1 00:00:02,640 --> 00:00:05,280 Speaker 1: Welcome to the Bloomberg Penel podcast on Paul Swing You. 2 00:00:05,360 --> 00:00:07,680 Speaker 1: Along with my co host Lisa Brahma Waits, each day 3 00:00:07,720 --> 00:00:10,240 Speaker 1: we bring you the most noteworthy and useful interviews for 4 00:00:10,280 --> 00:00:12,520 Speaker 1: you and your money, whether at the grocery store or 5 00:00:12,560 --> 00:00:15,440 Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple 6 00:00:15,520 --> 00:00:17,960 Speaker 1: podcast or wherever you listen to podcasts, as well as 7 00:00:17,960 --> 00:00:21,520 Speaker 1: that Bloomberg dot com. Just to give you a picture 8 00:00:21,600 --> 00:00:23,840 Speaker 1: of what's going on in the bond world, you see 9 00:00:23,840 --> 00:00:27,160 Speaker 1: the thirty year yield reaching new all time lows one 10 00:00:27,240 --> 00:00:31,960 Speaker 1: point eight nine percent on the thirty year treasury. You 11 00:00:32,000 --> 00:00:34,440 Speaker 1: see the dollar having its worst sell off versus its 12 00:00:34,479 --> 00:00:39,400 Speaker 1: peers of gold shooting higher. A big question of what's 13 00:00:39,440 --> 00:00:42,440 Speaker 1: driving this. Is it just the fear that the coronavirus 14 00:00:42,560 --> 00:00:46,600 Speaker 1: is spread, is bleeding into the services and industries in 15 00:00:46,640 --> 00:00:49,479 Speaker 1: the United States previously thought to be a little more immune, 16 00:00:49,760 --> 00:00:52,000 Speaker 1: or is this something large or joining us now? Is 17 00:00:52,120 --> 00:00:56,200 Speaker 1: Mark Rosenberg, founder and chief executive officer of Geoquad, which 18 00:00:56,400 --> 00:00:59,960 Speaker 1: is based in San Francisco and looks at the geopolitical 19 00:01:00,000 --> 00:01:02,800 Speaker 1: will risk generally in the global picture. He's also an 20 00:01:02,840 --> 00:01:05,800 Speaker 1: adject professor at Columbia University Mark, can you give us 21 00:01:05,800 --> 00:01:08,760 Speaker 1: a landscape here. We talk a lot about the coronavirus 22 00:01:08,800 --> 00:01:11,240 Speaker 1: and what the potential bleed through could be on industries, 23 00:01:11,280 --> 00:01:13,480 Speaker 1: but an economists say, well, there's going to be a 24 00:01:13,560 --> 00:01:16,840 Speaker 1: v shaped recovery. But on the political front, is there 25 00:01:16,880 --> 00:01:21,440 Speaker 1: something that's going to be equally potentially difficult for markets 26 00:01:21,480 --> 00:01:24,959 Speaker 1: to digest on the political sphere? Sure, I think. I 27 00:01:25,000 --> 00:01:28,160 Speaker 1: think with with a health risk like the coronavirus, UM, 28 00:01:28,240 --> 00:01:31,280 Speaker 1: you want to look at the implications for social instability 29 00:01:31,280 --> 00:01:34,679 Speaker 1: and the country is affected and in turn the stability 30 00:01:34,680 --> 00:01:38,000 Speaker 1: of the government. Those generally have more latent effect on markets. 31 00:01:38,000 --> 00:01:40,440 Speaker 1: But I think when it comes to a large economy 32 00:01:40,480 --> 00:01:44,120 Speaker 1: like China, UM, if there were indications that this that 33 00:01:44,240 --> 00:01:48,520 Speaker 1: this virus was disrupting kind of social stability in the country, 34 00:01:48,640 --> 00:01:51,160 Speaker 1: or if there was news as there has been of late, 35 00:01:51,200 --> 00:01:53,960 Speaker 1: that it may be weakening the government, UM, then I 36 00:01:54,000 --> 00:01:56,960 Speaker 1: think you can get some concern around the potential of 37 00:01:57,000 --> 00:01:59,680 Speaker 1: the government to respond to a shock like like like 38 00:01:59,720 --> 00:02:04,200 Speaker 1: a how um, like a disease outbreak like like the coronavirus. So, Mark, 39 00:02:04,280 --> 00:02:06,680 Speaker 1: we obviously are getting into the heat of the election 40 00:02:06,880 --> 00:02:10,200 Speaker 1: cycle here. We kind of know where President Trump stands 41 00:02:10,240 --> 00:02:12,680 Speaker 1: on a number of issues that are important to markets 42 00:02:12,680 --> 00:02:14,840 Speaker 1: and investors. How are you, we talk to clients, how 43 00:02:14,840 --> 00:02:17,480 Speaker 1: are you framing up the Democratic side of the field. 44 00:02:18,600 --> 00:02:21,680 Speaker 1: For us, it's really about the strength of the Democratic 45 00:02:21,760 --> 00:02:24,600 Speaker 1: Party and kind of more generically the opposition to the 46 00:02:24,639 --> 00:02:28,880 Speaker 1: incumbent versus UM, you know, the Trump administration or the 47 00:02:28,880 --> 00:02:32,560 Speaker 1: current incumbent. And you know, according to our models that's 48 00:02:32,600 --> 00:02:36,200 Speaker 1: probably the primary driver of Trump's likely reelection right now. 49 00:02:36,280 --> 00:02:39,120 Speaker 1: Is in fact the weakness, the relative weakness of the 50 00:02:39,160 --> 00:02:43,160 Speaker 1: Democratic Party as an opposition party has demonstrated, I think 51 00:02:43,160 --> 00:02:45,880 Speaker 1: by some of the dysfunction in the primary process, by 52 00:02:45,919 --> 00:02:50,200 Speaker 1: the UM still unclear field, the the growing likelihood that 53 00:02:50,320 --> 00:02:54,720 Speaker 1: a more kind of divisive extreme candidate like Bernie Sanders 54 00:02:54,720 --> 00:02:58,000 Speaker 1: will be the nominee. Those are the factors driving you know, 55 00:02:58,040 --> 00:03:02,640 Speaker 1: what we call kind of UM intitutional institutional support risk 56 00:03:03,680 --> 00:03:07,000 Speaker 1: uh for the administration. That risk is down as the 57 00:03:07,040 --> 00:03:10,560 Speaker 1: Democratic Party looks weaker and weaker. So let's talk a 58 00:03:10,639 --> 00:03:13,120 Speaker 1: little bit about the Democratic Party. It seems like after 59 00:03:13,160 --> 00:03:15,840 Speaker 1: this week's debate. It was the first of Michael Bloomberg, 60 00:03:15,840 --> 00:03:18,240 Speaker 1: who was founder a majority owner of Bloomberg LP, and 61 00:03:18,280 --> 00:03:22,640 Speaker 1: this radio station was a participant that Bernie Sanders appeared 62 00:03:22,639 --> 00:03:26,160 Speaker 1: to consolidate a lot of his support. People thought that 63 00:03:26,200 --> 00:03:29,239 Speaker 1: he emerged a winner. They also thought, though, that President 64 00:03:29,280 --> 00:03:32,320 Speaker 1: Trump consolidated his win. Given the fact that there was 65 00:03:32,360 --> 00:03:36,080 Speaker 1: a lot of cross uh, circular firing squad type of activity, 66 00:03:36,560 --> 00:03:39,560 Speaker 1: how significantly do you think the Democrats were set back? 67 00:03:41,040 --> 00:03:43,920 Speaker 1: I'm not sure the debate itself was any kind of 68 00:03:43,920 --> 00:03:47,000 Speaker 1: critical juncture and setting back the Democrats. UM. I think 69 00:03:47,000 --> 00:03:49,400 Speaker 1: it was more a symptom of you know, what we 70 00:03:49,440 --> 00:03:52,360 Speaker 1: saw in the previous debates and then and then the 71 00:03:52,400 --> 00:03:55,520 Speaker 1: primaries and CAUCUSUS so far, which is um, you know, 72 00:03:55,600 --> 00:03:59,600 Speaker 1: a field that's that's heavily divided, um. And and a 73 00:03:59,640 --> 00:04:04,200 Speaker 1: group candidates that um all you know, ostensibly agree on 74 00:04:05,000 --> 00:04:09,000 Speaker 1: the goal of defeating Donald Trump and uniting to do so. UM, 75 00:04:09,000 --> 00:04:11,520 Speaker 1: but are now just inherently engaged in the process, the 76 00:04:11,560 --> 00:04:15,360 Speaker 1: primary process, UM, where they're they're in some ways making 77 00:04:15,400 --> 00:04:17,920 Speaker 1: that less likely because they are fighting against each other 78 00:04:17,960 --> 00:04:21,240 Speaker 1: as opposed to the common you know, quote unquote enemy. 79 00:04:21,520 --> 00:04:24,440 Speaker 1: So Mark Bernie Sanders is leading in the polls right now, 80 00:04:24,800 --> 00:04:31,160 Speaker 1: can he be President Trump in in according to our models? 81 00:04:31,160 --> 00:04:33,760 Speaker 1: And again, um, you know, these are kind of generic 82 00:04:33,800 --> 00:04:38,839 Speaker 1: incumbent survival models, No UM. In that Bernie Sanders UM, 83 00:04:39,279 --> 00:04:42,080 Speaker 1: it will be a candidate that would have trouble uniting 84 00:04:42,160 --> 00:04:45,160 Speaker 1: the Democratic Party UM, and as such would weaken the 85 00:04:45,240 --> 00:04:49,320 Speaker 1: strengths of the opposition VISAVI the incumbent, and so the 86 00:04:49,360 --> 00:04:52,040 Speaker 1: incumbent will be more likely to win UM, and so 87 00:04:52,360 --> 00:04:55,239 Speaker 1: UM in our the scenarios we're running with our models, 88 00:04:55,240 --> 00:05:00,760 Speaker 1: the sanders Um candidacy makes a Trump real sin more likely. 89 00:05:01,160 --> 00:05:05,360 Speaker 1: What about Pete Boudage? What about Michael Bloomberg whose performance 90 00:05:05,760 --> 00:05:08,920 Speaker 1: was panned pretty significantly by almotions of the coverage following 91 00:05:08,920 --> 00:05:15,920 Speaker 1: the debate. Again, generically, a more moderate candidate, candidate more 92 00:05:15,960 --> 00:05:19,240 Speaker 1: capable of winning, of winning, of winning swing voters, of 93 00:05:19,240 --> 00:05:22,880 Speaker 1: winning suburban white voters and key swing states that are 94 00:05:23,080 --> 00:05:26,520 Speaker 1: in many cases the the key to the election. UM 95 00:05:27,040 --> 00:05:29,640 Speaker 1: is likely to be Trump right and more like and 96 00:05:29,720 --> 00:05:32,919 Speaker 1: certainly makes Trump's reelection less likely. So in our models, 97 00:05:32,920 --> 00:05:37,359 Speaker 1: it's a relatively simple trade off between UM a a 98 00:05:37,400 --> 00:05:39,359 Speaker 1: candidate that is more likely to win you know what 99 00:05:39,400 --> 00:05:42,960 Speaker 1: political scientists called the median voter UM, and which in 100 00:05:43,000 --> 00:05:45,400 Speaker 1: the case of of key states, is really a swing 101 00:05:45,480 --> 00:05:48,760 Speaker 1: voter or one less likely to win those voters, and 102 00:05:49,240 --> 00:05:51,680 Speaker 1: in our model, Sanders is less likely, whereas a more 103 00:05:51,720 --> 00:05:55,200 Speaker 1: moderate candidate is more likely. So, Mark, is there any 104 00:05:55,240 --> 00:06:00,159 Speaker 1: indication that if Bernie Sanders gets the nomination, that he 105 00:06:00,400 --> 00:06:03,000 Speaker 1: or the Democratic Party could move him more to the 106 00:06:03,040 --> 00:06:05,440 Speaker 1: center to maybe appeal to some of those swing voters. 107 00:06:05,480 --> 00:06:06,800 Speaker 1: Do you kind of put any of those odds in 108 00:06:06,839 --> 00:06:11,080 Speaker 1: your model? We don't model that directly. That does make 109 00:06:11,120 --> 00:06:14,119 Speaker 1: kind of common political sense and is generally the way 110 00:06:14,720 --> 00:06:18,960 Speaker 1: UH Party candidates run in the general election. They generally 111 00:06:19,000 --> 00:06:22,560 Speaker 1: pivot um more to the center, UM, in order to 112 00:06:22,600 --> 00:06:25,640 Speaker 1: capture a larger swat at the electorate. Sanders has made 113 00:06:25,640 --> 00:06:31,919 Speaker 1: a career um of not doing that, and so just anecdotally, UM, 114 00:06:32,120 --> 00:06:35,240 Speaker 1: it suggests that that kind of dynamic is maybe less 115 00:06:35,240 --> 00:06:39,000 Speaker 1: likely this time around. UM. But but to be sure, 116 00:06:39,240 --> 00:06:42,360 Speaker 1: you know, in a in a more with a more 117 00:06:42,400 --> 00:06:45,640 Speaker 1: generic candidate, that's exactly what you would expect to happen. 118 00:06:46,480 --> 00:06:50,120 Speaker 1: And given again that all Democratic candidates are at least 119 00:06:50,160 --> 00:06:53,680 Speaker 1: vocally saying their priority is beating Trump, that would be 120 00:06:53,720 --> 00:06:56,400 Speaker 1: the right strategy. It's just not clear that that is 121 00:06:56,400 --> 00:06:59,360 Speaker 1: what will actually happen. Mark, just real quickly here, I'm 122 00:06:59,400 --> 00:07:03,159 Speaker 1: wondering ston history how soon does the Democratic field have 123 00:07:03,360 --> 00:07:07,600 Speaker 1: to shrink or consolidate support behind one or two candidates 124 00:07:07,839 --> 00:07:09,840 Speaker 1: in order to have a better chance going forward of 125 00:07:09,920 --> 00:07:14,800 Speaker 1: defeating President Trump. So there isn't really a clear historical pattern. UM. 126 00:07:15,080 --> 00:07:20,240 Speaker 1: I think, UM, you know, the primary calendar in terms 127 00:07:20,280 --> 00:07:23,800 Speaker 1: of opposition beating incumbents. UM. You know, the primary calendar 128 00:07:23,840 --> 00:07:26,880 Speaker 1: is relatively set in the United States. Um. And so 129 00:07:26,920 --> 00:07:28,880 Speaker 1: there isn't really a kind of date by which the 130 00:07:28,920 --> 00:07:32,320 Speaker 1: Democrats need to um, you know, coalesced or form a 131 00:07:32,400 --> 00:07:35,600 Speaker 1: coalition by which they make um, their success in the 132 00:07:35,640 --> 00:07:38,520 Speaker 1: election more likely. I think the general rule in this 133 00:07:38,560 --> 00:07:42,280 Speaker 1: case is the sooner the better. Mark Rosenberg, thanks so 134 00:07:42,360 --> 00:07:45,520 Speaker 1: much for joining us. We appreciate your thoughts. Mark Rosenberg, 135 00:07:45,520 --> 00:07:48,280 Speaker 1: founder and CEO of geo Quant, also an adjunct professor 136 00:07:48,800 --> 00:07:52,120 Speaker 1: at Columbia University. He is based in San Francisco. Some 137 00:07:52,160 --> 00:07:55,080 Speaker 1: interesting commentary about the election and kind of what their 138 00:07:55,120 --> 00:07:57,960 Speaker 1: models are showing, and uh appears to be, you know, 139 00:07:58,000 --> 00:08:02,520 Speaker 1: from Mark's comments, you know, pretty predisposed or you know, 140 00:08:02,560 --> 00:08:06,120 Speaker 1: towards President Trump getting re elected, unless you know, maybe 141 00:08:06,120 --> 00:08:10,280 Speaker 1: the field somehow coalesces around candidate and maybe can put 142 00:08:10,360 --> 00:08:12,000 Speaker 1: up a stronger fight. Yeah, and then they'll be the 143 00:08:12,080 --> 00:08:15,040 Speaker 1: question of whether any candidate on the Democratic side could 144 00:08:15,080 --> 00:08:18,360 Speaker 1: get something done without the both sides of Congress. Meanwhile, 145 00:08:18,360 --> 00:08:20,880 Speaker 1: I should just mentioned that right now FED funds futures 146 00:08:20,880 --> 00:08:24,160 Speaker 1: are pricing in a full half a percentage point rate 147 00:08:24,240 --> 00:08:27,000 Speaker 1: cut through the end of twenties, so really shifting their 148 00:08:27,080 --> 00:08:33,360 Speaker 1: rate cut expectations forward. This morning, everyone was watching thirty 149 00:08:33,440 --> 00:08:36,200 Speaker 1: year treasury yields, which were covering on the precipice of 150 00:08:36,240 --> 00:08:39,559 Speaker 1: an all time new record, and it reached it after 151 00:08:39,920 --> 00:08:42,240 Speaker 1: the p m I data that came out this morning 152 00:08:42,240 --> 00:08:45,120 Speaker 1: from market US business activity shrank this month for the 153 00:08:45,160 --> 00:08:49,200 Speaker 1: first time since twenty with the services section of the 154 00:08:49,240 --> 00:08:52,880 Speaker 1: index seeing a particularly big drop off. The question here 155 00:08:53,000 --> 00:08:55,800 Speaker 1: is what is the message being sent by bonds which 156 00:08:55,800 --> 00:08:59,319 Speaker 1: are reaching new all time loads and how in canherent 157 00:08:59,520 --> 00:09:02,880 Speaker 1: in cohere? Arn is it with equities reaching or hovering 158 00:09:02,920 --> 00:09:06,040 Speaker 1: near all time high joining us now Ben Emmon's Managing director, 159 00:09:06,160 --> 00:09:09,000 Speaker 1: Global Strategy at Medley Global Advisors, joining us here in 160 00:09:09,040 --> 00:09:12,040 Speaker 1: our interactive broker studios. So let's start there. What is 161 00:09:12,080 --> 00:09:14,679 Speaker 1: the message being sent by thirty year yields at all 162 00:09:14,720 --> 00:09:18,160 Speaker 1: time lows? So the one hand, Lisa, it's a technical message, 163 00:09:18,360 --> 00:09:22,280 Speaker 1: right there is a aparent positioning going on with hedge 164 00:09:22,280 --> 00:09:24,559 Speaker 1: funds going short and the as you managers going long, 165 00:09:24,600 --> 00:09:27,440 Speaker 1: and it's probably very much driven by different views about 166 00:09:27,520 --> 00:09:30,120 Speaker 1: whether the economy and be heading as well as hedging 167 00:09:30,160 --> 00:09:33,480 Speaker 1: against the downside risk of this virus outbreak. On the 168 00:09:33,480 --> 00:09:36,800 Speaker 1: other hand, it's it's to that fundamental picture. I think 169 00:09:36,800 --> 00:09:41,160 Speaker 1: the inflation picture is gonna see a significant moderation this year. 170 00:09:41,240 --> 00:09:44,680 Speaker 1: If if the collapse in China's as we speak happening, 171 00:09:45,400 --> 00:09:48,280 Speaker 1: you know, in terms of production data, then inflation data 172 00:09:48,320 --> 00:09:50,280 Speaker 1: and China will will will go down quite a bit 173 00:09:50,559 --> 00:09:53,280 Speaker 1: and that will really transcend down globally. I think this 174 00:09:53,440 --> 00:09:56,160 Speaker 1: is not a reason why bond deals are lower in 175 00:09:56,200 --> 00:09:58,040 Speaker 1: the United States? Do you what do you how do 176 00:09:58,040 --> 00:10:00,080 Speaker 1: you think the FED is going to respond to It 177 00:10:00,120 --> 00:10:03,840 Speaker 1: appears to be a growing problem. It doesn't appear like 178 00:10:03,920 --> 00:10:07,520 Speaker 1: we've seen the peak of the coronavirus risk. So all 179 00:10:07,559 --> 00:10:10,680 Speaker 1: these central banks we feed are monitoring, as they say, 180 00:10:10,760 --> 00:10:12,360 Speaker 1: and you know, we know that they don't have the 181 00:10:12,440 --> 00:10:16,000 Speaker 1: precise tools to combine any of this, but they do 182 00:10:16,040 --> 00:10:18,400 Speaker 1: know as we know now is that companies are responding 183 00:10:18,480 --> 00:10:21,440 Speaker 1: quite dramatically to this outbreak, you know, shutting off production, 184 00:10:21,480 --> 00:10:24,600 Speaker 1: shutting down air traffic. So there will be something of 185 00:10:24,640 --> 00:10:28,199 Speaker 1: a message there to tell to two companies about you know, well, 186 00:10:28,280 --> 00:10:30,720 Speaker 1: this is really something that that's going to drag down 187 00:10:30,720 --> 00:10:33,200 Speaker 1: global growth just because it's a virus outbreak that we've 188 00:10:33,280 --> 00:10:36,560 Speaker 1: had in several cases before and by far not as 189 00:10:36,679 --> 00:10:39,560 Speaker 1: as severe as a normal influenza. At the same time, 190 00:10:39,640 --> 00:10:42,400 Speaker 1: central banks will likely stand by with liquidity, as we 191 00:10:42,440 --> 00:10:45,360 Speaker 1: saw from the BBC and the fedsil ongoing that other 192 00:10:45,360 --> 00:10:48,319 Speaker 1: central banks would there too, And I think that liquidity 193 00:10:48,320 --> 00:10:51,520 Speaker 1: operation is pretty effective. If you think about the shock 194 00:10:51,600 --> 00:10:53,720 Speaker 1: that which just went through, it could have been much 195 00:10:53,760 --> 00:10:57,520 Speaker 1: more severe if if we did not have liquidity injections 196 00:10:57,520 --> 00:11:00,560 Speaker 1: by the BBC and you know, ongoing by the So 197 00:11:00,640 --> 00:11:02,640 Speaker 1: will the should be in the BUJ follow with something 198 00:11:02,720 --> 00:11:05,920 Speaker 1: like that not not unlikely if we're getting more downdraft 199 00:11:05,920 --> 00:11:07,680 Speaker 1: in data. I want to go back to something you 200 00:11:07,720 --> 00:11:10,680 Speaker 1: were talking about, this sort of technical factor with hedge 201 00:11:10,720 --> 00:11:15,160 Speaker 1: funds going short, treasuries and insurance companies pensions going long, 202 00:11:15,360 --> 00:11:18,040 Speaker 1: particularly on the long end, and I'm wondering if this 203 00:11:18,120 --> 00:11:20,800 Speaker 1: is a short squeeze that we're observing which is really 204 00:11:20,880 --> 00:11:24,520 Speaker 1: responsible for the rally that we're seeing in treasuries. Then 205 00:11:24,840 --> 00:11:28,520 Speaker 1: is it potentially not that negative or even positive for 206 00:11:28,559 --> 00:11:31,920 Speaker 1: equities because it keeps borrowing costs so low that it 207 00:11:31,960 --> 00:11:36,400 Speaker 1: continues to support the relative valuation case for equities. Yeah, 208 00:11:36,760 --> 00:11:39,280 Speaker 1: I think you're right about that, because if you if 209 00:11:39,400 --> 00:11:43,000 Speaker 1: bonds work well as as in total return, I say 210 00:11:43,200 --> 00:11:46,200 Speaker 1: hedgechickens the downstafe fish within loan loan as your manager 211 00:11:46,240 --> 00:11:48,640 Speaker 1: would do a sort of that view. In addition that 212 00:11:48,720 --> 00:11:52,560 Speaker 1: you say low borrowing costs which affect positively for corporations 213 00:11:52,559 --> 00:11:55,920 Speaker 1: and housing and consumer spending, then yes, this is this 214 00:11:56,200 --> 00:11:57,800 Speaker 1: and that's typically, by the way, the case when you 215 00:11:57,800 --> 00:12:00,360 Speaker 1: have flight to safety, believe or not, there's actually emilist 216 00:12:00,360 --> 00:12:02,520 Speaker 1: to the economy. Very often happened that way. We saw 217 00:12:02,520 --> 00:12:05,520 Speaker 1: it in August that way too, and subpoquent data recovers 218 00:12:05,880 --> 00:12:08,160 Speaker 1: low interests of falling long term interest rates tend to 219 00:12:08,200 --> 00:12:10,040 Speaker 1: do that. So I think this is another phase of 220 00:12:10,200 --> 00:12:13,600 Speaker 1: like short screes, fight the safety leads to ultimately simmers 221 00:12:13,640 --> 00:12:16,640 Speaker 1: in the economy, and that could be positive for stocks. 222 00:12:16,679 --> 00:12:20,400 Speaker 1: Some of the consensus trades that we heard coming into 223 00:12:20,440 --> 00:12:23,000 Speaker 1: was maybe this is the time where international markets will 224 00:12:23,000 --> 00:12:27,840 Speaker 1: outperform the US does this growing concern about the global 225 00:12:27,880 --> 00:12:32,960 Speaker 1: economy featuring China called that trade into into play, maybe 226 00:12:32,960 --> 00:12:35,679 Speaker 1: into question. I'm actually on the side pole of that. 227 00:12:35,800 --> 00:12:39,120 Speaker 1: That actually makes it even more compelling them before. And 228 00:12:39,160 --> 00:12:41,880 Speaker 1: here's why. So if if you think about the data 229 00:12:41,920 --> 00:12:43,800 Speaker 1: it's coming out now, say that be my data in 230 00:12:43,880 --> 00:12:46,520 Speaker 1: Japan overnight or the expert orders of Taiwan and and 231 00:12:46,640 --> 00:12:49,640 Speaker 1: sup forth. Pretty big drops in that data, right, and 232 00:12:49,640 --> 00:12:51,240 Speaker 1: and that's what you would expect if you have a 233 00:12:51,240 --> 00:12:55,000 Speaker 1: production shutdown in China. It's pretty extraordinary to to go 234 00:12:55,120 --> 00:12:58,120 Speaker 1: through that at the moment. But the more that data drops, 235 00:12:58,440 --> 00:13:01,679 Speaker 1: the more encouraging the v shas recall of recovery would become. 236 00:13:01,720 --> 00:13:04,000 Speaker 1: So I'm more on that camp, which makes actually the 237 00:13:04,040 --> 00:13:08,560 Speaker 1: relative value difference between US and four markets even more compelling. 238 00:13:08,960 --> 00:13:11,760 Speaker 1: And yes, the the the valuation of Asian markets is 239 00:13:11,800 --> 00:13:16,360 Speaker 1: at a discount relative to US markets, and if the 240 00:13:16,440 --> 00:13:18,640 Speaker 1: US markets are benefits so much from a flight to 241 00:13:18,720 --> 00:13:21,320 Speaker 1: safety with stock values or bumping my value up and 242 00:13:21,320 --> 00:13:23,920 Speaker 1: the dollar up, it becomes a case at some point 243 00:13:23,960 --> 00:13:27,559 Speaker 1: that anticipating the V shape, that four assets look more attractive. 244 00:13:27,600 --> 00:13:30,520 Speaker 1: So I remain on that trade. It's just a little 245 00:13:30,559 --> 00:13:32,880 Speaker 1: bit knocked out of bounds for the first quarter. It 246 00:13:32,960 --> 00:13:35,000 Speaker 1: will come back in the second half. I think when 247 00:13:35,040 --> 00:13:38,199 Speaker 1: it's bad news bad news again. Well that's another good 248 00:13:38,200 --> 00:13:40,080 Speaker 1: point at least of course, because the scare that we 249 00:13:40,120 --> 00:13:41,880 Speaker 1: have a little bit of markets today is about this 250 00:13:42,000 --> 00:13:45,200 Speaker 1: word pandemic, right, is becoming a pandemic in Asia and 251 00:13:45,240 --> 00:13:47,480 Speaker 1: then it spills to the rest of the globe. But 252 00:13:47,559 --> 00:13:49,720 Speaker 1: they also have to put it in perspective. Our previous 253 00:13:49,800 --> 00:13:52,800 Speaker 1: viruses have have worked, they tend to do spread around, 254 00:13:53,080 --> 00:13:55,720 Speaker 1: and it really comes down to that. I think about 255 00:13:56,080 --> 00:13:58,760 Speaker 1: the infrastructure countries how to deal with an outbreak of 256 00:13:58,800 --> 00:14:01,360 Speaker 1: the virus. You know, the most worrying would be in 257 00:14:01,400 --> 00:14:04,480 Speaker 1: the in the in the say South Africa or African nations, right, 258 00:14:04,520 --> 00:14:07,400 Speaker 1: who do not have any infrastructures to the w h 259 00:14:07,400 --> 00:14:10,160 Speaker 1: O warrent for But for the developed markets that's a 260 00:14:10,200 --> 00:14:14,360 Speaker 1: different story. And because marcus react now, because a virus 261 00:14:14,400 --> 00:14:18,160 Speaker 1: outbreak links to you know, production shut down, delay of 262 00:14:18,320 --> 00:14:20,520 Speaker 1: any kind of activity because people have to stay home, 263 00:14:21,200 --> 00:14:23,080 Speaker 1: there's still a lot of workaround. I think to that too, 264 00:14:23,240 --> 00:14:26,000 Speaker 1: all companies are preparing to say, you know this flight 265 00:14:26,040 --> 00:14:28,040 Speaker 1: chain shift, will shift, will happen anyway, I'm going to 266 00:14:28,120 --> 00:14:30,360 Speaker 1: prepare differently to continue my production because you know you 267 00:14:30,440 --> 00:14:33,400 Speaker 1: have to here to stockholder. So by and large, I 268 00:14:33,440 --> 00:14:37,000 Speaker 1: think pandemic is a fear factor in markets, but ultimately 269 00:14:37,040 --> 00:14:39,000 Speaker 1: I think it's it's still going to be a recovery 270 00:14:39,040 --> 00:14:41,400 Speaker 1: from here, not not a recession. Okay, Ben em it's 271 00:14:41,400 --> 00:14:43,480 Speaker 1: thanks so much for joining us. We appreciate chatting with 272 00:14:43,520 --> 00:14:46,720 Speaker 1: you as we do periodically. Ben Emmon's managing director Global 273 00:14:46,760 --> 00:14:49,720 Speaker 1: Macro Strategy for Medlely Global Partners. Joining us here in 274 00:14:49,720 --> 00:14:53,280 Speaker 1: our Bloomberg Interactive Broker Studio. Really interesting to hear how 275 00:14:53,320 --> 00:14:56,720 Speaker 1: the interclining yields could end up being a positive for stocks, 276 00:14:56,720 --> 00:14:58,880 Speaker 1: even though people usually look at the flight to safety 277 00:14:59,240 --> 00:15:01,920 Speaker 1: is being a negative message for equities, sort of the 278 00:15:01,960 --> 00:15:04,920 Speaker 1: modern conundrum of markets. Yep, absolutely so. We had the 279 00:15:04,960 --> 00:15:07,480 Speaker 1: SMP down here twenty five off the lows, uh, the 280 00:15:07,520 --> 00:15:11,720 Speaker 1: down down two three points. That's twenty oh nineteen on 281 00:15:11,760 --> 00:15:19,440 Speaker 1: the down. Jones Industrials. This is Bloomberg time to check 282 00:15:19,480 --> 00:15:22,440 Speaker 1: in with Bloomberg Opinion. We're joined by opinion calumnist Tara 283 00:15:22,520 --> 00:15:26,520 Speaker 1: la Chapelle. She covers all things industrial for Bloomberg Opinion 284 00:15:26,920 --> 00:15:29,880 Speaker 1: and for those Warren Buffet watchers Tomorrow's on a very 285 00:15:29,880 --> 00:15:32,760 Speaker 1: important day. That's when Berkshire Hathaway releases its annual letter. 286 00:15:32,760 --> 00:15:34,800 Speaker 1: We get a sense of kind of how Warren is 287 00:15:34,960 --> 00:15:37,040 Speaker 1: viewing the world. Helps preview that we have our good 288 00:15:37,040 --> 00:15:40,600 Speaker 1: friend Tara. So Tara again, Warren Buffet watchers. Tomorrow is 289 00:15:40,600 --> 00:15:44,120 Speaker 1: a big day. What's the expectation here because they've been 290 00:15:44,240 --> 00:15:46,920 Speaker 1: kind of quiet on the acquisition front. I think what 291 00:15:47,000 --> 00:15:49,800 Speaker 1: people are really hoping for is that Warren Buffett is 292 00:15:49,800 --> 00:15:51,640 Speaker 1: going to talk a little bit more about what he's 293 00:15:51,640 --> 00:15:54,920 Speaker 1: going to do with all that cash. Berkshire Hathaway's cash 294 00:15:55,040 --> 00:15:57,920 Speaker 1: was a hundred and twenty eight billion dollars in the 295 00:15:58,000 --> 00:16:00,440 Speaker 1: latest quarter that they reported, So we'll find out tomorrow 296 00:16:00,520 --> 00:16:03,200 Speaker 1: when his letter comes out. We'll have the fourth quarter 297 00:16:03,200 --> 00:16:05,680 Speaker 1: earnings report with it, and we'll see if that cash 298 00:16:05,800 --> 00:16:09,239 Speaker 1: moved at all. Uh. He didn't make any significant acquisitions 299 00:16:09,320 --> 00:16:12,480 Speaker 1: during the period, as we know, and last week we 300 00:16:12,560 --> 00:16:14,880 Speaker 1: got their thirteen F filing filing and saw that they 301 00:16:14,880 --> 00:16:18,360 Speaker 1: didn't really um make any tremendous purchases in the stock 302 00:16:18,360 --> 00:16:21,080 Speaker 1: market either. He bought a steak in Kroger, a small 303 00:16:21,120 --> 00:16:23,560 Speaker 1: steak in Biogen, but nothing really big. And we don't 304 00:16:23,560 --> 00:16:26,040 Speaker 1: think that they've done a lot of Berkshire buy backs, Yeah, 305 00:16:26,080 --> 00:16:29,200 Speaker 1: even though he's talked about doing that. So hopefully he can, 306 00:16:29,320 --> 00:16:31,760 Speaker 1: you know, get people excited about what's going to happen, 307 00:16:31,920 --> 00:16:34,720 Speaker 1: and maybe he'll be able to find his big elephant 308 00:16:34,920 --> 00:16:36,960 Speaker 1: this year, the big acquisition he's been trying to do. 309 00:16:37,080 --> 00:16:39,560 Speaker 1: He turns ninety in August, so one would think that, 310 00:16:40,040 --> 00:16:41,680 Speaker 1: you know, time is of the essence and he'd want 311 00:16:41,720 --> 00:16:44,480 Speaker 1: to do something. Yeah, although throwing some cold water on that, 312 00:16:44,520 --> 00:16:47,560 Speaker 1: Berkshire vice chair saying in an interview with Bloomberg, we're 313 00:16:47,560 --> 00:16:50,720 Speaker 1: gradually getting more pessimistic about using our money. It's been 314 00:16:50,760 --> 00:16:53,400 Speaker 1: a long time since we bought anything. This is Charlie Munger, 315 00:16:53,480 --> 00:16:57,000 Speaker 1: and I have to say again Warren Buffett problems the 316 00:16:57,040 --> 00:16:58,520 Speaker 1: idea that you just have so much money you don't 317 00:16:58,520 --> 00:17:00,160 Speaker 1: know what to do with it. But it, you know, 318 00:17:00,520 --> 00:17:02,840 Speaker 1: is really good question, Tara, which is why don't they 319 00:17:02,840 --> 00:17:05,480 Speaker 1: buy back more shares or just give massive dividends to 320 00:17:05,480 --> 00:17:07,919 Speaker 1: their investors. Yeah, I mean we're not sure. We know 321 00:17:08,000 --> 00:17:10,280 Speaker 1: Buffett and Monger are really opposed to the idea of 322 00:17:10,280 --> 00:17:13,199 Speaker 1: a dividend, and he's kind of started to mention that 323 00:17:13,320 --> 00:17:15,639 Speaker 1: more often. The last couple of years. It used to 324 00:17:15,720 --> 00:17:17,439 Speaker 1: be kind of unheard of that they would even do 325 00:17:17,480 --> 00:17:19,280 Speaker 1: something like that, So the fact that he's brought it up, 326 00:17:19,520 --> 00:17:21,240 Speaker 1: I just don't think they're at the point of being 327 00:17:21,240 --> 00:17:24,080 Speaker 1: willing to pay a big, one time special dividend. I 328 00:17:24,160 --> 00:17:27,000 Speaker 1: think maybe that's something his successor would want to be 329 00:17:27,040 --> 00:17:29,280 Speaker 1: able to have the opportunity to do, should they need it. 330 00:17:29,600 --> 00:17:31,800 Speaker 1: Um But I think Buffett his goal is still finding 331 00:17:31,800 --> 00:17:33,520 Speaker 1: a deal, and Manger always tends to be sort of 332 00:17:33,520 --> 00:17:35,960 Speaker 1: the more pessimistic one of the two. Buffett in his 333 00:17:36,040 --> 00:17:38,200 Speaker 1: letter every year, you know, he always gives that pep 334 00:17:38,240 --> 00:17:41,200 Speaker 1: talk about America and how great America's prospects are, and 335 00:17:41,560 --> 00:17:44,320 Speaker 1: you know, kids born today are better off than he was, 336 00:17:44,440 --> 00:17:45,960 Speaker 1: and so on and so forth. And I don't think 337 00:17:45,960 --> 00:17:48,280 Speaker 1: that will change in this letter, but I think you 338 00:17:48,640 --> 00:17:51,119 Speaker 1: will see that growing frustration with the markets that he 339 00:17:51,200 --> 00:17:53,560 Speaker 1: just hasn't been able to find anything to put this 340 00:17:53,640 --> 00:17:57,159 Speaker 1: money to work on. It's interesting, Terry, you mentioned succession, 341 00:17:58,000 --> 00:17:59,879 Speaker 1: where what's the status of that? I mean, they just 342 00:18:00,080 --> 00:18:01,720 Speaker 1: kick this can down the road and down the road. 343 00:18:01,840 --> 00:18:03,640 Speaker 1: We have any greater clarity. I know there's some new 344 00:18:03,720 --> 00:18:07,800 Speaker 1: hires pre senior positions, but what's the latest. I think, 345 00:18:07,800 --> 00:18:10,880 Speaker 1: if anything, it's gotten more uncertain because so a couple 346 00:18:10,920 --> 00:18:14,520 Speaker 1: of years ago they did promote Greg Able to run 347 00:18:14,640 --> 00:18:16,919 Speaker 1: to be vice chairman of everything that didn't have to 348 00:18:16,920 --> 00:18:19,320 Speaker 1: do with their insurance business, and a Jet Jane, who 349 00:18:19,400 --> 00:18:21,240 Speaker 1: came from the insurance side, they put him in charge 350 00:18:21,280 --> 00:18:24,679 Speaker 1: of their huge insurance operations, and so that kind of 351 00:18:24,720 --> 00:18:27,040 Speaker 1: set the two up to be the next in line 352 00:18:27,040 --> 00:18:29,359 Speaker 1: to become Successor's a little bit older, and it seems 353 00:18:29,400 --> 00:18:31,560 Speaker 1: like Greg is kind of the favorite for the job. 354 00:18:31,800 --> 00:18:34,280 Speaker 1: Greg also got to speak at last year's annual meeting 355 00:18:34,320 --> 00:18:37,040 Speaker 1: for the first time publicly, which was kind of unusual 356 00:18:37,080 --> 00:18:40,800 Speaker 1: and I think really symbolic. But then, uh, Todd Combs, 357 00:18:40,840 --> 00:18:44,280 Speaker 1: who came from the investing side of the business, was 358 00:18:44,320 --> 00:18:47,080 Speaker 1: promoted to run Geico, and I think that got a 359 00:18:47,119 --> 00:18:49,720 Speaker 1: lot of people thinking that is Todd another person that 360 00:18:49,760 --> 00:18:51,679 Speaker 1: he's looking at, or maybe there will be sort of 361 00:18:51,720 --> 00:18:55,280 Speaker 1: a split role when his successors take over, someone doing 362 00:18:55,320 --> 00:18:58,639 Speaker 1: capital allocation another person running the operational side of the business. 363 00:18:58,680 --> 00:19:01,680 Speaker 1: We just don't know, so hopeful He addresses that though 364 00:19:01,880 --> 00:19:05,199 Speaker 1: knowing Buffett, he probably won't say very much. Although in 365 00:19:05,920 --> 00:19:07,879 Speaker 1: just to put this into perspective of how much pressure 366 00:19:07,920 --> 00:19:11,080 Speaker 1: they're under. Uh, they've missed a bunch of deals, and 367 00:19:11,280 --> 00:19:13,359 Speaker 1: their shares row at a slower pace, rose at a 368 00:19:13,359 --> 00:19:16,240 Speaker 1: slower pace than SP five hundred. It was their worst 369 00:19:16,359 --> 00:19:20,240 Speaker 1: under performance since two thousand and nine. There's a question 370 00:19:20,600 --> 00:19:24,359 Speaker 1: is there strategy one that fit with another time in 371 00:19:24,520 --> 00:19:27,760 Speaker 1: history of the stock markets that is no longer and 372 00:19:27,960 --> 00:19:30,919 Speaker 1: that they are really coming to that realization at a 373 00:19:31,000 --> 00:19:34,240 Speaker 1: time when they aren't sure how to deploy their cash. 374 00:19:34,560 --> 00:19:36,880 Speaker 1: It's true, I mean, the true Buffet stands they don't 375 00:19:36,880 --> 00:19:38,960 Speaker 1: really worry much about the stock price and the fact 376 00:19:39,000 --> 00:19:41,040 Speaker 1: that it's lagging, which is kind of funny. It's a 377 00:19:41,119 --> 00:19:44,920 Speaker 1: very unusual trait that Berkshire has still But I think, 378 00:19:44,920 --> 00:19:47,359 Speaker 1: you know, after going to last year's meeting and seeing 379 00:19:47,800 --> 00:19:51,120 Speaker 1: that the investor based really reflected what we see at 380 00:19:51,119 --> 00:19:54,439 Speaker 1: Berkshire itself, where it's excuse older. These are people that 381 00:19:54,520 --> 00:19:56,160 Speaker 1: have a lot of respect for Buffet, But I don't 382 00:19:56,160 --> 00:19:58,480 Speaker 1: know how they get that younger generation interested in a 383 00:19:58,560 --> 00:20:01,359 Speaker 1: stock that's lagging so much. So I think this is 384 00:20:01,359 --> 00:20:04,080 Speaker 1: going to become a bigger question when his successor is 385 00:20:04,119 --> 00:20:06,800 Speaker 1: in charge. You know, does the strategy worked as being 386 00:20:06,800 --> 00:20:09,960 Speaker 1: a big conglomerate with all this cash that's very difficult 387 00:20:09,960 --> 00:20:11,640 Speaker 1: to put to work. Is is that the best way 388 00:20:11,680 --> 00:20:14,879 Speaker 1: to run this or do they need to change strategy? 389 00:20:14,920 --> 00:20:16,880 Speaker 1: And I don't think that will ever happen under Buffett, 390 00:20:16,880 --> 00:20:18,760 Speaker 1: but I think those questions start to arise when you 391 00:20:18,800 --> 00:20:21,720 Speaker 1: think about when he's not there any longer, So you're 392 00:20:21,720 --> 00:20:25,760 Speaker 1: working tomorrow anti terror, right and early. I just honestly, 393 00:20:26,000 --> 00:20:28,719 Speaker 1: why do they do it on Saturday? I think you know, 394 00:20:28,800 --> 00:20:30,960 Speaker 1: he he has said, who knows if this is the case, 395 00:20:30,960 --> 00:20:32,960 Speaker 1: but he has said that, you know, he doesn't want 396 00:20:32,960 --> 00:20:36,720 Speaker 1: the stock overreacting to things when they released during closer 397 00:20:36,720 --> 00:20:39,480 Speaker 1: to market times, and especially now that the way they 398 00:20:39,480 --> 00:20:42,320 Speaker 1: have to report their stockholdings and how that changes their earnings. 399 00:20:42,359 --> 00:20:45,360 Speaker 1: But I think he just likes journalists working on Saturday 400 00:20:45,359 --> 00:20:50,520 Speaker 1: and the spot life because nobody else is going to compete. Yes, 401 00:20:50,720 --> 00:20:53,720 Speaker 1: Aryla Chappelle of Bloomberg Opinion, thank you so much as 402 00:20:53,760 --> 00:20:57,159 Speaker 1: always for your insights here. Really amazing. A hundred and 403 00:20:57,200 --> 00:21:01,240 Speaker 1: twenty eight billion dollars of Stay owned two and fifty 404 00:21:01,280 --> 00:21:04,440 Speaker 1: million shares of Apple. Yeah, they've actually more than doubled 405 00:21:04,600 --> 00:21:07,480 Speaker 1: the shareholding since two thousand and sixteen, when they started 406 00:21:07,480 --> 00:21:10,720 Speaker 1: getting in they owned seventy nine billion dollars of the shares. 407 00:21:10,760 --> 00:21:12,680 Speaker 1: But Warren Buffett said this is not a tech story 408 00:21:12,720 --> 00:21:16,200 Speaker 1: for him. It's one of share by backs and dividends 409 00:21:16,480 --> 00:21:19,399 Speaker 1: as well as the consumer story, which is really interesting. 410 00:21:19,480 --> 00:21:24,800 Speaker 1: That's what he understands more than the tech side. We've 411 00:21:24,880 --> 00:21:28,080 Speaker 1: got some economic data this morning that showed US business 412 00:21:28,119 --> 00:21:31,720 Speaker 1: activity shrank in February for the first time since as 413 00:21:31,720 --> 00:21:35,480 Speaker 1: a coronavirus hit supply chains and made firms hesitant to 414 00:21:35,520 --> 00:21:37,760 Speaker 1: place orders. To get a sense of what's going on, 415 00:21:37,880 --> 00:21:39,639 Speaker 1: we welcome our good friend Tom or Like. He's a 416 00:21:39,680 --> 00:21:43,280 Speaker 1: chief economist for Bloomberg Economics, spent lived and worked many 417 00:21:43,359 --> 00:21:45,600 Speaker 1: years in Beijing, has a real feel for what's going 418 00:21:45,680 --> 00:21:48,800 Speaker 1: on in China. He joins us from our Bloomberg One 419 00:21:48,840 --> 00:21:51,240 Speaker 1: studio in Washington, d C. Tom, thanks so much for 420 00:21:51,359 --> 00:21:53,240 Speaker 1: joining us. So the data that came out of the 421 00:21:53,240 --> 00:21:55,960 Speaker 1: market p M I today really brought home for many 422 00:21:56,000 --> 00:21:59,640 Speaker 1: in the market that this coronavirus is gonna be an 423 00:21:59,640 --> 00:22:03,600 Speaker 1: economic event. It appears where do you see the biggest 424 00:22:03,720 --> 00:22:07,879 Speaker 1: risk from what's going on in China right now? Um, So, 425 00:22:08,600 --> 00:22:11,840 Speaker 1: I'm a bit surprised to see this hitting the US 426 00:22:11,920 --> 00:22:16,359 Speaker 1: services sector so early. Um, certainly this is going to 427 00:22:16,480 --> 00:22:20,080 Speaker 1: be a big blow for China in the first quarter. 428 00:22:20,600 --> 00:22:24,480 Speaker 1: Certainly there's going to be supply chain snarl ups which 429 00:22:24,480 --> 00:22:28,399 Speaker 1: are gonna mean the impact ripples around Asia and around 430 00:22:28,480 --> 00:22:33,120 Speaker 1: the world. The US, though, seems a long way away. Certainly, 431 00:22:33,119 --> 00:22:37,280 Speaker 1: the U S Services sector is not very integrated into 432 00:22:37,320 --> 00:22:40,080 Speaker 1: what's going on in China. In some ways, the trade 433 00:22:40,080 --> 00:22:44,000 Speaker 1: war was about President Trump trying to get more access 434 00:22:44,080 --> 00:22:47,360 Speaker 1: for the U S services sector to the Chinese economy. 435 00:22:48,040 --> 00:22:50,359 Speaker 1: So the fact that we're seeing the US numbers coming 436 00:22:50,400 --> 00:22:54,040 Speaker 1: off so much and so quickly, I think rings and 437 00:22:54,119 --> 00:22:57,720 Speaker 1: alarm bell um that the global ripples from this virus 438 00:22:57,800 --> 00:22:59,919 Speaker 1: could be bigger and it would appear more quickly than 439 00:23:00,000 --> 00:23:03,359 Speaker 1: anyone anticipated. Tom Is there also an implication that perhaps 440 00:23:03,440 --> 00:23:07,000 Speaker 1: there was more weakness underneath that was building regardless of 441 00:23:07,000 --> 00:23:12,119 Speaker 1: the coronavirus. Yeah, I mean that is also something to 442 00:23:12,160 --> 00:23:17,560 Speaker 1: think about, Lisa. I think people were coming into with 443 00:23:17,640 --> 00:23:21,520 Speaker 1: a certain amount of optimism. We had some easing from 444 00:23:21,600 --> 00:23:24,600 Speaker 1: the FED, we had easing from the People's Bank of China. 445 00:23:25,080 --> 00:23:28,760 Speaker 1: The ECB did what they could to spur European growth. 446 00:23:29,320 --> 00:23:33,400 Speaker 1: Of course, the trade truth meant there was some optimism 447 00:23:33,400 --> 00:23:36,119 Speaker 1: about what was going to happen to exports over the 448 00:23:36,160 --> 00:23:40,520 Speaker 1: course of the year. UM. The coronavirus has completely changed 449 00:23:40,560 --> 00:23:44,160 Speaker 1: the narrative. UM. At a minimum, it means any kind 450 00:23:44,160 --> 00:23:48,880 Speaker 1: of recovery is going to be delayed until the second quarter. UM. 451 00:23:48,920 --> 00:23:51,879 Speaker 1: It could mean that we're in for another year of 452 00:23:52,480 --> 00:23:58,120 Speaker 1: very bumpy growth and elevated risks of a downturn. So, Tom, 453 00:23:58,160 --> 00:24:00,119 Speaker 1: based on you know, the work you've done, the contacts 454 00:24:00,200 --> 00:24:02,359 Speaker 1: you have in China, what's your best guess as to 455 00:24:03,280 --> 00:24:05,119 Speaker 1: how much of the economy is really being impacted? How 456 00:24:05,200 --> 00:24:07,239 Speaker 1: much are people back to work and how many how 457 00:24:07,320 --> 00:24:09,520 Speaker 1: much you know, what percentage are staying are still at home? 458 00:24:09,560 --> 00:24:12,560 Speaker 1: What percentage of the the economy is really back versus offline? 459 00:24:12,600 --> 00:24:16,200 Speaker 1: I guess I mean that that is the fourteen trillion 460 00:24:16,240 --> 00:24:20,040 Speaker 1: dollar question call UM, and we've been trying to answer 461 00:24:20,080 --> 00:24:23,560 Speaker 1: it through a variety of different means. We've been looking 462 00:24:23,640 --> 00:24:28,280 Speaker 1: at high frequency data on passenger travel. We've been looking 463 00:24:28,320 --> 00:24:31,879 Speaker 1: at f X trading volume, which is a proxy for 464 00:24:31,960 --> 00:24:36,000 Speaker 1: what's going on with imports and exports. We've been reading 465 00:24:36,000 --> 00:24:40,119 Speaker 1: the corporate announcements speaking to our contacts across China. UM 466 00:24:40,520 --> 00:24:45,360 Speaker 1: our best estimate is that around of China is back 467 00:24:45,400 --> 00:24:49,960 Speaker 1: to work, um, and that sustained over the course of 468 00:24:49,960 --> 00:24:53,639 Speaker 1: a month would mean that China's GDP in the first 469 00:24:53,720 --> 00:24:58,600 Speaker 1: quarter doesn't grow at all and potentially contracts on a 470 00:24:58,640 --> 00:25:02,359 Speaker 1: sequential basis. This is this is important, especially what you 471 00:25:02,400 --> 00:25:05,880 Speaker 1: were saying earlier about how in the entire world there 472 00:25:05,880 --> 00:25:08,920 Speaker 1: seems to be a faster bleed through of the effect 473 00:25:08,920 --> 00:25:12,520 Speaker 1: of the coronavirus and efforts to contain it. I'm wondering 474 00:25:12,920 --> 00:25:15,440 Speaker 1: whether you think that this caused into question of v 475 00:25:15,480 --> 00:25:20,000 Speaker 1: shape recovery that so many economists are talking about. So 476 00:25:20,119 --> 00:25:23,880 Speaker 1: when we think about China, one of the reasons why 477 00:25:24,160 --> 00:25:29,320 Speaker 1: I'm not succumbing to extreme pessimism right now is because 478 00:25:29,720 --> 00:25:33,960 Speaker 1: China's government is really effective at closing things down. We 479 00:25:34,040 --> 00:25:37,359 Speaker 1: see that right now hundreds of millions of people effectively 480 00:25:37,440 --> 00:25:41,879 Speaker 1: under lockdown under quarantine. But China's government is going to 481 00:25:41,920 --> 00:25:45,560 Speaker 1: be really effective at opening things up again as well. Um. 482 00:25:45,640 --> 00:25:48,920 Speaker 1: We've just had some announcements from the Politburo, the top 483 00:25:49,000 --> 00:25:52,760 Speaker 1: level of China's leadership, and they indicate with the balance 484 00:25:52,800 --> 00:25:56,360 Speaker 1: of concern in China, well, certainly they're still very concerned 485 00:25:56,359 --> 00:26:00,280 Speaker 1: about the outbreak and public health and minimizing the risk there. 486 00:26:00,720 --> 00:26:04,280 Speaker 1: But they're also increasingly concerned about growth and getting people 487 00:26:04,320 --> 00:26:08,199 Speaker 1: back to work. And I think one possibility in the 488 00:26:08,240 --> 00:26:11,800 Speaker 1: next week or two um, if the government thinks that 489 00:26:11,920 --> 00:26:14,879 Speaker 1: the public health risks can be contained, is that we 490 00:26:14,880 --> 00:26:18,760 Speaker 1: see an accelerated move to get China's workers back into 491 00:26:18,760 --> 00:26:23,080 Speaker 1: the factories, back into the offices, at which point the 492 00:26:23,160 --> 00:26:25,399 Speaker 1: V shaped recovery, which a lot of people are kind 493 00:26:25,440 --> 00:26:29,160 Speaker 1: of implicitly penciling in, will start to look like more 494 00:26:29,160 --> 00:26:31,840 Speaker 1: of a real possibility. Hey, Tom, are you, I know, 495 00:26:31,920 --> 00:26:33,199 Speaker 1: in your work, if you look at kind of what 496 00:26:33,440 --> 00:26:36,520 Speaker 1: corporations say and do, are you surprised this pest earning 497 00:26:36,520 --> 00:26:39,840 Speaker 1: season we haven't had more companies call out the coronavirus 498 00:26:39,920 --> 00:26:43,040 Speaker 1: as a risk to either their supply chain or their demand. 499 00:26:43,080 --> 00:26:45,480 Speaker 1: I mean, I know Apple did in a pretty high 500 00:26:45,480 --> 00:26:48,080 Speaker 1: profile way, but I'm surprised, like even Dear Today didn't 501 00:26:48,080 --> 00:26:53,160 Speaker 1: really mention that much at coronavirus being at risk. Right, So, 502 00:26:53,160 --> 00:26:55,359 Speaker 1: so on this pool, I want to give a brief 503 00:26:55,359 --> 00:26:58,600 Speaker 1: shout out to our colleagues in Bloomberg Intelligence who are 504 00:26:58,640 --> 00:27:03,119 Speaker 1: just comprehensively on top of the industrial story and the 505 00:27:03,200 --> 00:27:06,800 Speaker 1: company story and and certainly suggest that people go and 506 00:27:06,880 --> 00:27:08,800 Speaker 1: take a look at what they're saying to get all 507 00:27:08,800 --> 00:27:13,480 Speaker 1: the details on the industry level UM impact. What we've 508 00:27:13,520 --> 00:27:17,760 Speaker 1: done is try and track corporate announcement UM to give 509 00:27:17,840 --> 00:27:20,480 Speaker 1: us a kind of a view on the supply chain 510 00:27:20,600 --> 00:27:23,879 Speaker 1: risks UM. And one of the things which struck us 511 00:27:23,920 --> 00:27:28,919 Speaker 1: reading through around a hundred and eighty corporate transcripts is 512 00:27:28,960 --> 00:27:32,320 Speaker 1: that the degree of concern that we're hearing from the 513 00:27:32,400 --> 00:27:38,040 Speaker 1: multinational boardroom doesn't really match up with the bleak reality 514 00:27:38,160 --> 00:27:43,560 Speaker 1: on the ground in China. Yes, there are certainly more boardrooms, 515 00:27:43,680 --> 00:27:46,879 Speaker 1: more corporations now talking about the risks and giving some 516 00:27:47,119 --> 00:27:49,680 Speaker 1: detail and some color on how they see it impacting 517 00:27:49,680 --> 00:27:53,680 Speaker 1: their company, but there's an awful lot saying yeah, we're 518 00:27:53,680 --> 00:27:56,800 Speaker 1: going to wait and see, or yeah we see some risks, 519 00:27:56,840 --> 00:27:59,080 Speaker 1: but we've got some inventory, so we're going to manage 520 00:27:59,160 --> 00:28:04,280 Speaker 1: through UM. And to ask that doesn't seem to be 521 00:28:04,440 --> 00:28:08,080 Speaker 1: sufficiently taking a kain of the way in which China 522 00:28:08,119 --> 00:28:11,439 Speaker 1: has really closed down now for several weeks, Tom more like, 523 00:28:11,480 --> 00:28:13,199 Speaker 1: thank you so much for being with us, UH and 524 00:28:13,240 --> 00:28:15,719 Speaker 1: for a dose of reality of why you're not totally 525 00:28:15,800 --> 00:28:19,240 Speaker 1: jumping on the pessimism bandwagon just yet, but still have 526 00:28:19,359 --> 00:28:21,359 Speaker 1: some concerns about what's going on. Yeah, I think his 527 00:28:21,480 --> 00:28:23,560 Speaker 1: you know, his estimate coming out of Bloomberg Economics about 528 00:28:23,560 --> 00:28:27,440 Speaker 1: maybe forty of the economy is still kind of offline 529 00:28:27,520 --> 00:28:29,520 Speaker 1: is and that's a that's a big number, and it 530 00:28:29,640 --> 00:28:31,960 Speaker 1: just kind of calls into question the duration is Thomas 531 00:28:32,000 --> 00:28:34,520 Speaker 1: suggesting if it goes on for the you know, you 532 00:28:34,560 --> 00:28:37,800 Speaker 1: know longer, could have a material impact on Q on GDP. Yeah, 533 00:28:37,840 --> 00:28:40,600 Speaker 1: Tom or like chief economist for Bloomberg Economics. There's also 534 00:28:40,680 --> 00:28:43,520 Speaker 1: the question of the spread throughout Asia, Japan and South 535 00:28:43,600 --> 00:28:46,480 Speaker 1: Korea in particular in the forefront, with Japan seeing its 536 00:28:46,520 --> 00:28:49,800 Speaker 1: cases double overnight. South Korea also seeing an increased Japan 537 00:28:49,840 --> 00:28:53,040 Speaker 1: in particular, the population is older, there is a culture 538 00:28:53,040 --> 00:28:55,600 Speaker 1: in osht a sick day, uh so people coming in 539 00:28:55,840 --> 00:28:57,880 Speaker 1: and there are a number of cases that have been 540 00:28:57,920 --> 00:29:00,440 Speaker 1: popping up in different parts that the government men can't 541 00:29:00,440 --> 00:29:02,880 Speaker 1: really track. A lot of pressure on that government given 542 00:29:02,880 --> 00:29:05,400 Speaker 1: the fact already that there seemed to be a slowdown 543 00:29:06,000 --> 00:29:07,920 Speaker 1: in the works, and this seems to be affecting the 544 00:29:08,080 --> 00:29:10,840 Speaker 1: end which has very much been in the focus and weakening. 545 00:29:10,840 --> 00:29:15,360 Speaker 1: Although today kind of stable thanks for listening to the 546 00:29:15,360 --> 00:29:17,960 Speaker 1: Bloomberg P and L podcast, you can subscribe and listen 547 00:29:18,000 --> 00:29:21,360 Speaker 1: to interviews at Apple Podcasts or whatever podcast platform you prefer. 548 00:29:21,760 --> 00:29:24,520 Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa 549 00:29:24,560 --> 00:29:27,160 Speaker 1: Abram woids I'm on Twitter at Lisa Abram Woyds one. 550 00:29:27,400 --> 00:29:30,000 Speaker 1: Before the podcast, you can always catch us worldwide. 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