Surveillance: Government Support With Boston Mayor

the UK. Beginning the huge vaccination program that's going to grip this country in the world, I hope in the coming months as well. Top of the line in the notes I've got for you, Peter by the UK by the foot see why Peter, Well, look, I mean very exciting news about about the vaccine um and uh. But separately from that, I think the UK economy has been one of the worst hit from this pandemic, partly because of the makeup of the economy very heavily geared towards services.

Retail services fall of about eleven percent in GDP this year would be the worst annual downturn since the early seventeen hundreds, But at the same time we're expecting a very strong rebound in the US economy next year over seventh cent and at six percent or so alongside that, we should get quite a strong rebound in earnings. It's

a very cheap market. It trades now at a discount to the US market on a twenty four month forward basis of about thirty you know, and uh with with a sort of strong cyclical recovery and a market that's heavily geared towards commodities and other cyclicals, and we're bullish of commodities. We think it should have produce rebound. They just brilliant. Peter Appen I might noted today of the w E I screen the basis point difference between standard and porters five hundred in the foot see okay, by

straw hats in winter? You and I read our baroque We know that phrase, Peter, Where are the straw hats in Asia? Where is the foots? The equivalent opportunity on the Pacific rim. Well, we we've been very bullish for

China for a long time. We're still overweights to China, but of course that's more of a growth orientated index, being a very heavily geared technology like the US, so we'd be tilting wa towards other parts of North Asia career for example in particular, you know, very cyclical would benefit a lot from a global economic recovery, and Japan too for that matter. U. These are markets that have tended to lag their more value orientated, more cyclical, and

more sensitive to global growth. And for that reason, as you go into this inflection point of strong growth for the first time for many years, we should see the leadership shifting. So this is the macro story. I'm wondering the technical story, Peter. The composition of US equity indexes, have they made them less full of potential for gains based on the domination of the main company. Is the

fact that it's so concentrated at the time. I'm looking today for example of Tesla's as they're going to sell shares, Tesla's shares fall pre market, and so does the entire

SMP because now it's included in it. Yes, so in some senses, you know, the concentration of the market, which has been to its advantage because it's generally been led by very fast growing, very large companies, particularly in technology, which has been the dominant leading sector for so long, in a sense, becomes a little bit of a handicap.

We're not negative on technology, we think it will still do well, but it doesn't have the same leverage to a positive inflection point in the global economy that we're expecting to see. So those value parts of the market that have been very depressed with higher dividend fields, those areas which are much more geared into economic growth, would tend to recover more quickly, and they tend to have

a bigger waiting in other markets. Interesting for example, if you look at Europe, which has just had its best month ever, we saw Europe in November outperforming the US by about six percent. That the best relative performance since two thousand and nine, when we were last coming out of a very deep recession. So again a similar sort of pattern playing through and peter ugably with the data going in the wrong direction as well, with premys deeply stub fifty in the low forties and in some places

in the thirties as well. How you expect that relationship between the economic data and the market to evolve well, when we look at the way that equity cycles evolved, the first phase of a new cycle, what we call the hope phase, is really all about expectations. It nearly always starts during a recession when profits are still falling, but for some reason investors start to get a little bit more optimistic about a recovery, usually because of policy support.

In this case, it's been a combination of policy support and of course the very positive news on vaccines. But what we've seen since March is a big expansion of valuations across all markets. That's pretty common in that first hope phase of the cycle. Once we actually start to get the economic recovery coming through at a p m I data, stronger profits actually growing, I would expect the improvement in equities to slow a lot and valuations to

start compressing. So many ball markets very front loaded. You've got to be in early as that expectation or shift really drives valuations higher, and then we would expect to see slower returns as we move forward, particularly when you consider that valuations are quite high and we're not going to have the tail wind in this cycle of ever lower interest rates, which we saw as a very dominant factor coming out of the financial crisis. We found that

shift last month in a massive way. Peter Fans Acid of catch Up sa as oh I send up set a team at Goldman Peter Uppenheim, and had the chief global equity strategists. The great things we say with the vaccinations as they begin in the United Kingdom said against the fact that we haven't seen the worst of it yet in many places around the world, including the United States.

Well we're here in the United States, and again the three factors, folks, are cases which I'm not a big fan of the mathematics there, but certainly the certitude of death and the reality of a hospitalization. Boston is one of the great hospital capitals of this nation. He is the mayor of the City of Boston. Martin walshon were thrilled that he could join us this morning. Marty Walsh,

we get loads of things to talk about. Let me cut to the chase you needed from Washington long ago and far away, people like Joe Mowkeley or Tip O'Neill and Republicans like minded like them, maybe like Senator Burke and others were able to do money from Washington to help beleaguered cities. Why can't we do that now? It's really unfortunate, you know. Mitch McConnell has has made statements that um City should go bankrupt. You can't have that.

I mean, I was on a conversation last night with Mays from around Massachusetts and the need for federal investment in in Boston and in the region of the Kalma. The Massachusetts is really incredible. But you and I talked to our fair about businesses being shut down, hotels not being open. We have the same thing here in the city of Boston. We are heading to what I think is looking like a second search. We're looking at potential for the pullbacks here in the city, in the comma

the Massachusetts and around the country. And when we do that, quite honestly, your show is about business Boomberg business, the businesses in our city, in our state, in our country. Quite honestly, I'm not going to return from this. So the federal government needs to act now. The Senate needs that now. They need to stop playing politics. They have to stop playing partisan politics. Put the American people for us, put the American businesses first, put everybody first. And they're

not doing that. My well, shall want to understand, and I want you to paint the picture really clearly. What you need from the federal government, not just money dollar amount. What you need from the federal government and what happens if you don't get it in the next few months. Well, first and foremost, we need directions in the federal government, I mean the Biden Harris administrations put together at COVID

nineteen task for us. We need clear direction on which way we should go to push back and not pushed back on the COVID trices, but to address the COVID crisis. Most cities and states around the country have been on their own from the very beginning, whether it's been on testing, whether it's been on surche whether it's been on hospitalization. So in Boston right now, what we're experiencing is we can't call it necessarily a second surgeon. We're seeing increased

numberge significantly increased numbers in Boston, Massachusetts. We are not seeing yet increase in hospitalization. We're seeing a number that hospitalization is going up, but not to the point where it was back in April and May and June where we had to cancel all elective surgeries. We're not seeing complete shutdowns where we shoul out our businesses down, where nobody's working anymore. But we are headed towards that again,

and this is a failure in the federal government. So what the federal government needs to do is come up with a policy and what we need to do moving our country forward, working with experts like Dr Foci number one, number two. The federal government, what they need to do is come up with an economic stimulus package that that millions of Americans that are going to run out of unemployment benefits, small businesses that are gonna have to shut

their doors permanently. Unless they come up with a package, we're gonna lose these businesses and they're not going to come back overnight. So the implications of what the coronavirus is going to do long term, the long term impact is going to have on a city like Boston could be detrimental. And it's not just question. You just take any city and you plug in the name. And that's the challenges that we're all facing across this country. May or it's not just the federal government, it's also closer

to home. For example, your governor, Governor Jollie Baker coming out and actually not putting on some of the restrictions that people are suggesting are necessary to prevent that increase in hospitalizations that you talk a out, do you feel like you're being thrown under the bus to take preemptive measures that could be accused as being anti business in order to stave off to spread because of this political

hot potato that perhaps isn't being dealt with in other places. Well, that's not how I'm not operating that way, and I want to be as pro business as possible. But I think that it's very important for me here in Boxton. We're gonna put the help of people first. But I had a conversation with the governor last night. We talked a lot about what the next steps need to be. We talked about the increase in numbers that we're seeing

in the state. In Boston we're seeing again in Boston hospitals we're not seeing We're not at the capacity level where's concerning yet, but that that could change tomorrow. And so I'm expecting the government, working with the government, that it will come out and make some recommendations or some

pullbacks pretty soon. Mayor want you to speak of the schools nationwide, whether it's the Mathers School, the oldest elementary school in this nation in Dorchester, or the Newman's School, and that red flag on Newberry Street that you know so well. Mayor, I want you to talk right now about are you the Blasio in six Republican mayors in

the Midwest, how you're dealing with this virus and these schools. Well, thank you for giving a shout out to my my high school, Alm Out of Nomen School on Marvel Street. I appreciate that in the maths school right down the street from my house and dort sister. What we're doing right now in Boston is we have about a d eighty the highest needs students inside schools. We'll put a lot of lots of safety precautions from even the beginning when we opened schools, and then we had to shut

them down. And we anticipate in the next week or so to bring other high needs students back into our district before the Christmas break, before the Christmas holidays, and then we're gonna come up with a plan for after Christmas. We get these numbers down after the holidays, they should say, we get these numbers down to try and get all most of our kids back into school. These are challenging times.

Two thirds of our buildings we'll build previously to World War Two, so we don't have all of the safety ventilation that people would like to have in the building. But it is so important in the city of Boston that we get our kids back to school. I mean, most of our kids have been out of school since my sixteen earlier this year, Um, many of those kids, I mean, the achievement gap falling behind it is just gonna be detrimental for themselves. Infant educational system. We don't

get them into school soon. Well, so gotta leave it that. Just getting some promising news from the FDI. Gotta let you go busting Matt Mossy Walsh, please come back soon, said, thank you very much. Any number of topics to speak of of Washington, John and Lisa right now, Leslie, Vinjamuri joins us some Chatham House with a very smart outlook

from London on American politics. Leslie, We're at the point in every new administration where all their supporters figure out there's X number of slots and way, way, way more than x number of people that want those slots. How's that managed? What do you do when you've got only so many high visibility cabinet and the other jobs and

everybody wants to climb on board. Well, and especially I think in this admin of Storation, where of course, people four years ago thought that they were coming in with Hillary Clinton and that didn't happen. They've been waiting in Washington, and of course there's certainly a lot of you know, moderate Republicans that wouldn't work for Donald Trump, that probably would like it. It doesn't look like that's happening. But what we are seeing is, you know, those disciplines being made.

We heard the announcements earlier in the week about the economic team. Now it's rumored um that we are seeing in the Secretary of Defense and nominee coming soon, Lloyd Austin, who would be the first African American Secretary of Defense. Remember Tom, that forty three percent of America's active duty troops are people of color, and so that would be

symbolically very important. And as Biden's looking ahead, he's thinking about and having experienced people there are plenty of those on offer, but about balancing women and men in gender and race and all those very important dynamics that have been central to his campaign. You mentioned the president elect looking ahead. Is his timeline different in a first term because of his age, because of the pieces that it's

perceived he's picking up from President Trump. Is this first year the honeymoon and then after the first year, Is that timeline unique? I don't think, you know, usually we think about the first year the certainly the first one days being a honeymoon period. I don't think that we can even conceive of American politics in the same way anymore than four years of a lot of disruption, a

lot of dysfunctionality. And now we're looking at the tragedy of more than two thousand Americans dying every single day, the virus not under control, the need for an economic recovery, this very significant question of when the vaccinations will be rolled out, So there's no honeymoon period for the Biden team.

I think they're moving ahead very quickly UM And as you know, the Democrats and the Republicans remain in campaign mode because those January five elections in Georgia will determine and who controls the Senate, and that will be absolutely crucial to Biden's ability to govern. So I think it's really moving ahead very quickly, not only with the appointments, but also with UM beginning to get the agenda up

and running. And I think we can see we will expect a number of very significant announcements on that January twenty a, President Biden taking the US back into Paris, back into the w h O, possibly back into the Iran Deal. And then there's a big question, of course, of how he manages the US China confrontation, and that's something that he has a lot of bipartisan support behind

being very tough. And if Congress is not the Senate is not in his hands, I think China will be the foil for perhaps getting a lot of domestic legislation through the on the basis of the need that America needs to invest in its domestic economy to make it competitive. So, Leslie, let's be clear about this. This sounds very familiar, sound like what we've experienced over the last few years. Do you see a big difference between the approach of this

administration and the next administration on the issue of China. Absolutely. I mean, you're right that people want to be tough on China. More than sevent Americans have an unfavorable view towards China. Nobody wants to go back to free and open trade and thinking that China is going to change. But I think we will see a different approach We're

going to see a tougher approach. We're going to see a Biden administration that is going to push far beyond tariffs on structural reforms and market access, on questions of I P and technology transfer, all those things that we've been hearing about but not seeing a lot of movement on. And of course, as we've seen with those appointments of Tony B. Lincoln and Jake Sullivan, these are people who care a lot about the democracy question, the values question.

B Lincoln talks about techno democracies and techno autocracies, and so that question of technology and the standards and rights um and norms that surround the use and exchange of technology is going to really one of the key items that I think that the Biden team is going to take on over the next four years. But even in the in the first in the first year, let's be great to catch up. We appreciate your time, and I'm sorry, it's sure. Let's leave Inja Murray, the channel house head

of US and America's program. Do you realize you've got radio listeners nationwide turning off the station because you've done more Brexit in the last six seconds than you have in the last week. That's why I'm going to move on straight away rate with Michael Clotty of UBS. He's the head of US rate strategy. Michael, great to catch up with this. Walk me through this treasury market. I have to say, the division into next year isn't that great? Once twenty on a ten year yield seems to be

the average forecast out there at the moment. Where are you on things, Michael, Yeah, I think we're gonna get a little cheaper than that. So one twenty isn't too far away from way the markets priced in right now. Um. And uh so we think we're going to get up closer to the one fifty by the end of the year. Um. I think that will get some you know continued. Uh. Good news on the vaccine front um. That's going to allow things to be bright enough for the Fed to

start tapering. We lose a little bit of support to the back end of the curve and so we sell off a bit more than the forwards, but not a colossal sell off. Here are you hoping to get a green light from the Federal Reserve next week? So the big question with the Fed is whether they extend the maturity next of their purchases. So this year when the FED started buying, the treasure market was really broken. FED had to come in and buy shorter maturities to help

with leave some of the same and the treasury market. Um, they're continuing to buy very short maturities, which doesn't make a lot of sense. Um. You know. The way that chewee helps is you're taking a asset with a longer maturity out of the market, You're replacing it with a reserve chat an overnight maturity um, so that it's really a maturity transfer. The way it's working well, you know, buying two year notes instead of ten year notes big

difference than that maturity transfer. Um. You know. The question is when the FED stops buying the short stuff because the treasury market is not broken anymore, and starts focusing on the longer returnities, how much michael have longer term yields been well behaved because of the expectation of FED buying, in which case FED buying won't actually tip the tide in any way or make a difference. Yeah, I think you're right that. I think this is what's been holding

us below one here. Expectations that the Fed will help next week, UM, you know, so I think that, you know, hard to achieve en up beyond one until we get past that meeting. And then as we go into next year, you know, even with a little bit of a maturity centerm the Fed, you know that what the Feds buying

is still peanuts relative to what the Treasury issuing. You know, this year we've got a new twenty year note, massive increases and kind of thirties UM, So the fits taking out it's still tiny relative to what the Treasury is putting in. So we think, you know, he'll you'll still see that upward pressure on Michael Clady. Good morning, Tom Keenan, New York. It's outlook time where people have to game out movement of the tenure yield and use you know,

with your legendary experience, everybody always gets it wrong. What's the color of getting it wrong this year? Is it undershooting or once again just gaming out higher interest rates that don't happen? So I think that, you know, I guess it, It depends. I think the greater pain in the rates world would be that we rally back down UM and get back to very low yields UM. You know, you can see a lot of stress on insurance companies,

banks um in that low yield environment. Uh so I think, you know, for them, the risk is that uh you know, things are are not as good and we rally back. I's gonna get with today on some of the headlines us in the Bloomberg. It comes from the FDA. The FDA has posted the briefing documents on the FISER beyond Tech COVID vaccine. This is the report available available ahead

of the December tenth Advisory Panels. So in a couple of days time, tom they take this report and they could possibly make a recommendation as to whether they will approve this vaccine in the same way that the UK has done. So that report has been posted by the FDA. They go on to say that FISER has given adequate

information on vaccine quality according to this staff report. And some of these headlines are gonna dribble through drip, drip drip of the next hour or so ahead of that December tenth Advisory Panel meeting, and that's the important date Thursday. But we might get an indication as to where there's heading from the headlines that come in the next couple of minutes. A huge pressure to get this out. I'm sure Mr Trump is speaking of that is, as is

Mr Biden as well. John, I would suggested, coming out of the nineteen fifties, there is a legendary heritage of the United States being patient in waiting and waiting to be sure and safety and ever, le's see if the therapy whatever you're talking about. And certainly they've spent up that clock here in the last number of days. Yeah, and hopefully we get the news everyone wants to hear this coming Thursday. So the report has been posted. We'll

go through that. People much smarter than me. They'll break down the headlines for you, and I'll regurgitate that for you, which they come through on the Bloomberg terminal. Michael, clock to if you bs you're still with a surge. A final question on the vaccinations. First ones begin today in markets. You know they're saying it's cliche it's always better to travel than arrived. The vaccination started to date in the

United Kingdom. What does that mean to you, Michael from a sentiment position the financial markets, so I think you know it's it's certainly been helpful. I think the big question here is the distribution. Um, yeah, we have a whole bunch of different vaccines along the way in development. I think I think everyone's assuming that we'll get some vaccines at some point. Distribution is a monumental undertaking, So the question becomes how fast can we get these things out?

And I think that's what people are really befault us on for the next few months, is speed of speed of progress. We all agree, mom clocks of ubs, thank you such 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.