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

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

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

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

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Speaker 1: Emmanuel with us right now with bt I g of

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Speaker 1: course expert in equities and derivatives. Julian, what does the

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Speaker 1: derivative markets say to you right now? What are the

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Speaker 1: indicators and derivatives that gives you direction in regular common stock?

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Speaker 1: Sure so, so yesterday was was critical in our view

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Speaker 1: because as you made lower low in the SMP five

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Speaker 1: hundred and all the major indexes, you didn't make a

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Speaker 1: higher high in the VIX. And when you put that

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Speaker 1: in the context of the fact that between limit down

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Speaker 1: Sunday night, then massive rally on the back of the

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Speaker 1: FED and then a collapse, a total movement of almost

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Speaker 1: of the value of the s and P five from

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Speaker 1: low to high to low um, it basically tells you

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Speaker 1: that for the most part, sellers are exhausted. They may

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Speaker 1: not be finished, but they are exhausted at the moment,

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Speaker 1: and so that's the start of a bottoming process and

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Speaker 1: our view, Judy, I'm realty hot to make the argument

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Speaker 1: that things of bottom in an equity when we haven't

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Speaker 1: seen that happening credit yet, how it spreads out to

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Speaker 1: about eleven hundred basis points, the non energy component getting

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Speaker 1: out to near a thousand now and the direction of

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Speaker 1: travel is still concerning. Can you construct an argument the

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Speaker 1: equities of bottoming opposite of a bottoming gall in credit? Uh? Well,

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Speaker 1: I think basically, you know you you spoke about it

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Speaker 1: a little while ago, in that you know, the government

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Speaker 1: is now uh in the business of picking winners and

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Speaker 1: losers more than perhaps in two thousand and eight, I

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Speaker 1: would argue, well more than than two thousand and eight.

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Speaker 1: And clearly the priority is on the employers, the you know,

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Speaker 1: the larger companies. UM. This will be a process that

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Speaker 1: will get managed. Ultimately, the FED will oversee the high

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Speaker 1: yield market. Um. And as you said, there will be bankruptcies.

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Speaker 1: But the fact is that you know, the for the

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Speaker 1: most part, you tend to look through these types of things.

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Speaker 1: And I would suggest that when you look at the

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Speaker 1: first quarter of two thousand and sixteen, and obviously the

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Speaker 1: bankruptcies in high yield will be you know, far in

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Speaker 1: excess of that that you know down thirty could be

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Speaker 1: the beginning of of discounting in the equity market. So, Julian,

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Speaker 1: there is a question about the fiscal response. We're talking

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Speaker 1: about the government and support for some of these companies.

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Speaker 1: But I want to go back to the FED and

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Speaker 1: trying to support market function and I'm trying to pass

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Speaker 1: through market functioning versus credit risk. And I'm looking, for example,

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Speaker 1: at some mortgage funds that are unable to meet margin calls.

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Speaker 1: Investal Mortgage Capital the latest one crossing the Bloomberg earlier today.

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Speaker 1: You're seeing a lot of distress fire sales over the weekend,

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Speaker 1: trying to get rid of some of the assets to

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Speaker 1: meet redemptions and margin calls. At what point is this

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Speaker 1: going to be an ongoing problem for the system versus

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Speaker 1: just idiosyncratic potholes that are blowing up amid the volatility. Well,

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Speaker 1: I think it actually has been a systemic problem, which

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Speaker 1: is why you've seen the said do what what it's doing.

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Speaker 1: From our point of view, you really want to look

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Speaker 1: at commercial paper um and you want to look at

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Speaker 1: you know, frankly, training and clearing volume in in all

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Speaker 1: of the fixed income markets because to us, one of

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Speaker 1: the interesting things about this environment is that if you

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Speaker 1: look at it, the equity market to function much much,

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Speaker 1: you know, far superior in terms of liquidity than the

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Speaker 1: fixed income markets. We will be watching commercial paper very

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Speaker 1: very carefully. Julian, what have you? This may be an

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Speaker 1: unfair question, but I'm gonna go that it's unfair. Tuesday,

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Speaker 1: what have you learned about active versus passive in this creator?

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Speaker 1: I mean, act has been waiting for a creator for

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Speaker 1: years to say actives better than pass Have you had

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Speaker 1: any wisdom on that? Well, what we're learning is is

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Speaker 1: that the combination of of of the government intervening is

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Speaker 1: causing active versus passive to look a little different than

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Speaker 1: perhaps we might have expected. Um And you know, typically

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Speaker 1: you might see some more of the value type areas

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Speaker 1: start to emerge and stabilize first. But again when you

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Speaker 1: look at it and you think about the waiting in

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Speaker 1: the index, uh, you really you know, you look at

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Speaker 1: at the value of technology, financials, health care, and communication

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Speaker 1: services and they dominate uh the index as a whole,

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Speaker 1: and those to be the area is that the government

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Speaker 1: is likely to put you winners over losers. John Pharaoh,

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Speaker 1: is Apple looking for a bail out. I don't think

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Speaker 1: Apples looking from a bailout. I think that's a silver

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Speaker 1: lining on a morning like this, sitting down the couch.

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Speaker 1: You know, John, underneath my culture's probably three pair of

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Speaker 1: airs been lost. You're supporting the company is still unpleased

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Speaker 1: to keep on. Julie, and I want to transition to

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Speaker 1: a really complex question right now that it's got a

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Speaker 1: whole lot more fuel in the last twenty four hours,

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Speaker 1: and it's something investors increasingly might have to think about.

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Speaker 1: I don't want you space to speak directly to the

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Speaker 1: health issue, and I know that's difficult at a moment

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Speaker 1: like this, but just explore the following with me. The

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Speaker 1: President is making it pretty clear that he's thinking about

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Speaker 1: the cost benefit analysis, and it's a tragic store and

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Speaker 1: it's an ugly process of remaining shut down, and whether

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Speaker 1: the cure is worse than the illness. And the reason

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Speaker 1: I think investors need to start thinking about this is

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Speaker 1: if they pulled back on the mitigation efforts too early,

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Speaker 1: and then we have to think about bringing them back

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Speaker 1: in in the summer and bringing back in in the full.

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Speaker 1: I just wonder how chopping, how messy this could get

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Speaker 1: if we don't shut it down, what it wants for markets,

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Speaker 1: that is, from a market's perspective, from what you hear

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Speaker 1: from the President at the moment, Judi. And how complex

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Speaker 1: is this issue. So if you look at the evolution

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Speaker 1: of the last sixteen hours or so, it's very clear

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Speaker 1: that part of the reason that the market started rallying

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Speaker 1: overnight is because there was an expectation that the President

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Speaker 1: intends to bring the economy back sooner than expect You know,

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Speaker 1: you can openine on on what the health implications of

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Speaker 1: that are, um, but there's no question about that from

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Speaker 1: the market point of view that that is how we reacted. Look,

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Speaker 1: it's an incredibly difficult trade off, and and what we

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Speaker 1: we're thinking is that the actions that the Fed took

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Speaker 1: yesterday UM in concert with what we certainly hope and

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Speaker 1: and honestly, if we don't get a bill today or tomorrow,

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Speaker 1: the level of your responsibility in Washington will just be

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Speaker 1: you know, off the charts. Um that the combination of

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Speaker 1: those things can get us, you know, to manage the

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Speaker 1: economic trough into the summer. But the real question is,

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Speaker 1: you know, in mitigation, you know, do people want to

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Speaker 1: get on airplanes and eat out come the fall? We

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Speaker 1: need to get to that point, Jude mny Well, great

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Speaker 1: to catch you out with you without question, folks. The

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Speaker 1: Bloomberg Surveillance interview of the day on this crisis. She

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Speaker 1: is out of Northampton, Massachusetts and Smith College, where she

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Speaker 1: took a liking to the creb cycle and then had

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Speaker 1: a sterling academic career in microbiology, including uh time at

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Speaker 1: Columbia University, her Columbia University, and the University of Washington program,

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Speaker 1: which is world class. Angela Rasmussen choice. Now, Angela, help

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Speaker 1: me with the density of population, whether it is Italy

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Speaker 1: or Wuhan or Brooklyn, New York, the density of population

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Speaker 1: seems to be a determining factor. Yeah, so viruses have

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Speaker 1: to spread between people. Um Viruses can be picked up

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Speaker 1: from the environment, but they generally don't last long on

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Speaker 1: say surfaces, for example. Um So, in general, when the

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Speaker 1: population is more dense, you're more risk of coming across

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Speaker 1: somebody who is also infected, who could possibly transmit a

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Speaker 1: virus to you. So, Angelo, what have we learned from

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Speaker 1: Wuhan and from northern Italy about the timeline here? Flattening

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Speaker 1: that curve. Where are we kind of here in the

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Speaker 1: US on that curve. Well, it's very difficult to say,

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Speaker 1: because our testing capacity is not at the point where

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Speaker 1: we can truly accurately determine the prevalence of Star's coronavirus

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Speaker 1: to in our population. However, um, and I'm cautioning this pison.

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Speaker 1: I'm not an epidemiologist, but all the current epidemiological models

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Speaker 1: that I've seen suggestion that we're still on the uptick.

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Speaker 1: You can expect more cases. I mean, this is so important.

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Speaker 1: Folks and the Ft and the New York Times have

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Speaker 1: done great charts on this, and Angela their log charts.

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Speaker 1: And the answer is you want to bend the curve over,

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Speaker 1: as Paul Sweeney says, the Asians have successfully done this

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Speaker 1: period and in Europe it's a struggle. What's so important

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Speaker 1: is the slope of those trajectories. Our slope Angela is frightening.

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Speaker 1: How do we bring that slope down? Unfortunately, because we

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Speaker 1: don't know the prevalence in our population very accurately right now,

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Speaker 1: the only way to do that is by these large scale,

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Speaker 1: very very strict social distancing. How do you respond, I

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Speaker 1: don't mean to interrupt it, just because of time. Dr Rasmussen,

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Speaker 1: how do you respond to the president's an hour and

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Speaker 1: forty eight minute briefing yesterday, which is to get America

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Speaker 1: back to work? How do you, as a grizzled pro

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Speaker 1: respond that. I was very concerned about that statement. I

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Speaker 1: don't think that we're anywhere near the point where we

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Speaker 1: can begin to say that. UM. I think that it

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Speaker 1: does need to be evaluated uh as we go along. UM.

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Speaker 1: I don't think though, that it saves to say that

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Speaker 1: people can go back to work unless we can determine

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Speaker 1: if they have been infected before and may have protective immunity. So,

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Speaker 1: Dr the what is the sense of the treatment? How

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Speaker 1: do you think the treatment will evolve over the next

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Speaker 1: several months. Obviously there's not a COVID nineteen treatment flu shot,

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Speaker 1: for example, But how do you think the treatment will evolve?

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Speaker 1: I think if there is a treatment, and certainly some

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Speaker 1: of the treatments that have been discussed hydroxychlor quinn rum

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Speaker 1: does a view, for example, are in clinical trials. Now

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Speaker 1: it's incumbent on us to to complete those clinical trials

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Speaker 1: as quickly as possible, because having in a ailable treatment

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Speaker 1: that's effective could really dramatically change this for all of us.

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Speaker 1: So a sense of timing on that, I know it's

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Speaker 1: you know, we usually kind of measure these things in years.

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Speaker 1: Is there a possibility to compress that to months? Yes, certainly.

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Speaker 1: UM for chloroquine, M hydroxy chloroquine and super mycen and

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Speaker 1: ram doeser here. Those trials I believe are already ongoing.

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Speaker 1: A trial has already been completed in China um on

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Speaker 1: to HIV drugs that unfortunately did not turn out to work.

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Speaker 1: But um, since the remdesivie and chloroquine trials have also

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Speaker 1: been going on, I think we can expect it to

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Speaker 1: be a matter of weeks. Um eight to twelve weeks

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Speaker 1: is what I've heard versus six months to a year. Doctor.

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Speaker 1: It's interesting, Tom, you know, it's uh, it's just kind

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Speaker 1: of we're still in that upward part of the curve

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Speaker 1: here in the United States, certainly New York City. Dr. Yeah, yeah,

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Speaker 1: I don't mean to interrupt, but thank you John Tucker

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Speaker 1: for sending in this headline. Mr Cudlow at the White House,

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Speaker 1: as quote, may try to reopen parts of the economy

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Speaker 1: around months end. Dr rasmuson what's that part of the

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Speaker 1: economy gonna be. Is it going to be that famous

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Speaker 1: coffee house up in Northampton? Are they going to try

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Speaker 1: to open the Iron Horse Cafe just to keep the

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Speaker 1: economy going? I mean, what do they open? That is

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Speaker 1: an excellent question, and I have no idea. UM. I

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Speaker 1: do think that in many places some of those service

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Speaker 1: businesses UM and retail are still open. I know that

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Speaker 1: not in New York, cannot in Seattle, where I'm calling

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Speaker 1: from right now. UM, But I really don't know what

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Speaker 1: parts of the economy Mr Cudlo is speaking of. UM.

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Speaker 1: I think though, that indiscriminately opening up parts of the

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Speaker 1: economy is a bad idea without further testing. Thank you

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Speaker 1: so much for being with los Angele Rasmuson of Columbia

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Speaker 1: University and in Seattle, of course, the University of Washington.

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Speaker 1: Thank you so much for being with. That's what we've

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Speaker 1: been trying to do is go to experts in the field.

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Speaker 1: Whether it's Peter Styre we talked to at Mount Sinai,

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Speaker 1: Brooklyn yesterday, Robert Crandall joining us, the emeritus chairman of

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Speaker 1: American Airlines earlier now Randall Crossinger, the former governor of

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Speaker 1: the Federal Reserve System, Randy Crossinger Joints from the Boost School, Chicago.

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Speaker 1: Professor Krasser, wonderful to have you with us. I want

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Speaker 1: to go to the mathiness. There is a point in

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Speaker 1: physics where you forget about the fanciness of the equation

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Speaker 1: and you just look at the magnitude or what's called

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Speaker 1: the amplitude. Do we have any understanding of the amplitudes

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Speaker 1: of this shock, the size of the shock we're confronting.

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Speaker 1: We really haven't seen something like this before, because this

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Speaker 1: is both a natural disaster and one that in order

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Speaker 1: to respond into the finatural disaster, we're taking policy actions

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Speaker 1: that are significantly slow in the economy. And I don't

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Speaker 1: think we've ever seen that specific combination before. We have

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Speaker 1: not seen it before, but we have to sort our

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Speaker 1: way through it. Do the formulas in the theories work here?

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Speaker 1: Or is it just just to throw a lot of

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Speaker 1: money at the wall. No, No, I think they still uh,

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Speaker 1: you know, we don't have you know, we don't know

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Speaker 1: for sure, but I think we still have guidance from

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Speaker 1: from other examples of the past, whether it's from the

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Speaker 1: pandemic in the early part of the twentieth century or

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Speaker 1: other challenges that have occurred. I think it's really clear

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Speaker 1: that the lessons from the financial crisis and two thousand eight,

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Speaker 1: two thousand nine are that a fundamental is that you

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Speaker 1: need to keep the financial system operating, and I think

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Speaker 1: that's what the FED is trying to do. Obviously, the

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Speaker 1: shock is coming from something very different than the mortgage market, um.

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Speaker 1: But I think the less since have been learned there

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Speaker 1: and they stood up a lot of the programs that

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Speaker 1: we did back when I was there a decade ago,

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Speaker 1: and they're doing new things, which I think is great.

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Speaker 1: Professor Krauster, you so I want to talk a little

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Speaker 1: bit about those new things that that you talk about.

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Speaker 1: Do they have anything left based on your experience in

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Speaker 1: the crisis era at the Fedure Reserve and based on

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Speaker 1: what we're seeing right now, well, they've done a lot

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Speaker 1: and a lot of this is still being implemented. We'll

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Speaker 1: see the exact magnitude um and and you see they're

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Speaker 1: able to revive some of these They originally buying uh

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Speaker 1: billion dollars worth of treasuries billion dollars worth of mortgage

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Speaker 1: backed securities, and now that will be unlimited, and so

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Speaker 1: they may and they are starting to enter other markets

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Speaker 1: and they can increase their firepower in purchasing assets in

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Speaker 1: those those other markets. Uh, they are introducing or talked

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Speaker 1: about introducing a main street lending program. I think that

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Speaker 1: could be helpful for small and medium sized business and

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Speaker 1: for for consumers. So I think they've done a lot.

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Speaker 1: I think there's still more ammunition left, both in terms

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Speaker 1: of the magnitude of programs that really and now as

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Speaker 1: well as some specific programs like a main street lending program.

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Speaker 1: And Professor, we've talked a lot about what they've done,

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Speaker 1: and they've done a lot. Let's talk about what they've achieved.

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Speaker 1: What have they achieved in the last couple of weeks

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Speaker 1: with this whole range of tools that they've basically deployed

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Speaker 1: to really get at the functioning of the market and

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Speaker 1: the financial conditions as well. So I think the markets

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Speaker 1: are still functioning, not perfectly, but much better than if

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Speaker 1: the FIT had and other central banks hadn't undertaken the

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Speaker 1: actions that that they had. But when the shot comes

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Speaker 1: from something like a virus, the FED can do what's necessary,

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Speaker 1: but it's not sufficient. And I think UM, the reason

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Speaker 1: that we haven't seen um the markets stopped that stopping

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Speaker 1: the tunnels in the markets. It is because it's now

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Speaker 1: with the health authorities and fiscal authorities, and they've been

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Speaker 1: mixed messages. Some countries doing more, some trunter is doing less. UM.

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Speaker 1: It's obviously the debates in Congress over you know, what

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Speaker 1: kind of package, whether the package will be passed and when.

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Speaker 1: That's creating a lot of a lot of uncertainty and

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Speaker 1: tumult a lot of division in Washington, d C. So

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Speaker 1: let's talk about how the effort in Washington could complement

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Speaker 1: what we've seen on the montery policy side. What do

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Speaker 1: you need to say literally yesterday as soon as possible

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Speaker 1: from Washington. On the political side of things, I think

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Speaker 1: getting an agreement that in and of itself will be

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Speaker 1: very valuable to the market to see that, I guess

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Speaker 1: they can get something together and they can act against

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Speaker 1: this um uh this uh this pandemic. Then, in particular,

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Speaker 1: I think would be really valuable to make sure that

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Speaker 1: it's very well focused on what are the issues. The First,

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Speaker 1: making sure that there's sufficient funding for healthcare and uh

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Speaker 1: that um giving incentives for healthcare workers in retirement to

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Speaker 1: come come back in that's I think something very important. Second,

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Speaker 1: making sure that vulnerable people continue to be able to

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Speaker 1: get income, and in particular that their incentive is not

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Speaker 1: to go into work but to stay home during this

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Speaker 1: period but still be able to receive income. You can

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Speaker 1: do that through sending checks to people. You can do

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Speaker 1: that through various support to small and medium sized business

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Speaker 1: to get them to continue to pay the wages of

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Speaker 1: people who would be happy staying at home. UM. Those

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Speaker 1: those are some of the first things that I would

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Speaker 1: I would focus on Professor Krausner. Last week and even

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Speaker 1: the week before, we were really talking about a financial

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Speaker 1: crisis in addition to the economic crisis unfolding. Has the

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Speaker 1: FED effectively stopped that? Have we avoided a financial crisis

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Speaker 1: at this point or is it too early to say? Well,

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Speaker 1: given my experiences back in two two nine, I never

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Speaker 1: say never about anything, but I think that the FED

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Speaker 1: actions have been crucial in avoiding financial crisis so far.

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Speaker 1: And I think if the fiscal and health authorities act

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Speaker 1: in um expeditiously and effectively, then I think we will

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Speaker 1: have will have been able to get through that. But

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Speaker 1: it really will depend on the size of the economic shock,

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Speaker 1: and and that's now on the court of the fiscal

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Speaker 1: and monetary and fiscal health authorities, and now as we

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Speaker 1: do for for surveillance. It's Math Tuesday with Randall Croster

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Speaker 1: of Chicago, Grandy Paul Wilmot, the giant of Imperial College,

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Speaker 1: and a guy named Todd. Ab gave a rave review

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Speaker 1: years ago to Kent Osmond's masterpiece Iceberg Risk, which was

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Speaker 1: basically a complete refusentation of the central limit theorem. Are

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Speaker 1: we are we doing that again? Are we so fancy

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Speaker 1: at our crosser like math certitude that once again we've

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Speaker 1: learned the once in a lifetime event come along every

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Speaker 1: twelve years? Well? Yeah, Well, I think if you we've

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Speaker 1: talked about this before. I think on on your program

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Speaker 1: that I get worried when other people aren't worried. So

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Speaker 1: I focus a lot on um uh, doing scenario planning,

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Speaker 1: doing stress tests, and risk analysis for things where you're

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Speaker 1: just not sure you don't have the data. Fork it

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Speaker 1: hasn't happened, but let's see what if? Can you? Can

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Speaker 1: you withstand anything like that? And so these are the

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Speaker 1: things that you have to to think about. Can you

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Speaker 1: perfectly plans for them? Of course not. Can you have

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Speaker 1: better readiness for them? Yes? And I think in some

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Speaker 1: sense we've learned a number of lessons from two thousand

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Speaker 1: two thousand nine, and it helped to allow the FED

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Speaker 1: to respond much more rapidly. Because they didn't have to

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Speaker 1: create programs like the commercial paper Facility and the money

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Speaker 1: market Facility and so many of the others whole cloth

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Speaker 1: like we didn't, they could stand them up quickly, and

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Speaker 1: that gives opportunity to ramp them up, move them to scale,

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Speaker 1: and do some new thing. To borrow phrase from Nicholas

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Speaker 1: tell Ub, and that would be just simply skin in

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Speaker 1: the game. I guess we've all got skin in the

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Speaker 1: game now with this horrific crisis. I don't mean to

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Speaker 1: make a joke about it, folks, but Randy, the recovery rate,

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Speaker 1: the glide path to recovery. We forget out of the depression.

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Speaker 1: It took a war and stimulus of a war to

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Speaker 1: get equities to lift back to where they were in

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Speaker 1: nine after nineteen thirty seven. How do you envision a

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Speaker 1: recovery here to Dow twenty nine thousand. So I think

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Speaker 1: that ultimately will be related to the underlying economics, and

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Speaker 1: can we make sure as best as possible to try

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Speaker 1: to make this a v shape recovery rather than the

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Speaker 1: U shape or an L shape sort of sort of

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Speaker 1: thing that is out of the hands of the FIT. UM.

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Speaker 1: The FIT had very important role in making sure we

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Speaker 1: we had a recovery in over the last decade. Here

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Speaker 1: they can make sure we can avoid a financial crisis,

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Speaker 1: but the recovery pieces will have to come on the

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Speaker 1: health side and on that metiscal side. If we can

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Speaker 1: get agreements, if we can get some movement forward, I

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Speaker 1: think we can get there and hopefully make it much

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Speaker 1: more rapid than in uh in a great depression. Professor Krauser,

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Speaker 1: thank you so much, greatly greatly appreciated that. Too much

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Speaker 1: math just enough. Robert Crandell with us now, who was

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Speaker 1: identified with the airline business starting with t W a

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Speaker 1: years ago and then his leadership at American Airlines single

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Speaker 1: handedly inventing frequent flyer miles and the rest of it,

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Speaker 1: and now a well preserved eighty five year and he

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Speaker 1: joins us this morning. Bob Crandell, were so honored to

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Speaker 1: have you with us. You have seen the ups and

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Speaker 1: downs of airline bankruptcy and bailout. Does the a via

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Speaker 1: an industry need another bailout or nationalization this morning? Well,

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Speaker 1: I do think it needs help, Tom. I mean the

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Speaker 1: keep in mind, you know, we've only got one big

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Speaker 1: intercity transportation system, that's the airline business. The airline business

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Speaker 1: and associated travel businesses are you know, they've they account

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Speaker 1: from millions of jobs. So we've got to keep the

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Speaker 1: ail in and it's the functional And I do think

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Speaker 1: at the moment that what we're going to have to

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Speaker 1: do is make a public investment in the airline industry

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Speaker 1: to sort of sustained it during a period of time

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Speaker 1: when cash is just running out the door in the river.

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Speaker 1: So I think, and I think the Trade Office, this

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Speaker 1: is probably a good public investment. It needs to be

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Speaker 1: off with some controls. I mean, we can't we can't

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Speaker 1: have the al in business taking public money and then

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Speaker 1: turning around and using its free cash phot to buy

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Speaker 1: back shares, which is what it's done over the last

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Speaker 1: six years. And we need to be sure that if

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Speaker 1: if we're going to help the airline industry, okay, but

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Speaker 1: that people don't get laid off and we were not

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Speaker 1: outsourcing maintenance to other countries. How do you envision what

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Speaker 1: would be a new regulation? I mean, folks, this is

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Speaker 1: ancient history now, but the gentleman from Cornell decided we

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Speaker 1: should be regulated, and Bob Crandell fought it for years

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Speaker 1: along with everybody else. And look what we wrought. I

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Speaker 1: mean the quality air service today. I'll be blunt, folks,

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Speaker 1: I fly international carriers as often as I can. Bob Crandell,

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Speaker 1: what does the new regulation look like? No? Not, Well,

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Speaker 1: you keep in mind, Tom, I was a guy that

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Speaker 1: said we should not deregulate. I always thought we should

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Speaker 1: have some version of regulation. I think we should now.

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Speaker 1: I mean, look, we invested in the airline industry after

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Speaker 1: nine one one. We're going to invest in the air

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Speaker 1: and industry now. I don't think we ought to regulate

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Speaker 1: it the way we used to. But I do think

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Speaker 1: that if the public is going to make an investment

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Speaker 1: in the airline industry, that it is entitled to know

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Speaker 1: that the airline industry isn't going to turn around and

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Speaker 1: layoff a lot of people while it's taking money from

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Speaker 1: the public. The airline industry isn't going to turn around

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Speaker 1: and abandoned cities that don't meet the profit metric. It

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Speaker 1: isn't going to turn around and take its own free

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Speaker 1: cash flow and buy back shares. So it's so there's

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Speaker 1: that there are some don't use the word regulation, let's

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Speaker 1: use the word constraint. There are going to be some

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Speaker 1: constraints on a business that needs to be regarded, in

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Speaker 1: my view, as something of a public utility. And actually

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Speaker 1: that's sort of some of those provisions are being included

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Speaker 1: currently in a House bill being circulated to prevent share

430
00:25:39,200 --> 00:25:41,639
Speaker 1: buy backs in certain executive compensation when it comes to

431
00:25:41,640 --> 00:25:43,439
Speaker 1: the airline industry. But Robert, I'd love to get your

432
00:25:43,520 --> 00:25:46,640
Speaker 1: sense who's to blame for the nine of free cash

433
00:25:46,680 --> 00:25:48,760
Speaker 1: flow that went to buying back shares of the airlines

434
00:25:48,800 --> 00:25:51,440
Speaker 1: for the past ten years. Well, who's to blame for it?

435
00:25:51,560 --> 00:25:54,800
Speaker 1: Obviously the folks, the folks that are running the airlines

436
00:25:54,840 --> 00:25:57,639
Speaker 1: and other folks that decided to do that. And I

437
00:25:57,920 --> 00:26:00,080
Speaker 1: you know, the boards of directors as well as the

438
00:26:00,560 --> 00:26:04,440
Speaker 1: executives are actually running the business. And and that's just

439
00:26:04,560 --> 00:26:07,000
Speaker 1: a foolish thing to do. In an industry like the

440
00:26:07,080 --> 00:26:11,320
Speaker 1: airline industry, you always know there's there's a black swan

441
00:26:11,480 --> 00:26:14,960
Speaker 1: waiting around the corner. And back in the day when

442
00:26:15,040 --> 00:26:18,960
Speaker 1: airlines weren't as consolidated as they are today and therefore

443
00:26:19,040 --> 00:26:21,560
Speaker 1: we're not as profitable. One of the rules of the

444
00:26:21,680 --> 00:26:26,080
Speaker 1: road is. You never bought back stock, You didn't pay dividends,

445
00:26:26,080 --> 00:26:29,320
Speaker 1: you didn't and you didn't buy back stock because you

446
00:26:29,400 --> 00:26:33,200
Speaker 1: needed you needed a well of cash to go to

447
00:26:33,920 --> 00:26:37,240
Speaker 1: when something bad happened to you. Something bad always happens

448
00:26:37,280 --> 00:26:41,000
Speaker 1: to the airline industry. But forgive me for playing devil's advocate,

449
00:26:41,119 --> 00:26:44,560
Speaker 1: But why should we give money to an industry that's very,

450
00:26:44,800 --> 00:26:47,600
Speaker 1: very difficult to be in, you know as a former CEO,

451
00:26:47,960 --> 00:26:50,760
Speaker 1: to run an airline, it's incredibly complex, really quite difficult.

452
00:26:51,119 --> 00:26:53,680
Speaker 1: What does the government want any part of that whatsoever? No,

453
00:26:53,800 --> 00:26:55,560
Speaker 1: it doesn't want any part of it. I don't want to.

454
00:26:55,720 --> 00:26:57,760
Speaker 1: I don't want the government to take over the airline.

455
00:26:57,840 --> 00:27:00,399
Speaker 1: There's this good lord. But I do think that the

456
00:27:00,480 --> 00:27:03,320
Speaker 1: government and the interests of employment and the interests of

457
00:27:03,359 --> 00:27:07,720
Speaker 1: the economy. Look, the travel business, including the airline industry,

458
00:27:07,760 --> 00:27:10,879
Speaker 1: accounts for millions and millions of jobs, I mean all over.

459
00:27:10,960 --> 00:27:14,960
Speaker 1: This country is probably the world's largest employer in terms

460
00:27:15,000 --> 00:27:18,960
Speaker 1: of and so every country, including the United States, needs

461
00:27:19,480 --> 00:27:22,600
Speaker 1: a vibrant, healthy, traveling tourism industry, and that needs to

462
00:27:22,760 --> 00:27:26,159
Speaker 1: keep the airlines going. Now, apparently France is talking about

463
00:27:26,320 --> 00:27:29,280
Speaker 1: nationalizing trance. I don't I don't think we want to

464
00:27:29,400 --> 00:27:32,920
Speaker 1: nationalize our airlines. I do think we need to make

465
00:27:33,000 --> 00:27:36,840
Speaker 1: available long term, very low interest loans. And while those

466
00:27:36,960 --> 00:27:40,639
Speaker 1: loans are outstanding, we need to impost some constraints on

467
00:27:40,760 --> 00:27:44,359
Speaker 1: the business. Bloomberg eleven three oh New York, good morning.

468
00:27:44,440 --> 00:27:47,439
Speaker 1: Let me ask this private question here, Bob, Why are

469
00:27:47,560 --> 00:27:50,600
Speaker 1: airports so lousy? What do we need to do to

470
00:27:50,880 --> 00:27:55,359
Speaker 1: speed up the rebirth and rekindling of our airports. We

471
00:27:55,480 --> 00:27:59,680
Speaker 1: need to invest more money, and I'm tom luckily are

472
00:27:59,760 --> 00:28:03,440
Speaker 1: you ports? There's been a continuing battle for years and

473
00:28:03,560 --> 00:28:07,320
Speaker 1: years and years and years that that the airports, the

474
00:28:07,400 --> 00:28:11,320
Speaker 1: airports as a group, would like to impose higher individual

475
00:28:11,560 --> 00:28:15,240
Speaker 1: travel charges on the public. So how do you finance

476
00:28:15,280 --> 00:28:18,440
Speaker 1: airports today in this country. We don't finance them publicly

477
00:28:18,600 --> 00:28:22,719
Speaker 1: using taxes. We we finance them by by transaction charges

478
00:28:22,800 --> 00:28:26,560
Speaker 1: on individual passiers. The airports would like to raise those charges.

479
00:28:27,200 --> 00:28:31,560
Speaker 1: The air the airlines recognizing that as prices go up,

480
00:28:32,440 --> 00:28:36,399
Speaker 1: the the desirability of travel goes down, and resisted that effort.

481
00:28:36,760 --> 00:28:40,200
Speaker 1: But we have lousy airports because we don't invest enough money. Animal,

482
00:28:40,880 --> 00:28:43,360
Speaker 1: Bob Crandell has been great, Thank you so much, greatly

483
00:28:43,400 --> 00:28:52,920
Speaker 1: appreciated Mr Crandell of American Aerologs without question the interview

484
00:28:53,000 --> 00:28:55,960
Speaker 1: of the day, and not with someone with medicine, but

485
00:28:56,200 --> 00:29:00,640
Speaker 1: someone with a deep knowledge of how China reports data.

486
00:29:00,920 --> 00:29:04,840
Speaker 1: Leland Miller is with China Beige Book, and we're thrilled

487
00:29:04,880 --> 00:29:07,840
Speaker 1: that he could join us right now, just immensely qualified

488
00:29:07,920 --> 00:29:12,120
Speaker 1: on the veracity of their data. Leland Miller or Daniel

489
00:29:12,160 --> 00:29:15,640
Speaker 1: Moss has written, uh, maybe not. And I've seen a

490
00:29:15,680 --> 00:29:19,200
Speaker 1: lot of other pros like Carl Weinberg say maybe not.

491
00:29:19,760 --> 00:29:22,360
Speaker 1: Do you believe the statistics out of China right now

492
00:29:22,840 --> 00:29:28,200
Speaker 1: on their better news on virus? You know, I believe

493
00:29:28,320 --> 00:29:32,520
Speaker 1: the virus news is getting better. There's definitely there's definitely

494
00:29:32,560 --> 00:29:35,560
Speaker 1: a slowdown the rate of infections. The problem is you

495
00:29:35,680 --> 00:29:39,120
Speaker 1: can't believe the actual numbers because right now there's a

496
00:29:39,200 --> 00:29:42,440
Speaker 1: political narrative that the party has swooped in which Dad

497
00:29:42,560 --> 00:29:46,320
Speaker 1: everybody and is responsible for this wonderful virus clean up.

498
00:29:46,440 --> 00:29:49,120
Speaker 1: And so as long as there is a big political

499
00:29:49,320 --> 00:29:53,800
Speaker 1: push to make this an issue of a politics and

500
00:29:54,160 --> 00:29:57,760
Speaker 1: not uh not strictly the medical area, then you never

501
00:29:57,880 --> 00:30:00,200
Speaker 1: know what numbers to believe. I think things are getting better,

502
00:30:00,320 --> 00:30:02,400
Speaker 1: but the exact numbers, I think it would be very

503
00:30:02,480 --> 00:30:05,040
Speaker 1: dangerous to take them seriously. And Leland, the one reason

504
00:30:05,120 --> 00:30:07,000
Speaker 1: why it's always great to get you on is because

505
00:30:07,080 --> 00:30:10,960
Speaker 1: you look at nonofficial data to gauge the actual economic

506
00:30:11,000 --> 00:30:13,480
Speaker 1: activity in the entire region. And I'd love to get

507
00:30:13,600 --> 00:30:16,479
Speaker 1: your sense of what you've observed as far as how

508
00:30:16,560 --> 00:30:19,560
Speaker 1: quickly they've brought business back online. We have heard from

509
00:30:19,600 --> 00:30:22,520
Speaker 1: the party that things are going very quickly and very well,

510
00:30:22,600 --> 00:30:25,760
Speaker 1: and they're expecting a full recovery very quickly. Are you

511
00:30:25,880 --> 00:30:29,200
Speaker 1: seeing that born out in sort of the anecdotal evidence

512
00:30:29,240 --> 00:30:32,240
Speaker 1: that you look at. Yeah, the idea of a full

513
00:30:32,280 --> 00:30:36,120
Speaker 1: recovery is nonsense anytime soon. Uh, firms are going back

514
00:30:36,160 --> 00:30:40,040
Speaker 1: to work now. We are seeing workforces back and people

515
00:30:40,080 --> 00:30:42,720
Speaker 1: are outside and factories are starting to run again and

516
00:30:42,880 --> 00:30:45,560
Speaker 1: lights are on. But you're not seeing a resumption in

517
00:30:45,640 --> 00:30:47,480
Speaker 1: any of the growth metrics. So one of the many

518
00:30:47,560 --> 00:30:50,520
Speaker 1: disappointing things we saw is that even in the first

519
00:30:50,600 --> 00:30:52,560
Speaker 1: half of March when we were getting our dad and

520
00:30:52,960 --> 00:30:56,120
Speaker 1: firms were going back to work, I mean, the shriff closures,

521
00:30:56,160 --> 00:30:59,840
Speaker 1: the firms reporting closures was way down as we extended

522
00:30:59,880 --> 00:31:02,200
Speaker 1: in to March. But the data we're not getting better.

523
00:31:02,680 --> 00:31:05,240
Speaker 1: And the problem with this is that that China is

524
00:31:05,400 --> 00:31:08,320
Speaker 1: very anxious to have a recovery narrative. They announced their

525
00:31:08,360 --> 00:31:11,080
Speaker 1: bad data for January in February and now they want

526
00:31:11,080 --> 00:31:13,360
Speaker 1: to get on with your recovery. But the recovery is

527
00:31:13,400 --> 00:31:16,760
Speaker 1: not so fast. You're actually seeing the worst data we've

528
00:31:16,840 --> 00:31:20,280
Speaker 1: ever seen, without question right now, and Q one is

529
00:31:20,360 --> 00:31:23,680
Speaker 1: likely you know, around and had negative eleven contraction. It

530
00:31:23,760 --> 00:31:28,040
Speaker 1: gives us a Leland Miller example of wacko data that matters,

531
00:31:28,160 --> 00:31:30,920
Speaker 1: like is it the number of you know, crew members

532
00:31:31,000 --> 00:31:33,920
Speaker 1: on iron ore ships or is it you know, counting

533
00:31:34,000 --> 00:31:36,400
Speaker 1: containers a simple out of Shanghai as you I mean,

534
00:31:36,760 --> 00:31:39,120
Speaker 1: what's a what's the data point that matters to you

535
00:31:39,240 --> 00:31:44,080
Speaker 1: to gauge that? Well, you know, it's it's very different

536
00:31:44,400 --> 00:31:47,360
Speaker 1: this quarter than any other quarter we've ever tracked, but

537
00:31:47,400 --> 00:31:49,400
Speaker 1: it is typically what we do is we go through

538
00:31:49,440 --> 00:31:51,960
Speaker 1: the weeds and we try to find the areas of

539
00:31:52,040 --> 00:31:55,480
Speaker 1: strength but also the real areas of weakness that others

540
00:31:55,560 --> 00:31:59,680
Speaker 1: haven't identified. And when we looked across the spectrum this quarter,

541
00:32:00,240 --> 00:32:04,240
Speaker 1: everything was weaker. Every sector was weaker, every region was weaker.

542
00:32:04,320 --> 00:32:06,840
Speaker 1: Every headline metric is weaker, and not just weakly, but

543
00:32:06,960 --> 00:32:09,520
Speaker 1: the weakest numbers we've ever seen, all of them in

544
00:32:10,400 --> 00:32:15,520
Speaker 1: severe contraction. Lel this different, different, different ball game, discorre Leland.

545
00:32:15,560 --> 00:32:16,840
Speaker 1: I want to go back to what you said that

546
00:32:16,920 --> 00:32:21,000
Speaker 1: tend to eleven percent contraction in the first quarter. Can

547
00:32:21,040 --> 00:32:24,360
Speaker 1: you extrapolate that out based on what you're seeing in

548
00:32:24,520 --> 00:32:27,480
Speaker 1: terms of a pickup or or not in in recovery

549
00:32:27,640 --> 00:32:30,320
Speaker 1: in the second quarter and beyond, what are you looking

550
00:32:30,360 --> 00:32:34,280
Speaker 1: at for the full annualized GDP for China right now?

551
00:32:35,440 --> 00:32:39,200
Speaker 1: Right well, the outlooks getting a big gloomier for China,

552
00:32:39,320 --> 00:32:41,720
Speaker 1: even though their economy is getting better. And what I

553
00:32:41,840 --> 00:32:44,680
Speaker 1: mean by that is this is no longer just a

554
00:32:44,760 --> 00:32:48,720
Speaker 1: domestic China story, even if there is an enormous level

555
00:32:48,760 --> 00:32:51,520
Speaker 1: of domestic resilience and the Party pushes everyone back to

556
00:32:51,600 --> 00:32:56,960
Speaker 1: work and output and consumption and demand are all back

557
00:32:57,120 --> 00:33:01,880
Speaker 1: faster than anyone could possibly uh, you know, assume would

558
00:33:01,920 --> 00:33:03,920
Speaker 1: be the case. You have a problem with the rest

559
00:33:03,960 --> 00:33:06,600
Speaker 1: of globes shutting down. So Q two was supposed to

560
00:33:06,600 --> 00:33:08,680
Speaker 1: be the time in which Chinese factories were back up

561
00:33:08,720 --> 00:33:11,480
Speaker 1: and running, and then you would have global demand take over.

562
00:33:11,840 --> 00:33:14,800
Speaker 1: Now your US factories are down, Europe's down, demand is

563
00:33:14,880 --> 00:33:17,680
Speaker 1: creating worldwide. So the idea that Chinese will have a

564
00:33:17,760 --> 00:33:21,520
Speaker 1: recovering Q two from an inlet of a contraction, if

565
00:33:21,560 --> 00:33:23,360
Speaker 1: it's not going to be back to normal levels of growth,

566
00:33:23,840 --> 00:33:26,680
Speaker 1: what would happen to China if the president came out

567
00:33:27,400 --> 00:33:30,960
Speaker 1: and lifted the various trade initiatives he's put in place.

568
00:33:31,160 --> 00:33:33,640
Speaker 1: I mean, is that beneficial to China? Is that a

569
00:33:33,800 --> 00:33:37,600
Speaker 1: US story? Well, look if you had, if you had

570
00:33:37,760 --> 00:33:40,440
Speaker 1: an end to the supply shock and the demand shock,

571
00:33:40,840 --> 00:33:43,239
Speaker 1: and you pulled back all these trade initiatives, I think

572
00:33:43,280 --> 00:33:45,960
Speaker 1: you'd see, uh, quite a quite a juice to growth.

573
00:33:46,520 --> 00:33:48,440
Speaker 1: The problem is is right now there's no demand. There's

574
00:33:48,480 --> 00:33:51,160
Speaker 1: no global demand. So you know, having a resumption of

575
00:33:51,360 --> 00:33:53,640
Speaker 1: of business as usual in China over the next couple

576
00:33:53,680 --> 00:33:57,600
Speaker 1: of months, but there's no demand, no demand internationally, uh

577
00:33:57,680 --> 00:34:00,240
Speaker 1: from the major trading partner. So right now you have

578
00:34:00,360 --> 00:34:04,120
Speaker 1: no effect or very little effective any Okay, Lela Miller.

579
00:34:04,200 --> 00:34:06,280
Speaker 1: This has been wonderful, Thank you so much with China

580
00:34:06,360 --> 00:34:10,040
Speaker 1: page book, just very very informative this morning. Thanks for

581
00:34:10,160 --> 00:34:14,520
Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to

582
00:34:14,719 --> 00:34:20,400
Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

583
00:34:21,000 --> 00:34:24,279
Speaker 1: I'm on Twitter at Tom Keane Before the podcast, you

584
00:34:24,360 --> 00:34:27,760
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio