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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jai Lely.

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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. The

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Speaker 1: uniform thing I hear John and Lisa which is people

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Speaker 1: questioned the Chinese statistics, and it leads to a timely

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Speaker 1: conversation with Meredith Sumter. She is with Eurasia Group and

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Speaker 1: she joins us now with a huge scope on the

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Speaker 1: Chinese language, of the media and the party in China. Meredith,

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Speaker 1: what do you glean within the study of the Communist

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Speaker 1: Party right now? How scared are they? How in control

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Speaker 1: are they? Great to be with you, Tom, I would

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Speaker 1: say that the Communist Party is resolute, remains in control,

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Speaker 1: and are working very hard to put out a narrative

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Speaker 1: of success, even as we have both domestic Chinese on

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Speaker 1: the ground as well as international experts beginning to poke

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Speaker 1: hold um in the narratives that the leadership has put forth. Narrative.

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Speaker 1: There is a question about China's relationship with third world

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Speaker 1: countries or developing nations, where you end up as with

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Speaker 1: China is the biggest lender and the biggest provider of

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Speaker 1: economic growth. How much has China lost cloud as it

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Speaker 1: takes a harder line with some of these loans that

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Speaker 1: have been secured by oil and other resources throughout the world.

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Speaker 1: How much cloud have they really lost or they actually

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Speaker 1: gaining in terms of global leadership, Lisa, I would say

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Speaker 1: that China is uniquely positioned as one of the few

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Speaker 1: countries that is proactively giving aid. So while that aid

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Speaker 1: is not without paul artists and not problematic, recipient countries

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Speaker 1: are in need and they're going to take the resources

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Speaker 1: from whence they are are coming. So coming out of

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Speaker 1: this coronavirus at your Asia group, we think a lot

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Speaker 1: about what the post world order is going to look like.

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Speaker 1: And for sure, the US is losing competence and is

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Speaker 1: not going no longer going to be the power to

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Speaker 1: which all countries turn. At the same time, we do

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Speaker 1: expect that Chinese global influence will increase, But but this

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Speaker 1: is not a leadership that is looking to lead the

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Speaker 1: global order. They're just looking to lead China in China's

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Speaker 1: own interests, and I think that's an important distinction. So

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Speaker 1: they will be more influential, including over US allies and

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Speaker 1: within international institutions, but no one is going to be

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Speaker 1: in a leadership position. And this is critical because this

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Speaker 1: lack of global leadership is really what has allowed the

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Speaker 1: virus to spread so rapidly and clearly across the world

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Speaker 1: as it has this year. A lot a lot there.

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Speaker 1: Let's let's unpack a little bit of it and talk

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Speaker 1: about some of the information wars that we have seen

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Speaker 1: with China trying to uh sort of push the narrative

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Speaker 1: that they've been ahead of this very transparent and actually

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Speaker 1: very helpful of providing aid to Italy and to the

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Speaker 1: U S and the form of respirators and masks, and

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Speaker 1: the US claiming that China has not been forthcoming enough

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Speaker 1: with the data. How does that factor into the post

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Speaker 1: coronavirus world order if at all? Lisa I would say

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Speaker 1: that the lack of transparency is is something that many

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Speaker 1: countries actually expect coming out of China, and the aid

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Speaker 1: will problematic. At least there is some aid, so China

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Speaker 1: will continue to use that to its effect. But let's

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Speaker 1: the risks that you raise your group identified at the

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Speaker 1: beginning of this year are cap risks including with US China,

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Speaker 1: are still in play, and most of them get significantly

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Speaker 1: exacerbated by this level of stress on the international system.

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Speaker 1: The risks that are associated with coronavirus, while acute for

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Speaker 1: many of the developed countries that we've seen in Europe

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Speaker 1: and now the United States, they are going to be

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Speaker 1: even worse for emerging markets, in some cases, threatening widespread

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Speaker 1: social and political instability as well as large and lasting

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Speaker 1: economic losses. Now China is an outlier there, and China

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Speaker 1: will remain and a country that is looking to aid others,

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Speaker 1: and those countries are going to need that aid. So

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Speaker 1: again it's not gonna be without politics or problems or

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Speaker 1: problems at all, but these countries are going to be

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Speaker 1: in significant means. And it's unclear that the that international

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Speaker 1: institutions or developed market economies that are uh hide up

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Speaker 1: battling their own coronavirush and downward pressure on their own

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Speaker 1: economies are going to be able to deliver differenty companies,

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Speaker 1: think tanks, invest the committees that are asking themselves similar

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Speaker 1: questions at the moment, and one of those questions is

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Speaker 1: about the future and what the future looks like. As

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Speaker 1: things have come back up again, the future relations between

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Speaker 1: the United States and China. I get the feeling that

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Speaker 1: we're just sort of covering things up a little bit

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Speaker 1: at the moment, making out that things are okay when

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Speaker 1: they're not really okay. I'm wondering what this relationship looks

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Speaker 1: like as we come out the other side. John, we

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Speaker 1: see a significant risk of further deterioration in US China

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Speaker 1: ties not now love. But the most likely trajectory in

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Speaker 1: our base case is for US and China that the

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Speaker 1: two sides will do enough to keep that Phase one

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Speaker 1: deal from collapsing, but certainly not much more, and no

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Speaker 1: one's talking about Phase two. I think the leadership of

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Speaker 1: both economies are just focused on getting through this year

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Speaker 1: and focusing on livelihoods of their respective populations. And in

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Speaker 1: that I think China has been much more structural uh

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Speaker 1: and it's it's approach in ensuring that the math layoffs

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Speaker 1: that are threatening other developed market and student to be

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Speaker 1: emergent market economies do not necessarily incur occur in China.

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Speaker 1: The US may not come out so well, and a

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Speaker 1: lot will depend upon how the virus continues to spread

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Speaker 1: or not. By the time we reach late May or

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Speaker 1: early June, this year. It has been much more of

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Speaker 1: a haphazard approach in the United States between the federal

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Speaker 1: and state government as well as businesses sames that are

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Speaker 1: the backbone of the U. S economy waiting to get

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Speaker 1: the Trent middle of fiscal stimulus that was passed um

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Speaker 1: in in Washington. That's going to be a critical watch point.

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Speaker 1: Which of these two powers are going to come out

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Speaker 1: more resilient with their with their domestic population, gamefully employed

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Speaker 1: and healthy enough to push their economies forward. Merit. It's

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Speaker 1: one of the advantages here of being here in the

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Speaker 1: surveillance studios. I got the surveillance library next to me,

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Speaker 1: including the history of Todd's football, and I just pulled

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Speaker 1: off the shelf. Henry Kissingers on China from a good

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Speaker 1: nine years ago. He talks about the indestructible day is

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Speaker 1: President g indestructible President. She is certainly the strongest leader

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Speaker 1: since then, but I do not believe that the Chinese

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Speaker 1: people see him as indestructible. His strength is that there

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Speaker 1: is no other obvious leader to take his place, no

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Speaker 1: other obvious leaders to leave, and he continues to hold

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Speaker 1: a command and control structure over the leading small groups

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Speaker 1: over China's governing governance and authorities. That's his strength. Got

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Speaker 1: to his strength. Not indestructible, but he certainly is in

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Speaker 1: a solid position, regardless of some of the dings in

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Speaker 1: China's armor that we're beginning to see over the last

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Speaker 1: couple of weeks. Meredith Sumters, thank you so much. With

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Speaker 1: you raise your group. I can't bring in now another

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Speaker 1: guest on place to say Gambrada Santos, JP Morgan US

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Speaker 1: Management Global market strategists will be great to get you

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Speaker 1: with us on the program. Let's talk about it show

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Speaker 1: is we wait for him and how to speak in

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Speaker 1: a couple of days time. The assessment so far the

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Speaker 1: Federal Reserve seeing some science of success. Hi, good morning,

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Speaker 1: Thank you John and Tom and Lisa. It's it's great

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Speaker 1: to be with you. Um so indeed, I do think

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Speaker 1: that we can really say that this has been a

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Speaker 1: federal Reserve that's been extremely proactive in terms of policy,

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Speaker 1: extremely creative, and we are starting to see some signs

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Speaker 1: of success when we look at the investment grade market,

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Speaker 1: when we look at the treasury market, we are seeing

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Speaker 1: some signs at the worst of the shreat in the

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Speaker 1: financial plumbing is probably behind us. And we're now in

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Speaker 1: a phase of normalization. And that's really really important here

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Speaker 1: because we don't indeed know exactly how long UM the

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Speaker 1: pandemic will last. We don't know how long the social

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Speaker 1: distancing measures will last. It's really important to have this

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Speaker 1: comfort that the financial markets will work properly as we

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Speaker 1: move through the next weeks and months. Garriella, this is

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Speaker 1: super important. If you do have the sort of diminishing

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Speaker 1: of financial stress, can you just put your full faith

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Speaker 1: in the Federal Reserve and the US government and governments

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Speaker 1: around the world, in central banks and by risk, knowing

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Speaker 1: that they will do whatever it takes to support markets

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Speaker 1: and get us and get get the economy through this.

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Speaker 1: I wouldn't go so far that far least. I think

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Speaker 1: it's it's a really important condition to make sure that

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Speaker 1: the financial markets are working properly, but it's not a

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Speaker 1: sufficient condition in terms of really being able to take

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Speaker 1: on risk UM and there I think that's really the

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Speaker 1: missing piece. There is much more around the trajectory of

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Speaker 1: the virus. We are indeed seeing encouraging signs in places

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Speaker 1: like Italy, saying, Germany, New York. But the issue is

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Speaker 1: and something you were touching on earlier, which is okay.

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Speaker 1: When when the infection raided plateau, what do the next

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Speaker 1: few months look like. I don't think we have a

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Speaker 1: good grasp of that, and I think uptuently turning the

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Speaker 1: activity off, you know, that was like a light swish,

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Speaker 1: which fat. But turning it back on, that's going to

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Speaker 1: be a dimmer. It's gonna be slow. That's what Asia

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Speaker 1: is teaching us. Gabriel partition your clients. Some of them

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Speaker 1: were in the markets, they went down, there was agony,

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Speaker 1: They feel pretty good, they've bounced back three days. How

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Speaker 1: do you counsel those At one point picked up the

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Speaker 1: phone and called JP Morgan and said, go to cash.

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Speaker 1: What should those people do now in cash? Yes, indeed, Tom,

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Speaker 1: we do have so many different types of clients, from

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Speaker 1: institutional clients to retail clients all over the world. And

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Speaker 1: you know, when when this first started, really our main

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Speaker 1: focus was trying to understand the sources of volatility and

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Speaker 1: talk them through with our clients. At this point, we're

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Speaker 1: still hearing two very different questions um, one from I

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Speaker 1: would say more um the individual, a retail type of

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Speaker 1: clients asking you know, I'm reading about all these scary

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Speaker 1: numbers uh, tremendous amount of job losses, tremendous amount of

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Speaker 1: activity contraction, should I indeed be going to cash? And

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Speaker 1: that's where we remind them that actually, because the market

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Speaker 1: moves have been so violent over the past couple of months,

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Speaker 1: portfolios have already due risk, right, They've reacted in advance,

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Speaker 1: they have due risk. Actually, maybe there isn't anything that's

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Speaker 1: needed to be done beyond looking beneath the surface and

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Speaker 1: looking at the quality of companies we own. We also

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Speaker 1: hear from a lot of other clients, and here I

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Speaker 1: would say mostly institutional clients. They are starting to think

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Speaker 1: about the pass forward and are starting to ask when

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Speaker 1: should I be adding risk? What kind of themes should

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Speaker 1: I be thinking about? Now that this economic and market

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Speaker 1: cycle has come to a close, what does the next

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Speaker 1: one look like? And that's where we've been having really

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Speaker 1: interesting discussions around international For example, people been saying on

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Speaker 1: the up, so we've really been trying to think about

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Speaker 1: how the last decade um was of course a clear US,

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Speaker 1: our performance, Europe, YEM Japan really lagging behind, and we've

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Speaker 1: been thinking about actually how maybe the US might be

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Speaker 1: one of the last countries out of this particular situation,

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Speaker 1: both in terms of the control of the virus as

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Speaker 1: well as the path of the recovery. And so we've

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Speaker 1: been thinking about how far ahead worth Asia is, how

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Speaker 1: far ahead some countries in Europe are, and also the

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Speaker 1: social safety net that Europe has, which is usually talked

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Speaker 1: about as a concern, is actually something that's really going

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Speaker 1: to be very valuable for speeding up the recovery here.

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Speaker 1: When the time comes, Am I going to buy stodgy

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Speaker 1: value Europe or are gonna? Am I going to buy

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Speaker 1: the growthiness of America? Even if I think America socially

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Speaker 1: or fiscally is gonna be behind the eight ball. So

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Speaker 1: I think it's a combination of both. I mean, technolog

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Speaker 1: aology growth is not going away. If anything, this experience

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Speaker 1: is even enhancing that um as we're all becoming tech experts.

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Speaker 1: Um So I think I mean by no means it's

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Speaker 1: tech over and and that's a big theme for the

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Speaker 1: US and for Asia. But I think that you know

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Speaker 1: where a lot of clients have just completely thrown away value,

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Speaker 1: completely thrown away Europe in parts of other parts of

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Speaker 1: emerging markets, I think that's not such an easy call anymore.

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Speaker 1: And if anything, maybe we bring it a bit closer

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Speaker 1: to a neutral the growth and the value side, the

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Speaker 1: US and the international Gabriella. We're going to get some

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Speaker 1: earnings reports starting next week, and by all accounts, we're

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Speaker 1: not expecting to get much guidance, because how can you

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Speaker 1: give guidance in this kind of scenario. What are you

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Speaker 1: looking for that actually could be useful information from companies

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Speaker 1: that are delivering their's first quarter reports. Yes, indeed, it

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Speaker 1: is going to be tricky, and it has been tricky

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Speaker 1: already to calibrate earnings expectations up for this year. We

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Speaker 1: have seen consent just moved down from what was ten

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Speaker 1: percent grows at the beginning of January to about minus

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Speaker 1: four um. But based on our models, if we just

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Speaker 1: throw in the kind of economic contraction we expect, the

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Speaker 1: dollar strength, the falling oil prices, all those variables, it

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Speaker 1: really does look like we should be looking for an

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Speaker 1: earning contraction this year of much closer to minus fifteen percent.

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Speaker 1: So there's still a ways there in terms of bringing

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Speaker 1: consensus closer to reality. We are looking for some glimmers

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Speaker 1: in the first quarter, but as you mentioned, unfortunately I

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Speaker 1: don't think that we will be getting that guidance from

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Speaker 1: companies exactly, because things are so uncertain, we need to

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Speaker 1: see how activity resumes and evolve beyond mark beyond April. Well,

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Speaker 1: maybe we'll evolve to this Thursday and try to get

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Speaker 1: beyond April. Gabriel Asientos, thank you so much, JP Market

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Speaker 1: Asset Management. This is the economist, folks, that all the

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Speaker 1: other economists really really listened to when he speaks and

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Speaker 1: when he writes. Mario drag listens. William White was at

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Speaker 1: the Bank of International Settlements at the O E c D.

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Speaker 1: His seminal papers of two thousand and twelve on the

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Speaker 1: history of economics are definitive. They are the papers I

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Speaker 1: give undergraduates who say, help me get smarter. We're thrilled

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Speaker 1: that William White could join us. Now, William White, what

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Speaker 1: does central banking look like after this pandemic? Well, I, UM,

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Speaker 1: I fear it's going to be more of the same. Uh.

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Speaker 1: And when I say that, what I really mean is

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Speaker 1: that every time, really for the last twenty or thirty years,

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Speaker 1: when we've had a major problem or a problem that

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Speaker 1: looks like it's lurking in the in the background, Uh,

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Speaker 1: the answer has been print the money and UM I

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Speaker 1: can understand why in the midst of crisis people do that,

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Speaker 1: But this has been going on for such a wrong

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Speaker 1: period of time that what I what I'm very fearful

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Speaker 1: of is one that it won't have the desired effect

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Speaker 1: of restimulating the economy, and the two it leads to

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Speaker 1: still more of the debt problems and financial instability problems

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Speaker 1: that I think actually threatened our threatened our recovery going forward.

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Speaker 1: So um, what's being done here in terms of reliquifying

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Speaker 1: the markets is absolutely the right thing to do. But

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Speaker 1: I hope they can find some way of renormalizing the

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Speaker 1: situation once the economy starts to recover. William, how do

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Speaker 1: they go about doing that when they've just transferred so

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Speaker 1: much more debt of its public sector balance sheets, the

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Speaker 1: central bank balance sheet, the government's balance sheet. We've had

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Speaker 1: this huge transfer of debt. Will they be able to

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Speaker 1: back away from any of these measures? Well, the the

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Speaker 1: central bank can back away to a degree in the

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Speaker 1: measure that the economy does start turnaround and we do

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Speaker 1: start to get some growth. Uh, there's always the possibility

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Speaker 1: of sort of growing your way out of it. It's

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Speaker 1: going to seek a significant period of time One of

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Speaker 1: the things that I think it would be worthwhile for

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Speaker 1: governments to do, although I know it's it's difficult for

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Speaker 1: them to make credible commitments about the future, is to

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Speaker 1: say that going forward, having um raised this level of

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Speaker 1: government debt as a as a proportion of g d

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Speaker 1: p UH to such high levels, that going forward they

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Speaker 1: will no longer be following the asymmetric policies that they

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Speaker 1: followed in the past, which is to say, in the

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Speaker 1: past they always responded with fiscal expansion in the downturn,

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Speaker 1: but there was never anywhere near as much fiscal contraction

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Speaker 1: in the upturn, and that a symmetry led to the

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Speaker 1: government debt ratcheting up and up. We actually do need

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Speaker 1: a kind of a symmetry going forward, but it's a

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Speaker 1: promise to do the asymmetry in the opposite direction, which

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Speaker 1: is to try to ensure that over time, just as

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Speaker 1: in a certain sense after the war, that over time

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Speaker 1: there will be a gradual it will be the government

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Speaker 1: subjective to gradually reduce those debt ratios. Because um, as

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Speaker 1: everybody's known, I mean from time immemorial, that having high

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Speaker 1: debt ratios, whether in the public sector of the private sector,

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Speaker 1: exposes you to all sorts of uh possible problems going forward.

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Speaker 1: William This is true in theory, and yet in practice

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Speaker 1: there hasn't been a huge problem that has stemmed from

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Speaker 1: the high debt levels over the past decade. And a

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Speaker 1: lot of people have pointed to this. We haven't seen

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Speaker 1: runaway inflation even as the US continues to print money,

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Speaker 1: and rates have only gone lower. So what's to say

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Speaker 1: that dynamic won't continue. Well, one thing, I think you're

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Speaker 1: you're actually putting your your finger on on the right thing.

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Speaker 1: The markets up until now have been real, have been

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Speaker 1: remarkably incien, you know, unconcerned about increases in government debt.

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Speaker 1: And that is just a fact. So that when I

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Speaker 1: sort of look forward and I think in terms of

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Speaker 1: where's the room for maneuver here, there's more room for

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Speaker 1: maneuver I think now on the fiscal side than on

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Speaker 1: the monetary side. And I think even prior to the

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Speaker 1: to the pandemic, there was a general agreement in the

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Speaker 1: literature that we should be moving much more towards the

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Speaker 1: use of the fiscal lever in downturns than the monetary

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Speaker 1: lever um. But the market's patients is great but not infinite.

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Speaker 1: And you can see this for example. I mean we

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Speaker 1: saw this during the European crisis, that you could get

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Speaker 1: circumstances in which people would say, the market would say,

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Speaker 1: as it said to Italy, uh no more. And it

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Speaker 1: is not impossible that the same kind of thing could

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Speaker 1: happen even for bigger countries. UM. We have seen many

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Speaker 1: examples throughout history. UM. And there's all sorts of empirical

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Speaker 1: evidence and books written and whatever, these kinds of non

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Speaker 1: linear processes where the government spends huge amounts of money,

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Speaker 1: becomes very very highly indebted. Everything is fine until it isn't.

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Speaker 1: And that's the kind of thing that I think we

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Speaker 1: should be we should be careful of, so use the

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Speaker 1: room for maneuver, but conscious that it it can't go

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Speaker 1: on forever. I will do this, William White. I will

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Speaker 1: get out the August two thousand twelve paper out on

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Speaker 1: social today, folks. It is the definitive economic history of

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Speaker 1: central banking. William White, thank you so much, greatly appreciated.

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Speaker 1: Let's get you back to that self story. Shall in

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Speaker 1: the last four hours, equity markets in a better place,

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Speaker 1: as the data suggest that perhaps we're seeing some signs

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Speaker 1: of success after some of these big lug downs worldwide

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Speaker 1: and major cities. To continue the conversation on please to

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Speaker 1: say that joining us now is Ron Temple, Last Asset Management,

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Speaker 1: co head of multi Asset and head of US Equity

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Speaker 1: as well and managing to direct it to a long, long,

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Speaker 1: long long list from Ron Temple on his duties of

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Speaker 1: Lazar Asset Management, Ron fantastic to happy, Happy, to catch

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Speaker 1: up with you as well. Let's just start with the

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Speaker 1: stocks that have been under pressure and many people were

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Speaker 1: waiting for new cases to level off. We started to

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Speaker 1: see that in Europe and beyond. Do you need to

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Speaker 1: see that or do you want to see evidence that

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Speaker 1: this economy can reopen? Yeah, I think it's I think

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Speaker 1: it's obviously positive we see cases level off. But I

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Speaker 1: think there's a real balancing act here as it relates

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Speaker 1: to the coronavirus and that if you get too much optimism,

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Speaker 1: you know, not necessarily in the markets, but too much

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Speaker 1: optimism and positive news out in the media, then does

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Speaker 1: that undermine the positive story itself? In other words, if

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Speaker 1: people start to think, oh, the worst is behind us,

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Speaker 1: I can start getting out of my house and go

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Speaker 1: about my normal business. Didn't you might actually have that

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Speaker 1: second wave of infection. So so I do agree with

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Speaker 1: the comment earlier that we're flying blind to some degree

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Speaker 1: because there's still a lot of unknowns around this virus

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Speaker 1: and around how it will behave in warmer weather, whether

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Speaker 1: it will be a second wave. UM, it hasn't even

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Speaker 1: really hit the emerging economies yet in terms of health,

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Speaker 1: the health aspects of it. So I think there there

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Speaker 1: are there are a lot of question marks that said.

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Speaker 1: I mean, the market has sold off a lot, the

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Speaker 1: US was down, and I think it's it's reasonable to

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Speaker 1: expect bounces. UM. I guess where I'm a little concerned

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Speaker 1: is again just trying to figure out how how do

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Speaker 1: you baseline what the earnings hit will be and how

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Speaker 1: long will that earnings have last? Is use of cash

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Speaker 1: going to be forever changed? I mean, the basic underpinning

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Speaker 1: and all the different research pieces they share buy backs

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Speaker 1: drift away. Do you buy that round temple? Now? I

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Speaker 1: think share buy backs will come back, but I do

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Speaker 1: think there's going to be some lasting changes coming out

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Speaker 1: of this UM in terms of how companies think about

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Speaker 1: husband in cash. I mean, I think we've pushed financial

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Speaker 1: engineering to the limits in the last five years UH

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Speaker 1: in terms of trying to goose earnings even when revenue

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Speaker 1: growth was pretty lackluster. And so I do think companies

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Speaker 1: will think differently about how much liquidity they want on

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Speaker 1: their balance sheet and access to liquidity through funding lines.

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Speaker 1: So there may be be a bit more prudent approach

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Speaker 1: or more conservative approach to liquidity management. But I don't

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Speaker 1: think that's the end of share BIBAX. I also do think,

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Speaker 1: by the way, the structure of supply chains is going

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Speaker 1: to change. It's interesting. Last night, the chair, CEO and

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Speaker 1: president of Metronic put out a letter that I think

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Speaker 1: was quite a good letter. But one anecdote they provided

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Speaker 1: is that a single ventilator has fifteen hundred parts from

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Speaker 1: a hundred suppliers in fourteen countries. I mean, when you

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Speaker 1: start thinking about complexity of supply chains, we've always thought

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Speaker 1: of that as a positive, but I don't wonder how

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Speaker 1: many companies are going to be reevaluating that topic as well.

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Speaker 1: So there are these big, sort of big picture existential

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Speaker 1: questions facing companies, and then there's the more immediate question

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Speaker 1: that we're going to be asking next week when the

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Speaker 1: second quote, when the first quarter earning season begins in

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Speaker 1: earnest here in the United States, and that is can

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Speaker 1: you make money in this envirol? Man, are you going

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Speaker 1: to survive? What are you actually looking for ron at

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Speaker 1: a time when the outlooks are going to be big

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Speaker 1: question marks and shrug emojis from a lot of the

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Speaker 1: companies that are reporting. Yeah, well, I think I think

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Speaker 1: first of all, you're gonna be looking at liquidity and

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Speaker 1: the strength of balance sheets and making sure that companies

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Speaker 1: have the funding they need in case this it does

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Speaker 1: not end up being the bull case scenario. I mean,

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Speaker 1: I do worry by the way that it seems there's

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Speaker 1: an implicit view that this will all be over in

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Speaker 1: a few months, um, which I worry about because to me,

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Speaker 1: that's the bull case. So I'm gonna want to hear

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Speaker 1: from companies. Do they have access to funding, how strong

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Speaker 1: is the balance sheet? What are they doing in terms

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Speaker 1: of basically kind of hunkering down. The other thing I'm

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Speaker 1: gonna want to hear is how are they create treating

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Speaker 1: all of their stakeholders. I mean, how are they handling employees? Um?

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Speaker 1: Are they basically trying to keep people on and basically

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Speaker 1: support them through this period? Of time, because let's not forget,

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Speaker 1: by the way, the labor market was incredibly tight just

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Speaker 1: a few months ago, and you don't want to be

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Speaker 1: losing talented people because when the economy does real open

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Speaker 1: and come back, UM, people are one of the key

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00:25:02,560 --> 00:25:04,639
Speaker 1: assets for all of these companies, so we're really being

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00:25:04,680 --> 00:25:07,720
Speaker 1: careful about watching how they handle employees and customers. ROLL.

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00:25:07,800 --> 00:25:09,600
Speaker 1: Let's think about what this makes for markets. What we

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Speaker 1: have seen over the last couple of weeks, as the

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00:25:11,600 --> 00:25:14,199
Speaker 1: high quality areas of the market, whether it's credit or equity,

439
00:25:14,280 --> 00:25:16,040
Speaker 1: start to stabilize in facts, start to do a whole

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Speaker 1: lot better in investment great credit here in the United States,

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00:25:19,040 --> 00:25:21,160
Speaker 1: What are the necessary conditions that you need to see

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00:25:21,200 --> 00:25:25,360
Speaker 1: materialize to see this rally broaden now, UM, I think

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00:25:25,359 --> 00:25:28,280
Speaker 1: you're going to have to basically see signs that we've well,

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00:25:28,720 --> 00:25:30,280
Speaker 1: I think about what we need to see to exit

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00:25:30,320 --> 00:25:32,240
Speaker 1: this maybe is a different way to answer that we

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00:25:32,320 --> 00:25:34,520
Speaker 1: need to see much broader testing in the United States

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00:25:34,560 --> 00:25:38,680
Speaker 1: in particular. UM, so far, we've only tested about six

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00:25:38,720 --> 00:25:41,479
Speaker 1: thousand people per million, actually about fifty eight d per

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00:25:41,520 --> 00:25:44,199
Speaker 1: million people. That's half of what italyast tested, that the

450
00:25:44,240 --> 00:25:46,080
Speaker 1: third of what Switzerland has done. So we need to

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00:25:46,119 --> 00:25:48,000
Speaker 1: get the testing outs. We know who's got the disease

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00:25:48,040 --> 00:25:50,800
Speaker 1: even when they're not symptomatic. Number Two, we need a

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00:25:50,880 --> 00:25:53,240
Speaker 1: therapy in place so that people know that if they

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00:25:53,240 --> 00:25:55,280
Speaker 1: go back to work and they do get sick, that

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00:25:55,359 --> 00:25:57,320
Speaker 1: the severity of the illness won't be as bad as

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00:25:57,320 --> 00:25:59,480
Speaker 1: it has been and that death will be very unlikely.

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00:26:00,119 --> 00:26:02,600
Speaker 1: And then three, we need a continuation of the FED stimulus,

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00:26:02,640 --> 00:26:05,000
Speaker 1: and we need a continuation of fiscal stimulus. So so

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00:26:05,080 --> 00:26:07,280
Speaker 1: I think you're gonna it's gonna be several months before

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00:26:07,359 --> 00:26:09,879
Speaker 1: you want to move down that quality spectrum. And to

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00:26:09,920 --> 00:26:12,119
Speaker 1: be clear, by the way, I generally favor quality. If

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00:26:12,160 --> 00:26:16,000
Speaker 1: you look through the cycle, higher quality companies tend to outperform.

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00:26:16,000 --> 00:26:18,240
Speaker 1: And when I say quality, I mean high returns on

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00:26:18,320 --> 00:26:21,520
Speaker 1: capital um. There is a part of every cycle where

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00:26:21,520 --> 00:26:24,199
Speaker 1: those lower quality companies do outperform and where you do

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00:26:24,280 --> 00:26:26,560
Speaker 1: want to go down the quality spectrum. I just think

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00:26:26,640 --> 00:26:28,439
Speaker 1: it's too early to make that call right now. I

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00:26:28,440 --> 00:26:31,000
Speaker 1: think we're a few months away from that at minimum run.

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00:26:31,119 --> 00:26:33,280
Speaker 1: On the balance, do you think people are too optimistic

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00:26:33,359 --> 00:26:37,520
Speaker 1: or pessimistic here? On balance, I would say I think

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00:26:37,520 --> 00:26:41,000
Speaker 1: it's a little too optimistic around the healthcaret It's interesting.

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00:26:41,000 --> 00:26:43,600
Speaker 1: I've had conversations where people have suggested that that the

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00:26:43,720 --> 00:26:46,240
Speaker 1: financial crisis was more challenging than this. I think it's

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00:26:46,280 --> 00:26:50,280
Speaker 1: exactly the opposite. I think this is basically a healthcare

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00:26:50,320 --> 00:26:53,760
Speaker 1: crisis that becomes a financial crisis if mishandled. The good

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00:26:53,760 --> 00:26:57,119
Speaker 1: news is I think the central banks have been incredibly aggressive.

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00:26:57,720 --> 00:27:00,280
Speaker 1: The Fed has actually grown it's balance sheet one point

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00:27:00,359 --> 00:27:03,520
Speaker 1: five seven trillion dollars in the last month, and that

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00:27:03,600 --> 00:27:06,800
Speaker 1: does not include two fifty billion dollars of mortgage back

480
00:27:06,800 --> 00:27:09,560
Speaker 1: securities there's not yet settled. So effectively they put one

481
00:27:09,600 --> 00:27:12,080
Speaker 1: point eight trillion dollars to work. That's more than they

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00:27:12,080 --> 00:27:14,359
Speaker 1: did in all of que one or two or three

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00:27:14,480 --> 00:27:17,520
Speaker 1: in you know, in their entirety um. And also, I

484
00:27:17,560 --> 00:27:20,199
Speaker 1: think the federal government, although it fumbled the ball at

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00:27:20,200 --> 00:27:23,600
Speaker 1: the beginning, the two trillion dollar stimulus is aggressive. So

486
00:27:23,600 --> 00:27:26,199
Speaker 1: so on balance, I think people are too optimistic on

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00:27:26,240 --> 00:27:28,720
Speaker 1: the health care side, and that health care is going

488
00:27:28,800 --> 00:27:31,720
Speaker 1: to drive when we can reopen the economy. UM. Where

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00:27:31,720 --> 00:27:33,960
Speaker 1: I think they might be not optimistic enough or not

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00:27:34,040 --> 00:27:36,639
Speaker 1: positive enough is what the central banks have done in particular,

491
00:27:36,880 --> 00:27:40,040
Speaker 1: and how aggressively they've active, appreciate it's on this morning.

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00:27:40,040 --> 00:27:41,600
Speaker 1: Thank you very much for John I guess run temple

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00:27:41,680 --> 00:27:47,600
Speaker 1: that of a lassa asset management. All the things we're

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00:27:47,640 --> 00:27:50,320
Speaker 1: doing here in this pandemic is we're taking advantage of

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00:27:50,320 --> 00:27:54,480
Speaker 1: the public health operation at the John's Opkins at Universities

496
00:27:54,600 --> 00:27:58,240
Speaker 1: is a Bloomberg public health schools School of Public Health

497
00:27:58,560 --> 00:28:00,840
Speaker 1: at John's Opkins and a course. We should say that

498
00:28:00,880 --> 00:28:04,280
Speaker 1: Michael Bloomberg is the founder of our operation and owner

499
00:28:04,320 --> 00:28:07,280
Speaker 1: of this television and radio station as well. It is

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00:28:07,280 --> 00:28:11,119
Speaker 1: a much larger Johns Hopkins. And today we spoke with

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00:28:11,280 --> 00:28:14,119
Speaker 1: a gentleman from their economic division with a cute interest

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00:28:14,160 --> 00:28:18,919
Speaker 1: in finance at real estate. Here is Alessandro Rabucci. Our

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00:28:18,960 --> 00:28:23,840
Speaker 1: guy Johnson and me in conversation with Professor Rabucci. Emerging

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00:28:23,920 --> 00:28:27,639
Speaker 1: market have been it very hard by the initial phase

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00:28:27,680 --> 00:28:32,160
Speaker 1: of the crisis. We've seen massive outlaw capital, the most

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00:28:32,200 --> 00:28:38,000
Speaker 1: emerging market repatriating in the United States. The college epidemic

507
00:28:38,280 --> 00:28:41,920
Speaker 1: is just picking up in the emerging market as we

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00:28:42,000 --> 00:28:46,160
Speaker 1: know it lasts for about four months and the pickies

509
00:28:46,240 --> 00:28:50,720
Speaker 1: for two months, and emerging market are much less capable

510
00:28:51,160 --> 00:28:55,040
Speaker 1: of absorb the health dimension of the crisis. They will

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00:28:55,080 --> 00:28:59,400
Speaker 1: be put down that extreme strain and expect to see

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00:28:59,640 --> 00:29:07,000
Speaker 1: I'm sident to decline economic activity and possibly widespread financial damages. Professor,

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00:29:07,080 --> 00:29:10,520
Speaker 1: you are a world authority in real estate. It's something

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00:29:10,600 --> 00:29:13,360
Speaker 1: maybe diffuse, it's out there, it's not something we really

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00:29:13,360 --> 00:29:17,240
Speaker 1: can touch. How is the leverage within the global real

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00:29:17,400 --> 00:29:21,640
Speaker 1: estate system? Are they exposed as other asset classes were

517
00:29:21,720 --> 00:29:27,320
Speaker 1: exposed at the global level? Leverage in the real estate

518
00:29:27,640 --> 00:29:32,480
Speaker 1: is not as diffuse and be as in the United States.

519
00:29:32,920 --> 00:29:38,000
Speaker 1: Typically in emerging market real estate purchases takes place on

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00:29:38,040 --> 00:29:41,920
Speaker 1: a cash basis, so from that perspective, leverages in the

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00:29:42,000 --> 00:29:46,640
Speaker 1: real estate is not necessarily the most important problem. However,

522
00:29:47,040 --> 00:29:53,080
Speaker 1: research shows that impact individual community is affected by pandemic

523
00:29:53,440 --> 00:29:57,360
Speaker 1: can be extremely long lasting. So a certain segments of

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00:29:57,720 --> 00:30:03,200
Speaker 1: megacities in the emerging market maybe particularly damage by their crisis.

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00:30:03,280 --> 00:30:07,360
Speaker 1: By their help they mentioned on the crisis itself, Alssandro

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00:30:07,760 --> 00:30:09,360
Speaker 1: can I talk a little bit about what is happening

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00:30:09,360 --> 00:30:13,200
Speaker 1: here in Europe. Um Italy finds itself in a very

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00:30:13,200 --> 00:30:17,080
Speaker 1: difficult situation. It's you can it's economy already uh, sort

529
00:30:17,080 --> 00:30:19,120
Speaker 1: of burned with a huge amount of debt. It's likely

530
00:30:19,160 --> 00:30:23,320
Speaker 1: to take on significantly more what is your perception of

531
00:30:23,360 --> 00:30:26,360
Speaker 1: the economic trajectory of Italy and whether or not its

532
00:30:26,400 --> 00:30:31,640
Speaker 1: death is sustainable. Italy in a particularly difficult situation because

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00:30:31,640 --> 00:30:36,320
Speaker 1: it was already experiencing difficulty to recover from the gb

534
00:30:36,360 --> 00:30:40,320
Speaker 1: of financial crisis. Effectively, itally never recovered from the grob

535
00:30:40,360 --> 00:30:45,520
Speaker 1: of financial crisis and growth was permanently hit by that shock.

536
00:30:46,240 --> 00:30:53,720
Speaker 1: These new catastrophe would be extremely damaging for that and

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00:30:54,440 --> 00:30:59,360
Speaker 1: help he desperately needed needed from the European community, ideally

538
00:30:59,440 --> 00:31:02,760
Speaker 1: from the rest of the international community. There is a

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00:31:02,800 --> 00:31:09,000
Speaker 1: lot of talk about options for financial rescue through European mechanets.

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00:31:09,440 --> 00:31:12,800
Speaker 1: I think it is the time to consider emergency help

541
00:31:13,120 --> 00:31:17,320
Speaker 1: for international financial institution and chiefly the internectional money that

542
00:31:17,440 --> 00:31:22,080
Speaker 1: is fun which helped other European economies during the financial crisis.

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00:31:22,480 --> 00:31:26,240
Speaker 1: Professor Rubucci from the Department of Economics at the Johns

544
00:31:26,280 --> 00:31:31,160
Speaker 1: Hopkins University, we thank him for his perspective today. Thanks

545
00:31:31,200 --> 00:31:35,440
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen

546
00:31:35,680 --> 00:31:41,000
Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform

547
00:31:41,120 --> 00:31:45,400
Speaker 1: you prefer. I'm on Twitter at Tom Keane before the podcast.

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00:31:45,480 --> 00:31:48,960
Speaker 1: You can always catch us worldwide I'm Bloomberg Radio