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Speaker 1: Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane

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Speaker 1: jay Ley. We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Really

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Speaker 1: happy to say we can stop the week with Lisa's Shadow,

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Speaker 1: the More than Standing Wealth Management, the chief investment Officer. Lisa.

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Speaker 1: You and I have gone back and forth over the

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Speaker 1: last couple of weeks. Help us understand the cyclical trade

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Speaker 1: and how you think that's going to evolve in the

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Speaker 1: coming months. Yeah, great, Good morning, Jonathan. Um. Look, our

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Speaker 1: perspective is that, uh, you know, folks have really looked

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Speaker 1: at the cyclical trade and are waiting to see the

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Speaker 1: inflation expectations data signal that reflation in the economy has begun,

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Speaker 1: and we've really seen you know, the cyclicals defensive ratio

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Speaker 1: track inflation expectations. Uh. To your point, I think this news, um,

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Speaker 1: you know, coming out of the Fed, and you know

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Speaker 1: the market's reaction to it, meaning they are believing uh

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Speaker 1: Chairman Powell for for what he's saying, UH is ultimately

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Speaker 1: going to be a positive catalyst in that regard and

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Speaker 1: start firming up those inflation expectations. UM. I think when

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Speaker 1: you go to full on debt monetization, which is really

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Speaker 1: I think where we are. Uh, that's the point at which,

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Speaker 1: uh it becomes very clear, you know what the Fed

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Speaker 1: is doing. They're debasing the US dollar, They're pushing down uh,

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Speaker 1: you know, real rates UM, and ultimately the US dollar

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Speaker 1: has to roll over. And the rollover of that U

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Speaker 1: S dollar from what has been uh, you know, just

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Speaker 1: extraordinary heights on a on a trade weighted basis, UH

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Speaker 1: is going to be the one of the things that

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Speaker 1: trigger is um, a return of a little bit of inflation.

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Speaker 1: And that's all you need here to get those pilicles going, Lisa,

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Speaker 1: what's the dollar going to be debased against? What currency

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Speaker 1: is actually going to gain press prominence versus the green back? Uh?

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Speaker 1: So our perspective is that uh most uh And what

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Speaker 1: I mean by that is, remember that at the end

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Speaker 1: of the day, uh, you know, currencies move uh in

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Speaker 1: in relation to relative yield advantages and relative growth. UH.

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Speaker 1: And while for a good portion of the last three

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Speaker 1: or four years, the US really had a real yield

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Speaker 1: advantage and a real growth advantage. Um. What coronavirus has

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Speaker 1: done is kind of levels of playing field quite a bit.

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Speaker 1: And what we've seen in the near term is simply

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Speaker 1: a an extension of the fear trade. UH. That's really

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Speaker 1: holding the dollar up in our humble opinion, because when

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Speaker 1: you look underneath the surface, the relative of growth of

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Speaker 1: the US economy UH is really not that much better

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Speaker 1: than what's going on in the rest of the world,

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Speaker 1: and real rates are really starting to come down A Lisa,

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Speaker 1: I want you to give me the real scroop. You're

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Speaker 1: in wealth management, your legendary in the street. You've seen

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Speaker 1: the up down, You've seen how many how many once

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Speaker 1: in a lifetime crisis, Lisa have you and I had combined? GETU?

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Speaker 1: There's no left over, folks, Lisa, that the textbook says.

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Speaker 1: You know, you've walked into a more E. Stanley office

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Speaker 1: supposed to go there's a sixty split, six stocks, bonds

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Speaker 1: and ten percent cash, because that's what you're supposed to do, Bologny,

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Speaker 1: what's the actual split right now? Oh? Goodness? So, uh,

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Speaker 1: you know, look, the vast majority of our clients are

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Speaker 1: extraordinarily conservative and have been you know, quote unquote hoarding

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Speaker 1: cash and you know, as is often the case, and

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Speaker 1: we know this from behavioral finance, is a playbook you know,

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Speaker 1: played out to a t uh. You know, a lot

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Speaker 1: of clients unfortunately, you know, sold badly. They gave into

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Speaker 1: fear and throughout the February March time frame built their

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Speaker 1: cash balances, you know, up to to two times normal.

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Speaker 1: So you you talk about the ten percent being an average,

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Speaker 1: you know, we're running closer to two times that about cash. John,

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Speaker 1: I just want to say it's it's earlier in the

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Speaker 1: week and that's already the phrase of the week that

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Speaker 1: defines my investment past. John. So many people have shared

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Speaker 1: your cash allocations so badly. Lisa, let's talk about how

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Speaker 1: this evolves. Because you've said that we could see some

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Speaker 1: inflation and maybe that will move things along. We're about

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Speaker 1: to see some real sequential month or month improvement in

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Speaker 1: the next couple of months. We'll get the p M

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Speaker 1: I slid of this week. May should be better than April.

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Speaker 1: June should be better than May. Does that help get

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Speaker 1: it done or is that just already widely expected. Well,

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Speaker 1: I think the piece that isn't expected is that what

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Speaker 1: we're going to see is a lot of lumpiness between

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Speaker 1: supply and demand because don't forget what we did, is

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Speaker 1: we you know, sudden stop uh turned off the economy,

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Speaker 1: and so the supply chains are imbalanced. Uh. And so

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Speaker 1: while the market is universally discounting uh, the you know,

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Speaker 1: the demand side of things, they're not really thinking about

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Speaker 1: the supply side of things. And the supply side of

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Speaker 1: things in many cases is going to be delayed. And

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Speaker 1: it's that delay and mismatch and the supply chains that

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Speaker 1: could cause um, you know, some price inflation to creep

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Speaker 1: in as people are willing to quote unquote pay up

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Speaker 1: uh to fill refill their shelves. And uh, you know,

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Speaker 1: I do think we are going to begin to see

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Speaker 1: a pickup in some of those metrics around prices paid,

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Speaker 1: wages paid, uh, you know, particularly amongst small businesses. So

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Speaker 1: just real quick care, Lisa, what do you think it

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Speaker 1: will take to shift the current mood that policy Trump's

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Speaker 1: the fundamental economic data? Is there anything that could come out,

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Speaker 1: whether it's rising trade tensions or anything else to reverse

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Speaker 1: the shift? Uh you mean reverse or relationary trade? Yes? Um,

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Speaker 1: so look there there are obviously a host of things, um,

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Speaker 1: and not the least of which is the virus itself.

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Speaker 1: Look right now, UM, we are seeing um, you know,

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Speaker 1: clearly nationwide curve flattening. UH. And that has been definitely

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Speaker 1: something that's the market understands and is embracing. UH. And

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Speaker 1: I think if we were to have any major setbacks

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Speaker 1: on that, the you know, the narrative is still extraordinarily

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Speaker 1: vulnerable to that. Obviously, now is not the time for

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Speaker 1: us to see uh, a pickup in trade tensions, nor

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Speaker 1: is it, quite frankly a time for us to see

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Speaker 1: a pick it a pick up in political partisanship. UM.

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Speaker 1: You know, one of the things that we need to

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Speaker 1: to members that the major provisions of the Cares Act

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Speaker 1: that we've been talking about is quote unquote you know,

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Speaker 1: monstrous stimulus. It begin to expire in the you know,

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Speaker 1: June July, uh September time frame. We're gonna need some extensions,

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Speaker 1: and we're gonna need some cooperation between here and probably

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Speaker 1: July August before we get into the peak of the

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Speaker 1: political presidential campaigning. UH. And if we have stumbles and

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Speaker 1: it looks like Washington's becoming dysfunctional, UH, the markets really

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Speaker 1: not gonna like that either. So those would be the

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Speaker 1: three that that We're looking at Lisa brilliant to catch

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Speaker 1: out with you. As always, Lisa shout at that Morgan

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Speaker 1: Standing Wealth Management Chief Investment Officer. I want to go

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Speaker 1: there with the and Shepherdson, but you bring up something John,

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Speaker 1: we can't. Let's slip by. Mr Haldan is respected and

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Speaker 1: he moved. Sterling explain this to our American audience. Who

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Speaker 1: Andy Haldane is and why when he talks about negative

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Speaker 1: rates that matters. The chief colomists of the Bank of

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Speaker 1: England k figure over the BOE tomb largely considered to

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Speaker 1: be the guy that has the blue sky thinking about

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Speaker 1: what to do with monetary policy. So it's not unusual

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Speaker 1: for me that it was Andy Haldane that was the

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Speaker 1: guy that came out as said, I'm thinking about negative

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Speaker 1: interest rights. We're thinking about it. Still to me, I

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Speaker 1: don't see the core of the MPC coming along with

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Speaker 1: this just yet. Well, there it is. It won't continue

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Speaker 1: to follow that as well as John mentions on oil

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Speaker 1: up and other things up all this weekend there was

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Speaker 1: a glide pass and cute little charts beginning to show

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Speaker 1: recovery or attempting to guest estimate their recovery and Shepherdson

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Speaker 1: is expert at discerning this. He's with Pantheon, as I've

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Speaker 1: said many times, they are leading on LinkedIn with the

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Speaker 1: best in charts that you can see out on LinkedIn,

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Speaker 1: and of course their services as well. Ian Shepherdson. There,

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Speaker 1: I guess is going to be a recovery, and it's

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Speaker 1: going to be modeled in the most high frequency of

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Speaker 1: high frequency recovery data will be claims this Thursday. Are

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Speaker 1: we actually see a trend of lower weekly jobless claims? Yeah,

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Speaker 1: we're already there. I mean the numbers are still horrendous, obviously,

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Speaker 1: but but the trend is decaying by well ten twelve

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Speaker 1: percent a week. So I'm hoping this week we might

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Speaker 1: print something like two point five millions, so down from

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Speaker 1: almost three million last week. Obviously the peak was nearly

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Speaker 1: seven a million, so definitely having in the right direction.

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Speaker 1: We've seen a week after week of of incremental declines,

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Speaker 1: but obviously still far too high. The very worst week

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Speaker 1: after the crash in two thousand and eight was six

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Speaker 1: hundred sixty five, and here we are today saying well

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Speaker 1: two and a half million. That's an improvement, So you know,

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Speaker 1: all things in context here, it's still terrible, and a

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Speaker 1: lot of people have been talking about an unprecedented policy response,

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Speaker 1: and a lot of the people who have gotten laid

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Speaker 1: off haven't been receiving unemployment benefits. There's a question of

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Speaker 1: how big of an aditional stimulus package or rescue financing

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Speaker 1: package the market is currently pricing in what is expected,

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Speaker 1: what is likely given that three trillion dollar plan that

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Speaker 1: Nancy Pelosi got past in the House, but it's likely

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Speaker 1: dead on arrival in Senate. Yes, I mean, every everyone

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Speaker 1: knows there's no chance of a three trillion dollar package.

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Speaker 1: It will be somewhere between zero and three. So let's

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Speaker 1: do some conversated math and one and a half. So

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Speaker 1: timing is, of course everything. I think markets expect that

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Speaker 1: some that a deal will be done over the next

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Speaker 1: few weeks. I think most people are kind of looking

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Speaker 1: through the posturing on the Republican side in the center

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Speaker 1: that you know that they're they're talking to their base

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Speaker 1: at the moment when they're saying they want to pause

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Speaker 1: and wait and see and be cautious all this stuff.

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Speaker 1: But the fact is there's an election coming up, and

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Speaker 1: I don't think these guys can go back to their

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Speaker 1: constituents and say, hey, we voted against that rescue package

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Speaker 1: and yeah, unemployment still but vote for me. I mean

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Speaker 1: that just seems implausible to me, and I think markets

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Speaker 1: believe that's implausible as well. So yes, a lot of posturing,

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Speaker 1: a lot of grandstanding. There's no chance that that that

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Speaker 1: whole Democrat wish list will get past the Senate. But

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Speaker 1: I think support to state and local government will substantial.

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Speaker 1: The revenues have collapsed and they're spending a shot up.

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Speaker 1: They have to be supported and probably will see an

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Speaker 1: extension of the enhanced on employment benefits beyond July as well,

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Speaker 1: plus extra money for healthcare and some other things. But

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Speaker 1: some got a substantial package and it will bring the

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Speaker 1: total amount of support, probably in excess as four trillion dollars,

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Speaker 1: so which is kind of the order of magnitude that

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Speaker 1: I think is is needed. So getting getting to the

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Speaker 1: right place eventually, absolutely incredible numbers A little bit later

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Speaker 1: this are, in fact, in a round about ten minutes,

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Speaker 1: will catch up with Peter Hayes of black Rock on

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Speaker 1: state finances, and I think there's a real worry that

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Speaker 1: we could get some state level austerity over the next

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Speaker 1: couple of years. Is there something you've considered, well, it

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Speaker 1: will happen if they're not supported. I mean that that's

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Speaker 1: the point that it is insane to be using the

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Speaker 1: power of the federal government while at the same time

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Speaker 1: putting states into position where their lack of support means

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Speaker 1: that they have to cut back on services and raise

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Speaker 1: taxes im And that's completely the wrong thing to do

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Speaker 1: at this point. And again it's political posturing from the

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Speaker 1: Republican side here, you know, arguing that Democrats say it

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Speaker 1: shouldn't be bailed out because they've got big pension deficits.

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Speaker 1: But that's conflating two entirely separate issues. The fundamental factors

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Speaker 1: that everywhere revenues have collapsed and everywhere spending has gone up.

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Speaker 1: And I know the fact is that the large Democrats

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Speaker 1: states are the biggest net give us to the federal

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Speaker 1: government and the normal circumstances, So it just makes no

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Speaker 1: sense to argue that they shouldn't receive federal large s

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Speaker 1: now and they will. It's it's it's in no one's

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Speaker 1: interest to put states into position where they have to

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Speaker 1: tighten fiscal pots. I can't think of anything more. Mad

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Speaker 1: Ian Sheffer's an open question, what are you most focused on?

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Speaker 1: Within the equation. I mean, what's the you're writing for Pantheon.

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Speaker 1: You go down the left column, you get down the

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Speaker 1: right column. What's the part of the GDP equation that

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Speaker 1: matters to you right now? The big one is the

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Speaker 1: return of consumption or the speed of the return of consumption.

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Speaker 1: Speed of GDP, it's a it's a momentum in consumption,

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Speaker 1: which I think varies depending where you look. So we're

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Speaker 1: clearly seeing an uptick in the states that have opened up.

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Speaker 1: We get daily data on restaurants and air travel, and

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Speaker 1: that's moving in the right direction. But the really big ones,

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Speaker 1: it's a discretionary consumer spending. It's what's going to happen

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Speaker 1: to the auto market and the housing market, and the

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Speaker 1: consumer spending on on durable goods. You know, as people

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Speaker 1: are allowed to go back into retail stores they haven't

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Speaker 1: spent for the last couple of months, are they going

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Speaker 1: to go crazy or are they going to remain cautious?

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Speaker 1: And we just don't know. We've got no history that

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Speaker 1: looks anything like this, so we're all in the dark.

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Speaker 1: But I'm quite encouraged by the pickup in in in

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Speaker 1: restaurants spending, in the pickup in air travel it's down.

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Speaker 1: Restaurant air travels down compared to a year ago, but

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Speaker 1: but it was down, So there's been an incremental movement

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Speaker 1: in the right direction. And to me, that suggests people,

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Speaker 1: given the opportunity, are keen to get back out and

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Speaker 1: resume something like normal lives. And that's what has to

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Speaker 1: happen if the economy is to recover. Well initially, what

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Speaker 1: we'll say is the sequential improvement. Then we have to

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Speaker 1: talk about the limits of the recovery, and that's when

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Speaker 1: the science really comes into it. Some good news just

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Speaker 1: crossing the bloomberg from Maderna experimental vaccines from the company

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Speaker 1: showing promising ear least signs that it could create an

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Speaker 1: immune system response in the body that could help fend

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Speaker 1: off the coronavirus. This according to sampling of data from

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Speaker 1: a small first human trial of the inoculation. So this

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Speaker 1: is early days, very early days, but promising nevertheless, And

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Speaker 1: I just wander from your perspective, how you would have

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Speaker 1: to remodel the trajectory of the recovery if SIGNS can

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Speaker 1: do its part, and do its part a whole lot quicker. Yeah, Well,

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Speaker 1: my base case has always been that there would be

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Speaker 1: a vaccine available by the end of the year and

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Speaker 1: in limited quantities, you know, for healthcare workers and vulnerable people,

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Speaker 1: and that it would be available in in in substantial

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Speaker 1: quantities next spring. Now, if we could bring those numbers

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Speaker 1: four just by a couple of months, that would make

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Speaker 1: an enormous difference to the trajectory for growth from I'm

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Speaker 1: very encouraged by that Maderna headline. But they're not the

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Speaker 1: only one, of course, you know, and there's still that

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Speaker 1: the Oxford group in the UK that reckons they will

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Speaker 1: have a vaccine available in in commercial quantities as soon

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Speaker 1: as September. Well, you know, I believe that when I

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Speaker 1: see it. But the factors that were throwing globally more

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Speaker 1: resources at this vaccine in different places and differ methodologies

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Speaker 1: and we've ever seen before and anything like it. So

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Speaker 1: with a bit of luck, one of them will will

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Speaker 1: come up with the goods. And I think markets are

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Speaker 1: pricing that in as well. I mean, it's for sure

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Speaker 1: markets are. The SMP wouldn't be where it is now

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Speaker 1: if if markets didn't believe that there was going to

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Speaker 1: be a vacium in a relatively short time frame, even

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Speaker 1: just two or three months difference would would be it

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Speaker 1: would be a massive deal. Absolutely, It's that's exactly where

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Speaker 1: I wanted to go. Because we're seeing that equity features

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Speaker 1: are not up that much on this news, which I

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Speaker 1: thought was surprising, except for of course Maderna stock, which

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Speaker 1: is at sixteen percent. But how much is priced in?

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Speaker 1: How much are we priced to perfection given the expectation

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Speaker 1: of a vaccine in the near term and policy going

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Speaker 1: the right way of the markets, well, policy a third

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Speaker 1: policy to me is bang on. I'm happy with that.

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Speaker 1: The Congress is getting to the right place a venture.

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Speaker 1: You know, it's usual diversions. Um. The progress on on

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Speaker 1: reducing the rate of spread of the virus is pretty good,

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Speaker 1: you know, it's it's mixed, but there's not many states

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Speaker 1: now with with rampant outbreaks anymore, so those things are

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Speaker 1: all kind of falling into place. I do think the

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Speaker 1: markets are pricing in fully pricing in a vaccine now.

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Speaker 1: And let's say we were to see some headlines over

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Speaker 1: the next few weeks that a bunch of these these

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Speaker 1: trials had failed. I mean, that would generate a very

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Speaker 1: rock a few days for markets, no question about that.

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Speaker 1: And I think that tells you that what they're pricing

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Speaker 1: in is a substantial success on the on the vacant

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Speaker 1: before too long. So there is a vulnerability definitely if

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Speaker 1: it doesn't happen that, John, this is too much good news.

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Speaker 1: I mean sooner than that, we're going to see Newcastle

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Speaker 1: beat the Tarts. I mean it's going to be amazing.

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Speaker 1: They've got money. If this deal goes through, well we'll see,

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Speaker 1: we'll see. Thank you. So probably explain to our listeners

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Speaker 1: one Earth we're talking about, but everyone knows Sandi Arabia

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Speaker 1: taking over Newcastle United, which is Shepherdson's team, you know.

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Speaker 1: I mean they're going to beat Liverpool here within six months, Joel,

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Speaker 1: I've really wanted to do this for ages. Peter Hayes

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Speaker 1: is expert and municipal bonds. He runs the municipal bonds

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Speaker 1: shop from Mr frank Over at Black Rock with decades

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Speaker 1: and decades of experience. Let me start with the general question, Peter,

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Speaker 1: our municipal bonds avail you right now? The price creator

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Speaker 1: has come back, but is it's still availue where you

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Speaker 1: can pick up total return you have? Good morning, Tom,

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Speaker 1: thanks for having me. I would say yeah, when you

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Speaker 1: look at it, particularly versus other fixed income asthet classes.

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Speaker 1: The total return question is a good one. I think

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Speaker 1: that's how you have to think about municipals now. I

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Speaker 1: think they have their position because of the sell off

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Speaker 1: that we saw in March and because of the lack

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Speaker 1: of I would call it maybe said intervention and something

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Speaker 1: you don't want to be careful that they did create

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Speaker 1: the municipal liquidity facility, but they haven't done direct purchases

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Speaker 1: like they have for other asset classes. And because of

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Speaker 1: the credit impact of the economic downturn, munis are lagging

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Speaker 1: on the rebound. So they've done well in recent sessions.

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Speaker 1: Months to date they're up one point nine per cent.

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Speaker 1: But if you're looking at it from a holistic portfolio standpoint,

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Speaker 1: there is some total return value. And the other thing

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Speaker 1: we think of just long term, it's just income, I

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Speaker 1: mean taxes. Hard to see taxes going down here given

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Speaker 1: all the fiscal stimulus. Peter just looking at the landscape here,

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Speaker 1: there's a lot of discussion about in need for rescue

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Speaker 1: financing from Washington, d C. To bail out a lot

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Speaker 1: of these municipalities. The reason why bonds have sold off

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Speaker 1: so much in deals are where they are currently. What

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Speaker 1: is required in terms of the total number coming out

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Speaker 1: of Washington to support states budgets and prevent a vast

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Speaker 1: rash of failures on on the local side. Yeah, that's uh,

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Speaker 1: that's a really tough question, just because even though we

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Speaker 1: see all these attempts at reopening, will they be successful,

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Speaker 1: will they be reopening at a dent well, revenues bounce

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Speaker 1: back to where they were pre COVID. There's all these questions.

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Speaker 1: So the fights to say the number is a big one.

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Speaker 1: We've seen states already talk about some of the holes

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Speaker 1: and their gaps and their uh, you know, in totality

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Speaker 1: hundreds of billions of of dollars, So it is a

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Speaker 1: big number. They've done a lot in a lot of

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Speaker 1: different formats, and then we saw the bill and produce

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Speaker 1: lest week for the three trillion dollar number, which a

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Speaker 1: lot of that is geared to towards states and cities. UM.

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Speaker 1: I think one of the things you said at the

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Speaker 1: end though, is interesting about you know, preventing failure, and

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Speaker 1: this is an issue really of liquidity versus solvency. States

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Speaker 1: and cities can't go bankrupt cities technically ken in twenty

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Speaker 1: six to the fifty states, I think it is there's

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Speaker 1: some mechanism. It's difficult states cannot So there's been some

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Speaker 1: rhetoric about potentially some of the weaker pension states defaulty

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Speaker 1: you're going bankrupt. There is no mechanism for for that.

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Speaker 1: So I think it really becomes liquidity. How do you

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Speaker 1: solve this liquidity issue, this big shortfull and revenues over

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Speaker 1: a period of time. The Municipal Liquidity Facility that the

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Speaker 1: FED created is a backstop for that should the issuers

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Speaker 1: need it. Remember, they have to provide basic services, that's

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Speaker 1: there their sole purpose, and so the intent of the

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Speaker 1: backstop is to help states and cities to do that.

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Speaker 1: Um But you know, longer term, what will the numbers

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Speaker 1: look like in November? Will the economy kind of come

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Speaker 1: rolling back? Or is it going to be a slow

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Speaker 1: grind forward? And the slower it is, the longer it is,

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Speaker 1: the bigger that gap is going to be, the more

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Speaker 1: help that will be needed from Watchington. But suffice to say,

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Speaker 1: it's hundreds of billions of dollars at this point in time, Peter,

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Speaker 1: I'll safe for give me up front because this is

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Speaker 1: not a direct apples to apples comparison, of course, but

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Speaker 1: in Europe, in the financial debt crisis, there was a

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Speaker 1: clear divide between core Europe and peripheral Europe. Do you

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Speaker 1: see anything similar emerging just in terms of red states

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Speaker 1: blue states in the coming years. So I would say yes,

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Speaker 1: this is the short answer, and to some degree, I

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Speaker 1: think we already see that. So if you look at

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Speaker 1: what the said is done by buying corporates, mortgage fact securities, treasuries,

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Speaker 1: it makes me wonder to some degree whether one of

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Speaker 1: the reasons they haven't bought immunis more directly is it's

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Speaker 1: a big market, bigger than people think, very complex, with

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Speaker 1: the twinning on how you look at it, seventy five

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Speaker 1: thousand different issuers, etcetera. So how you go about that

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Speaker 1: is difficult. But I think a big part of the

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Speaker 1: problem is the red versus the blue. When you look

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Speaker 1: at kind of issuance, you look at the coast versus

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Speaker 1: Middle America, and I think this is part of the difficulty.

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Speaker 1: You even see the rhetoric around the three trillion dollars

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Speaker 1: stimulus package introduced on Friday, it does become a bit

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Speaker 1: of a red state blue state, and I think that

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Speaker 1: ultimately can be a bit of an impediment. There's a

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Speaker 1: lot of things that have to take place here. There's

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Speaker 1: sort of infrastructure spending is creating jobs. There's helping make

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Speaker 1: up the shortfall and revenues that we said asked about.

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Speaker 1: So there's all these elements that have to get solved,

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Speaker 1: and we do wonder whether the political difficulty of this

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Speaker 1: gets in the way. We obviously have an election later

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Speaker 1: this year, so we'll see how that turns out. So

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Speaker 1: we might not get a lot of these issues resolved

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Speaker 1: in they might drag on into depending on what the

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Speaker 1: outcome of the election is in the political landscape. Looks

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Speaker 1: like fantastic to catch up with you, sir, appreciate your time,

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Speaker 1: and you're in aren't a really important issue? Peter Hays

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Speaker 1: there of black Rock. This is our interview of the

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Speaker 1: day on China, Free of Beamish with Pantheon Free and

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Speaker 1: let me just start with a basic question, what is

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Speaker 1: the GDP run rate right now of China. Well, at

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Speaker 1: the moment we're looking at UM pretty a pretty um

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Speaker 1: close actually to what the It's hard for me do

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Speaker 1: and say though as well, it's it's pretty close to

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Speaker 1: what the authorities have been reporting UM in in Q

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Speaker 1: one at least UM. So we did see a big,

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Speaker 1: big drop quarter on quarter, and we saw a big

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Speaker 1: drop UM year of year as well, and the authorities

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Speaker 1: actually UM came close to to to come and clean

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Speaker 1: on what that was. I wouldn't get too comfortable with

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Speaker 1: that UM with that position of of kind of telling

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Speaker 1: the truth because in the in the second half of

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Speaker 1: the year, the reality is that the recovery is likely

428
00:22:59,680 --> 00:23:04,239
Speaker 1: to to underperform. And coming into the two sessions UM

429
00:23:04,359 --> 00:23:07,320
Speaker 1: that we have UH will have announcements hopefully at the

430
00:23:07,400 --> 00:23:09,360
Speaker 1: end of this week as to as to what targets

431
00:23:09,480 --> 00:23:13,359
Speaker 1: might be UM coming into that. It's it's likely that

432
00:23:13,720 --> 00:23:17,080
Speaker 1: UM we're gonna start to see more flexibility around those

433
00:23:17,520 --> 00:23:21,919
Speaker 1: those growth targets UM and that that UM we might

434
00:23:22,040 --> 00:23:25,040
Speaker 1: even see a two year target being set. So that's

435
00:23:25,080 --> 00:23:27,560
Speaker 1: going to make things anyway, We're not going to see

436
00:23:27,600 --> 00:23:31,440
Speaker 1: such a strong signal from the Chinese authorities UM, and

437
00:23:31,640 --> 00:23:35,040
Speaker 1: and in any case, what we can extrapolate from even

438
00:23:35,080 --> 00:23:37,920
Speaker 1: if there is two year target UM with regards to

439
00:23:39,359 --> 00:23:43,280
Speaker 1: UM is probably gonna be higher than what UM what

440
00:23:43,400 --> 00:23:47,480
Speaker 1: we're going to see in regality. So for this year overall, UM,

441
00:23:47,600 --> 00:23:50,320
Speaker 1: the Q one data was such that it's very hard

442
00:23:50,400 --> 00:23:53,560
Speaker 1: to see how they could recover UM and get a

443
00:23:53,720 --> 00:23:56,719
Speaker 1: growth of this year. So we think actually that we're

444
00:23:56,760 --> 00:23:58,840
Speaker 1: going to see a contraction UM to the tune of

445
00:23:58,880 --> 00:24:03,080
Speaker 1: about two percent for this full year. UM. They're unlikely

446
00:24:03,160 --> 00:24:06,600
Speaker 1: to report that UM as they said that, the reality

447
00:24:06,680 --> 00:24:10,400
Speaker 1: is that they will probably they could actually over report

448
00:24:10,880 --> 00:24:14,160
Speaker 1: UM next so they could actually under report next year.

449
00:24:14,280 --> 00:24:17,760
Speaker 1: What mixing Chinese GDP is is volatility UM, so they

450
00:24:17,800 --> 00:24:20,280
Speaker 1: could they could say growth is higher than it actually

451
00:24:20,359 --> 00:24:22,480
Speaker 1: is in reality this year and next year they would

452
00:24:22,480 --> 00:24:25,960
Speaker 1: they would, they would, they would under report. For trying

453
00:24:26,000 --> 00:24:28,399
Speaker 1: to game out what to believe from China, what not

454
00:24:28,600 --> 00:24:31,800
Speaker 1: to believe, which data points to take has been something

455
00:24:31,840 --> 00:24:33,760
Speaker 1: of a cottage industry for a lot of a lot

456
00:24:33,800 --> 00:24:36,080
Speaker 1: of individuals. I'm wondering. There was a story on the

457
00:24:36,119 --> 00:24:39,800
Speaker 1: Bloomberg Terminals today saying that Chinese oil demand is nearly

458
00:24:39,920 --> 00:24:43,520
Speaker 1: back to the level seen before the national lockdown that

459
00:24:43,600 --> 00:24:48,000
Speaker 1: Beijing imposed to prevent the outbreak from spreading. I'm trying

460
00:24:48,040 --> 00:24:52,560
Speaker 1: to understand how important, if this is accurate, how much

461
00:24:52,680 --> 00:24:56,000
Speaker 1: this is a tell of the economy getting back online

462
00:24:56,600 --> 00:24:58,600
Speaker 1: versus just the fact that people are using their own

463
00:24:58,720 --> 00:25:02,520
Speaker 1: cars more than public transportation. For example, simply because they

464
00:25:02,560 --> 00:25:06,119
Speaker 1: don't want to be in a crowded place. Yeah, there

465
00:25:06,359 --> 00:25:08,159
Speaker 1: could be a bit of that, but looking at the

466
00:25:08,400 --> 00:25:13,399
Speaker 1: the industrial production data overall, that in total is almost

467
00:25:13,480 --> 00:25:15,800
Speaker 1: back to Q four levels. So this goes back to

468
00:25:15,880 --> 00:25:17,600
Speaker 1: what we were talking about earlier in terms of this

469
00:25:17,800 --> 00:25:22,879
Speaker 1: dual chat track recovery UM, whereby the industrial complex is

470
00:25:23,359 --> 00:25:25,480
Speaker 1: kind of powering back and it really looks like a

471
00:25:25,560 --> 00:25:28,400
Speaker 1: V shaped recovery and does seem like it's getting back

472
00:25:28,400 --> 00:25:32,359
Speaker 1: to from a QUE four levels rather rather almost surprisingly UM.

473
00:25:32,480 --> 00:25:36,760
Speaker 1: But that's very much supported by the fulfillment of previous

474
00:25:37,240 --> 00:25:42,600
Speaker 1: export orders and also by the liquidity provision for inventory

475
00:25:42,720 --> 00:25:46,000
Speaker 1: build UM in the first part of this quarter. Now

476
00:25:46,080 --> 00:25:49,040
Speaker 1: that the external demand story is very fast going to

477
00:25:49,280 --> 00:25:53,120
Speaker 1: drop away from the support UM from the external demand

478
00:25:53,240 --> 00:25:55,800
Speaker 1: is going to drop away very quickly from from that

479
00:25:55,960 --> 00:25:58,480
Speaker 1: story UM as we go further into Q two and

480
00:25:58,560 --> 00:26:01,280
Speaker 1: it's it's it's a big ask for these state owned

481
00:26:01,359 --> 00:26:04,879
Speaker 1: enterprises that are that are overstretched in terms of debt

482
00:26:05,640 --> 00:26:11,240
Speaker 1: UM to continue just pumping out productions for to boost

483
00:26:11,520 --> 00:26:15,000
Speaker 1: inventory when the outlook is so uncertain at the moment,

484
00:26:15,119 --> 00:26:17,200
Speaker 1: we still think there will be a good, strong recovery

485
00:26:17,320 --> 00:26:19,920
Speaker 1: in in two three in the rest of the world,

486
00:26:20,000 --> 00:26:21,639
Speaker 1: and then China would be able to shift them with

487
00:26:21,680 --> 00:26:24,600
Speaker 1: that inventory. But at the moment, it's it's still things

488
00:26:24,680 --> 00:26:28,879
Speaker 1: are still very uncertain. Trust and transparency too, issues that

489
00:26:29,000 --> 00:26:30,880
Speaker 1: just aren't going anywhere. And you're not the only guest

490
00:26:30,960 --> 00:26:33,000
Speaker 1: that comes on this program who can't trust the data

491
00:26:33,520 --> 00:26:36,359
Speaker 1: seemingly coming out of China. The government and the trust

492
00:26:36,440 --> 00:26:38,600
Speaker 1: here in the United States of the Chinese Communist Party

493
00:26:38,600 --> 00:26:40,840
Speaker 1: has clearly broken down again. I'm not sure if it

494
00:26:40,920 --> 00:26:43,080
Speaker 1: was ever really built back up. There are questions about

495
00:26:43,119 --> 00:26:46,320
Speaker 1: transparency all the times, not just from the United States,

496
00:26:46,359 --> 00:26:50,159
Speaker 1: also from Europe, Australia and elsewhere to where is this

497
00:26:50,320 --> 00:26:52,880
Speaker 1: heading free I'm trying to get my hands around where

498
00:26:52,920 --> 00:26:56,280
Speaker 1: this is heading. I'm hearing so much from Washington, from Democrats,

499
00:26:56,320 --> 00:26:59,920
Speaker 1: from Republicans on what they think of this Chinese Communist Party.

500
00:27:00,680 --> 00:27:03,600
Speaker 1: Words and policy are often two different things. Can you

501
00:27:03,680 --> 00:27:05,280
Speaker 1: talk to me about where this is heading? Just in

502
00:27:05,440 --> 00:27:10,720
Speaker 1: terms of policy, Yeah, well, our our forecasts at the

503
00:27:10,840 --> 00:27:16,280
Speaker 1: moment are kind of banked on relations between China and

504
00:27:16,359 --> 00:27:18,960
Speaker 1: the US room main or i shouldn't say remaining, because

505
00:27:18,960 --> 00:27:20,399
Speaker 1: they're not in a good place at the moment. But

506
00:27:20,880 --> 00:27:24,320
Speaker 1: um on the assumption that things have been so bad

507
00:27:24,400 --> 00:27:26,359
Speaker 1: in the first half of the year that any kind

508
00:27:26,400 --> 00:27:30,239
Speaker 1: of reasonable politician than we're just hoping that politicians can

509
00:27:30,320 --> 00:27:34,800
Speaker 1: be reasonable enough, wouldn't want to derail the recovery in

510
00:27:34,880 --> 00:27:38,359
Speaker 1: the second half UM by by kind of throwing a

511
00:27:38,359 --> 00:27:40,520
Speaker 1: spanner in the works of global trade. That's not what

512
00:27:40,720 --> 00:27:43,840
Speaker 1: we really hear at the moment um. But the thing is,

513
00:27:43,880 --> 00:27:46,920
Speaker 1: at the moment all all global economies are in a

514
00:27:47,000 --> 00:27:49,399
Speaker 1: lot of pain, UM, and the best thing to do,

515
00:27:49,800 --> 00:27:52,159
Speaker 1: or not the best thing in a moral sense, but

516
00:27:52,400 --> 00:27:56,360
Speaker 1: one of the best policies strategies UM in that case

517
00:27:56,720 --> 00:27:59,160
Speaker 1: is somebody else, and to point the finger at somebody else.

518
00:27:59,200 --> 00:28:01,920
Speaker 1: So it's of understandable that at this stage in the

519
00:28:02,000 --> 00:28:07,080
Speaker 1: game we will be seeing kind of uncomfortable UM noises

520
00:28:07,200 --> 00:28:11,040
Speaker 1: coming from from both sides. But when the reality of

521
00:28:11,119 --> 00:28:13,720
Speaker 1: the situation comes through and there's the there's the the

522
00:28:13,800 --> 00:28:17,760
Speaker 1: actual prospect of the recovery in the second half, it

523
00:28:17,920 --> 00:28:20,879
Speaker 1: seems unlikely about when you eat my words, but it

524
00:28:20,920 --> 00:28:24,080
Speaker 1: seems unlikely that people would want to derail that UM

525
00:28:24,160 --> 00:28:27,600
Speaker 1: in the second half. Frank, thank you Fry miss of

526
00:28:27,680 --> 00:28:34,399
Speaker 1: Panthea macroeconomics. I'm going to cut to the chase. We

527
00:28:34,480 --> 00:28:37,320
Speaker 1: need to spend every second weekend this morning. But Josh

528
00:28:37,359 --> 00:28:40,960
Speaker 1: for Sharkstein. He's at Johns Hopkins Universities Bloomberg School of

529
00:28:41,040 --> 00:28:44,080
Speaker 1: Public Health. I should point out that Mr Bloomberg is

530
00:28:44,200 --> 00:28:48,240
Speaker 1: founder of Bloomberg LP, this radio and television platform as well,

531
00:28:48,320 --> 00:28:52,840
Speaker 1: and has been a philanthropist to his Johns Hopkins University.

532
00:28:53,480 --> 00:28:55,960
Speaker 1: Dr Scharstein, I thought of you this weekend when I

533
00:28:56,040 --> 00:28:59,920
Speaker 1: looked down upon Central Park and saw that, Yeah, maybe

534
00:29:00,040 --> 00:29:02,720
Speaker 1: he's sort of kind of like we were socially distanced.

535
00:29:03,320 --> 00:29:05,720
Speaker 1: But the truth is, uh, there are a lot of

536
00:29:05,800 --> 00:29:11,000
Speaker 1: people in Central Park. The whole operation here seems to

537
00:29:11,120 --> 00:29:17,640
Speaker 1: wrap around masks, Masks of different shades, Masks that are bandanas,

538
00:29:18,280 --> 00:29:21,440
Speaker 1: mass that are a scarf, mass are just a hunk

539
00:29:21,480 --> 00:29:24,440
Speaker 1: of cotton. Maybe there's some medical stuff and a very

540
00:29:24,480 --> 00:29:28,000
Speaker 1: few select people have the fancy N ninety five masks.

541
00:29:28,560 --> 00:29:31,959
Speaker 1: Give us a clinic. Now our masks are Are they

542
00:29:32,000 --> 00:29:34,640
Speaker 1: going to be what gets this nation back to work?

543
00:29:36,360 --> 00:29:38,480
Speaker 1: I think masks will help a little bit um and

544
00:29:38,560 --> 00:29:41,000
Speaker 1: I think it's a good idea for people to wear masks.

545
00:29:41,040 --> 00:29:44,160
Speaker 1: They don't have to be the fancy medical masks UM

546
00:29:44,280 --> 00:29:46,720
Speaker 1: in order to protect other people. What the masks does

547
00:29:46,920 --> 00:29:50,240
Speaker 1: is block the droplets coming out of somebody's mouth, and

548
00:29:50,720 --> 00:29:53,560
Speaker 1: because people aren't sure, they may not be aware that

549
00:29:53,680 --> 00:29:57,160
Speaker 1: they are infectious, because the symptoms haven't started yet. It's

550
00:29:57,160 --> 00:29:59,560
Speaker 1: a good thing to wear a mask to protect other people.

551
00:30:00,160 --> 00:30:03,680
Speaker 1: But the real thing that protects people is the distance

552
00:30:03,800 --> 00:30:08,200
Speaker 1: between them, the physical barriers, the six feet, the redoing,

553
00:30:08,320 --> 00:30:10,360
Speaker 1: the schedule so there are not as many people in

554
00:30:10,440 --> 00:30:13,560
Speaker 1: the office. All of those things are important. The masts

555
00:30:13,600 --> 00:30:16,040
Speaker 1: are kind of like the icing on the on the cake,

556
00:30:16,120 --> 00:30:20,640
Speaker 1: so to speak. Joshua, it's good to hear that the

557
00:30:20,800 --> 00:30:23,560
Speaker 1: master and icing on the cake. But the idea here,

558
00:30:23,600 --> 00:30:26,080
Speaker 1: and you see it in the Washington Post chart of

559
00:30:26,160 --> 00:30:29,800
Speaker 1: a seven day moving average. Clearly the tone is we're

560
00:30:29,840 --> 00:30:33,200
Speaker 1: moving to a better place. Where is the place we're

561
00:30:33,280 --> 00:30:37,960
Speaker 1: moving to. Well, I think it's it's good news obviously

562
00:30:38,040 --> 00:30:40,120
Speaker 1: that there's been a little bit of a drift down

563
00:30:40,480 --> 00:30:42,800
Speaker 1: um and I think a lot of people are taking

564
00:30:42,840 --> 00:30:45,240
Speaker 1: a lot of precautions, which is good, and people have

565
00:30:45,480 --> 00:30:48,440
Speaker 1: to maintain that. You know, the virus appears to be

566
00:30:48,560 --> 00:30:51,160
Speaker 1: a little slower to transmit in the heat, so that's

567
00:30:51,360 --> 00:30:54,240
Speaker 1: a good sign for the time being. But it also

568
00:30:54,360 --> 00:30:56,880
Speaker 1: means that we could be getting a false sense of

569
00:30:56,960 --> 00:30:59,800
Speaker 1: security that we're distancing enough and when the fall hit,

570
00:31:00,560 --> 00:31:02,880
Speaker 1: it could go right back up again. So I think

571
00:31:02,920 --> 00:31:08,280
Speaker 1: it's still pretty uncertain right now, Josh, give me a

572
00:31:08,360 --> 00:31:11,560
Speaker 1: sense of what we know about immunity, right Do we

573
00:31:11,680 --> 00:31:13,719
Speaker 1: have a clearer sense now than we did even ten

574
00:31:13,840 --> 00:31:18,080
Speaker 1: days ago about how many people are new So UM.

575
00:31:18,600 --> 00:31:21,880
Speaker 1: I think that there's a lot of positive signs and

576
00:31:22,240 --> 00:31:26,880
Speaker 1: some more recent positive signs that there is evidence of immunity,

577
00:31:27,080 --> 00:31:31,080
Speaker 1: but the case hasn't been proven. And so the positive

578
00:31:31,120 --> 00:31:34,560
Speaker 1: signs include animal studies where the animals get rechallenged and

579
00:31:34,600 --> 00:31:37,480
Speaker 1: don't seem to get sick again. UM, the fact that

580
00:31:37,600 --> 00:31:42,200
Speaker 1: they really aren't compelling stories of UM, and you know,

581
00:31:42,400 --> 00:31:45,800
Speaker 1: scientific investigations of people who have gotten very sick twice

582
00:31:45,880 --> 00:31:50,360
Speaker 1: with different strains UM. So that I think more evidence

583
00:31:50,400 --> 00:31:54,320
Speaker 1: will come out. But we're going in the direction that

584
00:31:54,520 --> 00:31:57,920
Speaker 1: when people are sick with the coronavirus, they may have

585
00:31:58,400 --> 00:32:00,600
Speaker 1: less of a chance of getting sick or some period

586
00:32:00,640 --> 00:32:04,040
Speaker 1: of time. And that's good for a lot of different reasons. Now,

587
00:32:04,200 --> 00:32:06,320
Speaker 1: that's a little bit different from saying we know exactly

588
00:32:06,360 --> 00:32:08,200
Speaker 1: how to measure that, and so the tests have to

589
00:32:08,280 --> 00:32:11,960
Speaker 1: be really calibrated with that. UM, So I think we're

590
00:32:13,120 --> 00:32:18,640
Speaker 1: getting UM a little bit more optimistic that such immunity exists.

591
00:32:18,680 --> 00:32:20,800
Speaker 1: We will be able to measure it and that will

592
00:32:20,920 --> 00:32:23,480
Speaker 1: be good not only for some people's knowledge about whether

593
00:32:23,520 --> 00:32:26,800
Speaker 1: they're relatively protected, but it will be good also as

594
00:32:26,840 --> 00:32:29,880
Speaker 1: a sign for different kinds of therapies. It makes it

595
00:32:30,040 --> 00:32:34,640
Speaker 1: hopeful that maybe the convalescent serum will provide some protection.

596
00:32:34,760 --> 00:32:37,480
Speaker 1: And of course UM with immunity, with the fact that

597
00:32:37,560 --> 00:32:40,360
Speaker 1: immunity does exist, if you know, once we know that

598
00:32:40,480 --> 00:32:44,880
Speaker 1: for sure, that would be a good sign for a vaccine. Josh,

599
00:32:44,920 --> 00:32:47,520
Speaker 1: when do we find out whether contact tracing is really

600
00:32:47,560 --> 00:32:52,160
Speaker 1: effective in protecting people? Well, we know contact tracing is

601
00:32:52,200 --> 00:32:54,280
Speaker 1: effective in general. The question that we need to know

602
00:32:54,520 --> 00:32:58,200
Speaker 1: is whether the United States can launch programs that do

603
00:32:58,400 --> 00:33:03,120
Speaker 1: it well. And depends on training. And you know that

604
00:33:03,240 --> 00:33:06,600
Speaker 1: Johns Hopkins training course now as over a hundred and

605
00:33:06,640 --> 00:33:10,920
Speaker 1: fifty thousand people enrolled, which is great. It's pretty online, UM,

606
00:33:11,560 --> 00:33:14,480
Speaker 1: but a lot more is needed because these programs have

607
00:33:14,600 --> 00:33:16,640
Speaker 1: to be run very well. You have to be able

608
00:33:16,680 --> 00:33:18,600
Speaker 1: to find contacts quickly, you have to be able to

609
00:33:18,640 --> 00:33:22,360
Speaker 1: support people in quarantine, get them food if they need it,

610
00:33:22,640 --> 00:33:24,880
Speaker 1: get them other supplies, move them to a different place

611
00:33:24,960 --> 00:33:28,560
Speaker 1: if they can't safely quarantine at home. These are the

612
00:33:28,800 --> 00:33:32,400
Speaker 1: requirements that have been successful, been implemented in other places.

613
00:33:32,720 --> 00:33:36,920
Speaker 1: If we can do that well, it'll really matter. Joshua,

614
00:33:36,960 --> 00:33:39,480
Speaker 1: it's unfair to ask this question, but it's so emergent

615
00:33:39,640 --> 00:33:42,440
Speaker 1: right now, particularly for the Midwest, I thought i'd ask it.

616
00:33:42,760 --> 00:33:45,320
Speaker 1: I don't want you to comment directly on the Panhandle,

617
00:33:45,920 --> 00:33:48,920
Speaker 1: but in Texas, where they're really starting to open things up,

618
00:33:49,360 --> 00:33:53,040
Speaker 1: there seems to be a focus on Amarillo, Texas. Are

619
00:33:53,120 --> 00:33:54,800
Speaker 1: we going to see a lot more of these are?

620
00:33:54,960 --> 00:33:59,560
Speaker 1: You know, I don't like to phrase hot spots, but statistically,

621
00:33:59,640 --> 00:34:02,760
Speaker 1: are we gonna see these flare ups around the country?

622
00:34:04,360 --> 00:34:08,120
Speaker 1: Unquestionably we will, and I think particularly as we open

623
00:34:08,239 --> 00:34:10,680
Speaker 1: up there just a lot of risks. And you know,

624
00:34:10,760 --> 00:34:14,040
Speaker 1: we saw just one choir practice at like sixty people

625
00:34:14,160 --> 00:34:19,239
Speaker 1: infected and two died. We're gonna see situations where, you know,

626
00:34:19,360 --> 00:34:21,879
Speaker 1: people who may not realize that they're sick or feel

627
00:34:21,960 --> 00:34:23,759
Speaker 1: my leal and don't think in a million years it

628
00:34:23,800 --> 00:34:27,480
Speaker 1: could be coronavirus, go out, they're not wearing masks, they

629
00:34:28,080 --> 00:34:30,360
Speaker 1: get too close to other people, and we're going to

630
00:34:30,440 --> 00:34:33,520
Speaker 1: find out that it's still a virus that has tremendous

631
00:34:33,560 --> 00:34:38,880
Speaker 1: capacity Dark Sharkston, thank you so much, Joshua Sharkstein with

632
00:34:38,960 --> 00:34:42,600
Speaker 1: the Bloomberg School of Public Health JOHNS Hopkins at University.

633
00:34:43,520 --> 00:34:47,600
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

634
00:34:47,760 --> 00:34:53,040
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast

635
00:34:53,120 --> 00:34:57,360
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before

636
00:34:57,400 --> 00:35:01,200
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg

637
00:35:01,320 --> 00:35:01,600
Speaker 1: Radio