Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you
Speaker 1: along with my co host Lisa Brahmas. Each day we
Speaker 1: bring you the most noteworthy and useful interviews for you
Speaker 1: and your money. Whether at the grocery store or the
Speaker 1: trading floor, find a Bloomberg Penl podcast on Apple podcast
Speaker 1: or wherever you listen to podcasts, as well as at
Speaker 1: Bloomberg dot com. Everyone seeming to have a race to
Speaker 1: the bottom in the face of the coronavirus threat, which
Speaker 1: raises a question is this going to support risk assets
Speaker 1: or does it signal a shift downward in the global
Speaker 1: economy that will ultimately be bearish for anything that relies
Speaker 1: on growth. And joining us here as Carra Kadonna, chief
Speaker 1: US economist for Bloomberg Economics, as well as Damian Sassaur,
Speaker 1: chief Emerging markets credit strategist for a Bloomberg Intelligence Carl,
Speaker 1: I want to start with you, what do you think
Speaker 1: the Bank of Canada saying that the coronavirus represents a
Speaker 1: material negative shock to the Canadian and global outlooks. I
Speaker 1: would agree completely with that type of assessment. So we're
Speaker 1: seeing a supply shock, and then the question is how
Speaker 1: big is the demand shock that accompanies it. Then when
Speaker 1: you see canceled the air fairs and conferences being canceled,
Speaker 1: that's the tip of the iceberg of things of being restricted.
Speaker 1: And then you know, as we get more tests conducted
Speaker 1: here in the US and actually get a better handle
Speaker 1: on what the case count is, UH, then you're going
Speaker 1: to see knock on effects in terms of you know,
Speaker 1: potential schools being closed and that sort of thing, and
Speaker 1: social distancing and quarantines will have a negative impact on
Speaker 1: the economy. So the FED knows that it's medicine takes
Speaker 1: a while to kick in, and so it's jumping out
Speaker 1: there and acting now so that hopefully some of the
Speaker 1: medicine will be flowing by the time we start to
Speaker 1: see more severe impacts. Is a medicine enough damien to
Speaker 1: UH to prompt people to go into emerging markets? Is
Speaker 1: that where they should go now? So basically I would
Speaker 1: say no. I mean, cal makes a great point where
Speaker 1: we're talking about this is supply disruption, but in emerging markets,
Speaker 1: we have to look at it and reverse. We have
Speaker 1: to say, what does the supply disruption mean on demand
Speaker 1: for U S dollars? What's a payment disruption? Look like right,
Speaker 1: And so you know they of Apple, Apple basically is
Speaker 1: now funding all of its key suppliers, most of which
Speaker 1: are based in Southeast Asia, trying to help them through
Speaker 1: the coronavirus and through this divide. Yeah. Um, eventually they're
Speaker 1: going to run out of ammunition to continue helping them.
Speaker 1: Then they go those those suppliers are gonna have to
Speaker 1: turn in where they're gonna have to turn to local
Speaker 1: banks and central banks, and then you start to see
Speaker 1: stress and funding markets and that's becaust simply put, they
Speaker 1: need dollars in order to pay their huge dollar debtloads
Speaker 1: that they're basically incurring right now. And my concern is
Speaker 1: that yesterday's FED cut was not one design to necessarily
Speaker 1: stimulate the US economy. It was more designed to uh
Speaker 1: respond to some of these bottlenecks and stresses that we're
Speaker 1: seeing in the global financial market and that could manifest
Speaker 1: itself in a lot of different ways and and J.
Speaker 1: Powell was very clear about that during his press conference
Speaker 1: that you know, they need to take preemptive action to
Speaker 1: provide some buffers to the economy from financial stresses but
Speaker 1: also from economic stresses and the very supply shock that
Speaker 1: Damian describes for a m also becomes a demand shock.
Speaker 1: If we look at the China p m I numbers
Speaker 1: over the weekend and then some private numbers were released
Speaker 1: after that, it showed a worse stoppage in the Chinese
Speaker 1: economy than what we saw during the global financial crisis.
Speaker 1: And so for Chilean's exporting copper and Australians exporting iron
Speaker 1: ore and coal, UH, that shock becomes a real demand
Speaker 1: shock they have to contend with, which is why we
Speaker 1: saw Australia cutting rates earlier this week, Canada today, and
Speaker 1: a couple other central banks piling in as well. The
Speaker 1: one thing I'll just throw in here is a footnote.
Speaker 1: The FED has a vast network of business contexts, both
Speaker 1: financials and non financials, right so as they're assessing what's
Speaker 1: happening at key economic shock events like a blizzard or
Speaker 1: a hurricane or the current situation, they're talking to those
Speaker 1: business contacts and getting a better sense of what's happening
Speaker 1: on the ground. They're not waiting for it to show
Speaker 1: up in the economic data. And I think contacting those
Speaker 1: business businesses UH in the various districts led them to
Speaker 1: a conclusion that this is a real shock that has
Speaker 1: to be contended with. I mean, when we have to
Speaker 1: remember here is that post global financial crisis, Basil three
Speaker 1: was designed with the premise that it's really financial, non
Speaker 1: operating deposits that are slippery, that can come and go
Speaker 1: as they please. This is not that this is a
Speaker 1: hit on operating deposits at banks, which if you look
Speaker 1: at your high quality liquid as the portfolios and your
Speaker 1: LCR ratios. I'm not going to go into the What
Speaker 1: it means is that this is not something that Basil
Speaker 1: three was designed to prevent. So despite you have these
Speaker 1: swap lines in with central banks and all this other stuff,
Speaker 1: it's really gonna weigh on bank reserves if this persists
Speaker 1: for that much long. Okay, so let's take a step back,
Speaker 1: because what we're really talking about is how much are
Speaker 1: we seeing financial market stress in addition to potential economic
Speaker 1: stress to come. And I think that that's been very
Speaker 1: unclear to people who are watching the market saying, look,
Speaker 1: this is a potential economic shock, but the banks are
Speaker 1: in good shape. Damian, are you saying that's not true.
Speaker 1: I'm saying that the banks are in good shape. I'm
Speaker 1: just saying that a lot of the buffers that have
Speaker 1: been put into place, we're not really ready to contend
Speaker 1: with something like this, a real supply disruption on the
Speaker 1: operating level. And so, you know, you just look at
Speaker 1: Governor Karrel's recent speech, you know where he was talking
Speaker 1: about opening up the discount window. I mean kind of
Speaker 1: pre essent in the world we're living in right now.
Speaker 1: And then you take in conjunction with that, Carl, you know,
Speaker 1: just the fact that you know there is the market
Speaker 1: now you see library spreads privately, you know, you just
Speaker 1: see that the markets are starting to price in the
Speaker 1: promise of quant easing could come. Well, but this raises
Speaker 1: a question about the Fed's impact here. And people think
Speaker 1: of it as mostly able to stimulate through the financial system,
Speaker 1: through the banking system. What can the effect be on
Speaker 1: the real economy? How can we start to look for
Speaker 1: the medicine being felt to the real economy. Sure, well,
Speaker 1: there's important psychological impacts from this, Right, So when we
Speaker 1: look at the financial market shock, the wealth effect, which
Speaker 1: which is true for both households and corporates of a
Speaker 1: decline in the SMP. Right, we can compare this to
Speaker 1: very recent history. In in Q four, we had a
Speaker 1: correction in the smp UH and there was a very
Speaker 1: visible negative consequence for consumer spending in the following couple
Speaker 1: of quarters. In the same thing for business investment trends. Right,
Speaker 1: if you're a business in your stock is getting pummeled,
Speaker 1: You're you're probably gonna hesitate before you take some aggressive
Speaker 1: investment measures and go out on a limb on new
Speaker 1: projects and whatnot. So the Fed stepping in to lower
Speaker 1: rates reduces your financing cost. Also, it helps to stifle
Speaker 1: that risk off trade because it's a lot less appealing
Speaker 1: to park money into uh you know something uh R
Speaker 1: rating a return close to Fed funds now compared to
Speaker 1: two days ago. And we're gonna be hearing from St.
Speaker 1: Louis FED President James Bullard coming up in just about
Speaker 1: five minutes here with Kathleen Hayes of Bloomberg Television, who
Speaker 1: will be will be broadcasting that live. What are you
Speaker 1: hoping to hear from Jim Bullard, Damien Well? I would
Speaker 1: like to hear a little bit more about what was
Speaker 1: the reason. I mean we didn't get much from share
Speaker 1: Powell yesterday. I mean he was very tight lipped. I'd
Speaker 1: like to see a little bit more um color as
Speaker 1: to you know, what was this, what was the real
Speaker 1: intention here? I think, you know, we heard moral hazard,
Speaker 1: those words ballied about yesterday time and time again. How
Speaker 1: you know, what does the FED know that we don't know? Right?
Speaker 1: And so I think a lot of those questions are
Speaker 1: very real, and like you said, the psychological impact of
Speaker 1: that can be devastating if the FED is intended, and
Speaker 1: given the Fed's designed to keep you know, uh, you know,
Speaker 1: inflation low and employment full. Carl Well, I'm looking to
Speaker 1: hear from Jim Bullard how he would expect to proceed
Speaker 1: from here. So we've seen a fifty basis point cut.
Speaker 1: I think that we're going to see more. So my
Speaker 1: team is looking for two more five basis point cuts
Speaker 1: at the actual meetings. Not not emergency moves, but certainly
Speaker 1: if the narrative starts to get away from uh, you know,
Speaker 1: uh reality or from a rational expectations here, then the
Speaker 1: FED would have to be aggressive once again. So just
Speaker 1: kind of hearing what he thinks is the appropriate response
Speaker 1: from policy makers more broadly, not just monitoring policy makers.
Speaker 1: No one, including the FED has the illusion here that
Speaker 1: this is a problem that can be fixed by the
Speaker 1: FED alone. So sorry, just one last thing. Don't refinance
Speaker 1: your homelans just yecause rates are going lower. Damian Sasaur
Speaker 1: with a prediction. Damien Sassaur of Bloomberg Intelligence, car Kadada
Speaker 1: of Bloomberg Economics, thank you both so much for being
Speaker 1: with us. How significant is the disruption from coronavirus fears?
Speaker 1: This has been one of the big questions that people
Speaker 1: are trying to grapple with and price in the markets
Speaker 1: as we game out a scenario in which there could
Speaker 1: be some sort of downturn recession, not recession, temporary V
Speaker 1: shaped you shape. Joining us here is Shelley Banjo, Asia
Speaker 1: tech reporter for Bloomberg. Had been living in Hong Kong
Speaker 1: right now. Where are you living? We're camped out in
Speaker 1: our parents and my parents house in Dallas, Texas. Okay,
Speaker 1: So can you give us a sense before you decided
Speaker 1: to leave of what it was like in Hong Kong
Speaker 1: as the fear of coronavirus swirled in sure. So, Hong Kong,
Speaker 1: I think is a really interesting case because if you
Speaker 1: look at it right now, the cases are actually quite
Speaker 1: lower percentage wise compared to China UM and so it
Speaker 1: seems like a lot of these draconian measures are working,
Speaker 1: and yet it's not. It's not the greatest place to
Speaker 1: want to be right now. So a few weeks ago
Speaker 1: we uh Bloomberg shut down their offices as as well
Speaker 1: as many other businesses. Schools were closed. Um, and we
Speaker 1: have an eighteen month old child, and so we decided,
Speaker 1: you know what, it's very difficult to be in a
Speaker 1: tiny apartment with a young child when playgrounds and playrooms
Speaker 1: and things like that are closed. So we decided to um,
Speaker 1: go to Dallas and stay with my parents for a
Speaker 1: little while. Okay, And can you give us a sense
Speaker 1: before that of just sort of the fear factor. Are
Speaker 1: people staying inside? I mean it sounds like restaurants where
Speaker 1: they open. Was everything just sort of closed? Yeah, at
Speaker 1: the time, there were a fair amount of grocery stores
Speaker 1: and um and restaurants that were open. But it was
Speaker 1: right around then we started seeing people do runs on
Speaker 1: toilet paper. That was like a really big thing in
Speaker 1: Hong Kong. People started a rumor that there wasn't gonna
Speaker 1: be enough toilet paper, and then everybody rushed. Um. You'd
Speaker 1: see lines outside of the pharmacies every single morning as
Speaker 1: soon as they opened up, and got a new shipment
Speaker 1: in for hand sanitizer masks and things like. Okay, so
Speaker 1: looking forward, can we get a sense of how quickly
Speaker 1: things have come back online and how much of a
Speaker 1: template this is for what we can expect potentially here
Speaker 1: if it continues to spread. Well, schools are still closed
Speaker 1: and a lot of businesses are still closed. Some of
Speaker 1: the businesses have kept open throughout this entire thing. Um,
Speaker 1: grocery stores are still being stocked. Um, you know, people
Speaker 1: can now get toilet paper again. So people are happy
Speaker 1: about that. Life goals now, But what about when it
Speaker 1: comes to technology production? What it you know, that was
Speaker 1: one of the big questions with manufacturing and supply chains.
Speaker 1: So it's a completely different story. In mainland China, where
Speaker 1: most of the production is, the lot of the supply
Speaker 1: chains have started slowly opening up again, uh slowly, uh
Speaker 1: you know, slowly adding production workers, but they're nowhere near
Speaker 1: uh act capacity or um you know, bringing their workers
Speaker 1: over and um they've reopen factories, but then they need
Speaker 1: to quarantine their workers for a few weeks to make
Speaker 1: sure that as they travel to wherever the factory is
Speaker 1: from their hometowns, that they haven't contracted the virus, so
Speaker 1: factory production is still you know, um not you know normal.
Speaker 1: So there's been a lot of criticism around the Chinese
Speaker 1: response to the coronavirus, lack of transparency, numbers changing. How
Speaker 1: does the response from the Trump administration compare? Well, I
Speaker 1: think that the Trump administration had a fair a bit
Speaker 1: of more time to kind of decide what their response
Speaker 1: was going to be. Uh So, you know, I think
Speaker 1: that it is something important to take to take seriously.
Speaker 1: You know, you get a lot of questions like is
Speaker 1: this panic? Are people panicked? But you know what, this
Speaker 1: is a really important thing to take seriously, and so
Speaker 1: I don't think it's a panic at all all right,
Speaker 1: and going forward, just based on how quickly things are
Speaker 1: sort of getting back to normal within Hong Kong, does
Speaker 1: it give you optimism a sense that things can come
Speaker 1: back online pretty quickly, or does it give you a
Speaker 1: sense of sort of a little bit of an ominous
Speaker 1: sense going forward? I think Hong Kong is still in
Speaker 1: a holding pattern. I don't think things are starting to
Speaker 1: come back online yet. And so until uh, schools um open,
Speaker 1: businesses won't open, and until businesses won't open, you know,
Speaker 1: everybody's kind of working from home and productivity does slow. Um.
Speaker 1: And so I think the uncertainty has driven a lot
Speaker 1: of people out of Hong Kong altogether, and so it
Speaker 1: has a big pet population in Hong Kong. I think
Speaker 1: a lot of those people are gone and aren't going
Speaker 1: to come back. Um. So we're going back. Um, we're
Speaker 1: planning on going back right now. UM, so we'll see
Speaker 1: any sense when. I don't know yet when. And what
Speaker 1: about your ex pet friends. Uh, A lot of people
Speaker 1: I know left and are not coming back. And they're
Speaker 1: not coming back just because they think that this uncertainty
Speaker 1: is going to happen again. Yeah, And Hong Kong has
Speaker 1: a special uh circumstance of dealing with the protest for
Speaker 1: the last six months before that, and so the economy
Speaker 1: has really is in a recession. And h it's hard
Speaker 1: to see mainland Chinese tourists coming back. It's hard to
Speaker 1: see um, you know, tourism just generally coming back. And uh,
Speaker 1: you know people who are living there, uh, you know
Speaker 1: want to be there, and you know they but if
Speaker 1: businesses closed and shut down, then people are not gonna
Speaker 1: have jobs and they're not going to be able to
Speaker 1: go out and spend and it's hard to see how
Speaker 1: Hong Kong's economy comes back in the short term. Well,
Speaker 1: Shelley Banto, it is great to see you in person,
Speaker 1: however unfortunate under the circumstances. Shelley Banjo, Asia tech reporter
Speaker 1: for Bloomberg News, normally based in Hong Kong, here in
Speaker 1: New York City with US super Tuesday was quite a
Speaker 1: day for Joe Biden with some decisive wins, particularly in
Speaker 1: South Carolina, becoming the candidate for Bernie Sanders to beat.
Speaker 1: Just crossing the terminal, UH, Michael Bloomberg, majority owner and
Speaker 1: founder of Bloomberg LP was dropping his presidential or suspending,
Speaker 1: i should say, his presidential candidate campaign and endorsing Joe Biden.
Speaker 1: And this comes after Clobachar and Pete Puttag dropped out
Speaker 1: and also went behind Joe Biden. They're also are reports
Speaker 1: that Elizabeth Warren, Senator is reassessing her campaign, so it
Speaker 1: appears that the field is getting narrowed down to Bernie
Speaker 1: Sanders and Joe Biden. I want to bring in Rick Davis,
Speaker 1: partner at Stone Court Capital of Bloomberg Politics contributor UH
Speaker 1: and someone with incredible experience of both when it comes
Speaker 1: to politics, and when it comes to Joe Biden. Rick,
Speaker 1: what I'm curious from your perspective, how important is it
Speaker 1: that there is a narrowing down of the field at
Speaker 1: this point. Oh, I think thank you Lisa for first
Speaker 1: of all for having me, and uh, I think it's
Speaker 1: critically important. I mean, one of the lessons we've learned
Speaker 1: recently in two thousand and sixteen is when various elements
Speaker 1: of the party, in this case the Republican Party, divide
Speaker 1: their vote amongst multiple candidates, it allows, you know, what
Speaker 1: was at one point in time a French paniate, Donald Trump,
Speaker 1: to be able to win not only a group of primaries,
Speaker 1: but the actual nomination without ever going above And so
Speaker 1: I think the Democrats partly have allowed the winnowing process
Speaker 1: to occur. I mean, that's why we go to Iowa,
Speaker 1: New Hampshire. It's not for the weather this time year.
Speaker 1: And uh. And you you see the natural progression of
Speaker 1: events and the egos have been put aside and uh,
Speaker 1: and you can tell the Democrats are united in one
Speaker 1: thing primarily that is the defeat of Donald Trump. And
Speaker 1: that is what's motivating people like Mike Bloomberg to suspend
Speaker 1: his campaign to rally the troops around Joe Biden on
Speaker 1: the part as you mentioned of Amy Klobuchar and Pete Bout.
Speaker 1: I mean, these are all things that had a major
Speaker 1: impact leading up to Super Tuesday and will after Super Tuesday.
Speaker 1: I think it's it's fair to say that this is
Speaker 1: now a very simple campaign against two people, um, Joe Biden,
Speaker 1: who represents the center and the establishment of the Democratic Party,
Speaker 1: and Bernie Sanders, who wants a revolution, and and voters
Speaker 1: are going to get to decide that. And believe me,
Speaker 1: that is a fair choice, right. I mean, they're there,
Speaker 1: they got play is chuse from there? Well, Rick, as
Speaker 1: a former Republican strategist, former manager of Senator John McCain's
Speaker 1: campaign for president, I'm wondering, how worried you here, Republicans
Speaker 1: being from here, how worried President Trump should be about
Speaker 1: the momentum that these two candidates are getting this early
Speaker 1: in the race or not. Well, if I were Donald
Speaker 1: Trump and his campaign, I would be very worried about
Speaker 1: a couple of things I saw last night on Super Tuesday,
Speaker 1: and one of them, principally is the gravitational pull that
Speaker 1: Joe Biden has with white suburban voters, especially women. UM.
Speaker 1: We know that these are the same voters that helped
Speaker 1: Donald Trump win an election against Hillary Clinton and UH,
Speaker 1: and we know that they abandoned the Republican Party at
Speaker 1: large UH in two thousand eighteen in the mid terms.
Speaker 1: You could chalk that up to parties in power had
Speaker 1: bad mid terms. UM, but the fact that they rallied
Speaker 1: around Biden's campaign and states like Tech, this in Minnesota
Speaker 1: and throughout the South, and and really on a national basis,
Speaker 1: um propelling his victory in states that he had really
Speaker 1: no business to be winning from from just a tactical perspective, UM,
Speaker 1: that ought to give the Republicans and Donald Trump some
Speaker 1: pause that they're not doing a job of pulling those
Speaker 1: those those suburban women back into their fold. And they
Speaker 1: seem excited about Joe Biden. Just looking forward, Bernie Sanders
Speaker 1: still very much in the race. So it's Bernie Sanders
Speaker 1: and Joe Biden. How concerned are you about a contested
Speaker 1: contested nomination or contested h yeah, convention? Yeah, less so
Speaker 1: now right, I mean one of the things that you
Speaker 1: had to watch on Super Tuesdays, whether or not candidates
Speaker 1: like Mike Bloomberg, Elizabeth Warren could um could accumulate enough
Speaker 1: delegates to want to be power players at a convention.
Speaker 1: In other words, you know, the group at large to
Speaker 1: accumulate enough delegates to keep Bernie at least you know,
Speaker 1: that was conventionalism, right how you stopped Bernie um Um
Speaker 1: yesterday before Super Tuesday and and they didn't write, I mean,
Speaker 1: they did not score enough victories or accumulate enough delegates
Speaker 1: on Super Tuesday to be a factor right to where
Speaker 1: they could actually stop someone from getting the magic number
Speaker 1: delegates before the convention. And so it is much more
Speaker 1: likely in a two person race that you now look
Speaker 1: like you have that one of them is going to prevail.
Speaker 1: And uh, but I would say, right now, it's too
Speaker 1: soon to tell who that's gonna be. Rick is real
Speaker 1: quick here, I'm wondering what type of candidate Joe is
Speaker 1: likely to pick for a vice president. Could it be uh,
Speaker 1: someone on the left on at Sanders and Warren type side,
Speaker 1: or is he going to stick to his his guns
Speaker 1: and sort of stay centrist. You know, I think a
Speaker 1: lot of that's going to determine what the state of
Speaker 1: the race is this summer. Right, the Democrats have an
Speaker 1: early convention at the end of July. UH, that's when
Speaker 1: they will be forced to have to make a decision
Speaker 1: on who the vice presidential running mate will be. And
Speaker 1: they will look at what they need to score a victory,
Speaker 1: because that'll be the number one thing, is how do
Speaker 1: we actually win? And then they will want someone paired
Speaker 1: up with them, with Joe Biden if he's a nominee,
Speaker 1: to help him govern. When Joe Biden was selected, UH,
Speaker 1: the running mate of Barack Obama, Barack Obama had a
Speaker 1: fifteen point lead over John McCain. Believe me, I remember
Speaker 1: I was running that campaign, and and he had the
Speaker 1: luxury of knowing that it's highly likely that he was
Speaker 1: going to win. So he wanted to pick someone he
Speaker 1: got along with, you know, that was friendly, that would
Speaker 1: uh complement his skill set, and Joe Biden was that guy.
Speaker 1: Joe Biden never added a single vote to the Obama campaign,
Speaker 1: but he was a great governing partner. That's gonna be
Speaker 1: interesting to see if that's the option forward. Rick Davis, Unfortunately,
Speaker 1: you've got to leave it there. Thank you so much
Speaker 1: for taking the time. Rick Davis, partner at Stone Court
Speaker 1: Capital as well as former Republican strategist and former manager
Speaker 1: of Senator John McCain's presidential campaign. Thanks for listening to
Speaker 1: the Bloomberg P and L podcast. You can subscribe and
Speaker 1: listen to interviews at Apple Podcasts or whatever podcast platform
Speaker 1: you prefer. I'm Paul Sweeney, I'm on Twitter at pt Sweeney.
Speaker 1: I'm Lisa abram Woyds. I'm on Twitter at Lisa bramwo
Speaker 1: wits one. Before the podcast, you can always catch us
Speaker 1: worldwide on'm Bloomberg Radio