WEBVTT - Surveillance: Monetary Policy With William White 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jai Lely. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.560 Bloomberg dot Com, and of course on the Bloomberg. The 0:00:27.720 --> 0:00:30.440 uniform thing I hear John and Lisa which is people 0:00:30.560 --> 0:00:34.479 questioned the Chinese statistics, and it leads to a timely 0:00:34.520 --> 0:00:38.159 conversation with Meredith Sumter. She is with Eurasia Group and 0:00:38.200 --> 0:00:40.879 she joins us now with a huge scope on the 0:00:40.960 --> 0:00:45.720 Chinese language, of the media and the party in China. Meredith, 0:00:45.760 --> 0:00:49.240 what do you glean within the study of the Communist 0:00:49.280 --> 0:00:52.760 Party right now? How scared are they? How in control 0:00:52.880 --> 0:00:56.560 are they? Great to be with you, Tom, I would 0:00:56.640 --> 0:01:01.760 say that the Communist Party is resolute, remains in control, 0:01:03.040 --> 0:01:06.280 and are working very hard to put out a narrative 0:01:06.680 --> 0:01:14.160 of success, even as we have both domestic Chinese on 0:01:14.200 --> 0:01:17.399 the ground as well as international experts beginning to poke 0:01:17.480 --> 0:01:22.560 hold um in the narratives that the leadership has put forth. Narrative. 0:01:22.680 --> 0:01:27.039 There is a question about China's relationship with third world 0:01:27.120 --> 0:01:30.959 countries or developing nations, where you end up as with 0:01:31.080 --> 0:01:33.560 China is the biggest lender and the biggest provider of 0:01:33.640 --> 0:01:38.039 economic growth. How much has China lost cloud as it 0:01:38.080 --> 0:01:40.440 takes a harder line with some of these loans that 0:01:40.480 --> 0:01:44.200 have been secured by oil and other resources throughout the world. 0:01:44.480 --> 0:01:47.040 How much cloud have they really lost or they actually 0:01:47.120 --> 0:01:52.080 gaining in terms of global leadership, Lisa, I would say 0:01:52.120 --> 0:01:55.520 that China is uniquely positioned as one of the few 0:01:55.560 --> 0:01:59.040 countries that is proactively giving aid. So while that aid 0:01:59.200 --> 0:02:03.760 is not without paul artists and not problematic, recipient countries 0:02:04.000 --> 0:02:07.440 are in need and they're going to take the resources 0:02:07.520 --> 0:02:11.120 from whence they are are coming. So coming out of 0:02:11.120 --> 0:02:13.760 this coronavirus at your Asia group, we think a lot 0:02:13.800 --> 0:02:16.560 about what the post world order is going to look like. 0:02:17.280 --> 0:02:21.840 And for sure, the US is losing competence and is 0:02:21.840 --> 0:02:23.920 not going no longer going to be the power to 0:02:24.040 --> 0:02:27.640 which all countries turn. At the same time, we do 0:02:27.760 --> 0:02:33.160 expect that Chinese global influence will increase, But but this 0:02:33.280 --> 0:02:36.520 is not a leadership that is looking to lead the 0:02:36.520 --> 0:02:40.400 global order. They're just looking to lead China in China's 0:02:40.480 --> 0:02:43.480 own interests, and I think that's an important distinction. So 0:02:43.560 --> 0:02:46.920 they will be more influential, including over US allies and 0:02:47.120 --> 0:02:50.560 within international institutions, but no one is going to be 0:02:50.680 --> 0:02:53.960 in a leadership position. And this is critical because this 0:02:54.080 --> 0:02:57.400 lack of global leadership is really what has allowed the 0:02:57.480 --> 0:03:00.880 virus to spread so rapidly and clearly across the world 0:03:00.919 --> 0:03:03.680 as it has this year. A lot a lot there. 0:03:03.760 --> 0:03:06.320 Let's let's unpack a little bit of it and talk 0:03:06.320 --> 0:03:08.800 about some of the information wars that we have seen 0:03:08.840 --> 0:03:12.120 with China trying to uh sort of push the narrative 0:03:12.120 --> 0:03:15.240 that they've been ahead of this very transparent and actually 0:03:15.760 --> 0:03:18.920 very helpful of providing aid to Italy and to the 0:03:19.000 --> 0:03:21.880 U S and the form of respirators and masks, and 0:03:21.919 --> 0:03:25.360 the US claiming that China has not been forthcoming enough 0:03:25.760 --> 0:03:29.920 with the data. How does that factor into the post 0:03:29.960 --> 0:03:34.960 coronavirus world order if at all? Lisa I would say 0:03:35.000 --> 0:03:37.920 that the lack of transparency is is something that many 0:03:37.920 --> 0:03:41.240 countries actually expect coming out of China, and the aid 0:03:41.280 --> 0:03:44.440 will problematic. At least there is some aid, so China 0:03:44.440 --> 0:03:47.280 will continue to use that to its effect. But let's 0:03:47.360 --> 0:03:49.720 the risks that you raise your group identified at the 0:03:49.720 --> 0:03:54.080 beginning of this year are cap risks including with US China, 0:03:54.200 --> 0:03:57.240 are still in play, and most of them get significantly 0:03:57.280 --> 0:04:02.640 exacerbated by this level of stress on the international system. 0:04:02.720 --> 0:04:06.440 The risks that are associated with coronavirus, while acute for 0:04:06.480 --> 0:04:09.040 many of the developed countries that we've seen in Europe 0:04:09.040 --> 0:04:11.080 and now the United States, they are going to be 0:04:11.160 --> 0:04:14.880 even worse for emerging markets, in some cases, threatening widespread 0:04:15.000 --> 0:04:19.160 social and political instability as well as large and lasting 0:04:19.320 --> 0:04:23.119 economic losses. Now China is an outlier there, and China 0:04:23.160 --> 0:04:27.160 will remain and a country that is looking to aid others, 0:04:27.200 --> 0:04:30.240 and those countries are going to need that aid. So 0:04:30.240 --> 0:04:33.400 again it's not gonna be without politics or problems or 0:04:33.440 --> 0:04:36.200 problems at all, but these countries are going to be 0:04:36.240 --> 0:04:40.880 in significant means. And it's unclear that the that international 0:04:40.880 --> 0:04:45.279 institutions or developed market economies that are uh hide up 0:04:45.279 --> 0:04:48.719 battling their own coronavirush and downward pressure on their own 0:04:48.720 --> 0:04:52.320 economies are going to be able to deliver differenty companies, 0:04:52.320 --> 0:04:55.120 think tanks, invest the committees that are asking themselves similar 0:04:55.200 --> 0:04:56.880 questions at the moment, and one of those questions is 0:04:56.920 --> 0:04:59.039 about the future and what the future looks like. As 0:04:59.080 --> 0:05:01.839 things have come back up again, the future relations between 0:05:01.839 --> 0:05:04.440 the United States and China. I get the feeling that 0:05:04.480 --> 0:05:06.440 we're just sort of covering things up a little bit 0:05:06.440 --> 0:05:08.560 at the moment, making out that things are okay when 0:05:08.560 --> 0:05:12.200 they're not really okay. I'm wondering what this relationship looks 0:05:12.240 --> 0:05:15.560 like as we come out the other side. John, we 0:05:15.680 --> 0:05:21.559 see a significant risk of further deterioration in US China 0:05:21.680 --> 0:05:25.279 ties not now love. But the most likely trajectory in 0:05:25.320 --> 0:05:27.880 our base case is for US and China that the 0:05:27.920 --> 0:05:31.159 two sides will do enough to keep that Phase one 0:05:31.200 --> 0:05:34.560 deal from collapsing, but certainly not much more, and no 0:05:34.600 --> 0:05:37.599 one's talking about Phase two. I think the leadership of 0:05:37.640 --> 0:05:40.960 both economies are just focused on getting through this year 0:05:41.600 --> 0:05:45.800 and focusing on livelihoods of their respective populations. And in 0:05:45.880 --> 0:05:50.640 that I think China has been much more structural uh 0:05:50.960 --> 0:05:56.160 and it's it's approach in ensuring that the math layoffs 0:05:56.160 --> 0:05:58.279 that are threatening other developed market and student to be 0:05:58.320 --> 0:06:02.919 emergent market economies do not necessarily incur occur in China. 0:06:03.600 --> 0:06:06.520 The US may not come out so well, and a 0:06:06.600 --> 0:06:10.600 lot will depend upon how the virus continues to spread 0:06:10.760 --> 0:06:13.800 or not. By the time we reach late May or 0:06:13.880 --> 0:06:17.120 early June, this year. It has been much more of 0:06:17.120 --> 0:06:20.320 a haphazard approach in the United States between the federal 0:06:20.360 --> 0:06:24.200 and state government as well as businesses sames that are 0:06:24.240 --> 0:06:27.560 the backbone of the U. S economy waiting to get 0:06:27.800 --> 0:06:31.440 the Trent middle of fiscal stimulus that was passed um 0:06:31.800 --> 0:06:36.200 in in Washington. That's going to be a critical watch point. 0:06:36.600 --> 0:06:38.640 Which of these two powers are going to come out 0:06:38.760 --> 0:06:44.440 more resilient with their with their domestic population, gamefully employed 0:06:44.640 --> 0:06:48.160 and healthy enough to push their economies forward. Merit. It's 0:06:48.200 --> 0:06:51.760 one of the advantages here of being here in the 0:06:51.800 --> 0:06:55.039 surveillance studios. I got the surveillance library next to me, 0:06:55.120 --> 0:06:58.440 including the history of Todd's football, and I just pulled 0:06:58.440 --> 0:07:01.599 off the shelf. Henry Kissingers on China from a good 0:07:01.680 --> 0:07:05.640 nine years ago. He talks about the indestructible day is 0:07:05.680 --> 0:07:13.280 President g indestructible President. She is certainly the strongest leader 0:07:13.600 --> 0:07:17.080 since then, but I do not believe that the Chinese 0:07:17.080 --> 0:07:20.800 people see him as indestructible. His strength is that there 0:07:20.960 --> 0:07:24.280 is no other obvious leader to take his place, no 0:07:24.440 --> 0:07:29.240 other obvious leaders to leave, and he continues to hold 0:07:29.240 --> 0:07:33.160 a command and control structure over the leading small groups 0:07:33.280 --> 0:07:39.960 over China's governing governance and authorities. That's his strength. Got 0:07:40.000 --> 0:07:42.920 to his strength. Not indestructible, but he certainly is in 0:07:43.040 --> 0:07:46.640 a solid position, regardless of some of the dings in 0:07:46.720 --> 0:07:48.960 China's armor that we're beginning to see over the last 0:07:48.960 --> 0:07:51.760 couple of weeks. Meredith Sumters, thank you so much. With 0:07:51.880 --> 0:07:57.679 you raise your group. I can't bring in now another 0:07:57.720 --> 0:08:00.160 guest on place to say Gambrada Santos, JP Morgan US 0:08:00.200 --> 0:08:03.200 Management Global market strategists will be great to get you 0:08:03.200 --> 0:08:04.920 with us on the program. Let's talk about it show 0:08:05.080 --> 0:08:06.400 is we wait for him and how to speak in 0:08:06.440 --> 0:08:09.440 a couple of days time. The assessment so far the 0:08:09.480 --> 0:08:14.160 Federal Reserve seeing some science of success. Hi, good morning, 0:08:14.320 --> 0:08:16.760 Thank you John and Tom and Lisa. It's it's great 0:08:16.760 --> 0:08:19.640 to be with you. Um so indeed, I do think 0:08:19.720 --> 0:08:22.120 that we can really say that this has been a 0:08:22.160 --> 0:08:27.080 federal Reserve that's been extremely proactive in terms of policy, 0:08:27.120 --> 0:08:31.000 extremely creative, and we are starting to see some signs 0:08:31.000 --> 0:08:34.600 of success when we look at the investment grade market, 0:08:34.640 --> 0:08:37.680 when we look at the treasury market, we are seeing 0:08:37.760 --> 0:08:40.800 some signs at the worst of the shreat in the 0:08:40.880 --> 0:08:44.520 financial plumbing is probably behind us. And we're now in 0:08:44.559 --> 0:08:48.440 a phase of normalization. And that's really really important here 0:08:48.760 --> 0:08:53.080 because we don't indeed know exactly how long UM the 0:08:53.120 --> 0:08:55.800 pandemic will last. We don't know how long the social 0:08:55.840 --> 0:08:59.200 distancing measures will last. It's really important to have this 0:08:59.320 --> 0:09:03.160 comfort that the financial markets will work properly as we 0:09:03.240 --> 0:09:06.040 move through the next weeks and months. Garriella, this is 0:09:06.120 --> 0:09:09.839 super important. If you do have the sort of diminishing 0:09:10.120 --> 0:09:13.360 of financial stress, can you just put your full faith 0:09:13.400 --> 0:09:16.920 in the Federal Reserve and the US government and governments 0:09:16.960 --> 0:09:20.400 around the world, in central banks and by risk, knowing 0:09:20.440 --> 0:09:23.600 that they will do whatever it takes to support markets 0:09:23.640 --> 0:09:26.400 and get us and get get the economy through this. 0:09:27.920 --> 0:09:31.160 I wouldn't go so far that far least. I think 0:09:31.240 --> 0:09:34.400 it's it's a really important condition to make sure that 0:09:34.480 --> 0:09:37.480 the financial markets are working properly, but it's not a 0:09:37.559 --> 0:09:41.480 sufficient condition in terms of really being able to take 0:09:41.480 --> 0:09:44.240 on risk UM and there I think that's really the 0:09:44.320 --> 0:09:48.040 missing piece. There is much more around the trajectory of 0:09:48.040 --> 0:09:51.480 the virus. We are indeed seeing encouraging signs in places 0:09:51.559 --> 0:09:55.480 like Italy, saying, Germany, New York. But the issue is 0:09:55.600 --> 0:09:58.840 and something you were touching on earlier, which is okay. 0:09:58.880 --> 0:10:02.760 When when the infection raided plateau, what do the next 0:10:02.840 --> 0:10:05.040 few months look like. I don't think we have a 0:10:05.080 --> 0:10:08.680 good grasp of that, and I think uptuently turning the 0:10:08.720 --> 0:10:11.319 activity off, you know, that was like a light swish, 0:10:11.400 --> 0:10:13.679 which fat. But turning it back on, that's going to 0:10:13.760 --> 0:10:16.800 be a dimmer. It's gonna be slow. That's what Asia 0:10:16.880 --> 0:10:20.400 is teaching us. Gabriel partition your clients. Some of them 0:10:20.440 --> 0:10:23.080 were in the markets, they went down, there was agony, 0:10:23.160 --> 0:10:25.880 They feel pretty good, they've bounced back three days. How 0:10:25.880 --> 0:10:28.160 do you counsel those At one point picked up the 0:10:28.200 --> 0:10:31.240 phone and called JP Morgan and said, go to cash. 0:10:31.559 --> 0:10:36.920 What should those people do now in cash? Yes, indeed, Tom, 0:10:36.920 --> 0:10:39.880 we do have so many different types of clients, from 0:10:39.920 --> 0:10:43.679 institutional clients to retail clients all over the world. And 0:10:44.200 --> 0:10:46.640 you know, when when this first started, really our main 0:10:46.679 --> 0:10:49.880 focus was trying to understand the sources of volatility and 0:10:49.920 --> 0:10:53.000 talk them through with our clients. At this point, we're 0:10:53.040 --> 0:10:57.520 still hearing two very different questions um, one from I 0:10:57.520 --> 0:11:00.840 would say more um the individual, a retail type of 0:11:00.880 --> 0:11:03.800 clients asking you know, I'm reading about all these scary 0:11:03.880 --> 0:11:08.160 numbers uh, tremendous amount of job losses, tremendous amount of 0:11:08.200 --> 0:11:12.040 activity contraction, should I indeed be going to cash? And 0:11:12.080 --> 0:11:14.920 that's where we remind them that actually, because the market 0:11:14.920 --> 0:11:18.200 moves have been so violent over the past couple of months, 0:11:18.520 --> 0:11:22.240 portfolios have already due risk, right, They've reacted in advance, 0:11:22.320 --> 0:11:25.520 they have due risk. Actually, maybe there isn't anything that's 0:11:25.600 --> 0:11:28.599 needed to be done beyond looking beneath the surface and 0:11:28.679 --> 0:11:31.559 looking at the quality of companies we own. We also 0:11:31.559 --> 0:11:33.360 hear from a lot of other clients, and here I 0:11:33.360 --> 0:11:36.640 would say mostly institutional clients. They are starting to think 0:11:36.679 --> 0:11:39.719 about the pass forward and are starting to ask when 0:11:39.760 --> 0:11:42.400 should I be adding risk? What kind of themes should 0:11:42.400 --> 0:11:45.520 I be thinking about? Now that this economic and market 0:11:45.559 --> 0:11:48.120 cycle has come to a close, what does the next 0:11:48.200 --> 0:11:50.880 one look like? And that's where we've been having really 0:11:50.880 --> 0:11:57.840 interesting discussions around international For example, people been saying on 0:11:58.120 --> 0:12:03.720 the up, so we've really been trying to think about 0:12:03.760 --> 0:12:08.000 how the last decade um was of course a clear US, 0:12:08.080 --> 0:12:14.000 our performance, Europe, YEM Japan really lagging behind, and we've 0:12:14.000 --> 0:12:17.480 been thinking about actually how maybe the US might be 0:12:17.520 --> 0:12:21.000 one of the last countries out of this particular situation, 0:12:21.320 --> 0:12:23.600 both in terms of the control of the virus as 0:12:23.640 --> 0:12:26.360 well as the path of the recovery. And so we've 0:12:26.400 --> 0:12:29.960 been thinking about how far ahead worth Asia is, how 0:12:29.960 --> 0:12:32.880 far ahead some countries in Europe are, and also the 0:12:32.960 --> 0:12:36.280 social safety net that Europe has, which is usually talked 0:12:36.280 --> 0:12:39.960 about as a concern, is actually something that's really going 0:12:40.000 --> 0:12:43.880 to be very valuable for speeding up the recovery here. 0:12:44.040 --> 0:12:46.520 When the time comes, Am I going to buy stodgy 0:12:46.679 --> 0:12:49.000 value Europe or are gonna? Am I going to buy 0:12:49.040 --> 0:12:52.360 the growthiness of America? Even if I think America socially 0:12:52.520 --> 0:12:56.680 or fiscally is gonna be behind the eight ball. So 0:12:56.720 --> 0:13:00.000 I think it's a combination of both. I mean, technolog 0:13:00.000 --> 0:13:03.439 aology growth is not going away. If anything, this experience 0:13:03.520 --> 0:13:07.520 is even enhancing that um as we're all becoming tech experts. 0:13:08.080 --> 0:13:10.280 Um So I think I mean by no means it's 0:13:10.320 --> 0:13:13.200 tech over and and that's a big theme for the 0:13:13.320 --> 0:13:15.760 US and for Asia. But I think that you know 0:13:16.480 --> 0:13:20.200 where a lot of clients have just completely thrown away value, 0:13:20.280 --> 0:13:23.640 completely thrown away Europe in parts of other parts of 0:13:23.640 --> 0:13:26.600 emerging markets, I think that's not such an easy call anymore. 0:13:26.960 --> 0:13:29.040 And if anything, maybe we bring it a bit closer 0:13:29.080 --> 0:13:31.640 to a neutral the growth and the value side, the 0:13:31.720 --> 0:13:35.560 US and the international Gabriella. We're going to get some 0:13:35.640 --> 0:13:38.760 earnings reports starting next week, and by all accounts, we're 0:13:38.760 --> 0:13:40.840 not expecting to get much guidance, because how can you 0:13:40.880 --> 0:13:43.600 give guidance in this kind of scenario. What are you 0:13:43.679 --> 0:13:47.720 looking for that actually could be useful information from companies 0:13:47.720 --> 0:13:52.040 that are delivering their's first quarter reports. Yes, indeed, it 0:13:52.160 --> 0:13:54.199 is going to be tricky, and it has been tricky 0:13:54.200 --> 0:13:59.000 already to calibrate earnings expectations up for this year. We 0:13:59.080 --> 0:14:01.840 have seen consent just moved down from what was ten 0:14:01.960 --> 0:14:05.800 percent grows at the beginning of January to about minus 0:14:05.880 --> 0:14:09.720 four um. But based on our models, if we just 0:14:09.800 --> 0:14:12.920 throw in the kind of economic contraction we expect, the 0:14:13.040 --> 0:14:17.720 dollar strength, the falling oil prices, all those variables, it 0:14:17.800 --> 0:14:19.880 really does look like we should be looking for an 0:14:19.880 --> 0:14:23.800 earning contraction this year of much closer to minus fifteen percent. 0:14:24.360 --> 0:14:27.080 So there's still a ways there in terms of bringing 0:14:27.120 --> 0:14:31.640 consensus closer to reality. We are looking for some glimmers 0:14:31.640 --> 0:14:34.200 in the first quarter, but as you mentioned, unfortunately I 0:14:34.200 --> 0:14:36.760 don't think that we will be getting that guidance from 0:14:36.800 --> 0:14:39.760 companies exactly, because things are so uncertain, we need to 0:14:39.800 --> 0:14:45.000 see how activity resumes and evolve beyond mark beyond April. Well, 0:14:45.040 --> 0:14:47.440 maybe we'll evolve to this Thursday and try to get 0:14:47.440 --> 0:14:51.160 beyond April. Gabriel Asientos, thank you so much, JP Market 0:14:51.240 --> 0:14:57.360 Asset Management. This is the economist, folks, that all the 0:14:57.400 --> 0:15:01.040 other economists really really listened to when he speaks and 0:15:01.080 --> 0:15:04.600 when he writes. Mario drag listens. William White was at 0:15:04.600 --> 0:15:07.480 the Bank of International Settlements at the O E c D. 0:15:07.880 --> 0:15:10.320 His seminal papers of two thousand and twelve on the 0:15:10.440 --> 0:15:14.240 history of economics are definitive. They are the papers I 0:15:14.320 --> 0:15:18.960 give undergraduates who say, help me get smarter. We're thrilled 0:15:19.200 --> 0:15:22.040 that William White could join us. Now, William White, what 0:15:22.120 --> 0:15:29.240 does central banking look like after this pandemic? Well, I, UM, 0:15:29.480 --> 0:15:33.440 I fear it's going to be more of the same. Uh. 0:15:33.520 --> 0:15:36.920 And when I say that, what I really mean is 0:15:37.000 --> 0:15:40.400 that every time, really for the last twenty or thirty years, 0:15:40.480 --> 0:15:44.520 when we've had a major problem or a problem that 0:15:44.680 --> 0:15:50.160 looks like it's lurking in the in the background, Uh, 0:15:50.200 --> 0:15:53.800 the answer has been print the money and UM I 0:15:53.840 --> 0:15:56.840 can understand why in the midst of crisis people do that, 0:15:57.600 --> 0:16:00.480 But this has been going on for such a wrong 0:16:00.600 --> 0:16:04.720 period of time that what I what I'm very fearful 0:16:04.760 --> 0:16:07.960 of is one that it won't have the desired effect 0:16:08.000 --> 0:16:12.360 of restimulating the economy, and the two it leads to 0:16:12.440 --> 0:16:17.520 still more of the debt problems and financial instability problems 0:16:17.600 --> 0:16:21.960 that I think actually threatened our threatened our recovery going forward. 0:16:22.720 --> 0:16:26.360 So um, what's being done here in terms of reliquifying 0:16:26.400 --> 0:16:30.200 the markets is absolutely the right thing to do. But 0:16:30.280 --> 0:16:33.440 I hope they can find some way of renormalizing the 0:16:33.520 --> 0:16:36.680 situation once the economy starts to recover. William, how do 0:16:36.760 --> 0:16:38.880 they go about doing that when they've just transferred so 0:16:39.000 --> 0:16:41.200 much more debt of its public sector balance sheets, the 0:16:41.280 --> 0:16:44.440 central bank balance sheet, the government's balance sheet. We've had 0:16:44.480 --> 0:16:48.320 this huge transfer of debt. Will they be able to 0:16:48.360 --> 0:16:53.240 back away from any of these measures? Well, the the 0:16:53.280 --> 0:16:58.200 central bank can back away to a degree in the 0:16:58.240 --> 0:17:01.000 measure that the economy does start turnaround and we do 0:17:01.120 --> 0:17:04.920 start to get some growth. Uh, there's always the possibility 0:17:05.040 --> 0:17:07.520 of sort of growing your way out of it. It's 0:17:07.520 --> 0:17:10.639 going to seek a significant period of time One of 0:17:10.680 --> 0:17:13.000 the things that I think it would be worthwhile for 0:17:13.080 --> 0:17:16.560 governments to do, although I know it's it's difficult for 0:17:16.600 --> 0:17:20.480 them to make credible commitments about the future, is to 0:17:20.520 --> 0:17:25.480 say that going forward, having um raised this level of 0:17:25.520 --> 0:17:28.440 government debt as a as a proportion of g d 0:17:28.480 --> 0:17:33.680 p UH to such high levels, that going forward they 0:17:33.680 --> 0:17:37.760 will no longer be following the asymmetric policies that they 0:17:37.840 --> 0:17:40.439 followed in the past, which is to say, in the 0:17:40.480 --> 0:17:44.719 past they always responded with fiscal expansion in the downturn, 0:17:45.200 --> 0:17:48.960 but there was never anywhere near as much fiscal contraction 0:17:49.000 --> 0:17:51.960 in the upturn, and that a symmetry led to the 0:17:52.040 --> 0:17:55.520 government debt ratcheting up and up. We actually do need 0:17:55.520 --> 0:17:57.720 a kind of a symmetry going forward, but it's a 0:17:57.800 --> 0:18:01.160 promise to do the asymmetry in the opposite direction, which 0:18:01.200 --> 0:18:05.280 is to try to ensure that over time, just as 0:18:05.320 --> 0:18:08.760 in a certain sense after the war, that over time 0:18:08.880 --> 0:18:11.440 there will be a gradual it will be the government 0:18:11.480 --> 0:18:16.680 subjective to gradually reduce those debt ratios. Because um, as 0:18:16.680 --> 0:18:21.000 everybody's known, I mean from time immemorial, that having high 0:18:21.119 --> 0:18:23.879 debt ratios, whether in the public sector of the private sector, 0:18:24.000 --> 0:18:28.879 exposes you to all sorts of uh possible problems going forward. 0:18:29.280 --> 0:18:33.560 William This is true in theory, and yet in practice 0:18:33.720 --> 0:18:37.200 there hasn't been a huge problem that has stemmed from 0:18:37.200 --> 0:18:39.520 the high debt levels over the past decade. And a 0:18:39.600 --> 0:18:41.440 lot of people have pointed to this. We haven't seen 0:18:41.520 --> 0:18:45.160 runaway inflation even as the US continues to print money, 0:18:45.160 --> 0:18:47.960 and rates have only gone lower. So what's to say 0:18:47.960 --> 0:18:51.400 that dynamic won't continue. Well, one thing, I think you're 0:18:51.440 --> 0:18:57.120 you're actually putting your your finger on on the right thing. 0:18:57.680 --> 0:19:00.800 The markets up until now have been real, have been 0:19:00.880 --> 0:19:06.920 remarkably incien, you know, unconcerned about increases in government debt. 0:19:07.640 --> 0:19:10.600 And that is just a fact. So that when I 0:19:10.640 --> 0:19:13.239 sort of look forward and I think in terms of 0:19:13.240 --> 0:19:17.119 where's the room for maneuver here, there's more room for 0:19:17.240 --> 0:19:19.560 maneuver I think now on the fiscal side than on 0:19:19.600 --> 0:19:22.480 the monetary side. And I think even prior to the 0:19:22.760 --> 0:19:27.240 to the pandemic, there was a general agreement in the 0:19:27.359 --> 0:19:30.760 literature that we should be moving much more towards the 0:19:30.840 --> 0:19:34.160 use of the fiscal lever in downturns than the monetary 0:19:34.240 --> 0:19:40.840 lever um. But the market's patients is great but not infinite. 0:19:41.480 --> 0:19:43.720 And you can see this for example. I mean we 0:19:43.760 --> 0:19:47.960 saw this during the European crisis, that you could get 0:19:48.000 --> 0:19:51.440 circumstances in which people would say, the market would say, 0:19:51.480 --> 0:19:56.399 as it said to Italy, uh no more. And it 0:19:56.560 --> 0:19:59.240 is not impossible that the same kind of thing could 0:19:59.240 --> 0:20:05.040 happen even for bigger countries. UM. We have seen many 0:20:05.080 --> 0:20:10.080 examples throughout history. UM. And there's all sorts of empirical 0:20:10.119 --> 0:20:14.000 evidence and books written and whatever, these kinds of non 0:20:14.160 --> 0:20:18.400 linear processes where the government spends huge amounts of money, 0:20:18.440 --> 0:20:22.640 becomes very very highly indebted. Everything is fine until it isn't. 0:20:23.600 --> 0:20:25.800 And that's the kind of thing that I think we 0:20:25.840 --> 0:20:28.159 should be we should be careful of, so use the 0:20:28.280 --> 0:20:31.879 room for maneuver, but conscious that it it can't go 0:20:31.960 --> 0:20:34.760 on forever. I will do this, William White. I will 0:20:34.800 --> 0:20:38.159 get out the August two thousand twelve paper out on 0:20:38.280 --> 0:20:42.199 social today, folks. It is the definitive economic history of 0:20:42.280 --> 0:20:45.560 central banking. William White, thank you so much, greatly appreciated. 0:20:50.000 --> 0:20:52.000 Let's get you back to that self story. Shall in 0:20:52.000 --> 0:20:54.720 the last four hours, equity markets in a better place, 0:20:55.119 --> 0:20:57.760 as the data suggest that perhaps we're seeing some signs 0:20:57.760 --> 0:21:00.840 of success after some of these big lug downs worldwide 0:21:00.840 --> 0:21:03.560 and major cities. To continue the conversation on please to 0:21:03.560 --> 0:21:06.920 say that joining us now is Ron Temple, Last Asset Management, 0:21:06.920 --> 0:21:11.000 co head of multi Asset and head of US Equity 0:21:11.280 --> 0:21:13.480 as well and managing to direct it to a long, long, 0:21:13.840 --> 0:21:16.960 long long list from Ron Temple on his duties of 0:21:17.240 --> 0:21:20.320 Lazar Asset Management, Ron fantastic to happy, Happy, to catch 0:21:20.400 --> 0:21:22.119 up with you as well. Let's just start with the 0:21:22.160 --> 0:21:25.040 stocks that have been under pressure and many people were 0:21:25.080 --> 0:21:27.359 waiting for new cases to level off. We started to 0:21:27.400 --> 0:21:29.840 see that in Europe and beyond. Do you need to 0:21:29.880 --> 0:21:31.800 see that or do you want to see evidence that 0:21:31.880 --> 0:21:35.320 this economy can reopen? Yeah, I think it's I think 0:21:35.320 --> 0:21:37.840 it's obviously positive we see cases level off. But I 0:21:37.840 --> 0:21:40.040 think there's a real balancing act here as it relates 0:21:40.040 --> 0:21:43.200 to the coronavirus and that if you get too much optimism, 0:21:43.600 --> 0:21:45.640 you know, not necessarily in the markets, but too much 0:21:45.680 --> 0:21:49.040 optimism and positive news out in the media, then does 0:21:49.080 --> 0:21:51.879 that undermine the positive story itself? In other words, if 0:21:51.920 --> 0:21:53.879 people start to think, oh, the worst is behind us, 0:21:53.960 --> 0:21:55.399 I can start getting out of my house and go 0:21:55.440 --> 0:21:58.159 about my normal business. Didn't you might actually have that 0:21:58.240 --> 0:22:00.840 second wave of infection. So so I do agree with 0:22:00.840 --> 0:22:03.359 the comment earlier that we're flying blind to some degree 0:22:03.680 --> 0:22:06.680 because there's still a lot of unknowns around this virus 0:22:06.760 --> 0:22:09.320 and around how it will behave in warmer weather, whether 0:22:09.320 --> 0:22:11.720 it will be a second wave. UM, it hasn't even 0:22:11.800 --> 0:22:14.320 really hit the emerging economies yet in terms of health, 0:22:14.600 --> 0:22:17.560 the health aspects of it. So I think there there 0:22:17.600 --> 0:22:19.560 are there are a lot of question marks that said. 0:22:19.600 --> 0:22:20.920 I mean, the market has sold off a lot, the 0:22:20.960 --> 0:22:24.199 US was down, and I think it's it's reasonable to 0:22:24.280 --> 0:22:27.400 expect bounces. UM. I guess where I'm a little concerned 0:22:27.480 --> 0:22:29.680 is again just trying to figure out how how do 0:22:29.720 --> 0:22:32.280 you baseline what the earnings hit will be and how 0:22:32.280 --> 0:22:35.119 long will that earnings have last? Is use of cash 0:22:35.280 --> 0:22:38.359 going to be forever changed? I mean, the basic underpinning 0:22:38.359 --> 0:22:40.840 and all the different research pieces they share buy backs 0:22:40.920 --> 0:22:44.080 drift away. Do you buy that round temple? Now? I 0:22:44.480 --> 0:22:46.560 think share buy backs will come back, but I do 0:22:46.640 --> 0:22:49.000 think there's going to be some lasting changes coming out 0:22:49.040 --> 0:22:51.440 of this UM in terms of how companies think about 0:22:51.480 --> 0:22:54.920 husband in cash. I mean, I think we've pushed financial 0:22:54.920 --> 0:22:58.639 engineering to the limits in the last five years UH 0:22:58.680 --> 0:23:01.240 in terms of trying to goose earnings even when revenue 0:23:01.240 --> 0:23:04.520 growth was pretty lackluster. And so I do think companies 0:23:04.520 --> 0:23:07.359 will think differently about how much liquidity they want on 0:23:07.400 --> 0:23:10.680 their balance sheet and access to liquidity through funding lines. 0:23:10.720 --> 0:23:13.400 So there may be be a bit more prudent approach 0:23:13.680 --> 0:23:17.000 or more conservative approach to liquidity management. But I don't 0:23:17.000 --> 0:23:19.760 think that's the end of share BIBAX. I also do think, 0:23:19.800 --> 0:23:22.040 by the way, the structure of supply chains is going 0:23:22.080 --> 0:23:25.600 to change. It's interesting. Last night, the chair, CEO and 0:23:25.640 --> 0:23:28.280 president of Metronic put out a letter that I think 0:23:28.400 --> 0:23:31.240 was quite a good letter. But one anecdote they provided 0:23:31.280 --> 0:23:34.119 is that a single ventilator has fifteen hundred parts from 0:23:34.119 --> 0:23:37.040