1 00:00:02,640 --> 00:00:05,320 Speaker 1: Welcome to the Bloomberg PENL Podcast. I'm Paul swing you, 2 00:00:05,360 --> 00:00:07,680 Speaker 1: along with my co host Lisa Brahma Ways, each day 3 00:00:07,720 --> 00:00:10,240 Speaker 1: we bring you the most noteworthy and useful interviews for 4 00:00:10,280 --> 00:00:12,520 Speaker 1: you and your money, whether at the grocery store or 5 00:00:12,560 --> 00:00:15,480 Speaker 1: the trading floor. Find a Bloomberg Penil podcast on Apple 6 00:00:15,520 --> 00:00:17,959 Speaker 1: podcast or wherever you listen to podcasts, as well as 7 00:00:17,960 --> 00:00:22,320 Speaker 1: at Bloomberg dot com. Bob Michael, chief investment officer at 8 00:00:22,360 --> 00:00:25,760 Speaker 1: JP Morgan Asset Management, both fantastic to have you with us. 9 00:00:25,800 --> 00:00:28,360 Speaker 1: Just walk us through your reaction, your thoughts in response 10 00:00:28,400 --> 00:00:31,200 Speaker 1: to what's happened in the last hour and twenty minutes. Yeah, 11 00:00:31,680 --> 00:00:34,840 Speaker 1: I think it's it's been quite stunning, but I feel 12 00:00:35,000 --> 00:00:38,200 Speaker 1: it was the fair and appropriate move by the FED 13 00:00:38,640 --> 00:00:42,479 Speaker 1: to step in here. You cannot stand back and watch 14 00:00:42,520 --> 00:00:45,400 Speaker 1: what's going on and say we're going to wait for 15 00:00:45,479 --> 00:00:49,440 Speaker 1: the data. The markets were telling us that this is 16 00:00:49,440 --> 00:00:54,320 Speaker 1: an anticipatory event. We know that the virus will spread 17 00:00:54,880 --> 00:00:58,160 Speaker 1: and the FED should be doing something. I thought it 18 00:00:58,320 --> 00:01:01,200 Speaker 1: was a very good press comp friends. I thought the 19 00:01:01,240 --> 00:01:04,840 Speaker 1: fifty basis point cut was the right amount to do, 20 00:01:05,560 --> 00:01:09,240 Speaker 1: and I think he positioned it correctly where he said 21 00:01:09,440 --> 00:01:12,640 Speaker 1: it cannot slow the rate of infection, it cannot fix 22 00:01:12,760 --> 00:01:16,679 Speaker 1: the broken supply chain, but it will boost household and 23 00:01:16,760 --> 00:01:22,440 Speaker 1: business confidence and it can avoid a tightening in financial conditions. UM. 24 00:01:22,520 --> 00:01:27,199 Speaker 1: So I'm happy and relieved that the FED stepped in here, 25 00:01:27,840 --> 00:01:30,520 Speaker 1: um and did something. But has it changed the strategy? 26 00:01:30,560 --> 00:01:32,280 Speaker 1: You and I were kicking around some ideas of her 27 00:01:32,319 --> 00:01:34,360 Speaker 1: email about an hour or so ago on the Bloomberg 28 00:01:34,680 --> 00:01:36,560 Speaker 1: and just one line from you, Bob just jumped out 29 00:01:36,600 --> 00:01:40,280 Speaker 1: to me, this is a good bounce to sell high yield, Bob. 30 00:01:40,319 --> 00:01:46,880 Speaker 1: Why because we know that that the supply chain is broken. 31 00:01:46,959 --> 00:01:51,040 Speaker 1: We know that there are some industries, travel and leisure 32 00:01:51,040 --> 00:01:54,760 Speaker 1: in particular, that are going to be impacted. But what 33 00:01:54,920 --> 00:01:59,559 Speaker 1: about all the suppliers to those industries? Do we understand that? 34 00:02:00,040 --> 00:02:03,440 Speaker 1: What about the insurance entery? Do we know how long 35 00:02:03,640 --> 00:02:08,880 Speaker 1: economies will be closed? All of those things draw put 36 00:02:08,880 --> 00:02:12,520 Speaker 1: a question mark around what corporate profitability will look like 37 00:02:12,639 --> 00:02:16,320 Speaker 1: for the next several quarters. And I'd rather cash in 38 00:02:16,320 --> 00:02:18,480 Speaker 1: the chips now and wait it out. Well, I think 39 00:02:18,480 --> 00:02:20,720 Speaker 1: this is so important, folks. I can't convey enough the 40 00:02:20,760 --> 00:02:24,040 Speaker 1: polarity across the research screens that we have. We are 41 00:02:24,200 --> 00:02:27,400 Speaker 1: hugely advantaged by the smartest people on Wall Street, including 42 00:02:27,480 --> 00:02:31,520 Speaker 1: Mr Michael, and they are split over this emergency. Ray 43 00:02:31,919 --> 00:02:35,080 Speaker 1: Bob Michael to me, it devolves down to real g 44 00:02:35,200 --> 00:02:37,520 Speaker 1: d P or maybe some other metric you may like, 45 00:02:38,000 --> 00:02:40,600 Speaker 1: and that the FED has a look a guess of 46 00:02:40,800 --> 00:02:45,280 Speaker 1: forecast of a really grim and sustained couple quarter g 47 00:02:45,440 --> 00:02:48,560 Speaker 1: d P. Have you people modeled that out yet? Can 48 00:02:48,600 --> 00:02:52,040 Speaker 1: you say it's a negative GDP or flat flat flat 49 00:02:52,120 --> 00:02:57,519 Speaker 1: flat for X number of quarters? You can't because right 50 00:02:57,520 --> 00:03:01,280 Speaker 1: now the data in the US looks ay, But the 51 00:03:01,360 --> 00:03:05,440 Speaker 1: news as it comes out progressively is more school closing. 52 00:03:06,080 --> 00:03:09,280 Speaker 1: The infection rate continues to accelerate in the US. These 53 00:03:09,320 --> 00:03:12,160 Speaker 1: are problems. We know it leads to quarantining. We know 54 00:03:12,240 --> 00:03:15,200 Speaker 1: it leads to a shutdown of the economy. That's the 55 00:03:15,200 --> 00:03:17,079 Speaker 1: only thing you can do. Now. What the FED has 56 00:03:17,160 --> 00:03:21,960 Speaker 1: done is it's paved the way for lower cost funding 57 00:03:22,080 --> 00:03:25,200 Speaker 1: across the system. That takes some of the pressure off. 58 00:03:25,480 --> 00:03:28,280 Speaker 1: I want to see what happens at the SPA next. 59 00:03:28,720 --> 00:03:31,639 Speaker 1: That's the entity that's going to make loans too. Small 60 00:03:31,720 --> 00:03:36,320 Speaker 1: businesses is the right number, I don't think so. Do 61 00:03:36,440 --> 00:03:38,760 Speaker 1: they have a war chest of a hundred billion? They 62 00:03:38,800 --> 00:03:41,720 Speaker 1: could drawn we need to see how these things play out. 63 00:03:41,720 --> 00:03:45,119 Speaker 1: There an awful lot of question marks that that lay 64 00:03:45,120 --> 00:03:47,880 Speaker 1: ahead for us. The FED cannot be one of these 65 00:03:47,960 --> 00:03:51,280 Speaker 1: question marks, and it stepped in and did exactly what 66 00:03:51,360 --> 00:03:53,320 Speaker 1: they needed to do. I mean Jana was framing is 67 00:03:53,400 --> 00:03:55,560 Speaker 1: earlier with Bunny Quinn. I mean you get the nominal 68 00:03:55,600 --> 00:03:58,000 Speaker 1: GDP would just say a one percent run rate on 69 00:03:58,040 --> 00:04:00,600 Speaker 1: g d ps two for sent inflation. That does not 70 00:04:00,680 --> 00:04:03,840 Speaker 1: get it done for this American economy and the responsibilities 71 00:04:03,840 --> 00:04:05,800 Speaker 1: of Bob Michael has it is bank Well, Bob, I 72 00:04:05,800 --> 00:04:08,280 Speaker 1: think you've touched on something massively important. It's how we 73 00:04:08,400 --> 00:04:11,800 Speaker 1: help short to medium size, small to medium sized enterprises 74 00:04:11,840 --> 00:04:16,160 Speaker 1: through a massive one off temporary, potentially temporary shock. And 75 00:04:16,200 --> 00:04:19,160 Speaker 1: I say temporary with a big asterisk on top of it, 76 00:04:19,200 --> 00:04:21,920 Speaker 1: because it might not be because if we don't deploy 77 00:04:21,960 --> 00:04:23,880 Speaker 1: the right tools, all of a sudden, you end up 78 00:04:23,920 --> 00:04:26,640 Speaker 1: with a economic shock that would otherwise be temporary becoming 79 00:04:26,680 --> 00:04:29,080 Speaker 1: something a lot darker, because people need to lay off 80 00:04:29,080 --> 00:04:31,480 Speaker 1: staff because they can't get a bridge through to the 81 00:04:31,520 --> 00:04:33,680 Speaker 1: middle of the year. For me, it's just about how 82 00:04:33,839 --> 00:04:35,960 Speaker 1: do we get that bridge to the middle of the 83 00:04:36,040 --> 00:04:39,320 Speaker 1: year when the health christis crisis passes and we have 84 00:04:39,360 --> 00:04:42,799 Speaker 1: a clearer path towards recovery. We've had the rate cup, Bob, 85 00:04:43,080 --> 00:04:46,000 Speaker 1: what do you want to see more of? Well, I 86 00:04:46,080 --> 00:04:50,039 Speaker 1: think we've seen the roadmap, unfortunately from China, which is 87 00:04:50,080 --> 00:04:52,880 Speaker 1: a month and a half ahead of us, and it 88 00:04:53,080 --> 00:04:57,800 Speaker 1: is small businesses, the small mid sized enterprises that run 89 00:04:57,839 --> 00:05:00,880 Speaker 1: out of cash in one month or two months. It's 90 00:05:00,920 --> 00:05:04,599 Speaker 1: something like a third to two thirds of s mmes 91 00:05:04,680 --> 00:05:07,279 Speaker 1: run out of cash in a couple of months. So 92 00:05:07,320 --> 00:05:11,000 Speaker 1: we know when economic activity shuts down, they don't have 93 00:05:11,200 --> 00:05:14,839 Speaker 1: operating cash to keep going. How we get money to 94 00:05:14,960 --> 00:05:17,680 Speaker 1: them is important. Is it the s p A or 95 00:05:17,720 --> 00:05:21,360 Speaker 1: our banks incentive to land and and how do you 96 00:05:21,440 --> 00:05:24,440 Speaker 1: backstop the banks to be able to do that. That's 97 00:05:24,480 --> 00:05:27,120 Speaker 1: what we need to see. That's what makes this temporal. 98 00:05:27,560 --> 00:05:31,039 Speaker 1: If we can extend credit into the system and wade 99 00:05:31,080 --> 00:05:34,320 Speaker 1: through the slowdown that's coming over the next couple of quarters. 100 00:05:34,360 --> 00:05:37,840 Speaker 1: But you absolutely do not sit there as the Fed 101 00:05:38,000 --> 00:05:40,880 Speaker 1: and do nothing. Thank you your powder dry. That's some 102 00:05:40,960 --> 00:05:43,800 Speaker 1: of the silliest commentary I've heard, Lisa Banner is the 103 00:05:43,880 --> 00:05:47,440 Speaker 1: tape giving away. It's a correlated giveaway negative negative for 104 00:05:48,200 --> 00:05:50,120 Speaker 1: the yen is trying to find new weakness and look 105 00:05:50,120 --> 00:05:52,280 Speaker 1: at the tenure yield. Yeah, that's where exactly where I 106 00:05:52,320 --> 00:05:53,840 Speaker 1: wanted to go. Right now, we're looking at a tenure 107 00:05:53,920 --> 00:05:57,640 Speaker 1: yield one point oh three. Just plummeting and really look 108 00:05:57,680 --> 00:06:01,800 Speaker 1: at the equities right now, absolutely, Lee, really read across 109 00:06:01,800 --> 00:06:04,960 Speaker 1: the screen. Down now down one point seven SMP, down 110 00:06:05,000 --> 00:06:07,200 Speaker 1: one point five percent. Bob, you thought that this was 111 00:06:07,240 --> 00:06:11,600 Speaker 1: an appropriate policy reaction based on the market reaction right now? 112 00:06:11,640 --> 00:06:13,960 Speaker 1: If it holds through the end of clothes, which is 113 00:06:13,960 --> 00:06:16,719 Speaker 1: a big if, given how wippie things have been, how 114 00:06:16,760 --> 00:06:18,760 Speaker 1: can you say that this isn't the market saying it's 115 00:06:18,760 --> 00:06:22,440 Speaker 1: a policy misstep, using up ammunition now at a time 116 00:06:22,480 --> 00:06:27,360 Speaker 1: when it's not the correct response to the issue. I 117 00:06:27,440 --> 00:06:32,760 Speaker 1: don't see what harm this has done. You've just lowered 118 00:06:32,920 --> 00:06:37,960 Speaker 1: the cost of funding across the system consumers. We've seen 119 00:06:38,040 --> 00:06:41,599 Speaker 1: this last year with the seventy five basis point cut 120 00:06:41,680 --> 00:06:45,400 Speaker 1: in the Fed funds rate. It led to an acceleration 121 00:06:45,440 --> 00:06:50,200 Speaker 1: in mortgage reeflies. Fifty basis points will have a similar effect. 122 00:06:50,520 --> 00:06:55,680 Speaker 1: Invalidates the current rate environment. I think it's all positive. 123 00:06:56,080 --> 00:06:58,479 Speaker 1: I think one of the things that may have done 124 00:06:58,680 --> 00:07:02,680 Speaker 1: is validated. There are legitimate concerns out there. This is 125 00:07:02,920 --> 00:07:06,400 Speaker 1: the said, and policymakers do not at all of you 126 00:07:06,640 --> 00:07:10,400 Speaker 1: this as any kind of v shaped event. It's are 127 00:07:10,440 --> 00:07:13,840 Speaker 1: you with the bottom of the you lengthening out of it. 128 00:07:14,000 --> 00:07:16,320 Speaker 1: So I don't think it's a policy mistake at all. 129 00:07:16,680 --> 00:07:19,320 Speaker 1: I think the markets are waking up to the reality 130 00:07:20,080 --> 00:07:23,040 Speaker 1: that there is a significant problem that lies ahead for 131 00:07:23,120 --> 00:07:26,040 Speaker 1: the US economy that's going to last more than a 132 00:07:26,080 --> 00:07:27,800 Speaker 1: month or so. So I'm just had a record low 133 00:07:27,840 --> 00:07:30,200 Speaker 1: print on the US tenure yield. Your all time low 134 00:07:30,240 --> 00:07:32,720 Speaker 1: now one zero, two eight three. We're just off it 135 00:07:32,760 --> 00:07:35,400 Speaker 1: at the moment, but all time lows on tenure yields, 136 00:07:35,400 --> 00:07:37,880 Speaker 1: the bit coming into the bond market quite phenomenal again 137 00:07:37,920 --> 00:07:40,400 Speaker 1: with down thirteen basis points. I mean, and you know, 138 00:07:40,480 --> 00:07:43,360 Speaker 1: Bob Michael has answers that go on forever. We went 139 00:07:43,400 --> 00:07:48,400 Speaker 1: down a hundred points just on Mr Michael's last answer. 140 00:07:48,400 --> 00:07:51,960 Speaker 1: I know how much times well, I hates our points, 141 00:07:51,960 --> 00:07:55,320 Speaker 1: but I've got to tell you because everyone uses it, 142 00:07:55,320 --> 00:07:57,240 Speaker 1: it kind of what the public matters. I mean, what 143 00:07:57,280 --> 00:08:00,960 Speaker 1: do you see, Michael? Your ecology got a Paul suns 144 00:08:01,000 --> 00:08:03,400 Speaker 1: and we talked to Liz and Son. Is it Josh Schwab, 145 00:08:03,480 --> 00:08:07,760 Speaker 1: You've got a different institutional view. What are institutions doing 146 00:08:07,800 --> 00:08:10,440 Speaker 1: about Michael now down six d points? What are you 147 00:08:10,560 --> 00:08:15,200 Speaker 1: observed in the last week. Well, I think one of 148 00:08:15,280 --> 00:08:19,040 Speaker 1: the things this fifty basis point cut has done is 149 00:08:19,080 --> 00:08:22,200 Speaker 1: it re steep in the yield curve from three months 150 00:08:22,240 --> 00:08:27,200 Speaker 1: to tenure. Now that's evaporating very quickly, but we had 151 00:08:27,240 --> 00:08:31,320 Speaker 1: been inverted. Re steepening it is going to bring in 152 00:08:31,400 --> 00:08:35,560 Speaker 1: money from overseas. The negative yielding markets are going to 153 00:08:35,600 --> 00:08:38,240 Speaker 1: find it to their advantage to come in and buy 154 00:08:38,480 --> 00:08:43,160 Speaker 1: intermediate bonds in the US, high quality investment grade and 155 00:08:43,200 --> 00:08:45,760 Speaker 1: be able to hedge it back to their base currency 156 00:08:46,240 --> 00:08:49,319 Speaker 1: with very little cost associated with that. So I would 157 00:08:49,320 --> 00:08:53,960 Speaker 1: expect overnight money to come pouring in from overseas into 158 00:08:54,040 --> 00:08:56,320 Speaker 1: the US market generally. So I'll let you do the 159 00:08:56,360 --> 00:08:59,480 Speaker 1: tenure yield. John Herman just publishes with his great acuity 160 00:08:59,520 --> 00:09:03,000 Speaker 1: and grant larity, fu mg F you f u f 161 00:09:03,320 --> 00:09:08,520 Speaker 1: G m u F GEM cut me some slack m 162 00:09:08,640 --> 00:09:13,600 Speaker 1: u f G Securities America's and he really emphasizes another 163 00:09:13,640 --> 00:09:17,160 Speaker 1: two rate cuts, highlight the risk of another two rate 164 00:09:17,200 --> 00:09:19,880 Speaker 1: cuts in the second quarter of this year. So he's 165 00:09:19,880 --> 00:09:21,920 Speaker 1: on the big watch as well. I want to look 166 00:09:22,000 --> 00:09:25,120 Speaker 1: also though it just forward break even rates and the 167 00:09:25,160 --> 00:09:28,280 Speaker 1: idea of what this means for future inflation. They're not 168 00:09:28,440 --> 00:09:32,520 Speaker 1: increasing materially, and to me that speaks exactly to Bob's point, John, 169 00:09:32,800 --> 00:09:35,640 Speaker 1: this idea that this isn't necessarily stimulus so much as 170 00:09:35,679 --> 00:09:38,400 Speaker 1: an acknowledgement of a reality that perhaps was not being 171 00:09:38,440 --> 00:09:41,079 Speaker 1: acknowledged by markets previously. Yeah, I've been saying this for 172 00:09:41,120 --> 00:09:43,000 Speaker 1: a number of weeks now affect a number of months. 173 00:09:43,040 --> 00:09:45,600 Speaker 1: This market has just price the FED as follows. We 174 00:09:45,679 --> 00:09:47,760 Speaker 1: believe you you're going to give us a lower rates, 175 00:09:47,840 --> 00:09:49,760 Speaker 1: will price that. But we'll price it right the way 176 00:09:49,760 --> 00:09:52,120 Speaker 1: through the curve because guess what, we don't believe it's 177 00:09:52,120 --> 00:09:54,200 Speaker 1: gonna work. We don't believe it's going to end up 178 00:09:54,200 --> 00:09:56,760 Speaker 1: with higher inflation expectations, and we don't believe you're going 179 00:09:56,800 --> 00:09:58,720 Speaker 1: to be in a position to hike at any time 180 00:09:58,880 --> 00:10:01,959 Speaker 1: anytime soon. Down A wrote inter day tenure yielder record 181 00:10:02,000 --> 00:10:05,280 Speaker 1: low moments ago one point zero to eight zero. Will 182 00:10:05,280 --> 00:10:09,240 Speaker 1: watch that Jared's around negative and then joan across the 183 00:10:09,360 --> 00:10:11,280 Speaker 1: pond because we're going to be doing a cable a 184 00:10:11,320 --> 00:10:13,960 Speaker 1: special edition at twelve noon and today, I'll pull on 185 00:10:14,000 --> 00:10:16,720 Speaker 1: a British accent and the two year yield there's zero 186 00:10:16,880 --> 00:10:20,520 Speaker 1: point to three? Zero point to three? Yeah? Is governor 187 00:10:20,600 --> 00:10:22,920 Speaker 1: currently on a negative rate? Watch to come up Bob 188 00:10:22,960 --> 00:10:24,839 Speaker 1: Michael's life. He's got a bit of space before he 189 00:10:24,880 --> 00:10:26,679 Speaker 1: gets the negative rates. But certainly I think a lot 190 00:10:26,679 --> 00:10:28,560 Speaker 1: of people are looking for a twenty five basis point 191 00:10:28,600 --> 00:10:30,400 Speaker 1: card for me the other side of the Atlantic. I 192 00:10:30,400 --> 00:10:32,120 Speaker 1: want to tell you a story. The thirty year yield 193 00:10:32,679 --> 00:10:35,640 Speaker 1: end of eighteen, the thirty year yield three forty three, 194 00:10:35,960 --> 00:10:39,840 Speaker 1: three forty three and right now one sixty four. And 195 00:10:39,880 --> 00:10:41,880 Speaker 1: Bob Michael a friend of ours. I remember it was 196 00:10:41,920 --> 00:10:43,920 Speaker 1: Mike Collins over at PGIM A couple of years ago. 197 00:10:43,960 --> 00:10:45,959 Speaker 1: I said to him, in ten years, how will we 198 00:10:46,040 --> 00:10:48,320 Speaker 1: view this bond market looking back ten years where we 199 00:10:48,320 --> 00:10:51,000 Speaker 1: think these low yields were ridiculous? And I remember him 200 00:10:51,040 --> 00:10:53,800 Speaker 1: turning round him and saying, you will wish you had 201 00:10:53,840 --> 00:10:57,280 Speaker 1: bought a thirty year with a three handle, because you're 202 00:10:57,320 --> 00:11:00,160 Speaker 1: never going to get it again. Bob Michael, these kind 203 00:11:00,160 --> 00:11:01,559 Speaker 1: of yels do we have to live with them? Now? 204 00:11:01,640 --> 00:11:06,600 Speaker 1: Is this it? Yeah? I think we're we're stuck living 205 00:11:06,600 --> 00:11:10,000 Speaker 1: with them for a while. Um. I think all the 206 00:11:10,120 --> 00:11:16,640 Speaker 1: things that have been disinflationary, the demographics, the globalization of 207 00:11:17,000 --> 00:11:23,360 Speaker 1: manufacturing and supply, UM and and the impact of technology 208 00:11:23,600 --> 00:11:27,040 Speaker 1: aren't going away anytime soon. I don't know what it's 209 00:11:27,040 --> 00:11:30,319 Speaker 1: going to take. It may take some huge fiscal stimulus. 210 00:11:30,480 --> 00:11:33,360 Speaker 1: Bob Michael of JP Morgan Asset Management. Always a pleasure. 211 00:11:33,360 --> 00:11:38,000 Speaker 1: Thank you so much for being with us. Well, Dan 212 00:11:38,080 --> 00:11:41,040 Speaker 1: Skelly here, Dan, what do you think of this? Well? Look, 213 00:11:41,080 --> 00:11:43,760 Speaker 1: I think this is the first time that you're seeing 214 00:11:43,760 --> 00:11:46,760 Speaker 1: a potential conflict or disruption that could affect the consumer. 215 00:11:46,920 --> 00:11:49,000 Speaker 1: Right when you go back, you think about the last 216 00:11:49,000 --> 00:11:51,400 Speaker 1: ten years of this upmove in the markets. We have 217 00:11:51,440 --> 00:11:54,400 Speaker 1: the energy collapse in fifteen, We've been going through a 218 00:11:54,480 --> 00:11:57,839 Speaker 1: US profits recession for the last eighteen months. Frankly, neither 219 00:11:57,920 --> 00:12:00,240 Speaker 1: of them has really affected the consumer. And so I 220 00:12:00,280 --> 00:12:02,960 Speaker 1: think the FED is making this emergency move, as you mentioned, 221 00:12:02,960 --> 00:12:04,920 Speaker 1: the first time really since oh eight, to have an 222 00:12:04,960 --> 00:12:09,040 Speaker 1: intermeding move because they're concerned in terms of what this virus, 223 00:12:09,120 --> 00:12:11,920 Speaker 1: what this trend, this issue, this conflict could mean towards 224 00:12:11,920 --> 00:12:13,840 Speaker 1: the used consumer. And then there are so many risks 225 00:12:13,840 --> 00:12:15,520 Speaker 1: at play here. And I caught up with Waking fouls 226 00:12:15,520 --> 00:12:18,240 Speaker 1: of PIMCOT around about an hour ago, right before the 227 00:12:18,240 --> 00:12:20,680 Speaker 1: fifty basis point cut from the FED, and he said, 228 00:12:20,720 --> 00:12:24,280 Speaker 1: we faced the very real risk of a services led recession. 229 00:12:24,679 --> 00:12:27,040 Speaker 1: And that's not a risk we've had to face for 230 00:12:27,120 --> 00:12:29,120 Speaker 1: much of the last ten years because a lot of 231 00:12:29,120 --> 00:12:30,680 Speaker 1: it has come out of China, a lot of it 232 00:12:30,720 --> 00:12:33,679 Speaker 1: has been driven by manufacturing, exactly right, Jonathan. So if 233 00:12:33,679 --> 00:12:37,400 Speaker 1: you look back at fifteen sixteen, the positive externality of 234 00:12:37,400 --> 00:12:39,960 Speaker 1: an energy recession is low gas prices net positive for 235 00:12:39,960 --> 00:12:43,560 Speaker 1: the consumer. Energy China n e M slowing down, and 236 00:12:43,600 --> 00:12:46,640 Speaker 1: the US profits recession has not impacted the U S consumer. 237 00:12:46,960 --> 00:12:49,079 Speaker 1: So it is a risk. It's not Morgan Stanley's base 238 00:12:49,160 --> 00:12:52,200 Speaker 1: case right now. I think the FED certainly is adding 239 00:12:52,320 --> 00:12:56,280 Speaker 1: some support and some frankly, some hope that they can 240 00:12:56,320 --> 00:12:58,760 Speaker 1: support markets in the economy from here, but frankly, rates 241 00:12:58,800 --> 00:13:01,120 Speaker 1: were already low. Yep. But this is exactly my question. 242 00:13:01,160 --> 00:13:03,720 Speaker 1: I mean, what signal does it send to the world 243 00:13:03,960 --> 00:13:06,920 Speaker 1: if the FED has an emergency of fifty rate fifty 244 00:13:06,920 --> 00:13:09,760 Speaker 1: basis point rate cut and equities don't rally, which we're 245 00:13:09,760 --> 00:13:12,480 Speaker 1: seeing them whip around and not maybe even doing so, 246 00:13:12,800 --> 00:13:14,760 Speaker 1: given the fact that the FED is doing so ahead 247 00:13:14,760 --> 00:13:16,960 Speaker 1: of what could be exactly, as you say, a consumer 248 00:13:17,000 --> 00:13:19,600 Speaker 1: led reception, so that this was exactly my fear when 249 00:13:19,640 --> 00:13:22,440 Speaker 1: we saw the emergency rate cut earlier today, was that 250 00:13:22,520 --> 00:13:24,800 Speaker 1: the market would rally and then you'd see a pullback, 251 00:13:24,840 --> 00:13:27,560 Speaker 1: and frankly, you're seeing it right now. It also follows 252 00:13:27,600 --> 00:13:30,439 Speaker 1: yesterday's five percent move. So what I would just say is, 253 00:13:30,480 --> 00:13:32,199 Speaker 1: if you just zoom out for a second, you think 254 00:13:32,240 --> 00:13:35,559 Speaker 1: about what's transpired for the last couple of weeks. Frankly, 255 00:13:35,600 --> 00:13:37,839 Speaker 1: to have the market sell off ten percent and seven 256 00:13:37,880 --> 00:13:41,840 Speaker 1: trading sessions fastest teen percent correction and market history is unprecedented. 257 00:13:42,160 --> 00:13:44,120 Speaker 1: And what we typically see if you go back thirty 258 00:13:44,200 --> 00:13:47,760 Speaker 1: or forty years, Lisa, you have these events, these risk events, 259 00:13:47,840 --> 00:13:50,800 Speaker 1: whether it's terrorism, whether it's DIZ, whatever it is, you 260 00:13:50,840 --> 00:13:53,920 Speaker 1: typically get a first low made, you get a potential 261 00:13:53,960 --> 00:13:56,800 Speaker 1: short term snap back, and then within months, the history 262 00:13:56,840 --> 00:13:59,440 Speaker 1: shows you typically get a retest of the lows, and 263 00:13:59,480 --> 00:14:02,160 Speaker 1: so that's likely the case in this scenario as well. 264 00:14:02,360 --> 00:14:05,120 Speaker 1: We're gonna hear from US companies in April and May 265 00:14:05,240 --> 00:14:07,920 Speaker 1: what the earnings impact is, so that could potentially be 266 00:14:08,000 --> 00:14:09,760 Speaker 1: the retest of the low. We've seen the last couple 267 00:14:09,760 --> 00:14:12,120 Speaker 1: of weeks. It's so interesting here in Den Skelly with 268 00:14:12,520 --> 00:14:15,600 Speaker 1: Stanley Uh. This warning is the ambiguities that are out there. 269 00:14:15,640 --> 00:14:17,559 Speaker 1: Dennis Gartman just sent me a love note and he's 270 00:14:17,600 --> 00:14:19,720 Speaker 1: been dead on on gold, and not only gold, but 271 00:14:19,800 --> 00:14:22,720 Speaker 1: in the end he makes clear that he tilts towards 272 00:14:22,760 --> 00:14:29,280 Speaker 1: this is inflationary, just as many people are saying it's disinflationary. 273 00:14:29,400 --> 00:14:32,360 Speaker 1: What does Ellen Center say? So we're more in the 274 00:14:32,360 --> 00:14:34,960 Speaker 1: camp that we're gonna see modest inflation this year. We've 275 00:14:35,000 --> 00:14:38,880 Speaker 1: actually uh seen the potential for the coronavirus to impact 276 00:14:38,920 --> 00:14:41,000 Speaker 1: global growth to the tune of two and a half 277 00:14:41,040 --> 00:14:45,160 Speaker 1: percent inflation correlate with that. I don't personally think you're 278 00:14:45,160 --> 00:14:46,960 Speaker 1: gonna see a massive spike U. I mean, look at 279 00:14:46,960 --> 00:14:49,800 Speaker 1: what's happening with commodity prices as well. So it's hard 280 00:14:49,800 --> 00:14:51,880 Speaker 1: to make the case that you're gonna see a huge 281 00:14:51,880 --> 00:14:54,280 Speaker 1: spike in inflation here in our a lot of moving 282 00:14:54,320 --> 00:14:57,160 Speaker 1: parts re Lisa. Yeah, and I'm struggling to know, Dan, 283 00:14:57,360 --> 00:14:59,720 Speaker 1: what do you tell clients when they call you right now? Sure? 284 00:14:59,800 --> 00:15:02,000 Speaker 1: So two things. One is in the near term, expect 285 00:15:02,080 --> 00:15:04,720 Speaker 1: higher volatility. Right prior to the last couple of weeks. 286 00:15:05,000 --> 00:15:08,520 Speaker 1: We saw the most placid, steady, straight up rallies in September, 287 00:15:08,840 --> 00:15:11,280 Speaker 1: and we all knew that wasn't likely to sustain, given 288 00:15:11,280 --> 00:15:13,920 Speaker 1: it was mostly boosted by liquidity from the FED. And 289 00:15:13,960 --> 00:15:15,560 Speaker 1: so what I would say is, in addition to the 290 00:15:15,560 --> 00:15:20,680 Speaker 1: coronavirus fallout, you've got geopolitical and u S, domestic political 291 00:15:20,720 --> 00:15:23,720 Speaker 1: cross currents ongoing today and focus of course as well. 292 00:15:23,960 --> 00:15:27,040 Speaker 1: So the case for rising volatility near near term is there. 293 00:15:27,280 --> 00:15:29,520 Speaker 1: The second thing, however, we say, is we are still 294 00:15:29,600 --> 00:15:32,200 Speaker 1: amid a secular bull market. And I made this point 295 00:15:32,200 --> 00:15:34,200 Speaker 1: the last time I was fortunate to be with you 296 00:15:34,240 --> 00:15:36,320 Speaker 1: a couple of weeks ago. But the point is we 297 00:15:36,360 --> 00:15:39,000 Speaker 1: think we're in a twenty year bull cycle in that 298 00:15:39,040 --> 00:15:42,000 Speaker 1: type of time frame, and the precedent shows from a 299 00:15:42,040 --> 00:15:44,760 Speaker 1: T two to ninety nine you can have near term pullbacks. 300 00:15:44,960 --> 00:15:48,160 Speaker 1: Look at the last ten years. We've had three drawdowns 301 00:15:48,480 --> 00:15:51,360 Speaker 1: in ten years, each of which was a massive buying opportunity. 302 00:15:51,600 --> 00:15:54,400 Speaker 1: So near term, expect more vol Longer term, we still 303 00:15:54,400 --> 00:15:56,600 Speaker 1: think we're halfway through a twenty year up movie. Coming 304 00:15:57,800 --> 00:15:59,880 Speaker 1: the house for you. For you guys at Molgan Stanley, 305 00:16:00,040 --> 00:16:01,640 Speaker 1: I remember was to a kind of a little bit 306 00:16:01,680 --> 00:16:05,160 Speaker 1: more capital to the story abroad. Has that changed? Look, Jonathan, 307 00:16:05,200 --> 00:16:09,000 Speaker 1: we've seen international names and international equities performed better to 308 00:16:09,040 --> 00:16:10,760 Speaker 1: the downside in the last couple of weeks, which I 309 00:16:10,800 --> 00:16:14,800 Speaker 1: think illustrates how crowded the growth trade had gotten. Um 310 00:16:14,840 --> 00:16:17,600 Speaker 1: And so we still like advocating, frankly, to that space. 311 00:16:17,880 --> 00:16:20,440 Speaker 1: We wouldn't make it a an aggressive overweight today. We 312 00:16:20,480 --> 00:16:23,040 Speaker 1: want to gradually get into it over time. It's gonna 313 00:16:23,080 --> 00:16:25,000 Speaker 1: take time, frankly to play out. It's not like a 314 00:16:25,120 --> 00:16:27,840 Speaker 1: light switch going off, you know. And and frankly, that's 315 00:16:27,880 --> 00:16:29,880 Speaker 1: the trend. If you look back this decade, it's been 316 00:16:29,920 --> 00:16:32,520 Speaker 1: a US led market. If I go back to the 317 00:16:32,560 --> 00:16:35,360 Speaker 1: decade prior to that, from two thousand and two thousand nine, 318 00:16:35,520 --> 00:16:39,240 Speaker 1: it was an international led market. So typically these transitions 319 00:16:39,240 --> 00:16:41,280 Speaker 1: take time to play out. What are return is gonna 320 00:16:41,320 --> 00:16:43,280 Speaker 1: look like over the next decade or so, given the 321 00:16:43,280 --> 00:16:45,840 Speaker 1: fact that we've got benchmark yields at record lows, how 322 00:16:45,880 --> 00:16:48,600 Speaker 1: much do we have to lower our returns of expectations 323 00:16:48,600 --> 00:16:52,200 Speaker 1: even further? Yeah, So we've annualized fourteen percent compounded returns 324 00:16:52,200 --> 00:16:54,400 Speaker 1: in the SMP the last nine or ten years, which, 325 00:16:54,600 --> 00:16:57,600 Speaker 1: as you know, is twice the average, so it's unlikely 326 00:16:57,640 --> 00:17:01,040 Speaker 1: that you're gonna repeat that magnitude of US perforemans we've 327 00:17:01,080 --> 00:17:03,120 Speaker 1: got over the next five or six years. We've got 328 00:17:03,200 --> 00:17:06,320 Speaker 1: US returns averaging around four and a half percent UH, 329 00:17:06,320 --> 00:17:09,080 Speaker 1: and we've got international returns and e M returns doing 330 00:17:09,119 --> 00:17:11,960 Speaker 1: slightly better than that because the valuation starting points are 331 00:17:12,000 --> 00:17:14,439 Speaker 1: so much lower. Where we could see a surprise to 332 00:17:14,480 --> 00:17:17,320 Speaker 1: the upside in brief is if we see a bigger 333 00:17:17,400 --> 00:17:21,200 Speaker 1: pickup in productivity and demographic led growth in the US. 334 00:17:21,320 --> 00:17:23,040 Speaker 1: This is the story that frankly, not a lot of 335 00:17:23,040 --> 00:17:25,600 Speaker 1: people are are talking about, and Ellen Zanner from our 336 00:17:25,640 --> 00:17:28,760 Speaker 1: economics team has actually led the way talking about how 337 00:17:28,760 --> 00:17:32,040 Speaker 1: the demographic shift from the savers to the millennials in 338 00:17:32,040 --> 00:17:34,480 Speaker 1: the next five detain years could lead a big pickup 339 00:17:34,520 --> 00:17:36,959 Speaker 1: in growth. So maybe that adds some optionality. Lisa, let 340 00:17:36,960 --> 00:17:38,760 Speaker 1: me paint a picture here. Over here on the wall 341 00:17:38,840 --> 00:17:41,679 Speaker 1: of monitors that we have here at Bloomberg Radio Worldwide, 342 00:17:41,920 --> 00:17:44,879 Speaker 1: is an American flag, and I fed a reserve flag 343 00:17:44,920 --> 00:17:47,080 Speaker 1: and the assembled Michael McKee is not there. He didn't 344 00:17:47,080 --> 00:17:49,439 Speaker 1: take the golf string down, didn't They didn't anticipate this 345 00:17:49,480 --> 00:17:52,560 Speaker 1: happening to he didn't you know we'll have someone there. 346 00:17:52,640 --> 00:17:55,560 Speaker 1: It's a it's a very crowded room with huge anticipation. 347 00:17:55,640 --> 00:17:59,040 Speaker 1: This goes way beyond Lisa, way way beyond what you'd 348 00:17:59,080 --> 00:18:02,919 Speaker 1: see at a two pm FED me. My question is, 349 00:18:03,000 --> 00:18:05,600 Speaker 1: how are they going to thread this needle and say 350 00:18:05,800 --> 00:18:08,119 Speaker 1: they are trying to be proactive but the U S 351 00:18:08,160 --> 00:18:10,440 Speaker 1: economy is still strong. How are they going to send 352 00:18:10,440 --> 00:18:12,760 Speaker 1: the signal that they needed to do a fifty basis 353 00:18:12,760 --> 00:18:17,480 Speaker 1: point rate cut which has frankly uncleared direct consequences on 354 00:18:17,520 --> 00:18:20,520 Speaker 1: the actual problem, but also say that we're not going 355 00:18:20,560 --> 00:18:22,480 Speaker 1: to see a material slowdown. I mean to John, I 356 00:18:22,520 --> 00:18:24,840 Speaker 1: mean that's the action that we're seeing today in equities 357 00:18:25,000 --> 00:18:27,560 Speaker 1: with people not clear on what the message is here, 358 00:18:27,560 --> 00:18:31,399 Speaker 1: because if this is a consumer driven downturn, not a 359 00:18:31,400 --> 00:18:32,960 Speaker 1: great time to buy stuff. Think he's just going to 360 00:18:33,040 --> 00:18:35,439 Speaker 1: stand scale. He has been sitting along here, who is 361 00:18:35,480 --> 00:18:38,359 Speaker 1: with Morgan Stanley Wealth Management? What was your impression? I 362 00:18:38,359 --> 00:18:41,080 Speaker 1: would say it's become apparent to Jonathan's point that the 363 00:18:41,080 --> 00:18:44,760 Speaker 1: FED doesn't want financial conditions to be the third risk 364 00:18:45,080 --> 00:18:47,119 Speaker 1: that derails the cycle. So when you think about the 365 00:18:47,160 --> 00:18:50,880 Speaker 1: scenario today, it's a consumer potential risk, it's a corporate risk, 366 00:18:50,920 --> 00:18:54,719 Speaker 1: particularly it pertains to travel, leisure, those sectors, and so 367 00:18:54,800 --> 00:18:56,760 Speaker 1: I think they just bought time with trying to put 368 00:18:56,760 --> 00:18:59,960 Speaker 1: a put under the financial conditions risk being the third 369 00:19:00,040 --> 00:19:01,919 Speaker 1: Chris and Frankly, I would just add to that the 370 00:19:01,920 --> 00:19:03,320 Speaker 1: FETE is not the only game in town. The G 371 00:19:03,440 --> 00:19:05,679 Speaker 1: seven met today, so we talked about the FETE and 372 00:19:05,680 --> 00:19:08,440 Speaker 1: what the initiatives they've taken. Keep in mind, this issue 373 00:19:08,440 --> 00:19:11,040 Speaker 1: started in China. China has signaled that they're willing to 374 00:19:11,040 --> 00:19:14,679 Speaker 1: step in with potential fiscal stimulus to support the global 375 00:19:14,720 --> 00:19:22,159 Speaker 1: economy as well. Jim Bianco joining us now president founder 376 00:19:22,200 --> 00:19:25,000 Speaker 1: of Bianco Research in Chicago. And Jim, what was a 377 00:19:25,080 --> 00:19:28,400 Speaker 1: reaction to this fifty basis point right cut? Better wait 378 00:19:28,480 --> 00:19:31,040 Speaker 1: than never. I think that this was inevitable that they 379 00:19:31,080 --> 00:19:33,320 Speaker 1: had to do it. I actually thought they were going 380 00:19:33,359 --> 00:19:37,000 Speaker 1: to do it yesterday, and um, I think it was 381 00:19:37,119 --> 00:19:40,840 Speaker 1: the right move. There's a question about, as Damian Sassa 382 00:19:40,840 --> 00:19:44,280 Speaker 1: of Bloomberg Intelligence points out, moral hazard, right, I mean 383 00:19:44,280 --> 00:19:46,680 Speaker 1: the idea that the Federal Reserve will come in and 384 00:19:46,760 --> 00:19:50,919 Speaker 1: deliver an emergency rate cut if markets correct. What's your 385 00:19:50,960 --> 00:19:55,240 Speaker 1: response to that? If the markets correct? All the way 386 00:19:55,240 --> 00:19:57,520 Speaker 1: back to new highs. I think they should take it back. 387 00:19:58,240 --> 00:20:01,600 Speaker 1: I think what we have to recognize is not only 388 00:20:01,640 --> 00:20:04,479 Speaker 1: our careers, but maybe in our lifetimes. What's happening now 389 00:20:04,640 --> 00:20:08,760 Speaker 1: is unprecedented. What I mean is none of the economic 390 00:20:08,840 --> 00:20:12,240 Speaker 1: data matters right now, none of what we think matters 391 00:20:12,320 --> 00:20:14,960 Speaker 1: right now. What we're betting on is what's going to 392 00:20:15,119 --> 00:20:18,200 Speaker 1: happen in two or three weeks. Are we going to 393 00:20:18,240 --> 00:20:21,640 Speaker 1: see the number of cases in the United States run 394 00:20:21,720 --> 00:20:25,560 Speaker 1: the path that we've seen in South Korea, Italy, Iran, 395 00:20:26,200 --> 00:20:29,600 Speaker 1: China up into the thousands. Are we going to see 396 00:20:29,600 --> 00:20:32,240 Speaker 1: widespread school closure? Are we going to see millions of 397 00:20:32,280 --> 00:20:35,920 Speaker 1: two working families have to force to leave one parent home? 398 00:20:36,480 --> 00:20:40,000 Speaker 1: Are we going to see massive disruption to the economy? 399 00:20:40,040 --> 00:20:42,720 Speaker 1: And I think that the answer is that is a 400 00:20:42,920 --> 00:20:46,920 Speaker 1: very real possibility. So the FED getting ahead of that 401 00:20:47,600 --> 00:20:51,160 Speaker 1: makes sense. Now. If fortunately it doesn't come the past, 402 00:20:51,240 --> 00:20:54,320 Speaker 1: or hopefully it doesn't come the past, we could say, look, 403 00:20:54,359 --> 00:20:56,720 Speaker 1: we dodged a bullet, and we could take it back. 404 00:20:57,119 --> 00:20:59,760 Speaker 1: But right now, if the answer is we're gonna wait 405 00:20:59,840 --> 00:21:03,119 Speaker 1: antil we hit the brick wall, it's too late. We 406 00:21:03,200 --> 00:21:06,840 Speaker 1: have to start breaking now, or start adapting now before 407 00:21:06,880 --> 00:21:09,080 Speaker 1: we run into that wall. Right now, I'm looking at 408 00:21:09,119 --> 00:21:11,640 Speaker 1: equity as they've been whipping around uh and now they're 409 00:21:11,680 --> 00:21:14,280 Speaker 1: little changed after being up more than one percent and 410 00:21:14,359 --> 00:21:17,600 Speaker 1: down almost as much as that. I'm trying to understand, though, 411 00:21:17,800 --> 00:21:20,840 Speaker 1: what this does. I mean, what does a fifty basis 412 00:21:20,880 --> 00:21:24,360 Speaker 1: point rate cut actually do, both from financial markets as 413 00:21:24,400 --> 00:21:27,440 Speaker 1: well as from the underlying economy when money already is 414 00:21:27,480 --> 00:21:33,120 Speaker 1: practically free. I think, if, if, if, if, What I fear, 415 00:21:33,359 --> 00:21:35,560 Speaker 1: what I think the market feared with the one of 416 00:21:35,600 --> 00:21:38,720 Speaker 1: the biggest down weeks ever last week, is that we 417 00:21:38,760 --> 00:21:42,639 Speaker 1: are coming into a period of huge disruption. Then you 418 00:21:42,720 --> 00:21:44,920 Speaker 1: have to adjust your standards. All the FED is doing 419 00:21:45,000 --> 00:21:48,080 Speaker 1: is managing the decline. They're trying to say, look, we 420 00:21:48,240 --> 00:21:52,199 Speaker 1: know that maybe this is an unusual circumstance that the 421 00:21:52,280 --> 00:21:55,720 Speaker 1: recession starts in March. It starts in March with the 422 00:21:55,800 --> 00:21:59,400 Speaker 1: huge disruption that spills into the second quarter marches enough 423 00:21:59,440 --> 00:22:03,360 Speaker 1: to throw the quarter into negative GDP. We're just managing 424 00:22:03,359 --> 00:22:08,280 Speaker 1: that decline. And in an era with hundreds of inverse 425 00:22:08,359 --> 00:22:12,800 Speaker 1: ETFs leverage gtfs, the ability of a market route is 426 00:22:13,000 --> 00:22:16,280 Speaker 1: very high. So if you want to come in and quote, 427 00:22:16,400 --> 00:22:19,360 Speaker 1: keep the speculators honest by creating a short squeeze along 428 00:22:19,359 --> 00:22:21,919 Speaker 1: the way. Otherwise we're going to keep repeating what we 429 00:22:21,960 --> 00:22:24,919 Speaker 1: saw last week. Is what is what the other thing is. 430 00:22:25,119 --> 00:22:27,520 Speaker 1: So no, they're not in the business of trying to 431 00:22:27,640 --> 00:22:30,439 Speaker 1: fix this. They're not in the business of trying to 432 00:22:30,480 --> 00:22:33,359 Speaker 1: put the market at new highs. They're in the business 433 00:22:33,440 --> 00:22:36,640 Speaker 1: of trying to manage the decline. So if you put 434 00:22:36,680 --> 00:22:39,439 Speaker 1: it in that respect, now, like I said, maybe it 435 00:22:39,560 --> 00:22:43,159 Speaker 1: doesn't come to pass, Maybe the fears that we have 436 00:22:43,400 --> 00:22:45,960 Speaker 1: about the disruption of economy doesn't come to pass. They 437 00:22:45,960 --> 00:22:48,160 Speaker 1: can reverse all this, and I don't think that would 438 00:22:48,160 --> 00:22:50,639 Speaker 1: be a problem. There's a big question, though, what's the 439 00:22:50,720 --> 00:22:54,600 Speaker 1: signal to markets of this fifty basis point rate cut. 440 00:22:54,720 --> 00:22:57,200 Speaker 1: If what you're saying is true, that the FETE is 441 00:22:57,320 --> 00:23:00,760 Speaker 1: just pricing in a new reality today at a time 442 00:23:00,960 --> 00:23:04,359 Speaker 1: when this has the potential to seriously throw the market 443 00:23:04,440 --> 00:23:07,840 Speaker 1: into the economy into recession. I mean, does that mean 444 00:23:07,840 --> 00:23:12,199 Speaker 1: that equities are a cell here? Uh? We can mean that. 445 00:23:12,520 --> 00:23:15,119 Speaker 1: I think you gotta back up and remember, as I 446 00:23:15,200 --> 00:23:19,639 Speaker 1: said at the top, the bond market priced in a 447 00:23:19,880 --> 00:23:23,200 Speaker 1: rate cut literally for yesterday. In fact, I was out 448 00:23:23,280 --> 00:23:26,800 Speaker 1: talking about that they're all set for a rate cut yesterday. 449 00:23:27,160 --> 00:23:29,960 Speaker 1: It didn't happen yesterday. Then there was talk that it 450 00:23:30,040 --> 00:23:33,160 Speaker 1: was going to happen before the open today, and then 451 00:23:33,160 --> 00:23:35,800 Speaker 1: it came thirty minutes after the open. So what the 452 00:23:36,040 --> 00:23:40,359 Speaker 1: said delivered is merely what the market wanted. So they 453 00:23:40,359 --> 00:23:43,160 Speaker 1: didn't surprise the market anyway, maybe only in the timing 454 00:23:43,560 --> 00:23:46,080 Speaker 1: that it came after the close, I mean after the open. 455 00:23:46,160 --> 00:23:49,720 Speaker 1: Once the open came, we thought they were done for 456 00:23:49,760 --> 00:23:52,840 Speaker 1: the day, but apparently not. But I do think that 457 00:23:52,880 --> 00:23:55,240 Speaker 1: what they gave the market is what it expected. The 458 00:23:55,280 --> 00:23:59,960 Speaker 1: market is fearing this type of scenario, and so they're 459 00:24:00,000 --> 00:24:02,119 Speaker 1: not going to create any kind of backlash. They're just 460 00:24:02,200 --> 00:24:05,000 Speaker 1: kind of going along with what we all fear might happen. 461 00:24:05,040 --> 00:24:08,160 Speaker 1: We're speaking with Jim Bianco, President and founder of Bianco Research. 462 00:24:08,440 --> 00:24:10,879 Speaker 1: I'm so glad to say that walking by we have 463 00:24:11,320 --> 00:24:15,960 Speaker 1: John Farrow and Tom Keene Blueberg Surveillance hosts, and he 464 00:24:16,080 --> 00:24:19,840 Speaker 1: dragged off the streets. It's lunchtime and we're gonna have 465 00:24:19,960 --> 00:24:22,359 Speaker 1: lunch in the radio booth. And you know, this has 466 00:24:22,400 --> 00:24:25,560 Speaker 1: been something we were wondering. When the G seven statement 467 00:24:25,640 --> 00:24:27,920 Speaker 1: came out this morning, it did not preclude some sort 468 00:24:27,920 --> 00:24:30,640 Speaker 1: of action and certainly we did see this action come out, 469 00:24:31,040 --> 00:24:35,280 Speaker 1: and I'm curious from your initial reactions, Uh, Tom, what 470 00:24:35,359 --> 00:24:37,400 Speaker 1: was your sense when this came across It was an 471 00:24:37,400 --> 00:24:39,720 Speaker 1: easy decision. I mean, you go twenty five or fifty 472 00:24:39,760 --> 00:24:42,080 Speaker 1: basis points, and they certainly gave the market what they like. 473 00:24:42,600 --> 00:24:45,879 Speaker 1: The ramifications of this into the future need to be 474 00:24:45,960 --> 00:24:48,720 Speaker 1: thought out by everyone. Everybody will weigh in, and they'll 475 00:24:48,720 --> 00:24:51,879 Speaker 1: be essays written and all that. As I just mentioned 476 00:24:51,880 --> 00:24:55,000 Speaker 1: to John writing and bring capital. What's so important to 477 00:24:55,040 --> 00:24:57,680 Speaker 1: me here is the nominal take think Michael Darted and 478 00:24:58,160 --> 00:25:02,080 Speaker 1: King Partners. That's not just the real economy and adding 479 00:25:02,080 --> 00:25:05,360 Speaker 1: in a new low inflation, but what's that animal spirit 480 00:25:05,400 --> 00:25:07,720 Speaker 1: of the top line g d P. There's a psychological 481 00:25:07,800 --> 00:25:09,280 Speaker 1: response to all of this as well. I think we're 482 00:25:09,280 --> 00:25:11,640 Speaker 1: in a really, really delicate moment, and Jim, I'd love 483 00:25:11,640 --> 00:25:13,680 Speaker 1: to have you weigh in on this. If we get 484 00:25:13,760 --> 00:25:16,760 Speaker 1: adverse price action in the face of actual cuts, there's 485 00:25:16,760 --> 00:25:19,199 Speaker 1: a real risk that the narrative gets away from Shairman 486 00:25:19,280 --> 00:25:21,960 Speaker 1: pal Hair. The last thing the FED needs to do 487 00:25:22,080 --> 00:25:25,399 Speaker 1: today is reinforced the argument that's already out there that 488 00:25:25,480 --> 00:25:27,639 Speaker 1: they don't have a role to play here is that 489 00:25:27,680 --> 00:25:30,520 Speaker 1: the risk at eleven o'clock. Jim. I think that is 490 00:25:30,520 --> 00:25:32,320 Speaker 1: a risk that the FED has, but it's a risk 491 00:25:32,359 --> 00:25:36,600 Speaker 1: that they have to take. I think that the idea 492 00:25:36,680 --> 00:25:40,480 Speaker 1: that the FED is going to wait until they get data, 493 00:25:40,920 --> 00:25:43,240 Speaker 1: We're gonna wait till we see a bad pair of report, 494 00:25:43,359 --> 00:25:46,200 Speaker 1: or a bad retail sales report, or diving consumer confidence. 495 00:25:46,240 --> 00:25:49,399 Speaker 1: This will be over at that point that you're talking about, 496 00:25:49,440 --> 00:25:52,800 Speaker 1: Lady April or May that they would probably get confirmation 497 00:25:52,840 --> 00:25:57,080 Speaker 1: in the data if this virus spreads to the point 498 00:25:57,160 --> 00:25:59,960 Speaker 1: that we think so getting ahead of this, I think 499 00:26:00,040 --> 00:26:04,400 Speaker 1: what Paul could say that the presser is we know what, 500 00:26:04,600 --> 00:26:06,920 Speaker 1: we know what we're off fearing is going to come. 501 00:26:07,080 --> 00:26:10,399 Speaker 1: We're acting and if it doesn't come, we could do 502 00:26:10,440 --> 00:26:14,240 Speaker 1: a nine am fifty basis point hike on the backside, 503 00:26:14,800 --> 00:26:16,560 Speaker 1: That's what I wanted to bring up. Do you think 504 00:26:16,600 --> 00:26:19,200 Speaker 1: the FED could actually reverse this? What is the precedent 505 00:26:19,240 --> 00:26:21,280 Speaker 1: for them being able to reverse this high rates and 506 00:26:21,320 --> 00:26:24,439 Speaker 1: not cause a disruption. But there's no precedent for EXISTI 507 00:26:24,600 --> 00:26:27,679 Speaker 1: happened in the first place. We are cutting rates in 508 00:26:27,760 --> 00:26:30,919 Speaker 1: anticipation of something that we have absolutely no evidence that 509 00:26:30,960 --> 00:26:33,840 Speaker 1: has happened. But we have a good feeling based on 510 00:26:33,880 --> 00:26:36,399 Speaker 1: what we've seen in other countries with the amount of 511 00:26:36,880 --> 00:26:41,680 Speaker 1: virus growth will happen. So this is completely unprecedented territory. 512 00:26:41,880 --> 00:26:44,359 Speaker 1: So it's an appropriate move in that regard. And if 513 00:26:44,400 --> 00:26:47,119 Speaker 1: you play up that, yeah, and the backside of it 514 00:26:47,160 --> 00:26:49,680 Speaker 1: is we could hike rates, We're just gonna go right 515 00:26:49,720 --> 00:26:53,000 Speaker 1: back to where we were at UM one hour ago. 516 00:26:53,160 --> 00:26:55,200 Speaker 1: That's all you would be saying is when we high 517 00:26:55,280 --> 00:26:58,920 Speaker 1: rates if this scenario of massive virus growth in the 518 00:26:58,960 --> 00:27:00,960 Speaker 1: United States does not come the pass. Just to bring 519 00:27:01,000 --> 00:27:02,920 Speaker 1: you some insert in some of the price action out there. 520 00:27:02,960 --> 00:27:05,560 Speaker 1: Of course, risk assets looking for a bit here off 521 00:27:05,600 --> 00:27:08,000 Speaker 1: the back of a surprise rate cut fifty basis points 522 00:27:08,000 --> 00:27:10,200 Speaker 1: from the Federal Reserve. Just caught up with Bob Michael 523 00:27:10,200 --> 00:27:12,919 Speaker 1: over at JP Morgan Asset Management shot him a quick message. 524 00:27:12,920 --> 00:27:14,800 Speaker 1: He fired back he was looking for a fifty basis 525 00:27:14,840 --> 00:27:17,840 Speaker 1: point cut. Here's the quote from Bob Head of fixed 526 00:27:17,880 --> 00:27:21,360 Speaker 1: Income at JP Morgan Asset Management. This is a good 527 00:27:21,400 --> 00:27:24,080 Speaker 1: bounce to sell high yield. The knock on effects of 528 00:27:24,080 --> 00:27:27,120 Speaker 1: economy shutting down have yet to be fully understood. It's 529 00:27:27,160 --> 00:27:30,160 Speaker 1: not just the services sector and travel, etcetera. It's all 530 00:27:30,200 --> 00:27:32,960 Speaker 1: the supplies to those industries, the data is going to 531 00:27:33,040 --> 00:27:35,720 Speaker 1: be distorted for the next few quarters. That's the view 532 00:27:36,000 --> 00:27:38,760 Speaker 1: off the back of a fifty basis point cut, and 533 00:27:38,880 --> 00:27:41,479 Speaker 1: Jim and I just wonder how many other big players 534 00:27:41,480 --> 00:27:44,920 Speaker 1: in this market will feel the same way. I think 535 00:27:44,960 --> 00:27:47,159 Speaker 1: all of them should. I think if you look at 536 00:27:47,200 --> 00:27:52,800 Speaker 1: what's happened in Japan, South Korea, Italy, Iran, China. As 537 00:27:52,840 --> 00:27:57,200 Speaker 1: I said earlier, it would almost be a baseline scenario 538 00:27:57,280 --> 00:28:00,520 Speaker 1: to assume that when we get into late March, you've 539 00:28:00,520 --> 00:28:03,600 Speaker 1: got thousands of cases in the US, all the schools 540 00:28:03,640 --> 00:28:06,080 Speaker 1: in the New York City area are closed, and hundreds 541 00:28:06,119 --> 00:28:09,600 Speaker 1: of thousands of two working family parents have to leave 542 00:28:09,680 --> 00:28:11,200 Speaker 1: one home to take care of your kids, can't set 543 00:28:11,240 --> 00:28:13,320 Speaker 1: him a daycare. That's again a group of people again, 544 00:28:13,680 --> 00:28:17,160 Speaker 1: so that is a massive disruption for an economy if 545 00:28:17,200 --> 00:28:20,120 Speaker 1: we're going that route. And all we've got to say 546 00:28:20,160 --> 00:28:22,120 Speaker 1: that we're not going to go that route at this 547 00:28:22,240 --> 00:28:25,320 Speaker 1: point is wishful thinking. We can hope, and I certainly 548 00:28:25,359 --> 00:28:29,120 Speaker 1: hope we don't go there, but that's what we're betting. 549 00:28:29,160 --> 00:28:31,119 Speaker 1: Are not betting up, but that's what we're fearing and 550 00:28:31,200 --> 00:28:34,280 Speaker 1: reacting to that anticipation, Like I said, there's never been 551 00:28:34,320 --> 00:28:37,639 Speaker 1: another scenario like this before. Lisa Brahmo with Stephen Stanley 552 00:28:37,640 --> 00:28:40,880 Speaker 1: published the Damer's pierrepon. His note is scathing. He calls 553 00:28:40,920 --> 00:28:46,960 Speaker 1: the cut terribly inconsiderate, terribly ill considered, excuse me, terribly 554 00:28:47,000 --> 00:28:51,040 Speaker 1: ill considered. He makes very clear they're playing stock market. Uh. 555 00:28:51,080 --> 00:28:53,680 Speaker 1: And that tones out there, John writing and bring Capital 556 00:28:53,720 --> 00:28:56,720 Speaker 1: felt much the same as uh, Mr Stanley, And you know, 557 00:28:56,760 --> 00:28:58,960 Speaker 1: this is the arch debate that's going on now between 558 00:28:59,000 --> 00:29:02,320 Speaker 1: Bob Michael, a JP Morgan and what we're hearing from 559 00:29:02,320 --> 00:29:04,680 Speaker 1: a select economist to say, just wait a minute, what's 560 00:29:04,680 --> 00:29:06,360 Speaker 1: the effect here? Why are we doing this? I have 561 00:29:06,440 --> 00:29:10,080 Speaker 1: to also wonder again this this is not a financial 562 00:29:10,280 --> 00:29:13,000 Speaker 1: market crisis akin to what we saw in two thousand 563 00:29:13,000 --> 00:29:15,760 Speaker 1: and eight, where there is a banking issue, and typically 564 00:29:15,800 --> 00:29:18,479 Speaker 1: the Federal Reserve has the most direct contact with the banks. 565 00:29:18,480 --> 00:29:21,320 Speaker 1: But I wonder, uh, you know, to what extent people 566 00:29:21,360 --> 00:29:25,200 Speaker 1: will view this as a negative, will actually weaken the 567 00:29:25,200 --> 00:29:29,600 Speaker 1: banking system by reducing net interest margins at a time 568 00:29:29,640 --> 00:29:31,800 Speaker 1: when they need to be increasing some of their lending. 569 00:29:31,840 --> 00:29:33,600 Speaker 1: I do have to wonder about that. At least I'm 570 00:29:33,600 --> 00:29:36,480 Speaker 1: not worried about the banks and I don't. But but Jim, 571 00:29:36,480 --> 00:29:38,000 Speaker 1: I want to jump in on the following and then 572 00:29:38,000 --> 00:29:40,680 Speaker 1: you can briefe some life into the conversation. To my 573 00:29:40,800 --> 00:29:44,320 Speaker 1: worry is that an economic shock becomes a financial one 574 00:29:44,320 --> 00:29:46,880 Speaker 1: because they don't deploy the right tools to address all 575 00:29:46,920 --> 00:29:48,840 Speaker 1: of this. That if you don't have small and media 576 00:29:48,920 --> 00:29:51,640 Speaker 1: sized enterprises in this very moment off the back of 577 00:29:51,680 --> 00:29:54,160 Speaker 1: a really big demand shock, then they're going to come 578 00:29:54,160 --> 00:29:55,400 Speaker 1: out the other side of this in a couple of 579 00:29:55,480 --> 00:29:59,000 Speaker 1: months in really bad shape. Yeah, I agree that that 580 00:29:59,160 --> 00:30:02,000 Speaker 1: is the concern. But um, if I can go into 581 00:30:02,080 --> 00:30:05,440 Speaker 1: the weeds real quick for you, remember the repos support 582 00:30:05,480 --> 00:30:07,160 Speaker 1: that the FED was doing that we used to make 583 00:30:07,200 --> 00:30:10,600 Speaker 1: a lot of noise about. Well, today the amount of 584 00:30:10,680 --> 00:30:13,840 Speaker 1: repos support that that that the dealers asked the FED 585 00:30:14,040 --> 00:30:17,920 Speaker 1: broke all the records. Today. They oversubscribed the overnight, they 586 00:30:18,000 --> 00:30:22,240 Speaker 1: oversubscribed the term repo, and they asked for well or 587 00:30:22,280 --> 00:30:25,440 Speaker 1: a hundred billion dollars of support. That's not happened that 588 00:30:25,480 --> 00:30:28,280 Speaker 1: we've oversubscribed both of them in the same day. All 589 00:30:28,320 --> 00:30:32,120 Speaker 1: of a sudden, there's a tremendous need for liquidity from 590 00:30:32,120 --> 00:30:34,440 Speaker 1: the banking system. Now, I'm not gonna tell you, I 591 00:30:34,520 --> 00:30:38,680 Speaker 1: know why, but I didn't expect this to happen. But nevertheless, 592 00:30:39,360 --> 00:30:42,560 Speaker 1: something else is going on here that all of a sudden, 593 00:30:42,560 --> 00:30:46,280 Speaker 1: the dealers are demanding huge amounts of liquidity in the 594 00:30:46,280 --> 00:30:49,000 Speaker 1: market that might have had some play in this, and 595 00:30:49,040 --> 00:30:51,160 Speaker 1: maybe it's a question to ask Chairman Paul at the 596 00:30:51,160 --> 00:30:55,480 Speaker 1: press conference. Thanks for listening to the Bloomberg pl podcast. 597 00:30:55,640 --> 00:30:58,240 Speaker 1: You can subscribe and listen to interviews at Apple Podcasts 598 00:30:58,320 --> 00:31:01,320 Speaker 1: or whatever podcast platform you prefer. I'm Paul Sweeney. I'm 599 00:31:01,320 --> 00:31:04,040 Speaker 1: on Twitter at pt Sweeney. I'm Lisa Abram Wohits. I'm 600 00:31:04,040 --> 00:31:06,920 Speaker 1: on Twitter at Lisa Abram Wohits. One before the podcast, 601 00:31:06,960 --> 00:31:09,560 Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio