Speaker 1: Yeah, welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Ley. We bring you inside from the best in economics, finance,
Speaker 1: investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Let's
Speaker 1: bringing Jane finally shout, we run a backhead of effect strategy.
Speaker 1: She finds in from London Chinese. Fantastic to have you
Speaker 1: with us. Let's just reflect on what the fattest to
Speaker 1: live and what's still to come through the next couple
Speaker 1: of weeks. Your thoughts please, well, I think really yeah,
Speaker 1: we can see by the reaction of the markets this morning,
Speaker 1: and I don't think that there is enough. And really,
Speaker 1: as long as this news remains such that we keep
Speaker 1: on getting an increase in the number of coronaviruses, and
Speaker 1: both the Europe and the US at the market is
Speaker 1: going to assume that the real economy, or the out
Speaker 1: of the real economy is going to get to carry
Speaker 1: on worse need and therefore um that the central banks
Speaker 1: are going to have to do more monitor fiscal policy too.
Speaker 1: Of course, a lot more is gonna have to come
Speaker 1: from there, but I think one thing that that was
Speaker 1: in particular missing perhaps from from the FEDS announcement, and
Speaker 1: this was the concerted in the concerted action that was
Speaker 1: announced yesterday was coordinated with DCB, and like the japan
Speaker 1: and the b o E and the SMB. Now these
Speaker 1: are all G ten central banks, and we've had new
Speaker 1: cheaper swap line provisions for the for the for the
Speaker 1: G ten. But there are going to be concerns about
Speaker 1: corporates outside of the GTN area. What's going to happen
Speaker 1: with them? What if they cannot get a hold of dollars.
Speaker 1: We've seen since the middle of last week really that
Speaker 1: the blowout in in in cross country basis what for
Speaker 1: instances of the pressure in the money market. And of course,
Speaker 1: if we go back to two thousand and eight, we
Speaker 1: saw the FED announced other emergency measures a commercial paper
Speaker 1: funding facility and then the commercial paper funding facilities through
Speaker 1: the limited company that was that was set up to
Speaker 1: provide um for facility whereby companies outside of the detail
Speaker 1: could could sell to the Federal Bank of New York
Speaker 1: commercial paper and get all liquidity that way. And I
Speaker 1: think the market will be demanding that the fedders something
Speaker 1: extra like in two thousand and next to really reassure
Speaker 1: the markets that there is going to be ampled on
Speaker 1: the liquidity in and at least that way it will
Speaker 1: be one thing less I think for many corporates to
Speaker 1: worry about. Jane yesterday, around five pm Eastern time, when
Speaker 1: we got the response from the federals or of the
Speaker 1: Hunter basis point rate cut, the futures markets for US
Speaker 1: equities weren't open yet, and we looked for the to
Speaker 1: get some kind of initial read on the market response.
Speaker 1: At the currency markets, and they've been going crazy, the
Speaker 1: OSSI dollar in particular, really sinking to a post crisis low.
Speaker 1: And I'm trying to understand the volatility that we're seeing.
Speaker 1: Is this just a complete vacuum of information, or is
Speaker 1: this a structural issue that's affecting all markets for some
Speaker 1: reason and creating a real dearth of liquidity that's potentially
Speaker 1: really problematic. Um well, I think perhaps there's there's a
Speaker 1: number of factors. I think first of all, you know,
Speaker 1: looking at looking at the AUSSI, looking at some other currencies.
Speaker 1: What we see here is is dollar strength. So there
Speaker 1: is a scramble really to get hold of dollars, and
Speaker 1: this is because, of course the dollar dominates the global
Speaker 1: payment system and people need dollars. But I think apart
Speaker 1: from that, I think the other signals that we're getting
Speaker 1: is is that the type of crisis that we have
Speaker 1: here and now, the type of crisis. Of course, it's
Speaker 1: not a financial crisis. It is something to do with
Speaker 1: the real economy. And yes, loans might be cheaper, but
Speaker 1: if you are an airline, or if you're in the
Speaker 1: tourism industry, or if you're a certain type of retailer,
Speaker 1: et cetera, it doesn't mean to say that you're going
Speaker 1: to have customers coming through your door this morning. And
Speaker 1: so from that point of view, we can really see
Speaker 1: the the the shortfalls. Really a monetary policy, it cannot
Speaker 1: put demand back into the shops given the type of
Speaker 1: crisis that we have, so monetary polar see just has
Speaker 1: its limits. And therefore, you know, we do need this
Speaker 1: fiscal type of support, maybe are concerted type of fiscal
Speaker 1: response to try and reshort, reassure the firms that are
Speaker 1: most acutely affected by this that their businesses can sustain
Speaker 1: through this crisis and that they won't lose all of
Speaker 1: their employees because immediately if you lose all your employees,
Speaker 1: you have this knock on effect. You have this multiplier
Speaker 1: effect with those people who lose their jobs and they
Speaker 1: don't go to the shops and they don't they don't buy,
Speaker 1: and you suddenly have this potential for this really sharp
Speaker 1: down or shops slow down in in activity jam. We
Speaker 1: can't handicap this deep into the unknown, impossible to model.
Speaker 1: Most of the people listening to this program will agree
Speaker 1: with you on all of those things. Where we can
Speaker 1: have a discussion is how you think the dollar will
Speaker 1: behave in the environment like the one we're about to enter.
Speaker 1: There were doubts when times were good over the last
Speaker 1: couple of years about what would happen in the next
Speaker 1: downturn and how the dollar would behave. Would it maintain
Speaker 1: those risthma againing characteristics? Would we buy the dollar when
Speaker 1: things got bad? Can we say with some confidence that
Speaker 1: that's still the case, The dollar will still be that
Speaker 1: currency people flee to. Yes, I would agree with that,
Speaker 1: and I would go a bit further, and I'd say
Speaker 1: that the market has no choice but to buy the dollars.
Speaker 1: If you think about the dollars position as a as
Speaker 1: a global transactional currency, no other currency comes close. It's
Speaker 1: plain and simple. If you are in India and you
Speaker 1: need to buy oil, you need to have dollars. If
Speaker 1: you need to buy all with any other commodities, you
Speaker 1: need to have dollars. And this is why if you
Speaker 1: look now at the money market, if you look at
Speaker 1: a cross cluncy basis what you will see that they
Speaker 1: blew out in the middle of of of last week.
Speaker 1: And this is the sign that that banks were willing
Speaker 1: to pay more to get hold of their dollars. Corporates
Speaker 1: are potentially right now looking around making sure that they
Speaker 1: have access to dollars through their banks, through their funding
Speaker 1: lines um and banks are looking to see, oh my goodness,
Speaker 1: how many of these funding knowes do we have open?
Speaker 1: What what could be the potential at draw down of
Speaker 1: dollars from US So dollars in a in a crisis
Speaker 1: is where the shortages usually are. And the fact that
Speaker 1: we have these signs really sin at the beginning of
Speaker 1: since the middle really of last week, of the blowout
Speaker 1: in demand for dollars is where the crisis is. Well. Jane,
Speaker 1: thinking about how that's reflected in the price of G
Speaker 1: ten right now, quite clearly there will be some exceptions
Speaker 1: to that dollar strength roll the Japanese yen and the
Speaker 1: Swiss frank too, where people have really been punished and
Speaker 1: it's been brutal to try and get a clear direction
Speaker 1: on euro dollar over the last month meant to be
Speaker 1: some real equidity there, some depth, and it's been really
Speaker 1: really choppy. At one point it was about just trading
Speaker 1: the possibility, the potential that Europe would go into a downturn.
Speaker 1: That was the standard February. Then it was about unwinding
Speaker 1: some big, big traits going back home to the Euro
Speaker 1: of that which your funding currency. You're a bit up
Speaker 1: towards one fifteen and now negative again in and around
Speaker 1: those kind of levels. Jane, walk me through the dynamics
Speaker 1: that are going to shape the Euro in the coming months. Well,
Speaker 1: I think really the the euro, the euro dollar exchange,
Speaker 1: it has probably misled a few people in terms of
Speaker 1: dollar strength. I think if you if you look broad based,
Speaker 1: if you look through a huge range of currencies, you
Speaker 1: will see the dollar strengths there and that the Euro
Speaker 1: has given misleading signal. And I think this is because
Speaker 1: of what you've just described. There were the the euro
Speaker 1: with the negative interest rate had been used as a
Speaker 1: funding currency, and they of course reversed and people cover
Speaker 1: their shorts and the euro went higher. But I think
Speaker 1: if we look at what we have in Europe now
Speaker 1: in terms of fundamentals, I don't think they're particularly good
Speaker 1: for Europe. So, for instance, UM, if you look at Italy,
Speaker 1: and clearly the coronavirus situation in Italy is extremely worrying. There,
Speaker 1: without a shadow of a doubt, given that the countries
Speaker 1: in in shutdown, and given that there there is no
Speaker 1: sign yet that those cases have peaked, the economic backdrop
Speaker 1: can be worrying. People will be starting to worry already
Speaker 1: worrying about the Italian banks. For instance. If we move
Speaker 1: on to Spain, the situation there's worse than UM. If
Speaker 1: we go through France and they in the situation, that
Speaker 1: also worsening. So we can pick out a number of
Speaker 1: European countries and we see fundamentals getting getting worse. So
Speaker 1: from that point of view, UM, I don't think the
Speaker 1: euro has got an awful lot about it right now.
Speaker 1: So given that the dollar is being brought broadly because
Speaker 1: it is a global payment system currency, I do think
Speaker 1: that your a dollar can slip. However, I think if
Speaker 1: you want to see where the dollar strength is, you
Speaker 1: should look away from your a dollar and you should
Speaker 1: look at a broad basket of currencies, and that's where
Speaker 1: you see the dollar strength. Jane got to catch up
Speaker 1: here this morning. I appreciate your time. Jane Foley, their
Speaker 1: Rabbit bankhead of FX strategy, went in on the Fett
Speaker 1: decision and on global currency markets. Credit very much in
Speaker 1: the driving seat at the moment. Let's bring in Mike Wilson,
Speaker 1: shall wait a guiding light for times like this. The
Speaker 1: team at Morgan Stanley, the chief US equity strategist, joined
Speaker 1: us on the phone. Now, Mike, fantastic to have you
Speaker 1: with us. Your cool, your message to your clients on
Speaker 1: the morning like this morning. Well, look, first of all,
Speaker 1: the panic is, you know, happening in financial markets, and
Speaker 1: I think for good reason. I mean, there's a health
Speaker 1: crisis and it's scared, and I think I want to
Speaker 1: just first start by saying, we're talking about financial markets,
Speaker 1: but you know, there is a health issue, so we
Speaker 1: just want to make sure we're sensitive to that in
Speaker 1: all of our commentary because it is a personal tragedy
Speaker 1: in some cases. So let's let's focus on you know,
Speaker 1: what the markets have already been telling us for quite
Speaker 1: a while. And we think this is uh kind of
Speaker 1: where our view might be a little bit different than others,
Speaker 1: is that we think we were heading towards kind of
Speaker 1: a recession. Anyways. We clearly had no idea virus or
Speaker 1: you know, an oil price shock was going to be
Speaker 1: the final kind of thing that tips us over. But
Speaker 1: there's always something, and so now we are heading towards
Speaker 1: a recession, probably globally US as well, and in the
Speaker 1: markets are quickly discounting that from a from a period
Speaker 1: by the way, when none of that was being discounted,
Speaker 1: you know, several months ago, so that it's just been
Speaker 1: that's why been so violent, and we're getting to some
Speaker 1: very interesting price levels for for assets that you know,
Speaker 1: for longer term investors are attractive and we will get
Speaker 1: through this. Uh, you know, we think that. You know,
Speaker 1: obviously the actions last night, you know, people are disappointed
Speaker 1: perhaps that the FED can do it, but the reality
Speaker 1: is that FED can't do anything about the virus, right,
Speaker 1: so they're going to do what they can, which has
Speaker 1: provide liquidity to markets that they function. And then when
Speaker 1: we can get past this and look forward again, to
Speaker 1: the recovery, then you know, liquidy will be in place,
Speaker 1: and then we can stabilize and move forward. So this
Speaker 1: is the time for clients to not do anything rash, right,
Speaker 1: It's not a time for for people to sell everything
Speaker 1: and panic. We've we've already had that client in a
Speaker 1: straight line, and so that's pretty much a waterfall decline. Uh.
Speaker 1: To have another waterfall decline on top of that would
Speaker 1: be historically unprecedented. Even in the you know, the twenties
Speaker 1: and thirties or areas like that usually get some relief. Okay,
Speaker 1: so we are expecting that at some point. The two
Speaker 1: things I'm focused on right now, UH, to tell me
Speaker 1: that maybe the worst is getting behind us is the
Speaker 1: treasury market, which has been the guiding light to tell
Speaker 1: us all along that growth was continuing to slow. And
Speaker 1: I think it's interesting. That's not it's not a guarantee,
Speaker 1: but it's interesting. The treasury yields are not making new loads, uh,
Speaker 1: and did not make new loads last week either, and
Speaker 1: later in the week when things really kind of came apart.
Speaker 1: So I think that's important. UM. I will continue to watch.
Speaker 1: That will also tell me that the treasury markets functioning,
Speaker 1: which is important, and that's the FEDS concern in this hue.
Speaker 1: But we're gonna need more fiscal and I think so
Speaker 1: that's the other thing I'm really watching is how more
Speaker 1: how much more aggressive can politicians get in the short
Speaker 1: term to uh, you know, to indicate that they are
Speaker 1: going to do more fiscal policy because monetary can't do
Speaker 1: this on its own. So last week you told myself
Speaker 1: from John and Tom that this was a time to
Speaker 1: start adding back risk that this is actually potentially a
Speaker 1: buying opportunity. Goldman sachs Is David Couston came out over
Speaker 1: the weekend with reports saying that the SMP five hundred
Speaker 1: could fall another twenty six percent from Friday's closed to
Speaker 1: two thousand if the economic fallout from the coronavirus deepens.
Speaker 1: Why do you not think that's the case. Well, that's
Speaker 1: always a possibility. Of course, it's a possibility, right, But
Speaker 1: you know, we think that this has been I think
Speaker 1: where we're a little different perhaps in some others, is
Speaker 1: it we think this correction that we're going through right
Speaker 1: now is part of a bear market that began two
Speaker 1: years ago, right, And if you're if you're really objective
Speaker 1: about what's been going on the average stock and the
Speaker 1: average market has really gone nowhere for two years. And
Speaker 1: this is kind of a finishing move. It's ending in
Speaker 1: the recession. That's the way it typically works. Now we
Speaker 1: have to we have to get into that recession and
Speaker 1: people have to acknowledge that. But if you can't tell
Speaker 1: me that, you know, markets haven't been discounting a pretty
Speaker 1: meaningful slowdown now for the past couple of years. That's
Speaker 1: why we've been trading very defensively. That's why treasuries are
Speaker 1: already you know, at record low levels, even before the
Speaker 1: virus hit and before the oil price. The clients, I mean,
Speaker 1: we've we've had signals all along, and so all we're
Speaker 1: telling folkuses is that this is how things, this is
Speaker 1: how moves kind of finish. Okay, the time to get
Speaker 1: really defensive was two years ago, uh, in terms of
Speaker 1: like being overweight treasuries, being overweight defensive areas and whatnot,
Speaker 1: and and those types of strategies have worked extraordinarily well
Speaker 1: over the last two years. And so now if you
Speaker 1: were set up that way, now is the time to
Speaker 1: start thinking about re risking, understanding that it's going to
Speaker 1: be extraordinarily volatile in the next month or two is
Speaker 1: going to be extraordinarily whippy. It's gonna be extraordinarily dangerous
Speaker 1: to be trading this okay if I were advising people
Speaker 1: to do. But if you're in a diversified portfolio and
Speaker 1: you've had some defensive securities, you've probably actually done okay
Speaker 1: over this period. Mike, really thoughtful stuff. I appreciate your
Speaker 1: time this morning and wishing the best to your team.
Speaker 1: And those are Morgan Stanley as well. Mike Wilson. There,
Speaker 1: Morgan Stanley, Chief US Equity Strategists. You hope some trade
Speaker 1: in the equity are gonna used to be funded bunder
Speaker 1: bond investor. No more. This is about protecting ratings and
Speaker 1: meeting coupon payments. And we'll get to that right now,
Speaker 1: and we can do it with Goes and Distant found
Speaker 1: a b CO head of fixed income Goes and fantastic
Speaker 1: to have you with us on the phone. Let's start there.
Speaker 1: Default risk. Let's just start with something extreme, the extreme tale.
Speaker 1: It was talked to me about default risk at a
Speaker 1: moment like this. Well, look, I think we are an
Speaker 1: unprecedented times. John. You know we've we've spent the past
Speaker 1: decade plus talking about how the next downturn is not
Speaker 1: going to be a two thousand and eight. Al Right,
Speaker 1: we keep on especially cautioning, you know, younger investors that
Speaker 1: don't remember the last recession before two thousand and eight, right,
Speaker 1: don't remember all one on two, and the next downturn
Speaker 1: is not going to be two thousand and eight. The
Speaker 1: reality is that you know, well, of course it's not
Speaker 1: going to be a two thousand and eight. The impact
Speaker 1: could very well be two dozen and eight if we
Speaker 1: don't get a response on the fiscal side. You know,
Speaker 1: the the for certain industries, the economy is essentially shutting down,
Speaker 1: and that is, if we don't get the proper response
Speaker 1: on the fiscal side, we will see the faults in
Speaker 1: certain sectors spike. This is exactly what fixed what credit
Speaker 1: investors worry about. We worry about that left tail. We
Speaker 1: worry about over levered companies, right for whatever reason, their
Speaker 1: business their top line being shut down, not being able
Speaker 1: to generate free cash flow to be able to meet
Speaker 1: their debt obligations, and that is going to be an
Speaker 1: increasing concern, and that's why you've seen a lot of
Speaker 1: stress in the credit markets over the past couple of weeks, guess,
Speaker 1: and this quote came from making over a city group.
Speaker 1: He right the following. With so much credit provided outside
Speaker 1: the banking system, it's very difficult to implement a system
Speaker 1: wide payments freeze which ensures all obligations are simply rolled over.
Speaker 1: The consequent timing of conditions has a tendency to cascade
Speaker 1: through the rest of the system. This is an important point.
Speaker 1: I've been beating the drum with you, guess, and we
Speaker 1: need a fiscal response, and we need to quick. But
Speaker 1: there's going to be limits on how much this can cover.
Speaker 1: But look, I think, look, we're seeing who knows what
Speaker 1: the fiscal response is going to be, but we are
Speaker 1: seeing a lot of interesting proposals being floated out there. Um,
Speaker 1: you know, the easy one is helicopter money, Right, we
Speaker 1: just write a check to everybody. The problem with that
Speaker 1: is it ends up not being targeted to the places
Speaker 1: that I mean. It helps the consumer obviously, and there's
Speaker 1: a lot of value to that. We're seeing some unconventional proposals.
Speaker 1: You know, maybe you start saying the government should be
Speaker 1: the buyer of last resort, should prop up certain industries,
Speaker 1: should you know, basically guarantee that airlines fill seats and
Speaker 1: if they don't, they the government hands them the revenue. Um.
Speaker 1: There's other kinds of proposals that are being floated around there.
Speaker 1: You know, it's it's it's gonna take some creative thinking
Speaker 1: and it's going to have to happen fast, because what
Speaker 1: we're seeing right now is I heard you say it earlier,
Speaker 1: John fear is taking over. Um. We are shutting down
Speaker 1: large segments of the economy, and it's going to have
Speaker 1: to be a fiscal response. It's great that monetary policy
Speaker 1: is doing what they can, and they're supposed to do
Speaker 1: what they can, but this is not a demand problem.
Speaker 1: This is the supply problem, and it requires a different response. Grishan,
Speaker 1: we're talking about credit, and we should just say there
Speaker 1: is sort of a dual shock here too, at the
Speaker 1: oil complex in particular getting hit as oil prices decline,
Speaker 1: and I'm wondering though the technical action. I want to
Speaker 1: go from the fundamental to the technical picture. E t
Speaker 1: fs in particular saw unprecedented outflows in the past few weeks,
Speaker 1: and people are worried about a spiral that these that
Speaker 1: these e t f s are being traded frequently for
Speaker 1: liquidity and that as their prices go down, they have
Speaker 1: to sell underlying assets. The sales end up driving prices
Speaker 1: down even further and the cycle goes. How close are
Speaker 1: we to that? You know, it's interesting we're seeing that
Speaker 1: in the E t F. I will counter that we're
Speaker 1: not seeing yet is in fun flows, which is an
Speaker 1: interesting dichotomy. You know, past sell offs of this, even
Speaker 1: of lesser magnitude, and this we saw much more panic
Speaker 1: from the end investor in mutual funds, both in the
Speaker 1: US and offshore. And I'm not saying we're not seeing
Speaker 1: any apples, of course we are, but it's not of
Speaker 1: the magnitude we saw previously. And I think that's interesting. Um,
Speaker 1: it's been, it's it's been kind of orderly. And if
Speaker 1: you look at you know, one of my favorite topics, Lisa,
Speaker 1: is the relationship between high yield and equities. And you know,
Speaker 1: with equities being down, you know, they were down I
Speaker 1: guess percent from the peak with the rally back on
Speaker 1: on Friday, I gets down twenty two or something like that,
Speaker 1: and we'll probably back down and we open. You know,
Speaker 1: hi yields down about twelve percent from the peak, roughly half.
Speaker 1: That's typically what you see, so the price actually indicates
Speaker 1: that it's somewhat orderly there. Actually, even before the rally
Speaker 1: on Friday, liquidity was okay in the high yield market,
Speaker 1: stuff was down, So it's it's becoming orderly. You know,
Speaker 1: at some point, if the outflows are are sufficient, whether
Speaker 1: it's from ETFs or it's from kind of real money
Speaker 1: mutual funds, that could cause a problem in liquidity. And
Speaker 1: that's something that we're looking at very carefully. You know,
Speaker 1: the fact that it was difficult to sell off the
Speaker 1: run treasury back on Thursday, something that wasn't the case
Speaker 1: even in the worst time of oh eight is something
Speaker 1: that is concerning to us and should be concerning to
Speaker 1: most market participants, guess. And let's talk about that and
Speaker 1: what the Fed can do to have alleviate some of
Speaker 1: that stress. Right now? What can they do it? They're
Speaker 1: doing enough. I look at that they've they've done, you know,
Speaker 1: they've announced two things since that happened on Thursday, and
Speaker 1: that's the question. We'll see, we'll see what happens today. Um,
Speaker 1: they're doing everything they can. They're they're opening up the window,
Speaker 1: they're buying, they're buying back treasuries across the curve that
Speaker 1: has helped. Uh. But that's that's the danger of the
Speaker 1: market when you when even the thing that's supposed to
Speaker 1: be the most liquid market in the world is experiencing
Speaker 1: liquidity issues. UH. That should raise concerns and there might
Speaker 1: have to be more action that has to be taken.
Speaker 1: Guess you don't want to finish with just a quick
Speaker 1: word on portfile a construction, and I'll try and keep
Speaker 1: this as simple as possible for the majority of our
Speaker 1: audience that may not be moll straight professionals. You've always
Speaker 1: compared for me, at least when we've talked historically speaking
Speaker 1: about how credit performs in a downturn as part of
Speaker 1: a portfolio, and how equity performs in that downturn too.
Speaker 1: Walk me through that historically and how you think that
Speaker 1: may or may not be the same this time around. Yes, so,
Speaker 1: historically equities and credit perform in they go in the
Speaker 1: same direction. They're highly correlated. In other words, when equities
Speaker 1: do well, credit does well, and when equities do poorly,
Speaker 1: credit does poor. The accepted magnetitude is different. So for example,
Speaker 1: last year, when equity has had a very strong return
Speaker 1: depending on what type of equities, how did ten or fifteen,
Speaker 1: depending what type of high yield and in the cell
Speaker 1: off here, as I mentioned before, the Lisa equities have
Speaker 1: been down hids going down ten. That relationship should continue.
Speaker 1: Now if if the worst happens and we massive spike
Speaker 1: in defaults, maybe credit does a little bit worse on
Speaker 1: that on that score, but that relationship holds pretty pretty well.
Speaker 1: The one nice thing about credit, especially how yield credit
Speaker 1: is your yield is actually a very good predictor of
Speaker 1: your intermediate term performance. If you chart your yield to
Speaker 1: worst at a given time and in the next five
Speaker 1: years annualized return, it's almost spooky how accurate that is.
Speaker 1: So if you take today's starting yield of somewhere in
Speaker 1: like the eight eight and a half percent range, that
Speaker 1: is likely through through all the volatility we're gonna see.
Speaker 1: If you invest today, you're likely to get somewhere around
Speaker 1: an eight percent annualized return over the next five years.
Speaker 1: There'll be a lot of volatility in between. Imagine a
Speaker 1: lot of that volatility is coming up front. Gus and
Speaker 1: fantastic to catch up and the gush and distance. Found
Speaker 1: that a VC had a fixed income on the credit market,
Speaker 1: not just in the US for some of these worldwide
Speaker 1: issues as well. Joining us on the phone stay thing
Speaker 1: that the standard child at bank managing direct it's way
Speaker 1: and on foreign exchange stave, we have some dollar weakness.
Speaker 1: Is it fair to say that dollar awaitness has been
Speaker 1: engineered by a major right cut at the FED, a
Speaker 1: major rate cut by the Fed, and the major change
Speaker 1: and expectations I think in the market with respect to
Speaker 1: where rate differentials are going to be over the medium
Speaker 1: and long term. I think that the with this move,
Speaker 1: the market is convinced that, you know, we're not good
Speaker 1: to see, uh, the US rates really having nearly as
Speaker 1: big a great advantage as they have had over the
Speaker 1: last couple of years going forward. How important is it
Speaker 1: this sort of dollar swap line that the Federal Reserve
Speaker 1: set up? I mean, how much will that cushion the
Speaker 1: blow that we've seen just in terms of the bid
Speaker 1: for dollars and some of the liquidity issues of last week?
Speaker 1: You know, I look at it's not going to fix
Speaker 1: anything in the sense that it won't improve the economic outcomes,
Speaker 1: but it will prevent um financial market outcomes from making
Speaker 1: things worse. Um. You know, so far, what we've seen
Speaker 1: is some of the basis risks come in a little bit,
Speaker 1: not very much. I think the markets will test the
Speaker 1: willingness of central banks to use these lines and use
Speaker 1: them in large size before they're convinced that they don't
Speaker 1: have to worry about it. Steve, I want to bring
Speaker 1: up something that I think is becoming a little bit delicate,
Speaker 1: and it's over in Europe. I don't think we're back
Speaker 1: onto the redenomination risk junior out of the bottle story,
Speaker 1: but I do think we've got a story over in
Speaker 1: Italy where the ECB really failed last Thursday in that
Speaker 1: news conference to do anything about burning up confidence on
Speaker 1: the periphery. The two year yields up eighteen basis points
Speaker 1: on the session, albeit was still seth of one percent.
Speaker 1: But the direction of travel, Steve, is not encouraging. Do
Speaker 1: we start to think about some of these issues. Do
Speaker 1: they creep back into the discussion. Well, if they do,
Speaker 1: they're going to make things a lot worse, because you know,
Speaker 1: we have enough risk premium in the market already to
Speaker 1: add more because of political risk um, it would be
Speaker 1: doing unnecessary damage. I think that the expectation and hope
Speaker 1: is that they're going to finally throw in the towel
Speaker 1: and say this is such a crisis that each country
Speaker 1: should do what it has to do on the fiscal side.
Speaker 1: Um and the ECB, you know, continue to do what
Speaker 1: it what it has been doing on on the monetary side.
Speaker 1: I don't think leguard really meant to serve dismiss the
Speaker 1: spread issues. I think it just came out something wrong Stephen.
Speaker 1: There's also a question going forward, at what point will
Speaker 1: currency markets care about the money printing that developed markets
Speaker 1: seemed to be on the cusp of doing. That might
Speaker 1: be unprecedented in side. Certainly people are saying it should be,
Speaker 1: whether it's helicopter money or anything else. There was a
Speaker 1: time when that used to debase the currency. Is that
Speaker 1: time over or are we going to return to a
Speaker 1: time where that actually starts to matter. I think eventually
Speaker 1: there's going to be a debate if this for a
Speaker 1: long time. I think correctly the market is thinking that
Speaker 1: if we're talking about a three or six month period
Speaker 1: in which production is impaired, even if it's sharply impaired,
Speaker 1: the demand risk and the disinflationary risk is more important
Speaker 1: than the money printing risk. If this is a longer
Speaker 1: term question where supply is impaired over a period of years,
Speaker 1: and they print money and train maintain demand, the inflation
Speaker 1: outcomes may be different. Steve tried to cash out with
Speaker 1: you this morning, Steve England, and there standard charted on
Speaker 1: a really delicate moment wildwide on the issue of the
Speaker 1: e c B and President of Guards performance last Thursday,
Speaker 1: reportedly in the Financial Times apologizing to several members of
Speaker 1: the Governing Council for some of the mistakes she made
Speaker 1: in that particular news conference. Now I'm not sure, in fact,
Speaker 1: I know on the record that the ECB is not
Speaker 1: characterizing the performance on Thursday as a mistake, but according
Speaker 1: to the Financial Times, it appears she did apologize to
Speaker 1: a government Council members. Thanks for listening to the Bloomberg
Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
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Speaker 1: Tom Keene before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio