Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you.
Speaker 1: Along with my co host Lisa Brahmowitz. Each day we
Speaker 1: bring you the most noteworthy and useful interviews for you
Speaker 1: and your money, whether at the grocery store or the
Speaker 1: trading floor. Find a Bloomberg Penl podcast on Apple podcast
Speaker 1: or wherever you listen to podcasts, as well as at
Speaker 1: Bloomberg dot com. Well, some of the economic data coming
Speaker 1: in is starting to reflect the impacts from the COVID nineteen.
Speaker 1: The Conference Board Consumer Confidence Index decline sharply in March,
Speaker 1: following an increase in February. Help us walk through the numbers.
Speaker 1: Who welcome Bart van Arc. He's a chief econmist at
Speaker 1: the Conference Board. Bart, thanks so much for joining us.
Speaker 1: What are the March data show? Well at them at
Speaker 1: at a good level of the overall consumer Confidence Index.
Speaker 1: Of course, the index is showing a drop from und
Speaker 1: thirty two point six in February two twenty in March.
Speaker 1: That perhaps it is not as you to drop as
Speaker 1: you might expect, but it is important that when we
Speaker 1: look at the responses to this survey, most of these
Speaker 1: responses were still coming in in the sort of early
Speaker 1: half of March, and a majority even in the first
Speaker 1: week of March. So this was before the COVID crisis
Speaker 1: was announced to be a global pandemic, and the US
Speaker 1: wasn't really strongly affected. However, if we look belon beyond
Speaker 1: the or below the aggregant number, particularly on expectations, we
Speaker 1: saw already a very significant weakening from hundred and eight
Speaker 1: to eight point two in March, so that's a big decline.
Speaker 1: So even in early March, consumers were already getting very
Speaker 1: concerned about the outlook and obviously that we'll only have
Speaker 1: strength and over the last few weeks, well, this has
Speaker 1: been an unprecedented period on a lot of different levels,
Speaker 1: one of which is just the speed of which this
Speaker 1: has hit and changed the whole economic backdrop. So it's
Speaker 1: sort of it is difficult to cling to some of
Speaker 1: the previous leading indicators when you look at some of
Speaker 1: the indicators in real time. We saw the jobless claims
Speaker 1: last week. We're expecting more data on that front. We've
Speaker 1: gotten regional FED measures coming out showing one dire picture
Speaker 1: after another. It's the most likely economic scenario that you
Speaker 1: see going forward. Oh, I think, so, first of all,
Speaker 1: when we look at the index wherret stands now, I
Speaker 1: think we'll see significantly more declines happening over the next
Speaker 1: few weeks and months. Uh, even compared to the financial crisis,
Speaker 1: we're not yet at that low point, you know. At
Speaker 1: that time, the expectations index dropped at some point of
Speaker 1: the thirty and we're still at a t a. So
Speaker 1: there's still a very long way to go in terms
Speaker 1: of declining confidence going forward. The really couple of scenarios
Speaker 1: now to your question, leads out on sort of where
Speaker 1: we're going. Really a couple of scenarios to think about now.
Speaker 1: One is indeed that we will see this very deep
Speaker 1: contraction happening for at least a not a month, if
Speaker 1: not perhaps six weeks or two months, but then see
Speaker 1: a fairly strong v bound kind of recovery. Most of
Speaker 1: the forecast are still sort of working on that scenario
Speaker 1: that we will be able to begin to open up
Speaker 1: the economy again over the summer. Still leaves the question
Speaker 1: what will happen after the summer in the case of
Speaker 1: researchens of cases. But I have to say that I
Speaker 1: think it's actually more likely that, uh, you know, the
Speaker 1: contraction may continue well into the third quarter. Um, it's
Speaker 1: very likely that you know, you know, containment measures and
Speaker 1: social distancing measures will continue even if the economy opens up.
Speaker 1: A lot of that will remain in place. Businesses have
Speaker 1: to be prepared for a lot of regular free pressure
Speaker 1: from authorities about under what conditions that can open up
Speaker 1: in order to avoid the spread of the virus. So
Speaker 1: I think this is really a much longer period. Therefore,
Speaker 1: even the third quarter may still be a fairly weak quarter,
Speaker 1: and you may not really begin to see recovery in
Speaker 1: the economy of any significance until the final quarter of
Speaker 1: the year. So bart, give us a your assessment kind
Speaker 1: of the fiscal stimulus we've seen me at the two
Speaker 1: trillion dollar bill, and now there's talk of another two
Speaker 1: trillion dollar perhaps infrastructure bill. How how do you expect
Speaker 1: that to impact the economy. Well, it will of course
Speaker 1: help to sort of, um, you know, put the bottom
Speaker 1: into the decline here. Um. You know, some of this
Speaker 1: money will go to small businesses who are sort of
Speaker 1: in immediate need of an end of support. If they
Speaker 1: don't get that trenencial support, they will have to close down. Uh,
Speaker 1: and that would make it much more difficult for them
Speaker 1: to actually open up again. Wants to recovery start. So
Speaker 1: I think we'll see some effects there. It will not
Speaker 1: necessarily excelerate growth now, but it will have these businesses
Speaker 1: to be able to recover again once we get through
Speaker 1: this crisis. The other part is to support to unemployment
Speaker 1: and to income. Again, low income households will need the
Speaker 1: money in order just to be able to pay their
Speaker 1: basic expenses. UH. Sort of in the medium income level,
Speaker 1: it's very likely as long as people can pay their
Speaker 1: basic expenses and their mortgages and everything else, that will
Speaker 1: put you know, extra support into savings because they will
Speaker 1: be prepared for more difficult times to come. And therefore
Speaker 1: some of these effects on the consumption site may be
Speaker 1: delayed and we will not begin to see anything of
Speaker 1: that really picking in into the second half of the year.
Speaker 1: Bart when we talk about the consumer at accounts for
Speaker 1: about two thirds of the American economy, and there was
Speaker 1: a survey out from bank Rate that I was looking
Speaker 1: at this morning showing that more than half of Americans
Speaker 1: are reducing their consumptions even online uh in response to
Speaker 1: the coronavirus crisis. Just to show up enough capital heading
Speaker 1: into this period, how big of a recession. Do you
Speaker 1: think the US is going to have this year? Oh well,
Speaker 1: whatever way with the finery recession, this is going to
Speaker 1: be a recession, whether it is multiple months of contraction
Speaker 1: or uh, you know, a level of GDP by the
Speaker 1: end of the year, which can be you know, between
Speaker 1: five and seven percent lower than what it was at
Speaker 1: the beginning of the year. So this is a This
Speaker 1: is a big recession, and it's bigger than what we've
Speaker 1: seen in two oh eight and and and two oh nine.
Speaker 1: But it's a very kind of unique recession in terms
Speaker 1: of recent history because basically what happened here is the
Speaker 1: economy has been shut down. Uh, that's where we are
Speaker 1: right now at the moment. This is primarious supply shock
Speaker 1: because you know, people just can't go anywhere. But gradually
Speaker 1: that supply shop will turn into a demand problem and
Speaker 1: that this at once. Once we can begin to open
Speaker 1: the economy, the real question is how quickly can that
Speaker 1: consumer come back online? When? When? When? When are they
Speaker 1: ready to start spending again? Are they allowed to be spending,
Speaker 1: to be able to go out to the shops and
Speaker 1: the restaurants and everything else, And how willing are they
Speaker 1: to spend because they're taking a big hit at the moment,
Speaker 1: and they are being told that if they're not careful,
Speaker 1: they have researchers of cases later in the year. So
Speaker 1: I think people will be cautious in order to uh
Speaker 1: to uh to to to start spending again, and I
Speaker 1: think therefore again the recovery will be a difficult recovery
Speaker 1: in a slow one. Bart van Ark, thank you so
Speaker 1: much for being with us, Bart van Ark, chief economists
Speaker 1: at the conference board time to check in with Bloomberg.
Speaker 1: Opinion were joined by opinion Calumust Julian Lee. It covers
Speaker 1: off things oil for Bloomberg Opinion joining Julian, thanks so
Speaker 1: much for joining us. We've seen this incredible decline in
Speaker 1: crewde We've got you know, w T I crede about
Speaker 1: twe barrel right now. I know it's supplying, I know
Speaker 1: it's demanded. Give us a sense of how much of
Speaker 1: each is really driving oil down here. I think at
Speaker 1: the moment it's it's mostly demand. Um. You know, we've
Speaker 1: had the Saudis and the Russians threatening to open the taps,
Speaker 1: and we're starting to see some of that oil perhaps
Speaker 1: beginning to move, particularly out of Saudi Arabia. They seem
Speaker 1: to have boosted shipments to storage tanks that they lease
Speaker 1: in the Mediterranean. Um, we're seeing a little bit of
Speaker 1: an increase in shipments going towards the United States, but
Speaker 1: none of that oil has arrived yet. What we're really
Speaker 1: seeing at the moment at least, is a response to
Speaker 1: a collapse in demand. Um. You know, there are estimates
Speaker 1: that demand this week is down by about twenty six
Speaker 1: percent globally. That's as if the entire United States, Canada, Mexico,
Speaker 1: all of Central America, and all of the Caribbean stopped
Speaker 1: using any oil at all. Well, it's kind of what
Speaker 1: it feels like. I mean, you look up and there
Speaker 1: are no airplanes in the sky, and you look out
Speaker 1: on the street here and there are no cars going
Speaker 1: by except for except for the horrible whale of ambulances
Speaker 1: which we've been hearing as people are suffering throughout the city.
Speaker 1: I'm just trying to understand how much pain has been
Speaker 1: priced in, given the fact that we're running out of
Speaker 1: storage and that Saudi Arabia seems to have no intention
Speaker 1: of stopping with the production. I think obviously a lot
Speaker 1: has been priced in. I mean, as you said, we're
Speaker 1: seeing you know, w T I down around twenty bucks
Speaker 1: the barrel. But some of the inland crews that are
Speaker 1: finding it difficult to access storage space are are even
Speaker 1: now trading in single digits UM. So there are there
Speaker 1: are a lot below the the international benchmarks UM. And
Speaker 1: you know, we're as you say, we're not seeing any
Speaker 1: end to the pressure. We're not seeing any significant nuptick
Speaker 1: in in road traffic. UM. We're not seeing any of
Speaker 1: the airline starting to talk about getting some of their
Speaker 1: fleet flying again. In fact, some of the you know,
Speaker 1: the biggest low cost carriers in Europe have grounded their
Speaker 1: entire fleets in the last couple of days. So we're
Speaker 1: really not yet seeing any pickup in demand. And we
Speaker 1: still have this this wave of additional oil that has
Speaker 1: been promised or threatened making its way towards consumers who
Speaker 1: don't want it. So, Julian, we had President Trump speak
Speaker 1: with Mr Putin yesterday. Any sense of what they talked
Speaker 1: about or whether there can be any movement there on
Speaker 1: a part of Russia, UM, I haven't got any detailed
Speaker 1: sense of what they talked about. I mean we were
Speaker 1: hearing that they talked about energy and they talked about
Speaker 1: the virus and responding to it. UM. My own take
Speaker 1: on it is that nobody is going to act unilaterally.
Speaker 1: Russia isn't going to do anything if it doesn't see
Speaker 1: other people, um sort of playing their part. And I
Speaker 1: think those other people include the United States, m Saudi
Speaker 1: Arabia and Russia. Both see that their actions over the
Speaker 1: last four or five years have helped to spur a
Speaker 1: doubling of US oil production, and quite frankly, I think
Speaker 1: their view is that this is too big um for
Speaker 1: anybody to deal with on their own. We're all in
Speaker 1: this together. Um. If we're going to come back, we're
Speaker 1: all going to come back, and that has to include
Speaker 1: American oil producers too. Julian, if we could take a
Speaker 1: step back and talk about what happens when this period
Speaker 1: of time is over, do you foresee the destruction and
Speaker 1: demand being something with permanent ramifications, people going to other
Speaker 1: sources of energy or changing their habits, or do you
Speaker 1: think that once things get back on track, the economy
Speaker 1: is globally start recovering, we're gonna see oil bounce back
Speaker 1: up a barrel, maybe even sixty dollars a barrel. I
Speaker 1: certainly think we're we're going to see a recovery. Whether
Speaker 1: it's a complete recovery, I think is too early to
Speaker 1: tell yet. But I think that if this is a
Speaker 1: relatively short term disruption, and if if things are picking
Speaker 1: back up off the off the floor by you know,
Speaker 1: even the autumn or or the end of this year,
Speaker 1: I don't think that's long enough for people to have
Speaker 1: fundamentally changed their habits. People are going to go back
Speaker 1: to driving, They're probably going to go back to flying
Speaker 1: to the extent that that restrictions allow them to do. So. Um,
Speaker 1: I think it takes a a long term disruption for
Speaker 1: people to really change their habits. I I don't know
Speaker 1: of anyone at the moment who's saying, oh, I'll never
Speaker 1: fly again, or I'll never travel overseas again. So I
Speaker 1: think things will come back. What the industry is going
Speaker 1: to look like when that happens, in the ability to
Speaker 1: meet that rising demand, I think it's going to be
Speaker 1: another question. Julian Lee, thank you so much for being
Speaker 1: with us. Julian Lee Limbercampeian columnists covering all things oil related.
Speaker 1: It was the worst month for US equities, frankly for
Speaker 1: global equity since two thousand and eight, Europe fair to
Speaker 1: even worse. Emerging market bonds had their worst month, worst
Speaker 1: quarters since The superlatives continue and as an investor, there's
Speaker 1: a question do you buy the dip as so many
Speaker 1: have been conditioned to do over the past decade, or
Speaker 1: is this time different as the entire economic landscape has
Speaker 1: profoundly shifted. Scott Clemens, chief investment strategist at Brown Brothers Harriman,
Speaker 1: joining us from Pittsburgh. Scott, thank you so much for
Speaker 1: being with us. I want to start there. How much
Speaker 1: do you think it is time to buy the dip?
Speaker 1: And how much are we still reeling from an economic
Speaker 1: shock that we cannot get our arms around and may
Speaker 1: not be fully priced in? Good morning, Lisa. I think
Speaker 1: the economic shock has been so quick and the markets
Speaker 1: have certainly reflected that that just in the past week
Speaker 1: or so, investors are beginning to sort of gather their
Speaker 1: thoughts about this. I'm not sure if we formed the
Speaker 1: bottom last week or not. You're never sure until well
Speaker 1: after the fact. I would say for investors focused on
Speaker 1: the long term, this kind of market disruption does provide
Speaker 1: a good opportunity, may not be the best, doesn't mean
Speaker 1: the market won't move lower, but it does provide a
Speaker 1: good opportunity to raise your allocation to equities. So Scott's
Speaker 1: give us a sense here we've seen the Federal Reserve
Speaker 1: Act really, I think pretty admirably here. Quickly they're out
Speaker 1: in front. One could argue, you know, using a lot
Speaker 1: of the tools in their toolbox. Give us a sense
Speaker 1: of what the FED has done from your perspective, Well, Paul,
Speaker 1: they've thrown the entire to two thousand and a playbook
Speaker 1: at the market. The differences. They've done it in about
Speaker 1: three weeks, whereas in two thousand and eight it took
Speaker 1: them three or four months to do it. If you
Speaker 1: look back at where FED policy was on the first
Speaker 1: day of March of the year, thirty one days ago,
Speaker 1: it is astonishing how much that they have done and
Speaker 1: and I think it's working. I think we can give
Speaker 1: them credit. The kind of volatility and spread widening that
Speaker 1: we saw on fixed income markets, even in the highest quality,
Speaker 1: shortest duration fixed income markets five or six days ago,
Speaker 1: has begun to wash out. I think it's a good
Speaker 1: sign that the Fed last week did when we use
Speaker 1: the word only a hundred and fifteen billion dollars of
Speaker 1: repurchased operations. That's down from half a trillion in each
Speaker 1: of the two previous weeks. Doesn't mean we're out of
Speaker 1: the woods yet, but FED policy is working to help
Speaker 1: financial markets function more effectively. All right, So let's talk
Speaker 1: about how people are investing. We have seen a rush
Speaker 1: of cash which has been basically preserved or hoarded, we
Speaker 1: should say, over the past few weeks, cash flooding into
Speaker 1: the investment grade corporate bottom market. Is the FED backstops
Speaker 1: those securities. I'm just wondering whether you're eating that and
Speaker 1: you're recommending people boost their allocations to that area slowly.
Speaker 1: I don't think that it's time to back up the
Speaker 1: proverbial truck, because as as you've continually reported on, there's
Speaker 1: probably more bad news to come, both on the economic
Speaker 1: front and on the healthcare front as well. So we
Speaker 1: are guiding our clients at Bromer this's harement to take
Speaker 1: advantage on a slow basis. If there is money that
Speaker 1: they're willing to put into the markets or rebalancing, that
Speaker 1: should be done back to an asset allocation policy to
Speaker 1: do so over time, and by overtime I mean several
Speaker 1: months or maybe several quarters as well. Cres is a
Speaker 1: crisis that's still in the very early days. We are
Speaker 1: finding opportunities throughout equity markets. I would say in fixed income,
Speaker 1: it's probably more in non investment grade or distressed debt
Speaker 1: where investors should tread carefully, but those were the real
Speaker 1: opportunities will begun to arise. You just reported on Carnival
Speaker 1: spond offering them maybe an example of that kind of opportunity. Wait, wait, wait,
Speaker 1: hold on one second. I'm not going to let you
Speaker 1: get away with other words you're saying by Carnival three
Speaker 1: year bonds with a coupon of twelve and a half,
Speaker 1: you're all in. No, I'm not all saying that. I'm
Speaker 1: saying about the example of a kind of opportunity. To
Speaker 1: see a lot more of that come. Taking advantage of
Speaker 1: that for careful and cautious and patient investors is probably
Speaker 1: a good idea. Carnival is just the earliest example of
Speaker 1: that kind of trend. So, Scott, So a lot of
Speaker 1: people are here trying to sense over the last several days,
Speaker 1: has the market bottom did we see that last week?
Speaker 1: Or is it forming a bottom or is it typical
Speaker 1: of just a little bounce in what is a longer
Speaker 1: term bear market. How do you think about that? Historically?
Speaker 1: I go back and look at our experience in two
Speaker 1: thousand and eight, and I know that there are a
Speaker 1: lot of differences. There always are differences in the particulars,
Speaker 1: but the common theme is human emotion in the battle
Speaker 1: between fear and greed, and that's playing out again. Recalling
Speaker 1: two thousand and eight, that a lot of the FED
Speaker 1: policy and fiscal policy was in place by early October
Speaker 1: of that year. The market responded. There were in October
Speaker 1: early November two separate rallies in the market, only for
Speaker 1: the market to bottom out at a lower level than
Speaker 1: a lower level, before ultimately finding a bottom in March
Speaker 1: of two thousand and nine. So it is not uncommon
Speaker 1: to have these kind of relief rallies within a longer
Speaker 1: term bear market. So we're cautioning investors not to get
Speaker 1: too carried away with the rally that we've had over
Speaker 1: the past couple of days. Scott, if you just take
Speaker 1: a look at the balance of the calls and the
Speaker 1: emotion that you get from investors that you deal with
Speaker 1: from clients, is the balance more heavily waited to fear
Speaker 1: or is it more heavily waited to greed, or at
Speaker 1: least the sense of buying the dip always has worked.
Speaker 1: We have a dip, let's get out there and buy,
Speaker 1: you know. But it depends on what you mean by work.
Speaker 1: The longer term, your investment time horizon is the easier
Speaker 1: it is to say, yes, this is a time to
Speaker 1: put money in the market. So we went back and
Speaker 1: looked at the hypothetical unluckiest investor ever. What if you
Speaker 1: had allocated capital to the market at the peak of
Speaker 1: the dot com bubble. What if you had bought into
Speaker 1: equity markets the day before Lehman Brothers declared bankruptcy Charlie
Speaker 1: Brown levels of unlucky investing timing, And yet with both
Speaker 1: of those time frames, ten or fifteen years down the road,
Speaker 1: with a bad entry point, investors had still doubled or
Speaker 1: tripled their money. So the answer to whether or not
Speaker 1: this is the time to get into the markets or
Speaker 1: not depends on the individual investor's temperament and time horizon
Speaker 1: more than it does on calling a bottom in the
Speaker 1: market itself. Scott Clemens, thank you so much for joining us.
Speaker 1: Really appreciate that. Scott Clements, UH Chief Investment strategies for
Speaker 1: Brown Brothers, Harriman giving us his thoughts on the market,
Speaker 1: and interesting headline just crossing it the Bloomberg Lisa. President
Speaker 1: Trump calls for two trilliant infrastructure package in the next
Speaker 1: relief bill. Yeah, this sort of is interesting. It's called
Speaker 1: it comes after Nancy Pelosi, how speaker always reportedly in
Speaker 1: talks to get together a second round of a fiscal
Speaker 1: bay out in the near future. President Trump, it seems
Speaker 1: like is weighing in trying to push that more into
Speaker 1: the infrastructure realm. Both are not mutually exclusive, right, but
Speaker 1: it does raise a question about whether we're going to
Speaker 1: get some sort of you know, w p A or
Speaker 1: c c C or you know, targeting back to the
Speaker 1: nine thirties and some of the public works programs that
Speaker 1: stemmed from that period of time. Are we going to
Speaker 1: see a redux of this and it's going to give
Speaker 1: fire to some of the infrastructure proposals that were out
Speaker 1: there well before anything about COVID nineteen was on the scene. Poll. Yeah, absolutely,
Speaker 1: And I think it's a prompt discussion of how much capital,
Speaker 1: how much cash should be put in the hands of consumers,
Speaker 1: particularly those that have been that have lost their jobs,
Speaker 1: versus how much aid should be given to companies versus
Speaker 1: how much should be potentially put in for infrastructure. So
Speaker 1: that will likely again that debate. And also how much
Speaker 1: does the economy need to be stimulated after the bailout?
Speaker 1: Key questions? Exactly right, exactly right. So looking at the
Speaker 1: markets here, we have a little bit of green on
Speaker 1: the screen, a little bit of stability, Lisa and I
Speaker 1: think we'll call it that right here. So but markets
Speaker 1: are up just slightly here. We'll have more coming up.
Speaker 1: This is Bloomberg. If you listen really closely, you can
Speaker 1: hear the helicopters hovering above you, ready to drop some cash.
Speaker 1: That is sort of the feeling out there is the
Speaker 1: US government passes one stimulus effort or bailout effort, if
Speaker 1: you want to call it that, that will deliver checks
Speaker 1: two Americans already in the works. He's get another one.
Speaker 1: And the question that I have been having persistently is
Speaker 1: is this inflationary or deflationary? Ira Jersey has a very
Speaker 1: strong view on this, chief US interestrate strategist for Bloomberg Intelligence,
Speaker 1: and I want to continue the conversation because a lot
Speaker 1: of people are struggling here thinking that normally when you
Speaker 1: print money that is inflationary, Why is the bond market
Speaker 1: saying the exact opposite. Yeah, I think for two reasons.
Speaker 1: I think one is that the quote unquote helicopter money
Speaker 1: that you just mentioned is really just replacing income and
Speaker 1: revenues that are going to be lost by a lot
Speaker 1: of businesses globally, because the way that money gets into
Speaker 1: the economy is the Federal Reserve creates base money, right
Speaker 1: or any central bank creates what's called base money, and
Speaker 1: then banks go out and then lend money to other people,
Speaker 1: to their to their customers, and that's how money flows
Speaker 1: into the system. In an environment like this, you're not
Speaker 1: creating um a lot of new money and a lot
Speaker 1: of loans that are going to be used to expand businesses.
Speaker 1: These are just going to be used to keep businesses afloat.
Speaker 1: So it's not necessarily uh inflationary where you're going to
Speaker 1: see hyper inflation, but it's designed in many ways to
Speaker 1: reduce the worst case deflation scenarios, and and the market's
Speaker 1: kind of pricing for that because we're not pricing for
Speaker 1: um for consumer prices to go down a lot for
Speaker 1: a long period of time. So it's basically we're expecting
Speaker 1: UM prices to go down very quickly now, but then
Speaker 1: rebound to you know, some level of like one and
Speaker 1: a half percent UM a couple of years from there.
Speaker 1: So I talk to us a little bit about the
Speaker 1: liquidity that we're seeing in the marketplace that was really
Speaker 1: a concern a couple of weeks ago. Uh, give us
Speaker 1: a sense of kind of where that is right now?
Speaker 1: Are the markets functioning UM? I guess you know, you know,
Speaker 1: well at this stage, well, I would say they they're
Speaker 1: functioning better UM. And they were certainly last week and
Speaker 1: the week before, but they're still not to where they were,
Speaker 1: say a month ago, um in in late February, when
Speaker 1: you were able basically to buy or sell a significant
Speaker 1: amount of risk. One of the reasons for that UM
Speaker 1: is at this point is actually the opposite problem that
Speaker 1: we had two weeks ago, which is UM you know,
Speaker 1: two weeks ago, basically bank balance sheets, banks were and
Speaker 1: dealers were unwilling to take a lot of risk onto
Speaker 1: their books one way or the other, whether they were
Speaker 1: short rates or long rates. Now, with the Federal Reserve purchasing,
Speaker 1: you know, hundreds of billions of dollars of treasury securities
Speaker 1: from the dealers every week. Um, dealers are not left
Speaker 1: with a lot of securities on their balance sheets. So
Speaker 1: you've actually seen a couple of auctions that were under subscribed.
Speaker 1: So basically dealers didn't even offer enough bonds into these
Speaker 1: auctions for the FED to buy all of them. So, um, yeah,
Speaker 1: you're in an environment now where um, there's actually it's
Speaker 1: much easier to sell bonds, for sure, because the Feds
Speaker 1: buying almost every bond that they can find. Um. But
Speaker 1: at the same time, it's, uh, it's not normal market function. Yeah,
Speaker 1: but it's not normal market function when you see the
Speaker 1: Fed's balance sheets spike upwards. It's now about five and
Speaker 1: a quarter trillion dollars. Uh. That de leveraging period, the
Speaker 1: shrinking of the balance sheet happened for about two minutes there.
Speaker 1: I'm just wondering, I wrote. We talked about this last time.
Speaker 1: Given the renewed assumptions and the expectations around the fiscal
Speaker 1: rescue efforts and beyond, how big is the central banks
Speaker 1: balance sheet couldn't get eventually in this year or in
Speaker 1: the near future. Yeah, So so the FED balance sheet,
Speaker 1: you know, our our expectation is for it to basically
Speaker 1: double this year from where it was a couple of
Speaker 1: weeks ago, and then um, you know, well more than
Speaker 1: double um over the next couple of years. And a
Speaker 1: big reason for that though, um, And we have to
Speaker 1: revise that too now because the FED actually just came
Speaker 1: out with a new program this morning where it's going
Speaker 1: to allow UM for in central banks to repo their
Speaker 1: treasury bonds. So that's going to expand the balance sheet
Speaker 1: even further. Um. So it's gonna get big, right, It's
Speaker 1: gonna be a ten trillion dollar number, easy, um, if
Speaker 1: not more, that's technical, Paul, it's gonna carry on, carry on.
Speaker 1: So so one of the you know, but but the
Speaker 1: size of the Fed's balance sheet, even though it's gonna
Speaker 1: be really large, it's gonna be very variable and and
Speaker 1: a lot of the programs that they're designing now are
Speaker 1: naturally going to go away. So it's likely you know that, well,
Speaker 1: we might spike the Fed's balance sheet over the next
Speaker 1: year or so to you know, ten, eleven, twelve trillion dollars,
Speaker 1: but then it might naturally come back down to seven
Speaker 1: or eight billion dollars just because um, they're gonna own
Speaker 1: all these treasuries and probably hold them for a long
Speaker 1: period of time, probably forever, quite frankly. But some of
Speaker 1: these other programs, like the REPO programs and the like,
Speaker 1: those will naturally shrink as the economy improves, hopefully, you know,
Speaker 1: come two. So what's next for the federal reserves that
Speaker 1: they have any tools left in their toolbox, but they
Speaker 1: have a lot of little tools, certainly for funding, I think,
Speaker 1: you know, basically implementing the programs that have already been announced.
Speaker 1: I think is has to be the next thing. Remember,
Speaker 1: we haven't most of the programs that were announced last
Speaker 1: week have not yet been implemented. So things like the
Speaker 1: commercial paper funding program that's not going to be uh
Speaker 1: probably started until next week or the week after. You
Speaker 1: have the corporate bond buying program. And importantly, and I
Speaker 1: think this is the single biggest one for the overall
Speaker 1: health of the economy, is that main street funding facility,
Speaker 1: so the small and medium sized enterprise facility run between
Speaker 1: the Treasury, the Small Business Administration and funded by the Fed.
Speaker 1: That program has to get going, and has to get
Speaker 1: going quickly if we're gonna see a a V shaped
Speaker 1: kind of recovery over the next year. If not, then
Speaker 1: it's going to be much more of a you in
Speaker 1: my opinion. Alright, Jersey, thank you so much for joining us.
Speaker 1: Really appreciate your thoughts here our Jersey chief US interest
Speaker 1: rate strategist for Bloomberg Intelligence joining us on the phone.
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