WEBVTT - Surveillance: Systemic Risk With Alpert 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jailely. 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 --> 0:00:27.560 Bloomberg dot Com, and of course on the Bloomberg Let's 0:00:27.600 --> 0:00:30.840 Bring It Down outfit Showy Westwood Capital Managing Connery joins us. 0:00:31.280 --> 0:00:34.000 Right now, don we kick things off this Monday, still 0:00:34.000 --> 0:00:37.320 reflecting on Friday through the weekend, the payrolls report and 0:00:37.320 --> 0:00:41.640 then the president's actions put the two together forest down. Well. 0:00:41.720 --> 0:00:45.160 The bottom line is that this rapid crash in US employment, 0:00:45.320 --> 0:00:48.320 which is not getting recovered from any time soon, threatens 0:00:48.360 --> 0:00:51.960 to descend further into systemic crisis. We're going to see 0:00:51.960 --> 0:00:55.320 household unable to pay their bills, and small and medium 0:00:55.320 --> 0:01:00.560 sized employers who give jobs to about American workers failing 0:01:00.960 --> 0:01:05.680 as aggregate demand collapses and extended pandemic and you know, 0:01:06.319 --> 0:01:08.679 end of the central support to household. So it's it's 0:01:08.720 --> 0:01:10.520 really going to be a problem. And you know you 0:01:10.520 --> 0:01:12.600 were talking about the equity markets a few minutes ago. 0:01:13.120 --> 0:01:16.559 This period is beginning to resemble that of September April, 0:01:17.640 --> 0:01:22.080 when the equity market recovered from post crash lows. Government 0:01:22.080 --> 0:01:24.360 policy errors were building up during that period, and what 0:01:24.400 --> 0:01:26.759 did you get? You got the Great Depression. So this 0:01:26.800 --> 0:01:30.720 is very serious stuff. The granularity, Dan Alfert, of your 0:01:30.760 --> 0:01:34.360 wonderful work with Cornell j u I is just stunning. 0:01:34.480 --> 0:01:38.160 What was the granularity of the report that got your 0:01:38.200 --> 0:01:42.560 attention for so much of America that's struggling. Well, you 0:01:42.600 --> 0:01:46.040 know what happened was we saw those enormous increases and 0:01:46.200 --> 0:01:49.720 jobs and then decreases in unemployment in May and June. 0:01:49.840 --> 0:01:51.720 And you started looking at the sectors in which you 0:01:51.760 --> 0:01:54.840 saw the increases, and they were leisure in hospitality and 0:01:54.960 --> 0:01:59.080 dentist's office and other things you know, retail fully closed. Uh. 0:01:59.080 --> 0:02:00.680 And so you start describ at your head and say, 0:02:00.680 --> 0:02:02.840 why are all these people adding back jobs when they're 0:02:02.880 --> 0:02:06.320 still closed. Um. So we went out and surveyed about 0:02:06.320 --> 0:02:10.800 sixty people and found out that, in fact, you know, 0:02:11.280 --> 0:02:14.840 we were now starting to see repeat layoffs of people 0:02:14.840 --> 0:02:18.639 who had been quote unquote repaywroll. We started looking to 0:02:18.720 --> 0:02:20.360 that and realized that it was just it was the 0:02:20.400 --> 0:02:23.440 p PP program going on, the payroll protection program going on, 0:02:23.480 --> 0:02:27.359 that was actually encouraging rightly so by the way encouraging 0:02:27.400 --> 0:02:30.600 employers to repayroll their people, and they were doing that, 0:02:30.639 --> 0:02:32.880 but what we discovered was that other people who are 0:02:32.960 --> 0:02:39.600 repayroll of them weren't actually working. Okay, well fine, I 0:02:39.600 --> 0:02:41.960 mean that's within your data. What does that mean for 0:02:42.040 --> 0:02:44.160 g d P. I mean what John and I want 0:02:44.160 --> 0:02:46.600 to do on a Monday, Dan Alpert is get out 0:02:46.639 --> 0:02:49.800 to September, get out to October, folks, full disclosure. I 0:02:49.880 --> 0:02:53.040 see very few little of that in the literature, Dan Albert. 0:02:53.080 --> 0:02:56.560 Can you take that research and get out to September 0:02:56.720 --> 0:02:59.640 or get out to October. Yeah. I think what that 0:02:59.680 --> 0:03:02.040 means is two things. Well, you've got two things going 0:03:02.080 --> 0:03:05.280 on at the same time. One is, uh, you have 0:03:05.320 --> 0:03:08.080 a lot of businesses that have been able to extend 0:03:08.160 --> 0:03:12.160 their lives only through government support. Those businesses are now 0:03:12.160 --> 0:03:16.000 going to be put up against the pandemic surging country 0:03:16.120 --> 0:03:18.880 and won't be able to continue and may not be 0:03:19.040 --> 0:03:22.680 there in September and October and next year to re 0:03:22.800 --> 0:03:26.919 employ the people. The second part is that you now 0:03:26.960 --> 0:03:29.960 are really facing a systemic crisis. I mean, if households 0:03:30.000 --> 0:03:33.720 cannot pay their mortgages, pay their rents, they're going to 0:03:33.880 --> 0:03:36.800 use whatever money they have to eat. Um, you're going 0:03:36.880 --> 0:03:39.760 to be this potentially trickle into a financial crisis. So 0:03:39.840 --> 0:03:42.040 that's what the fourth quarter looks like if we don't 0:03:42.080 --> 0:03:44.120 do something, John, this is so important. Venue and Apple 0:03:44.200 --> 0:03:46.080 Bama with the great essay in the New York Times 0:03:46.080 --> 0:03:50.000 on this this weekend on evictions, John, I see a dearth. 0:03:50.080 --> 0:03:52.880 That's the only word I'm using Today's Earth Monday. I 0:03:53.000 --> 0:03:56.760 see almost no energy put into what October looks like 0:03:56.880 --> 0:03:59.000 right now. Tell him I can't get past next week, 0:03:59.160 --> 0:04:02.560 never mind, Hope. And I think that's fascinating about the 0:04:02.560 --> 0:04:04.800 payrolls report. You and I have been talking about it, Dan, 0:04:05.160 --> 0:04:07.720 the survey week. Who would have thought the survey week 0:04:07.760 --> 0:04:10.240 and a payrolls report could be the difference between positive 0:04:10.240 --> 0:04:13.520 a million and negative a million? Dan, is that really 0:04:13.520 --> 0:04:17.080 where we are? Yeah? I mean right now, the delay 0:04:17.200 --> 0:04:20.200 between the survey day and the pls report and the 0:04:20.240 --> 0:04:23.880 actual presentation that reports actually more than twenty days is 0:04:24.240 --> 0:04:27.000 too much time in this crisis. Too much is happening 0:04:27.080 --> 0:04:28.880 during that period of time. And that's been going on 0:04:29.000 --> 0:04:32.000 for months. So right now you know that if the 0:04:32.120 --> 0:04:34.600 if the survey data that we have is correct, what 0:04:34.760 --> 0:04:37.400 you're going to see in August is that negative number. 0:04:37.520 --> 0:04:40.160 You're going to see the reversal of these three months 0:04:40.160 --> 0:04:43.599 of job growth and the opposite occur. You're going to 0:04:43.640 --> 0:04:47.599 see increased layoffs in a boost in the unemployment rate. This, 0:04:47.680 --> 0:04:50.000 Tom's why everyone still thinks so much more still needs 0:04:50.000 --> 0:04:52.320 to be done. Dan in Washington, d C. Something is 0:04:52.360 --> 0:04:54.440 better than nothing. But let's talk about the something we've got. 0:04:54.440 --> 0:04:57.919 Over the weekend, the President is basically instructed to redirect 0:04:57.960 --> 0:05:02.680 funds for disaster relief towards unemployment benefits, the enhanced benefit 0:05:02.760 --> 0:05:05.360 now from the federal site, Tom three hundred dollars. They 0:05:05.400 --> 0:05:07.919 asked the states to chip in another one hundred dollars. 0:05:08.160 --> 0:05:10.440 No one knows if one you can process this quickly 0:05:10.480 --> 0:05:13.159 and to how longer will last. Bloomberg Economics are saying 0:05:13.200 --> 0:05:15.360 it could be gone in a couple of months term. 0:05:15.640 --> 0:05:18.160 And that's for the deferral of payroll taxes. We know 0:05:18.200 --> 0:05:21.760 what that hinges on. Will the employers actually follow through 0:05:21.839 --> 0:05:24.480 in releasing those funds or not? John, there was great 0:05:24.560 --> 0:05:27.560 research on this over the weekend, Republicans, Democrats, the whole 0:05:27.600 --> 0:05:31.600 thing focus on this. Journe the Republican senator from Nebraska, 0:05:32.160 --> 0:05:35.279 called it unconstitutional. You don't need to know anything else. 0:05:35.320 --> 0:05:38.320 He went further, he called it unconstitutional. Slot but dan output, 0:05:38.400 --> 0:05:41.000 what I didn't hear over the weekend was Democrats ready 0:05:41.040 --> 0:05:43.839 to make a legal challenge because right now, politically speaking, 0:05:44.200 --> 0:05:47.000 who on Earth wants to be seen challenging what the 0:05:47.000 --> 0:05:51.599 president announced over the weekend. But these are all political backflips, 0:05:51.680 --> 0:05:55.120 not economic policy making. Um. You know, to the extent 0:05:55.200 --> 0:05:58.240 that that money can flow out and to the extent 0:05:58.279 --> 0:06:00.920 that the states can actually get it out households, which 0:06:01.040 --> 0:06:04.719 is a big question mark. Um, through Trump's action, that's great. 0:06:04.760 --> 0:06:07.800 It delays some of the problem and defers it for 0:06:07.839 --> 0:06:10.760 another month and hopefully there's some political sanity that can 0:06:10.800 --> 0:06:14.000 actually emerge. But you know, at the end of the day, 0:06:14.040 --> 0:06:16.960 this is this is something that is so much bigger 0:06:17.080 --> 0:06:20.440 than just what the President signed over the weekend, And 0:06:20.480 --> 0:06:22.880 the biggest part of it to me is making sure 0:06:23.320 --> 0:06:26.520 that those small and medium sized employers are there to 0:06:26.680 --> 0:06:31.880 re employ people when this virus finally comes under control. Yes, Um, 0:06:31.920 --> 0:06:34.640 you can probably put a band aid on the systemic 0:06:34.640 --> 0:06:37.200 crisis if you can get some money to households to 0:06:37.279 --> 0:06:39.720 enable them to pay their rents and mortgages. But at 0:06:39.720 --> 0:06:41.960 the end of the day, there's gonna be no jobs. 0:06:42.040 --> 0:06:44.440 And that's the bigger that's the bigger the two problems, 0:06:44.440 --> 0:06:47.680 and nothing the President did this weekend has anything to 0:06:47.760 --> 0:06:49.240 do with that. And then I want to go back 0:06:49.240 --> 0:06:51.800 to your wonderful book, The Age of Oversupply. What we 0:06:51.960 --> 0:06:56.000 have in abundance right now is an oversupply of money. 0:06:56.120 --> 0:07:00.200 There are is trillions of dollars laying around, look for 0:07:00.320 --> 0:07:06.599 something to do. What happens to our oversupply of capital. Well, 0:07:06.600 --> 0:07:08.360 this has been something that's been going on for a 0:07:08.400 --> 0:07:12.720 couple decades. The problem is, and this has occurred before, 0:07:12.800 --> 0:07:16.000 when you have a situation where uh, there is no 0:07:16.320 --> 0:07:20.360 really good opportunity for risk free returns, meaning you know 0:07:20.520 --> 0:07:24.000 in sovereign bonds, um, you're going to see that money 0:07:24.000 --> 0:07:26.600 start to flail around looking for some sort of yield 0:07:26.640 --> 0:07:29.640 and making excuses every which way it turns. They're gonna 0:07:29.880 --> 0:07:31.640 people are going to go into stock market because the 0:07:31.640 --> 0:07:34.720 stock market has risen for the last few weeks. People 0:07:34.720 --> 0:07:37.720 are going to go into gold because gold has risen 0:07:37.800 --> 0:07:40.160 for the last few weeks. You see all sorts of 0:07:40.200 --> 0:07:42.840 things out there that are functionally non economic and that 0:07:42.880 --> 0:07:48.160 are basically rooted in market momentum. There's absolutely no rationale 0:07:48.160 --> 0:07:51.240 for any of this. Well, Biden make a difference a 0:07:51.320 --> 0:07:54.480 president Biden. Does that make a difference in Dan Alpert's 0:07:54.560 --> 0:07:59.720 American view? Well, yeah, I mean I think an enormous difference, 0:07:59.720 --> 0:08:03.000 because clearly this administration is dysfunctional. But you know, think 0:08:03.040 --> 0:08:06.400 about another thing. Think about what happens after November three. 0:08:06.880 --> 0:08:09.960 Even if there was not some holy acious battle over 0:08:10.000 --> 0:08:13.200 who won the election, You've got a long interregnum during 0:08:13.240 --> 0:08:17.080 which someone needs to make policy. And the question is 0:08:17.120 --> 0:08:18.920 at that point you're still You're gonna have a lame 0:08:19.040 --> 0:08:22.160 duck Congress. People are going you know, maybe you'll see 0:08:22.280 --> 0:08:24.200 a turnover in the Senate, maybe you won't. But at 0:08:24.240 --> 0:08:26.320 the end of the day, who is going to be 0:08:26.440 --> 0:08:29.760 there to make policy? Right now, we are floating in 0:08:29.800 --> 0:08:33.200 an ocean without an oar. Den Alta Gorett to catch 0:08:33.200 --> 0:08:35.080 out of the right way to kick takes off this 0:08:35.160 --> 0:08:38.400 Monday morning, Den Alfadat of Westwood Capital on this economy 0:08:38.600 --> 0:08:50.400 and the state of politics down in Washington day, say, 0:08:51.200 --> 0:08:54.280 Mark Sandy, you have a chart that speaks volumes in 0:08:54.320 --> 0:08:58.760 your latest research on the participation across age and the 0:08:58.880 --> 0:09:04.360 participation across races in America. What does it say, Well, 0:09:04.400 --> 0:09:08.720 participation collapsed in the pandemic. We're down about two percentage 0:09:08.760 --> 0:09:10.839 points from where we were a pre pandemic. And it's 0:09:10.880 --> 0:09:17.560 across the border across all ages, ethnic groups. Uh, educational attainment, Uh, 0:09:17.679 --> 0:09:19.720 you know, some variation, but it just shows you the 0:09:19.760 --> 0:09:22.720 stress and the labor markets that time is Uh, those 0:09:22.800 --> 0:09:26.320 folks that had stepped out of the workforce, Uh, step 0:09:26.360 --> 0:09:28.920 back in and continue and start to look for work. 0:09:29.000 --> 0:09:33.760 The unemployment rate popularly measure will be closer to fourteen percent, 0:09:33.880 --> 0:09:36.400 not the ten percent that I want to stop you 0:09:36.520 --> 0:09:38.960 right there. This is really really important because John and 0:09:39.000 --> 0:09:41.959 I get a ton of email marks Andy which says 0:09:42.160 --> 0:09:45.640 marks Andy's right, the ten percent number is a fiction. 0:09:46.320 --> 0:09:50.880 Is the ten percent number of fiction? Yeah, it doesn't 0:09:50.880 --> 0:09:52.880 do justice to the stress in the labor market. It's 0:09:52.880 --> 0:09:57.760 a fiction in that sense. I mean it's uh, it's copleally. Uh. 0:09:58.280 --> 0:10:00.520 They haven't changed any of their methodology to b l S, 0:10:00.800 --> 0:10:04.120 the keeper of the data, so it's it's it's accurate 0:10:04.200 --> 0:10:06.600 in that sense, but it's not giving you us a 0:10:06.640 --> 0:10:08.760 clear sense of the stress and the labor market. I mean, 0:10:09.160 --> 0:10:12.319 people have stepped out of the workforce. They're not looking 0:10:13.040 --> 0:10:15.319 and they want a job, they don't think it's a 0:10:15.840 --> 0:10:20.280 viable to find one. So if you consider those folks, UH, 0:10:20.400 --> 0:10:22.760 the level of stress a lot higher. That fourteen percent 0:10:22.840 --> 0:10:25.280 is probably more represented what's going on than the tem percent. 0:10:25.400 --> 0:10:28.960 But even ten percent, you know, UH, is a pretty 0:10:28.960 --> 0:10:31.520 tough labor market. Uh. In the peak of the financial 0:10:31.679 --> 0:10:33.680 peak of the employment rate in the financial crisis was 0:10:33.720 --> 0:10:36.920 ten percent for one month, so the stress is very high. 0:10:37.120 --> 0:10:39.600 Mark I colleague Michael McKay always says there's a big 0:10:39.600 --> 0:10:42.640 difference between jobs created and jobs restored, and whenever he 0:10:42.679 --> 0:10:45.400 sees these payrolls report, especially over the last few months, 0:10:45.600 --> 0:10:49.040 he will refer to them as jobs restored. Can you 0:10:49.120 --> 0:10:51.400 walk us through the jobs that are becoming Bankmark the 0:10:51.440 --> 0:10:55.640 permanent scarring you're already saying in this labor market. Yeah, 0:10:55.679 --> 0:10:57.800 that's a good point. So a lot of the jobs 0:10:57.880 --> 0:11:02.960 that we've lost in retail and for hospitality, transportation, anything 0:11:02.960 --> 0:11:06.719 to do with a tourism, travel, recreation, you know, they 0:11:07.120 --> 0:11:09.800 they obviously have gotten creamed in the pandemic there there. 0:11:09.800 --> 0:11:12.080 They some of them have gotten some of those jobs 0:11:12.080 --> 0:11:14.320 have been restored, but many, many of those jobs are 0:11:15.040 --> 0:11:17.800 unlikely to come back or unlikely to come back any 0:11:17.880 --> 0:11:21.000 time in the foreseeable future. I mean business models are 0:11:21.000 --> 0:11:24.960 going to change. Uh, example would be business travel. So 0:11:25.480 --> 0:11:27.240 you know, I have a couple under economists who worked 0:11:27.280 --> 0:11:32.080 for me across the globe. My biggest expenses compensation, second 0:11:32.160 --> 0:11:34.400 is rent, and the third is traveled before all this, 0:11:34.520 --> 0:11:38.600 but given the pandemic and given all the technological changes, 0:11:38.600 --> 0:11:40.320 we're not going back to the kind of travel we 0:11:40.360 --> 0:11:43.240 have before. And I suspect many many businesses around the 0:11:43.240 --> 0:11:46.200 world are in the same position. So that's a that's 0:11:46.200 --> 0:11:48.200 a business model that will have to change, and that 0:11:48.240 --> 0:11:50.079 means there's gonna be a lot, a lot fewer jobs. 0:11:50.280 --> 0:11:51.920 Just to give you give you a sense of it, 0:11:52.240 --> 0:11:55.400 we lost twenty two million jobs in March and April. 0:11:55.880 --> 0:11:59.040 We've gotten uh you know, roughly nine million of those 0:11:59.040 --> 0:12:02.080 backs were down. Third team probably get another three million 0:12:02.080 --> 0:12:03.640 back by the end of the year. And that that's 0:12:03.640 --> 0:12:06.640 where the last ten million. Getting that last ten million back, 0:12:06.640 --> 0:12:08.319 it's not going to be easy. It's gonna take time. 0:12:08.679 --> 0:12:11.679 Probably won't get there until well into the middle part 0:12:11.720 --> 0:12:14.320 of this decade. Mark you mentioned travel, how much of 0:12:14.320 --> 0:12:16.199 that is vaccine dependent and how much of it is 0:12:16.200 --> 0:12:18.800 managers looking around lacking a new cost structure and say, 0:12:18.840 --> 0:12:22.000 you know what, we're sticking with this? Well, I think 0:12:22.040 --> 0:12:25.000 with tourism it's about it's about vaccine and confidence that 0:12:25.120 --> 0:12:28.000 people aren't going to get sick. You know, particular people 0:12:28.000 --> 0:12:31.640 who travel, people in their fifties, in sixties, seventies, you know, 0:12:31.679 --> 0:12:33.800 the baby boomers. You know, they they're not going to 0:12:33.880 --> 0:12:36.200 travel until that if there's a vaccine they feel comfortable 0:12:36.240 --> 0:12:38.440 with and they feel like they're not going to get sick, 0:12:38.920 --> 0:12:43.240 you know, somewhere uh outside of their home, so that 0:12:43.360 --> 0:12:45.559 that'll come back with vaccine. But the business travel, I 0:12:46.040 --> 0:12:48.199 just don't see that coming back in the same way, 0:12:48.760 --> 0:12:51.920 or it's not coming back anytime soon. Mark, I want 0:12:51.920 --> 0:12:53.319 to go to the x X so I want to 0:12:53.320 --> 0:12:55.760 go to the time function here of this stimulus. You've 0:12:55.760 --> 0:12:59.800 done some political work I'm not gonna say representing democratic politics, 0:12:59.800 --> 0:13:03.720 but they have used your good research from Moody's analytics. 0:13:03.840 --> 0:13:07.240 The Obama administration, there's no question about that. Do you 0:13:07.400 --> 0:13:11.800 sense an urgency in this in this August in Washington 0:13:12.280 --> 0:13:14.880 or are they just slipping their way into a September 0:13:14.960 --> 0:13:19.280 that's too late? Well, they better have a sense of urgency. 0:13:19.320 --> 0:13:21.600 I mean, if they don't act, and I should say 0:13:21.640 --> 0:13:27.120 the president's executive orders really doesn't advance the ball significant degree. 0:13:27.920 --> 0:13:32.440 They're what he's proposed or what his orders is unworkable. Uh, 0:13:32.720 --> 0:13:34.640 nothing's going to change. And even if he got exactly 0:13:34.640 --> 0:13:39.280 what he wanted today, it's not enough. So they need 0:13:39.280 --> 0:13:41.079 a sense of urgency if they if they don't pass 0:13:41.120 --> 0:13:44.280 a sub San Francisco rescue package, we're going back into recession. 0:13:44.360 --> 0:13:46.800 And Jeff Farrow, in this odd weekend that we have here, 0:13:46.840 --> 0:13:50.880 I think one of my great observations is, never, ever, ever, jne, 0:13:51.520 --> 0:13:56.520 have I seen conservative economists in such sharp agreement with 0:13:56.679 --> 0:13:59.560 liberal economists. They all say the same thing, let's go, 0:13:59.720 --> 0:14:02.360 let's oh, let's go. Well something. They know the recovery 0:14:02.400 --> 0:14:05.120 is constrained, So you need some kind of demand side response. 0:14:05.160 --> 0:14:07.800 You need something to offset the shocks to income because 0:14:07.800 --> 0:14:11.040 the recovery is constrained by the virus. And my question 0:14:11.080 --> 0:14:13.360 would be for you, as an economist looking out, let's 0:14:13.360 --> 0:14:14.600 try and get out to the end of the year, 0:14:14.800 --> 0:14:17.600 how do you provide any kind of forecast whatsoever without 0:14:17.640 --> 0:14:20.880 a deeper understanding of what undpends that forecast, which is 0:14:20.920 --> 0:14:25.600 fiscal stimulus. Yeah, it's an assumption, right, I mean, I'm 0:14:25.640 --> 0:14:28.880 assuming economy makes its way through without going back into recession. 0:14:28.960 --> 0:14:31.440 But that's based on two key assumptions. One that the 0:14:32.240 --> 0:14:36.080 pandemic remains relatively contained, doesn't get meaningfully worse than you 0:14:36.120 --> 0:14:38.560 know where we are in terms of infections and the hospitalization. 0:14:38.640 --> 0:14:41.120 That's a big assumption. And then, of course what's going 0:14:41.160 --> 0:14:43.920 on in Washington and ciscal policy. Now, you know, in 0:14:44.000 --> 0:14:46.520 my baseline where I assume we make our way through, 0:14:46.560 --> 0:14:50.080 I'm assuming a one point five trillion dollar ciscal rescue 0:14:50.080 --> 0:14:52.920 package just for context, what the president has proposed. Again, 0:14:53.040 --> 0:14:55.880 even if it gets exactly what he has ordered, it's 0:14:55.920 --> 0:14:58.760 about four hundred billions, So you know, just to give 0:14:58.800 --> 0:15:02.920 you context is just not simply just not enough. And 0:15:02.920 --> 0:15:05.000 and that's that's that's not He's not gonna be able 0:15:05.000 --> 0:15:06.920 to execute on that. The things he's being he's asked 0:15:06.920 --> 0:15:10.720 for are just unworkable anytime in the foreseeable future. What 0:15:10.840 --> 0:15:16.320 is your run rate on g d P twelve months forward? Uh, well, 0:15:16.800 --> 0:15:18.440 twelve months for it. I you know, by then, I 0:15:18.480 --> 0:15:20.360 hope we have a vaccine, so I hope we're often 0:15:20.440 --> 0:15:23.480 running by then. But between now and then, uh, you 0:15:23.520 --> 0:15:26.440 know late this year earling X, I don't think we're 0:15:26.440 --> 0:15:29.120 going anywhere fast, so we'll be treading water. It's is 0:15:29.120 --> 0:15:32.680 it pushing pull, it's the it's the headwind created by 0:15:32.720 --> 0:15:35.120 the virus and the ongoing pandemic and the effect that's 0:15:35.120 --> 0:15:39.680 having on on consumers and businesses, and then the tailwind 0:15:39.720 --> 0:15:42.200 of any fiscal rescue. If if we don't get the tailwind, 0:15:42.440 --> 0:15:44.360 we don't get the fiscal rescue, then the head wind's 0:15:44.400 --> 0:15:47.360 gonna blow us right back into recession. And you know, 0:15:47.440 --> 0:15:49.720 un employment is gonna be rising, not falling. Not be 0:15:49.800 --> 0:15:51.880 honest about the profession right now in economics, and this 0:15:51.920 --> 0:15:53.600 is certainly not a take at your profession. I just 0:15:53.600 --> 0:15:55.960 want to take for understanding of how uncertain it is 0:15:56.000 --> 0:15:58.200 and how much we should look at these forecasts and 0:15:58.240 --> 0:16:01.640 actually penny attention to the moments months out, mom because 0:16:01.680 --> 0:16:04.280 things are so so difficult A week count, two months 0:16:04.280 --> 0:16:07.440 out a Coulter A round, Yeah, A great point. I 0:16:07.480 --> 0:16:10.080 mean that's why you know you can't rely on a 0:16:10.160 --> 0:16:12.760 fort one forecast. You have to run different scenarios and 0:16:13.480 --> 0:16:15.320 and if you're a proved in planner, a proved in 0:16:15.360 --> 0:16:18.640 business person, you know, you guard against the downside, So 0:16:18.840 --> 0:16:22.120 you can't just take the you know, the you're expected 0:16:22.160 --> 0:16:24.560 down the middle of the distribution of possible luck and 0:16:24.560 --> 0:16:28.680 on my outcomes, because the distribution is very wide, and 0:16:28.720 --> 0:16:31.280 there's a boatload of uncertainty and and and that's one 0:16:31.320 --> 0:16:33.200 reason why you kindomy can't get going right. I mean, 0:16:33.200 --> 0:16:36.440 you're a business person, and you can't make a forecast. 0:16:36.480 --> 0:16:38.880 If you can't put numbers in the spreadsheet and calculated 0:16:38.960 --> 0:16:41.400 return on investment, you're not going to make an investment. 0:16:41.400 --> 0:16:43.440 You're not gonna hire, you're not gonna expand. And that's 0:16:43.520 --> 0:16:45.280 one of the key reasons why it's just I think 0:16:45.280 --> 0:16:47.160 it's pretty hard for us to get going here until 0:16:47.880 --> 0:16:49.720 the pandemic is over, until we have a vaccine that 0:16:49.720 --> 0:16:52.320 people feel good about. Marks and D and Moody to analytics, 0:16:52.400 --> 0:17:03.880 monk right to catch you out of these. She has 0:17:03.880 --> 0:17:07.879 a trifect of competencies on Wall Street with JP Morgan 0:17:07.960 --> 0:17:11.240 asset management, Diana moy joins us uh cf A and 0:17:11.320 --> 0:17:14.560 also with their great work on foreign exchange and portfolio 0:17:14.680 --> 0:17:19.200 management of x f X even better, formerly a trader 0:17:19.240 --> 0:17:22.040 with UBS and there's nothing like losing money as a 0:17:22.080 --> 0:17:26.560 trader to give you clarity as a portfolio manager. Diana, 0:17:26.600 --> 0:17:29.520 wonderful to have you with us right now. Let us 0:17:29.560 --> 0:17:32.080 turn first of all to the linkage of the dollar 0:17:32.680 --> 0:17:36.159 to your world of emerging markets. Is it about dollar 0:17:36.280 --> 0:17:40.679 dynamics or is it e M by itself. It's a 0:17:40.680 --> 0:17:44.280 bit of both, Um, just Tom, just to kind of 0:17:44.640 --> 0:17:47.520 look at it. Like most of the markets in effects, 0:17:47.520 --> 0:17:50.359 we do see bifurcation cleaning out in a big way. 0:17:50.960 --> 0:17:55.159 So for the DM sensitive EM currency, so we're talking 0:17:55.200 --> 0:17:59.000 about Central and Eastern Europeans UM currencies and some pockets 0:17:59.040 --> 0:18:02.920 of Asia UM. Broad dollar dynamics do matter, and those 0:18:02.920 --> 0:18:06.520 currencies have actually done reasonably well year to date versus 0:18:06.560 --> 0:18:10.240 the broad dollar UM. For the high yielding imagine market, 0:18:10.440 --> 0:18:13.040 it's more on a case by case basis where the 0:18:13.040 --> 0:18:16.480 fundamental starting point does really make a big difference on 0:18:16.520 --> 0:18:19.560 how the currency perform. So you look at Turkey UM 0:18:19.600 --> 0:18:22.760 as a good example that's really struggled to do well 0:18:22.800 --> 0:18:26.680 because the fundamental starting point UM doesn't change and that's 0:18:26.720 --> 0:18:29.719 not aided by a weekend dollar Jana. Typically we talk 0:18:29.760 --> 0:18:32.239 about one country in am getting in trouble, and then 0:18:32.280 --> 0:18:35.159 we talk about contagion risks to the rest of the complex. 0:18:35.400 --> 0:18:38.280 From your perspective, how much exposure risk there too Turkey? 0:18:38.320 --> 0:18:40.960 Given what's happened over the last several years, it feels 0:18:41.000 --> 0:18:44.000 like every twelve months we have the same conversation. How 0:18:44.040 --> 0:18:46.480 many people have actually de risked and reduced exposure to 0:18:46.520 --> 0:18:48.680 Turkey that a move like this in the last week 0:18:48.760 --> 0:18:51.360 or so is irrelevant for the rest of the complex. 0:18:52.600 --> 0:18:55.680 So that's um That's an interesting question, John, And there's 0:18:55.680 --> 0:18:58.399 two ways you can look at it. One, the economic 0:18:58.480 --> 0:19:02.760 exposure for company and countries to Turkey has become ring 0:19:02.840 --> 0:19:07.240 fenced in reventeers the vulnerable. The vulnerabilities that Turkey faces 0:19:07.280 --> 0:19:10.600 are not new to market, so companies have had opportunities 0:19:10.640 --> 0:19:14.440 to ring fence their economic exposure there um in terms 0:19:14.520 --> 0:19:17.800 of the impact to broader financial afft um. So this 0:19:17.880 --> 0:19:21.520 is the contagion of weakness in Turkey spilling over to 0:19:21.560 --> 0:19:25.480 other markets. Two points One, we see that playing out 0:19:25.640 --> 0:19:29.000 more in the weaker credit So where these vulnerabilities underpinning 0:19:29.000 --> 0:19:31.400 an economy, so South Africa would be a good case. 0:19:31.840 --> 0:19:34.919 But then two, this is August, right, and we know 0:19:35.000 --> 0:19:38.520 August is usually quite a liquid month. So those moves 0:19:38.520 --> 0:19:41.919 in Turkey could potentially spill over. But if we do 0:19:42.040 --> 0:19:45.280 start to see that moving to better credit, our our 0:19:45.640 --> 0:19:48.400 our buias would be actually to look for where that 0:19:48.480 --> 0:19:52.040 contagion isn't warranted to add risk, Where would that pay 0:19:52.119 --> 0:19:55.840 if you started to say it so, um, I'll give 0:19:55.840 --> 0:19:58.000 you an example. Let's say if we saw the moving 0:19:58.040 --> 0:20:02.640 Turkey impacting UM, say someone like Mexico, just because it's 0:20:02.800 --> 0:20:06.639 considered another high yield country. I think that would present 0:20:06.760 --> 0:20:10.679 interesting opportunities for us to buy because the fundamental picture 0:20:10.800 --> 0:20:13.480 is vastly different in Mexico. So there's no reason you 0:20:13.480 --> 0:20:16.680 should see Mexico selling off because Turkey is coming under pressure. 0:20:17.000 --> 0:20:19.199 Whether you're looking at real rates with Mexico having some 0:20:19.280 --> 0:20:22.399 of the highest in the world of as a Turkey, 0:20:22.440 --> 0:20:25.920 whether you're looking at inflation dynamics or polity credibility, that's 0:20:25.920 --> 0:20:29.199 a totally different story. Um. So for us, the market 0:20:29.359 --> 0:20:33.000 that we would actually see Turkey related weaknesses are very 0:20:33.000 --> 0:20:37.040 good opportunity to get involved in dynamo. What is so 0:20:37.119 --> 0:20:39.720 important to me is the slowdown in g d P, 0:20:40.280 --> 0:20:43.760 and when I look at the world trade charts, they're 0:20:43.840 --> 0:20:50.400 exceptionally distressing. How close are we to not financial crisis 0:20:50.440 --> 0:20:54.960 but liquidity issues within e M because of a lack 0:20:55.000 --> 0:20:59.560 of world trade. We were much closer to that in 0:21:00.000 --> 0:21:03.080 you one Q two than we are to day. Tom 0:21:03.200 --> 0:21:07.000 Um we are seeing a small rebound in trade. Actually, 0:21:07.040 --> 0:21:09.520 when you look at the China data, we have seen 0:21:09.560 --> 0:21:13.879 a pickup in activity coming through there. Um economies have reopened, 0:21:13.880 --> 0:21:16.760 so exports are starting to pick up again in aggregate, 0:21:16.840 --> 0:21:19.520 which is promising. And we think the fact that we've 0:21:19.600 --> 0:21:23.400 passed picked shutdown UM we don't expect to see closed 0:21:23.400 --> 0:21:25.800 down to the extent that we had in Q one 0:21:26.400 --> 0:21:31.720 is actually a support. Additionally, the bigger concerns so there's 0:21:31.760 --> 0:21:35.280 liquidity and the solvency. The big concern in the midst 0:21:35.280 --> 0:21:38.879 of the shutdown was whether e M economies will be 0:21:38.920 --> 0:21:42.840 able to access markets. We've seen sovereigns come and issue 0:21:42.880 --> 0:21:46.920 debt and investors actually in this low yield rate are 0:21:46.960 --> 0:21:50.280 willing to finance that. So today I'd say those sorts 0:21:50.320 --> 0:21:53.560 of concerns are much less than they were three months ago. 0:21:54.160 --> 0:21:56.440 How do you play that then, I believe you're suggesting 0:21:56.440 --> 0:21:59.480 that Johanna risk and feel and um, where would you 0:21:59.520 --> 0:22:06.040