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Kocherlakota: Fed Needs to Target Employment, Not Inflation · Bloomberg Intelligence

0:01
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
0:04
Speaker 1: with my co host of Bonnie Quinn. Every business day
0:06
Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
0:10
Speaker 1: along with essential market moving news. Find the Bloomberg Markets
0:13
Speaker 1: Podcast on Apple Podcasts or wherever you listen to podcasts,
0:17
Speaker 1: and on Bloomberg dot Com. Time for Bloomberg Opinion Today,
0:22
Speaker 1: we're joined by Narayana Cuta, Lakota, former Minneapolis FED president
0:27
Speaker 1: and Bloomberg Opinion colums. He's also professor of economics at
0:31
Speaker 1: the University of Rochester. Uh Nariana, thanks so much for
0:34
Speaker 1: joining us. We really appreciate you coming on today. It's
0:37
Speaker 1: gonna be a busy day for FED watchers today. We've
0:39
Speaker 1: got the statement at two pm Wall Street time, and
0:41
Speaker 1: then FED Chairman pals Uh press conference at two thirty.
0:45
Speaker 1: What do you expect to hear most notably from Chairman
0:48
Speaker 1: Pal's comments, Well, I think what we're waiting to hear
0:53
Speaker 1: is largely about, um, what was the FED talking about
0:57
Speaker 1: of the meeting? And you know, this has a meeting
1:00
Speaker 1: where the FED is going to be talking about what's
1:02
Speaker 1: going to happen in the future. I don't expect much
1:05
Speaker 1: change in terms of monetary policy or in the statement
1:08
Speaker 1: UM at this time. But I think that the FED
1:11
Speaker 1: probably spent day a couple of a couple of days
1:13
Speaker 1: of very spotful reflection on what are their tools, how
1:17
Speaker 1: can they best use them? And UM, I'm hoping that
1:21
Speaker 1: Chair Arman Powell will give us a little bit of
1:24
Speaker 1: heads up about how that all those conversations went. What
1:28
Speaker 1: might be done about forward guidance? Arianna, Well, UM, I
1:34
Speaker 1: think vannie to that. I think for guidance is UM
1:39
Speaker 1: something that the FED used during the last recovery. I
1:42
Speaker 1: think they were buying large pleas with how it went.
1:45
Speaker 1: But I think that the FED tried out what was
1:49
Speaker 1: called calendar based guidance, where they talked about keeping rates
1:52
Speaker 1: full low for a particular fixed period of time. I
1:56
Speaker 1: doubt we're gonna see that UM coming down the pike
1:59
Speaker 1: because the problem that is you get is you get
2:02
Speaker 1: new information, you get to change that guidance, and changing
2:05
Speaker 1: it is it turns out to be pretty challenging. So
2:10
Speaker 1: what I think the FIT is likely to aim for
2:12
Speaker 1: is UM what we we we call and said, state
2:15
Speaker 1: based guidance, where they talk about the conditions under which
2:19
Speaker 1: they're likely to to raise rates. Now, I don't to
2:22
Speaker 1: be clear, I don't think anyone expects a rate increase
2:25
Speaker 1: becoming certainly any time even the next calendar one and
2:31
Speaker 1: and and probably not even in throughout two. So but
2:35
Speaker 1: I think it's the reason this matters is UH, it
2:39
Speaker 1: affects the path of medium term interest rates. So UM,
2:44
Speaker 1: if the Fed says it's going to keep rates flow
2:46
Speaker 1: um until say, inflation returns to well about two that
2:51
Speaker 1: feeds into something different in terms of of of the
2:55
Speaker 1: power of medium term interest rates and that that can
2:57
Speaker 1: help stimulate the economy. Marianna, you're out with a column
3:01
Speaker 1: recently the entitled the FED needs to focus on employment.
3:05
Speaker 1: How do you believe they should focus on employment? Yeah, Paul,
3:10
Speaker 1: I think that, UM. A lot of the discussion that
3:14
Speaker 1: you'll hear among FED watchers is UH, and from FED
3:17
Speaker 1: communication as well, is that they're talking about and thinking
3:21
Speaker 1: about communicating through the inflation rate. So as saying as
3:25
Speaker 1: I just articulated that they're UM their way, they way
3:28
Speaker 1: you formula for guidances, We're gonna keep rates low intil
3:32
Speaker 1: inflation has returned to two percent in the sustainable way,
3:36
Speaker 1: or or maybe we've relying for an over food. I
3:39
Speaker 1: understand why they're doing that. Um. I think that will
3:42
Speaker 1: communicate that they're keeping rates lower for longer than maybe
3:45
Speaker 1: than people would expect. At the same time, inflation is
3:50
Speaker 1: a challenging marker for for households to figure out. They
3:54
Speaker 1: might not think of their ways being able to keep
3:56
Speaker 1: up with higher inflation, and so there's a lot of
3:58
Speaker 1: evidence is on that is very mixed. I would say
4:01
Speaker 1: in the economics literature about will hire inflation signing higher
4:05
Speaker 1: inflation and lead people to cut back on spending or
4:08
Speaker 1: lead them to spend more. Whereas saying you're going to
4:11
Speaker 1: be focusing on employment, We're going to keep rates low
4:14
Speaker 1: until unemployment returns to let's say four UM, that will
4:19
Speaker 1: tell people, Okay, the FED is there until the recovery
4:23
Speaker 1: is really complete and UM, and a low unemployment is
4:27
Speaker 1: obviously UM something that everyone associates with with positive economic news. Norianna,
4:35
Speaker 1: what kind of fiscal stimulus would help to maybe have
4:40
Speaker 1: the economy avoids some of the structural employment that we
4:42
Speaker 1: are definitely going to see. Yeah, I think that, UM,
4:50
Speaker 1: there's I should think there should be more of a
4:51
Speaker 1: sense that this is likely to be a long, longer
4:54
Speaker 1: term issue. Um. You know, and I think you see
4:57
Speaker 1: some of them in gry eucratic side, that you have
4:58
Speaker 1: some recognition along those line. I think we should. There
5:01
Speaker 1: should be a recognition as well that the problem the
5:04
Speaker 1: economy is not uh, people feeling flushed with that six
5:09
Speaker 1: dollars um extra benefit and so when they're staying home
5:13
Speaker 1: and not well, not willing to work. The problem of
5:15
Speaker 1: the economy is not enough demand. That that low demand
5:19
Speaker 1: is because of public health concerns UM. And so the
5:23
Speaker 1: role of government, I think in the situation is to
5:24
Speaker 1: try to stimulate demand, and the best way to do that,
5:27
Speaker 1: I think is by keeping unemployment insurance UM, extending those benefits,
5:32
Speaker 1: extending the extra benefits. So that's interesting. I mean, you
5:37
Speaker 1: get a sense that there's appetite in Washington, given what
5:40
Speaker 1: you've heard and read and folks you've spoken to, that
5:43
Speaker 1: there is that support for more stimulus. Here appears this
5:47
Speaker 1: around appears to be much much more political than the
5:51
Speaker 1: most recent or third round where we got the three
5:53
Speaker 1: trillion dollars. So you know, I was answering that should
5:57
Speaker 1: not the will part of the question, um, what will happen?
6:01
Speaker 1: You know, politics not my forte, but I agree with
6:04
Speaker 1: you completely. We've see a lot of polarization here. Um,
6:08
Speaker 1: I think that you're you're gonna you're hearing more of
6:11
Speaker 1: the concerns about boy, the dead is getting big. This
6:14
Speaker 1: is just the wrong time to have those concerns and
6:17
Speaker 1: continues to be a time of very high unemployment and
6:20
Speaker 1: that highnemployment. I think the challenge for a lot of
6:23
Speaker 1: people on the on the Republican side of the aisles
6:25
Speaker 1: they see the unemployment is coming from the fact that
6:28
Speaker 1: UM unplay insurance benefits are really high, and so that
6:32
Speaker 1: is encouraging people in want to work, Whereas I think
6:36
Speaker 1: it remains clear that the problem facing the economy is
6:39
Speaker 1: that there's not enough demand out there. And um, if
6:44
Speaker 1: there were more demand, there would be more hiring and uh,
6:48
Speaker 1: and we'd have, you know, we'd have better, better economic
6:50
Speaker 1: conditions going forward. Uh. But that's where we were reverted,
6:54
Speaker 1: I think, unfortunately to the discussions we had in Congress
6:58
Speaker 1: in in the latter part of out None twenty eleven,
7:01
Speaker 1: where the debt um, the overhang of the of large
7:05
Speaker 1: apparently large government debt um really forestalled a lot of
7:10
Speaker 1: needed stimulus. So Marianna, I mean you can't stimulate demand
7:16
Speaker 1: in a pandemic if people don't want to go outside. Therefore,
7:20
Speaker 1: and I'm making, you know, a second jump here, should
7:24
Speaker 1: politicians be worried about, you know, spending fiscally at times
7:28
Speaker 1: like this or or or or you know, is the
7:31
Speaker 1: GOP position correct that you can't you know, bankrupt and economy.
7:36
Speaker 1: So so the as a lot of interest rates remain low,
7:40
Speaker 1: and as long as people expect interest rates to remain low,
7:42
Speaker 1: you're not close to bankrupting the economy. So the right always,
7:46
Speaker 1: I think the right way to be thinking about government
7:48
Speaker 1: debt is through the lens of prices and not quantities.
7:50
Speaker 1: And so as long as we have such demand for
7:53
Speaker 1: government debt as we see out there, you know, real
7:56
Speaker 1: yields or mean is ridiculously low as they are, we're
7:59
Speaker 1: not seeing a situation government is too high. I think, Um,
8:04
Speaker 1: there's a very nice paper um economist Guel Lauren Zone,
8:10
Speaker 1: Ronica Gary Eri would big Straw and von Burying. They
8:13
Speaker 1: make it clear that the way they think about this
8:16
Speaker 1: is we've got multiple sectors in the economy, and by
8:20
Speaker 1: stimulating demand, what we can stimulate the demand for the
8:23
Speaker 1: goods in the services that people can go out and
8:25
Speaker 1: buy Nrianna Colt Lakota, thank you, Bloomberg opinion columnist, a
8:31
Speaker 1: little bit of news to bring you. Boeing says that
8:34
Speaker 1: it is going to lay off nineteen thousand people. That's
8:37
Speaker 1: almost ten percent of its workforce, well between eight and
8:41
Speaker 1: nine percent right now, but yeah, it's a wow number. Pole.
8:44
Speaker 1: Nineteen thousand jobs is what is expecting. It had given
8:49
Speaker 1: a range of around sixteen thousand. But I guess you know,
8:52
Speaker 1: it's what are you going to do if your planes
8:54
Speaker 1: aren't being bought and if they can't even get up
8:57
Speaker 1: in the air in this environment, you can't exactly keep
8:59
Speaker 1: paying people, I suppose. Yeah, that's what we heard from
9:01
Speaker 1: Brooks Sutherland and even Daniel DeMartino Booth talking about that.
9:04
Speaker 1: And now the job losses are starting to hit the
9:06
Speaker 1: white collar workers and they have just proportionate share of
9:09
Speaker 1: consumer spend, and so that kind of dovetails into the
9:13
Speaker 1: conservative economic out look, another data point for the Fed. Yeah,
9:17
Speaker 1: and it really speaks to structural unemployment because of Boeing
9:20
Speaker 1: is eliminating nineteen thousand jobs this year. How many of
9:22
Speaker 1: those jobs that had been created in the economy will
9:25
Speaker 1: ever come back? All right, let's move to big tech.
9:28
Speaker 1: Maybe there's hope in big tech, but today, at least
9:32
Speaker 1: we were moving to big tech because we're going to
9:33
Speaker 1: talk about the congressional hearing that's beginning in about ten minutes.
9:38
Speaker 1: We'll have four of the big CEOs, including Jeff Bezos,
9:40
Speaker 1: who's never testified in front of Congress before, and of
9:43
Speaker 1: course Tim Coke of Apple, Alphabets, Sounder, Phi, and Mark
9:46
Speaker 1: Zuckerberg of Facebook appearing before the committee. Let's bring in
9:51
Speaker 1: Jen Reid to talk to us about what we might
9:52
Speaker 1: expect out of today. She's senior Litigation and idolst at
9:56
Speaker 1: Bloomberg Intelligence. Jen, from what angle can be ex like
10:00
Speaker 1: the most you know attacks on these CEOs? You know,
10:05
Speaker 1: I think it'll be different for each CEO because the
10:08
Speaker 1: issues that each company has, at least in the antitrust
10:11
Speaker 1: world are really different and their businesses are quite different. Um,
10:15
Speaker 1: So getting into the nitty gritty, it'll be different. But Bonnie,
10:18
Speaker 1: I think overall, there's a lot of concern about data
10:22
Speaker 1: and the amount of data that are in the hands
10:24
Speaker 1: of these companies and what they do with that data, um,
10:27
Speaker 1: and how that data allows them to maintain their position
10:30
Speaker 1: and maybe keep rivals down, and so that could be
10:33
Speaker 1: one overall you know, overriding theme or something that they
10:36
Speaker 1: really grill these companies on. And I also think it's
10:39
Speaker 1: gonna be a little bit different depending on who's doing
10:41
Speaker 1: the questioning, you know, I think that Democrats are a
10:43
Speaker 1: little bit more focused here on anti trust and market
10:46
Speaker 1: power and harm to consumers, whereas I think some of
10:49
Speaker 1: the Republicans at least are a little bit more focused
10:52
Speaker 1: on whether or not these companies are biased and whether
10:55
Speaker 1: they're censoring conservative content, which isn't an anti trust issue,
10:59
Speaker 1: but I think will come up. So, Jen, I mean,
11:02
Speaker 1: you're right, these are different companies of different profiles, but
11:05
Speaker 1: they're all huge in terms of market capitalization, in terms
11:08
Speaker 1: of front of mind for consumers, for investors, and now
11:12
Speaker 1: for potentially regulators. Do you have a sense that which
11:15
Speaker 1: companies might be more or less at risk here from
11:18
Speaker 1: just overall regulatory oversight? Absolutely, I think by far it's
11:23
Speaker 1: Google and Facebook, um, whether it be regulatory oversight, whether
11:28
Speaker 1: it be some sort of a challenge from the FTC
11:31
Speaker 1: or d o j UM. You know, Google, we've already
11:33
Speaker 1: seen has been fined in Europe several times for anti
11:36
Speaker 1: competitive behavior and it could amount to anti competitive behavior
11:40
Speaker 1: here as well, the same conduct. Um, we do understand
11:44
Speaker 1: that Bill Barr and the d o J is likely
11:46
Speaker 1: to bring some sort of action against Google this year.
11:49
Speaker 1: So I think the risk is highest for Google. And
11:51
Speaker 1: then on Facebook. Um, you know, it just seems, at
11:55
Speaker 1: least from the outside observer, that they really have had
11:57
Speaker 1: a strategy of going out of the years and acquiring
12:01
Speaker 1: nascent competitors. And I think there's all there is a
12:04
Speaker 1: lot of scrutiny on that kind of conduct and what
12:07
Speaker 1: would have come happened with what's happened with Instagram had
12:11
Speaker 1: Facebook not acquired these companies. Um, and and so I
12:15
Speaker 1: think that Facebook is also at risk. I think Amazon
12:19
Speaker 1: would be next, and then Apple last. I don't see
12:21
Speaker 1: Apple having a lot of risk here. No, I mean Facebook,
12:25
Speaker 1: let's deal with that for a moment. How much will
12:28
Speaker 1: Zuckerberg be questioned about, you know, fact checking political ads
12:33
Speaker 1: and how they refused to do it and that it's
12:35
Speaker 1: not really because of free speech, it's more a business decision.
12:38
Speaker 1: And William R. John scathed as he and all of
12:40
Speaker 1: the other tex CEOs newly always do you know, Vinny,
12:44
Speaker 1: I absolutely think he will be questioned on that again,
12:47
Speaker 1: even though this is meant to be an anti trust
12:49
Speaker 1: hearing and that isn't an anti trust issue. I think
12:52
Speaker 1: it will be probably a big part of his UH,
12:56
Speaker 1: his answers to questions and his answers in UM this
12:59
Speaker 1: here ring With respect to coming out unscathed UM, you know,
13:04
Speaker 1: they generally do, and I think they will in this
13:07
Speaker 1: instance as well, because one, I just don't know how
13:11
Speaker 1: effective UM it can be when it's set up the
13:14
Speaker 1: way it is, with five minutes of questioning of each
13:17
Speaker 1: of these CEOs. UH. Usually these hearings in the past
13:21
Speaker 1: have tended to be more partisan speechmaking UM and and
13:25
Speaker 1: sort of grandstanding than they have been productive or casting
13:30
Speaker 1: any of these companies in a bad light. UM. So
13:34
Speaker 1: I don't I don't see any of them coming out
13:36
Speaker 1: of this fearing damaged. Is there any realistic threat frond
13:42
Speaker 1: of these companies from a breakup standpoint? That's just to me.
13:46
Speaker 1: They just seems so big and so entrenched in the
13:50
Speaker 1: economy and in people's lives. It just seems difficult. But
13:53
Speaker 1: I still hear people calling for it, you know, Paul,
13:58
Speaker 1: I think the biggest risk to them is actually le legislation.
14:00
Speaker 1: And I say that because to try to achieve the
14:03
Speaker 1: breakup of one of these companies in court, which is
14:05
Speaker 1: what the FDC or DJ would have to do if
14:08
Speaker 1: that's what they're seeking, is extremely hard. I mean, it
14:11
Speaker 1: might even be hard just to hold these companies liable
14:14
Speaker 1: for illegal monopolization because the way our antitrust laws have developed,
14:18
Speaker 1: the precedents that the judges would have to follow make
14:21
Speaker 1: it actually very difficult for a plaintiff to proves that
14:24
Speaker 1: proved their case in this area. So not only do
14:27
Speaker 1: they have to prove their case, but to get that
14:28
Speaker 1: kind of a remedy, which would absolutely be considered the
14:31
Speaker 1: most drastic remedy that could be imposed by a judge,
14:35
Speaker 1: I think would be incredibly difficult. You know, we saw
14:37
Speaker 1: that it failed years ago with Microsoft, and I have
14:40
Speaker 1: to say that in that case, Microsoft was a blatant
14:43
Speaker 1: and egregious violator of the antitrust laws. You know, they
14:46
Speaker 1: were engaging in anti competitive conduct that was clearly anti competitive,
14:50
Speaker 1: with very little legitimate pro competitive business justification for what
14:54
Speaker 1: they're doing. I don't think that will be the case
14:56
Speaker 1: for these companies. So even though it's possible that it
15:00
Speaker 1: it will be launched by the d J, r FDC
15:02
Speaker 1: to try to seek a breakup or divestiture. I don't
15:05
Speaker 1: see it as having a likelihood of success in court. Interesting, Jenry,
15:10
Speaker 1: thanks so much for joining us. We always appreciate your thoughts.
15:13
Speaker 1: You have that unique and experienced viewpoint of antitrust law,
15:17
Speaker 1: and it's certainly gonna be front and center today as
15:19
Speaker 1: the tech titans appear before Congress. Jennifer Ree, she's a
15:23
Speaker 1: senior antitrust litigation analysts for Bloomberg Intelligence. In a real
15:27
Speaker 1: ace up our sleep and I think is a backstage
15:30
Speaker 1: in Congress pol Yeah, like, are they all in the
15:34
Speaker 1: corridors right now to try to wipe the sweat off there? Well,
15:37
Speaker 1: I think they're all gonna be virtual today, right. I
15:39
Speaker 1: think there will be virtual appearances by good points, so
15:42
Speaker 1: you know it would be interesting. So the a's actually break,
15:44
Speaker 1: I would say. But anyway, Amazon's Jeff Bezos, Apples, Tim Cook,
15:47
Speaker 1: Alphabet Sundar Pinchai, and Facebook Mark Zuckerberg. They are testifying
15:51
Speaker 1: before the House Subcommittee on Antitrust, Commercial and Administrative Law
15:56
Speaker 1: that is at twelve noon. Bloomberg Radio will bring that
15:59
Speaker 1: to live, so it'll be very interesting for the technology
16:03
Speaker 1: sector here. So off to see how they play out.
16:06
Speaker 1: So that'll be very interesting. So we'll have to see,
16:09
Speaker 1: you know, we'll have to see that the stocks have
16:10
Speaker 1: done great. I mean, the stocks aren't worried about Vannie,
16:13
Speaker 1: so they keep powering along. They're leading this economy. Uh
16:16
Speaker 1: and that is kind of the leading the stock market
16:18
Speaker 1: certainly so. But it'll be very interesting to see how
16:20
Speaker 1: they perform in front of Congress. Will bring that to you.
16:25
Speaker 1: Time to talk bonds now fixed income more broadly, so,
16:28
Speaker 1: the tenure hasn't really moved from its range. It's at
16:30
Speaker 1: about fifty eight basis points as we await the FED.
16:33
Speaker 1: But really the tenure just doing nothing. But if you
16:35
Speaker 1: look at measures of credit risk, they're easing today on
16:39
Speaker 1: prospects for a FED reiterating that it's going to be
16:42
Speaker 1: doublished for a long time. Let's bring in someone who
16:44
Speaker 1: knows all about these things. Stephen Kane is a group
16:47
Speaker 1: managing director and portfolio manager at TCW Fixed Income two
16:50
Speaker 1: five billion dollars in firm wide assets under management, and
16:54
Speaker 1: Stephen joins us. Now, Stephen, why should credit risk be
16:57
Speaker 1: easing when we're really not going to hear anything new
17:00
Speaker 1: from the Federal Reserve today? I think what you're seeing
17:04
Speaker 1: is really just an ongoing um flood of liquidity you know,
17:08
Speaker 1: in the marketplace. So it's nothing new today. It's not
17:12
Speaker 1: really built upon anything that the credit markets are expecting
17:15
Speaker 1: from the FED, but really an ongoing comfort, if you will,
17:19
Speaker 1: that the FED is going to be accommodative, You're going
17:21
Speaker 1: to get fiscal um, some sort of fiscal package um,
17:25
Speaker 1: and that you'll get ongoing liquidity coming into the marketplace. So, Steve,
17:30
Speaker 1: I knowe you folks at TCW generally a very conservative
17:33
Speaker 1: view here. There was initially during this pandemic talk about
17:37
Speaker 1: a v shaped recovery. That does not seem to be
17:39
Speaker 1: the case. Well, what are your thoughts? Well, um, I
17:43
Speaker 1: mean I think there was hope going back a couple
17:45
Speaker 1: of months that um, you know, the virus could be
17:48
Speaker 1: dealt with through you know, social distancing and other preventative
17:52
Speaker 1: measures and companies could you know, the economy could begin
17:56
Speaker 1: to reopen and you could get companies rehiring again. Obviously
17:59
Speaker 1: that's not been the case. Um. We think that this
18:03
Speaker 1: is going to be a very challenging recovery and it's
18:05
Speaker 1: not simply that the viruses is uh appears to be
18:10
Speaker 1: with US UM and a threat for some period of time.
18:13
Speaker 1: It's really that UM the disruption that that the closing
18:17
Speaker 1: down the economy has caused, meaning that you've had a
18:21
Speaker 1: number of industries UM suffer significant UM impacts, travel, hospitality,
18:28
Speaker 1: most service businesses, restaurants, et cetera. And that UM in
18:32
Speaker 1: turn leads to job loss and bankruptcies and and things
18:36
Speaker 1: that are going to lead, we think, to a fairly
18:38
Speaker 1: deep procession and fairly elevated levels of unemployment for a
18:42
Speaker 1: prolonged period of time. So even when we get through
18:45
Speaker 1: this virus, even if we're able to UM you know,
18:48
Speaker 1: have a vaccine and relatively short order, the after effects
18:51
Speaker 1: of the procession and the impact on service industries is
18:54
Speaker 1: going to be rather permanent UM. And we think that's
18:59
Speaker 1: going to be a fundamental headwind for the economy. So
19:04
Speaker 1: why worry about adding to the deficit and the dead Ultimately?
19:08
Speaker 1: Should we be worried about that? Will it hurt the
19:10
Speaker 1: US bond markets, the US credit rating? You know, the
19:14
Speaker 1: US dollar is a reserve currency. Or is it more
19:17
Speaker 1: important to fix the economy right now? Well? I think
19:21
Speaker 1: UM certainly policymakers and I think are doing what they
19:24
Speaker 1: have to do meaning UM, I think supporting the economy
19:28
Speaker 1: through UM through stimulus is what's necessary to keep this
19:33
Speaker 1: recession from becoming even deeper or even you know, potentially
19:36
Speaker 1: a depression. So you know, you have to solve the
19:39
Speaker 1: problem today before it becomes too big to solve down
19:42
Speaker 1: the road, and so they're doing what they have to now.
19:44
Speaker 1: The long term implications are unknown at this point, but certainly, UM,
19:50
Speaker 1: I think you're seeing weakness in the dollar is partly
19:53
Speaker 1: reflecting the fact that UM in the U S is
19:56
Speaker 1: running large deficits and printing huge sums of money, have
20:00
Speaker 1: very sizeable monetary growth and UM and and that's certainly
20:04
Speaker 1: weighing on the dollar. I think longer term, it's possible
20:08
Speaker 1: you could see inflation. You've seen some modest drift up
20:11
Speaker 1: in inflation expectations, and I think certainly if the government
20:15
Speaker 1: continues to support the demand side side of the economy
20:18
Speaker 1: with the supply side of the economy being impaired, UM,
20:23
Speaker 1: you know, you could see inflation. UM. In terms of
20:26
Speaker 1: the US credit rating, I think that's an issue far
20:30
Speaker 1: down the road, in terms of whether you know the markets, UH,
20:33
Speaker 1: the U S dollar you loses its reserve currency status
20:36
Speaker 1: and you begin to see you know, default risk being
20:38
Speaker 1: priced into the US market. I think that's that's far
20:40
Speaker 1: down the roof, Steve, given your relatively cautious outlook, where
20:44
Speaker 1: do you see opportunities or value in a fixing come
20:47
Speaker 1: markets right here? Well, it's getting more and more challenging.
20:51
Speaker 1: As as we've mentioned in the past. UH, the markets
20:54
Speaker 1: were a lot more interesting a few months ago when
20:57
Speaker 1: we were really adding risk uh aggressively. But now that
21:01
Speaker 1: you've kind of retraced UM spreads, you've got investment grade
21:05
Speaker 1: spreads into into the mid one twenties and high yield
21:08
Speaker 1: back to five hundred off after being you know, well
21:11
Speaker 1: north of a thousand. We're seeing less and less value
21:14
Speaker 1: in credit and we've we've been trimming now. Having said that, UM,
21:19
Speaker 1: there's still some opportunities out there and still some areas
21:22
Speaker 1: of value, beginning with the agency mortgage UM sector, which
21:26
Speaker 1: is obviously being directly supported by the FED through forty
21:29
Speaker 1: billion of purchases monthly. And that's not only keeping valuations
21:33
Speaker 1: steady and stable, but providing attractive carry and return, particularly
21:38
Speaker 1: in the in the forward market. In the agency mortgage
21:42
Speaker 1: tv A market UM, there's areas of the investment grade
21:46
Speaker 1: corporate market that look interesting, money center banks, consumer noncyclicals,
21:50
Speaker 1: food and beverage. UM spreads are still reasonably attractive there.
21:54
Speaker 1: And you know these are businesses generally speaking, with strong
21:57
Speaker 1: balance sheets and uh you know his ability through a
22:01
Speaker 1: very difficult economic environment. So UM in terms of high yield,
22:06
Speaker 1: you have to be very careful, UM in terms of
22:08
Speaker 1: treading in that area, and we are definitely being you know,
22:12
Speaker 1: cautious and trimming exposure is UM as valuations UH go higher.
22:17
Speaker 1: Steve Kane, thanks so much for joining us. Aways appreciate
22:19
Speaker 1: your comments. Steve Kane, Group managing director and portfolio managed
22:23
Speaker 1: for tc W fixed Income. They've got two billion and
22:27
Speaker 1: firm wide assets under management, so they know their way
22:30
Speaker 1: around the fixed income markets here. Again, cautious view out
22:35
Speaker 1: of tc W. That's been pretty consistent, and I think,
22:37
Speaker 1: you know, you think about that V shape recovery. I
22:39
Speaker 1: don't hear people talking about that much anymore as this
22:42
Speaker 1: pandemic hangs on and we see resurgence in certain key
22:45
Speaker 1: markets in the US and abroad. Busy, busy earnings day.
22:50
Speaker 1: We have some industrial companies today, Boeing reboarding earnings, GE
22:54
Speaker 1: also reported earnings. Both of those stocks are off in
22:57
Speaker 1: trading today, suggesting that infestors were a little disappoint Let's
23:00
Speaker 1: break down the numbers from those two giants. We can
23:02
Speaker 1: do that with Brooks Sutherland, she's Deals and industrials columns
23:05
Speaker 1: for Bloomberg Opinion, joins us on the phone from the
23:09
Speaker 1: center of this country in Kansas. Brook Thanks so much
23:12
Speaker 1: for joining us here. What are your takeaways from some
23:15
Speaker 1: of these bell Weather industrial names. Yeah, I mean, I
23:20
Speaker 1: think for both of them, the key focus was on
23:23
Speaker 1: cash flow, and the numbers did come in, you know,
23:27
Speaker 1: a bit better than what analy hadn't been expecting. But
23:30
Speaker 1: you're still looking at a pretty bleak situation here with
23:34
Speaker 1: g burning, you know, more than two billion boings burning
23:37
Speaker 1: more than five billion UM. It's rough out there in
23:40
Speaker 1: the arrow space sector. And I think you know, what
23:42
Speaker 1: you're hearing from these companies is what we've heard from
23:45
Speaker 1: the other aviation companies that are when is so far
23:49
Speaker 1: there is not you know, a turnaround that's just around
23:52
Speaker 1: the bend. I mean, you know, the g E CEO
23:54
Speaker 1: Larry Cole pointed to some positive signs, mostly um, you know,
23:59
Speaker 1: in China around a pick up and travel there. But
24:02
Speaker 1: of course that is all domestic you're not seeing the
24:04
Speaker 1: international lives come back. UM. And in the US, where
24:07
Speaker 1: we have been seeing early signs of our recovery, that's
24:09
Speaker 1: now taking a step back on this resurgence in coronavirus
24:13
Speaker 1: cases UM. And So you know, I think what investors
24:17
Speaker 1: are sort of possibly rightly concluding here is that this
24:20
Speaker 1: is still a very tough slog and if you were
24:23
Speaker 1: hoping for glimmers of hope, you're not really going to
24:25
Speaker 1: find it. UM. And the announcements from Bowing and ge today,
24:29
Speaker 1: who are bowing you that seven thirty seven Max problems,
24:32
Speaker 1: we are going to be outdone by other problems in
24:36
Speaker 1: what is the story with the seven thirty seven Max.
24:38
Speaker 1: I mean it kind of somehow saves Bowling in the end. Yeah,
24:43
Speaker 1: I I would be very skeptical of that UM notion.
24:46
Speaker 1: So you know, at this point, signals from regulators look
24:49
Speaker 1: like this may be allowed back in the sky UM
24:52
Speaker 1: in sort of the early fourth quarter. But of course,
24:55
Speaker 1: the issue now for Bowing is not whether regulators approved it.
24:58
Speaker 1: It's whether anybody wants the plane once they're able to
25:02
Speaker 1: take deliveries. That begins. The Southwest is the biggest operator
25:05
Speaker 1: of the Max, and CEO Gary Kelly was very clear
25:08
Speaker 1: last week that he is not interested in taking any
25:11
Speaker 1: max jets, any new max jets. Let's just say this
25:14
Speaker 1: year they already have about thirty four that are parked.
25:17
Speaker 1: That's going to be about all they can handle to
25:19
Speaker 1: bring back, you know, at a time when obviously airlines
25:21
Speaker 1: are looking to take planes out of the circulation to
25:24
Speaker 1: deal with the drop off in demand. Um So, you know,
25:27
Speaker 1: there's some skepticism among analysts that Boeing is not going
25:31
Speaker 1: far enough and dialing back productions forty seven Max. It
25:35
Speaker 1: did take that down again today, saying it expects to
25:38
Speaker 1: get to thirty one a month by early two, which
25:41
Speaker 1: is pushed back from an earlier time frame one. But
25:44
Speaker 1: that may not be going far enough because they still
25:47
Speaker 1: got about four and a shifty planes that are parts
25:49
Speaker 1: that they haven't been able to deliver. And you know
25:51
Speaker 1: the question is who's going to take them on what
25:54
Speaker 1: time frames? Four planes that are just part that's extraordinary,
25:59
Speaker 1: And it just kind of goes wow, and it just
26:01
Speaker 1: goes to the I guess, as you've been talking about, Brooke,
26:03
Speaker 1: the lack of demand from the airline customers for for ge,
26:07
Speaker 1: is this a story of just cutting cost cutting, cost
26:10
Speaker 1: cutting costs until things turn around. I don't see any
26:14
Speaker 1: other kind of growth driver there. I know people focus
26:16
Speaker 1: on the power business, but I can't imagine that demand
26:19
Speaker 1: there is very good either. It's not, no, I mean,
26:22
Speaker 1: and this has really been a step back to the
26:25
Speaker 1: Power division, which was showing you know, some stability and
26:29
Speaker 1: sort of you know, it's not as pros, you know,
26:33
Speaker 1: maybe being left of the drags for GE, and that
26:35
Speaker 1: of course has been set back. You know, they are
26:38
Speaker 1: still optimistic about a turnaround in power, but the timeline
26:42
Speaker 1: has just been delayed. They are being very aggressive about
26:45
Speaker 1: cost cut um I speak with Larry Cold just a
26:48
Speaker 1: little bigger and act and you know if they would
26:50
Speaker 1: follow down going and increasing their job sets that it's
26:54
Speaker 1: premature to think about anything like that at this time.
26:57
Speaker 1: In aviation, they are cutting about I count there. So
27:00
Speaker 1: that is the aggressive toss move on their front. You know,
27:04
Speaker 1: I will say that in terms of a recovery, g
27:08
Speaker 1: will probably see that before Boeing, just because of the
27:11
Speaker 1: nature of their business. So GE benefits by points coming
27:14
Speaker 1: back into service UM and needing maintenance work, meeting repairs
27:19
Speaker 1: their parts, that kind of thing. So you will see
27:21
Speaker 1: that come back faster than you'll see demand for new things.
27:24
Speaker 1: But you know, for both of these companies, you're looking
27:26
Speaker 1: at a pretty protracted timeline very basically book any comments
27:30
Speaker 1: on China either of them, uh, you know, in terms
27:35
Speaker 1: of what travel uh they are seeing you know, a
27:38
Speaker 1: little bit of a recovery. They're just immenentally, but you're
27:41
Speaker 1: not really seeing that international demands. Of course, many travel
27:44
Speaker 1: bands remain in this place. There wasn't really any discussion
27:47
Speaker 1: at this point on seriffs UM. You know, I think
27:50
Speaker 1: that has sort of moved out of the minds of
27:53
Speaker 1: CEOs at this point. Is we're dealing with um, you know,
27:55
Speaker 1: these sort of catastrophic declines in demand for air travel.
28:00
Speaker 1: I don't know that that's necessarily quite a top of
28:02
Speaker 1: mind was it was in but certainly an issue UM
28:05
Speaker 1: in the background. There. Brook Sutherland always encyclopedia of knowledge
28:10
Speaker 1: when it comes to the industrials. She covers them for
28:12
Speaker 1: Bloomberg Opinion and for Bloomberg more generally. We'll be awaiting
28:15
Speaker 1: her columns on both Ge and Boeing, among others this
28:19
Speaker 1: earning season. It's a book. Thank you and Paul. It
28:23
Speaker 1: is interesting that you know, orders down thirty for ge,
28:28
Speaker 1: but the stock actually reacts positively because that's how you
28:32
Speaker 1: know wasn't as bad as anticipated. I mean, it is
28:34
Speaker 1: down four percent, but it hasn't completely tamped. Thanks for
28:38
Speaker 1: listening to Bloomberg Markets podcast. You can subscribe and listen
28:42
Speaker 1: to interviews at Apple Podcasts or whatever a podcast platform
28:45
Speaker 1: you prefer. I'm Bonnie Quinn, I'm on Twitter at Bonnie
28:49
Speaker 1: Quinn and Paul Sweeney I'm on Twitter at pt Sweeney.
28:51
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Speaker 1: Bloomberg Radio m