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,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg with Us.
Speaker 1: Now with a broader picture all the emerging markets is
Speaker 1: Carmen Grenhardt. She is at Harvard Kennedy School, but far
Speaker 1: more than that, has been our most astute academic on
Speaker 1: the linkages of the developed world to emerging markets. Carmen,
Speaker 1: John and Lisa really want to dive into emerging markets.
Speaker 1: I totally agree with them. But I've got to ask
Speaker 1: you in your magisterial effort with Ken Rogoff back to
Speaker 1: the Spanish Armada. I remember reading your chapter on this
Speaker 1: time is different in the Spanish Armada. What does your
Speaker 1: tone say about pandemics? What in your study of eight
Speaker 1: hundred years with Ken, what did you learn about pandemics? Uh? Tom,
Speaker 1: I recently wrote a piece for it for Projects Syndicates,
Speaker 1: basically saying, this time it's truly different because we haven't
Speaker 1: lacked pandemics. Uh. But in history, but the kind of
Speaker 1: policy reactions to try to save lives by basically shutting
Speaker 1: down economy. Is this is this is this time is different,
Speaker 1: it's new. So the idea of using path pandemics to
Speaker 1: throw light on what's going on, I don't think it
Speaker 1: will work. The major one that influenza of nineteen eighteen
Speaker 1: was during World War One. We had nine real GDP
Speaker 1: growth in nineteen eighteen because is of the war effort,
Speaker 1: not because you know, there were measures like what we're
Speaker 1: seeing taken today. So it's limited, very limited what we
Speaker 1: can draw. Professor Einhardt Adam Two's a Columbia professor, wrote
Speaker 1: a piece for Foreign Policy that was pretty stark, and
Speaker 1: it said the coronavirus is the biggest emerging markets crisis ever,
Speaker 1: saying that the pandemic is starting to topple one of
Speaker 1: the pillars of the globalization era. His argument was that
Speaker 1: this time is different, as you say, in part because
Speaker 1: the developed market, the developed world cannot assist the emerging
Speaker 1: markets right now, given what we're seeing. Do you agree
Speaker 1: with him that this is the biggest crisis ever facing
Speaker 1: that that sector, Well, it's certainly as big as the nineties,
Speaker 1: which was very big. Uh, and it has the added
Speaker 1: dimensions that it goes well beyond its origins are not
Speaker 1: in the economy, but its origins already helped. So yes,
Speaker 1: it's it's it's a stark start situation. Professor Jonathan here,
Speaker 1: we've talked many times, just to jump in if I
Speaker 1: can forgive me, I've talked many times about dollar denominated
Speaker 1: debt building up in emerging markets over the last ten
Speaker 1: years or so. Are you starting to see those problems
Speaker 1: materialized now in the face of a strong good dollar,
Speaker 1: a shutdown in various economies, and a collapse for the
Speaker 1: backdrop going forward from here? Uh. Look, it's the the
Speaker 1: overused term perfect storm does apply because don't forget that
Speaker 1: underlying as the coronavirus wasn't big enough. We also have
Speaker 1: the Saudi Russia War. Many of these countries are commodity producers,
Speaker 1: oil producers and commodity producers. So they have, going to
Speaker 1: your question, a massive shortage of dollars because their exports.
Speaker 1: The export values are way down, export volumes are down,
Speaker 1: and they do have dollar debt. So the expectation and
Speaker 1: that debt servicing, uh, and that and defaults and restructurings
Speaker 1: are going to be on the rise. Is something to
Speaker 1: you know be expected. We thought many people, not including myself,
Speaker 1: and many people would come on this program, Professor and
Speaker 1: question dollar privacy, dollar hegemony in the next economic downturn.
Speaker 1: We finding out that the dollar is the place to
Speaker 1: be once again, even in this downturn. Well, Uh, it's
Speaker 1: funny you should mention that Ethan el Setki, a former student,
Speaker 1: Ken Roboff, and I have had several recent pieces on
Speaker 1: this very issue. And indeed, what we find is that
Speaker 1: in the ten years after the two thousand eight two
Speaker 1: thou nine UH financial meltdown, UH, the dollar gained a
Speaker 1: lot of ground internationally as the reserve currency. For two reasons.
Speaker 1: One is UH, the euro UH fell back UH concerns
Speaker 1: about its sustainability. It fell back it. And the second
Speaker 1: is Chinese lending, which was has been massive while over
Speaker 1: the world is dollar denominated. So it's Chinese, but it's
Speaker 1: not in Remember, for the most parties in dollars. So
Speaker 1: the dollar, Yes, it's the dominant currency and no evidence
Speaker 1: to the contrary at this stage, so, professor. But tiling
Speaker 1: this forward from a market's perspective, dollar denominated emerging market
Speaker 1: stat just had its worst quarter since nineteen Are we
Speaker 1: going to see more of the same and a rash
Speaker 1: of defaults that rivals what we saw during the nineteen
Speaker 1: eighties and Latin America. It's very possible. It's very possible now. UH.
Speaker 1: I have been hoping that the international community, the multilaterals,
Speaker 1: with the major government moved towards a uh A death
Speaker 1: stand still, you know, a moratorium. Before that the false
Speaker 1: materialized because after all the everybody's incomes. This is that
Speaker 1: the household at the firm level, at the country level
Speaker 1: has been paralyzed. So debt payments should also likewise be
Speaker 1: temporarily UH suspended. But absence that, it's already it's already happening.
Speaker 1: You're seeing the down the downgrades in the credit rating agencies,
Speaker 1: with countries moving into junk and near junk UH status coming.
Speaker 1: Always great to get your thoughts on this program. We
Speaker 1: appreciate time this morning, our thoughts with you and yours.
Speaker 1: Come and run. How there Harvard Kennedy School Professor Cricket
Speaker 1: introduction to our steam guest. He has is the view
Speaker 1: of America more than anyone I know. Mohammed units with
Speaker 1: us of the acclaimed Gallop polling organization. Mohammed, you don't
Speaker 1: look at the horse race. As you look at the
Speaker 1: fabric of the country, it's a country flat on its back.
Speaker 1: What portion of America can't get to the next rent payment?
Speaker 1: According to our estimates and based on the polans we
Speaker 1: were doing last week, percent of employ of those employees
Speaker 1: say that their employers cut jobs, reduced hours, throsen hirings.
Speaker 1: Sixty two percent say that the their financial situation has
Speaker 1: already been affected by it. A third the one and
Speaker 1: seventies million workers in the US cannot get to the
Speaker 1: next paycheck. They're living literally page xcupation. That sixty to
Speaker 1: forty million Americans, UM. And that's just the workers, so
Speaker 1: you can imagine their families. U. At this point, I
Speaker 1: think even with reporting just this morning out of Italy
Speaker 1: on some of the social unrest that now is becoming
Speaker 1: a concerned UM. I think after we all think through
Speaker 1: the public health issues, what we're trying to do at
Speaker 1: Gallup is also attacked. How Americans are feeling UM and
Speaker 1: the impact this will have on social just disintegration. Unfortunately
Speaker 1: in some situation. I'm coming to you, Mohammad from uh
Speaker 1: Central work in New York. It is an island of prosperity.
Speaker 1: I'm looking down at billionaires Row seven skyscrapers. This is
Speaker 1: not America. What is the distance of Governor Culomo's New
Speaker 1: York State or Washington, or even the burgeoning crisis in
Speaker 1: Atlanta or Miami in Boston. What's the distance of those
Speaker 1: urban areas in this pandemic from the rest of a
Speaker 1: more rural, more suburban America. UM. We always see very
Speaker 1: dramatic differences. UM. Once seemed to point out you mentioned
Speaker 1: Governor Clomo. UM. And a lot has been made about
Speaker 1: leadership and how leadership is doing in this crisis. We
Speaker 1: consistently find the Americans are much more positive on than
Speaker 1: a local government at any level compared to the federal government.
Speaker 1: Americans are now most an approval of health care workers
Speaker 1: and their local hospitals in this crisis. UM. How Americans
Speaker 1: react to the situation, of course, depends on what's happening locally.
Speaker 1: It's interesting that the federal government apparently today is going
Speaker 1: to roll out UM guidelines on how local government can
Speaker 1: also react based on their local reality. This is a
Speaker 1: huge country. UM. When we talk about the United States
Speaker 1: to ultimately talking about you know, fifty different countries with
Speaker 1: different realities. The economics that hurt that's happening across the country.
Speaker 1: And now you know, even with the social distancing, uh
Speaker 1: you know, seven to eight out of Pan Americans on
Speaker 1: pretty much every metric now are basically social distance. And
Speaker 1: when we started tracking this, there was only about people
Speaker 1: that said they were going to be changing their lives.
Speaker 1: At this point, everything is uh so the reality of
Speaker 1: not being able to make that paycheck. These is the
Speaker 1: the public health concerns, even just locally, I think are
Speaker 1: going to become the crux of the issue for leadership
Speaker 1: um and it's what we're going to try very closely.
Speaker 1: Is the other thing is just a well being. I
Speaker 1: mean people we've seen now reports of domestic violence uh
Speaker 1: increasing in some localities. How people are managing the stress
Speaker 1: of not only the economic challenges, but also trying to
Speaker 1: jump work if you can, virtually having children at home,
Speaker 1: not having educational institutions operating. All of these things we
Speaker 1: know from our research from other crises over the past
Speaker 1: few decades have a real impact on how society. Paul,
Speaker 1: let me report here on online learning at the Keen Household.
Speaker 1: We're in a free period and Minecraft is being play,
Speaker 1: and Minecraft is being played. I'm sure it is Mohammed
Speaker 1: give us a sense of you know, how much longer
Speaker 1: does he? The most Americans feel like this, we'll go
Speaker 1: on this coronavirus disruption at this point to see one
Speaker 1: for scent of Americans thinks that this will go on
Speaker 1: for a few months. Actually, excuse me, fifty The numbers
Speaker 1: are coming in daily. We started off with about half
Speaker 1: of Americans. It's expecting it to go on for a
Speaker 1: few months. These numbers actually predate President Trump's UM change
Speaker 1: of course, if you will, in expending UH the isolation guidelines,
Speaker 1: so we probably would expect that number to go up.
Speaker 1: That being said, Americans are also overwhelmingly in support of
Speaker 1: the rescue package compared to other UH stimulus packages like
Speaker 1: harpings and then other situations of crisis. Today there be
Speaker 1: seven percent of Americans to prove of it, it's by
Speaker 1: partisan of who will actually Democrats to present one are
Speaker 1: mostly are more likely to support it than than Republicans. UM.
Speaker 1: But this again it gets back to UM what the
Speaker 1: larger picture means. I think for people's pocketbooks of Americans
Speaker 1: right now, think it's very likely that the United States
Speaker 1: that this will send the United States into our procession.
Speaker 1: If you will so people are really planning for the
Speaker 1: worst or expecting the worst, whether they have the wherewithall
Speaker 1: to really get through it. I think it's really up
Speaker 1: for graphs um. I mean in terms of the local
Speaker 1: learning or talent learning. Actually just came up in my
Speaker 1: four year old. He's on a ZOW meeting with his
Speaker 1: other students, uh and teachers and even just for education.
Speaker 1: It's amazing how a lot of this was possible before technologically.
Speaker 1: But again, see a situation where the crisis pushes us
Speaker 1: over the edge, right right, it's been hugely valuable. Mohammed units,
Speaker 1: thank you so much for your good work at Gallup Today. However,
Speaker 1: is in the securities analyst business one of those wonderful
Speaker 1: people that not only writes the reports that actually goes
Speaker 1: in the stores. He can't go in the stores now
Speaker 1: they're all closed. He is with Cowen and joins us today, Oliver,
Speaker 1: there's an American Eagle two blocks down from our world headquarters.
Speaker 1: It's closed. How critical is that they open as soon
Speaker 1: as possible. It's really critical just because the majority of
Speaker 1: sales still happen in store. So for all these retailers,
Speaker 1: they're in survival mode because they're their number one source
Speaker 1: of revenue is is at risk and for the foreseeable future,
Speaker 1: there's so much uncertainty. I mean, the employees are load
Speaker 1: across Macy's gap and polls um it's it's uncertain wind
Speaker 1: stores will open as we pull executives. It could be
Speaker 1: four or more months, and our analysis indicates that liquidity
Speaker 1: is at risk after five So one in four Americans
Speaker 1: work in retail, and retail really played the important art
Speaker 1: in the consumer, so that this is something we're watching.
Speaker 1: And we continue to see a bifurcation where people who
Speaker 1: need household essentials and food and beverages that's really obviously
Speaker 1: worked ing, discretionary purchases are are less important, and at
Speaker 1: home fitness is working too. Oliver. There's a huge amount
Speaker 1: of confusied confusion at the moment over whether Sames who
Speaker 1: decided to follow employees before the aid became available from
Speaker 1: Washington d C, whether they're eligible for any of those loans,
Speaker 1: any of those grants um from the fiscal aid package
Speaker 1: that went through over last week, are they If you
Speaker 1: got any clarity on that whatsoever. Yeah, I think as
Speaker 1: I talked to CEOs and um my contacts on the
Speaker 1: business everybody's analyzing it closely and logging on and looking
Speaker 1: um with with no specific conclusions. So I think it's
Speaker 1: a it's a point of transition where where people are
Speaker 1: really seeking out what what what's available. Also, when you
Speaker 1: furlow a worker, there's different standards by state regarding unemployment,
Speaker 1: So I don't think there's a blanket answer regarding allocating
Speaker 1: these resources to where they're needed most um to be
Speaker 1: frank and we're just seeing all kinds of different efforts
Speaker 1: to support workers and in places of business in the
Speaker 1: time of need. More than five hundred thousands that is
Speaker 1: the number of furloughed or laid off retail employees in
Speaker 1: the United States, Big retailers across the board closing down.
Speaker 1: And I'm looking right now at some of the names
Speaker 1: Victoria's Secret, I'm looking at gap Nemon, Marcus. I'm struggling
Speaker 1: to understand how much this entire episode is going to
Speaker 1: force companies that were already struggling to the break. I mean,
Speaker 1: how much is just just accelerating a process that would
Speaker 1: have been underway already with some of these struggling retailers,
Speaker 1: versus actually killing really viable and strong and Frankly, thriving businesses. Yeah,
Speaker 1: I agree with you regarding what's happening next. It's the
Speaker 1: big getting bigger. So we're moving towards the world of Walmart, Target, Amazon,
Speaker 1: and then mega players like LVMH. So consolidation is one
Speaker 1: key theme with with related m and a of some
Speaker 1: good brands that aren't necessarily as profitable are good valuations.
Speaker 1: UM too, I think we'll see store closures and permanent
Speaker 1: changes in malls. We already had struggling malls about more
Speaker 1: of malls UM are B in C class and that's
Speaker 1: a big issue. And then rethinking rent um the rent
Speaker 1: expenses will need to come down UM and this will
Speaker 1: a lot depend on the pace of recovery. So going forward, UM,
Speaker 1: we believe stores will be closed until May at least,
Speaker 1: if not longer UM. And the pace of the consumer
Speaker 1: coming back will be a big question mark is it
Speaker 1: VU or L And that will matter for long term viability.
Speaker 1: But department stores were already struggling. The big theme I
Speaker 1: also want to mention is this curbside pickup and rethinking
Speaker 1: retail in terms of contact lists and what does experiential
Speaker 1: mean in a contactless world. So we've already been seeing
Speaker 1: the digital innovation with zero check out and curbside pickup
Speaker 1: that's accelerating by a couple of years now, Oliver, I
Speaker 1: want to pick up on the consolidation theme that you
Speaker 1: talked about. Gap, for example, offered information to employees about
Speaker 1: getting jobs at Walmart. I'm wondering, I mean, what kind
Speaker 1: of consolidation. What are some names that you see? I mean,
Speaker 1: is Walmart going to go buy Gap? Anything can happen.
Speaker 1: I think we're we're seeing is um. You know, Walmart
Speaker 1: is the biggest grocer and it also sells lots of
Speaker 1: soft goods and essential the businesses grocery and Amazon grocery
Speaker 1: and apparel um and and rethinking, and Amazon is even
Speaker 1: interested in luxury good So retail has really been fueled
Speaker 1: by scale because even before this, the digital investments, the
Speaker 1: supply chain investments, the need for speed um has really
Speaker 1: been the domain and easier for larger players. The artificial
Speaker 1: intelligence data rethinking data scale matters for the training models
Speaker 1: and the algorithms. So that's something to think of and
Speaker 1: and anything can happen. I think every retailer is working together,
Speaker 1: and this is also a time for the industry to
Speaker 1: come together to reallocate resources where they're needed. And clearly, um,
Speaker 1: there's so many stockouts and labor is necessary as the
Speaker 1: whole country gets ready olive right now, John wants to
Speaker 1: take us in a different direction. You know, as you
Speaker 1: look at retail across America. We had a listener our
Speaker 1: call in vet Bille was barking earlier and Vet Bill
Speaker 1: wants to know. Our dog wants to know what are
Speaker 1: we gonna do with Chewi? I mean, Chewie is hugely successful.
Speaker 1: Is Chewy a no brainer for Amazon? Well, I think
Speaker 1: the reality is this at home experience and taking care
Speaker 1: of your dogs. And also health and wellness is a
Speaker 1: huge theme and rethinking wellness. Um, you know stock we
Speaker 1: like is peloton. I was just on the bike. And
Speaker 1: also we're seeing concepts like Neo Yeah, I was on
Speaker 1: the bike. You know, you know life will be about
Speaker 1: self care as well. Listen to you, Okay, okay, folks,
Speaker 1: I just got We're gonna stop the show here. We
Speaker 1: got aim to do this. John. The number one argument
Speaker 1: of the last three days in our isolation, our kingdom
Speaker 1: of isolation is someone in the house is demanded we
Speaker 1: get a peloton. What happens when the gym reopens again.
Speaker 1: That's what I said, thank you, thank you. I think
Speaker 1: a lot of people thinking in the same way. One
Speaker 1: thing that I think might change, though, Oliver, and it
Speaker 1: came up in conversations that I was having recently as well,
Speaker 1: the rush to go to services like rent the Runway
Speaker 1: through where you're essentially a sharing clothes with a monthly subscription.
Speaker 1: Of course those clothes are cleaned, Oliver. Many companies were
Speaker 1: looking at following Rent the Runways practice through last year
Speaker 1: and the great success it had. Are we going to
Speaker 1: start to question that in a massive way as we
Speaker 1: come through this and come out of it. Well, as
Speaker 1: we come out of it, I think what will happen
Speaker 1: is we have a consumer that's going to be laser
Speaker 1: focused on value. So as you think about rental and
Speaker 1: um and what it can do as well as a
Speaker 1: re commerce it's forty tw eight percent off. So we
Speaker 1: already had the t J Max's of the world be
Speaker 1: really successful in taking share from Macy's and full price
Speaker 1: department stores, but you know, repricing these goods and offering value.
Speaker 1: Of course, the Rent the Runway has a very sophisticated
Speaker 1: cleaning facility, and I think people will want less stuff.
Speaker 1: I think people will care about sustainability and environment and
Speaker 1: everybody's rethought um what experiential means in terms of staying
Speaker 1: home and spending time with with loved ones and others.
Speaker 1: We have a chance, always great, get your thoughts on
Speaker 1: the show. Come and see your equity research analysts on
Speaker 1: the retail outlook and on social distancing. Let's get to
Speaker 1: the first conversation of the morning. Shall we please to
Speaker 1: say that Jaha Chanleus joins us now Credit Sweets head
Speaker 1: of f FX and macro trading strategy. You have always
Speaker 1: great to get you on the program. Let's talk about it,
Speaker 1: shall we? Shahab dollar strength back on the table. Last
Speaker 1: week we thought there was some science of success from
Speaker 1: the Federal Reserve. We're saying signs of stress once again.
Speaker 1: I don't think so. I think what we're seeing right
Speaker 1: now is a much anticipated month end flow linked to
Speaker 1: changing hedge ratios, which this might happen to mean that
Speaker 1: dollar buying is in order. There's there's an anticipation that
Speaker 1: once this is outsd the way, the market will start
Speaker 1: to look again at the underlying drivers at a dollar
Speaker 1: at this point, and that for now more broadly seems
Speaker 1: to be the capacity of FED in particular to to
Speaker 1: provide dollars to the market via its various facilities, but
Speaker 1: also hopes for more US fiscal stimulus, which historically would
Speaker 1: have been seen as a dollar positive, but at the
Speaker 1: moment um this is seen as something that again helps
Speaker 1: put more dollars into the system. So as long as
Speaker 1: these factors are driving the market, I would imagine dollar
Speaker 1: strength to be relatively short term, and then after that
Speaker 1: for the dollar to again start to trade in line
Speaker 1: with markets. More broadly, if we're settling for the end
Speaker 1: of the first quarter, what is your positioning for the
Speaker 1: beginning of the second quarter? What is the Jalones strategy?
Speaker 1: Given the total chaos we're living in It's it's obviously
Speaker 1: a very tactical market. Do we can't pretend to try
Speaker 1: to have a fully strategic position for an entire quarter
Speaker 1: when realized volatility is as as as high as it is.
Speaker 1: We're taking each week as it comes. At this point,
Speaker 1: what I would say, though, is that the market is
Speaker 1: already a pricing and fairly negative outcomes for the second
Speaker 1: quarter in terms of data, So to undershoot these negative
Speaker 1: outcomes in terms of actual outcomes is actually going to
Speaker 1: be quite a tall order now at this point, um,
Speaker 1: And I do believe that there's still more of a
Speaker 1: focus at this point on the possibility of more stimulus measures.
Speaker 1: For example, Japan has just announced or is looking at
Speaker 1: announcing a very large package of its own as well.
Speaker 1: So as these come through, I believe that these still help,
Speaker 1: at least within the g tent space. The pro risk currencies,
Speaker 1: the likes of Australian dollar the Canadian dollar in the
Speaker 1: very years term, UM, But I think in the in
Speaker 1: the medium terms, to see a real turnaround in these
Speaker 1: types of currencies, we do need to see other factors
Speaker 1: comes through. So for example, we do need to see
Speaker 1: oil prices base. We do need to see virus infection
Speaker 1: growth rates come down so that markets can believe transport
Speaker 1: around the world can resume again. These are the types
Speaker 1: of things that they are still the big unknowns from
Speaker 1: medium some perspectives. So those helicopters that Tom Keaton seeks
Speaker 1: to talks about all week and has been talking about
Speaker 1: for the past few weeks dropping money into his triple
Speaker 1: triple leverage cash fund, they're going to continue and in
Speaker 1: the short term maybe that won't necessarily debase the dollar
Speaker 1: over the long term, though, how does the US get
Speaker 1: out of this other than just printing money and leading
Speaker 1: to inflation and in the basement of the dollar, well, look,
Speaker 1: I think the key here is effect at the end
Speaker 1: of the day is a relative price um. And the
Speaker 1: truth of the matter is all the other central banks
Speaker 1: are doing the same thing in one form of another,
Speaker 1: exactive in what you know would have been seen as
Speaker 1: very difficult a few years ago, which is emerging markets
Speaker 1: doing qunstantiveas ing um without necessarily seeing their currency is
Speaker 1: getting crushed. You know, that's also happening right now, so
Speaker 1: across the broad range of emerging markets. So the truth
Speaker 1: of the matter is it's it's very difficult to look
Speaker 1: at the dollar in isolation from that perspective, given that
Speaker 1: everyone else is doing the same thing. So when we
Speaker 1: talk about debasement, it could be the case that we
Speaker 1: see down the line a general rise in price levels
Speaker 1: around the world. Basis, that's not necessarily going to mean
Speaker 1: that the dollar falls against other currencies in a in
Speaker 1: a material way. Um. Given that it's a very common
Speaker 1: policy at this point in time. If someone comes to
Speaker 1: you shab and says, I have a belief oil will
Speaker 1: recover in some way or form. What is the best
Speaker 1: way to express strong oil. Yes, that's a good question.
Speaker 1: I think. You know, if you look at things like
Speaker 1: futures prices, futures, because the situation is that there's so
Speaker 1: little storage available for all right now, it means that
Speaker 1: futures prices are actually much higher than the spot prices,
Speaker 1: and therefore, trying to buy you know, oil for future
Speaker 1: delivery in futures, for example, you'll be paying a much
Speaker 1: higher price than the spot price anyway. So I'm not
Speaker 1: sure that there is a very efficient and simple way
Speaker 1: of getting around this conundrum. If you have access to
Speaker 1: cheap storage, you could try to buy Uh. Yeah, I
Speaker 1: have that. We've we've moved, after thought out in her bedroom,
Speaker 1: barrels of oil. Jerm, we're not all big clash. Har
Speaker 1: we can't go and get a super tanker. Let's talk
Speaker 1: about foreign expect Let's talk about foreign exchange and what
Speaker 1: you're seeing in the dates around of China. Some confusion
Speaker 1: in the p M S. The p M I s
Speaker 1: it's not the twin of g d P, it's a
Speaker 1: derivative of of g d P, and all you're asking
Speaker 1: people in China at the moment, are things better this
Speaker 1: month than last month? And the answer to that question
Speaker 1: is yes, But does that main output is recovered what
Speaker 1: it lost in February. The answer to that is no.
Speaker 1: Social hab talked to me about the trajectory you're looking
Speaker 1: for for the Chinese economy. Yeah, that's a that's a
Speaker 1: very good point. So according to our credits with China economists,
Speaker 1: by his calculations, all the all the big jump in
Speaker 1: the pm MYA shows in March is that the level
Speaker 1: of activity is not only nine, isn't only twenty below
Speaker 1: it's peak levels as opposed to in February. So it's
Speaker 1: still a long way down, it's just improved a bit.
Speaker 1: So in that context, we don't believe that the Chinese
Speaker 1: currency is on the verge of of of a dramatic
Speaker 1: recovery at this point. Ultimately, China just this week cut
Speaker 1: rates again and added more money to the system. Again
Speaker 1: to your points around helicopter money. Um, you know, even
Speaker 1: in China, where there is already a large people fear,
Speaker 1: a large debt problem potentially brewing down the line, what's
Speaker 1: still going on is more money being pumped into the system,
Speaker 1: So we do believe that that will keep the REMEMBER
Speaker 1: somewhat contained. And what applies to the Remember applies across
Speaker 1: the emerging market space. So for those looking for a
Speaker 1: dollar turnaround, it's easier, though view, to play that within
Speaker 1: the detain complex, within the higher quality currencies, you could say,
Speaker 1: than some of the the risky occurrencies at this point
Speaker 1: in time that are still plagued by weak growth. Um
Speaker 1: China as one of those guests, but but again in
Speaker 1: Latim as well, for example, plagued by weak growth, but
Speaker 1: have maybe weaker underlying fundamentals at a structural level as well,
Speaker 1: and are still experimenting with with quintitive easing as well
Speaker 1: in some cases. Brazil is another one that might do this,
Speaker 1: for example. So these these put huge question marks these
Speaker 1: kinds of issues around these risky occurrency job always gad
Speaker 1: skate thoughts on a program. I'm best to you and yours,
Speaker 1: johap John credit Sway, his head of f X and
Speaker 1: Macro training Strategy. Let's begin our labor analysis. Normally, folks,
Speaker 1: we really wouldn't do this on a Tuesday, but we're
Speaker 1: gonna do it today. Break the rules with Julia Carnado
Speaker 1: Macro policy perspective. Quoted I believe in the Washington Post
Speaker 1: lead article this morning on the American economy. Julia, good morning.
Speaker 1: What number do we expect Thursday and claims? Is it
Speaker 1: a guess or can you come up with some form
Speaker 1: of statistic? Well, it's a guest. Uh, it's it is
Speaker 1: the leading indicator. So all we're basing it on is
Speaker 1: um the reports that we're getting from individual states. But
Speaker 1: it looks like we're going to have another record breaking number.
Speaker 1: So the three point two million last week is not
Speaker 1: a one off. We're probably going to see another maybe
Speaker 1: two million in claims this week, UM, and that's going
Speaker 1: to translate into men the millions uh loss of payrolls
Speaker 1: in the April report, not the report throughout this Friday,
Speaker 1: but the following report comes in early May. Julia. The
Speaker 1: expectations are getting increasingly dire. Goldman Sachs came out with
Speaker 1: a forecast a couple of weeks ago saying the US
Speaker 1: will shrink by an annualized in the second quarter. Now
Speaker 1: coming out saying it's going to be thirty four percent
Speaker 1: and saying unemployment will soar to fifteen percent by mid year.
Speaker 1: What are you looking for in the data to either
Speaker 1: confirm that dire view or that perhaps gives you a
Speaker 1: sense of what we're looking at. So claims is probably
Speaker 1: one of the more reliable indicators we have right now
Speaker 1: and timely. Uh So, I think how high it goes
Speaker 1: and how persistent that is. Obviously, in this episode, we're
Speaker 1: bringing forward a contraction um in a really unusual way.
Speaker 1: Um So the duration of this matters a lot, and
Speaker 1: then how much it still go over from the immediately
Speaker 1: impacted sectors hotels, restaurants, the travel industry into other sectors.
Speaker 1: Uh is something that we're going to be watching for.
Speaker 1: So high frequency indicators are much more valuable, uh than
Speaker 1: than usual in the current context. You say, bringing forward
Speaker 1: a contraction, and when people talk about how unusual this
Speaker 1: is a forced shutdown in order to fight a pandemic,
Speaker 1: do we have any sense or or the number is
Speaker 1: going to give us any clues as to how quickly
Speaker 1: some of these people can get their jobs back. You know,
Speaker 1: it really is going to be dependent on how effective
Speaker 1: all of these stimulus measures are. So I think with
Speaker 1: the two trillion and the four trillion in fiscal stimulus
Speaker 1: and the four trillion in lending capacity at the fed.
Speaker 1: How quickly can that get out the door? How much,
Speaker 1: how effectively does that serve as a bridge loan for
Speaker 1: businesses so that they can stay in business and restart
Speaker 1: operations in a timely way. Um I don't think it's
Speaker 1: going to be a v The shutdowns may start to end,
Speaker 1: but then I think we're going to resume normal activity
Speaker 1: very cautiously and gradually. UM So, I think it's going
Speaker 1: to be more of a you And once we really
Speaker 1: get to address this virus and test and develop a vaccine,
Speaker 1: then we can really resume activity with with confidence, and
Speaker 1: that probably won't be util next year, Junior. On a
Speaker 1: program like this, we're really fortunate to have one of
Speaker 1: the most sophisticated smart audiences. I think there is anywhere
Speaker 1: in the world of media worldwide on a program like
Speaker 1: Bloomberg Surveillance, but we have a broader audience when things
Speaker 1: get stressful in markets and we have the kind of
Speaker 1: draw down we've had over the last couple of weeks,
Speaker 1: and I think we need to do a better job
Speaker 1: of trying to translate what the feed is actually doing.
Speaker 1: So a headline just across the Bloomberg just moments ago,
Speaker 1: and I'll read it out the batim. It said, the
Speaker 1: FEED is launching a temporary repo facility with foreign central banks,
Speaker 1: the facility and our central banks to repo treasuries for
Speaker 1: dollars to facility. See is an alternative dollar source to
Speaker 1: selling securities? Can you translate what they're doing for a
Speaker 1: much wider audience and why they're doing what they're doing? So, UM,
Speaker 1: the dollar is the reserve currency of the world us UM.
Speaker 1: How we UH engage in international trade, it's it's contracted
Speaker 1: and executed in dollars. So what we often see in
Speaker 1: a crisis is that there's a shortage of dollars globally. UM.
Speaker 1: A lot of borrowing and commerce and investing is done
Speaker 1: in dollars UH. And when you have a dollar crunch
Speaker 1: like that, it can turn from you know, a recession
Speaker 1: or a contraction and activity into a financial crisis very
Speaker 1: quickly because the dollar shortage can trigger default and de leveraging.
Speaker 1: So I think this is what the SET is trying
Speaker 1: to address by providing that dollars liquidity through global central banks.
Speaker 1: That we did that with the swap lines, now we're
Speaker 1: doing it with ripo UM. So I think it's again
Speaker 1: trying to short circuit. This what is clearly going to
Speaker 1: be a deep and painful recession from becoming a full
Speaker 1: blown financial crisis. And that's been the objective of all
Speaker 1: of these various activities that that has been engaged in.
Speaker 1: And to follow on from John's Wilfriend question, Dr Coronado,
Speaker 1: is the idea here is to get out in front
Speaker 1: of crisis. And as we've all studied that crisis comes
Speaker 1: from emerging markets. Are we at a point where the
Speaker 1: emerging markets in dollar shortage are so fragile and they
Speaker 1: don't have the power against the great reserve currency that
Speaker 1: they're gonna need I m F assistance. Soonest um, more
Speaker 1: than likely we will see some countries in that level
Speaker 1: of distress. Um. Again, I think that the said has
Speaker 1: been very aggressive, very early. So that was one of
Speaker 1: the lessons learned from two thousand and eight. You don't
Speaker 1: hold your ammunition back, um, And I think that will
Speaker 1: help um. But nonetheless, I think we're already seeing signs
Speaker 1: of distress. And UM, you know that this is unfolding
Speaker 1: with unprecedented speed. Uh So you know, whereas as you
Speaker 1: were saying earlier, Tom, just a few months ago, the
Speaker 1: picture looked pretty benign um, boy, have things changed, and
Speaker 1: so UM, I think even some of all of these
Speaker 1: efforts aren't likely to be universally effective in in presenting
Speaker 1: all distress. There will be distress in some countries. And
Speaker 1: back in the U S. There's a question about the
Speaker 1: world's largest economy and the safety net that the consumer had,
Speaker 1: the strong consumer where some reports towards the slock of
Speaker 1: Deutsche Bank in particular coming out and saying they don't
Speaker 1: have six hundred dollars on average to cover an emergency,
Speaker 1: and people are looking to the April one rent which
Speaker 1: may or may not get paid. Do you have a
Speaker 1: sense of just the sort of resources of the consumer
Speaker 1: right now? How strong the household balance she is heading
Speaker 1: into this? Well? I think this is where the distribution
Speaker 1: of income is relevant. Um, We household have strong balance sheets,
Speaker 1: but that those strong balance sheets are concentrated at the
Speaker 1: high end of the income spectrum. Meanwhile, it is the
Speaker 1: lower end of the income spectrum that is most vulnerable
Speaker 1: and experiencing the greatest job losses. So UM, many households,
Speaker 1: most households don't even have four hundred dollars emergency. Households
Speaker 1: can't pay rent on April turns at least, I'm so
Speaker 1: glad you brought this up at Dr Cornada. You go
Speaker 1: right to the heart of the matter. Everyone listening to
Speaker 1: this to the show with or without means maybe they
Speaker 1: have family members that can't get that four hundred dollars
Speaker 1: of that rent check for April. Why is our politechs
Speaker 1: pussy footing around with an alphabet soup of politically generated programs.
Speaker 1: What we need is massive income substitution. Yes, you're absolutely right, Tom,
Speaker 1: and some other countries have been much more aggressive on
Speaker 1: that front, providing rent and mortgage payment holidays for their
Speaker 1: consumers for a number of months. That is what you
Speaker 1: need to bridge Uh, this cash crunch for consumers. Uh,
Speaker 1: and we have not, Julia. You're a huge student of
Speaker 1: history on this. Where where did this come from? Is
Speaker 1: this some lackian Calvinist ethos from the nineteenth century? Is
Speaker 1: it some pseudo Victorian psychology? People? And many folks this
Speaker 1: is Republicans and Democrats they gotta pay the rent? Yeah, yeah, No,
Speaker 1: I I don't. I can't explain the political rationale for this,
Speaker 1: tom Um. And even the Fed has it in its
Speaker 1: power to be more aggressive on this front. They could
Speaker 1: mandate Uh, they have issued supervisory guidance to banks to
Speaker 1: encourage forbearance and um payment holidays. They could be a
Speaker 1: little bit more forceful on that front and really find
Speaker 1: a way to finance a payment holiday for agency mortgages
Speaker 1: and sort of mandated for the banks and figure out
Speaker 1: the financing uh that's required. I think we could see
Speaker 1: a stronger effort from the BED to set the standard
Speaker 1: there and get that use the financing in the creative
Speaker 1: way to address that cash crunch. And I hope that's
Speaker 1: the direction they start to go in, because it certainly
Speaker 1: is within their power. Judy, thank you and thank you
Speaker 1: for this morning. Thank you for taking the time to
Speaker 1: speak with us. We really appreciate it. Judy krn Out
Speaker 1: of that macro policy perspective, FUNDA and president as well.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews 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