WEBVTT - Bloomberg Wall Street Week: Meyer & Tisch 0:00:00.160 --> 0:00:03.360 This is Bloomberg Wall st Week. What's the state of 0:00:03.400 --> 0:00:06.360 corporate governance? The defresent is a real issue. The US 0:00:06.400 --> 0:00:09.880 economy continues to send mixed signals, the financial stories that 0:00:10.000 --> 0:00:13.000 cheap our world fed action to con concerns over dollar 0:00:13.039 --> 0:00:16.240 in liquidity and encouraging China data the five hundred wealthiest 0:00:16.239 --> 0:00:18.360 people in the world. Through the eyes of the most 0:00:18.480 --> 0:00:22.520 influential voices Larry Summers, the former Treasury Secretary, star Ward CEO, 0:00:22.640 --> 0:00:26.360 Kevin Johnson sec Chairman J Clayton. Bloomberg Wall Street Week 0:00:26.480 --> 0:00:30.360 with David Weston from Bloomberg Radio from Central China to 0:00:30.440 --> 0:00:34.239 Northern Italy to Washington. It's all about the coronavirus. This 0:00:34.280 --> 0:00:37.400 is Wall Street Week. I'm David Weston. Welcome back. In 0:00:37.440 --> 0:00:40.960 the beginning, the world took the coronavirus in stride. Sure 0:00:41.040 --> 0:00:43.640 there'd be some hit to Chinese economic growth for a bit, 0:00:44.040 --> 0:00:46.520 but soon President g would have things back on track. 0:00:46.760 --> 0:00:48.760 We'd make sure any hit was limited to the first 0:00:48.840 --> 0:00:51.879 quarter and limited to China. But then this week the 0:00:51.960 --> 0:00:55.440 virus broke through whatever firewalls we'd hoped for. So now 0:00:55.520 --> 0:00:57.760 the question is how much death and destruction are we 0:00:57.800 --> 0:00:59.959 really looking at? How can we plan for a very 0:01:00.120 --> 0:01:03.400 different than the one we had expected to help us 0:01:03.400 --> 0:01:05.840 assess the damage done and what maybe yet to come, 0:01:05.880 --> 0:01:08.240 and we can lean now our Wall Street Week roundtable 0:01:08.560 --> 0:01:12.160 of James Tish, CEO of Lowe's running a business spanning hotels, 0:01:12.280 --> 0:01:15.600 energy and financial institutions, and Michelle Meyer, head of US 0:01:15.680 --> 0:01:18.520 Economics for Bank of America Securities. Welcome both. You're good 0:01:18.560 --> 0:01:20.720 to have you here here. Michelle, you're the economist to 0:01:20.800 --> 0:01:23.480 start with. You give us a sense of what we 0:01:23.520 --> 0:01:25.640 know what we don't know about the scale of the 0:01:25.680 --> 0:01:28.480 economic damage thus far. I think a good place to 0:01:28.560 --> 0:01:31.399 start is to think about the direct hit to the 0:01:31.400 --> 0:01:34.840 global economy from the coronavirus, and that would largely be 0:01:34.920 --> 0:01:39.039 through supply chains. So the coronavirus clearly led to significant 0:01:39.080 --> 0:01:41.920 economic damage and China factories are shut down. That's not 0:01:42.120 --> 0:01:46.840 bleeding into other countries Southeast Asia. You're seeing it in Italy. 0:01:47.160 --> 0:01:49.600 So the fact that factories can't produce, the fact that 0:01:49.640 --> 0:01:52.960 you're not able to see the flow of goods through 0:01:53.000 --> 0:01:55.720 the global economy is clearly a damage. It's going to 0:01:55.800 --> 0:01:59.600 hit multinational companies and you hear it in in in earnings, 0:01:59.600 --> 0:02:03.080 you hear from from corporates already. The second way that 0:02:03.120 --> 0:02:05.720 the coronavirus impacts the economy, and this is what we 0:02:05.840 --> 0:02:09.280 got tastes of this week, is through fear. And this 0:02:09.320 --> 0:02:12.200 is where it can get really problematic. Is if you 0:02:12.280 --> 0:02:16.160 have this adverse feedback loop between consumer and business confidence 0:02:16.440 --> 0:02:20.200 and markets um where markets react negatively as they have 0:02:20.360 --> 0:02:24.120 this week, that spurs additional concern on the part of consumers, 0:02:24.120 --> 0:02:27.040 and consumers change their behavior. They decide they're not going 0:02:27.080 --> 0:02:28.720 to go and take that trip, They're not going to 0:02:28.800 --> 0:02:30.720 go to restaurants, the're not going to go to movie theaters, 0:02:30.919 --> 0:02:32.840 and they're gonna stay home. They're going to hunker down, 0:02:33.080 --> 0:02:36.480 and that could be a significant hit to economic performance. Luckily, 0:02:36.520 --> 0:02:39.000 we're not seeing that in full blown by any means yet, 0:02:39.040 --> 0:02:40.840 but that is the risk factor in this war. Paying 0:02:40.880 --> 0:02:43.079 attention to Jim as a businessman, what do you think 0:02:43.080 --> 0:02:45.040 about the supply chain issue before we get to the 0:02:45.040 --> 0:02:48.120 confidence issue, This probably chain issue. How long will it linger? 0:02:48.280 --> 0:02:50.239 How long could it linger? What kind of damage could 0:02:50.240 --> 0:02:53.800 that do? So as I think about this, it's like 0:02:54.000 --> 0:02:59.400 having a Category six hurricane a thousand miles offshore off 0:02:59.440 --> 0:03:02.120 in thet the ocean and we don't know for sure 0:03:02.200 --> 0:03:04.320 if it's going to hit the East coast or if 0:03:04.320 --> 0:03:05.920 we don't know if it's going to blow out of 0:03:05.919 --> 0:03:11.800 the way, and so everybody now is panicked about what 0:03:11.960 --> 0:03:17.040 can happen. Generally they assume the worst. Nobody knows for 0:03:17.160 --> 0:03:19.720 sure what's going to happen, and so there's just an 0:03:19.919 --> 0:03:25.160 enormous amount of uncertainty. And I think that's what's on 0:03:25.280 --> 0:03:29.160 gluing the markets, and I think that's why this topic 0:03:29.360 --> 0:03:32.320 is the only topic in the news. So we're in 0:03:32.320 --> 0:03:34.480 better shape going into this we might have been, Michelle, 0:03:34.520 --> 0:03:36.800 because we did have some stimulus into the economy, and 0:03:36.840 --> 0:03:38.920 we've got some economic numbers even this week that are 0:03:38.960 --> 0:03:41.440 sort of indicating we're doing okay at least a messed 0:03:41.480 --> 0:03:44.240 within the US. How much headwind, how and how much 0:03:44.280 --> 0:03:46.480 tailwind do we have? Yeah, So the hard data in 0:03:46.480 --> 0:03:48.680 the US, which is not going to yet pick up 0:03:48.720 --> 0:03:51.480 the coronavirus, has been strong. It's been good, right, The 0:03:51.560 --> 0:03:54.600 labor market was improving, consumers have been spending, the housing 0:03:54.680 --> 0:03:58.480 data has been really showing nice recovery. But that all 0:03:58.600 --> 0:04:02.640 can change quickly, right, So as economists we have to 0:04:02.680 --> 0:04:05.240 look at for looking indicators, we have to rely on 0:04:05.360 --> 0:04:08.800 survey data. We have to lie on what financial conditions 0:04:08.840 --> 0:04:11.400 are telling us. That's a much better indicator of what's 0:04:11.440 --> 0:04:15.120 to come now. Of course, those can change rapidly, right Um, 0:04:15.200 --> 0:04:17.240 So we have been nimble in terms of how we're 0:04:17.279 --> 0:04:20.040 thinking about the outlook, um, but it's going to take 0:04:20.080 --> 0:04:21.920 some time before we get confirmation one way or the 0:04:21.920 --> 0:04:23.800 other in the hard data. Are you seeing the economy 0:04:23.839 --> 0:04:27.480 is pretty strong right now, John, Yes, Uh, definitely strong, 0:04:27.560 --> 0:04:31.640 and it's been strong for a long time. We're we've 0:04:31.680 --> 0:04:34.640 got between two and two and a half percent growth 0:04:35.080 --> 0:04:38.400 real growth, So when you combine that with inflation, GDP 0:04:38.680 --> 0:04:44.000 is growing close to five percent nominally, which is really 0:04:44.000 --> 0:04:49.360 pretty good. Unemployment is very low, Unemployment claims are low, 0:04:49.920 --> 0:04:53.080 the business environment is very good right now, and sometime 0:04:53.120 --> 0:04:55.039 we pumped a fair amount of stimulus in the economy 0:04:55.040 --> 0:04:56.920 through task cuts and things. Are you surprised it isn't 0:04:56.920 --> 0:04:59.840 even stronger than it is? No? Not, not really be 0:05:00.000 --> 0:05:05.800 because the unemployment numbers are so low. Uh So, I think, uh, 0:05:05.839 --> 0:05:09.880 the place where we're going to get more real economic 0:05:09.920 --> 0:05:13.640 growth is through productivity gains, and I think we saw 0:05:13.680 --> 0:05:16.200 that last quarter, and I think we're going to see 0:05:16.240 --> 0:05:19.080 more and more of it going forward. You know, on 0:05:19.200 --> 0:05:22.600 productivity gains, do you think that there's been a change 0:05:22.640 --> 0:05:25.160 in how businesses are investing, because presumably in order to 0:05:25.200 --> 0:05:28.640 get significant productivity games, you need to have a greater 0:05:28.680 --> 0:05:31.400 willingness amongst the business committee to invest. And do you 0:05:31.400 --> 0:05:33.400 think that that's potentially in factor You see that all 0:05:33.400 --> 0:05:37.200 specifically in your space. We see it in terms of 0:05:37.240 --> 0:05:42.000 our using robotics in our plastic manufacturing. We see it 0:05:42.720 --> 0:05:48.000 in in terms of just computer systems in our insurance business. 0:05:49.560 --> 0:05:53.159 We're seeing you know, it's it's been thirty or forty 0:05:53.240 --> 0:05:57.640 years that that we've had this I T revolution, and 0:05:58.440 --> 0:06:01.960 until a few years ago, we really didn't get much 0:06:02.520 --> 0:06:06.839 measured productivity from it. But now we're really I think 0:06:06.920 --> 0:06:10.960 we're really starting to see great opportunities for productivity gains. 0:06:10.960 --> 0:06:13.440 At the same time, the expensing of capital investment should 0:06:13.440 --> 0:06:15.360 have made it take off like a rocket ship, shouldn't it. 0:06:15.360 --> 0:06:17.840 It's really interesting this disconnect that you see from what 0:06:17.880 --> 0:06:20.640 people say in the business community on the ground around 0:06:21.000 --> 0:06:23.440 I T and the ability for productivity to pick up 0:06:23.440 --> 0:06:25.800 and greater efficiency, because it feels like there's a lot 0:06:25.800 --> 0:06:28.800 more efficiency, but yet in the aggregate numbers that we 0:06:28.800 --> 0:06:31.880 get reported in GDP, the proctivity numbers have been so 0:06:32.000 --> 0:06:34.760 surpar so. Maybe it is just a function of time. 0:06:34.920 --> 0:06:37.680 Maybe it's a function of you know, the investment lasts 0:06:37.720 --> 0:06:40.800 long enough, the innovation continues, and you do realize this 0:06:41.160 --> 0:06:44.240 really impressive productivity boom, which is quite an optimistic story 0:06:44.240 --> 0:06:46.520 that people are not talking about, especially right now when 0:06:46.520 --> 0:06:49.039 there's so much fear out there in terms of the 0:06:49.120 --> 0:06:52.599 risks we're all telling about coronavirus. Our contributors will be 0:06:52.640 --> 0:06:56.200 staying with us. Coming up the week that was in markets. 0:06:56.560 --> 0:07:05.040 This is Wals Free Brief. This is Bloomberg Wall Street 0:07:05.080 --> 0:07:09.080 Week with David Weston from Bloomberg Radio. We canvean now 0:07:09.120 --> 0:07:12.840 our Wall Street Week roundtable of James Tish, CEO of Lowes, 0:07:12.960 --> 0:07:15.520 and Michelle Meyer, head of US Economics for Bank of 0:07:15.560 --> 0:07:18.920 America Securities. Equity markets had a particularly rough week this 0:07:18.960 --> 0:07:21.400 week as risk investors headed for the hills, or at 0:07:21.440 --> 0:07:24.160 least for bonds and for gold. For our Wall Street 0:07:24.160 --> 0:07:26.840 Week interview on equities this week, Welcome Gino Martin Adams. 0:07:26.880 --> 0:07:29.480 She's Bloomberg Chief Equity Strategies. Welcome to you. Good to 0:07:29.520 --> 0:07:31.400 have you here. Thank you so I must say you 0:07:31.440 --> 0:07:33.920 and your team were sort of saying, we're not totally 0:07:33.960 --> 0:07:36.560 shocked that that can be sold off. Well, there were 0:07:36.560 --> 0:07:39.440 a lot of signs suggesting that we were headed for 0:07:39.520 --> 0:07:42.040 some period of weakness. Now, I don't think anybody could 0:07:42.040 --> 0:07:44.360 have predicted we were headed for a ten percent crush. 0:07:44.480 --> 0:07:46.920 You did have a lot of rotation into very very 0:07:46.920 --> 0:07:50.080 defensive strategies occur for the vast majority of this year. 0:07:50.480 --> 0:07:53.200 Utility stocks at the equity market peak, we're trading three 0:07:53.200 --> 0:07:55.600 standard deviations above their long term average. Is a good 0:07:55.600 --> 0:07:59.960 example of that. Low volatility stocks dramatically outperforming high valet 0:08:00.000 --> 0:08:02.680 atility stocks. These are kinds of symptoms that you look 0:08:02.760 --> 0:08:06.640 for for a market that is running on fumes. Momentum 0:08:06.720 --> 0:08:09.520 was running out. There was just a lot of signals 0:08:09.560 --> 0:08:12.760 suggesting we were due for some period of correction. We 0:08:12.880 --> 0:08:15.680 got it. It was interesting because for a while it 0:08:15.720 --> 0:08:17.800 seemed like there was this big disconnect between the bond 0:08:17.800 --> 0:08:19.960 market and the equa market, which is presumably what you're 0:08:19.960 --> 0:08:23.560 speaking of. I mean, the bond market, so dramatic decrease 0:08:23.600 --> 0:08:25.640 and interest rates. You're starting to see the flattening or 0:08:25.640 --> 0:08:27.520 even points of inversion of the yield curve. Which are 0:08:27.560 --> 0:08:30.240 always indicative of a gloomy outlook. But yet for a 0:08:30.240 --> 0:08:34.080 while the equity market helds up quite resilient up until 0:08:34.120 --> 0:08:37.480 this week. Yes, so what was the trigger? Why this 0:08:37.640 --> 0:08:40.400 week did you see such a dramatic replacing in the 0:08:40.400 --> 0:08:42.240 stock market. Now, I think it's a great point because 0:08:42.280 --> 0:08:45.400 portions of the equity market absolutely reflected that sort of 0:08:45.400 --> 0:08:47.640 flight to quality in the bond market, and the bond 0:08:47.640 --> 0:08:50.640 market signals were reflected in things like the utilities premium 0:08:50.720 --> 0:08:54.199 and the defensive share sort of outperformance, but not all 0:08:54.240 --> 0:08:56.520 of the equity market reflected and created this bit of 0:08:56.520 --> 0:08:59.280 a conundrum. However, I think what happened in the equity 0:08:59.320 --> 0:09:02.520 market is this me no effect. You saw global stocks 0:09:02.640 --> 0:09:05.920 underperformed dramatically in the prior in the prior month, that 0:09:06.080 --> 0:09:08.400 suggested to us that there was a rotation out of 0:09:08.400 --> 0:09:10.640 global shares and into US shares. Is sort of a 0:09:10.640 --> 0:09:13.280 flight to quality. But I don't want to really eliminate 0:09:13.320 --> 0:09:15.240 all of my equity exposure because I don't know how 0:09:15.280 --> 0:09:18.560 bad coronavirus is going to be. Right, So US shares 0:09:18.640 --> 0:09:24.120 held up very very well, especially Facebook, Amazon, Microsoft, Google, 0:09:24.200 --> 0:09:26.640 the biggest of the big cap shares with the best 0:09:26.800 --> 0:09:30.560 sort of perceived structural growth prospects and then defensives. But 0:09:30.640 --> 0:09:32.480 what happened over the course of the last week is 0:09:32.480 --> 0:09:35.360 we got a lot more news that the coronavirus was 0:09:35.400 --> 0:09:37.680 spreading right all of a sudden, It's spreading to Japan, 0:09:37.800 --> 0:09:40.040 it's going to Italy, it's in South Korea, it's in 0:09:40.080 --> 0:09:43.400 the Middle East. That kind of information didn't exist two 0:09:43.440 --> 0:09:46.280 weeks ago, so investors started to capitulate on their overall 0:09:46.320 --> 0:09:49.880 equity portfolios. At the same time, you've got those big 0:09:50.000 --> 0:09:54.400 names like Apple and Microsoft coming out and suggesting, hey, 0:09:54.400 --> 0:09:56.480 we're going to see some learnings damage from this too, 0:09:56.520 --> 0:09:59.160 and investors had to capitulate on the near term learnings 0:09:59.160 --> 0:10:01.760 outlook gonna say, there's I think a lot of this 0:10:01.840 --> 0:10:05.920 is due to the shock that, oh my god, coronavirus 0:10:06.040 --> 0:10:08.320 is coming to the United States. What's it? What's it 0:10:08.320 --> 0:10:11.439 going to do to earnings? As as I look at 0:10:11.520 --> 0:10:14.880 stocks in general, though they seem pretty cheap to me, 0:10:15.640 --> 0:10:20.880 we have tenure notes at under a one thirty yield, 0:10:21.240 --> 0:10:26.320 which if you converted into a pe is over seventy five, 0:10:27.040 --> 0:10:30.680 and you have the stock market trading at seventeen or 0:10:30.720 --> 0:10:35.400 eighteen times earnings, So in the context of such low 0:10:36.080 --> 0:10:40.040 term interest rates, stocks seem to me a veritable bargain. 0:10:40.160 --> 0:10:44.200 And in fact, more than two thirds of stocks traded 0:10:44.240 --> 0:10:49.040 a higher yield than the ten year note, so you 0:10:49.080 --> 0:10:51.840 can earn the same as the ten year note and 0:10:52.640 --> 0:10:58.000 hopefully get the appreciation that you would expect to get 0:10:58.080 --> 0:11:00.120 in stocks. So I think they're actually a pretty a 0:11:00.120 --> 0:11:03.160 good value here. I wouldn't disagree. As a matter of fact, 0:11:03.200 --> 0:11:06.080 we wrote a note just this week suggesting that with 0:11:06.200 --> 0:11:08.800 the capitulation that we've seen in the equity market this week, 0:11:09.240 --> 0:11:12.439 stocks are finally back to what are fair value models 0:11:12.480 --> 0:11:15.520 suggests they should trade at in terms of valuation multiples. 0:11:15.559 --> 0:11:19.240 The question going forward is well, where will those earnings go? 0:11:19.280 --> 0:11:22.559 Because when you sign a seventeen handle on SPE you're 0:11:22.600 --> 0:11:26.000 suggesting that, okay, we're paying for future earnings growth that 0:11:26.120 --> 0:11:28.600 is certain. If that earnings number comes down, suddenly that 0:11:28.640 --> 0:11:31.520 pe looks a little more expensive. And that's the situation 0:11:31.559 --> 0:11:34.880 we're in right now, is sort of grappling with Yes, 0:11:35.000 --> 0:11:37.720 valuations right now look cheap, but we don't know where 0:11:37.720 --> 0:11:40.520 the denominator of that ratio is headed. And until we 0:11:40.559 --> 0:11:42.560 get a little bit more certainty with respect to where 0:11:42.559 --> 0:11:46.040 that denominator is headed, or we get more support from 0:11:46.040 --> 0:11:50.400 policymakers suggesting there will be some firepower supporting the financial markets. 0:11:50.800 --> 0:11:53.240 Stocks are likely to waffle around. But it does reuse 0:11:53.280 --> 0:11:55.840 the question of the V versus you or something pretty quickly. 0:11:55.840 --> 0:11:58.040 Because there's a V, then that's pretty good bargain. If 0:11:58.080 --> 0:12:00.680 it's not, maybe that's sort of such a good boardroom. Yeah, 0:12:00.679 --> 0:12:03.160 And what we're finding is increasingly analysts are starting to 0:12:03.200 --> 0:12:06.240 price in more of a U, hopefully not an L. 0:12:06.440 --> 0:12:08.600 We haven't seen that occur yet, and that's certainly not 0:12:08.640 --> 0:12:11.280 our forecast, but the macro indicators that we follow would 0:12:11.280 --> 0:12:14.320 suggest SMP five earning earnings are likely to grow two 0:12:14.320 --> 0:12:18.360 percent this year. That's a decline in Q one, followed 0:12:18.360 --> 0:12:20.720 by a modest bounce back through the rest of the year, 0:12:20.800 --> 0:12:24.720 finishing the year in more normalized condition. It's a macro model, 0:12:24.760 --> 0:12:27.880 so it doesn't fully capture all the nuances of every 0:12:27.880 --> 0:12:31.679 company in the SMP five. Nonetheless, it does sort of 0:12:31.679 --> 0:12:35.480 fit with the analyst decrease in estimates that we're seeing 0:12:35.480 --> 0:12:37.760 across the board. What we've seen over the last month 0:12:37.840 --> 0:12:42.120 is analyst expectations for Q one fall really quickly, but 0:12:42.240 --> 0:12:44.680 now they're starting to take out expectations for Q two 0:12:44.720 --> 0:12:46.960 and a little bit of the third quarter as well, 0:12:47.240 --> 0:12:49.880 And I think that forms more of a U shaped recovery, 0:12:49.880 --> 0:12:53.320 which is frankly a little bit more realistic considering we 0:12:53.440 --> 0:12:55.920 just don't know how far this is going to spread. 0:12:56.240 --> 0:12:58.600 You rob something part which is a federal reserve. So 0:12:59.040 --> 0:13:02.800 markets have loved federers ave easing. Um. There's the power 0:13:02.960 --> 0:13:05.960 put as many legs to talk about it. Um. So 0:13:06.600 --> 0:13:08.520 I think there's a questions at what point does a 0:13:08.600 --> 0:13:12.240 FED step in and support the markets and support the economy. 0:13:12.280 --> 0:13:14.600 But let's say the FED does come in and ease 0:13:14.840 --> 0:13:16.800 at the next meeting, the March meetings, they don't do 0:13:16.800 --> 0:13:19.280 an inter meeting the ease and March meeting. Do you 0:13:19.280 --> 0:13:21.360 think markets are going to get much relief from that 0:13:21.559 --> 0:13:24.439 or are they concerned about the bigger picture given how 0:13:24.480 --> 0:13:27.640 much uncertainty there is just simply about the coronavirus and 0:13:27.640 --> 0:13:32.080 how it might spread. Um. You know, I really loathe 0:13:32.120 --> 0:13:34.200 the words this time is different, because I don't think 0:13:34.200 --> 0:13:36.680 this time is different, And so you have to err 0:13:36.720 --> 0:13:38.800 on the side of history, right, And every time the 0:13:38.840 --> 0:13:41.400 FED has started an using cycle, the stock market has reacted, 0:13:41.880 --> 0:13:44.640 So you have to acknowledge that, even though the feed 0:13:44.720 --> 0:13:47.320 is usually easing in times of great uncertainty, when we 0:13:47.320 --> 0:13:49.360 don't know where the economic environment is going to go 0:13:49.480 --> 0:13:51.960 and we're really skeptical as to whether that policy has 0:13:52.000 --> 0:13:55.880 any efficacy in creating economic growth going forward, the market 0:13:55.920 --> 0:13:59.000 always reacts. The reason the market always reacts goes back 0:13:59.040 --> 0:14:02.040 to evaluations. The way the FED implement The way the 0:14:02.080 --> 0:14:06.000 Fed actually impacts the equity market is through real interest rates, 0:14:06.120 --> 0:14:09.360 and it's through the pe multiple less so than through 0:14:09.840 --> 0:14:14.560 earnings growth. Yes, eventually you're hopefully going to see some 0:14:14.640 --> 0:14:17.640 pickup and business investments, some pickup and earnings growth that 0:14:17.720 --> 0:14:21.800 follows along with you know, the anticipation that comes after 0:14:21.800 --> 0:14:24.360 the FED starts to reduce the policy rate that the 0:14:24.400 --> 0:14:26.800 initial reaction the equity market is all about the multiple. 0:14:26.840 --> 0:14:28.720 It's all about the fact that rates are now lower 0:14:29.200 --> 0:14:31.960 and perceived to be going lower, which elevates multiples and 0:14:32.240 --> 0:14:34.280 the willingness of investors to take on a little bit 0:14:34.320 --> 0:14:36.800 of risk. Source of Jim Tish, Michelle Meyer, and of 0:14:36.840 --> 0:14:39.520 course Jean and Martin Adams of Bloomberg Intelligence. We'll be 0:14:39.520 --> 0:14:42.000 back with our contributors head to Bloomberg dot com for 0:14:42.080 --> 0:14:44.960 more exclusive thoughts from our weekly contributors, along with full 0:14:45.000 --> 0:14:48.880 episodes in the official Bloomberg Wall Street Week podcast. This 0:14:49.000 --> 0:14:57.840 is Bloomberg Wall Street Week. This is Bloomberg Wall Street 0:14:57.880 --> 0:15:01.960 Week with David Westing from Bloomberg Radio. In case of emergency, 0:15:02.080 --> 0:15:04.960 break glass glass, that is that will trigger the alarm 0:15:05.080 --> 0:15:08.000 calling for lower interest rates from the Federal Reserve. That's 0:15:08.040 --> 0:15:10.440 been the standard play, at least since the Great Financial 0:15:10.480 --> 0:15:13.040 Crisis of two thousand and eight. But this time central 0:15:13.040 --> 0:15:15.960 bankers are taking a weight and see attitude. As we 0:15:16.120 --> 0:15:18.880 heard from FED Vice Chair Rich Clarida just this week, 0:15:19.960 --> 0:15:24.000 they are closely monitoring the emergence of the coronavirus, which 0:15:24.040 --> 0:15:27.240 is likely to have a noticeable impact on Chinese growth 0:15:27.560 --> 0:15:30.680 at least in the first quarter of this year. The 0:15:30.800 --> 0:15:34.080 disruptions there could spill over to the rest of the 0:15:34.120 --> 0:15:38.120 global economy, but it is still too soon to even 0:15:38.160 --> 0:15:43.000 speculate about either the size or the persistence of these effects. 0:15:43.040 --> 0:15:45.640 But even if central banks decided to step up in 0:15:45.680 --> 0:15:47.720 the face of the virus, are we sure it will 0:15:47.760 --> 0:15:51.400 work this time? Will lower interest rates do anything about 0:15:51.440 --> 0:15:55.119 a potential pandemic? Let's ask our Wall Street Week roundtable 0:15:55.280 --> 0:15:58.560 of Michelle Meyer of Bank of America and James Tish, 0:15:59.080 --> 0:16:02.400 CEO of SO. I'll ask you first, Michelle, we're seeing 0:16:02.400 --> 0:16:05.280 lower interest rates help in various ways. What they help 0:16:05.400 --> 0:16:09.000 this problem? Well, this is a supply shock. Um So. 0:16:09.240 --> 0:16:11.800 Mon Terrey policy has a hard time addressing supply shocks. 0:16:11.800 --> 0:16:13.520 They do a whole lot better when it's a demand shock, 0:16:13.520 --> 0:16:18.000 when it's a demand in efficiency. Um. The other major challenge, 0:16:18.000 --> 0:16:22.200 of course, is that it's a virus that has could 0:16:22.200 --> 0:16:25.440 have cannot spread quickly. Um. You know, we could change 0:16:25.480 --> 0:16:27.920 behavior or not. I mean, the reality is is that 0:16:28.200 --> 0:16:31.960 we don't know. Central bankers don't know. Um. That said, 0:16:32.120 --> 0:16:34.680 what central bankers do know, and what they are looking 0:16:34.720 --> 0:16:37.480 at right carefully is what markets are telling them. And 0:16:37.560 --> 0:16:40.880 that's a really important piece of data for them. It's 0:16:40.960 --> 0:16:45.840 early indications that there's something problematic um, and certainly something 0:16:45.840 --> 0:16:49.640 that's worrying market investor market participants. Um. So. I think 0:16:49.640 --> 0:16:51.920 from the first point of view, a right cut is 0:16:52.000 --> 0:16:54.520 on the table. It is on the table because financial 0:16:54.520 --> 0:16:58.560 conditions are deteriorated. If they see credit freezing up, if 0:16:58.560 --> 0:17:03.480 they see um, you know, further sell off in the market, 0:17:03.600 --> 0:17:07.760 further increase in volatility um, further inversion of the yield curve, 0:17:07.840 --> 0:17:10.320 and if the bond markets starts to really pressure the 0:17:10.400 --> 0:17:13.400 Fed to move, more likely than that they will deliver, 0:17:13.600 --> 0:17:15.800 even if they don't see the hard evidence in the economy. 0:17:15.880 --> 0:17:17.760 So if the Fed page attention of the markets, one 0:17:17.760 --> 0:17:19.119 of the things the markets telling right now is they 0:17:19.119 --> 0:17:21.920 should cut rates. If you look at the markets are 0:17:21.920 --> 0:17:24.840 saying they're expecting maybe three rate cuts this week this year, 0:17:25.400 --> 0:17:28.879 that's true. I think we're what the stock market and 0:17:29.000 --> 0:17:32.560 the bond market is telling you is that, uh, they're 0:17:32.560 --> 0:17:35.160 afraid that people are not going to want to come 0:17:35.160 --> 0:17:38.600 out of their homes. They're going to self quarantine. And 0:17:38.800 --> 0:17:43.760 if the issue is people self quarantining, then lower interest 0:17:43.840 --> 0:17:46.600 rates aren't going to make a difference. People are afraid 0:17:46.640 --> 0:17:50.240 of walking on the street and getting sick. No matter 0:17:50.320 --> 0:17:53.040 how low interest rates are, they're not going to come out. 0:17:53.080 --> 0:17:55.920 So I think the Fed needs to be very careful 0:17:55.960 --> 0:18:00.480 to think about exactly what they're solving for and what 0:18:00.560 --> 0:18:04.240 they think their rate actions are going to do. What 0:18:04.280 --> 0:18:07.919 should they be doing even apart from the coronavirus. Apart 0:18:07.960 --> 0:18:11.680 from the coronavirus, my own view is that interest rates 0:18:11.720 --> 0:18:14.240 are too low. As I said before, ten year notes 0:18:14.280 --> 0:18:18.720 are one thirty yield um. The c p I is 0:18:18.760 --> 0:18:22.480 a hundred basis points higher. In the old days. Uh, 0:18:22.600 --> 0:18:27.240 you know, years ago people got to find benefit pensions. 0:18:27.359 --> 0:18:32.720 Today they've got to find contribution uh pensions. So they're 0:18:32.760 --> 0:18:36.720 saving for their retirement. When we used to have two 0:18:36.840 --> 0:18:39.879 hundred basis points of real return, you have the magic 0:18:39.960 --> 0:18:42.879 of compound interest working for the savers. So they'd have 0:18:42.920 --> 0:18:47.440 a lot more money when they retired because they were 0:18:47.480 --> 0:18:50.280 able to earn two hundred basis points over the inflation 0:18:50.400 --> 0:18:54.320 rate for many years. Today, when you can even earn 0:18:54.960 --> 0:18:59.639 the inflation rate, that means savers have to save dollar 0:18:59.760 --> 0:19:04.159 for dollar for their retirement. And what that means is 0:19:04.200 --> 0:19:08.240 that instead of retiring at sixty three, sixty five, sixty seven, 0:19:08.440 --> 0:19:10.960 they're going to have to wait to seventy five or 0:19:11.119 --> 0:19:14.720 eighty in order to retire. And that is going to 0:19:14.800 --> 0:19:18.200 be quite a shock to a lot of younger workers. 0:19:18.400 --> 0:19:20.399 And yet, Michelle, if anything, I think we've seen as 0:19:20.400 --> 0:19:23.240 savings rates go up, actually as the rates have gone down, 0:19:23.320 --> 0:19:25.280 people save more and more and more. There was a 0:19:25.280 --> 0:19:27.480 time we were worried about capital formation and not having 0:19:27.560 --> 0:19:30.240 enough savings as a country to invest. Now it looks 0:19:30.280 --> 0:19:32.480 like there's plenty of money to invest, it's not clear 0:19:32.520 --> 0:19:34.679 we have enough things to invest in. Yeah, I mean, 0:19:34.760 --> 0:19:36.439 part of the reason you can make the argument that 0:19:36.480 --> 0:19:38.160 the savings rate has gone up is that you need 0:19:38.240 --> 0:19:40.000 to just put more dollars away in order to get 0:19:40.000 --> 0:19:44.360 the same return because Jim's point, interest rates are so low. Um. 0:19:44.400 --> 0:19:47.440 But yeah, I think that you know, certainly you've seen 0:19:47.480 --> 0:19:51.399 distortions in the economy and markets as a result of 0:19:51.440 --> 0:19:54.920 central bank policy. Some of those distortions are intentional, right. 0:19:54.960 --> 0:19:57.600 The way that montary policy works when you're so close 0:19:57.640 --> 0:19:59.520 as you're a little bound and you've expanded your balance 0:19:59.600 --> 0:20:04.040 sheets and much is by forcing investors into other asset 0:20:04.040 --> 0:20:07.280 classes to take on risk um. And in theory, that 0:20:07.320 --> 0:20:10.080 creates wealth and then that bleeds more, you know, into 0:20:10.119 --> 0:20:13.000 the broader economy. Um. But that also means that it 0:20:13.920 --> 0:20:17.280 could change behavior in a way that maybe is damaging, 0:20:17.280 --> 0:20:19.359 and maybe it does have these consequences down the line 0:20:19.520 --> 0:20:21.600 that we just don't know about right now. Okay, our 0:20:21.640 --> 0:20:24.439 contributors will be staying with us. Next we'll get a 0:20:24.480 --> 0:20:28.119 second opinion from Claudia Assam Washington Center for Equital Growth, 0:20:28.160 --> 0:20:32.320 Director of macro Economic Policy. This is Bloomberg Wall Street Week. 0:20:37.359 --> 0:20:41.320 This is Bloomberg Wall Street Week with David Weston from 0:20:41.440 --> 0:20:44.560 Bloomberg Radio. We can clean now our Wall Street Week 0:20:44.640 --> 0:20:48.240 roundtable of James Tish, CEO of Lowes and Michelle Meyer, 0:20:48.400 --> 0:20:51.200 head of US Economics for Bank of America Securities. Well, 0:20:51.240 --> 0:20:54.240 center backers maybe standing pat in the face of the coronavirus, 0:20:54.359 --> 0:20:56.760 but should they be For that matter, should fiscal authorities 0:20:56.800 --> 0:20:58.840 be stepping up to the plate when we need them? 0:20:58.920 --> 0:21:01.200 Right now here for a second opinion on the role 0:21:01.200 --> 0:21:04.200 of monetary policy and fiscal policy is Claudia sam She 0:21:04.320 --> 0:21:07.280 is the director of macro Economic Policy at the Washington 0:21:07.359 --> 0:21:10.040 Center for Equital Growth. She was previously at the Federal 0:21:10.119 --> 0:21:12.159 Reserve Board and is the author, of course, of the 0:21:12.320 --> 0:21:15.760 some Rule, which she devised as an early recession indicator 0:21:15.760 --> 0:21:18.040 your claim to fame, among others. Claudia, great to have 0:21:18.080 --> 0:21:20.760 you with us, Thanks for joining us. So so first you, 0:21:21.000 --> 0:21:22.679 first of all, start with the monetary part. We'll get 0:21:22.720 --> 0:21:24.600