Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you.
Speaker 1: Along with my co host Lisa brahma Witz. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money, whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. You know, as we think about
Speaker 1: the volatility and we experienced the volatility in the markets,
Speaker 1: one new area of investing that wasn't as developed back
Speaker 1: in the financial crisis is E t F to get
Speaker 1: a sense of how that's sector of the market is
Speaker 1: performing or really fortunate to have Samura Cohen, head of
Speaker 1: I Shares Global Markets at black Rock, joining us on
Speaker 1: the phone. So Sama, give us a sense of how
Speaker 1: the world of E t F trading is behaving given
Speaker 1: these extraordinary market uh moves where we've been seeing. Hi,
Speaker 1: thanks very much for having me. So let me give
Speaker 1: you two stats in to your point. E t F
Speaker 1: trading has grown a lot over the last ten years,
Speaker 1: and even E t F trade was a significant portion
Speaker 1: of US equity treating, averaging at about twenty seven percent
Speaker 1: of a US equity volume on a daily basis. So
Speaker 1: what we have seen, and we've seen this in other
Speaker 1: high velocity markets before, although this one is really extraordinary,
Speaker 1: is that e t F usage is really positively correlated
Speaker 1: with volatility. When the VIX spikes, E t F usage spikes,
Speaker 1: and also when liquidity goes down, E t F usage
Speaker 1: goes up. So what we've seen over the past two
Speaker 1: weeks is e t fs. Remember that seven percent average
Speaker 1: in really hovering at thirty eight of volume of of
Speaker 1: US equity volumes on a daily basis. And by the way,
Speaker 1: the story is being repeated around the world with volumes
Speaker 1: being set in European e t s as well. A
Speaker 1: lot of people, including Eric Buns of Bloomberg Intelligence, has
Speaker 1: been talking about how e t f s have actually
Speaker 1: provided a host of liquidity at a very volatile time
Speaker 1: and when people are trying to discover the right levels.
Speaker 1: I think that that is born out with a lot
Speaker 1: of e t f s. There is a question, however,
Speaker 1: about the bond e t f s and some of
Speaker 1: the dislocations that we have seen, particularly uh with the
Speaker 1: shares trading significantly below, where the assets that underlie the
Speaker 1: t fs are valued at and I'm just wondering if
Speaker 1: you could speak to some of the dislocations and and
Speaker 1: sort of, uh, speak to some people who are saying
Speaker 1: this could just create a spiral, a downward spiral leading
Speaker 1: to for selling and further declines. Yeah. Absolutely, But let
Speaker 1: me get to your first point, to which is you
Speaker 1: know why our investors looking to e t s in
Speaker 1: times like this. I think you know, as we've been
Speaker 1: hearing in every market and listening to every news reports,
Speaker 1: these are times without a lot of transparency and without
Speaker 1: a lot of certainty. And what e t f s
Speaker 1: offer investors is transparency in terms of what's in the
Speaker 1: fund and where you can transact it, and certainty of
Speaker 1: market access, and both of those things are valued highly,
Speaker 1: and that's what we're seeing in the velocity of e
Speaker 1: t F trade. So to get to your answer, to
Speaker 1: get to your question, let me give you a specific
Speaker 1: example that I think is instructive and indicative of what
Speaker 1: we've seen in e t s fixed income e t
Speaker 1: s across several asset classes, and that's taking our high
Speaker 1: yield e t S l q D, which, as you noted,
Speaker 1: traded at an unusually large discount to its n A
Speaker 1: V on Thursday, March twelve. That discount was about five percent.
Speaker 1: It's since normalized a bit too, about half of that
Speaker 1: to two percent. So on that day, l q D
Speaker 1: traded over eighty nine thousand times on exchange. If I
Speaker 1: look at its top holdings, which are bonds like Verizon
Speaker 1: cvs g S, those bonds traded on average thirty times each,
Speaker 1: between nine at the lowest and like fifty four at
Speaker 1: the highest. So what you're seeing is that trading is
Speaker 1: occurring in and and therefore price discovery is occurring in
Speaker 1: l q D much less so the underlying markets. And
Speaker 1: so therefore that five percent and if you dig a
Speaker 1: little bit more, what you will see is that five
Speaker 1: percent um UH lower price, much more closely tracked the
Speaker 1: more frequently treated um UH bonds that were in l
Speaker 1: q d's portfolio. So in these types of scenarios, what
Speaker 1: we say is l q d s price and that
Speaker 1: gap is transmitting a lot of real time information about
Speaker 1: bond market conditions which I know you've been reporting on,
Speaker 1: which are that bonds aren't trading. It is hard to
Speaker 1: find the other side of you know, uh, some of
Speaker 1: these top holdings, let alone the portfolio of bonds and
Speaker 1: l q D, and therefore for immediate liquidity and price discovery,
Speaker 1: investors are turning to l q D. So in these
Speaker 1: scenarios that UM, that information tells you the price of
Speaker 1: liquidity in this you know, really extraordinary and and at
Speaker 1: this time dislocated bond market a summer. Just give us
Speaker 1: a sense of fund flows in and out of EAT. Yes,
Speaker 1: you know, are there any notable moves that you're seeing
Speaker 1: in your various products? So look, I think notably we
Speaker 1: are seeing outflows in fixed income. But to put that
Speaker 1: in context, the outflows are a fraction of that on
Speaker 1: exchange trading, which again underscores the point as to UM
Speaker 1: conditions in the underlying bond market. So if we take
Speaker 1: h y G, which had a record volume week of
Speaker 1: about forty billion two weeks ago, right after the oil
Speaker 1: headline news UM in that week, h y G head
Speaker 1: outflows that were four hundred millions, So that was a
Speaker 1: ten to one ratio of volume trading in the secondary
Speaker 1: markets where no bond sword trading m versus actual flows
Speaker 1: out of the bond. So again importantly, the risk transfer
Speaker 1: and the velocity that we're seeing in in UM ETFs
Speaker 1: is really happening much more on exchange than in the
Speaker 1: underlying bond market, which is why I would very much
Speaker 1: take the other side of that statement, um, in terms
Speaker 1: of e t s um uh causing any sort of spiral.
Speaker 1: I don't remember exactly what you said. In this market,
Speaker 1: ETFs are providing a release valve to exchange risks without
Speaker 1: tapping the underlying bond market. Samara, just I want to
Speaker 1: take a step back to wrap this all up. You
Speaker 1: talk about the incredible volatility and the incredible volumes and
Speaker 1: the price discovery mechanism that has become really the E
Speaker 1: t f S hallmark, and I'm wondering if you get
Speaker 1: a sense of who is behind a lot of this activity,
Speaker 1: I mean, does this really highlight how e t f
Speaker 1: s have become an institutional tool or are we seeing
Speaker 1: mom and pop investors turning to these in order to
Speaker 1: withdraw money or perhaps park money in cash. Like ETFs,
Speaker 1: et s are used broadly by lots of different types
Speaker 1: of investors. In this environment and this velocity of trade.
Speaker 1: Et f s are being used by thanks broker dealers
Speaker 1: as inventory management tools. UM, They're not being used uh
Speaker 1: in these volatle markets by by individual investors, but they
Speaker 1: are a really important tool to bond market participants across
Speaker 1: the board. Samerica and thank you so much for being
Speaker 1: with us, who really appreciated Samerica and head of I
Speaker 1: Shares Global Markets at black Rock, And it's really been
Speaker 1: important Paul to look at the E t F complex
Speaker 1: because of exactly what Samara was saying, which is the
Speaker 1: incredible volumes that we have seen in the incredible UH
Speaker 1: price action and and some of the questions around bond ETFs.
Speaker 1: Samara kind of highlighting the other side of people who
Speaker 1: are arguing about a death spiral, like Peter Sheer, I
Speaker 1: know of Accadabase securities, saying, you know, honestly, this is
Speaker 1: just a tool for price discovery and has served that function,
Speaker 1: and certainly we haven't necessarily seen, you know, the real
Speaker 1: sort of dire scenarios come to pass as a lot
Speaker 1: of people have postulated in the past. Let's bring in
Speaker 1: a mart van Ark. He's a chief economist at the
Speaker 1: Conference board UH, a regular guest with Lisa and mice Off. Bart,
Speaker 1: thanks so much for joining us. All right, let's try
Speaker 1: to reset a little bit here. Bart. We we know
Speaker 1: that this is uncharted territory. Give us your sense of
Speaker 1: what you think the economic impact will be from this
Speaker 1: virus for the remainder of Well, it's obviously daunting at
Speaker 1: a moment to put out any forecast because the situation
Speaker 1: is almost changing every moment. But you know today that
Speaker 1: you released our leading economic index for February. This was
Speaker 1: before uh, this whole episode started to involve involved in
Speaker 1: the Western world, um, and that was still up at
Speaker 1: that time. And actually that gives one little piece of evidence,
Speaker 1: and that they said, at least at the minimum, we're
Speaker 1: entering this very difficult period in a relatively good shape.
Speaker 1: But that's particularly important when it comes to the labor
Speaker 1: markets and when it comes to consumption. Simply the fact
Speaker 1: that unemployment was low, that household balance sheets were pretty strong,
Speaker 1: and therefore consumption strong helps to cushing the effects possibly.
Speaker 1: But obviously that index is all news now because we
Speaker 1: have to look forward. Actually just mentioned unemployment claims are
Speaker 1: up in a in a very worrying way. That really
Speaker 1: concerns us a lot. That's the first thing to look at,
Speaker 1: whether the labor market is going to move. We had
Speaker 1: a hope that companies would hold on to the workers
Speaker 1: for for the time being, it might very well be
Speaker 1: that these unemployment claims are primarily small and medium enterprises.
Speaker 1: But if there's one thing necessary, it is for government,
Speaker 1: federal and state, as well as businesses to think of
Speaker 1: any tool an instrument to keep people on the payroll,
Speaker 1: because that would really turns out. Consumer confidence is the
Speaker 1: next thing that will fall if the labor market is
Speaker 1: going to weaken um and that would really put us
Speaker 1: into a very weak territory for the next quarter, next
Speaker 1: quarter or two probably part Anecdotally, we are hearing about
Speaker 1: major airlines for lowing staff without pay. We're hearing about
Speaker 1: major restaurant companies also cutting back staff. To your point
Speaker 1: that you're wondering whether people would hold on the staff,
Speaker 1: and a lot of people are arguing ahead of this
Speaker 1: that people would want to hold onto the workers because
Speaker 1: they would think that it would be so much harder
Speaker 1: to hire them back afterwards. Are you changing that narrative?
Speaker 1: Do you think that that narrative is now incorrect, that
Speaker 1: there is sort of a pressure just to stay in
Speaker 1: business cut all costs because revenues have gone to zero
Speaker 1: in a number of industries. Yeah, we're worried about that. Again,
Speaker 1: these unemployment claims. You really have to kind of unpack
Speaker 1: them a little bit to see where is this happening,
Speaker 1: which states is happening because states have somewhat different policies
Speaker 1: when it comes to finding these unemployment claims. Sometimes you
Speaker 1: have to go in person to to to to an
Speaker 1: employment office to claim them. Sometimes you can do it online.
Speaker 1: So you've got to look at these kinds of things.
Speaker 1: But I think it's absolutely critical to see where is
Speaker 1: this happening. And there's a real difference between furloughs and
Speaker 1: pay cuts. First letting people go because you know, we're
Speaker 1: in the middle of this change towards the new normal.
Speaker 1: We're not in a new normal yet, we're kind of
Speaker 1: in a sort of panic mode. And to actually let
Speaker 1: people go in that situation and then may bee in,
Speaker 1: you know, a couple of weeks time and things are
Speaker 1: beginning to normalize. Won't be good, but at least beginning
Speaker 1: to normalize. And you suddenly see you let staff go
Speaker 1: that you may not be able to get easily back.
Speaker 1: So finding ways to keep people on your pay roll,
Speaker 1: even if you have to pay a price or as
Speaker 1: a cost, or even if the workers themselves have to
Speaker 1: forgo some of the cuts. I think it's a very
Speaker 1: different way than just letting people go. So holding onto
Speaker 1: your people, I think is the key thing that we're
Speaker 1: looking at. So Bart, I mean, I think the early
Speaker 1: stages of this crisis, i'mthing in just several weeks ago, Uh,
Speaker 1: many accountoms were suggesting a V shaped economic cycle here
Speaker 1: where we're gonna have a sharp downturn in the second quarter. Uh,
Speaker 1: but then pick right back up in the third and
Speaker 1: fourth quarter. Um, do you have any sense or any
Speaker 1: confidence in that or or is it just two fluid
Speaker 1: right now? Yeah, that's a really important point. I mean,
Speaker 1: instead of just looking at the numbers, whether the context
Speaker 1: is going to be two percent or five percent or
Speaker 1: ten percent, it's much more important to look at that
Speaker 1: shape of the curve. So yeah, there quite a few
Speaker 1: forecasts out there that show very deep contraction happening now,
Speaker 1: but then expect the quick rebounds uh later on. That's
Speaker 1: a V shaped curve. I think that one really is
Speaker 1: unlikely for for a whole bunch of reasons. One of
Speaker 1: them very importantly is that the first hit is really
Speaker 1: on a lot of services sectors. So you know, if
Speaker 1: you don't take your meal now, you're not going to
Speaker 1: take two meals next month, if you see what I mean.
Speaker 1: And that's true for many of these issues. So I
Speaker 1: think V shape is unlikely. The U shape as we
Speaker 1: call it, which means that you know, we're spreading this,
Speaker 1: This is going to be spread out over time, to me,
Speaker 1: seems more likely. Let's assumed that the attempt to flatten
Speaker 1: the curve of new cases to avoid the peak, but
Speaker 1: flattened the curve of new cases over over two quarters
Speaker 1: or pass even more. That's a good thing because it
Speaker 1: really reduces the health challenges that we're having. But from
Speaker 1: an economic point of view, we're also spreading the pain
Speaker 1: over time. That's why I think, you know, we might
Speaker 1: at the minimum see two quarters of contraction. Maybe not,
Speaker 1: may not be as deep as some people think, but
Speaker 1: it will be better for quite a while. My biggest
Speaker 1: worry is what we call an L shape, and an
Speaker 1: L shape is that you know, this goes on for
Speaker 1: a much longer time. You know, maybe it gets a
Speaker 1: little bit less over the summer, who knows, but then
Speaker 1: we're back into this by the end of the year,
Speaker 1: and then it could actually permanently lower the level of
Speaker 1: economic activity. It's in what was already a fairly slow
Speaker 1: economy to begin with, and that would of course be
Speaker 1: a real new normal that could be better for quite
Speaker 1: a while. Very hard to say, but I think for
Speaker 1: US economists to really think that through and how businesses
Speaker 1: to understand what it means for the long term planning.
Speaker 1: We have the word belief that's really important. Now we're
Speaker 1: speaking with Bart van Are, chief economist at the Conference Board,
Speaker 1: and at Bart, I want to pick up on what
Speaker 1: you said, the idea of an L shaped non recovery,
Speaker 1: that this could just permanently lower the overall growth rate
Speaker 1: for I mean permanent whatever that means, I guess going forward.
Speaker 1: I'm curious what that means in terms of are you
Speaker 1: forecasting an increasing likelihood of this sort of depression like
Speaker 1: scenario or is this just you know, grinding ahead at
Speaker 1: an even slower pace than we already were. Look, it's
Speaker 1: tempting at this point in time to think about worst
Speaker 1: case scenarios and and of course companies have to think
Speaker 1: about this now. You've got you have to be in
Speaker 1: this scenario mode now and plan for those. So, yeah,
Speaker 1: a worst case scenario like that that this could be
Speaker 1: with us for three years and could permanently depress the economy,
Speaker 1: whether it's whether it's continuous contraction or really slow growth.
Speaker 1: I don't know. I think that it is tempting to do,
Speaker 1: and I think you have to do some of this,
Speaker 1: But I think it's much more likely that once after
Speaker 1: two or three weeks, we're going to set in this
Speaker 1: sort of new normal, that we have to begin to
Speaker 1: think how we're going to do business in the in
Speaker 1: the in the next few months in this kind of environment.
Speaker 1: You know, manufacturing firms who are now working A and
Speaker 1: B ships with fewer people on the shop floor at
Speaker 1: one point in time, how are you going to do
Speaker 1: that and how they can you keep your capacity up?
Speaker 1: Um services firms where everybody is working remote. Those are
Speaker 1: the real questions that businesses have to work themselves through.
Speaker 1: How can we do business in this kind of new environment. Yes,
Speaker 1: at the background are these worst case scenarios. We're not
Speaker 1: yet at the point to begin to frame those out,
Speaker 1: but obviously you know in the medium term that's what
Speaker 1: we will need to do. Bart van Art, thanks so
Speaker 1: much for joining us. We really appreciate your perspective. Bart
Speaker 1: van our chief economist at the conference board. Let's get
Speaker 1: a sense of what's going on in Washington, d C.
Speaker 1: In terms of coronavirus fiscal stimulus coming out of the Capitol.
Speaker 1: Steven Dennis Bloomberg, Senate reporter, joins us. Steve, thanks so
Speaker 1: much for joining us. Give us the latest on kind
Speaker 1: of where we are with the various pieces of legislation
Speaker 1: within Congress any administration. Yeah, so Senate Republicans this morning
Speaker 1: are compiling a very large simulus package. You're expecting it
Speaker 1: to be well over a trillion dollars UM, but we
Speaker 1: don't yet have the exact details. You know, they had
Speaker 1: three task forces putting it together over the past day
Speaker 1: and a half. They hope to get something to major
Speaker 1: or leader Men McConnell this morning so he can compile
Speaker 1: it and then walk across the hallway and start negotiating
Speaker 1: with Chuck Schumer, who has his own nearly trillion dollar
Speaker 1: package UM with very different ideas UM. And then you've
Speaker 1: got House Democrats, you know, various House Democrats are proposing
Speaker 1: various plans of their own, whether it be Ilhan Omar
Speaker 1: who wants similar big checks to what Secret Treasury Secretary
Speaker 1: Minutition has talked about. Maxine Waters wants even bigger checks UM.
Speaker 1: A lot of other Democrats want things that are more
Speaker 1: traditional aid things like food stamps and unemployment insurance. But
Speaker 1: two ideas that have gotten a traction in both parties
Speaker 1: is this idea of sending everybody a check, maybe with
Speaker 1: some means testing, um, trying to figure out what the
Speaker 1: level is, whether it's one thousand or two thousand dollars
Speaker 1: or more. And then the second thing that has pretty
Speaker 1: widespread support is a lot of support for small businesses
Speaker 1: planned by Susan Collins and Marco Rubio would send three
Speaker 1: hundred billion dollars covering all of their expenses, uh until
Speaker 1: this crisis is over, and that would initially be alone,
Speaker 1: but if they don't lay people off, it becomes like grant.
Speaker 1: So that's a huge support for small businesses. Stephen, That's
Speaker 1: exactly where I wanted to go, because people say that
Speaker 1: the helicopter money. Sending a thousand dollars to every American
Speaker 1: is great and all, but it's going to take a
Speaker 1: couple of weeks and it's not going to cover the
Speaker 1: mortgage payment in a lot of places, plus all the
Speaker 1: food expenses, et cetera. For people who are out of work.
Speaker 1: People have been pointing very much to the small business
Speaker 1: kind of grants or loans as a way to just
Speaker 1: keep people from getting fired. And I'm wondering, how quickly
Speaker 1: do we have a sense of how quickly that could
Speaker 1: be up and running. Yeah, I think that one of
Speaker 1: the things that they're looking to do is using existing
Speaker 1: authorities through the Small Business Administration that would then tap
Speaker 1: in two banks, so you'd end up having, you know,
Speaker 1: your normal lenders who are already around it would have
Speaker 1: these federally guaranteed loans that they could make, and then
Speaker 1: they'd sorted out later as far as, uh, the forgiveness
Speaker 1: process of that loan, where basically the federal government is
Speaker 1: ultimately paying these loans off. As far as how fast
Speaker 1: they could get up and running, they are hoping to
Speaker 1: get this up and running in weeks. But you know,
Speaker 1: in the meantime, as we know, if we've gotten these
Speaker 1: ancdotal reports from a lot of these states, the unemployment
Speaker 1: claims are soaring. In just the last few days, a
Speaker 1: lot of senators saying that they're getting reports from their
Speaker 1: states that you know, in like the last two or
Speaker 1: three days, they're getting an entire month's worth of of layoffs.
Speaker 1: And if they don't act quickly and assure those businesses
Speaker 1: that they're going to get paid. It's going to get
Speaker 1: much worse. So they want to have a bill done
Speaker 1: potentially out of the Senate this weekend to assure businesses
Speaker 1: so they don't actually fire people. Um. But you know,
Speaker 1: this thing still has to go through the House. You
Speaker 1: still have a lot of negotiations to do. It's going
Speaker 1: to take a while to get things up and running.
Speaker 1: So you know, this is warp speed, as as Mitch
Speaker 1: McConnell has said for the Senate. But warp speed is
Speaker 1: still you know, way behind this virus which is getting
Speaker 1: worse and worse every day. You're seeing the cases in Maryland,
Speaker 1: for example, are up eighty three in two days, um,
Speaker 1: and there's now a hundred and seven cases in Maryland.
Speaker 1: People are worried about shortages at hospitals. Another thing that
Speaker 1: the Democrats are talking about, and you're seeing some talk
Speaker 1: about this from the administration as well, is forbearance on
Speaker 1: all sorts of loans, whether it be mortgages. Uh, maybe
Speaker 1: you extend those mortgages. Uh, you don't have to pay
Speaker 1: them up front. You can you know, sort of skip
Speaker 1: a month. That kind of thing. Same thing with a
Speaker 1: lot of loans and other kinds of loans so that
Speaker 1: people aren't declaring bankruptcy in the next few months. So Steve,
Speaker 1: there's also been aside from getting money to consumers as
Speaker 1: quickly as possible, as also a lot of industry groups
Speaker 1: are saying we need help from the federal government. Is
Speaker 1: Comer's going to take up those industry specific bailout issues
Speaker 1: separately and another later date. What's the feeling there. I
Speaker 1: think there's there's Uh, this is evolving by the hour,
Speaker 1: and I think that there's more and more of a
Speaker 1: sense that they can't go home without dealing with bigger businesses. Um,
Speaker 1: you've got the airlines in particular and other industries. Uh.
Speaker 1: You know, initially we're talking about loans. Now we're talking
Speaker 1: about maybe having some equity stakes and companies if they
Speaker 1: need aid. You know, we saw that with TARP, We
Speaker 1: saw that with the some of the auto bailouts. You know,
Speaker 1: this is looking more and more like the two thousand
Speaker 1: and eight financial crisis, and all the stops are being
Speaker 1: pulled out. Know, if you're a company and you don't
Speaker 1: have a big cash cushion, uh, you know, there's going
Speaker 1: to be a need for some process for keeping them
Speaker 1: afloat Stevendenz, we are speaking with Bloomberg Senate reporter, and
Speaker 1: I'd love to get your perspective and exactly that the
Speaker 1: sort of uncomfortable feeling that certain Republicans probably have considering
Speaker 1: the fact that there was some high criticism of the
Speaker 1: bailouts that were enrolled and used to rescue the auto
Speaker 1: companies the banks back in two thousand and eight. And
Speaker 1: I'm wondering we are hearing, uh, we are hearing leaders
Speaker 1: of the Republican Party telling everyone just hold your nose
Speaker 1: and vote for it, because otherwise we're going to have
Speaker 1: a serious problem on our hands with respect to the economy.
Speaker 1: Can we talk a little bit about the idea of
Speaker 1: owning equity and some of these companies, What are some
Speaker 1: of the other proposals. How close are they to solidifying
Speaker 1: some sort of parameters for bailouts of the airlines, of
Speaker 1: the casinos, of the cruise liners, and other industries that
Speaker 1: might be affected. I think we need to start getting
Speaker 1: to casinos and cruise lines, etcetera. It's gonna be very
Speaker 1: hard for industries like that to get biparisons support. There
Speaker 1: may be some general kinds of supports in here that
Speaker 1: give the administration some flexibility. But that that is when
Speaker 1: it becomes it becomes a very politically dicey for members
Speaker 1: of both parties. Uh. You know, the the Wall Street
Speaker 1: ballot was extremely unpopular. A lot of these senators and
Speaker 1: House members remember remember going through that. But on the
Speaker 1: other hand, they you know, I think a lot of
Speaker 1: the senators and House members who voted for that thought
Speaker 1: as absolutely essential, even though it was unpopular. So, you know,
Speaker 1: this is uh, you know, this is a big, big
Speaker 1: question if you have auto companies and all these other
Speaker 1: companies out there shuttering their factories because the government is
Speaker 1: telling them they have to in many cases, or or
Speaker 1: shops or or shopping mall, etcetera. The government is telling
Speaker 1: businesses to shut their doors or to send people home.
Speaker 1: This is a different situation than two thousand and eight
Speaker 1: and two thousand nine. I've heard Republican senators say, look,
Speaker 1: this isn't really a moral hazard question. Um. Back then,
Speaker 1: one of the big concerns was we're bailing out the
Speaker 1: people who caused the crisis. Um. This time, we're in
Speaker 1: a situation where people are being ordered by the governments
Speaker 1: or their state local governments in many cases to not
Speaker 1: open their doors and there should be some compensation for
Speaker 1: that from the government. That meant because you're doing that
Speaker 1: to benefit all of society. So this is gonna be
Speaker 1: really complicated questions, and so they're they're balancing to big issues.
Speaker 1: One is to move as fast as possible. You know,
Speaker 1: the senators do not want to be in town. House
Speaker 1: members don't want to be in town. We already have
Speaker 1: some House members who are infected. Um. Secondly, they might
Speaker 1: be able to clean this up lay or you know,
Speaker 1: everybody's worrying, worrying about means testing and everything else. You
Speaker 1: can solve that later. And and and it's not like,
Speaker 1: you know, this is the only thing that's ever going
Speaker 1: to be done on this crisis. There's there's going to
Speaker 1: be more legislation coming after this. So Steve, you know,
Speaker 1: just as recently as a couple of days ago, Secretary
Speaker 1: Treasury of the Treasury Minutionum was saying that he intended
Speaker 1: to get cash into hands of consumers within a couple
Speaker 1: of weeks. That is not possible, Is that right? I
Speaker 1: think it's you know, uh, and in a crisis like this,
Speaker 1: it's not clear what's possible and what isn't it took
Speaker 1: many weeks um in two thousand and eight to get
Speaker 1: the checks in the hands of people. UM In two
Speaker 1: thousand and eight, people forget it, but they got six
Speaker 1: d dollar checks. As the fiscal crisis was just getting
Speaker 1: under way. Pelosi and George Bush at the time cut
Speaker 1: a deal UM that was about a hundred and fifty billion,
Speaker 1: if I remember correctly. It took many weeks for those
Speaker 1: checks to go out. I think that the intensity of
Speaker 1: this crisis, of the swiftness of the shock, and the
Speaker 1: fact that it's so sweeping across the country, UM means
Speaker 1: all the stops are going to be pulled out to
Speaker 1: send those checks out as fast as possible. And I
Speaker 1: think that's one of the things that we're hearing behind
Speaker 1: the scenes, is you know, a lot of people have
Speaker 1: various ideas on exactly how you should craft this thing.
Speaker 1: How much money should for a child, should we have
Speaker 1: less for people over a hundred thousand dollars, and income
Speaker 1: all these things that people have their ideas on. But
Speaker 1: the the overwhelming sense seems to be get this out
Speaker 1: fast and and you can solve that problem later. We
Speaker 1: are awaiting members of the coronavirus Task Force to hold
Speaker 1: a press briefing in Washington, d C. In the James
Speaker 1: AS Brady Room, and uh, we have been speaking with
Speaker 1: Stephen Dennis Bloomberg Center reporter Lisa. Let's talk a little
Speaker 1: bit um, you know about the treasury markets. There's been
Speaker 1: a lot of concern about liquidity in the market. What
Speaker 1: are you seeing in over the last couple of days. Yeah, well,
Speaker 1: there's that, and then there's also the question about the dollar.
Speaker 1: But certainly a lot of pretty wild moves. At Al
Speaker 1: HUSSAINI I'm sure has been tracking at all, maybe perhaps
Speaker 1: getting a little nauseated, but watching it. Nonetheless, senior interest
Speaker 1: rate and currency analyst for Columbia Threatened Needle Investments and
Speaker 1: ed I'd love to get your perspective on some of
Speaker 1: the volatility that we have seen recently in the treasury market.
Speaker 1: I know that our Jersey chief of US and straight
Speaker 1: strategist here in at Bloomberg Intelligence is called it dysfunctional
Speaker 1: or also just the dollar. There is absolutely insurmountable climb
Speaker 1: of the dollar. What's going on? Yeah, hi, well thanks
Speaker 1: for having me on, and you know, very quickly, I
Speaker 1: think the the root cause of what we're seeing is
Speaker 1: a rush to cash, and whether that's happening in the
Speaker 1: treasury market space or in the dollar funding space, that
Speaker 1: that lack of confidence in what's going on is really
Speaker 1: precipitated lack uh of liquidity. Now, liquidity problems are most
Speaker 1: acute in the longer end of the treasury curve and
Speaker 1: in credit markets. UH. The FED has started to roll
Speaker 1: out facilities to address some of this, but so far,
Speaker 1: I have to say, UM the target of facilities, and
Speaker 1: there's a whole slew of them that have come online
Speaker 1: in the course of the past week, they have not
Speaker 1: had um I think, a full impact and definitely not
Speaker 1: in the dollar funding space yet. So is there anything
Speaker 1: left in the FEDS toolbox to kind of aid the
Speaker 1: liquidity in the market. I think so. And the way
Speaker 1: I think about the FEDS response is is really there's
Speaker 1: been three channels. There's been in the traditional monetary policy
Speaker 1: where we took set funds down to zero. There's been
Speaker 1: a replay of the two thousand and eight playbook and
Speaker 1: the facilities, whether it's quantitative easing with some of the
Speaker 1: liquidity facilities and credit direct credit facilities that have come online.
Speaker 1: And the third chapter is perhaps the most interesting and
Speaker 1: that's the innovation and the new facilities that they're developing
Speaker 1: to address the current issues. And on that front, the
Speaker 1: intervening directly in credit markets, potentially including corporate credit in
Speaker 1: its quantitative easing program UM could be an interesting step.
Speaker 1: Using yield curve control to set caps on yields at
Speaker 1: longer points in the curve could be the next step.
Speaker 1: So I think the tool kit continues to grow. I
Speaker 1: think the room to experiment is significant, and I think
Speaker 1: the need for them to act is growing daily. I
Speaker 1: want to pick up at on that point where basically
Speaker 1: the idea that the Fedsure Reserve could pull an e
Speaker 1: C B or B o J type move and start
Speaker 1: buying corporate at This is something that was put out
Speaker 1: there by a former Federal Reserve chairs Ben Bernanke and
Speaker 1: Jennet Allen in a recent op ed in the Financial
Speaker 1: Times where they were saying it is time for the
Speaker 1: Federal Reserve to use this tool based on what we've
Speaker 1: seen in Europe in the Bank of Japan, is it
Speaker 1: really effective? UM. I want to say in Europe it's
Speaker 1: been very effective in terms of compressing credit premiums. Now,
Speaker 1: the structure of the financing system is all the different
Speaker 1: European corporates disproportionately depend on bank lending, so the corporate
Speaker 1: bond market is less significant than it is for us
Speaker 1: here in the US. But but I think the lesson
Speaker 1: of the last several years is that that sort of
Speaker 1: intervention is quite effective, and in the current situation where
Speaker 1: the core of the issue that we're facing is in
Speaker 1: liquidity in corporate bond markets, this would get through it
Speaker 1: very directly. You don't have to rely on sort of
Speaker 1: portfolio rebalancing when you purchase treasuries. You can go directly
Speaker 1: to the heart of the problem here the FED and
Speaker 1: use your balantry that way. This is an incredibly controversial
Speaker 1: measure in Europe because people say that it's distorted valuations
Speaker 1: to such a degree that there has been no price discovery.
Speaker 1: And that's one reason why we're getting such violent swings now,
Speaker 1: is because suddenly people have to price in credit risk.
Speaker 1: And I'm wondering, is what we are seeing in the
Speaker 1: corporate depth markets right now the pricing in of true
Speaker 1: credit risk or is it liquidity risk in terms of
Speaker 1: people just having to sell and nobody being on the
Speaker 1: other side. Um, it's a little bit of both, you know.
Speaker 1: At the moment, I would put more weight on the
Speaker 1: liquidity issues. You know, particularly of the course of the
Speaker 1: last several weeks, there's definitely greater credit risk that's being
Speaker 1: priced in UM, but the liquidity issues have have been acute,
Speaker 1: and so from the Fed's perspective, you want to address both.
Speaker 1: You want to make the market more liquid UM and
Speaker 1: you want to compress some of the risk premium out
Speaker 1: of the market. Uh. Whether that's a distortion UM, I
Speaker 1: don't know, but it's I think it's part of the
Speaker 1: FEDS policy mandate to compress risk premiums in a situation
Speaker 1: where you know, we could potentially be going into a recession.
Speaker 1: So I think I think that's the right step. So,
Speaker 1: and how much as we think about some of the
Speaker 1: liquidity issues in the market across asset classes, how much
Speaker 1: is due to the fact that Wall Street just isn't
Speaker 1: what it used to be in terms of trading desks
Speaker 1: and capital deployed and number of traders and things like that.
Speaker 1: How much of that is contributing to it. Yeah. Look,
Speaker 1: I mean at a very high level, the balance sheet
Speaker 1: that Wall Street provides to to intermediate trading is much
Speaker 1: smaller versus where it was predefinancial crisis, uh in part
Speaker 1: due to regulatory changes, UM. And so you know, we're
Speaker 1: you know, we're paying a price for that right now.
Speaker 1: And that's one of the reasons why the fence balance
Speaker 1: sheet does is to look attractive. There just aren't a
Speaker 1: lot of actors out there. There aren't a lot of
Speaker 1: marginal buyers out there UM at the moment to intermediate
Speaker 1: between market players and and the FED could play that role.
Speaker 1: But but you're right, Wall Street is definitely uh smaller
Speaker 1: and less capable of handling dislocations like this. And I'm
Speaker 1: wondering about the dollar. A lot of people have said
Speaker 1: it's to sell everything and get to the dollar type market,
Speaker 1: And I'm wondering what you think could actually stem the
Speaker 1: strength of the dollar, could actually bring it back down
Speaker 1: to earth and perhaps support some of the other currencies
Speaker 1: around the world. Yeah, well, you know, ultimately it's a
Speaker 1: it's a crisis of confidence, UM, and so measures, whether
Speaker 1: they're public health sector issues or the scale and scope
Speaker 1: of the fiscal responses we're seeing UM have to restore confidence.
Speaker 1: I think that's that's essentially the root issue here when
Speaker 1: it comes to the dollar funding market on the FED
Speaker 1: took another step in that direction by providing UH core
Speaker 1: see swap lines to central banks, expanding the number of
Speaker 1: banks they deal with to include some of the major
Speaker 1: emerging market central banks UM like Mexico and Brazil. I
Speaker 1: think that's a significant step in the right direction. We
Speaker 1: have to remember that the folks who use these swap
Speaker 1: lines ultimately are commercial banks. Uh, they are the primary user.
Speaker 1: And if banks field of their stigma attached to drawing
Speaker 1: down these lines, or if banks draw down these lines
Speaker 1: but then don't lend that dollars supply out to corporates, UH,
Speaker 1: it's not going to work. And that that is fundamentally
Speaker 1: a confidence issue, which is why you're seeing the daughter
Speaker 1: bid so aggressively right now. Yeah, thank you so much
Speaker 1: for joining us. We always appreciate your thoughts and commentary.
Speaker 1: Ed Al Husseini, senior interest rates and Currencies analysts for
Speaker 1: Columbia Threat Needle Investments, giving us his thoughts on the
Speaker 1: treasury market, Lisa, and on UH currencies. And you know
Speaker 1: the d X Y index one or one point seven
Speaker 1: here had hit one or two point four earlier night,
Speaker 1: just showing that extraordinary strength UH in in the dollar.
Speaker 1: Just amazing across the board relative to other currencies. Thanks
Speaker 1: for listening to the Bloomberg pen L podcast. You can
Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever
Speaker 1: podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter
Speaker 1: at pt Sweeney. I'm Lisa abram Woy. It's I'm on
Speaker 1: Twitter at Lisa abram woits one before the podcast. You
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio.