WEBVTT - Surveillance: Fiscal Caution With IMF's Gaspar 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily 0:00:13.960 --> 0:00:17.560 we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.639 Bloomberg dot Com, and of course on the Bloomberg For 0:00:27.680 --> 0:00:30.080 those of you have Global Wall Street working on a 0:00:30.120 --> 0:00:32.760 Friday and reading into the weekend. This is with our 0:00:32.880 --> 0:00:36.800 question the most important interview Bloomberg will do on the 0:00:36.880 --> 0:00:41.040 state of global fiscal policy. Vita gas Bar doesn't get 0:00:41.040 --> 0:00:45.320 the ga Gina Geita Gopinath gets at the I m F. 0:00:45.440 --> 0:00:49.360 But trust me, his Fiscal Monitor is a critical document 0:00:49.479 --> 0:00:53.320 in these times. Dr Gaspar joins us. Now, Vitor, I 0:00:53.400 --> 0:00:57.200 want you to give me an update on your confidence 0:00:57.240 --> 0:01:01.480 that we can expand by trillions. Are debt over the 0:01:01.560 --> 0:01:05.680 justification that interest rates are so low? Do you buy 0:01:05.720 --> 0:01:12.840 that concept? Yes? I do, uh dom So, what we 0:01:13.240 --> 0:01:17.120 emphasize in this sub blog that I've just put out 0:01:17.160 --> 0:01:22.600 together with pakpe Enough is that global debt is at 0:01:22.680 --> 0:01:28.360 this point in time at record levels never in history 0:01:28.760 --> 0:01:33.040 as global public that being so high. It is now 0:01:33.120 --> 0:01:37.920 above a hundred of percent of world GDP. It is 0:01:38.000 --> 0:01:43.280 so high because we're facing a crisis like no other, 0:01:44.280 --> 0:01:48.920 and in that context, the fiscal response has been very 0:01:49.000 --> 0:01:52.560 quick and and precedented. Just to give you an idea, 0:01:52.560 --> 0:01:57.280 in the last few months, the response of fiscal policy 0:01:57.320 --> 0:02:02.200 is bigger than during the local finational crisis. If you 0:02:02.280 --> 0:02:06.920 take together two thousand and eight, nine and ten, so 0:02:07.000 --> 0:02:10.800 in a few months we're above the response of three 0:02:10.880 --> 0:02:16.320 years during the global finational crisis that was absolutely appropriate 0:02:16.760 --> 0:02:21.960 to support to extend lifelines to households and firs made 0:02:22.040 --> 0:02:27.320 vulnerable by the crisis. Right, this enormous level of debt, 0:02:27.320 --> 0:02:32.639 this enormous level of debt is in a sense compensated 0:02:33.000 --> 0:02:36.960 in terms of impact on the budget by these very 0:02:37.000 --> 0:02:42.120 low interest rates that you're talking about. And this but 0:02:42.280 --> 0:02:46.240 I want to I don't mean to interrupts her, but 0:02:46.400 --> 0:02:49.080 because of time, I want to cut to the chase. 0:02:49.639 --> 0:02:52.080 We have Dr L. Aaron on with us in the 0:02:52.120 --> 0:02:56.360 next hour. He has acclaimed for speaking of T decisions. 0:02:56.960 --> 0:03:00.200 What is the T decision we are all going to 0:03:00.320 --> 0:03:04.440 make two and three and five years out after we 0:03:04.560 --> 0:03:07.400 count up the trillions of dollars of debt? What is 0:03:07.440 --> 0:03:11.800 the T decision down the road for political authorities is 0:03:11.800 --> 0:03:18.160 they look at endless debt, so I would not put 0:03:18.200 --> 0:03:22.440 the issue that way. Nominal infest rates and so debt 0:03:22.520 --> 0:03:26.240 service costs are relatively low as a percentage of GDP, 0:03:27.639 --> 0:03:31.359 even with these very high levels of that, because inflation 0:03:31.680 --> 0:03:36.320 and inflation expectations are very low, and at this point 0:03:36.360 --> 0:03:41.320 in time, as getago enough, my colleague emphasized yesterday, we're 0:03:41.400 --> 0:03:45.000 more concerned about too low inflation than to high inflation. 0:03:45.800 --> 0:03:53.800 The epidemic has boosted precautionary savings, investment will be prudent, 0:03:54.080 --> 0:03:56.120 and so for a while we are going to have 0:03:56.240 --> 0:04:02.040 a situation where savings exceeds investments. So our balance of 0:04:02.200 --> 0:04:08.040 risks points to the fact that premature withdrawal of fiscal 0:04:08.120 --> 0:04:13.760 support is a more pressing danger than the high levels 0:04:13.800 --> 0:04:18.440 of that, and that's our balance at the moment. There's 0:04:18.440 --> 0:04:22.240 a question of how companies, how nations are spending the 0:04:22.360 --> 0:04:25.680 money that they're pumping into their economies as they try 0:04:25.760 --> 0:04:28.920 to support everything as it gets back up and running. 0:04:29.120 --> 0:04:33.160 How good a job our nations doing at supporting companies 0:04:33.200 --> 0:04:35.520 that are viable in the longer term rather than just 0:04:35.680 --> 0:04:38.599 the zombies that are going to die out even if 0:04:38.760 --> 0:04:42.800 they are supported in the short term. So as I 0:04:42.960 --> 0:04:47.000 was saying the short term priority, the number one priority 0:04:47.240 --> 0:04:51.920 is public health, and that requires fiscal support to vulnerable households, 0:04:52.040 --> 0:04:57.599 vulnerable firms, and those interventions should be regarded as life lives. 0:04:58.240 --> 0:05:03.560 As the situation normalizes, as we pass the face of 0:05:03.680 --> 0:05:08.880 the Great lockdown, as the economy is opened gradually, you 0:05:09.360 --> 0:05:14.280 we have in a sense to pivot towards policies that 0:05:15.160 --> 0:05:20.680 facilitate the reallocation of resources. And so it is necessary 0:05:20.800 --> 0:05:25.520 to pivot from support to jobs, to support to people, 0:05:26.279 --> 0:05:31.479 from a blanket lending to firms to a much more 0:05:31.760 --> 0:05:39.240 discriminating approach. And again, as Getago penas Uh said yesterday, 0:05:39.600 --> 0:05:46.320 it's important that the intervention by the government includes capital 0:05:46.520 --> 0:05:54.960 type instruments, equity participations, perhaps even partial nationalizations, so that 0:05:55.440 --> 0:06:00.360 the issues of solvency can be tackled appropriately and the 0:06:00.720 --> 0:06:06.120 natural restructuring of the economy actually takes place. You know, 0:06:06.400 --> 0:06:09.279 this is philosophy, Friday. We hear a lot of big ideas, 0:06:09.320 --> 0:06:11.720 and this has been an era of big ideas as 0:06:11.760 --> 0:06:14.320 people try to reimagine what society will look like. On 0:06:14.400 --> 0:06:17.200 the other side, there is a question of how good 0:06:17.400 --> 0:06:20.280 a job in the here and now governments currently are 0:06:20.360 --> 0:06:23.200 doing how optimistic you are based on what you have 0:06:23.440 --> 0:06:26.919 seen that they will implement the policies as you're talking about, 0:06:27.279 --> 0:06:29.640 are you optimistic about that or are you sort of 0:06:29.680 --> 0:06:31.800 doubling down on these messages because you think that they're 0:06:31.800 --> 0:06:38.840 not getting through. So we are actually quite impressed by 0:06:39.279 --> 0:06:46.000 how speedy and how effective the interventions by governments have 0:06:46.200 --> 0:06:49.960 been in the phase of the Great Lockdown. We have 0:06:50.240 --> 0:06:54.680 put out a annexed to the World Economic Outlook with 0:06:54.839 --> 0:07:00.080 the physical perspectives, and we have an online document that 0:07:00.560 --> 0:07:05.160 reviews policies followed by more than fifty countries. What we 0:07:05.279 --> 0:07:12.360 see is unprecedented action. We see eleven trillion dollars of measures. 0:07:12.800 --> 0:07:17.600 Many of those measures are measures with above the line 0:07:17.720 --> 0:07:21.880 impact on the budget. There have been crucial to support firms, 0:07:22.000 --> 0:07:27.040 to support households. Now the situation is very difficult. We 0:07:27.480 --> 0:07:33.720 face radical uncertainty, and the first priority is public health. 0:07:34.440 --> 0:07:39.600 The first priority is to control the epidemic. Why because 0:07:39.800 --> 0:07:43.240 only by controlling the epidemic are we going to be 0:07:43.440 --> 0:07:48.320 able to reduce uncertainty and so to create conditions for 0:07:48.520 --> 0:07:52.240 the economy to pick up in a sustainable way, for 0:07:52.960 --> 0:07:56.880 investment to pick up, and for the transition to a 0:07:57.040 --> 0:08:02.520 new model of sustainable and inclusive growth they call. So 0:08:02.600 --> 0:08:05.520 we're not out of the woods yet. A lot remains 0:08:05.600 --> 0:08:09.560 to be done, but up to now, the ability of 0:08:09.640 --> 0:08:15.560 governments to deliver timely, targeted and temporary measures have been 0:08:15.920 --> 0:08:19.880 quite impressive. Okay, so fantastic, get your thoughts on a 0:08:19.920 --> 0:08:22.280 program today. I appreciate your time. Always valuable to us, 0:08:22.360 --> 0:08:35.040 we tell guessed by that of the IMAF. No one 0:08:35.120 --> 0:08:37.640 has studied the cycles of this like Jim Paulson and 0:08:37.720 --> 0:08:41.440 Luther Oldweden. He's really a student of melding economics into 0:08:41.480 --> 0:08:45.240 the history of our financial system and the opportunities to 0:08:45.400 --> 0:08:48.680 take and the mind fields to avoid. Jim Paulson joins 0:08:48.760 --> 0:08:53.600 us now from his UH Minnesota. Jim Paulson the courage 0:08:53.679 --> 0:08:56.079 to be in the market now was Lesa mentions the 0:08:56.240 --> 0:09:00.480 confidence of the CFO. How do you develop confidence to 0:09:00.640 --> 0:09:07.360 participate in anything except Amazon and Apple? Yeah, it seems 0:09:07.400 --> 0:09:11.079 like that on some days. Tom, I um, you know, 0:09:11.280 --> 0:09:14.800 I really think that in some ways that this is 0:09:14.800 --> 0:09:17.920 a very you know, unique situation where and there's no 0:09:18.400 --> 0:09:22.160 doubt about that, But in some ways it's also very 0:09:22.280 --> 0:09:25.719 common to what it feels like at the start of 0:09:25.960 --> 0:09:31.040 other new expansions and new bowl markets. Um, there's a 0:09:31.120 --> 0:09:34.559 lot of doubt. There's a lot of problems on Main Street. UM, 0:09:35.320 --> 0:09:36.839 a lot of them seem like they're going to last 0:09:36.880 --> 0:09:39.719 for a long time, and they probably will. But yet 0:09:39.800 --> 0:09:43.960 that's the same kind of situation that existed like when 0:09:44.000 --> 0:09:47.560 the market first took off, or in two thousand nine, 0:09:47.960 --> 0:09:50.240 when it first took off, there was a lot of 0:09:50.360 --> 0:09:52.480 doubt there too, and the market went up and it 0:09:52.520 --> 0:09:55.120 seemed like it was disconnected from the reality that was 0:09:56.040 --> 0:09:57.880 that was going on on Main Street in both of 0:09:57.920 --> 0:10:02.240 those cases. And yet against that wall of fear, with 0:10:02.480 --> 0:10:07.040 massive policy support that we had in two and we 0:10:07.240 --> 0:10:11.319 had in two thousand nine, the market kept rising and 0:10:11.800 --> 0:10:17.080 eventually economic conditions on Main Street also improved. It took 0:10:17.120 --> 0:10:19.520 a long time before we got back to normal. We 0:10:19.640 --> 0:10:24.040 had elevated unemployment rates well into the late eighties, well 0:10:24.360 --> 0:10:27.559 into the last expansion. We never really got back to 0:10:27.640 --> 0:10:31.559 the unemployment rate again until many, many years later. So 0:10:31.920 --> 0:10:34.319 you know, we've got a lot of issues today. But 0:10:34.480 --> 0:10:37.160 I still think we're in a new expansion in a 0:10:37.200 --> 0:10:40.960 new ball market. And jam I had this argument a lot. 0:10:41.000 --> 0:10:42.760 In fact, I think you're closely aligned with the thoughts 0:10:42.800 --> 0:10:46.599 of Morecin Stanley that this is normal, the reopening, the 0:10:46.720 --> 0:10:50.520 recession playbook. It stands people, as you know Jimmy pushing back. 0:10:50.520 --> 0:10:53.000 They'll say, there's a structural sailing to how quickly we 0:10:53.040 --> 0:10:56.280 can normalize it, stopped start, it's different, it's not normal. 0:10:56.559 --> 0:11:00.559 What's your message for them, Well, I I think that 0:11:01.040 --> 0:11:03.920 you know, there's certainly differences every time, and we've got 0:11:04.000 --> 0:11:06.319 a big difference to your child. I totally agree with that. 0:11:06.640 --> 0:11:10.040 We've not ever had a pandemic that I've been you know, 0:11:10.200 --> 0:11:14.839 studied before, and it does have unique characteristics. But you know, 0:11:14.920 --> 0:11:17.920 there's been unique characteristics in the past. There were start 0:11:18.040 --> 0:11:21.439 stop in the two thousand nine recovery too. I mean, 0:11:21.480 --> 0:11:27.600 we had massive bank failures and brokerage from failures. Our 0:11:27.679 --> 0:11:31.319 banking system was totally challenged. Sometimes that looks a little better, 0:11:31.440 --> 0:11:34.920 Sometimes it looked a little worse. Um In in in 0:11:35.280 --> 0:11:38.800 the early eighties we had basically a depression and energy 0:11:38.840 --> 0:11:44.240 and agriculture in my home state of Iowa. UM commodity deflation. Uh, 0:11:44.800 --> 0:11:46.760 that was a lot of starting stop there too. I 0:11:46.880 --> 0:11:51.480 don't know if they're this specific thing is is unique 0:11:51.520 --> 0:11:55.599 to the day, but in reality it's pretty common to 0:11:55.720 --> 0:12:00.320 the past. We The real key here is you don't 0:12:00.440 --> 0:12:04.040 have to get back to normal before security prices move. 0:12:05.400 --> 0:12:07.880 They've already moved long before we're back to normal, and 0:12:07.920 --> 0:12:11.240 they probably continue to do that. UM. If we can 0:12:11.320 --> 0:12:15.160 just trend northward in terms of economics, I think that's 0:12:15.160 --> 0:12:17.600 going to be sufficient, even if it's slow, and even 0:12:17.640 --> 0:12:21.360 if it's starting style well, let's say it's slow. When 0:12:21.400 --> 0:12:23.160 it's start and stop, let's talk about what you want 0:12:23.200 --> 0:12:25.839 to own. The rotation into the cyclical areas of this 0:12:25.960 --> 0:12:28.520 market worked for about five minutes and then really stalled 0:12:28.840 --> 0:12:31.880 through the month of June. Jim with the backdrop right 0:12:31.880 --> 0:12:34.800 now that we're facing with a week where the dominance 0:12:34.840 --> 0:12:38.600 of megacat tech is back on top, how uncomfortable does 0:12:38.640 --> 0:12:41.520 it fail to pivot away from that story and back 0:12:41.559 --> 0:12:44.120 to value again, back to the cyclical areas of this market. 0:12:46.080 --> 0:12:49.360 I do own Bolt John, I'd own the Barbell, I 0:12:49.559 --> 0:12:53.679 continue to own New Era growth, and I would I 0:12:53.760 --> 0:12:57.880 would continue to add exposure in what I'd say the 0:12:57.960 --> 0:13:00.920 broader market, which to me is who go small caps 0:13:00.960 --> 0:13:05.360 in their nationals UM. And I really think, on the 0:13:05.400 --> 0:13:11.320 one hand that there's greater participation going on here than advertised. Yes, 0:13:11.480 --> 0:13:13.959 it's done. It's been a their or market since the 0:13:14.040 --> 0:13:19.280 June eight top here. But from the Marche low, the 0:13:20.040 --> 0:13:25.120 Russell two thousand index, the equally weighted SMP five and 0:13:25.360 --> 0:13:28.559 the market cap weighted SMP five hundred are all up, 0:13:29.480 --> 0:13:34.600 are all had risen by about so there is greater 0:13:34.679 --> 0:13:37.800 participation here still still going on. It may not be 0:13:37.960 --> 0:13:41.520 every week, but I think if right now we've got 0:13:41.559 --> 0:13:46.080 a baristattitude towards pandemic and reopening, if that turns back 0:13:46.120 --> 0:13:48.480 to bullishness again, I think we'll see the broader market 0:13:48.559 --> 0:13:52.640 pick up. In the meantime, your high growth equities are 0:13:52.679 --> 0:13:55.079 going to continue do well. I don't really see a 0:13:55.160 --> 0:14:00.320 bubble in growth like I saw in two thousand. I mean, 0:14:00.440 --> 0:14:03.959 right now in tech, for example, the forward multiple on 0:14:04.160 --> 0:14:07.920 SMPF under text twenty seven times. It was fifty five 0:14:08.040 --> 0:14:12.360 times in two thousands. Right now the relative key motiple 0:14:12.679 --> 0:14:15.680 is one point one times the SMP. It was two 0:14:15.760 --> 0:14:18.400 times SMP. And the reason that people are buying those 0:14:18.440 --> 0:14:22.320 stocks today, it's not because they're out over their skis 0:14:22.400 --> 0:14:27.280 with massive you know, bullishness. It's because of defensiveness. They're 0:14:27.320 --> 0:14:31.480 buying those stocks like they used to buy utility right. Well, Jim, 0:14:31.560 --> 0:14:33.520 this has sort of been the argument by a lot 0:14:33.560 --> 0:14:36.640 of big investors that basically the big tech are the 0:14:36.720 --> 0:14:39.680 stalwarts and are the utilities going forward. On the other hand, 0:14:39.720 --> 0:14:42.280 if you take a look at who is buying, retail 0:14:42.360 --> 0:14:45.560 investors are accounting for a greater proportion of total volumes 0:14:45.600 --> 0:14:47.480 in the equity market in the United States. The head 0:14:47.480 --> 0:14:50.360 of execution for Citadel coming out yesterday and saying at 0:14:50.360 --> 0:14:53.640 any given day, uh, there is one fifth of all 0:14:53.720 --> 0:14:57.360 trading activity attributed to these retail investors, which have traditionally 0:14:57.400 --> 0:14:59.600 been thought of as the dumb money. Do you agree 0:14:59.720 --> 0:15:01.680 or do you think that they're smarter than the institutions 0:15:01.720 --> 0:15:06.240 that are being more reticent to pile in. Well, I 0:15:06.320 --> 0:15:09.320 guess that you have to be be determined. I don't. 0:15:10.360 --> 0:15:14.280 I don't believe that the size of the retail run 0:15:14.360 --> 0:15:20.000 to me um is is of a magnitude. I think 0:15:20.080 --> 0:15:23.720 that's concerning like it might have been in earlier periods. 0:15:24.440 --> 0:15:26.880 And I also don't know at least one who knows. 0:15:27.560 --> 0:15:32.120 But I also don't think it's it's backed by you know, uh, 0:15:32.640 --> 0:15:38.640 rabid bullishness and optimism. I think there are people that 0:15:38.840 --> 0:15:44.200 were looking and using these growth stocks as defensive investment. 0:15:45.000 --> 0:15:47.000 Whether that's going to prove to be accurate, I don't know, 0:15:47.640 --> 0:15:50.760 but it's it's not something we've done in the past. 0:15:51.120 --> 0:15:55.160 When when we've had this run concentrated run into these 0:15:55.200 --> 0:15:57.680 big cap tech stocks in the past, it's been a 0:15:57.840 --> 0:16:02.240 signal of over bullishness, and that just does not evidence 0:16:02.240 --> 0:16:06.640 to me today the character of that sector has really changed. 0:16:06.880 --> 0:16:09.920 Jim fantastic to catch up with these as always Jim 0:16:09.960 --> 0:16:21.760 Paulson there of Luthold Wait and really fortunate to be 0:16:21.840 --> 0:16:24.720 joined on the program now by Mohammed al Arian, chief 0:16:24.800 --> 0:16:28.480 economic advisor to Ali and son of course Bloomberg opinion columnist. Mohammed, 0:16:28.680 --> 0:16:31.280 We've been following this crisis over the last several months together, 0:16:31.320 --> 0:16:33.880 and it just feels like we're entering something different, a 0:16:34.000 --> 0:16:36.400 new phase. There's a shift here. What are your thoughts 0:16:36.480 --> 0:16:40.280 on it? There is drawn and it's really happening in 0:16:40.360 --> 0:16:43.040 the economy in the US, and that is a migration 0:16:43.280 --> 0:16:46.920 up of layoffs from small and medium sized companies to 0:16:47.120 --> 0:16:50.880 larger ones. And that's consequential. Vote for what it says 0:16:50.880 --> 0:16:54.040 about the demand side, but also what it says about 0:16:54.240 --> 0:16:56.400 the supply side, and there is a lot of businesses 0:16:56.440 --> 0:16:59.680 are not buying into the v they see a different 0:17:00.080 --> 0:17:05.480 the nation and regardless of the journey, Dr Larry and 0:17:05.520 --> 0:17:09.360 Warren Buffett made a t decision this week to invest 0:17:09.440 --> 0:17:12.119 in a distress asset. I think what's missing in our 0:17:12.200 --> 0:17:16.640 analysis on a Friday in July is how businesses, how 0:17:16.800 --> 0:17:22.800 executives will respond, what are the t decisions CEO, CFOs 0:17:22.880 --> 0:17:25.680 and big money is going to make over the next year. 0:17:27.280 --> 0:17:30.120 So for most businesses it really comes down to three issues. 0:17:30.840 --> 0:17:35.399 Is my balance sheet strong enough a B what is 0:17:35.480 --> 0:17:38.639 demand and where you're gonna look like? And see what 0:17:38.840 --> 0:17:41.359 is my cost structure is going to look like? For 0:17:41.520 --> 0:17:45.200 the marketplace, that's a really interesting aspect going on because 0:17:45.240 --> 0:17:49.200 the marketplace has to also incorporate two things. One is 0:17:49.280 --> 0:17:55.040 the very heavy hand of policy and secondly are technicals 0:17:55.119 --> 0:17:59.800 that have proven very strong but remain delicate. So it's 0:17:59.800 --> 0:18:03.000 a really interesting configuration um that we're going to be 0:18:03.040 --> 0:18:05.920 talking about for a long time tom going forward. But 0:18:06.080 --> 0:18:08.960 the basic issue is that there's much more fluidity out 0:18:09.000 --> 0:18:12.800 there economic and financial of course health wise than we've 0:18:12.840 --> 0:18:16.600 seen for a very long time. Mommed, what is it 0:18:16.640 --> 0:18:20.639 about the technicals that you think a delicate right now. So, 0:18:20.760 --> 0:18:23.320 I think what you have is the extension of what 0:18:23.520 --> 0:18:26.920 has been the formal trade, the Tina trade, and the 0:18:27.040 --> 0:18:30.160 fear of missing out because central banks are our best 0:18:30.240 --> 0:18:34.240 friends the Tina. There is no alternative but stocks, but 0:18:34.560 --> 0:18:38.040 but certain stocks within that that have become both defensive 0:18:38.119 --> 0:18:41.280 and growth at the same time, and that has attracted 0:18:41.560 --> 0:18:44.480 a lot more interest from the retail side. And the 0:18:44.560 --> 0:18:47.120 retail side has had quite an influence in the last 0:18:47.240 --> 0:18:50.200 month or so, you know, John, I think more retail 0:18:50.280 --> 0:18:55.440 participation is very important. It broadens the marketplace and importantly 0:18:55.920 --> 0:19:00.600 it means society buys into a market based system even more. However, 0:19:01.200 --> 0:19:04.040 you don't want retail to be the victim of a 0:19:04.119 --> 0:19:08.479 head fake. And that's what I really worry about. Victim 0:19:08.600 --> 0:19:10.760 of a head fake. Another way to say, this is 0:19:10.920 --> 0:19:13.679 a bubble. That's what Rob or not a research affiliates 0:19:13.720 --> 0:19:16.520 called the tech stocks and the valuations right now there, 0:19:16.920 --> 0:19:21.040 Do you agree? So, I think there's there's two issues 0:19:21.080 --> 0:19:23.960 of the head fake. One is to be careful that 0:19:24.480 --> 0:19:27.680 central bank support does not go all the way down 0:19:27.960 --> 0:19:33.000 to the faulting companies. The false imply capital impairment and 0:19:33.119 --> 0:19:36.720 the experience with Hurts, where should be one that that 0:19:36.800 --> 0:19:40.040 should be puts front and center of every retail investor. 0:19:40.680 --> 0:19:44.120 The second element relates to rob are not really good 0:19:44.160 --> 0:19:48.280 interview with you yesterday, which is there was a time 0:19:48.320 --> 0:19:52.359 when the marketplace thinks in relative terms, and there's a 0:19:52.440 --> 0:19:55.000 time when it thinks in absolute terms. And relative terms, 0:19:55.200 --> 0:20:00.680 tech makes absolute sense. They have strong balance feet, positive 0:20:00.720 --> 0:20:04.040 cash flow, good management, and on the sunny side of 0:20:04.119 --> 0:20:06.800 both the COVID journey and what's on the other side 0:20:06.880 --> 0:20:09.840 of the COVID journey. But in absolute terms, look at 0:20:09.840 --> 0:20:14.040 the valuations. And what I have learned in my experience 0:20:14.040 --> 0:20:17.320 in the marketplace is that the market can be obsessed 0:20:17.400 --> 0:20:21.040 with relative values for a very very long time and 0:20:21.200 --> 0:20:25.160 then almost overnight, it shifts to absolute. And that moment 0:20:25.800 --> 0:20:29.680 can be quite a jarring moment if you don't realize 0:20:29.760 --> 0:20:33.760 where you are on valuations. In Muhammad, You've done this 0:20:33.920 --> 0:20:36.119 with Bill Gross at PIMCO. You know, Bill Gross had 0:20:36.160 --> 0:20:39.520 his famous Monroe trader on his desk where you're quota yield, 0:20:39.560 --> 0:20:41.360 yield yield, and all of a sudden you go from 0:20:41.400 --> 0:20:44.160 relative to absolute and all you're worried about his price 0:20:44.280 --> 0:20:47.719 price price, How close are we in the bond market 0:20:48.160 --> 0:20:51.320 with where nominal yields are, real yields are, and negative 0:20:51.400 --> 0:20:55.240 yields are to you flipping from a yield analysis to 0:20:55.400 --> 0:21:01.600 a price analysis to protect capital. So a lot depends 0:21:01.920 --> 0:21:04.919 on which part of the bond market. And I think 0:21:04.960 --> 0:21:07.520 it's really important to distinguished tom. And let me start 0:21:07.600 --> 0:21:09.640 with a story that was often told that PIMCO, which 0:21:09.680 --> 0:21:12.440 is the person who comes home and says, look, I 0:21:12.520 --> 0:21:15.680 bought a dog for thirty dollars and his wife says, 0:21:15.680 --> 0:21:18.680 are you crazy? You spend thirty tho dollars for a dog? 0:21:19.000 --> 0:21:21.159 And he answers, yeah, a great deal. That cat was 0:21:21.200 --> 0:21:24.240 selling for forty tho. Right, there's a point at which 0:21:24.359 --> 0:21:27.360 relative trades don't make sense. I think you're gonna see 0:21:27.400 --> 0:21:29.679 this in high yield You're gonna see this in emerging 0:21:29.800 --> 0:21:33.200 market corporates. You're gonna see that in certain sovereign emerging markets. 0:21:33.280 --> 0:21:35.679 You're not gonna see it higher up in the counital 0:21:35.720 --> 0:21:40.040 structure because central banks have and will continue to influence 0:21:40.480 --> 0:21:43.720 those yields and those spreads. So people have got to 0:21:43.800 --> 0:21:47.240 be much more careful into how they treat the bond market. 0:21:47.359 --> 0:21:51.800 It is very different when you get near the fault risk. Mohammad, 0:21:51.800 --> 0:21:53.919 You've gotta be careful. Otherwise people listening to this might 0:21:54.000 --> 0:21:57.520 think that people of pimp care actually brought thirty dollar dogs, 0:21:57.520 --> 0:22:00.280 and I'm sure that maybe maybe that was in the 0:22:00.440 --> 0:22:05.280 case you mentioned a couple of times, then they certainly didn't. 0:22:05.480 --> 0:22:09.040 Pimco Bimko is and always has been a very fundamental 0:22:09.160 --> 0:22:13.520 driven shop, right John, John, I paid thirty two thousand 0:22:13.640 --> 0:22:18.640 ProVet Bill. I'm sorry, which is why you call him 0:22:18.680 --> 0:22:21.280 vet bill. I'm sure because of the costs are Mohammed, 0:22:21.400 --> 0:22:24.080 you mentioned them a couple of times there, didn't you, 0:22:24.480 --> 0:22:27.040 And I just think that it wasn't by accident. Are 0:22:27.080 --> 0:22:30.960 you concerned about the evaluations and emerging markets? I am. 0:22:31.160 --> 0:22:34.280 I think people don't realize how tough it is for 0:22:34.640 --> 0:22:38.240 the typical emerging market. Phase one was simply dealing with 0:22:38.280 --> 0:22:41.600 the spin over from what was happening in China, what 0:22:41.840 --> 0:22:44.680 was happening in Europe and the US, which is lower exports, 0:22:44.760 --> 0:22:49.119 lower commodity prices, lower tourism, lower form direct investment. Phase 0:22:49.240 --> 0:22:53.639 two is dealing with their own COVID our breaks. If 0:22:53.680 --> 0:22:55.840 you look at what's happening in Latin America, it is 0:22:56.040 --> 0:22:58.480 tragic if you're looking at parts of what's happening in Africa, 0:22:58.560 --> 0:23:02.119 it is tragic. So the demand on their resources and 0:23:02.280 --> 0:23:06.440 the need to divert more resources to the health care 0:23:06.600 --> 0:23:09.120 system is just going to go up. And I think 0:23:09.160 --> 0:23:12.680 that people don't realize that there is, to quote my 0:23:12.920 --> 0:23:17.040 colleagues at Gramacy, a paradigm of non payments coming up 0:23:17.080 --> 0:23:23.720 for certain emerging market credits. A paradigm of non payments. 0:23:23.800 --> 0:23:26.520 The idea that perhaps some of the sovereign debt could 0:23:26.560 --> 0:23:29.000 get written down, and we've seen some of that from 0:23:29.040 --> 0:23:31.840 the I m F. So far, where are we in 0:23:32.000 --> 0:23:35.000 that How much do you think the sovereign debt of 0:23:35.160 --> 0:23:40.040 developing markets could get written down ultimately? So we've seen 0:23:40.320 --> 0:23:44.800 ongoing with Ecuador, with Argentina, that's that market based solutions, 0:23:45.040 --> 0:23:46.720 like you say, we've seen the I m F and 0:23:46.760 --> 0:23:49.560 the World Bank work with the three twenty on a 0:23:49.720 --> 0:23:53.360 debt service suspension initiative for the poorest countries, and they've 0:23:53.400 --> 0:23:57.399 made it very clear that they expect burden sharing. Um. 0:23:57.560 --> 0:23:59.399 The issue is, as you know, Lisa, it is not 0:24:00.000 --> 0:24:03.240 easy to dictate burden sharing from a top down perspective, 0:24:03.640 --> 0:24:06.280 and that's where the I m F and the World 0:24:06.320 --> 0:24:10.680 Bank are struggling and finding a way for private sector involvement, 0:24:10.760 --> 0:24:13.160 as they call it ps I. I think it's gonna come. 0:24:13.240 --> 0:24:16.680 I think when countries go from immediate emergency assistance to 0:24:16.760 --> 0:24:19.680 one thing, longer term support from this institution, one of 0:24:19.720 --> 0:24:22.399 the requirements is going to be burden sharing. And I 0:24:22.440 --> 0:24:24.680 don't think credit is quite realize that that's going to 0:24:24.840 --> 0:24:29.440 migrate up from the lowest income countries to some, not all, 0:24:29.800 --> 0:24:33.919 some of the middle income emerging markets as well. Mohammed. 0:24:33.920 --> 0:24:36.359 When people say burden sharing right now, we think of 0:24:36.440 --> 0:24:38.680 Europe and the fiscal talks are set to take place 0:24:38.800 --> 0:24:41.879 later this month. You have really pushed back over the 0:24:41.960 --> 0:24:45.600 last year, maybe longer, when people have come on programs 0:24:45.720 --> 0:24:48.080 like this and talked about pivoting away from America and 0:24:48.119 --> 0:24:52.760 American assets towards Europe and the consonant. What's the pushback now? 0:24:54.119 --> 0:24:56.280 So I think we're getting closer to him. I think 0:24:56.600 --> 0:24:58.960 we've learned once again that it takes a crisis to 0:24:59.040 --> 0:25:02.720 move Europe, and what you're seeing happening in Europe is 0:25:02.840 --> 0:25:07.080 I think an important moment. So I must say that 0:25:07.160 --> 0:25:10.800 I'm really encouraged by what's going on in Europe right now, Um, 0:25:10.880 --> 0:25:14.760 it would be important to see how these negotiations proceed. Um. 0:25:14.800 --> 0:25:17.119 There are people that the countries are still resistant, but 0:25:17.240 --> 0:25:18.639 on the whole, I think they're going to get to 0:25:18.840 --> 0:25:22.240 a better place. And I told you that the time 0:25:22.280 --> 0:25:26.359 will come to fade the US in favor of Europe. 0:25:26.400 --> 0:25:29.040 We're getting much closer to that. I would not fade 0:25:29.080 --> 0:25:33.600 the US in favor of the merger markets though, Mohammed, 0:25:33.680 --> 0:25:36.320 always appreciate your time. Thank the family for us wind you. 0:25:36.359 --> 0:25:38.320 I know it's super early on the West coast and 0:25:38.400 --> 0:25:41.080 this is a disruption for the Larian household as well. 0:25:41.280 --> 0:25:43.520 Have a fantastic to catch up this Mhammed al Arian 0:25:43.600 --> 0:25:46.879 there of Blomberg opinion and of course chief economic advisor 0:25:47.080 --> 0:26:00.600 to ALIAS, this is a joy and a day. Given 0:26:00.640 --> 0:26:04.200 the pandemic and the carnege economically across the nation, it 0:26:04.359 --> 0:26:07.480 is good to speak to someone authoritative from a firm 0:26:07.600 --> 0:26:11.360 that owns the franchise. That would be Cowen and Company. 0:26:11.840 --> 0:26:15.720 Not only with Chivan Rumor, the legendary airline analysts, the 0:26:15.800 --> 0:26:20.800 Boeing analyst, but also with Helene Becker. Cowen truly owns 0:26:20.880 --> 0:26:24.560 a high ground on airline analysis. To thrilled that MS 0:26:24.680 --> 0:26:27.480 Becker could join us this morning, Helene, I want to 0:26:27.560 --> 0:26:30.240 cut to the chase and the headlines. I know you've 0:26:30.320 --> 0:26:35.960