Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along
Speaker 1: with Jonathan Ferroll and Lisa Brownwitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com,
Speaker 1: and of course, on the Bloomberg Terminal. So this Morning
Speaker 1: with Francie Lacuai featured one of the great market calls
Speaker 1: of all time, David mal Past years ago at bear
Speaker 1: Stearns screaming about the end of the end of deflation
Speaker 1: in Japan. It was one of the truly great calls
Speaker 1: of the early part of the last decade. He is
Speaker 1: now President of the World Bank. David mel Past joins
Speaker 1: us this morning. David, you have always been one to say,
Speaker 1: let markets act. The market for menu factured vaccines is
Speaker 1: out there. Is it a legitimate market or is it
Speaker 1: held up now by politics? Is so many nations are
Speaker 1: desperate for vaccination. Hi, Tom, they are desperate, and I
Speaker 1: think it's really important that the countries that have excess
Speaker 1: free up those excess so they can go to countries
Speaker 1: which have vaccination programs. It's important to do that. Matching
Speaker 1: between the halves and the ones that are ready to
Speaker 1: actually put shots in arms. We have World Bank has
Speaker 1: will have fifty countries by mid year that are ready
Speaker 1: with with the personnel standing by, ready to put shots
Speaker 1: in arms if the world will only let the vaccines flow.
Speaker 1: So it's not really a market. It's controlled a lot
Speaker 1: by the various governments and the options that they took out.
Speaker 1: That was good because it got supply going, but now
Speaker 1: there's a chance to really distribute the supply worldwide. Who
Speaker 1: is your most important phone call to Washington or to
Speaker 1: London to get this done. I've talked with the US administration.
Speaker 1: There's several different parts of the administration. There's UH, there's
Speaker 1: the the NSC, and the there's the HHS, the Health
Speaker 1: and Human Services Department, and so it's I think there's
Speaker 1: there's got to be a consensus within the US that
Speaker 1: there is sufficient supply and therefore it can be released.
Speaker 1: And I emphasize to countries that have programs in place.
Speaker 1: You saw the New York Times article I guess yesterday
Speaker 1: which described the waste that's going on for some of
Speaker 1: the distribution outlets. They go to countries that can't use it,
Speaker 1: and then the vaccines are burned because they've they've expired,
Speaker 1: So we want to avoid that and actually get people
Speaker 1: vaccinated that have systems in place. I repeat. The World
Speaker 1: Bank has fifty programs UH will will have uh nearly
Speaker 1: four billion dollars more than four billion dollars ready to
Speaker 1: pay if someone needs money to facilitate and importantly, the
Speaker 1: money can go to actual deployment within countries so that
Speaker 1: they can they can vaccinate we hope hundreds of millions
Speaker 1: of people. Meanwhile, the US has actually started to release
Speaker 1: much more vaccine to other nations that are in need recently.
Speaker 1: How much has a distribution. The increased distribution from the
Speaker 1: US and other companies other countries forestalled the emerging markets
Speaker 1: crisis the World Bank has been seeing brewing. It's important
Speaker 1: to note what the delivery schedules for those vaccines are
Speaker 1: and to know if they're going into countries that are
Speaker 1: prepared to receive the vaccines and actually and actually UH
Speaker 1: deploy them, you know, put shots in arms. UH. And
Speaker 1: one of the one of the big challenges in the
Speaker 1: developing countries really worldwide is the hesitancy. Some people don't
Speaker 1: want to don't want to be vaccinated, So one of
Speaker 1: the things we're doing in in our in client countries
Speaker 1: is have a communications effort by the country to encourage
Speaker 1: people to be vaccinated. That's going to say of lives
Speaker 1: UH and it also brings the economies back on stream.
Speaker 1: So it's important to be vaccinated and to have a
Speaker 1: program of vaccination in these countries. I don't know where
Speaker 1: the us UH supplies are going, and I think you know,
Speaker 1: I've called for much greater transparency in terms of the
Speaker 1: supply we have. The World Bank has put up a
Speaker 1: major website that shows all of our program documents. You know,
Speaker 1: it takes a lot of preparation for countries to actually
Speaker 1: show they can vaccinate. So each of the documents is
Speaker 1: you know, as much as fifty pages describing who will
Speaker 1: do the vaccinations, what the what the system within each
Speaker 1: country is in order to do it fairly, and how
Speaker 1: how they'll be paid for, how the costs will be
Speaker 1: paid for. So I've encouraged others to do that to
Speaker 1: the transparency is important, David. This is a sensitive question.
Speaker 1: There's a question of which vaccine which countries actually receive,
Speaker 1: and it comes as independent studies show that, for example,
Speaker 1: Chinese vaccines have not been as efficacious as those created
Speaker 1: by Visor and MODERNA. Is the World Bank placing an
Speaker 1: emphasis on the type of vaccine, the brand of vaccine
Speaker 1: that is received and given it to specific countries, or
Speaker 1: is it any vaccine treated equally. They need to be
Speaker 1: w h O approved or approved by a by a
Speaker 1: a regulatory agency the US, Europe, Japan, UH and there's
Speaker 1: only a few that have been approved. But but one
Speaker 1: thing I emphasize is most of the vaccines are better
Speaker 1: than not being vaccinated, and so that's important. Are initially
Speaker 1: in our in our in our January and February programs, UH,
Speaker 1: it was it was mostly Visor and MODERNA and we're
Speaker 1: still we're still using that. But it's very important that
Speaker 1: Astra Zeneca, that Johnson and Johnson, that the Chinese vaccine,
Speaker 1: even which has now been approved at least initially by
Speaker 1: w h O, are available and when ctly. Our programs
Speaker 1: allow different vaccines to be distributed in different parts of
Speaker 1: a country. Rural areas may want a different vaccine than
Speaker 1: hospitals and made your cities, and we've described that in
Speaker 1: our programs. That's a really important part of getting the
Speaker 1: job done properly. So we're able to accept and use
Speaker 1: all of those that I mentioned. Uh, and there will
Speaker 1: be more, which is which is great. Uh. And we
Speaker 1: can also acquire or receive vaccines through kovacs the International Consortium,
Speaker 1: if it has supplied. That's been one of the challenges
Speaker 1: and that was discussed in the New York Times article yesterday. David.
Speaker 1: That's an important distinction. And as always we appreciate your time.
Speaker 1: You're often generous with it, So thank you, David Malpas
Speaker 1: that the World Bank President how Would Walked, joined us
Speaker 1: now compaty fun Sea of growth equities. Howard, what an
Speaker 1: important transition point for this economy is You've pointed out
Speaker 1: pink growth is here potentially and we're about to make
Speaker 1: this transition from recovery to expansion. How it is a
Speaker 1: market participant? How do you think about that dynamic? Hevin Polton?
Speaker 1: Is it? Well, first of all, it's been I think
Speaker 1: you have to say that we can argue about the
Speaker 1: amount of stimulus, what the Feds done and all the spending,
Speaker 1: but it's been very successful. The economy is rip roaring,
Speaker 1: and this is the quarter where we will transition from
Speaker 1: recovery to expansion, and we don't know the exact data
Speaker 1: on then maybe it's today. Maybe we expansion has just
Speaker 1: begun this morning. I don't know, but uh, the outlook
Speaker 1: remains sterling. In terms of growth. You're looking at six
Speaker 1: percent plus growth this year. We haven't seen that in
Speaker 1: this country since after last year we had negative three
Speaker 1: and a half percent growth, the worst growth since nine
Speaker 1: and next year we're looking for a slowdown to aout
Speaker 1: four percent. We haven't even had that for twenty years.
Speaker 1: And so the stimulus and the reopening in the economy
Speaker 1: is providing a tremendous lift. And I do think you
Speaker 1: were talking about the bank lending earlier. I do think
Speaker 1: you're going to see the demand for lawns pick up.
Speaker 1: It has to, given what's going on in the general economy. Howard,
Speaker 1: were you talk about the rocky road ahead. We had
Speaker 1: a lovely move here coming out of this expansion, and
Speaker 1: you are enthusiastic, But you talk about a grind and
Speaker 1: you talk about a rocky tape. What I n if
Speaker 1: I'm enjoying a rocky tape day to day? Well, I
Speaker 1: would first of all just make the point that typically
Speaker 1: in the second year after you get the big advance
Speaker 1: in the market coming off the bottom, that second year
Speaker 1: usually is much more muted, you know, think returns in
Speaker 1: the sort of eight to twelve percent range, not range.
Speaker 1: And if you went back and compared the current trajectory
Speaker 1: of the market to what happened coming out of the
Speaker 1: oh nine bottom, we've been following that path very closely.
Speaker 1: And if we do continue to follow that path or
Speaker 1: that script, then we will have a hiccup or two
Speaker 1: in the next six months, because in two thousand and ten,
Speaker 1: after a surging market in two thousand and nine, that's
Speaker 1: exactly what happened. Now that market is still close higher
Speaker 1: in two thousand and ten, and I think it will
Speaker 1: be nicely higher this year. Uh, particularly so because I
Speaker 1: think even more so than in two thousand and ten.
Speaker 1: Earnings outlook is is truly uh remarkable, to say the least,
Speaker 1: because the while the consensus earnings expectations would be for
Speaker 1: growth of about thirty this year and next year, so
Speaker 1: two dollars on the SMP this year, two oh five,
Speaker 1: two oh six next year. Tom if you look at
Speaker 1: the first quarter earnings that have been reported, the annualized
Speaker 1: runway on those is around two hundred dollars. So that
Speaker 1: would suggest that the consensus earnings numbers for both this
Speaker 1: year and next year are materially lower that can be
Speaker 1: substantially higher, and so I do think that, Yeah, I
Speaker 1: think we're gonna have a rocky tape. We've seen that
Speaker 1: a little bit. Rates are are and should be grinding
Speaker 1: higher in tangent with an economy this strong and with
Speaker 1: some heightened inflationary fears. And it's going to be that
Speaker 1: grinding higher interest rates that creates the rocky tape. But
Speaker 1: beyond that, the outlook at mean is very positive. I
Speaker 1: would not be too cute in trying to trade this market.
Speaker 1: It's too early to turn your back on this school market.
Speaker 1: Just real quick here, I'm wondering what is priced in,
Speaker 1: certainly to US equities at this point, given the fact
Speaker 1: that Janie Henderson just upgraded their forecast for global dividend
Speaker 1: payments to one point three six trillion dollars this year,
Speaker 1: the third highest on record, Well, there's a lot priced in,
Speaker 1: and and so you're talking if you looked at those
Speaker 1: consensus numbers and markets, you know, twenty three or so
Speaker 1: times for twelve month earnings historically, you know, for example,
Speaker 1: in two thousand nineteen, when rates were in the low
Speaker 1: two percent range, on the tenure, you had the marketed
Speaker 1: around sixteen and a half times fuller learnings, So there's
Speaker 1: a pretty big gap there. And uh, we should be
Speaker 1: returning to an environment over the next six to twelve
Speaker 1: months where that tenure yield us back in that two
Speaker 1: and a quarter to two and a half percent range.
Speaker 1: That's that's my opinion. And so if you go back
Speaker 1: to that range, that should call, you know, maybe for
Speaker 1: some pressure on equity prices. But but I'll have to
Speaker 1: go back to my comment on earnings. If we earned
Speaker 1: over two hundred dollars this year and to maybe even
Speaker 1: to thirty five next year. Uh, and interest rates are
Speaker 1: moving higher, who's gonna want to own anything but stocks?
Speaker 1: You know, bonds that are going to be negative returns.
Speaker 1: The last twelve months, bonds went nowhere bonsibly negative stocks
Speaker 1: are really the only game in town. And so I
Speaker 1: think that people have to bear that in mind. We
Speaker 1: could be getting a lot of money coming out of
Speaker 1: both cash where a lot of money went during the
Speaker 1: last twelve months, both cash as well as fixed income
Speaker 1: in order to fuel continue games and are a lot
Speaker 1: of money still that how we got a lady that
Speaker 1: how it will that abuty fund seat of growth, Sancuty.
Speaker 1: What we're doing economics is we have death siles ten
Speaker 1: of the American public, say is one estimation. Jared Bernstein
Speaker 1: is expert at the analysis, the breaking apart, the slicing
Speaker 1: dicing of those death siles, those one tenths of the
Speaker 1: American public. He is with the White House Council of
Speaker 1: Economic Advisors and has been a lead advisor to the
Speaker 1: President of the United States for over a decade. Dr Bernstein,
Speaker 1: thank you so much for joining us today. Do you
Speaker 1: have an understanding now about which death siles have been
Speaker 1: advantaged by this historic fiscal stimulus? Who's benefited? Yeah, I know,
Speaker 1: it's a great question. One of the things you see
Speaker 1: when the job market tightens up, and this has been
Speaker 1: a theme of my work for decades, is that those
Speaker 1: in the bottom half we be the bottom I've deciles,
Speaker 1: if you want to stick to that metric, um UH
Speaker 1: benefit disproportionately. When the job market tightens up. You see
Speaker 1: the black unemployment rate come down faster. In those situations,
Speaker 1: you see the wages of low wage workers get a
Speaker 1: bigger pop. They're just a lot more sensitive to the
Speaker 1: kinds of bargaining power benefits that come from a full
Speaker 1: employment economy, so heading back the full employment as quickly
Speaker 1: as possible is one of the goals of our of
Speaker 1: our fiscal policy, and the American Rescue Plan is clearly
Speaker 1: helping to pull the recovery forward. Not unlike comments I've
Speaker 1: heard on your show this very morning, the kind of
Speaker 1: outcomes that you'd expect maybe later on the psycho charity,
Speaker 1: you starting to see them develop a little bit earlier
Speaker 1: than anticipated. I'm sorry, what were you asking about in
Speaker 1: terms of the outcomes you'd expect in the labor market
Speaker 1: later on in the cycle, which is when you really
Speaker 1: really start to erode some of the slack. Are you
Speaker 1: starting to see some of those symptoms earlier in the cycle.
Speaker 1: We're starting to see them now, as as to say
Speaker 1: several years down the line. I think you're seeing a few,
Speaker 1: but it's more anecdotal and scattered. It really hasn't shown
Speaker 1: up in the data yet. If you look at the
Speaker 1: wage data adjusted for compositional effects, you see some promising
Speaker 1: hints here and there, and you certainly hear anecdotal wage
Speaker 1: offers that are getting a bump. I do think lower
Speaker 1: wage workers have some bargaining power based on these dynamics
Speaker 1: that we've been talking about. But remember, we still have
Speaker 1: a highly elevated unemployment rate north of six percent. For blacks,
Speaker 1: the unemployment rate is nine point seven percent, So we
Speaker 1: still have a long way to go. But yeah, we're
Speaker 1: we're seeing some hints in that regard, and I like
Speaker 1: the way you teed it up, John, which is eroding slack.
Speaker 1: That's precisely that that's just so important to middle and
Speaker 1: low wage workers at the moment. There's another dynamic that
Speaker 1: has become very political Charitis. I'm sure you'll appreciate more
Speaker 1: than twenty Republican states, the governors have basically gotten rid
Speaker 1: of the extra additional unemployed and insurance. What do you
Speaker 1: think the consequence of that decision will be in the day, Sat,
Speaker 1: that would expect to see in the coming month, coming
Speaker 1: complements deeper into sum up. Yeah, it's it's it's a
Speaker 1: it's a good question. And and here's you know, one
Speaker 1: of the natural experiments that economists love to tap um.
Speaker 1: And we're we're definitely concerned about taking off enhanced unemployment
Speaker 1: benefits too soon. Every state's going to act on its own,
Speaker 1: and obviously, economic conditions differ across states. The President has
Speaker 1: leaned into this pretty firmly, saying that, you know, people
Speaker 1: who are offered a suitable, safe job need to take it.
Speaker 1: That's part of the rules of the unemployment insurance system.
Speaker 1: But this system has been so important to helping workers,
Speaker 1: not just the standard based system, but also the added
Speaker 1: enhanced benefits for workers who are less connected to unemployment
Speaker 1: because maybe they're gig workers, are self employed, and so
Speaker 1: it's really helped people get through the recovery, gets i'm sorry,
Speaker 1: get through the crisis to the other side. And along
Speaker 1: with the distribution of the vaccine, it's been one of
Speaker 1: the more important parts, you know, shots and arms, checks
Speaker 1: and pockets. That's been part of the formula. Jared, do
Speaker 1: you see the enhanced unemployment benefits as being a template
Speaker 1: or serving as a template going forward for some sort
Speaker 1: of universal basic income, especially if the participation rate continues
Speaker 1: to fall as it has over recent decades. You know,
Speaker 1: it's a fair question. I would probably say the direct
Speaker 1: impact payments are the checks are closer to that than
Speaker 1: the UI the unemployment insurance payments. I mean, unemployment insurance
Speaker 1: is just that it's a specific insurance program, a safety
Speaker 1: net for people who lose their jobs. And it's one
Speaker 1: that those course has been in place for many, many decades.
Speaker 1: It's proved to be an extremely important countercyclical force. I
Speaker 1: do think the system needs work, and the administration is
Speaker 1: very committed to doing that. If you listen to the
Speaker 1: President's discussion of making sure that the next time we
Speaker 1: hit it down trip we hit it with the with
Speaker 1: with the UI system, that's that's more ready for that.
Speaker 1: That that I think is an important part of our
Speaker 1: kind of policy infrastructure, that that that we're we're committed
Speaker 1: to working on dr pruting. I want you to speak
Speaker 1: to a small business out there that is petrified of
Speaker 1: what they see from fancy, big corporations of fifteen dollars
Speaker 1: an hour, seventeen dollars an hour and up and up wages.
Speaker 1: I want you to study David Card and the wonderful
Speaker 1: Alan Krueger and the arch fear that if we raise
Speaker 1: those low minimum wages, all the other wages come up
Speaker 1: with it. What's your evidence on that study? Yeah, So
Speaker 1: this is a very consistent finding around minimum wage increases.
Speaker 1: So that if if the minimum wage goes up, many
Speaker 1: studies have found that there are spillover effects that give
Speaker 1: a bump to workers right above that minimum wage level. Again,
Speaker 1: as I mentioned earlier, we are we are seeing increases
Speaker 1: in low wage offers, uh. And I think that's really
Speaker 1: important to people who are coming back into the labor market.
Speaker 1: Think of it as a price signal. You know, I
Speaker 1: was thinking of you the other day, Tom, because I
Speaker 1: was sort of thinking of this in my head, and
Speaker 1: I'm what I thought was kind of a Keenian way,
Speaker 1: which was sort of like Cane's meets Highak. You know,
Speaker 1: the idea that the stimulus both on the fiscal and
Speaker 1: monetary side, really relief on the fiscal and monetary side,
Speaker 1: and you know, the the uh, the monetary policy uh
Speaker 1: also also helping to move the recovery forward. You've got
Speaker 1: price signals. You've got price signals. You've got price signals
Speaker 1: that are that are that are pulling workers back into
Speaker 1: the labor force. You've got the vaccine out there, fifty
Speaker 1: percent of adults vaccinated, way ahead of our schedule. And
Speaker 1: I think those are all very promising developments. I mean,
Speaker 1: he does this right at the end of the interview,
Speaker 1: John Ferroll. I mean, Dr Burnstein has set this up huge.
Speaker 1: You're gonna come back. Dr Burnstein. And I don't mean
Speaker 1: on jobs today. We love day have you with John
Speaker 1: on jobs? Say, after the report, you've got to come
Speaker 1: back and we've got to talk about the information that's
Speaker 1: out there that we can't see. We gotta go on
Speaker 1: the edge of Joe Stigler and you know the others
Speaker 1: of the information. Just because he said he was thinking
Speaker 1: of you want him back, I only wanted he was thinking, Jared,
Speaker 1: do you look at the dal Jones industrial average? Yeah,
Speaker 1: I've heard about that. When you're in the Here's the thing.
Speaker 1: When you're in the White House, you're you're very careful
Speaker 1: not to react every blip in any index, you know,
Speaker 1: minute to minute or day to day. Much more heads down,
Speaker 1: keep recovery going, deliver the goods to the middle class.
Speaker 1: I think that that's a very diplomatic accounts of that. Yeah,
Speaker 1: it's always think, always going to get you on the show.
Speaker 1: Thank you, sir, besting that house trying to us right now,
Speaker 1: and I am going to rip up the script here
Speaker 1: and I can do that. Of course with the gentleman
Speaker 1: from the Dakota is Kevin Kramer is with orth Dakota,
Speaker 1: I've always got to keep my Dakota is careful here,
Speaker 1: gonna be careful what I do. Senator Kramer, I want
Speaker 1: to stop for a moment for you to speak of
Speaker 1: the symbolism of your Republican Party and the path from
Speaker 1: John Warner dying today at ninety four over to the
Speaker 1: modern Republican party you have identified. I love the idea
Speaker 1: that I think, like Lincoln, you lost your first three elections.
Speaker 1: Tell me how your GOP keeps the Republicans like John
Speaker 1: Warner and frankly, Senator Deportment of Ohio in the full
Speaker 1: how do you keep these liberal Republicans in the party? Well, no,
Speaker 1: thanks for the question. Actually, you know, pragmatism works, and
Speaker 1: I think that one of the things that Donald Trump
Speaker 1: brought to the Republican parties he brought the working class
Speaker 1: Americans to the Republican Party. I think at the end
Speaker 1: of his four years, one of the things we lost
Speaker 1: perhaps are not so much moderates as as probably that
Speaker 1: the polite uh, you know, moderates if you will, um
Speaker 1: certainly the suburban suburban women for example. All of that said,
Speaker 1: I think that we we take the Trump mantra, and
Speaker 1: that is to say, the more um less globalist but
Speaker 1: on America first, globalism, a populism, conservatism, and apply it
Speaker 1: in a gentler way, not not not shyly, by the way,
Speaker 1: but I think we have the right governing philosophy to
Speaker 1: be a majority party. And I just think that. And
Speaker 1: and the other thing is this, quite honestly, Joe Biden
Speaker 1: is going to help us immensely if we can get
Speaker 1: out of our own way and keep highlighting the you know,
Speaker 1: the Biden agenda, which includes everything from destroying American energy
Speaker 1: while building up Iran and in Saudi Arabia and Russian energy. Uh,
Speaker 1: if we talk about, you know, putting so much money
Speaker 1: into the marketplace, um that we create hyper inflation, and
Speaker 1: all the other stuff, the border crisis, what's going on
Speaker 1: in the Middle East, his lack of attention to the
Speaker 1: really big issues. You know, there's nothing like a common
Speaker 1: opponent to help unite people. But I do think our
Speaker 1: own message, to your point, needs to be the Trump
Speaker 1: message delivered in a way that people are listening, and
Speaker 1: the lessons learned of losing the presidency, losing the House,
Speaker 1: losing the Senate. Granted, these are by all small numbers.
Speaker 1: In two thousand twenty two, beccons, how do you coalesced
Speaker 1: the GOP on social issues so removed from the core
Speaker 1: Trump constituency, and I might say social issues that Senator
Speaker 1: Warner of Virginia lead with through the seventies and the eighties. Yeah.
Speaker 1: So I think there's a couple of things. On one
Speaker 1: is we're seeing a trend that actually does benefit us,
Speaker 1: a demographic trend, and that is the Hispanic Americans are
Speaker 1: coming for our way, and they came more our way
Speaker 1: under Donald Trump. They became our our way because of
Speaker 1: Donald Trump because they identified more as a working class
Speaker 1: Americans than they do as Hispanic Americans, which is really
Speaker 1: the heart of the American dream. I think we take
Speaker 1: that same social message and social message that is job
Speaker 1: creation and and pro family. You don't have to apologize
Speaker 1: for being a family. Have to certainly understand the culture
Speaker 1: you live in and and and speak to it. But um,
Speaker 1: I think that we need, you know, we need to
Speaker 1: get back in many cases to our roots, but also
Speaker 1: remembering that the working class American, the forgotten man and woman,
Speaker 1: is still out there and they're still looking for a voice.
Speaker 1: And Donald Trump was that voice. And I think we
Speaker 1: can continue to give, you know, give that voice, but
Speaker 1: at the same time recognizing that the world's a shrinking place.
Speaker 1: And and we also have to remind people that are
Speaker 1: all of this that we cherish so much depends on
Speaker 1: a really strong military. And we have to remind people
Speaker 1: that we didn't used to have a near peerle adversary
Speaker 1: in China, but now we do. Um. You know, the
Speaker 1: Soviet Union broke up, but in many respects is coming
Speaker 1: back in the person. Senator. There's a question of giving
Speaker 1: a voice to the working class Americans, and there's also
Speaker 1: a question of creating the right economic backdrop for them.
Speaker 1: I believe a coalition of Republicans are about to propose
Speaker 1: count to propose a one trillion dollar plan to present
Speaker 1: Biden's infrastructure spending initiative. Do you have a sense of
Speaker 1: what's in it and whether you would sign on to this? Sure? Great,
Speaker 1: great question. Um, I do have some sense of it,
Speaker 1: and I likely would sign on to it. In fact,
Speaker 1: I think I've always thought we could go bigger than
Speaker 1: than we've gone as Republicans while maintaining our philosophy and
Speaker 1: our integrity, and that is a couple of things. So
Speaker 1: I actually am the ranking Republican of the Transportation Infrastructure Subcommittee,
Speaker 1: and we're going to mark up our surface transportation bill today,
Speaker 1: and it's it's been negotiated between the four corners that
Speaker 1: include Tom Carper, Shelley Moore, Capital, Ben Cardon, and myself,
Speaker 1: and and that's going to be a good step in
Speaker 1: the right direction. We can go bigger on that simply
Speaker 1: by adding another year or two to the authorization. One
Speaker 1: of the things that I'd like to see is I'd
Speaker 1: like to see US expand infrastructure. I know Republicans say
Speaker 1: let's keep it to the you know, the hard concrete issues,
Speaker 1: and I'm not against that, but I think when you
Speaker 1: take energy as an example, pipe lines, transmission lines. I
Speaker 1: had a long visit just Friday with Jennifer Granholme in
Speaker 1: the Secretary of Energy and said, the beautiful thing about
Speaker 1: energy infrastructure is it is infrastructure. It does move commerce
Speaker 1: to the marketplace, it does create really high paining jobs,
Speaker 1: it does have a national security implication to it, and
Speaker 1: it doesn't require any spending on the part of the
Speaker 1: federal taxpayer. So I think you can get to a
Speaker 1: trillion dollars by having some simple permitting and regulatory reforms
Speaker 1: that maintain the integrity of our environmental excellence while at
Speaker 1: the same time unleashing the private sector investment. And here's
Speaker 1: the other thing, you guys. By putting more money in
Speaker 1: investment in American energy rather than Iranian and Russian energy,
Speaker 1: you actually help the climate in the environment because we
Speaker 1: produce even fossil fuels with a much lower car footprint
Speaker 1: in other countries do Senator, what's the distinction between going
Speaker 1: even bigger in the proposal that you're talking about and
Speaker 1: the one point seven trillion dollar the dollars plan that
Speaker 1: President Biden is talking about, especially when you talk about
Speaker 1: high inflation rates. Why is the plan that you're proposing
Speaker 1: not gonnagonnite inflation or is the other one? You say, well, yeah,
Speaker 1: because ours doesn't involve more federal spending or more borrowing
Speaker 1: or you know, more printing of money. To the degree
Speaker 1: we can repurpose the fifty billions to a trillion dollars
Speaker 1: it's already been appropriated but won't be spent by the
Speaker 1: end of this fiscal year. That's not new taxes, that's
Speaker 1: not new printing. So that actually puts that that liquidity
Speaker 1: if you will, to work in the marketplace in a
Speaker 1: way that creates jobs and creates an asset that at
Speaker 1: the end has a value and has you know, the
Speaker 1: movement of goods and services throughout the country. So I
Speaker 1: actually think that we do just the opposite by by
Speaker 1: going bigger, as long as we're not printing new money
Speaker 1: or borrowing more money. Senator, the only reason we had
Speaker 1: you on is Lisa A. Bramowitz puts down the German
Speaker 1: skillet at Crolls Diner like nobody in Fargo, North Dakota.
Speaker 1: We're not going to do this in February, but we
Speaker 1: need a surveyor's road trips so Lisa can remember her
Speaker 1: years in Fargo, North Dakota. I'm thinking pheasant hunting, and
Speaker 1: you know, maybe in the autumn September, October, can we
Speaker 1: get that done. We can absolutely get that done. Lisa
Speaker 1: probably knows the perfect guide and and if she doesn't,
Speaker 1: I'll find the best land you can go hunting on um.
Speaker 1: But so so Carol's Kitchen truly one of the great
Speaker 1: institutions in North Dakota, and they know how to make
Speaker 1: homemade German food. They do. Senator, thank you so much
Speaker 1: for joining us today. He is a Senator from North Dakota.
Speaker 1: Kevin Kramer here on the day of the death of
Speaker 1: the senator from Virginia. Truly, he was a Senator from Virginia.
Speaker 1: John Warner right now over to fix income Marca. John
Speaker 1: was looking forward to Kathy Jones or Schwab joining us today.
Speaker 1: Kathy worked from home, and we've just got to understand
Speaker 1: right now that it is too trophy taking and the
Speaker 1: pandemic pianos. There is the Kathy Jones piano shot, and
Speaker 1: there's a Stephen King over at HSBC piano shot. And
Speaker 1: for those of you on radio, all you need to
Speaker 1: know is MS Jones is fabulous and piano and she
Speaker 1: is a gorgeous is a Steinway, Cathy, You've got behind
Speaker 1: you nine thirteen Steinway Major Jermy. Okay, So that can
Speaker 1: take us, John back to the Dow Jones industrial average
Speaker 1: and where it was a hundred twenty five years ago. Cathy,
Speaker 1: explain why yields are lower? Well, I think a couple
Speaker 1: of things. We've seen some of the commodity prices come
Speaker 1: off the boil recently. We've seen um some of the
Speaker 1: indicators that were just skyrock things start to roll over
Speaker 1: just a little bit. You know, the markets moved up
Speaker 1: over hundred basis points from the lows last summer so
Speaker 1: I think this is a consolidation. And frankly, the talk
Speaker 1: about tapering canny interpreted as bullish for bonds. So if
Speaker 1: you think back to two thousand fourteen, everybody remembers a
Speaker 1: taper tantrum when nels shot up on talking about QUI ending,
Speaker 1: but when q we actually ended, when they actually papered yields. Well,
Speaker 1: so if you look at it as the first step
Speaker 1: towards tightening, you know, it isn't surprising to me that
Speaker 1: yields have come off a little bit. Can you imagine
Speaker 1: a scenario where this continues, then, Kathy, would that be
Speaker 1: your base case that the removal of QUI will lead
Speaker 1: to lower yields? No, I think we put q V aside. Frankly,
Speaker 1: I think on the margin it's somewhat there should allow
Speaker 1: yields to rise, But I think the more important driver
Speaker 1: is where is the economy going, where's inflation going? And
Speaker 1: the big difference between now and say after the financial
Speaker 1: crisis is we have huge fiscal stimulus and we didn't
Speaker 1: have that the last time around. We've been much quicker
Speaker 1: to bounce back and close that output gap. So I
Speaker 1: think that yields do continue to move higher from here,
Speaker 1: but I'm not sure that it's driven by que or
Speaker 1: anything else other than the economy and inflation and inflation
Speaker 1: expectations continuing to run pretty strong within the bright town
Speaker 1: of any given yield right now, Kathy, when you look
Speaker 1: at inflation expectations real yields, is it real yields that
Speaker 1: needs to adjust a little bit more And what kind
Speaker 1: of adjustment you anticipating? Yeah, that's the kind under right now.
Speaker 1: I'm not really sure that why really yields are as
Speaker 1: low as they are. Um Partly, I think inflation expectations
Speaker 1: have run up pretty rapidly and anticipation of more inflation.
Speaker 1: But I do think real yields have to come back.
Speaker 1: So that's one reason we expect you'lds to go back
Speaker 1: up on the tenure to two two and a half
Speaker 1: percent potentially. I think, really you'lls have to adjust if
Speaker 1: we're going to have real growth in the economy, which
Speaker 1: is which is what we have, Kathy, how high can
Speaker 1: benchmark treasury yields go before disrupting financial markets enough to
Speaker 1: create this feedback loop to send people back to safe havens.
Speaker 1: Great question. I'm not a dent sure that I have
Speaker 1: the right answer to that, But I think what we
Speaker 1: need is what we would probably need to see is
Speaker 1: kind of that um not only to see you two
Speaker 1: and a half percentage on the tenure, but start to
Speaker 1: see the value of the curve move a bit more.
Speaker 1: It started to move of just a little bit um,
Speaker 1: but you start to get the three year, five year,
Speaker 1: et cetera moving up. Then the overall cost of capital
Speaker 1: starts to don't really higher because then the refinancing that's
Speaker 1: taking place five years out on the curve starts to
Speaker 1: get more expensive. Cathy, are you going more into risk
Speaker 1: your credit with the hope and the expectation that the
Speaker 1: Federal Reserve will backstop markets enough to allow these credits
Speaker 1: to continue to pay out bigger coupons giving you the
Speaker 1: returns regardless of deteriorating credit quality. Should that happen, now,
Speaker 1: I know it's again a comemdrum in the high yield market.
Speaker 1: This is a great environment for high yield because you
Speaker 1: have all those fiscus stimulus, you have pretty easy monetary policy,
Speaker 1: have the backstop from the Fed, which I think is
Speaker 1: winding its way down, and you have some upgrades. Right
Speaker 1: as the economy has improved and seeing some upgrades The
Speaker 1: problem is high yields can a price for perfection to
Speaker 1: take totally like trickle cs, and so we wouldn't be
Speaker 1: really aggressive in that part of the credit market because
Speaker 1: I think at the stage of the game, you know,
Speaker 1: we'll adjust to more greater reality that some of these
Speaker 1: companies aren't that aren't that solid, Kathy. What will be
Speaker 1: the market reaction is the real yield migrates to zero
Speaker 1: give us a I mean, I think Schwab is such
Speaker 1: a expanse of what money flow will do. How will
Speaker 1: flows in fixed income change is we're shocked by a
Speaker 1: move to zero percent inflation adjusted yield. Well, you know,
Speaker 1: if I just look at where our investors are, particularly
Speaker 1: our retail clients, but even the more institutional clients, they're
Speaker 1: hoping for higher yields, and they're certainly hoping for higher
Speaker 1: real yields to extenduration. So I would expect that as
Speaker 1: we see yields to move up, if we're right about that,
Speaker 1: we'll start to see more investor flows into longer David bonds.
Speaker 1: I haven't seen much of that recently because they're still
Speaker 1: pretty low, but I think that as fields move up,
Speaker 1: will definitely see it blows in that direction. You know,
Speaker 1: people are nervous enough about risky assets. If they want something,
Speaker 1: talk set it. If you've got positive really gields and
Speaker 1: bonds um, definitely, I think move move in that direction.
Speaker 1: Canthy always get ahead from you. Thank you, Canthy Jones
Speaker 1: that to have sense of a financial research chief fixed
Speaker 1: account strategies. This is the Bloomberg Surveillance Podcast. Thanks for listening.
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