Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jai Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
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Speaker 1: fancy phrase for this would be shocked HISTORIESUS, and I
Speaker 1: say that in honor of Olivier Blanchard, who was with
Speaker 1: us earlier at this week. He and Laurence Summer with
Speaker 1: pathbreaking research on the effect of the duration of unemployment
Speaker 1: over time. But nowhere in the research, at least have
Speaker 1: I ever, would have could ever suggests that we've seen
Speaker 1: the abruptness that we see now. The abruptness is seen
Speaker 1: in the market. Await to the tape. The tape has
Speaker 1: been green, red, green, right now some red on the
Speaker 1: I scream with the vix forty nine point seven seven
Speaker 1: and yields come in and the tenant thirty years space
Speaker 1: with us that I really am pleased that Jeffrey Rosenberg
Speaker 1: could find time to join us today. He is with
Speaker 1: black Rock and he does a number of things over there,
Speaker 1: but mostly he writes acute summaries of the fixed income space.
Speaker 1: So we're gonna touch on jobs here a little bit,
Speaker 1: but and I really want to get to a discussion
Speaker 1: of what we've got and fixed income down we do this,
Speaker 1: We're thrilled to tell you without commercial interruption, to the
Speaker 1: top of the hour, Jeff, thank you so much for
Speaker 1: being with us. We are seeing an economists pull out
Speaker 1: their duration of this slowdown in the duration of slogging recovery.
Speaker 1: The V shaped recovery seems to have disappeared in the
Speaker 1: last forty eight hours. How do you fold that into
Speaker 1: fixed incomes? What does it mean, for example, for the
Speaker 1: benchmark tenure yield. Well, you know what we're debating is
Speaker 1: is you know, what is the pace? What is the
Speaker 1: shape of the recovery for the tenure yield? However, um
Speaker 1: it may be less about that. And what we seen
Speaker 1: here is just a historic structural change in the relationship
Speaker 1: between the federal reserve and fiscal policy. We are now
Speaker 1: operating in a different structural environment. Monetary policy is in
Speaker 1: the control of the fiscal authority. This is akin to
Speaker 1: wartime finance because we are fighting a war. We're fighting
Speaker 1: a war against the pandemic. And so when you think
Speaker 1: about how interest rates move, Um, you really have to
Speaker 1: stop thinking about, well, what is the shape of the
Speaker 1: economy and what is the outlook for inflation, because there's
Speaker 1: something much much more important that a lot of these
Speaker 1: headlines you've seen. The Fed, for example, this week, change
Speaker 1: the regular regulations around the supplementary leverage ratio. This is
Speaker 1: all about securing the interest rate that the government will
Speaker 1: pay to fund the massive fiscal policy response that we've
Speaker 1: seen to fight the pandemic. And so interest rates are
Speaker 1: going to be much more about fiscal policy than they
Speaker 1: are about monetary policy, the shape of the economic recovery,
Speaker 1: and the said reacting to the shape of the economic recovery,
Speaker 1: because it's gonna be a long time, as as Diane
Speaker 1: was saying, it's gonna be a long time before, you know,
Speaker 1: consumer behavior and confidence comes back. But it's also going
Speaker 1: to be a long time before we get back to
Speaker 1: the pre crisis setting a monetary policy and interest rate.
Speaker 1: So let's talk about the monetary policy currently underway. It
Speaker 1: is uh off the charts. I'm looking right now at
Speaker 1: the balance sheet growth for the Federal Reserve and it
Speaker 1: blows me away. I mean, in one week, six hundred
Speaker 1: billion dollar expansion in the balance sheet. More than a
Speaker 1: trillion dollars added to the Federal reserves holdings of assets
Speaker 1: in two weeks, and I'm wondering, we're looking at a
Speaker 1: five point eight trillion dollar balance sheet on the other
Speaker 1: side of this, What will the Federal Reserve look like,
Speaker 1: considering that it is expanding its power and its scope
Speaker 1: well beyond its historical role into fiscal stimulus. Well, again,
Speaker 1: I think we've got to be careful about history here
Speaker 1: and which history we're comparing to, because the operative history
Speaker 1: to compare is not the one we experienced. That's the
Speaker 1: modern FED. The poste Fed Treasury Accord establishes the modern
Speaker 1: said the independence of monetary policy. But again, if we
Speaker 1: take the analogy two we're at war against the pandemic
Speaker 1: and we've just shifted the structure into wartime finance, then
Speaker 1: the better historical analog is what did the Fed, what
Speaker 1: did its balance she'd look like during World War Two?
Speaker 1: And what we saw during that time period was explicit
Speaker 1: pegging of interest rates three eighths on the bills, two
Speaker 1: and a half on the thirty year, and the subordination
Speaker 1: of the Federal reserve institutions to the needs of the
Speaker 1: fiscal policy in that case, of course, fighting the war
Speaker 1: effort here very similar fighting the war effort in terms
Speaker 1: of providing the funding for these massive amounts of stimul
Speaker 1: and the Balance Street expansion that you're talking about, that
Speaker 1: that that barely scratches the circles, because we have the
Speaker 1: main street business lending facilities still to come. The funding
Speaker 1: of it the four and fifty four billion, but you
Speaker 1: leverage that up up to ten times, and you're talking
Speaker 1: about nearly an additional expansion of five trillion, and the
Speaker 1: Federal Reserve providing that funding into the real economy. Beautifully
Speaker 1: explained Jeffrey Rosenberg with this black Rock, folks, And at
Speaker 1: this time with the jobs report, we have to turn
Speaker 1: a little bit too a discussion for Global Wall Street.
Speaker 1: Will try to keep it in English for all of
Speaker 1: you out there not familiar with some of these arcane phrases.
Speaker 1: Jeff Rosenberg. I thought Ben Emmons was just brilliant yesterday
Speaker 1: writing a note on CMBs, the idea that millions can't
Speaker 1: pay their rent, landlords are left hanging, and all of
Speaker 1: a sudden it redounds over into commercial real estate and
Speaker 1: mortgage securitized ideas. Clos R and b s and stuff
Speaker 1: like that. How urgent is this on a Friday morning
Speaker 1: across America? Is there really going to be a collapsing
Speaker 1: in securitized instruments like we saw in two thousand eight,
Speaker 1: in two thousand nine. So so there's their differences in
Speaker 1: kind and and what we saw already, what we saw
Speaker 1: in the fixing markets in March is kind of the
Speaker 1: first wave of the impact of the pandemic. That was
Speaker 1: a liquidity orientation, that was a liquidity source of market
Speaker 1: drops in prices, and very simply quickly what happened was
Speaker 1: you had this massive demand for liquidity from the real
Speaker 1: economy into the financial economy as a result of the
Speaker 1: sudden stop in the economy at a size that the
Speaker 1: financial economy was never equipped to ever fulfill. The squeezing
Speaker 1: from the real economy of that liquidity out of the
Speaker 1: financial economy. That pivoted back and squeezed financial market liquidity,
Speaker 1: and you saw some large drops. Okay, So now the
Speaker 1: Federal Reserve intervenes, it plugs the whole of that liquidity
Speaker 1: with its balance sheet. That's where we are today. Your
Speaker 1: question is now, well, where do we go from here?
Speaker 1: When you look at the fundamentals of the daisy chain
Speaker 1: of the furbearances. Where does it stop right and where
Speaker 1: it stops is at the investor, at the holdings, at
Speaker 1: the bond level of the securitizations. And so this is
Speaker 1: now what we're considering. But it's about a temporary halt
Speaker 1: to payments as a result of this sudden stop. And
Speaker 1: so the difference in kind relative to nine is the
Speaker 1: two nine was about a fundamental collapse in the value
Speaker 1: of the underlying property. These properties might collapse fundamentally if
Speaker 1: there's a permanence to the halting of those payments, and
Speaker 1: certainly in some sectors of the economy, the structural changes
Speaker 1: that the pandemic brings change ages and how we behave
Speaker 1: may render some of those securities, valuations, and cash flows
Speaker 1: permanently impaired. But the larger broader issue here is this
Speaker 1: is a temporary stop at what we're trying to finance,
Speaker 1: and that earlier program that I just highlighted up the
Speaker 1: best four and a half five trillion dollars of lending
Speaker 1: capacity from the federal Reserve maybe needed to call to
Speaker 1: be called upon, or maybe even additional forms. There's legislation
Speaker 1: and discussion about how do you handle other areas of
Speaker 1: the securitization the mortgage market, How do we fund the
Speaker 1: temporary stop of these forbearances. It all leads to back
Speaker 1: on the federal fisk to provide that bridge. Jeff. Just
Speaker 1: by everything that I've read, the mortgage market is in
Speaker 1: much better shape heading into this, and it's not being
Speaker 1: fundamentally threatened as you're saying, in the same kind of
Speaker 1: way as it was in two thousand seven, two thousand eight,
Speaker 1: and two thousand nine. The corporate debt market, however, is
Speaker 1: and I would argue that the leverage ratios and companies
Speaker 1: have reached level that do exceed historical precedents. And we
Speaker 1: are currently seeing the fastest pace of downgrades by credit
Speaker 1: rating agencies in records going back to two thousand and two,
Speaker 1: and you're expecting default rates up to nine percent and beyond,
Speaker 1: with rating agencies downgrading their expectations going forward on a
Speaker 1: daily basis, how big of a hit is that going
Speaker 1: to be to the corporate credit sector, regardless of any
Speaker 1: fedback stop. Yeah, and and again let's a frame Mike answer.
Speaker 1: In those two phases. The first phase of what we've
Speaker 1: seen has been primarily liquidity phase. And you've seen the
Speaker 1: primary market credit facility, the secondary market credit facility helped
Speaker 1: to stabilize the market. But then you move from liquidity
Speaker 1: to solvency, from liquidity concerns to fundamental credit concerns. And
Speaker 1: so as we roll through to the earlier questions to Diane,
Speaker 1: what is the recession look like? What is the depth
Speaker 1: in the duration? Is it be? Is it you is
Speaker 1: at flat bottom? Now you're talking about real fundamental economic
Speaker 1: impact to which the Federal Reserve is not really designed
Speaker 1: and intended to solve those issues. And you came in
Speaker 1: as your highlighting. You came into this crisis with greater
Speaker 1: vulnerability because the debt stocks not so much historically unprecedented,
Speaker 1: but we're running at kind of very late cycle extended
Speaker 1: level of indebtedness, primarily because the burden of that debt,
Speaker 1: the interest rate burden was so low, but the interest
Speaker 1: rate burden is high when you have an environment of
Speaker 1: zero cash flow. So it's really about how quickly do
Speaker 1: the cashless the economy come back online. And certainly there's
Speaker 1: gonna be an elevated level where the most vulnerable, smaller
Speaker 1: companies less financial flexibility or the areas in the sectors
Speaker 1: of the market that are structurally impaired. Uh, see those
Speaker 1: restructurings in default. Jeffrey Rosenberg, thank you so much to
Speaker 1: black Reck. Greatly appreciate it today and fixed income Ellen
Speaker 1: too was for Morgan Standard today. Ellen, what did you
Speaker 1: glean from the report? The report is so much more
Speaker 1: than five or six numbers. Clearly a shock with seven
Speaker 1: hundred thousand uh non farm payroll loss. But what was
Speaker 1: the other data but that you saw beneath the headline data? Yeah,
Speaker 1: so I think, uh, you know, this is a time Tom,
Speaker 1: when you get these numbers right, that you want a
Speaker 1: grand stand and if ever there was a time that
Speaker 1: it's inappropriate the grand standards. Now, so we had an
Speaker 1: estimate of minus seven hundred thousand uh. And the underlying
Speaker 1: details here that this this had I know, I was
Speaker 1: one thousand off um Uh. The underlying details are that
Speaker 1: this this does not even capture the jobless claims that
Speaker 1: began jumping by the millions, right, that is for the
Speaker 1: April survey periods for the April reports. So how did
Speaker 1: we get this number right and and think that it
Speaker 1: was still going to be so deeply negative? It's about hiring,
Speaker 1: so we always uh we alluson forget the other side
Speaker 1: of this. It's net job games. How many were separated
Speaker 1: from employment? How many were hired? Uh, And it's the
Speaker 1: drop in hiring that drove this number. So think about it.
Speaker 1: March comes around, things are highly uncertain. You have a
Speaker 1: hundred open positions at your company, and you say let's
Speaker 1: hold off on filling those positions. That gets counted in
Speaker 1: these numbers. And you can imagine that that no one
Speaker 1: would have been hiring given the back drop in March
Speaker 1: and how uncertain it was. So that's I think an
Speaker 1: important point because it means in April we'll start drawing
Speaker 1: in not just the drop and hiring, but the firings.
Speaker 1: And so that's how you're going to get expectations for
Speaker 1: the job lost to be in the millions. It will
Speaker 1: make this minus seven hundred thousand look like small potatoes.
Speaker 1: It's gonna be on average out go ahead. Well, it's
Speaker 1: gonna be it's gonna be brutal going forward. And we
Speaker 1: know this by all by all accounts, And I just
Speaker 1: want to focus on the other side of this. And
Speaker 1: you were saying you do expect the recovery to take
Speaker 1: less time than back following the two thousand and eight
Speaker 1: thousand and nine crisis. How how realistic is that given
Speaker 1: the hit to this consumer psychology, to the idea of
Speaker 1: feeling like your reality has been ripped out from under you.
Speaker 1: I mean, could that prolonged things to the same type
Speaker 1: of length that we saw heading out of the last crisis. Yeah,
Speaker 1: So it's a it's a it's a really fair question.
Speaker 1: And uh, the answer is that we really don't know.
Speaker 1: And so from here the modeling takes over um and
Speaker 1: tells you that that as the economy gets back on track, um,
Speaker 1: we're gonna have millions in businesses that are just lost,
Speaker 1: that go under. But to the extent that we do
Speaker 1: start to poke our heads outdoors and activity does very
Speaker 1: slowly begin to pick up, that we slowly start to
Speaker 1: bring that unemployment rate down. How slowly it comes down
Speaker 1: will be the question of how slowing has demand. So
Speaker 1: one question is maybe households are out there spending again, Um,
Speaker 1: but the patterns have shifted, and that's where I think
Speaker 1: they're a significant amount of behavioral economics that will that
Speaker 1: will go into the study of this. I totally get it,
Speaker 1: and you know, I frankly I'm optimistic Ellen that we
Speaker 1: could see a redounding rebound when we're done with this virus.
Speaker 1: And let's be sure, folks, in the tragedy that we
Speaker 1: see here in New York City, we're gonna be done
Speaker 1: with this virus at some point. Ellen, you're completely wired
Speaker 1: in um Morgan Stanley, including with James Gorman, on the
Speaker 1: policy prescriptions right now. You know, John Farrell is going
Speaker 1: to talk to Lawrence Cudlow here in thirty forty minutes
Speaker 1: or whatever, and you know he's gonna say the usual drill.
Speaker 1: How urgent is it for Washington to shift from the
Speaker 1: institutionalized response to they get the money in their hands
Speaker 1: now response? Or even say there's a national rent for
Speaker 1: bearance mortgage for barns. Everybody's just gonna wait for X
Speaker 1: number of weeks or months. So Tom, I think that's
Speaker 1: where we're headed. I mean, I think those conversations are
Speaker 1: already being had in terms of you know, monetary and
Speaker 1: fiscal policy acting in concert. We've never seen this before,
Speaker 1: so acting in tandem, supporting each other. You know, this
Speaker 1: main street lending program from the said that we're waiting
Speaker 1: for details from that has meant to complement the Small
Speaker 1: Business Administration loan program. UH. You know, don't be surprised
Speaker 1: if the said also goes for something like a loan
Speaker 1: holiday program. You know, these are things that can be
Speaker 1: broadly UH. Have brought buy in from small businesses and
Speaker 1: from households in order to help be sure that when
Speaker 1: we come out of this, that those that went into
Speaker 1: this with good credit don't then have their credit ruined
Speaker 1: during this time, which would then linked in the recovery
Speaker 1: and it would start to look like something of a
Speaker 1: de leveraging cycle. I do believe that in the future
Speaker 1: that what we've learned from this is that in the future,
Speaker 1: monetary policy and fiscal policy acting in concert will now
Speaker 1: most likely be woven into the fabric of of response
Speaker 1: crisis response. And so I do think that this does
Speaker 1: set a precedent, uh for future downturn turns, and that's important.
Speaker 1: We're speaking with Ellen Zentner, Managing Director, chief US Economist
Speaker 1: and Morgan Stanley, who has nailed the jobless claims calls
Speaker 1: and nailed what we were expecting to see today, one
Speaker 1: of the very few who has consistently gotten it right.
Speaker 1: And Ellen, I want to continue with the idea that
Speaker 1: you were talking about that the economy coming out of
Speaker 1: this will look different than the one coming in, and
Speaker 1: that behavioral economics will play a role in this. Can
Speaker 1: you just humor us and give us a sense of
Speaker 1: how you expect certain industries to shift? What some of
Speaker 1: the beneficiaries maybe of this? Well? I think some of
Speaker 1: the things that we've been um thinking about is, you know,
Speaker 1: work from home arrangements. So businesses are probably going to
Speaker 1: have to revisit their business continuity plans and have some
Speaker 1: sort of rolling work from home arrangements or will be
Speaker 1: very slow to brain work work from home back into
Speaker 1: the office and have a greater share of permanent work
Speaker 1: from Now what does that mean for business centers? Uh?
Speaker 1: Do we get uh you know, a glove of office
Speaker 1: space uh in say a midtown Manhattan uh and other
Speaker 1: business concentration centers? Will we have enough services in more
Speaker 1: residential areas if more people are working from home going forward?
Speaker 1: So I think those are just some of the just
Speaker 1: a few of the ships that we're thinking about. What
Speaker 1: happens when people that never ordered delivery services uh, and
Speaker 1: particularly for food from full service restaurants before until now, uh,
Speaker 1: and now that they've tried it, they want to keep
Speaker 1: doing that or they used to go into the grocery store.
Speaker 1: Now they're having their groceries delivered and decide that they
Speaker 1: actually really like that. So in some ways it would
Speaker 1: accelerate some of those trends that have already been in place. Ellen,
Speaker 1: we look forward to your weekend report. Ellen Sentner with
Speaker 1: Morgan Stanley just extraordinary. Erica can't convey folks how difficult
Speaker 1: it is to game any non farm payroll statistic for
Speaker 1: the White House? Is you on the jobs report? Were
Speaker 1: joined live on bloom Blow TV and on Bloomberg Radio
Speaker 1: from the White House. National Economic Counsel Director Larry Cuddlo Larry,
Speaker 1: fantastic to have you with us. I just want to
Speaker 1: set the stage for our audience so they and understand
Speaker 1: where you and I are going in the next couple
Speaker 1: of minutes. We do have some technical difficulties which means
Speaker 1: there will be a little bit of a delay that
Speaker 1: so that you and I need to be a little
Speaker 1: bit careful about treading on each other. Let's start with
Speaker 1: the payrolls report and reflect on the huge plan that
Speaker 1: Washington pushed through last week. Larry, the numbers are dreadful,
Speaker 1: but this is a mandated stay at home government push,
Speaker 1: and we're trying to offset that with some big, big initiatives,
Speaker 1: and one of them is some help for small businesses
Speaker 1: with small business loans, and they're set to go forward
Speaker 1: be activated today for our audience, Larry, some much needed
Speaker 1: clarity is needed because it's unclear to us which banks
Speaker 1: are ready to deliver those loans today. Larry, do you
Speaker 1: have some clarity on that. Do you have a list
Speaker 1: of banks that are ready to do those loans as
Speaker 1: soon as a night? Well? I do my best, Jonathan,
Speaker 1: thank you, by the way, Um, in terms of the banks,
Speaker 1: I want to get to the broader subject also. But
Speaker 1: on the bank point, uh, today is the first day
Speaker 1: for applications, and any federally deposits, any federally insured depository
Speaker 1: institution is eligible. Now there's also a whole group of
Speaker 1: very significant group of s b A certified lenders. But
Speaker 1: any f D I C bank, any federally insured credit union,
Speaker 1: farm credit institution, all those are participating in this program, which,
Speaker 1: as you know, our loans to keep payrolls all right,
Speaker 1: payroll protection. I think this is one of the essential
Speaker 1: points of the economic assistance plans so we can get
Speaker 1: through this very difficult period. Regarding the impact of the
Speaker 1: of the virus. So any bank and it will be guaranteed,
Speaker 1: so the bank will have no problem. Is at one
Speaker 1: percent interest rate, h it will be payable, um in
Speaker 1: several months. Actually we've got quite a us at least
Speaker 1: six months. Um. Yeah, six months. Loan payments will be
Speaker 1: deferred for six months. No collateral or personal guarantees are required. Um.
Speaker 1: It should be very effective. But the thrust of it, Jonathan,
Speaker 1: is to deal with the issue of unemployment, which of
Speaker 1: course the surfaced today as we all expected, and payroll protection.
Speaker 1: Sev of the loan has to go to maintaining payrolls,
Speaker 1: and then the remainder of the loan will go to
Speaker 1: helping business meet their various expenses, rent leases, mortgage payments
Speaker 1: and so forth. It's on Larry, you're talking about eligibility.
Speaker 1: I'm talking about whether these banks are actually ready to
Speaker 1: deploy the cash. Are they ready as soon as today,
Speaker 1: because the reports that we're seeing is the money banks
Speaker 1: are not and perhaps won't be for several weeks. Do
Speaker 1: you have a list of banks that are ready to
Speaker 1: lend out this money today? I know who's eligible to
Speaker 1: do the work, but who's actually doing it today. Well, look,
Speaker 1: uh we I guess we have a different perspective. I'm
Speaker 1: not going to read you a list of banks. The
Speaker 1: list is gigantic, but they're ready to go. U banks
Speaker 1: have been talking to the Treasury Department, uh, the s
Speaker 1: b A, and Congress as this program was rolled out.
Speaker 1: So I I don't see any barriers and roadblocks, Jonathan.
Speaker 1: There may be some you know, small glitches as this
Speaker 1: thing goes out, but but they are ready. Secretary Manution,
Speaker 1: you know, had a big presser yesterday on this very point.
Speaker 1: So I don't think that's gonna be a problem. I mean,
Speaker 1: what matters here is that we've set aside three hundred
Speaker 1: and fifty billion dollars for paycheck protection. That's absolutely the
Speaker 1: key point, and the hope is that most folks, or
Speaker 1: at least many folks will stay affiliated, stay linked to
Speaker 1: their businesses during this very very difficult business interruptions and
Speaker 1: the economic contraction period and the virus. You want people now,
Speaker 1: you can have a good job without a good business.
Speaker 1: So we've also given a payroll tax holiday to the
Speaker 1: business side, and a number of other assistance plans. But
Speaker 1: on this one in particular, I think the key is
Speaker 1: trying to keep the workforce connected to the small business
Speaker 1: to the extent we can. And I think I think
Speaker 1: the bankers just look leading bankers. I'm not going to
Speaker 1: name names, but leading bankers. We're talking to Secretary Minution
Speaker 1: and others of us right up to the deadline yesterday,
Speaker 1: So I think they are ready to go. Larry, let's
Speaker 1: talk about the poll of lines that's available three in
Speaker 1: fifty billion dollars. I understand that it's first come, first served.
Speaker 1: How easy will it be to go ahead and top
Speaker 1: up that program if we drain the three inchin of
Speaker 1: fifty billion really quite quickly. There's gonna be massive demand
Speaker 1: for this. We know that people are gonna be working really,
Speaker 1: really hard. We have to understand there's going to be
Speaker 1: some technical difficulties along the way to deploy that cash.
Speaker 1: But as it drops down, Larry, are you confidently and
Speaker 1: pop it up very quickly? You know? I would say so, Jonathan,
Speaker 1: I don't want to get ahead of the story. Uh,
Speaker 1: I think there will be a very significant demand for it.
Speaker 1: I agree with your point, Um, but right now the trick,
Speaker 1: and this is true for all the assistance programs that
Speaker 1: we've run through. Uh. Two point to trillion worth, plus
Speaker 1: the said lending programs at least another four trillion. We're
Speaker 1: assisting roughly one third of the entire economy right now.
Speaker 1: But I don't want to get ahead of my reckoning.
Speaker 1: Is if this program is filled quickly, uh, we could
Speaker 1: probably get some kind of supplemental assistance here through the
Speaker 1: Congress too to expand it, or we might find other
Speaker 1: ways and means. But let's let's see how we do first.
Speaker 1: That's the important thing. And again this is tied, as
Speaker 1: you well know, this is tied to the coronavirus story. Um,
Speaker 1: that story could be improving. I don't want to make
Speaker 1: any forecasts. I just listened to our health specialists, are
Speaker 1: health experts. That story may be improving, hopefully or prayerfully,
Speaker 1: in the next four to eight weeks. That's a possibility,
Speaker 1: and so perhaps we won't have to oversubscribe these programs.
Speaker 1: Let's let's see what happens. It's a dated time week
Speaker 1: at time, gentlethan well, Larry, I want to keep this
Speaker 1: later focus on economic policy. The likes of Tiny Faucci
Speaker 1: doing a great job. Let's leave the health issues to
Speaker 1: them where it should be. For economic policy, You and
Speaker 1: I had an honest and open, frank conversation a month ago.
Speaker 1: And I recall that you said to me after the
Speaker 1: payrolls report that we didn't want to be thrown around
Speaker 1: three hundred and four hundred billion dollars Willy, nearly including
Speaker 1: twelve hundred one thousand dollar checks. Now we're handing out
Speaker 1: twelve hundred dollar checks. This is moved really quickly, and
Speaker 1: this is not a got your moment, Larry. What I'm
Speaker 1: trying to understand here is whether the administration now understands
Speaker 1: that it's no longer about hoping for the best, it's
Speaker 1: preparing for the worst, and we need to prepare to
Speaker 1: do a whole lot more. Well, look, that's fair enough.
Speaker 1: I mean, this story moved incredibly rapidly, um, beginning in March,
Speaker 1: really and uh. What started out as something that you know,
Speaker 1: we thought would be smaller, uh, And we put up
Speaker 1: travel restrictions with China, and for a bit that looked okay,
Speaker 1: and then it exploded. The virus exploded, so I and
Speaker 1: others here Secretary Ammunition, we had to change our point
Speaker 1: of view. And we realized as it rose exponentially, as
Speaker 1: the virus and its consequences rose, exponentially, something frankly I
Speaker 1: thought nobody could foresee. But nonetheless, then yes, we went
Speaker 1: into full gear and move quickly through Congress as best
Speaker 1: we could, and um, you know, starting with them, uh,
Speaker 1: covering sickly for people who were hit by the virus
Speaker 1: or family members, and then going through this economic assistance
Speaker 1: package of two point two trillion to put as much
Speaker 1: help into the economy as we possibly could. Events move rapidly,
Speaker 1: and we moved rapidly. And I'll say in by bars
Speaker 1: and send, Congress moved rapidly. They moved quickly. Maybe not
Speaker 1: quickly enough. And you'll appreciate that this story has just
Speaker 1: moved a whole lot faster. One thing the executive branch
Speaker 1: can do on its own. The White House can get
Speaker 1: together and do something about Harris. We understand there is
Speaker 1: a consideration about announcing a ninety day deferral of tariff payments. Larry,
Speaker 1: where are we on that decision? I don't think. I know,
Speaker 1: I've read a lot about that. I don't expect that
Speaker 1: to be the case. Actually, we we never looked, we
Speaker 1: never looked in any serious way at rolling back caraps.
Speaker 1: I mean, the deal with China is in place. Um,
Speaker 1: that's going to be implemented U S m C as
Speaker 1: in place. UM, we looked a little bit at some
Speaker 1: most favorite nation custom duties and we decided it was
Speaker 1: too complicated and it might give send the wrong signals.
Speaker 1: So UM, I would not expect to see any movement
Speaker 1: on paraps right now. I mean, the issue here is
Speaker 1: besides the paycheck tection. You know, we've poured um six
Speaker 1: hundred billion dollars apart from the business loans, six hundred
Speaker 1: billion dollars to individuals, families, and that includes the unemployment
Speaker 1: grows up. UM, We've we are giving checks to a
Speaker 1: hundred and seventy five million Americans. Let me repeat that,
Speaker 1: a hundred and seventy five million Americans. And on top
Speaker 1: of that, leveraging from the Treasury's emergency fund. As you
Speaker 1: well know, the Federal Reserve is embarked on a number
Speaker 1: of lending programs, purchasing programs, and broad based industry assistance programs.
Speaker 1: So you've got monetary and fiscal policy working. It is
Speaker 1: the largest package in the history of the US. Is
Speaker 1: principally a main main street package, middle class package. So
Speaker 1: I don't think we're gonna We're not gonna change any
Speaker 1: of the tariff policies right now. I mean, frankly, the
Speaker 1: president cut from pretty good trade deals with China and U. S.
Speaker 1: M c A. And when we return to prosperity, which
Speaker 1: I think will occur before this year is out. When
Speaker 1: we return, part of that return is going to be
Speaker 1: an export boom in my judgment, from these good trade deals,
Speaker 1: so that we knocked down onto A trading practices. But no,
Speaker 1: not now, there's no tarra pullback right now. Well, Larry,
Speaker 1: let's not get far too far down the road. Let's
Speaker 1: focus on the right now. You say no tariff pullback
Speaker 1: right now. As you know, Go Joe, which manufactures parl.
Speaker 1: One of the inputs into the dispenses is an input
Speaker 1: from China that subjects with tariff. They've requested an exemption.
Speaker 1: U STR has declined. I'm trying to understand why. I
Speaker 1: just can't get my hands around why the administration would
Speaker 1: go forward and not exempt that request. You said it
Speaker 1: would send the wrong signals, send the wrong signal to who. Well,
Speaker 1: sending the wrong signal in terms of the president's trade
Speaker 1: policy is what we're concerned about, Jonathan. On specific matters
Speaker 1: like this, Uh, I don't want to rule anything in
Speaker 1: are out. You have to talk to usdr and and
Speaker 1: see on on that particular point. Okay, we're trying to
Speaker 1: keep the flow going. You know, we've imported a lot
Speaker 1: of healthcare products from China and the rest of Asia.
Speaker 1: We also exported some assistance. We're trying to work together
Speaker 1: in terms of the unity of the nations around the
Speaker 1: world to fight this pandemic. So I don't want to
Speaker 1: get into specifics. You know, your question was really a
Speaker 1: broad based question about tariff reduction, and what I'm saying
Speaker 1: is there's no change in those policies, whether it's three
Speaker 1: oh ones or the two thirty twos on steel and
Speaker 1: so forth. Um, individual cases can be examined, and I
Speaker 1: have to find out more about the particular a matter
Speaker 1: you just raise. I'm not up to speed on that.
Speaker 1: I guess what I'm struggling with, Larry's that you and
Speaker 1: I can identify areas where we can help American businesses
Speaker 1: with tariffs exemptions. You're saying that you don't want to
Speaker 1: send the wrong signal on trade policy, but simultane viously
Speaker 1: saying that this health crisis is top of the priorities.
Speaker 1: Nothing tops it. But at the moment. Aren't we putting
Speaker 1: bad signals in your words, on trade ahead of alleviating
Speaker 1: some of the pain on American businesses? No, I don't
Speaker 1: think so. I mean, I'm not sure what you're thinking
Speaker 1: about here. We have some very good trade deals that
Speaker 1: the President completed before this pandemic broke out, and we
Speaker 1: want to maintain those trade deals. And regarding assistance or
Speaker 1: specific areas you know, for example, ventilators or masks, um
Speaker 1: we're looking at that one step at a time, and
Speaker 1: we have imported a huge amount. We've had planes from
Speaker 1: Shanghai landing in the key US cities to provide relief
Speaker 1: to the medical people in the hospitals and so forth.
Speaker 1: So that's wide open. But that's a different matter than
Speaker 1: generic trade policy. Well, hopefully we can get some more
Speaker 1: clarity on that in the next several way. Some clarity
Speaker 1: on Monday we've been needed as well. Opec cluss is
Speaker 1: holding a meeting. Is the US providing a representative to
Speaker 1: take place in that meeting? Would there be participating in
Speaker 1: that meeting on Monday, Larry, we are not members of OPEC.
Speaker 1: OPA plus is open and inviting people from outside of
Speaker 1: the organization of OPEG for others to join. I'm wondering
Speaker 1: if whether America will send a representative to have a
Speaker 1: conversation with the Saudis with the other members of OPEC. Well,
Speaker 1: let me, UH sort of pivot to what's actually happened.
Speaker 1: That is, First of all, the President has been in
Speaker 1: touch on the phone with the MBS in Saudi Arabia
Speaker 1: and Putin in Russia. He's been on the phone several times. UM.
Speaker 1: Other people in the administration have been talking to their
Speaker 1: counterparts in both of those countries. So we do that
Speaker 1: independently in America's interest, we don't have to go to
Speaker 1: the OPEC meeting. UM. The President told me yesterday and
Speaker 1: he did so presequently tweet this out, that he believes
Speaker 1: that Russia and Saudi Arabia will move away from their
Speaker 1: quibbling our argument and will allow market forces to dominate
Speaker 1: and instead of loading up the markets that are already oversupplied,
Speaker 1: that they will pull back. UM. We will see how
Speaker 1: that turns out. Presidents said that oil prices have gone
Speaker 1: up quite a bit seven or eight dollars since that statement.
Speaker 1: I see no reason why these discussions with President Trump
Speaker 1: UH and Prutent MBS will not bear fruit. I think
Speaker 1: they will. I think flooding the market with oil on
Speaker 1: top of the pandemic, which is crushed aggregate demand was
Speaker 1: a very, very poor decision by both of those countries.
Speaker 1: But I think the President's negotiations will bear fruit. Larry,
Speaker 1: will the United States be part of those production cuts? Well, look,
Speaker 1: our oil. We don't dictate oil policies. Are oil and
Speaker 1: gas sectors, Uh, they're smart businesses. The US is still
Speaker 1: the number one energy producer in the world, and we
Speaker 1: expect to remain. So we've taken a number of policies
Speaker 1: to to open the door and permit that to happen.
Speaker 1: We don't dictate I think, as you would guess, oil
Speaker 1: companies seeing a decline and price are going to pull
Speaker 1: back in production. I think that's just common business sense.
Speaker 1: But we don't dictate those decisions. The government doesn't dictate those.
Speaker 1: Just to just to find a question for you, just
Speaker 1: to jump in, I know you've got to run, you've
Speaker 1: got a busy morning. I appreciate that. But as a
Speaker 1: final question, on a day when these small business loans
Speaker 1: are coming down, on a day where Americans are struggling
Speaker 1: to pay the bills, can you communicate to a broader
Speaker 1: audience as to why there is such a big focus
Speaker 1: on the oil market and meeting with all process producers today. Well, look,
Speaker 1: first of all, we have I'm looking forward to the
Speaker 1: meetings today with our producers. I myself have done a
Speaker 1: number of conference calls with the oil and overall energy sectors.
Speaker 1: You know we have. Let me just put this, insert this.
Speaker 1: The degree of public and private government and private partnership
Speaker 1: here is unparalleled. We have worked with every industry, every industry,
Speaker 1: and President has seen them in person or done conference
Speaker 1: calls and so and the rest of us have done
Speaker 1: conference calls. So that's point number one. Point number two.
Speaker 1: Energy is obviously a key part of our economy. It
Speaker 1: was a key part of the tremendous economic growth we
Speaker 1: had in recent years before it was interrupted by this pandemic.
Speaker 1: So it's important motorists, UH, people who get heating fuel,
Speaker 1: on gasoline prices, all that is very key parts of
Speaker 1: American life. So we always take an interest. But I
Speaker 1: will say this regarding any collusion attempts UH by other
Speaker 1: countries in and or out of OPEC that seemed to
Speaker 1: be doing damage to American interest is something that President
Speaker 1: Trump will get engaged with right away to protect the
Speaker 1: American economy. That's what we're doing here. This is you
Speaker 1: know we talked about paycheck protection for small businesses and
Speaker 1: to avoid layoffs. Well, this is just general economic energy.
Speaker 1: I mean, we we have to stand up for American interests.
Speaker 1: That's what the President has done energy to keep part
Speaker 1: of the economy. So to me, it's, um, you know,
Speaker 1: an American operation. That's what we're concerned about. How you
Speaker 1: say from well, it's good to hear from Larry Carlo,
Speaker 1: their National Economic Council's director. There we are on oil
Speaker 1: and gas, folks, and it's good. I think the terror
Speaker 1: part the microeconomics. Edward Morrisset City Group wrote a skating
Speaker 1: note this morning devolving down to teens oil and even
Speaker 1: single digit oil. Joining us now is the acuity of emerita,
Speaker 1: sin energy aspects and RITA. How do we get a
Speaker 1: demand destruction that gets us to teens rent crude and
Speaker 1: even a wipe out that clears the market in the
Speaker 1: single digits? How do you even get there? We are
Speaker 1: already there. We've got the bulk of global crude prices
Speaker 1: in single digits, and you know we've been calling for
Speaker 1: ten dollar brand for a while, and the issue has
Speaker 1: been that future prices has kind of held around twenty
Speaker 1: at the lows. But the differentials in the world. You know,
Speaker 1: there are crudes in the Permian that are trading at
Speaker 1: three dollars today. Um, the physical markets already think they're
Speaker 1: going to be full. Inventories are going to be full,
Speaker 1: so you have to scale back production right now or
Speaker 1: at least from May onwards. The crude curve is just
Speaker 1: fascinating to look at, and for our listeners worldwide, I'm ready,
Speaker 1: I'll give you a little picture to put in your mind.
Speaker 1: It is very, very depressed at the front end, just
Speaker 1: north at twenty five dollars, and then it stapens quite
Speaker 1: aggressively all the way out to thirty approaching fifth the dollars.
Speaker 1: And I'm rate. So what's interesting about this curve is
Speaker 1: that if you ask many people in the oil market
Speaker 1: right now, why does it look like that? Give me
Speaker 1: one answer? They say demand and not supply. And I'm
Speaker 1: just want to get rate to how much would have
Speaker 1: to be done on the supply side to account for
Speaker 1: the collapse that we've got in demand worldwide. I think
Speaker 1: no amount of supply huts which are organized or orchestrated
Speaker 1: can actually take care of the demand losses. This is
Speaker 1: why our view has been the market is going to
Speaker 1: force shut ins, which means demand collapses at million barrels,
Speaker 1: but in April you run out of storage. Sometime in May,
Speaker 1: prices have to collapse to the point where you are
Speaker 1: shutting in production of whatever that magnitude is, say ten
Speaker 1: million barrels per day um. This has to be market driven.
Speaker 1: And I know OPAC and OPEC pass rather than US
Speaker 1: are talking about production curtailment. These curtailments would have happened
Speaker 1: regardless because the market simply cannot absorb all this gud well.
Speaker 1: And this goes to exactly the social media intervention the
Speaker 1: President Trump staged yesterday, which seemed to be somewhat effective
Speaker 1: in posting oil prices, at least temporarily. When he tweeted
Speaker 1: out that there were discussions between Saudi Arabia and Russia
Speaker 1: of cutting ten million barrels, he didn't specify a time frame.
Speaker 1: People took it per day, which would agree, which would
Speaker 1: amount to about ten percent of the world's oil production.
Speaker 1: We are hearing about a virtual meeting on Monday with
Speaker 1: Opeque plus and perhaps the United States. How likely is it, Amrita,
Speaker 1: that the United States is going to also agree to
Speaker 1: some production cuts, which I don't believe is precedented. Well,
Speaker 1: I don't think the US can um join what it
Speaker 1: calls a cartel. It just goes against everything the US
Speaker 1: has said and stands for for the past decades about
Speaker 1: oil market. The reality is that, of course there's a
Speaker 1: lot of focus on texting jobs, and this is an
Speaker 1: election year, and I think there is a realization that
Speaker 1: actually no oil prices does hold the US economy. But
Speaker 1: this is so messy. How can I mean? At best,
Speaker 1: you're going to get some kind of um an agreement,
Speaker 1: a gentleman's agreement, rather where there will be some form
Speaker 1: of okay, Yes, Texas has said it's going to cut
Speaker 1: by x, but again, how do you devise that mechanism
Speaker 1: of Texas cuts? What? What about an Optakota? What about
Speaker 1: Oklahoma and Russia hands Audireada, both particularly Russia has said
Speaker 1: US has to join the cuts, we are to cut. Okay, Well,
Speaker 1: that makes sense, I guess what's the likelihood of that?
Speaker 1: What is the process for the United States to join
Speaker 1: them in production cuts? Look, I think what we're going
Speaker 1: to get lots of positive headlines because this is political now.
Speaker 1: It's a lot of window dressing. That's the word I'm
Speaker 1: going to use. Because US production is falling anyways because
Speaker 1: of lower prices, and they will just quotify those losses
Speaker 1: somehow two CAPEX carts and whatever else and say, oh, look,
Speaker 1: you know action is following by X and that's how
Speaker 1: they're going to massage these numbers to get to the
Speaker 1: ten million dollars. But they they're talking about the reality
Speaker 1: is this is exactly what the market isn't what was
Speaker 1: going to force them to do anyway, So these aren't
Speaker 1: real cuts to balance the month. I'm rached. Just a
Speaker 1: quick final question for me, just to help us all
Speaker 1: navigate this situation. We keep hearing from the Texas Railroad Commissioner,
Speaker 1: and when people hear from him, they're wondering what this
Speaker 1: means and what kind of power the Texas Railroad Commissioner
Speaker 1: has on oil output in America. Can you give us
Speaker 1: some clarity there? Well, I know he is quite through
Speaker 1: these cuts, but there are plenty who are against it.
Speaker 1: There were senior officials from the Trump administration who came
Speaker 1: out yesterday. There was excell who came out yesterday and
Speaker 1: said we don't want a government intervention. So by no
Speaker 1: means this is a done deal. Yes, there are some
Speaker 1: who are for rationing production and it's been done once
Speaker 1: in Texas, but this isn't a coherent thought through process
Speaker 1: at all. At the stitch and read descent of energy aspects,
Speaker 1: the chief oil analyst langing on this the curious situation.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg
Speaker 1: Radio