Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Leye.
Speaker 1: We bring you insight from the best in economics, finance, investment,
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Speaker 1: thought today City Group had a day off. I thought
Speaker 1: my carback everyone the day the day off, but apparently not,
Speaker 1: because Tobias Lefkovich is with US of City, the chief
Speaker 1: US equity strategist, to bu us, what happened? Did you
Speaker 1: not get Friday off? I'm taking a different Friday off,
Speaker 1: so we're taking a different Friday off. Unfortunately, scheduled a
Speaker 1: bunch of things to work today, even though Mr Corbette
Speaker 1: was kind enough to think so, including getting up early
Speaker 1: for you guys. Well, it's advice. We appreciate it. Thank
Speaker 1: you very much. Would it be fair to say that
Speaker 1: you've been a little bit more skeptical of what underpins
Speaker 1: this rally in the last month or so, Well, right,
Speaker 1: I'm more skeptical about the continuation of the rally. I
Speaker 1: know what kind of us underpinned this rally. It's been
Speaker 1: you know, the exiting of the great lockdown. It is
Speaker 1: the better news on the healthcare front, and certainly stimulus,
Speaker 1: both monetary and fiscal, that started kind of in the
Speaker 1: latter part of March into April. So all those things
Speaker 1: are combined. And then there's been what I call this overlay,
Speaker 1: uh not FOMO, not fear of missing out, the behavioral
Speaker 1: overlay of what I call FOMU, fear of meaningfully underperforming.
Speaker 1: So as the market has turned, investors have felt compelled
Speaker 1: to deploy cash and be part of this because if
Speaker 1: you know, to quote New York Claudo, if you're not
Speaker 1: in it, you can't win it. Um. So I think
Speaker 1: a lot of investors have been kind of chasing the
Speaker 1: tape fear of being left behind, and potentially that's career risk. Yeah,
Speaker 1: it's career risk. I love how you put that to bias,
Speaker 1: and it's just so so important. It's May, and I
Speaker 1: guess we've got to get to December. How far out
Speaker 1: are people expecting that, you know, the academic rules six months.
Speaker 1: I don't buy for a minute. How far out is
Speaker 1: he expecting right now? So a lot of people are
Speaker 1: talking about earnings and even two earnings. How long does
Speaker 1: it take for us to get back to where we
Speaker 1: were in twenty UM, and I would argue that we're
Speaker 1: probably pricing May of one at this point. We do
Speaker 1: think the marketing go up to about one sixty on
Speaker 1: the SMP by middle of next year. So we're almost
Speaker 1: there if you want to think of it in those
Speaker 1: during five six percent away um. But we've done it really,
Speaker 1: really early. And again I do think there's risk here.
Speaker 1: It's a bumpier road to get to that target. Well,
Speaker 1: I get that, you know, you had at whatever bounce
Speaker 1: off the March low, So yeah, from here it's it's
Speaker 1: more challenging. But the great challenge to me is you've
Speaker 1: got to move forward looking out there but being buffeted
Speaker 1: by the news. How do you withstand the volatility in
Speaker 1: day to day shocks is you look out to May
Speaker 1: of two thousand twenty one looks I think from a
Speaker 1: portfolio perspective, people are will think about bar belling it um.
Speaker 1: They'll take a little bit more risk on one side,
Speaker 1: a little bit more defensiveness on the other side to
Speaker 1: make sure that they've got that almost inherent portfolio protection um.
Speaker 1: But net net um, we are at the mercy of
Speaker 1: news developments. Are we going to have, uh, you know,
Speaker 1: significant outbreaks by exiting the lockdown, are we going to have, um,
Speaker 1: potentially good or not so good news on on treatments
Speaker 1: and vaccines down the road. And these are very very
Speaker 1: difficult for investors to kind of get their arms around. Um.
Speaker 1: You know, the biggest issue for us probably is going
Speaker 1: to be how do we get everybody back to work?
Speaker 1: And do we see an increase in what I would
Speaker 1: call populism and protectionism in order for local citizenry to
Speaker 1: get jobs. Because remember, politicians are not elected by global citizenry.
Speaker 1: They're elected by their domestic populations, and they're going to
Speaker 1: have to respond to that. We've got a big election
Speaker 1: coming up in November, and you know, it's not that
Speaker 1: easy to just say, hey, well, you know, or for
Speaker 1: free trade today, even though maybe that's a better capitalist perspective. Um,
Speaker 1: it might mean that we're importing things as opposed to
Speaker 1: building them in here. And I think that's not going
Speaker 1: to be the rhetoric on either side of the political aisle.
Speaker 1: I think both sides are going to be looking towards
Speaker 1: that job creation element. Uncertainty is definitely the hallmark of
Speaker 1: and I'm just wondering how hard it is for you
Speaker 1: to come up with a recommendation for investors given the
Speaker 1: fact that most companies have withdrawn guidance, and even China
Speaker 1: is with drawn guidance. No one can have any kind
Speaker 1: of foresight here. How is it if for you? So, look,
Speaker 1: I think it's a great point, but I've actually asked
Speaker 1: that question to some of our institutional investors clients and
Speaker 1: asking them, you know, are you pleased, disappointed? You know,
Speaker 1: management should be providing their best gas at the very
Speaker 1: least um, you know, with and give you know, caveats.
Speaker 1: This is our base case scenario. This is our you know,
Speaker 1: dramatically bad scenario ten percent, whatever it might be once
Speaker 1: you want them to provide that. And really it's an
Speaker 1: interesting of responses from from that industrial group and that
Speaker 1: some of them are saying, look, I want to buy
Speaker 1: good businesses. UM that kind of are looking out to
Speaker 1: three years, not to three months. So I don't really
Speaker 1: care that they're not telling me the second quarter guidance
Speaker 1: because nobody really can predict how that it could be. Um,
Speaker 1: but are you doing the right things for the you know,
Speaker 1: for the business over a longer timeframe? Um? That's in
Speaker 1: some of the people and the others one the other.
Speaker 1: So you know, it's not like we really listened to
Speaker 1: the guidance anyway. We we use it as a benchmark,
Speaker 1: but you know, management teams also kind of screw up
Speaker 1: every once in a while. Well, let's talk about the
Speaker 1: former group and what they've told you about that within
Speaker 1: this to buy sick the calacy and the airs of
Speaker 1: the market that still have serious evaluation damage that hasn't
Speaker 1: really recovered. I'm thinking of the financials in America now, sweats,
Speaker 1: but US, what are those conversations lack at the moment. Look,
Speaker 1: they'd rather be um in companies that have what you
Speaker 1: might say bulletproof balance sheets, secular growth characteristics, free cash
Speaker 1: flow because that's called quote unquote the quality trade. Right. Um,
Speaker 1: that's one of the places that everybody's hiding out. And
Speaker 1: the problem is there's there's so many people crowded into
Speaker 1: that space, uh, including institutional investors domestically foreign investors who
Speaker 1: who've had to come to the US in many respects
Speaker 1: to do this. Similar to back ind when they were
Speaker 1: buying the dot coms because it was the only place
Speaker 1: that they really could do it that wasn't available in
Speaker 1: any great number of stocks in Europe, for instance, so
Speaker 1: we've seen that as well. And then there's the individual investor,
Speaker 1: the retail investor that probably is going into some more
Speaker 1: speculative areas as well that may not be the right investments,
Speaker 1: but they're kind of exciting and there they rise rapidly
Speaker 1: and people feel good in near term UM, and probably
Speaker 1: you are taking a bit too too great a risk
Speaker 1: for their portfolio. So that's been the crowded trade. If
Speaker 1: you believe that the cycle is going to be better
Speaker 1: over the next six months, which we think it will be.
Speaker 1: If you go just from standstill economy to doing something,
Speaker 1: it's an improvement. The problem is you know what level
Speaker 1: of improvement, and there's there's a great series of reasons
Speaker 1: to think the cadence of that recovery is going to
Speaker 1: be less than thrilling UM. But if you do believe
Speaker 1: there's a turn, then you probably should be looking at
Speaker 1: some of these circl colls. UM. It's a little early
Speaker 1: for it. Probably you're gonna need to cep ms turn.
Speaker 1: They usually lead cyclcals by about three months UM. But
Speaker 1: areas like financials, like even the chip stocks probably makes
Speaker 1: some sense uh to be looking at because they're pricing
Speaker 1: in a lot of bad news as opposed to again
Speaker 1: these crowded, calm, large cap tech mans. But they're not
Speaker 1: necessarily all tech um that seems are not priced. I
Speaker 1: would say they're priced for perfection, but they're certainly not
Speaker 1: priced for bad news. It's a Boss Grice cash out
Speaker 1: with It's a Boss Lefkovich city. It's fast, thanks for
Speaker 1: showing up today and on time as well. Who cares?
Speaker 1: But Shan is a fantidays growth target everybody expected at
Speaker 1: front sense sense. There's the tension between the United States
Speaker 1: and China, and once again things flaring up in Hong
Speaker 1: Kong once more. Leaving our coverage in Hong Kong has
Speaker 1: been Evon Man. There's been many coverages in Hong Kong,
Speaker 1: of course, away from this immediate issue, of course, the
Speaker 1: protests of months ago, and then really a first mover
Speaker 1: pandemic response that we have followed on in America. Evan
Speaker 1: Man joins us right now, if on what will happen
Speaker 1: into your Saturday and into your Sunday, do you expect
Speaker 1: thousands in the street, Well, Tom already hearing tonight a
Speaker 1: lot of political activists or out in the streets they're
Speaker 1: handing out pamphlets educating people about this national security law,
Speaker 1: and then there have been planned the next couple of
Speaker 1: days to hit the streets once again. So here we
Speaker 1: go again. We seem to be saying the stage for
Speaker 1: another repeat of last year. And this is a signal
Speaker 1: that we got from Beijing the NPC that perhaps the
Speaker 1: mainland patients is running thin. They're frustrated by the months
Speaker 1: of unrest at a trot the economy. They're frustrated by
Speaker 1: lawmakers who have failed to get through this legislation that
Speaker 1: has basically stalled the bills in two thousand and three.
Speaker 1: With new strategy now is to bypass the Legislative Council,
Speaker 1: bypassed the legislative process altogether. And they're still figuring out
Speaker 1: the mechanics of how this is all going to work.
Speaker 1: But you already here the pro democracy side saying this
Speaker 1: is the end of Hong Kong. The status of Hong
Speaker 1: Kong as an international city will be gone very soon,
Speaker 1: and this move by Beijing threatens the One Country to
Speaker 1: Systems framework. China, though, continues to defend this law, saying
Speaker 1: it's absolutely necessary and this is something other countries already
Speaker 1: had seek to have equity markets shaking this off in
Speaker 1: the United States. Futures term positive in America, but they
Speaker 1: certainly weren't shaking it off on a Hang sang if
Speaker 1: on my question as follows, and I think the answer
Speaker 1: might be obvious just China actually value the special training
Speaker 1: status that Hong Kong has. Well. I think what we're
Speaker 1: trying seeing here, Jonathan, is that us TV think has
Speaker 1: been threatened not just with the rising unemployment that we're
Speaker 1: seeing in the mainland from the COVID nineteen l breaks,
Speaker 1: but there's also a potential big loss that China could
Speaker 1: see in in the Hong Kong legislative elections that are
Speaker 1: set to happen in September. So the Communist Party now
Speaker 1: is deciding that so HAPs they have more to gain
Speaker 1: by actively asking decisively to try to put down these
Speaker 1: threats for now. And they're basically sending a message to
Speaker 1: President Trump that we can do whatever we want with
Speaker 1: Hong Kong. We're not scared to consequences, and this is
Speaker 1: a domestic issue essentially. So at this point, you know,
Speaker 1: we heard from President Trump saying that they're going to
Speaker 1: address this issue very strongly. They threatened to renege on
Speaker 1: the Phase one trade deal, but withdrawing that Hong Kong
Speaker 1: special status. We were speaking to experts saying, if they
Speaker 1: do so, this actually punishes Hong Kong more so than
Speaker 1: China because essentially you're putting the city into the hands
Speaker 1: of the mainland because you're just astilating what their plan
Speaker 1: has been all along, is to absorb Hong Kong and
Speaker 1: make it another southern city in the mainland. Van, Can
Speaker 1: you just elaborate a little bit more the idea that
Speaker 1: Beijing feels like the US perhaps won't be able to
Speaker 1: respond and full will be distracted by the economic backdrop
Speaker 1: or already has shown that they are reluctant to do more.
Speaker 1: Is that the reason for the timing as to why now?
Speaker 1: I think the reason why now is is two fronts. Yes,
Speaker 1: perhaps they're saying we don't really care about the consequences
Speaker 1: we perhaps we we dare the US to kind of
Speaker 1: class back on what we're doing right now. But it's also,
Speaker 1: i think also a domestic issue because they're seeing that
Speaker 1: there are more benefits to actually stemming this unrest right now.
Speaker 1: And of course we have seen this unrest decimate the
Speaker 1: economy for for months now that they need to put
Speaker 1: an end to this. So you do see those on
Speaker 1: the pro government size same. Perhaps this is encouraging news
Speaker 1: that we do need to finally put an end to
Speaker 1: the protest. UH. And President she is trying to show
Speaker 1: a bit of strength here in the midst of what
Speaker 1: he's been dealing with with the U S, the back
Speaker 1: and forth about plowing fingers and blame him on who
Speaker 1: who is to blame for this start of this virus,
Speaker 1: also with the trade tensions as well. So I think
Speaker 1: this is the Paul and the platform NPC to really
Speaker 1: show that strength. What will how will that strength be
Speaker 1: imputed to Hong Kong in the coming days? I mean,
Speaker 1: do they show up with military on every corner? I
Speaker 1: don't see that, Ivan. But what's the next step to
Speaker 1: show force or power Beijing on the streets of Hong Kong. Oh,
Speaker 1: we haven't seen that yet. As you said, Tom, But
Speaker 1: this isn't just about the National Security Law that we
Speaker 1: just heard from from Beijing. UH. There's also a lot
Speaker 1: of issues that the Hong Kong is also facing as well,
Speaker 1: especially with this National Anthem Bill which the Chief Executive,
Speaker 1: Carrie Lamb has been pushing for. This legislation to go
Speaker 1: through this basically criminalizes anyone that makes fun or threatening
Speaker 1: the national anthem in China. So these are the reasons
Speaker 1: why people are telling, or at least the pro democracy
Speaker 1: side is telling demonstrators to hit the streets once again.
Speaker 1: And now that this pandemic in Hong Kong, the outbreak
Speaker 1: has stabilized quite substantially, I think people are feel a
Speaker 1: little bit more comfortable of hitting the streets once again.
Speaker 1: We've already seen some social unrest, some gatherings in malls
Speaker 1: in the last couple of weeks or so, so we
Speaker 1: hadn't seen any response from Beijing yet in terms of
Speaker 1: action on the streets per day. But we've seen that
Speaker 1: fear bubbling once again. I mean we saw when it
Speaker 1: came to VPN downloads, we saw that spike among Hong
Speaker 1: Kong residents in the last twenty four hours or so,
Speaker 1: and then even Google searches for migration that shot up
Speaker 1: in Hong Kong on news of this security law. If
Speaker 1: I can only imagine what it's been like to live
Speaker 1: in Hong Kong over the last year, it just must
Speaker 1: be so tense constantly over several issues. If on my
Speaker 1: thoughts with you truly Ivon Man from Hong Kong on
Speaker 1: the latest she's senior vice president. You'll curve control for
Speaker 1: two D securities. Pre a misread joins us right now
Speaker 1: in your textbooks. Was their yield curve control? There wasn't.
Speaker 1: There wasn't an unprecedented shock in uh, you know, economic
Speaker 1: activity either. But I think what's very clear that this
Speaker 1: is an aggressive, creative central bank. I would say globally,
Speaker 1: but certainly with the FED that's looking at other tools,
Speaker 1: and so they've addressed yelk of control. I think Brainard
Speaker 1: has brought it up in the past, and then we
Speaker 1: heard from by Check Clarity as well. I think they
Speaker 1: might have no option but to go into yield of control.
Speaker 1: But I think the market is not testing them right now,
Speaker 1: so I don't see it imminently, but by year end,
Speaker 1: if the market continues to price in hikes in four
Speaker 1: or five years, I wouldn't be surprised that they actually
Speaker 1: just slammed the yelk of down, and particularly as as
Speaker 1: supply is going to pick up with I guess additional
Speaker 1: rounds of stimulus. It's pre in some ways they already have.
Speaker 1: I mean yesterday at four thirty pm Wall Street time,
Speaker 1: the FED released their balance sheet assets, which have climbed
Speaker 1: beyond seven trillion dollars, just to give you a sense,
Speaker 1: up from three point eight trillion dollars back last year.
Speaker 1: I'm trying to understand how they're going to use their
Speaker 1: balance sheet to suppress treasury yields while also engaging in
Speaker 1: an accelerating corporate debt et F purchase program. I mean,
Speaker 1: is the emphasis going to be on treasuries? Are they
Speaker 1: going to emphasize expanding into new assets? So I think
Speaker 1: they're absolutely going to use all of those facilities and
Speaker 1: maybe more putting three facilities um to sort of you know,
Speaker 1: keep credit going. But I think they'll have no choice
Speaker 1: but to buy a lot of treasuries as well, because
Speaker 1: even if you think that they do yield of control,
Speaker 1: they can pin the front end, but to try and
Speaker 1: look at the tenny and the thirty year, that pinnie
Speaker 1: is not that strong. So I think they'll have to
Speaker 1: buy treasuries that we're actually expecting that they'll be buying
Speaker 1: all the way up until the end of one. We
Speaker 1: have the balance sheet growing to a max of twelve
Speaker 1: trillion by the end of next year, which will which
Speaker 1: is you know, making some assumption about additional system stimulus.
Speaker 1: I think they might be able to lower the amount
Speaker 1: of treasuries they're buying in the front end the zero
Speaker 1: five years, because if they've told you they're not hiking rates, well,
Speaker 1: then I'm happy to hold the five years. Anything beyond that,
Speaker 1: I think they're going to be the marshal buyer of
Speaker 1: treasuries out there. We'll pretty of Nowaday, this is two
Speaker 1: very very different policy decisions. If they just turn around
Speaker 1: and offer Canada based guidance and say the policy rate
Speaker 1: remains X for why a man of years, then the
Speaker 1: front end is already there and there's actually not much
Speaker 1: quie they might have to do to support that whole policy.
Speaker 1: That's just a that's just a supplement to Canada base guidance,
Speaker 1: which is something Vice Chair Clarada talked about yesterday. But
Speaker 1: if they go out to the ten year, if they
Speaker 1: do what Japan has done for me, that's a game
Speaker 1: changer in the treasury market. That requires far more heavy lifting,
Speaker 1: a lot more work on behalf of the federal reserve.
Speaker 1: Now are you saying you expect the former to happen
Speaker 1: or do you expect the latter to happen. I expect
Speaker 1: the former, so I think the yelk of control will
Speaker 1: be maybe three, I think max five years. I think
Speaker 1: when they talk about four guidance impact is really in
Speaker 1: the zero to five years sector, so they could do
Speaker 1: yelk of control all the way out to the five years.
Speaker 1: I agree with you, I think going out the curve
Speaker 1: in the treasury market. I mean, the bug did this.
Speaker 1: They did hold a very large amount of jgbs, but
Speaker 1: the U S treasury market is not the jgb market,
Speaker 1: So I don't think they take the step that far
Speaker 1: into yelk of control of the tenure, but they need
Speaker 1: to continue to do que. I think all they can
Speaker 1: do is through yelk of control, lower the amount of
Speaker 1: buying in the front end. But I think they'll have
Speaker 1: to be involved in the wrong and especially as as
Speaker 1: the Treasury is shooting a lot of long and bonds. Folks,
Speaker 1: what pre Misterage just said, there is so so so important.
Speaker 1: You said, Pria, this is not the Japanese bond market. Now,
Speaker 1: each bond market is different. What is distinctive about the
Speaker 1: American full faith and credit market that doesn't give the
Speaker 1: FED or others the options that other nations have right,
Speaker 1: So it's I would say it's the fact that the
Speaker 1: dollar is the safe haven currency. I think that's the
Speaker 1: biggest one. Also, we rely a lot on foreign demand
Speaker 1: to hold on to these treasuries. The j GB market
Speaker 1: tends to be more domestically helped, so you know, the
Speaker 1: BOJ owns it, or some Japanese pension fund owns it.
Speaker 1: You know, there's not that much of a difference with
Speaker 1: the US. We've got the dollar, which is the reserve asset,
Speaker 1: and I think there's really no competitor. I'm not saying
Speaker 1: that the dollar is the best out there, but to
Speaker 1: the best among every other option. So I think going
Speaker 1: into yelk of control, you run into credibility issues, political,
Speaker 1: you know, lack of independence. I think you're really getting
Speaker 1: into hairy issues when you start looking at week of
Speaker 1: control further out. But I think even now, the market
Speaker 1: is not forcing their hands, So I think the problem
Speaker 1: we're all grappening with a very grim message from the FED,
Speaker 1: but they're not really doing anything new, and the market
Speaker 1: likes the new shiny tool, which is why negat rate
Speaker 1: eaker of control. We tend to gravitate to those things,
Speaker 1: but rates are pretty low, so I think they'll use
Speaker 1: this if we start to you know, if equities continue
Speaker 1: to go to the moon, at some point, rates are
Speaker 1: going to start to rise, particularly in the long end.
Speaker 1: That's when I think they use the balance sheet to
Speaker 1: the fullest and just buy whatever it takes to keep
Speaker 1: rates law. Let's build on this, because you're right to
Speaker 1: say the j g B market is not the treasury market.
Speaker 1: I wouldn't even call the j GP market a market anymore.
Speaker 1: Some of these securities hardly trade. The bulk of it
Speaker 1: is how at the Bank of Japan. But there are
Speaker 1: some people worried that that is the way the treasury
Speaker 1: market is going. Doesn't mean it happens tomorrow, but over time,
Speaker 1: prayer and I'm trying to understand just how much of
Speaker 1: this federal reserve, how much of this treasury market this
Speaker 1: feed will actually hold. So you know, they have been
Speaker 1: lowering the amount they are buying. Um, I think the
Speaker 1: aim and they haven't been very explicit. They kept saying
Speaker 1: it's market functioning. Well, if it was only market functioning
Speaker 1: driving treasury buying, they should have stopped buying, I would
Speaker 1: say months ago. The fact that they're still buying is
Speaker 1: to link you that they're needed, but you know I
Speaker 1: see them. Well. A big question is how much more
Speaker 1: supply are we going to get. I think the US
Speaker 1: Congress is going to do, you know, many more potentially
Speaker 1: fiscal stimulus plans, so we'll have a lot more supply.
Speaker 1: But I think the FED will have to switch it
Speaker 1: from saying this is just market functioning to financial conditions.
Speaker 1: We need to keep it low in the long end.
Speaker 1: I think they might be fifty of the market in
Speaker 1: the near term. Remember it's still the dollar is the
Speaker 1: reserve asset. It's just you know, if I were to buy,
Speaker 1: the front end is very safe for me because the
Speaker 1: Fed's not about to hide. So I think it will
Speaker 1: vary across the yek of Pretty fantastic at your thoughts
Speaker 1: this morning, Really important conversation. Enjoy the long weekend, weren't you,
Speaker 1: and send up best to the family. Pretty must for
Speaker 1: that of the security. We decided on Friday that is
Speaker 1: incredibly important to find a daughter out there who properly
Speaker 1: celebrated her mother's eightieth birthday, and that would be Diane's
Speaker 1: swunk in the great mid West of this nation. Diane,
Speaker 1: that was lovely your celebration of Mrs phil Phillis Swank's birthday.
Speaker 1: Here she cried by the end of the day. So
Speaker 1: I succeeded in bringing joy to our tears of joy.
Speaker 1: So that was good to be able to do in
Speaker 1: a way I didn't expect to written, Yeah, Diane, to
Speaker 1: get a summary here of the economy and this troubled
Speaker 1: American economy that you never study this at Michigan. It
Speaker 1: was never in the textbooks with Professor Gramlett and the
Speaker 1: others at Michigan. Frame for us where we are right now?
Speaker 1: We're in May, We're gonna end May and June. That's
Speaker 1: Q two. Where are we right now? It's we're near
Speaker 1: the bottom, which is in some ways, you know, good,
Speaker 1: in that we're sort of bottoming out. It's bad and
Speaker 1: that I fear we need to change the way we
Speaker 1: really talk about the economy. Um, we've gone to such
Speaker 1: a low bottom with so many extraordinary losses that when
Speaker 1: we talk about bouncing, opt at bottom as a dead
Speaker 1: at bounce. Because I'm really sensitive to cat lovers these days, Um,
Speaker 1: I think it's important that we think it's important cats
Speaker 1: in my life. My kids are allergic to them, But
Speaker 1: I'm not a rat lover. But I did have on
Speaker 1: an aside um, But I think it's really important how
Speaker 1: we talk about the economy and context. You know, we're
Speaker 1: two thirds below traveling over this Memoriality weekend where we
Speaker 1: were a year ago. Thinking of an economy that's two
Speaker 1: thirds below where it was a year ago is stunning.
Speaker 1: And that's has mobility as we see cell phones travel
Speaker 1: more across state lines and people you know, getting in
Speaker 1: their cars more to at least drive somewhere to maybe
Speaker 1: a national park. This is really important understanding context that
Speaker 1: you know, even as the economy reopens and we start
Speaker 1: to see percent increases out there, those will dramatically overstate
Speaker 1: the level of economic activity we're at. And that's when
Speaker 1: I'm very concerned about because it doesn't do justice to
Speaker 1: the pain that is the ongoing that we continue to suffer.
Speaker 1: It really is starting to bring up a debate in
Speaker 1: economics about how to even talk about recessions because this
Speaker 1: one is just so incredibly unique. It may be short
Speaker 1: lived if we don't get a double dip, which is
Speaker 1: highly possible with a second wave in the fall, but
Speaker 1: even as the economy recovers, the length of time it
Speaker 1: takes us to get back to our previous peak will
Speaker 1: be um excruciatingly long, Diana. I want to build on
Speaker 1: this idea of a reopening economy yet an ongoing role
Speaker 1: of unemployment benefits the idea that continuing claims rose more
Speaker 1: than expected in the data we got yesterday, and the
Speaker 1: fact that thirty nine million Americans have lost their jobs
Speaker 1: in nine weeks, with another two and a half million
Speaker 1: filing in the previous week, does that tell you something
Speaker 1: that even now after the immediate shutdowns have basically been
Speaker 1: put through and are starting to rise and alleviate that
Speaker 1: we're still seeing such massive job losses exactly. Well, some
Speaker 1: of it is lagged because people were un able to
Speaker 1: get in, but we're not seeing the reopening trigger the
Speaker 1: kind of rehiring we'd like to see, and I think
Speaker 1: that's really important. The continuing claims is people finally getting
Speaker 1: paid that waited for a very long time. People really
Speaker 1: don't understand the leg in this, and it's going to
Speaker 1: take a lot much longer time. I mean, it's just
Speaker 1: the you know, the space and speed of which we've
Speaker 1: lost jobs, and people thinking we can just turn that
Speaker 1: COVID tainted spike it on again. We don't want to
Speaker 1: drink from a tainted well. And I think that's what
Speaker 1: we're dealing with right now. And as we ramp up again,
Speaker 1: we've seen that whether economies are open or not, whether
Speaker 1: restaurants are open or not, there is a hesitancy because
Speaker 1: of the fear of contagion, and until we can deal
Speaker 1: with that issue the fundamental sense of being safe, consumers
Speaker 1: are reluctant to consume as they did in the past.
Speaker 1: It's also important that a third of all spending in
Speaker 1: the economy is done by baby boomers, who are the
Speaker 1: most at risk of getting severe um consequences of the coronavirus.
Speaker 1: And I think that's very important as well as this
Speaker 1: big spending group who already is a little more skittish
Speaker 1: and reluctant to spend that like they used to. This
Speaker 1: is the generation that defined conspicuous in conspicuous consumption and
Speaker 1: define debt. They took on debt more than any other
Speaker 1: generation previous to them. They are now banking the gains
Speaker 1: from refinancing their homes prior to the crisis. I worry
Speaker 1: about what they will do coming back. It's a lot
Speaker 1: of worries to think about. Diane. One of the things
Speaker 1: I tracted on the moment, sometimes just in terms of
Speaker 1: how the narrative is evolving on the economist profession side
Speaker 1: of things, which I'm sure you can speak to. I
Speaker 1: keep hearing more of a multi speed, multi stage recovery
Speaker 1: that we get this quick reopening and this quick improvement
Speaker 1: off the back of going from quite clearly shut down
Speaker 1: to reopening, and then after several months the gains fate
Speaker 1: and then we have to go through this real slog
Speaker 1: of trying to improve the labor market. Is that how
Speaker 1: you see things evolving, a quick improvement and then a
Speaker 1: long slog after that. I'm not sure how much improvement
Speaker 1: will get a quick speed of improvement in terms of
Speaker 1: percent changes off of you know, if you divide by zero,
Speaker 1: you get infinity, and we're almost zero on the economy
Speaker 1: when we put it into a deep freeze. So um.
Speaker 1: I do think there will be some pent up demand
Speaker 1: that we see come out and you know, some surge
Speaker 1: in activity from that, and that is good. The problem
Speaker 1: is recoveries tend to happen in waves, and can it
Speaker 1: be sustained and what is the next side of this?
Speaker 1: Look like factories can reopen, but we've seen even in China.
Speaker 1: Over all factories are reopen and people are in, but
Speaker 1: they're operating at fifty capacity because we're in the end
Speaker 1: is so weak, so even the things that can reopen
Speaker 1: easily have hurdles in a global economy that's been hit
Speaker 1: by a meteor. Okay, I want to go through this exercise,
Speaker 1: miss Wanka, and I want to do it with great
Speaker 1: respect for your forecasting ability or the awards you've won.
Speaker 1: And I understand nobody's listening on a Friday before Moral Days,
Speaker 1: so it's just you with John and Leasia. There's any
Speaker 1: take the quarter, annalyze it out and we're like minus
Speaker 1: thirty eight minus GDP. Right now, go core order by
Speaker 1: quarter forward? How you perceive it? Like, do we go
Speaker 1: from minus forty to minus ten? Does the how do
Speaker 1: you model out the gene? It's really difficult, but yeah,
Speaker 1: my my forecast is up more like seven to eight percent,
Speaker 1: which is a very modest increase after extraordinary decline in
Speaker 1: the third quarter and then a slowdown again in the
Speaker 1: fourth quarter as we deal with the second wave. But
Speaker 1: what's really hard is starting July first, we have cuts
Speaker 1: in state and local government spending depends on transfers to
Speaker 1: the States, because that's a major hurdle to get over.
Speaker 1: We also have a much more sustained contraction and investment.
Speaker 1: We've already lost a year to trade wars in business.
Speaker 1: That's a foundation going forward. So that just why my
Speaker 1: forecast is a little weaker than some mothers, just because
Speaker 1: the time Mr McConnell says here, you know round, whatever
Speaker 1: it is for stimulus is going to be under a
Speaker 1: trillion dollars, he's nuts, right, It's not enough, No, not
Speaker 1: at all. And that's the unfortunate fact is as fast
Speaker 1: as we're still chasing a moving target, and to wait
Speaker 1: until later to thee early August, the unemployment insurance will
Speaker 1: have expired and expansions. I mean, John, I don't want
Speaker 1: to get in the editorial time out chair here, but
Speaker 1: every economist agrees with mis swork that that no, we
Speaker 1: need a lot more money. I think Secondary Manuchin is
Speaker 1: quickly coming around to that idea, Tom, and I think
Speaker 1: Secutary Manuchon himself has done a tremendous job of bringing
Speaker 1: the whole of Washington along with him. I agree with
Speaker 1: you that things have really slowed down in the last
Speaker 1: couple of weeks. I'd be very surprised to see the
Speaker 1: Treasury Secretary back away from more fiscal stimulus. With an
Speaker 1: economy and the shape that is in in an election year,
Speaker 1: I'd be really surprised to see that happen. Dan Swank,
Speaker 1: thank you so much for joining us with Grant Thort
Speaker 1: and just an important voice for us, particularly on our
Speaker 1: FED Day coverage. He is at the Bloomberg School of
Speaker 1: Public Health, Johns Hopkins University, and of course Michael Bloomberg,
Speaker 1: the founder Bloomberg LP and this radio and television platform
Speaker 1: as well, has provided great philanthropy to his Johns Hopkins
Speaker 1: at University where you had darkened the door and engineering
Speaker 1: years ago. Andrew Pekos is there. He is a virologist
Speaker 1: world known for the social and health impacts of our
Speaker 1: virology and microbiology. And I spoke to him about the
Speaker 1: medical community and their exhaustion the pandemic. It TOOMP has
Speaker 1: been such a focus of the medical community UM and
Speaker 1: of people UM. But we have to remember that there
Speaker 1: are other things that are going on, other health care
Speaker 1: issues that need to be taken care of. Some reports
Speaker 1: this week about drops and pediatric vaccination rates U are
Speaker 1: of course a concern because things that are not getting
Speaker 1: done now will have implications later on in the year,
Speaker 1: maybe next year, in the year afterwards. How serious is Brazil?
Speaker 1: I looked at the log A glide path yesterday per
Speaker 1: capita of the wonderful work that the f T is
Speaker 1: then doing with Johns Hopkins University, and the glide pass
Speaker 1: of Brazil and Ecuador are really really grim. Yes, you know,
Speaker 1: the Southern Hemisphere is now getting into its late fall
Speaker 1: early winter season, so there's been concerns about whether or
Speaker 1: not the COVID nineteen virus would do better in cooler
Speaker 1: conditions and winter light conditions. Brazil and Ecuador are having
Speaker 1: a tremendous trouble in terms of controlling the outbreak with
Speaker 1: huge numbers of cases. Other countries in the Southern Hemisphere
Speaker 1: have been able to control that with very very rigid
Speaker 1: and active surveillance for the virus and testing for the virus,
Speaker 1: but several countries in South America are a concern, and
Speaker 1: the emerging problem in Africa is also of some concern.
Speaker 1: Dr becos there are enough testing kids in emerging market
Speaker 1: economies or is that is that a worry that we
Speaker 1: actually don't exactly know what's going on? Yeah, I think
Speaker 1: the Number one worrying in those countries is the number
Speaker 1: of tests, and then right behind that is uh the
Speaker 1: availability of good laboratories that can run those tests in
Speaker 1: the timely manner. So those two things combined are going
Speaker 1: to make it incredibly challenging for some countries to really
Speaker 1: respond well in terms of the testing, UM isolation and
Speaker 1: contact tracing that are needed to con general this outbreak
Speaker 1: early and what can you tell us about you know,
Speaker 1: the end is lockdown. So we're seeing a number of economies,
Speaker 1: the biggest economies in the world reopening, some slowly, some
Speaker 1: less slowly. But given the time lag of people ending
Speaker 1: up in hospital, when will we have a better idea
Speaker 1: of the exact situation? And this is one of the
Speaker 1: challenges with this virus because it takes about you can
Speaker 1: take anywhere from one to two weeks to show symptoms
Speaker 1: and you're infectious for about probably seven days UM. The
Speaker 1: lag between when cases start to come up UM is
Speaker 1: significant UM. So you're seeing some small spikes and in
Speaker 1: particularly in states in the US that are loosening their economy.
Speaker 1: Some other states are doing a little bit better right now,
Speaker 1: but we really won't know until two to three weeks
Speaker 1: from now how these states are doing with loosening their
Speaker 1: public health interventions. Dr Pegrass one final question. I don't
Speaker 1: need to be tried about it, but I think it's
Speaker 1: an immediate question. How safe well the beaches be this weekend?
Speaker 1: What are your thoughts on heading to the beach? Well,
Speaker 1: you know, as as economies open up as some of
Speaker 1: these uh, social distancing. Uh, well, I should say social
Speaker 1: distancing should still be in place, so people need to
Speaker 1: really be careful about keeping their distance amount people when
Speaker 1: they're outside. It's great to get outside to do some
Speaker 1: activities to try to enjoy yourself during these times, but
Speaker 1: social distancing and wearing masks is going to be an
Speaker 1: incredibly important thing to do irrespective of what your activity is.
Speaker 1: And it seems a little bit odd to say that
Speaker 1: on the beach and stuff, but uh, maintaining social distancing
Speaker 1: is the critical thing as people try to get out
Speaker 1: and uh, you know, and and get back into some
Speaker 1: sense of normal thing. Andrew Pecks at Johns Hopkins University
Speaker 1: just always wonderful and we really thank the whole team
Speaker 1: at JHU for their support through the week. Thanks for
Speaker 1: listening to the Bloomberg Surveillance Podcast. Subscribe and listen to
Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.
Speaker 1: I'm on Twitter at Tom Keane before the podcast. You
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio