WEBVTT - Surveillance: Fed Needs To Act Soon, Darda Says 0:00:00.080 --> 0:00:12.960 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.640 Bloomberg dot Com, and of course on the Bloomberg. Right now, 0:00:27.720 --> 0:00:29.920 we are really going to dive into not only the 0:00:29.960 --> 0:00:33.480 market response, but what the market is saying to the FED. 0:00:33.680 --> 0:00:37.479 With us is Michael Darta of m CAM Partners. His 0:00:37.680 --> 0:00:41.760 work particularly on demand and supply dynamics across the greater 0:00:41.840 --> 0:00:45.920 economy out of Wisconsin or near legendary for such a 0:00:45.960 --> 0:00:48.440 young guy, and we're gonna talk to him now because 0:00:48.479 --> 0:00:52.320 he is an outlier with Mr Kachola Coode of Minnesota 0:00:52.800 --> 0:00:54.920 on what a FED needs to do. And Michael, your 0:00:55.040 --> 0:00:59.960 basic theme is it's not a FED in a static environment. 0:01:00.000 --> 0:01:04.000 In this is dynamic economics and cultula quota is correct. 0:01:04.360 --> 0:01:07.320 They've got a cut because it's a moving target right 0:01:07.360 --> 0:01:10.120 now for the FED on real rates. That's exactly right, 0:01:10.160 --> 0:01:14.119 Tom so um By new by doing nothing, the central 0:01:14.160 --> 0:01:18.000 banks are doing something. They're actually allowing monetary conditions to tighten. 0:01:18.800 --> 0:01:21.399 Because if you have a big shock to confidence in 0:01:21.440 --> 0:01:26.120 the neutral interest rate collapses and central banks stay steady 0:01:26.160 --> 0:01:30.080 with the policy rate. That's effectively a tightening of monetary policy. 0:01:30.360 --> 0:01:32.360 How do we know that's the case. Look at the 0:01:32.400 --> 0:01:36.039 bond market, Look at inflation expectations. They're plunging. If this 0:01:36.080 --> 0:01:41.120 were a first order textbook supply side shock, inflation expectations 0:01:41.160 --> 0:01:43.640 would be going up as real rates fell. That is 0:01:43.680 --> 0:01:47.200 not what's happening. So yes, the first order effect is 0:01:47.240 --> 0:01:50.680 a supply side shock from the coronavirus, but the second 0:01:50.960 --> 0:01:53.960 order effect can be a monetary shock of central books 0:01:54.120 --> 0:01:57.960 don't respond to this and a timely enforce beautifully explained. 0:01:58.000 --> 0:01:59.680 But then go to the x axis and take the 0:01:59.720 --> 0:02:02.760 part wi differential of the time function across those first 0:02:02.760 --> 0:02:07.440 and second ordered functions. The answer is nobody's talking about 0:02:07.440 --> 0:02:12.720 the sequential path of when the disinflation clicks in. Is 0:02:12.720 --> 0:02:15.720 it weeks, months or do we have to wait quarters 0:02:15.760 --> 0:02:18.040 for the evidence for them to move. I said this 0:02:18.160 --> 0:02:21.079 last year when the FED was presiding over an inverted 0:02:21.120 --> 0:02:24.080 yield curve, and my view was they really need to 0:02:24.120 --> 0:02:27.720 act sooner rather than later, and much more forcefully rather 0:02:27.800 --> 0:02:30.320 than in a tepid fashion. The longer they wait, the 0:02:30.360 --> 0:02:32.720 more they'll have to do in the less effective it 0:02:32.760 --> 0:02:36.600 will likely be because they're allowing a situation in which 0:02:36.639 --> 0:02:39.080 the neutral interest rate is moving down. You know, this 0:02:39.160 --> 0:02:41.079 happened in two thousand and eight when the FED got 0:02:41.160 --> 0:02:45.480 so distracted fighting the financial crisis they forgot about monetary policy. 0:02:45.880 --> 0:02:48.600 The neutral interest rate collapsed through the floor. The FED 0:02:48.760 --> 0:02:52.679 was late, and nominal GDP one off a cliff. By definition, 0:02:52.760 --> 0:02:57.119 if you have a nominal GDP shock, monetary policy failed. 0:02:57.440 --> 0:02:59.760 So the first order of business is to avoid that. 0:03:00.160 --> 0:03:01.639 Come Mike. What I hate from you though, is that 0:03:01.680 --> 0:03:03.360 the most important thing for them to do is manage 0:03:03.400 --> 0:03:07.280 financial conditions. Is that what I'm hearing? Well, financial conditions 0:03:07.280 --> 0:03:09.520 are sort of you know, it's a bit of a 0:03:09.520 --> 0:03:14.360 slippery concept, and you know that's a byproduct of of 0:03:14.000 --> 0:03:17.600 a of a monetary shock taking place, and most people 0:03:17.680 --> 0:03:19.480 end up looking at the stock market. You know, a 0:03:19.560 --> 0:03:22.840 lot of these financial conditions into seas are a little 0:03:22.919 --> 0:03:26.040 strange because sometimes they have interest rate levels in them 0:03:26.080 --> 0:03:28.800 and conditions than ease in the models of you know, 0:03:28.960 --> 0:03:32.639 discount risk free rates fall and that may not actually 0:03:33.000 --> 0:03:36.360 be the proper way to to think about this um 0:03:36.400 --> 0:03:40.960 But if you have inflation expectations moving lower because you've 0:03:40.960 --> 0:03:44.640 had a shock, and that's associated with risk spreads widening 0:03:44.640 --> 0:03:46.880 and now a big plunge in equity prices. Yes, you 0:03:46.920 --> 0:03:49.880 can define that as a tightening in financial conditions, and 0:03:49.920 --> 0:03:53.840 so to stay neutral, policy rates need to come down. 0:03:53.920 --> 0:03:58.120 That's my point. By doing nothing, central banks are doing something. 0:03:58.360 --> 0:04:01.560 They're actually presiding over a typing of monetary conditions, and 0:04:01.640 --> 0:04:06.040 that's how you end up creating a situation where, um, 0:04:06.080 --> 0:04:10.440 you know, the coronavirus actually can morph into my recession. 0:04:10.520 --> 0:04:13.400 How the lower rights cascade through an economy like the 0:04:13.480 --> 0:04:17.320 United States that could face a supply shock and demands 0:04:17.360 --> 0:04:20.160 shock as well in this environment, which is very very unique, 0:04:20.160 --> 0:04:23.640 it's a health situation, a public health situation. How the 0:04:23.720 --> 0:04:26.760 lower rights cascade through the economy, Well, the markets are 0:04:26.880 --> 0:04:30.560 already doing it. But if the Fed does not follow suit, 0:04:30.800 --> 0:04:34.640 and it's holding its policy rate above market rates, which 0:04:34.640 --> 0:04:37.280 is what's happening now right, we've had a reinversion of 0:04:37.320 --> 0:04:39.840 the of the yield curve, the entire curve, the short 0:04:39.920 --> 0:04:43.520 dated curve was already inverted coming into the year. Now 0:04:43.560 --> 0:04:47.159 the tenure yield is plunged back below the FED funds 0:04:47.240 --> 0:04:50.400 rate and and the t build rate um So that 0:04:50.520 --> 0:04:53.920 tells you that the Fed is actually holding interest rates 0:04:54.040 --> 0:04:57.680 at levels that are too high for the economy to survive. Now, 0:04:57.960 --> 0:04:59.840 you know, some guests will come on here and say, oh, 0:04:59.839 --> 0:05:02.360 that doesn't matter. The yield curve doesn't matter anymore as 0:05:02.360 --> 0:05:06.000 an indicator. But take a look at business cycle history, 0:05:06.040 --> 0:05:08.440 and this is not something you want to play Russian 0:05:08.520 --> 0:05:10.480 roulette with right now. If you look at the FED 0:05:10.520 --> 0:05:13.960 funds futures market pricing in almost four rate cuts by 0:05:13.960 --> 0:05:16.280 the end of January, to your point, just to put 0:05:16.279 --> 0:05:19.880 a number on the diminishing inflation expectations, the break even 0:05:20.000 --> 0:05:22.560 rate over the next five ten years has fallen to 0:05:22.600 --> 0:05:25.560 the lowest sixteen one and a half percent, now well 0:05:25.600 --> 0:05:28.880 below the two percent target of the Federal Reserve. I'm wondering, 0:05:29.000 --> 0:05:32.680 if the Federal Reserve comes out and confirms market expectations 0:05:32.760 --> 0:05:35.839 for this many rate cuts, do you expect longer term 0:05:35.880 --> 0:05:39.599 inflation expectations to go up? You know, that is a 0:05:39.640 --> 0:05:42.680 great question, and that is basically the problem. And and 0:05:42.720 --> 0:05:46.880 so you know, we came into this crisis with you know, 0:05:46.920 --> 0:05:49.840 already low inflation expectations. Why is that the case? A 0:05:49.880 --> 0:05:51.640 lot of people say, well, the FED tried to raise 0:05:51.680 --> 0:05:54.279 inflation and couldn't do it. Are you trying to raise 0:05:54.320 --> 0:05:57.400 inflation when you raise rates eight times and cut the 0:05:57.440 --> 0:06:00.160 balance sheet by half a trillion dollars when inflation is 0:06:00.200 --> 0:06:02.719 only a two pent of the time, which was the 0:06:05.520 --> 0:06:08.320 rate hiking and monetary tightening environment. So the FED is 0:06:08.320 --> 0:06:11.360 a tremendous amount of credibility and keeping inflation low but 0:06:11.440 --> 0:06:14.920 not in raising inflation to ur above its target. And 0:06:14.960 --> 0:06:17.479 now we're dealing with limited ammunition. And if you go 0:06:17.560 --> 0:06:21.279 back to FED New York FED President John Williams speech 0:06:21.320 --> 0:06:24.240 of you know a year or so ago, in an 0:06:24.360 --> 0:06:27.520 environment where you're in the vicinity of the zero lower bound, 0:06:28.160 --> 0:06:32.120 preserving ammunition is exactly what you don't do. That's a 0:06:32.160 --> 0:06:35.280 way to fail. You want to move sooner and much 0:06:35.320 --> 0:06:39.479 more aggressively, or your actions may be totally inadequate. And 0:06:39.520 --> 0:06:41.640 to your point, if they do move now, if it's 0:06:41.640 --> 0:06:44.159 twenty five basis points, you may not see a big 0:06:45.120 --> 0:06:48.760 recovery and inflation expectations, but it's certainly better than than 0:06:48.800 --> 0:06:52.279 doing nothing, in which you know these expectations could continue 0:06:52.279 --> 0:06:55.840 to roll over. Recession risks are elevated, they were still 0:06:55.880 --> 0:06:58.840 elevated coming into the year, and now they've they've moved 0:06:58.920 --> 0:07:01.560 up even more so. Afraid when I listened to a 0:07:01.560 --> 0:07:04.440 lot of other commentators, they're just simply missing the boat 0:07:04.520 --> 0:07:06.760 on this telling you know, the fed not to not 0:07:06.839 --> 0:07:09.640 to act, not to panic. No, in this environment, you 0:07:09.680 --> 0:07:12.920 actually move aggressively and sooner rather than later. I Mike 0:07:13.040 --> 0:07:14.840 got to catch out with your Mike data of m 0:07:14.840 --> 0:07:20.680 camp fount is, let's get the view on the straight show. 0:07:20.720 --> 0:07:22.920 We Stave Lighting joining us on the phone. City Private 0:07:22.920 --> 0:07:26.160 Bank Global Chief Investment strategist, Stay fantastic to have you 0:07:26.200 --> 0:07:28.600 with us. Walk me through your message for clients on 0:07:28.600 --> 0:07:31.760 a morning like this morning. What do you tell them? Well, look, 0:07:31.760 --> 0:07:36.240 I think it's just getting through the initial message that 0:07:36.600 --> 0:07:41.000 the success that China seemed to have in slowing down 0:07:41.040 --> 0:07:45.480 the coronavirus gave a false impression that this could be 0:07:45.560 --> 0:07:49.720 contained to a regional event. So what we learned over 0:07:49.760 --> 0:07:52.200 the weekend with for example, just to start of this 0:07:52.440 --> 0:07:55.600 Italy and Korea, but going from a very small number 0:07:55.640 --> 0:07:59.600 of infections to something that was more in love with 0:07:59.760 --> 0:08:02.760 vir bologists had thought that this was not going to 0:08:02.840 --> 0:08:09.760 be containable, right, that there would be widespread it's not infections, 0:08:09.760 --> 0:08:13.040 but but certainly exposure to the virus that that changed 0:08:13.080 --> 0:08:16.119 this from a regional story to a global one. And 0:08:16.320 --> 0:08:19.640 so therefore some of the economic effects, the disruption effects 0:08:19.640 --> 0:08:23.280 that we've seen in China, which were been very severe, um, 0:08:23.320 --> 0:08:25.600 but some of that that we would see in other 0:08:25.640 --> 0:08:28.560 parts of the world. So that's the thing. This is 0:08:28.600 --> 0:08:33.920 a much larger than simply regional uh disruption effect, but 0:08:33.960 --> 0:08:35.840 it's going to be something that's much more widespread, and 0:08:35.880 --> 0:08:38.800 that's going to mean greater uncertainty about the economic outlook 0:08:38.840 --> 0:08:43.680 and greater depressing effects uh in economies. UM, you know, 0:08:43.920 --> 0:08:49.719 just trying to avoid uh, the dispersion of virus for 0:08:49.800 --> 0:08:53.320 the economy. So our outlook has changed from the economy, UH, 0:08:53.360 --> 0:08:56.200 and what we would think, you know, earnings do, what 0:08:56.520 --> 0:08:59.440 you know activity in the economy does, and uh, therefore 0:08:59.559 --> 0:09:02.559 what financial assets would do. Here for a while, so 0:09:02.679 --> 0:09:05.520 Steve walk us through that the idea of the economic 0:09:05.640 --> 0:09:08.400 effect and how you price that in and how you 0:09:08.480 --> 0:09:11.199 measure that against the market effect where there seems to 0:09:11.240 --> 0:09:13.640 be fear being baked in that does not seem to 0:09:13.640 --> 0:09:18.320 be abating this morning. So figuring out exactly how to 0:09:18.360 --> 0:09:20.800 measure this is not something that's going to be to 0:09:20.880 --> 0:09:23.000 be easily done. I mean, we're just going to assume 0:09:23.040 --> 0:09:27.480 that travel transport, uh, that those industries will see double 0:09:27.559 --> 0:09:31.920 digit declines uh and in very similar to what you 0:09:31.960 --> 0:09:35.280 might see in a severe recession. But this much more, 0:09:36.160 --> 0:09:40.240 very deliberate. Um that this is like having you could 0:09:40.240 --> 0:09:42.760 almost say, like a national strike effect and r big 0:09:42.800 --> 0:09:47.480 industrial activity or natural disaster that that's probably going to 0:09:47.559 --> 0:09:50.480 happen a bit over time, and in region by region, 0:09:50.480 --> 0:09:53.360 country by country to predict unpredictable way. What I heard 0:09:53.400 --> 0:09:56.320 just talking about really about what economic data points you 0:09:56.320 --> 0:10:00.040 can look at, and honestly, very little data outside of 0:10:00.160 --> 0:10:02.360 perhaps from the China data. But but this is much 0:10:02.400 --> 0:10:05.439 more than a China story. Um, very little data is 0:10:05.480 --> 0:10:07.600 going to reflect any of this. Yet. I think some 0:10:07.679 --> 0:10:11.680 of the consumable commodities are the things that you're going 0:10:11.679 --> 0:10:13.680 to say that, look, we have to use this or 0:10:13.800 --> 0:10:16.760 will it will show up in storage. Those types of 0:10:17.080 --> 0:10:20.320 commodities will be used for tracking real come activity. Stave. 0:10:20.559 --> 0:10:22.599 How would you respond if the Feds down to the 0:10:22.679 --> 0:10:24.720 signal they make a move in March? So far little 0:10:24.760 --> 0:10:27.400 signal of that whatsoever. I'm just interested in trying to 0:10:27.480 --> 0:10:30.200 get my head around how investors would respond to a 0:10:30.240 --> 0:10:32.640 central bank willing to step back in because so far 0:10:32.920 --> 0:10:35.440 seeing little signal, little sign of that coming from the 0:10:35.440 --> 0:10:37.320 e c B, all the Federal Reserve, how would you 0:10:37.360 --> 0:10:41.040 respond to that stage positively? So they're not in an 0:10:41.120 --> 0:10:44.400 easy place. And and clearly they would be correct to 0:10:44.400 --> 0:10:49.080 say that a monetary policy response, which has long labs 0:10:49.200 --> 0:10:52.920 in terms of its impact on the economy, UM, is 0:10:53.640 --> 0:10:56.240 uh not something that's going to sort of cure a disease. 0:10:56.760 --> 0:10:59.079 At the same time, what you have to think about 0:10:59.160 --> 0:11:02.400 is what if they don't move and um, if the 0:11:02.440 --> 0:11:05.760 Federal Reserve or other central banks would stand in the 0:11:05.800 --> 0:11:09.880 way of a market adjustment right, um, and keep policy 0:11:10.000 --> 0:11:12.880 rates higher than the market is looking for, then they 0:11:12.920 --> 0:11:16.720 create an artificial tightening. Um. And you know what we 0:11:16.760 --> 0:11:18.480 have to think about. And if you want people to 0:11:18.559 --> 0:11:21.440 look over the valley, UM, it's that, Yes, if the 0:11:21.480 --> 0:11:25.200 Federal Reserve eases, it probably will be easier too long. 0:11:25.280 --> 0:11:28.480 It's not going to tighten when the when the impact 0:11:28.480 --> 0:11:30.560 of the coronavirus is over. But in a way we 0:11:30.600 --> 0:11:33.400 need that. Um. We just simply say, well, let's suspend 0:11:33.400 --> 0:11:35.880 the Fed funds rate for a while um and lower 0:11:35.920 --> 0:11:38.640 borrowing costs and on the way out of this and 0:11:38.880 --> 0:11:43.040 certainly doesn't stand the way of an adjustment and financial conditions. 0:11:43.080 --> 0:11:46.240 That's that's less severe than what otherwise would Stephen Whiting 0:11:46.360 --> 0:11:49.120 when you look at your expertise, which is linking profits 0:11:49.200 --> 0:11:52.720 in into market performance and into economics as well. What 0:11:52.840 --> 0:11:56.480 if I'm fascinating is what portion of this slowdown and 0:11:56.559 --> 0:12:01.040 revenue revenue growth, earnings, flat earnings, negative earnings, whatever it is, 0:12:01.440 --> 0:12:04.760 what portion of that will be recoverable down the road? 0:12:04.800 --> 0:12:08.160 Have you in City group done any work on that, yes, 0:12:08.240 --> 0:12:10.800 and and it's it would tend to be a large 0:12:11.200 --> 0:12:16.200 part of it. And exactly when is not clear. Um, 0:12:16.400 --> 0:12:19.079 But again if you are so, so, a couple of 0:12:19.080 --> 0:12:21.000 things need to happen. Now some of the pale risks 0:12:21.040 --> 0:12:24.959 that you can talk about again have increased. That credit 0:12:25.120 --> 0:12:30.400 would negatively affect the economy even in a scenario in 0:12:30.440 --> 0:12:34.920 which the coronavirus dissipates. That that is what central banks 0:12:34.920 --> 0:12:39.000 should want to avoid, and that's why fiscal policymakers need, um, 0:12:39.040 --> 0:12:42.120 you know, disaster relief, right, that's the kind of thing 0:12:42.160 --> 0:12:45.760 that happens in a great, big natural disaster. Um, you 0:12:45.880 --> 0:12:50.199 need fiscal easing to address weak creditors. I think China 0:12:50.280 --> 0:12:52.360 will do that, for example, very easily. I think that 0:12:52.400 --> 0:12:55.839 other authorities should be considering that when the time comes, 0:12:55.840 --> 0:12:58.560 they think that they will. And if you do that, 0:12:58.679 --> 0:13:03.000 then you don't really damage economic potential, this longer term 0:13:03.040 --> 0:13:09.000 ability to recover. And you know, again we you know, ideally, um, 0:13:09.160 --> 0:13:11.800 there's some break in as virus, and then people have 0:13:11.840 --> 0:13:15.000 short memories and suddenly they go back to travel, purchasing 0:13:15.000 --> 0:13:19.120 things that they would otherwise, and economic activity can normalize 0:13:19.120 --> 0:13:22.559 pretty fast. Always great gay thoughts stay wanting their city 0:13:22.559 --> 0:13:29.360 Private Bank global chief investment strategist, speaking as we do 0:13:29.440 --> 0:13:33.520 any credit group chief economists, typically constructive. We usually drained 0:13:33.600 --> 0:13:36.679 the drama and the hyperbole from the conversation with Eric, 0:13:36.679 --> 0:13:39.200 and I look forward to doing that now. Eric. March twelfth, 0:13:39.440 --> 0:13:43.240 the ECB convenes. What is the house view on that 0:13:43.320 --> 0:13:48.160 meeting as things stand from your perspective, Well, good morning, yeah, 0:13:48.280 --> 0:13:51.760 I I don't think they're gonna do anything. Christine Lagat 0:13:51.840 --> 0:13:55.160 said according to the Financial Times that that so far 0:13:55.720 --> 0:13:58.240 they haven't seen any things that would have sort of 0:13:58.280 --> 0:14:01.920 a material longer term impact. Uh. Now it's not on 0:14:01.960 --> 0:14:03.959 their website as far as I can see, So I'm 0:14:04.000 --> 0:14:06.720 not sure there's been a big discussion inside the ECB. 0:14:06.920 --> 0:14:10.079 But but I I I it's clear that Europe is 0:14:10.120 --> 0:14:11.960 going to take a serious hit on growth in the 0:14:12.000 --> 0:14:15.520 first quarter. But there's a big question what a sense 0:14:15.520 --> 0:14:18.719 of bank can do and what the e c B 0:14:18.960 --> 0:14:21.640 should do this earlier. So my guess is that we 0:14:21.680 --> 0:14:25.280 will get some some wording on being nervous or watching 0:14:25.280 --> 0:14:27.880 it carefully, but but no action. He should follow up 0:14:27.920 --> 0:14:29.800 paric what kind of policy leavers do you need to 0:14:29.840 --> 0:14:34.160 pull it in an environment like the one we're going into. Well, 0:14:34.240 --> 0:14:36.920 that's a very good question. Number one. If it's a 0:14:36.960 --> 0:14:41.400 supply shock, which it is predominantly U, there's really not 0:14:41.480 --> 0:14:43.960 much you can do. If you are, for for a reason, 0:14:44.040 --> 0:14:47.040 the virus shotting down movie theaters. You can put any 0:14:47.080 --> 0:14:50.120 amount of money or or credit to people, they will 0:14:50.120 --> 0:14:52.320 not go to the movie theater period, right. So it's 0:14:52.560 --> 0:14:55.040 so if it's a supply shock, there is not much 0:14:55.080 --> 0:14:57.880 you can do apart from providing liquidity to companies so 0:14:57.960 --> 0:15:00.560 that don't go bust. If that takes two, it turns 0:15:00.600 --> 0:15:04.040 into bad loans. The problem potentially in particular in China 0:15:04.520 --> 0:15:07.560 but there's also there is also a demand side, particularly 0:15:07.560 --> 0:15:11.120 in Europe where a lot of of of restrained traveling. 0:15:11.160 --> 0:15:13.560 Now we started to come into place, and some of 0:15:13.600 --> 0:15:17.800 that travel may take place may if you had more 0:15:17.840 --> 0:15:21.480 money on your hand. I cannot doubt it. So this 0:15:21.640 --> 0:15:25.000 comes down to potentially supporting the market a bit, and 0:15:25.040 --> 0:15:28.200 there it is balance sheet expansion rather than interest rates. 0:15:28.240 --> 0:15:31.320 You need to use um. But we're not there yet. Eric. 0:15:31.480 --> 0:15:35.800 What's the likelihood of a global recession from here? I 0:15:35.840 --> 0:15:38.360 wouldn't put a percentage on, but it's if you if 0:15:38.400 --> 0:15:40.920 you record it technically, if you will, then it's I 0:15:40.920 --> 0:15:44.160 think it's very high now because China is going to 0:15:44.200 --> 0:15:47.320 take a big hit in the first course. Also, our 0:15:47.560 --> 0:15:50.920 very sort of preliminary guests is that you're seeing something 0:15:50.960 --> 0:15:53.320 like a growth rate of maybe half of what you 0:15:53.360 --> 0:15:55.600 had coming out last years or maybe three. This is 0:15:55.640 --> 0:15:58.680 a coincroal five percent drop, but they're about then that 0:15:58.920 --> 0:16:03.640 automatically it's into Europe with a bit of a negative number. Small, 0:16:03.840 --> 0:16:07.280 but then you have the European effected itself and the 0:16:07.400 --> 0:16:09.800 US also. I mean, may I say here from Europe 0:16:09.800 --> 0:16:12.600 on one word on on the US, yes, to fall 0:16:12.760 --> 0:16:16.280 look good, but it was all this knit export effect, right, 0:16:16.320 --> 0:16:18.920 that complete right, right? The number so the US is 0:16:18.960 --> 0:16:22.840 a lot weaker than people realized. So so yes, high probability. 0:16:22.880 --> 0:16:25.880 Now that's a really important observation on the dynamics of 0:16:26.000 --> 0:16:29.960 exports and imports. Eric Nielsen. One thing we've missed this 0:16:30.000 --> 0:16:32.280 week or talked less about with the market news and 0:16:32.320 --> 0:16:34.800 of course things front and center, is the effect on 0:16:34.920 --> 0:16:38.320 em UniCredit has a real Eastern Europe and Southern Europe 0:16:38.360 --> 0:16:41.880 feel as well. I've got Turkish lira out, the new weakness, 0:16:41.920 --> 0:16:45.560 six point to three, Brazilian relics, etcetera. What are the 0:16:45.640 --> 0:16:48.720 knock on effects of this pandemic and the knock on 0:16:48.800 --> 0:16:55.760 effects of the big economies onto the lesser smaller economies. Well, 0:16:55.800 --> 0:16:58.600 it's a good question, tom, and and it's and it's significant, right, 0:16:58.640 --> 0:17:01.560 I mean, And and here's the ublem we're facing is 0:17:01.680 --> 0:17:04.480 it's too effect. We are shutting down businesses in the 0:17:04.640 --> 0:17:07.399 in the big or the G seven economies and China, 0:17:08.040 --> 0:17:11.639 and that by definition has this spill ful effect. And 0:17:11.640 --> 0:17:15.040 then there's the financial monet effect, which it comes with 0:17:15.080 --> 0:17:18.399 this move to safer assets. We saw your dollar now 0:17:18.560 --> 0:17:20.240 is coming back a little bit again. But we have 0:17:20.320 --> 0:17:23.840 seen them generally speak speaking risk conversion coming on. Look 0:17:23.880 --> 0:17:26.119 at how your credit for example, and that hits the 0:17:26.119 --> 0:17:29.280 e merchandise as for example. You also pointed out so 0:17:29.560 --> 0:17:33.200 this this would be an accelerator out there. Unfortunately, Eric 0:17:33.320 --> 0:17:35.400 great to get your viewers aunts olwise, Erry Nelson, there 0:17:35.440 --> 0:17:40.440 only great a Crow chief economist calling son potentially botannical recession. 0:17:44.960 --> 0:17:47.000 This is the interview of the day. If you need 0:17:47.040 --> 0:17:50.000 a synthesis of what's going on, and I will advise 0:17:50.040 --> 0:17:52.760 you that. If you need a reason to sign up 0:17:52.800 --> 0:17:56.720 for linked In, it is James Bianco of Bianco Research 0:17:57.040 --> 0:17:59.840 l l C. What's the l l C man, It's 0:17:59.840 --> 0:18:02.760 like only fancy people that the people that go to 0:18:02.800 --> 0:18:05.640 Wrigley Field do that. Jim Bianco with us right now, 0:18:05.760 --> 0:18:09.400 his feet on LinkedIn is a must read for Global 0:18:09.960 --> 0:18:12.720 Wall Street and of course is good research as well. Um, 0:18:12.760 --> 0:18:15.399 I just did the mathematics gym, which I usually don't do, 0:18:15.480 --> 0:18:19.199 and eighteen down bear markets twenty four thousand, two hundred, 0:18:20.560 --> 0:18:24.159 bear markets twenties three thousand, six hundred. Are we going 0:18:24.200 --> 0:18:26.479 to get there? Are we going to a bear market? 0:18:27.880 --> 0:18:30.000 You'd almost have to say that we are, and I 0:18:30.000 --> 0:18:32.159 wouldn't even be surprised if we were to see it 0:18:32.359 --> 0:18:34.399 in the next day or two at the rate that 0:18:34.480 --> 0:18:38.080 this market seems to be plunging right now. I think 0:18:38.119 --> 0:18:41.520 what we need to understand is that, first of all, 0:18:42.160 --> 0:18:45.160 if the market made a mistake or is making mistake, 0:18:45.359 --> 0:18:48.360 it was after it sold off in early in late 0:18:48.440 --> 0:18:52.359 January on the in the original cornervious spheres. It rallied 0:18:52.400 --> 0:18:56.280 to new highs by February. That was the mistake. So 0:18:56.320 --> 0:18:58.480 it has to correct that, and it has to now 0:18:59.280 --> 0:19:03.400 price in a new era. I think I'm with Scott Minored. 0:19:03.960 --> 0:19:06.480 This might be a bigger deal than the financial crisis. 0:19:07.280 --> 0:19:10.160 This is a change in the way that the global 0:19:10.160 --> 0:19:12.680 economy is going to work. There was a serious break 0:19:12.720 --> 0:19:15.680 that just happened. We're not going back to the way 0:19:15.720 --> 0:19:19.000 we used to work pre January with the global but 0:19:19.119 --> 0:19:25.159 we get viruses end, Jim, Yes, but not the attitude 0:19:25.240 --> 0:19:28.320 that it will bring won't end. We're going to deglobalize, 0:19:28.359 --> 0:19:30.720 We're going to change things. We are not going to 0:19:30.880 --> 0:19:33.439 have a collapse. We're not going to have a great depression. 0:19:33.960 --> 0:19:36.840 Let me put it to your market terms. The S 0:19:36.920 --> 0:19:39.480 and P was trading in a forward rate pe ratio 0:19:39.560 --> 0:19:43.440 of twenty before this virus hit. It's going to trade 0:19:43.480 --> 0:19:47.280 at attendant Fife ratio coming out of it. It's not 0:19:47.359 --> 0:19:50.760 going back to that heavy twenty growth and that optimism 0:19:51.000 --> 0:19:54.760 that we're going to have this booming global economy like 0:19:54.840 --> 0:19:58.000 we had before. We're going to deglobalize. That's going to 0:19:58.080 --> 0:20:00.840 mean to pull big things back from China. That's gonna 0:20:00.840 --> 0:20:05.240 bean more inflation, that's gonna be more friction in business. 0:20:04.960 --> 0:20:09.119 That's what the President Sanders is gonna come in. He's 0:20:09.119 --> 0:20:12.320 gonna eliminate the terroiffs like first eight he's in office. 0:20:12.359 --> 0:20:14.880 You know, things that we can't predict, they're gonna happen. 0:20:15.200 --> 0:20:17.320 And I'm not saying we go to twenty multiple or 0:20:17.359 --> 0:20:20.200 twelve multiple. That's our job. But I am going to say, 0:20:20.200 --> 0:20:24.680 on a medical basis, there's an ample history that viruses end. 0:20:24.800 --> 0:20:28.160 And you're saying we can't go back. No, I'm saying 0:20:28.200 --> 0:20:32.040 we can't go back to a p e sky is 0:20:32.119 --> 0:20:36.960 the limit um global economy. That's where we were. I'm 0:20:36.960 --> 0:20:39.200 saying we're gonna go back to a little bit more 0:20:39.240 --> 0:20:46.000 circumspecte maybe a twelve pe if you will, economy. That's 0:20:46.160 --> 0:20:51.439 enough to knock down the stock mar not not a 0:20:51.480 --> 0:20:54.720 great depression, but we're going to take the starch out 0:20:54.720 --> 0:20:57.840 of this market right now. That's what you're seeing the 0:20:57.920 --> 0:21:02.720 market do an immediate rep. Markets don't explain, they don't complain, 0:21:03.240 --> 0:21:07.000 they say, oh, I got it wrong, new era, let's 0:21:07.040 --> 0:21:10.240 just reprice the new era. That's exactly what we're seeing 0:21:10.240 --> 0:21:13.680 happen in the market right now. Now there's a possibility 0:21:13.960 --> 0:21:17.920 it's getting it wrong. And getting it wrong means China 0:21:18.000 --> 0:21:21.560 comes back and we go back by this summer to 0:21:21.680 --> 0:21:24.399 thinking how do we continue to close every job in 0:21:24.440 --> 0:21:27.639 the United States that we can and send it to China. 0:21:28.160 --> 0:21:31.040 We go back to that attitude, which is lower cost, 0:21:31.160 --> 0:21:34.159 faster growth. We'll get back to the highs. But I 0:21:34.200 --> 0:21:36.640 think what we're seeing in the market saying we're not 0:21:36.680 --> 0:21:39.879 going back to that attitude. This is a new era 0:21:40.240 --> 0:21:43.760 that we're going into, not a disastrous era, but a 0:21:43.880 --> 0:21:48.640 new era of slower growth, a more circumspect kind of world. Hey, Jim, 0:21:48.640 --> 0:21:51.000 can you give us a sense of the delta you're 0:21:51.040 --> 0:21:53.480 thinking about, because you know, we were already thinking about 0:21:53.520 --> 0:21:57.040 a lower growth four longer in terms of global GDP, 0:21:57.200 --> 0:22:00.560 and you know one to two kind of what do 0:22:00.640 --> 0:22:05.600 you think the new era might be post crisis. Well, 0:22:05.640 --> 0:22:07.800 I think that there's two steps with it. First of all, 0:22:07.840 --> 0:22:10.720 we have to get through the crisis. The immediate thing 0:22:10.760 --> 0:22:14.159 that's going to happen in the next two weeks or so, 0:22:14.480 --> 0:22:19.119 we will find out if this virus does start to 0:22:19.280 --> 0:22:23.200 spread widely in the United States, that is a palpable 0:22:23.280 --> 0:22:27.320 fear and we see widespread school closures and disclosures like 0:22:27.359 --> 0:22:30.720 we've seen in other countries. If that happens, we could 0:22:30.720 --> 0:22:36.080 see an immediate contraction of GDP in the second quarter. Now, 0:22:36.160 --> 0:22:38.640 if and if that does happen, coming out of that, 0:22:39.040 --> 0:22:42.960 you're going to get attitudes a lot more conservative then 0:22:43.000 --> 0:22:45.639 you would if we don't see that. So I do 0:22:45.720 --> 0:22:48.080 think you're going to get conservative attitudes, but they could 0:22:48.080 --> 0:22:50.880 be a lot worse if we have to go through 0:22:51.240 --> 0:22:53.680