Surveillance: Stimulus Hopes With Goldman's Cohen

that any new tariffs diminish our economic growth? And if that's the case, what is your run rate for the economy in the next year. Well, you know, in the economy was and put lightly booming, it was doing really well. It could take the near term headwind of additional tariffs. What would worry me heading into one is you know, we're still in the greatest economic shock over fifty years. This is not the time to be putting additional headwinds

on this economy. So you would find I suspect if you move towards additional tariffs that you would have more damn ward revisions. But you know, your question is really well framed, which is what is the run rate for the economy? And what we've failed to talk about so much in COVID is what does the trend growth look like afterwards? Are we getting back to two percent growth?

My suspicion is because of a lot of the damage created here, we're going to see a lot of people revising down their potential g d P numbers, and tariffs are just going to make that worse. Well. Meanwhile, though, seeking on the tariffs and the sort of deglobalization theme that we were talking about earlier with Sir Peter westmacod the idea that a deglobalization wave and increase in tariffs

will increase inflation even if growth stays somewhat stagnant. Do you buy into that argument that a number of people are putting forth. Yes, we suspect that if we do see this ongoing deglobalization trend, which isn't just focused on US and China, it's happening globally, that does contribute to moderate inflationary pressures. We see tons of potential for two and a half to three percent inflation in the United States. I will say that's more US focused than it is

around the rest of the world. And again, three COVID, we were really fading fighting deflation. We were looking at some two percent inflationary pressures. Now because of a supply side shock movements in US dollar commodities, the FET is going to be focusing more on what it does with slightly above to percent inflation. So now if you add on that global globalization shock, this is a very different

paradigm to be implementing trade wards. It's gonna yield very different outcomes than what it did, or differently put, you know, have a different impact on the economy, worsening some of the challenges that we're probably going to face over the next two to five years. This is conventional economic wisdom, Francis, so it's not controversial. But let me ask you this

question right here. Last night, the vice president had to sit across from someone who was talking about I'm doing the work that they've done, and you could see it took offense to it. He was talking about the tax regime and the tax cut that the vice president, the president, this administration had pushed through. The candidate to become the vice president, Kamala Harris said they would undo that. On day one. They said there would be no tax heights

for anyone under earning under four ks. You made that clear several times, but the corporate tax rate didn't come up, not in any detail. And I wonder how you would process that if if the next couple of months they took control of the White House and the administration had the power to get this through Congress, if they undid that corporate tax cut of several years ago, how would

that shift from the American economy. So you say this is conventional thinking, but actually so much of what's happening with deficits, government debt, and the rule of government that conventional thinking is being flipped on its head as we explore more things like modern monetary theory and maybe the idea that deficits aren't so bad regardless of who wins, we should be preparing for exceptionally large deficits and the highest level of government debt to GDP that we have

seen in a mirror ki in history, or at least in the past two hundred years. So we're gonna be having very big conversations about what those deficits and large debt mean. From my perspective, it means no matter who wins, Yes, what they spend on will change, but you're going to see phenomenal issues at the long end of the curve, and you will see ongoing acceptance of the idea that

large deficits are okay. That means a sleeping of the curve, particularly at the long end, and it probably means we need to reevaluate that rule of government in this economy. Government is going to get bigger in the US and global economy. It's probably going to become a larger employer. And I suspect that that is regardless of winds. And

that's the main tradeable thing here. Not trying to game what comes out of November three or the following two weeks after that, but one of the seismic shifts that occurred, and I think really that's turning conventional thigging on its head. Well, Franstis, when we came out of the last election, it was all this happy talk about infrastructure spending, and the Trump trite turned out to be something very different. It was the tax cut trite. At the end of the day,

I seen I just wonder. I'm just trying to get my hands around what this would make for the equity market, because the approach right now is a glass haft full andrew sheet some more can Stanley us in that line Overnight in an interview with US, and I just want to Francis for you whether that's a complete picture, because yes, there will be some fiscal stimulus regardless of who wins

this election. But one party is talking about hiking corporate tax rights again, the other one is in I do not believe that this economy will be in a position in the next eighteen months to take any form of material tax hikes. We are sitting right now feeling really good because a lot of our economic data has shown V shaped recoveries, but a lot of that V shaped recoveries are red herrings. Housing is not behaving as it typically does. Auto is not behaving how it typically does.

We have I'm looking at my Bloomberg screen here um eleven million Americans who are on claims right now, we are extremely vulnerable to any type of disruption. And yes, if things go well, we get a fiscal package, we aid Americans through the next six to twelve months, then we can absolutely continue on our road to recovery and

make these tax changes. But if there is an additional shock, if there is an accident, whether it's a geopolitical or financial, then we are staring down the possibility and the growing tail risk of a double dip here. Now is not the moment for large structural changes, and it's the moment to build a bridge to the other side. We're still an incredibly vulnerable moment in the US economy. Similarly, a message for both parties at the moment, Francis fantasy to

catch up. Francis don't want that of money life investment management. Thank you. Right now, We're gonna rip up the script and then rip it up again and rip it up again through the morning with Rick Davis, formerly the campaign manager for Senator McCain of Arizona and of course a Bloomberg contributor, Rick, what is the debate Commission? Like, how do the candidates and their staff like you go back and forth with the debate condition? Are you the boss

or is it debate Commission the boss? Yeah, it's a it's a really hard answer because nobody's the loss. The commission sets up a bunch of rules, they pick a bunch of sites, then they sit down with the nominees of the party. They do this year's in advance, and then they sit down with the nominees of the party and they start negotiating and out of that negotiation comes some version of that schedule and those rules. Uh, some

of those negotiations are directly between the two candidates. Uh. We had Lindsey Graham is our negotiator and Rama Manuel was the negotiator for Barack Obama. And we actually got so frustrated with the Debate Commission we decided we were just going to do the debates ourselves. Then we realized the logistics on that was too much, and we went

back to the commission. But the rules of commission put together are meant to be standardized, and that you then create a memori Okay, but Rick the brilliantly explained huge public value. It's not a standardized time. Is the president? What's his power here as president, as candidate and with his visibility obviously in his vocal treatment, what's his ability to change the commission or make a more malleable process to get to his outcome. Yeah, you can always say no,

And that's what the president is saying this morning. I would say, though, the Debate Commission would never have announced that they did agree on a virtual debate unless somebody in the Trump campaign had said yes to that. So this is another example of Donald Trump not being connected to the leadership of this campaign and and now going rogue on the Debate Commission and probably the Biden campaign because the Biden campaign was signed off on this format too.

I would say we tried this in the primaries in two thousand when I ran John McCain's campaign against George W. Bush, and we didn't want to do a debate because the logistics. It was on the other side of the country and we were trying to campaign to win, and the press pressure on us to participate in that debate forced us to do a virtual debate where the two of us were in different sizes of the country, and for my purposes,

that was a dis ester. Rick, Just to jump in, just some response from the campaign that I want to bring to our audience very quickly, they will pass on the sad excuse for a debate. The campaign will hold a rally instead of that remote debate. So it looks like the president in the campaign on the same page here, Rick, I just wander from your perspective with this poll just coming in from Fox News with Biden having a fifty three to forty three lead nationally, where do you see

the polls right now? Because I read the polls out this morning. I've gone through the numbers multiple times, and Tom just calls up into a ball thinking about four years ago, what are they worse right now? Rick? How do you read the polls? Yeah, so, first of all, you gotta understand, polls are a static picture. They're not dynamic. They don't take people's opinions over time. They take them

in one instance, so they're only accurate that day. And in a campaign that's moving around, like four years ago, where you had all these massive black swan events in October, you know, whether it was a Hollywood uh video o or Comey reopening the investigation of Hillary. The polls don't take that into consideration. They only give you a snapshot.

So what we know today is that Biden has some momentum, some movement toward him since the last debate, including the period of time that that that the President contracted COVID, And it looks like some of that movement is in a new voter group, not just suburban women, but white males. And that is a signal to Trump that he may have a Trump problem with his base. Rick, how much momentum did Mike Pence give to the Trump campaign last night? You know, I think that he stabilized the Trump campaign.

I mean, think about what's happened in one week. The Trump debate was a disaster a week ago for Donald Trump. He almost immediately contracted COVID and then he blew up his own negotiations over the stimulus. That's one week. That's an amazing amount of activity. And so I think last night what what Mike Pence did was something that the campaign hasn't been able to do before with the candidate,

and that is stabilized the debate. His set of facts, his diagram of where the country is headed, is exactly what the Trump campaign has been selling, and he did a good job delivering that, did a very confident job. Just to wrap things up, Rick, very quickly, we had the former New York mat Rudy Giuliani on the program yesterday. Without much prompt ding or encouragement, he came out swinging. What we see today is the campaign coming out swinging

against the Debate Commission. This is that classic siege mentality in the final few weeks of the campaign, every once against us. Is this a strategy that's gonna work? Rick? Is it working now? Well? You know, the bunker is a very nasty place to have to occupy. And that's where the Trump campaign is right now. Not only is their top leadership out with COVID, but the polls are turning against him. I would say one thing that sort of defies that is the nimbleness or lack there of,

of Donald Trump's addressing the stimulus negotiations. He's flip floped now three times in three days. Um, there's no question that that Congress wants a stimulus. They know what the public needs and and what the Fed is requiring, and so I think that the decision making at the top has always been Donald Trump. There's no campaign that's going to get in his way. He's running the bus and the buses veering all over the road, and that does

not help him collect the votes he needs for election day. Rick, wonderful to catch up to get your inside, Rick Davis that the former McCain campaign MANTAA and BLIMPA contributor Michael Moore joins us right now ahead of all of our finances. We're thrilled you could take time out from a hollacious day as well. Michael Moore, is there any evidence from your team did if you roll up in industry, profits

go up. I don't know that profits go up, but is this feeling that scale matters in the asset management business as more and more of the money moves to passive so that you can't survive as a niche player. Uh not that either Eaton Vans or Morgan Stanley was exactly niche, but they weren't part of the trillion dollar club of the behemoth. And now together they joined that club. Will they add profit to Morgan Stanley's income statement? Yeah, I think that's the idea. I mean, James Gorman has

really reshaped Morgan Stanley. I mean he started with the Smith Barney deal in the financial crisis, and now this year you have e Trade and you have Van and U. I think his strategy as those all can work together, and now you know, the traditional investment bank is less than half the firm Bloomberg surveillance worldwide. Michael Moore bringing up the elephant in the room. Let's go to someone with some experience on Smith Bernie Sweet. How did that go? Yeah,

it's interesting Smith Barney. It's just you know that it's just a behemouth, you know, just got a tremendous amount of brokers out there, gives them immediate retail presence. Michael, I mean when you think about Morgan Stanley here, give us a sense of where their asset management business kind of ranks, uh in the world of asset management, which is facing uh pressure on fees. Yeah. I mean it was always seen UH as one of the smaller players,

at least among the bank asset managers. You have Goldman and JP Morgan with huge businesses on the asset management side. Morgan Stanley was always a bit smaller, especially after the financial crisis. They sold their van camp in business uh, and you know, Gorman later said he regretted that move. So this seems to be um reversing that. And then some black Rock's got thirty something percent operating mark. Morgan Stanley is a little later on that. Obviously the goals

to get operating margin up as well. How do you actually affect this, Michael Moore? You mean, today's a day where nobody talks about job cuts are overlays and overlaps. I mean, what happens to the say, two thousand people at Eaton events right right right? I think you probably will see some some overlap there, um, you know, but the thing for the banks is not just the operating margin,

but the return on equity. And the really attractive uh piece of both asset management and wealth management is the capital charges are so much lower than the trading and investment banking sides of the business. So it's interesting, Michael. I'm looking at the b Q function for Morgan Stanley and look seeing that the stock is down about four point seven year today, doing better than its peers. Is that a validation Mr Gorman's focus on private wealth as

opposed to maybe some of the more volatile capital markets businesses. Yeah. I think you'd have to say that, especially in a year where the traditional trading businesses have done quite well. Um. So the fact that they're holding up even in that environment, uh does seem to validate that strategy. You know, Gorman saying today that it's a happy coincidence that they're doing these deals while uh, the investment banking side of things is doing, uh, doing quite well at least in the

first half. And we'll learn more on the next week on the third quarter. Michael Moore, thank you so much. Getting ready for next week as big as week of the any day swing Michael Moore ahead of our US finance team, all of our coverage of global Wall Street

right now widely anticipated for you. Abby Joseph Cohen joins US with Goldman Sachs or Advisory Director and senior investment Strategy And of course the lay of the land here is when Abby Joseph Cohen tries to synthesize our economics and our finance into a belief in the equity markets. All listen, whether they agree or disagree, Abby, just simply, now, can you, at the margin acquire equities this morning? That's a terrific question Tom for traders um and the answer is,

of course, it depends upon your time horizon. The Goldman Sacks House few is that SNP five is currently modestly undervalued, and of course that's based upon the straight arithmetic what we expect for corporate profits, but also very importantly what we expect from the Fed. And if you think the Fed is going to stay friendly, then there could be some room to grow in the equity market. By the way, not just in the United States, but in the other

major markets as well. However, what we've discovered is that there is intense volatility and it has been rising. That is not unusual, uh, as we approach a major election in the United States, and also as we see that there has been some erratic movement with regard to fiscal policy. It's not just the Fed. We're also now looking at what happens to the stimulus bill. I think it was very clear over the last few days f O m C and other statements from the Fed that they believe

we need another stimulus package. Speaker Pelosi with David Weston here in the twelve noon hour, Abby, I want to go back to when it was just so darn simple. John Templeton was there, Schreyer was there, Marylynch, Robert Kirby and they talked to lu Rue Kaiser about the simplicity of a stock market major crash, etcetera, etcetera. Now there is so much complexity, there is so much information to flow. How do you stay convict with a convict? Should call

on equities? Given the complete cacophony of information that we have, you know was a market event. Basically the economy had not been afflicted by whatever was going on, So it was okay to go back to those models do a calculation about valuation. That is not the situation right now, And I have to tell you that I am quite concerned that there could be considerable downside as well, depending on any number of factors that we can't fit easily

into our models. This includes what will the Congress do, what will the President say, and of course the election outcome. And so those of us who have lived our professional lives really focusing in on the math, I think should feel very humble right now, because what we recognize is that the models may not be able to properly reflect all of the volatility, not just in the markets, but in the economy, in policy, and also of course an

investor sentiment one other thing. Within the equity market itself, there are wide gaps in relative valuation and that tells us something too. When markets rising, what we see is that there are just a handful of stocks that tend to drive that performance, and that of course could make the market more suspect as well and more volatile and vulnerable should there be some disappointments with regard to just a small handful of those particular issues. I mean, good

morning from London. What what examples the market you think pricing in at the moment, And when you say, you know, it is very difficult to read what the U S election will bring in terms of composition of the House or even you know, giving of power if Joe Biden were to win. So how does the market react in that case? When we take a look at a lot of the surveys that are done of investors, what we're seeing is the I don't want to say presumption, but

the increasing probability of let's call it the blue wave. Uh. There seems to be in probability that Mr Biden will be elected based upon polling. Uh. There is the possibility that the Senate could switch over to the Democratic column, and of course there is the presumption. This is a

presumption that the House will stay blue. And what we're seeing from investors over the last several days is that a blue wave might not be such a bad thing because it would give us more certainty with regard to policy, particularly with regard to the use of fiscal policy to help our economy. At this point, the general sense is that while the economy is recovering, it is recovering slowly Number one. Number two, there are structural problems that need

to be addressed in terms of long term unemployment. Some of the industries that have been very hard hit and these are things that interest rate policy writ large doesn't really help. It has to be done through fiscal policy. And so what we basically see is that investors are now looking at the possibility of movement towards the Democrats. Uh that may in fact be viewed in a positive way.

And here I'm talking about not the short term modeling based upon what's happening in this year's corporate profits and so on, but rather the longer term outlook for twenty one and beyond. But what does it mean for how so let's say we do have a Biden administration was actually you know, also Democrats in the House, what does it mean for what the how the econmual will change

in the US? Yeah. One of the things I believe that I've picked up anecdotally, and I stressed this as anecdotally, is that what I speak to investors, there is some uncertainty as to what the president uh plans would be in a second second term. Uh So there's not really an understanding beyond tax policy in terms of what would happen. There has been disappointment, for example, in terms of no

follow up on infrastructure policy. Uh. There are concerns in terms of what would happen with regard to regulatory policy, particularly as it relates to some environmental issues. And there are also some concerns as relates to healthcare. Now, one of the things that many investors are now concerned about, as are many voters, is that we have a rise in unemployment. Fortunately, it has been moving lower. One of the reasons it's moving lower is not just because jobs

are being restored. We've now restored about half of the twenty two million jobs that were lost, but we also see that people are stepping out of the labor force. And just the arithmetic of what is an unemployment rate UM, the denominator is the number of people in the labor force looking for jobs, and we see that that number has been getting smaller UM, and that is of concern

um too many people. Uh. And so when we take a look at what investors are concerned about now, not much concerned about what this quarter's earnings will be your next quarter. And even for one, even though the cans the Goldman Sack's view is a little bit stronger than the consensus, the general view is that world economic growth will be jumping up fixed to eight UM next year.

In part because of a low base. But what happens after that and what happens to some of the structural problems that have been unveiled by in fact, this this very difficult pandemic Joseph ConA, Goldman Sachs and Advisory director and senior investment strategist, Abby, you know, I kid about a three hour conversation. There's so many good research pieces your shop is putting out on the bigger broader view, but I really must come back to China and the collapse,

the lessening of world trade. It's a serious issue. How do we fix it? It's an enormously serious issue, Tom, and we think that one of the best approaches is to work with our economic allies to fix this. And that's what the Transpacific Partnership was all about. Uh. This was a group of approximately fifteen countries with the United States at the head and other nations that are either based in Asia or do a great deal of trade in Asia, and the one exception to the membership was China.

The idea was to create an economic alliance that would have some pushback against what China is trying to do. And one of the very first things that the Trump administration did upon taking office was to remove the United States from the TPP, but that organization continues on and what we basically see is that without US leadership, h the member states that remain are having a little more difficulty than they might have had in terms of pushing

back against China. So I think that that was a problem. Uh. The other thing, of course, that we need to do is to make sure that we have appropriate trade alliances in other parts of the world as well, in including Europe UM. And what we have seen UH is very difficult actually to decipher in terms of how much of the deterioration in trade for the United States has been related to trade policy versus, of course the deterioration in the global economy at large. I mean, we're in a

twin deficit. That's absolutely extraordinary. Stephen Roy Chuck's more Stanley and of course, as you know, Abby dr Roach at Yale University UH now really points out this this multiple deviation move in our twin deficit. Are you optimistic we can get that back to mean or is there a new permanence here to our challenge fiscal and trade deficits. You know, we can talk about the numbers Tom and I'll do that for just a moment, and to say

that we have never seen numbers like this. When we look at the deficit, the best way to look at it is as a percentage of g d P, and it's currently running about which is simply astronomical. One of the big questions, however, is how are we using that deficit? Um number one and number two? Can we grow out of it? Uh? And I believe that the numbers this year, as horrifying as they are, don't really tell us as

much as we need to know about the future. So, for example, if we look at the Congressional Budget Office, it looks like those deficit numbers will start moving somewhat lower. However, let's think about this, how are we using the money that we we have in terms of the fiscal stimulus and so on. If we use it to grow the economy, if we use it to provide relief where relief is needed, that is absolutely essential. Um and And so it becomes a question not just of the numbers, but what happens

with him. Um. You know Steve Rhodes who I worked with as a child at the Federal Reserve in Washington many years ago. Uh, makes some very interesting points. And one of the things that I believe we need to talk about again is not just the twin deficit, but what does it mean for currency? What does it mean for the US dollar um Thus far, we are seeing that the dollar is okay, but in recent weeks and months we see that the dollar is coming off its

high levels that it achieved early in twenty twenty. It's something that's worth watching because, as you well know, our treasury market often depends upon FIGN buying uh and and so we're watching that. The other thing to watch is FEIGN direct investment. That is, how much are companies directly investing in the United States. I'm not talking about portfolio stock portfolios. I'm talking about whether FEIGN companies are actually investing in the United States new factories and so on.

This is not a good year to be measuring that because there's not much of that new construction going on anywhere. I mean, is the money going to the right places? I mean, you know, you said it beautifully. It needs to make sure that you're addressing the concerns in the economy so that we can grow out of this debt. Where should it go to? And are the current people in charge, you know, going to put it where it should be. So not propping up actually you know, I

guess old energy or not propping up companies that wouldn't survive. Well, let's let's start pre pandemic. One of our concerns had been um where the money from the corporate tax cut went. We all know that with a sharp reduction in the effective tax rate of corporations, profit margins went up, cash levels went up, and in many industries that cash was not used for growth. Instead it was used to buy

back shares increased dividends. That's great for investors short term, but long term, what investors need our companies that are using their cash and their profits to invest in the future. And we really didn't see enough of that um And so that's one thing that we're looking at which industries could be helpful. We are looking, for example, at what happens in terms of where are the future growth industries.

Advanced manufacturing actually did see some increases. You know, when we talk about manufacturing, there are the differences between those things that are more commodity like and those things that are more ants, and the United States continues to do well in those categories. We need to focus there. We need to focus on infrastructure. And it's not just the roads and the bridges and the airports. As much as we need those and we need to repair those and that creates a lot of jobs. We also need to

invest heavily in broadband. If we take a look at the parts of this country that are really suffering because they don't have it, it is the rural areas, and there are some urban deserts as well that don't have band coverage. Here in the City of New York ent coverage.

There's some neighborhoods that don't have it. But when you go to the Midwest, you go to other parts of the country, we're looking at coverage broadband of those kids, those are not able to study remotely, Those businesses are afflicted, and you can't create as many new jobs there as

you might like. I mean, I want you to stay with us, and I promise you Abby, I'm not gonna ask you about individual companies, but this is a hugely important and symbolics ory for global Wall Street international business machines will do what has been demanded for years. They are basically going to split up into two companies. They are going cloud. It is all the vogue and is Abby. Joseph Cohen mentions there is a talk of technological infrastructure

is being dated and they will split that off. This is Arvin Krishna. This is a new IBM coming in in the spring of this year, creating a revolution after under performance ten years trailing IBM per year. I'm gonna call it three percent per year stock appreciation. The dividend trades like an electric utility in Germany, five or six percent, with mouldy single digit dividend growth. Abby, I don't want you to talk about IBM. You'd be put in the David Costant time out chair. But I do want you

to talk about creative destruction in technology. This is one of your wheelhouses. It is in evitable that they clear out of old technologies, isn't it all of the companies in the greater technology area. Well, Tom, you are making a very valuable case, um, and one that I think has great validity. And the good fortune in the United States is a lot of the newer technologies and the leading technology companies are based here. And one of the things we of course need to encourage is this sort

of creative discretion. Excuse me, creative destruction, not just in technology, but in a whole host of other industries as well. And one of the things that the pandemic has done has been to push us even more dramatically in that direction. Technology writ large is doing well in the pandemic because we all need technology to get our work done for those of us who are fortunate enough to be able

to work from home. But there are so many other industries had have been terribly afflicted by this pandemic in terms of their employment and so on. And what we are seeing is that when we are emerging as we have begun to do, as this recession is easing up, and we are seeing growth now, what we are seeing, however, is that there are some industries that are lagging just

because of time. I I need to get one more question in Abbey before we start your busy day, and that is a new regulation of Washington against Facebook, Apple, the winners as well. They're not going after international business with machines, which is a failed plan. We all agree with that. You and I remember across the Bloomberg terminal when the Justice Department dumped the Microphitesoft case. Are you

worried about the regulation of America's technologically successful companies. I am always worried about inappropriate regulation, you know, capitalism or best with regulators who understand what the focus should be, and that is to enhance economic growth UM. And so what we have in that particular report UM is something that is an analysis. It's analysis. It's not necessarily a blueprint for what would happen in terms of regulatory moves.

Recognize that it's not necessarily the Congress that will be making the ultimate decisions in this What they've done, however, is raised a number of very interesting red flags, some of them more relevant than others. But this is just the beginning of the discussion. I think there's a lot more to come. Uh. The professional regulators, of course, will be much more dramatically involved than they have been to this point. Abby, thank you so much generous of your

time today, particularly on this breaking news. Abby, Joseph Cohen with Goldman Sachs. Thanks for listening to the Bloomberg Surveillance podcast. So 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