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Stimulus Gridlock Will Test Fed's Toolbox: State Street's Loh · 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 podcast or wherever you listen to podcasts,
0:17
Speaker 1: and on Bloomberg dot com. It is time to bring
0:21
Speaker 1: in our next guest. Now we have Marvin Low. Very
0:23
Speaker 1: lucky to happen because he deals in all sorts of
0:24
Speaker 1: derivatives and trades that I'm sure are particularly exciting at
0:29
Speaker 1: a time like this. Marvin Low of State Street in Boston. So, Marvin,
0:32
Speaker 1: have you been having found the last couple of days
0:34
Speaker 1: in the market. It certainly has been a wild ride,
0:38
Speaker 1: hasn't it. Um. I'm I'm tired like everyone else, so
0:41
Speaker 1: we would like to move on to the next thing.
0:42
Speaker 1: But you know, clearly we're still in the service of
0:44
Speaker 1: the election and you know, waiting outcomes. How do you
0:48
Speaker 1: read it, though? How do you read this market where
0:50
Speaker 1: we've had a vix all the way off, as Paul said,
0:52
Speaker 1: coast of forty but way back down now, even though
0:54
Speaker 1: there's more more uncertainty over who's actually going to be
0:57
Speaker 1: president of this country? Yeah, I mean, I mean only UM.
1:00
Speaker 1: I had always thought that the Senate was the you know,
1:03
Speaker 1: and of course the um who occupies the White Houses
1:06
Speaker 1: is clearly important for for tone, but the Senate was,
1:09
Speaker 1: um potentially one of the most important outcomes, UM, particularly
1:13
Speaker 1: for businesses and how to approach the next four years.
1:16
Speaker 1: And from that perspective, we do have clarities. So I
1:18
Speaker 1: think that there is a lot of pricing around, UM,
1:22
Speaker 1: around kind of the gridlock that divided Congress provides. So Marvin, again,
1:28
Speaker 1: it looks like if current transfold, we we will have
1:31
Speaker 1: a split government in terms of the Democratic White House
1:33
Speaker 1: and a Republican Senate. What what do you think the
1:38
Speaker 1: from a fiscal stimus package can get done? Should get done?
1:42
Speaker 1: What's kind of in your forecast? Yeah, should should get done,
1:46
Speaker 1: Absolutely can get done. UM. I think it's the size
1:50
Speaker 1: that ultimately it has has been um the unknown over
1:55
Speaker 1: the last couple of weeks. Ultimately, you know, ultimately once again, UM,
1:59
Speaker 1: you know, I'm I'm are marking somewhere around a trillion dollars,
2:02
Speaker 1: certainly much less than the conversation around the Blue Wave,
2:05
Speaker 1: which was closer to three. But even more important, Um,
2:09
Speaker 1: that blue Wave discussion also included you know, infrastructure spending
2:13
Speaker 1: and potential transfer of wealth types type strategies, if you will.
2:18
Speaker 1: And and that is off the table with kind of
2:21
Speaker 1: this divided Congress that we're looking at now. But but
2:24
Speaker 1: should happen, um, And and now we're kind of parsing
2:27
Speaker 1: when it will happen. Alright, So you think a trillion,
2:32
Speaker 1: which is pretty stunning given that we were at one
2:35
Speaker 1: point eight trillion on the Republican side before this all happened.
2:39
Speaker 1: What brings you down to a trillion? Do you think
2:41
Speaker 1: that because Mitch McConnell seems to have work control over
2:43
Speaker 1: the santut now and there may not even be Speaker
2:46
Speaker 1: Nancy Pelosi in the next version of Congress, that that's
2:49
Speaker 1: why we'll come back down again. Yeah, you know, I
2:53
Speaker 1: mean the the um the Senate Republicans certainly were at
2:57
Speaker 1: a much lower level than even even that brilliant Um. Uh.
3:01
Speaker 1: It does depend I think who occupies the White House. Um.
3:05
Speaker 1: You know, there's all conjecture at this point. Um, But
3:08
Speaker 1: you know, I could see I could see if um,
3:11
Speaker 1: President Trump somehow is reelected that the package might be
3:15
Speaker 1: larger because he would be able to um UH to
3:19
Speaker 1: pressure the Senate Republicans in a way that President Biden couldn't.
3:23
Speaker 1: So you know, there's still ultimately a lot in flux.
3:25
Speaker 1: But I think I think the key is that UM
3:28
Speaker 1: it is needed and likely will happen UM. You know,
3:30
Speaker 1: particularly as we're on the eve of non you know,
3:34
Speaker 1: the next employment report, and you know we're we're we're
3:36
Speaker 1: parsing economic data which, while not terrible, certainly isn't improving
3:41
Speaker 1: that much. Margaret, are you surprised at perhaps how well
3:46
Speaker 1: risk assets, equities credit is holding up in the face
3:51
Speaker 1: of what are just the worst pandemic numbers we've seen
3:54
Speaker 1: since the beginning of this Yes and no, UM. I
3:58
Speaker 1: mean certainly, if you asked me in the middle of March,
4:02
Speaker 1: you know where where a lot of these risk levels
4:04
Speaker 1: would be, I would not be here UM. And and
4:07
Speaker 1: you know I'm not ashamed to ultimately say that UM.
4:10
Speaker 1: The biggest determinant for risk assets has been the amount
4:14
Speaker 1: of stimulus UM, and it has been kind of the
4:16
Speaker 1: dual approach of both fiscal and monetary UM. I think
4:20
Speaker 1: what we wind up with is UM comfort, or the
4:25
Speaker 1: need for the Fed ultimately to remain very very active
4:28
Speaker 1: in these markets, and I think and I think we're
4:30
Speaker 1: seeing some of that make its way through risk assets
4:33
Speaker 1: over the last couple of days. UM that the Fed
4:35
Speaker 1: has no choice now but to really go full out
4:38
Speaker 1: on anything that it can UM, because we're not going
4:42
Speaker 1: to get the degree of fisical that I think that
4:44
Speaker 1: they had been hoping for and that the Blue Wave
4:47
Speaker 1: would have implied. So the trillion that you think might
4:50
Speaker 1: come out of Congress, where will it go? Will there
4:53
Speaker 1: be help for the states? Will there be any targeted
4:55
Speaker 1: stimulus for certain industries? Yeah, you know, and and and
4:58
Speaker 1: and a lot of this still UM still kind of
5:01
Speaker 1: requires UM knowledge of who's gonna sit in there, who's
5:04
Speaker 1: gonna sit in the in the White House. But certainly
5:06
Speaker 1: unemployment benefits UM kind of a restart of that. Uh.
5:10
Speaker 1: Certainly something UM on the small business side of things,
5:13
Speaker 1: because I do think that there is agreement that we've
5:15
Speaker 1: got to help mainstreat more. UM. There's still contention around
5:19
Speaker 1: around state eight and kind of I think that's one
5:22
Speaker 1: of the more volatile aspects of the discussion. UM. So
5:25
Speaker 1: the easy parts of small business and certainly the certainly
5:28
Speaker 1: UM bring unemployment benefits kind of back into discussion. So Marvin,
5:33
Speaker 1: as a global macro strategist, where do you see I
5:37
Speaker 1: guess the best opportunities. Here's you as you look at
5:40
Speaker 1: twelve months are you are you geographically diversified to the
5:43
Speaker 1: extent you'd like to be or do you find yourself
5:45
Speaker 1: a little bit more concentrated in the US? Yeah? You
5:48
Speaker 1: know what, I still find myself concentrating in the US.
5:51
Speaker 1: You know, I think US companies UM have an advantage
5:54
Speaker 1: over many of the other companies around the world. So
5:57
Speaker 1: really this kind of tech discussion that you know, we've
6:00
Speaker 1: all participated into the last six months still makes sense.
6:03
Speaker 1: UM yields themselves. You know, I think that without stimulus
6:07
Speaker 1: and kind of with UM, the potential of inflation UM
6:11
Speaker 1: increasing as part of UM kind of the reflation trade
6:14
Speaker 1: going away keeps yields kind of at these levels. The
6:18
Speaker 1: FED ultimately UM needing to be aggressive, will you know,
6:23
Speaker 1: help those yields remain at these levels. So, you know,
6:25
Speaker 1: taking that threat and kind of UM figure out which
6:27
Speaker 1: asset classes are most attractive to you and that environment
6:31
Speaker 1: is kind of what we do. So certainly the tech
6:33
Speaker 1: discussion still makes makes sense to reach for yield still
6:36
Speaker 1: makes sense. UM. I think emerging markets become more interesting
6:39
Speaker 1: if there's a little bit more stability, But it does
6:41
Speaker 1: wind up being, you know, what parts of the world
6:43
Speaker 1: in which countries are most interested in UM, and then
6:46
Speaker 1: reach for yield really does uh go into go into
6:49
Speaker 1: various parts of the spread market, so kind of looking
6:51
Speaker 1: for those spread products, which makes sense in this in
6:55
Speaker 1: this new if you will, divide a government is what
6:57
Speaker 1: we're doing now. Why though our equities rallying as well
7:02
Speaker 1: as all sorts of safe haven assets from bonds, treasuries
7:05
Speaker 1: obviously to gold. You know, I I think I think
7:09
Speaker 1: UM kind of them. The spectr that yields might rise
7:13
Speaker 1: UM to an uncomfortable level is off the table right now,
7:16
Speaker 1: so you're kind of seeing that long duration trade uh
7:18
Speaker 1: play its way into it. UM. I do think that
7:21
Speaker 1: investors had been somewhat neutral kind of going into the
7:24
Speaker 1: elections with with the risk associated with it and UM.
7:28
Speaker 1: You know, there's still a lot of repair that needs
7:30
Speaker 1: to be done in the economy. But kind of a
7:32
Speaker 1: divided government is you know, with an active FED UM
7:36
Speaker 1: is good for financial assets UM. You know, uh, you know,
7:40
Speaker 1: as as kind of a base case, if you will,
7:43
Speaker 1: we're speaking with Marvin Low, Global macro strategists at State Street. Marvin,
7:46
Speaker 1: you mentioned you touched on just emerging markets. It's it
7:50
Speaker 1: seems like, I know a lot of people are tempted
7:53
Speaker 1: to go out on the risk curve and take a
7:54
Speaker 1: look at emerging markets. But boy, with this pandemic backdrop
7:58
Speaker 1: and with some of the economic uncertainty that's like it
8:00
Speaker 1: to continue from it, it just feels like it just
8:03
Speaker 1: isn't a time. How do you guys think about it? Yeah,
8:06
Speaker 1: I mean, I mean generally, um, but most certainly there's
8:09
Speaker 1: you know, and we're all making implications, um, and assumptions
8:13
Speaker 1: as to what the new government is going to try
8:15
Speaker 1: to do without really knowing you know, firmly what the
8:18
Speaker 1: new government is going to look like even you know,
8:20
Speaker 1: even if even if we're correct, and who sits in
8:22
Speaker 1: the White House and how kind of how Congress is divided, um,
8:25
Speaker 1: you know, where we're making guesses on what those policies
8:27
Speaker 1: look like. So in terms of reflation and in terms
8:30
Speaker 1: of um potentially um you know, uh, some benefits associated
8:34
Speaker 1: with commodities and therefore commodity countries where we're we're making guesses.
8:38
Speaker 1: So so gingerly, I do think that there is a
8:41
Speaker 1: lot of liquidity in the market. Um, So funding for
8:44
Speaker 1: for what the emerging markets might need to do to
8:48
Speaker 1: kind of get their economies back in place seems to
8:50
Speaker 1: be available, and that does provide some comfort, um, so
8:54
Speaker 1: you know, parcel through it. There are there are ways
8:56
Speaker 1: within the fixing come market to take out the FX exposure.
8:59
Speaker 1: So you know, certainly have liked hard currency and bonds
9:02
Speaker 1: as part of the discussion. UM in Asia right now
9:05
Speaker 1: is certainly interesting, given that the virus seems to be
9:08
Speaker 1: in better control and you know, um the data coming
9:11
Speaker 1: out of Asia is a bit more solid. So you
9:13
Speaker 1: know that ultimately is the process that I think all
9:16
Speaker 1: investors in emerging markets need to go through. So obviously
9:19
Speaker 1: fed Ter J. Powell will try to stay away from
9:22
Speaker 1: anything political or partisan. Later on today when he speaks, nevertheless,
9:26
Speaker 1: he'll get some questions about what he might be able
9:28
Speaker 1: to do if there is no stimulus or delated stimulus
9:31
Speaker 1: or a small stimulus. What can he say to calm
9:34
Speaker 1: markets or not pull the middle tailsmen? Yeah, I mean certainly, certainly, um,
9:40
Speaker 1: you know, continuing to say that the fet is there, um,
9:42
Speaker 1: they will use all tools available, UM that they believe
9:47
Speaker 1: they still have more tools UM that they can deploy. Uh.
9:51
Speaker 1: You know, I think that I'm looking for kind of
9:53
Speaker 1: twisting in their asset purchases, particularly with UM UH, with
9:58
Speaker 1: the U. S. Treasury still issuing more long a data paper.
10:00
Speaker 1: And you know, we had seen some of the steepening
10:04
Speaker 1: of the curve, you know, prior to again the election results,
10:07
Speaker 1: because I think that there's been so much coupon issuance
10:10
Speaker 1: in the market. So UM, you know, I I think
10:12
Speaker 1: that stage one but you know, his toolbox is UM
10:17
Speaker 1: depleted relative to where we were a year, year and
10:19
Speaker 1: a half ago. UM, and the Fed's going to continue
10:23
Speaker 1: to be pushed UM towards obtaining its new long term
10:27
Speaker 1: goals around inflation and around kind of helping the jobs market.
10:31
Speaker 1: So uh, you know, for the time being, UM, there's
10:33
Speaker 1: still que wei that they could do. There's still some twisting.
10:36
Speaker 1: UM yields remained fairly controlled. Uh, and you know, they'd
10:40
Speaker 1: like to see what the economy looks like as we
10:43
Speaker 1: go into next year, with the virus still UM, you know,
10:46
Speaker 1: front and center in terms of their concerns. Hey, Marvin,
10:50
Speaker 1: just looking on my Bloomberg screen. Here I see gold
10:53
Speaker 1: up forty two maybe forty three dollars announced. That's two
10:56
Speaker 1: point to five percent five dollars announced for gold. What
11:01
Speaker 1: do you think is going on in the gold market?
11:02
Speaker 1: How do you guys? Uh have yourself position? V goal? Um? Yeah,
11:07
Speaker 1: so so, UM, you know, I think that's part of
11:08
Speaker 1: the dollar story at this point. Um, there's been uh,
11:11
Speaker 1: a re acceleration of kind of this dollar debasement type story,
11:15
Speaker 1: given that you know, the FED is probably going to
11:16
Speaker 1: buy more bonds um. And and you know, kind of
11:19
Speaker 1: relative to what other economy, other countries are able to do.
11:24
Speaker 1: So you know, I do. I do think gold and
11:25
Speaker 1: kind of that dollar debatement story go hand in hand. Um.
11:29
Speaker 1: And you know that that that is a popular trade
11:31
Speaker 1: that um uh that even if we don't get as
11:35
Speaker 1: much stimulus, the FED can kind of offset that based
11:39
Speaker 1: on how it approaches them as it purchases. So, Marvin,
11:44
Speaker 1: if there was one piece of advice that you would
11:45
Speaker 1: give to a client who calls you up today and said,
11:48
Speaker 1: oh my gosh, you know then I'm terrified. I'm terrified
11:52
Speaker 1: of what's going to happen. What would you tell them? Now?
11:54
Speaker 1: I say, holistically, UM, you know, realize that the central
11:58
Speaker 1: banks are still a large part of this discussion, and
12:01
Speaker 1: you know, from a stimulus side of things, Washington will
12:04
Speaker 1: get something done. Um. You know, it's the size that
12:07
Speaker 1: we're arguing with, but you know, the economy needs it,
12:10
Speaker 1: and um, I think that they're going to, um uh,
12:12
Speaker 1: you know, get something that's going to provide relief to
12:15
Speaker 1: you know a lot of people who who need it
12:17
Speaker 1: right now. Marvin Low, thank you so much. We appreciate it.
12:20
Speaker 1: Marvin Low, Global macro strategists at State Street appreciate his
12:23
Speaker 1: perspective on a cross assets where we asked him about
12:26
Speaker 1: just about everything from gold equities to credit two commodities. Uh.
12:30
Speaker 1: But it just seems Vanni here that this is a
12:33
Speaker 1: market rallying here, it's looking for risk, it's comfortable taking risk,
12:36
Speaker 1: and the status quo I think for this market, Uh,
12:39
Speaker 1: it seems to be pretty bullish here, right. And I
12:42
Speaker 1: think there was money on the sidelines, particularly for a
12:45
Speaker 1: distress investments, you know, junk bonds and so on, and
12:49
Speaker 1: that's probably rolling in a little bit more as we
12:51
Speaker 1: head throughout the months into the winter, and you know,
12:54
Speaker 1: unsurprisingly as COVID cases start to absolutely go crazy again.
12:59
Speaker 1: I mean We're over hundred thousand a day now in
13:01
Speaker 1: the US, and you know, you have to wonder what
13:05
Speaker 1: that will do to economies around the country. Obviously, we're
13:07
Speaker 1: getting you know, labor market data and so on showing
13:10
Speaker 1: that the labor market was slowly improving, but that's going
13:12
Speaker 1: to turn around as well. Pole if if coronavirus keeps
13:15
Speaker 1: popping its head up, well, we're still counting votes, as
13:22
Speaker 1: we all know, but it appears that we may be
13:24
Speaker 1: headed towards a government structure where the Democrats control the
13:28
Speaker 1: House and potentially the White House Wall. The Republicans retained
13:32
Speaker 1: control of the Senate, and business leaders are trying to
13:35
Speaker 1: figure out what it means for their business, and one
13:37
Speaker 1: of the big areas is taxation. Kate Barton, Global Fast,
13:41
Speaker 1: chair of tax at accounting firm e Y, joins us
13:45
Speaker 1: to give us some color here. So, Kate, given what
13:48
Speaker 1: we know now about how the government may be structured
13:51
Speaker 1: in terms of Republicans and Democrats, what are you telling
13:55
Speaker 1: your clients today about how they should be thinking about
13:58
Speaker 1: their tax situation. Well, thank you, I think we're I'm
14:04
Speaker 1: definitely telling our clients to practice patients and uh, that's
14:09
Speaker 1: the key and we're all wondering what happened to the
14:12
Speaker 1: polls here, But um, you know, patience is the key.
14:16
Speaker 1: But you know, I think that if it does in
14:18
Speaker 1: fact go um red, you know, blue red, blue, if
14:22
Speaker 1: you will, um, you know, it's a different perspective companies
14:26
Speaker 1: before that or before you know, the last two days
14:29
Speaker 1: we're modeling out a blue waves to be ready for that. UM.
14:34
Speaker 1: I think that if it is in fact blue red blue,
14:36
Speaker 1: it will be less changed but still could be significant. Right,
14:40
Speaker 1: We're we're looking at every scenario. Yeah, and in fact
14:44
Speaker 1: it's it's it's even blue red less blue, right, you know,
14:47
Speaker 1: blue red, a little more red than than it was
14:50
Speaker 1: in Congress. So talk to us about Biden's tax fan
14:54
Speaker 1: because he very much has one. Would he be able
14:57
Speaker 1: to get anything through well? I think that, um, Biden
15:02
Speaker 1: has had a record of really going bipartisan and trying
15:06
Speaker 1: to work both sides of the aisle, So you know,
15:09
Speaker 1: the his efforts on collaboration, I wouldn't underestimate he does
15:13
Speaker 1: have a headline rate going up from twenty one to
15:16
Speaker 1: twenty eight percent. He's also contemplating a corporate minimum tax,
15:21
Speaker 1: which has a lot of our clients concerned. But you
15:24
Speaker 1: know what happens um in terms of campaign rhetoric and
15:28
Speaker 1: what actually happens. I'm sure there'll be a lot of
15:31
Speaker 1: distance between those. So you know, the other aspect is,
15:35
Speaker 1: you know, the indirect taxes that could come president or nominee.
15:40
Speaker 1: Biden has basically said that he would want carbon taxes
15:44
Speaker 1: or UM. You know, really take a closer look at
15:48
Speaker 1: that area. So it could be uh that indirect taxes
15:51
Speaker 1: take on more of the front page news story. And
15:55
Speaker 1: I think what we've heard from Canada Biden and generally
15:58
Speaker 1: from the Democratic Party is perhaps a reallocation of the
16:03
Speaker 1: tax burden UM, so that perhaps wealthy people pay more,
16:07
Speaker 1: corporations pay more. Is there any appetite for meaningful tax
16:12
Speaker 1: reform here? If in fact we do have somewhat of
16:14
Speaker 1: a split government, you know, you really have to wonder
16:19
Speaker 1: whether it will be their first priority. Most leading economists
16:22
Speaker 1: say that governments have to be super careful about doing
16:26
Speaker 1: that tast dance between stimulus versus revenue raising. Clearly, we
16:30
Speaker 1: have a lot of deficits. They're going to have to
16:32
Speaker 1: be paid at some point, but the timing of that
16:35
Speaker 1: could have a huge impact on the US economy and
16:37
Speaker 1: the recovery from the virus. So I think that is
16:41
Speaker 1: something that you know, has to be carefully thought through.
16:44
Speaker 1: For sure. I think we're gonna see governments around the world,
16:46
Speaker 1: including the US, um try to tax big business and
16:50
Speaker 1: ultra high network individuals. Uh. Candidate Biden basically had a
16:56
Speaker 1: proposition that he wanted to tax individuals over that make
16:59
Speaker 1: over four hundred thousand dollars a year. And so you know,
17:02
Speaker 1: we'll have to see if that actually goes forward in
17:05
Speaker 1: a blue red blue, and and what would be the
17:08
Speaker 1: timing you know is going to be the first order
17:10
Speaker 1: of business. There was also the idea that he would
17:13
Speaker 1: do something about tax headquarters that are overseas. What are
17:17
Speaker 1: you telling clients to do in terms of where they
17:19
Speaker 1: might be headquartered? Listening, companies are all every country around
17:24
Speaker 1: the world is looking at where supply chains are and
17:28
Speaker 1: our goods, especially health and consumer products like um asprin
17:32
Speaker 1: and and that type of drugs are they made close
17:35
Speaker 1: enough to the consumer. So you know, both candidates, if
17:39
Speaker 1: you will, President Trump and and candidate Biden, both of
17:43
Speaker 1: them have made in America aspect to their attack plans
17:47
Speaker 1: and and more more focused on things should be made
17:50
Speaker 1: closer to the consumer. So what form that takes some
17:54
Speaker 1: we're all watching. I mean, at the end of the day,
17:56
Speaker 1: our clients need to make goods and services and places
18:00
Speaker 1: that make sense for around. Yeah, but I'm not talking
18:02
Speaker 1: about supply chain or where things are made. I mean
18:04
Speaker 1: if you take Apple for example, things made in China,
18:07
Speaker 1: but it's it's it's paying its tax, you know, in
18:09
Speaker 1: a very complicated way and goes through Ireland in various places.
18:13
Speaker 1: That that's what I mean. Well, companies that are have
18:17
Speaker 1: a digital footprint, I mean are around the world. The
18:20
Speaker 1: o e c D. Everybody is looking at that and
18:23
Speaker 1: trying to come up with a multilateral approach to tax
18:26
Speaker 1: if every country does their own thing. I mean, companies
18:28
Speaker 1: are looking at double triple tax station which could be
18:31
Speaker 1: really a killer in this type of an environment. And
18:34
Speaker 1: so um, you know that is a big issue in
18:38
Speaker 1: one where you know the U. S. Treasury and its
18:41
Speaker 1: relationship with the o e c D is an important one, Kate.
18:45
Speaker 1: One of the tax issues that's near and dear to
18:47
Speaker 1: the hearts of our listeners in the tri state area
18:50
Speaker 1: of New York is a state and local tax. What
18:53
Speaker 1: if anything is Canada. Biden said about that well, Karida
18:58
Speaker 1: Biden had a proposal all that he would allow state
19:01
Speaker 1: and local taxes to be deducted, although they would be
19:05
Speaker 1: phased out um if you will, as you earned more
19:09
Speaker 1: money closer to that one hundred dollars I reference. But
19:12
Speaker 1: you know he would put back in the state and
19:15
Speaker 1: local deduction, so that wasn't important. So well again we're
19:19
Speaker 1: watching that. Well that's critical, all right, Well, thank you
19:24
Speaker 1: for that. That's some fascinating thoughts. Um, you know something
19:29
Speaker 1: to too over Kate part and Global Vice share of
19:31
Speaker 1: tax That e, why discussing what the tax landscape might
19:34
Speaker 1: look like. Although there's still a lot of uncertainty out there,
19:40
Speaker 1: so a little bit of a delayed reaction, I think
19:42
Speaker 1: you could say from kind of a stocks as you
19:44
Speaker 1: might expect or seeing them rally today. Of course, they
19:47
Speaker 1: took a bit of hit, so to speaking, yesterday, even
19:50
Speaker 1: though some valid measures legalizing the use of recreational marijuana
19:53
Speaker 1: did pass yesterday. Let's bring in Ken Shane, senior analysts
19:58
Speaker 1: for Global Food, Beverages Tobacco at Bloomberg Intelligence, to tell
20:02
Speaker 1: us what gives so, Ken, why the delayed reaction? Yeah?
20:06
Speaker 1: Hi money, Um, well, I think a lot of investors
20:09
Speaker 1: may be awaiting the outcome for the presidential election and
20:13
Speaker 1: the state of the Senate, you know, two big important
20:15
Speaker 1: components to trying to UM you know, estimate the future
20:19
Speaker 1: sales potential so it can So what happened, Yes, I
20:23
Speaker 1: just are on election date. We had five additional states
20:26
Speaker 1: including uh here in New Jersey legalized UM recreational me
20:33
Speaker 1: marijuana is at the bottom line, Yeah, right, Paul, that's
20:36
Speaker 1: exactly right. UM. You know, the big takeaway from yesterday
20:39
Speaker 1: was the overwhelming nature of the voter approval of all
20:43
Speaker 1: five state US marijuana about initiatives is a big plus
20:47
Speaker 1: for the industry on a number fronts. First, it further
20:50
Speaker 1: validates this industry as a legitimate place in society. You know,
20:56
Speaker 1: talk about a nineteen billion dollar industry. Now it's no
20:58
Speaker 1: longer some nason upcoming group. It's now you know, almost
21:03
Speaker 1: at the level of bottled water sales. I mean, it's
21:05
Speaker 1: out there yet. You know, yesterday's four states that are
21:09
Speaker 1: proved New Jersey, Arizona, Montana, and South Dakota for recreational
21:13
Speaker 1: authorization UH for marijuana markets now allows them to push
21:20
Speaker 1: ahead with increasing number dispensaries, locations, licensing activity, can pick
21:24
Speaker 1: up and make contribute over a billion dollars in sales
21:28
Speaker 1: by the year three to an industry, like I said,
21:30
Speaker 1: is um around nine or so. Yeah, and for context,
21:35
Speaker 1: let's give some of the companies. We're talking about Aurora Cannabis,
21:37
Speaker 1: we're talking about until Ray, We're talking about Afria, some
21:40
Speaker 1: of them up double digits today. The thing is, though
21:44
Speaker 1: it doesn't the cannabis industry want federal change so that
21:48
Speaker 1: we're not talking about state by state change here. We're
21:50
Speaker 1: talking about, you know, an entire country, at which point
21:53
Speaker 1: then you could really scale up operations, invite private equity
21:56
Speaker 1: in and so on. Yeah, that's right. Some of the
21:59
Speaker 1: big movers today or the Canadian companies something that you
22:01
Speaker 1: mentioned there, and they're really going to be driven mostly
22:05
Speaker 1: by access to the US. Right now, they really don't
22:07
Speaker 1: have access because they're you know, stock listings, don't you know,
22:11
Speaker 1: from the stock exchanges. They don't allow them to compete
22:13
Speaker 1: directly in this federally illegal business. So they really need
22:17
Speaker 1: to have federal you know, federal approval and access to
22:19
Speaker 1: the US. But that's not the case for the US
22:22
Speaker 1: operators like cure Leaf and True Leaf and some of
22:25
Speaker 1: these so called multi state operators in the US. The
22:29
Speaker 1: state legalization alone is a big win. UM. It can
22:33
Speaker 1: further benefit them if it's stayed legal because it would
22:36
Speaker 1: mean I mean a federal legal because it could mean, um,
22:40
Speaker 1: if they have banking services, they would have more favorable
22:43
Speaker 1: tax treatment. They could perhaps you know, sell across state lines,
22:47
Speaker 1: which they can't do today. Uh. So that's really the
22:50
Speaker 1: bottom line of that. So where are we ken with
22:54
Speaker 1: a federal type of law here if we were to
22:57
Speaker 1: have your republic at democratic presidents. Do we know the
23:00
Speaker 1: position of Mr Biden? We do qual um. You know,
23:04
Speaker 1: he's got a record this saying that he would like
23:06
Speaker 1: the first decriminalize it, um, remove you know, marijuana from
23:12
Speaker 1: the Schedule one from the Controlled Substances Act. That in
23:17
Speaker 1: itself would allows I mentioned some tax benefits um and
23:21
Speaker 1: some other benefits UM. In terms of federal legalization. I
23:24
Speaker 1: think that's going to take some time. It would, in
23:26
Speaker 1: my opinion, it would certainly require a Democratic controlled Senate.
23:30
Speaker 1: Uh in addition to the president to um, you know,
23:33
Speaker 1: act on something like that. But you know, even without that,
23:35
Speaker 1: there are considerable benefits to having a Biden presidency again
23:39
Speaker 1: just by just by rescheduling a schedule. One can I
23:44
Speaker 1: have a curiosity about how we get the Mari Lana
23:47
Speaker 1: to these dates if you still can transport across state lines,
23:50
Speaker 1: so for example, in New Jersey, will it have to
23:53
Speaker 1: be grown in New Jersey? And also what about the
23:55
Speaker 1: banking laws? Is it still in all cash business? Um? Well,
24:00
Speaker 1: in terms of growing in New Jersey is one of
24:02
Speaker 1: the many states. Most of the states require vertical integration
24:06
Speaker 1: and that's really to source tracing, to ensure quality control
24:10
Speaker 1: things like that. They require, um, the sellers to also
24:13
Speaker 1: grow it on their own. Um and that won't change,
24:16
Speaker 1: we don't believe in the near term. Um. So, uh
24:21
Speaker 1: so that's that's the case with that in terms I'm sorry,
24:23
Speaker 1: what was your second question? Banking or banking? Well, there's
24:27
Speaker 1: something there's you know, the Safe Banking Act was approved
24:30
Speaker 1: by the House. It's been kind of a hold given
24:32
Speaker 1: the elections right now, but again, as I as I
24:35
Speaker 1: mentioned it, if if there's a democratic control of the
24:38
Speaker 1: presidency and or Senate, we think that there's a good
24:42
Speaker 1: chance that that will allow some banking activity. Right because
24:46
Speaker 1: right now, Paul, it's literally you know, people need to
24:50
Speaker 1: have safe safety deposits, safety deposit boxes, in there. Yeah,
24:53
Speaker 1: I'm gonna be It's gonna be interesting to see this
24:55
Speaker 1: plays out in the great state of New Jersey or
24:58
Speaker 1: ken and I both live. Ken Sha, senior analysts covers
25:01
Speaker 1: global food, beverage, and tobacco for Bloomberg Intelligence, giving us
25:05
Speaker 1: the latest Yiravanni on you know, five more states legalizing
25:09
Speaker 1: uh recreational marijuana, which is good news for the cannabis companies.
25:13
Speaker 1: But again Kencha was saying, federal legislation is the holy grail.
25:20
Speaker 1: We're not joined by Josh Green, Bloomberg business Week calumnist.
25:23
Speaker 1: He has a fascinating story in the Bloomberg Business Week
25:28
Speaker 1: basically saying Trump is um is here to stay, no
25:31
Speaker 1: matter who's in the White House. Josh, thanks so much
25:33
Speaker 1: for joining us here. It is just extraorting here. You
25:36
Speaker 1: look at the absolute numbers here, record turnout for this election,
25:41
Speaker 1: uh President Trump getting north of sixty eight million votes.
25:45
Speaker 1: There's a lot of support obviously out there, even if
25:48
Speaker 1: he's not in the White House the next term. Josh,
25:51
Speaker 1: you're suggesting that Trump is um is here to stay. Yeah,
25:55
Speaker 1: I think so. I mean, if you look at the
25:57
Speaker 1: elections also, we've seen so far um Trump has added
26:01
Speaker 1: millions and millions of voters, even as he's on track
26:04
Speaker 1: to lose the popular vote by something like seven million votes.
26:08
Speaker 1: And you know, one of the defining features of the
26:10
Speaker 1: Republican Party in the Trump era is that it's basically
26:13
Speaker 1: become a cult of Trump everything. What what binds Republican
26:18
Speaker 1: voters is their strong approval of Trump um. You know,
26:23
Speaker 1: that was always going to make it difficult for the
26:25
Speaker 1: party to move on if Trump lost, because it wasn't
26:29
Speaker 1: clear what else would unite them. There isn't that kind
26:31
Speaker 1: of same excitement for a Tom Cotton or a Nicky Haley. Yet.
26:35
Speaker 1: There may be in four years, but there isn't right now.
26:37
Speaker 1: But I think the other thing that we saw on
26:40
Speaker 1: Tuesday night, the broad outpouring and support for Republicans generally
26:45
Speaker 1: to help Republicans win back house seats UH and and
26:49
Speaker 1: may leave them ultimately with control of the Senate, shows
26:52
Speaker 1: that Trump is UM isn't the automatic death sentence for
26:57
Speaker 1: Republican candidates. The Democrats going into an election night presumed
27:02
Speaker 1: it to be. There wasn't a blue wave, and in
27:04
Speaker 1: some ways there was even a red wave. The way
27:06
Speaker 1: I described it in the New UH cover story in
27:09
Speaker 1: Business week I wrote, is that it's what we see
27:12
Speaker 1: our royaling cross currents of partisanship. I think that's right.
27:17
Speaker 1: And given the fact that Trump doesn't seem likely to
27:20
Speaker 1: leave the political stage regardless, I don't think the Trump
27:23
Speaker 1: is um is going away. Whatever the outcome of the
27:26
Speaker 1: election ultimately winds up being. Josh, is this essentially Steve
27:30
Speaker 1: Bannon's vision of the future that is coming out now
27:33
Speaker 1: and coming to pass? And obviously, you know, you wrote
27:36
Speaker 1: the book on Bannon Devil's Bargains, Deve Bannon, Donald Trump,
27:38
Speaker 1: and the Nationalist Uprising? Is that what Trump is um is?
27:42
Speaker 1: You know, it's a good question, and I'm gonna I'm
27:44
Speaker 1: gonna give a tricky answer. It isn't It isn't. You know.
27:46
Speaker 1: On the one hand, Bannon always believed that it would
27:50
Speaker 1: take a powerful, charismatic politician uh to impose his brand
27:55
Speaker 1: of populist nationalist. Trump is certainly that. But I think
27:59
Speaker 1: there are two problems. One, Trump, once he was in office,
28:02
Speaker 1: never really followed through on that his tax reform was
28:05
Speaker 1: heavily slanted towards the wealthy and corporations. And number two,
28:10
Speaker 1: you know, while nothing has been decided yet, the signs
28:13
Speaker 1: seemed to point to Biden as likely to be the
28:16
Speaker 1: next the next US president, and so Trump, you know,
28:20
Speaker 1: losing after one term certainly would not be the Bannon vision.
28:23
Speaker 1: But I think I think maybe a better way to
28:26
Speaker 1: say it is, I don't see anything on the horizon
28:29
Speaker 1: that is likely to replace or displace Bannon's vision for Republicans,
28:34
Speaker 1: whether or not Trump winds up winning a second term. So, Josh,
28:39
Speaker 1: what happened to the Republican Party? Where does the conservative
28:45
Speaker 1: movement within the Republican Party? Uh, the George Wills and
28:49
Speaker 1: of the world, where did they go? Um? Canada? Maybe?
28:53
Speaker 1: I don't know, because they certainly don't appear to have
28:56
Speaker 1: a home in US politics, you know, the Lincoln project. Right.
29:01
Speaker 1: Maybe maybe they can you know, incorporate as a as
29:04
Speaker 1: a country or established residency somewhere. But they they're they're
29:08
Speaker 1: really a drift. You know, on the one hand, they can,
29:10
Speaker 1: they can support Biden, But on the other hand, you know,
29:12
Speaker 1: their argument that that that Conservatives should repudiate the Republican
29:18
Speaker 1: Party up and down the ticket. Um, it really wasn't
29:21
Speaker 1: heated on election night when Republicans gained so much strength,
29:25
Speaker 1: not just in Congress but in state houses too. It
29:27
Speaker 1: just really wasn't uh, this broad scale repudiation of the
29:31
Speaker 1: party that Lincoln Project types were hoping for. So, you know,
29:35
Speaker 1: I think they're they're they're partisans without a party. Right.
29:39
Speaker 1: So now, you know, you say Trump is um is
29:41
Speaker 1: here to stay. How's that got something to do with
29:43
Speaker 1: the blue collar voter for example? Or what do you
29:45
Speaker 1: mean if it is Biden in the White House, you know,
29:48
Speaker 1: where does Trump then go or his his you know antecedents. Well, well,
29:55
Speaker 1: we'll we'll have to see. I mean, you know, we
29:56
Speaker 1: we don't have full election results yet, but it seems
30:00
Speaker 1: all but certain that there really was an outpouring of
30:03
Speaker 1: additional working class, white collar blue collars sorry, white blue
30:08
Speaker 1: collar support that came out for Trump. I mean you
30:11
Speaker 1: can see that just in his raw vote totals. I
30:13
Speaker 1: think that will be a big part of it. But
30:15
Speaker 1: part of it also was that there were a segment
30:17
Speaker 1: of you know, upscale, suburban, white collar, college educated voters
30:21
Speaker 1: who found Trump repulsive. But we're still at heart Republicans,
30:25
Speaker 1: and we're willing to split their ticket, vote Joe Biden,
30:28
Speaker 1: uh and vote for their local member of Congress or
30:30
Speaker 1: senator as a Republican and so uh, you know, I
30:34
Speaker 1: I think there's a lot we don't know about the
30:35
Speaker 1: vote composition, but but certainly if you look below the
30:39
Speaker 1: presidential race, Uh, the evening was a big disappointment for
30:44
Speaker 1: Democrat and showed that Republicans still have strength. I think
30:48
Speaker 1: some of the strength. Also worth mentioning is that Trump
30:50
Speaker 1: did extremely well with Hispanic and Latino voters, which was
30:54
Speaker 1: something that UH strategists and people on the ground have
30:59
Speaker 1: been warning about for months, if not for years. We
31:02
Speaker 1: saw that come to full fruition on election night in
31:05
Speaker 1: places like Florida and in the Rio Grand Valley in Texas,
31:08
Speaker 1: where report or support for Republicans was much much stronger
31:12
Speaker 1: than Democrats. About it would be hey, Josh, on the
31:15
Speaker 1: flip side, what do the Democrats do here? They again,
31:18
Speaker 1: as you Richard, just saying, this was not a great
31:20
Speaker 1: showing for the Democrats. What do they need to do
31:23
Speaker 1: to broaden their appeal? Well, the first thing we need
31:27
Speaker 1: to do is hold off send off all these court
31:28
Speaker 1: challenges and make sure that fidinancially does become the next president. Um.
31:32
Speaker 1: But I think that's a great question. I don't think
31:34
Speaker 1: that there's an obvious answer. I mean, on the one hand, Uh,
31:37
Speaker 1: if you look at the voters they lost, uh in
31:41
Speaker 1: congressional races, they tended to be you know, professional, somewhat conservative,
31:46
Speaker 1: college educated. Um. The ones they held onto were the
31:50
Speaker 1: ones around blue metro areas that Democrats won in eighteen.
31:53
Speaker 1: So think people in the suburbs of Denver, Minneapolis, Uh,
31:57
Speaker 1: you know, northern Virginia and northern New Jersey, those kind
32:00
Speaker 1: of place in Atlanta, I should say those kind of
32:02
Speaker 1: places held. The places that didn't were some of the
32:06
Speaker 1: further reaches that they won in North South Carolina's first district. Um. Uh,
32:11
Speaker 1: there's a there was a district Oklahoma five right outside
32:14
Speaker 1: Oklahoma City, the suburbs there. They lost those, and they
32:18
Speaker 1: lost all of the red tinged suburban districts that were
32:22
Speaker 1: targeting in places like Texas and New Mexico. So I
32:25
Speaker 1: think the answer is that they've got to find a
32:27
Speaker 1: message that uh it's not a radical left message that
32:30
Speaker 1: appeals to those kinds of voters while also activating the
32:35
Speaker 1: excitement of based Democratic voters. They still need to show
32:38
Speaker 1: to show up. You know, the one the one thing
32:40
Speaker 1: if you split really hard. Um, you know, there is
32:43
Speaker 1: a case though for things like the fifteen dollar minimum wage,
32:47
Speaker 1: you know that one in Florida by a large margin
32:50
Speaker 1: even as Democrats lost. Maybe there's a possibility for a
32:53
Speaker 1: kind of a fusion left centrist policy that Democrats could
32:57
Speaker 1: run on back again in coming weeks. And everybody go
33:01
Speaker 1: read his Bloomberg Business cover story right now. That's Josh
33:04
Speaker 1: Green of Bloomberg Business Week. Thanks for listening to Bloomberg
33:09
Speaker 1: Markets podcast. You can subscribe and listen to interviews at
33:12
Speaker 1: Apple Podcasts or whatever podcast platform you prefer. I'm Bonnie Quinn.
33:17
Speaker 1: I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney.
33:19
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
33:22
Speaker 1: can always catch us worldwide at Bloomberg Radio