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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Ley.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot com, and of course on the Bloomberg Huge

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Speaker 1: huge credit losses rippling through this market of the last

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Speaker 1: couple of weeks. Places to set a whangon now Statewiding, City,

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Speaker 1: Private Bank, Global Chief Investments, Strytagist stay always great to

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Speaker 1: catch up with you. You'll focus on credit right now?

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Speaker 1: How much stress are you seeing? And it's it's still

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Speaker 1: too too far, too premature to think about stepping in. Well, look,

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Speaker 1: I think that there's some interesting dichotomy is taking place

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Speaker 1: that's functioning in the market seems to be quite bad,

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Speaker 1: and we can think about what some of those reasons are.

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Speaker 1: In terms of secondary market trading for UM fixed income

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Speaker 1: generally not just US credit, but we're also seeing primary issues.

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Speaker 1: For example, we've seen a good number of corporate bond

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Speaker 1: issues investment grade companies come to market UH and end

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Speaker 1: investors were there to buy those bonds um at relatively

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Speaker 1: reasonable spreads. Some of the stronger issues at lower absolute yield,

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Speaker 1: higher spreads uh than we have seen previously. You know,

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Speaker 1: I think, um, the credit issue is a whole separate

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Speaker 1: dimension of negatives for the US economy, something that must

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Speaker 1: you know again be prepared and for us be repaired

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Speaker 1: and must um ultimately should be targeted by policymakers as

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Speaker 1: we have seen. But there are some just very interesting

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Speaker 1: divergences here that I think have to be taken to

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Speaker 1: account as well. And certainly the severity that we are

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Speaker 1: seeing in terms of just price action and outflows, you know,

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Speaker 1: those sorts of things don't tell the whole story stays.

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Speaker 1: Let me jump in. How do you draw a distinction

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Speaker 1: between a market that's signaling functioning issue is in a

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Speaker 1: market the signaling credit stress. It's very difficult, UM. And

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Speaker 1: again part of this is just coming to grips with

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Speaker 1: how bad this shock is to the economy. Getting the

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Speaker 1: news that we did out of you know, Russia and

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Speaker 1: OPEC for example, came at a time when we were vulnerable,

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Speaker 1: and we were vulnerable because the speed in severe of

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Speaker 1: the shock has been moving has been very very difficult

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Speaker 1: to pin down. As you just went through the story

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Speaker 1: on California, UM, you know, we know what happened in China.

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Speaker 1: It's economy in the first quarter is about five percent

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Speaker 1: smaller than it was in the year earlier period, you know,

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Speaker 1: and that's after a good deal of growth. Um. And

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Speaker 1: you know, we have sixty million people working in restaurants

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Speaker 1: and hotels of the United States, you know, which are

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Speaker 1: just grinding to an absolute hall um. So trying to

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Speaker 1: figure out exactly what the environment is and what the

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Speaker 1: credit default situation will be, and what the policy response

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Speaker 1: can be right mitigate that. And on one side, it's

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Speaker 1: the severity that comes from when the health system is

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Speaker 1: going to be a good enough shape for us to

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Speaker 1: to emerge from our bunkers. And the other side is,

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Speaker 1: you know what we will do to essentially build a

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Speaker 1: bridge over it with policy and and help companies avoid

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Speaker 1: those defaults. So it's a simultaneous equation. It's evolving very

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Speaker 1: very fast, um And I think we should be a

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Speaker 1: little bit humble about trying to to assess this impact.

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Speaker 1: Beyond guessing, Steve, there is the fiscal impact and the

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Speaker 1: idea of how you address the economic declines in the

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Speaker 1: wake of the coronavirus. And then there's the functioning the

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Speaker 1: market functioning aspect of this. And there are a lot

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Speaker 1: of questions about the Federal Reserve and their intervention. How

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Speaker 1: much can the fedbackstop the corporate debt market as Ben

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Speaker 1: bernanke Yellen come out and call for them to start

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Speaker 1: buying corporate debt. So look UM the use of special

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Speaker 1: purpose of vehicles right for troubled assets as an example

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Speaker 1: in the eight o nine Christ this and I think

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Speaker 1: you know again they are moving faster to reignite these

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Speaker 1: types of programs UM, and that sort of thing again

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Speaker 1: will make it, I think faster for them to provide

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Speaker 1: credit in a way with again the cooperation of Treasury. UM.

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Speaker 1: I think we're showing some signs of success already, primary

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Speaker 1: dealer financing facility, UM, the commercial paper financing facility, These

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Speaker 1: sorts of things you know that don't get directly involved

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Speaker 1: in changing the FADS mandate and debating the debating that

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Speaker 1: can be helpful. And you know, in the fiscal response,

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Speaker 1: I think again importantly, how much you spend if you

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Speaker 1: can turn you know, um, what might be long term

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Speaker 1: unemployment into a short, short term furlough, you will save

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Speaker 1: money for the taxpayer on this by making this the

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Speaker 1: more overwhelming the response is over the short term, the

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Speaker 1: less I think that you will will actually cost taxpayers ultimately, Steve.

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Speaker 1: When we talk about the outflows, John Wass mentioning the

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Speaker 1: unprecedented outflows from investment grade bond funds, the unprecedented losses

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Speaker 1: in both investment grade and high yield bonds, there is

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Speaker 1: a question of what you do as an investor, and

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Speaker 1: and you know John was referencing this, which is, when

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Speaker 1: do you start to nibble at this is the move

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Speaker 1: to just go to cash right now? Is that just

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Speaker 1: the playbook for everybody, including yourself? I think no. I

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Speaker 1: think again, selling into a liquid markets at potentially fire

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Speaker 1: sale prices, you know, is something that you you want

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Speaker 1: to avoid being in that place in the in the

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Speaker 1: first place. Again, you want to have a portfolio, and

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Speaker 1: I can't see that that's what everyone has going in

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Speaker 1: but that you could live with regardless of how irrational

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Speaker 1: market pricing. Maybe you know how far how bad this

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Speaker 1: goes in terms of irrational pricing. You know, we can't say,

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Speaker 1: you know what's below in the oil price, well, give

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Speaker 1: it away for free, Um, that's below. That's how you

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Speaker 1: can't really say for sure that you will be able

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Speaker 1: to sell a particular asset at a particular period of time.

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Speaker 1: But if you have enough high quality assets going into

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Speaker 1: events like this, you don't have to sell. Now. That's

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Speaker 1: been the advice of City Private Bank going into this uh,

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Speaker 1: and I think it would be a bad time, you know,

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Speaker 1: to sell investments. If you didn't, you know, make big

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Speaker 1: mistakes going in great to catch up. I appreciate you

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Speaker 1: taking the time to get your views on the air

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Speaker 1: this morning, Steve Winding. They're sitting Private Bank Global Chief

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Speaker 1: Investment strategist. Let's bring your Patrick car stop, Shanweit Chlorine.

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Speaker 1: Well see I Patrick, always great to catch up with.

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Speaker 1: You asked this question a little bit earlier in the

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Speaker 1: program to Steve Winding a city and he said, it's

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Speaker 1: really difficult to do. How do you draw distinction between

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Speaker 1: a market signaling a functioning issue and credit risk? Credit stress?

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Speaker 1: How do you do that right now? Fixed income? Patrick, um,

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Speaker 1: very difficult. And you've mentioned liquidity I think several times

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Speaker 1: in the lead into that question. And people want liquidity

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Speaker 1: right now. They're running away from anything where they don't

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Speaker 1: know what it is with certainty, And the only thing

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Speaker 1: you know with certainty is if you've got your money

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Speaker 1: in US dollars in cash, Um, you know what you've

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Speaker 1: got at least, and markets not function best when people

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Speaker 1: are willing to give up that safety of cash and

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Speaker 1: put their capital to work expecting a higher return. So

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Speaker 1: inflation is one way you punish people who have their

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Speaker 1: money in cash, and I actually think that's probably where

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Speaker 1: things are going to go. We're in an environment now

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Speaker 1: where there's going to be massive discal stimulus, there's going

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Speaker 1: to be much lower tax receipts, and we've already got

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Speaker 1: that to GDP in the US of a hundred last year,

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Speaker 1: and that's going one direction. So I'm actually thinking the

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Speaker 1: longer term treasuries. They've sold off about twelve since March nine,

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Speaker 1: but that's from a completely overbought situation. I don't know

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Speaker 1: if you need to add liquidity into the treasury market

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Speaker 1: as a function of just being overbought. Can we talk

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Speaker 1: about the credit market? Central banks have already struggled to

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Speaker 1: put a floor on the credit markets. The CPS stepped

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Speaker 1: in big time this wait, Patrick, do we just trust

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Speaker 1: them that they can get this done with a package

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Speaker 1: this big? You it's a bad idea to just basically

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Speaker 1: buy what the central banks are trying to stabilize because

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Speaker 1: it's it's a hard thing to stabilize the bond market

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Speaker 1: and the credit market even as difficult, but it is

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Speaker 1: a floor under credit right now. For what the ecb

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Speaker 1: D has done, the FED hasn't done that yet. That's

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Speaker 1: probably the one lever they still can pull at some

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Speaker 1: point if we do see credit spreads continue to widen out.

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Speaker 1: We've been adding a bit of credit recently. UM We've

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Speaker 1: bought some liquid LTF we bought about a week ago,

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Speaker 1: moving into corporate credit as you are getting some spreads widening.

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Speaker 1: Junk we haven't bought yet, but when you've got spreads

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Speaker 1: of eight basis points, it's been pretty rare that you've

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Speaker 1: lost money, just because when companies do go bankrupt, it's

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Speaker 1: not zero recovery typically, and I don't see why this

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Speaker 1: situation would be different and most industries we're looking at,

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Speaker 1: so we've not really added junk yet, but it's something

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Speaker 1: we're looking at because the spreads are very wide. Let's

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Speaker 1: unpack that a little bit more. The idea that you

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Speaker 1: are starting to buy investment grade debt, can you of

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Speaker 1: us more of a sense of what you're looking for

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Speaker 1: in order to buy and whether this is basically a

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Speaker 1: belief that the credit risk aspect of this has been

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Speaker 1: overpriced or sort of overstated by the liquidity pressure. Yeah.

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Speaker 1: I think liquidity pressure is definitely put spreads out very wide,

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Speaker 1: and the e t f s are very instrumental that

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Speaker 1: they give you liquidity on underlying that may not be

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Speaker 1: quite as liquid. And when we've been buying an l

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Speaker 1: q D e t F, we've been purchasing it below

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Speaker 1: the nav on what the bonds are trading at, just

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Speaker 1: because there's so many sellers there in Europe. We've been

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Speaker 1: buying short term bank debt in Europe. Have been used

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Speaker 1: to having a negative carry on my cash positions, and

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Speaker 1: now with bank spreads widening out even on two year

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Speaker 1: paper from banks, you're getting positive returns in eurals and

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Speaker 1: actually feel very safe with the bank debt. I think

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Speaker 1: the stress tests that have been put in place are real.

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Speaker 1: Reserve requirements are very strong, and the off balance sheet

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Speaker 1: liabilities from two thousand and eight and derivative trading pop

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Speaker 1: desk risk, all of those things have really been mitigated,

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Speaker 1: did I think with regulations over the last ten years,

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Speaker 1: So Patrick, my signal that I take from that particular

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Speaker 1: trait is you're more worried about and earnings recession that

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Speaker 1: would hit the equity than you are about a balance

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Speaker 1: sheet issue that would hit the debt. Um. Yeah, the

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Speaker 1: earnings are going to be decimated for a lot of

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Speaker 1: industries in Q two, and we're not looking at pe

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Speaker 1: s because I don't think anyone knows where the earnings

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Speaker 1: are going to be for a lot of these companies.

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Speaker 1: But equities are looking attractive on price to book, and

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Speaker 1: that's a much more stable measure. On EBITDA, that's about

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Speaker 1: as far down as I want to look on the

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Speaker 1: revenue statement. And a month ago the S and P

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Speaker 1: five had never treated at a higher multiple and sell

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Speaker 1: off almost We're down to almost normal on ev DVID,

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Speaker 1: So DVID will probably be overstated still on estimates, but

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Speaker 1: it's not as volatile as the earning set of things. Patrick,

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Speaker 1: what you're saying makes a lot of sense based on history. Unfortunately,

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Speaker 1: in the past two weeks, history has been basically throughout

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Speaker 1: the window and we've seen every record broken pretty much

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Speaker 1: across the board, just in terms of the speed in

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Speaker 1: which this has hit. And I'm wondering what gives you

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Speaker 1: confidence that history will provide a guide, history of earnings,

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Speaker 1: history of recoveries at a time we have never seen

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Speaker 1: this before. The entire global developed market basically shut down. Yes,

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Speaker 1: and it's going to be an unprecedented hit to GDP,

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Speaker 1: I think in the United States. So I think probably

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Speaker 1: Q two GDP will be the worst number ever. But

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Speaker 1: we're dealing with the impact and prevention of a spread

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Speaker 1: of a virus that I'm fully confident we get past.

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Speaker 1: So there's developments in treatment. There's definitely going to be

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Speaker 1: developments in a vaccine. It's a short, sharp, very painful

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Speaker 1: hit to the economy, but I'm very very confident we

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Speaker 1: get past it. I'm not sure when, but I think

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Speaker 1: every day, with the steps that are being put in

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Speaker 1: terms of isolation and quarantining and all the efforts from

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Speaker 1: drug companies on treatments and past tracking things there, this

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Speaker 1: isn't going to be a permanent, solute, permanent headwind for

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Speaker 1: the economy. So I think it's anything that has an

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Speaker 1: asset value isn't going to be totally decimated because it

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Speaker 1: is short and sharp, and I expect the rebound to

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Speaker 1: be very sharp as well when we do get past.

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Speaker 1: Patrick the question I'm about who ask is deserving of

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Speaker 1: a very long conversation, so forgive me, you've only got

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Speaker 1: forty five seconds. I remember the conversations that we had

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Speaker 1: going all the way back to the urosone debt crisis

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Speaker 1: years and years ago. And your views on Greece. Are

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Speaker 1: your views the same as they were on Greece then

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Speaker 1: on some of these companies, these industries now asking for

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Speaker 1: a bail out um. I don't think you should be

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Speaker 1: bailing out a lot of these companies right now. I

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Speaker 1: think the airlines are getting a lot of press with

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Speaker 1: all the share buy backs they've done, and that's an

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Speaker 1: industry Trump's alluded to that they would be print of

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Speaker 1: the line for a bailout um. The employees, the bond holders,

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Speaker 1: maybe those are the parts of the capital structure and

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Speaker 1: basically participants of the companies that maybe deserved the bail

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Speaker 1: of the equity holders, I think when you buy equity,

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Speaker 1: you get the upside, but you usually have to take

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Speaker 1: the pain of the downside as well. So I think

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Speaker 1: bailout should come in the form of nationalizedations, where governments

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Speaker 1: take equity stakes and companies if they are giving them loans,

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Speaker 1: much as we've seen in the banks and Europe. Things

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Speaker 1: like that. It's not necessarily good news for an equity holder,

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Speaker 1: but it's good news for the citizens and for other stakeholders. Patrick,

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Speaker 1: great to get your views on the program. Looking forward

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Speaker 1: to catching up soon. Stay close, won't you, Patrick Carmstrong,

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Speaker 1: There plurumi wealth see io. If we think of equities

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Speaker 1: have been volatile, check out everything else. Crew. This week,

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Speaker 1: Wednesday we had a drop of Thursday, we had a rally,

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Speaker 1: and finally things have quiet and down just a little bit,

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Speaker 1: which means that Francisco Blanche gets to take a deep

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Speaker 1: breath and give us some of his time on this program.

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Speaker 1: Bank America Global head of Commodities and Derivatives Research, Francisco,

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Speaker 1: I have one question that's been on my mind through

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Speaker 1: the week. How close are we to breaching storage capacity

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Speaker 1: in some of these big, big producers, some of these

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Speaker 1: countries around the world. Um, Hey, Jonathan, thanks for having me.

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Speaker 1: I think there it was us. We get there within

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Speaker 1: the next within the next couple of months. Um. But

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Speaker 1: remember the hardest part of this crisis is that we

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Speaker 1: don't know how much of the demand drop we're going

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Speaker 1: to experience in the in the second quarter. Um, we

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Speaker 1: are We're talking about a twelve percent in big contraction

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Speaker 1: in the US ourselves. But I've seen all kinds of estimates. Uh.

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Speaker 1: Some people call them estimates, and I think it's a

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Speaker 1: it's a good ward because, um the demand contraction will

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Speaker 1: ultimately determine the UH supply demanding balance because we know

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Speaker 1: where supplies more or less. We know the southi Arabia

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Speaker 1: is having an extra couple of million bars a day

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Speaker 1: in the price war, the Russians are gonna put some

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Speaker 1: more oil on the market, and we've seen Abudai also

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Speaker 1: increasing their production estimates for April by million barrels a day.

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Speaker 1: So we have a pretty clear picture of the supply side,

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Speaker 1: which is really how having a hard time determining how

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Speaker 1: much of the demand contraction will get. Remember, we have

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Speaker 1: a hundred million barrel day market, you know oil, So

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Speaker 1: every percentage point the GDP, you know, it can be

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Speaker 1: easily translated into some kind of demand construction contraction here. Um. So,

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Speaker 1: So to to answer your question, it's it's very difficult

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Speaker 1: to say, but it could happen within the next two

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Speaker 1: to four months in production volumes as well. Francisco, when

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Speaker 1: we talk about the oil market, you have on one

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Speaker 1: side the complete fall off in demand with the result

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Speaker 1: of the shutdowns stemming from the coronavirus. And then you

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Speaker 1: have the tiff between Saudi Arabia and Russia, where you

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Speaker 1: have an acceleration of production. The implication from what you

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Speaker 1: were saying is that the Russia Saudi Arabia issue has

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Speaker 1: basically already been factored and we already have a sense

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Speaker 1: of that side of the equation, even if there is

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Speaker 1: a possibility of them coming to some agreement. Is that accurate? Um? Yeah,

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Speaker 1: I mean I think I think we've we've had a

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Speaker 1: factor in for sure, the price war between Russia and

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Speaker 1: Saudi Arabia, Well, we haven't been able to factor in.

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Speaker 1: Is how much of any and collapse the world's gonna experience.

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Speaker 1: Yesterday we heard the news on California shutting down, similar

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Speaker 1: to UH to UH, Spain and Italy. Um. But we're

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Speaker 1: going to hear more of this news, I think over

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Speaker 1: the next or the next few weeks, and ultimately remember, um,

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Speaker 1: everyone is kind of shooting for a for a V

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Speaker 1: shape recovering to the third quarter. Um. But but it's

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Speaker 1: not clear that's gonna happen either. Because once once we

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Speaker 1: have there's two things that really make it difficult on

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Speaker 1: the demand side, one is the initial demand contraction rate,

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Speaker 1: and we don't know what that's going to look like.

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Speaker 1: Then the second thing that makes it very hard to

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Speaker 1: determine this is how long this is gonna last. Because remember,

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Speaker 1: if the world goes into lockdown or let's say a month,

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Speaker 1: we're gonna be able to get rid of this virus.

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Speaker 1: But if we get lockdowns partial lockdowns, one in California

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Speaker 1: and three weeks later in New York, a week later

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Speaker 1: and somewhere else and week later in kind of you know,

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Speaker 1: the the virus will keep rolling from place to place

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Speaker 1: to place. So so it's it's an it's very hard

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Speaker 1: to day when when when we'll be able to come

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Speaker 1: back to a normal economy. I think that's what we

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Speaker 1: are really struggling with. Well, let's talk about what could

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Speaker 1: happen to crude prices, Francisco, because I agree with you,

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Speaker 1: the big unknown right now is longevity. And unless you

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Speaker 1: can get your hands around longevity, you've got no idea

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Speaker 1: how to model anything at the moment. Jeff Curry came

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Speaker 1: on this show from government a pair of yours I'm

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Speaker 1: sure perhaps a friend as well, talking about what would

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Speaker 1: happen with crude and the characteristics of commodities is an

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Speaker 1: asset class and how they differ to say equities, equities

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Speaker 1: and anticipatory asset class and commodities. You've got a clear

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Speaker 1: demanded supply at spot. Now if you're talking about storage

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Speaker 1: cost storage rather storage capacity being breached in a couple

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Speaker 1: of months, help me understand how price responds in that environment.

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Speaker 1: Is that just a sudden drop from twenty dad towards one?

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Speaker 1: What does that look like? Yes, so essentially we've sorting

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Speaker 1: naturally as for instance, in the premium basin, not sure

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Speaker 1: against a very good example. Now it's a bit more

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Speaker 1: extreme than oil, right, but it's more volatile. Commodities are

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Speaker 1: a lot harder to store. Uh It's hard to store

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Speaker 1: a gas and liquid or or a solid uh I

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Speaker 1: tem right. But in the case of in the case

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Speaker 1: of gas, we saw prices go negative last year in

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Speaker 1: in the permium basin because we produced all the gas

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Speaker 1: that was associated to sale or the production been't have

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Speaker 1: any value. Prices were negative. Eventually, we shut down pretty

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Speaker 1: much all the all the gas production we could. Eventually

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Speaker 1: um we um we found what we built pipelines to

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Speaker 1: transported to two market centers. So this is the kind

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Speaker 1: of commority behavior we can have occasionally. Now, I don't

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Speaker 1: think that suth Arabia and Russia are going to be

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Speaker 1: paying us to drive Jonathan, so I don't think we

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Speaker 1: need to worry too much about that. But but I

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Speaker 1: do believe that Salthi, Arabia and Russia, when they went

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Speaker 1: to a price for a few days ago, they were

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Speaker 1: prepared for a price meltdown. They had to be, right,

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Speaker 1: I mean, when you increased production in the midst of

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Speaker 1: what's looking to be one of the worst demand crises ever,

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Speaker 1: you have to be prepared for price to op into

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Speaker 1: a twenties. So it's not clear to me we're gonna

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Speaker 1: have a foods tomorrow here. Um, I think maybe we

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Speaker 1: have it within within three months. So it's gonna be

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Speaker 1: a supporting factor for the market for sure once that happens.

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Speaker 1: But but but prices will keep dropping on a spot basis,

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Speaker 1: and and four prices will hold up, which is where

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Speaker 1: will encourage the storage until you cannot store it anymore.

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Speaker 1: And thus when the prices really fall off a cliff.

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Speaker 1: And that's excuse some of the Arabia and Russia will

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Speaker 1: try to go avoid at all costs in my opinion,

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Speaker 1: really small Stan Francisco, appreciate your time and my best

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Speaker 1: of the team over a Bank America as well, Francisco

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Speaker 1: Blanche the Bank America Global ahead of Commodities and Derivatives research.

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Speaker 1: You know, one of the things investors are trying to

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Speaker 1: pass is they just kind of, you know, drink through

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Speaker 1: this fire hose of information that's coming out as day

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Speaker 1: to day. Is what will be the longer term, intermediate

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Speaker 1: term and longer term impacts to the US economy from

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Speaker 1: the effects of the coronavirus. Will it be a V

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Speaker 1: shaped recovery, a U shaped recovery, and L shape you know,

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Speaker 1: and maybe some other letter that we haven't thought of.

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Speaker 1: Help us get the latest. We welcome Michelle Meer. She's

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Speaker 1: Bank of America or Lynch, head of US Economics. She

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Speaker 1: joins us today. Michelle, thanks so much for joining, Lisa

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Speaker 1: and myself. So what's your thinking right now as to

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Speaker 1: maybe the next couple of quarters of US economic productivity

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Speaker 1: going forward? Sure? Um, hi everyone, and thank you for

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Speaker 1: having me um So, you know Q wanted at this

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Speaker 1: point we already have January February data which looked pretty

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Speaker 1: things pretty pretty good, all things considered. It was really

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Speaker 1: before the shock hit the economy from the coronavirus. But

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Speaker 1: the early March data has already shown softening. So for

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Speaker 1: Q one, we think we'll have a slight positive point

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Speaker 1: five percent growth, but we think Q two is going

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Speaker 1: to be really painful. We're looking for a steep drop

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Speaker 1: in economic activity in the second quarter, with growth following

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Speaker 1: twelve percent on an annualized basis. Now that is yeah,

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Speaker 1: that's a wow. That's the biggest drop we will have

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Speaker 1: seen in post war history. Goes back to fifty eight,

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Speaker 1: but we had a ten percent drop in an annualized

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Speaker 1: basis UM. And frankly, it's not hard to get those

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Speaker 1: types of numbers considering the extent to which the economy

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Speaker 1: right now is effectively shutting down. You know, even number

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Speaker 1: of cities that have put in place quarantine efforts. UM.

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Speaker 1: Restaurants are closing stores, they're closing UM. We've had a

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Speaker 1: big wealth shock as well, given what's happened in the markets,

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Speaker 1: and that tends to lead people to want to save

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Speaker 1: more and spend less. UM. The manufacturing economy has been hit,

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Speaker 1: given that this is a global shock and factory chain.

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Speaker 1: Factories have been impacted, in the in the supply chain

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Speaker 1: has been affected. So there are a number of um

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Speaker 1: components to this shock that are all kind of working

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Speaker 1: together that generate a very weak economy in the next

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Speaker 1: few months, next few months. Yeah, right, so that's the question,

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Speaker 1: that's right, that's right. So so Michelle, that's Q two.

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Speaker 1: A lot of people are saying, okay, Q two, you know,

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Speaker 1: that's it is what it is? How about cut three

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Speaker 1: and four? Is it a V is it a kind

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Speaker 1: of a U? Is it an L? How do you

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Speaker 1: is it? Or is it all just contingent upout How

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Speaker 1: these things continues to spread? So there's two variables you

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Speaker 1: would look at to try to determine that, and then

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Speaker 1: I'll talk you through that and what our baseline forecast is.

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Speaker 1: So the first one, of course, is, as you said,

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Speaker 1: how the virus spreads. When do you see the peak

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Speaker 1: in the rate of new infections, When does it start

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Speaker 1: to look like we've reached the part of the curve

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Speaker 1: where things that are moving sideways in terms of infection

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Speaker 1: rates and actually people are starting to be cured and

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Speaker 1: we're on the other side. So it's hard to have

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Speaker 1: any confidence about that of course, but if you look

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Speaker 1: at the timeline and China, you know, you can make

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Speaker 1: the case that perhaps by the end of APRILL, maybe

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Speaker 1: really may we can be at that point hopefully if um,

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Speaker 1: you know, we we take the right steps here um

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00:22:49,400 --> 00:22:52,320
Speaker 1: to contain the virus. Now, the next thing, you want

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00:22:52,359 --> 00:22:54,480
Speaker 1: to look at the policy response. Right where haven't we

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00:22:54,520 --> 00:22:56,240
Speaker 1: see we're going to see a very big shock to

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00:22:56,600 --> 00:22:59,280
Speaker 1: the economy. Private sector rows who going to slow. People

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00:22:59,640 --> 00:23:03,720
Speaker 1: will be without income, um, businesses will be without revenue.

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00:23:04,720 --> 00:23:07,840
Speaker 1: So the the idea is, do you have a strong

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00:23:07,960 --> 00:23:10,639
Speaker 1: enough response from federal government. Is there a big fiscal

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00:23:10,680 --> 00:23:13,240
Speaker 1: response like on the money into the economy and offset

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00:23:13,320 --> 00:23:15,800
Speaker 1: that weakness. The other very important component is, well the

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00:23:15,840 --> 00:23:18,960
Speaker 1: financial system hold intact, right, That's what the FED is

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00:23:19,240 --> 00:23:21,120
Speaker 1: really focused on right now. They want to make sure

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00:23:21,520 --> 00:23:26,040
Speaker 1: that there's market functioning, that there's liquidity in the treasury market,

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00:23:26,119 --> 00:23:29,200
Speaker 1: that there's a flow of credit. So in a sense,

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00:23:29,359 --> 00:23:31,560
Speaker 1: you can make the case that the FED is worrying

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00:23:31,600 --> 00:23:36,480
Speaker 1: about the the the liquidity and the credit crunch in

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00:23:36,520 --> 00:23:39,479
Speaker 1: the market, and the federal government is worrying about credit

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00:23:39,520 --> 00:23:41,600
Speaker 1: in the real economy. And if both of those things

448
00:23:42,640 --> 00:23:45,320
Speaker 1: they're successful on both of those, then yes, the recovery

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00:23:45,359 --> 00:23:48,359
Speaker 1: will happen UM. But of course there's a lot of

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00:23:48,400 --> 00:23:50,320
Speaker 1: things that need to go right and we need to

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00:23:50,320 --> 00:23:54,040
Speaker 1: see pretty aggressive measures here. Our baseline view is that

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00:23:54,080 --> 00:23:57,679
Speaker 1: we do start to see a turn higher in early

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00:23:57,760 --> 00:24:00,480
Speaker 1: summer UM. We think in the third what we will

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00:24:00,520 --> 00:24:04,080
Speaker 1: have positive GP growth of three UM. Now you have

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00:24:04,160 --> 00:24:06,520
Speaker 1: base effects that are working more favorably, right, you have

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00:24:06,600 --> 00:24:09,679
Speaker 1: such a big level shock is what we're expecting. Even

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00:24:09,680 --> 00:24:13,480
Speaker 1: incremental improvement on an annualized basis from quoteal quarter, you

458
00:24:13,520 --> 00:24:16,000
Speaker 1: will see some growth. So I would say it's not

459
00:24:16,040 --> 00:24:19,360
Speaker 1: a V shaped recovery BYR estimates, but it is a recovery.

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00:24:20,000 --> 00:24:23,520
Speaker 1: One question that I haven't heard a lot talked about

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00:24:23,880 --> 00:24:27,880
Speaker 1: is the effect of the global slowdown on the United States.

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00:24:28,200 --> 00:24:30,240
Speaker 1: I mean, there is an idea there was, at least

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Speaker 1: when the trade war was heating up, that the US

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00:24:32,240 --> 00:24:34,240
Speaker 1: was somewhat isolated from it, or at least a little

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00:24:34,280 --> 00:24:37,760
Speaker 1: more immune than other economies. And yet we are hearing

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00:24:37,800 --> 00:24:41,520
Speaker 1: about supply chain disruptions that are ongoing. We're hearing about

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00:24:41,560 --> 00:24:44,120
Speaker 1: the slowdown that's in Europe right now, with the UK

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00:24:44,680 --> 00:24:49,160
Speaker 1: possibly extending their self isolation or their social distancing policy

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00:24:49,160 --> 00:24:50,840
Speaker 1: as we don't know what that means, but through the

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00:24:50,960 --> 00:24:53,879
Speaker 1: end of this year, how much of a feedback loop

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00:24:53,920 --> 00:24:57,879
Speaker 1: are you expecting on a sort of international front. Yeah,

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00:24:57,920 --> 00:25:00,240
Speaker 1: So that raises a very important point with is this

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00:25:00,359 --> 00:25:02,439
Speaker 1: is not just a shock that's hit the US, right,

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00:25:02,480 --> 00:25:06,800
Speaker 1: it is hit global in fact, where you know kind

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00:25:06,800 --> 00:25:09,280
Speaker 1: of later um in the process when you think about

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00:25:09,280 --> 00:25:13,000
Speaker 1: how this is spread through the global economy. UM. So,

477
00:25:13,000 --> 00:25:14,840
Speaker 1: so when you have a global shock, that means it

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00:25:14,880 --> 00:25:17,399
Speaker 1: hits the financial system globally, it impacts the flow of

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00:25:17,520 --> 00:25:20,080
Speaker 1: credit globally, which is very important what we saw during

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00:25:20,119 --> 00:25:24,640
Speaker 1: the two crisis, which became global very very quickly. UM.

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00:25:24,720 --> 00:25:28,480
Speaker 1: And also the ability to see the flow of goods

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00:25:28,520 --> 00:25:31,040
Speaker 1: and services across borders, which are not happening right now,

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00:25:31,080 --> 00:25:34,280
Speaker 1: which creates a high level of inefficiencies. So for the

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00:25:34,320 --> 00:25:37,639
Speaker 1: time being, you should be assuming that globally the economy

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00:25:37,680 --> 00:25:41,280
Speaker 1: is in a recession, it is across the board and UM,

486
00:25:41,640 --> 00:25:45,879
Speaker 1: borders will be largely closed. UM. But the hope is

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00:25:45,920 --> 00:25:48,439
Speaker 1: that once you get to their side, once the recovery starts,

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00:25:48,480 --> 00:25:50,840
Speaker 1: you can start to see a flow of goods again.

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00:25:50,920 --> 00:25:53,480
Speaker 1: You can start to see greater efficiencies and what brought

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00:25:53,520 --> 00:25:55,840
Speaker 1: the global economy down, hopefully in the end will help

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Speaker 1: to recover it. In Unison, Michelle Meyer, thank you so

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00:25:58,840 --> 00:26:01,200
Speaker 1: much for being with us, Stacey if and healthy Michelle

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Speaker 1: Meyer ahead of US Economics at Bank of America Securities,

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00:26:05,080 --> 00:26:08,720
Speaker 1: joining us. Thanks for listening to the Bloomberg Surveillance podcast.

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Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

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00:26:14,160 --> 00:26:18,480
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom

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00:26:18,600 --> 00:26:22,480
Speaker 1: Keane before the podcast. You can always catch us worldwide.

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Speaker 1: I'm Bloomberg Radio