Surveillance: Hochul Calls for Small Business Relief

means is excuse me. Momentum strategies have gone too far right. Everyone during the recession ran to momentum strategies. They bid them up to a level that I don't think is sustainable. And this setup is very much what we've seen in two thousand three, two thousand and nine. You have a recession, everyone runs to the safety momentum, they bid them up to a level that's not sustainable. Recovery comes around and PM say, oh, I need to get cyclicality. They run

from momentum. It becomes a contra indicator and next thing you know, somebody says we have a two thousand sigma event, which isn't true. We have a point of inflection, which is what happens when momentum strategies, because ultimately you make a deal with the devil. You you buy momentum. It continues to go up, it performs, but when it turns,

it turns very badly, and you need to get out quickly. Chris, given the unusually uncertain in the United Kingdom and the United States and frankly everywhere else, what is your revenue and down the income statement call? What's your actual fundamental call on what the stock market will do? So our our stock market call for is very pedestrian. We're looking

at mid single digit returns. And what we've been saying to clients for sometimes, if you want higher returns, if you want more competitive rates of returns, you need to look down the market capitalization, smaller caps, you need to add more cyclicality, higher COVID beta, and you need to start going into the financials. All right, So Chris, right now you say that your antim no MO, You're not going to go at the momentum. The price of admission is to hy So what do you do with your money?

So what you do is it's very simple that the opposite of MOE is contraring you're looking for opportunities that are less picked over. And again I'm gonna sound like a broken record. Obviously small caps have worked in it. I worked for the last couple of weeks, last couple of months, but if you look at a multi year basis, they've really underperformed. And we want to look for things that give you more value, things that that will work in an early recovery, more cyclicality. And you can find

that in financials, you can find that industrials. You can even find that in the commodity space. So we want you to be diversified, but we want you to have these certain characteristics in your portfolio. Do you stand the knot of spice? For that, Chris um you go across the globe. So so typically when value works, when cyclicality works, it works better overseas. US is very growth heavy, is

very tech heavy. So I think you can source that in a number of different places, including the States, but I think the rest of the world is going to act a lot better in Chris. If that's the case, where's the opportunity now? Where is it running away from US? I mean some of these are moon shot trajectories right now, right, which is why we say we're antim A lot of these companies have had these parabolic moves. There will be a day of reckoning the value that you're paying, what

the costum admission is just too high. And ultimately, when you have an alternative, when the economy begins to recover, which is what it's doing, people will come back to cyclicality. They'll want the old economy and they'll run very quickly from it. But to answer your question, yes, every day we go higher, we feel like we're stealing from tomorrow. There's a limited amount of opportunity here and it's getting less and less every day. An time out. You've been

at home with the kids too long. Chris could not be more right. Chris crib to catch up. Thanks for depend My best to you and a family. Sell me that wowst Fago. I can't say I've never done this, but I don't think I've ever done this. We just talk about a job's day twenty twenty one days ahead of schedule. It's a late job's day. January eight. Tom Purcelli joins with RBC Capital Markets. Tom frame up that key January eight report. How grim is it gonna be? Yeah?

I mean, look it's still a little early, but we we are acknowledging that you could see another decline UM in for that December report, and you just haven't seen a lot of real improvement in in UH continuing claims. Obviously we've seen UM initial claims arise at it, but it's it's a continuing part that's really gonna feed most UH into the you know, sort of what our what our call is going to be as relates to the peril reports. So yeah, I think I think, Look, it's

not just this December report. I mean, I think the reality is UM, if states continue to shut down, then you're going to see UM perhaps even the January report, the report for January come in come in negative. So I think we're gonna go through a rough patch. Now look, let me be clear, UM and I'm happy to talk about sort of the near term as as much as you like. But while we're gonna go through his rough patch here, we have to recognize that twenty one is

shaping up to be a pretty good year. You know, all the p or I should say it this way, all the pieces are in place for twenty one to be a pretty good year. What does Q two Q three look like when does the service sector go back to work? Based on RBC research. Yeah, so we as my daughter rolls through the shot up that you gave her ten of time, you gave her ten dollars? Did you give her ten dollars to shovel the driveway this morning? Time? You gotta go bigger, You gotta go twenty dollars. Welcome

twenty dollars. You gotta go twenty dollars. They won't shovel it for anything under that. Yeah. Um, and and now I see through the corner. My my dog is about to walk through as well. We love. I think the question was about when do we get back to uh gaining jobs? And look, I think the reality is we we could be gaining jobs. Um, you know, sort of shortly into the into the new year. You know, it

was funny, Tom. I think one of the things that I think is being really underappreciated is think about, um, some of the recent reports that we got from the n f I B or from I s M or even the Beige Book. They were talking about labor tightness. We think about that they were talking about labor tightness

and it's all of this. So I think, what one up happening is as we continue into the year, as states start the process of reopening again, we think you could easily be back down toward full employment by the middle of the year. I mean, I think that that's

a foregone conclusion from our perspective. I think the bigger question is, you know, how much progress do we make over the balance of the year, beyond beyond the middle of the year, so you could be below full employment by by the end of twenty one, Tom, I feel like we're part of your family. It's really lovely, I've got to say. And you're doing a great job just plowing through with all the distractions in the background that

you clearly see in the back of your eye. I do wonder, you know, a lot of people discount some of the data that we're getting, saying it's messy, it's noisy, it's complicated because the numbers are so big, and they're reporting from states. Has been called into question. But there has been a transformation in the labor force to a more technological society. And I was looking today at a story that talked about Amazon warehouse workers and how they are paid pretty low wages and a great number of

them have to receive food stamps. What are we going to see on the other side of this pandemic in terms of the transformation and they and the ability for people to get middle income jobs on the other side. Yes, so look, I think again the Job Openings report is going to be pretty instructive in this regard. And I think what we have to keep in mind be able the most seven million job openings um and and they're

fairly broad based. I mean again, look when you look at the IM report, you know, the i M Report, they're not necessarily tough about how you know, lack of of ability to hire for you know, ultra um you know, high level executive jobs. I mean, they're they're looking for people on basically you know, sort of UM in the manufacturing space UM. And they're having a hard time finding workers in that capacity. So there are jobs out there. I think it's just gonna take time for for this

healing process to to to continue. UM. But I think by the time again, I think next year at this time, and you know, let's let's let's promise to have another conversation on December seventeenth, assuming that's not a weekend UM And I think, well, the story will be very, very different. I think that it's you're going to be below full employment by that point next year, we'll be talking about how hot the fetes running it some you think in

nine months, I do, Jonathan. I think that you know again here too, we think the conversation is going to change pretty abruptly. I mean, I've said many times I think even to you all, that you know, Powell is not incentivized to talk pause typically about the economic backdrop, right He's he's more incentivized to, you know, say, hey, we're we're we're cautious, we're ready to do what we

can in etcetera. But I think there's gonna have to be at some point of pivot over the course of twenty one where we move from this, hey things are you know, sort of looking really bad too. Hey, actually things are looking pretty good and we're actually starting to see some inflationary pressures really start to build. We wouldn't be the least bit surprised if the FED moves away from this notion of you know, hey, we're gonna we're not gonna be able to raise rates until twenty three

or beyond. We can easily make an argument that you could see a rate hike in in twenty two. Now, before anyone falls out of their chair, I think what people have to keep in mind is we're not talking about you know, there's a difference between hiking rates and actually having tight policy. The removals and combination in and of itself doesn't mean that you have tight policy. It

means that you're removing some accommodation. And so if the backdrop evolves as we think, which is to say, you know, five percent growth with upside risk uh core inflation, that's you know, north of two percent and even touches two and a half percent over the course of twenty one, I think it's gonna be really difficult for the FED to latch onto this notion that they're not going to do anything until twenty three. I mean that, uh you know that, that to me is just entirely too far fetch.

Even Powell himself has acknowledged that things in the medium that they're upside risks in the medium term. Um you know that, that to us is he's he's right to say that because we think that there are um and in that context, there's gonna be no scenario again short of things really collapsing again that they're gonna, you know, not be able to touch rates until twenty three and and I would be mindful of time, but I think

we have to keep in mind. I think everyone's looking for the steepener in in one look, and I'm sympathetic to the idea of a bit more steepening here in the immediate term. But I think as the year progresses again, as you get towards the back end of the year, I can make the argument that the curse actually starts to flight because I think the front end of the

market will start to sniff out pretty early. The FED is actually gonna be late to the party, and thus I could see again the curve is gonna rise in general, but I see two year yields rising faster than tents, and you can actually see some curve flattening as the year progressive. It's the time. Let's build on this. Let's think about a little bit more of the communication that we've had in the last twenty four hours. It's the quantitative outcome based guidance. A feature or a buck do

you think? Uh So? I love this question. Um, they wanted to be a feature, but I think it's a bug. I mean I think it's really hard. Look there, the reality is we don't know, you know. Powell's asked one of the reporters asked him a great question yesterday and it was basically and it was basically, how do we know, you know when when when we've sort of when when we've met your objectives? Um? You know, is the step a good summary of economic projections? Is that a good

guy post? And basically said no, He's like, it's not a good guy post because he doesn't know exactly what it is. And I'm sympathetic to that, but I think there's the problem with this, this you know, quote unquote outcome based guidance. If we don't really know what output we're aiming for, then how do you know when you've arrived? Um? So I think this whole notion of of of shifting the framework, I think it's gonna want to proving to be quite messy for the FED down the road because

we just don't have the guide post in place. And again I'm sort of sympathetic to them on some level, but on the other you know, I don't know why they had to actively down this path, um, particularly if you're not going to set up the right guid post and we don't know what they are within your enthusiasm? Do you just assume service sector inflation reverts to its three percentage? Mean? Yeah, Tom, So I think we do.

I mean I think you know. One of the things that people I think are are you know, seem to forget is that we we we are from a service sector inflation perspective, it just persistently runs it around a three percent page um. And guess where we have a lot of room to make up from a spending perspective. In twenty one services right, goods have killed it. You know, they're well north of where we were pre COVID. Services is the ladder um and that's going to be the

area that we really make if services are lagging? Does that mean you pay fifty dollars to your daughter to shovel the driveway? Actually, that's why she just ran away. She's she's going right. Who we really want to meet is young Preston, poor Sally who understands up to date? Is he around? Tom? He's crushed it this year. He has set from our VC. Send our regards to the family, Tom, thank you. I love about this year. There's only one thing I love about this year because this year has

been terrible for so many reasons for everybody. How natural that's now become. Remember when they have an interviewers in Hong Kong several years ago and the child walked in and it was like, whoa, there's a child in the room. And then at the start of this everyone was like, whoa, there's Now it's just yeah, everyone's working at home. Who else is going to come in? Bring the dog? Right now? We're gonna migrate to this pandemic into what to do?

What to do can be personified by a given restaurant in New York, in Chicago, in l A and points in between. The Lieutenant Governor of the Empire State is Kathy Hokel, and she joins us this morning on any number of topics. Cathy, there's snow in New York. It's not gonna work outdoors today. It's not going to work indoors either. How badly the small business? How badly do local and state need this fiscal stimulus? We definitely need it. I've been saying this for months. Governor Como has been

saying this for month. Governor Como leaves the National Governor's Association a bipartisan group, every one of them, Republicans and Democrats, have been clamoring for help from Congress to give to state local governments, but also direct relief for our small businesses. In particular. I was in the city just yesterday day before the restaurants. I sat down with restaurant owners. They are starving, They're literally starving. We have to help them.

The Settle government can right now help with a stimulus plan. It doesn't help the state local governments, which is pathetic, the abdication of their responsibility. So we are in trouble, but at least get some money to the small businesses. Right now, the reporting, including our Kevin surreally is state and local aid won't be in this bill. I guess

it's gonna get done. You know the timeline as well, What is your and Governor Cuomo's timeline to where things fall apart if you don't get aid in the stimulus we right now, our expectations are that it's not going to be in there, and what we're being told unless there's some uh you know howiday gift that's going to come our way, which we pray for, but not if

we manage our expectations, it doesn't come. What we're going to do is to be able to allocate one point five billion dollars of state money to the essential services that otherwise would not be funded. You cannot have a plan to have a mass distribution of vaccinations throughout the state and at the same time cut healthcare workers from hospitals and clinics. It doesn't work. So we're planning on a Joe Biden presidency. We expect that we'll be able

to get more help from from the federal government. And I'll tell you it all comes down in Georgia. Amazing that the destiny of New York State is going to come down to who wins the election in the Senate races, in the in the runoffs in Georgia in the early January. If it's if we can have a majority of Democrats, they understand this, they've lived this, they actually have empathy for people, they'll be able to get the job done.

Short of that, and we're gonna have to deal with this in our budget in March, and we'll have to make serious, serious cuts at that time. But right now, we're just not going to do We're not going to lay off teachers, We're not going to lay off health care workers. We're not going to lay off police officers right now just because Washington is failing abjectively. So we're going to get it done in New York State will be in financial trouble, but we'll have to deal with

it in on budget in March. All right, let's talk about what that means. You say major cuts, Does it also mean raising taxes? That is absolutely on the table. The last thing we've wanted to do in New York State is to raise taxes, particularly in these troubled times. We understand that that is not a good plan. The plan A, it's it's not a good plan. B. It's

not a good plan. See. But we may get to that point if we don't get that that essential assistance from the federal government to help offset the fifteen billion dollars that we're now faced and the whole we're facing. Uh, we're going to need to do something we don't want to have to do that the federal government can alleviate that. Again, this is not because of how New York manages its finance. This is because of a global pandemic. This is not

anything we had any control over. We're doing the very best we can and we get this vaccine out. I'm telling you sure that I'm standing here in New York State will be the very first state to be COVID free because we're going to be very aggressive about this. That should be good news to businesses in New York to know the states across this country. I'm not going to be what we are in a few months. We're

going to be very aggressive about this. It requires us to have money for healthcare workers to get that vaccine in people's arms. So let's talk about the process of rolling out the vaccine. You said that New York State will be among the first. What is the timetable for the rollout as you see it now? It's going on right now. We have different phases. We are in Phase one, which is nursing home residents, staff, high risk costol workers.

Those are literally out there being administered in hospitals all over the state of New York. And we're proud that New York State had the very first individual one of our footline workers in Queens be the first in the nations. So we're excited about that. So we are also planning for phase two. Phase two will be essential workers and priority general public meeting knows with co morbidity underlying health conditions, so will be focusing on them as well. So we

don't think that's going to come until later January. But I'll tell you, if we can get more supplies begin this would be a wonderful gift. Or we can get more supplies when Maderna gets approved and Fightser is able to come up with more, we will have no problem getting this out two New Yorkers. We have a very crest of plan that we've been working on since last July to get this into communities all over the state and in rural areas and in communities of color that

have been hard. As said, we're going to have to overcome a lot of reluctance and that's part of our public relations campaign that's going on as we speak. Lieutenant Government, we only have so much time, about sixty seconds left. But if you could tell me where we are just in terms of considering another lockdown, We've had a lot about that in the last couple of weeks. What's your take at the moment, we don't have to do that. There's there is a plan if people right now change

their behavior. Those who have been ignoring the mask mandates and ignoring our request that they stay socially distance. If they change their behavior, literally, we can get through these holidays and we'll start seeing a decline. Right now in New York state is about six per that inspection rate. That is still the fourth lowest in the nation. So I give a lot of credit to New Yorkers for its hearing to this, but it's trending upward, and we're

worried about hospitalization capacity. Right now, we're about for the state available and if that starts getting much lower, then we have to talk about shutdown. But that is not our that that is where we hope not to end up. And we're not going to talk about that right now because we don't know what the behavior of people will be over the holidays. So we can't control that. Individuals can control that, and we may not have to talk about any more shutdowns. That is the last thing you

want to do here in the state of New York. Kathy, thank you, New York LI Toennant Governor that Kathy, Kathy, thank you very much. I'm going far away and John Farrell knows this shows matthre Wererik and Steven Stanley lived it with AMers Pierrepont. It was called plug and chug. You got a formula something new Tony and and you throw in the data and come up with an answer. Steven Stanley, can you plug and chug now on the American economy? Me? Can you take the data, throw it

in and actually come up with an outlook? Not if you're using your pre pandemic formulas. There's no doubt about it that the data have changed. I think with the claims numbers, you know, a big part of the issue is the changes in the program. The extra benefits that were on offer UM earlier in the year just led to a lot of unusual activity, people filing that were ineligible before, probably a lot of people filing that didn't you know, shouldn't have gotten benefits. So the levels of

those claims numbers are definitely off UM. But I think to Mike's point from before, the fact that it is rising is consistent with what we're saying out there, which is that as the pandemic intensifies UM, you're starting to see a little bit of retrenchment some of those high contact industries. Thanks maving in the wrong direction state and it's the semi seven st still early. But if you have two pencil in a cold for the payrolls report

for this month, what would it be right now? Yeah, my forecast, but I'm gonna say probably UM, still positive, but certainly weaker than in November. UM. I think, you know, the areas that are most sensitive to the pandemic, restaurants and some of the service categories are probably going to be down in December. But there's still, you know, a good amount that's going on that's good in the in the economy right now, certainly housing, I think, manufacturing, UM

and some other categories. So we'll see how it plays out. But I think, you know, the markets have concluded that whatever happens in November December, UM, things are going to

turn up next year. So you know, I think in some ways it's less important now what happens in the near term because of the prospect of vaccines, experience, the experience of this year staven that we can turn the economy off, turn it back on again, and it was snapped right back really quickly, and that the parallel is not what happened ten years ago in the financial crisis,

it's what happened maybe in China through this year. If we can get a vaccination program ramped up, then what China has managed to achieve we can achieve in Europe and the United States. Do you share that view, Stephen, I've heard so many times in the last couple of weeks. I absolutely do. I I thought that from the beginning that the recovery would be faster and more vigorous than than most people thought. I mean, that was certainly true

in the spring and summer. UM. We've had a bit of a setback now, which is understandable given the evolution of the pandemic UM. But you know, I do see the economy getting back to something close to normal in the second half of next year. One thing that John was talking about is this churn that we're seeing in the labor market. Initially people who are getting laid off

for the lower wage workers. Is that changing, I mean, is this churn leading to more higher paid UH wage higher paid wage employees getting laid off and trying to find something perhaps with lower income Well, I mean, I think the impetus at the margin um is still going to be that low paid. It's it's those high contact industries. I mean, restaurants is kind of the poster child for that dynamic, and those are still going to be mostly uh,

lower wage jobs. I think the you know, the white color um phenomenon that you discussed is one that's gonna be much slower moving. So it is there in the background, but it's gonna get overwhelmed most months, I think, until the pandemic is done, simply because the greater churn is occurring in those service industries. Meanwhile, given the uncertainty that you're talking about, Steven, with respect to the actual numbers, when do they matter? When do they change the trajectory

of the recovery too well? I think when when we've kind of turned the corner on the pandemic really. I mean, it sounds like from the public health officials that we're talking about probably the spring, when most people will have access to a vaccine. And I think at that point, you know, the the that's when we're really going to have a sense of how much of what we've seen is going to be structural as opposed to just strictly short term. And I think that's the real question from

the markets perspective. I mean, do you do you get all the way back to where we were in February of or are you only going to get part way back or you're gonna have an unemployment rate at six percent or five percent UM? And you know, I think that's really the question at this point that the markets are probably most focused on UM heading into next year. Steven Stanley, You've got a great clarity about what they do, not what they say. What are corporations in America doing

right now? Not the pr not the lip service, not the CEO blather, What are they really doing in terms of investment and in terms of strategy given this economy? Well, I mean, certainly, the durable goods numbers that we've gotten so far this year have been surprisingly and consistently better than expected. So investment, especially in equipment has been UM

I think encouraging. It suggests that businesses are willing to look past this and and certainly I think businesses have a longer UH time horizon and their decision making than most households. So that makes sense. UM. Again, as the as the hope that we can get back to something close to normal UH gets closer and closer, I think businesses are gonna get back more and more toward a business as usual approach. That's I think, you know, to

your point, though, that's mostly for big businesses. If you're a small business and you're in one of these sectors that's being restrained by social distancing rules, then obviously it becomes a day to day, maybe week to week endeavor just to stay alive. So, um, you know, hoping to see something from Congress this week, but there are a lot of businesses I think that are just hoping to make it to next month and next year. Small business in the labor markets certainly asking for it much much

more loudly. In the last couple of wait stament. Thank you Stamen Stanley ms Pappon, Chief Economist, 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.