1 00:00:09,840 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,840 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Joining 5 00:00:27,920 --> 00:00:29,560 Speaker 1: us now on this market, I'm pleased to say is 6 00:00:29,640 --> 00:00:32,959 Speaker 1: David Balan, City Private Bank Chief Investment Officer. David. There 7 00:00:32,960 --> 00:00:35,160 Speaker 1: are plenty of angry bears out there, and for good reason. 8 00:00:35,479 --> 00:00:38,040 Speaker 1: The economic dates is really not great, but the performance 9 00:00:38,400 --> 00:00:43,239 Speaker 1: of the market has been something else. What's your takeaway, Well, 10 00:00:43,320 --> 00:00:45,440 Speaker 1: let's put everything in a little bit of context. Today 11 00:00:45,440 --> 00:00:49,520 Speaker 1: we have eighteen trillion dollars worth of debt that yields zero, 12 00:00:50,000 --> 00:00:52,080 Speaker 1: so everyone is seeking yield, and of course this has 13 00:00:52,120 --> 00:00:54,639 Speaker 1: been an extraordinary rally in the bond market. So that's 14 00:00:54,680 --> 00:00:56,960 Speaker 1: the backdrop. When we take a look at equities and 15 00:00:57,000 --> 00:00:59,000 Speaker 1: everyone looked at the industries, they sit there and say, well, 16 00:00:59,000 --> 00:01:01,760 Speaker 1: the industries are, you know, in credibly high and probably overvalued, 17 00:01:02,040 --> 00:01:04,520 Speaker 1: but they have to look into what the indices are. Right, 18 00:01:04,720 --> 00:01:08,199 Speaker 1: You've got market leaders that have been beneficiaries, especially in technology, 19 00:01:08,200 --> 00:01:10,520 Speaker 1: as a result of the pandemic just what we're doing today. 20 00:01:10,560 --> 00:01:13,840 Speaker 1: You know, the substitution effect is alive and well. And secondly, 21 00:01:13,959 --> 00:01:16,000 Speaker 1: and I haven't heard anything about this this morning. When 22 00:01:16,000 --> 00:01:18,920 Speaker 1: we really look at the consumer data, it's been remarkably 23 00:01:18,959 --> 00:01:21,640 Speaker 1: resilient in those areas where COVID has not been a 24 00:01:21,640 --> 00:01:24,280 Speaker 1: big deal. So if you take out travel, you take 25 00:01:24,319 --> 00:01:27,319 Speaker 1: out retail, you take out hotels, you take out you know, 26 00:01:27,480 --> 00:01:30,880 Speaker 1: educational institutions, and you take out small healthcare providers about 27 00:01:30,880 --> 00:01:33,280 Speaker 1: eleven or twelve percent of the economy. The rest of 28 00:01:33,280 --> 00:01:37,080 Speaker 1: the economy has been remarkably resilient. For example, you would 29 00:01:37,080 --> 00:01:38,800 Speaker 1: have thought, you know, taking a look at the data 30 00:01:38,880 --> 00:01:42,720 Speaker 1: in Florida, Texas, California, and South Carolina, that people would 31 00:01:42,760 --> 00:01:45,160 Speaker 1: have started to travel less, that they would actually have 32 00:01:45,200 --> 00:01:48,160 Speaker 1: started to go back home and not and not spend. 33 00:01:48,520 --> 00:01:51,080 Speaker 1: And the exact opposite has been the case. The American 34 00:01:51,120 --> 00:01:54,240 Speaker 1: consumer and the European consumer have continued to buy in 35 00:01:54,280 --> 00:01:56,480 Speaker 1: spite of the fact that the virus is all around us. 36 00:01:56,880 --> 00:01:59,240 Speaker 1: And that has been the surprising event for me in 37 00:01:59,320 --> 00:02:00,840 Speaker 1: terms of the econom to me, as we look out, 38 00:02:01,480 --> 00:02:03,600 Speaker 1: August is gonna be really interesting. Then, because the enhanced 39 00:02:03,680 --> 00:02:07,120 Speaker 1: unemployment benefits have expired, do you think that's going to 40 00:02:07,160 --> 00:02:09,720 Speaker 1: be an important force to shape the August data or 41 00:02:09,760 --> 00:02:12,840 Speaker 1: will it be more about what you've just discussed. I 42 00:02:12,840 --> 00:02:15,200 Speaker 1: think August can be mile Jonathan. And if we were 43 00:02:15,240 --> 00:02:18,200 Speaker 1: to see that the Congress did not pass anything, I 44 00:02:18,240 --> 00:02:20,200 Speaker 1: think then you can have a further headwind from all 45 00:02:20,200 --> 00:02:22,519 Speaker 1: of this. We went back and looked at the last 46 00:02:22,600 --> 00:02:25,400 Speaker 1: forty years of sort of these congressional standoffs, you know, 47 00:02:25,720 --> 00:02:27,880 Speaker 1: and what we found is that there's always a compromise. 48 00:02:27,880 --> 00:02:30,079 Speaker 1: At least historically, there's always been a compromise. We've never 49 00:02:30,120 --> 00:02:33,160 Speaker 1: been in exactly the situation. Um. So if we get 50 00:02:33,160 --> 00:02:35,280 Speaker 1: a compromise in September, then I don't think we have 51 00:02:35,320 --> 00:02:37,240 Speaker 1: anything to worry about in August. If we got no 52 00:02:37,360 --> 00:02:39,320 Speaker 1: action on the part of Congress, that would be a 53 00:02:39,320 --> 00:02:41,200 Speaker 1: pretty big deal. And David, this seems to be what 54 00:02:41,280 --> 00:02:43,440 Speaker 1: the market is betting on right now that there will 55 00:02:43,440 --> 00:02:47,600 Speaker 1: be reason eventually that will set in in Washington, d C. 56 00:02:48,280 --> 00:02:52,080 Speaker 1: How much has though the fiscal support in Washington, d 57 00:02:52,160 --> 00:02:54,600 Speaker 1: C backstop the recovery, I mean, part of the reason 58 00:02:54,960 --> 00:02:56,800 Speaker 1: for first of all, I'm not an angry bear, John, 59 00:02:56,960 --> 00:02:58,920 Speaker 1: Just to let you know, I'm not an angry bear. 60 00:02:59,120 --> 00:03:03,560 Speaker 1: I'm just struggling understand the dire economic paper. I'm ready, 61 00:03:03,560 --> 00:03:06,760 Speaker 1: I who can't see David Bannon's face right now. David 62 00:03:06,760 --> 00:03:08,840 Speaker 1: doesn't believe you, but carry home well in no way. 63 00:03:08,840 --> 00:03:11,120 Speaker 1: It's just that there's a lack of understanding here, the 64 00:03:11,160 --> 00:03:13,240 Speaker 1: idea that you could have such a high unemployment rate, 65 00:03:13,240 --> 00:03:15,560 Speaker 1: that you could have bankruptcies at a record pace and 66 00:03:15,639 --> 00:03:19,000 Speaker 1: have such steady data. David, why is there this dissonance here? 67 00:03:19,760 --> 00:03:22,000 Speaker 1: So I think you're we have to break up the 68 00:03:22,000 --> 00:03:24,120 Speaker 1: points a little bit. First of all, the unemployment rate 69 00:03:24,280 --> 00:03:26,440 Speaker 1: was expected to be far higher than it is now. 70 00:03:26,480 --> 00:03:29,919 Speaker 1: At one point people were talking about unemployment rates and 71 00:03:29,960 --> 00:03:31,800 Speaker 1: now we're you know, a ten percent in coming down. 72 00:03:32,240 --> 00:03:34,679 Speaker 1: And as I mentioned, that's largely concentrated. And the other 73 00:03:34,720 --> 00:03:36,880 Speaker 1: thing that that we have to look at is really 74 00:03:36,880 --> 00:03:39,360 Speaker 1: what happened earnings. They were better than expected as well, 75 00:03:39,640 --> 00:03:41,880 Speaker 1: and different parts of the market were really hit differently. 76 00:03:41,880 --> 00:03:44,400 Speaker 1: The market is efficiently pricing the winners and the losers 77 00:03:44,560 --> 00:03:46,800 Speaker 1: at the moment. All we have to do is look 78 00:03:46,840 --> 00:03:50,280 Speaker 1: out six months and ask ourselves this question, what will 79 00:03:50,360 --> 00:03:54,000 Speaker 1: happen when a good vaccine, one that really works, not 80 00:03:54,040 --> 00:03:57,400 Speaker 1: the Russian version, but a real version actually comes out 81 00:03:57,440 --> 00:03:59,680 Speaker 1: with proper testing, and we know that there's going to 82 00:03:59,760 --> 00:04:01,680 Speaker 1: be an effective treatment like there is for the flu, 83 00:04:01,920 --> 00:04:05,520 Speaker 1: for this pandemic. I think that's going to change everyone's mindset. 84 00:04:05,720 --> 00:04:08,320 Speaker 1: And Lisa, you said something, Uh, just in the last 85 00:04:08,360 --> 00:04:10,600 Speaker 1: segment prior to the top of the hour that's very important. 86 00:04:10,600 --> 00:04:13,680 Speaker 1: You talked about the velocity of money and that velocity 87 00:04:13,720 --> 00:04:16,120 Speaker 1: takes time and meaning that we've never had this kind 88 00:04:16,120 --> 00:04:20,159 Speaker 1: of spending before. Ten to twelve trillion dollars globally of liquidity, 89 00:04:20,200 --> 00:04:22,520 Speaker 1: not just what's happening in the US, not just monetary 90 00:04:22,600 --> 00:04:26,000 Speaker 1: and bud fiscal. That's that's gonna have a tailwind to 91 00:04:26,000 --> 00:04:28,000 Speaker 1: the market, and a tailwind that's going to be very 92 00:04:28,040 --> 00:04:30,159 Speaker 1: stimulative in twenty one and twenty two. As we've written 93 00:04:30,360 --> 00:04:32,320 Speaker 1: to all of our clients in the last several weeks, 94 00:04:32,320 --> 00:04:34,680 Speaker 1: it's it's a very important tail wind and it will 95 00:04:34,720 --> 00:04:37,320 Speaker 1: be the velocity of money going forward. So if you 96 00:04:37,320 --> 00:04:40,640 Speaker 1: combine those two factors, this market for equities is not insane. 97 00:04:41,120 --> 00:04:43,800 Speaker 1: And uh, and Jonathan, you also said something that I 98 00:04:43,880 --> 00:04:45,560 Speaker 1: wanted to touch upon. You talked about the fact that 99 00:04:45,640 --> 00:04:48,400 Speaker 1: returning expectations in the future should be modest because of 100 00:04:48,440 --> 00:04:50,719 Speaker 1: how high the market is, and you're exactly right, But 101 00:04:50,800 --> 00:04:52,240 Speaker 1: there are parts of the market that are going to 102 00:04:52,400 --> 00:04:55,440 Speaker 1: roar ahead in the future, and parts like technology that 103 00:04:55,480 --> 00:04:58,760 Speaker 1: are gonna move very modestly ahead because they're so fully priced. 104 00:04:58,760 --> 00:05:02,360 Speaker 1: They've discounted so much of the future already today. There 105 00:05:02,400 --> 00:05:04,120 Speaker 1: was a lot in there. Let's unpack a little bit 106 00:05:04,120 --> 00:05:05,880 Speaker 1: of it. When it comes to velocity of money. Are 107 00:05:05,880 --> 00:05:09,080 Speaker 1: you predicting that inflation is going to pick up, um, 108 00:05:09,080 --> 00:05:11,160 Speaker 1: It could pick up a very small amount next year 109 00:05:11,160 --> 00:05:12,800 Speaker 1: the year after. We we're not making a major call 110 00:05:12,839 --> 00:05:14,800 Speaker 1: on inflation. What we are making a major call in 111 00:05:14,920 --> 00:05:17,960 Speaker 1: is a recovery in economies that's the greater than people expect. 112 00:05:18,000 --> 00:05:20,280 Speaker 1: So for example, in Europe right where everyone is sort 113 00:05:20,279 --> 00:05:22,600 Speaker 1: of a very tentative, we think next year could be 114 00:05:22,640 --> 00:05:24,920 Speaker 1: a four percent GDP year, and we haven't had one 115 00:05:24,920 --> 00:05:27,960 Speaker 1: of those in a decade, right. And we also feel 116 00:05:28,000 --> 00:05:31,400 Speaker 1: like the Chinese economy and especially the pan Asian economies 117 00:05:31,520 --> 00:05:34,080 Speaker 1: can do better than expected because of the dominism, its 118 00:05:34,200 --> 00:05:37,080 Speaker 1: impact on those economies by the virus, and the fact 119 00:05:37,080 --> 00:05:39,400 Speaker 1: that exports are going to pick up much more, you know, 120 00:05:39,440 --> 00:05:43,320 Speaker 1: than I think is projected. I hear a long gone banks. 121 00:05:43,720 --> 00:05:47,160 Speaker 1: I just had a long one industrials, Is that right, David, Yeah, 122 00:05:47,200 --> 00:05:49,640 Speaker 1: well I do like a long on banks. Again to 123 00:05:49,720 --> 00:05:51,839 Speaker 1: Lisa's earlier point, I think we're gonna see the yield 124 00:05:51,880 --> 00:05:54,120 Speaker 1: curve Stephen, for a combination of the fact that there 125 00:05:54,160 --> 00:05:56,880 Speaker 1: is an enormous amount of issuance and because the economy 126 00:05:56,920 --> 00:05:58,360 Speaker 1: is going to pick up and that's going to change 127 00:05:58,400 --> 00:06:01,359 Speaker 1: inflation expectations slightly going forward. And if you take a 128 00:06:01,360 --> 00:06:03,919 Speaker 1: look at dividend yields for banks, you would think that 129 00:06:03,960 --> 00:06:06,760 Speaker 1: they're very attractive today and they'll stay attractive, and of 130 00:06:06,800 --> 00:06:09,000 Speaker 1: course then they'll be the appreciation if that's right. Plus, 131 00:06:09,160 --> 00:06:11,480 Speaker 1: there's been limited credit losses because of the programs in 132 00:06:11,520 --> 00:06:13,800 Speaker 1: the United States in particular, so we like that. And 133 00:06:13,839 --> 00:06:17,239 Speaker 1: in terms of industrials, the larger ones, Jonathan, are pretty 134 00:06:17,240 --> 00:06:19,560 Speaker 1: fully priced now, but a lot of the small and 135 00:06:19,600 --> 00:06:23,159 Speaker 1: medium caps are not fully priced. They're twenty you know lower. 136 00:06:23,200 --> 00:06:27,360 Speaker 1: They've had se negative earning surprises in the second quarter, 137 00:06:27,360 --> 00:06:29,679 Speaker 1: which is pretty abysmal, and so there's a fair amount 138 00:06:29,720 --> 00:06:31,559 Speaker 1: of room of snap back in the small and medium 139 00:06:31,600 --> 00:06:34,680 Speaker 1: sized industrial companies in the US and in Europe. Just 140 00:06:34,720 --> 00:06:36,679 Speaker 1: before we let you go, the regional bus. You mentioned 141 00:06:36,680 --> 00:06:38,600 Speaker 1: Europe a couple of times that we have this conversation 142 00:06:38,640 --> 00:06:41,479 Speaker 1: with David Riley of Blue Bay Asset Management about the 143 00:06:41,520 --> 00:06:44,720 Speaker 1: European trade just facing some challenges in the last couple 144 00:06:44,760 --> 00:06:47,880 Speaker 1: of days. David, what is the regional bus for you? Yeah, 145 00:06:47,920 --> 00:06:49,480 Speaker 1: I mean to me, the last couple of days are 146 00:06:49,520 --> 00:06:51,720 Speaker 1: creating a little bit of that buying opportunity. I think 147 00:06:51,720 --> 00:06:54,240 Speaker 1: we have to see real data and the market because 148 00:06:54,240 --> 00:06:55,760 Speaker 1: of all of the news flow. Of course, it is 149 00:06:55,800 --> 00:06:58,440 Speaker 1: very focused on what's happening today. What's happening today, we're 150 00:06:58,440 --> 00:07:00,560 Speaker 1: looking out, you know, for city private you get six 151 00:07:00,600 --> 00:07:02,840 Speaker 1: to twelve months right in terms of our view, and 152 00:07:02,880 --> 00:07:05,400 Speaker 1: then twelve to eighteen months from investing. So when we 153 00:07:05,440 --> 00:07:08,279 Speaker 1: think about that, we like Europe on that basis, especially 154 00:07:08,480 --> 00:07:11,640 Speaker 1: industrials that have dividends associated with them. We like some 155 00:07:11,680 --> 00:07:13,680 Speaker 1: of the mortgage reads here as a substitute for some 156 00:07:13,720 --> 00:07:16,400 Speaker 1: of their concern that Lisa has for junk bonds, you know, 157 00:07:16,480 --> 00:07:19,600 Speaker 1: and we like uh Latin America as a snap back play, 158 00:07:20,040 --> 00:07:22,600 Speaker 1: specifically Mexico as a result of when the US is 159 00:07:22,600 --> 00:07:26,160 Speaker 1: fully operational, you know, imports and exports from Mexico will 160 00:07:26,240 --> 00:07:28,640 Speaker 1: will really go much higher. We don't like that as 161 00:07:28,680 --> 00:07:31,160 Speaker 1: a long term play. So there's a lot for investors 162 00:07:31,200 --> 00:07:34,120 Speaker 1: to do, and I think that it's moving their portfolios 163 00:07:34,160 --> 00:07:37,520 Speaker 1: away from technology where they've had this extraordinary game uh 164 00:07:37,560 --> 00:07:39,640 Speaker 1: and into some of these other sectors that will allow 165 00:07:39,680 --> 00:07:42,120 Speaker 1: them to make alpha extra profits over the course of 166 00:07:42,120 --> 00:07:44,240 Speaker 1: the next twelve eighteen months. I like a lot of 167 00:07:44,240 --> 00:07:46,640 Speaker 1: stuff like it doesn't like either, David writes, to catch 168 00:07:46,680 --> 00:07:53,040 Speaker 1: you out with that, David, I don't know why. Thank you. David. 169 00:08:03,680 --> 00:08:06,520 Speaker 1: Joining us now is Michael Cape and Barkeley's chief US economist, 170 00:08:06,560 --> 00:08:08,800 Speaker 1: Michael Great to catch up with you, sir. Are we 171 00:08:08,960 --> 00:08:13,320 Speaker 1: still working our way through these mechanical distortions going from 172 00:08:13,360 --> 00:08:17,800 Speaker 1: shutdown to reopen? We are, but I think that's a 173 00:08:17,880 --> 00:08:19,880 Speaker 1: little bit in the rear view mirror now. I think 174 00:08:20,000 --> 00:08:23,120 Speaker 1: Mike McKee's point at the end there is what was 175 00:08:23,160 --> 00:08:27,320 Speaker 1: important that the downside miss in July most likely related 176 00:08:27,360 --> 00:08:31,000 Speaker 1: to those upward revisions in June. So on net. My 177 00:08:31,000 --> 00:08:33,120 Speaker 1: my guess is when we look at the data, the 178 00:08:33,600 --> 00:08:36,520 Speaker 1: level of retail sales in July will will likely be 179 00:08:36,559 --> 00:08:40,280 Speaker 1: about where we were expecting. So things have slowed, but 180 00:08:40,640 --> 00:08:42,640 Speaker 1: that in my view, that was to be expected. So 181 00:08:42,760 --> 00:08:45,240 Speaker 1: two months ago we had about an eighteen percent rise 182 00:08:45,320 --> 00:08:48,800 Speaker 1: in retail sales, about eight percent last month. It's called 183 00:08:48,800 --> 00:08:51,679 Speaker 1: it somewhere between one and two percent this month. I 184 00:08:51,720 --> 00:08:55,600 Speaker 1: think that's consistent with the an initial snap back and 185 00:08:55,600 --> 00:08:59,200 Speaker 1: and ongoing recovery. So I think most of that lights 186 00:08:59,240 --> 00:09:01,559 Speaker 1: on the econom me as are back open is fading 187 00:09:01,559 --> 00:09:04,480 Speaker 1: out of the data right now. I think the July 188 00:09:04,720 --> 00:09:08,880 Speaker 1: data in total suggests the economy still has momentum. The 189 00:09:08,920 --> 00:09:12,160 Speaker 1: open question of as you've been debating this morning, is 190 00:09:12,200 --> 00:09:14,240 Speaker 1: whether we're going to have enough momentum to carry that 191 00:09:14,280 --> 00:09:17,040 Speaker 1: through into September and October. Do you have a sense, 192 00:09:17,120 --> 00:09:19,520 Speaker 1: based on the more granular data that you look at, 193 00:09:19,960 --> 00:09:23,439 Speaker 1: how much of this spending has been driven or supported 194 00:09:23,480 --> 00:09:25,840 Speaker 1: by the fiscal support that we have seen so far. 195 00:09:27,080 --> 00:09:30,760 Speaker 1: I think the the government transfer payments have been crucial 196 00:09:31,520 --> 00:09:35,760 Speaker 1: in underpinning this virtuous cycle of spending leading to an 197 00:09:35,760 --> 00:09:38,719 Speaker 1: increase in production, leading to a pickup and employment and 198 00:09:39,160 --> 00:09:42,400 Speaker 1: that virtuous cycle. Um if you look at personal income 199 00:09:42,440 --> 00:09:44,560 Speaker 1: in June, so we're lagging here a month, but that's 200 00:09:44,640 --> 00:09:47,959 Speaker 1: all the data we have. Personal income in June is 201 00:09:48,000 --> 00:09:52,240 Speaker 1: about nineteen point nine trillion. That's about three to four 202 00:09:52,320 --> 00:09:55,959 Speaker 1: to five percent above where we were in February. If 203 00:09:56,000 --> 00:10:00,679 Speaker 1: you subtract out the unemployment payments and the pandemic make assistance, 204 00:10:00,720 --> 00:10:03,920 Speaker 1: the rebate checks that were sent to households, income is 205 00:10:03,960 --> 00:10:06,400 Speaker 1: down more like eight percent. So I think it's been 206 00:10:06,559 --> 00:10:11,240 Speaker 1: completely key in replacing lost wage and salary income and 207 00:10:11,280 --> 00:10:15,679 Speaker 1: in effect keeping income for households consistent with full employment. 208 00:10:16,160 --> 00:10:18,680 Speaker 1: So if we don't get those kinds of payments going forward, 209 00:10:18,679 --> 00:10:21,520 Speaker 1: and we don't get a Phase four, income has to 210 00:10:21,559 --> 00:10:25,760 Speaker 1: adjust to an economy with ten eleven unemployment. And I 211 00:10:25,800 --> 00:10:28,280 Speaker 1: think that's the debate we're having. When does Phase forecome? 212 00:10:28,559 --> 00:10:30,920 Speaker 1: Does it come? Will it be sufficient to keep this 213 00:10:31,040 --> 00:10:34,040 Speaker 1: virtuous cycle going? Yeah? And when will this virtuous cycle 214 00:10:34,120 --> 00:10:37,600 Speaker 1: be able to sustain itself without ongoing fiscal support. I 215 00:10:37,600 --> 00:10:40,120 Speaker 1: mean there's a sort of philosophical argument. Should we be 216 00:10:40,160 --> 00:10:42,559 Speaker 1: paying every American to buy a car? Right? Should we 217 00:10:42,600 --> 00:10:44,680 Speaker 1: be paying everyone to go out to eat every night? 218 00:10:44,880 --> 00:10:47,600 Speaker 1: Because that supports the economy. Some people might say, look, 219 00:10:47,640 --> 00:10:50,200 Speaker 1: if that injects enough money into the economy and it 220 00:10:50,200 --> 00:10:52,720 Speaker 1: gets new jobs, maybe it's worth it. But at what 221 00:10:52,880 --> 00:10:55,880 Speaker 1: point can we say, look, this will sustain itself. People 222 00:10:55,880 --> 00:10:59,680 Speaker 1: will go out and get a job, so that subject 223 00:10:59,840 --> 00:11:02,480 Speaker 1: The answer to that is subjective. I certainly think that 224 00:11:02,520 --> 00:11:05,240 Speaker 1: you know the recession was induced by shutdown orders, so 225 00:11:05,280 --> 00:11:08,560 Speaker 1: I think it's reasonable to say we should kind of 226 00:11:08,640 --> 00:11:12,160 Speaker 1: buttress household income on the other side, as a result, 227 00:11:12,600 --> 00:11:15,240 Speaker 1: is two to three months worth of support enough? My 228 00:11:15,320 --> 00:11:17,520 Speaker 1: view would be leaving the economy with a ten to 229 00:11:17,559 --> 00:11:21,840 Speaker 1: eleven percent unemployment rate, it's probably not strong enough, and 230 00:11:21,840 --> 00:11:25,840 Speaker 1: and several more months worth of benefits would would be helpful, 231 00:11:26,040 --> 00:11:27,920 Speaker 1: because I think what you what you would want to 232 00:11:27,920 --> 00:11:31,600 Speaker 1: do in essences underpin two to three to four more 233 00:11:31,640 --> 00:11:34,880 Speaker 1: months of about seven fifty two one and a half 234 00:11:34,880 --> 00:11:37,640 Speaker 1: million jobs per month. Then I think you could take 235 00:11:37,720 --> 00:11:39,800 Speaker 1: your foot off and say, look, I think we've done 236 00:11:39,920 --> 00:11:42,959 Speaker 1: enough to get this recovery on a self sustaining basis. 237 00:11:43,240 --> 00:11:45,840 Speaker 1: Let's see where we are from here. Backing off when 238 00:11:45,880 --> 00:11:49,160 Speaker 1: the unemployment rate is ten percent or a touch higher 239 00:11:49,200 --> 00:11:52,680 Speaker 1: to me seems more risky than it needs to be. Michael, 240 00:11:52,679 --> 00:11:54,680 Speaker 1: how much of that money there was distributed in the 241 00:11:54,720 --> 00:11:58,360 Speaker 1: last several months enhanced unemployment benefits, the fiscal transfers, the 242 00:11:58,440 --> 00:12:01,640 Speaker 1: direct day, the direct checks to Americans. How much of 243 00:12:01,679 --> 00:12:03,640 Speaker 1: that has been spent and how much of it is 244 00:12:03,640 --> 00:12:06,720 Speaker 1: sitting in bank accounts saved. Do you know, can we 245 00:12:06,760 --> 00:12:10,160 Speaker 1: figure that out somehow? We can? We can back out 246 00:12:10,240 --> 00:12:12,360 Speaker 1: rough estimates. I mean the savings right did go as 247 00:12:12,440 --> 00:12:16,280 Speaker 1: high as about thirty three. It's coming back down. I 248 00:12:16,320 --> 00:12:18,680 Speaker 1: think we're probably one to two months away, about a 249 00:12:18,760 --> 00:12:22,280 Speaker 1: month away from from having spent nearly all of the 250 00:12:22,280 --> 00:12:25,960 Speaker 1: pandemic assistance, whether it's the rebate checks or the unemployment insurance. 251 00:12:26,600 --> 00:12:28,520 Speaker 1: So I think we're kind of reaching the last thirty 252 00:12:28,600 --> 00:12:31,760 Speaker 1: to forty five days of that. So I think we've 253 00:12:31,760 --> 00:12:34,000 Speaker 1: spent a lot of it, but but not all of it. 254 00:12:34,040 --> 00:12:37,760 Speaker 1: I think there's still some accumulated savings there that could 255 00:12:37,800 --> 00:12:40,560 Speaker 1: support spending as we move into August. I think as 256 00:12:40,559 --> 00:12:42,960 Speaker 1: you push into September, I think it's hard to argue 257 00:12:43,679 --> 00:12:45,600 Speaker 1: that that's going to be the case. It's clear pain 258 00:12:45,600 --> 00:12:47,480 Speaker 1: in this economy, Michael, you and I and all of 259 00:12:47,559 --> 00:12:49,360 Speaker 1: us can agree on that. I'm just trying to work 260 00:12:49,360 --> 00:12:52,080 Speaker 1: out when this starts to show up in the headline data. 261 00:12:52,400 --> 00:12:54,520 Speaker 1: Do you expect the test to be in August then, 262 00:12:54,720 --> 00:12:57,360 Speaker 1: or is it in September? Because the enhanced unmployment benefits 263 00:12:57,360 --> 00:13:00,360 Speaker 1: as we know, have expired and I'm just trying work 264 00:13:00,360 --> 00:13:02,800 Speaker 1: out whether August is that moment where we have that 265 00:13:02,920 --> 00:13:06,680 Speaker 1: test of going cold Turkey somewhat, or whether it's September. 266 00:13:07,679 --> 00:13:10,080 Speaker 1: I would write as from what I know this morning, 267 00:13:10,160 --> 00:13:13,360 Speaker 1: I would say it's probably more September than it is August. 268 00:13:14,120 --> 00:13:16,920 Speaker 1: At least the labor market data so far in August 269 00:13:16,960 --> 00:13:21,160 Speaker 1: seem to suggest that momentum is continuing, and I think 270 00:13:21,360 --> 00:13:23,800 Speaker 1: there's a difference here between whether things are leveling out 271 00:13:23,960 --> 00:13:27,000 Speaker 1: or turning for the worst. So I would put a 272 00:13:27,000 --> 00:13:31,120 Speaker 1: little more emphasis into September data versus versus August, but 273 00:13:31,200 --> 00:13:34,840 Speaker 1: obviously we will see going forward. What's your biggest concern 274 00:13:35,040 --> 00:13:37,400 Speaker 1: in terms of the data that you're watching that could 275 00:13:37,440 --> 00:13:41,760 Speaker 1: indicate a further slowdown that perhaps people are expecting. Well, 276 00:13:41,800 --> 00:13:43,640 Speaker 1: I think it's it's I don't think this answer is 277 00:13:43,679 --> 00:13:46,560 Speaker 1: going to surprise you, but it is employment. And so 278 00:13:47,520 --> 00:13:51,280 Speaker 1: if if households are spending enough, production will stay elevated 279 00:13:51,400 --> 00:13:55,319 Speaker 1: and an employment will will continue, the rehiring will continue apace. 280 00:13:56,040 --> 00:13:58,520 Speaker 1: But if we get a break in that rehiring rate, 281 00:13:58,640 --> 00:14:01,520 Speaker 1: then then I think I'll all bets are off in 282 00:14:01,520 --> 00:14:04,000 Speaker 1: in that regard. We pay you know, a lot of 283 00:14:04,040 --> 00:14:07,320 Speaker 1: attention to the high frequency data on mobility as well 284 00:14:07,360 --> 00:14:10,640 Speaker 1: as everything we're seeing in the in the labor market data, 285 00:14:10,880 --> 00:14:14,600 Speaker 1: because that's where household confidence in household spending ultimately will come. Yes, 286 00:14:14,640 --> 00:14:18,840 Speaker 1: it's spending is being supported by government payments today, but 287 00:14:18,960 --> 00:14:21,920 Speaker 1: it's got to be more organic through employment growth going forward. 288 00:14:22,000 --> 00:14:24,720 Speaker 1: So I'll also be very interested in the in the 289 00:14:24,840 --> 00:14:28,720 Speaker 1: University of Michigan consumer sentiment number later this morning. Will 290 00:14:28,720 --> 00:14:33,000 Speaker 1: it show a third straight monthly decline off of the 291 00:14:33,360 --> 00:14:35,640 Speaker 1: levels we saw a few months ago. That could be 292 00:14:35,680 --> 00:14:38,040 Speaker 1: a signed that households are feeling a little more shaky. 293 00:14:38,080 --> 00:14:40,680 Speaker 1: If that number holds up, it may give you the 294 00:14:40,760 --> 00:14:43,440 Speaker 1: view that labor markets are are are better than we 295 00:14:43,520 --> 00:14:48,480 Speaker 1: are characterizing them at present, and sliding away from government 296 00:14:48,520 --> 00:14:50,840 Speaker 1: benefit assistance may not be as risky as we think. 297 00:14:50,880 --> 00:14:52,720 Speaker 1: So I do think that's an important number to look 298 00:14:52,760 --> 00:14:54,680 Speaker 1: at later this morning, Michael, just before we let you go, 299 00:14:54,880 --> 00:14:56,360 Speaker 1: at least, would like to know what you think of 300 00:14:56,520 --> 00:15:00,720 Speaker 1: how your credit Seriously, if you've got anything to say, 301 00:15:01,200 --> 00:15:05,480 Speaker 1: do you like triple seas? Like triple sees? I'm not 302 00:15:05,640 --> 00:15:10,080 Speaker 1: an angry bear at this point. Do I do think 303 00:15:10,120 --> 00:15:13,760 Speaker 1: that the economy is showing some good resiliency despite the 304 00:15:13,840 --> 00:15:17,200 Speaker 1: high numbers of COVID cases. I think that can continue, 305 00:15:17,280 --> 00:15:20,240 Speaker 1: but I think it needs some additional federal support to 306 00:15:20,280 --> 00:15:22,520 Speaker 1: do that. I love the response for serious economis Michael 307 00:15:22,560 --> 00:15:36,560 Speaker 1: Gang from the Barclays. As always, let's bring in David Riley, 308 00:15:36,600 --> 00:15:39,400 Speaker 1: Blue Bay Asset Management, Chief Investment Strategies. He joined us 309 00:15:39,440 --> 00:15:41,200 Speaker 1: right now. David, great to catch up with you, sir. 310 00:15:41,280 --> 00:15:44,280 Speaker 1: Let's talk about it. Is the European story facing a 311 00:15:44,360 --> 00:15:46,520 Speaker 1: little bit of a challenge at the moment. I think 312 00:15:46,560 --> 00:15:49,960 Speaker 1: it is. I think the narrative has been building is 313 00:15:50,040 --> 00:15:53,240 Speaker 1: that you have had a better pandemic than the US. 314 00:15:53,360 --> 00:15:57,640 Speaker 1: It's been able to contain the BRUS more effectively, and 315 00:15:57,760 --> 00:16:01,640 Speaker 1: even on the policy, uh even though the said kind 316 00:16:01,640 --> 00:16:04,480 Speaker 1: of got ahead of the game on fiscal policy. We 317 00:16:04,600 --> 00:16:07,920 Speaker 1: had the EU Recovery Fund while we've got the stalemates 318 00:16:08,080 --> 00:16:11,560 Speaker 1: in Washington. And so it's been part of this story 319 00:16:11,640 --> 00:16:16,520 Speaker 1: of a stronger euro summi standard sort of rotation from 320 00:16:16,560 --> 00:16:19,240 Speaker 1: sort of growth to value and and and the valuation 321 00:16:19,240 --> 00:16:22,880 Speaker 1: opportunities within Europe. But you know what, that that's narrative 322 00:16:22,960 --> 00:16:26,480 Speaker 1: is giving challenge because cases in the US and infection 323 00:16:26,560 --> 00:16:31,560 Speaker 1: rates are actually declining, although still a worryingly high level, 324 00:16:31,640 --> 00:16:34,200 Speaker 1: and we're clearly seeing a pick up in infection rates 325 00:16:34,240 --> 00:16:38,080 Speaker 1: across several countries in Europe, and it's going to be 326 00:16:38,120 --> 00:16:40,400 Speaker 1: hard as well, I think for for for Europe to 327 00:16:40,800 --> 00:16:43,880 Speaker 1: sort of our performance sustained a strong recovery, because it 328 00:16:43,960 --> 00:16:46,720 Speaker 1: still is so dependent on global growth and global trade. 329 00:16:46,960 --> 00:16:49,760 Speaker 1: So David, for me, there's two issues, and we shouldn't 330 00:16:49,760 --> 00:16:53,680 Speaker 1: conflate the two. There's redenomination risk, which arguably has diminished 331 00:16:53,680 --> 00:16:55,480 Speaker 1: a whole lot because of that fiscal agreement in the 332 00:16:55,520 --> 00:16:57,680 Speaker 1: last month, just the idea that the probability that the 333 00:16:57,680 --> 00:17:01,560 Speaker 1: Eurozone blows up goes down somewhere, and then there's repricing 334 00:17:01,760 --> 00:17:05,000 Speaker 1: the recovery for a relative trade. Right now, what's more 335 00:17:05,040 --> 00:17:08,520 Speaker 1: compelling the United States, which is trying to correct course, 336 00:17:08,920 --> 00:17:12,480 Speaker 1: or Europe, which is facing some trouble. I said, from 337 00:17:12,480 --> 00:17:16,639 Speaker 1: I mean certainly from a sort of relative value and 338 00:17:17,320 --> 00:17:19,800 Speaker 1: from looking at from a kind of credit perspective, I 339 00:17:19,800 --> 00:17:24,080 Speaker 1: actually do quite like parts of the US credit market. 340 00:17:24,160 --> 00:17:25,879 Speaker 1: And I know Lisa's with you, and she may be 341 00:17:25,960 --> 00:17:29,040 Speaker 1: surprised by this. After we had the print of a 342 00:17:29,200 --> 00:17:33,800 Speaker 1: two and investor literally comes on this show and when 343 00:17:34,480 --> 00:17:36,080 Speaker 1: you have to say Lisa, you're not going to like 344 00:17:36,160 --> 00:17:44,680 Speaker 1: this carry on day. Yeah, you know, I'm based in Europe, 345 00:17:44,720 --> 00:17:48,560 Speaker 1: and you know, back in twenty seventeen the European high 346 00:17:48,600 --> 00:17:52,959 Speaker 1: yield market was yielding around two point three percent. So 347 00:17:53,080 --> 00:17:56,199 Speaker 1: we know yield can go high, yield can become a 348 00:17:56,200 --> 00:18:00,040 Speaker 1: little bit of a missnomer, and um, you know, I 349 00:18:00,040 --> 00:18:03,320 Speaker 1: do think that you do need to move down the 350 00:18:03,840 --> 00:18:07,800 Speaker 1: credit spectrum. I think double bees are too pricey, but 351 00:18:07,880 --> 00:18:09,560 Speaker 1: I think there is value in the sort of single 352 00:18:09,600 --> 00:18:12,879 Speaker 1: B names you've been adding, even within some of the 353 00:18:12,880 --> 00:18:16,159 Speaker 1: triple season as well. And you know, us I yield 354 00:18:16,560 --> 00:18:19,480 Speaker 1: on a sort of beta adjusted basis, you know, you know, 355 00:18:19,680 --> 00:18:21,840 Speaker 1: based on what you would have expected it to perform 356 00:18:22,280 --> 00:18:25,960 Speaker 1: relative to either the Russell or the from P five 357 00:18:26,040 --> 00:18:29,320 Speaker 1: hundred is actually lag deputies. So you know, when you've 358 00:18:29,359 --> 00:18:31,240 Speaker 1: got that search for yield and you've got the treasuries 359 00:18:31,280 --> 00:18:32,960 Speaker 1: where they are, and I know this is a very 360 00:18:32,960 --> 00:18:38,760 Speaker 1: familiar story, then I think value there in Europe as well. 361 00:18:38,800 --> 00:18:41,880 Speaker 1: I think the more of the issue is just uh, 362 00:18:42,119 --> 00:18:44,520 Speaker 1: as you said, Jonathan, you know that sort of breakup 363 00:18:44,520 --> 00:18:46,600 Speaker 1: and risk is diminished, and so you know, I've liked 364 00:18:46,600 --> 00:18:50,199 Speaker 1: the periphery, but again the peripheral spreads have come a 365 00:18:50,240 --> 00:18:53,120 Speaker 1: long way, so kind of reducing some of the risk 366 00:18:53,240 --> 00:18:55,400 Speaker 1: that we have there as well. Well, David, I would 367 00:18:55,440 --> 00:18:58,240 Speaker 1: hate to disappoint with my reputation and for you saying 368 00:18:58,280 --> 00:19:01,320 Speaker 1: that you are buying see will be a triple C 369 00:19:01,600 --> 00:19:05,320 Speaker 1: rated credit the lowest rated of high yield debt at 370 00:19:05,320 --> 00:19:08,480 Speaker 1: a time of growing bankruptcy? Is how do you gauge 371 00:19:08,600 --> 00:19:12,720 Speaker 1: the insolvency risk with this idea that you are searching 372 00:19:12,760 --> 00:19:15,879 Speaker 1: for yield, but it still is lower than perhaps it 373 00:19:15,920 --> 00:19:18,160 Speaker 1: would be if you didn't have a FED put. Yeah, 374 00:19:18,200 --> 00:19:22,160 Speaker 1: that's that's that's that's absolutely correct. I mean, firstly, UM 375 00:19:22,240 --> 00:19:26,880 Speaker 1: in terms of the bankruptcy and default risk, I think 376 00:19:26,880 --> 00:19:30,800 Speaker 1: the market right now is pricing the ushi yield defaults 377 00:19:30,800 --> 00:19:33,480 Speaker 1: will peek at a roundabout sort of mine tempers in 378 00:19:34,280 --> 00:19:36,160 Speaker 1: at the end of the year, and I think that's 379 00:19:36,200 --> 00:19:40,800 Speaker 1: probably about right. And despite all the sort of commentary 380 00:19:40,840 --> 00:19:44,400 Speaker 1: around the pricing within the credit market, the reality is 381 00:19:44,400 --> 00:19:48,320 Speaker 1: is that it has become quite bifurcated. I mean, look 382 00:19:48,359 --> 00:19:52,760 Speaker 1: at the proportion of companies UM and credits that are 383 00:19:52,840 --> 00:19:57,600 Speaker 1: pricing at distress levels those also yielding sort of more 384 00:19:57,640 --> 00:20:00,160 Speaker 1: than ten percent. It's around about accented the my Okay, 385 00:20:00,200 --> 00:20:03,520 Speaker 1: I think we know who the default candidates are, so 386 00:20:03,600 --> 00:20:06,480 Speaker 1: I don't think we're going to get a negative surprise unless, 387 00:20:06,520 --> 00:20:09,199 Speaker 1: of course, you know the economy. You know we're going 388 00:20:09,240 --> 00:20:11,280 Speaker 1: to meet recovery stools, and that could happen if we 389 00:20:11,320 --> 00:20:14,640 Speaker 1: don't get a deal out of Washington on the fiscal side. 390 00:20:14,800 --> 00:20:18,080 Speaker 1: So I think for the market too rarely. Further, I 391 00:20:18,119 --> 00:20:20,240 Speaker 1: think there's gonna have to be some compression. So I think, 392 00:20:20,280 --> 00:20:23,280 Speaker 1: you know, the single bees have got room to to 393 00:20:23,000 --> 00:20:26,360 Speaker 1: to move higher. We're sort of trying to as as 394 00:20:26,440 --> 00:20:31,680 Speaker 1: credit selectors active investors gave for those single B names 395 00:20:31,760 --> 00:20:35,880 Speaker 1: which have left direct COVID exposure, where we still think 396 00:20:35,920 --> 00:20:38,639 Speaker 1: the the overall business model is going to be viable 397 00:20:38,680 --> 00:20:41,280 Speaker 1: in this kind of post COVID world. Devid Riley, great 398 00:20:41,280 --> 00:20:43,280 Speaker 1: to catch up, sir, Really good to hear from your 399 00:20:43,320 --> 00:20:57,200 Speaker 1: David Ranny their opposiate asset management. President Trump's are chuging 400 00:20:57,200 --> 00:20:59,840 Speaker 1: the historic deal between Israel and the United Arab Emirates 401 00:20:59,840 --> 00:21:02,720 Speaker 1: to begin normalizing relations while joining us now as Loop 402 00:21:02,760 --> 00:21:06,400 Speaker 1: and Roman pim Go Global head of em Sovereign Credit Upen, 403 00:21:06,480 --> 00:21:08,239 Speaker 1: thank you so much for joining us. There's a lot 404 00:21:08,280 --> 00:21:10,600 Speaker 1: longer in the Middle East, which were we started also 405 00:21:10,640 --> 00:21:13,800 Speaker 1: with that horrible blast in Beirut. When you look at 406 00:21:13,800 --> 00:21:20,120 Speaker 1: the region, how are just changing for investors. I think 407 00:21:20,119 --> 00:21:22,240 Speaker 1: that there's a there's so many moving parts in the 408 00:21:22,240 --> 00:21:24,879 Speaker 1: Middle East. I think that the biggest factor continues to 409 00:21:25,000 --> 00:21:28,919 Speaker 1: be thinking about resiliency. Which economies are going to be 410 00:21:29,000 --> 00:21:31,679 Speaker 1: able to come out of this crisis and this pandemic 411 00:21:32,240 --> 00:21:36,720 Speaker 1: with relatively resilient macro and political frameworks. You know, we've 412 00:21:36,720 --> 00:21:40,040 Speaker 1: seen across both the g c C and the LEVANT 413 00:21:40,760 --> 00:21:45,360 Speaker 1: quite a significant shift in terms of political allegiances and 414 00:21:45,560 --> 00:21:48,640 Speaker 1: essentially those are going to interact with the macro economic 415 00:21:48,680 --> 00:21:51,840 Speaker 1: outlooks to really assess which countries are going to come 416 00:21:51,840 --> 00:21:54,800 Speaker 1: out of this stronger versus those who are really going 417 00:21:54,840 --> 00:21:58,520 Speaker 1: to be a lot more weaker going back. And so 418 00:21:58,920 --> 00:22:01,080 Speaker 1: do you have any insight, Loupen where you know, where 419 00:22:01,119 --> 00:22:03,679 Speaker 1: are you looking at it as potential um you know, 420 00:22:03,760 --> 00:22:09,600 Speaker 1: beacons of hope. So I think that countries that really 421 00:22:09,640 --> 00:22:12,920 Speaker 1: have been able to withstand this shock are the more 422 00:22:13,280 --> 00:22:17,000 Speaker 1: high income, high net savers in the region, so qutar 423 00:22:17,320 --> 00:22:20,719 Speaker 1: U a e to to some extent, Saudi Arabia. I 424 00:22:20,720 --> 00:22:24,119 Speaker 1: think what we will really be looking for across those names, however, 425 00:22:24,240 --> 00:22:26,120 Speaker 1: is whether they're really going to be able to adjust 426 00:22:26,119 --> 00:22:29,320 Speaker 1: to lower commodity crisis. There's quite a lot of fiscal 427 00:22:29,359 --> 00:22:32,720 Speaker 1: consolidation that needs to be done in the likes of UM, 428 00:22:32,760 --> 00:22:37,360 Speaker 1: Saudi and the United Arab Emirates UM, and it's likely 429 00:22:37,480 --> 00:22:40,680 Speaker 1: that we are going to see progress towards that once 430 00:22:40,760 --> 00:22:43,800 Speaker 1: the imminent shock of the pandemic passes us so in 431 00:22:43,840 --> 00:22:46,840 Speaker 1: twenty one and beyond, we should be able to see 432 00:22:47,040 --> 00:22:51,920 Speaker 1: some fiscal consolidation which should help their credit trajectories. There 433 00:22:52,000 --> 00:22:54,320 Speaker 1: is the concern a loop and going forward, not with 434 00:22:54,520 --> 00:22:58,960 Speaker 1: the energy heavy nations, but I'm thinking in particular of Lebanon, 435 00:22:59,520 --> 00:23:02,840 Speaker 1: which is insolvent and now has no government and the 436 00:23:02,840 --> 00:23:05,399 Speaker 1: bond holders don't even know who to negotiate with, and 437 00:23:05,400 --> 00:23:09,040 Speaker 1: it raises a specter of huge principle write downs that 438 00:23:09,119 --> 00:23:12,640 Speaker 1: really haven't been seen in recent history for the emerging 439 00:23:12,720 --> 00:23:16,160 Speaker 1: market sovereign complex. How do you price that in given 440 00:23:16,160 --> 00:23:17,960 Speaker 1: the fact that a lot of people have shrugged off 441 00:23:18,000 --> 00:23:21,920 Speaker 1: geopolitical risk and just said, you know what central banks 442 00:23:21,960 --> 00:23:27,040 Speaker 1: printing money risk on so I think that you know, 443 00:23:27,160 --> 00:23:31,240 Speaker 1: thinking about very large left heel risks as we're seeing 444 00:23:31,440 --> 00:23:35,159 Speaker 1: in some emerging market sovereigns is going to be a 445 00:23:35,240 --> 00:23:38,720 Speaker 1: key factor of thinking about credit risk. So you would 446 00:23:38,760 --> 00:23:41,520 Speaker 1: have seen that essentially in the e M high yield space, 447 00:23:42,160 --> 00:23:46,640 Speaker 1: you have had sovereign spreads which really haven't compressed compared 448 00:23:46,680 --> 00:23:50,760 Speaker 1: to the emerging market investment grades space. And essentially that 449 00:23:50,880 --> 00:23:54,240 Speaker 1: the fact that that spread compression hasn't occurred signals to 450 00:23:54,320 --> 00:23:56,800 Speaker 1: us that there's a huge amount of uncertainty relate to 451 00:23:56,880 --> 00:24:01,200 Speaker 1: some of the issues that that you've raised. What the market, however, 452 00:24:01,480 --> 00:24:06,320 Speaker 1: is pricing in is reasonable support from the international communities, 453 00:24:06,560 --> 00:24:10,280 Speaker 1: whether it be through I m F programs or larger, 454 00:24:10,440 --> 00:24:15,359 Speaker 1: more broaderly broadly coordinated support through the development banks. Well 455 00:24:15,480 --> 00:24:17,840 Speaker 1: let's go there then, and how sufficient have some of 456 00:24:17,880 --> 00:24:21,480 Speaker 1: that those back steps being given the fact that, for example, 457 00:24:21,960 --> 00:24:24,919 Speaker 1: the World Bank and the IMF have postponed some of 458 00:24:24,960 --> 00:24:28,840 Speaker 1: the interest payments or suspended them for some of these nations, 459 00:24:28,840 --> 00:24:31,840 Speaker 1: but there hasn't been big talk about principal write downs 460 00:24:31,840 --> 00:24:36,480 Speaker 1: as of yet, So I think that there could be 461 00:24:36,560 --> 00:24:39,280 Speaker 1: a lot more that could have been done. From the 462 00:24:39,359 --> 00:24:42,800 Speaker 1: I F I S point of view. In particular, we 463 00:24:43,200 --> 00:24:47,479 Speaker 1: would have wanted to see an SDR increase, similar to 464 00:24:47,520 --> 00:24:50,240 Speaker 1: what the IMF did in the aftermath of the two 465 00:24:50,480 --> 00:24:54,320 Speaker 1: and eight crisis. That essentially is a form of global 466 00:24:54,440 --> 00:24:59,760 Speaker 1: quei for all countries, essentially enables them to have greater 467 00:25:00,000 --> 00:25:04,000 Speaker 1: liquidity support. I'm not necessarily um you know in the 468 00:25:04,040 --> 00:25:06,560 Speaker 1: camp that you would need to have sharp write downs 469 00:25:06,560 --> 00:25:10,040 Speaker 1: for the bulk of emerging markets. The pandemic is a 470 00:25:10,160 --> 00:25:13,760 Speaker 1: liquidity shock, as in it is much harder for them 471 00:25:13,800 --> 00:25:17,800 Speaker 1: either because they've lost tourism revenues or remittance revenues for 472 00:25:18,040 --> 00:25:21,760 Speaker 1: say more most of twenty and maybe part of one, 473 00:25:22,080 --> 00:25:25,480 Speaker 1: they're they're finding it difficult to generate dollars, whereas normally 474 00:25:25,840 --> 00:25:29,359 Speaker 1: in an usual UM year they would be able to 475 00:25:29,400 --> 00:25:32,760 Speaker 1: service their debt relatively easily. So I think the shock 476 00:25:32,920 --> 00:25:35,679 Speaker 1: is a liquidity shock for most countries rather than a 477 00:25:35,720 --> 00:25:40,040 Speaker 1: solvency shop, which would require greater write downs. If you 478 00:25:40,040 --> 00:25:41,679 Speaker 1: look at, you know, some of the things that we 479 00:25:41,720 --> 00:25:43,280 Speaker 1: also needed to keep an eye on. I don't know 480 00:25:43,280 --> 00:25:45,480 Speaker 1: what you deal with Turkey. I mean, the lira has 481 00:25:45,680 --> 00:25:48,520 Speaker 1: has gone really through a wild ride um over the 482 00:25:48,600 --> 00:25:52,800 Speaker 1: last couple of weeks. What stabilizes Turkey for investors right now? 483 00:25:54,920 --> 00:25:59,880 Speaker 1: So I think the Central Bank easing into basically reducingly 484 00:26:00,000 --> 00:26:03,280 Speaker 1: liquidity in the system means that you are going to 485 00:26:03,320 --> 00:26:05,800 Speaker 1: see some stability going forward. So there has been a 486 00:26:05,840 --> 00:26:09,040 Speaker 1: signal that they are looking to tighten liquidity, and they 487 00:26:09,080 --> 00:26:12,560 Speaker 1: have done so much more incrementally than than the market 488 00:26:12,560 --> 00:26:16,800 Speaker 1: probably probably warrants um it to be. However, I think 489 00:26:16,840 --> 00:26:19,640 Speaker 1: that essentially if you look at the past and see 490 00:26:19,680 --> 00:26:23,000 Speaker 1: that as a playbook, the Center Bank is essentially moving 491 00:26:23,040 --> 00:26:25,680 Speaker 1: along the same ways as it has done in two 492 00:26:25,680 --> 00:26:30,800 Speaker 1: thousand and eighteens, so tightening the liquidity conditions on shore 493 00:26:31,280 --> 00:26:37,080 Speaker 1: and then eventually moving towards you know, raising the effective 494 00:26:37,200 --> 00:26:40,600 Speaker 1: interest rate and hopefully they won't have to hike in 495 00:26:40,680 --> 00:26:43,040 Speaker 1: terms of emergency hikes like they did in two thousands 496 00:26:43,040 --> 00:26:46,080 Speaker 1: and eighteen. UM. The risk here is that you know, 497 00:26:46,160 --> 00:26:50,880 Speaker 1: every single crisis that Turkey faces results in these ad 498 00:26:50,920 --> 00:26:54,520 Speaker 1: hoc measures, and you know, really little too late in 499 00:26:54,640 --> 00:26:58,919 Speaker 1: terms of tightening measures, meaning that every starting point is 500 00:26:58,960 --> 00:27:04,200 Speaker 1: worse than the prior A little bit to I mean, 501 00:27:04,240 --> 00:27:06,240 Speaker 1: moving on, because we want to get through a quite 502 00:27:06,240 --> 00:27:08,160 Speaker 1: a lot of countries with you. When you get China, 503 00:27:08,240 --> 00:27:10,000 Speaker 1: it seems that the recovery is really led by a 504 00:27:10,000 --> 00:27:14,159 Speaker 1: lot of industrial growth, but retail sales are is undercutting 505 00:27:14,200 --> 00:27:16,960 Speaker 1: some of the rebound. What kind of recovery do you 506 00:27:16,960 --> 00:27:20,600 Speaker 1: see in China and how do investors play that country. 507 00:27:22,880 --> 00:27:25,119 Speaker 1: I think that the recoveries is going to be a 508 00:27:25,160 --> 00:27:29,080 Speaker 1: bit more haphazard then you would have expected from a 509 00:27:29,200 --> 00:27:32,639 Speaker 1: normal recession, because this isn't a normal recession, and so 510 00:27:33,160 --> 00:27:35,760 Speaker 1: the factors that we're seeing in terms of momentum from 511 00:27:35,880 --> 00:27:40,280 Speaker 1: retail versus the manufacturing side of the economy, it's more 512 00:27:40,400 --> 00:27:44,560 Speaker 1: or less what you would expect, given that essentially services 513 00:27:44,600 --> 00:27:46,840 Speaker 1: and retail is going to be a bit more slower 514 00:27:46,840 --> 00:27:50,119 Speaker 1: to move. However, the important thing to to note is 515 00:27:50,160 --> 00:27:54,320 Speaker 1: that the economic recovery is underway um and it is 516 00:27:54,680 --> 00:27:57,639 Speaker 1: more or less in line with our expectations, and this 517 00:27:57,680 --> 00:28:01,480 Speaker 1: should help the rest of the Asian economies come come 518 00:28:01,560 --> 00:28:04,000 Speaker 1: up and recover as well. This is interesting to hear 519 00:28:04,040 --> 00:28:06,040 Speaker 1: you say, Lupin, because some people are saying that even 520 00:28:06,040 --> 00:28:08,360 Speaker 1: though the China is recovering, it's not going to get 521 00:28:08,359 --> 00:28:11,200 Speaker 1: back to where it was in prior years, at least 522 00:28:11,200 --> 00:28:14,159 Speaker 1: not recently, and this sort of put some pressure on 523 00:28:14,280 --> 00:28:18,240 Speaker 1: other nations in the region, especially as supply chains start shifting. 524 00:28:18,280 --> 00:28:20,960 Speaker 1: What gives you confidence that there will be a support 525 00:28:21,280 --> 00:28:24,080 Speaker 1: in the area given all of the trade tensions as 526 00:28:24,080 --> 00:28:27,400 Speaker 1: well as the economic pressure still remaining from the pandemic. 527 00:28:29,440 --> 00:28:32,359 Speaker 1: So I think that it will take time for the 528 00:28:32,520 --> 00:28:35,680 Speaker 1: world economy to recover from the pandemics. So we are 529 00:28:35,720 --> 00:28:39,560 Speaker 1: not forecasting a v shaped recovery by any means. And essentially, 530 00:28:39,600 --> 00:28:42,880 Speaker 1: when you look at the kind of GDP shock that 531 00:28:42,960 --> 00:28:46,760 Speaker 1: the China China's of this world have have experienced, really 532 00:28:46,800 --> 00:28:49,440 Speaker 1: it will take some time in terms of years to 533 00:28:49,640 --> 00:28:53,239 Speaker 1: come back to the pre crisis levels. Um. What I 534 00:28:53,280 --> 00:28:56,600 Speaker 1: do think will happen, however, is recovery led by the 535 00:28:56,640 --> 00:28:59,680 Speaker 1: developed markets will be a key factor in driving in 536 00:28:59,760 --> 00:29:03,160 Speaker 1: the market growth um. The bulk of emerging markets that 537 00:29:03,320 --> 00:29:08,320 Speaker 1: export to develop markets will actually be seeing that improvement 538 00:29:08,400 --> 00:29:12,520 Speaker 1: in economic momentum. Um. I think that regardless of that, 539 00:29:12,880 --> 00:29:16,640 Speaker 1: given the pace of the virus in certain emerging markets 540 00:29:16,680 --> 00:29:20,920 Speaker 1: like in Brazil and in India, the risk of second 541 00:29:20,920 --> 00:29:24,400 Speaker 1: waves in e M is there and that is likely 542 00:29:24,440 --> 00:29:26,800 Speaker 1: to be a bit of a break to any economic 543 00:29:26,880 --> 00:29:30,320 Speaker 1: rebound that is led by the trade cycle. Meanwhile, we 544 00:29:30,360 --> 00:29:33,120 Speaker 1: do have tensions picking up between the US and China, 545 00:29:33,200 --> 00:29:36,360 Speaker 1: with representatives meeting to assess the phase one trade deal, 546 00:29:36,480 --> 00:29:39,880 Speaker 1: not necessarily negotiating any type of phase to deal. Can 547 00:29:39,920 --> 00:29:42,280 Speaker 1: this be tradeable? I mean, is this a tradeable event 548 00:29:42,400 --> 00:29:44,240 Speaker 1: or is this just something to watch to sort of 549 00:29:44,280 --> 00:29:49,760 Speaker 1: gauge for future measures. I think it's something to watch 550 00:29:49,800 --> 00:29:52,920 Speaker 1: for sure. In terms of how how you know other 551 00:29:53,040 --> 00:29:56,560 Speaker 1: areas may pan out um, I think that you know 552 00:29:56,680 --> 00:29:59,920 Speaker 1: the immediate trade impacts, maybe much more in terms of 553 00:30:00,080 --> 00:30:04,040 Speaker 1: sentiment UM and in terms of currencies and the dollar, 554 00:30:04,320 --> 00:30:08,000 Speaker 1: but really those other there are much larger other factors 555 00:30:08,040 --> 00:30:16,120 Speaker 1: we are driving the both the dollar and general risk sentiment. Lupen, 556 00:30:16,160 --> 00:30:18,200 Speaker 1: thanks so much for joining us Sloop and RAM and 557 00:30:18,240 --> 00:30:21,960 Speaker 1: their Pincot globle ahead of em sovereign credit. Thanks for 558 00:30:22,040 --> 00:30:26,440 Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to 559 00:30:26,600 --> 00:30:32,360 Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. 560 00:30:32,880 --> 00:30:36,240 Speaker 1: I'm on Twitter at Tom Keane Before the podcast. You 561 00:30:36,280 --> 00:30:39,680 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio