WEBVTT - Surveillance: U.S.-China Deterioration With Mann 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.680 Bloomberg dot Com, and of course, on the Bloomberg. There's 0:00:27.680 --> 0:00:29.720 one house in particular over the last couple of months 0:00:29.760 --> 0:00:32.480 has stood out as being more constructive than the rest. 0:00:32.479 --> 0:00:34.320 There's been more Constanley, and I'm pleased to say that 0:00:34.360 --> 0:00:37.640 Andrew Sheets, the chief cross assets strategist at more Than Stanley, 0:00:37.960 --> 0:00:40.599 joined us now. Andrew fantastic to catch up with you, Sir. 0:00:40.720 --> 0:00:43.400 I've said continually for three months there is nothing normal 0:00:43.720 --> 0:00:46.840 about this, but your argument has been entirely opposite. It's 0:00:46.880 --> 0:00:51.920 more normal than most people appreciate. Why is that, well, 0:00:51.960 --> 0:00:54.200 I I think so in good morning, I think there 0:00:54.200 --> 0:00:56.120 are a couple of things that we've been following. I 0:00:56.200 --> 0:00:58.840 think the fact that a lot of the conditions that 0:00:58.920 --> 0:01:02.400 preceded this session had a lot of very normal late 0:01:02.440 --> 0:01:05.520 cycle characteristics in terms of what we're seeing with city 0:01:05.600 --> 0:01:10.160 unemployment rate or the yield curve, or valuations or volatility. 0:01:10.200 --> 0:01:11.880 We had a lot of very i think normal late 0:01:11.920 --> 0:01:16.160 cycle dynamics. The way the markets bottomed in March ahead 0:01:16.200 --> 0:01:19.200 of the data followed a very kind of normal pattern 0:01:19.319 --> 0:01:22.520 of markets leading the economy. And I think the type 0:01:22.560 --> 0:01:25.840 of recovery that our economist forecasts are commis of Morgan Stanley, 0:01:26.080 --> 0:01:29.240 I think are above consensus on on the speed of 0:01:29.280 --> 0:01:32.200 this recovery and how v shape they think it will be. 0:01:32.600 --> 0:01:35.400 That that will also make it look more normal than 0:01:35.440 --> 0:01:40.200 have normal going forward. Inderstrates what's so important here is 0:01:40.240 --> 0:01:44.400 how cross s does given money costs nothing. We see 0:01:44.480 --> 0:01:47.760 Mr Buffett today pony up a new obligation of nine 0:01:47.800 --> 0:01:51.559 point seven billion, four billion cash and a five point 0:01:51.640 --> 0:01:54.559 seven billion in dat as well for the Dominion gas 0:01:54.600 --> 0:01:57.120 lines as well. Is that howvard your of things to come? 0:01:57.160 --> 0:02:00.480 Are we going to see exceptional M and A which 0:02:00.520 --> 0:02:04.880 buttresses this bull market? Well, I think it's a good 0:02:05.080 --> 0:02:08.200 it's it's a very good question. Our expectation would actually 0:02:08.240 --> 0:02:10.520 be that I think companies remain a little bit more cautious. 0:02:10.600 --> 0:02:14.280 It's actually I think consumers who were counting on to 0:02:14.720 --> 0:02:17.440 continue the growth momentum, because I think companies will be 0:02:17.480 --> 0:02:22.640 looking at a the continued uncertainty over the economic backdrop. 0:02:22.760 --> 0:02:25.000 The fact that I think for a lot of them, 0:02:25.080 --> 0:02:28.400 given the strain that was in credit markets as recently 0:02:28.440 --> 0:02:31.920 as April, we really see a focus to protect balance 0:02:32.000 --> 0:02:35.360 sheets not take on kind of aggressive new action. And 0:02:35.400 --> 0:02:38.360 then you also obviously have a US presidential election coming 0:02:38.440 --> 0:02:42.720 up in early November, which could also change either regulatory 0:02:42.840 --> 0:02:47.080 tax policy, trade policy the like, which would be another 0:02:47.120 --> 0:02:49.840 reason to kind of wait on this activity. So I 0:02:49.880 --> 0:02:52.400 think for for both of those reasons, we'd actually expect 0:02:52.440 --> 0:02:55.760 kind of businesses to lag the rebadded activity we see 0:02:55.760 --> 0:02:59.720 on the consumer side. And still you are bullish with 0:03:00.080 --> 0:03:04.320 back to going further into risk and moving from growth 0:03:04.400 --> 0:03:09.360 to value stocks. What does value mean anymore? Well, I 0:03:09.440 --> 0:03:13.040 think what's what's pretty interesting about this market is that 0:03:13.400 --> 0:03:17.000 on the surface, it would seem like the equity markets 0:03:17.000 --> 0:03:19.480 have embraced a V shaped recovery. And certainly I think 0:03:19.480 --> 0:03:21.280 there's a lot of focus, a lot of very reasonable 0:03:21.320 --> 0:03:24.440 focus on this idea that you know, the smps trading 0:03:24.480 --> 0:03:27.600 at twenty one times forward earnings and yet the economy 0:03:27.680 --> 0:03:30.639 is clearly still very weak. It's it's recovering, but it's 0:03:30.720 --> 0:03:33.000 it's very weak, and and this must mean that the 0:03:33.040 --> 0:03:37.360 market is discounting with these high valuations an extremely strong recovery. 0:03:37.400 --> 0:03:39.760 And yet you know, you look at what's what's driven 0:03:39.800 --> 0:03:41.520 that market rebound, or you look at the way the 0:03:41.520 --> 0:03:45.040 markets valued, and and there's there's rarely been a more 0:03:45.120 --> 0:03:48.120 extreme gap between what the markets paying for what it 0:03:48.120 --> 0:03:51.360 considers kind of the best, highest quality companies and what 0:03:51.440 --> 0:03:53.200 the market is paying for the rest. And so I 0:03:53.200 --> 0:03:56.680 think it's that gap, that extreme gap that you know, 0:03:56.760 --> 0:03:59.080 and and this idea that the market kind of cares 0:03:59.120 --> 0:04:01.840 about is worried valuation at the headline level, and it 0:04:01.960 --> 0:04:05.720 has no no problem embracing many of the market's most 0:04:05.720 --> 0:04:09.600 expensive companies. We think that that those factors can lead 0:04:09.640 --> 0:04:13.400 the market to have a more balanced, a more balanced approach, 0:04:13.440 --> 0:04:17.240 a broader equity market participation they would leave. They will 0:04:17.320 --> 0:04:20.440 lead some of the smaller and cheaper companies to perform, 0:04:20.839 --> 0:04:24.560 to perform better. At the epicentre of this debate is 0:04:24.640 --> 0:04:27.440 zero rights. Tom Caine, you mentioned that money costs nothing. 0:04:27.560 --> 0:04:29.000 We should look at it the other way as well. 0:04:29.279 --> 0:04:32.240 Money earns nothing right now, and for a lot of people, 0:04:32.279 --> 0:04:34.480 including miss the Buffett of Berkshire Hathaway, they've got to 0:04:34.520 --> 0:04:38.640 get that capital to work. Yeah, this is really really 0:04:38.680 --> 0:04:41.480 important inside John and What's so important here, Andrew, is 0:04:41.520 --> 0:04:44.840 the idea that dominion in this transaction will go right 0:04:44.880 --> 0:04:47.720 where you said, they'll go to a more conservative structure, 0:04:48.000 --> 0:04:51.520 They'll go to a more conservative dividend payout ratio, et cetera. 0:04:52.160 --> 0:04:54.320 What do you think of all the money that John 0:04:54.320 --> 0:04:57.599 mentions that Warren Buffett has, the billions he has, the 0:04:57.680 --> 0:05:01.040 billions of tech company has, the billions of private equity has. 0:05:01.360 --> 0:05:05.800 It's kind of it's kinda find a warm place, right. Well, 0:05:06.080 --> 0:05:07.479 So I think if we think about this from a 0:05:07.520 --> 0:05:10.280 corporate perspective, I think tech is a great example, right. 0:05:10.320 --> 0:05:12.440 I think, you know, for a long time, there was 0:05:12.440 --> 0:05:15.400 some criticism of these large cash balances that many large 0:05:15.400 --> 0:05:18.320 tech companies were holding. And yet when the pandemic hit, 0:05:18.440 --> 0:05:21.840 that became, you know, yet another reason why investors favored 0:05:21.839 --> 0:05:23.520 a lot of these big tech names because they had 0:05:23.520 --> 0:05:27.520 these fortress balance sheets with enormous financial flexibility to kind 0:05:27.520 --> 0:05:30.600 of see them through any any scenarios. So in some 0:05:30.640 --> 0:05:35.479 ways that could reward or encourage companies to remain somewhat conservative. 0:05:35.880 --> 0:05:37.800 And I think we've seen the same thing on the 0:05:38.080 --> 0:05:41.200 from the investor side, from the retail investor side, um 0:05:41.200 --> 0:05:44.080 where you know, We've seen a lot of investors raised 0:05:44.120 --> 0:05:48.720 cash in marches the pandemic was was intensifying as as 0:05:48.800 --> 0:05:51.680 markets were falling, and in many cases they really haven't 0:05:51.720 --> 0:05:53.960 redeployed that money back into the market. And I think 0:05:53.960 --> 0:05:56.000 there are a number of reasons for that. The fact 0:05:56.000 --> 0:05:59.000 that you know, markets rebounded relatively quickly, the fact that 0:05:59.040 --> 0:06:02.680 you still serve in the US. Clearly um have a 0:06:02.760 --> 0:06:05.960 severe public health challenge that's all around us. But you know, 0:06:06.000 --> 0:06:09.120 I think for those, uh, it's not just about the businesses. 0:06:09.200 --> 0:06:13.039 We we do think actually on the on the investors side, 0:06:13.080 --> 0:06:15.680 there are still above average levels of cash balance, which 0:06:15.680 --> 0:06:17.680 we need to monitor, but at the moment remain a 0:06:17.720 --> 0:06:22.479 supportive factor. How much more do you expect returns to 0:06:22.560 --> 0:06:25.039 increase this year in equities? In other words, what's the 0:06:25.080 --> 0:06:28.440 full year total return going to look like? Yeah, I 0:06:28.480 --> 0:06:30.600 think it's a good question. I mean, we we are positive, 0:06:30.640 --> 0:06:33.560 we've we've been positive, but I feel I need to 0:06:33.600 --> 0:06:36.040 cappy out that. You know, we we do think at 0:06:36.040 --> 0:06:38.440 the overall level the games will be modest. That for 0:06:38.800 --> 0:06:42.320 US and European equities, we're looking at kind of you know, uh, 0:06:42.960 --> 0:06:45.880 mid to high single digit type of returns for for 0:06:45.920 --> 0:06:48.400 the SMP five hundred for Europe. You know, my colleague 0:06:48.400 --> 0:06:52.120 Mike Wilson has a thirty three fifty target for the 0:06:52.200 --> 0:06:55.040 SMP five hundred by the middle of next year. So 0:06:55.320 --> 0:06:58.040 it's still positive, it's still higher, it's still better than 0:06:58.560 --> 0:07:03.120 cash um in credit. We see kind of modest spread tightening. 0:07:03.360 --> 0:07:06.040 I agree with the earlier comment we think volatility can 0:07:06.200 --> 0:07:08.520 can fall. You can probably follow a reasonable amount here 0:07:08.560 --> 0:07:10.960 over the next twelve months. But I do think you know, 0:07:11.080 --> 0:07:14.200 you could potentially see the bigger movement won't be at 0:07:14.680 --> 0:07:17.640 the headline equity market level. It would be at more 0:07:17.680 --> 0:07:21.000 of these rotations under the surface, as some more of 0:07:21.000 --> 0:07:25.360 the traditional early cycle things do better. Andrew what was 0:07:25.360 --> 0:07:28.480 saying in the economy quite clearly a serious upside surprises, 0:07:28.520 --> 0:07:30.800 but there is evidence of scarring this reason to worry. 0:07:31.040 --> 0:07:33.240 Yet at the same time, I wonder whether this continued 0:07:33.320 --> 0:07:37.440 positive forward momentum, whether that is sufficient to continue the 0:07:37.520 --> 0:07:42.480 durable rotation that you're looking for. Yeah, I think that's 0:07:42.480 --> 0:07:44.920 a great question and something where I think we might 0:07:45.040 --> 0:07:49.320 know the case this month. Um. A big part of 0:07:49.360 --> 0:07:53.040 our our positive economic view, specifically in the US, is 0:07:53.080 --> 0:07:58.480 the expectation that that Congress will pass another round of stimulus, 0:07:58.480 --> 0:08:01.400 will extend the Cares Act, and that's very important we 0:08:01.440 --> 0:08:06.200 think for supporting the consumer, reducing the severity of that 0:08:06.360 --> 0:08:09.560 scarring that you mentioned. Um. But there's a certain irony 0:08:09.640 --> 0:08:11.920 here where there's a risk that if if there's a 0:08:12.000 --> 0:08:15.840 perception that the data is improving very quickly, maybe that 0:08:15.920 --> 0:08:20.240 reduces the impetus on the government act, which would in 0:08:20.280 --> 0:08:22.960 the long term be we think the worst scenario, which 0:08:22.960 --> 0:08:26.600 would increase the risk that the recovery is slower and 0:08:26.680 --> 0:08:30.000 more prolonged. So we one of the reasons we're positive 0:08:30.040 --> 0:08:32.960 is we do think that stimulus passes, but if it doesn't, 0:08:33.040 --> 0:08:37.120 that would be a severe risk to our scenario. Andrew 0:08:37.160 --> 0:08:39.560 Shades and Morgan Stanley. Andrew, always great to catch up 0:08:39.559 --> 0:08:41.360 with you, and the same been great to hear you 0:08:41.480 --> 0:08:44.160 challenge the less constructive view in this market over the 0:08:44.200 --> 0:08:47.000 last several months. Andrew sets that joining us from Morgan 0:08:47.080 --> 0:09:01.040 Stanley right now, we're going to speak on finance and 0:09:01.120 --> 0:09:04.760 economics and reframe for the rest of this year. We 0:09:04.800 --> 0:09:08.080 can do that with Catherine Mann of City Group, but 0:09:08.200 --> 0:09:11.000 far more importantly and John Farrell Folks has been really 0:09:11.040 --> 0:09:14.360 out front on focusing on China US. I think he's 0:09:14.360 --> 0:09:16.960 almost got the advantage being from England and that he 0:09:16.960 --> 0:09:20.120 can look at China US with a different prism. Doctor 0:09:20.240 --> 0:09:24.439 Man has led with our analysis of the international economics 0:09:24.559 --> 0:09:28.400 and codependency of Beijing and Washington, and I must start 0:09:28.480 --> 0:09:31.520 there this morning, Doctor Man, give us an update on 0:09:31.600 --> 0:09:38.040 the codependency that we see right now between Beijing and Washington. Well, Tom, 0:09:38.040 --> 0:09:40.880 it's great to be with you again. Um, the codependency 0:09:40.920 --> 0:09:43.360 seems to have taken a bit of a turn, uh 0:09:43.440 --> 0:09:47.319 to the negative. Um. We had thought that the relationship 0:09:47.679 --> 0:09:53.840 as of January was was one that was a tentative truth. Um. 0:09:53.880 --> 0:09:57.120 But of course things have deteriorated since then, not only 0:09:57.200 --> 0:09:59.760 because of all the issues with regard to the disease, 0:10:00.200 --> 0:10:03.800 but also because, um, there's you know, there's some there's 0:10:03.800 --> 0:10:07.520 some lack of ability on the part of China to 0:10:07.559 --> 0:10:10.440 really buy all the things that the US would like 0:10:10.559 --> 0:10:13.200 to sell. I mean, we've been talking and calling this 0:10:13.280 --> 0:10:16.800 a shopping list for quite some time since back last year. 0:10:17.080 --> 0:10:19.160 And when we look at the items on the shopping 0:10:19.200 --> 0:10:22.640 list that the U s would like China to buy, Um, 0:10:22.679 --> 0:10:25.320 you know, the agg is there, that the energy is there, 0:10:25.320 --> 0:10:27.040 but some of the other products they're just not going 0:10:27.080 --> 0:10:29.600 to be able to buy, and there's certainly a sense 0:10:29.640 --> 0:10:31.200 in which they're not going to be able to buy 0:10:31.280 --> 0:10:34.120 in bulk in order to reach those targets by the 0:10:34.280 --> 0:10:37.760 by the time it matters, which is later on this year, 0:10:37.800 --> 0:10:41.640 but not the end of the year. Dr Man. The 0:10:41.679 --> 0:10:44.000 heart of your research this weekend goes to the heart 0:10:44.120 --> 0:10:48.840 of microeconomics and macroeconomics. Is it's taught, which is finance 0:10:49.080 --> 0:10:53.679 is an afterthought. You know, the booming financial economy is 0:10:53.720 --> 0:10:57.319 compared to the economic economy, which is grim, grim, grimm. 0:10:57.760 --> 0:11:01.160 How do we bring the two together? Well, this is 0:11:01.320 --> 0:11:03.120 you know, this has been a conundrum and are really 0:11:03.160 --> 0:11:06.560 a puzzle even for from for my financial market folks, 0:11:06.559 --> 0:11:09.959 particularly those in the equity markets, who have been arguing that, 0:11:10.040 --> 0:11:13.200 you know, the the earnings per share that's consistent with 0:11:13.280 --> 0:11:16.240 the economic data is quite a bit different than than 0:11:16.280 --> 0:11:18.960 what we see the market pricing in now. Um, there 0:11:19.000 --> 0:11:21.240 are a couple of theories that kind of would make 0:11:21.320 --> 0:11:27.080 this apparent levitation of the financial markets makes sense. One 0:11:27.160 --> 0:11:32.640 of them is that you know, everybody's looking through and 0:11:32.679 --> 0:11:38.559 the error of that, I think is individually a a 0:11:38.600 --> 0:11:42.439 stock analysts can say, well, my stock is saying they're 0:11:42.480 --> 0:11:44.960 going to be you know, be lean. They're going to 0:11:45.040 --> 0:11:49.160 cut in order to maintain earnings going into one. But 0:11:49.240 --> 0:11:51.880 you know, if everybody cuts, you know, your cut is 0:11:51.960 --> 0:11:56.320 my revenue. So it doesn't add up macroeconomically. And that's 0:11:56.320 --> 0:11:59.240 where the puzzle really comes in. In terms of the market. 0:11:59.679 --> 0:12:03.160 What it implies is that a lot of looking below 0:12:03.360 --> 0:12:08.000 the index at the individual stocks. This is what financed 0:12:08.040 --> 0:12:11.800 people are to be doing at this point. And Catherine, 0:12:11.840 --> 0:12:14.600 for economists, we've got to look below the headline economic 0:12:14.640 --> 0:12:17.920 figures as well the aggregate numbers, paying a constructive picture 0:12:17.960 --> 0:12:20.360 of a really nice bounce beneath the surface. This comes 0:12:20.360 --> 0:12:23.200 from Bank of America. Over the weekend, there were twelve 0:12:23.280 --> 0:12:26.400 point four million people who flowed into the labor market 0:12:26.600 --> 0:12:31.880 hired seven and a half million people who flowed out separations. Catherine, 0:12:31.880 --> 0:12:34.800 you look at the same numbers, the same data. How 0:12:34.840 --> 0:12:40.200 are we meant to digest churn that big? Well, I 0:12:40.200 --> 0:12:42.760 mean we are in unprecedented times in terms of you know, 0:12:43.559 --> 0:12:47.120 the numbers turn has always been big. This of course 0:12:47.160 --> 0:12:50.720 puts it in a completely different category. What I think 0:12:50.840 --> 0:12:53.800 is concerning is that yet in some in some sense, 0:12:54.240 --> 0:12:57.080 there was a sector of the economy, the leisure and 0:12:57.120 --> 0:13:01.800 hospitality um, many of whom the workers who were completely 0:13:01.920 --> 0:13:04.160 out of work because of the way that was shut down. 0:13:04.960 --> 0:13:07.760 But there's this second shoot, a drop, which is, as 0:13:07.760 --> 0:13:12.079 I say, thinking about how are firms planning on weathering 0:13:12.520 --> 0:13:15.840 the next half of year in order to survive into 0:13:16.840 --> 0:13:19.600 They're going to do that by cutting, and they're looking 0:13:19.679 --> 0:13:21.679 now at how am I going to do that? And 0:13:21.720 --> 0:13:24.000 that's where we get a lot of the separations from 0:13:24.040 --> 0:13:27.679 It's a different category of workers than than who than 0:13:27.720 --> 0:13:30.800 those who are coming in from leisure and hospitality. I 0:13:31.200 --> 0:13:34.000 also think that you know, in keeping with what what 0:13:34.280 --> 0:13:37.839 we were talking about before, the levitation of the stock 0:13:37.920 --> 0:13:42.160 market indexes in general is of course looking below that 0:13:42.240 --> 0:13:45.000 to what the Federal Reserve is doing. We cannot talk 0:13:45.040 --> 0:13:49.120 about the strength of the financial markets in in absence 0:13:49.120 --> 0:13:52.320 of talking about the extent to which the Central Bank 0:13:52.559 --> 0:13:56.920 is on a supportive track. The next phase forward God 0:13:57.000 --> 0:13:59.200 is seemingly for the Federals of Catherine. How do you 0:13:59.240 --> 0:14:01.520 think that would take in the coming months the coming 0:14:01.559 --> 0:14:05.160 mate takes well. This is a real challenge because, of course, 0:14:05.600 --> 0:14:08.719 true forward guidance is where you talk about it that 0:14:08.800 --> 0:14:11.360 has the appropriate effects. So there's you don't actually have 0:14:11.440 --> 0:14:14.960 to do anything. So true forward guidance is one where 0:14:14.960 --> 0:14:18.320 the Fed says, I stand behind you, but then the 0:14:18.440 --> 0:14:21.480 market takes on its own dynamic in order to make 0:14:21.560 --> 0:14:25.760 things uh appropriate. Again this time, you know, the market 0:14:25.800 --> 0:14:27.680 has taken off a little bit too much, in part 0:14:27.960 --> 0:14:31.120 because it's not just forward guidance that the Federal Reserve 0:14:31.160 --> 0:14:35.520 has provided, it's actual implementation of all of those programs 0:14:35.520 --> 0:14:38.280 that they've put into place. Now. Back in March, that 0:14:38.440 --> 0:14:41.040 was the appropriate thing, forward guidance, putting in the programs 0:14:41.040 --> 0:14:43.840 in place, being ready in case you know, there was 0:14:43.880 --> 0:14:48.720 another real um, you know, collapse in the markets. But unfortunately, 0:14:48.920 --> 0:14:51.120 what we have right now is a replay of what 0:14:51.240 --> 0:14:53.200 I wrote about last year, which is the Central bank 0:14:53.240 --> 0:14:57.520 but dilemma. Yes, they want to prevent a fire sales situation, 0:14:57.840 --> 0:15:00.520 which we have the financial system cascade eads into a 0:15:00.560 --> 0:15:04.680 second GFC two point oh. On the other hand, how 0:15:04.760 --> 0:15:07.440 much do they want to contribute to moral hazard, which 0:15:07.520 --> 0:15:10.760 is things are as I say levitated um and so 0:15:10.840 --> 0:15:13.840 any kind of decline from where we are now really 0:15:13.880 --> 0:15:17.920 puts the Central Bank into a dilemma situation. How much 0:15:17.960 --> 0:15:23.720 do they really want to see existing level Catherine? How 0:15:23.800 --> 0:15:27.600 much at this point are FED policies actually bringing jobs 0:15:27.600 --> 0:15:31.240 back or providing a supportive environment to allow job growth 0:15:31.280 --> 0:15:35.560 going forward. Well, that's always you know, the relationship between 0:15:35.840 --> 0:15:39.480 central bank actions and actions in the real economy have 0:15:39.600 --> 0:15:42.520 a lot of different links in the chain. And what 0:15:42.640 --> 0:15:45.360 I can say right now is that the dynamics of 0:15:45.400 --> 0:15:48.120 some of the fiscal programs, the p p P of 0:15:48.200 --> 0:15:50.960 which there is also of course the main street lending 0:15:51.480 --> 0:15:54.640 in in the US, that matters. But we've done some 0:15:54.720 --> 0:15:59.360 work that looks at things like um possible downgrades from 0:15:59.480 --> 0:16:03.280 investment raid into high yield and then from high yield 0:16:03.320 --> 0:16:08.160 into default, and we have worked with our our analysts 0:16:08.160 --> 0:16:10.960 in those in those two categories of asset classes and 0:16:11.040 --> 0:16:16.400 evaluated what are the employment effects of a downgrade on 0:16:16.440 --> 0:16:20.880 the investment grade or a default out of high yield. 0:16:21.120 --> 0:16:23.080 And what we've found is is that, you know, those 0:16:23.080 --> 0:16:25.640 are pretty pretty big numbers, especially on the high yield 0:16:25.640 --> 0:16:30.200 going into default, have pretty significant implications for employment. So 0:16:30.400 --> 0:16:33.360 there is a rationale for the FED to be in 0:16:33.360 --> 0:16:37.440 a supportive mode to try to avoid having fallen angels, 0:16:37.280 --> 0:16:39.920 as you know, those are those are investment investment grade 0:16:39.960 --> 0:16:42.200 that turned in high yield uh and and they had 0:16:42.200 --> 0:16:45.560 a particular um UH date put on them for the 0:16:45.640 --> 0:16:48.880 Fed reserve programs and then um and then the cash 0:16:48.920 --> 0:16:52.320 availability and the liquidity to try to tide over on 0:16:52.400 --> 0:16:55.760 the high yield. But of course you know underlying this 0:16:56.000 --> 0:16:58.400 it's it's got to be the real economy that performs, 0:16:59.000 --> 0:17:01.080 otherwise none of these companies are going to be able 0:17:01.120 --> 0:17:07.119 to make it through. Your projection is that markets or 0:17:07.160 --> 0:17:09.560 cities have projection is that markets will catch up to 0:17:09.640 --> 0:17:13.880 the economic reality which is bleaker than stocks and corporate 0:17:13.920 --> 0:17:17.920 bonds are portraying. Is the sense here that the solvency 0:17:18.000 --> 0:17:22.200 issues will overwhelm the liquidity solution that the Federal Reserve 0:17:22.280 --> 0:17:25.919 has presented the market. Well, the problem here is is that, 0:17:25.960 --> 0:17:29.760 I mean, liquidity is important, but solvency depends on the 0:17:29.800 --> 0:17:33.520 return of the real economy to a pre covid um 0:17:34.520 --> 0:17:39.000 situation um and and and we don't have that um under. 0:17:39.160 --> 0:17:41.879 We have several different scenarios for the U s economy 0:17:42.160 --> 0:17:46.320 um and and. Under a very optimistic scenario, the US 0:17:46.680 --> 0:17:49.320 returns to pre covid level of GDP in the middle 0:17:49.359 --> 0:17:52.840 of next year, but that still represents an entire year 0:17:53.760 --> 0:17:57.080 where firms are not generating revenue along the path that 0:17:57.160 --> 0:18:00.200 they had expected. Now some of them have replaced at 0:18:00.400 --> 0:18:03.639 by borrowing and you know, issuing equity and issuing bonds 0:18:03.680 --> 0:18:06.760 just from amazing issue and historic issues in order to 0:18:06.800 --> 0:18:10.240 give them their own liquidity in order to tie them over. 0:18:10.600 --> 0:18:13.880 But you know, even even then, you know, if we don't, 0:18:14.359 --> 0:18:18.560 there's still a whole year where there's no new revenue generation, 0:18:18.640 --> 0:18:21.600 and of course no one has a return to three 0:18:21.600 --> 0:18:25.040 and a half percent unemployment. So you know that that 0:18:25.160 --> 0:18:28.520 argument that by next year everything will be okay is 0:18:28.720 --> 0:18:35.040 really optimistic, really optimistic. Catherine, Really appreciate and enjoy your insight, 0:18:35.160 --> 0:18:47.600 especially this morning, Catherine Mane of City. We have been 0:18:47.640 --> 0:18:51.040 thrilled that the Lieutenant Governor could come in week after 0:18:51.160 --> 0:18:55.879 week after week and give our national audience perspective on 0:18:55.960 --> 0:19:00.399 the success New York State is having unlessening of cases 0:19:00.400 --> 0:19:03.800 of the virus and much lower deaths of the virus 0:19:03.840 --> 0:19:08.280 as well. Kathy Hokel joins us this morning the Lieutenant Governor, Kathy, 0:19:08.320 --> 0:19:10.720 I need you to give me an update on what 0:19:10.920 --> 0:19:15.360 everyone wants to know if New York is responsible unlike 0:19:15.440 --> 0:19:21.200 other states when do we get the restaurants open. Well, 0:19:21.240 --> 0:19:22.920 thank you for having me back on the show again 0:19:22.920 --> 0:19:25.280 and allowing me to have this conversation with you, because 0:19:25.280 --> 0:19:28.840 it's so important people understand where our minds are, what 0:19:28.960 --> 0:19:31.640 the governor is thinking about, what our administration is thinking 0:19:31.640 --> 0:19:34.240 about when we make determinations on what or not a 0:19:34.320 --> 0:19:37.280 region can go into the next phase. So, first of all, 0:19:37.359 --> 0:19:40.320 New York City. New York City is now in Phase three. 0:19:40.359 --> 0:19:42.719 There was no pause, No one said you can't go 0:19:42.760 --> 0:19:46.840 into phase three. So personal services are still allowed. A 0:19:46.880 --> 0:19:49.920 lot of the you know, the hair salons have been opened, 0:19:49.960 --> 0:19:52.440 but they can do more services, to have two parlors. 0:19:52.440 --> 0:19:53.760 I mean, there's just a lot of things that had 0:19:53.800 --> 0:19:56.359 been shut down in the past that now can be open, 0:19:56.440 --> 0:20:00.560 massage salons, etcetera. However, the reason there is they delay 0:20:00.880 --> 0:20:05.480 in the allowance of indoor dining is that, first of all, 0:20:05.760 --> 0:20:09.560 we have seen an incredible spike in cases nationwide. We 0:20:09.640 --> 0:20:13.040 are also concerned about local enforcement to make sure that 0:20:13.040 --> 0:20:15.359 that is going to go in a very robust fashion 0:20:15.400 --> 0:20:18.760 in order to ensure compliance. And second, a third late 0:20:19.359 --> 0:20:22.160 personal compliance. I mean you don't have to go very 0:20:22.160 --> 0:20:26.960 far to see constant social media pictures of people people 0:20:27.040 --> 0:20:29.280 in New York City not adhering to what we've asked 0:20:29.280 --> 0:20:31.560 them to do. Now that the jury, I would say, 0:20:31.600 --> 0:20:34.679 are doing well, But it doesn't take but a small 0:20:34.720 --> 0:20:38.359 minority of people to lagually violate the rules to shut 0:20:38.400 --> 0:20:40.679 us down again. So that is why we are not 0:20:40.800 --> 0:20:45.120 going into Phase three element respect to indoor dining. We've 0:20:45.119 --> 0:20:47.880 allowed the expansion of outdoor dining, and we can here 0:20:48.000 --> 0:20:51.000 continue to courage people to support their restaurants so they 0:20:51.000 --> 0:20:54.239 can hang on by ordering takeout. But we don't have 0:20:54.280 --> 0:20:57.000 a dancewerer question, Tom. It is just not safe to 0:20:57.080 --> 0:21:00.359 say that the usually smaller restaurants in your suit of 0:21:00.400 --> 0:21:03.720 very intimate and with the indoor circulation of air which 0:21:03.760 --> 0:21:06.960 is now becoming a more well known phenomenon, what this 0:21:07.040 --> 0:21:09.600 is doing to the spread of the COVID pandemic and 0:21:09.720 --> 0:21:12.639 co COVID virus. We can't take that risk. We are 0:21:12.680 --> 0:21:15.080 where we are in New York States. Your risk averse 0:21:15.160 --> 0:21:18.360 and we're not going to do that. Well, that's the point. 0:21:18.400 --> 0:21:20.360 I mean, you go right to it. We're risk averse 0:21:20.440 --> 0:21:24.119 and we're looking for perfection. That falls right over into 0:21:24.160 --> 0:21:28.119 the school year as well. It's July and we're getting 0:21:28.240 --> 0:21:31.760 into July. To you and all the other governors of 0:21:31.760 --> 0:21:35.760 our great fifty states, the District of Columbia and of Guam, 0:21:35.920 --> 0:21:40.480 are we going to get a school in September? Well, yeah, 0:21:40.520 --> 0:21:42.720 I don't think being risk averse when you're in a 0:21:42.720 --> 0:21:45.239 global pandemic is a problem. I mean that we're not 0:21:45.320 --> 0:21:49.560 striving for perfection. We're striving to save lives and we 0:21:49.600 --> 0:21:52.600 are going to continue monitoring the data as it unfolds. 0:21:52.640 --> 0:21:55.000 That we think about the fact that back in March, 0:21:55.520 --> 0:21:58.240 no one was even talking about wearing a mask. Everyone 0:21:58.320 --> 0:22:00.720 thought if you washed your hands, you're going to be okay. 0:22:00.880 --> 0:22:03.840 Now we're understanding, just very recently that this is more 0:22:03.880 --> 0:22:06.480 airborne than we had thought, and the droplets can linker 0:22:06.480 --> 0:22:08.640 in the air for a longer period of time. So 0:22:08.840 --> 0:22:12.720 we have to have the benefit of the ability to 0:22:12.720 --> 0:22:14.680 turn on a dime to say, you know, what we 0:22:14.760 --> 0:22:17.560 thought was right based on global experts, and in New 0:22:17.640 --> 0:22:20.119 York name is being advised by global experts, not just 0:22:20.200 --> 0:22:22.840 the CDC, who are you know, always having a question 0:22:22.880 --> 0:22:26.200 the motivation there from the President's influence. We want to trust, 0:22:26.240 --> 0:22:28.800 but we also have to verify. We want to make 0:22:28.840 --> 0:22:30.840 sure we get it right with respect to restaurants and 0:22:30.920 --> 0:22:33.680 particularly with respect to schools. This is not an area 0:22:33.720 --> 0:22:36.119 we're going to make a mistake with the health and 0:22:36.160 --> 0:22:38.800 well being of New York children. And we only wish 0:22:38.840 --> 0:22:41.640 that the rest of the nation had followed our lead 0:22:41.680 --> 0:22:47.879 and taking extremely serious this pandemic and taking precautionary measures 0:22:47.920 --> 0:22:51.840 and enforcing the social distin wearing the mask, shutting down, 0:22:51.880 --> 0:22:54.480 but now coming back in a way that's thoughtful and 0:22:54.600 --> 0:22:56.879 based on the data, not just the emotion that we 0:22:56.920 --> 0:22:59.040