WEBVTT - Surveillance: Economic Recovery With JPMorgan's Kelly 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.160 Bloomberg dot Com, and of course on the Bloomberg. We 0:00:27.240 --> 0:00:30.440 begin the program with Alan Ruskin of Deutsche Bank. Here's 0:00:30.440 --> 0:00:33.200 a line from Alan. Four you g ten central banks 0:00:33.240 --> 0:00:36.800 have expanded their collective balance sheet by two point seven 0:00:36.920 --> 0:00:40.879 trillion dollars, and two thirds of this comes from one 0:00:40.920 --> 0:00:44.760 central bank alone, the Federal Reserve. Alan, fantastic to catch 0:00:44.840 --> 0:00:47.040 up with you, and brilliant research as always with the 0:00:47.040 --> 0:00:49.680 team over at Deutsche. Just run us through the compare 0:00:49.680 --> 0:00:55.400 and contrast right now between Europe and the US. UM Well, John, 0:00:55.440 --> 0:00:58.800 I think you're absolutely right, you know, to make a 0:00:58.840 --> 0:01:01.560 distinction not only in terms of what's going on in 0:01:01.680 --> 0:01:03.960 terms of monetary policy, but what's going on in the 0:01:04.000 --> 0:01:06.600 fiscal policy. In fact, fiscal policy made it more important. 0:01:06.600 --> 0:01:09.240 But on the monetary policy side, we all knew that 0:01:09.319 --> 0:01:12.280 coming into a crisis, Europe starting off with negative rates 0:01:12.360 --> 0:01:13.839 was not going to be able to do very much. 0:01:14.319 --> 0:01:16.360 That there was a little bit more leeway from the 0:01:16.400 --> 0:01:20.000 Federal Reserve. But it didn't just stop there. Really, we 0:01:20.120 --> 0:01:22.919 also knew that both central banks would get pulled into 0:01:23.040 --> 0:01:27.320 unorthodox policies, notably, you know, expanding their balance sheets, and 0:01:27.880 --> 0:01:30.280 so far, you know, the action has all beyond the 0:01:30.319 --> 0:01:33.880 Federal Reserve side. Perhaps Europe is you know, not really 0:01:34.080 --> 0:01:37.880 come off the quee the way that's que after the 0:01:37.920 --> 0:01:40.400 two thousand and eight crisis, the way the Federal reserved it. 0:01:40.560 --> 0:01:43.640 So um, the Fed you know, was obviously shrinking as 0:01:43.640 --> 0:01:47.400 balance sheet now massively re expanding its balance sheet. But 0:01:47.720 --> 0:01:50.720 you know, it's it's tended to show a few limits. 0:01:50.880 --> 0:01:54.280 It's uh, we know the detail in terms of willingness 0:01:54.360 --> 0:01:57.880 to extend out the credit structures. So the Federal Reserve 0:01:58.000 --> 0:02:01.960 as the world's most important bank, doing everything it can 0:02:02.360 --> 0:02:07.680 to ameliorate what is really seen as the sharpest decline 0:02:07.840 --> 0:02:12.240 in output in modern economic history. Pretty easy at this point, Alan, 0:02:12.280 --> 0:02:15.200 I'm sure you'd agree to identify the differences between the 0:02:15.280 --> 0:02:17.640 United States and Europe. Yet pushing that view through the 0:02:17.680 --> 0:02:21.280 market is actually far more complex. Through the month of April, 0:02:21.440 --> 0:02:23.160 over the last three or four weeks, we've had a 0:02:23.280 --> 0:02:26.240 range on euro dollar of what one oh seven out 0:02:26.240 --> 0:02:29.680 towards one ten one oh nine, pretty tight narrow trading 0:02:29.760 --> 0:02:33.080 range in G ten Allen. Given the differences that you 0:02:33.160 --> 0:02:36.800 see in Europe and the United States, Why yeah, I 0:02:36.800 --> 0:02:39.160 think markets a little bit of fuddled in terms of 0:02:39.200 --> 0:02:43.840 just trying to ascertain, you know, firstly, do you respond 0:02:44.120 --> 0:02:49.320 to the fact that the US is policy measures have 0:02:49.800 --> 0:02:54.240 inevitably expanded UH debt as far as I can see, 0:02:54.280 --> 0:02:57.280 So I think there's a sort of a latent concern 0:02:57.320 --> 0:03:01.880 there about the fiscal deficits and at um. And then 0:03:02.240 --> 0:03:04.480 I think, you know, there are other elements there where 0:03:04.919 --> 0:03:07.720 people are considering what is a labor market response going 0:03:07.760 --> 0:03:11.480 to be like in the US versus Europe, your euros. 0:03:12.360 --> 0:03:15.480 In the US, you're certainly seeing unemployment taking up very, 0:03:15.600 --> 0:03:17.440 very sharply. In Europe, it perhaps is going to be 0:03:17.480 --> 0:03:20.240 a little bit slower. Um. Is that flexibility a good 0:03:20.320 --> 0:03:22.519 or bad thing? The market is confused on that issue. 0:03:22.720 --> 0:03:24.640 And then I think the other element is just you know, 0:03:24.760 --> 0:03:28.040 just the course of this virus. I think there's certainly 0:03:28.080 --> 0:03:31.720 some concern that the US's response is going to be 0:03:32.440 --> 0:03:36.320 trickier going forward, particularly when one state, you know, for example, 0:03:36.920 --> 0:03:41.600 opens and shifts away from lockdowns, another state maybe doesn't, 0:03:41.600 --> 0:03:45.480 but you still have travel between two states. That that 0:03:45.640 --> 0:03:47.920 sort of problem that you have in the United States, 0:03:47.920 --> 0:03:50.440 you're probably not going to have in Europe. So, um, 0:03:50.480 --> 0:03:52.800 I think there's a multitude of different factors the markets 0:03:52.840 --> 0:03:55.800 looking at and they've got bigger fish to fry, as 0:03:55.800 --> 0:03:58.040 it were. I think, you know, particularly in the emerging 0:03:58.080 --> 0:04:00.920 market world. Um, you know current the traders that's really 0:04:00.920 --> 0:04:03.840 seizing on on on trading in that space. Well, that's 0:04:03.920 --> 0:04:05.480 right where I wanted to go, just because the time, 0:04:05.760 --> 0:04:08.760 Alan Ruskin, and to me, the single moment on this 0:04:08.920 --> 0:04:12.200 Friday is Brazil. Brazil's basically got to get the Monday. 0:04:12.560 --> 0:04:15.360 How urgent is it for Brazil to begin to solve 0:04:15.440 --> 0:04:20.320 some of their problems? Um, well, it's been urgent for 0:04:20.360 --> 0:04:23.200 a long time. I think the big issue you faced 0:04:23.200 --> 0:04:25.599 with Brazil and a few other emerging market countries is 0:04:25.640 --> 0:04:30.760 they came into this crisis with a fiscal problem to 0:04:30.800 --> 0:04:34.719 begin with. And there's a long history of course going back, 0:04:34.800 --> 0:04:38.200 you know, now, going back a long way where central 0:04:38.200 --> 0:04:42.600 banks have been asked to effectively financed discore deficits. Um. 0:04:42.640 --> 0:04:46.200 So deficits have not been nessy that easily financed. UM 0:04:46.240 --> 0:04:50.360 And I think that, you know, the history with both 0:04:50.400 --> 0:04:52.400 in terms of the long term and the short term 0:04:53.640 --> 0:04:57.400 is deeply problematic, and usually it's going to resolve itself 0:04:57.440 --> 0:05:00.320 partly in the safety development exists, which is the current arency. 0:05:00.360 --> 0:05:03.160 And that's exactly what we're seeing. Well, that's exactly what 0:05:03.160 --> 0:05:06.159 we're seeing, except that you would expect the dollar to 0:05:06.240 --> 0:05:09.160 weaken then, I mean, you'd expect the dollar to eventually 0:05:09.160 --> 0:05:12.720 weaken if the Federal Reserve is basically monetizing the debts 0:05:12.760 --> 0:05:15.320 of the United States, and that seems by all means 0:05:15.360 --> 0:05:17.880 what it's doing. As it's balance sheet expands by two 0:05:17.920 --> 0:05:21.080 point four trillion dollars since the end of February, why 0:05:21.120 --> 0:05:24.680 are we not seeing a week or dollar Lisa, So 0:05:24.760 --> 0:05:27.320 let me just make a quick distinction between what I 0:05:27.400 --> 0:05:30.239 was saying earlier, which was really related to brasil Um, 0:05:30.240 --> 0:05:34.000 and why the Brazilian realizes, Actually, you know, weakening the 0:05:34.040 --> 0:05:36.640 dollar is a bit of a special case. Um so 0:05:36.680 --> 0:05:41.240 I think, you know, being the major global reserve currency, 0:05:41.360 --> 0:05:46.080 there's some sense there that regardless of some of the 0:05:46.240 --> 0:05:48.760 policies in the short term and perhaps even in the 0:05:48.800 --> 0:05:53.720 longer term, numerous transactions have been done, and they have 0:05:53.839 --> 0:05:59.680 been enormous balance sheet in balances effectively which have resulted 0:05:59.720 --> 0:06:03.560 in liquidity related demand for the dollar. So I think 0:06:03.640 --> 0:06:07.360 what you saw particularly you know three or four weeks back, 0:06:07.760 --> 0:06:11.159 with the dollar had a natural bid because of what 0:06:11.279 --> 0:06:16.440 effectively were bank related in balances. We saw it particularly 0:06:16.440 --> 0:06:20.280 as it related to Japanese banks, to lesser degree European 0:06:20.320 --> 0:06:24.440 banks as well, UM, whereby there was extraordinary demand for dollars. 0:06:24.600 --> 0:06:26.800 And if you actually look at what the Central Bank 0:06:26.880 --> 0:06:29.480 has done, um that you know, these swap lines to 0:06:29.600 --> 0:06:32.479 the b o J, I think it's being utilized extent 0:06:32.600 --> 0:06:35.719 about two billion Europe about a hundred and fifty billion, 0:06:36.080 --> 0:06:40.120 So there has been a strong need for dollar liquidity 0:06:40.240 --> 0:06:43.480 globally um. And without that liquidity, the dollar would have 0:06:43.520 --> 0:06:46.680 been even stronger. Alan, always great to get your thoughts 0:06:46.680 --> 0:06:48.800 on this program, Alan Ruskin, their touts your bank. Hope 0:06:48.800 --> 0:06:51.040 you and yours are doing well. Alan, thank you very 0:06:51.120 --> 0:06:56.880 much for joining us. Let's get a larger global view 0:06:56.920 --> 0:07:00.400 on oil. He is a head of Commodities and Derivative Research, 0:07:00.480 --> 0:07:04.040 Francisco Blanche for the Bank of America. Francisco, as you 0:07:04.120 --> 0:07:07.080 write your research for the weekend, where's the most efficacious 0:07:07.120 --> 0:07:10.040 price of oil right now, I've lost track. Where's the 0:07:10.840 --> 0:07:16.240 good spot for Brent crude to be right now? Well, um, 0:07:16.280 --> 0:07:19.440 I think I mean Thomas. As you pointed out, the 0:07:19.600 --> 0:07:25.640 economic data is so diffical that UH commodities over to hide. 0:07:26.240 --> 0:07:30.920 The commodity markets provide a completely unfiltered view of the 0:07:31.040 --> 0:07:35.920 economic reality that we're facing today, which which is completely unprecedented. 0:07:36.000 --> 0:07:40.080 We've never stopped the world for a few months, um 0:07:40.400 --> 0:07:43.400 out of the seven and UH and and and the 0:07:43.680 --> 0:07:46.800 problem in oil markets just keeps passing from country to country. 0:07:47.200 --> 0:07:51.840 When OPEC decided to cut production a couple of weeks ago, 0:07:52.520 --> 0:07:57.760 the price of the price of of of Dubai and 0:07:57.840 --> 0:08:01.480 coment grades was lifted. I think previce a brand, but 0:08:01.560 --> 0:08:04.280 it didn't do anything to prevent wt I from trading 0:08:04.440 --> 0:08:08.240 negative at the beginning of the week. So remember that 0:08:08.240 --> 0:08:11.200 that the more landlocked you are, the less access you 0:08:11.240 --> 0:08:14.920 have to infrastructure, the more difficulties to place your crew today, 0:08:14.960 --> 0:08:16.520 and the more likely you are to have to share 0:08:16.560 --> 0:08:18.480 in your well. And that's what we're saying right now. 0:08:18.560 --> 0:08:22.160 We're seeing strong signals to producers to essentially capt the 0:08:22.280 --> 0:08:25.520 wells and stop flowing their rolls into the five points. 0:08:25.800 --> 0:08:28.080 Are they responding to that, Francisco, as far as you 0:08:28.120 --> 0:08:33.760 can say, well, uh, they usually as data, they are 0:08:33.800 --> 0:08:37.240 not yet the only response that we've started to see 0:08:37.280 --> 0:08:40.800 is opex, although the deal doesn't really come into play 0:08:40.960 --> 0:08:45.000 until May, which of course is Friday next week. Um So, 0:08:45.040 --> 0:08:47.160 so the issue we're facing here, going back to the 0:08:47.160 --> 0:08:48.880 point that you guys were making, is you have a 0:08:48.960 --> 0:08:52.080 thirty percent drop in US GDP, maybe more, you have 0:08:52.160 --> 0:08:55.719 a twenty two drop in Japan GDP. What does that 0:08:55.800 --> 0:08:58.080 mean for oil demand? Will in soil demand is gonna 0:08:58.120 --> 0:09:02.400 fall by about the school And COVID nineteen is particularly 0:09:02.440 --> 0:09:05.120 harsh on oil because COVID nineteen is a crisis of 0:09:05.280 --> 0:09:09.880 mobility um and, and oil is the fuel of transportation, 0:09:10.040 --> 0:09:12.880 so so we salt oil is the most impacted energy 0:09:12.920 --> 0:09:17.480 commardity and probably just the most impactive commority period um so, 0:09:17.480 --> 0:09:20.679 So we are saying we're seeing a very complicated situation 0:09:20.760 --> 0:09:23.000 here because even the open deal, which is very large, 0:09:23.000 --> 0:09:25.719 it's the largest ever, it's only ten million barrels a day, 0:09:25.720 --> 0:09:29.840 which is about ten so you're you're still producing a 0:09:29.840 --> 0:09:32.040 lot of excess oil while we're all sitting at home, 0:09:32.320 --> 0:09:34.840 not driving and not flying and that's that's really the 0:09:34.840 --> 0:09:37.080 main issue. We need to get back to work to 0:09:37.160 --> 0:09:41.280 save the oil market here Francisco. Yesterday, Muhammadalarian was speaking 0:09:41.280 --> 0:09:44.280 with John Faro, and he talked about a growing cognitive 0:09:44.320 --> 0:09:47.400 dissonance in markets. I recommend you watch the interview. It 0:09:47.520 --> 0:09:51.160 was really really interesting and and and stark, but it 0:09:51.240 --> 0:09:54.680 highlights the cognitive dissonance perhaps is most prevalent in the 0:09:54.679 --> 0:09:57.480 oil market. We've got theory kind of bumping up against 0:09:57.480 --> 0:09:59.760 the physical reality where there are not enough places to 0:10:00.120 --> 0:10:02.600 or oil. And I'm wondering the theory that demand will 0:10:02.640 --> 0:10:06.439 pick up at some point, when does that fail? I mean, 0:10:06.480 --> 0:10:09.679 how far out in the contract could we potentially see 0:10:10.080 --> 0:10:15.839 zero or negative pricing as storage facilities fill up? Well, um, 0:10:15.920 --> 0:10:18.600 we we got a glimpse of it this week. And uh, 0:10:18.920 --> 0:10:21.200 and prices at the end of the day in commodity 0:10:21.200 --> 0:10:26.360 markets or signals for either consumers or producers or infrastructure 0:10:26.360 --> 0:10:30.679 operators like pipeline operators or storage owners to take action, 0:10:31.280 --> 0:10:33.719 and and and and the signal right now that you 0:10:33.720 --> 0:10:36.319 should be buying cheap oil in the front end of 0:10:36.360 --> 0:10:38.840 the curve and storing it forward. So I don't think 0:10:38.880 --> 0:10:42.760 that all prices are going to collapse, um into spots. 0:10:42.840 --> 0:10:44.960 I mean, over time they may, and they they will, 0:10:45.080 --> 0:10:47.160 right so that the curve rolls now. But it's not 0:10:47.200 --> 0:10:51.199 like the entire curve comes comes down immediately because um uh, 0:10:51.720 --> 0:10:54.040 there there is uh. There's first of all, the need 0:10:54.200 --> 0:10:57.120 to to push oil into storage. And secondly, there is 0:10:57.160 --> 0:11:00.199 going to be the expectation, naturally that the ecount is 0:11:00.200 --> 0:11:02.360 going to get back to some kind of normal at 0:11:02.440 --> 0:11:05.040 some point. And don't I don't know what that looks like. 0:11:05.200 --> 0:11:07.800 But but when you look at the equity markets you 0:11:07.800 --> 0:11:10.040 have at d s NP, at you at a fixing 0:11:10.080 --> 0:11:13.160 cale markets trading frankly a lot better than they did 0:11:13.200 --> 0:11:16.800 in March. Um, I guess, I guess we were all 0:11:16.920 --> 0:11:19.360 under under the impression that things are back to robal. 0:11:19.400 --> 0:11:22.120 That's what we're hearing from circutary Minucine as we're heating 0:11:22.120 --> 0:11:24.760 from the White House, that we're hearing from our world leaders. 0:11:24.960 --> 0:11:28.360 And uh, and maybe it doesn't happen. But but in 0:11:28.400 --> 0:11:31.720 the meantime, the FED is doing an amazing job papering 0:11:31.800 --> 0:11:35.720 things over, and the asport's keeping asset values what they 0:11:35.760 --> 0:11:39.000 are and uh and and and and the governments are 0:11:38.840 --> 0:11:42.800 are expanding. As you said, before their fiscal budgets to 0:11:42.880 --> 0:11:45.680 essentially send people money. The real problem we have is 0:11:45.720 --> 0:11:48.640 that we are not producing any outputs, so service on 0:11:49.360 --> 0:11:51.839 how we are. We're sending people money at the time 0:11:51.840 --> 0:11:54.960 when the account is not really what we're actual output 0:11:55.000 --> 0:11:58.120 is down thir and I think that's going to be very, 0:11:58.200 --> 0:12:00.360 very for gold. And that's what we made call. That 0:12:00.440 --> 0:12:02.320 goal is going to go to three thousand over the 0:12:02.320 --> 0:12:04.640 course of the next eighteen months because of what's going 0:12:04.640 --> 0:12:07.079 on on the monetary front and then on the fiscal front. 0:12:07.400 --> 0:12:10.880 Three thousand on gold Francisco. That's a huge call. When 0:12:10.880 --> 0:12:13.160 you make that call on the phone to clients in 0:12:13.200 --> 0:12:17.240 communication with them, what's the huge pushback right now? Well, 0:12:17.280 --> 0:12:20.840 I think people are a little confused about what's happening. 0:12:20.840 --> 0:12:23.680 On a micro basis, I'm not getting a lot of pushback. 0:12:23.720 --> 0:12:26.600 I think people are just are realizing that this is 0:12:26.800 --> 0:12:29.720 that this is a major major change in the Fed's 0:12:29.760 --> 0:12:31.760 balance sheet. They're going to double the balance sheet, maybe 0:12:31.760 --> 0:12:34.120 triple the balance sheet. The last time they said that 0:12:34.120 --> 0:12:38.599 that gold basically doubled in value so um and that 0:12:38.720 --> 0:12:41.520 was during the global financial crisis. Um So, so that's 0:12:41.520 --> 0:12:43.680 what we're making this call. We think that that that 0:12:43.720 --> 0:12:47.200 the expansional fifth balance sheet will will push the ultimate 0:12:47.240 --> 0:12:52.920 safe haven up pretty dramatically. Here, Francisco, we've got to 0:12:52.960 --> 0:12:57.040 continue this discussion on gold. We'll do that another time. 0:12:57.080 --> 0:13:00.120 Francisco Bond, thank you so much, greatly, greatly appreciate here 0:13:00.360 --> 0:13:05.960 with Bank of America, we need to frame up here 0:13:05.960 --> 0:13:08.240 at the end of April this historic moment we're in 0:13:08.760 --> 0:13:11.280 and trying to stagger into May, and of course with 0:13:11.320 --> 0:13:14.559 the pandemic we go from May five to the middle 0:13:14.600 --> 0:13:17.280 of May, and many people now even beginning to talk 0:13:17.360 --> 0:13:20.000 into June. I know India is doing that as a nation, 0:13:20.120 --> 0:13:23.760 David Kelly, is it JP Morgan asset management and really 0:13:23.840 --> 0:13:28.319 quite good linking economics into the investment at world David, 0:13:28.360 --> 0:13:30.280 what will you think about this weekend? What will you 0:13:30.320 --> 0:13:34.319 write forward to Monday? I'm probably going to be writing 0:13:34.360 --> 0:13:37.280 about you know, there's another physical package which has just 0:13:37.400 --> 0:13:40.319 been passed by the House, and we're adding a no 0:13:40.559 --> 0:13:44.000 flaw of government debt here, and you know, we're really 0:13:44.000 --> 0:13:46.280 we've got packages that will take us through the middle 0:13:46.280 --> 0:13:48.800 of the summer, but it looks to me like we 0:13:48.920 --> 0:13:52.559 still won't have an economy that's really even on a 0:13:52.600 --> 0:13:56.520 significant route recovery until the middle of next year, and 0:13:56.559 --> 0:13:58.720 that's an awf lot of extra government debt, and the 0:13:58.840 --> 0:14:00.800 central banks are just moneyed as in this debt. So 0:14:00.920 --> 0:14:03.559 it's it's really, you know, what is a limit there 0:14:03.600 --> 0:14:07.760 in terms of how much the government, how much debt 0:14:07.800 --> 0:14:11.120 the government can issue, and how much debt central bank 0:14:11.160 --> 0:14:13.640 will buy without actually setting up a real problem down 0:14:13.640 --> 0:14:16.280 the road. David, there's a real willingness I think over 0:14:16.280 --> 0:14:18.840 the last several weeks to just discount and ignore the 0:14:18.880 --> 0:14:21.000 economic data that we've had. But the economic data that 0:14:21.040 --> 0:14:24.360 we've had, even if it has been expected, does inform you, 0:14:24.480 --> 0:14:27.120 does tell you something about how difficult the recovery will be. 0:14:27.680 --> 0:14:30.280 If you've got twenty six million people applying for initial 0:14:30.360 --> 0:14:33.480 jobless claims and they're sitting there waiting for a job, 0:14:33.520 --> 0:14:37.280 how quickly did those jobs come back? Well, I think 0:14:37.920 --> 0:14:39.880 we will get a lot of momentum in the second 0:14:39.880 --> 0:14:42.640 half of next year once we have a vaccine. The 0:14:42.640 --> 0:14:45.040 problem is just getting getting to that point. But once 0:14:45.080 --> 0:14:47.360 you do have a vaccine, I mean, there are ways 0:14:47.360 --> 0:14:49.160 you could do this more efficiently because there are a 0:14:49.200 --> 0:14:52.280 lot of companies will will find hard to restart, but 0:14:52.320 --> 0:14:54.200 there will be a huge demand for a lot of 0:14:54.200 --> 0:14:59.520 the entertainment, leisure services, restaurants, retail that that people who 0:14:59.520 --> 0:15:01.000 are missing out on. So you'll get a lot of 0:15:01.040 --> 0:15:03.480 momentum going in the economy if you can finance the 0:15:03.520 --> 0:15:08.000 new companies that will then employ people to do these things. Um, 0:15:08.440 --> 0:15:10.800 you can re employ people pretty pretty quickly. So I 0:15:10.840 --> 0:15:14.560 think the economy by two will be we'll have a 0:15:15.160 --> 0:15:17.280 strong head of steam and the unemployment rate will be 0:15:17.280 --> 0:15:20.960 coming down rapidly. But still, you know, we've got to 0:15:21.040 --> 0:15:23.080 finance an awful lot of misery between now and then. 0:15:23.640 --> 0:15:25.880 When you talk about financing the Missouri I want to 0:15:25.920 --> 0:15:28.760 go to your point of debt monetization. Basically, this is 0:15:28.760 --> 0:15:31.800 the idea that the US is selling trillions of dollars 0:15:31.800 --> 0:15:34.560 of treasuries and the Federal Reserve is buying them all 0:15:34.640 --> 0:15:37.560 up to suppress borrowing costs and create natural demand. That 0:15:37.640 --> 0:15:39.960 the balance sheet of the Fed is increased by two 0:15:39.960 --> 0:15:43.600 point four trillion dollars since the end of February. What 0:15:43.880 --> 0:15:46.640 is the longer term consequence of this if it is 0:15:46.640 --> 0:15:50.760 an inflation and it isn't a debasement of the dollar, well, 0:15:50.800 --> 0:15:53.320 I mean, it's hard to debase the dollar against any 0:15:53.360 --> 0:15:55.960 other currency. I think. I think that the US has 0:15:55.960 --> 0:15:59.240 got a lot of advantages because other other countries doing 0:15:59.240 --> 0:16:00.760 the same thing. Of the dollar has always been a 0:16:00.800 --> 0:16:04.520 sort of first currency. But we we do we are 0:16:04.600 --> 0:16:06.160 running a risk. I mean, I think that that the 0:16:06.240 --> 0:16:08.200 key thing that has protected us all the way through 0:16:08.360 --> 0:16:11.320 is actually income inequality, because the people who have all 0:16:11.320 --> 0:16:13.280 these io us aren't using them, and so you don't 0:16:13.320 --> 0:16:15.880 get aggregate demand in the economy picking up. But if 0:16:15.880 --> 0:16:18.680 you the one thing that would cause the no Flader 0:16:18.720 --> 0:16:20.840 problems is if we try to maintain some sort of 0:16:21.040 --> 0:16:23.360 egalitarianism as we come out of this, that we try 0:16:23.400 --> 0:16:25.160 to help people at the bottom of the middle, which 0:16:25.200 --> 0:16:27.640 is a very good thing to do. But if you 0:16:27.760 --> 0:16:30.840 do that, you createx extra demand and then inflation gets 0:16:30.880 --> 0:16:33.160 going on. Once inflation gets going, people are going to 0:16:33.240 --> 0:16:36.040 doubt the ability of the federal reserve to corral that inflation, 0:16:36.280 --> 0:16:39.200 and doubt the ability of the federal government services debt. 0:16:39.240 --> 0:16:41.440 And that's really the thing that I'm worried about. Okay, 0:16:41.440 --> 0:16:43.920 this is the heart of the matter. David Kelly, do 0:16:43.960 --> 0:16:49.960 we invest now over a responsible long term horizon for 0:16:50.280 --> 0:16:55.480 disinflation or inflation? To me, that's a huge conundrum. Yeah, 0:16:55.720 --> 0:16:57.560 I think, I think for the long one, you you 0:16:57.560 --> 0:17:01.160 you bet on inflation. Um, you know we we First 0:17:01.200 --> 0:17:03.320 of all, I'm not sure how much disinflation we're going 0:17:03.360 --> 0:17:05.719 to get in this huge recession because there's so much, 0:17:05.800 --> 0:17:09.240 so much constraint on supply also, and so it's you know, 0:17:09.359 --> 0:17:12.000 usually when you have um, you know have in the 0:17:12.040 --> 0:17:14.400 Great Depression, you had huge excess supply that all these 0:17:14.400 --> 0:17:16.120 people who wanted to work, all the stuff that people 0:17:16.160 --> 0:17:17.920 want to sell. But you know, now we don't. We've 0:17:17.920 --> 0:17:20.359 got a supply shortage as well as a demand shortage. 0:17:20.440 --> 0:17:22.280 But when we come out of this, we're gonna have 0:17:22.320 --> 0:17:25.520 so much debt and so much demand pent up demand. 0:17:25.560 --> 0:17:27.600 I mean, the savings rate is one of the things 0:17:27.600 --> 0:17:29.879 going to see of the next few quarters is a 0:17:29.960 --> 0:17:32.399 huge increase in the savings rate. Um, when did you 0:17:32.480 --> 0:17:35.440 push that demand into an economy with a limited supply, 0:17:35.920 --> 0:17:38.840 You could get inflation and the whole you know, everything 0:17:38.840 --> 0:17:41.359 that we've done in terms of ballooning government deficits around 0:17:41.359 --> 0:17:45.120 the world has all been possible only because of low 0:17:45.160 --> 0:17:47.840 inflation and low interest rates. Yeah, okay, great, but that 0:17:47.880 --> 0:17:49.600 tells me I want to buy stocks right now, we're 0:17:49.640 --> 0:17:53.120 only buying eight stocks out there are John mentioned We've 0:17:53.160 --> 0:17:55.879 got Amazon coming out next week on our knees, Microsoft 0:17:55.880 --> 0:17:59.280 and the other glory stocks. What do you tell JP 0:17:59.400 --> 0:18:03.120 Morgan to have management clients who go, I just want 0:18:03.119 --> 0:18:07.719 to buy eight stocks, Well, no, don't. Don't you know, 0:18:07.920 --> 0:18:10.960 be diverse, right, because because you don't know what the 0:18:11.000 --> 0:18:12.440 next thing is going to get you is. I mean, 0:18:12.560 --> 0:18:14.600 if we went, if we roll the tape back six 0:18:14.680 --> 0:18:17.119 months ago and and you asked me as as you do, 0:18:17.240 --> 0:18:18.960 you know one of the things that you're really worried 0:18:18.960 --> 0:18:21.560 about next year, I wouldn't put pandemic down as my 0:18:21.680 --> 0:18:23.800 number one risk. But that's the whole point. So you 0:18:23.840 --> 0:18:26.119 don't own just eight stocks because you might be owning 0:18:26.160 --> 0:18:28.760 stocks in the one sector is going to get whacked 0:18:28.800 --> 0:18:30.879 by whatever it is. That's the next round the corner. 0:18:31.240 --> 0:18:33.919 You diversified, And frankly, you know, most of the U 0:18:34.000 --> 0:18:36.360 S stock market is not actually being impacted that much 0:18:36.400 --> 0:18:39.120 by this. It's it's the U S economy that's being impacted. 0:18:39.160 --> 0:18:43.119 But if you look broadly a technology, at healthcare, UM 0:18:43.160 --> 0:18:46.600 and utilities, consumer stables, there are a lot of companies 0:18:46.600 --> 0:18:49.880 that can actually write this one out pretty well. Um, 0:18:49.920 --> 0:18:51.840 So I think there are plenty of opportunities out there. 0:18:51.840 --> 0:18:54.280 And also international stocks, by the way, are cheaper than U. 0:18:54.280 --> 0:18:56.040 S stocks, and East Asia is going to come out 0:18:56.080 --> 0:18:58.000 of this thing faster than the United States. So I 0:18:58.040 --> 0:19:00.439 think there's plenty of opportunities around the stock mark around 0:19:00.480 --> 0:19:02.480 the world if you want to buy equity to protect 0:19:02.480 --> 0:19:05.560 yourself against inflation in the long run. David, I'm struggling 0:19:05.560 --> 0:19:08.080 to understand what you said, the idea that if the 0:19:08.080 --> 0:19:12.760 middle class benefits from this package of of of fiscal support, 0:19:13.160 --> 0:19:16.120 that that's going to create inflation that's going to somehow 0:19:16.160 --> 0:19:18.520 be negative. Why isn't that a good thing in the 0:19:19.160 --> 0:19:20.960 sense that we're going to end up being able to 0:19:20.960 --> 0:19:22.439 sort of bail out some the debts and get the 0:19:22.480 --> 0:19:25.199 economy kind of to reset a little bit before we 0:19:25.200 --> 0:19:27.720 move forward. Well, first of all, I first of all, 0:19:27.720 --> 0:19:30.880 the the the financial problem is only in the recovery 0:19:30.960 --> 0:19:33.200 when we come roaring back in the second half of 0:19:33.280 --> 0:19:36.480 twenty one. I want to make that clear. And also 0:19:36.520 --> 0:19:38.120 it is a very good thing too. I mean, we've 0:19:38.119 --> 0:19:40.240 got a very unequal society, had much rather than in 0:19:40.240 --> 0:19:43.440 a society which was more equal. But the key thing 0:19:43.520 --> 0:19:45.840 is that we have avoided inflation all the way to 0:19:45.920 --> 0:19:49.000 this point here. Um, you know, through that long expansion 0:19:49.320 --> 0:19:52.160 because the economy is actually getting less equal and more 0:19:52.160 --> 0:19:54.240 and more money was going to people who are richer 0:19:54.280 --> 0:19:57.200 who wouldn't spend it. Um. And the thing is that 0:19:57.200 --> 0:19:59.920 if you finally give money to people who are low 0:20:00.000 --> 0:20:02.960 were income people or middle income people who are really 0:20:03.000 --> 0:20:05.560 want need the money, and we'll spend the money, then 0:20:05.600 --> 0:20:07.919 you get that access demand. I'm not saying it's a 0:20:07.920 --> 0:20:09.679 bad things associates, just if you if you're going to 0:20:10.040 --> 0:20:11.280 if you're going to do that, you're going to have 0:20:11.320 --> 0:20:13.280 to find some way of being disciplined enough to tax 0:20:13.400 --> 0:20:16.280 money off of richer people to try to prevent demand 0:20:16.400 --> 0:20:19.720 from soaring above available supply, because that's what gives you inflation. 0:20:19.920 --> 0:20:24.560 And I said, this whole debt pyramid is you can 0:20:24.600 --> 0:20:27.639 only be supported if we have low inflation. That's really 0:20:27.640 --> 0:20:31.360 central to everything here. Okay, And basically this is sort 0:20:31.400 --> 0:20:33.120 of borne out by the data. Michelle Meyer of Bank 0:20:33.160 --> 0:20:35.960 of America saying the stimulus checks so far have gone 0:20:36.000 --> 0:20:39.800 to buying more things, more consumption. I am curious though, 0:20:39.840 --> 0:20:42.840 if you walk through what happens, why it becomes such 0:20:42.840 --> 0:20:46.080 a problem to have the inflation that you're talking about. Well, 0:20:46.080 --> 0:20:48.920 because because right now you know that we're going to 0:20:49.040 --> 0:20:50.440 come out of this. We went into this with the 0:20:50.480 --> 0:20:52.960 government debt at about eighty percent of GDP. We're gonna 0:20:52.960 --> 0:20:54.720 come out of it with the debt and a hundred 0:20:54.720 --> 0:20:57.480 percent of GDP, which is the highest just after World 0:20:57.520 --> 0:21:00.560 War Two. That's not a problem if you're financing an 0:21:00.600 --> 0:21:03.080 interest rate to one percent, but if you have higher inflation, 0:21:03.080 --> 0:21:06.560 you could be financing at five So if you're five 0:21:06.560 --> 0:21:09.439 percent on the debt, that's five cent of GDP just 0:21:09.520 --> 0:21:13.000