Trillions In Stimulus Going Out The Door Without Any Oversight

to podcasts, and on Bloomberg dot com. Well, the US has spent more than half of three trillion dollars in economic rescue funds passed by Congress, however, with little of the oversight intended to ensure that the money goes to

the right places. To get more color on this, we welcome lad Davison Sherroda, a fantastic story on this city's congressional tax reporter for Bloomberg News, joining us from on the phone from Washington, d C. So, Laura, how can a billion and a a half dollars be spent with little to know oversight? Well, part of this was the way that Congress designed it is. They wanted to get a

bunch of money into the economy really quickly. You know those stimulus checks that went out, use those p P P loans, all of these things, because people and businesses needed money right away is basically ground to a halt in March. The problem though, is, as we're finding out, is that when you move quickly, you sometimes break things and there are problems and and there's no one there

watching how the money is being spent. Who is going to so it opens up a lot of doors for for potential for fraud um or as well as just you know, things that that aren't spent in the in the best way. So Laura, who was supposed to be watching this UM, well it's not just Secretary Manu and there were supposed to be somebody's watching this right Yes, Yeah, there's actually a bunch of different groups. So there's a there's a group in Congress that that's overseeing this UM.

They are really just getting started that the it's a bipartisan group. Both Pelosi and McConnell get to appoint people, but there's been a lot of disagreement over who should be chairman. It has to be a bipartisan pick. They've been back and forth on this for several months and they haven't been able to agree on someone. So so that group is well, it exists, has has not really been able to do much yet. There's also a new special and Factor General that will be overseeing a lot

of this money. Um that pick was just approved earlier this month. He really doesn't even have an office space yet. So this is a you know, you're you're really talking about people that don't have letterhead paper, they don't have you know, a phone system set up. There's there's really not infrastructure for them to even you know, send emails,

much less conduct a lot of big oversight work. Yeah, the sp A reporting that loans have been approved for four point six million small businesses already, Laura five billion dollars worth. So there's still about a hundred and thirty

billion and funding remaining. Will it be all you know, applied for if you like, because what do you get like two months son, you have to keep everybody on your staff, and you know a lot of small businesses aren't not even applying for it because in two months time it may not may not be worth it for them to have some two high percent of their staff

on their payrolls. Still. Yes, Yeah, so there's as you mentioned, there's about a hundred and thirty billion dollars left in that pot of funds and and applications for that money closed at the end of the month. And it's it's very likely that there will be tens of billions, if not more than a hundred billion dollars um left um of that money. So the question is sort of what happens with it? Does Congress reappropriate that for for other purposes.

Maybe businesses who have already gotten some money could come back for for a second loan. Those are all, you know, kind of things that that Congress is still having to think about right now. Um and and but it's it's very likely that that there will be some money left because a lot of businesses have decided that it's either

to apply for this money or uh you know. There's also some political risk because we saw with with larger companies who applied qualified for the money, but uh you know, shake shack and pot bellies who were then um, you know, shamed by by politicians saying, hey, this is really should be for the for the little guys. So Laura is there.

Tim O'Brien was on with us earlier today. He has a column out suggesting that a lot of this money is not getting to the small business owner, maybe the small business owner of color, some of the folks who really needed the most is there concern within Washington that this program is not being uh, the money is not

being spent correctly or wisely. There's a lot of concern, particularly from Democrats on the um the minority issue of is this money going to rural communities, to my minority communities, uh, to to underserve communities. UH. There's been several hearings on Capitol Hill and there's a big push UH on Secretary Magnution to release sort of the granular levels data on the program. You know, which businesses have received this money and how much they've gotten. Monution said last week that

he was not planning to release that instance. Then you seed a big outcry from remembers of both parties saying, hey, you know this is this is taxpayer money. We should be able to see where it's going. I mean, the problem with opening an investigation now is that, as you say, you know, more than five billion dollars of this has already been dispersed. So if there has been fraud, what

happens to that money? And will it be too late for the small businesses that ended up having to chose because they weren't able to get access to some of that money in the early days. You know that that's a really good question. There's a lot of unknowns there, you know, inter terms of recouping some of the money. You know, if there is you know, cases of outline fraud, you know, the government could go and pursue legal action

against that. But if it's just sort of a you know, the money didn't maybe wasn't allocated in the best way possible, and um, some businesses got fell through the cracks. That's really more of a question for Congress of do they want to have a second loan program for for some

of these businesses that didn't get helped the first round. Um, that's certainly possible, that that would be very politically difficult right now is there's lots of debate in Washington about if there should be another stimulus bill and if so, how much should that encompass. Yeah, it's a great story, Laura. I mean we've we've heard, you know, some hedge funds

have applied for this and so on. But you you point to the reality television personality who tapped a two million dollar loan from the p p P and actually went and Boltz and Diamond Jutlry under roll lex Watch because we can't who can't have a role Lex Watch and Diamond jutlry together at the same time. Lauras, thank you for joining us today. There's Laura Davison, Congressional tax reporter for Bloomberg. Boy is she going to be busy. But he now November and then beyond November, no doubt

as well. Paul, Yeah, because I think there's, you know, the next thing coming down, Bonnie, is another piece of fiscal stimulus coming from Congress, so and that will be much more political than I think this most recent package of three trillion dollars exactly, And you know, you you just have to wonder if it's going to be as big a package and when it will come, and you know, if it will start to to get into election season

at that point, and how that will impact things. Time now to look ahead to the FED chairs second day of his Humphrey Hawkins testimony on Capitol Hill Today, we'll digest what he said yesterday and also pose some questions and pointed questions to our next guest, who is Christina Hooper, Chief Global Market Strategies. To add Investco assets under management there of more than a trillion dollars. Christina you were watching the FED chairs performance last week very very closely,

as is everybody. Right now, what do you think the FED is responsible for in these markets? Not the economy, but just in these markets. I was reading or to pearently of Cornerstone the other day and he talks about looking at more than ten million different valuation models for the S and P five hundred and finding that nine of them, say, the SMP five D is overvalued today by a weighted average about twelve percentage points. What say you, I would agree, Uh, there is a lot that FED

share Powell is responsible for. He has created an enormous amount of confidence in markets UM. But in doing so, he has also created UM or I should say, has skewed risk reward profiles for different asset classes. Now this is nothing new. We saw this happen during the global financial crisis when the FED stepped in with what was then very extraordinary monetary policy, and it really altered the risk reward profiles up. Treasuries UM were altered as well

as stocks UM. What's interesting is this time around, the FED has been more expansive and the kind of policy tools it's using, and so it's altering a lot of risk assets, not just stocks, but in particular stocks have certainly benefited, and I would argue the FED has decoupled the stock market from the economy. So, Christina, given that last comment that perhaps the fetis de coupled the stock market from the economy. As an equity investor, what are

you doing now? Well, what you need to do is, of course, maintain a focus on the long term, be well diversified, but have adequate exposure to risk assets. We're actually in a better place than we were during the global financial crisis, just because we saw how that played out UM, and of course investors need to maintain exposure

to risk assets. In fact, perhaps the biggest lesson learned from the global financial crisis was to not get out when you get scared UM, stay in, stay diversified UM, but don't lock in your losses and stand on the sidelines. One thing we know about stretched valuations is that they are not predictive of performance in the short run, and so it's one of those things where investors need to be well diversified, hold their nose and maintain long term allocations.

How do you define the short term in these times, Christina? Is there a different definition of time when we're in a pandemic. Well, that could very well be the case. But what we have and what we have to recognize, is that there is not a lot of insight into what's going to happen in the coming months. Right, we have more than one in three companies in the SMP have dispensed with earnings guidance this year. Now, that really

sends a message about how cloudy um things are. And so of course investors need to look longer term because it is very very difficult to look in the short run, and we need to look at a variety of the a factors because the shape of this economic recovery will be dictated by the events that unfold from here in terms of the kind of fiscal stimulus that is past going forward, as well as the kind of developments we see on the health front. We still know so little

about this virus. We're learning more and more each day about how it can be controlled. Uh, and we're learning more and more based on the kind of events that are occurring black Black Lives Matter protests and the kind of infection rates coming out of that, on the kind of infection rates coming out of reopening of economy. So we're learning more each day, and we're also working on

the development of therapies and ultimately an effective vaccine. So all those different factors are going to dictate the course of the economic recovery. But one key thing to remember is that the stock market has largely decoupled from that economy. So Christina, how do you feel about valuation right here? We've had a really strong rebound off the bottom that

we saw kind of late March early April. Yet you know, the earnings have just been dismal there in the first quarter are going to be even worse here in the second quarter. How do you feel about valuation? Well, evaluations are certainly stretched, UM, but this is an environment where UM much it has been altered by what the FED has done, and especially in an environment where yield has become even more scarce, Investors have to make trade offs. They need to be well diversified, but they can't walk

away from exposure to risk assets like stocks. So it's about finding pockets of attractive valuations to balance out the more expensive parts of the market. UM. That includes exposure outside the US. There are parts of emerging markets that look very attractive from evaluation standpoint, and also look attractive in terms of where they are with regards to the economic recovery. Christina, thank you so much for joining us.

We really appreciate your thoughts and perspective. As always, Christina Hoover, Chief Global Strategies for Investco, based in Atlanta. Solovanni, I think you know the issue here is, you know, this market has moved higher off the bottom earnings, you know, not necessarily there. But I think my key takeaway from Christina's comments was how she feels like the market is really disconnected, perhaps from the underlying economy. Yeah, and I think that you'll see that reflected in a lot of

commentary these days. Even Roberto Party, who I quoted at the beginning of the interview, even he says that from a purely statistical perspective, we would expect only three percent of the correndover evaluation to adjust over the next month all else equals. So I think the lesson is, with the FED basically under writing this market costs all asset classes, there's really not much to do until something changes. Yeah. I like the I like the characterization that the FED

is backstopping uh this market. Here. It seems like we're talking more and more about pharmaceutical companies, biotech companies, as we talk about treatments for COVID and potently vaccines. Of course, there's always a lot of M and A in this space, and there's always new drugs coming onto the market that can really impact the market. And when we do talk about these things, there's nobody better to chat with them about.

In San Fazelli, he's a director of research in Europe for Bloomberg Intelligence, but as I like to say, his day job is that he is one of the best healthcare analysts in the city of London. Sam, thanks so much for joining us here. Let's start with Lily here. They that stock had a pop recently on some breast cancer data coming out. What's the latest on Eli Lily? First, thank you very much for your very kind words, Paul

um Eli Lily. Well, there's not very often that you see a large farmer company share price jump fifteen sixteen. At one point it was up like eight yesterday. So they had a success where I think most people have decided there was not going to be one m A drug they have for breast cancer succeeded earlier, I must say, a year early earlier than expected. In terms of the readoubt preventing reducing the recordance of disease UM in a post operative breast cancer patients in high risk post operative

breast cancerpation. So that's that's that's the positive. And of course the reason people were I think being negative about the possibility was because Fiser failed in the same setting. Now, this adds significantly to the revenue potential for this drug. Some people calculate up to four billion potentially and that has a major impact of margins. So the rest of the story falls into place. There are people now going

up to you know, staying still. There's another teen per cent or so upside on the stock on the cell side. So that's what drove that one up a complete surprise. Not only did Visor failed, but it failed having already had a head start on ELI Lily by what at least two years, And there was also no varteses cascali treatment. Some what's happening with that? Yes, So so there just

quick to touch on this. There's two ways or reasons why I really might have worked UM and where fights it did and finds it went into a much earlier patient group patients with much less advanced or lower risk disease, so to a degree, really loaded the dice in its favor. Not a problem, It just it's that means a smaller population of patients. And also the drug is different um and that is dost constantly as opposed to having to take a drug holiday with the other two including no Artist.

Now Novartist is running a similar trial to to Lily, not completely the same, but similar, And they're expecting data by two which therefore why now we mean that it should also read that early. So this is not without competition, alright, Sam, Let's switch cares a little bit to the topic of the day, COVID nineteen. You know, folks in the Trump administration certainly talked they continue to talk about a vaccine

availability this calendar year. And as i've you know, talked to you and read your research and other healthcare research, it's just been years and years and years again a drug kind of to market here. What is your sense for you know, the likelihood of the timing of some type of vaccine into the market here. Yes, so I love the phrase you just used at the end, the timing of some type of vaccine. I think the timing of some type of vaccine is very possible to be

by the end of this year. The question is, will we have a vaccine that's been through the best and most rigorous safety and long term testing. No, it's impossible. Will we have a vaccine that's available for treating people in a world which God forbid has a real hardcore second wave in the winter? Um and take some risk in terms of accept some potential longer term safety issues. That is something that government and regulators have to accept if they want to inject people with these vaccines that

are just being developed. So will there be one that looks like it's working. Yes, yeah, And as you say, we'll likely need several some During this whole time, I've been wondering why it has been easier to change supply chains, ramp up production and what's needed send it to the

parts of the world that needed. And it seems like all these months later, there is still a shortage of things like nine masks and places where they're needed, despite all sorts of companies, including three M saying that they will, you know, swap some of their machines out and retool some other machines. Why is this happening in this day and age? Well, I think you know, I think we potentially underestimate the effort that's required to get these things

actually moving. You know, we did it with companies that are equivalents of Juggernauts, and all he think is to try and move them quickly. It is very difficult. Just give you the opposite argument. Biotech company Moderna wasn't really spending an enormous amount of time just on vaccines. They were working quite a lot on on on cancer therapies with their technology. But they can turn on a on a dime and just say right, we're just ware company. We could do what we want. Next thing we're gonna

do is work on um the copy vaccines. Whereas where you've got a massive company that that needs to retool, etcetera, it takes time. And let's not forget it's only been five months. So I don't want to beat them up for this. I think it just takes a lot of time. Raw materials got to be in the right place, just takes a lot of time. Yeah, No, I don't certainly don't mean to be the moup. I'm just I just find the whole thing so curious that if there's a

market for us, you know that it won't come. I mean Maderna for example, it may not make anything from from making the pivot to to COVID treatments and COVID research. But anyway, Sam, it's a conversation. We will continue. So thanks for joining us today. Sam Fazali, Bloomberg Intelligence, London. He's they're pharmaceutical expert over there, and a great one he is too. As the US economy continues to reopen,

we're getting some mixed economic signals. We had retail sales surprised to the upside, but we also had industrial production weaker than expected. And now we have fed shair Pal once again warning of uncertainty surrounding the timing and strength of the recovery. So what is an economist to do? We'll put that the car Winburg, Chief economists at High Frequency Economics. Carl, thanks so much for joining us here.

What is your sense of kind of where we are in, you know, starting to build perhaps a little bit of recovery coming out of the pandemic. Hi, Paul Hiboni, good morning. Thanks for having me on the show. So you know, recovery is a relative thing right now rather than an

absolute thing. You take that retail sales number and compared to expectations, it certainly was stronger than expected, and it certainly was was up, but on compared to the averages of what we've seen for retail sales in the months of the quarters going into the pandemic, we're still way below where we were before, and that's where we're going

to be for a long time. We're going to see some growth from month to months, from quarter to quarter, from week to week, we'll see improvement, but we're going

to remain in a depressed state for quite some time. Yeah, I mean, I'm surprised there isn't more concentration on the idea that much of the better economic data recently has been thanks to fiscal stimulus as well as monetary policy obviously, Carl, But once the employment benefits for people that are not employed run out, you're going to have twenty million people out there trying to find jobs when they can't even work.

What happens, that's what? Yeah, Well, that's good high freaking see economics warned about in our note the clients this morning. You know that when the supplemental unemployment benefit comes out, there will be a reduction in fiscal stimulus, and that will have to be replaced by something in less or, I should say, or there will be a reduction in detail spending and householding comes and so forth. The PPT, you can look at it in two different ways. One way is to look at it as a an increase

in cash flow the businesses. That's temporary, and when that goes away, then the benefit goes goes with it. Another way to look at it, which I prefer, to look at it as a recapitalization, which is a permanent increase in the cash balances these companies that are being used to get through the pandemic, for sure, but it's a capital increase. It's an injection and investment by the government, and for many companies that will last for a long time.

That's a plus. But of course there's the income LUs that has to be transcended. I think fed Share Powell said the best of anyone yesterday. The longer the pandemic those The longer the pandemic continues, the greater the damage to the economy, and therefore the more fiscal stimulus would

have to be implemented in order to offset that. And um, this can only go on for so long, this fiscal stimulus, so let's go to that fiscal stimulus car where you you know how to build uh, I think advanced by the House several weeks ago, but it doesn't seem to have much support in the center where at the White House? Here, how critical is it to get a fiscal stimulus plant? You know, another fiscal stimulus bill in the next you know, several weeks or more months, and one that perhaps focuses

a little bit more on dates and local municipalities. Well, Paul, I agree with that we need something if we're not going to fall off a cliff. There's that old thing, the fiscal cliff. And you also want to think not only in terms of weeks and months, but also in terms of years. If you have to say three trillion dollars worth a fiscal stimulus this year, and you don't put six trillion dollars worth of stimulus into the economy next year, then fiscal policy is going to become a

drag on growth. And if you just replace three trillion with another three trillion next year, then fiscal policy becomes neutral. In other words, and this is just arithmetic, you have to keep on increasing it if you're going to keep on stimulating growth. So we have a fis have to face a fiscal cliff problem. At some point in time, the government is going to have to stop increasing the stimulus.

And it's just a question that it's a raised if you will, and I can predict the answer as to whether the government will run out with the run out of capacity to increase stimulus before the economy stops being dragged down by this virus. And let's face it, Carl, I mean, this is just the latest problem that was on the horizon for the economy before the pandemic even

came to our attention. We were already in trouble in terms of trying to replace trade, you know, losses to China and so on, given that there was going to be a trade war. So there's there's other challenges out there too. Why are so many economists looking then for

a V shaped recovery? Um, well, I don't know. I mean, the I m F has called for a V shaped recovery, and no one ever got fired for agreeing with the I m F. But the reality of it is is that even a V shaped recovery in terms of growth rates, in other words, if we go back to the growth rates that we enjoyed before. Recovery and growth does not mean a recovery from levels. We would start that growth from a very very depressed level, ten fIF lower than

where we were before. And even if we recover faster than we were going before, it will take three or four or five or six years to catch up to where we were before. So a V shaped recovery is, you know, a nice turn of words, but it's not necessarily in prediction of a return to prosperity. We can't expect to get back to where we work for at least the next several years. So, Carl, it seems like an odd time. I'm looking at us. A story on the Bloomberg today, the US plans a broader reset of

its w t O tariff commitments. Here looks like the White House is trying to renegotiate some of these tariffs. Here is this the right time to be doing that? Do you think this is never the right time to be tearing down the world globalization progress? You know, the United States has complaints that our tariffs are lower than the tariffs of our trading partners. That's that's the gist of it. And when you're in that situation, you can

do three things right. Number One, you can do what the Trump administration is doing, which is you can raise your tariffs to match to the rest of the world, and that creates a loss. Number Two, you can work through organizations like the w t O to try to

collectively bring down tariffs where they're too high. That's what we've been doing in the post World War two period, using the w t O to achieve massive reductions in tariffs around the world, and it's worked, and I don't see why it can't work in the future unless the WTO is taken apart. And then the third thing you can do is you can do nothing and except that your tariffs are lower than everybody else's and use economic influence.

The fact that you're giving other countries an advantage to get into the US market is a way to affect political to influence political decisions elsewhere, which is the oldest diplomatic game in the world, using economic policy to achieve political influence. But you don't have to raise tariffs in the US in order to level the playing field. That's

just the tactic that the Trump administeration has chosen. And personally, we are high frequency economics Stone agreemented Carl, how much are you thinking about the next election and how it changes the arithmetic, because if there were to be changes in personnel, some of these conversations would have to start from scratch, right, Yes, the conversations would be different under a different administration. I've I'm going to begain to speculate

about what happens with the next administration. As far as I'm concertain, I'm pretty much out of time to do a lot of things between now in the election in terms of you know, broad economic policy and trade policy. So I'm watching to see what happens, and but there will be a different conversation with a different president. Carl. Thank you. As always, as Carl says, we will not get back to where you were for at least the next several years. Chilling words from Carl Winebury. They're of

high frequency economics. Thanks for listening to Boomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonny 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,