Morningstar - Q4 2020 - 73

there, and what are the other key macro drivers that
you're looking at?

Rick Rieder: The primary thing is the development of a vaccine, and we're pretty
enthusiastic about what we are seeing not
just domestically but internationally.
First, you have to put that into your calculus-
and recalibrate if there are any bumps along
the way.

The second thing is fiscal stimulus. I think
people underestimate how significant the stimulus
that's gone in heretofore has been. When
you put more than $2 trillion, which is about 10%
of the economy, into the system, it overwhelms
the employment dynamic. The data in terms of
housing sales, retail sales, trucking data, railroad
car loading data, and such suggests we
are in pretty good shape, but I do think the
economy needs more fiscal stimulus.
The Fed has done an A-plus job, but their tools
are very blunt at this point. They've taken
the interest rate to zero, increased liquidity, and

Rick Rieder, chief investment officer of global
fixed income and head of the global allocation
team at BlackRock.

targeted that liquidity in the right places.
There's not a lot more they can do. My guess is
that we get a moderate stimulus package,
perhaps between now and the election. Whoever
is elected president, we're going to get
more. And I think the system needs more and
can take on a bit more debt to get there.
Bush: Chicago Fed President Charles Evans said,
"A lack of action or an inadequate one presents
a very significant downside risk to the economy today."
Is there real significant downside risk here?

Others, such as technology, have been faring
relatively well. What does that mean for the path of
this recovery?

Mathias: Consumer spending can create
a kind of sugar high. We can't just keep juicing the
consumer forever. We're going to need to
see a services recovery. In prior recessions,
when services spending has fallen off, it has taken
longer to recover. At some point the services
piece and the manufacturing industrial
piece is going to need to come back. The Fed
policy will help there, keeping interest
rates low, allowing funding for companies to
remain attractive.

Anne Mathias: The fiscal piece has been
critical to the recovery. But the way the fiscal
stimulus has been structured creates an
environment where it almost has to continue for
quite a while. If it doesn't, you might see
a significant falloff in consumer activity. To date,
the fiscal stimulus has been like an income
replacement program. Several years ago, Ben
Bernanke talked about helicopter money-literally
flying a helicopter and dumping money out
of it onto the population. And this has been the
equivalent of helicopter money. We took
unemployment benefits, and we added up to
$600 extra onto them.

Rieder: There are a bunch of things that
are different in today's economy than historically.
The virus will have a long-term effect on
areas of the economy that have been the drivers
of employment for the last 10 years: travel,
leisure, and restaurants. We're not going to get to
maximum employment for a period of time.
That's a big deal.

You can see the impact of that in the economic
data for the U.S. You see consumer spending
on things like housing, whereas other parts of the
economy, like services in particular, have
been very slow to move up at all-and in fact
have fallen a certain amount.

Think about Japan and how they try to
create more growth with an extraordinarily aging
dynamic. It's hard to do, because more
people draw from the economy than contribute
to it. You've got to think about that in
your calculus.

It's fascinating to contrast the U.S. response,
which was focused on supporting the
consumer with this flood of helicopter money,
with the approach in China, which was
much more focused on industrial and manufacturing support and revving up that portion
of the economy.

The other side of that aging demographic
dynamic is that people are asking, "How do I get
income?" The coronavirus forced the Fed down,
and now pension funds, insurance companies, and
individuals are scrambling for income, and
there's not enough cash flow in the world. That is
also a big deal.

If there isn't additional fiscal stimulus in
the U.S., we may see a pretty significant falloff
in consumer spending. That being said, I do
think we are going to see it. The political
positioning around it is very intense, and that's
going to impact the timing.

And then there's going to be a lot of discussion
about inflation. I'm not as much of a believer
as others that the Fed is going to get taken
off-path by inflation, because I think technology is
creating efficiencies. But people believe that
we're going to get it. I learned in my career that
you don't necessarily have to be right; you
just have to anticipate where others are going. So,
inflation is part of the calculus as well.

Bush: Let's assume that the fiscal piece does
get taken care of. Some sectors are in very bad shape.

Bush: Rick, what are the longer-term effects of
what we've seen so far this year? Where might we see
some surprises?

morningstar.com/lp/magazine

73


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Morningstar - Q4 2020

Table of Contents for the Digital Edition of Morningstar - Q4 2020

Contents
Morningstar - Q4 2020 - CT1
Morningstar - Q4 2020 - CT2
Morningstar - Q4 2020 - Cover1
Morningstar - Q4 2020 - Cover2
Morningstar - Q4 2020 - 1
Morningstar - Q4 2020 - 2
Morningstar - Q4 2020 - Contents
Morningstar - Q4 2020 - 4
Morningstar - Q4 2020 - 5
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