WEBVTT - Fed Did Exactly What They Needed To Do: JPM's Michele 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg PENL Podcast. I'm Paul swing you, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma Ways, each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penil podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:22.320 at Bloomberg dot com. Bob Michael, chief investment officer at 0:00:22.360 --> 0:00:25.760 JP Morgan Asset Management, both fantastic to have you with us. 0:00:25.800 --> 0:00:28.360 Just walk us through your reaction, your thoughts in response 0:00:28.400 --> 0:00:31.200 to what's happened in the last hour and twenty minutes. Yeah, 0:00:31.680 --> 0:00:34.840 I think it's it's been quite stunning, but I feel 0:00:35.000 --> 0:00:38.200 it was the fair and appropriate move by the FED 0:00:38.640 --> 0:00:42.479 to step in here. You cannot stand back and watch 0:00:42.520 --> 0:00:45.400 what's going on and say we're going to wait for 0:00:45.479 --> 0:00:49.440 the data. The markets were telling us that this is 0:00:49.440 --> 0:00:54.320 an anticipatory event. We know that the virus will spread 0:00:54.880 --> 0:00:58.160 and the FED should be doing something. I thought it 0:00:58.320 --> 0:01:01.200 was a very good press comp friends. I thought the 0:01:01.240 --> 0:01:04.840 fifty basis point cut was the right amount to do, 0:01:05.560 --> 0:01:09.240 and I think he positioned it correctly where he said 0:01:09.440 --> 0:01:12.640 it cannot slow the rate of infection, it cannot fix 0:01:12.760 --> 0:01:16.679 the broken supply chain, but it will boost household and 0:01:16.760 --> 0:01:22.440 business confidence and it can avoid a tightening in financial conditions. UM. 0:01:22.520 --> 0:01:27.199 So I'm happy and relieved that the FED stepped in here, 0:01:27.840 --> 0:01:30.520 um and did something. But has it changed the strategy? 0:01:30.560 --> 0:01:32.280 You and I were kicking around some ideas of her 0:01:32.319 --> 0:01:34.360 email about an hour or so ago on the Bloomberg 0:01:34.680 --> 0:01:36.560 and just one line from you, Bob just jumped out 0:01:36.600 --> 0:01:40.280 to me, this is a good bounce to sell high yield, Bob. 0:01:40.319 --> 0:01:46.880 Why because we know that that the supply chain is broken. 0:01:46.959 --> 0:01:51.040 We know that there are some industries, travel and leisure 0:01:51.040 --> 0:01:54.760 in particular, that are going to be impacted. But what 0:01:54.920 --> 0:01:59.559 about all the suppliers to those industries? Do we understand that? 0:02:00.040 --> 0:02:03.440 What about the insurance entery? Do we know how long 0:02:03.640 --> 0:02:08.880 economies will be closed? All of those things draw put 0:02:08.880 --> 0:02:12.520 a question mark around what corporate profitability will look like 0:02:12.639 --> 0:02:16.320 for the next several quarters. And I'd rather cash in 0:02:16.320 --> 0:02:18.480 the chips now and wait it out. Well, I think 0:02:18.480 --> 0:02:20.720 this is so important, folks. I can't convey enough the 0:02:20.760 --> 0:02:24.040 polarity across the research screens that we have. We are 0:02:24.200 --> 0:02:27.400 hugely advantaged by the smartest people on Wall Street, including 0:02:27.480 --> 0:02:31.520 Mr Michael, and they are split over this emergency. Ray 0:02:31.919 --> 0:02:35.080 Bob Michael to me, it devolves down to real g 0:02:35.200 --> 0:02:37.520 d P or maybe some other metric you may like, 0:02:38.000 --> 0:02:40.600 and that the FED has a look a guess of 0:02:40.800 --> 0:02:45.280 forecast of a really grim and sustained couple quarter g 0:02:45.440 --> 0:02:48.560 d P. Have you people modeled that out yet? Can 0:02:48.600 --> 0:02:52.040 you say it's a negative GDP or flat flat flat 0:02:52.120 --> 0:02:57.519 flat for X number of quarters? You can't because right 0:02:57.520 --> 0:03:01.280 now the data in the US looks ay, But the 0:03:01.360 --> 0:03:05.440 news as it comes out progressively is more school closing. 0:03:06.080 --> 0:03:09.280 The infection rate continues to accelerate in the US. These 0:03:09.320 --> 0:03:12.160 are problems. We know it leads to quarantining. We know 0:03:12.240 --> 0:03:15.200 it leads to a shutdown of the economy. That's the 0:03:15.200 --> 0:03:17.079 only thing you can do. Now. What the FED has 0:03:17.160 --> 0:03:21.960 done is it's paved the way for lower cost funding 0:03:22.080 --> 0:03:25.200 across the system. That takes some of the pressure off. 0:03:25.480 --> 0:03:28.280 I want to see what happens at the SPA next. 0:03:28.720 --> 0:03:31.639 That's the entity that's going to make loans too. Small 0:03:31.720 --> 0:03:36.320 businesses is the right number, I don't think so. Do 0:03:36.440 --> 0:03:38.760 they have a war chest of a hundred billion? They 0:03:38.800 --> 0:03:41.720 could drawn we need to see how these things play out. 0:03:41.720 --> 0:03:45.119 There an awful lot of question marks that that lay 0:03:45.120 --> 0:03:47.880 ahead for us. The FED cannot be one of these 0:03:47.960 --> 0:03:51.280 question marks, and it stepped in and did exactly what 0:03:51.360 --> 0:03:53.320 they needed to do. I mean Jana was framing is 0:03:53.400 --> 0:03:55.560 earlier with Bunny Quinn. I mean you get the nominal 0:03:55.600 --> 0:03:58.000 GDP would just say a one percent run rate on 0:03:58.040 --> 0:04:00.600 g d ps two for sent inflation. That does not 0:04:00.680 --> 0:04:03.840 get it done for this American economy and the responsibilities 0:04:03.840 --> 0:04:05.800 of Bob Michael has it is bank Well, Bob, I 0:04:05.800 --> 0:04:08.280 think you've touched on something massively important. It's how we 0:04:08.400 --> 0:04:11.800 help short to medium size, small to medium sized enterprises 0:04:11.840 --> 0:04:16.160 through a massive one off temporary, potentially temporary shock. And 0:04:16.200 --> 0:04:19.160 I say temporary with a big asterisk on top of it, 0:04:19.200 --> 0:04:21.920 because it might not be because if we don't deploy 0:04:21.960 --> 0:04:23.880 the right tools, all of a sudden, you end up 0:04:23.920 --> 0:04:26.640 with a economic shock that would otherwise be temporary becoming 0:04:26.680 --> 0:04:29.080 something a lot darker, because people need to lay off 0:04:29.080 --> 0:04:31.480 staff because they can't get a bridge through to the 0:04:31.520 --> 0:04:33.680 middle of the year. For me, it's just about how 0:04:33.839 --> 0:04:35.960 do we get that bridge to the middle of the 0:04:36.040 --> 0:04:39.320 year when the health christis crisis passes and we have 0:04:39.360 --> 0:04:42.799 a clearer path towards recovery. We've had the rate cup, Bob, 0:04:43.080 --> 0:04:46.000 what do you want to see more of? Well, I 0:04:46.080 --> 0:04:50.039 think we've seen the roadmap, unfortunately from China, which is 0:04:50.080 --> 0:04:52.880 a month and a half ahead of us, and it 0:04:53.080 --> 0:04:57.800 is small businesses, the small mid sized enterprises that run 0:04:57.839 --> 0:05:00.880 out of cash in one month or two months. It's 0:05:00.920 --> 0:05:04.599 something like a third to two thirds of s mmes 0:05:04.680 --> 0:05:07.279 run out of cash in a couple of months. So 0:05:07.320 --> 0:05:11.000 we know when economic activity shuts down, they don't have 0:05:11.200 --> 0:05:14.839 operating cash to keep going. How we get money to 0:05:14.960 --> 0:05:17.680 them is important. Is it the s p A or 0:05:17.720 --> 0:05:21.360 our banks incentive to land and and how do you 0:05:21.440 --> 0:05:24.440 backstop the banks to be able to do that. That's 0:05:24.480 --> 0:05:27.120 what we need to see. That's what makes this temporal. 0:05:27.560 --> 0:05:31.039 If we can extend credit into the system and wade 0:05:31.080 --> 0:05:34.320 through the slowdown that's coming over the next couple of quarters. 0:05:34.360 --> 0:05:37.840 But you absolutely do not sit there as the Fed 0:05:38.000 --> 0:05:40.880 and do nothing. Thank you your powder dry. That's some 0:05:40.960 --> 0:05:43.800 of the silliest commentary I've heard, Lisa Banner is the 0:05:43.880 --> 0:05:47.440 tape giving away. It's a correlated giveaway negative negative for 0:05:48.200 --> 0:05:50.120 the yen is trying to find new weakness and look 0:05:50.120 --> 0:05:52.280 at the tenure yield. Yeah, that's where exactly where I 0:05:52.320 --> 0:05:53.840 wanted to go. Right now, we're looking at a tenure 0:05:53.920 --> 0:05:57.640 yield one point oh three. Just plummeting and really look 0:05:57.680 --> 0:06:01.800 at the equities right now, absolutely, Lee, really read across 0:06:01.800 --> 0:06:04.960 the screen. Down now down one point seven SMP, down 0:06:05.000 --> 0:06:07.200 one point five percent. Bob, you thought that this was 0:06:07.240 --> 0:06:11.600 an appropriate policy reaction based on the market reaction right now? 0:06:11.640 --> 0:06:13.960 If it holds through the end of clothes, which is 0:06:13.960 --> 0:06:16.719 a big if, given how wippie things have been, how 0:06:16.760 --> 0:06:18.760 can you say that this isn't the market saying it's 0:06:18.760 --> 0:06:22.440 a policy misstep, using up ammunition now at a time 0:06:22.480 --> 0:06:27.360 when it's not the correct response to the issue. I 0:06:27.440 --> 0:06:32.760 don't see what harm this has done. You've just lowered 0:06:32.920 --> 0:06:37.960 the cost of funding across the system consumers. We've seen 0:06:38.040 --> 0:06:41.599 this last year with the seventy five basis point cut 0:06:41.680 --> 0:06:45.400 in the Fed funds rate. It led to an acceleration 0:06:45.440 --> 0:06:50.200 in mortgage reeflies. Fifty basis points will have a similar effect. 0:06:50.520 --> 0:06:55.680 Invalidates the current rate environment. I think it's all positive. 0:06:56.080 --> 0:06:58.479 I think one of the things that may have done 0:06:58.680 --> 0:07:02.680 is validated. There are legitimate concerns out there. This is 0:07:02.920 --> 0:07:06.400 the said, and policymakers do not at all of you 0:07:06.640 --> 0:07:10.400 this as any kind of v shaped event. It's are 0:07:10.440 --> 0:07:13.840 you with the bottom of the you lengthening out of it. 0:07:14.000 --> 0:07:16.320 So I don't think it's a policy mistake at all. 0:07:16.680 --> 0:07:19.320 I think the markets are waking up to the reality 0:07:20.080 --> 0:07:23.040 that there is a significant problem that lies ahead for 0:07:23.120 --> 0:07:26.040 the US economy that's going to last more than a 0:07:26.080 --> 0:07:27.800 month or so. So I'm just had a record low 0:07:27.840 --> 0:07:30.200 print on the US tenure yield. Your all time low 0:07:30.240 --> 0:07:32.720 now one zero, two eight three. We're just off it 0:07:32.760 --> 0:07:35.400 at the moment, but all time lows on tenure yields, 0:07:35.400 --> 0:07:37.880 the bit coming into the bond market quite phenomenal again 0:07:37.920 --> 0:07:40.400 with down thirteen basis points. I mean, and you know, 0:07:40.480 --> 0:07:43.360 Bob Michael has answers that go on forever. We went 0:07:43.400 --> 0:07:48.400 down a hundred points just on Mr Michael's last answer. 0:07:48.400 --> 0:07:51.960 I know how much times well, I hates our points, 0:07:51.960 --> 0:07:55.320 but I've got to tell you because everyone uses it, 0:07:55.320 --> 0:07:57.240 it kind of what the public matters. I mean, what 0:07:57.280 --> 0:08:00.960 do you see, Michael? Your ecology got a Paul suns 0:08:01.000 --> 0:08:03.400 and we talked to Liz and Son. Is it Josh Schwab, 0:08:03.480 --> 0:08:07.760 You've got a different institutional view. What are institutions doing 0:08:07.800 --> 0:08:10.440 about Michael now down six d points? What are you 0:08:10.560 --> 0:08:15.200 observed in the last week. Well, I think one of 0:08:15.280 --> 0:08:19.040 the things this fifty basis point cut has done is 0:08:19.080 --> 0:08:22.200 it re steep in the yield curve from three months 0:08:22.240 --> 0:08:27.200 to tenure. Now that's evaporating very quickly, but we had 0:08:27.240 --> 0:08:31.320 been inverted. Re steepening it is going to bring in 0:08:31.400 --> 0:08:35.560 money from overseas. The negative yielding markets are going to 0:08:35.600 --> 0:08:38.240 find it to their advantage to come in and buy 0:08:38.480 --> 0:08:43.160 intermediate bonds in the US, high quality investment grade and 0:08:43.200 --> 0:08:45.760 be able to hedge it back to their base currency 0:08:46.240 --> 0:08:49.319 with very little cost associated with that. So I would 0:08:49.320 --> 0:08:53.960 expect overnight money to come pouring in from overseas into 0:08:54.040 --> 0:08:56.320 the US market generally. So I'll let you do the 0:08:56.360 --> 0:08:59.480 tenure yield. John Herman just publishes with his great acuity 0:08:59.520 --> 0:09:03.000 and grant larity, fu mg F you f u f 0:09:03.320 --> 0:09:08.520 G m u F GEM cut me some slack m 0:09:08.640 --> 0:09:13.600 u f G Securities America's and he really emphasizes another 0:09:13.640 --> 0:09:17.160 two rate cuts, highlight the risk of another two rate 0:09:17.200 --> 0:09:19.880 cuts in the second quarter of this year. So he's 0:09:19.880 --> 0:09:21.920 on the big watch as well. I want to look 0:09:22.000 --> 0:09:25.120 also though it just forward break even rates and the 0:09:25.160 --> 0:09:28.280 idea of what this means for future inflation. They're not 0:09:28.440 --> 0:09:32.520 increasing materially, and to me that speaks exactly to Bob's point, John, 0:09:32.800 --> 0:09:35.640 this idea that this isn't necessarily stimulus so much as 0:09:35.679 --> 0:09:38.400 an acknowledgement of a reality that perhaps was not being 0:09:38.440 --> 0:09:41.079 acknowledged by markets previously. Yeah, I've been saying this for 0:09:41.120 --> 0:09:43.000 a number of weeks now affect a number of months. 0:09:43.040 --> 0:09:45.600 This market has just price the FED as follows. We 0:09:45.679 --> 0:09:47.760 believe you you're going to give us a lower rates, 0:09:47.840 --> 0:09:49.760 will price that. But we'll price it right the way 0:09:49.760 --> 0:09:52.120 through the curve because guess what, we don't believe it's 0:09:52.120 --> 0:09:54.200 gonna work. We don't believe it's going to end up 0:09:54.200 --> 0:09:56.760 with higher inflation expectations, and we don't believe you're going 0:09:56.800 --> 0:09:58.720 to be in a position to hike at any time 0:09:58.880 --> 0:10:01.959 anytime soon. Down A wrote inter day tenure yielder record 0:10:02.000 --> 0:10:05.280 low moments ago one point zero to eight zero. Will 0:10:05.280 --> 0:10:09.240 watch that Jared's around negative and then joan across the 0:10:09.360 --> 0:10:11.280 pond because we're going to be doing a cable a 0:10:11.320 --> 0:10:13.960 special edition at twelve noon and today, I'll pull on 0:10:14.000 --> 0:10:16.720 a British accent and the two year yield there's zero 0:10:16.880 --> 0:10:20.520 point to three? Zero point to three? Yeah? Is governor 0:10:20.600 --> 0:10:22.920 currently on a negative rate? Watch to come up Bob 0:10:22.960 --> 0:10:24.839 Michael's life. He's got a bit of space before he 0:10:24.880 --> 0:10:26.679 gets the negative rates. But certainly I think a lot 0:10:26.679 --> 0:10:28.560 of people are looking for a twenty five basis point 0:10:28.600 --> 0:10:30.400 card for me the other side of the Atlantic. I 0:10:30.400 --> 0:10:32.120 want to tell you a story. The thirty year yield 0:10:32.679 --> 0:10:35.640 end of eighteen, the thirty year yield three forty three, 0:10:35.960 --> 0:10:39.840 three forty three and right now one sixty four. And 0:10:39.880 --> 0:10:41.880 Bob Michael a friend of ours. I remember it was 0:10:41.920 --> 0:10:43.920 Mike Collins over at PGIM A couple of years ago. 0:10:43.960 --> 0:10:45.959 I said to him, in ten years, how will we 0:10:46.040 --> 0:10:48.320 view this bond market looking back ten years where we 0:10:48.320 --> 0:10:51.000 think these low yields were ridiculous? And I remember him 0:10:51.040 --> 0:10:53.800 turning round him and saying, you will wish you had 0:10:53.840 --> 0:10:57.280 bought a thirty year with a three handle, because you're 0:10:57.320 --> 0:11:00.160 never going to get it again. Bob Michael, these kind 0:11:00.160 --> 0:11:01.559 of yels do we have to live with them? Now? 0:11:01.640 --> 0:11:06.600 Is this it? Yeah? I think we're we're stuck living 0:11:06.600 --> 0:11:10.000 with them for a while. Um. I think all the 0:11:10.120 --> 0:11:16.640 things that have been disinflationary, the demographics, the globalization of 0:11:17.000 --> 0:11:23.360 manufacturing and supply, UM and and the impact of technology 0:11:23.600 --> 0:11:27.040 aren't going away anytime soon. I don't know what it's 0:11:27.040 --> 0:11:30.319 going to take. It may take some huge fiscal stimulus. 0:11:30.480 --> 0:11:33.360 Bob Michael of JP Morgan Asset Management. Always a pleasure. 0:11:33.360 --> 0:11:38.000 Thank you so much for being with us. Well, Dan 0:11:38.080 --> 0:11:41.040 Skelly here, Dan, what do you think of this? Well? Look, 0:11:41.080 --> 0:11:43.760 I think this is the first time that you're seeing 0:11:43.760 --> 0:11:46.760 a potential conflict or disruption that could affect the consumer. 0:11:46.920 --> 0:11:49.000 Right when you go back, you think about the last 0:11:49.000 --> 0:11:51.400 ten years of this upmove in the markets. We have 0:11:51.440 --> 0:11:54.400 the energy collapse in fifteen, We've been going through a 0:11:54.480 --> 0:11:57.839 US profits recession for the last eighteen months. Frankly, neither 0:11:57.920 --> 0:12:00.240 of them has really affected the consumer. And so I 0:12:00.280 --> 0:12:02.960 think the FED is making this emergency move, as you mentioned, 0:12:02.960 --> 0:12:04.920 the first time really since oh eight, to have an 0:12:04.960 --> 0:12:09.040 intermeding move because they're concerned in terms of what this virus, 0:12:09.120 --> 0:12:11.920 what this trend, this issue, this conflict could mean towards 0:12:11.920 --> 0:12:13.840 the used consumer. And then there are so many risks 0:12:13.840 --> 0:12:15.520 at play here. And I caught up with Waking fouls 0:12:15.520 --> 0:12:18.240 of PIMCOT around about an hour ago, right before the 0:12:18.240 --> 0:12:20.680 fifty basis point cut from the FED, and he said, 0:12:20.720 --> 0:12:24.280 we faced the very real risk of a services led recession. 0:12:24.679 --> 0:12:27.040 And that's not a risk we've had to face for 0:12:27.120 --> 0:12:29.120 much of the last ten years because a lot of 0:12:29.120 --> 0:12:30.680 it has come out of China, a lot of it 0:12:30.720 --> 0:12:33.679 has been driven by manufacturing, exactly right, Jonathan. So if 0:12:33.679 --> 0:12:37.400 you look back at fifteen sixteen, the positive externality of 0:12:37.400 --> 0:12:39.960 an energy recession is low gas prices net positive for 0:12:39.960 --> 0:12:43.560 the consumer. Energy China n e M slowing down, and 0:12:43.600 --> 0:12:46.640 the US profits recession has not impacted the U S consumer. 0:12:46.960 --> 0:12:49.079 So it is a risk. It's not Morgan Stanley's base 0:12:49.160 --> 0:12:52.200 case right now. I think the FED certainly is adding 0:12:52.320 --> 0:12:56.280 some support and some frankly, some hope that they can 0:12:56.320 --> 0:12:58.760 support markets in the economy from here, but frankly, rates 0:12:58.800 --> 0:13:01.120 were already low. Yep. But this is exactly my question. 0:13:01.160 --> 0:13:03.720 I mean, what signal does it send to the world 0:13:03.960 --> 0:13:06.920 if the FED has an emergency of fifty rate fifty 0:13:06.920 --> 0:13:09.760 basis point rate cut and equities don't rally, which we're 0:13:09.760 --> 0:13:12.480 seeing them whip around and not maybe even doing so, 0:13:12.800 --> 0:13:14.760 given the fact that the FED is doing so ahead 0:13:14.760 --> 0:13:16.960 of what could be exactly, as you say, a consumer 0:13:17.000 --> 0:13:19.600 led reception, so that this was exactly my fear when 0:13:19.640 --> 0:13:22.440 we saw the emergency rate cut earlier today, was that 0:13:22.520 --> 0:13:24.800 the market would rally and then you'd see a pullback, 0:13:24.840 --> 0:13:27.560 and frankly, you're seeing it right now. It also follows 0:13:27.600 --> 0:13:30.439 yesterday's five percent move. So what I would just say is, 0:13:30.480 --> 0:13:32.199 if you just zoom out for a second, you think 0:13:32.240 --> 0:13:35.559 about what's transpired for the last couple of weeks. Frankly, 0:13:35.600 --> 0:13:37.839 to have the market sell off ten percent and seven 0:13:37.880 --> 0:13:41.840 trading sessions fastest teen percent correction and market history is unprecedented. 0:13:42.160 --> 0:13:44.120 And what we typically see if you go back thirty 0:13:44.200 --> 0:13:47.760 or forty years, Lisa, you have these events, these risk events, 0:13:47.840 --> 0:13:50.800 whether it's terrorism, whether it's DIZ, whatever it is, you 0:13:50.840 --> 0:13:53.920 typically get a first low made, you get a potential 0:13:53.960 --> 0:13:56.800 short term snap back, and then within months, the history 0:13:56.840 --> 0:13:59.440 shows you typically get a retest of the lows, and 0:13:59.480 --> 0:14:02.160 so that's likely the case in this scenario as well. 0:14:02.360 --> 0:14:05.120 We're gonna hear from US companies in April and May 0:14:05.240 --> 0:14:07.920 what the earnings impact is, so that could potentially be 0:14:08.000 --> 0:14:09.760 the retest of the low. We've seen the last couple 0:14:09.760 --> 0:14:12.120 of weeks. It's so interesting here in Den Skelly with 0:14:12.520 --> 0:14:15.600 Stanley Uh. This warning is the ambiguities that are out there. 0:14:15.640 --> 0:14:17.559 Dennis Gartman just sent me a love note and he's 0:14:17.600 --> 0:14:19.720 been dead on on gold, and not only gold, but 0:14:19.800 --> 0:14:22.720 in the end he makes clear that he tilts towards 0:14:22.760 --> 0:14:29.280 this is inflationary, just as many people are saying it's disinflationary. 0:14:29.400 --> 0:14:32.360 What does Ellen Center say? So we're more in the 0:14:32.360 --> 0:14:34.960 camp that we're gonna see modest inflation this year. We've 0:14:35.000 --> 0:14:38.880 actually uh seen the potential for the coronavirus to impact 0:14:38.920 --> 0:14:41.000 global growth to the tune of two and a half 0:14:41.040 --> 0:14:45.160 percent inflation correlate with that. I don't personally think you're 0:14:45.160 --> 0:14:46.960 gonna see a massive spike U. I mean, look at 0:14:46.960 --> 0:14:49.800 what's happening with commodity prices as well. So it's hard 0:14:49.800 --> 0:14:51.880 to make the case that you're gonna see a huge 0:14:51.880 --> 0:14:54.280 spike in inflation here in our a lot of moving 0:14:54.320 --> 0:14:57.160 parts re Lisa. Yeah, and I'm struggling to know, Dan, 0:14:57.360 --> 0:14:59.720 what do you tell clients when they call you right now? Sure? 0:14:59.800 --> 0:15:02.000 So two things. One is in the near term, expect 0:15:02.080 --> 0:15:04.720 higher volatility. Right prior to the last couple of weeks. 0:15:05.000 --> 0:15:08.520 We saw the most placid, steady, straight up rallies in September, 0:15:08.840 --> 0:15:11.280 and we all knew that wasn't likely to sustain, given 0:15:11.280 --> 0:15:13.920 it was mostly boosted by liquidity from the FED. And 0:15:13.960 --> 0:15:15.560 so what I would say is, in addition to the 0:15:15.560 --> 0:15:20.680 coronavirus fallout, you've got geopolitical and u S, domestic political 0:15:20.720 --> 0:15:23.720 cross currents ongoing today and focus of course as well. 0:15:23.960 --> 0:15:27.040 So the case for rising volatility near near term is there. 0:15:27.280 --> 0:15:29.520 The second thing, however, we say, is we are still 0:15:29.600 --> 0:15:32.200 amid a secular bull market. And I made this point 0:15:32.200 --> 0:15:34.200 the last time I was fortunate to be with you 0:15:34.240 --> 0:15:36.320 a couple of weeks ago. But the point is we 0:15:36.360 --> 0:15:39.000 think we're in a twenty year bull cycle in that 0:15:39.040 --> 0:15:42.000 type of time frame, and the precedent shows from a 0:15:42.040 --> 0:15:44.760 T two to ninety nine you can have near term pullbacks. 0:15:44.960 --> 0:15:48.160 Look at the last ten years. We've had three drawdowns 0:15:48.480 --> 0:15:51.360 in ten years, each of which was a massive buying opportunity. 0:15:51.600 --> 0:15:54.400 So near term, expect more vol Longer term, we still 0:15:54.400 --> 0:15:56.600 think we're halfway through a twenty year up movie. Coming 0:15:57.800 --> 0:15:59.880 the house for you. For you guys at Molgan Stanley, 0:16:00.040 --> 0:16:01.640 I remember was to a kind of a little bit 0:16:01.680 --> 0:16:05.160 more capital to the story abroad. Has that changed? Look, Jonathan, 0:16:05.200 --> 0:16:09.000 we've seen international names and international equities performed better to 0:16:09.040 --> 0:16:10.760 the downside in the last couple of weeks, which I 0:16:10.800 --> 0:16:14.800 think illustrates how crowded the growth trade had gotten. Um 0:16:14.840 --> 0:16:17.600 And so we still like advocating, frankly, to that space. 0:16:17.880 --> 0:16:20.440 We wouldn't make it a an aggressive overweight today. We 0:16:20.480 --> 0:16:23.040 want to gradually get into it over time. It's gonna 0:16:23.080 --> 0:16:25.000 take time, frankly to play out. It's not like a 0:16:25.120 --> 0:16:27.840 light switch going off, you know. And and frankly, that's 0:16:27.880 --> 0:16:29.880 the trend. If you look back this decade, it's been 0:16:29.920 --> 0:16:32.520 a US led market. If I go back to the 0:16:32.560 --> 0:16:35.360 decade prior to that, from two thousand and two thousand nine, 0:16:35.520 --> 0:16:39.240 it was an international led market. So typically these transitions 0:16:39.240 --> 0:16:41.280 take time to play out. What are return is gonna 0:16:41.320 --> 0:16:43.280 look like over the next decade or so, given the 0:16:43.280 --> 0:16:45.840 fact that we've got benchmark yields at record lows, how 0:16:45.880 --> 0:16:48.600 much do we have to lower our returns of expectations 0:16:48.600 --> 0:16:52.200 even further? Yeah, So we've annualized fourteen percent compounded returns 0:16:52.200 --> 0:16:54.400 in the SMP the last nine or ten years, which, 0:16:54.600 --> 0:16:57.600 as you know, is twice the average, so it's unlikely 0:16:57.640 --> 0:17:01.040 that you're gonna repeat that magnitude of US perforemans we've 0:17:01.080 --> 0:17:03.120 got over the next five or six years. We've got 0:17:03.200 --> 0:17:06.320 US returns averaging around four and a half percent UH, 0:17:06.320 --> 0:17:09.080 and we've got international returns and e M returns doing 0:17:09.119 --> 0:17:11.960 slightly better than that because the valuation starting points are 0:17:12.000 --> 0:17:14.439 so much lower. Where we could see a surprise to 0:17:14.480 --> 0:17:17.320 the upside in brief is if we see a bigger 0:17:17.400 --> 0:17:21.200 pickup in productivity and demographic led growth in the US. 0:17:21.320 --> 0:17:23.040 This is the story that frankly, not a lot of 0:17:23.040 --> 0:17:25.600 people are are talking about, and Ellen Zanner from our 0:17:25.640 --> 0:17:28.760 economics team has actually led the way talking about how 0:17:28.760 --> 0:17:32.040 the demographic shift from the savers to the millennials in 0:17:32.040 --> 0:17:34.480 the next five detain years could lead a big pickup 0:17:34.520 --> 0:17:36.959 in growth. So maybe that adds some optionality. Lisa, let 0:17:36.960 --> 0:17:38.760 me paint a picture here. Over here on the wall 0:17:38.840 --> 0:17:41.679 of monitors that we have here at Bloomberg Radio Worldwide, 0:17:41.920 --> 0:17:44.879 is an American flag, and I fed a reserve flag 0:17:44.920 --> 0:17:47.080 and the assembled Michael McKee is not there. He didn't 0:17:47.080 --> 0:17:49.439 take the golf string down, didn't They didn't anticipate this 0:17:49.480 --> 0:17:52.560 happening to he didn't you know we'll have someone there. 0:17:52.640 --> 0:17:55.560 It's a it's a very crowded room with huge anticipation. 0:17:55.640 --> 0:17:59.040 This goes way beyond Lisa, way way beyond what you'd 0:17:59.080 --> 0:18:02.919 see at a two pm FED me. My question is, 0:18:03.000 --> 0:18:05.600 how are they going to thread this needle and say 0:18:05.800 --> 0:18:08.119 they are trying to be proactive but the U S 0:18:08.160 --> 0:18:10.440 economy is still strong. How are they going to send 0:18:10.440 --> 0:18:12.760 the signal that they needed to do a fifty basis 0:18:12.760 --> 0:18:17.480 point rate cut which has frankly uncleared direct consequences on 0:18:17.520 --> 0:18:20.520 the actual problem, but also say that we're not going 0:18:20.560 --> 0:18:22.480 to see a material slowdown. I mean to John, I 0:18:22.520 --> 0:18:24.840 mean that's the action that we're seeing today in equities 0:18:25.000 --> 0:18:27.560 with people not clear on what the message is here, 0:18:27.560 --> 0:18:31.399 because if this is a consumer driven downturn, not a 0:18:31.400 --> 0:18:32.960 great time to buy stuff. Think he's just going to 0:18:33.040 --> 0:18:35.439 stand scale. He has been sitting along here, who is 0:18:35.480 --> 0:18:38.359 with Morgan Stanley Wealth Management? What was your impression? I 0:18:38.359 --> 0:18:41.080 would say it's become apparent to Jonathan's point that the 0:18:41.080 --> 0:18:44.760 FED doesn't want financial conditions to be the third risk 0:18:45.080 --> 0:18:47.119 that derails the cycle. So when you think about the 0:18:47.160 --> 0:18:50.880 scenario today, it's a consumer potential risk, it's a corporate risk, 0:18:50.920 --> 0:18:54.719 particularly it pertains to travel, leisure, those sectors, and so 0:18:54.800 --> 0:18:56.760 I think they just bought time with trying to put 0:18:56.760 --> 0:18:59.960 a put under the financial conditions risk being the third 0:19:00.040 --> 0:19:01.919 Chris and Frankly, I would just add to that the 0:19:01.920 --> 0:19:03.320 FETE is not the only game in town. The G 0:19:03.440 --> 0:19:05.679 seven met today, so we talked about the FETE and 0:19:05.680 --> 0:19:08.440 what the initiatives they've taken. Keep in mind, this issue 0:19:08.440 --> 0:19:11.040 started in China. China has signaled that they're willing to 0:19:11.040 --> 0:19:14.679 step in with potential fiscal stimulus to support the global 0:19:14.720 --> 0:19:22.159 economy as well. Jim Bianco joining us now president founder 0:19:22.200 --> 0:19:25.000 of Bianco Research in Chicago. And Jim, what was a 0:19:25.080 --> 0:19:28.400 reaction to this fifty basis point right cut? Better wait 0:19:28.480 --> 0:19:31.040 than never. I think that this was inevitable that they 0:19:31.080 --> 0:19:33.320 had to do it. I actually thought they were going 0:19:33.359 --> 0:19:37.000 to do it yesterday, and um, I think it was 0:19:37.119 --> 0:19:40.840 the right move. There's a question about, as Damian Sassa 0:19:40.840 --> 0:19:44.280 of Bloomberg Intelligence points out, moral hazard, right, I mean 0:19:44.280 --> 0:19:46.680 the idea that the Federal Reserve will come in and 0:19:46.760 --> 0:19:50.919 deliver an emergency rate cut if markets correct. What's your 0:19:50.960 --> 0:19:55.240 response to that? If the markets correct? All the way 0:19:55.240 --> 0:19:57.520 back to new highs. I think they should take it back. 0:19:58.240 --> 0:20:01.600 I think what we have to recognize is not only 0:20:01.640 --> 0:20:04.479 our careers, but maybe in our lifetimes. What's happening now 0:20:04.640 --> 0:20:08.760 is unprecedented. What I mean is none of the economic 0:20:08.840 --> 0:20:12.240 data matters right now, none of what we think matters 0:20:12.320 --> 0:20:14.960 right now. What we're betting on is what's going to 0:20:15.119 --> 0:20:18.200 happen in two or three weeks. Are we going to 0:20:18.240 --> 0:20:21.640 see the number of cases in the United States run 0:20:21.720 --> 0:20:25.560 the path that we've seen in South Korea, Italy, Iran, 0:20:26.200 --> 0:20:29.600 China up into the thousands. Are we going to see 0:20:29.600 --> 0:20:32.240 widespread school closure? Are we going to see millions of 0:20:32.280 --> 0:20:35.920 two working families have to force to leave one parent home? 0:20:36.480 --> 0:20:40.000 Are we going to see massive disruption to the economy? 0:20:40.040 --> 0:20:42.720 And I think that the answer is that is a 0:20:42.920 --> 0:20:46.920 very real possibility. So the FED getting ahead of that 0:20:47.600 --> 0:20:51.160