WEBVTT - Structural Changes To Society Will Reshape Post-Virus Economy 0:00:02.640 --> 0:00:05.360 Welcome to the Bloomberg Penl podcast on Paul Swing You. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa brahma Witz, each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.320 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penil podcast on Apple 0:00:15.520 --> 0:00:18.000 podcast or wherever you listen to podcasts, as well as 0:00:18.000 --> 0:00:22.959 at Bloomberg dot com. Two trillion dollars US stimulus package 0:00:22.960 --> 0:00:26.520 coming out that SCO's about ten of the nation's total output. 0:00:26.560 --> 0:00:30.200 The question is is it enough. Francis Donald, managing director, 0:00:30.360 --> 0:00:32.680 chief Economists and head of macro Strategy at Manual Life 0:00:32.720 --> 0:00:36.240 Investment Management, joins us to lend her thoughts. So, Francis, 0:00:36.240 --> 0:00:38.239 thanks so much for joining us. We're starting to get 0:00:38.280 --> 0:00:42.599 some initial details about this stimulus plan. What is your 0:00:42.600 --> 0:00:45.600 early read as to kind of the scope and scale 0:00:45.600 --> 0:00:49.800 of this plan. Well, like almost every data point in 0:00:49.880 --> 0:00:54.400 policy move, we get unprecedented, huge, massive, But just like 0:00:54.480 --> 0:00:57.360 every other policy we've seen from other governments, it's not 0:00:57.400 --> 0:01:00.440 going to be enough to prevent a massive dislowcation in 0:01:00.480 --> 0:01:03.560 this economy. We are still going to experience a recession 0:01:03.680 --> 0:01:05.959 what I call it compressed recession in a very short 0:01:06.000 --> 0:01:09.920 period of time. This passage is about mitigating just how 0:01:09.959 --> 0:01:13.119 bad that might be and preventing it from creating other 0:01:13.160 --> 0:01:16.759 spillovers that last an extended period of time. So for me, 0:01:17.080 --> 0:01:19.399 this doesn't really change how I think the next three 0:01:19.440 --> 0:01:21.920 months ago. It does give me more hope that by 0:01:21.959 --> 0:01:24.600 the year end we have seen a little bit more 0:01:24.640 --> 0:01:27.119 of that recovery. I'm not in V shaped recovery. I'm 0:01:27.120 --> 0:01:29.360 in U shaped recovery. I'm not sure how much the 0:01:29.400 --> 0:01:32.880 distinction matters. It's good news, it's not a savior. So 0:01:33.000 --> 0:01:35.080 a lot of people are looking ahead to initial jobless 0:01:35.120 --> 0:01:38.280 claims tomorrow. A lot of economists are just throwing up 0:01:38.319 --> 0:01:40.720 their hands and saying, we don't know. I mean, this 0:01:40.800 --> 0:01:44.319 seems unprecedented. The range of outcomes is so wide that 0:01:44.360 --> 0:01:46.760 it's very hard to make a forecast. What are you 0:01:46.840 --> 0:01:49.520 looking at? To give you some sort of compass through 0:01:49.520 --> 0:01:52.280 this period? We have to look at a lot of 0:01:52.320 --> 0:01:55.680 different alternative data sets, things I've never looked at before, 0:01:55.840 --> 0:01:59.280 like subway ridership. How many people are They're looking at 0:01:59.560 --> 0:02:03.400 open table reservations, looking at surveys that we maybe haven't 0:02:03.440 --> 0:02:08.000 seen before. This is really difficult to forecast, and there's 0:02:08.000 --> 0:02:10.480 a reason why the set through up its hands and 0:02:10.520 --> 0:02:14.200 said we're not giving you the summary of economic projections. Basically, 0:02:14.240 --> 0:02:16.799 the only way to do forecasting here is to take 0:02:16.800 --> 0:02:20.280 an economic model and break it, push through a bunch 0:02:20.320 --> 0:02:23.800 of assumptions that are based on just various scenarios, and 0:02:23.880 --> 0:02:26.440 hope it gives you some point forecast. But that is 0:02:26.520 --> 0:02:29.200 false precision. What we need to be doing now is 0:02:29.240 --> 0:02:33.880 thinking about the progression, the quarter by quarter progression, and 0:02:34.280 --> 0:02:36.600 how does anything that happened in the next three months 0:02:36.680 --> 0:02:39.520 create longer term damage. I do think we need to 0:02:39.560 --> 0:02:43.040 realize that we can't and we probably will not unwind 0:02:43.200 --> 0:02:45.200 all of the damage that we see in the next 0:02:45.240 --> 0:02:48.040 three to six months, that there are structural changes that 0:02:48.040 --> 0:02:50.680 are coming from this, and most importantly, a lot of 0:02:50.680 --> 0:02:53.600 the policies that were put in place monetary and fiscal 0:02:53.840 --> 0:02:57.359 are not going to be unwind unwounded three months. So 0:02:57.520 --> 0:02:59.720 we kind of have to distinguish here between what's going 0:02:59.800 --> 0:03:03.160 to rebound and what isn't. That conversation is so much 0:03:03.200 --> 0:03:05.959 more important than what is the GDP hit, what is 0:03:06.000 --> 0:03:08.400 initial jobs claim is going to be? So what do 0:03:08.400 --> 0:03:12.079 you think some of the structural changes might result out 0:03:12.120 --> 0:03:16.120 of this Friensis. The biggest one is if I'm opening 0:03:16.120 --> 0:03:19.720 a company right now, I'm thinking twice three times about 0:03:19.840 --> 0:03:22.480 do I want to global supply chain. We haven't just 0:03:22.600 --> 0:03:25.560 had one hit to global supply chains. The paraffs who've 0:03:25.639 --> 0:03:28.840 now had a second entirely different one. So if I'm 0:03:28.840 --> 0:03:31.200 opening a company, I'm thinking, yeah, maybe, And you have 0:03:31.240 --> 0:03:33.920 to pay for domestic labor, which is more expensive, but 0:03:34.000 --> 0:03:36.800 that's a form of insurance. I also think that we're 0:03:36.800 --> 0:03:39.080 going to get a sense that people can work remotely 0:03:39.360 --> 0:03:42.320 and do not need to travel into downtown cores. That 0:03:42.360 --> 0:03:45.480 could change housing markets, It can change the way companies operate, 0:03:45.560 --> 0:03:48.560 It can change the push towards new and better technologies 0:03:48.600 --> 0:03:52.040 for remote working. These are the types of conversation that 0:03:52.080 --> 0:03:54.680 we need to have. Um of course, the biggest one 0:03:54.920 --> 0:03:57.960 is we have now, you know, expanded the sets balance 0:03:58.000 --> 0:04:01.920 sheet to something unprecedented. We now have deficits that will 0:04:01.920 --> 0:04:04.360 blow out across the entire world. And I don't think 0:04:04.360 --> 0:04:06.160 you're going to have anyone who says we shouldn't have 0:04:06.200 --> 0:04:09.600 spent that amount of money. So even our notions of 0:04:09.640 --> 0:04:12.640 what's the appropriate rule of a central bank and how 0:04:12.720 --> 0:04:16.440 much money should government spend is going to change as well. Francis, 0:04:16.440 --> 0:04:18.680 That's exactly where I wanted to go, this idea that 0:04:18.680 --> 0:04:21.279 the deficit is now going to double to where it was. 0:04:21.400 --> 0:04:24.440 You've got helicopters dropping money, You've got the FED basically 0:04:24.480 --> 0:04:27.039 saying we'll buy whatever you want with expectations at the 0:04:27.040 --> 0:04:29.440 Fed's balance sheet, which already is at a record high 0:04:29.480 --> 0:04:31.680 now is going to at least double in the next 0:04:31.720 --> 0:04:33.960 twelve months, if not far sooner than that, to more 0:04:34.000 --> 0:04:37.960 than nine trillion dollars. At what point is this inflationary 0:04:38.120 --> 0:04:45.479 versus deflationary, So eventually that will create some inflation. And 0:04:45.640 --> 0:04:48.080 this is why I think we're seeing a steeper curve. 0:04:48.440 --> 0:04:50.680 It's why you're going to hear people say I'm a 0:04:50.720 --> 0:04:54.200 seller of the thirty year that inflation is coming. Um. 0:04:54.240 --> 0:04:55.919 This is why you're going to see people who like 0:04:56.040 --> 0:04:58.960 gold in this type of environment. But for the meantime, 0:04:59.120 --> 0:05:01.320 particularly in the next six months, we're going to have 0:05:01.400 --> 0:05:04.080 to deal with demand destruction, and in my view, that 0:05:04.120 --> 0:05:07.240 demand destruction it's going to be so much more powerful 0:05:07.360 --> 0:05:11.440 than any sort of inflationary dynamics that come from these policies. 0:05:11.760 --> 0:05:14.839 We also have a very strong US dollar, and that 0:05:14.960 --> 0:05:17.680 is a deflationary force. I don't think that strong US 0:05:17.720 --> 0:05:20.760 dollar is going to unwind significantly this year. So yes, 0:05:20.839 --> 0:05:24.039 do we need to think about inflation. Absolutely, Do we 0:05:24.080 --> 0:05:25.839 need to think about it in the next twelve months 0:05:25.880 --> 0:05:29.080 or even twenty four months, I don't think so. So. 0:05:29.279 --> 0:05:33.839 Francisk you're talking about you more of a U shaped recovery, 0:05:34.000 --> 0:05:36.000 do you? In fact? And I think that we will 0:05:36.000 --> 0:05:37.640 see a recovery in the third quarters that can be 0:05:37.640 --> 0:05:39.760 pushed out maybe more to the fourth quarter. This could 0:05:39.760 --> 0:05:42.760 be a lower for longer type of hit to the 0:05:42.800 --> 0:05:47.160 second quarter. I suspect you're going to see some seeds 0:05:47.160 --> 0:05:49.440 of the recovery by the third quarter, and by that 0:05:49.520 --> 0:05:52.080 I mean you will see shops open back up and 0:05:52.120 --> 0:05:56.039 some rehiring activity. Are we truly back online? Do we 0:05:56.080 --> 0:05:58.600 start to see an economy that even resembled where we 0:05:58.600 --> 0:06:01.960 were in January? Probably not till the fourth quarter. You know, 0:06:02.040 --> 0:06:04.240 we have a supply shock and then we have two 0:06:04.240 --> 0:06:07.480 types of demand shocks. Here. We have forced closures, which 0:06:07.520 --> 0:06:09.480 means even if you want to buy a latte at 0:06:09.480 --> 0:06:11.520 the coffee shop, you can't, And then you have this 0:06:11.560 --> 0:06:14.119 other type of demand shops, which is just confidence based, 0:06:14.160 --> 0:06:16.600 which is saying, you know, even if the store is open, 0:06:16.760 --> 0:06:19.560 I'm too afraid for my personal safety to go outside 0:06:19.560 --> 0:06:21.719 the house. Right now, a lot of these can be 0:06:21.760 --> 0:06:24.440 cleared up. Supply chains are already coming back online out 0:06:24.480 --> 0:06:27.200 of China. That's good news. You can press a button 0:06:27.440 --> 0:06:29.440 and or sign a paper and open up a segment 0:06:29.440 --> 0:06:31.520 of the economy. But it's probably going to take a 0:06:31.520 --> 0:06:33.720 little bit of time before we have people who are 0:06:33.760 --> 0:06:36.800 generally happy to go to concerts through movies. Again, that's 0:06:36.839 --> 0:06:38.920 the more of a confidence shock. Those are really difficult 0:06:38.920 --> 0:06:41.599 to forecast. But you know, just thinking it true, I 0:06:41.600 --> 0:06:43.599 don't think we're all going to be going around shaking 0:06:43.640 --> 0:06:47.280 hands by June Francis. Just real quick here, I'm wondering 0:06:47.400 --> 0:06:50.839 how much of the economy is still online that's getting discounted, 0:06:50.880 --> 0:06:54.599 basically that the American business community hasn't gone to zero 0:06:54.640 --> 0:06:58.560 as people shop online and uh and order stuff online. 0:06:59.560 --> 0:07:02.160 Yeah right, And we see a variety of different types 0:07:02.200 --> 0:07:05.200 of companies that are hiring because there's a segment of 0:07:05.200 --> 0:07:07.600 this economy that isn't just holding place, but it's going 0:07:07.640 --> 0:07:10.880 to re accelerate. And what they're seeing is just like 0:07:11.680 --> 0:07:13.520 you know, the full weakness of the economy isn't going 0:07:13.560 --> 0:07:16.800 to redown. I suspect the strength in those particular industries, 0:07:16.840 --> 0:07:20.280 everything from telecom to online shopping. They're not going to 0:07:20.480 --> 0:07:22.720 lose all of this stump either as we continue to 0:07:22.760 --> 0:07:25.440 have the structural shift. So certainly we're going to see 0:07:25.440 --> 0:07:28.200 some front loading activity in March. Wash grocery store sales 0:07:28.440 --> 0:07:30.920 for March, they're gonna be through the roof, um, but 0:07:31.080 --> 0:07:34.400 it's going to be substantially offset by the significant amount 0:07:34.840 --> 0:07:39.600 of downward pressure we have from small businesses, restaurants, job losses, um. 0:07:39.640 --> 0:07:42.880 Those are going to significantly outweigh Francis Donald. Thank you 0:07:42.960 --> 0:07:45.360 so much for being with us. Frances Donald, chief economists 0:07:45.560 --> 0:07:49.120 and head of macroeconomic strategy for MANU Life Asset Management. 0:07:49.200 --> 0:07:52.680 Joining us on the phone from Toronto really interesting to 0:07:52.760 --> 0:07:56.560 try to forecast what the society might look like on 0:07:56.600 --> 0:07:58.520 the other side of this. We don't know how long 0:07:58.560 --> 0:08:00.640 it's gonna be, Paul, but they're us seem to be 0:08:00.680 --> 0:08:02.880 a feeling things are going to be very different in 0:08:02.960 --> 0:08:06.720 certain ways at least. Yeah, absolutely, and again her economic 0:08:06.720 --> 0:08:09.040 outlook more of a U shaped recovery than some of 0:08:09.040 --> 0:08:11.440 the V shaped recoveries. That we've seen come out of 0:08:11.440 --> 0:08:16.600 Wall Street. Over the last three or four days, we've 0:08:16.640 --> 0:08:20.520 been hearing consistently about some of the growing strains on 0:08:20.560 --> 0:08:23.840 the health care system, particularly in New York City and 0:08:24.040 --> 0:08:27.600 Javit Center being outfitted with hundreds of beds in order 0:08:27.640 --> 0:08:31.040 to accommodate the influx of expected patients. Joining us now 0:08:31.160 --> 0:08:34.480 someone with a lot of experience planning and existing within 0:08:34.559 --> 0:08:38.360 this type of ecosystem. Dr Lena When, emergency physician as 0:08:38.400 --> 0:08:42.439 well as a public health professor towards Washington University previously 0:08:42.520 --> 0:08:45.880 serving as Baltimore as Health Commissioner. Dr When, thank you 0:08:45.920 --> 0:08:47.960 so much for being with us. I want to just 0:08:48.000 --> 0:08:50.800 get a sense of a state of play. How close 0:08:50.880 --> 0:08:53.000 are we in New York City and some of the 0:08:53.000 --> 0:08:57.200 other epicenters to a an Italy type situation where we 0:08:57.320 --> 0:09:02.160 end up with just hundreds of people dying a day. Well, 0:09:02.200 --> 0:09:06.800 if you talk to any of our frontline healthcare providers 0:09:07.040 --> 0:09:10.480 in New York and in other epicenters around the country, 0:09:10.520 --> 0:09:14.440 they will say that we are already at this breaking point. 0:09:15.000 --> 0:09:20.360 We are already seeing our hospital system stretched to capacity. 0:09:20.400 --> 0:09:24.800 And what's extremely worrisome is that our healthcare providers for 0:09:24.960 --> 0:09:28.640 on the front lines don't even have the basic equipment 0:09:28.679 --> 0:09:31.720 that they need in order to protect themselves, which frankly 0:09:31.760 --> 0:09:34.160 is something that I never thought we would see in 0:09:34.200 --> 0:09:36.320 this country. I mean, it was just two months ago 0:09:36.360 --> 0:09:39.679 that we saw the images emerging from China of nurses 0:09:39.720 --> 0:09:42.440 who had to reuse their masks for several days at 0:09:42.440 --> 0:09:47.080 a time, doctors whom had to fashion their own gowns 0:09:47.160 --> 0:09:50.079 out of garbage bags. And now we're seeing this playing 0:09:50.120 --> 0:09:54.160 out all over the country. First we're ratcheting masks, then 0:09:54.240 --> 0:09:56.280 we're going to run out of doctors, and then we're 0:09:56.320 --> 0:09:59.240 also going to run out of hospital beds and I 0:09:59.320 --> 0:10:02.719 see you bed and other critical capabilities that will keep 0:10:02.720 --> 0:10:06.000 patients alive. I mean, I hate to present this dire picture, 0:10:06.040 --> 0:10:08.559 but this is what's happening in our country due to 0:10:08.720 --> 0:10:12.280 lack of preparedness. But all is not lost. We do 0:10:12.400 --> 0:10:16.120 have an opportunity to ramp up production dramatically in this 0:10:16.160 --> 0:10:20.840 country through a coordinated national effort, and we need everyone 0:10:20.920 --> 0:10:24.600 to continue to do their part to do social distancing 0:10:24.679 --> 0:10:27.520 and other measures that can reduce the rate of transmission 0:10:27.960 --> 0:10:31.439 in these epicenters, but as critically in other parts of 0:10:31.440 --> 0:10:34.880 the country, to to prevent every part of our country 0:10:34.960 --> 0:10:38.960 from turning into the China and Italy scenario that we 0:10:39.000 --> 0:10:42.160 have seen playing out so dr when there has been 0:10:42.200 --> 0:10:44.520 some growing discussion over the last week or so that 0:10:44.600 --> 0:10:47.320 perhaps it's time to think about getting in the country 0:10:47.360 --> 0:10:50.480 quote unquote back to work and perhaps kind of open 0:10:50.559 --> 0:10:54.360 up the economy somewhat. From your perspective on the healthcare side, 0:10:54.600 --> 0:10:57.720 how do you view that? I mean, I understand the 0:10:57.840 --> 0:11:01.079 desire to get back to normal, because frankly, right now 0:11:01.160 --> 0:11:04.560 life is not normal at all. It's not imaginable compared 0:11:04.559 --> 0:11:08.000 to where we were a month ago or two months ago. 0:11:08.640 --> 0:11:10.760 But we also have to look at the reality of 0:11:10.880 --> 0:11:13.680 where things are. We can't navigate based on our wish list. 0:11:13.720 --> 0:11:16.560 We have to navigate based on the reality and what 0:11:16.640 --> 0:11:19.120 the reality is that we have this urgent need to 0:11:19.120 --> 0:11:22.240 stabilize our health care system. We have an urgent need 0:11:22.280 --> 0:11:24.680 to ramp up testing because unless we do that, we 0:11:24.720 --> 0:11:27.560 have no idea of where we actually are. We have 0:11:27.679 --> 0:11:29.839 case counts every day of the number of people who 0:11:29.840 --> 0:11:33.079 are infected, but we don't know how accurate these counts are. 0:11:33.120 --> 0:11:36.480 In fact, basically every public health expert I know thinks 0:11:36.520 --> 0:11:39.880 that these counts are far off because we just don't 0:11:39.880 --> 0:11:43.280 have the testing capability to understand what's happening in our country. 0:11:43.760 --> 0:11:46.400 So unless we can shore up our health care system, 0:11:46.480 --> 0:11:48.920 unless we can get real data about what's going on, 0:11:49.559 --> 0:11:53.320 we can't let up on really the only effective intervention 0:11:53.360 --> 0:11:55.760 that we have at this time, which is social distancing. 0:11:56.320 --> 0:11:58.319 I wish that this were not the case. Don't get 0:11:58.320 --> 0:12:00.400 me wrong. I wish that we had testing up and running. 0:12:00.440 --> 0:12:03.439 I wish that our hospitals were not overflowing. But given 0:12:03.480 --> 0:12:06.360 the situation that we're in, we can't let up, or 0:12:06.440 --> 0:12:09.520 else we are going to have tens of thousands of 0:12:09.559 --> 0:12:13.959 people die, maybe even more because of our own in action. 0:12:14.920 --> 0:12:18.240 Dr when I'm wondering right now, we're looking at a 0:12:18.280 --> 0:12:22.960 recommendation that anyone from New York quarantine themselves for fourteen 0:12:23.080 --> 0:12:27.160 days if they travel outside of this state. How prevalent 0:12:27.679 --> 0:12:31.040 is your estimates is the research currently is the virus 0:12:31.120 --> 0:12:33.920 in the United States beyond New York? In other words, 0:12:34.280 --> 0:12:36.720 if some of the hot spots are contained, will that 0:12:36.760 --> 0:12:39.960 be enough to sort of stave off a crisis situation 0:12:40.120 --> 0:12:43.199 the rest of the United States. It's a great question. 0:12:43.880 --> 0:12:46.080 I think the answer is that we don't know, because 0:12:46.080 --> 0:12:49.240 we don't know the true prevalence in other communities, but 0:12:49.320 --> 0:12:51.920 there's reason to believe that you can do both of 0:12:51.960 --> 0:12:54.640 these things at the same time. So mitigation efforts, meaning 0:12:54.679 --> 0:12:58.480 mitigation in these hotspot areas as well as containment in 0:12:58.600 --> 0:13:02.560 areas that probably are not yet so affected, although very 0:13:02.640 --> 0:13:04.920 likely they are much more affective than we think, but 0:13:05.160 --> 0:13:07.640 still there is a chance at that, and I think 0:13:07.640 --> 0:13:10.360 as long as there's a chance, we should be trying 0:13:10.760 --> 0:13:13.920 to do both, trying to to um do every day 0:13:13.960 --> 0:13:16.160 we can to both to the healthcare system in these 0:13:16.200 --> 0:13:19.520 hot spots and to reduce the rate of of transmission 0:13:19.640 --> 0:13:23.040 in other areas too. Dr Lena When, thank you so 0:13:23.080 --> 0:13:26.080 much for joining us. We really appreciate your learned perspective 0:13:26.200 --> 0:13:29.040 on this issue. Dr Lena When is an emergency physician 0:13:29.520 --> 0:13:33.280 and public health professor George Washington University. She previously served 0:13:33.320 --> 0:13:37.280 as Baltimore's health commissioner. So, Lisa, still, I think what 0:13:37.320 --> 0:13:40.480 we're hearing from Dr When is that, obviously we are 0:13:40.520 --> 0:13:43.920 still at the relatively critical stages here, particularly in some 0:13:43.960 --> 0:13:47.000 of the hot spots, so perhaps a little bit premature 0:13:47.160 --> 0:13:50.040 I think about opening up the economy. There was a 0:13:50.120 --> 0:13:53.959 story that caught my attention this morning about how New 0:13:54.000 --> 0:13:58.120 York hospital workers are basically foregoing tests to see whether 0:13:58.120 --> 0:14:00.720 they have the virus. If they don't have symptoms, they're 0:14:00.720 --> 0:14:03.320 being told just to come to work because a they're 0:14:03.360 --> 0:14:05.840 needed and be there aren't enough tests, and it just 0:14:05.840 --> 0:14:08.880 sort of highlights the fear felt by a lot of 0:14:08.880 --> 0:14:11.480 people currently in the healthcare system. And I will tell 0:14:11.520 --> 0:14:14.480 you personally, I've spoken to people who are nurses in 0:14:14.480 --> 0:14:18.120 this situation, and it is a frightening situation at this point, 0:14:18.120 --> 0:14:20.720 and it's expected to peak in about two weeks, so 0:14:21.120 --> 0:14:24.640 a lot of concern about whether people who could potentially 0:14:24.680 --> 0:14:27.000 be saved will be able to saved, as well as 0:14:27.040 --> 0:14:28.640 the lives of a lot of the people who are 0:14:28.680 --> 0:14:34.840 on the front lines as hospital workers. Our next guest 0:14:34.960 --> 0:14:37.920 Hans Olsa, and he'sa chief investment officer food Shary Trust 0:14:37.920 --> 0:14:42.200 company in Boston with about fourteen billion dollars under management. Hans, 0:14:42.240 --> 0:14:44.120 thanks so much for joining us. What do you make 0:14:44.120 --> 0:14:46.200 of the market performance of the last couple of days? 0:14:46.200 --> 0:14:48.120 Are just kind of forming maybe a little bit of 0:14:48.120 --> 0:14:51.600 a bottom here? Is this just a dead cat bounce? No, 0:14:51.840 --> 0:14:55.400 I think we're in the very early stages of a bottom. 0:14:55.480 --> 0:15:00.840 Formation here with the Setter reserves action being joined by 0:15:00.920 --> 0:15:03.960 the Congress's actions, I think we have the conditions now 0:15:04.440 --> 0:15:08.520 to start to put a double line underneath this episode. 0:15:08.640 --> 0:15:11.520 So I think we're in the early stages. There's definitely 0:15:12.080 --> 0:15:16.440 um some some probably shockingly difficult headlines will have to 0:15:16.480 --> 0:15:19.040 deal with in the week ahead, but most important, I 0:15:19.040 --> 0:15:22.000 think we've got the beginnings of a base being formed. 0:15:22.480 --> 0:15:24.840 You know, there's a question here how you get some 0:15:24.920 --> 0:15:29.080 conviction at a time of such lack of conviction when 0:15:29.080 --> 0:15:32.040 it comes to economic forecasts. I'd love to get your sense. 0:15:32.240 --> 0:15:36.160 How do you gain a sense of assurance behind your 0:15:36.200 --> 0:15:38.640 call that we're getting stability and it's time to perhaps 0:15:38.720 --> 0:15:41.720 buy well. I think you have to look at the 0:15:42.000 --> 0:15:45.040 credit market, because in our commercial lives, the sort of 0:15:45.080 --> 0:15:47.560 the well spring of all the activity starts with credit, 0:15:47.680 --> 0:15:50.960 right with money changing hands and the ability to get 0:15:51.400 --> 0:15:55.160 credit to to transact UH. And you know, what we've 0:15:55.200 --> 0:15:58.400 seen over the last week or so is severe dislocation. 0:15:58.480 --> 0:16:02.200 We're right out through right cross the credit landscape, and 0:16:02.200 --> 0:16:05.560 what we're starting to see now is some normalization beginning 0:16:05.600 --> 0:16:08.920 to happen in that that space, whether it be UH 0:16:09.160 --> 0:16:13.480 yield spreads on investment grade bonds or high yields starting 0:16:13.480 --> 0:16:16.320 to come down. Once that we start to get a 0:16:16.320 --> 0:16:19.520 return of normalization there, that will flow through to the 0:16:19.520 --> 0:16:21.560 equity markets, and I think they're both happening at the 0:16:21.560 --> 0:16:24.680 same time at the moment. So, Hans, one of the 0:16:24.720 --> 0:16:27.200 areas that's been a little bit troubled obviously in the 0:16:27.240 --> 0:16:30.080 credit side of the business is the mortgage markets. What's 0:16:30.120 --> 0:16:31.600 your take on what's going on there and kind of 0:16:31.600 --> 0:16:34.440 what the response has been from the FED. I think 0:16:34.440 --> 0:16:37.840 the Fed's efforts have been really good, uh in addressing 0:16:37.840 --> 0:16:41.280 the primary markets. We need to get into the secondary markets, 0:16:41.920 --> 0:16:46.880 especially in commercial back uh, commercial back mortgage paper and 0:16:46.920 --> 0:16:49.680 the like. I think there needs to be some help 0:16:49.800 --> 0:16:51.400 there on the part of the set of reserve there. 0:16:51.480 --> 0:16:54.280 They need to basically supply capital to that part of 0:16:54.280 --> 0:16:58.280 the market so that um uh, some liquidity is there 0:16:58.360 --> 0:17:00.920 and we get a sort of beginning of a return 0:17:01.000 --> 0:17:03.520 to normal trading. It's not there yet. There's still some 0:17:03.600 --> 0:17:07.679 distress sellers and liquidations occurring. But if the FED turns, 0:17:07.760 --> 0:17:12.960 it's considerable resources there that will start to tamp down 0:17:13.000 --> 0:17:17.200 as well. Hans. We're speaking with Hans Olsen, chief Investment 0:17:17.200 --> 0:17:21.000 Officer a fiduciary trust company in Boston. Hans, I'd love 0:17:21.080 --> 0:17:23.600 to get your sense of how you go about buying 0:17:23.720 --> 0:17:26.880 in this situation, given the fact that it's very hard 0:17:26.920 --> 0:17:29.919 to depend on any actual data that we've previously relied on, 0:17:30.040 --> 0:17:32.359 like earnings or estimates, to get a sense of what 0:17:32.400 --> 0:17:36.080 the financial picture is. Yeah, I think that's a two 0:17:36.119 --> 0:17:38.480 part process. One you have to sort of look through 0:17:38.640 --> 0:17:40.920 to the other side of this. So if we if 0:17:40.960 --> 0:17:43.240 we fixate on the data that we see in front 0:17:43.240 --> 0:17:46.080 of us right now, we're always two to three weeks 0:17:46.080 --> 0:17:49.439 behind the curve and uh, you know, whether it's the 0:17:49.480 --> 0:17:52.240 p M I like only actually with the p M I, 0:17:52.320 --> 0:17:54.960 some of them are just beginning to to to reflect 0:17:55.040 --> 0:17:58.160 the UH sort of the severity of the draw down. 0:17:58.640 --> 0:18:00.960 But I think if you focus through to UH and 0:18:00.960 --> 0:18:03.560 and to a recovery, when we get a return to 0:18:03.680 --> 0:18:06.119 a bit of normalcy, then I think it's just a 0:18:06.160 --> 0:18:09.359 matter of having exposure. It's really more of a beta 0:18:09.440 --> 0:18:12.320 play than it is trying to pick an individual stock 0:18:12.400 --> 0:18:16.480 here or there. Things have sold off so so systemically, 0:18:16.560 --> 0:18:19.840 and in some cases in such a disorderly way. Uh, 0:18:19.920 --> 0:18:23.879 just exposure to markets now in the base formation is 0:18:24.320 --> 0:18:28.399 I think the first step into a successful um re 0:18:28.480 --> 0:18:32.400 emergence of this from this period son for the brave 0:18:32.480 --> 0:18:34.199 of heart that are willing and able to look to 0:18:34.240 --> 0:18:38.719 the other side of this, where should they be looking? Well, 0:18:38.760 --> 0:18:41.480 I think the US is the first place. And we 0:18:41.480 --> 0:18:44.960 we have liked international names for for some time, UM, 0:18:45.760 --> 0:18:50.400 but it's hard to imagine the global economy emerging from 0:18:50.400 --> 0:18:53.080 this global slowdown, of this global crisis without the US 0:18:53.200 --> 0:18:55.320 leading the way. We tend to be the most vibrant 0:18:55.880 --> 0:18:59.520 uh and most creative economy. Uh. And you know it 0:18:59.560 --> 0:19:02.560 would it would be a break with history for US 0:19:02.600 --> 0:19:04.840 to come out of a global slowdown without the US 0:19:05.240 --> 0:19:07.280 leading the way. So I think the US is the 0:19:07.320 --> 0:19:09.639 first place to be. I think credit is beginning to 0:19:09.640 --> 0:19:13.000 look pretty interesting. Uh. I think I would go credit 0:19:13.080 --> 0:19:16.800 first and then equities second, just because credit has to 0:19:16.840 --> 0:19:20.119 recover before equities can recover. So if you have incremental 0:19:20.160 --> 0:19:23.760 money UM, splitting it between those two sectors of the 0:19:23.800 --> 0:19:25.919 capital markets would seem to me to be a good idea. 0:19:26.520 --> 0:19:28.520 All right, So we're in credit because we've seen an 0:19:28.560 --> 0:19:30.680 out performance in the past couple of days, and investment 0:19:30.720 --> 0:19:33.959 grade as a federal reserve backstops that as a class, 0:19:34.000 --> 0:19:36.719 but high yield has continued to underperform as people expect 0:19:36.720 --> 0:19:39.480 the default rate to spike in the wake of the 0:19:39.760 --> 0:19:44.320 of the shutdowns. The places that we're looking at right 0:19:44.359 --> 0:19:47.919 now haven't pulled the trigger, but we're doing the work 0:19:48.000 --> 0:19:50.760 on would be levered loans those are down trading in 0:19:50.800 --> 0:19:54.639 the seventies. Now on those are applying implying default rates 0:19:54.640 --> 0:19:59.840 and recovery rates that probably won't come to pass, give 0:20:00.000 --> 0:20:02.320 and all the extraordinary efforts on the part of the 0:20:02.320 --> 0:20:06.280 Central Bank and now Congress, and then once that starts 0:20:06.320 --> 0:20:08.400 to catch a bid, I think we'll see a bit 0:20:08.400 --> 0:20:11.200 of a recovery and high yield already, though high yield 0:20:11.920 --> 0:20:15.720 oh a s is down from the peak that achieved 0:20:15.760 --> 0:20:19.360 just a couple of days ago. So Hans, it's interesting 0:20:19.440 --> 0:20:23.560 the looking out to the other side. Are there sectors 0:20:24.240 --> 0:20:26.159 in the economy that you would look at? Would you 0:20:26.200 --> 0:20:27.879 look at the ones that got really crushed, whether it 0:20:27.920 --> 0:20:30.600 be leisure or the airlines, transports, that type of thing. 0:20:32.119 --> 0:20:35.280 I think that for for us, where we would look 0:20:35.359 --> 0:20:40.080 first would be various, Like um um industrials actually is 0:20:40.119 --> 0:20:42.640 pretty good. Picking in technology, although that hasn't sold off 0:20:42.680 --> 0:20:45.439 as much energy. Some of the top names, and energy 0:20:45.560 --> 0:20:47.240 might make a lot of sense here. They have the 0:20:47.280 --> 0:20:49.639 wear with all the balance sheet, of the depth of 0:20:49.640 --> 0:20:53.520 business and the access to resources. UH. In order to 0:20:53.640 --> 0:20:56.040 lead out our way out, we start to get a 0:20:56.040 --> 0:20:59.040 bid for for energy prices, so it would be energy, 0:20:59.119 --> 0:21:01.840 it would be health there, it would be UH. Financials 0:21:01.880 --> 0:21:03.280 at some point here in the States are going to 0:21:03.320 --> 0:21:05.359 look pretty interesting. So some of the areas that have 0:21:05.400 --> 0:21:08.520 gotten hit harder. But it's but focusing really on the 0:21:08.600 --> 0:21:11.959