1 00:00:02,640 --> 00:00:05,360 Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you. 2 00:00:05,360 --> 00:00:07,680 Speaker 1: Along with my co host Lisa brahma Witz. Each day 3 00:00:07,720 --> 00:00:10,240 Speaker 1: we bring you the most noteworthy and useful interviews for 4 00:00:10,320 --> 00:00:12,520 Speaker 1: you and your money, whether at the grocery store or 5 00:00:12,560 --> 00:00:15,480 Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple 6 00:00:15,520 --> 00:00:17,959 Speaker 1: podcast or wherever you listen to podcasts, as well as 7 00:00:17,960 --> 00:00:21,240 Speaker 1: at Bloomberg dot com. You know, as we think about 8 00:00:21,239 --> 00:00:23,840 Speaker 1: the volatility and we experienced the volatility in the markets, 9 00:00:23,880 --> 00:00:28,240 Speaker 1: one new area of investing that wasn't as developed back 10 00:00:28,280 --> 00:00:30,720 Speaker 1: in the financial crisis is E t F to get 11 00:00:30,720 --> 00:00:33,320 Speaker 1: a sense of how that's sector of the market is 12 00:00:33,360 --> 00:00:36,440 Speaker 1: performing or really fortunate to have Samura Cohen, head of 13 00:00:36,520 --> 00:00:39,400 Speaker 1: I Shares Global Markets at black Rock, joining us on 14 00:00:39,440 --> 00:00:41,440 Speaker 1: the phone. So Sama, give us a sense of how 15 00:00:41,520 --> 00:00:45,080 Speaker 1: the world of E t F trading is behaving given 16 00:00:45,120 --> 00:00:48,959 Speaker 1: these extraordinary market uh moves where we've been seeing. Hi, 17 00:00:49,040 --> 00:00:51,239 Speaker 1: thanks very much for having me. So let me give 18 00:00:51,240 --> 00:00:55,040 Speaker 1: you two stats in to your point. E t F 19 00:00:55,080 --> 00:00:57,520 Speaker 1: trading has grown a lot over the last ten years, 20 00:00:57,880 --> 00:01:01,640 Speaker 1: and even E t F trade was a significant portion 21 00:01:01,760 --> 00:01:05,880 Speaker 1: of US equity treating, averaging at about twenty seven percent 22 00:01:06,480 --> 00:01:09,800 Speaker 1: of a US equity volume on a daily basis. So 23 00:01:09,840 --> 00:01:11,600 Speaker 1: what we have seen, and we've seen this in other 24 00:01:11,680 --> 00:01:15,400 Speaker 1: high velocity markets before, although this one is really extraordinary, 25 00:01:15,560 --> 00:01:19,480 Speaker 1: is that e t F usage is really positively correlated 26 00:01:19,480 --> 00:01:23,240 Speaker 1: with volatility. When the VIX spikes, E t F usage spikes, 27 00:01:23,480 --> 00:01:26,480 Speaker 1: and also when liquidity goes down, E t F usage 28 00:01:26,520 --> 00:01:29,040 Speaker 1: goes up. So what we've seen over the past two 29 00:01:29,040 --> 00:01:32,400 Speaker 1: weeks is e t fs. Remember that seven percent average 30 00:01:32,400 --> 00:01:38,520 Speaker 1: in really hovering at thirty eight of volume of of 31 00:01:38,640 --> 00:01:41,600 Speaker 1: US equity volumes on a daily basis. And by the way, 32 00:01:41,640 --> 00:01:44,320 Speaker 1: the story is being repeated around the world with volumes 33 00:01:44,319 --> 00:01:46,880 Speaker 1: being set in European e t s as well. A 34 00:01:46,880 --> 00:01:50,520 Speaker 1: lot of people, including Eric Buns of Bloomberg Intelligence, has 35 00:01:50,560 --> 00:01:52,440 Speaker 1: been talking about how e t f s have actually 36 00:01:52,480 --> 00:01:56,520 Speaker 1: provided a host of liquidity at a very volatile time 37 00:01:56,600 --> 00:02:00,120 Speaker 1: and when people are trying to discover the right levels. 38 00:02:00,960 --> 00:02:03,160 Speaker 1: I think that that is born out with a lot 39 00:02:03,200 --> 00:02:05,880 Speaker 1: of e t f s. There is a question, however, 40 00:02:06,080 --> 00:02:08,240 Speaker 1: about the bond e t f s and some of 41 00:02:08,240 --> 00:02:11,640 Speaker 1: the dislocations that we have seen, particularly uh with the 42 00:02:11,680 --> 00:02:16,440 Speaker 1: shares trading significantly below, where the assets that underlie the 43 00:02:16,639 --> 00:02:19,560 Speaker 1: t fs are valued at and I'm just wondering if 44 00:02:19,560 --> 00:02:21,919 Speaker 1: you could speak to some of the dislocations and and 45 00:02:22,000 --> 00:02:24,480 Speaker 1: sort of, uh, speak to some people who are saying 46 00:02:24,520 --> 00:02:28,400 Speaker 1: this could just create a spiral, a downward spiral leading 47 00:02:28,440 --> 00:02:32,040 Speaker 1: to for selling and further declines. Yeah. Absolutely, But let 48 00:02:32,040 --> 00:02:34,079 Speaker 1: me get to your first point, to which is you 49 00:02:34,120 --> 00:02:36,480 Speaker 1: know why our investors looking to e t s in 50 00:02:36,560 --> 00:02:39,240 Speaker 1: times like this. I think you know, as we've been 51 00:02:39,280 --> 00:02:42,200 Speaker 1: hearing in every market and listening to every news reports, 52 00:02:42,240 --> 00:02:45,240 Speaker 1: these are times without a lot of transparency and without 53 00:02:45,240 --> 00:02:47,560 Speaker 1: a lot of certainty. And what e t f s 54 00:02:47,600 --> 00:02:51,440 Speaker 1: offer investors is transparency in terms of what's in the 55 00:02:51,480 --> 00:02:54,560 Speaker 1: fund and where you can transact it, and certainty of 56 00:02:54,639 --> 00:02:57,280 Speaker 1: market access, and both of those things are valued highly, 57 00:02:57,320 --> 00:02:59,079 Speaker 1: and that's what we're seeing in the velocity of e 58 00:02:59,200 --> 00:03:02,480 Speaker 1: t F trade. So to get to your answer, to 59 00:03:02,560 --> 00:03:04,480 Speaker 1: get to your question, let me give you a specific 60 00:03:04,600 --> 00:03:07,240 Speaker 1: example that I think is instructive and indicative of what 61 00:03:07,280 --> 00:03:09,280 Speaker 1: we've seen in e t s fixed income e t 62 00:03:09,520 --> 00:03:14,320 Speaker 1: s across several asset classes, and that's taking our high 63 00:03:14,400 --> 00:03:17,560 Speaker 1: yield e t S l q D, which, as you noted, 64 00:03:17,600 --> 00:03:21,480 Speaker 1: traded at an unusually large discount to its n A 65 00:03:21,560 --> 00:03:25,120 Speaker 1: V on Thursday, March twelve. That discount was about five percent. 66 00:03:25,600 --> 00:03:28,600 Speaker 1: It's since normalized a bit too, about half of that 67 00:03:28,680 --> 00:03:32,839 Speaker 1: to two percent. So on that day, l q D 68 00:03:32,880 --> 00:03:37,480 Speaker 1: traded over eighty nine thousand times on exchange. If I 69 00:03:37,520 --> 00:03:42,080 Speaker 1: look at its top holdings, which are bonds like Verizon 70 00:03:42,280 --> 00:03:47,880 Speaker 1: cvs g S, those bonds traded on average thirty times each, 71 00:03:48,200 --> 00:03:50,880 Speaker 1: between nine at the lowest and like fifty four at 72 00:03:50,880 --> 00:03:54,360 Speaker 1: the highest. So what you're seeing is that trading is 73 00:03:54,360 --> 00:03:58,560 Speaker 1: occurring in and and therefore price discovery is occurring in 74 00:03:58,760 --> 00:04:03,160 Speaker 1: l q D much less so the underlying markets. And 75 00:04:03,200 --> 00:04:05,400 Speaker 1: so therefore that five percent and if you dig a 76 00:04:05,400 --> 00:04:08,040 Speaker 1: little bit more, what you will see is that five 77 00:04:08,120 --> 00:04:13,160 Speaker 1: percent um UH lower price, much more closely tracked the 78 00:04:13,240 --> 00:04:17,720 Speaker 1: more frequently treated um UH bonds that were in l 79 00:04:17,800 --> 00:04:21,000 Speaker 1: q d's portfolio. So in these types of scenarios, what 80 00:04:21,040 --> 00:04:23,440 Speaker 1: we say is l q d s price and that 81 00:04:23,520 --> 00:04:27,239 Speaker 1: gap is transmitting a lot of real time information about 82 00:04:27,279 --> 00:04:30,160 Speaker 1: bond market conditions which I know you've been reporting on, 83 00:04:30,480 --> 00:04:32,800 Speaker 1: which are that bonds aren't trading. It is hard to 84 00:04:32,800 --> 00:04:35,640 Speaker 1: find the other side of you know, uh, some of 85 00:04:35,680 --> 00:04:38,360 Speaker 1: these top holdings, let alone the portfolio of bonds and 86 00:04:38,520 --> 00:04:42,920 Speaker 1: l q D, and therefore for immediate liquidity and price discovery, 87 00:04:42,960 --> 00:04:45,680 Speaker 1: investors are turning to l q D. So in these 88 00:04:45,680 --> 00:04:49,839 Speaker 1: scenarios that UM, that information tells you the price of 89 00:04:49,960 --> 00:04:53,960 Speaker 1: liquidity in this you know, really extraordinary and and at 90 00:04:53,960 --> 00:04:57,640 Speaker 1: this time dislocated bond market a summer. Just give us 91 00:04:57,640 --> 00:05:00,320 Speaker 1: a sense of fund flows in and out of EAT. Yes, 92 00:05:00,480 --> 00:05:03,080 Speaker 1: you know, are there any notable moves that you're seeing 93 00:05:03,160 --> 00:05:06,400 Speaker 1: in your various products? So look, I think notably we 94 00:05:06,440 --> 00:05:09,360 Speaker 1: are seeing outflows in fixed income. But to put that 95 00:05:09,440 --> 00:05:12,800 Speaker 1: in context, the outflows are a fraction of that on 96 00:05:13,000 --> 00:05:17,240 Speaker 1: exchange trading, which again underscores the point as to UM 97 00:05:17,400 --> 00:05:20,560 Speaker 1: conditions in the underlying bond market. So if we take 98 00:05:20,760 --> 00:05:24,120 Speaker 1: h y G, which had a record volume week of 99 00:05:24,200 --> 00:05:27,880 Speaker 1: about forty billion two weeks ago, right after the oil 100 00:05:27,920 --> 00:05:32,080 Speaker 1: headline news UM in that week, h y G head 101 00:05:32,080 --> 00:05:34,680 Speaker 1: outflows that were four hundred millions, So that was a 102 00:05:34,760 --> 00:05:39,080 Speaker 1: ten to one ratio of volume trading in the secondary 103 00:05:39,160 --> 00:05:43,719 Speaker 1: markets where no bond sword trading m versus actual flows 104 00:05:43,839 --> 00:05:46,720 Speaker 1: out of the bond. So again importantly, the risk transfer 105 00:05:46,760 --> 00:05:50,480 Speaker 1: and the velocity that we're seeing in in UM ETFs 106 00:05:50,600 --> 00:05:53,640 Speaker 1: is really happening much more on exchange than in the 107 00:05:53,720 --> 00:05:56,479 Speaker 1: underlying bond market, which is why I would very much 108 00:05:56,520 --> 00:05:59,760 Speaker 1: take the other side of that statement, um, in terms 109 00:05:59,760 --> 00:06:04,760 Speaker 1: of e t s um uh causing any sort of spiral. 110 00:06:04,760 --> 00:06:07,600 Speaker 1: I don't remember exactly what you said. In this market, 111 00:06:07,600 --> 00:06:11,360 Speaker 1: ETFs are providing a release valve to exchange risks without 112 00:06:11,400 --> 00:06:15,320 Speaker 1: tapping the underlying bond market. Samara, just I want to 113 00:06:15,400 --> 00:06:17,720 Speaker 1: take a step back to wrap this all up. You 114 00:06:17,760 --> 00:06:21,479 Speaker 1: talk about the incredible volatility and the incredible volumes and 115 00:06:21,520 --> 00:06:26,040 Speaker 1: the price discovery mechanism that has become really the E 116 00:06:26,200 --> 00:06:29,119 Speaker 1: t f S hallmark, and I'm wondering if you get 117 00:06:29,160 --> 00:06:32,640 Speaker 1: a sense of who is behind a lot of this activity, 118 00:06:32,680 --> 00:06:35,039 Speaker 1: I mean, does this really highlight how e t f 119 00:06:35,080 --> 00:06:37,800 Speaker 1: s have become an institutional tool or are we seeing 120 00:06:37,880 --> 00:06:40,839 Speaker 1: mom and pop investors turning to these in order to 121 00:06:40,839 --> 00:06:45,520 Speaker 1: withdraw money or perhaps park money in cash. Like ETFs, 122 00:06:46,680 --> 00:06:49,400 Speaker 1: et s are used broadly by lots of different types 123 00:06:49,440 --> 00:06:52,760 Speaker 1: of investors. In this environment and this velocity of trade. 124 00:06:52,800 --> 00:06:55,480 Speaker 1: Et f s are being used by thanks broker dealers 125 00:06:55,480 --> 00:07:00,000 Speaker 1: as inventory management tools. UM, They're not being used uh 126 00:07:00,080 --> 00:07:03,880 Speaker 1: in these volatle markets by by individual investors, but they 127 00:07:03,880 --> 00:07:08,080 Speaker 1: are a really important tool to bond market participants across 128 00:07:08,120 --> 00:07:11,600 Speaker 1: the board. Samerica and thank you so much for being 129 00:07:11,640 --> 00:07:14,360 Speaker 1: with us, who really appreciated Samerica and head of I 130 00:07:14,520 --> 00:07:17,960 Speaker 1: Shares Global Markets at black Rock, And it's really been 131 00:07:18,000 --> 00:07:20,160 Speaker 1: important Paul to look at the E t F complex 132 00:07:20,200 --> 00:07:22,680 Speaker 1: because of exactly what Samara was saying, which is the 133 00:07:22,680 --> 00:07:26,240 Speaker 1: incredible volumes that we have seen in the incredible UH 134 00:07:26,520 --> 00:07:30,160 Speaker 1: price action and and some of the questions around bond ETFs. 135 00:07:30,360 --> 00:07:33,160 Speaker 1: Samara kind of highlighting the other side of people who 136 00:07:33,200 --> 00:07:35,920 Speaker 1: are arguing about a death spiral, like Peter Sheer, I 137 00:07:36,000 --> 00:07:39,160 Speaker 1: know of Accadabase securities, saying, you know, honestly, this is 138 00:07:39,200 --> 00:07:42,200 Speaker 1: just a tool for price discovery and has served that function, 139 00:07:42,280 --> 00:07:45,040 Speaker 1: and certainly we haven't necessarily seen, you know, the real 140 00:07:45,080 --> 00:07:48,520 Speaker 1: sort of dire scenarios come to pass as a lot 141 00:07:48,600 --> 00:07:53,960 Speaker 1: of people have postulated in the past. Let's bring in 142 00:07:54,000 --> 00:07:56,320 Speaker 1: a mart van Ark. He's a chief economist at the 143 00:07:56,320 --> 00:08:00,400 Speaker 1: Conference board UH, a regular guest with Lisa and mice Off. Bart, 144 00:08:00,400 --> 00:08:03,320 Speaker 1: thanks so much for joining us. All right, let's try 145 00:08:03,360 --> 00:08:06,800 Speaker 1: to reset a little bit here. Bart. We we know 146 00:08:07,440 --> 00:08:11,600 Speaker 1: that this is uncharted territory. Give us your sense of 147 00:08:11,640 --> 00:08:15,400 Speaker 1: what you think the economic impact will be from this 148 00:08:15,480 --> 00:08:20,360 Speaker 1: virus for the remainder of Well, it's obviously daunting at 149 00:08:20,360 --> 00:08:23,160 Speaker 1: a moment to put out any forecast because the situation 150 00:08:23,240 --> 00:08:26,840 Speaker 1: is almost changing every moment. But you know today that 151 00:08:27,000 --> 00:08:30,320 Speaker 1: you released our leading economic index for February. This was 152 00:08:30,400 --> 00:08:34,040 Speaker 1: before uh, this whole episode started to involve involved in 153 00:08:34,040 --> 00:08:38,079 Speaker 1: the Western world, um, and that was still up at 154 00:08:38,120 --> 00:08:40,640 Speaker 1: that time. And actually that gives one little piece of evidence, 155 00:08:40,679 --> 00:08:42,640 Speaker 1: and that they said, at least at the minimum, we're 156 00:08:42,840 --> 00:08:46,760 Speaker 1: entering this very difficult period in a relatively good shape. 157 00:08:46,760 --> 00:08:49,240 Speaker 1: But that's particularly important when it comes to the labor 158 00:08:49,240 --> 00:08:51,400 Speaker 1: markets and when it comes to consumption. Simply the fact 159 00:08:51,400 --> 00:08:54,839 Speaker 1: that unemployment was low, that household balance sheets were pretty strong, 160 00:08:54,920 --> 00:08:57,880 Speaker 1: and therefore consumption strong helps to cushing the effects possibly. 161 00:08:57,920 --> 00:09:01,280 Speaker 1: But obviously that index is all news now because we 162 00:09:01,520 --> 00:09:06,199 Speaker 1: have to look forward. Actually just mentioned unemployment claims are 163 00:09:07,200 --> 00:09:10,280 Speaker 1: up in a in a very worrying way. That really 164 00:09:10,320 --> 00:09:13,480 Speaker 1: concerns us a lot. That's the first thing to look at, 165 00:09:13,520 --> 00:09:15,800 Speaker 1: whether the labor market is going to move. We had 166 00:09:15,800 --> 00:09:19,440 Speaker 1: a hope that companies would hold on to the workers 167 00:09:19,880 --> 00:09:21,920 Speaker 1: for for the time being, it might very well be 168 00:09:21,960 --> 00:09:25,040 Speaker 1: that these unemployment claims are primarily small and medium enterprises. 169 00:09:25,040 --> 00:09:27,720 Speaker 1: But if there's one thing necessary, it is for government, 170 00:09:28,400 --> 00:09:31,400 Speaker 1: federal and state, as well as businesses to think of 171 00:09:31,480 --> 00:09:34,240 Speaker 1: any tool an instrument to keep people on the payroll, 172 00:09:34,320 --> 00:09:37,600 Speaker 1: because that would really turns out. Consumer confidence is the 173 00:09:37,640 --> 00:09:39,920 Speaker 1: next thing that will fall if the labor market is 174 00:09:39,920 --> 00:09:43,040 Speaker 1: going to weaken um and that would really put us 175 00:09:43,120 --> 00:09:46,120 Speaker 1: into a very weak territory for the next quarter, next 176 00:09:46,160 --> 00:09:49,280 Speaker 1: quarter or two probably part Anecdotally, we are hearing about 177 00:09:49,360 --> 00:09:53,240 Speaker 1: major airlines for lowing staff without pay. We're hearing about 178 00:09:53,440 --> 00:09:58,480 Speaker 1: major restaurant companies also cutting back staff. To your point 179 00:09:58,640 --> 00:10:01,200 Speaker 1: that you're wondering whether people would hold on the staff, 180 00:10:01,240 --> 00:10:02,880 Speaker 1: and a lot of people are arguing ahead of this 181 00:10:03,360 --> 00:10:06,000 Speaker 1: that people would want to hold onto the workers because 182 00:10:06,000 --> 00:10:07,600 Speaker 1: they would think that it would be so much harder 183 00:10:07,800 --> 00:10:11,560 Speaker 1: to hire them back afterwards. Are you changing that narrative? 184 00:10:11,559 --> 00:10:14,880 Speaker 1: Do you think that that narrative is now incorrect, that 185 00:10:14,920 --> 00:10:17,679 Speaker 1: there is sort of a pressure just to stay in 186 00:10:17,800 --> 00:10:20,800 Speaker 1: business cut all costs because revenues have gone to zero 187 00:10:21,160 --> 00:10:24,679 Speaker 1: in a number of industries. Yeah, we're worried about that. Again, 188 00:10:24,679 --> 00:10:27,040 Speaker 1: these unemployment claims. You really have to kind of unpack 189 00:10:27,120 --> 00:10:29,160 Speaker 1: them a little bit to see where is this happening, 190 00:10:29,200 --> 00:10:31,840 Speaker 1: which states is happening because states have somewhat different policies 191 00:10:31,840 --> 00:10:35,240 Speaker 1: when it comes to finding these unemployment claims. Sometimes you 192 00:10:35,320 --> 00:10:38,120 Speaker 1: have to go in person to to to to an 193 00:10:38,160 --> 00:10:40,800 Speaker 1: employment office to claim them. Sometimes you can do it online. 194 00:10:40,840 --> 00:10:42,679 Speaker 1: So you've got to look at these kinds of things. 195 00:10:42,720 --> 00:10:46,640 Speaker 1: But I think it's absolutely critical to see where is 196 00:10:46,679 --> 00:10:50,240 Speaker 1: this happening. And there's a real difference between furloughs and 197 00:10:50,320 --> 00:10:53,800 Speaker 1: pay cuts. First letting people go because you know, we're 198 00:10:53,800 --> 00:10:56,480 Speaker 1: in the middle of this change towards the new normal. 199 00:10:56,520 --> 00:10:58,400 Speaker 1: We're not in a new normal yet, we're kind of 200 00:10:58,440 --> 00:11:00,760 Speaker 1: in a sort of panic mode. And to actually let 201 00:11:00,800 --> 00:11:03,080 Speaker 1: people go in that situation and then may bee in, 202 00:11:03,360 --> 00:11:04,920 Speaker 1: you know, a couple of weeks time and things are 203 00:11:04,920 --> 00:11:07,120 Speaker 1: beginning to normalize. Won't be good, but at least beginning 204 00:11:07,120 --> 00:11:09,200 Speaker 1: to normalize. And you suddenly see you let staff go 205 00:11:09,720 --> 00:11:11,640 Speaker 1: that you may not be able to get easily back. 206 00:11:11,679 --> 00:11:14,400 Speaker 1: So finding ways to keep people on your pay roll, 207 00:11:14,520 --> 00:11:16,480 Speaker 1: even if you have to pay a price or as 208 00:11:16,520 --> 00:11:18,920 Speaker 1: a cost, or even if the workers themselves have to 209 00:11:19,000 --> 00:11:21,280 Speaker 1: forgo some of the cuts. I think it's a very 210 00:11:21,280 --> 00:11:23,880 Speaker 1: different way than just letting people go. So holding onto 211 00:11:23,920 --> 00:11:25,520 Speaker 1: your people, I think is the key thing that we're 212 00:11:25,520 --> 00:11:28,720 Speaker 1: looking at. So Bart, I mean, I think the early 213 00:11:29,040 --> 00:11:33,680 Speaker 1: stages of this crisis, i'mthing in just several weeks ago, Uh, 214 00:11:33,960 --> 00:11:37,640 Speaker 1: many accountoms were suggesting a V shaped economic cycle here 215 00:11:37,679 --> 00:11:40,640 Speaker 1: where we're gonna have a sharp downturn in the second quarter. Uh, 216 00:11:40,840 --> 00:11:42,480 Speaker 1: but then pick right back up in the third and 217 00:11:42,600 --> 00:11:46,360 Speaker 1: fourth quarter. Um, do you have any sense or any 218 00:11:46,400 --> 00:11:48,640 Speaker 1: confidence in that or or is it just two fluid 219 00:11:48,720 --> 00:11:51,680 Speaker 1: right now? Yeah, that's a really important point. I mean, 220 00:11:51,720 --> 00:11:54,360 Speaker 1: instead of just looking at the numbers, whether the context 221 00:11:54,480 --> 00:11:56,320 Speaker 1: is going to be two percent or five percent or 222 00:11:56,320 --> 00:11:59,080 Speaker 1: ten percent, it's much more important to look at that 223 00:11:59,360 --> 00:12:02,320 Speaker 1: shape of the curve. So yeah, there quite a few 224 00:12:02,320 --> 00:12:05,960 Speaker 1: forecasts out there that show very deep contraction happening now, 225 00:12:06,000 --> 00:12:09,559 Speaker 1: but then expect the quick rebounds uh later on. That's 226 00:12:09,559 --> 00:12:12,079 Speaker 1: a V shaped curve. I think that one really is 227 00:12:12,160 --> 00:12:14,440 Speaker 1: unlikely for for a whole bunch of reasons. One of 228 00:12:14,480 --> 00:12:17,680 Speaker 1: them very importantly is that the first hit is really 229 00:12:17,720 --> 00:12:20,000 Speaker 1: on a lot of services sectors. So you know, if 230 00:12:20,000 --> 00:12:21,640 Speaker 1: you don't take your meal now, you're not going to 231 00:12:21,760 --> 00:12:23,880 Speaker 1: take two meals next month, if you see what I mean. 232 00:12:23,920 --> 00:12:25,840 Speaker 1: And that's true for many of these issues. So I 233 00:12:25,880 --> 00:12:29,520 Speaker 1: think V shape is unlikely. The U shape as we 234 00:12:29,600 --> 00:12:32,280 Speaker 1: call it, which means that you know, we're spreading this, 235 00:12:32,520 --> 00:12:34,280 Speaker 1: This is going to be spread out over time, to me, 236 00:12:34,360 --> 00:12:37,880 Speaker 1: seems more likely. Let's assumed that the attempt to flatten 237 00:12:37,960 --> 00:12:40,480 Speaker 1: the curve of new cases to avoid the peak, but 238 00:12:40,640 --> 00:12:43,520 Speaker 1: flattened the curve of new cases over over two quarters 239 00:12:43,600 --> 00:12:46,600 Speaker 1: or pass even more. That's a good thing because it 240 00:12:46,640 --> 00:12:49,679 Speaker 1: really reduces the health challenges that we're having. But from 241 00:12:49,679 --> 00:12:52,040 Speaker 1: an economic point of view, we're also spreading the pain 242 00:12:52,120 --> 00:12:54,600 Speaker 1: over time. That's why I think, you know, we might 243 00:12:54,720 --> 00:12:57,640 Speaker 1: at the minimum see two quarters of contraction. Maybe not, 244 00:12:57,760 --> 00:13:00,040 Speaker 1: may not be as deep as some people think, but 245 00:13:00,080 --> 00:13:02,240 Speaker 1: it will be better for quite a while. My biggest 246 00:13:02,240 --> 00:13:04,320 Speaker 1: worry is what we call an L shape, and an 247 00:13:04,440 --> 00:13:06,320 Speaker 1: L shape is that you know, this goes on for 248 00:13:06,320 --> 00:13:08,439 Speaker 1: a much longer time. You know, maybe it gets a 249 00:13:08,440 --> 00:13:10,400 Speaker 1: little bit less over the summer, who knows, but then 250 00:13:10,600 --> 00:13:12,559 Speaker 1: we're back into this by the end of the year, 251 00:13:13,040 --> 00:13:15,560 Speaker 1: and then it could actually permanently lower the level of 252 00:13:15,600 --> 00:13:18,920 Speaker 1: economic activity. It's in what was already a fairly slow 253 00:13:18,960 --> 00:13:21,120 Speaker 1: economy to begin with, and that would of course be 254 00:13:21,440 --> 00:13:23,600 Speaker 1: a real new normal that could be better for quite 255 00:13:23,600 --> 00:13:25,679 Speaker 1: a while. Very hard to say, but I think for 256 00:13:25,760 --> 00:13:28,280 Speaker 1: US economists to really think that through and how businesses 257 00:13:28,280 --> 00:13:30,640 Speaker 1: to understand what it means for the long term planning. 258 00:13:30,640 --> 00:13:33,120 Speaker 1: We have the word belief that's really important. Now we're 259 00:13:33,240 --> 00:13:36,600 Speaker 1: speaking with Bart van Are, chief economist at the Conference Board, 260 00:13:37,040 --> 00:13:39,040 Speaker 1: and at Bart, I want to pick up on what 261 00:13:39,080 --> 00:13:42,520 Speaker 1: you said, the idea of an L shaped non recovery, 262 00:13:42,559 --> 00:13:46,480 Speaker 1: that this could just permanently lower the overall growth rate 263 00:13:46,720 --> 00:13:50,679 Speaker 1: for I mean permanent whatever that means, I guess going forward. 264 00:13:51,360 --> 00:13:53,760 Speaker 1: I'm curious what that means in terms of are you 265 00:13:53,840 --> 00:13:57,200 Speaker 1: forecasting an increasing likelihood of this sort of depression like 266 00:13:57,320 --> 00:14:01,120 Speaker 1: scenario or is this just you know, grinding ahead at 267 00:14:01,120 --> 00:14:05,640 Speaker 1: an even slower pace than we already were. Look, it's 268 00:14:05,679 --> 00:14:07,920 Speaker 1: tempting at this point in time to think about worst 269 00:14:07,920 --> 00:14:11,280 Speaker 1: case scenarios and and of course companies have to think 270 00:14:11,320 --> 00:14:12,800 Speaker 1: about this now. You've got you have to be in 271 00:14:12,800 --> 00:14:16,200 Speaker 1: this scenario mode now and plan for those. So, yeah, 272 00:14:16,240 --> 00:14:18,200 Speaker 1: a worst case scenario like that that this could be 273 00:14:18,200 --> 00:14:21,120 Speaker 1: with us for three years and could permanently depress the economy, 274 00:14:21,160 --> 00:14:24,240 Speaker 1: whether it's whether it's continuous contraction or really slow growth. 275 00:14:24,280 --> 00:14:26,600 Speaker 1: I don't know. I think that it is tempting to do, 276 00:14:26,720 --> 00:14:28,000 Speaker 1: and I think you have to do some of this, 277 00:14:28,080 --> 00:14:30,920 Speaker 1: But I think it's much more likely that once after 278 00:14:31,000 --> 00:14:32,800 Speaker 1: two or three weeks, we're going to set in this 279 00:14:32,880 --> 00:14:35,800 Speaker 1: sort of new normal, that we have to begin to 280 00:14:35,840 --> 00:14:38,440 Speaker 1: think how we're going to do business in the in 281 00:14:38,800 --> 00:14:41,120 Speaker 1: the in the next few months in this kind of environment. 282 00:14:41,200 --> 00:14:44,360 Speaker 1: You know, manufacturing firms who are now working A and 283 00:14:44,360 --> 00:14:46,400 Speaker 1: B ships with fewer people on the shop floor at 284 00:14:46,400 --> 00:14:47,920 Speaker 1: one point in time, how are you going to do 285 00:14:48,000 --> 00:14:50,200 Speaker 1: that and how they can you keep your capacity up? 286 00:14:50,720 --> 00:14:54,800 Speaker 1: Um services firms where everybody is working remote. Those are 287 00:14:54,840 --> 00:14:57,240 Speaker 1: the real questions that businesses have to work themselves through. 288 00:14:57,280 --> 00:15:00,400 Speaker 1: How can we do business in this kind of new environment. Yes, 289 00:15:00,520 --> 00:15:03,640 Speaker 1: at the background are these worst case scenarios. We're not 290 00:15:03,720 --> 00:15:05,720 Speaker 1: yet at the point to begin to frame those out, 291 00:15:06,000 --> 00:15:07,960 Speaker 1: but obviously you know in the medium term that's what 292 00:15:08,000 --> 00:15:10,040 Speaker 1: we will need to do. Bart van Art, thanks so 293 00:15:10,120 --> 00:15:12,960 Speaker 1: much for joining us. We really appreciate your perspective. Bart 294 00:15:13,040 --> 00:15:19,520 Speaker 1: van our chief economist at the conference board. Let's get 295 00:15:19,520 --> 00:15:22,000 Speaker 1: a sense of what's going on in Washington, d C. 296 00:15:22,240 --> 00:15:27,080 Speaker 1: In terms of coronavirus fiscal stimulus coming out of the Capitol. 297 00:15:27,480 --> 00:15:30,720 Speaker 1: Steven Dennis Bloomberg, Senate reporter, joins us. Steve, thanks so 298 00:15:30,800 --> 00:15:33,000 Speaker 1: much for joining us. Give us the latest on kind 299 00:15:33,000 --> 00:15:36,040 Speaker 1: of where we are with the various pieces of legislation 300 00:15:36,480 --> 00:15:41,440 Speaker 1: within Congress any administration. Yeah, so Senate Republicans this morning 301 00:15:41,480 --> 00:15:45,000 Speaker 1: are compiling a very large simulus package. You're expecting it 302 00:15:45,080 --> 00:15:49,000 Speaker 1: to be well over a trillion dollars UM, but we 303 00:15:49,080 --> 00:15:52,520 Speaker 1: don't yet have the exact details. You know, they had 304 00:15:52,520 --> 00:15:56,360 Speaker 1: three task forces putting it together over the past day 305 00:15:56,400 --> 00:15:59,920 Speaker 1: and a half. They hope to get something to major 306 00:16:00,040 --> 00:16:03,120 Speaker 1: or leader Men McConnell this morning so he can compile 307 00:16:03,200 --> 00:16:07,160 Speaker 1: it and then walk across the hallway and start negotiating 308 00:16:07,160 --> 00:16:10,600 Speaker 1: with Chuck Schumer, who has his own nearly trillion dollar 309 00:16:10,760 --> 00:16:15,760 Speaker 1: package UM with very different ideas UM. And then you've 310 00:16:15,760 --> 00:16:20,160 Speaker 1: got House Democrats, you know, various House Democrats are proposing 311 00:16:20,480 --> 00:16:23,760 Speaker 1: various plans of their own, whether it be Ilhan Omar 312 00:16:23,840 --> 00:16:28,680 Speaker 1: who wants similar big checks to what Secret Treasury Secretary 313 00:16:28,720 --> 00:16:33,320 Speaker 1: Minutition has talked about. Maxine Waters wants even bigger checks UM. 314 00:16:33,360 --> 00:16:35,680 Speaker 1: A lot of other Democrats want things that are more 315 00:16:35,720 --> 00:16:39,640 Speaker 1: traditional aid things like food stamps and unemployment insurance. But 316 00:16:39,760 --> 00:16:43,200 Speaker 1: two ideas that have gotten a traction in both parties 317 00:16:43,680 --> 00:16:46,520 Speaker 1: is this idea of sending everybody a check, maybe with 318 00:16:46,640 --> 00:16:50,160 Speaker 1: some means testing, um, trying to figure out what the 319 00:16:50,240 --> 00:16:53,400 Speaker 1: level is, whether it's one thousand or two thousand dollars 320 00:16:53,880 --> 00:16:57,080 Speaker 1: or more. And then the second thing that has pretty 321 00:16:57,120 --> 00:17:01,400 Speaker 1: widespread support is a lot of support for small businesses 322 00:17:02,080 --> 00:17:06,800 Speaker 1: planned by Susan Collins and Marco Rubio would send three 323 00:17:06,920 --> 00:17:12,520 Speaker 1: hundred billion dollars covering all of their expenses, uh until 324 00:17:12,600 --> 00:17:17,600 Speaker 1: this crisis is over, and that would initially be alone, 325 00:17:17,720 --> 00:17:20,520 Speaker 1: but if they don't lay people off, it becomes like grant. 326 00:17:20,720 --> 00:17:23,680 Speaker 1: So that's a huge support for small businesses. Stephen, That's 327 00:17:23,680 --> 00:17:26,040 Speaker 1: exactly where I wanted to go, because people say that 328 00:17:26,080 --> 00:17:28,840 Speaker 1: the helicopter money. Sending a thousand dollars to every American 329 00:17:29,320 --> 00:17:31,040 Speaker 1: is great and all, but it's going to take a 330 00:17:31,040 --> 00:17:32,600 Speaker 1: couple of weeks and it's not going to cover the 331 00:17:32,600 --> 00:17:34,840 Speaker 1: mortgage payment in a lot of places, plus all the 332 00:17:34,880 --> 00:17:37,480 Speaker 1: food expenses, et cetera. For people who are out of work. 333 00:17:37,880 --> 00:17:40,879 Speaker 1: People have been pointing very much to the small business 334 00:17:41,000 --> 00:17:43,879 Speaker 1: kind of grants or loans as a way to just 335 00:17:44,000 --> 00:17:47,000 Speaker 1: keep people from getting fired. And I'm wondering, how quickly 336 00:17:47,000 --> 00:17:48,840 Speaker 1: do we have a sense of how quickly that could 337 00:17:48,840 --> 00:17:52,399 Speaker 1: be up and running. Yeah, I think that one of 338 00:17:52,440 --> 00:17:55,400 Speaker 1: the things that they're looking to do is using existing 339 00:17:55,400 --> 00:17:59,760 Speaker 1: authorities through the Small Business Administration that would then tap 340 00:17:59,800 --> 00:18:02,600 Speaker 1: in two banks, so you'd end up having, you know, 341 00:18:02,640 --> 00:18:06,159 Speaker 1: your normal lenders who are already around it would have 342 00:18:06,280 --> 00:18:10,440 Speaker 1: these federally guaranteed loans that they could make, and then 343 00:18:10,520 --> 00:18:14,200 Speaker 1: they'd sorted out later as far as, uh, the forgiveness 344 00:18:14,240 --> 00:18:17,119 Speaker 1: process of that loan, where basically the federal government is 345 00:18:17,240 --> 00:18:22,880 Speaker 1: ultimately paying these loans off. As far as how fast 346 00:18:22,920 --> 00:18:24,560 Speaker 1: they could get up and running, they are hoping to 347 00:18:24,560 --> 00:18:27,320 Speaker 1: get this up and running in weeks. But you know, 348 00:18:27,400 --> 00:18:30,320 Speaker 1: in the meantime, as we know, if we've gotten these 349 00:18:30,320 --> 00:18:33,920 Speaker 1: ancdotal reports from a lot of these states, the unemployment 350 00:18:34,000 --> 00:18:37,240 Speaker 1: claims are soaring. In just the last few days, a 351 00:18:37,240 --> 00:18:39,400 Speaker 1: lot of senators saying that they're getting reports from their 352 00:18:39,440 --> 00:18:42,080 Speaker 1: states that you know, in like the last two or 353 00:18:42,119 --> 00:18:46,119 Speaker 1: three days, they're getting an entire month's worth of of layoffs. 354 00:18:46,200 --> 00:18:49,159 Speaker 1: And if they don't act quickly and assure those businesses 355 00:18:49,640 --> 00:18:51,880 Speaker 1: that they're going to get paid. It's going to get 356 00:18:51,960 --> 00:18:54,359 Speaker 1: much worse. So they want to have a bill done 357 00:18:54,800 --> 00:18:59,160 Speaker 1: potentially out of the Senate this weekend to assure businesses 358 00:18:59,200 --> 00:19:01,960 Speaker 1: so they don't actually fire people. Um. But you know, 359 00:19:02,080 --> 00:19:03,879 Speaker 1: this thing still has to go through the House. You 360 00:19:04,000 --> 00:19:06,480 Speaker 1: still have a lot of negotiations to do. It's going 361 00:19:06,520 --> 00:19:08,320 Speaker 1: to take a while to get things up and running. 362 00:19:08,400 --> 00:19:12,520 Speaker 1: So you know, this is warp speed, as as Mitch 363 00:19:12,600 --> 00:19:15,840 Speaker 1: McConnell has said for the Senate. But warp speed is 364 00:19:15,880 --> 00:19:19,080 Speaker 1: still you know, way behind this virus which is getting 365 00:19:19,240 --> 00:19:22,840 Speaker 1: worse and worse every day. You're seeing the cases in Maryland, 366 00:19:22,920 --> 00:19:27,040 Speaker 1: for example, are up eighty three in two days, um, 367 00:19:27,520 --> 00:19:30,280 Speaker 1: and there's now a hundred and seven cases in Maryland. 368 00:19:30,480 --> 00:19:34,720 Speaker 1: People are worried about shortages at hospitals. Another thing that 369 00:19:34,760 --> 00:19:37,520 Speaker 1: the Democrats are talking about, and you're seeing some talk 370 00:19:37,600 --> 00:19:40,760 Speaker 1: about this from the administration as well, is forbearance on 371 00:19:40,960 --> 00:19:45,480 Speaker 1: all sorts of loans, whether it be mortgages. Uh, maybe 372 00:19:45,520 --> 00:19:49,400 Speaker 1: you extend those mortgages. Uh, you don't have to pay 373 00:19:49,440 --> 00:19:51,720 Speaker 1: them up front. You can you know, sort of skip 374 00:19:51,720 --> 00:19:53,960 Speaker 1: a month. That kind of thing. Same thing with a 375 00:19:53,960 --> 00:19:56,320 Speaker 1: lot of loans and other kinds of loans so that 376 00:19:56,400 --> 00:20:00,720 Speaker 1: people aren't declaring bankruptcy in the next few months. So Steve, 377 00:20:00,760 --> 00:20:04,280 Speaker 1: there's also been aside from getting money to consumers as 378 00:20:04,359 --> 00:20:07,399 Speaker 1: quickly as possible, as also a lot of industry groups 379 00:20:07,400 --> 00:20:10,159 Speaker 1: are saying we need help from the federal government. Is 380 00:20:10,240 --> 00:20:14,439 Speaker 1: Comer's going to take up those industry specific bailout issues 381 00:20:14,640 --> 00:20:18,240 Speaker 1: separately and another later date. What's the feeling there. I 382 00:20:18,280 --> 00:20:22,320 Speaker 1: think there's there's Uh, this is evolving by the hour, 383 00:20:22,720 --> 00:20:25,199 Speaker 1: and I think that there's more and more of a 384 00:20:25,240 --> 00:20:31,080 Speaker 1: sense that they can't go home without dealing with bigger businesses. Um, 385 00:20:31,280 --> 00:20:36,520 Speaker 1: you've got the airlines in particular and other industries. Uh. 386 00:20:36,560 --> 00:20:39,639 Speaker 1: You know, initially we're talking about loans. Now we're talking 387 00:20:39,680 --> 00:20:43,640 Speaker 1: about maybe having some equity stakes and companies if they 388 00:20:43,800 --> 00:20:47,119 Speaker 1: need aid. You know, we saw that with TARP, We 389 00:20:47,160 --> 00:20:50,280 Speaker 1: saw that with the some of the auto bailouts. You know, 390 00:20:51,080 --> 00:20:55,640 Speaker 1: this is looking more and more like the two thousand 391 00:20:55,640 --> 00:20:58,880 Speaker 1: and eight financial crisis, and all the stops are being 392 00:20:58,920 --> 00:21:01,560 Speaker 1: pulled out. Know, if you're a company and you don't 393 00:21:01,600 --> 00:21:05,760 Speaker 1: have a big cash cushion, uh, you know, there's going 394 00:21:05,800 --> 00:21:08,840 Speaker 1: to be a need for some process for keeping them 395 00:21:08,840 --> 00:21:13,000 Speaker 1: afloat Stevendenz, we are speaking with Bloomberg Senate reporter, and 396 00:21:13,000 --> 00:21:15,359 Speaker 1: I'd love to get your perspective and exactly that the 397 00:21:15,480 --> 00:21:21,199 Speaker 1: sort of uncomfortable feeling that certain Republicans probably have considering 398 00:21:21,200 --> 00:21:23,760 Speaker 1: the fact that there was some high criticism of the 399 00:21:23,760 --> 00:21:28,399 Speaker 1: bailouts that were enrolled and used to rescue the auto 400 00:21:28,520 --> 00:21:31,760 Speaker 1: companies the banks back in two thousand and eight. And 401 00:21:31,800 --> 00:21:35,760 Speaker 1: I'm wondering we are hearing, uh, we are hearing leaders 402 00:21:35,840 --> 00:21:38,320 Speaker 1: of the Republican Party telling everyone just hold your nose 403 00:21:38,440 --> 00:21:40,080 Speaker 1: and vote for it, because otherwise we're going to have 404 00:21:40,080 --> 00:21:42,360 Speaker 1: a serious problem on our hands with respect to the economy. 405 00:21:42,359 --> 00:21:45,000 Speaker 1: Can we talk a little bit about the idea of 406 00:21:45,080 --> 00:21:47,879 Speaker 1: owning equity and some of these companies, What are some 407 00:21:47,920 --> 00:21:52,040 Speaker 1: of the other proposals. How close are they to solidifying 408 00:21:52,320 --> 00:21:55,159 Speaker 1: some sort of parameters for bailouts of the airlines, of 409 00:21:55,200 --> 00:21:58,200 Speaker 1: the casinos, of the cruise liners, and other industries that 410 00:21:58,280 --> 00:22:01,200 Speaker 1: might be affected. I think we need to start getting 411 00:22:01,240 --> 00:22:04,280 Speaker 1: to casinos and cruise lines, etcetera. It's gonna be very 412 00:22:04,280 --> 00:22:09,160 Speaker 1: hard for industries like that to get biparisons support. There 413 00:22:09,200 --> 00:22:12,480 Speaker 1: may be some general kinds of supports in here that 414 00:22:12,720 --> 00:22:17,040 Speaker 1: give the administration some flexibility. But that that is when 415 00:22:17,119 --> 00:22:21,320 Speaker 1: it becomes it becomes a very politically dicey for members 416 00:22:21,320 --> 00:22:25,440 Speaker 1: of both parties. Uh. You know, the the Wall Street 417 00:22:25,440 --> 00:22:28,720 Speaker 1: ballot was extremely unpopular. A lot of these senators and 418 00:22:28,760 --> 00:22:32,760 Speaker 1: House members remember remember going through that. But on the 419 00:22:32,760 --> 00:22:35,879 Speaker 1: other hand, they you know, I think a lot of 420 00:22:35,880 --> 00:22:38,800 Speaker 1: the senators and House members who voted for that thought 421 00:22:38,840 --> 00:22:43,080 Speaker 1: as absolutely essential, even though it was unpopular. So, you know, 422 00:22:43,240 --> 00:22:46,200 Speaker 1: this is uh, you know, this is a big, big 423 00:22:46,400 --> 00:22:50,240 Speaker 1: question if you have auto companies and all these other 424 00:22:50,800 --> 00:22:54,240 Speaker 1: companies out there shuttering their factories because the government is 425 00:22:54,280 --> 00:22:57,879 Speaker 1: telling them they have to in many cases, or or 426 00:22:58,000 --> 00:23:02,000 Speaker 1: shops or or shopping mall, etcetera. The government is telling 427 00:23:02,680 --> 00:23:06,160 Speaker 1: businesses to shut their doors or to send people home. 428 00:23:07,080 --> 00:23:09,600 Speaker 1: This is a different situation than two thousand and eight 429 00:23:09,600 --> 00:23:12,600 Speaker 1: and two thousand nine. I've heard Republican senators say, look, 430 00:23:12,640 --> 00:23:16,720 Speaker 1: this isn't really a moral hazard question. Um. Back then, 431 00:23:17,280 --> 00:23:19,560 Speaker 1: one of the big concerns was we're bailing out the 432 00:23:19,600 --> 00:23:24,000 Speaker 1: people who caused the crisis. Um. This time, we're in 433 00:23:24,040 --> 00:23:27,440 Speaker 1: a situation where people are being ordered by the governments 434 00:23:27,520 --> 00:23:30,600 Speaker 1: or their state local governments in many cases to not 435 00:23:30,880 --> 00:23:34,360 Speaker 1: open their doors and there should be some compensation for 436 00:23:34,440 --> 00:23:37,119 Speaker 1: that from the government. That meant because you're doing that 437 00:23:37,200 --> 00:23:40,359 Speaker 1: to benefit all of society. So this is gonna be 438 00:23:40,480 --> 00:23:46,680 Speaker 1: really complicated questions, and so they're they're balancing to big issues. 439 00:23:46,760 --> 00:23:49,760 Speaker 1: One is to move as fast as possible. You know, 440 00:23:49,800 --> 00:23:51,880 Speaker 1: the senators do not want to be in town. House 441 00:23:51,920 --> 00:23:53,720 Speaker 1: members don't want to be in town. We already have 442 00:23:53,760 --> 00:23:58,440 Speaker 1: some House members who are infected. Um. Secondly, they might 443 00:23:58,440 --> 00:24:00,639 Speaker 1: be able to clean this up lay or you know, 444 00:24:01,440 --> 00:24:05,040 Speaker 1: everybody's worrying, worrying about means testing and everything else. You 445 00:24:05,080 --> 00:24:08,040 Speaker 1: can solve that later. And and and it's not like, 446 00:24:08,200 --> 00:24:10,800 Speaker 1: you know, this is the only thing that's ever going 447 00:24:10,840 --> 00:24:12,760 Speaker 1: to be done on this crisis. There's there's going to 448 00:24:12,840 --> 00:24:16,520 Speaker 1: be more legislation coming after this. So Steve, you know, 449 00:24:16,680 --> 00:24:19,200 Speaker 1: just as recently as a couple of days ago, Secretary 450 00:24:19,240 --> 00:24:24,280 Speaker 1: Treasury of the Treasury Minutionum was saying that he intended 451 00:24:24,320 --> 00:24:27,000 Speaker 1: to get cash into hands of consumers within a couple 452 00:24:27,040 --> 00:24:31,199 Speaker 1: of weeks. That is not possible, Is that right? I 453 00:24:31,240 --> 00:24:37,120 Speaker 1: think it's you know, uh, and in a crisis like this, 454 00:24:37,480 --> 00:24:40,320 Speaker 1: it's not clear what's possible and what isn't it took 455 00:24:41,000 --> 00:24:45,160 Speaker 1: many weeks um in two thousand and eight to get 456 00:24:45,200 --> 00:24:48,280 Speaker 1: the checks in the hands of people. UM In two 457 00:24:48,320 --> 00:24:50,560 Speaker 1: thousand and eight, people forget it, but they got six 458 00:24:50,840 --> 00:24:55,480 Speaker 1: d dollar checks. As the fiscal crisis was just getting 459 00:24:55,560 --> 00:24:59,359 Speaker 1: under way. Pelosi and George Bush at the time cut 460 00:24:59,359 --> 00:25:03,359 Speaker 1: a deal UM that was about a hundred and fifty billion, 461 00:25:03,400 --> 00:25:06,480 Speaker 1: if I remember correctly. It took many weeks for those 462 00:25:06,560 --> 00:25:10,320 Speaker 1: checks to go out. I think that the intensity of 463 00:25:10,359 --> 00:25:13,800 Speaker 1: this crisis, of the swiftness of the shock, and the 464 00:25:13,840 --> 00:25:18,200 Speaker 1: fact that it's so sweeping across the country, UM means 465 00:25:19,040 --> 00:25:20,639 Speaker 1: all the stops are going to be pulled out to 466 00:25:20,640 --> 00:25:22,680 Speaker 1: send those checks out as fast as possible. And I 467 00:25:23,080 --> 00:25:26,359 Speaker 1: think that's one of the things that we're hearing behind 468 00:25:26,400 --> 00:25:29,359 Speaker 1: the scenes, is you know, a lot of people have 469 00:25:29,520 --> 00:25:32,960 Speaker 1: various ideas on exactly how you should craft this thing. 470 00:25:33,600 --> 00:25:36,000 Speaker 1: How much money should for a child, should we have 471 00:25:36,160 --> 00:25:38,919 Speaker 1: less for people over a hundred thousand dollars, and income 472 00:25:39,000 --> 00:25:42,760 Speaker 1: all these things that people have their ideas on. But 473 00:25:43,400 --> 00:25:47,320 Speaker 1: the the overwhelming sense seems to be get this out 474 00:25:47,800 --> 00:25:52,360 Speaker 1: fast and and you can solve that problem later. We 475 00:25:52,520 --> 00:25:56,240 Speaker 1: are awaiting members of the coronavirus Task Force to hold 476 00:25:56,320 --> 00:25:58,800 Speaker 1: a press briefing in Washington, d C. In the James 477 00:25:59,119 --> 00:26:02,840 Speaker 1: AS Brady Room, and uh, we have been speaking with 478 00:26:02,880 --> 00:26:09,240 Speaker 1: Stephen Dennis Bloomberg Center reporter Lisa. Let's talk a little 479 00:26:09,240 --> 00:26:12,159 Speaker 1: bit um, you know about the treasury markets. There's been 480 00:26:12,200 --> 00:26:14,480 Speaker 1: a lot of concern about liquidity in the market. What 481 00:26:14,520 --> 00:26:17,080 Speaker 1: are you seeing in over the last couple of days. Yeah, well, 482 00:26:17,119 --> 00:26:19,600 Speaker 1: there's that, and then there's also the question about the dollar. 483 00:26:19,720 --> 00:26:22,520 Speaker 1: But certainly a lot of pretty wild moves. At Al 484 00:26:22,600 --> 00:26:25,520 Speaker 1: HUSSAINI I'm sure has been tracking at all, maybe perhaps 485 00:26:25,520 --> 00:26:28,880 Speaker 1: getting a little nauseated, but watching it. Nonetheless, senior interest 486 00:26:28,920 --> 00:26:32,719 Speaker 1: rate and currency analyst for Columbia Threatened Needle Investments and 487 00:26:32,840 --> 00:26:34,919 Speaker 1: ed I'd love to get your perspective on some of 488 00:26:34,920 --> 00:26:38,800 Speaker 1: the volatility that we have seen recently in the treasury market. 489 00:26:39,000 --> 00:26:41,440 Speaker 1: I know that our Jersey chief of US and straight 490 00:26:41,480 --> 00:26:45,800 Speaker 1: strategist here in at Bloomberg Intelligence is called it dysfunctional 491 00:26:46,920 --> 00:26:51,720 Speaker 1: or also just the dollar. There is absolutely insurmountable climb 492 00:26:51,880 --> 00:26:56,680 Speaker 1: of the dollar. What's going on? Yeah, hi, well thanks 493 00:26:56,680 --> 00:26:58,520 Speaker 1: for having me on, and you know, very quickly, I 494 00:26:58,520 --> 00:27:03,280 Speaker 1: think the the root cause of what we're seeing is 495 00:27:03,720 --> 00:27:07,439 Speaker 1: a rush to cash, and whether that's happening in the 496 00:27:07,520 --> 00:27:11,320 Speaker 1: treasury market space or in the dollar funding space, that 497 00:27:11,400 --> 00:27:15,879 Speaker 1: that lack of confidence in what's going on is really 498 00:27:15,880 --> 00:27:21,680 Speaker 1: precipitated lack uh of liquidity. Now, liquidity problems are most 499 00:27:21,680 --> 00:27:24,840 Speaker 1: acute in the longer end of the treasury curve and 500 00:27:25,080 --> 00:27:28,840 Speaker 1: in credit markets. UH. The FED has started to roll 501 00:27:28,880 --> 00:27:32,280 Speaker 1: out facilities to address some of this, but so far, 502 00:27:32,320 --> 00:27:35,840 Speaker 1: I have to say, UM the target of facilities, and 503 00:27:36,040 --> 00:27:38,040 Speaker 1: there's a whole slew of them that have come online 504 00:27:38,040 --> 00:27:40,160 Speaker 1: in the course of the past week, they have not 505 00:27:40,320 --> 00:27:43,879 Speaker 1: had um I think, a full impact and definitely not 506 00:27:43,960 --> 00:27:47,199 Speaker 1: in the dollar funding space yet. So is there anything 507 00:27:47,520 --> 00:27:51,560 Speaker 1: left in the FEDS toolbox to kind of aid the 508 00:27:51,600 --> 00:27:55,880 Speaker 1: liquidity in the market. I think so. And the way 509 00:27:55,880 --> 00:27:58,640 Speaker 1: I think about the FEDS response is is really there's 510 00:27:58,680 --> 00:28:01,600 Speaker 1: been three channels. There's been in the traditional monetary policy 511 00:28:01,600 --> 00:28:04,280 Speaker 1: where we took set funds down to zero. There's been 512 00:28:04,560 --> 00:28:07,199 Speaker 1: a replay of the two thousand and eight playbook and 513 00:28:07,200 --> 00:28:10,720 Speaker 1: the facilities, whether it's quantitative easing with some of the 514 00:28:10,760 --> 00:28:14,720 Speaker 1: liquidity facilities and credit direct credit facilities that have come online. 515 00:28:15,200 --> 00:28:18,879 Speaker 1: And the third chapter is perhaps the most interesting and 516 00:28:18,920 --> 00:28:22,119 Speaker 1: that's the innovation and the new facilities that they're developing 517 00:28:22,160 --> 00:28:25,320 Speaker 1: to address the current issues. And on that front, the 518 00:28:25,440 --> 00:28:31,159 Speaker 1: intervening directly in credit markets, potentially including corporate credit in 519 00:28:31,320 --> 00:28:35,200 Speaker 1: its quantitative easing program UM could be an interesting step. 520 00:28:35,600 --> 00:28:39,600 Speaker 1: Using yield curve control to set caps on yields at 521 00:28:39,720 --> 00:28:42,920 Speaker 1: longer points in the curve could be the next step. 522 00:28:43,080 --> 00:28:45,600 Speaker 1: So I think the tool kit continues to grow. I 523 00:28:45,600 --> 00:28:48,560 Speaker 1: think the room to experiment is significant, and I think 524 00:28:48,560 --> 00:28:51,720 Speaker 1: the need for them to act is growing daily. I 525 00:28:51,720 --> 00:28:53,840 Speaker 1: want to pick up at on that point where basically 526 00:28:53,920 --> 00:28:56,640 Speaker 1: the idea that the Fedsure Reserve could pull an e 527 00:28:56,720 --> 00:28:58,960 Speaker 1: C B or B o J type move and start 528 00:28:58,960 --> 00:29:01,960 Speaker 1: buying corporate at This is something that was put out 529 00:29:01,960 --> 00:29:05,520 Speaker 1: there by a former Federal Reserve chairs Ben Bernanke and 530 00:29:05,600 --> 00:29:08,240 Speaker 1: Jennet Allen in a recent op ed in the Financial 531 00:29:08,320 --> 00:29:10,200 Speaker 1: Times where they were saying it is time for the 532 00:29:10,240 --> 00:29:13,520 Speaker 1: Federal Reserve to use this tool based on what we've 533 00:29:13,520 --> 00:29:16,000 Speaker 1: seen in Europe in the Bank of Japan, is it 534 00:29:16,080 --> 00:29:20,800 Speaker 1: really effective? UM. I want to say in Europe it's 535 00:29:20,840 --> 00:29:25,680 Speaker 1: been very effective in terms of compressing credit premiums. Now, 536 00:29:26,080 --> 00:29:29,160 Speaker 1: the structure of the financing system is all the different 537 00:29:29,400 --> 00:29:33,400 Speaker 1: European corporates disproportionately depend on bank lending, so the corporate 538 00:29:33,400 --> 00:29:36,520 Speaker 1: bond market is less significant than it is for us 539 00:29:36,520 --> 00:29:39,680 Speaker 1: here in the US. But but I think the lesson 540 00:29:39,760 --> 00:29:41,760 Speaker 1: of the last several years is that that sort of 541 00:29:41,800 --> 00:29:46,600 Speaker 1: intervention is quite effective, and in the current situation where 542 00:29:47,000 --> 00:29:50,480 Speaker 1: the core of the issue that we're facing is in 543 00:29:50,520 --> 00:29:53,640 Speaker 1: liquidity in corporate bond markets, this would get through it 544 00:29:53,760 --> 00:29:56,600 Speaker 1: very directly. You don't have to rely on sort of 545 00:29:56,640 --> 00:30:01,200 Speaker 1: portfolio rebalancing when you purchase treasuries. You can go directly 546 00:30:01,200 --> 00:30:02,760 Speaker 1: to the heart of the problem here the FED and 547 00:30:02,880 --> 00:30:06,040 Speaker 1: use your balantry that way. This is an incredibly controversial 548 00:30:06,080 --> 00:30:09,960 Speaker 1: measure in Europe because people say that it's distorted valuations 549 00:30:10,000 --> 00:30:12,360 Speaker 1: to such a degree that there has been no price discovery. 550 00:30:12,360 --> 00:30:15,920 Speaker 1: And that's one reason why we're getting such violent swings now, 551 00:30:16,080 --> 00:30:19,000 Speaker 1: is because suddenly people have to price in credit risk. 552 00:30:19,040 --> 00:30:21,680 Speaker 1: And I'm wondering, is what we are seeing in the 553 00:30:21,760 --> 00:30:25,400 Speaker 1: corporate depth markets right now the pricing in of true 554 00:30:25,440 --> 00:30:28,600 Speaker 1: credit risk or is it liquidity risk in terms of 555 00:30:28,840 --> 00:30:30,920 Speaker 1: people just having to sell and nobody being on the 556 00:30:30,960 --> 00:30:35,240 Speaker 1: other side. Um, it's a little bit of both, you know. 557 00:30:35,320 --> 00:30:39,200 Speaker 1: At the moment, I would put more weight on the 558 00:30:39,480 --> 00:30:42,040 Speaker 1: liquidity issues. You know, particularly of the course of the 559 00:30:42,120 --> 00:30:45,960 Speaker 1: last several weeks, there's definitely greater credit risk that's being 560 00:30:46,000 --> 00:30:50,120 Speaker 1: priced in UM, but the liquidity issues have have been acute, 561 00:30:50,360 --> 00:30:54,040 Speaker 1: and so from the Fed's perspective, you want to address both. 562 00:30:54,200 --> 00:30:58,160 Speaker 1: You want to make the market more liquid UM and 563 00:30:58,240 --> 00:31:01,080 Speaker 1: you want to compress some of the risk premium out 564 00:31:01,080 --> 00:31:05,160 Speaker 1: of the market. Uh. Whether that's a distortion UM, I 565 00:31:05,200 --> 00:31:07,600 Speaker 1: don't know, but it's I think it's part of the 566 00:31:07,600 --> 00:31:12,959 Speaker 1: FEDS policy mandate to compress risk premiums in a situation 567 00:31:13,000 --> 00:31:15,560 Speaker 1: where you know, we could potentially be going into a recession. 568 00:31:16,360 --> 00:31:18,920 Speaker 1: So I think I think that's the right step. So, 569 00:31:19,040 --> 00:31:20,960 Speaker 1: and how much as we think about some of the 570 00:31:21,000 --> 00:31:24,440 Speaker 1: liquidity issues in the market across asset classes, how much 571 00:31:25,080 --> 00:31:27,720 Speaker 1: is due to the fact that Wall Street just isn't 572 00:31:27,760 --> 00:31:29,880 Speaker 1: what it used to be in terms of trading desks 573 00:31:29,920 --> 00:31:33,080 Speaker 1: and capital deployed and number of traders and things like that. 574 00:31:33,120 --> 00:31:36,920 Speaker 1: How much of that is contributing to it. Yeah. Look, 575 00:31:36,960 --> 00:31:40,680 Speaker 1: I mean at a very high level, the balance sheet 576 00:31:40,800 --> 00:31:44,880 Speaker 1: that Wall Street provides to to intermediate trading is much 577 00:31:44,920 --> 00:31:50,400 Speaker 1: smaller versus where it was predefinancial crisis, uh in part 578 00:31:50,480 --> 00:31:54,520 Speaker 1: due to regulatory changes, UM. And so you know, we're 579 00:31:54,560 --> 00:31:56,400 Speaker 1: you know, we're paying a price for that right now. 580 00:31:57,080 --> 00:31:59,360 Speaker 1: And that's one of the reasons why the fence balance 581 00:31:59,360 --> 00:32:02,120 Speaker 1: sheet does is to look attractive. There just aren't a 582 00:32:02,200 --> 00:32:04,160 Speaker 1: lot of actors out there. There aren't a lot of 583 00:32:04,200 --> 00:32:07,440 Speaker 1: marginal buyers out there UM at the moment to intermediate 584 00:32:07,440 --> 00:32:10,360 Speaker 1: between market players and and the FED could play that role. 585 00:32:10,440 --> 00:32:13,320 Speaker 1: But but you're right, Wall Street is definitely uh smaller 586 00:32:13,320 --> 00:32:17,160 Speaker 1: and less capable of handling dislocations like this. And I'm 587 00:32:17,160 --> 00:32:19,320 Speaker 1: wondering about the dollar. A lot of people have said 588 00:32:19,400 --> 00:32:22,400 Speaker 1: it's to sell everything and get to the dollar type market, 589 00:32:22,480 --> 00:32:26,239 Speaker 1: And I'm wondering what you think could actually stem the 590 00:32:26,320 --> 00:32:28,880 Speaker 1: strength of the dollar, could actually bring it back down 591 00:32:28,880 --> 00:32:32,080 Speaker 1: to earth and perhaps support some of the other currencies 592 00:32:32,120 --> 00:32:36,600 Speaker 1: around the world. Yeah, well, you know, ultimately it's a 593 00:32:36,760 --> 00:32:40,800 Speaker 1: it's a crisis of confidence, UM, and so measures, whether 594 00:32:40,840 --> 00:32:45,840 Speaker 1: they're public health sector issues or the scale and scope 595 00:32:45,840 --> 00:32:49,920 Speaker 1: of the fiscal responses we're seeing UM have to restore confidence. 596 00:32:50,000 --> 00:32:53,520 Speaker 1: I think that's that's essentially the root issue here when 597 00:32:53,520 --> 00:32:55,840 Speaker 1: it comes to the dollar funding market on the FED 598 00:32:55,920 --> 00:32:59,880 Speaker 1: took another step in that direction by providing UH core 599 00:33:00,040 --> 00:33:03,200 Speaker 1: see swap lines to central banks, expanding the number of 600 00:33:03,240 --> 00:33:05,480 Speaker 1: banks they deal with to include some of the major 601 00:33:05,520 --> 00:33:09,840 Speaker 1: emerging market central banks UM like Mexico and Brazil. I 602 00:33:09,880 --> 00:33:13,000 Speaker 1: think that's a significant step in the right direction. We 603 00:33:13,040 --> 00:33:15,760 Speaker 1: have to remember that the folks who use these swap 604 00:33:15,800 --> 00:33:21,480 Speaker 1: lines ultimately are commercial banks. Uh, they are the primary user. 605 00:33:21,880 --> 00:33:25,800 Speaker 1: And if banks field of their stigma attached to drawing 606 00:33:25,840 --> 00:33:28,320 Speaker 1: down these lines, or if banks draw down these lines 607 00:33:28,360 --> 00:33:32,920 Speaker 1: but then don't lend that dollars supply out to corporates, UH, 608 00:33:33,000 --> 00:33:36,080 Speaker 1: it's not going to work. And that that is fundamentally 609 00:33:36,760 --> 00:33:38,760 Speaker 1: a confidence issue, which is why you're seeing the daughter 610 00:33:38,840 --> 00:33:41,880 Speaker 1: bid so aggressively right now. Yeah, thank you so much 611 00:33:41,880 --> 00:33:44,680 Speaker 1: for joining us. We always appreciate your thoughts and commentary. 612 00:33:44,880 --> 00:33:48,360 Speaker 1: Ed Al Husseini, senior interest rates and Currencies analysts for 613 00:33:48,400 --> 00:33:51,720 Speaker 1: Columbia Threat Needle Investments, giving us his thoughts on the 614 00:33:51,720 --> 00:33:55,000 Speaker 1: treasury market, Lisa, and on UH currencies. And you know 615 00:33:55,040 --> 00:33:57,440 Speaker 1: the d X Y index one or one point seven 616 00:33:57,480 --> 00:34:00,440 Speaker 1: here had hit one or two point four earlier night, 617 00:34:00,520 --> 00:34:03,680 Speaker 1: just showing that extraordinary strength UH in in the dollar. 618 00:34:03,800 --> 00:34:08,320 Speaker 1: Just amazing across the board relative to other currencies. Thanks 619 00:34:08,320 --> 00:34:10,640 Speaker 1: for listening to the Bloomberg pen L podcast. You can 620 00:34:10,680 --> 00:34:13,520 Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever 621 00:34:13,560 --> 00:34:16,560 Speaker 1: podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter 622 00:34:16,640 --> 00:34:18,920 Speaker 1: at pt Sweeney. I'm Lisa abram Woy. It's I'm on 623 00:34:18,920 --> 00:34:21,800 Speaker 1: Twitter at Lisa abram woits one before the podcast. You 624 00:34:21,840 --> 00:34:24,360 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio.