1 00:00:05,720 --> 00:00:12,960 Speaker 1: Yeah, welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:16,960 Speaker 1: Jay Ley. We bring you inside from the best in economics, finance, 3 00:00:17,040 --> 00:00:23,520 Speaker 1: investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,200 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Let's 5 00:00:27,200 --> 00:00:29,800 Speaker 1: bringing Jane finally shout, we run a backhead of effect strategy. 6 00:00:29,880 --> 00:00:32,320 Speaker 1: She finds in from London Chinese. Fantastic to have you 7 00:00:32,400 --> 00:00:34,560 Speaker 1: with us. Let's just reflect on what the fattest to 8 00:00:34,600 --> 00:00:36,400 Speaker 1: live and what's still to come through the next couple 9 00:00:36,400 --> 00:00:38,920 Speaker 1: of weeks. Your thoughts please, well, I think really yeah, 10 00:00:39,440 --> 00:00:42,000 Speaker 1: we can see by the reaction of the markets this morning, 11 00:00:42,040 --> 00:00:44,240 Speaker 1: and I don't think that there is enough. And really, 12 00:00:44,240 --> 00:00:48,440 Speaker 1: as long as this news remains such that we keep 13 00:00:48,479 --> 00:00:51,600 Speaker 1: on getting an increase in the number of coronaviruses, and 14 00:00:51,680 --> 00:00:54,120 Speaker 1: both the Europe and the US at the market is 15 00:00:54,120 --> 00:00:56,160 Speaker 1: going to assume that the real economy, or the out 16 00:00:56,200 --> 00:00:57,640 Speaker 1: of the real economy is going to get to carry 17 00:00:57,680 --> 00:01:01,120 Speaker 1: on worse need and therefore um that the central banks 18 00:01:01,120 --> 00:01:03,800 Speaker 1: are going to have to do more monitor fiscal policy too. 19 00:01:03,840 --> 00:01:06,360 Speaker 1: Of course, a lot more is gonna have to come 20 00:01:06,400 --> 00:01:08,160 Speaker 1: from there, but I think one thing that that was 21 00:01:08,319 --> 00:01:11,640 Speaker 1: in particular missing perhaps from from the FEDS announcement, and 22 00:01:11,720 --> 00:01:14,960 Speaker 1: this was the concerted in the concerted action that was 23 00:01:14,959 --> 00:01:18,360 Speaker 1: announced yesterday was coordinated with DCB, and like the japan 24 00:01:18,400 --> 00:01:19,920 Speaker 1: and the b o E and the SMB. Now these 25 00:01:19,920 --> 00:01:23,199 Speaker 1: are all G ten central banks, and we've had new 26 00:01:23,280 --> 00:01:26,399 Speaker 1: cheaper swap line provisions for the for the for the 27 00:01:26,480 --> 00:01:29,000 Speaker 1: G ten. But there are going to be concerns about 28 00:01:29,280 --> 00:01:32,640 Speaker 1: corporates outside of the GTN area. What's going to happen 29 00:01:32,640 --> 00:01:35,240 Speaker 1: with them? What if they cannot get a hold of dollars. 30 00:01:35,280 --> 00:01:37,680 Speaker 1: We've seen since the middle of last week really that 31 00:01:37,800 --> 00:01:41,320 Speaker 1: the blowout in in in cross country basis what for 32 00:01:41,319 --> 00:01:44,160 Speaker 1: instances of the pressure in the money market. And of course, 33 00:01:44,200 --> 00:01:45,920 Speaker 1: if we go back to two thousand and eight, we 34 00:01:45,959 --> 00:01:49,880 Speaker 1: saw the FED announced other emergency measures a commercial paper 35 00:01:49,920 --> 00:01:54,000 Speaker 1: funding facility and then the commercial paper funding facilities through 36 00:01:54,800 --> 00:01:58,040 Speaker 1: the limited company that was that was set up to 37 00:01:58,160 --> 00:02:03,440 Speaker 1: provide um for facility whereby companies outside of the detail 38 00:02:03,560 --> 00:02:07,360 Speaker 1: could could sell to the Federal Bank of New York 39 00:02:07,440 --> 00:02:10,280 Speaker 1: commercial paper and get all liquidity that way. And I 40 00:02:10,320 --> 00:02:13,200 Speaker 1: think the market will be demanding that the fedders something 41 00:02:13,320 --> 00:02:16,359 Speaker 1: extra like in two thousand and next to really reassure 42 00:02:16,520 --> 00:02:18,720 Speaker 1: the markets that there is going to be ampled on 43 00:02:18,760 --> 00:02:20,720 Speaker 1: the liquidity in and at least that way it will 44 00:02:20,760 --> 00:02:24,280 Speaker 1: be one thing less I think for many corporates to 45 00:02:24,320 --> 00:02:28,280 Speaker 1: worry about. Jane yesterday, around five pm Eastern time, when 46 00:02:28,280 --> 00:02:30,720 Speaker 1: we got the response from the federals or of the 47 00:02:30,760 --> 00:02:34,840 Speaker 1: Hunter basis point rate cut, the futures markets for US 48 00:02:34,880 --> 00:02:37,720 Speaker 1: equities weren't open yet, and we looked for the to 49 00:02:37,760 --> 00:02:40,760 Speaker 1: get some kind of initial read on the market response. 50 00:02:41,000 --> 00:02:44,000 Speaker 1: At the currency markets, and they've been going crazy, the 51 00:02:44,040 --> 00:02:49,200 Speaker 1: OSSI dollar in particular, really sinking to a post crisis low. 52 00:02:49,240 --> 00:02:52,200 Speaker 1: And I'm trying to understand the volatility that we're seeing. 53 00:02:52,639 --> 00:02:56,120 Speaker 1: Is this just a complete vacuum of information, or is 54 00:02:56,160 --> 00:02:59,640 Speaker 1: this a structural issue that's affecting all markets for some 55 00:02:59,680 --> 00:03:03,040 Speaker 1: reason and creating a real dearth of liquidity that's potentially 56 00:03:03,040 --> 00:03:07,040 Speaker 1: really problematic. Um well, I think perhaps there's there's a 57 00:03:07,120 --> 00:03:09,200 Speaker 1: number of factors. I think first of all, you know, 58 00:03:09,240 --> 00:03:12,079 Speaker 1: looking at looking at the AUSSI, looking at some other currencies. 59 00:03:12,080 --> 00:03:14,200 Speaker 1: What we see here is is dollar strength. So there 60 00:03:14,280 --> 00:03:17,560 Speaker 1: is a scramble really to get hold of dollars, and 61 00:03:17,560 --> 00:03:20,600 Speaker 1: this is because, of course the dollar dominates the global 62 00:03:20,639 --> 00:03:23,760 Speaker 1: payment system and people need dollars. But I think apart 63 00:03:23,760 --> 00:03:25,760 Speaker 1: from that, I think the other signals that we're getting 64 00:03:25,880 --> 00:03:28,440 Speaker 1: is is that the type of crisis that we have 65 00:03:28,639 --> 00:03:30,960 Speaker 1: here and now, the type of crisis. Of course, it's 66 00:03:31,000 --> 00:03:33,720 Speaker 1: not a financial crisis. It is something to do with 67 00:03:33,880 --> 00:03:37,920 Speaker 1: the real economy. And yes, loans might be cheaper, but 68 00:03:38,000 --> 00:03:39,880 Speaker 1: if you are an airline, or if you're in the 69 00:03:39,920 --> 00:03:42,400 Speaker 1: tourism industry, or if you're a certain type of retailer, 70 00:03:42,440 --> 00:03:44,880 Speaker 1: et cetera, it doesn't mean to say that you're going 71 00:03:44,880 --> 00:03:47,360 Speaker 1: to have customers coming through your door this morning. And 72 00:03:47,400 --> 00:03:49,720 Speaker 1: so from that point of view, we can really see 73 00:03:50,360 --> 00:03:54,400 Speaker 1: the the the shortfalls. Really a monetary policy, it cannot 74 00:03:54,480 --> 00:03:57,840 Speaker 1: put demand back into the shops given the type of 75 00:03:57,840 --> 00:04:01,120 Speaker 1: crisis that we have, so monetary polar see just has 76 00:04:01,200 --> 00:04:04,720 Speaker 1: its limits. And therefore, you know, we do need this 77 00:04:04,800 --> 00:04:08,160 Speaker 1: fiscal type of support, maybe are concerted type of fiscal 78 00:04:08,320 --> 00:04:12,480 Speaker 1: response to try and reshort, reassure the firms that are 79 00:04:12,520 --> 00:04:16,440 Speaker 1: most acutely affected by this that their businesses can sustain 80 00:04:16,520 --> 00:04:20,479 Speaker 1: through this crisis and that they won't lose all of 81 00:04:20,520 --> 00:04:23,440 Speaker 1: their employees because immediately if you lose all your employees, 82 00:04:23,600 --> 00:04:25,599 Speaker 1: you have this knock on effect. You have this multiplier 83 00:04:25,600 --> 00:04:27,680 Speaker 1: effect with those people who lose their jobs and they 84 00:04:27,720 --> 00:04:29,680 Speaker 1: don't go to the shops and they don't they don't buy, 85 00:04:30,000 --> 00:04:33,159 Speaker 1: and you suddenly have this potential for this really sharp 86 00:04:33,240 --> 00:04:36,200 Speaker 1: down or shops slow down in in activity jam. We 87 00:04:36,240 --> 00:04:39,679 Speaker 1: can't handicap this deep into the unknown, impossible to model. 88 00:04:39,839 --> 00:04:41,880 Speaker 1: Most of the people listening to this program will agree 89 00:04:41,880 --> 00:04:44,080 Speaker 1: with you on all of those things. Where we can 90 00:04:44,160 --> 00:04:46,560 Speaker 1: have a discussion is how you think the dollar will 91 00:04:46,600 --> 00:04:49,360 Speaker 1: behave in the environment like the one we're about to enter. 92 00:04:50,200 --> 00:04:52,440 Speaker 1: There were doubts when times were good over the last 93 00:04:52,480 --> 00:04:54,360 Speaker 1: couple of years about what would happen in the next 94 00:04:54,360 --> 00:04:56,920 Speaker 1: downturn and how the dollar would behave. Would it maintain 95 00:04:56,920 --> 00:05:00,520 Speaker 1: those risthma againing characteristics? Would we buy the dollar when 96 00:05:00,600 --> 00:05:03,160 Speaker 1: things got bad? Can we say with some confidence that 97 00:05:03,160 --> 00:05:06,000 Speaker 1: that's still the case, The dollar will still be that 98 00:05:06,120 --> 00:05:10,599 Speaker 1: currency people flee to. Yes, I would agree with that, 99 00:05:10,640 --> 00:05:12,240 Speaker 1: and I would go a bit further, and I'd say 100 00:05:12,440 --> 00:05:15,640 Speaker 1: that the market has no choice but to buy the dollars. 101 00:05:15,640 --> 00:05:17,360 Speaker 1: If you think about the dollars position as a as 102 00:05:17,400 --> 00:05:21,440 Speaker 1: a global transactional currency, no other currency comes close. It's 103 00:05:21,480 --> 00:05:25,200 Speaker 1: plain and simple. If you are in India and you 104 00:05:25,240 --> 00:05:27,560 Speaker 1: need to buy oil, you need to have dollars. If 105 00:05:27,560 --> 00:05:29,440 Speaker 1: you need to buy all with any other commodities, you 106 00:05:29,520 --> 00:05:32,760 Speaker 1: need to have dollars. And this is why if you 107 00:05:32,800 --> 00:05:35,120 Speaker 1: look now at the money market, if you look at 108 00:05:35,400 --> 00:05:37,640 Speaker 1: a cross cluncy basis what you will see that they 109 00:05:37,640 --> 00:05:40,240 Speaker 1: blew out in the middle of of of last week. 110 00:05:40,520 --> 00:05:42,560 Speaker 1: And this is the sign that that banks were willing 111 00:05:42,600 --> 00:05:44,919 Speaker 1: to pay more to get hold of their dollars. Corporates 112 00:05:44,920 --> 00:05:49,440 Speaker 1: are potentially right now looking around making sure that they 113 00:05:50,040 --> 00:05:54,960 Speaker 1: have access to dollars through their banks, through their funding 114 00:05:55,000 --> 00:05:59,240 Speaker 1: lines um and banks are looking to see, oh my goodness, 115 00:05:59,520 --> 00:06:01,159 Speaker 1: how many of these funding knowes do we have open? 116 00:06:01,320 --> 00:06:03,840 Speaker 1: What what could be the potential at draw down of 117 00:06:04,160 --> 00:06:07,760 Speaker 1: dollars from US So dollars in a in a crisis 118 00:06:08,279 --> 00:06:12,159 Speaker 1: is where the shortages usually are. And the fact that 119 00:06:12,200 --> 00:06:14,279 Speaker 1: we have these signs really sin at the beginning of 120 00:06:14,560 --> 00:06:16,960 Speaker 1: since the middle really of last week, of the blowout 121 00:06:17,440 --> 00:06:20,320 Speaker 1: in demand for dollars is where the crisis is. Well. Jane, 122 00:06:20,320 --> 00:06:22,120 Speaker 1: thinking about how that's reflected in the price of G 123 00:06:22,320 --> 00:06:24,599 Speaker 1: ten right now, quite clearly there will be some exceptions 124 00:06:24,600 --> 00:06:27,000 Speaker 1: to that dollar strength roll the Japanese yen and the 125 00:06:27,000 --> 00:06:29,600 Speaker 1: Swiss frank too, where people have really been punished and 126 00:06:29,640 --> 00:06:31,719 Speaker 1: it's been brutal to try and get a clear direction 127 00:06:31,800 --> 00:06:34,919 Speaker 1: on euro dollar over the last month meant to be 128 00:06:34,960 --> 00:06:37,240 Speaker 1: some real equidity there, some depth, and it's been really 129 00:06:37,279 --> 00:06:40,160 Speaker 1: really choppy. At one point it was about just trading 130 00:06:40,160 --> 00:06:42,760 Speaker 1: the possibility, the potential that Europe would go into a downturn. 131 00:06:42,839 --> 00:06:45,320 Speaker 1: That was the standard February. Then it was about unwinding 132 00:06:45,400 --> 00:06:48,200 Speaker 1: some big, big traits going back home to the Euro 133 00:06:48,279 --> 00:06:50,359 Speaker 1: of that which your funding currency. You're a bit up 134 00:06:50,400 --> 00:06:53,880 Speaker 1: towards one fifteen and now negative again in and around 135 00:06:53,880 --> 00:06:56,479 Speaker 1: those kind of levels. Jane, walk me through the dynamics 136 00:06:56,520 --> 00:07:00,400 Speaker 1: that are going to shape the Euro in the coming months. Well, 137 00:07:00,680 --> 00:07:03,200 Speaker 1: I think really the the euro, the euro dollar exchange, 138 00:07:03,279 --> 00:07:06,000 Speaker 1: it has probably misled a few people in terms of 139 00:07:06,040 --> 00:07:09,039 Speaker 1: dollar strength. I think if you if you look broad based, 140 00:07:09,080 --> 00:07:11,240 Speaker 1: if you look through a huge range of currencies, you 141 00:07:11,280 --> 00:07:13,000 Speaker 1: will see the dollar strengths there and that the Euro 142 00:07:13,040 --> 00:07:15,440 Speaker 1: has given misleading signal. And I think this is because 143 00:07:15,440 --> 00:07:18,880 Speaker 1: of what you've just described. There were the the euro 144 00:07:18,960 --> 00:07:20,760 Speaker 1: with the negative interest rate had been used as a 145 00:07:20,960 --> 00:07:23,840 Speaker 1: funding currency, and they of course reversed and people cover 146 00:07:23,880 --> 00:07:25,880 Speaker 1: their shorts and the euro went higher. But I think 147 00:07:25,920 --> 00:07:28,880 Speaker 1: if we look at what we have in Europe now 148 00:07:28,880 --> 00:07:31,920 Speaker 1: in terms of fundamentals, I don't think they're particularly good 149 00:07:31,960 --> 00:07:34,720 Speaker 1: for Europe. So, for instance, UM, if you look at Italy, 150 00:07:35,080 --> 00:07:40,640 Speaker 1: and clearly the coronavirus situation in Italy is extremely worrying. There, 151 00:07:41,400 --> 00:07:43,560 Speaker 1: without a shadow of a doubt, given that the countries 152 00:07:43,560 --> 00:07:46,160 Speaker 1: in in shutdown, and given that there there is no 153 00:07:46,240 --> 00:07:49,840 Speaker 1: sign yet that those cases have peaked, the economic backdrop 154 00:07:50,160 --> 00:07:52,800 Speaker 1: can be worrying. People will be starting to worry already 155 00:07:52,800 --> 00:07:55,160 Speaker 1: worrying about the Italian banks. For instance. If we move 156 00:07:55,200 --> 00:07:58,760 Speaker 1: on to Spain, the situation there's worse than UM. If 157 00:07:58,800 --> 00:08:00,760 Speaker 1: we go through France and they in the situation, that 158 00:08:00,920 --> 00:08:03,680 Speaker 1: also worsening. So we can pick out a number of 159 00:08:03,720 --> 00:08:08,400 Speaker 1: European countries and we see fundamentals getting getting worse. So 160 00:08:08,480 --> 00:08:11,760 Speaker 1: from that point of view, UM, I don't think the 161 00:08:11,760 --> 00:08:14,600 Speaker 1: euro has got an awful lot about it right now. 162 00:08:14,680 --> 00:08:19,600 Speaker 1: So given that the dollar is being brought broadly because 163 00:08:19,600 --> 00:08:23,320 Speaker 1: it is a global payment system currency, I do think 164 00:08:23,360 --> 00:08:27,520 Speaker 1: that your a dollar can slip. However, I think if 165 00:08:27,560 --> 00:08:30,280 Speaker 1: you want to see where the dollar strength is, you 166 00:08:30,320 --> 00:08:31,960 Speaker 1: should look away from your a dollar and you should 167 00:08:31,960 --> 00:08:34,640 Speaker 1: look at a broad basket of currencies, and that's where 168 00:08:34,640 --> 00:08:37,120 Speaker 1: you see the dollar strength. Jane got to catch up 169 00:08:37,160 --> 00:08:39,200 Speaker 1: here this morning. I appreciate your time. Jane Foley, their 170 00:08:39,240 --> 00:08:42,480 Speaker 1: Rabbit bankhead of FX strategy, went in on the Fett 171 00:08:42,559 --> 00:08:48,960 Speaker 1: decision and on global currency markets. Credit very much in 172 00:08:48,960 --> 00:08:51,480 Speaker 1: the driving seat at the moment. Let's bring in Mike Wilson, 173 00:08:51,559 --> 00:08:54,800 Speaker 1: shall wait a guiding light for times like this. The 174 00:08:54,880 --> 00:08:57,800 Speaker 1: team at Morgan Stanley, the chief US equity strategist, joined 175 00:08:57,880 --> 00:08:59,640 Speaker 1: us on the phone. Now, Mike, fantastic to have you 176 00:08:59,679 --> 00:09:02,400 Speaker 1: with us. Your cool, your message to your clients on 177 00:09:02,400 --> 00:09:05,000 Speaker 1: the morning like this morning. Well, look, first of all, 178 00:09:05,360 --> 00:09:08,600 Speaker 1: the panic is, you know, happening in financial markets, and 179 00:09:08,600 --> 00:09:10,600 Speaker 1: I think for good reason. I mean, there's a health 180 00:09:10,640 --> 00:09:12,440 Speaker 1: crisis and it's scared, and I think I want to 181 00:09:12,520 --> 00:09:15,480 Speaker 1: just first start by saying, we're talking about financial markets, 182 00:09:15,480 --> 00:09:17,560 Speaker 1: but you know, there is a health issue, so we 183 00:09:17,600 --> 00:09:19,440 Speaker 1: just want to make sure we're sensitive to that in 184 00:09:19,480 --> 00:09:23,000 Speaker 1: all of our commentary because it is a personal tragedy 185 00:09:23,040 --> 00:09:25,839 Speaker 1: in some cases. So let's let's focus on you know, 186 00:09:25,880 --> 00:09:28,200 Speaker 1: what the markets have already been telling us for quite 187 00:09:28,200 --> 00:09:31,120 Speaker 1: a while. And we think this is uh kind of 188 00:09:31,120 --> 00:09:33,040 Speaker 1: where our view might be a little bit different than others, 189 00:09:33,080 --> 00:09:35,920 Speaker 1: is that we think we were heading towards kind of 190 00:09:35,920 --> 00:09:41,160 Speaker 1: a recession. Anyways. We clearly had no idea virus or 191 00:09:41,200 --> 00:09:42,719 Speaker 1: you know, an oil price shock was going to be 192 00:09:42,840 --> 00:09:45,040 Speaker 1: the final kind of thing that tips us over. But 193 00:09:45,080 --> 00:09:47,880 Speaker 1: there's always something, and so now we are heading towards 194 00:09:47,880 --> 00:09:52,160 Speaker 1: a recession, probably globally US as well, and in the 195 00:09:52,160 --> 00:09:55,000 Speaker 1: markets are quickly discounting that from a from a period 196 00:09:55,080 --> 00:09:57,840 Speaker 1: by the way, when none of that was being discounted, 197 00:09:57,920 --> 00:09:59,559 Speaker 1: you know, several months ago, so that it's just been 198 00:09:59,600 --> 00:10:02,680 Speaker 1: that's why been so violent, and we're getting to some 199 00:10:02,760 --> 00:10:06,200 Speaker 1: very interesting price levels for for assets that you know, 200 00:10:06,240 --> 00:10:10,000 Speaker 1: for longer term investors are attractive and we will get 201 00:10:10,000 --> 00:10:11,959 Speaker 1: through this. Uh, you know, we think that. You know, 202 00:10:12,000 --> 00:10:15,319 Speaker 1: obviously the actions last night, you know, people are disappointed 203 00:10:15,320 --> 00:10:18,120 Speaker 1: perhaps that the FED can do it, but the reality 204 00:10:18,160 --> 00:10:20,480 Speaker 1: is that FED can't do anything about the virus, right, 205 00:10:20,520 --> 00:10:22,480 Speaker 1: so they're going to do what they can, which has 206 00:10:22,480 --> 00:10:25,520 Speaker 1: provide liquidity to markets that they function. And then when 207 00:10:25,559 --> 00:10:28,319 Speaker 1: we can get past this and look forward again, to 208 00:10:28,760 --> 00:10:31,640 Speaker 1: the recovery, then you know, liquidy will be in place, 209 00:10:31,640 --> 00:10:33,720 Speaker 1: and then we can stabilize and move forward. So this 210 00:10:33,800 --> 00:10:36,839 Speaker 1: is the time for clients to not do anything rash, right, 211 00:10:36,840 --> 00:10:39,720 Speaker 1: It's not a time for for people to sell everything 212 00:10:39,720 --> 00:10:42,440 Speaker 1: and panic. We've we've already had that client in a 213 00:10:42,440 --> 00:10:46,520 Speaker 1: straight line, and so that's pretty much a waterfall decline. Uh. 214 00:10:46,559 --> 00:10:48,840 Speaker 1: To have another waterfall decline on top of that would 215 00:10:48,840 --> 00:10:52,200 Speaker 1: be historically unprecedented. Even in the you know, the twenties 216 00:10:52,200 --> 00:10:57,200 Speaker 1: and thirties or areas like that usually get some relief. Okay, 217 00:10:57,200 --> 00:10:58,959 Speaker 1: so we are expecting that at some point. The two 218 00:10:58,960 --> 00:11:01,960 Speaker 1: things I'm focused on right now, UH, to tell me 219 00:11:02,040 --> 00:11:05,160 Speaker 1: that maybe the worst is getting behind us is the 220 00:11:05,200 --> 00:11:08,640 Speaker 1: treasury market, which has been the guiding light to tell 221 00:11:08,720 --> 00:11:11,400 Speaker 1: us all along that growth was continuing to slow. And 222 00:11:11,400 --> 00:11:14,120 Speaker 1: I think it's interesting. That's not it's not a guarantee, 223 00:11:14,200 --> 00:11:18,000 Speaker 1: but it's interesting. The treasury yields are not making new loads, uh, 224 00:11:18,040 --> 00:11:19,920 Speaker 1: and did not make new loads last week either, and 225 00:11:20,080 --> 00:11:22,240 Speaker 1: later in the week when things really kind of came apart. 226 00:11:22,760 --> 00:11:25,240 Speaker 1: So I think that's important. UM. I will continue to watch. 227 00:11:25,240 --> 00:11:27,559 Speaker 1: That will also tell me that the treasury markets functioning, 228 00:11:27,880 --> 00:11:30,600 Speaker 1: which is important, and that's the FEDS concern in this hue. 229 00:11:30,679 --> 00:11:32,800 Speaker 1: But we're gonna need more fiscal and I think so 230 00:11:32,880 --> 00:11:35,679 Speaker 1: that's the other thing I'm really watching is how more 231 00:11:35,720 --> 00:11:38,800 Speaker 1: how much more aggressive can politicians get in the short 232 00:11:38,920 --> 00:11:41,280 Speaker 1: term to uh, you know, to indicate that they are 233 00:11:41,280 --> 00:11:43,800 Speaker 1: going to do more fiscal policy because monetary can't do 234 00:11:43,880 --> 00:11:47,280 Speaker 1: this on its own. So last week you told myself 235 00:11:47,320 --> 00:11:49,560 Speaker 1: from John and Tom that this was a time to 236 00:11:49,600 --> 00:11:52,840 Speaker 1: start adding back risk that this is actually potentially a 237 00:11:52,880 --> 00:11:56,040 Speaker 1: buying opportunity. Goldman sachs Is David Couston came out over 238 00:11:56,040 --> 00:11:58,200 Speaker 1: the weekend with reports saying that the SMP five hundred 239 00:11:58,280 --> 00:12:01,680 Speaker 1: could fall another twenty six percent from Friday's closed to 240 00:12:01,720 --> 00:12:04,959 Speaker 1: two thousand if the economic fallout from the coronavirus deepens. 241 00:12:05,000 --> 00:12:08,439 Speaker 1: Why do you not think that's the case. Well, that's 242 00:12:08,440 --> 00:12:11,040 Speaker 1: always a possibility. Of course, it's a possibility, right, But 243 00:12:11,640 --> 00:12:15,120 Speaker 1: you know, we think that this has been I think 244 00:12:15,120 --> 00:12:17,280 Speaker 1: where we're a little different perhaps in some others, is 245 00:12:17,320 --> 00:12:19,960 Speaker 1: it we think this correction that we're going through right 246 00:12:20,000 --> 00:12:23,920 Speaker 1: now is part of a bear market that began two 247 00:12:24,000 --> 00:12:26,840 Speaker 1: years ago, right, And if you're if you're really objective 248 00:12:26,880 --> 00:12:28,960 Speaker 1: about what's been going on the average stock and the 249 00:12:29,000 --> 00:12:31,840 Speaker 1: average market has really gone nowhere for two years. And 250 00:12:32,320 --> 00:12:35,280 Speaker 1: this is kind of a finishing move. It's ending in 251 00:12:35,320 --> 00:12:37,720 Speaker 1: the recession. That's the way it typically works. Now we 252 00:12:37,760 --> 00:12:39,720 Speaker 1: have to we have to get into that recession and 253 00:12:39,760 --> 00:12:42,880 Speaker 1: people have to acknowledge that. But if you can't tell 254 00:12:42,920 --> 00:12:46,120 Speaker 1: me that, you know, markets haven't been discounting a pretty 255 00:12:46,120 --> 00:12:48,600 Speaker 1: meaningful slowdown now for the past couple of years. That's 256 00:12:48,600 --> 00:12:51,240 Speaker 1: why we've been trading very defensively. That's why treasuries are 257 00:12:51,280 --> 00:12:55,480 Speaker 1: already you know, at record low levels, even before the 258 00:12:55,559 --> 00:12:59,160 Speaker 1: virus hit and before the oil price. The clients, I mean, 259 00:12:59,160 --> 00:13:03,360 Speaker 1: we've we've had signals all along, and so all we're 260 00:13:03,400 --> 00:13:06,480 Speaker 1: telling folkuses is that this is how things, this is 261 00:13:06,520 --> 00:13:10,560 Speaker 1: how moves kind of finish. Okay, the time to get 262 00:13:10,600 --> 00:13:14,040 Speaker 1: really defensive was two years ago, uh, in terms of 263 00:13:14,080 --> 00:13:17,600 Speaker 1: like being overweight treasuries, being overweight defensive areas and whatnot, 264 00:13:17,679 --> 00:13:20,440 Speaker 1: and and those types of strategies have worked extraordinarily well 265 00:13:20,480 --> 00:13:23,559 Speaker 1: over the last two years. And so now if you 266 00:13:23,600 --> 00:13:25,120 Speaker 1: were set up that way, now is the time to 267 00:13:25,160 --> 00:13:29,160 Speaker 1: start thinking about re risking, understanding that it's going to 268 00:13:29,160 --> 00:13:31,920 Speaker 1: be extraordinarily volatile in the next month or two is 269 00:13:31,920 --> 00:13:35,360 Speaker 1: going to be extraordinarily whippy. It's gonna be extraordinarily dangerous 270 00:13:35,400 --> 00:13:37,800 Speaker 1: to be trading this okay if I were advising people 271 00:13:37,840 --> 00:13:40,760 Speaker 1: to do. But if you're in a diversified portfolio and 272 00:13:40,800 --> 00:13:45,559 Speaker 1: you've had some defensive securities, you've probably actually done okay 273 00:13:45,600 --> 00:13:48,600 Speaker 1: over this period. Mike, really thoughtful stuff. I appreciate your 274 00:13:48,600 --> 00:13:51,000 Speaker 1: time this morning and wishing the best to your team. 275 00:13:51,000 --> 00:13:53,280 Speaker 1: And those are Morgan Stanley as well. Mike Wilson. There, 276 00:13:53,320 --> 00:13:59,480 Speaker 1: Morgan Stanley, Chief US Equity Strategists. You hope some trade 277 00:13:59,480 --> 00:14:01,160 Speaker 1: in the equity are gonna used to be funded bunder 278 00:14:01,200 --> 00:14:05,120 Speaker 1: bond investor. No more. This is about protecting ratings and 279 00:14:05,200 --> 00:14:08,280 Speaker 1: meeting coupon payments. And we'll get to that right now, 280 00:14:08,280 --> 00:14:09,800 Speaker 1: and we can do it with Goes and Distant found 281 00:14:09,800 --> 00:14:12,800 Speaker 1: a b CO head of fixed income Goes and fantastic 282 00:14:12,840 --> 00:14:14,840 Speaker 1: to have you with us on the phone. Let's start there. 283 00:14:15,559 --> 00:14:18,920 Speaker 1: Default risk. Let's just start with something extreme, the extreme tale. 284 00:14:18,920 --> 00:14:20,520 Speaker 1: It was talked to me about default risk at a 285 00:14:20,560 --> 00:14:24,200 Speaker 1: moment like this. Well, look, I think we are an 286 00:14:24,240 --> 00:14:28,200 Speaker 1: unprecedented times. John. You know we've we've spent the past 287 00:14:28,880 --> 00:14:32,000 Speaker 1: decade plus talking about how the next downturn is not 288 00:14:32,040 --> 00:14:34,000 Speaker 1: going to be a two thousand and eight. Al Right, 289 00:14:34,040 --> 00:14:36,760 Speaker 1: we keep on especially cautioning, you know, younger investors that 290 00:14:36,840 --> 00:14:39,680 Speaker 1: don't remember the last recession before two thousand and eight, right, 291 00:14:39,840 --> 00:14:42,320 Speaker 1: don't remember all one on two, and the next downturn 292 00:14:42,400 --> 00:14:44,720 Speaker 1: is not going to be two thousand and eight. The 293 00:14:44,760 --> 00:14:47,440 Speaker 1: reality is that you know, well, of course it's not 294 00:14:47,480 --> 00:14:49,360 Speaker 1: going to be a two thousand and eight. The impact 295 00:14:49,400 --> 00:14:51,440 Speaker 1: could very well be two dozen and eight if we 296 00:14:51,480 --> 00:14:53,760 Speaker 1: don't get a response on the fiscal side. You know, 297 00:14:53,800 --> 00:14:58,680 Speaker 1: the the for certain industries, the economy is essentially shutting down, 298 00:14:59,560 --> 00:15:02,400 Speaker 1: and that is, if we don't get the proper response 299 00:15:02,400 --> 00:15:04,520 Speaker 1: on the fiscal side, we will see the faults in 300 00:15:04,640 --> 00:15:08,360 Speaker 1: certain sectors spike. This is exactly what fixed what credit 301 00:15:08,360 --> 00:15:11,760 Speaker 1: investors worry about. We worry about that left tail. We 302 00:15:11,800 --> 00:15:16,640 Speaker 1: worry about over levered companies, right for whatever reason, their 303 00:15:16,640 --> 00:15:20,840 Speaker 1: business their top line being shut down, not being able 304 00:15:20,840 --> 00:15:22,960 Speaker 1: to generate free cash flow to be able to meet 305 00:15:23,000 --> 00:15:25,880 Speaker 1: their debt obligations, and that is going to be an 306 00:15:25,880 --> 00:15:29,160 Speaker 1: increasing concern, and that's why you've seen a lot of 307 00:15:29,200 --> 00:15:32,920 Speaker 1: stress in the credit markets over the past couple of weeks, guess, 308 00:15:33,000 --> 00:15:35,360 Speaker 1: and this quote came from making over a city group. 309 00:15:35,440 --> 00:15:38,200 Speaker 1: He right the following. With so much credit provided outside 310 00:15:38,200 --> 00:15:41,440 Speaker 1: the banking system, it's very difficult to implement a system 311 00:15:41,440 --> 00:15:45,440 Speaker 1: wide payments freeze which ensures all obligations are simply rolled over. 312 00:15:45,480 --> 00:15:48,720 Speaker 1: The consequent timing of conditions has a tendency to cascade 313 00:15:48,720 --> 00:15:51,400 Speaker 1: through the rest of the system. This is an important point. 314 00:15:51,680 --> 00:15:53,160 Speaker 1: I've been beating the drum with you, guess, and we 315 00:15:53,200 --> 00:15:55,160 Speaker 1: need a fiscal response, and we need to quick. But 316 00:15:55,240 --> 00:15:57,440 Speaker 1: there's going to be limits on how much this can cover. 317 00:16:00,280 --> 00:16:03,520 Speaker 1: But look, I think, look, we're seeing who knows what 318 00:16:03,560 --> 00:16:05,240 Speaker 1: the fiscal response is going to be, but we are 319 00:16:05,280 --> 00:16:10,160 Speaker 1: seeing a lot of interesting proposals being floated out there. Um, 320 00:16:10,240 --> 00:16:12,920 Speaker 1: you know, the easy one is helicopter money, Right, we 321 00:16:13,080 --> 00:16:16,360 Speaker 1: just write a check to everybody. The problem with that 322 00:16:16,480 --> 00:16:19,560 Speaker 1: is it ends up not being targeted to the places 323 00:16:19,600 --> 00:16:22,640 Speaker 1: that I mean. It helps the consumer obviously, and there's 324 00:16:22,680 --> 00:16:25,800 Speaker 1: a lot of value to that. We're seeing some unconventional proposals. 325 00:16:26,040 --> 00:16:28,800 Speaker 1: You know, maybe you start saying the government should be 326 00:16:28,800 --> 00:16:32,119 Speaker 1: the buyer of last resort, should prop up certain industries, 327 00:16:32,120 --> 00:16:36,440 Speaker 1: should you know, basically guarantee that airlines fill seats and 328 00:16:36,480 --> 00:16:41,400 Speaker 1: if they don't, they the government hands them the revenue. Um. 329 00:16:41,600 --> 00:16:44,600 Speaker 1: There's other kinds of proposals that are being floated around there. 330 00:16:44,920 --> 00:16:48,080 Speaker 1: You know, it's it's it's gonna take some creative thinking 331 00:16:48,160 --> 00:16:50,440 Speaker 1: and it's going to have to happen fast, because what 332 00:16:50,480 --> 00:16:52,720 Speaker 1: we're seeing right now is I heard you say it earlier, 333 00:16:52,800 --> 00:16:56,320 Speaker 1: John fear is taking over. Um. We are shutting down 334 00:16:56,400 --> 00:16:58,920 Speaker 1: large segments of the economy, and it's going to have 335 00:16:59,000 --> 00:17:02,640 Speaker 1: to be a fiscal response. It's great that monetary policy 336 00:17:02,680 --> 00:17:04,679 Speaker 1: is doing what they can, and they're supposed to do 337 00:17:04,720 --> 00:17:07,240 Speaker 1: what they can, but this is not a demand problem. 338 00:17:07,240 --> 00:17:11,400 Speaker 1: This is the supply problem, and it requires a different response. Grishan, 339 00:17:11,920 --> 00:17:14,800 Speaker 1: we're talking about credit, and we should just say there 340 00:17:14,840 --> 00:17:16,600 Speaker 1: is sort of a dual shock here too, at the 341 00:17:16,600 --> 00:17:20,080 Speaker 1: oil complex in particular getting hit as oil prices decline, 342 00:17:20,400 --> 00:17:23,440 Speaker 1: and I'm wondering though the technical action. I want to 343 00:17:23,480 --> 00:17:26,119 Speaker 1: go from the fundamental to the technical picture. E t 344 00:17:26,280 --> 00:17:30,359 Speaker 1: fs in particular saw unprecedented outflows in the past few weeks, 345 00:17:30,520 --> 00:17:32,720 Speaker 1: and people are worried about a spiral that these that 346 00:17:32,840 --> 00:17:34,919 Speaker 1: these e t f s are being traded frequently for 347 00:17:34,960 --> 00:17:37,679 Speaker 1: liquidity and that as their prices go down, they have 348 00:17:37,760 --> 00:17:41,480 Speaker 1: to sell underlying assets. The sales end up driving prices 349 00:17:41,520 --> 00:17:45,520 Speaker 1: down even further and the cycle goes. How close are 350 00:17:45,560 --> 00:17:49,000 Speaker 1: we to that? You know, it's interesting we're seeing that 351 00:17:49,080 --> 00:17:51,720 Speaker 1: in the E t F. I will counter that we're 352 00:17:51,800 --> 00:17:54,320 Speaker 1: not seeing yet is in fun flows, which is an 353 00:17:54,400 --> 00:17:59,240 Speaker 1: interesting dichotomy. You know, past sell offs of this, even 354 00:17:59,280 --> 00:18:03,440 Speaker 1: of lesser magnitude, and this we saw much more panic 355 00:18:03,600 --> 00:18:05,840 Speaker 1: from the end investor in mutual funds, both in the 356 00:18:05,960 --> 00:18:08,400 Speaker 1: US and offshore. And I'm not saying we're not seeing 357 00:18:08,400 --> 00:18:10,280 Speaker 1: any apples, of course we are, but it's not of 358 00:18:10,280 --> 00:18:14,240 Speaker 1: the magnitude we saw previously. And I think that's interesting. Um, 359 00:18:14,960 --> 00:18:18,159 Speaker 1: it's been, it's it's been kind of orderly. And if 360 00:18:18,200 --> 00:18:20,280 Speaker 1: you look at you know, one of my favorite topics, Lisa, 361 00:18:20,560 --> 00:18:24,439 Speaker 1: is the relationship between high yield and equities. And you know, 362 00:18:24,800 --> 00:18:26,920 Speaker 1: with equities being down, you know, they were down I 363 00:18:26,920 --> 00:18:30,440 Speaker 1: guess percent from the peak with the rally back on 364 00:18:30,440 --> 00:18:32,560 Speaker 1: on Friday, I gets down twenty two or something like that, 365 00:18:32,600 --> 00:18:35,560 Speaker 1: and we'll probably back down and we open. You know, 366 00:18:35,640 --> 00:18:38,360 Speaker 1: hi yields down about twelve percent from the peak, roughly half. 367 00:18:38,400 --> 00:18:41,520 Speaker 1: That's typically what you see, so the price actually indicates 368 00:18:41,760 --> 00:18:44,560 Speaker 1: that it's somewhat orderly there. Actually, even before the rally 369 00:18:44,560 --> 00:18:47,720 Speaker 1: on Friday, liquidity was okay in the high yield market, 370 00:18:47,960 --> 00:18:50,240 Speaker 1: stuff was down, So it's it's becoming orderly. You know, 371 00:18:50,280 --> 00:18:55,000 Speaker 1: at some point, if the outflows are are sufficient, whether 372 00:18:55,080 --> 00:18:57,880 Speaker 1: it's from ETFs or it's from kind of real money 373 00:18:57,960 --> 00:19:00,960 Speaker 1: mutual funds, that could cause a problem in liquidity. And 374 00:19:00,960 --> 00:19:03,199 Speaker 1: that's something that we're looking at very carefully. You know, 375 00:19:03,440 --> 00:19:06,720 Speaker 1: the fact that it was difficult to sell off the 376 00:19:06,840 --> 00:19:10,639 Speaker 1: run treasury back on Thursday, something that wasn't the case 377 00:19:10,760 --> 00:19:12,680 Speaker 1: even in the worst time of oh eight is something 378 00:19:12,720 --> 00:19:15,480 Speaker 1: that is concerning to us and should be concerning to 379 00:19:15,560 --> 00:19:18,040 Speaker 1: most market participants, guess. And let's talk about that and 380 00:19:18,080 --> 00:19:20,359 Speaker 1: what the Fed can do to have alleviate some of 381 00:19:20,400 --> 00:19:22,080 Speaker 1: that stress. Right now? What can they do it? They're 382 00:19:22,080 --> 00:19:27,000 Speaker 1: doing enough. I look at that they've they've done, you know, 383 00:19:27,080 --> 00:19:30,640 Speaker 1: they've announced two things since that happened on Thursday, and 384 00:19:30,720 --> 00:19:33,440 Speaker 1: that's the question. We'll see, we'll see what happens today. Um, 385 00:19:33,480 --> 00:19:36,000 Speaker 1: they're doing everything they can. They're they're opening up the window, 386 00:19:36,040 --> 00:19:40,359 Speaker 1: they're buying, they're buying back treasuries across the curve that 387 00:19:40,440 --> 00:19:44,080 Speaker 1: has helped. Uh. But that's that's the danger of the 388 00:19:44,119 --> 00:19:46,840 Speaker 1: market when you when even the thing that's supposed to 389 00:19:46,880 --> 00:19:50,560 Speaker 1: be the most liquid market in the world is experiencing 390 00:19:50,800 --> 00:19:55,080 Speaker 1: liquidity issues. UH. That should raise concerns and there might 391 00:19:55,119 --> 00:19:57,159 Speaker 1: have to be more action that has to be taken. 392 00:19:57,800 --> 00:19:59,320 Speaker 1: Guess you don't want to finish with just a quick 393 00:19:59,320 --> 00:20:01,440 Speaker 1: word on portfile a construction, and I'll try and keep 394 00:20:01,480 --> 00:20:03,440 Speaker 1: this as simple as possible for the majority of our 395 00:20:03,480 --> 00:20:06,800 Speaker 1: audience that may not be moll straight professionals. You've always 396 00:20:06,840 --> 00:20:10,080 Speaker 1: compared for me, at least when we've talked historically speaking 397 00:20:10,200 --> 00:20:12,879 Speaker 1: about how credit performs in a downturn as part of 398 00:20:12,880 --> 00:20:15,960 Speaker 1: a portfolio, and how equity performs in that downturn too. 399 00:20:16,600 --> 00:20:19,600 Speaker 1: Walk me through that historically and how you think that 400 00:20:19,720 --> 00:20:23,560 Speaker 1: may or may not be the same this time around. Yes, so, 401 00:20:23,640 --> 00:20:28,240 Speaker 1: historically equities and credit perform in they go in the 402 00:20:28,280 --> 00:20:31,399 Speaker 1: same direction. They're highly correlated. In other words, when equities 403 00:20:31,720 --> 00:20:34,840 Speaker 1: do well, credit does well, and when equities do poorly, 404 00:20:34,840 --> 00:20:37,920 Speaker 1: credit does poor. The accepted magnetitude is different. So for example, 405 00:20:38,000 --> 00:20:40,439 Speaker 1: last year, when equity has had a very strong return 406 00:20:42,160 --> 00:20:45,040 Speaker 1: depending on what type of equities, how did ten or fifteen, 407 00:20:45,080 --> 00:20:47,400 Speaker 1: depending what type of high yield and in the cell 408 00:20:47,440 --> 00:20:50,840 Speaker 1: off here, as I mentioned before, the Lisa equities have 409 00:20:50,880 --> 00:20:56,680 Speaker 1: been down hids going down ten. That relationship should continue. 410 00:20:56,720 --> 00:21:00,920 Speaker 1: Now if if the worst happens and we massive spike 411 00:21:00,960 --> 00:21:03,760 Speaker 1: in defaults, maybe credit does a little bit worse on 412 00:21:03,800 --> 00:21:08,000 Speaker 1: that on that score, but that relationship holds pretty pretty well. 413 00:21:08,160 --> 00:21:10,800 Speaker 1: The one nice thing about credit, especially how yield credit 414 00:21:10,920 --> 00:21:14,760 Speaker 1: is your yield is actually a very good predictor of 415 00:21:15,160 --> 00:21:18,480 Speaker 1: your intermediate term performance. If you chart your yield to 416 00:21:18,560 --> 00:21:21,119 Speaker 1: worst at a given time and in the next five 417 00:21:21,200 --> 00:21:26,080 Speaker 1: years annualized return, it's almost spooky how accurate that is. 418 00:21:26,200 --> 00:21:28,520 Speaker 1: So if you take today's starting yield of somewhere in 419 00:21:28,640 --> 00:21:31,080 Speaker 1: like the eight eight and a half percent range, that 420 00:21:31,320 --> 00:21:35,000 Speaker 1: is likely through through all the volatility we're gonna see. 421 00:21:35,040 --> 00:21:37,840 Speaker 1: If you invest today, you're likely to get somewhere around 422 00:21:37,840 --> 00:21:40,119 Speaker 1: an eight percent annualized return over the next five years. 423 00:21:41,080 --> 00:21:43,760 Speaker 1: There'll be a lot of volatility in between. Imagine a 424 00:21:43,760 --> 00:21:45,639 Speaker 1: lot of that volatility is coming up front. Gus and 425 00:21:45,680 --> 00:21:47,640 Speaker 1: fantastic to catch up and the gush and distance. Found 426 00:21:47,680 --> 00:21:51,040 Speaker 1: that a VC had a fixed income on the credit market, 427 00:21:51,280 --> 00:21:53,160 Speaker 1: not just in the US for some of these worldwide 428 00:21:53,160 --> 00:21:57,560 Speaker 1: issues as well. Joining us on the phone stay thing 429 00:21:57,560 --> 00:22:00,320 Speaker 1: that the standard child at bank managing direct it's way 430 00:22:00,400 --> 00:22:02,920 Speaker 1: and on foreign exchange stave, we have some dollar weakness. 431 00:22:03,400 --> 00:22:05,360 Speaker 1: Is it fair to say that dollar awaitness has been 432 00:22:05,359 --> 00:22:09,879 Speaker 1: engineered by a major right cut at the FED, a 433 00:22:09,960 --> 00:22:12,359 Speaker 1: major rate cut by the Fed, and the major change 434 00:22:12,400 --> 00:22:14,919 Speaker 1: and expectations I think in the market with respect to 435 00:22:16,000 --> 00:22:19,240 Speaker 1: where rate differentials are going to be over the medium 436 00:22:19,240 --> 00:22:22,720 Speaker 1: and long term. I think that the with this move, 437 00:22:22,920 --> 00:22:25,200 Speaker 1: the market is convinced that, you know, we're not good 438 00:22:25,280 --> 00:22:29,880 Speaker 1: to see, uh, the US rates really having nearly as 439 00:22:29,920 --> 00:22:32,639 Speaker 1: big a great advantage as they have had over the 440 00:22:32,720 --> 00:22:37,119 Speaker 1: last couple of years going forward. How important is it 441 00:22:37,280 --> 00:22:40,199 Speaker 1: this sort of dollar swap line that the Federal Reserve 442 00:22:40,280 --> 00:22:42,480 Speaker 1: set up? I mean, how much will that cushion the 443 00:22:42,480 --> 00:22:46,080 Speaker 1: blow that we've seen just in terms of the bid 444 00:22:46,119 --> 00:22:48,600 Speaker 1: for dollars and some of the liquidity issues of last week? 445 00:22:50,440 --> 00:22:52,160 Speaker 1: You know, I look at it's not going to fix 446 00:22:52,200 --> 00:22:57,240 Speaker 1: anything in the sense that it won't improve the economic outcomes, 447 00:22:57,280 --> 00:23:01,359 Speaker 1: but it will prevent um financial market outcomes from making 448 00:23:01,400 --> 00:23:04,960 Speaker 1: things worse. Um. You know, so far, what we've seen 449 00:23:05,080 --> 00:23:08,280 Speaker 1: is some of the basis risks come in a little bit, 450 00:23:08,400 --> 00:23:11,320 Speaker 1: not very much. I think the markets will test the 451 00:23:11,359 --> 00:23:14,040 Speaker 1: willingness of central banks to use these lines and use 452 00:23:14,119 --> 00:23:18,320 Speaker 1: them in large size before they're convinced that they don't 453 00:23:18,320 --> 00:23:21,360 Speaker 1: have to worry about it. Steve, I want to bring 454 00:23:21,440 --> 00:23:23,639 Speaker 1: up something that I think is becoming a little bit delicate, 455 00:23:23,720 --> 00:23:26,080 Speaker 1: and it's over in Europe. I don't think we're back 456 00:23:26,119 --> 00:23:29,200 Speaker 1: onto the redenomination risk junior out of the bottle story, 457 00:23:29,280 --> 00:23:30,760 Speaker 1: but I do think we've got a story over in 458 00:23:30,800 --> 00:23:35,560 Speaker 1: Italy where the ECB really failed last Thursday in that 459 00:23:35,600 --> 00:23:38,480 Speaker 1: news conference to do anything about burning up confidence on 460 00:23:38,520 --> 00:23:41,679 Speaker 1: the periphery. The two year yields up eighteen basis points 461 00:23:41,680 --> 00:23:44,359 Speaker 1: on the session, albeit was still seth of one percent. 462 00:23:44,440 --> 00:23:47,240 Speaker 1: But the direction of travel, Steve, is not encouraging. Do 463 00:23:47,359 --> 00:23:49,119 Speaker 1: we start to think about some of these issues. Do 464 00:23:49,160 --> 00:23:53,080 Speaker 1: they creep back into the discussion. Well, if they do, 465 00:23:53,119 --> 00:23:55,600 Speaker 1: they're going to make things a lot worse, because you know, 466 00:23:55,800 --> 00:23:58,720 Speaker 1: we have enough risk premium in the market already to 467 00:23:58,800 --> 00:24:03,080 Speaker 1: add more because of political risk um, it would be 468 00:24:03,119 --> 00:24:08,639 Speaker 1: doing unnecessary damage. I think that the expectation and hope 469 00:24:08,640 --> 00:24:11,119 Speaker 1: is that they're going to finally throw in the towel 470 00:24:11,640 --> 00:24:14,920 Speaker 1: and say this is such a crisis that each country 471 00:24:14,920 --> 00:24:16,919 Speaker 1: should do what it has to do on the fiscal side. 472 00:24:17,560 --> 00:24:20,800 Speaker 1: Um and the ECB, you know, continue to do what 473 00:24:20,880 --> 00:24:24,399 Speaker 1: it what it has been doing on on the monetary side. 474 00:24:24,600 --> 00:24:28,840 Speaker 1: I don't think leguard really meant to serve dismiss the 475 00:24:28,880 --> 00:24:32,080 Speaker 1: spread issues. I think it just came out something wrong Stephen. 476 00:24:32,119 --> 00:24:35,120 Speaker 1: There's also a question going forward, at what point will 477 00:24:35,520 --> 00:24:40,160 Speaker 1: currency markets care about the money printing that developed markets 478 00:24:40,160 --> 00:24:41,840 Speaker 1: seemed to be on the cusp of doing. That might 479 00:24:41,880 --> 00:24:45,040 Speaker 1: be unprecedented in side. Certainly people are saying it should be, 480 00:24:45,080 --> 00:24:47,879 Speaker 1: whether it's helicopter money or anything else. There was a 481 00:24:47,880 --> 00:24:51,159 Speaker 1: time when that used to debase the currency. Is that 482 00:24:51,200 --> 00:24:53,560 Speaker 1: time over or are we going to return to a 483 00:24:53,600 --> 00:24:58,040 Speaker 1: time where that actually starts to matter. I think eventually 484 00:24:58,040 --> 00:25:00,480 Speaker 1: there's going to be a debate if this for a 485 00:25:00,520 --> 00:25:03,840 Speaker 1: long time. I think correctly the market is thinking that 486 00:25:03,960 --> 00:25:06,920 Speaker 1: if we're talking about a three or six month period 487 00:25:07,080 --> 00:25:11,920 Speaker 1: in which production is impaired, even if it's sharply impaired, 488 00:25:12,400 --> 00:25:16,640 Speaker 1: the demand risk and the disinflationary risk is more important 489 00:25:16,720 --> 00:25:20,200 Speaker 1: than the money printing risk. If this is a longer 490 00:25:20,320 --> 00:25:24,280 Speaker 1: term question where supply is impaired over a period of years, 491 00:25:25,000 --> 00:25:27,639 Speaker 1: and they print money and train maintain demand, the inflation 492 00:25:27,680 --> 00:25:30,440 Speaker 1: outcomes may be different. Steve tried to cash out with 493 00:25:30,440 --> 00:25:33,320 Speaker 1: you this morning, Steve England, and there standard charted on 494 00:25:33,359 --> 00:25:36,960 Speaker 1: a really delicate moment wildwide on the issue of the 495 00:25:37,040 --> 00:25:40,960 Speaker 1: e c B and President of Guards performance last Thursday, 496 00:25:41,119 --> 00:25:45,080 Speaker 1: reportedly in the Financial Times apologizing to several members of 497 00:25:45,119 --> 00:25:47,600 Speaker 1: the Governing Council for some of the mistakes she made 498 00:25:47,880 --> 00:25:50,560 Speaker 1: in that particular news conference. Now I'm not sure, in fact, 499 00:25:50,560 --> 00:25:52,479 Speaker 1: I know on the record that the ECB is not 500 00:25:52,560 --> 00:25:56,400 Speaker 1: characterizing the performance on Thursday as a mistake, but according 501 00:25:56,400 --> 00:25:59,800 Speaker 1: to the Financial Times, it appears she did apologize to 502 00:26:00,000 --> 00:26:03,560 Speaker 1: a government Council members. Thanks for listening to the Bloomberg 503 00:26:03,560 --> 00:26:09,520 Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 504 00:26:09,880 --> 00:26:14,120 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 505 00:26:14,160 --> 00:26:18,400 Speaker 1: Tom Keene before the podcast. You can always catch us worldwide. 506 00:26:18,840 --> 00:26:19,960 Speaker 1: I'm Bloomberg Radio