The Upcoming Fiscal Cliffs For Consumers: Deutsche Bank's Slok

its part aggressively injecting liquidit into the marketplace. We even had Congress with a three trillion dollar fiscal stimulus plan, all designed to get cash in the hands of consumers and small to midsized businesses. A lot of that stimulus is going to be running out relatively soon. The question is, does Congress need to come through with another round of fiscal stimulus UH to continue to keep this economy from going over a. Cliff Torsence Slock, chief economist at Tortche

Bank Securities, joins us. Torsen, I kind of want to put that question to you here. How critical is it for Congress to come through with another round of fiscal stimulus. It is very important in the sense that the Congressional Budget Office at the moment forecast that the unemployer rate by the end of this year will be more than

ten percent. So that means that remember they're INFLOM rate today is thirteen point three and if we still have an on a power rate by the end of this year that is anywhere around ten percent its points, that means that a lot of people will still not be back in jobs and therefore will not have incomes, and therefore we will need to have more income support, similar to the income support that we saw through the most

importantly higher unemployment benefits through the last evel months. Now, those benefits normally last twenty six weeks, but workers who lost their job back in March will have exhausted all of their unemployment benefits by September. At Horston, do you think that Congress finds a way around those rules and

if not, how do these people manage? Well? So, I'm reading on my Bloomberg screen at the moment that there's a lot of talk about more fiscal support coming, but through your question here, it is all about the exact design. Will the new fiscal support that comes will that the infrastructure that will not directly help households. And if anything infrastructure takes a long time, they are not that maybe shovel ready projects normally when you do infrastructure investment spending.

So the short answer to your question is that it all depends on what the exact nature of the package will be. There's also been talking about a paywroll tax cut. There's also been some discussion about that. Do we need more supports of small businesses? How can households otherwise be supported. We need to change it from paying people for being unemployed to instead paying people for taking a job. So

this debate is ongoing. It has been said and talked about that we will hear in July and after recess

have more discussions in Congress about it. But this is extremely important for investors because if there is not more fiscal support coming, and if we do end up in a deadlock situation where we don't get another fiscal boost, then we could run into some serious issues in particularly solving the issues for the household sector towards and how about at the aid for the state and local municipalities.

We've heard many governors led by new York Governor Andrew Cuomo UH state that they really need UH fiscal stimulus for the states to balance their budgets. Meant most states have a balanced budget amendment, and that we're seeing UH forecasts of some multi multi multibillion dollar deficits for a lot of states. That's right, poll and that's why this has also been a bullet point that there has been

talking about that this is something that's needed. So a very macroeconomic way of of looking at this whole question is that if you're unemployer rate is still ten percented December and going into next year, that just sets in motion a lot of different things that will require therefore more support local governments, household sector balance sheets, corporate sector balancies,

on the particular small business sector palance. So that sends this next year, we become absolutely critical the conversations around what will the nature and the design be of any the future fiscal support and will there any future of physical support, Will any support be coming along? That becomes very important for markets because if not, let's say that we don't get more supported to the household sector and if you're on a point rate does end up being

ten percent by the end of the years. Again, Congressional Budget Office is podcasting. That means that more people begin to fall behind on their payments, on their car loans, on their credit cards, on the mortgages. You will also see people fall behind on c NBAS payments and across the board. Those, of course, increases in delinquenty rates will begin to have consequence for credit, infrastructure, finance, and a

lot of things across the board. In fting come in particular, if you believe that the Fed will not let this happen, and that Congress will also not let this happen, particularly in an election year, then you have to start believing in M M T right towards them. Is there a problem? So that's true, and this is why. Of course, one option here is that the Treasury just issues a lot more treasuries and then the Reserve just buys them, which

is essentially what's happening today. The issue is that even from an MMT angled, the Treasury still needs to issue treasuries and then comes to some agreement meaning Congress and the White House, in terms of how the money should be spent. And what we're debating is really this issue of how should the money be spent we're not really

debating whether the money is available. This, of course is a very important debate in many other countries, but in the US it's almost assumed that, of course we have another trillion or two trillion for this, and if it is the case that they're going to spend it, then for markets it does become very important for individual stocks, for individual things in credit and pick income exactly which balances will get support and which will not. Interesting Torsencelock,

thank you so much for joining US. Torsence Luck chief ECONRAS for Torture bank Securities. Vanni. I think it's really interesting here as we uh see some news of just you know, more cases flaring up at some really really key economic markets California, you know, Florida, exis. What the impact will be on the overall US economy be very interesting to see how this plays out over the next several weeks and months. Well, plenty of you headlines on the coronavirus in the heart Land and in some other

states like Arizona and Texas. This morning, arizonavirus cases jumping five point four percent over the seven days. The previous seven day average was about half of that. Let's bring in someone who knows a lot about this now. Lawrence Sour is John's Hopkins University Assistant Professor of Emergency Medicine. So, Professor Sour, how concerned should we be with certain counties in Texas saying that they're overwhelmed at this point? And

I think we have every right to be concerned. UM, And I think that's reflected in the governor rolling back

some of those reopening measures. I mean, you know, there is some talk of these increased testing numbers just being um an artifact of the increased availability of test but we're still hearing plenty of reports that people can't get tests, that tests are still a challenge, and we're still seeing a really high positive the rate as the hospitals start to surge, and you know, you see things like Texas

children taking adult patients to manage some of that surge. UM. I think we know it's real that that we're seeing a massive increase in cases and it's very worrying. So Dr Sour from the medical community perspective, are we in any better shape to deal with this surge than we were maybe just a few months ago when New York and New Jersey and the Northeast was hit. I think

we have a few more tools in our tool kit. UM. We have some therapeutics that are looking very promising, So once the patient is in the hospital, we have some UM improved ability to manage those patients. We know a lot more about the virus and how it how it sort of interacts in the body, and how it impacts the patient. That being said, these therapeutics and this medical management doesn't keep patients out of the hospital, so we have to go back to those UM tried in true measures.

You know that physical distancing, staying home if you don't need to go out, do sing, you know, the flow of people out in public, and reducing large gatherings, and then continuing to use that face covering whenever you are whenever you do have to be out. So I think we have made some improvements. UM. That being said, simply throwing the switch and reopening is going to put us

very close to back where we started again. Yeah, I mean, what would happen if everyone just stayed in place for two weeks and we know that the COVID cases in New York, just that that headline coming in now there was which was in line with the previous seven day average and that's because New Yorkers just went home and stayed there for the most part. If everybody in the country literally spent two weeks at home, would this virus be gone. I don't think you'd be gone. I think,

you know, you still have your essential workers. You still have people coming and going from healthcare and having healthcare needs and other you know, day to day needs. But we would see a reduction in in cases, just like we did the last time we implemented these more sort of strict measures. Um, we are working really hard on development of a vaccine and if element of improvement of

therapeutics that can be given in the outpatient space. So we have a lot of options that are going to be coming on board in the next year or so here. But but until we get to that time, we still are going to have to limit that that out outside interaction. So, Professor, So the as we think about some of the you know, the it's things that I think a lot of people would like to do in terms of behavior, i e. Safe distancing, wearing a mask, you know, limiting exposure in

large groups. I mean, that really is the primary way today. We don't have therapeutics, we don't have a vaccine that is really the best way to kind of bend the curve here in these new states, is it not? Yeah, it is. And you know, I think that in public health we've always said that as we start to reopen, we have to be willing to to pull back on

some of those measures if we see surges in cases. So, you know, there's a sort of hierarchy where it's like staying home is the best if you have to go out, avoiding large crowds is you know, better than being in large crowds. If you have to be in a crowd,

being outside is better than being inside. So we have this sort of basic understanding of where the lowest risk is and how that risk starts to creep back in, and the best we can do to stay on the lower end of those of that risk stratification all the better. What's the solution that everybody is hoping for? So obviously waiting on antibody tests to be better, obviously waiting on testing in general to be better. We're hoping for vaccines. We're still not sure if you know, the the initial

vaccines will be good. Is there any any hope at all that this virus just mutates itself out of existence. I think you can always hope that UM, we are seeing data that says that there's not a lot of mutation in this virus UM. A lot of people, UM with much more virology expertise than me, are working very

hard on that. But I think for now, you know, our targets are vaccine and UM outpatient therapeutics, those things that are low cost things that can be delivered out side of the hospital to reduce the severity of illness UM. That's where our targets are. Lauren Sour, thanks so much for joining us. We really appreciate your thoughts. Always were such benefits, beneficiaries of having a good smart people at

Johns Hopkins available to us. Lauren Sour is the Assistant Professor of Emergency medic Medicine at Johns Hopkins UH School of Medicine. Also will note that the Bloomberg School of Public Health is supported by Michael Bloomberg, founder Bloomberg LP and Bloomberg and that philanthropies as well. So, Vonnie, I think the story here, it sounds to me is we're listening to UH Professor Sour. It's it's kind of the story we've heard now for months. Uh, we know what

to do. We know what bends the curve here in terms of uh uh you know, behavior, it's just having that conviction to get it done. And uh, the folks in New York and the metro area certainly showed that conviction. Now it's time for some other folks in other parts of the country to do the same. Yeah, what I mean, you'll end up doing it by force, if not by persuasion, it seems like in the end, so may as well started doing it early and uh, you know, maybe avoid

the worst of it. It's just such a difficult position to be in. And the worst part of a pole is that if you're you know, particularly affective, you could end up living with very long term effects. And we know that, so you know that's just terrifying. Yeah, absolutely, so we will certainly follow up with that throughout the day. Let's concentrate on one of those sectors, now, the banks. The cap W Bank index down five and a half percent.

Right now, Let's bring in Alison Williams, senior banks asset managers and payment analysts for Bloomberg Intelligence. So we had the bank stress test. We also had a little bit of relaxation of some of the Volcal rule provisions. Alison Banks though not doing well today, is this because their dividends are being kept so the dividend cap. I don't think it should be a surprise. In fact, I think, you know, for the most part, the takeaways should be

in line with what people expected. The ongoing scrutiny of the banks. Um. You know there's there's a three quarter cap on dividends, there's a buyback pause. I think most investors expected that without a mandate by regulators. Uh, there's another metric where they're going to look at dividends as a as a ratio to the prior year earnings. UM. I think the one bank in my coverage universe that that screens poorly on that as well as Fargo, and we,

along with most expect expected a dividend cut. We might get to cut there sooner than expected. We could get that as soon as Monday versus later. Uh. The other bank within my universe that's a focus is Goldman Sachs Uh. So Wells Fargo screens well on excess capital, but their income is a problem. Goldman, it's the opposite. So their capital Uh, the capital ratio that we're expecting now based on the stress test, results might be a little bit

higher than previously anticipated. We won't know exactly until Monday, UM, but they have, uh, the income cushion they have, they have some flexibility around that to sort of proof what their capital ratio is going to be by the time this rule is implemented. So they should be fine. For the broader bank takeaway, the banks are all going to

have to basically resubmit their plans. The results came out much more negative under a COVID overlay, which was significantly more stressful than UM you know, the basic test that's governing capital requirements at the moment. And so the negative for investors is that there will be ongoing uncertainty related to dividends, So not just some of the banks that I talked about, UM, but across all banks. But I

don't think that should be a surprise to people. Were in an uncertain environment, UM, and so it shouldn't be surprising that the regulators are going to try to keep their options open. Alison, was a little bit of surprise to me in the sense that, you know, I had heard from a lot of folks. You know that the banks relative to two thousand and eight going to that crisis, were in much much better financial shape, much better balance sheets, much better on the reserve or front. Is this just

the federal reserve acting out of it? You know, the term is abundance of caution here for the near term. I think you're right on all those points. While so, you know, we are in an unprecedented downturn, and when we look at some of the COVID overlays in some of the U and W shaped scenarios, we have losses that are you know, perhaps thirty to six higher than those used in the stress test. That's basically setting a

requirements for banks. And now keep in mind that to your point that the banks have very healthy levels to capital. You know, I talked about Goldman, but the bar is so much higher um than where it was before, and they're basically close to meeting that. The other consideration is just the fact that the banks have been, you know, the solution this crisis. Right, So the previous crisis they were the problem. Now they're the solution, and I think that regular raiders want to make sure that they can

continue to be the solution. So unlike the last crisis, where the question was do these banks have enough capital. You know that the focus right now of you know, current regulators and former regulators is that, you know, we want to make sure that that capital is there and being used to support the economy. And I think some of the thinking is UM by some of these formula regulators is just to err on the side of caution. UM.

But keep in mind, dividends are a small percentage. Wells Fargo is a company that had sort of a hired payout ratio, and I think that's why they're more at risk UM. But for the most part, all the capital return that we've seen in several years, about seventy of that has been from buy backs, and we don't buy backs are paused. The banks stop those and I wouldn't expect those to return this year. Alison william thank you

so much for that. We always appreciate your perspective. One of the top banks analysts on the Wall Street, not just to Bloomberg Intelligence but before that at Morgan Stanley Investment Manager, and she's been covering these banks for a

long time. Always appreciate her perspective. Alison Williams, Senior Analyst, Global Investment, Banks and Asset Management for Bloomberg Intelligence, and it is Texas that we go to now for a Bloomberg opinion piece called COVID nineteen gives Texas a reality check, gets written by our own Timothy O'Brien, senior columnist for Bloomberg Opinion, and of course a huge career before that. This is just what he's doing right now, tim your

column is fantastic. You talk to us about the Texas Medical Center, which I'll get to expand upon in a moment. But first of all, is there a dereliction of duty on the part of Governor Greg Abbott right now? Is this his fault? Is that the humors of Texas residents,

that places in Texas are being overwhelmed. I mean, when you take us through the timeline you start in March nineteenth, when New York was already shut down, Texas only had three hundred six cases, then right, you know what it's I think, Vonnie, it would be share and too easy to put, you know, the fallout from a pandemic like this on the shoulders any one person. But certainly at a minimum, Greg Abbot bears a lot of blame at

this point. Frankly, Uh, I think he's had a scattered approach through the Governor's house in Texas to taking practical measures that would have helped ensure the safeties of safety of most Texans. We don't know, obviously at this point. There are no silver bullet approaches to battling back against COVID nineteen until we have a vaccine. But there are practical measures that people can take, that states can take, and that the federal government can take that have been

really spottily applied. And they're the basic things, UH washing your hands, maintaining social distance, UH, contact tracing, and of course mask wearing and and I think masks have been a useful UM symbol in Texas for some of the problems there, because you had mayors across the state asking Greg Abbott to impose uh A law requiring that that

masks be worn, and he wouldn't do it. He gave guidance that people should do it, but he left it up to Texans themselves to decide whether or not they should wear masks, and that ended up being spottily applied. The same thing has happened around business openings UM. Early on Abbott put it in order to lockdown businesses across the state, but within about I think uh, five weeks or so of of the pandemic bursting into view, he began easing that those lockdowns some people said to prematurely,

and now he's backtracking. Alright, So Timmy talked about the spotty applications on a statewide basis for precaution measures and responses to the pandemic. That kind of brings me back

to something. I still don't have a clear picture of what there does not appear to be any FED rule efforts to combat the pandemic in terms of laying out some regulations and how this should work at a federal level, should there be have their historically been in these types of situations as a Trump administration kind of not fulfilled its duty. Oh I, I don't think the Trump administration has fulfilled its duty at all here, Paul, and I think that's where I think first and foremost criticism has

to reside. All of the governors across the country, regardless of party, have had to send for themselves essentially during this crisis because the federal government has not stepped in and done important things like playing coordinating roles around the supply of PPE and testing equipment to the various states.

The states have been left to compete against one another and come up with their own policies because the federal government isn't playing a very necessary uh coordinating role, which is always done during disasters are even localized, like for example, Hurricane um. You see FEMA and the federal government play a role intervening and coordinating the rescue. The Trump administration is totally um given up its responsibility for playing a

meaningful role in the crisis. And again that's not an ideological or partisan observation, It's just an observation of the facts. So yes, I agree with you. I think I think it first has to start with where is the federal government um even in that vacuum. Some states have been more proactive than others in terms of taking this on, and there are some useful comparisons now among the various

governors about approaches that have worked in Heaven. Yeah, I mean the Trump administration could also have gone the regulation road, directing agencies to issue regulations which might have shut down parts of the economy as well as there are plenty of things that the administration could have done legally and

without having to jump through hoops and get Congress involved. Either, Tim what happens next, and we saw a massive spy in Florida numbers again today, you know, people are saying maybe it's younger people and maybe that will have an impact, but it's terrifying. This virus isn't going away. Fauci even said during the week that you know that the summer isn't helping a lot of people thought that summer would help because long disease tend not to spread as fast

in summer. But they're just the diseases we know. Right, we don't know anything about coronavirus, and it's not slowing down, right. I mean, I think Vanni that was you know, based on our understanding of how the flu operates. Typically, the flu season comes in colder months, and there was an anticipation that the summer would give help to folks battling the coronavirus. You know, what we've learned now is that COVID nineteen is a particularly fierce virus. It mutates, it adapts,

it appears to be resistant to warm weather. UM. But but the things that we do know that defeated our again, things like masks and social distancing UM. Scientists now have reached UM. I've think some sort of joint views that, uh, you're you're safer outside than you are indoors. It doesn't last on surfaces as long as as people might have thought it did, but it does get communicated to people through close contact, often through the mouth and whether it's talking, singing, etcetera.

When we have practical information like this, there are steps we can do. Steps we can take to battle back, like closing bars, which Texas just decided to do again today, but it unless it's taverns open and again. I think these are practical responses that have become politicized because of the current political environment we're in, which is unfortunate because it's leaving public safety and the lurch. Yeah, that's kind of where I want to go to maybe thirty seconds.

Are you surprised at the level of politicization here because we do not see that really in other parts of the world at all. No, I mean, I think I think the United States is facing a reckoning right now. We have a very immature and active political dialogue that doesn't allow us to reach solutions, and and we are politicizing things that simply shouldn't be politicized. Because we've gone through years now this idea of the sort of war on objective reality and facts that makes it hard for

people to trust one another and reach consensus. Yeah, it's it's just so odd. I mean, I suppose the closest you would come to it in the world is Britain's response as well. And I mean Boris Johnson himself had the virus and it was very dangerous and he ended up in hospital. He had one of the one of the worst cases of the virus, and it still didn't really change how he handled the affair. Another close comparison his Romper Room. Yeah you remember that, Tim, Thank you

so much. Tim O'Brien is a senior columnist for bloombrig Opinion. I would urge everybody to have a look at his column today. It's it's fantastic. And that that that opening paragraph or two about the Texas Medical Center, Paul, it was it was send shivers down your spine. Yeah, it really does, and it's interesting. So Tim has a great column on Texas. His colleague from Bloomberg Opinion, JOHNA. Sarah, also has a great column out today about Florida and

maybe a little bit different take. So good. Comparing those two columns, there two states thinking about how to deal with this surge in pandemic. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever a podcast platform you prefer. I'm Bonnie Quinn, I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio