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Trillions In Stimulus Going Out The Door Without Any Oversight · 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, A, market pros, and
0:09
Speaker 1: Bloomberg experts, along with essential market moving news. Find the
0:12
Speaker 1: Bloomberg Markets Podcast on Apple Podcasts or wherever you listen
0:16
Speaker 1: to podcasts, and on Bloomberg dot com. Well, the US
0:20
Speaker 1: has spent more than half of three trillion dollars in
0:24
Speaker 1: economic rescue funds passed by Congress, however, with little of
0:27
Speaker 1: the oversight intended to ensure that the money goes to
0:30
Speaker 1: the right places. To get more color on this, we
0:33
Speaker 1: welcome lad Davison Sherroda, a fantastic story on this city's
0:35
Speaker 1: congressional tax reporter for Bloomberg News, joining us from on
0:39
Speaker 1: the phone from Washington, d C. So, Laura, how can
0:41
Speaker 1: a billion and a a half dollars be spent with little
0:44
Speaker 1: to know oversight? Well, part of this was the way
0:49
Speaker 1: that Congress designed it is. They wanted to get a
0:51
Speaker 1: bunch of money into the economy really quickly. You know
0:54
Speaker 1: those stimulus checks that went out, use those p P
0:56
Speaker 1: P loans, all of these things, because people and businesses
0:59
Speaker 1: needed money right away is basically ground to a halt
1:02
Speaker 1: in March. The problem though, is, as we're finding out,
1:05
Speaker 1: is that when you move quickly, you sometimes break things
1:08
Speaker 1: and there are problems and and there's no one there
1:11
Speaker 1: watching how the money is being spent. Who is going
1:14
Speaker 1: to so it opens up a lot of doors for
1:16
Speaker 1: for potential for fraud um or as well as just
1:19
Speaker 1: you know, things that that aren't spent in the in
1:21
Speaker 1: the best way. So Laura, who was supposed to be
1:25
Speaker 1: watching this UM, well it's not just Secretary Manu and
1:29
Speaker 1: there were supposed to be somebody's watching this right Yes, Yeah,
1:32
Speaker 1: there's actually a bunch of different groups. So there's a
1:34
Speaker 1: there's a group in Congress that that's overseeing this UM.
1:37
Speaker 1: They are really just getting started that the it's a
1:41
Speaker 1: bipartisan group. Both Pelosi and McConnell get to appoint people,
1:44
Speaker 1: but there's been a lot of disagreement over who should
1:46
Speaker 1: be chairman. It has to be a bipartisan pick. They've
1:49
Speaker 1: been back and forth on this for several months and
1:51
Speaker 1: they haven't been able to agree on someone. So so
1:54
Speaker 1: that group is well, it exists, has has not really
1:56
Speaker 1: been able to do much yet. There's also a new
1:59
Speaker 1: special and Factor General that will be overseeing a lot
2:02
Speaker 1: of this money. Um that pick was just approved earlier
2:05
Speaker 1: this month. He really doesn't even have an office space yet.
2:08
Speaker 1: So this is a you know, you're you're really talking
2:10
Speaker 1: about people that don't have letterhead paper, they don't have
2:13
Speaker 1: you know, a phone system set up. There's there's really
2:15
Speaker 1: not infrastructure for them to even you know, send emails,
2:18
Speaker 1: much less conduct a lot of big oversight work. Yeah,
2:21
Speaker 1: the sp A reporting that loans have been approved for
2:23
Speaker 1: four point six million small businesses already, Laura five billion
2:28
Speaker 1: dollars worth. So there's still about a hundred and thirty
2:31
Speaker 1: billion and funding remaining. Will it be all you know,
2:35
Speaker 1: applied for if you like, because what do you get
2:38
Speaker 1: like two months son, you have to keep everybody on
2:40
Speaker 1: your staff, and you know a lot of small businesses
2:43
Speaker 1: aren't not even applying for it because in two months
2:46
Speaker 1: time it may not may not be worth it for
2:48
Speaker 1: them to have some two high percent of their staff
2:50
Speaker 1: on their payrolls. Still. Yes, Yeah, so there's as you mentioned,
2:54
Speaker 1: there's about a hundred and thirty billion dollars left in
2:56
Speaker 1: that pot of funds and and applications for that money
2:59
Speaker 1: closed at the end of the month. And it's it's
3:01
Speaker 1: very likely that there will be tens of billions, if
3:03
Speaker 1: not more than a hundred billion dollars um left um
3:06
Speaker 1: of that money. So the question is sort of what
3:08
Speaker 1: happens with it? Does Congress reappropriate that for for other purposes.
3:11
Speaker 1: Maybe businesses who have already gotten some money could come
3:14
Speaker 1: back for for a second loan. Those are all, you know,
3:17
Speaker 1: kind of things that that Congress is still having to
3:18
Speaker 1: think about right now. Um and and but it's it's
3:22
Speaker 1: very likely that that there will be some money left
3:24
Speaker 1: because a lot of businesses have decided that it's either
3:27
Speaker 1: to apply for this money or uh you know. There's
3:29
Speaker 1: also some political risk because we saw with with larger
3:32
Speaker 1: companies who applied qualified for the money, but uh you know,
3:35
Speaker 1: shake shack and pot bellies who were then um, you know,
3:38
Speaker 1: shamed by by politicians saying, hey, this is really should
3:40
Speaker 1: be for the for the little guys. So Laura is there.
3:44
Speaker 1: Tim O'Brien was on with us earlier today. He has
3:46
Speaker 1: a column out suggesting that a lot of this money
3:48
Speaker 1: is not getting to the small business owner, maybe the
3:51
Speaker 1: small business owner of color, some of the folks who
3:54
Speaker 1: really needed the most is there concern within Washington that
3:58
Speaker 1: this program is not being uh, the money is not
4:01
Speaker 1: being spent correctly or wisely. There's a lot of concern,
4:05
Speaker 1: particularly from Democrats on the um the minority issue of
4:10
Speaker 1: is this money going to rural communities, to my minority communities, uh,
4:13
Speaker 1: to to underserve communities. UH. There's been several hearings on
4:16
Speaker 1: Capitol Hill and there's a big push UH on Secretary
4:21
Speaker 1: Magnution to release sort of the granular levels data on
4:24
Speaker 1: the program. You know, which businesses have received this money
4:27
Speaker 1: and how much they've gotten. Monution said last week that
4:29
Speaker 1: he was not planning to release that instance. Then you
4:32
Speaker 1: seed a big outcry from remembers of both parties saying, hey,
4:35
Speaker 1: you know this is this is taxpayer money. We should
4:37
Speaker 1: be able to see where it's going. I mean, the
4:39
Speaker 1: problem with opening an investigation now is that, as you say,
4:43
Speaker 1: you know, more than five billion dollars of this has
4:45
Speaker 1: already been dispersed. So if there has been fraud, what
4:48
Speaker 1: happens to that money? And will it be too late
4:50
Speaker 1: for the small businesses that ended up having to chose
4:52
Speaker 1: because they weren't able to get access to some of
4:54
Speaker 1: that money in the early days. You know that that's
4:57
Speaker 1: a really good question. There's a lot of unknowns there,
4:59
Speaker 1: you know, inter terms of recouping some of the money.
5:01
Speaker 1: You know, if there is you know, cases of outline fraud,
5:04
Speaker 1: you know, the government could go and pursue legal action
5:06
Speaker 1: against that. But if it's just sort of a you know,
5:09
Speaker 1: the money didn't maybe wasn't allocated in the best way possible,
5:12
Speaker 1: and um, some businesses got fell through the cracks. That's
5:15
Speaker 1: really more of a question for Congress of do they
5:16
Speaker 1: want to have a second loan program for for some
5:20
Speaker 1: of these businesses that didn't get helped the first round. Um,
5:22
Speaker 1: that's certainly possible, that that would be very politically difficult
5:25
Speaker 1: right now is there's lots of debate in Washington about
5:27
Speaker 1: if there should be another stimulus bill and if so,
5:30
Speaker 1: how much should that encompass. Yeah, it's a great story, Laura.
5:34
Speaker 1: I mean we've we've heard, you know, some hedge funds
5:36
Speaker 1: have applied for this and so on. But you you
5:37
Speaker 1: point to the reality television personality who tapped a two
5:40
Speaker 1: million dollar loan from the p p P and actually
5:44
Speaker 1: went and Boltz and Diamond Jutlry under roll lex Watch
5:46
Speaker 1: because we can't who can't have a role Lex Watch
5:50
Speaker 1: and Diamond jutlry together at the same time. Lauras, thank
5:53
Speaker 1: you for joining us today. There's Laura Davison, Congressional tax
5:56
Speaker 1: reporter for Bloomberg. Boy is she going to be busy.
5:59
Speaker 1: But he now November and then beyond November, no doubt
6:02
Speaker 1: as well. Paul, Yeah, because I think there's, you know,
6:04
Speaker 1: the next thing coming down, Bonnie, is another piece of
6:06
Speaker 1: fiscal stimulus coming from Congress, so and that will be
6:09
Speaker 1: much more political than I think this most recent package
6:11
Speaker 1: of three trillion dollars exactly, And you know, you you
6:15
Speaker 1: just have to wonder if it's going to be as
6:17
Speaker 1: big a package and when it will come, and you know,
6:20
Speaker 1: if it will start to to get into election season
6:23
Speaker 1: at that point, and how that will impact things. Time
6:27
Speaker 1: now to look ahead to the FED chairs second day
6:30
Speaker 1: of his Humphrey Hawkins testimony on Capitol Hill Today, we'll
6:34
Speaker 1: digest what he said yesterday and also pose some questions
6:37
Speaker 1: and pointed questions to our next guest, who is Christina Hooper,
6:40
Speaker 1: Chief Global Market Strategies. To add Investco assets under management
6:43
Speaker 1: there of more than a trillion dollars. Christina you were
6:46
Speaker 1: watching the FED chairs performance last week very very closely,
6:50
Speaker 1: as is everybody. Right now, what do you think the
6:54
Speaker 1: FED is responsible for in these markets? Not the economy,
6:58
Speaker 1: but just in these markets. I was reading or to
7:00
Speaker 1: pearently of Cornerstone the other day and he talks about
7:02
Speaker 1: looking at more than ten million different valuation models for
7:06
Speaker 1: the S and P five hundred and finding that nine
7:09
Speaker 1: of them, say, the SMP five D is overvalued today
7:12
Speaker 1: by a weighted average about twelve percentage points. What say you,
7:18
Speaker 1: I would agree, Uh, there is a lot that FED
7:22
Speaker 1: share Powell is responsible for. He has created an enormous
7:26
Speaker 1: amount of confidence in markets UM. But in doing so,
7:30
Speaker 1: he has also created UM or I should say, has
7:35
Speaker 1: skewed risk reward profiles for different asset classes. Now this
7:39
Speaker 1: is nothing new. We saw this happen during the global
7:42
Speaker 1: financial crisis when the FED stepped in with what was
7:46
Speaker 1: then very extraordinary monetary policy, and it really altered the
7:50
Speaker 1: risk reward profiles up. Treasuries UM were altered as well
7:55
Speaker 1: as stocks UM. What's interesting is this time around, the
7:58
Speaker 1: FED has been more expansive and the kind of policy
8:02
Speaker 1: tools it's using, and so it's altering a lot of
8:05
Speaker 1: risk assets, not just stocks, but in particular stocks have
8:09
Speaker 1: certainly benefited, and I would argue the FED has decoupled
8:13
Speaker 1: the stock market from the economy. So, Christina, given that
8:18
Speaker 1: last comment that perhaps the fetis de coupled the stock
8:20
Speaker 1: market from the economy. As an equity investor, what are
8:24
Speaker 1: you doing now? Well, what you need to do is,
8:27
Speaker 1: of course, maintain a focus on the long term, be
8:30
Speaker 1: well diversified, but have adequate exposure to risk assets. We're
8:34
Speaker 1: actually in a better place than we were during the
8:36
Speaker 1: global financial crisis, just because we saw how that played
8:40
Speaker 1: out UM, and of course investors need to maintain exposure
8:45
Speaker 1: to risk assets. In fact, perhaps the biggest lesson learned
8:47
Speaker 1: from the global financial crisis was to not get out
8:51
Speaker 1: when you get scared UM, stay in, stay diversified UM,
8:56
Speaker 1: but don't lock in your losses and stand on the sidelines.
9:00
Speaker 1: One thing we know about stretched valuations is that they
9:04
Speaker 1: are not predictive of performance in the short run, and
9:08
Speaker 1: so it's one of those things where investors need to
9:11
Speaker 1: be well diversified, hold their nose and maintain long term allocations.
9:17
Speaker 1: How do you define the short term in these times, Christina?
9:21
Speaker 1: Is there a different definition of time when we're in
9:24
Speaker 1: a pandemic. Well, that could very well be the case.
9:29
Speaker 1: But what we have and what we have to recognize,
9:31
Speaker 1: is that there is not a lot of insight into
9:34
Speaker 1: what's going to happen in the coming months. Right, we
9:38
Speaker 1: have more than one in three companies in the SMP
9:42
Speaker 1: have dispensed with earnings guidance this year. Now, that really
9:46
Speaker 1: sends a message about how cloudy um things are. And
9:51
Speaker 1: so of course investors need to look longer term because
9:55
Speaker 1: it is very very difficult to look in the short run,
9:58
Speaker 1: and we need to look at a variety of the
10:00
Speaker 1: a factors because the shape of this economic recovery will
10:04
Speaker 1: be dictated by the events that unfold from here in
10:07
Speaker 1: terms of the kind of fiscal stimulus that is past
10:11
Speaker 1: going forward, as well as the kind of developments we
10:15
Speaker 1: see on the health front. We still know so little
10:17
Speaker 1: about this virus. We're learning more and more each day
10:20
Speaker 1: about how it can be controlled. Uh, and we're learning
10:23
Speaker 1: more and more based on the kind of events that
10:25
Speaker 1: are occurring black Black Lives Matter protests and the kind
10:30
Speaker 1: of infection rates coming out of that, on the kind
10:33
Speaker 1: of infection rates coming out of reopening of economy. So
10:35
Speaker 1: we're learning more each day, and we're also working on
10:38
Speaker 1: the development of therapies and ultimately an effective vaccine. So
10:42
Speaker 1: all those different factors are going to dictate the course
10:44
Speaker 1: of the economic recovery. But one key thing to remember
10:47
Speaker 1: is that the stock market has largely decoupled from that economy.
10:51
Speaker 1: So Christina, how do you feel about valuation right here?
10:53
Speaker 1: We've had a really strong rebound off the bottom that
10:56
Speaker 1: we saw kind of late March early April. Yet you know,
11:00
Speaker 1: the earnings have just been dismal there in the first
11:02
Speaker 1: quarter are going to be even worse here in the
11:04
Speaker 1: second quarter. How do you feel about valuation? Well, evaluations
11:08
Speaker 1: are certainly stretched, UM, but this is an environment where
11:13
Speaker 1: UM much it has been altered by what the FED
11:16
Speaker 1: has done, and especially in an environment where yield has
11:21
Speaker 1: become even more scarce, Investors have to make trade offs.
11:25
Speaker 1: They need to be well diversified, but they can't walk
11:28
Speaker 1: away from exposure to risk assets like stocks. So it's
11:32
Speaker 1: about finding pockets of attractive valuations to balance out the
11:37
Speaker 1: more expensive parts of the market. UM. That includes exposure
11:40
Speaker 1: outside the US. There are parts of emerging markets that
11:43
Speaker 1: look very attractive from evaluation standpoint, and also look attractive
11:48
Speaker 1: in terms of where they are with regards to the
11:51
Speaker 1: economic recovery. Christina, thank you so much for joining us.
11:54
Speaker 1: We really appreciate your thoughts and perspective. As always, Christina Hoover,
11:58
Speaker 1: Chief Global Strategies for Investco, based in Atlanta. Solovanni, I
12:04
Speaker 1: think you know the issue here is, you know, this
12:05
Speaker 1: market has moved higher off the bottom earnings, you know,
12:08
Speaker 1: not necessarily there. But I think my key takeaway from
12:11
Speaker 1: Christina's comments was how she feels like the market is
12:15
Speaker 1: really disconnected, perhaps from the underlying economy. Yeah, and I
12:20
Speaker 1: think that you'll see that reflected in a lot of
12:22
Speaker 1: commentary these days. Even Roberto Party, who I quoted at
12:26
Speaker 1: the beginning of the interview, even he says that from
12:28
Speaker 1: a purely statistical perspective, we would expect only three percent
12:32
Speaker 1: of the correndover evaluation to adjust over the next month
12:35
Speaker 1: all else equals. So I think the lesson is, with
12:36
Speaker 1: the FED basically under writing this market costs all asset classes,
12:41
Speaker 1: there's really not much to do until something changes. Yeah.
12:44
Speaker 1: I like the I like the characterization that the FED
12:47
Speaker 1: is backstopping uh this market. Here. It seems like we're
12:53
Speaker 1: talking more and more about pharmaceutical companies, biotech companies, as
12:57
Speaker 1: we talk about treatments for COVID and potently vaccines. Of course,
13:01
Speaker 1: there's always a lot of M and A in this space,
13:03
Speaker 1: and there's always new drugs coming onto the market that
13:06
Speaker 1: can really impact the market. And when we do talk
13:08
Speaker 1: about these things, there's nobody better to chat with them about.
13:12
Speaker 1: In San Fazelli, he's a director of research in Europe
13:14
Speaker 1: for Bloomberg Intelligence, but as I like to say, his
13:16
Speaker 1: day job is that he is one of the best
13:19
Speaker 1: healthcare analysts in the city of London. Sam, thanks so
13:21
Speaker 1: much for joining us here. Let's start with Lily here.
13:24
Speaker 1: They that stock had a pop recently on some breast
13:28
Speaker 1: cancer data coming out. What's the latest on Eli Lily? First,
13:32
Speaker 1: thank you very much for your very kind words, Paul
13:35
Speaker 1: um Eli Lily. Well, there's not very often that you
13:37
Speaker 1: see a large farmer company share price jump fifteen sixteen.
13:42
Speaker 1: At one point it was up like eight yesterday. So
13:46
Speaker 1: they had a success where I think most people have
13:48
Speaker 1: decided there was not going to be one m A
13:51
Speaker 1: drug they have for breast cancer succeeded earlier, I must say,
13:55
Speaker 1: a year early earlier than expected. In terms of the
13:58
Speaker 1: readoubt preventing reducing the recordance of disease UM in a
14:06
Speaker 1: post operative breast cancer patients in high risk post operative
14:09
Speaker 1: breast cancerpation. So that's that's that's the positive. And of
14:12
Speaker 1: course the reason people were I think being negative about
14:15
Speaker 1: the possibility was because Fiser failed in the same setting. Now,
14:20
Speaker 1: this adds significantly to the revenue potential for this drug.
14:24
Speaker 1: Some people calculate up to four billion potentially and that
14:27
Speaker 1: has a major impact of margins. So the rest of
14:30
Speaker 1: the story falls into place. There are people now going
14:32
Speaker 1: up to you know, staying still. There's another teen per
14:35
Speaker 1: cent or so upside on the stock on the cell side.
14:38
Speaker 1: So that's what drove that one up a complete surprise.
14:41
Speaker 1: Not only did Visor failed, but it failed having already
14:44
Speaker 1: had a head start on ELI Lily by what at
14:47
Speaker 1: least two years, And there was also no varteses cascali treatment.
14:53
Speaker 1: Some what's happening with that? Yes, So so there just
14:57
Speaker 1: quick to touch on this. There's two ways or reasons
14:59
Speaker 1: why I really might have worked UM and where fights
15:03
Speaker 1: it did and finds it went into a much earlier
15:05
Speaker 1: patient group patients with much less advanced or lower risk disease,
15:10
Speaker 1: so to a degree, really loaded the dice in its favor.
15:14
Speaker 1: Not a problem, It just it's that means a smaller
15:17
Speaker 1: population of patients. And also the drug is different um
15:21
Speaker 1: and that is dost constantly as opposed to having to
15:23
Speaker 1: take a drug holiday with the other two including no Artist.
15:26
Speaker 1: Now Novartist is running a similar trial to to Lily,
15:30
Speaker 1: not completely the same, but similar, And they're expecting data
15:33
Speaker 1: by two which therefore why now we mean that it
15:37
Speaker 1: should also read that early. So this is not without competition, alright, Sam,
15:40
Speaker 1: Let's switch cares a little bit to the topic of
15:42
Speaker 1: the day, COVID nineteen. You know, folks in the Trump
15:46
Speaker 1: administration certainly talked they continue to talk about a vaccine
15:50
Speaker 1: availability this calendar year. And as i've you know, talked
15:54
Speaker 1: to you and read your research and other healthcare research,
15:57
Speaker 1: it's just been years and years and years again a
15:59
Speaker 1: drug kind of to market here. What is your sense
16:02
Speaker 1: for you know, the likelihood of the timing of some
16:06
Speaker 1: type of vaccine into the market here. Yes, so I
16:09
Speaker 1: love the phrase you just used at the end, the
16:11
Speaker 1: timing of some type of vaccine. I think the timing
16:14
Speaker 1: of some type of vaccine is very possible to be
16:17
Speaker 1: by the end of this year. The question is, will
16:19
Speaker 1: we have a vaccine that's been through the best and
16:21
Speaker 1: most rigorous safety and long term testing. No, it's impossible.
16:26
Speaker 1: Will we have a vaccine that's available for treating people
16:30
Speaker 1: in a world which God forbid has a real hardcore
16:34
Speaker 1: second wave in the winter? Um and take some risk
16:38
Speaker 1: in terms of accept some potential longer term safety issues.
16:42
Speaker 1: That is something that government and regulators have to accept
16:45
Speaker 1: if they want to inject people with these vaccines that
16:48
Speaker 1: are just being developed. So will there be one that
16:51
Speaker 1: looks like it's working. Yes, yeah, And as you say,
16:55
Speaker 1: we'll likely need several some During this whole time, I've
16:58
Speaker 1: been wondering why it has been easier to change supply chains,
17:03
Speaker 1: ramp up production and what's needed send it to the
17:05
Speaker 1: parts of the world that needed. And it seems like
17:08
Speaker 1: all these months later, there is still a shortage of
17:11
Speaker 1: things like nine masks and places where they're needed, despite
17:15
Speaker 1: all sorts of companies, including three M saying that they will,
17:18
Speaker 1: you know, swap some of their machines out and retool
17:21
Speaker 1: some other machines. Why is this happening in this day
17:24
Speaker 1: and age? Well, I think you know, I think we
17:27
Speaker 1: potentially underestimate the effort that's required to get these things
17:31
Speaker 1: actually moving. You know, we did it with companies that
17:34
Speaker 1: are equivalents of Juggernauts, and all he think is to
17:37
Speaker 1: try and move them quickly. It is very difficult. Just
17:41
Speaker 1: give you the opposite argument. Biotech company Moderna wasn't really
17:45
Speaker 1: spending an enormous amount of time just on vaccines. They
17:48
Speaker 1: were working quite a lot on on on cancer therapies
17:52
Speaker 1: with their technology. But they can turn on a on
17:54
Speaker 1: a dime and just say right, we're just ware company.
17:56
Speaker 1: We could do what we want. Next thing we're gonna
17:58
Speaker 1: do is work on um the copy vaccines. Whereas where
18:02
Speaker 1: you've got a massive company that that needs to retool, etcetera,
18:05
Speaker 1: it takes time. And let's not forget it's only been
18:07
Speaker 1: five months. So I don't want to beat them up
18:10
Speaker 1: for this. I think it just takes a lot of time.
18:13
Speaker 1: Raw materials got to be in the right place, just
18:15
Speaker 1: takes a lot of time. Yeah, No, I don't certainly
18:17
Speaker 1: don't mean to be the moup. I'm just I just
18:19
Speaker 1: find the whole thing so curious that if there's a
18:21
Speaker 1: market for us, you know that it won't come. I
18:24
Speaker 1: mean Maderna for example, it may not make anything from
18:27
Speaker 1: from making the pivot to to COVID treatments and COVID research.
18:31
Speaker 1: But anyway, Sam, it's a conversation. We will continue. So
18:34
Speaker 1: thanks for joining us today. Sam Fazali, Bloomberg Intelligence, London.
18:37
Speaker 1: He's they're pharmaceutical expert over there, and a great one
18:41
Speaker 1: he is too. As the US economy continues to reopen,
18:47
Speaker 1: we're getting some mixed economic signals. We had retail sales
18:51
Speaker 1: surprised to the upside, but we also had industrial production
18:55
Speaker 1: weaker than expected. And now we have fed shair Pal
18:58
Speaker 1: once again warning of uncertainty surrounding the timing and strength
19:02
Speaker 1: of the recovery. So what is an economist to do?
19:04
Speaker 1: We'll put that the car Winburg, Chief economists at High
19:07
Speaker 1: Frequency Economics. Carl, thanks so much for joining us here.
19:10
Speaker 1: What is your sense of kind of where we are in,
19:14
Speaker 1: you know, starting to build perhaps a little bit of
19:16
Speaker 1: recovery coming out of the pandemic. Hi, Paul Hiboni, good morning.
19:21
Speaker 1: Thanks for having me on the show. So you know,
19:23
Speaker 1: recovery is a relative thing right now rather than an
19:27
Speaker 1: absolute thing. You take that retail sales number and compared
19:31
Speaker 1: to expectations, it certainly was stronger than expected, and it
19:35
Speaker 1: certainly was was up, but on compared to the averages
19:39
Speaker 1: of what we've seen for retail sales in the months
19:42
Speaker 1: of the quarters going into the pandemic, we're still way
19:45
Speaker 1: below where we were before, and that's where we're going
19:48
Speaker 1: to be for a long time. We're going to see
19:50
Speaker 1: some growth from month to months, from quarter to quarter,
19:53
Speaker 1: from week to week, we'll see improvement, but we're going
19:55
Speaker 1: to remain in a depressed state for quite some time. Yeah,
20:00
Speaker 1: I mean, I'm surprised there isn't more concentration on the
20:03
Speaker 1: idea that much of the better economic data recently has
20:06
Speaker 1: been thanks to fiscal stimulus as well as monetary policy obviously, Carl,
20:13
Speaker 1: But once the employment benefits for people that are not
20:17
Speaker 1: employed run out, you're going to have twenty million people
20:19
Speaker 1: out there trying to find jobs when they can't even work.
20:23
Speaker 1: What happens, that's what? Yeah, Well, that's good high freaking
20:25
Speaker 1: see economics warned about in our note the clients this morning.
20:28
Speaker 1: You know that when the supplemental unemployment benefit comes out,
20:32
Speaker 1: there will be a reduction in fiscal stimulus, and that
20:35
Speaker 1: will have to be replaced by something in less or,
20:38
Speaker 1: I should say, or there will be a reduction in
20:41
Speaker 1: detail spending and householding comes and so forth. The PPT,
20:45
Speaker 1: you can look at it in two different ways. One
20:47
Speaker 1: way is to look at it as a an increase
20:50
Speaker 1: in cash flow the businesses. That's temporary, and when that
20:52
Speaker 1: goes away, then the benefit goes goes with it. Another
20:55
Speaker 1: way to look at it, which I prefer, to look
20:57
Speaker 1: at it as a recapitalization, which is a permanent increase
21:01
Speaker 1: in the cash balances these companies that are being used
21:05
Speaker 1: to get through the pandemic, for sure, but it's a
21:07
Speaker 1: capital increase. It's an injection and investment by the government,
21:10
Speaker 1: and for many companies that will last for a long time.
21:13
Speaker 1: That's a plus. But of course there's the income LUs
21:16
Speaker 1: that has to be transcended. I think fed Share Powell
21:19
Speaker 1: said the best of anyone yesterday. The longer the pandemic
21:22
Speaker 1: those The longer the pandemic continues, the greater the damage
21:26
Speaker 1: to the economy, and therefore the more fiscal stimulus would
21:30
Speaker 1: have to be implemented in order to offset that. And um,
21:34
Speaker 1: this can only go on for so long, this fiscal stimulus,
21:38
Speaker 1: so let's go to that fiscal stimulus car where you
21:40
Speaker 1: you know how to build uh, I think advanced by
21:43
Speaker 1: the House several weeks ago, but it doesn't seem to
21:46
Speaker 1: have much support in the center where at the White House? Here,
21:49
Speaker 1: how critical is it to get a fiscal stimulus plant?
21:53
Speaker 1: You know, another fiscal stimulus bill in the next you know,
21:55
Speaker 1: several weeks or more months, and one that perhaps focuses
21:59
Speaker 1: a little bit more on dates and local municipalities. Well, Paul,
22:02
Speaker 1: I agree with that we need something if we're not
22:05
Speaker 1: going to fall off a cliff. There's that old thing,
22:08
Speaker 1: the fiscal cliff. And you also want to think not
22:10
Speaker 1: only in terms of weeks and months, but also in
22:13
Speaker 1: terms of years. If you have to say three trillion
22:16
Speaker 1: dollars worth a fiscal stimulus this year, and you don't
22:19
Speaker 1: put six trillion dollars worth of stimulus into the economy
22:22
Speaker 1: next year, then fiscal policy is going to become a
22:25
Speaker 1: drag on growth. And if you just replace three trillion
22:28
Speaker 1: with another three trillion next year, then fiscal policy becomes neutral.
22:32
Speaker 1: In other words, and this is just arithmetic, you have
22:35
Speaker 1: to keep on increasing it if you're going to keep
22:37
Speaker 1: on stimulating growth. So we have a fis have to
22:41
Speaker 1: face a fiscal cliff problem. At some point in time,
22:44
Speaker 1: the government is going to have to stop increasing the stimulus.
22:48
Speaker 1: And it's just a question that it's a raised if
22:50
Speaker 1: you will, and I can predict the answer as to
22:52
Speaker 1: whether the government will run out with the run out
22:55
Speaker 1: of capacity to increase stimulus before the economy stops being
22:59
Speaker 1: dragged down by this virus. And let's face it, Carl,
23:02
Speaker 1: I mean, this is just the latest problem that was
23:04
Speaker 1: on the horizon for the economy before the pandemic even
23:07
Speaker 1: came to our attention. We were already in trouble in
23:10
Speaker 1: terms of trying to replace trade, you know, losses to
23:14
Speaker 1: China and so on, given that there was going to
23:16
Speaker 1: be a trade war. So there's there's other challenges out
23:19
Speaker 1: there too. Why are so many economists looking then for
23:22
Speaker 1: a V shaped recovery? Um, well, I don't know. I mean,
23:26
Speaker 1: the I m F has called for a V shaped recovery,
23:29
Speaker 1: and no one ever got fired for agreeing with the
23:32
Speaker 1: I m F. But the reality of it is is
23:34
Speaker 1: that even a V shaped recovery in terms of growth rates,
23:37
Speaker 1: in other words, if we go back to the growth
23:39
Speaker 1: rates that we enjoyed before. Recovery and growth does not
23:42
Speaker 1: mean a recovery from levels. We would start that growth
23:45
Speaker 1: from a very very depressed level, ten fIF lower than
23:49
Speaker 1: where we were before. And even if we recover faster
23:52
Speaker 1: than we were going before, it will take three or
23:54
Speaker 1: four or five or six years to catch up to
23:56
Speaker 1: where we were before. So a V shaped recovery is,
24:00
Speaker 1: you know, a nice turn of words, but it's not
24:02
Speaker 1: necessarily in prediction of a return to prosperity. We can't
24:06
Speaker 1: expect to get back to where we work for at
24:08
Speaker 1: least the next several years. So, Carl, it seems like
24:12
Speaker 1: an odd time. I'm looking at us. A story on
24:13
Speaker 1: the Bloomberg today, the US plans a broader reset of
24:17
Speaker 1: its w t O tariff commitments. Here looks like the
24:19
Speaker 1: White House is trying to renegotiate some of these tariffs.
24:22
Speaker 1: Here is this the right time to be doing that?
24:25
Speaker 1: Do you think this is never the right time to
24:28
Speaker 1: be tearing down the world globalization progress? You know, the
24:32
Speaker 1: United States has complaints that our tariffs are lower than
24:36
Speaker 1: the tariffs of our trading partners. That's that's the gist
24:39
Speaker 1: of it. And when you're in that situation, you can
24:41
Speaker 1: do three things right. Number One, you can do what
24:43
Speaker 1: the Trump administration is doing, which is you can raise
24:46
Speaker 1: your tariffs to match to the rest of the world,
24:48
Speaker 1: and that creates a loss. Number Two, you can work
24:51
Speaker 1: through organizations like the w t O to try to
24:54
Speaker 1: collectively bring down tariffs where they're too high. That's what
24:57
Speaker 1: we've been doing in the post World War two period,
24:59
Speaker 1: using the w t O to achieve massive reductions in
25:02
Speaker 1: tariffs around the world, and it's worked, and I don't
25:05
Speaker 1: see why it can't work in the future unless the
25:07
Speaker 1: WTO is taken apart. And then the third thing you
25:10
Speaker 1: can do is you can do nothing and except that
25:13
Speaker 1: your tariffs are lower than everybody else's and use economic influence.
25:18
Speaker 1: The fact that you're giving other countries an advantage to
25:20
Speaker 1: get into the US market is a way to affect
25:23
Speaker 1: political to influence political decisions elsewhere, which is the oldest
25:27
Speaker 1: diplomatic game in the world, using economic policy to achieve
25:30
Speaker 1: political influence. But you don't have to raise tariffs in
25:33
Speaker 1: the US in order to level the playing field. That's
25:35
Speaker 1: just the tactic that the Trump administeration has chosen. And personally,
25:39
Speaker 1: we are high frequency economics Stone agreemented Carl, how much
25:43
Speaker 1: are you thinking about the next election and how it
25:45
Speaker 1: changes the arithmetic, because if there were to be changes
25:49
Speaker 1: in personnel, some of these conversations would have to start
25:53
Speaker 1: from scratch, right, Yes, the conversations would be different under
25:58
Speaker 1: a different administration. I've I'm going to begain to speculate
26:01
Speaker 1: about what happens with the next administration. As far as
26:04
Speaker 1: I'm concertain, I'm pretty much out of time to do
26:07
Speaker 1: a lot of things between now in the election in
26:09
Speaker 1: terms of you know, broad economic policy and trade policy.
26:13
Speaker 1: So I'm watching to see what happens, and but there
26:15
Speaker 1: will be a different conversation with a different president. Carl.
26:19
Speaker 1: Thank you. As always, as Carl says, we will not
26:22
Speaker 1: get back to where you were for at least the
26:24
Speaker 1: next several years. Chilling words from Carl Winebury. They're of
26:27
Speaker 1: high frequency economics. Thanks for listening to Boomberg Markets podcast.
26:34
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
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Speaker 1: or whatever podcast platform you prefer. I'm Bonnie Quinn. I'm
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Speaker 1: on Twitter at Bonny Quinn, and I'm Paul Sweeney. I'm
26:43
Speaker 1: on Twitter at pt Sweeney. Before the podcast, you can
26:46
Speaker 1: always catch us worldwide at Bloomberg Radio,