1 00:00:09,880 --> 00:00:13,840 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm term Keene Jay Leye. 2 00:00:13,960 --> 00:00:16,960 Speaker 1: We bring you insight 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 --> 00:00:27,680 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Let's 5 00:00:27,720 --> 00:00:30,160 Speaker 1: turn now to the UK with Rupert Harrison, black Rock 6 00:00:30,240 --> 00:00:34,120 Speaker 1: multi Asset Strategies portfolio manager, formerly of the Treasury as 7 00:00:34,159 --> 00:00:37,240 Speaker 1: while working alongside the former Chance that George Osborne. Rupert, 8 00:00:37,280 --> 00:00:39,920 Speaker 1: fantastic to have you with us on a program this morning, 9 00:00:40,120 --> 00:00:42,559 Speaker 1: especially on a morning like this morning. Rupert, let's talk 10 00:00:42,560 --> 00:00:44,519 Speaker 1: about the response from the Bank of England what may 11 00:00:44,560 --> 00:00:47,680 Speaker 1: still come from Treasury a little bit later. I agree 12 00:00:47,800 --> 00:00:49,479 Speaker 1: very strongly with what you've all been saying in the 13 00:00:49,520 --> 00:00:51,920 Speaker 1: sense that I think this is a real demonstration of 14 00:00:51,960 --> 00:00:54,360 Speaker 1: strength from the UK system. I think it shows us 15 00:00:54,440 --> 00:00:56,600 Speaker 1: at maturity from the Bank of England, which is an 16 00:00:56,600 --> 00:01:00,920 Speaker 1: institution that is I think comfortable in its independence, confident 17 00:01:01,000 --> 00:01:04,399 Speaker 1: of its independent and therefore willing to be seen to 18 00:01:04,480 --> 00:01:07,080 Speaker 1: act in a coordinated way with the Treasury. We saw 19 00:01:07,200 --> 00:01:10,280 Speaker 1: some similar things in the past, the funding from lending 20 00:01:10,360 --> 00:01:13,480 Speaker 1: for schemes set up in two douzen twelves. But I 21 00:01:13,480 --> 00:01:16,800 Speaker 1: think it is a big advantage of having strong credible institutions. 22 00:01:16,840 --> 00:01:18,720 Speaker 1: I think, as you say, it would be very difficult 23 00:01:18,720 --> 00:01:20,880 Speaker 1: for the FED to do something similar. Indeed, we saw 24 00:01:21,360 --> 00:01:25,120 Speaker 1: the FED deliberately separate its emergency fifty basis points cut 25 00:01:25,240 --> 00:01:28,520 Speaker 1: from the G seven Finance ministers called I think largely 26 00:01:28,600 --> 00:01:32,240 Speaker 1: due to wanting to avoid the perception of impositions on 27 00:01:32,280 --> 00:01:34,800 Speaker 1: its independent So yes, I do think this is UKs 28 00:01:34,800 --> 00:01:39,800 Speaker 1: stiticians demonstrating how you can loose confidence by coordination. RiPP 29 00:01:39,880 --> 00:01:42,080 Speaker 1: Let's talk about how important it is to help SAMES 30 00:01:42,120 --> 00:01:44,240 Speaker 1: in a moment like the moment we're in right now. 31 00:01:44,280 --> 00:01:46,039 Speaker 1: It seems to be a big focus of the Bank 32 00:01:46,040 --> 00:01:48,200 Speaker 1: of England. How do we get that focus to go 33 00:01:48,320 --> 00:01:50,520 Speaker 1: beyond the UK in two places like Europe and into 34 00:01:50,560 --> 00:01:54,000 Speaker 1: places like the United States. Well, look, I think that 35 00:01:53,920 --> 00:01:57,160 Speaker 1: the policy community get it. I think that we will 36 00:01:57,200 --> 00:01:59,840 Speaker 1: see further action in the budget in the UK to 37 00:02:00,040 --> 00:02:02,919 Speaker 1: a you know, the these term funding schemes for banks 38 00:02:02,920 --> 00:02:05,880 Speaker 1: with incentives to lend to SAMES there. They're similar to 39 00:02:05,960 --> 00:02:07,400 Speaker 1: the kind of things we did in the UK in 40 00:02:07,480 --> 00:02:10,799 Speaker 1: two thousand and twelve with funding for lending they're okay. Frankly, 41 00:02:10,880 --> 00:02:13,920 Speaker 1: the banks can gain the targets, and this is not 42 00:02:14,000 --> 00:02:15,880 Speaker 1: a way to guarantee that you're going to get cash 43 00:02:15,960 --> 00:02:19,760 Speaker 1: to sames. You have to see finance ministries acting really 44 00:02:19,800 --> 00:02:22,600 Speaker 1: to get cash to the simes in trouble on top 45 00:02:22,639 --> 00:02:25,119 Speaker 1: of the band central bank actions. I think you will 46 00:02:25,160 --> 00:02:27,400 Speaker 1: see that in Europe. I think it will be, you know, 47 00:02:27,760 --> 00:02:30,400 Speaker 1: a combination of European wide and Frankie, you just have 48 00:02:30,520 --> 00:02:32,959 Speaker 1: to going to have to wait and see national level actions. 49 00:02:33,480 --> 00:02:35,840 Speaker 1: Um and I hope that we will see it in 50 00:02:35,840 --> 00:02:37,320 Speaker 1: the US, but of course it's going to be a 51 00:02:37,400 --> 00:02:41,239 Speaker 1: much more difficult mechanism to get agreement around that, even 52 00:02:41,240 --> 00:02:44,920 Speaker 1: though the policy community I think now fully understand that 53 00:02:44,919 --> 00:02:47,160 Speaker 1: that's what's needed. Let me ask you the same question 54 00:02:47,160 --> 00:02:49,640 Speaker 1: I asked of our Stephanie Flanders earlier today. Did the 55 00:02:49,680 --> 00:02:53,440 Speaker 1: reason we get that this action today? Was it because 56 00:02:53,600 --> 00:02:56,560 Speaker 1: of Prime Minister Jansen? Was it was because we had 57 00:02:56,680 --> 00:02:59,720 Speaker 1: essentially a pro Brexit vote? Was it because we have 58 00:02:59,760 --> 00:03:03,600 Speaker 1: a new independence, are freethinking in the United Kingdom less 59 00:03:03,600 --> 00:03:07,880 Speaker 1: attached to the European continent? No, I don't think so. 60 00:03:07,960 --> 00:03:10,280 Speaker 1: I think this is because of the sort of historic 61 00:03:10,760 --> 00:03:13,920 Speaker 1: patterns and working of the UK institutions. I think the 62 00:03:13,960 --> 00:03:16,000 Speaker 1: Treasury in the Bank of England to have for a 63 00:03:16,040 --> 00:03:18,760 Speaker 1: long time now worked well together, and I think that 64 00:03:18,800 --> 00:03:21,560 Speaker 1: there is an understanding in the Treasury and the Bank 65 00:03:21,720 --> 00:03:23,799 Speaker 1: that this is a time for this. You know, this 66 00:03:23,840 --> 00:03:25,919 Speaker 1: is not a time for holding back. So I think 67 00:03:25,919 --> 00:03:29,560 Speaker 1: you will see Chancellor Richie Sunac in the budget later today. 68 00:03:30,320 --> 00:03:32,760 Speaker 1: You know, if anything, you know, doing too much, I 69 00:03:32,760 --> 00:03:34,840 Speaker 1: think you will very much not want to be seen 70 00:03:34,840 --> 00:03:36,600 Speaker 1: as kind of under delivering. I think it will be 71 00:03:36,640 --> 00:03:41,560 Speaker 1: over delivered. Belt embraces, you know, resilience and you know, 72 00:03:42,000 --> 00:03:44,720 Speaker 1: insurance against what might be become. I don't think that 73 00:03:45,080 --> 00:03:48,000 Speaker 1: you know, particular to this government. I think it speaks 74 00:03:48,040 --> 00:03:50,760 Speaker 1: more to a sort of historic strength of UK institutions. 75 00:03:50,800 --> 00:03:52,560 Speaker 1: But of course it is very welcome to see the 76 00:03:52,680 --> 00:03:56,680 Speaker 1: UK I think performing kind of well internationally compared to 77 00:03:56,720 --> 00:04:00,400 Speaker 1: other countries. Going to your core, which is in staying. 78 00:04:00,720 --> 00:04:02,840 Speaker 1: How does this give you conviction when it comes to 79 00:04:03,360 --> 00:04:05,640 Speaker 1: putting on a trade? In other words, are you going 80 00:04:05,720 --> 00:04:09,120 Speaker 1: to invest more in UK assets as a result of 81 00:04:09,160 --> 00:04:13,640 Speaker 1: what the policymakers did. It's certainly at the margin makes 82 00:04:13,720 --> 00:04:16,279 Speaker 1: us feel more comfortable that the UK is going to 83 00:04:16,360 --> 00:04:20,000 Speaker 1: do everything possible to avoid permanent economic damage from this disruption. 84 00:04:20,680 --> 00:04:23,360 Speaker 1: But frankly, you know, I think we've seen in market 85 00:04:23,360 --> 00:04:26,039 Speaker 1: action over the last few days that while policy actions 86 00:04:26,040 --> 00:04:29,320 Speaker 1: are welcome, you know, people of a market are very 87 00:04:29,440 --> 00:04:32,720 Speaker 1: very aware that policymakers are our secondary at the moment 88 00:04:32,800 --> 00:04:35,680 Speaker 1: to the sort of fundamentals of the spread of the virus, 89 00:04:35,760 --> 00:04:37,640 Speaker 1: and you know, in a sense market to pay more 90 00:04:37,640 --> 00:04:41,040 Speaker 1: attention to the to the negatives I when and how 91 00:04:41,120 --> 00:04:44,880 Speaker 1: widely our restrictions on activity going to be. I think 92 00:04:44,880 --> 00:04:47,479 Speaker 1: that it's it's about putting confidence in place so that 93 00:04:47,520 --> 00:04:50,039 Speaker 1: if we do get to a peak situation where people 94 00:04:50,080 --> 00:04:52,640 Speaker 1: can see beyond the peak of the virus, that's when 95 00:04:52,680 --> 00:04:56,159 Speaker 1: people will take confidence from policy measures being in place 96 00:04:56,200 --> 00:04:59,120 Speaker 1: to prevent permanent damage, and that's where will help see 97 00:04:59,120 --> 00:05:01,560 Speaker 1: the kind of more rapid bounced back. Rupert Harrison, thank 98 00:05:01,600 --> 00:05:03,600 Speaker 1: you so much with black Rock this morning, joining us 99 00:05:03,640 --> 00:05:17,839 Speaker 1: after an historic moment for the Bank of England. Without 100 00:05:17,960 --> 00:05:20,560 Speaker 1: question our interview of the day on this moment for 101 00:05:20,640 --> 00:05:23,279 Speaker 1: central bankers, and with this and the honor of having 102 00:05:23,360 --> 00:05:26,760 Speaker 1: David blanch Flower with us of Dartmouth College, of course, 103 00:05:26,800 --> 00:05:30,800 Speaker 1: his public service to his very united Kingdom is public 104 00:05:30,839 --> 00:05:34,159 Speaker 1: service and getting Cardiff back into the Premier League and 105 00:05:34,160 --> 00:05:36,720 Speaker 1: then out again in the Premier League. We're thrilled to 106 00:05:36,800 --> 00:05:40,719 Speaker 1: Professor blanch Flower could join us this morning. Uh, David, 107 00:05:40,839 --> 00:05:43,960 Speaker 1: here we are. Quote. This is prudence with a purpose. 108 00:05:44,560 --> 00:05:47,680 Speaker 1: It's resilience with a reason, and that reason is to 109 00:05:47,760 --> 00:05:50,760 Speaker 1: fulfill the Bank of England's mission, namely to promote the 110 00:05:50,800 --> 00:05:54,000 Speaker 1: good of the people of the United Kingdom by maintaining 111 00:05:54,080 --> 00:05:58,159 Speaker 1: monetary and financial stability. By acting today, the Bank is 112 00:05:58,320 --> 00:06:02,440 Speaker 1: ensuring that the strength of our financial system can be 113 00:06:02,520 --> 00:06:06,000 Speaker 1: directed to where it's most needed in the months ahead. 114 00:06:06,600 --> 00:06:11,160 Speaker 1: Mark Kearney, how do you do today? Very impressive. I 115 00:06:11,200 --> 00:06:13,680 Speaker 1: was just listening to the press conference. I thought they 116 00:06:13,720 --> 00:06:17,640 Speaker 1: did extremely well. Um the co ordination between the three 117 00:06:17,680 --> 00:06:20,880 Speaker 1: banks the Mideast um coming on a day ahead of 118 00:06:20,880 --> 00:06:23,920 Speaker 1: the UK budget, so it looked like, you know, the 119 00:06:24,000 --> 00:06:26,520 Speaker 1: big boys are in charge. I thought, what was interesting 120 00:06:26,680 --> 00:06:29,760 Speaker 1: reminded me of October seven, two thousand and eight. But 121 00:06:29,839 --> 00:06:32,520 Speaker 1: I think Kari said it right then. The problem was 122 00:06:32,560 --> 00:06:37,480 Speaker 1: the financial system causing a crisis, and he said, you know, 123 00:06:37,760 --> 00:06:39,800 Speaker 1: the financial system here is going to try and come 124 00:06:39,839 --> 00:06:43,440 Speaker 1: in and um support this this crisis. So I thought 125 00:06:43,440 --> 00:06:46,680 Speaker 1: it was pretty impressive, the two that the governor and 126 00:06:46,720 --> 00:06:50,560 Speaker 1: the new governor sitting there together. Um, I was really impressed. 127 00:06:50,600 --> 00:06:52,640 Speaker 1: I mean the concern is do that what I mean? 128 00:06:52,680 --> 00:06:56,280 Speaker 1: I remember in October seven six central banks cut. I 129 00:06:56,360 --> 00:06:58,479 Speaker 1: was part of it. The big deal then was did 130 00:06:58,520 --> 00:07:01,080 Speaker 1: they we knew things that the markets didn't know? And 131 00:07:01,080 --> 00:07:04,000 Speaker 1: the question is is that true? Now? Are the more 132 00:07:04,080 --> 00:07:06,960 Speaker 1: things they know that? That's the question I think on 133 00:07:07,000 --> 00:07:09,800 Speaker 1: the table. Do you have a confidence with a medical 134 00:07:09,880 --> 00:07:14,200 Speaker 1: crisis and an original ECB to begin with the ECB 135 00:07:14,440 --> 00:07:18,120 Speaker 1: or frankly any other central bank and execute what the 136 00:07:18,200 --> 00:07:23,080 Speaker 1: governor and the governor designate executed today. Well, obviously the 137 00:07:23,160 --> 00:07:27,640 Speaker 1: big concern is that we're whatever is twelve years now 138 00:07:27,720 --> 00:07:31,000 Speaker 1: past that crisis, and the room to maneuver for the 139 00:07:31,080 --> 00:07:34,840 Speaker 1: central bank is somewhat limited. I mean, the Bank of 140 00:07:34,880 --> 00:07:37,200 Speaker 1: England will cut from point seven five to point to 141 00:07:37,400 --> 00:07:40,920 Speaker 1: five perhaps I thought they might go points is a 142 00:07:40,920 --> 00:07:43,920 Speaker 1: big deal. What what can ECB does? I mean ECP 143 00:07:44,080 --> 00:07:48,000 Speaker 1: is already negative. Christine the guard is obviously talking about 144 00:07:48,040 --> 00:07:51,960 Speaker 1: this being a major problem. The room to maneuver is 145 00:07:52,000 --> 00:07:55,760 Speaker 1: somewhat limited. Obviously, the coordination with fiscal policies that big 146 00:07:55,760 --> 00:07:58,200 Speaker 1: to you. And the fact that this statement was made 147 00:07:58,200 --> 00:08:00,000 Speaker 1: on the day when the bodies of the new Bodish 148 00:08:00,080 --> 00:08:02,800 Speaker 1: Chancer that makes a statement for the budget suggests that 149 00:08:02,880 --> 00:08:05,480 Speaker 1: these things are coordinated and that's going to be the 150 00:08:05,520 --> 00:08:09,280 Speaker 1: problem down that, like could the ECB coordinate with other governments? 151 00:08:09,280 --> 00:08:11,080 Speaker 1: What are the Germans going to say and do? What's 152 00:08:11,080 --> 00:08:13,480 Speaker 1: going to happen at the at the o MC where 153 00:08:13,680 --> 00:08:17,400 Speaker 1: it looks like a hundred basis points cuts already priced 154 00:08:17,440 --> 00:08:21,080 Speaker 1: into the meeting next week, Danny, there's also a question 155 00:08:21,120 --> 00:08:23,560 Speaker 1: of what's the roadmap here? And a lot of people 156 00:08:23,600 --> 00:08:26,000 Speaker 1: are pointing to two thousand and eight, and since you 157 00:08:26,040 --> 00:08:29,800 Speaker 1: have experience at the Bank of England when you were 158 00:08:29,800 --> 00:08:32,160 Speaker 1: a part of their indust rates heading a Monetary policy 159 00:08:32,200 --> 00:08:34,800 Speaker 1: committee as an external member from two thousand and six 160 00:08:34,840 --> 00:08:38,200 Speaker 1: to two thousand nine through the crisis, is the two 161 00:08:38,240 --> 00:08:42,839 Speaker 1: thousand and eight period the one we should be looking at? Well? 162 00:08:42,880 --> 00:08:45,560 Speaker 1: It seems so. I mean, that's the only two cuts 163 00:08:45,559 --> 00:08:49,000 Speaker 1: that I recall, Like this emergency meeting, which they very 164 00:08:49,040 --> 00:08:52,280 Speaker 1: well did in secretum, there was the two meetings to 165 00:08:52,360 --> 00:08:54,199 Speaker 1: fare in the Bank of England have had at the 166 00:08:54,280 --> 00:08:59,280 Speaker 1: nine eleven which may may be comparable I mean the 167 00:08:59,320 --> 00:09:02,800 Speaker 1: cut into a thousand and eight, the October cut. In 168 00:09:02,800 --> 00:09:05,360 Speaker 1: a sense, what it signaled it was that it's more 169 00:09:05,400 --> 00:09:08,120 Speaker 1: than anything. It's signaled that the central banks were on 170 00:09:08,160 --> 00:09:11,560 Speaker 1: the case. It's much more to come. And I think 171 00:09:11,640 --> 00:09:13,880 Speaker 1: that's what they were signaling today. I mean, they could 172 00:09:13,920 --> 00:09:17,720 Speaker 1: have thrown more actively didn't do more que today they 173 00:09:17,760 --> 00:09:20,280 Speaker 1: have they've sort of holding that back that they did 174 00:09:20,280 --> 00:09:24,160 Speaker 1: all sorts of things about um but counter sectal buffer 175 00:09:24,200 --> 00:09:26,640 Speaker 1: for the bank money for the same. So they certainly 176 00:09:26,679 --> 00:09:29,320 Speaker 1: signaled there was more to come. But the issue is, 177 00:09:29,480 --> 00:09:33,080 Speaker 1: well Tom was just saying what what what can they do? 178 00:09:33,160 --> 00:09:35,800 Speaker 1: How much more can they do? And the concern is 179 00:09:35,880 --> 00:09:38,319 Speaker 1: if this crisis, as Regard says today is comfortable to 180 00:09:38,360 --> 00:09:41,280 Speaker 1: two thousand and eight that there are limits to what 181 00:09:41,400 --> 00:09:44,040 Speaker 1: the policymakers can do. So, you know, I thought it 182 00:09:44,080 --> 00:09:46,280 Speaker 1: was very impressive, good that they got in there, but 183 00:09:46,600 --> 00:09:49,840 Speaker 1: down the road know how much they can do. Danny, 184 00:09:49,880 --> 00:09:52,840 Speaker 1: are there any non traditional tools that we did not 185 00:09:53,040 --> 00:09:56,200 Speaker 1: see deployed in two thousand and eight ways to sort 186 00:09:56,200 --> 00:09:59,840 Speaker 1: of I think outside of the historical reference, it can 187 00:10:00,000 --> 00:10:03,559 Speaker 1: the central banks to poy now well, yeah, absolutely, I 188 00:10:03,600 --> 00:10:06,199 Speaker 1: mean I think Americ Rosen grinning the US right. He 189 00:10:06,280 --> 00:10:09,199 Speaker 1: started to talk about the ability of the FED to 190 00:10:09,360 --> 00:10:12,160 Speaker 1: broaden what it buys, not to just buy mbs and 191 00:10:13,720 --> 00:10:16,880 Speaker 1: government backed securities, to broaden out what it buy. Is 192 00:10:16,960 --> 00:10:21,880 Speaker 1: that's an obvious possibility that it works negative. Um, that's 193 00:10:21,880 --> 00:10:24,199 Speaker 1: still on the table. But I think that I think 194 00:10:24,800 --> 00:10:28,920 Speaker 1: for the listeners, I remember being brief saying central banks 195 00:10:28,960 --> 00:10:33,480 Speaker 1: could buy anything, um and literally anything, So obviously I 196 00:10:33,520 --> 00:10:37,560 Speaker 1: think that's on the table. Um. The possibility that QUI 197 00:10:37,679 --> 00:10:40,679 Speaker 1: will broaden and extend, and as a said, it's thought 198 00:10:40,679 --> 00:10:43,480 Speaker 1: about in the United States, that's the possibility of going 199 00:10:43,559 --> 00:10:47,200 Speaker 1: negative exist. Now how negative, David, I've got to get 200 00:10:47,240 --> 00:10:49,600 Speaker 1: squeeze us in a headline coming out of the United Kingdom, 201 00:10:49,640 --> 00:10:51,600 Speaker 1: no doubt what. I'm the Chancellor as well. The United 202 00:10:51,640 --> 00:10:55,160 Speaker 1: Kingdom sees this year's GDP growth one point one percent 203 00:10:55,440 --> 00:10:59,360 Speaker 1: versus one point four very quickly, your professor. With that 204 00:10:59,480 --> 00:11:03,480 Speaker 1: diminished g d P growth, do we also see diminished inflation? 205 00:11:03,600 --> 00:11:08,400 Speaker 1: So we've got a combination a weaker growth and disinflation. Well, 206 00:11:08,600 --> 00:11:10,120 Speaker 1: I think we do. But I think the mark that 207 00:11:10,200 --> 00:11:13,319 Speaker 1: worries the markets will think that that at one point 208 00:11:13,360 --> 00:11:16,640 Speaker 1: one percent is overly optimistic. Ian the scale of the 209 00:11:17,360 --> 00:11:20,160 Speaker 1: scale of the shock that currently looks to be large, 210 00:11:20,600 --> 00:11:22,839 Speaker 1: So I think that might well be very optimistic. And 211 00:11:23,160 --> 00:11:24,760 Speaker 1: of course what the central Bank is going to have 212 00:11:24,800 --> 00:11:28,200 Speaker 1: to do is just look through inflation, look at what's 213 00:11:28,240 --> 00:11:30,600 Speaker 1: happening in the real economy, and that's what they've done today. 214 00:11:30,600 --> 00:11:33,319 Speaker 1: So I think what happens to INFLA is broadly irrelevant. 215 00:11:33,520 --> 00:11:36,280 Speaker 1: But it sounds totally optimistic on the part of the 216 00:11:36,679 --> 00:11:38,560 Speaker 1: of the O b R and the government to think 217 00:11:38,640 --> 00:11:41,080 Speaker 1: that output in the UK is going to grow this 218 00:11:41,160 --> 00:11:44,120 Speaker 1: year too. Short of visit David blanche Flower of Dartmouth 219 00:11:44,160 --> 00:11:45,880 Speaker 1: College here and of course has worked with the Bank 220 00:11:45,880 --> 00:11:57,760 Speaker 1: of England. It is a fired up Nora Roubini with 221 00:11:57,840 --> 00:12:01,119 Speaker 1: us today. His book of a Good Deck Togo was outstanding. 222 00:12:01,280 --> 00:12:03,640 Speaker 1: There is there a book coming up here, you know, 223 00:12:03,800 --> 00:12:05,720 Speaker 1: I'm thinking about the right thing in you want but 224 00:12:06,040 --> 00:12:08,360 Speaker 1: he is going to be out next year. Okay, very good. 225 00:12:08,640 --> 00:12:11,880 Speaker 1: There's there's a break slusive from Bloomberg surveillance. One of 226 00:12:11,920 --> 00:12:14,360 Speaker 1: the great themes we've had here over the last number 227 00:12:14,400 --> 00:12:16,520 Speaker 1: of weeks is a team that has just been dedicated 228 00:12:16,520 --> 00:12:19,480 Speaker 1: in folks, really working seven days a week to get 229 00:12:19,480 --> 00:12:21,920 Speaker 1: his voices and One of the voices was Jeffrey Curry 230 00:12:21,920 --> 00:12:25,160 Speaker 1: of Goldman sex On Oil, who was out front of 231 00:12:25,200 --> 00:12:29,560 Speaker 1: an oil war of Saudi UH and Russia and then 232 00:12:30,120 --> 00:12:33,520 Speaker 1: was with us again today and with his microeconomics from Chicago, 233 00:12:33,679 --> 00:12:36,640 Speaker 1: was just prodigious on these demand and supply shocks that 234 00:12:36,720 --> 00:12:40,920 Speaker 1: we see. Let's discuss this now with Neral Rabini and 235 00:12:40,960 --> 00:12:43,800 Speaker 1: the backdrop for me on this Neral is a visceral 236 00:12:43,880 --> 00:12:48,080 Speaker 1: feeling of the old world of Saudi Arabia taking on Russia. 237 00:12:48,679 --> 00:12:52,480 Speaker 1: What's your take on how anyone would take on Russia. 238 00:12:53,000 --> 00:12:56,480 Speaker 1: Is it doable for Saudi Arabia to actually go after 239 00:12:56,960 --> 00:13:01,360 Speaker 1: Mr Putin on oil? Well, so the Arabia going after Russia, 240 00:13:01,840 --> 00:13:04,560 Speaker 1: but it's also going after the U S sail producers. 241 00:13:04,600 --> 00:13:07,240 Speaker 1: Both of them are tried to sell the Arabia and 242 00:13:07,240 --> 00:13:11,360 Speaker 1: I would say over time, uh, the shell gas producer 243 00:13:11,400 --> 00:13:14,440 Speaker 1: maybe a bigger threat to sell the Arabia than put 244 00:13:14,440 --> 00:13:16,920 Speaker 1: In and they all in Russia. The other thing in 245 00:13:16,960 --> 00:13:19,200 Speaker 1: this game is that while in Russia you have to 246 00:13:19,200 --> 00:13:21,720 Speaker 1: give credit to put In. That on the micro side 247 00:13:22,120 --> 00:13:26,520 Speaker 1: is physically conservatives low budget deficit, low public debt, is 248 00:13:26,600 --> 00:13:29,800 Speaker 1: low inflation, while the budget deficits Saudi Arabia right now 249 00:13:30,240 --> 00:13:33,120 Speaker 1: is seven percent of GDP, so their break even physically 250 00:13:33,400 --> 00:13:36,360 Speaker 1: it's more like eighty dollar barrel, while for Russias around 251 00:13:36,400 --> 00:13:39,880 Speaker 1: fort So in this war, actually on the physical side, 252 00:13:40,120 --> 00:13:43,160 Speaker 1: it's true that Saouldi have more reserves than they can 253 00:13:43,240 --> 00:13:46,160 Speaker 1: run them down. But between the two, on the micropoint 254 00:13:46,160 --> 00:13:48,360 Speaker 1: of view, Saudi are weaker. But of course they can 255 00:13:48,360 --> 00:13:51,280 Speaker 1: play this game for a few months until the Russian 256 00:13:51,320 --> 00:13:53,120 Speaker 1: is gonna come and say let's do a deal by 257 00:13:53,160 --> 00:13:56,000 Speaker 1: both sides want to get rid of the shell gas 258 00:13:56,040 --> 00:13:58,560 Speaker 1: producer in US, but the shell gus producing US once 259 00:13:58,600 --> 00:14:00,720 Speaker 1: all goes to forty fifty, are going to be back. 260 00:14:00,720 --> 00:14:04,240 Speaker 1: Even if they're back the margin. How does Germany buy 261 00:14:04,320 --> 00:14:09,439 Speaker 1: from Saudi Arabia versus their long term relationship on hydrocarbons 262 00:14:09,440 --> 00:14:12,760 Speaker 1: with Russia. Uh, well, you know, they have to diversify 263 00:14:12,920 --> 00:14:16,000 Speaker 1: and they've decided to phase out essentially called so they're 264 00:14:16,040 --> 00:14:19,040 Speaker 1: gonna do more renewable energy, but definitely they need still 265 00:14:19,040 --> 00:14:21,800 Speaker 1: oil from the Middle East and they need GUS from Russia. 266 00:14:22,040 --> 00:14:25,520 Speaker 1: So for Germany there's no other option absolutely So, So 267 00:14:25,560 --> 00:14:29,240 Speaker 1: if we're lower oil for longer, what does that mean? 268 00:14:29,560 --> 00:14:31,920 Speaker 1: You know, for the overall global GDP picture. Because you 269 00:14:32,040 --> 00:14:35,080 Speaker 1: compare that, you weigh at against these you know, the 270 00:14:35,160 --> 00:14:38,920 Speaker 1: issues presented by the coronavirus on the demand side is 271 00:14:38,920 --> 00:14:42,480 Speaker 1: that pushes into a global recession. There's lower oil keep 272 00:14:42,560 --> 00:14:44,480 Speaker 1: us from going into a global recession. How do you 273 00:14:44,480 --> 00:14:46,720 Speaker 1: weigh those two? Well, if the price of oil falls 274 00:14:46,800 --> 00:14:50,800 Speaker 1: because of a increasing supply, there is a price war 275 00:14:51,240 --> 00:14:54,440 Speaker 1: as opposed to fall in demand. Because until now a 276 00:14:54,560 --> 00:14:57,720 Speaker 1: week ago was a falling demand recession on global growth, 277 00:14:57,760 --> 00:15:00,760 Speaker 1: prices were falling. That was a negative signal. But now 278 00:15:01,000 --> 00:15:03,040 Speaker 1: all prices are falling because there's going to be a 279 00:15:03,160 --> 00:15:06,880 Speaker 1: glass of supply from Russia and from Saudi Arabia. Then 280 00:15:07,160 --> 00:15:09,560 Speaker 1: in that situation, actually I think that the impact on 281 00:15:09,600 --> 00:15:12,680 Speaker 1: the global economy at the margin is positive because the 282 00:15:12,760 --> 00:15:16,680 Speaker 1: marginal propensity to spend of all importers is greater than 283 00:15:16,720 --> 00:15:19,600 Speaker 1: the marginal propensity to spend of the all exporters. So 284 00:15:19,600 --> 00:15:22,440 Speaker 1: they all exports are gonna produce less, they're gonna do 285 00:15:22,520 --> 00:15:25,280 Speaker 1: less capex, they're gonna fire some workers. But then the 286 00:15:25,440 --> 00:15:28,280 Speaker 1: consumers of oil, even in country like the US where 287 00:15:28,280 --> 00:15:31,360 Speaker 1: we're not any more net importer, the distributional and benefit 288 00:15:31,440 --> 00:15:34,360 Speaker 1: goes to the consumer, and they hurting the producer let 289 00:15:34,400 --> 00:15:38,560 Speaker 1: alone in countries like China, like India, like Japan, like Korea, 290 00:15:38,640 --> 00:15:41,080 Speaker 1: like most of Europe that are net all importers. So 291 00:15:41,120 --> 00:15:44,240 Speaker 1: at the margin, actually this is a war that is 292 00:15:44,280 --> 00:15:46,880 Speaker 1: bad for the stock market because the stock market reflects 293 00:15:46,920 --> 00:15:50,120 Speaker 1: the energy company's stocks. But for the real economy, actually 294 00:15:50,280 --> 00:15:53,600 Speaker 1: collapsing all prices is a benefit at the margin. It's 295 00:15:53,600 --> 00:15:56,200 Speaker 1: not going to prevent the recession because you have a coronavirus, 296 00:15:56,240 --> 00:15:59,280 Speaker 1: but it's gonna make it less damaging at least for 297 00:15:59,360 --> 00:16:03,280 Speaker 1: the consumers. So the strategic value here for Saudi Arabia 298 00:16:03,320 --> 00:16:05,720 Speaker 1: and in Russia to kind of put pressure on the 299 00:16:05,840 --> 00:16:08,680 Speaker 1: U S shale producers. That will happen. We've seen the 300 00:16:08,680 --> 00:16:11,360 Speaker 1: balance sheets for these shales producers not good, so there's 301 00:16:11,360 --> 00:16:13,560 Speaker 1: a lot of credit issues here. But as soon as oil, 302 00:16:13,640 --> 00:16:16,400 Speaker 1: as you say, oil comes back to hour, Wall Street's 303 00:16:16,400 --> 00:16:17,960 Speaker 1: gonna come right back to the shale patch and we're 304 00:16:17,960 --> 00:16:20,120 Speaker 1: gonna have those guys start backed up in a year 305 00:16:20,200 --> 00:16:23,120 Speaker 1: or two. I mean, so strategically the oils in the 306 00:16:23,200 --> 00:16:26,640 Speaker 1: ground in the shale area. So I just you know, 307 00:16:26,680 --> 00:16:29,000 Speaker 1: I just don't see the long term strategic value for 308 00:16:29,320 --> 00:16:31,200 Speaker 1: what Saudi Arabia and Russia are trying to do it. 309 00:16:31,200 --> 00:16:32,920 Speaker 1: Seems like the near term costs are just too much. 310 00:16:33,200 --> 00:16:35,760 Speaker 1: Oh their cost But then if you can let many 311 00:16:35,800 --> 00:16:38,880 Speaker 1: of these guys, especially the smaller ones going bankrupt, and 312 00:16:38,920 --> 00:16:41,280 Speaker 1: many of them were over leveraged, it's going to take 313 00:16:41,320 --> 00:16:43,200 Speaker 1: a couple of years until these people are gonna be 314 00:16:43,240 --> 00:16:46,280 Speaker 1: able to start producing again. When you have consolidation in 315 00:16:46,320 --> 00:16:49,000 Speaker 1: the shale, gus in all industries, so you have a 316 00:16:49,120 --> 00:16:52,320 Speaker 1: short term loss of income, say for three four months, 317 00:16:52,480 --> 00:16:55,480 Speaker 1: they get the truth by June, and then at that 318 00:16:55,560 --> 00:16:58,200 Speaker 1: point many of these smaller guys are gonna be already bankrupt, 319 00:16:58,480 --> 00:17:00,760 Speaker 1: and you have some reduction in product. It's not gonna 320 00:17:00,760 --> 00:17:03,040 Speaker 1: be a used reduction production the United States, but you 321 00:17:03,080 --> 00:17:05,560 Speaker 1: can cause enough damage that you buy yourself maybe another 322 00:17:05,560 --> 00:17:07,920 Speaker 1: couple of years, but you're right. Over the medium long term, 323 00:17:08,080 --> 00:17:10,399 Speaker 1: there is no way in which especially the Saudi is 324 00:17:10,760 --> 00:17:13,160 Speaker 1: not along the Russians can essentially deal with the fact 325 00:17:13,160 --> 00:17:15,760 Speaker 1: that we've shell gas and oil. The equilibrium all price 326 00:17:15,880 --> 00:17:19,400 Speaker 1: without OPEC, it's closer to twenty, if not ten. Right, 327 00:17:19,440 --> 00:17:22,840 Speaker 1: in a perfect competitive economy which there is no cartile equilibrium, 328 00:17:22,840 --> 00:17:25,240 Speaker 1: all prices might be closer town. We're gonna have demand 329 00:17:25,280 --> 00:17:27,400 Speaker 1: fall in the medium term because there's gonna be pick 330 00:17:27,480 --> 00:17:30,359 Speaker 1: All dement and therefore all prices have to be lower. No, 331 00:17:30,560 --> 00:17:33,360 Speaker 1: I got one minute left more than anybody I know. 332 00:17:33,960 --> 00:17:38,040 Speaker 1: You know Milan, your Iranian Turkish. You ended up in 333 00:17:38,119 --> 00:17:44,640 Speaker 1: Milan Synagogue Centrale told Jewish sense of Milan as well. 334 00:17:44,840 --> 00:17:49,000 Speaker 1: What do you how do you synthesize a lockdown in 335 00:17:49,040 --> 00:17:52,240 Speaker 1: your Milan? Well, it's terrible. I saw a video essentially 336 00:17:52,280 --> 00:17:56,679 Speaker 1: of Saskala and Viemon zone totally empty, deserted, like a 337 00:17:56,720 --> 00:17:59,560 Speaker 1: total desert. But I think the Italians are doing the 338 00:17:59,640 --> 00:18:02,960 Speaker 1: right They're finally doing what China did, because in the 339 00:18:03,000 --> 00:18:06,080 Speaker 1: US we are actually fudging it, pretending there's not spreading, 340 00:18:06,240 --> 00:18:08,560 Speaker 1: and it's gonna get worse. In Italy. Now they're gonna 341 00:18:08,560 --> 00:18:11,280 Speaker 1: realize they have to do what China did, total quarantine. 342 00:18:11,560 --> 00:18:14,280 Speaker 1: You're gonna collapse the economy for a quarter. But if 343 00:18:14,280 --> 00:18:17,000 Speaker 1: you can stop the contagion, then the economy is gonna 344 00:18:17,000 --> 00:18:19,679 Speaker 1: recover with the monitor and physical stables. If instead you 345 00:18:19,760 --> 00:18:21,520 Speaker 1: fudge that you can count down the road like the 346 00:18:21,600 --> 00:18:23,960 Speaker 1: US is gonna explode in your face. So in the 347 00:18:24,040 --> 00:18:26,520 Speaker 1: short time, economy is weaken ling less, but over time 348 00:18:26,520 --> 00:18:28,480 Speaker 1: it's gonna weekend more so the Italians now are going 349 00:18:28,600 --> 00:18:31,920 Speaker 1: China while we're still doing what Italy did a month ago. 350 00:18:32,000 --> 00:18:34,720 Speaker 1: And that's a mistaken us being you. Thank you so much, 351 00:18:34,760 --> 00:18:37,440 Speaker 1: of course, with New York University and his economic work 352 00:18:37,480 --> 00:18:44,159 Speaker 1: worldwidetre look he pop futures minneus seventies six right now. 353 00:18:44,160 --> 00:18:47,080 Speaker 1: It's a miracle. It's a miracle magic here. I don't 354 00:18:47,119 --> 00:18:50,480 Speaker 1: take blame nor credit, and I've never trade. But when 355 00:18:50,640 --> 00:18:52,919 Speaker 1: you blame my life, which did you blame? Are your 356 00:18:52,960 --> 00:18:55,359 Speaker 1: dets a lot of snow buttter Nero being there on 357 00:18:55,440 --> 00:19:09,640 Speaker 1: international you can ask you want to bring an handsome goal. 358 00:19:09,840 --> 00:19:11,399 Speaker 1: I now he's very excited about jumping in, and I 359 00:19:11,400 --> 00:19:13,040 Speaker 1: can see it. He said he wouldn't speak into the 360 00:19:13,119 --> 00:19:17,520 Speaker 1: Bostri so his chief US Secretary strategist give money to John. 361 00:19:17,680 --> 00:19:20,360 Speaker 1: Good morning, your thoughts your message for clients this morning? Well, 362 00:19:20,480 --> 00:19:22,720 Speaker 1: I can I just jump in on the I mean, 363 00:19:22,760 --> 00:19:27,080 Speaker 1: if you look at those of Americans who are you 364 00:19:27,080 --> 00:19:29,560 Speaker 1: know on you know or you know, paycheck to paycheck, 365 00:19:29,880 --> 00:19:32,160 Speaker 1: that guy is probably not going to be benefited all 366 00:19:32,200 --> 00:19:35,480 Speaker 1: that much by by moving his tax returns by a month, 367 00:19:35,600 --> 00:19:37,480 Speaker 1: and at least we got to find a program for 368 00:19:37,520 --> 00:19:39,920 Speaker 1: those people. Do we're gonna do? We all agree apparel 369 00:19:40,000 --> 00:19:42,360 Speaker 1: tax cuts just doesn't know. I think, more broadly, John, 370 00:19:42,400 --> 00:19:45,240 Speaker 1: the discussion here is about whether some of these demands 371 00:19:45,280 --> 00:19:48,119 Speaker 1: side initiatives on the stimulus side are going to be 372 00:19:48,320 --> 00:19:50,920 Speaker 1: useless or limited in use. I don't I don't think. 373 00:19:50,960 --> 00:19:53,080 Speaker 1: I don't think use. I don't think it's useless. They're 374 00:19:53,080 --> 00:19:57,040 Speaker 1: gonna have an effect way after this crisis is gone. Um, 375 00:19:57,080 --> 00:20:00,600 Speaker 1: But I think that these things, the narrower they are addressing, 376 00:20:00,960 --> 00:20:05,800 Speaker 1: you know, displacement in the in the energy sector, leisure businesses, 377 00:20:06,000 --> 00:20:10,040 Speaker 1: and displaced workers. And the benefit of being more targeted 378 00:20:10,119 --> 00:20:12,640 Speaker 1: is it doesn't have to be expensive. It just has 379 00:20:12,680 --> 00:20:15,480 Speaker 1: to be appropriate. Otherwise all you're gonna see is at 380 00:20:15,560 --> 00:20:17,600 Speaker 1: least we'd say before is that this money is going 381 00:20:17,640 --> 00:20:20,960 Speaker 1: to get saved and and it just it just doesn't 382 00:20:20,960 --> 00:20:22,800 Speaker 1: have an impact. Well, I don't mind if it gets saved, 383 00:20:22,840 --> 00:20:24,480 Speaker 1: and I don't mind if it gets used to pace debt. 384 00:20:24,520 --> 00:20:26,160 Speaker 1: I don't expect them to go out to a restaurant. 385 00:20:26,160 --> 00:20:28,200 Speaker 1: I don't expect them to get a flight. The worry 386 00:20:28,240 --> 00:20:29,920 Speaker 1: we have right now is that people won't be able 387 00:20:29,920 --> 00:20:32,080 Speaker 1: to make the mutgage repayments. People won't be able to 388 00:20:32,119 --> 00:20:33,960 Speaker 1: make their loan repayments. And I think that I think 389 00:20:33,960 --> 00:20:36,120 Speaker 1: the government has a really important role to play there. 390 00:20:36,320 --> 00:20:38,800 Speaker 1: I mean, if small businesses need to make sure that 391 00:20:38,840 --> 00:20:41,479 Speaker 1: they have lines of credit available to them so that 392 00:20:41,560 --> 00:20:44,280 Speaker 1: if they have a hard time making payroll that the 393 00:20:44,320 --> 00:20:47,080 Speaker 1: banks are going to lengths and the government can backstop that. 394 00:20:47,359 --> 00:20:49,280 Speaker 1: Those kind of actions I think are critical. This is 395 00:20:49,320 --> 00:20:53,200 Speaker 1: such a guy discussion, Mr Brandwich, would you please explain 396 00:20:53,240 --> 00:20:55,560 Speaker 1: to the world that the number one headache right now, 397 00:20:55,600 --> 00:20:59,600 Speaker 1: without question is children will be home from school. Now 398 00:20:59,680 --> 00:21:05,440 Speaker 1: that totally upsets for millions of Americans, the apple cart 399 00:21:05,560 --> 00:21:08,560 Speaker 1: and in so many different ways. I mean, not to me, 400 00:21:08,640 --> 00:21:10,919 Speaker 1: that's far greater than anything else. Well, that is going 401 00:21:11,000 --> 00:21:12,840 Speaker 1: to be the key question is if you do shut 402 00:21:12,880 --> 00:21:14,840 Speaker 1: down schools will not keep people out of work, And 403 00:21:14,880 --> 00:21:17,240 Speaker 1: that's an issue. But those are people often who have 404 00:21:17,440 --> 00:21:19,840 Speaker 1: jobs that they go to on routine levels or even 405 00:21:19,880 --> 00:21:21,840 Speaker 1: if they've got gigs. I mean, this is gonna be 406 00:21:21,840 --> 00:21:25,080 Speaker 1: a serious issue. But John, I'm curious about you know, 407 00:21:25,119 --> 00:21:27,920 Speaker 1: all the people have part time jobs the gig economy. 408 00:21:28,000 --> 00:21:30,280 Speaker 1: Right now, I was watching I was looking at how 409 00:21:30,359 --> 00:21:32,960 Speaker 1: Uber and Lift and some of the other ride sharing 410 00:21:33,000 --> 00:21:37,399 Speaker 1: companies are looking at possibly compensating ride drivers if they 411 00:21:37,400 --> 00:21:39,840 Speaker 1: have to self quarantine for fourteen days or take off 412 00:21:39,880 --> 00:21:42,960 Speaker 1: because they're sick. I mean, how much does this expose 413 00:21:43,040 --> 00:21:47,080 Speaker 1: some of the cracks that's been created by that entire infrastructure. 414 00:21:47,560 --> 00:21:50,000 Speaker 1: First of all, the answer is yes, it does, and 415 00:21:50,080 --> 00:21:52,080 Speaker 1: we're going to see that. But I think that the 416 00:21:52,119 --> 00:21:56,000 Speaker 1: difference between this turning into a recession and not is 417 00:21:56,040 --> 00:21:58,560 Speaker 1: not whether or not the economy takes a little bit 418 00:21:58,600 --> 00:22:00,320 Speaker 1: of hit, but whether or not come and he has 419 00:22:00,320 --> 00:22:02,680 Speaker 1: decided to lay off workers, or whether those gig workers 420 00:22:02,840 --> 00:22:05,560 Speaker 1: there's enough of them that actually creates a problem. You know, 421 00:22:05,560 --> 00:22:07,600 Speaker 1: if if you look at the way that recessions have 422 00:22:07,600 --> 00:22:10,720 Speaker 1: worked historically, it takes a period of time for a company, 423 00:22:10,800 --> 00:22:13,840 Speaker 1: especially the labor market is tight. Companies, if they think 424 00:22:13,880 --> 00:22:15,560 Speaker 1: this is gonna be over in the next two or 425 00:22:15,600 --> 00:22:18,720 Speaker 1: three months or whatever that period is, they're not gonna 426 00:22:18,760 --> 00:22:20,679 Speaker 1: want to lay off workers if they can avoid it, 427 00:22:20,920 --> 00:22:23,439 Speaker 1: and they rather take it out of profits in the 428 00:22:23,480 --> 00:22:26,000 Speaker 1: near term, because hiring that worker back is going to 429 00:22:26,080 --> 00:22:28,560 Speaker 1: be more expensive, and that's gonna be critical. If this 430 00:22:28,640 --> 00:22:31,760 Speaker 1: lasts longer, then you have a second issue. Yes, his 431 00:22:31,800 --> 00:22:34,399 Speaker 1: individuals are displaced, but but broadly, I don't think you 432 00:22:34,400 --> 00:22:38,280 Speaker 1: will have that futures negative negative. And then take this 433 00:22:38,320 --> 00:22:42,000 Speaker 1: recession discussion and it's all earnings, earnings, earnings for fancy 434 00:22:42,040 --> 00:22:44,440 Speaker 1: guys like you right now, forget about that. What's the 435 00:22:44,520 --> 00:22:47,360 Speaker 1: due to the revenue dynamic? And what is the revenue 436 00:22:47,440 --> 00:22:51,680 Speaker 1: dynamic in this crisis signal to you six months out? Well, 437 00:22:51,760 --> 00:22:54,640 Speaker 1: we you know, first of all, the first quarter UM 438 00:22:55,000 --> 00:22:56,760 Speaker 1: is really gonna be fine. Why because we had a 439 00:22:56,760 --> 00:23:00,320 Speaker 1: good January and February and even now we're just beginning 440 00:23:00,359 --> 00:23:02,320 Speaker 1: to see certain things being closed down. So the first 441 00:23:02,400 --> 00:23:05,000 Speaker 1: quarter earnings, you know, our estimate is is it used 442 00:23:05,040 --> 00:23:06,200 Speaker 1: to be that we're gonna have six and a half 443 00:23:06,240 --> 00:23:08,440 Speaker 1: percent earnings in the first quarter. Now we think we'll 444 00:23:08,480 --> 00:23:11,119 Speaker 1: have one. That's not a great number, but it's not 445 00:23:11,200 --> 00:23:14,159 Speaker 1: a disaster. The second quarter we think that, you know, 446 00:23:14,240 --> 00:23:17,480 Speaker 1: EPs for the for the SMP is gonna be somewhere 447 00:23:17,520 --> 00:23:20,879 Speaker 1: between down five and ten percent UM. But it really 448 00:23:21,080 --> 00:23:23,800 Speaker 1: the question is how much longer does this does it 449 00:23:23,840 --> 00:23:25,920 Speaker 1: go on? If that's all we're looking at, and you 450 00:23:26,000 --> 00:23:27,680 Speaker 1: get a bounce in the second half of the year, 451 00:23:27,880 --> 00:23:31,120 Speaker 1: which we think you will flat earnings this year, which 452 00:23:31,160 --> 00:23:34,160 Speaker 1: is what we're calling for. It's not brilliant, but it's 453 00:23:34,280 --> 00:23:37,199 Speaker 1: if that's your worst case, that's not terrible, but it 454 00:23:37,240 --> 00:23:39,760 Speaker 1: has to be. Ultimately, it's how how how quickly we 455 00:23:39,800 --> 00:23:41,760 Speaker 1: contain Can you model what kind of multiple you would 456 00:23:41,760 --> 00:23:43,600 Speaker 1: put on those earnings at the moment? John, Yeah, I 457 00:23:43,600 --> 00:23:45,680 Speaker 1: mean the multiple is gonna move, you know, Tom It 458 00:23:45,760 --> 00:23:47,840 Speaker 1: keeps harping on this issue with the VIX, but it's like, 459 00:23:47,840 --> 00:23:50,680 Speaker 1: it's super important if the VIX ends the year of fifteen, 460 00:23:50,760 --> 00:23:53,240 Speaker 1: meaning if this thing is reasonably resolved by the middle 461 00:23:53,240 --> 00:23:59,240 Speaker 1: of the one five. But if if the end of 462 00:23:59,280 --> 00:24:02,480 Speaker 1: the question we're is a VIX on December thirty one, 463 00:24:02,560 --> 00:24:05,040 Speaker 1: not whereas the vix on on Wednesday. But if the 464 00:24:05,119 --> 00:24:08,240 Speaker 1: VIX on December thirty one is back down somewhere in 465 00:24:08,240 --> 00:24:10,880 Speaker 1: that ballpark, which means that this is is now part 466 00:24:10,920 --> 00:24:14,120 Speaker 1: of our history, then you're gonna have a multiple over 467 00:24:14,160 --> 00:24:17,520 Speaker 1: eighteen on the market um come year end. How depending 468 00:24:17,560 --> 00:24:20,480 Speaker 1: on are all of your estimates on the policy response, 469 00:24:20,480 --> 00:24:22,880 Speaker 1: on the idea that we get a coherent and timely 470 00:24:23,240 --> 00:24:25,720 Speaker 1: policy response in the United States, Yeah, I'm not. I'm 471 00:24:25,720 --> 00:24:28,120 Speaker 1: not assuming that we're gonna get something brilliant on policy. 472 00:24:28,320 --> 00:24:30,240 Speaker 1: What I am assuming and I think, but what when 473 00:24:30,320 --> 00:24:33,440 Speaker 1: I talk to in stitial investors they're assuming is that 474 00:24:33,480 --> 00:24:35,800 Speaker 1: the number of cases is going to rise as we 475 00:24:35,880 --> 00:24:38,120 Speaker 1: test more people, and the news flow is gonna get 476 00:24:38,119 --> 00:24:40,760 Speaker 1: a little bit ugly over the coming weeks. But in 477 00:24:41,040 --> 00:24:44,520 Speaker 1: if we use the Chinese or Korean experience or whatever, 478 00:24:44,840 --> 00:24:47,120 Speaker 1: we're gonna see in two or three months from now, 479 00:24:47,400 --> 00:24:50,080 Speaker 1: the number of cases is gonna be shrinking, a number 480 00:24:50,119 --> 00:24:54,040 Speaker 1: of new cases, and the market's gonna say, Okay, this 481 00:24:54,119 --> 00:24:57,040 Speaker 1: thing is now under control. And if that's the way 482 00:24:57,040 --> 00:25:00,920 Speaker 1: it plays out, then um, then and the multiple does 483 00:25:01,040 --> 00:25:02,640 Speaker 1: rise back up? On should I get out of cash 484 00:25:02,720 --> 00:25:05,679 Speaker 1: and triple average cash? What do you think? Triple leverage? 485 00:25:06,640 --> 00:25:08,240 Speaker 1: But you know, I mean, do I think? I mean, 486 00:25:08,240 --> 00:25:10,240 Speaker 1: we have a thirty three hundred target between now and 487 00:25:10,280 --> 00:25:12,760 Speaker 1: the end of the year. You're sustaining that right now? No? No, 488 00:25:12,800 --> 00:25:15,439 Speaker 1: we went from thirty six hundred to three hundred. But 489 00:25:15,720 --> 00:25:17,399 Speaker 1: what I do I believe that the mark will be 490 00:25:17,480 --> 00:25:19,800 Speaker 1: higher between now and the end of the year. Absolutely, 491 00:25:19,880 --> 00:25:24,159 Speaker 1: do I think they will see new lows. Fay feels 492 00:25:24,200 --> 00:25:26,679 Speaker 1: like December, the end of the week, at the end 493 00:25:26,680 --> 00:25:29,359 Speaker 1: of the week December thirty one feels that white silm 494 00:25:29,440 --> 00:25:32,400 Speaker 1: it does futures negative seventy one, down futures negative five 495 00:25:32,440 --> 00:25:35,440 Speaker 1: seventy four, John, thank you so much. We're gonna say it, John, 496 00:25:47,359 --> 00:25:49,080 Speaker 1: Why don't you bring in Megan Green here with some 497 00:25:49,240 --> 00:25:51,800 Speaker 1: really interesting what's great about her? She's got a fancy 498 00:25:51,800 --> 00:25:54,359 Speaker 1: British education as well, so she can really do the 499 00:25:54,359 --> 00:25:56,520 Speaker 1: trans atlantic look. To be honest, knows you're better than 500 00:25:56,520 --> 00:25:58,520 Speaker 1: anyone I speak to on a regular basis. Macan Green 501 00:25:58,600 --> 00:26:00,920 Speaker 1: joining us Now, how the Kennedy say, any a fellow, Megan, 502 00:26:01,000 --> 00:26:04,040 Speaker 1: Let's get straight to Europe. The ECB tomorrow, Christine Laguard 503 00:26:04,080 --> 00:26:06,760 Speaker 1: coming down and telling you you leaders reportedly that if 504 00:26:06,760 --> 00:26:09,159 Speaker 1: they don't act, we could have an outcome that remind 505 00:26:09,240 --> 00:26:12,680 Speaker 1: us of our way. Your thoughts on that line, Yeah, 506 00:26:12,760 --> 00:26:15,080 Speaker 1: I mean, I think that's pretty stark. Um. I think 507 00:26:15,080 --> 00:26:18,520 Speaker 1: it's probably a bit overdone, except for where Italy is concerned, right, 508 00:26:18,560 --> 00:26:21,240 Speaker 1: because Italy still has a massive debt burden, they're almost 509 00:26:21,240 --> 00:26:24,280 Speaker 1: certainly in recession. They're going to go further into recession 510 00:26:24,280 --> 00:26:27,399 Speaker 1: with the entire country in lockdown, and so then you know, 511 00:26:27,480 --> 00:26:31,879 Speaker 1: you could get some throwback to the sovereign debt crisis. UM. 512 00:26:31,920 --> 00:26:33,520 Speaker 1: But I do think that the e c D has 513 00:26:33,560 --> 00:26:35,960 Speaker 1: more tools now than they had in two thousand and eight, 514 00:26:36,040 --> 00:26:38,160 Speaker 1: which is a good thing. I'm just not sure they're 515 00:26:38,160 --> 00:26:40,640 Speaker 1: going to use them this week, so UM, I think 516 00:26:40,640 --> 00:26:43,200 Speaker 1: they'll probably end up cutting rates and they'll probably announce 517 00:26:43,240 --> 00:26:46,520 Speaker 1: more QUI I don't think that will help much at all. UM. 518 00:26:46,600 --> 00:26:48,280 Speaker 1: With the tool that they do have that could help 519 00:26:48,320 --> 00:26:52,159 Speaker 1: as their targeted lending refinancing operations with tel tros Um, 520 00:26:52,200 --> 00:26:55,399 Speaker 1: which already exists, UH, and they should use them to 521 00:26:55,440 --> 00:26:57,719 Speaker 1: try to get cash exactly where cash is needed. This 522 00:26:57,800 --> 00:26:59,679 Speaker 1: is a different challenge to two thousand and eight in 523 00:26:59,720 --> 00:27:02,520 Speaker 1: that and TIS hasn't for all of us. Across the 524 00:27:02,560 --> 00:27:04,600 Speaker 1: developed world, we were looking at the seizing up of 525 00:27:04,680 --> 00:27:08,399 Speaker 1: markets um in a multi year decline and then really 526 00:27:08,440 --> 00:27:11,280 Speaker 1: slow recovery this time around. A lot of businesses need of, 527 00:27:11,600 --> 00:27:13,680 Speaker 1: you know, a bridge loan for a quarter or two 528 00:27:14,040 --> 00:27:15,760 Speaker 1: and then they might be able to weather this, and 529 00:27:15,800 --> 00:27:18,199 Speaker 1: so getting cash exactly where it's needed as difficult. I 530 00:27:18,200 --> 00:27:21,280 Speaker 1: think the Teltro's could help, just because they're targeted and 531 00:27:21,440 --> 00:27:23,560 Speaker 1: subsidized by the ECB, but I don't think we'll hear 532 00:27:23,560 --> 00:27:25,680 Speaker 1: an announcement about it. Well, let's talk about those lending 533 00:27:25,680 --> 00:27:27,840 Speaker 1: tools and talk to our listeners about the tow try 534 00:27:27,840 --> 00:27:30,600 Speaker 1: if you're not familiar too familiar with ECP monetary policy 535 00:27:30,600 --> 00:27:32,160 Speaker 1: over the last few years, it has been a tool 536 00:27:32,200 --> 00:27:35,520 Speaker 1: that they've deployed many times under President Mario drag Megan, 537 00:27:35,600 --> 00:27:38,280 Speaker 1: how can Christine the guard adapt that to address the 538 00:27:38,320 --> 00:27:42,640 Speaker 1: same issue, so she could offer her teltro's at its 539 00:27:42,640 --> 00:27:44,960 Speaker 1: own rate rather than at the deposit rate right now? 540 00:27:45,040 --> 00:27:47,840 Speaker 1: So right now banks keep borrows needs to be at 541 00:27:47,840 --> 00:27:50,800 Speaker 1: the deposit rate, which is negative, so they get paid 542 00:27:51,160 --> 00:27:53,280 Speaker 1: as long as they lend onto the real economy, and 543 00:27:53,359 --> 00:27:56,000 Speaker 1: so it can be targeted more specifically to lending onto 544 00:27:56,080 --> 00:27:59,600 Speaker 1: the sames or to lending to small companies and distress 545 00:28:00,080 --> 00:28:03,240 Speaker 1: um and then the cultural rate could be deeply negative. 546 00:28:03,320 --> 00:28:05,800 Speaker 1: So essentially banks could borrow from the e c D 547 00:28:05,920 --> 00:28:08,960 Speaker 1: it let's say negative two basis points, so they get 548 00:28:09,000 --> 00:28:11,240 Speaker 1: paid to borrow, and then they could lend it on 549 00:28:11,440 --> 00:28:15,520 Speaker 1: to distress companies at negative rates as well. So they've 550 00:28:15,520 --> 00:28:17,680 Speaker 1: been a bit from a carry trade, but everybody gets 551 00:28:17,680 --> 00:28:21,040 Speaker 1: subsidized by the ECB. Essentially, Megan Green, in honor of 552 00:28:21,119 --> 00:28:24,000 Speaker 1: all the people listening to this who studied some of 553 00:28:24,040 --> 00:28:27,399 Speaker 1: this in some books at some time. What you're discussing 554 00:28:27,520 --> 00:28:34,680 Speaker 1: almost sounds like devious or affected or funny money procedures. 555 00:28:35,280 --> 00:28:38,200 Speaker 1: Is there any evidence any of this will work without 556 00:28:38,360 --> 00:28:44,400 Speaker 1: some form of consequence out there? Well, so you could 557 00:28:44,440 --> 00:28:46,720 Speaker 1: end up with a misallocation of capital. You're right, if 558 00:28:46,720 --> 00:28:50,240 Speaker 1: you're subsidizing everyone, everyone will want to borrow. So it's like, 559 00:28:50,360 --> 00:28:52,640 Speaker 1: I feel like, I'm you know, central bank t ball. 560 00:28:52,720 --> 00:28:57,760 Speaker 1: Everybody gets a blue ribbon, this undegree, and this isn't 561 00:28:57,800 --> 00:29:00,760 Speaker 1: the first best option for anyone. And of course there's 562 00:29:00,840 --> 00:29:04,560 Speaker 1: a big fiscal stimulus package would be the best option, um, 563 00:29:04,560 --> 00:29:06,840 Speaker 1: but that doesn't seem to be coming down the line 564 00:29:06,840 --> 00:29:08,960 Speaker 1: and the way or the size that lots of people 565 00:29:09,000 --> 00:29:12,880 Speaker 1: are hoping for, particularly in the in the Eurozone. And 566 00:29:12,920 --> 00:29:14,920 Speaker 1: so the e c D is kind of the second 567 00:29:14,920 --> 00:29:18,080 Speaker 1: best option here. But but at least there is one, um, 568 00:29:18,120 --> 00:29:20,760 Speaker 1: you know, in the US to FETs hands are really 569 00:29:20,800 --> 00:29:23,680 Speaker 1: tied by Dodd Frank after the last crisis. So at 570 00:29:23,720 --> 00:29:26,240 Speaker 1: least the ECB has the more for more room for 571 00:29:26,360 --> 00:29:29,360 Speaker 1: reneuver Megan. I'm I'm kind of struck by by the 572 00:29:29,400 --> 00:29:32,440 Speaker 1: focus right now on the public sector, the public response 573 00:29:32,480 --> 00:29:37,040 Speaker 1: from politicians and uh AND and monetary policy members. You 574 00:29:37,080 --> 00:29:39,720 Speaker 1: and I have talked a lot about the private investing 575 00:29:39,840 --> 00:29:43,440 Speaker 1: sector and how it's exploded with respect to capital. Supposedly, 576 00:29:43,440 --> 00:29:45,560 Speaker 1: there's all this dry powder on the books of private 577 00:29:45,560 --> 00:29:49,440 Speaker 1: equity firms and private debt firms. Why isn't the focus 578 00:29:49,480 --> 00:29:52,320 Speaker 1: on whether or not they are going to actually deploy 579 00:29:52,400 --> 00:29:54,880 Speaker 1: some of that and help some companies stay in business 580 00:29:54,960 --> 00:29:57,800 Speaker 1: through this period of time with bridge loans or other 581 00:29:57,840 --> 00:30:02,400 Speaker 1: types of measures. Yeah, that's a great question. So for starters, 582 00:30:02,440 --> 00:30:04,400 Speaker 1: I'm not sure that there is a perception that there's 583 00:30:04,440 --> 00:30:07,240 Speaker 1: tons of dry powder out there in the private markets, um, 584 00:30:07,280 --> 00:30:09,719 Speaker 1: partly because we just don't know what's sitting on their books. 585 00:30:09,760 --> 00:30:12,640 Speaker 1: So it's possible that they don't have any dry powder 586 00:30:12,680 --> 00:30:15,240 Speaker 1: at all. Um. And there's you know, for example, a 587 00:30:15,280 --> 00:30:18,160 Speaker 1: lot of clos sitting out there, um that that could 588 00:30:18,160 --> 00:30:21,160 Speaker 1: go under. So I think that the credit worry certainly 589 00:30:21,520 --> 00:30:24,520 Speaker 1: applies to private markets as well. UM. But secondly, you know, 590 00:30:24,560 --> 00:30:27,880 Speaker 1: the prive factors are in the business of making money, 591 00:30:28,000 --> 00:30:30,640 Speaker 1: so um, it might be in their best interest to 592 00:30:30,920 --> 00:30:33,840 Speaker 1: provide bridge loans that they're under new obligation. That's for sure. 593 00:30:33,880 --> 00:30:36,160 Speaker 1: So I think what we need to see is um 594 00:30:36,520 --> 00:30:39,320 Speaker 1: numbers that are so big coming out of fiscal or 595 00:30:39,320 --> 00:30:43,040 Speaker 1: monetaryary authorities that are targeted to get us through these 596 00:30:43,440 --> 00:30:45,800 Speaker 1: court you know, a couple of months, quarter or two 597 00:30:46,360 --> 00:30:49,680 Speaker 1: where we need to get cash where it's desperately needed 598 00:30:49,720 --> 00:30:52,800 Speaker 1: for individuals of corporate Megan. They're also is a proposal 599 00:30:52,800 --> 00:30:56,160 Speaker 1: out by German regulators to possibly ease up on some 600 00:30:56,280 --> 00:30:59,520 Speaker 1: of the capital requirements offer banks. Basically they don't have 601 00:30:59,560 --> 00:31:01,800 Speaker 1: to hold us much capital if they use that money 602 00:31:02,120 --> 00:31:04,280 Speaker 1: to go out and give loans to companies that they 603 00:31:04,280 --> 00:31:07,960 Speaker 1: can stay in business. I'm just wondering whether banks are 604 00:31:08,000 --> 00:31:10,720 Speaker 1: really and and should be in the position forget you know, 605 00:31:10,800 --> 00:31:13,640 Speaker 1: extending some of the deadlines from a charities and things 606 00:31:13,640 --> 00:31:16,520 Speaker 1: like that to keep people going, but to actually extend 607 00:31:16,680 --> 00:31:19,160 Speaker 1: loans at a time when we could be heading into 608 00:31:19,160 --> 00:31:23,720 Speaker 1: a recession and that could potentially financially weaken them. Yeah, 609 00:31:23,800 --> 00:31:25,640 Speaker 1: so you raise a good point. I think it does 610 00:31:25,720 --> 00:31:28,480 Speaker 1: make sense to reduce countercyclical capital buffers, and so that 611 00:31:28,520 --> 00:31:31,560 Speaker 1: UK did it earlier today, Um, it makes sense in 612 00:31:31,680 --> 00:31:34,320 Speaker 1: years on too, But you're right for starters, you know, 613 00:31:34,360 --> 00:31:37,280 Speaker 1: it could put banks in a perilous position going into 614 00:31:37,280 --> 00:31:39,560 Speaker 1: a downturn. But also it's not like the cost of 615 00:31:39,560 --> 00:31:42,800 Speaker 1: borrowing has really been the issue, So it's it's not 616 00:31:42,880 --> 00:31:45,680 Speaker 1: like this will make businesses desperately want to go and 617 00:31:45,680 --> 00:31:48,600 Speaker 1: borrow from banks. And it's not like banks are actually 618 00:31:48,600 --> 00:31:50,800 Speaker 1: obliged to go ahead and land. So there is a 619 00:31:50,880 --> 00:31:53,840 Speaker 1: question about how much any of that capital is really 620 00:31:53,840 --> 00:31:56,160 Speaker 1: being freed up for lending because banks get to make 621 00:31:56,200 --> 00:31:59,040 Speaker 1: their own decisions even if governments lean on them. Um, 622 00:31:59,120 --> 00:32:00,760 Speaker 1: So I'm not sure how much this will help. I'm 623 00:32:00,800 --> 00:32:04,160 Speaker 1: not particularly worried about UM banks in this case, although 624 00:32:04,200 --> 00:32:09,080 Speaker 1: European banks I am more worried about than than us. Thanks, um, 625 00:32:09,080 --> 00:32:11,120 Speaker 1: But you know, I think if we're heading into a 626 00:32:11,160 --> 00:32:14,960 Speaker 1: downturn anyhow, UM, it's worth trying to avoid one rather 627 00:32:15,040 --> 00:32:18,280 Speaker 1: than not doing anything because you're worried that a downturn 628 00:32:18,360 --> 00:32:20,600 Speaker 1: might come. And Megan, thank you so much. Mega Green 629 00:32:20,680 --> 00:32:23,440 Speaker 1: with us with the Harvard County Senior Fellow. Thrilled to 630 00:32:23,440 --> 00:32:26,160 Speaker 1: have her with us. Thanks for listening to the Bloomberg 631 00:32:26,200 --> 00:32:32,160 Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 632 00:32:32,520 --> 00:32:36,760 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 633 00:32:36,800 --> 00:32:41,040 Speaker 1: Tom Keane before the podcast. You can always catch us worldwide. 634 00:32:41,520 --> 00:32:42,600 Speaker 1: I'm Bloomberg Radio.