Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily we bring you insight from the best in economics, finance, investment, and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course, on the Bloomberg I'm not an essential worker, folks. What I do know is they're out there in each city, each and every day.
Patrick Foy writes her is CEO of the Metropolitan Transit Authority, over his brave essential workers, and he joins us right now, PET four. I thought it was wonderful that the young lad on his way to Rea just mentioned the West End Line, the Sea Beach Line, the subway of another time for Dr Fauci. What did he say to your employees yesterday? Well, Dr Fauci introduced himselves to our employees as Tony from Brooklyn UH and the most trusted person
in America. Urged all transit workers, all empty employees for that matter, to get vaccinated. I thought it was a powerful message coming from him him. I I invited him when we talked UH in that in that in that call, he told me about his UH commute and the Sea Beach Line, which is a term that resonates with empty a Alzheimer's. But his messages for all empty employees and Todd frankly for all New Yorkers and Americans get get vaccinated.
The issue now is a supply of vaccines. As Governor Como has made clear, a lot of reason to be optimistic with the new president in place from a vaccination point of view, and frankly optimism from a transportation point of view as well. Tom, do you have the resources translated money and funds to get vaccinated busy essential workers still doing their jobs through the day. The answer is yes. The The only limiting factor is not money. It's not time.
It's availability of doses. Uh. The new administration is going to attack that aggressively. They talked about that yesterday. It's not a question of time, it's not a question of overtime. It's not a question of money. It's a question of doses the governor. The governor has made that clear. Meanwhile, when you talk about a question of money, the m t A did postpone a four percent fair hike that had been planned for at least four months in anticipation
in getting more aid from Washington. D C is this postponed or is this off the table if the m t A does receive that money now, at least it is postponed. We've pushed it off for several months. Look, I'll quote the President's favorite, the poet uh Shamushini, when he talked about this being a moment where hope and
history rhyme. I think the election of a transit friendly, actually transit heavy transit user president and Joe Biden, the ascension of Senator show Or to the Senate majority position first ever from New York, the passage of the four billion dollars for the m t A in December, and the administration's planned to fund public transit, including the mt A,
lots of reason to be optimistic. I've been pretty grim in my prior appearances, and to be clear, the empty A still faces overwhelming challenges and we're going to need an additional eight billion dollars over the next three years. But the funding that we received at the end of December will cover almost all of our deficit. We're good for one. We won't need to reduce service we had discussed or layoff thousands of people. Uh, And I think this may be a moment or hope, hope, and history
do rhyme. Well, there's a financial deficit that you're hoping to address. What about the reputational deficit? The idea that there are a lot of people concerned about the transmission of the virus. Unpacked trains, unpacked buses not so much a consideration right now because they're not that packed. What are you finding in studies about the transmission of COVID of other diseases on public transportation? So a great question. Let me approach it from two points of view. One
is what our customers thinking. Of our customers, survey's say they've never seen subway stations or subway cars or buses as clean as they are now, disinfected multiple times a day. From a scientific point of view, uh, if mass compliance is high and on subways, buses, and the two commuter rails that we run, mass compliance player of customers is north of single most important thing any customer can do to protect him or herself, fellow commuters and our employees.
And the research indicates that transit has nowhere in the world, been a vector of the of the virus, has not been a significant contributor. We're very focused on on mass compliance I and a lot of my colleagues are gonna be handing out masks again next next week. The mt A police and mt A staff have that. Uh and I took an early Long and One Railroad train. I arrived the subway. Every day people are wearing their masks
on the trains and on platforms. Patrick Floyd Michael Kimmelman in The New York Times gave a Rave Rave, Rave Rave review to the Moynahan train hall. You mentioned the l I R R right now. What did you learn in the successful construction of Moynahan Well, a couple of things. First, under Governor Cuomo's leadership, big imaginative, old projects like this
can get done. Moynahan Station is an incredible tribute first to the late Senator Daniel Patrick moynihan and and to the work of my colleagues that at the MTA Channel Leber, Uh, Michael Evans and others at Moynahan Station, Empire State Development. These projects can get done. The other thing, Tom is there is a new entrance to the Long Island Railroad on Seventh Avenue and thirty third Streak, which is breathtaking
as you go up the escalator. They are views in the Empire State Building, and you've got customers just pausing thinking selfies, which is not a great thing to do on an escalator by an escalator, by the way, but it's just a striking entrance directly from thirty third Street to the Long Island Railroad. Uh area. I love that. Tom. By the way, did you hear that that Patrick was talking about the beauty of it and that Yeah, you do want to take a picture, but don't take a
picture on the escalator, not of Patrick Foyd. Congratulations and his Mr Foyd mentions with the m t A get vaccinated greatly appreciate your attendance. Catherine Hokel is a New York Lieutenant Governor of the Empire State in discons in Buffalo. We're going to take a moment to step away from his hoard to consider the most important athlete in America. If you are a parent appalled by the jackocracy of America, the machine that makes people one sport wonders whether they
go on to acclaim or not. Josh Allen is the most important athlete in America, not because he's with Hocal's Buffalo Bills, but because he was undrafted unloved and because he had the courage to do three sports in high school. Kathy Hoko, what does Josh Allen mean? To hear? Buffalo? Josh Allen symbolizes all of all that is Buffalo, the underdog, the scrappy kid who never got respect. That's been the life.
I grew up in an industrial area where a lot of people left town for decades, and we're the brunt of late night jokes because of our snow storms, and so I I really relate to Josh Allen. He's one of us. I can't tell you enough, folks, the path of Josh Allen and what a throwback it is to another time onto the serious task at and Lieutenant governor. Is pandemic is here and already I hear talk of Republicans in Washington attempting to diminish or zero state and
local aid. Can you assume you'll get that aid from Washington? Well, shame on them, for gosh sakes. I mean, do they not realize that there's one reason why we're not able to get this vaccine out there is that there has been the Trump administration that was the barrier. We need the money to be able to get this out. We need to be compensated for the fifteen billion dollars that we've lost during this pandemic. We spoke about this a lot, and the Republicans cannot be in the way they should.
They should start reading the teleas there's a reason why it's a Republican I'm sorry, it's a Democratic House, it's a Democratic Senate, and now it's a Democratic White House. So they ought to understand that America is not with them.
America wants Washington to fight this pandemic with every resource it has, and that includes three and fifty billion dollars going to state and local government so we can start paying to get this vaccine out there and helping downtown places like Midtown Manhattany just mentioned start having a comeback. And so we're focused on this and Republicans better not
getting away. In the meantime, Cathy, The New York State and New York City regions are facing historic budget deficit uh and Governor Cuomo put out some new was this week saying that he was planning to raise the top tax rate in New York City to fourteen point seven percent state and local taxes. That would be the highest rate in the nation. How realistic is this, Kathy, mean, what's the potential consequence in terms of the tax base
and wealthier individuals continuing to leave the area. Well, I think what you're talking about is what the governor laid out is the worst case scenario, and that's if we don't receive the fifteen billion dollars that we really think is legitimate. If you look at even a share of our population as share that our fate should be receiving of the three billion dollars, if that is the amount approved,
we should be getting upwards of fifteen billion dollars. And if they get less, if they get a six billion, then only and then, and only then. The governor said, we're going to have to do things that none of us want to do, but we'd have to raise some of the taxes borrow have substantial cuts to be extremely
painful during a pandemic. And I think he laid out that scenario just so you know, the people in Washington can understand that we can't have that as the plan A. That has to be something that we don't even get to. So our best option is to have a fifteen billion dollars share of that federal aid and then we would not have to raise taxes. We are a cognizant of the effect that that has on people's decisions to stay, especially the people who are supporting our economy financially, the
business makers. We understand that, but we also have to deal in the reality we cannot sustain a budgets deposits that large lieutenant government just to finish on the issue of vaccinations in the vaccine rollout. What is the issue right now that slowing things down? From your side, what would you like to say, Oh, it's absolutely supplied. The Defense Production Act if it had been invoked by President
Trump even six months ago to have the PPE. Remember, we were scouring the earth just to give masks and how to go to China and compete with other countries. That was disgusting. So now we have the same scenario, we could be ramping up vaccine production. So I was at two of our sites yesterday. I was at Jones Beach, I was at Aqueduct, and I opened up all the facilities. And upstate New York we have mass distribution sites. They're doing about five a day, sometimes a thousand. We could
double triple that overnight. We have the capacity, We have the staff. We have everything in place. It is simply we need that spick it turned on to be able to give us the supply. We can get it out. We're ready for it. We've been waiting. Our residents are desperately waiting for this. But with and we've actually administered nine percent of the vaccines that we've been given. That's one of the highest in the nation. I think I heard today that Georgia had already administered about So we're
getting it out there. We just need more of it. Of New York Kathy howk Cathy come back saying the conversation we need to continue on the vaccine rollout. John, what we're trying to do is get back on script with investment in finance. We can do that with this guest, Mike uh. John Wilson has just been really nuanced in supple from Morgan Stanley. It just fantastic. The whole same over at Morgan Stanley last year, coming out of this crisis, coming out of March into Spring and beyond, Mike Wilson
on places side joined us. Now, Mike, you dusted off the old recession playbook, and many people didn't want to look at it. You pushed it and pushed it hard and put on risk when others were uncomfortable, and it was the right tray to make through to the end of twenty into twenty one. Mike, everyone's still looking for that historical parallel. Do you think that's how ful right now? And where do you find it? What do you lean into? Yeah, well, thanks you guys, thanks for having me on. Look, I
think the recession playbook, recovery playbook is is right on track. Um, you know, every recession crisis is different, unique in its own way. But markets, you know, obviously look forward and you know, I think the markets are very clear right now in their view about two thousand twenty one it is going to be a boom in terms of economic growth. Yeah, we have to get through these hurdles of vaccination and all the hand ringing around politics and everything else, But
ultimately the market is discounting a very powerful recovery. In fact, the move that we've seen more recently in things like small caps and the typical parts of the market that we've been preferring just you know, kind of confirms that even more for us. Here's where we think things are going next though. The next step in the procession playbook is a consolidation for a long period of time. You always get multiple expansion as earnings are normalizing out of
the recession. That's what we've gotten. Then you go through a period, you get multiple contraction as people have understood that earnings are going up. And what that means is that earnings will continue to go up in terms of revision, but multiples will come down and the market just goes sideways for a period of six or seven months. When I say the market, I mean the SMP five hundreds.
That doesn't mean there's nothing to do right. There's going to be terrific rotation still and things to do within the equity market. That's where all the action is. It's underneath the surface. Mike Wilson, good morning. The her Fandel Herschman index is something we study in finance, and folks, it applies across all of the social sciences. And what this comes down to, Mike Wilson, is a measurement of
the concentration in the market. I'm not going to go into the Newtonian math, but Mike Wilson, you observe we are less concentrated, absolutely, tom and that's part of the story as well as you come First of all, as you go into a recession, which you know, we were talking about an eighteen and nineteen, the market gets more concentrated, the returns become more narrow as the market gravitates to these larger cap companies that are somewhat defensive, and that
was saying in the last cycle. Then as you come out of the recession, what happens is that money that's been concentrated decides, hey, there's other opportunities out there, and it broadens out. And that's exactly what's happened this time around. It's a very healthy development, that's what you want to see. It's a it's a it's actually a confirmation once again, and in fact that it's not just a new bowl market,
it's a new economic cycle. All right. So given a fact that it's a positive, let's go to that negative that you were talking about, because that's what I do. The next step in the playbook is consolidation and talk about potential triggers, one of them being a potential taper tantrum. Should the Feds start talking about reducing their monthly bond purchases, how at risk our equity valuations In that case, yeah,
at least. I mean it's you know that we've had a view that rates will ultimately adjust to uh, the economic developments the way equities have, even if the FED is on hold, because you know, markets are forward thinking. But you know, rates have been slow in that development. They've moved up, but they haven't moved up, you know, in a way that is really disruptive to valuations. Yet.
So absolutely, as it becomes clear right now everybody's pessimistic on the vaccinations, right, my guest is in two months, people are going to be saying, Wow, what a great job we did. I mean, you know, we we spent more money, we got the vaccinations down, people got got vaccinated, and and and there's going to be a light switch at some point in the next two or three months where people realize, actually, we are going to make it.
And that's people start booking travel and they start doing things they haven't been doing, and that's that's when the bond market will wake up. So that's a potential risk. I don't think it's a near term risk. I think the risk in the near term is more that things have gotten a little speculative. Um, we see it all over the market. Place, you know, penny stocks, you know some of the chat boards are going crazy now, cryptocurrencies, you name it, right, things are really going a little
bit bonkers. And if that starts to fade, that could be another risk to where some of the you know, some of the new entrants to financial markets take a little paint things going a little bit bonkers. That cf A talk. I love it, Mike, when you talk though about a lightbulb going off and the bond market kind of getting switched on here a little bit. When you see yields rise, what kind of increase could you see
making a material dent and equity valuations. Yeah, I mean obviously nobody knows, but I would suggest that if you start to break through the levels we saw in in March of last year when it was risk off even for treasuries, that technically that open us up to some much higher levels. Meaning if you get through and a ten year it opens you up to sort of the old support which is one fifty and then and then
you can even move higher than that. So you know, my experience in doing this for a long time is that markets move in a nonlinear fashion, right, they kind of consolid They can tell an all of a sudden they wake up one day and if that's you know, that's not what's price. What's price right now is just this very beautiful, gradual sort of rise and race that's offset by earnings. That's possible, just not the way you usually happen, you think, Mike, well, part of it, John,
I mean, you know, it's a little different. Like I do not something to make it clear, I do not expect the FED to come out tomorrow and say we're tapering, right. They've been very adamant about that. The FED is committed to keeping front end rates lower, doing their quantitative easing purchases, you know, probably longer than they did even in the last cycle. But once again, remember markets will move ahead
the old bond vigilante. Remember the old bond vigilanti, Well, right now it's the equity vigilante, because they mean, the equity markets aren't as as pen, and the equity markets are telling you in no uncertain terms as our commodities that inflation and growth are going to be better of the next six or nine months. At some point, I do believe the bombmarket will move ahead of the fet Mike, looking forward to stand on the journey with you through
the year ahead. Mike Wilson there of Morgan Staney my thank you and Steve Weisen winners from Newberger Berman Steve. It's maybe not evident on TV or radio, but I have been a harsh critic of people shopping short ideas. You and forget about the movie acclaim have always been incredibly graceful of setting up why you are shorting a position. Describe a present short position with the iceman grace. No, I tho't be so graceful on this one. So this
is my largest short. It's a company called Credit Acceptance c A c C is the symbol. It's probably the largest subprime auto lender in the United States. UM, let me make it very clear, this is not a short. Thinking that the company is going to suffer credit losses has nothing to do with it. This is a pure regulatory story for anyone was interested. Company was sued by the Massachusetts Attorney General in the summer of two thousand
and twenty for predatory lending practices. The point is an unbelievable document um incredibly details detailed, providing a litany of predatory lending practices that are the only way to describe it. Is disgusting, and with a new head of Consumer Financial Protection Bureau going to take charge soon, I think this is there's a potential here for this company to be regulated to a much, much lower level of profitability at
the very least. When when you look Steve Iceman at c A c C and you know what they're doing, we say good morning to them and Southfield, Michigan Brett Robertson, Kenneth Booth. Do you speak to the company about your criticisms? Do you communicate with the company in this case? I have no interest in talking to the company. Um. Yeah, I simply look at the complaint by the Massachusetts Attorney General. Um.
Under the assumption that the complaint is accurate. Um, this company is going to suffer a lot of regulatory changes. That's my simple thesis. And I don't see any point in this case talking to the company about it because they'll just deny it. So there's nothing to discussed. Um, Stephen. Is there a part to the market. So we talked about US banks? You like US Banks? You just talked about a company that you're shorting. Is there another more of an industry or an asset class that you think
is just running too hot right now. I mean, we could have an academic discussion about you know, stocks that I think are overvalued. Um, But you know the problem is that as long as the Fed keeps rates at zero and money is free, I think that that discussion is academic. Um. I'm never sure to stock just because I think it's overvalued, you know, in an age of disruption,
I think that's a recipe for SASTA. Yeah. I know, Steve that Tom wants talk about bitcoin, but you did write a essay in the New York Times saying that actually income inequality is the big problem of our times. How does it factor into your thinking? I mean, look, that's my personal political view. It doesn't really impact my view of investing unless something happens politically that changes policy. Um, we'll see if if this administration does anything aggressively about it.
But you know, my feeling is that what this administration is going to do first is do a lot of fiscal stimulat US, a lot of infrastructure spending, and only later will they start to deal with the tax coats. So I think that's tomorrow's business, Steve. I was reading Variety. They were flogging the Queen's gambut on the cover, and you know they're talking up the next movie is going
to be The Big Bitcoin. Your thoughts on bitcoin, the Economist is a general rule are scathing about how governments will step in and regulate bitcoin to a lower price point. As well. Many of the banks are really beginning to experiment and figure out what to do with it. What does Steve Eisman do with a big bitcoin? Steve Eisman does nothing with a big, big coin. I stay out of it. I don't understand it. Um is it possible
that it will be regulated to a lower price. It's certainly possible, But I haven't seen anything that would cause me a thing, so so I think the better part of valet or is it just stay away. I don't understand it. I know how to value it, and I don't understand something. I just don't get involved. Do you think it's a legitimate market? And by that, Steve, I mean you know you're a new Burger Burgan, You've got your Bloomberg terminal, the symbols XPT currency. Do you have
any belief that it's a legit? Bitter asked? Or is it manufactured? I mean it's a bit answer people that they're buying or selling. But I think they're buying my personal opinion, I think they're buying or selling something that's impossible to value. So you know, it's one thing to talk about what's the US dollar yen valuation? You know, when you're talking about bitcoin. I think it's more like talking about how many angels dance on the head of
a pin. I mean, I don't want to answer the question where do you see Stephen ended, you know, just just to not tooever, we are out to accredit acceptance for comment after what you said and the fact that you're shorting the company. But Steven, what does dollar do from here? So you know, if we get back to something that maybe is easier to value than bitcoin. I mean, look, you know this is one thing. I mean, doll dollar value, the dollars used to value bitcoin. Um. I find the
cold currency world, generally speaking, a difficult world. And I don't do anything in currency. Whatever I invest overseas, I always hedged the currency UM. So it's just not something that I ever have a very strong opinion about one way or the other. Steve, I's one final question I think very very important, and it's just understood you or new Burger Berman could set up your own process to do a spack to do these new structures of I p O s or miles away from lunches at the Hilton.
What do you think about the new manufacturer of speculation to bring companies public? I mean, it scares me a little bit that that, you know, it seems to have circumvented in some ways the whole I p O process, which you know, the thirty three and thirty four Act that created basically our entire regulatory structure, hes done a very good job. Um. I think it'd be very interesting to see what the new head of the sec Gary does about it. Um. You know, I think Gary is
a very good choice. I've know him a little bit, and we'll see if he addresses it. Until but until until somebody addresses it, it's going to go on. We'll see. This is right where I wanted to go. Mr Gesler widely presumed to come in and take a tougher tone. Did these spects occur because of a lesser fair structure of the Trump administration? No? I don't. Maybe to a degree. I mean, the the head of the sec UM under
the Trump took a very lessie fair attitude. But I think that's part of it, but I think more importantly it's it's it's a function of the free money out there, and both license at the FED has given people to speculate at will Berg and Steve Iceland, generous of your time, did I greatly appreciate it with new Berger Berman and 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