Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Let's
Speaker 1: focus on the economic it's a huge effort coming from
Speaker 1: the monetary policy side and the fiscal side as well.
Speaker 1: Phone again, I'm pleased to say, is Katherine Man, City
Speaker 1: Global Chief Economist. Katherine. This is about speed. Now, how
Speaker 1: quickly can this bill get to the President's desk and
Speaker 1: how quickly can that bill turn into real capital that
Speaker 1: gets injected into this economy. Are you hopeful we can
Speaker 1: do a lot of that quickly. Well, I think we
Speaker 1: can get the bills to the desk and so forth,
Speaker 1: and it can get sign But it is really about
Speaker 1: getting the financing out to the part of the economy
Speaker 1: that is desperate in need of it. Um. You know,
Speaker 1: there's fifty of the economy that does not UM doesn't
Speaker 1: borrow through bonds or through equities, and of the economy
Speaker 1: both the businesses and the workers. Those are the parts
Speaker 1: that I really worry about because it's much more difficult
Speaker 1: to get money to them. And if and if they
Speaker 1: are if businesses go bankrupt, if the workers become unemployed,
Speaker 1: then it's going to be very difficult to get to
Speaker 1: a rebound that a lot of people are forecasting to
Speaker 1: the economy in the second half. You cannot get to
Speaker 1: a strong rebound. Uh, that's gonna pull the economy out
Speaker 1: of procession unless you can keep those the lights on.
Speaker 1: At the of the economy book, the businesses and the workers,
Speaker 1: neither one of them have cash buffers. NATH is really
Speaker 1: really difficult. Le's get a read on the second half
Speaker 1: of this year. And I totally agree with you, and
Speaker 1: I'm sure many people listening to this program due to
Speaker 1: So let's try and assess the damage we're doing to
Speaker 1: the globe economy, the U S economy. Right now, we
Speaker 1: had a really ugly jobless claim sprint yesterday. Are you
Speaker 1: saying it could get a whole lot worse from hire
Speaker 1: but for it gets better? Thus, the general view is
Speaker 1: that it will get worse before it gets better. And
Speaker 1: the point is that we would that we would like
Speaker 1: to not have it get as bad as it could.
Speaker 1: I mean, in some sense, Uh, they're the numbers could
Speaker 1: be much much higher because the services component of the
Speaker 1: economy much more labor intensive, much more smaller business intensive.
Speaker 1: And so you know, saving the big corporate obviously that
Speaker 1: that's relevant for the stock market. That's that is a
Speaker 1: component of the of the fiscal plan. It's a very
Speaker 1: big component of the federal reserve program as well. But
Speaker 1: you know the rest of the economy, the half of
Speaker 1: the economy that is not in that category, the businesses
Speaker 1: and the workers, those are the essential ones that we
Speaker 1: have to have maintained in business ready to go when
Speaker 1: the when the virus finally dissipates. Catherine dr Fauci talks
Speaker 1: about the aspirations of the president to get back to work.
Speaker 1: I'm not going to ask a game Easter April twelve,
Speaker 1: but when do you suggest America as any sense of
Speaker 1: normal g d P. Let's just say a zero percent value.
Speaker 1: I mean, is it a two thousand twenty event or
Speaker 1: do you have to be grimmer than that and go
Speaker 1: out further? So the the our our U S economist
Speaker 1: does have the year over year at growth rate in
Speaker 1: at negative point five U. But the trajectory moves UH
Speaker 1: the U S economy back into positive territory um by
Speaker 1: the end of the year. So so if if in fact,
Speaker 1: we can keep going uh keep the lights on at
Speaker 1: the economy and keep those people uh the workers balance
Speaker 1: sheets uh sane and that, then that's what the OA
Speaker 1: some of these programs are is to keep the households
Speaker 1: from going into the deep, deep pole that they went
Speaker 1: in the global financial crisis. But you're going to tell
Speaker 1: me the consumer. I don't know what the income shares
Speaker 1: in the United States, but it's a huge number. To
Speaker 1: John's point, is this just a starting point? I mean,
Speaker 1: are we talking about twelve and fourteen trillion dollars of
Speaker 1: stimulus to get us out to the city group trajectory
Speaker 1: months and months away. I don't you know. It's it's
Speaker 1: it's about to make to my view, it's it's the
Speaker 1: money matters, of course, but it's also the speed. The
Speaker 1: point is is if if if we can't keep the
Speaker 1: businesses in business and the worker balance sheets uh sane
Speaker 1: uh stable, then the recession gives is deeper, and once
Speaker 1: the recession gets deeper, it's much more expensive and hard
Speaker 1: to get out. So the reason we need to go
Speaker 1: move fast to get the money out to the to
Speaker 1: the businesses and the workers is because if they if
Speaker 1: they go bankrupt, if the workers go on un employment conversation, UH,
Speaker 1: if their balance sheets get messed up because you know
Speaker 1: they don't they don't have enough money to to pay
Speaker 1: the rent, to feed the family, then then the recession
Speaker 1: is deeper. And once you're into the hole, then it's
Speaker 1: much more expensive to get out. And you know, your
Speaker 1: death sustainability, there are people out there who worry about
Speaker 1: such things. Uh, your death sustainability is also at risk.
Speaker 1: So do it now, do it fast, do it big,
Speaker 1: do it fast and big well, do it fast is
Speaker 1: sort of anathema to Congress. And we're seeing that we're
Speaker 1: seeing the move at lightning speed, and yet they still
Speaker 1: haven't gotten it passed. And once they get it past,
Speaker 1: it's unclear when they can get the checks in the
Speaker 1: mail and when they can actually get the SBA up
Speaker 1: and running and giving those loans. Is a fact going
Speaker 1: to be doing the heavy lifting here. So I think
Speaker 1: one thing is it said that there's uh, there's uh.
Speaker 1: Part of the discussion is on UM getting the financial
Speaker 1: institutions directly into connection with firms and and and UH
Speaker 1: bypassing the s p A UH the SBA has got
Speaker 1: a different timetable usually for what they do. And so
Speaker 1: the objective is to to have the financial institutions go directly,
Speaker 1: have firms come directly to the financial institutions, uh, and
Speaker 1: not have to go through the SBA process because the
Speaker 1: feed is of the essence. As I say, most of
Speaker 1: those businesses they have a cash flow buffer of maybe
Speaker 1: a month, maybe less than a month. We're already two
Speaker 1: or three weeks into this, so uh, you know when
Speaker 1: they say I have to let you go, I have
Speaker 1: to close my business. But by the way, I've been
Speaker 1: told to close my business, and and you know you
Speaker 1: have you have a payroll, You can't you don't have
Speaker 1: any cash buffer. So we have to yeah, keep those
Speaker 1: companies going. Well. I guess the reason why I say,
Speaker 1: is the FED taking the focus here because they're supporting
Speaker 1: the financial markets because that is the transmission of credit
Speaker 1: that's much more efficient than trying to go through some
Speaker 1: of the governmental agencies that from from a number of
Speaker 1: reports have been understaffed. Even I'm just wondering what that
Speaker 1: means for the Fed's power going forward. I mean, they
Speaker 1: already have taken some unprecedented measures, how much more are
Speaker 1: they going to do in taking the front role here,
Speaker 1: So you're right there. The you know, the financial system
Speaker 1: is the mechanism through which you get credit, but the
Speaker 1: Federal Reserve is also taking on this role of Um.
Speaker 1: You know, it's a policy put on every part of
Speaker 1: your portfolio. You know, you got some funds, you know,
Speaker 1: you've got treasuries. Uh, you know, and you get the
Speaker 1: only very little bit that the Fed is it is
Speaker 1: going to go out there and buy. So you know,
Speaker 1: as I say, it used to be a policy put
Speaker 1: on the treasuries. Now it's the entire entire portfolio. So
Speaker 1: there's some I think going, You've got to do that
Speaker 1: now I know that. But if I think that, uh,
Speaker 1: it reduces the power of the Fed going in the
Speaker 1: longer term because it ties its hands, because you end
Speaker 1: up with a problem of how do you do monetary
Speaker 1: policy normalization when you've got everything on your balance sheet? Um,
Speaker 1: it makes it very difficult to to to be the
Speaker 1: arbiter of monetary policy normalization. We're thinking about this way
Speaker 1: out in the future. It's not something we should think
Speaker 1: about now. But but you know, in the back of
Speaker 1: your mind you're gonna say, you know, I'm all in here, Um,
Speaker 1: how do I get out? Catherine Man, great you Thos
Speaker 1: this morning special thanks to you in the same over
Speaker 1: a city city global chief economists, A policy put on
Speaker 1: every part of your portfolio. It felt that way for
Speaker 1: much of this weight. We'll talk about it a little
Speaker 1: bit later on this program. We would like to welcome
Speaker 1: Propert Capitlan to Bloomberg Television and Radio worldwide. Thank you
Speaker 1: for joining us this morning. Obviously only one time to
Speaker 1: be here. Everybody's minds. The House expected to pass the
Speaker 1: fiscal stimulus bill this morning, and then I guess you'll
Speaker 1: be in business. But what business is that going to be?
Speaker 1: The Treasury could give you as much as four billion
Speaker 1: dollars from this bill, which could leverage up to four
Speaker 1: point five trillion dollars. Even for an old Golden Sacks
Speaker 1: guy like you. That seems like a lot of money. Yeah,
Speaker 1: I mean. The key, the key to uh, the proposal
Speaker 1: from the Fed point of view is there's a number
Speaker 1: of special purpose vehicles that are being created to implement
Speaker 1: these programs to buy assets from commercial paper to asset
Speaker 1: backed securities, to corporate bonds to municipal commercial paper, and
Speaker 1: so each of these special purpose vehicles requires approximate ten
Speaker 1: billion dollars to seed, and so UH the money from
Speaker 1: from the bill will be used to see these various
Speaker 1: programs that we've already announced. The bill also suggests to
Speaker 1: new lending programs from the FED, one for companies and
Speaker 1: one for the small business or the main street lending
Speaker 1: program that you guys talked about. What's the difference between
Speaker 1: the two. What is the main street program? Well, it's
Speaker 1: the details is still being worked out. That The long
Speaker 1: and the short of it is, UH, we would help
Speaker 1: lend to small businesses, but we would do it through
Speaker 1: most likely through commercial banks, but we will provide credit
Speaker 1: support to those banks so that they can h they
Speaker 1: can step forward and make loans that that that are
Speaker 1: that are appropriate, but they can do it with confidence
Speaker 1: that they have credit support. That program is still being
Speaker 1: developed and we're still working on the details of that
Speaker 1: well still being developed. The need is immediate. How soon
Speaker 1: do you think you can start getting cash to companies?
Speaker 1: I we I would think very quickly. UH. I've been
Speaker 1: careful to avoid setting exact timetable, but you can be
Speaker 1: sure that we're working furiously here at the FED to
Speaker 1: UH to put the team to have the teams in
Speaker 1: place and work out the details and get those programs ready,
Speaker 1: and you can have confidence that we will do that.
Speaker 1: You're also going to have the ability to lend to
Speaker 1: states and cities. Give me an idea of how that
Speaker 1: would work. Well, primarily, Uh, we we've already announced UH
Speaker 1: that we will be buying through another special purpose vehicle,
Speaker 1: the commercial paper of cities and states municipalities, and that
Speaker 1: program is already a well underway in terms of being formed. UH.
Speaker 1: And it's going to be primarily through the purchase of
Speaker 1: the commercial paper that's issuance that's issued. Some of this
Speaker 1: lending seems to put monetary policy squarely in the fiscal camp.
Speaker 1: How do you feel about that? Uh, in this environment,
Speaker 1: it's necessary in that UM, while it's unusual and a
Speaker 1: number of these authorities are unprecedented, I think we I
Speaker 1: think it's critical that we adapt to the reality on
Speaker 1: the ground and we adapt to the challenge, and that's
Speaker 1: what we're doing. So I think it's it's in this situation,
Speaker 1: it's quite appropriate. Can you get out of this when
Speaker 1: it's all over, Yes, I mean, we'll obviously have to
Speaker 1: work on how to do that. All that in an
Speaker 1: appropriate way. But but yes, I I believe. I believe
Speaker 1: that we will. Everybody understands our country understands this is
Speaker 1: an unusual time. And the reason we're implementing these programs
Speaker 1: is these either municipalities or businesses or other entities don't
Speaker 1: have cash flow because we've asked them to shut down.
Speaker 1: Once they're up and running again and they have their
Speaker 1: own cash flow, UH, it will be able too, I
Speaker 1: would think withdraw from some of these programs. But in
Speaker 1: the void, we want to make sure that these small businesses,
Speaker 1: big larger businesses, medium sized businesses, and municipalities continue to function.
Speaker 1: And I think that's critical as we as we do
Speaker 1: the things we need to do to social distance and
Speaker 1: quarantine in some cases in order to defeat this virus.
Speaker 1: A trillion here, a trillion there, to paraphrase Everett Dirks.
Speaker 1: And you start to talk about real money, might billion
Speaker 1: at the time, because when you when you look at
Speaker 1: that kind of real money going into the economy, do
Speaker 1: you worry about inflation? Uh so some right now I
Speaker 1: would call what we're doing into the category of quote
Speaker 1: unquote relief, meaning, uh, this is intended to keep uh.
Speaker 1: All the bills, including the fiscal bills are to keep
Speaker 1: individuals functioning and being able to pay their bills, small
Speaker 1: businesses functioning, municipalities functioning, larger businesses functioning, so that when
Speaker 1: the virus is defeated, we can walk and then we
Speaker 1: can run, and then we can sprint out of this.
Speaker 1: UH and so um UH in that regard, I don't
Speaker 1: know how inflationary it will be, because it's more relief
Speaker 1: than stimulus. I think a lot of the forces, unfortunately
Speaker 1: on the other end, as we come out of this,
Speaker 1: might in fact be deflationary, and that we're likely to
Speaker 1: have a spike in the unemployment rate. We will work
Speaker 1: that down, will have more excess capacity. I think a
Speaker 1: number of those forces actually will be deflationary. We're speaking
Speaker 1: with Robert Taplan, the Dallas Fed Bank President, on BLUEBIRG
Speaker 1: radio and television. UH. One of your colleagues, speaking of unemployment,
Speaker 1: says we could see and decline in GDP in the
Speaker 1: second quarter. What kind of numbers do you see? So
Speaker 1: our our forecast to the Dallas Fed is is not
Speaker 1: on that scale, and that UM, we think you'll see
Speaker 1: a substantial contraction in the second quarter. Our own estimates
Speaker 1: is it won't be. Uh, it won't be that big,
Speaker 1: but it will be, but it could be in the
Speaker 1: twenties in our view on an and and just to
Speaker 1: point out on an annualized basis, it will be in
Speaker 1: the twenties. And we can have some decline also at
Speaker 1: least in the first part of the third quarter. And
Speaker 1: our own internal forecast here at the Dallas said, as
Speaker 1: you could see the unemployment rate peak in the low
Speaker 1: to mid teens, but we would expect that would quickly,
Speaker 1: um be would quickly decline. We would hope to something
Speaker 1: like seven or eight percent by the end of the year.
Speaker 1: And then we'ld have to spend working that unemployment right down. Uh,
Speaker 1: but we'll have an elevated level of unemployment for sure.
Speaker 1: As as we come out of this, well, do you
Speaker 1: see a v shaped recovery of you just be a
Speaker 1: very long slow recovery. I listen, everything we're doing, uh,
Speaker 1: and that and and and in addition to fiscal response,
Speaker 1: is all with the intention that once this virus is defeated,
Speaker 1: we will move forward as expeditiously and quickly and strongly
Speaker 1: as possible. The thing that that I don't know and
Speaker 1: we'll have to see as we go UM is what
Speaker 1: will be the effect on small businesses? And I've talked
Speaker 1: I talked to lots of small businesses as well as
Speaker 1: larger businesses. You know, a lot of small businesses may
Speaker 1: come out of this either smaller. Some small businesses may
Speaker 1: conclude that they don't want to continue to operate out
Speaker 1: of this UM given their businesses were not as strong
Speaker 1: even going into this UH and bigger businesses are going
Speaker 1: to have to assess how much demand do they have,
Speaker 1: what's the size of their business? UM and and rescale
Speaker 1: and reconfigure what they're doing and so UM and then
Speaker 1: the consumer behavior, we're gonna have to learn what consumer
Speaker 1: behavior is on the other side of this. I would
Speaker 1: think consumers and we think of it elas that consumers
Speaker 1: are liable to be more cautious, may well save more.
Speaker 1: You can understand why UH and UH and and they're
Speaker 1: spending habits maybe a little bit different than they were,
Speaker 1: and they'll have a higher unemployment rate. So I think
Speaker 1: these are all things that it's a little too soon
Speaker 1: to gauge, but we're gonna We're gonna climb out of this.
Speaker 1: It's just a question of how fast do we go
Speaker 1: again from walking to running to sprinting and uh, and
Speaker 1: we're still trying to come to groups with that question, well,
Speaker 1: what are you seeing in Dallas in the Dallas district?
Speaker 1: What are companies telling you they're about their prospects. So
Speaker 1: we're hearing a lot of things, but I think that
Speaker 1: we're hearing around the country for small businesses, they're worried
Speaker 1: about survival UM and and that's probably true of even
Speaker 1: small and medium sized businesses where they've just never they've
Speaker 1: they've mapped a lot of areas, but never mapped the
Speaker 1: scenario where literally they were asked to shut down, a
Speaker 1: revenue just stopped. And so there's a lot of great concern,
Speaker 1: particularly among small businesses about whether they can make it
Speaker 1: to the other side, even with the loan assistance that
Speaker 1: we're talking about. For even bigger businesses, detaining on what
Speaker 1: industry and they're in, we're also having the same discussion
Speaker 1: in that UM they're just trying to assess how long,
Speaker 1: how to how to manage their people, how to protect
Speaker 1: their people, but also how to manage their business during
Speaker 1: a period where their revenue is dramatically declined and and
Speaker 1: great concern and in particular, which is what we're working
Speaker 1: on we'll have availability of capital. UM. The big, the
Speaker 1: big other issue we deal with in Texas that most
Speaker 1: states are not is energy. We had, in addition to
Speaker 1: the coronavirus, an unprecedented energy shock that happened about two
Speaker 1: or three weeks ago with Saudi and UH and Russia.
Speaker 1: Is so from the coronavirus, we were going to be
Speaker 1: globally oversupplied on energy to begin with. And the Russia
Speaker 1: UM saw they dispute UH and and desire to pump
Speaker 1: even more makes this oversupply even worse. So we have
Speaker 1: a dramatic global oversupply issue for oil, which is dramatically
Speaker 1: hurt the price of oil. And so you're gonna see
Speaker 1: lots of restructuring, some failures, and lots of challenges in
Speaker 1: the Permian basin. And we think we think the Permian
Speaker 1: will actually shrink this year. We thought it would before
Speaker 1: this happened, we thought it would grow more slowly. Now
Speaker 1: we actually think the production from the Permian basin is
Speaker 1: likely to shrink. And the only reason you won't see
Speaker 1: it shrinking faster is some of these firms have forward
Speaker 1: commitments to sell their product. But as those laps, you'll
Speaker 1: see a shrinkage across the industry. The last question, as
Speaker 1: everybody looks to the Federal Reserve to sort of pull
Speaker 1: us out of this, what's your message to people who
Speaker 1: maybe saw Chairman Powell yesterday say we're probably in recession now, Well,
Speaker 1: the messages, we knew we were going to be in
Speaker 1: a recession. We've it's a self mandated recession. It's a
Speaker 1: different kind of recession. Normally, recessions are things we want
Speaker 1: to we we avoid at all costs, or we avoid.
Speaker 1: This is a recession that we've induced. We needed to
Speaker 1: do this in order to fight this virus. Having said that,
Speaker 1: we were strong before we went into this, and we
Speaker 1: believe we've got a great chance to come out of
Speaker 1: this very strong. But everything, the messages, everything the Federal
Speaker 1: Reserve is doing, and in addition, all the fiscal responses
Speaker 1: that you're seeing are with the intention of as we
Speaker 1: as we defeat the virus and we climb out of
Speaker 1: this situation, we do it as strong as possible and
Speaker 1: increase the probability that we're going to be uh uh.
Speaker 1: We'll have a new normal as we come out of this.
Speaker 1: But we'll come out of this strong and we'll get
Speaker 1: stronger as we end this year and go into next year.
Speaker 1: Dallas Fed President Robert Caplan, thank you so much for
Speaker 1: joining us this morning. Stay safe down there in Texas.
Speaker 1: We would like to welcome the Atlanta Fed Bank President
Speaker 1: Robai Albostic to Bluebrick Television and Radio worldwide. Thank you
Speaker 1: for joining us this morning. Um. How expected to pass
Speaker 1: the fiscal Stimulus Bill, then you get lots of money
Speaker 1: from the treasury according to the bill. Uh, what is
Speaker 1: the plan the main street lending program that you talked about,
Speaker 1: what is that going to be? Well, first of all,
Speaker 1: good morning, Mike, it's good to be on with you,
Speaker 1: and good morning to everyone. Oh, just to provide some context,
Speaker 1: you know, coming out of this crisis or coming into
Speaker 1: the crisis. But we saw with a lot of financial
Speaker 1: mortgage really trying to break down in terms of their funding,
Speaker 1: and so we announced a number of facilities that we're
Speaker 1: going to be designed to help those markets function more smoothly.
Speaker 1: And a lot of the funding and the bill is
Speaker 1: really oriented towards providing the backstop, so that we can
Speaker 1: do that in an appropriate way that that meets with
Speaker 1: our authorities. The main street Lending program is another one
Speaker 1: of these UM that has been designed to really try
Speaker 1: to help small businesses is you know, many small businesses
Speaker 1: don't have an extended buffer to UH to weather weeks
Speaker 1: of not having revenues, and so they're under a lot
Speaker 1: of stress. And so the way the program is conceived
Speaker 1: conceptually is to provide them with the bridge that allows
Speaker 1: them to UH to really stay in business, keep their
Speaker 1: employees on board and UM and get us to the
Speaker 1: other side of the program UM, the other side of
Speaker 1: the crisis. This hasn't fully been worked out, and you know,
Speaker 1: I've been on calls pretty much continuously for the last
Speaker 1: two days trying to work through all the little details.
Speaker 1: There's a there's a lot. As you know, this is
Speaker 1: quite unprecedented for the FED, a reserved to be trying
Speaker 1: to do this. So we want to make sure we
Speaker 1: do this right in a way that doesn't lead to
Speaker 1: problems down the road, but also in a way that
Speaker 1: that gets the money out as quickly as possible. Well,
Speaker 1: how do you do that? Do people line up outside
Speaker 1: the Atlanta FED with loan applications or how's this going
Speaker 1: to work? Well, the end of the FED doesn't typically
Speaker 1: do direct lending like that. Uh, My expectation is that
Speaker 1: this will work through the bank institutions that already have
Speaker 1: relationships with many of the businesses that are going to
Speaker 1: be needing to support. So, you know, we're already working
Speaker 1: with small businesses with banks to to address some of
Speaker 1: the small business constraints. We're encouraging them to think about
Speaker 1: modifying some loan terms, differring requirements or principle and interest
Speaker 1: on those loans, extending those terms as well, all with
Speaker 1: the idea of trying to douced the current time pressure
Speaker 1: that these businesses are facing. So so we're going to
Speaker 1: do more with the banks is my expectation. And uh
Speaker 1: and I look forward to being able to announce this
Speaker 1: as as soon as possible. How soon do you think
Speaker 1: that is? I mean, the need is immediate. You walk
Speaker 1: down the street anywhere and you just see the store
Speaker 1: after store shuttered. Well, you know, there's been a lot
Speaker 1: of focus on small businesses laying awful lot of of
Speaker 1: their workers. But you know, we're doing a lot of
Speaker 1: surveys here in the sixth district in the southeast, and
Speaker 1: one thing that that has been heartening is that many
Speaker 1: of these businesses have been saying we're going to try
Speaker 1: to hold on as long as we can. We're not
Speaker 1: going to make any permanent decisions about our staff or
Speaker 1: our operations until we see the full range of support
Speaker 1: that's happened. I think the bill that is being going
Speaker 1: through Congress right now is a good first step to
Speaker 1: do that. And UH we are going to work with
Speaker 1: this lending program to make sure that we get this
Speaker 1: out in time. We fully understand that time as of
Speaker 1: the essence here, and we're going to do all we
Speaker 1: can to make sure that we're not late. With this support,
Speaker 1: you'll also have the ability to lead more UH to
Speaker 1: states and cities. How does that work? Is this just
Speaker 1: the program that you've announced their do you expand that? Well?
Speaker 1: You know, one thing I would say is we're gonna
Speaker 1: want wait and see. We're gonna watch how these markets
Speaker 1: operate and see whether there are segments of the market
Speaker 1: that are not still working close to where they were
Speaker 1: under more normal times. And if we decide and determine
Speaker 1: that those those those segments are not working well, we'll
Speaker 1: look to set up other facilities to support them. For now,
Speaker 1: what we're seeing with the facilities that we've set up, though,
Speaker 1: is that many of the tensions and stresses that have
Speaker 1: that we're rocking the market. A couple of weeks ago,
Speaker 1: seem to be moving in the other direction, which is
Speaker 1: quite positive. But we're going to remain diligent to make
Speaker 1: sure that as time passes, if things do start to
Speaker 1: MAETERI it again, we are going to be ready to
Speaker 1: step in and try to provide whatever support we can.
Speaker 1: You mentioned that some of the businesses in your district
Speaker 1: are relatively optimistic or at least want to try to
Speaker 1: be about staying around. But I'm wondering about UH cities
Speaker 1: and states. You've got a couple of the poorer states
Speaker 1: in your district, and there's been a lot of concern
Speaker 1: about shrinking revenues because they're not collecting any taxes at
Speaker 1: that at this point, how bad is that situation. Well,
Speaker 1: we don't know for sure right now, And I would
Speaker 1: take two things on this. One. I think that we're
Speaker 1: going to see our coming together in the public sector
Speaker 1: to make sure that every jurisdiction, UM at the state
Speaker 1: and at the city level, is able to get through
Speaker 1: this crisis and still be functioning at the end. But
Speaker 1: the second, which is another important thing, is that UM,
Speaker 1: this is a public health crisis. This is actually quite
Speaker 1: different than some of the economic disruptions that we've seen
Speaker 1: in the past, And as a consequence, I think there's
Speaker 1: the possibility that once the public health crisis has gotten
Speaker 1: under control and we don't have that issue anymore, the
Speaker 1: economy may rebound actually quite robustly. And uh, you know,
Speaker 1: the Chair said yesterday on the news that the economy
Speaker 1: started in a good place, and I think that's exactly right,
Speaker 1: and that's something that we all should keep in mind.
Speaker 1: And the goal for almost all of these projects and
Speaker 1: programs is to try to make sure that when we
Speaker 1: get on the other side of this, the economy is
Speaker 1: as close to that place as it as possible, so
Speaker 1: that when recovery and and and health is not a
Speaker 1: major concern, the economy can really start kicking back on
Speaker 1: all the cylinders and running quite strongly. So my hope
Speaker 1: is that if we do the responsible things and take
Speaker 1: care of our public health problem, that the economy can
Speaker 1: rebound and some of the short falls that you're talking about, uh,
Speaker 1: wind up not being as as deep as as they
Speaker 1: could be. Well, how bad do you think the short
Speaker 1: fall could get? What is the Atlanta fantasy in terms
Speaker 1: of unemployment in terms of GDP going forward. So, you know,
Speaker 1: it's it's interesting. I've talked to my macro forecasters and
Speaker 1: what they tell me is that, you know, in this
Speaker 1: environment where we've had basically an induced UH contraction of
Speaker 1: a sharp contraction, that forecasts are really difficult to do.
Speaker 1: And so we're definitely expecting GDP for the second quarter
Speaker 1: to be close to zero. Are for the first quarter
Speaker 1: close to zero, second quarter definitely negative, But then the
Speaker 1: third quarter there's really sort of an open question as
Speaker 1: to how quickly we get the the public health crisis,
Speaker 1: this coronavirus spread under control UH. And among my forecasters,
Speaker 1: you know, there's the beta whether we'll start to see
Speaker 1: that in early and third quarter, middle of third quarter,
Speaker 1: or the fourth quarter. So um, So I think it
Speaker 1: can be pretty tough for the next month or so,
Speaker 1: But then a lot of the trajectory will will depend
Speaker 1: on how we deal with the public health issue. You
Speaker 1: have a background in housing. There's no money in the
Speaker 1: stimulus bill for mortgage forgiveness or rent delays or things
Speaker 1: like that. How do you think housing plays out here? Well,
Speaker 1: it will depend, you know, I would say that what
Speaker 1: we've seen through the Congress is a series of bills
Speaker 1: trying to address various aspects of the crisis and the
Speaker 1: economic downturn. The housing market is when we're continuing to
Speaker 1: have conversations. You know, I've gotten contact from many in
Speaker 1: the in the property markets and the property industry, and
Speaker 1: they're telling me about their challenges. So we are working
Speaker 1: right now to try to understand those better and make
Speaker 1: sure that that there isn't collateral damage and housing markets
Speaker 1: such that either one a bunch of companies go out
Speaker 1: of business or to a lot of people lose their homes.
Speaker 1: So we're going to try to make sure that as
Speaker 1: we get through this, the housing sector, uh is not
Speaker 1: a repeat of what happened in the Great Recession. In
Speaker 1: this stimulus bill, the fiscal stimulus Bill, you're getting a
Speaker 1: lot more money, a lot more power from Congress, but
Speaker 1: they're also putting some restrictions on what you do, say
Speaker 1: you know, in terms of the corporate loan program and
Speaker 1: what companies are allowed to do. Does it bother you
Speaker 1: that the line between fiscal and monetary is getting quite blurred?
Speaker 1: So I don't think so well, person all, it doesn't
Speaker 1: bother me. And the thing to remember is that all
Speaker 1: of these are all of these facilities are being stood
Speaker 1: up under emergency authorities, and I think the important context
Speaker 1: to keep in mind here is that we're in an emergency,
Speaker 1: and when we're an emergency, we should One of the
Speaker 1: us is that we learned coming out of the Great
Speaker 1: Recession was UM acts strong act, definitively attack in a
Speaker 1: very aggressive way those parts of the market that are
Speaker 1: weak to try to uh limit how deep or how
Speaker 1: negative things get. So it doesn't trouble me about this UM.
Speaker 1: We have these authorities, the Congress has given them to us,
Speaker 1: and we'll use them in emergency, and I have every
Speaker 1: confidence that we're going to apply them in a very
Speaker 1: responsible way. The last question, as you stand up all
Speaker 1: of these authorities and get deeper into this UM, what
Speaker 1: unintended consequences do you foresee? What are you worried about
Speaker 1: down the load road when we come out of this
Speaker 1: on the other side. Well, I'll say, in the short run,
Speaker 1: I'm I'm worried about just my staff we're under We're
Speaker 1: working incredibly hard to stand these things up and across
Speaker 1: the entire federal reserve system. Uh So I want to
Speaker 1: make sure that that we are doing this using all
Speaker 1: of our resources, and I'm spending a lot of my
Speaker 1: time right now just trying to keep people, make sure,
Speaker 1: keep an eye on people, and make sure their fame
Speaker 1: of mind is positive. On the back side, I think
Speaker 1: that UM one thing I'll be looking for is a
Speaker 1: measure and a gauge of consumer confidence to see how
Speaker 1: how consumers and households are thinking and feeling about the
Speaker 1: U S economy UM and their prospects you know, after this,
Speaker 1: because that will, as you know, play a very important
Speaker 1: role in shaping people's willingness to consume and spend and
Speaker 1: invest in themselves and in their businesses. So I'm going
Speaker 1: to keep an eye on that UM and hopefully all
Speaker 1: the things that we're doing today will will give people
Speaker 1: some confidence, and that confidence will carry through into the
Speaker 1: recovery period we can't hope. Thank you very much, Atlanta
Speaker 1: fad Bank President Raphael Bostick for joining us on BLUEBIRG
Speaker 1: radio and television worldwide. How about what to do with
Speaker 1: the little pot that you have which has become a
Speaker 1: smaller investment portfolio over the recent weeks. Darryl Kronk is
Speaker 1: with Wells Fargo where he really thinks hard about these
Speaker 1: kinds of things. Darryl, bonds are stocks right now. I
Speaker 1: haven't asked that question in weeks. Do do you want
Speaker 1: to own bonds or stocks at this moment? Well, we'd
Speaker 1: still be a little bit conservative on stocks here, Tom.
Speaker 1: I mean, I think if you look um decline in stocks,
Speaker 1: um you get a retracement or rebound. Right. But history
Speaker 1: tells us over and over again, if you look at
Speaker 1: the thirteen big waterfall decline, since nine of those thirteen
Speaker 1: have retested or broken the low on an average two
Speaker 1: months later after that initial decline. So history tells us
Speaker 1: the deeper the decline, the higher the bounce, which we've
Speaker 1: got the last three days, and then the deeper the retest.
Speaker 1: Even on the four instances that didn't set fresh lows
Speaker 1: after two months later, three of those four at least
Speaker 1: retested the lows but didn't break them. The only instance
Speaker 1: that you can find going back decades and decades is
Speaker 1: the December eighteen instants where we had a true v
Speaker 1: bottom and bounce. So point is, I think you need
Speaker 1: to be a little cautious, a little defensive. You're on
Speaker 1: stocks below on the SMP, so let it drift back
Speaker 1: down here and then I think there's gonna be some
Speaker 1: phenomenal buying opportunities on the equi side. Alright, So, Daryl,
Speaker 1: if we do want to look out to the other
Speaker 1: side of this, what are some of the sectors you're
Speaker 1: suggesting to your Wells Fargo clients that that maybe they
Speaker 1: think about to the extent they want to get back
Speaker 1: into the market or maybe put some new money to work. Yeah,
Speaker 1: it's a great question, Paul. So right now, if if
Speaker 1: we're favoring sectors, what we want to have is information technology,
Speaker 1: which again is up in quality, has some of the
Speaker 1: strongest balance sheets, some of the highest level of cash
Speaker 1: on balance sheet, you know, fortress type balance sheets, um,
Speaker 1: and probably recovers. We do like calm services, communication services.
Speaker 1: We also like the consumer discretionary sector, and we think
Speaker 1: you can actually from a value standpoint and start um
Speaker 1: taking away at financials. Here you're getting the banks at
Speaker 1: you know, really cheap price to book levels. Sorry, so
Speaker 1: you're just saying Microsoft is a consumer discretionary because they
Speaker 1: own Minecraft. Right, everybody you know, coast to coast with
Speaker 1: these shutdowns and the kids home, they're all glued to Minecraft.
Speaker 1: So I guess Microsoft can be like you know, Procter
Speaker 1: and Gamble or something like that. Daryl, tell me about
Speaker 1: the financials. That seems to be the surveillance point of
Speaker 1: debate this week. We've got some people saying run, and
Speaker 1: I believe you're saying, no, you see some value within
Speaker 1: the banks. Well, obviously, um, it was time to run
Speaker 1: prior to this, right, I mean the financial or the
Speaker 1: KBW financial indexes on peak to trough um, but you know, again,
Speaker 1: strongest they've been in decades from a capital and liquidity standpoint.
Speaker 1: You guys know that, you know, if I can buy
Speaker 1: financials less than one time's tangible book, which many of
Speaker 1: them today are trading at point six point seven times book,
Speaker 1: you just don't get those opportunities very frequently, Tom, And
Speaker 1: when you do, history tells us twelve twenty four months
Speaker 1: out there exceptional opportunities. So, Sara, we're going to see
Speaker 1: some really really ugly economic numbers over the next several months.
Speaker 1: We've got to taste of that with the childless claims
Speaker 1: of you know, three point to eight million yesterday. How
Speaker 1: can any equity portfolio stacked up against what's going to
Speaker 1: be some rising unemployment just some just incredibly negative to
Speaker 1: q g DP prints Um, it just seems like the
Speaker 1: market is really going to be challenged over the next
Speaker 1: several months. Is that digests all the data? I think
Speaker 1: you're right, Paul, and I think that's why we want
Speaker 1: to be a little bit patient and careful here, because again,
Speaker 1: if you take that phase one, the initial draft down,
Speaker 1: Phase two is often this long elongated um consolidation phase
Speaker 1: of test and retest, volatile up and down, right, so
Speaker 1: you have plenty of time to put capital to work
Speaker 1: in the equity markets. It's not going to get away
Speaker 1: from you to the upside. And then eventually phase three,
Speaker 1: when the data improves, you start to see then you
Speaker 1: break out into the next bowl market. It's interesting if
Speaker 1: you go back and look historically um economic recessions, you know,
Speaker 1: again going back to the average market bottoms four months
Speaker 1: before the recession ends, with an average recession being thirteen months.
Speaker 1: So if you were just worth you know, thirty days
Speaker 1: into this recession, UM, I don't know if the if
Speaker 1: this one's gonna last thirty months. We actually think it
Speaker 1: may be shorter than that because of what happened and
Speaker 1: how we moved into it. But let's just say it's
Speaker 1: you know, four or five six months out, then you
Speaker 1: want to look for four months prior to that is
Speaker 1: when history tells you market from the bottom. This is
Speaker 1: a really really I'm really glad to bring this up there. Oh,
Speaker 1: this is an incredibly important point, and I don't think
Speaker 1: it's ever said enough, particularly within the business media. The
Speaker 1: markets always looking out forward and as a discount mechanism
Speaker 1: of as a general research statement six months. Good morning,
Speaker 1: mss Amherst, which is in Vanderbilt, which you have a
Speaker 1: great heritage of researching. This Has that changed in the
Speaker 1: modern day? Does the market still look out about six months? Yeah,
Speaker 1: it actually does, and I would actually argue it's it's extended, Tom.
Speaker 1: I mean, I think the market is almost trying to
Speaker 1: look out more like nine eleven, maybe been approaching twelve months.
Speaker 1: So um, but I just don't think it's realistic to
Speaker 1: think if we're in a bear market, and we're everybody
Speaker 1: acknowledges ourselves included, that we're in a recession, we don't
Speaker 1: know exactly how long and how deep yet that it
Speaker 1: would be unrealistic to think of bear market last thirty
Speaker 1: days and a recession last thirty days, or it would
Speaker 1: certainly be unprecedented. So Daryl, give us your assessment on
Speaker 1: kind of what we've seen coming out of Washington. The
Speaker 1: Fed seems to have been pretty aggressive, pretty out in front.
Speaker 1: We now looks like we're getting some strong movement with
Speaker 1: two trillion dollars of stimulus. Uh, how do you think
Speaker 1: that's going to impact the economy? Well, it will impact
Speaker 1: the economy. I mean by any means. We've had twelve
Speaker 1: historic policy actions in the month of March. Each one
Speaker 1: unto itself would be a massive story. Uh, Paul and Tom,
Speaker 1: I mean just you know, you can write about this.
Speaker 1: It will go down in the annals history. I mean
Speaker 1: certainly if you take the two trillion dollar package is
Speaker 1: going to get patted in the House today, that's about
Speaker 1: ten of GDP, right, And if you were to add
Speaker 1: in everything to fit either is doing or can do,
Speaker 1: the total stimulus accounts to close to thirty g d P,
Speaker 1: which is nothing like we've ever seen before. Tom, are
Speaker 1: you brave enough to buy investment grade bonds? Yes? We
Speaker 1: like investment grade bonds here and again with the Federal
Speaker 1: Reserve coming in and now beginning through their multiple programs
Speaker 1: not just buying investment grade bonds, but also buying investment
Speaker 1: grade bond ets and everything else. There's really good support.
Speaker 1: You now have what I call the adopted fixed income
Speaker 1: asset groups. And you listen to you what is that?
Speaker 1: What is that? Well, so think about the adopted groups
Speaker 1: are places where the federal Reserve is actively buying so
Speaker 1: municipal bond market, commercial paper, investment grade corporate bonds, asset
Speaker 1: back comcurities. The orphan groups are places where they're not
Speaker 1: high yield non agency CMBs, rmbs, CLO school tuitions. They're
Speaker 1: they're not covering that. Okay, Darryl Crack, thank you so much,
Speaker 1: as well as far ago. That was a great walk through,
Speaker 1: folks of what to do with portfolio. Just one opinion,
Speaker 1: but very very valuable. Paul, I want going to bring
Speaker 1: on our next guest here as we confront this continuing crisis.
Speaker 1: We do this on a beautiful Friday, but beneath the
Speaker 1: beauty of this island of Manhattan and the five bureaus,
Speaker 1: there's a lot going on. Absolutely, Tom, let's get we
Speaker 1: want to get down into the weeds here. This virus
Speaker 1: doctor Critiqua Copolli, infectious disease physician and fellow with John's
Speaker 1: Hopkins Center for Health security, absolutely, no better place to
Speaker 1: go and no better person to chat with here. So, DR,
Speaker 1: give us a sense of kind of where we are
Speaker 1: with the virus right now. Is the US doing what
Speaker 1: it needs to do to slow the growth here because
Speaker 1: the numbers just aren't showing it yet. Yeah, that's a
Speaker 1: really great question. And so as you know, yesterday in
Speaker 1: the US and China with having the greatest sumber of
Speaker 1: cases with UM over eighty six thousand cases. Uh money
Speaker 1: and uh you know that was not unpfucted at all
Speaker 1: given what we were looking at, um, even from a
Speaker 1: few months ago. Uh, were the US is right now? Uh?
Speaker 1: You know, we're still in dire needs. UM. We need
Speaker 1: diagnostics still, we need to still ramp up testing, we
Speaker 1: need ppe for our frontline workers. UM. And so there's
Speaker 1: still a lot of things that we need to have done. So, Dr,
Speaker 1: you know, there's been some discussion, namely from the President,
Speaker 1: about trying to balance the get back to work to
Speaker 1: save the economy versus you know, continuing to shutdown to
Speaker 1: slow the growth of the virus. How do you think
Speaker 1: we should balance that as a country. Yeah, so you know,
Speaker 1: I think we really need to let the numbers and
Speaker 1: what's going on dictate what we do in terms of
Speaker 1: getting back to work and uh reopening things, because what's
Speaker 1: going to happen is the open things too soon. We're
Speaker 1: just going to have a resurgence in the number of cases.
Speaker 1: And while I understand the importance of having our economy
Speaker 1: up and going again, we won't have a functional economy
Speaker 1: if we don't have helping people who are alive to
Speaker 1: interact in the economy. And so I really do think
Speaker 1: we need to let our scientists and our modelers look
Speaker 1: at what's going on and really help advise as to
Speaker 1: what we do. Critiqua. You are you know the leading here.
Speaker 1: I I am thinking of the gentleman of the name
Speaker 1: escase me right now, a gentleman in England who has
Speaker 1: done so much in Africa and really in the combat
Speaker 1: warfare against virus Zeboland all the others as well. How
Speaker 1: do you transfer the lessons learned from the continent of
Speaker 1: Africa over to Brooklyn, New York. Yeah, you know, that's
Speaker 1: That's something I actually have been saying for a couple
Speaker 1: of weeks now, is that we really need to look
Speaker 1: at our colleagues in Africa and um other resource limited
Speaker 1: countries have done as we try and scale up our
Speaker 1: response here. And I think, you know, these are areas
Speaker 1: where they have been used to dealing with infectious diseases outbreaks.
Speaker 1: They're used to having limited resources, and um, they have
Speaker 1: been in some cases verycestball to compating these things that
Speaker 1: we need. This is so so important. I mean, right now,
Speaker 1: the buzz this morning is some guy with brilliant technology
Speaker 1: has figured out where the horde of college kids on
Speaker 1: the beach and Fort Lauderdale, and then they distributed and
Speaker 1: could follow their cell phones across you know, a half
Speaker 1: of America or whatever. You know, you've dealt with people
Speaker 1: that are in dire straits in controlling the virus. How
Speaker 1: do we transfer their seriousness and their adult nous over
Speaker 1: to a bunch of people having a you know, a
Speaker 1: happy hour on a each in Florida. Yeah, it's really hard.
Speaker 1: Um Again, I think it's you know, taking people who
Speaker 1: have the expertise that have worked in places like Africa
Speaker 1: and other research limited country and working to advise our
Speaker 1: governments in our administration and the people who are on
Speaker 1: the ground right now, rather than reinventing the wheel. And
Speaker 1: I see a lot of people trying to reinvent the
Speaker 1: wheel because they haven't dealt with this before, and I
Speaker 1: think they really need to leverage the experience we have
Speaker 1: with people who have been on the forefront of these
Speaker 1: types of outbreaks in the past. Dr Critiqua, thank you
Speaker 1: so much for joining us a smart discussion, Tom, which
Speaker 1: we certainly need here. Dr Capolis infectious disease physician and
Speaker 1: fellow at Johns Hopkins Center for Health Security, and that
Speaker 1: seems pretty appropriate right now. Thanks for listening to the
Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you refer. I'm on Twitter at
Speaker 1: Tom Keene before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio.