Been explored, and an investment like that or support like that would come with specific strings attached. And that would protect the taxpayer. Francine i know you have to go, but a final question of public debt. It is a huge deal now, bigger than the economy. How long can you live with that situation . When can you start paying down some of the debt . Rishi so we have absolutely this year to help us facilitate response for the crisis. Was the believe that right thing to do, and some organizations would agree with that assessment, that the situation longterm would be far tose if we had not moved now limit the longterm scarring on the economy, and it is the longterm scarring that causes structural deficit in the future, which we should be most worried about. Toemain very committed strong and Sustainable Public financing over the mediumterm. Right now the priority should be to reopen the economy safely, to drive the recovery. But of course what were are doing this year is not sustainable and over the mediumterm we need to return to strong and sustainable finances. Francine chancellor, thank you so much for joining us. She sent a, chancellor of the ,xchequer rishi sunak chancellor of the exchequer. Do a data check here. I think the story of this chancellor of the exchequer, folks, particularly to our american audience, waking in the morning, is an extraordinary story. This is a kid out of southampton, at the bottom of the United Kingdom, who like a light went to oxford and then to stanford as a fulbright scholar, did the three halfing year term atthreeyear goldman sachs. This is one of the Great Stories and politics worldwide, his rapid ascent with the conservative party. The rapid ascent is halted. You see that with the data check. It is summer, friday doldrums. Here,levated 1770something. Really, francine, that is about it on the date of this morning. Francine it certainly is. We will have plenty more on u. K. Data, also with the chancellor. Now lets get to first word news in new york city with ritika gupta. Ritika good morning. The u. S. Has not seen a day like this since the pandemic hit. The country registered its biggest ever jump in cases, and that is leading to some reopenings reversing their state. Florida, california, and texas account for almost half of all new cases. Businesses that are already open current reduced occupancy limits. The Trump Administration has asked the Supreme Court to rule obamacare is invalid. This Supreme Court is set to hear the case around the time of the november elections. The Federal Reserve is playing it cautious when it comes to the biggest banks in the u. S. , told that they cannot increase dividends or resume buybacks until at least the third quarter. Banks performed well in annual stress tests, what a separate shows that this pandemic, the coronavirus ups potential risks. The pipeline allows russian gas. O be pipes directly to Germany Global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in im than 120 countries, her. This is bloomberg. Am ritika gupta. This is bloomberg. That you are listening to us on bloomberg. And ritika tom andrew to gupta, london and new york. Medicine,uch on the the epidemic elegy, and the Economic Impact of this new way for a continued first wave, different geography on the virus. As well, much more going on in europe. Art of that was francines interview moments ago with the chancellor of the exchequer of the United Kingdom. Francine, what did you learn . Francine the most significant part of the conversation was when he said that the bar for Company Bailouts is exceptionally high. We were trying to have a conversation to figure out the next stage of support for the economy, and it is very clear aat the chancellor is in difficult situation. If you look at a tory chancellor doing as much as he has done to support the economy, he is really spending cash in a way that no other top tory chancellor has ever done before, and it was interesting to have him say that he is committed to strong and Sustainable Public finances, but the bar for a Company Bailout is exceptionally high. Tom francine, into the weekend, there is a change in United Kingdom politics come as we see mr. Starmer of the labour party pushing against the farleft and , and certainly labor is taking a more centered tendency. Where does mr. Johnson fit in right now with the chancellor, within the measure of conservative politics . Are they staying right or are they going more to the center, given this pandemic . Francine it is quite an uneasy situation, because if you look at Boris Johnsons government, you would say definitely more right to what the previous conservative government was, certainly more to the right than David Camerons government. But given the unprecedented strength of this crisis, and the fact that the economy had to be halted and we are seeing not only job losses but Consumer Spending almost grinding to a halt, no matter what political spectrum you are, they need to step up and try to sustain the economy until they reopened. In downing tension street and number 11 are very real. Tom very much like what we are seeing in washington as well. We will continue this morning, give you the news, and of course the markets right now. That is fine, but coming up, a really important conversation. Steve shive around Steve Chiavarone he will join us. Stay with us. From london, from new york, this is bloomberg. Good morning. Tom good morning, everyone. Bloomberg surveillance. Cant say enough about what jason kelly has done with lebron james. Withhas also made a splash sports but also with entertainment and business as well. A good conversation yesterday from mr. James, and i look forward to seeing what jason kelly does in its entirety this evening. I am thrilled to bring you the guy you need to lean forward and listen to. What do we do with our money this weekend . His name is Stephen Shaver own that stephen she have a road, and he has a very good allocation idea. Steve, easy question is how to rebalance equities. Forget about that. How do you rebalance in fixed income given where yields are . Steve we have had a theme over the course of the last week or income boast our fixed and our equity portfolio which was to reduce a little bit of exposure in the u. S. , so starting on the fixed income despite the fact that you have had the recovery in the equity market that you do or are you had, the yields barely above where they bottomed out, which tells you you probably dont have a lot of upside in bonds, even if we get a bout of volatility. Look, when you look at what is going on with the virus right now, there have been a lot of concerns that investors have raised over the last few weeks which we have kind of dismissed, but you cannot dismiss the increasing virus situation right now. So our view is that treasuries may not give you as much safety as you would like, so frankly we have been looking at International Fixed income, a little bit more. We remain neutral duration. It is a defense game. You on theare duration or the amount of cash in the portfolio . Is cash trash, as mr. Dalio says . There are a lot of investors that in this environment need liquidity, and when you need liquidity, cash is king. So we are more marginally overweight cash by a couple of percent on our portfolios for a couple of reasons. Primarily because we have taken risks off the table in terms of the equity market. I dont like what i am seeing coming from the virus data, and that threatens the potential for the reopening, which could have an impact on the economy and thus markets over the next couple of months. So we had taken a little out of equities, we put it into cash, and our plan is to deploy that at lower levels once we have better fundamentals. Francine what can politicians or governments actually do to boost confidence . Do we need in general animal spirits to come back even if economies are not fully reopened . Steve i think it is expected that the number of infections are picking up. We are reopening. We know that that is going to happen. But if that is going to happen, then you need to have contingencies in place to make sure you do not have situations like we have in houston, where your hospitals are being overrun. You can forgive that in february and march. It is harder to forgive that in june and july. We have not done anything to change the nature of the virus yet. Hopefully a vaccine or a treatment will be developed, and i think july and august will be important months for that as you have important phase two studies. But you cannot have not change the nature of the virus and not really have changed the nature of your response to a pickup in infections and expect that animal spirits are going to continue. When you see disneyland postponing their reopening, if anything were to happen in the sports these are things that really do hit the psyche of already kind of a fragile mindset right now. I dont think we are going back to where we were in march, and i dont think youre headed for nor should week go back to a natural a national lockdown, but we should be able to respond better. Francine how do the markets actually track this . I dont know whether you buy gold at this moment in time. Steve i am a big believer in cash flow. When you are an investor, your job is to predict cash flow and discounted back appropriately. I dont think i have any expertise in asset class that doesnt throw off cash. You still want to be modestly overweight equities because we are very likely entering the session and entering exiting the session and entering some form of recovery, and in the medium to longterm view you want to be constructive. However, i think you take a little out of equities and move it to cash in this environment because we could have an air pocket over the next 3, 4, 6 weeks. I say cash rather than fixed income because of how low yields are already. That is kind of how we are playing it. Tom Steve Chiavarone, thank you for the update. We are thrilled that he could join us today. Coming up in the 9 00 hour, the chancellor of Bloomberg Opinion or Something Like that mohamed elerian, with jon ferro, in the 9 00 hour. This is bloomberg. Good morning. Francine this is bloomberg surveillance. We are talking about the markets with Steve Chiavarone. Steve steve is still with us. When you look at things on the markets that we actually dont know, and tom and i have spent a good amount of time trying to figure out when we should Start Talking about deflationary pressures or whether we will be inundated at some point because of all the extra stimulus i inflation, people think that this that we should not even have that conversation before 12 months from now. Where do you stand on all that . Steve i am not a big i am not overly concerned about inflation. You have to remember, inflation affected byssence, population growth. If i have a fixed amount of resources, i will have higher prices. That doesnt exist in 50 of the world economy. Europe, japan, and china have negative population growth. Havee United States, we do population growth and are projected to continue. Population declines in that big a part of the world are going to have deflationary pressures, which i think caps inflation everywhere in the world, including the United States. We think in the current environment, deflation is more of a risk here than inflation, and we think even coming out of this, inflation is likely to be contained. Because again, the other element here is we have not provided stimulus. We have provided ridge financing to allow companies to survive when we have made it illegal for them to do business. That is not inflationary because coming out of this, very few companies are going to be better off than they would have been if this had not happened. And therefore, engaging on some spending bids. We are more concerned about low inflation than we are any runaway inflation, at least, you know, for the foreseeable future. Francine what about supply chains . There is concern, a lot of talk about supply chains being much more local, inwardlooking. How much inflationary pressures with those give . That you know, i think if was 10 years ago, it would be significant. One of the things that is going on is you have eddie and a dish additional an industrial. When you think about what is produced in the United States versus china, if i am using less labor and more technology, i will spend a little more on labor but i will probably save on shipping, on intellectual property laws, i will save on energy costs come on tariffs, potentially on taxes. We think that actually you can read localize supply chains in a growththat is relatively and profit effective, and we think that will happen. I also think you will see a little bit of a tradeoff with efficiency. Maybe i give up a little bit of efficiency, and that means a little bit lower margins, but i will have a more diversified supply chain. If that means more stable earnings, you commit look up that you can make up on the multiple a little bit what you lose on the margin. Tom where are you are the argument of a hugely depressed value versus the explosiveness of growth . Do i buy the depression of value, or do a stick with growth . Steve i think youve got to be i dont want to be too far tilted in one direction or another. This is a market that you respond to, not one that you anticipate. We think growth deserves at least a little bit of the structural overview and portfolios because these companies are creating their own growth. Are sor cash flows strong, they have really strong balance sheets, which affords them a lot of flux ability in defensive characteristics. Require a Strong Economy to do well. So if reopening goes well and the virus gets corralled again, value is going to run. If it doesnt, then value is going to underperform. Growth does relatively ok in either of those scenarios. Ncine it within the faang stocks, is extraordinarily what we witnessed. How do you balance profit in one of these Success Stories . Steve i think portfolios in general, especially if you are doing them with passive instruments, which i cannot understand why you would want to own everything right now not everybody is going to be ok have kind of biased these caps, naturally. This is where a robust allocation of small caps makes sense, particularly on the smallcap roadside, where you have a lot of companies that are really disrupted and are providing solutions for the world that we are living in. Was maternal on that side, or grubhub, or something of this ure if it was moderna if it was moderna or on that side, or grubhub, or something of this nature it balances all that make cap overweight. Tom we are going to leave it there. Steve chiavarone, thank you so much. Always interesting as well. We need to go to portland, maine, and someone always lists stressed, Gerard Cassidy will join us here. Paragraphs that i was reading on the stress test yesterday. I am not too stressed about it. Stay with us. This is bloomberg. Good morning. This is bloomberg surveillance, lets get the first word news. The way to reopen in the u. S. Has been going in reverse, the biggest ever jump in coronavirus a halt and after plans to get economies going again, half of new infections coming from florida, california, arizona, and texas. And the Coronavirus Task force briefing will start again after two months. Has passed a democratic overhaul of policing overhauls. On hold,e plans to act there is publicans and democrats are far apart on liability of police. Tax hased digital france, italy, and spain saying they could only tax automated services, and there is a threat of tariffs if there is a tax on tech companies. Oil is on the second week of decline, a third of coronavirus cases in the u. S. Have crowded the outlook for demand. Russia is determined to curb oil output. Global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. Gupta, this is bloomberg. Thank you. The fed has told the largest banks in the u. S. , they can increase buybacks through at least the third quarter. There are potential risks, even with dividends. ,oining us is Gerard Cassidy hes the head of the u. S. Bank , what strategy, thank you did we learn about the stress test . Can banks push back their payout . What we learned yesterday is under the original economic stress, which was delivered in february, all of the banks had capital levels above the required amount with the exception of goldman sachs. Goldman sachs members were slightly below are they needed to be and they could get onto that network. So the original stress period varied. But there was a covid overlay in the economic scenario, and so they brought those scenarios to the banks. Because of the inability for everyone to test closely to the scenario, the banks are going to have to release their stress under these new scenarios later this year. Francine gerard . I dont know if you could still hear me, we were having that conversation on dividends, we will try to reestablish that connection and get back gerard abouty and we will talk this, its interesting to see how the position not only with the financial crisis is overlaid, but you are giving out small money to small and mediumsized enterprises. But if you cant reopen the economy fast enough, you could worry, especially in europe. Tom its interesting when you look at the future for banking. Ive seen some articles from bloomberg on the research of Alison Williams in europe and the United States. It is really the same question as we have had all along, what is the role of banking . The mergers of banking . The combination of faang of banking . It seems to be painful wherever the geography. Francine that is because of a couple of things here in europe, and perhaps theres not enough regula