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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along

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Speaker 1: with Jonathan Ferroll and Lisa Brownwitz. Daily we bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com,

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Speaker 1: and of course, on the Bloomberg Terminal. So this Morning

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Speaker 1: with Francie Lacuai featured one of the great market calls

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Speaker 1: of all time, David mal Past years ago at bear

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Speaker 1: Stearns screaming about the end of the end of deflation

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Speaker 1: in Japan. It was one of the truly great calls

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Speaker 1: of the early part of the last decade. He is

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Speaker 1: now President of the World Bank. David mel Past joins

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Speaker 1: us this morning. David, you have always been one to say,

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Speaker 1: let markets act. The market for menu factured vaccines is

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Speaker 1: out there. Is it a legitimate market or is it

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Speaker 1: held up now by politics? Is so many nations are

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Speaker 1: desperate for vaccination. Hi, Tom, they are desperate, and I

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Speaker 1: think it's really important that the countries that have excess

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Speaker 1: free up those excess so they can go to countries

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Speaker 1: which have vaccination programs. It's important to do that. Matching

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Speaker 1: between the halves and the ones that are ready to

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Speaker 1: actually put shots in arms. We have World Bank has

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Speaker 1: will have fifty countries by mid year that are ready

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Speaker 1: with with the personnel standing by, ready to put shots

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Speaker 1: in arms if the world will only let the vaccines flow.

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Speaker 1: So it's not really a market. It's controlled a lot

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Speaker 1: by the various governments and the options that they took out.

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Speaker 1: That was good because it got supply going, but now

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Speaker 1: there's a chance to really distribute the supply worldwide. Who

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Speaker 1: is your most important phone call to Washington or to

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Speaker 1: London to get this done. I've talked with the US administration.

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Speaker 1: There's several different parts of the administration. There's UH, there's

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Speaker 1: the the NSC, and the there's the HHS, the Health

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Speaker 1: and Human Services Department, and so it's I think there's

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Speaker 1: there's got to be a consensus within the US that

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Speaker 1: there is sufficient supply and therefore it can be released.

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Speaker 1: And I emphasize to countries that have programs in place.

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Speaker 1: You saw the New York Times article I guess yesterday

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Speaker 1: which described the waste that's going on for some of

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Speaker 1: the distribution outlets. They go to countries that can't use it,

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Speaker 1: and then the vaccines are burned because they've they've expired,

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Speaker 1: So we want to avoid that and actually get people

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Speaker 1: vaccinated that have systems in place. I repeat. The World

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Speaker 1: Bank has fifty programs UH will will have uh nearly

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Speaker 1: four billion dollars more than four billion dollars ready to

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Speaker 1: pay if someone needs money to facilitate and importantly, the

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Speaker 1: money can go to actual deployment within countries so that

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Speaker 1: they can they can vaccinate we hope hundreds of millions

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Speaker 1: of people. Meanwhile, the US has actually started to release

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Speaker 1: much more vaccine to other nations that are in need recently.

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Speaker 1: How much has a distribution. The increased distribution from the

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Speaker 1: US and other companies other countries forestalled the emerging markets

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Speaker 1: crisis the World Bank has been seeing brewing. It's important

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Speaker 1: to note what the delivery schedules for those vaccines are

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Speaker 1: and to know if they're going into countries that are

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Speaker 1: prepared to receive the vaccines and actually and actually UH

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Speaker 1: deploy them, you know, put shots in arms. UH. And

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Speaker 1: one of the one of the big challenges in the

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Speaker 1: developing countries really worldwide is the hesitancy. Some people don't

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Speaker 1: want to don't want to be vaccinated, So one of

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Speaker 1: the things we're doing in in our in client countries

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Speaker 1: is have a communications effort by the country to encourage

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Speaker 1: people to be vaccinated. That's going to say of lives

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Speaker 1: UH and it also brings the economies back on stream.

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Speaker 1: So it's important to be vaccinated and to have a

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Speaker 1: program of vaccination in these countries. I don't know where

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Speaker 1: the us UH supplies are going, and I think you know,

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Speaker 1: I've called for much greater transparency in terms of the

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Speaker 1: supply we have. The World Bank has put up a

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Speaker 1: major website that shows all of our program documents. You know,

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Speaker 1: it takes a lot of preparation for countries to actually

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Speaker 1: show they can vaccinate. So each of the documents is

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Speaker 1: you know, as much as fifty pages describing who will

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Speaker 1: do the vaccinations, what the what the system within each

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Speaker 1: country is in order to do it fairly, and how

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Speaker 1: how they'll be paid for, how the costs will be

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Speaker 1: paid for. So I've encouraged others to do that to

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Speaker 1: the transparency is important, David. This is a sensitive question.

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Speaker 1: There's a question of which vaccine which countries actually receive,

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Speaker 1: and it comes as independent studies show that, for example,

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Speaker 1: Chinese vaccines have not been as efficacious as those created

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Speaker 1: by Visor and MODERNA. Is the World Bank placing an

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Speaker 1: emphasis on the type of vaccine, the brand of vaccine

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Speaker 1: that is received and given it to specific countries, or

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Speaker 1: is it any vaccine treated equally. They need to be

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Speaker 1: w h O approved or approved by a by a

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Speaker 1: a regulatory agency the US, Europe, Japan, UH and there's

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Speaker 1: only a few that have been approved. But but one

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Speaker 1: thing I emphasize is most of the vaccines are better

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Speaker 1: than not being vaccinated, and so that's important. Are initially

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Speaker 1: in our in our in our January and February programs, UH,

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Speaker 1: it was it was mostly Visor and MODERNA and we're

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Speaker 1: still we're still using that. But it's very important that

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Speaker 1: Astra Zeneca, that Johnson and Johnson, that the Chinese vaccine,

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Speaker 1: even which has now been approved at least initially by

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Speaker 1: w h O, are available and when ctly. Our programs

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Speaker 1: allow different vaccines to be distributed in different parts of

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Speaker 1: a country. Rural areas may want a different vaccine than

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Speaker 1: hospitals and made your cities, and we've described that in

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Speaker 1: our programs. That's a really important part of getting the

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Speaker 1: job done properly. So we're able to accept and use

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Speaker 1: all of those that I mentioned. Uh, and there will

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Speaker 1: be more, which is which is great. Uh. And we

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Speaker 1: can also acquire or receive vaccines through kovacs the International Consortium,

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Speaker 1: if it has supplied. That's been one of the challenges

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Speaker 1: and that was discussed in the New York Times article yesterday. David.

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Speaker 1: That's an important distinction. And as always we appreciate your time.

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Speaker 1: You're often generous with it, So thank you, David Malpas

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Speaker 1: that the World Bank President how Would Walked, joined us

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Speaker 1: now compaty fun Sea of growth equities. Howard, what an

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Speaker 1: important transition point for this economy is You've pointed out

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Speaker 1: pink growth is here potentially and we're about to make

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Speaker 1: this transition from recovery to expansion. How it is a

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Speaker 1: market participant? How do you think about that dynamic? Hevin Polton?

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Speaker 1: Is it? Well, first of all, it's been I think

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Speaker 1: you have to say that we can argue about the

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Speaker 1: amount of stimulus, what the Feds done and all the spending,

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Speaker 1: but it's been very successful. The economy is rip roaring,

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Speaker 1: and this is the quarter where we will transition from

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Speaker 1: recovery to expansion, and we don't know the exact data

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Speaker 1: on then maybe it's today. Maybe we expansion has just

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Speaker 1: begun this morning. I don't know, but uh, the outlook

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Speaker 1: remains sterling. In terms of growth. You're looking at six

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Speaker 1: percent plus growth this year. We haven't seen that in

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Speaker 1: this country since after last year we had negative three

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Speaker 1: and a half percent growth, the worst growth since nine

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Speaker 1: and next year we're looking for a slowdown to aout

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Speaker 1: four percent. We haven't even had that for twenty years.

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Speaker 1: And so the stimulus and the reopening in the economy

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Speaker 1: is providing a tremendous lift. And I do think you

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Speaker 1: were talking about the bank lending earlier. I do think

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Speaker 1: you're going to see the demand for lawns pick up.

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Speaker 1: It has to, given what's going on in the general economy. Howard,

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Speaker 1: were you talk about the rocky road ahead. We had

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Speaker 1: a lovely move here coming out of this expansion, and

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Speaker 1: you are enthusiastic, But you talk about a grind and

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Speaker 1: you talk about a rocky tape. What I n if

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Speaker 1: I'm enjoying a rocky tape day to day? Well, I

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Speaker 1: would first of all just make the point that typically

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Speaker 1: in the second year after you get the big advance

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Speaker 1: in the market coming off the bottom, that second year

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Speaker 1: usually is much more muted, you know, think returns in

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Speaker 1: the sort of eight to twelve percent range, not range.

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Speaker 1: And if you went back and compared the current trajectory

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Speaker 1: of the market to what happened coming out of the

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Speaker 1: oh nine bottom, we've been following that path very closely.

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Speaker 1: And if we do continue to follow that path or

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Speaker 1: that script, then we will have a hiccup or two

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Speaker 1: in the next six months, because in two thousand and ten,

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Speaker 1: after a surging market in two thousand and nine, that's

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Speaker 1: exactly what happened. Now that market is still close higher

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Speaker 1: in two thousand and ten, and I think it will

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Speaker 1: be nicely higher this year. Uh, particularly so because I

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Speaker 1: think even more so than in two thousand and ten.

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Speaker 1: Earnings outlook is is truly uh remarkable, to say the least,

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Speaker 1: because the while the consensus earnings expectations would be for

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Speaker 1: growth of about thirty this year and next year, so

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Speaker 1: two dollars on the SMP this year, two oh five,

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Speaker 1: two oh six next year. Tom if you look at

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Speaker 1: the first quarter earnings that have been reported, the annualized

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Speaker 1: runway on those is around two hundred dollars. So that

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Speaker 1: would suggest that the consensus earnings numbers for both this

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Speaker 1: year and next year are materially lower that can be

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Speaker 1: substantially higher, and so I do think that, Yeah, I

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Speaker 1: think we're gonna have a rocky tape. We've seen that

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Speaker 1: a little bit. Rates are are and should be grinding

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Speaker 1: higher in tangent with an economy this strong and with

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Speaker 1: some heightened inflationary fears. And it's going to be that

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Speaker 1: grinding higher interest rates that creates the rocky tape. But

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Speaker 1: beyond that, the outlook at mean is very positive. I

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Speaker 1: would not be too cute in trying to trade this market.

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Speaker 1: It's too early to turn your back on this school market.

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Speaker 1: Just real quick here, I'm wondering what is priced in,

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Speaker 1: certainly to US equities at this point, given the fact

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Speaker 1: that Janie Henderson just upgraded their forecast for global dividend

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Speaker 1: payments to one point three six trillion dollars this year,

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Speaker 1: the third highest on record, Well, there's a lot priced in,

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Speaker 1: and and so you're talking if you looked at those

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Speaker 1: consensus numbers and markets, you know, twenty three or so

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Speaker 1: times for twelve month earnings historically, you know, for example,

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Speaker 1: in two thousand nineteen, when rates were in the low

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Speaker 1: two percent range, on the tenure, you had the marketed

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Speaker 1: around sixteen and a half times fuller learnings, So there's

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Speaker 1: a pretty big gap there. And uh, we should be

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Speaker 1: returning to an environment over the next six to twelve

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Speaker 1: months where that tenure yield us back in that two

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Speaker 1: and a quarter to two and a half percent range.

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Speaker 1: That's that's my opinion. And so if you go back

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Speaker 1: to that range, that should call, you know, maybe for

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Speaker 1: some pressure on equity prices. But but I'll have to

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Speaker 1: go back to my comment on earnings. If we earned

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Speaker 1: over two hundred dollars this year and to maybe even

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Speaker 1: to thirty five next year. Uh, and interest rates are

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Speaker 1: moving higher, who's gonna want to own anything but stocks?

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Speaker 1: You know, bonds that are going to be negative returns.

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Speaker 1: The last twelve months, bonds went nowhere bonsibly negative stocks

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Speaker 1: are really the only game in town. And so I

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Speaker 1: think that people have to bear that in mind. We

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Speaker 1: could be getting a lot of money coming out of

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Speaker 1: both cash where a lot of money went during the

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Speaker 1: last twelve months, both cash as well as fixed income

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Speaker 1: in order to fuel continue games and are a lot

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Speaker 1: of money still that how we got a lady that

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Speaker 1: how it will that abuty fund seat of growth, Sancuty.

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Speaker 1: What we're doing economics is we have death siles ten

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Speaker 1: of the American public, say is one estimation. Jared Bernstein

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Speaker 1: is expert at the analysis, the breaking apart, the slicing

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Speaker 1: dicing of those death siles, those one tenths of the

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Speaker 1: American public. He is with the White House Council of

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Speaker 1: Economic Advisors and has been a lead advisor to the

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Speaker 1: President of the United States for over a decade. Dr Bernstein,

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Speaker 1: thank you so much for joining us today. Do you

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Speaker 1: have an understanding now about which death siles have been

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Speaker 1: advantaged by this historic fiscal stimulus? Who's benefited? Yeah, I know,

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Speaker 1: it's a great question. One of the things you see

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Speaker 1: when the job market tightens up, and this has been

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Speaker 1: a theme of my work for decades, is that those

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Speaker 1: in the bottom half we be the bottom I've deciles,

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Speaker 1: if you want to stick to that metric, um UH

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Speaker 1: benefit disproportionately. When the job market tightens up. You see

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Speaker 1: the black unemployment rate come down faster. In those situations,

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Speaker 1: you see the wages of low wage workers get a

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Speaker 1: bigger pop. They're just a lot more sensitive to the

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Speaker 1: kinds of bargaining power benefits that come from a full

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Speaker 1: employment economy, so heading back the full employment as quickly

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Speaker 1: as possible is one of the goals of our of

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Speaker 1: our fiscal policy, and the American Rescue Plan is clearly

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Speaker 1: helping to pull the recovery forward. Not unlike comments I've

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Speaker 1: heard on your show this very morning, the kind of

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Speaker 1: outcomes that you'd expect maybe later on the psycho charity,

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Speaker 1: you starting to see them develop a little bit earlier

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Speaker 1: than anticipated. I'm sorry, what were you asking about in

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Speaker 1: terms of the outcomes you'd expect in the labor market

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Speaker 1: later on in the cycle, which is when you really

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Speaker 1: really start to erode some of the slack. Are you

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Speaker 1: starting to see some of those symptoms earlier in the cycle.

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Speaker 1: We're starting to see them now, as as to say

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Speaker 1: several years down the line. I think you're seeing a few,

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Speaker 1: but it's more anecdotal and scattered. It really hasn't shown

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Speaker 1: up in the data yet. If you look at the

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Speaker 1: wage data adjusted for compositional effects, you see some promising

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Speaker 1: hints here and there, and you certainly hear anecdotal wage

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Speaker 1: offers that are getting a bump. I do think lower

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Speaker 1: wage workers have some bargaining power based on these dynamics

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Speaker 1: that we've been talking about. But remember, we still have

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Speaker 1: a highly elevated unemployment rate north of six percent. For blacks,

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Speaker 1: the unemployment rate is nine point seven percent, So we

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Speaker 1: still have a long way to go. But yeah, we're

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Speaker 1: we're seeing some hints in that regard, and I like

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Speaker 1: the way you teed it up, John, which is eroding slack.

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Speaker 1: That's precisely that that's just so important to middle and

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Speaker 1: low wage workers at the moment. There's another dynamic that

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Speaker 1: has become very political Charitis. I'm sure you'll appreciate more

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Speaker 1: than twenty Republican states, the governors have basically gotten rid

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Speaker 1: of the extra additional unemployed and insurance. What do you

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Speaker 1: think the consequence of that decision will be in the day, Sat,

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Speaker 1: that would expect to see in the coming month, coming

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Speaker 1: complements deeper into sum up. Yeah, it's it's it's a

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Speaker 1: it's a good question. And and here's you know, one

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Speaker 1: of the natural experiments that economists love to tap um.

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Speaker 1: And we're we're definitely concerned about taking off enhanced unemployment

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Speaker 1: benefits too soon. Every state's going to act on its own,

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Speaker 1: and obviously, economic conditions differ across states. The President has

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Speaker 1: leaned into this pretty firmly, saying that, you know, people

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Speaker 1: who are offered a suitable, safe job need to take it.

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Speaker 1: That's part of the rules of the unemployment insurance system.

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Speaker 1: But this system has been so important to helping workers,

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Speaker 1: not just the standard based system, but also the added

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Speaker 1: enhanced benefits for workers who are less connected to unemployment

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Speaker 1: because maybe they're gig workers, are self employed, and so

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Speaker 1: it's really helped people get through the recovery, gets i'm sorry,

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Speaker 1: get through the crisis to the other side. And along

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Speaker 1: with the distribution of the vaccine, it's been one of

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Speaker 1: the more important parts, you know, shots and arms, checks

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Speaker 1: and pockets. That's been part of the formula. Jared, do

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Speaker 1: you see the enhanced unemployment benefits as being a template

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Speaker 1: or serving as a template going forward for some sort

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Speaker 1: of universal basic income, especially if the participation rate continues

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Speaker 1: to fall as it has over recent decades. You know,

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Speaker 1: it's a fair question. I would probably say the direct

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Speaker 1: impact payments are the checks are closer to that than

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Speaker 1: the UI the unemployment insurance payments. I mean, unemployment insurance

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Speaker 1: is just that it's a specific insurance program, a safety

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Speaker 1: net for people who lose their jobs. And it's one

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Speaker 1: that those course has been in place for many, many decades.

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Speaker 1: It's proved to be an extremely important countercyclical force. I

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Speaker 1: do think the system needs work, and the administration is

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Speaker 1: very committed to doing that. If you listen to the

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Speaker 1: President's discussion of making sure that the next time we

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Speaker 1: hit it down trip we hit it with the with

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Speaker 1: with the UI system, that's that's more ready for that.

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Speaker 1: That that I think is an important part of our

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Speaker 1: kind of policy infrastructure, that that that we're we're committed

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Speaker 1: to working on dr pruting. I want you to speak

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Speaker 1: to a small business out there that is petrified of

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Speaker 1: what they see from fancy, big corporations of fifteen dollars

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Speaker 1: an hour, seventeen dollars an hour and up and up wages.

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Speaker 1: I want you to study David Card and the wonderful

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Speaker 1: Alan Krueger and the arch fear that if we raise

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Speaker 1: those low minimum wages, all the other wages come up

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Speaker 1: with it. What's your evidence on that study? Yeah, So

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Speaker 1: this is a very consistent finding around minimum wage increases.

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Speaker 1: So that if if the minimum wage goes up, many

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Speaker 1: studies have found that there are spillover effects that give

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Speaker 1: a bump to workers right above that minimum wage level. Again,

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Speaker 1: as I mentioned earlier, we are we are seeing increases

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Speaker 1: in low wage offers, uh. And I think that's really

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Speaker 1: important to people who are coming back into the labor market.

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Speaker 1: Think of it as a price signal. You know, I

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Speaker 1: was thinking of you the other day, Tom, because I

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Speaker 1: was sort of thinking of this in my head, and

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Speaker 1: I'm what I thought was kind of a Keenian way,

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Speaker 1: which was sort of like Cane's meets Highak. You know,

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Speaker 1: the idea that the stimulus both on the fiscal and

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Speaker 1: monetary side, really relief on the fiscal and monetary side,

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Speaker 1: and you know, the the uh, the monetary policy uh

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Speaker 1: also also helping to move the recovery forward. You've got

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Speaker 1: price signals. You've got price signals. You've got price signals

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Speaker 1: that are that are that are pulling workers back into

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Speaker 1: the labor force. You've got the vaccine out there, fifty

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Speaker 1: percent of adults vaccinated, way ahead of our schedule. And

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Speaker 1: I think those are all very promising developments. I mean,

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Speaker 1: he does this right at the end of the interview,

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Speaker 1: John Ferroll. I mean, Dr Burnstein has set this up huge.

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Speaker 1: You're gonna come back. Dr Burnstein. And I don't mean

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Speaker 1: on jobs today. We love day have you with John

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Speaker 1: on jobs? Say, after the report, you've got to come

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Speaker 1: back and we've got to talk about the information that's

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Speaker 1: out there that we can't see. We gotta go on

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Speaker 1: the edge of Joe Stigler and you know the others

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Speaker 1: of the information. Just because he said he was thinking

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Speaker 1: of you want him back, I only wanted he was thinking, Jared,

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Speaker 1: do you look at the dal Jones industrial average? Yeah,

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Speaker 1: I've heard about that. When you're in the Here's the thing.

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Speaker 1: When you're in the White House, you're you're very careful

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Speaker 1: not to react every blip in any index, you know,

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Speaker 1: minute to minute or day to day. Much more heads down,

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Speaker 1: keep recovery going, deliver the goods to the middle class.

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Speaker 1: I think that that's a very diplomatic accounts of that. Yeah,

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Speaker 1: it's always think, always going to get you on the show.

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Speaker 1: Thank you, sir, besting that house trying to us right now,

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Speaker 1: and I am going to rip up the script here

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Speaker 1: and I can do that. Of course with the gentleman

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Speaker 1: from the Dakota is Kevin Kramer is with orth Dakota,

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Speaker 1: I've always got to keep my Dakota is careful here,

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Speaker 1: gonna be careful what I do. Senator Kramer, I want

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Speaker 1: to stop for a moment for you to speak of

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Speaker 1: the symbolism of your Republican Party and the path from

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Speaker 1: John Warner dying today at ninety four over to the

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Speaker 1: modern Republican party you have identified. I love the idea

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Speaker 1: that I think, like Lincoln, you lost your first three elections.

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Speaker 1: Tell me how your GOP keeps the Republicans like John

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Speaker 1: Warner and frankly, Senator Deportment of Ohio in the full

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Speaker 1: how do you keep these liberal Republicans in the party? Well, no,

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Speaker 1: thanks for the question. Actually, you know, pragmatism works, and

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Speaker 1: I think that one of the things that Donald Trump

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Speaker 1: brought to the Republican parties he brought the working class

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Speaker 1: Americans to the Republican Party. I think at the end

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Speaker 1: of his four years, one of the things we lost

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Speaker 1: perhaps are not so much moderates as as probably that

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Speaker 1: the polite uh, you know, moderates if you will, um

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Speaker 1: certainly the suburban suburban women for example. All of that said,

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Speaker 1: I think that we we take the Trump mantra, and

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Speaker 1: that is to say, the more um less globalist but

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Speaker 1: on America first, globalism, a populism, conservatism, and apply it

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Speaker 1: in a gentler way, not not not shyly, by the way,

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Speaker 1: but I think we have the right governing philosophy to

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Speaker 1: be a majority party. And I just think that. And

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Speaker 1: and the other thing is this, quite honestly, Joe Biden

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Speaker 1: is going to help us immensely if we can get

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Speaker 1: out of our own way and keep highlighting the you know,

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Speaker 1: the Biden agenda, which includes everything from destroying American energy

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Speaker 1: while building up Iran and in Saudi Arabia and Russian energy. Uh,

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Speaker 1: if we talk about, you know, putting so much money

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Speaker 1: into the marketplace, um that we create hyper inflation, and

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Speaker 1: all the other stuff, the border crisis, what's going on

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Speaker 1: in the Middle East, his lack of attention to the

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Speaker 1: really big issues. You know, there's nothing like a common

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Speaker 1: opponent to help unite people. But I do think our

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Speaker 1: own message, to your point, needs to be the Trump

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Speaker 1: message delivered in a way that people are listening, and

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Speaker 1: the lessons learned of losing the presidency, losing the House,

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Speaker 1: losing the Senate. Granted, these are by all small numbers.

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Speaker 1: In two thousand twenty two, beccons, how do you coalesced

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Speaker 1: the GOP on social issues so removed from the core

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Speaker 1: Trump constituency, and I might say social issues that Senator

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Speaker 1: Warner of Virginia lead with through the seventies and the eighties. Yeah.

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Speaker 1: So I think there's a couple of things. On one

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Speaker 1: is we're seeing a trend that actually does benefit us,

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Speaker 1: a demographic trend, and that is the Hispanic Americans are

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Speaker 1: coming for our way, and they came more our way

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Speaker 1: under Donald Trump. They became our our way because of

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Speaker 1: Donald Trump because they identified more as a working class

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Speaker 1: Americans than they do as Hispanic Americans, which is really

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Speaker 1: the heart of the American dream. I think we take

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Speaker 1: that same social message and social message that is job

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Speaker 1: creation and and pro family. You don't have to apologize

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Speaker 1: for being a family. Have to certainly understand the culture

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Speaker 1: you live in and and and speak to it. But um,

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Speaker 1: I think that we need, you know, we need to

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Speaker 1: get back in many cases to our roots, but also

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Speaker 1: remembering that the working class American, the forgotten man and woman,

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Speaker 1: is still out there and they're still looking for a voice.

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Speaker 1: And Donald Trump was that voice. And I think we

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Speaker 1: can continue to give, you know, give that voice, but

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Speaker 1: at the same time recognizing that the world's a shrinking place.

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Speaker 1: And and we also have to remind people that are

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Speaker 1: all of this that we cherish so much depends on

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Speaker 1: a really strong military. And we have to remind people

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Speaker 1: that we didn't used to have a near peerle adversary

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Speaker 1: in China, but now we do. Um. You know, the

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Speaker 1: Soviet Union broke up, but in many respects is coming

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Speaker 1: back in the person. Senator. There's a question of giving

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Speaker 1: a voice to the working class Americans, and there's also

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Speaker 1: a question of creating the right economic backdrop for them.

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Speaker 1: I believe a coalition of Republicans are about to propose

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Speaker 1: count to propose a one trillion dollar plan to present

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Speaker 1: Biden's infrastructure spending initiative. Do you have a sense of

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Speaker 1: what's in it and whether you would sign on to this? Sure? Great,

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Speaker 1: great question. Um, I do have some sense of it,

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Speaker 1: and I likely would sign on to it. In fact,

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Speaker 1: I think I've always thought we could go bigger than

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Speaker 1: than we've gone as Republicans while maintaining our philosophy and

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Speaker 1: our integrity, and that is a couple of things. So

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Speaker 1: I actually am the ranking Republican of the Transportation Infrastructure Subcommittee,

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Speaker 1: and we're going to mark up our surface transportation bill today,

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Speaker 1: and it's it's been negotiated between the four corners that

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Speaker 1: include Tom Carper, Shelley Moore, Capital, Ben Cardon, and myself,

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Speaker 1: and and that's going to be a good step in

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Speaker 1: the right direction. We can go bigger on that simply

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Speaker 1: by adding another year or two to the authorization. One

431
00:24:48,200 --> 00:24:49,640
Speaker 1: of the things that I'd like to see is I'd

432
00:24:49,680 --> 00:24:52,160
Speaker 1: like to see US expand infrastructure. I know Republicans say

433
00:24:52,320 --> 00:24:55,280
Speaker 1: let's keep it to the you know, the hard concrete issues,

434
00:24:55,440 --> 00:24:57,720
Speaker 1: and I'm not against that, but I think when you

435
00:24:57,800 --> 00:25:01,399
Speaker 1: take energy as an example, pipe lines, transmission lines. I

436
00:25:01,480 --> 00:25:04,080
Speaker 1: had a long visit just Friday with Jennifer Granholme in

437
00:25:04,080 --> 00:25:06,720
Speaker 1: the Secretary of Energy and said, the beautiful thing about

438
00:25:06,800 --> 00:25:09,639
Speaker 1: energy infrastructure is it is infrastructure. It does move commerce

439
00:25:09,680 --> 00:25:11,960
Speaker 1: to the marketplace, it does create really high paining jobs,

440
00:25:12,119 --> 00:25:14,399
Speaker 1: it does have a national security implication to it, and

441
00:25:14,520 --> 00:25:16,879
Speaker 1: it doesn't require any spending on the part of the

442
00:25:17,240 --> 00:25:19,600
Speaker 1: federal taxpayer. So I think you can get to a

443
00:25:19,640 --> 00:25:23,600
Speaker 1: trillion dollars by having some simple permitting and regulatory reforms

444
00:25:23,680 --> 00:25:26,840
Speaker 1: that maintain the integrity of our environmental excellence while at

445
00:25:26,880 --> 00:25:30,680
Speaker 1: the same time unleashing the private sector investment. And here's

446
00:25:30,680 --> 00:25:32,960
Speaker 1: the other thing, you guys. By putting more money in

447
00:25:33,080 --> 00:25:38,320
Speaker 1: investment in American energy rather than Iranian and Russian energy,

448
00:25:38,520 --> 00:25:41,639
Speaker 1: you actually help the climate in the environment because we

449
00:25:41,840 --> 00:25:45,880
Speaker 1: produce even fossil fuels with a much lower car footprint

450
00:25:45,960 --> 00:25:49,320
Speaker 1: in other countries do Senator, what's the distinction between going

451
00:25:49,480 --> 00:25:52,840
Speaker 1: even bigger in the proposal that you're talking about and

452
00:25:52,920 --> 00:25:55,359
Speaker 1: the one point seven trillion dollar the dollars plan that

453
00:25:55,440 --> 00:25:58,359
Speaker 1: President Biden is talking about, especially when you talk about

454
00:25:58,480 --> 00:26:01,200
Speaker 1: high inflation rates. Why is the plan that you're proposing

455
00:26:01,240 --> 00:26:05,280
Speaker 1: not gonnagonnite inflation or is the other one? You say, well, yeah,

456
00:26:05,520 --> 00:26:09,120
Speaker 1: because ours doesn't involve more federal spending or more borrowing

457
00:26:09,480 --> 00:26:12,159
Speaker 1: or you know, more printing of money. To the degree

458
00:26:12,320 --> 00:26:17,560
Speaker 1: we can repurpose the fifty billions to a trillion dollars

459
00:26:17,720 --> 00:26:20,000
Speaker 1: it's already been appropriated but won't be spent by the

460
00:26:20,080 --> 00:26:23,240
Speaker 1: end of this fiscal year. That's not new taxes, that's

461
00:26:23,280 --> 00:26:27,399
Speaker 1: not new printing. So that actually puts that that liquidity

462
00:26:27,440 --> 00:26:29,560
Speaker 1: if you will, to work in the marketplace in a

463
00:26:29,640 --> 00:26:32,239
Speaker 1: way that creates jobs and creates an asset that at

464
00:26:32,280 --> 00:26:34,560
Speaker 1: the end has a value and has you know, the

465
00:26:34,640 --> 00:26:38,159
Speaker 1: movement of goods and services throughout the country. So I

466
00:26:38,240 --> 00:26:41,439
Speaker 1: actually think that we do just the opposite by by

467
00:26:41,520 --> 00:26:44,080
Speaker 1: going bigger, as long as we're not printing new money

468
00:26:44,200 --> 00:26:46,960
Speaker 1: or borrowing more money. Senator, the only reason we had

469
00:26:47,000 --> 00:26:50,679
Speaker 1: you on is Lisa A. Bramowitz puts down the German

470
00:26:50,840 --> 00:26:55,360
Speaker 1: skillet at Crolls Diner like nobody in Fargo, North Dakota.

471
00:26:56,200 --> 00:26:58,920
Speaker 1: We're not going to do this in February, but we

472
00:26:59,080 --> 00:27:02,320
Speaker 1: need a surveyor's road trips so Lisa can remember her

473
00:27:02,480 --> 00:27:06,240
Speaker 1: years in Fargo, North Dakota. I'm thinking pheasant hunting, and

474
00:27:06,560 --> 00:27:09,639
Speaker 1: you know, maybe in the autumn September, October, can we

475
00:27:09,720 --> 00:27:13,960
Speaker 1: get that done. We can absolutely get that done. Lisa

476
00:27:14,000 --> 00:27:16,560
Speaker 1: probably knows the perfect guide and and if she doesn't,

477
00:27:16,600 --> 00:27:19,359
Speaker 1: I'll find the best land you can go hunting on um.

478
00:27:19,480 --> 00:27:22,680
Speaker 1: But so so Carol's Kitchen truly one of the great

479
00:27:22,720 --> 00:27:25,479
Speaker 1: institutions in North Dakota, and they know how to make

480
00:27:25,520 --> 00:27:28,280
Speaker 1: homemade German food. They do. Senator, thank you so much

481
00:27:28,320 --> 00:27:31,560
Speaker 1: for joining us today. He is a Senator from North Dakota.

482
00:27:31,680 --> 00:27:33,680
Speaker 1: Kevin Kramer here on the day of the death of

483
00:27:33,720 --> 00:27:37,240
Speaker 1: the senator from Virginia. Truly, he was a Senator from Virginia.

484
00:27:37,720 --> 00:27:46,080
Speaker 1: John Warner right now over to fix income Marca. John

485
00:27:46,160 --> 00:27:49,080
Speaker 1: was looking forward to Kathy Jones or Schwab joining us today.

486
00:27:49,200 --> 00:27:52,000
Speaker 1: Kathy worked from home, and we've just got to understand

487
00:27:52,160 --> 00:27:54,920
Speaker 1: right now that it is too trophy taking and the

488
00:27:55,000 --> 00:27:58,840
Speaker 1: pandemic pianos. There is the Kathy Jones piano shot, and

489
00:27:58,920 --> 00:28:02,240
Speaker 1: there's a Stephen King over at HSBC piano shot. And

490
00:28:02,320 --> 00:28:03,960
Speaker 1: for those of you on radio, all you need to

491
00:28:04,000 --> 00:28:07,200
Speaker 1: know is MS Jones is fabulous and piano and she

492
00:28:07,400 --> 00:28:10,560
Speaker 1: is a gorgeous is a Steinway, Cathy, You've got behind

493
00:28:10,640 --> 00:28:16,600
Speaker 1: you nine thirteen Steinway Major Jermy. Okay, So that can

494
00:28:16,640 --> 00:28:19,160
Speaker 1: take us, John back to the Dow Jones industrial average

495
00:28:19,200 --> 00:28:22,959
Speaker 1: and where it was a hundred twenty five years ago. Cathy,

496
00:28:23,160 --> 00:28:27,880
Speaker 1: explain why yields are lower? Well, I think a couple

497
00:28:27,960 --> 00:28:32,320
Speaker 1: of things. We've seen some of the commodity prices come

498
00:28:32,359 --> 00:28:36,000
Speaker 1: off the boil recently. We've seen um some of the

499
00:28:36,280 --> 00:28:39,840
Speaker 1: indicators that were just skyrock things start to roll over

500
00:28:40,040 --> 00:28:42,200
Speaker 1: just a little bit. You know, the markets moved up

501
00:28:42,280 --> 00:28:45,120
Speaker 1: over hundred basis points from the lows last summer so

502
00:28:45,440 --> 00:28:48,440
Speaker 1: I think this is a consolidation. And frankly, the talk

503
00:28:48,520 --> 00:28:53,640
Speaker 1: about tapering canny interpreted as bullish for bonds. So if

504
00:28:53,640 --> 00:28:57,680
Speaker 1: you think back to two thousand fourteen, everybody remembers a

505
00:28:57,760 --> 00:29:02,840
Speaker 1: taper tantrum when nels shot up on talking about QUI ending,

506
00:29:03,320 --> 00:29:07,080
Speaker 1: but when q we actually ended, when they actually papered yields. Well,

507
00:29:07,560 --> 00:29:09,680
Speaker 1: so if you look at it as the first step

508
00:29:09,760 --> 00:29:13,000
Speaker 1: towards tightening, you know, it isn't surprising to me that

509
00:29:13,120 --> 00:29:15,080
Speaker 1: yields have come off a little bit. Can you imagine

510
00:29:15,080 --> 00:29:17,480
Speaker 1: a scenario where this continues, then, Kathy, would that be

511
00:29:17,560 --> 00:29:20,040
Speaker 1: your base case that the removal of QUI will lead

512
00:29:20,080 --> 00:29:24,520
Speaker 1: to lower yields? No, I think we put q V aside. Frankly,

513
00:29:24,680 --> 00:29:28,040
Speaker 1: I think on the margin it's somewhat there should allow

514
00:29:28,160 --> 00:29:30,760
Speaker 1: yields to rise, But I think the more important driver

515
00:29:31,120 --> 00:29:33,680
Speaker 1: is where is the economy going, where's inflation going? And

516
00:29:34,120 --> 00:29:37,680
Speaker 1: the big difference between now and say after the financial

517
00:29:37,800 --> 00:29:41,040
Speaker 1: crisis is we have huge fiscal stimulus and we didn't

518
00:29:41,080 --> 00:29:44,880
Speaker 1: have that the last time around. We've been much quicker

519
00:29:45,000 --> 00:29:47,640
Speaker 1: to bounce back and close that output gap. So I

520
00:29:47,800 --> 00:29:50,320
Speaker 1: think that yields do continue to move higher from here,

521
00:29:50,640 --> 00:29:53,080
Speaker 1: but I'm not sure that it's driven by que or

522
00:29:53,120 --> 00:29:57,000
Speaker 1: anything else other than the economy and inflation and inflation

523
00:29:57,120 --> 00:30:00,200
Speaker 1: expectations continuing to run pretty strong within the bright town

524
00:30:00,240 --> 00:30:02,360
Speaker 1: of any given yield right now, Kathy, when you look

525
00:30:02,360 --> 00:30:05,160
Speaker 1: at inflation expectations real yields, is it real yields that

526
00:30:05,200 --> 00:30:07,360
Speaker 1: needs to adjust a little bit more And what kind

527
00:30:07,360 --> 00:30:11,920
Speaker 1: of adjustment you anticipating? Yeah, that's the kind under right now.

528
00:30:12,000 --> 00:30:15,280
Speaker 1: I'm not really sure that why really yields are as

529
00:30:15,320 --> 00:30:19,440
Speaker 1: low as they are. Um Partly, I think inflation expectations

530
00:30:19,480 --> 00:30:23,080
Speaker 1: have run up pretty rapidly and anticipation of more inflation.

531
00:30:23,560 --> 00:30:25,520
Speaker 1: But I do think real yields have to come back.

532
00:30:25,720 --> 00:30:28,000
Speaker 1: So that's one reason we expect you'lds to go back

533
00:30:28,080 --> 00:30:30,320
Speaker 1: up on the tenure to two two and a half

534
00:30:30,360 --> 00:30:34,040
Speaker 1: percent potentially. I think, really you'lls have to adjust if

535
00:30:34,080 --> 00:30:36,160
Speaker 1: we're going to have real growth in the economy, which

536
00:30:36,240 --> 00:30:39,160
Speaker 1: is which is what we have, Kathy, how high can

537
00:30:39,240 --> 00:30:43,160
Speaker 1: benchmark treasury yields go before disrupting financial markets enough to

538
00:30:43,280 --> 00:30:46,440
Speaker 1: create this feedback loop to send people back to safe havens.

539
00:30:48,560 --> 00:30:51,920
Speaker 1: Great question. I'm not a dent sure that I have

540
00:30:52,080 --> 00:30:54,160
Speaker 1: the right answer to that, But I think what we

541
00:30:54,280 --> 00:30:57,240
Speaker 1: need is what we would probably need to see is

542
00:30:57,320 --> 00:31:00,120
Speaker 1: kind of that um not only to see you two

543
00:31:00,160 --> 00:31:02,680
Speaker 1: and a half percentage on the tenure, but start to

544
00:31:02,720 --> 00:31:04,680
Speaker 1: see the value of the curve move a bit more.

545
00:31:04,720 --> 00:31:07,120
Speaker 1: It started to move of just a little bit um,

546
00:31:07,160 --> 00:31:09,680
Speaker 1: but you start to get the three year, five year,

547
00:31:09,760 --> 00:31:13,480
Speaker 1: et cetera moving up. Then the overall cost of capital

548
00:31:13,560 --> 00:31:18,160
Speaker 1: starts to don't really higher because then the refinancing that's

549
00:31:18,200 --> 00:31:20,720
Speaker 1: taking place five years out on the curve starts to

550
00:31:20,760 --> 00:31:24,240
Speaker 1: get more expensive. Cathy, are you going more into risk

551
00:31:24,320 --> 00:31:26,360
Speaker 1: your credit with the hope and the expectation that the

552
00:31:26,400 --> 00:31:30,880
Speaker 1: Federal Reserve will backstop markets enough to allow these credits

553
00:31:30,920 --> 00:31:33,720
Speaker 1: to continue to pay out bigger coupons giving you the

554
00:31:33,760 --> 00:31:38,520
Speaker 1: returns regardless of deteriorating credit quality. Should that happen, now,

555
00:31:38,880 --> 00:31:41,800
Speaker 1: I know it's again a comemdrum in the high yield market.

556
00:31:41,960 --> 00:31:44,320
Speaker 1: This is a great environment for high yield because you

557
00:31:44,480 --> 00:31:47,960
Speaker 1: have all those fiscus stimulus, you have pretty easy monetary policy,

558
00:31:48,240 --> 00:31:50,400
Speaker 1: have the backstop from the Fed, which I think is

559
00:31:50,760 --> 00:31:54,040
Speaker 1: winding its way down, and you have some upgrades. Right

560
00:31:54,120 --> 00:31:56,480
Speaker 1: as the economy has improved and seeing some upgrades The

561
00:31:56,560 --> 00:31:59,640
Speaker 1: problem is high yields can a price for perfection to

562
00:31:59,760 --> 00:32:03,320
Speaker 1: take totally like trickle cs, and so we wouldn't be

563
00:32:03,440 --> 00:32:06,560
Speaker 1: really aggressive in that part of the credit market because

564
00:32:06,640 --> 00:32:08,240
Speaker 1: I think at the stage of the game, you know,

565
00:32:08,360 --> 00:32:12,240
Speaker 1: we'll adjust to more greater reality that some of these

566
00:32:12,320 --> 00:32:15,960
Speaker 1: companies aren't that aren't that solid, Kathy. What will be

567
00:32:16,120 --> 00:32:19,920
Speaker 1: the market reaction is the real yield migrates to zero

568
00:32:20,200 --> 00:32:22,600
Speaker 1: give us a I mean, I think Schwab is such

569
00:32:22,680 --> 00:32:26,440
Speaker 1: a expanse of what money flow will do. How will

570
00:32:26,640 --> 00:32:30,960
Speaker 1: flows in fixed income change is we're shocked by a

571
00:32:31,080 --> 00:32:36,600
Speaker 1: move to zero percent inflation adjusted yield. Well, you know,

572
00:32:36,880 --> 00:32:39,640
Speaker 1: if I just look at where our investors are, particularly

573
00:32:39,720 --> 00:32:43,040
Speaker 1: our retail clients, but even the more institutional clients, they're

574
00:32:43,160 --> 00:32:46,040
Speaker 1: hoping for higher yields, and they're certainly hoping for higher

575
00:32:46,120 --> 00:32:50,840
Speaker 1: real yields to extenduration. So I would expect that as

576
00:32:50,880 --> 00:32:53,200
Speaker 1: we see yields to move up, if we're right about that,

577
00:32:53,400 --> 00:32:58,720
Speaker 1: we'll start to see more investor flows into longer David bonds.

578
00:32:59,080 --> 00:33:01,320
Speaker 1: I haven't seen much of that recently because they're still

579
00:33:01,360 --> 00:33:04,400
Speaker 1: pretty low, but I think that as fields move up,

580
00:33:04,680 --> 00:33:07,240
Speaker 1: will definitely see it blows in that direction. You know,

581
00:33:07,320 --> 00:33:11,120
Speaker 1: people are nervous enough about risky assets. If they want something,

582
00:33:11,200 --> 00:33:13,480
Speaker 1: talk set it. If you've got positive really gields and

583
00:33:13,600 --> 00:33:17,720
Speaker 1: bonds um, definitely, I think move move in that direction.

584
00:33:18,000 --> 00:33:20,760
Speaker 1: Canthy always get ahead from you. Thank you, Canthy Jones

585
00:33:20,800 --> 00:33:23,480
Speaker 1: that to have sense of a financial research chief fixed

586
00:33:23,520 --> 00:33:27,959
Speaker 1: account strategies. This is the Bloomberg Surveillance Podcast. Thanks for listening.

587
00:33:28,400 --> 00:33:31,680
Speaker 1: Join us live weekdays from seven to ten am Eastern

588
00:33:31,960 --> 00:33:35,960
Speaker 1: on Bloomberg Radio and on Bloomberg Television each day from

589
00:33:36,080 --> 00:33:41,280
Speaker 1: six to nine am for insight from the best in economics, finance, investment,

590
00:33:41,480 --> 00:33:46,440
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

591
00:33:46,560 --> 00:33:50,400
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

592
00:33:50,520 --> 00:33:54,600
Speaker 1: the terminal. I'm Tom Keene and this is Bloomberg