Surveillance: Brexit With London Mayor

Now that's a warning. Today in a new report by g l a economics unit at City Hall, with culture, leisure, retail and hospitality all hard hit by lockdowns and social distancing measures. The report also says one could see a four and a half percent drop in the number of jobs in the capitol. Well, I'm very pleased to be joining joined by the Mayor of London citycon who joins

us from the historic cutting sark in Granwich. The world's only survivor been tea Clipper Mayor, and I think built in and I don't know whether it goes to the kind of deals that you think London and the UK should try and have post brexit. But how damaging would a no deal Brexit be for the city of London

and good morning, good morning, it's great to join you. Okay, Look, we as a country of our economy is in the professional services, were world leaders in finance and in law, in tech, in creative industries, and unfortunately the current deal be negotiated by the government that fails to address the concerns that these industries have in relation to continue to business with our biggest trading partner, partner of the European Union as it is, it appears even the flimsy deal

the government's negotiating may not get over the line. So we are very concerned about the possibility of a no deal brexit that means not having a deal with our biggest trading partner, or a deal that doesn't reflect our economy. And the irony, of course is is the USA now has a president who's put in the USA back on the world stage, and we the UK may become a very lonely country in the future. So what's the best hope for financial services in this very late stage and

Brexit talk. Well, at the moment it appears that a number of our sectors they were hoping for a good deal with the EU aren't included. And so even if the deal is reached with the European Union this week, and we hope one is the problem is for our professional services, finance, legal, tech, creative industries. They will have less favorable access to the Single Market than they had as members of the EU or during this transition period.

And that's why it's really important that the UK government understands the importance of issues like equivalence, financial passport in this issue of attracting talent to London and the fact that our ecosystem relies upon people as well as capsule and services moving from London to the parts of the European Union. If we go back into a lockdown that looks more like a Tier three in London, and if we have no deal brexit, would that be the perfect store.

What would job glasses actually look like in that scenario. Well, London is very similar to other global cities around the world, like New Yorker. We've suffered hugely because of the reduction in footfall caused by the pandemic. Think of industries and sectors that rely upon footfall retail, hospitality, culture, ledger and so there's those sectors which normally contribute hugely to our countries coffers, wealth and prosperity have really struggled, and the

concern is the combination of a continuation of this pandemic. Yes, there is great news with the vaccine, but a combination of COVID plus a Brexit with no deal or a poor deal would be really severe for London and our country. As you said, it is a perfect storm, a double Yaman. And that's why it's so important that our government wakes up and realizes what we're heading tours, rather than sleepwalking into a potentially really deep recession. What's the right way

of doing it? Is it more funds given to London and how much of these shifts will actually be permanent? How much will the hospitality business suffer longer term? I think what the government's got to realize is many of these sectors are on life support and they need to stay on life support because we can't afford is for these businesses to go bust. It's far far easier to keep a business fiable with the financial support from the government then allowing a business to go bust and hoping

that people restart businesses. Similarly, it's far easier to keep people in work with financial support from the central government rather than losing their jobs. Our current estimate is of the currnment continues the government continues down this line, we could see levels of job losses, levels of businesses going bust. We've not seen as a country or city since the

nineteen eighties. Nobody wants that, and that's why we're lobbying the government to do much more, in particular to help those sectors like retail, hospitality and culture that have really suffered at normally in good times contribute hugely towards our wealth and prosperity. When you look at the world famous theater industry in London, will it ever come back to normally If we have a vaccine and that goes to plan and if government support stays at these levels, when

are you expecting tourism to come back? Yeah? Well, the good us and that the light at the end of the tunnel is the vaccine. This week Londoners and people across our country will start receiving the vaccine and the government has done the right thing and ordered vaccines from

a number of different companies. The combination of the vaccine but also we're our starting mass testing of those who are asymptomatic leads us have hope towards the new year, and that's why it's really important the government gives the support. Most businesses are planning next year not to be as good, but they want to stay open and viable. We're hoping to see tourists return to our city next summer. It's

really important they do so and safely. And that's why it's really important that the government continues to make progress on the vaccine, on mass testing, but also we need to really get on top of the test trace isolate system. It's really important if somebody has the virus, particularly if they're asymptomatic, that they know they've got the virus. They can isolate the virus being passed. And we've learned a

lot over the last eight nine months. We've got to use those lessons going forward to make sure we can have a swift recovery, which is really important for our country's well being. How much of it is a risk that actually London goes to Tier three and this is a tiering system that you know all living in the UK will be familiar with, but will you fight to keep it in Tier two which is a medium lockdown. Well,

the tiriert system isn't perfectly across our country. For those of you youers outside of the UK, we have three tiers. Tier one is a with the least restrictions and Tier three is with the most restrictions. London currently is in Tier two. We are concerned that there could be an increase in the spread of the virus, a surge because of a relaxation of the rules during Christmas. And that's why it's really important to anybody who is in London

or visits London follows our rules. When you're using public transport, you're in a shop where a face mask, when you're in a place where you can't keep you social distance where a face mask, you know, it's really important to carry hand sanitized, to wash your hands regularly and thoroughly follow the rules that would avoid a London going into Tier three, because Tier three, because of the additional restrictions, would mean that a lot of the progress we've made

with our businesses like here in the Cutty Sark would be undone. That's why it's really important that people follow the rules to avoid us either entering Tier three, or even worse, our country potentially entering a third national lockdown. So they can't thank you so much for your time today.

Of course, that is the Mayor of London from the world famous Cutty Stark, Steve Schevara enjoyed us now federated him as portfolio manager State seven or five Eastern time has become like therapy for investors in our audience after rattling through all the negative news. And I think that's been a job at the investor for the market participants to almost receive that therapy all this stuff going on around us which is absolutely dreadful, and thinking about about

one you have the therapy state. Yeah, I think I do. I mean, I think I think we've been pretty calm through the last few months. Look, I mean what you've

seen in terms of recovery is shocking. I mean, in terms of the number of people that have gone back to work, in terms of the rebound and retail sales, manufacturing, housing, you really do have in a lot of sectors of the economy of v shaped recovery with a lot of stimulus coming, not just the fiscal stimulus, not just probably a little bit more from the Fed in terms of extending duration and things of that nature, but the vaccine itself represents an enormous stimulus over the course of next

year as we gradually get acton normal, and I think that's what the market is looking through now. That doesn't mean we don't need support for certain parts of the economy that are really in for it right now with these increased restrictions, but that's really about doing the right thing for sectors of the economy. The market as a whole, I think is in a much healthier place than certain sectors are. Steve, I get this argument that we're pricing in one and that we're looking toward a period past

the pandemic. Yet if we've already priced that in, what more can we price in to drive a market higher? Well, well, at least I don't think we are just pricing in one, and I think it's a longer term runway of growth. Remember, outside there are no real examples of double dip processions since the Great Depression. When you're looking at recoveries and expansions, these last three, four or five, six years, sometimes as many as ten years. And we just had a recession.

We've cleared the deck. We're in early cycles. So yes, the market's immediate focus is on the recovery in one, but in reality, you have to start pricing in the idea that we've got a number of years of first recovery then expansion, and markets are going to respond well to that. Lisa, Tom and I have been going through the same story stave over the last several weeks, and I've sat here frustrated sometimes board at the outlook because it's very say me, and I'm wondering whether the group

think has actually become group action. Are you worried about actual crowding or as far as your concern, the money hasn't actually been put to work. This is just talk. Still, Look, I think this is this is what the scary part about the early part of the cycle, because you'll see big percentage moves and thinks that you've missed the whole thing.

But let's put it in a perspective. Right, small caps have outperformed large by let's call it, you know, ten of fift since September, but they've underperformed for the last five years. They were flat for the last two years. Um even if you look at value versus growth, the ten and fifteen percent performance you've seen there, value underperformed by fifty percent in the first half of this year.

And so we think it's really those uncomfortable trades around value, around small caps, around international which has started to show signs of life, and around dividend players that are really going to continue over the course of the next year. We think that there's still relatively early in their in their days. And we think, again, while the market has priced in a better twenty one, we don't think that the market is priced in, you know, a longer term

growth trajectory. Steve. This idea of being early earlier a word we hear so many times, and this idea of it being uncomfortable, and it being uncomfortable to get in in the early part of a bull market. And I think April was uncomfortable right now? Can you call it early when we've got a record high the Russell, a record high s and P five hundred and a record high the Nastac I mean, just looking at recoveries. You're a student of market history much more than I am, Steve.

You know, when we start an early stage recovery, do we start a record highs. We don't get there this quickly, um, but you can. For example, if you think about the decline in seven, you were back to all time highs within about a year of that thirty decline, and I can assure you you didn't want to sell in because you still had a market bull run until two thousand almost. Um, yes,

this can happen. Even if you look back at the last recession that we went through, right, you got back to the all time high, and again, it would have been very easy to say, Okay, we're back to the all time high, we're long in the two yet another get another six years after that. So no, I don't think it means that we're late just because we're at all time highs. I think it's it's just the nature of this recovery and the amount of stimulus that we got that allowed us to get back to the highest

so quickly. I was reading Morgan Stanley's look Ahead yesterday Andrew Sheets came out and he said that one reason for their bullish outlook is that they expect fiscal and monetary policy to work together. Yet they still expect the ten year yield to get up to one point four or five percent by year end. How high can that yield go before to rail as the equity rally look, I think it's I think it's a function of what

the economic context is. Right. So, if you're still in an economic malaise or you have slowing economic data and you get a surgeon yields because there's expectations that the FED won't be as dubblished, then obviously that that's something that's bad. Um. If on the other hand, you know, we're getting higher yields on the back of stronger and stronger economic data, more and more people going back to work,

more normal levels of activity, I think that's that's fine. Um. Right now, both the yield and the spreads are so low and so tight that it suggested equity multiples could be in the mid to high twenties. We don't need them to stay that high. So there is some room, I think, within a healthy economic recovery for yields to rise and the market to be okay with that. Stafe writes to catch up. Is it too addy to say Happy Christmas? Just in case? No, enjoy the holiday this year?

Take the opportunity, my friend, enjoy the holidays. Christmas tea chefron Federated irmis thank you, sir. Let's get to this brutal pandemic sweeping across the United States of America, joining Ustan. Please to say is Mercedes Carnathon, Norwestern University Department of Preventative Medicine Vice Chair, Mercedes Professor. Fantastic to get you back on the program with us. Thank you for joining us.

Secretary are over the weekend saying that perhaps by Q two all Americans that would like the vaccine would have access to the vaccine. Is this the timeline that you're putting into your models you're thinking about increasingly as well? You know, that is what I have heard as well, that hopefully by April, availability of the vaccine will be such in production of the vaccine will be such that everybody who wants it will start to be introduced to

the opportunity to get it. Because you have to keep in mind, it's two factors. It's how many doses of the vaccine vaccine do we have available? And how can we get it out to the people rapidly? So let's talk about the process of getting it out. We know that for responders, people in nursing homes, those are some of the first recipients, are like the recipients of the vaccine. Where do we go from there? You know, I think it's really important to remember that those two populations are

coming first. So what that really means into one is that our behaviors can't change. If you think about it, those are not the individuals with the highest likelihood of circulating the virus and the population or spreading it. Nursing home residents are in nursing homes, They're not out there. It's the twenty thirty nine year olds who are not being vaccinated early on who are spreading it. So what it means is that for the long game, we're looking pretty good once we can get this world out, but

for right now, our behaviors can't change. So mercedies, this is the question, right, I mean, how should it be rolled out in order to prevent the deaths that are inevitable, that are climbing that we're seeing record hospitalizations currently. How do we best distribute in order to prevent the rampants spread as many people are predicting. You know what I'd

like to see. I've heard some discussion about essential workers who are delivery drivers, who are thrusts facing people in stores, being eligible early on for the vaccine, and that would solve two problems for for a large proportion of those workers. Those individuals um their income isn't as high. They aren't able to socially isolate themselves, they don't have vast homes to be able to spread out, and those populations are often at highest risk for the most severe outcomes and hospitalizations.

So it would be ideal to see that population in the next round. The good news, Professors, We've had months to think about this, how to roll it out. What I still don't know, Maybe you can help me, is how long does this last before we have to go back again and get another shot, get another vaccination? So as I understand it with fires, so you get one shot twenty one days later or so you get another shot. What is your immediately like after that? How long the antibodies? Therefore, professor,

do we know the answers to that? If I had the answered of that, I would be making a lot of money. I think right now we still are in the position where we know what we know and we don't know what we don't know, and so I am not sure about that answer. How long one will remain immune? I think you know that information stands to come out at the time when they actually publish their trial results.

Right now, they're getting emergency use authorization we haven't seen the final reports, and hopefully there'll be some hints in there. Are you a little worried about the duration that it might be? Do you have a range in mind? Professor? I apologize of putting you on the spot, because there is a belief at the moment, and we all share this hope that by the middle of the next year in places across the world around the planet, we've got society to a position where we can roll back many

of these restrictions. But I think a big worry for people would be if we had to go and do this all over again, quarter after quarter to make sure this last. That would be a much bigger effort. Do you have a time range in mind? That would be

a much bigger effort. Um, you know. I think what I remain hopeful is that this particular vaccine which I hear, is a unique approach to vaccination and how it's targeting the virus, that it will not be like the flu vaccine that wrap so the flu the flu virus um mutates quickly. The coronavirus doesn't mutate quite as well I think as the flu virus. However, and the way that these vaccines have been developed there's something that is targeting something a little more central to the virus, so that

ideally this will last longer than one year. However, I haven't seen the final report yet, Mercedes. I just want to wrap up with where we are in the pandemic. Right now, we are seeing record numbers of cases in the United States or seeing hospitalizations we're seeing I see you units at capacity. How concerned are you about the next month in terms of the worst aspect of this pandemic? You know, the worst aspect of this is, you know, you can always build field hospitals, but how are you

going to staff them? As we are filling up the hospitals and I see us and using up the life saving equipment. We need people to run that equipment, and that's where we're actually running short right now. So that concerns me a great deal. Our healthcare providers are burnt out, they are exhausted. This is emotionally and physically very draining. So it's very concerning and the only the best thing that we can do is to adhere to mask wearing and social distancing so that we can try to tamp

this down. Professor. We appreciate your hard work and your contribution to this program. Thank you, Mersides Knathan of Northwestern University. Do you and I folk said the same thing. We make the mistake of calling it stimulus. What this really is is eight it's an aid package to get us to the end of Q two. The stimulus, that's something you've got to think about after that. I'm really curious to see the details of the plan. We're gonna be getting it today, but I'm curious to see whether they're

going to be any direct payments to individuals. The word is there won't be. How they get that aid out to small businesses. The details matter, John, especially as the pandemic is getting worse, and will we get that one hundred and sixty billion dollars in state and locally. Tina Fordham joins us now even hest head of global political strategy. Tina, let's just start with your read on negotiations down on Capitol here. It certainly sounds a lot more constructive over

the last week or so. What's your take, Tina, um Well, I always get worried when it starts to sound constructive because part of that, you know, signal that talks are going well is in itself just uh reflects the political imperative for both sides to be seen to be working in the country's best interest during this time of crisis. You know, everyone uses the same expression the devil in

the details. I think, um, the observation about this being aid rather than stimulus is a very astute one because we forget how toxic um the term physical stimulus can be in the US context. So I am less optimistic actually now than I was the last time, but then I was wrong. So um, I think that it's in the it's going to be in Republican interests to be seen to be driving a very hard bargain, especially as we have this signpost of January five, the Georgia runoffs coming.

So what's the main opposition here? Is it's still the state and local funding. Is that going to be the main sticking point? I think that there is room for for compromise, but that Republicans will be wanting to be seen to be driving the harder bargain. And one of the new twists that we've uh, you know, we've experienced since the presidential elections is Republicans finding religion again on on deficit spending. Right, So this or the size of the deficit, so um, they are not going to be

wont to be giving into Democrats. And that's why I worry that markets are getting ahead of the politics on this one, because we haven't had a Lane duck session quite as contentious as this one is likely to be. And I'm worried that the scorched earth tendencies um that we've seen thus far might actually bleed into the stimulus discussions. I'm struggling to see where you the deficit hawks are coming back into play here. I mean, even Mitch McConnell,

he did propose a skinny bill. He did, there was talk about him signing onto the bipartisan agreement once the details were hashed out. President Trump seems amenable, open to the idea of signing off. Who are the deficit hawks, listen. I think that we've seen a different tone in Congress. I'm here in London talking to you about global macro um. I think that the political imperative to get a stimulus deal done was there, um, you know, before the elections,

and was calling it for them. I'm worried that a contentious um, particularly contentious and polarized mood, where we even haven't even got people willing to recognize the results of the presidential elections in the House gives a lot of wiggle room to to say that, you know, we want to do the right thing for the country, but we just can't get there. Tina, You've mentioned the importance of language that it's aid, not stimulus, because that word is toxic in parts of the country and parts of the

politics of the United States of America. When you start to hear the words state aid to another person, that's just a bailout of poorly rand states. And we've heard that so many times from the administration. I heard it from them directly on Friday A. Tina, I'm wondering, from your perspective, is there any way that they can offer ad to states without that being considered a state bailout of what many Republicans and the electorate might consider to

be poorly run states. Well, to me, this is all code. You know, I'm an American who's been living outside my country for over twenty years. There didn't used to be this debate about which states were run well by, you know, by governors of which side. So I'm really a worried that we're even normalizing this discussion. This is the biggest crisis in decades in terms of its impact on lives

and livelihoods. And to suggest that it's in any way rational or reasonable to do anything other than passive stimulus right now, I think doesn't put the you know, the economic interests of the country at heart, Which is why I was saying what I did about the return of fiscal discipline and frankly finding pretext to avoid doing what

needs to be done. The United States in a crisis where people are losing their lives shouldn't be differentiated between poorly run states and well run states that just happened to be led by a leader of a particular political stribe. So to me, this is a pretext to not do what needs to be done, what every economist, central bankers you know have all agreed upon. This is getting held up in Congress. Well, I think ta one step further.

I think what totally exposes the intellectual inconsistency and the dishonest state in some parts of the debate is that those very same people who are unwilling to offer aid to what they consider to be poorly run states are also considering offering aid to airlines, which many people on Wall Street would consider to be poorly run airlines in the context that they have no cash when it hit the fact, yes, poorly run enterprises, shanking, shrinking enterprises, even

dying enterprises. Absolutely, So, I guess I think you kind of struck a nerve. I'm just not willing to use the current terms to to have this debate. This stimulus should be passed um. In Europe where I am, governments composed of many political parties are are are finding common cause and we're seeing these things past so that people can move on with their lives. And we have a few more months to go. Now. What really worries me about what's happening in the United States is we have

in some ways the worst of all worlds. We have haven't even had, you know, kind of fully fledged lockdowns. They've been partial, and they've been late. Of vaccine um, you know, miraculously or rather thanks to the hard work of scientists and epidemiologists, is coming, but we have many months to go before that rollout. And markets are very buoyant um on the you know, the amazing news that vaccine is coming, but we could have many months delay, which is why I worry about what I call vacs

popular risk. The combination of weak state capacity as in country, not individual US states, but weak state capacity combined with anti vac sentiment um and you know, compounded by these kinds of delays in the stimulus that's necessary, could really make things pretty problematic in the coming months. Some challenges still to come in the net term, that's for sure. Tina, thank you, thank you for your time this morning. Tina fordom there of even heard when sense of normal? What

is normally? Then? Look like, let's bring it down on BMP Parabaut Chief US Economists ahead of mac cris strategy down. We keep hearing that vaccinations coming back half of twenty one, it's about the return to normal. What's normal? In the conversations that you have, what is normal sound like in the back half of twenty one? Yeah? Normal? Uh, thanks

for the question. Normal probably means a growth range quote, a lot closer to to Launder potential in the you know, two to two and a half, maybe well one and half range, but not the eye poppingly large double digit annualized you know, thirty plus and thirty minus, a type of growth that we've seen before. But I think, you know, beyond just the simple numbers, though it's a real question as to uh, not so much. What happens to to demand? UM? You know, we think that UM, a lot of demand

will will try and renormalize UM. But where are the areas where UM were Our supply is going to have to adjust to a new reality that demand is never going to come back. And we were just hearing about about people's uh locational preferences. UM. Does this mean that demand for high end luxury condos in Manhattan is going to change? Does this mean that people's business travel is

going to change? Does this mean not just avolving demand, but does this mean that demand for digital services UM is going to be at a new permanent high UM. A lot of companies are going to have to adjust to this and UM. While this is opportunities for some of these are challenges for a lot of others. And it raises a question about inflation. How do you measure inflation and fundamentally changing economy into one that is more dominant dominated by tech. What do you see in terms

of inflation picking up? And how should we be measuring it? Yeah? Well, the classic ways to try and assess where inflation is going This, of course, so looking at the measurement of outputs lack in the economy, and we actually just released our latest global outlook UM where we see UH technical measures of slack in the economy UM close by the end of two UM. So we do actually UM see a bit higher inflation coming UM, putting aside denomination effects

starting in UH late early three UM. But really, how widespread is this gonna be? Is this going to be a general move hiring inflation across the overall economy? Are we going to see parts of the economy still in the doldrums while others are red hot due to you know, more more demand. I think that's gonna be UM. And And is that going to translate into higher weight pressure more generally or again just in a few segments of the labor market UM. I think that's a big question

that actually the new administration will be asking themselves. And it's also really hard to even imagine if you think about some of the fiscal support plans and the checks that if it's set out to individuals, I mean, if the government were to engage in another round of helicopter money, essentially with that change fundamentally change your view on inflation.

The United States. Now, I don't think it will fundamentally change it, but I do think it will certainly ward off some of the risk that we could fall into a deflationary trap. I think inflationary expectations, at least as you measure them by by market break evens, that they're kind of tettering on the edge of potentially moving lower.

Um if um, this does look like there's going to be lasting scars in the economy, and so the you know, the big recovery and break evens that we've seen in the last couple of months is I think out of hope that the scars will be less damaging as the vaccine is around the corner. Um. But the question is, uh, can there be enough fiscal ports to tide us through this transition until the vaccine arrives in a way that

will continue to support inflationary explications in the future. UM. So, I think that's probably the most important way in which just this immediate physical support can nevertheless have long term impacts of part of the economy. Well, Dan, let's make it really simple and just wrap up with this. And I think this is why the two thousand that kind of number in payrolls like we've got last week is so important. How many jobs do we need to actually generate to actually fill the gap of the last nine

months down? And how long would it take it a right two fifty k to get it done. Yeah, we're talking about uh millions of jobs are still displaced. Now. It's a big open question how much of those are going to be perfectly lost and how much of them, you know, should be prominently lost. I think that's gonna be the real sticking point here. Uh uh. You know, there's no question that some kinds of jobs are going

to have to go away. Um, the more the new normal, as you said, or the post pandemic normal looks different from the pre pandemic norma. But are those necessarily have to go away because the new US supply adjust to the new reality, or are they unnecessarily caused um uh, you know, because of bankruptcies or liquidity is advents or things like that. Um. That's uh uh, I'm sure going to be in the minds of UM, not just again administration officials, but also a Congress UM as they consider

UM debating this this new stimulus package. Dann writes cash ups as always my best to you and at saying Donna. 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 Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio