Speaker 1: Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Ley. 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 Ready
Speaker 1: please to stay joining us in the studio. Julian Emmanuel
Speaker 1: bt i G Chief Equity and derivative strategist Jinian What
Speaker 1: a moment nine p m. East in time last night.
Speaker 1: Let's get you to that moment, the President delivering his address.
Speaker 1: Your response as those words came out, Look, the market
Speaker 1: told you everything you needed to know that. You know,
Speaker 1: there was h too much of an element of backward
Speaker 1: looking this. There was a little bit too much self congratulation.
Speaker 1: This is a time for humility, but more importantly, this
Speaker 1: is a time for action. Um. We saw the sketches,
Speaker 1: the outlines of it. Um. But I would suggest to
Speaker 1: you that the single most important thing that we could
Speaker 1: see as a sign of backstopping confidence in the financial
Speaker 1: markets right now would be a meeting between President Trump
Speaker 1: and Speaker Pelosi and Senator Schumer. And that's what needs
Speaker 1: to happen. Would that be enough for you? Would that
Speaker 1: be the canta cyclical circuit breaker this market, this economy
Speaker 1: desperately needs right now. Well, you know, frankly, in you know,
Speaker 1: in an environment where volatility in every financial asset is
Speaker 1: off the charts, and you're dealing with, you know, a
Speaker 1: health emergency which we really don't fully have our hands around.
Speaker 1: To say that one thing is enough is probably not
Speaker 1: the correct thing to say, but I think it would
Speaker 1: be very, very meaningful. I want to go to the
Speaker 1: point that Muhammadalarian raises, which is are we watching an
Speaker 1: orderly or a disorderly unraveling of the market. Is this
Speaker 1: just sort of the market pricing in a new reality
Speaker 1: with the economy or were watching a sort of the
Speaker 1: functionality breakdown? So? Uh, what we would say there is
Speaker 1: um Really until frankly, the last twelve hours, it has
Speaker 1: been relatively orderly, relatively orderly. Um. You know, you've had rallies,
Speaker 1: you know, thousand points up, a thousand points down, but
Speaker 1: the liquidity has been there. What we've been focused on
Speaker 1: for the last several months is this whole idea that
Speaker 1: sell off was likely to be contained by the two
Speaker 1: hundred week moving average in the SMP five, which is
Speaker 1: essentially where you are now, where the futures are pricing
Speaker 1: um below that you have the potential to fundamentally alter
Speaker 1: the psychology, which could cause disorderliness. Credit is in the
Speaker 1: driving seat in a big way over the last couple
Speaker 1: of days for me, and that's been the big flip.
Speaker 1: Over the last couple of weeks or so, we saw
Speaker 1: the primary market freeze up. Would expect that in a
Speaker 1: period of market volatility, that's exactly what happened. But to
Speaker 1: start to see things like spreads and I think you
Speaker 1: noted le sort of investment right, Spreads have doubled in
Speaker 1: Wall a weak two wakes a couple of weeks just
Speaker 1: like that rapidly. So the magnitude of the move in
Speaker 1: the pace and the move, Julian, how much does that
Speaker 1: concern you in this very moment? It really is the
Speaker 1: single most concerning factors. Uh I was talking with Tom earlier.
Speaker 1: The issue here is that having been at all time
Speaker 1: highs in the equity markets basically a month ago, there
Speaker 1: have only been three other times where you've had this
Speaker 1: kind of volatility begin as rapidly as it has two thousand,
Speaker 1: seven oh eight, the Financial crisis, seven the stock market
Speaker 1: crash and nine and we see the Bloomberg Financial Conditions
Speaker 1: Index force. I'll try to get that chart out on
Speaker 1: LinkedIn and Twitter here in a bid and it's measured
Speaker 1: by standard deviations. And we're not the Leaman low levels,
Speaker 1: but boy are we on our way. They are exceeding
Speaker 1: other tensions that we've seen before. You've highlighted, Julian Emmanuel
Speaker 1: that the arch tension is a so called interest parity trade,
Speaker 1: and they just to make it a real generalized thing
Speaker 1: for you know, simple Thursday, I own some equities, leverage
Speaker 1: your own leverage, usually leveraged, and I do a treasury
Speaker 1: trade against that in along the way, I have to
Speaker 1: rehedge or reset the trade. Our people are sophisticates able
Speaker 1: to do that in this market? Are you able to rehedge?
Speaker 1: So yesterday actually saw the first sort of breakdown in
Speaker 1: in that risk parity trade because you actually saw yields
Speaker 1: rise as the equity market was falling. Now, UM, from
Speaker 1: our point of view, the paradigm of risk on risk
Speaker 1: off has been with us for essentially a generation. It
Speaker 1: was not that way prior to UM. And I might
Speaker 1: take slight issue with what John said before, is that yes,
Speaker 1: it was. It was part of a scary moment. But
Speaker 1: on balance, particularly if we get fiscal measures, it could
Speaker 1: be that the feedback loop of ten year yields moving
Speaker 1: higher is a What is the measure that the Secretary
Speaker 1: secretary can do, particularly with all the other Washington and
Speaker 1: political burdens. What does he do to assist too big
Speaker 1: to fail banks now attempting to affect or process their
Speaker 1: desire to re hedge. How does he help Wall Street? Well, again,
Speaker 1: it's you know, it's it's being front and center. I
Speaker 1: would say that, you know, the Treasury sector Terry is
Speaker 1: taking his orders elsewhere, um, but you know, staying out
Speaker 1: there with with small businesses. And I would say that
Speaker 1: small businesses are more important. But come about JP Morgan
Speaker 1: is not a small business, right, No, it isn't. But
Speaker 1: the fact is that in this kind of situation, JP
Speaker 1: Morrigan's solvency is not in question. And the single sentence
Speaker 1: John from Sara Vallis's note, he's calling for a hundred
Speaker 1: beeps and do it fast. Yeah, this big expectations. Look,
Speaker 1: there was a silver lining over the last couple of days.
Speaker 1: I know it's been very stressful for a lot of people,
Speaker 1: policymakers are starting to focus on the right things. It's
Speaker 1: happened last week. I've been disappointed that it's been late,
Speaker 1: but it's starting to happen, and that's encouraging. You took
Speaker 1: issue with something I said. I've got to follow up.
Speaker 1: Why is the feedback of high yield an environment like
Speaker 1: yesterday encouraging? Because honestly, what you want to see, frankly,
Speaker 1: the whole concept of interest rates in the US going
Speaker 1: back to the zero bound, particularly on the long end,
Speaker 1: is very sure, Julian. But I want high yields because
Speaker 1: growth expectations are higher, inflation expectations are high. I don't
Speaker 1: want high yields because people's traits have just blown up.
Speaker 1: But and and again that that is, that is the
Speaker 1: story of yesterday. However, we have to see if you
Speaker 1: end up again in concrete fiscal stimulus in the next
Speaker 1: several days, the appropriate reaction should be higher yields. Smart Julian, Emanuel,
Speaker 1: thank you so much. With bt I g not only inequities,
Speaker 1: but on the derivative space, as they say as well.
Speaker 1: Right now, where's Gina Martin Adams As we look at
Speaker 1: the equity market, She of course drives all of our
Speaker 1: equity work and research at Bloomberg Intelligence. A lot of
Speaker 1: discussion here about people that own equities and they wrap
Speaker 1: a bond trade around them, dampening risk until it doesn't work.
Speaker 1: Are we at a point where a blended equity and
Speaker 1: bond trade where the equities often are leverage, borrowing money
Speaker 1: to get bigger return when it works out, Are we
Speaker 1: at a point where that trade doesn't work anymore? Yeah?
Speaker 1: I mean, I think it depends on whether you're talking
Speaker 1: about risk parity, which is really about volatility in the
Speaker 1: asset prices, or simply about price combination. Price combination is
Speaker 1: still working right, Bonds are still rallying effectively. Yesterday might
Speaker 1: have been the beginning of a little bit of a
Speaker 1: bond sell off, but we'll see after today, after the ECB,
Speaker 1: after all the action in the any market, you could
Speaker 1: have a reflight back in the bonds. The trouble is
Speaker 1: with parity strategies, which are really based upon the volatility
Speaker 1: of those two asset classes. You've got the move index spiking,
Speaker 1: you've got the vixendex spiking. They're both completely off the charts.
Speaker 1: That's creating a lot of trouble for anybody with a
Speaker 1: volatility focus, but when you talk about sort of the
Speaker 1: asset classes themselves, you're still seeing a benefit from having
Speaker 1: that bond exposure. In general, it's just a very very
Speaker 1: volatile landscape, and when you're talking about ten year treasuries
Speaker 1: below fifty basis points, obviously a lot of investors get nervous.
Speaker 1: That we had for the zero bound Gina, this is
Speaker 1: such a punishing market right now. If I told many
Speaker 1: people that in yesterday's session, before we started, yields would
Speaker 1: be higher at the long end, the curve would be
Speaker 1: steeper where a bank's going to be, I'm not sure
Speaker 1: many people would say banks would be down around about
Speaker 1: six spire. What's happening beyond just the concern about rates, Well,
Speaker 1: I think it's panic. I mean, this is just sheer
Speaker 1: panic where this morning it's definitely panic and it has
Speaker 1: been though. I Mean, this is what's really interesting about
Speaker 1: this sell off over the last three or so weeks
Speaker 1: relative to any sell off with that we've been through,
Speaker 1: including two thousand and eight, is from the very beginning
Speaker 1: we had signs of panic. We had signs of absolute
Speaker 1: wash out and sentiment. I mean, you just don't get
Speaker 1: five percent, six percent down seven percent, down days at
Speaker 1: the beginning of a crash. That's extremely unusual. You guys
Speaker 1: keep this going. But can I point out to the
Speaker 1: panic free that gold hasn't moved, although we can go
Speaker 1: back to so what you can not what you want to,
Speaker 1: and you can discuss the dynamics they're underpinning gold. Gina,
Speaker 1: use word panic. One reason why I always love speaking
Speaker 1: with you is that you look at the fundamentals and
Speaker 1: you take an even headed approach to what we're actually
Speaker 1: pricing in at this point, given the declines that we've seen,
Speaker 1: in the declines that were poised for today, what are
Speaker 1: we pricing into the US equity market? We are now
Speaker 1: pricing recession in the U S We're pricing a light
Speaker 1: recession allah two thousand one. I mean, it's been so
Speaker 1: long since we had a light recession. It's really difficult
Speaker 1: for many to remember. But two thousand one was a
Speaker 1: year in which we had two quarters of negative growth.
Speaker 1: They were split apart because we were kind of climbing
Speaker 1: our way out of a slow growth period when September
Speaker 1: eleven hit and then we had more panics. So we've
Speaker 1: done a lot of comparisons back to two thousand one.
Speaker 1: But if you look over time at your average compression
Speaker 1: and PE multiples were there over the last multiple crisis
Speaker 1: in the equity market, you get an average decline in
Speaker 1: PE of about we've had a compression, you get an
Speaker 1: average earnings drop of about four percent. So we've priced
Speaker 1: a light recession. We have not priced something like a
Speaker 1: two two thousand nine catastrophic recession experience based on cash
Speaker 1: flow estimates of all of the analysts a Bloomberg intelligence,
Speaker 1: Does this seem appropriate? Are the levels that we're looking
Speaker 1: at right now and the declines in earnings? Uh? Is
Speaker 1: that is that accurate? You know, it's really difficult to
Speaker 1: say of it. Just to be completely honest, no one
Speaker 1: knows how long the panic is going to last. And
Speaker 1: this is the trouble with this situation is we're not
Speaker 1: talking about rational sort of behavior. We're talking about panic behavior.
Speaker 1: We're talking about panic behavior in the real economy with
Speaker 1: the grocery store shelves somewhat empty. We're talking about panic.
Speaker 1: The behavior in try to do a primoder last night,
Speaker 1: not deliver six cases of John Courage days. Okay, a panic?
Speaker 1: And this goes to what Dr Larian said Hilarian's joining
Speaker 1: you in the night. Nine o'clock Muhammad Larian with John Pharall,
Speaker 1: look at that on another feral property. Okay, fine, there's panic,
Speaker 1: But as Dr Larian mentions, it's orderly panic. I don't
Speaker 1: did you see yesterday within the electronics of the day,
Speaker 1: it's not an image of nine. I'm sorry. Markets are
Speaker 1: acting orderly. I don't see gap bids do I not yet,
Speaker 1: though I will see. The percentage changes are very disorderly.
Speaker 1: So I think it depends on your perspective. Again, the
Speaker 1: way that we you know, the way that said anyway,
Speaker 1: shape or form. The way that asset prices are moving
Speaker 1: so viciously and so rapidly is akin to a two
Speaker 1: thousand eight or seven or nine. That rapidity itself is
Speaker 1: very very different, and you can clear trades in a crunch, right,
Speaker 1: there's no liquidity crunch. Nonetheless, there is this really vicious
Speaker 1: repricing that is extremely unusual. Day to check, folks. I
Speaker 1: just want to say, in the a afternoon of seven,
Speaker 1: when you started buying shares, you didn't know for three
Speaker 1: days what you've got. I mean, I know it sounds
Speaker 1: like ancient. No, I think it's worth pointy gap. That's
Speaker 1: that's why I worry about this is why I worry
Speaker 1: about the pay word, because it is so subjective and
Speaker 1: it's I think it's important to put numbers on it
Speaker 1: in the way that you guys are doing, Genu, it's
Speaker 1: fantastic to see you and tell it you. Let's bring
Speaker 1: in someone truly expert down this here is a city
Speaker 1: group and that is an esteemed European program put together
Speaker 1: by Villain Powder and of course by Catherine Man as well.
Speaker 1: Christian Schultz joins with a very much European perspective. Christian,
Speaker 1: what is a surprise here? Well, to us, not that much.
Speaker 1: Our focus was mainly on quee. We had hoped for
Speaker 1: a bigger increase in the purchases of government bonds in particular.
Speaker 1: And the logic here for us was, um, this is
Speaker 1: going to be a shock to the real economies equity
Speaker 1: um so, companies are going to burn through a lot
Speaker 1: of cash um And that's not just a liquidity bill
Speaker 1: to a solvency issue. The ECB cannot give equity to companies.
Speaker 1: Governments can. So what the ECB has to do is
Speaker 1: make sure that government can socialize losses um so, create
Speaker 1: fiscal room, and that requires buying government bonds. Now the
Speaker 1: fact that they're buying private sector bonds is a bit evasive,
Speaker 1: I'd say there. So it seems that the limits that
Speaker 1: they've set themselves to throw the three limits and have
Speaker 1: scared them away from buying more governments. And that's not
Speaker 1: good news. Is this the influence of the Germans? I mean,
Speaker 1: are you suggesting there should have been more except for
Speaker 1: German reticence? Well, the Germans, I guess, would have liked
Speaker 1: a rate cut. M that's not happened, and that's probably
Speaker 1: not happened because the fear is that that would be
Speaker 1: worse for banks than it is good for the economy
Speaker 1: as a whole, so that it would be net negative
Speaker 1: for the economy just highlights that we had the limit
Speaker 1: for rate cuts at this point for the the for
Speaker 1: the asset purchases. Yes, indeed, I mean government buying government
Speaker 1: bonds and not something which is very popular in Germany.
Speaker 1: Buying corporate bonds pretty more popular. So yes, indeed there's
Speaker 1: some resistance that seem EUROSWISSI stay strongest Swiss for those
Speaker 1: that are playing inside baseball at least, so we're starting
Speaker 1: to get in research and Sebastian Galley, and already he
Speaker 1: doesn't mince words about it. He says, this shows a
Speaker 1: complete lack of coordination between the United States and the
Speaker 1: European Union, which really is the key issue here is
Speaker 1: will there be sufficient response and coordination from all central
Speaker 1: banks in order to stave off some sort of serious crisis?
Speaker 1: And right now there is a question that I have
Speaker 1: looking at this response, is it sufficient? And Christian, what's
Speaker 1: your take? Do you think that the ECB has responded
Speaker 1: effectively to the issues at hand, well within what they
Speaker 1: can do. They probably have, As I said, it would
Speaker 1: have been better to buy more government bonds, to be
Speaker 1: more aggressive on the government bond side, because that's really
Speaker 1: what we need right now. We need fiscal space or
Speaker 1: government so that they can socialize losses that necessary and
Speaker 1: that incluence countries such as Italy. If the additional purchases
Speaker 1: which aren't great, I mean, I'm calculating maybe twelve ten
Speaker 1: month um. If that's gear towards the private sector rather
Speaker 1: than the public, then I'm afraid that sort of misses
Speaker 1: that point that governments have to have fiscal space. Here.
Speaker 1: The phrase you just said, Christian, is why we love
Speaker 1: having you on the ability to socialize losses. That's the
Speaker 1: heart of the financial political in nexus, I should point
Speaker 1: euro strength. All of a sudden, we did get a
Speaker 1: one thirteen print briefly one slightly stronger uh, slightly stronger
Speaker 1: euro here off this historic moment, Christian shows, what do
Speaker 1: you mean, well, I translate for us socialized losses. Well,
Speaker 1: companies also households of course, will have less income, you know,
Speaker 1: through that period where we're effectively on lockdown right now
Speaker 1: in Italy but potentially in other countries shortly. Um so
Speaker 1: that will burn down the equity that the debt liment
Speaker 1: to remain the same. So companies are running out of
Speaker 1: equity and they're certainly it's difficult to get new equity
Speaker 1: from the markets right now, so they have turned to
Speaker 1: governments for income subsidies, and not just for bridge lawns,
Speaker 1: but literally for grants. And that requires bigger deficits. That's
Speaker 1: what I'm called socializing loss The taxpayer will have to
Speaker 1: come up for a lot of them. There, that's what
Speaker 1: you're looking for, That's what I was looking for, folks.
Speaker 1: He's so delicate about it. Christian shows is a gentleman
Speaker 1: at Lisa This has been the conundrum for twelve years.
Speaker 1: Is it any creative destruction? However, you want to put
Speaker 1: a good morning, Mr Shape with great memories there. But
Speaker 1: I'll tell you, Lisa, all this is, and the wonderful
Speaker 1: language of socialized losses is when does the tax payer
Speaker 1: pony up? That's really what this is all about. And
Speaker 1: ultimately it seems like that will be the answer. But
Speaker 1: there's also a question what is the role of the
Speaker 1: central bank right in terms of making sure that financial
Speaker 1: markets function versus fiscal stimulus? Christian? Based on what you've
Speaker 1: seen the lack of coordination as we've talked about globally
Speaker 1: with between the central banks and in fiscal policymakers, what
Speaker 1: are you looking to add in terms of the European economy.
Speaker 1: Are we headed towards recession? Are we already there? How
Speaker 1: long will it last? It seems very difficult right now
Speaker 1: to avoid recession if you have the definition of two
Speaker 1: successive negative quarters, or even if we do avoid two
Speaker 1: successive negative quarters, we probably have as much decline in
Speaker 1: one quarter that we can call that recession by all means,
Speaker 1: So recession widening of the output gap, and you know,
Speaker 1: rising unemployment rates and these things, I think that would
Speaker 1: be inevitable. Of course, right now, the hope is still
Speaker 1: that we will have some form of V shape or
Speaker 1: U shape or any kind of recovery so that we
Speaker 1: get back to the levels that we had as output
Speaker 1: at the end of last year relatively quickly, in which case,
Speaker 1: you know, the you know, the socializing of losses and
Speaker 1: the liquidity support from the central bank can be temporary.
Speaker 1: But of course there's a big risk if we don't
Speaker 1: blood losses that we will get a permanent shock and
Speaker 1: the parablel shift in the in the GDP curve. Hugely informative.
Speaker 1: Christian Shills, thank you so much. In economics in Europe
Speaker 1: with City Group, just wonderful, the director of City Group
Speaker 1: Economics team, and we will pause. There is a small
Speaker 1: blue book of two shades of blue color put out
Speaker 1: right after Robert Frost took the part in the road
Speaker 1: and the gentleman from Amer's College, a physicist wrote a
Speaker 1: book where he talked about good and bad deflation. And
Speaker 1: as I've written, let's chart paragraph, chart paragraph, it's the
Speaker 1: Dheimens School of economics. Say something and show it. And
Speaker 1: we're honored on this truly historic day that Dr Shilling
Speaker 1: would join us kids can't say it. Folks by the
Speaker 1: book Deflation, read it and reread it every three years,
Speaker 1: Gary Shilling? Are we in good or bad disinflation? I
Speaker 1: think we're probably in bad uh and bad disinflation. What's
Speaker 1: the difference, Well, the addition edition is do you have
Speaker 1: do you have a high productivity which pushes down prices,
Speaker 1: you have access supply, or do you have deficient demand?
Speaker 1: And I think we're more in the deficient demand stage
Speaker 1: right now with particularly with the virus. I know DiCaprio
Speaker 1: has it rights to the book Deflation, but but if
Speaker 1: you were to write a new version of it, now,
Speaker 1: how do you full technology into that productivity and a
Speaker 1: good disinflation versus the bad disinflation? So many of our listeners, well,
Speaker 1: I think in the long run, product that we are
Speaker 1: going to see productivity blossom things like robotics, uh, artificial
Speaker 1: intelligence and so on when they get big enough to
Speaker 1: really drive productivity. But they're still in their infancy. They're
Speaker 1: not you know, they're growing a hundred percent a year
Speaker 1: or more, but they're not big enough. You have to
Speaker 1: really move the overall productivity needles. So I think in
Speaker 1: the meanwhile, particularly when we're looking at the at the
Speaker 1: virus and the effect. Right now, it's more the it's
Speaker 1: more of the bad deflation. The e t F sp
Speaker 1: X breaks down, Paul, we're now down seven point one percent.
Speaker 1: We just touched new weakness there for the morning below
Speaker 1: the lockdown of negative one forty on smp futures. Deutsche
Speaker 1: Bank just as a European proxy from a five point
Speaker 1: five zero to a five point four three. Where's the
Speaker 1: euro right now? One sort of hunched as well, Paul
Speaker 1: Sweeney would be great, Gary showing So Gary, what I
Speaker 1: think people are trying to get a sense of is
Speaker 1: they try to put into context what's happening over the
Speaker 1: past couple of weeks with this coronavirus. Is trying to
Speaker 1: put this crisis in context with maybe two thousand eight.
Speaker 1: How do you compare the two Well, two thousand and
Speaker 1: eight was of course a big bubble, it was a
Speaker 1: it was a subprime mortgage. It was really a collapse
Speaker 1: in the housing factor. Right now, what we're what we're
Speaker 1: dealing with was an economy of the world which are
Speaker 1: slow and slowing now. Of course the stock bowls are
Speaker 1: going to claim it everything was just hunky dory until
Speaker 1: the virus came along, but that it was that that's
Speaker 1: not true. It really isn't. I don't care. I was
Speaker 1: on tripley. I read your newsletter, all right, but but
Speaker 1: you but you look at you look at job openings,
Speaker 1: you look at ways increases and so on. They all
Speaker 1: were really slipping. And of course China, China has been slipping.
Speaker 1: So the point is when you take a slow and
Speaker 1: slow slowing economy and then you create this shock of
Speaker 1: the coronavirus, that's what tips it into recession in my view,
Speaker 1: And is this kind of I guess we're past the
Speaker 1: discussion point of maybe a v shaped recession because obviously
Speaker 1: now it's appears to be more pandemic, this concern and globally,
Speaker 1: how do you think this is gonna play out? Because
Speaker 1: we're already starting to see China get back to work, um,
Speaker 1: And so there was a two to three month type
Speaker 1: of situation. Do you expect that kind of timing here
Speaker 1: for the rest of the world. Well, I mean you
Speaker 1: do have a lag situation. I mean, first of all,
Speaker 1: China has a very different situation. They deny that it existed,
Speaker 1: and then of course then they locked down everything. You
Speaker 1: can do that with the top down society. You can't
Speaker 1: do that in the West. So things are much more
Speaker 1: stretched out, and they want them stretched out because they
Speaker 1: haven't got enough hospital besify if they wanted the whole
Speaker 1: thing to to to peek immediately, h but then to
Speaker 1: re establish the supply change and you know, we're in
Speaker 1: a change world now. I think that the globalists, the
Speaker 1: Davos crowd, are on the way out. They have are
Speaker 1: you looking at me like that? They have to see
Speaker 1: we did that happen for years? Do I look like
Speaker 1: the doors bow tie for you today? Because it was
Speaker 1: man of you know, western Massachusetts. You know, it's a
Speaker 1: it's a you know but but but the point is
Speaker 1: that this is a nail on the coffin of the
Speaker 1: of the globalists, the Davos crowd, and and it's really
Speaker 1: a threat to globalization because now you say, you look
Speaker 1: at drugs, where do we get your nary drugs? Will
Speaker 1: get them from China? And you say, wait a minute,
Speaker 1: this is this is uh, this is is not only
Speaker 1: sell sufficiently, this is uh, this is defense protection, this
Speaker 1: is this is national security. And I think we're gonna
Speaker 1: have I think this is really going to change and
Speaker 1: of course that's where Trump has been all along. He's
Speaker 1: blamed everything on on immigration and imports, and it just
Speaker 1: sliper reinforces that whole feeling. So I think we're in
Speaker 1: a very very changed Worland. It's gonna take a long
Speaker 1: time for this to get reorganized. Five minutes to the Guard,
Speaker 1: five minutes to the Guard. So so do you are
Speaker 1: you forecasting a recession in and if so, how deep
Speaker 1: do you think it could be? Oh? Yeah, I think
Speaker 1: we're probably you know, you never know where you are
Speaker 1: until you get all the data and the revisions in,
Speaker 1: but we probably are in a recession already, and I
Speaker 1: think it could. I think it could be deep. Probably
Speaker 1: not as deep as the as a sub primorias collapse
Speaker 1: real GDP decline four points h two porcent, then maybe
Speaker 1: it's more like a three percent decline, but it could.
Speaker 1: It could be stretched out. Do we clear markets? Christian
Speaker 1: Shoals was brilliant with City Group moments ago from just
Speaker 1: the Great, great Great European economists by talking about socializing losses.
Speaker 1: You and I remember Paul's too young to remember, Continental Illinois,
Speaker 1: where we socialize losses over like what three cups of coffee,
Speaker 1: they went under, We got over it, we moved on.
Speaker 1: Was essentially we don't do that anymore, do we? Well,
Speaker 1: maybe not, but relative to Japan, we're doing let's put it. Okay,
Speaker 1: I'll take your point. Are you going to write a
Speaker 1: newsletter this week when you're done take petting and bees
Speaker 1: where you're gonna you're gonna talk about the Japanification of
Speaker 1: Europe and now the Japanification of Missouri. Well, I I
Speaker 1: think I think we're you know there, that is, that
Speaker 1: is a good point. But but I, you know, I
Speaker 1: mean the socialization of debt. Of course, if you if
Speaker 1: you get Bernie Sanders in there, you don't worry about
Speaker 1: it's all. It's all socialized. But but yeah, there's there's
Speaker 1: probably more of that. But I think what's probably gonna
Speaker 1: happen here is we're going to get massive fiscal stimulus.
Speaker 1: You know, you're no longer have any impediment to uh
Speaker 1: two devasits that one out that's called modern monetary theory.
Speaker 1: You know, theory always follows facts. You get the facts,
Speaker 1: then you get the theory and the ideas. You have
Speaker 1: big devasits. Interest rates come down so it don't matter.
Speaker 1: So that pediments, so we're gonna get I think big similars,
Speaker 1: but it takes two or three years for that to
Speaker 1: actually get spent. One more question, and then we got
Speaker 1: to let you go because we had to get back
Speaker 1: to the markets before Karen Moscow gives us the full
Speaker 1: day to check and all that. And then Christine Laguard
Speaker 1: in an historic moment, what would you suggest as the
Speaker 1: best practice right now for Chairman Paul fade back in punt.
Speaker 1: I don't think. I don't think that the FED makes
Speaker 1: much difference. Lower interests, Donald Trump, lower interest rates are
Speaker 1: not going to get supply change reestablished. They're not going
Speaker 1: to get people getting out of their their their bomb
Speaker 1: shelters and going out and spending. UM, I don't think
Speaker 1: it makes much difference. I got about fourteen more questions
Speaker 1: that were no more time, Gary showing thank you so much,
Speaker 1: really honored to have you here on this historic day.
Speaker 1: I'll get out on Twitter and LinkedIn, folks. I really
Speaker 1: can't say enough about a seminal book of what when
Speaker 1: that book come out forty two years ago, and you
Speaker 1: know I was frost I think amous just from what
Speaker 1: I remember anyways, the book deflation, I can't say enough
Speaker 1: about it as a primer on good and bad deflation
Speaker 1: and Paul you here Dr Schilling parts there that strange
Speaker 1: word productivity. Watch you this moment with a VIC sixties
Speaker 1: seven point seven six up fourteen big figures. Is Marcus Ashworth.
Speaker 1: We had him on earlier in the hour and we're
Speaker 1: honored that he could come back to us as well. Marcus,
Speaker 1: what I see as a parsing of bankers helping the
Speaker 1: credit markets in a credit liquidity even a solvency crisis,
Speaker 1: and am I right ignoring the equity markets? Is that
Speaker 1: how it works? Well? Funny to say that I'm just looking,
Speaker 1: I'm listening to Christine Legard. I'm I'm actually slightly wondering
Speaker 1: why I'm bothering. Um, I'm quite close to the window,
Speaker 1: but thankful it's it's solid glass so I can't shot back.
Speaker 1: But that was that we did that without the surveillance.
Speaker 1: You have to thank PARSWENI and John Ferrell did that.
Speaker 1: Be sure there's no open window with the top market
Speaker 1: is just absolutely collapsing as um. You know, we were
Speaker 1: listened to Christine Garteller's that she's going to use all
Speaker 1: the flexibilities you can do the X and Y and
Speaker 1: Z there, but no literally no one cares. Um. You
Speaker 1: mentioned Deutsche Bank earlier. I just kind of mentioned that
Speaker 1: they didn't call a perpetual bond yesterday. Um, that bond
Speaker 1: is now training. It's below seventy cents in the dollar,
Speaker 1: and that is an extraordinary thing if you think about
Speaker 1: and it is a perpetual bond, and you know, not
Speaker 1: read too much into it. It It was at ninety four
Speaker 1: before they announced that decision. It's now down twenty five
Speaker 1: points since then. So just to put it into context
Speaker 1: of what's happening out there at the moment, you know,
Speaker 1: we're worrying about liquidity and the treasure market, like seriously
Speaker 1: worrying about whether or not there the US treasure and
Speaker 1: the most liquid market in the world is actually fit
Speaker 1: for purpose. And we've got a create clear decision with
Speaker 1: the UFA Central Bank that rates can for. Marcus have
Speaker 1: got to interrupt because this dovetails beautifully with two brilliant people,
Speaker 1: Marcus Ashworth and a guy named Gartman down in Virginia.
Speaker 1: Dennis Gartman brings up the S word, which is the
Speaker 1: distance from liquidity to solvency. To make that distinction, Marcus Ashworth,
Speaker 1: how do you define liquidity where we are now versus
Speaker 1: worries of solvency, Well, it's it's a return of role
Speaker 1: than return on the capital. And I think that's exactly
Speaker 1: what we're looking at in certain entities now. It's certainly
Speaker 1: very excellent companies in certain ways, and our trading literally
Speaker 1: as if they are in distress and mildly trouble. Companies
Speaker 1: are trading in in profit distress. And that's something which
Speaker 1: is going to think an awful long time to sort out.
Speaker 1: Look not to the two fun point here, Tom, The
Speaker 1: simple point here is the world is looking now the
Speaker 1: United States. You guys have got to do something big
Speaker 1: and soon. I think market is expecting a said right cut,
Speaker 1: possibly eaten today, another big one, and we really really
Speaker 1: need something out of the White House with Congress Marcus.
Speaker 1: Thank you so much again, Just very kind of you
Speaker 1: to stay with us. Thanks for listening to the Bloomberg
Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keane Before the podcast, you can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio