Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. I'm
Speaker 1: pleased to say that we can join Lori Calvasina now
Speaker 1: obviously Counital Markets head of US equity Strategy, Laurie. Great
Speaker 1: to get you on this program. As always trying to
Speaker 1: gage a couple of things in this market and one
Speaker 1: thing you can readly help us with today is sentiment.
Speaker 1: How washed out is sentiment at the moment. Well, unfortunately,
Speaker 1: I don't think it's washed out enough. John Um. We
Speaker 1: actually just released our investor survey this morning that we
Speaker 1: do every quarter, and that we we ran this from
Speaker 1: March thirty one, so it's pretty pretty fresh, as fresh
Speaker 1: as we can get. We actually were stunned to see
Speaker 1: that those describing themselves as bullish are very a bullish
Speaker 1: rose from in December to fifty eight percent in March.
Speaker 1: Now that's on a six to twelve month time frame.
Speaker 1: But what's really stunning about it is that it's the
Speaker 1: highest we've seen since we started our survey in the
Speaker 1: first quarter of and it's the exact opposite of what
Speaker 1: happened back in December when we saw the bear spike
Speaker 1: and the bullsese back. So, you know, I've talked to
Speaker 1: a lot of investors who are you know, running down
Speaker 1: their shopping lists with me talking about how this is
Speaker 1: a buying opportunity um. And we saw that in the
Speaker 1: survey results that I just don't think people are barish enough,
Speaker 1: all right, So walk us through the idea of why
Speaker 1: they should be more bearished given the fact that the
Speaker 1: US government that frankly governments around the world are pouring
Speaker 1: money into the economy to try to sustain it, and
Speaker 1: then beyond with the potential infrastructure program, isn't that enough
Speaker 1: to get things back on track and get these valuations
Speaker 1: to look better to you? Well, you know, one thing
Speaker 1: we saw was that there is clear faith in the FED,
Speaker 1: and I do think that that faith is deserved. We
Speaker 1: found that think monetary policy has been good or very good,
Speaker 1: and there's also a lot of faith in the fiscal
Speaker 1: response so far. But I think what concerns me a
Speaker 1: little bit is that if you look at the economic
Speaker 1: scenario that people are assuming there's a belief that the
Speaker 1: economic damage from the crisis will be fairly contained and
Speaker 1: fairly manageable and fairly short in duration. And so I
Speaker 1: think the real risk to markets going forward is do
Speaker 1: we test some of those assumptions. Now, we've seen a
Speaker 1: number of firms around the street come out with some
Speaker 1: pretty scary two Q GDP numbers, and thankfully I'm not
Speaker 1: an economist, so I don't have to make that call.
Speaker 1: But we did see that about two thirds of our
Speaker 1: survey respondents think that GDP is going to be contracting
Speaker 1: by or left. That assumption is starting to be tested
Speaker 1: by the market. Um. So my concern is that some
Speaker 1: of these assumptions on the economic side will be called
Speaker 1: into question. Look, Glaurie, it where we are and it's
Speaker 1: great to have a six to twelve month visibility. As
Speaker 1: we talked to average Joseph Cohen yesterday, let me ask
Speaker 1: you the same question, what is your counsel for institution
Speaker 1: or high net worth looking out three years or dare
Speaker 1: I say five years? So you know, in terms of
Speaker 1: what we want to do, in terms of what we
Speaker 1: want to buy. Um, we've been telling people to really
Speaker 1: have a balance, So we think you should have some
Speaker 1: defense in your portfolio. We think you should have some
Speaker 1: long term growth in your portfolio, and we do think
Speaker 1: you should have some cicklicality. But we're very picky about
Speaker 1: what we're choosing on each of those. I would say, sick,
Speaker 1: you pick your spots carefully, be exposed to equities, but
Speaker 1: be prepared for some additional turbulence in the near term.
Speaker 1: That's really how we think about it. And one of
Speaker 1: the reasons why we're trying to really emphasize that there
Speaker 1: could be additional turbulence in your term is we want
Speaker 1: people to be prepared for it. We do want people
Speaker 1: to be able to use it as a buying opportunity,
Speaker 1: but we think it's important to understand that there are
Speaker 1: still risks out there in the short term, risks out
Speaker 1: there that are very hard to quantify or get your
Speaker 1: hands around. Given the fact that a lot of this
Speaker 1: is an epidemiological issue, it's a health issue, and it
Speaker 1: depends on a lot of different factors, how do you
Speaker 1: even go into figuring out what to consider when determining
Speaker 1: whether we're hitting a bottom aside from just pure sentiment,
Speaker 1: So you know, sentiment, I think is one of the
Speaker 1: best things we can look at. I sort of laughed
Speaker 1: when I looked at the survey results this morning because
Speaker 1: we saw a huge number thing that valuations are attractive,
Speaker 1: and you know, people are telling me they have no
Speaker 1: idea what the earnings outlook is that how do you
Speaker 1: know if valuations are attractive or not? Um, you know,
Speaker 1: one of the things we did ask in the survey
Speaker 1: was what does the market need to see to stabilize?
Speaker 1: Just regardless of what your view is, what does the
Speaker 1: market need to happen? And one of the things we
Speaker 1: saw loud and clear in the survey results is that
Speaker 1: people think that the virus is really the key. It's
Speaker 1: taken center stage. So seventy eight percent told us that
Speaker 1: a decline in new cases in the US is needed
Speaker 1: for the market to stabilize. Now, I'm not a doctor,
Speaker 1: you know. I sympathize with John when when he doesn't
Speaker 1: like non doctors talking about medical stuff. So I'm not
Speaker 1: going to do that here because I think he's dead
Speaker 1: right on this. But I do think it's important to
Speaker 1: understand that a lot of the rally we had towards
Speaker 1: the end of March was a positive reaction to what
Speaker 1: was coming out of Washington, to the actions the FED
Speaker 1: was doing, and that was all very well and good
Speaker 1: and deserve. But our survey this morning told us investors
Speaker 1: don't think we need to really see additional fiscal response
Speaker 1: to get the market to stabilize, but they sure do
Speaker 1: think that we need this virus outlook to improve. Now.
Speaker 1: The thing that also, you know, concerned me a little
Speaker 1: bit is that also said for the market to stabilize,
Speaker 1: we need significant progress on new drugs to treat the
Speaker 1: coronavirus and or a vaccine. I'm not going to speculate
Speaker 1: when that's going to happen, but just understand that the
Speaker 1: virus in that path of that virus and all the
Speaker 1: uncertainty there, that's pivotal to market's near term. Laurie, You've
Speaker 1: had me with many things over the last couple of weeks,
Speaker 1: but one thing in particular stands out how to tailor
Speaker 1: the message for retail. This is an institutional audience that
Speaker 1: you've been speaking to, and I think for retail at
Speaker 1: the moment, it's a really confusing time because I get
Speaker 1: many people on my programs, including on this program, with
Speaker 1: all of us talking about the opportunities out there time
Speaker 1: to add a little bit more risk. How do you
Speaker 1: tailor the message for retail at a really confusing time.
Speaker 1: I think that we do. You know, what we do
Speaker 1: want people to generally do is just to sit tight,
Speaker 1: to be prepared, to understand that this is a bit
Speaker 1: of a rollers coaster and we're going to have up
Speaker 1: swings and we're going to have down swings. Um. You know.
Speaker 1: I used an analogy at the beginning of the year
Speaker 1: when I was talking about the turbulence we expected in
Speaker 1: the market, and I said, imagine that I'm the airline pilot.
Speaker 1: I'm coming on. I'm telling you that we're going to
Speaker 1: hit some bad weather. Um, please don't jump off my
Speaker 1: plane in the middle of the flight. We are going
Speaker 1: to get to our destination. I still do firmly believe that, unfortunately,
Speaker 1: the turbulence has just been a bit worse than we expected,
Speaker 1: and it could get a little bit worse than it's been.
Speaker 1: I was pretty impressed, Laurie. I had to buy some
Speaker 1: boat tie wax yesterday from the Amazon, and you know,
Speaker 1: usually it's like next day delivery. It's hold on, hold
Speaker 1: on it, you got it. You got to elaborates, you
Speaker 1: put it on your boat tie and it keeps a
Speaker 1: little fuzzies down. So anyways, it's a four day delivery,
Speaker 1: which I thought was pretty extraordinary. Laurie, Amazon has got
Speaker 1: to be the mother of all buys. Well, look, one
Speaker 1: of the things we've talked about, and I can't talk
Speaker 1: about individual stocks, but we have, you know, said in
Speaker 1: investors need to really think about how consumer habits are
Speaker 1: going to change. And there will be some good changes
Speaker 1: for some companies and there will be some bad changes
Speaker 1: from other companies. UM. But you know, my personal view is,
Speaker 1: you know, when we think about sort of the tech space,
Speaker 1: um and sort of this internet space, we we think
Speaker 1: that they're sort of you know, heroes that that are
Speaker 1: emerging in the in the investment world, um, you know,
Speaker 1: and sort of thinking about the tech companies, the banks,
Speaker 1: the healthcare companies, these are the ones that are really
Speaker 1: you know, sort of coming to the rescue to help
Speaker 1: this economy muddle through. And when I think back to
Speaker 1: past crises, the tech bubble, the financial crisis, sort of
Speaker 1: how these companies step up if they're they're viewed as
Speaker 1: being part of the solution or part of the problem,
Speaker 1: does have longer term investment implications. Nice, pretty fur To,
Speaker 1: thank you so much RBC Capital Markets and right now, folks,
Speaker 1: we bring in a gentleman has been very supportive of
Speaker 1: all our efforts. Jason Furman is a unique economists and
Speaker 1: yes there's an academic track, but far more at a
Speaker 1: young age he had the courtesy to really tackle policy
Speaker 1: and almost applied policy within the American political economy. Professor
Speaker 1: Furman at Harvard and the former chairman of President Obama's
Speaker 1: Council of Economic Advisors. Jason at this time and moment,
Speaker 1: and this is something we've gone back and forth with
Speaker 1: the economist John Farrell on at this time and moment, Jason,
Speaker 1: do you wish that America and Washington was more fiscally
Speaker 1: like Europe? I think the United States has a big
Speaker 1: advantage every Europe And what way borrows at the level
Speaker 1: of the United States and Europe right now is borrowing
Speaker 1: at the level of national economies. But then have a
Speaker 1: central bank UM at the level of the Eurozone. They need,
Speaker 1: you know, the type of fiscal federalism um in Europe
Speaker 1: that we have in the United States. Francis Borron, get
Speaker 1: pretty loud, rights, Jason, just to lab right on that
Speaker 1: a little bit. Mom but confused by that comment. They're
Speaker 1: borrowing at very low rates across Europe. Are you talking
Speaker 1: about burden sharing across the Eurozone? Yeah? No, I mean
Speaker 1: you see, yes, you see low rates in Europe because
Speaker 1: I think implicit in that is the expectation that at
Speaker 1: the end of this the ECB will be there to
Speaker 1: backstop the national borrowing and that um and that there
Speaker 1: will be some form of fiscal federalism. I think absent
Speaker 1: that expectation, UM, Europe wouldn't be borrowing at the rates
Speaker 1: that's borrowing out. Now, let's talk about the response so far. Jason,
Speaker 1: you were very early in asking for a big in
Speaker 1: fact pushing for a big fiscal package in the United States.
Speaker 1: It has come around, and I believe that you've had
Speaker 1: some part in influencing the decision to move quickly on
Speaker 1: all of that, and I congratulate for you for the
Speaker 1: effort that you've done over the last couple of months
Speaker 1: on that front. Jason, there are many people that think
Speaker 1: we will need to do more, and I'm trying to
Speaker 1: understand the easiest way of doing more. Can you top
Speaker 1: up existing packages that are already available through the bill
Speaker 1: that was produced last week, or do you need a
Speaker 1: separate bill. What's the best web policy I can go
Speaker 1: about doing that. Certainly, the most important thing in the
Speaker 1: United States is to extend and expand what's already happened.
Speaker 1: You know, the unemployment insurance ends at the end of June.
Speaker 1: There's going to be very high unemployment the rest of
Speaker 1: this year. That's gonna be very high unemployment. Next year
Speaker 1: the checks are one time. You know, incomes are going
Speaker 1: to be hit next year too, and we're gonna need,
Speaker 1: you know, a more traditional stimulus for recovery. So that's
Speaker 1: the easiest. Then identifying some of the deficiencies of what's
Speaker 1: happening so far. The biggest and most obvious one is
Speaker 1: states and localities. They're cutting their budgets right now. That's
Speaker 1: undoing some of the benefit of what's happening. At the
Speaker 1: federal level. They can't borrow for themselves, they're not allowed
Speaker 1: to UM, so they need much more money UM. And
Speaker 1: then finally, we just need to keep open the channels
Speaker 1: for anything that could help healthcare UM and fund the
Speaker 1: health response. That's probably the most important, Jason. Everyone has
Speaker 1: their hands out right now, and everybody needs money, and
Speaker 1: everybody is looking for the government to step in and
Speaker 1: plug that hole. Some people. Actually, no one right now
Speaker 1: is particularly worried about the deficit, but some people have
Speaker 1: brought it up sort of in passing. We're looking right
Speaker 1: now at a trillion dollar deficits expected to rise to
Speaker 1: three trillion dollars, especially as President Trump and even Democrats
Speaker 1: talk about sort of rolling back some of the tax
Speaker 1: provisions like the salt tax, etcetera that sort of created
Speaker 1: a little bit of cost savings in the in the
Speaker 1: previous rounds. How big can the US deficits sustainably get?
Speaker 1: In your view, you saw years of GDP deficits in
Speaker 1: fighting World War two. Um, this is like an invasion
Speaker 1: and if that's needed, I wouldn't shrink from it. I mean,
Speaker 1: the point is, the borrowing needs to happen somewhere, household states, locality,
Speaker 1: small businesses, large businesses. Somebody needs to be borrowing. And
Speaker 1: the least bad position for that borrowing right now our
Speaker 1: national government. Jayson very quickly here, this is so important.
Speaker 1: The inflation he has got it wrong coming out of
Speaker 1: two thousand nine. Are the inflation warriors going to get
Speaker 1: it wrong again? In two thous of nine, it was
Speaker 1: completely obvious that in the highly depressed economy. You weren't
Speaker 1: gonna get inflation here unless sure, you have a huge
Speaker 1: supply shock, you have a huge demand shock. Um, we
Speaker 1: are maintaining a lot of incomes, not all incomes, but
Speaker 1: we're containing a lot. So I don't know. All I
Speaker 1: can say is if we get inflish, and I think
Speaker 1: that would be good. That would be a good sign
Speaker 1: that we have adequate demand. It would help lower real
Speaker 1: interest rates, lower real wages. That would help um the
Speaker 1: economy's recovery. So I don't I don't know. I don't
Speaker 1: know what's going to happen, but I don't think we
Speaker 1: should be afraid of getting inflish. Jason Furman, thank you
Speaker 1: so much, the former chairman of President Obama's Council of
Speaker 1: Economic Advisors. Let's do this, bringing Michael Gape in a
Speaker 1: park place right now. Who's more than accomplished here on
Speaker 1: the rates of change? Michael did these stunning numbers? Is
Speaker 1: Lisa frames that beautifully? Do these numbers make you pull
Speaker 1: forward the agony? Do you pull the May job's report,
Speaker 1: you know, showing April statistics? Do you pull that forward
Speaker 1: in your analysis? We do? I mean, I think the
Speaker 1: weekly job less claims data is probably the most important
Speaker 1: piece of data that we got. Now it's it's only
Speaker 1: one week lag, it's fairly contemporaneous about what's happening in
Speaker 1: the economy. When you look at the number last week
Speaker 1: and this week and take those together, you know that
Speaker 1: that's roughly a let's call it, a six percentage point
Speaker 1: rise in the in the April unemployment rate already. And
Speaker 1: we have a few make a few more weeks ago
Speaker 1: for the April employment report, so it's it's not I mean,
Speaker 1: I think it is likely that the unemployment rate will
Speaker 1: be rising above where we saw it in O eight
Speaker 1: oh nine, and and and may come as soon as
Speaker 1: that April employment report, if not certainly into the main report.
Speaker 1: But uh, and if you kind of you know, there's
Speaker 1: a historical relationship between activity and the unemployment rate, so
Speaker 1: you can kind of reverse engineer what might be happening
Speaker 1: to the economy from these jobless claims data, and and
Speaker 1: it it paints just an awful picture. And it's just
Speaker 1: reflective of the cliff effects on economic activity from all
Speaker 1: of these statewide shut sounds that we're seeing. So it's
Speaker 1: just it's a sudden stop in the labor market and
Speaker 1: a in a sudden stop for many parts of the
Speaker 1: U S account. Michael, I'm really struck by how devastating
Speaker 1: these numbers are, because, as John and Tom keep talking
Speaker 1: about all of the human stories behind it, is there
Speaker 1: any tiny little bit of silver lining in that the
Speaker 1: people who file for unemployment benefits are actually getting unemployment
Speaker 1: benefits and at least will be able to pay the
Speaker 1: rent and buy groceries, given the fact that the US
Speaker 1: has expanded those benefits. Yes, I mean, I think that's
Speaker 1: probably you know, the secondary consideration for for the workers,
Speaker 1: but certainly it's it's a reflection of it certainly illustrates
Speaker 1: why we need to get fiscal resources two households and
Speaker 1: business immediately and and make it targeted for for where
Speaker 1: it's needed. So, yes, the fiscal plan, which which up
Speaker 1: to unemployment benefits is certainly the right move and the
Speaker 1: ideas we we need to get resources to these households.
Speaker 1: The hope is that this is a temporary surge and
Speaker 1: unemployment and and if we're successful it UH getting the
Speaker 1: coronavirus under control as we move into June and July,
Speaker 1: maybe a lot of this UH unemployment can come back.
Speaker 1: I just I just worry that, you know, I'm My
Speaker 1: main concern here is for small business that up talking
Speaker 1: about firms, let's say forty nine employees or last exactly
Speaker 1: thirty three million people employed in these businesses, like about
Speaker 1: twenty seven million of them with these services related. So
Speaker 1: my worries we don't get enough resources to those types
Speaker 1: of business. John ferrows some context here, which I think
Speaker 1: is so important. We've lost a Florida of employment. Florida's
Speaker 1: statistic is ten million employed, So in two weeks of
Speaker 1: claims is a generalization we've lost to Florida is a nation.
Speaker 1: The numbers are absolutely stunning. And Michael, where we really
Speaker 1: need to help is how to navigate some of the
Speaker 1: dates will get in the coming days. Tomorrow we'll get
Speaker 1: payrolls in around about twenty four hours time. We'll be
Speaker 1: having a conversation with an economist like yourself trying to
Speaker 1: work out how to read a labor market report that
Speaker 1: for many people is incredibly dated. What do we do
Speaker 1: with tomorrow's non farm payrolls report? Honestly, I think we
Speaker 1: we we ignore it because we claimed data are telling
Speaker 1: you what April's going to look like, and so that
Speaker 1: we're likely to see a modest some deterioration or a
Speaker 1: modest deterioration in the labor market from the March employment report.
Speaker 1: But these two initial jobless claims reports from last week
Speaker 1: to this week are telling us April is going to
Speaker 1: be monumentally worse. So honestly, I think March is already old.
Speaker 1: There's and these are the two most important pieces of
Speaker 1: information we've had. Michael, I gotta say, the emotion in
Speaker 1: this number is dramatic. Is there a sense that these
Speaker 1: people will be able to get their jobs back once
Speaker 1: the economy starts to get up and running? In other words,
Speaker 1: how sticky is this really high unemployment rate going to be?
Speaker 1: I think the way that we're thinking about it um
Speaker 1: is that some of this will will likely come back.
Speaker 1: But I think we're you know, we're maybe half of
Speaker 1: it comes back, And I'm worried that there's a longer
Speaker 1: tail from the same by and by the end of
Speaker 1: the year was so likely to have an elevated unemployment rate.
Speaker 1: H So it we can reopen the economy back up,
Speaker 1: but it may be that we're slow to unsocial distance,
Speaker 1: if you will, And I also think they'll be lagged
Speaker 1: effects from other sectors, like certainly there's there will be
Speaker 1: spill over to the energy sector for a long time
Speaker 1: because of where oil is treating UH. And I think
Speaker 1: there will be negative wealth effects on on consumption. And
Speaker 1: this is largely services activity that that we're taking away,
Speaker 1: and it's not so easy to make that up. So
Speaker 1: my certainly, my hope is a lot of this unemployment
Speaker 1: will come back relatively quickly as we move into the
Speaker 1: third quarter. I have concerns that will be a larger
Speaker 1: a large portion of it that that will linger for
Speaker 1: quite some time into next year. Make the futures on
Speaker 1: the screen right now down by eighteen points SMP five,
Speaker 1: we are rather up by sixteen points on SMP five,
Speaker 1: up by six tents of one percent, but raising some
Speaker 1: of the big games we had a little earlier on
Speaker 1: in the session. There will be people asking right now, Michael,
Speaker 1: whether the fiscal life package in Washington is big enough,
Speaker 1: even a two twenty in dollars, Is it big enough?
Speaker 1: We don't think so. We We think that there will
Speaker 1: be a phase for certainly the House wants to direct
Speaker 1: more resources to state local governments, and there's conversations around
Speaker 1: whether we could do more on infrastructure. So we certainly
Speaker 1: think Phase three was was a good down payment, and
Speaker 1: the needle in terms of willingness to support the economy
Speaker 1: flift very quickly in about seven days in Washington. So
Speaker 1: it's a it's a large package at ten percent or
Speaker 1: so of GDP, but I do think more will ultimately
Speaker 1: be needed, and I do think you'll type a number
Speaker 1: I think helps to solidify that. Michael, You've got a
Speaker 1: great international resume as well. Our David Weston is going
Speaker 1: to speak with Vice President Pence here in three hours. Okay,
Speaker 1: great a Florida just fell off the map in terms
Speaker 1: of labor economy, and as John's nation has figured out,
Speaker 1: you have to put the check in. As you brilliantly said,
Speaker 1: the small business hands a service sector that's getting crushed
Speaker 1: when you why can't we do that? Why can't politicians
Speaker 1: just say this is a natural disaster, one off, effective immediately,
Speaker 1: we're cutting blah blah blah blah blah. Why are we
Speaker 1: unable to do that? I don't know. I mean I
Speaker 1: do wish that it were geared a little more like
Speaker 1: the support provided in Europe in the UK, where where
Speaker 1: the arrangement is you keep people on payrolls and will
Speaker 1: foot you know, seventy of of the wage bill for
Speaker 1: you know, call it for three months and then we'll
Speaker 1: we visit if we need to do another three months
Speaker 1: and go from there. So I do wish we were
Speaker 1: directed a little more in that in that way. We
Speaker 1: I don't know why we don't do it. It's just
Speaker 1: not it's just not what we do. Uh. And and
Speaker 1: it's I think it's potentially a problem because I worry,
Speaker 1: as I said before, about gaps that we don't get
Speaker 1: the resources down owned the spectrum of from large firms
Speaker 1: down to small firms, and and I worry about potential
Speaker 1: cracks and gaps, and and we don't get resources to
Speaker 1: where they're needed most. But yes, if if I had
Speaker 1: a magic wand, I would have designed the fiscal stimulus
Speaker 1: a little more into that direction. Is direct income support
Speaker 1: through business to household, keep people on payrolls, keep them
Speaker 1: getting benefits, and and just have the government support that bill.
Speaker 1: Michael Cain of banc Leys really appreciate your time this
Speaker 1: morning at difficult time for everyone worldwide. At the moment
Speaker 1: yesterday we spoke to the likes of the Abby Joseph
Speaker 1: Cohen Olivia Blanchard. We spoke earlier this morning to Jeffrey
Speaker 1: Sachs and Jason Firm, and none of this matters because
Speaker 1: all they want to do is hear from Jonathan Miller, Miller,
Speaker 1: Samuel right now in real estate, in this New York
Speaker 1: real estate in all the major cities of this nation. Uh, Jonathan,
Speaker 1: I can't imagine what you have bleeded in your data
Speaker 1: and your study and your embedded knowledge of our real estate.
Speaker 1: How does this rent conundrum play out? Millions can't pay,
Speaker 1: landlords aren't going to get the rent they have financing do.
Speaker 1: How does it play out? Well? I think though, what
Speaker 1: is a reversal from the financial crisis? I think the
Speaker 1: banks are going to be the one that are going
Speaker 1: to do the heavy lifting on supporting landlords um as
Speaker 1: they see a huge drop in you come over the
Speaker 1: next couple of months. I don't think there's any way
Speaker 1: around it. If there's excuse me, Lisa, I'm sorry, Lisa.
Speaker 1: Go ahead, well, Jonathan, and heading into this, property evaluations
Speaker 1: were already declining in New York City, And Jonathan, I'm
Speaker 1: wondering how much you see property valuations declining further from here,
Speaker 1: given what we're seeing in terms of just a complete
Speaker 1: shutdown of the city that never sleeps, right. It's uh,
Speaker 1: it's interesting because the real estate brokerage business, specifically in
Speaker 1: New York City or it was considered a non essential
Speaker 1: business until yesterday and Cuomo reversed it. And so now
Speaker 1: we we could have real estate agents, uh, you know,
Speaker 1: some running around selling property, which is counterproductive on on
Speaker 1: the concept of shelter in place. Um. If you look
Speaker 1: at the last two big events in in this market,
Speaker 1: one was nine eleven and one was the Lehman moment,
Speaker 1: which didn't um, you know, removing the tragedy components side
Speaker 1: and just looking at housing, we're looking at you know,
Speaker 1: we could be looking at a short term price drop
Speaker 1: anywhere from twenty five tot because you simply don't have
Speaker 1: well we saw before, and then a quick rebound. That's
Speaker 1: right where I wanted to go in terms of what
Speaker 1: a bear market is in let's say, because the elasticities
Speaker 1: are totally different than mortgage in the leverage and that
Speaker 1: is the history of this John Miller, that we see
Speaker 1: decline in real estate in the major cities and across
Speaker 1: this nation. So I think there's the high probability of
Speaker 1: of significant price drops in the short term. The variable
Speaker 1: here is how long you know, in each region does
Speaker 1: this UH virus play out? Therefore, how much damage does
Speaker 1: it due to the economy there before? How much damage
Speaker 1: does it do the housing market? And I think it's clear,
Speaker 1: pretty clear. Uh. You know, there was a lot of
Speaker 1: optimism coming into the year in harder hit areas like
Speaker 1: New York that things were starting to that we were
Speaker 1: bottoming and we were looking better. But really all that's
Speaker 1: out the door. You can't look backwards behind this event.
Speaker 1: It's not relevant. Um, We're what we're seeing now is
Speaker 1: we're seeing inventory falls sharply, which sounds good, but really
Speaker 1: what it is is that consumers are not putting their
Speaker 1: properties on the market. UM. I think landlords in rentals
Speaker 1: are going to do everything they can to uh to
Speaker 1: accelerate the renewals because it's difficult for people to run
Speaker 1: around and look at property. I think they're going to
Speaker 1: try to retain the tenants that they have, and I
Speaker 1: think there's going to be some price compression. Jonathan, taking
Speaker 1: a step back, I want to talk about the behavior
Speaker 1: of Americans and whether we are going to see a
Speaker 1: shift out of some of the bigger cities where you
Speaker 1: see more concentrated populations to uh, you know, the suburbs
Speaker 1: and beyond. In response to the threat of a pandemic.
Speaker 1: We've seen that on the peripheries. Is that going to accelerate?
Speaker 1: I don't. I don't think so. I I do think
Speaker 1: that in the short term will have and we already
Speaker 1: saw in the last over the last month of people
Speaker 1: trying to do short term rentals in the suburban market.
Speaker 1: It's but they physically couldn't move their their stuff out
Speaker 1: of the city because many buildings have done allow movers
Speaker 1: to come in and out. Um. But I don't I
Speaker 1: don't see a massive restructuring, But I do see a
Speaker 1: short term advantage to the to the suburbs. I think.
Speaker 1: I think we do have short memories, as as we've
Speaker 1: seen in the past. What do you see in Florida
Speaker 1: right now, johannilor what do you what do you see
Speaker 1: down there? The dynamics are different down there than some
Speaker 1: of these other cities. Yeah, we aren't. Um, you know,
Speaker 1: they're having the operak. The state just had the lockdown. Uh.
Speaker 1: I think where New York is probably two, two or
Speaker 1: three weeks ahead of Florida in terms of um stalling
Speaker 1: or pausing simply because of the pragmatic element of people
Speaker 1: not being able to view property. I think the idea
Speaker 1: of of someone buying virtually right now is still a
Speaker 1: concept that is going to accelerate in popularity, but it's
Speaker 1: really out margin. I don't think it's going to replace
Speaker 1: people physically looking at property. Jonathan Miller, Thank you so
Speaker 1: much for Miller Samuel this morning. Thanks for listening to
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on
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