WEBVTT - Surveillance: China Growth May Be Flat, Kasman Says 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.400 Bloomberg dot Com, and of course on the Bloomberg Let's 0:00:27.400 --> 0:00:29.240 bring in the guest of the Morning Show. We Bruce Castman, 0:00:29.320 --> 0:00:32.400 JP Morgan, Chief Economist and Money to Bruce the morning. 0:00:32.600 --> 0:00:35.000 For the markets, investors have been focusing on the likely 0:00:35.040 --> 0:00:37.720 stimulus response coming out of China. It's just easy to 0:00:37.760 --> 0:00:41.080 get your hands around the possible fallout from the containment effort. 0:00:41.240 --> 0:00:44.599 Much harder the process. What's your base case at the moment? Well, 0:00:44.640 --> 0:00:46.480 the base case here is that we have a huge 0:00:46.520 --> 0:00:49.600 disruption that's very narrowly based in China and a few 0:00:49.600 --> 0:00:52.120 other countries. In the month of February and in the 0:00:52.120 --> 0:00:54.840 first quarter, we have Chinese growth getting down to want 0:00:54.840 --> 0:00:58.480 it could even be flat on the quarter. Sequentially, global 0:00:58.520 --> 0:01:01.320 growth gets down to the lowest level we've seen since 0:01:01.360 --> 0:01:04.000 the global financial crisis. But the effects on the U 0:01:04.040 --> 0:01:05.880 S and Western Europe are pretty small, and they're not 0:01:06.240 --> 0:01:09.960 one way. Remember that Chinese demand coming down also lowers 0:01:10.000 --> 0:01:12.840 global energy prices at lowers global interest rates, which actually 0:01:12.880 --> 0:01:16.600 is a plus for consumers in the UH in the West. UM. 0:01:16.640 --> 0:01:18.679 But the bottom line, I think is that this is 0:01:18.680 --> 0:01:21.320 going to be extremely disruptive, but it is not going 0:01:21.360 --> 0:01:23.600 to derail what we will actually believe is a pretty 0:01:23.640 --> 0:01:27.400 positive story for the global economy. In let's get some numbers, Bruce, 0:01:27.480 --> 0:01:30.560 Q one, what is it at in China? UH sequentially 0:01:30.560 --> 0:01:34.000 about one percent? Q two nine and a half percent. 0:01:34.040 --> 0:01:36.679 That's a massive v That's a massive be All you 0:01:36.760 --> 0:01:38.800 really need is that by the time we're sitting here 0:01:38.800 --> 0:01:41.120 at the end of March, the virus is starting to 0:01:41.200 --> 0:01:43.759 fade and produces are starting to make up the lost 0:01:43.880 --> 0:01:46.240 output that they had in the month of February in 0:01:46.319 --> 0:01:49.280 early March. That's that's the way it happened after Tohoku. 0:01:49.360 --> 0:01:51.680 That's the way it happened after Stars. You just have 0:01:51.760 --> 0:01:53.640 to believe, and this is the real call, is that 0:01:53.720 --> 0:01:56.040 this doesn't spread and become a global event over the 0:01:56.040 --> 0:01:59.400 next two Have you ever seen that in your study 0:01:59.480 --> 0:02:02.000 your Puch Columbia where you go from one to nine 0:02:02.800 --> 0:02:04.920 in a hundred days. We see it all the time. 0:02:04.920 --> 0:02:07.680 Whenever you have this, Usually it's not on a macro basis. 0:02:07.920 --> 0:02:10.160 But you see these events where you have storms, where 0:02:10.200 --> 0:02:12.400 you have shocks. We have a couple of weeks down 0:02:12.480 --> 0:02:16.160 and then a quick rebound. It's like Whenlan wins, I 0:02:16.160 --> 0:02:19.760 mean the Italian economy shifts. I'm not sure we rebound. 0:02:20.000 --> 0:02:22.480 I will say there is a question also how much 0:02:22.520 --> 0:02:26.080 this rebound is predicated on more stimulus from central banks. Um, 0:02:26.120 --> 0:02:28.760 it's not predicated on more stimulus, but we might get 0:02:28.800 --> 0:02:32.280 some more stimulus. It is predicated on the idea that 0:02:32.320 --> 0:02:35.359 the Chinese government comes in here and prevents any credit 0:02:35.680 --> 0:02:39.040 problems coming from the disruption, and that they continue to 0:02:39.080 --> 0:02:42.160 provide stimulus. But that's more of an issue around growth 0:02:42.160 --> 0:02:44.160 in the second half of the year. Which you really 0:02:44.200 --> 0:02:46.919 just need is for factories to open up and people 0:02:46.960 --> 0:02:49.080 to start moving around again in the month of March. 0:02:49.200 --> 0:02:51.399 Not now, but as we look over the next four 0:02:51.440 --> 0:02:53.639 to six weeks, we have to be comfortable that things 0:02:53.680 --> 0:02:56.240 start to get more normal and you comfortable. I'm not 0:02:56.280 --> 0:02:57.840 as comfortable as I'd like to be, and I don't 0:02:57.840 --> 0:03:00.440 want to ignore the downside risk here. I think what 0:03:00.520 --> 0:03:03.079 you have in the market is a small but very 0:03:03.160 --> 0:03:06.800 dangerous risk factor that things turn out to be unprecedented 0:03:06.840 --> 0:03:08.400 in terms of how it plays out. John, this is 0:03:08.400 --> 0:03:10.800 what I'm struggling with. It's one thing for industrial production 0:03:10.840 --> 0:03:13.240 to come back, It's another thing for services. It's another 0:03:13.240 --> 0:03:16.079 thing for the Starbucks stores that are closed. I don't 0:03:16.160 --> 0:03:19.360 understand from that perspective, Bruce, how we get how we 0:03:19.440 --> 0:03:24.120 compensate for those lost business opportunities. We don't compensate for it. 0:03:24.200 --> 0:03:28.120 We gradually recover. And remember, in growth terms, going from 0:03:28.160 --> 0:03:30.960 having a factory shut down to a factory operating at 0:03:31.000 --> 0:03:34.240 seventy or having a Starbucks shut down to a Starbucks 0:03:34.280 --> 0:03:37.480 opening but still having fifty or six of the of 0:03:37.600 --> 0:03:40.280 the flow is a big change in growth. And I 0:03:40.320 --> 0:03:42.400 want to emphasize this. We we live in a world 0:03:42.440 --> 0:03:44.960 where we talk about growth, but the level of activity 0:03:45.040 --> 0:03:46.880 is going to be lower than it would have been 0:03:47.320 --> 0:03:49.200 probably all the way through the end of the year 0:03:49.200 --> 0:03:52.320 in China, and very small amount though on the global basis. 0:03:52.560 --> 0:03:56.760 We're coming with Europe not Quants was struggling. If you're 0:03:56.760 --> 0:03:59.800 looking for one percent out of China in Q one 0:04:00.040 --> 0:04:02.880 and you have a European economy nest stole speed, yeah, 0:04:03.000 --> 0:04:06.000 do you get a v shak recovery in Europe? Well, 0:04:06.200 --> 0:04:08.600 I wouldn't call the European recovery v shape because I 0:04:08.600 --> 0:04:10.120 don't think Europe is going to get hit by the 0:04:10.160 --> 0:04:13.000 same disruptive effect. But I actually think what we're missing 0:04:13.120 --> 0:04:15.800 is we're watching the weak data in Europe. Is that 0:04:15.880 --> 0:04:19.120 the idiosyncratic drags that have hit the UK have hit 0:04:19.200 --> 0:04:23.359 Germany around the global drag from trade conflicts fading is 0:04:23.400 --> 0:04:25.400 I think setting us up for Europe being the biggest 0:04:25.400 --> 0:04:29.880 surprise to the upside Europe. Swiss this morning, Tom, lowest 0:04:29.960 --> 0:04:34.560 level since the Swissies ripping the Euros breaking down, Bruce, 0:04:34.640 --> 0:04:38.400 what is the quantitative linkage of all these economies if 0:04:38.440 --> 0:04:40.560 you're having a beverage of your choice with Vice German 0:04:40.600 --> 0:04:43.960 Clarada or with Sherman Powell? What are the linkages of 0:04:44.040 --> 0:04:47.840 Mercedes Benz flat on its back in Germany versus You 0:04:47.839 --> 0:04:49.839 know that we're hearing reports of the chance of the 0:04:49.839 --> 0:04:52.359 exchequer stepping aside? Is that right, John? Yeah, we're just 0:04:52.360 --> 0:04:55.719 getting that confirmed. I mean, the challenge, the resigning tone, 0:04:55.880 --> 0:04:58.880 the cacophony of the news out there. How linked does 0:04:58.920 --> 0:05:02.320 all this or is it really idiosyncratic? Well? I think 0:05:02.360 --> 0:05:05.200 the the way to look at what happened in two 0:05:05.279 --> 0:05:08.719 thousand and nineteen is we had a set of country 0:05:08.720 --> 0:05:12.839 specific factors and hitting in Europe around the global story 0:05:12.880 --> 0:05:15.800 around US China trade. And now what we think we're 0:05:15.800 --> 0:05:19.120 seeing is that global shock begin to fade. And we're 0:05:19.160 --> 0:05:22.320 also believing that the Brexit shock, along with you, okay, 0:05:22.360 --> 0:05:25.640 fiscal stimulus, the German auto industry shock, which has proved 0:05:25.920 --> 0:05:29.080 to push German inventories to super low levels, is going 0:05:29.160 --> 0:05:31.960 to be coming together to provide some fuel on the 0:05:32.040 --> 0:05:34.120 issue of China. And I think this is really important. 0:05:34.120 --> 0:05:37.120 The difference between having factory shut down for three or 0:05:37.120 --> 0:05:39.680 four weeks and three or four months is huge. The 0:05:39.720 --> 0:05:42.800 supply chain can handle two or three weeks without a 0:05:42.839 --> 0:05:45.359 serious disruption, but if you extend this out for a 0:05:45.400 --> 0:05:47.920 few months, then the world looks very different and the 0:05:48.000 --> 0:05:51.520 dynamics of spillovers begin to come much more serious. You 0:05:51.520 --> 0:05:54.000 guys still the cost house out of China this morning 0:05:54.040 --> 0:05:57.720 down for the month of January, and the association that 0:05:57.760 --> 0:06:00.000 puts these numbers together looking for another drop of thirty 0:06:00.080 --> 0:06:02.359 sent in the month of February, biggest drop ever for 0:06:02.400 --> 0:06:04.560 the month of January. And this is exactly where my 0:06:04.600 --> 0:06:06.240 mind when which is the question is how does this 0:06:06.279 --> 0:06:08.520 bleed over into Germany? How does this bleed over into 0:06:08.600 --> 0:06:11.679 global auto demand? But here's the point, We're gonna start 0:06:11.720 --> 0:06:14.159 to see data coming in for January and February, and 0:06:14.200 --> 0:06:18.080 particularly February, it's gonna look horrible. And then the real 0:06:18.160 --> 0:06:20.360 question is how much does it bounce back in March. 0:06:20.480 --> 0:06:22.840 If you're a German producer and you think the Chinese 0:06:22.839 --> 0:06:26.200 sales pullback is about the virus and it's gonna last 0:06:26.200 --> 0:06:28.679 four or five weeks, you don't stop production, You build 0:06:28.680 --> 0:06:31.800 inventories for that period and you continue more normally. The 0:06:31.880 --> 0:06:34.640 question isn't going to be coming back to normal relatively 0:06:34.720 --> 0:06:37.280 quickly for something drowning and happy? This week we've had 0:06:37.360 --> 0:06:39.919 three major bulls in the bull market. You're coming in, 0:06:40.000 --> 0:06:42.880 you're happy on a lift as well. I got Valentine's 0:06:42.880 --> 0:06:44.520 to day to small, So I'm ready to fall off 0:06:44.520 --> 0:06:47.800 a cliff into negativity. Okay, help me here. How does 0:06:47.920 --> 0:06:50.960 David Kelly and others at JP Morgan, how do they 0:06:51.000 --> 0:06:54.040 take your optimism and bring it over to markets? Can 0:06:54.080 --> 0:06:59.600 you link Chasman optimism twelve months out into market optimism? Yeah? 0:06:59.640 --> 0:07:02.240 I think are sure? I think we have to obviously 0:07:02.320 --> 0:07:05.320 price in that risk, and we don't ignore that small risk. 0:07:05.600 --> 0:07:07.560 But I think if you're sitting as an investor and 0:07:07.600 --> 0:07:09.920 you think that as I do, by the time we're 0:07:09.960 --> 0:07:11.840 sitting here in June and July, we're not going to 0:07:11.920 --> 0:07:14.360 be talking about viruses, but we're gonna be talking about 0:07:14.600 --> 0:07:17.520 lifting the global economy, then risky acids are gonna do 0:07:17.600 --> 0:07:21.280 relatively well, and we're gonna be watching the world pick 0:07:21.360 --> 0:07:23.520 up in a broad based way. And that's as a 0:07:23.560 --> 0:07:28.000 relatively simple but it's not necessarily ignoring some small tere 0:07:28.080 --> 0:07:29.840 risks that we have to deal with. Here. Here's the 0:07:29.880 --> 0:07:32.960 way it is, Folks, Global Wall Street, Friday afternoon and 0:07:32.960 --> 0:07:35.760 into Friday evening. You will wait for the research note 0:07:35.760 --> 0:07:38.800 from Bruce cas and Michael Fairli and the rest JP 0:07:38.840 --> 0:07:41.120 Morgan John Bruce grab to catch up of the Bruce cask, 0:07:41.240 --> 0:07:44.120 the JP Morgan chief economists wait and get on the 0:07:44.160 --> 0:07:51.560 likess with markets front and sentence home. A new method 0:07:51.760 --> 0:07:55.640 for testing the coronavirus in Hubei leading to a spike 0:07:56.040 --> 0:08:00.280 in coronavirus cases. Yeah, and the methodology of the body count. 0:08:00.280 --> 0:08:02.480 And this is of course done undercast what they built 0:08:02.480 --> 0:08:04.720 a hospital in what ten days or something? I mean 0:08:04.720 --> 0:08:09.240 this is crisis proportions in a new ratios, new mathematics 0:08:09.240 --> 0:08:12.120 this morning that everyone's adjusting to. We have been so 0:08:12.200 --> 0:08:16.640 advantaged to speak to Peter Hotez of Baylor, of Anthony Fruit, 0:08:16.760 --> 0:08:20.560 she arguably America's giant in immunology. And now we speak 0:08:20.600 --> 0:08:23.720 again with Dr Rohn of uc L. She began at 0:08:23.720 --> 0:08:28.240 the University of Washington in their world class microbiology program. 0:08:28.360 --> 0:08:31.760 She still has Malachi Green under her fingernails from micro 0:08:31.960 --> 0:08:35.160 one oh one years ago at Washington, and she is 0:08:35.320 --> 0:08:40.440 truly definitive on virus and particularly some of the oddities 0:08:40.480 --> 0:08:43.600 of the acclaimed cat virus and research from years ago. 0:08:44.320 --> 0:08:46.600 Dr Rohan, wonderful to have you back with us today. 0:08:46.720 --> 0:08:51.680 What have you learned in the last week about this virus? Well, 0:08:51.720 --> 0:08:56.079 things have changed quite considerably, even overnight. So things were 0:08:56.120 --> 0:08:58.959 looking a little bit predictable. It looked as if the virus, 0:08:59.080 --> 0:09:01.960 although it was still going strong in China, appeared to 0:09:02.000 --> 0:09:05.760 be heading toward a plateau. But overnight that all changed 0:09:07.080 --> 0:09:09.120 and it's looking now as if there may be many 0:09:09.160 --> 0:09:13.000 more cases than we initially thought because they've now revised 0:09:13.040 --> 0:09:16.720 the ways they're diagnosing the patients over there. I calculated 0:09:16.800 --> 0:09:19.000 the illness rate on one of the cruise ships, not 0:09:19.040 --> 0:09:20.840 the one in the Gulf of Thailand. It's something in 0:09:20.840 --> 0:09:23.360 the vicinity of six percent of the ship is sick. 0:09:23.840 --> 0:09:25.880 What is and I use this word as an amateur, 0:09:25.960 --> 0:09:29.760 what is the virulence of this virus as compared to 0:09:29.840 --> 0:09:35.400 things you've seen before. Well, it's definitely highly infectious, so 0:09:35.400 --> 0:09:39.320 it's a very contagious virus. However, despite all of the 0:09:39.360 --> 0:09:41.840 scary things that we're hearing from China and Wuhan, at 0:09:41.880 --> 0:09:44.160 the moment, it still looks as it's the lethality right, 0:09:44.679 --> 0:09:48.319 it's not greater than that of say, seasonal influenza. That 0:09:48.360 --> 0:09:51.400 doesn't mean it's a pussy cat. Seasonal influenza in the 0:09:51.480 --> 0:09:54.480 US alone kills twelve to sixteen thousand people a year, 0:09:55.120 --> 0:09:58.240 but we have immunity to influenza. It's an old virus. 0:09:58.440 --> 0:10:01.600 So if if the coronavirus gets that same kind of 0:10:01.600 --> 0:10:04.920 foothold as as our seasonal flu with the same fatality rate, 0:10:04.920 --> 0:10:07.160 we we could be looking at a lot of people dying. 0:10:08.000 --> 0:10:11.240 Speak for Wall Street and for investors in financial markets, 0:10:11.240 --> 0:10:13.880 that seems to be this morning, at least relatively speaking. 0:10:13.880 --> 0:10:16.280 A lack of faith in the data coming out of China. Now, 0:10:16.400 --> 0:10:18.640 are they under reporting? Those are the questions that I'm 0:10:18.679 --> 0:10:22.440 hearing consistently. I think one worry is that the top 0:10:22.559 --> 0:10:25.240 US health experts that want to join an international group 0:10:25.280 --> 0:10:27.760 heading to the center of the coronavirus outbreak in China 0:10:28.120 --> 0:10:30.080 said they still haven't had an answer on whether they'll 0:10:30.080 --> 0:10:33.000 be allowed into the country. What's happening in terms of 0:10:33.000 --> 0:10:36.079 getting that foreign help into the country to get more 0:10:36.160 --> 0:10:40.280 hands on that data. It's really difficult. I mean, I 0:10:40.320 --> 0:10:43.400 don't think they're necessarily under reporting because they're trying to 0:10:43.440 --> 0:10:47.000 hide things. I think Wuhan, in particularly upper center, is 0:10:47.040 --> 0:10:51.560 in complete chaos. Now other other cities in China are 0:10:51.600 --> 0:10:55.800 better off, but still everybody's on lockdown. It's nobody knows 0:10:55.840 --> 0:10:58.560 what's going on, probably not even the Chinese. We can't 0:10:58.600 --> 0:11:01.920 really necessarily blame them for this. It's it's out of 0:11:01.920 --> 0:11:06.520 control in Hubai Province, and I think until we have 0:11:06.600 --> 0:11:09.760 any idea of how contagious this is and how how 0:11:09.760 --> 0:11:12.760 well their lockdown has worked, it probably is quite dangerous 0:11:12.760 --> 0:11:15.960 to travel there. Dr Orohn. What questions you need to 0:11:16.000 --> 0:11:19.280 see answer to determine whether we're getting towards some sort 0:11:19.280 --> 0:11:23.160 of Plateau, Well, we need to know how many people 0:11:23.160 --> 0:11:27.400 are infective. This has become increasingly difficult now because initially 0:11:27.600 --> 0:11:30.280 outside of China, we were using the very old, reliable 0:11:30.360 --> 0:11:33.880 method of contact tracing. We knew every single individual who 0:11:33.960 --> 0:11:36.840 had traveled to China. We were tracing them in their contacts. 0:11:36.880 --> 0:11:40.000 But now with with the recent developments in the United Kingdom, 0:11:40.240 --> 0:11:42.920 where we've had this man who went to a Singapore 0:11:42.960 --> 0:11:45.040 and then he went to a ski chalet in France 0:11:45.040 --> 0:11:48.040 and he inadvertently infected a number of people even though 0:11:48.040 --> 0:11:51.400 he wasn't showing any symptoms himself. That's really scary because 0:11:51.400 --> 0:11:53.240 I think the cats out of the bag now. We 0:11:53.280 --> 0:11:56.400 can no longer trace every last person that has been 0:11:56.440 --> 0:11:58.920 in contact with this virus. And given that the symptoms 0:11:58.920 --> 0:12:01.160 are so non specific, you know, a cough, a fever, 0:12:01.640 --> 0:12:03.600 And if you don't know you've been in contact with 0:12:03.640 --> 0:12:05.520 somebody from China, how on earth are you going to 0:12:05.559 --> 0:12:07.640 know that you need to get tested. It's a really 0:12:07.640 --> 0:12:09.840 difficult proposition. I think if we're starting to lose a 0:12:09.840 --> 0:12:13.160 little bit of control outside of China. Dr Rohn, what 0:12:13.200 --> 0:12:16.120 do you think of China's decision to revise the way 0:12:16.200 --> 0:12:20.120 they diagnose cases and their new tally they released overnight, 0:12:22.000 --> 0:12:24.520 and I mean it's it's been confusing for everybody who's 0:12:24.559 --> 0:12:28.200 tracking the calculations. But actually I totally understand why they've 0:12:28.200 --> 0:12:31.280 done it. That the test itself is not very reliable. 0:12:31.280 --> 0:12:34.240 It can take at least three goes before you're before 0:12:34.400 --> 0:12:37.280 a positive test is actually reliably recorded. You know, it 0:12:37.280 --> 0:12:40.680 has this false negative rate. Um they really need to 0:12:40.720 --> 0:12:43.080 know who's got the virus, and the test isn't reliable 0:12:43.440 --> 0:12:45.440 and they're overwhelmed. So they've they've gone back to the 0:12:45.440 --> 0:12:47.920 old fashioned medical way of doing it, which is looking 0:12:47.920 --> 0:12:51.480 at symptoms, looking at the lung scans and you know, saying, 0:12:51.520 --> 0:12:53.560 you know it quacks like a duck, it must be 0:12:53.559 --> 0:12:55.040 a duck. You know, these people are in the center 0:12:55.040 --> 0:12:57.960 of an episode of an epidemic. They've got the symptoms, 0:12:58.000 --> 0:13:01.040 they've got bad lungs. Let's just say they've got the virus. 0:13:01.120 --> 0:13:03.160 I mean, that makes sense to me. More and more 0:13:03.200 --> 0:13:05.960 companies are pushing out their travel curves. We've heard from 0:13:06.000 --> 0:13:08.880 several air lines now that are talking about not restarting 0:13:08.880 --> 0:13:12.040 flights into the mainland until perhaps April, the end of April. 0:13:12.679 --> 0:13:15.839 It's been a controversial question amongst the community that you're 0:13:15.880 --> 0:13:18.120 in that I've asked several guests and got several different 0:13:18.160 --> 0:13:23.599 answers to where the travel curbs actually help from your perspective, 0:13:23.679 --> 0:13:26.840 do they? You can never get a straight answer from 0:13:26.840 --> 0:13:29.640 a scientist, but I will say, I mean, I think 0:13:30.200 --> 0:13:32.400 obviously a travel plan is going to help. You know, 0:13:32.440 --> 0:13:35.120 if if you keep infected people out of your country 0:13:35.200 --> 0:13:37.760 or potentially inspected people out of your countries, it will 0:13:37.800 --> 0:13:40.120 help it. But at what cost? You know, what economic 0:13:40.200 --> 0:13:43.960 cost can any other country afford to do this draconian 0:13:44.000 --> 0:13:46.600 lockdown that the China has done. I don't think we can. 0:13:46.679 --> 0:13:49.199 It's not reasonable and it's probably not warranted. Yet You're 0:13:49.200 --> 0:13:51.560 in a classroom U c L. You've got a piece 0:13:51.559 --> 0:13:54.800 of chalk in your hand, and you're scaling the illness 0:13:54.920 --> 0:14:00.120 level of this virus with things our listeners no worldwide. Okay, right, 0:14:00.160 --> 0:14:04.520 I'm gonna go back to virulence. How deadly, how how sickly, 0:14:04.760 --> 0:14:10.520 how virulent is this virus versus other compares we have? Yeah, 0:14:10.520 --> 0:14:13.000 I've got to keep going back to the seasonal influenza model. 0:14:13.040 --> 0:14:15.240 I mean, it is looking to be just as contagious 0:14:15.280 --> 0:14:17.960 as flu and just as lethal people don't think of 0:14:17.960 --> 0:14:21.560 flu as a dangerous incredibly dangerous, as I mentioned, killing 0:14:21.600 --> 0:14:25.560 up to sixteen people in the US. Okay, but but 0:14:25.800 --> 0:14:29.640 do we have a hysteria about the seasonal flu like 0:14:29.720 --> 0:14:35.720 we have about China. No, we don't because seasonal flu, 0:14:36.160 --> 0:14:40.200 most of us have immunity to flu. Flu circulates around, 0:14:40.280 --> 0:14:42.040 you know, sometimes we get it sometimes, So the key 0:14:42.080 --> 0:14:44.440 You're not to interrupt, doctor, but this is absolutely critical. 0:14:44.600 --> 0:14:49.120 Your major concern is the globe does not have the 0:14:49.200 --> 0:14:52.200 immunity to this virus like it does to the flu. 0:14:52.680 --> 0:14:57.440 John Farrell had three weeks ago. Yeah, this is this 0:14:57.480 --> 0:14:59.640 is what I'm worried about. So it can sweep through 0:14:59.680 --> 0:15:03.120 the spulation because the population has absolutely no resistance the 0:15:03.240 --> 0:15:06.280 brand new virus. It's just jumped from the animal. Again. 0:15:06.800 --> 0:15:09.320 It could mutate, but it may not be completely stable. 0:15:09.360 --> 0:15:12.400 It might become more virulent. We really have no way 0:15:12.400 --> 0:15:15.120 of knowing. It's a huge unknown. Doctor. I hate to 0:15:15.120 --> 0:15:17.240 say it, but we have a patient here. John Farrell 0:15:17.360 --> 0:15:20.640 has one final question. Dr Jennifer. Right, I'm going to 0:15:20.720 --> 0:15:23.360 let speak to the doctor trying to cause travel. Dr 0:15:23.440 --> 0:15:32.240 Chaffer wrote microbiologists for University College London, John, why don't 0:15:32.240 --> 0:15:34.400 you bring in the Andrew Shapes because the math in 0:15:34.520 --> 0:15:37.280 his research reports is just outstanding. Love catching up with 0:15:37.280 --> 0:15:40.800 Andrew C. Smorgan, Stanley's chief cross assets strategist. He joins 0:15:40.880 --> 0:15:43.960 us Now, Andrew, why are people still confident about the 0:15:43.960 --> 0:15:48.280 global economy and global markets this year? Well? I think 0:15:48.280 --> 0:15:51.040 because there were some pretty powerful tail winds that were 0:15:51.080 --> 0:15:55.560 operating before these recent public health concerns. The base effects, 0:15:55.960 --> 0:15:58.760 given how Week twenty nineteen was make it makes it 0:15:58.800 --> 0:16:02.680 easy to show improvement. Inventory levels in China and Europe 0:16:02.680 --> 0:16:06.240 and other places were low, and fiscal policy in addition 0:16:06.280 --> 0:16:11.800 to monetary policy, is getting easier this year. Japan, China, Russia, India, 0:16:11.960 --> 0:16:14.680 the UK, They're they're all going to ease fiscal policy. 0:16:14.840 --> 0:16:17.160 So you know, the way that we think about this is, 0:16:17.560 --> 0:16:19.880 I think we still have a global recovery that is 0:16:20.320 --> 0:16:23.600 delayed rather than derailed. And I think you have some 0:16:23.640 --> 0:16:26.280 potential that the market still gives the benefit of the 0:16:26.360 --> 0:16:29.680 doubt to the global economy and looks past kind of 0:16:29.720 --> 0:16:32.040 a weak months or two of data. But I think 0:16:32.080 --> 0:16:34.400 the risk lies actually a little bit further out if 0:16:34.440 --> 0:16:38.400 that temporary disruption becomes something bigger. How much is the 0:16:38.400 --> 0:16:41.160 weakness that we're seeing in the data due to the coronavirus, 0:16:41.200 --> 0:16:44.200 and how much is just underlying weakness that people are 0:16:44.240 --> 0:16:48.600 just overlooking. Well, I think it's interesting. I think in 0:16:48.680 --> 0:16:51.160 terms of weakness from the coronavirus itself, I think that's 0:16:51.160 --> 0:16:53.640 still to come. I think that the data that will 0:16:53.720 --> 0:16:56.200 reflect that is is what we're going to see over 0:16:56.200 --> 0:16:58.200 the next month. And I think some of the initial 0:16:58.400 --> 0:17:01.400 readings of that data. Um, if we look at Korean 0:17:01.520 --> 0:17:04.880 import and export data or data directly related to China, 0:17:04.880 --> 0:17:08.680 they're they're quite quite bad. They show quite severer shifts 0:17:09.280 --> 0:17:12.280 in demand and consumption. Now, I think in the background 0:17:12.280 --> 0:17:14.639 of that, you know, some of the data really was 0:17:14.680 --> 0:17:18.040 looking better until this, until this happened. But I think 0:17:18.040 --> 0:17:21.120 it reflects a global economy that's still very uneven, where 0:17:21.160 --> 0:17:23.199 the pace of growth is uneven. I think some of 0:17:23.200 --> 0:17:26.959 the questions about the fiscal policy response and how quickly 0:17:27.000 --> 0:17:29.520 that will come online this year that where there's also 0:17:29.520 --> 0:17:31.760 a lot of uncertainty around that. You've been the place 0:17:31.800 --> 0:17:34.320 to look to for the last two years Andrew to 0:17:34.440 --> 0:17:36.960 understand the dynamic of the US versus the rest of 0:17:37.000 --> 0:17:40.240 the world from the slow down in early that started 0:17:40.280 --> 0:17:43.880 an ASA and started to spread globally from there. Walk 0:17:43.920 --> 0:17:46.320 me through that dynamic now, because as I see things 0:17:46.320 --> 0:17:49.560 at the moment, the US is looking good relative to 0:17:49.680 --> 0:17:54.560 everywhere else. Does it stay that way through well? I 0:17:54.600 --> 0:17:58.159 think these these recent public health concerns ironically probably do 0:17:58.400 --> 0:18:02.960 help keep the US relatively supported. Verse versus the rest 0:18:03.000 --> 0:18:04.960 of the world, the US has less of a direct 0:18:05.000 --> 0:18:08.159 economic impact. The US is seen as as a as 0:18:08.200 --> 0:18:11.280 a safe haven, both on the equity side, the fixed 0:18:11.280 --> 0:18:14.520 income side, and the currency side. But if we take 0:18:14.520 --> 0:18:17.240 a step back and we think of the broader full 0:18:17.320 --> 0:18:21.080 year trends in terms of where inventories are, in terms 0:18:21.119 --> 0:18:24.640 of where fiscal policy is is shifting, just in terms 0:18:24.680 --> 0:18:26.600 of where the base of growth was. That all that 0:18:26.640 --> 0:18:28.119 looks better in the rest of the world. And so 0:18:28.160 --> 0:18:30.560 I still think on a full year basis you could 0:18:30.560 --> 0:18:32.560 see the rest of the world look better, but that's 0:18:32.640 --> 0:18:35.119 certainly been delayed by these effects. You know, it was 0:18:35.160 --> 0:18:39.119 the Brown mathematician we go Matthew and partial differentials paragraph 0:18:39.160 --> 0:18:42.480 two of your important note handrew sheets. You are defined 0:18:42.560 --> 0:18:48.920 by value expansion valuation expansion in two thousand nineteen. What's 0:18:48.960 --> 0:18:52.639 the history of trying to get out front a valuation 0:18:52.960 --> 0:18:56.440 shrinkage in a given year, this year and next year. 0:18:56.480 --> 0:18:59.720 How do you do that? Well, okay, I think it's 0:18:59.800 --> 0:19:03.159 it's very hard. Right. The the efficacy of trying to 0:19:03.359 --> 0:19:08.080 invest based on valuation alone is very good with a 0:19:08.080 --> 0:19:11.480 five or ten year horizon, but very bad even with 0:19:11.720 --> 0:19:14.639 a twelve month horizon. And so you know, look, we 0:19:15.160 --> 0:19:17.080 even as as much as we all want to buy 0:19:17.160 --> 0:19:22.000 things cheap and seldom expensive, that history says that history 0:19:22.080 --> 0:19:24.040 says that that over six or twelve months, that that 0:19:24.080 --> 0:19:27.280 often just just doesn't work. So look, that's why we're 0:19:27.280 --> 0:19:29.400 focused on some other factors. I think that's why we're 0:19:29.440 --> 0:19:32.440 looking for signs at some of the relative momentum shifting. Andrew, 0:19:32.440 --> 0:19:34.600 it doesn't work over six or twelve hours, which is 0:19:34.640 --> 0:19:38.840 one protest before we let you go, Can we bring 0:19:38.920 --> 0:19:41.320 some life into one of the most talked about interviews 0:19:41.520 --> 0:19:43.480 that at least I've heard about for a long long time. 0:19:43.520 --> 0:19:47.520 It's Greg Peters, formerly of Morgan Stanley, sitting across from 0:19:47.520 --> 0:19:51.639 a young Andrew Sheets who could draw cartoons. And Greg 0:19:51.640 --> 0:19:53.960 Peters is sitting there thinking, you know what, I like 0:19:54.119 --> 0:19:55.959 this kid, and I could use this in our research, 0:19:56.000 --> 0:19:58.560 which is why some of this research became world famous 0:19:58.560 --> 0:20:01.560 in credit markets are on the financial crisis because Andrew 0:20:01.600 --> 0:20:05.439 Sheets could take these stories and make little cartoons excuse me, 0:20:05.480 --> 0:20:08.800 and they're like really good carton fantastic And to this day, 0:20:08.840 --> 0:20:12.600 Greg paide Is still talks about have you ever done 0:20:12.600 --> 0:20:18.080 a cartoon for Mr Gorman? Not not not directly, but look, 0:20:18.080 --> 0:20:21.320 Greg wasn't was an excellent um was an excellent strategist. 0:20:21.320 --> 0:20:23.560 He was an excellent analyst. And I think he always 0:20:24.160 --> 0:20:26.280 tried to think about markets in in a different way 0:20:26.320 --> 0:20:29.760 and I think that's maybe, maybe hopefully why he decided 0:20:29.760 --> 0:20:32.000 to take that risk. The tone you just heard their 0:20:32.000 --> 0:20:35.520 folks from Mr Sheets is like if you leave Morgan Stanley, 0:20:35.560 --> 0:20:40.680 it's like you don't exist, just like God. I think 0:20:40.720 --> 0:20:46.040 they were still on a talking basis. Greg's are always 0:20:46.080 --> 0:20:49.480 a great analyst. We're on best buds basis with Mr Gorman. 0:20:49.560 --> 0:20:53.560 I highly recommend a cartoon for Mr Gorman. Andrew Sheets, 0:20:53.560 --> 0:21:00.600 thank you so much, Andrew, thank you. I'm gonna give 0:21:00.600 --> 0:21:03.520 Paul Sweeney's opinion on this before our guest hangs up 0:21:03.560 --> 0:21:07.480 on us. I am biased. There's there's different kinds of 0:21:07.560 --> 0:21:12.119 equity strategists, and Paul, some come from economics great, and 0:21:12.160 --> 0:21:16.680 others come from following an industry and following a sector. 0:21:17.359 --> 0:21:20.320