Surveillance: Speedy Stimulus Needed, Says Bernstein

and they listen to. One of those is Jared Bernstein and the steam career at the Center on Budget and Policy Priorities, and a senator from Delaware a few years ago discovered this and said Dr Bernstein joined the team. Jared Bernstein part of the transition team for the President elect. Jared, I know we need to break some news here, and I do want to know the Secretary Treasury is going to be, but I really want to go to transition Minutia. You are lined up I think to walk Champ and Major.

You're gonna be like first dog walker for the Biden administration. What is it like being on a transition team. I think the most important thing to recognize there is that this is such a critical moment for a smooth, normal transition process to happen, And what's happening right now is anything but normal. Remember I was the chief economist to the then Vice president elect back in two thousand and eight, and at this point we were actively planning. Remember that

was the Great Recession. We were actively planning for a fiscal relief package that was legislated less than four weeks after Obama and Biden took office. That's what should be happening now. But this is not normal, my friends, for this transition to be thrown off this way, and it's coming at great cost in terms of health and in terms of the economy. Okay, a delicate question, then you know,

we make fun of Champion Major the dogs. Returning to the White with the President Elec Jared, what's so important here is? And what is your action plan if this is transition interrupted? Are you planning out a budget process without the knowledge of the President White House? Well, certainly we are, obviously, and you'll hear the President like talking about this, thinking about a fiscal package with great urgency

one of the things he said. And by the way, President elecs, they like to wait till they're in the office to start moving legislation. He has said that is not the case when it comes to fiscal relief. That should happen in the lame Duck. And I couldn't agree more.

But if you're talking about preparing for uh, the UH for for this job that he is UH, that the American people have elected him for, you've got to talk about virus control and that of course you can see the President elect is very active on planning virus control. But you know his UH Vivic Murdy, who's the former surgeon general on the covid T recently talked about how important it is to get that information in transition from folks from bunks that are currently in the White House,

and that's not happening. Again, avoidable suffering to Americans in terms of healthcare and economic hardship because this transition is not occurring the way it should. Jaredy, We're lucky to have a bit of time with you this morning, so we can talk about the transition a little bit more. In just the moment, I want to talk about a fiscal plan just a bit with you. The Republican Senate was the obstacle to getting the deal that Pelosi wanted

was still likely to have a Republican Senate. We have one now, will likely have one off the January as well. What is it that you think that President elect Biden can achieve the Speaker Pelosi couldn't. Well, I think the way you teed it up is exactly right. I mean, the President elect continues to talk about how people can decide to cooperate and now is is the perfect time for them to do so. We have heard positive sounds about a fiscal package from members of the Republican squad

and including McConnell himself. What we're not seeing is the kinds of negotiations that the President elect has been stressing, and that needs to happen as of yesterday. You know, we have an unemployment insurance system where over twenty million people are making claims and at least twelve million we recently learned UH could lose their h support as that's as as as it expires at the at the end of the year. We have over four hundred thousand small

business instead of clothes. The long term unemployment is increasing at a rate we haven't seen in the history of that series. We learned this morning that according to zip recruiter. Job growth is slowing, not just in places where the virus is surging, but in other places as well. So I think the urgency of the economic situation has and the health situation, which of course are intimately connected, just has to reach legislators. I'm an economist, I'm not a politician.

I can't tell you the strategy to get them there, but I can certainly stress the urgency of this moment in that regard, Well, let's talk about the urgency and the size, because currently there is a one and a half trillion dollar spread between the two sides, and I'm not sure how that's closed, that's all, if it has,

it's all in the last month. What kind of size package do you need in a moment like this, Jared, I think probably the best way to think about is start from the bottom up and start adding up what's necessary. State and local budgets are are really hurting. Remember they can't run budget deficits. UH. The unemployment insurance system, as I mentioned, needs work. Nutritional support has to be on

the table. There's lots of people facing a potential evictions and foreclosures, so we need those programs to continue and to be re upped, and of course virus control is at the top of the list. Now, if you start summing that up, you'll get into the neighborhood of the Heroes Act, which is what the President elect was touting the other day. Uh and at least the second version of that was somewhere in the two to three trillion range. But let me say this, I think what matters most

right now is speed. So there's speed, their size, their composition, they're all important, but I would put speed at the top of the list because I think this economy is at a precarious point. Jared, can you elaborate on that. If speed is the biggest issue right now, do you think that Democrats should cave to the Republican demand of a smaller bill and just get something anything past even it's if it's substantially less than what you think is required.

You know, I just don't think cave is the word that anyone should be thinking about up there. It's actually cooperation working together to serve both the healthcare and economic needs of the American people. And you know, as the President elect has stressed, I mean, there are uh, not avoidable there are avoidable deaths that could occur if if

both sides would get together and start cooperating. Now, by the way, Ron Klain, incoming chief of staff, someone who knows a lot about about about pandemics, keep winting out something the other day that I want to stress. He said, you know, yes, vaccine, that's important, it's essential. But you know,

vaccine without vaccination doesn't get you very far. So along with all this other transition planning that should be happening now, the manufacturer and the distribution of the vaccine is essential planning that has to occur. And I don't think anybody needs the cave to each other to get to work

on serving the American people. In that regard, Jared, given that there is some sort of bridge right now to try to get us through the next very difficult couple of months, what do you think is necessary when it comes to potential infrastructure spending, which has been something that's been sort of touted out there, and how should we pay for something like that? Yeah, that's a really uh,

that's a really good question. I I think that the the we we I focus so much on relief and this fiscal bridge to the other side of the crisis. I don't think we should forget. And certainly the President ELECTA has a has an agenda that is extremely I think rich and important in this regard that simply getting to the other side of the crisis, back to where we were, isn't nearly good enough. We have to the

way he puts it is build back better. That is, have a far more resilient economy on the other side of the crisis. And resiliency in the case that you're raising, has to do with investments in clean energy and infrastructure, healthcare infrastructure, safety net infrastructure, an unemployment insurance system that's up to the task, a healthcare system that's up to the task, and all of those investments I think need

to be made now. In terms of pay for us, that's a discussion that's going to have to happen when the President elect becomes the president we start those negotiations.

I will say that in terms of relief packages right now, it is essential to recognize that interest rates are so low and locked in at such a low rate, so government borrowing given the return on the kinds of investments I'm talking about, I mean, we can literally save lives at a and extremely uh favorable interest rate, and the idea that Congress isn't acting with urgency to do that

right now, I think it's just a huge mistake. Four basis points on a ten yere Jarek right to catch up, appreciate time, come back, saying John Bernstein that at the Center on Budget and Policy, priorities made come surveillance to speak the experts on this pandemic long ago and far away.

I think March. My first conversation was with an esteemed radiologist at Mount Sinai this morning, these many months on a conversation with Dr David richie's president of the Mount Sinai Hospital, a radiologist of Mount Sinai who long ago and far away actually bought radiological images snapshots of the lungs of Wuhan. That was our first important interview on this pandemic. Today, David rich joins as president of Mount Sinai Hospital in Mount Sinai, Queens. David, I looked on

a hundred first Street and I count the ambulances. It's not as bad as it was in April. It's not as bad as what is in May, and yet we're hearing about increasing troubles. Give us a snapshot of Mount Sinai this Friday morning. This Friday morning, and really for the past thirty days, Mount Sawei Hospital has about fifty

patients with active COVID infection UH. That is a significantly last At the peak of the crisis, there were seven hundred and seventy including patients in the tents across the streets. So it is a markedly less severe surge than what we saw in the first wave. Then why are we closing schools? Why are we seeing hospitals in North Dakota, in Utah and Idaho. So challenge is it just a new pandemic of geography or is there something different this time? Well,

this time we see what's coming at US. We have testing in the region. It's certainly not as good as it needs to be in the in the long term, but we can see the positivity rates. And we didn't know back in February and March what was coming towards US.

There was no capacity and then we were overwhelmed. This time, we can see the increase coming at US and take proactive public health measures in advance of effective vaccines in order to control the spread so that we don't see the incredible amount of death and excess death outside of COVID that we saw during March April and may Dr Rich good morning from London. Is it a different type of population that's being affected this time? Is this why you know fewer people are ending up in hospital or

is it because of the viral load that we're seeing. Well, there there are certain things that are different about this second wave of just looking at it from our perspective. For impatients, we see that they're slightly younger, implying that we're doing a better job of protecting our elders. We see a slightly decreased length of stay, and we're very happy that the mortality rate came down from in the first wave to five point one percent in the second wave.

While still a very deadly disease, this does give some hope that something that we're doing, something in terms of therapeutics or better management of oxygen levels is improving the outcome of patients. But still not a disease to take lightly at all. The World Health Organization has ruled using anti vale m desivere as a treatment has ruled against

using web deservere as a treatment of COVID nineteen. What treatments are available right now that you are using well remdesse of your it does have some data that are are contradictory, but in the early phase of inpatient care, remdesivie and inpatients not yet showing their own antibody response

convalescent plasma are tools that we're using. And then as the disease progresses and we see more involvement, the use of UH gluba corticoids commonly noticed steroids such as decks and methad zone and UH drugs that in the blood or prevent clotting have been very effective for us in preventing some of the complications that we saw in the first wave. Dr Richard, your thirty six years at Mount Sinai, in doing the hard work of innesesology, you have seen

bed to bed. What people do I want you to speak to our audience worldwide about the emotion of the CDC yesterday basically canceled Thanksgiving or what we're seeing in London about cancel Christmas. How does a pro like you observe the political maelstrom of this pandemic. Well, it's it's very hard for many of us to see that science is not being taken in the in the proper regard

throughout the really throughout the United States. I can't speak as much to the rest of the world, but it's a problem when we don't have universal acceptance by public health officials and by governments that we must mask be much socially distanced. That the Thanksgiving holiday is in many ways the worst of possible situations for spread of the inspirers, because having large groups of people indoors sharing a meal is probably the most effective way of spreading. There for

something we must we must avoid. David rich mount sign I throught we could take generous time with us today. Of course it's thirty five. I think it's thirty four, maybe thirty six, excuse me, thirty six years at Mount sin I truly committed to that institution. The market on a hand, whilst founder securities equity strategist joins us right now, Anna, we started this program by talking about the cross currents for financial market participants. How do you react to the

news this morning? Well, the news this morning is encouraging for equities, and like you were talking about earlier, that tugger war. It's one of those items that might be able to join the market a little bit higher, but in the near term you know, we think that equity of bolatility and equity uncertainty still remains elevated. So in the immediate term, it's it's hard to say what's gonna win out the rising COVID cases or is it gonna be this vaccine and uh, you know, perhaps rekindle stimulus

talks on both ends. Maybe that's gonna be the winning factor. But you know, six months out, John, we still do think equity risk and unsearchain t will decay and equities will march higher. And I want to talk really importantly here and I want to drive it into a physics discussion. And you're you're working Yale. Do we know the coefficients right now? In this divisive week of bulls and bears?

Are you flying blind or within your equation your expectations that you see Do you actually feel like you've got to handle on how the equations pieced together for us? You know, we do think we have some sense, especially you see what the rotation has been as the market has been pretty flat this week. Like you mentioned, still underneath the hood, you're seeing certain groups have a higher

beta to the more positive COVID news. You're seeing more the cyclicals and the value trade out performing, and that has been the trend month to date. We think that has legs and has much longer to go in the longer term outside of six months. Okay, in the longer term. In the short term, how much of a hit could that cyclical trade take. Well, as you know, the cyclicality, it's very sensitive to economic indicators and how the economic

recovery is going. So far, recovery seems to be chugging along, but we know the biggest risk it hasn't has always been what happens with the coronavirus cases isn't manageable. You know, for example in New York City, you're seeing schools close, You're seeing restaurant dining get rolled back an hour short.

These things are concerning if we get them out of nationwide uh spread, the more concerned again of my policy mistikens okay, And I think that's why the biggest news perhaps of the night around this market was the gap that's emerging between the Federal Reserve Chairman Pale and the

Treasury Secretary Minute in to him. I think for many people in this credit market right now, there's a worry that if the fedbacks away, you start to see a gapping out and it's signing of financial conditions that would be my concern this morning. I have to say I was surprised that I didn't see if they're moving this market. We had a bit of one eye of the night. Then we erased it pretty quickly. Oh. I think everybody in Washington at least is overwhelmed by the constitutional news.

But what's so important here, John, to your good point is the fiscal stimulus timeline has been adjusted. There's no question about that. And I want to go back to beta. You mentioned beta, and let's call it sector beta. To full disclosure, folks, I don't believe in beta on individual securities. And is beta now in the beta change into two thousand twenty one? Is it an absolute change or is it a relative change? Can I still own tech? You can still own tech. But we think, you know, market

can move higher. But we're thinking more pedestrian growth than we've seen in the past two or three years. So for us, the game becomes the more relative beta game. We want to know if the market is going to be more pedestrian returns and growth, well, what about underneath that, which sectors are going to have that relative outperformance? That relative beta for us, we think it's more that economically sensitive names that COVID time names. So that's what we've

been recommending to investors right now. When you look out the financials part of that story on a even with the bond market doing what it's done over the last couple of weeks, it is it is John, And within financial specifically, you know the trodden and beaten down and

unloved banks. You know, recently we've pounded the table and being overweight banks for a longer term trade because you know, evaluations look right for the picking and as we've seen that book to price factor has performed since March and we think it has more to go. That helps that

banks argument. And you know, eventually with rates staying at zero, even if we don't get the biggest physical stimulus package, and now that we do have concerns what happens to that credit support rules off, but seeing if that maintains status quo, that's going to help bas come back, especially

longer down the road we get a little reflation. We're speaking with an a hand of what Wells Fargo securities, and I want to go back to something John was talking about this rift that's emerging between the Federal Reserve and the Treasury Secretary Stephen Manuchin about this extra money that was going toward corporate bond purchases, that was going towards main street lending facilities, that was going towards musicpal

bond UH purchases. I'm wondering how much this threatens the idea that the Fed can swoop in as a backstop to markets. Frankly, this has been one of the biggest arguments for equities and valuations where they are. Does this threaten that on any level? Based on the sudden inconsistency here in messaging Lisa, you know, you're right, it's absolutely a bit of a shock to here suddenly treasuring WENUS

and then the Fed are taking different stances. As you mentioned, one of the reasons why we can justify such inflated equity multiples, especially on the SMP five compared to history, it's this liquidity. We've had, this monetary accommodation, and you know, now you have traging volution asking for a refund. That's unexpected because one of the one steady things we've had through a lot of this turmoil has been monetary support. Now,

if that is sapped away. If companies lose their access to capital, that comes into stress for equities, and equities are likely to see a big pullback. But so far we've seen credit spreads tight well behaved both in the investment grade and the high old markets. So as long as that can remain capped, we think equity volatility stays muted as well, and you know multiples can continue and great to catch up as always, and a hand that

of one stonger securities person why it works. Gott Kleiman and Jim's l or Apollo Management in a week moment took one of the best economists in the street and drag them over into the dark side of asset management economic analysis. They still touristed Slack from Deutsche Bank. Huge loss for Peter Hooper in their team, and we're thrilled

that Mr Slack could join us. And this one touristed a global Wall Street question, how's it different being an economist for a massive global bank versus being an economist for asset managers? Well, the data and then ASIS is a really littlely identical. I mean trying to think about what markets are doing and where they're going. Then atisis

ends up being exactly and the same. So and that sends uh, the job that we all have of trying to think about where is the economy and going, and where a financial marker is going is the same for all of us. You're at the cross section at a very interesting time that we have Dallas FED President Robert Kaplan coming out saying that he could expect a contraction even in Q for as a result of the worsening pandemic.

And then you have Jim Paulson of Luthhole who just came on and says that he expects a five percent expansion in Q four. This sort of bullish attitude in markets versus the parishness of economists. Where do you come out in this divide that seems to be growing. Yeah, what it's very important to watch is the high frequency data and Jodan has claims yesterday as you also talked about, of course what's going up that means that more people

are becoming unemployed. This is a yellow light for risky assets. I mean, there's something here that's going on in the economic data where the nightmare scenario for marguts would be if the unemployer rate November will begin to go higher. I mean we are still waiting for the vaccine. There

is still some time before the vaccine comes. We have now more conversations about whether we need a second generation of a vaccine, and there's a lot of still question marks around how the vaccine will be both deployed and how it will function, etcetera. But the short answer to your question, Lisa is that then in the short term, it's very different from as a podcast the way normally is. Normally you have a lot of certainty about the short term and much certainty about the long term. But here

it's a complete opposite. We have a much better idea about what things will look like in two thousands twenty one than what we have in the next two months. It's also and I really underestimated the resilience of the US economy and how quickly it would bounce back, and many other people did as well, and we're repeating that again as we work our way through winter. So it is the case that the US economy is more resilient

than any other economy in the world. We have much more dynamic labor markets, product markets, We have more competition across all markets than literally any other country in the world. So in that sense, the dynamism of the US economy is not being impacted, at least not dramatically at the moment. That being said, the cyclical movements around that structural issue, it continued to be a risk here in the short term, and that's why some of the high frequently indicators, both

of mobility you have started to go down. Also, open table restaurant bookies have also started to go down. We have some rollers. Even New York City rented mpt A data has also started to show some more weakness in the last few weeks. So we're a little bit worried about where the high frequency data is taking us at the moment. Well, let's talk about the policy composition, the policy prescription. Often on programs like this you talk about speed and size. We talked about that with Jaan Bernstein

earlier this morning. Let's talk about composition. Where you would target the stimulus right now, toss them where does it need to go? I think it is highly unusual, as you also just spoke about a little while ago, there's highly unusual that you have the Federal Reserve and the Central Bank asking fiscal policy for aggressive action. I mean, as you all know, I used to work at the i n F and they're the main lesson is that the central bank should be telling polititions to spend less money.

Now you both have in Europe and in the US the central bankers almost asking and pleading polsititions to spend more money, Please increase government expenditures, please cut taxes. That is just a really unusual signal and tells you how significant the messages from the Federal Reserve at the moment

and telling that we do need some more supportant. It comes really from the fact that we're still ten milland jobs below today where we were in February, and that sense the holding the economy is pretty deep and that's why they need a bhiscal expansion and the call from that from the Federal Reserve is so significant. Towards into York claim charts. What has moved is service sector inflation has become service sector disinflation. What are you advising, Apollo management.

Does it sustain here, does it become more disinflationary or do we just assume a reversion of that three percent level on the great service sector question. Yeah, this is a really important point time because the shock to the economy with this pandemic came to the service sector. It was restaurants, it was retailed, and therefore we saw significant declines in prices and significant declines in employment in the service sector. That's not rebounding. So that's why we're seeing

in reversal of that. But historically over the last twenty years, remember, if you separate CPI into goods, inflation has basically been zero for the last twenty years. All the inflation that we have seen and most of the variation inflation has

come from the service sector. That's why the unusual situation here with the service sector being a driver of inflation first to the downside, now to the upside, is something that is very important for the inflation outlogal role that we have had this compositional shift where the service sector suddenly is playing a most tychnical role re creative to

the good sector. So are you framing the American economy as a return to previous trend or are we establishing a new level of trend that will be a lesser level. So in trillions of dollars, we're still one point three trillion in at least in Q three in terms of how far a where we are from getting back to the trend that we had pre pandemic. If you want to fill up completely the whole that has been treated in the last two or three quarters, then we need

something more like folt trillion. This gives you some idea about what is the magnitude of fiscal need, if you will. And the question exactly is, as you're asking, well, do we want to get just back up to the trendline or do we want to fill up the whole completely the wets how quickly do we want to get the floor rate to come back to the three and a half per cent that we had in February. So in that sense and all this will depend, of course on

the speed of when the vaccine will come back. But it also will depend on this issue that we also talk about all the time, if we will get another fiscal stimulus or not yet, either before the end of this year or sometime in the beginning of the new Yet, of course, as we try to plug this hole by borrowing money, there is a question of that overhang of debt, the unbelievable expansion of debt globally over the past nine months.

In order to plug this hole, what that will do to growth going forward and I'm just thinking about our conversation about zombie companies. Not that long ago, twenty percent of the large US companies considered zombies. What does that do to long term growth in the United States? Do

you think it's adequately priced in? So, the b I S has done a lot of work on this, and what they have repeatedly said now the possable years actually is that if we have a bigger share of companies that ultimately more unproductive and using resources, using capex, using workers, then you do run the risk that begins to have

some macroeconomic implications. And on top of that comes also the other issue to your question, leadser that if you do have such a significant increase in the amount of US treasury is outstanding, what should you then be watching. You should be watching for risks of potentially talking about downgrades to the sovereign of the U S. Fitch already has US sovereign on negative watch. Should also be looking at treasury auctions, but what is a bit to coverage

you're doing. You should also be looking more broadly for the demanders supplying the treasury markets. So far everything is fine, but it's pretty clear that when you think about the very significant actions from the Federal Reserve. There is some very important questions about demanders applying treasuries that we all need to think about also over the coming ones. Tolsto, what are you optimistic about next year? So I am optimistic about the vaccine and I do think it will work.

But this very unusual situation where there's more clarity about two thousand twenty one then there is about the rest of two thousand twenty that is really making it very difficult when you sit with your spreadsheet and try to put together your forecast for the global economy. It does make it quite complicated to think about well, with market's trade on the bat news and the near term and the downside risks, or with markets look through that and

just focus on the vaccine next year. That's why there is still a risk that things could be still a bit bumpy in the next few months before we have their final answer on the vaccine, whether this is something that will help everyone and really will be as helpful as we're all hoping at the moment. And toast them wonderful to catch up and great to see you in a new seat. Fantastic toastin's luck that now have Apollo Management. Thank you. 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