 --> 0:10:24.520 and the amount of data that are in the hands 0:10:24.559 --> 0:10:27.280 of these companies and what they do with that data, um, 0:10:27.400 --> 0:10:30.040 and how that data allows them to maintain their position 0:10:30.160 --> 0:10:32.959 and maybe keep rivals down, and so that could be 0:10:33.040 --> 0:10:36.480 one overall you know, overriding theme or something that they 0:10:36.559 --> 0:10:39.200 really grill these companies on. And I also think it's 0:10:39.240 --> 0:10:41.480 gonna be a little bit different depending on who's doing 0:10:41.559 --> 0:10:43.880 the questioning, you know, I think that Democrats are a 0:10:43.920 --> 0:10:46.280 little bit more focused here on anti trust and market 0:10:46.360 --> 0:10:49.880 power and harm to consumers, whereas I think some of 0:10:49.920 --> 0:10:52.200 the Republicans at least are a little bit more focused 0:10:52.559 --> 0:10:55.240 on whether or not these companies are biased and whether 0:10:55.280 --> 0:10:58.760 they're censoring conservative content, which isn't an anti trust issue, 0:10:59.040 --> 0:11:01.600 but I think will come up. So, Jen, I mean, 0:11:02.000 --> 0:11:05.079 you're right, these are different companies of different profiles, but 0:11:05.160 --> 0:11:08.480 they're all huge in terms of market capitalization, in terms 0:11:08.559 --> 0:11:12.240 of front of mind for consumers, for investors, and now 0:11:12.400 --> 0:11:15.760 for potentially regulators. Do you have a sense that which 0:11:15.800 --> 0:11:18.360 companies might be more or less at risk here from 0:11:18.400 --> 0:11:23.840 just overall regulatory oversight? Absolutely, I think by far it's 0:11:23.880 --> 0:11:28.280 Google and Facebook, um, whether it be regulatory oversight, whether 0:11:28.400 --> 0:11:30.760 it be some sort of a challenge from the FTC 0:11:31.000 --> 0:11:33.560 or d o j UM. You know, Google, we've already 0:11:33.600 --> 0:11:36.679 seen has been fined in Europe several times for anti 0:11:36.720 --> 0:11:40.520 competitive behavior and it could amount to anti competitive behavior 0:11:40.640 --> 0:11:44.119 here as well, the same conduct. Um, we do understand 0:11:44.160 --> 0:11:46.000 that Bill Barr and the d o J is likely 0:11:46.080 --> 0:11:48.480 to bring some sort of action against Google this year. 0:11:49.000 --> 0:11:51.319 So I think the risk is highest for Google. And 0:11:51.360 --> 0:11:55.000 then on Facebook. Um, you know, it just seems, at 0:11:55.080 --> 0:11:57.880 least from the outside observer, that they really have had 0:11:57.960 --> 0:12:01.280 a strategy of going out of the years and acquiring 0:12:01.520 --> 0:12:04.360 nascent competitors. And I think there's all there is a 0:12:04.480 --> 0:12:07.559 lot of scrutiny on that kind of conduct and what 0:12:07.720 --> 0:12:11.600 would have come happened with what's happened with Instagram had 0:12:11.679 --> 0:12:15.199 Facebook not acquired these companies. Um, and and so I 0:12:15.320 --> 0:12:19.040 think that Facebook is also at risk. I think Amazon 0:12:19.120 --> 0:12:21.400 would be next, and then Apple last. I don't see 0:12:21.440 --> 0:12:25.400 Apple having a lot of risk here. No, I mean Facebook, 0:12:25.679 --> 0:12:28.240 let's deal with that for a moment. How much will 0:12:28.360 --> 0:12:33.240 Zuckerberg be questioned about, you know, fact checking political ads 0:12:33.280 --> 0:12:35.280 and how they refused to do it and that it's 0:12:35.320 --> 0:12:38.000 not really because of free speech, it's more a business decision. 0:12:38.120 --> 0:12:40.839 And William R. John scathed as he and all of 0:12:40.880 --> 0:12:44.640 the other tex CEOs newly always do you know, Vinny, 0:12:44.679 --> 0:12:47.439 I absolutely think he will be questioned on that again, 0:12:47.520 --> 0:12:49.240 even though this is meant to be an anti trust 0:12:49.320 --> 0:12:52.400 hearing and that isn't an anti trust issue. I think 0:12:52.640 --> 0:12:55.920 it will be probably a big part of his UH, 0:12:56.520 --> 0:12:59.640 his answers to questions and his answers in UM this 0:12:59.800 --> 0:13:04.679 here ring With respect to coming out unscathed UM, you know, 0:13:04.760 --> 0:13:07.520 they generally do, and I think they will in this 0:13:07.800 --> 0:13:11.600 instance as well, because one, I just don't know how 0:13:11.720 --> 0:13:14.920 effective UM it can be when it's set up the 0:13:14.920 --> 0:13:17.120 way it is, with five minutes of questioning of each 0:13:17.160 --> 0:13:21.400 of these CEOs. UH. Usually these hearings in the past 0:13:21.440 --> 0:13:25.719 have tended to be more partisan speechmaking UM and and 0:13:25.800 --> 0:13:30.280 sort of grandstanding than they have been productive or casting 0:13:30.480 --> 0:13:33.880 any of these companies in a bad light. UM. So 0:13:34.080 --> 0:13:36.880 I don't I don't see any of them coming out 0:13:36.960 --> 0:13:42.520 of this fearing damaged. Is there any realistic threat frond 0:13:42.520 --> 0:13:45.760 of these companies from a breakup standpoint? That's just to me. 0:13:46.920 --> 0:13:50.040 They just seems so big and so entrenched in the 0:13:50.120 --> 0:13:53.400 economy and in people's lives. It just seems difficult. But 0:13:53.480 --> 0:13:56.839 I still hear people calling for it, you know, Paul, 0:13:58.280 --> 0:14:00.800 I think the biggest risk to them is actually le legislation. 0:14:00.880 --> 0:14:03.360 And I say that because to try to achieve the 0:14:03.400 --> 0:14:05.760 breakup of one of these companies in court, which is 0:14:05.840 --> 0:14:08.560 what the FDC or DJ would have to do if 0:14:08.640 --> 0:14:11.520 that's what they're seeking, is extremely hard. I mean, it 0:14:11.640 --> 0:14:14.640 might even be hard just to hold these companies liable 0:14:14.960 --> 0:14:18.680 for illegal monopolization because the way our antitrust laws have developed, 0:14:18.920 --> 0:14:21.640 the precedents that the judges would have to follow make 0:14:21.720 --> 0:14:24.160 it actually very difficult for a plaintiff to proves that 0:14:24.240 --> 0:14:27.160 proved their case in this area. So not only do 0:14:27.240 --> 0:14:28.760 they have to prove their case, but to get that 0:14:28.880 --> 0:14:31.600 kind of a remedy, which would absolutely be considered the 0:14:31.720 --> 0:14:34.960 most drastic remedy that could be imposed by a judge, 0:14:35.240 --> 0:14:37.280 I think would be incredibly difficult. You know, we saw 0:14:37.400 --> 0:14:40.160 that it failed years ago with Microsoft, and I have 0:14:40.320 --> 0:14:43.160 to say that in that case, Microsoft was a blatant 0:14:43.200 --> 0:14:46.720 and egregious violator of the antitrust laws. You know, they 0:14:46.760 --> 0:14:50.280 were engaging in anti competitive conduct that was clearly anti competitive, 0:14:50.520 --> 0:14:54.000 with very little legitimate pro competitive business justification for what 0:14:54.080 --> 0:14:55.960 they're doing. I don't think that will be the case 0:14:56.040 --> 0:14:59.680 for these companies. So even though it's possible that it 0:15:00.040 --> 0:15:02.040 it will be launched by the d J, r FDC 0:15:02.280 --> 0:15:05.800 to try to seek a breakup or divestiture. I don't 0:15:05.880 --> 0:15:10.360 see it as having a likelihood of success in court. Interesting, Jenry, 0:15:10.440 --> 0:15:13.080 thanks so much for joining us. We always appreciate your thoughts. 0:15:13.120 --> 0:15:16.920 You have that unique and experienced viewpoint of antitrust law, 0:15:17.000 --> 0:15:19.720 and it's certainly gonna be front and center today as 0:15:19.840 --> 0:15:23.640 the tech titans appear before Congress. Jennifer Ree, she's a 0:15:23.720 --> 0:15:27.320 senior antitrust litigation analysts for Bloomberg Intelligence. In a real 0:15:27.600 --> 0:15:29.920 ace up our sleep and I think is a backstage 0:15:30.520 --> 0:15:34.400 in Congress pol Yeah, like, are they all in the 0:15:34.440 --> 0:15:37.880 corridors right now to try to wipe the sweat off there? Well, 0:15:37.880 --> 0:15:39.480 I think they're all gonna be virtual today, right. I 0:15:39.520 --> 0:15:41.960 think there will be virtual appearances by good points, so 0:15:42.160 --> 0:15:44.280 you know it would be interesting. So the a's actually break, 0:15:44.320 --> 0:15:47.360 I would say. But anyway, Amazon's Jeff Bezos, Apples, Tim Cook, 0:15:47.840 --> 0:15:51.520 Alphabet Sundar Pinchai, and Facebook Mark Zuckerberg. They are testifying 0:15:51.600 --> 0:15:55.480 before the House Subcommittee on Antitrust, Commercial and Administrative Law 0:15:56.160 --> 0:15:59.640 that is at twelve noon. Bloomberg Radio will bring that 0:15:59.760 --> 0:16:02.760 to live, so it'll be very interesting for the technology 0:16:03.120 --> 0:16:05.680 sector here. So off to see how they play out. 0:16:06.080 --> 0:16:09.280 So that'll be very interesting. So we'll have to see, 0:16:09.360 --> 0:16:10.880 you know, we'll have to see that the stocks have 0:16:10.960 --> 0:16:13.000 done great. I mean, the stocks aren't worried about Vannie, 0:16:13.080 --> 0:16:16.040 so they keep powering along. They're leading this economy. Uh 0:16:16.160 --> 0:16:18.160 and that is kind of the leading the stock market 0:16:18.240 --> 0:16:20.080 certainly so. But it'll be very interesting to see how 0:16:20.120 --> 0:16:22.720 they perform in front of Congress. Will bring that to you. 0:16:25.560 --> 0:16:28.200 Time to talk bonds now fixed income more broadly, so, 0:16:28.360 --> 0:16:30.440 the tenure hasn't really moved from its range. It's at 0:16:30.480 --> 0:16:33.040 about fifty eight basis points as we await the FED. 0:16:33.240 --> 0:16:35.680 But really the tenure just doing nothing. But if you 0:16:35.760 --> 0:16:39.160 look at measures of credit risk, they're easing today on 0:16:39.280 --> 0:16:42.000 prospects for a FED reiterating that it's going to be 0:16:42.080 --> 0:16:44.040 doublished for a long time. Let's bring in someone who 0:16:44.080 --> 0:16:47.040 knows all about these things. Stephen Kane is a group 0:16:47.080 --> 0:16:50.040 managing director and portfolio manager at TCW Fixed Income two 0:16:50.720 --> 0:16:54.160 five billion dollars in firm wide assets under management, and 0:16:54.280 --> 0:16:57.680 Stephen joins us. Now, Stephen, why should credit risk be 0:16:57.760 --> 0:16:59.920 easing when we're really not going to hear anything new 0:17:00.000 --> 0:17:04.080 from the Federal Reserve today? I think what you're seeing 0:17:04.240 --> 0:17:08.200 is really just an ongoing um flood of liquidity you know, 0:17:08.440 --> 0:17:11.879 in the marketplace. So it's nothing new today. It's not 0:17:12.160 --> 0:17:15.320 really built upon anything that the credit markets are expecting 0:17:15.359 --> 0:17:18.880 from the FED, but really an ongoing comfort, if you will, 0:17:19.440 --> 0:17:21.480 that the FED is going to be accommodative, You're going 0:17:21.560 --> 0:17:25.040 to get fiscal um, some sort of fiscal package um, 0:17:25.200 --> 0:17:30.160 and that you'll get ongoing liquidity coming into the marketplace. So, Steve, 0:17:30.240 --> 0:17:33.240 I knowe you folks at TCW generally a very conservative 0:17:33.359 --> 0:17:37.080 view here. There was initially during this pandemic talk about 0:17:37.080 --> 0:17:39.200 a v shaped recovery. That does not seem to be 0:17:39.320 --> 0:17:43.840 the case. Well, what are your thoughts? Well, um, I 0:17:43.920 --> 0:17:45.880 mean I think there was hope going back a couple 0:17:45.880 --> 0:17:48.200 of months that um, you know, the virus could be 0:17:48.280 --> 0:17:52.639 dealt with through you know, social distancing and other preventative 0:17:52.680 --> 0:17:56.360 measures and companies could you know, the economy could begin 0:17:56.440 --> 0:17:59.520 to reopen and you could get companies rehiring again. Obviously 0:17:59.640 --> 0:18:03.040 that's not been the case. Um. We think that this 0:18:03.240 --> 0:18:05.600 is going to be a very challenging recovery and it's 0:18:05.640 --> 0:18:09.879 not simply that the viruses is uh appears to be 0:18:10.040 --> 0:18:13.040 with US UM and a threat for some period of time. 0:18:13.800 --> 0:18:17.879 It's really that UM the disruption that that the closing 0:18:17.920 --> 0:18:21.320 down the economy has caused, meaning that you've had a 0:18:21.480 --> 0:18:28.359 number of industries UM suffer significant UM impacts, travel, hospitality, 0:18:28.800 --> 0:18:32.639 most service businesses, restaurants, et cetera. And that UM in 0:18:32.760 --> 0:18:36.320 turn leads to job loss and bankruptcies and and things 0:18:36.400 --> 0:18:38.720 that are going to lead, we think, to a fairly 0:18:38.840 --> 0:18:42.399 deep procession and fairly elevated levels of unemployment for a 0:18:42.480 --> 0:18:45.600 prolonged period of time. So even when we get through 0:18:45.680 --> 0:18:48.200 this virus, even if we're able to UM you know, 0:18:48.320 --> 0:18:51.360 have a vaccine and relatively short order, the after effects 0:18:51.400 --> 0:18:54.760 of the procession and the impact on service industries is 0:18:54.800 --> 0:18:59.040 going to be rather permanent UM. And we think that's 0:18:59.040 --> 0:19:03.159 going to be a fundamental headwind for the economy. So 0:19:04.560 --> 0:19:07.720 why worry about adding to the deficit and the dead Ultimately? 0:19:08.119 --> 0:19:10.520 Should we be worried about that? Will it hurt the 0:19:10.760 --> 0:19:14.639 US bond markets, the US credit rating? You know, the 0:19:14.760 --> 0:19:17.320 US dollar is a reserve currency. Or is it more 0:19:17.359 --> 0:19:20.920 important to fix the economy right now? Well? I think 0:19:21.359 --> 0:19:24.399 UM certainly policymakers and I think are doing what they 0:19:24.480 --> 0:19:28.600 have to do meaning UM, I think supporting the economy 0:19:28.680 --> 0:19:32.639 through UM through stimulus is what's necessary to keep this 0:19:33.280 --> 0:19:36.400 recession from becoming even deeper or even you know, potentially 0:19:36.440 --> 0:19:39.000 a depression. So you know, you have to solve the 0:19:39.040 --> 0:19:42.560 problem today before it becomes too big to solve down 0:19:42.600 --> 0:19:44.760 the road, and so they're doing what they have to now. 0:19:44.840 --> 0:19:50.720 The long term implications are unknown at this point, but certainly, UM, 0:19:50.800 --> 0:19:53.359 I think you're seeing weakness in the dollar is partly 0:19:53.560 --> 0:19:56.200 reflecting the fact that UM in the U S is 0:19:56.280 --> 0:19:59.320 running large deficits and printing huge sums of money, have 0:20:00.320 --> 0:20:04.719 very sizeable monetary growth and UM and and that's certainly 0:20:04.880 --> 0:20:08.520 weighing on the dollar. I think longer term, it's possible 0:20:08.520 --> 0:20:11.639 you could see inflation. You've seen some modest drift up 0:20:11.680 --> 0:20:15.760 in inflation expectations, and I think certainly if the government 0:20:15.840 --> 0:20:18.800 continues to support the demand side side of the economy 0:20:18.920 --> 0:20:23.280 with the supply side of the economy being impaired, UM, 0:20:23.520 --> 0:20:26.200 you know, you could see inflation. UM. In terms of 0:20:26.240 --> 0:20:30.040 the US credit rating, I think that's an issue far 0:20:30.200 --> 0:20:33.120 down the road, in terms of whether you know the markets, UH, 0:20:33.840 --> 0:20:36.359 the U S dollar you loses its reserve currency status 0:20:36.400 --> 0:20:38.719 and you begin to see you know, default risk being 0:20:38.800 --> 0:20:40.879 priced into the US market. I think that's that's far 0:20:40.960 --> 0:20:44.800 down the roof, Steve, given your relatively cautious outlook, where 0:20:44.880 --> 0:20:47.760 do you see opportunities or value in a fixing come 0:20:47.800 --> 0:20:51.280 markets right here? Well, it's getting more and more challenging. 0:20:51.359 --> 0:20:54.840 As as we've mentioned in the past. UH, the markets 0:20:54.880 --> 0:20:57.439 were a lot more interesting a few months ago when 0:20:57.520 --> 0:21:01.840 we were really adding risk uh aggressively. But now that 0:21:01.920 --> 0:21:05.400 you've kind of retraced UM spreads, you've got investment grade 0:21:05.400 --> 0:21:08.359 spreads into into the mid one twenties and high yield 0:21:08.880 --> 0:21:11.560 back to five hundred off after being you know, well 0:21:11.640 --> 0:21:14.720 north of a thousand. We're seeing less and less value 0:21:14.760 --> 0:21:18.880 in credit and we've we've been trimming now. Having said that, UM, 0:21:19.080 --> 0:21:22.320 there's still some opportunities out there and still some areas 0:21:22.359 --> 0:21:26.480 of value, beginning with the agency mortgage UM sector, which 0:21:26.560 --> 0:21:29.280 is obviously being directly supported by the FED through forty 0:21:29.320 --> 0:21:33.280 billion of purchases monthly. And that's not only keeping valuations 0:21:33.359 --> 0:21:38.280 steady and stable, but providing attractive carry and return, particularly 0:21:38.320 --> 0:21:42.280 in the in the forward market. In the agency mortgage 0:21:42.320 --> 0:21:46.160 tv A market UM, there's areas of the investment grade 0:21:46.160 --> 0:21:50.200 corporate market that look interesting, money center banks, consumer noncyclicals, 0:21:50.240 --> 0:21:54.600 food and beverage. UM spreads are still reasonably attractive there. 0:21:54.800 --> 0:21:57.680 And you know these are businesses generally speaking, with strong 0:21:57.760 --> 0:22:01.480 balance sheets and uh you know his ability through a 0:22:01.600 --> 0:22:05.960 very difficult economic environment. So UM in terms of high yield, 0:22:06.160 --> 0:22:08.840 you have to be very careful, UM in terms of 0:22:08.920 --> 0:22:12.040 treading in that area, and we are definitely being you know, 0:22:12.119 --> 0:22:16.520 cautious and trimming exposure is UM as valuations UH go higher. 0:22:17.400 --> 0:22:19.680 Steve Kane, thanks so much for joining us. Aways appreciate 0:22:19.800 --> 0:22:23.760 your comments. Steve Kane, Group managing director and portfolio managed 0:22:23.800 --> 0:22:27.440 for tc W fixed Income. They've got two billion and 0:22:27.560 --> 0:22:30.280 firm wide assets under management, so they know their way 0:22:30.440 --> 0:22:35.040 around the fixed income markets here. Again, cautious view out 0:22:35.040 --> 0:22:37.160 of tc W. That's been pretty consistent, and I think, 0:22:37.640 --> 0:22:39.280 you know, you think about that V shape recovery. I 0:22:39.320 --> 0:22:42.359 don't hear people talking about that much anymore as this 0:22:42.480 --> 0:22:45.119 pandemic hangs on and we see resurgence in certain key 0:22:45.200 --> 0:22:50.439