Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Julian
Speaker 1: Emmanuel with us right now with bt I g of
Speaker 1: course expert in equities and derivatives. Julian, what does the
Speaker 1: derivative markets say to you right now? What are the
Speaker 1: indicators and derivatives that gives you direction in regular common stock?
Speaker 1: Sure so, so yesterday was was critical in our view
Speaker 1: because as you made lower low in the SMP five
Speaker 1: hundred and all the major indexes, you didn't make a
Speaker 1: higher high in the VIX. And when you put that
Speaker 1: in the context of the fact that between limit down
Speaker 1: Sunday night, then massive rally on the back of the
Speaker 1: FED and then a collapse, a total movement of almost
Speaker 1: of the value of the s and P five from
Speaker 1: low to high to low um, it basically tells you
Speaker 1: that for the most part, sellers are exhausted. They may
Speaker 1: not be finished, but they are exhausted at the moment,
Speaker 1: and so that's the start of a bottoming process and
Speaker 1: our view, Judy, I'm realty hot to make the argument
Speaker 1: that things of bottom in an equity when we haven't
Speaker 1: seen that happening credit yet, how it spreads out to
Speaker 1: about eleven hundred basis points, the non energy component getting
Speaker 1: out to near a thousand now and the direction of
Speaker 1: travel is still concerning. Can you construct an argument the
Speaker 1: equities of bottoming opposite of a bottoming gall in credit? Uh? Well,
Speaker 1: I think basically, you know you you spoke about it
Speaker 1: a little while ago, in that you know, the government
Speaker 1: is now uh in the business of picking winners and
Speaker 1: losers more than perhaps in two thousand and eight, I
Speaker 1: would argue, well more than than two thousand and eight.
Speaker 1: And clearly the priority is on the employers, the you know,
Speaker 1: the larger companies. UM. This will be a process that
Speaker 1: will get managed. Ultimately, the FED will oversee the high
Speaker 1: yield market. Um. And as you said, there will be bankruptcies.
Speaker 1: But the fact is that you know, the for the
Speaker 1: most part, you tend to look through these types of things.
Speaker 1: And I would suggest that when you look at the
Speaker 1: first quarter of two thousand and sixteen, and obviously the
Speaker 1: bankruptcies in high yield will be you know, far in
Speaker 1: excess of that that you know down thirty could be
Speaker 1: the beginning of of discounting in the equity market. So, Julian,
Speaker 1: there is a question about the fiscal response. We're talking
Speaker 1: about the government and support for some of these companies.
Speaker 1: But I want to go back to the FED and
Speaker 1: trying to support market function and I'm trying to pass
Speaker 1: through market functioning versus credit risk. And I'm looking, for example,
Speaker 1: at some mortgage funds that are unable to meet margin calls.
Speaker 1: Investal Mortgage Capital the latest one crossing the Bloomberg earlier today.
Speaker 1: You're seeing a lot of distress fire sales over the weekend,
Speaker 1: trying to get rid of some of the assets to
Speaker 1: meet redemptions and margin calls. At what point is this
Speaker 1: going to be an ongoing problem for the system versus
Speaker 1: just idiosyncratic potholes that are blowing up amid the volatility. Well,
Speaker 1: I think it actually has been a systemic problem, which
Speaker 1: is why you've seen the said do what what it's doing.
Speaker 1: From our point of view, you really want to look
Speaker 1: at commercial paper um and you want to look at
Speaker 1: you know, frankly, training and clearing volume in in all
Speaker 1: of the fixed income markets because to us, one of
Speaker 1: the interesting things about this environment is that if you
Speaker 1: look at it, the equity market to function much much,
Speaker 1: you know, far superior in terms of liquidity than the
Speaker 1: fixed income markets. We will be watching commercial paper very
Speaker 1: very carefully. Julian, what have you? This may be an
Speaker 1: unfair question, but I'm gonna go that it's unfair. Tuesday,
Speaker 1: what have you learned about active versus passive in this creator?
Speaker 1: I mean, act has been waiting for a creator for
Speaker 1: years to say actives better than pass Have you had
Speaker 1: any wisdom on that? Well, what we're learning is is
Speaker 1: that the combination of of of the government intervening is
Speaker 1: causing active versus passive to look a little different than
Speaker 1: perhaps we might have expected. Um And you know, typically
Speaker 1: you might see some more of the value type areas
Speaker 1: start to emerge and stabilize first. But again when you
Speaker 1: look at it and you think about the waiting in
Speaker 1: the index, uh, you really you know, you look at
Speaker 1: at the value of technology, financials, health care, and communication
Speaker 1: services and they dominate uh the index as a whole,
Speaker 1: and those to be the area is that the government
Speaker 1: is likely to put you winners over losers. John Pharaoh,
Speaker 1: is Apple looking for a bail out. I don't think
Speaker 1: Apples looking from a bailout. I think that's a silver
Speaker 1: lining on a morning like this, sitting down the couch.
Speaker 1: You know, John, underneath my culture's probably three pair of
Speaker 1: airs been lost. You're supporting the company is still unpleased
Speaker 1: to keep on. Julie, and I want to transition to
Speaker 1: a really complex question right now that it's got a
Speaker 1: whole lot more fuel in the last twenty four hours,
Speaker 1: and it's something investors increasingly might have to think about.
Speaker 1: I don't want you space to speak directly to the
Speaker 1: health issue, and I know that's difficult at a moment
Speaker 1: like this, but just explore the following with me. The
Speaker 1: President is making it pretty clear that he's thinking about
Speaker 1: the cost benefit analysis, and it's a tragic store and
Speaker 1: it's an ugly process of remaining shut down, and whether
Speaker 1: the cure is worse than the illness. And the reason
Speaker 1: I think investors need to start thinking about this is
Speaker 1: if they pulled back on the mitigation efforts too early,
Speaker 1: and then we have to think about bringing them back
Speaker 1: in in the summer and bringing back in in the full.
Speaker 1: I just wonder how chopping, how messy this could get
Speaker 1: if we don't shut it down, what it wants for markets,
Speaker 1: that is, from a market's perspective, from what you hear
Speaker 1: from the President at the moment, Judi. And how complex
Speaker 1: is this issue. So if you look at the evolution
Speaker 1: of the last sixteen hours or so, it's very clear
Speaker 1: that part of the reason that the market started rallying
Speaker 1: overnight is because there was an expectation that the President
Speaker 1: intends to bring the economy back sooner than expect You know,
Speaker 1: you can openine on on what the health implications of
Speaker 1: that are, um, but there's no question about that from
Speaker 1: the market point of view that that is how we reacted. Look,
Speaker 1: it's an incredibly difficult trade off, and and what we
Speaker 1: we're thinking is that the actions that the Fed took
Speaker 1: yesterday UM in concert with what we certainly hope and
Speaker 1: and honestly, if we don't get a bill today or tomorrow,
Speaker 1: the level of your responsibility in Washington will just be
Speaker 1: you know, off the charts. Um that the combination of
Speaker 1: those things can get us, you know, to manage the
Speaker 1: economic trough into the summer. But the real question is,
Speaker 1: you know, in mitigation, you know, do people want to
Speaker 1: get on airplanes and eat out come the fall? We
Speaker 1: need to get to that point, Jude mny Well, great
Speaker 1: to catch you out with you without question, folks. The
Speaker 1: Bloomberg Surveillance interview of the day on this crisis. She
Speaker 1: is out of Northampton, Massachusetts and Smith College, where she
Speaker 1: took a liking to the creb cycle and then had
Speaker 1: a sterling academic career in microbiology, including uh time at
Speaker 1: Columbia University, her Columbia University, and the University of Washington program,
Speaker 1: which is world class. Angela Rasmussen choice. Now, Angela, help
Speaker 1: me with the density of population, whether it is Italy
Speaker 1: or Wuhan or Brooklyn, New York, the density of population
Speaker 1: seems to be a determining factor. Yeah, so viruses have
Speaker 1: to spread between people. Um Viruses can be picked up
Speaker 1: from the environment, but they generally don't last long on
Speaker 1: say surfaces, for example. Um So, in general, when the
Speaker 1: population is more dense, you're more risk of coming across
Speaker 1: somebody who is also infected, who could possibly transmit a
Speaker 1: virus to you. So, Angelo, what have we learned from
Speaker 1: Wuhan and from northern Italy about the timeline here? Flattening
Speaker 1: that curve. Where are we kind of here in the
Speaker 1: US on that curve. Well, it's very difficult to say,
Speaker 1: because our testing capacity is not at the point where
Speaker 1: we can truly accurately determine the prevalence of Star's coronavirus
Speaker 1: to in our population. However, um, and I'm cautioning this pison.
Speaker 1: I'm not an epidemiologist, but all the current epidemiological models
Speaker 1: that I've seen suggestion that we're still on the uptick.
Speaker 1: You can expect more cases. I mean, this is so important.
Speaker 1: Folks and the Ft and the New York Times have
Speaker 1: done great charts on this, and Angela their log charts.
Speaker 1: And the answer is you want to bend the curve over,
Speaker 1: as Paul Sweeney says, the Asians have successfully done this
Speaker 1: period and in Europe it's a struggle. What's so important
Speaker 1: is the slope of those trajectories. Our slope Angela is frightening.
Speaker 1: How do we bring that slope down? Unfortunately, because we
Speaker 1: don't know the prevalence in our population very accurately right now,
Speaker 1: the only way to do that is by these large scale,
Speaker 1: very very strict social distancing. How do you respond, I
Speaker 1: don't mean to interrupt it, just because of time. Dr Rasmussen,
Speaker 1: how do you respond to the president's an hour and
Speaker 1: forty eight minute briefing yesterday, which is to get America
Speaker 1: back to work? How do you, as a grizzled pro
Speaker 1: respond that. I was very concerned about that statement. I
Speaker 1: don't think that we're anywhere near the point where we
Speaker 1: can begin to say that. UM. I think that it
Speaker 1: does need to be evaluated uh as we go along. UM.
Speaker 1: I don't think though, that it saves to say that
Speaker 1: people can go back to work unless we can determine
Speaker 1: if they have been infected before and may have protective immunity. So,
Speaker 1: Dr the what is the sense of the treatment? How
Speaker 1: do you think the treatment will evolve over the next
Speaker 1: several months. Obviously there's not a COVID nineteen treatment flu shot,
Speaker 1: for example, But how do you think the treatment will evolve?
Speaker 1: I think if there is a treatment, and certainly some
Speaker 1: of the treatments that have been discussed hydroxychlor quinn rum
Speaker 1: does a view, for example, are in clinical trials. Now
Speaker 1: it's incumbent on us to to complete those clinical trials
Speaker 1: as quickly as possible, because having in a ailable treatment
Speaker 1: that's effective could really dramatically change this for all of us.
Speaker 1: So a sense of timing on that, I know it's
Speaker 1: you know, we usually kind of measure these things in years.
Speaker 1: Is there a possibility to compress that to months? Yes, certainly.
Speaker 1: UM for chloroquine, M hydroxy chloroquine and super mycen and
Speaker 1: ram doeser here. Those trials I believe are already ongoing.
Speaker 1: A trial has already been completed in China um on
Speaker 1: to HIV drugs that unfortunately did not turn out to work.
Speaker 1: But um, since the remdesivie and chloroquine trials have also
Speaker 1: been going on, I think we can expect it to
Speaker 1: be a matter of weeks. Um eight to twelve weeks
Speaker 1: is what I've heard versus six months to a year. Doctor.
Speaker 1: It's interesting, Tom, you know, it's uh, it's just kind
Speaker 1: of we're still in that upward part of the curve
Speaker 1: here in the United States, certainly New York City. Dr. Yeah, yeah,
Speaker 1: I don't mean to interrupt, but thank you John Tucker
Speaker 1: for sending in this headline. Mr Cudlow at the White House,
Speaker 1: as quote, may try to reopen parts of the economy
Speaker 1: around months end. Dr rasmuson what's that part of the
Speaker 1: economy gonna be. Is it going to be that famous
Speaker 1: coffee house up in Northampton? Are they going to try
Speaker 1: to open the Iron Horse Cafe just to keep the
Speaker 1: economy going? I mean, what do they open? That is
Speaker 1: an excellent question, and I have no idea. UM. I
Speaker 1: do think that in many places some of those service
Speaker 1: businesses UM and retail are still open. I know that
Speaker 1: not in New York, cannot in Seattle, where I'm calling
Speaker 1: from right now. UM, But I really don't know what
Speaker 1: parts of the economy Mr Cudlo is speaking of. UM.
Speaker 1: I think though, that indiscriminately opening up parts of the
Speaker 1: economy is a bad idea without further testing. Thank you
Speaker 1: so much for being with los Angele Rasmuson of Columbia
Speaker 1: University and in Seattle, of course, the University of Washington.
Speaker 1: Thank you so much for being with. That's what we've
Speaker 1: been trying to do is go to experts in the field.
Speaker 1: Whether it's Peter Styre we talked to at Mount Sinai,
Speaker 1: Brooklyn yesterday, Robert Crandall joining us, the emeritus chairman of
Speaker 1: American Airlines earlier now Randall Crossinger, the former governor of
Speaker 1: the Federal Reserve System, Randy Crossinger Joints from the Boost School, Chicago.
Speaker 1: Professor Krasser, wonderful to have you with us. I want
Speaker 1: to go to the mathiness. There is a point in
Speaker 1: physics where you forget about the fanciness of the equation
Speaker 1: and you just look at the magnitude or what's called
Speaker 1: the amplitude. Do we have any understanding of the amplitudes
Speaker 1: of this shock, the size of the shock we're confronting.
Speaker 1: We really haven't seen something like this before, because this
Speaker 1: is both a natural disaster and one that in order
Speaker 1: to respond into the finatural disaster, we're taking policy actions
Speaker 1: that are significantly slow in the economy. And I don't
Speaker 1: think we've ever seen that specific combination before. We have
Speaker 1: not seen it before, but we have to sort our
Speaker 1: way through it. Do the formulas in the theories work here?
Speaker 1: Or is it just just to throw a lot of
Speaker 1: money at the wall. No, No, I think they still uh,
Speaker 1: you know, we don't have you know, we don't know
Speaker 1: for sure, but I think we still have guidance from
Speaker 1: from other examples of the past, whether it's from the
Speaker 1: pandemic in the early part of the twentieth century or
Speaker 1: other challenges that have occurred. I think it's really clear
Speaker 1: that the lessons from the financial crisis and two thousand eight,
Speaker 1: two thousand nine are that a fundamental is that you
Speaker 1: need to keep the financial system operating, and I think
Speaker 1: that's what the FED is trying to do. Obviously, the
Speaker 1: shock is coming from something very different than the mortgage market, um.
Speaker 1: But I think the less since have been learned there
Speaker 1: and they stood up a lot of the programs that
Speaker 1: we did back when I was there a decade ago,
Speaker 1: and they're doing new things, which I think is great.
Speaker 1: Professor Krauster, you so I want to talk a little
Speaker 1: bit about those new things that that you talk about.
Speaker 1: Do they have anything left based on your experience in
Speaker 1: the crisis era at the Fedure Reserve and based on
Speaker 1: what we're seeing right now, well, they've done a lot
Speaker 1: and a lot of this is still being implemented. We'll
Speaker 1: see the exact magnitude um and and you see they're
Speaker 1: able to revive some of these They originally buying uh
Speaker 1: billion dollars worth of treasuries billion dollars worth of mortgage
Speaker 1: backed securities, and now that will be unlimited, and so
Speaker 1: they may and they are starting to enter other markets
Speaker 1: and they can increase their firepower in purchasing assets in
Speaker 1: those those other markets. Uh, they are introducing or talked
Speaker 1: about introducing a main street lending program. I think that
Speaker 1: could be helpful for small and medium sized business and
Speaker 1: for for consumers. So I think they've done a lot.
Speaker 1: I think there's still more ammunition left, both in terms
Speaker 1: of the magnitude of programs that really and now as
Speaker 1: well as some specific programs like a main street lending program.
Speaker 1: And Professor, we've talked a lot about what they've done,
Speaker 1: and they've done a lot. Let's talk about what they've achieved.
Speaker 1: What have they achieved in the last couple of weeks
Speaker 1: with this whole range of tools that they've basically deployed
Speaker 1: to really get at the functioning of the market and
Speaker 1: the financial conditions as well. So I think the markets
Speaker 1: are still functioning, not perfectly, but much better than if
Speaker 1: the FIT had and other central banks hadn't undertaken the
Speaker 1: actions that that they had. But when the shot comes
Speaker 1: from something like a virus, the FED can do what's necessary,
Speaker 1: but it's not sufficient. And I think UM, the reason
Speaker 1: that we haven't seen um the markets stopped that stopping
Speaker 1: the tunnels in the markets. It is because it's now
Speaker 1: with the health authorities and fiscal authorities, and they've been
Speaker 1: mixed messages. Some countries doing more, some trunter is doing less. UM.
Speaker 1: It's obviously the debates in Congress over you know, what
Speaker 1: kind of package, whether the package will be passed and when.
Speaker 1: That's creating a lot of a lot of uncertainty and
Speaker 1: tumult a lot of division in Washington, d C. So
Speaker 1: let's talk about how the effort in Washington could complement
Speaker 1: what we've seen on the montery policy side. What do
Speaker 1: you need to say literally yesterday as soon as possible
Speaker 1: from Washington. On the political side of things, I think
Speaker 1: getting an agreement that in and of itself will be
Speaker 1: very valuable to the market to see that, I guess
Speaker 1: they can get something together and they can act against
Speaker 1: this um uh this uh this pandemic. Then, in particular,
Speaker 1: I think would be really valuable to make sure that
Speaker 1: it's very well focused on what are the issues. The First,
Speaker 1: making sure that there's sufficient funding for healthcare and uh
Speaker 1: that um giving incentives for healthcare workers in retirement to
Speaker 1: come come back in that's I think something very important. Second,
Speaker 1: making sure that vulnerable people continue to be able to
Speaker 1: get income, and in particular that their incentive is not
Speaker 1: to go into work but to stay home during this
Speaker 1: period but still be able to receive income. You can
Speaker 1: do that through sending checks to people. You can do
Speaker 1: that through various support to small and medium sized business
Speaker 1: to get them to continue to pay the wages of
Speaker 1: people who would be happy staying at home. UM. Those
Speaker 1: those are some of the first things that I would
Speaker 1: I would focus on Professor Krausner. Last week and even
Speaker 1: the week before, we were really talking about a financial
Speaker 1: crisis in addition to the economic crisis unfolding. Has the
Speaker 1: FED effectively stopped that? Have we avoided a financial crisis
Speaker 1: at this point or is it too early to say? Well,
Speaker 1: given my experiences back in two two nine, I never
Speaker 1: say never about anything, but I think that the FED
Speaker 1: actions have been crucial in avoiding financial crisis so far.
Speaker 1: And I think if the fiscal and health authorities act
Speaker 1: in um expeditiously and effectively, then I think we will
Speaker 1: have will have been able to get through that. But
Speaker 1: it really will depend on the size of the economic shock,
Speaker 1: and and that's now on the court of the fiscal
Speaker 1: and monetary and fiscal health authorities, and now as we
Speaker 1: do for for surveillance. It's Math Tuesday with Randall Croster
Speaker 1: of Chicago, Grandy Paul Wilmot, the giant of Imperial College,
Speaker 1: and a guy named Todd. Ab gave a rave review
Speaker 1: years ago to Kent Osmond's masterpiece Iceberg Risk, which was
Speaker 1: basically a complete refusentation of the central limit theorem. Are
Speaker 1: we are we doing that again? Are we so fancy
Speaker 1: at our crosser like math certitude that once again we've
Speaker 1: learned the once in a lifetime event come along every
Speaker 1: twelve years? Well? Yeah, Well, I think if you we've
Speaker 1: talked about this before. I think on on your program
Speaker 1: that I get worried when other people aren't worried. So
Speaker 1: I focus a lot on um uh, doing scenario planning,
Speaker 1: doing stress tests, and risk analysis for things where you're
Speaker 1: just not sure you don't have the data. Fork it
Speaker 1: hasn't happened, but let's see what if? Can you? Can
Speaker 1: you withstand anything like that? And so these are the
Speaker 1: things that you have to to think about. Can you
Speaker 1: perfectly plans for them? Of course not. Can you have
Speaker 1: better readiness for them? Yes? And I think in some
Speaker 1: sense we've learned a number of lessons from two thousand
Speaker 1: two thousand nine, and it helped to allow the FED
Speaker 1: to respond much more rapidly. Because they didn't have to
Speaker 1: create programs like the commercial paper Facility and the money
Speaker 1: market Facility and so many of the others whole cloth
Speaker 1: like we didn't, they could stand them up quickly, and
Speaker 1: that gives opportunity to ramp them up, move them to scale,
Speaker 1: and do some new thing. To borrow phrase from Nicholas
Speaker 1: tell Ub, and that would be just simply skin in
Speaker 1: the game. I guess we've all got skin in the
Speaker 1: game now with this horrific crisis. I don't mean to
Speaker 1: make a joke about it, folks, but Randy, the recovery rate,
Speaker 1: the glide path to recovery. We forget out of the depression.
Speaker 1: It took a war and stimulus of a war to
Speaker 1: get equities to lift back to where they were in
Speaker 1: nine after nineteen thirty seven. How do you envision a
Speaker 1: recovery here to Dow twenty nine thousand. So I think
Speaker 1: that ultimately will be related to the underlying economics, and
Speaker 1: can we make sure as best as possible to try
Speaker 1: to make this a v shape recovery rather than the
Speaker 1: U shape or an L shape sort of sort of
Speaker 1: thing that is out of the hands of the FIT. UM.
Speaker 1: The FIT had very important role in making sure we
Speaker 1: we had a recovery in over the last decade. Here
Speaker 1: they can make sure we can avoid a financial crisis,
Speaker 1: but the recovery pieces will have to come on the
Speaker 1: health side and on that metiscal side. If we can
Speaker 1: get agreements, if we can get some movement forward, I
Speaker 1: think we can get there and hopefully make it much
Speaker 1: more rapid than in uh in a great depression. Professor Krauser,
Speaker 1: thank you so much, greatly greatly appreciated that. Too much
Speaker 1: math just enough. Robert Crandell with us now, who was
Speaker 1: identified with the airline business starting with t W a
Speaker 1: years ago and then his leadership at American Airlines single
Speaker 1: handedly inventing frequent flyer miles and the rest of it,
Speaker 1: and now a well preserved eighty five year and he
Speaker 1: joins us this morning. Bob Crandell, were so honored to
Speaker 1: have you with us. You have seen the ups and
Speaker 1: downs of airline bankruptcy and bailout. Does the a via
Speaker 1: an industry need another bailout or nationalization this morning? Well,
Speaker 1: I do think it needs help, Tom. I mean the
Speaker 1: keep in mind, you know, we've only got one big
Speaker 1: intercity transportation system, that's the airline business. The airline business
Speaker 1: and associated travel businesses are you know, they've they account
Speaker 1: from millions of jobs. So we've got to keep the
Speaker 1: ail in and it's the functional And I do think
Speaker 1: at the moment that what we're going to have to
Speaker 1: do is make a public investment in the airline industry
Speaker 1: to sort of sustained it during a period of time
Speaker 1: when cash is just running out the door in the river.
Speaker 1: So I think, and I think the Trade Office, this
Speaker 1: is probably a good public investment. It needs to be
Speaker 1: off with some controls. I mean, we can't we can't
Speaker 1: have the al in business taking public money and then
Speaker 1: turning around and using its free cash phot to buy
Speaker 1: back shares, which is what it's done over the last
Speaker 1: six years. And we need to be sure that if
Speaker 1: if we're going to help the airline industry, okay, but
Speaker 1: that people don't get laid off and we were not
Speaker 1: outsourcing maintenance to other countries. How do you envision what
Speaker 1: would be a new regulation? I mean, folks, this is
Speaker 1: ancient history now, but the gentleman from Cornell decided we
Speaker 1: should be regulated, and Bob Crandell fought it for years
Speaker 1: along with everybody else. And look what we wrought. I
Speaker 1: mean the quality air service today. I'll be blunt, folks,
Speaker 1: I fly international carriers as often as I can. Bob Crandell,
Speaker 1: what does the new regulation look like? No? Not, Well,
Speaker 1: you keep in mind, Tom, I was a guy that
Speaker 1: said we should not deregulate. I always thought we should
Speaker 1: have some version of regulation. I think we should now.
Speaker 1: I mean, look, we invested in the airline industry after
Speaker 1: nine one one. We're going to invest in the air
Speaker 1: and industry now. I don't think we ought to regulate
Speaker 1: it the way we used to. But I do think
Speaker 1: that if the public is going to make an investment
Speaker 1: in the airline industry, that it is entitled to know
Speaker 1: that the airline industry isn't going to turn around and
Speaker 1: layoff a lot of people while it's taking money from
Speaker 1: the public. The airline industry isn't going to turn around
Speaker 1: and abandoned cities that don't meet the profit metric. It
Speaker 1: isn't going to turn around and take its own free
Speaker 1: cash flow and buy back shares. So it's so there's
Speaker 1: that there are some don't use the word regulation, let's
Speaker 1: use the word constraint. There are going to be some
Speaker 1: constraints on a business that needs to be regarded, in
Speaker 1: my view, as something of a public utility. And actually
Speaker 1: that's sort of some of those provisions are being included
Speaker 1: currently in a House bill being circulated to prevent share
Speaker 1: buy backs in certain executive compensation when it comes to
Speaker 1: the airline industry. But Robert, I'd love to get your
Speaker 1: sense who's to blame for the nine of free cash
Speaker 1: flow that went to buying back shares of the airlines
Speaker 1: for the past ten years. Well, who's to blame for it?
Speaker 1: Obviously the folks, the folks that are running the airlines
Speaker 1: and other folks that decided to do that. And I
Speaker 1: you know, the boards of directors as well as the
Speaker 1: executives are actually running the business. And and that's just
Speaker 1: a foolish thing to do. In an industry like the
Speaker 1: airline industry, you always know there's there's a black swan
Speaker 1: waiting around the corner. And back in the day when
Speaker 1: airlines weren't as consolidated as they are today and therefore
Speaker 1: we're not as profitable. One of the rules of the
Speaker 1: road is. You never bought back stock, You didn't pay dividends,
Speaker 1: you didn't and you didn't buy back stock because you
Speaker 1: needed you needed a well of cash to go to
Speaker 1: when something bad happened to you. Something bad always happens
Speaker 1: to the airline industry. But forgive me for playing devil's advocate,
Speaker 1: But why should we give money to an industry that's very,
Speaker 1: very difficult to be in, you know as a former CEO,
Speaker 1: to run an airline, it's incredibly complex, really quite difficult.
Speaker 1: What does the government want any part of that whatsoever? No,
Speaker 1: it doesn't want any part of it. I don't want to.
Speaker 1: I don't want the government to take over the airline.
Speaker 1: There's this good lord. But I do think that the
Speaker 1: government and the interests of employment and the interests of
Speaker 1: the economy. Look, the travel business, including the airline industry,
Speaker 1: accounts for millions and millions of jobs, I mean all over.
Speaker 1: This country is probably the world's largest employer in terms
Speaker 1: of and so every country, including the United States, needs
Speaker 1: a vibrant, healthy, traveling tourism industry, and that needs to
Speaker 1: keep the airlines going. Now, apparently France is talking about
Speaker 1: nationalizing trance. I don't I don't think we want to
Speaker 1: nationalize our airlines. I do think we need to make
Speaker 1: available long term, very low interest loans. And while those
Speaker 1: loans are outstanding, we need to impost some constraints on
Speaker 1: the business. Bloomberg eleven three oh New York, good morning.
Speaker 1: Let me ask this private question here, Bob, Why are
Speaker 1: airports so lousy? What do we need to do to
Speaker 1: speed up the rebirth and rekindling of our airports. We
Speaker 1: need to invest more money, and I'm tom luckily are
Speaker 1: you ports? There's been a continuing battle for years and
Speaker 1: years and years and years that that the airports, the
Speaker 1: airports as a group, would like to impose higher individual
Speaker 1: travel charges on the public. So how do you finance
Speaker 1: airports today in this country. We don't finance them publicly
Speaker 1: using taxes. We we finance them by by transaction charges
Speaker 1: on individual passiers. The airports would like to raise those charges.
Speaker 1: The air the airlines recognizing that as prices go up,
Speaker 1: the the desirability of travel goes down, and resisted that effort.
Speaker 1: But we have lousy airports because we don't invest enough money. Animal,
Speaker 1: Bob Crandell has been great, Thank you so much, greatly
Speaker 1: appreciated Mr Crandell of American Aerologs without question the interview
Speaker 1: of the day, and not with someone with medicine, but
Speaker 1: someone with a deep knowledge of how China reports data.
Speaker 1: Leland Miller is with China Beige Book, and we're thrilled
Speaker 1: that he could join us right now, just immensely qualified
Speaker 1: on the veracity of their data. Leland Miller or Daniel
Speaker 1: Moss has written, uh, maybe not. And I've seen a
Speaker 1: lot of other pros like Carl Weinberg say maybe not.
Speaker 1: Do you believe the statistics out of China right now
Speaker 1: on their better news on virus? You know, I believe
Speaker 1: the virus news is getting better. There's definitely there's definitely
Speaker 1: a slowdown the rate of infections. The problem is you
Speaker 1: can't believe the actual numbers because right now there's a
Speaker 1: political narrative that the party has swooped in which Dad
Speaker 1: everybody and is responsible for this wonderful virus clean up.
Speaker 1: And so as long as there is a big political
Speaker 1: push to make this an issue of a politics and
Speaker 1: not uh not strictly the medical area, then you never
Speaker 1: know what numbers to believe. I think things are getting better,
Speaker 1: but the exact numbers, I think it would be very
Speaker 1: dangerous to take them seriously. And Leland, the one reason
Speaker 1: why it's always great to get you on is because
Speaker 1: you look at nonofficial data to gauge the actual economic
Speaker 1: activity in the entire region. And I'd love to get
Speaker 1: your sense of what you've observed as far as how
Speaker 1: quickly they've brought business back online. We have heard from
Speaker 1: the party that things are going very quickly and very well,
Speaker 1: and they're expecting a full recovery very quickly. Are you
Speaker 1: seeing that born out in sort of the anecdotal evidence
Speaker 1: that you look at. Yeah, the idea of a full
Speaker 1: recovery is nonsense anytime soon. Uh, firms are going back
Speaker 1: to work now. We are seeing workforces back and people
Speaker 1: are outside and factories are starting to run again and
Speaker 1: lights are on. But you're not seeing a resumption in
Speaker 1: any of the growth metrics. So one of the many
Speaker 1: disappointing things we saw is that even in the first
Speaker 1: half of March when we were getting our dad and
Speaker 1: firms were going back to work, I mean, the shriff closures,
Speaker 1: the firms reporting closures was way down as we extended
Speaker 1: in to March. But the data we're not getting better.
Speaker 1: And the problem with this is that that China is
Speaker 1: very anxious to have a recovery narrative. They announced their
Speaker 1: bad data for January in February and now they want
Speaker 1: to get on with your recovery. But the recovery is
Speaker 1: not so fast. You're actually seeing the worst data we've
Speaker 1: ever seen, without question right now, and Q one is
Speaker 1: likely you know, around and had negative eleven contraction. It
Speaker 1: gives us a Leland Miller example of wacko data that matters,
Speaker 1: like is it the number of you know, crew members
Speaker 1: on iron ore ships or is it you know, counting
Speaker 1: containers a simple out of Shanghai as you I mean,
Speaker 1: what's a what's the data point that matters to you
Speaker 1: to gauge that? Well, you know, it's it's very different
Speaker 1: this quarter than any other quarter we've ever tracked, but
Speaker 1: it is typically what we do is we go through
Speaker 1: the weeds and we try to find the areas of
Speaker 1: strength but also the real areas of weakness that others
Speaker 1: haven't identified. And when we looked across the spectrum this quarter,
Speaker 1: everything was weaker. Every sector was weaker, every region was weaker.
Speaker 1: Every headline metric is weaker, and not just weakly, but
Speaker 1: the weakest numbers we've ever seen, all of them in
Speaker 1: severe contraction. Lel this different, different, different ball game, discorre Leland.
Speaker 1: I want to go back to what you said that
Speaker 1: tend to eleven percent contraction in the first quarter. Can
Speaker 1: you extrapolate that out based on what you're seeing in
Speaker 1: terms of a pickup or or not in in recovery
Speaker 1: in the second quarter and beyond, what are you looking
Speaker 1: at for the full annualized GDP for China right now?
Speaker 1: Right well, the outlooks getting a big gloomier for China,
Speaker 1: even though their economy is getting better. And what I
Speaker 1: mean by that is this is no longer just a
Speaker 1: domestic China story, even if there is an enormous level
Speaker 1: of domestic resilience and the Party pushes everyone back to
Speaker 1: work and output and consumption and demand are all back
Speaker 1: faster than anyone could possibly uh, you know, assume would
Speaker 1: be the case. You have a problem with the rest
Speaker 1: of globes shutting down. So Q two was supposed to
Speaker 1: be the time in which Chinese factories were back up
Speaker 1: and running, and then you would have global demand take over.
Speaker 1: Now your US factories are down, Europe's down, demand is
Speaker 1: creating worldwide. So the idea that Chinese will have a
Speaker 1: recovering Q two from an inlet of a contraction, if
Speaker 1: it's not going to be back to normal levels of growth,
Speaker 1: what would happen to China if the president came out
Speaker 1: and lifted the various trade initiatives he's put in place.
Speaker 1: I mean, is that beneficial to China? Is that a
Speaker 1: US story? Well, look if you had, if you had
Speaker 1: an end to the supply shock and the demand shock,
Speaker 1: and you pulled back all these trade initiatives, I think
Speaker 1: you'd see, uh, quite a quite a juice to growth.
Speaker 1: The problem is is right now there's no demand. There's
Speaker 1: no global demand. So you know, having a resumption of
Speaker 1: of business as usual in China over the next couple
Speaker 1: of months, but there's no demand, no demand internationally, uh
Speaker 1: from the major trading partner. So right now you have
Speaker 1: no effect or very little effective any Okay, Lela Miller.
Speaker 1: This has been wonderful, Thank you so much with China
Speaker 1: page book, just very very informative this morning. Thanks for
Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to
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Speaker 1: I'm on Twitter at Tom Keane Before the podcast, you
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio