1 00:00:00,160 --> 00:00:03,360 Speaker 1: This is Bloomberg Wall Street Week. What's the state of 2 00:00:03,400 --> 00:00:06,360 Speaker 1: corporate governance? The deficit is a real issue. The US 3 00:00:06,400 --> 00:00:09,920 Speaker 1: economy continues to send mixed signals. The financial stories that 4 00:00:10,039 --> 00:00:13,000 Speaker 1: cheap our world fed action to con concerns over dollar 5 00:00:13,039 --> 00:00:16,520 Speaker 1: liquidity and encouraging China data. The five hundred wealthiest people 6 00:00:16,520 --> 00:00:19,160 Speaker 1: in the world. Through the eyes of the most influential 7 00:00:19,239 --> 00:00:23,320 Speaker 1: voices Larry Summers, the former Treasury Secretary, Star CEO, Kevin Johnson, 8 00:00:23,440 --> 00:00:27,040 Speaker 1: sec Chairman j Clayton, Bloomberg Wall Street Week with David 9 00:00:27,080 --> 00:00:31,080 Speaker 1: Weston from Bloomberg Radio. One story dominated Wall Street this 10 00:00:31,120 --> 00:00:33,760 Speaker 1: week and the business world and the world itself. The 11 00:00:33,800 --> 00:00:37,120 Speaker 1: coronavirus made its presence known even as its spread in 12 00:00:37,159 --> 00:00:41,920 Speaker 1: ways detected and undetected, and the markets reacted violently, raising 13 00:00:41,960 --> 00:00:44,040 Speaker 1: for some the question whether we're on the brink of 14 00:00:44,080 --> 00:00:47,640 Speaker 1: another two thousand eight great recession. Something Bloomberg Wall Street 15 00:00:47,680 --> 00:00:52,199 Speaker 1: we contributed. Larry Summers waited on another way I like 16 00:00:52,320 --> 00:00:55,360 Speaker 1: to think about it is weird a moment like where 17 00:00:55,360 --> 00:00:59,560 Speaker 1: we were after Bear Stearns. That wasn't yet where we 18 00:00:59,560 --> 00:01:04,200 Speaker 1: were after Leahman, but it was a pretty critical moment, 19 00:01:04,720 --> 00:01:07,920 Speaker 1: and in retrospect, the time was largely wasted, and it 20 00:01:07,959 --> 00:01:12,000 Speaker 1: would have been better if we had acted much more promptly. Uh, 21 00:01:12,080 --> 00:01:17,760 Speaker 1: I don't think there is uh time to lose. To 22 00:01:17,800 --> 00:01:20,800 Speaker 1: help us sort out the reaction from the overreaction, we 23 00:01:20,840 --> 00:01:23,360 Speaker 1: convene now our Wall Street Week Round Table with Bob 24 00:01:23,400 --> 00:01:26,080 Speaker 1: Diamond of Atlas Merchant Capital. Bob, of course, was the 25 00:01:26,080 --> 00:01:29,160 Speaker 1: CEO of Barclays in the aftermath of the Great Financial Crisis, 26 00:01:29,520 --> 00:01:31,880 Speaker 1: and Rick Reader of black Rock, where he is Chief 27 00:01:31,959 --> 00:01:34,319 Speaker 1: Investment Officer for Global fixed Income. But he's not just 28 00:01:34,360 --> 00:01:37,040 Speaker 1: a bond guy. He also is lead portfolio manager for 29 00:01:37,080 --> 00:01:40,360 Speaker 1: black Rocks multisector fund. So Rick, Bob, welcome. Good to 30 00:01:40,400 --> 00:01:42,360 Speaker 1: have you here. Bob, let me start with you still. 31 00:01:42,480 --> 00:01:44,120 Speaker 1: I think he took over Barkers in two dozen ten 32 00:01:44,200 --> 00:01:45,880 Speaker 1: or so, so just just as we were getting into 33 00:01:45,880 --> 00:01:49,120 Speaker 1: the Great Financial Crisis. What are the differences and similarities? 34 00:01:49,120 --> 00:01:51,040 Speaker 1: I mean, Larry was careful and saying, we're not yet 35 00:01:51,400 --> 00:01:53,760 Speaker 1: the layman, but we may be a bar certains. I mean, 36 00:01:53,800 --> 00:01:56,720 Speaker 1: there's similarities in terms of fear, but I think there 37 00:01:56,720 --> 00:01:58,880 Speaker 1: are more differences. I mean, two thousand and eight was 38 00:01:58,920 --> 00:02:01,520 Speaker 1: a banking crisis, it was a liquidity crisis, it was 39 00:02:01,560 --> 00:02:06,720 Speaker 1: a solvency for many institutions in financial services, and you know, 40 00:02:06,760 --> 00:02:08,960 Speaker 1: particularly in the US today, I don't think we could 41 00:02:09,000 --> 00:02:13,440 Speaker 1: have a stronger banking system from capital levels and all 42 00:02:13,440 --> 00:02:17,040 Speaker 1: the way through. UM. And I think right now, obviously 43 00:02:17,040 --> 00:02:20,320 Speaker 1: it's a health crisis number one, but in terms of 44 00:02:20,360 --> 00:02:23,600 Speaker 1: the impact and the economy, my sense is that we 45 00:02:23,639 --> 00:02:27,680 Speaker 1: are dramatically underestimating the impact in the near term in 46 00:02:27,800 --> 00:02:31,679 Speaker 1: terms of the economy UM, and we may be overestimating 47 00:02:31,760 --> 00:02:34,520 Speaker 1: the medium to long term. And that's very dependent on 48 00:02:35,200 --> 00:02:39,160 Speaker 1: UM any resolution to to the health crisis. UM. I 49 00:02:39,200 --> 00:02:44,040 Speaker 1: think secondly, UM, while this isn't a U, I don't 50 00:02:44,080 --> 00:02:46,240 Speaker 1: think anyone would think of this as a banking crisis. 51 00:02:46,320 --> 00:02:48,400 Speaker 1: One of the things we're all trying to figure out 52 00:02:48,960 --> 00:02:51,000 Speaker 1: is how can the banks be part of the solution. 53 00:02:51,240 --> 00:02:54,440 Speaker 1: They're definitely not part of the problem. UH. And then lastly, 54 00:02:54,440 --> 00:02:56,400 Speaker 1: i'd say, David, is I think you know when I 55 00:02:56,400 --> 00:02:59,160 Speaker 1: look at the fault points, UM, if I look down 56 00:02:59,200 --> 00:03:03,240 Speaker 1: the road, easily envisioned a significant bounce in the equity markets, 57 00:03:03,320 --> 00:03:06,720 Speaker 1: because you know, I think, UM, the near term impact 58 00:03:06,840 --> 00:03:10,760 Speaker 1: on the economy could potentially unwind over time. But I 59 00:03:10,800 --> 00:03:12,240 Speaker 1: think when you look at the low end of the 60 00:03:12,360 --> 00:03:15,680 Speaker 1: US dollar corporate credit market. UM, I think that may 61 00:03:15,680 --> 00:03:19,160 Speaker 1: be more permanent in terms of UM loss of value. 62 00:03:19,480 --> 00:03:22,960 Speaker 1: So I wonder if one difference might be not very advantageous, 63 00:03:22,960 --> 00:03:25,760 Speaker 1: and that is this, we had a level of cooperation 64 00:03:26,120 --> 00:03:28,880 Speaker 1: even across the aisle in two eight and between fiscal 65 00:03:28,919 --> 00:03:32,320 Speaker 1: and monetary authorities. Uh, that we seem to lack right now. 66 00:03:32,680 --> 00:03:34,960 Speaker 1: People say we should be coordinated. It doesn't feel very 67 00:03:35,000 --> 00:03:37,440 Speaker 1: accordinate to what the government's doing. Yeah, I mean, I 68 00:03:37,440 --> 00:03:39,040 Speaker 1: think that's right. I mean, first, what I would say 69 00:03:39,040 --> 00:03:41,360 Speaker 1: one thing, The crises tend to bring people together, and 70 00:03:41,360 --> 00:03:42,720 Speaker 1: so I think you'll see a bit more of that 71 00:03:42,760 --> 00:03:45,440 Speaker 1: by your right here before you haven't really seen that. Listen, 72 00:03:45,480 --> 00:03:47,680 Speaker 1: I think you know what people like to grain us 73 00:03:47,840 --> 00:03:49,400 Speaker 1: in the markets. We like to grasp on a history 74 00:03:49,400 --> 00:03:51,320 Speaker 1: because it gives us a pretty good playbook for how 75 00:03:51,360 --> 00:03:53,360 Speaker 1: to think about this going forward. But you know, it's 76 00:03:53,360 --> 00:03:55,760 Speaker 1: interesting every time you'll have one of these disruptions, it's 77 00:03:55,800 --> 00:03:57,760 Speaker 1: different than the one before, and they're usually the reason 78 00:03:57,800 --> 00:04:00,320 Speaker 1: why they're so potent in terms of at the markets 79 00:04:00,400 --> 00:04:02,240 Speaker 1: is you can't really go back and say, how did 80 00:04:02,240 --> 00:04:05,640 Speaker 1: this play out before? The things that are significant are 81 00:04:05,760 --> 00:04:10,680 Speaker 1: I mean this is an exogenous shock of of significant proportion. Listen, 82 00:04:10,720 --> 00:04:12,320 Speaker 1: We've never seen this before. We have people working in 83 00:04:12,360 --> 00:04:15,040 Speaker 1: different offices, what is liquidity? How do people interface with 84 00:04:15,120 --> 00:04:17,560 Speaker 1: one another? And that is really uncertain, So you know, 85 00:04:17,600 --> 00:04:19,000 Speaker 1: we've got to work through that part of it. But 86 00:04:19,040 --> 00:04:20,599 Speaker 1: I think what Bob said is right. It's not a 87 00:04:20,640 --> 00:04:23,440 Speaker 1: it's not a leverage problem per se. And the other 88 00:04:23,480 --> 00:04:25,599 Speaker 1: thing that I think is significant about this one and 89 00:04:25,640 --> 00:04:28,080 Speaker 1: part of why we'll talk about you need that coordination. 90 00:04:28,120 --> 00:04:29,800 Speaker 1: You need fiscal policy. The markets are not going to 91 00:04:29,880 --> 00:04:32,880 Speaker 1: stabilize until you have something tangible from a fiscal policy 92 00:04:32,920 --> 00:04:35,920 Speaker 1: point of view. Listen, the economy up to this point, 93 00:04:36,640 --> 00:04:39,799 Speaker 1: and it's different regionally. Europe was still I would argue 94 00:04:39,800 --> 00:04:41,600 Speaker 1: more about in terms of in terms of growth. The 95 00:04:41,720 --> 00:04:45,119 Speaker 1: US economy was actually surprisingly this late in whatever whatever 96 00:04:45,160 --> 00:04:48,920 Speaker 1: business cycle there is, it was particularly strong. You look 97 00:04:48,960 --> 00:04:50,960 Speaker 1: at hiring, you look at where we were from a 98 00:04:51,040 --> 00:04:54,599 Speaker 1: housing point of view, Retail sales was good, and even 99 00:04:54,640 --> 00:04:58,080 Speaker 1: even manufacturing was was doing okay in a secular decline. 100 00:04:58,760 --> 00:05:00,960 Speaker 1: Now it's like, how do you get from here to there? 101 00:05:01,120 --> 00:05:02,760 Speaker 1: And how do you get to the other side. Listen, 102 00:05:02,760 --> 00:05:05,800 Speaker 1: I'm more enthusiastic about I agree with Bob said, there's 103 00:05:05,800 --> 00:05:07,840 Speaker 1: going to be some permanent tail to it, particularly in 104 00:05:07,839 --> 00:05:10,640 Speaker 1: the credit markets. But this is something we've got a bridge. 105 00:05:10,640 --> 00:05:14,560 Speaker 1: What is a really deep slowdown in the economy, and 106 00:05:14,640 --> 00:05:17,320 Speaker 1: you have some sense that particularly Asia, particularly China and 107 00:05:17,400 --> 00:05:20,240 Speaker 1: the US, there is some real vibrancy of those economies. 108 00:05:20,279 --> 00:05:21,640 Speaker 1: We just got a bridge from here to there, and 109 00:05:21,880 --> 00:05:23,640 Speaker 1: that is uncertain how we get there. Well. Are you 110 00:05:23,680 --> 00:05:25,400 Speaker 1: worried that the markets are not responding in ways you 111 00:05:25,480 --> 00:05:28,000 Speaker 1: might have expected? We had last week the FED cut 112 00:05:28,040 --> 00:05:30,320 Speaker 1: fifty basis points, market went down. They didn't like it 113 00:05:30,360 --> 00:05:32,400 Speaker 1: at all. This week we had to FED step up 114 00:05:32,400 --> 00:05:35,320 Speaker 1: on liquidity and injective quiality. Initially reacted and then they 115 00:05:35,360 --> 00:05:37,760 Speaker 1: came off again. Are you're worried that maybe the buttons 116 00:05:37,800 --> 00:05:39,920 Speaker 1: that we're pushing or neck in the reaction we would expect. 117 00:05:40,560 --> 00:05:42,320 Speaker 1: Yes and no. So I think it's a tale of 118 00:05:42,760 --> 00:05:45,520 Speaker 1: two sides. I completely agree with what Rick said is 119 00:05:45,560 --> 00:05:48,279 Speaker 1: what we need more than anything right now, if if 120 00:05:48,279 --> 00:05:51,480 Speaker 1: we're correct that the near term impact and the economy 121 00:05:51,560 --> 00:05:54,240 Speaker 1: is going to be severe, we need fiscal stimulus, and 122 00:05:54,279 --> 00:05:58,320 Speaker 1: particularly in Europe. Having said that, um, I think what 123 00:05:58,440 --> 00:06:01,920 Speaker 1: the ECB and the Bank of England have done in 124 00:06:02,040 --> 00:06:06,279 Speaker 1: terms of providing liquidity, making sure banks have money to lend, 125 00:06:06,279 --> 00:06:08,479 Speaker 1: particularly in Europe, with the banks are nowhere near as 126 00:06:08,520 --> 00:06:12,120 Speaker 1: healthy as they are in the US um more asset 127 00:06:13,200 --> 00:06:18,159 Speaker 1: acquisition programs, and in the case of the UK UM 128 00:06:18,520 --> 00:06:24,599 Speaker 1: both Governor Karney and incoming Governor Bailey have reduced one 129 00:06:24,640 --> 00:06:27,560 Speaker 1: of the buffers so that banks have more capital to 130 00:06:27,640 --> 00:06:31,120 Speaker 1: lend to small businesses. So being focused on getting the 131 00:06:31,200 --> 00:06:34,320 Speaker 1: right fiscal stimulus in the right areas and getting bipartisan 132 00:06:34,400 --> 00:06:36,839 Speaker 1: support is critical. Okay, we are going to be back 133 00:06:36,880 --> 00:06:40,360 Speaker 1: with our continuings. Bob Diamond and Rick Reader coming up. 134 00:06:40,520 --> 00:06:48,880 Speaker 1: Can the central banks save us again? This is Bloomberg 135 00:06:48,920 --> 00:06:53,200 Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. ECB 136 00:06:53,320 --> 00:06:55,560 Speaker 1: President Christine Lagarde is in the middle of a full 137 00:06:55,560 --> 00:06:59,160 Speaker 1: blown crisis just four months into her job, with investors 138 00:06:59,160 --> 00:07:01,719 Speaker 1: and businesses outing on her to avoid the worst of 139 00:07:01,720 --> 00:07:05,000 Speaker 1: the economic damage to come from the coronavirus, so she 140 00:07:05,040 --> 00:07:08,440 Speaker 1: announced a similar package this week, including a billion euros 141 00:07:08,440 --> 00:07:10,680 Speaker 1: and quantitative easing over the rest of the year and 142 00:07:10,760 --> 00:07:14,760 Speaker 1: ramping up liquidity and lending capacity, but leaving rates where 143 00:07:14,800 --> 00:07:18,240 Speaker 1: they were In this week's contributors take Stephanie Flanders, Bloomberg's 144 00:07:18,320 --> 00:07:21,440 Speaker 1: senior executive editor for Economics, takes us through the highs 145 00:07:21,480 --> 00:07:25,840 Speaker 1: and the loans. Christine the Guard was very calm and 146 00:07:25,880 --> 00:07:29,240 Speaker 1: deliberate in her press conference, which was a very unusual 147 00:07:29,240 --> 00:07:31,040 Speaker 1: one to look at because the room was half empty. 148 00:07:31,080 --> 00:07:33,040 Speaker 1: I think most of the reporters who were normally there 149 00:07:33,320 --> 00:07:35,680 Speaker 1: had either not been able to travel to Frankfurt's or 150 00:07:35,720 --> 00:07:38,080 Speaker 1: were working from home and were submitting many of their 151 00:07:38,160 --> 00:07:42,720 Speaker 1: questions online. But the President of the European Central Bank 152 00:07:42,800 --> 00:07:46,280 Speaker 1: announced what she called a surgical, comprehensive set of measures 153 00:07:46,320 --> 00:07:50,400 Speaker 1: to help the Eurozone economy through the impact of the coronavirus. 154 00:07:50,440 --> 00:07:53,920 Speaker 1: There was a big new long term lending program for banks, 155 00:07:54,320 --> 00:07:58,280 Speaker 1: ideally aimed at them helping small and medium sized businesses 156 00:07:58,280 --> 00:08:01,720 Speaker 1: affected by the virus. Along with that, there was some 157 00:08:01,840 --> 00:08:04,280 Speaker 1: word from the regulator side of the eu CB that 158 00:08:04,320 --> 00:08:06,880 Speaker 1: they were going to soften up some of their regulation 159 00:08:06,960 --> 00:08:09,760 Speaker 1: of banks, perhaps to to make those banks more relaxed 160 00:08:09,760 --> 00:08:12,000 Speaker 1: about the impact that that help for small and medium 161 00:08:12,000 --> 00:08:15,400 Speaker 1: sized businesses might have on their balance sheets. And you 162 00:08:15,520 --> 00:08:19,040 Speaker 1: had an expansion of QUEI, of the bond purchasing program 163 00:08:19,160 --> 00:08:21,040 Speaker 1: of the European Central Bank, which we think will be 164 00:08:21,080 --> 00:08:26,440 Speaker 1: oriented towards corporate lending, corporate debt, not government bond. What 165 00:08:26,560 --> 00:08:30,200 Speaker 1: you clearly didn't see was the ECB follow the FED 166 00:08:30,280 --> 00:08:33,920 Speaker 1: and the Bank of England in cutting the key policy rate, 167 00:08:35,040 --> 00:08:38,120 Speaker 1: which is already though at minus not point five percent. 168 00:08:38,280 --> 00:08:40,160 Speaker 1: That was possibly because they didn't think that would make 169 00:08:40,240 --> 00:08:43,360 Speaker 1: much difference, and I think also they would point to 170 00:08:43,400 --> 00:08:46,160 Speaker 1: the fact that the interest rate on that new lending 171 00:08:46,320 --> 00:08:48,880 Speaker 1: for banks was actually going to be below the policy 172 00:08:48,960 --> 00:08:51,199 Speaker 1: Rate's going to be a quarter of a point below, 173 00:08:51,320 --> 00:08:54,840 Speaker 1: not point five. So in a sense, the rate has 174 00:08:54,920 --> 00:08:57,400 Speaker 1: been cut for that kind of lending, it just hasn't 175 00:08:57,400 --> 00:09:01,560 Speaker 1: been extended to the rest of the Eurozone economy. You know, investors, 176 00:09:01,559 --> 00:09:04,680 Speaker 1: we saw, we're not we're not overwhelmed initially by what 177 00:09:04,760 --> 00:09:07,560 Speaker 1: the ECB had announced. But actually Christine Legard herself said 178 00:09:07,920 --> 00:09:11,720 Speaker 1: the CV was not the only actor in this story. 179 00:09:11,880 --> 00:09:14,600 Speaker 1: What was going to be crucial, she repeated, was a 180 00:09:14,720 --> 00:09:19,760 Speaker 1: coordinated fiscal effort from Eurasone governments to confront this crisis. 181 00:09:19,800 --> 00:09:22,040 Speaker 1: And I think we've seen that generally. The idea that 182 00:09:22,240 --> 00:09:23,920 Speaker 1: we have to see not just that the grown ups 183 00:09:23,920 --> 00:09:26,040 Speaker 1: are in charge, if you like, but that they're really 184 00:09:26,160 --> 00:09:28,520 Speaker 1: in top of, on top of the kind of micro 185 00:09:28,760 --> 00:09:32,080 Speaker 1: measures and expenditures that are going to be needed to 186 00:09:32,160 --> 00:09:35,160 Speaker 1: help cushion the blow of this crisis. We've seen that 187 00:09:35,200 --> 00:09:37,680 Speaker 1: a bit from Italy. The UK had the good luck 188 00:09:37,720 --> 00:09:39,480 Speaker 1: this week to have a budget schedule for this week, 189 00:09:39,520 --> 00:09:41,920 Speaker 1: so we've seen a lot of quite decisive fiscal action 190 00:09:42,160 --> 00:09:45,880 Speaker 1: from the UK, from other governments and specifically from Germany. 191 00:09:46,280 --> 00:09:49,200 Speaker 1: Not so much that was a contributor to take from Loomberg, 192 00:09:49,200 --> 00:09:51,520 Speaker 1: Stephanie Flanders. We're back now with Bob Diamond and Rick 193 00:09:51,559 --> 00:09:54,400 Speaker 1: Reader for more of our roundtable discussion. So this was 194 00:09:54,440 --> 00:09:56,920 Speaker 1: not a bazooka were you used or next shark? And 195 00:09:58,280 --> 00:10:00,800 Speaker 1: is it enough? So? I thank you. Think we're beyond 196 00:10:01,000 --> 00:10:03,560 Speaker 1: the idea of monetary policy comes to save the dime. 197 00:10:03,640 --> 00:10:06,599 Speaker 1: And I think people compare this to the eighties or 198 00:10:06,679 --> 00:10:09,160 Speaker 1: nineties when interest rates were significantly higher. When you move 199 00:10:09,280 --> 00:10:11,640 Speaker 1: right down you can have a real effect. There's no 200 00:10:11,960 --> 00:10:15,520 Speaker 1: interest rates are not symmetric when you reach the lower bound. 201 00:10:15,559 --> 00:10:18,440 Speaker 1: When you get to zero, you hurt pension funds, insurance companies, 202 00:10:18,480 --> 00:10:21,000 Speaker 1: individuals when you get to negative interest rates. So with 203 00:10:21,160 --> 00:10:23,559 Speaker 1: Christine Legard did there were some benefits there t L 204 00:10:23,640 --> 00:10:26,120 Speaker 1: t r Oh was good. You're getting at targeted lending, 205 00:10:26,120 --> 00:10:28,800 Speaker 1: which I think is a big deal. Listen, I think 206 00:10:28,840 --> 00:10:30,560 Speaker 1: what you said is right. This has got to get 207 00:10:30,640 --> 00:10:32,760 Speaker 1: to the fiscal side. This has got to get the 208 00:10:32,760 --> 00:10:34,520 Speaker 1: only way you're gonna get velocity in the system. You 209 00:10:34,520 --> 00:10:37,240 Speaker 1: need to get innovation, you need to get equity investment, 210 00:10:37,360 --> 00:10:40,439 Speaker 1: and fiscal will do that. So, Bob, you worked over 211 00:10:40,559 --> 00:10:42,880 Speaker 1: in London. You know the London system very well. Did 212 00:10:42,880 --> 00:10:44,560 Speaker 1: they show everybody the way it's supposed to be done 213 00:10:44,600 --> 00:10:46,240 Speaker 1: this week? Because they had the Bank of England club 214 00:10:46,240 --> 00:10:47,760 Speaker 1: with the right cut and they brought out their budget 215 00:10:47,760 --> 00:10:49,840 Speaker 1: at the same time, it seemed to be quite coordinated. 216 00:10:50,280 --> 00:10:53,240 Speaker 1: I thought that the response from the Bank of England 217 00:10:53,320 --> 00:10:56,959 Speaker 1: and the joint presentation from Governor Karney and Governor elect 218 00:10:57,040 --> 00:11:01,280 Speaker 1: Bailey was very thoughtful. UM, very effective. I think, well, 219 00:11:01,360 --> 00:11:04,640 Speaker 1: I think it will be very effective. Um and UM. 220 00:11:04,720 --> 00:11:09,080 Speaker 1: I think both UM allowing one of the buffers to 221 00:11:09,160 --> 00:11:11,160 Speaker 1: be removed from the bank so that they can get 222 00:11:11,160 --> 00:11:14,880 Speaker 1: more lending into the real economy. I thought they're liquidity 223 00:11:14,920 --> 00:11:18,440 Speaker 1: measures um. And if you think back to the financial 224 00:11:18,440 --> 00:11:20,520 Speaker 1: crisis in two thousand and eight, those types of things 225 00:11:20,600 --> 00:11:23,480 Speaker 1: weren't done at that time, so I think it is helpful. 226 00:11:23,520 --> 00:11:24,960 Speaker 1: But I'll come back to the point wheck and I 227 00:11:25,000 --> 00:11:27,839 Speaker 1: have been making it now Christine leguard Um, we need 228 00:11:27,880 --> 00:11:31,160 Speaker 1: fiscal stimulus as well. What about the backing offense of 229 00:11:31,200 --> 00:11:34,200 Speaker 1: the reserve corners of the banks, because they also did that. 230 00:11:34,240 --> 00:11:36,440 Speaker 1: There's talking about that here as well. I mean, everybody 231 00:11:36,440 --> 00:11:38,199 Speaker 1: think I think I thinks it was a good thing 232 00:11:38,280 --> 00:11:40,480 Speaker 1: to designate what we did make the bank stronger. We 233 00:11:40,520 --> 00:11:42,319 Speaker 1: need him right now. But should we be backing off 234 00:11:42,360 --> 00:11:44,520 Speaker 1: some for the time being. Yeah, I mean the regular 235 00:11:44,520 --> 00:11:46,360 Speaker 1: star dynamic is really said. But you think about what 236 00:11:46,440 --> 00:11:48,880 Speaker 1: happened in the in the off the run treasury market. 237 00:11:48,880 --> 00:11:52,240 Speaker 1: I've never seen that before the bidas spread. Some of 238 00:11:52,280 --> 00:11:55,400 Speaker 1: the off the run treasuries was multiple points. That is, 239 00:11:55,440 --> 00:11:58,120 Speaker 1: that is a function of the banking system getting gummed up. 240 00:11:58,120 --> 00:11:59,719 Speaker 1: You look at companies that are drawn on their bank 241 00:11:59,800 --> 00:12:02,760 Speaker 1: long etcetera. When the banks don't have the ability to 242 00:12:02,800 --> 00:12:04,480 Speaker 1: get in there. You need to do that, and by 243 00:12:04,480 --> 00:12:06,000 Speaker 1: the way, can be in the short term nature. You 244 00:12:06,000 --> 00:12:09,040 Speaker 1: don't need to do permanent change, but you need the 245 00:12:09,080 --> 00:12:11,280 Speaker 1: bridge the dynamic where you're getting more liquid in the 246 00:12:11,280 --> 00:12:14,800 Speaker 1: system and you're getting a better functioning environment. Some regulatory 247 00:12:14,880 --> 00:12:17,720 Speaker 1: relief would be really helpful. Is liquidity more important than 248 00:12:17,760 --> 00:12:19,640 Speaker 1: actually the interest rate right at the moment, for example, 249 00:12:19,679 --> 00:12:22,119 Speaker 1: for the Fed, are they better off really just injecting 250 00:12:22,120 --> 00:12:26,800 Speaker 1: dollars into the system. And I think, uh, my opinion, 251 00:12:26,920 --> 00:12:29,360 Speaker 1: just one of many opinions, is we used a bullet 252 00:12:29,440 --> 00:12:32,040 Speaker 1: we didn't need to use with the rate cut here 253 00:12:32,600 --> 00:12:36,640 Speaker 1: UM recently, UM, I don't think that Governor Powell wants 254 00:12:36,640 --> 00:12:38,400 Speaker 1: to go to negative interest rates. I don't think the 255 00:12:38,480 --> 00:12:40,440 Speaker 1: UK wants to go to negative interest rates. And we 256 00:12:40,520 --> 00:12:45,760 Speaker 1: used a bullet. What is really impressive is the bazooka 257 00:12:45,800 --> 00:12:48,240 Speaker 1: they used in the repo markets. And you know, one 258 00:12:48,280 --> 00:12:51,080 Speaker 1: of the businesses that we've invested in, South Street Securities 259 00:12:51,600 --> 00:12:55,439 Speaker 1: is an independent UM broker dealer, a non bank holding 260 00:12:55,480 --> 00:12:58,920 Speaker 1: company that does US Treasury and mortgage repo I see 261 00:12:58,920 --> 00:13:01,559 Speaker 1: in that business. The liquidity in the short end of 262 00:13:01,600 --> 00:13:04,679 Speaker 1: the market has never been more robust in I think 263 00:13:04,720 --> 00:13:06,640 Speaker 1: since two thousand and eight and two thousand nine than 264 00:13:06,679 --> 00:13:10,040 Speaker 1: it is now. Because your recalled, David that during UM 265 00:13:10,240 --> 00:13:13,720 Speaker 1: Dodd Frank there were changes to open market operations that 266 00:13:13,760 --> 00:13:15,880 Speaker 1: the New York Fed could operate in and a lot 267 00:13:15,920 --> 00:13:19,400 Speaker 1: of that is being um um kind of taken back 268 00:13:19,520 --> 00:13:21,800 Speaker 1: a little bit, and we're seeing much more activity from 269 00:13:21,840 --> 00:13:25,280 Speaker 1: the fed UH to ensure that liquidity and the repo markets. 270 00:13:25,320 --> 00:13:27,400 Speaker 1: And I think, you know, for the functioning of the 271 00:13:27,400 --> 00:13:29,640 Speaker 1: short end of the curve, I think it's enormously helpful. 272 00:13:29,679 --> 00:13:31,959 Speaker 1: And I think you're spot on. I think that's been 273 00:13:32,000 --> 00:13:34,560 Speaker 1: more important than the than the right cut. So that 274 00:13:34,559 --> 00:13:37,240 Speaker 1: that did act this week to injecttion liquidity. But was 275 00:13:37,280 --> 00:13:41,959 Speaker 1: it enough, Yes, I mean that was it was, It was, 276 00:13:42,080 --> 00:13:44,280 Speaker 1: it was. It was inspiring in terms of the amount 277 00:13:44,320 --> 00:13:46,679 Speaker 1: they did. And when you put that sort of liquidity 278 00:13:46,679 --> 00:13:48,120 Speaker 1: and you know, you were starting to see pressures in 279 00:13:48,160 --> 00:13:50,920 Speaker 1: the mortgage market. Listen, the mortgage market. When you bring 280 00:13:50,960 --> 00:13:52,760 Speaker 1: interest rates down, mortgage is supposed to come down in 281 00:13:52,760 --> 00:13:55,360 Speaker 1: a parallel way, if not more so. Mortgage rates Actually 282 00:13:55,360 --> 00:13:57,120 Speaker 1: we're moving higher. While was that the case? The system 283 00:13:57,200 --> 00:13:59,680 Speaker 1: is gummed up? You need to provide better funding, which 284 00:13:59,720 --> 00:14:02,439 Speaker 1: was what happened. You need to provide better liquidity. And 285 00:14:02,480 --> 00:14:04,640 Speaker 1: the other thing that I don't think people consider enough. 286 00:14:04,960 --> 00:14:07,400 Speaker 1: When you put liquidity in the system, it takes pressure 287 00:14:07,400 --> 00:14:10,959 Speaker 1: off the dollar. We operate in a global financial system 288 00:14:10,960 --> 00:14:12,760 Speaker 1: when you take pressure off the dollar. It takes it 289 00:14:12,800 --> 00:14:15,320 Speaker 1: makes it easier for emerging market. So it's emerging markets 290 00:14:15,320 --> 00:14:17,640 Speaker 1: go and in act policy on their on their own. 291 00:14:18,200 --> 00:14:20,440 Speaker 1: That is a really big deal. Liquidity gets in the 292 00:14:20,480 --> 00:14:22,880 Speaker 1: system and it's got it's got a real velocity to it, 293 00:14:23,120 --> 00:14:24,720 Speaker 1: and they addressed it, and they had to do it. 294 00:14:24,760 --> 00:14:27,960 Speaker 1: But you were seeing some cracks in the mechanism, and 295 00:14:28,000 --> 00:14:30,320 Speaker 1: you can't buy other assets. You can't buy equities, you 296 00:14:30,360 --> 00:14:33,800 Speaker 1: can't buy credit until the core asset, the wrist free rate, 297 00:14:34,360 --> 00:14:37,240 Speaker 1: is solved. And it's the it's the number one used 298 00:14:37,280 --> 00:14:39,480 Speaker 1: of collateral in the world. It's what we build. I 299 00:14:39,600 --> 00:14:42,200 Speaker 1: was called the fan of dispersion. Until you know where 300 00:14:42,200 --> 00:14:44,320 Speaker 1: the wrist free rate is, I can't build my models 301 00:14:44,360 --> 00:14:45,720 Speaker 1: to how do I think about all the way down 302 00:14:45,800 --> 00:14:48,120 Speaker 1: to equity and and so you have to fix that 303 00:14:48,160 --> 00:14:50,000 Speaker 1: asset and they did. Okay, we're gonna be back with 304 00:14:50,040 --> 00:14:57,160 Speaker 1: our contributors. This is Wall Street Week. This is Bloomberg 305 00:14:57,200 --> 00:15:00,880 Speaker 1: Wall Street Week with David Weston from bloom Bird Radio. 306 00:15:01,040 --> 00:15:03,440 Speaker 1: The one thing everyone seems to agree on is the 307 00:15:03,520 --> 00:15:06,560 Speaker 1: ultimate source of the market turmoil. It's that we don't 308 00:15:06,600 --> 00:15:10,760 Speaker 1: know how or when the coronavirus crisis will end. Most immediately. 309 00:15:10,800 --> 00:15:13,280 Speaker 1: We need a treatment such as the gilead ebola drug 310 00:15:13,320 --> 00:15:16,360 Speaker 1: that they're trying out right now in Washington, But ultimately 311 00:15:16,520 --> 00:15:18,880 Speaker 1: it's a vaccine that the world needs, and that is 312 00:15:18,880 --> 00:15:22,600 Speaker 1: going to take some time. Although this is the fastest 313 00:15:22,960 --> 00:15:27,080 Speaker 1: we have ever gone from a sequence of a virus 314 00:15:27,160 --> 00:15:31,000 Speaker 1: to a trial, it still will not be any applicable 315 00:15:31,320 --> 00:15:35,320 Speaker 1: to the epidemic unless we really wait about a year 316 00:15:35,440 --> 00:15:38,760 Speaker 1: to a year and a half. But eighteen months seems 317 00:15:38,800 --> 00:15:41,600 Speaker 1: an awfully long time to wait right now, which leads 318 00:15:41,640 --> 00:15:44,360 Speaker 1: some to ask whether our combination of science and technology 319 00:15:44,400 --> 00:15:47,320 Speaker 1: could get us there faster. Welcome now, someone who's trying 320 00:15:47,320 --> 00:15:50,440 Speaker 1: to do just that. Dave Turk is a vice president 321 00:15:50,440 --> 00:15:53,720 Speaker 1: of technical computing IBM Cognitive Systems, and he joins us 322 00:15:53,720 --> 00:15:55,960 Speaker 1: now for a second opinion on what could be done 323 00:15:56,160 --> 00:15:58,200 Speaker 1: about the coronavirus. So, Dave, welcome, it's good to have 324 00:15:58,240 --> 00:16:00,440 Speaker 1: you here. Thank you. So explained to us a exactly 325 00:16:00,480 --> 00:16:03,000 Speaker 1: what's being done, what's IBMS roll in this thing? How 326 00:16:03,040 --> 00:16:05,560 Speaker 1: could we actually maybe get a vaccine a bit sooner. 327 00:16:06,040 --> 00:16:09,680 Speaker 1: So the largest supercomputer in the world is Ochrid's National Laboratory, 328 00:16:10,440 --> 00:16:14,400 Speaker 1: constructed by IBM and this system has a capability of 329 00:16:14,440 --> 00:16:20,640 Speaker 1: merging concepts of artificial intelligence with standard mathematical representations of problems. 330 00:16:20,680 --> 00:16:22,440 Speaker 1: So what we do is when we look at the 331 00:16:22,480 --> 00:16:27,240 Speaker 1: possibilities of efficacious treatment for something like corona looking for 332 00:16:27,280 --> 00:16:29,440 Speaker 1: a virus, what you want to do is you want 333 00:16:29,440 --> 00:16:31,520 Speaker 1: to follow a lot of different paths because you don't 334 00:16:31,560 --> 00:16:33,880 Speaker 1: know which path will be the one that pays off. 335 00:16:34,440 --> 00:16:37,080 Speaker 1: So in particular at Oakridge, they've looked at eight thousand 336 00:16:37,160 --> 00:16:40,520 Speaker 1: different compounds and with a supercomputer they've called that down 337 00:16:40,560 --> 00:16:44,240 Speaker 1: to seventy seven compounds in just two days. So those 338 00:16:44,240 --> 00:16:47,040 Speaker 1: seventy seven compounds then go into a wet lab where 339 00:16:47,080 --> 00:16:49,400 Speaker 1: they begin doing the experimentation on to see if they 340 00:16:49,440 --> 00:16:51,720 Speaker 1: work or not. So how do you get from there 341 00:16:51,760 --> 00:16:54,520 Speaker 1: to a vaccine? I mean, are you basically understanding the 342 00:16:54,560 --> 00:16:58,280 Speaker 1: mechanism by which the virus works. It's it's a variety 343 00:16:58,320 --> 00:17:01,200 Speaker 1: of things done in concerts. So you look at things 344 00:17:01,200 --> 00:17:03,800 Speaker 1: sort of in our time, you know, a second, a minute, 345 00:17:03,840 --> 00:17:06,080 Speaker 1: a day, but a lot of the modeling goes on 346 00:17:06,280 --> 00:17:09,520 Speaker 1: extraordinarily small pieces of time tend to the minus fourteen 347 00:17:10,040 --> 00:17:13,439 Speaker 1: you know, at atomic level, atomic kind of clock speed, 348 00:17:14,000 --> 00:17:16,280 Speaker 1: and you begin to build up your understanding of the 349 00:17:16,320 --> 00:17:19,720 Speaker 1: systems by operating simulating things at every one of those 350 00:17:19,760 --> 00:17:22,880 Speaker 1: time steps, then aggregating them up to clock time where 351 00:17:22,880 --> 00:17:26,240 Speaker 1: we're generally used to, and then looking at that over days, weeks, 352 00:17:26,240 --> 00:17:30,280 Speaker 1: etcetera tremendous amount of compute power that's just a molecule 353 00:17:30,280 --> 00:17:32,359 Speaker 1: by itself. Then you look at it in concert with 354 00:17:32,440 --> 00:17:34,760 Speaker 1: the disease, then you look at it in concert with 355 00:17:34,800 --> 00:17:37,639 Speaker 1: the human organism, and you begin to look at the 356 00:17:37,640 --> 00:17:41,200 Speaker 1: interplay of all these factors to understand what the probabilities 357 00:17:41,200 --> 00:17:44,239 Speaker 1: are of having a successful event. Has this ever been 358 00:17:44,240 --> 00:17:48,480 Speaker 1: done before? So yes. In fact, IBM worked um with 359 00:17:48,640 --> 00:17:52,639 Speaker 1: some of the previously emergent new strains of flu uh 360 00:17:52,680 --> 00:17:54,879 Speaker 1: the last h one and one thing I think that 361 00:17:55,000 --> 00:17:58,320 Speaker 1: came out of Mexico. We used our technology at that 362 00:17:58,400 --> 00:18:02,200 Speaker 1: time to do some modeling of the evolutionary pathway of that. 363 00:18:02,560 --> 00:18:04,360 Speaker 1: So if you look at flu viruses and the flu 364 00:18:04,440 --> 00:18:06,879 Speaker 1: shots that you get every fall, it's a matter of 365 00:18:06,920 --> 00:18:11,000 Speaker 1: looking scientifically at what's going on, but also predictively at 366 00:18:11,080 --> 00:18:13,600 Speaker 1: how that virus will evolve over the course of time, 367 00:18:14,040 --> 00:18:15,840 Speaker 1: and you take a shot at where the puck is 368 00:18:15,840 --> 00:18:18,239 Speaker 1: gonna be, and then you build your virus for that 369 00:18:18,280 --> 00:18:21,320 Speaker 1: and hope for the best. So it's a complicated mathematical 370 00:18:21,480 --> 00:18:24,880 Speaker 1: construct that you need to examine. So I won't hold 371 00:18:24,880 --> 00:18:27,560 Speaker 1: you to this because I'm sure there's no noble answer 372 00:18:27,560 --> 00:18:31,320 Speaker 1: to it. But in success, if it worked perfectly, could 373 00:18:31,320 --> 00:18:33,159 Speaker 1: you take time off that eighteen months? And if so, 374 00:18:33,280 --> 00:18:35,919 Speaker 1: how much I think they're I think there are a 375 00:18:35,920 --> 00:18:38,119 Speaker 1: couple of ways to look at this. One is, in 376 00:18:38,160 --> 00:18:42,520 Speaker 1: the absence of the computer, you're basically throwing um darts 377 00:18:42,560 --> 00:18:45,600 Speaker 1: at a dartboard in the dark, and so you don't 378 00:18:45,600 --> 00:18:48,520 Speaker 1: know if you're even close to the target. So what 379 00:18:48,560 --> 00:18:51,520 Speaker 1: we've done is we've winnowed that down quite dramatically. So 380 00:18:51,680 --> 00:18:54,200 Speaker 1: now the lights are on, you know where the dartboard is, 381 00:18:54,520 --> 00:18:56,000 Speaker 1: you know what the darts are in your hand, and 382 00:18:56,000 --> 00:18:58,240 Speaker 1: you can start taking a shot at it. That's a 383 00:18:58,280 --> 00:19:01,720 Speaker 1: tremendous advantage for the sign to working on this. The 384 00:19:01,760 --> 00:19:03,959 Speaker 1: eighteen month is a lot of it is human trials 385 00:19:03,960 --> 00:19:06,240 Speaker 1: and so on, so it's not going to do so 386 00:19:06,320 --> 00:19:09,800 Speaker 1: much to compress that time span. But what it has 387 00:19:09,840 --> 00:19:12,879 Speaker 1: done is it's really accelerated the starting step. So instead 388 00:19:12,880 --> 00:19:14,960 Speaker 1: of waiting for a year to come up or two 389 00:19:15,040 --> 00:19:17,760 Speaker 1: years or three years with that set of seventy seven 390 00:19:18,040 --> 00:19:19,920 Speaker 1: we've got in a couple of days. That's a big 391 00:19:19,960 --> 00:19:22,760 Speaker 1: step forward. Who owns this technique? Who's the I P 392 00:19:22,920 --> 00:19:24,800 Speaker 1: in this? So so the I P is all being 393 00:19:24,840 --> 00:19:28,920 Speaker 1: generated by the scientists involve UM. The Power nine technology 394 00:19:28,920 --> 00:19:32,320 Speaker 1: which underscores the computer is all IBM. The ownership of 395 00:19:32,359 --> 00:19:35,080 Speaker 1: the system is Zokridge National Lab is an agent for 396 00:19:35,119 --> 00:19:37,440 Speaker 1: the Department of Energy. Have you tried this for other 397 00:19:37,520 --> 00:19:39,760 Speaker 1: medical applications besides virus? As you said, you did it 398 00:19:39,800 --> 00:19:42,600 Speaker 1: with the H one N one Mexico. Are you trying 399 00:19:42,640 --> 00:19:44,879 Speaker 1: it with other medical applications? You know, we haven't. We 400 00:19:44,920 --> 00:19:47,720 Speaker 1: have a group called Watson Health inside of IBM that 401 00:19:47,760 --> 00:19:53,200 Speaker 1: looks at the amalgamation of artificial intelligence techniques with technologies 402 00:19:53,200 --> 00:19:55,480 Speaker 1: like Power nine to bring that to bear on a 403 00:19:55,560 --> 00:19:59,359 Speaker 1: variety of problems, whether it's cancer other kinds of medical issues. 404 00:19:59,720 --> 00:20:02,560 Speaker 1: This same technology, though, has been using industrial sector. It's 405 00:20:02,640 --> 00:20:07,160 Speaker 1: used for fintech, it's used for the design of airplanes, cars, 406 00:20:07,840 --> 00:20:11,200 Speaker 1: um problems in computational chemistry and one of the very 407 00:20:11,280 --> 00:20:15,760 Speaker 1: rich areas as material science. Material science percolates through our 408 00:20:15,840 --> 00:20:19,640 Speaker 1: economy and the ability to understand how these different materials 409 00:20:19,680 --> 00:20:22,320 Speaker 1: are working on how to invent new materials is a 410 00:20:22,400 --> 00:20:25,440 Speaker 1: critical dimension to how you drive the economy forward. Same 411 00:20:25,440 --> 00:20:27,960 Speaker 1: technology can be used for that really fascinating good luck 412 00:20:27,960 --> 00:20:30,639 Speaker 1: on the coronavirus, and it works for all of our sakes. Okay, 413 00:20:30,720 --> 00:20:33,640 Speaker 1: thanks not a Dave tour of IBM. If you missed 414 00:20:33,640 --> 00:20:36,080 Speaker 1: an episode of Bloomberg Wall Street Week, full episodes are 415 00:20:36,080 --> 00:20:39,200 Speaker 1: now available on YouTube, the Bloomberg Turtle and on Bloomberg 416 00:20:39,200 --> 00:20:48,240 Speaker 1: dot com. This is Wall Street Week. This is Bloomberg 417 00:20:48,280 --> 00:20:52,199 Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. The 418 00:20:52,200 --> 00:20:55,560 Speaker 1: coronavirus didn't just hit stocks and bonds. It hit oil 419 00:20:55,600 --> 00:20:58,880 Speaker 1: prices as well as markets anticipated in demand shock emanating 420 00:20:58,880 --> 00:21:01,480 Speaker 1: out of China and in OPEC tried to do something 421 00:21:01,520 --> 00:21:04,520 Speaker 1: about it, publicly calling out Russia for production cuts it 422 00:21:04,560 --> 00:21:08,280 Speaker 1: hadn't agreed to. Russia declined in Saudi Arabia declared a 423 00:21:08,320 --> 00:21:10,760 Speaker 1: price war that took oil prices down the most since 424 00:21:10,800 --> 00:21:13,160 Speaker 1: two thousand and eight. We're joined now by a Wall 425 00:21:13,160 --> 00:21:15,879 Speaker 1: Street Week contributor who did her graduate work on energy 426 00:21:15,920 --> 00:21:18,200 Speaker 1: at Oxford and worked at Shell before going on to 427 00:21:18,240 --> 00:21:20,960 Speaker 1: the World Bank Carlisle and then founding her own firm, 428 00:21:21,160 --> 00:21:23,320 Speaker 1: Rock Creek Group. She comes to us today from Washington, 429 00:21:23,480 --> 00:21:25,840 Speaker 1: and then Sari Bashels sounding great to have you with us. 430 00:21:25,880 --> 00:21:28,080 Speaker 1: Thanks for being with us, So give us a sense 431 00:21:28,080 --> 00:21:31,520 Speaker 1: form your take. Just stick with Russia and in Sari Arabia. Now, 432 00:21:31,600 --> 00:21:36,960 Speaker 1: what happened, it was all out war. And normally with OPEC, 433 00:21:37,080 --> 00:21:40,760 Speaker 1: when you have these kinds of statements, somebody backs off 434 00:21:41,080 --> 00:21:45,159 Speaker 1: really quickly within twenty four to eight hours. So what 435 00:21:45,320 --> 00:21:49,679 Speaker 1: happened this week was highly unusual. And when you couple 436 00:21:49,800 --> 00:21:53,119 Speaker 1: that with everything else that we've been talking about today, 437 00:21:53,680 --> 00:21:56,639 Speaker 1: it is truly all out war. So it's not just 438 00:21:56,760 --> 00:22:00,159 Speaker 1: an oil war. It's like an all out war on 439 00:22:00,240 --> 00:22:03,320 Speaker 1: the economy. And the amount of money that got taken 440 00:22:03,320 --> 00:22:08,520 Speaker 1: out for oil producers with this shock with oil prices 441 00:22:08,560 --> 00:22:11,400 Speaker 1: going down to the twenties and now sort of hovering 442 00:22:11,440 --> 00:22:15,280 Speaker 1: around the low thirties has not really happened, as you said, 443 00:22:15,320 --> 00:22:18,199 Speaker 1: for a very long time. Up who was shooting at 444 00:22:18,200 --> 00:22:20,120 Speaker 1: home in this war? It was a Russia shooting at 445 00:22:20,119 --> 00:22:23,280 Speaker 1: Satura Arabia, Satura Arabia shooting at Russia, or was Russia 446 00:22:23,280 --> 00:22:27,760 Speaker 1: shooting in the United States. So it was supposed to 447 00:22:27,800 --> 00:22:30,399 Speaker 1: be both of them shooting at the United States. Trying 448 00:22:30,440 --> 00:22:33,840 Speaker 1: to kill the shale business in the US once and 449 00:22:34,040 --> 00:22:38,639 Speaker 1: for all. And it's interesting given the timing they chose. 450 00:22:38,840 --> 00:22:42,199 Speaker 1: Two things I think are important. One, will this be 451 00:22:42,560 --> 00:22:44,800 Speaker 1: the worst time in the U S economy That might 452 00:22:44,920 --> 00:22:48,680 Speaker 1: lead actually some protection of our own shale industry, which 453 00:22:48,760 --> 00:22:50,679 Speaker 1: might not have happened if they had done it at 454 00:22:50,680 --> 00:22:53,959 Speaker 1: a different time. And too, it has caused a major 455 00:22:54,080 --> 00:22:56,640 Speaker 1: falling out, at least to the eyes of the beholder, 456 00:22:57,040 --> 00:23:01,840 Speaker 1: between two great autocrats in the world. So it is, 457 00:23:01,920 --> 00:23:05,359 Speaker 1: you know, not clear who's going to blink first. It 458 00:23:05,440 --> 00:23:08,639 Speaker 1: seems like neither is going to blink. The other group 459 00:23:08,680 --> 00:23:10,800 Speaker 1: that was supposed to other country that was supposed to 460 00:23:10,800 --> 00:23:14,800 Speaker 1: really get hurt was of course Iran, which already UM 461 00:23:15,080 --> 00:23:17,640 Speaker 1: is in a very bad situation. But I think there's 462 00:23:17,640 --> 00:23:23,320 Speaker 1: always been a subsidiary effort to kill that industry as well. 463 00:23:23,400 --> 00:23:25,920 Speaker 1: But I think the main main effort was to get 464 00:23:25,960 --> 00:23:32,440 Speaker 1: the shell industry to basically kill over so UM Asan 465 00:23:32,640 --> 00:23:35,359 Speaker 1: is the expert, I loved listening to this. I think 466 00:23:35,640 --> 00:23:37,919 Speaker 1: from someone who's not an expert in that area and 467 00:23:37,960 --> 00:23:41,359 Speaker 1: outside watching this UM, you know, you kind of have 468 00:23:41,400 --> 00:23:44,040 Speaker 1: the impression that you can't make this stuff up. We 469 00:23:44,119 --> 00:23:47,720 Speaker 1: have this crisis in the world right now around Corona coronavirus, 470 00:23:48,240 --> 00:23:51,159 Speaker 1: and we have this political game going on between Saudi 471 00:23:51,200 --> 00:23:56,080 Speaker 1: Arabia and uh in Russia with profound implications on economies 472 00:23:56,119 --> 00:23:58,359 Speaker 1: around the world. You just can't make this stuff up. 473 00:23:59,080 --> 00:24:01,240 Speaker 1: What happens to show producers, I said, if it was 474 00:24:01,240 --> 00:24:03,160 Speaker 1: turning at them, I mean, you really see them under 475 00:24:03,160 --> 00:24:05,159 Speaker 1: an awful lot of financial stress and strain right now. 476 00:24:05,160 --> 00:24:07,280 Speaker 1: A lot of them were leveraged. You saw some of 477 00:24:07,280 --> 00:24:10,639 Speaker 1: the yields, how y'eld yield really blow out there? So 478 00:24:10,760 --> 00:24:15,840 Speaker 1: what happens to the shell exactly? So they already were overleveraged, 479 00:24:15,960 --> 00:24:19,200 Speaker 1: and I think this is this is a huge problem 480 00:24:19,280 --> 00:24:23,320 Speaker 1: for them, and that is why what happens with some 481 00:24:23,400 --> 00:24:27,480 Speaker 1: sort of assistance through credit markets to the biggest shell 482 00:24:27,600 --> 00:24:31,440 Speaker 1: producers will be really key to keeping them up and alive. 483 00:24:32,240 --> 00:24:34,639 Speaker 1: At the same time, I think, as Bob is saying, 484 00:24:35,440 --> 00:24:40,600 Speaker 1: what is really interesting is why would Russia and Saudi 485 00:24:40,640 --> 00:24:43,320 Speaker 1: Arabia do this at this time. The second thing that 486 00:24:43,480 --> 00:24:46,119 Speaker 1: is very unusual at this time, by the way, is 487 00:24:46,160 --> 00:24:48,840 Speaker 1: that normally, when you have such a big oil price 488 00:24:48,880 --> 00:24:52,439 Speaker 1: shock to the downside, you have people driving more, you 489 00:24:52,480 --> 00:24:57,080 Speaker 1: have people using more energy, and you have emerging markets 490 00:24:57,119 --> 00:25:01,600 Speaker 1: and oil importers actually have a big uptick in their 491 00:25:01,640 --> 00:25:05,560 Speaker 1: stock or in their currency. Given the crisis that's going on, 492 00:25:05,680 --> 00:25:08,000 Speaker 1: we're not seeing any of those. So it's not just 493 00:25:08,119 --> 00:25:11,320 Speaker 1: the shell producers that are hurting, but it's really the 494 00:25:11,359 --> 00:25:15,080 Speaker 1: global economy. So I think when you think about credit, 495 00:25:15,200 --> 00:25:17,639 Speaker 1: David Um and I mentioned this earlier in the show, 496 00:25:17,720 --> 00:25:21,240 Speaker 1: that the proliferation of credit since the crisis, with lower 497 00:25:21,280 --> 00:25:24,679 Speaker 1: interest rates QUE one q E two UM, what we 498 00:25:24,760 --> 00:25:27,800 Speaker 1: have seen is a doubling of the amount of leverage 499 00:25:27,840 --> 00:25:31,200 Speaker 1: loans outstanding today. It's it's something like one point three trillion. 500 00:25:31,960 --> 00:25:34,919 Speaker 1: There's four times as much triple B the lowest rated 501 00:25:35,720 --> 00:25:38,919 Speaker 1: bonds out in the market. And I think we've been 502 00:25:38,960 --> 00:25:41,720 Speaker 1: wondering what is the match that will that will kind 503 00:25:41,720 --> 00:25:45,639 Speaker 1: of start this and Um, what's happening to the economy 504 00:25:46,000 --> 00:25:49,080 Speaker 1: as a result of coronavirus might be that. And I 505 00:25:49,119 --> 00:25:50,679 Speaker 1: think one of the fault lines is going to be 506 00:25:50,680 --> 00:25:54,040 Speaker 1: in the energy sector, particularly the intersect energy sector in 507 00:25:54,080 --> 00:25:58,119 Speaker 1: the US is Afsana said. Um, that's where leverage is 508 00:25:58,240 --> 00:26:01,720 Speaker 1: very high, and that's where the business prospects and the 509 00:26:01,760 --> 00:26:05,159 Speaker 1: cash flows are dropping. Most quickly. So we happen to 510 00:26:05,200 --> 00:26:10,159 Speaker 1: think that um, um, we're going to see um quite 511 00:26:10,400 --> 00:26:15,600 Speaker 1: uh quite lower values in below investment grade debt across 512 00:26:15,600 --> 00:26:19,159 Speaker 1: the US dollar corporate market, but particularly in energy. So 513 00:26:19,200 --> 00:26:22,320 Speaker 1: normally when you have that, there's a shake a bankruptcies. 514 00:26:22,400 --> 00:26:25,119 Speaker 1: Let's be frank. What happens and assets go up for sale. 515 00:26:25,320 --> 00:26:26,720 Speaker 1: Are the majors in a place to come in and 516 00:26:26,760 --> 00:26:28,800 Speaker 1: buy some of that? I think? I think what we're 517 00:26:28,800 --> 00:26:32,199 Speaker 1: gonna have to see is is significant consolidation and um. 518 00:26:32,800 --> 00:26:34,960 Speaker 1: Otherwise we're going to see a number of bankruptcies. But 519 00:26:35,000 --> 00:26:36,720 Speaker 1: one of those two things is going to happen. And 520 00:26:36,760 --> 00:26:40,040 Speaker 1: I do think that the majors are very very healthy 521 00:26:40,160 --> 00:26:42,399 Speaker 1: right now. So do they have the capacity from a 522 00:26:42,960 --> 00:26:45,520 Speaker 1: from a capital structure point of view? Yes, do they 523 00:26:45,520 --> 00:26:48,280 Speaker 1: have the willingness? Um? I'm not enough of an expert 524 00:26:48,280 --> 00:26:52,400 Speaker 1: in that sector to know. So you are what's gonna happen? Well, Well, 525 00:26:52,480 --> 00:26:55,040 Speaker 1: I think two things. One is that um, the other 526 00:26:55,080 --> 00:26:57,359 Speaker 1: people that are getting hurt and we'll get hurt even 527 00:26:57,359 --> 00:27:00,520 Speaker 1: more people who lent to the shaling dis tree. So 528 00:27:00,640 --> 00:27:04,240 Speaker 1: there's not going to really be um sort of Andy's 529 00:27:04,280 --> 00:27:07,800 Speaker 1: silver lining for them. UM. I agree that there might 530 00:27:07,880 --> 00:27:11,760 Speaker 1: be some There will be consolidation. It may not necessarily 531 00:27:12,000 --> 00:27:15,280 Speaker 1: be the big oil majors, because the oil majors, just 532 00:27:15,320 --> 00:27:19,360 Speaker 1: before this happened have been trying to diversify their sources 533 00:27:19,359 --> 00:27:23,080 Speaker 1: of energy away from oil and gas and away from 534 00:27:23,200 --> 00:27:26,680 Speaker 1: hydrocarbons into more renewable energy. So it would be really 535 00:27:26,760 --> 00:27:30,800 Speaker 1: interesting as they weigh the cost of shell versus the 536 00:27:30,840 --> 00:27:34,520 Speaker 1: cost of renewable energy, which way they go. But most 537 00:27:34,520 --> 00:27:38,159 Speaker 1: of them are starting to call themselves energy companies versus 538 00:27:38,280 --> 00:27:43,480 Speaker 1: oil and gas companies. So that's something interesting to watch. 539 00:27:44,359 --> 00:27:47,160 Speaker 1: You've been in the forefront of that move. You've been 540 00:27:47,280 --> 00:27:51,239 Speaker 1: very outspoken about that. What effects might this oil price war, 541 00:27:51,240 --> 00:27:53,320 Speaker 1: particularly if they continues for any period of time, have 542 00:27:53,520 --> 00:27:56,439 Speaker 1: on that dynamic? Does that put off the date for 543 00:27:56,440 --> 00:28:01,200 Speaker 1: people to invest in the renewables? Actually think that process 544 00:28:01,359 --> 00:28:04,080 Speaker 1: is um sort of ongoing. You had one point six 545 00:28:04,119 --> 00:28:08,520 Speaker 1: trillion go into renewables um since two thousands sixteen, another 546 00:28:08,640 --> 00:28:12,560 Speaker 1: maybe ten trillion going in over the next few years, 547 00:28:12,600 --> 00:28:16,399 Speaker 1: and what is I think the forces of renewable energy 548 00:28:16,520 --> 00:28:19,520 Speaker 1: is one reason that we have seen as oil prices 549 00:28:19,800 --> 00:28:23,160 Speaker 1: have gone down, they don't bounce back. You remember when 550 00:28:23,200 --> 00:28:28,560 Speaker 1: we had the incident with refinery in in Saudi Arabia, 551 00:28:28,960 --> 00:28:31,840 Speaker 1: oil prices went up, but then they really did go 552 00:28:31,920 --> 00:28:36,560 Speaker 1: down pretty fast right after. The forces that are at play, 553 00:28:36,720 --> 00:28:43,840 Speaker 1: between the forces um that climate change has created, as 554 00:28:43,880 --> 00:28:47,800 Speaker 1: well as the geopolitical issues that we're seeing right now 555 00:28:47,880 --> 00:28:51,200 Speaker 1: in front of us, as well as having had a 556 00:28:51,320 --> 00:28:56,640 Speaker 1: really nice weather winter season, all of them are forcing 557 00:28:56,840 --> 00:29:00,480 Speaker 1: the oil producers to really panic. So I think looking forward, 558 00:29:01,040 --> 00:29:05,160 Speaker 1: it's going to be much less focus on oil and gas, 559 00:29:05,280 --> 00:29:09,240 Speaker 1: and at least oil and maybe more focused on natural gas, 560 00:29:09,280 --> 00:29:13,080 Speaker 1: including local US natural gas and shell gas, as well 561 00:29:13,080 --> 00:29:16,240 Speaker 1: as renewables. Bob, can we afford the United States to 562 00:29:16,280 --> 00:29:18,120 Speaker 1: lose the shale industry? I mean not to say we'd 563 00:29:18,160 --> 00:29:19,720 Speaker 1: lose it all together, but I mean, going back in 564 00:29:19,760 --> 00:29:23,320 Speaker 1: the history, then Vice President George Herbert Walker Bush went 565 00:29:23,360 --> 00:29:25,080 Speaker 1: to the Southeast and said, you can't let the price 566 00:29:25,120 --> 00:29:27,960 Speaker 1: go too low because you'll wipe out my domestic industry. 567 00:29:28,080 --> 00:29:30,040 Speaker 1: We have President Trump just this week saying, you know what, 568 00:29:30,360 --> 00:29:32,239 Speaker 1: local gas presidents, that's a good thing. That's like a 569 00:29:32,280 --> 00:29:34,360 Speaker 1: tax cut. He sort of likes it. You know. I 570 00:29:34,360 --> 00:29:37,040 Speaker 1: think Assana brought up the right the right issue, which is, 571 00:29:37,400 --> 00:29:41,280 Speaker 1: you know, the majors have the capital to take part 572 00:29:41,280 --> 00:29:43,360 Speaker 1: in that, but they don't have the willingness for all 573 00:29:43,360 --> 00:29:47,440 Speaker 1: the reasons that she she spoke on so well, Um, 574 00:29:47,480 --> 00:29:52,200 Speaker 1: I think secondly, Um, the the you know, when you 575 00:29:52,280 --> 00:29:55,600 Speaker 1: look at the impact of this on the high yield 576 00:29:55,600 --> 00:29:58,080 Speaker 1: bonds or the corporate bonds that support so many of 577 00:29:58,080 --> 00:30:01,560 Speaker 1: those activities, the banks US don't have the capacity because 578 00:30:01,560 --> 00:30:05,160 Speaker 1: of capital rules that were introduced post two thousand eight 579 00:30:05,440 --> 00:30:07,920 Speaker 1: to really be part of the solution. So what we're 580 00:30:07,920 --> 00:30:10,560 Speaker 1: gonna need is we're gonna need private capital which is 581 00:30:10,600 --> 00:30:14,520 Speaker 1: targeted for this area, or some kind of a government program. 582 00:30:14,560 --> 00:30:16,560 Speaker 1: I doubt we're going to see a government program in 583 00:30:16,600 --> 00:30:19,960 Speaker 1: this in this area, So it's really about private capital, Bob. 584 00:30:20,000 --> 00:30:22,680 Speaker 1: Don't you think at this time they might consider a 585 00:30:22,680 --> 00:30:25,440 Speaker 1: government program again for the geo political reasons, you know, 586 00:30:25,520 --> 00:30:30,160 Speaker 1: just to be in um, this situation a work created 587 00:30:30,240 --> 00:30:33,400 Speaker 1: by the Saudis and the Russians at the most inopportune time. 588 00:30:33,480 --> 00:30:38,720 Speaker 1: Don't you think if the circumstances, um, we're different, obviously 589 00:30:38,720 --> 00:30:41,560 Speaker 1: there would be no chance of a government bailout. But 590 00:30:41,640 --> 00:30:43,920 Speaker 1: don't you see the government playing a bigger role and 591 00:30:44,000 --> 00:30:48,120 Speaker 1: trying to make us energy sufficient, self sufficient. So you're thinking, 592 00:30:48,240 --> 00:30:51,560 Speaker 1: is it because the the the origin of this was 593 00:30:51,640 --> 00:30:55,600 Speaker 1: the political battles happening between Saudi Arabia and Russia. It 594 00:30:55,600 --> 00:30:59,400 Speaker 1: gives the government a chance and and I see your point. Yeah, 595 00:30:59,520 --> 00:31:02,360 Speaker 1: I see your one. Okay, many thanks to Wall Street Reek. 596 00:31:02,360 --> 00:31:05,160 Speaker 1: Contribute to osany Bachelaus coming to us from Washington. Thank 597 00:31:05,200 --> 00:31:07,480 Speaker 1: you so much to Bob Diamond. This has been another 598 00:31:07,640 --> 00:31:10,280 Speaker 1: edition of Bloomberg Wall Street Reek. See you next week.