Surveillance: Brexit Hope Tempers Virus Concern

British Industry in London, their deputy Director at General. But his he is uniquely qualified to talk about what we're witnessing at Dover because for eight years before working with the c IB he was with Tesco, which is a small grocery store with headaches every day. I'm getting produced out there. Josh Hardy, you are uniquely qualified to speak about the position of business in England right now, a Tier four lockdown, Tesco just trying to get things done

as it is. What do you perceived to be business into the end of the year and into January. Well, I mean we're all on tender hooks here in the UK. We've been we've been waiting for four and a half years for a Brexit deal and for clarity um and now well we've been hours away for about twenty four hours so we're the first thing is we are just desperately hoping that by the end of the day we get an announcement on that deal because that matters so

much for businesses. It is that certainty about the trading relationship with our biggest trading partner. What will that look like, whether you're in food, whether or you're in farmer, whether you're in services. Absolutely critical. So let's get that deal over the line, because it is so better than no deal. The United Kingdom clothes that we see here, and of course sterling is what everybody's watching. Euro Sterling is so

important to all in this great Tontal debate. But the cable we look at as well, one six earlier and it's ebbed away here on doubts of a press conference and over fishing rights as well. Josh Hardy, we're fighting for stimulus in America. Some would say it is income substitution. Is business receiving aid from the government in the United Kingdom,

quite different from what we see in the United States. UM, I think the principles are often the same in that there's there's a principle that we set up here very early with the government around COVID and the pandemic much more than around Brexit, of course, which was we're going to have to recover from this, and to recover you need businesses ready to grow when the lockdown keease, and they're going to need your help. So we've got wage subsidy schemes here, we've got tax deferrals, we've got a

broad package of measures. But of course we've now gone into this thing called Tier four lockdown and across the majority of the country, which is which is a pretty

full lockdown. So we need to keep an eagle eye business resilience stripped away through the pandemic of court everybody everywhere, not just here, um if with it to be in this situation for the next few months as that vaccine is rolled out, we need to protect as many businesses as possible, because they will what will power that recovery.

On the other side, is there a frustration Josh that fishing, even though it accounts for such a small proportion of the economy and the overall trade with the European Union, has dominated talks that have made life so difficult for the CFOs of the businesses you speak with. I mean yes and no. Of course, did you just put an economic lens on this UM. Fishing is not a substantial part of the UK economy UM, and the rest of the economy can feel like it's being held hostage by

something that is economically relatively small. But we know we've been in this game for a long time. This is not just about economics. This is about sovereignty UM, and that is something that the government have to respect and have to have to work with. So having that control over fishing rights, being able to show that you do have sovereignty is we understand important. But it feels like we are we are in those final last yards. They're

always the hardest, aren't they. But it feels like a deal can be done where that sovereignty has maintained and where the rest of the economy can actually get benefits and grow. So I can't say too much about it now because there will be two thousand pages of LEI legal texts that we get in our in our Christmas stocking to go through. But we we hope that's there and we hope it's over the line. Josh Hardy, thank

you so much. We see IBC this morning. We have taken pride in our coverage of this pandemic starting in February and March really with the leadership of the United Kingdom medical community over to Johns Hopkins, and part of that discussion has been Albert co of University. He is expert in the diseases across this world that involved bacteria and virology. He's also expert in understanding the need for vaccine. He will have the courage to be vaccinated, I believe

on Monday. Albert Co. You know that Yale University ages ago, beginning in eighteen ninety seven and out of nine invented the syringe with the Beckton and Dickinson company. We take it for granted. Today tell us the medical evolution of getting that shot and why we should not be afraid today. All right, Tom, Well, thank you very much for having

me back on. It's the stories of pleasure. So with respect to the medical evolution, you know, we have a hundred years or more of experiences vaccines and if you if we think of of one medical success story that that really changed our lives, it's been vaccinations in terms

of prolonging life expectancy, decreasing childhood mortality. And now we come to COVID and you know there were the amazing work that has been done, the progress in you know, less than a year, we have a vaccine where you know, current clinical trials have you know, exhaustive studies have shown that it's a safe and effective vaccine. And I think that's a message that we really need to get out

to everyone. It's on everyone's mind, whether you know this is we're in a pandemic that has been developed quickly. Is a vaccine safe and effective? And all the evidence we have, you know, UH points to a really another major medical success story in to make what is the most efficacious way to line up the ducks to get this done? How do we get millions of people most

efficiently to get the vaccine. Yeah, So the first you know, the first step, you know, which was a tremendous amount of work, was to do all the research and development to get a vaccine. The hard work is now coming on. We have to now get um you know, raunches or swabs of populations vaccinated. And I think there's a couple of issues that are really important to UH to emphasize.

The first is that we have to certainly protect our healthcare workers, essential workers, those that most risk for the disease we have to take care of the population here in the United States, and we're gonna have to vaccinate up to eight percent or more of the population so we can get back to normal or some semblance to normality. But the biggest issue is that we're going to have to protect the whole world. This is not just an

American problems, not just the European problems. This is the problem that affecting the livelihoods of all people in the world at seven point eight billion people, And we're gonna have to think about the long run and how we're going to protect the populations across the world. In the medium run, as we unroll the vaccine into the general population, people keep getting the virus. We now have a total death count in access of three d and twenty thousand

all right in the United States. We have a case count that is climbing every single day, and there is a question of what we can do to prevent death. How good have some of the remedies been. Has the therapeutics been to deal with the virus once people get

it and get very sick from it. So so I think, you know, the Lisa, really the important issues that we're going to have to use you know, what we know is tried and true and work for the public health prevention in order to get ourselves into that phase where the vaccinine starts kicking in and decreases transmission. We do have improved, We've learned a lot in the last year

about how to treat patients. We have, you know, therapies and mortalities such as steroids which decreases the risk of mortality. These to reduce the risk of mentality. So we don't have any game changers or home runs on the forefront of therapeutics at this point, and so we're going to have to rely on public health, you know, sound public

health prevention to get over over this period. And we're going to have there's going to be a difficult next several months during these winter months as the surge is occurring not only you know, across the United States, but in many parts of the world. Can we get to her immunity if we can't get kids vaccinated, because from my understanding, they won't be able to get vaccinated likely until potentially late next year at the outset, based on

the studies currently out there. Yeah, so, as you know, since the beginning where there's just been debate about her immunity and whether natural infection and we can get you know, enough people you know infected that there get they become immune due to natural and faction, and that would protect the rest of the population. You know, I worked in Brazil for twenty five years. One of the cities in Brazil,

city of Monoits, which is hit the hardest. You know, I had an epidemic that affected seventy of the population. So if we're thinking about her immunity, those are the levels of people who are going to be affected to reach herd immunity. And that's that's a that's a rica, that's a disaster that we just can't can't accept. That also provides us a benchmark of how much how many people we need to vaccinate. We're going to have to vaccinate over seventy's my own, my own judgment at this moment,

and we're learning more. We have to be humble and we're learning more each time, but we're gonna have to vaccinate large numbers are population to protect to get to that magic herd immunity threshold. Dr co thank you so much for being with us. Best of luck when you go get your vaccine. Are you worried? Are you excited

for it? I'm not worried, and I'm excited and uh and I think we're really, you know, entering a new phase of how we're going to be able to deal with this vaccine now, and I'm just proud to be part of that. Albert Cole, thank you so much, greatly, greatly appreciate it. With a Yale School of Medicine, let us get here to an important conversation, jeff For you synthesizes what we see in economics and markets in a

wonderful and delicate way. He's with B and Y. Melon to say he's their senior strategist doesn't give justice to what he grasped here. Of the dynamics as well, Jeffrey, you are disconced in tier four, Tier five, Tier six, somewhere in the vicinity of the microcosm of trucks stacked top in Southern England as well. Sometimes our macro economics are overcome by micro events. Tell us about the micro event of business investment and animal spirit in the next year,

um next year, in one word, vaccine vaccinations. If that works, If the Biden administration can bring through a hundred million doses and a hundred days or out the form that be that Tony blads walking about giving additional dosage or ready to speed up the process if that works, and more spirits are going to let that. I've heard people talking into the roaring twenties again, are we going to have thees? So that's what people are hoping for, But

so far government competence globally, I think still caution is needed. Jeff, you you were weaned on the ose. The history of the linkage of history and all of this from Lionel Robbins and of course the great Magna Decide among others, is well within this historical moment and all that we mumber babble about each and every day. Do you have an optimism that we get back to normality after the vaccine? Is it not V shaped, but is it literally stochastic

where we explode back to a normal economy. It will be V shaped for some, it may not be the shape for others, and that again is going to be the policy challenge for some time. Remember a few months ago when we first talked about this. There will be winners and losers out of the recovery, and then governments will need to grapple with how do you ensure that the district ution is not too much concentrated within those who've done relatively okay out of the lockdown, out of

social disruption already. Otherwise you're going to grow social issues. But I think we're seeing that UK. So is it going to be be for some the society is going to be okay or is it going to be an l for others or even worse. I think that's going to be much more important than what the broader GDP number is going to be. Jeff. A lot of people say that these fundamental arguments don't really matter for risk appetite, that the animal spirits will prevail regardless because you're getting

penalized for putting your money in cash. The negative real yields that keep getting negative or globally and particularly in the United States. But there are two components here, right, There's the actual yield and then their inflation expectations. Do you think that the inflation expectations have gotten ahead of themselves and that the actual phenomenal yield is what's telling the right story, and that's one of slow growth and more moderate expectations ahead. I think the pace has caught

many by surprise, I would, including myself. We look at the five year, five year forward break even right now it's getting back to two. You know, we haven't been here since July last year when we were thinking about additional they're easy. But in terms of levels then from central banks point of view, and nowhere there where the central banks wanted to be. They want them. They want central bank that they want economies to run hot, bea the CB, be it the FED. They want to see

yields go through to twenty five. Those are the highs in two thousand seventy, two thousand and eighteen. So what are you looking for as a central banker right now? A pace or levels? I think they're going to go for levels, which means you keep things easy and that's going to help risk appetite. So how local negative yields

get well? So if well, we do get to twenty five and the ten years so stays at a hundred basis points, then if you just use that, then we're looking at well below a hundred basis points in terms of negative yields. And again that's something that central bankers

they want to enforce them right now. In their view, this is the only way to lift animal stops for getting investment back into the economy, to move all that cash the US British savings rates above Germany's think about that it needs to be spent extraordinary, Jeffrey like, very good insight. Jeff you mentioned pacient levels and mathematically folkus

this is so, so, so important. When do you presume, given vaccination that we get to the glide path of January and February of this year, When do we see a level jump that gets us back on stream that seemed comfortable for so many of the public. I think it would be around mid year, and I might venture to say probably right after mid year rather right before. So I'm going to borrow from the u c B here.

They've already shifted their language. They had a maxine being available mid year twenty one and then distribution towards the end of one that has entirely been shifted forward by six months. So that's good. That's why we've seen such a strong move since November. But the next phase is the normalization phase. Then it's going to be on individual governments, and then you're going to start to see dispersion French authorities vaccinations today so it will be different in different places.

But do we have the political economic architecture to begin to reverse policies in these dire times? Do we have the ability to reverse and in some way get our policies back to normal? Short answer is no. Central banks certainly are not going to do that. Again, let's borrow from the r b A and the ECB. They've given you their time phrase, you'll kind of control in Australia three years. That's your policy time like no normalization for three years and then from the CBS point of view,

investment plan fistal boasts for the next two years. That's the political world. So for the next two to three years, I think we're looking at the status square in terms of policy. That's good for risk appetite. Jeffrey, you thank you so much for all of us at Bloomberg Surveillance,

including John, John uh m hm Falerio, including John Falerio. Jeffrey, you thank you so much with being why thank you Mellen for just great, great conversation through the year, perspective and wisdom is well right now my most painful interview

of the year, which always will need a description. On Bloomberg Radio, John writing is really one of our first, first and strongest supporters of Bloomberg on the economy in Bloomberg uh surveillance and I can only say that Mr Writing wore this get up once at a bear Stern party and and Ace Greenberg threw him out of the room long ago and far away. For those of you fortunate on radio, he is decked in Santa Claus gala

and an LFC Liverpool Football Club sweater. Just to let me know that the Tops took down to the big defeat uh the other day, John. The Premier League is one of the few things that seem to have run correctly in this miserable two thousand money. How did the Premier League do it? In Championship League like Preston North End and that do it and so many others in sports failed. Um, it's not entirely clear, but it was. They had a comeback plan. Uh, they had bubbles, they

had frequent testing. There have been issues, uh, and apart from one or two games, there have been no crowds. Unfortunately, they're able to continue even though the entire country seems to be heading towards Tier four lockdown. UH. These sports won't be locked down, so at least we'll have something to watch on the boxing day, which is a huge

soccer fixture day in the UK. I make jokes here, but there's a huge mystery to the underlying theories that have gone out the window into the mechanics of coming out of this crisis. If we get a vaccination, do you see normative, traditional macro economics out of this crisis or will it be something different? Well, we do have two vaccines, and hopefully all three of us will get those vaccinations soon and then we won't have to be

remote um. And at that point, when we enough people I mean the terms heard immunity, and it's going to be vaccines into at least seventy of the arms of people in the country. Then those parts of the country that those parts of the economy in leisure and hospitality where we've got some four million job losses since February, When the when when when that business can come back we can start to think of a more normal economy. The question is how many of those businesses will remain.

And so it's very important what is going on with this bizarre situation over the fiscal support package. And there is a certain person who has to decide does he want to play the grinch or does he want to play Santa uh. And if we do not get that fiscal support package, which has two hundred eighty billion dollars in for supporting small businesses, there's going to be far fewer businesses around come June, July August, when the economy should be able to get back to a more normal footing.

So what happens now is very important in answering your question. And um, honestly, I have to think, like like the Brexit deal today, that the theme is we've got to go to the eleventh minute of the eleventh hour. What's not the eleventh month, it's the twelfth month now. But but but you get the point there. Well, then there's a question also of what the longer term damages, because

what you're saying is somewhat contrarian. A lot of people have been shrugging off a lot of the recent weakening data, shrugging off the prospects of a prolonged d all that perhaps doesn't get struck before the money runs out on the twenty six, And you're saying it does matter. At what point should people take stock and start to downgrade their expectations for next year based on some of the weakness that we're seeing now. Um at the point we

don't get a deal. If we get to that point, you need to downgrade expectations for the first half of next year because next year is going to be a year of two halfs, just like a any good soccer match, and the first half of the year is going to be one where we're still struggling with the virus. Uh. We all know the infections data. We unfortunately all know the death toll from this virus, and we need to protect ourselves to the point where that vaccine is widely available.

And what was key, and we can look back in April and May time frame, what was key was the income support that the government provided. But employment needs employers and businesses will a lot of small businesses will struggle. You know. It's great. We can look at the stock market.

We can see the SMP five economy that looks a pretty good economy, But more than half of people in employment are employed by small businesses that aren't listed on the stock market, that are struggled, that don't have the same access to capital markets. And that's why a renewal of the p p P program and other support for businesses is just absolutely vital to make sure that those employers are there for when employment can return for that

sector of the economy. All right, John, since you're making you're making a lot of football metaphors here, and you really do want to rub the victories of Liverpool in Tom Kaine's face as much as possible. That two have of of the year sort of like a football game. So let's make an additional sort of two halves analogy here where you've got a binary outcome. Either Liverpool wins the title or it doesn't, depending on what bins during the weeks ahead. With inflation. Does that work at all? Tom,

I don't know. You know, I'll see all I know, Spurs revenge January two. We'll get there. We'll get there. But in terms of inflation, I mean a lot of people are saying that it's going to remain muted next year. What's the sort of binary event that could cause the difference there? Well, I don't think inflation will remain muted in the sense that it will remain below the FEDS

inflation target. Now I fully recognize including yesterday's report, the last couple of data points on consumer price inflation have been very good from the perspective of the consumer. They've been unchanged, and unchanged prices are good. Countrary to what the Fed things that it needs inflation to stimulate the economy.

It doesn't low inflation enhance his people's purchasing power. But the growth rates of money that's coming from the Feds, continued purchases of a hundred and twenty billion dollars of securities per month is coming, is boosting them on their supply at a relatively unprecedented rate. And the question is does that money have velocity now. Back in two tho two nine, the fiscal deficits and the QUEUEI were largely fiscal transfers between corporate America, Financial America and the government.

This is, to some considerable degree a transferred between the government and households when households spend those accumulated savings. And hopefully the next round of fiscal support that hopefully will be past, will be signed in the next few days. Hopefully that to a large degree is going to be financed by the FED printing money, and I think that that will push inflation higher. We already see it in the commodities markets. We see it in price is paid,

we see it in the small business surveys. We have yet to see it in the final government price data, but that's at the end of the inflation chain. So I think the one we'll see an above two percent inflation rate. John, you've been such a clear voice on Brexit over the as Lisa mentioned earlier, Folks, five years maybe we got an agreement today, maybe we don't. What does your United Kingdom look like after Brexit one year out, two years out? Obviously the Prime Minister wants Pax Britannica,

but what will it look like? Well, again, we in the short run, the question is what's it gonna look like in the next few weeks. I was watching your show earlier you mentioned Tesco. Let me give a shout out to them. They've done a fantastic job pivoting in this economy, getting my mother merry Christmas mom her groceries

once every three weeks. They've done a tremendous job. But if we have those long lines of Laura's trucks as you call them, at Dover going out and at Calais coming in, we are going to have uh panic puying and we're going to have shortages. That that's in the short run. In the longer term there there simply has

to be a deal. The UK is too important to trading market for the exports oriented economies of the EU not to have a trade deal with UM so I think that happens, But what what happens in the short term is much more concerning to me. If we don't get this deal. Now, you guys reported this morning here we all go very work. It's it's like earlier in the week with the STEAMUS day we have a deal, Maybe we don't have a deal. Now we're debating over different types of fish. It's like fishing chips and a

trade deal today, Well maybe fishing chips in Herod's. John writing, thank you so much for your support, and also Lisa just noted there's a job opening two thousand one Christmas at Herod's for Santa I'd show up. Maybe don't show up for that Liverpool sweater as well. John writing of Breen Capital, who over the years has been just wonderful and giving us perspective on this strange economy. Thanks for

listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio