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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. He

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Speaker 1: knows it well Gene Munster for years at Piper Jeffrey

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Speaker 1: Jean Munster Munster with Loop Ventures. Now on where we

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Speaker 1: are in technology, Jane, I know John's got a lot

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Speaker 1: of questions on philosophy. Let me ask you a cash question.

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Speaker 1: They raised the dividend six of Apple. They've retired percent

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Speaker 1: of the stock in about five years. What's the January

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Speaker 1: first cash return to Apple to shareholders? Can I say

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Speaker 1: it's as high as seven percent? Yeah, it's that's exactly

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Speaker 1: the right number if you look at the dividend plus

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Speaker 1: the buy back. Uh. That's the numerical piece. There's also

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Speaker 1: the message behind that fifty billion dollar increase, something that

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Speaker 1: I did not anticipate unpressed these times, and I think

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Speaker 1: it is probably elementary to connect the dots that that

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Speaker 1: is a sign that they believe that despite largely being

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Speaker 1: a throwaway year for Apple and most companies, I think

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Speaker 1: that it will. The company feels confident about the cash

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Speaker 1: flow to continue to support this massive growth opportunity long term. Yeah,

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Speaker 1: disappointment this morning and overnight Gene that we didn't get

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Speaker 1: a forecast. But from what I hear from you, you're

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Speaker 1: saying that is the guidance, that is the forecast. It's

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Speaker 1: the increase in the buyback, right. That's well said, John,

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Speaker 1: They uh that that is what investors should undoubtedly take

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Speaker 1: away from this too. And another piece around the forecasting

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Speaker 1: is that the product line is intact. These are product companies.

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Speaker 1: I mean every company Facebook as a product company, Google Awful.

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Speaker 1: It's a little bit more clear just because they have

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Speaker 1: physical products. But ultimately is keeping that product woradmap on

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Speaker 1: track is critical. And what if I would kind of

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Speaker 1: take a step back and look at this quarter and

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Speaker 1: the contours of the quarter. I think that the messages

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Speaker 1: that yes, it's difficult, uh, that they will be impacted,

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Speaker 1: but ultimately they're making the right decisions to be leaders

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Speaker 1: and to benefit. So what if you're gonna put all

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Speaker 1: this into the math, the business is probably gonna be

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Speaker 1: down five or ten percent in the June quarter. But

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Speaker 1: fast forwarding to next year, it will probably be up

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Speaker 1: fifteen percent, So I think we're gonna see some kind

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Speaker 1: of a return to growth off of easy comps, but

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Speaker 1: the return of growth nonetheless next year. Yeah. It's kind

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Speaker 1: of amazing that this is the kitchen sink year for

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Speaker 1: when you think about what some of these companies are

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Speaker 1: throwing in and yet Apples still manage to eat out

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Speaker 1: a profit and increased dividends UH and share buybacks. I'm

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Speaker 1: wondering if in some ways we're seeing actually a strengthening

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Speaker 1: of the core businesses of some of the big tech

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Speaker 1: companies with the idea of diversification. We're seeing that with

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Speaker 1: Apple with an increasing sales away from their iPhone UH

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Speaker 1: product and towards services, which they've been pushing. And we've

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Speaker 1: seen this certainly with Facebook and some of the other things.

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Speaker 1: I mean, are you seeing this pretty much across the board,

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Speaker 1: diversification and a greater resilience of big tech despite what

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Speaker 1: the share price is saying. Well, I think yes, to

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Speaker 1: look at it like spaying on a case by case basis,

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Speaker 1: But in the case of Google and Facebook, is less

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Speaker 1: deplification more about their core advertising businesses. Not a lot

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Speaker 1: has changed there in the case of Apple. You're exactly right.

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Speaker 1: I mean, you've had the services scheme for a long time,

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Speaker 1: wearables out of nowhere, AirPods and did an impact. They

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Speaker 1: don't break out the wearable segment, but based on commons

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Speaker 1: that they periodically make, weaken back into what that growth is.

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Speaker 1: And so in the March quarter was up two percent

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Speaker 1: year of a year. That compares up forty four and

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Speaker 1: in the two previous quarters. So it did decelerate and

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Speaker 1: they expected to decelerate again, but that does not change

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Speaker 1: the message. You're absolutely right, is that in Apple's case, Uh,

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Speaker 1: this is still a large part of their business, desire

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Speaker 1: phone half of the business, but ultimately this is going

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Speaker 1: to be much more than an iPhone story longer term,

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Speaker 1: all those wearables, and uh, they did give a teaser

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Speaker 1: if you're curious about some future features within Apple Watch

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Speaker 1: that should continue to boast a wearable segment. Just got

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Speaker 1: a headline crossing a bloom bag. It comes from an

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Speaker 1: oil company, Xon posting its first quarterly loss in at

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Speaker 1: least thirty two years. And of course the big oil

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Speaker 1: companies have got to cut back on capex. So let's

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Speaker 1: move to Amazon. Amazon has this amazing luxury of acting

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Speaker 1: canta cyclically, just flicking the spend switch all over again.

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Speaker 1: And when Jeff Bezol says, you may want to take

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Speaker 1: a seat, which seat the un gene you in the

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Speaker 1: back seat or the front seat, Because if I'm a

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Speaker 1: shareholder right now, I'm just surprised how disappointed some people

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Speaker 1: are that here's a man leading the company, willing to

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Speaker 1: invest in his company the time like this, so it's

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Speaker 1: in a better position in years to come. I think

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Speaker 1: the investors are are largely on board with everything that

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Speaker 1: he's doing. The stock has moved fire since uh you

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Speaker 1: know the peaks in the market, so it's near all

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Speaker 1: the time. Has obviously down today, but I think that

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Speaker 1: the big messages investors are largely supportive of that. I

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Speaker 1: want to put quickly into context the amount of spending

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Speaker 1: that he's talking about to sit down to four billion,

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Speaker 1: what does that mean relative to their past? In the

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Speaker 1: September quarter last year, they talked about a nine million

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Speaker 1: dollar step up over the next or in that quarter

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Speaker 1: the September nineteen quarter n hundred million for same day

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Speaker 1: delivering a WS investment. So we're talking about essentially a

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Speaker 1: four x acceleration off of one already high numbers. So

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Speaker 1: this is some pretty steep um spending that they're going

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Speaker 1: through the right thing. Longer term, Amazon is going to

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Speaker 1: become foundational to the US in terms of infrastructure, delivery, commerce,

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Speaker 1: all that. But I think when as an investor, one

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Speaker 1: question front seat, back seat is what do you what

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Speaker 1: do you pay for this ultimately? And I think that uh,

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Speaker 1: you know, they generated two and a half billion dollars

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Speaker 1: in gap men income, Apple generated eleven point two billion,

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Speaker 1: and they both had the same one point to chilling

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Speaker 1: dollar market caps. I think there is a question about

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Speaker 1: valuation that has to be answered, Well, is that going

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Speaker 1: to come to the cloud and seventy of business or

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Speaker 1: whatever it is or Gene does it just come through

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Speaker 1: this continued capture retail. I should point out folks that

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Speaker 1: his Amazon was dazzling all, including John Farrell with their

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Speaker 1: public performance. Jake Crew, j C. Penny, Macy's are on oxygen.

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Speaker 1: I mean, Gene, do they have more room to take

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Speaker 1: retail or is this all going to be done with

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Speaker 1: the cloud? Uh? Probably more room in retail. Cloud is

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Speaker 1: more competitive and not growing as fast relative to the

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Speaker 1: other cloud competitors. In aws still a big business, the

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Speaker 1: largest one out there. But let's just take the retail

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Speaker 1: piece alone. Is that it seems obvious that e commerce

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Speaker 1: has done well, but it's still relatively small college what

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Speaker 1: people spend in the US, and so the offline piece,

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Speaker 1: what they can do there about transferring, deliver, remaking some

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Speaker 1: of the frictionalists, bringing more that online is still an

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Speaker 1: incredible opportunity. The biggest opportunity for the company Gene. This

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Speaker 1: has been too short. Let's do it again. Jane Munster

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Speaker 1: Luke ventures with this on technology. Where we are We

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Speaker 1: love folks, great conversations with the like of Mr Munster.

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Speaker 1: John's introduction there Mohammed and I think it really points

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Speaker 1: to the president and his trip to Arizona manufacturer here

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Speaker 1: for I believe may fifth to honeywell, real simple, does

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Speaker 1: he have forward momentum away from the eight zip codes

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Speaker 1: covering him in the East Coast media? That's a really

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Speaker 1: that's I think that's the sort of a million dollar

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Speaker 1: question him and his team are trying to figure out.

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Speaker 1: I'm really happy you started out with the presidential approval number. Overall,

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Speaker 1: it's John's idea, not mine. Yeah, so it's but what's

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Speaker 1: interesting is that when we asked sort of March to

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Speaker 1: April UM, how people are doing in terms of these

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Speaker 1: key actors in the crisis. The President and Congress actually

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Speaker 1: lost the most support. So in March he had six

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Speaker 1: approval on how he was handling the crisis. In April

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Speaker 1: he had fifty UM. Congress went from fifty nine to

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Speaker 1: So I wouldn't rely too much into the take up

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Speaker 1: to forty nine. It's obviously an ongoing sort of saga.

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Speaker 1: What's really interesting is that, unlike most periods in presidential

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Speaker 1: approval eras UM, there's a lot happening right now. I mean,

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Speaker 1: there are a few times when the President of the

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Speaker 1: United States is directly addressing the nation on a daily basis.

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Speaker 1: We've pulled on whether or not people are tuning in

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Speaker 1: to the press conferences to get information UM, and a

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Speaker 1: minority of Americans are doing that. As you can imagine,

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Speaker 1: Republicans are tuning in more than Democrats. But on the whole,

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Speaker 1: I think it's still really early to sort of make

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Speaker 1: too much of any movement there. The other really key

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Speaker 1: factors are UM as, you know, the economy, and I

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Speaker 1: think whoever is going to come out sort of on

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Speaker 1: top in terms of figuring out how to get America

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Speaker 1: out of this situation. Um. Instinctively, for the politicians, right

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Speaker 1: is going to get a reward, and that's I think

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Speaker 1: what everybody's grasping towards. Interestingly, though, when you ask Americans

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Speaker 1: about how to get out of this economic goal, their

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Speaker 1: trust is in local actors. Um. So Americans when you

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Speaker 1: ask them, for example, UM, who do you have confidence

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Speaker 1: in in terms of getting things back to normal with

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Speaker 1: the economy? The governor in your state at per cent

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Speaker 1: getting a great deal or fair amount of conference. And

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Speaker 1: that's the highest that goes down after that to Jerome

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Speaker 1: Powell to eight percent, Steve Venusiante, President Trump forty seven,

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Speaker 1: the Republican leaders forty seven, and then the Democratic leaders

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Speaker 1: in Congress forty six. So Democratic Republican. Um, that's not

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Speaker 1: where America is really looking to solve this problem. But

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Speaker 1: that's exactly where I wanted to go, this idea of

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Speaker 1: what Americans are looking for to direct whether they like

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Speaker 1: someone and they're not. In terms of President Trump's approval rating,

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Speaker 1: what are the main issues that week to week seemed

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Speaker 1: to sway the population the most? Is it the consumer

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Speaker 1: comfort which seems to be deteriorating deteriorating rapidly? Is it

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Speaker 1: the expectation about personal financial situation? What are the main

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Speaker 1: issues here? The major issue is the economy. I mean,

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Speaker 1: we've been asking Americans two questions and creating something called

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Speaker 1: the Economic Concepts Index since the ninth and it basically

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Speaker 1: asked how economic conditions are for you today and your

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Speaker 1: perception of the future. UM. This month we had a

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Speaker 1: fifty four point drop in that index that sort of

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Speaker 1: levels at zero, goes up to plus a hundred and

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Speaker 1: negative hundred UM. It was the largest one month change

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Speaker 1: in our tracking since UM that fifty four point dropped

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Speaker 1: among Republicans, it was actually seventy two point dropped UM.

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Speaker 1: So that's a very kind of when you talk about

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Speaker 1: the partisanship thing, Americans tend to assess how the economy

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Speaker 1: is doing based on whether they like basically the leadership

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Speaker 1: in the White House lately. But what we know for

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Speaker 1: much longer that's really a phenomenon sort of the post

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Speaker 1: Obama Trump era, but we know for a longer period

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Speaker 1: of time is the economy is always the number one

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Speaker 1: thing when you ask Americans, what are the economics? What

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Speaker 1: are the policy issues that are going to drive your boat?

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Speaker 1: That in healthcare. UM. So the economic issues are going

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Speaker 1: to be really really key more than ever, I think

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Speaker 1: to this election. The other pieces getting this getting back

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Speaker 1: to normal. Um. And we've been asking Americans whether there

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Speaker 1: if there were no restrictions currently sort of would you

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Speaker 1: just get up and go back to doing what you

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Speaker 1: were doing At this point, Only of Americans say that

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Speaker 1: they would sort of resume normal activities right now. Uh say,

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Speaker 1: after there are new cases in your state, declined significantly.

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Speaker 1: Another third day after there are no new cases, about

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Speaker 1: twelve fe cent say that they're gonna wait until a

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Speaker 1: vaccine is developed. We do see a partisans split on

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Speaker 1: those issues. So, for example, compared to that sort of

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Speaker 1: for the national average, percent of Republicans say that they

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Speaker 1: sort of get back to normal right away. UM. But

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Speaker 1: it's interesting that it's you know, it's been an increased

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Speaker 1: nineteen point increase in a month for Republicans, but it's

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Speaker 1: still only forty so UM. As Americans now have a

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Speaker 1: more optimistic view. I mean, they're still very concerned about

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Speaker 1: the crisis, but when you ask about is it getting

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Speaker 1: better or worse, we see more Americans now saying things

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Speaker 1: are improving. UM. And the rollout, you know, sort of

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Speaker 1: plays out in some of these local areas. Uh. I

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Speaker 1: think it's going to determine how the policy explains to

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Speaker 1: the economical I'm great to catch op with this morning.

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Speaker 1: We appreciate its. Let's do a brief here, folks on

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Speaker 1: this May day, of course, a big deal in China.

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Speaker 1: Henrietta tres joints her FATA partners on Washington policy. Henrietta,

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Speaker 1: this is John and Lisa about out front of me

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Speaker 1: on this. But but Henrietta, this is really really caught

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Speaker 1: up quickly. Let me look back, as John did yesterday

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Speaker 1: on Twitter, asking if Phase one is dead? Is a

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Speaker 1: whole tariff dance of the last two years? Is that

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Speaker 1: like done? You know? That's that's maybe one way to

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Speaker 1: put it. I think we're actually ramping into a different

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Speaker 1: kind of a gear that I find a lot of

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Speaker 1: similarities to the trade war that we've had to the

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Speaker 1: last two years. Um So the tariff specific conversation. I

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Speaker 1: don't expect, especially during a recession or even a depression,

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Speaker 1: that we're going to escalate tariffs from here right now.

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Speaker 1: But they're certainly not going to come off, and they're

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Speaker 1: acting on and exploring a whole host of other ideas

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Speaker 1: from export control restrictions, which they meaningfully expanded on Monday,

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Speaker 1: from the b I S two proposals to fully decouple,

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Speaker 1: whether it's on the pharmaceutical side or broader health care side,

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Speaker 1: that is the next phase. So it's not tariff specific,

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Speaker 1: but it is absolutely um a redo of the trade

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Speaker 1: war and just a different arena. Well, hen RT's on

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Speaker 1: this topic of decoupling, what is the that you think

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Speaker 1: we should pay a lot of attention to? Obviously send

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Speaker 1: it to Rubiot has been pushing the financial aspect of

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Speaker 1: decoupling over the last couple of years. Should we focus there?

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Speaker 1: Is it elsewhere? Where are you laser focused? Well? I

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Speaker 1: think decoupling is something that we need to watch from

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Speaker 1: a number of different fronts. So first start off with

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Speaker 1: the sectors that you think are going to have national

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Speaker 1: security implications, because that's well they'll start. So that's on

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Speaker 1: the pharmaceutical side. That's on chemicals you know they make

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Speaker 1: uh not, we we use Americans use generic drugs which

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Speaker 1: come from generic products that are produced in China from

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Speaker 1: their chemical plants, and they produce nine of the world's supply.

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Speaker 1: So it's a whole range of components that they need.

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Speaker 1: But then when you think about decoupling UM, you have

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Speaker 1: to remember that if you're the FDA, or you're a

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Speaker 1: company that's creating ipprofen or a knockoff generic product, you

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Speaker 1: need approval from the FDA, which takes anywhere from three

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Speaker 1: to seven years just to form a new plant. So

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Speaker 1: you can't just make a new plant in Ohio. You've

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Speaker 1: got to uh sort of repeat or have a have

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Speaker 1: another one UM somewhere else that you start to slowly

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Speaker 1: get ramped up to speed so that three years from

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Speaker 1: now you can eventually begin coupled. But it takes a

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Speaker 1: long time. But I would imagine they start in the

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Speaker 1: pharmasector or chemicals, uh, and the healthcare space with ppe

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Speaker 1: and masks and all that as well. Henrietta, I remember

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Speaker 1: back when we were dealing with the trade wars in

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Speaker 1: their first iteration in this cycle, a lot of companies

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Speaker 1: were pushing back and saying, this isn't good for our

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Speaker 1: business and we want to do business with China and

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Speaker 1: we depend on these supply chains that are complicated to

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Speaker 1: have been built up over time. Is there a different

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Speaker 1: tone now from Corporate America saying we need to domesticate

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Speaker 1: our supply chains. We need to couple for our business,

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Speaker 1: not just a political reason. I think the business reasons

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Speaker 1: are being driven by the political I still, you know,

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Speaker 1: despite the last three years of what we've had under

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Speaker 1: President Trump and a sort of cry for nationalism and protectionalism,

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Speaker 1: a lot of business owners in most them is still

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Speaker 1: saying that free trade is actually the best way for

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Speaker 1: you diversify in the event of a pandemic like this

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Speaker 1: or in the event of the need for global growth

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Speaker 1: later on. If you have global trade, you use your

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Speaker 1: trade and your productivity as efficiently as possible. That's a

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Speaker 1: pretty standard economic model, and I think most businesses still

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Speaker 1: have used that. What they're layering on top now is

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Speaker 1: political risk, and that sometimes is superseding the economic arguments.

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Speaker 1: And so they're saying, all right, well, you know, if

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Speaker 1: we can't go to China because we don't know what's

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Speaker 1: going to go on with tariff or even more insidiously,

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Speaker 1: these export control restrictions, you have to get your financing

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Speaker 1: outside of China, you need to get your staff outside

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Speaker 1: of China um and you need to probably produce outside

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Speaker 1: of China. So a lot of folks who looking to

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Speaker 1: Mexico um as a natural backstop for another another's country,

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Speaker 1: that might be a better opportunity for them. So I

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Speaker 1: think they're still free market, still free trade, but have

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Speaker 1: to layer on a political calculus as a result of

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Speaker 1: both President Trump's policies but also now coronavirus, which is

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Speaker 1: going to be a bipartisan opposition situation. That's it, isn't it.

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Speaker 1: That's the political story, and that's the story. Free trade

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Speaker 1: doesn't win the November election, does it. Nope? And sure doesn't.

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Speaker 1: And that's going to be the problem here on now.

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Speaker 1: So let's talk about the other side of the aisle.

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Speaker 1: What's Vice President, former Vice President Joe Biden's position on

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Speaker 1: all of this. Yeah, that's a great question. I actually

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Speaker 1: think there's a possibility that Biden could be even worse,

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Speaker 1: and that's because what we've seen under Trump is a

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Speaker 1: very US exclusive approach. He's actually said to the EU

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Speaker 1: and Japan and other nations, you know, get in line,

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Speaker 1: We're going to get our deal with China. You can

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Speaker 1: get your own. Um. What President Biden would say is,

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Speaker 1: all right, these tariffs are all on three hundred and

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Speaker 1: sixty billion dollars worth of stuff. I like, what you've

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Speaker 1: done here. Now let's think about how we can get

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Speaker 1: more out of China from the environmental front, from a

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Speaker 1: human rights front, from an economic front. And he says,

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Speaker 1: let's let's let's use the global rules based world order

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Speaker 1: and try to prop up the w t O UM,

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Speaker 1: get the EU in Japan to join forces with US,

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Speaker 1: and we all target China together, and that way China

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Speaker 1: can't just stop purchasing our pork and bring the United

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Speaker 1: States farming community to its knees. We can combine forces

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Speaker 1: with the EU, with Canada, with Japan and other nations

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Speaker 1: with w t O bolster that and then really extract

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Speaker 1: concessions from China, get them to become a developed nation,

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Speaker 1: get them to more fully participate, be more transparent, and

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Speaker 1: actually exact extract change. So I think Biden is actually

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Speaker 1: a worse situation for China than just President Trump, who

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Speaker 1: they sort of know was playbooks already and night upon.

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Speaker 1: Michael Gapen is hugely qualified at Barclay's our chief US economists,

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Speaker 1: but was serious international experience as well. Michael thrilled you

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Speaker 1: with us. I want to get right to wages because

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Speaker 1: I know that's what all of our listeners are worried

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Speaker 1: about what will be the wage dynamic forward given claims

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Speaker 1: and given that job's report we see in exactly seven days, Well,

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Speaker 1: I think it's going to be a very thoughtful labor

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Speaker 1: marketers Jonathan was just alluding to. And we we have

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Speaker 1: the unemployment rate probably going to rise to the eighteen

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Speaker 1: nineteen percent range in April, and it will be elevated

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Speaker 1: we think for several years. We might get a lot

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Speaker 1: of re employment over the next day, several months, and

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Speaker 1: several quarters, but we think that there will be a

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Speaker 1: tail to this in terms of of a high unemployment

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Speaker 1: rate and thought to labor market conditions for some time.

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Speaker 1: And I think what's been interested what we're watching. Um

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Speaker 1: if you if you look back to the O eight,

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Speaker 1: o nine experience and even previous recessions, there's been a

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Speaker 1: lot of nominal wage rigidity in the US. As you know,

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Speaker 1: that's been one of the reasons we think cor insulation

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Speaker 1: was so stable even though we had wide swings in

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Speaker 1: the macro economy. Firms historically have been reluctant to give

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Speaker 1: wage cuts. We're seeing a lot of reports and reading

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Speaker 1: a lot of news stories where that's not the case

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Speaker 1: this time. So in lieu of even more layoffs. We

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Speaker 1: may actually be getting wage cuts in the near term

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Speaker 1: that could persist for some time. Now, those could be

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Speaker 1: taken back, but it might take some time for that.

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Speaker 1: So I think I think we have a two uh,

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Speaker 1: potentially a two prong problem here where we have a

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Speaker 1: lot of slack in the labor market, and at least

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Speaker 1: in the near term, to preserve some employment, some actual

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Speaker 1: wage cuts that may persist for several quarters through the

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Speaker 1: rest of the year. That's what we're worried about. And Michael,

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Speaker 1: we have seen that from a number of companies just

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Speaker 1: saying we're going to cut salaries across the board by

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Speaker 1: a certain proportion in order to remain solvent through this period.

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Speaker 1: In a recent story in the New York Times, you

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Speaker 1: were quoted saying that you expect the unemployment rate to

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Speaker 1: hit nineteen and a half percent in April. Also, you said,

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Speaker 1: given the trillion spent, we would have hoped that federal

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Speaker 1: efforts would have been more effective at stebbing job losses.

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Speaker 1: Given the fact that we have seen the surge in

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Speaker 1: jobless rates, what does that tell you about the efforts?

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Speaker 1: Can you just sort of extrapolate forward in terms of

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Speaker 1: what that means. Yeah, I think that the risk here

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Speaker 1: is that you know, any time you get laid off,

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Speaker 1: even though you think it's for a short period of time,

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Speaker 1: your employer says, look that we're going to do this

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Speaker 1: now the expectations we can hire you back. You risk

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Speaker 1: detachment from the labor force, You risk a longer spell

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Speaker 1: of unemployment, You risk a deterioration uh in in skills,

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Speaker 1: and obviously the longer you're unemployed, the harder it is

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Speaker 1: to to get back uh and And so we we

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Speaker 1: think what you're you're you're ultimately risking slower potential growth

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Speaker 1: and higher unemployment and flack or for a period of time.

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Speaker 1: Connectivity to the labor market is is hugely important. We

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Speaker 1: know that. And the way that we've done this here

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Speaker 1: in the US is different than than is being done

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Speaker 1: in the UK and across Europe, where federal support is

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Speaker 1: going directly to firms to keep employees on payrolls, where

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Speaker 1: in the US it's going indirectly through the financial sector.

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Speaker 1: And I do think the way we're doing this has

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Speaker 1: been more unemployment than than I think we would like,

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Speaker 1: certainly uh and and our concern is it's going to

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Speaker 1: lead to a lot more prolonged spells of unemployment and

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Speaker 1: we're comfortable with So obviously nobody is pleased with where

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Speaker 1: there's unemployment rate is going to go. And I do

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Speaker 1: think that the way that we structured some of this

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Speaker 1: aid is a contributing factor. The Federal Reserve is likely

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Speaker 1: going to want to keep rate to low for a

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Speaker 1: long long time, and Tom has been on top of

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Speaker 1: this through the morning. Michael. Just sitting on the front

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Speaker 1: end of the yield curve will be the Federal Reserve,

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Speaker 1: and I imagine they're going to produce some kind of

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Speaker 1: forward guidance to convince us that this is going to

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Speaker 1: be the story for a long long time. And I

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Speaker 1: think what is forgotten often is that two year rates

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Speaker 1: after the financial crisis ten years ago actually didn't bottom

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Speaker 1: out until it took a long time, Michael, for this

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Speaker 1: market to come around to the idea that rates weren't

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Speaker 1: going higher back to where they were anytime soon. What

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Speaker 1: is the FED learned from that period and how do

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Speaker 1: they apply that to guidance this time around. Well, I

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Speaker 1: think they could move directly to threshold based guidance just

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Speaker 1: does depend on how they conclude their their framework review

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Speaker 1: and they moved to a makeup strategy on inflation, but

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Speaker 1: I think they can shift right away two thresholds of

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Speaker 1: unemployment and inflation that that would dictate how long they

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Speaker 1: expect to be at zero. I also think that they're

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Speaker 1: strongly considering yield curve control, that you could do that

433
00:23:16,400 --> 00:23:19,240
Speaker 1: out to say two to three years on the yield

434
00:23:19,280 --> 00:23:23,119
Speaker 1: curve to complement and strengthen that forward guidance. So it

435
00:23:23,160 --> 00:23:25,879
Speaker 1: would be a signal that guest, we have an outcomes

436
00:23:25,920 --> 00:23:28,320
Speaker 1: based approach, of course, and we're not going to raise

437
00:23:28,440 --> 00:23:31,159
Speaker 1: the funds right off to zeroo abound until we get

438
00:23:31,480 --> 00:23:35,520
Speaker 1: this combination of inflation and unemployment data, and just to

439
00:23:35,560 --> 00:23:38,160
Speaker 1: reinforce it, we're gonna we're gonna send the yeld curve

440
00:23:38,200 --> 00:23:40,680
Speaker 1: and zero. If you're just joining us, Michael gave in

441
00:23:40,720 --> 00:23:42,520
Speaker 1: with us with Barclays thrill. He could be with us

442
00:23:42,560 --> 00:23:44,959
Speaker 1: on this may at first, I'm trying to figure out

443
00:23:45,040 --> 00:23:47,879
Speaker 1: yield curve management within the banking and financial system of

444
00:23:47,920 --> 00:23:51,679
Speaker 1: the US. I just that'll be sport, Michael. One of

445
00:23:51,680 --> 00:23:54,359
Speaker 1: the big splashes this week was an Arianna Cuchula code

446
00:23:54,359 --> 00:23:58,880
Speaker 1: in our Feller Reserve show talking Michael about negative interest rates,

447
00:23:58,920 --> 00:24:02,200
Speaker 1: and he created a model uproar and economics by saying

448
00:24:02,840 --> 00:24:06,600
Speaker 1: to three meetings from now, this FED will be considering

449
00:24:06,680 --> 00:24:10,200
Speaker 1: negative interest rates. As John mentioned, the suppressed two year yield,

450
00:24:10,280 --> 00:24:12,440
Speaker 1: and there's economists that just say, the guy from Dylan

451
00:24:12,480 --> 00:24:15,600
Speaker 1: Read is never going to do this. Is it even thinkable,

452
00:24:15,680 --> 00:24:19,440
Speaker 1: Michael Gabon that we would have the facts change so

453
00:24:19,480 --> 00:24:24,639
Speaker 1: that we would consider going out of Europe? I don't

454
00:24:24,720 --> 00:24:26,920
Speaker 1: think so. I'm in the camp that says the set

455
00:24:26,960 --> 00:24:29,879
Speaker 1: has studied this extensively for years. When I was at

456
00:24:29,880 --> 00:24:32,320
Speaker 1: the board in two thousand and eight, two thousand nine,

457
00:24:32,440 --> 00:24:36,000
Speaker 1: this was under discussion, and I think it's it's been

458
00:24:36,040 --> 00:24:39,120
Speaker 1: about a ten year story where every time they've looked

459
00:24:39,160 --> 00:24:41,600
Speaker 1: at this, they consistently come back and felt that it's

460
00:24:41,640 --> 00:24:44,920
Speaker 1: more trouble than than it's worth. So I don't think

461
00:24:44,920 --> 00:24:46,879
Speaker 1: we're going to switch to that. I think there are

462
00:24:46,920 --> 00:24:51,000
Speaker 1: other ways to deliver monetary policy support to the economy.

463
00:24:51,440 --> 00:24:53,760
Speaker 1: The structure of the US is different than than it

464
00:24:53,840 --> 00:24:55,359
Speaker 1: is in Europe, and I think it would cause a

465
00:24:55,400 --> 00:24:57,879
Speaker 1: lot of disruptions to short term funding markets that the

466
00:24:57,880 --> 00:25:01,240
Speaker 1: SETTE doesn't want to deal with. Just to sort of

467
00:25:01,760 --> 00:25:04,280
Speaker 1: continue with the Federal Reserve, its balance sheet. The latest

468
00:25:04,320 --> 00:25:08,920
Speaker 1: read which came out yesterday evening six point seven trillion dollars.

469
00:25:08,920 --> 00:25:11,280
Speaker 1: That's the current size of its balance sheet. Many people

470
00:25:11,280 --> 00:25:14,640
Speaker 1: expect that to exceed ten trillion dollars by the end

471
00:25:14,640 --> 00:25:18,600
Speaker 1: of this year. How concerned are you about an increasing

472
00:25:18,920 --> 00:25:23,440
Speaker 1: politicization of the Federal Reserve as its actions and those

473
00:25:23,520 --> 00:25:26,080
Speaker 1: of the of the Treasury Department get more interlinked in

474
00:25:26,119 --> 00:25:30,640
Speaker 1: the FED essentially monetizes the US IS debt. I think

475
00:25:30,960 --> 00:25:33,800
Speaker 1: in terms of balance sheet size, I'm less concerned because

476
00:25:33,800 --> 00:25:37,920
Speaker 1: now we had a democratic administration and a republican administration,

477
00:25:38,040 --> 00:25:40,280
Speaker 1: and that the balance sheet have expanded under Bold, So

478
00:25:40,440 --> 00:25:43,679
Speaker 1: we've had both sides of the political aisle, except the

479
00:25:43,720 --> 00:25:46,480
Speaker 1: fact that a large balance sheet is what we need

480
00:25:46,480 --> 00:25:49,920
Speaker 1: to help support the recovery. But I think you bring

481
00:25:50,000 --> 00:25:51,879
Speaker 1: up a good point, which is virtually every one of

482
00:25:51,880 --> 00:25:55,960
Speaker 1: these lending facilities as a joint said Treasury facility, and

483
00:25:56,359 --> 00:25:58,119
Speaker 1: we think that there's going to be a deficit of

484
00:25:58,160 --> 00:26:02,440
Speaker 1: fourteen or fi of GDP this year, and i'mgoing said

485
00:26:02,480 --> 00:26:06,320
Speaker 1: purchases in some ways can be viewed as potentially monetizing

486
00:26:06,440 --> 00:26:09,240
Speaker 1: some some of that debt. So certainly we need coordination

487
00:26:09,320 --> 00:26:12,520
Speaker 1: between monetary and in fiscal the said just has a

488
00:26:12,560 --> 00:26:15,080
Speaker 1: tough communication act here really to say, look, we're just

489
00:26:15,160 --> 00:26:18,480
Speaker 1: acting as an agent of the treasury, and so they

490
00:26:18,520 --> 00:26:21,399
Speaker 1: want us to do this. We're facilitating this. This is

491
00:26:21,440 --> 00:26:24,560
Speaker 1: our role to help get liquidity and credit to households

492
00:26:24,560 --> 00:26:27,239
Speaker 1: and business. It's a tricky line to walk, but I

493
00:26:27,280 --> 00:26:29,760
Speaker 1: do think that they can execute it without getting dragged

494
00:26:30,040 --> 00:26:32,800
Speaker 1: into the political phrase too much. Michael, before we let

495
00:26:32,840 --> 00:26:35,119
Speaker 1: you go, just quickly, ten am, one hour and twenty

496
00:26:35,119 --> 00:26:38,520
Speaker 1: minutes from now, the is M for manufacturing new orders, prices,

497
00:26:38,560 --> 00:26:41,119
Speaker 1: paid employment, What are you focused on? How should we

498
00:26:41,240 --> 00:26:44,680
Speaker 1: digest that data when it comes out? Well, I think

499
00:26:44,720 --> 00:26:47,720
Speaker 1: certainly there is obviously going to be a bad number.

500
00:26:47,800 --> 00:26:50,400
Speaker 1: We were We're going to be paying very close attention

501
00:26:50,480 --> 00:26:54,360
Speaker 1: to the new orders component and the export component as

502
00:26:54,400 --> 00:26:57,280
Speaker 1: well as employment. So I think it's this is it's

503
00:26:57,320 --> 00:26:59,240
Speaker 1: another one of these numbers that we know. It's that

504
00:26:59,480 --> 00:27:02,600
Speaker 1: we know were shut down for for the entire month,

505
00:27:03,200 --> 00:27:05,119
Speaker 1: But we just we need to know how that. So

506
00:27:05,320 --> 00:27:07,720
Speaker 1: I think that we'll we'll take our lead mainly from

507
00:27:08,000 --> 00:27:11,119
Speaker 1: the data points that suggest to us how intertwined is

508
00:27:11,200 --> 00:27:15,280
Speaker 1: this globally and new orders and and export orders are

509
00:27:15,320 --> 00:27:17,480
Speaker 1: are one way to look at that, you know, and

510
00:27:17,760 --> 00:27:19,560
Speaker 1: what I would do is relate this to what we've

511
00:27:19,600 --> 00:27:22,439
Speaker 1: seen in China. China can't rebound is strongly when the

512
00:27:22,440 --> 00:27:25,959
Speaker 1: rest of the world is is contracting. Their manufacturing sector

513
00:27:26,000 --> 00:27:29,639
Speaker 1: has rebounded, but it's been a pretty moderate and tepid rebound,

514
00:27:30,000 --> 00:27:32,639
Speaker 1: in part because global demand is so weak. So I

515
00:27:32,680 --> 00:27:35,080
Speaker 1: think it's it's that type of inter in a relation

516
00:27:35,119 --> 00:27:37,760
Speaker 1: that could show through in this report. Michael, fantastic to

517
00:27:37,760 --> 00:27:39,440
Speaker 1: get up to speed with you, that's for sure. I

518
00:27:39,480 --> 00:27:41,840
Speaker 1: have the team at Bankley's are doing well. Michael Gypanett

519
00:27:41,960 --> 00:27:47,080
Speaker 1: of Boncley's, the chief US economists. We start May with

520
00:27:47,160 --> 00:27:50,159
Speaker 1: a wonderful medical coverage. We have tried to bring you

521
00:27:50,760 --> 00:27:55,840
Speaker 1: among universities worldwide and particularly in Baltimore, Maryland, the Johns

522
00:27:55,920 --> 00:28:00,640
Speaker 1: Hopkins University, and each of their professors has a different expertise,

523
00:28:00,960 --> 00:28:04,840
Speaker 1: a different character. Are Francine Laquis in conversation with Andrew

524
00:28:04,880 --> 00:28:09,120
Speaker 1: Pekos de Virologists, Let's listen. So when Desivere has had

525
00:28:09,440 --> 00:28:12,879
Speaker 1: a couple of reports out this week. UM one report

526
00:28:12,920 --> 00:28:15,840
Speaker 1: from the NIH has shown that there's some significant promise

527
00:28:15,960 --> 00:28:18,760
Speaker 1: of that treatment and that if it's given early enough

528
00:28:18,920 --> 00:28:22,159
Speaker 1: in the course of infection. It seems to improve the

529
00:28:22,200 --> 00:28:25,400
Speaker 1: time in which people get better and can leave the hospital.

530
00:28:25,920 --> 00:28:28,639
Speaker 1: UM a report out of China has suggested it was

531
00:28:28,920 --> 00:28:32,239
Speaker 1: less successful, but it looks like those patients were being

532
00:28:32,320 --> 00:28:35,400
Speaker 1: treated much later in the disease process, at a time

533
00:28:35,440 --> 00:28:38,200
Speaker 1: when it's not just the virus that's causing damage, but

534
00:28:38,280 --> 00:28:41,800
Speaker 1: it's also your immune response to the infection that's causing damage.

535
00:28:42,480 --> 00:28:45,640
Speaker 1: So I would say this cautious optimism right now from Desavere,

536
00:28:46,040 --> 00:28:47,800
Speaker 1: but it certainly does seem like it's going to be

537
00:28:47,800 --> 00:28:50,840
Speaker 1: a treatment that is probably more effective the sooner one

538
00:28:50,880 --> 00:28:54,720
Speaker 1: gets it. Instuction process, What do you think will be

539
00:28:54,760 --> 00:28:56,960
Speaker 1: a real game changer? So we talked about having apps.

540
00:28:57,000 --> 00:28:59,120
Speaker 1: I know there are concerns about, of course, you know,

541
00:28:59,160 --> 00:29:01,600
Speaker 1: personal information and but that could you know, let you

542
00:29:01,640 --> 00:29:04,760
Speaker 1: get in contact with people that have been touched or

543
00:29:05,040 --> 00:29:08,560
Speaker 1: have been in close contact with someone who is COVID

544
00:29:08,600 --> 00:29:12,440
Speaker 1: nineteen positive. There's also antibody testing. What will be a

545
00:29:12,480 --> 00:29:15,360
Speaker 1: real game changer of you know, saving lives but also

546
00:29:16,040 --> 00:29:19,240
Speaker 1: getting people to get out of the lockdown. Yeah yeah, so,

547
00:29:19,240 --> 00:29:21,720
Speaker 1: so you know, I think the better we are at

548
00:29:21,760 --> 00:29:25,640
Speaker 1: treating individuals and getting them out of a hospital, UH,

549
00:29:25,680 --> 00:29:28,480
Speaker 1: to free up resources. That's gonna be one important thing,

550
00:29:28,840 --> 00:29:30,760
Speaker 1: because what that will do is that will free up

551
00:29:31,200 --> 00:29:34,840
Speaker 1: more medical resources, it will free up testing resources, and

552
00:29:34,840 --> 00:29:36,720
Speaker 1: that will allow us to switch to this sort of

553
00:29:37,520 --> 00:29:40,680
Speaker 1: late phase of dealing with the pandemic. UM. We have

554
00:29:40,760 --> 00:29:43,880
Speaker 1: a lot of hope for antibody tests. Over the next

555
00:29:43,920 --> 00:29:46,760
Speaker 1: couple of weeks, we should get some idea of whether

556
00:29:46,880 --> 00:29:51,760
Speaker 1: or not antibodies, what kind of antibodies are mediating protection

557
00:29:52,360 --> 00:29:55,720
Speaker 1: from reinfection. And once we know that, we can really

558
00:29:55,760 --> 00:29:58,880
Speaker 1: go after people in the population and identify people who

559
00:29:58,920 --> 00:30:01,720
Speaker 1: should have a higher as distance to infection, and that

560
00:30:01,760 --> 00:30:05,000
Speaker 1: will then really allow us to come forward with a

561
00:30:05,080 --> 00:30:08,040
Speaker 1: much more detailed plan for how to open up our

562
00:30:08,080 --> 00:30:10,840
Speaker 1: economy and loosen some of the public health interventions that

563
00:30:10,920 --> 00:30:13,360
Speaker 1: work that most of the world is currently under. Andrew

564
00:30:13,480 --> 00:30:15,840
Speaker 1: in twenty seconds, are we going to be much wiser

565
00:30:15,880 --> 00:30:18,680
Speaker 1: about this virus in two months, two months or will

566
00:30:18,680 --> 00:30:22,360
Speaker 1: it take longer? Two months? We will know uh incredibly

567
00:30:22,400 --> 00:30:24,520
Speaker 1: more about the virus, in particularly how we treat it

568
00:30:24,880 --> 00:30:29,560
Speaker 1: and um how we respond to it. UH the Johns

569
00:30:29,640 --> 00:30:32,400
Speaker 1: Hopkins University, and we thank him and all of his team.

570
00:30:32,440 --> 00:30:35,840
Speaker 1: Early through April and March for their wisdom. Here we

571
00:30:35,840 --> 00:30:39,000
Speaker 1: should point out that with Johns Hopkins University is the

572
00:30:39,000 --> 00:30:42,200
Speaker 1: Bloomberg School of Public Health UH, and they've been a

573
00:30:42,240 --> 00:30:44,960
Speaker 1: big support as well. We should point out that Michael Bloomberg,

574
00:30:45,000 --> 00:30:48,040
Speaker 1: the founder of Bloomberg LP and also this television and

575
00:30:48,160 --> 00:30:53,520
Speaker 1: radio station, has been a philanthropist his Johns Hopkins University.

576
00:30:54,800 --> 00:30:59,000
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

577
00:30:59,080 --> 00:31:04,400
Speaker 1: listen to reviews on Apple Podcasts, SoundCloud, or whichever podcast

578
00:31:04,440 --> 00:31:08,680
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before

579
00:31:08,680 --> 00:31:12,520
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg

580
00:31:12,640 --> 00:31:12,920
Speaker 1: Radio