U.S. Heading Towards A Second Contraction: BE's Riccadonna

and on Bloomberg dot Com. Jonathan Farrow. They're speaking with Larry Cudlow, Director of the National Economic Council, ending it with a nice little good luck, I suppose to the incoming administration and people who will be in similar posts, and pole really obviously what we might have expected, Larry downplaying the weak parts of this reward and playing of the stronger parts of this reward. And no one is doubting that there are some you know strength, yes to

look at here, Yeah, exactly right. And I think the you know we heard from from Larry Cudlow there, you know, acknowledging that the you know this, this way of coronavirus is impacting the economy, but trying to find, uh, you know, some areas of strengthen economy, whether it's housing, whether it's consumer spending. Looks like the consumer is going to be spending here this holiday season here, But you know, when you take a look at the labor market here, it

remains very, very challenging. And I think a lot of the concerns from economists, you know, how much of this is, you know a little bit more on the permanent side versus temporary in terms of the joblessness. Well, let's ask somebody else who we haven't spoken to in Ohile and who were excited to have back. Carl Rickadonna joined us. What a little present for the end of the year. Carl is a chief US economist of course for Bloomberg Economics,

and Carl, it is fantastic to have you back. Also, I have to wonder what you're thinking coming back in this kind of environment, with the job market that is very, very different from just a few months ago. Absolutely good morning at you both, and thanks for having me back on You know, I have to draw some real distinctions with what Larry cut Low was suggesting, saying that in the interview he said that the job number was a wee bit below what was expected. That two thousand a

pretty big number. So the old expression close enough for government work, I guess applied to something and you thinks there. Uh, and also he said, you know, this is a good report for the holiday season, and whatnot. The only the only person who liked this for the holiday season is the grinch. I mean, we saw a very sharp decline in retail hiring. That's such an important job engine at this time of year, and that is just endemic of or emblematic of, you know, the type of heartbreaking we're

seeing in the economy right now. The service sector absolutely clobbered UH in that today's report, a big down shift. We had this reopening boom over the last several months, and as we look at the details of this report, we can see that basically came to an end in today's data. And unfortunately, UH, the November jobs report was talied much the recent surge and case counts and UH lockdown measures. So whatever November looked like, know already that

December is going to be far, far weaker. So this is the start of a very chilly winter season four the labor market in general and also for the economy. I don't see holiday cheer in this report, that's to be sure. Yeah. One of the really disconcerting aspects of it is, you know, the really bad news in the unemployment is for those twenty seven weeks or longer. That rose to three point nine four million people, and the average duration in weeks is now at twenty three point

two So it really goes to the issue Carl. A lot of this unemployment, which maybe we initially thought might be temporary at the beginning of the pandemic, is looking more and more permanent, and that raises some big issues. Well, I do think that that much of that unemployment is going to be temporary, but the temporary spell is going to last a lot longer. It's going to last until basically the spring saw, until we've had a reopening of

the economy and broad distribution of the vaccine. The alarming number there is that twenty six week threshold because as unemployed individuals start to approach the twenty six week mark, then they start to drop out of state unemployment benefits. So there have been some extensions and some special programs, although those are due to expire for the most part at the end of this year unless they get additional

fiscal support from Congress and the White House. So there is a very real problem here that we're approaching an income cliff as those who are out of work are facing the expiration of benefits and that will be a real drag on the economy at a time when really, as we look at our models, it's consumer spending that is doing all of the heavy lifting for the economy. So, Carl, you know, we constantly have people on that are actually you know, talking up the economy and and and respected economists.

I'm not just talking you know, money managers or what have you, who are looking at the market itself continuing to go up. But very few people are actually sounding the alarm on an economic cliff. They're saying that the economy is bound see back faster than we thought that. Yeah, there may be another short dip into recessionary territory, but really it's a K shaped economy and it's only one part of the labor force or the economy that will

feel the worst of this. Do you agree with those sentiments. I think the the the incessant rally in the equity market has created an inpriating haze over the economic outlaw. So the reality is here that we are heading towards a second contraction in the economy. It could be starting in December. It most likely will be concentrated in the first quarter of the year, we are looking for a contraction. I know some other big shops are looking for economic

contractions in the first quarter. So there's this optimism that yes, a vaccine is coming, so eventually we'll be out of this uh, this muck, this swoon. But the real question, for the more pressent question, is how deep of a downturn we're going to have in the meantime while we wait for the vaccines to be broadly distributed, while we wait for economic stimulus to help the economy, and also for just the general reopening to happen in the spring.

If we're talking about a half a percentage point contraction in the first quarter, which is our current estimate, that's manageable. We can muddle through. But if things go poorly and there's no guarantee that will have a perfect execution here, you can have a much deeper contraction, and that creates a whole additional slew of folks who can't pay rent and mortgages. Of it are missed in the financial contraction

and corporate bankruptcies. So Carl, we saw Jonathan Paraoll just minutes ago with UH Larry Cudlow trying to press Mr. Cudlow on um stimulus and kind of where are we in stimulus and what's the White House perspective. Just from my listen, I didn't really get any sense that anything

is imminent. What do you guys kind of discounting in your models as to the stimulus size scope and maybe timing, well, the stimulus has to be put in play before the end of the year or there's going to be a real problem with that household finances, especially those of the unemployed. Uh that that's a big issue, but there's also additional problems for small businesses, which are the dominant engine of

job growth. Uh. And also the issue that Larry Cutlo really didn't want to address was aid for states and municipalities. And it's easy to say, well, we should punish the Blue states because they have under funded pension plans and whatnot. Nonetheless, the fact of the matter is economic growth over the last several decades is driven by urban centers, by cities

the New York's, the Boston's, and Los Angeles. Uh, those cities are are you know, we're moving towards a service sector, service dominated economy, and it's all happening in the cities in the Tech Center San Francisco, for example. If we leave those cities out to drive and their transit systems are are impaired and other infrastruct your issues are unresolved and they can't fully reopen, that is absolutely going to

impair the recovery as well. So we have to be very careful that we're not too stingy with stimulus, and we pay the cost as we did back in two thousand in the next couple of years by being too stingy and therefore cramping the extent that the pace of the economic recuple very briefly, Carl, were out of time. But if the incoming administration is much more inclined to do something like this, will they be able to get

it through and quickly? Well, I'll answer that question on January Stiff, when we know the results of the Georgia runoff collection we're looking at split Congress. Then it's going to be a very stingy stimulus site here. Isn't that really something else? Carl? Thank you those of reality there from Carl RICKA Donna telling us that we're heading towards

a second contraction. We just we just are, and that this inebriating haze is the market which keeps going higher, and we cannot let that impact what we think of the economic fundamentals, which are obvious ball Yeah, they really are. And in the job Stata today kind of just put an underline to that issue, and you know Carl's analysis, you know, suggesting that we really the economy really needs fiscal stumius before the end of this calendar year when

some of these programs do are set to expire. It really goes to uh kind of the timing challenge for Congress in the White House, and the fact that economic growth is driven by urban centers really struck with me too. That's what Carl said there, and it's just so true.

It's a geographic imperative as much as anything else. Well, now it is time to have a look at e s G Environmental, social and governance investing, and there's so much chatter about e s G going on that we need to sort of orient ourselves within what part of this investment management area we're looking at. Let's bring in Christie Hill, who's head of America's Asset Management and global head of e s G for PGM real Estate one hundred two billion dollars in assets under management. So, Christie,

help us here, it's great to speak with you. Help us understand how you can be a real estate investor in the E s G space. What does that mean you for? For us in real estate and E SG, it really is about, I would say, assessing the risks um that we viewed through the through the s G lens.

So it's about thinking about climate change and understanding not just your you know, your impacts or the impacts of sea level rise, but really thinking thoughtfully about all of the impacts of climate change, your physical, social transitional and understanding not only you know how they're going to impact you insurance markets and how mass migration is going to be impacting our markets, or how evolving regulatory involving environments

are going to change our environment. It's about understanding the impact on the real estate, but also understanding the financial impact on the real estate UM. So I think for us it's about trying to really intensely do due diligence to assess our risk and make sure that we're being thoughtful in our approach so that we can devise strategies to mitigate it. So, Christie, how have you change your investment process as you factor in E s G elements

into your analysis. You know, it's it's constantly evolving, and the more we learn UM, the more that investment process evolved with it. So it's about making sure we're you know, kind of a little bit too to my comment before making sure we're considering all of the proper factors and all of the appropriate risks up front UM, so that we can not just quantify them prior to prior to making that investment, but so that we can allow that

diligence to inform our strategy operationally moving forward. How has the pandemic changed how you look at investments and what you do? You know, I think the pandemic has impacted the one thing we've been able to see is that this pandemic has impacted different sector is very differently UM, and we can see that there have been clear winners and losers. So I think for us UM, it's it's forced us to take a step back and be thoughtful. The last thing that we want to do from an

investment perspective is the reactionary UM. So I think it's caused us to pause UM with the asset classes that we think are going to be more affected by this in the near term, UM. But it's also hasn't It hasn't stopped us from pursuing investments UM where we think

there's clarity and opportunity. So Christie, you know, one of the issues that people are thinking about as it relates to real estate resulting from this pandemic is the change in the work home a dynamic more people working from home, uh, suggesting that maybe the need for office space and the big towers and the urban centers is not what it

was pre pandemic. How are you guys thinking about that? Well, certainly the office of the future is topic du jur during COVID, and I think it's very much an example of UM as cliche as this may sound, example of COVID accelerating and already existing trend. We've been talking about real remote work dynamics UM for a long time. This technology has enabled that, and certainly, you know COVID now forcing everybody to be remote is really shining a bright

light on it. UM. I think it's a little too soon to say what that impact is going to be. I mean, you hear a lot of alternate, alternate scenarios, more more, more square footage with fewer people less square footage altogether. UM. We certainly believe there is going to be demand for office UM long into the future. This is something we're looking into as a tenant as well as an owner. UM. But I think we're trying to be pragmatic in our approach. We know that there's going

to be greater flexibility needed in the future. UM, but certainly believe that that demand for for office real estate is not going away. So I presume you're everywhere, right, Christie. You're involved probably all over the world and in most United States. But are there geographies that you're considering being less bullish on now and others that you're considering, you know, moving into UM. You know, for from an E s G perspective, certainly my purview is global. From the asset

management perspective, I'm very much focused in the US. But I don't think that, you know, when we think about E s G. The concept, you know, when we think about E s G resiliency isn't necessarily about saying, because there is a challenged area, we're not going to go there. It really is about making sure that if we're identifying that challenge up front, so that we can identify a strategy to mitigate that challenge, and there may be places

where that presents opportunity. So Christie has as E s G. Uh, you know the growth of s G in your analysis that caused you to either, uh maybe overweights a sector or underweight a sector. Has it really changed how you've actually put money to work? You know. E s G is something that we think is applicable across all sectors, and we want to look at E s Q factors,

factors and risks across each sector. So I don't think it's it's at this point, it's nothing that or nothing has come out of it that said we're going to do this or we're not going to do this. It's about making sure we're applying um kind of that that E s G filter equally across all of our asset classes to make sure that we have a strong s G strategy, despite sector, despite region. Christie Hill, thank you

so much for joining us. We appreciate it. Christy Hill is the head of America's asset management and global head of E s G for p JIM Real Estate. They have about one two billion dollars and assets under management, so they certainly have a good feel for the real estate market. And of course as you think about some of this commercial real estate, one of the big issues is what will be retail footprints um for certain retailers. Number one, Number two, what is the work dynamic going

to be? What is the office dynamic going to look like going forward? Is as much real square footage really needed? Well, it was a big, big week in the media world. Warner Brothers, one of the biggest media companies, one of the biggest film and television studios, and announced this week that is going to release all of its films on HBO Max streaming service the same day they hit theaters. This is a big, big change for the movie business. Let's get some details. We can do that with Tara

La Chapelle, Bloomberg Opinion media columnists. So, Tara, big news from Warner What do you think their strategy is here? Well, you know, I think right now, with theaters still a lot of them being closed because of COVID, they're looking at next year and saying, yes, there's vaccines around the corner, but it's still too students really have any visibilities. So you want people to see these movies that you spend a ton of money on. You want people to subscribe

to HBO Max. So if your a T n T and you're looking at that, you're thinking, well, I should just put the movies on HBO Max. And I think that's a really smart decision. It's it's going to be painful for movie theaters because those that are open. I think a lot of people are probably just going to choose to watch from home if they have that option. And HBO Max costs fifteen dollars a month. If you're getting a new movie every few weeks, I mean that starts to look like a pretty good value, you know,

from being really expensive to being kind of compelling. So I think what they're doing is smart, but it's just it is going to be painful for the movie theater industry and to be cure of these movies only stay on for a month, so you have a limited viewing window, let's say, and they're also in theaters at the same time.

The question I think, Tara is whether this is going to be a permanent move on the part of Warner Brothers, or whether they will revert to having, you know, a theatrical window first once vaccines are available to the whole world. Warner Brothers is saying that this is a unique one year thing. I I just don't see it being bad. I think even if they are planning it that way now, by this time next year, it's going to be pretty

clear that streaming is the most important product. It's something they really have to keep pushing with, especially with all the competition they have from Disney, Netflix and others. So I think by this time next year, we're going to be looking at this and saying this is probably going to be permanent. Maybe it doesn't look exactly this way, and maybe they have to bend sousastrical windows a little

bit to keep that relationship. But I just I think more and more people want to watch movies from home, and it would just be silly for these companies to ignore that. So Tarrett seems to me. I'm not sure if they've released any the economics here, but it seems to me they're Warner is going to take a big

financial hit here, at least in the near term. It seems like if they spend a hundred million dollars on a movie, Okay, I pay fifteen bucks through HBO Max and my family could sit in on the sofa and see it. But if I were taking a family of four to the theater, they'd be fifty in revenue as opposed to fifteen. What are they saying about the profitability

impact for the strategy for next year. Well, they're avoiding saying too much of anything about it, but you're right, it's clear that they're going to lose a lot of money on this, but I think they see it as probably worth it. You know, it's very expensive to even just promote these movies, and the box office really helps off. That's that and that's how they make a lot of their money. But if you're putting it on a streaming service, it makes me wonder if you need get to do

so much promoting. If if people kind of just get in the habit of knowing there's always going to be a new big movie on HBO Max, maybe you don't need to spend as much. Maybe over time this becomes a little bit more of a feasible, practical strategy. But for next year, certainly this is going to be very costly for the company. I just don't think that shareholders will be so worried about it because Disney is doing

similar things. They're really prioritizing streaming, even though it is losing money, and I think it's just because people know over time the goal is get as many subscribers as you can, increase engagement as much as you can, and then eventually the profits will follow. So it's kind of a long term that. Does it force other studios to do the same? MC down twenty now in the last two days. Yeah, I think it's a shot across about at Disney, especially UM. I think that there's definitely something

to being first here and first to something inevitable. Uh So, I think that other companies will have to do something similar, and a lot of them were moving in that direction in some ways. You know, Mulan went straight to Disney Plus for a thirty dollar fee. Earlier this year, Comcast shortened it's um NBC universal window with AMC theaters, So I think the theater is probably kind of expected something like this, but it's still it's still painful, and there's

not really much they can do right now. Yeah, it's just you know, is pointing out these theater stocks have really been under pressure for a long time now, particularly with some of this most recent news. Is there any scenario I just kind of wonder what the future is for theaters. Does every town need multiplexes throughout town? I mean, what's the expectation. Is this kind of the the death knell, if you will, for I guess the theater footprint in

this country as we know it now. Yeah, I think everyone kind of wants some sort of decision made on that, like is this the end of theaters or or are they going to be sign And I think it's somewhere in the middle, Like it's not so black and white. It's that theaters. Probably we don't need forty thousand screens around the country, you know, six thousand theaters. We don't need all of that, But a lot of people do

like going to the movies. They probably don't go frequently enough to support the industry at the size of that and the amount of investment that these theater companies have put into their cinemas to upgrade them. So it was kind of a mistake over the years that theaters expanded as rapidly as they did. But I imagine there's always going to be theaters of some kind. They're probably just won't be one in every city and they'll just be fewer and far between. But I think that maybe the

way that they survived. Next year is probably going to be a big downsizing for the industry, where a lot of theaters that were closed because of the pandemic will probably be permanently closed because it's because of streaming. I also want to be to ask you about another column that you wrote this week about President Trump's potential future. Where do you see it? There's a lot of speculation that there might be some TV in the works. Oh gosh,

it's so fascinating, isn't it. You know, they're saying Trump is looking at doing some sort of streaming service, you know, a monthly subscription, a lot like Fox Nation kind of sticking at the Fox as new enemy, and it's hard

to know what's going to happen with that. But I think what we're definitely seeing is some pressure on Fox News because you know, they were so aligned with Trump that with him telling his supporters now to ditch Fox and watch News Max or O A N or potentially some Trump TV service, that they need to kind of shift gears and figure out what they're talking points are

going to be. Um. But as I noted this week, Fox is kind of protected because of their affiliate deals that they have with companies like Comcast and Charter that were only recently renewed in those last multiple years, so they've kind of lost in their profits for now. But there's definitely this big, like headline risk that people are looking and saying, wow, Fox has competition for kind of the first time and it's in. It's for real. Is there any sense about thirty seconds left that Fox is

concerned about this? Are they seeing erosion in the ratings? They're saying a little bit. I mean it's it's small in the grand scheme of things, but I think they've got to be concerned. You know, you can't ignore that, and they definitely have to think about, you know, what's their narrative now we have a different president office, different party. What are they talk about now? If they can't talk

about Trump? Well, if you think about half the voters paying you know, somebody maybe five dollars a month, that's a nice little monthly salary for anybody who who does that. So you have to, you know, you have to consider that to Tara's thank you so much. Tara's columns are so well worth reading, so satisfying and thought provoking. Tara Lasha Palaces, Bloomberg Opinion Hollum is covering the business of

entertainment and communications as well as broader deals. Of course, used to write an m Day column for Bloomberg News. All right, where are we at with the election lawsuits? Let's ask somebody who follows them really to a t. Justin levet is, professor of law, Loyola Law School, and Justin, I hope that's correct. I hope you're as glued to all of this as the rest of us. I'm sure you are, because it only happens every four years. Right,

what is the current status of all of the lawsuits? Well, there are some that are still lingering, but they're not going much of anywhere. Fact Um, the courts have been at a uniform across the board. They've granted some extremely minor procedural relief in the early going, but since then has pretty much rejected all of the claims that have

been made uniformly and in multiple states. There are a few cases that are still less to sort of wease their way out, but that's the way most of them are going is slowly in with a whimper, So Professor. President Trump is also reportedly considering pardons for himself maybe his children. Um. What kind of legal jeopardy could he face from these actions? Well, from the pardons themselves, there's not much unless he dangled the bribe in order to

produce these parts. That's something that we received word that the Justice Department had actually been investigating a few weeks ago. And UM, that is not okay. So holding out the prospect of the pardon in exchange for something value is not okay. But beyond that, UM, the president has extremely broad power to pardon for any federal criminal activity. UM.

That runs up against two limits. One, it's generally acknowledged that the president can't pardon himself, that you need to be partnering somebody else and not yourself in order referred to be effective. And to the president can't pardon individuals of state criminal activity. UM. There are a number of state investigations that we know of, including a tax frawd

another business liability from before the president's time as president. UM. And he can't as president get himself or others out of any trouble they may have run into with the states. What is your prediction for how it goes once you know the president elect is in office and the current president is not. Even though Kenny mcnetnie has just said that he's going to remain leader of the Republican Party.

Is it possible that, after investigations and you know, presumably criminal overseedings, that a former president could actually go to prison. It's possible, it's exceedingly unlikely. There are reasons that it hasn't happened before. UM. Of course, this president has found pleasure in breaking a lot of norms, and it would be ironic if that were among the norms that he

would have broken. UM. Look, in terms of federal liability, even if the president doesn't affectuate all of the pardoners that he's claimed to UM, there's going to have to be a really hard call on the part of the new administration about what sort of accountability to seek. UM. And we obviously have accountability through the criminal justice system, but that's not the only form of accountability we have UM.

And there are lots of reasons why, even if the facts justified it, a new administration might choose to pursue accountability in some other realm outside of criminal justice. So, Professor, it's been I think speculated that the President Trump perhaps the biggest legal liability after he leaves office is from the Southern District of New York. There's a number of investigations on going. Is that you're reading as well. I think it's a combination of the Southern District and the

New York Attorney General's Office. So as mentioned, there are different political considerations and their different legal considerations when it comes to the federal government holding somebody to account versus the state government. UM. I'll note that the New York Attorney General's Office has already very publicly come down on the Trump organization charity, the Trump Foundation, UM, and they have been looking into business dealings with the Trump organization

elsewhere as well. UM. So I think it's it is certainly true that the activity that might cause him the most concern is happening within the jurisdiction of the Southern District of New York. But there are state actors there as well who also see at least some traces of facts they want to follow up to find out if

there's been criminal wrongdoing. But when this is all over an you know, in our memories, I don't just mean the last four years, but also maybe the next eight or twelve years, will there be legal president that would have been created thanks to this period in time, Oh, no question, Um. But even more important, I think there will have been political or normative president UM. So some of the courts have issued opinions on what it is

the president Kenner cannot do. They include opinions on what it is the president must or must not turn over when investigative agencies asking. All of that will be precedent

for the future. But I think even as important as that are informal rules about how we treat the office of the presidency and what requires or demands a response from other elected officials, um, And those I can see running one of two ways, either learning the lessons in the last four years that we like how we treated this and so should continue to treat further president who might break norms in a similar fashion, or something I actually suspect more likely, UM, that we'll see a backlash

that will realize that some of the ways in which norm breaking has been not only tolerated but encouraged in this presidency are more destructive long term to the health of the country, and that will turn a page on this and and sort of suggest I would hope never again. So Professor President Trump, I guess has not conceded. Yet, what are the constitutional laws surrounding this transfer of power?

Do we need him to technically concede. No, it's just that every president since the mid nineteenth century has um, so we're not used to a president who doesn't concede. But in short, the president is not in control of whether he acknowledges a loss at all. UM. The state and local governments count up the ballots. That's something that we've seen over the last couple of weeks. A lot

of Americans are now more attuned to than ever. UM they announced final results, governors or other executives of the state certify those results. The electors vote on December fourteenth in the electoral college, Congress counts the ballots. Butecial notice, I haven't mentioned the president once in all of that, and that's because he's not in control of whether he remains as president or not, if he chooses to concede,

if he chooses not to concede either way around. The other actors in the system who count the ballots that have been cast decide whether on January at twelve oh one, President elect Joe Biden will be sworn in. He will be and if the president hasn't conceded by twelve oh one, Um, then he'd better find a new address, because at twelve o one, the Secret Service will establish the rule of the President elect, and anybody who's not that person will be kindly after the boy house. Very easy. We will

follow that clearly, of course. Justin Leavitt, Professor of Law at the Loyal Law School, thank you so much for joining us based in Los Angeles. So again, Vonnie, the next six weeks here I'll be interesting to see, you know. President Biden continues to build out his cabinet and prepare for the transfer of power, so we will obviously watch that. Thanks for listening to Bloomberg 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 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.