Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
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Speaker 1: start with the markets with Joe quinnin this morning Meryl
Speaker 1: and Bank America Private Bank, head of c i O
Speaker 1: Market Strategy. Soo fantastic to catch up with you, sir.
Speaker 1: Let's just start there because the question that comes up
Speaker 1: again and again that we filled a lot, the distinction,
Speaker 1: the difference, the spread between what is happening on Main
Speaker 1: Street and what is happening on Wall Street right now, Joe,
Speaker 1: how do you answer that question? Well, it's a good question.
Speaker 1: Is top of mind with our investors as well. They're
Speaker 1: kind of scratching your head what's going on? But I
Speaker 1: mean you have to kind of part of the divide
Speaker 1: rest with the Fed Central banks on the world flooding
Speaker 1: the system with liquidity that's being put to use in
Speaker 1: the higher yielding asset class called equities. There is also
Speaker 1: the speed in quotes from Congress getting that package out
Speaker 1: of the fiscal package aggressiveness on the part of the
Speaker 1: e c B. So I think maybe it's misplaced, but
Speaker 1: I don't think it's misfounded in the sense that the
Speaker 1: policy response all of this time versus oh eight or nine,
Speaker 1: much more directed focus Zuokas, and I think I do
Speaker 1: think that gives a floor beneath equities as we grind higher.
Speaker 1: Now is it over, No, no, no doubt about it.
Speaker 1: We need to have signs that all the stimulus is
Speaker 1: actually going to help mainstream. That's the next big test test, Joe.
Speaker 1: I know we've got a lot of unknown unknowns, but
Speaker 1: what's your unknown unknown on the equity markets in terms
Speaker 1: of choosing or selecting or allocating where to put the
Speaker 1: marginal equity dollar? Now, is it large cap, bigger is better?
Speaker 1: Small cap? International? How do you reset towards May fifteen?
Speaker 1: I mean, Tom, we're trying not to be too much
Speaker 1: of that crowded trade in and around healthcare and technology,
Speaker 1: but we're sticking with those two sectors. We're putting a
Speaker 1: little bit, you know, warming up a little bit here
Speaker 1: to financials because one of our thesis is bigger is better,
Speaker 1: the banks are well capitalized, are gonna work through this
Speaker 1: problem and we do like the small cap companies, there
Speaker 1: could be some opportunities in and around biotechnology, biosecurity. So
Speaker 1: it's very selective, it's very difficult. We don't like to
Speaker 1: be stock pickers. Were not, but you've got to have
Speaker 1: to kind of step back, be careful though, where the
Speaker 1: valuations are today in certain sectors where they're not, and
Speaker 1: how you play that out. So biosecurity, biotech, healthcare, and
Speaker 1: financials look for us some opportunities. What about international? I mean, John,
Speaker 1: help me, you're John. Remind me we had one quarter
Speaker 1: or quarter and a half of decent international performance? Is
Speaker 1: that right, John? One quarter of being kind? I think
Speaker 1: we've had a couple of days in the context of
Speaker 1: a massive decade long rally in the Joy It's John's correct,
Speaker 1: as usual, with seven days, we're international performed. Joe, When
Speaker 1: do I get on board international? I mean, come on,
Speaker 1: it's in the it's it's it's tanked, it's take time,
Speaker 1: and I would just I would do it on a
Speaker 1: sector by sector basis. So technology Northeast Asia, so that's
Speaker 1: South Korea, that's gonna be Taiwan, that's gonna be Japan,
Speaker 1: and the e commerce giants of China. We know who
Speaker 1: they are because we're gonna bifur kate the technological divide
Speaker 1: here globally. They're gonna have their own system and we're
Speaker 1: gonna have our own as well, and they'll be Korea
Speaker 1: and Taiwan stuck in the middle, so to speak. So
Speaker 1: there's not much to talk about when it comes to
Speaker 1: Europe technology. But like sciences in Europe, are these a
Speaker 1: very good companies, great scientists, human capital histories. If you
Speaker 1: look at history of the drug company started in Europe,
Speaker 1: right it's gonna come back to Europe as we solve
Speaker 1: these problems. So the sector specific as opposed to country system,
Speaker 1: Joe taking a stepped back, there's a question about the
Speaker 1: risk on field that we have right now and what
Speaker 1: it's pricing in. I think that Mike Wilson over at
Speaker 1: Morgan Stanley put it well, saying that there is a
Speaker 1: bearishness still in markets, but it shifted. He said, it's
Speaker 1: a different kind of barishness, one that accepts the extraordinary
Speaker 1: policy responses having done its job to stop the decline,
Speaker 1: but skeptical that it can lead to a sustainable recovery.
Speaker 1: Do you agree with the first premise that the policy
Speaker 1: response so far has done its job to stop the
Speaker 1: decline for the foreseeable future, even as we see an
Speaker 1: unemployment rate that will likely climb up to or beyond
Speaker 1: according to some estimates. Yeah, I mean the short answer
Speaker 1: is yes, because J. Powell Company moved so quickly to
Speaker 1: provide the liquidity to all parts of the capital markets
Speaker 1: that staved off any huge blowout in credit spreads or
Speaker 1: any type of solvency issues thus far overlaid that with
Speaker 1: a fiscal response as well. So I do think that
Speaker 1: policy response, as big in its spast, gives us some
Speaker 1: some comfort. They're going forward, however, that we have to
Speaker 1: see Main Street kind of settled down, I think, and
Speaker 1: it's gonna come. When I mentioned this earlier in the
Speaker 1: sense that the healthcare industry, if you look at the
Speaker 1: GDP numbers, took up beating. But around the country hospitals
Speaker 1: are now reopening. If you want one sector to reopen, right,
Speaker 1: it's not necessarily airlines or restaurants, it's the healthcare system,
Speaker 1: the hospitals, and they're doing just that. And so I
Speaker 1: think that's gonna alleviate some of the unemployment plane in
Speaker 1: healthcare services, and that's going to be a surprise on
Speaker 1: the upside. But I do think we've got to bottom in.
Speaker 1: But we have to be realistic about the mexicansolidation phase
Speaker 1: before we get another significant leg up. I just wanted
Speaker 1: to run things out with a delicate question just on
Speaker 1: the psychology of things right now. Was something that had
Speaker 1: for manager Dan McMurtry alluded to over the weekend. Do
Speaker 1: you think there's a social stigma attached with being long
Speaker 1: this market at the moment? So what was there? Stigma?
Speaker 1: Being a text? It's just a social stigma attached to
Speaker 1: being long this market at the moment. I don't think so,
Speaker 1: not not necessarily a social stigma. I mean being along
Speaker 1: the market. And if you're in the right let me
Speaker 1: let me, let me rEFInd a question joke coming on
Speaker 1: a question like this, how difficult on a program like this,
Speaker 1: How difficult is it to say that you're long the
Speaker 1: market when we have this dreadful data in the labor
Speaker 1: market in the United States and worldwide? Okay, I would
Speaker 1: I would say, look at history, We're worked through this pandemic.
Speaker 1: Look to the other side. When it comes to the leaders,
Speaker 1: who's gonna be technology, health care, bio security. So it
Speaker 1: is difficult because we're right in the midst of the trough,
Speaker 1: right where where this is it. This is the point
Speaker 1: of maximum pain with the numbers coming in. But the
Speaker 1: markets and looking forward think of we're gonna be a ballparks,
Speaker 1: We're gonna be in restaurants. So that's I think we're
Speaker 1: the equity markets. And you can say they're projecting too
Speaker 1: far ahead, too fast. I wouldn't disagree. But when you
Speaker 1: look out eighteen twenty four months from now, we're having
Speaker 1: a totally different conversation about probably debt, inflation and other issues.
Speaker 1: But I do think there's growth on the other side,
Speaker 1: and there's opportunities now to put money to work. So Quinlin,
Speaker 1: thank you so much. Always brilliant Bank of America, greatly appreciated.
Speaker 1: Let's do this, folks, I want to do this for
Speaker 1: Global Wall Street. We can talk about the VIX. We
Speaker 1: can talk about volatility. My amateur take is, you know,
Speaker 1: bigger number means more fear, lower number means less fear,
Speaker 1: but it gets a lot more sophisticated. Dean Current joins
Speaker 1: us now Macros Advisors and Dean I want to go right.
Speaker 1: So there's a curve, which is the VIX and then
Speaker 1: there's the guestimate of where the vixes out any number
Speaker 1: of months, and that curve now is very steep, which
Speaker 1: I don't understand that. What does it mean, Dean when
Speaker 1: you see a steep futures market for volatility? Right? Thanks? Um. So,
Speaker 1: it actually is quite interesting right now to look at, um,
Speaker 1: the combination of the level of the VIX, which is
Speaker 1: of course way down from its incredible peak, but also
Speaker 1: still relative to history quite high. Um. So to see
Speaker 1: a high VIX, but also to see, as you noted,
Speaker 1: an upward sloping curve is actually pretty rare. UM. So
Speaker 1: let me just give you a quick bit of perspective
Speaker 1: on that. So the end of two thousand eight, team,
Speaker 1: remember we had that big risk off. Powell was tightening
Speaker 1: in the face of the market. Um, the VIX reached
Speaker 1: about thirty one on December, but six month volatility was
Speaker 1: much lower. So that's an inverted vall curve. The VIX
Speaker 1: is higher than the future volatility, and now you have
Speaker 1: the opposite. So if I look, for example, at one
Speaker 1: month implied volatility on the SMP, that's where the VIX
Speaker 1: comes from. That's about But if I look at six months,
Speaker 1: it's about so you have that upward slope. How do
Speaker 1: I read that? I think it's a function of just
Speaker 1: the amount of artificiality that is in asset prices right now.
Speaker 1: I'm not saying it's good or bad. It's just that
Speaker 1: folks are really struggling to make sense of what to
Speaker 1: do here. Um, there's been a massive economic sudden stop,
Speaker 1: a gigantic policy of response from the government and the Fed,
Speaker 1: and it's just really difficult to know where asset prices
Speaker 1: are going to land. And so in some ways we've
Speaker 1: punted that uncertainty out a couple of months, and that's
Speaker 1: why I see longer dated volatility out, you know, call
Speaker 1: it six months, clearing it at higher levels of the fixes. Dean,
Speaker 1: what you said is really important for this moment, the
Speaker 1: artificiality of current pricing, And do you have a sense
Speaker 1: of kind of where that artificiality is coming from. Is
Speaker 1: it coming from basically what is becoming guild curve controlled
Speaker 1: by the Federal Reserve. Is it coming from Washington, d C.
Speaker 1: Or is it coming from the hopium that we're going
Speaker 1: to see something more akin to a V shaped recovery
Speaker 1: at least in markets as we go forward. I think
Speaker 1: it's really least of the first two rather than the hope.
Speaker 1: I think that the degree of of support provided by
Speaker 1: UH Congress, in the White House and a bipartisan fashion
Speaker 1: so far has been unbelievably strong. UH So one metric
Speaker 1: that said, on a Q two basis, personal income is
Speaker 1: actually gonna be up. Um. So it just shows you
Speaker 1: how much of the whole that, at least for now,
Speaker 1: the government is silling in. And then on the second front,
Speaker 1: of course, the Fed. Wow, what a tremendous amount of
Speaker 1: you know, both explicit buying, a tremendous amount of forward guidance,
Speaker 1: you know, waiting into the private UH markets, and it's
Speaker 1: put a floor in a large way under under asset prices.
Speaker 1: And it's just listen, the old adage of don't fight
Speaker 1: the Fed. I don't think it couldn't be you know,
Speaker 1: more relevant than right now. It's really difficult to UH
Speaker 1: to get in front of this UH And to some extent,
Speaker 1: I think this is the markets in a waiting game.
Speaker 1: You know, we're trying to gauge the policy response not
Speaker 1: just now, at the future wherewithal and you're starting to
Speaker 1: see some breakdown of that in terms of the depth
Speaker 1: of its gold in Washington. You know, McConnell's starting to
Speaker 1: um discuss that there are limitations to what we can
Speaker 1: do UM. So it's it's that that part is challenging.
Speaker 1: And then I think the other part that the we're
Speaker 1: just trying to gauge is that the reopening, the efficacy
Speaker 1: of reopening, at least so far from my perspective, the
Speaker 1: scorecard there doesn't look promising. If you look at other countries,
Speaker 1: it's it's still obviously very early, but there's been a
Speaker 1: couple of setbacks in South Korea and China, in Germany
Speaker 1: and Spain UM, And so I think that's where ultimately
Speaker 1: the market is going to have to find some metrics
Speaker 1: to watch UM. But I think the low vix right
Speaker 1: now points to that it it isn't a little bit
Speaker 1: of no man's land in terms of figuring out the mark.
Speaker 1: You know what risk really is adating with that in mind,
Speaker 1: and you've touched on something quite important. The risk of
Speaker 1: reopening in a second wave is something likely to sit
Speaker 1: on sentiment for quite a while. Do you think that
Speaker 1: makes it difficult to rotate to the most sickly laritys
Speaker 1: of the market that have lacked in the rally off
Speaker 1: the bottom over the last two months, I think, so
Speaker 1: I was just looking at the just growth versus value.
Speaker 1: The divergence this year is on the order of performance
Speaker 1: growth versus value, and so you know, if if value
Speaker 1: is is UH embodied insty locality, I do think it's
Speaker 1: very tricky to to really get you know, behind the
Speaker 1: notion that one people will be able to come back
Speaker 1: because the infection rates are clearly coming down, and then too,
Speaker 1: I think the psychology never is too long, but I
Speaker 1: think the psychology is pretty important. You know, folks, even
Speaker 1: if they were given the opportunity to come back, some are,
Speaker 1: but many are not. And I you know, just given
Speaker 1: the leverage inherent and a lot of cyclical businesses, the
Speaker 1: balance sheet UH considerations and the degree to which they
Speaker 1: really need you know, whether it's a fully stocked hotel
Speaker 1: a plane with no seats empty, it's going to be
Speaker 1: very difficult U And I think, you know, the psychology
Speaker 1: makes that more challenging. Tom. I think this is the
Speaker 1: decision at the moment to make it really really simple.
Speaker 1: Do you stick with what's worked over the last six
Speaker 1: weeks or do you rotate to what hasn't and what's
Speaker 1: worked is Big Tech, the Big five all positive year
Speaker 1: today the SMP five hundred lower on the year. It's
Speaker 1: just unreal how much out performance we've had from the
Speaker 1: Big five. You know, what's so interesting here is is
Speaker 1: you but to sit up against this liquidity solvency you
Speaker 1: ssue John that we've seen over the weekend, and certainly
Speaker 1: you know with the Columbia Airlines Avianca their bankruptcy, and
Speaker 1: you know, you look at Liftansa with a full bailout
Speaker 1: in Germany with potential ownership by the government. It's not
Speaker 1: only two worlds, it's almost three worlds out there. Yeah, Dean,
Speaker 1: I think Tom's brought up something important. Things are still breaking,
Speaker 1: and you've shared something that that I share with you
Speaker 1: that when things move fast, they break. Have we seen
Speaker 1: all the broken parts of this huge move very very
Speaker 1: quickly in the last few months. Yeah, I think that
Speaker 1: would be way too optimistic to suggest that even as
Speaker 1: three VIX is probably not coming back, that the after
Speaker 1: shocks are likely not fully appreciated yet. You know, just
Speaker 1: think about post the financial crisis in two thousand ten,
Speaker 1: we had the flash crash. Two eleven and twelve is
Speaker 1: when the Eurozone sovereign crisis began in full earnest, and
Speaker 1: those were in some ways after shocks of the Great
Speaker 1: Financial Crisis. UM. I just don't think so UM when
Speaker 1: you're seeing I know, you guys just covered the you know,
Speaker 1: uh FED funds futures trading north of a hundred implied
Speaker 1: rates in the US below um, you know, below zero. UM.
Speaker 1: We obviously saw the crude meltdown. It's just in a
Speaker 1: world where things are moving so fast and the policy
Speaker 1: response is just so enormous UM, and the deflationary forces
Speaker 1: upon which the policy responses built are so enormous, it's
Speaker 1: just really difficult to think that we've got some you know,
Speaker 1: resolution that's not going to see some you know, some
Speaker 1: crazy things happen. UM. And I think this is where
Speaker 1: one of the things, you know, we spent a lot
Speaker 1: of I'm in hedging at Macro Risk Advisors, but also
Speaker 1: on portfolio construction. And I just think that gold deserves
Speaker 1: an increasing allocation in the portfolio. It's an asset that
Speaker 1: has negative correlation attributes to the risk complex. UM. And
Speaker 1: it I'd like to say it's just long paranoia. And
Speaker 1: I think we are entering into a period of increasing
Speaker 1: Unfortunately paranoia in the monetary system, as we're gonna come
Speaker 1: to the market with three trillion dollars of issuance in
Speaker 1: one quarter. It's just we're kind of in no man's land.
Speaker 1: And so I'm just continuing to recommend to folks to
Speaker 1: really take a hard look at gold. Dain't really really
Speaker 1: thoughtful stuff didn't kind of the macro risk advisors. We
Speaker 1: turned to the great stimulus debate in Washington now, and
Speaker 1: I've said repeatedly over the last few months, I've been
Speaker 1: really impressed with how while the administration has worked with
Speaker 1: the Democrats to get significant bills over the line, the
Speaker 1: question for many people in this market, Tom is long
Speaker 1: does that unity lost? Yeah? It goes once twice and
Speaker 1: then there's a third time. I John, you and I
Speaker 1: were talking about early May is being the time of
Speaker 1: the next discussion, and we're nowhere near that. We're past
Speaker 1: early May, folks, and now staggering into a later May
Speaker 1: looking for the next fiscal stimulus. It's good to get
Speaker 1: away from the three zip codes that we look at
Speaker 1: here in New York and possibly wander out to Indiana.
Speaker 1: Trey Hollingsworth is with the ninth District this is the
Speaker 1: path from Indianapolis on down to Louisville and of course
Speaker 1: encompassing the University of Indiana as well. Congressmen, wonderful to
Speaker 1: speak to you today. How far removed are the Republicans
Speaker 1: of the House and the Republicans of the middle ground
Speaker 1: from the arch Senate conservatives that are there. It's a
Speaker 1: great question. Looks there are many Republicans in the House
Speaker 1: that are concerned about the devas that that are concerned
Speaker 1: about total US debt. However, there is a strong push
Speaker 1: and it continues strong push from Republicans to find a
Speaker 1: pathway to build economic growth back. I mean, we saw
Speaker 1: a terrible job report on Friday. People want to ensure
Speaker 1: that those losses are temporary and not permanent, because the
Speaker 1: last thing we want to see right now is this
Speaker 1: exogenous coronavirus shock to the economy become a long term
Speaker 1: demand crippling shock to the economy. This is so important, Congress,
Speaker 1: and I really want to emphasize this. There's a belief
Speaker 1: out there that the pent unemployment heading to Kevin Hasses
Speaker 1: is located in the city is it's where the viruses
Speaker 1: where the President makes clear these are blue regions that
Speaker 1: he doesn't care about etcetera. How have you seen the
Speaker 1: job economy in the ninth Congressional District Now? It is
Speaker 1: not just in the cities, It is not just in
Speaker 1: blue state. I live in a very red state, and
Speaker 1: the job losses are real. I hear from families every
Speaker 1: single day that say, I thought and I had a
Speaker 1: long term job. I was seeing my wages grow up
Speaker 1: until just a month ago, and now I don't have
Speaker 1: a job and don't have prospects for getting a job
Speaker 1: anytime soon. And I think this is really challenging getting
Speaker 1: back businesses open safely while mitigating risk, getting back individuals
Speaker 1: to being able to purchase things for their families for
Speaker 1: their futures. It's hugely important that confidence has to start
Speaker 1: in Washington, d C. That leadership has to start in
Speaker 1: Washington DCING represent Representative Hungsworth. You've been a small business owner.
Speaker 1: We've seen reports that the small business bankruptcies could rise
Speaker 1: to forty percent of all of the companies in six
Speaker 1: months if the shutdowns continue. How concerned are you that
Speaker 1: the program put into place so far has been ineffective.
Speaker 1: It's staving off these insolvencies as well as the subsequent
Speaker 1: layoffs that obviously are just escalating. Well, I think you
Speaker 1: hit the nail on the head, which is, how do
Speaker 1: we determine how effective this is? And the reality is
Speaker 1: the program was just designed to be a short term
Speaker 1: bridge to opening up the economy again, a short term
Speaker 1: bridge to enable firms to get back to hiring, get
Speaker 1: back to doing business as normal. If we are not
Speaker 1: able to get the economy open safely, if we're not
Speaker 1: able to hold down the level of infections and transmissions
Speaker 1: once we open with the the economy, there isn't enough money
Speaker 1: in Washington to save businesses in the long term. This
Speaker 1: has to bring a bridge to empowering the economy to
Speaker 1: get back to healing itself. That's the only way in
Speaker 1: the long term we can keep these businesses afloat, going
Speaker 1: and expanding. Congressman, how do we understand this from the
Speaker 1: debt perspective? What is the concern right now about the
Speaker 1: debt just specifically, what's the big concern? Well, Look, I
Speaker 1: think the big concern is the large amount of deficits
Speaker 1: that we're spending this year alone, and what that means
Speaker 1: from a long term perspective on where rates go back
Speaker 1: to once they normalized. Look, it's hard to look at
Speaker 1: the ten uere today and say, gosh, there's a debt
Speaker 1: problem in the United States, right, But once interest rates
Speaker 1: to begin to normally, as we get back to a
Speaker 1: more normal looking economy, the question is will we be
Speaker 1: able to hold interest rates at an appropriate level or
Speaker 1: will interest costs continue to rise in the US, pushing
Speaker 1: out and crowding at all the other important spending that
Speaker 1: we think is there right, research and development on future
Speaker 1: cures for diseases, A lot of that goes through NIH
Speaker 1: defense spending. All these things will be crowded out by
Speaker 1: larger and larger interest payments on our debt. Should interest
Speaker 1: rates return to their normal levels, you think there could
Speaker 1: be a problem with debt sustainability in America. Is that
Speaker 1: something you actually worry about? Well, I do worry about that,
Speaker 1: and I think the important thing is to worry about
Speaker 1: it before it becomes a problem. I think the important
Speaker 1: question we have to ask ourselves is what are the
Speaker 1: changes we need to make today? What are the changes
Speaker 1: we need to make over the next year to ensure
Speaker 1: that we can put ourselves on the path that this
Speaker 1: SPS just need to building. This isn't a problem today,
Speaker 1: as you will are toy. This isn't gonna be a
Speaker 1: problem tomorrow or next year. But ultimately one goes bankrupt
Speaker 1: slowly at first, then suddenly the key is to catch
Speaker 1: it in the slow phase, not in the sudden phase. Representative,
Speaker 1: I want to make sure to understand what you're saying.
Speaker 1: Are you saying that we should not add some sort
Speaker 1: of effort to pump money into the economy at this
Speaker 1: point for fear of that future escalation of debt costs?
Speaker 1: Is that your argument here? So? I think my argument is,
Speaker 1: we have spent two point nine trillion dollars of Americans
Speaker 1: harder at taxpayer dollars. Before we start spending more, we
Speaker 1: should ensure that the programs are effective, As you will
Speaker 1: asked earlier, we should ensure that we're solving the right problems.
Speaker 1: We're ensuring that these are the right programs to be
Speaker 1: able to get the economy back on its feet so
Speaker 1: we can normalize again. But I think in the long
Speaker 1: term question for Americans, and we were already at a
Speaker 1: definite of a trillion dollars before coronavirus happened, how can
Speaker 1: we put ourselves on the path of sustainability even outside
Speaker 1: of this large acute dip so that we can see
Speaker 1: a brighter, brighter future for Americans and not hand down
Speaker 1: a mountain debt to our grandchildren. Congressman, we got a
Speaker 1: problem Indiana. We thank you for listening in Indiana Day,
Speaker 1: Michelle Meyer with us the Bank of America. Michelle, I
Speaker 1: want to rip up the script and do something completely
Speaker 1: different than I normally would. I was thunderstruck. And how
Speaker 1: economists this weekend adjusted the job's report forward aggressively. Usually
Speaker 1: they can gut estimate it or tweak it. What did
Speaker 1: Bank of America do to extrapolate out to May into
Speaker 1: June and even into July. Did you get out well?
Speaker 1: Over is a solid forecast UM, so certainly UM, we
Speaker 1: think the unemployment rate will take up further next month.
Speaker 1: But we think in terms of the rate of job destruction,
Speaker 1: in terms of non time perils, last month was the worst.
Speaker 1: April was by far the worst. So, you know, a
Speaker 1: rough estimate. If you look at how claims are trending
Speaker 1: thus far, which is a really good leading indicator of
Speaker 1: what we're going to see for total job um jobs
Speaker 1: lost in a month, we can see somewhere in the
Speaker 1: order of about you know, six or seven million decline
Speaker 1: in May UM. So if we see that and we assume,
Speaker 1: you know, some kind of trend like labor force participation
Speaker 1: rate numbers leased off of what we had from last month,
Speaker 1: the employmentary probably will take up a bit, probably flirting
Speaker 1: with but I actually don't think we'll get above Michelle.
Speaker 1: Do we have a good understanding now of the depth
Speaker 1: of the downturn to establish forecasts about the shape of
Speaker 1: the recovery, because over the last month we've seen so
Speaker 1: many people willing to look through the current data, and
Speaker 1: what I've grappled with is how can you establish any
Speaker 1: kind of forecast about the future without a deep understanding
Speaker 1: of where we are at the moment the depth of
Speaker 1: the downturn. Yeah. Absolutely So. The way that I've been
Speaker 1: thinking about this is that it's very hopeful to to
Speaker 1: break this into three phases is traject into three phases.
Speaker 1: The first one is the shutdown. It was extremely painful,
Speaker 1: but it is largely over that end in the beginning
Speaker 1: of April UM. The second phase is the transition phase,
Speaker 1: which is when you start to see some reopening, but
Speaker 1: to the shock that started in the consumer multiplies more
Speaker 1: broadly through the economy. In terms of the decline and
Speaker 1: investment decline and housing UM. You just see the ramifications
Speaker 1: of this aggressive amount of job destruction and consumer spending decline. UM.
Speaker 1: That's the phase that we're in right now, this kind
Speaker 1: of transition period. And then the third phase is the
Speaker 1: recovery UM, and that's really the most uncertain and that's
Speaker 1: where you can have, you know, quite a number of
Speaker 1: different scenarios, largely dependent on the detectory of the buyers. Michelle,
Speaker 1: I'm struck by the disparity and who got hit hardest
Speaker 1: so far. It is the most vulnerable workers. It is
Speaker 1: the people with the least education, in the lowest wages,
Speaker 1: wiping out a lot of the job gains. Uh, you know,
Speaker 1: both in a substantive as well as a quantitative determination
Speaker 1: since the beginning of the last crisis. I'm wondering how
Speaker 1: much that's going to color the recovery. In other words,
Speaker 1: what are the longer term consequences of the fact that
Speaker 1: the most vulnerable populations are getting slammed harder than anybody else. Sure, so,
Speaker 1: I mean, if you look at the breakdown of job
Speaker 1: lost between last two months, was in leisure and hospitality
Speaker 1: and least it to your point, those are workers that
Speaker 1: tend to earn less, the more considered lower skilled, lower
Speaker 1: wage workers. Um. So, with the ramifications, if you assume
Speaker 1: that leisure and hospitality is going to take a whole
Speaker 1: lot of time to come back, and it may not
Speaker 1: ever return to the pre COVID levels given some of
Speaker 1: these structural changes that were likely to see an economy
Speaker 1: as people learn from this pandemic experience, UM, we're going
Speaker 1: to have to do a lot of job retool train,
Speaker 1: you know, retooling, job training, figuring out how to redeploy
Speaker 1: this labor and it could end up being that you
Speaker 1: have a lot of workers or a portion of a
Speaker 1: labor force that are somewhat displaced until they can figure
Speaker 1: out how to get back in with a new skill set.
Speaker 1: It was somewhat akin to what we had seen during
Speaker 1: the housing creasis when you had a large portion of
Speaker 1: construction workers that were displaced for a period of time
Speaker 1: given the nature of that shock. Um so, yes, well,
Speaker 1: so people are focusing on this and saying the higher
Speaker 1: paid jobs are remaining intact. I'm just wondering how worried
Speaker 1: are you about a second wave of job cuts that
Speaker 1: some people are talking about in the higher earning brackets
Speaker 1: as this goes on. Yeah, I mean, you know, it's interesting. Yes,
Speaker 1: the pain was driven in the lower end of the
Speaker 1: of the income spectrum, but it's broad based. When we
Speaker 1: have this degree of job cuts, it is across every industry.
Speaker 1: The industry is and the last jobs report saw some
Speaker 1: time jobs. Ten per cent of the job last and
Speaker 1: last two months was in professional and business category, which
Speaker 1: is a pretty broad category, including many high school jobs.
Speaker 1: Um So, so I would argue that already is somewhat
Speaker 1: broad based, just given a nature of of the number
Speaker 1: of jobs that were lost. But to your point, yes,
Speaker 1: you know, the initial shot was in the COVID sensitive sectors, lease,
Speaker 1: your hospitality, retail. As you know, you see this recession
Speaker 1: multiply and kind of work its way through the economy
Speaker 1: and and having to be a function of the income laws,
Speaker 1: people not spending as much, companies realizing the challenges that
Speaker 1: lie had. You could see um you know, continued job jobs,
Speaker 1: jobs cut, and that would be more the typical recessionary response. Right.
Speaker 1: The first order was the lockdown, the extreme loss. That
Speaker 1: second order is more that typical multiplier. What's the first
Speaker 1: and second order of the price of a home I mean, Michelle,
Speaker 1: this is your claim to fame. Tell us what you
Speaker 1: expect in the housing market nationwide and for that matter,
Speaker 1: in the three zip codes we live in in New York.
Speaker 1: I mean, do you just assume housing prices decline? So housing,
Speaker 1: to me is very interesting in this cycle because, um,
Speaker 1: it is highly unlike what we had seen in the
Speaker 1: last cycle. So housing this time around is the victim,
Speaker 1: it is not the culpriate. UM. Housing will weaken in
Speaker 1: my view, as a result of the extreme declient and
Speaker 1: economic activity and the income loss and the job loss UM.
Speaker 1: But because the housing market enter this cycle without very
Speaker 1: much excess, mostly that you know, excess in terms of
Speaker 1: housing stock and excess in terms of leverage UM, it's
Speaker 1: not nearly as vulnerable to a correction. UM. And on
Speaker 1: top of that, you've seen a government response already pretty
Speaker 1: aggressive in terms of trying to um underpinn the housing
Speaker 1: market with forbearance plans UM, so that the Fannie Freddy
Speaker 1: mortgage holders can take forbearance uptil months. That makes um
Speaker 1: the rate of foreclosures much much lower. UM. So all
Speaker 1: that being said, I think that housing will soften certainly,
Speaker 1: home sales falling sharply already housing starts are going to
Speaker 1: fall very sharply. You can see those numbers down fifty
Speaker 1: six from the peak given a sixth UM. But once
Speaker 1: you start to see some recovery come back, those numbers
Speaker 1: will come back quickly as well. Um. So it's very
Speaker 1: much going to follow the broader cycle for home prices nationally.
Speaker 1: We're looking for, you know, somewhere on two or three
Speaker 1: to client on a year of your basis with very
Speaker 1: deep biplications in the market. So if you're in big
Speaker 1: urban centers, clearly the outlook looks more problematic. Um. If
Speaker 1: you're more in the suburbs, let me let me translate
Speaker 1: that for you. What Michelle saying is at three bedroom
Speaker 1: four best thing you're looking at over right with the
Speaker 1: view terrace a gym. I'm sure we don't have that.
Speaker 1: You know, every time Michelle comes on, she preps for
Speaker 1: housing because she knows you're going to ask her back
Speaker 1: every single best. I know you do, I know you
Speaker 1: do before we run things out. Can this be the
Speaker 1: quarter that we stop annuallyzing g D p um No,
Speaker 1: because then you won't get these these extreme numbers if
Speaker 1: you I mean, how useful is that to annualize GDP
Speaker 1: in a moment like this, Look, I think you just
Speaker 1: have to. I think you continue to annualize it because
Speaker 1: that's the way we always look historically at GDP, and
Speaker 1: the reason it starts you would do that is because
Speaker 1: otherwise you end up getting these very small numbers if
Speaker 1: you don't annualize it. So annualizing of the trend obviously
Speaker 1: today annualizing you get these aggressively large numbers. Um So,
Speaker 1: to me, it's important to put these numbers into perspective.
Speaker 1: Let's say we get a thirty percent annualize the clients
Speaker 1: talk about it in terms of the quote unquote annualize,
Speaker 1: talk about it just the quote unquote change on annuals.
Speaker 1: Talk about in terms of the year and your change.
Speaker 1: Just look at a variety of indicators. In my view,
Speaker 1: what are you looking at late in the week. One
Speaker 1: more question, Michelle not on housing retail sales claims, Which
Speaker 1: matters the most, Which is the most valuable? Um So,
Speaker 1: I would say, you know, claims continue to be really
Speaker 1: high up on the list in terms of being able
Speaker 1: to track UM the trajectory for for the labor market
Speaker 1: UM and we have been seeing a pretty steady deceleration
Speaker 1: in the rate of claims, which is quite nice that
Speaker 1: we're looking for two point eight million, obviously aggressively high UM,
Speaker 1: but you know it is coming down and it's readily
Speaker 1: coming down front the peak, which shows you that healing
Speaker 1: in the economy, although you know amount of stealing only UM.
Speaker 1: The retail sales numbers obviously very important as well. That
Speaker 1: would be for the month of April. We already saw
Speaker 1: a pretty sharp, sharp decline in March. Now is the
Speaker 1: March numbers were driven just from the left two weeks
Speaker 1: of March falling dramatically, so the hands off into April
Speaker 1: is really really poor and that's going to bring retail
Speaker 1: sales down as well. So expected pretty ugly number there.
Speaker 1: Michelle always writes to catch up with you, thanks for
Speaker 1: jointing us on housing market and the broader economy. Right now,
Speaker 1: we want to really nail down what everyone's talking about,
Speaker 1: and that is, of course reflation. The idea of aggressively
Speaker 1: imputing a new inflation is sore of arbitrary. It's really
Speaker 1: not in the economic textbooks. Then there's inflation, which we
Speaker 1: all know we've all lived, and then there's lesser inflation
Speaker 1: that's called disinflation d I s and then there's this
Speaker 1: gloomy thing from Europe and another time pass early Eisenhower
Speaker 1: outright price declined deflation. No one owns this territory like
Speaker 1: Gary Shilling. We're thrilled to Dr Shilling could join us
Speaker 1: right now writing his wonderful newsletter. Gary, you said there's
Speaker 1: good and bad deflation in the pandemic. Is there good
Speaker 1: or bad disinflation and good and bad deflation? Well, good
Speaker 1: good inflation is like you've had in times of tremendous
Speaker 1: productivity growth that happened in the latter part of the
Speaker 1: nineteenth century and again actually in the nineteen twenties when
Speaker 1: basically supply outruns demand and so prices decline. Bad deflations
Speaker 1: were out where demand is destroyed, demand goes down more
Speaker 1: than supply. And I think now we're more in the ladder,
Speaker 1: We're more in the bad deflation because we're the supply,
Speaker 1: particularly in a global basis, has not used that much,
Speaker 1: but demand certainly has dried up, at least for now.
Speaker 1: With all the monetary central bank and fiscal action and
Speaker 1: even more action to come that we've seen. Does that
Speaker 1: exacerbate these price change moves? Does it make for a
Speaker 1: greater disinflation. Um, well, I I don't know if it
Speaker 1: if it if it does that, Tom, but it's it
Speaker 1: certainly is disruptive. And you know, I think you have
Speaker 1: to you have to consider that all this, all this
Speaker 1: monetary and fiscal stimuli is really not doing that much.
Speaker 1: I mean, you look back and what happened after the
Speaker 1: oceanal On nine recession. That said, uh, when into massive
Speaker 1: quant a cative quantitative ease, and what happened. We had
Speaker 1: the slowest economic recovery in the post war period. Yeah,
Speaker 1: the money went into stocked, but it didn't go into
Speaker 1: spending and investing. And I think you have the same
Speaker 1: thing now. We also had massive fiscal stimulus back then.
Speaker 1: So you know these uh, you're fighting against tremendous forces.
Speaker 1: I think we're I think we're dealing with the we're
Speaker 1: the greatest shock to the world's economy since World War Two,
Speaker 1: and in terms of disruption and the length of time
Speaker 1: it's going to take to get re oriented. Garry, That's
Speaker 1: exactly where I wanted to go, especially given your credentials
Speaker 1: as one of the top ranked economists out there by
Speaker 1: a number of places. You wrote in a recent column
Speaker 1: for Bloomberg opinion that you think that people are getting
Speaker 1: a little ahead of themselves and that were headed toward
Speaker 1: something more akin to the market crash in the early
Speaker 1: nineteen thirties Great depression. Where are so many economists I'm
Speaker 1: thinking of some houses Morgan Stanley, Goldman Sacks that are
Speaker 1: looking for a U shape recovery or even a V
Speaker 1: shaped recovery, saying that we're going to see a big
Speaker 1: rebound in the latter half of Where are they wrong
Speaker 1: in your view? Well, I think they're They're They're likely
Speaker 1: air is that they are assuming that business and consumer
Speaker 1: spending revive a lot faster than I think. Uh, if
Speaker 1: you've had the disruption to supply change, you've had a
Speaker 1: whole change in the way people behave. Yeah, Okay, people
Speaker 1: aren't going to stay at home forever, but I think
Speaker 1: they're going to be a lot less likely to come out.
Speaker 1: We don't have anything like a vaccine that's going to
Speaker 1: ensure people that they're not going to get uh COVID
Speaker 1: nineteen when they do go out. And and of course,
Speaker 1: when you look at the disruption of supply change and
Speaker 1: the realization that we were relying on China for a
Speaker 1: lot of basic pharmaceuticals and so on. To work all
Speaker 1: this out and expect a V is unlikely. And also, uh,
Speaker 1: at least the history is that any time you've had
Speaker 1: over decline in the stock market, Uh, it's it's never
Speaker 1: ended in less than six months. Uh, that's history. Doesn't
Speaker 1: mean it can't be a V this time, but I
Speaker 1: think it's highly unlikely. Well, what do you say to
Speaker 1: the arguments that this time the fiscal and monetary response
Speaker 1: has been unprecedented, both in its scope and its speed.
Speaker 1: Does that change the equation? Well, it might, but it
Speaker 1: I just mentioned we had the same thing in response
Speaker 1: to the Great Recession, the only seven oh nine decline,
Speaker 1: your massive that the FED and other central banks not
Speaker 1: to race down to zero, then massive quantitative easing. Then
Speaker 1: we had fiscal stimuli that was the extent of six
Speaker 1: percent of g d P. Yes, things are bigger this time,
Speaker 1: but this is a bigger shock. Bear in mind back then,
Speaker 1: but that was a shock to housing. But people's lives
Speaker 1: were not disrupted. Now, of course, if you were somebody
Speaker 1: who was way on the limb with a shut mortgage,
Speaker 1: who are in trouble, But most people have had a
Speaker 1: little in fact, but this, this affects everybody. So to
Speaker 1: say that you've had much more monitoring postal Sami, Yeah,
Speaker 1: but you've had a much greater problem. And in my judgment,
Speaker 1: it still does not simply that things are going to
Speaker 1: turn around on a dime. Gary showing, Thank you so much,
Speaker 1: Gary showing with Gary showing. And of course it is wonderful,
Speaker 1: uh lengthy, I should say newsletter almost a monograph when
Speaker 1: he puts it out right here we speak at the
Speaker 1: Johns Hopkins University there Bloomberg School of Public Health, and
Speaker 1: of course that is Michael Bloomberg, the founder of Bloomberg LP,
Speaker 1: this radio and television operation, as well his philanthropy to
Speaker 1: his alma mater and engineering school at Johns Hopkins. But
Speaker 1: it goes much further than that. And one of their
Speaker 1: assets is Joshua Sharfstein. He is Weisstein, and we caught
Speaker 1: up with him on the strange thing called this lockdown.
Speaker 1: The ability to open week health safe depends on more
Speaker 1: than mass and gloves masks. So really, um, you know,
Speaker 1: stop cap measure how well they work isn't really as
Speaker 1: well known as you might think. So the most important
Speaker 1: thing is the ability to stay away from each other
Speaker 1: physically have areas between people, particularly like a cash registers
Speaker 1: that would prevent goplets from spreading better than a mask
Speaker 1: or so. I think it's possible in some areas to
Speaker 1: do that. Um as cages coming are coming down as
Speaker 1: we have more public health measures and plays as the
Speaker 1: hospitals is doing better. But it has to be done
Speaker 1: very carefully, and it's not if you just wear a
Speaker 1: mask and gloves. Too good to go, Josh, how does
Speaker 1: contact tracing work? Is it the most effective tool we
Speaker 1: have right now? It is a really critical tool. And
Speaker 1: the idea is we want to stop the virus from
Speaker 1: steading from person to person without having to tell everyone
Speaker 1: to go home and stay at home. Until you do.
Speaker 1: Is you find someone who has the coronavirus, maybe they
Speaker 1: got to have a test and they're positive. You call
Speaker 1: them right away. You find out who they've been in
Speaker 1: contact with during their infectious period, which is a couple
Speaker 1: of days before they started symptoms, and then quick you
Speaker 1: call them. You tell them that they may have been
Speaker 1: exposed and that they should coins and themselves so that
Speaker 1: when faith start getting infectious there's nobody for them to
Speaker 1: give it to. That's the basic idea and it requires
Speaker 1: a lot of people to do, and in New York
Speaker 1: is planning to hire something like the thousand people. But
Speaker 1: if you can do it, and even if it's not perfect,
Speaker 1: you can really slow the spread of the virus. Joshua Chefs,
Speaker 1: you know, the Johns Hopkins at University givings an update
Speaker 1: and we'll do that through the week as well. Thanks
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen
Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform
Speaker 1: you prefer. I'm on Twitter at Tom Keane before the podcast.
Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio.