WEBVTT - Surveillance: V-Shaped Recovery Is Nonsense, Roubini Says 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.320 Bloomberg dot Com, and of course on the Bloomberg. Let's 0:00:27.320 --> 0:00:29.840 start with Greg battle Shower, b MP parable US head 0:00:29.840 --> 0:00:32.520 of Equity and Derivative Strategy. Good money to Greg wove 0:00:32.560 --> 0:00:34.600 on it. Have we seen the wash out, the clean 0:00:34.640 --> 0:00:37.400 out of sentiment or you're still waiting for that big moment? No, 0:00:37.479 --> 0:00:39.559 I don't think so. I mean we've been looking at 0:00:39.600 --> 0:00:42.360 thirty forty on the SMP. The two day moving average 0:00:42.400 --> 0:00:43.919 is something where we may see a little bit more 0:00:43.960 --> 0:00:45.800 of a line in the sand. Drawn We've had a 0:00:45.800 --> 0:00:48.120 massive move in the last couple of days nepoties, but 0:00:48.159 --> 0:00:50.360 it has only been two days of de risking. We 0:00:50.440 --> 0:00:53.600 came into this last week with markets at all time 0:00:53.680 --> 0:00:55.920 highs UM. We wrote a piece at the start of 0:00:55.920 --> 0:00:58.360 this year where we highlighted some of the irrational exuberance, 0:00:58.640 --> 0:01:01.720 some of the stretch grows valuations of growth stocks, the 0:01:01.720 --> 0:01:04.640 stretch valuation of equity markets generally, so a two day 0:01:04.680 --> 0:01:06.880 correction I don't think it's nearly enough to wash out 0:01:06.880 --> 0:01:09.600 some of the positioning consensus has had it all beaten 0:01:09.600 --> 0:01:11.520 out of it over the last week or so with 0:01:11.560 --> 0:01:13.959 the V shaped recovery. Haven't heard much about that in 0:01:14.000 --> 0:01:16.000 the last twenty four hours. Is that dumb dusted? Have 0:01:16.080 --> 0:01:18.399 we moved on from that? UM? I don't know, really. 0:01:18.400 --> 0:01:21.520 It depends how the data unfold. It depends what happens 0:01:21.520 --> 0:01:23.640 with the virus. It depends what happens with the FED. 0:01:24.120 --> 0:01:26.280 If you have if you have a situation where the 0:01:26.360 --> 0:01:30.120 virus does not impact the US consumer, doesn't impact the 0:01:30.200 --> 0:01:32.920 US labor market, and you get a reaction from the FED. 0:01:33.040 --> 0:01:35.480 That's the type of environment that drives a V shaped recovery. 0:01:35.680 --> 0:01:38.640 If the labor market or the U S consumer slow considerably, 0:01:38.760 --> 0:01:40.240 then I think we're in for a much kind of 0:01:40.240 --> 0:01:44.160 more sustained, turbulent time suffering the biggest losses here because 0:01:44.160 --> 0:01:46.720 there was a story about how leverage hedge funds ticked 0:01:46.800 --> 0:01:50.320 up dramatically right before the sell off, I think it's 0:01:50.360 --> 0:01:53.440 not contained just in the hedge fund community. When we 0:01:53.480 --> 0:01:57.600 look at positioning statistics, whether it's kind of retail or 0:01:57.840 --> 0:02:01.640 leverage in terms of systematic strategy these institutional investors. It 0:02:01.760 --> 0:02:04.080 looks like the momentum and the rally that we've had 0:02:04.160 --> 0:02:07.200 over the last um, yeah, ten years, but suddenly the 0:02:07.240 --> 0:02:09.320 last six months or so has drawn a lot of 0:02:09.320 --> 0:02:11.040 people into the equity markets. I think there's a lot 0:02:11.080 --> 0:02:13.320 of leverage, and that's why we've seen such a kind 0:02:13.320 --> 0:02:15.560 of sharp reverse in the last couple of days. What 0:02:15.600 --> 0:02:18.960 are you looking forward to determine catharsis? I think that 0:02:19.000 --> 0:02:21.160 already we have to see what happens in terms of 0:02:21.160 --> 0:02:23.679 the data, what happens in terms of the FED. I 0:02:23.680 --> 0:02:26.840 think it's far too early to expect equity markets to 0:02:26.880 --> 0:02:28.400 find a level. I think we're going to see some 0:02:28.480 --> 0:02:30.760 volatility over next Because that was a public answer, I mean, 0:02:30.760 --> 0:02:32.600 give us the truth here. What are we gonna see 0:02:32.600 --> 0:02:35.520 in terms of catharsis? What's the bet on the street 0:02:35.680 --> 0:02:39.080 right now? I mean, if people position given two difficult 0:02:39.160 --> 0:02:42.360 days down, I don't think two days is enough for 0:02:42.480 --> 0:02:44.400 positioning to wash out. So I think we're going to 0:02:44.480 --> 0:02:47.119 get much more volatility. You know, you mentioned that we're 0:02:47.120 --> 0:02:48.959 seeing the future start to bounce a little bit a 0:02:48.960 --> 0:02:51.560 little bit this morning. We expect volatility. It's not going 0:02:51.600 --> 0:02:53.440 to move in a straight line, we could easily get 0:02:53.560 --> 0:02:55.720 kind of a decent update, but that could easily be 0:02:55.760 --> 0:02:57.600 followed by another couple of down days. So I think 0:02:57.639 --> 0:03:00.280 we're going to see a lot more volatility before pauseing 0:03:00.360 --> 0:03:03.400 washes out. For the final question, really really quickly March eighteen. 0:03:03.840 --> 0:03:05.919 As things stand your view right now, did the FED 0:03:06.000 --> 0:03:09.040 go or do they wait? I think they're more likely 0:03:09.080 --> 0:03:10.800 to wait, But it's going to be data dependent. It's 0:03:10.840 --> 0:03:13.000 going to depend on the evolution of not just what 0:03:13.120 --> 0:03:15.040 happens in terms of the virus the data, but also 0:03:15.080 --> 0:03:16.680 what happens in terms of market You sound like a 0:03:16.680 --> 0:03:19.240 FED official. Great, great catch up with the great battle 0:03:19.240 --> 0:03:27.160 there of BNP Paramo, Johann Sebastian and Jack joytis now 0:03:27.240 --> 0:03:30.680 Rio Tinto CEO. J is fantastic to have you with us. 0:03:30.680 --> 0:03:33.280 So let's just get into the business in China straight away. 0:03:33.680 --> 0:03:37.880 What are the customers talent you right now? Yeah, good morning. First, 0:03:38.280 --> 0:03:41.400 as you said, China consform more than fifty percent of 0:03:41.720 --> 0:03:44.120 the ver so we're spending a lot of time discussing 0:03:44.160 --> 0:03:47.080 to our Chinese customer and suppliers. We discussed with around 0:03:47.080 --> 0:03:49.200 two hundreds of those in the last forty eight hours. 0:03:49.840 --> 0:03:53.200 Where whether situation. Where the situation is today is there 0:03:53.280 --> 0:03:56.360 is clearly uncertainty. However, two things which is important from 0:03:56.360 --> 0:03:59.400 all perspective. One is all the books of which is 0:03:59.400 --> 0:04:02.160 our men coming, are full and we're moving the product 0:04:02.520 --> 0:04:06.000 to China without any issues whatsoever. That's the first point. 0:04:06.040 --> 0:04:08.600 The second point is if I take a more medium 0:04:08.680 --> 0:04:10.400 term view, when I look at the back end of 0:04:10.440 --> 0:04:12.560 this year, we have no doubt and we've got all 0:04:12.600 --> 0:04:16.040 the signals that the Chinese government will implement a similars package. 0:04:16.040 --> 0:04:19.040 I've already started and from past history, when the Chinese 0:04:19.080 --> 0:04:21.680 implement similar package is going to be pre intense in 0:04:21.760 --> 0:04:23.800 terms of communities, which could be a very good piece 0:04:23.800 --> 0:04:26.839 of news. So someone such no issues as we're having 0:04:26.880 --> 0:04:29.960 this conversation, but we acknowledge that could be uncertainty and 0:04:30.000 --> 0:04:31.640 we are prepared for it. John, I want to cut 0:04:31.640 --> 0:04:33.719 to the chase, and there was a terrific Bloomberg opinion 0:04:33.760 --> 0:04:36.200 piece out on this earlier today. You've got a seven 0:04:36.240 --> 0:04:39.320 percent year, You've got massive dividend growth over the last 0:04:39.360 --> 0:04:43.440 five years. What is the elasticity of the responsiveness of 0:04:43.480 --> 0:04:45.920 the board to what you do with the dividend in 0:04:45.960 --> 0:04:48.560 the future. That's a very good question. But as you 0:04:48.600 --> 0:04:51.120 remember in twenty in early twenty sixteents, we have changed 0:04:51.160 --> 0:04:54.479 our policy to move from to move toward the variable policy. 0:04:54.480 --> 0:04:57.240 And the police is very clear forty two sixty percent 0:04:57.360 --> 0:05:00.640 of the underlying earnings through the cycle. In the last 0:05:00.640 --> 0:05:03.160 few years we were always above the policy. And if 0:05:03.160 --> 0:05:06.920 you look what we have declared yesterday, it's sixty percent 0:05:06.960 --> 0:05:09.640 of the earnings aspect the policy plus a special dividend 0:05:10.000 --> 0:05:13.279 of one billion dollars which was which would take us. 0:05:13.279 --> 0:05:16.039 So the LS city city is very clear, it's directly 0:05:16.080 --> 0:05:17.840 linked to the earnings. Okay, but I want to go 0:05:17.960 --> 0:05:21.280 to your science of years ago and frankly your mining engineering. 0:05:21.320 --> 0:05:24.679 What's your ex access and the dividend? How many weeks, 0:05:24.680 --> 0:05:28.640 how many quarters of this shock the supply shock? Can 0:05:28.680 --> 0:05:31.640 you stand to keep the dividends strong? As there a 0:05:31.720 --> 0:05:34.880 point where you do have to change the dividend policy. 0:05:35.120 --> 0:05:37.039 I don't think we'll have an issue with the dividend 0:05:37.040 --> 0:05:39.960 policy per se, because it's a valuable policy. That's one aspect. Now. 0:05:40.000 --> 0:05:41.800 The second point, which is more important from a real 0:05:41.800 --> 0:05:43.920 stone point, is if I look at the quality of 0:05:43.960 --> 0:05:46.240 my assets, which are low costs, which are the lowest 0:05:46.800 --> 0:05:48.320 in the in the in the in the industry, plus 0:05:48.360 --> 0:05:50.599 the quality of malin balance sheet is I've got no 0:05:50.680 --> 0:05:54.240 issue whatsoever to continue the reverse supervalue for shoulders as 0:05:54.279 --> 0:05:56.080 we've done for us four years, because in the last 0:05:56.120 --> 0:05:58.640 four years we have deriverse thirty three six billion dollars 0:05:58.680 --> 0:06:00.839 of cash return to our shoulders. Right now, I'm looking 0:06:01.000 --> 0:06:04.000 at the inventories in China and China steal inventorious have 0:06:04.040 --> 0:06:07.440 expanded to a record high due to the disruption from 0:06:07.440 --> 0:06:10.719 the coronavirus and the halt in building. How much more 0:06:10.760 --> 0:06:13.239 do you think that iron ore prices have to drop 0:06:13.320 --> 0:06:16.120 here if the coronavirus is not contained in the near term. 0:06:16.440 --> 0:06:18.440 That's a very good question. I can't answer on prices 0:06:18.440 --> 0:06:20.440 otherwise the lawyers would kill me as always, so I 0:06:20.440 --> 0:06:22.840 can't do that. However, what is very interesting in the 0:06:22.920 --> 0:06:25.440 last few weeks, whe the government or wh this steal 0:06:25.440 --> 0:06:27.760 industry has done, they have shut down most of the 0:06:27.960 --> 0:06:31.039 e F converters which are primarily scraped based in other 0:06:31.120 --> 0:06:34.200 produced steel. But the blast furnaces which are using I know, 0:06:34.520 --> 0:06:36.440 have not. I've only slowed down. And if you look 0:06:36.480 --> 0:06:38.560 at the volumes going into China, if you look at 0:06:38.760 --> 0:06:41.039 the inventory of I know at the post they have 0:06:41.120 --> 0:06:42.800 not moved and as I said to them, my other 0:06:42.839 --> 0:06:45.680 books on I know are absolutely sold out, and I'm 0:06:45.680 --> 0:06:48.120 moving everything to China ches I think everyone but to see. 0:06:48.120 --> 0:06:50.680 And that's going in one place, stock piles inventories, and 0:06:50.680 --> 0:06:52.680 it's not going to get deployed anytime. So so let's 0:06:52.680 --> 0:06:54.760 talk about that. You're saying you're gonna get stimulus out 0:06:54.760 --> 0:06:56.919 of China. What kind of stimulus? Where is it going 0:06:56.960 --> 0:06:59.560 to go? I think the stimulus will may be slightly 0:06:59.560 --> 0:07:01.560 different from the past because, as I said, so far, 0:07:01.680 --> 0:07:05.679 the crisis in China is about services, about construction, about 0:07:05.680 --> 0:07:08.440 the back end of the matter, factoring that they're gonna 0:07:08.440 --> 0:07:11.120 have to support all those aspects of the economy. But 0:07:11.800 --> 0:07:13.880 I've got to know that they will invest a little 0:07:13.920 --> 0:07:16.600 more or even more on the infrastructure as they've done 0:07:16.600 --> 0:07:18.280 in the past, because that's the best way for them 0:07:18.320 --> 0:07:21.880 to stimulus, to stimulate the economy, and it's commutely rich. 0:07:22.160 --> 0:07:25.440 So second half of this year, I'm not too concern. JS. 0:07:25.520 --> 0:07:27.400 Always great to get your your fantastic to have you 0:07:27.400 --> 0:07:30.120 with us on the program this morning. That's Jane Sebastian Jacques. 0:07:30.280 --> 0:07:33.560 They re outIn so CEO joining us on the LCES 0:07:33.640 --> 0:07:40.040 in China. We've got them on the phone, so we've 0:07:40.080 --> 0:07:41.960 got to go there. Folks. There are people that do 0:07:42.040 --> 0:07:45.600 medicine from a distance, and then there's someone like Mr Whitworth, James. 0:07:45.680 --> 0:07:49.040 Jimmy Whitworth is with the London School of Hygiene and 0:07:49.080 --> 0:07:53.760 Tropical Medicine and John, without question, he has done the 0:07:53.800 --> 0:07:57.240 most in Africa. You can talk about it. You can 0:07:57.240 --> 0:07:59.440 put a piece of chalk in your hand and run 0:07:59.440 --> 0:08:02.280 a course on a lecture, and then there is the 0:08:02.440 --> 0:08:05.600 going and doing of it. And Jimmy Witworth has done 0:08:05.680 --> 0:08:08.720 viruses like nobody else on a plan. Fantastic to have 0:08:08.800 --> 0:08:11.400 Jimmy with us now, London School a higiena Tropical medicine, 0:08:11.520 --> 0:08:15.720 professor of International Public health, professor, fantastic to have you 0:08:15.760 --> 0:08:17.840 with us. From the market's perspective, and I asked this 0:08:17.920 --> 0:08:21.400 question exclusively from the perspective of investors right now, there 0:08:21.480 --> 0:08:23.720 is a lack of faith in the ability to contain 0:08:23.800 --> 0:08:26.400 this virus, that perhaps this is broken out to Europe 0:08:26.400 --> 0:08:29.440 and beyond the United States, maybe it's already here. Professor, 0:08:29.480 --> 0:08:31.320 put that into some context from your point of view, 0:08:31.320 --> 0:08:34.840 where are we? Well? Thank you for that and thank 0:08:34.880 --> 0:08:40.439 you further at fulsome introduction, Very appreciative. I think we're 0:08:40.480 --> 0:08:46.240 in a very worrying situation at the moment. We have 0:08:46.320 --> 0:08:50.800 a situation I think where in China, with very heroic 0:08:50.880 --> 0:08:55.200 and strong public health measures, they have been able to 0:08:55.320 --> 0:09:00.160 get the outbreak. They're more or less contained. It's all 0:09:00.200 --> 0:09:03.200 going on, but it's not expanding at anything like the 0:09:03.280 --> 0:09:05.880 rate that it was, which is good. But the worry 0:09:06.040 --> 0:09:10.200 is that it has now spilled over into a number 0:09:10.360 --> 0:09:14.440 of other countries and regions in the world. So in 0:09:14.480 --> 0:09:19.720 the Middle East we have this focus in Iran, which 0:09:20.040 --> 0:09:24.000 is worrying because that's getting into countries which have very 0:09:24.080 --> 0:09:30.360 poor health systems, places like Afghanistan and Pakistan. And we've 0:09:30.400 --> 0:09:34.560 got an expansion of cases in Italy, which is also 0:09:34.960 --> 0:09:40.080 crossing borders and I think threatens Western Europe more more generally. 0:09:40.280 --> 0:09:44.319 And the thing is, this is an infectious disease. It 0:09:44.400 --> 0:09:49.680 does not recognize international borders and will spread wherever people move. 0:09:49.880 --> 0:09:57.520 What's the worst case scenario that you see as somewhat likely, um, 0:09:57.559 --> 0:10:01.880 I think that there is sustained transmission that occurs all 0:10:01.960 --> 0:10:07.080 over the globe. I'm worried particularly about what might happen 0:10:07.280 --> 0:10:11.160 in Sub Saharan Africa, where not only have we got 0:10:11.760 --> 0:10:16.400 um weak health systems and surveillance systems and the like, 0:10:16.760 --> 0:10:18.960 but we also have people who have a lot of 0:10:19.600 --> 0:10:24.960 other infectious diseases HIV and tuberculosis and so on, and 0:10:25.040 --> 0:10:28.000 it might well spread there. So it's really important that 0:10:28.040 --> 0:10:31.199 we put in the facilities that we can there. The 0:10:31.320 --> 0:10:34.880 stereotypes that we have, Professor Whitworth, they're so strong, I 0:10:34.880 --> 0:10:37.640 mean it goes back to seventy one and Stanley and 0:10:37.679 --> 0:10:40.520 Livingston in Africa, and you know some of us watched 0:10:40.520 --> 0:10:44.640 the Spencer Spencer Tracy movie long ago. Those stereotypes are 0:10:44.640 --> 0:10:48.960 embedded in. One is those viruses over there are more 0:10:49.080 --> 0:10:53.880 virulent than what we face. Do you know the virulency 0:10:53.920 --> 0:10:57.520 of this virus. Is it equivalent to what you've seen 0:10:57.520 --> 0:11:03.080 in Africa or is it a more common virus. I 0:11:03.120 --> 0:11:05.200 think there are two things to look at here. One 0:11:05.400 --> 0:11:09.400 is how transmissible it is, and secondly is how virulent 0:11:09.520 --> 0:11:12.480 it is. And those things sometimes go in parallel, but 0:11:12.600 --> 0:11:15.760 sometimes don't, and this is a virus where they don't. 0:11:16.160 --> 0:11:20.680 So I'd say this is pretty highly transmissible. For every 0:11:20.720 --> 0:11:25.240 person who's infected, on average, between two and three other 0:11:25.320 --> 0:11:28.839 people will get infected from that person if nothing is done. 0:11:29.320 --> 0:11:33.600 So that's that's the challenge for public health authorities. In 0:11:33.760 --> 0:11:39.880 terms of its virulence, it isn't as bad as many 0:11:40.000 --> 0:11:44.800 other diseases. So something like eighty or more percent of 0:11:45.040 --> 0:11:48.520 people who are infected will have mild illness and will 0:11:48.520 --> 0:11:51.720 recover and it will be no problem. But we have 0:11:52.679 --> 0:11:55.880 fifteen or twent of people who are infected who get 0:11:55.960 --> 0:11:59.920 severe disease. These are people who need to be hospitalized 0:12:00.440 --> 0:12:03.719 and on average they're staying in hospital for something like 0:12:03.880 --> 0:12:07.160 ten to fourteen days, which is a long time and 0:12:07.200 --> 0:12:10.960 puts a big strain on health services. And of of 0:12:11.080 --> 0:12:13.840 all the people who are infected, one or two percent 0:12:14.040 --> 0:12:17.840 may die. Professor, it sounds absolutely tragic. And forgive me 0:12:17.880 --> 0:12:20.400 because we only have thirty seconds left. But why the 0:12:20.559 --> 0:12:26.360 wh not calling this a pandemic um They say that 0:12:26.360 --> 0:12:29.000 that's an informal term. If people want to use it, 0:12:29.040 --> 0:12:32.960 that's fine. They do not formally declare pandemics. They've called 0:12:32.960 --> 0:12:36.800 it a public health emergency of international concern, and that's 0:12:36.840 --> 0:12:40.960 as high a level of severity as they go, professor, 0:12:41.000 --> 0:12:43.520 Thank you so much. Jimmy Whitworth was We're just thrilled 0:12:43.520 --> 0:12:46.559 with the team's ability to bring in these true experts 0:12:46.640 --> 0:12:49.880 of Professor Whitworth with the London School of Hygiene and 0:12:49.880 --> 0:12:53.800 Tropical Medicine and professor of International Public Health. But he 0:12:53.960 --> 0:12:56.240 is really one of the world's access and not just 0:12:56.320 --> 0:12:58.880 a bowl up but like four and five and six 0:12:59.160 --> 0:13:06.640 things that camp notes from Africa. He needs no introduction. 0:13:06.679 --> 0:13:08.880 Of course, is my work at Davos for years has 0:13:08.920 --> 0:13:13.160 been important to Bloomberg Surveillance. It is Rubini Macro associated 0:13:13.400 --> 0:13:16.560 is New York University, and we're through the professor Rubini 0:13:16.600 --> 0:13:19.360 could join us this morning. Noria, I'm gonna cut to 0:13:19.400 --> 0:13:21.480 the chase. You are one of the great old World 0:13:21.559 --> 0:13:25.280 voices out there, your heritage of the Middle Eastern of course, 0:13:25.320 --> 0:13:27.960 coming over to all your work in Italy years ago. 0:13:28.000 --> 0:13:31.400 Would you travel to Italy today? Oh yeah, I would 0:13:31.400 --> 0:13:33.760 travel to Italy today, but I think that that would 0:13:33.800 --> 0:13:37.680 take with me a mask, because of course, this is 0:13:37.720 --> 0:13:40.959 a global pandemic I spread to Italy. And by the way, 0:13:40.960 --> 0:13:43.319 I worry about the fact that today the help ministers 0:13:43.320 --> 0:13:46.400 of Italy Germany, Francis you said that the borders of 0:13:46.440 --> 0:13:48.560 Europe are gonna remain open if you think about in 0:13:48.640 --> 0:13:52.160 thousand fifteen when those the wave of refugees, the sh 0:13:52.480 --> 0:13:55.840 Treaty was effectively blocked. You couldn't go from county country 0:13:55.880 --> 0:13:58.520 without checks. Today we have a much more serious problem. 0:13:58.600 --> 0:14:01.360 There is that it's gonna spread from Italy parts of Europe, 0:14:01.360 --> 0:14:03.800 and they say everything is fine. It's a bit of 0:14:03.840 --> 0:14:06.840 a paradox. I want to pass between what all of 0:14:06.840 --> 0:14:10.199 our listeners and viewers know. It just supply side economics, 0:14:10.200 --> 0:14:12.800 which is almost a theology. I don't want to get 0:14:12.840 --> 0:14:16.080 into the theory now, you've always pushed against that theory 0:14:16.320 --> 0:14:22.040 and a supply shock within the geometry of basic economics. 0:14:22.280 --> 0:14:24.720 Have we ever seen in a modern day of supply 0:14:24.920 --> 0:14:28.520 shock like we're living right now. Well, there were supply 0:14:28.600 --> 0:14:31.080 shocks in the seventies, when you had the Ald shocks 0:14:31.440 --> 0:14:34.960 in seventy three after you Ki Poor War, seventeen revolution, 0:14:36.480 --> 0:14:39.360 and Iraqi manson of Kuwait. Those were the shocks that 0:14:39.400 --> 0:14:42.600 reduce growth and increased inflation. So we had supply shocks 0:14:42.640 --> 0:14:45.720 were negative, But we're related to geopolitical shocks in the 0:14:45.720 --> 0:14:48.200 Middle East. This is a different type of a supply shock, 0:14:48.520 --> 0:14:51.600 is still staculation. It reduces growth, increases cost and inflation, 0:14:52.160 --> 0:14:54.960 but it is a supply shock is negative. So Professor, 0:14:55.000 --> 0:14:57.120 up until two days ago, one could argue that the 0:14:57.120 --> 0:15:00.720 equity markets were kind of just shrugging off this coronavirus, 0:15:00.720 --> 0:15:02.560 where if you look at the commodity markets, we had 0:15:02.600 --> 0:15:04.960 some pretty significant pullbacks. You look at the bond market, 0:15:05.000 --> 0:15:08.920 yields of plunging to new loads even after the two days. 0:15:08.920 --> 0:15:10.720 So if you've had any equity markets over the last 0:15:10.720 --> 0:15:12.760 two days, how do you think financial markets are they 0:15:12.840 --> 0:15:16.880 properly discounting the risk associated the global GDP growth from 0:15:16.880 --> 0:15:19.840 this virus? Potentially? Um No, I don't think so, for 0:15:20.240 --> 0:15:22.760 at least four reasons. Reason number one, this is a 0:15:22.840 --> 0:15:25.560 global pandemics. You're gonna spread not only to Europe, but 0:15:25.640 --> 0:15:28.280 to Asia and even to the United States. Like the 0:15:28.360 --> 0:15:31.880 CDC warrant, that's going to be massive. Second, the idea 0:15:31.920 --> 0:15:34.560 there's going to be a peak of the shock to 0:15:34.640 --> 0:15:36.760 the global economy being by the end of the first 0:15:36.800 --> 0:15:40.440 quarter doesn't make sense if you think about supply chain shocks, 0:15:40.760 --> 0:15:45.080 trade channels, confidence, what's gonna happen to capacts, to consumer confidence? 0:15:45.320 --> 0:15:48.200 The impact is going to be into second quarter three. 0:15:48.480 --> 0:15:54.320 Everybody said we shape recovery that's also also total utter nonsense. Uh, 0:15:54.560 --> 0:15:57.960 the Chinese economy is gonna contract the analyzed rate of 0:15:58.040 --> 0:16:02.000 at least two percent analyze of eight but within the 0:16:02.080 --> 0:16:04.760 quarter of two percent, even if there is a V shap, 0:16:04.840 --> 0:16:08.000 recovering grows eight percent, that is well above the six 0:16:08.080 --> 0:16:10.960 of before the crisis. You're gonna have growth in China 0:16:11.000 --> 0:16:13.640 going this year from six to four. If the V 0:16:13.720 --> 0:16:16.080 shape means that in the second and turn and fourth 0:16:16.120 --> 0:16:19.280 quarter grows goes back to six percent. With a shock 0:16:19.320 --> 0:16:21.600 to the first quarter, Chinese growth is gonna be two 0:16:21.640 --> 0:16:24.120 point five percent. So the best we can expect from 0:16:24.200 --> 0:16:28.280 China is four at the most likely two point five percent. 0:16:28.480 --> 0:16:31.040 When now markets are estimating the Chinese gods are gonna 0:16:31.080 --> 0:16:33.080 go from six to five and a half. So markets 0:16:33.120 --> 0:16:36.200 are delusional first about the impact on Chinese growth and 0:16:36.240 --> 0:16:39.120 the impact on the global calling. Final point, people hope 0:16:39.160 --> 0:16:41.400 that central banks of physical police is going to come 0:16:41.440 --> 0:16:43.960 to the rescue physical policy. That is not much space 0:16:44.000 --> 0:16:47.280 that are lags and central banks are running out of bullets. 0:16:47.320 --> 0:16:51.080 Certainly BJ centrally, the e c B centrally, what's happening 0:16:51.160 --> 0:16:53.720 right now in Japan Italy implies that not much that 0:16:54.440 --> 0:16:57.200 I can do. I know you're shortlisted for governor the FED. 0:16:57.240 --> 0:16:59.440 Here when the person gets through his next ranch of 0:16:59.480 --> 0:17:02.040 a point all the cut. I would never take the 0:17:02.160 --> 0:17:05.240 job from Trump, or any job from Trump none ever, 0:17:05.640 --> 0:17:08.639 nor the cut to the chase cultul a code a 0:17:08.800 --> 0:17:13.840 legit front level mathematics economists, so cut rates now, and 0:17:13.920 --> 0:17:16.920 a lot of other people, including the vice chairman, say not. 0:17:17.560 --> 0:17:21.680 What's the efficacy of a rate cut right now? Whenever 0:17:21.720 --> 0:17:25.399 you have a negative supply shock, the damages global supply chains, 0:17:25.760 --> 0:17:28.040 cutting interest rates is not going to make much of 0:17:28.080 --> 0:17:31.120 a difference. Of course, the market is going to rarey 0:17:31.280 --> 0:17:33.720 on news of that cut or news that the cut 0:17:33.840 --> 0:17:36.520 is coming. But once then the economics pill over, the 0:17:36.560 --> 0:17:40.919 financials plovers, and the other spillovers become severe. Doing twenty 0:17:40.920 --> 0:17:43.880 five business points even fifty business points, but the fact 0:17:43.960 --> 0:17:45.520 is not going to make any difference. And the problem 0:17:45.600 --> 0:17:48.399 right now is that the contagion the pandemics already in Japan, 0:17:48.640 --> 0:17:50.920 is already in Italy, in Europe. And what's the room 0:17:50.960 --> 0:17:53.159 that b o J and e CB have going to 0:17:53.280 --> 0:17:56.280 minus sixty for the ECB, minus twenty for the b 0:17:56.400 --> 0:17:59.439 o J, and what ten business points even twenty business 0:17:59.440 --> 0:18:01.480 points of more getting rate is going to make in 0:18:01.520 --> 0:18:05.000 the face of a massive negative supply shock close to nothing. 0:18:05.720 --> 0:18:09.760 So what do you think China needs to do should 0:18:09.800 --> 0:18:14.000 do to support its economy given what's happened there. Well, 0:18:14.040 --> 0:18:17.639 you know, the intelligent Chinese economist say, we already that 0:18:17.680 --> 0:18:20.639 this major shock. The worst thing we could do is 0:18:20.680 --> 0:18:25.040 another round of massive monetary, physical and credit stimulus. Because 0:18:25.320 --> 0:18:27.600 every time there is a growth shock, they do another 0:18:27.680 --> 0:18:30.200 round of that. There is more that more leverage, more 0:18:30.200 --> 0:18:33.760 over capacity, and more economic damage that eventually leads to 0:18:33.800 --> 0:18:36.119 the risk of a financial crisis in China. So the 0:18:36.240 --> 0:18:40.720 sensible Chinese economies say, unfortunately, there's a growth chok. Yes, 0:18:40.800 --> 0:18:43.960 we have to backstop those that are been heard, provide 0:18:43.960 --> 0:18:47.359 maybe income relief, make sure that most firms, especially the 0:18:47.359 --> 0:18:49.800 smaller ones, don't go bankrupt. But that's the extent of 0:18:49.840 --> 0:18:51.879 the support we will we want to give. This is 0:18:51.920 --> 0:18:54.400 a negative supply shock. We'll have to accept the shock 0:18:54.480 --> 0:18:56.879 and the consequences of it and try to admild the 0:18:57.000 --> 0:18:59.520 economic response. If you do more of that, then the 0:18:59.640 --> 0:19:03.160 risk that that that becomes unsustainable. Even what's the risk 0:19:03.200 --> 0:19:05.680 of helicopter money, I mean, Hong Kong today is gonna 0:19:05.800 --> 0:19:08.159 try it out ten Tho, Hong Kong, which you know 0:19:08.400 --> 0:19:11.040 enough to get three drinks at the embark demandering. Great, 0:19:11.400 --> 0:19:14.399 but what what is there efficacy to helicopter money, the 0:19:14.440 --> 0:19:18.840 true cash stimulus. Well, whenever there's going to be the 0:19:18.880 --> 0:19:23.080 global and the next global recession, I'm sure that monetary 0:19:23.080 --> 0:19:26.159 policy and physical is gonna become more unconventional invariant of 0:19:26.560 --> 0:19:30.520 helicopter drop of money m M T. People's qui or 0:19:30.560 --> 0:19:34.640 what bernankei or star fish and the folks that black 0:19:34.720 --> 0:19:37.840 Cluck suggests that is essential variance of helicopter drop is 0:19:37.880 --> 0:19:40.320 going to be implemented. My point is that if there's 0:19:40.320 --> 0:19:44.280 a demand shock, monitoring physical stimulus outs you. If you 0:19:44.280 --> 0:19:47.160 have a negative supply shock like the seventhies, we did 0:19:47.200 --> 0:19:49.680 the monitor is stimulus. We did the physical stimulus and 0:19:49.840 --> 0:19:53.080 ended up with high that and e inflation. So even 0:19:53.119 --> 0:19:56.000 if you do the helicopter drop, it may not as 0:19:56.080 --> 0:19:58.200 much of an impact in a situation which the shock 0:19:58.320 --> 0:20:02.359 is a negative supply Rather than seconds you have in 0:20:02.400 --> 0:20:04.159 the f T today, I haven't had time to read it. 0:20:04.200 --> 0:20:06.000 What do you say, cut, you know, save me some 0:20:06.040 --> 0:20:08.480 time here in our well, you know four points that 0:20:08.520 --> 0:20:12.000 I briefly made that one with the global point right now, 0:20:12.200 --> 0:20:15.240 it's a pandemic. It's a global pandemic. The economic game 0:20:15.240 --> 0:20:17.520 pact is gonna be much more severe. Is not gonna 0:20:17.560 --> 0:20:20.199 be a V shaped recovery. Chinese Girl's gonna be at 0:20:20.200 --> 0:20:24.440 best two point five percent, the global economisharply, and the 0:20:24.440 --> 0:20:26.400 policy of response is not going to make the difference. 0:20:26.480 --> 0:20:32.920 You looked hand arrested. I'm always travel I just came 0:20:32.960 --> 0:20:35.040 back from five weeks all over the world, but not 0:20:35.200 --> 0:20:38.000 in China. Very good nor being stay away from me 0:20:38.800 --> 0:20:45.600 with Rebedia associates greatly appreciate it. Where we're gonna do 0:20:45.720 --> 0:20:48.080 right now, folks, is do politics, but try to do 0:20:48.119 --> 0:20:50.480 it in a different way. We're all exhausted by the 0:20:50.920 --> 0:20:55.560 what is pundentry and that we see there, the gaming 0:20:55.560 --> 0:20:58.199 of the polls, etcetera. And we thought we'd haul in 0:20:58.240 --> 0:21:01.280 here an academic that's not only spent time looking at 0:21:01.280 --> 0:21:04.440 the broader picture of the American political fabric, but actually 0:21:04.560 --> 0:21:09.399 has really delved into the machinery of politics. One of 0:21:09.400 --> 0:21:12.760 her great efforts as core concepts in American government. It 0:21:12.880 --> 0:21:16.119 is real basic look at the basic process of what 0:21:16.160 --> 0:21:19.199 we do in politics, Uh. Jenny's Ano joins us right 0:21:19.200 --> 0:21:21.040