WEBVTT - Surveillance: Fed's Clarida Says U.S. Can Escape Deflation 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jai Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.480 Bloomberg dot Com, and of course on the Bloomberg The 0:00:27.600 --> 0:00:31.400 Conversation with the Vice Chairman of the Fed, Richard Clara, 0:00:31.520 --> 0:00:35.199 joining me again as our chief International Lincolnomic correspondent. I'm 0:00:35.240 --> 0:00:37.920 sure that Michael McKee is with us. You know him 0:00:37.920 --> 0:00:41.280 from the press conference with Chairman Powell, usually bringing bringing 0:00:41.320 --> 0:00:43.080 the room to a bit of a quiet, and I'm 0:00:43.120 --> 0:00:46.440 thrilled that Mike could joined me, uh this morning. Every 0:00:46.479 --> 0:00:49.760 moment here is precious. It is, indeed, Mr Vice Chairman, 0:00:49.800 --> 0:00:52.960 in historic time. Let me ask the question that I 0:00:53.000 --> 0:00:55.920 saw in so much research and reading over the weekend, 0:00:56.520 --> 0:00:59.840 the confidence that the Fed can move the balance she 0:01:00.200 --> 0:01:04.400 back to normal down the road after this pandemic, after 0:01:04.440 --> 0:01:07.560 a number of years of return to economic growth, how 0:01:07.600 --> 0:01:11.160 do you get the genie back in the bottle? Well, Tom, 0:01:11.160 --> 0:01:13.920 thank you for that question, and enjoy doing your show. 0:01:14.000 --> 0:01:16.200 As always, First and foremost, I think we have to 0:01:16.240 --> 0:01:20.680 recognize that we're in a really unique situation. The coronavirus 0:01:20.720 --> 0:01:23.600 pandemic is taking a tragic human toll in the US 0:01:23.680 --> 0:01:26.200 around the world, and and we've asked people to step 0:01:26.240 --> 0:01:29.840 back from economic activity investing in public health, and so 0:01:29.880 --> 0:01:32.240 there's going to be a hit to economic activity. And 0:01:32.280 --> 0:01:35.360 what the Chair Power and We've indicated is we have 0:01:35.440 --> 0:01:40.080 put in place these lending facilities um under our authority 0:01:40.120 --> 0:01:44.320 to act under unusual and exigent circumstances. Uh. It's an 0:01:44.319 --> 0:01:48.160 ambitious and entirely appropriate, aggressive and forcefully use of monetary 0:01:48.280 --> 0:01:51.600 policy in these times. But to your specific question, yes, 0:01:51.680 --> 0:01:55.000 I am. I'm very confident that as the economy recovers 0:01:55.040 --> 0:01:58.680 from this hit and began begins to return and recover, 0:01:59.040 --> 0:02:01.480 that we at the over your time, will be able 0:02:01.800 --> 0:02:05.320 to unwind these programs. You know, Tom and Mike, there's 0:02:05.360 --> 0:02:08.000 nothing fundamentally wrong with the U s economy. It came 0:02:08.040 --> 0:02:10.800 into the year in a very strong position both in 0:02:10.880 --> 0:02:14.160 terms of employment and growth and financial markets. And I'm 0:02:14.200 --> 0:02:16.520 confident we can get back there and and at the 0:02:16.520 --> 0:02:20.000 appropriate time we can scale back these programs. Let me 0:02:20.160 --> 0:02:22.560 follow up on that, Dr Claren and ask you this, 0:02:23.080 --> 0:02:27.320 With probably billions of dollars in loans out the companies 0:02:27.360 --> 0:02:31.760 at near zero for over four years. Are you ever 0:02:31.840 --> 0:02:34.040 going to be able to raise interest rates again? Or 0:02:34.080 --> 0:02:37.040 are we looking at essentially the Fed doing yield curve 0:02:37.080 --> 0:02:40.720 control now? Well, right now, we're not doing yield curve control. 0:02:40.800 --> 0:02:44.600 But we indicated in our March statement UH is we're 0:02:44.600 --> 0:02:46.640 going to keep rates of where they are, which is 0:02:46.680 --> 0:02:51.640 basically very close to zero, until the economy is on 0:02:51.720 --> 0:02:54.600 track to achieve this maximum employment and price stabilities. And 0:02:54.639 --> 0:02:56.960 so the path of the economy is going to dictate 0:02:57.040 --> 0:03:00.320 ultimately the path of rates. But in terms of our 0:03:00.360 --> 0:03:04.320 our programs, these facilities will be in place during the 0:03:04.400 --> 0:03:08.080 period when the economy is being impacted by the virus UH. 0:03:08.120 --> 0:03:11.359 In the term sheets for these programs, you'll see that 0:03:11.480 --> 0:03:17.160 the facilities are due to to stop lending in September 0:03:17.160 --> 0:03:20.080 of this year. Obviously we can extend that has needed. 0:03:20.120 --> 0:03:22.280 Those loans will be in place, they'll have a term 0:03:22.320 --> 0:03:26.120 of several years and know at the appropriate time, I 0:03:26.200 --> 0:03:29.840 do not think that we will have that That will 0:03:29.840 --> 0:03:32.480 be a challenge to us when it's appropriate, But again 0:03:32.520 --> 0:03:34.880 that's a long way down the road. We think where 0:03:34.960 --> 0:03:37.520 rates are now is where they need to be, given 0:03:37.520 --> 0:03:41.000 where the economy is Tom mentioned the notes he's getting 0:03:41.040 --> 0:03:43.760 from people asking questions, and the one I get most 0:03:43.800 --> 0:03:46.480 often is why did you feel it necessary to go 0:03:46.680 --> 0:03:49.400 into buying junk. Well, we have put in place no 0:03:49.520 --> 0:03:55.520 fewer than nine facilities over the past several weeks, and 0:03:55.520 --> 0:03:58.600 and first and foremost are our focus in these facilities, 0:03:59.000 --> 0:04:02.200 UM is making sure that credit is flowing to businesses, 0:04:02.600 --> 0:04:07.840 UH and households. And obviously we're we're in the commercial 0:04:07.880 --> 0:04:11.920 paper market. In the talent program, will be financing auto 0:04:12.000 --> 0:04:16.560 loans and credit cards. UM in our main street lending program, 0:04:16.560 --> 0:04:19.760 we're gonna be partnering with banks to provide financing to 0:04:19.920 --> 0:04:22.240 businesses and so the really the vast bulk of these 0:04:22.279 --> 0:04:25.160 programs is really focused on new lending. There is an 0:04:25.160 --> 0:04:28.800 element of one of these programs that will UH that 0:04:28.880 --> 0:04:32.560 will be purchasing assets in the secondary market. I think 0:04:32.560 --> 0:04:35.720 an important point for your listeners and viewers to recognize 0:04:36.120 --> 0:04:39.880 UM is that several important companies in the US were 0:04:40.040 --> 0:04:43.920 investment grade up until this crisis hit. And what we 0:04:44.040 --> 0:04:46.599 said in our programs is that you know, if they've 0:04:46.640 --> 0:04:49.880 been downgraded after the after the data of the crisis, 0:04:49.920 --> 0:04:52.799 they will have access to these facilities. But that really 0:04:52.880 --> 0:04:56.120 is our focus in these programs, Mr Vice Chairman. The 0:04:56.240 --> 0:05:00.240 elasticity here the outcomes of this pandemic are extraordin and 0:05:00.320 --> 0:05:03.920 I'm not asking you to play epidemiologists today unless you'd 0:05:03.960 --> 0:05:07.040 like to. About what I would suggest is we don't 0:05:07.120 --> 0:05:11.279 know the speed of outcome. What do you do if 0:05:11.279 --> 0:05:14.880 we get a more optimistic outcome? What do you do 0:05:14.960 --> 0:05:19.280 as an institution if there's a rapidity to our recovery? Well, 0:05:19.320 --> 0:05:22.400 and obviously obviously time we are looking at a very 0:05:22.440 --> 0:05:25.719 wide range of scenarios, as I'm sure our other central 0:05:25.760 --> 0:05:29.560 banks and and policy makers. And we have gotten a 0:05:29.560 --> 0:05:32.640 lot of bad news, uh in the last several weeks 0:05:32.640 --> 0:05:35.080 in terms of the spread of the virus um and 0:05:35.120 --> 0:05:38.000 the impact obviously in the labor market with the sixteen 0:05:38.040 --> 0:05:41.479 million initial claims over the last several weeks. So the 0:05:41.480 --> 0:05:44.360 economy is taking a hit, as I've said, because there's 0:05:44.400 --> 0:05:46.640 nothing wrong with the economy. We've asked people to step 0:05:46.680 --> 0:05:51.440 back from economic activity. Uh. There are scenarios that are 0:05:51.520 --> 0:05:55.960 more optimistic, and obviously we we certainly hope and pray 0:05:56.000 --> 0:05:59.440 that they materialize. If they do, that'll be a good 0:05:59.440 --> 0:06:02.440 situation and to be in we will have in place 0:06:02.520 --> 0:06:04.640 programs that are essentially time. What we're doing is we're 0:06:04.640 --> 0:06:07.120 building a bridge until the economy can get to the 0:06:07.200 --> 0:06:10.240 other side and begin to recover. And if that happens sooner, 0:06:10.279 --> 0:06:12.320 we'll we'll certainly know what to do at that time. 0:06:12.720 --> 0:06:14.520 Let's get out on the bridge right now. Of course, 0:06:14.560 --> 0:06:16.880 you know, Michael McKee is only in charge of rude 0:06:16.920 --> 0:06:19.800 questions to the Chairman at the press conference. Let me 0:06:19.839 --> 0:06:23.080 ask a rude question to you, what does the bridge 0:06:23.279 --> 0:06:27.160 look like out here? From the FED meetings onward and 0:06:27.200 --> 0:06:29.960 from the minutes of the FED we will see how 0:06:30.000 --> 0:06:34.880 will that debate unfold within your Federal Reserve system. Well, 0:06:34.920 --> 0:06:39.000 obviously you know that those discussions are are private. We 0:06:39.040 --> 0:06:42.320 can talk, we can discuss as I do my own views, 0:06:42.320 --> 0:06:45.400 but our meetings I think serve a very useful purpose. 0:06:45.440 --> 0:06:47.240 As you know, we've had to do a couple of 0:06:47.279 --> 0:06:52.040 meetings in March by video conference, um, and that was 0:06:52.120 --> 0:06:56.120 necessary given the rapidity with which the situation was was changing. 0:06:56.880 --> 0:06:59.480 But you know, at our committee we will be discussing, 0:06:59.480 --> 0:07:02.719 i'm sure, are the new facilities that we've announced and 0:07:03.080 --> 0:07:05.960 discussed about putting them in place, and then we'll get 0:07:05.960 --> 0:07:08.880 a briefing from staff on the economic outlook and importantly 0:07:08.920 --> 0:07:13.320 looking at the scenarios both positive, UH and negative. I 0:07:13.360 --> 0:07:16.360 think the FLMC serves a very important role in in 0:07:16.360 --> 0:07:20.520 our monetary policy discussions. The MC, the committee makes those decisions, 0:07:20.560 --> 0:07:22.640 but of course the Board of Governors of which I'm 0:07:22.640 --> 0:07:25.800 a member, also plays a role in actually approving and 0:07:26.120 --> 0:07:31.320 designing these programs facilities. Well, you're the model guy, and 0:07:31.400 --> 0:07:33.280 Tom put me in charge of asking the rude question. 0:07:33.320 --> 0:07:36.120 So he asked about optimism. Let me ask you about pessimism. 0:07:36.520 --> 0:07:39.880 What do you as the worst case scenario and do 0:07:39.920 --> 0:07:45.880 you think we get a damaging disinflationary impulse out of this? Well, um, 0:07:46.360 --> 0:07:49.120 I'm not going to go through scenarios now. We only 0:07:49.120 --> 0:07:51.280 have ten minutes and that would take longer. What I 0:07:51.360 --> 0:07:53.600 will say though, and I think it's an excellent question 0:07:53.640 --> 0:07:56.720 because you'll see there were some some discussion back in 0:07:56.800 --> 0:08:00.360 January and February that were we to be hit with 0:08:00.440 --> 0:08:03.440 the Corona virus. And it's important to remember that the 0:08:03.480 --> 0:08:07.320 first fatality in the US was in very late February 0:08:07.400 --> 0:08:10.520 or early March um and and as a result, there 0:08:10.600 --> 0:08:12.920 was some speculation at the time that if we got 0:08:13.000 --> 0:08:17.280 hit with the pandemic, that that because of supply chains, 0:08:17.520 --> 0:08:20.480 that it was an averge supply shock, which would be inflationary. 0:08:20.760 --> 0:08:22.840 I never believe that. I never bought into that. I 0:08:22.840 --> 0:08:25.560 always thought if we got hit with the virus spread 0:08:26.000 --> 0:08:29.040 that it would in net be a shock to aggregate demand. 0:08:29.080 --> 0:08:31.560 And that's what I think it is, and demand is 0:08:31.600 --> 0:08:35.319 impacting very adversely. We're trying to offset that with our 0:08:35.360 --> 0:08:38.080 policies and fiscal policies playing an important role. But I 0:08:38.080 --> 0:08:42.200 think on that is disinflationary. I don't believe it's deflationary. 0:08:42.240 --> 0:08:44.440 I think we have the tools to keep the US 0:08:44.520 --> 0:08:48.400 economy out of deflation um and to and and to 0:08:48.440 --> 0:08:51.560 support the economy through this challenging period. But on the 0:08:51.679 --> 0:08:54.280 narrow question of is this more of a supplier demand shock, 0:08:54.360 --> 0:08:59.000 it's definitely more of a demand shock, I believe. Well, 0:08:59.080 --> 0:09:02.240 to follow up on top question about what the FED 0:09:02.280 --> 0:09:04.880 discussion is in the future, I know you had to 0:09:04.880 --> 0:09:07.240 put the fire out, but have you not created the 0:09:07.280 --> 0:09:10.679 mother of all moral hazard now that you will end 0:09:10.800 --> 0:09:14.800 up with a lot more dangerous risk taking because everybody 0:09:14.840 --> 0:09:17.719 knows that if something goes wrong, the FED is there 0:09:17.760 --> 0:09:21.520 to backstop them. Well, you know, my I really don't 0:09:21.520 --> 0:09:25.360 believe that's the case. I think moral hazard impassed circumstances, 0:09:25.480 --> 0:09:29.480 when it's been associated with financial accesses or private sector 0:09:29.640 --> 0:09:32.880 SS is obviously something to assess and think about. But 0:09:32.960 --> 0:09:36.439 in this case, this is entirely an exogenous event. People 0:09:36.480 --> 0:09:39.679 are not businesses are closing, and people aren't unemployed due 0:09:39.679 --> 0:09:42.360 to any fault of their their own. And I think 0:09:42.400 --> 0:09:44.960 this is a clear this is the clearest possible case 0:09:45.440 --> 0:09:49.040 that those are not relevant considerations. Again, what the Chair 0:09:49.080 --> 0:09:52.000 is indicated, and what we've said publicly is we have 0:09:52.120 --> 0:09:55.199 these lending facilities in place because of these unusual and 0:09:55.320 --> 0:09:59.880 exigent circumstances, and we'll use our authority forcefully and aggressively 0:10:00.320 --> 0:10:02.760 until we're in common the economy is recovery. But at 0:10:02.800 --> 0:10:05.719 that point we'll be prepared and we'll be able to 0:10:05.760 --> 0:10:08.400 put these tools away when the economy is well on 0:10:08.440 --> 0:10:10.720 the way to the road to recovery. And I just 0:10:10.760 --> 0:10:13.400 do not see that as being an issue in the 0:10:13.480 --> 0:10:19.200 present circumstance. Mr Vice Chairman, One more question quickly, if 0:10:19.280 --> 0:10:21.520 I could, There will be a point where things will 0:10:21.559 --> 0:10:24.960 be calmer and you will be at your Columbia University 0:10:25.040 --> 0:10:28.840 with Phelps and Stiglets and the rest talking about this, 0:10:29.400 --> 0:10:32.880 are we forever moving away from a rules based debate? 0:10:33.400 --> 0:10:38.160 Is discretion the future for any central bank? Well, it's 0:10:38.160 --> 0:10:40.360 an excellent question in you and I've discussed it many 0:10:40.400 --> 0:10:43.640 times on your show. The reality of central banking is 0:10:43.679 --> 0:10:48.040 it's always been about. I think constrained discretion and rules 0:10:48.080 --> 0:10:51.920 an important part of communication and thinking about the application 0:10:52.000 --> 0:10:56.800 of discretion. But again, obviously, in these circumstances, the central 0:10:56.840 --> 0:11:00.199 bank needs the discretion to put in place policy. He's 0:11:00.280 --> 0:11:03.600 under unusual and oxygen circumstances, and I think it's entirely 0:11:03.640 --> 0:11:07.160 appropriate that we've exercised that now, Richard Clarien to thank 0:11:07.200 --> 0:11:21.560 you so much, greatly appreciate it. This morning. A lot 0:11:21.600 --> 0:11:26.600 of people John have rationalized his theory. Dennis Gartman took 0:11:26.640 --> 0:11:29.400 it further. He said, not only should you own gold, 0:11:30.160 --> 0:11:33.400 but he said in dollars, maybe not hedge it in 0:11:33.520 --> 0:11:36.360 something that will be weaker, and that would begin in 0:11:36.520 --> 0:11:41.320 euro And it is truly without exaggeration of moonshot. Gary Shilling, 0:11:41.360 --> 0:11:43.840 I would suggest over the years, over the decades, I 0:11:43.840 --> 0:11:46.640 should say, has had the great call of long term 0:11:46.679 --> 0:11:50.480 lower interest rates. But Gartman challenges him now with an 0:11:50.480 --> 0:11:54.320 extraordinary call on gold, and he joins us snow Dennis 0:11:54.360 --> 0:11:57.280 thrilled that you could be with us on gold. Real 0:11:57.360 --> 0:12:00.320 simple here, if I didn't make the gartman like mains, 0:12:00.480 --> 0:12:04.240 can I get on board now? Absolutely? Tom. First of all, 0:12:04.320 --> 0:12:06.160 let us understand that I'm not a gold bug. I'm 0:12:06.160 --> 0:12:07.840 not one of those believers that the world is coming 0:12:07.840 --> 0:12:11.000 to an end, that that all currencies are going to zero, 0:12:11.480 --> 0:12:14.640 that governments are doing absolutely the wrong things. I'm actually 0:12:14.679 --> 0:12:17.040 an optimist. But I do think that the monetary authorities 0:12:17.080 --> 0:12:19.360 around the world, led by the FED, but the Bank 0:12:19.400 --> 0:12:21.360 of Canada, the Bank of England, the Bank, the e 0:12:21.480 --> 0:12:23.960 c B, the Bank of Japan, even the Bank even 0:12:23.960 --> 0:12:26.600 the People's Bank of China, have no choice but to 0:12:26.640 --> 0:12:29.960 remain expansionary. They are. They are expansionary. Now they shall 0:12:30.040 --> 0:12:33.520 become the expansionary. In the future, They'll become even more expansionary. 0:12:33.600 --> 0:12:36.400 And as that happens, gold probably shall be the beneficiary. 0:12:36.520 --> 0:12:39.080 So is it too late to be a buyer of gold? Actually, 0:12:39.120 --> 0:12:42.439 it's just broken out above fifteen, above sevent pounds and 0:12:42.480 --> 0:12:45.760 dollars dollar terms, and I think it's going a good 0:12:45.800 --> 0:12:48.520 deal higher. So again, as I said, I'm not a 0:12:48.520 --> 0:12:50.520 gold bug. There are times when you should own gold. 0:12:50.520 --> 0:12:52.120 There are times when you should not. This is a 0:12:52.120 --> 0:12:56.000 time where you should. Other than the answer, tiffanies Dennis Gartman, 0:12:56.200 --> 0:12:59.520 how should I own gold? What is the best UH 0:12:59.679 --> 0:13:03.480 way to own gold? To play? There are many ways 0:13:03.520 --> 0:13:05.319 to own gold. You can own gold futures, but I 0:13:05.320 --> 0:13:07.000 don't think that that's the better way. I think that 0:13:07.040 --> 0:13:08.760 there are e t f that one can own. There 0:13:08.840 --> 0:13:11.000 is at least half a dozen of them. You can 0:13:11.000 --> 0:13:13.520 hold the gold miners. I hate to give any individual 0:13:14.440 --> 0:13:17.960 recommendations as to individual stocks because the SEC gets an 0:13:18.040 --> 0:13:20.240 upset when I do that, So I'll just simply say 0:13:20.240 --> 0:13:21.760 that there are e t f s a plenty on 0:13:21.840 --> 0:13:25.360 the New York Stock Exchange and various mining companies. I 0:13:25.640 --> 0:13:27.160 prefer the e t s. I think it's a better 0:13:27.200 --> 0:13:30.160 way to go. Dennis. Your bullish call on gold is 0:13:30.160 --> 0:13:33.200 it basically a bet on inflation and the debasement of 0:13:33.320 --> 0:13:36.040 major currencies. It's at least it's not a bet on 0:13:36.080 --> 0:13:39.320 inflation yet it's it's It isn't, however, a bet on 0:13:39.320 --> 0:13:42.040 the debasement of major currencies. As I said, the FED, 0:13:42.160 --> 0:13:44.440 the Bank of Canada, the Bank of England, the ECB 0:13:44.600 --> 0:13:47.120 at all have been expansionary, and they have no choice 0:13:47.120 --> 0:13:50.599 but to remain expansionary given the current coronavirus circumstances and 0:13:50.880 --> 0:13:53.960 the lack of a better term, the recession slash depression 0:13:54.000 --> 0:13:56.560 that the world is finding itself in. So it's actually 0:13:56.559 --> 0:13:59.400 a debasement of the currencies that that is uh the 0:13:59.480 --> 0:14:03.640 driving for no question about that. So, Dennis, I'm just 0:14:03.679 --> 0:14:06.520 wondering going forward the main driver as far as who 0:14:06.520 --> 0:14:09.079 the buyers will be of gold. How much does this 0:14:09.160 --> 0:14:13.320 stem from central banks trying to move away from dollars. 0:14:13.360 --> 0:14:15.720 We've seen Russia do this, We've seen China do this, 0:14:16.080 --> 0:14:19.240 and how much does this stem from individuals just getting 0:14:19.280 --> 0:14:22.000 cold gold and putting in their mattresses. Well, first of all, 0:14:22.160 --> 0:14:24.280 you're one of the few people who really does understand 0:14:24.320 --> 0:14:26.480 that the that it has been central bank buying that has, 0:14:26.760 --> 0:14:29.480 in my opinion, has been the driving force. The Russian 0:14:29.520 --> 0:14:31.760 central banker, I'm trying to remember her name. I just 0:14:31.800 --> 0:14:33.600 won't blank. That's what happens when you're gonna be sixty 0:14:33.640 --> 0:14:35.880 nine years old, you forget important names. But she's been 0:14:35.920 --> 0:14:38.720 a huge buyer of gold. The Chinese have been a 0:14:38.760 --> 0:14:41.080 major buyer of gold, and now I think it's the 0:14:41.080 --> 0:14:42.920 retail that will come in and be a buyer of gold. 0:14:43.000 --> 0:14:46.600 The Indians have been the second largest buyer of gold individually. 0:14:47.040 --> 0:14:49.560 They've been locked down, and even with their locked down, 0:14:50.440 --> 0:14:52.160 the fact that gold has not given up any of 0:14:52.160 --> 0:14:54.320 its gains and when the when the India reopens, and 0:14:54.360 --> 0:14:56.120 it shall reopen, I think there would be a mark 0:14:56.160 --> 0:14:58.800 propensity on their part to be buyers. Again, what's the 0:14:58.880 --> 0:15:04.400 most avocation time frame for you to decide to own equities? 0:15:04.440 --> 0:15:07.080 Don't tell me ten years or twenty years, and don't 0:15:07.120 --> 0:15:10.160 tell me two days or three days. What's the time 0:15:10.280 --> 0:15:14.360 zoned dentists that you have for having a belief in 0:15:14.440 --> 0:15:18.040 the equity market? Honestly, I do think I want to Well, 0:15:18.160 --> 0:15:20.560 let me say, I hope that the lows have been seen. 0:15:20.720 --> 0:15:23.040 Do I think that the lows will be tested? Probably? 0:15:23.360 --> 0:15:24.920 But I do want to believe and I do think 0:15:24.960 --> 0:15:27.040 that the lows have probably been seeing amidst the panic 0:15:27.080 --> 0:15:29.520 of two weeks ago. So where do I think go 0:15:30.160 --> 0:15:33.240 stock prices will will go? I think I think that 0:15:33.360 --> 0:15:36.080 from here on out, if you can, if you can 0:15:36.120 --> 0:15:38.760 have not be if you missed the first five percent 0:15:38.800 --> 0:15:41.640 on the upside and you already have. I think from 0:15:41.640 --> 0:15:43.360 here on out you want to err upon the side 0:15:43.360 --> 0:15:44.680 of being a buyer, and I think you want to 0:15:44.680 --> 0:15:47.640 be a buyer for next several years. Honestly, maybe it's 0:15:47.680 --> 0:15:49.640 just hope. Maybe it's just a belief in America. Maybe 0:15:49.640 --> 0:15:51.360 it's just a hope that we'll get out of this. 0:15:51.440 --> 0:15:52.800 But I do want to think that the lows have 0:15:52.880 --> 0:15:56.240 been seen. How's the FED doing? I think the FED 0:15:56.360 --> 0:15:58.720 is doing yeoman's work, to be quite honest. I think 0:15:58.800 --> 0:16:02.160 perhaps they they bent a little bit to the president's demeanor, 0:16:02.280 --> 0:16:04.160 and and maybe they went a little overboard, but I 0:16:04.160 --> 0:16:05.840 think that they stood up with the adult in the 0:16:05.880 --> 0:16:07.680 room when nobody else was going to be the adult 0:16:07.720 --> 0:16:09.960 in the room. I think they've led the other central 0:16:09.960 --> 0:16:14.120 banks in in in acting, and I applaud them. Many people, 0:16:14.280 --> 0:16:16.560 especially those of us on the far right, take to 0:16:16.600 --> 0:16:18.760 FED the task. I think the FED should be applauded. 0:16:20.400 --> 0:16:22.400 Dennis Cartman, thank you so much for being with us. 0:16:30.960 --> 0:16:34.120 Betsy Grace Sick Morgan Stanley, Head of Banks and Diversified 0:16:34.200 --> 0:16:37.680 Finance Research, Betsy, always a pleasure to catch up with you, 0:16:37.880 --> 0:16:40.600 especially on earnings week. So let's start with the earnings. 0:16:40.600 --> 0:16:42.400 What are you looking for in the numbers this week 0:16:42.400 --> 0:16:45.400 when many people see Q onea stale and Q two 0:16:45.440 --> 0:16:49.480 three four as almost unpredictable. Thank you so much for 0:16:49.520 --> 0:16:51.880 having me this morning. UM. I look forward to next 0:16:51.920 --> 0:16:54.520 time when we can be in person. But I appreciate 0:16:54.640 --> 0:16:57.040 question here on earnings. I think what people are really 0:16:57.040 --> 0:16:58.840 going to look forward is a couple of things. Number one, 0:16:59.440 --> 0:17:04.040 what is at that earnings generation rate excluding the reserve 0:17:04.080 --> 0:17:07.280 build for credit? Just to understand what the core is 0:17:07.359 --> 0:17:10.320 going into this, you know, two three four Q downturn 0:17:10.359 --> 0:17:13.160 as you indicate. But then the second thing is how 0:17:13.200 --> 0:17:17.800 are the banks treating their reserves under the new accounting standard? Right? 0:17:17.880 --> 0:17:22.159 Because today, um, we have a new accounting standard started 0:17:22.280 --> 0:17:27.160 January one, and so we should be ready tomorrow JPM 0:17:27.160 --> 0:17:30.600 and Wells report we should be ready for um, you know, 0:17:30.760 --> 0:17:34.560 very large reserve builds to reflect you know, the bank 0:17:34.640 --> 0:17:39.680 management's estimates of lifetime losses. The history is they take 0:17:39.760 --> 0:17:44.400 the arcane accounting and they overdo it. They overreserve, they 0:17:44.480 --> 0:17:48.159 over save the money for a lousy rainy day, and 0:17:48.160 --> 0:17:51.200 then down the road they go, oops, we over saved, 0:17:51.760 --> 0:17:55.520 and they release those reserves and everybody wins. Do you 0:17:55.640 --> 0:17:59.960 predict that for these banks. You know, it's so interest 0:18:00.040 --> 0:18:02.720 doing of a question, Tom, because you know banks never 0:18:02.800 --> 0:18:07.200 over reserve. It's always adequate, right, that's the wording, alright, 0:18:07.280 --> 0:18:11.040 just want to make sure they're always adequate. And the 0:18:11.200 --> 0:18:14.800 definition of adequate is changing, actually, I should say has 0:18:14.960 --> 0:18:18.320 changed January one with this new accounting role. So so 0:18:18.480 --> 0:18:22.159 what the management teams are required to do, starting in 0:18:22.240 --> 0:18:27.159 one queue is say to themselves, what is the lifetime 0:18:27.200 --> 0:18:30.840 losses in my loan book today on March three one? 0:18:31.440 --> 0:18:34.000 In a world that has you know, flipped on its head, 0:18:34.040 --> 0:18:36.920 as we all know, so that's a big ask. As 0:18:36.920 --> 0:18:39.560 a result, people like me, we made the best estimate 0:18:39.920 --> 0:18:42.359 for what we think they'll do, but we you know, 0:18:42.440 --> 0:18:45.119 everyone on the phone should be prepared for our understanding 0:18:45.640 --> 0:18:48.680 that you know, the outcome is going to be different. 0:18:48.760 --> 0:18:51.080 Management teams will have a different point of view than 0:18:51.160 --> 0:18:54.040 all of us, you know, sell fighters and buy siders 0:18:54.080 --> 0:18:57.560 because they have the best knowledge of their customer set obviously, 0:18:57.600 --> 0:19:00.359 so it's gonna be very exciting, earning, very fighting. I 0:19:00.400 --> 0:19:04.800 can't wait, Betsy, very exciting. I'm sure. One area that 0:19:04.840 --> 0:19:06.800 a lot of people are focused on as consumer credit 0:19:06.840 --> 0:19:10.359 losses and sort of a view into just how bad 0:19:10.440 --> 0:19:13.480 the situation is there. What are you expecting on that front? 0:19:14.800 --> 0:19:18.399 Consumer credit is also exciting because the fifteenth of the 0:19:18.440 --> 0:19:22.000 month we get master Trust data, and you know, to 0:19:22.040 --> 0:19:24.959 your point earlier one cue, you know, the one key 0:19:25.040 --> 0:19:27.280 results aren't going to be really telling about what the 0:19:27.280 --> 0:19:30.119 forward look is going to be. And also the forward 0:19:30.160 --> 0:19:33.840 look numbers aren't perfect either because, um, if you have 0:19:34.080 --> 0:19:36.960 been affected by COVID and you can call your bank 0:19:37.040 --> 0:19:40.720 and request forbearance, that means that your loan will not 0:19:40.840 --> 0:19:45.200 show up as a delinquency, you know, until the pandemic 0:19:45.320 --> 0:19:47.080 and the economy is back on its feet and the 0:19:47.119 --> 0:19:49.919 banks determine, hey, you know, now is the time that 0:19:49.960 --> 0:19:51.959 I can assess whether or not you're delinquent or not. 0:19:52.480 --> 0:19:55.840 So the delinquency staff and the net charge off staffs 0:19:55.880 --> 0:19:59.240 are going to be much more modest than expected for 0:19:59.280 --> 0:20:02.359 a while until you know, the emergency is lifted. So 0:20:02.440 --> 0:20:06.200 the best data to look at for how the consumer 0:20:06.320 --> 0:20:08.520 is really doing on a month to month basis will 0:20:08.520 --> 0:20:11.640 be that master Trust data. Look for the payment rate. 0:20:12.240 --> 0:20:16.080 The payment rates back in eight for a lot of 0:20:16.080 --> 0:20:19.920 banks now at basically telling you consumers have been paying 0:20:19.920 --> 0:20:23.280 down their loans on the credit card side, that payment 0:20:23.359 --> 0:20:26.239 rate should start to fall, right, that will be your 0:20:26.240 --> 0:20:28.959 best indicator of the fifteenth of every month. Betsy, You've 0:20:29.000 --> 0:20:31.080 touched on something really important, and that's the degree to 0:20:31.119 --> 0:20:33.880 which banks have stepped in to help consumers and businesses. 0:20:33.920 --> 0:20:36.160 And there was a quote from Jamie Diamond of JP 0:20:36.280 --> 0:20:38.560 Morgan just the other week and his letter to shareholders. 0:20:38.560 --> 0:20:40.800 They really stood out for me. Knowing there will be 0:20:40.840 --> 0:20:43.800 a major recession means that we are exposing ourselves to 0:20:43.920 --> 0:20:46.640 billions of dollars of additional credit losses as we help 0:20:46.680 --> 0:20:52.000 out consumers and businesses through difficult times. There is a view, Betsy, 0:20:52.080 --> 0:20:54.639 that these banks can act countercyclically in a way that 0:20:54.680 --> 0:20:56.760 maybe they wouldn't have done in the past. Can you 0:20:56.840 --> 0:20:59.880 just talk to us about bank behavior. Will they contin 0:21:00.080 --> 0:21:02.359 you to do this or is this downturn as it 0:21:02.400 --> 0:21:05.480 extends into two, three and four, do you expect them 0:21:05.480 --> 0:21:08.480 to pull back on help and consumers and businesses on 0:21:08.680 --> 0:21:11.760 lending to these people? Yeah, I mean, we did this 0:21:11.840 --> 0:21:16.399 work on the excess capital in the banking system and 0:21:16.680 --> 0:21:21.640 how much excess capital they have to support corporates and 0:21:22.080 --> 0:21:24.960 you know their their loan box and the vast majority 0:21:25.000 --> 0:21:27.440 of banks we cover, both my names and my colleague 0:21:27.480 --> 0:21:29.399 Kins will be on the mid cap bank side. You know, 0:21:29.480 --> 0:21:33.480 they have more than enough excess capital to support line 0:21:33.520 --> 0:21:37.080 draw downs in the commercial space. Now you know, line 0:21:37.119 --> 0:21:40.960 draw downs were running it like going into this and 0:21:41.480 --> 0:21:43.760 you know we're expecting they go up significantly, but you're 0:21:43.760 --> 0:21:45.520 not going to get to a hundred. So there is 0:21:45.640 --> 0:21:47.720 excess capital and system. All the things that were put 0:21:47.760 --> 0:21:50.040 into place in O eight and post O A are 0:21:50.080 --> 0:21:52.280 there to help in this kind of environment, I have 0:21:52.359 --> 0:21:55.640 to say. So I do think that they will continue 0:21:55.680 --> 0:21:59.720