Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Ley. 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 Ready
Speaker 1: placed to say, we've got a class act in the
Speaker 1: studio today, how would Wards ce io of Growth Equities
Speaker 1: for Kabelly Funds? Good morning to you, Howard. How much
Speaker 1: damage have we done? How long's it hate to recover
Speaker 1: from something like this? We're up three four percent, We're
Speaker 1: down two percent next day, same thing, following day, different
Speaker 1: well last week um in about seven days the smp
Speaker 1: F i've hond it erased two and a quarter years
Speaker 1: of gains UM. So the damage has been severe. We
Speaker 1: were down on closing prices at the low I think
Speaker 1: from there the high of ten days or so ago.
Speaker 1: So significant damage. And typically when you have that kind
Speaker 1: of damage, the market doesn't snap back. Now, if you
Speaker 1: have a fat finger flash crash where it's not a
Speaker 1: function of deteriorating economic fundamentals, the market can snap right back.
Speaker 1: That's not the case here. We have a global healthcare
Speaker 1: crisis emerging and people are resetting their expectations for growth
Speaker 1: and earnings, and UH stocks are resetting as a result.
Speaker 1: So it takes a while to recover from the amount
Speaker 1: of technical damage the market has incurred. And I'm talking
Speaker 1: about a period of months. You're a good friend of
Speaker 1: this probagram, which makes I'm gonna privilege position to know
Speaker 1: what you're doing, what you're positioned. I'm made a single
Speaker 1: trite a few over the last couple of weeks. No,
Speaker 1: I haven't. Now you know, the the qualifier there is
Speaker 1: that in our Gabelly Growth and Global Growth funds, we
Speaker 1: have had a defensive UH tilt on the portfolio now
Speaker 1: for two years and UH. The good thing is for
Speaker 1: two years, actually defensive growth stocks have generally outperformed, and
Speaker 1: during the crisis of the last two weeks that our
Speaker 1: performance has continued. So I haven't felt compelled to get
Speaker 1: more defensive because we were gaining ground during the during
Speaker 1: the decline. UM. If I had not been defensive, then
Speaker 1: maybe I would have done something. But I literally haven't
Speaker 1: done a trade for the last eight or nine days,
Speaker 1: so I don't know if I'm earning my keep or not.
Speaker 1: But it's questionable. Is Apple of defensive stock um in
Speaker 1: the short run time? I don't think it is um
Speaker 1: And that's because you know, all of the big gains
Speaker 1: last year, which were at the peak about percent year
Speaker 1: over year, were driven by multiple expansion, and part of
Speaker 1: that was market related, and part of that, part of
Speaker 1: that was an anticipation of a big new cycle of
Speaker 1: five G phones coming out in the third quarter or
Speaker 1: actually their fourth quarter later this year. And of course
Speaker 1: now you have the multiples coming in a bit, and
Speaker 1: you have the earnings estimates coming down. Tim Cook has
Speaker 1: already come out and said they're not going to make
Speaker 1: their numbers. They're having supply chain disruption. Of course, they're
Speaker 1: somewhat dependent, more dependent on China than many companies for
Speaker 1: parts and from for assemblage. Why is it only seven
Speaker 1: percent beneath its record high? I mean, you're talking to
Speaker 1: me about a stock down fifteen or and we're not
Speaker 1: observing that some not just Apple, but other stocks as well.
Speaker 1: Why are they holding in so well well? Why? You know,
Speaker 1: I would argue, why is the overall market doing as
Speaker 1: well as it is. I don't think the overall market
Speaker 1: has yet come to the conclusion that the earnings estimates
Speaker 1: on the SMP this year are not going to be
Speaker 1: a hundred seventy five dollars, which was the expectation going in.
Speaker 1: They're not gonna be a hundred and seventy two dollars,
Speaker 1: which is where some analysts are right now. They're probably
Speaker 1: gonna be a hundred sixty five dollars, which will be flat,
Speaker 1: and they might very well be negative. And it's when
Speaker 1: you have negative earnings growth in a period of UH
Speaker 1: widening credit spreads and higher global risks, that's when stocks
Speaker 1: take the most pain. And so I'm being willing to
Speaker 1: air on the side of conservatism here in my in
Speaker 1: my comments to tell people that this market is gonna
Speaker 1: We're gonna have updates in this market, like like we
Speaker 1: did yesterday, but if earnings go negative, we're going to
Speaker 1: new lows. And it might even not even take negative
Speaker 1: earnings to take us to new lows. It's gonna be
Speaker 1: a volatile market, and I think that the trend is
Speaker 1: going to be negative for a while, and at least
Speaker 1: of the read of the morning with our question, John
Speaker 1: Plunder with a substantial article in the FT just on
Speaker 1: that the credit spreads and the challenges within the debt market,
Speaker 1: and now they then fold into the equity market. And
Speaker 1: right now we're seeing spreads Titan. We're actually seeing people
Speaker 1: come into particularly riskier credit on this bet that the
Speaker 1: FED will continue to lower rates and it will push
Speaker 1: money into risk your assets, Howard, though I do wonder
Speaker 1: what will make you buy. I want to see the
Speaker 1: UH newsflow on the virus show that we're over the
Speaker 1: hump and that it is receding. And I have no
Speaker 1: idea when that's going to be, whether that is in
Speaker 1: a month, two months, three months, four months, I don't know,
Speaker 1: and neither does anybody else, and it's really important for
Speaker 1: those just waking up across America. Good morning, Boston, New York, Washington,
Speaker 1: of course early early mornings at Bloomberg the Bay Area, John.
Speaker 1: The major message today is, just as we've heard from
Speaker 1: viral experts, the viral news, the piece here, the piece there,
Speaker 1: the piece there, it's increased substantially this morning. But how
Speaker 1: it's Nowaday and you brought up Happo. We've adjusted the
Speaker 1: earnings estimates for what's happened in China. We haven't even
Speaker 1: started to do that for Europe. We haven't even started
Speaker 1: to look at what it means for the United States.
Speaker 1: And if I was looking at this market right now
Speaker 1: for the second half, the rest of ward profile needs
Speaker 1: to shift rapidly. If you move the eight down a lot,
Speaker 1: a lot, then I imagine how it you might be
Speaker 1: a little bit more constructive. Right now, let me tell
Speaker 1: you what happened in the two thousand two thousand two
Speaker 1: dot com bubble bursts. UM stocks declined obviously substantially, and
Speaker 1: in a number of stocks, particularly technology kinds of stocks
Speaker 1: that we wanted to buy had declined. Uh, and we thought,
Speaker 1: what a great opportunity, let's buy more, and we did
Speaker 1: only and at that point in time, in talking to
Speaker 1: the CEOs of those companies they said business was great.
Speaker 1: It wasn't. They either didn't know, or they weren't being honest,
Speaker 1: or some combination of the above. Earnings estimates then got
Speaker 1: caught another and the stocks went down with them. It
Speaker 1: was a horrible move to be too quick back into
Speaker 1: the market. Equating what we have right now to what
Speaker 1: you and I lived in a one. I'm thinking, I
Speaker 1: don't want to be too gloom and doom, but I
Speaker 1: think the potential is here for a drawn out period
Speaker 1: of estimate reductions because we just don't know now. Having
Speaker 1: said that, when the smoke does start to clear, I
Speaker 1: think we'll have a strong recovery. So you don't want to,
Speaker 1: you know, wanta take your eyes off this situation with
Speaker 1: all this liquidity, with rates, the slow with the economy
Speaker 1: wing well go. You know, through February the economy was fine,
Speaker 1: but when the I want to wait until the smoke
Speaker 1: starts clear, and at that point then you really want
Speaker 1: to I think it more aggressive. But until then because
Speaker 1: we don't know when then then is and from what
Speaker 1: level I'm preaching patients, Well, howbou At this point it
Speaker 1: sounds like you're wanting for more smoke, never mind for
Speaker 1: it to clear, and I'm just wondering to be waiting
Speaker 1: for more more revisions to earnings. Where are you expecting
Speaker 1: them to be concentrated? Which sector right now? Or is
Speaker 1: this broad based on the SMP five, Well, you're more
Speaker 1: cyclical industries tend to be the ones that get hurt
Speaker 1: the most. And where is they're the most pain today? Energy?
Speaker 1: You know you're seeing that with the OPEC talking about
Speaker 1: cutting cutting supply. The commodity based businesses have high beta
Speaker 1: relative to economic growth and so they're going to suffer. Materials, energy,
Speaker 1: and industrials are the three areas that tend to get
Speaker 1: hurt the most during this type of a weakening economy
Speaker 1: estimate reduction period. How would well see? I of growth
Speaker 1: aquities Forcabully Funds. Great to catch up with you this morning.
Speaker 1: Jeffrey Curry joins the snout from London, of course, driving
Speaker 1: all of their commodity coverage as well. Jeffrey, I must
Speaker 1: have you look at the headline. I'm not sure you've
Speaker 1: seen it. It's only been in the last minutes across
Speaker 1: the Bloomberg terminal the Saudi Oil Minister. We will see
Speaker 1: tomorrow if the Russians are on board. Let's talk first principles.
Speaker 1: Why does OPEC and the Saudias need the Russians on board?
Speaker 1: Um because they need to have as large as a
Speaker 1: cut as possible. But we like to argue, no matter what,
Speaker 1: it's too little, too late. The damage to demand, particularly
Speaker 1: in China, occurred three to four weeks ago, UM, and
Speaker 1: now you have it in materializing in the West. The
Speaker 1: total demand decline is somewhere around four to five million
Speaker 1: barrels per day at this point, potentially even larger so
Speaker 1: cutting one and a half million barrels per day in April,
Speaker 1: it's really gonna have no right back. So your downside
Speaker 1: risk is baked in. The question is how can they
Speaker 1: normalize inventories over the course of the year, and they
Speaker 1: need the support from the Russians. Give us one example,
Speaker 1: and this goes back to the Jeff Curry microeconomics of
Speaker 1: decades ago. You're teaching microeconomics at Chicago years ago. Give
Speaker 1: us one example of how microeconomics a just price. Give
Speaker 1: us one example where somebody takes a lower price in
Speaker 1: oil because of a lack of demand. I think that
Speaker 1: the biggest margin of adjustment is going to be as
Speaker 1: inventories begin to fill because of the fact that demand
Speaker 1: is far lower than supply is. Does the building inventories
Speaker 1: overwhelm the ability of the system to accommodate those inventories,
Speaker 1: and we call that breaching inventory capacity. If that were
Speaker 1: to happen, you really open up the downside and oil,
Speaker 1: and we could see prices going sub forty down into
Speaker 1: the low thirties. Our base case is we avoid that
Speaker 1: and we end up with prices in the low forties.
Speaker 1: Low forties. Is still the banks, Brent and that's on
Speaker 1: Bran and this is Brent from doty one cents. Yeah,
Speaker 1: so that's huge. Yeah, you got a lot more downside.
Speaker 1: I mean, let's let's remind you that Hit to the
Speaker 1: Man is on par with oh eight o nine, if
Speaker 1: not even larger in terms of the high frequency data. Um,
Speaker 1: you know, this is one of the biggest events we've
Speaker 1: ever seen in our lifetimes. You just shut down the
Speaker 1: second largest economy in the world. It's going to have ramifications, Jeff.
Speaker 1: The interesting part of this, though, is the other asset
Speaker 1: classes can look through the shock and price in a
Speaker 1: better second half. Just torch us to us about a
Speaker 1: difference between commodities, say, and equities as an asset class
Speaker 1: and why it's just a different story. Excellent question. Um.
Speaker 1: We like to argue that commodities are spot assets. The
Speaker 1: price has to clear today's supply and demand. In contrast,
Speaker 1: financial markets are anticipatory assets. They anticipate the future because
Speaker 1: remember you're taken equity, it's nothing other than the discounted
Speaker 1: some of future earnings, and so they can price in
Speaker 1: the stimulus, the rate cut and all of that. Commodities
Speaker 1: have to deal with the surplus today. So I like
Speaker 1: to say there's a tug of war between surplus and
Speaker 1: stimulus and commodities in particular COT in the middle of
Speaker 1: that tug of war, how are you expecting as a
Speaker 1: result of potentially thirty dollar barrel oil UM? You know,
Speaker 1: I mean that's you know, if we got into that,
Speaker 1: that would it would damage the industry. But I like
Speaker 1: to point out the oil patch was already in very
Speaker 1: poor financial health even at fifty sixty of barrel UM.
Speaker 1: You know, that could be you know, you can see
Speaker 1: it in the equity industries UM that they have come
Speaker 1: down sharply. In fact, I think it was on either
Speaker 1: Friday or Monday the equity energy industry hit an all
Speaker 1: time low. What does XN do? Yeah, I think Exxon
Speaker 1: is unique from the rest of them is that they're
Speaker 1: investing in conventional UM oil supplies UM on a forward basis.
Speaker 1: No other company is making large scale investment like that.
Speaker 1: They're either doing like in Europe, or doing renewables and
Speaker 1: gas UM. So if we look out forward, because of
Speaker 1: the environment right now and the poor financial health of
Speaker 1: the industry, we're going to see under investment when you
Speaker 1: get into one and beyond, And so those who make
Speaker 1: investments right now, are going to be well positioned a
Speaker 1: year or so from now. Jeff, what's the Jeff Curry interview?
Speaker 1: If we don't bring up gold, let's talk about it.
Speaker 1: What's happening? Some dates were down aggressively when I'd expect
Speaker 1: us to have a bit because it's risk off, and
Speaker 1: then we're down on gold and it doesn't make sense
Speaker 1: to me. And people are talking about things like marching cools.
Speaker 1: What is the dynamics that a plank out at gold
Speaker 1: market at the moment? Well, if you think about you know,
Speaker 1: when you have panic um set in because of markets
Speaker 1: coming down, you need to raise cash to hit your
Speaker 1: margin calls. And the most winning position over the last
Speaker 1: year or so really has been being long gold, and
Speaker 1: it was a at a very high level of lengths.
Speaker 1: So when you need to raise cash, you always go
Speaker 1: to your winners and sell them, and that's why you
Speaker 1: get that initial knee jerk reaction. But we've demonstrated as
Speaker 1: you look further out, the longer the sell off goes,
Speaker 1: the better gold begins to perform. And I like to
Speaker 1: argue gold is immune to the to the virus. Right now,
Speaker 1: you know populations can get it, but gold is your
Speaker 1: currency of last resort, your price target. Jeffrey quickly here
Speaker 1: on gold eight hundred dollars and ounce lots of upside
Speaker 1: from here. It's Curry. Thank you so much. Jeffrey Cray
Speaker 1: with Golden Saxas morning from our studios in London. Lisa,
Speaker 1: I wrote an essay for LinkedIn, which is a great
Speaker 1: plurage to do that for Dan Roth and Victoria Taylor
Speaker 1: and the team over at LinkedIn. And you know I'm
Speaker 1: doing stuff like how I mean, people ask me all
Speaker 1: the time, how do you do the reading? How do
Speaker 1: you know what not to read? And all that? And
Speaker 1: I did this one on mathematics, and to make a
Speaker 1: long story short, it was that the whole anst if
Speaker 1: you're out in the business world and you sort of
Speaker 1: remember doing your math like long ago and far away,
Speaker 1: and how do you get back in the math game gently?
Speaker 1: And it was a bunch of books and all that.
Speaker 1: And two thirds of the way through the essay I said,
Speaker 1: you have to read people who do math inherently in
Speaker 1: their work. And one of the best in the world
Speaker 1: is James Bianco. He is just brilliant of how he
Speaker 1: pulls in charts and doesn't mean usually it's in a
Speaker 1: summit what's called a semilog basis. I'm not going to
Speaker 1: go to the math right now. We don't do math
Speaker 1: on Thursday and Bloomberg surveillance, but I was thrilled to meension.
Speaker 1: Jim Bianco is LinkedIn feed is outstanding. Jim Bianco, one
Speaker 1: of my absolute favorites, president and founder of Bianco Research,
Speaker 1: joining us now from Chicago. And Jim, I'm looking right now,
Speaker 1: we've been all watching two your yields plunge to session lows,
Speaker 1: the lowest level since two thousand sixteen, zero point five
Speaker 1: eight five because Tom likes to break it out to
Speaker 1: four h two places. And I'm looking right now at
Speaker 1: the warp screen on the Bloomberg terminal pricing in almost
Speaker 1: four rate cuts now by the end of next jan
Speaker 1: where we are now correct correct the implied rate zero
Speaker 1: point to nine eight percent by January one, And I'm
Speaker 1: trying to understand, Jim, how quickly do we get to zero?
Speaker 1: Maybe two weeks, it could be that quick. Right now,
Speaker 1: your warp screen, which is your world interest rate probability screen,
Speaker 1: is telling us that there's going to be a fifty
Speaker 1: basis point cut on March eighteens, and that would take
Speaker 1: us down to five eighths of percent now without getting
Speaker 1: to in the weeds. The Fed's got another problem that
Speaker 1: they didn't anticipate. As they announced that they're going to
Speaker 1: um cut rates, and as the market expects they're going
Speaker 1: to cut rates, people that have their money in overnight
Speaker 1: UH money like overnight repow or one day maturity type
Speaker 1: of commercial paper and stuff are saying those rates are
Speaker 1: gonna fall, So I'm going to move out to three
Speaker 1: and six months paper to try and mitigate my reinvestment risk.
Speaker 1: I'll take that higher yield UH and I'll lock it
Speaker 1: away for three months. So what's happening is money or
Speaker 1: liquidity is being drained out of the banking system because
Speaker 1: it's leaving the banking system and going to longer securities.
Speaker 1: And that's why you're seeing this big jump in the
Speaker 1: amount of repos that the street is asking for. If
Speaker 1: the FED wants to drag this out and just say
Speaker 1: well we'll we'll cut twenty five or fifty in March
Speaker 1: and maybe fifty in April, there will be no money
Speaker 1: left in the banking So this is this is really
Speaker 1: important to him. Are you saying that the FED needs
Speaker 1: to cut rates by fifty basis points on March eighteen,
Speaker 1: or else we are going to have a fundamental plumbing
Speaker 1: problem in the financial system. I'm gonna go you one
Speaker 1: step further. We have a plumbing problem in the financial
Speaker 1: system right now. Uh and it is being covered by
Speaker 1: the FEDS new facility that they've put in place. But
Speaker 1: the Street Wall Street is asking for more assistance than
Speaker 1: the caps that the FED is put on it. Today,
Speaker 1: they said that they would offer billion dollars of what's
Speaker 1: called fourteen day term repo. The Street asked for seventy
Speaker 1: billion dollars of assistance and they only got twenty in
Speaker 1: help right now. So the reason is all that money
Speaker 1: is leaving because it knows those rates are going to
Speaker 1: go down, and it's going too longer term securities. And
Speaker 1: if the FED is going to drag their feet in
Speaker 1: cutting rates, we will cut meeting five next meeting. This
Speaker 1: is going to create a bigger plumbing problem. So if
Speaker 1: you're ultimately thinking about going to zero by the picking
Speaker 1: half of this year, do it in two weeks. This
Speaker 1: because the time limitations today, Jim Bianco, and this is
Speaker 1: so important. Do you find an efficacy and alternatives to
Speaker 1: rate cuts, or is rate cuts the blunt instrument that
Speaker 1: only works well. Race cuts is the blunt instrument that
Speaker 1: they work. The only other instrument that they have that
Speaker 1: they could use at this point would be to expand
Speaker 1: their balance sheet, which is what we now know as QUEI.
Speaker 1: I wanted to say traditional QUEI, I guess that's what
Speaker 1: it's become now it's more traditional. I don't think negative
Speaker 1: interest rates or any of those other things would be
Speaker 1: very effective effect out. Those would be very counterproductive um
Speaker 1: at this point. So the Feds got kind of two
Speaker 1: targets that they're looking at. Their looking at what this
Speaker 1: virus means, what we're fearing it means for the economy
Speaker 1: in two, three or four weeks whitespread shutdown disruption and
Speaker 1: the fact that they are cutting rates that act is
Speaker 1: creating a plumbing problem on top of everything else. I mean,
Speaker 1: promis being handled for now, but just for now, it
Speaker 1: doesn't mean that they've got it permanently solved. Jimmyako, thank
Speaker 1: you so much. Too short of visit. We look for
Speaker 1: a much longer visit next time. Mr brianco in Chicago
Speaker 1: greatly greatly appreciate it. Right now, the banker who is
Speaker 1: an engineer, Jean Cautriche Jarnes, this is a former president
Speaker 1: of the European Central Bank, and we are thrilled Mr Triche,
Speaker 1: you could be with us today. I want you to
Speaker 1: take your engineering and the dynamics that you know cold
Speaker 1: and that is the new discussion of supply shifting worldwide
Speaker 1: and demand shifting worldwide. Which are you more concerned about
Speaker 1: the supply shocks or the demand shocks? To come well
Speaker 1: first the way, it's a pleasure to be with you, Tom,
Speaker 1: I would say that the problem is that we have
Speaker 1: both the supply shock and the demand shock. At the
Speaker 1: very beginning, one could have said, perhaps it is on
Speaker 1: the supply shock we can do nothing as regards the
Speaker 1: centple banks. Of course, as regards the supply shock, and
Speaker 1: and then let's wait for the cornavirus to be to
Speaker 1: be to be eliminated and then we have a V
Speaker 1: shaped recovery. Unfortunately, we see now taking into account globalization,
Speaker 1: the supply chain at a global level, and all the
Speaker 1: consequences of the fear that is accompanying this epidemic or
Speaker 1: this pandemic, we see that there is a demand shock also,
Speaker 1: and we have both together at the global level. And this,
Speaker 1: of course is something which calls for appropriate decisions not
Speaker 1: only by sample banks, of course, but by all partners
Speaker 1: without exception. And if I may tom, I am a
Speaker 1: little bit annoyed that we hear a lot from the
Speaker 1: G seven from the industrialized country. We I heard nothing
Speaker 1: from the G twenty. And we have clearly a global issue,
Speaker 1: a global problems, with a lot of emerging countries being
Speaker 1: at the heart of the problem, including of course China.
Speaker 1: So it seems to me that it has to be
Speaker 1: taken up at the global level, and not only at
Speaker 1: the level of the G seven. Presidental sharing going to
Speaker 1: rip up the scripture. And I do this with great
Speaker 1: respect for Chairman Power and Christine Lagarde with your criticism
Speaker 1: of a need for a global action. Should we have
Speaker 1: seen a coordinated response with Chairman Powell the other day,
Speaker 1: Did they miss a moment by not linking together their actions. Well,
Speaker 1: you know that I have experienced myself coordinated action with
Speaker 1: a fifty basis point diminishing on October two, after demand bothered.
Speaker 1: I have to say at the time the drama was
Speaker 1: unfolding in a much worse manner. If I may so,
Speaker 1: the idea that we had at the necessity to coordinate
Speaker 1: action at the level of the major central bank was
Speaker 1: something very natural. I'm not sure that it was really
Speaker 1: more appropriate in this time. It could have also had
Speaker 1: an impact of panicking, if I may, or giving the
Speaker 1: message of too much of a panic. So I think
Speaker 1: it's okay. What has been done is okay. I don't
Speaker 1: regret the coordination action. Zean claud Tricia. One of the
Speaker 1: arguments that you could put forward as to why there
Speaker 1: wasn't coordinated action is the other central bankers think the
Speaker 1: coming rates is a mistake. Could that be the case? Well, again,
Speaker 1: each central banks as its own responsibility in its own
Speaker 1: law and legislation or treaty. So I think that there
Speaker 1: is no general rule to apply to everybody. That's one
Speaker 1: of the problems of I would say, governance in Europe
Speaker 1: as well as in the world. It is that the
Speaker 1: recommendations under the same for all. At this stage, I
Speaker 1: would say, the main problem, it seems to me, is
Speaker 1: really to make liquidity available to all, credit available to all,
Speaker 1: and the amount they would say the supply of liquidity,
Speaker 1: supply of credit is more important than the price that
Speaker 1: the interest rate themselves but that depends, of course on
Speaker 1: the various economies and countries concerned. In Europe. As you know,
Speaker 1: we have introduced the idea of giving liquidity, giving supply
Speaker 1: of liquidity without any limit, and that is still the case.
Speaker 1: It was introduced at the moment of the Liman Model crisis,
Speaker 1: but it is still the case. But of course availability
Speaker 1: of credit remains something which is and will be much
Speaker 1: more important in the present period. Do you think therefore
Speaker 1: the e c P would be better to do more
Speaker 1: tel trows to try and some find some way of
Speaker 1: getting credits into the supply Shanes Andrew Bailey was just
Speaker 1: talking about that rather than cutting rates. Do you think
Speaker 1: that the Mortel throws more kind of liquidity injections into
Speaker 1: the banking sector that would be a better way to
Speaker 1: go for the e c being rather than cutting another
Speaker 1: ten bits off the deep I rate. I have no
Speaker 1: recommendation to make to the ECB. The Governing Council has
Speaker 1: taken excremely wise decision since since the crisis, so I
Speaker 1: have full confidence on the fact that they will do
Speaker 1: what is appropriate yet in the case. But it's clear
Speaker 1: that availability of credit will be something absolutely essential all
Speaker 1: over the the Your area. Whatever the level of interest
Speaker 1: rate is. One of the great debates, Mr Trouchet, that
Speaker 1: we're seeing right now is the idea of disinflation or
Speaker 1: following on a greater inflation, Which way will price change cut.
Speaker 1: Do you anticipate dampened economic growth in disinflation or can
Speaker 1: you worry about an inflation from another time and place. Well,
Speaker 1: it's again it is the complexity of the situation, which
Speaker 1: is illustrated by the fact that the supply shock itself
Speaker 1: could transmit some kind of inflationary pressure. At the same
Speaker 1: time the demand shock, which is the consequence of corna virus,
Speaker 1: has exactly the river the opposite consequence. So we we
Speaker 1: will see exactly where we stand. It's a very complicated story,
Speaker 1: but it's clear that the supply shock element has an
Speaker 1: inflationary potential. UH Eurozone five year five years currently setting
Speaker 1: at one point one percent, a little low for the
Speaker 1: last five years. Jean Clautricia, the former ECB president, he
Speaker 1: is going to stay with us. Coming up later today
Speaker 1: our exclusive interview with Dallas Faired President Robert Camplan. That
Speaker 1: conversation coming up at five thirty pm in New York.
Speaker 1: That's ten thirty pm in London. This is blown by
Speaker 1: oh Guy Johnston in London. Tom Keen, of course, over
Speaker 1: in New York. I'm sitting in for Franciling Lackwise. Jean Clautricie,
Speaker 1: the former ECB president of Daniel Morris a b MP
Speaker 1: parab Our asset Management, are still with us, Jean Clautriche
Speaker 1: let me come back to you. Um, we were talking
Speaker 1: before the break about what is happening with the economy,
Speaker 1: the supply chain shocks that we are going to be experiencing.
Speaker 1: How quickly do you think, um, stressed companies in the
Speaker 1: euro Zone are going to be experiencing problems. How quickly
Speaker 1: do you think bad loans are going to start to
Speaker 1: pick up? Well, I think that, of course, nobody knows
Speaker 1: exactly what is likely to be the dynamic of the
Speaker 1: of the phenomenon, but it's clear that it is unfolding,
Speaker 1: and it would be of a duration which might be
Speaker 1: much more than what we think or what we thought
Speaker 1: at the very beginning. Uh. That's the reason why I
Speaker 1: make myself the point that it is very important that
Speaker 1: created remains available. I would say I wouldn't make the
Speaker 1: point also that we were already discussing the use of
Speaker 1: fiscal weaponry before the corner virus exploded, and the fiscal
Speaker 1: weaponry is very, very important. I am happy to see
Speaker 1: that in the US the House of Representative has decided
Speaker 1: to embark on some action precisely to to deal with
Speaker 1: the corner virus. I would say in Europe it's absolutely
Speaker 1: necessary also because there are some room for maneuvering on
Speaker 1: the fiscal side, and that they are more important than ever,
Speaker 1: of course, in the present context of a big problem
Speaker 1: on the demand side. Presidentry Morris, excuse me, go ahead,
Speaker 1: I'm sorry, guy, I'm sorry. Continue. Well, let's let's let's
Speaker 1: just get Danny Morris's take on this. Do you think
Speaker 1: fiscal policy will come quickly enough for companies of the
Speaker 1: bottom end of the triple B range to be able
Speaker 1: to avoid becoming fallen angels and ending up in high yield. Yeah, well,
Speaker 1: this is always the dilemma when it comes to fiscal stimulus.
Speaker 1: We can remember back to the global financial crisis and
Speaker 1: shove already projects and you know, we have a hundred
Speaker 1: billion I think that was ultimately spent to support the economy,
Speaker 1: but by the time it actually hits any company or
Speaker 1: any household, you know, normally it's well after it was
Speaker 1: actually needed. So it's it's certainly helpful, it's what should
Speaker 1: be done. Is it going to be enough in the
Speaker 1: short term? You know? Is it gonna ripe soon enough?
Speaker 1: I think you have reason to be concerned. President john
Speaker 1: Plunder has an absolutely outstanding effort in the ft today.
Speaker 1: Uh talking at corporate debt, as Guy Johnson brings up
Speaker 1: at Mark is sing who you worked with that the
Speaker 1: European Central Bank speaks of what everybody knows is the backstory,
Speaker 1: and that is a global misallocation of capital because all
Speaker 1: of these oddities, these disincentives within the yield market. How
Speaker 1: misallocated are we right now? I certainly shared the view
Speaker 1: that we had accumulated, we had piled up debt outstanding
Speaker 1: to an extent that has been dangerous. So whatever the trigger,
Speaker 1: Corona virus or any other trigger, we had a potential
Speaker 1: problem of dealing with a situation where over indebtedness is very,
Speaker 1: very large and has continued after the crisis, after the
Speaker 1: demand by the crisis. So there is undoubtedly an issue
Speaker 1: there which would call also have to say, for a
Speaker 1: global response because the phenomenon of over indebtedness was observed
Speaker 1: in all continent, all I would take in stituencies advanced
Speaker 1: economy as well as emerging economy, so that that's that's
Speaker 1: a real, real issue, a real structural issue. But of
Speaker 1: course we have to to live with the situation as
Speaker 1: it is, and certainly to do the best out of
Speaker 1: the present situation, which is very, very dedicate obviously, and
Speaker 1: again I would say, the central bank are pillars of stability,
Speaker 1: anchors of stability in a world which is extraordinary, volatile, dangerous, unstable,
Speaker 1: And that the reason why it seems to me it's
Speaker 1: more important than ever that the authority of the Central
Speaker 1: Bank is fully preserved, which is not not necessarily the
Speaker 1: case from time to time, even in the US, where
Speaker 1: when I see some tweets coming from the chief of
Speaker 1: the executive branch, that seems to me totally inappropriate in
Speaker 1: terms of preserving the authority. Okay, well, the economist Donald Up,
Speaker 1: I'm sure is listening to this carefully right now, Jean Tortuche,
Speaker 1: if we look at the shampretarian destruction, a creative destruction
Speaker 1: of this depth that we have created, what is the
Speaker 1: best outcome for President Trump and other world leaders? How
Speaker 1: do you how do we get away from how do
Speaker 1: we extricate ourselves from this misallocation. Well, again, you have
Speaker 1: you have to cope with a crisis which is unfolding
Speaker 1: right now clearly, and you have a medium long term
Speaker 1: issue of first magnitude. To sum up the situation, I
Speaker 1: would say, at the level of all economies in the world,
Speaker 1: and at the level of the global economy and the
Speaker 1: international community as a whole, we should give privilege to
Speaker 1: equity and not, as we did until now, to debt.
Speaker 1: There is a preference for debt over equity, which is
Speaker 1: generally that we see in the deficits of the states
Speaker 1: in the day, in the public deficits everywhere. That we
Speaker 1: see also in taxation, which is privileging debt over equity,
Speaker 1: which is stupid, of course and extremely dangerous in a
Speaker 1: long term perspective. Who can initiate the seismic change from
Speaker 1: a focus of debt and fixed income instruments over to
Speaker 1: the risk of equity. I would say the i fies.
Speaker 1: The international financial institutions are key, of course, to have
Speaker 1: a strong message, a message that would be I would say,
Speaker 1: listen to at a global level, and of course we
Speaker 1: have to get a consensus amongst the major economies, the
Speaker 1: European economy, in the US and of course China and others,
Speaker 1: to understand that we are not doing any good if
Speaker 1: we continue new to pilot debt Kelly, President Cruche, thank
Speaker 1: you so much. Jean Lautruche is a former president of
Speaker 1: the European Central Bank and of course of France. I
Speaker 1: can't convey enough, folks. The tradition at Babson, and there's
Speaker 1: other universities as well, of accounting is the adult major.
Speaker 1: It's if you go there and you're serious about it,
Speaker 1: you take it. They produced years ago a gentleman, Timothy Ryan.
Speaker 1: He's a Bruins fan, which helps, and he began and
Speaker 1: he did what you do in accounting, which is basic auditing,
Speaker 1: and has risen to the head of US operation as
Speaker 1: chairman of p WC. And we are thrilled at the
Speaker 1: accountant from Babson could join us this morning. Ti Moryan,
Speaker 1: What will be the accounting ramifications of this virus? How
Speaker 1: will it first be gleaned among your clients? Yeah, good morning, Tom,
Speaker 1: and thank you for having me. I think what's really
Speaker 1: important is we're just beginning to see the unification. So
Speaker 1: companies whoever, as we reported this year and earnings. Those
Speaker 1: are that those happened, um, they would December thirty feet
Speaker 1: year and earning. So I think what we'll really be
Speaker 1: looking for is this first quarter earnings. But there's no
Speaker 1: question a number of different sectors under pressure, so it
Speaker 1: is reasonable to assume that we will see some slow
Speaker 1: down in our clients results as this virus continues. So, Tim,
Speaker 1: what are you hearing kind of anecdotally from some of
Speaker 1: your biggest clients, We sought a lot of corporate news
Speaker 1: out of Silicon Valley in the West Coast today, Microsoft, Facebook.
Speaker 1: You know, folks stay at home, work at home, so
Speaker 1: some big decisions are being made affecting a lot of people.
Speaker 1: What are you hearing from some of your clients. Yeah,
Speaker 1: so over the last three days of talk to several
Speaker 1: dozen of our clients, and what we're hearing is people first,
Speaker 1: to carry of people, protect them and health business continuity
Speaker 1: planning to make sure critical operations can be performed. And
Speaker 1: just now we're starting to see focus on cash management,
Speaker 1: making sure costs it contained because there is a sense
Speaker 1: that this could affect operations and and UM performance over
Speaker 1: a long period of time. But without a doubt of
Speaker 1: the last several weeks. It's been about people first. So Tim,
Speaker 1: when I think about a firm like p WC, I
Speaker 1: think about all your young auditors and consultants. They're spend
Speaker 1: their whole lives, you know, on planes going out to
Speaker 1: see their clients. What are you telling your uh people
Speaker 1: right now? Yeah, great question. So what we did, what
Speaker 1: we've done to all of our people, for all of
Speaker 1: our people, is they say, critic all non essential travel
Speaker 1: stops um immediately. Number two. What we said is travel
Speaker 1: to any of the restricted areas across the globe had
Speaker 1: stopped immediately. We're asking our people to leverage our technology
Speaker 1: that we're invested it heavily over the last several years,
Speaker 1: and work from home when possible. And we're also asking
Speaker 1: our people to practice just normal, good healthy practices. They're
Speaker 1: not feeling well, don't travel, don't come to the office.
Speaker 1: So in the article the day was John Plender and
Speaker 1: the f T. It's a lengthy article, folks, just brilliantly
Speaker 1: walks through the build up in corporate debt that's out there.
Speaker 1: Great quotes including amarising the giant economics from Germany and
Speaker 1: Tim and there's something that parses right over to p
Speaker 1: WC and that there's been a massive debt build up,
Speaker 1: but it's really not on the back of technology, which
Speaker 1: has a massive cash build up. And the implication here
Speaker 1: is the debt is more focused in traditional American industries.
Speaker 1: Is p WC seeing that, Yeah, I would say I
Speaker 1: would say that some I would say that that is
Speaker 1: very similar to what we're seeing at this point. It
Speaker 1: is we're traditional. We have seen an increase in technology,
Speaker 1: but not at the same level as you would see
Speaker 1: some of the traditional areas. Tom, let me bring up
Speaker 1: a sensitive question, and you know you're such a straight
Speaker 1: shooter that I'm sure I'm going to get an honest answer.
Speaker 1: What is the differential between how any given major accounting
Speaker 1: consultancy does business in New York or London, or Beijing
Speaker 1: or Shanghai, or around the world Delhi, wherever. Is it
Speaker 1: a uniform audit process or does it differ? Is it
Speaker 1: malleable nation to nation? I would say that this this
Speaker 1: clearly differences nation and nation. But the principles of auditing
Speaker 1: across the globe but very similar. It's independence, objectivity in
Speaker 1: making sure that investor protection comes first, and that that
Speaker 1: is largely consistent across the globe. Now, the standards that
Speaker 1: have followed different from different different parts of the world.
Speaker 1: But as I spend half my time outside of the US,
Speaker 1: the the concept of investor protection is something that I
Speaker 1: do see cut across geographies. You see this all the
Speaker 1: time because we hear here Bloomberg surveillance. It's the idea
Speaker 1: that while the accounting in other places is the same,
Speaker 1: but you have to live it affirmed like you have.
Speaker 1: You have to go in and do this nation to nation.
Speaker 1: How do you adapt your auditors to that. So one
Speaker 1: of the things that we focus an awful lot on
Speaker 1: is culture and training, and we also at any given
Speaker 1: time have a couple of thousand people who are who
Speaker 1: are living in different parts of the world to make
Speaker 1: sure we we have a sense of shared values in
Speaker 1: terms of how we do things. We have very robust
Speaker 1: kind of quality checks that take place across the globe
Speaker 1: to make sure the quality is consistent and frankly to
Speaker 1: I'm straight shooting, always looking to improve, like we're not perfect,
Speaker 1: and we're always trying to raise our games. So when
Speaker 1: we see an opportunity improve in a different territory, we
Speaker 1: take those lessons learned and bring them across the globe
Speaker 1: and that's a continuous loop that is always happening. So
Speaker 1: Tom I saim I know you put out your PwC,
Speaker 1: your Global CEO survey, Um I don't see you know,
Speaker 1: kind of coronavirus in there are these these big health issues,
Speaker 1: But how do you feel like corporate America is kind
Speaker 1: of prepared for some of these just really want off
Speaker 1: things that come out of nowhere. Yeah, So just thanks
Speaker 1: for referring to the survey. We launched it in January
Speaker 1: and Davos and we ask every year for twenty three
Speaker 1: years straight where the top risk and health crisises. Pandemics
Speaker 1: clearly were not. It was in the top ten in
Speaker 1: terms of CEO concerns. And I think the coronavirus is
Speaker 1: a great example of how CEOs have to be ready
Speaker 1: for anything right now. I do think that in many respects,
Speaker 1: your best your best companies have been preparing for something
Speaker 1: like this for years, meaning that do they see this coming. No,
Speaker 1: but we we have seen a good percentage of our clients,
Speaker 1: not all of them, but we have seen a good
Speaker 1: percentage then for the last couple of years preparing for
Speaker 1: what I'll say, get fixing the roof when the sun
Speaker 1: is shining. They've got their constructures in play. They leverage
Speaker 1: more technology now, to be frank, some haven't, and their
Speaker 1: ability to deal with something like this is going to
Speaker 1: be way less equipped than others. Samaran, thank you so
Speaker 1: much with p w C us their chairm and greatly
Speaker 1: appreciate a snapshot in their otherway corporations in the audit process.
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 World one. I'm
Speaker 1: Bloomberg Radio s