WEBVTT - OPEC Can't Fix Oil Demand Destruction: KPMG's Mayor 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl podcast. I'm Paul swing you, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:20.080 at Bloomberg dot com. Let's take a look at the 0:00:20.160 --> 0:00:24.239 oil as we think about the coronavirus clearly potentially going 0:00:24.280 --> 0:00:26.840 to have a negative impact on global global growth. That 0:00:26.920 --> 0:00:28.800 is what the market is discounting. When you take a 0:00:28.840 --> 0:00:30.720 look at oil, you see that as well. W T 0:00:30.880 --> 0:00:34.879 I and Brent both down over from their highs, reflecting 0:00:34.880 --> 0:00:37.920 the concern about global growth. Opex trying to respond today 0:00:37.960 --> 0:00:40.839 announcing that they will they look to reduce output by 0:00:40.920 --> 0:00:43.479 one point five million barrels. I get the latest. We 0:00:43.560 --> 0:00:47.040 welcome Regina Mayor. She's the global energy head for KPMG 0:00:47.320 --> 0:00:50.720 based in Houston. Regina, thanks so much for joining us here. 0:00:51.000 --> 0:00:53.320 Give us your sense of kind of the opeque move 0:00:53.400 --> 0:00:56.600 here that one point five million barrel cut to output. 0:00:56.880 --> 0:00:59.560 It's noted that Russia Mayor man May not be supporting it. 0:01:00.640 --> 0:01:03.440 So you're right. The market is in free fall around 0:01:03.520 --> 0:01:08.480 crude price, and it's very substantial. We're seeing significant demand destruction, 0:01:08.600 --> 0:01:11.720 and current projections are that global demand will at least 0:01:11.760 --> 0:01:14.880 be flat and potentially negative, and that would be only 0:01:14.880 --> 0:01:17.840 the fourth time in forty years that we've seen global 0:01:17.880 --> 0:01:21.640 demand go negative. So OPEC is trying to take decisive 0:01:21.680 --> 0:01:24.880 action to stem the tide. If they do the one 0:01:24.920 --> 0:01:26.720 point five million barrels per day, which has not been 0:01:26.760 --> 0:01:29.480 agreed to by OPEC, plus and Russia being a key 0:01:29.640 --> 0:01:32.640 constituent there, that would reduce supply by three and a 0:01:32.680 --> 0:01:36.080 half percent, which would be roughly in line with flat 0:01:36.120 --> 0:01:39.480 demand or even slightly declined demand, which hopefully puts the 0:01:39.480 --> 0:01:42.120 market more imbalanced. But right now, the market seems to 0:01:42.120 --> 0:01:44.800 be shrugging off the decisions that were even made today, 0:01:44.840 --> 0:01:46.840 and they seem to be unimpressed by the actions that 0:01:46.880 --> 0:01:49.720 have been taken Regina. Earlier this morning, Jeff Curry of 0:01:49.760 --> 0:01:52.800 Goldman Sacks came on Bloomberg Surveillance and was talking about 0:01:52.800 --> 0:01:56.160 how he expects oil prices to fall and I'm talking 0:01:56.240 --> 0:02:01.160 Brent could fall to or even below barrel this year 0:02:01.360 --> 0:02:04.240 in terms of the expectations of growth to you agree, 0:02:05.600 --> 0:02:08.280 I do not agree that will will go that low, 0:02:08.480 --> 0:02:10.760 but I did not believe that we would be in 0:02:10.840 --> 0:02:15.440 this territory. So without decisive action tomorrow, it could potentially 0:02:15.480 --> 0:02:18.079 be forty. I would say for w T, I think 0:02:18.160 --> 0:02:19.840 I find it hard to see a scenario where Brent 0:02:20.000 --> 0:02:22.760 dives below forty. But we don't know what's happening with 0:02:22.800 --> 0:02:25.840 the coronavirus, and the market is incredibly jittery and not 0:02:25.960 --> 0:02:28.720 very rational right now. So, Regina, there was some news 0:02:28.720 --> 0:02:30.960 out earlier today that XN is slowing the pace of 0:02:30.960 --> 0:02:35.040 its flagship shale project in the Permian basin. So obviously 0:02:35.080 --> 0:02:38.320 this raising more concerns at the folks in the Permian 0:02:38.960 --> 0:02:40.920 having a tough time at these oil levels. What are 0:02:40.919 --> 0:02:44.720 your clients telling you right now? They're saying, it's still 0:02:44.840 --> 0:02:48.200 stay the course, uh, steady as we go, And I 0:02:48.240 --> 0:02:51.200 think the very large companies have made bold moves to 0:02:51.280 --> 0:02:54.720 reassure investors. We're putting we're focusing on the dividend, we're 0:02:54.720 --> 0:02:58.120 guaranteeing the dividend, we're focusing on value, We're keeping capex 0:02:58.120 --> 0:03:01.760 in line with expectations. They're hopeful that this is a 0:03:01.800 --> 0:03:05.120 four to six month process and we'll ultimately see ourselves 0:03:05.160 --> 0:03:07.760 wash out of this. And in the end, we have 0:03:07.840 --> 0:03:10.040 to make these these big decisions because these are long 0:03:10.120 --> 0:03:13.120 lead time efforts. If we stay in the Permian, there 0:03:13.160 --> 0:03:15.320 are players that operate more on the brink, and the 0:03:15.400 --> 0:03:17.960 larger players are hoping perhaps that they'll get some of 0:03:17.960 --> 0:03:20.000 those other players out of the market, which bodes well 0:03:20.240 --> 0:03:23.680 for future Permian activity. How significant will the bankruptcies and 0:03:23.680 --> 0:03:27.240 this shall patch be this year? I anticipate that they 0:03:27.240 --> 0:03:29.720 will go up. We need to see consolidation. There are 0:03:29.760 --> 0:03:33.240 still too many fringe players and the checkerboard of acreage 0:03:33.320 --> 0:03:37.680 is still too patchy. Um. The bigger players are consolidating 0:03:37.720 --> 0:03:40.960 and they can operate more effectively, but there are moves 0:03:41.000 --> 0:03:43.360 that need to be made going down into the forties 0:03:43.600 --> 0:03:46.240 that could drive more of the bankruptcies, and I anticipate 0:03:46.280 --> 0:03:50.440 that that should chick up. So Regina, overall, let's assume 0:03:50.480 --> 0:03:54.360 we are facing no lower demand. Um, what else can 0:03:54.480 --> 0:03:56.640 OPEC do on the supply front? Can they take it 0:03:56.680 --> 0:03:59.960 another level? And how critical is it having Russia as 0:04:00.000 --> 0:04:03.040 a part of this. It's absolutely critical that Russia is 0:04:03.080 --> 0:04:05.080 a part of it. Um. That's I think what the 0:04:05.120 --> 0:04:08.320 market is waiting for and I don't think that they 0:04:08.320 --> 0:04:10.680 can do a whole lot more, which worries me, and 0:04:10.680 --> 0:04:14.880 we're probably the Goldman Fort scenario comes into play because 0:04:14.880 --> 0:04:17.840 you can't just keep cutting cutting um. The market is 0:04:17.880 --> 0:04:20.200 not responding to that. What we really need to see 0:04:20.360 --> 0:04:23.279 is demand coming back, and some of the indicators that 0:04:23.279 --> 0:04:25.800 I would look for is a return to shipping. So 0:04:25.839 --> 0:04:29.400 we have idle manufacturing capacity, we have product that's in 0:04:29.520 --> 0:04:32.800 containers waiting to be shipped, we have ships there in quarantine. 0:04:33.120 --> 0:04:35.520 Once we start to see the supply chains move more 0:04:35.560 --> 0:04:39.080 effectively and we see travel restrictions lifted and some of 0:04:39.080 --> 0:04:43.320 the self quarantine activity uh run be taken off, then 0:04:43.360 --> 0:04:45.840 demand comes back, and that I think will be the 0:04:45.839 --> 0:04:48.320 thing that booies the oil price for the longer period. 0:04:48.560 --> 0:04:51.800 There's a question about the elasticity of the market, just 0:04:51.920 --> 0:04:55.760 how quickly oil producers can ramp up production if things 0:04:55.800 --> 0:04:58.400 get back to normal. Is there concerned that there could 0:04:58.400 --> 0:05:01.080 be a whip saw here with the oil prices diving 0:05:01.120 --> 0:05:04.200 and then jerking way back up as people start to 0:05:04.360 --> 0:05:08.120 uh generate some of the same trade and the same 0:05:08.160 --> 0:05:12.560 travel that they had before and without the inventories the 0:05:12.640 --> 0:05:16.839 oil production supply chain and production process cannot move as 0:05:16.960 --> 0:05:20.560 agilely and as quickly as that. So while some may 0:05:20.600 --> 0:05:23.640 say they're slowing down production, I don't actually see that 0:05:23.760 --> 0:05:27.760 having a material effect on declining production. To have that 0:05:27.800 --> 0:05:31.680 whip saw effect. If they could, they belly would, But 0:05:32.240 --> 0:05:34.600 it's not. It's not. You're not able to respond to 0:05:34.680 --> 0:05:38.280 that rapidly, So I don't see that forecast. Regina Mayor, 0:05:38.320 --> 0:05:40.520 thank you so much for being with us. Regina Mayor, 0:05:40.560 --> 0:05:50.240 Global Energy head at KPMG based in Houston. Let's talk 0:05:50.279 --> 0:05:53.520 about volatility. Looking at the VIX index right here, thirty 0:05:53.680 --> 0:05:56.720 six point zero seven. That's up four points today. This 0:05:56.720 --> 0:05:59.839 thing just recently a few weeks ago, down around twelve thirteen. 0:06:00.400 --> 0:06:03.320 Incredibly higher risk being priced into the market. And we 0:06:03.360 --> 0:06:06.440 talked about market volatility. Is absolutely nobody better to do 0:06:06.520 --> 0:06:09.480 it with than Nick call Us, co founder Data Trek Research. 0:06:09.520 --> 0:06:12.720 He joins us here in a Bloomberg Interactive Broker studio. Nick, 0:06:12.760 --> 0:06:15.560 thanks so much for joining us. Are you how are 0:06:15.600 --> 0:06:17.640 you thinking about the volatility in this market? Is whether 0:06:17.680 --> 0:06:20.280 you should be buying or selling? Here? At most people 0:06:20.279 --> 0:06:22.159 it just scares the heck out of them. Well, it 0:06:22.240 --> 0:06:24.960 is scary, and that's a very very logical response, at 0:06:25.040 --> 0:06:27.000 least an emotional one. If you look at the vix 0:06:27.040 --> 0:06:29.920 spect and look at where it kind of levels out 0:06:29.960 --> 0:06:32.400 and where it creates a buying opportunity to three levels 0:06:32.440 --> 0:06:36.239 that really matter forty two, fifty and fifty eight, because 0:06:36.240 --> 0:06:39.240 that's three four and five standard deviations from the long 0:06:39.320 --> 0:06:42.240 run mean. I hope Tom Keene is listening. So those 0:06:42.279 --> 0:06:45.120 are the levels, and it's worked beautifully so far. On Friday, 0:06:45.200 --> 0:06:48.360 during that really cataclysmic low around to one or two pm, 0:06:48.360 --> 0:06:51.440 it hit forty nine right on top of four standard deviations, 0:06:51.440 --> 0:06:53.359 and so that was so far the bottom. So what 0:06:53.360 --> 0:06:55.560 we're telling clients is, if you want to trade this 0:06:55.560 --> 0:06:58.360 this this tape, look for those levels and don't even 0:06:58.400 --> 0:07:00.719 try until forty two and pr to kind of stick 0:07:00.720 --> 0:07:04.080 your toe and even deeper at It's interesting. For a 0:07:04.080 --> 0:07:07.359 long time, the low interest rate environment was said to 0:07:07.400 --> 0:07:11.200 be dampening volatility. Not so this time. No, Because the 0:07:11.240 --> 0:07:14.920 low estreating environment was coincided with a low volatility of 0:07:14.960 --> 0:07:19.080 GDP growth, a low volatility of unemployment. Those numbers were 0:07:19.080 --> 0:07:21.440 getting better or at least flat for a long period 0:07:21.480 --> 0:07:23.400 of time, and now we have this shock that says 0:07:23.800 --> 0:07:25.840 we have no idea what happens next, and then implied 0:07:25.920 --> 0:07:29.040 volatility rises because the volatility of future economic reports going 0:07:29.040 --> 0:07:31.360 to be volatile as well. So, Nick, what did you 0:07:31.400 --> 0:07:34.600 make of the Fed rate cut intra meeting rate cut 0:07:34.640 --> 0:07:39.600 earlier this week? Panic or wise? You know, it comes 0:07:39.640 --> 0:07:41.480 down to, I think you got to read the Beige 0:07:41.480 --> 0:07:44.880 Book yesterday, because the Beige Book had fifty you want 0:07:44.880 --> 0:07:48.840 to say, fifty seven mentions of coronavirus or COVID nineteen, 0:07:49.320 --> 0:07:52.040 which is higher than the thirty eight mentions that Tariff 0:07:52.080 --> 0:07:54.640 scott last year when they began to become a real issue. 0:07:54.640 --> 0:07:56.560 And I think you know, chairp How is a big 0:07:56.560 --> 0:07:58.360 fan of that Beige Book. He reads it and so 0:07:58.400 --> 0:08:00.080 I think he probably looked at the draft over the 0:08:00.120 --> 0:08:02.160 weekend and said this is going to be just as 0:08:02.160 --> 0:08:04.880 bad or worse as the trade war. And that's what 0:08:04.960 --> 0:08:07.960 engendered this, this fifty basis point cut. Right now we're 0:08:08.000 --> 0:08:11.560 seeing Fed funds futures price in another fifty basis point 0:08:11.640 --> 0:08:14.600 rate cut later this month. What will that do in 0:08:14.720 --> 0:08:18.920 terms of stock valuations, in terms of volatility? I mean, 0:08:18.960 --> 0:08:22.160 the feels like the answer is very very little. I 0:08:22.200 --> 0:08:24.760 think it's the case where you know, the FED is 0:08:24.800 --> 0:08:26.800 on the ship and guiding it and it sees the 0:08:26.840 --> 0:08:29.480 iceberg ahead, and maybe it's too late to swerve, or 0:08:29.520 --> 0:08:31.600 maybe it's not that you gotta try. You gotta turn 0:08:31.640 --> 0:08:33.200 the wheel as hard as you can and hope you 0:08:33.280 --> 0:08:35.319 miss it, or I hope it's more of a grazing blow. 0:08:35.880 --> 0:08:37.280 I think that's the best that can hope for, and 0:08:37.360 --> 0:08:40.080 I think realistically they know that. So Nick, you know, 0:08:40.120 --> 0:08:41.400 one of the things at least I talk a lot 0:08:41.440 --> 0:08:43.640 about is, you know, the interest rate market in a 0:08:43.760 --> 0:08:47.680 two year point zero point five eight on the two year, 0:08:48.080 --> 0:08:52.240 the ten year back below one. What does this tell you? 0:08:53.760 --> 0:08:57.240 You tell you that question, as our clients have asked 0:08:57.280 --> 0:08:59.440 that question more often than what does the volatility means? 0:08:59.760 --> 0:09:03.160 They view the volatility is sort of a function of 0:09:03.200 --> 0:09:05.480 the virus, and that's probably right. They view the move 0:09:05.559 --> 0:09:07.960 in the ten years, perhaps we're learning something more structural, 0:09:08.000 --> 0:09:11.280 and they worry that America has kind of seen its 0:09:11.280 --> 0:09:13.960 best days, that economic growth is going to be very slow, 0:09:14.400 --> 0:09:17.360 structural GDP growth will be slower, inflation is going to 0:09:17.440 --> 0:09:20.480 be non existent. We're gonna end up like Europe and Japan. 0:09:20.600 --> 0:09:23.640 And that is the big warrior. My counter argument is 0:09:23.679 --> 0:09:25.040 that we're not going to end up that way. That 0:09:25.080 --> 0:09:27.960 we still have, you know, a fairly strong economy, a 0:09:28.160 --> 0:09:30.600 really strong tech sector, and all the things that create 0:09:30.960 --> 0:09:33.760 long term economic growth. But it is a huge source 0:09:33.800 --> 0:09:35.720 of concern, far more than I would have thought going 0:09:35.800 --> 0:09:38.120 right to that point with tech. What are the levels 0:09:38.120 --> 0:09:43.440 at which you buy oh? So the you know, the 0:09:43.480 --> 0:09:45.439 way we look at it is tech is the most 0:09:45.520 --> 0:09:47.160 volatile part of the market, and so you have to 0:09:47.160 --> 0:09:49.079 basically think about where the market can go and how 0:09:49.120 --> 0:09:51.160 bad it can get. And they are not to go 0:09:51.200 --> 0:09:53.400 back to the standard deviation math, but a five percent 0:09:53.520 --> 0:09:57.160 down day is a five standard deviation move. That is 0:09:57.200 --> 0:09:59.320 the kind of levels where you get real panic, and 0:09:59.320 --> 0:10:01.720 we outside of oh eight, we've never really seen it 0:10:01.760 --> 0:10:04.160 for a very long period of time. So the bottom 0:10:04.200 --> 0:10:06.000 line is, if you want to trade tech, you wait 0:10:06.040 --> 0:10:08.679 for a big, big down day, a down five percent 0:10:08.760 --> 0:10:11.320 day on the SMP where tech is down seven, eight, 0:10:11.400 --> 0:10:13.800 nine percent, and that's the kind of low that you 0:10:13.800 --> 0:10:16.200 can safely nibble away at. So if it goes down 0:10:16.280 --> 0:10:19.120 nine percent more from here at Facebook in a day, 0:10:19.280 --> 0:10:23.760 Google in a day, you're in there buying interesting. So 0:10:24.360 --> 0:10:27.000 as we think about the market here. I mean, are 0:10:27.000 --> 0:10:30.240 you thinking about we are in fact in a you know, 0:10:30.559 --> 0:10:33.600 you know, not a stagflation, but a lower growth for longer. 0:10:33.640 --> 0:10:35.120 Is that kind of your base case here over the 0:10:35.200 --> 0:10:37.880 next several years? It is strongtly the base case for 0:10:37.960 --> 0:10:40.640 at least the next year or two. You know. I 0:10:40.640 --> 0:10:43.000 think there were early on back in January, which feels 0:10:43.000 --> 0:10:44.560 like a thousand years ago, there was a hope this 0:10:44.600 --> 0:10:46.880 is going to be a V bottom kind of event. 0:10:47.559 --> 0:10:51.280 We look at Chinese pollution and traffic congestion data to 0:10:51.320 --> 0:10:53.480 get a sense of how quickly the Chinese economy is 0:10:53.520 --> 0:10:56.080 coming back online. The good news is morning and evening 0:10:56.120 --> 0:10:58.240 rush hour in the five biggest cities is now getting 0:10:58.240 --> 0:11:00.560 back to normal. And in Shenzen, which is really important 0:11:00.559 --> 0:11:02.920 for tech, it's back to normal. Pollution is getting back 0:11:02.960 --> 0:11:05.880 to normal. But we can traffic still very slow. Midday 0:11:05.880 --> 0:11:07.800 traffic still very slow. So this isn't going to be 0:11:07.840 --> 0:11:10.240 a V bottom. It's going to be a slow grinding 0:11:10.280 --> 0:11:12.600 improvement of higher not just for the US but everywhere 0:11:12.600 --> 0:11:14.880 in the world. I was reading a Project Syndicate column 0:11:14.960 --> 0:11:17.440 by Harvard professor kind of throw Off last night, and 0:11:17.480 --> 0:11:20.720 he was talking about how This is fundamentally different from 0:11:20.720 --> 0:11:23.520 other issues that the Fed and Central banks globally have 0:11:23.600 --> 0:11:25.679 dealt with. And when we talk about, you know, the 0:11:25.760 --> 0:11:30.400 idea of rate repression, we talk about no inflation. This 0:11:30.480 --> 0:11:33.280 time he was arguing, could be different because the disruption 0:11:33.520 --> 0:11:37.079 is on the supply side, not the demand side. When 0:11:37.120 --> 0:11:40.319 you have a disruption and supplies the demand is still there, 0:11:40.720 --> 0:11:42.640 that means prices get bit up and we could end 0:11:42.679 --> 0:11:45.520 up in a nineteen seventies like situation. Do you give 0:11:45.559 --> 0:11:48.959 any credence to that idea super smart guy, so you 0:11:49.000 --> 0:11:50.800 can't just blow it off. But I'll tell you, I'll 0:11:50.800 --> 0:11:52.439 give you, you know, two anecdotes. The first is the 0:11:52.520 --> 0:11:55.640 China traffic One. China consumer is not back. There is 0:11:55.679 --> 0:11:58.720 no consumer demand in China to speak of, for all 0:11:58.720 --> 0:12:01.920 the obvious reasons. Walking across town from from the West 0:12:01.960 --> 0:12:04.120 side of Manhattan this morning, I was able to jaywalk 0:12:04.160 --> 0:12:06.440 across Park Avenue in the middle of the day because 0:12:06.440 --> 0:12:08.040 there was no traffic for a block and a half. 0:12:10.240 --> 0:12:12.800 It just says that normal midtown traffic, which is usually 0:12:12.880 --> 0:12:15.640 quite heavy, is extremely light in New York and that 0:12:15.640 --> 0:12:18.280 could be a function of tourism, which is obviously down. 0:12:18.520 --> 0:12:20.480 It could be a function of work from home. But 0:12:20.520 --> 0:12:21.920 I can tell you haven't lived in New York my 0:12:21.960 --> 0:12:24.640 whole life as you have. Looks very light out there. 0:12:24.679 --> 0:12:26.440 It's not quite back to oh eight levels, but it 0:12:26.600 --> 0:12:30.600 is light. What is your sense of how long will 0:12:30.640 --> 0:12:32.640 take the cycle through the U S economy? I mean, 0:12:32.760 --> 0:12:35.840 because it's the V is probably out of the discussion, 0:12:35.840 --> 0:12:38.319 as you were suggesting. Yeah, the V feels like it's 0:12:38.360 --> 0:12:40.520 off the table for now, and it feels like it's 0:12:40.559 --> 0:12:44.320 three to six months, three months being kind of dragging 0:12:44.360 --> 0:12:46.720 your way down towards the bottom of whatever happens, and 0:12:46.760 --> 0:12:49.280 then three months coming back. And I think there's a 0:12:49.280 --> 0:12:51.800 piece of this that really revolves around holiday and Christmas 0:12:51.880 --> 0:12:54.280 as well, both from the supply and the demand side, 0:12:54.320 --> 0:12:56.040 because if you do get an economic shock, then you 0:12:56.080 --> 0:12:58.760 do have a different picture going into holiday and as 0:12:58.800 --> 0:13:01.400 well as the elections. So unfortunately, this touches on every 0:13:01.400 --> 0:13:04.520 single topic investors care about. Nicholas, thank you so much 0:13:04.600 --> 0:13:07.240 for being with us. Nicholas is co founder of data 0:13:07.320 --> 0:13:10.439 Check Research, joining us here in our interactive broker studios. 0:13:22.200 --> 0:13:24.640 We are looking at markets pulling back a little bit 0:13:24.720 --> 0:13:28.040 from their earlier lasses still solidly in the red and 0:13:28.080 --> 0:13:30.280 the question for a lot of people is not just 0:13:30.360 --> 0:13:31.760 when do I buy the dip, but when do I 0:13:31.760 --> 0:13:34.560 even get involved? How do I even understand when to 0:13:34.600 --> 0:13:37.320 make allocation shifts into response to this news, Barry red 0:13:37.320 --> 0:13:40.160 Holds joins us now Bard Holds, founder of Widholds Wealth 0:13:40.200 --> 0:13:42.920 Management and a Bloomberg opinion columnist. Barry, I know what 0:13:42.960 --> 0:13:47.359 your advice is, sixty forty, keep it in long term boom. 0:13:47.360 --> 0:13:49.520 But I have a question for you, based on what 0:13:49.640 --> 0:13:52.600 is going on currently right and that is how much 0:13:52.640 --> 0:13:55.200 do we have to bring down our earnings and our 0:13:55.280 --> 0:13:58.520 dividend expectations for the S and P five hundred at 0:13:58.520 --> 0:14:01.120 this point given what we're seeing with respect to some 0:14:01.160 --> 0:14:03.800 of the guidance that we're getting out of airlines, out 0:14:03.800 --> 0:14:07.800 of entertainment companies, out of gaming companies, Sure anything involving 0:14:08.120 --> 0:14:13.320 travel tourism go down the list. The more challenging aspect 0:14:13.440 --> 0:14:16.839 that's easy airlines kind of to zero. They're they're gonna 0:14:16.880 --> 0:14:20.120 have their profits, are gonna be for the quarter, are 0:14:20.120 --> 0:14:23.120 going to really be pressured. The bigger question that I 0:14:23.160 --> 0:14:26.280 think we have a hard time answering is what about 0:14:26.320 --> 0:14:30.120 the global supply chain. Already there have been rumors of 0:14:30.760 --> 0:14:34.400 an inability to replace iPhones from Verizon and A T 0:14:34.560 --> 0:14:38.560 and T because the shipments are down. So the bad 0:14:38.640 --> 0:14:42.360 news is, we don't know how severe this is going 0:14:42.400 --> 0:14:45.720 to be, and we don't know how long it's gonna last. 0:14:46.080 --> 0:14:49.200 The good news is every time we've seen one of 0:14:49.200 --> 0:14:53.360 these over the past century, it has its impact, it lasts, 0:14:53.400 --> 0:14:56.280 say a couple of quarters, and then on the other side, 0:14:56.280 --> 0:14:59.680 with things go back to normal. Today we have a 0:14:59.760 --> 0:15:02.920 double bled sword. On the one hand, we can develop 0:15:03.120 --> 0:15:06.160 tests to see if you're positive or negative much quicker 0:15:06.200 --> 0:15:09.040 than we have were able to do before, and theoretically 0:15:09.040 --> 0:15:11.520 will come up with a vaccine for those of us 0:15:11.520 --> 0:15:14.440 who actually believe in things like science and vaccines, much 0:15:14.440 --> 0:15:17.120 more quickly than we used to. The flip side of 0:15:17.160 --> 0:15:22.680 that is technology spreads information and misinformation about this, which 0:15:22.760 --> 0:15:25.320 leads to panic and fear. I don't think you would 0:15:25.320 --> 0:15:29.360 have seen a week like last week half a century ago, 0:15:29.960 --> 0:15:36.440 because the relentless drumbeat of panic and fear and info 0:15:36.680 --> 0:15:40.640 and miss info just didn't exist in that same way, 0:15:41.080 --> 0:15:44.160 and so we would not have had that immediate emotional response. 0:15:44.400 --> 0:15:46.960 You still may have ended up down twelve, but it 0:15:46.960 --> 0:15:49.520 would have been over a couple of quarters as we 0:15:49.600 --> 0:15:53.320 actually saw it work its way into earnings instead of 0:15:53.320 --> 0:15:56.720 work its way into the fear of earnings. Barry, what 0:15:56.760 --> 0:15:59.280 did you make of the Fed's action earlier this week 0:15:59.360 --> 0:16:02.200 the fifty base? His point cut was that panic? To you? 0:16:02.400 --> 0:16:05.160 Was that then looking too much at the markets? Or 0:16:05.400 --> 0:16:08.240 do you think the underlining data supported it? You know, 0:16:09.240 --> 0:16:13.760 the data suggests that we're going to have a demand 0:16:14.280 --> 0:16:19.160 side slowdown. That's all the all the different sectors at 0:16:19.200 --> 0:16:23.920 least was talking about. That's there. Nothing at all is 0:16:23.960 --> 0:16:28.240 suggested suggesting if only rates were lower, I would go 0:16:28.360 --> 0:16:31.360 to Disneyland. If only rates were lower, I could go 0:16:31.440 --> 0:16:35.480 to the Facebook Developers Conference, or the New York Auto 0:16:35.520 --> 0:16:38.080 Show or anywhere else, any of these other big events 0:16:38.120 --> 0:16:41.880 that are being canceled. So it seems that we have 0:16:42.040 --> 0:16:48.760 developed this unfortunate habit of responding to situations with a 0:16:48.840 --> 0:16:52.800 monetary solution when it really calls for a fiscal solution. 0:16:53.280 --> 0:16:55.560 And the old joke is to the man whose only 0:16:55.600 --> 0:16:58.360 tool is a hammer, everything looks like a nail. We 0:16:58.480 --> 0:17:03.280 seem to have a band in the traditional Keynesian response 0:17:03.800 --> 0:17:07.280 to diminish demands for goods and services. Hey, when the 0:17:07.320 --> 0:17:12.000 private sector slows down, the government should step in uh 0:17:12.200 --> 0:17:15.320 with either tax cuts or or spending or both to 0:17:15.680 --> 0:17:20.520 temporarily replace that demands, assuming you want to cushion the 0:17:20.600 --> 0:17:24.160 blow of the slowing economy caused by this sure and 0:17:24.359 --> 0:17:26.640 we can talk about what they should do. What they 0:17:26.680 --> 0:17:29.600 are doing and what they're expected to do is another story. 0:17:29.640 --> 0:17:33.640 And currently looking at Fed funds futures just more aggressively 0:17:33.720 --> 0:17:38.240 pricing in lower rates sooner to full rate cuts currently 0:17:38.280 --> 0:17:41.199 being priced into Fed fund futures for the meeting on 0:17:41.359 --> 0:17:45.000 March eighteen, in less than three weeks, coming up after 0:17:45.040 --> 0:17:47.960 their five fifty basis point emergency rate cut, the first 0:17:47.960 --> 0:17:50.880 that they've done inter meeting since two thousand and eight 0:17:50.880 --> 0:17:54.360 and since the crisis. Then it raises a question what 0:17:54.440 --> 0:17:58.800 does it do? Does its support equity valuations anymore, especially 0:17:58.840 --> 0:18:02.000 if the response is to something that we cannot evaluate 0:18:02.080 --> 0:18:04.200 right now in its face. We don't know how much 0:18:04.200 --> 0:18:06.560 it's going to bring down earnings, We don't know the 0:18:06.600 --> 0:18:09.760 relative valuation case at this point. Is this the time 0:18:09.800 --> 0:18:13.320 when we see that relationship lower rates pushing up this 0:18:13.440 --> 0:18:16.680 sort of risk to you know, they search for for yields. 0:18:16.680 --> 0:18:21.800 This this flight to risk is that connection broken. I'm 0:18:21.800 --> 0:18:24.800 not sure if it's broken. What what seems to be 0:18:24.920 --> 0:18:29.199 going on? And this is I have access to the 0:18:29.240 --> 0:18:32.439 same information that you do. I'm not speaking to fit insiders. 0:18:32.440 --> 0:18:36.120 I don't know what they're talking about. I do recall 0:18:36.200 --> 0:18:39.879 them saying a long time ago, I think it was January, 0:18:40.200 --> 0:18:43.600 that they're concerned about negative interest rates. We heard that 0:18:43.920 --> 0:18:47.920 throughout Well, if you want negative interest rates in the 0:18:48.000 --> 0:18:52.920 United States, hey keep cutting uh federal funds rates. If 0:18:52.920 --> 0:18:56.160 you drive that low enough, eventually your worst nightmare will 0:18:56.160 --> 0:18:59.640 be here, which is negative interest rates. So I don't understand. 0:19:00.720 --> 0:19:05.439 Are they responding to presidential pressure? Does the Fed have 0:19:05.680 --> 0:19:09.080 the same sort of unhealthy obsession with how high the 0:19:09.119 --> 0:19:12.879 stock market is that the president does. It's hard to judge. 0:19:12.880 --> 0:19:17.520 From the outside. It looked like panick to me. And 0:19:18.040 --> 0:19:22.119 it also looked like the wrong um prescription. You know, 0:19:23.840 --> 0:19:28.359 an aspirin isn't gonna cure um a common cold, and 0:19:28.359 --> 0:19:31.159 and this sort of viral infection is going to have 0:19:31.320 --> 0:19:35.080 an ongoing impact on demand that we have no idea 0:19:35.280 --> 0:19:38.560 how big it's going to be cutting rates, talk about 0:19:38.600 --> 0:19:41.080 pushing on a string. How are cutting rates going to 0:19:41.160 --> 0:19:44.680 have a positive impact on this, it's it's really really surprised. 0:19:44.800 --> 0:19:46.760 You know. I was speaking with Jim Bianca earlier this morning. 0:19:46.800 --> 0:19:49.520 I love his world well, and one thing he said 0:19:49.640 --> 0:19:53.160 is that there is actually a fundamental plumbing issue that 0:19:53.320 --> 0:19:56.800 as people the repost side or and I mean that 0:19:56.920 --> 0:19:59.960 that's well known free how long over a year now, 0:20:00.280 --> 0:20:03.359 but that basically, uh, that that people have been pulling 0:20:03.400 --> 0:20:07.160 their cash out of markets. That basically cutting rates will 0:20:07.200 --> 0:20:11.159 help ameliorate some of the plumbing issues. If you have 0:20:11.200 --> 0:20:13.320 a problem with the repo market because of a lack 0:20:13.320 --> 0:20:16.240 of liquidity, as we learned in the aftermath of eight 0:20:16.240 --> 0:20:19.520 oh nine, the solution is to flood that market with 0:20:19.560 --> 0:20:23.000 additional liquidity. I don't think rates make all that much 0:20:23.000 --> 0:20:25.960 of a difference. I think they have an ability. The 0:20:26.040 --> 0:20:29.280 FED has an ability to take a market that is 0:20:29.760 --> 0:20:33.480 I don't want to say frozen, but creaky. Remember the 0:20:33.680 --> 0:20:37.680 eight seven crash was caused by plumbing issues, uh, within 0:20:37.720 --> 0:20:42.200 the market structure. I mean literally, Um, this is really 0:20:42.200 --> 0:20:48.240 a much more narrow little niche hopefully less systemic than 0:20:48.280 --> 0:20:50.800 what we saw in eight seven. But the FED is 0:20:50.840 --> 0:20:53.000 aware of it. We know how to fix it. We 0:20:53.160 --> 0:20:55.840 just did this a decade ago. None of it has 0:20:55.880 --> 0:20:59.399 to do with rates that by any historical measure, are 0:20:59.440 --> 0:21:04.960 incredibly low and very accommodative. So I don't understand the 0:21:04.960 --> 0:21:08.520 FED and their hammer. Everything apparently is in now. Barry Ridholtz, 0:21:08.560 --> 0:21:11.000 thanks so much for joining us. As always, Buries a 0:21:11.000 --> 0:21:15.120 Bloomberg opinion columnist. He's also host of Master's in Business 0:21:15.200 --> 0:21:25.480