Speaker 1: Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane
Speaker 1: jay Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Really
Speaker 1: happy to say we can stop the week with Lisa's Shadow,
Speaker 1: the More than Standing Wealth Management, the chief investment Officer. Lisa.
Speaker 1: You and I have gone back and forth over the
Speaker 1: last couple of weeks. Help us understand the cyclical trade
Speaker 1: and how you think that's going to evolve in the
Speaker 1: coming months. Yeah, great, Good morning, Jonathan. Um. Look, our
Speaker 1: perspective is that, uh, you know, folks have really looked
Speaker 1: at the cyclical trade and are waiting to see the
Speaker 1: inflation expectations data signal that reflation in the economy has begun,
Speaker 1: and we've really seen you know, the cyclicals defensive ratio
Speaker 1: track inflation expectations. Uh. To your point, I think this news, um,
Speaker 1: you know, coming out of the Fed, and you know
Speaker 1: the market's reaction to it, meaning they are believing uh
Speaker 1: Chairman Powell for for what he's saying, UH is ultimately
Speaker 1: going to be a positive catalyst in that regard and
Speaker 1: start firming up those inflation expectations. UM. I think when
Speaker 1: you go to full on debt monetization, which is really
Speaker 1: I think where we are. Uh, that's the point at which,
Speaker 1: uh it becomes very clear, you know what the Fed
Speaker 1: is doing. They're debasing the US dollar, They're pushing down uh,
Speaker 1: you know, real rates UM, and ultimately the US dollar
Speaker 1: has to roll over. And the rollover of that U
Speaker 1: S dollar from what has been uh, you know, just
Speaker 1: extraordinary heights on a on a trade weighted basis, UH
Speaker 1: is going to be the one of the things that
Speaker 1: trigger is um, a return of a little bit of inflation.
Speaker 1: And that's all you need here to get those pilicles going, Lisa,
Speaker 1: what's the dollar going to be debased against? What currency
Speaker 1: is actually going to gain press prominence versus the green back? Uh?
Speaker 1: So our perspective is that uh most uh And what
Speaker 1: I mean by that is, remember that at the end
Speaker 1: of the day, uh, you know, currencies move uh in
Speaker 1: in relation to relative yield advantages and relative growth. UH.
Speaker 1: And while for a good portion of the last three
Speaker 1: or four years, the US really had a real yield
Speaker 1: advantage and a real growth advantage. Um. What coronavirus has
Speaker 1: done is kind of levels of playing field quite a bit.
Speaker 1: And what we've seen in the near term is simply
Speaker 1: a an extension of the fear trade. UH. That's really
Speaker 1: holding the dollar up in our humble opinion, because when
Speaker 1: you look underneath the surface, the relative of growth of
Speaker 1: the US economy UH is really not that much better
Speaker 1: than what's going on in the rest of the world,
Speaker 1: and real rates are really starting to come down A Lisa,
Speaker 1: I want you to give me the real scroop. You're
Speaker 1: in wealth management, your legendary in the street. You've seen
Speaker 1: the up down, You've seen how many how many once
Speaker 1: in a lifetime crisis, Lisa have you and I had combined? GETU?
Speaker 1: There's no left over, folks, Lisa, that the textbook says.
Speaker 1: You know, you've walked into a more E. Stanley office
Speaker 1: supposed to go there's a sixty split, six stocks, bonds
Speaker 1: and ten percent cash, because that's what you're supposed to do, Bologny,
Speaker 1: what's the actual split right now? Oh? Goodness? So, uh,
Speaker 1: you know, look, the vast majority of our clients are
Speaker 1: extraordinarily conservative and have been you know, quote unquote hoarding
Speaker 1: cash and you know, as is often the case, and
Speaker 1: we know this from behavioral finance, is a playbook you know,
Speaker 1: played out to a t uh. You know, a lot
Speaker 1: of clients unfortunately, you know, sold badly. They gave into
Speaker 1: fear and throughout the February March time frame built their
Speaker 1: cash balances, you know, up to to two times normal.
Speaker 1: So you you talk about the ten percent being an average,
Speaker 1: you know, we're running closer to two times that about cash. John,
Speaker 1: I just want to say it's it's earlier in the
Speaker 1: week and that's already the phrase of the week that
Speaker 1: defines my investment past. John. So many people have shared
Speaker 1: your cash allocations so badly. Lisa, let's talk about how
Speaker 1: this evolves. Because you've said that we could see some
Speaker 1: inflation and maybe that will move things along. We're about
Speaker 1: to see some real sequential month or month improvement in
Speaker 1: the next couple of months. We'll get the p M
Speaker 1: I slid of this week. May should be better than April.
Speaker 1: June should be better than May. Does that help get
Speaker 1: it done or is that just already widely expected. Well,
Speaker 1: I think the piece that isn't expected is that what
Speaker 1: we're going to see is a lot of lumpiness between
Speaker 1: supply and demand because don't forget what we did, is
Speaker 1: we you know, sudden stop uh turned off the economy,
Speaker 1: and so the supply chains are imbalanced. Uh. And so
Speaker 1: while the market is universally discounting uh, the you know,
Speaker 1: the demand side of things, they're not really thinking about
Speaker 1: the supply side of things. And the supply side of
Speaker 1: things in many cases is going to be delayed. And
Speaker 1: it's that delay and mismatch and the supply chains that
Speaker 1: could cause um, you know, some price inflation to creep
Speaker 1: in as people are willing to quote unquote pay up
Speaker 1: uh to fill refill their shelves. And uh, you know,
Speaker 1: I do think we are going to begin to see
Speaker 1: a pickup in some of those metrics around prices paid,
Speaker 1: wages paid, uh, you know, particularly amongst small businesses. So
Speaker 1: just real quick care, Lisa, what do you think it
Speaker 1: will take to shift the current mood that policy Trump's
Speaker 1: the fundamental economic data? Is there anything that could come out,
Speaker 1: whether it's rising trade tensions or anything else to reverse
Speaker 1: the shift? Uh you mean reverse or relationary trade? Yes? Um,
Speaker 1: so look there there are obviously a host of things, um,
Speaker 1: and not the least of which is the virus itself.
Speaker 1: Look right now, UM, we are seeing um, you know,
Speaker 1: clearly nationwide curve flattening. UH. And that has been definitely
Speaker 1: something that's the market understands and is embracing. UH. And
Speaker 1: I think if we were to have any major setbacks
Speaker 1: on that, the you know, the narrative is still extraordinarily
Speaker 1: vulnerable to that. Obviously, now is not the time for
Speaker 1: us to see uh, a pickup in trade tensions, nor
Speaker 1: is it, quite frankly a time for us to see
Speaker 1: a pick it a pick up in political partisanship. UM.
Speaker 1: You know, one of the things that we need to
Speaker 1: to members that the major provisions of the Cares Act
Speaker 1: that we've been talking about is quote unquote you know,
Speaker 1: monstrous stimulus. It begin to expire in the you know,
Speaker 1: June July, uh September time frame. We're gonna need some extensions,
Speaker 1: and we're gonna need some cooperation between here and probably
Speaker 1: July August before we get into the peak of the
Speaker 1: political presidential campaigning. UH. And if we have stumbles and
Speaker 1: it looks like Washington's becoming dysfunctional, UH, the markets really
Speaker 1: not gonna like that either. So those would be the
Speaker 1: three that that We're looking at Lisa brilliant to catch
Speaker 1: out with you. As always, Lisa shout at that Morgan
Speaker 1: Standing Wealth Management Chief Investment Officer. I want to go
Speaker 1: there with the and Shepherdson, but you bring up something John,
Speaker 1: we can't. Let's slip by. Mr Haldan is respected and
Speaker 1: he moved. Sterling explain this to our American audience. Who
Speaker 1: Andy Haldane is and why when he talks about negative
Speaker 1: rates that matters. The chief colomists of the Bank of
Speaker 1: England k figure over the BOE tomb largely considered to
Speaker 1: be the guy that has the blue sky thinking about
Speaker 1: what to do with monetary policy. So it's not unusual
Speaker 1: for me that it was Andy Haldane that was the
Speaker 1: guy that came out as said, I'm thinking about negative
Speaker 1: interest rights. We're thinking about it. Still to me, I
Speaker 1: don't see the core of the MPC coming along with
Speaker 1: this just yet. Well, there it is. It won't continue
Speaker 1: to follow that as well as John mentions on oil
Speaker 1: up and other things up all this weekend there was
Speaker 1: a glide pass and cute little charts beginning to show
Speaker 1: recovery or attempting to guest estimate their recovery and Shepherdson
Speaker 1: is expert at discerning this. He's with Pantheon, as I've
Speaker 1: said many times, they are leading on LinkedIn with the
Speaker 1: best in charts that you can see out on LinkedIn,
Speaker 1: and of course their services as well. Ian Shepherdson. There,
Speaker 1: I guess is going to be a recovery, and it's
Speaker 1: going to be modeled in the most high frequency of
Speaker 1: high frequency recovery data will be claims this Thursday. Are
Speaker 1: we actually see a trend of lower weekly jobless claims? Yeah,
Speaker 1: we're already there. I mean the numbers are still horrendous, obviously,
Speaker 1: but but the trend is decaying by well ten twelve
Speaker 1: percent a week. So I'm hoping this week we might
Speaker 1: print something like two point five millions, so down from
Speaker 1: almost three million last week. Obviously the peak was nearly
Speaker 1: seven a million, so definitely having in the right direction.
Speaker 1: We've seen a week after week of of incremental declines,
Speaker 1: but obviously still far too high. The very worst week
Speaker 1: after the crash in two thousand and eight was six
Speaker 1: hundred sixty five, and here we are today saying well
Speaker 1: two and a half million. That's an improvement, So you know,
Speaker 1: all things in context here, it's still terrible, and a
Speaker 1: lot of people have been talking about an unprecedented policy response,
Speaker 1: and a lot of the people who have gotten laid
Speaker 1: off haven't been receiving unemployment benefits. There's a question of
Speaker 1: how big of an aditional stimulus package or rescue financing
Speaker 1: package the market is currently pricing in what is expected,
Speaker 1: what is likely given that three trillion dollar plan that
Speaker 1: Nancy Pelosi got past in the House, but it's likely
Speaker 1: dead on arrival in Senate. Yes, I mean, every everyone
Speaker 1: knows there's no chance of a three trillion dollar package.
Speaker 1: It will be somewhere between zero and three. So let's
Speaker 1: do some conversated math and one and a half. So
Speaker 1: timing is, of course everything. I think markets expect that
Speaker 1: some that a deal will be done over the next
Speaker 1: few weeks. I think most people are kind of looking
Speaker 1: through the posturing on the Republican side in the center
Speaker 1: that you know that they're they're talking to their base
Speaker 1: at the moment when they're saying they want to pause
Speaker 1: and wait and see and be cautious all this stuff.
Speaker 1: But the fact is there's an election coming up, and
Speaker 1: I don't think these guys can go back to their
Speaker 1: constituents and say, hey, we voted against that rescue package
Speaker 1: and yeah, unemployment still but vote for me. I mean
Speaker 1: that just seems implausible to me, and I think markets
Speaker 1: believe that's implausible as well. So yes, a lot of posturing,
Speaker 1: a lot of grandstanding. There's no chance that that that
Speaker 1: whole Democrat wish list will get past the Senate. But
Speaker 1: I think support to state and local government will substantial.
Speaker 1: The revenues have collapsed and they're spending a shot up.
Speaker 1: They have to be supported and probably will see an
Speaker 1: extension of the enhanced on employment benefits beyond July as well,
Speaker 1: plus extra money for healthcare and some other things. But
Speaker 1: some got a substantial package and it will bring the
Speaker 1: total amount of support, probably in excess as four trillion dollars,
Speaker 1: so which is kind of the order of magnitude that
Speaker 1: I think is is needed. So getting getting to the
Speaker 1: right place eventually, absolutely incredible numbers A little bit later
Speaker 1: this are, in fact, in a round about ten minutes,
Speaker 1: will catch up with Peter Hayes of black Rock on
Speaker 1: state finances, and I think there's a real worry that
Speaker 1: we could get some state level austerity over the next
Speaker 1: couple of years. Is there something you've considered, well, it
Speaker 1: will happen if they're not supported. I mean that that's
Speaker 1: the point that it is insane to be using the
Speaker 1: power of the federal government while at the same time
Speaker 1: putting states into position where their lack of support means
Speaker 1: that they have to cut back on services and raise
Speaker 1: taxes im And that's completely the wrong thing to do
Speaker 1: at this point. And again it's political posturing from the
Speaker 1: Republican side here, you know, arguing that Democrats say it
Speaker 1: shouldn't be bailed out because they've got big pension deficits.
Speaker 1: But that's conflating two entirely separate issues. The fundamental factors
Speaker 1: that everywhere revenues have collapsed and everywhere spending has gone up.
Speaker 1: And I know the fact is that the large Democrats
Speaker 1: states are the biggest net give us to the federal
Speaker 1: government and the normal circumstances, So it just makes no
Speaker 1: sense to argue that they shouldn't receive federal large s
Speaker 1: now and they will. It's it's it's in no one's
Speaker 1: interest to put states into position where they have to
Speaker 1: tighten fiscal pots. I can't think of anything more. Mad
Speaker 1: Ian Sheffer's an open question, what are you most focused on?
Speaker 1: Within the equation. I mean, what's the you're writing for Pantheon.
Speaker 1: You go down the left column, you get down the
Speaker 1: right column. What's the part of the GDP equation that
Speaker 1: matters to you right now? The big one is the
Speaker 1: return of consumption or the speed of the return of consumption.
Speaker 1: Speed of GDP, it's a it's a momentum in consumption,
Speaker 1: which I think varies depending where you look. So we're
Speaker 1: clearly seeing an uptick in the states that have opened up.
Speaker 1: We get daily data on restaurants and air travel, and
Speaker 1: that's moving in the right direction. But the really big ones,
Speaker 1: it's a discretionary consumer spending. It's what's going to happen
Speaker 1: to the auto market and the housing market, and the
Speaker 1: consumer spending on on durable goods. You know, as people
Speaker 1: are allowed to go back into retail stores they haven't
Speaker 1: spent for the last couple of months, are they going
Speaker 1: to go crazy or are they going to remain cautious?
Speaker 1: And we just don't know. We've got no history that
Speaker 1: looks anything like this, so we're all in the dark.
Speaker 1: But I'm quite encouraged by the pickup in in in
Speaker 1: restaurants spending, in the pickup in air travel it's down.
Speaker 1: Restaurant air travels down compared to a year ago, but
Speaker 1: but it was down, So there's been an incremental movement
Speaker 1: in the right direction. And to me, that suggests people,
Speaker 1: given the opportunity, are keen to get back out and
Speaker 1: resume something like normal lives. And that's what has to
Speaker 1: happen if the economy is to recover. Well initially, what
Speaker 1: we'll say is the sequential improvement. Then we have to
Speaker 1: talk about the limits of the recovery, and that's when
Speaker 1: the science really comes into it. Some good news just
Speaker 1: crossing the bloomberg from Maderna experimental vaccines from the company
Speaker 1: showing promising ear least signs that it could create an
Speaker 1: immune system response in the body that could help fend
Speaker 1: off the coronavirus. This according to sampling of data from
Speaker 1: a small first human trial of the inoculation. So this
Speaker 1: is early days, very early days, but promising nevertheless, And
Speaker 1: I just wander from your perspective, how you would have
Speaker 1: to remodel the trajectory of the recovery if SIGNS can
Speaker 1: do its part, and do its part a whole lot quicker. Yeah, Well,
Speaker 1: my base case has always been that there would be
Speaker 1: a vaccine available by the end of the year and
Speaker 1: in limited quantities, you know, for healthcare workers and vulnerable people,
Speaker 1: and that it would be available in in in substantial
Speaker 1: quantities next spring. Now, if we could bring those numbers
Speaker 1: four just by a couple of months, that would make
Speaker 1: an enormous difference to the trajectory for growth from I'm
Speaker 1: very encouraged by that Maderna headline. But they're not the
Speaker 1: only one, of course, you know, and there's still that
Speaker 1: the Oxford group in the UK that reckons they will
Speaker 1: have a vaccine available in in commercial quantities as soon
Speaker 1: as September. Well, you know, I believe that when I
Speaker 1: see it. But the factors that were throwing globally more
Speaker 1: resources at this vaccine in different places and differ methodologies
Speaker 1: and we've ever seen before and anything like it. So
Speaker 1: with a bit of luck, one of them will will
Speaker 1: come up with the goods. And I think markets are
Speaker 1: pricing that in as well. I mean, it's for sure
Speaker 1: markets are. The SMP wouldn't be where it is now
Speaker 1: if if markets didn't believe that there was going to
Speaker 1: be a vacium in a relatively short time frame, even
Speaker 1: just two or three months difference would would be it
Speaker 1: would be a massive deal. Absolutely, It's that's exactly where
Speaker 1: I wanted to go. Because we're seeing that equity features
Speaker 1: are not up that much on this news, which I
Speaker 1: thought was surprising, except for of course Maderna stock, which
Speaker 1: is at sixteen percent. But how much is priced in?
Speaker 1: How much are we priced to perfection given the expectation
Speaker 1: of a vaccine in the near term and policy going
Speaker 1: the right way of the markets, well, policy a third
Speaker 1: policy to me is bang on. I'm happy with that.
Speaker 1: The Congress is getting to the right place a venture.
Speaker 1: You know, it's usual diversions. Um. The progress on on
Speaker 1: reducing the rate of spread of the virus is pretty good,
Speaker 1: you know, it's it's mixed, but there's not many states
Speaker 1: now with with rampant outbreaks anymore, so those things are
Speaker 1: all kind of falling into place. I do think the
Speaker 1: markets are pricing in fully pricing in a vaccine now.
Speaker 1: And let's say we were to see some headlines over
Speaker 1: the next few weeks that a bunch of these these
Speaker 1: trials had failed. I mean, that would generate a very
Speaker 1: rock a few days for markets, no question about that.
Speaker 1: And I think that tells you that what they're pricing
Speaker 1: in is a substantial success on the on the vacant
Speaker 1: before too long. So there is a vulnerability definitely if
Speaker 1: it doesn't happen that, John, this is too much good news.
Speaker 1: I mean sooner than that, we're going to see Newcastle
Speaker 1: beat the Tarts. I mean it's going to be amazing.
Speaker 1: They've got money. If this deal goes through, well we'll see,
Speaker 1: we'll see. Thank you. So probably explain to our listeners
Speaker 1: one Earth we're talking about, but everyone knows Sandi Arabia
Speaker 1: taking over Newcastle United, which is Shepherdson's team, you know.
Speaker 1: I mean they're going to beat Liverpool here within six months, Joel,
Speaker 1: I've really wanted to do this for ages. Peter Hayes
Speaker 1: is expert and municipal bonds. He runs the municipal bonds
Speaker 1: shop from Mr frank Over at Black Rock with decades
Speaker 1: and decades of experience. Let me start with the general question, Peter,
Speaker 1: our municipal bonds avail you right now? The price creator
Speaker 1: has come back, but is it's still availue where you
Speaker 1: can pick up total return you have? Good morning, Tom,
Speaker 1: thanks for having me. I would say yeah, when you
Speaker 1: look at it, particularly versus other fixed income asthet classes.
Speaker 1: The total return question is a good one. I think
Speaker 1: that's how you have to think about municipals now. I
Speaker 1: think they have their position because of the sell off
Speaker 1: that we saw in March and because of the lack
Speaker 1: of I would call it maybe said intervention and something
Speaker 1: you don't want to be careful that they did create
Speaker 1: the municipal liquidity facility, but they haven't done direct purchases
Speaker 1: like they have for other asset classes. And because of
Speaker 1: the credit impact of the economic downturn, munis are lagging
Speaker 1: on the rebound. So they've done well in recent sessions.
Speaker 1: Months to date they're up one point nine per cent.
Speaker 1: But if you're looking at it from a holistic portfolio standpoint,
Speaker 1: there is some total return value. And the other thing
Speaker 1: we think of just long term, it's just income, I
Speaker 1: mean taxes. Hard to see taxes going down here given
Speaker 1: all the fiscal stimulus. Peter just looking at the landscape here,
Speaker 1: there's a lot of discussion about in need for rescue
Speaker 1: financing from Washington, d C. To bail out a lot
Speaker 1: of these municipalities. The reason why bonds have sold off
Speaker 1: so much in deals are where they are currently. What
Speaker 1: is required in terms of the total number coming out
Speaker 1: of Washington to support states budgets and prevent a vast
Speaker 1: rash of failures on on the local side. Yeah, that's uh,
Speaker 1: that's a really tough question, just because even though we
Speaker 1: see all these attempts at reopening, will they be successful,
Speaker 1: will they be reopening at a dent well, revenues bounce
Speaker 1: back to where they were pre COVID. There's all these questions.
Speaker 1: So the fights to say the number is a big one.
Speaker 1: We've seen states already talk about some of the holes
Speaker 1: and their gaps and their uh, you know, in totality
Speaker 1: hundreds of billions of of dollars, So it is a
Speaker 1: big number. They've done a lot in a lot of
Speaker 1: different formats, and then we saw the bill and produce
Speaker 1: lest week for the three trillion dollar number, which a
Speaker 1: lot of that is geared to towards states and cities. UM.
Speaker 1: I think one of the things you said at the
Speaker 1: end though, is interesting about you know, preventing failure, and
Speaker 1: this is an issue really of liquidity versus solvency. States
Speaker 1: and cities can't go bankrupt cities technically ken in twenty
Speaker 1: six to the fifty states, I think it is there's
Speaker 1: some mechanism. It's difficult states cannot So there's been some
Speaker 1: rhetoric about potentially some of the weaker pension states defaulty
Speaker 1: you're going bankrupt. There is no mechanism for for that.
Speaker 1: So I think it really becomes liquidity. How do you
Speaker 1: solve this liquidity issue, this big shortfull and revenues over
Speaker 1: a period of time. The Municipal Liquidity Facility that the
Speaker 1: FED created is a backstop for that should the issuers
Speaker 1: need it. Remember, they have to provide basic services, that's
Speaker 1: there their sole purpose, and so the intent of the
Speaker 1: backstop is to help states and cities to do that.
Speaker 1: Um But you know, longer term, what will the numbers
Speaker 1: look like in November? Will the economy kind of come
Speaker 1: rolling back? Or is it going to be a slow
Speaker 1: grind forward? And the slower it is, the longer it is,
Speaker 1: the bigger that gap is going to be, the more
Speaker 1: help that will be needed from Watchington. But suffice to say,
Speaker 1: it's hundreds of billions of dollars at this point in time, Peter,
Speaker 1: I'll safe for give me up front because this is
Speaker 1: not a direct apples to apples comparison, of course, but
Speaker 1: in Europe, in the financial debt crisis, there was a
Speaker 1: clear divide between core Europe and peripheral Europe. Do you
Speaker 1: see anything similar emerging just in terms of red states
Speaker 1: blue states in the coming years. So I would say yes,
Speaker 1: this is the short answer, and to some degree, I
Speaker 1: think we already see that. So if you look at
Speaker 1: what the said is done by buying corporates, mortgage fact securities, treasuries,
Speaker 1: it makes me wonder to some degree whether one of
Speaker 1: the reasons they haven't bought immunis more directly is it's
Speaker 1: a big market, bigger than people think, very complex, with
Speaker 1: the twinning on how you look at it, seventy five
Speaker 1: thousand different issuers, etcetera. So how you go about that
Speaker 1: is difficult. But I think a big part of the
Speaker 1: problem is the red versus the blue. When you look
Speaker 1: at kind of issuance, you look at the coast versus
Speaker 1: Middle America, and I think this is part of the difficulty.
Speaker 1: You even see the rhetoric around the three trillion dollars
Speaker 1: stimulus package introduced on Friday, it does become a bit
Speaker 1: of a red state blue state, and I think that
Speaker 1: ultimately can be a bit of an impediment. There's a
Speaker 1: lot of things that have to take place here. There's
Speaker 1: sort of infrastructure spending is creating jobs. There's helping make
Speaker 1: up the shortfall and revenues that we said asked about.
Speaker 1: So there's all these elements that have to get solved,
Speaker 1: and we do wonder whether the political difficulty of this
Speaker 1: gets in the way. We obviously have an election later
Speaker 1: this year, so we'll see how that turns out. So
Speaker 1: we might not get a lot of these issues resolved
Speaker 1: in they might drag on into depending on what the
Speaker 1: outcome of the election is in the political landscape. Looks
Speaker 1: like fantastic to catch up with you, sir, appreciate your time,
Speaker 1: and you're in aren't a really important issue? Peter Hays
Speaker 1: there of black Rock. This is our interview of the
Speaker 1: day on China, Free of Beamish with Pantheon Free and
Speaker 1: let me just start with a basic question, what is
Speaker 1: the GDP run rate right now of China. Well, at
Speaker 1: the moment we're looking at UM pretty a pretty um
Speaker 1: close actually to what the It's hard for me do
Speaker 1: and say though as well, it's it's pretty close to
Speaker 1: what the authorities have been reporting UM in in Q
Speaker 1: one at least UM. So we did see a big,
Speaker 1: big drop quarter on quarter, and we saw a big
Speaker 1: drop UM year of year as well, and the authorities
Speaker 1: actually UM came close to to to come and clean
Speaker 1: on what that was. I wouldn't get too comfortable with
Speaker 1: that UM with that position of of kind of telling
Speaker 1: the truth because in the in the second half of
Speaker 1: the year, the reality is that the recovery is likely
Speaker 1: to to underperform. And coming into the two sessions UM
Speaker 1: that we have UH will have announcements hopefully at the
Speaker 1: end of this week as to as to what targets
Speaker 1: might be UM coming into that. It's it's likely that
Speaker 1: UM we're gonna start to see more flexibility around those
Speaker 1: those growth targets UM and that that UM we might
Speaker 1: even see a two year target being set. So that's
Speaker 1: going to make things anyway, We're not going to see
Speaker 1: such a strong signal from the Chinese authorities UM, and
Speaker 1: and in any case, what we can extrapolate from even
Speaker 1: if there is two year target UM with regards to
Speaker 1: UM is probably gonna be higher than what UM what
Speaker 1: we're going to see in regality. So for this year overall, UM,
Speaker 1: the Q one data was such that it's very hard
Speaker 1: to see how they could recover UM and get a
Speaker 1: growth of this year. So we think actually that we're
Speaker 1: going to see a contraction UM to the tune of
Speaker 1: about two percent for this full year. UM. They're unlikely
Speaker 1: to report that UM as they said that, the reality
Speaker 1: is that they will probably they could actually over report
Speaker 1: UM next so they could actually under report next year.
Speaker 1: What mixing Chinese GDP is is volatility UM, so they
Speaker 1: could they could say growth is higher than it actually
Speaker 1: is in reality this year and next year they would
Speaker 1: they would, they would, they would under report. For trying
Speaker 1: to game out what to believe from China, what not
Speaker 1: to believe, which data points to take has been something
Speaker 1: of a cottage industry for a lot of a lot
Speaker 1: of individuals. I'm wondering. There was a story on the
Speaker 1: Bloomberg Terminals today saying that Chinese oil demand is nearly
Speaker 1: back to the level seen before the national lockdown that
Speaker 1: Beijing imposed to prevent the outbreak from spreading. I'm trying
Speaker 1: to understand how important, if this is accurate, how much
Speaker 1: this is a tell of the economy getting back online
Speaker 1: versus just the fact that people are using their own
Speaker 1: cars more than public transportation. For example, simply because they
Speaker 1: don't want to be in a crowded place. Yeah, there
Speaker 1: could be a bit of that, but looking at the
Speaker 1: the industrial production data overall, that in total is almost
Speaker 1: back to Q four levels. So this goes back to
Speaker 1: what we were talking about earlier in terms of this
Speaker 1: dual chat track recovery UM, whereby the industrial complex is
Speaker 1: kind of powering back and it really looks like a
Speaker 1: V shaped recovery and does seem like it's getting back
Speaker 1: to from a QUE four levels rather rather almost surprisingly UM.
Speaker 1: But that's very much supported by the fulfillment of previous
Speaker 1: export orders and also by the liquidity provision for inventory
Speaker 1: build UM in the first part of this quarter. Now
Speaker 1: that the external demand story is very fast going to
Speaker 1: drop away from the support UM from the external demand
Speaker 1: is going to drop away very quickly from from that
Speaker 1: story UM as we go further into Q two and
Speaker 1: it's it's it's a big ask for these state owned
Speaker 1: enterprises that are that are overstretched in terms of debt
Speaker 1: UM to continue just pumping out productions for to boost
Speaker 1: inventory when the outlook is so uncertain at the moment,
Speaker 1: we still think there will be a good, strong recovery
Speaker 1: in in two three in the rest of the world,
Speaker 1: and then China would be able to shift them with
Speaker 1: that inventory. But at the moment, it's it's still things
Speaker 1: are still very uncertain. Trust and transparency too, issues that
Speaker 1: just aren't going anywhere. And you're not the only guest
Speaker 1: that comes on this program who can't trust the data
Speaker 1: seemingly coming out of China. The government and the trust
Speaker 1: here in the United States of the Chinese Communist Party
Speaker 1: has clearly broken down again. I'm not sure if it
Speaker 1: was ever really built back up. There are questions about
Speaker 1: transparency all the times, not just from the United States,
Speaker 1: also from Europe, Australia and elsewhere to where is this
Speaker 1: heading free I'm trying to get my hands around where
Speaker 1: this is heading. I'm hearing so much from Washington, from Democrats,
Speaker 1: from Republicans on what they think of this Chinese Communist Party.
Speaker 1: Words and policy are often two different things. Can you
Speaker 1: talk to me about where this is heading? Just in
Speaker 1: terms of policy, Yeah, well, our our forecasts at the
Speaker 1: moment are kind of banked on relations between China and
Speaker 1: the US room main or i shouldn't say remaining, because
Speaker 1: they're not in a good place at the moment. But
Speaker 1: um on the assumption that things have been so bad
Speaker 1: in the first half of the year that any kind
Speaker 1: of reasonable politician than we're just hoping that politicians can
Speaker 1: be reasonable enough, wouldn't want to derail the recovery in
Speaker 1: the second half UM by by kind of throwing a
Speaker 1: spanner in the works of global trade. That's not what
Speaker 1: we really hear at the moment um. But the thing is,
Speaker 1: at the moment all all global economies are in a
Speaker 1: lot of pain, UM, and the best thing to do,
Speaker 1: or not the best thing in a moral sense, but
Speaker 1: one of the best policies strategies UM in that case
Speaker 1: is somebody else, and to point the finger at somebody else.
Speaker 1: So it's of understandable that at this stage in the
Speaker 1: game we will be seeing kind of uncomfortable UM noises
Speaker 1: coming from from both sides. But when the reality of
Speaker 1: the situation comes through and there's the there's the the
Speaker 1: actual prospect of the recovery in the second half, it
Speaker 1: seems unlikely about when you eat my words, but it
Speaker 1: seems unlikely that people would want to derail that UM
Speaker 1: in the second half. Frank, thank you Fry miss of
Speaker 1: Panthea macroeconomics. I'm going to cut to the chase. We
Speaker 1: need to spend every second weekend this morning. But Josh
Speaker 1: for Sharkstein. He's at Johns Hopkins Universities Bloomberg School of
Speaker 1: Public Health. I should point out that Mr Bloomberg is
Speaker 1: founder of Bloomberg LP, this radio and television platform as well,
Speaker 1: and has been a philanthropist to his Johns Hopkins University.
Speaker 1: Dr Scharstein, I thought of you this weekend when I
Speaker 1: looked down upon Central Park and saw that, Yeah, maybe
Speaker 1: he's sort of kind of like we were socially distanced.
Speaker 1: But the truth is, uh, there are a lot of
Speaker 1: people in Central Park. The whole operation here seems to
Speaker 1: wrap around masks, Masks of different shades, Masks that are bandanas,
Speaker 1: mass that are a scarf, mass are just a hunk
Speaker 1: of cotton. Maybe there's some medical stuff and a very
Speaker 1: few select people have the fancy N ninety five masks.
Speaker 1: Give us a clinic. Now our masks are Are they
Speaker 1: going to be what gets this nation back to work?
Speaker 1: I think masks will help a little bit um and
Speaker 1: I think it's a good idea for people to wear masks.
Speaker 1: They don't have to be the fancy medical masks UM
Speaker 1: in order to protect other people. What the masks does
Speaker 1: is block the droplets coming out of somebody's mouth, and
Speaker 1: because people aren't sure, they may not be aware that
Speaker 1: they are infectious, because the symptoms haven't started yet. It's
Speaker 1: a good thing to wear a mask to protect other people.
Speaker 1: But the real thing that protects people is the distance
Speaker 1: between them, the physical barriers, the six feet, the redoing,
Speaker 1: the schedule so there are not as many people in
Speaker 1: the office. All of those things are important. The masts
Speaker 1: are kind of like the icing on the on the cake,
Speaker 1: so to speak. Joshua, it's good to hear that the
Speaker 1: master and icing on the cake. But the idea here,
Speaker 1: and you see it in the Washington Post chart of
Speaker 1: a seven day moving average. Clearly the tone is we're
Speaker 1: moving to a better place. Where is the place we're
Speaker 1: moving to. Well, I think it's it's good news obviously
Speaker 1: that there's been a little bit of a drift down
Speaker 1: um and I think a lot of people are taking
Speaker 1: a lot of precautions, which is good, and people have
Speaker 1: to maintain that. You know, the virus appears to be
Speaker 1: a little slower to transmit in the heat, so that's
Speaker 1: a good sign for the time being. But it also
Speaker 1: means that we could be getting a false sense of
Speaker 1: security that we're distancing enough and when the fall hit,
Speaker 1: it could go right back up again. So I think
Speaker 1: it's still pretty uncertain right now, Josh, give me a
Speaker 1: sense of what we know about immunity, right Do we
Speaker 1: have a clearer sense now than we did even ten
Speaker 1: days ago about how many people are new So UM.
Speaker 1: I think that there's a lot of positive signs and
Speaker 1: some more recent positive signs that there is evidence of immunity,
Speaker 1: but the case hasn't been proven. And so the positive
Speaker 1: signs include animal studies where the animals get rechallenged and
Speaker 1: don't seem to get sick again. UM, the fact that
Speaker 1: they really aren't compelling stories of UM, and you know,
Speaker 1: scientific investigations of people who have gotten very sick twice
Speaker 1: with different strains UM. So that I think more evidence
Speaker 1: will come out. But we're going in the direction that
Speaker 1: when people are sick with the coronavirus, they may have
Speaker 1: less of a chance of getting sick or some period
Speaker 1: of time. And that's good for a lot of different reasons. Now,
Speaker 1: that's a little bit different from saying we know exactly
Speaker 1: how to measure that, and so the tests have to
Speaker 1: be really calibrated with that. UM, So I think we're
Speaker 1: getting UM a little bit more optimistic that such immunity exists.
Speaker 1: We will be able to measure it and that will
Speaker 1: be good not only for some people's knowledge about whether
Speaker 1: they're relatively protected, but it will be good also as
Speaker 1: a sign for different kinds of therapies. It makes it
Speaker 1: hopeful that maybe the convalescent serum will provide some protection.
Speaker 1: And of course UM with immunity, with the fact that
Speaker 1: immunity does exist, if you know, once we know that
Speaker 1: for sure, that would be a good sign for a vaccine. Josh,
Speaker 1: when do we find out whether contact tracing is really
Speaker 1: effective in protecting people? Well, we know contact tracing is
Speaker 1: effective in general. The question that we need to know
Speaker 1: is whether the United States can launch programs that do
Speaker 1: it well. And depends on training. And you know that
Speaker 1: Johns Hopkins training course now as over a hundred and
Speaker 1: fifty thousand people enrolled, which is great. It's pretty online, UM,
Speaker 1: but a lot more is needed because these programs have
Speaker 1: to be run very well. You have to be able
Speaker 1: to find contacts quickly, you have to be able to
Speaker 1: support people in quarantine, get them food if they need it,
Speaker 1: get them other supplies, move them to a different place
Speaker 1: if they can't safely quarantine at home. These are the
Speaker 1: requirements that have been successful, been implemented in other places.
Speaker 1: If we can do that well, it'll really matter. Joshua,
Speaker 1: it's unfair to ask this question, but it's so emergent
Speaker 1: right now, particularly for the Midwest, I thought i'd ask it.
Speaker 1: I don't want you to comment directly on the Panhandle,
Speaker 1: but in Texas, where they're really starting to open things up,
Speaker 1: there seems to be a focus on Amarillo, Texas. Are
Speaker 1: we going to see a lot more of these are?
Speaker 1: You know, I don't like to phrase hot spots, but statistically,
Speaker 1: are we gonna see these flare ups around the country?
Speaker 1: Unquestionably we will, and I think particularly as we open
Speaker 1: up there just a lot of risks. And you know,
Speaker 1: we saw just one choir practice at like sixty people
Speaker 1: infected and two died. We're gonna see situations where, you know,
Speaker 1: people who may not realize that they're sick or feel
Speaker 1: my leal and don't think in a million years it
Speaker 1: could be coronavirus, go out, they're not wearing masks, they
Speaker 1: get too close to other people, and we're going to
Speaker 1: find out that it's still a virus that has tremendous
Speaker 1: capacity Dark Sharkston, thank you so much, Joshua Sharkstein with
Speaker 1: the Bloomberg School of Public Health JOHNS Hopkins at University.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg
Speaker 1: Radio