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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee.

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

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

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

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Speaker 1: question I have is, what have we reached peak panic,

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Speaker 1: peak capitulation? Yeah, no idea. So we asked someone, Gina

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Speaker 1: Martin Adams joins us now Bloomberg Intelligence chief equity strategist

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Speaker 1: joint Gina jointing us on the phone, Gina, fantastic to

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Speaker 1: catch up with you. Let's talk about that. If we've

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Speaker 1: seen full on capitulation, yeah, with a VIX eight, I'd

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Speaker 1: like to think we have halfway. Yeah, one way. Think

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Speaker 1: we looked back at history on a number of measures,

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Speaker 1: and I think that between breath and volatility, you're seeing

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Speaker 1: signs of potentially peak panic. Usually that peak panic creates

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Speaker 1: some degree of a bottom in stocks. It doesn't mean

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Speaker 1: that we're going to hit the price bottom precisely. And

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Speaker 1: as a matter of fact, when we look at history,

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Speaker 1: look at things like the vix peeked in the Fall

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Speaker 1: of eight, for example, and we didn't actually find our bottom.

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Speaker 1: Until March of two thousand nine, UM, the percentage of

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Speaker 1: stocks trading above their fifty day moving average has fallen

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Speaker 1: below one percent on the s MP five hundred. That

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Speaker 1: on average occurs at peak panic, but proceeds on average

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Speaker 1: the bottom and stocks by about thirty days. So it

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Speaker 1: doesn't mean that peak panic necessarily is bottom, but it

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Speaker 1: does usually indicate the early signs of the bottoming process beginning.

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Speaker 1: I think we're there. It's just a matter of time

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Speaker 1: before we reach our full on bottom. The technicals have

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Speaker 1: obviously been horrible. I mean, you know, we've broken through

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Speaker 1: every cyclical support line that we have. We've now broken

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Speaker 1: through the secular support line for the bullmarket trend. We've

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Speaker 1: kind of got really weak support at mods to look

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Speaker 1: forward to next. UM. That said, after sort of peak

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Speaker 1: panic moments, your twelve month returns are always positive and

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Speaker 1: usually positive by double digits. So investors with some degree

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Speaker 1: of patients thinking about averageing you in in environments of

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Speaker 1: peak panic are likely to be rewarded over the long term. So, Gina,

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Speaker 1: as you speak, I'm picking up at a couple of

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Speaker 1: themes charts history. All these things that people are saying

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Speaker 1: are no longer relevant to the current situation that we have,

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Speaker 1: because this is an unprecedented situation where the global economy

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Speaker 1: is literally shutting down for an unknown period of time.

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Speaker 1: How do you get conviction on what to even look

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Speaker 1: at based on history, based on technical levels, based on

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Speaker 1: the fact that we don't know what the earnings are

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Speaker 1: going to be at these companies. We don't know when

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Speaker 1: people are actually going to start going out again and

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Speaker 1: going to restaurants and buying stuff in stores. Yeah, well,

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Speaker 1: these are the same things, Lisa, that you hear in

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Speaker 1: every new crisis. So you know, while people will say

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Speaker 1: charts are irrelevant it, while people will say we can't

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Speaker 1: find evaluation bottom, we don't know where earnings are headed.

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Speaker 1: That's the type of commentary that you here in peak panic,

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Speaker 1: where people are, you know, scared of where things are headed. Yes,

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Speaker 1: this crisis is different, but recall the Great Financial Crisis

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Speaker 1: was also very different, and everyone was panicking and completely

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Speaker 1: uncertain as to where things will go. September eleven, clearly

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Speaker 1: a major attack on US soil had never happened created

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Speaker 1: panic in that environment as well. We didn't know what

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Speaker 1: the outcomes were going to look like. So as much

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Speaker 1: as we want to say this time is different. It's

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Speaker 1: not different in that it's just a new version of

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Speaker 1: a crisis that we have to content with. Um. Yes,

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Speaker 1: we don't know where earnings are headed, and there is

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Speaker 1: a complete information vacuum with respect to the fundamental outlook,

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Speaker 1: and that's going to continue away on confidence and sentiment.

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Speaker 1: But there are very reliable indicators and lessons that we

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Speaker 1: can get from the market itself to give us some

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Speaker 1: guy and I believe that we find that in every crisis,

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Speaker 1: even though every crisis is brand new and something we

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Speaker 1: haven't dealt with before. Let's talk about history just a

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Speaker 1: little bit. JP Morgan crunching the numbers in the same way.

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Speaker 1: I'm sure your team is down at Wauchen and the

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Speaker 1: last three recessions seeing pe multiples of ten point one,

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Speaker 1: point eight and ten point two. Just walk me through

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Speaker 1: the current multiple right now, and how on earth we

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Speaker 1: get our hands around what the looks like for that

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Speaker 1: current multiple. Yeah. So what typically happens is investors look

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Speaker 1: at the forward multiple as most indicative of the environment

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Speaker 1: and where we're going to bottom. The trouble was looking

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Speaker 1: at that multiple in the environment that we're at right

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Speaker 1: in right now, is we truly have no indication of

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Speaker 1: where earnings are headed over the next twelve months. UM

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Speaker 1: guidance is completely dried up. We're not going to get

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Speaker 1: a lot of indication of where the forward multiple will

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Speaker 1: bottom until probably the first quarter earning season, when we

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Speaker 1: hurdle what is going to be the worst earnings UM

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Speaker 1: number that we've seen all cycles in the most most likely.

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Speaker 1: When I look at the market, I like to look

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Speaker 1: at the trailing multiple UM, and I like to look

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Speaker 1: at that because it's more indicative of where pricing actually

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Speaker 1: is in the equity market. And what we find is

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Speaker 1: the trailing multiple has fallen below fifteen for the first

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Speaker 1: time since two thousand thirteen. Uh, if you exclude the

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Speaker 1: biggest of the big tech stocks, it's below thirteen. So

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Speaker 1: we certainly have seen UM pretty considerable repricing in the

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Speaker 1: equity market. What's appropriate for a multiple, Well, you would say,

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Speaker 1: given the extent of the balance sheet movements by the

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Speaker 1: FED as well as the rate reduction to now zero,

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Speaker 1: a multiple north of nineteen is actually appropriate considering monetary policy.

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Speaker 1: Do I think that investors are going to pay nineteen

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Speaker 1: times trailing earnings in an environment of super questionable earnings

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Speaker 1: right now. Probably not. Nonetheless, it does suggest that there

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Speaker 1: is more support to the equity market than is currently

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Speaker 1: being embedded in prices, and will probably track back toward

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Speaker 1: that number over the course of the next twelve months.

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Speaker 1: I think the equity market is absolutely now pricing in

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Speaker 1: a worse than average US procession. When I use that

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Speaker 1: trailing multiple number and I take at times the current

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Speaker 1: and I back into an earning number from the current

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Speaker 1: price on the index, we're pricing in at least decline

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Speaker 1: in earnings over the course of the next twelve months. Gina,

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Speaker 1: it's some unbelievable stats. Appreciate your time this morning, Gina.

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Speaker 1: Martin Adams there, Bloomberg Intelligence Chief Equity strategistic. We get

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Speaker 1: a few on the Fed. We can do that with

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Speaker 1: Bill Dudley. What a privilege this morning, the Bloomberg opinion

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Speaker 1: columnists and of course former New York Fed President Bill

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Speaker 1: fantastic to have you with us. Just publishing your Bloomberg

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Speaker 1: opinion column help us define whether the Federal Reserve and

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Speaker 1: its latest moves are successful or not because some people,

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Speaker 1: many people, in fact, defining that success by what happens

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Speaker 1: or what does not happen In financial markets help us

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Speaker 1: do that a little bit more effectively. Bill, I think

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Speaker 1: that people have to understand that this time is very

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Speaker 1: different than the financial crisis, because this is about a

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Speaker 1: big shock to demand in the economy, and the Fed

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Speaker 1: Reserve can't do much about that. What they can do

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Speaker 1: is take steps to ensure that the markets continue to function.

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Speaker 1: That can take steps to ease try to to support

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Speaker 1: financial markets more broadly. But the demand shock caused by

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Speaker 1: the coronavirus is something that the FED can't address. That's

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Speaker 1: what this is why this is so different than the

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Speaker 1: financial crisis. The financial crisis was about a housing boom

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Speaker 1: going bust, but then that causing stress in the financial system,

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Speaker 1: and that stress in the financial system made the economy

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Speaker 1: much worse. When the FED intervened after Lehman's failure, that

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Speaker 1: will actually help support economic conditions because it actually allowed

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Speaker 1: financial markets to continue to function. This time, all the

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Speaker 1: FED can do is do its best to keep financial

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Speaker 1: markets working, but that doesn't do anything about the demand shock,

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Speaker 1: and the demand shock is very large and it's likely

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Speaker 1: to be persistent. Well. There's also a question though about

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Speaker 1: the tactic that the Federal Reserve took. Very few people

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Speaker 1: would criticize the FED for taking as aggressive in action

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Speaker 1: as they did, just because of the degree to this shock.

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Speaker 1: Some people saying though they didn't go far enough in

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Speaker 1: terms of reopening their commercial paper lines and trying to

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Speaker 1: provide some corporate funding support. What's your response to that. Well,

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Speaker 1: I think they're assessing what's going on in terms of

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Speaker 1: the functioning of other markets, like the commercial paper market,

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Speaker 1: like the corporate bond market, like the securitization markets. But

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Speaker 1: the bar to providing support to those markets is quite

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Speaker 1: a bit higher than what they FED announced on Sunday

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Speaker 1: evening because those those requires of emergency unavailability of credit,

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Speaker 1: uh what are called only allowed under what the Federal

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Speaker 1: Reserve Act is called Section three, and they require, uh,

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Speaker 1: the agreement of the Secretary of the Treasury. So I

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Speaker 1: think I'm sure they're looking at it, and I'm sure

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Speaker 1: that they will respond if they do that as necessary.

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Speaker 1: But the bar to the emergency learning facilities is it's

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Speaker 1: quite high relative to what they announced on Sunday. Bill,

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Speaker 1: I want to do something a little bit different with

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Speaker 1: this interview. Let's pretend you back in the New York

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Speaker 1: FED and I'm a competent lawmaker. I know some people

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Speaker 1: will struggle to imagine that, But let's pretend that's the case,

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Speaker 1: and I've got access to the Blomberg terminal and dropping

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Speaker 1: across the terminal just now as a headline, and this

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Speaker 1: has actually just happened that three months dollar library is up.

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Speaker 1: Just have a sixteen basis points, the biggest jump since

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Speaker 1: two thusday and eight. And I say to your bill

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Speaker 1: two thousand night, that sounds scary. What does that headline

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Speaker 1: actually mean? Can you just unpack that and really simple terms, Bill,

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Speaker 1: what is going on? I think you have to see

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Speaker 1: how much stress you're actually seeing in funding markets. So labrary,

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Speaker 1: the labrary spread during the financial crisis got out to

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Speaker 1: three fifty basis points over over treasuries over the federal

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Speaker 1: funds rate. We've had seen some widening so far during

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Speaker 1: this period, but nothing like what we saw about that

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Speaker 1: last time. But obviously this is an indicator of stress.

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Speaker 1: So you want to look at the library rate, You

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Speaker 1: want to look at the foreign exchange swap rates, want

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Speaker 1: to look at what's happening in the commercial paper markets,

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Speaker 1: both to rates and tenors the average majority of the

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Speaker 1: commercial paper market, and the FED is gonna have to

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Speaker 1: do what's necessary to keep these markets functioning. I'm sure

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Speaker 1: that they're looking at it very closely, and if if

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Speaker 1: things continue to deteriorate in those markets, I'm sure they'll respond. Bill.

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Speaker 1: There is a question though. The Federal Reserve did unleash

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Speaker 1: a pretty big stimulus on Sunday evening in lieu of

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Speaker 1: their meeting this week, and that didn't really ameliorate the stress.

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Speaker 1: We saw the biggest sell off yesterday since stocks we

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Speaker 1: continue to hear reports about a lack of liquidity and treasuries.

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Speaker 1: What's your response to people who say it hasn't helped.

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Speaker 1: This means the FED basically is impotent in addressing this

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Speaker 1: current crisis. I think it's too strong to say it

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Speaker 1: hasn't helped. Let's imagine the Fed had done nothing. I

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Speaker 1: really think things would be in a better circumstances than

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Speaker 1: we find ourselves today. I mean, the problem fundamentally is

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Speaker 1: the Feds. FED does not have the right tools for

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Speaker 1: the job. What we need is fiscal paul. These stimulus

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Speaker 1: supports incomes to underpin demand. Right what we're having is

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Speaker 1: a very significant demand shock, and that's going to cause

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Speaker 1: a large drop in income for households and businesses. Only

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Speaker 1: the Congress and administration can provide the kind of fiscal

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Speaker 1: support that supports incomes prevent the initial shock from cumulating

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Speaker 1: to an even bigger shock as we look further down

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Speaker 1: the road, Can we just stand with a little bit

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Speaker 1: on a regulatory relief effort, perhaps bill in the coming weeks.

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Speaker 1: Quite clearly, some big companies are drawing down credit lines,

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Speaker 1: and quite clearly what we'd like is the financial system

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Speaker 1: robustly able to step in and support some of these

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Speaker 1: companies as they look for a little bit more help.

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Speaker 1: But how can we do that on the regulatory side, Well,

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Speaker 1: I think the FED is going to be basically looking

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Speaker 1: at things like the capital requirements and the liquidity buffer

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Speaker 1: requirements and saying, hey, we have these buffers, but these

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Speaker 1: buffers are there to be used in times of stress.

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Speaker 1: So I think the Federal Reserve will be more willing

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Speaker 1: to allow banks to draw down their liquidity and capital buffers.

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Speaker 1: The problem is that you know, banks may be reluctant

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Speaker 1: to do so in a time of incredible stress. Uh,

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Speaker 1: it's going to be scary to basically run closer to

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Speaker 1: the edge. So even if the FED says we're allowed,

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Speaker 1: we're gonna allow you to uh to run at a

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Speaker 1: lower capitalization rate relative to your total assets. We're going

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Speaker 1: to allow you to run with smaller liquidy Buffer's possible

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Speaker 1: that banks may be reluctant to do that. So just

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Speaker 1: to find a question, you and I did a brilliant

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Speaker 1: segment a couple of weeks ago, a couple of months back,

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Speaker 1: actually on whether they current operation from the FED when

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Speaker 1: they were buying aggressively at the front end of the

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Speaker 1: curve and te bills to help alleviate some of the

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Speaker 1: stress outsewhere that it wasn't q A and you pushed

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Speaker 1: back quite hard. Now they buy it through the curve.

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Speaker 1: Can we call this q A now? Well, I think

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Speaker 1: once you're once the FED starts to buy longer duration assets,

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Speaker 1: I think that you have to call that quantitative easing.

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Speaker 1: But I think the motivation here isn't so much to

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Speaker 1: push down long term treasure yields and long term agency

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Speaker 1: mortgage backed security. It's basically to improve the functioning of

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Speaker 1: these markets by basically provide a source of demand. So

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Speaker 1: people who need to sell long term treasuries there's a

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Speaker 1: buyer now the FED. I think it is more about

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Speaker 1: market functioning gring to catch up of you, to get

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Speaker 1: your thoughts on this market. Really really important conversation with

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Speaker 1: a Bloomberg opinion columnist and of course former New York

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Speaker 1: Fed President. Let's bring a count recoday, Bloomberg Economics Chief

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Speaker 1: US Economists, Carl, I'm sure you've been trying to model

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Speaker 1: what a mess we're in right now. Talk to me

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Speaker 1: about how fiscal stimulus could really shout things in a

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Speaker 1: month's ahead. Sure, absolutely so, looking back to the Dudley

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Speaker 1: interview in the prior sentiment. Technically, and it's not worth

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Speaker 1: having a debate whether it's qui or not. But the

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Speaker 1: Fed is taking market stabilization measures. They're not looking to

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Speaker 1: stimulate the economy, and so there is a case to

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Speaker 1: be made that as big as it is and as

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Speaker 1: far out on the duration curve as it is, it's

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Speaker 1: still not designed to accomplish what QI is designed to acomplished.

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Speaker 1: These are a reserve management operations on a management on

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Speaker 1: a massive scale to keep the lights on in the

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Speaker 1: tursury market. As we turn the page then to fiscal stimulus, right,

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Speaker 1: that's going to be what's required to lift the economy

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Speaker 1: and to put some numbers around this, uh, last year

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Speaker 1: twenty nineteen, the economy grew by about eight hundred and

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Speaker 1: thirty billion dollars. So when you talk about that same

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Speaker 1: price tag you just mentioned from Social Secretary Minuching, it's

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Speaker 1: basically matching growth in the economy from last year. So

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Speaker 1: this is the appropriate scale of the response. Now, the

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Speaker 1: next challenge is delivery mechanism. As we learned in two

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Speaker 1: thousand and eight two thousand and nine, often shovel ready

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Speaker 1: projects weren't so shovel ready in elegant solutions got bogged

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Speaker 1: down in bureaucracy and other technicalities. So the priority at

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Speaker 1: the moment should be to use something that is tested

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Speaker 1: and true, and that boils down to one of two options.

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Speaker 1: The first one is the payroll tax holiday, which basically

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Speaker 1: huts your contribution into Social Security from six point two

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Speaker 1: possibly all the way down to zero. It also could

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Speaker 1: reduce your employer's contribution to Social Security, so by making

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Speaker 1: workers cheaper, from the employer's perspective, they're less likely to

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Speaker 1: lay those workers off. Meanwhile, every worker in the US

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Speaker 1: who's paying into Social Security would feel that they basically

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Speaker 1: got a six percent raise. The other approach is just

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Speaker 1: a mass mailing of stimulus checks, which sounds like it

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Speaker 1: should be faster. But when we did this in the past,

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Speaker 1: back in o W E O nine, the legislation passed

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Speaker 1: in February and the checks started arriving between May and July.

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Speaker 1: That's still a pretty long gap for a stimulus to

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Speaker 1: arrive in the economy. So a payroll tax holiday, we

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Speaker 1: could declare that effective April one, start of the second quarter.

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Speaker 1: Uh and so's it comes in as a trickle initially,

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Speaker 1: but it does arise more rapidly. Carl, There's a criticism

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Speaker 1: that if you give individuals in the United States more money,

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Speaker 1: they're not going to necessarily go out and spend it

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Speaker 1: because they're not allowed to go out and spend it.

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Speaker 1: They're actually quarantined or self isolating or whatever else in

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Speaker 1: order to prevent the spread of the coronavirus. So, how

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Speaker 1: is the government's effort really getting more liquidity to the

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Speaker 1: businesses that might otherwise become insolvent if there isn't some

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Speaker 1: sort of liquidity line to get them through this period

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Speaker 1: of time. Well, absolutely, we need a multi pronged measure.

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Speaker 1: So we need unemployment benefits for those individuals who lost

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Speaker 1: their job. We need some kind of support for those

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Speaker 1: who have a significant curtailment of ours. Businesses obviously need

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Speaker 1: to have access to lines of credits so they can

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Speaker 1: make their payments. A lot of communities are adopting foreclosure

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Speaker 1: and eviction moratoriums, so you need a wide array of

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Speaker 1: approaches here. But also what matters ultimately is the price tag.

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Speaker 1: And so if you need a big price tag to

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Speaker 1: match those numbers that I laid out a moment ago

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Speaker 1: eight hundred billion ish, uh, then you need a delivery

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Speaker 1: mechanism for that, and it's going to have to either

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Speaker 1: be stimulus checks or payroll tax holiday. That doesn't mean

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Speaker 1: that's the only solution. You obviously have to take a

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Speaker 1: macro approach, the blunt force approach of a fiscal stimulus

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Speaker 1: that I described, but you also need the micro approach

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Speaker 1: looking at all these different nuances, certain industries and certain

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Speaker 1: sectors that are particularly at risk. Account In the sixty

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Speaker 1: seconds we have left, is the Fed done here or

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Speaker 1: is the more work to do? I think there's more

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Speaker 1: work for the Fed to do. What they've done is

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Speaker 1: really ensure that the treasury market is behaving in a

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Speaker 1: deep and liquid trading fashion. But they'll they'll need to

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Speaker 1: at some point to probably look into commercial paper and

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Speaker 1: other credit measures like tarp and tels that we saw

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Speaker 1: on the financial crisis, and then at some point down

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Speaker 1: the road they also need to think about what stimulus

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Speaker 1: would actually look like col GRT to catch up with

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Speaker 1: you can get down that Bloomberg Economics Chase US economist.

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Speaker 1: They take in the days ahead, initial jobless claims coming

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Speaker 1: out in a couple of days, and for me, look,

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Speaker 1: this is going to be one of the most important

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Speaker 1: data points on the planet in the next few weeks.

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Speaker 1: Just how much damage is being done to the labor markets.

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Speaker 1: Weigh in on that a place to say. Francis Donald,

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Speaker 1: Manual Life Investment Management, Global chief economist and head of

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Speaker 1: macro Strategy, joins us. Now, francis great to catch up

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Speaker 1: with you. You'll few on the data going into this

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Speaker 1: real huge economic shock. Well, this isn't a good starting

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Speaker 1: places that we were hoping for a strong January February

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Speaker 1: so that we could say Q one was fantastic. You

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Speaker 1: do will be one of the worst contractions we've ever seen,

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Speaker 1: and we can pop back up if we have fundamental strength.

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Speaker 1: But seeing this weakness in February is fairly disconcerning I

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Speaker 1: will say there are some sizeable upward revisions to January

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Speaker 1: data here, and that's going to filter through into GDP.

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Speaker 1: But all this data really needed to tell us was

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Speaker 1: that we were in a strong starting place before Corona hit. Unfortunately,

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Speaker 1: it's telling us the opposite, which is that there was

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Speaker 1: already deterioration. So for those who are teetering on the

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Speaker 1: edge of are we going to get a recession or

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Speaker 1: not um, this particular data, I think is probably going

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Speaker 1: to cement the view that we weren't strong enough to

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Speaker 1: avoid you know, you know, scizeable contraction and then another

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Speaker 1: contraction after that. Francis, this is important. So you're saying

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Speaker 1: that this data is pivotal in shaping that view because

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Speaker 1: it gives you a sense of the momentum or lack

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Speaker 1: there of, heading into this period of time. Is that right? Well,

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Speaker 1: the whole argument behind why the US was more insulated

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Speaker 1: to the coronavirus, let's forget that the health component installation.

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Speaker 1: What I mean is that the view was the US

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Speaker 1: consumer has great jobs, strong wage, games, good savings rate,

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Speaker 1: and low debt payments each month. So in order to

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Speaker 1: slow the consumer, you have to imagine a shock that

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Speaker 1: suddenly keeps them at home when otherwise they would be outspending.

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Speaker 1: And the coronavirus is exactly this type of shock that

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Speaker 1: makes so damaging to the US economy. But this argument

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Speaker 1: that the U. S consumer was fundamentally strong before the

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Speaker 1: coronavirus hit, I think is on shaky ground as we

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Speaker 1: see the state to come in. We knew job openings

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Speaker 1: were contracting perly aggressively. We were already my team already

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Speaker 1: expecting initial jobless claims to trickle upwards in this period.

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Speaker 1: I think what we're going to see in a lot

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Speaker 1: of this February data is that the perception of a

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Speaker 1: strong starting point is maybe not as solid as many

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Speaker 1: initially believed. Francis. This goes to the discussion and frankly,

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Speaker 1: the conviction that a lot of people have that a

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Speaker 1: recession is unavoidable at this point in the United States

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Speaker 1: and is increasingly the base case. The question is just now,

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Speaker 1: how deep and how long? What are you looking at

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Speaker 1: to determine the answer to those kinds of parameters. Here,

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Speaker 1: I'm watching the National Bureau of Economic Research and their

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Speaker 1: lead Robert Paul, who was on the wire yesterday saying

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Speaker 1: we may not need to see exactly two quarters of

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Speaker 1: negatives back to back growth that we may do to

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Speaker 1: change this definition of what a recession is. My base

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Speaker 1: case is not necessarily that we see two quarters of

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Speaker 1: negative growth, but that Q two is such a severe

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Speaker 1: contraction that we see the damage to the economy typically

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Speaker 1: felt over a prolonged recession within a three month period.

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Speaker 1: It that would be somewhat unprecedented, But it also means

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Speaker 1: we may need to rethink this concept of what a

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Speaker 1: formal recession is. What makes us put those grave our

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Speaker 1: stripes on all of our charts. That means to be

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Speaker 1: seriously questioned, is it really two quarters of back to

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Speaker 1: that growth that's negative that makes a recession or is

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Speaker 1: it the extent of job losses that we see. We

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Speaker 1: really need to be reevaluating that, And if we re

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Speaker 1: evaluate that my senses, we will see something very equivalent

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Speaker 1: to a very large recession that may occur in a

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Speaker 1: shorter period of time. Francis. Some people worry though, that

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Speaker 1: it will trigger a huge banity leveraging that will just

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Speaker 1: go on for quite a while beyond the effects of

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Speaker 1: the particular health crisis that we're going through at the moment.

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Speaker 1: What do you have to say about that at the moment, Francis.

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Speaker 1: So you have those kind of conversations with clients, Oh,

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Speaker 1: of course, we're not talking just about you know, think

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Speaker 1: about it. This is an evolution of three types of recession.

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Speaker 1: We started off with concerns about a supply shock because

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Speaker 1: China had fallen. That was what I call the level

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Speaker 1: one recession supply side. Then we of dawn and this

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Speaker 1: is where we are now, to a supply and demand

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Speaker 1: side shock that would create a more pronounced recession environment.

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Speaker 1: That's where we are now. But the level three type

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Speaker 1: of recession. Again I'm just coming up with these terms myself,

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Speaker 1: but a level three recession would be a credit crisis

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Speaker 1: or a liquidity crunch that creates more of a financial

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Speaker 1: crisis type of environment. Now we're not there yet, and

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Speaker 1: the set provided a lot of tools that are helping

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Speaker 1: liquidity and funding in that market. We saw that evidence

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Speaker 1: in the market yesterday. But there is absolutely scope. And

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Speaker 1: what this market is telling us right now is they're

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Speaker 1: not willing to bring the probabilities of a financial crisis

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Speaker 1: down to zero. It's going to take a while for

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Speaker 1: us to do that. I think we need to see

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Speaker 1: a little bit more from the set in order to

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Speaker 1: help us get to the conclusion that financial crisis type

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Speaker 1: recession is completely out of the picture. Meanwhile, people are

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Speaker 1: looking to the federal government for some sort of fiscal stimulus,

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Speaker 1: including the Federal Reserve, with federal officials coming out and

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Speaker 1: saying we don't have the tools to address this. We

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Speaker 1: are hearing about eight hundred and fifty billion dollar proposal. Uh.

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Speaker 1: Stephen Minution, Treasury Secretary, is trying to expedite through the Senate.

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Speaker 1: Right now. I'm wondering the concept of a payroll tax.

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Speaker 1: How much does that edify the consumers as they try

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Speaker 1: to figure out how to make up miss paychecks and

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Speaker 1: how to make rent during this period. Well, it works

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Speaker 1: if you have a job. If you don't have a

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Speaker 1: job because you've been laid off, it doesn't work as well. Um.

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Speaker 1: What we need to see in order to prevent this

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Speaker 1: from escalating really quickly is support to businesses um. And

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Speaker 1: when I say quickly, I mean within a couple of weeks,

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Speaker 1: not something that wakes and waits until your tax refund

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Speaker 1: comes through. What we have to prevent is imminent layoffs,

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Speaker 1: and we have to prevent imminent defaults and on that point,

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Speaker 1: we're talking about a matter of one to two months,

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Speaker 1: so that money has to come in fast and furious.

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Speaker 1: It means to be specifically targeted towards preventing this from

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Speaker 1: escalating to a more severe recession. Right now, my biggest

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Speaker 1: concern is twofold. How do we make sure that we

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Speaker 1: don't see the default race rise really aggressively, and how

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Speaker 1: do we make sure that layoffs don't come too hard

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Speaker 1: and too fast all at the same time. Francis Senator

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Speaker 1: Romney proposing an idea that typically would associate with the left,

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Speaker 1: which is handing people checks a thousand dollars, get the

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Speaker 1: cash in hand all up front, and help them pay

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Speaker 1: some of the commitments that will still be there, the

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Speaker 1: obligations that will still be there at the end of

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Speaker 1: the month, regardless of what happens to their jobs, in

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Speaker 1: regardless of what happens to the companies they work for.

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Speaker 1: These bills will come to is that the best way

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Speaker 1: of attack in this It is one way right gives

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Speaker 1: people the cash as quickly as possible. But it underscores

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Speaker 1: to me how interesting, you know, even just two months ago,

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Speaker 1: things like m m T and universal basic income word

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Speaker 1: taboo tacket topics that only a small segment of economists

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Speaker 1: were discussing. But now the concept of unlimited deficit spend

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Speaker 1: and u b I our front and center from all

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Speaker 1: political wavelengths. This crisis is acting as an accelerant on

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Speaker 1: a variety of economic and social movements, and so quickly

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Speaker 1: that we're now seeing changes to the way businesses are operating,

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Speaker 1: how customers work, how we think about government spending. This

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Speaker 1: is not a change that will reverse if Q three

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Speaker 1: magically produces a plus point five GDP number. This is

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Speaker 1: a change in the way that our economic systems will operate,

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Speaker 1: and I suspect this is a somewhat permanent change in

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Speaker 1: the way we think about these issues. Francis always appreciate

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Speaker 1: and enjoy catching over you. Stay safe, won't you? My

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Speaker 1: best to you, Wall Francis Donald their Manual Life Investment Management,

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Speaker 1: Global chief Economist and head of macro Strategy. Thanks for

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Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to

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Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

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Speaker 1: I'm on Twitter at Tom Keane. Before the podcast, you

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Speaker 1: can always catch us worldwide. I'm Bloomberg Radio