1 00:00:09,880 --> 00:00:13,840 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Leye. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,280 Speaker 1: Bloomberg dot Com, and of course, on the bloomber I 5 00:00:27,320 --> 00:00:29,680 Speaker 1: thought today City Group had a day off. I thought 6 00:00:29,720 --> 00:00:32,559 Speaker 1: my carback everyone the day the day off, but apparently not, 7 00:00:32,840 --> 00:00:35,320 Speaker 1: because Tobias Lefkovich is with US of City, the chief 8 00:00:35,400 --> 00:00:37,640 Speaker 1: US equity strategist, to bu us, what happened? Did you 9 00:00:37,640 --> 00:00:40,839 Speaker 1: not get Friday off? I'm taking a different Friday off, 10 00:00:40,880 --> 00:00:44,400 Speaker 1: so we're taking a different Friday off. Unfortunately, scheduled a 11 00:00:44,440 --> 00:00:48,000 Speaker 1: bunch of things to work today, even though Mr Corbette 12 00:00:48,080 --> 00:00:51,600 Speaker 1: was kind enough to think so, including getting up early 13 00:00:51,640 --> 00:00:53,680 Speaker 1: for you guys. Well, it's advice. We appreciate it. Thank 14 00:00:53,680 --> 00:00:55,200 Speaker 1: you very much. Would it be fair to say that 15 00:00:55,240 --> 00:00:57,240 Speaker 1: you've been a little bit more skeptical of what underpins 16 00:00:57,240 --> 00:00:59,880 Speaker 1: this rally in the last month or so, Well, right, 17 00:01:00,200 --> 00:01:02,800 Speaker 1: I'm more skeptical about the continuation of the rally. I 18 00:01:02,960 --> 00:01:05,360 Speaker 1: know what kind of us underpinned this rally. It's been 19 00:01:06,120 --> 00:01:09,679 Speaker 1: you know, the exiting of the great lockdown. It is 20 00:01:10,319 --> 00:01:13,680 Speaker 1: the better news on the healthcare front, and certainly stimulus, 21 00:01:13,680 --> 00:01:15,680 Speaker 1: both monetary and fiscal, that started kind of in the 22 00:01:15,720 --> 00:01:18,920 Speaker 1: latter part of March into April. So all those things 23 00:01:18,920 --> 00:01:22,080 Speaker 1: are combined. And then there's been what I call this overlay, 24 00:01:22,200 --> 00:01:25,080 Speaker 1: uh not FOMO, not fear of missing out, the behavioral 25 00:01:25,080 --> 00:01:28,920 Speaker 1: overlay of what I call FOMU, fear of meaningfully underperforming. 26 00:01:28,959 --> 00:01:32,440 Speaker 1: So as the market has turned, investors have felt compelled 27 00:01:32,760 --> 00:01:35,440 Speaker 1: to deploy cash and be part of this because if 28 00:01:35,680 --> 00:01:37,280 Speaker 1: you know, to quote New York Claudo, if you're not 29 00:01:37,319 --> 00:01:40,039 Speaker 1: in it, you can't win it. Um. So I think 30 00:01:40,040 --> 00:01:42,120 Speaker 1: a lot of investors have been kind of chasing the 31 00:01:42,120 --> 00:01:46,920 Speaker 1: tape fear of being left behind, and potentially that's career risk. Yeah, 32 00:01:46,920 --> 00:01:49,360 Speaker 1: it's career risk. I love how you put that to bias, 33 00:01:49,360 --> 00:01:52,360 Speaker 1: and it's just so so important. It's May, and I 34 00:01:52,400 --> 00:01:54,960 Speaker 1: guess we've got to get to December. How far out 35 00:01:55,000 --> 00:01:58,240 Speaker 1: are people expecting that, you know, the academic rules six months. 36 00:01:58,280 --> 00:02:00,640 Speaker 1: I don't buy for a minute. How far out is 37 00:02:00,640 --> 00:02:03,200 Speaker 1: he expecting right now? So a lot of people are 38 00:02:03,200 --> 00:02:06,840 Speaker 1: talking about earnings and even two earnings. How long does 39 00:02:06,880 --> 00:02:08,320 Speaker 1: it take for us to get back to where we 40 00:02:08,320 --> 00:02:11,639 Speaker 1: were in twenty UM, and I would argue that we're 41 00:02:11,720 --> 00:02:15,800 Speaker 1: probably pricing May of one at this point. We do 42 00:02:15,880 --> 00:02:19,040 Speaker 1: think the marketing go up to about one sixty on 43 00:02:19,080 --> 00:02:22,880 Speaker 1: the SMP by middle of next year. So we're almost 44 00:02:22,919 --> 00:02:24,079 Speaker 1: there if you want to think of it in those 45 00:02:24,120 --> 00:02:27,280 Speaker 1: during five six percent away um. But we've done it really, 46 00:02:27,320 --> 00:02:30,200 Speaker 1: really early. And again I do think there's risk here. 47 00:02:30,240 --> 00:02:33,919 Speaker 1: It's a bumpier road to get to that target. Well, 48 00:02:33,960 --> 00:02:36,799 Speaker 1: I get that, you know, you had at whatever bounce 49 00:02:36,880 --> 00:02:39,399 Speaker 1: off the March low, So yeah, from here it's it's 50 00:02:39,400 --> 00:02:43,639 Speaker 1: more challenging. But the great challenge to me is you've 51 00:02:43,680 --> 00:02:47,600 Speaker 1: got to move forward looking out there but being buffeted 52 00:02:47,600 --> 00:02:50,640 Speaker 1: by the news. How do you withstand the volatility in 53 00:02:50,720 --> 00:02:53,600 Speaker 1: day to day shocks is you look out to May 54 00:02:53,639 --> 00:02:56,480 Speaker 1: of two thousand twenty one looks I think from a 55 00:02:56,560 --> 00:03:01,000 Speaker 1: portfolio perspective, people are will think about bar belling it um. 56 00:03:01,120 --> 00:03:02,839 Speaker 1: They'll take a little bit more risk on one side, 57 00:03:02,840 --> 00:03:05,160 Speaker 1: a little bit more defensiveness on the other side to 58 00:03:05,639 --> 00:03:10,640 Speaker 1: make sure that they've got that almost inherent portfolio protection um. 59 00:03:10,639 --> 00:03:14,000 Speaker 1: But net net um, we are at the mercy of 60 00:03:14,120 --> 00:03:16,720 Speaker 1: news developments. Are we going to have, uh, you know, 61 00:03:16,760 --> 00:03:21,840 Speaker 1: significant outbreaks by exiting the lockdown, are we going to have, um, 62 00:03:21,840 --> 00:03:25,320 Speaker 1: potentially good or not so good news on on treatments 63 00:03:25,320 --> 00:03:27,760 Speaker 1: and vaccines down the road. And these are very very 64 00:03:27,760 --> 00:03:31,520 Speaker 1: difficult for investors to kind of get their arms around. Um. 65 00:03:31,560 --> 00:03:34,840 Speaker 1: You know, the biggest issue for us probably is going 66 00:03:34,880 --> 00:03:37,119 Speaker 1: to be how do we get everybody back to work? 67 00:03:37,240 --> 00:03:39,440 Speaker 1: And do we see an increase in what I would 68 00:03:39,440 --> 00:03:43,520 Speaker 1: call populism and protectionism in order for local citizenry to 69 00:03:43,520 --> 00:03:47,960 Speaker 1: get jobs. Because remember, politicians are not elected by global citizenry. 70 00:03:48,000 --> 00:03:52,480 Speaker 1: They're elected by their domestic populations, and they're going to 71 00:03:52,560 --> 00:03:54,280 Speaker 1: have to respond to that. We've got a big election 72 00:03:54,320 --> 00:03:57,200 Speaker 1: coming up in November, and you know, it's not that 73 00:03:57,280 --> 00:04:00,600 Speaker 1: easy to just say, hey, well, you know, or for 74 00:04:00,840 --> 00:04:06,040 Speaker 1: free trade today, even though maybe that's a better capitalist perspective. Um, 75 00:04:06,080 --> 00:04:08,600 Speaker 1: it might mean that we're importing things as opposed to 76 00:04:08,640 --> 00:04:10,839 Speaker 1: building them in here. And I think that's not going 77 00:04:10,880 --> 00:04:14,440 Speaker 1: to be the rhetoric on either side of the political aisle. 78 00:04:14,680 --> 00:04:16,400 Speaker 1: I think both sides are going to be looking towards 79 00:04:16,440 --> 00:04:20,160 Speaker 1: that job creation element. Uncertainty is definitely the hallmark of 80 00:04:20,880 --> 00:04:23,080 Speaker 1: and I'm just wondering how hard it is for you 81 00:04:23,120 --> 00:04:26,159 Speaker 1: to come up with a recommendation for investors given the 82 00:04:26,200 --> 00:04:28,840 Speaker 1: fact that most companies have withdrawn guidance, and even China 83 00:04:28,920 --> 00:04:30,920 Speaker 1: is with drawn guidance. No one can have any kind 84 00:04:30,960 --> 00:04:35,360 Speaker 1: of foresight here. How is it if for you? So, look, 85 00:04:35,839 --> 00:04:38,479 Speaker 1: I think it's a great point, but I've actually asked 86 00:04:38,520 --> 00:04:41,160 Speaker 1: that question to some of our institutional investors clients and 87 00:04:41,200 --> 00:04:44,719 Speaker 1: asking them, you know, are you pleased, disappointed? You know, 88 00:04:45,200 --> 00:04:47,720 Speaker 1: management should be providing their best gas at the very 89 00:04:47,800 --> 00:04:50,640 Speaker 1: least um, you know, with and give you know, caveats. 90 00:04:50,720 --> 00:04:53,960 Speaker 1: This is our base case scenario. This is our you know, 91 00:04:54,240 --> 00:04:57,719 Speaker 1: dramatically bad scenario ten percent, whatever it might be once 92 00:04:57,760 --> 00:04:59,480 Speaker 1: you want them to provide that. And really it's an 93 00:04:59,480 --> 00:05:03,000 Speaker 1: interesting of responses from from that industrial group and that 94 00:05:03,160 --> 00:05:04,720 Speaker 1: some of them are saying, look, I want to buy 95 00:05:04,720 --> 00:05:07,480 Speaker 1: good businesses. UM that kind of are looking out to 96 00:05:07,640 --> 00:05:10,159 Speaker 1: three years, not to three months. So I don't really 97 00:05:10,160 --> 00:05:12,240 Speaker 1: care that they're not telling me the second quarter guidance 98 00:05:12,240 --> 00:05:15,039 Speaker 1: because nobody really can predict how that it could be. Um, 99 00:05:15,360 --> 00:05:17,560 Speaker 1: but are you doing the right things for the you know, 100 00:05:17,600 --> 00:05:21,320 Speaker 1: for the business over a longer timeframe? Um? That's in 101 00:05:21,480 --> 00:05:23,840 Speaker 1: some of the people and the others one the other. 102 00:05:24,120 --> 00:05:26,279 Speaker 1: So you know, it's not like we really listened to 103 00:05:26,279 --> 00:05:28,719 Speaker 1: the guidance anyway. We we use it as a benchmark, 104 00:05:29,160 --> 00:05:32,160 Speaker 1: but you know, management teams also kind of screw up 105 00:05:32,200 --> 00:05:34,080 Speaker 1: every once in a while. Well, let's talk about the 106 00:05:34,160 --> 00:05:36,320 Speaker 1: former group and what they've told you about that within 107 00:05:36,440 --> 00:05:38,440 Speaker 1: this to buy sick the calacy and the airs of 108 00:05:38,440 --> 00:05:41,360 Speaker 1: the market that still have serious evaluation damage that hasn't 109 00:05:41,360 --> 00:05:44,360 Speaker 1: really recovered. I'm thinking of the financials in America now, sweats, 110 00:05:44,400 --> 00:05:47,039 Speaker 1: but US, what are those conversations lack at the moment. Look, 111 00:05:47,080 --> 00:05:51,400 Speaker 1: they'd rather be um in companies that have what you 112 00:05:51,480 --> 00:05:55,440 Speaker 1: might say bulletproof balance sheets, secular growth characteristics, free cash 113 00:05:55,480 --> 00:05:59,560 Speaker 1: flow because that's called quote unquote the quality trade. Right. Um, 114 00:05:59,640 --> 00:06:01,680 Speaker 1: that's one of the places that everybody's hiding out. And 115 00:06:01,720 --> 00:06:04,200 Speaker 1: the problem is there's there's so many people crowded into 116 00:06:04,240 --> 00:06:08,880 Speaker 1: that space, uh, including institutional investors domestically foreign investors who 117 00:06:08,960 --> 00:06:11,400 Speaker 1: who've had to come to the US in many respects 118 00:06:11,480 --> 00:06:15,320 Speaker 1: to do this. Similar to back ind when they were 119 00:06:15,320 --> 00:06:18,000 Speaker 1: buying the dot coms because it was the only place 120 00:06:18,000 --> 00:06:20,159 Speaker 1: that they really could do it that wasn't available in 121 00:06:20,240 --> 00:06:24,160 Speaker 1: any great number of stocks in Europe, for instance, so 122 00:06:24,200 --> 00:06:27,479 Speaker 1: we've seen that as well. And then there's the individual investor, 123 00:06:27,560 --> 00:06:31,000 Speaker 1: the retail investor that probably is going into some more 124 00:06:31,000 --> 00:06:34,920 Speaker 1: speculative areas as well that may not be the right investments, 125 00:06:34,960 --> 00:06:38,680 Speaker 1: but they're kind of exciting and there they rise rapidly 126 00:06:38,760 --> 00:06:41,400 Speaker 1: and people feel good in near term UM, and probably 127 00:06:41,400 --> 00:06:43,320 Speaker 1: you are taking a bit too too great a risk 128 00:06:43,480 --> 00:06:47,159 Speaker 1: for their portfolio. So that's been the crowded trade. If 129 00:06:47,200 --> 00:06:49,400 Speaker 1: you believe that the cycle is going to be better 130 00:06:49,720 --> 00:06:52,120 Speaker 1: over the next six months, which we think it will be. 131 00:06:52,200 --> 00:06:55,720 Speaker 1: If you go just from standstill economy to doing something, 132 00:06:55,760 --> 00:06:58,559 Speaker 1: it's an improvement. The problem is you know what level 133 00:06:58,560 --> 00:07:02,520 Speaker 1: of improvement, and there's there's a great series of reasons 134 00:07:02,560 --> 00:07:04,880 Speaker 1: to think the cadence of that recovery is going to 135 00:07:04,880 --> 00:07:08,840 Speaker 1: be less than thrilling UM. But if you do believe 136 00:07:08,880 --> 00:07:10,760 Speaker 1: there's a turn, then you probably should be looking at 137 00:07:10,760 --> 00:07:13,280 Speaker 1: some of these circl colls. UM. It's a little early 138 00:07:13,360 --> 00:07:15,560 Speaker 1: for it. Probably you're gonna need to cep ms turn. 139 00:07:15,600 --> 00:07:18,680 Speaker 1: They usually lead cyclcals by about three months UM. But 140 00:07:18,880 --> 00:07:21,960 Speaker 1: areas like financials, like even the chip stocks probably makes 141 00:07:21,960 --> 00:07:24,920 Speaker 1: some sense uh to be looking at because they're pricing 142 00:07:24,920 --> 00:07:27,080 Speaker 1: in a lot of bad news as opposed to again 143 00:07:27,120 --> 00:07:29,680 Speaker 1: these crowded, calm, large cap tech mans. But they're not 144 00:07:29,720 --> 00:07:34,560 Speaker 1: necessarily all tech um that seems are not priced. I 145 00:07:34,600 --> 00:07:37,240 Speaker 1: would say they're priced for perfection, but they're certainly not 146 00:07:37,320 --> 00:07:39,880 Speaker 1: priced for bad news. It's a Boss Grice cash out 147 00:07:39,880 --> 00:07:41,880 Speaker 1: with It's a Boss Lefkovich city. It's fast, thanks for 148 00:07:41,920 --> 00:07:47,240 Speaker 1: showing up today and on time as well. Who cares? 149 00:07:47,280 --> 00:07:50,560 Speaker 1: But Shan is a fantidays growth target everybody expected at 150 00:07:50,600 --> 00:07:53,120 Speaker 1: front sense sense. There's the tension between the United States 151 00:07:53,160 --> 00:07:56,440 Speaker 1: and China, and once again things flaring up in Hong 152 00:07:56,480 --> 00:07:59,200 Speaker 1: Kong once more. Leaving our coverage in Hong Kong has 153 00:07:59,200 --> 00:08:02,320 Speaker 1: been Evon Man. There's been many coverages in Hong Kong, 154 00:08:02,400 --> 00:08:06,000 Speaker 1: of course, away from this immediate issue, of course, the 155 00:08:06,080 --> 00:08:08,960 Speaker 1: protests of months ago, and then really a first mover 156 00:08:09,080 --> 00:08:12,280 Speaker 1: pandemic response that we have followed on in America. Evan 157 00:08:12,400 --> 00:08:15,440 Speaker 1: Man joins us right now, if on what will happen 158 00:08:15,520 --> 00:08:18,840 Speaker 1: into your Saturday and into your Sunday, do you expect 159 00:08:19,320 --> 00:08:24,440 Speaker 1: thousands in the street, Well, Tom already hearing tonight a 160 00:08:24,480 --> 00:08:27,000 Speaker 1: lot of political activists or out in the streets they're 161 00:08:27,000 --> 00:08:30,600 Speaker 1: handing out pamphlets educating people about this national security law, 162 00:08:30,640 --> 00:08:32,760 Speaker 1: and then there have been planned the next couple of 163 00:08:32,840 --> 00:08:36,480 Speaker 1: days to hit the streets once again. So here we 164 00:08:36,559 --> 00:08:38,559 Speaker 1: go again. We seem to be saying the stage for 165 00:08:38,600 --> 00:08:42,160 Speaker 1: another repeat of last year. And this is a signal 166 00:08:42,200 --> 00:08:45,440 Speaker 1: that we got from Beijing the NPC that perhaps the 167 00:08:45,520 --> 00:08:48,440 Speaker 1: mainland patients is running thin. They're frustrated by the months 168 00:08:48,440 --> 00:08:51,240 Speaker 1: of unrest at a trot the economy. They're frustrated by 169 00:08:51,320 --> 00:08:55,040 Speaker 1: lawmakers who have failed to get through this legislation that 170 00:08:55,080 --> 00:08:58,160 Speaker 1: has basically stalled the bills in two thousand and three. 171 00:08:58,320 --> 00:09:02,439 Speaker 1: With new strategy now is to bypass the Legislative Council, 172 00:09:02,559 --> 00:09:06,240 Speaker 1: bypassed the legislative process altogether. And they're still figuring out 173 00:09:06,280 --> 00:09:08,480 Speaker 1: the mechanics of how this is all going to work. 174 00:09:08,520 --> 00:09:11,240 Speaker 1: But you already here the pro democracy side saying this 175 00:09:11,320 --> 00:09:13,400 Speaker 1: is the end of Hong Kong. The status of Hong 176 00:09:13,480 --> 00:09:16,240 Speaker 1: Kong as an international city will be gone very soon, 177 00:09:16,720 --> 00:09:19,760 Speaker 1: and this move by Beijing threatens the One Country to 178 00:09:19,960 --> 00:09:23,240 Speaker 1: Systems framework. China, though, continues to defend this law, saying 179 00:09:23,240 --> 00:09:26,720 Speaker 1: it's absolutely necessary and this is something other countries already 180 00:09:26,720 --> 00:09:29,199 Speaker 1: had seek to have equity markets shaking this off in 181 00:09:29,200 --> 00:09:31,680 Speaker 1: the United States. Futures term positive in America, but they 182 00:09:31,760 --> 00:09:34,640 Speaker 1: certainly weren't shaking it off on a Hang sang if 183 00:09:34,679 --> 00:09:37,120 Speaker 1: on my question as follows, and I think the answer 184 00:09:37,160 --> 00:09:40,240 Speaker 1: might be obvious just China actually value the special training 185 00:09:40,240 --> 00:09:45,120 Speaker 1: status that Hong Kong has. Well. I think what we're 186 00:09:45,160 --> 00:09:48,600 Speaker 1: trying seeing here, Jonathan, is that us TV think has 187 00:09:48,600 --> 00:09:51,400 Speaker 1: been threatened not just with the rising unemployment that we're 188 00:09:51,440 --> 00:09:54,280 Speaker 1: seeing in the mainland from the COVID nineteen l breaks, 189 00:09:54,320 --> 00:09:57,760 Speaker 1: but there's also a potential big loss that China could 190 00:09:57,760 --> 00:10:00,760 Speaker 1: see in in the Hong Kong legislative elections that are 191 00:10:00,760 --> 00:10:03,360 Speaker 1: set to happen in September. So the Communist Party now 192 00:10:03,760 --> 00:10:06,080 Speaker 1: is deciding that so HAPs they have more to gain 193 00:10:06,679 --> 00:10:10,720 Speaker 1: by actively asking decisively to try to put down these 194 00:10:10,720 --> 00:10:13,520 Speaker 1: threats for now. And they're basically sending a message to 195 00:10:13,600 --> 00:10:16,520 Speaker 1: President Trump that we can do whatever we want with 196 00:10:16,640 --> 00:10:20,320 Speaker 1: Hong Kong. We're not scared to consequences, and this is 197 00:10:20,840 --> 00:10:24,720 Speaker 1: a domestic issue essentially. So at this point, you know, 198 00:10:24,760 --> 00:10:26,719 Speaker 1: we heard from President Trump saying that they're going to 199 00:10:26,760 --> 00:10:29,560 Speaker 1: address this issue very strongly. They threatened to renege on 200 00:10:29,559 --> 00:10:32,440 Speaker 1: the Phase one trade deal, but withdrawing that Hong Kong 201 00:10:32,520 --> 00:10:35,640 Speaker 1: special status. We were speaking to experts saying, if they 202 00:10:35,679 --> 00:10:39,160 Speaker 1: do so, this actually punishes Hong Kong more so than 203 00:10:39,320 --> 00:10:42,400 Speaker 1: China because essentially you're putting the city into the hands 204 00:10:42,400 --> 00:10:46,120 Speaker 1: of the mainland because you're just astilating what their plan 205 00:10:46,200 --> 00:10:49,080 Speaker 1: has been all along, is to absorb Hong Kong and 206 00:10:49,160 --> 00:10:52,920 Speaker 1: make it another southern city in the mainland. Van, Can 207 00:10:52,960 --> 00:10:56,120 Speaker 1: you just elaborate a little bit more the idea that 208 00:10:56,240 --> 00:11:00,640 Speaker 1: Beijing feels like the US perhaps won't be able to 209 00:11:00,720 --> 00:11:04,040 Speaker 1: respond and full will be distracted by the economic backdrop 210 00:11:04,480 --> 00:11:07,520 Speaker 1: or already has shown that they are reluctant to do more. 211 00:11:07,760 --> 00:11:10,319 Speaker 1: Is that the reason for the timing as to why now? 212 00:11:12,800 --> 00:11:15,719 Speaker 1: I think the reason why now is is two fronts. Yes, 213 00:11:15,760 --> 00:11:18,800 Speaker 1: perhaps they're saying we don't really care about the consequences 214 00:11:18,840 --> 00:11:21,640 Speaker 1: we perhaps we we dare the US to kind of 215 00:11:22,160 --> 00:11:24,640 Speaker 1: class back on what we're doing right now. But it's also, 216 00:11:24,760 --> 00:11:28,000 Speaker 1: i think also a domestic issue because they're seeing that 217 00:11:28,080 --> 00:11:32,439 Speaker 1: there are more benefits to actually stemming this unrest right now. 218 00:11:32,679 --> 00:11:35,760 Speaker 1: And of course we have seen this unrest decimate the 219 00:11:35,800 --> 00:11:38,640 Speaker 1: economy for for months now that they need to put 220 00:11:38,679 --> 00:11:40,920 Speaker 1: an end to this. So you do see those on 221 00:11:41,040 --> 00:11:44,120 Speaker 1: the pro government size same. Perhaps this is encouraging news 222 00:11:44,120 --> 00:11:46,680 Speaker 1: that we do need to finally put an end to 223 00:11:47,120 --> 00:11:51,839 Speaker 1: the protest. UH. And President she is trying to show 224 00:11:51,960 --> 00:11:54,600 Speaker 1: a bit of strength here in the midst of what 225 00:11:54,760 --> 00:11:57,720 Speaker 1: he's been dealing with with the U S, the back 226 00:11:57,760 --> 00:12:01,320 Speaker 1: and forth about plowing fingers and blame him on who 227 00:12:01,440 --> 00:12:03,520 Speaker 1: who is to blame for this start of this virus, 228 00:12:03,840 --> 00:12:06,320 Speaker 1: also with the trade tensions as well. So I think 229 00:12:06,360 --> 00:12:09,480 Speaker 1: this is the Paul and the platform NPC to really 230 00:12:09,840 --> 00:12:13,600 Speaker 1: show that strength. What will how will that strength be 231 00:12:13,920 --> 00:12:17,559 Speaker 1: imputed to Hong Kong in the coming days? I mean, 232 00:12:17,600 --> 00:12:20,000 Speaker 1: do they show up with military on every corner? I 233 00:12:20,040 --> 00:12:23,360 Speaker 1: don't see that, Ivan. But what's the next step to 234 00:12:23,480 --> 00:12:31,000 Speaker 1: show force or power Beijing on the streets of Hong Kong. Oh, 235 00:12:31,040 --> 00:12:33,560 Speaker 1: we haven't seen that yet. As you said, Tom, But 236 00:12:33,640 --> 00:12:37,079 Speaker 1: this isn't just about the National Security Law that we 237 00:12:37,200 --> 00:12:40,320 Speaker 1: just heard from from Beijing. UH. There's also a lot 238 00:12:40,320 --> 00:12:43,200 Speaker 1: of issues that the Hong Kong is also facing as well, 239 00:12:43,320 --> 00:12:47,400 Speaker 1: especially with this National Anthem Bill which the Chief Executive, 240 00:12:47,760 --> 00:12:51,200 Speaker 1: Carrie Lamb has been pushing for. This legislation to go 241 00:12:51,320 --> 00:12:55,880 Speaker 1: through this basically criminalizes anyone that makes fun or threatening 242 00:12:55,960 --> 00:12:59,679 Speaker 1: the national anthem in China. So these are the reasons 243 00:12:59,679 --> 00:13:02,600 Speaker 1: why people are telling, or at least the pro democracy 244 00:13:02,679 --> 00:13:06,040 Speaker 1: side is telling demonstrators to hit the streets once again. 245 00:13:06,080 --> 00:13:09,600 Speaker 1: And now that this pandemic in Hong Kong, the outbreak 246 00:13:09,640 --> 00:13:12,520 Speaker 1: has stabilized quite substantially, I think people are feel a 247 00:13:12,520 --> 00:13:14,720 Speaker 1: little bit more comfortable of hitting the streets once again. 248 00:13:14,760 --> 00:13:19,160 Speaker 1: We've already seen some social unrest, some gatherings in malls 249 00:13:19,200 --> 00:13:21,320 Speaker 1: in the last couple of weeks or so, so we 250 00:13:21,360 --> 00:13:24,199 Speaker 1: hadn't seen any response from Beijing yet in terms of 251 00:13:24,360 --> 00:13:27,720 Speaker 1: action on the streets per day. But we've seen that 252 00:13:27,880 --> 00:13:30,600 Speaker 1: fear bubbling once again. I mean we saw when it 253 00:13:30,640 --> 00:13:34,360 Speaker 1: came to VPN downloads, we saw that spike among Hong 254 00:13:34,440 --> 00:13:36,640 Speaker 1: Kong residents in the last twenty four hours or so, 255 00:13:36,920 --> 00:13:40,160 Speaker 1: and then even Google searches for migration that shot up 256 00:13:40,280 --> 00:13:42,800 Speaker 1: in Hong Kong on news of this security law. If 257 00:13:43,000 --> 00:13:44,480 Speaker 1: I can only imagine what it's been like to live 258 00:13:44,520 --> 00:13:47,320 Speaker 1: in Hong Kong over the last year, it just must 259 00:13:47,320 --> 00:13:50,280 Speaker 1: be so tense constantly over several issues. If on my 260 00:13:50,320 --> 00:13:53,360 Speaker 1: thoughts with you truly Ivon Man from Hong Kong on 261 00:13:53,440 --> 00:13:59,480 Speaker 1: the latest she's senior vice president. You'll curve control for 262 00:13:59,559 --> 00:14:02,520 Speaker 1: two D securities. Pre a misread joins us right now 263 00:14:03,240 --> 00:14:08,360 Speaker 1: in your textbooks. Was their yield curve control? There wasn't. 264 00:14:08,760 --> 00:14:12,440 Speaker 1: There wasn't an unprecedented shock in uh, you know, economic 265 00:14:12,440 --> 00:14:15,920 Speaker 1: activity either. But I think what's very clear that this 266 00:14:16,000 --> 00:14:20,160 Speaker 1: is an aggressive, creative central bank. I would say globally, 267 00:14:20,160 --> 00:14:23,040 Speaker 1: but certainly with the FED that's looking at other tools, 268 00:14:23,160 --> 00:14:26,200 Speaker 1: and so they've addressed yelk of control. I think Brainard 269 00:14:26,200 --> 00:14:28,240 Speaker 1: has brought it up in the past, and then we 270 00:14:28,360 --> 00:14:31,480 Speaker 1: heard from by Check Clarity as well. I think they 271 00:14:31,560 --> 00:14:34,120 Speaker 1: might have no option but to go into yield of control. 272 00:14:34,160 --> 00:14:36,200 Speaker 1: But I think the market is not testing them right now, 273 00:14:36,400 --> 00:14:39,400 Speaker 1: so I don't see it imminently, but by year end, 274 00:14:39,720 --> 00:14:42,880 Speaker 1: if the market continues to price in hikes in four 275 00:14:42,960 --> 00:14:45,600 Speaker 1: or five years, I wouldn't be surprised that they actually 276 00:14:45,640 --> 00:14:48,480 Speaker 1: just slammed the yelk of down, and particularly as as 277 00:14:49,000 --> 00:14:51,000 Speaker 1: supply is going to pick up with I guess additional 278 00:14:51,120 --> 00:14:54,080 Speaker 1: rounds of stimulus. It's pre in some ways they already have. 279 00:14:54,280 --> 00:14:56,880 Speaker 1: I mean yesterday at four thirty pm Wall Street time, 280 00:14:57,240 --> 00:15:00,680 Speaker 1: the FED released their balance sheet assets, which have climbed 281 00:15:00,720 --> 00:15:03,560 Speaker 1: beyond seven trillion dollars, just to give you a sense, 282 00:15:03,920 --> 00:15:08,600 Speaker 1: up from three point eight trillion dollars back last year. 283 00:15:08,680 --> 00:15:11,840 Speaker 1: I'm trying to understand how they're going to use their 284 00:15:11,880 --> 00:15:15,760 Speaker 1: balance sheet to suppress treasury yields while also engaging in 285 00:15:15,760 --> 00:15:19,600 Speaker 1: an accelerating corporate debt et F purchase program. I mean, 286 00:15:19,720 --> 00:15:22,560 Speaker 1: is the emphasis going to be on treasuries? Are they 287 00:15:22,600 --> 00:15:26,920 Speaker 1: going to emphasize expanding into new assets? So I think 288 00:15:26,960 --> 00:15:30,280 Speaker 1: they're absolutely going to use all of those facilities and 289 00:15:30,320 --> 00:15:34,040 Speaker 1: maybe more putting three facilities um to sort of you know, 290 00:15:34,200 --> 00:15:37,800 Speaker 1: keep credit going. But I think they'll have no choice 291 00:15:37,840 --> 00:15:40,240 Speaker 1: but to buy a lot of treasuries as well, because 292 00:15:40,280 --> 00:15:42,440 Speaker 1: even if you think that they do yield of control, 293 00:15:42,480 --> 00:15:44,880 Speaker 1: they can pin the front end, but to try and 294 00:15:44,920 --> 00:15:47,240 Speaker 1: look at the tenny and the thirty year, that pinnie 295 00:15:47,320 --> 00:15:49,480 Speaker 1: is not that strong. So I think they'll have to 296 00:15:49,600 --> 00:15:52,960 Speaker 1: buy treasuries that we're actually expecting that they'll be buying 297 00:15:52,960 --> 00:15:56,040 Speaker 1: all the way up until the end of one. We 298 00:15:56,120 --> 00:15:58,680 Speaker 1: have the balance sheet growing to a max of twelve 299 00:15:58,720 --> 00:16:01,280 Speaker 1: trillion by the end of next year, which will which 300 00:16:01,320 --> 00:16:04,280 Speaker 1: is you know, making some assumption about additional system stimulus. 301 00:16:04,320 --> 00:16:06,720 Speaker 1: I think they might be able to lower the amount 302 00:16:06,720 --> 00:16:08,680 Speaker 1: of treasuries they're buying in the front end the zero 303 00:16:08,800 --> 00:16:11,560 Speaker 1: five years, because if they've told you they're not hiking rates, well, 304 00:16:11,560 --> 00:16:14,760 Speaker 1: then I'm happy to hold the five years. Anything beyond that, 305 00:16:14,840 --> 00:16:17,280 Speaker 1: I think they're going to be the marshal buyer of 306 00:16:17,360 --> 00:16:20,280 Speaker 1: treasuries out there. We'll pretty of Nowaday, this is two 307 00:16:20,400 --> 00:16:23,680 Speaker 1: very very different policy decisions. If they just turn around 308 00:16:23,720 --> 00:16:26,680 Speaker 1: and offer Canada based guidance and say the policy rate 309 00:16:26,760 --> 00:16:29,960 Speaker 1: remains X for why a man of years, then the 310 00:16:30,000 --> 00:16:32,200 Speaker 1: front end is already there and there's actually not much 311 00:16:32,280 --> 00:16:34,880 Speaker 1: quie they might have to do to support that whole policy. 312 00:16:35,000 --> 00:16:37,640 Speaker 1: That's just a that's just a supplement to Canada base guidance, 313 00:16:37,680 --> 00:16:40,680 Speaker 1: which is something Vice Chair Clarada talked about yesterday. But 314 00:16:40,720 --> 00:16:43,120 Speaker 1: if they go out to the ten year, if they 315 00:16:43,120 --> 00:16:46,160 Speaker 1: do what Japan has done for me, that's a game 316 00:16:46,240 --> 00:16:50,800 Speaker 1: changer in the treasury market. That requires far more heavy lifting, 317 00:16:51,160 --> 00:16:53,480 Speaker 1: a lot more work on behalf of the federal reserve. 318 00:16:53,960 --> 00:16:56,640 Speaker 1: Now are you saying you expect the former to happen 319 00:16:57,280 --> 00:17:00,840 Speaker 1: or do you expect the latter to happen. I expect 320 00:17:00,920 --> 00:17:03,480 Speaker 1: the former, so I think the yelk of control will 321 00:17:03,560 --> 00:17:06,480 Speaker 1: be maybe three, I think max five years. I think 322 00:17:06,480 --> 00:17:09,000 Speaker 1: when they talk about four guidance impact is really in 323 00:17:09,040 --> 00:17:11,159 Speaker 1: the zero to five years sector, so they could do 324 00:17:11,240 --> 00:17:13,439 Speaker 1: yelk of control all the way out to the five years. 325 00:17:13,560 --> 00:17:15,560 Speaker 1: I agree with you, I think going out the curve 326 00:17:15,640 --> 00:17:17,760 Speaker 1: in the treasury market. I mean, the bug did this. 327 00:17:18,640 --> 00:17:21,480 Speaker 1: They did hold a very large amount of jgbs, but 328 00:17:21,520 --> 00:17:23,600 Speaker 1: the U S treasury market is not the jgb market, 329 00:17:23,640 --> 00:17:25,800 Speaker 1: So I don't think they take the step that far 330 00:17:26,320 --> 00:17:29,000 Speaker 1: into yelk of control of the tenure, but they need 331 00:17:29,040 --> 00:17:31,359 Speaker 1: to continue to do que. I think all they can 332 00:17:31,400 --> 00:17:33,560 Speaker 1: do is through yelk of control, lower the amount of 333 00:17:33,600 --> 00:17:35,480 Speaker 1: buying in the front end. But I think they'll have 334 00:17:35,600 --> 00:17:37,800 Speaker 1: to be involved in the wrong and especially as as 335 00:17:37,840 --> 00:17:40,600 Speaker 1: the Treasury is shooting a lot of long and bonds. Folks, 336 00:17:40,640 --> 00:17:44,919 Speaker 1: what pre Misterage just said, there is so so so important. 337 00:17:45,040 --> 00:17:49,080 Speaker 1: You said, Pria, this is not the Japanese bond market. Now, 338 00:17:49,119 --> 00:17:53,479 Speaker 1: each bond market is different. What is distinctive about the 339 00:17:53,560 --> 00:17:58,400 Speaker 1: American full faith and credit market that doesn't give the 340 00:17:58,440 --> 00:18:04,239 Speaker 1: FED or others the options that other nations have right, 341 00:18:04,280 --> 00:18:06,520 Speaker 1: So it's I would say it's the fact that the 342 00:18:06,560 --> 00:18:09,000 Speaker 1: dollar is the safe haven currency. I think that's the 343 00:18:09,000 --> 00:18:13,080 Speaker 1: biggest one. Also, we rely a lot on foreign demand 344 00:18:13,200 --> 00:18:16,119 Speaker 1: to hold on to these treasuries. The j GB market 345 00:18:16,119 --> 00:18:19,080 Speaker 1: tends to be more domestically helped, so you know, the 346 00:18:19,160 --> 00:18:22,240 Speaker 1: BOJ owns it, or some Japanese pension fund owns it. 347 00:18:22,680 --> 00:18:24,760 Speaker 1: You know, there's not that much of a difference with 348 00:18:24,880 --> 00:18:28,119 Speaker 1: the US. We've got the dollar, which is the reserve asset, 349 00:18:28,160 --> 00:18:30,160 Speaker 1: and I think there's really no competitor. I'm not saying 350 00:18:30,160 --> 00:18:32,960 Speaker 1: that the dollar is the best out there, but to 351 00:18:33,040 --> 00:18:36,440 Speaker 1: the best among every other option. So I think going 352 00:18:36,440 --> 00:18:40,119 Speaker 1: into yelk of control, you run into credibility issues, political, 353 00:18:40,640 --> 00:18:43,560 Speaker 1: you know, lack of independence. I think you're really getting 354 00:18:43,560 --> 00:18:46,119 Speaker 1: into hairy issues when you start looking at week of 355 00:18:46,200 --> 00:18:49,159 Speaker 1: control further out. But I think even now, the market 356 00:18:49,200 --> 00:18:52,080 Speaker 1: is not forcing their hands, So I think the problem 357 00:18:52,119 --> 00:18:55,080 Speaker 1: we're all grappening with a very grim message from the FED, 358 00:18:55,560 --> 00:18:57,960 Speaker 1: but they're not really doing anything new, and the market 359 00:18:58,000 --> 00:19:00,360 Speaker 1: likes the new shiny tool, which is why negat rate 360 00:19:00,520 --> 00:19:03,560 Speaker 1: eaker of control. We tend to gravitate to those things, 361 00:19:04,000 --> 00:19:06,560 Speaker 1: but rates are pretty low, so I think they'll use 362 00:19:06,680 --> 00:19:09,560 Speaker 1: this if we start to you know, if equities continue 363 00:19:09,560 --> 00:19:11,600 Speaker 1: to go to the moon, at some point, rates are 364 00:19:11,640 --> 00:19:13,760 Speaker 1: going to start to rise, particularly in the long end. 365 00:19:14,119 --> 00:19:15,920 Speaker 1: That's when I think they use the balance sheet to 366 00:19:15,960 --> 00:19:18,880 Speaker 1: the fullest and just buy whatever it takes to keep 367 00:19:18,960 --> 00:19:21,280 Speaker 1: rates law. Let's build on this, because you're right to 368 00:19:21,320 --> 00:19:23,680 Speaker 1: say the j g B market is not the treasury market. 369 00:19:23,680 --> 00:19:26,480 Speaker 1: I wouldn't even call the j GP market a market anymore. 370 00:19:26,560 --> 00:19:29,080 Speaker 1: Some of these securities hardly trade. The bulk of it 371 00:19:29,200 --> 00:19:31,000 Speaker 1: is how at the Bank of Japan. But there are 372 00:19:31,040 --> 00:19:33,800 Speaker 1: some people worried that that is the way the treasury 373 00:19:33,800 --> 00:19:36,920 Speaker 1: market is going. Doesn't mean it happens tomorrow, but over time, 374 00:19:36,920 --> 00:19:39,320 Speaker 1: prayer and I'm trying to understand just how much of 375 00:19:39,359 --> 00:19:42,159 Speaker 1: this federal reserve, how much of this treasury market this 376 00:19:42,240 --> 00:19:46,520 Speaker 1: feed will actually hold. So you know, they have been 377 00:19:46,560 --> 00:19:49,119 Speaker 1: lowering the amount they are buying. Um, I think the 378 00:19:49,280 --> 00:19:52,040 Speaker 1: aim and they haven't been very explicit. They kept saying 379 00:19:52,040 --> 00:19:54,840 Speaker 1: it's market functioning. Well, if it was only market functioning 380 00:19:54,920 --> 00:19:57,400 Speaker 1: driving treasury buying, they should have stopped buying, I would 381 00:19:57,440 --> 00:19:59,840 Speaker 1: say months ago. The fact that they're still buying is 382 00:19:59,880 --> 00:20:02,280 Speaker 1: to link you that they're needed, but you know I 383 00:20:02,320 --> 00:20:04,760 Speaker 1: see them. Well. A big question is how much more 384 00:20:04,800 --> 00:20:06,800 Speaker 1: supply are we going to get. I think the US 385 00:20:06,920 --> 00:20:10,240 Speaker 1: Congress is going to do, you know, many more potentially 386 00:20:10,280 --> 00:20:12,960 Speaker 1: fiscal stimulus plans, so we'll have a lot more supply. 387 00:20:13,480 --> 00:20:15,679 Speaker 1: But I think the FED will have to switch it 388 00:20:15,840 --> 00:20:19,560 Speaker 1: from saying this is just market functioning to financial conditions. 389 00:20:19,560 --> 00:20:22,159 Speaker 1: We need to keep it low in the long end. 390 00:20:22,200 --> 00:20:25,520 Speaker 1: I think they might be fifty of the market in 391 00:20:25,560 --> 00:20:29,080 Speaker 1: the near term. Remember it's still the dollar is the 392 00:20:29,119 --> 00:20:32,040 Speaker 1: reserve asset. It's just you know, if I were to buy, 393 00:20:32,200 --> 00:20:34,000 Speaker 1: the front end is very safe for me because the 394 00:20:34,040 --> 00:20:36,200 Speaker 1: Fed's not about to hide. So I think it will 395 00:20:36,280 --> 00:20:39,320 Speaker 1: vary across the yek of Pretty fantastic at your thoughts 396 00:20:39,320 --> 00:20:42,399 Speaker 1: this morning, Really important conversation. Enjoy the long weekend, weren't you, 397 00:20:42,440 --> 00:20:44,000 Speaker 1: and send up best to the family. Pretty must for 398 00:20:44,080 --> 00:20:50,119 Speaker 1: that of the security. We decided on Friday that is 399 00:20:50,200 --> 00:20:54,200 Speaker 1: incredibly important to find a daughter out there who properly 400 00:20:54,359 --> 00:20:58,800 Speaker 1: celebrated her mother's eightieth birthday, and that would be Diane's 401 00:20:58,800 --> 00:21:01,920 Speaker 1: swunk in the great mid West of this nation. Diane, 402 00:21:01,960 --> 00:21:06,360 Speaker 1: that was lovely your celebration of Mrs phil Phillis Swank's birthday. 403 00:21:06,400 --> 00:21:09,320 Speaker 1: Here she cried by the end of the day. So 404 00:21:09,359 --> 00:21:12,200 Speaker 1: I succeeded in bringing joy to our tears of joy. 405 00:21:12,359 --> 00:21:14,600 Speaker 1: So that was good to be able to do in 406 00:21:14,640 --> 00:21:18,040 Speaker 1: a way I didn't expect to written, Yeah, Diane, to 407 00:21:18,119 --> 00:21:21,360 Speaker 1: get a summary here of the economy and this troubled 408 00:21:21,359 --> 00:21:24,240 Speaker 1: American economy that you never study this at Michigan. It 409 00:21:24,320 --> 00:21:27,679 Speaker 1: was never in the textbooks with Professor Gramlett and the 410 00:21:27,720 --> 00:21:33,000 Speaker 1: others at Michigan. Frame for us where we are right now? 411 00:21:33,400 --> 00:21:36,760 Speaker 1: We're in May, We're gonna end May and June. That's 412 00:21:36,880 --> 00:21:41,480 Speaker 1: Q two. Where are we right now? It's we're near 413 00:21:41,560 --> 00:21:44,840 Speaker 1: the bottom, which is in some ways, you know, good, 414 00:21:44,840 --> 00:21:47,320 Speaker 1: in that we're sort of bottoming out. It's bad and 415 00:21:47,359 --> 00:21:49,879 Speaker 1: that I fear we need to change the way we 416 00:21:49,960 --> 00:21:53,120 Speaker 1: really talk about the economy. Um, we've gone to such 417 00:21:53,119 --> 00:21:56,919 Speaker 1: a low bottom with so many extraordinary losses that when 418 00:21:57,000 --> 00:21:59,840 Speaker 1: we talk about bouncing, opt at bottom as a dead 419 00:22:00,040 --> 00:22:04,159 Speaker 1: at bounce. Because I'm really sensitive to cat lovers these days, Um, 420 00:22:04,200 --> 00:22:09,359 Speaker 1: I think it's important that we think it's important cats 421 00:22:09,359 --> 00:22:11,679 Speaker 1: in my life. My kids are allergic to them, But 422 00:22:11,720 --> 00:22:14,040 Speaker 1: I'm not a rat lover. But I did have on 423 00:22:14,119 --> 00:22:16,880 Speaker 1: an aside um, But I think it's really important how 424 00:22:16,920 --> 00:22:20,040 Speaker 1: we talk about the economy and context. You know, we're 425 00:22:20,040 --> 00:22:23,280 Speaker 1: two thirds below traveling over this Memoriality weekend where we 426 00:22:23,280 --> 00:22:26,280 Speaker 1: were a year ago. Thinking of an economy that's two 427 00:22:26,320 --> 00:22:28,840 Speaker 1: thirds below where it was a year ago is stunning. 428 00:22:29,240 --> 00:22:32,080 Speaker 1: And that's has mobility as we see cell phones travel 429 00:22:32,119 --> 00:22:34,800 Speaker 1: more across state lines and people you know, getting in 430 00:22:34,840 --> 00:22:37,359 Speaker 1: their cars more to at least drive somewhere to maybe 431 00:22:37,359 --> 00:22:41,359 Speaker 1: a national park. This is really important understanding context that 432 00:22:41,800 --> 00:22:45,320 Speaker 1: you know, even as the economy reopens and we start 433 00:22:45,359 --> 00:22:50,000 Speaker 1: to see percent increases out there, those will dramatically overstate 434 00:22:50,080 --> 00:22:53,320 Speaker 1: the level of economic activity we're at. And that's when 435 00:22:53,320 --> 00:22:56,199 Speaker 1: I'm very concerned about because it doesn't do justice to 436 00:22:56,280 --> 00:22:59,520 Speaker 1: the pain that is the ongoing that we continue to suffer. 437 00:23:00,040 --> 00:23:02,040 Speaker 1: It really is starting to bring up a debate in 438 00:23:02,080 --> 00:23:04,879 Speaker 1: economics about how to even talk about recessions because this 439 00:23:04,920 --> 00:23:08,520 Speaker 1: one is just so incredibly unique. It may be short 440 00:23:08,560 --> 00:23:10,480 Speaker 1: lived if we don't get a double dip, which is 441 00:23:10,560 --> 00:23:13,639 Speaker 1: highly possible with a second wave in the fall, but 442 00:23:13,760 --> 00:23:16,879 Speaker 1: even as the economy recovers, the length of time it 443 00:23:16,920 --> 00:23:19,240 Speaker 1: takes us to get back to our previous peak will 444 00:23:19,280 --> 00:23:23,159 Speaker 1: be um excruciatingly long, Diana. I want to build on 445 00:23:23,240 --> 00:23:28,680 Speaker 1: this idea of a reopening economy yet an ongoing role 446 00:23:28,960 --> 00:23:33,160 Speaker 1: of unemployment benefits the idea that continuing claims rose more 447 00:23:33,200 --> 00:23:35,359 Speaker 1: than expected in the data we got yesterday, and the 448 00:23:35,359 --> 00:23:39,240 Speaker 1: fact that thirty nine million Americans have lost their jobs 449 00:23:39,480 --> 00:23:41,879 Speaker 1: in nine weeks, with another two and a half million 450 00:23:42,240 --> 00:23:45,760 Speaker 1: filing in the previous week, does that tell you something 451 00:23:45,800 --> 00:23:50,560 Speaker 1: that even now after the immediate shutdowns have basically been 452 00:23:50,600 --> 00:23:53,879 Speaker 1: put through and are starting to rise and alleviate that 453 00:23:53,960 --> 00:23:58,119 Speaker 1: we're still seeing such massive job losses exactly. Well, some 454 00:23:58,200 --> 00:24:00,399 Speaker 1: of it is lagged because people were un able to 455 00:24:00,440 --> 00:24:03,399 Speaker 1: get in, but we're not seeing the reopening trigger the 456 00:24:03,480 --> 00:24:05,640 Speaker 1: kind of rehiring we'd like to see, and I think 457 00:24:05,680 --> 00:24:08,879 Speaker 1: that's really important. The continuing claims is people finally getting 458 00:24:08,920 --> 00:24:11,960 Speaker 1: paid that waited for a very long time. People really 459 00:24:11,960 --> 00:24:14,440 Speaker 1: don't understand the leg in this, and it's going to 460 00:24:14,560 --> 00:24:17,320 Speaker 1: take a lot much longer time. I mean, it's just 461 00:24:17,840 --> 00:24:20,680 Speaker 1: the you know, the space and speed of which we've 462 00:24:20,720 --> 00:24:23,600 Speaker 1: lost jobs, and people thinking we can just turn that 463 00:24:23,760 --> 00:24:26,080 Speaker 1: COVID tainted spike it on again. We don't want to 464 00:24:26,160 --> 00:24:29,760 Speaker 1: drink from a tainted well. And I think that's what 465 00:24:29,800 --> 00:24:32,960 Speaker 1: we're dealing with right now. And as we ramp up again, 466 00:24:33,000 --> 00:24:36,280 Speaker 1: we've seen that whether economies are open or not, whether 467 00:24:36,359 --> 00:24:39,479 Speaker 1: restaurants are open or not, there is a hesitancy because 468 00:24:39,480 --> 00:24:41,800 Speaker 1: of the fear of contagion, and until we can deal 469 00:24:41,840 --> 00:24:45,920 Speaker 1: with that issue the fundamental sense of being safe, consumers 470 00:24:46,080 --> 00:24:48,359 Speaker 1: are reluctant to consume as they did in the past. 471 00:24:48,440 --> 00:24:50,720 Speaker 1: It's also important that a third of all spending in 472 00:24:50,760 --> 00:24:53,439 Speaker 1: the economy is done by baby boomers, who are the 473 00:24:53,480 --> 00:24:58,600 Speaker 1: most at risk of getting severe um consequences of the coronavirus. 474 00:24:58,720 --> 00:25:01,040 Speaker 1: And I think that's very important as well as this 475 00:25:01,080 --> 00:25:04,000 Speaker 1: big spending group who already is a little more skittish 476 00:25:04,000 --> 00:25:06,679 Speaker 1: and reluctant to spend that like they used to. This 477 00:25:06,760 --> 00:25:11,320 Speaker 1: is the generation that defined conspicuous in conspicuous consumption and 478 00:25:11,400 --> 00:25:13,640 Speaker 1: define debt. They took on debt more than any other 479 00:25:13,680 --> 00:25:17,280 Speaker 1: generation previous to them. They are now banking the gains 480 00:25:17,280 --> 00:25:20,480 Speaker 1: from refinancing their homes prior to the crisis. I worry 481 00:25:20,520 --> 00:25:22,879 Speaker 1: about what they will do coming back. It's a lot 482 00:25:22,880 --> 00:25:24,600 Speaker 1: of worries to think about. Diane. One of the things 483 00:25:24,600 --> 00:25:27,280 Speaker 1: I tracted on the moment, sometimes just in terms of 484 00:25:27,280 --> 00:25:30,720 Speaker 1: how the narrative is evolving on the economist profession side 485 00:25:30,720 --> 00:25:32,760 Speaker 1: of things, which I'm sure you can speak to. I 486 00:25:32,840 --> 00:25:35,720 Speaker 1: keep hearing more of a multi speed, multi stage recovery 487 00:25:35,720 --> 00:25:38,600 Speaker 1: that we get this quick reopening and this quick improvement 488 00:25:38,600 --> 00:25:40,840 Speaker 1: off the back of going from quite clearly shut down 489 00:25:40,880 --> 00:25:43,760 Speaker 1: to reopening, and then after several months the gains fate 490 00:25:44,040 --> 00:25:45,840 Speaker 1: and then we have to go through this real slog 491 00:25:46,200 --> 00:25:48,040 Speaker 1: of trying to improve the labor market. Is that how 492 00:25:48,040 --> 00:25:50,520 Speaker 1: you see things evolving, a quick improvement and then a 493 00:25:50,560 --> 00:25:53,400 Speaker 1: long slog after that. I'm not sure how much improvement 494 00:25:53,400 --> 00:25:55,520 Speaker 1: will get a quick speed of improvement in terms of 495 00:25:55,560 --> 00:25:58,160 Speaker 1: percent changes off of you know, if you divide by zero, 496 00:25:58,200 --> 00:26:00,800 Speaker 1: you get infinity, and we're almost zero on the economy 497 00:26:01,000 --> 00:26:03,840 Speaker 1: when we put it into a deep freeze. So um. 498 00:26:03,880 --> 00:26:05,960 Speaker 1: I do think there will be some pent up demand 499 00:26:06,000 --> 00:26:08,520 Speaker 1: that we see come out and you know, some surge 500 00:26:08,600 --> 00:26:12,720 Speaker 1: in activity from that, and that is good. The problem 501 00:26:12,800 --> 00:26:15,240 Speaker 1: is recoveries tend to happen in waves, and can it 502 00:26:15,280 --> 00:26:17,919 Speaker 1: be sustained and what is the next side of this? 503 00:26:18,000 --> 00:26:21,399 Speaker 1: Look like factories can reopen, but we've seen even in China. 504 00:26:22,000 --> 00:26:25,960 Speaker 1: Over all factories are reopen and people are in, but 505 00:26:26,000 --> 00:26:28,639 Speaker 1: they're operating at fifty capacity because we're in the end 506 00:26:28,720 --> 00:26:31,320 Speaker 1: is so weak, so even the things that can reopen 507 00:26:31,400 --> 00:26:34,840 Speaker 1: easily have hurdles in a global economy that's been hit 508 00:26:34,880 --> 00:26:37,520 Speaker 1: by a meteor. Okay, I want to go through this exercise, 509 00:26:37,880 --> 00:26:39,440 Speaker 1: miss Wanka, and I want to do it with great 510 00:26:39,480 --> 00:26:42,360 Speaker 1: respect for your forecasting ability or the awards you've won. 511 00:26:42,720 --> 00:26:45,680 Speaker 1: And I understand nobody's listening on a Friday before Moral Days, 512 00:26:45,680 --> 00:26:51,840 Speaker 1: so it's just you with John and Leasia. There's any 513 00:26:53,040 --> 00:26:55,959 Speaker 1: take the quarter, annalyze it out and we're like minus 514 00:26:56,000 --> 00:27:00,399 Speaker 1: thirty eight minus GDP. Right now, go core order by 515 00:27:00,480 --> 00:27:02,960 Speaker 1: quarter forward? How you perceive it? Like, do we go 516 00:27:03,480 --> 00:27:07,760 Speaker 1: from minus forty to minus ten? Does the how do 517 00:27:07,800 --> 00:27:13,400 Speaker 1: you model out the gene? It's really difficult, but yeah, 518 00:27:13,720 --> 00:27:16,840 Speaker 1: my my forecast is up more like seven to eight percent, 519 00:27:16,880 --> 00:27:20,720 Speaker 1: which is a very modest increase after extraordinary decline in 520 00:27:20,760 --> 00:27:23,199 Speaker 1: the third quarter and then a slowdown again in the 521 00:27:23,240 --> 00:27:25,679 Speaker 1: fourth quarter as we deal with the second wave. But 522 00:27:25,760 --> 00:27:29,040 Speaker 1: what's really hard is starting July first, we have cuts 523 00:27:29,040 --> 00:27:32,159 Speaker 1: in state and local government spending depends on transfers to 524 00:27:32,200 --> 00:27:35,560 Speaker 1: the States, because that's a major hurdle to get over. 525 00:27:35,680 --> 00:27:38,880 Speaker 1: We also have a much more sustained contraction and investment. 526 00:27:38,920 --> 00:27:42,520 Speaker 1: We've already lost a year to trade wars in business. 527 00:27:42,520 --> 00:27:45,159 Speaker 1: That's a foundation going forward. So that just why my 528 00:27:45,240 --> 00:27:47,760 Speaker 1: forecast is a little weaker than some mothers, just because 529 00:27:47,800 --> 00:27:51,280 Speaker 1: the time Mr McConnell says here, you know round, whatever 530 00:27:51,320 --> 00:27:53,439 Speaker 1: it is for stimulus is going to be under a 531 00:27:53,480 --> 00:27:57,919 Speaker 1: trillion dollars, he's nuts, right, It's not enough, No, not 532 00:27:58,080 --> 00:28:00,639 Speaker 1: at all. And that's the unfortunate fact is as fast 533 00:28:00,640 --> 00:28:03,000 Speaker 1: as we're still chasing a moving target, and to wait 534 00:28:03,080 --> 00:28:07,720 Speaker 1: until later to thee early August, the unemployment insurance will 535 00:28:07,760 --> 00:28:11,959 Speaker 1: have expired and expansions. I mean, John, I don't want 536 00:28:11,960 --> 00:28:15,879 Speaker 1: to get in the editorial time out chair here, but 537 00:28:16,000 --> 00:28:20,439 Speaker 1: every economist agrees with mis swork that that no, we 538 00:28:20,480 --> 00:28:23,000 Speaker 1: need a lot more money. I think Secondary Manuchin is 539 00:28:23,080 --> 00:28:25,480 Speaker 1: quickly coming around to that idea, Tom, and I think 540 00:28:25,480 --> 00:28:28,440 Speaker 1: Secutary Manuchon himself has done a tremendous job of bringing 541 00:28:28,440 --> 00:28:30,439 Speaker 1: the whole of Washington along with him. I agree with 542 00:28:30,480 --> 00:28:32,320 Speaker 1: you that things have really slowed down in the last 543 00:28:32,320 --> 00:28:35,520 Speaker 1: couple of weeks. I'd be very surprised to see the 544 00:28:35,600 --> 00:28:38,760 Speaker 1: Treasury Secretary back away from more fiscal stimulus. With an 545 00:28:38,760 --> 00:28:41,720 Speaker 1: economy and the shape that is in in an election year, 546 00:28:41,920 --> 00:28:44,959 Speaker 1: I'd be really surprised to see that happen. Dan Swank, 547 00:28:45,160 --> 00:28:47,320 Speaker 1: thank you so much for joining us with Grant Thort 548 00:28:47,360 --> 00:28:49,600 Speaker 1: and just an important voice for us, particularly on our 549 00:28:49,680 --> 00:28:55,720 Speaker 1: FED Day coverage. He is at the Bloomberg School of 550 00:28:55,720 --> 00:28:58,960 Speaker 1: Public Health, Johns Hopkins University, and of course Michael Bloomberg, 551 00:28:59,400 --> 00:29:03,360 Speaker 1: the founder Bloomberg LP and this radio and television platform 552 00:29:03,440 --> 00:29:07,160 Speaker 1: as well, has provided great philanthropy to his Johns Hopkins 553 00:29:07,440 --> 00:29:10,240 Speaker 1: at University where you had darkened the door and engineering 554 00:29:11,040 --> 00:29:14,840 Speaker 1: years ago. Andrew Pekos is there. He is a virologist 555 00:29:15,800 --> 00:29:20,560 Speaker 1: world known for the social and health impacts of our 556 00:29:20,680 --> 00:29:24,920 Speaker 1: virology and microbiology. And I spoke to him about the 557 00:29:25,000 --> 00:29:29,840 Speaker 1: medical community and their exhaustion the pandemic. It TOOMP has 558 00:29:29,960 --> 00:29:32,960 Speaker 1: been such a focus of the medical community UM and 559 00:29:33,040 --> 00:29:35,719 Speaker 1: of people UM. But we have to remember that there 560 00:29:35,720 --> 00:29:38,120 Speaker 1: are other things that are going on, other health care 561 00:29:38,160 --> 00:29:40,760 Speaker 1: issues that need to be taken care of. Some reports 562 00:29:40,760 --> 00:29:44,760 Speaker 1: this week about drops and pediatric vaccination rates U are 563 00:29:44,800 --> 00:29:48,440 Speaker 1: of course a concern because things that are not getting 564 00:29:48,480 --> 00:29:51,680 Speaker 1: done now will have implications later on in the year, 565 00:29:52,080 --> 00:29:55,520 Speaker 1: maybe next year, in the year afterwards. How serious is Brazil? 566 00:29:55,640 --> 00:29:58,520 Speaker 1: I looked at the log A glide path yesterday per 567 00:29:58,560 --> 00:30:01,160 Speaker 1: capita of the wonderful work that the f T is 568 00:30:01,200 --> 00:30:04,840 Speaker 1: then doing with Johns Hopkins University, and the glide pass 569 00:30:04,920 --> 00:30:09,959 Speaker 1: of Brazil and Ecuador are really really grim. Yes, you know, 570 00:30:10,000 --> 00:30:13,600 Speaker 1: the Southern Hemisphere is now getting into its late fall 571 00:30:13,720 --> 00:30:17,440 Speaker 1: early winter season, so there's been concerns about whether or 572 00:30:17,480 --> 00:30:20,960 Speaker 1: not the COVID nineteen virus would do better in cooler 573 00:30:21,000 --> 00:30:24,680 Speaker 1: conditions and winter light conditions. Brazil and Ecuador are having 574 00:30:24,760 --> 00:30:27,480 Speaker 1: a tremendous trouble in terms of controlling the outbreak with 575 00:30:27,720 --> 00:30:31,320 Speaker 1: huge numbers of cases. Other countries in the Southern Hemisphere 576 00:30:31,320 --> 00:30:34,320 Speaker 1: have been able to control that with very very rigid 577 00:30:34,560 --> 00:30:38,160 Speaker 1: and active surveillance for the virus and testing for the virus, 578 00:30:38,720 --> 00:30:42,800 Speaker 1: but several countries in South America are a concern, and 579 00:30:42,920 --> 00:30:46,280 Speaker 1: the emerging problem in Africa is also of some concern. 580 00:30:46,680 --> 00:30:51,040 Speaker 1: Dr becos there are enough testing kids in emerging market 581 00:30:51,040 --> 00:30:53,160 Speaker 1: economies or is that is that a worry that we 582 00:30:53,200 --> 00:30:56,680 Speaker 1: actually don't exactly know what's going on? Yeah, I think 583 00:30:56,720 --> 00:31:00,600 Speaker 1: the Number one worrying in those countries is the number 584 00:31:00,600 --> 00:31:05,520 Speaker 1: of tests, and then right behind that is uh the 585 00:31:05,600 --> 00:31:09,360 Speaker 1: availability of good laboratories that can run those tests in 586 00:31:09,360 --> 00:31:12,520 Speaker 1: the timely manner. So those two things combined are going 587 00:31:12,560 --> 00:31:16,360 Speaker 1: to make it incredibly challenging for some countries to really 588 00:31:16,440 --> 00:31:22,120 Speaker 1: respond well in terms of the testing, UM isolation and 589 00:31:22,200 --> 00:31:25,680 Speaker 1: contact tracing that are needed to con general this outbreak 590 00:31:25,760 --> 00:31:27,920 Speaker 1: early and what can you tell us about you know, 591 00:31:27,960 --> 00:31:31,040 Speaker 1: the end is lockdown. So we're seeing a number of economies, 592 00:31:31,240 --> 00:31:35,320 Speaker 1: the biggest economies in the world reopening, some slowly, some 593 00:31:35,480 --> 00:31:38,760 Speaker 1: less slowly. But given the time lag of people ending 594 00:31:38,840 --> 00:31:41,440 Speaker 1: up in hospital, when will we have a better idea 595 00:31:41,440 --> 00:31:44,880 Speaker 1: of the exact situation? And this is one of the 596 00:31:44,960 --> 00:31:48,240 Speaker 1: challenges with this virus because it takes about you can 597 00:31:48,320 --> 00:31:51,480 Speaker 1: take anywhere from one to two weeks to show symptoms 598 00:31:51,840 --> 00:31:56,600 Speaker 1: and you're infectious for about probably seven days UM. The 599 00:31:56,680 --> 00:31:59,840 Speaker 1: lag between when cases start to come up UM is 600 00:32:00,080 --> 00:32:03,880 Speaker 1: significant UM. So you're seeing some small spikes and in 601 00:32:04,200 --> 00:32:07,600 Speaker 1: particularly in states in the US that are loosening their economy. 602 00:32:08,080 --> 00:32:10,200 Speaker 1: Some other states are doing a little bit better right now, 603 00:32:10,240 --> 00:32:12,480 Speaker 1: but we really won't know until two to three weeks 604 00:32:12,560 --> 00:32:15,560 Speaker 1: from now how these states are doing with loosening their 605 00:32:15,560 --> 00:32:19,200 Speaker 1: public health interventions. Dr Pegrass one final question. I don't 606 00:32:19,200 --> 00:32:21,760 Speaker 1: need to be tried about it, but I think it's 607 00:32:21,760 --> 00:32:25,960 Speaker 1: an immediate question. How safe well the beaches be this weekend? 608 00:32:26,000 --> 00:32:29,160 Speaker 1: What are your thoughts on heading to the beach? Well, 609 00:32:29,200 --> 00:32:34,080 Speaker 1: you know, as as economies open up as some of 610 00:32:34,120 --> 00:32:38,160 Speaker 1: these uh, social distancing. Uh, well, I should say social 611 00:32:38,160 --> 00:32:40,880 Speaker 1: distancing should still be in place, so people need to 612 00:32:40,920 --> 00:32:43,360 Speaker 1: really be careful about keeping their distance amount people when 613 00:32:43,400 --> 00:32:46,360 Speaker 1: they're outside. It's great to get outside to do some 614 00:32:46,400 --> 00:32:49,840 Speaker 1: activities to try to enjoy yourself during these times, but 615 00:32:50,280 --> 00:32:53,239 Speaker 1: social distancing and wearing masks is going to be an 616 00:32:53,240 --> 00:32:56,560 Speaker 1: incredibly important thing to do irrespective of what your activity is. 617 00:32:56,600 --> 00:32:58,920 Speaker 1: And it seems a little bit odd to say that 618 00:32:59,200 --> 00:33:02,920 Speaker 1: on the beach and stuff, but uh, maintaining social distancing 619 00:33:02,960 --> 00:33:05,480 Speaker 1: is the critical thing as people try to get out 620 00:33:05,880 --> 00:33:08,479 Speaker 1: and uh, you know, and and get back into some 621 00:33:08,720 --> 00:33:12,880 Speaker 1: sense of normal thing. Andrew Pecks at Johns Hopkins University 622 00:33:12,960 --> 00:33:15,560 Speaker 1: just always wonderful and we really thank the whole team 623 00:33:15,560 --> 00:33:19,920 Speaker 1: at JHU for their support through the week. Thanks for 624 00:33:20,000 --> 00:33:24,400 Speaker 1: listening to the Bloomberg Surveillance Podcast. Subscribe and listen to 625 00:33:24,560 --> 00:33:30,320 Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. 626 00:33:30,840 --> 00:33:34,200 Speaker 1: I'm on Twitter at Tom Keane before the podcast. You 627 00:33:34,240 --> 00:33:37,640 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio