WEBVTT - Surveillance: The Fed Needs Fiscal Help, Dudley Says 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.200 Bloomberg dot Com, and of course on the Bloomberg The 0:00:27.280 --> 0:00:30.240 question I have is, what have we reached peak panic, 0:00:30.680 --> 0:00:34.560 peak capitulation? Yeah, no idea. So we asked someone, Gina 0:00:34.560 --> 0:00:37.760 Martin Adams joins us now Bloomberg Intelligence chief equity strategist 0:00:37.800 --> 0:00:40.240 joint Gina jointing us on the phone, Gina, fantastic to 0:00:40.280 --> 0:00:42.360 catch up with you. Let's talk about that. If we've 0:00:42.400 --> 0:00:45.920 seen full on capitulation, yeah, with a VIX eight, I'd 0:00:45.960 --> 0:00:49.120 like to think we have halfway. Yeah, one way. Think 0:00:50.080 --> 0:00:52.839 we looked back at history on a number of measures, 0:00:52.840 --> 0:00:55.720 and I think that between breath and volatility, you're seeing 0:00:55.840 --> 0:01:00.920 signs of potentially peak panic. Usually that peak panic creates 0:01:00.960 --> 0:01:03.880 some degree of a bottom in stocks. It doesn't mean 0:01:03.880 --> 0:01:06.160 that we're going to hit the price bottom precisely. And 0:01:06.280 --> 0:01:07.840 as a matter of fact, when we look at history, 0:01:08.040 --> 0:01:10.880 look at things like the vix peeked in the Fall 0:01:10.959 --> 0:01:14.880 of eight, for example, and we didn't actually find our bottom. 0:01:14.959 --> 0:01:19.280 Until March of two thousand nine, UM, the percentage of 0:01:19.280 --> 0:01:22.360 stocks trading above their fifty day moving average has fallen 0:01:22.360 --> 0:01:25.880 below one percent on the s MP five hundred. That 0:01:26.000 --> 0:01:30.399 on average occurs at peak panic, but proceeds on average 0:01:30.400 --> 0:01:32.960 the bottom and stocks by about thirty days. So it 0:01:32.959 --> 0:01:36.560 doesn't mean that peak panic necessarily is bottom, but it 0:01:36.600 --> 0:01:39.920 does usually indicate the early signs of the bottoming process beginning. 0:01:40.000 --> 0:01:42.640 I think we're there. It's just a matter of time 0:01:42.760 --> 0:01:46.800 before we reach our full on bottom. The technicals have 0:01:46.920 --> 0:01:49.600 obviously been horrible. I mean, you know, we've broken through 0:01:49.640 --> 0:01:52.240 every cyclical support line that we have. We've now broken 0:01:52.240 --> 0:01:55.480 through the secular support line for the bullmarket trend. We've 0:01:55.560 --> 0:01:59.040 kind of got really weak support at mods to look 0:01:59.080 --> 0:02:03.080 forward to next. UM. That said, after sort of peak 0:02:03.080 --> 0:02:06.440 panic moments, your twelve month returns are always positive and 0:02:06.520 --> 0:02:09.440 usually positive by double digits. So investors with some degree 0:02:09.440 --> 0:02:13.960 of patients thinking about averageing you in in environments of 0:02:14.000 --> 0:02:17.120 peak panic are likely to be rewarded over the long term. So, Gina, 0:02:17.200 --> 0:02:19.240 as you speak, I'm picking up at a couple of 0:02:19.280 --> 0:02:23.480 themes charts history. All these things that people are saying 0:02:23.880 --> 0:02:27.160 are no longer relevant to the current situation that we have, 0:02:27.360 --> 0:02:30.880 because this is an unprecedented situation where the global economy 0:02:31.280 --> 0:02:34.519 is literally shutting down for an unknown period of time. 0:02:34.919 --> 0:02:38.040 How do you get conviction on what to even look 0:02:38.080 --> 0:02:41.400 at based on history, based on technical levels, based on 0:02:41.440 --> 0:02:43.600 the fact that we don't know what the earnings are 0:02:43.600 --> 0:02:45.400 going to be at these companies. We don't know when 0:02:45.440 --> 0:02:47.720 people are actually going to start going out again and 0:02:47.760 --> 0:02:51.919 going to restaurants and buying stuff in stores. Yeah, well, 0:02:51.919 --> 0:02:54.200 these are the same things, Lisa, that you hear in 0:02:54.320 --> 0:02:58.840 every new crisis. So you know, while people will say 0:02:59.000 --> 0:03:01.320 charts are irrelevant it, while people will say we can't 0:03:01.320 --> 0:03:04.240 find evaluation bottom, we don't know where earnings are headed. 0:03:04.800 --> 0:03:08.760 That's the type of commentary that you here in peak panic, 0:03:08.840 --> 0:03:13.200 where people are, you know, scared of where things are headed. Yes, 0:03:13.240 --> 0:03:16.560 this crisis is different, but recall the Great Financial Crisis 0:03:16.720 --> 0:03:20.560 was also very different, and everyone was panicking and completely 0:03:20.639 --> 0:03:24.800 uncertain as to where things will go. September eleven, clearly 0:03:25.040 --> 0:03:28.160 a major attack on US soil had never happened created 0:03:28.200 --> 0:03:31.160 panic in that environment as well. We didn't know what 0:03:31.320 --> 0:03:34.200 the outcomes were going to look like. So as much 0:03:34.280 --> 0:03:36.400 as we want to say this time is different. It's 0:03:36.480 --> 0:03:39.560 not different in that it's just a new version of 0:03:39.560 --> 0:03:43.280 a crisis that we have to content with. Um. Yes, 0:03:43.520 --> 0:03:45.560 we don't know where earnings are headed, and there is 0:03:45.600 --> 0:03:50.120 a complete information vacuum with respect to the fundamental outlook, 0:03:50.200 --> 0:03:53.080 and that's going to continue away on confidence and sentiment. 0:03:53.480 --> 0:03:56.200 But there are very reliable indicators and lessons that we 0:03:56.240 --> 0:03:59.360 can get from the market itself to give us some 0:03:59.560 --> 0:04:03.000 guy and I believe that we find that in every crisis, 0:04:03.920 --> 0:04:06.520 even though every crisis is brand new and something we 0:04:06.520 --> 0:04:08.960 haven't dealt with before. Let's talk about history just a 0:04:08.960 --> 0:04:11.560 little bit. JP Morgan crunching the numbers in the same way. 0:04:11.600 --> 0:04:13.320 I'm sure your team is down at Wauchen and the 0:04:13.400 --> 0:04:16.520 last three recessions seeing pe multiples of ten point one, 0:04:17.480 --> 0:04:21.120 point eight and ten point two. Just walk me through 0:04:21.120 --> 0:04:23.599 the current multiple right now, and how on earth we 0:04:23.640 --> 0:04:25.839 get our hands around what the looks like for that 0:04:25.920 --> 0:04:31.040 current multiple. Yeah. So what typically happens is investors look 0:04:31.120 --> 0:04:34.839 at the forward multiple as most indicative of the environment 0:04:34.920 --> 0:04:37.000 and where we're going to bottom. The trouble was looking 0:04:37.000 --> 0:04:39.800 at that multiple in the environment that we're at right 0:04:39.880 --> 0:04:42.919 in right now, is we truly have no indication of 0:04:42.960 --> 0:04:46.279 where earnings are headed over the next twelve months. UM 0:04:46.400 --> 0:04:49.680 guidance is completely dried up. We're not going to get 0:04:49.720 --> 0:04:52.080 a lot of indication of where the forward multiple will 0:04:52.120 --> 0:04:55.640 bottom until probably the first quarter earning season, when we 0:04:55.720 --> 0:04:58.440 hurdle what is going to be the worst earnings UM 0:04:58.600 --> 0:05:01.440 number that we've seen all cycles in the most most likely. 0:05:02.200 --> 0:05:03.920 When I look at the market, I like to look 0:05:03.960 --> 0:05:06.280 at the trailing multiple UM, and I like to look 0:05:06.320 --> 0:05:10.320 at that because it's more indicative of where pricing actually 0:05:10.520 --> 0:05:12.720 is in the equity market. And what we find is 0:05:12.760 --> 0:05:16.080 the trailing multiple has fallen below fifteen for the first 0:05:16.080 --> 0:05:20.760 time since two thousand thirteen. Uh, if you exclude the 0:05:20.760 --> 0:05:24.760 biggest of the big tech stocks, it's below thirteen. So 0:05:24.800 --> 0:05:29.120 we certainly have seen UM pretty considerable repricing in the 0:05:29.160 --> 0:05:33.520 equity market. What's appropriate for a multiple, Well, you would say, 0:05:33.720 --> 0:05:37.080 given the extent of the balance sheet movements by the 0:05:37.120 --> 0:05:39.680 FED as well as the rate reduction to now zero, 0:05:40.279 --> 0:05:44.920 a multiple north of nineteen is actually appropriate considering monetary policy. 0:05:45.000 --> 0:05:46.880 Do I think that investors are going to pay nineteen 0:05:46.920 --> 0:05:50.799 times trailing earnings in an environment of super questionable earnings 0:05:50.880 --> 0:05:54.960 right now. Probably not. Nonetheless, it does suggest that there 0:05:55.120 --> 0:05:57.520 is more support to the equity market than is currently 0:05:57.520 --> 0:06:01.200 being embedded in prices, and will probably track back toward 0:06:01.240 --> 0:06:03.640 that number over the course of the next twelve months. 0:06:04.279 --> 0:06:07.400 I think the equity market is absolutely now pricing in 0:06:07.440 --> 0:06:10.320 a worse than average US procession. When I use that 0:06:10.400 --> 0:06:13.320 trailing multiple number and I take at times the current 0:06:14.040 --> 0:06:16.200 and I back into an earning number from the current 0:06:16.240 --> 0:06:19.839 price on the index, we're pricing in at least decline 0:06:19.839 --> 0:06:22.240 in earnings over the course of the next twelve months. Gina, 0:06:22.279 --> 0:06:24.960 it's some unbelievable stats. Appreciate your time this morning, Gina. 0:06:25.040 --> 0:06:33.640 Martin Adams there, Bloomberg Intelligence Chief Equity strategistic. We get 0:06:33.680 --> 0:06:34.920 a few on the Fed. We can do that with 0:06:35.040 --> 0:06:38.120 Bill Dudley. What a privilege this morning, the Bloomberg opinion 0:06:38.120 --> 0:06:40.560 columnists and of course former New York Fed President Bill 0:06:40.600 --> 0:06:43.599 fantastic to have you with us. Just publishing your Bloomberg 0:06:43.600 --> 0:06:47.919 opinion column help us define whether the Federal Reserve and 0:06:48.000 --> 0:06:51.159 its latest moves are successful or not because some people, 0:06:51.240 --> 0:06:54.400 many people, in fact, defining that success by what happens 0:06:54.480 --> 0:06:56.520 or what does not happen In financial markets help us 0:06:56.560 --> 0:06:59.120 do that a little bit more effectively. Bill, I think 0:06:59.120 --> 0:07:01.480 that people have to understand that this time is very 0:07:01.480 --> 0:07:04.440 different than the financial crisis, because this is about a 0:07:04.440 --> 0:07:07.760 big shock to demand in the economy, and the Fed 0:07:07.839 --> 0:07:10.680 Reserve can't do much about that. What they can do 0:07:10.760 --> 0:07:13.640 is take steps to ensure that the markets continue to function. 0:07:13.960 --> 0:07:17.480 That can take steps to ease try to to support 0:07:17.600 --> 0:07:21.680 financial markets more broadly. But the demand shock caused by 0:07:21.680 --> 0:07:24.800 the coronavirus is something that the FED can't address. That's 0:07:24.800 --> 0:07:26.640 what this is why this is so different than the 0:07:26.640 --> 0:07:29.960 financial crisis. The financial crisis was about a housing boom 0:07:30.280 --> 0:07:34.400 going bust, but then that causing stress in the financial system, 0:07:34.600 --> 0:07:37.080 and that stress in the financial system made the economy 0:07:37.320 --> 0:07:40.720 much worse. When the FED intervened after Lehman's failure, that 0:07:40.760 --> 0:07:44.560 will actually help support economic conditions because it actually allowed 0:07:44.760 --> 0:07:47.720 financial markets to continue to function. This time, all the 0:07:47.760 --> 0:07:50.280 FED can do is do its best to keep financial 0:07:50.280 --> 0:07:53.559 markets working, but that doesn't do anything about the demand shock, 0:07:53.600 --> 0:07:56.120 and the demand shock is very large and it's likely 0:07:56.160 --> 0:07:59.120 to be persistent. Well. There's also a question though about 0:07:59.200 --> 0:08:02.200 the tactic that the Federal Reserve took. Very few people 0:08:02.200 --> 0:08:05.120 would criticize the FED for taking as aggressive in action 0:08:05.160 --> 0:08:08.480 as they did, just because of the degree to this shock. 0:08:08.800 --> 0:08:11.200 Some people saying though they didn't go far enough in 0:08:11.320 --> 0:08:14.400 terms of reopening their commercial paper lines and trying to 0:08:14.440 --> 0:08:19.640 provide some corporate funding support. What's your response to that. Well, 0:08:19.680 --> 0:08:22.040 I think they're assessing what's going on in terms of 0:08:22.080 --> 0:08:24.920 the functioning of other markets, like the commercial paper market, 0:08:24.960 --> 0:08:28.160 like the corporate bond market, like the securitization markets. But 0:08:28.240 --> 0:08:31.560 the bar to providing support to those markets is quite 0:08:31.600 --> 0:08:35.320 a bit higher than what they FED announced on Sunday 0:08:35.360 --> 0:08:42.280 evening because those those requires of emergency unavailability of credit, 0:08:42.840 --> 0:08:46.280 uh what are called only allowed under what the Federal 0:08:46.240 --> 0:08:49.560 Reserve Act is called Section three, and they require, uh, 0:08:49.600 --> 0:08:52.280 the agreement of the Secretary of the Treasury. So I 0:08:52.280 --> 0:08:54.240 think I'm sure they're looking at it, and I'm sure 0:08:54.280 --> 0:08:56.920 that they will respond if they do that as necessary. 0:08:56.960 --> 0:09:00.240 But the bar to the emergency learning facilities is it's 0:09:00.320 --> 0:09:04.000 quite high relative to what they announced on Sunday. Bill, 0:09:04.080 --> 0:09:05.480 I want to do something a little bit different with 0:09:05.480 --> 0:09:07.200 this interview. Let's pretend you back in the New York 0:09:07.200 --> 0:09:10.679 FED and I'm a competent lawmaker. I know some people 0:09:10.679 --> 0:09:13.240 will struggle to imagine that, But let's pretend that's the case, 0:09:13.720 --> 0:09:16.199 and I've got access to the Blomberg terminal and dropping 0:09:16.240 --> 0:09:18.200 across the terminal just now as a headline, and this 0:09:18.200 --> 0:09:21.120 has actually just happened that three months dollar library is up. 0:09:21.440 --> 0:09:23.760 Just have a sixteen basis points, the biggest jump since 0:09:23.800 --> 0:09:25.760 two thusday and eight. And I say to your bill 0:09:25.840 --> 0:09:28.480 two thousand night, that sounds scary. What does that headline 0:09:28.480 --> 0:09:31.240 actually mean? Can you just unpack that and really simple terms, Bill, 0:09:31.320 --> 0:09:33.760 what is going on? I think you have to see 0:09:33.920 --> 0:09:37.280 how much stress you're actually seeing in funding markets. So labrary, 0:09:37.559 --> 0:09:40.200 the labrary spread during the financial crisis got out to 0:09:40.640 --> 0:09:45.360 three fifty basis points over over treasuries over the federal 0:09:45.440 --> 0:09:49.280 funds rate. We've had seen some widening so far during 0:09:49.280 --> 0:09:51.640 this period, but nothing like what we saw about that 0:09:51.760 --> 0:09:54.760 last time. But obviously this is an indicator of stress. 0:09:54.760 --> 0:09:57.040 So you want to look at the library rate, You 0:09:57.040 --> 0:10:00.160 want to look at the foreign exchange swap rates, want 0:10:00.160 --> 0:10:02.280 to look at what's happening in the commercial paper markets, 0:10:02.320 --> 0:10:04.839 both to rates and tenors the average majority of the 0:10:04.840 --> 0:10:07.680 commercial paper market, and the FED is gonna have to 0:10:07.720 --> 0:10:10.560 do what's necessary to keep these markets functioning. I'm sure 0:10:10.559 --> 0:10:12.679 that they're looking at it very closely, and if if 0:10:12.760 --> 0:10:16.120 things continue to deteriorate in those markets, I'm sure they'll respond. Bill. 0:10:16.320 --> 0:10:19.800 There is a question though. The Federal Reserve did unleash 0:10:19.840 --> 0:10:23.240 a pretty big stimulus on Sunday evening in lieu of 0:10:23.280 --> 0:10:27.200 their meeting this week, and that didn't really ameliorate the stress. 0:10:27.240 --> 0:10:30.760 We saw the biggest sell off yesterday since stocks we 0:10:30.840 --> 0:10:34.120 continue to hear reports about a lack of liquidity and treasuries. 0:10:34.760 --> 0:10:38.600 What's your response to people who say it hasn't helped. 0:10:38.679 --> 0:10:41.760 This means the FED basically is impotent in addressing this 0:10:41.880 --> 0:10:45.800 current crisis. I think it's too strong to say it 0:10:45.880 --> 0:10:49.040 hasn't helped. Let's imagine the Fed had done nothing. I 0:10:49.160 --> 0:10:52.360 really think things would be in a better circumstances than 0:10:52.360 --> 0:10:55.199 we find ourselves today. I mean, the problem fundamentally is 0:10:55.240 --> 0:10:57.960 the Feds. FED does not have the right tools for 0:10:58.000 --> 0:11:00.760 the job. What we need is fiscal paul. These stimulus 0:11:00.920 --> 0:11:04.960 supports incomes to underpin demand. Right what we're having is 0:11:04.960 --> 0:11:07.600 a very significant demand shock, and that's going to cause 0:11:07.640 --> 0:11:11.920 a large drop in income for households and businesses. Only 0:11:12.040 --> 0:11:14.800 the Congress and administration can provide the kind of fiscal 0:11:14.800 --> 0:11:19.360 support that supports incomes prevent the initial shock from cumulating 0:11:19.720 --> 0:11:21.920 to an even bigger shock as we look further down 0:11:21.920 --> 0:11:23.679 the road, Can we just stand with a little bit 0:11:23.720 --> 0:11:27.679 on a regulatory relief effort, perhaps bill in the coming weeks. 0:11:27.760 --> 0:11:30.480 Quite clearly, some big companies are drawing down credit lines, 0:11:30.520 --> 0:11:33.280 and quite clearly what we'd like is the financial system 0:11:33.400 --> 0:11:36.040 robustly able to step in and support some of these 0:11:36.040 --> 0:11:38.400 companies as they look for a little bit more help. 0:11:38.600 --> 0:11:42.160 But how can we do that on the regulatory side, Well, 0:11:42.400 --> 0:11:44.439 I think the FED is going to be basically looking 0:11:44.480 --> 0:11:49.080 at things like the capital requirements and the liquidity buffer 0:11:49.120 --> 0:11:52.160 requirements and saying, hey, we have these buffers, but these 0:11:52.160 --> 0:11:54.920 buffers are there to be used in times of stress. 0:11:55.000 --> 0:11:57.559 So I think the Federal Reserve will be more willing 0:11:57.760 --> 0:12:02.520 to allow banks to draw down their liquidity and capital buffers. 0:12:03.160 --> 0:12:05.480 The problem is that you know, banks may be reluctant 0:12:05.480 --> 0:12:08.720 to do so in a time of incredible stress. Uh, 0:12:08.760 --> 0:12:12.880 it's going to be scary to basically run closer to 0:12:12.960 --> 0:12:15.920 the edge. So even if the FED says we're allowed, 0:12:15.960 --> 0:12:18.960 we're gonna allow you to uh to run at a 0:12:19.000 --> 0:12:23.080 lower capitalization rate relative to your total assets. We're going 0:12:23.160 --> 0:12:26.199 to allow you to run with smaller liquidy Buffer's possible 0:12:26.200 --> 0:12:29.040 that banks may be reluctant to do that. So just 0:12:29.040 --> 0:12:30.600 to find a question, you and I did a brilliant 0:12:30.640 --> 0:12:32.520 segment a couple of weeks ago, a couple of months back, 0:12:32.520 --> 0:12:35.280 actually on whether they current operation from the FED when 0:12:35.320 --> 0:12:37.280 they were buying aggressively at the front end of the 0:12:37.320 --> 0:12:39.920 curve and te bills to help alleviate some of the 0:12:39.960 --> 0:12:42.240 stress outsewhere that it wasn't q A and you pushed 0:12:42.280 --> 0:12:44.720 back quite hard. Now they buy it through the curve. 0:12:44.800 --> 0:12:47.559 Can we call this q A now? Well, I think 0:12:47.559 --> 0:12:50.760 once you're once the FED starts to buy longer duration assets, 0:12:50.800 --> 0:12:53.080 I think that you have to call that quantitative easing. 0:12:53.440 --> 0:12:55.400 But I think the motivation here isn't so much to 0:12:55.520 --> 0:12:59.400 push down long term treasure yields and long term agency 0:12:59.400 --> 0:13:02.680 mortgage backed security. It's basically to improve the functioning of 0:13:02.720 --> 0:13:05.800 these markets by basically provide a source of demand. So 0:13:05.840 --> 0:13:09.320 people who need to sell long term treasuries there's a 0:13:09.360 --> 0:13:12.040 buyer now the FED. I think it is more about 0:13:12.040 --> 0:13:14.199 market functioning gring to catch up of you, to get 0:13:14.200 --> 0:13:17.200 your thoughts on this market. Really really important conversation with 0:13:17.240 --> 0:13:20.560 a Bloomberg opinion columnist and of course former New York 0:13:20.640 --> 0:13:28.600 Fed President. Let's bring a count recoday, Bloomberg Economics Chief 0:13:28.880 --> 0:13:31.280 US Economists, Carl, I'm sure you've been trying to model 0:13:31.640 --> 0:13:33.280 what a mess we're in right now. Talk to me 0:13:33.280 --> 0:13:35.679 about how fiscal stimulus could really shout things in a 0:13:35.760 --> 0:13:40.000 month's ahead. Sure, absolutely so, looking back to the Dudley 0:13:40.000 --> 0:13:44.440 interview in the prior sentiment. Technically, and it's not worth 0:13:44.480 --> 0:13:46.199 having a debate whether it's qui or not. But the 0:13:46.280 --> 0:13:49.880 Fed is taking market stabilization measures. They're not looking to 0:13:49.960 --> 0:13:52.839 stimulate the economy, and so there is a case to 0:13:52.920 --> 0:13:54.800 be made that as big as it is and as 0:13:54.880 --> 0:13:57.079 far out on the duration curve as it is, it's 0:13:57.120 --> 0:14:00.439 still not designed to accomplish what QI is designed to acomplished. 0:14:00.480 --> 0:14:04.400 These are a reserve management operations on a management on 0:14:04.480 --> 0:14:06.559 a massive scale to keep the lights on in the 0:14:06.600 --> 0:14:10.520 tursury market. As we turn the page then to fiscal stimulus, right, 0:14:10.840 --> 0:14:12.920 that's going to be what's required to lift the economy 0:14:12.920 --> 0:14:15.880 and to put some numbers around this, uh, last year 0:14:15.960 --> 0:14:19.800 twenty nineteen, the economy grew by about eight hundred and 0:14:19.880 --> 0:14:22.720 thirty billion dollars. So when you talk about that same 0:14:22.760 --> 0:14:26.080 price tag you just mentioned from Social Secretary Minuching, it's 0:14:26.160 --> 0:14:30.320 basically matching growth in the economy from last year. So 0:14:30.440 --> 0:14:33.880 this is the appropriate scale of the response. Now, the 0:14:34.000 --> 0:14:38.120 next challenge is delivery mechanism. As we learned in two 0:14:38.160 --> 0:14:40.920 thousand and eight two thousand and nine, often shovel ready 0:14:41.040 --> 0:14:45.240 projects weren't so shovel ready in elegant solutions got bogged 0:14:45.280 --> 0:14:49.680 down in bureaucracy and other technicalities. So the priority at 0:14:49.720 --> 0:14:52.360 the moment should be to use something that is tested 0:14:52.400 --> 0:14:55.720 and true, and that boils down to one of two options. 0:14:56.360 --> 0:14:59.760 The first one is the payroll tax holiday, which basically 0:15:00.040 --> 0:15:04.120 huts your contribution into Social Security from six point two 0:15:04.200 --> 0:15:07.800 possibly all the way down to zero. It also could 0:15:07.920 --> 0:15:12.200 reduce your employer's contribution to Social Security, so by making 0:15:12.280 --> 0:15:15.640 workers cheaper, from the employer's perspective, they're less likely to 0:15:15.720 --> 0:15:18.840 lay those workers off. Meanwhile, every worker in the US 0:15:18.880 --> 0:15:22.000 who's paying into Social Security would feel that they basically 0:15:22.040 --> 0:15:24.960 got a six percent raise. The other approach is just 0:15:25.080 --> 0:15:27.840 a mass mailing of stimulus checks, which sounds like it 0:15:27.920 --> 0:15:30.800 should be faster. But when we did this in the past, 0:15:30.880 --> 0:15:33.880 back in o W E O nine, the legislation passed 0:15:34.040 --> 0:15:38.800 in February and the checks started arriving between May and July. 0:15:39.160 --> 0:15:43.080 That's still a pretty long gap for a stimulus to 0:15:43.200 --> 0:15:46.000 arrive in the economy. So a payroll tax holiday, we 0:15:46.080 --> 0:15:49.840 could declare that effective April one, start of the second quarter. 0:15:50.200 --> 0:15:53.320 Uh and so's it comes in as a trickle initially, 0:15:53.600 --> 0:15:56.760 but it does arise more rapidly. Carl, There's a criticism 0:15:57.040 --> 0:16:00.200 that if you give individuals in the United States more money, 0:16:00.480 --> 0:16:02.280 they're not going to necessarily go out and spend it 0:16:02.320 --> 0:16:04.040 because they're not allowed to go out and spend it. 0:16:04.120 --> 0:16:07.720 They're actually quarantined or self isolating or whatever else in 0:16:07.840 --> 0:16:10.880 order to prevent the spread of the coronavirus. So, how 0:16:11.440 --> 0:16:14.880 is the government's effort really getting more liquidity to the 0:16:15.000 --> 0:16:19.240 businesses that might otherwise become insolvent if there isn't some 0:16:19.360 --> 0:16:21.600 sort of liquidity line to get them through this period 0:16:21.600 --> 0:16:25.520 of time. Well, absolutely, we need a multi pronged measure. 0:16:25.600 --> 0:16:28.680 So we need unemployment benefits for those individuals who lost 0:16:28.720 --> 0:16:31.280 their job. We need some kind of support for those 0:16:31.320 --> 0:16:35.680 who have a significant curtailment of ours. Businesses obviously need 0:16:35.920 --> 0:16:38.160 to have access to lines of credits so they can 0:16:38.200 --> 0:16:41.880 make their payments. A lot of communities are adopting foreclosure 0:16:41.920 --> 0:16:46.560 and eviction moratoriums, so you need a wide array of 0:16:47.000 --> 0:16:51.120 approaches here. But also what matters ultimately is the price tag. 0:16:51.240 --> 0:16:53.640 And so if you need a big price tag to 0:16:53.760 --> 0:16:56.920 match those numbers that I laid out a moment ago 0:16:57.120 --> 0:17:01.000 eight hundred billion ish, uh, then you need a delivery 0:17:01.040 --> 0:17:03.120 mechanism for that, and it's going to have to either 0:17:03.200 --> 0:17:06.239 be stimulus checks or payroll tax holiday. That doesn't mean 0:17:06.320 --> 0:17:08.639 that's the only solution. You obviously have to take a 0:17:08.840 --> 0:17:13.600 macro approach, the blunt force approach of a fiscal stimulus 0:17:13.640 --> 0:17:16.040 that I described, but you also need the micro approach 0:17:16.119 --> 0:17:19.080 looking at all these different nuances, certain industries and certain 0:17:19.119 --> 0:17:23.000 sectors that are particularly at risk. Account In the sixty 0:17:23.040 --> 0:17:25.000 seconds we have left, is the Fed done here or 0:17:25.080 --> 0:17:27.520 is the more work to do? I think there's more 0:17:27.560 --> 0:17:30.280 work for the Fed to do. What they've done is 0:17:30.359 --> 0:17:33.480 really ensure that the treasury market is behaving in a 0:17:33.720 --> 0:17:38.480 deep and liquid trading fashion. But they'll they'll need to 0:17:38.600 --> 0:17:41.119 at some point to probably look into commercial paper and 0:17:41.160 --> 0:17:43.600 other credit measures like tarp and tels that we saw 0:17:43.640 --> 0:17:46.240 on the financial crisis, and then at some point down 0:17:46.280 --> 0:17:48.600 the road they also need to think about what stimulus 0:17:49.040 --> 0:17:51.320 would actually look like col GRT to catch up with 0:17:51.359 --> 0:17:54.800 you can get down that Bloomberg Economics Chase US economist. 0:17:59.359 --> 0:18:01.719 They take in the days ahead, initial jobless claims coming 0:18:01.760 --> 0:18:03.280 out in a couple of days, and for me, look, 0:18:03.320 --> 0:18:04.720 this is going to be one of the most important 0:18:04.800 --> 0:18:07.639 data points on the planet in the next few weeks. 0:18:07.720 --> 0:18:10.240 Just how much damage is being done to the labor markets. 0:18:10.320 --> 0:18:12.480 Weigh in on that a place to say. Francis Donald, 0:18:12.520 --> 0:18:15.200 Manual Life Investment Management, Global chief economist and head of 0:18:15.280 --> 0:18:18.040 macro Strategy, joins us. Now, francis great to catch up 0:18:18.080 --> 0:18:20.240 with you. You'll few on the data going into this 0:18:20.359 --> 0:18:24.600 real huge economic shock. Well, this isn't a good starting 0:18:24.640 --> 0:18:28.480 places that we were hoping for a strong January February 0:18:28.640 --> 0:18:31.359 so that we could say Q one was fantastic. You 0:18:31.520 --> 0:18:34.280 do will be one of the worst contractions we've ever seen, 0:18:34.359 --> 0:18:36.959 and we can pop back up if we have fundamental strength. 0:18:37.119 --> 0:18:41.200 But seeing this weakness in February is fairly disconcerning I 0:18:41.359 --> 0:18:44.560 will say there are some sizeable upward revisions to January 0:18:44.680 --> 0:18:46.719 data here, and that's going to filter through into GDP. 0:18:47.280 --> 0:18:49.560 But all this data really needed to tell us was 0:18:49.600 --> 0:18:53.320 that we were in a strong starting place before Corona hit. Unfortunately, 0:18:53.359 --> 0:18:55.240 it's telling us the opposite, which is that there was 0:18:55.240 --> 0:18:58.280 already deterioration. So for those who are teetering on the 0:18:58.400 --> 0:18:59.920 edge of are we going to get a recession or 0:19:00.000 --> 0:19:03.240 not um, this particular data, I think is probably going 0:19:03.280 --> 0:19:05.320 to cement the view that we weren't strong enough to 0:19:05.880 --> 0:19:08.920 avoid you know, you know, scizeable contraction and then another 0:19:08.960 --> 0:19:11.520 contraction after that. Francis, this is important. So you're saying 0:19:11.560 --> 0:19:14.280 that this data is pivotal in shaping that view because 0:19:14.280 --> 0:19:16.080 it gives you a sense of the momentum or lack 0:19:16.160 --> 0:19:19.640 there of, heading into this period of time. Is that right? Well, 0:19:19.760 --> 0:19:23.000 the whole argument behind why the US was more insulated 0:19:23.040 --> 0:19:26.040 to the coronavirus, let's forget that the health component installation. 0:19:26.119 --> 0:19:28.680 What I mean is that the view was the US 0:19:28.800 --> 0:19:34.120 consumer has great jobs, strong wage, games, good savings rate, 0:19:34.200 --> 0:19:36.639 and low debt payments each month. So in order to 0:19:36.720 --> 0:19:39.399 slow the consumer, you have to imagine a shock that 0:19:39.520 --> 0:19:43.280 suddenly keeps them at home when otherwise they would be outspending. 0:19:43.320 --> 0:19:46.240 And the coronavirus is exactly this type of shock that 0:19:46.440 --> 0:19:49.879 makes so damaging to the US economy. But this argument 0:19:50.040 --> 0:19:53.000 that the U. S consumer was fundamentally strong before the 0:19:53.080 --> 0:19:55.879 coronavirus hit, I think is on shaky ground as we 0:19:55.920 --> 0:19:58.320 see the state to come in. We knew job openings 0:19:58.359 --> 0:20:01.600 were contracting perly aggressively. We were already my team already 0:20:01.640 --> 0:20:05.919 expecting initial jobless claims to trickle upwards in this period. 0:20:06.280 --> 0:20:07.719 I think what we're going to see in a lot 0:20:07.760 --> 0:20:10.080 of this February data is that the perception of a 0:20:10.160 --> 0:20:13.360 strong starting point is maybe not as solid as many 0:20:13.400 --> 0:20:17.439 initially believed. Francis. This goes to the discussion and frankly, 0:20:17.480 --> 0:20:19.080 the conviction that a lot of people have that a 0:20:19.119 --> 0:20:22.200 recession is unavoidable at this point in the United States 0:20:22.240 --> 0:20:24.879 and is increasingly the base case. The question is just now, 0:20:25.000 --> 0:20:27.560 how deep and how long? What are you looking at 0:20:27.600 --> 0:20:30.760 to determine the answer to those kinds of parameters. Here, 0:20:31.840 --> 0:20:35.440 I'm watching the National Bureau of Economic Research and their 0:20:35.600 --> 0:20:38.520 lead Robert Paul, who was on the wire yesterday saying 0:20:38.960 --> 0:20:41.159 we may not need to see exactly two quarters of 0:20:41.240 --> 0:20:43.600 negatives back to back growth that we may do to 0:20:44.000 --> 0:20:46.800 change this definition of what a recession is. My base 0:20:46.920 --> 0:20:49.720 case is not necessarily that we see two quarters of 0:20:49.760 --> 0:20:53.000 negative growth, but that Q two is such a severe 0:20:53.160 --> 0:20:56.600 contraction that we see the damage to the economy typically 0:20:56.720 --> 0:20:59.960 felt over a prolonged recession within a three month period. 0:21:00.040 --> 0:21:03.240 It that would be somewhat unprecedented, But it also means 0:21:03.359 --> 0:21:05.520 we may need to rethink this concept of what a 0:21:05.680 --> 0:21:08.520 formal recession is. What makes us put those grave our 0:21:08.600 --> 0:21:10.800 stripes on all of our charts. That means to be 0:21:10.920 --> 0:21:13.560 seriously questioned, is it really two quarters of back to 0:21:13.640 --> 0:21:16.560 that growth that's negative that makes a recession or is 0:21:16.640 --> 0:21:18.960 it the extent of job losses that we see. We 0:21:19.080 --> 0:21:21.359 really need to be reevaluating that, And if we re 0:21:21.480 --> 0:21:24.720 evaluate that my senses, we will see something very equivalent 0:21:24.840 --> 0:21:28.399 to a very large recession that may occur in a 0:21:28.480 --> 0:21:30.920 shorter period of time. Francis. Some people worry though, that 0:21:30.960 --> 0:21:34.000