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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg And

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Speaker 1: I don't want to make him blush, but John Farrell

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Speaker 1: changed the discussion and economics world wide at Davos or

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Speaker 1: he Tora apart, Mr Prince of Bridgewater over boom and bust.

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Speaker 1: It became a three day fund filled derby for us

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Speaker 1: talking about the dynamics of our economics system at the

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Speaker 1: zero bound. We didn't know then we'd be near a

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Speaker 1: record low in the thirty year yield. We didn't know

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Speaker 1: then we'd be a near seventeen hundred on gold. We

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Speaker 1: didn't know then there would of course be this tragedy

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Speaker 1: of a virus in China. To make sense of it

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Speaker 1: with a really important FED confab today in New York.

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Speaker 1: It's Julia Cornado of Macro Policy Perspectives, and you are

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Speaker 1: perfect to talk to about the fear that's out there

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Speaker 1: among public officials messaging we are the world happy Happy.

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Speaker 1: Jim Bullard's over on the Death Star right now with Joe,

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Speaker 1: Andrew and Becky. Everything's fine, Bologny, it's a Bullard regime change.

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Speaker 1: Clarida Galli Girtler. The science of monetary policy, what's the

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Speaker 1: science in two thousand twenty. Well, that's exactly what they're

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Speaker 1: trying to figure out. I mean, they they It's a

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Speaker 1: tricky communication challenge, especially at moments like this when there's

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Speaker 1: a real threat to the out Okay, but the difference

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Speaker 1: here is we're getting yeah, yeah, yeah from Clarida John

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Speaker 1: who else will we talk to? Mike McKee's got messed today. Well,

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Speaker 1: because you don't want to be the hair on you

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Speaker 1: have your hair on fire, as a central bank, have

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Speaker 1: your hair on fire. Speak Well, I don't think that

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Speaker 1: we know the extent to which this is. It is

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Speaker 1: not contained. The virus is not contained. It's spread to Korea.

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Speaker 1: It's definitely causing damage in Japan. Uh So we we

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Speaker 1: and we don't yet know when it's going to stabilize.

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Speaker 1: There are projections that are stabilize by the end of

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Speaker 1: the quarter at zero bound, we're very close. What did

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Speaker 1: the optionality these bankers have that affects every one of

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Speaker 1: our listeners, right So I think it's interesting time to

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Speaker 1: have this conversation because, on the one hand, we know

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Speaker 1: that the monetary policy officials are running out of tools.

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Speaker 1: On the other hand, what we saw last year was

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Speaker 1: that they can have a powerful impact with a few

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Speaker 1: rate cuts, right, a few rate cuts, a little turn

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Speaker 1: in the balance sheet, and all of a sudden, the

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Speaker 1: sentiment like switched pretty hard, and the housing market responded,

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Speaker 1: commercial real estate responded. So there is some Amma laughed.

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Speaker 1: They did keep the train on the tracks last year.

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Speaker 1: But if the shock is big enough, obviously you hit

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Speaker 1: the zero or bound pretty quickly. Yeah, I agree with

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Speaker 1: you here and not Stice. That's the story. And Jimny,

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Speaker 1: it's not on the brink of contracting Japan. We're already

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Speaker 1: there on the brink of recession. Let's talk about the

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Speaker 1: other two biggest economies in the world, the number three

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Speaker 1: and four. We can have them in recession by the

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Speaker 1: middle of this year, can we do? We could? And

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Speaker 1: And the question then is is it a recession that

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Speaker 1: is sort of technical in nature in the sense that

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Speaker 1: we've already stabilized the virus and we know everything is

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Speaker 1: on its way back. That would be less worrisome. Then

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Speaker 1: if there is sort of knock on effects to sentiment

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Speaker 1: and that's spilling over into um services. And yeah, and

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Speaker 1: I think this is key for the market, for this

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Speaker 1: bullmarket to finish. A whole range of things can happen,

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Speaker 1: but two of them that stand out to me. Either

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Speaker 1: we lose faith in the ability and willingness of central

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Speaker 1: bank is to act. Muhammad Andy has made that point

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Speaker 1: very well over the last couple of weeks. All we

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Speaker 1: start to see that tension, that weakness in manufacturing appearing services,

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Speaker 1: damage the consumer, hit the labor market, then we've got

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Speaker 1: a problem in America. How far away from even thinking

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Speaker 1: about that scenario, Well, we've been pretty far. I mean,

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Speaker 1: it's been actually a little worrisome that markets haven't been

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Speaker 1: reactive to information that suggests risks. We've had almost no

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Speaker 1: pricing of risks, So that means we have further to

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Speaker 1: fall if in fact there is a materialization that's meaningful. Well,

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Speaker 1: and that's exactly where I wanted to go. Sort of

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Speaker 1: this tension. Is there too much complacency? We were talking

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Speaker 1: earlier about this question. We've got the yield curve, the

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Speaker 1: two tens yield curve at the narrowest level since the

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Speaker 1: last year, almost inverting yet again. And yet you have

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Speaker 1: borrowing costs for the top rated companies at record lows.

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Speaker 1: What will another FED rate cut do to stimulate the

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Speaker 1: economy given how low borrowing costs already are and the

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Speaker 1: fact that asset prices are already so high right again.

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Speaker 1: And I think that highlights like there was a little

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Speaker 1: bit of ammo last year. They used it to address

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Speaker 1: that worry middle of the year. Now we have If

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Speaker 1: we have that same worry return, you have less ammunition.

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Speaker 1: And I do think there's a lot of complacency in

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Speaker 1: in market pricing right now. Julia, I'm gonna go to

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Speaker 1: a line from I'm Clarida Gali Girdler twenty one years ago.

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Speaker 1: It is then possible to represent the baseline model in

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Speaker 1: terms of the I S curve, the real economy curve

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Speaker 1: that relates the output gap to the real interest rate.

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Speaker 1: There isn't a real interest rate. They wrote this paper

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Speaker 1: when there was unimaginable imagine we have negative that where

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Speaker 1: we are where we are, it's not that is not

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Speaker 1: a roadmap anymore. Where are the new tools? So so

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Speaker 1: I think it's been to me a little bit disappointing

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Speaker 1: that in this policy review that the FED hasn't sort

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Speaker 1: of endeavored to think a little bit more outside the box.

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Speaker 1: We need there are a trillion let me help, is

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Speaker 1: a trillion dollar deficit outside the box enough? Well? I

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Speaker 1: mean the deficit is may need to expand more if

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Speaker 1: we get hit with the real shock is John is

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Speaker 1: a policy tool now thirty two. Look, financial conditions matter,

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Speaker 1: and the FED responded to them quickly. I think what

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Speaker 1: the FED really responded to though, in eighteen December eighteen

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Speaker 1: was what happened in the credit market when the primary

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Speaker 1: shut down the high yield We didn't say that. They

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Speaker 1: always take credit as a much more material signal than

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Speaker 1: the equity market fluctuation. So I think you're exactly right.

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Speaker 1: In December there was nothing trading in credit markets, and

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Speaker 1: that was a very meaningful signal for the FED. And

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Speaker 1: they what do you do when you have limited ammunition?

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Speaker 1: You look to Japan their experiencing right now, it's yield

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Speaker 1: curve control right now. Isn't that the next stop for

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Speaker 1: this federal reserve beyond q WA? Well they they're already

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Speaker 1: talking about yield curve control, so yes, But I think

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Speaker 1: there are other ideas out there. In the economics world,

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Speaker 1: like automatic stabilizers, some kind of fiscal monetary coordination where

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Speaker 1: you you know you you actually get to the problem,

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Speaker 1: which is lack of demand. The transmission through financial markets

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Speaker 1: is getting less and less powerful as we go on.

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Speaker 1: As as as everybody knows that rates are going to

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Speaker 1: stay low, they don't need to respond to every wiggle

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Speaker 1: and rates, right, so you get less of a delta

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Speaker 1: into housing into durable consumer spending. What you need is

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Speaker 1: direct cash to consumers. Is that what you're recommending? Yes,

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Speaker 1: can you make it up today? We start writing some checks.

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Speaker 1: Great to see it. Yeah. That was One of the the

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Speaker 1: great bias we have is towards broader strategists that have

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Speaker 1: had the courage to go narrow in their earlier career.

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Speaker 1: And Mr Leabovitz of JP Morgan Asset Management, Johnny has

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Speaker 1: done that. Here the charm of really focusing on small

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Speaker 1: in MidCap equities at one point, which is way different

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Speaker 1: than saying we have a buy an apple, you bring

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Speaker 1: him in now. David Lebovitz, JP market Strategists Microsoft. This

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Speaker 1: market where a lot of people are focused and the

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Speaker 1: big caps, I think is where most people are looking

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Speaker 1: at the moment. Where we've bid up some of these

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Speaker 1: massive names. The Economist, the front cover for this weekend

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Speaker 1: is just some robotic bulls with the logos of Microsoft, Apple, Google, Amazon, Facebook,

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Speaker 1: and the headline big text to trillion dollar bill run.

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Speaker 1: And of course the bears said, this is the agument,

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Speaker 1: that front page, this is the monument. Why is it

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Speaker 1: not the monument? So I think a couple of things.

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Speaker 1: First of all, when everybody tells you it's the moment,

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Speaker 1: it's very rarely the moment. So I would just I

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Speaker 1: would just start with that as a disclaimer. Um. In

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Speaker 1: addition to that, you know, we see a lot of

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Speaker 1: differences today in in the makeup of the tech sector,

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Speaker 1: particularly from a fundamental standpoint, relative to what we saw

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Speaker 1: during the tech bubble in the late nineties. And I

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Speaker 1: think perhaps the most important thing is just when you

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Speaker 1: look at the relationship between market capitalization and contribution to

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Speaker 1: overall earnings growth, it's much more balanced today than it

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Speaker 1: was during the tech bubble. I mean, during the tech bubble,

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Speaker 1: these companies had no earnings. You were you were buying

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Speaker 1: an idea. Today those earnings are coming through a little

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Speaker 1: bit more. But what I would say is what gives

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Speaker 1: me a little bit of pauses. A lot of these

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Speaker 1: big tech names, right, they're the ones that are keeping

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Speaker 1: the rest of the tech sector afloat. You know, if

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Speaker 1: you think about the way that when one of these

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Speaker 1: big tech firms spends money that trickles down into the

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Speaker 1: broader tech sector and coming back and wearing my small

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Speaker 1: and MidCap analyst hat. You know, if if something happens

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Speaker 1: to these big names, they're not necessarily going to bear

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Speaker 1: the full brunt of of that. It's going to be

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Speaker 1: the smaller names that they've been keeping afloat through their

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Speaker 1: through their various spending. What's fascinating that, David, is the

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Speaker 1: amount of people that use this term secular growth story.

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Speaker 1: I want to be in the secular growth stories. Some

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Speaker 1: of these companies are old enough to have ever had

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Speaker 1: a cyclical test, yet we have that this faith that

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Speaker 1: they are the seculic growth story. They are almost the

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Speaker 1: havens I dare I say. I remember when a guest

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Speaker 1: came on my program and said that Amazon will say haven.

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Speaker 1: Is that how some people are treating this just queuing

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Speaker 1: off low rate, low yields. Looking at some of these

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Speaker 1: big secular growth stories and bitten up software, I think

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Speaker 1: I think that that's a big part of it. And

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Speaker 1: you know, when when we look at the direction of travel,

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Speaker 1: and I'm sympathetic to the secular argument, you know, you

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Speaker 1: look at the labor market, you look at the increasing

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Speaker 1: use of automation, that clearly benefits the tech sector more

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Speaker 1: than it benefits other parts. You know. That said, I

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Speaker 1: think that it's important not to get ahead of ourselves.

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Speaker 1: And one of the things that's happening in tech more broadly, right,

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Speaker 1: if we zoom out away from the public markets and

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Speaker 1: think about happening on the private side of the equation.

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Speaker 1: You know, you're seeing a lot of VC twop deals.

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Speaker 1: You're seeing a lot of sponsor to sponsor deals. They

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Speaker 1: don't really care about the earnings. All they care about

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Speaker 1: is the revenue. And that makes me a little bit

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Speaker 1: uncomfortable about the retroctor. I want to I want to

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Speaker 1: flip what you're saying on its head, which is what

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Speaker 1: you're saying is the gains in big tech might mask

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Speaker 1: the vulnerability of smaller tech companies, but it might also

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Speaker 1: mask the underperformance of other companies within the entire rest

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Speaker 1: of the U. S economy as well. And I'm struck

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Speaker 1: by this figure that John Author has put out that

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Speaker 1: if you exclude the big five, Microsoft, Apple, Facebook, Alphabet,

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Speaker 1: and Amazon US earnings were down significantly in the fourth quarter.

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Speaker 1: If you look at the Russell two thousand, it's continuing

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Speaker 1: to underport perform. The SMP five hundred. Is the rally,

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Speaker 1: the two trillion dollar rally, and big Tech masking some

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Speaker 1: serious underlying weakness. I think it absolutely is. And one

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Speaker 1: of our big concerns looking ahead at is actually how

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Speaker 1: the earning story plays out. Um. If you look at

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Speaker 1: the eleven gifts sectors today, there are only four of

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Speaker 1: them that are seeing margins expand. Right, Financial saw margins

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Speaker 1: expand in the fourth quarter because of a favorable base effect.

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Speaker 1: Staples are seeing their margins expand, Utilities are seeing their

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Speaker 1: margins expand, and then tech is seeing its margins expand.

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Speaker 1: The rest of the market is seeing profits come under

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Speaker 1: a pretty significant amount of pressure. Yet you still have

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Speaker 1: consensus looking for eight to nine percent earnings growth in

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Speaker 1: which I just can't square that circle. What are your

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Speaker 1: clients doing? I mean, part of your job is to

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Speaker 1: go out and talk to the troops, and by that

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Speaker 1: I mean the clients. We did the backdrop here of

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Speaker 1: the Morgan Stanley Trade and you're talking to more substantial

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Speaker 1: people at JP Morgan. Great, what are they actually doing

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Speaker 1: with their money besides telling you they need more Apple? Yeah.

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Speaker 1: So I think what's most interesting, the most interesting trend

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Speaker 1: that we've seen over the past couple of quarters is

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Speaker 1: primarily a phenomenon in the institutional world, so pensions, endowments, foundations,

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Speaker 1: and what we're seeing a lot of folks do is

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Speaker 1: is look at the world today, look at their portfolios.

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Speaker 1: Not necessarily be keen to add more equity, beata to

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Speaker 1: their overall allocation, but they look at fixed income and

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Speaker 1: they're not getting paid. Come on, they're gonna making their

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Speaker 1: actual assumption and their assumptions going down right now, they're

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Speaker 1: under And John, this goes back to Jeff, you and

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Speaker 1: the wall of money out there. You will be yes,

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Speaker 1: these people are desperate at their actuarial underperformance. Plus Bruce

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Speaker 1: Chasmas and Michael Faroli, you're gonna tell them the actual

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Speaker 1: assumptions coming down as well. That pressure is immense, isn't

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Speaker 1: exactly it is? And so what we're seeing a lot

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Speaker 1: of people do because again, you know, adding high yield

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Speaker 1: to get that income is just going to increase your

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Speaker 1: overall sensitivity to equities. So we're seeing more and more

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Speaker 1: people adopt things like real estate and infrastructure and transportation

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Speaker 1: strategies as a source source of both diversification and yield

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Speaker 1: within portfolios. You know. The flip side of that is

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Speaker 1: when I talked to a lot of retail clients, everybody

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Speaker 1: feels pretty good. Market was up thirty percent last year.

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Speaker 1: Nobody really seems to remember what happened in December of eighteen. Yet,

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Speaker 1: coming back to the profit story, we're seeing earnings begin

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Speaker 1: to drive brilliant, folks. What you're hearing from Julia Cardano

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Speaker 1: back to back with David LEVINWOZ is just outstanding. Okay,

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Speaker 1: great is Apple, Amazon and the others? John and the

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Speaker 1: cover of the economists this week. Are they under owned

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Speaker 1: by institutions? I think that they're probably not under owned

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Speaker 1: by institutions because more and more institutions that I speak

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Speaker 1: with are are indexing their large cap public equity exposure.

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Speaker 1: I mean, it's very difficult to add alpha in that market.

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Speaker 1: I mean, there are what north of twenty analysts that

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Speaker 1: cover Apple. There's there's no stone that goes that goes

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Speaker 1: left up. Just mentioned three Greek letters, can he stay

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Speaker 1: pain trade? In last year, equity markets just kept going higher, exactly,

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Speaker 1: despite all the outflows. Equity markets kept going high, and

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Speaker 1: the biggest risk wasn't a downside risk, it was upside risk.

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Speaker 1: And the coals you needed to get right the policy

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Speaker 1: coal and the cola multiples any different. I I don't

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Speaker 1: think it is. You know, I think that one of

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Speaker 1: the things that's been supporting this market as of late

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Speaker 1: is an idea that a the coronavirus issue is is

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Speaker 1: in fact transit to worry and be whoever ends up

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Speaker 1: in the White House this fall. You know, when we

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Speaker 1: look at governments more broadly around the world, the fiscal

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Speaker 1: taps are staying open. So if there's no inflation, policy

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Speaker 1: remains accommodative on the monetary side, and if the fiscal

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Speaker 1: taps continue to flow, that's a pretty good environment for

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Speaker 1: equity markets overall. Tommy, you asked if institutions under owned

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Speaker 1: big tech. I was struck by a Wall Street Journal

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Speaker 1: story yesterday about Warren Buffett's apple steak, and it's more

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Speaker 1: than double to seventy nine billion dollars since he began

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Speaker 1: buying in sixteen. He basically capitulated he still can't put

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Speaker 1: in anyone of any of his money to work. But

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Speaker 1: he said, I didn't go into Apple because it was

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Speaker 1: a tech stock, but rather for its brand and capital

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Speaker 1: return strategy. They have so much cash they can keep

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Speaker 1: pouring it through investors here. So is that the underpinning here?

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Speaker 1: I mean used to be in small cap, in MidCap

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Speaker 1: where there was no share by that no dividend growth?

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Speaker 1: Is that the mother of all underpinnings here in two

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Speaker 1: thousand twenty, they use of cash that Leasta alludes to,

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Speaker 1: I think it is. We actually just released a paper

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Speaker 1: last Friday on how corporations have been using cash and

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Speaker 1: thinking about investment spending versus R and DV is dividends

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Speaker 1: versus buy backs. And the way that we're really informing

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Speaker 1: ourselves and driving our own strategies this year is by

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Speaker 1: focusing on this concept of total shareholder yields, so dividends

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Speaker 1: plus buy backs. Right, everybody always wants to know what

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Speaker 1: do you like more value or growth? Frankly, I think

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Speaker 1: you can own both. The financial sector pays a six

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Speaker 1: and a half percent total shareholder yield. Tech is paying

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Speaker 1: you a four percent total shareholder yield, and you don't

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Speaker 1: have that downside risk if rates do move higher that

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Speaker 1: you're getting from utilities and staple John from Coventry emails

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Speaker 1: in and says, what should I do with Uber? That's

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Speaker 1: you know that what he said? That what he said

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Speaker 1: you management Global market strategy Cornado, David levitts back to back,

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Speaker 1: right down. Johnny ends to jump in here with the

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Speaker 1: new slow we get lucky again. Jonathan Fenby joins us.

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Speaker 1: His book on France is absolutely authoritative. I read it

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Speaker 1: cover to cover, stunning history for Americans, all this on

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Speaker 1: the European distinction. That's a sidecar transaction for him versus

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Speaker 1: what he does with China. His monographed John three years ago,

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Speaker 1: will China Dominate the century? Was absolutely definitive. And that's

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Speaker 1: a little bit of an appoint a question right now

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Speaker 1: is China is a bit distracted? Wonderful to bring in

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Speaker 1: Jonathan Fambi now Ts Lombard, chairman of China Research. Jonathan,

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Speaker 1: fantastic to have you with us on the program. Muhammedan

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Speaker 1: Amon has talked about these sudden stop dynamics, and I'm

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Speaker 1: interested to see how you think some of these things

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Speaker 1: will cascade through the global economy in the coming months.

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Speaker 1: How are you thinking about that at the moment, John, Well,

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Speaker 1: the the outbreak of the virus, the coronavirus has come

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Speaker 1: really as you know, it's it's a big, big test

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Speaker 1: for the leadership in China and it's having pretty wide

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Speaker 1: effects there obviously in China itself but now increasingly outside China,

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Speaker 1: and for the leadership she's in thing the first priority

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Speaker 1: is to show that they can sow, they can save

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Speaker 1: the protect the nation, you know, prevent this virus taking

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Speaker 1: yet more lives and so on, and bring things under control.

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Speaker 1: But that comes with as we now are seeing a

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Speaker 1: heavy economic price in the terms of the lockdown, the quarantining,

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Speaker 1: the closed factories, particularly after the lunar New Year, and

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Speaker 1: the disruption to the supply chains which globally depends so

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Speaker 1: much on China and which are very very complicated, very

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Speaker 1: complex um go both in and out of China, and

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Speaker 1: to rebuild those is going to be a major element.

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Speaker 1: So we're going to have a slow down in growth,

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Speaker 1: probably quite serious in the first quarter. Depends how long

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Speaker 1: obviously it is before industry gets going again, and that

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Speaker 1: will lead to a stimulus package undoubtedly by the leadership.

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Speaker 1: It won't be as big as too oh nine, which

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Speaker 1: was mega, but it will be very considerable. It's already starting,

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Speaker 1: and that will then in turn raise questions about the

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Speaker 1: debt level in China and whether they're going to give

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Speaker 1: up the attempt at de leveraging. So the whole series

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Speaker 1: of choices and policy issues at the moment which is

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Speaker 1: going to affect markets worldwide. Let's pick up on some

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Speaker 1: of the issues that you've put out there at the moment.

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Speaker 1: On the one hand, containing the virus, on the other hand,

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Speaker 1: stabilizing the economy, and somewhere in between social instability issues

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Speaker 1: as well, Jonathan, how does that fit into these two issues? Absolutely?

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Speaker 1: And control, Controlling China, the Chinese society and that's one

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Speaker 1: point four billion people, of course, has always been a

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Speaker 1: major priority of the current leadership under Shijin thing Um,

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Speaker 1: and that attempt to bring about stability, as it's called,

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Speaker 1: in the face of consider a lot of public uncertainty

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Speaker 1: and happiness, but also a certain degree of public anger

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Speaker 1: which has been manifested through social media. At the way

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Speaker 1: the virus has been combated is going to cause quite

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Speaker 1: a big political problem. And we've already seen sting sending

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Speaker 1: in trusted left tenants to take over key positions in

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Speaker 1: the most affected areas of China. Jonathan, it's interesting that

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Speaker 1: we had Tony Chris Ansia and from PIMCO earlier, and

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Speaker 1: he wrote in a recent report that the general resilience

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Speaker 1: that we've seen in equities demonstrates the existence of a

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Speaker 1: new global monetary order, highlighted by the prominent rule that

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Speaker 1: the PBOC now plays as a circuit breaker for world markets.

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Speaker 1: Do you think that that is an accurate characterization? Well,

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Speaker 1: it's that that depends on how effective the PBOC measures

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Speaker 1: the easing measures which they've undertaken, together with US mentions

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Speaker 1: taken by the government, how effective that will prove in

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Speaker 1: buying up the economy in China, And frankly, with the

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Speaker 1: degree of uncertainty around at the moment, this is something

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Speaker 1: we have to watch and wait and watch. John. I

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Speaker 1: I look at your expertise on China, the making of

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Speaker 1: the history of China and and all that you've written.

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Speaker 1: I guess it's you know, they had a script and

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Speaker 1: the script has been derilled. If they don't get the

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Speaker 1: v shape recovery, even if it's delayed by two three

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Speaker 1: four quarters, what's the FENDI timeline where the script begins

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Speaker 1: to fall apart. For President g Well, the difficulty is

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Speaker 1: next year is a very important historic year. It's the

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Speaker 1: hundredth anniversary of the foundation of the Chinese Communist Party,

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Speaker 1: and this was due to be a great celebration of

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Speaker 1: how China under the Communist Party has built itself up

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Speaker 1: and was a model for the world to set alongside

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Speaker 1: that of the Western the United States. And that will

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Speaker 1: be a big political problems. I think they're gonna throw

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Speaker 1: everything at it if it turns out to be a

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Speaker 1: U shape or even more an L shaped. For the

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Speaker 1: rest of this year, there's going to be a really

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Speaker 1: major policy decision taking that's going to have to be

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Speaker 1: taken in Beijing, which will affect the whole world. John Femby,

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Speaker 1: we want you to fall back on economics, finance, and investment.

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Speaker 1: Right now, you're expert on France. The lethargy of Europe

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Speaker 1: as well, let's call it eurosclerosis. The yields are there,

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Speaker 1: the negative rates are there, the yields are there this

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Speaker 1: morning in the United States. What is the yield structure

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Speaker 1: of Europe signal to you, well, that Europe is Europe

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Speaker 1: is still pretty sluggish. It must be said eurosclerosis. I

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Speaker 1: don't know that I go quite that far. And to

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Speaker 1: link in with what we were saying earlier, of course,

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Speaker 1: a lot of European companies are pretty dependent on components

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Speaker 1: and inputs from China, not just in selling into China,

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Speaker 1: but also in components in themselves, and the uncertainty I

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Speaker 1: think that's around at the moment is going to put

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Speaker 1: a premium on what I've seen as safe haven's gold.

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Speaker 1: Obviously we've seen the movement in gold and that this

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Speaker 1: will mean strength for the dollar still and Europe is

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Speaker 1: really floundering a bit, I think in the present situation.

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Speaker 1: Although there are some bright spots. You know, French unemployment

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Speaker 1: has come down to go to to France, but Germany,

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Speaker 1: which is the motor so much in Europe, is really

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Speaker 1: in a in a state of economic uncertainty and political

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Speaker 1: they don't know where they're going. Just pouring through the

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Speaker 1: data this morning, it's a great shame. You get a

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Speaker 1: real sense the domestic demand in Europe was just started

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Speaker 1: to pick up before it smacked around the head by

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Speaker 1: what is happening in China. Jonathan was looking through the

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Speaker 1: p m s and they're really quite nuanced, and we

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Speaker 1: pour over all of these different sub indices. Delivery times

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Speaker 1: lengthened in Germany, but when they calculate the headline number,

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Speaker 1: the supply delivery times index is then inverted and you

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Speaker 1: end up in this really weird situation in Europe. Today

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Speaker 1: we're almost half of the indexes. Month on month gain

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Speaker 1: for German manufacturing was attributal attributable to a deterioration its

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Speaker 1: supply delivery times. It's pretty clear that we're standing to

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Speaker 1: see some supply chain disruption. John, can you assume at

429
00:23:24,840 --> 00:23:26,760
Speaker 1: this point would your base case be that Germany is

430
00:23:26,760 --> 00:23:30,440
Speaker 1: heading into recession or is it still too early? It's

431
00:23:30,480 --> 00:23:33,560
Speaker 1: still probably too early, but it's heading towards a recession

432
00:23:33,560 --> 00:23:36,919
Speaker 1: that I'd say towards rather than into recession. Um And

433
00:23:37,000 --> 00:23:41,199
Speaker 1: the politics come in here because one with the present

434
00:23:41,320 --> 00:23:47,000
Speaker 1: uncertainty with the ruling party of the c DU after mercle,

435
00:23:47,160 --> 00:23:50,720
Speaker 1: what's going to happen on her designate ancestor having stepped down?

436
00:23:52,320 --> 00:23:55,560
Speaker 1: Quite a nasty fight going on among other contenders for

437
00:23:55,680 --> 00:23:58,800
Speaker 1: the leadership. We're not going to get any clear political

438
00:23:59,480 --> 00:24:05,000
Speaker 1: decision on the economy, I think. And although President Macro

439
00:24:05,080 --> 00:24:09,520
Speaker 1: and France has high ambitions, France can't take up that

440
00:24:09,800 --> 00:24:14,359
Speaker 1: durban role. So we're in a real period of uncertainly, which,

441
00:24:14,400 --> 00:24:18,080
Speaker 1: as you absolutely rightly say, the link with China, both

442
00:24:18,520 --> 00:24:20,960
Speaker 1: China as an export market, but also, as I was

443
00:24:20,960 --> 00:24:25,199
Speaker 1: saying earlier, China as a source or vital source in

444
00:24:25,240 --> 00:24:28,679
Speaker 1: the European supply chain is going to leave us in

445
00:24:29,080 --> 00:24:33,000
Speaker 1: considerable uncertainly for months ahead and perhaps on into the

446
00:24:33,080 --> 00:24:34,760
Speaker 1: end of the year. It sounds like the next book,

447
00:24:34,760 --> 00:24:37,080
Speaker 1: the next treatment from Jonathan Fanbi, Thank you so much.

448
00:24:37,080 --> 00:24:43,919
Speaker 1: With t. S Lamber, I focused on the FED, focus

449
00:24:43,920 --> 00:24:46,600
Speaker 1: on the ECB two meetings coming up just a month away,

450
00:24:46,640 --> 00:24:48,160
Speaker 1: to focus on all of that, and police to say,

451
00:24:48,400 --> 00:24:51,240
Speaker 1: tiny crescenzi in the building here in our studios. Pimco

452
00:24:51,320 --> 00:24:54,320
Speaker 1: market strategist, port folio manager and member of the firm's

453
00:24:54,359 --> 00:24:58,080
Speaker 1: investment committee and monitor Tonye the message to the clients

454
00:24:58,080 --> 00:25:02,040
Speaker 1: calling you up and worrying, what'd you tell him? Well, Uh,

455
00:25:02,200 --> 00:25:04,880
Speaker 1: that meant much of what you've seen in the financial markets.

456
00:25:04,880 --> 00:25:08,400
Speaker 1: Both the decline went in markets and risk assets when

457
00:25:08,680 --> 00:25:12,440
Speaker 1: the news of the outbreak occurred, and then the subsequent

458
00:25:12,480 --> 00:25:16,280
Speaker 1: snap back tell you several important things about markets that

459
00:25:16,320 --> 00:25:19,639
Speaker 1: will persist beyond the coronavirus story. Let me give you

460
00:25:19,640 --> 00:25:21,880
Speaker 1: the two negatives and the one positive that brought it back.

461
00:25:21,920 --> 00:25:25,000
Speaker 1: The one big negative is that markets are worried and

462
00:25:25,119 --> 00:25:28,640
Speaker 1: anything could bring this worry about into the surface. That

463
00:25:29,400 --> 00:25:32,520
Speaker 1: economic growth globally is so close to stall speed that

464
00:25:32,680 --> 00:25:35,680
Speaker 1: anything that comes along and weakens it could easily tip

465
00:25:35,680 --> 00:25:37,800
Speaker 1: economies like you saw in Japan with a minus six

466
00:25:37,800 --> 00:25:43,200
Speaker 1: plus print plas quarter into into into recession to negative territory.

467
00:25:43,400 --> 00:25:47,160
Speaker 1: That's number one. Secondly, markets were are worried and they

468
00:25:47,200 --> 00:25:51,080
Speaker 1: will have to persistently worry about this, that central banks

469
00:25:51,160 --> 00:25:54,680
Speaker 1: can't do much about weakness and economic growth and running

470
00:25:54,680 --> 00:25:57,480
Speaker 1: out policy tools. In fact, today out of monetary policy

471
00:25:58,080 --> 00:26:01,720
Speaker 1: form in New York, which my Chael McKee from Bloomberg

472
00:26:01,720 --> 00:26:05,160
Speaker 1: will be at. The main topic will be Michael McKee.

473
00:26:05,560 --> 00:26:10,440
Speaker 1: Of course he has a sheet of paper. I want

474
00:26:10,480 --> 00:26:13,280
Speaker 1: to make sure I get the topic right. The main

475
00:26:13,440 --> 00:26:16,359
Speaker 1: article that will be discussed by Lyle Brainer from the

476
00:26:16,359 --> 00:26:19,920
Speaker 1: Fat and Bostick is um monetary policy for the next

477
00:26:20,000 --> 00:26:22,199
Speaker 1: procession because what is it that they would do so

478
00:26:22,240 --> 00:26:25,480
Speaker 1: on the Corona coronavirus issue. Uh, it just brings to

479
00:26:25,480 --> 00:26:29,480
Speaker 1: the surface these worries about policy buffers, not only from

480
00:26:29,520 --> 00:26:32,480
Speaker 1: the monetary authority, but the fiscal authority. But here's the

481
00:26:32,480 --> 00:26:35,680
Speaker 1: the what broad markets back and is enabling markets to

482
00:26:35,760 --> 00:26:38,840
Speaker 1: look through this all. And it's something monumental, and it's

483
00:26:38,840 --> 00:26:43,199
Speaker 1: a new global monetary order. With two central banks in

484
00:26:43,240 --> 00:26:45,679
Speaker 1: the world, the the US Central Bank and the Chinese

485
00:26:45,680 --> 00:26:49,679
Speaker 1: Central Bank can be circuit breakers to to weakness in

486
00:26:50,560 --> 00:26:53,400
Speaker 1: global economic activity. And here's the central bank, the PBOC

487
00:26:53,560 --> 00:26:56,520
Speaker 1: that is perfectly positioned because it's the problem is in

488
00:26:56,680 --> 00:26:59,880
Speaker 1: China to address the issue. Is in no way position

489
00:27:00,040 --> 00:27:02,560
Speaker 1: to help it out. Tony, the problem on my screen

490
00:27:02,840 --> 00:27:05,280
Speaker 1: is one twelve percent of our listeners we got we

491
00:27:05,560 --> 00:27:09,120
Speaker 1: have to forty two listeners. Okay, thank you, good morning.

492
00:27:10,320 --> 00:27:14,160
Speaker 1: But Tony, what's important here? This is really important. Our

493
00:27:14,200 --> 00:27:18,720
Speaker 1: listeners are getting crushed by essentially record low real rates.

494
00:27:19,440 --> 00:27:21,920
Speaker 1: I get it that there's a policy conference of Brainard

495
00:27:21,960 --> 00:27:24,120
Speaker 1: and Clarida and the rest of them, and Master will

496
00:27:24,160 --> 00:27:26,280
Speaker 1: be there and Michael McKee will be there. That's all

497
00:27:26,720 --> 00:27:29,480
Speaker 1: blah blah blah for the elites. What about the people

498
00:27:29,520 --> 00:27:33,119
Speaker 1: out there getting crushed by this low rate regime. They

499
00:27:33,119 --> 00:27:35,960
Speaker 1: shouldn't look to the monetary authority. That should look to

500
00:27:36,000 --> 00:27:39,320
Speaker 1: the fiscal authority, or look to a dividend growth structure. Right,

501
00:27:39,400 --> 00:27:42,920
Speaker 1: Amazon is a dividend grower. Dividends are for the SMP

502
00:27:43,040 --> 00:27:46,199
Speaker 1: five hundred around two percent, and the tax taxation on

503
00:27:46,320 --> 00:27:49,760
Speaker 1: dividends is better than a taxation on uh. Interesting come

504
00:27:49,840 --> 00:27:54,000
Speaker 1: generally speaking for most individuals, individuals can are you the

505
00:27:54,000 --> 00:27:57,840
Speaker 1: equity straight? Yet for safety of principle, one must be

506
00:27:57,920 --> 00:28:00,520
Speaker 1: in bonds, of course, but they should listen claim they

507
00:28:00,520 --> 00:28:04,240
Speaker 1: should look to the disclaimer too about Mr Bloomberg, but

508
00:28:04,320 --> 00:28:07,760
Speaker 1: continue we have to say that, of course, but it

509
00:28:07,880 --> 00:28:10,159
Speaker 1: is true because we are hiring the capital structure, as

510
00:28:10,200 --> 00:28:13,600
Speaker 1: they say. But the if, if, if, the if citizens

511
00:28:13,800 --> 00:28:17,600
Speaker 1: savers were to look to the two politicians, they should say,

512
00:28:17,600 --> 00:28:20,399
Speaker 1: why don't you do something about academic growth? Low interest

513
00:28:20,480 --> 00:28:24,200
Speaker 1: rates aren't doing it, so why don't you do something transformative?

514
00:28:24,200 --> 00:28:26,080
Speaker 1: Perhaps so when we travel into New York City from

515
00:28:26,119 --> 00:28:28,639
Speaker 1: New Jersey, maybe do what the Senator to Chuck Schumer

516
00:28:28,720 --> 00:28:32,760
Speaker 1: wanted and build that second tunnel, at least the Penn Station,

517
00:28:32,840 --> 00:28:36,119
Speaker 1: the busiest commuting rail station in the country. We should

518
00:28:36,160 --> 00:28:38,800
Speaker 1: do things like that pet project. John. He talks about

519
00:28:38,800 --> 00:28:41,080
Speaker 1: it every single day. We talked about the municipal bonds,

520
00:28:41,080 --> 00:28:43,040
Speaker 1: and he says, how about raising some money for that,

521
00:28:43,080 --> 00:28:46,520
Speaker 1: you know, across states personal very for US Staten Island

522
00:28:46,560 --> 00:28:49,000
Speaker 1: is we crossed the Verrizonta Bridge, which was the largest

523
00:28:49,040 --> 00:28:52,160
Speaker 1: suspension bridge built in the world at the time. Ur,

524
00:28:52,240 --> 00:28:56,120
Speaker 1: maybe we could have a nice tunnel. It's a tour

525
00:28:56,200 --> 00:28:58,720
Speaker 1: of the five boroughs, John, we just save this. Can

526
00:28:58,760 --> 00:29:00,680
Speaker 1: we talk about a cyclical outloo a pimcut the you

527
00:29:00,720 --> 00:29:02,920
Speaker 1: mentioned a couple of minutes ago. Let's get back to

528
00:29:02,960 --> 00:29:06,280
Speaker 1: the we're close to stall speed. That was the outlook.

529
00:29:06,720 --> 00:29:09,280
Speaker 1: We've gone beyond that now in places like Germany. Are

530
00:29:09,320 --> 00:29:11,360
Speaker 1: you worried that maybe you need to revise your cyclical

531
00:29:11,360 --> 00:29:14,600
Speaker 1: outlook for twenty Well, PIMCO, in a week and half

532
00:29:14,640 --> 00:29:19,200
Speaker 1: we'll have another cyclical forum. We held help have them quarterly,

533
00:29:20,080 --> 00:29:23,360
Speaker 1: so we'll see what we conclude. The early view is

534
00:29:23,400 --> 00:29:27,560
Speaker 1: that based on p m iyes purchasing manager in disease,

535
00:29:28,160 --> 00:29:31,840
Speaker 1: that there's a rebound was underway before the coronavirus issue

536
00:29:32,000 --> 00:29:34,760
Speaker 1: began to hit the world economy. We will be questioning

537
00:29:34,760 --> 00:29:37,800
Speaker 1: whether or not we think that that that that thesis

538
00:29:37,800 --> 00:29:41,160
Speaker 1: holds for the second half of the year. Probably it

539
00:29:41,600 --> 00:29:44,200
Speaker 1: probably will because of the notion that central banks are

540
00:29:44,720 --> 00:29:47,720
Speaker 1: coming to the rescue again, but we are questioning again

541
00:29:48,000 --> 00:29:50,480
Speaker 1: the extent to which they can help. Well, let's talk

542
00:29:50,480 --> 00:29:52,560
Speaker 1: about the degree to which people will respond to central

543
00:29:52,560 --> 00:29:55,280
Speaker 1: banks coming to the rescue. It took about eighteen months

544
00:29:55,280 --> 00:29:58,560
Speaker 1: of targeted stimulus from China to finally start seeing some results.

545
00:29:59,000 --> 00:30:00,720
Speaker 1: Do you have that much faith than the policy Mike

546
00:30:00,800 --> 00:30:04,360
Speaker 1: is still well. One could say turns of policy levers

547
00:30:04,400 --> 00:30:08,520
Speaker 1: in China that they have formidable resources to to help

548
00:30:08,920 --> 00:30:11,040
Speaker 1: the economy there, but there's still a lot of worry

549
00:30:11,040 --> 00:30:14,360
Speaker 1: about demand destruction. It can pull the fiscal policy lever

550
00:30:14,480 --> 00:30:16,720
Speaker 1: in ways that no nation can. And remember it has

551
00:30:17,120 --> 00:30:19,640
Speaker 1: three trillion dollars built up in what's called what are

552
00:30:19,680 --> 00:30:22,800
Speaker 1: called international reserves from US buying stuff that's has made

553
00:30:22,840 --> 00:30:25,760
Speaker 1: in China, and so we can use that money wisely

554
00:30:25,880 --> 00:30:29,680
Speaker 1: and to invest and to to promote economic growth. Tony

555
00:30:29,760 --> 00:30:31,760
Speaker 1: is good to see terrible answers. I gave terrible incent

556
00:30:31,840 --> 00:30:33,680
Speaker 1: You could no one could see see the listener couldn't

557
00:30:33,680 --> 00:30:36,440
Speaker 1: see that. I'm using my hands to talk like camera

558
00:30:36,480 --> 00:30:39,680
Speaker 1: on you at some point, Tony, thanks for dropping by

559
00:30:39,760 --> 00:30:41,760
Speaker 1: Tony CRESCENTI. The PIMCO market is trying to just put

560
00:30:41,760 --> 00:30:50,280
Speaker 1: folio manager and member of the firm's investment committee. We've

561
00:30:50,280 --> 00:30:53,600
Speaker 1: got just an incredibly busy day in economics and in

562
00:30:53,640 --> 00:30:56,600
Speaker 1: New York. It is a celebration of the smartest Confest

563
00:30:56,640 --> 00:30:59,560
Speaker 1: going with us Michael McKee, who does all the things

564
00:30:59,640 --> 00:31:01,760
Speaker 1: he can works worldwide. Here today we're gonna get to

565
00:31:01,760 --> 00:31:05,160
Speaker 1: Philip Laneer John is acutely interested in your interview with

566
00:31:05,280 --> 00:31:08,480
Speaker 1: Mr Lane of the e c B as well. But

567
00:31:08,480 --> 00:31:11,760
Speaker 1: but Mike McKee, you know, I look, I look now

568
00:31:11,880 --> 00:31:14,720
Speaker 1: at this confest today and it just seems way more

569
00:31:14,760 --> 00:31:18,400
Speaker 1: important than it usually is. Well, the Chicago Booth School

570
00:31:18,640 --> 00:31:22,600
Speaker 1: puts on a conference every year, one day conference, oddly

571
00:31:22,640 --> 00:31:25,680
Speaker 1: in New York rather than in Chicago. But it's all

572
00:31:25,680 --> 00:31:29,600
Speaker 1: about central banking and basically all of the countries UH

573
00:31:29,600 --> 00:31:32,120
Speaker 1: and Wall Street's biggest name economists, and most of the

574
00:31:32,120 --> 00:31:35,560
Speaker 1: Federal Reserve, and as UH we saw with Philip Lane,

575
00:31:35,800 --> 00:31:38,360
Speaker 1: many central bankers from around the world attend. And John,

576
00:31:38,360 --> 00:31:40,120
Speaker 1: what's so important about this is it sort of that

577
00:31:40,280 --> 00:31:43,480
Speaker 1: we've run out of ideas conference and that's why Mr

578
00:31:43,600 --> 00:31:46,400
Speaker 1: Lane is originally gentle. What ammunition do they have left,

579
00:31:46,440 --> 00:31:48,240
Speaker 1: especially at a time when we're worried about it growth

580
00:31:48,240 --> 00:31:50,880
Speaker 1: scare in China, so I think the coronavirus is the

581
00:31:50,880 --> 00:31:53,600
Speaker 1: focus for central bankers worldwide at the end. At the

582
00:31:53,680 --> 00:31:55,280
Speaker 1: end of the day, let's take a listen to what

583
00:31:55,400 --> 00:31:57,800
Speaker 1: e CB Chief economist Philip Lane had to say. Like

584
00:31:57,880 --> 00:32:00,320
Speaker 1: everyone else, I think the base cases a v tape.

585
00:32:00,400 --> 00:32:04,640
Speaker 1: So I mean number one is let's see how quickly

586
00:32:04,720 --> 00:32:09,440
Speaker 1: the spread of the virus is contained. Um. The sooner

587
00:32:09,520 --> 00:32:12,760
Speaker 1: that happens, then the more confidence that this would be

588
00:32:13,080 --> 00:32:17,320
Speaker 1: indeed something that is mostly in quarter one, maybe spilling

589
00:32:17,360 --> 00:32:20,640
Speaker 1: over into quarter two. But you know, from our perspective,

590
00:32:20,720 --> 00:32:24,680
Speaker 1: I mean, our our main focus is on the year end,

591
00:32:25,200 --> 00:32:27,320
Speaker 1: going into next year and the year after. So for

592
00:32:27,400 --> 00:32:32,040
Speaker 1: us as Montrey policy makers, if this is indeed contained,

593
00:32:32,720 --> 00:32:35,120
Speaker 1: even if there is a hit in terms of the

594
00:32:35,160 --> 00:32:40,320
Speaker 1: initial weeks of twenty, if the recovery happens as we expect,

595
00:32:40,800 --> 00:32:44,920
Speaker 1: then in terms of the medium term policy challenge, it

596
00:32:44,960 --> 00:32:49,280
Speaker 1: remains something that is not going to change our base case.

597
00:32:49,640 --> 00:32:52,880
Speaker 1: But it's definitely downside risk until we see the containment,

598
00:32:53,560 --> 00:32:57,400
Speaker 1: until we see the recovery. After that we have to

599
00:32:57,440 --> 00:32:59,240
Speaker 1: keep a close eye. Well, one of the big issues

600
00:32:59,320 --> 00:33:03,600
Speaker 1: is this could be supply chain disruption. Monetary policy can't

601
00:33:03,720 --> 00:33:06,520
Speaker 1: fix that, So what are the odds of the ECB

602
00:33:06,760 --> 00:33:09,719
Speaker 1: would take any action. Well, this goes back to again,

603
00:33:09,840 --> 00:33:15,160
Speaker 1: any supply chain disruption, if it's a matter of weeks,

604
00:33:15,680 --> 00:33:18,880
Speaker 1: doesn't change the medium term path for the economy. So

605
00:33:18,960 --> 00:33:23,200
Speaker 1: really we think the main mechanism, by the way, is

606
00:33:23,200 --> 00:33:28,120
Speaker 1: obviously through Chinese amount with lower spending in China because

607
00:33:28,160 --> 00:33:31,800
Speaker 1: of the what has been necessary to contain the virus.

608
00:33:32,720 --> 00:33:36,080
Speaker 1: Obviously spending levels in China are different than they would

609
00:33:36,080 --> 00:33:41,440
Speaker 1: have been. The supply chain scenario does exist. We're tracking it,

610
00:33:41,520 --> 00:33:44,120
Speaker 1: we look at it. But so long as these are

611
00:33:44,320 --> 00:33:49,320
Speaker 1: delays in delivery of goods us so long as these

612
00:33:49,680 --> 00:33:54,040
Speaker 1: remain temporary and nature, then it's it's not a dramatic

613
00:33:54,200 --> 00:33:57,320
Speaker 1: issue for for the medium term horizon. E CB Chief

614
00:33:57,320 --> 00:33:59,680
Speaker 1: Economist Philip blind Nest sitting down with marcol McKay. Lucky

615
00:33:59,680 --> 00:34:01,200
Speaker 1: to have my with us in the studio here in

616
00:34:01,240 --> 00:34:04,560
Speaker 1: New York. Back at the end of Mike President Mario Droi,

617
00:34:04,600 --> 00:34:08,640
Speaker 1: former president Mario Dronk. He was talking about things being temporary, transitory,

618
00:34:08,719 --> 00:34:11,319
Speaker 1: and then in that's cut right, somebody stock your week.

619
00:34:11,640 --> 00:34:14,000
Speaker 1: Why is this so different? Why is this economic situation

620
00:34:14,000 --> 00:34:16,200
Speaker 1: we face right now so different to what we faced

621
00:34:16,360 --> 00:34:21,520
Speaker 1: eighteen months or so, AGUN investors have been basically trading

622
00:34:21,560 --> 00:34:24,399
Speaker 1: on patterns, and the pattern has been that we get

623
00:34:24,480 --> 00:34:28,040
Speaker 1: an event that scares people, it lasts for a few weeks,

624
00:34:28,120 --> 00:34:30,760
Speaker 1: it goes away, so you buy the dip, and that's

625
00:34:31,160 --> 00:34:34,120
Speaker 1: seems to be the prevailing psychology on Wall Street. We're

626
00:34:34,160 --> 00:34:36,360
Speaker 1: into our fourth week now or fifth week now of

627
00:34:36,400 --> 00:34:39,919
Speaker 1: the coronavirus, and we wake up the headlines today saying,

628
00:34:39,920 --> 00:34:43,520
Speaker 1: oh no, wait, it's worse, and so now we're starting

629
00:34:43,560 --> 00:34:48,840
Speaker 1: to see maybe some concern that this is a Blacker swan.

630
00:34:49,400 --> 00:34:53,399
Speaker 1: Then people had thought it's hard to know, and as

631
00:34:54,000 --> 00:34:58,239
Speaker 1: Philip was saying, it's very hard for economists UH and

632
00:34:58,320 --> 00:35:01,960
Speaker 1: central bankers to get their hands around what it actually means.

633
00:35:02,320 --> 00:35:04,160
Speaker 1: And it's not really showing up in the data yet.

634
00:35:04,200 --> 00:35:07,160
Speaker 1: The only data we've seen that had a major UH

635
00:35:07,239 --> 00:35:10,200
Speaker 1: that that has shown it is you look at something

636
00:35:10,239 --> 00:35:11,759
Speaker 1: like the German p M I s which you were

637
00:35:11,800 --> 00:35:16,040
Speaker 1: talking about, the sub indexes supplier delivery times they go

638
00:35:16,400 --> 00:35:19,960
Speaker 1: they get longer, usually when demand is high. In this case,

639
00:35:19,960 --> 00:35:23,759
Speaker 1: they're getting longer because the supplies aren't coming in from

640
00:35:23,840 --> 00:35:26,320
Speaker 1: China to build the things that the Germans are selling

641
00:35:26,320 --> 00:35:29,520
Speaker 1: to other people, and so there is a sign that

642
00:35:29,680 --> 00:35:33,360
Speaker 1: something is coming, but it's not there. It's a crazy

643
00:35:33,440 --> 00:35:36,320
Speaker 1: quirk of the data because it's the delivery times Lengthen

644
00:35:36,760 --> 00:35:39,719
Speaker 1: the sub index drops below fifty, then they invert it

645
00:35:39,960 --> 00:35:42,279
Speaker 1: as they compute it into the headline number. So you

646
00:35:42,320 --> 00:35:45,440
Speaker 1: get this boost to German manufacturing p m I that

647
00:35:45,480 --> 00:35:48,000
Speaker 1: seems to be largely from supply side constraints. And this

648
00:35:48,080 --> 00:35:49,759
Speaker 1: is the problem going forward to Mike. When do we

649
00:35:49,760 --> 00:35:51,560
Speaker 1: actually start to get a hands around the data, when

650
00:35:51,560 --> 00:35:53,319
Speaker 1: do we know what this actually coming about the time

651
00:35:53,320 --> 00:35:55,600
Speaker 1: We're going to start to get trade data coming in,

652
00:35:56,000 --> 00:35:59,000
Speaker 1: and we'll see some impacts. Particularly look at the Asian

653
00:35:59,040 --> 00:36:02,840
Speaker 1: trade data that comes in South Korea, Thailand, Uh, places

654
00:36:02,880 --> 00:36:07,400
Speaker 1: like that which are deeply integrated into the Chinese supply chains.

655
00:36:07,840 --> 00:36:10,800
Speaker 1: Um if they if they show some real damage, then

656
00:36:10,920 --> 00:36:14,440
Speaker 1: you can expect it only to spread. Thanks for Japan,

657
00:36:14,680 --> 00:36:17,440
Speaker 1: looks terrible recession, looks thoughts on and some of this

658
00:36:17,520 --> 00:36:20,480
Speaker 1: has been South harm and now the Chinese story is

659
00:36:20,480 --> 00:36:22,160
Speaker 1: just gonna make it worse. It's well, it's it's bad

660
00:36:22,200 --> 00:36:24,240
Speaker 1: for them because not only do they have the supply

661
00:36:24,320 --> 00:36:27,800
Speaker 1: chain issues, but Japan is the biggest destination for Chinese tourists,

662
00:36:28,239 --> 00:36:30,839
Speaker 1: and so probably the only place worse off in that

663
00:36:30,880 --> 00:36:34,000
Speaker 1: sense is Macau with all the casinos closed. Uh. The

664
00:36:34,120 --> 00:36:37,240
Speaker 1: Japanese are definitely going to be hurt by this, Michael.

665
00:36:37,280 --> 00:36:39,360
Speaker 1: This thing in New York at the Intercontinental today is

666
00:36:39,400 --> 00:36:42,440
Speaker 1: a huge celebration of academic thought. And I'm gonna go

667
00:36:42,480 --> 00:36:46,160
Speaker 1: back to yelling two thousand and sixteen on toolkit past,

668
00:36:46,239 --> 00:36:49,160
Speaker 1: present in future. Not only can we not count the

669
00:36:49,280 --> 00:36:51,279
Speaker 1: tools in the tool kit or not figure out how

670
00:36:51,320 --> 00:36:53,480
Speaker 1: to use the tools in the tool kit, I don't

671
00:36:53,480 --> 00:36:56,200
Speaker 1: think there's a confidence in the tools right now. What

672
00:36:56,280 --> 00:36:59,759
Speaker 1: tools are in the toolkit for all these fancy economists,

673
00:36:59,760 --> 00:37:02,239
Speaker 1: well depends on which central bank you're talking about, But

674
00:37:02,320 --> 00:37:06,200
Speaker 1: for the Federal Reserve, they're basically focused on QUEI and

675
00:37:06,280 --> 00:37:10,000
Speaker 1: forward guidance, and they're more focused on forward guidance than

676
00:37:10,040 --> 00:37:13,319
Speaker 1: anything else at this point. The idea is that you

677
00:37:13,400 --> 00:37:18,520
Speaker 1: do buy things, buy more uh more um bonds in

678
00:37:18,719 --> 00:37:22,320
Speaker 1: que but the announcement effect is gone, the surprise effect

679
00:37:22,400 --> 00:37:25,160
Speaker 1: is gone, and you've got a ten year sitting at

680
00:37:25,280 --> 00:37:28,840
Speaker 1: you know, one point five percent roughly, so you're not

681
00:37:28,840 --> 00:37:30,600
Speaker 1: going to get a lot of bang for that buck.

682
00:37:30,719 --> 00:37:33,000
Speaker 1: So let's let's let's be a speculative here. We can

683
00:37:33,000 --> 00:37:36,320
Speaker 1: do that in a Friday Michael one nine five on

684
00:37:36,400 --> 00:37:39,640
Speaker 1: a thirty year bond, John, how negative is that real yield?

685
00:37:39,640 --> 00:37:42,880
Speaker 1: Speaking of your one PM show today? Where is it? Not?

686
00:37:42,960 --> 00:37:45,839
Speaker 1: Just not the two percent? So it depends on which

687
00:37:45,880 --> 00:37:49,160
Speaker 1: deflator you use. Great, you can use you know too.

688
00:37:49,280 --> 00:37:52,719
Speaker 1: So you are looking at a negative real rate for

689
00:37:52,719 --> 00:37:55,280
Speaker 1: for thirty years and allow Brainerd's world and Richard Clarence

690
00:37:55,360 --> 00:37:59,040
Speaker 1: world in Professor Lane's world. Could anybody use any of

691
00:37:59,080 --> 00:38:01,799
Speaker 1: these models with a negative real yield? I don't see

692
00:38:01,840 --> 00:38:05,880
Speaker 1: any of that in the literature. It makes it more difficult. Um,

693
00:38:05,920 --> 00:38:08,840
Speaker 1: that's why they're looking at the I mean, one of

694
00:38:08,880 --> 00:38:11,720
Speaker 1: the things that's in the back pocket of the FED

695
00:38:11,880 --> 00:38:15,200
Speaker 1: is yield curve control. I know you've talked about that before. Um.

696
00:38:15,320 --> 00:38:18,560
Speaker 1: The idea that you say you're just gonna buy X

697
00:38:18,680 --> 00:38:23,520
Speaker 1: number of bonds of a certain tenor and you know

698
00:38:23,600 --> 00:38:26,160
Speaker 1: you're you're you're gonna say here's the price instead of

699
00:38:26,200 --> 00:38:29,720
Speaker 1: going out and buying it in the open market. Um,

700
00:38:29,800 --> 00:38:33,359
Speaker 1: and then that caps a yield. That's one idea they

701
00:38:33,360 --> 00:38:39,520
Speaker 1: could do. The FED is ruled out negative rates. The

702
00:38:39,520 --> 00:38:43,480
Speaker 1: the FED Reserve cannot buy stocks legally in writing, they

703
00:38:43,480 --> 00:38:46,440
Speaker 1: can't be the Swiss national bad they cannot. I don't know.

704
00:38:46,480 --> 00:38:48,560
Speaker 1: And there is a legal question about whether the Fed

705
00:38:48,560 --> 00:38:51,440
Speaker 1: could even do negative rates legally if they wanted to,

706
00:38:51,560 --> 00:38:53,600
Speaker 1: but they say they don't want to. Meanwhile, there's a

707
00:38:53,600 --> 00:38:57,160
Speaker 1: balance of risk here. On one hand, you have financial

708
00:38:57,200 --> 00:39:01,239
Speaker 1: assets which are near record highs or record high valuations.

709
00:39:01,320 --> 00:39:04,120
Speaker 1: You've got corporate bond yields falling to record lows, and

710
00:39:04,160 --> 00:39:06,880
Speaker 1: so people say, financial conditions are easy, we don't need

711
00:39:06,920 --> 00:39:09,719
Speaker 1: another rate cut, we don't need more stimulus. On the

712
00:39:09,760 --> 00:39:13,400
Speaker 1: other hand, you're seeing the lowest income earners finally seeing

713
00:39:13,440 --> 00:39:16,640
Speaker 1: the gains in this cycle, the economic cycle, and there's

714
00:39:16,640 --> 00:39:19,279
Speaker 1: a fear of stymying that since it takes so long

715
00:39:19,360 --> 00:39:22,360
Speaker 1: to get that going. Which is a more important factor

716
00:39:22,400 --> 00:39:24,480
Speaker 1: for the Fed to look at right now? Well, probably

717
00:39:24,520 --> 00:39:26,759
Speaker 1: I throw in the third factor is what would do

718
00:39:26,800 --> 00:39:30,600
Speaker 1: any good? Uh? In either case, the Fed is obviously

719
00:39:31,160 --> 00:39:34,919
Speaker 1: made the decision to let the economy run to try

720
00:39:34,960 --> 00:39:39,600
Speaker 1: to benefit people. For Wall Street, every problem can be

721
00:39:39,640 --> 00:39:42,759
Speaker 1: solved by the Central Bank. It rained last Thursday, they

722
00:39:42,760 --> 00:39:46,839
Speaker 1: should cut rates. Cutting rates isn't going to help if

723
00:39:46,880 --> 00:39:49,719
Speaker 1: you have a supply chain problem because it's the is

724
00:39:50,000 --> 00:39:54,840
Speaker 1: set up to increase demand, not supply, so they may

725
00:39:54,840 --> 00:39:57,719
Speaker 1: they they lean towards doing nothing because there isn't a

726
00:39:57,760 --> 00:40:00,480
Speaker 1: lot they can do. Although you would say this point

727
00:40:00,520 --> 00:40:02,920
Speaker 1: in the credit cycle, we're actually starting to see consumer

728
00:40:03,000 --> 00:40:05,279
Speaker 1: debt pick up. You're starting to see Morgan Stanley with

729
00:40:05,320 --> 00:40:08,920
Speaker 1: their move or Goldman Sachs push into consumer lending as

730
00:40:08,960 --> 00:40:12,840
Speaker 1: the next spot of profitability. Could there be a theory

731
00:40:13,080 --> 00:40:15,960
Speaker 1: that finally, as a greater proportion of the United States

732
00:40:16,239 --> 00:40:19,319
Speaker 1: gains more confidence, goes out and borrows, it sort of

733
00:40:19,360 --> 00:40:23,320
Speaker 1: reignites the economic cycle. As anyone talking about that. Sure, Um,

734
00:40:23,360 --> 00:40:27,120
Speaker 1: there's a lot of people are uh, and the more

735
00:40:27,160 --> 00:40:30,000
Speaker 1: optimistic of the economists are saying, you know, we had

736
00:40:30,080 --> 00:40:32,520
Speaker 1: a dip. We had a not an end of the

737
00:40:32,600 --> 00:40:35,320
Speaker 1: economic cycle, but a sort of reset also sort of

738
00:40:35,320 --> 00:40:39,080
Speaker 1: in the way you have a correction in the financial markets.

739
00:40:39,520 --> 00:40:44,200
Speaker 1: The economic cycle corrected with all the recession fears last summer,

740
00:40:44,360 --> 00:40:47,560
Speaker 1: and now we're starting a new Uh. Hard to measure

741
00:40:47,640 --> 00:40:50,719
Speaker 1: that because the numbers aren't really supporting it, except for

742
00:40:51,360 --> 00:40:54,960
Speaker 1: the job growth numbers. But we're not seeing a dip either.

743
00:40:55,360 --> 00:40:58,400
Speaker 1: So at this point, uh, you know, the one thing

744
00:40:58,400 --> 00:41:00,600
Speaker 1: I would say is our Matt Bows, whom you all

745
00:41:00,600 --> 00:41:02,720
Speaker 1: know and love here put together a great chart yesterday

746
00:41:02,719 --> 00:41:06,920
Speaker 1: added up household and business debt, and it is not

747
00:41:07,160 --> 00:41:10,799
Speaker 1: expanding at the same pace it did the previous psych

748
00:41:11,280 --> 00:41:15,400
Speaker 1: I don't care Bruins Stanley Cup bound. I would hate

749
00:41:15,400 --> 00:41:19,640
Speaker 1: to make a prediction. Well, here's the problem, Tom, You

750
00:41:19,640 --> 00:41:21,959
Speaker 1: know as well as I do, that they're in line

751
00:41:21,960 --> 00:41:24,640
Speaker 1: to win the President's Trophy, which means they have the

752
00:41:24,640 --> 00:41:26,960
Speaker 1: best record in the league at the end of the season,

753
00:41:27,280 --> 00:41:31,000
Speaker 1: and everybody who wins the President's Trophy loses the Stanfing Cup.

754
00:41:31,400 --> 00:41:34,319
Speaker 1: So at this point you gotta hope they fall back

755
00:41:34,400 --> 00:41:36,040
Speaker 1: just a little bit. I'm going to do that to

756
00:41:36,080 --> 00:41:39,080
Speaker 1: balance out the football talk earlier. That thing that's soccer talk.

757
00:41:39,520 --> 00:41:43,719
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

758
00:41:43,800 --> 00:41:49,120
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast

759
00:41:49,160 --> 00:41:53,400
Speaker 1: platform you prefer. I'm on Twitter at Tom Keene Before

760
00:41:53,400 --> 00:41:57,240
Speaker 1: the podcast, you can always catch us worldwide. I'm Bloomberg

761
00:41:57,360 --> 00:42:00,719
Speaker 1: Radio S