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,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. To me,
Speaker 1: the story that struck out to me over the weekend
Speaker 1: was about how some drillers are now paying people to
Speaker 1: take the oil away from them. Basically negative pricing in
Speaker 1: the oil patch given the glut that we're seeing in
Speaker 1: the lack of storage available, just shocking. Well, let's talk
Speaker 1: about that with Francisco Blanche Bank America Global head of
Speaker 1: Commodities and Derivotius Research. Lucky to have Francisco join us
Speaker 1: on the phone this morning. Fantastic to have you with us. Francisco,
Speaker 1: let's start the show. We are we breaching storage capacity
Speaker 1: in various parts of the United States. Thanks for having me. Jonathan, Um,
Speaker 1: we are. We are not yet, but we are going
Speaker 1: to get there very soon. I remember you were asking before,
Speaker 1: what's the bigger show because the demand show sply shock.
Speaker 1: Well it's the demand shok. We think that demand will
Speaker 1: be down seventeen million barrels a day in the month
Speaker 1: of April globally. Remember that's a seventeen percent decline on
Speaker 1: a hundred million barrel base. So UM the supply self,
Speaker 1: by contrast, I think it's probably gonna be about three
Speaker 1: or four million barrels in April. UM. So, so now
Speaker 1: we're looking at a massive glass that we've never seen before.
Speaker 1: When when when you say, when you say Francisco demand
Speaker 1: goes down seventeen million barrels, What demand drops? I mean
Speaker 1: what usage causes that drop? And demand do we stop?
Speaker 1: I mean is it John stop? And do using ubers
Speaker 1: in the Bentley and all that? What causes it? Well? So, so,
Speaker 1: first of all, um, I would say the most impacted
Speaker 1: sector is UH airlines. In the U s Alone, we've
Speaker 1: seen traffic traffic down more than eighty five percent um
Speaker 1: TOM eighty five I mean, we've basically shut down most
Speaker 1: domestic travel in Europe. We can see similar numbers down
Speaker 1: eighty nine percent across most countries. UM. If you look
Speaker 1: at China, however, which is interesting, the drop there also
Speaker 1: was about eighty five percent at the trial. However, they've
Speaker 1: only recovered to around of normal levels despite having been
Speaker 1: dealing with the virus for three months. So so clearly
Speaker 1: the airline sector is the most impacted one. Uh, followed
Speaker 1: by UM, you know you're asking about Uger's and I
Speaker 1: think a lot of people are working from home now,
Speaker 1: so that's a lot of restaurants are shut down. Uh.
Speaker 1: Basically two people are going are losing jobs, so there's
Speaker 1: a lot of people staying home either because then at
Speaker 1: have jobs because they're working remotely. So it's also heard
Speaker 1: in gulfiling demand. We're in numbers down thirty uh year
Speaker 1: and year in gasoline man here, so it's really across
Speaker 1: the board, but the most impacted sector is the airline sector.
Speaker 1: So going forward, Sebastian Gailey of Nordea Bank earlier in
Speaker 1: the show was saying that he expects oil to go
Speaker 1: back up to forty five barrel at some point in
Speaker 1: the not so distant future. How realistic is that and
Speaker 1: how long lasting is this period of time where we
Speaker 1: could see sub twenty dollars a barrel oil? Um. So
Speaker 1: we're we're looking at this crisis into UH looking at
Speaker 1: the two main parameters. One is the depth of the
Speaker 1: initial drop and then second is the dulation of the crisis. UM.
Speaker 1: I think we have a you know, I think we
Speaker 1: have a reasonable handle on the droop. We think seventeen
Speaker 1: million barrels today is the right number. It could be twenty,
Speaker 1: it could be fifteen. Again, it's hard to tell, right, Um,
Speaker 1: there's a lot of guesswork going on here. But then
Speaker 1: the duration is a little more complete hit it um.
Speaker 1: Now in China, as I said before, we started to
Speaker 1: see a very modest recovery, although for example, traffic, which
Speaker 1: which also took a big hitting China, is back to
Speaker 1: about normal, so roughly down fifteen percent year and year.
Speaker 1: I suppose we're not earlier um earlier in in in
Speaker 1: the first quarter. So those are the key numbers really
Speaker 1: to watch the recovery rate. Do you just assume a
Speaker 1: week bundled commodity index? Do you just assume weaker Aussie
Speaker 1: dollar versus the yan or other metrics? I mean, is
Speaker 1: it just a fade away for commodities. Um, it's gonna
Speaker 1: be a little bit of straight away for a little bit.
Speaker 1: But but then remember the other thing that's gonna happen
Speaker 1: tom in the in the second half of the year
Speaker 1: maybe is that we are going to to lose a
Speaker 1: lot of supply either because in cases like copper, we
Speaker 1: have fifteen percent of supply at risk, or in cases
Speaker 1: like oil, we're just gonna decimate investment across a broad
Speaker 1: range of regions, which in turn will lead to a
Speaker 1: supply decline into one UM and then then as it
Speaker 1: released to our culture. That's the news about you know,
Speaker 1: news about UH. Potentially the some some agricultural commodity producers
Speaker 1: facing UM coronavirus risks as well at their at their plans.
Speaker 1: So I think I think the biggest risk really is
Speaker 1: is UH demand goes down nationally, prices go down. Then
Speaker 1: as we recover, we will have hampered, we will have
Speaker 1: heard our productive capacity and thus what leads to the
Speaker 1: price rally at some point in in the recovery cycle.
Speaker 1: Whether that's end of twenty one, I don't know. It
Speaker 1: depends on how long this this UH crisis last. Francisco Blach,
Speaker 1: the Bank America winking on the commodity round. They crew
Speaker 1: dressed specifically. We would like to welcome to the SIS
Speaker 1: President Jo Bollard, to Bloomberg Television and Radio Worldwide, thank
Speaker 1: you for joining us this morning. I want to see
Speaker 1: if we can't catch up a little bit about ten
Speaker 1: days ago you predicted we could see unemployment as high
Speaker 1: as thirty percent in the second quarter, and you call
Speaker 1: for a massive stimulus program. We got a massive stimulus program.
Speaker 1: So does that change your forecast for unemployment and growth? Yeah,
Speaker 1: thanks for having me this morning. I did want to
Speaker 1: see pandemic relief. I wouldn't call it stimulus. I would
Speaker 1: call it pandemic relief. Uh. What I interpret the program
Speaker 1: is trying to do is stabilize incomes and stabilize businesses
Speaker 1: as we work our way through this investment in our
Speaker 1: national health over the next couple of months. Here on
Speaker 1: the unemployment, uh, we do have a blog on this. Uh.
Speaker 1: If you read the blog carefully, you'll see that there
Speaker 1: is a way to bound the unemployment rate. It's going
Speaker 1: to be somewhere between ten and I think the upper
Speaker 1: bound is like but that's because we're just identifying vulnerable
Speaker 1: workers in this environment. And what's going to happen is
Speaker 1: that those workers, some of those workers are going to
Speaker 1: have to seek relief so that they can pay their
Speaker 1: bills through this period. So we're expecting the unemployment rate
Speaker 1: to spike, but let's call that pandemic relieve. Then they
Speaker 1: can pay their bills and once the virus goes away,
Speaker 1: then we'll be able to return to normal. So hopefully,
Speaker 1: if this all works smoothly, and there's a lot in
Speaker 1: the legislation as well, UM, we'll be able to come
Speaker 1: out on the other side and get the economy rock
Speaker 1: and again. Well, Wednesday is April one. Mortgage payments are due,
Speaker 1: rent payments are due, Utility bills are do. Could we
Speaker 1: have a problem if people can't pay their bills on Wednesday? Uh?
Speaker 1: My sense is, of course, we're in a crisis situation ration.
Speaker 1: But my sense is that everyone really understands what's going
Speaker 1: on here now because obviously it's been the topic number one,
Speaker 1: not just in the US but around the world. So
Speaker 1: I think people pretty much understand that, Uh, the relief
Speaker 1: is supposed to enable people to pay their bills as
Speaker 1: best they can. Um, there might be some uh delays
Speaker 1: and things you'd expect that in a crisis situation, but
Speaker 1: by and large, I think there are plenty of resources
Speaker 1: in the fiscal package to handle what we're going to
Speaker 1: go through here. Well, the main street lending program that
Speaker 1: you guys have announced is in the package. How's that
Speaker 1: going to work? And when does that start? Uh? That's
Speaker 1: in the design phase right now. So I think from
Speaker 1: a firm's point of view, there are two ways to
Speaker 1: handle the crisis. One would be the traditional, which would
Speaker 1: be to shut down temporarily and send the workers over
Speaker 1: to the pandemic relief or unemployment line. And a lot
Speaker 1: of that is going to occur. That's already occurred. We
Speaker 1: sell the claims number last week, UH, and that's okay,
Speaker 1: you're getting UH, and the the umployment insurance benefit is
Speaker 1: beefed up, so they're going to get closer to acent
Speaker 1: or maybe a dent of what they would would have
Speaker 1: gotten had they just continued to work. So I think
Speaker 1: that part that's one way to go. But if if
Speaker 1: the firm goes in that direction, they might lose connection
Speaker 1: with their workers. So another direction to go is to
Speaker 1: go to the Small Business Administration get a loan, which
Speaker 1: is ultimately forgivable if you meet certain conditions, mainly that
Speaker 1: you keep your payroll more or less intact. So if
Speaker 1: you go that route as a firm, then you might
Speaker 1: be able to retain all your workers and then when
Speaker 1: the startup occurs later, you'll be able to have the
Speaker 1: same workers and you don't have to go higher all
Speaker 1: over again and get your business ramped up again. So
Speaker 1: that might be a better way to go for many companies.
Speaker 1: If companies decide to go that way, then we'll see
Speaker 1: lower unemployment and more uptake on sp a loan side.
Speaker 1: Your district has a lower incidence of infection rate at
Speaker 1: this point, So what's happening in your district? I normally
Speaker 1: ask you what the CEOs are telling you, but I
Speaker 1: also want to know what mom and pop are telling
Speaker 1: you from the mom and pop stores. Yeah, we do
Speaker 1: have a lower rate of infection, but boy, it's pretty quiet,
Speaker 1: uh the you know where I live here in the
Speaker 1: fameless metro area. You know, most things are shut down.
Speaker 1: People stay at home. So that makes me think, uh,
Speaker 1: and just reading about it across the country that the
Speaker 1: idea that there's a lot of regional variation here probably
Speaker 1: not the right way to think about this. I think
Speaker 1: pretty much everywhere has has bought into the idea that
Speaker 1: you should be very careful about going out and very
Speaker 1: careful about spreading this vibrus. Also, I think another thing
Speaker 1: to keep in mind, this is not just things that
Speaker 1: are ordered by health officials. This is individuals and families
Speaker 1: making their own decisions and businesses making their own decisions
Speaker 1: about how they want to handle the situation. So what
Speaker 1: you have is a kind of private sector and household
Speaker 1: response to the crisis, which includes them not wanting to
Speaker 1: get sick and not wanting to get others that are
Speaker 1: in their circle sick. So because of that, um, regardless
Speaker 1: of what the health officials would say, at this point,
Speaker 1: I think everyone wants to basically stay home until this
Speaker 1: virus goes away. And so because of that, I think
Speaker 1: all across the country you're basically in a partial shutdown situation.
Speaker 1: Let me ask you a couple of things about the
Speaker 1: bill that passed and the defense new powers. The language
Speaker 1: in the bill says you can buy corporate bonds down
Speaker 1: to the lowest rating for corporates, and uh, those are
Speaker 1: obviously the ones who are going to need the most help,
Speaker 1: But they're also the ones most likely to see their
Speaker 1: ratings downgraded into junk, which in theory, you can't own.
Speaker 1: So how much risk are you willing to take on? Yeah,
Speaker 1: well we've got we've got to think about exactly how
Speaker 1: to execute on that one. But the main idea of
Speaker 1: a program like that is to restore basic market functioning.
Speaker 1: Which broke down as this crisis broke out here. So
Speaker 1: I think we've got backing from the Treasury that's at
Speaker 1: three program very powerful, and I think we'll be able
Speaker 1: to keep price discovery going in that in that sector there. Uh,
Speaker 1: you need bus also getting a nod in the bill.
Speaker 1: Is that going to be a new program to buy
Speaker 1: immunees or are you just going to use the existing
Speaker 1: program that you set up last week? Well, again, I
Speaker 1: think uh. And eventually that kind of market is mostly
Speaker 1: that we want market functioning to occur. So I think
Speaker 1: investors got so worried about state and local government that
Speaker 1: they started to pull away from those kinds of investments,
Speaker 1: which have historically been pretty solid. So hopefully we'll get
Speaker 1: price discovery going in and and uh, I think the
Speaker 1: market will actually be fine here. Again, I think there
Speaker 1: are plenty of resources in the bill uh to handle
Speaker 1: our current situation, and that should reassure investors that state
Speaker 1: and local governments will be made whole here. Uh, the
Speaker 1: law unintended consequences is kicked it in the mortgage market.
Speaker 1: The big massive purchases you've made it NBA are now
Speaker 1: leading to big margin calls for brokers. Uh. Is that
Speaker 1: something you can do something about, or there are other
Speaker 1: possible unintended consequences you worry about. UM. We we have
Speaker 1: heard reports of that, and I think that uh, the
Speaker 1: MBS purchases can be adjusted so that we get uh
Speaker 1: sort of accurate pricing in that in that market to
Speaker 1: meet the needs of those that are producing mbs. Uh.
Speaker 1: We'll see how that goes. That's a very uh, minute
Speaker 1: by minute kind of decision on intervention and purchases of MBS.
Speaker 1: But we have a great team in New York that's
Speaker 1: that's working on that. I think we'll be able to
Speaker 1: get good outcomes there. I'm wondering when you think about
Speaker 1: where all this leads what you see ahead. You're going
Speaker 1: to have trillions in a aditional national debt. You're going
Speaker 1: to have billions in loans out to companies at very
Speaker 1: low rates. Can you raise rates? Are you pretty much
Speaker 1: stuck forever? Now? Stuck forever? Well? I think near term,
Speaker 1: as we come out of this, interest rates so will
Speaker 1: probably stay very low for quite a while. UM. We
Speaker 1: are taking on more debt as a nation, but we're
Speaker 1: taking it on a very low interest rate, so that
Speaker 1: part should work good well for the near term. UM.
Speaker 1: You know, as we get further out past the crisis,
Speaker 1: we'll have to evaluate our fiscal strategy and see it.
Speaker 1: But that'll be up to Congress what they want to do. Uh.
Speaker 1: It's a big country. We can carry, you know, ten
Speaker 1: percent more debt. You know, it's not ideal, but we
Speaker 1: can certainly do it. And if there was ever a
Speaker 1: time where you wanted to uh do something like this,
Speaker 1: now is that time? Uh? One last question here. Someone said,
Speaker 1: when you first cut rates and set up lending programs,
Speaker 1: you were throwing the kitchen sink at things. And then
Speaker 1: you cut rates again and set up more programs and
Speaker 1: through the kitchen sink again. Do you have more than
Speaker 1: one sink or do you throw the same sink over
Speaker 1: and over again? Basically what's left in the toolbox. Well,
Speaker 1: I think the bottom line is that this these thirteen
Speaker 1: three authorities that are in the Federal Reserve Act are
Speaker 1: very powerful and uh because they're they're set up to
Speaker 1: allow the FED to do lending in unusual and excitent
Speaker 1: circumstances with the consent of the Treasury, and so you
Speaker 1: can do a lot with that. And I think that's
Speaker 1: what we're seeing right now. And if we had to
Speaker 1: do more with that we could. It's a board of
Speaker 1: governors programs now an FMC programers aboard, and we do
Speaker 1: need treasury authority, but in special situations like this one,
Speaker 1: and what could be more special than this one, makes
Speaker 1: a lot of sense to go ahead use that power
Speaker 1: and uh and simply in smooth out this ride as
Speaker 1: we get to the other side of this virus very quickly.
Speaker 1: Do you think baseball season stants this year? You're a
Speaker 1: big Cardinals fan, I adam, I haven't seen anything about
Speaker 1: baseball so far, so I was actually I don't know
Speaker 1: about you, but I was. One of the aspects of
Speaker 1: this crisis is I was very shocked when when sports
Speaker 1: decided to shut down. That really jolted me. So one
Speaker 1: of one of many jolts during this crisis, but it
Speaker 1: was shocking. Jim Bullard, President of the St. Louis Fat
Speaker 1: thank you very much for joining us this morning on
Speaker 1: Bloomberg Radio and television worldwide. I found myself watching football
Speaker 1: games from twenty years ago, watching the highlights this seasons
Speaker 1: twenty years ago, over the weekend, just trying to also, yeah,
Speaker 1: I just trying to keep in touch with with sport. Yeah,
Speaker 1: I just didn't do that. What I know is Bullard
Speaker 1: mentioned he's a Cardinals fan, and that Bill started barking
Speaker 1: right away. You know, well that Bill was Red Cells, right,
Speaker 1: die Hard. Well, you know he loves the Dodgers. He
Speaker 1: likes love Okay, Yeah, Hayley from Beverly Hills got him
Speaker 1: into the Dodgers. He's got the coat and the whole thing.
Speaker 1: That Bill can come on and talk about. You know,
Speaker 1: we're talking about Jim Bullers and we gotta go to break,
Speaker 1: we gotta come back and talk about this. I mean,
Speaker 1: I just what are these guys supposed to say? I mean,
Speaker 1: they gotta wait to see what happens. We're gonna carry
Speaker 1: on talking about this. We've got missed the castle. Great
Speaker 1: to have you with us on the fine, fantastic to
Speaker 1: have you with us. In fact, let's talk about the
Speaker 1: Federal Reserve. That a meet again until April twenty nine.
Speaker 1: We've learned that that doesn't really matter. Do you expect
Speaker 1: anything else from them anytime soon? Well, there's a lot
Speaker 1: of details to come out, especially about this main street
Speaker 1: lending program um and I think they're going to roll
Speaker 1: with the punchers here. And I think you heard from
Speaker 1: Bullard and we've been seeing the set is very creative
Speaker 1: and very aggressive here when it's these problems. So UM
Speaker 1: I wouldn't rule out more FED action, but we're not
Speaker 1: forecasting anything specifically at this point. First, we're making it
Speaker 1: up as we go, and all of our listeners, whatever
Speaker 1: their level of sophistication, know that what's the attribute of
Speaker 1: how we make this up as we go that we
Speaker 1: should focus on. Well, I would say from the point
Speaker 1: of view of government policy, there's there's two pieces to this.
Speaker 1: One is not making it up. We've gone through the
Speaker 1: global financial crisis, We've dealt with issues that are threatened
Speaker 1: systemic uh stability. We've kind of created an infrastructure around that,
Speaker 1: and we're drawing on that and that's a really good
Speaker 1: thing and it's happening really quickly. The thing that's really
Speaker 1: unique about this crisis is how much we're hurting individuals,
Speaker 1: small businesses, and a targeted way in a very short time.
Speaker 1: And that's where making things up in terms of getting
Speaker 1: these loan programs out, having the FED to a remarkable
Speaker 1: amount to actually become a creditor to the corporate sector
Speaker 1: at the at the lowest level, UM is really starting
Speaker 1: to be kind of really unprecedented, and as you say,
Speaker 1: it's really making things up. So there's some of this
Speaker 1: which is got a very good toolbox, but there definitely
Speaker 1: is some stuff here which we're we're really responding in
Speaker 1: an unprecedented way. I want to talk about that unprecedented
Speaker 1: function here, the fiscal stimulus function right now. If the
Speaker 1: Federal Reserve, essentially with the four hundred and fifty billion
Speaker 1: dollars they're being provided by the US Treasury that they're
Speaker 1: going to lever up and lend out, how are they
Speaker 1: going to do that given their staffing and expertise. Well,
Speaker 1: I think to a large degree, they're going to work
Speaker 1: through banks and other financial intermediaries. The SPA is basically
Speaker 1: going to guarantee loans taken by banks. The FED is
Speaker 1: going to oversee it, Treasury is going to oversee it
Speaker 1: in some ways. But you have to work through the
Speaker 1: channels that exist. If you had to have the Treasury
Speaker 1: and the Fed manage the individual loan decisions that we
Speaker 1: made here, we'd never get things out. And this is
Speaker 1: a big issue. Even going through the banking system. We've
Speaker 1: been going through channels. As Bullard was saying a few
Speaker 1: minutes ago, we know unemployment is rising, people are being
Speaker 1: laid off. The question is can you get the money
Speaker 1: into the system quickly enough to limit the damage. Cushion
Speaker 1: has provide us with a sense that not too much
Speaker 1: damage is being done once the economy turns on the
Speaker 1: lights again, Bruce, That's where I wanted to go, this
Speaker 1: question of speed and the sense that it needed to
Speaker 1: be done last week, two weeks ago, not now, And
Speaker 1: we still don't have the program up and running. And
Speaker 1: I'm wondering, do you have a sense of how much
Speaker 1: of the damage has already been done in an irreversible
Speaker 1: way in terms of layoffs and small businesses that have
Speaker 1: to shut down. UM, I don't think we know what.
Speaker 1: We can see a hint of that in last week's
Speaker 1: claims numbers. We know there's going to be a huge
Speaker 1: rise in unemployment in the next month or two. How
Speaker 1: many businesses closed, I don't know, but it's going to
Speaker 1: be a lot. And let me just say, because I
Speaker 1: think there's an interesting international comparison here. Europe has a
Speaker 1: system where institutionally it's a lot harder to have that flexibility,
Speaker 1: and and I think over long periods of time, flexibility
Speaker 1: has been very helpful for the US, but in this situation,
Speaker 1: their structures, their programs that actually provided a very important
Speaker 1: circuit breaker. And I don't think you're gonna see unemployment
Speaker 1: rise in Europe anyway like what we're expecting to see
Speaker 1: in the US in the coming few months. Why can't
Speaker 1: we be like that? Man, it's a brilliant insight. Dr
Speaker 1: kas was great. Okay, everybody out there wants us to
Speaker 1: be like Europe for a cup of coffee, maybe three
Speaker 1: cups of coffee maybe out of the fourth of July.
Speaker 1: Why can't we european ee and then pull back and
Speaker 1: become like we are later on? Well, I think that's
Speaker 1: in some ways what we're trying to do. All those
Speaker 1: to be to be accurate. Here, we are still largely
Speaker 1: providing the support to income to people who are laid off,
Speaker 1: providing checks to people. We're not doing what the UK
Speaker 1: is doing, which is providing companies support for their payrolls.
Speaker 1: We're not doing the German government is doing in terms
Speaker 1: of subsizing short term work. I mean, that's a good question.
Speaker 1: I mean, is the institutional side, which you can't change
Speaker 1: at this point, but the way our approach is going
Speaker 1: on policy, well, it could be different, but but it
Speaker 1: is definitely a different one right now than what the
Speaker 1: Europeans are doing. The backdrop to give you guys a
Speaker 1: window window this listening across this nation is JP Morgan
Speaker 1: launches off the great work of Robert Melman from years ago,
Speaker 1: a fifteen page report Friday Evening which is a must
Speaker 1: read on Global Wall Street, and Faroly Walas is through
Speaker 1: with the US view, and then Kasmin drops in with
Speaker 1: the Global view and it just has you, brother, there,
Speaker 1: how many people put that report together, Bruce, like, literally
Speaker 1: like fifteen people right, well globally now we've got actually
Speaker 1: a bit more than thirty economists, Yeah, exactly, And it's
Speaker 1: just extraordinary. And so I I just I'm absolutely fascinated
Speaker 1: by what the American outcome is. If the EU approach
Speaker 1: works so well, do you just assume income substitution two,
Speaker 1: income substitution three? I mean, is that where we're heading?
Speaker 1: So I think the the issue here is you've got attention,
Speaker 1: because just remember when we when we get to the
Speaker 1: point where we turn the lights on, and that's the
Speaker 1: big call, when the virus starts to fade, when we
Speaker 1: begin to take the restrictive policies off, you're gonna get
Speaker 1: a huge bouncing growth, You're gonna have some rebound. The
Speaker 1: question really is how much lingering damage is done and
Speaker 1: whether the cushions we put in place here make it
Speaker 1: such that we can come mostly back to normal and
Speaker 1: our our view as we're not. You know, we have
Speaker 1: a big rebound in the second half of the year.
Speaker 1: We have the US growing at all nine pace in
Speaker 1: the second half of the year, but that still leaves
Speaker 1: output three percentage points below where it was on the
Speaker 1: path we were following. So there's a lot of damage
Speaker 1: we think is going to get done, and this is
Speaker 1: going to take a long time to heal. Um. We
Speaker 1: hope it's not going to be like the global financial
Speaker 1: crisis where really we haven't healed fully from that that damage.
Speaker 1: But you know, it's way too early to kind of
Speaker 1: judge how the path ahead is gonna is going to
Speaker 1: be filled. And you know, the other in here just
Speaker 1: keep in mind is the amount of debt that's going
Speaker 1: to be needed, both on the public and private sector
Speaker 1: side to fill the gap in the next few months
Speaker 1: is going to be an overhang issue that the ramifications
Speaker 1: of which we still really I don't think understand and
Speaker 1: that the ramifications of which everyone is trying to understand
Speaker 1: with whatever data, however sports it may be, is that
Speaker 1: we have. We're speaking with Bruce Kasman, JP, Morgan's chief
Speaker 1: economist Managing director of Global Research UH and Bruce, you're
Speaker 1: the perfect person for us to speak with, given your
Speaker 1: intersection of working at the New York FED and the
Speaker 1: sort of mechanics of the market, as well as working
Speaker 1: globally and covering everything as a senior international economist at
Speaker 1: Morgan Stanley Howd of JP Morgan, and I'm wondering as
Speaker 1: we head forward, a key question is are we poised
Speaker 1: for a inflationary or deflationary environment going forward? What's your
Speaker 1: take on that? Well, I think over the next six
Speaker 1: months it's pretty clear it's going to be deflationary. Just
Speaker 1: look at what oil prices are doing. The service sector
Speaker 1: is much bigger than goods producing industries, which might have
Speaker 1: some supply chain pressures, so you look at the entertainment, hotels, airlines,
Speaker 1: things of that. Inflation is going to calm down sharply.
Speaker 1: The question is where do we come out of this.
Speaker 1: I think certainly for the next couple of years, you
Speaker 1: have to believe the rise and unemployment. The weakness and
Speaker 1: growth that's not going to be completely paid back. It's
Speaker 1: going to be disinflationary. We'll have negative inflation in the
Speaker 1: near term, will have low inflation, and obviously that's a
Speaker 1: big challenge for central bankers who have already been having
Speaker 1: a very hard time getting inflation up over the last decade.
Speaker 1: So what does that mean in terms of how much
Speaker 1: debt some of these developed markets can incur? Well, I
Speaker 1: don't think there's a real constraint on the public sector side,
Speaker 1: especially given how low interest rates are and how much
Speaker 1: central banks are supporting in terms of the funding. I
Speaker 1: think the bigger issue for the next couple of years
Speaker 1: is really the build up of debt on the private
Speaker 1: sector side and how much that hinders the recovery once
Speaker 1: we get back to more normal conditions over a longer
Speaker 1: period of time. The build up in public sector dead
Speaker 1: has issues that particularly I think in Europe is an
Speaker 1: important issue where there's not enough burden sharing going on
Speaker 1: across countries. But that's more of a chronic issue, which
Speaker 1: has I think hard it's hard to figure out exactly
Speaker 1: how that's gonna affect us over the next five seven years.
Speaker 1: There's so many things you don't know about the next
Speaker 1: three months, so it's hard to go there at this point.
Speaker 1: Bruce Casmin, thank you so much for joining us today.
Speaker 1: Greatly greatly appreciate that Bruce Casmin is with JP Morgan.
Speaker 1: It is also a time to when you get Foreign
Speaker 1: Affairs Magazine, not reading two articles, but because if everybody's
Speaker 1: stuck at home reading three or four articles, are going
Speaker 1: to what he invented, which is the CFR website, which
Speaker 1: we make light of it now, but folks, when Richard
Speaker 1: Hass invented the modern Council on Foreign Relations website, it
Speaker 1: was an act of God never before as you had.
Speaker 1: So it's smart programming slammed in front of you on
Speaker 1: International relations website designer Richard Has the President of the
Speaker 1: Council on Foreign Relations. Richard, did you know what you
Speaker 1: would rot when you were screaming, we've got to do
Speaker 1: a website and do it right? Did you have any
Speaker 1: idea where this would lead? Not even close? Uh, not
Speaker 1: even uh close. But it really is an amazing resource
Speaker 1: now and I feel like I have the right to
Speaker 1: brag on it. Please so many well because other people
Speaker 1: doing of of the work. But and it's it highlights
Speaker 1: our work, but also the best one anywhere. I think
Speaker 1: one of the one of the reasons it's so good
Speaker 1: is we curate and we've tried to create one stop
Speaker 1: shopping whether you're an expert or also whether you're also
Speaker 1: if you're a beginner. We have, for example, the most
Speaker 1: traffic part of the website, Tom, all these backgrounders and
Speaker 1: who are not experts, case, okay, let me come me
Speaker 1: interrupting Ambassador hass and paulse when wants to jump here
Speaker 1: as well, folks, dirty little secret, Tom Keene, isn't that smart?
Speaker 1: I just go over to see how far and read
Speaker 1: the backgrounders as fast as I can. They go, Paul Richard,
Speaker 1: they go, oh god, he's just unbelievable, and Paul, Paul
Speaker 1: chump in here. But I was reading the backgrounders, right.
Speaker 1: We know that we we know the truth. So Richard's
Speaker 1: as we sit back and take a look at what's
Speaker 1: going on around the world here with this virus, what
Speaker 1: did you some of your takeaways as to some of
Speaker 1: the governmental responses that we've observed. My first takeaway is
Speaker 1: that this is part and parcel of the world we
Speaker 1: live in. All these people who talk about it being
Speaker 1: a black swan are coming out of the blue or
Speaker 1: dead rock. This was predictable, it happened now, and guess
Speaker 1: what if things like this are going to happen again.
Speaker 1: That's my my first takeaway. So governments need to be prepared.
Speaker 1: They should have been better prepared than they were. The
Speaker 1: international health machinery should have been much more oil than
Speaker 1: it was. We all ought to have had stock files.
Speaker 1: China ought to have communicated openly and honestly about its
Speaker 1: uh you know what had happened there, and then moving forward,
Speaker 1: governments have to have against stockpiles, they've got to have testing,
Speaker 1: they've got to have protocols ready. Essentially, the world was
Speaker 1: caught flat footed for this, and most of the responses
Speaker 1: have been inadequate at incoherent, ours in particular. Uh So,
Speaker 1: you know, it seems to me what's inevitable is that
Speaker 1: there will be COVID twenty or COVID twenty one or
Speaker 1: some other disease, and that we have to be prepared
Speaker 1: for it much better than we work for this. So
Speaker 1: how do you think you know life will change after this? Extly?
Speaker 1: We let we get to the other side here. Do
Speaker 1: you really believe that governments can in fact, you know,
Speaker 1: kind of prepare as you were just suggesting. To some extent,
Speaker 1: I would think that you're going to see a larger
Speaker 1: role for government. A couple of areas that come to mind,
Speaker 1: as I do think you'll have more stockpiles of say
Speaker 1: equipment or ventilators. I think something like the Defense Production
Speaker 1: Act that idea will become more of a peacetime or
Speaker 1: normal things. So we're gonna have relationships established between the
Speaker 1: private sector and government much more elaborate than they are now.
Speaker 1: I think you'll see less supply, less supply chain dependency.
Speaker 1: So I would think in a couple of years you're
Speaker 1: going to see a policy where the United States will
Speaker 1: say two things, we are not going to single source
Speaker 1: anything that's critical it in China or anywhere else we may.
Speaker 1: We're going to multiple sources so we're less dependent on
Speaker 1: an interruption from one source. And second of all, we're
Speaker 1: going to build a domestic capacity, so we're going to
Speaker 1: become a little bit more self reliant. I think that's
Speaker 1: in our future. Tell me about Laurie Garrett. You have
Speaker 1: one of the jewels in our coverage of these viruses,
Speaker 1: and Laurie Garrett, her work on Ebola was original and
Speaker 1: path breaking as well. I'm sure you're calling up Laura.
Speaker 1: You're running into her in the hallway it's thee far
Speaker 1: and saying Lorie, what's going on? How does she report
Speaker 1: to you? Well, actually, Laurie, while she's still a member
Speaker 1: of the Council Foreign Relation, is not on our staff anymore.
Speaker 1: Medias's active on MSNBC and she's been an important voice
Speaker 1: in this debate for years, and she was one of
Speaker 1: those who first said you had better get ready, this
Speaker 1: is coming. We have three people. We have three people.
Speaker 1: One is Tom Frieden, the former head of the c
Speaker 1: d C. He's active on our staff. You have a
Speaker 1: guy named Tom Boiki who started up a new really
Speaker 1: important sight called Think Global Health. It's on CFAR dot org.
Speaker 1: It has become actually the best virtual venue where the
Speaker 1: leading experts in the world have conversations about global health issues.
Speaker 1: It started off just weeks before this happened, coincidentally, but
Speaker 1: it's already become a central hub of the conversation. And
Speaker 1: then we have one other person, youngs and Wang, who's
Speaker 1: an expert on Chinese public health is as it turns out,
Speaker 1: so we've actually got three people on staff. As well
Speaker 1: as any number of members I know my board, for example,
Speaker 1: we have people like Peggy Hamburg, the former head of
Speaker 1: the f D A H. Sylvia Burwell, the former head
Speaker 1: of j J. We've got several former heads of Homeland Security.
Speaker 1: So it turns out that we have an enormous access
Speaker 1: to resource. So, Richard, what do you think this virus
Speaker 1: again kind of looking ahead a little bit means for globalization?
Speaker 1: Is that have we seen peak globalization? Globalization continues. Globalization
Speaker 1: itself is just a reality. It's about the globalization is
Speaker 1: simply the reality that an awful lot of stuff crosses
Speaker 1: borders in great value, of great velocity. That doesn't change
Speaker 1: the real What could change is the collective response to globalization,
Speaker 1: and so far it's been anemic. Whether it's in the
Speaker 1: health area, obviously, climate change, you name it, global response
Speaker 1: to globalization has been inadequate. I wish I could sit
Speaker 1: here and say it's going to be a lot better
Speaker 1: at going forwardly with a little in our lesson. But
Speaker 1: I'm worried that we're entering a period where a lot
Speaker 1: of countries are going to be looking inward. They're going
Speaker 1: to be strapped for cash. Given everything that this is
Speaker 1: going to cost. So I don't I don't think this
Speaker 1: is going to be a great era of what people
Speaker 1: in my business called global governance. I worried that they
Speaker 1: will continue to be a large gap between these global
Speaker 1: challengers and the collective response. I I look at Bessador
Speaker 1: has at the challenges forward, and they sent her back
Speaker 1: to your book. We should mention that, Richard as Folks
Speaker 1: is a new book coming up May twelve, on the world.
Speaker 1: It's a wonderful briefing forward. Your previous book was on
Speaker 1: disarray and our fiscal responsibility. I believe the helicopters over
Speaker 1: Central Park are dropping money from what I can observe
Speaker 1: from here, Richard Hass give us an update your report
Speaker 1: on our fiscal responsibility. Well, helicopters are dropping money, and
Speaker 1: they're gonna have to drop a lot more. Not only
Speaker 1: is taking care of the public health directly expensive, UH
Speaker 1: relief for American firms and citizens and workers. So we
Speaker 1: just passed a two trillion dollar not. My prediction, Tom
Speaker 1: is that's the first of several and the longer this
Speaker 1: goes on, the more we're going to need. Now, before
Speaker 1: this crisis even hit us, we were already racking off
Speaker 1: deficits at the tune of more than a trillion dollars
Speaker 1: a year. So we're gonna start racking up deficits at
Speaker 1: the tune of three five trillion dollars this year. Our
Speaker 1: debt UH is going to grow well into the twenties
Speaker 1: or thirty trillions of dollars. And the question is to
Speaker 1: what extent is the world going to be permanently willing
Speaker 1: to to finance it. Richard has thank you so much
Speaker 1: for your time today across this morning. He is the
Speaker 1: president of the cons on Foreign Relations on LinkedIn and Twitter.
Speaker 1: I've just put out this extraordinary compendium of medicine, think
Speaker 1: global health and look for that and study that in
Speaker 1: the coming days with the Council on Foreign Relations joining
Speaker 1: us now A step gallon of Northdea Bank, Celia macro strategies.
Speaker 1: That always great to get your voice on this program.
Speaker 1: A nineteen handle on w T I. Just how much
Speaker 1: does that complicate things in this market? What's the both
Speaker 1: a negative and a good thing? And it's a huge
Speaker 1: transfer of wealth not immediately been but in the coming
Speaker 1: month as things start to normalize. And the question that
Speaker 1: you have to ask yourself if you're a bank and
Speaker 1: you're letting to shill or the industry is whether this
Speaker 1: is shock is temporary or not. And behind that, it's
Speaker 1: about whether the Russians and the saalities that will be
Speaker 1: ascate the process and arrive at an agreement they both
Speaker 1: need to. The problem is they're both authoritarian figures and
Speaker 1: therefore they would lose if they would back down. And
Speaker 1: that means several weeks at least of this process before
Speaker 1: it happens. And I think this is a part which
Speaker 1: is not expected that eventually we're going to get some
Speaker 1: kind of normalization. Having said that, there's an oil gl
Speaker 1: whatever happens. Because of the production right now, uh and
Speaker 1: and because of the speed with which will be able
Speaker 1: to reduce some of their output, that should be a uh.
Speaker 1: It obviously will have an impact. Uh. And that means
Speaker 1: that old prices is probably going to be back up
Speaker 1: to forty five dollars within a few months. So it's uh,
Speaker 1: it's a complex story. It's an important story from the
Speaker 1: point of view of the bags because whether they kill
Speaker 1: the shield or industry or not is the strategic decision.
Speaker 1: And behind that there's a lot of backing so from
Speaker 1: some of the credit facility who which are available, but
Speaker 1: it's a it's an important conundrum from a high yield perspective,
Speaker 1: and of course it needs There are a lot of
Speaker 1: things which are attractive from within the resource sector, but
Speaker 1: from a yield perspective, from an equity perspective, lots of
Speaker 1: dislocations which means they themselves were exploited by merging or
Speaker 1: foreign investors like ourselves. We opened a credit fund, for example,
Speaker 1: are actively in this business, Sebastian, I'm you said a
Speaker 1: lot of things that are very controversial. A lot of
Speaker 1: people would disagree that it's a positive right now to
Speaker 1: have lower oil prices just because nobody's going out and
Speaker 1: spending any money or traveling forty five dollars a barrel.
Speaker 1: How do we get there, Well, we get there by
Speaker 1: an agreement between the Sautheast and the Russians. That should
Speaker 1: be enough to squeeze basically a lot, a lot of
Speaker 1: the various positions you have in the old market, and
Speaker 1: that eventually should recenter the market source that and that
Speaker 1: the equivalmrate. I think shouldn't be a surprised too to
Speaker 1: anyone that the question is how fast we get there
Speaker 1: they is it five months or is it a year
Speaker 1: or is it two years or is it a few weeks?
Speaker 1: And the odds because the escalation processed by definition, it's
Speaker 1: a very slow process. Uh, it'll take probably a few months. Sebasti.
Speaker 1: What are the ramifications of an extension of what I'm
Speaker 1: going to call a grim virus outlook from March to
Speaker 1: April and even into May. How does that fold into
Speaker 1: economic calculations? What it means that the pain from a
Speaker 1: deficit point of view is it is probably gonna be
Speaker 1: higher than is currently expected. Having said that, the fiscal
Speaker 1: package combined with the package one from the set is
Speaker 1: a very impressive one. People should be reassured if they
Speaker 1: if you believe in apple Pie basically should believe in
Speaker 1: the US governments and and the Federal Reserve, then they
Speaker 1: actually will manage the crisis very well. But he focus
Speaker 1: on this not on the United States, some parts of
Speaker 1: emerging markets, such as India, where the situation is getting
Speaker 1: dire very rapidly. It's it means it's a difficult environment
Speaker 1: for some better for other. It's probably the US. I'm
Speaker 1: glad you mentioned this because you know percolating folks in
Speaker 1: the literature over the weekend is what will be the
Speaker 1: action step for the I m F. I guess they
Speaker 1: got one trillion dollars available. That's what Pharaoh has available
Speaker 1: as well. But you know these got one trillion dollars available.
Speaker 1: Do you expect I m F to be more vocal
Speaker 1: this week in beginning to assist em? So when I shoot,
Speaker 1: my father was an I m F first, and I
Speaker 1: guess I was trained in that in that group. But
Speaker 1: the I m F is ultimately that some of its part,
Speaker 1: in the biggest part in it is in the United
Speaker 1: States cossion. It's not what it's not what the US,
Speaker 1: it's not what the IMF wants, it's what the United
Speaker 1: States want, and what the United States will want is
Speaker 1: to stabilize some of its allies and to some extent
Speaker 1: to help other emerging markets because it's not really good
Speaker 1: for for US products are going forward. So the discussions
Speaker 1: are probably ongoing, but from a reputational point of view,
Speaker 1: it's very difficult for India, which whose data is probably questionable,
Speaker 1: is to go to the I m F at this
Speaker 1: point in time would be seen very badly by the
Speaker 1: populations and by the government. None that means that delays
Speaker 1: the eventual intervention by by the MS. So you have
Speaker 1: some major economies such a Danya, which definitely needs some help,
Speaker 1: and you have some economies like Mexico, which has a
Speaker 1: currency that you've appreciated by is in difficulty, but it's
Speaker 1: extremely well positioned. And once the US rebounds, we've seen
Speaker 1: record lows for the Randwana Mexican pay. So in the
Speaker 1: last couple of weeks, eve I just wanted to finish
Speaker 1: up by talking about the FED. Last week. Quite rightly,
Speaker 1: we spent a lot of time thinking about where the
Speaker 1: FED was having success. Let's spend a little bit of
Speaker 1: time talking about how much they're spending to have that success.
Speaker 1: The bannet sheet expanded six hundred billion dollars in one week,
Speaker 1: and if George can Carve, as formerly of Namora pointed out,
Speaker 1: that's the equivalent of QUE two coming out of the
Speaker 1: financial crisis SEP. That's huge. Sure. I mean, the center
Speaker 1: banks learned from the past and they anticipate in the
Speaker 1: They basically become very adaptive and you should expect them
Speaker 1: to to become very original going forward. This is not
Speaker 1: the end process. From a FET point of view, they're
Speaker 1: very efficient and if you believe the FET, you believe
Speaker 1: in apple Pie then then believe that they're actually doing
Speaker 1: the right thing, and they definitely are. The shock is
Speaker 1: a brutal one, but they will continue to steadily innovate
Speaker 1: and surprises, and I think that will translate to health
Speaker 1: for moments and pop shops and people who think they
Speaker 1: won't have access to that credit because they're too small.
Speaker 1: It eventually will happen. So nobody should be discouraged by this. Well,
Speaker 1: it certainly have last week, that's for sure. Sep. Always
Speaker 1: appreciate your time, Sep Galty that of not da Bank.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg
Speaker 1: Radio