1 00:00:09,880 --> 00:00:13,880 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Leie. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,200 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Well 5 00:00:27,240 --> 00:00:29,360 Speaker 1: we all know him now. Kevin Walls joins us now, 6 00:00:29,360 --> 00:00:31,840 Speaker 1: the former FED governor. Kevin always great to catch up 7 00:00:31,880 --> 00:00:33,400 Speaker 1: with you, sir. I just want to go back to 8 00:00:33,440 --> 00:00:36,040 Speaker 1: February and start there if we can. The FED can't 9 00:00:36,040 --> 00:00:38,400 Speaker 1: wait to respond to the coronavirus that was you in 10 00:00:38,440 --> 00:00:41,440 Speaker 1: the Wall Street Journal in late February. I think pretty 11 00:00:41,520 --> 00:00:43,720 Speaker 1: much every single one of us on this program agreed 12 00:00:43,760 --> 00:00:46,760 Speaker 1: with you. Now the conversation has switched almost one eight. 13 00:00:47,040 --> 00:00:49,720 Speaker 1: Has the FED stepped in too far? Has the FED 14 00:00:50,240 --> 00:00:53,080 Speaker 1: done too much? Kevin? How do you respond to that now? Yeah, 15 00:00:53,120 --> 00:00:55,280 Speaker 1: it's a it's a great question. Good to be Tom 16 00:00:55,520 --> 00:00:58,360 Speaker 1: with you and Jonathan. Um So, I'd say a few 17 00:00:58,400 --> 00:01:01,880 Speaker 1: things first, when the regime changed in February this year, 18 00:01:02,400 --> 00:01:05,600 Speaker 1: that's the job of the central Bank to be super aggressive. 19 00:01:05,720 --> 00:01:08,760 Speaker 1: And the earlier you can be aggressive, frankly, the less 20 00:01:08,840 --> 00:01:11,840 Speaker 1: you have to do later. Uh, so they moved not 21 00:01:11,959 --> 00:01:14,760 Speaker 1: with the speed I would have liked, but in historically speaking, 22 00:01:14,800 --> 00:01:17,720 Speaker 1: pretty quickly. When you look at where they are now, 23 00:01:17,920 --> 00:01:22,440 Speaker 1: they seem to be moving with overwhelming force. They seem 24 00:01:22,560 --> 00:01:26,560 Speaker 1: to be incredibly aggressive, even as risk assets are at 25 00:01:26,840 --> 00:01:31,840 Speaker 1: incredible highs. I wish that same aggressiveness were being felt 26 00:01:31,920 --> 00:01:34,760 Speaker 1: in the policies they were putting on Main Street. In 27 00:01:34,840 --> 00:01:39,160 Speaker 1: main Street, their policies seem to be late, delayed, cumbersome, 28 00:01:39,319 --> 00:01:43,160 Speaker 1: and frankly not terribly affective. So that chasm between the 29 00:01:43,200 --> 00:01:46,440 Speaker 1: aggressiveness to push up risk assets and push down bond 30 00:01:46,440 --> 00:01:49,640 Speaker 1: spreads doesn't seem to be matched on Main Street. Do 31 00:01:49,640 --> 00:01:51,680 Speaker 1: you think the focus on one of the other right 32 00:01:51,680 --> 00:01:56,440 Speaker 1: now is leading to market malfunctioning? They say that every 33 00:01:56,440 --> 00:01:59,680 Speaker 1: single point objective is about market functioning. I just wonder 34 00:01:59,720 --> 00:02:04,840 Speaker 1: whether effort now impairing market functioning. Kevin, it's a listen. 35 00:02:04,920 --> 00:02:07,120 Speaker 1: It's hard for me to say with a straight face 36 00:02:07,280 --> 00:02:11,399 Speaker 1: that markets aren't functioning well and that rationale for policy 37 00:02:11,440 --> 00:02:16,480 Speaker 1: action was astute sixty or eighty days ago. It's really 38 00:02:16,520 --> 00:02:19,960 Speaker 1: hard for me to say that the aggressive policies, the 39 00:02:20,080 --> 00:02:23,600 Speaker 1: doubling of the FED balance sheet, entering bond markets that 40 00:02:23,680 --> 00:02:27,280 Speaker 1: we never flawed about entering in the last crisis, that 41 00:02:27,320 --> 00:02:30,480 Speaker 1: we're doing that because markets aren't functioning now that that 42 00:02:30,480 --> 00:02:33,919 Speaker 1: that explanation isn't great. And my own judgment is monetary 43 00:02:33,960 --> 00:02:37,080 Speaker 1: policy matters at least as much for the reasons is 44 00:02:37,280 --> 00:02:40,200 Speaker 1: it gives as the decisions it makes. So I think 45 00:02:40,240 --> 00:02:43,000 Speaker 1: that that rationale is certainly in need of some updating. 46 00:02:43,360 --> 00:02:46,200 Speaker 1: And if I look at what's happening in markets, with 47 00:02:46,280 --> 00:02:50,679 Speaker 1: the FED having this kind of massive imprimature on financial markets, 48 00:02:51,240 --> 00:02:55,040 Speaker 1: it's easy to see how they're moving around financial assets. 49 00:02:55,080 --> 00:02:57,560 Speaker 1: But what ultimately matters, Jonathan, is what you said at 50 00:02:57,560 --> 00:03:00,760 Speaker 1: the beginning is what about the real economy? And again 51 00:03:00,800 --> 00:03:03,519 Speaker 1: it doesn't appear to me as though much of this 52 00:03:03,600 --> 00:03:06,200 Speaker 1: is trickling down to the real economy in a meaningful 53 00:03:06,240 --> 00:03:08,520 Speaker 1: way from the Federal Reserve. Well, Kevin, is that the 54 00:03:08,520 --> 00:03:11,320 Speaker 1: Fed's job. I mean, the main street lending program is 55 00:03:11,520 --> 00:03:13,760 Speaker 1: very new for the FED because they're gonna be taking 56 00:03:13,760 --> 00:03:17,800 Speaker 1: on credit risk and becoming responsible for deciding who to 57 00:03:17,880 --> 00:03:21,200 Speaker 1: lend to, how to lend them, when to cry force 58 00:03:21,280 --> 00:03:24,359 Speaker 1: some companies into bankruptcy. Should the FED even be doing 59 00:03:24,360 --> 00:03:27,799 Speaker 1: this or does the responsibility lie elsewhere? So the responsibility 60 00:03:27,840 --> 00:03:30,120 Speaker 1: really lies in the Congress to come up with what 61 00:03:30,240 --> 00:03:32,320 Speaker 1: can be done on the real side of the economy. 62 00:03:32,680 --> 00:03:36,600 Speaker 1: They outsourced that responsibility to the Treasury Secretary and the 63 00:03:36,640 --> 00:03:40,440 Speaker 1: Exchange Stabilization Fund, and then the Treasury took much of 64 00:03:40,480 --> 00:03:43,520 Speaker 1: their authority and devoted it to the Federal Reserve. To 65 00:03:43,680 --> 00:03:47,160 Speaker 1: stand up this main street credit facility, Jonathan was kind 66 00:03:47,200 --> 00:03:49,280 Speaker 1: at the beginning to talk about a Wall Street out ed. 67 00:03:49,360 --> 00:03:52,240 Speaker 1: I wrote, I wrote about this main street credit facility 68 00:03:52,320 --> 00:03:54,800 Speaker 1: with a much worse name than than they gave it 69 00:03:55,240 --> 00:03:59,160 Speaker 1: about three months ago. And what my principle there was 70 00:03:59,320 --> 00:04:03,520 Speaker 1: is something they frankly haven't adopted, which is, UH, provide 71 00:04:04,120 --> 00:04:08,520 Speaker 1: ample and immediate liquidity to all solvent comers on Main 72 00:04:08,640 --> 00:04:12,880 Speaker 1: Street with immediate effect against good collateral. But that's not 73 00:04:13,000 --> 00:04:15,520 Speaker 1: the way the main Street credit facility works, at least 74 00:04:15,520 --> 00:04:19,360 Speaker 1: as they've iterated it now several times. I think you're right. 75 00:04:19,520 --> 00:04:21,960 Speaker 1: Least it's not the Fed's job to be deciding on 76 00:04:22,040 --> 00:04:24,120 Speaker 1: every loan. But the good news is they happen to 77 00:04:24,160 --> 00:04:28,280 Speaker 1: regulate five thousand banks. It is their job. And so again, 78 00:04:28,320 --> 00:04:30,280 Speaker 1: if I were to have designed that facility, as I 79 00:04:30,320 --> 00:04:34,680 Speaker 1: wrote about eighty days ago, the FED would have regulated 80 00:04:34,720 --> 00:04:38,719 Speaker 1: the banking institutions who would have provided loans to their 81 00:04:38,800 --> 00:04:43,839 Speaker 1: typical clients against good collateral based on their solvency before 82 00:04:43,880 --> 00:04:46,640 Speaker 1: the crisis. And the only job the FED would have 83 00:04:46,720 --> 00:04:49,560 Speaker 1: would be to ensure that the banks would have done 84 00:04:49,560 --> 00:04:52,600 Speaker 1: proper underwriting. If they would have underwritten a loan to 85 00:04:53,040 --> 00:04:57,359 Speaker 1: widget Manufacturer and Toledo on February first, and they follow 86 00:04:57,400 --> 00:05:00,719 Speaker 1: those same underwriting standards, then that's a good loan. Any 87 00:05:00,839 --> 00:05:03,920 Speaker 1: losses that might be had, and surely they might, those 88 00:05:04,000 --> 00:05:06,839 Speaker 1: losses would be offset by the money that the Treasury 89 00:05:06,880 --> 00:05:10,560 Speaker 1: Department had granted the Federal Reserve. I prefer that kind 90 00:05:10,560 --> 00:05:13,800 Speaker 1: of amun and ample liquidity to this kind of picking 91 00:05:13,839 --> 00:05:17,880 Speaker 1: and choosing. And to see the aggressiveness again in in 92 00:05:18,000 --> 00:05:21,479 Speaker 1: financial markets and the lack of aggressiveness, the slowness of 93 00:05:21,560 --> 00:05:24,839 Speaker 1: response in main street, it makes me actually quite concerned 94 00:05:24,839 --> 00:05:27,960 Speaker 1: about the real economy. Well, let's talk about what is 95 00:05:28,000 --> 00:05:31,279 Speaker 1: going to happen in the future, Uh not, perhaps just 96 00:05:31,360 --> 00:05:32,919 Speaker 1: taking a look at what they should have done. You 97 00:05:32,960 --> 00:05:35,360 Speaker 1: wrote a recent op ed in the Wall Street Turnle 98 00:05:35,360 --> 00:05:38,479 Speaker 1: that if policymakers get next steps wrong, will look a 99 00:05:38,480 --> 00:05:41,039 Speaker 1: lot like two thousand and eight in terms of the 100 00:05:41,200 --> 00:05:45,320 Speaker 1: sanguine feeling right now turning into catastrophe later in the year. 101 00:05:45,680 --> 00:05:49,080 Speaker 1: Do you see policymakers on that path right now? So, 102 00:05:49,480 --> 00:05:53,119 Speaker 1: you know, we should begin with what Chairman Pal's word 103 00:05:53,240 --> 00:05:56,719 Speaker 1: is of the moment uncertainty. We have to have epistemic 104 00:05:56,839 --> 00:06:01,480 Speaker 1: humility about what we know, an epistemic humility about the 105 00:06:01,560 --> 00:06:04,680 Speaker 1: efficacy of these policy tools. You know, I feel a 106 00:06:04,680 --> 00:06:08,080 Speaker 1: lot better, Lisa about the state of playing the risks 107 00:06:08,080 --> 00:06:10,760 Speaker 1: over the second half of the year if we had 108 00:06:10,839 --> 00:06:14,039 Speaker 1: used the decade before this crisis putting our own house 109 00:06:14,080 --> 00:06:17,159 Speaker 1: in order. Chairman Pale said how it would have been 110 00:06:17,240 --> 00:06:21,280 Speaker 1: better if Congress had been more fiscally responsible in the 111 00:06:21,320 --> 00:06:24,480 Speaker 1: decade between these crises, so it would have plenty of 112 00:06:24,560 --> 00:06:28,960 Speaker 1: flexibility and plenty of credibility to provide massive increases in debt. 113 00:06:29,440 --> 00:06:31,200 Speaker 1: I think the same is true of the Federal Reserve. 114 00:06:31,800 --> 00:06:35,520 Speaker 1: Had the uncertainty principle, which they talked about frequently now 115 00:06:35,680 --> 00:06:40,200 Speaker 1: been what they talked about between, the Fed would have 116 00:06:40,200 --> 00:06:43,760 Speaker 1: come into this process with a lot more traditional ammunition. 117 00:06:44,160 --> 00:06:47,000 Speaker 1: It wouldn't be having to reach into all these new 118 00:06:47,080 --> 00:06:50,320 Speaker 1: markets with uncertain effects. So as I look at the 119 00:06:50,360 --> 00:06:52,360 Speaker 1: second half of the year, LEAs. So what I'd say 120 00:06:52,520 --> 00:06:56,960 Speaker 1: is a W looks a lot like a V until 121 00:06:57,000 --> 00:06:59,280 Speaker 1: it turns out to be a W, and Rene of 122 00:06:59,320 --> 00:07:02,159 Speaker 1: us really the contour of this economy. I guess what 123 00:07:02,200 --> 00:07:05,040 Speaker 1: i'd say as a final word on this, you were 124 00:07:05,080 --> 00:07:08,880 Speaker 1: to take an Olympic swimmer and a novice swimmer like me, 125 00:07:08,920 --> 00:07:11,160 Speaker 1: and you locked us down at the bottom of the pool, 126 00:07:11,760 --> 00:07:13,960 Speaker 1: and then you finally unlocked us. Well, we'd both be 127 00:07:14,040 --> 00:07:16,600 Speaker 1: racing up to the service at some point, but that 128 00:07:16,640 --> 00:07:20,200 Speaker 1: wouldn't really help us understand who was the Olympics swimmer 129 00:07:20,200 --> 00:07:22,080 Speaker 1: who was ready to go do a hundred laps and 130 00:07:22,120 --> 00:07:23,720 Speaker 1: who was the guy just trying to get his head 131 00:07:23,720 --> 00:07:26,760 Speaker 1: above water. Kevin, I've got this image of you in 132 00:07:26,960 --> 00:07:30,560 Speaker 1: Stanford's water polo team just getting it done out there 133 00:07:30,640 --> 00:07:33,640 Speaker 1: against Pepper Dyne. I can just see it coming. Kevin, 134 00:07:34,000 --> 00:07:37,760 Speaker 1: you are identified more than any economic official and policy 135 00:07:37,800 --> 00:07:41,840 Speaker 1: official with Republican politics and of course the storied family 136 00:07:42,200 --> 00:07:44,440 Speaker 1: you married into. I don't know if you grew up 137 00:07:44,480 --> 00:07:47,400 Speaker 1: on third base, but you're decided to living on third base. 138 00:07:47,840 --> 00:07:51,480 Speaker 1: From your view and with the honesty you've had for decades, 139 00:07:52,040 --> 00:07:56,160 Speaker 1: are we moving ourselves towards an ever more gilded age. 140 00:07:56,520 --> 00:07:59,760 Speaker 1: Is the price of all this funny money and policy 141 00:08:00,200 --> 00:08:03,520 Speaker 1: than in two thousand twenty five or two thousand thirty, 142 00:08:03,560 --> 00:08:06,840 Speaker 1: we are going to be ever more unequal. Well, Tom, 143 00:08:06,840 --> 00:08:10,000 Speaker 1: I should first disabuse you of your visual not least 144 00:08:10,000 --> 00:08:11,920 Speaker 1: of me on the water polo team, I can hardly 145 00:08:11,960 --> 00:08:14,720 Speaker 1: swim and uh and I grew up in a regular 146 00:08:14,760 --> 00:08:18,360 Speaker 1: family and upstate New York and have parents that are 147 00:08:18,360 --> 00:08:21,440 Speaker 1: probably so excited to be watching you on TV right now. 148 00:08:22,040 --> 00:08:24,320 Speaker 1: But in terms of the substance of the question, which 149 00:08:24,400 --> 00:08:27,440 Speaker 1: is really where at this moment of consequence we really 150 00:08:27,440 --> 00:08:31,320 Speaker 1: should be focused, I would say because we've had an 151 00:08:31,320 --> 00:08:35,200 Speaker 1: aggressive central bank, not least in times of crisis where 152 00:08:35,240 --> 00:08:38,679 Speaker 1: we need a central bank to be an emergency authority, 153 00:08:38,960 --> 00:08:42,600 Speaker 1: but in ordinary times treating that like it is an emergency, 154 00:08:42,679 --> 00:08:45,360 Speaker 1: like we've had an emergency every day since the darkest 155 00:08:45,400 --> 00:08:48,680 Speaker 1: days of two thousand and eight. These kinds of aggressive 156 00:08:48,720 --> 00:08:53,880 Speaker 1: policies do lead to misallocations of capital, do lead to 157 00:08:53,960 --> 00:08:57,680 Speaker 1: financial assets that trade better than real assets, and there's 158 00:08:57,679 --> 00:09:00,960 Speaker 1: a certain unfairness to that. So that's this is no 159 00:09:01,200 --> 00:09:04,400 Speaker 1: time to be trying to have a full philosophical discussion 160 00:09:04,400 --> 00:09:07,600 Speaker 1: inside the four walls of the FED. But the idea 161 00:09:07,679 --> 00:09:10,520 Speaker 1: that they should have been fine tuning between two thousand 162 00:09:10,600 --> 00:09:13,400 Speaker 1: ten and two thousand twenty, instead of thinking ahead towards 163 00:09:13,480 --> 00:09:16,760 Speaker 1: what are the risks? You end up with policies now 164 00:09:16,800 --> 00:09:20,440 Speaker 1: that I'm afraid do tend to take the income inequality 165 00:09:20,440 --> 00:09:23,959 Speaker 1: and more important, balance sheet inequality, and we make it 166 00:09:24,200 --> 00:09:27,200 Speaker 1: somewhat unfair. Half of our fellow Americans have not been 167 00:09:27,240 --> 00:09:29,680 Speaker 1: able to benefit because they don't have equity in a 168 00:09:29,679 --> 00:09:32,720 Speaker 1: four one K planner, in stocks, they don't have equity 169 00:09:32,760 --> 00:09:34,959 Speaker 1: in their house. So as they look at the run 170 00:09:35,040 --> 00:09:37,960 Speaker 1: up in these markets, they ask themselves the question, what's 171 00:09:37,960 --> 00:09:40,440 Speaker 1: in it for me? And that's why again the Feds 172 00:09:40,480 --> 00:09:43,440 Speaker 1: focusing on the real economy and we'll let financial markets 173 00:09:43,480 --> 00:09:46,120 Speaker 1: take care of themselves. Kevin, I'll get told off with 174 00:09:46,160 --> 00:09:48,679 Speaker 1: squeezing one more question, and but I've got to that's 175 00:09:48,720 --> 00:09:51,560 Speaker 1: the comment on monesty policy. What about FISCO. I'm making 176 00:09:51,600 --> 00:09:53,520 Speaker 1: sure the house was in order that you touched on that. 177 00:09:54,080 --> 00:09:56,319 Speaker 1: It's that another way of saying that tax cut a 178 00:09:56,360 --> 00:09:58,880 Speaker 1: couple of years back was a mistake. So what I'd 179 00:09:58,880 --> 00:10:04,760 Speaker 1: say is fiscal policy has a certainly important role to play. 180 00:10:04,800 --> 00:10:07,360 Speaker 1: But Jonathan, too much of the discussion is how big 181 00:10:07,400 --> 00:10:11,160 Speaker 1: should the next stimulus bill. Frankly, the size of these 182 00:10:11,200 --> 00:10:14,400 Speaker 1: stimulus packages mean a lot less are a lot less 183 00:10:14,440 --> 00:10:16,960 Speaker 1: important than the design of them. So when I think 184 00:10:17,000 --> 00:10:21,479 Speaker 1: about tax policies then and tax policies today, tax policy 185 00:10:21,600 --> 00:10:24,720 Speaker 1: and fiscal policy more more broadly needs to be designed 186 00:10:24,720 --> 00:10:29,400 Speaker 1: to encourage investment back in the services sector of the economy, 187 00:10:29,440 --> 00:10:31,720 Speaker 1: back in the real side of the economy, instead of 188 00:10:31,720 --> 00:10:36,040 Speaker 1: financial flows chasing the S and P at these historic levels. So, 189 00:10:36,080 --> 00:10:38,880 Speaker 1: as I think about the next stimulus bill, which they 190 00:10:38,920 --> 00:10:41,960 Speaker 1: say will be somewhere between the fourth July recess in August, 191 00:10:42,559 --> 00:10:47,400 Speaker 1: my encouragement, my my uh overlying counsel I would say 192 00:10:47,400 --> 00:10:49,920 Speaker 1: to the authors of that is make sure that there's 193 00:10:49,960 --> 00:10:53,000 Speaker 1: incentives for real people to re engage back in the 194 00:10:53,040 --> 00:10:57,120 Speaker 1: workforce because they've been displaced, and real investment find its 195 00:10:57,120 --> 00:11:00,439 Speaker 1: way into real property, plant and equipment. Again, I shouldn't 196 00:11:00,440 --> 00:11:02,680 Speaker 1: say this in front of a new show where so 197 00:11:02,720 --> 00:11:06,080 Speaker 1: many of your your listeners are investors. We get the 198 00:11:06,080 --> 00:11:08,200 Speaker 1: real economy to do the right thing, and I don't 199 00:11:08,200 --> 00:11:10,559 Speaker 1: worry about I don't really worry about the S and P. 200 00:11:10,840 --> 00:11:12,080 Speaker 1: Kevin had a fad in the mount and I'll get 201 00:11:12,120 --> 00:11:14,920 Speaker 1: a straight answer to that question, but I appreciate your response. Nevertheless, 202 00:11:15,000 --> 00:11:17,600 Speaker 1: Kevin always tried to catch up this, Kevin Walsh, the 203 00:11:17,640 --> 00:11:24,480 Speaker 1: former Federals of Government. Let me say right now, this 204 00:11:24,679 --> 00:11:27,800 Speaker 1: is my book of the summer, There's no question about it. Yes, 205 00:11:27,840 --> 00:11:30,160 Speaker 1: I mentioned Rock and Roger, and the other day is 206 00:11:30,200 --> 00:11:33,600 Speaker 1: book on community, the third Pillar. But Richard hass has 207 00:11:33,640 --> 00:11:38,160 Speaker 1: written a jewel called the World. A brief introduction Ambassador 208 00:11:38,200 --> 00:11:41,200 Speaker 1: has thank you for jumping back on with us again today. 209 00:11:41,440 --> 00:11:45,280 Speaker 1: You end your book on Order and Disorder. Where are 210 00:11:45,320 --> 00:11:48,320 Speaker 1: we right now? Good morning Tom. Unfortunately most of the 211 00:11:48,840 --> 00:11:52,120 Speaker 1: arrows are pointing in the direction of greater disorder. That 212 00:11:52,320 --> 00:11:55,640 Speaker 1: was already true before the pandemic, and what the pandemic 213 00:11:55,679 --> 00:12:00,400 Speaker 1: has done is essentially accelerated the pace of history. So 214 00:12:00,480 --> 00:12:04,400 Speaker 1: whether it's US Chinese relations deteriorating, or the increase and 215 00:12:04,480 --> 00:12:07,679 Speaker 1: poverty around the world, an increased the number of refugees. 216 00:12:07,760 --> 00:12:10,040 Speaker 1: You could go on and on and on, but so far, 217 00:12:10,080 --> 00:12:12,760 Speaker 1: at least, this is a cloud without a silver lining. Richard, 218 00:12:12,760 --> 00:12:14,600 Speaker 1: if we can talk about some of the immediate friction 219 00:12:14,640 --> 00:12:16,080 Speaker 1: in the last couple of days, I think a lot 220 00:12:16,080 --> 00:12:18,480 Speaker 1: of people are trying to work out what it all means, 221 00:12:18,480 --> 00:12:21,520 Speaker 1: particularly market participants that might be willing to disregard this. 222 00:12:21,600 --> 00:12:23,720 Speaker 1: Can you just talk about the significance of what has 223 00:12:23,720 --> 00:12:27,040 Speaker 1: happened between Injured and China in the last forty hours. Yeah, 224 00:12:27,280 --> 00:12:31,320 Speaker 1: these are the world's two most populous countries. They've had 225 00:12:32,360 --> 00:12:36,840 Speaker 1: essentially undemarcaded border, the line of actual control now forever. 226 00:12:37,320 --> 00:12:39,920 Speaker 1: They fought a war over this what sixty years ago, 227 00:12:40,640 --> 00:12:43,840 Speaker 1: and you've got two armies cheat by jow and I 228 00:12:43,880 --> 00:12:47,080 Speaker 1: don't think either government necessarily wanted to have it come 229 00:12:47,120 --> 00:12:50,280 Speaker 1: to blows. But any time you have large groups of 230 00:12:50,360 --> 00:12:54,720 Speaker 1: soldiers over contested areas, there's that at risk. Both countries 231 00:12:54,760 --> 00:12:57,240 Speaker 1: now are increasingly nationalists, and we're seeing this as a 232 00:12:57,280 --> 00:13:01,920 Speaker 1: trend where whether it's to tracked because of problems with 233 00:13:02,000 --> 00:13:05,840 Speaker 1: the coronavirus or its economic aftershocks. So this was something 234 00:13:05,880 --> 00:13:07,760 Speaker 1: that that could have happened, it just did. I think 235 00:13:07,800 --> 00:13:11,040 Speaker 1: the real question now is whether both countries, essentially the 236 00:13:11,040 --> 00:13:15,480 Speaker 1: government step in and calm things down. Won't You won't 237 00:13:15,480 --> 00:13:17,880 Speaker 1: have any solution, but the question is simply whether you 238 00:13:17,920 --> 00:13:20,800 Speaker 1: have some kind of mutual pulled back. Do you sense 239 00:13:20,840 --> 00:13:22,920 Speaker 1: that de escalation is the path forward? At this point, 240 00:13:24,000 --> 00:13:26,280 Speaker 1: I think it's more likely than not from what I 241 00:13:26,280 --> 00:13:28,559 Speaker 1: can see. What was so interesting about the finding was 242 00:13:28,600 --> 00:13:32,360 Speaker 1: how almost pardon the world, almost primitive with clubs and this, 243 00:13:32,559 --> 00:13:34,320 Speaker 1: I mean there was a kind of hand to hand 244 00:13:34,360 --> 00:13:37,480 Speaker 1: combat we haven't seen since times, almost like the Korean War. 245 00:13:38,360 --> 00:13:41,320 Speaker 1: So this was really really localized. So Yeah, if I 246 00:13:41,360 --> 00:13:44,040 Speaker 1: were a betting man, I would bet that that there's 247 00:13:44,040 --> 00:13:48,200 Speaker 1: a pullback you don't see anything like a full scale war. 248 00:13:48,440 --> 00:13:50,360 Speaker 1: That would be my bet. Well, Richard, the hand to 249 00:13:50,400 --> 00:13:52,600 Speaker 1: hand combat you're talking about, perhaps is why some people 250 00:13:52,600 --> 00:13:54,240 Speaker 1: are shrugging it off, saying, well, at least it's not 251 00:13:54,280 --> 00:13:56,600 Speaker 1: a nuclear threat, right, But over a North and South 252 00:13:56,640 --> 00:13:59,520 Speaker 1: Korea you have the prospects of some sort of altercation 253 00:13:59,600 --> 00:14:03,240 Speaker 1: picking up after the bombing in North Korea of South 254 00:14:03,320 --> 00:14:08,439 Speaker 1: Korean uh, diplomatic diplomatic entity. I'm just wondering if there 255 00:14:08,480 --> 00:14:11,480 Speaker 1: is a broader takeaway for all of these percolations of 256 00:14:11,520 --> 00:14:14,319 Speaker 1: geopolitical tensions that are happening. Now. You said we're fast 257 00:14:14,360 --> 00:14:18,640 Speaker 1: forwarding history. Is there some broader takeaway about leadership in 258 00:14:18,679 --> 00:14:22,000 Speaker 1: the modern world? One I dis alluded to the leadership 259 00:14:22,080 --> 00:14:25,280 Speaker 1: is pressed and is looking for wagged the dog kind 260 00:14:25,280 --> 00:14:27,760 Speaker 1: of safety valves. Do you have a possibility is to 261 00:14:28,160 --> 00:14:31,200 Speaker 1: look at the United States. We've got COVID, we've got 262 00:14:31,200 --> 00:14:34,480 Speaker 1: the protests, we've got the economic problems, and it's quite 263 00:14:34,520 --> 00:14:36,800 Speaker 1: possible that countries around the world are looking to take 264 00:14:36,800 --> 00:14:39,840 Speaker 1: advantage of a divided and distracted the United States. So 265 00:14:39,920 --> 00:14:43,080 Speaker 1: North Korea, you know, you might see this is an 266 00:14:43,080 --> 00:14:45,960 Speaker 1: opportunity to pressure to the South to relieve sanctions. The 267 00:14:46,040 --> 00:14:49,440 Speaker 1: US North Korean talks have gone nowhere. North Korea wants 268 00:14:49,480 --> 00:14:53,720 Speaker 1: economic relief. The US South Korean relationship is bad because 269 00:14:53,720 --> 00:14:56,440 Speaker 1: the US has been hammering them. So it's quite possible 270 00:14:56,520 --> 00:14:58,960 Speaker 1: the North Koreans decided to put pressure on the South 271 00:14:58,960 --> 00:15:00,840 Speaker 1: to see if they couldn't cut separate deal. You know, 272 00:15:00,960 --> 00:15:03,240 Speaker 1: Richard hass I know, you know, And this is the 273 00:15:03,360 --> 00:15:06,640 Speaker 1: legacy of the Right brothers and how they planted the 274 00:15:06,720 --> 00:15:10,720 Speaker 1: Department of Physics at Oberlin College. And I know you 275 00:15:10,800 --> 00:15:15,120 Speaker 1: want to physics at Oberlin straight A's you know, the 276 00:15:15,240 --> 00:15:20,160 Speaker 1: poet and physics ambassador. Yeah, physics for poets, you know, 277 00:15:20,800 --> 00:15:24,440 Speaker 1: is an Oberlin physics giant. That there's a vacuum out there, 278 00:15:24,480 --> 00:15:27,560 Speaker 1: in the vacuum out there's President Trump in his foreign 279 00:15:27,640 --> 00:15:32,360 Speaker 1: policy what happens after one term Trump or two term 280 00:15:32,360 --> 00:15:37,040 Speaker 1: Trump when we try to close that vacuum of foreign policy. 281 00:15:37,400 --> 00:15:39,480 Speaker 1: I think there is a vacuum. There has been a 282 00:15:39,520 --> 00:15:42,560 Speaker 1: pattern of serial withdrawal from the world, a combination of 283 00:15:42,760 --> 00:15:47,160 Speaker 1: isolationism and unilateralism on the part of the United States. 284 00:15:48,080 --> 00:15:49,920 Speaker 1: At the moment, the vacuum is not so much being 285 00:15:49,920 --> 00:15:52,720 Speaker 1: filled as as it's being allowed to fester. So you 286 00:15:52,720 --> 00:15:55,280 Speaker 1: don't see China is not in a position to fill it. 287 00:15:55,400 --> 00:15:57,520 Speaker 1: The Europeans would like to, but they lacked the power 288 00:15:58,200 --> 00:16:01,080 Speaker 1: US more likely things just getting year. So for people 289 00:16:01,280 --> 00:16:03,840 Speaker 1: from a business point of view, the United States doing 290 00:16:03,920 --> 00:16:06,200 Speaker 1: less is uh. You know, we've been, in some ways 291 00:16:06,240 --> 00:16:11,360 Speaker 1: the general contractor of global order for for generations now. 292 00:16:11,720 --> 00:16:13,640 Speaker 1: I think there's also, though a big difference between a 293 00:16:13,680 --> 00:16:18,240 Speaker 1: one and a three term Trump presidency. Two terms American 294 00:16:18,280 --> 00:16:21,680 Speaker 1: alliances might not survive, or if they survive it, they 295 00:16:21,720 --> 00:16:26,240 Speaker 1: would be fairly empty. Uh. A one term Trump presidency, 296 00:16:26,280 --> 00:16:28,200 Speaker 1: I think a president buy it and we'll try to 297 00:16:28,240 --> 00:16:31,480 Speaker 1: restore things. The problem is he will inherit if he 298 00:16:31,600 --> 00:16:34,720 Speaker 1: is elected a country that really wants to face inward 299 00:16:34,760 --> 00:16:37,640 Speaker 1: to deal with our domestic challenges, and he will inherit 300 00:16:37,680 --> 00:16:41,240 Speaker 1: one of the most daunting, demanding in boxes any president 301 00:16:41,280 --> 00:16:44,360 Speaker 1: has inherited, and that combination means that it won't be 302 00:16:44,400 --> 00:16:47,280 Speaker 1: easy for anyone, no matter what his intentions are, to 303 00:16:47,920 --> 00:16:50,720 Speaker 1: turn things around. It'll be difficult. Richard has always great 304 00:16:50,720 --> 00:16:52,920 Speaker 1: to get your thoughts and perspective and your insight on 305 00:16:52,920 --> 00:16:54,720 Speaker 1: this program. Thanks for jointing us today. The Counsel and 306 00:16:54,800 --> 00:16:57,680 Speaker 1: Form Relations president and author of The New York's Times 307 00:16:57,760 --> 00:17:04,680 Speaker 1: best seller The World a brief introduction and remorse a 308 00:17:04,840 --> 00:17:08,000 Speaker 1: city group definitive and commodities in oil, and let me 309 00:17:08,000 --> 00:17:11,120 Speaker 1: ask a direct question. Give us an update on the war, 310 00:17:11,320 --> 00:17:17,280 Speaker 1: the microeconomic oil war between Saudi Arabia and Russia. Well, 311 00:17:17,280 --> 00:17:19,080 Speaker 1: that war is kind of over for a while. There's 312 00:17:19,080 --> 00:17:22,919 Speaker 1: a truce that's been imposed, partly by Donald Trump, partly 313 00:17:22,960 --> 00:17:26,240 Speaker 1: by the follies that were associated with their actions in 314 00:17:26,359 --> 00:17:29,920 Speaker 1: March um. So they're coming back to reality. Each country 315 00:17:30,000 --> 00:17:33,639 Speaker 1: is seeing a tremendous drop in capital spending uh, and 316 00:17:33,760 --> 00:17:36,760 Speaker 1: they're they're they're tightening their belt for another day. I 317 00:17:36,800 --> 00:17:39,520 Speaker 1: don't think we're going to see the levels of production 318 00:17:39,600 --> 00:17:42,399 Speaker 1: that we saw from either of these countries again until 319 00:17:42,440 --> 00:17:45,159 Speaker 1: the middle of the next of this coming decade, and 320 00:17:45,320 --> 00:17:47,280 Speaker 1: I want to talk about the price of oil, which 321 00:17:47,320 --> 00:17:49,600 Speaker 1: has been so hard to get right for a lot 322 00:17:49,640 --> 00:17:51,840 Speaker 1: of this year. It went from its demand story to 323 00:17:51,880 --> 00:17:54,360 Speaker 1: a supply story with all the cuts, and now perhaps 324 00:17:54,720 --> 00:17:58,440 Speaker 1: back to a demand story. As Beijing closes its schools 325 00:17:58,680 --> 00:18:02,000 Speaker 1: and we see a pickup in virus cases in places 326 00:18:02,040 --> 00:18:04,639 Speaker 1: like Florida and Texas and the United States, what do 327 00:18:04,720 --> 00:18:07,160 Speaker 1: you see going forward in terms of demand that could 328 00:18:07,160 --> 00:18:10,920 Speaker 1: potentially send oil prices well below where they are currently 329 00:18:10,960 --> 00:18:14,920 Speaker 1: at three seven dollars traded on the IMAX. Well when 330 00:18:14,920 --> 00:18:16,840 Speaker 1: we look at the dynamics between the supply and the 331 00:18:16,880 --> 00:18:23,840 Speaker 1: demand side. Now actions taken voluntarily involuntarily in the United States, Canada, 332 00:18:24,640 --> 00:18:27,480 Speaker 1: all of the OPEC countries and UH and the NANOPAC 333 00:18:27,480 --> 00:18:30,399 Speaker 1: countries associated with them, those supply actions are going to 334 00:18:30,520 --> 00:18:34,000 Speaker 1: dominate no matter what happens. We're moving from a period 335 00:18:34,000 --> 00:18:38,719 Speaker 1: of record inventory accumulations and builds to what is going 336 00:18:38,760 --> 00:18:41,119 Speaker 1: to be a period of very strong, if not record 337 00:18:41,160 --> 00:18:44,640 Speaker 1: inventory draws. The cuts are not being seen yet. We're 338 00:18:44,680 --> 00:18:48,159 Speaker 1: still seeing inventories growing in the United States. The API 339 00:18:48,280 --> 00:18:50,720 Speaker 1: data yesterday had a growth in inventories. I bet it 340 00:18:50,720 --> 00:18:52,760 Speaker 1: will be a bigger number today with the I A. 341 00:18:53,280 --> 00:18:56,080 Speaker 1: And that's because of the armada of tankers that were 342 00:18:56,119 --> 00:18:59,520 Speaker 1: sent out by Saudi Arabia and others of these countries 343 00:18:59,640 --> 00:19:03,200 Speaker 1: in Arch April UH and in the beginning of May. 344 00:19:03,280 --> 00:19:07,160 Speaker 1: So we're seeing, you know, cuts that are real. Those 345 00:19:07,200 --> 00:19:10,760 Speaker 1: cuts are taking four or five million barrels a day 346 00:19:10,760 --> 00:19:13,919 Speaker 1: out of the market um and UH. And the demand 347 00:19:13,960 --> 00:19:16,240 Speaker 1: increases of there. I mean, even with the second wave 348 00:19:16,320 --> 00:19:19,600 Speaker 1: hitting China, the underlying the demand factors are just not 349 00:19:19,640 --> 00:19:23,000 Speaker 1: as strong as this WI factors. Edward Morse. With the 350 00:19:23,080 --> 00:19:27,639 Speaker 1: many equilibria of the supply and demands of oil, where's 351 00:19:27,680 --> 00:19:31,560 Speaker 1: the optimum price right now? I have no idea where 352 00:19:31,560 --> 00:19:36,320 Speaker 1: a barrel should be. What's the should of oil right now? Try? 353 00:19:37,119 --> 00:19:39,960 Speaker 1: Yeah'll try to be brief. It really relates to the 354 00:19:39,960 --> 00:19:43,920 Speaker 1: cost structure of the world, the cost curve for oil uh. 355 00:19:43,960 --> 00:19:45,719 Speaker 1: And if we look at the data that have come in, 356 00:19:46,080 --> 00:19:49,159 Speaker 1: costs is still going down. So we're we're in a 357 00:19:50,480 --> 00:19:53,280 Speaker 1: environment if this were a market that we're working the 358 00:19:53,280 --> 00:19:56,720 Speaker 1: way the market should be working. UH. And that's where 359 00:19:56,720 --> 00:19:59,760 Speaker 1: we expected to eat to eventually get to. But there 360 00:19:59,760 --> 00:20:02,119 Speaker 1: are out of blocks of lumpy inventory in the middle 361 00:20:02,400 --> 00:20:05,320 Speaker 1: to try to sort that one out. At most City, 362 00:20:05,600 --> 00:20:08,520 Speaker 1: the head of Global Commodity Research, it always tried to 363 00:20:08,520 --> 00:20:15,360 Speaker 1: catch up with you to get your perspective set right now, 364 00:20:15,440 --> 00:20:18,439 Speaker 1: Juliet Coronado joins us. She's out of the University of 365 00:20:18,520 --> 00:20:21,679 Speaker 1: Richard Clarida. That would be our Banish Champagne, Illinois, and 366 00:20:21,720 --> 00:20:25,960 Speaker 1: of course out of Texas in Austin as well. Dr Coronado, 367 00:20:26,080 --> 00:20:34,080 Speaker 1: are you forecasting this economy is a natural disaster recovery 368 00:20:34,480 --> 00:20:36,919 Speaker 1: or are you trying to treat it as a normal 369 00:20:37,080 --> 00:20:40,439 Speaker 1: recessive recovery. UM, let me say it's a bit of 370 00:20:40,440 --> 00:20:43,159 Speaker 1: a hybrid of both. And in fact, one of the 371 00:20:43,240 --> 00:20:47,200 Speaker 1: problems with the natural disaster analogy is that the natural 372 00:20:47,240 --> 00:20:52,040 Speaker 1: disaster is still with us. UH and I am in Texas. 373 00:20:52,119 --> 00:20:54,800 Speaker 1: I'm sheltering in Texas right now, Tom and we're seeing 374 00:20:54,960 --> 00:20:59,960 Speaker 1: escalating cases of COVID and we're opening up and yet 375 00:21:00,160 --> 00:21:03,120 Speaker 1: we're going to live with this disease. So as businesses, 376 00:21:03,320 --> 00:21:06,960 Speaker 1: as consumers, we have to make our decisions knowing that 377 00:21:07,000 --> 00:21:10,479 Speaker 1: there is this deadly disease swirling around out there. So 378 00:21:10,520 --> 00:21:14,159 Speaker 1: that makes it very difficult to go back to normal, 379 00:21:14,240 --> 00:21:16,480 Speaker 1: and that makes it quite different from a hurricane This 380 00:21:16,600 --> 00:21:19,600 Speaker 1: is not something that's going away. It is something that 381 00:21:19,720 --> 00:21:22,760 Speaker 1: resurges when we open up, and then we all have 382 00:21:22,880 --> 00:21:26,520 Speaker 1: to make these risk management decisions. Businesses have to make them, 383 00:21:26,680 --> 00:21:29,040 Speaker 1: consumers have to make them. And that's what's going to 384 00:21:29,160 --> 00:21:31,560 Speaker 1: make us very difficult to get back to normal. That's 385 00:21:31,600 --> 00:21:34,640 Speaker 1: gonna mean some businesses are still going to go out 386 00:21:34,640 --> 00:21:38,600 Speaker 1: of business despite the fiscal support because they just won't 387 00:21:38,640 --> 00:21:43,119 Speaker 1: be viable at fifty capacity or seventy capacity. So I 388 00:21:43,119 --> 00:21:45,600 Speaker 1: think there's a lot of frictions that lie ahead of us. 389 00:21:46,520 --> 00:21:49,400 Speaker 1: What is your glide path then? For the unemployment rate, 390 00:21:49,440 --> 00:21:53,800 Speaker 1: We've seen a horrific number. Now we have a recovery tomorrow, folks, 391 00:21:54,119 --> 00:21:57,680 Speaker 1: we get the jobless claim statistic again, give us those 392 00:21:57,680 --> 00:22:01,600 Speaker 1: glide pass In terms of the U three unemployment rate 393 00:22:01,720 --> 00:22:04,240 Speaker 1: into the end of the year, what's it looked like. Well, 394 00:22:04,280 --> 00:22:07,600 Speaker 1: the U three is probably even itself one of the 395 00:22:07,720 --> 00:22:11,320 Speaker 1: more problematic measures of unemployment because we know we've lost 396 00:22:11,359 --> 00:22:14,320 Speaker 1: a tremendous amount of people that have dropped out of 397 00:22:14,359 --> 00:22:17,200 Speaker 1: looking for work right now because things were shut down. 398 00:22:17,480 --> 00:22:19,480 Speaker 1: We don't know how many of them will come back 399 00:22:19,600 --> 00:22:22,879 Speaker 1: or when um And what we're seeing is a tremendous 400 00:22:22,920 --> 00:22:25,720 Speaker 1: amount of churn. That's what CLAIMS is telling us. We've 401 00:22:25,760 --> 00:22:29,280 Speaker 1: got millions of people newly unemployed. These are not people 402 00:22:29,320 --> 00:22:33,000 Speaker 1: that were UH sidelined during that first phase of shutdowns. 403 00:22:33,000 --> 00:22:38,800 Speaker 1: These are new unemployment. That's probably more permanent job losses. Meanwhile, 404 00:22:38,840 --> 00:22:42,240 Speaker 1: we know there's millions of people reconnecting with their employers 405 00:22:42,359 --> 00:22:46,000 Speaker 1: as things do open up. So this just tremendous churn 406 00:22:46,119 --> 00:22:48,840 Speaker 1: makes it more difficult to get a read. We saw 407 00:22:48,960 --> 00:22:53,000 Speaker 1: net job creation. I think that will probably continue UH. 408 00:22:53,040 --> 00:22:55,479 Speaker 1: And then the question for the unemployment rate is do 409 00:22:55,560 --> 00:22:58,760 Speaker 1: people leap back in and try to find you know, 410 00:22:58,800 --> 00:23:01,880 Speaker 1: start looking for jobs, which could actually push the unemployment 411 00:23:01,960 --> 00:23:04,600 Speaker 1: rate up. We also know, by the way, there's a 412 00:23:04,640 --> 00:23:08,199 Speaker 1: significant measurement problem that the BLS is grappling with that 413 00:23:08,320 --> 00:23:11,760 Speaker 1: led to an understatement of the uth ree unemployment rate 414 00:23:11,800 --> 00:23:15,879 Speaker 1: by several percentage points UH in May and even more 415 00:23:16,080 --> 00:23:20,480 Speaker 1: in April. They are redesigning their survey to try and 416 00:23:20,560 --> 00:23:23,040 Speaker 1: address that, which means we could get a pop in 417 00:23:23,080 --> 00:23:27,520 Speaker 1: the June unemployment rate just because they're resolving that measurement issue. 418 00:23:27,880 --> 00:23:30,119 Speaker 1: So I think we're going to have some bumps along 419 00:23:30,160 --> 00:23:33,000 Speaker 1: the road, some ebbs and flows, in the unemployment rate. 420 00:23:33,040 --> 00:23:36,159 Speaker 1: I think, like the FED best guesses will still be 421 00:23:36,359 --> 00:23:39,439 Speaker 1: close to ten percent by year end. That's not an 422 00:23:39,520 --> 00:23:43,920 Speaker 1: unreasonable forecast given the magnitude of the number of people 423 00:23:44,040 --> 00:23:48,760 Speaker 1: sidelined junior. A consensus has emerged for the pragmatists, the 424 00:23:48,760 --> 00:23:51,120 Speaker 1: group of economists who believe, coming out of a shutdown, 425 00:23:51,119 --> 00:23:53,800 Speaker 1: you get that initial shop bounce and then the real 426 00:23:54,520 --> 00:23:58,119 Speaker 1: long slog, the big recovery ahead begins. One thing I've 427 00:23:58,119 --> 00:23:59,719 Speaker 1: struggled with over the last couple of days, So I'm 428 00:23:59,720 --> 00:24:01,520 Speaker 1: just trying to established Judy, and I'd love you to 429 00:24:01,560 --> 00:24:04,600 Speaker 1: help on that the dividing line between the shop bounce 430 00:24:04,760 --> 00:24:08,800 Speaker 1: out of the reopening and then that recovery the longest 431 00:24:08,840 --> 00:24:11,680 Speaker 1: sloge that many people anticipate is that an August event, 432 00:24:11,880 --> 00:24:15,879 Speaker 1: like July event, September event. What's the dividing line some 433 00:24:16,040 --> 00:24:20,480 Speaker 1: of Some of that depends Jonathan on Congress and how 434 00:24:20,560 --> 00:24:23,640 Speaker 1: much they do in terms of this phase four. So 435 00:24:23,720 --> 00:24:27,840 Speaker 1: we know that, for example, the unemployment benefits, and in July, 436 00:24:28,960 --> 00:24:32,440 Speaker 1: we know that the p p P gave small businesses 437 00:24:32,480 --> 00:24:34,800 Speaker 1: two and a half months of payrolls, which is running 438 00:24:34,840 --> 00:24:39,480 Speaker 1: out now. And so whether or not we get a 439 00:24:39,560 --> 00:24:44,200 Speaker 1: new tranche of unemployment benefits and funding for small businesses, 440 00:24:44,240 --> 00:24:47,639 Speaker 1: and maybe another round of checks that could extend the 441 00:24:47,680 --> 00:24:51,439 Speaker 1: bounce period, right, that could mean more. We know that 442 00:24:51,480 --> 00:24:55,960 Speaker 1: we've seen the footprint of that stimulus in retail sales, 443 00:24:56,119 --> 00:24:59,560 Speaker 1: in the job's numbers. That's exactly what it's intended to do, 444 00:25:00,320 --> 00:25:03,960 Speaker 1: but there may be some complacency. It does seem like 445 00:25:04,000 --> 00:25:08,080 Speaker 1: a consensus is forming to get the Phase four done. Uh, 446 00:25:08,080 --> 00:25:10,119 Speaker 1: it's just a question of how big and how many? 447 00:25:10,480 --> 00:25:13,520 Speaker 1: What what what what the elements will be. The other 448 00:25:13,560 --> 00:25:16,720 Speaker 1: big pothole coming is in the fall, which is a 449 00:25:16,760 --> 00:25:20,480 Speaker 1: big hiring season for teachers and state and local employees. 450 00:25:20,520 --> 00:25:23,520 Speaker 1: And we know that they are on the mat. Their 451 00:25:23,560 --> 00:25:27,400 Speaker 1: budgets are crushed. They have already been letting go millions 452 00:25:27,440 --> 00:25:30,600 Speaker 1: of workers, and so that's going to be a challenge 453 00:25:30,640 --> 00:25:36,119 Speaker 1: for that fall. Typical fall hiring season will probably be disrupted. 454 00:25:36,200 --> 00:25:38,959 Speaker 1: So I think it's gonna be rather than sort of 455 00:25:39,320 --> 00:25:42,199 Speaker 1: bound stade, there's going to probably be several boundss and 456 00:25:42,320 --> 00:25:46,600 Speaker 1: fades as we move along this recovery path. Well, Julia, 457 00:25:46,680 --> 00:25:49,840 Speaker 1: I want to talk about the economic misses in terms 458 00:25:49,920 --> 00:25:54,760 Speaker 1: of economic projections from Wall Street analysts. This is unprecedented. Yeah, 459 00:25:54,800 --> 00:25:58,880 Speaker 1: yesterday's surprise the retail sales to the upside was dramatic, 460 00:25:59,080 --> 00:26:02,920 Speaker 1: more than double what was expected. Our economic models broken 461 00:26:02,960 --> 00:26:06,720 Speaker 1: at this point, not just economic models, Lisa um, actually 462 00:26:06,800 --> 00:26:10,159 Speaker 1: measurement is also broken, so we know, and actually the 463 00:26:10,240 --> 00:26:13,720 Speaker 1: Census in the release yesterday they said they haven't been 464 00:26:13,760 --> 00:26:17,760 Speaker 1: able to survey lots of businesses that have shut down 465 00:26:17,880 --> 00:26:20,320 Speaker 1: or gone out of business. So I think one of 466 00:26:20,320 --> 00:26:23,880 Speaker 1: the things we're seeing in the numbers, for example, for jobs, 467 00:26:24,640 --> 00:26:28,120 Speaker 1: for the Employment report, which also relies on surveys, and 468 00:26:28,240 --> 00:26:30,760 Speaker 1: any of these government statistics that rely on surveys, there's 469 00:26:30,800 --> 00:26:33,000 Speaker 1: going to be a bit of an upward bias because 470 00:26:33,119 --> 00:26:37,919 Speaker 1: distressed companies and distressed people don't answer surveys. So we 471 00:26:37,960 --> 00:26:42,359 Speaker 1: get maybe even a upper end of the truth, a 472 00:26:42,520 --> 00:26:45,359 Speaker 1: rosier picture of the truth that will be revised over 473 00:26:45,400 --> 00:26:49,119 Speaker 1: time as we benchmark to harder underlying data. So I 474 00:26:49,160 --> 00:26:53,119 Speaker 1: think that's we knew coming into this that measurement was 475 00:26:53,160 --> 00:26:56,359 Speaker 1: going to be disrupted, that getting our arms around the 476 00:26:56,400 --> 00:27:00,000 Speaker 1: magnitude of this is is was going to be really 477 00:27:00,000 --> 00:27:03,360 Speaker 1: really tricky, given how unprecedented it is, so that we're 478 00:27:03,400 --> 00:27:07,119 Speaker 1: seeing noise in the data was expected and anticipated, and 479 00:27:07,160 --> 00:27:10,080 Speaker 1: in fact we even anticipated that the surprises would be 480 00:27:10,160 --> 00:27:13,280 Speaker 1: bigger than anything we'd ever seen. So that's exactly what 481 00:27:13,320 --> 00:27:16,080 Speaker 1: we're in the middle of right now. Julia, Let's push 482 00:27:16,119 --> 00:27:18,679 Speaker 1: this a little bit further. If this is expected and 483 00:27:18,720 --> 00:27:22,400 Speaker 1: there is an upside bias to the data being collected, 484 00:27:23,119 --> 00:27:25,800 Speaker 1: is there anything in the high frequency information that you're 485 00:27:25,840 --> 00:27:28,040 Speaker 1: looking at that gives you a sense of how much 486 00:27:28,080 --> 00:27:32,640 Speaker 1: worse things are? Yeah, so that's triangulating, is the name 487 00:27:32,680 --> 00:27:35,359 Speaker 1: of the game. And so yeah, looking at all kinds 488 00:27:35,359 --> 00:27:39,600 Speaker 1: of sources of data, things like UM a DP are 489 00:27:39,680 --> 00:27:43,880 Speaker 1: helpful in this environment and actually jobless claims themselves that's 490 00:27:44,280 --> 00:27:47,479 Speaker 1: hard numbers. Now we know there's been even there some 491 00:27:47,600 --> 00:27:52,320 Speaker 1: processing delays and some program it you know, UH challenges 492 00:27:52,359 --> 00:27:55,439 Speaker 1: for state and local governments getting these programs up and running. 493 00:27:55,840 --> 00:28:01,800 Speaker 1: So those aren't per pinpoint perfect, but they're probably more reliable. UM. 494 00:28:02,040 --> 00:28:04,920 Speaker 1: They don't capture everything. They don't capture the flow back 495 00:28:04,960 --> 00:28:09,880 Speaker 1: into employment as timely as UM saying maybe a DP does. 496 00:28:10,240 --> 00:28:13,520 Speaker 1: But yeah, we're looking towards all any kinds of high 497 00:28:13,600 --> 00:28:20,280 Speaker 1: frequency real UH measurement based data that we can UM 498 00:28:20,359 --> 00:28:23,440 Speaker 1: and again, the range that it tells us, the range 499 00:28:23,440 --> 00:28:26,800 Speaker 1: of the picture. We know the whole is deep, deeper 500 00:28:26,800 --> 00:28:30,920 Speaker 1: than anything we've seen, uh in our lifetimes. We know 501 00:28:31,240 --> 00:28:33,359 Speaker 1: that we are starting to come out of it in 502 00:28:33,440 --> 00:28:36,680 Speaker 1: many ways. We know that May is a month of growth, 503 00:28:36,760 --> 00:28:41,240 Speaker 1: for example, on the consumer side, on the hiring side. 504 00:28:41,520 --> 00:28:45,600 Speaker 1: I think that that's probably the right picture, but again, 505 00:28:45,680 --> 00:28:48,320 Speaker 1: putting a fine point on that is going to probably 506 00:28:48,400 --> 00:28:53,200 Speaker 1: take years till we can actually revise and refine those estimates. Um, 507 00:28:53,200 --> 00:28:55,480 Speaker 1: But I think we're moving right now in in a 508 00:28:55,560 --> 00:28:59,480 Speaker 1: good direction. Um. The question for me as a forecaster 509 00:28:59,640 --> 00:29:04,240 Speaker 1: right now is struggling with how does this resurgence in 510 00:29:04,760 --> 00:29:08,720 Speaker 1: the virus affect things. We know we're not gonna shut 511 00:29:08,800 --> 00:29:13,920 Speaker 1: things down to the same extent, but yet we're living 512 00:29:13,960 --> 00:29:18,720 Speaker 1: with this incredibly disruptive infectious disease. So what does that 513 00:29:18,840 --> 00:29:20,920 Speaker 1: due to the shape of the recovery, What does that 514 00:29:21,080 --> 00:29:26,240 Speaker 1: do to defaults and delinquencies and uh, you know the 515 00:29:26,400 --> 00:29:30,760 Speaker 1: jobs picture for example. So that's as a forecaster, that's 516 00:29:30,800 --> 00:29:32,560 Speaker 1: what does that due to the shape of the recovery 517 00:29:32,600 --> 00:29:35,400 Speaker 1: is what I'm grappling with right now. Julia. Fantastic to 518 00:29:35,400 --> 00:29:38,200 Speaker 1: get your perspective. As always, Juli Karnata, that of Macro 519 00:29:38,400 --> 00:29:45,440 Speaker 1: policy perspectives. I wish we'd listened to Mike Wilson. I'm 520 00:29:45,440 --> 00:29:47,440 Speaker 1: aregn standing the last couple of months, that's for sure, 521 00:29:47,440 --> 00:29:49,240 Speaker 1: and I'm pleased to say we can start this morning's 522 00:29:49,280 --> 00:29:53,080 Speaker 1: program with the chief equity strategist here in New York City, Mike. 523 00:29:53,120 --> 00:29:55,640 Speaker 1: Fantastic to catch up with you, sir. What to set 524 00:29:55,680 --> 00:29:58,200 Speaker 1: you apart from me in the last couple of months 525 00:29:58,280 --> 00:30:01,040 Speaker 1: is your willingness to say the recession playbook is still 526 00:30:01,080 --> 00:30:04,000 Speaker 1: intact and there's nothing different about coming out of this 527 00:30:04,080 --> 00:30:07,560 Speaker 1: contraction compatible the other contractions, Mike, Would that be a 528 00:30:07,640 --> 00:30:12,160 Speaker 1: fact characterization? Yeah, thanks guys for having me, And yeah, 529 00:30:12,160 --> 00:30:15,040 Speaker 1: I think that's a very fair, uh sort of you 530 00:30:15,040 --> 00:30:19,000 Speaker 1: know the way we've positioned ourselves, which is essentially, look, 531 00:30:19,080 --> 00:30:21,160 Speaker 1: you have to put the blinders on a little bit 532 00:30:21,200 --> 00:30:24,959 Speaker 1: when you go into a recession from a financial market standpoint, 533 00:30:25,440 --> 00:30:28,440 Speaker 1: because markets tend to anticipate these things. And you know, 534 00:30:28,440 --> 00:30:30,800 Speaker 1: we've been talking about this set up for over a 535 00:30:30,880 --> 00:30:33,480 Speaker 1: year or two, and I think that's probably what set 536 00:30:33,560 --> 00:30:35,640 Speaker 1: us apart two is. And I came into this year 537 00:30:35,840 --> 00:30:39,200 Speaker 1: kind of more negative than most, expecting the risk of 538 00:30:39,200 --> 00:30:41,200 Speaker 1: a recession being higher. So then when of course when 539 00:30:41,240 --> 00:30:44,040 Speaker 1: it happened, you know, the market was actually already ready 540 00:30:44,080 --> 00:30:46,480 Speaker 1: for that, and then we had a liquidation in March. 541 00:30:46,720 --> 00:30:49,760 Speaker 1: And the thing that's different this time, though, I think, 542 00:30:50,000 --> 00:30:54,360 Speaker 1: is that we are in this incredible period of financial repression, 543 00:30:54,680 --> 00:30:57,840 Speaker 1: and that's obvious. And one thing I've learned kind of 544 00:30:57,840 --> 00:30:59,320 Speaker 1: the hard wain in the last ten years is that 545 00:30:59,360 --> 00:31:02,440 Speaker 1: when risk amium appears, you just have to grab it. 546 00:31:02,600 --> 00:31:06,320 Speaker 1: And that appeared in March. We've written about as extensively 547 00:31:06,360 --> 00:31:08,760 Speaker 1: as you know, I mean an equity rich premium basis. 548 00:31:08,800 --> 00:31:10,560 Speaker 1: We were as cheap in March as we were in 549 00:31:10,600 --> 00:31:13,120 Speaker 1: March of O nine. And you may say, well, how 550 00:31:13,160 --> 00:31:15,160 Speaker 1: could that be. We weren't down as much because rates 551 00:31:15,160 --> 00:31:18,320 Speaker 1: had fallen so much, and so markets have become you know, 552 00:31:18,760 --> 00:31:21,920 Speaker 1: attuned to that, and they reacted and investors stepped in. 553 00:31:21,960 --> 00:31:23,960 Speaker 1: And that's what we've been doing. And and yes, the 554 00:31:24,360 --> 00:31:27,720 Speaker 1: recession playbook has been working, as it typically does during 555 00:31:27,760 --> 00:31:30,720 Speaker 1: these periods. Many people anticipate the bounce that we're seeing 556 00:31:30,720 --> 00:31:33,640 Speaker 1: of the economic data to flatten out later this summer, 557 00:31:33,960 --> 00:31:36,560 Speaker 1: and for that reason, they're not willing to extrapolate out 558 00:31:36,840 --> 00:31:40,320 Speaker 1: the recent upside surprises too far, too quickly. In fact, 559 00:31:40,520 --> 00:31:43,000 Speaker 1: some people willing to disregard the bounce that we're seeing 560 00:31:43,280 --> 00:31:45,240 Speaker 1: coming into the month of June. What do you say 561 00:31:45,240 --> 00:31:47,760 Speaker 1: to those people when you have those conversations at the moment, Well, 562 00:31:47,800 --> 00:31:49,680 Speaker 1: I mean, look, you you said the top of the show. 563 00:31:50,240 --> 00:31:52,360 Speaker 1: I mean, part of the reason why economic surprises are 564 00:31:52,400 --> 00:31:55,680 Speaker 1: bouncing so much as because expectations collapsed, and that that's 565 00:31:55,680 --> 00:31:58,160 Speaker 1: also part of our view. You know, you're getting a 566 00:31:58,200 --> 00:32:01,760 Speaker 1: V shape recovery because you're compared since are just so easy. 567 00:32:01,840 --> 00:32:03,760 Speaker 1: And of course it's going to have to flatten out 568 00:32:03,840 --> 00:32:06,120 Speaker 1: now because like every time the data comes out better, 569 00:32:06,240 --> 00:32:10,800 Speaker 1: expectations rise, so the bar essentially get gets gets lifted 570 00:32:10,840 --> 00:32:13,160 Speaker 1: as well, so it will flatten out. But we still 571 00:32:13,160 --> 00:32:15,280 Speaker 1: think the rate of change will continue to be positive 572 00:32:16,040 --> 00:32:18,880 Speaker 1: through the rest of this year, quite frankly, and we 573 00:32:18,880 --> 00:32:21,080 Speaker 1: we're not expecting us to be back to where we 574 00:32:21,080 --> 00:32:23,479 Speaker 1: were in the fourth quarter of nineteen until the end 575 00:32:23,520 --> 00:32:25,320 Speaker 1: of next year. And the words, there's still a lot 576 00:32:25,400 --> 00:32:28,040 Speaker 1: of runway from here to there for the rate of 577 00:32:28,160 --> 00:32:30,880 Speaker 1: change to continue to increase, and that's what the markets 578 00:32:30,880 --> 00:32:33,440 Speaker 1: will focus on. The markets will focus on as long 579 00:32:33,480 --> 00:32:36,560 Speaker 1: as growth is moving forward, the market will continue to 580 00:32:36,600 --> 00:32:39,480 Speaker 1: look forward and you know, it's really hard to think 581 00:32:39,480 --> 00:32:41,200 Speaker 1: about this way, but you know we're actually in a 582 00:32:41,240 --> 00:32:43,960 Speaker 1: recession now that's obvious. That means I don't have to 583 00:32:44,000 --> 00:32:46,280 Speaker 1: worry about a recession. Okay, that means the market doesn't 584 00:32:46,320 --> 00:32:48,400 Speaker 1: have to worry about a recession like it was perhaps 585 00:32:48,400 --> 00:32:50,520 Speaker 1: in December and January, not knowing how this is going 586 00:32:50,560 --> 00:32:52,080 Speaker 1: to play out. But we know how it's going to 587 00:32:52,160 --> 00:32:54,320 Speaker 1: play out now it's happening, and we know what the 588 00:32:54,320 --> 00:32:56,200 Speaker 1: policy response is going to be. And so in some 589 00:32:56,240 --> 00:32:59,160 Speaker 1: ways you could argue, giving these stocks are long duration 590 00:32:59,200 --> 00:33:02,520 Speaker 1: assets and you remove the immediate risk of a recession, 591 00:33:02,560 --> 00:33:05,400 Speaker 1: surprising us, it can actually start discounting the future in 592 00:33:05,400 --> 00:33:08,840 Speaker 1: a more visible way. Mike, how do we rotate in 593 00:33:08,960 --> 00:33:13,160 Speaker 1: such an unusual and particularly with the fixed income market 594 00:33:13,280 --> 00:33:16,480 Speaker 1: odd market? How do we rotate from seven or eight 595 00:33:16,520 --> 00:33:20,480 Speaker 1: stocks showing for the most part profitability and everybody loves 596 00:33:20,520 --> 00:33:22,800 Speaker 1: them in that to those that are at a twelve 597 00:33:22,880 --> 00:33:26,440 Speaker 1: multiple a fifteen multiple. Dare I say the richness of 598 00:33:26,480 --> 00:33:30,120 Speaker 1: a seventeen multiple? What will be the catalyst to have 599 00:33:30,280 --> 00:33:33,560 Speaker 1: those stocks improve on a relative basis? Yeah, that's a 600 00:33:33,680 --> 00:33:35,680 Speaker 1: that's the right question. It's a great question. I think 601 00:33:35,720 --> 00:33:38,800 Speaker 1: it's it's very simple. My experience has been that when 602 00:33:38,800 --> 00:33:44,880 Speaker 1: the relative earnings revision breath starts to favor those cheaper companies, 603 00:33:44,880 --> 00:33:47,520 Speaker 1: meaning the earning start going up at a faster rate 604 00:33:47,920 --> 00:33:51,120 Speaker 1: for those more cyclically geared companies than these you know, 605 00:33:51,160 --> 00:33:53,960 Speaker 1: wonderful secular growers. And you might say, so, how could 606 00:33:53,960 --> 00:33:56,680 Speaker 1: that possibly happen? Well, because the arrange, you know, we're 607 00:33:56,720 --> 00:33:59,320 Speaker 1: so lousy over last year or two that they can 608 00:33:59,320 --> 00:34:02,280 Speaker 1: actually grow faster in the short terms of those rooms, 609 00:34:02,320 --> 00:34:05,280 Speaker 1: and the expectations have come down more. You know. One 610 00:34:05,280 --> 00:34:06,680 Speaker 1: of the things I worry a little bit about the 611 00:34:06,680 --> 00:34:09,640 Speaker 1: work from home beneficiaries that you did really well in 612 00:34:09,680 --> 00:34:12,000 Speaker 1: the early part of this recovery is that they didn't 613 00:34:12,239 --> 00:34:15,120 Speaker 1: they really lower their expectations. You know, the analysts continued 614 00:34:15,160 --> 00:34:18,440 Speaker 1: to keep their expectations high. So there's just there's not 615 00:34:18,520 --> 00:34:22,440 Speaker 1: as much surprise factor potentially as the economy continues to recover, 616 00:34:22,520 --> 00:34:24,640 Speaker 1: and there could be a little bit of payback quite frankly, 617 00:34:24,680 --> 00:34:28,399 Speaker 1: from the pull forward on the work from home dynamic. Mike, 618 00:34:28,440 --> 00:34:30,200 Speaker 1: I gotta say, one reason why I love reading your 619 00:34:30,200 --> 00:34:32,480 Speaker 1: reports is your view on the short term paired with 620 00:34:32,560 --> 00:34:35,160 Speaker 1: the medium and long term. Talking about last week's sell off, 621 00:34:35,360 --> 00:34:37,959 Speaker 1: saying it was healthy overdue. It could be even due 622 00:34:37,960 --> 00:34:41,560 Speaker 1: for another five to seven uh percent decline in addition, 623 00:34:41,680 --> 00:34:43,960 Speaker 1: but it's a by the dip moment. I want to 624 00:34:43,960 --> 00:34:46,600 Speaker 1: talk about the risks to that outlook, one of them 625 00:34:46,640 --> 00:34:49,840 Speaker 1: being the increase potential increase in trade tensions between the 626 00:34:49,960 --> 00:34:53,600 Speaker 1: US and China, especially as we see Robert Lheiser heading 627 00:34:53,600 --> 00:34:57,640 Speaker 1: to Congress today. How significantly do tensions have to ratch 628 00:34:57,640 --> 00:35:00,160 Speaker 1: it up for you to reassess your call? Yeah, mean, 629 00:35:00,160 --> 00:35:03,279 Speaker 1: this is definitely still a concern that's out there. I 630 00:35:03,320 --> 00:35:05,680 Speaker 1: think you know, you all mentioned it earlier. You know, 631 00:35:05,719 --> 00:35:08,080 Speaker 1: the market seem to be too focused on it anymore. 632 00:35:08,640 --> 00:35:10,480 Speaker 1: I think the market is focused on it. It's just 633 00:35:10,600 --> 00:35:12,600 Speaker 1: it's got so many things to focus on from day 634 00:35:12,640 --> 00:35:15,840 Speaker 1: to day. So there's no doubt that the China, you know, 635 00:35:15,960 --> 00:35:19,239 Speaker 1: US trade relations are still you know, fragile, I'd put 636 00:35:19,320 --> 00:35:21,879 Speaker 1: it that way, um, you know, and we have far 637 00:35:21,960 --> 00:35:25,600 Speaker 1: from resolved all of the issues that have been debated, 638 00:35:25,640 --> 00:35:27,799 Speaker 1: and I think a Phase two trade deal is pretty 639 00:35:27,880 --> 00:35:29,759 Speaker 1: much off the table anytime soon. And I guess the 640 00:35:29,880 --> 00:35:32,680 Speaker 1: risk now is do we roll back the Phase one 641 00:35:33,080 --> 00:35:36,280 Speaker 1: trade deal to some degree? Like our view is that. Uh, 642 00:35:36,320 --> 00:35:38,719 Speaker 1: you know, we think phase one is okay for now, 643 00:35:38,800 --> 00:35:41,799 Speaker 1: it's not at risk. However, if you know this becomes 644 00:35:41,840 --> 00:35:45,719 Speaker 1: a uh you know, a situation where either candidate apparticularly 645 00:35:45,760 --> 00:35:49,320 Speaker 1: the president can use to try and bolster their poll numbers, 646 00:35:49,800 --> 00:35:51,800 Speaker 1: that's where it becomes a bigger risk, and that's probably 647 00:35:51,840 --> 00:35:53,920 Speaker 1: a third quarter issues. I don't think it's an issue 648 00:35:54,000 --> 00:35:56,839 Speaker 1: right now. Uh, there's other things that the White House 649 00:35:56,920 --> 00:35:59,279 Speaker 1: is focused on try and you know, get going in 650 00:35:59,280 --> 00:36:01,719 Speaker 1: the right direction. But if they decide to use it 651 00:36:01,760 --> 00:36:06,120 Speaker 1: as a lever to boaster the polls, that's where it 652 00:36:06,120 --> 00:36:08,359 Speaker 1: becomes more dangerous because you know, once you go down 653 00:36:08,400 --> 00:36:10,799 Speaker 1: that path and start saber rattling again, and it's hard 654 00:36:10,800 --> 00:36:12,160 Speaker 1: to pull back in. So I think it's a third 655 00:36:12,200 --> 00:36:15,520 Speaker 1: quarter issue, and we got a monetary closely. Mike Wilson, 656 00:36:15,560 --> 00:36:18,880 Speaker 1: one of your joys is the fabulously concise reports of 657 00:36:18,960 --> 00:36:22,240 Speaker 1: Betsy Grayceick. You get to read that stuff and frame 658 00:36:22,280 --> 00:36:24,920 Speaker 1: an opinion of the two big defailed banks. What's the 659 00:36:25,000 --> 00:36:29,319 Speaker 1: Mike Wilson view of American banking given what you see 660 00:36:29,360 --> 00:36:32,320 Speaker 1: from Ms Gray? Yeah, it's uh, I mean like banking 661 00:36:32,360 --> 00:36:35,040 Speaker 1: has been a tough gig for the last ten years, 662 00:36:35,080 --> 00:36:37,880 Speaker 1: and that's what you know, post financial crisis and a 663 00:36:37,960 --> 00:36:42,000 Speaker 1: period of financial repression has done. Um uh. There's two 664 00:36:42,040 --> 00:36:44,399 Speaker 1: two things I think about from here. First of all, 665 00:36:44,800 --> 00:36:47,520 Speaker 1: we are you know, constructive that the econome is gonna improve, 666 00:36:47,560 --> 00:36:49,799 Speaker 1: and that means the rates, the back end rates should 667 00:36:49,960 --> 00:36:53,279 Speaker 1: should move up and and increase the yokerve, which is 668 00:36:53,280 --> 00:36:55,320 Speaker 1: good for you know, that interest margins, and that's a 669 00:36:55,480 --> 00:36:59,120 Speaker 1: that's potentially a positive tail one, I think. Secondarily, you know, 670 00:36:59,160 --> 00:37:02,440 Speaker 1: everybody's talked about deregulation over the last few years. It 671 00:37:02,520 --> 00:37:05,640 Speaker 1: hasn't really uh led to any kind of big boost 672 00:37:05,680 --> 00:37:08,680 Speaker 1: in activity. Quite frankly, however, one thing I would say 673 00:37:08,800 --> 00:37:11,920 Speaker 1: is different now is you know, during the post financial 674 00:37:11,960 --> 00:37:14,600 Speaker 1: crisis period, we had what we call the shadow banks 675 00:37:14,640 --> 00:37:18,480 Speaker 1: in their intervening and and doing their job as the 676 00:37:18,640 --> 00:37:22,080 Speaker 1: as the regulated banking system had been kind of compressed 677 00:37:22,080 --> 00:37:24,759 Speaker 1: and not being able to operate as effectively for a 678 00:37:24,760 --> 00:37:27,680 Speaker 1: lot of different reasons. There's a there is a positive 679 00:37:27,760 --> 00:37:29,680 Speaker 1: argument I think to be made that some of that 680 00:37:29,960 --> 00:37:31,560 Speaker 1: some of that business, you know, there could be shared 681 00:37:31,600 --> 00:37:34,520 Speaker 1: gains coming back towards the regulated banking system because the 682 00:37:34,560 --> 00:37:37,440 Speaker 1: FED completely needs the banks to be operating efficiently. If 683 00:37:37,480 --> 00:37:39,279 Speaker 1: they ever want to get inflation, we've got to get 684 00:37:39,360 --> 00:37:41,000 Speaker 1: velocity of money up. I mean, banks are the ones 685 00:37:41,040 --> 00:37:44,279 Speaker 1: who actually create real money in the economy. And so 686 00:37:44,480 --> 00:37:46,080 Speaker 1: you know, we could see a steeper YO curve, we 687 00:37:46,080 --> 00:37:49,040 Speaker 1: could see some more deregulation and some share gains back. 688 00:37:49,440 --> 00:37:51,640 Speaker 1: You know, that's why we're constructive, and we're constructive on 689 00:37:51,719 --> 00:37:55,000 Speaker 1: the American banking system having kind of a rebirth here 690 00:37:55,280 --> 00:37:58,480 Speaker 1: as we get reflation and we have a recovery. Myke Wilson, 691 00:37:58,520 --> 00:38:01,040 Speaker 1: you've been constructive and so far you've been right. Morgan 692 00:38:01,080 --> 00:38:04,200 Speaker 1: Standy's chief US equity strategists, Mike always tried to catch 693 00:38:04,280 --> 00:38:05,840 Speaker 1: up with you. Said my best to you and to 694 00:38:05,920 --> 00:38:11,560 Speaker 1: the hold of the scene. This is the way it works, Folks. 695 00:38:12,400 --> 00:38:17,560 Speaker 1: In London, not every month, but once or twice a year, 696 00:38:17,800 --> 00:38:20,800 Speaker 1: there is a conference and if you're at the London 697 00:38:20,840 --> 00:38:23,680 Speaker 1: School of Economics, it's held in some old ancient hall 698 00:38:23,800 --> 00:38:27,279 Speaker 1: named after Lionel Robbins or someone else, or in their 699 00:38:27,320 --> 00:38:31,799 Speaker 1: spectacular new conference center of the Chisad Center. And Paul 700 00:38:31,840 --> 00:38:34,560 Speaker 1: Deguar walks in, who's a good friend of this program 701 00:38:34,600 --> 00:38:37,399 Speaker 1: and truly one of the leading lights of fiscal analysis 702 00:38:38,200 --> 00:38:41,000 Speaker 1: in Europe, and you will stand up and there'll be 703 00:38:41,040 --> 00:38:44,279 Speaker 1: four or five worthies on the stage. But that's not 704 00:38:44,360 --> 00:38:48,120 Speaker 1: what's important. What's important is the place is packed, and 705 00:38:48,160 --> 00:38:51,799 Speaker 1: there are students down the aisles, up and back, and 706 00:38:51,960 --> 00:38:55,239 Speaker 1: everyone to hear a pin drop listens and they will 707 00:38:55,320 --> 00:39:00,400 Speaker 1: listen to Barry Ikon Green. We are thrilled to professor 708 00:39:00,400 --> 00:39:03,400 Speaker 1: I can Green can join us this morning for a 709 00:39:03,760 --> 00:39:09,360 Speaker 1: virtual conference. He is in California at Berkeley, not in Laws, 710 00:39:09,800 --> 00:39:12,680 Speaker 1: not in London at l s E, the London School 711 00:39:12,719 --> 00:39:16,760 Speaker 1: of Economics. Professor Iken Green, what is it like doing 712 00:39:16,840 --> 00:39:20,440 Speaker 1: a virtual conference? It's just not the same? Is all 713 00:39:20,480 --> 00:39:24,120 Speaker 1: those pack calls? Is it? It really isn't the same. 714 00:39:24,360 --> 00:39:27,680 Speaker 1: You uh, you can do it in your sorts. You 715 00:39:27,760 --> 00:39:33,000 Speaker 1: don't get you don't don't get the adrenaline rush you do. Uh. 716 00:39:33,080 --> 00:39:36,040 Speaker 1: Seen two or three hundred faces in the audience, and 717 00:39:36,080 --> 00:39:39,600 Speaker 1: it makes me worry about our pedagogy at the university. 718 00:39:39,760 --> 00:39:42,920 Speaker 1: We can't really teach courses in the same way either. 719 00:39:43,480 --> 00:39:46,440 Speaker 1: I totally agree. Is Berkeley going to return yet? I 720 00:39:46,440 --> 00:39:48,839 Speaker 1: know Penn State we're talking to the other day, they're 721 00:39:48,880 --> 00:39:52,320 Speaker 1: returning in the fall. Is a university of California Berkeley 722 00:39:52,320 --> 00:39:57,560 Speaker 1: decided to return. We haven't decided, but I think there's 723 00:39:57,600 --> 00:40:01,560 Speaker 1: a very very high probability it will be mainly online. 724 00:40:01,800 --> 00:40:05,280 Speaker 1: You will have an extraordinary panel at the London School 725 00:40:05,280 --> 00:40:08,479 Speaker 1: of Economics this evening on the pandemic. What will you say, 726 00:40:08,520 --> 00:40:12,520 Speaker 1: Professor I Ingrid We have a new study that looks 727 00:40:12,560 --> 00:40:17,640 Speaker 1: at the long term political consequences of living through a pandemic. 728 00:40:17,920 --> 00:40:22,239 Speaker 1: So we have data on forty seven epidemics and in 729 00:40:22,280 --> 00:40:26,759 Speaker 1: the past, from stars to a bola that affected in 730 00:40:26,840 --> 00:40:29,239 Speaker 1: some manner upward of a hundred and twenty countries, and 731 00:40:29,280 --> 00:40:32,840 Speaker 1: you can see there's a long term impact on people's 732 00:40:32,880 --> 00:40:36,360 Speaker 1: trust in their government and their leaders, and it's strongly negative. 733 00:40:36,560 --> 00:40:40,360 Speaker 1: If you live through a pandemic, you grow skeptical about 734 00:40:41,000 --> 00:40:45,480 Speaker 1: the ability the capacity of your institutions, can you say, 735 00:40:45,680 --> 00:40:49,279 Speaker 1: C D C and your leaders to cope with those 736 00:40:49,360 --> 00:40:52,920 Speaker 1: kind of threats. So, Professor I have three children that 737 00:40:52,960 --> 00:40:56,759 Speaker 1: are in that age eighteen to twenty five, that impressionable 738 00:40:56,800 --> 00:41:00,879 Speaker 1: age where you start to form really strong personal opinions. Here, 739 00:41:01,560 --> 00:41:05,600 Speaker 1: what do you think, uh, the fallout will be for 740 00:41:05,719 --> 00:41:09,960 Speaker 1: those folks? Uh, after having dealt with this pandemic here 741 00:41:10,000 --> 00:41:12,319 Speaker 1: which you know we're four or five months in who 742 00:41:12,360 --> 00:41:16,000 Speaker 1: knows how long it's really gonna go on. For those 743 00:41:16,040 --> 00:41:18,560 Speaker 1: are the folks for whom we really find a strong effect. 744 00:41:18,800 --> 00:41:22,399 Speaker 1: So if you live through a pandemic uh when when 745 00:41:22,400 --> 00:41:26,680 Speaker 1: you're in grade school, there's no lingering persistent impact on 746 00:41:26,719 --> 00:41:30,320 Speaker 1: your attitudes. If you live through one as an adult 747 00:41:30,440 --> 00:41:34,520 Speaker 1: over the age of five, there is no lingering effect either. 748 00:41:34,600 --> 00:41:37,239 Speaker 1: But if you're in those impressionable years and you know 749 00:41:37,360 --> 00:41:42,200 Speaker 1: it from first hand observation, UM, that's when there are 750 00:41:42,640 --> 00:41:47,720 Speaker 1: neurological changes in the brain. That's when people encounter college 751 00:41:48,000 --> 00:41:51,680 Speaker 1: aged students encounter new ideas for the firm first time. 752 00:41:52,000 --> 00:41:55,120 Speaker 1: And those are the people who grow skeptical about their 753 00:41:55,120 --> 00:41:59,080 Speaker 1: capacity of their government to do good uh for for 754 00:41:59,200 --> 00:42:03,320 Speaker 1: decades and too short of visit. But very one final question, 755 00:42:03,920 --> 00:42:07,120 Speaker 1: if we could, do you perceive, with all of your 756 00:42:07,120 --> 00:42:10,480 Speaker 1: work in international economics, going back to the classic Golden 757 00:42:10,560 --> 00:42:13,040 Speaker 1: fetters and what you've done with the I m F 758 00:42:13,200 --> 00:42:17,120 Speaker 1: studies and such, do you perceive a shift in America 759 00:42:17,920 --> 00:42:23,920 Speaker 1: away from our economic individualism, our flavor of capitalism or 760 00:42:23,960 --> 00:42:30,000 Speaker 1: will we reaffirm the way we do capitalism. There's going 761 00:42:30,080 --> 00:42:32,560 Speaker 1: to be strong pressure I think to have a more 762 00:42:33,440 --> 00:42:37,359 Speaker 1: European welfare state where we do more in terms of 763 00:42:37,360 --> 00:42:42,359 Speaker 1: providing healthcare, elder care, child care to the populace. And 764 00:42:42,400 --> 00:42:45,440 Speaker 1: the question is whether we will become more European in 765 00:42:45,560 --> 00:42:49,920 Speaker 1: terms of paying taxes as well, or a very serious 766 00:42:49,960 --> 00:42:52,799 Speaker 1: debt problem blows up in a stead. Oh this has 767 00:42:52,880 --> 00:42:55,560 Speaker 1: been a joy too short of visit Professor Ichen Green, 768 00:42:55,640 --> 00:42:58,600 Speaker 1: thank you so much tonight an important conference at the 769 00:42:58,640 --> 00:43:04,360 Speaker 1: London School of Economics. Very Green Party, professor at Berkeley. 770 00:43:04,600 --> 00:43:08,799 Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and 771 00:43:08,880 --> 00:43:14,200 Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast 772 00:43:14,239 --> 00:43:18,480 Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before 773 00:43:18,480 --> 00:43:22,720 Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg Radio.