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

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Speaker 1: 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. The

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Speaker 1: debt market is, of course with thermometer here and someone

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Speaker 1: looking at what we're doing in fiscal stimulus and building

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Speaker 1: out as a gentleman from the Massachusetts Institute of Technology,

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Speaker 1: of Courses service to the world, at the International Monetary

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Speaker 1: Fund under Madame Legarde as their head of Economic research,

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Speaker 1: and now at the Peterson Institute, we're thrilled to bring

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Speaker 1: to you now Olivier Blanchard. Professor Blanchard, you've written of

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Speaker 1: whatever it takes, and that means the issuance of debt.

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Speaker 1: Should we fear an issueance of trillions and trillions of

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Speaker 1: dollars of American and indeed global debt. I think we

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Speaker 1: don't have the choice, is the answer. We basically have

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Speaker 1: to do whatever it takes, indeed to make sure that

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Speaker 1: we fight epidemic and that we protect the people who

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Speaker 1: we did need protection. Although it put bankruptcies for the

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Speaker 1: most part so we'll have to spend it. Now what

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Speaker 1: happens next, even the well goes to part we don't

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Speaker 1: succeed in fighting the virus, which I think is they

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Speaker 1: are micly scenario in which case, you know, having that

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Speaker 1: it will be the least of our poems. But in

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Speaker 1: the scenario which I believe in which we may have

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Speaker 1: to increase the ratio of that to g d P

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Speaker 1: by ten to thirty for I think we can well

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Speaker 1: uh sustain it. The reason is that interest rates, as

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Speaker 1: you know, have verre extremely low before the crisis. I

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Speaker 1: even though now and we'll probably remain almost sure, you

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Speaker 1: remain very lowful for the you know next size ten years,

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Speaker 1: which means that at those rates you can actually carry

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Speaker 1: that side levels of the teachers, the government and not

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Speaker 1: be in trouble. The interest payments are very small. So

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Speaker 1: I think we have to do it. We don't have

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Speaker 1: a choice, and I think it will be okay. Olivia

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Speaker 1: President drag the former ECP president, wrote in the Financial

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Speaker 1: Times in the last couple of weeks that we needed

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Speaker 1: to see a big, big transfer of risk onto the

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Speaker 1: government's balance sheet and it needed to happen quickly. And

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Speaker 1: we're seeing that worldwide Olivia, Can we recognize some of

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Speaker 1: the risks associated with that? What are the risk the

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Speaker 1: downside risk that you're thinking about as we come out

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Speaker 1: of this health crisis. After governments have put forward their

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Speaker 1: balance sheet and transferred massive amount of risk from the

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Speaker 1: corporate sector, from the household sector onto their own balance sheets,

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Speaker 1: they think in general, transferring risk from the private sector

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Speaker 1: to the public sector is the thing to do when

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Speaker 1: day's risk and you want to put it somewhere. The

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Speaker 1: reason is that the government has a tool of the

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Speaker 1: private sector doesn't have. In the prior tector cannot just

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Speaker 1: increase prices on what it sells in order to get

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Speaker 1: more revenues, will sell less, so it really doesn't have

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Speaker 1: much much room to adjust to a high that the

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Speaker 1: government has that room, it's not a pleasant one, but

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Speaker 1: it can increase taxes, it can decrease spending, and it

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Speaker 1: can do it on the scale that you know, no

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Speaker 1: private actor or combination of private actors can do on

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Speaker 1: their own. So it seems to me that's exactly the

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Speaker 1: right thing to do in the right thing to the

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Speaker 1: right way to think, which is you want to transfer

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Speaker 1: the risk to the of the acceptor. In normal times

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Speaker 1: you don't want to do this because you want people

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Speaker 1: to be aware of the risks are taking. But in

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Speaker 1: this case, nobody is guilty of having made the virus come.

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Speaker 1: This is an unexpected event. It's not the result of

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Speaker 1: that behavior, in which case, yes, you want to transfer

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Speaker 1: the risk to the public sector. Olivia. Perhaps people are

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Speaker 1: not responsible for the virus. But there has been some

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Speaker 1: behavior that some people think has been bad or imprudent

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Speaker 1: in terms of borrowing a lot of money, hyper level

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Speaker 1: reaging up balance sheets and using that cash to buy

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Speaker 1: back shares or pay out dividends or pay out private equity.

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Speaker 1: Uh pay out And I'm just I'm wondering where do

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Speaker 1: you draw the line. I mean, I'm talking about FED

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Speaker 1: New York FED, the former New York FED President Bill Dudley,

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Speaker 1: and his comment basically, this creates incredible moral hazard in

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Speaker 1: central banks and governments should not bail everyone out. Do

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Speaker 1: you agree, Yeah, you don't want to bail it out

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Speaker 1: of their way of firms which we are going to

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Speaker 1: go fast before independence of the crisis that were I

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Speaker 1: mean I think that you know, most terms were responsible

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Speaker 1: and it was probably okay to actually issue that given

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Speaker 1: how cheap it was, but Bobby, some firms went too

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Speaker 1: far and those terms absenter crisis would probably have gone

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Speaker 1: day up. You don't want to say both now. The

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Speaker 1: problem so, in fact is what you want to do

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Speaker 1: is basically make sure that you know the effects of

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Speaker 1: the crisis, that no more is what you basically take

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Speaker 1: on as as as as a sake. Now it's very

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Speaker 1: difficult to do. So you basically have to use some

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Speaker 1: anket method of the time being in which you're probably

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Speaker 1: going to save some firms we should not be saved

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Speaker 1: in order to save those which need to be saved.

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Speaker 1: You know, this is exactly the savings getting money to

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Speaker 1: the people. Ideally, you want to give money to the

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Speaker 1: people who actually really needed to basic key going buy

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Speaker 1: bread and food next week. But let's say difficult. So

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Speaker 1: what we have which is not best, which is not

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Speaker 1: good but probably best, is these checks that we're going

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Speaker 1: to send. Some of these checks are going to go

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Speaker 1: to people absolutely do not need it. Okay, it's the

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Speaker 1: same thing for firms. So yes, I don't think there's

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Speaker 1: anymore has it involved at this stage, but there's a

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Speaker 1: possibility that we are going to help firms which probably

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Speaker 1: should not have been helped small costs. Today if you're

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Speaker 1: just joining us with us, Olivier Blanchard of the Pearson Institute,

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Speaker 1: Professor Blanchard, you've been out to watch at the i

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Speaker 1: m F. When crisis occurs, Ms Gorgyav is going to

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Speaker 1: have her hands full, to say the least our emerging markets.

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Speaker 1: Now in the dynamics there of crisis different than previous

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Speaker 1: crises or is it the same old, same old for

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Speaker 1: beleaguer em economies because webs common this time is with

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Speaker 1: respect to financial crisis, which the capital is a capital outslows,

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Speaker 1: and there's always the data for a country to basically

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Speaker 1: capital leaves either have very large appreciation and which you

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Speaker 1: have dollar that it becomes incredibly expensive. Banks find themselves

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Speaker 1: short of funds. So that's common that has to be

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Speaker 1: dealt with. But you add to this the original cause,

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Speaker 1: which is the virus, and many of these countries just

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Speaker 1: don't have the technical equipment and human equipment to deal

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Speaker 1: with the virus. They don't have the money. And in

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Speaker 1: addition you have these incredibly stupid oil price war which

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Speaker 1: clearly is kind of a blessing for countries which import oil,

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Speaker 1: but the catastrophy for those with show exported. So it's uh,

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Speaker 1: it is really a perfect storm for many of these countries.

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Speaker 1: And what worries me is that, you know, we saw

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Speaker 1: obsessed with our one contribute, which I understand that we're

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Speaker 1: going to be reluctant. I'm afraid to actually do what's

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Speaker 1: needed to help them. So you know, for example, the

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Speaker 1: development of the virus in Africa is something which scares me, Olivia.

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Speaker 1: I think it scares many people. A mutual friend of ours, Muhammadalaran,

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Speaker 1: has been on this program so many times over the

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Speaker 1: last few weeks talking about the dynamic of sudden stops

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Speaker 1: cascading through the global economy, and typically a dynamic we

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Speaker 1: typically associate just with emerging markets, and now we've got

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Speaker 1: this global phenomena of a sudden stop taking over the

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Speaker 1: global economy. Olivia, have you spent any time trying to

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Speaker 1: get your hands around what that means for policymakers worldwide? Yeah,

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Speaker 1: I think it's a difference for advance to colmis You're

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Speaker 1: right that we see we don't see sudden stops in

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Speaker 1: advanced to colmies, but we see large capitals when investors

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Speaker 1: decide to get out of the market in an advanced ecarmy,

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Speaker 1: I think the central bank and largely just go in

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Speaker 1: and buy. That's really not a possibility for many of these,

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Speaker 1: uh emerging market or developed I mean, you know we

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Speaker 1: say emerging market, I think developping carmich are believe, but

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Speaker 1: once which are going to settle the most. No, it

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Speaker 1: is a situation in which they need outside help. Otherwise,

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Speaker 1: you know, everything goes to help. And the IMP is

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Speaker 1: working very hard on trying to mobilize money, mobilize farms

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Speaker 1: and help these countries. But I suspect many of them

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Speaker 1: and conceptually what should happen is that the money should

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Speaker 1: be given to fight the virus. It should be given,

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Speaker 1: not lent, because you know this is something that that

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Speaker 1: that they have to fight. Then even leaving this out,

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Speaker 1: some countries are going to be an economic trouble and

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Speaker 1: will they will have to come to the FONT for programs,

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Speaker 1: and I hope they emerged that the PHONE has the

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Speaker 1: means to actually offer these programs. Olivia risk getting in

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Speaker 1: trouble here with my producer for going too long, but

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Speaker 1: I have to pick you up on that. Are you

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Speaker 1: saying the IMF should offer grants and not loans and

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Speaker 1: not not gleam shouldn't be offered to advanta. So all

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Speaker 1: those ways of doing this, but should think of a

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Speaker 1: form of the gifts the IMF. Maybe you can't do it.

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Speaker 1: May have some programs which bisically have concessional landing, which

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Speaker 1: is so concessional it's nearly gives. But no, it's a

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Speaker 1: work of via. It's the job of the im AT,

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Speaker 1: the world back and governments themselves. Olivia Blanche had always

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Speaker 1: great to get your thoughts, particularly on a morning like

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Speaker 1: this morning. Olivia Blanche at that the Peterson Institute, City

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Speaker 1: of Fellow right now is the former president of the

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Speaker 1: New York Photo Reserve System, William Dudley Bill, thank you

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Speaker 1: so much for coming on today. Bob mcteerre at Dallas

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Speaker 1: a good number of years ago wrote up a beautiful

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Speaker 1: summary of cham Peter in his speech on America, on

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Speaker 1: our Economy and on our Spirit. And a great part

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Speaker 1: of schaum Pater's courage was to say we could allow

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Speaker 1: for failure. That was codified in forty eight but became

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Speaker 1: religion in the modern age. Do we still have that religion?

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Speaker 1: Are we allowed to fail anymore? Or do we have

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Speaker 1: a multidecade workout in is an alternative. Well, I think

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Speaker 1: we're allowed to fail, but we don't want to have

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Speaker 1: failures occur all at the same time, because that's catastical,

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Speaker 1: catastrophic for the economy and for households and in America.

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Speaker 1: So the you know, the idea is you don't want

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Speaker 1: to have a systemic failure. You find to have individual

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Speaker 1: firms fail from time to time, but systemic failure imposes

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Speaker 1: so much cost that everybody else it's probably unacceptable. Bill.

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Speaker 1: Where do you draw the line between systemic and idiosyncratic?

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Speaker 1: I mean this goes to the column that you wrote

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Speaker 1: that starts with a pretty bold statement that the FED

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Speaker 1: can't and shouldn't rescue everyone. Many companies will fail, especially

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Speaker 1: highly leveraged ones. Are these all idiosyncratic? Well, I think

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Speaker 1: the issue that's different for non investment grade businesses is

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Speaker 1: that they chose to be highly leveraged. You know, this

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Speaker 1: is not a situation which they find themselves because of

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Speaker 1: the coronavirus. They decided to be highly leveraged because they

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Speaker 1: thought that that would increase their return on equity, but

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Speaker 1: in fact, in this current environment is going to be

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Speaker 1: pretty catastrophic for them. The reason why I explored this

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Speaker 1: issue is if you look at the what the FET

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Speaker 1: has done to date and what the Congress has done. Uh,

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Speaker 1: there's a lot of aid being to support markets broadly,

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Speaker 1: but there is not any aid for the non investment

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Speaker 1: grade portion of the corporate corporate market, corporate debt market,

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Speaker 1: and so the question is should there be There's also

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Speaker 1: not much of support for the municipal debt market. Should

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Speaker 1: there be? I think there is a strong case to

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Speaker 1: for more support for the municipal debt market because state

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Speaker 1: and localities are going to be under a tremendous amount

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Speaker 1: of train. But should there be aid for the non

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Speaker 1: investment grade corporate debt market when these companies chose their

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Speaker 1: their capital structures. That's the question I'm poisoning with all

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Speaker 1: this debt that we're piling out. It's the same question

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Speaker 1: I asked Professor Blanchard. Let me ask Professor Dudley right now.

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Speaker 1: Is the way to get beyond this crisis with our

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Speaker 1: trillions of dollars of FED action and fiscal actions such

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Speaker 1: is to issue bonds and paper to essentially pay off

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Speaker 1: on a pandemic over say fifty years. Well, I think

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Speaker 1: you're right that what's going to happen is that people

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Speaker 1: are going to end up with more debt and it's

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Speaker 1: going to take time for them to manage that debt.

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Speaker 1: That's probably why, even though we will eventually have an

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Speaker 1: economic recovery, recovery probably won't be as powerful as some

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Speaker 1: people hope, because after the pandemic, people are going to

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Speaker 1: have a lot higher debt burdens than they had going in.

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Speaker 1: So you were justifying why the FED is not necessarily

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Speaker 1: extending credit or backstopping parts of the MUNI and high

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Speaker 1: old bond market. I want to go back to your

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Speaker 1: original point though, where you said you have to draw

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Speaker 1: a line under systemic risks. At what point will a

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Speaker 1: massive defaults in these more highly leveraged areas becomes systemic?

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Speaker 1: I mean, just putting moral hazard aside. How risky is that? Well,

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Speaker 1: I think that's a very difficult decision to to to make. Uh. Obviously,

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Speaker 1: you know, you look at the financial crisis in two

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Speaker 1: thousand eight two tho nine, there was a lot of

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Speaker 1: credit that the FETE extended, but they know they never

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Speaker 1: went anywhere close to the non investment grade corporate sector.

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Speaker 1: So I think, you know, just like they discriminated them

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Speaker 1: between a one P one rated commercial paper and lower

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Speaker 1: rated commercial paper. I think that will probably be to

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Speaker 1: make that same determination this time. Now, look, it's not

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Speaker 1: up to the FET. I mean, if Congress and the

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Speaker 1: Administration and decide that they want the non un investment

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Speaker 1: grade sector of the corporate bond market supported, then I

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Speaker 1: say the FED would do what it needed to make

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Speaker 1: that happen. But it would be expensive. You know, the

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Speaker 1: Congress is authorities to four four billion dollars of Treasury

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Speaker 1: money to support FED lending. Uh. If that is leveraging,

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Speaker 1: that money tend to once, that's four and a half

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Speaker 1: billion dollars of firepower. But if you start to extend

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Speaker 1: into the riskier areas of the credit markets, you're not

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Speaker 1: gonna be a leverage that tend to one. You're gonna

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Speaker 1: have to have more Treasury money for every dollar of life. Yeah, Bill,

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Speaker 1: one final question, and I don't want you to give

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Speaker 1: away the linen in your knowledge right now if you're

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Speaker 1: New York FED. But without question, the New York Fed

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Speaker 1: monitors the emerging markets monitor monitors off your acclaimed and

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Speaker 1: historic desk, the global markets. What do you look for

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Speaker 1: in e M? What are the symptoms that the New

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Speaker 1: York Fed looks for in the markets of em is

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Speaker 1: they head towards a crisis? Well, I think that one

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Speaker 1: thing you're gonna be looking for is what's happening to capital.

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Speaker 1: Is capital staying put in the emerging markets or everybody

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Speaker 1: pulling their capital out of the emerging markets. If you

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Speaker 1: have a really strong capital flight out of emerging markets,

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Speaker 1: that's going to put them on even more stress. Bill Dudley,

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Speaker 1: thank you so much, greatly appreciated today writing for Bloomberg

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Speaker 1: Opinion important essay on creative destruction and the failure that

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Speaker 1: may be coming down to fact Surveillance has committed to

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Speaker 1: giving you the best in conversation Olivier Blanchard with us

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Speaker 1: earlier this morning and now joining us with Golden Sachs

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Speaker 1: their advisory director and senior investment strategist, Abby Joseph Cohen Abbey.

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Speaker 1: We all want to know what you think about the

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Speaker 1: markets and my need to get into stocks to be

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Speaker 1: about three years or five years. But the great thing

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Speaker 1: you're considering now is this changing relationship of the United

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Speaker 1: States and China. Catherine man Over at City Group x

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Speaker 1: O E c D has spent years on this dysfunction.

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Speaker 1: How dysfunctional is this relationship right now, we don't really know, Tom.

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Speaker 1: It's a wonderful question, but there's so much that is happening,

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Speaker 1: shall we say, in the shadows. The one thing that

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Speaker 1: does seem clear is that at the outset of this pandemic,

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Speaker 1: the United States has been caught somewhat flat footed because

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Speaker 1: of the very weak response at the federal level. And

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Speaker 1: one of the things that the world had come to

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Speaker 1: expect for the last several decades is that when there

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Speaker 1: was a global problem, for example, health problems, the United

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Speaker 1: States almost always took the lead, um whether it was

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Speaker 1: a bowl it was most recently, even though the United

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Speaker 1: States was not the nation most primarily affected, we took

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Speaker 1: the lead in terms of the science and also in

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Speaker 1: terms of the aid that went to the various nations

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Speaker 1: that were afflicted. One of the things that may be

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Speaker 1: happening right now is that China may be moving into

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Speaker 1: that sort of position. Uh, The United States has not

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Speaker 1: been particularly helpful to the point, at least to other nations,

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Speaker 1: but we're seeing that China is providing scientific assistance and

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Speaker 1: also material I think it's interesting that some of the

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Speaker 1: face masks and ventilators that are now on order for

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Speaker 1: use in the United States and hopefully they come in

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Speaker 1: time our order from China. So abby, is this something

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Speaker 1: you know the US has had this? I guess with

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Speaker 1: the current administration of America first, is this kind of

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Speaker 1: just a I guess the byproduct of that America First

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Speaker 1: type of mentality. I think that slogan is somewhat misleading. Um.

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Speaker 1: We have been a global leader and one of the

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Speaker 1: sources of our strength since the end of the Second

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Speaker 1: World War has in fact been these alliances. They have

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Speaker 1: been trade alliances, they have been national international science alliances,

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Speaker 1: and so on. And the United States has really stepped

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Speaker 1: away from that leadership position, particularly in the science field.

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Speaker 1: If you take a look at the budgets that were presented, um,

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Speaker 1: just as the pandemic was beginning, UH, the administration requested

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Speaker 1: percent less in funding for these various functions of the

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Speaker 1: US federal government, UM than we had been spending. We

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Speaker 1: also know about the withdrawal from the Paris Climate Accord. UM.

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Speaker 1: The United States notably withdrew a good deal of its

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Speaker 1: funding for the w Health the w h O, the

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Speaker 1: World Health Organization, just as the pandemic was getting underway.

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Speaker 1: This is non consistent with a long term pattern of

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Speaker 1: US behavior Eavy Joseph cohone and the time that we

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Speaker 1: have left with you, I have to go back to

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Speaker 1: two thousand and eight, where you were known as the

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Speaker 1: nation's pinata because you were optimistic about equities, optimistic about America,

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Speaker 1: optimistic about a recovery from the crisis, and you took

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Speaker 1: a lot of hits. Can you share that same optimism

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Speaker 1: in the midst of this crisis, Well, let's correct the

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Speaker 1: record a little bit calm, and that was Uh. The

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Speaker 1: optimism had to do with a long term for the

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Speaker 1: US economy. Uh. In fact, in two thousand and eight,

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Speaker 1: early on I took criticism for not being sufficiently optimistic.

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Speaker 1: But let's talk about what's happening now in the future.

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Speaker 1: I think for those people who take a long term

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Speaker 1: view UM one might want to look at some of

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Speaker 1: the declines in share prices as a long term opportunity.

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Speaker 1: But I think before we actually get any sort of

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Speaker 1: meaningful rally going, they're going to be at least three

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Speaker 1: or four UM preconditions. One has to be that the

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Speaker 1: health crisis itself is under control and that we have

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Speaker 1: some sense of where that's going. The second is we

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Speaker 1: need confidence in the people who are making decisions on policy.

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Speaker 1: I think thus far, the FED and many other central

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Speaker 1: banks have really shown a lot of gumption. UM. They've

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Speaker 1: moved early, They've moved UH in a large order. I

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Speaker 1: think fiscal policy thus far in the United States has

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Speaker 1: has also moved in the direction. The third thing we're

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Speaker 1: going to need to see UM is not the economic

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Speaker 1: and earnings recovery itself, but some sense that we UM are,

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Speaker 1: you know, approaching a bottom. Keep in mind that in

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Speaker 1: the financial crisis, March two thousand nine represented the bottom

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Speaker 1: of the stock market, but the recession didn't end until

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Speaker 1: June two thousand and nine. So it's very keen, very

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Speaker 1: important to pay attention to valuation, what's priced in not

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Speaker 1: just two equities, but also fixed income and commodities. UM.

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Speaker 1: I think that a lot of individual investors are probably

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Speaker 1: not as keenly aware as they should be in terms

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Speaker 1: of what's happening in terms of the dislocations in the

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Speaker 1: fixed income markets right now, and we're going to have

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Speaker 1: to resolve those as well, because when we think about

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Speaker 1: financial structure, it's not just the equity of a corporation,

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Speaker 1: it's also what's going on in terms of their credit.

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Speaker 1: So I mean, just quickly here, give us your sense

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Speaker 1: of I'm in the financial stimulus, the fiscal stimulus that

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Speaker 1: we're starting to see here, the first two trillion likely

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Speaker 1: to be followed on with another two trillion. Is that

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Speaker 1: the way to go? I mean, I guess the girl

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Speaker 1: question is how much should be cash to consumers versus

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Speaker 1: support for businesses? How do you view that? Yeah, there

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Speaker 1: are many people who have done some excellent work on this,

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Speaker 1: including the people at the Brookings Institution who have looked

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Speaker 1: at this line by line. What I would basically say

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Speaker 1: is a lot of this money really needs to be targeted.

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Speaker 1: I think the initial pain is going to be on

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Speaker 1: our consumers. You know, the reported unemployment rate over the

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Speaker 1: next few months could be as high as fifteen percent.

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Speaker 1: That will be only part of the story. Use six,

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Speaker 1: which is the broader measure. It includes discouraged workers who

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Speaker 1: can't even look for a job, that could be as

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Speaker 1: high as twenty five And so I think that money

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Speaker 1: that goes directly to consumers is going to be terrifically important,

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Speaker 1: as will be the options and opportunities we give to

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Speaker 1: smaller medium businesses. Now, whether that's in the form of

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Speaker 1: a grant forgiven loan. Uh, there are the various vehicles

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Speaker 1: that are being discussed. I think this is going to

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Speaker 1: be important, and the FED has made it clear that

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Speaker 1: they're going to try to provide as much liquidity as

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Speaker 1: they can. At this point. It's not a question of

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Speaker 1: the price on that liquidity, the cost of credit, but

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Speaker 1: really the availability. One of the other things that institutional

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Speaker 1: investors are watching carefully is the health of the nation's banks.

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Speaker 1: Were very fortunate that because of the tough love which

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Speaker 1: followed the financial crisis two thousand and eight two thousand nine,

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Speaker 1: our banking system was in much better condition going into

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Speaker 1: this economic and health crisis. But we're also watching things

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Speaker 1: like revolver loans um you know, our customers of the

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Speaker 1: banks drawing down the credit lines that they have, and

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Speaker 1: we'll be watching that carefully as well. Addy, Joseph Cohen,

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Speaker 1: thank you so much for your commitment to Bloomberg surveillance,

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Speaker 1: who greatly appreciate it. She's of course with Goldman. Say John,

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Speaker 1: we've got a guest here to get the conversation going

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Speaker 1: on this April one, this day of societal just grimness.

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Speaker 1: There's an other way to put it. What I love

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Speaker 1: about Michael, is this synthesis of all that's going on.

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Speaker 1: I think it's a really timely conversation. Well, let's start

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Speaker 1: the conversation right now with Michael Shower, market Field ass

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Speaker 1: in Management, Chairman of Portfolio Management. Michael, fantastic to have

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Speaker 1: you with us. We start Q two. You know, typically

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Speaker 1: i'd say, what have we learned from Q one? We've

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Speaker 1: learned so much, Michael, how do you apply to Q two? Um?

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Speaker 1: You know, I don't think much changes with a with

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Speaker 1: a change of the day. I mean, I think there's

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Speaker 1: only one question that really matters, which is which is

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Speaker 1: how long does it take in the US for us

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Speaker 1: to get this virus under control? And you know, can

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Speaker 1: you have some normalization of day to day activity in

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Speaker 1: the middle of this quarter at the end of this quarter.

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Speaker 1: You know, there's a huge difference between, you know, between

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Speaker 1: those two between those two dates. And I'm not myself

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Speaker 1: that bothered at the new tone coming out of the

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Speaker 1: White House. You know, maybe it was the turn they

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Speaker 1: could have had four or six weeks ago. I think

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Speaker 1: that that we're at a time of great fluidity on

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Speaker 1: the medical front, and the medical this time is to

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Speaker 1: a large extent going to drive the economic front. Michael,

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Speaker 1: you're acclaimed for your study of commodities. We didn't even

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Speaker 1: mention in our opening words here, but the commodity space

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Speaker 1: continues to implode along with massive em tension. How does

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Speaker 1: that resolve itself? It's really energy which has which has imploded.

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Speaker 1: You know, I would say industrial medals were weak last quarter,

432
00:24:42,920 --> 00:24:46,760
Speaker 1: but not you know, not not not historically weak. UM.

433
00:24:47,000 --> 00:24:50,280
Speaker 1: I am somewhat stunned at the willingness of the Saudi

434
00:24:50,280 --> 00:24:52,879
Speaker 1: Arabians to go down this path at this particular point

435
00:24:52,880 --> 00:24:56,080
Speaker 1: in time. UM. I mean it's possible that they managed

436
00:24:56,160 --> 00:24:58,400
Speaker 1: to stay with that path. UM. You know, in which case,

437
00:24:58,440 --> 00:25:01,560
Speaker 1: I think you're going to see h a fairly rapid

438
00:25:01,640 --> 00:25:05,440
Speaker 1: reduction of capacity in in food oil production ues. You'll

439
00:25:05,440 --> 00:25:09,600
Speaker 1: see a large and rapid wave of bankruptcy. It's also

440
00:25:09,680 --> 00:25:13,240
Speaker 1: possible that, you know, Saudi Arabia, it's it's self destabilizers

441
00:25:13,280 --> 00:25:15,399
Speaker 1: and and you have a you know, a sudden reversal

442
00:25:15,440 --> 00:25:18,440
Speaker 1: of those forces. But you know, outside of energy, UM,

443
00:25:18,600 --> 00:25:21,359
Speaker 1: we don't have a ton of excess production at normal

444
00:25:21,440 --> 00:25:26,480
Speaker 1: demand levels in the industrial medals. UM. And if activity,

445
00:25:26,520 --> 00:25:29,720
Speaker 1: particularly in Asia starts to pick up, um, you know,

446
00:25:29,800 --> 00:25:32,199
Speaker 1: I don't think it's a disaster short term for for

447
00:25:32,359 --> 00:25:35,480
Speaker 1: the industrial medals and probably part in the end of

448
00:25:35,480 --> 00:25:38,200
Speaker 1: the bottoming process. All right, Michael, there perhaps is a

449
00:25:38,240 --> 00:25:40,040
Speaker 1: little bit more visibility when you look at the supply

450
00:25:40,080 --> 00:25:43,720
Speaker 1: and demand dynamic within metals and with an oil taking

451
00:25:43,760 --> 00:25:47,159
Speaker 1: a bigger picture though, to John's point earlier about the

452
00:25:47,200 --> 00:25:49,080
Speaker 1: fact that if you don't know when you can leave

453
00:25:49,119 --> 00:25:52,200
Speaker 1: your house next, how can you figure out where earnings

454
00:25:52,200 --> 00:25:53,960
Speaker 1: are going to go, where production is going to go,

455
00:25:54,040 --> 00:25:56,479
Speaker 1: when demand is going to pick back up. How are

456
00:25:56,480 --> 00:25:58,879
Speaker 1: you feeling heading into the second quarter given some of

457
00:25:58,920 --> 00:26:02,639
Speaker 1: the pessimistic call that we've seen, given a lack of visibility,

458
00:26:05,040 --> 00:26:06,679
Speaker 1: You know, I think confused. I think it's a it's

459
00:26:06,720 --> 00:26:10,200
Speaker 1: probably a reasonable word. Um Look, I don't think anybody

460
00:26:10,240 --> 00:26:12,200
Speaker 1: does know, but you know, I think we can say

461
00:26:12,200 --> 00:26:13,879
Speaker 1: a couple of things. I think we can say that,

462
00:26:14,280 --> 00:26:16,600
Speaker 1: you know, a normal there's something normal about where we

463
00:26:16,640 --> 00:26:20,480
Speaker 1: are today. But a normal crisis starts with delinquency and

464
00:26:20,600 --> 00:26:23,360
Speaker 1: ends up with a liquidity crisis. This time it's exactly

465
00:26:23,359 --> 00:26:25,560
Speaker 1: the opposite way around. You know, we had a massive

466
00:26:25,600 --> 00:26:28,760
Speaker 1: liquidation in the first quarter, which triggered a sort of

467
00:26:28,760 --> 00:26:33,320
Speaker 1: traditional liquidity crisis. That particular risk has been ameliorated by

468
00:26:33,320 --> 00:26:35,840
Speaker 1: the actions of the SAD and other central banks, and

469
00:26:35,880 --> 00:26:37,640
Speaker 1: so now we're going to have to work our way

470
00:26:37,680 --> 00:26:41,600
Speaker 1: through a a an accelerated and deep, but in some

471
00:26:41,720 --> 00:26:45,919
Speaker 1: senses traditional traditional delinquency crisis. And my feeling is that

472
00:26:46,080 --> 00:26:49,439
Speaker 1: the it's not going to be even and distributed. You know,

473
00:26:49,560 --> 00:26:53,240
Speaker 1: this time around, the sort of peak delinquency is actually

474
00:26:53,280 --> 00:26:58,040
Speaker 1: going to be in in privately held service service enterprises,

475
00:26:58,119 --> 00:27:01,400
Speaker 1: in in in urban centers, which in a in a

476
00:27:01,400 --> 00:27:03,760
Speaker 1: traditional cycle like two thousand and eight, was the most

477
00:27:03,800 --> 00:27:06,440
Speaker 1: stable part of the economy. I'm not sure that the

478
00:27:07,359 --> 00:27:11,560
Speaker 1: this is catastrophic in the end for more traditional industrial activity.

479
00:27:12,040 --> 00:27:15,119
Speaker 1: And globally, I think you're going to see a fairly

480
00:27:15,160 --> 00:27:19,600
Speaker 1: wide dispersion between Asia, which looks to be ahead of

481
00:27:19,640 --> 00:27:24,400
Speaker 1: this medically, and where societies are functioning somewhat normally. Until

482
00:27:24,480 --> 00:27:28,359
Speaker 1: all Asia is dealing with is a deep economic risk um.

483
00:27:28,440 --> 00:27:30,840
Speaker 1: And you are from the United States, where where day

484
00:27:30,880 --> 00:27:33,560
Speaker 1: to day activity is turned on its head um and

485
00:27:33,680 --> 00:27:37,560
Speaker 1: the whole concept of contract law and civil liberties is

486
00:27:37,640 --> 00:27:39,639
Speaker 1: somewhat up in the air. So as they say, it

487
00:27:39,760 --> 00:27:45,359
Speaker 1: is remarkably uncertain time with that uncertainty is unevenly distributed. Michael,

488
00:27:45,400 --> 00:27:48,080
Speaker 1: let's unpack some of that. And the start of this comment,

489
00:27:48,200 --> 00:27:50,160
Speaker 1: you talked about where we're seeing a sign of success

490
00:27:50,520 --> 00:27:52,359
Speaker 1: with central banks. Let's build on that just a little

491
00:27:52,359 --> 00:27:54,800
Speaker 1: bit more. Whereas he's seeing signs of success in the

492
00:27:54,840 --> 00:27:57,479
Speaker 1: last couple of weeks, signs of progress on the central

493
00:27:57,480 --> 00:28:01,159
Speaker 1: bank effort. You know, I think that all of the

494
00:28:01,240 --> 00:28:06,280
Speaker 1: major central banks have done a lot to directly stabilized markets. Now,

495
00:28:06,520 --> 00:28:09,800
Speaker 1: all that does is soft of the blow of margin

496
00:28:09,880 --> 00:28:12,520
Speaker 1: calls in a sense, the the the it's it's been

497
00:28:12,520 --> 00:28:14,879
Speaker 1: a sort of you know, a series of margin calls

498
00:28:14,880 --> 00:28:17,640
Speaker 1: followed by a massive clean up operation lead lead by

499
00:28:17,680 --> 00:28:20,399
Speaker 1: the Federal Reserve. What that doesn't do is tell you

500
00:28:20,400 --> 00:28:23,639
Speaker 1: whether an individual, in an individual piece of paper, is

501
00:28:23,640 --> 00:28:26,399
Speaker 1: money good or not. Um. You know, I think in

502
00:28:26,480 --> 00:28:29,439
Speaker 1: the investment grade space, um. You know, the sort of

503
00:28:29,520 --> 00:28:33,640
Speaker 1: massive wave of cash raising does in the end reduce

504
00:28:33,760 --> 00:28:36,600
Speaker 1: the risk of short medium term you know, short to

505
00:28:36,680 --> 00:28:39,360
Speaker 1: medium term delinquency. But I think you're going to continue

506
00:28:39,400 --> 00:28:43,560
Speaker 1: to have pockets of financial markets the FED activity doesn't

507
00:28:43,640 --> 00:28:46,560
Speaker 1: quite cover, and those those pockets I think are going

508
00:28:46,600 --> 00:28:49,040
Speaker 1: to be very very difficult to you know, you know,

509
00:28:49,160 --> 00:28:51,440
Speaker 1: you know, you know, to function within but but as

510
00:28:51,440 --> 00:28:53,719
Speaker 1: I say, it's it's exactly's the exact opposite of two

511
00:28:53,760 --> 00:28:56,360
Speaker 1: thousand and eight, where we've spent you know, two to

512
00:28:56,440 --> 00:29:00,320
Speaker 1: three years of delinquency ended up in a liquidity I says.

513
00:29:00,440 --> 00:29:02,240
Speaker 1: This time around, I think a lot of the liquidity

514
00:29:02,240 --> 00:29:04,720
Speaker 1: crisis is behind us, and we're left with the question

515
00:29:04,760 --> 00:29:07,720
Speaker 1: which unfortunately can't be answered, which is, you know, at

516
00:29:07,720 --> 00:29:10,760
Speaker 1: what point of corporate cash flow's going to be sufficient

517
00:29:10,760 --> 00:29:16,240
Speaker 1: to cover obligations. Thank you so much, Michael Show greatly

518
00:29:16,280 --> 00:29:23,840
Speaker 1: appreciate it. With market Field Asset Management, we are advantaged

519
00:29:24,040 --> 00:29:26,520
Speaker 1: to speak to David Rubinstein, of course, peer to peer.

520
00:29:26,640 --> 00:29:29,160
Speaker 1: His conversations have been great. You've heard me speak for

521
00:29:29,280 --> 00:29:32,240
Speaker 1: years about how they move from week to week through

522
00:29:32,320 --> 00:29:36,680
Speaker 1: his season of really piercing conversations. There's a point where

523
00:29:36,720 --> 00:29:39,080
Speaker 1: you lean forward. One of the things you can do

524
00:29:39,120 --> 00:29:43,560
Speaker 1: with David Rubinstein is lean forward into someone who some

525
00:29:43,760 --> 00:29:46,880
Speaker 1: suggest could be a presidential candidate on the order of

526
00:29:47,000 --> 00:29:52,080
Speaker 1: Dwight David Eisenhower from another time and place. David Rubinstein

527
00:29:52,160 --> 00:29:55,640
Speaker 1: joins us now on it's important and timely conversation with

528
00:29:55,720 --> 00:29:58,800
Speaker 1: General Maddis. You were bold David. I mean there you

529
00:29:58,840 --> 00:30:03,760
Speaker 1: are asking him about presidential aspirations. Did he uh? Did

530
00:30:03,800 --> 00:30:07,960
Speaker 1: he buck you down to private? Well? Um, he's the

531
00:30:08,000 --> 00:30:10,479
Speaker 1: person I had not really met before I met him

532
00:30:10,520 --> 00:30:12,720
Speaker 1: just about an hour before the interview occurred. We did

533
00:30:12,760 --> 00:30:15,840
Speaker 1: it in front of a large group in Dallas. UM.

534
00:30:15,880 --> 00:30:19,000
Speaker 1: He said, obviously a very modest man in many respects,

535
00:30:19,360 --> 00:30:22,000
Speaker 1: and somebody that I greatly admire. Can you hear me

536
00:30:24,440 --> 00:30:27,800
Speaker 1: somebody that I greatly admire. I did ask him if

537
00:30:27,800 --> 00:30:29,840
Speaker 1: he was interested in politics. He really doesn't have an

538
00:30:29,880 --> 00:30:32,719
Speaker 1: interest in that. UM. I interested asked him if he

539
00:30:32,920 --> 00:30:35,920
Speaker 1: uh would say anything about President Trump that he hadn't said,

540
00:30:35,920 --> 00:30:39,440
Speaker 1: and he's very very cautious. Um. Many people have criticized

541
00:30:39,520 --> 00:30:43,280
Speaker 1: him for not saying anything critical of President Trump, but

542
00:30:43,360 --> 00:30:46,200
Speaker 1: I admire him for what he's done. He's basically said,

543
00:30:46,200 --> 00:30:49,320
Speaker 1: when you leave the government, you shouldn't criticize the administration

544
00:30:49,360 --> 00:30:51,880
Speaker 1: you served. That's his principle. And so he's not going

545
00:30:51,920 --> 00:30:54,320
Speaker 1: to say anything critical of President Trump. And not that

546
00:30:54,400 --> 00:30:56,800
Speaker 1: he should say something, but he he doesn't want to

547
00:30:56,800 --> 00:30:59,960
Speaker 1: get into that. So he's avoided that controversy. UM. Clear

548
00:31:00,000 --> 00:31:02,840
Speaker 1: that he resigned because of the Syriam mess. But Uh,

549
00:31:03,240 --> 00:31:07,240
Speaker 1: he's not gonna say anything publicly about that at this point. So, David,

550
00:31:07,480 --> 00:31:12,840
Speaker 1: how did he characterize his time as Defense Secretary. Well,

551
00:31:12,960 --> 00:31:15,840
Speaker 1: he wasn't looking for the job. He had already retired,

552
00:31:15,880 --> 00:31:18,600
Speaker 1: as you know, in the Obama administration. He was back

553
00:31:18,640 --> 00:31:21,560
Speaker 1: out west where he's from. Um, he took the job

554
00:31:21,640 --> 00:31:24,560
Speaker 1: because he thought it was his obligation to service country.

555
00:31:24,800 --> 00:31:26,600
Speaker 1: I think he felt he could do a good job.

556
00:31:27,080 --> 00:31:28,880
Speaker 1: I think he was pleased with the job that he

557
00:31:28,960 --> 00:31:31,240
Speaker 1: had when he had it. But he obviously had some

558
00:31:31,280 --> 00:31:35,960
Speaker 1: disagreements with President Trump, and obviously those led to his resigning.

559
00:31:36,280 --> 00:31:39,000
Speaker 1: But he's held himself up to a very high standard.

560
00:31:39,240 --> 00:31:42,960
Speaker 1: There's not been one hint of anything he said privately

561
00:31:43,200 --> 00:31:46,400
Speaker 1: or publicly that's critical of President Trump. People know he

562
00:31:46,520 --> 00:31:49,280
Speaker 1: disagreed on the Syria policy, but he is not going

563
00:31:49,360 --> 00:31:51,320
Speaker 1: to say anything as long as President Trump is in

564
00:31:51,400 --> 00:31:54,760
Speaker 1: office that would be critical of President Trump in my view. Uh.

565
00:31:54,760 --> 00:31:56,320
Speaker 1: He we were talking about a book that he's come

566
00:31:56,360 --> 00:31:58,720
Speaker 1: out with. It's co authored and it really deals with

567
00:31:58,800 --> 00:32:02,040
Speaker 1: many things in his career, but not things relating to

568
00:32:02,120 --> 00:32:04,840
Speaker 1: his service as Secretary of Defense. So much. Um, he's

569
00:32:04,840 --> 00:32:09,200
Speaker 1: had an incredible career, David. He is a prodigious reader.

570
00:32:09,560 --> 00:32:11,440
Speaker 1: You and I are familiar with this, and of course,

571
00:32:11,440 --> 00:32:14,040
Speaker 1: with your philanthropy to the nation, you've been able to

572
00:32:14,080 --> 00:32:19,160
Speaker 1: acquire some of our truly resonant books along the way.

573
00:32:19,600 --> 00:32:22,120
Speaker 1: How did you talk to him about the religion he

574
00:32:22,240 --> 00:32:27,560
Speaker 1: has of reading, reading, reading. He's a man whose life

575
00:32:27,600 --> 00:32:32,080
Speaker 1: is basically military and reading and thinking. He um came

576
00:32:32,120 --> 00:32:34,640
Speaker 1: close to getting married but did not get married because

577
00:32:34,760 --> 00:32:36,720
Speaker 1: the woman he was probably gonna marry didn't want to

578
00:32:36,720 --> 00:32:40,200
Speaker 1: be dedicating herself to a career or life of somebody

579
00:32:40,280 --> 00:32:42,360
Speaker 1: was in the military the whole time, and he didn't

580
00:32:42,360 --> 00:32:44,440
Speaker 1: think that was fair either. I did ask him if,

581
00:32:44,480 --> 00:32:46,240
Speaker 1: now that he's out of the military, what he considered

582
00:32:46,240 --> 00:32:48,520
Speaker 1: getting married, and he laughed and said, well, he's open

583
00:32:48,520 --> 00:32:51,560
Speaker 1: a proposal, so maybe somebody will. UM asked him if

584
00:32:51,600 --> 00:32:54,360
Speaker 1: he's interested in getting married, But his interest in reading

585
00:32:54,440 --> 00:32:57,760
Speaker 1: is serious. Um. He has an incredible collection of books

586
00:32:57,760 --> 00:33:00,840
Speaker 1: that he really knows quite well can out. And I

587
00:33:00,880 --> 00:33:03,400
Speaker 1: would say he's a very cerebral general. Very often you

588
00:33:03,400 --> 00:33:05,640
Speaker 1: don't think of generals uh in that way. You might

589
00:33:05,680 --> 00:33:08,040
Speaker 1: think of him as a of a George Pattent type

590
00:33:08,400 --> 00:33:10,760
Speaker 1: uh kind of general. I mean a general Patton kind

591
00:33:10,760 --> 00:33:13,360
Speaker 1: of person who's, you know, a hard charging kind of

592
00:33:13,400 --> 00:33:16,280
Speaker 1: person and not as maybe as intellectual as as General

593
00:33:16,320 --> 00:33:20,000
Speaker 1: Madis is. Madis is quite intellectual. So, David, what do

594
00:33:20,000 --> 00:33:24,520
Speaker 1: you think the future is for former Secretary Madist. I

595
00:33:24,560 --> 00:33:27,440
Speaker 1: don't see him running for office. It's not his personality.

596
00:33:27,920 --> 00:33:30,360
Speaker 1: I think if another president asked him to serve in

597
00:33:30,440 --> 00:33:33,560
Speaker 1: some other capacity, I suspect he would, But he's now

598
00:33:33,840 --> 00:33:36,360
Speaker 1: just about seventy years old. I don't see him wanting

599
00:33:36,360 --> 00:33:38,720
Speaker 1: to go back in and serve as a cabinet secretary again.

600
00:33:39,000 --> 00:33:42,000
Speaker 1: So I'm sure um some people might consider him for

601
00:33:42,040 --> 00:33:45,080
Speaker 1: a future role. He could be Secretary of Defense again.

602
00:33:45,120 --> 00:33:46,880
Speaker 1: He could be Secretary of State, but I think he's

603
00:33:47,040 --> 00:33:49,640
Speaker 1: he's done with that in my view. David reuben Stein,

604
00:33:49,720 --> 00:33:52,320
Speaker 1: thank you so much. Pure to Piero. David Rubinstein entirely

605
00:33:52,360 --> 00:33:55,800
Speaker 1: conversation with General Maddest look for that a Bloomberg Television

606
00:33:56,200 --> 00:34:01,120
Speaker 1: and Bloomberg Radio. Thanks for listening to the Bloomberg Surveillance podcast.

607
00:34:01,480 --> 00:34:06,400
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

608
00:34:06,560 --> 00:34:10,880
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom

609
00:34:11,000 --> 00:34:14,879
Speaker 1: Keane before the podcast, you can always catch us worldwide.

610
00:34:15,320 --> 00:34:16,400
Speaker 1: I'm Bloomberg Radio