WEBVTT - Surveillance: Digitization Of The Economy With Auth 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. 0:00:13.960 --> 0:00:17.560 We bring you inside from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.640 --> 0:00:27.280 Bloomberg dot Com, and of course on the Bloomberg. There's 0:00:27.320 --> 0:00:30.920 some real oddities in the FOREGN exchange market has clearly 0:00:30.960 --> 0:00:35.080 market participants search for information. Let's drive that forward right now. 0:00:35.080 --> 0:00:37.880 Sebastian Gallery where us with Nordia. He's known for writing 0:00:38.320 --> 0:00:42.440 wonderfully dense important notes where you're like, damn, I hate 0:00:42.440 --> 0:00:44.920 this guy. I've got to read every paragraph, and we 0:00:45.000 --> 0:00:49.000 do that with Sebastian uh Galli, especially oh welco. Question 0:00:49.040 --> 0:00:52.440 to get the conversation started, what is your observation on 0:00:52.720 --> 0:00:58.080 currency dynamics right now? I think what you're seeing is 0:00:58.120 --> 0:01:00.960 basically a form of normalization. You're seeing, for example, the 0:01:00.960 --> 0:01:04.479 euro appreciated against the sterlings is also being driven by 0:01:04.560 --> 0:01:08.240 exectations of negative rates. In the United Kingdom. You're seeing 0:01:08.319 --> 0:01:12.440 some form of normalizations, but no great trends um if 0:01:12.440 --> 0:01:14.720 you look, for example, in the margo market, the Church's theory, 0:01:14.760 --> 0:01:17.440 which is something people love to hate for good reasons, 0:01:17.640 --> 0:01:20.720 has actually been appreciating the last two to three weeks 0:01:20.720 --> 0:01:23.480 and doing actually quite well, helping the central bank over 0:01:23.520 --> 0:01:26.039 there to cut the interest rates by fifty basis point today. 0:01:26.040 --> 0:01:28.280 You could see it on your bloomwerk. Okay, this is great, 0:01:28.319 --> 0:01:30.080 and then you know Brazilian ROWL has actually had a 0:01:30.120 --> 0:01:34.039 couple of good days versus the horrific pandemic statistics out 0:01:34.040 --> 0:01:36.720 of there. But Sebastian, is there a theme that can 0:01:36.760 --> 0:01:40.640 be identified here that it helps our listeners and viewers 0:01:40.760 --> 0:01:47.640 forward over the next ninety days. Concurrency tell us something forward, Well, 0:01:47.640 --> 0:01:49.400 they can tell you something about the effect in the 0:01:49.800 --> 0:01:52.840 negative industry. So if the theme of negative interest rates 0:01:52.840 --> 0:01:55.120 in the United States is an important one, denied of 0:01:55.160 --> 0:01:58.160 course by the Federal Reserve, which is close to the banks. 0:01:58.160 --> 0:02:00.000 They think the banks actually need to have very good 0:02:00.080 --> 0:02:02.560 balance sheets, and it doesn't help what we call net income, 0:02:02.720 --> 0:02:05.880 so the ability to generate money by running down the 0:02:05.920 --> 0:02:08.639 curve um. But if it does have a negative impact 0:02:08.720 --> 0:02:10.920 on on the dollar, it's gonna be great, particularly versus 0:02:10.919 --> 0:02:14.079 emerging markets, also versus g tents such as the euro. 0:02:14.320 --> 0:02:17.080 It could really reset the level of the dollar. And 0:02:17.320 --> 0:02:20.720 why because negative entries they hit the people um who 0:02:20.760 --> 0:02:23.000 are the most sensitive to it, which is namely the 0:02:23.480 --> 0:02:26.320 safest type of investors, such as foreign reserves. That could 0:02:26.360 --> 0:02:29.040 be China and the likes. It happened to the euro Zone. 0:02:29.080 --> 0:02:32.200 I was there with the CB. They go for negative introvice, 0:02:32.280 --> 0:02:34.519 particularly to talget these people to force him out of 0:02:34.520 --> 0:02:37.320 the euro to reduce it. It works to some extent, 0:02:37.480 --> 0:02:39.760 not completely, but it does work, and as they start 0:02:39.800 --> 0:02:41.360 moving at a just the level of the euro in 0:02:41.400 --> 0:02:44.560 the same obviously could happen also in the case of 0:02:44.720 --> 0:02:47.360 the of the dollars. So one shouldn't neglect the fact 0:02:47.360 --> 0:02:50.000 the negative industry could have a powerful impact on the US, 0:02:50.080 --> 0:02:53.200 particularly because it owes money to the rest of the world. 0:02:53.200 --> 0:02:56.639 It receives a lot of a portfolio flows, sting portfolio flows, 0:02:56.680 --> 0:02:58.880 but it actually is not in a great position, though 0:02:58.880 --> 0:03:00.840 a much better position than they used to be. So 0:03:01.160 --> 0:03:03.880 it's a negative in Church Chase is not a great 0:03:03.919 --> 0:03:06.720 story for fixed income in the US or risk taking, 0:03:06.720 --> 0:03:08.359 but it is a bit, but it could be a 0:03:08.360 --> 0:03:11.640 powerful one for the dollar. A wise man once told me, 0:03:11.760 --> 0:03:13.800 and I won't confirm or deny whether it's a gentleman 0:03:13.800 --> 0:03:16.960 we're currently interviewing, but he once told me that when 0:03:16.960 --> 0:03:19.640 an economist becomes a central banker, they have to learn 0:03:20.040 --> 0:03:23.160 to lie. Sep what are they lying to us about 0:03:23.600 --> 0:03:27.560 right now? I know nothing about lying is absolutely not sure? 0:03:28.240 --> 0:03:32.320 Carry on having having clarified it is that I am 0:03:32.320 --> 0:03:35.040 not involved in this business. The business has central bankings 0:03:35.080 --> 0:03:37.480 such as the military, is a business of lying. What 0:03:37.600 --> 0:03:41.200 your objective is is to gather people around you to 0:03:41.280 --> 0:03:44.000 create a narrative, to sell their narrative. There'll be hawks, 0:03:44.040 --> 0:03:45.880 there will be doves, and some of them genuinely are, 0:03:46.440 --> 0:03:49.120 but they are in the business of creating that storyline, 0:03:49.120 --> 0:03:52.000 which then drives expectations in the market. You then have 0:03:52.240 --> 0:03:55.160 what you could call anchor points within the markets. It's 0:03:55.400 --> 0:03:59.240 important people large hedge fund manager, larger fixed income guys 0:03:59.480 --> 0:04:01.720 and to something and they received better information than other 0:04:01.760 --> 0:04:03.600 sense one of the reasons you want to be invested 0:04:03.640 --> 0:04:06.440 with them. And they then drive also the narratives with 0:04:06.440 --> 0:04:08.840 their own views and they group to some extent. Of course, 0:04:08.880 --> 0:04:11.760 the inforced the FED, and it's a very powerful and 0:04:11.760 --> 0:04:15.360 well organized type of operations. So not all central banks 0:04:15.400 --> 0:04:18.159 are as efficient, but they are generally very very good, 0:04:18.160 --> 0:04:20.880 from the PBOC in China to the Bank of England 0:04:20.960 --> 0:04:22.960 which is the oldest one in the most experienced one 0:04:23.000 --> 0:04:26.200 Bunk Defalse also and and the FED and their business 0:04:26.440 --> 0:04:28.520 is to create the environments. If they tell you there's 0:04:28.560 --> 0:04:31.560 no negative interest chase, that means they're probably considering they're 0:04:31.600 --> 0:04:36.919 working on it. And they told the Bank of England 0:04:36.960 --> 0:04:41.279 basically one of the oldest liars in central bankings. Yeah, well, 0:04:41.279 --> 0:04:43.920 it's definitely the skepticism John, that you've been showing, as 0:04:43.960 --> 0:04:46.080 you say, is you could get away with that because 0:04:46.080 --> 0:04:50.680 of his accent accent, he couldn't be that cental Chris Basha. 0:04:50.839 --> 0:04:52.840 Let's talk about what the FED can do. Let's say 0:04:52.880 --> 0:04:55.719 they're not lying about not wanting to use negative interest 0:04:55.800 --> 0:04:57.880 rates or not planning for it at this point, to 0:04:57.920 --> 0:05:00.880 talk about the additional tools that they have on deck. 0:05:00.920 --> 0:05:04.039 We've seen massive inflows into some of the credit et 0:05:04.240 --> 0:05:07.080 f s and the hills of FED purchases in particular 0:05:07.200 --> 0:05:09.560 l QD, H, y G and even J and K 0:05:09.800 --> 0:05:11.640 more than a billion dollars of the past week into 0:05:11.640 --> 0:05:14.800 each of those funds. How realistic is this? Is the 0:05:14.880 --> 0:05:17.360 FED back stopping this and how much can the federally 0:05:17.400 --> 0:05:21.800 expand in this area? A lot? I mean, never underestimate 0:05:21.839 --> 0:05:24.000 the power of a central bank is one side of 0:05:24.000 --> 0:05:26.080 banketor used to say, I can put fish on my bounce. 0:05:26.120 --> 0:05:28.839 She doesn't really not an issue, so never understimated. The 0:05:28.839 --> 0:05:31.640 only fish the only time when you wanna they have 0:05:31.760 --> 0:05:33.640 said that, and the only time when you want to 0:05:33.640 --> 0:05:35.760 have doubts is when inflation in rising. So when some 0:05:35.839 --> 0:05:38.919 emerging markets things are broken, for example in the meat industry, 0:05:39.000 --> 0:05:42.120 that creates inflation. When you have constraints in the system, 0:05:42.160 --> 0:05:44.600 then they lose credibility and they're forced to act. But 0:05:44.680 --> 0:05:47.479 if if you have low inflation, if there are there's 0:05:47.480 --> 0:05:50.000 a significant amount of slack in the environment, they can 0:05:50.000 --> 0:05:52.320 do so much. And probably what they're going to do 0:05:52.680 --> 0:05:54.760 is try to go, of course in the high yield, 0:05:54.760 --> 0:05:57.400 but go to small and make caps with many caps 0:05:57.400 --> 0:05:59.960 and the and the likes mainstream facilities. Starting in June, 0:06:00.240 --> 0:06:02.800 it probably will be increased a vastly going forward. So 0:06:02.920 --> 0:06:05.480 that's probably one thing to look forward for. More advransious 0:06:05.520 --> 0:06:07.760 center bacts even quite bearish on the outlook of the 0:06:07.760 --> 0:06:11.000 economy to put pressure on the government as well as 0:06:11.040 --> 0:06:13.480 on on the Congress to do something. But they probably 0:06:13.480 --> 0:06:16.440 are also deeply concerned that they actually need to put 0:06:16.760 --> 0:06:18.720 a much more pressure on the economy so that it 0:06:18.760 --> 0:06:21.240 rebounds quite nicely. Sae tell him, this is the problem. 0:06:21.279 --> 0:06:25.760 This conversation, this very conversation is basically why market participants 0:06:25.760 --> 0:06:28.320 do not believe the Federal Reserve when they turn around 0:06:28.360 --> 0:06:30.760 and say, no, the negative interest rate. And look, I'd 0:06:30.760 --> 0:06:32.839 love to think that it's true. I hope they don't 0:06:32.880 --> 0:06:34.640 go through with this, but there is a reason why 0:06:34.680 --> 0:06:37.279 so many investors still think there's a chance they go 0:06:37.400 --> 0:06:40.040 through with this till you overcome by events. I mean, 0:06:40.080 --> 0:06:42.080 that's all there is to it, you know, Obi, And 0:06:42.640 --> 0:06:45.800 in every institution can manage the messages all they want, 0:06:45.920 --> 0:06:48.440 and then when the facts change, they change, and there 0:06:48.480 --> 0:06:50.880 can be a set effects. John again, and I'm going 0:06:50.920 --> 0:06:54.880 to claims, what fifty minutes away, you know, you do 0:06:54.920 --> 0:06:58.920 a couple of months of unemployment that may qualify as 0:06:58.960 --> 0:07:02.280 a Sebastian girl. Effects changeable. What's let's finish there, Let's 0:07:02.279 --> 0:07:04.400 wrap things up. Let's say that the labor market doesn't 0:07:04.440 --> 0:07:07.279 snap back quickly enough. Let's say that we really get 0:07:07.360 --> 0:07:11.560 this really strong disinflationary trend that takes hold. An inflation 0:07:11.920 --> 0:07:15.480 is steadily holding below where the policy rate is right now, 0:07:15.600 --> 0:07:19.160 what's the next move at the Fed. Probably the next 0:07:19.160 --> 0:07:21.600 move is is some form of credit easing quality everything, 0:07:21.640 --> 0:07:25.120 because they want to sort basically an expanding fiscal balance 0:07:25.280 --> 0:07:28.160 from from from the government, so they basically expand to 0:07:28.160 --> 0:07:30.600 absorb it, and so that's where they need to do MBS. 0:07:30.640 --> 0:07:33.160 It's going to be very slowly, not MBS, that's going 0:07:33.320 --> 0:07:35.720 to come more with a lax so that you're talking 0:07:35.760 --> 0:07:38.200 about six one, six months, one year, and one year 0:07:38.240 --> 0:07:40.800 and half and two years down the road. Credit easing 0:07:40.880 --> 0:07:43.480 basically going where the pressure is and try to encourage 0:07:43.520 --> 0:07:45.920 people to take a credit risk and where it's very 0:07:45.920 --> 0:07:48.960 difficult to take it, such as mini caps, small caps 0:07:49.000 --> 0:07:52.960 and the life far more aggressions, negative intricate. That largely 0:07:53.000 --> 0:07:56.240 depends on the relationship between the White House and UH 0:07:56.320 --> 0:07:59.360 and the Federal Reserve. So it's really a debate you 0:07:59.680 --> 0:08:03.720 really fet is essentially Republican institutions. White House obviously is 0:08:03.760 --> 0:08:05.880 a Republican one. So on one side they have the 0:08:05.920 --> 0:08:08.360 banking system, with which they're quite close to. On the 0:08:08.360 --> 0:08:10.720 other side they are quite close to the economy in general, 0:08:10.760 --> 0:08:12.800 and so they have to find some kind of balance. 0:08:12.800 --> 0:08:15.280 Negative aturey straits are are possible in the in the 0:08:15.400 --> 0:08:18.200 United States, they're probably working on them in terms of implications, 0:08:18.240 --> 0:08:20.720 as the sues did for six months, and and that 0:08:20.760 --> 0:08:23.320 probably will take them in another few weeks, and and 0:08:23.360 --> 0:08:26.120 the debta ultimately will be a political one. There's the 0:08:26.200 --> 0:08:28.120 fet is independent, but it doesn't mean that it's not 0:08:28.160 --> 0:08:32.760 easily to some extent influences in some cases. So thank 0:08:32.800 --> 0:08:36.319 you so much, greatly, greatly appreciate it this morning. Just 0:08:36.559 --> 0:08:42.320 very very smart. Let's forget about the millions. Now, we 0:08:42.440 --> 0:08:45.520 used to look at statistics weekly that we're two hundred 0:08:45.600 --> 0:08:48.720 ten thousand, We get all lathered up. If we got 0:08:48.720 --> 0:08:53.640 near two hundred or a hundred thousand, maybe two hundred 0:08:53.640 --> 0:08:56.040 and thirty. John and I would stay up all night drinking, 0:08:56.040 --> 0:08:59.719 worrying about the future of a fully employed America. And 0:08:59.800 --> 0:09:02.840 now were up ten times above that two point four million, 0:09:03.160 --> 0:09:07.319 and as Lisa pointed out presciently hit twenty minutes ago, 0:09:07.360 --> 0:09:10.800 were so continuing claims matter and that statistic moves in 0:09:10.840 --> 0:09:14.160 the wrong direction. Stephen Roshido has been a student of this. 0:09:14.280 --> 0:09:17.960 He's at missooo and his charm is chief US Economist. 0:09:18.000 --> 0:09:23.840 As he writes a shockingly interesting note, always digging into 0:09:24.120 --> 0:09:28.200 y equals see plus I plus G plus annex. Stephen 0:09:28.200 --> 0:09:31.520 Shudo joins us now steven the claims, but also on 0:09:31.600 --> 0:09:35.079 your general work. What's the thing that you're most studying 0:09:35.240 --> 0:09:39.480 about the American economy? Well, I clearly the the two 0:09:39.559 --> 0:09:43.760 degree of deterioration is unprecedented, not only in size but 0:09:43.920 --> 0:09:47.080 also on speed, given the nature of the lockdown, none 0:09:47.120 --> 0:09:49.839 of that should be a surprise. What I'm really looking 0:09:49.880 --> 0:09:53.680 at and focusing on that sets this position particular period 0:09:53.720 --> 0:09:57.079 apart from others that most of us have grown up 0:09:57.120 --> 0:10:02.400 in is the coordination between fiscal and monetary policy UM 0:10:02.400 --> 0:10:06.600 striving for the same end result UM. You know, back 0:10:06.640 --> 0:10:10.120 in n seventy nine, I should say, when Paul Vulker 0:10:10.200 --> 0:10:13.120 moved us away from interest rate to money supply targeting 0:10:13.160 --> 0:10:16.800 adopted monitorism. Basically, the Federal Reserve has been on a 0:10:16.840 --> 0:10:20.120 process of demand management, i e. Trying to keep the 0:10:20.160 --> 0:10:24.760 economy from creating underlying inflation pressures, and therefore, anytime fiscal 0:10:24.880 --> 0:10:27.720 policy was employed, the Federal Reserve work to counter that 0:10:27.880 --> 0:10:31.040 because they were trying to contain demand. This time through, 0:10:31.080 --> 0:10:34.040 you're seeing a Federal Reserve take the exact opposite approach, 0:10:34.080 --> 0:10:36.960 which is, we want to expand demand. We need to 0:10:37.040 --> 0:10:40.480 expand demand. We will do whatever it takes to amplify 0:10:40.559 --> 0:10:43.440 whatever is done on Capital Hill. And they're even coming 0:10:43.480 --> 0:10:47.440 out and suggesting more fiscal policy is needed, which is 0:10:47.480 --> 0:10:50.720 another major change in the in the dynamic, because the 0:10:50.760 --> 0:10:54.880 Fed recognizes the risk they run here is global deflation 0:10:55.000 --> 0:10:58.439 being imported into the United States, and that's the situation 0:10:58.480 --> 0:11:01.880 they want to avoid, because once deflation gets here, it's 0:11:02.000 --> 0:11:03.959 very hard to get rid of. Nobody has been able 0:11:04.000 --> 0:11:06.400 to get rid of it to date. Stephen, the fiscal 0:11:06.440 --> 0:11:09.200 stimulus we've gotten so far, there's been a question about 0:11:09.280 --> 0:11:12.040 how quickly it's getting out to people. And I'm thinking 0:11:12.040 --> 0:11:16.559 in part about the enhanced jobless benefits, and this really 0:11:16.600 --> 0:11:19.600 comes into the numbers that we just saw the Continuing claims. 0:11:19.679 --> 0:11:22.280 In focus is people try to gauge how many of 0:11:22.320 --> 0:11:25.440 these unemployed people are actually receiving the money from the 0:11:25.440 --> 0:11:27.960 government that has been allocated to them. We saw a 0:11:28.000 --> 0:11:31.280 bigger than expected jump in the continuing claims now more 0:11:31.320 --> 0:11:35.559 than twenty five million people receiving those enhanced jobless benefits. 0:11:35.880 --> 0:11:39.040 What does this mean to you about how quickly people 0:11:39.040 --> 0:11:42.079 are getting the money versus how quickly people are getting 0:11:42.080 --> 0:11:45.640 their jobs back or not. As we see certain economies reopen. 0:11:46.360 --> 0:11:48.960 You well, I think the problem here is going to be, 0:11:49.080 --> 0:11:51.560 even though we can get the economy back to a 0:11:51.640 --> 0:11:56.199 stronger growth trajectory much more quickly than I think some 0:11:56.240 --> 0:12:00.160 people anticipate, the ability to get the labor market back 0:12:00.160 --> 0:12:02.280 to where it was is something that is going to 0:12:02.400 --> 0:12:05.120 be to take longer. Where it could take us a 0:12:05.200 --> 0:12:08.600 year to get back to zero on a year over 0:12:08.679 --> 0:12:11.520 year growth rate basis, so i e. The entire recovery 0:12:11.559 --> 0:12:15.120 stretches out for over a year essentially this time in 0:12:16.120 --> 0:12:18.480 one you know, we may be looking at a labor 0:12:18.520 --> 0:12:23.080 market that's struggling for several years, principally because you know 0:12:23.160 --> 0:12:27.000 we have people will be looking to try to maximize 0:12:27.040 --> 0:12:30.240 their returns as much as possible, and the easiest way 0:12:30.280 --> 0:12:33.079 to do that in an environment where demand picks up 0:12:33.600 --> 0:12:37.120 is to create a situation where you control your expenses. 0:12:37.600 --> 0:12:40.480 So therefore, the le labor market data is going to 0:12:40.640 --> 0:12:44.360 lag as it is done in every business cycle in history, 0:12:44.400 --> 0:12:46.160 and this time it's going to be one of the 0:12:46.240 --> 0:12:51.840 longer ones. The two major jobless recoveries were the post 0:12:51.920 --> 0:12:55.040 recovery period um and then again the two thousand and 0:12:55.120 --> 0:12:57.760 seven period where it took us years to get back 0:12:58.360 --> 0:13:00.480 to where we needed to be in eventually those very 0:13:00.480 --> 0:13:03.440 low numbers that I was being talked about earlier on 0:13:03.480 --> 0:13:05.599 in the beginning of the segment. So I think this 0:13:05.720 --> 0:13:07.880 is gonna be a long process where the economy could 0:13:07.920 --> 0:13:11.960 get back to a more healthy environment within a year's time. 0:13:12.000 --> 0:13:14.120 I think it will take two years to get us 0:13:14.160 --> 0:13:17.640 back to let's say, a seven percent unemployment rate, Steve, 0:13:17.800 --> 0:13:19.960 When you look at historical parallels for a moment like this, 0:13:20.040 --> 0:13:24.280 how useful aren't they? There really is only one, and 0:13:24.400 --> 0:13:28.320 even that's not a particularly good historical comparison. Uh, you 0:13:28.360 --> 0:13:31.760 have to go back um to Jimmy Carter and his 0:13:31.880 --> 0:13:35.680 credit controls that he imposed on the economy back in 0:13:36.720 --> 0:13:40.160 to ring out inflation in the economy. That caused the 0:13:40.240 --> 0:13:45.160 underlying pace of economic activity dropped by ten um and 0:13:45.520 --> 0:13:48.560 it caused a four percentage point up would jump in 0:13:48.559 --> 0:13:50.240 the unemployment I should say, a two and a half 0:13:50.240 --> 0:13:53.800 percent jump in the unemployment rate. So therefore nothing fully 0:13:53.800 --> 0:13:56.520 compared to this. But that's the closest we can because again, 0:13:56.559 --> 0:14:00.280 that was a government imposed tightening of credit on an 0:14:00.320 --> 0:14:03.760 economy which was much more heavily manufacturing than it is today, 0:14:04.040 --> 0:14:06.680 and therefore it had a bigger bite on the economy 0:14:06.679 --> 0:14:09.680 in the extistrict, and the pain was so so severe 0:14:10.120 --> 0:14:13.240 that they were forced to abandon it almost immediately, which 0:14:13.240 --> 0:14:16.760 is why it's also is the shortest recession in America's history. 0:14:17.160 --> 0:14:22.920 What's the partition, Steve Shooto, between big business and small business? 0:14:22.960 --> 0:14:26.480 This is beginning to percolate about who's getting the benefits, 0:14:26.640 --> 0:14:30.840 who's using the benefits, who's returning the benefits, who will 0:14:30.840 --> 0:14:34.680 get the next tron to benefit? Split America between big 0:14:34.680 --> 0:14:38.040 business and small business. Yeah, and if you're gonna provide 0:14:38.080 --> 0:14:40.320 more stimulus, you have to give it the small business. 0:14:40.520 --> 0:14:43.400 The reason for it is big business has the ability 0:14:43.440 --> 0:14:46.480 to tap financial markets. And if you look at the 0:14:46.520 --> 0:14:52.880 ability of the financial markets to provide financing two larger 0:14:52.920 --> 0:14:55.680 corporations that have access to these markets. You know, in 0:14:55.720 --> 0:14:57.360 the first half of this year, we've done about a 0:14:57.400 --> 0:15:01.800 trillion dollars worth of i G origination trillion dollars UH 0:15:01.840 --> 0:15:04.440 and a lot of it's been concentrated in the March 0:15:04.640 --> 0:15:09.120 April May period, no surprise there um. And therefore that's 0:15:09.240 --> 0:15:11.640 reliquefied a lot of them and allowed them to take 0:15:11.680 --> 0:15:14.400 a lot of the short term liabilities they've accumulated by 0:15:14.480 --> 0:15:17.520 drawing down tow lines of credit. Term amount over longer 0:15:17.560 --> 0:15:20.800 reduced the impact on their interest expense and reduced their 0:15:20.800 --> 0:15:23.360 impact on the dependence on short term borrowing, put them 0:15:23.400 --> 0:15:26.560 in a healthier financial position. It's small America that has 0:15:26.600 --> 0:15:29.040 to go to the banks, and it's small America that 0:15:29.280 --> 0:15:32.600 is not being you know, adequately UH dealt with in 0:15:32.640 --> 0:15:34.840 this particular period of time. So I think the next 0:15:34.920 --> 0:15:37.760 round of Stimus honestly has to continue to be focused 0:15:37.800 --> 0:15:41.000 at small, smaller and mid sized companies and to be 0:15:41.040 --> 0:15:44.200 focused at individuals, because individuals the end of the day, 0:15:44.240 --> 0:15:47.560 we are consuming economy. Three quarters of the two thirds 0:15:47.560 --> 0:15:50.760 of the U S economy is consumer spending, and therefore 0:15:50.920 --> 0:15:54.320 we need to make sure consumer spending picks up in 0:15:54.400 --> 0:15:56.920 order to get this economy to pick up. So those 0:15:56.960 --> 0:15:59.160 are the two areas where I think the next you know, 0:15:59.280 --> 0:16:02.320 one trillion dollars should go to UH. And I think 0:16:02.320 --> 0:16:04.360 it will be at least a one trillion dollar bility, 0:16:04.480 --> 0:16:06.600 maybe even more than that. I don't think it will 0:16:06.640 --> 0:16:09.640 be the three trillion dollars Heroes Act that was advanced 0:16:09.640 --> 0:16:11.840 by the House and Representative. But I think it would 0:16:11.840 --> 0:16:13.880 be something along the lines of another trillion to trillion 0:16:13.880 --> 0:16:15.960 and a half, and I think all of that debt 0:16:16.040 --> 0:16:20.680 will be purchased by the Federal Reserve. Yeah, that's certainly 0:16:20.720 --> 0:16:23.160 what we've been seeing, crowding out the private sector in 0:16:23.280 --> 0:16:26.720 terms of the monetization of all of the debt and 0:16:26.760 --> 0:16:29.360 all of the deficit that the US is taking on. 0:16:29.880 --> 0:16:32.520 I just I'm wondering what we can read into beyond 0:16:32.640 --> 0:16:36.360 the claims Stephen, with respect to delinquencies that we're seeing 0:16:36.400 --> 0:16:41.360 increasing with residential mortgages. We've seen it with credit card loans, 0:16:41.440 --> 0:16:44.680 We've seen it with auto loans, and they've only continued 0:16:44.760 --> 0:16:48.600 to increase the delinquencies and defaults at an accelerating pace. 0:16:48.960 --> 0:16:51.760 At what point will we see this peek out? In 0:16:51.760 --> 0:16:55.160 your opinion, Well, to be honest, with the delinquency process, 0:16:55.440 --> 0:16:58.800 um is a lagged process. So again, if you were 0:16:58.800 --> 0:17:00.920 to get the economy back act to zero on a 0:17:01.000 --> 0:17:04.840 year over year basis by the second quarter of it 0:17:05.000 --> 0:17:07.399 probably wouldn't be until the third or fourth quarter of 0:17:08.560 --> 0:17:10.160 that you would get to be at a point where 0:17:10.160 --> 0:17:12.680 you'll be glean to be very comfortable that the delinquency 0:17:12.800 --> 0:17:16.200 rates are rolling over. Steve shad Mansour great a catch 0:17:16.200 --> 0:17:21.920 out with the set. This is the most important conversation 0:17:22.000 --> 0:17:24.480 of the day for so many of us. The whiplash 0:17:24.560 --> 0:17:27.240 of volatility, the up to eighty on the VIX, where 0:17:27.240 --> 0:17:29.760 we are now twenty eight, still a way above VIX 0:17:29.880 --> 0:17:34.240 normal of twenty. It has been a shocking, shocking twelve months. 0:17:34.280 --> 0:17:37.640 Stephen off the scene, all this before with Federated Herme's 0:17:37.680 --> 0:17:40.919 running their equity operation. We're thrilled he could speak to 0:17:41.000 --> 0:17:44.560 us on blue chip in investment. Steve, what did you 0:17:44.600 --> 0:17:46.600 do in the middle of March? I mean, I mean 0:17:46.760 --> 0:17:48.800 you know you're you're doing this for long term. Your 0:17:48.800 --> 0:17:51.560 idea of short term is three years or five years. 0:17:51.840 --> 0:17:53.920 What were you doing in the middle of March? Besides 0:17:53.920 --> 0:17:57.840 looking at it Pittsburgh Pirates spring training most I was 0:17:57.840 --> 0:18:01.840 watching Pittsburgh Spired string train anything. I uh, you know, 0:18:02.119 --> 0:18:05.760 our view was in those kinds of down dress Tom. 0:18:05.800 --> 0:18:08.200 You know, my experience tells me you just gotta hold 0:18:08.240 --> 0:18:11.520 your fire. Now. We we went into the thing frankly 0:18:11.600 --> 0:18:15.760 too optimistic, but we were, you know, basing our view 0:18:15.800 --> 0:18:19.120 on the idea that the market was probably heading significantly higher. 0:18:19.160 --> 0:18:21.200 A lot of drivers of this bull market I've talked 0:18:21.200 --> 0:18:23.520 about on your show, and then the Corona thing hit 0:18:23.640 --> 0:18:27.720 and it just came out part very very quickly. Um, 0:18:27.840 --> 0:18:30.760 we were playing the chess game, and um, you know, 0:18:30.760 --> 0:18:32.640 I learned a long time ago, I'm not the smartest 0:18:32.640 --> 0:18:34.920 guy in this chessboard. And that's what I think. At 0:18:34.960 --> 0:18:37.200 the bears in trouble, they start to think they're smart 0:18:37.240 --> 0:18:40.199 than everybody else, and I'm looking at the same thing 0:18:40.200 --> 0:18:42.080 everyone else is looking at, and I'm thinking, well, the 0:18:42.119 --> 0:18:45.719 Fed's got to do something here. So we were advising 0:18:45.760 --> 0:18:49.800 our clients hold your ground, hang on your equity overweights. 0:18:50.560 --> 0:18:54.080 There will be a reaction here. And so we've held 0:18:54.080 --> 0:18:57.400 our ground, and um, you know, we think we're still 0:18:57.440 --> 0:18:59.640 in an up trend, you know, but what I would 0:18:59.680 --> 0:19:02.040 call like kind of short term beer market within that, 0:19:03.080 --> 0:19:06.520 and most importantly, Tom, what we have been focusing on 0:19:06.640 --> 0:19:10.240 is stock picking, because I figured we can't really get 0:19:10.280 --> 0:19:12.400 this market one way or the other, but we can 0:19:12.440 --> 0:19:14.760 figure out which of the stocks are gonna win and lose. 0:19:14.800 --> 0:19:18.960 So down at the lows, everything was getting closed. It 0:19:18.960 --> 0:19:21.080 didn't matter whether you were a winner or a loser 0:19:21.160 --> 0:19:25.159 or something between. And that's where the real opportunity was 0:19:25.400 --> 0:19:29.640 there was just get by these winners. We know they're 0:19:29.640 --> 0:19:33.359 going to actually do well in this environment. In fact, 0:19:33.960 --> 0:19:36.440 in fact, many of them are actually growing their cash 0:19:36.480 --> 0:19:41.320 flow in the Corona lockdown, and in a way, the 0:19:41.400 --> 0:19:44.160 easy part of the game now it's getting. But Paul, 0:19:44.240 --> 0:19:47.600 what's so important about what Mr Ross says here is 0:19:47.800 --> 0:19:51.320 it's all easy to say, I got to identify the winners. 0:19:51.359 --> 0:19:55.920 But in that exercise you try to avoid the losers. 0:19:56.680 --> 0:19:59.240 I think that's even more important than finding the next 0:19:59.320 --> 0:20:04.399 Amazon exactly. Yeah, Steve, you know you mentioned it's a 0:20:04.480 --> 0:20:07.480 game about, you know, if you can just avoid the losers, 0:20:07.480 --> 0:20:11.560 the blow ups in your portfolio. So so, Steve, what 0:20:11.600 --> 0:20:14.040 are some of the sectors here? We again, we retraced 0:20:14.119 --> 0:20:17.240 kind of half of that decline we saw decline peaked, 0:20:17.280 --> 0:20:19.359 the tropic retraced, you know, maybe a little bit more 0:20:19.400 --> 0:20:21.720 than half of that. What are some of the sectors 0:20:21.800 --> 0:20:24.240 here as you look out to maybe the other side 0:20:24.240 --> 0:20:27.920 of this pandemic that it got your attention right here? Well, well, 0:20:28.080 --> 0:20:29.560 first of all, I just want to take exception to 0:20:29.640 --> 0:20:31.480 that that this is one of the issues people say, 0:20:31.480 --> 0:20:34.000 we've only three traced half to decline, if you look 0:20:34.000 --> 0:20:36.520 at what I call the survivors, which these companies are 0:20:36.520 --> 0:20:40.520 gonna make it through but need the economy to be alive. 0:20:40.880 --> 0:20:46.800 They've retested their March twenty three lows. It's only the winners, 0:20:46.960 --> 0:20:49.640 and the winners aren't going to retest March twenty three, 0:20:50.320 --> 0:20:52.840 and so the average of the market looks like it's 0:20:52.840 --> 0:20:57.080 only retraced half the well off low. It's the place 0:20:57.160 --> 0:20:59.800 half decline or in the other end, hasn't gone back 0:20:59.800 --> 0:21:05.120 to those lows. But actually the stocks that matter have uh. 0:21:05.160 --> 0:21:08.600 In terms of sectors, we continue to think the digitization 0:21:08.600 --> 0:21:12.560 of the economy is a big theme. It's accelerating as 0:21:12.560 --> 0:21:15.280 a result of this. So therefore we like tech, but 0:21:15.400 --> 0:21:19.680 more importantly, we like companies that are utilizing that now 0:21:19.720 --> 0:21:23.520 in the broader economy. So it goes across sectors where 0:21:23.560 --> 0:21:27.600 we're finding companies, particularly in small cap land, that are 0:21:27.680 --> 0:21:32.480