WEBVTT - Surveillance: Recession Will Be Deep But Brief, Nielsen Says 0:00:09.880 --> 0:00:13.880 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.760 Bloomberg dot Com and of course on them For the market, 0:00:27.840 --> 0:00:30.240 we have a really interesting situation. High yield has been 0:00:30.360 --> 0:00:32.440 decently bid over the last couple of weeks because the 0:00:32.440 --> 0:00:35.040 FED has stepped in at a time when the energy 0:00:35.080 --> 0:00:37.440 sector is increasing the under pressure. So what do you 0:00:37.479 --> 0:00:39.920 do if you're an investor? Will listen to this from Jeffreys. 0:00:40.200 --> 0:00:43.080 The FED is in danger of making the skill set 0:00:43.080 --> 0:00:46.320 of investors in credit redundant if the game only becomes 0:00:46.360 --> 0:00:49.040 front running the next area of debt the FED is 0:00:49.080 --> 0:00:51.920 going to buy. Let's have that conversation right now, shall 0:00:51.960 --> 0:00:54.400 we with Jim care and Morgan Stanley Investment Management Fixed 0:00:54.400 --> 0:00:57.360 income portfolio manager. Jim great to catch up this, sir, 0:00:57.440 --> 0:01:00.480 Your thoughts on that quote high yield looking dicey, with 0:01:00.560 --> 0:01:03.760 crude rolling over looking okay, with the said ready to 0:01:03.760 --> 0:01:07.040 step in. Yeah, So you know, for me, this is 0:01:07.080 --> 0:01:11.240 a question of of insolvency issues and liquidity problems. So 0:01:12.280 --> 0:01:13.759 one of the things that we've said over and over 0:01:13.760 --> 0:01:16.200 and over again is that with the coronavirus is there's 0:01:16.240 --> 0:01:18.319 created some liquidity problems. We don't want them to turn 0:01:18.319 --> 0:01:20.640 into a solvency problem. But I do understand the moral 0:01:20.680 --> 0:01:23.560 hazard aspect of if you are in a business that 0:01:23.720 --> 0:01:28.520 is a very hypercyclical business, like an energy style business UM, 0:01:28.640 --> 0:01:30.520 and that's obviously going to be a large percentage of 0:01:30.560 --> 0:01:34.080 the high yield universe, and if it takes high yield lower, 0:01:34.280 --> 0:01:36.600 do we always need the FED to come in and 0:01:36.680 --> 0:01:38.839 run and support it. And I think that the answer 0:01:38.959 --> 0:01:41.200 is it depends do we want to have oil companies 0:01:41.200 --> 0:01:44.080 in the US? How important is that into the future? 0:01:44.440 --> 0:01:46.120 And then how do you triage that you do you 0:01:46.160 --> 0:01:48.680 pick the best or do you have a way of 0:01:48.720 --> 0:01:51.919 determining what metric is you know which companies should survive 0:01:51.920 --> 0:01:54.200 and which shouldn't. Look in the i G Market's what 0:01:54.240 --> 0:01:56.560 we said is as of March twenty two, if your 0:01:56.600 --> 0:01:59.680 investment grade UM and your triple B minus are better 0:02:00.040 --> 0:02:01.520 you felt, and if you fall all the way down 0:02:01.560 --> 0:02:04.600 to double B minus, the FED will still support those bonds. 0:02:04.880 --> 0:02:07.400 So yes, there is a little bit of regulatory arbitrage 0:02:07.440 --> 0:02:10.600 here where if these sectors do start to come under 0:02:10.639 --> 0:02:13.680 a fair amount of pressure that this might create some 0:02:13.880 --> 0:02:17.840 fed or some type of government support facility. Um. I 0:02:17.880 --> 0:02:21.320 think what's important is that that gets triage to just 0:02:21.440 --> 0:02:25.600 the strongest. It can't just be ubiquitous cover all blanket 0:02:25.720 --> 0:02:28.760 of Oh, don't worry, We're just gonna buy high yield 0:02:28.880 --> 0:02:32.640 no matter what, or energy sector no matter what. I 0:02:32.680 --> 0:02:35.240 think the more important aspect of this is that there 0:02:35.280 --> 0:02:37.600 has to be a triage ast to which companies get 0:02:38.000 --> 0:02:41.200 the benefit and which don't. All right, so we're talking should, 0:02:41.400 --> 0:02:44.000 let's talk will, and let's talk positioning, and a lot 0:02:44.000 --> 0:02:46.639 of people that I've spoken to are saying, perhaps the 0:02:46.720 --> 0:02:49.240 rally and jump bonds has gotten a little ahead of itself. Jim, 0:02:49.240 --> 0:02:52.840 do you agree, Well, I mean it did for technical reasons, 0:02:52.880 --> 0:02:55.000 just because the double B minuses are going to be bought, 0:02:55.080 --> 0:02:57.680 you know, with fallen angels from from the investment grade space. 0:02:57.720 --> 0:03:00.200 So so yes, I I would agree that it took 0:03:00.200 --> 0:03:02.320 the whole index up. Is a large chunk of it 0:03:02.639 --> 0:03:05.200 that is very, very vulnerable to the energy sector. So 0:03:05.320 --> 0:03:07.880 a phrase that we use is which securities are inside 0:03:07.919 --> 0:03:10.280 the tent and which securities are outside of the tent. 0:03:10.840 --> 0:03:13.320 The securities that are outside of the tent are which 0:03:13.360 --> 0:03:16.400 means the tent of policy support, which a lot of 0:03:16.400 --> 0:03:18.919 it is the high yield sector, in particular in in 0:03:18.919 --> 0:03:21.520 in the energy sector. And when you see oil prices 0:03:21.560 --> 0:03:24.399 fall this way, this is going to create a lot 0:03:24.440 --> 0:03:26.720 of stress. So I don't know that the FED can 0:03:26.760 --> 0:03:29.480 actually do very very much about this because look what's 0:03:29.480 --> 0:03:31.800 going on here is we have a drop in global demand. 0:03:32.240 --> 0:03:34.440 OPEC is not what it used to be in terms 0:03:34.440 --> 0:03:37.160 of regulating oil prices. So we go back to oil 0:03:37.240 --> 0:03:40.640 being a boom bus business like it always was. You know, 0:03:40.760 --> 0:03:43.000 you have oil run up to very very high prices 0:03:43.040 --> 0:03:44.480 and a lot of people get in the business and 0:03:44.480 --> 0:03:46.480 then it goes crashing down, a lot of people fall 0:03:46.520 --> 0:03:49.240 out of the business. And it's a very highly cyclical 0:03:49.280 --> 0:03:52.200 commodity that was you know, pretty much kept in check 0:03:52.280 --> 0:03:55.240 by OPEC for a long period of time, but now 0:03:55.280 --> 0:03:58.360 that's gone. So at this point now it's just the 0:03:58.440 --> 0:04:01.560 real true supplying demand and dynamics, which can be brutal. 0:04:02.120 --> 0:04:05.120 Um So investors beware, if you're going to buy, make 0:04:05.120 --> 0:04:07.560 sure you get a good enough discount to actually take 0:04:07.640 --> 0:04:11.240 this risk. And that's the key. But in the interim. 0:04:11.600 --> 0:04:14.080 I think that there are some companies, and it's tied 0:04:14.120 --> 0:04:18.560 to employment as well, that might need some solvency support 0:04:18.800 --> 0:04:22.760 at at this point, Jim Karen, you mentioned inside the 0:04:22.800 --> 0:04:28.760 tent are retirees inside the tent? So that's a great question, right, 0:04:28.800 --> 0:04:32.920 So so retirees per se are are not necessarily right, 0:04:33.000 --> 0:04:37.159 so we're talking about sectors in specific securities. But you're right, Tom, Tom, 0:04:37.240 --> 0:04:40.359 we we can extend this out to moral hazard lengths 0:04:40.360 --> 0:04:43.040 and say, okay, who should be saved, who shouldn't be saved? 0:04:43.040 --> 0:04:45.599 And once we get started, when do we stop? And 0:04:45.640 --> 0:04:48.680 I'm I'm I'm very very much in favor of free markets, 0:04:48.680 --> 0:04:50.839 and I'm also you know, very much in favor of 0:04:50.880 --> 0:04:54.760 what the FED does to stabilize markets as well. So 0:04:55.000 --> 0:04:59.040 what's also critical is that this is temporary and it's targeted. 0:04:59.320 --> 0:05:03.040 So temporary and targeted are are two things that need 0:05:03.160 --> 0:05:06.160 to be there. And also there has to be a 0:05:06.200 --> 0:05:08.839 triage of you know, stronger balance sheets and you know, 0:05:08.880 --> 0:05:11.200 there's gotta be a cut offline where if if you 0:05:11.279 --> 0:05:13.680 had a strong balance sheet and that you're being unduly 0:05:13.680 --> 0:05:17.359 affected because of the coronavirus, then then that's you know, 0:05:17.400 --> 0:05:20.040 then then maybe you should get some support. But if 0:05:20.080 --> 0:05:22.040 it's just that, hey, you're in a cyclical business and 0:05:22.160 --> 0:05:26.520 somebody invested in this business, then you know you're gonna 0:05:26.960 --> 0:05:30.160 you know, you took the risk, and that's what this is. UM. 0:05:30.360 --> 0:05:32.360 So there are gonna be losers and they're gonna be 0:05:32.360 --> 0:05:34.560 some winners, um. And that's our job is to try 0:05:34.600 --> 0:05:36.680 to figure out what sectors are gonna be the winners 0:05:36.680 --> 0:05:38.640 and losers. At the start of the year, Gym, to 0:05:38.640 --> 0:05:41.760 be clear with the audience, you were far more conservative 0:05:42.120 --> 0:05:44.120 versus the rest of the street and became far more 0:05:44.160 --> 0:05:47.000 constructive versus the rest of the street over the last 0:05:47.040 --> 0:05:50.600 month or so. Behind this market rip that we've seen 0:05:50.640 --> 0:05:53.159 over the last several weeks, can you talk to us 0:05:53.200 --> 0:05:55.839 about why you're so willing to price in a better 0:05:55.880 --> 0:05:59.320 future when the data around us tells us a story 0:05:59.400 --> 0:06:03.359 of gloom and do for the next several months. Yeah, 0:06:03.440 --> 0:06:06.320 I mean, effectively, we're looking forward right and we're trying 0:06:06.360 --> 0:06:08.920 to figure out what the market's discounting and how much 0:06:09.000 --> 0:06:12.080 is actually in the price right now. And and look, 0:06:12.279 --> 0:06:14.880 the biggest piece of the puzzle that's still missing is 0:06:14.920 --> 0:06:17.320 what the path of this viruses and and doesn't create 0:06:17.360 --> 0:06:19.919 another shutdown in the economy and what have you. But 0:06:19.920 --> 0:06:22.400 if we go on the operating assumption that it doesn't, 0:06:22.560 --> 0:06:24.919 and if we start to look towards recovery, then we 0:06:24.960 --> 0:06:27.560 can start to look at certain asset classes. I'm in 0:06:27.600 --> 0:06:30.000 fixed income, so I'm gonna look at places like investment grade. 0:06:30.040 --> 0:06:33.520 I'm gonna look at some of the higher uh credit 0:06:33.600 --> 0:06:36.720 qualities within securitized and even some of the double ds 0:06:36.760 --> 0:06:39.760 within high yield, and the healthcare sector and industrial sector 0:06:39.800 --> 0:06:42.440 and paper packaging and you know other things of of 0:06:42.440 --> 0:06:45.000 of of that area that I think are more real 0:06:45.160 --> 0:06:48.920 broad economy stories. And I think that when I look 0:06:48.960 --> 0:06:50.680 at the high yield index, or when I look at 0:06:50.680 --> 0:06:53.400 the investment grade index and I watched spreads go out 0:06:53.440 --> 0:06:57.200 to almost four d basis points over to me, that's 0:06:57.480 --> 0:07:00.360 too much. Now recently spreads have come in you know, 0:07:00.520 --> 0:07:03.720 quite uh, you know, quite significantly, and maybe it's gone 0:07:03.760 --> 0:07:06.000 a little too far and it might set back. But 0:07:06.200 --> 0:07:08.280 the point is is that as long as we start 0:07:08.279 --> 0:07:11.040 to stabilize and we get the third quarter recovery, fourth 0:07:11.120 --> 0:07:14.840 quarter recovery writing off the first and second quarter, then 0:07:14.880 --> 0:07:18.240 I think that earnings start to come back in default 0:07:18.320 --> 0:07:21.520 risks ultimately start to fall. High yield default risks are 0:07:21.520 --> 0:07:24.480 in double digits, low double digits, like twelve, depending on 0:07:24.560 --> 0:07:26.520 who you talk to in which ratings agencies that you're 0:07:26.560 --> 0:07:31.000 looking at. Um, that may be a relevant statistic if 0:07:31.000 --> 0:07:33.080 we look at the energy sector, but it might not 0:07:33.120 --> 0:07:36.440 be relative when we look at it very idiosyncratically named 0:07:36.480 --> 0:07:39.160 by name, bond by bond. And that's why it's so 0:07:39.200 --> 0:07:42.520 important right now, Jonathan, that we start to think much 0:07:42.520 --> 0:07:45.520 more idiosyncratically, much more of a stock picker or bond 0:07:45.520 --> 0:07:49.640 pickers type of a market as opposed to broad index plays. 0:07:50.120 --> 0:07:51.800 Is if you buy the index, you're gonna buy a 0:07:51.880 --> 0:07:54.560 large chunk of things you just don't want. So to 0:07:54.600 --> 0:07:57.280 be selective is a lot more, is a lot more 0:07:57.280 --> 0:08:00.120 of what this market is calling for. Jim. It's why 0:08:00.160 --> 0:08:01.880 to catch you have they set Jim keron that Morgan 0:08:01.960 --> 0:08:09.400 standing investment management, fixed income portfolio manager. It would be 0:08:09.440 --> 0:08:12.320 important to go to the optimist in Europe who's so 0:08:12.360 --> 0:08:14.480 gloomy now I can't believe we let him on air. 0:08:14.680 --> 0:08:18.720 Eric Nielsen joins us with UNI Credit, usually very optimistic, 0:08:18.720 --> 0:08:21.800 and Eric, I was thunderstruck by your note and your 0:08:21.960 --> 0:08:27.040 caution and the European economic experiments through two thousand twenty. 0:08:27.200 --> 0:08:29.880 What's the distinction here? Why are you so much gloomier 0:08:30.160 --> 0:08:37.760 than others? Because I think the shut down by governments, 0:08:37.760 --> 0:08:40.360 this is a man made recession for good reasons, obviously 0:08:40.400 --> 0:08:43.000 for the health reasons. But this is something we've never 0:08:43.040 --> 0:08:45.880 seen before, that that I'm aware of. And if you 0:08:46.000 --> 0:08:50.040 just go through the sectors and think about what basically 0:08:50.080 --> 0:08:53.320 has been shot down, I find it impossible not to 0:08:53.360 --> 0:08:56.640 conclude that we at least get a few months of 0:08:57.559 --> 0:09:01.800 very very deep contraction earty percent of there about. And 0:09:01.840 --> 0:09:04.200 if you get that, even with a strong recovery in 0:09:04.200 --> 0:09:06.640 the second half of the year, you get these kind 0:09:06.640 --> 0:09:12.200 of average GDP numbers were forecasting for Europe thirteen percent down, 0:09:12.240 --> 0:09:15.200 the US ten percent down. It's almost impossible not to 0:09:15.200 --> 0:09:18.840 get these tower numbers. The e CP is coming in big, 0:09:18.960 --> 0:09:21.600 acting quite aggressively. Can you explain to me why the 0:09:21.640 --> 0:09:24.480 Italian bond market is moving in the other direction on 0:09:24.520 --> 0:09:28.920 the morning like this morning? No, I can't really, but 0:09:29.480 --> 0:09:32.839 it is ultimately as you said just before I got 0:09:32.880 --> 0:09:36.720 on that, that it is a revival of this fear 0:09:36.840 --> 0:09:40.400 about the euro Zone. Um. I think it is misplaced, 0:09:41.360 --> 0:09:44.400 but to be honest, I find the Italian government is 0:09:44.440 --> 0:09:48.720 not doing itself a favor by by sounding so anti 0:09:48.800 --> 0:09:51.600 European at a time when the e CP is buying 0:09:51.600 --> 0:09:54.040 all the debt I mean days. This is the debt 0:09:54.120 --> 0:09:57.840 issue is not an issue at the time, right because 0:09:57.880 --> 0:10:00.520 the e c P is there and that is common death. 0:10:00.679 --> 0:10:04.160 So it's so I I fail to see the excitement. 0:10:04.600 --> 0:10:06.640 And again, as you said, I mean the actual interest 0:10:06.720 --> 0:10:09.960 rates are absurdly though the speccal widening, but but the 0:10:10.000 --> 0:10:13.679 buns are deep negative, right, So so that sustainability for 0:10:13.720 --> 0:10:17.720 me is not a big risk here. Just to clarify, 0:10:17.880 --> 0:10:20.640 so you don't think that the concept that the euro 0:10:20.720 --> 0:10:23.200 region will break up or that there won't be some 0:10:23.240 --> 0:10:27.320 sort of backstab to the currency in its existence. You 0:10:27.360 --> 0:10:30.360 think that those worries are overblown and not realistic. But 0:10:30.520 --> 0:10:34.680 you do think that the responses will be insufficient to 0:10:34.760 --> 0:10:38.480 stave off a very deep and prolonged recession within Europe. 0:10:38.520 --> 0:10:42.520 Is that correct? Uh? Yes? On to the last step, 0:10:42.600 --> 0:10:44.440 and you said, I don't think this resertain is going 0:10:44.480 --> 0:10:47.280 to be long. It's going to be deep, but very brief. 0:10:47.800 --> 0:10:50.360 So we're talking about a quarter or two and then 0:10:50.440 --> 0:10:55.080 we probably hopefully see some growth again, and and and then. 0:10:55.320 --> 0:10:57.439 But I don't think we get back to normal until 0:10:57.760 --> 0:11:01.520 you know, we get a vaccine or the privtical treatment 0:11:01.559 --> 0:11:03.920 or something of the disease. Obviously, but I but I, 0:11:04.640 --> 0:11:06.560 but I don't think it's a deep and long one 0:11:06.640 --> 0:11:10.640 and get debt to GDP ratios will will rise significantly. 0:11:11.240 --> 0:11:13.760 But guess what if you're paying one or two percent 0:11:13.800 --> 0:11:17.640 on your debt in a hundred and seventy of the 0:11:17.840 --> 0:11:21.520 GDP or whatever doesn't cost you more and what a 0:11:21.760 --> 0:11:24.480 dred percent cost you a few years ago? Right? It 0:11:24.520 --> 0:11:26.840 depends how this market is going to treat you, though, Eric, 0:11:26.880 --> 0:11:28.679 And that's not up to you or I, although you 0:11:28.760 --> 0:11:31.840 might have some influence on that. Looking at the situation, 0:11:31.920 --> 0:11:34.280 back to normal, what's normal for Italy? And I don't 0:11:34.320 --> 0:11:36.480 mean to sound snarky, but as we know, it is 0:11:36.520 --> 0:11:39.600 something very near to stagnation, not much growth at all. 0:11:39.880 --> 0:11:42.680 We could have a debt to d DP balance of 0:11:42.679 --> 0:11:44.559 water a hundred and fifty percent, let's say, when we 0:11:44.600 --> 0:11:46.920 come out of this, Eric, in a place like Italy, 0:11:47.240 --> 0:11:49.960 do you not worry that those kind of numbers could 0:11:49.960 --> 0:11:53.800 spark that kind of aggressive repricing of Italian debt, because 0:11:53.880 --> 0:11:57.240 let's be clear, Italian debt is not exactly being treated 0:11:57.240 --> 0:11:59.840 like developed market debt in an environment like this one. 0:12:00.320 --> 0:12:03.160 It's something like a hybrid between E M and d M. 0:12:03.640 --> 0:12:06.079 And if the debt fundamentals go against you, Eric, do 0:12:06.080 --> 0:12:09.040 you know how quickly this can unravel? Yes? This I 0:12:09.080 --> 0:12:11.120 agree with. This is so I think you put your 0:12:11.160 --> 0:12:14.280 finger exactly in the right spot. The number one issue 0:12:14.480 --> 0:12:18.320 for Italy is where growth goes once we are through 0:12:18.360 --> 0:12:22.800 the trough. If you assume that the that they recover 0:12:23.160 --> 0:12:26.640 broadly along other European countries, even if I like half 0:12:26.640 --> 0:12:28.679 of US and lower than others like they've done before, 0:12:29.200 --> 0:12:33.680 I don't see the big drama. But if Italy were 0:12:33.760 --> 0:12:37.640 to underperform more substantially and for some period time, we 0:12:37.720 --> 0:12:40.440 have a problem in our hands. But until then, and 0:12:40.480 --> 0:12:42.560 this is certainly for the next year or so, the 0:12:42.640 --> 0:12:46.880 e cps there and buying basically everything. You're right. If 0:12:47.160 --> 0:12:49.880 investors say you know what, we don't, weally can and 0:12:49.960 --> 0:12:52.600 I am not persuasive enough to to tell them otherwise. 0:12:52.880 --> 0:12:56.840 If they leave, then Italy faces the same problem as 0:12:56.880 --> 0:13:00.920 every single country or company person face this that needs 0:13:00.960 --> 0:13:03.439 to refinance this debt. You can't do it if people 0:13:03.440 --> 0:13:06.640 don't want to buy your debt period right, whispers over 0:13:06.679 --> 0:13:11.320 the weekend Eric Nielsen of worries of inflation. Somewhere out there, 0:13:11.760 --> 0:13:17.080 inflation will reign supreme Bologne. We've got deflation and disinflation 0:13:17.200 --> 0:13:21.040 right now. How pronounced will the deflation and disinflation be? 0:13:21.679 --> 0:13:25.720 Given your forecast, I don't think Tom, that it's going 0:13:25.760 --> 0:13:29.319 to be that pronounced, because again my forecast is a 0:13:29.800 --> 0:13:33.200 is a quarter or two and that doesn't drive inflation 0:13:33.360 --> 0:13:36.679 or deflation longer term. I'll say this. For sure, we 0:13:36.840 --> 0:13:39.520 get big relative price changes, and I think we have 0:13:39.640 --> 0:13:42.520 always start to see them now. But the big debate 0:13:42.800 --> 0:13:46.200 out there is whether all the money printing in Europe 0:13:46.200 --> 0:13:51.760 and America elsewhere would be inflationary or deflationary. Um Obviously, 0:13:51.840 --> 0:13:55.680 normally money printing will ultimately become inflationary. But I don't 0:13:55.720 --> 0:13:58.920 think that to risk either really, And the reason is 0:13:58.960 --> 0:14:02.120 that I think on every government, both in America and 0:14:02.160 --> 0:14:07.040 in Europe are still not doing enough to overpower this slowdown, 0:14:07.120 --> 0:14:10.520 So so beyond risk very little inflation for the next 0:14:10.520 --> 0:14:13.199 few years. It's a measurement of percent of GDP, and 0:14:13.240 --> 0:14:15.360 I totally take your point. Arc but on a percent 0:14:15.480 --> 0:14:19.680 of GDP, what's the appropriate ratio if two or four 0:14:19.720 --> 0:14:25.040 percent of GDP is not getting it done? Sorry, this 0:14:25.160 --> 0:14:27.320 is got to the dead or to the deficit. To 0:14:27.400 --> 0:14:30.080 what the amount of fiscal stimulus there? You know, it's 0:14:30.080 --> 0:14:32.720 measured quickly. As they're doing two percent or four percent 0:14:32.960 --> 0:14:37.760 of GDP, what's the appropriate all in number? Right? Rule 0:14:38.000 --> 0:14:41.280 Team Tom? Yeah, the rule of thumb is that if 0:14:41.280 --> 0:14:44.120 you get hit by by an external shock of a type, 0:14:44.360 --> 0:14:46.640 you should do a fiscal stimulus as a percent of 0:14:46.680 --> 0:14:50.000 GDP roughly equivalent to the drop in GDP. That's a 0:14:50.040 --> 0:14:55.200 multiplan right now. Remember, while Italy is only doing a 0:14:55.280 --> 0:14:58.200 little bit, they are doing about twenty percent of GDP 0:14:58.320 --> 0:15:02.120 in guarantees for companies, so that counts for quite a lot. Also, 0:15:02.200 --> 0:15:05.920 so you keep you trying to prevent the liquidity crisis 0:15:05.960 --> 0:15:09.120 from becoming a solvency crisis in the corporate sector. So 0:15:09.200 --> 0:15:12.160 that's so it's so I still think they're doing too little. 0:15:12.160 --> 0:15:14.680 And and as we speak, they're working feverishly as we 0:15:14.760 --> 0:15:17.680 know in Rome on another package of fiscal stimulus. So 0:15:17.760 --> 0:15:21.040 so more is coming. Yeah, Eric, just taking a step back, 0:15:21.080 --> 0:15:22.400 you said, do you think that this is going to 0:15:22.400 --> 0:15:26.160 be a very deep but short recession. I'm wondering when 0:15:26.240 --> 0:15:28.960 John says, what's the new normal? And I'm wondering not 0:15:29.040 --> 0:15:31.360 just for Italy but the entire Eurozone when it comes 0:15:31.360 --> 0:15:34.160 to the unemployment rate, which already was a lot higher 0:15:34.320 --> 0:15:37.520 than the one in the US heading into this last year, 0:15:37.560 --> 0:15:40.120 it was seven point six percent on average for the 0:15:40.160 --> 0:15:43.840 euro Zone forecast for this year, but obviously going to 0:15:43.840 --> 0:15:47.360 be much higher. What's the new normal for unemployment in Europe? 0:15:47.440 --> 0:15:50.160 In Europe, Oh God, this is a tough one and 0:15:50.200 --> 0:15:52.600 I don't know the answer, but I think the the 0:15:53.080 --> 0:15:56.760 so we very roughly estimate that once we have through 0:15:56.840 --> 0:16:00.760 this deep through we may have coughed maybe a quarter 0:16:00.840 --> 0:16:04.920 percentage points of potential growth in Europe because companies will 0:16:04.960 --> 0:16:08.480 fail unfortunately that shouldn't fail, and that will lift the 0:16:08.560 --> 0:16:12.000 natural unemployment level a bit, now, can I? Just before 0:16:12.320 --> 0:16:15.880 we get onto this, also remind you the key reason 0:16:16.440 --> 0:16:19.520 for the very big difference in unemployment in Europe and 0:16:19.560 --> 0:16:22.320 in America over the last few years is that in 0:16:22.360 --> 0:16:25.960 Europe we have had a massive inflow into the labor market. 0:16:26.000 --> 0:16:28.920 People wanted to get jobs but didn't get them fully, 0:16:29.000 --> 0:16:32.080 particularly in Spain and some other Southern European countries where 0:16:32.080 --> 0:16:34.720 in America you have had people leaving the labor market. 0:16:35.080 --> 0:16:37.400 So if you adjusted for that, go tend back ten 0:16:37.480 --> 0:16:40.640 years back or something that changes in the in the 0:16:40.800 --> 0:16:44.360 labor mark size, then it's actually actually quite similar. To 0:16:44.360 --> 0:16:46.560 be honest, we're gonna leave it there. I have you 0:16:46.600 --> 0:16:48.120 and the family are doing well. Great to catch out 0:16:48.120 --> 0:16:50.320 with you this morning, Eric Nelson, that you need gradic 0:16:50.360 --> 0:16:58.800 Croup Chief Economist. An update is we've tried to do 0:16:58.920 --> 0:17:02.280 each day from our medical community, the experts that have 0:17:02.400 --> 0:17:06.879 helped us during this pandemic. One of them is Joshua Sharfstein. 0:17:07.040 --> 0:17:10.600 He is at the Johns Hopkins University Bloomberg School of 0:17:10.680 --> 0:17:13.320 Public Health. Of course we must mention Mr Bloomberg is 0:17:13.359 --> 0:17:17.240 founder of Bloomberg GELPI and also this television and radio 0:17:17.800 --> 0:17:21.240 UH network as well. It was fun to talk to 0:17:21.320 --> 0:17:26.719 him today about the improvements that we're seeing in this pandemic. 0:17:26.800 --> 0:17:32.600 Curious Professor Joshua Sharfstein, what we had seen UH recently 0:17:32.800 --> 0:17:36.879 in the United States is a plateau, and that is 0:17:37.760 --> 0:17:41.840 good news because we would clearly were worried about having 0:17:41.960 --> 0:17:45.960 so many people with severe disease from COVID that it 0:17:46.040 --> 0:17:49.760 would overwhelm the healthcare system, and there's no question that 0:17:50.440 --> 0:17:53.600 the healthcare cooks them. In several places such as New 0:17:53.680 --> 0:17:56.480 York City has been pushed really up to the brink, 0:17:56.560 --> 0:18:02.359 but been an amazing medical response and extra beds and 0:18:02.480 --> 0:18:06.679 ventilators and staff coming in, and it looks like the 0:18:06.760 --> 0:18:11.719 line there is more or less holding, and these hospitals 0:18:11.760 --> 0:18:14.080 are not getting a lump. So that is a very 0:18:14.160 --> 0:18:18.040 good news. However, UM, it does not mean that, you know, 0:18:18.400 --> 0:18:21.640 it's all over. It means that really the long term 0:18:21.640 --> 0:18:26.480 battle is beginning, and UM, it's very important that not 0:18:26.600 --> 0:18:30.879 only the current restrictions continued long enough for Peter to 0:18:30.920 --> 0:18:35.359 really begin to decline, but also that, UM, we have 0:18:35.840 --> 0:18:39.600 a strategy for slowly reopening the economy. I had a 0:18:39.640 --> 0:18:44.320 family member over the weekend, Professor Sharfstein, who took the 0:18:44.359 --> 0:18:49.840 information of a nurse of about age forty dying. Why 0:18:49.880 --> 0:18:54.119 are nurses dying? Why are doctors dying? While this has 0:18:54.160 --> 0:18:57.360 been seen all around the world, including in China and 0:18:57.520 --> 0:19:01.639 Italy and Spain, and it may have to do with 0:19:01.720 --> 0:19:05.919 the fact that they were exposed to a very large 0:19:05.960 --> 0:19:11.639 amount of virus. Perhaps before UM, you know, it was 0:19:12.400 --> 0:19:16.200 known that there was coronavirus in their area or when 0:19:16.320 --> 0:19:21.440 they were UM unable to get adequate protective equipment, and 0:19:22.480 --> 0:19:27.159 the amount of virus someone's exposed to generally can influence 0:19:28.320 --> 0:19:31.240 how well people can fight off the infection. So that's 0:19:31.320 --> 0:19:35.800 one possible reason why. The other reason is um that 0:19:36.320 --> 0:19:39.760 there's a certain randomness to the virus Um. There are 0:19:39.760 --> 0:19:44.400 people in the community who seem um completely at low 0:19:44.520 --> 0:19:46.640 risk based on what we know, but done the last 0:19:46.680 --> 0:19:49.320 they get seriously ill or even die. So you know, 0:19:49.440 --> 0:19:53.680 this is not a guaranteed harmless infection for anyone. Could 0:19:53.680 --> 0:19:55.640 this be genetic? I know there are a number of studies, 0:19:56.160 --> 0:20:00.520 um Josh about whether you have a pre genetic position 0:20:01.080 --> 0:20:03.600 for the virus to get worse. Where are we on 0:20:03.640 --> 0:20:07.359 that it's possible. I haven't seen any like compelling data 0:20:07.440 --> 0:20:11.840 specifying which, you know gene Sometimes there are variations in 0:20:11.920 --> 0:20:16.440 the immune system that can predict vulnerabilities to infection, So 0:20:16.920 --> 0:20:20.440 you know, I think that would be very interesting if 0:20:20.600 --> 0:20:23.080 if it's uncovered. I know you were saying that we 0:20:23.119 --> 0:20:25.480 need to be vigilant against a new surge of cases 0:20:25.640 --> 0:20:28.320 as we start to lift restrictions. What would be the 0:20:28.400 --> 0:20:31.240 right way to do this? Do you take a state 0:20:31.280 --> 0:20:33.840 and the state reopens and you see what happens, or 0:20:33.880 --> 0:20:36.040 do you look at another country or or you know 0:20:36.200 --> 0:20:41.160 countries and states comparable in and how they response has been, 0:20:41.160 --> 0:20:42.960 how the lockdown has been in the number of deaths 0:20:42.960 --> 0:20:45.760 and infections. So I think there are two things, and 0:20:45.880 --> 0:20:48.879 there's been a couple of day good reports but have 0:20:49.040 --> 0:20:52.280 been put out, including why the jumptop and interpare Health 0:20:52.320 --> 0:20:55.399 Security UM. And the first thing is you have to 0:20:55.400 --> 0:20:57.679 think about what are the conditions to reopening, what do 0:20:57.720 --> 0:21:00.359 you want to have in place before we reopen? And 0:21:00.400 --> 0:21:02.320 the second thing is how do you go about it? 0:21:02.480 --> 0:21:04.919 And in that first category, what do you want to 0:21:04.920 --> 0:21:08.280 have in place? Adequate testing, which we don't really yet 0:21:08.359 --> 0:21:10.840 have to really be able to test people who are sick, 0:21:10.920 --> 0:21:14.280 even mildly ill UM, as well as enough testing for 0:21:14.359 --> 0:21:17.520 high risk places like nursing homes. You certainly want to 0:21:17.520 --> 0:21:21.920 see cases declining substantially for fourteen days UM. You want 0:21:21.920 --> 0:21:24.240 to you need the public health capacity to respond to 0:21:24.280 --> 0:21:26.840 positive cases, and you need to make sure that that 0:21:26.920 --> 0:21:29.640 healthcare system that's been pushed to the brink in some areas, 0:21:30.000 --> 0:21:33.160 that's really bumped back so that you're able if things 0:21:33.240 --> 0:21:36.879 go get worse to handle the challenge, and then you 0:21:36.960 --> 0:21:38.439 got to think about how you're going to open up. 0:21:38.440 --> 0:21:40.800 And it's not going to be flipping the switch back on. 0:21:40.920 --> 0:21:44.080 It's going to be slowly turning the dial. And you 0:21:44.160 --> 0:21:47.440 need to really think through, um, what comes first, what 0:21:47.600 --> 0:21:50.399 comes second, what comes third, and then between needs stage 0:21:50.520 --> 0:21:53.680 waiting to make sure that you're not sparking at searching cases. 0:21:53.720 --> 0:21:56.639 And you know, um, there's some things that may be 0:21:56.760 --> 0:21:59.720 able to come first, like if they're work places where 0:21:59.720 --> 0:22:04.520 people don't get it anywhere near each other, um and uh, 0:22:05.520 --> 0:22:07.120 but then I think that are going to come later, 0:22:07.280 --> 0:22:10.320