Yellen Makes Big Sales Pitch for $1.9 Trillion: BI's Jersey

as they occur. Right now, let's go to IRA Jersey get some preview, if you will, of what we might hear from Secretary Nominee Janet Yellen. Ira Jersey, chief US Interest rate Strategists for Bloomberg Intelligence, joins us. Ira, thanks so much for coming on with us here today. What do you expect to hear from Mrs Yellen today? Well, first, I think we're gonna hear a big sales pitch for President elect Biden's one point nine trillion dollar stimulus plan. Um.

I think that will be important. She'll probably be asked about how that will be funded and how that might have interest rates, and and she'll say well, interest rates rhetorically very low, so this is the time you want to be taking on more debt, not when interest rates or significantly higher. So I think those are the kind

of the first the first couple of things. And then and then I suspect that at some levels she'll also be aft about um working with the Federal Reserve, which is not something that Secretary Manuchin necessarily always had a rosy um, a rosy time with. So so I think Janet Yellen will will be after you know, a number of things, both from the monetary and the fiscal side

of things today. How will her rhetoric change from the time when she was when she was Federal Reserved here, I mean, obviously there were certain restrictions then that there aren't on her now. Should we anticipate a different kind of Johnny Yellen? I think a little bit. But you know, even Jennet Yellen, she was out front talking about things that quite frankly or not exactly in the Federal Reserve's purview.

So things like income inequality was something that talked about both in public remarks as well as before members of Congress in the past. So so now she can speak much more directly about that. And I think that especially with Democrats, you know, Senator Grassley and others being um uh, the Democrats being in the majority, now that she'll be asked about income inequality a number of times and what

can be done to fix that? And I think that she'll um, you know, she she'll she has very strong opinions about about income inequality and both the problems um uh that that it creates in the broader economy, but also um, you know how you can fix it, and you know it's it's not an easy and easy ask,

and and you know, they're some of the people. I think once she answers that some Republicans may actually go on the I don't want to say attacker, but certainly take the other side and say, well, there has to be winners and losers then, and you know, how do you incentivize investment and at the same time ensure that that that incomes um can be more are normalized between between the halves and the half not al Right, what do we know about Janet Yellen's um thoughts and policies

and strategies about the ongoing fiscal deficit the you know, the annual deficits we run every year in this country and the and the long term debt this country's racking up. How does she feel about that? That's a good question. We haven't heard a lot from her on that exact subject, except saying that, um, you know, it can't it can't go on forever. So she's not a modern monetary theorist at heart anyway. Um. But but I think that she'll probably come out and say, well, this is the time

when you need to spend. She'll take a very neo Kanesian view, I would think, which is, you know, you have to spend when the economy is weak, when interest rates are low, and then reduce the amount of deficit spending as the economy recovers and you're in the good times. Um. The you know, clearly over the left of the last half century we haven't had a great, um, a great track record of that. But what has happened during good times is that you've had a nominal GDP growth growing

much faster than the fiscal deficits. So you've had debt

to GDP go down. But now with the massive amounts of deficit spending over the left decade, we've we've now approached a debt to GDP and in fact, this year we will um we we will go over that, and particularly if there is another one point nine trillion dollar stimulus so um, so she'll have to address that, and it'll be interesting to see, you know, how worried she is about that and how much she um you know, says, hey, we do something now, but in the future the rest

of my term as as grogury Secretary, maybe we won't be have deficits that are as high as they'll they'll likely be over the next twelve months. Jerry tomp Grassley is making his opening statement right now. That will go on for a few minutes. Eira. You know, she will obviously talk about the ways to stimulate the economy. Will she be in favor of direct checks? Will she talk

a helicopter money? Well, helicopter money is different than directs, right because so helicopter money is is talking about monetary policy and and basically the Federal Reserve printing money, which is a much longer discussion and is not something that necessarily works the way that that some monetary theorists think it does, at least in my opinion. Um. But but I think that that she will um talk about some

direct checks. I think, UM, the the she will acknowledge though that direct checks only help in the very short term, and that um, there's other policies that um that that may be more important for the long term sustainability of the country. So um, so things like you know, mortgage

moratoriums or ensuring that people keep jobs. So like something like the PPP might be better than direct stimulus checks to to the household sector, because one of the things that we have to remember is that direct checks to the household sector, they are a one time boost and if um, if all of that money is spent or or even if some is saved, it's still only it doesn't help in the longer term. So something like keeping people in their jobs or or you know, helping people

stay stay at work, or helping with longer term unemployment. UM, those are things that that will probably have a greater impact on on the long term health of the economy than you know, someone getting an extra an extra five or six hundred dollars um in you know, at one time. So I you know, in addition to this one point nine trade and fiscal stimulus that is on the table right now, there's talk of already another package behind it, perhaps even the larger that may be more infrastructure oriented,

more longer term, maybe even a green component. Do we know what Janet Yellen feels about some of those strategies in those policies, Well, I don't think that she. I think that ultimately she'll be on board with with the president's general plan. So if if the President does come out with some kind of you know, green uh, you know, green New Deal or um uh and infrastructure spending, that

what might go under over multiple years. So so when you think about the next plan behind this, I think it's more of a yeah, it might be three trillion dollars, but it's probably three trillion dollars over five years or six years. It's not you know, two trillion dollars right now, which is what we're talking about with the with the second fiscal stimulus UM. So, so we don't know, but I think that you'll have to be on board with that.

I mean, she wouldn't be nominated for Treasury Secretary without needing to be the spokesperson for the broad array of different things at President let Biden wants to do, I wrote Terry Haynes Apenergy Policy makes a good point. He says that you know, markets will receive this as positive news, this yelling you know, most likely risk asset markets might

take it kindly. I'm not sure that. I'm not sure that the race market would take you know, two trillion dollars stimulus plan as as particularly kind Well, yeah, that's an excellent point. That's an extent point. We let's expend on that in a second. But just to finish that first thought, he was saying that she provides cover for regulators, for progressive regulators like for example, Arrogancer and Antiopra at the CFPB because she has been talking a lot about

consumer affairs. Yeah. So, so consumer affairs is interesting because one of the one of the issues with income inequality

is is who's able to get loans? Right, So, so the good things and the bad things about the CFPB and some of the work that the Consumer Financial Protection Bureaus you know, done over over the course of the last decade is you know, they want to make sure that people are getting loans that firstly are sustainable, but and and that they're not being taken to people aren't being taken advantage of, you know, like what happened at

some points during the mortgage crisis. But at the same time, that also means that there's a lot of people at the margins who might not be able to get loans because they're not seen as worthy borrowers. So that means that you know, in places like under UM, you know, some underserved communities might not be able to get loans to start businesses or or to buy a house like

So there's knock on effects with that. So I think that there probably needs to be some changes, and I think UM, someone like Janet Yelling can kind of find the balance between safety and soundness and UH and the ability to allow some type of risk taking h to

be done and for loans to go out. You know, maybe it's on the auspices of the SBA, for example, where the Small Business Administration might ease loans in certain areas where where businesses might be able to UM might be able to take on a little bit more debt.

But but all of this cost money, right, So at the end of the day, there, you know, if you do have UH riskier loans being made by the SBA, the chances for credit losses by the SBA goes up, and and that means that that has to be funded at some level, and that has to be funded via issuing treasury and security. So that's one of the reasons

why I bring up. You know that that all of the spending means that you have to issue a lot more bonds, and by issuing a lot more bonds, someone has to buy them, and eventually you're going to see much high or yields because of that supply. I Jersey, thank you so much for joing us. We appreciate your extended time. Our Jersey chief US interest rate strategist for Bloomberg Intelligence. Earnings season is beginning and we always begin

with the big banks in this season is no different. Uh, some mixed numbers I guess coming out of some of the big banks here. But let's break it down. We'll do that with Shanali Bassic, Wall Street porter for Bloomberg News Snally, what have we seen this morning? We had some of the big names kick us off. Yes, absolutely, I mean it's it's a very clear continuation of what we've seen all year, which is Main Street versus Wall

Street and Wall Street is winning. So all right, let's talk to us about what we've seen so far that the trading numbers Sanale have been so strong for so many of these big banks. Is that trend continuing? It sure is, And a lot of this is driven by a lot of volatility and equity markets on robust I p O s Goldman Sacks just said it had one of the highest quarters from net revenue ever for equity underwriting, driven by this ip O cycle. So that's still going on.

Let's see how long that can keep going on. Yeah, I mean what are on was saying, nale are the anticipation that this will continue? There certainly is an expectation, except for it's supposed to be a little less than what we've seen last year. Last year was a standout year by any means, and it was also guided higher by fixed income being so robust. We're seeing a lot of the banks here miss expectations on fixed income trading.

Remember last year we've seen so much dead underwriting as companies dashed for cash that that really helped fixed income volumes higher. So without that leg can trading stay quite as high? Not expected, but high enough to keep that profit churning? Hey, Shanali, So when you take a look at a Bank of America, I mean, obviously they have the big investment bank from the acquisition of Merrill Lynch.

But I think the more of is a a corporate bank, you know, relying more on net interest income, and I'm at the rate structure right here, still gotta be tough to make money in that business. It's the number one question that they've been getting today, it's net interest income. How much pressure is there. They are saying that it's probably bottomed out in terms of how bad it could get.

But with that said, it's a lot of sluggish growth there because you're also seeing loan growth very sluggish as well, Paul, So how do the banks that are so focused on the consumer continue to make money when they're not lending at a fast rate and when they're not really benefiting from what the interest rates look like here? Socially, what should we anticipate from the asset managers next week, because this gives us a little little glimpse into what we

see from the likes of black Hawk. Yes, absolutely, black Rock really stand out numbers there in terms of assets under management. Remember Goldman and JP Morgan also two of the top money managers in the world. We don't think about them that way because they're mostly banks. But again, many children dollars all together there in assets. They're really

benefiting here from the higher market levels. That's that's number one, But number two, they're also benefiting here from really an expansion at least for Goldman's sake, and expansion in private markets as they grow that merchant banking business as well. Socionale. With the Democrats take control of the White House and a very very slight control of Congress, there's definitely concerned there that the financial services industry is going to come

under some heavier regulatory scrutiny. What if we heard from some of these early conference calls from some of these big financial institutions, are they concerned? So we have not, actually you, it's the number one question on my mind. For sure. We haven't heard a lot about it yet

on these calls. What's remarkable is that just last Thursday you saw these elevated and unemployment claims almost a million, more than eighteen million altogether now, but then the next day JP Morgan comes out and says they have had their most profitable three months span in history. So how how can both things be true? What can we expect

from the Biden administration? Between Janet Yellen and Gary Ginstler and others who may be more progressive in the o c C and CFPBB, which are more consumer leaning organizations. Is there going to be a concern that these banks that that are making so much money are simply not lending to the broader part of the American economy? Well,

how much can tell that Yellen do about this? She's been questioned right now by you know, a multiplicity of senators, and I imagine some of these questions are going to come up. So we will hear from her, you know, on what she thinks about these things. But will the Treasury Secretary have you know, that much of an impact? Well, yes, because for one thing, she will have a starring role

as the head of the Financial Stability Oversight Council. Will there be stronger rules in terms of what these banks are able to do moving forward? On top of that, there are questions about whether these banks should beholden to greater regulations when it comes to serving more lower income to middle income communities, more women, and more people of color. There is an expectation that there will this will be

a matter of law not too far from now. So the question is how aggressive do they get in terms of disclosures and potentially even quota as ahead. Hey Sonali, thanks so much for joining us. I know you're busy these days in business from the marriger of the week, cause we get more from the big banks and financial institutions on Wall Street Nale Basket, Wall Street Porter for

Bloomberg News. Got some mixed numbers. I guess out of Goldman a Bank of America, but we'll see to get some confirmation from some of the others, including Morgan Stanley, JP Morgan and others coming up. So earning season in full swing stocks versus bonds. Boy, you look at the ten year treasury yield today trading at one point zero nine percent. Not much of return for walking up your money for ten years. That's not surprising that we see

so much attention on the equity markets. Let's chat with Mike Dowdell, investment strategists and portfolio manager for BEMO Global Asset Management. They have two seventy nine billion dollars in assets on their management. Uh. Mike joins us on the phone from Chicago. Mike, thanks so much for joining us here. Well, you look at that tenure treasury at one point zero nine percent, and you're like, I just don't see that kind of return for that kind of period is very attractive.

I gotta be in equities. Is that kind of how you're looking at things? Yeah, I know, I think that's a pretty good summary of kind of where the markets at right now. A lot of where we've seen in terms of this this equity rally. Uh So, a lot of it is is bond dependent. Uh there's a lot of investors out there you need to go somewhere. Where are you gonna get that growth? A lot of it's not going to come from your bond portfolio. So a lot of people have been up and been more or

less forced into equities. Yeah, I mean, what about forced out of the US? Is that an alternative? Yeah? I mean if you're if you're a pure value, valuation based investor, outside the US looks particularly attractive. Um, but the US still from it. It is a pretty good place to be. It's a defensive market due to the composition. The US consumer continues to be really the driver of growth, particularly

in the development markets. So we still like the US markets, although we have become a lot more constructive on emerging markets over the last few months. Alright, So an emerging markets, Mike, how much risk do I take looking there? I mean, is it simply make up trying to make some place in China? Where do I go? Perhaps even farther out than the risk curve? Yeah, we actually like a little

bit broader out than just that that that straight China play. Um, you have a lot of tail wines behind you right now on emerging markets. You have when we think will be synchronized global recovery in particularly in the second half. That should help some of the higher beta markets. Um. And you also have that weaken mean dollar, which is really helpful for it give us a lot more just leeways for his person emerging market central banks to have

a bit more stimulative policies than otherwise. All right, So when would be a good time using to try and make a little bit of a move in the markets? Is you know, is this a question of waiting until the vaccinations are all over the country and then we'll see rotations and things, or or do you just keep adding now? Yeah, I mean that's that's that's really the question we we think right now makes sense. So, I mean as markets aren't are aren't coincidental, they're really look

forward looking. So Yeah, vaccine rollout has been flower than many had hoped. Um. However, it's it is still rolling out, particularly in the US. Here we're looking like we're gonna get up to a million uh doses a day. That should be quite positive. Um. So we think you need to get ahead of that and just looking out over

we put out our our annual outlook. We called it Arousing Recovery, and we think does that make sense that uh, particularly you should see that shift from the manufacturing sector into the services sector and really see the economy start to take off in the second half of the year. So getting in front of that is important. If you wait until that actually shows up in the data, you're

probably going to be behind the eight ball. Alright, So Mike, you know, it's this is a market that's been driven by the FED, all the liquidity in the marketplace, uh, fiscal stimulus. It seems like there's you know, multiple rounds uh maybe even still to come. Here. At what point as we enter this earning season right now, at what point the earnings really come front and center. That's a good question. Uh yeah, I mean earnings matter at the micro level, there's no doubt about that. UM. At the

macro level. Yeah, the tail winds, particularly from policy aren't going anywhere anytime soon. So for for Paris trades, earninges matter, but for from a broader market perspective, we think that that really the market is going to give a bit of a mulligan on on the earnings more broadly until for for a little bit here, we think that Fed policy is going to remain a commody for the foreseeable

future fiscal policies coming through. Even more so, as long as you have those killin, it's really hard to see a large scale uh pullback in markets without some buyers coming back in. What do you imagine John at Yellen's priorities will be as Treasury Secretary and how will they impact to the markets? Yeah, we think that Yelling and just the broader binding administration are looking at really what happened under the Obama years and that slow grinding recovery

and using that as a cautionary tale. They really want to get back to tight labor markets and as soon as possible. There are ten million fewer people on the payroll today than there were this time last year, and we think that they want to accelerate that recovery and make sure that we can get to tighter labor markets much much quicker than what occurred after the Great Recession. So really that that labor market, clearly that yelling specialty, but but but tidying up that labor market is probably

going to be first and foremost on our agenda. Hey, Mike, we've seen this rotation trade play very well since let's call it September. Are you a proponent of this rotation trade out of maybe some of the core growth names into some of more cyclical names that might benefit from this economic recovery. Yeah, so I'd say we're we're cautiously optimistic on that rocation rather than value growth. We actually

like a small rather than than large. It's just the way to really play this this uh, this pick up in activity, you should seem premyser already at high level. You should see them actually continue to increases the recovery takes hold. Just that that that recovery should help sick with those number one but small caps in particular, which are really dependent upon this domestic market, dependent upon the consumer, and should really be a nice play into this this

strong bounce back and growth. Alright, Mike, thank you so much for joining us today. A lot going on today and we appreciate your time. That is my doubt all investment strategist and portfolio manager at BEMO Global Asset Management. Just to bring you some more commons now from Yellow at Treasury Secretary. She's answering questions to the Senate Finance Committee. She says, if we don't contain the pandemic, help American suffering from it and invest in long term growth, will

be worse off with respect to growth and debt. So she's definitely getting questioned on the long term effects of this stimulus, whatever it be. Joe Biden, of course looking for one point nine trillion dollars, but will he get all of that? Hardly, it's hardly likely. Well, it has been almost two weeks since the uprising, since the riot, since the insurrection on Capitol Hill in Washington, d C. And we're starting to just learn more and more about

what happened from a security perspective. Let's get the latest. We can do that with Clint Watts, Distinguished Research Fellow for the Foreign Policy Research Institute, also a Senior Fellow at the Center for Cyber and Homeland Security at George Washington University. Clint thanks so much for joining us again, and we continue to see more and more the shocking images and video from what happened on Capitol Hill. From a security perspective, what broke down? What do we know?

How did you break down? I think really there's two parts. One, the District of Columbia is ultimately commanded by the President as much as the mayor, and so I think the mayor has limited resources. The Capitol Police have to coordinate with the DC Police. Generally when we're doing federal uh sort of defensive mechanisms, there's a lot of coordination there. I think it really comes down to the politicization of law enforcement in the military and really hampering the response.

People not being sure are wanting to be out front. A large part because the President was there for that rally up to a certain point, he was giving speeches. It was his supporters. I think they were afraid to get involved. Asarily on the response. You know, once it was breached, became very clear that National Guard needed to be there, We needed a lot more people on the ground.

They were very slow to respond, and I think this shows the damage done by the two months prior where there was lots of debate and the military was signaling very strongly that they did not want to be involved

in the election. It's turnover. I would tell you from the supporters that were there that day, one of the conspiracies that many of them believed was that the U. S. Military would show up, declare martial law under the governance of the president, President Trump, and then keep him in power.

That was one of the conspiracies they believe. So sure, this all played into the thinking in terms of response, and you saw it just a domino effective breakdown, ultimately leading to why didn't the president tell the supporters, you know, get out of the capital much much quicker, Clint. There's obviously a lot getting done in Washington, d C. But do other estates have the resources to have men and women defending their estate houses? And how much do you

anticipate violence in other states? I think a week ago, the worry was around the capital and you saw this massive mobilization. You know, it's four to five times the number of troops we have in Iraq and Afghanistan, you know at this point, and that sent a downward signal. You could see it in extremist forums. They were essentially saying stand down and don't go to the nation's capital.

Then the fear was state capital. Even with the so called mobilization in the protests that we expected to see on January seventeenth and eighteen and different cities and states, they were lightly attendant. Um, you know, five to ten people. I think the message you've gotten out what you do see in the background of some of these forums right now is really a call to go outside of the capitals. They know that law enforcement national guards there um, and

to make yourself known. But then way to essentially have a propagation against you and use that as impetus. I think that it will be light attendance in this What I am worried about is the odd one or small group of cells of two or three that see this is their last chance to make a real show on Wednesday. Those are the folks that are on dark uh. You know,

communication platforms can be easily observed. They may maybe you know, better trained or better skilled, or they could just be literally mentally disturbed people that want to sort of finish this out. That's most of the worry I imagine for law enforcement. Now. I I'm hoping that that the best

outcome comes, which is a peaceful day tomorrow. Clinton. One of the real concerns coming out of the investigation on what happened on the Capitol is to what extent, if any, was their coordination, was their planning, whether it's inside Congress, perhaps even members of Congress providing tours the day before, or maybe external funding. Why don't we know about some of the organization and planning and issues. Yeah. I think what's interesting is this was well organized all the way

up to the day. I have researchers, we we watched this. It became very clear about two weeks out this was going to be a sizeable event by Sunday before. We were all hands on deck watching this. It was not surprising I think to anybody had been watching the scale of this. Part of that is because of the online communication coordination. They were crowdfunding, uh, you know, to support

their travel. They're coordinating their travel to d C. There were discussions about how do you can you or can you not get weapons, you know, into the district of Columbia. So this is pretty significant. I think what will happen over time is with each of these arrest and more and more witnesses surfacing, the evidence will gather to where

you can put together a loose chain of command. In terms of who was inciting the actual breaking in of the capital, there were barely clearly people that are just there because of the present. There were others that were there and exciting kind of got caught up with moment. But beyond that, there were groups of militant extremists essentially that we're going there for the express purpose of breaking

into the capital. And they had the tools, they had the equipment, they had the resources, they had the guidance to get there. And I think that's where I will be interested in the next two to three we see

how these FBI investigations on FOAM. So the way the mall is set up right now, and you know that that basically all around d C is that there are flags in the places of four people might be standing typically at a regular inauguration day, that coupled with some wise words from Joe Biden, might be enough to sort

of talk to these people. Can do you think, I mean, are there words that can reach across the aisle to these people for those that are the furthest out on the extreme that have been absorbing these conspiracy theories and lies for the last three to four years. I don't really think there's much coming back, and you can you can see that in some interviews with President Trump's most ardent supporters that they saw this as either okay or justifiable based on what they've seen at other protests in

the past. They kind of rationalize it. I think it's a dangerous phenomenon. Part of it. What complicates all of this is the pandemic. We have a nation divided about it. They're not divided about that, they're divided about the economy. Patching all those things instantaneously just won't happen. The forces that will matter will ultimately come down to how does President Trump behave when he's out of office. I think

we kind of know how President Biden will govern. He will look a lot like a trade additional sort of president. Will that really calm down this sort of storm of disinformation and conspiracies, these mobilization to violences. I'm not convinced at the moment, based on both the fact that the president kind of repeats the electoral fraud rhetoric despite all evidence, and you also had more than a hundred GOP members still vote after that mobilization inside the Cambal still vote

based on a conspiracy, so I'm not hopeful yet. Until that changes that we'll see much of a change in terms of the course of which the country is going. All right, can't the story, then we'll continue. We will welcome you back very soon. Clint Watt's Distinguished Research Fellow at the Foreign Policy Research Institute, also former FBI agents specializing in terrorism, and we are very grateful for his time.

Thanks for listening to the 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 on Paul Swee. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio m