WEBVTT - Surveillance: Bank Earnings With Michaud 0:00:06.320 --> 0:00:13.040 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Lee. 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 --> 0:00:27.880 Bloomberg dot Com, and of course on the Bloomberg Tell. 0:00:27.960 --> 0:00:30.280 Michelle joining us on the phone as he always does. 0:00:30.640 --> 0:00:32.760 On next season for the Big Banks on Wall Street 0:00:32.840 --> 0:00:36.160 k b WCO. Tom, fantastic to catch up with you. 0:00:36.360 --> 0:00:39.400 Just walk us through the unprecedented environment we're working through 0:00:39.479 --> 0:00:43.440 right now with Wall Street's biggest names. Well, first of all, 0:00:44.040 --> 0:00:48.159 I've never seen a recession come this quickly in this 0:00:48.400 --> 0:00:51.479 hard so this is somewhat unprecedented. But I was just 0:00:51.640 --> 0:00:56.360 listening to your conversation just now, um, and you know 0:00:56.440 --> 0:00:58.120 there are going to be a couple of ways that 0:00:58.120 --> 0:01:00.279 that Wall Street is gonna interpret These are things, and 0:01:00.280 --> 0:01:02.680 you have to also understand I just saw them myself. 0:01:02.920 --> 0:01:05.480 We were looking for a three point nine billion dollar 0:01:05.600 --> 0:01:09.199 provision came in much higher. The question is does JP 0:01:09.360 --> 0:01:13.679 Morgan see something that makes them terribly more cautious or 0:01:13.760 --> 0:01:16.640 in some ways you could think that the company is 0:01:16.800 --> 0:01:20.920 enormously well capitalized, has a great top line of earnings 0:01:21.160 --> 0:01:24.600 and in some ways just go big, take a big provision, 0:01:25.000 --> 0:01:26.840 And in some ways there's going to be some folks 0:01:26.880 --> 0:01:29.600 to just use a non financial term. Are you ripping 0:01:29.640 --> 0:01:32.720 the band aid? Building a fortress balance sheet? This is 0:01:32.760 --> 0:01:35.960 your first quarter to do that since the virus arrived? 0:01:36.440 --> 0:01:39.760 And and was it was it more precautionary or was 0:01:39.800 --> 0:01:42.080 it in reaction to something that they believe is going 0:01:42.120 --> 0:01:44.240 to happen? And I think that's going to be what 0:01:44.360 --> 0:01:47.160 the streets looking for when we hear their eight thirty 0:01:47.160 --> 0:01:49.880 conference call today. So Tom, let's explore that further. I 0:01:49.920 --> 0:01:52.080 don't think anyone can tell us when we're going to reopen. 0:01:52.160 --> 0:01:54.000 Nobody can tell us when we're going to normalize. We 0:01:54.000 --> 0:01:56.160 can game out a series of things, though. We can 0:01:56.200 --> 0:01:58.960 work out what any individual company is preparing for. Are 0:01:58.960 --> 0:02:01.760 they preparing for a one months shutdown, a two months shutdown? 0:02:02.040 --> 0:02:03.800 As you look at the numbers this morning, Tom, what 0:02:03.880 --> 0:02:06.520 is that a bank preparing for? What kind of preparation 0:02:06.560 --> 0:02:09.440 are they taking for a duation that lost the quarter, 0:02:09.800 --> 0:02:14.040 two quarters slowdown that goes beyond that. So we were 0:02:14.120 --> 0:02:17.359 looking for a loan loss provision of four billion dollars 0:02:17.360 --> 0:02:20.320 in this quarter, and then and then increasing to something 0:02:20.360 --> 0:02:23.640 more like maybe let's say twelve billion dollars in the 0:02:23.680 --> 0:02:27.200 second quarter. So the question is how much of that 0:02:27.520 --> 0:02:30.960 first half low loss provisioning happened in the first quarter 0:02:31.080 --> 0:02:33.800 instead of in the second quarter. And I'll give you 0:02:33.840 --> 0:02:37.560 another dimension that's not actually embedded in this press release 0:02:37.840 --> 0:02:41.040 but should be talked about, which is what are the 0:02:41.080 --> 0:02:45.240 credit losses that are expected over the cycle. If we're 0:02:45.280 --> 0:02:48.320 going to do the global financial crisis again, then that 0:02:48.320 --> 0:02:51.120 would be a very high single digit like let's say 0:02:51.200 --> 0:02:54.040 you'd have eight percent of the loan portfolio would be 0:02:54.040 --> 0:02:57.320 would be charged off over a period of several years. 0:02:58.240 --> 0:03:01.560 We have been modeling something sort of maybe four percent 0:03:02.120 --> 0:03:05.280 for this cycle. If it turns out to be something 0:03:05.400 --> 0:03:08.680 more extended, then that I think that will change the 0:03:08.760 --> 0:03:12.120 dynamic a little bit because everything that we've modeled with 0:03:12.160 --> 0:03:14.480 more like a four percent, even up to a six 0:03:14.800 --> 0:03:18.080 percent is something that could be well handled by the 0:03:18.160 --> 0:03:21.280 capital base and the earnings power of the banks. And 0:03:21.280 --> 0:03:24.440 and so I think that's the framework. Because this new 0:03:24.480 --> 0:03:29.000 accounting provision, which is called CECIL, requires the banks to 0:03:29.360 --> 0:03:33.240 provide for their expected credit losses over the life of 0:03:33.280 --> 0:03:37.120 the loan that is very different than prior crisis where 0:03:37.120 --> 0:03:40.920 banks met the losses more real time, and so that's 0:03:40.920 --> 0:03:42.880 what the market has to understand. That's why I was 0:03:42.920 --> 0:03:45.720 thinking my earlier comment that is this kind of a 0:03:45.760 --> 0:03:48.920 go big moment for JP. Morgan ripped the band aid, 0:03:48.960 --> 0:03:50.960 take a bigger provision. Let's get out ahead of this 0:03:51.120 --> 0:03:54.600 because we're financially strong and we can or do they 0:03:54.640 --> 0:03:58.360 see something that's changed their opinion about the credit cycle 0:03:58.800 --> 0:04:01.640 over its entirety that we need to hear about. That's 0:04:01.640 --> 0:04:04.080 what I'm looking for, and we'll get more color hopefully 0:04:04.080 --> 0:04:06.840 on that at eight thirty Wall Street time when they 0:04:06.840 --> 0:04:10.440 do have their press conference. Tom. I'm wondering going forward 0:04:10.880 --> 0:04:14.200 whether you see this as a position of strength for 0:04:14.240 --> 0:04:18.040 the banks to act counter cyclically, as John was saying, 0:04:18.279 --> 0:04:21.119 and the idea with Betsy Gray sick of Morgan Stanley saying, 0:04:21.480 --> 0:04:24.039 they actually stand to benefit on the other side of 0:04:24.080 --> 0:04:26.880 this because they have these fortress balance sheets. Do you agree? 0:04:28.080 --> 0:04:30.839 I do? I mean, I I'll pick on City Group 0:04:30.920 --> 0:04:35.279 for a second, and I checked last night. At the 0:04:35.400 --> 0:04:38.919 end of two thousand and seven, City Group had two 0:04:38.960 --> 0:04:43.800 point six percent tangible common equity ratio. Today that numbers 0:04:43.839 --> 0:04:47.679 around seven and a half percent. So that's that's north, 0:04:47.720 --> 0:04:51.000 the two times that's north, the three times the capital 0:04:51.040 --> 0:04:54.520 base at the core of the balance sheet plus liquidity 0:04:54.680 --> 0:04:58.960 is far stronger. So I think this cycle, you know, 0:04:59.000 --> 0:05:02.080 it's gonna it's gonna to be tested. But but the 0:05:02.120 --> 0:05:05.120 banks are in a much better position to take charges 0:05:05.680 --> 0:05:08.560 and move forward. So but again, that doesn't mean if 0:05:08.600 --> 0:05:11.120 we get if we get a credit lost cycle like 0:05:11.200 --> 0:05:15.360 the global financial crisis, then things could change. John farre 0:05:15.400 --> 0:05:18.320 and Lisa Brown with with Thomas showed to Stephile KBW. 0:05:18.560 --> 0:05:20.440 My name is Tom Keane. I just wandered in off 0:05:20.440 --> 0:05:29.040 the question I got delayed. I was down Madison Avenues 0:05:29.120 --> 0:05:31.760 at JP Morgan setting up a Christmas Club account. I 0:05:31.800 --> 0:05:36.320 got a toaster at the end of December. If Christmas 0:05:36.320 --> 0:05:39.240 club account, Thomas showed, you know, you just alluded to 0:05:39.279 --> 0:05:43.000 the power of Fortress Diamond or Fortress balance sheet and 0:05:43.000 --> 0:05:45.679 all that. I get it. How many other banks, though, 0:05:46.160 --> 0:05:49.360 are like JP Morgan And the answer is not many. 0:05:49.400 --> 0:05:52.200 Is this going to be a big deal across five 0:05:52.440 --> 0:05:55.320 dred banks or six hundred banks, this new accounting provision 0:05:55.760 --> 0:06:00.479 given the pandemic shock that they're really gonna have the 0:06:00.640 --> 0:06:06.360 financial or balance sheet power that JP Morgan enjoys. Um, Look, 0:06:06.520 --> 0:06:11.520 I think JP Morgan is it's good that they go 0:06:11.680 --> 0:06:14.800 first generally, even though I think First Republic did just 0:06:14.880 --> 0:06:17.560 report also, but even though it's good done, they're a 0:06:17.560 --> 0:06:21.159 smaller regional bank but still in the SP five. But um, 0:06:21.200 --> 0:06:23.360 I think it's good that JP Morgan goes first because, 0:06:23.400 --> 0:06:26.919 like you said, they are a best in class balance 0:06:26.960 --> 0:06:30.440 sheet as well as profitability. I think that there are 0:06:30.520 --> 0:06:34.440 other banks that have about the same capital ratios as 0:06:34.520 --> 0:06:37.400 JP Morgan, I'd say, in the same league. What other 0:06:37.480 --> 0:06:41.479 banks don't have, tom is the pre tax pre provision 0:06:41.640 --> 0:06:44.920 earnings power, and that is what's really it's we call 0:06:44.960 --> 0:06:47.880 it the earning shield. So if you've got good levels 0:06:47.880 --> 0:06:51.720 of profitability, you know you typically it drives returns for 0:06:51.800 --> 0:06:54.960 your shareholders, but it also protects you in a downswing. 0:06:55.600 --> 0:06:58.800 JP Morgan has that, whereas there are other banks that 0:06:58.960 --> 0:07:02.599 just aren't as offittable is JP Morgan. And that's where 0:07:02.640 --> 0:07:05.360 the gap is wider, at least of the CFA definition 0:07:05.440 --> 0:07:09.640 for what Mr Michelle was just describing is called minting money. Yeah, well, 0:07:09.840 --> 0:07:13.320 minting money and and and consolidating money. And that's actually 0:07:13.360 --> 0:07:16.040 where I wanted to go because there is this feeling 0:07:16.360 --> 0:07:19.560 that the biggest banks will get bigger in this crisis, 0:07:19.600 --> 0:07:22.520 in this downturn, because they do have the wherewithal to 0:07:22.560 --> 0:07:25.160 withstand this and even benefit on the other side. Tom, 0:07:25.160 --> 0:07:28.000 how much do you see that happening. Oh, it's going 0:07:28.040 --> 0:07:31.240 to come because well, well I'm not a believer that 0:07:31.360 --> 0:07:33.360 the world's going to be turned upside down on the 0:07:33.360 --> 0:07:35.560 back side of this. But you know, one of the 0:07:35.640 --> 0:07:39.440 things we don't hear is complaints about people not able 0:07:39.440 --> 0:07:42.880 to move funds or because of all the digital access. 0:07:42.920 --> 0:07:45.160 So what this is. I think the studies that are 0:07:45.160 --> 0:07:47.920 going to be most interesting to read afterwards is what 0:07:47.960 --> 0:07:51.200 did bank customers do when they couldn't get to the bank. 0:07:51.640 --> 0:07:53.679 The reality is that they did what they did before 0:07:53.720 --> 0:07:57.480 the crisis, They used more digital and so banks that 0:07:57.640 --> 0:08:01.160 have the digital capabilities I think are going to really 0:08:01.240 --> 0:08:04.000 prove that they stood up really well for their clients. 0:08:04.360 --> 0:08:06.680 And I think banks that didn't have it are going 0:08:06.680 --> 0:08:08.920 to re examine it, and I think that could help 0:08:09.040 --> 0:08:12.120 cause fuel for consolidation. The other thing is on the 0:08:12.160 --> 0:08:14.600 back end of this, I expect that we're going to 0:08:14.720 --> 0:08:18.240 have near zero interest rates for a while and if 0:08:18.280 --> 0:08:22.160 you're a bank that is entirely spread dependent, meaning you 0:08:22.160 --> 0:08:26.280 don't have other businesses, it's going to put huge pressure 0:08:26.280 --> 0:08:28.520 on your earnings, and I think it could be a 0:08:28.640 --> 0:08:32.480 driver for consolidation. So I would expect there to be 0:08:32.520 --> 0:08:35.360 more consolidation on the back side of this. And I 0:08:35.440 --> 0:08:37.920 wanted to get to another top point Tom you mentioned earlier, 0:08:37.920 --> 0:08:41.200 which is not all banks will will perform equally here. 0:08:41.640 --> 0:08:44.880 There will be some banks that will underperform and will 0:08:44.920 --> 0:08:48.000 have bigger issues than others. So most of the time 0:08:48.000 --> 0:08:50.840 when I'm talking, I'm talking about broadly, but there will 0:08:50.880 --> 0:08:52.840 be a couple, I'm sure a couple of banks that 0:08:52.880 --> 0:08:56.199 have a harder time during this cycle. It's great to 0:08:56.240 --> 0:08:59.280 get views, especially in earning seas. It's Almo b w 0:08:59.440 --> 0:09:14.360 the c E wanking on JP Maulkin numbers. Laurie Kelvasin 0:09:14.520 --> 0:09:17.440 is in the trenches on this. She's at RBC does 0:09:17.480 --> 0:09:20.160 some wonderful work on the equity markets. Laurie to me, 0:09:20.400 --> 0:09:24.080 everybody's trying to get a bearing. They're trying to, you know, 0:09:24.160 --> 0:09:27.000 get to use the sailing illusion to get the keel set, 0:09:27.120 --> 0:09:29.920 get the sails set and move forward. How are you 0:09:30.000 --> 0:09:34.320 doing that? What are you using to establish a bearing forward? 0:09:35.559 --> 0:09:37.760 So you know, what I've told my team is that 0:09:37.800 --> 0:09:39.680 we are just going to keep moving the ball forward. 0:09:39.679 --> 0:09:41.760 We're going to keep running the numbers, and we're going 0:09:41.800 --> 0:09:44.040 to adjust as needed. But we're trying not to get 0:09:44.080 --> 0:09:46.640 too caught up in the headlines of the day. Um. 0:09:46.679 --> 0:09:49.040 We're really trying to think longer term to the extent 0:09:49.080 --> 0:09:50.720 that we can, and we're just trying to process new 0:09:50.760 --> 0:09:53.720 information as it comes in. Now. I've been very focused 0:09:53.760 --> 0:09:56.600 on things like my earnings model, not because I think 0:09:56.640 --> 0:09:58.439 I'm going to get it perfect right now, but because 0:09:58.520 --> 0:10:00.760 it helps me digesting in for nation as I come 0:10:00.800 --> 0:10:04.280 in to really understand, you know, what I know about 0:10:04.280 --> 0:10:06.440 this reporting season. I really need to understand what the 0:10:06.480 --> 0:10:08.120 hits are going to be to margins. That's something I 0:10:08.120 --> 0:10:10.720 have trouble modeling. If I don't go through the process 0:10:10.720 --> 0:10:12.439 and try to get my numbers as good as I can, 0:10:12.760 --> 0:10:15.520 I won't have that information that thought process ready to 0:10:15.520 --> 0:10:18.040 go as I'm trying to digest this info. So Lori, 0:10:18.280 --> 0:10:20.440 as you look at the new information as it comes 0:10:20.440 --> 0:10:23.240 in this morning, it's from JP Morgan and Wells Fargo, 0:10:23.240 --> 0:10:26.040 and I'm wondering what the lone loss provisions and any 0:10:26.080 --> 0:10:28.679 color that we may get within ten minutes time from 0:10:28.760 --> 0:10:32.080 Jamie Diamond of JP Morgan. How big of a hit 0:10:32.280 --> 0:10:36.479 are you sort of gleaning from the lone loss provisions, etcetera. 0:10:37.320 --> 0:10:39.400 Are you expecting to see sort of bleed out in 0:10:39.520 --> 0:10:43.040 main street going forward? Well, you know, we we One 0:10:43.120 --> 0:10:46.200 things we've talked about is the idea of collateral damage, 0:10:46.200 --> 0:10:48.319 and I think where the banks can be particularly helpful. 0:10:48.360 --> 0:10:50.200 To be honest, I'm not really so concerned about what 0:10:50.200 --> 0:10:53.000 they're one Q numbers look like. I'm concerned about what 0:10:53.000 --> 0:10:55.960 their read is on the economy, how they're handling their customers, 0:10:55.960 --> 0:10:58.880 how they're stepping up to really support this economy going 0:10:58.960 --> 0:11:01.280 forward on. That's really the kind of thing I'm going 0:11:01.320 --> 0:11:03.160 to be listening for. The Other thing, frankly, I'm going 0:11:03.160 --> 0:11:05.160 to be listening for is what companies, especially on the 0:11:05.160 --> 0:11:08.240 financial services side, are doing with their dividends. What we've 0:11:08.240 --> 0:11:10.360 seen the past few weeks is that companies are defending 0:11:10.360 --> 0:11:13.120 their dividends sacrificing their share buy backs. I need that 0:11:13.160 --> 0:11:15.640 dividend story to hold up to get retail investors back 0:11:15.640 --> 0:11:17.880 into the equity market. Well, long, let's talk about it. 0:11:17.880 --> 0:11:19.920 How vulnerable do you think those dividends are if this 0:11:20.040 --> 0:11:23.040 lockdown goes on for let's say, through May into June. 0:11:23.800 --> 0:11:26.760 So as we have looked back over the press releases, 0:11:26.880 --> 0:11:29.559 the eight k's, and the early reporters that have come 0:11:29.600 --> 0:11:32.199 in since March fifteenth, and we pick March fifteenth because 0:11:32.200 --> 0:11:34.200 that's the day a lot of the banks came in 0:11:34.360 --> 0:11:37.160 and cut their their buy backs. Um, what we keep 0:11:37.200 --> 0:11:40.240 seeing is and is the idea that this crisis will 0:11:40.280 --> 0:11:43.120 be transitory. I haven't been counting how many times I've 0:11:43.160 --> 0:11:45.800 read the word transitory, but it keeps popping up, and 0:11:45.840 --> 0:11:47.719 we see that in the context of some of those 0:11:47.720 --> 0:11:50.840 companies who have been defending their dividends. So my sense 0:11:51.160 --> 0:11:53.400 is that as long as this crisis is viewed as 0:11:53.400 --> 0:11:55.240 is something that's going to last a quarter or two, 0:11:55.600 --> 0:11:57.600 not really bleed into the second half of this year, 0:11:57.720 --> 0:12:00.000 not really bleed into next year, I think the company 0:12:00.000 --> 0:12:02.240 these are going to be comfortable trying to ride this 0:12:02.320 --> 0:12:04.760 out and keep those dividends intact. If it looks like 0:12:04.800 --> 0:12:07.160 this is going to be a longer bleed, then I 0:12:07.200 --> 0:12:09.680 think we have to worry. So there's a new information 0:12:09.840 --> 0:12:13.320 on the earning side, which we're getting with progressive speed 0:12:13.480 --> 0:12:16.400 over this week and next. And then there's the positioning 0:12:16.440 --> 0:12:18.760 that John is referring to earlier in this idea that 0:12:18.800 --> 0:12:21.520 there does seem to be a capitulation with the Bank 0:12:21.520 --> 0:12:23.920 of America Fund Manager survey coming out and saying that 0:12:23.960 --> 0:12:28.679 there is extreme investor pessimism, the highest cash allocation, that 0:12:28.760 --> 0:12:32.240 highest cash levels since nine eleven two and one. Do 0:12:32.280 --> 0:12:34.599 you think that that's enough to provide a floor to 0:12:34.640 --> 0:12:38.560 valuations or does this mean that perhaps people could get 0:12:38.559 --> 0:12:41.040 surprised on the downside. Yeah, so I think that when 0:12:41.040 --> 0:12:43.280 you're looking at any of these sentiment indicate there's whether 0:12:43.280 --> 0:12:45.280 it's their survey, my survey, or some of the weekly 0:12:45.320 --> 0:12:46.719 staffs that come out, you have to look at the 0:12:46.720 --> 0:12:49.480 preponderance of the evidence cash levels going from five point 0:12:49.480 --> 0:12:51.720 one to five point nine. Frankly, that doesn't tell me 0:12:51.760 --> 0:12:54.040 all that much, and it flies in the face of 0:12:54.080 --> 0:12:56.480 everything that my clients have been telling me since this 0:12:56.559 --> 0:12:59.080 crisis began, which is that they have been looking for 0:12:59.120 --> 0:13:02.320 opportunities to upgrade their portfolio by names would have been 0:13:02.320 --> 0:13:04.800 on their shopping lift, and our trading desk has been busy. 0:13:05.160 --> 0:13:07.520 So you know, I hear that I don't know exactly 0:13:07.559 --> 0:13:09.400 who they're talking to or who they're surveying. But I'll 0:13:09.440 --> 0:13:12.000 tell you it doesn't jive with what my conversations have been. 0:13:12.000 --> 0:13:14.240 It also doesn't jive with what my investor servey that 0:13:14.280 --> 0:13:16.240 I took at the end of March showed, which had 0:13:16.280 --> 0:13:19.400 fifty eight percent of those who responded were bulls, and 0:13:19.440 --> 0:13:22.359 that's the highest level of bullishness we've seen in three years. 0:13:22.400 --> 0:13:25.600 That's more instance with my conversations. Now, other things we've 0:13:25.640 --> 0:13:28.360 looked at our the CFTC data on US equity future 0:13:28.400 --> 0:13:32.360 positioning and the a AII bears. Those did show that 0:13:32.559 --> 0:13:36.320 levels of bearishness and pessimism were achieved, but not the 0:13:36.360 --> 0:13:39.000 most extreme levels that we've seen in the past decade. 0:13:39.040 --> 0:13:42.120 So CFTC never got back to the lows on equity 0:13:42.160 --> 0:13:45.199 future positioning and a AII bears topped out of ground. 0:13:46.080 --> 0:13:48.640 It got back to seventy percent in the financial crisis. 0:13:48.679 --> 0:13:50.920 So I will say at best, you know, I think 0:13:50.920 --> 0:13:53.120 that the sentiment picture is a bit mixed, but you know, 0:13:53.280 --> 0:13:55.720 my work just really doesn't jive with that via a survey, 0:13:56.120 --> 0:13:58.400 I got any other questions, laur Kelvicina, We don't know 0:13:58.480 --> 0:14:10.040 the time, but this has been brilliant. I'm gonna break 0:14:10.040 --> 0:14:12.520 the rule here. J Bryson is a wonderful economist with 0:14:12.559 --> 0:14:16.120 a big broader view of course with Wells Fargo. But 0:14:16.160 --> 0:14:18.800 I'm gonna go narrow right now, Jay, and I'm gonna 0:14:18.800 --> 0:14:23.840 go forward to tomorrow, and arguably the first real look 0:14:23.880 --> 0:14:27.720 we have besides horrific claims at this new American economy, 0:14:28.240 --> 0:14:31.680 and that is a look at retail sales. Wells Fargo, 0:14:31.800 --> 0:14:35.800 with the heritage of John Sylvia, is wonderful at parsing 0:14:36.080 --> 0:14:41.240 retail America. What do you see right now, Well, it's 0:14:41.320 --> 0:14:43.200 kind of a mixed bag, tom I mean, you know, 0:14:43.400 --> 0:14:46.720 on you know, we know that things like restaurants and 0:14:47.240 --> 0:14:51.120 hotels and things of that nature, all that very very 0:14:51.120 --> 0:14:54.200 weak um. On the other hand, Uh, there's gonna be 0:14:54.240 --> 0:14:58.000 a parcel offset, and I want to stress only parcel um. 0:14:58.040 --> 0:15:01.960 You know, people serves to grocery stores and warehouses and 0:15:02.040 --> 0:15:05.440 things like that to stock up in in um in March, 0:15:05.760 --> 0:15:08.720 and so tomorrow's tomorrow will probably be a come on, 0:15:08.840 --> 0:15:11.360 somewhat of a mixed bagage should be a big negative number. 0:15:11.640 --> 0:15:13.600 But you know when when when we look at April, 0:15:14.320 --> 0:15:16.240 when those numbers print a month from now I think 0:15:16.240 --> 0:15:19.840 that's going to be even you know, weaker as well. Jay, 0:15:19.880 --> 0:15:22.800 there's also a question, I mean, looking past retail sales. 0:15:22.840 --> 0:15:25.560 The big number this week is Thursday, where we get 0:15:25.600 --> 0:15:29.880 the next jobless claimed number. I am still absolutely dumb 0:15:29.960 --> 0:15:33.320 struck that nearly one in ten Americans has lost their 0:15:33.440 --> 0:15:36.560 job in the past three weeks. And I'm wondering what 0:15:36.600 --> 0:15:39.800 you're expecting in terms of Thursday's number and how quickly 0:15:39.840 --> 0:15:42.520 those jobs come back, given the fact that we are 0:15:42.560 --> 0:15:45.920 seeing destruction that cannot be replaced when it comes to 0:15:45.960 --> 0:15:50.720 going to restaurants, are going to hotels. Yeah, so last 0:15:50.760 --> 0:15:53.280 week it was the number of six point six million. 0:15:53.520 --> 0:15:55.960 I don't think we're gonna get quite that bad, although 0:15:55.960 --> 0:15:59.680 it's gonna it'll be another in the millions. Um, you know, 0:15:59.760 --> 0:16:02.560 our guests here is when it's all said and done, 0:16:02.920 --> 0:16:06.040 you're gonna look, you're looking at somewhere north of twenty 0:16:06.040 --> 0:16:09.200 million people who who will will be losing their jobs, 0:16:09.240 --> 0:16:12.040 you know, and in you know, these these weeks, Um here, 0:16:12.760 --> 0:16:15.160 how fast does it come back? And that you know, 0:16:15.240 --> 0:16:18.280 it really depends on how quickly that the economy opens 0:16:18.320 --> 0:16:21.600 back up again. And that's really that's the virus's schedule, 0:16:21.600 --> 0:16:24.120 as Dr Fauci would would say, here and and and 0:16:24.160 --> 0:16:27.240 so we'll see what happens there. You know, all these 0:16:27.560 --> 0:16:30.280 programs have been put into place by the federal government, 0:16:30.320 --> 0:16:33.200 by the Federal Reserve. It's acting as a bridge to 0:16:33.240 --> 0:16:36.920 get not all, but many businesses from where they were 0:16:37.040 --> 0:16:41.320 in February March to some time afterwards sometime late spring, 0:16:41.400 --> 0:16:44.920 early summer. And so some businesses you know who are 0:16:44.960 --> 0:16:48.760 still you know intact um maybe they're not. The restaurants 0:16:48.760 --> 0:16:51.680 that aren't aren't open right now, but they will come back. 0:16:51.760 --> 0:16:53.520 And you know, I think there's going to be a 0:16:53.600 --> 0:16:56.680 pent up demand among people to go out and socialize 0:16:56.680 --> 0:16:59.960 and things of that nature. You know, that said, we're 0:17:00.040 --> 0:17:05.880 not going back to February come September. The unemployment rate 0:17:05.920 --> 0:17:09.800 is not going back to three point five um this year. Um. 0:17:10.040 --> 0:17:11.879 You know, our forecast goes out to the end of 0:17:11.960 --> 0:17:14.360 next year and we still have the unemployment rate north 0:17:14.440 --> 0:17:17.120 of six percent next year. You know, some of these 0:17:17.200 --> 0:17:21.960 jobs that have been lost will be lost you know, forever. Um, 0:17:22.000 --> 0:17:24.439 not all of them, but um, you know, some of 0:17:24.440 --> 0:17:26.639 them will will be lost forever. Jay. For a lot 0:17:26.680 --> 0:17:29.240 of our audience, they hear repeatedly, all of these different 0:17:29.240 --> 0:17:32.800 forecasts coming from different places, including the IMF and yourself, 0:17:32.920 --> 0:17:35.800 a Wells farco. Can you help me understand the basic 0:17:35.840 --> 0:17:39.440 assumptions that underpin your forecast? What are the basic assumptions 0:17:39.440 --> 0:17:42.240 around when an economy like the United States starts to 0:17:42.280 --> 0:17:47.479 reopen again? Right? Okay, So our assumptions are we assume 0:17:47.520 --> 0:17:50.520 that the economy is going to start to slowly reopen 0:17:51.040 --> 0:17:53.600 late spring, early summer. So let's call it, you know, 0:17:53.680 --> 0:17:56.840 sometimes the end of next month, um, you know, into 0:17:56.880 --> 0:18:02.159 into June. We also assume crucial me that um and 0:18:02.720 --> 0:18:04.560 let me let me back up. One of the reasons 0:18:04.600 --> 0:18:07.080 that we assume that is that we get you know, 0:18:07.119 --> 0:18:10.240 we flatten the curve, that we get control of this thing. 0:18:10.280 --> 0:18:13.920 If that doesn't happen, then the rest of the forecast 0:18:13.960 --> 0:18:16.720 justus falls apart. But you know, so we assume it 0:18:16.760 --> 0:18:19.800 slowly starts to open up late spring, early summer, and 0:18:19.840 --> 0:18:23.480 then crucially, we're also assuming it doesn't come back in 0:18:23.640 --> 0:18:27.959 a quote meaningful way later this year. And again, if 0:18:28.040 --> 0:18:30.639 that's incorrect, then the rest of the forecast kind of 0:18:30.720 --> 0:18:33.560 kind of falls apart. And you know, John, Frankly, it's 0:18:33.600 --> 0:18:35.680 a lot of this is guesswork at this point, and 0:18:36.040 --> 0:18:39.040 educated guesswork, but it's guesswork. We we just don't have 0:18:39.080 --> 0:18:42.399 a road map here. We've never seen anything like a 0:18:42.520 --> 0:18:46.480 sudden stop too, and not only the United States economy 0:18:46.520 --> 0:18:48.919 but to the global economy. So we're all kind of 0:18:48.960 --> 0:18:52.399 flying blind when it comes to forecasting. So J just 0:18:52.480 --> 0:18:55.080 sort of picking up on the I M F forecast. 0:18:55.240 --> 0:19:00.480 With the worst recession since the Great Depression, how is 0:19:00.520 --> 0:19:03.160 it that we do see another depression given the fact 0:19:03.760 --> 0:19:07.280 that that bounce back looks less and less likely the 0:19:07.359 --> 0:19:13.399 longer this drags on. So I think my sense is 0:19:14.080 --> 0:19:16.120 talk about a Great Depression, I think that's a little 0:19:16.119 --> 0:19:19.400 bit overblown. I mean, the recession of nineteen twenty nine 0:19:19.520 --> 0:19:23.600 nineteen thirty turned into the Great Depression because of an 0:19:23.680 --> 0:19:27.719 utter failure of policy. The Federal Reserve did not do 0:19:27.800 --> 0:19:30.719 its job as lender of last resort um, and so 0:19:30.800 --> 0:19:34.320 the banking system collapsed in the early nineteen thirties, credit 0:19:34.440 --> 0:19:36.840 dried up, and and you know, hundreds of thousands, of 0:19:36.880 --> 0:19:39.640 not billions, of businesses went out of business, and that's 0:19:39.640 --> 0:19:42.000 how you got the Great Depression. Plus the fact that 0:19:42.960 --> 0:19:47.600 fiscal policy didn't really turn stimulative until nineteen thirty four 0:19:48.119 --> 0:19:50.840 with you know, the some of the New Deal sort 0:19:50.840 --> 0:19:57.040 of programs. This time around, policy has been very proactive, 0:19:57.160 --> 0:19:59.919 right The Federal Reserve has just opened up the tabs 0:20:00.440 --> 0:20:05.040 to keep all sorts of different financial markets liquefied. UH 0:20:05.160 --> 0:20:08.960 Fiscal policy has also turned very, very stimulated. The banking 0:20:09.000 --> 0:20:13.159 system today is much better capitalized than than it's certainly 0:20:13.160 --> 0:20:15.040 in my lifetime and probably back there in the Great 0:20:15.080 --> 0:20:19.240 Depression or in the nineteen twenties. And so I think 0:20:19.280 --> 0:20:21.800 the way you potentially could get to a great depression 0:20:22.080 --> 0:20:25.920 is if this virus comes roaring back again in the fall, 0:20:26.040 --> 0:20:27.800 not only in the United States but in the rest 0:20:27.840 --> 0:20:31.000 of the world, and then all these measures we put 0:20:31.040 --> 0:20:35.240 in place up to now, Um, you guys got to 0:20:35.240 --> 0:20:38.800 do it all. Jay is a job at Amazon, A 0:20:38.880 --> 0:20:41.320 real job, I mean is an economist. When you look 0:20:41.359 --> 0:20:44.120 at a hundred thousand jobs created, and I believe yesterday 0:20:44.160 --> 0:20:46.680 Basis and Company, so they're gonna go out and find 0:20:46.680 --> 0:20:50.600 another seventy five thousand warm bodies to do the Amazon thing. 0:20:51.040 --> 0:20:56.000 Are those quote unquote good jobs. Well, I'm not gonna 0:20:56.000 --> 0:20:58.520 opine on whether they're quote good jobs or not. I mean, 0:20:58.560 --> 0:21:01.160 I I don't know about how much they're getting paid 0:21:01.160 --> 0:21:03.719 in the benefits and things of that nature. But you know, 0:21:04.000 --> 0:21:06.680 they are create they are creating income, They are creating 0:21:06.680 --> 0:21:11.000 a service for people. Um. And whether or not people 0:21:11.080 --> 0:21:15.680 decided to buy goods online via Amazon or at their 0:21:15.760 --> 0:21:20.160 local retailer. You know, in some sense, I don't really care. 0:21:20.240 --> 0:21:23.639 It's it's it's a job. It creates income, um, it 0:21:23.760 --> 0:21:28.040 creates value in the economy. So um. You know, again, 0:21:28.080 --> 0:21:31.040 I don't know anything about the level of wages and 0:21:31.240 --> 0:21:34.000 benefits that those jobs pay, but yeah, they're they're they're 0:21:34.040 --> 0:21:38.280 certainly jobs with you always sposed to hear from me, 0:21:38.359 --> 0:21:40.960 ja ja. We always refer to as the acting chief economists. 0:21:41.040 --> 0:21:43.000 Can you tell your manager that if they aren't getting 0:21:43.000 --> 0:21:44.560 this done soon, we're just gonna start calling me the 0:21:44.640 --> 0:21:49.560