Surveillance: Global Recession With Malpass

and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course on the Bloomberg Right Now, an important interview and important conversation with a friend of this show, David mel Pass, of course, with more than a decade of service to what we've done at Bloomberg Surveillance and wisdom and perspective, and now holding court at the World Bank as their president. David, I know you never thought you would see the challenges of this pandemic.

I talk of the pandemic partition of say American inequalities. Tell us the World Banks pandemic partition. What does it look like? Uh, it's it's the same or worse for developing countries and for poor countries. That takes to the inequality is two kind of different factors. One is poor people are a are worst hit by the global recession, the shutdowns UH and and the pandemic itself, so they

feel the brunt of that UH. And then the second part is that the advanced economies have been doing stimulus programs that cut that concentrate on people that already have assets. That's the Central bank purchases, but it's also the fiscal stimulus from the from the Treasury Department. David, the focus of the World Bank for years has been on what I would call a third world, a frontier economy. I

know those are not correct phrases. In two thousand twenty one, one of the great issues we have is accountability of cases, deaths and hospitalizations across Africa. Explain the pandemic for Africa right now in the veracity of your data at the World Bank, Uh, you know, this is a this is a cloudy area, Tom. The the death statistics aren't aren't that well kept and aren't that current, and so it's hard to tell how hard COVID is hitting people in Africa.

The the original in the in the middle of there was the sense that it wasn't hitting as hard. It's different country by country. For example, South Africa has been hard hit, but other countries seeming to be less so. But now our sense is that it's that it's spreading and hitting, hitting all countries. What we want to do on vaccines, UH, is have vaccines available for everyone, including

and especially the poor. And so that's that's one of the challenges to have systems that can actually deliver enough vaccines. That's exactly where I wanted to go, especially given some of the delays that we've seen in the developed world. How worried are you about the time frame for distributing the vaccine in the developing world? High Lisa? What what

the World Banker has done? We've we passed in October twelve billion dollar package through the board UH, and that's available and are the first step is to assess countries and see what they need in terms of cold chain, in terms of identifying the people that need the vaccine the most. So that work is underway in a hundred countries UH. And then the next step is actual contracts.

One of the challenges is to have a common contract where people can UH, where people can see the the UH the same terms and and actually operate on them UH. And so we're working on that. And then another another immediate problem is in dimnification. FISER has been hesitant to go into some of the countries because of the UH liability problems or they don't have a liability shield. So we work with the countries to try to do that.

But I think also some of the other vaccine manufacturers may be able to go into countries because they're operating through subsidiaries. This is all something that we're exploring and our goal. My goal is to have vaccines available for people throughout the developing world based on what their countries decide. We've got financing available, but that the countries need to choose systems and then begin buying or or receiving the vaccines.

We're speaking with David Malpass, World Bank President. David, you talk about how the programs that have salvaged the global economy have really benefited the wealthiest individuals who have assets, not so much people at the bottom, and this has to do with the economies as well. How worried are you about the overhang of debt in the emerging world as we do get this ongoing economic pain without a vaccine distribution model that seems to be taking course quickly

enough for many people's tastes. Uh, It's it's challenging to keep private sectors open. What we've tried to do through the i f C, the International Finance Corporation, the private sector arm of the World Bank is to provide working capital and trade finance so that the private sectors that do operate in poorer countries can continue to uh to

to operate. But a challenge in the world in with given that interest rates are low for a long period of time, and that's being accomplished in part by by borrowing short term and having the government's invest long term. Think think about that the central banks borrow overnight money and put it into long term bonds. That disadvantages the small businesses because they need that money. The overnight money is what they live on in terms of working capital.

Uh and so it's not just in the developing world, but in the advanced economies. The dichotomy, the inequality that comes out of that is a big challenge because you're losing the small business sector of the world. David meyle Pass, I've got to digress to US politics. You of course provided public service to the nation working for President Trump.

I believe now there's going to be a new relationship of your World Bank and President by and of course the International Monetary Fund Kittie corner to you there to the west of the White House. David meyl Pass, how do you adapt adjust or you're oblivious to a new US administration. Uh, not oblivious. The US is our biggest shareholders, so we're very aware of what their their interests and goals are as we are of other countries, the developing

countries included. You know, we one of the big voices within the World Bank is the voice of the developing countries through our Board of Directors. So we listen to all parties and we've been successful in the past in working across the aisle in in in all of the major shareholders. So I expect that to continue. One you that, uh, that where the US I think will be supportive of the of the climate policies of the World Bank. You know, the World Bank is the biggest UH international financier of

of climate change activities. For example, in the poorer nations they need to adapt to to climate changes, uh and and we we put a lot of funding into that. So I think we'll see strong support from the US on that kind of agenda as well. So I'm looking forward to working with the new with the new administration, but we're non political, so uh we we I want to see people in developing countries do better. That's the

that's the goal and the mission. Well, when you talk about being a political it still puts you into a somewhat sensitive place a lot of the time. And I'm thinking of some of your comments about China and how they hadn't been aggressive enough in your view with debt relief for poor nation and has given their primary role over the past few years accepting debt to these countries. Do you feel like they have gotten better with debt relief?

Has have you changed it all over the recent months. Uh? Well, they've been changing um and and they're a full participant in the G twenty, the Group of twenty major economies, and so during I was happy to see, you know, I I went forward along with Crystallina at the i m F with the idea that there should be a moratorium on the payments by the poorest countries to their creditors, the official bilateral creditors of which China is the largest,

and also the private sector creditors. So China subscribe to that and and is trying to move in that direction. So I don't see that there will be a change in that. I think the big countries want to find a way to work on this debt overhang. It's it's it's Uh, it's very worrisome because it's hard to invest into a poor country if that, if so much of their resources are having to go to repay past debt.

David mel Pass folks as one of those famous charts in the history of everything I've done, and that is golden in terms. We're not going to ask him for a market called as President of the World Bank, but I am, David gonna link it into your knowledge at the World Bank about the commodity nations. Can you call a turn for the beleaguered commodity nations? Are they finally going to see a bid on their various commodities? Tom

this is a court. You know. We have our new Global Economic Prospects report that just came out yesterday, so we addressed the some of the some of the outlook or the forecast. But one of the one of the unknowns I think is as the central banks have created stimulus, what what's the mechanism for that? You know? My view is it is not money printing that they're doing. What they're doing is buying duration, so they they borrow short term and by long term assets that by itself is

not inflationary. Uh. And the forecast that people have of the inflation outlook still don't show that there would be inflation. So I'm a concern for commodity producers is they do better in a red hot world. You know, where there's where there's inflationary pressures. Uh. And right now I'm I'm worried about or my I think the bigger challenge is to get enough GDP growth meaning nominal nominal supply the

production side of the global economy up and running and recovering. Yep, We're gonna end this interview because I'm gonna asked David mel pass for a remand call and he's gonna people that. David mel Bess, thank you so much. He is President of the World Bank. In this changing world inflation over the next ten years. To get one for it in your treasury, you're losing money in real terms, Tom, And

that is the conundrum. The other conundrum is is this a head fake the move that we're seeing today both in treasury yields and beyond. And Marcabanna has been covering all things rates. Bank of America Global Research, Head of US Rate Strategy, Mark, I'd love your sense of that. In other words, yield a kind of peeked out here and could be headed lower as people reassess the enthusiasm

about faster growth and more stimulus. They could, but what we anticipate is that rates will gradually rise to around one and a half percent by the end of this year. Now, we had assume that even with the base case of a divided government, if the Democrats do end up winning both of these Georgia seats to us, that raises the risks that you see the rate repricing occur a little bit faster and potentially higher than we anticipate. Now, there's

a number of headwinds in the near term. COVID is going to restrain economic activity in Q one, but we do anticipate that as the vaccine is rolled out and as global growth and US growth picks up, you're going

to see long end rates reprice is higher. And importantly, we think that this long end rate repricing will be due to quote unquote healthy factors i eat, better growth, higher inflation expectations as the economy recovers, and if the Democrats when both of these Georgia seats, it naturally means more fiscal stimulus and likely higher deficits as well, how high can treasury yields go before the Fed steps in.

So we think that it's less about a level and it's more about the set of conditions that's pushing rates higher. If you see this again quote unquote healthy rate repricing, where you see higher break evens, where you see stable to higher risk asset prices, a stable to weaker dollar, there's no real level that we think the Fed is going to grow uncomfortable with. However, if you see this rate move that is in a liquid move, or it's due to concerns over too much treasury supply, that's when

the Fed will step in. And just as you and Tom were talking about, we think that it's really all about the distribution between break evens and real rates. If rates are rising because rate evens are widening, the FED is going to see that as a generally healthy move and they're not going to step in and offset it. Now, if you saw rates really quickly moved to one and a half percent, that would probably be a bit more than the economy can handle at present, and the Fed

would need to offset that. But if it's a more gradual move, then we think that the Fed will likely tolerate and you know, in fact, embrace the move if it's driven by better inflation expectations. Although mark as we're seeing today in the big tech stocks and other stocks that are considered havens or other securities that are riskier that have been bit up in large part because of

how low bond yields are. There is a question of whether the Federal respond to a disruption and financial conditions, or, if you want to put it more bluntly, a sell off in anything and step in, or perhaps you know, try to suppress yields quicker than may other be worthwhile just to keep everything intact and make it look like

everyone's happy and still getting gains. Absolutely, so, the Fed is looking at financial conditions broadly, and they do not want to see a d stave realizing rise in long term interest rates that causes financial conditions to tighten materially and that causes the economy to slow down. But are they concerned about a couple of percentage points sell off in tech stocks when they've had such an incredible run. No, not.

In particular, would they be concerned if that turned into a correction, Yes, And would they be concerned if there were signs that two high interest rates were beginning to in the real economy, I US slowing down the housing market, um, things of that nature. That's when the Fed would get concerned.

But I think that you know, seeing the tenure yield just above one percent does not yet seem to be a level whereby those long end rates are really beginning to bite in terms of the real economy and broader financial conditions. Mark grow nerd to the bull market in the equity space, whether it's double digit tech returns, even what we're beginning to see in small cap recovering so nicely.

We forget that if I look at Bloomberg Barkley's total return, it's been a persistent bullmarket of higher pro a slower yield in years space. Have we forgotten what a bond bear market is to some extent, Yes, given that you know, US interest rates have recently been at historic lows. The equity market did incredibly well despite the pandemic, and I think that the market is going to have to adjust to the notion that long and interest rates will be rising.

Now again, we think that this rate rise will not necessarily constrain the economy in a material way. If it does, the federal step in But I think investors are going to have to get accustomed to the fact that they should expect to see at least the prices of bonds go down to some extent as rates ree price in growth and inflation does pick up over time. We welcome all of you on this historic day in Washington, Mark Cabana of the Bank of America with us here on rates.

And we do this with futures red and green in the screen. A little bit better tape than three hours ago. Uh. The yield one point zero one percent. Mark Cabanna, I want you to talk to savers out there, not the fancy guys like you doing fancy hedging strategies and trying to manage with a higher price, higher yield, lower price. Uh, Mill you, what does the average person do in fixed income?

If you're telling me higher yield and lesser price. Yeah, So I think that if you're a saver, what you wanna do is that you want to carefully think about extending out the curve, trying to pick up some additional yield based upon your own risk tolerance and your comfort level. Maybe you think about moving into the corporate space more

than the government space. But you're gonna have to be careful, and you're gonna have to recognize that you want to leg into this strategy over time, because we do anticipate that rates will be slowly rising. Now, if you're an institutional investor, what you want to do is that you probably want to hew a little bit shorter on your overall duration allocation as do re price higher. Now, we do think that that it's it's great that we're seeing

rates move today. I'm given some of the news out of Georgia and the implications that it has for Washington, But we still think that fundamentally, the big rate repricing that we see towards one and a half percent will likely take place in Q two or later again, as the vaccine has rolled out and as we get confirmation the economy is indeed recovering on a price yield basis. The fancy guys talk about duration in the second derivative convexity,

which I'm gonna call acceleration. Guys like you call it gamma. I don't MiG And do you know what gamma means? I have no idea what gamma means. How about convexity, Mark Cabanah, what is going to be the accelerated forces as we go through two thousand one. Well, so as we go through two twenty one, what we do you think that we do think we're going to see again is that sell off that will likely really accelerate again from Q two onwards. Q one is going to have

a very significant headwind from COVID. We don't know how effective the anybody treatments will be to the new strain of the vaccine. We don't know how quickly vaccines will be rolled out, but after that is generally behind us. We do think that the rate will need to reprice to the new reality of strong fiscal fairy tale winds and the fact that we're likely going to see the economy operate meaningfully above trend from Q two through the end of the year, and that we think is going

to take rates higher. So we do expect to see a more accelerated move later in the and today it just seems like the market is repricing a bit more to the fact that you need to assign higher odds to a democratic control of the Senate than you did previously. Mark Obanna, thank you so much for the Bank of America splipperg surveillance, folks, on radio and television. It runs like a Swiss watch, and within that you get lucky

when you have guests. John Lieber is with US Now with your Asia Group, Managing director for the United States, but also expert on policy and international policy for America. Here is the breaking news. On November twelve, the President put out an extensive executive order essentially really saying We're not going to do business with China companies because of

their linkage to China military. To make a long story short, everybody reacted, and then Treasury dropped a bombshell Monday evening and said no, and I mean literally the sentence, folks, was an oh period. Moments ago, the New York Stock Exchange announced a suspension date for securities of three issuers and proceeds with delisting. John Lieber, it's unfair to catch

you like this. This is truly breaking news. What are the ramifications that you see of a strident policy against financial instruments of China in our global and American financial system. The threat here is of retaliation that you know, the Chinese figure out they don't need American financial markets, and that doesn't seem like that would be obvious right now, but that over time that could certainly develop, and you know,

the US are missing out on these listings. On the other hand, this policy, some of these companies don't simply don't live up to American standards of transparency of um uh, you know, on accounting standards. And as a result of that, you know, this this policy is need a little bit overdue, and I think would be politically popular if the Treasury had the will to see it through, if we started with this with the Democrats and the Republicans. One of the few things are on the same page on which

isn't more strident approach to President gi and Beijing. If that's the reality, do you see you raise your group a Biden Trump differential off of the strident executive order of President Trump November twelve. Know, what you'll see is a little bit more process around the Biden administration, a

little bit more transparency into the direction they're heading. And you know, this rule, this December rule executive order has been criticized for being kind slap dash or haphazard and a little bit confusing to follow, which I think is you're seeing now in its implementation. And so I think the Biden people have the opportunity to potentially reframe it or perhaps even withdrawn and then issue it in a new form. And that's all subjects going to be a

point of subject to negotiations with the Chinese. And I think that's an important point to keep in mind about all of everything President Trump has done visa be China. This is all leverage and negotiating points that President President Biden will be able to use to get concessions out of the Chinese. And he starts in a very strong stance with pretty restrict things in place with terrorists, and that can all be negotiated down over time if the

Chinese want to do that. And that's really what we don't know right now is how desper they to try to undo some of the damage that Trump has done to the trading relationship. So John, as it relates to the U. S. China relationship, and now it appears that the president like Biden may have control of the Senate as well, how do you expect the Biden administration to deal with China easy? The our other allies is it? You know, obviously President Trump was kind of America first.

How do you expect the president like Biden to kind of try to re engage with other countries around the world as it relates to China. Well, there's an obvious opportunity here for an anti China coalition which would probably be more effective in isolating them from the global trading order. That's sort of the approach of the Obama administration. It was the theory behind the Transtacific Partnership, which is probably dead.

But you know, for issues like technology security, you're trying to cut Walway out of networks, You're trying to squeeze the Chinese financial sector, You're trying to gain more market access and better intellectual and property enforcement. Coordinated measures with the European allies and Asian allies is something I think the Biden administration is going to be very easier to do,

given you expected approach on multilateralism. Tell us of your top risks of Asia and of Washington, John Lieber, your view off of what you and Dr Bremer of it. You know, the top risk that we've highlighted in the US this year is what we'd called the Astis presidency, where you've got Joe Biden, who has been duly elected President of the United States yet the legitimacy of that presidency is rejected by a large chunk of the seventy

four million voters that support President Trump. And the reason it's rejected is because President Trump's out there spinning conspiracy theories and claiming there was fraud in the election, none of which has been borne out by the facts. But it's not going to stop a large chunk of the American population thinking that Biden is not the legitimate president.

That's going to play out today at certification of the Electoral College in Congress, where Republican members of the House and Senate are going to object, and all of that's going to build to this legitimization of the Biden presidency. And this won't be the first time we've seen this. We had people who said Bush was not my president, who said that Obama was, you know, usurping the presidency because he was actually a born in Kenya and whatever

because our lines they wanted to put out there. And we had a lot of Democrats legitimizing President Trump through the Russian conspiracy. So this delegitimization of the presidency is a function of political polarization in the US, and it's going to make it really hard for biding to do anything on a bipartisan basis. John Lieber, thank you so much. Greatly. We don't even have time to get to his relationship with Senator McConnell, his history with a senator from Kentucky.

A busy day, John Lieber, thank you so much. With your Razor group. She is in Atlanta, and yes she's watching the political storm, but mostly she is focused on the extraordinary pandemic that we are all living. Jody Guest is with Emory University, her leadership at Roland School of Public Health, not only on the fancy word epidemiology, by by getting the word out her teaching awards, speak volumes about yell loudly and get this fixed right now. Dr Guests,

thank you for so much for joining us. Peter Hotez, a Baylor Metis Sin was so upset yesterday about the slowness of the vaccine. What do we need to do to make you and Dr Hotez happier about getting this vaccine out there? I think that there are two things it's so important to get this vaccine out. First, we need to make sure that the American population and everyone around the globe trust that this vaccine is the right thing to do for them, and so that's one issue.

And then the other is the logistics of a rollout of a vaccine strategy that we've just never seen the likes of to try to vaccinate the entire globe almost at this exact same time, and so that's logistically a massive challenge that we've not yet tackled. My experience of the philanthropy and I mentioned Bill and Melinda Gates and what they've done for microbiology and virology as well, or frankly for public officials, is a rollout of a medical solution takes money? Is that all this is about. I

think it's money. UM. In the audited States, the states individually are responsible for vaccine rollout, and they weren't given enough money to staff correctly and in the leeway of time to plan this was not super long, and so UM, while they were trying to test and control the virus in the state, they we also needed to be putting together a very big infrastructure for rollout of vaccine, and

so we're behind on that part. I do think that once it starts working well, you'll see it exponentially pick up in its speed and efficiency and we're all really hopeful and waiting for that. Jody, I look at you. Know, this is a delicate question, folks, and I say this is great respect all the people that have helped us

un surveillance during this pandemic. Is there an arch medical timidity now that we're so worried about risk in the secondary and tertiary risk to a process that we're literally afraid to roll out a vaccine and put the needle

in our arms. I think it the science communication about this vaccine has not been always positive and has not been as straightforward as we needed to have a lot of trust consistently across all communities in the United States with this vaccine, and I think that that's really where we're seeing some timidity, to use your word, coming from, and we do need to work on that. Is there for a pro like you and you've seen it all.

Is there is there a tangible shift from a Trump administration to the Biden administration or is that just wistful thinking by the medical community. I don't think it's wishful thinking. I think that so far what we've seen is some incredible public health folks being put in place who we know and trust and know not only to be wonderful public health leaders, but also really incredible science communicators, and that is what we need out in front of everyone.

Are really straightforward, one consistent message about what we're talking about with this vaccine and how important it is for all of us to have trust in this and to make the right decision for us personally, but that it's going to take a large percentage of us to want to take this vaccine and then get it to get back to our our normal life that we all want. Jody, you are in Atlanta. I want you to defend right now Atlanta three zero three for one, which is the

c d C. Folks. A million years ago it was my fondest hope to possibly get a job someday A's c d C. They have had a tough couple of years defend the institution, you know, so well, Oh they're incredible minds are there. They have not um been um as vocal as we would like about this pandemic. But that is not because they're not doing good work. That's because public health has been made so bipartisan and CDC

has been caught in the middle of that. There are prodible people who have consistently done wonderful work during this pandemic at the CDC, and we're hearing from them again and we're about to have an incredible leader at the CDC, and UM, we're really excited to have them leading us again through this pandemic as they should be. Dr Guess, thank you so much. My advice is steer clear of politics. Today from Atlanta and Emory University, Jody Guests joins us

this morning. 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