Surveillance: Jobs Recovery With Scalia

Eugene Scalia. Of course, we're thrilled to have you on, Mr Secretary, after this Supreme Court decision, how will the Department of Labor adapt and adjust immediately to this historic decision? Well, Tom, good to be with you, and yes, it is an important decision the Court issued yesterday. We at the Labor Department don't have primary responsibility for a minister during that particular law. The Equal Employment Opportunity Commission, the e o

C is the agency charge with administering Title seven. But we're certainly reading through the Court's decision and the Court has ruled and will adhere to that. I mean, it's very important here to understand, Mr Secretary, that you will set the tone and we would suggest that Gene Scalley has been doing that for years. Mr Secretary, there's ideas here of religious exemption to the normal labor of this country that businesses can say, no, we digress from this ruling,

We're not going to do it. Do you think that will be evident immediately? And how should E O C or labor respond? Well, Tom, I think that was one of the issues that Justice Gorsage, in his opinion for the majority side, stepped a little bit. He acknowledged that people of faith and religious institutions particularly uh might be affected more than other institutions by this decision. Uh, uh and and uh, and he said that's an issue that

will address some other day. So I think that was one of the issues that decision potentially raises that Uh, Well, we'll get addressed by the courts down the road. The major the dissenters would have liked the court to address that more fully, but the majority didn't. And so we'll we'll take a closer look and see what implications that has for our programs. Mr Secretary, thank you for addressing these issues. The issue right now, Sir, is double digit unemployment.

Give us an update on what your micro data sees of a depression level joblessness in America. Well, Tom, I have to say, I think the comparisons to the Depression only get you so far. We have had very high unemployment. We've had too many Americans put out of work, uh, and we know the hardship that's meant for them and

their families. At the same time, we got here by a very different route than we got into the Great Depression, and I think the jobs report we put out what ten eleven days ago suggest that we're going to come out of it by a different route. That we put two point five million Americans back to work in the month of May, and I think that's a trend that's contuning right now. As you know, that data was a month old. Uh. There's been a lot of reopening since then,

so I think people are getting back to work. It is, of course important that that happened safely, and that's something we keep an eye on. But I think we're making real headway on the employment picture right now. Let's talk about that, miss the Secretary, do you see any evidence right now whatsoever that the enhanced unemployment benefits that were past is holding back re hir Rank, we hear uh, John. We hear concerns about that, raised UH anecdotally by a

number of employers. That point that they make is that with the enhanced unemployment benefit provided by the federal government, which is UH six hundred dollars a week, you put that on top of the state benefit, and people can be making between fifty and fifty five thousand dollars on an annualized basis on unemployment, which is obviously significantly more than one typically sees. And the concern is they'll not return to work. What we'll keep an eye on that.

That benefit, as you know, expires at the end of July. UH. Congress set that sunset in anticipation that we wouldn't be shutting down our economy at that point. We'd have reopened it and we'd want people to be going back to work. And Mr Secretary, I remember when we spoke to you last you said that you do expect those enhanced unemployment benefits to expire in July, and we have heard the same from other administration officials. What could make you change

your view? In other words, what data could come in weaker than expected that would make you think, you know what, even if people are making more than they had previously made. It doesn't mean that they necessarily aren't going back to work because they don't want to, and at least they can continue to pay their rent. Well, I think those are a couple of different questions. Will look a variety of data coming in, as you know, obviously, on July two,

we'll put Art put out our report for June. I think that report will show many more jobs added to the economy. But let's look at that report, watch other trends, UH,

and see what additionals additional measures may be needed. I don't think that, uh, it's going to be continuing that six benefit, which again was a very important, valuable benefit for American workers while we were closing our economy, but it was a blunt instrument UH that was adopted UH in March as things were closing so quickly in light of some real limitations that the states had in their

unemployment insurance systems. I think we've learned a lot since then, and I don't see that as the policy going forward. Let's talk about the policy going forward. Repulsed this morning of a one trillion dollar infrastructure program. It's the sectary. Are you working with the Department of Transportation on that plan. Their discussions obviously, as you would want throughout the administration

about what the right steps are for the economy. And we certainly appreciate the UH implications that infrastructure bill could have throughout the economy, including for employment, and and those are among the things that are being talked about. Infrastructure one of them. And once Triti in dollar plan, well, there's been different numbers put on it. Um John, I'll just leave it at saying that certainly something that's being talked about, and there's been some interest and expressed in it.

But we're watching the economy. You know. One of the things that I've said on this show before is one of the real marks of the virus is how swiftly things have changed. And so I think it's important to take the time now to watch the economy, developed watch the reopening, see how it progresses, and not rush in UH to a play from the playbook that we used back in March, for example. But we'd love to carry on the conversation, say so, hopefully we can get you

back on soon. Because this labor market healed quickly in the first month. I'm not sure how many economists think it will continue very quickly, and we'd love to get your input on a continued basis of the day to tinues to come through Eugene Scalia that the U S. Secretary of Labor on this labor market and the club economy. For those of us of a certain vintage, there's a way that you read research on the street. At JP Morgan.

The way was always Friday evening. You would get the report from Robert Melman, and it would ruin your Friday evening because you would start reading it and you'd have to go for fifteen or even twenty pages. The tradition continues with Michael Faroli putting together a jewel of a report for Global Wall Street every Friday evening. He joins us now the chief US economists for JP Morgan. Michael, what you're looking at on the consumer are little micro

details like charge card dynamics. What do you see right now from the American consumer? Well, what we see in May was a pretty nice rebound from the depths of April. We see that in a variety of metrics, as you mentioned at Daily uh Dad, on charge cards, a number of other indicators which seemed just as I said, a very strong rebound in May we'll find out an hour's time exactly how strong. And it looks like that was

continuing into into June. We already have a strong indication of this rebound in May auto sales report, which increased for two uh So, you know, I think, in line with the comments earlier, the early part of this recovery are going to be in a way easy because you're coming off of such little levels, and I think the easy part should be made June, perhaps July. I think after that the story gets a little more interesting. But it does look like they should be pretty strong for

real consumer sending. So let's get to like some of Mike. Let's just jump out to Walker's late August going into September. If we haven't passed another bill down in Washington to how this economy to support people who are unemployed in a bigger way, to incentifize corporates to rehid workers. What happens, Well, it's not necessarily the death metal of recovery, but I think further stimulus would be nice insurance against a relapse

into more economic weakness. We know for a fact that given the current policy environment, you're gonna have a pretty big decline in real disposable income in the third quarter. And the reason is you pack so much of that stimulus into the second quarter, whether it's the stimulus, checks, expanded unemployment benefits, the paycheck protection program. And so we really have to be confident that the economy has its own recovery dynamics in place for there to be no

need for further fiscal stimulus. I don't think it's an absolute necessity or a certainty that we need it, but it certainly would be nice insurance against against the relap into relapse into further weakness as we get into the late summer. So my cow past established a signpost to

determine whether we need the extra package or not. The government, the administration down in Washington, are going to take the next month to look over the day, to pour over the data and draw conclusion as to what we do and donate. Is that too early? Uh So? I think part of the problem here is, you know, the classic fool in the shower, uh challenge with setting either fiscal

or monetary policy when it actually lack. And so if we have to wait until we actually see the data in the late summer early fall, it may be too late. Given the implementation lacks and so forth. So, uh, you know, Congress and the Fed have a tough job here, which is to make a judgment on what the economy is going to look like. And we fourth quarter and act now, and I think if we wait until late July, that may may not pass that test of being a little

forward looking in how we set policy. And this goes to where actually exactly where I wanted to go, this idea that yes, the economy is recovering, but there still are more than twenty million Americans collecting unemployment benefits. There's still are companies going bankrupt at an accelerating pace, depending on which part of the economy you're looking at. And it raises a question of whether the rebound that we're seeing is largely confined to markets or whether the economy

is keeping pace. And I'm wondering, from your perspective, Mike, given the fact that you try to square the markets with the economy, how much of the federal reserve stimulus, of the of the rebound that we're seeing in stock and bond prices, how much of that is getting into the real economy. So the first thing I would say is it does look like the real economy, UH turned the corner in May. I think we should see some confirmation of that later this morning. We already saw that

in the jobs datas, and the economy is picking up. UH. Now, it is true that when it comes to markets, publicly traded companies probably employ only about a third of the workforce. So that leaves about two thirds of the workforce that is employed by companies that aren't listed on the stock exchanges, so that don't have listed bonds at the FETE is buying. That doesn't mean, of course, that the that actions don't have trickled on effects to the rest of the economy.

And of course some of those actions will support UH non corporate behavior for example, for example, lower mortgage rates. Certainly, the housing sector is one area the economy that looks like it's holding in reasonably well here, and I think a little mortgage rates have to have some some role in that. So it's true that you know, Look, I think what you're gonna hear from Powell later this morning is that the Fed's actions are designed entirely to help Americans,

American households. And you know that said, there are only limited tools that the FED has to to support the comedy, Michael. I know that Bruce Casman has a bottle and there's a genie in it on his desk, but I'm sorry the genies out of the bottle. Let's pretend we're at the Booth School seminar in Manhattan. Must attend, folks for anyone in economics, and we have to look at the central bank history of buying stuff. They can't stop, can they?

Once they start? It's really really hard to say no to buying the next marginal bond or in some banks history, to buy the next marginal share of Apple computer. Do you have any confidence that this FED can behave well? So to think? Two points I would make at least one is that the FED has stopped in the past. After QUE three, we had to took a taper tantrum for them to stop, but they were able to h

pull that off. Uh. Secondly, and maybe something that the markets aren't fully appreciating here is that the two corporate credit facilities which have received so much attention over the past twenty four hours, those are set to expire on September three. And so the FED, I think deliberately here when they implemented these programs in March set expiration dates because they didn't want them to be lingering on now.

Of course they can extend to those expiration dates, but it will take a judgment of the committee that economy is under performing. So I do think the Fed made a reasonable program design choice here whereby UH these should be self expiring provided the economy is in a decent position by the end of the third quarter. Mike, what would you ask J Powell today if you were on

the Senate Banking Committee? I think one thing I would ask him is why so there's been some indication that that is the next big step is going to come in September? I would I would ask him why wait until September? Why not act last week? Or why not act in late July. Yes, we don't know the shape of the recovery in two or three years from now, but it's almost certain to be um in a rather depressed state. So I would I would ask him why

why wait this program get ahead? From me? I'm sure you'd have more than one question my Ferrati that of Jack Mulligan, the chief US economist. If you're ever so lucky. In science, you can read Leninger's bio chemistry and say, well, I sort of wandered by it. Then there are others that master it. Peter Hoe tested that l and then in biochemistry at Rockefeller University and then onto wild Cornell. He is, without question with Mr Fauci, our leader on vaccines.

Peter Hotez joins us this morning from Baylor at University. Peter, I take great issue with the media silliness over the second wave. It's a three variable differential equation. Are we looking at a second wave or is it just the normative expansion of a virus in pandemic? Well, I can uh really articulate. First of all, thanks for having me, and I think you're the only major news anchor that

knows what managers biochemistry is though. That's really cool. Uh. With regards to uh, what's happening here in Texas, what happened was we did a good job. Initially. We we saw what was happening in New York. We went on lockdown and in the middle of March and we did everything. We never got that surge like you saw in New York. But then we couldn't keep it together. We couldn't hold it together. The modelers told us we had to keep

this in place throughout the month of May. We opened it up towards the end of April, and now we're seeing a massive resurgence. So I don't know if so much as the second wave meaning reintroduction, is just that we never we never brought it down to zero to containment mode like we could have. And now the numbers are flaming precipitously in Houston and Dallas and in Arizona. Now also, you were scrambling to acquire to invent to give us a vaccine. Give us an update. Yeah, so

we have. We're we've developed a low cost recombinant protein vaccine made any East. The same technology used to make the recombinant hepatitis the vaccine used all over the world, and it's made locally in India and Brazil and Indonesia and Bangladesh, and we decided we're going to use that technology to make a low cost, affordable, highly accessible COVID

nineteen vaccine. And it's going great guns. It looks really promising, and we've been engaging the Food and Drug Administration to move that along and we think this could be one of the first global health vaccines used. All of the US used everywhere and made locally. So the problem is we're not a farmer company, so we don't get all the stuff that you hear about what the operation works

feed companies. In terms of big time government assistance, we're getting some from the n i H. But you know we're raising money privately too, and hopefully we're gonna enough the big partnership with India. We hope in the in the coming days of the week dr Hotels. We saw from Moderna's CEO that they're expecting that a vaccine, if all things go well, could be ready by Thanksgiving. I'm wondering, for your perspective on the front lines, how close are we.

I mean, what's the time frame not only forgetting a vaccine that is effective and has proven safe, but also can be widely distributed as your talking about. Yeah, certainly not by Thanksgiving. What's going to happen is you're going to UH and you we're going to see a number of the warp speed vaccines enter into UH Phase three clinical trials beginning in July UH and then it's probably gonna take about a year to collect all of the data that we need UH to show that the vaccines

actually work and that the vaccines are actually safe. And that's the part you can't rush. I mean, oftentimes this is sort of in the biotechs do this, and even the White House does this. They they frame this as a manufacturing issue. That like, they talk about it in the same context that we'll talk about making ventilators or diagnostics kits. And it's not the same. Yes, there are manufacturing issues, but the big hurdle is you need to give it the time to show that it works and

it's safe. Uh. And that means doing a thirty person study and I don't I don't see a path by which you can collect enough safety and data showing that it works before the end of the year. So I more likely in the in the middle of next year at the earliest. And even then that would be a world dance speed record. But I don't know where these you know, some of the c e O s and some of the some of the people coming out of the White House day we're going to have it by

the fall. I just don't see how that can happen. Doctor appreciate time this morning. As always, I'm looking forward to getting you back on the program that was Dr Peter hot As that of the Baylor College of Medicine, Chairman on the Hill for two days. Used to be called a Humphrey Hawkins. You can't remember what they call it right now. Always interesting to get the Q and I always different from the Senate versus the rabble in the House. It'll be interesting to see you. Wonder if

they'll address negative interest rates somehow. I don't think it will come up. We can do that with our guests. Kenneth Rogoff joins us, of course, at Harvard University. He has been a wonderful supporter of Bloomberg on the Economy and Bloomberg Surveillance over the years, and we're thrilled that he could join us right now. Can I have to ask you about your courageous book, The Curse of Cash, Folks. It was my book of the Year a few years ago.

Ever important now can give us an update on the efficacy of negative interest rates in the United Kingdom and in the United States of America, given how their financial systems are so different from Europe, would negative interest rates

help well? Right now? There's so much going on. I don't think it would be a good idea to do something so experimental this minute, But if in two years after the government is you know, gone through many more stimulus spending measures, after the fellow reserve has you know, basically tried to guarantee ever been a credit provider of last resort in the economy for a long time, if things still aren't growing, if the interest rates are very low, I absolutely think that this should be on the table.

It's just silly to take it off the table. And yes it would work it but it has to be done the right way. I don't think even Europe has done it the right way. You have to deal with cash hoarding, uh so that you can make interest rates very negative. But let it be noted that the studies coming out of the European Central Bank have by and large been finding that negative interest rates have worked fairly well,

haven't caused the problems people said. There has been passed through in the banking sector from you know, certainly the healthy banks, and they find the effects on investment are very similar to normal monetary policy. And I think that's what we could expect in the United States and the

United Kingdom. Are we nationalizing our bond market? I mean that's the question that Chairman Paul is going to get from the Senate today, all all of these different programs, including announcement yesterday that they will in some way and let's say it's efficacious, they will buy corporate bonds troubled and less troubled. Keen, is it anything but a mass nationalization of our debt? Well, it depends on what happens next.

So if it turns out that things get better pretty quickly, this clearly will you look like a pretty low cost move that had a big benefit. But you know, it's funny. Usually in crises before this, uh, they would say, well, here's a company that we think is solvent, but there's a liquidity problem. So we're going to provide liquidity and make sure that they can still get financing and not needlessly go bankrupt. That's, you know, usually the main idea.

The thing is, if the virus goes on, there are a lot of companies that will need to change radically. They will be liquid because of the FED, but not solve it because of the virus. And I think they're going to run into trouble. They're taking a gamble. It's a smart gamble perhaps, but absolutely it's a gamble. Of course,

this can't go on forever. You can't just have the taxpayer guarantee every credit in the economy, but you could also have good morning, Professor Rogolf, you could also have a situation where you have a second wave, but actually it's only pockets of the economy that are closed down. And you know, how likely is it that we have a second lockdown like we saw in the last couple of months. Well, that's a very good point. I mean,

I don't know. I mean I think I wonder if we had to do it again, if we locked down in the same way. There's certainly lots of papers floating around saying that they're smarter ways to do it. I don't know. Uh, you know, and it's not just what the government does. That's how people react. So clearly, if they're just localized problems that can be contained, it not an issue. But the likelihood of a major second wave, you know, from the epidemiologists I speak to, is very

very high going into late fall and winter. I mean, maybe we'll be able to deal with it better, but you know that that's that's the concern. Uh. And you know, even something that was enough to scare people back into their houses, So there there's there's some things like restaurants, hotels, cruise ships and things which feed into those which are just going to need to be restructured, and so UH

the questions how far that's going to go. Are we going to still be in cities the same way that we were we go to smaller and middle size cities. I don't know. I suspect there's gonna be a lot of restructuring. And we haven't mentioned the political change, which is going to certainly have an impact on UH corporations. I mean, I don't think this is just you know, I think we're going to see an acceleration of the

movement for redistribution of income deglobalization. These are going to have impacts on some firms and they're not all going to remain in business. We've been talking about deglobalization quite some time. Do you think it will be a very stark globalization and you know, or are we going to quickly get back to normal? I don't want to use the word quickly, but you know, how long will it

take to go back to more normal? I mean, we've had waves of globalization and deglobalization in the past, and my views that we were headed for a wave of deglobalization anyway for political reasons, not economic reasons. Uh, you know, the Trump Sanders two thousand and sixteen kind of catalyzed that,

and this is gonna make that go further. They're going to be things brought on shore for national security reasons, and then there's going to be a lot of other things brought on shore supposedly for national security reasons, like Canadian steel, but you know not, and so I think it'll be pretty pretty significant. A lot of countries are are are nervous after this and again this push you know, to try to um say strength and labor unions in

the United States. That's hard to do when you remain very highly globalized, right Ken, I know that at Harvard for years, you've studied the course, you've taught the course rather free lunch three oh two? Can you explain the free lunch of forever at the zero bound? The dot plot chart goes out two years at the zero bound. Who knows after that? And all of our viewers and listeners instinctively know there's got to be a price to that free lunch at the zero bone? What is the price? Well,

I mean, it depends on what we do. Obviously, so I mean, I think right now the global normal global real interest rate is negative. And so given that inflations very low, and that they're not prepared to use negative interest rates, which is really the only way to raise inflation to target or above target if they wanted to, I think interest rates are going to set at zero for a long time. The concern really is this idea that therefore, UH companies can borrow as much as they

want and the government will bail them out. The government can borrow as much as it wants and the settle Reserve will baild it out, And of course that is nonsense. Their limits to these things. We're doing the right thing now, but of course they can't go on forever. I suspect we're going to see it go on for a long time. Can roll off with this right now. And Richards is

Whether's Fidelity Internationals. He has a fabulous acuity about investment management and about the trends that we see in finance and economics. And Richards, I want to talk to you about the quiet, silent thing that's out there. It's witnessed in the new dot plot, which is a flat line at the zero bound out two years Fotty b roll In Oil just told us oil demand out two years will suffer, and that is people like you have to

recalibrate what we're going to return long term. Are you working at fidelity with an actual assumption under four percent per year return? M and interesting, interesting question. I mean, I think, I think what you're going to see is quite a wide dispersion of returns what the overall aggregate comes out to. It's, as we all know, in this environment,

who can predict anything. I'm not going to pretend I'll have the crystal ball on that or undebitedly seeing is a much greater disparity between those who've got the cash flow of those who got the balance sheet and those

who do not. And to try and sort of bring that back to real life, if you look at, for example, what the if you look at insurance company balance sheet right now and you look at the proportion of higher yielding assets that will typically be on it because of the way the accounting allows them to get a better a lot of capital up if you like, from high yield versus equity. For example, the FED action has a very direct impact on how robust that bounce sheet looks.

So there's an awful lot as I mentioned earlier about this smoothing at the bottom of the v that has a direct impact on how certain sectors and has certain stocks within those sectors are resilient or not coming through this, which makes it really a stock pickers market. Okay, it's a start pickers market. But and Richards, I want to go back to the long term responsibilities of investment houses, like you know, your work with M and G years

ago and your work now with Fidelity. Yesterday we had a California bomb show where we've decided we're going to leverage up to make the bogey to pay retirees. That's not in any of the textbooks, is it. No, it's absolutely not. And I think some of your other guests this morning, as as a real live economists rather than humble practitioners like me, well we'll have a really good insight into the complexities of some of that stuff. No,

we are absolutely in new territory. And there is a strong argument that can be made that if you're a government or another entity and you can borrow along at practically zero interest rates, actually you can get a lot

of productive capacity out of that. It just depends what you put that into So it comes back to the use of the capital as much of the simple act of borrowing, which will clearly determine the returns because we don't really know how is consumption, how is a basic economic consumption model going to be affected by what we've come through, And until we know what the job recreation is after this, when everyone comes off the government schemes, it's really difficult to see how the consumer is going

to respond and how the consumer response is going to have a huge impact on whether some previously viable business models are still viable in the future. But if you have a viable business model and you can bet or low, then then clearly you have the chance to generate really good returns out of this. And talk to me a little bit about dividend cuts and how actually impacts investor

decision making. So dividend cuts are you know, the signaling around dividend cuts are one of probably the most challenging things that we have to manage because dividends have been a large proportion of total return over the years, and that ability to reinvest those dividends and the compounding effect

from that. There's been quite a lot of signaling from quite a lot of the companies that we look at where they have cut dividends, but it's in the recognition that it's not necessarily one and done, that there is a hope on an expectation as the broader economic environment normalized, whenever that might happen, that a return to some level of dividend plus some level of dividend growth is an expectation.

So there is there is a feeling that not all the dividend cuts are clearly permanent, but some will be. And that's where it comes back to looking at the resilience of the balance sheet, looking at the cash that has been raised through equity issues, looking at what the

underlying cash flow is. I think what we have to be really careful about when we pull all of that together into a portfolio is to make sure that when we are when we are selling our investment products and when investors are buying it, for example, an income funds, that they really understand is the income that is being paid out true income or is there is there an

element of capital distribution within that? Because I think that's the risk as an individual investor that you can get into when you start to actually look at that income paying funds. Are you really sure you understand what you're buying within that? So it's not an easy and simple scenario. Here. Has active management, you know, shown its value during the crisis.

I think it really has. I mean, when we've looked across I mean, you know, obviously generalities are always difficult, and I look at the funds that we look after, and we've definitely seen the types of funds that have a wider REMIT, that have a stronger thematic edge to

them and perform better. And in particular, funds with a kind of e s G tilt to them r s G ratings stocks that we rate more highly in our own proprietary s G rating system unquestionably outperformed both on the equity side and interestingly on the debt side through the crisis. It's certain, you know, it's a relatively short time period to look at that in but that has been supported by data from other other types of index

providers and so forth. So I think it does show you that active management done in the right way can really add value through this. But obviously it is quite specific to individual themes, to individual types of mandates that you have. But we're certainly comfortable and we've seen ourselves in net influ all through this year, pretty much into our active fonds, so it's an interesting picture. And thanks so much, And which was their fidelity at international? 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