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Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you

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Speaker 1: along with my co host Lisa Brahmas. Each day we

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Speaker 1: bring you the most noteworthy and useful interviews for you

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Speaker 1: and your money. Whether at the grocery store or the

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Speaker 1: trading floor, find a Bloomberg Penl podcast on Apple podcast

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Speaker 1: or wherever you listen to podcasts, as well as at

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Speaker 1: Bloomberg dot com. Everyone seeming to have a race to

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Speaker 1: the bottom in the face of the coronavirus threat, which

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Speaker 1: raises a question is this going to support risk assets

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Speaker 1: or does it signal a shift downward in the global

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Speaker 1: economy that will ultimately be bearish for anything that relies

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Speaker 1: on growth. And joining us here as Carra Kadonna, chief

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Speaker 1: US economist for Bloomberg Economics, as well as Damian Sassaur,

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Speaker 1: chief Emerging markets credit strategist for a Bloomberg Intelligence Carl,

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Speaker 1: I want to start with you, what do you think

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Speaker 1: the Bank of Canada saying that the coronavirus represents a

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Speaker 1: material negative shock to the Canadian and global outlooks. I

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Speaker 1: would agree completely with that type of assessment. So we're

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Speaker 1: seeing a supply shock, and then the question is how

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Speaker 1: big is the demand shock that accompanies it. Then when

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Speaker 1: you see canceled the air fairs and conferences being canceled,

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Speaker 1: that's the tip of the iceberg of things of being restricted.

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Speaker 1: And then you know, as we get more tests conducted

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Speaker 1: here in the US and actually get a better handle

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Speaker 1: on what the case count is, UH, then you're going

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Speaker 1: to see knock on effects in terms of you know,

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Speaker 1: potential schools being closed and that sort of thing, and

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Speaker 1: social distancing and quarantines will have a negative impact on

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Speaker 1: the economy. So the FED knows that it's medicine takes

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Speaker 1: a while to kick in, and so it's jumping out

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Speaker 1: there and acting now so that hopefully some of the

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Speaker 1: medicine will be flowing by the time we start to

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Speaker 1: see more severe impacts. Is a medicine enough damien to

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Speaker 1: UH to prompt people to go into emerging markets? Is

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Speaker 1: that where they should go now? So basically I would

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Speaker 1: say no. I mean, cal makes a great point where

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Speaker 1: we're talking about this is supply disruption, but in emerging markets,

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Speaker 1: we have to look at it and reverse. We have

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Speaker 1: to say, what does the supply disruption mean on demand

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Speaker 1: for U S dollars? What's a payment disruption? Look like right,

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Speaker 1: And so you know they of Apple, Apple basically is

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Speaker 1: now funding all of its key suppliers, most of which

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Speaker 1: are based in Southeast Asia, trying to help them through

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Speaker 1: the coronavirus and through this divide. Yeah. Um, eventually they're

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Speaker 1: going to run out of ammunition to continue helping them.

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Speaker 1: Then they go those those suppliers are gonna have to

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Speaker 1: turn in where they're gonna have to turn to local

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Speaker 1: banks and central banks, and then you start to see

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Speaker 1: stress and funding markets and that's becaust simply put, they

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Speaker 1: need dollars in order to pay their huge dollar debtloads

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Speaker 1: that they're basically incurring right now. And my concern is

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Speaker 1: that yesterday's FED cut was not one design to necessarily

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Speaker 1: stimulate the US economy. It was more designed to uh

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Speaker 1: respond to some of these bottlenecks and stresses that we're

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Speaker 1: seeing in the global financial market and that could manifest

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Speaker 1: itself in a lot of different ways and and J.

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Speaker 1: Powell was very clear about that during his press conference

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Speaker 1: that you know, they need to take preemptive action to

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Speaker 1: provide some buffers to the economy from financial stresses but

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Speaker 1: also from economic stresses and the very supply shock that

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Speaker 1: Damian describes for a m also becomes a demand shock.

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Speaker 1: If we look at the China p m I numbers

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Speaker 1: over the weekend and then some private numbers were released

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Speaker 1: after that, it showed a worse stoppage in the Chinese

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Speaker 1: economy than what we saw during the global financial crisis.

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Speaker 1: And so for Chilean's exporting copper and Australians exporting iron

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Speaker 1: ore and coal, UH, that shock becomes a real demand

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Speaker 1: shock they have to contend with, which is why we

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Speaker 1: saw Australia cutting rates earlier this week, Canada today, and

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Speaker 1: a couple other central banks piling in as well. The

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Speaker 1: one thing I'll just throw in here is a footnote.

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Speaker 1: The FED has a vast network of business contexts, both

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Speaker 1: financials and non financials, right so as they're assessing what's

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Speaker 1: happening at key economic shock events like a blizzard or

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Speaker 1: a hurricane or the current situation, they're talking to those

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Speaker 1: business contacts and getting a better sense of what's happening

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Speaker 1: on the ground. They're not waiting for it to show

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Speaker 1: up in the economic data. And I think contacting those

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Speaker 1: business businesses UH in the various districts led them to

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Speaker 1: a conclusion that this is a real shock that has

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Speaker 1: to be contended with. I mean, when we have to

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Speaker 1: remember here is that post global financial crisis, Basil three

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Speaker 1: was designed with the premise that it's really financial, non

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Speaker 1: operating deposits that are slippery, that can come and go

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Speaker 1: as they please. This is not that this is a

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Speaker 1: hit on operating deposits at banks, which if you look

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Speaker 1: at your high quality liquid as the portfolios and your

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Speaker 1: LCR ratios. I'm not going to go into the What

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Speaker 1: it means is that this is not something that Basil

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Speaker 1: three was designed to prevent. So despite you have these

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Speaker 1: swap lines in with central banks and all this other stuff,

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Speaker 1: it's really gonna weigh on bank reserves if this persists

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Speaker 1: for that much long. Okay, so let's take a step back,

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Speaker 1: because what we're really talking about is how much are

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Speaker 1: we seeing financial market stress in addition to potential economic

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Speaker 1: stress to come. And I think that that's been very

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Speaker 1: unclear to people who are watching the market saying, look,

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Speaker 1: this is a potential economic shock, but the banks are

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Speaker 1: in good shape. Damian, are you saying that's not true.

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Speaker 1: I'm saying that the banks are in good shape. I'm

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Speaker 1: just saying that a lot of the buffers that have

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Speaker 1: been put into place, we're not really ready to contend

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Speaker 1: with something like this, a real supply disruption on the

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Speaker 1: operating level. And so, you know, you just look at

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Speaker 1: Governor Karrel's recent speech, you know where he was talking

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Speaker 1: about opening up the discount window. I mean kind of

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Speaker 1: pre essent in the world we're living in right now.

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Speaker 1: And then you take in conjunction with that, Carl, you know,

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Speaker 1: just the fact that you know there is the market

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Speaker 1: now you see library spreads privately, you know, you just

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Speaker 1: see that the markets are starting to price in the

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Speaker 1: promise of quant easing could come. Well, but this raises

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Speaker 1: a question about the Fed's impact here. And people think

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Speaker 1: of it as mostly able to stimulate through the financial system,

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Speaker 1: through the banking system. What can the effect be on

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Speaker 1: the real economy? How can we start to look for

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Speaker 1: the medicine being felt to the real economy. Sure, well,

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Speaker 1: there's important psychological impacts from this, Right, So when we

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Speaker 1: look at the financial market shock, the wealth effect, which

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Speaker 1: which is true for both households and corporates of a

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Speaker 1: decline in the SMP. Right, we can compare this to

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Speaker 1: very recent history. In in Q four, we had a

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Speaker 1: correction in the smp UH and there was a very

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Speaker 1: visible negative consequence for consumer spending in the following couple

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Speaker 1: of quarters. In the same thing for business investment trends. Right,

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Speaker 1: if you're a business in your stock is getting pummeled,

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Speaker 1: You're you're probably gonna hesitate before you take some aggressive

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Speaker 1: investment measures and go out on a limb on new

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Speaker 1: projects and whatnot. So the Fed stepping in to lower

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Speaker 1: rates reduces your financing cost. Also, it helps to stifle

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Speaker 1: that risk off trade because it's a lot less appealing

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Speaker 1: to park money into uh you know something uh R

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Speaker 1: rating a return close to Fed funds now compared to

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Speaker 1: two days ago. And we're gonna be hearing from St.

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Speaker 1: Louis FED President James Bullard coming up in just about

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Speaker 1: five minutes here with Kathleen Hayes of Bloomberg Television, who

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Speaker 1: will be will be broadcasting that live. What are you

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Speaker 1: hoping to hear from Jim Bullard, Damien Well? I would

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Speaker 1: like to hear a little bit more about what was

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Speaker 1: the reason. I mean we didn't get much from share

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Speaker 1: Powell yesterday. I mean he was very tight lipped. I'd

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Speaker 1: like to see a little bit more um color as

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Speaker 1: to you know, what was this, what was the real

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Speaker 1: intention here? I think, you know, we heard moral hazard,

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Speaker 1: those words ballied about yesterday time and time again. How

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Speaker 1: you know, what does the FED know that we don't know? Right?

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Speaker 1: And so I think a lot of those questions are

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Speaker 1: very real, and like you said, the psychological impact of

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Speaker 1: that can be devastating if the FED is intended, and

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Speaker 1: given the Fed's designed to keep you know, uh, you know,

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Speaker 1: inflation low and employment full. Carl Well, I'm looking to

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Speaker 1: hear from Jim Bullard how he would expect to proceed

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Speaker 1: from here. So we've seen a fifty basis point cut.

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Speaker 1: I think that we're going to see more. So my

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Speaker 1: team is looking for two more five basis point cuts

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Speaker 1: at the actual meetings. Not not emergency moves, but certainly

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Speaker 1: if the narrative starts to get away from uh, you know,

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Speaker 1: uh reality or from a rational expectations here, then the

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Speaker 1: FED would have to be aggressive once again. So just

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Speaker 1: kind of hearing what he thinks is the appropriate response

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Speaker 1: from policy makers more broadly, not just monitoring policy makers.

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Speaker 1: No one, including the FED has the illusion here that

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Speaker 1: this is a problem that can be fixed by the

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Speaker 1: FED alone. So sorry, just one last thing. Don't refinance

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Speaker 1: your homelans just yecause rates are going lower. Damian Sasaur

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Speaker 1: with a prediction. Damien Sassaur of Bloomberg Intelligence, car Kadada

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Speaker 1: of Bloomberg Economics, thank you both so much for being

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Speaker 1: with us. How significant is the disruption from coronavirus fears?

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Speaker 1: This has been one of the big questions that people

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Speaker 1: are trying to grapple with and price in the markets

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Speaker 1: as we game out a scenario in which there could

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Speaker 1: be some sort of downturn recession, not recession, temporary V

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Speaker 1: shaped you shape. Joining us here is Shelley Banjo, Asia

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Speaker 1: tech reporter for Bloomberg. Had been living in Hong Kong

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Speaker 1: right now. Where are you living? We're camped out in

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Speaker 1: our parents and my parents house in Dallas, Texas. Okay,

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Speaker 1: So can you give us a sense before you decided

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Speaker 1: to leave of what it was like in Hong Kong

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Speaker 1: as the fear of coronavirus swirled in sure. So, Hong Kong,

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Speaker 1: I think is a really interesting case because if you

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Speaker 1: look at it right now, the cases are actually quite

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Speaker 1: lower percentage wise compared to China UM and so it

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Speaker 1: seems like a lot of these draconian measures are working,

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Speaker 1: and yet it's not. It's not the greatest place to

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Speaker 1: want to be right now. So a few weeks ago

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Speaker 1: we uh Bloomberg shut down their offices as as well

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Speaker 1: as many other businesses. Schools were closed. Um, and we

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Speaker 1: have an eighteen month old child, and so we decided,

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Speaker 1: you know what, it's very difficult to be in a

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Speaker 1: tiny apartment with a young child when playgrounds and playrooms

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Speaker 1: and things like that are closed. So we decided to um,

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Speaker 1: go to Dallas and stay with my parents for a

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Speaker 1: little while. Okay, And can you give us a sense

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Speaker 1: before that of just sort of the fear factor. Are

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Speaker 1: people staying inside? I mean it sounds like restaurants where

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Speaker 1: they open. Was everything just sort of closed? Yeah, at

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Speaker 1: the time, there were a fair amount of grocery stores

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Speaker 1: and um and restaurants that were open. But it was

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Speaker 1: right around then we started seeing people do runs on

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Speaker 1: toilet paper. That was like a really big thing in

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Speaker 1: Hong Kong. People started a rumor that there wasn't gonna

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Speaker 1: be enough toilet paper, and then everybody rushed. Um. You'd

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Speaker 1: see lines outside of the pharmacies every single morning as

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Speaker 1: soon as they opened up, and got a new shipment

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Speaker 1: in for hand sanitizer masks and things like. Okay, so

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Speaker 1: looking forward, can we get a sense of how quickly

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Speaker 1: things have come back online and how much of a

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Speaker 1: template this is for what we can expect potentially here

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Speaker 1: if it continues to spread. Well, schools are still closed

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Speaker 1: and a lot of businesses are still closed. Some of

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Speaker 1: the businesses have kept open throughout this entire thing. Um,

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Speaker 1: grocery stores are still being stocked. Um, you know, people

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Speaker 1: can now get toilet paper again. So people are happy

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Speaker 1: about that. Life goals now, But what about when it

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Speaker 1: comes to technology production? What it you know, that was

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Speaker 1: one of the big questions with manufacturing and supply chains.

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Speaker 1: So it's a completely different story. In mainland China, where

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Speaker 1: most of the production is, the lot of the supply

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Speaker 1: chains have started slowly opening up again, uh slowly, uh

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Speaker 1: you know, slowly adding production workers, but they're nowhere near

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Speaker 1: uh act capacity or um you know, bringing their workers

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Speaker 1: to quarantine their workers for a few weeks to make

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Speaker 1: sure that as they travel to wherever the factory is

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Speaker 1: from their hometowns, that they haven't contracted the virus, so

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Speaker 1: factory production is still you know, um not you know normal.

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Speaker 1: So there's been a lot of criticism around the Chinese

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Speaker 1: response to the coronavirus, lack of transparency, numbers changing. How

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Speaker 1: does the response from the Trump administration compare? Well, I

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Speaker 1: think that the Trump administration had a fair a bit

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Speaker 1: of more time to kind of decide what their response

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Speaker 1: was going to be. Uh So, you know, I think

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Speaker 1: that it is something important to take to take seriously.

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Speaker 1: You know, you get a lot of questions like is

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Speaker 1: this panic? Are people panicked? But you know what, this

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Speaker 1: is a really important thing to take seriously, and so

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Speaker 1: I don't think it's a panic at all all right,

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Speaker 1: and going forward, just based on how quickly things are

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Speaker 1: sort of getting back to normal within Hong Kong, does

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Speaker 1: it give you optimism a sense that things can come

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Speaker 1: back online pretty quickly, or does it give you a

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Speaker 1: sense of sort of a little bit of an ominous

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Speaker 1: sense going forward? I think Hong Kong is still in

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Speaker 1: a holding pattern. I don't think things are starting to

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Speaker 1: come back online yet. And so until uh, schools um open,

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Speaker 1: businesses won't open, and until businesses won't open, you know,

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Speaker 1: everybody's kind of working from home and productivity does slow. Um.

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Speaker 1: And so I think the uncertainty has driven a lot

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Speaker 1: of people out of Hong Kong altogether, and so it

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Speaker 1: has a big pet population in Hong Kong. I think

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Speaker 1: a lot of those people are gone and aren't going

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Speaker 1: to come back. Um. So we're going back. Um, we're

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Speaker 1: planning on going back right now. UM, so we'll see

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Speaker 1: any sense when. I don't know yet when. And what

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Speaker 1: about your ex pet friends. Uh, A lot of people

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Speaker 1: I know left and are not coming back. And they're

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Speaker 1: not coming back just because they think that this uncertainty

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Speaker 1: is going to happen again. Yeah, And Hong Kong has

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Speaker 1: a special uh circumstance of dealing with the protest for

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Speaker 1: the last six months before that, and so the economy

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Speaker 1: has really is in a recession. And h it's hard

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Speaker 1: to see mainland Chinese tourists coming back. It's hard to

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Speaker 1: see um, you know, tourism just generally coming back. And uh,

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Speaker 1: you know people who are living there, uh, you know

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Speaker 1: want to be there, and you know they but if

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Speaker 1: businesses closed and shut down, then people are not gonna

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Speaker 1: have jobs and they're not going to be able to

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Speaker 1: go out and spend and it's hard to see how

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Speaker 1: Hong Kong's economy comes back in the short term. Well,

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Speaker 1: Shelley Banto, it is great to see you in person,

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Speaker 1: however unfortunate under the circumstances. Shelley Banjo, Asia tech reporter

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Speaker 1: for Bloomberg News, normally based in Hong Kong, here in

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Speaker 1: New York City with US super Tuesday was quite a

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Speaker 1: day for Joe Biden with some decisive wins, particularly in

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Speaker 1: South Carolina, becoming the candidate for Bernie Sanders to beat.

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Speaker 1: Just crossing the terminal, UH, Michael Bloomberg, majority owner and

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Speaker 1: founder of Bloomberg LP was dropping his presidential or suspending,

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Speaker 1: i should say, his presidential candidate campaign and endorsing Joe Biden.

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Speaker 1: And this comes after Clobachar and Pete Puttag dropped out

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Speaker 1: and also went behind Joe Biden. They're also are reports

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Speaker 1: that Elizabeth Warren, Senator is reassessing her campaign, so it

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Speaker 1: appears that the field is getting narrowed down to Bernie

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Speaker 1: Sanders and Joe Biden. I want to bring in Rick Davis,

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Speaker 1: partner at Stone Court Capital of Bloomberg Politics contributor UH

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Speaker 1: and someone with incredible experience of both when it comes

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Speaker 1: to politics, and when it comes to Joe Biden. Rick,

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Speaker 1: what I'm curious from your perspective, how important is it

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Speaker 1: that there is a narrowing down of the field at

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Speaker 1: this point. Oh, I think thank you Lisa for first

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Speaker 1: of all for having me, and uh, I think it's

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Speaker 1: critically important. I mean, one of the lessons we've learned

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Speaker 1: recently in two thousand and sixteen is when various elements

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Speaker 1: of the party, in this case the Republican Party, divide

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Speaker 1: their vote amongst multiple candidates, it allows, you know, what

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Speaker 1: was at one point in time a French paniate, Donald Trump,

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Speaker 1: to be able to win not only a group of primaries,

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Speaker 1: but the actual nomination without ever going above And so

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Speaker 1: I think the Democrats partly have allowed the winnowing process

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Speaker 1: to occur. I mean, that's why we go to Iowa,

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Speaker 1: New Hampshire. It's not for the weather this time year.

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Speaker 1: And uh. And you you see the natural progression of

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Speaker 1: events and the egos have been put aside and uh,

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Speaker 1: and you can tell the Democrats are united in one

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Speaker 1: thing primarily that is the defeat of Donald Trump. And

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Speaker 1: that is what's motivating people like Mike Bloomberg to suspend

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Speaker 1: his campaign to rally the troops around Joe Biden on

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Speaker 1: the part as you mentioned of Amy Klobuchar and Pete Bout.

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Speaker 1: I mean, these are all things that had a major

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Speaker 1: impact leading up to Super Tuesday and will after Super Tuesday.

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Speaker 1: I think it's it's fair to say that this is

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Speaker 1: now a very simple campaign against two people, um, Joe Biden,

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Speaker 1: who represents the center and the establishment of the Democratic Party,

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Speaker 1: and Bernie Sanders, who wants a revolution, and and voters

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Speaker 1: are going to get to decide that. And believe me,

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Speaker 1: that is a fair choice, right. I mean, they're there,

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Speaker 1: they got play is chuse from there? Well, Rick, as

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Speaker 1: a former Republican strategist, former manager of Senator John McCain's

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Speaker 1: campaign for president, I'm wondering, how worried you here, Republicans

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Speaker 1: being from here, how worried President Trump should be about

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Speaker 1: the momentum that these two candidates are getting this early

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Speaker 1: in the race or not. Well, if I were Donald

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Speaker 1: Trump and his campaign, I would be very worried about

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Speaker 1: a couple of things I saw last night on Super Tuesday,

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Speaker 1: and one of them, principally is the gravitational pull that

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Speaker 1: Joe Biden has with white suburban voters, especially women. UM.

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Speaker 1: We know that these are the same voters that helped

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Speaker 1: Donald Trump win an election against Hillary Clinton and UH,

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Speaker 1: and we know that they abandoned the Republican Party at

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Speaker 1: large UH in two thousand eighteen in the mid terms.

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Speaker 1: You could chalk that up to parties in power had

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Speaker 1: bad mid terms. UM, but the fact that they rallied

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Speaker 1: around Biden's campaign and states like Tech, this in Minnesota

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Speaker 1: and throughout the South, and and really on a national basis,

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Speaker 1: um propelling his victory in states that he had really

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Speaker 1: no business to be winning from from just a tactical perspective, UM,

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Speaker 1: that ought to give the Republicans and Donald Trump some

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Speaker 1: pause that they're not doing a job of pulling those

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Speaker 1: those those suburban women back into their fold. And they

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Speaker 1: seem excited about Joe Biden. Just looking forward, Bernie Sanders

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Speaker 1: still very much in the race. So it's Bernie Sanders

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Speaker 1: and Joe Biden. How concerned are you about a contested

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Speaker 1: contested nomination or contested h yeah, convention? Yeah, less so

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Speaker 1: now right, I mean one of the things that you

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Speaker 1: had to watch on Super Tuesdays, whether or not candidates

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Speaker 1: like Mike Bloomberg, Elizabeth Warren could um could accumulate enough

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Speaker 1: delegates to want to be power players at a convention.

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Speaker 1: In other words, you know, the group at large to

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Speaker 1: accumulate enough delegates to keep Bernie at least you know,

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Speaker 1: that was conventionalism, right how you stopped Bernie um Um

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Speaker 1: yesterday before Super Tuesday and and they didn't write, I mean,

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Speaker 1: they did not score enough victories or accumulate enough delegates

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Speaker 1: on Super Tuesday to be a factor right to where

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Speaker 1: they could actually stop someone from getting the magic number

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Speaker 1: delegates before the convention. And so it is much more

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Speaker 1: likely in a two person race that you now look

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Speaker 1: like you have that one of them is going to prevail.

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Speaker 1: And uh, but I would say, right now, it's too

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Speaker 1: soon to tell who that's gonna be. Rick is real

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Speaker 1: quick here, I'm wondering what type of candidate Joe is

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Speaker 1: likely to pick for a vice president. Could it be uh,

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Speaker 1: someone on the left on at Sanders and Warren type side,

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Speaker 1: or is he going to stick to his his guns

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Speaker 1: and sort of stay centrist. You know, I think a

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Speaker 1: lot of that's going to determine what the state of

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Speaker 1: the race is this summer. Right, the Democrats have an

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Speaker 1: early convention at the end of July. UH, that's when

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Speaker 1: they will be forced to have to make a decision

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Speaker 1: on who the vice presidential running mate will be. And

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Speaker 1: they will look at what they need to score a victory,

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Speaker 1: because that'll be the number one thing, is how do

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Speaker 1: we actually win? And then they will want someone paired

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Speaker 1: up with them, with Joe Biden if he's a nominee,

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Speaker 1: to help him govern. When Joe Biden was selected, UH,

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Speaker 1: the running mate of Barack Obama, Barack Obama had a

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Speaker 1: fifteen point lead over John McCain. Believe me, I remember

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Speaker 1: I was running that campaign, and and he had the

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Speaker 1: luxury of knowing that it's highly likely that he was

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Speaker 1: going to win. So he wanted to pick someone he

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Speaker 1: got along with, you know, that was friendly, that would

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Speaker 1: uh complement his skill set, and Joe Biden was that guy.

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Speaker 1: Joe Biden never added a single vote to the Obama campaign,

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Speaker 1: but he was a great governing partner. That's gonna be

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Speaker 1: interesting to see if that's the option forward. Rick Davis, Unfortunately,

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Speaker 1: you've got to leave it there. Thank you so much

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Speaker 1: for taking the time. Rick Davis, partner at Stone Court

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Speaker 1: Capital as well as former Republican strategist and former manager

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Speaker 1: of Senator John McCain's presidential campaign. Thanks for listening to

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Speaker 1: the Bloomberg P and L podcast. You can subscribe and

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Speaker 1: listen to interviews at Apple Podcasts or whatever podcast platform

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Speaker 1: you prefer. I'm Paul Sweeney, I'm on Twitter at pt Sweeney.

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Speaker 1: I'm Lisa abram Woyds. I'm on Twitter at Lisa bramwo

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Speaker 1: wits one. Before the podcast, you can always catch us

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Speaker 1: worldwide on'm Bloomberg Radio