Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
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Speaker 1: knows it well Gene Munster for years at Piper Jeffrey
Speaker 1: Jean Munster Munster with Loop Ventures. Now on where we
Speaker 1: are in technology, Jane, I know John's got a lot
Speaker 1: of questions on philosophy. Let me ask you a cash question.
Speaker 1: They raised the dividend six of Apple. They've retired percent
Speaker 1: of the stock in about five years. What's the January
Speaker 1: first cash return to Apple to shareholders? Can I say
Speaker 1: it's as high as seven percent? Yeah, it's that's exactly
Speaker 1: the right number if you look at the dividend plus
Speaker 1: the buy back. Uh. That's the numerical piece. There's also
Speaker 1: the message behind that fifty billion dollar increase, something that
Speaker 1: I did not anticipate unpressed these times, and I think
Speaker 1: it is probably elementary to connect the dots that that
Speaker 1: is a sign that they believe that despite largely being
Speaker 1: a throwaway year for Apple and most companies, I think
Speaker 1: that it will. The company feels confident about the cash
Speaker 1: flow to continue to support this massive growth opportunity long term. Yeah,
Speaker 1: disappointment this morning and overnight Gene that we didn't get
Speaker 1: a forecast. But from what I hear from you, you're
Speaker 1: saying that is the guidance, that is the forecast. It's
Speaker 1: the increase in the buyback, right. That's well said, John,
Speaker 1: They uh that that is what investors should undoubtedly take
Speaker 1: away from this too. And another piece around the forecasting
Speaker 1: is that the product line is intact. These are product companies.
Speaker 1: I mean every company Facebook as a product company, Google Awful.
Speaker 1: It's a little bit more clear just because they have
Speaker 1: physical products. But ultimately is keeping that product woradmap on
Speaker 1: track is critical. And what if I would kind of
Speaker 1: take a step back and look at this quarter and
Speaker 1: the contours of the quarter. I think that the messages
Speaker 1: that yes, it's difficult, uh, that they will be impacted,
Speaker 1: but ultimately they're making the right decisions to be leaders
Speaker 1: and to benefit. So what if you're gonna put all
Speaker 1: this into the math, the business is probably gonna be
Speaker 1: down five or ten percent in the June quarter. But
Speaker 1: fast forwarding to next year, it will probably be up
Speaker 1: fifteen percent, So I think we're gonna see some kind
Speaker 1: of a return to growth off of easy comps, but
Speaker 1: the return of growth nonetheless next year. Yeah. It's kind
Speaker 1: of amazing that this is the kitchen sink year for
Speaker 1: when you think about what some of these companies are
Speaker 1: throwing in and yet Apples still manage to eat out
Speaker 1: a profit and increased dividends UH and share buybacks. I'm
Speaker 1: wondering if in some ways we're seeing actually a strengthening
Speaker 1: of the core businesses of some of the big tech
Speaker 1: companies with the idea of diversification. We're seeing that with
Speaker 1: Apple with an increasing sales away from their iPhone UH
Speaker 1: product and towards services, which they've been pushing. And we've
Speaker 1: seen this certainly with Facebook and some of the other things.
Speaker 1: I mean, are you seeing this pretty much across the board,
Speaker 1: diversification and a greater resilience of big tech despite what
Speaker 1: the share price is saying. Well, I think yes, to
Speaker 1: look at it like spaying on a case by case basis,
Speaker 1: But in the case of Google and Facebook, is less
Speaker 1: deplification more about their core advertising businesses. Not a lot
Speaker 1: has changed there in the case of Apple. You're exactly right.
Speaker 1: I mean, you've had the services scheme for a long time,
Speaker 1: wearables out of nowhere, AirPods and did an impact. They
Speaker 1: don't break out the wearable segment, but based on commons
Speaker 1: that they periodically make, weaken back into what that growth is.
Speaker 1: And so in the March quarter was up two percent
Speaker 1: year of a year. That compares up forty four and
Speaker 1: in the two previous quarters. So it did decelerate and
Speaker 1: they expected to decelerate again, but that does not change
Speaker 1: the message. You're absolutely right, is that in Apple's case, Uh,
Speaker 1: this is still a large part of their business, desire
Speaker 1: phone half of the business, but ultimately this is going
Speaker 1: to be much more than an iPhone story longer term,
Speaker 1: all those wearables, and uh, they did give a teaser
Speaker 1: if you're curious about some future features within Apple Watch
Speaker 1: that should continue to boast a wearable segment. Just got
Speaker 1: a headline crossing a bloom bag. It comes from an
Speaker 1: oil company, Xon posting its first quarterly loss in at
Speaker 1: least thirty two years. And of course the big oil
Speaker 1: companies have got to cut back on capex. So let's
Speaker 1: move to Amazon. Amazon has this amazing luxury of acting
Speaker 1: canta cyclically, just flicking the spend switch all over again.
Speaker 1: And when Jeff Bezol says, you may want to take
Speaker 1: a seat, which seat the un gene you in the
Speaker 1: back seat or the front seat, Because if I'm a
Speaker 1: shareholder right now, I'm just surprised how disappointed some people
Speaker 1: are that here's a man leading the company, willing to
Speaker 1: invest in his company the time like this, so it's
Speaker 1: in a better position in years to come. I think
Speaker 1: the investors are are largely on board with everything that
Speaker 1: he's doing. The stock has moved fire since uh you
Speaker 1: know the peaks in the market, so it's near all
Speaker 1: the time. Has obviously down today, but I think that
Speaker 1: the big messages investors are largely supportive of that. I
Speaker 1: want to put quickly into context the amount of spending
Speaker 1: that he's talking about to sit down to four billion,
Speaker 1: what does that mean relative to their past? In the
Speaker 1: September quarter last year, they talked about a nine million
Speaker 1: dollar step up over the next or in that quarter
Speaker 1: the September nineteen quarter n hundred million for same day
Speaker 1: delivering a WS investment. So we're talking about essentially a
Speaker 1: four x acceleration off of one already high numbers. So
Speaker 1: this is some pretty steep um spending that they're going
Speaker 1: through the right thing. Longer term, Amazon is going to
Speaker 1: become foundational to the US in terms of infrastructure, delivery, commerce,
Speaker 1: all that. But I think when as an investor, one
Speaker 1: question front seat, back seat is what do you what
Speaker 1: do you pay for this ultimately? And I think that uh,
Speaker 1: you know, they generated two and a half billion dollars
Speaker 1: in gap men income, Apple generated eleven point two billion,
Speaker 1: and they both had the same one point to chilling
Speaker 1: dollar market caps. I think there is a question about
Speaker 1: valuation that has to be answered, Well, is that going
Speaker 1: to come to the cloud and seventy of business or
Speaker 1: whatever it is or Gene does it just come through
Speaker 1: this continued capture retail. I should point out folks that
Speaker 1: his Amazon was dazzling all, including John Farrell with their
Speaker 1: public performance. Jake Crew, j C. Penny, Macy's are on oxygen.
Speaker 1: I mean, Gene, do they have more room to take
Speaker 1: retail or is this all going to be done with
Speaker 1: the cloud? Uh? Probably more room in retail. Cloud is
Speaker 1: more competitive and not growing as fast relative to the
Speaker 1: other cloud competitors. In aws still a big business, the
Speaker 1: largest one out there. But let's just take the retail
Speaker 1: piece alone. Is that it seems obvious that e commerce
Speaker 1: has done well, but it's still relatively small college what
Speaker 1: people spend in the US, and so the offline piece,
Speaker 1: what they can do there about transferring, deliver, remaking some
Speaker 1: of the frictionalists, bringing more that online is still an
Speaker 1: incredible opportunity. The biggest opportunity for the company Gene. This
Speaker 1: has been too short. Let's do it again. Jane Munster
Speaker 1: Luke ventures with this on technology. Where we are We
Speaker 1: love folks, great conversations with the like of Mr Munster.
Speaker 1: John's introduction there Mohammed and I think it really points
Speaker 1: to the president and his trip to Arizona manufacturer here
Speaker 1: for I believe may fifth to honeywell, real simple, does
Speaker 1: he have forward momentum away from the eight zip codes
Speaker 1: covering him in the East Coast media? That's a really
Speaker 1: that's I think that's the sort of a million dollar
Speaker 1: question him and his team are trying to figure out.
Speaker 1: I'm really happy you started out with the presidential approval number. Overall,
Speaker 1: it's John's idea, not mine. Yeah, so it's but what's
Speaker 1: interesting is that when we asked sort of March to
Speaker 1: April UM, how people are doing in terms of these
Speaker 1: key actors in the crisis. The President and Congress actually
Speaker 1: lost the most support. So in March he had six
Speaker 1: approval on how he was handling the crisis. In April
Speaker 1: he had fifty UM. Congress went from fifty nine to
Speaker 1: So I wouldn't rely too much into the take up
Speaker 1: to forty nine. It's obviously an ongoing sort of saga.
Speaker 1: What's really interesting is that, unlike most periods in presidential
Speaker 1: approval eras UM, there's a lot happening right now. I mean,
Speaker 1: there are a few times when the President of the
Speaker 1: United States is directly addressing the nation on a daily basis.
Speaker 1: We've pulled on whether or not people are tuning in
Speaker 1: to the press conferences to get information UM, and a
Speaker 1: minority of Americans are doing that. As you can imagine,
Speaker 1: Republicans are tuning in more than Democrats. But on the whole,
Speaker 1: I think it's still really early to sort of make
Speaker 1: too much of any movement there. The other really key
Speaker 1: factors are UM as, you know, the economy, and I
Speaker 1: think whoever is going to come out sort of on
Speaker 1: top in terms of figuring out how to get America
Speaker 1: out of this situation. Um. Instinctively, for the politicians, right
Speaker 1: is going to get a reward, and that's I think
Speaker 1: what everybody's grasping towards. Interestingly, though, when you ask Americans
Speaker 1: about how to get out of this economic goal, their
Speaker 1: trust is in local actors. Um. So Americans when you
Speaker 1: ask them, for example, UM, who do you have confidence
Speaker 1: in in terms of getting things back to normal with
Speaker 1: the economy? The governor in your state at per cent
Speaker 1: getting a great deal or fair amount of conference. And
Speaker 1: that's the highest that goes down after that to Jerome
Speaker 1: Powell to eight percent, Steve Venusiante, President Trump forty seven,
Speaker 1: the Republican leaders forty seven, and then the Democratic leaders
Speaker 1: in Congress forty six. So Democratic Republican. Um, that's not
Speaker 1: where America is really looking to solve this problem. But
Speaker 1: that's exactly where I wanted to go, this idea of
Speaker 1: what Americans are looking for to direct whether they like
Speaker 1: someone and they're not. In terms of President Trump's approval rating,
Speaker 1: what are the main issues that week to week seemed
Speaker 1: to sway the population the most? Is it the consumer
Speaker 1: comfort which seems to be deteriorating deteriorating rapidly? Is it
Speaker 1: the expectation about personal financial situation? What are the main
Speaker 1: issues here? The major issue is the economy. I mean,
Speaker 1: we've been asking Americans two questions and creating something called
Speaker 1: the Economic Concepts Index since the ninth and it basically
Speaker 1: asked how economic conditions are for you today and your
Speaker 1: perception of the future. UM. This month we had a
Speaker 1: fifty four point drop in that index that sort of
Speaker 1: levels at zero, goes up to plus a hundred and
Speaker 1: negative hundred UM. It was the largest one month change
Speaker 1: in our tracking since UM that fifty four point dropped
Speaker 1: among Republicans, it was actually seventy two point dropped UM.
Speaker 1: So that's a very kind of when you talk about
Speaker 1: the partisanship thing, Americans tend to assess how the economy
Speaker 1: is doing based on whether they like basically the leadership
Speaker 1: in the White House lately. But what we know for
Speaker 1: much longer that's really a phenomenon sort of the post
Speaker 1: Obama Trump era, but we know for a longer period
Speaker 1: of time is the economy is always the number one
Speaker 1: thing when you ask Americans, what are the economics? What
Speaker 1: are the policy issues that are going to drive your boat?
Speaker 1: That in healthcare. UM. So the economic issues are going
Speaker 1: to be really really key more than ever, I think
Speaker 1: to this election. The other pieces getting this getting back
Speaker 1: to normal. Um. And we've been asking Americans whether there
Speaker 1: if there were no restrictions currently sort of would you
Speaker 1: just get up and go back to doing what you
Speaker 1: were doing At this point, Only of Americans say that
Speaker 1: they would sort of resume normal activities right now. Uh say,
Speaker 1: after there are new cases in your state, declined significantly.
Speaker 1: Another third day after there are no new cases, about
Speaker 1: twelve fe cent say that they're gonna wait until a
Speaker 1: vaccine is developed. We do see a partisans split on
Speaker 1: those issues. So, for example, compared to that sort of
Speaker 1: for the national average, percent of Republicans say that they
Speaker 1: sort of get back to normal right away. UM. But
Speaker 1: it's interesting that it's you know, it's been an increased
Speaker 1: nineteen point increase in a month for Republicans, but it's
Speaker 1: still only forty so UM. As Americans now have a
Speaker 1: more optimistic view. I mean, they're still very concerned about
Speaker 1: the crisis, but when you ask about is it getting
Speaker 1: better or worse, we see more Americans now saying things
Speaker 1: are improving. UM. And the rollout, you know, sort of
Speaker 1: plays out in some of these local areas. Uh. I
Speaker 1: think it's going to determine how the policy explains to
Speaker 1: the economical I'm great to catch op with this morning.
Speaker 1: We appreciate its. Let's do a brief here, folks on
Speaker 1: this May day, of course, a big deal in China.
Speaker 1: Henrietta tres joints her FATA partners on Washington policy. Henrietta,
Speaker 1: this is John and Lisa about out front of me
Speaker 1: on this. But but Henrietta, this is really really caught
Speaker 1: up quickly. Let me look back, as John did yesterday
Speaker 1: on Twitter, asking if Phase one is dead? Is a
Speaker 1: whole tariff dance of the last two years? Is that
Speaker 1: like done? You know? That's that's maybe one way to
Speaker 1: put it. I think we're actually ramping into a different
Speaker 1: kind of a gear that I find a lot of
Speaker 1: similarities to the trade war that we've had to the
Speaker 1: last two years. Um So the tariff specific conversation. I
Speaker 1: don't expect, especially during a recession or even a depression,
Speaker 1: that we're going to escalate tariffs from here right now.
Speaker 1: But they're certainly not going to come off, and they're
Speaker 1: acting on and exploring a whole host of other ideas
Speaker 1: from export control restrictions, which they meaningfully expanded on Monday,
Speaker 1: from the b I S two proposals to fully decouple,
Speaker 1: whether it's on the pharmaceutical side or broader health care side,
Speaker 1: that is the next phase. So it's not tariff specific,
Speaker 1: but it is absolutely um a redo of the trade
Speaker 1: war and just a different arena. Well, hen RT's on
Speaker 1: this topic of decoupling, what is the that you think
Speaker 1: we should pay a lot of attention to? Obviously send
Speaker 1: it to Rubiot has been pushing the financial aspect of
Speaker 1: decoupling over the last couple of years. Should we focus there?
Speaker 1: Is it elsewhere? Where are you laser focused? Well? I
Speaker 1: think decoupling is something that we need to watch from
Speaker 1: a number of different fronts. So first start off with
Speaker 1: the sectors that you think are going to have national
Speaker 1: security implications, because that's well they'll start. So that's on
Speaker 1: the pharmaceutical side. That's on chemicals you know they make
Speaker 1: uh not, we we use Americans use generic drugs which
Speaker 1: come from generic products that are produced in China from
Speaker 1: their chemical plants, and they produce nine of the world's supply.
Speaker 1: So it's a whole range of components that they need.
Speaker 1: But then when you think about decoupling UM, you have
Speaker 1: to remember that if you're the FDA, or you're a
Speaker 1: company that's creating ipprofen or a knockoff generic product, you
Speaker 1: need approval from the FDA, which takes anywhere from three
Speaker 1: to seven years just to form a new plant. So
Speaker 1: you can't just make a new plant in Ohio. You've
Speaker 1: got to uh sort of repeat or have a have
Speaker 1: another one UM somewhere else that you start to slowly
Speaker 1: get ramped up to speed so that three years from
Speaker 1: now you can eventually begin coupled. But it takes a
Speaker 1: long time. But I would imagine they start in the
Speaker 1: pharmasector or chemicals, uh, and the healthcare space with ppe
Speaker 1: and masks and all that as well. Henrietta, I remember
Speaker 1: back when we were dealing with the trade wars in
Speaker 1: their first iteration in this cycle, a lot of companies
Speaker 1: were pushing back and saying, this isn't good for our
Speaker 1: business and we want to do business with China and
Speaker 1: we depend on these supply chains that are complicated to
Speaker 1: have been built up over time. Is there a different
Speaker 1: tone now from Corporate America saying we need to domesticate
Speaker 1: our supply chains. We need to couple for our business,
Speaker 1: not just a political reason. I think the business reasons
Speaker 1: are being driven by the political I still, you know,
Speaker 1: despite the last three years of what we've had under
Speaker 1: President Trump and a sort of cry for nationalism and protectionalism,
Speaker 1: a lot of business owners in most them is still
Speaker 1: saying that free trade is actually the best way for
Speaker 1: you diversify in the event of a pandemic like this
Speaker 1: or in the event of the need for global growth
Speaker 1: later on. If you have global trade, you use your
Speaker 1: trade and your productivity as efficiently as possible. That's a
Speaker 1: pretty standard economic model, and I think most businesses still
Speaker 1: have used that. What they're layering on top now is
Speaker 1: political risk, and that sometimes is superseding the economic arguments.
Speaker 1: And so they're saying, all right, well, you know, if
Speaker 1: we can't go to China because we don't know what's
Speaker 1: going to go on with tariff or even more insidiously,
Speaker 1: these export control restrictions, you have to get your financing
Speaker 1: outside of China, you need to get your staff outside
Speaker 1: of China um and you need to probably produce outside
Speaker 1: of China. So a lot of folks who looking to
Speaker 1: Mexico um as a natural backstop for another another's country,
Speaker 1: that might be a better opportunity for them. So I
Speaker 1: think they're still free market, still free trade, but have
Speaker 1: to layer on a political calculus as a result of
Speaker 1: both President Trump's policies but also now coronavirus, which is
Speaker 1: going to be a bipartisan opposition situation. That's it, isn't it.
Speaker 1: That's the political story, and that's the story. Free trade
Speaker 1: doesn't win the November election, does it. Nope? And sure doesn't.
Speaker 1: And that's going to be the problem here on now.
Speaker 1: So let's talk about the other side of the aisle.
Speaker 1: What's Vice President, former Vice President Joe Biden's position on
Speaker 1: all of this. Yeah, that's a great question. I actually
Speaker 1: think there's a possibility that Biden could be even worse,
Speaker 1: and that's because what we've seen under Trump is a
Speaker 1: very US exclusive approach. He's actually said to the EU
Speaker 1: and Japan and other nations, you know, get in line,
Speaker 1: We're going to get our deal with China. You can
Speaker 1: get your own. Um. What President Biden would say is,
Speaker 1: all right, these tariffs are all on three hundred and
Speaker 1: sixty billion dollars worth of stuff. I like, what you've
Speaker 1: done here. Now let's think about how we can get
Speaker 1: more out of China from the environmental front, from a
Speaker 1: human rights front, from an economic front. And he says,
Speaker 1: let's let's let's use the global rules based world order
Speaker 1: and try to prop up the w t O UM,
Speaker 1: get the EU in Japan to join forces with US,
Speaker 1: and we all target China together, and that way China
Speaker 1: can't just stop purchasing our pork and bring the United
Speaker 1: States farming community to its knees. We can combine forces
Speaker 1: with the EU, with Canada, with Japan and other nations
Speaker 1: with w t O bolster that and then really extract
Speaker 1: concessions from China, get them to become a developed nation,
Speaker 1: get them to more fully participate, be more transparent, and
Speaker 1: actually exact extract change. So I think Biden is actually
Speaker 1: a worse situation for China than just President Trump, who
Speaker 1: they sort of know was playbooks already and night upon.
Speaker 1: Michael Gapen is hugely qualified at Barclay's our chief US economists,
Speaker 1: but was serious international experience as well. Michael thrilled you
Speaker 1: with us. I want to get right to wages because
Speaker 1: I know that's what all of our listeners are worried
Speaker 1: about what will be the wage dynamic forward given claims
Speaker 1: and given that job's report we see in exactly seven days, Well,
Speaker 1: I think it's going to be a very thoughtful labor
Speaker 1: marketers Jonathan was just alluding to. And we we have
Speaker 1: the unemployment rate probably going to rise to the eighteen
Speaker 1: nineteen percent range in April, and it will be elevated
Speaker 1: we think for several years. We might get a lot
Speaker 1: of re employment over the next day, several months, and
Speaker 1: several quarters, but we think that there will be a
Speaker 1: tail to this in terms of of a high unemployment
Speaker 1: rate and thought to labor market conditions for some time.
Speaker 1: And I think what's been interested what we're watching. Um
Speaker 1: if you if you look back to the O eight,
Speaker 1: o nine experience and even previous recessions, there's been a
Speaker 1: lot of nominal wage rigidity in the US. As you know,
Speaker 1: that's been one of the reasons we think cor insulation
Speaker 1: was so stable even though we had wide swings in
Speaker 1: the macro economy. Firms historically have been reluctant to give
Speaker 1: wage cuts. We're seeing a lot of reports and reading
Speaker 1: a lot of news stories where that's not the case
Speaker 1: this time. So in lieu of even more layoffs. We
Speaker 1: may actually be getting wage cuts in the near term
Speaker 1: that could persist for some time. Now, those could be
Speaker 1: taken back, but it might take some time for that.
Speaker 1: So I think I think we have a two uh,
Speaker 1: potentially a two prong problem here where we have a
Speaker 1: lot of slack in the labor market, and at least
Speaker 1: in the near term, to preserve some employment, some actual
Speaker 1: wage cuts that may persist for several quarters through the
Speaker 1: rest of the year. That's what we're worried about. And Michael,
Speaker 1: we have seen that from a number of companies just
Speaker 1: saying we're going to cut salaries across the board by
Speaker 1: a certain proportion in order to remain solvent through this period.
Speaker 1: In a recent story in the New York Times, you
Speaker 1: were quoted saying that you expect the unemployment rate to
Speaker 1: hit nineteen and a half percent in April. Also, you said,
Speaker 1: given the trillion spent, we would have hoped that federal
Speaker 1: efforts would have been more effective at stebbing job losses.
Speaker 1: Given the fact that we have seen the surge in
Speaker 1: jobless rates, what does that tell you about the efforts?
Speaker 1: Can you just sort of extrapolate forward in terms of
Speaker 1: what that means. Yeah, I think that the risk here
Speaker 1: is that you know, any time you get laid off,
Speaker 1: even though you think it's for a short period of time,
Speaker 1: your employer says, look that we're going to do this
Speaker 1: now the expectations we can hire you back. You risk
Speaker 1: detachment from the labor force, You risk a longer spell
Speaker 1: of unemployment, You risk a deterioration uh in in skills,
Speaker 1: and obviously the longer you're unemployed, the harder it is
Speaker 1: to to get back uh and And so we we
Speaker 1: think what you're you're you're ultimately risking slower potential growth
Speaker 1: and higher unemployment and flack or for a period of time.
Speaker 1: Connectivity to the labor market is is hugely important. We
Speaker 1: know that. And the way that we've done this here
Speaker 1: in the US is different than than is being done
Speaker 1: in the UK and across Europe, where federal support is
Speaker 1: going directly to firms to keep employees on payrolls, where
Speaker 1: in the US it's going indirectly through the financial sector.
Speaker 1: And I do think the way we're doing this has
Speaker 1: been more unemployment than than I think we would like,
Speaker 1: certainly uh and and our concern is it's going to
Speaker 1: lead to a lot more prolonged spells of unemployment and
Speaker 1: we're comfortable with So obviously nobody is pleased with where
Speaker 1: there's unemployment rate is going to go. And I do
Speaker 1: think that the way that we structured some of this
Speaker 1: aid is a contributing factor. The Federal Reserve is likely
Speaker 1: going to want to keep rate to low for a
Speaker 1: long long time, and Tom has been on top of
Speaker 1: this through the morning. Michael. Just sitting on the front
Speaker 1: end of the yield curve will be the Federal Reserve,
Speaker 1: and I imagine they're going to produce some kind of
Speaker 1: forward guidance to convince us that this is going to
Speaker 1: be the story for a long long time. And I
Speaker 1: think what is forgotten often is that two year rates
Speaker 1: after the financial crisis ten years ago actually didn't bottom
Speaker 1: out until it took a long time, Michael, for this
Speaker 1: market to come around to the idea that rates weren't
Speaker 1: going higher back to where they were anytime soon. What
Speaker 1: is the FED learned from that period and how do
Speaker 1: they apply that to guidance this time around. Well, I
Speaker 1: think they could move directly to threshold based guidance just
Speaker 1: does depend on how they conclude their their framework review
Speaker 1: and they moved to a makeup strategy on inflation, but
Speaker 1: I think they can shift right away two thresholds of
Speaker 1: unemployment and inflation that that would dictate how long they
Speaker 1: expect to be at zero. I also think that they're
Speaker 1: strongly considering yield curve control, that you could do that
Speaker 1: out to say two to three years on the yield
Speaker 1: curve to complement and strengthen that forward guidance. So it
Speaker 1: would be a signal that guest, we have an outcomes
Speaker 1: based approach, of course, and we're not going to raise
Speaker 1: the funds right off to zeroo abound until we get
Speaker 1: this combination of inflation and unemployment data, and just to
Speaker 1: reinforce it, we're gonna we're gonna send the yeld curve
Speaker 1: and zero. If you're just joining us, Michael gave in
Speaker 1: with us with Barclays thrill. He could be with us
Speaker 1: on this may at first, I'm trying to figure out
Speaker 1: yield curve management within the banking and financial system of
Speaker 1: the US. I just that'll be sport, Michael. One of
Speaker 1: the big splashes this week was an Arianna Cuchula code
Speaker 1: in our Feller Reserve show talking Michael about negative interest rates,
Speaker 1: and he created a model uproar and economics by saying
Speaker 1: to three meetings from now, this FED will be considering
Speaker 1: negative interest rates. As John mentioned, the suppressed two year yield,
Speaker 1: and there's economists that just say, the guy from Dylan
Speaker 1: Read is never going to do this. Is it even thinkable,
Speaker 1: Michael Gabon that we would have the facts change so
Speaker 1: that we would consider going out of Europe? I don't
Speaker 1: think so. I'm in the camp that says the set
Speaker 1: has studied this extensively for years. When I was at
Speaker 1: the board in two thousand and eight, two thousand nine,
Speaker 1: this was under discussion, and I think it's it's been
Speaker 1: about a ten year story where every time they've looked
Speaker 1: at this, they consistently come back and felt that it's
Speaker 1: more trouble than than it's worth. So I don't think
Speaker 1: we're going to switch to that. I think there are
Speaker 1: other ways to deliver monetary policy support to the economy.
Speaker 1: The structure of the US is different than than it
Speaker 1: is in Europe, and I think it would cause a
Speaker 1: lot of disruptions to short term funding markets that the
Speaker 1: SETTE doesn't want to deal with. Just to sort of
Speaker 1: continue with the Federal Reserve, its balance sheet. The latest
Speaker 1: read which came out yesterday evening six point seven trillion dollars.
Speaker 1: That's the current size of its balance sheet. Many people
Speaker 1: expect that to exceed ten trillion dollars by the end
Speaker 1: of this year. How concerned are you about an increasing
Speaker 1: politicization of the Federal Reserve as its actions and those
Speaker 1: of the of the Treasury Department get more interlinked in
Speaker 1: the FED essentially monetizes the US IS debt. I think
Speaker 1: in terms of balance sheet size, I'm less concerned because
Speaker 1: now we had a democratic administration and a republican administration,
Speaker 1: and that the balance sheet have expanded under Bold, So
Speaker 1: we've had both sides of the political aisle, except the
Speaker 1: fact that a large balance sheet is what we need
Speaker 1: to help support the recovery. But I think you bring
Speaker 1: up a good point, which is virtually every one of
Speaker 1: these lending facilities as a joint said Treasury facility, and
Speaker 1: we think that there's going to be a deficit of
Speaker 1: fourteen or fi of GDP this year, and i'mgoing said
Speaker 1: purchases in some ways can be viewed as potentially monetizing
Speaker 1: some some of that debt. So certainly we need coordination
Speaker 1: between monetary and in fiscal the said just has a
Speaker 1: tough communication act here really to say, look, we're just
Speaker 1: acting as an agent of the treasury, and so they
Speaker 1: want us to do this. We're facilitating this. This is
Speaker 1: our role to help get liquidity and credit to households
Speaker 1: and business. It's a tricky line to walk, but I
Speaker 1: do think that they can execute it without getting dragged
Speaker 1: into the political phrase too much. Michael, before we let
Speaker 1: you go, just quickly, ten am, one hour and twenty
Speaker 1: minutes from now, the is M for manufacturing new orders, prices,
Speaker 1: paid employment, What are you focused on? How should we
Speaker 1: digest that data when it comes out? Well, I think
Speaker 1: certainly there is obviously going to be a bad number.
Speaker 1: We were We're going to be paying very close attention
Speaker 1: to the new orders component and the export component as
Speaker 1: well as employment. So I think it's this is it's
Speaker 1: another one of these numbers that we know. It's that
Speaker 1: we know were shut down for for the entire month,
Speaker 1: But we just we need to know how that. So
Speaker 1: I think that we'll we'll take our lead mainly from
Speaker 1: the data points that suggest to us how intertwined is
Speaker 1: this globally and new orders and and export orders are
Speaker 1: are one way to look at that, you know, and
Speaker 1: what I would do is relate this to what we've
Speaker 1: seen in China. China can't rebound is strongly when the
Speaker 1: rest of the world is is contracting. Their manufacturing sector
Speaker 1: has rebounded, but it's been a pretty moderate and tepid rebound,
Speaker 1: in part because global demand is so weak. So I
Speaker 1: think it's it's that type of inter in a relation
Speaker 1: that could show through in this report. Michael, fantastic to
Speaker 1: get up to speed with you, that's for sure. I
Speaker 1: have the team at Bankley's are doing well. Michael Gypanett
Speaker 1: of Boncley's, the chief US economists. We start May with
Speaker 1: a wonderful medical coverage. We have tried to bring you
Speaker 1: among universities worldwide and particularly in Baltimore, Maryland, the Johns
Speaker 1: Hopkins University, and each of their professors has a different expertise,
Speaker 1: a different character. Are Francine Laquis in conversation with Andrew
Speaker 1: Pekos de Virologists, Let's listen. So when Desivere has had
Speaker 1: a couple of reports out this week. UM one report
Speaker 1: from the NIH has shown that there's some significant promise
Speaker 1: of that treatment and that if it's given early enough
Speaker 1: in the course of infection. It seems to improve the
Speaker 1: time in which people get better and can leave the hospital.
Speaker 1: UM a report out of China has suggested it was
Speaker 1: less successful, but it looks like those patients were being
Speaker 1: treated much later in the disease process, at a time
Speaker 1: when it's not just the virus that's causing damage, but
Speaker 1: it's also your immune response to the infection that's causing damage.
Speaker 1: So I would say this cautious optimism right now from Desavere,
Speaker 1: but it certainly does seem like it's going to be
Speaker 1: a treatment that is probably more effective the sooner one
Speaker 1: gets it. Instuction process, What do you think will be
Speaker 1: a real game changer? So we talked about having apps.
Speaker 1: I know there are concerns about, of course, you know,
Speaker 1: personal information and but that could you know, let you
Speaker 1: get in contact with people that have been touched or
Speaker 1: have been in close contact with someone who is COVID
Speaker 1: nineteen positive. There's also antibody testing. What will be a
Speaker 1: real game changer of you know, saving lives but also
Speaker 1: getting people to get out of the lockdown. Yeah yeah, so,
Speaker 1: so you know, I think the better we are at
Speaker 1: treating individuals and getting them out of a hospital, UH,
Speaker 1: to free up resources. That's gonna be one important thing,
Speaker 1: because what that will do is that will free up
Speaker 1: more medical resources, it will free up testing resources, and
Speaker 1: that will allow us to switch to this sort of
Speaker 1: late phase of dealing with the pandemic. UM. We have
Speaker 1: a lot of hope for antibody tests. Over the next
Speaker 1: couple of weeks, we should get some idea of whether
Speaker 1: or not antibodies, what kind of antibodies are mediating protection
Speaker 1: from reinfection. And once we know that, we can really
Speaker 1: go after people in the population and identify people who
Speaker 1: should have a higher as distance to infection, and that
Speaker 1: will then really allow us to come forward with a
Speaker 1: much more detailed plan for how to open up our
Speaker 1: economy and loosen some of the public health interventions that
Speaker 1: work that most of the world is currently under. Andrew
Speaker 1: in twenty seconds, are we going to be much wiser
Speaker 1: about this virus in two months, two months or will
Speaker 1: it take longer? Two months? We will know uh incredibly
Speaker 1: more about the virus, in particularly how we treat it
Speaker 1: and um how we respond to it. UH the Johns
Speaker 1: Hopkins University, and we thank him and all of his team.
Speaker 1: Early through April and March for their wisdom. Here we
Speaker 1: should point out that with Johns Hopkins University is the
Speaker 1: Bloomberg School of Public Health UH, and they've been a
Speaker 1: big support as well. We should point out that Michael Bloomberg,
Speaker 1: the founder of Bloomberg LP and also this television and
Speaker 1: radio station, has been a philanthropist his Johns Hopkins University.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to reviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg
Speaker 1: Radio