Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
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Speaker 1: pleased to say that we joined by one of the
Speaker 1: sharpest minds in global economics now, Catherine Mann be City
Speaker 1: Global Chief Economists. Catherine, fantastic to have you with us
Speaker 1: on a day like this morning. Let's just start with
Speaker 1: the basic question, what are you looking for from this
Speaker 1: payrolls report? In not evenutes time? Well, I tell you
Speaker 1: you know, this is a case where everybody's looking for
Speaker 1: the report, But I'm looking beyond the report because I
Speaker 1: think at this point for the markets, it's pretty much
Speaker 1: all priced in and it's all about, um where we're
Speaker 1: going to go from here. I think the elements going
Speaker 1: forward in an inner term that are most relevant are
Speaker 1: how long to the furloughs last, how long do they
Speaker 1: turn in? At what point did they might be turned
Speaker 1: into firing? There any strange quirks in this particular report, Catherine,
Speaker 1: like wages that we should ignore pay less attention to
Speaker 1: I think that actually there are a lot of things
Speaker 1: in this report that are not really going to be
Speaker 1: representative of the challenge going forward of restarting the economy. So,
Speaker 1: I mean, you know, it's it's new, it's news that
Speaker 1: hasn't happened yet because it hasn't been announced. But at
Speaker 1: this point it's old news, and we've got to move
Speaker 1: on to thinking about what we're gonna do. What are
Speaker 1: the number is going to look like? What are the
Speaker 1: trajectory is going to look like about getting the economy
Speaker 1: back on track. When you talk about getting the economy
Speaker 1: back on track, US markets seem to have already moved
Speaker 1: past the catastrophic report. And you were quoted in a
Speaker 1: story today talking about this massive divide, this disconnect between
Speaker 1: stock markets that continue to rally then as that now
Speaker 1: positive on the year, and the bleakest economic reports in history.
Speaker 1: You don't think it can last? Why not? H No?
Speaker 1: I don't. I mean at some point there's the market
Speaker 1: either the fundamentals catch up to the markets, or the markets,
Speaker 1: uh come down to the fundamentals. And and of course
Speaker 1: the reason why they're so disconnected is because there has
Speaker 1: been a tremendous amount of policy support put forward to
Speaker 1: underpin the financial markets in particular. That's where the FEDS
Speaker 1: broad set of programs. They actually haven't done much yet.
Speaker 1: I mean they just sort of given forward guidance of
Speaker 1: the market for writing market guidance, um. But and there's
Speaker 1: also a lot of funding, you know, on the fiscal
Speaker 1: side as well. So the markets are sort of saying,
Speaker 1: we know all that it's gonna it's gonna work out.
Speaker 1: So we're looking to Yeah, I think that's when they're
Speaker 1: gonna be you know, they were going to be surprised
Speaker 1: in later on in the year. Good morning. I look
Speaker 1: out of my abode here and I can look over
Speaker 1: and wave to Columbia University and the wonderful Laureate Edmund Phelps.
Speaker 1: And there can be phrases like nehru output gap and
Speaker 1: all these other stuff, And it devolves down to John
Speaker 1: Williams Modern Kent, which is our start as we go
Speaker 1: into this report and as we come out of it,
Speaker 1: do we have a clue where our start is? Well,
Speaker 1: you know, I'm interested. You say the neighbor they output gap,
Speaker 1: our star. I put them all into the category of
Speaker 1: we don't observe them. They are all estimates and they
Speaker 1: move over time, and so sort of thinking that any
Speaker 1: of them are your north star is really a bad
Speaker 1: way of thinking about things because they are not a
Speaker 1: north star. They don't uh you know, they're they're not changeless.
Speaker 1: We should not be guided by them because they are
Speaker 1: so uh in this moment in particular, so affected by
Speaker 1: underlying data that we really have to go and look
Speaker 1: at a much more microeconomic analysis, micro data, higher frequency data.
Speaker 1: What does the micro data say about wage dynamics here
Speaker 1: or will it take you a month or two or
Speaker 1: a three to really get an understanding of a disinflationary
Speaker 1: tendency expected? So there's a lot of uh you know,
Speaker 1: there's a lot of challenges here because uh sure, there's
Speaker 1: a tremendous amount of of unemployment going to be coming
Speaker 1: out of this report. Um, it is broad based, although
Speaker 1: there's there's higher intensity in some sectors than others. But
Speaker 1: going forward, the question to me is when the economy
Speaker 1: starts to reopen and people start to go back out
Speaker 1: to we call us going back out to play. Of course,
Speaker 1: people work at restaurants, but there are a lot of
Speaker 1: people who play, and by going out to restaurants, as
Speaker 1: hit the theater and sporting events and travel and tourism
Speaker 1: and so forth. When people do that, what are the
Speaker 1: rules of engagement by companies? Um? Do they only have
Speaker 1: half as many tables, no middle seat, half as many
Speaker 1: tickets in the theater? Under those situations, you you have
Speaker 1: a very interesting dynamic because you don't need as many
Speaker 1: people UM, and you still have to you know, make
Speaker 1: a profit otherwise you're going to go out of business.
Speaker 1: So how does that translate into prices that people have
Speaker 1: to pay? So the disconnect between wages and prices could
Speaker 1: actually get bigger, Catherine, I'd like to talk about what's
Speaker 1: about to happen with interest rates as well, and the
Speaker 1: difference between now and what we saw after the last crisis.
Speaker 1: After the last crisis, it took a long time for
Speaker 1: people to figure out rates weren't going up anytime soon.
Speaker 1: I don't think two year rates actually bottomed out until
Speaker 1: as you look at things right now, is this a
Speaker 1: market that's accepted that reality The rates are going to
Speaker 1: remain low for a whole lot longer from here. So
Speaker 1: I think that the market definitely thinks that rates are
Speaker 1: going to stay extremely low UM, And in some sense
Speaker 1: they know this now for sure because of the range
Speaker 1: of FED programs that have been put into place. But
Speaker 1: they even knew that, um when the FED pivoted last
Speaker 1: year after the December debacle. So you know, the markets
Speaker 1: know for sure that the FED is so far away
Speaker 1: from monetary policy normalization that they know that there's a
Speaker 1: put on ptic practically every single asset in the portfolio. Well,
Speaker 1: a put is a different thing than necessarily going negative.
Speaker 1: And right now we're seeing traders uh that that the
Speaker 1: Federal Reserve will take rates negative despite the fact that
Speaker 1: the forms he has said repeatedly that it will not do.
Speaker 1: So do you think that this is a disconnect, that
Speaker 1: the market is in for a rude awakening and that
Speaker 1: FED officials have come out and reiterate their stance against
Speaker 1: negative rates, or do you think that the Fed is
Speaker 1: going to have its hand forced yet again by the market.
Speaker 1: So I think so perhaps the market is taking a
Speaker 1: queue from negative w t I Right, nobody thought the
Speaker 1: roil prices could go negative either. Um, So there are
Speaker 1: policy rates that could go negative, and and the f
Speaker 1: O m C has said, no, we're not going to
Speaker 1: do that. That's not the same thing as the market
Speaker 1: taking market determined rate negative. Right, there's a distinction between
Speaker 1: the two. Okay, there's a distinction, but there was a
Speaker 1: headline today. UBS is getting a lot of uh response
Speaker 1: from their their customers. They're not going to play in
Speaker 1: the negative rate space. You know, They're just not gonna
Speaker 1: participate in this. Ken Rogoff in the late Marvin good
Speaker 1: Friend would suggest we need to see a greater magnitude,
Speaker 1: a greater courage, doctor Man of affecting negative rates. Do
Speaker 1: we need a more bold negative rate policy or is
Speaker 1: it a failed policy to be negative? Negative rates is
Speaker 1: not Uh, it's not appropriate. I mean, this is not
Speaker 1: a situation where we need negative rates. There's plenty of
Speaker 1: credit available. Um, it's going into the financial markets. The
Speaker 1: challenges is not going from financial markets to the real economy.
Speaker 1: That's the disconnect, and negative interest rates won't help that. Cancine,
Speaker 1: appreciate you time this morning, history making day on this
Speaker 1: payrolls Friday, Catherine Man that City Global Chief Economists to
Speaker 1: Bloomberg survey changes day to day depending on the mix
Speaker 1: of opinions we get, and we've sort of migrated it
Speaker 1: casually from twenty to one two million with an update.
Speaker 1: Ellen Setner of Morgan Stanley. Ellen, I know that John
Speaker 1: and Lisa have all sorts of current questions about a
Speaker 1: thirty What have you learned in May, the short days
Speaker 1: of May that we've had about what we will see
Speaker 1: in the June, the July or the August report. Can
Speaker 1: you take this out further as we have taken out
Speaker 1: weekly claims. Yeah, it's a good question, tom Um. So
Speaker 1: we should be looking ahead. I mean, any of these
Speaker 1: numbers that are just absolutely shocking should not surprise me one.
Speaker 1: And as we continue to get April data, it's it's
Speaker 1: largely backward looking because they are starting to open up.
Speaker 1: They're opening up the limited capacity, but they're opening up,
Speaker 1: and so you're going to be pulling some people back
Speaker 1: into the labor market very slowly here as we're in May.
Speaker 1: And I'll tell you some of the best highest uh,
Speaker 1: the best high frequency data at least that we have
Speaker 1: at Morgan Stanley are these weekly alpha wise surveys of
Speaker 1: roughly two thousand households where we could already see in
Speaker 1: April that they were starting to look forward to a
Speaker 1: better day, to opening financial expectations had stopped declining and
Speaker 1: started rising uh, and so people are looking forward to
Speaker 1: a better day. Just what is that better day gonna
Speaker 1: look like? But we do know that the worst of
Speaker 1: the data is past us, even though we're getting confirmation
Speaker 1: of just how bad it was. Now, how will the
Speaker 1: urgency of our politics change off of the stark numbers
Speaker 1: at eight thirty? So I think it's certainly going to
Speaker 1: make the argument for continued expanded fiscal support greater um,
Speaker 1: even though some policymakers will assume that this is already
Speaker 1: um at this this kind of bad data was already
Speaker 1: accounted for in the fiscal support that's been past. But
Speaker 1: you know, if we are going to look ahead, you know,
Speaker 1: to the day when say the six hundred dollar weekly
Speaker 1: supplemental checks start to uh fade, So those that were
Speaker 1: the first to claim that would start happening in July.
Speaker 1: In July, unemployment rate is still going to be extraordinarily high. Um.
Speaker 1: There will be some states in July that that may
Speaker 1: not have a fully fully reopen and so you can
Speaker 1: imagine cries from households and how can you pull this
Speaker 1: support out from under me when the unemployment rate is
Speaker 1: still very high and I don't even have the opportunity
Speaker 1: to look for a job, And so our public policy strategy.
Speaker 1: Just don't think we're done. Which fiscal support that means
Speaker 1: a roughly three trillion dollars in support we've passed already
Speaker 1: will continue to rise, and it will have to rise
Speaker 1: until we climb out of this hole. And then how
Speaker 1: does that policy support adapt evolve as you go from
Speaker 1: a closed economy to an open one or one that
Speaker 1: is slowly reopening. How do you recalibrate the policy effort um,
Speaker 1: So it's a good question, John, I think that um,
Speaker 1: some of the support, especially of households, is going to
Speaker 1: be have to be stepped down. Uh. And so you know,
Speaker 1: can you design the six hundred dollar weekly supplemental check
Speaker 1: to step down and stayed in the same way we
Speaker 1: do unemployment benefits as the unemployment rate improved, because you
Speaker 1: do have to step that down at some point over time.
Speaker 1: How much will small businesses have to pay people in
Speaker 1: order to attract them off of unemployment benefits? Because in
Speaker 1: thirty four states, as we've estimated, people are getting as
Speaker 1: much as not more than when they did work. Uh,
Speaker 1: And so you're gonna have to up pay them in
Speaker 1: order to get them back in. So that's something that
Speaker 1: policymakers will have to take into account on the small
Speaker 1: business side. You know, the demand for those loans will
Speaker 1: wane over time. We've still got some room here. Um,
Speaker 1: We've still got about a hundred billion or so left
Speaker 1: in the coffers for those loans and demand has flowed.
Speaker 1: And then the credit facilities from the said those haven't
Speaker 1: even been in use yet because they've because they've not
Speaker 1: been defined and really open yet. Um, but those have
Speaker 1: unlimited capacity, and just those things improve, you would see
Speaker 1: usage of those facilities naturally way and so a lot
Speaker 1: of this is just natural wind downs. I think on
Speaker 1: the unemployment benefits, there's going to have to be a
Speaker 1: design to that six dollar weekly supplemental. We all want
Speaker 1: to see things improve and improve quickly today when we
Speaker 1: get these numbers, and I think we're pretty familiar with
Speaker 1: the size. As tragic as it is, these are gonna
Speaker 1: be huge job losses when this number comes out. What
Speaker 1: we don't know a lot about right now, escope the
Speaker 1: breadth of the job losses. What are you looking for
Speaker 1: just in terms of breadth underneath the headline number. So
Speaker 1: we've seen in the weekly jobs claims that started out
Speaker 1: that most of the job loss um we're in the
Speaker 1: the usual suspects, um, you know, services industries, in this case,
Speaker 1: very tourism related industries as well, and it was very
Speaker 1: concentrated restaurants, tourism, leisure, and hospitality. UM. But as a
Speaker 1: job's claims progressed, we saw it start to broaden our
Speaker 1: cross the labor market. So I would I would want
Speaker 1: to look at the diffusion index to see how broad
Speaker 1: spread the clients are, because I think we're going to
Speaker 1: see it hit across just about every uh, every industry.
Speaker 1: Those still the bulk of it concentrated in those uh
Speaker 1: discretionary services related areas. Ellen. Initially, when the shock first started,
Speaker 1: people were saying that the job losses we're going to
Speaker 1: be temporary, that it's something different than in the past,
Speaker 1: because this was a manufactured shutdown. As time has gone on,
Speaker 1: people are revising that and saying it's going to take
Speaker 1: a long time for these jobs to be brought back
Speaker 1: into the economy. Where do you stand on that? How
Speaker 1: many of these job losses have gone from temporary to permanent?
Speaker 1: So I think by the so, um, good morning, Lisa,
Speaker 1: it's uh, the you know, it's it's a bit upsetting
Speaker 1: to talk about these kinds of jobs numbers, because there
Speaker 1: are a lot of people that will have permanent job
Speaker 1: loss from this, and you know, we've had more of
Speaker 1: the thirty million jobless claims filed. Um, we think it's
Speaker 1: reasonable to the expect that ten to twelve million of
Speaker 1: them could come back by the end of the year. Um.
Speaker 1: You know that's not enough. We'd like to get them
Speaker 1: back to work more quickly. Now, how do we get
Speaker 1: people back to work at all? Because states will be
Speaker 1: reopening and there will be in need for some of
Speaker 1: those jobs to come back. Um. A lot of those
Speaker 1: have been furloughed and so they're more they're more connected
Speaker 1: to the employer, and as those employers open back up,
Speaker 1: you're gonna need labor quickly. That means the folks that
Speaker 1: you've already trained that can easily walk in the door
Speaker 1: and start working right away. But there will be an
Speaker 1: element of either permanent job loss here. It just takes
Speaker 1: people longer to get back into the labor first than
Speaker 1: we previley previously thought. Some of that is because the
Speaker 1: phase reopening will be very gradual. Um. But also our
Speaker 1: biotechnology UH analysts are now pointing out that you know,
Speaker 1: the the US, unlike other countries states have been reopening
Speaker 1: when cases are still rising um and so unlike most
Speaker 1: countries that have had strict lockdowns, the US has plateaued
Speaker 1: at its peak and daily new cases without any sustained decline.
Speaker 1: And so if that dynamic continues, then the reopening will
Speaker 1: be even uh phased in an even weaker pace, if
Speaker 1: you will, a weaker capacity than we then we had thoughts.
Speaker 1: So these are all things are going to constantly adjust
Speaker 1: these expectations around the labor market. I think in the
Speaker 1: if I could said just say, I think in the
Speaker 1: short term here we can get some really upward surprising
Speaker 1: bounces in the data, just because you're going from very
Speaker 1: little activity to some activity, and that can look explosive
Speaker 1: on a month over month change, but it's really the
Speaker 1: path after that it's going to be fairly shallow. Ellen,
Speaker 1: just real quick here, which industries do you expect the
Speaker 1: job losses to be most permanent? Well, I think that
Speaker 1: that certainly, UM tourism, um energy, you know, the restaurants,
Speaker 1: you know, those are areas where the jobs losses will
Speaker 1: uh you may as well consider them um permanent. And
Speaker 1: when you think about recovery across the nation state by state.
Speaker 1: Look for states with more diverse industries to recover more quickly. Uh,
Speaker 1: you need that. You can't be a state that's easily
Speaker 1: concentrated it with jobs and tourism or jobs and energy. Um,
Speaker 1: it's going to weigh on date GDP for longer. Now.
Speaker 1: The history of that's watching new. Jersey Ellen sentner with
Speaker 1: us with Morgan Stanley, thank you so much. Right now,
Speaker 1: as we look at this job's report, try to synthesize
Speaker 1: it into the markets where we see yields sustain ever
Speaker 1: lower as we saw yesterday. Jeffrey Rosenberg joins. He is
Speaker 1: with black Rock. Jeff, I want to take the mix
Speaker 1: of this shocking report. I guess it's better than the
Speaker 1: gloom that was expected, but I really don't want to
Speaker 1: sell that to you right now, Jeff. We have to
Speaker 1: bring it over to yields. Why did yields come in yesterday? Say?
Speaker 1: And is it just the gaming of a crushingly difficult
Speaker 1: labor market? Thanks Tom, Um. Yeah, I think it's hard
Speaker 1: to turcret a lot of those moves, uh, you know,
Speaker 1: under their normal I'm a reaction function because you have
Speaker 1: so much of the fed and supply interacting as as
Speaker 1: kind of the major drivers. You know, we're we're about
Speaker 1: to embark on a historic expansion of debt issuance, UH,
Speaker 1: and a historic expansion of the FED effectively taking down
Speaker 1: that debt issuance to make sure that the financing rates
Speaker 1: are are not disruptive. So you know, it's you know,
Speaker 1: your question is, you know, what's the what's the rate
Speaker 1: moves telling us UH, it's really hard to parcel out
Speaker 1: this kind of very unique technicals from say, some of
Speaker 1: the numbers that we that we normally would look at.
Speaker 1: All right, let's let's talk more about this job to
Speaker 1: report the worst of a port in American history. Digging
Speaker 1: a little bit more into it, it does appear that,
Speaker 1: as feared, the job losses were widespread the leisure and hospitality, retail, healthcare, professional, manufacturing,
Speaker 1: construction information these millions of job losses, and then also
Speaker 1: we saw the wage gains, pointing to a disproportionate amount
Speaker 1: of job cuts at the lower end of the income spectrum.
Speaker 1: I'm wondering, from your perspective, given this dynamic of the layoffs,
Speaker 1: what does that say about the path of the recovery ahead. Well,
Speaker 1: it confirms what we expected in terms of the distributional
Speaker 1: impacts of the Corona virus crisis, and um, you know,
Speaker 1: the big issue going to go forward basis is re
Speaker 1: engagement versus reallocation. And I don't have all the data
Speaker 1: in front of me yet. There's there's some things we
Speaker 1: can tease out from this report that will that will
Speaker 1: help to uh answer that. But but that's really going
Speaker 1: to inform the path of the recovery because if you
Speaker 1: can re engage your workers, you know, one of the
Speaker 1: one of the things that's that's sort of anomalous about
Speaker 1: this report is the unemployment rate. There's a note from
Speaker 1: the BLS saying, you know, there's there's a misclassification going
Speaker 1: on and if you if you classified yourself um as
Speaker 1: employed but not at work because of the Corona crisis,
Speaker 1: you know, that's understating the unemployment rate by about five
Speaker 1: percentage points. That's kind of a technical issue, but that
Speaker 1: that's a that's a kind of a good thing, right,
Speaker 1: that's what we want to feel. We're we're still employed,
Speaker 1: but we just can't work because of the coronavirus. And
Speaker 1: it really gets to the heart of this notion of
Speaker 1: you know, is this a temporary dislocation or is it
Speaker 1: or is it permanent? So re engagement is about temporary
Speaker 1: that's a faster recovery. Reallocation is you know, my job
Speaker 1: is gone and it's not coming back. I have to
Speaker 1: realy keep somewhere else in the economy. That's a much
Speaker 1: more longer term process, filled with lots of frictions, and
Speaker 1: and it slows the process down. Um, that's what we're
Speaker 1: going to debate. And I think the impact on the
Speaker 1: lower end is really going to be focused on did
Speaker 1: those jobs come back? Jeff. The market seems to be
Speaker 1: pricing in increasingly a bottoming out of the economic data,
Speaker 1: people saying this was the worst that we're going to see,
Speaker 1: probably in our lifetimes, possibly in history. But there's a
Speaker 1: question about a second wave of layoffs. And I've heard
Speaker 1: a growing number of economists and market participants talk about this,
Speaker 1: this idea that the longer that you remove a big
Speaker 1: cohort of of the labor market from their jobs, they
Speaker 1: don't have the discretionary spending and that will eventually bleed
Speaker 1: into the higher income jobs, which is starting already. Are
Speaker 1: you seeing any signs of that, Well, I think it's
Speaker 1: I think it's early to say that we're seeing signs
Speaker 1: of that, But I think the sentiment is correct that
Speaker 1: there is there. There is kind of the initial shock,
Speaker 1: there's an initial recovery, and then there's the what are
Speaker 1: the longer term implications. That part of the thing, of course,
Speaker 1: that's challenging the longer term implications is we don't know
Speaker 1: what the path of the virus itself look like. But
Speaker 1: even beyond the path of the virus itself, there's the
Speaker 1: question of, well, what is the more kind of permanent
Speaker 1: reaction of the economic structure to the crisis. What is
Speaker 1: the reaction to consumption, what is the reaction to savings rates,
Speaker 1: what is the reaction to behaviors. So at the macro level,
Speaker 1: a very kind of puberly simplistic perspective is, you know,
Speaker 1: there's a higher savings rate, there's there's more precautionary savings,
Speaker 1: there's less consumption, and that just overall changes kind of
Speaker 1: aggregate demand, aggregate activity. But beyond that, there is a
Speaker 1: much more distributional impact as to how does expect various sectors.
Speaker 1: Let me ask some money question, Jeff, I'm sure you're
Speaker 1: gonna get it today, You're gonna get it into the week,
Speaker 1: and certainly when you roll out your reports from Monday.
Speaker 1: Can we get the debt genie back in the bottle?
Speaker 1: I mean, I get the rationalization of all this debt
Speaker 1: build up given THEE it's a virus, it's a pandemic. Great,
Speaker 1: are you optimistic we can you get the debt genie
Speaker 1: back in the bottle? No, I I think that. I
Speaker 1: don't think that's actually a debate right now. I mean
Speaker 1: there's a little bit of a pushback and there's a question. Now.
Speaker 1: You saw some comments from from from the House and
Speaker 1: some of the congressional leaders about the next wave, and
Speaker 1: there's a bit of a debate about that because there
Speaker 1: is some concerns about the debt, but there's the there's
Speaker 1: the direct fiscal policy, and then there's the expansion of
Speaker 1: the FED support. Um we we are really kind of
Speaker 1: put as secondary the longer term concerns about indebtedness. And
Speaker 1: this isn't just in the US, this is this is globally.
Speaker 1: So I don't think we're putting the debt genie back
Speaker 1: in the anytime soon. I think we're going to be
Speaker 1: dealing with very high levels of indebtedness and a different
Speaker 1: structure of monetary policy to help to finance those levels
Speaker 1: of indebtedness. It's it's almost like and I think the
Speaker 1: analogy is apt that that we're at war against a virus,
Speaker 1: and both debt policy and monetary policy are are at
Speaker 1: wartime settings where you don't really worry about how large
Speaker 1: the debt to GDP is getting, will deal with it
Speaker 1: after the war. So I think it's secondary at this point.
Speaker 1: We're speaking with that. Jeff Rosenberg, black Rock portfolio manager
Speaker 1: of the Systematic Multi Strategy Fund, a long time leader
Speaker 1: in thought and in investment at black Rock and Bank
Speaker 1: of America. Jeff, I'd love to get your perspective about
Speaker 1: the response to this lack of income by corporations. We
Speaker 1: have seen an increasing number of companies try to borrow
Speaker 1: money at increasingly high yields just because investors are increasingly
Speaker 1: unwilling to lend to them. We're seeing that with the
Speaker 1: likes of some of the troubled industries, in particular United
Speaker 1: Airlines struggling to raise money. How much does this increase
Speaker 1: the pain and the length of time that it takes
Speaker 1: to climb out of this With the idea that these
Speaker 1: difficult times are being met with additional leverage at high
Speaker 1: rates for companies, where their business models may not return
Speaker 1: in the same kind of way. So I want to
Speaker 1: I want to challenge a little bit of the premise
Speaker 1: of the question that, um, there's there's there's a big
Speaker 1: distributional impact here where if you if you focus on
Speaker 1: some of the very challenge sectors, yes they are facing
Speaker 1: much higher rates of financing, but you are also seeing
Speaker 1: eden sectors that are in the heart of uh COVID
Speaker 1: crisis concerns getting access to liquidity and getting access to refinancing.
Speaker 1: And so in some sense, that's the good news, that's
Speaker 1: the glass half glass half full. That the that the
Speaker 1: federal reserve liquidity interventions are working and investors are lending. Yes,
Speaker 1: in some cases at higher rates UH and certainly at
Speaker 1: higher spreads, but overall the access to liquidity for the
Speaker 1: large company segment has been pretty robust and and and
Speaker 1: the liquidity sources of unnecessary default have been forestalled, and
Speaker 1: that's that's that's a good news. Now there's a longer
Speaker 1: term consideration here, which is how much leverage is on
Speaker 1: the balance sheet, how much is the liquidity bridge bridging
Speaker 1: you to a sustainable level. And you're seeing that in
Speaker 1: the most distress vectors like retail um where you're seeing
Speaker 1: the bankruptcies where basically it's very clear you can't use
Speaker 1: debt and increases in leverage to bridge you to a
Speaker 1: recovery because there isn't recovery. And that's the shakeout that
Speaker 1: we're going to see industry industry, company by company, and
Speaker 1: the smallest, most over levered balance sheets will be the
Speaker 1: most vulnerable, and default rates are absolutely going to rise.
Speaker 1: But the liquidity interventions here to prevent unnecessary restructuring is
Speaker 1: unnecessary defaults purely because of the lack of access to
Speaker 1: liquidity and financial markets. I think it's been a good
Speaker 1: part of the story. It's part of the financial market
Speaker 1: healing that you're seeing in capital markets. Just real quick here, Jeff,
Speaker 1: I'm wondering going forward, do you buy this rally that
Speaker 1: we're seeing in equities? Uh? Well, you know, do we
Speaker 1: do we buy the rally that we see in equities?
Speaker 1: You know, I think that what you saw in equities
Speaker 1: was forward looking, and what you're seeing in equities again
Speaker 1: is forward looking. However, the markets don't have a great ability.
Speaker 1: We have to recognize this in predicting where is the
Speaker 1: virus path going to go? So right now, do I
Speaker 1: buy it. That's the market condus is basically saying it's
Speaker 1: be shaped, or it's it's check mark shaped, or you know,
Speaker 1: got all all these different shapes that that there isn't
Speaker 1: a more destructive, disruptive second wave, And from that vantage point,
Speaker 1: it reflects what we know. Maybe it reflects optimism, but
Speaker 1: we have to be clear here that we don't really
Speaker 1: know where we're going. And certainly if there is a
Speaker 1: second wave that leads to more shutdowns, leads to more disruption,
Speaker 1: the equity market is going to reflect that. But from
Speaker 1: the vantage point of we are putting historic levels of
Speaker 1: fiscal policy and monetaries policy to mitigate the impact. Yes,
Speaker 1: I think the equity market pricing that incorrectly. Jeff, thank
Speaker 1: you so much for the brief. Jeffrey Rosenberg with black
Speaker 1: Rock for our Listenshan Blomberg Radio, us O Blomberg TV.
Speaker 1: I'm pleased to say with joint now outside the White
Speaker 1: House by Larry Cartlo, National Economic Council Director, on a
Speaker 1: difficult day with one of the worst payrolls report we've
Speaker 1: ever say, Arry, fantastic to catch up with you. As
Speaker 1: our audience knows, Larry, over the years, you and I
Speaker 1: have these very energetic back and forth, a little bit
Speaker 1: of rough and tumble and a few jokes along the way,
Speaker 1: and I think we have to get the tone right
Speaker 1: this morning. This is a really tough time, and it's
Speaker 1: a tough time as a policymaker as well. There is
Speaker 1: a cost to keeping this economy lockdown as a cost
Speaker 1: to opening it to and Larry, I'd really love your
Speaker 1: perspective in this moment, how difficult it is to calibrate
Speaker 1: the right policy response in a moment like this. Well,
Speaker 1: I just want to say and that you know your
Speaker 1: earlier point. Look, this is a tough time, but it's
Speaker 1: a tough time for everybody in America. There's no question
Speaker 1: about that. Wherever you work or don't work, it's a
Speaker 1: tough time. This job's report today is full of heartbreak,
Speaker 1: it's full of hardship. I believe that it will prove
Speaker 1: to be temporary, because I think the pandemic contraction or
Speaker 1: the contraction in the economy caused by the pandemic COVID
Speaker 1: nineteen were proved to be temporary, and that we are
Speaker 1: actually coming down the home stretch in terms of reopening
Speaker 1: the economy. But it's a rough number there's no question
Speaker 1: about that. Uh. Some of this looks to be temporary layoffs,
Speaker 1: maybe about three quarters of it, but that still doesn't
Speaker 1: necessarily making any better. People expect to return to jobs.
Speaker 1: Let's hope that they can return to jobs. Look, we
Speaker 1: eat have done President Trump's leadership, Vice President Pence. UH,
Speaker 1: we put together enormous, enormous rescue package. UH, cash liquidity,
Speaker 1: Federal reserve, payroll protection. It's a remarkable thing. I actually
Speaker 1: actually adding it up, it's about nine trillion dollars now,
Speaker 1: including the Federal Reserve and what we've done on fiscal
Speaker 1: policy and the budget. Some of this may have worked,
Speaker 1: We may have cushioned the decline. That may be part
Speaker 1: of this story inside these very very difficult numbers. So
Speaker 1: we will see how this works, and we will see
Speaker 1: whether we have to go back. Let's talk about presidential
Speaker 1: policies in a few moments, because I do believe the
Speaker 1: second half of this year, according to the CBO and
Speaker 1: private forecasters, the second half is going to have very
Speaker 1: significant bounce back in economic growth and that will head
Speaker 1: into which could be a fantastic economic recovery. Here. We
Speaker 1: all hope for that. Larry and I know there's going
Speaker 1: to be an extra push in Washington to try and
Speaker 1: see that vision come to life and materialize. There's been
Speaker 1: a huge collective effort, Dan in Washington, not just the administration.
Speaker 1: You've worked really well with Democrats as well. The Fed
Speaker 1: has done its part. I'm trying to understand how the
Speaker 1: policy effort evolves. Quite clearly, when we're shut down, you
Speaker 1: don't stimulate the economy. You offer aid. When we reopen,
Speaker 1: that's the time to stimulate. How do you see the
Speaker 1: policy effort changing in the months to come, adapting Larry Um, Well,
Speaker 1: you know I'm not here in negotiade, but I will
Speaker 1: simply say this President try has had a set of
Speaker 1: policies that worked very well before this pandemic the first
Speaker 1: three years plus, and indeed, in January and February the
Speaker 1: economy was growing at three or better. Um. I think
Speaker 1: that he wants to extend a lot of the ideas.
Speaker 1: He wants us to be a free enterprise economy. He
Speaker 1: wants to reward people for their success and their initiative
Speaker 1: in their efforts. As you know, he has talked about
Speaker 1: from time to time talked or tweeted about payroll tax holidays.
Speaker 1: He's talked about capital gains taxes. He's talked about tourism, restaurants,
Speaker 1: traveling deductions that might work. We've talked about capitaling, business expensing.
Speaker 1: For example, there's gonna be a lot of COVID related adjustments,
Speaker 1: whether you're a large factory in Detroit or whether you're
Speaker 1: a small restaurant in a small town in the heartland.
Speaker 1: All of that. If you ask me, safety first here,
Speaker 1: as we reopen all that, every nickel of that should
Speaker 1: be completely expensed deductions and so people won't have to
Speaker 1: pay extra for that and open the door. We've talked
Speaker 1: about fair trade agreements. We will continue. We talked about
Speaker 1: on shoring. We will continue that. I think a lot
Speaker 1: of people have learned we probably will way too far
Speaker 1: in our off shoring of factories and uh, either manufacturing
Speaker 1: or pharmaceuticals. President Trump has talked about making it much
Speaker 1: easier to come back home to America. So that's a
Speaker 1: smattering of the policy ideas that he has put out there. Um,
Speaker 1: we haven't begun to negotiate with the Hill. That will
Speaker 1: come in due course. We've had a bit of a pause.
Speaker 1: We're gonna take a look at how the situation is.
Speaker 1: May is a reopening month, Jonathan. It will spill over
Speaker 1: into June. In phases, we've seen the federal guidelines have
Speaker 1: come down. Now the states doing the same. Uh. We
Speaker 1: had Governor Abbot of Texas yesterday. I've been in a
Speaker 1: lot of meetings with the President and the Governor's all
Speaker 1: that's moving ahead in phases. That's a big plus for
Speaker 1: the economy. We have to open safely and then get
Speaker 1: people back to work, and I think the temporary layoffs
Speaker 1: show that they will go back to work. And then
Speaker 1: we have to move ahead and make sure that the
Speaker 1: incentive structure of this economy remains intact so we can
Speaker 1: have the blue collar boom that we had, so we
Speaker 1: can have the entrepreneurship, so we can have the fair
Speaker 1: trade and the energy independence. These are Trumpian themes, and
Speaker 1: I think that's where the President is going to move.
Speaker 1: I know you want to talk about trade, Larry. I'm
Speaker 1: gonna get to that in just a second. When it
Speaker 1: comes to reopening, I want to understand, and I know
Speaker 1: you're an optimistic man, whether you've done any contingency planning
Speaker 1: for a second wave and another shutdown. Are you doing
Speaker 1: that contingency planning now? Yes? We are. As a matter
Speaker 1: of fact, it's a subject that comes up. I'm not
Speaker 1: going to go into details outside my lane. I have
Speaker 1: talked to Ambassador Burke's on that Dr Faucci, and Vice
Speaker 1: President Trump's a terrific team that's he's assembled. I will
Speaker 1: tell you this without naming names. But one of the
Speaker 1: senior people on that group, I asked that person, what happens.
Speaker 1: You know right now the virus numbers are flattening out.
Speaker 1: That is a really good thing. That means we can
Speaker 1: reopen this community. So I asked this person what happens
Speaker 1: if you get a jump back up in the virus numbers,
Speaker 1: And the response was simply, look, we won't have to
Speaker 1: re shut down because, first of all, we know more,
Speaker 1: we have more experience, and second of all, we are
Speaker 1: much better equipped with the right tools. I mean, President
Speaker 1: Trump deserves some credit for putting together a massive infrastructure,
Speaker 1: whether it's testing or face masks or gowns or whatever,
Speaker 1: running the whole gamut. So I don't want to dwell
Speaker 1: on the worst case because I am an optimist. I
Speaker 1: think that the governors and the mayors are very well
Speaker 1: aware of the safety needs as we reopened. But when
Speaker 1: we do reopen, that is going to give this economy
Speaker 1: a tremendous boost, and we will see that in the
Speaker 1: summer at autumn quarters and spilling into one could be
Speaker 1: a fabulous year if we keep the right policies in place, Larry,
Speaker 1: I hope that's the case truly too. I know you
Speaker 1: want to talk about trade, and we've only got a
Speaker 1: few minutes left, so let me give the opportunity to
Speaker 1: do so. When it comes to the administration's trade stance,
Speaker 1: you just mentioned supply chain repatriation, will you actively be
Speaker 1: looking to provide a tow companies that repatriate their supply chains. Yes,
Speaker 1: I think we will do it by creating incentives. It's
Speaker 1: not a matter of punishing, it's a matter of incentivizing.
Speaker 1: I don't want to go into details, but on shoring
Speaker 1: is a very important theme come back to America. I
Speaker 1: think we've learned too much emphasis on supply chains overseas.
Speaker 1: Too much emphasis is not safe and not reliable and
Speaker 1: not good business practices. Again, I do want to unveil
Speaker 1: or get ahead of our own policy process, but the
Speaker 1: President is very keen on on shoring. There are many
Speaker 1: ways to do that. Are you rethinking again your relationship
Speaker 1: with the Chinese Communist Party, Well, I don't think we
Speaker 1: ever stopped thinking about it, but all I'll say is
Speaker 1: this UM. First of all, as you know from reports, today,
Speaker 1: Basslar lighth Hazer Secretary Manution met with Vice Premier Leo
Speaker 1: Hay of China. It was a very constructive meeting. Uh.
Speaker 1: The print out that communicate, if you will, was very positive.
Speaker 1: China continues to tell us that they have every intention
Speaker 1: of meeting the requirements and the implementations of the deal
Speaker 1: that was signed formally last winner. Seems like a thousand
Speaker 1: years ago, but it was actually only a couple of
Speaker 1: months ago. They're a little bit behind on commodity purchases
Speaker 1: that may be a funk, and of course of market
Speaker 1: and economic conditions, but Liu He said they are pledged
Speaker 1: to continue, including I might add remedies for UM intellectual
Speaker 1: property theft and related measures. So those talks seemed to
Speaker 1: go well and we're constructive. However, the Chinese relationship is
Speaker 1: very complex, and we know that the virus originated in China.
Speaker 1: We are investigating. We the US government, the intelligence agencies,
Speaker 1: National Security Council, State Department, et cetera, are carefully investigating
Speaker 1: what happened and what didn't happen, what may have happened,
Speaker 1: and what actually happened. China has been not transparent. A
Speaker 1: lot of people are concerned. I saw this with the
Speaker 1: President at the G seven video teleconference meeting a couple
Speaker 1: of weeks ago, when the other world leaders felt the
Speaker 1: same way. They will be held accountable, Jonathan, they will
Speaker 1: be held accountable. Uh, when the final studies are in, well,
Speaker 1: I can say this morning is the trade relationship and
Speaker 1: it's going to be a pretty good deal. A lot
Speaker 1: of exports going to come out of that. When the
Speaker 1: economies recover, the trade relationship appears to be on track.
Speaker 1: It sounds a lot like a lot of talk, Larry,
Speaker 1: I've heard a lot of talk over the last week
Speaker 1: about this about holding China accountable. Can we talk about accountability?
Speaker 1: How does the United States hold China accountable by doing what? Jonathan?
Speaker 1: I don't want to disappoint you or create otherwise emotional upset,
Speaker 1: But I'm not going into details about that. This is
Speaker 1: national security stuff and we'll just have to leave it
Speaker 1: at that. I understand that, I understand that it's a
Speaker 1: really delicate topic, but to round things out quite clearly
Speaker 1: the United States and other countries for that matter as well,
Speaker 1: do not trust the Chinese Communist Party. So I'm not
Speaker 1: sure how much weight we should put on a statement
Speaker 1: released by U s TR overnight about working towards this
Speaker 1: Phase one agreement, because quite clearly the United States looking
Speaker 1: to hold China accountable. How can I reconcile those two things?
Speaker 1: Two countries working on a Phase one trade deal, two
Speaker 1: countries that don't trust each other, and one country that
Speaker 1: wants to punish the other. UH, without accepting your premises
Speaker 1: there you put out quite a lot. I don't want
Speaker 1: to go there. I would just say the relationship with
Speaker 1: China is always a complex relationship. It covers trade, it
Speaker 1: covers other economic matters. It covers national security matters, it
Speaker 1: covers espionage matters, it covers cyber security matters or the
Speaker 1: lack thereof. It covers on shoring and off shoring matters.
Speaker 1: It's always a very complex, UH relationship. UM problems in
Speaker 1: one end doesn't necessarily mean everything stops, but President Trump
Speaker 1: has said any number of times they will be held accountable.
Speaker 1: We continue to investigate the problems regarding the coronavirus of
Speaker 1: virus and the lack of transparency. We're trying to get
Speaker 1: to the bottom of what actually happened in China. Those
Speaker 1: efforts are ongoing, and I believe the President in the
Speaker 1: Oval Office yesterday said the next couple of weeks will
Speaker 1: probably have a lot more information to share, and Larry,
Speaker 1: I look forward to get in the answers and more
Speaker 1: clarity from you. Larry. Can I just say thank you
Speaker 1: for the compassion this morning for difficult time for a
Speaker 1: lot of people without a job. Larry Carlow, I appreciate
Speaker 1: your time and I hope you and you also doing well.
Speaker 1: Larry Cardlo that the National Economic Council director from the
Speaker 1: White House. There's an historic day of newsful, no question
Speaker 1: about that. And of course the backdrop is a pandemic
Speaker 1: with us now Andrew Pekosh with John Tompkins University and
Speaker 1: the Bloomberg School of Public Health. I should point out
Speaker 1: that the philanthropist of the School of Public Health is
Speaker 1: Michael Bloomberg, the founder of Bloomberg LP, and of course
Speaker 1: it is television and radio ration as well. He has
Speaker 1: donated to his Johns Hopkins University and I pack Gosh,
Speaker 1: I want to step back. I remember Crystal Clear the
Speaker 1: path from Jonas Sack to Dr Sabin in about nineteen
Speaker 1: sixty one sixty three, and those little pink drops that
Speaker 1: were a polio vaccine. When we get a vaccine for
Speaker 1: this horrific virus, is that what it's gonna be Like,
Speaker 1: We're all gonna line up and get drops in our mouth. Well,
Speaker 1: you know, it's really difficult to predict the future, but
Speaker 1: I would imagine that, UM, we are going to get
Speaker 1: a massive vaccination program going in place. The vaccines that
Speaker 1: are currently in the lead in the pipeline are ones
Speaker 1: that are gonna be given by injection UM and so
Speaker 1: UM so, so I think it'll be a little bit
Speaker 1: different from the polio pipeline. But I do think that
Speaker 1: everything looks like UM vaccines are going to be the
Speaker 1: game changer here UM and once those things get online, UH,
Speaker 1: they'll be massive plans to initiate vaccination campaigns across the country.
Speaker 1: In fact, from US the world. What is your best
Speaker 1: practice to get to that miracle point? Well, you know,
Speaker 1: things have been moving forward at light speed when it
Speaker 1: comes to vaccine UH testing UM. Just this week, the UM,
Speaker 1: uh FDA and the NIH gave approval to move into
Speaker 1: the second phase of vaccine testing with a number of
Speaker 1: the vaccine candidates. Um. The first phase was just the
Speaker 1: safety testing. I haven't seen that data yet, but I
Speaker 1: assume since they've been approved to go into the second
Speaker 1: phase that the safety data has come up looking really good. UM,
Speaker 1: And now the second phase is gonna be the critical
Speaker 1: one where they really start to look at how those
Speaker 1: vaccines are functioning. Are they making the right immune responses
Speaker 1: that we predict would protect people from infection. Good morning
Speaker 1: to you, Andrew. Let me ask you about the mobile
Speaker 1: technologies that many countries are employing to try and get
Speaker 1: us out of lockdown and to reopen economies here in
Speaker 1: the UK. I'm talking to you from London, and by
Speaker 1: the middle of this month there is a hope that
Speaker 1: there will be wide use of an app that, if
Speaker 1: it's taken up sufficiently, would would be able to help
Speaker 1: in that in that endeavor. How excited is the medical
Speaker 1: community about this as a way of fighting the virus. Well,
Speaker 1: you know, the mobile apps are going to be a
Speaker 1: way for us to really do incredibly effective contact tracing,
Speaker 1: meaning once we find an infected individual, that's going to
Speaker 1: be an objective, independent way to try to identify where
Speaker 1: that person has been and who might have come in
Speaker 1: contact with them, and for that recovery phase of this
Speaker 1: h pandemic, that's going to be the critical way that
Speaker 1: we're going to use to try to minimize the number
Speaker 1: of cases. Of course, there are some implications in terms
Speaker 1: of privacy, and so some people are feeling a little
Speaker 1: bit um leary about this technology. But when it comes
Speaker 1: to just straightforward being able to track individuals and and
Speaker 1: therefore slow down the infection spread, it's going to be
Speaker 1: an incredibly useful tool for that purpose. Well, and the
Speaker 1: pecosh to you and all of you at Johns Hopkins University.
Speaker 1: Thank you for your perspective each day. Dr Pekosh with
Speaker 1: the Bloomberg School of Public Health at j H at you.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg
Speaker 1: Radio