WEBVTT - Fed Cannot Cross Red, Dark Line To Support Junk Debt: Booth 0:00:02.680 --> 0:00:05.360 Welcome to the Bloomberg Penl Podcast. I'm Paul swing you, 0:00:05.400 --> 0:00:07.720 along with my co host Lisa Brahma wits. Each day 0:00:07.720 --> 0:00:10.280 we bring you the most noteworthy and useful interviews for 0:00:10.320 --> 0:00:12.560 you and your money, whether at the grocery store or 0:00:12.600 --> 0:00:15.520 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.560 --> 0:00:18.000 podcast or wherever you listen to podcasts, as well as 0:00:18.000 --> 0:00:21.480 that Bloomberg dot com. How far is the Federals are 0:00:21.560 --> 0:00:24.040 willing to go and its average to support the market? 0:00:24.560 --> 0:00:27.960 What more can and will it do? And Paul, one 0:00:28.120 --> 0:00:31.480 area where people are looking at is could the Federal 0:00:31.520 --> 0:00:35.360 Reserve expand its bond purchasing program beyond investment grade debt 0:00:35.680 --> 0:00:39.000 to include some junk rated debt? And it raises some 0:00:39.120 --> 0:00:43.720 serious questions about moral hazard as well as just credit risk. Yeah, 0:00:43.760 --> 0:00:46.680 it's interesting. Remember we had Iver Jersey from Bloomberg Intelligence 0:00:46.720 --> 0:00:48.240 on I would say more than a week ago, where 0:00:48.240 --> 0:00:50.360 he was the first one to kind of just said, uh, 0:00:50.600 --> 0:00:53.320 they just think could double too close to ten billion dollars. 0:00:53.360 --> 0:00:56.480 And then I've heard that number echoed by others as well. Yeah, 0:00:56.520 --> 0:00:59.120 echoed and then expanded upon with some saying it could 0:00:59.160 --> 0:01:03.160 reach twelve million dollars in the not so distant of future. 0:01:03.520 --> 0:01:06.000 One person who has been tracking all of this very 0:01:06.000 --> 0:01:10.039 closely and has the inside view when you talk about 0:01:10.160 --> 0:01:13.640 working at the at the Federal Reserve, is Daniel de 0:01:13.760 --> 0:01:16.959 Martino Booth, who joins us now. She did work for 0:01:17.200 --> 0:01:20.280 the Dallas Federal Reserve and currently has her own firm 0:01:20.480 --> 0:01:24.600 where she analyzes all things credit and beyond. And I'm 0:01:24.640 --> 0:01:28.039 just wondering, given the fact that Daniel de Martino Booth 0:01:28.080 --> 0:01:32.640 CEO of of of Quill Intelligence, what's your perspective in 0:01:32.720 --> 0:01:36.400 terms of what more the Federal Reserve can do? Well? 0:01:36.560 --> 0:01:40.040 I think right now, this guy's the limit went back 0:01:40.120 --> 0:01:42.400 during the financial crisis when I was inside the FED, 0:01:42.920 --> 0:01:46.960 the purchase of corporate bonds was debated and and and 0:01:47.000 --> 0:01:49.400 refute it. It was decided at the time that that 0:01:49.480 --> 0:01:53.120 was crossing the line, and and in fact, I think 0:01:53.160 --> 0:01:55.320 DoD Frank tried to make sure that the line was 0:01:55.360 --> 0:01:58.920 never crossed again because it specifies that the FED cannot 0:01:58.920 --> 0:02:03.320 extend credit to borrowers that are insolvent. But the work 0:02:03.320 --> 0:02:07.160 around the bypassing of the Federal Reserve Act via a 0:02:07.200 --> 0:02:11.240 special purpose vehicle at the Treasury effectively means that because 0:02:11.280 --> 0:02:14.560 the loss goes to taxpayers, and because the paper doesn't 0:02:14.600 --> 0:02:16.639 sit on the Fed's balance sheet, the FED can buy 0:02:16.680 --> 0:02:20.520 whatever it wants. So, Danielle, so give us a sense 0:02:20.520 --> 0:02:23.240 of kind of where you think, Um, what more you 0:02:23.240 --> 0:02:25.720 would expect the FED to do? Here? We finally have 0:02:25.800 --> 0:02:27.720 some fiscal stanleus and we can talk about that in 0:02:27.720 --> 0:02:30.000 the moment. But staying with the Fed, what's what's the 0:02:30.040 --> 0:02:33.480 next steps for the Fed? Well, you know, I think 0:02:33.480 --> 0:02:35.840 it'll be interesting to see what we do and do 0:02:35.919 --> 0:02:39.360 not hear out of today's minutes at two pm. Um. 0:02:39.400 --> 0:02:42.079 You know, some people don't realize that the cares act 0:02:42.639 --> 0:02:46.080 Um actually allows Jerome Powell to use his judgment to 0:02:46.160 --> 0:02:50.200 determine whether or not Federal Open Market Committee meetings and 0:02:50.639 --> 0:02:55.519 emergency meetings applied to the Sunshine Act, which requires divulgence 0:02:55.560 --> 0:02:58.320 afterwards in the form of some for some form of minute. 0:02:58.720 --> 0:03:01.280 So in that we're not going to see that the 0:03:01.400 --> 0:03:04.240 minutes will or will not hint at whether the FED 0:03:04.320 --> 0:03:07.320 is going to cross that investment grade to junk line. 0:03:07.360 --> 0:03:09.400 And that is you've ys just put a report out 0:03:09.440 --> 0:03:11.919 that was on the Bloomberg terminal. That is where everybody's 0:03:11.960 --> 0:03:14.720 focus is right now. I've even gotten questions as to 0:03:14.720 --> 0:03:17.000 whether or not the FED can put a time stamp 0:03:17.440 --> 0:03:20.720 on fallen angels and come in after the fact, and 0:03:20.840 --> 0:03:23.600 by triple B debt that has already been down graded, 0:03:24.000 --> 0:03:27.840 if it if it was downgraded after March. These are 0:03:27.840 --> 0:03:30.519 fascinating things running around. But if you look at one thing, 0:03:30.919 --> 0:03:33.480 and that's the compression that we've seen in junk bond yield, 0:03:33.760 --> 0:03:36.880 I think the market has moved on to concluding that 0:03:36.960 --> 0:03:40.160 the FED is actually going there next and potentially stocks 0:03:40.280 --> 0:03:42.960 via e t s, as the Swiss National Bank and 0:03:43.000 --> 0:03:45.720 the Bank in Japan already do. So what's the argument 0:03:45.760 --> 0:03:49.240 for the federers are stepping into jump bonds here? I 0:03:49.240 --> 0:03:50.960 don't think there is an argument. I think I think 0:03:50.960 --> 0:03:53.480 it crosses a very dark red line. I'm writing about 0:03:53.480 --> 0:03:56.680 this today in fact um, there's a reason that that 0:03:56.760 --> 0:03:59.520 dog Frank specifies that the FED cannot extend credit to 0:03:59.560 --> 0:04:04.120 borrowers quote unquote bars that are insolvent. But but okay, 0:04:04.200 --> 0:04:06.520 I guess on on the counter side, you could say 0:04:06.680 --> 0:04:10.600 the Federal Reserve is looking to prevent systemic defaults across 0:04:10.640 --> 0:04:14.080 the board that could end up wiping out pensions as 0:04:14.120 --> 0:04:18.520 well as insurance companies and municipalities and whoever else, and 0:04:19.000 --> 0:04:21.160 that a lot of these companies would have been viable 0:04:21.200 --> 0:04:24.680 if they hadn't been closed down man mandatory closed down 0:04:25.120 --> 0:04:28.200 based on the government's policies. What would you say to 0:04:28.240 --> 0:04:33.200 that argument. I'm certainly sympathetic to that idea, But the 0:04:33.200 --> 0:04:36.239 fact of the matter is of major shops across Wall Street. 0:04:36.440 --> 0:04:38.680 Morgan Stanley put it out a few weeks in fact, 0:04:38.760 --> 0:04:43.200 before the coronavirus outbreak hit, that of triple B bonds 0:04:43.279 --> 0:04:46.800 were effectively junk rated. So I think the rot has 0:04:46.839 --> 0:04:50.920 been in the bond market industries long before uh this 0:04:51.000 --> 0:04:55.039 emergency broke out. And for that reason, and especially given 0:04:55.080 --> 0:04:58.880 the sheer size of the ten trillion dollar uh US 0:04:58.920 --> 0:05:01.320 corporate bond market, there's plenty that the Fed can do 0:05:01.440 --> 0:05:05.040 with companies that are deemed as being viable and solvent. 0:05:06.080 --> 0:05:09.040 All right, Daniel, let's switch over to fiscal policy. We 0:05:09.160 --> 0:05:13.719 got the two trillion dollar UH plus policy recently. That 0:05:13.760 --> 0:05:16.320 looks like Congress is working on something perhaps as large 0:05:16.360 --> 0:05:22.320 as another trillion dollars of fiscal stimulus. Is that enough? Well, 0:05:22.360 --> 0:05:25.360 you know, right now it's a matter of chasing time. 0:05:25.839 --> 0:05:28.520 We don't know if it's enough because the money hasn't 0:05:28.520 --> 0:05:31.159 gotten into the hands of companies that are truly insolvent 0:05:31.240 --> 0:05:32.919 and viable, and that would be a lot of the 0:05:32.960 --> 0:05:36.000 smaller businesses that are in something of a holding pattern 0:05:36.040 --> 0:05:38.720 hoping to get through the paperwork morass and get that 0:05:38.760 --> 0:05:41.040 money delivered to them. So you can listen to all 0:05:41.040 --> 0:05:43.880 you want at press conferences about increasing the amount of 0:05:43.880 --> 0:05:45.799 funding available, but you actually have to get the cash 0:05:45.839 --> 0:05:48.920 in the hands of the small businesses, and I think 0:05:48.920 --> 0:05:51.599 that that is what's critical at this juncture. How worried 0:05:51.640 --> 0:05:55.600 are you, Danielle about an increase in consumer defaults UM. 0:05:55.760 --> 0:05:59.120 I think that it depends on how long you can 0:05:59.160 --> 0:06:02.640 push forbearren Stout and whether or not there's a second 0:06:02.640 --> 0:06:06.200 wave of the virus even as the United States makes 0:06:06.240 --> 0:06:09.279 plans to come out of this UM. So it really 0:06:09.320 --> 0:06:14.160 will be a matter of how long the federal government 0:06:14.360 --> 0:06:19.240 is able to provide forbearance. But that just applied to mortgages. Look, 0:06:19.279 --> 0:06:22.839 we've got there are car companies that are extending thirty 0:06:22.880 --> 0:06:25.840 days at a time at this point on auto loan UM. 0:06:25.880 --> 0:06:28.680 There's credit card defaults that are going up. A new 0:06:28.720 --> 0:06:31.520 survey out of the New York Fed stated that quite 0:06:31.560 --> 0:06:33.720 a few Americans right now are are concerned that they 0:06:33.760 --> 0:06:37.640 can't make it past three months without defaulting on their debts. So, 0:06:38.240 --> 0:06:41.800 you know, we we entered the COVID nineteen crisis with 0:06:41.960 --> 0:06:45.760 sub prime auto loan delinquencies at recessionary level. So I 0:06:46.120 --> 0:06:48.280 think it's it's a bit naive to say that we're 0:06:48.320 --> 0:06:52.960 not going to see um more uh more more households 0:06:52.960 --> 0:06:55.600 falling into arrears in the days and weeks to come, 0:06:55.920 --> 0:06:59.200 especially given we're seeing so much stress come out of 0:06:59.240 --> 0:07:03.400 households that make more than a hundred thousand dollars. Right, 0:07:03.480 --> 0:07:05.760 Danielle di Martino Bouth, thank you so much for joining us. 0:07:05.800 --> 0:07:09.320 We as always appreciate your thoughts and commentary. Danielle's the 0:07:09.400 --> 0:07:13.160 CEO and director of Intelligence at Quill Intelligence. She's also 0:07:13.120 --> 0:07:15.800 a former advisors that Dallas Dallas Feder Reservant. She is 0:07:15.840 --> 0:07:19.560 a Bloomberg opinion columnists, so she is quite busy. Lisa 0:07:19.800 --> 0:07:22.120 really liked her comments about you know, you know, the 0:07:22.160 --> 0:07:24.840 consumer credit is going to be an issue. It's not 0:07:25.080 --> 0:07:27.320 just mortgages here, We're going to see it across the 0:07:27.320 --> 0:07:31.160 credit spectrum. Uh And the longer people are out of work, 0:07:31.200 --> 0:07:33.040 the bigger obviously the bigger the issue will be for 0:07:33.040 --> 0:07:38.400 the economy. I was struck by a common idea that 0:07:38.480 --> 0:07:42.400 markets are forward looking, and Paul, I'm struggling to understand 0:07:42.760 --> 0:07:45.680 how markets look forward when there is no guidance and 0:07:45.680 --> 0:07:48.640 when a growing number of companies are scrapping any guidance 0:07:48.960 --> 0:07:51.280 or expected to do so. And this is sort of 0:07:51.280 --> 0:07:53.640 one of the main conundrums. How do you invest at 0:07:53.640 --> 0:07:56.760 a time of such little visibility? Joining us now as 0:07:56.760 --> 0:07:59.360 Phil Orlando, somebody who always has a view and has 0:07:59.360 --> 0:08:03.520 been really right repeatedly when it came to some bullish 0:08:03.520 --> 0:08:06.200 calls over the past few years, chief equity market strategist 0:08:06.240 --> 0:08:11.120 for Federated Hermes, joining us from Westchester, Phil, how do 0:08:11.160 --> 0:08:13.040 you deal with this conundrum, the fact that we have 0:08:13.160 --> 0:08:15.840 very little visibility into the future as far as corporate 0:08:15.840 --> 0:08:20.400 earnings or the economy. This was a question that we 0:08:20.520 --> 0:08:25.040 addressed ourselves in the early stages of this UH market 0:08:25.120 --> 0:08:31.440 down thirty in in five weeks, the sharpest decline from 0:08:31.640 --> 0:08:35.360 a record high to a bear market in history. And 0:08:35.920 --> 0:08:40.320 UH technicals weren't making any sense, fundamentals weren't making any sense, 0:08:40.520 --> 0:08:44.800 and as you said, with h forty some odd states 0:08:44.960 --> 0:08:49.200 closed and with something in the neighborhood of a quarter 0:08:49.280 --> 0:08:53.160 to a third of the global population sheltering in place, 0:08:53.800 --> 0:08:56.839 S and P five, our companies have withdrawn guidance. So 0:08:56.960 --> 0:08:59.720 what do you as an investor to do? What we 0:08:59.840 --> 0:09:05.040 do it is created an alternative methodology for analyzing what 0:09:05.240 --> 0:09:08.320 was going on. And not to be too simplistic about it, 0:09:08.480 --> 0:09:11.280 but I call it my three legged stool. And what 0:09:11.320 --> 0:09:13.760 we did is is we needed to get our hands 0:09:13.760 --> 0:09:20.400 around three issues monetary policy, fiscal policy, and social policy 0:09:20.440 --> 0:09:24.800 in order to gauge the trajectory of this disease and 0:09:25.120 --> 0:09:29.040 what might the implications be on the economy and the 0:09:29.080 --> 0:09:33.360 financial markets and and so far, I think the work 0:09:33.400 --> 0:09:38.000 that we've done here has given us a sense directionally 0:09:38.200 --> 0:09:40.920 how this thing is going to play out. So, Phil, 0:09:41.000 --> 0:09:43.280 I'd like to go to maybe that third leg of 0:09:43.440 --> 0:09:45.640 the stool that you were talking about, which is kind 0:09:45.640 --> 0:09:49.320 of consumer consumer behavior. You know, we're gonna get get 0:09:49.360 --> 0:09:52.679 another really brutal jobless claims number tomorrow, We're gonna get 0:09:52.880 --> 0:09:56.920 incredible record unemployment here very soon. How do you think 0:09:56.920 --> 0:09:59.600 the consumer and consumer behavior is going to come out 0:09:59.600 --> 0:10:02.200 of this thing? On the other side, I think we're 0:10:02.200 --> 0:10:07.199 gonna be fine, because what what this situation, This, as 0:10:07.280 --> 0:10:11.560 disastrous as it is, is not the Great Recession of 0:10:11.600 --> 0:10:14.120 oh seven oh nine or the bursting of the tech 0:10:14.160 --> 0:10:18.240 bubble in O to oh three. This was a forced 0:10:18.360 --> 0:10:22.440 shutdown of the economy based upon the ultimate Black swan, 0:10:22.520 --> 0:10:26.760 an exogenous medical shock that we didn't do this to ourselves. 0:10:26.800 --> 0:10:29.400 This just sort of happened. And so we're all doing 0:10:29.400 --> 0:10:31.640 the right thing, which is, you know, locking down and 0:10:31.679 --> 0:10:34.440 sheltering in place. And we did it in March, and 0:10:34.480 --> 0:10:38.120 we're gonna do it in April. And if the trajectory 0:10:38.200 --> 0:10:41.200 of the illness and the mortality plays out the way 0:10:41.240 --> 0:10:44.120 we think it will, um, then we're going to start 0:10:44.160 --> 0:10:48.600 to slowly reopen things at some point early in May. 0:10:48.920 --> 0:10:52.320 And the equity market is a forward looking discounting mechanism, 0:10:53.000 --> 0:10:55.959 is at least in our view, is saying, Okay, as 0:10:56.000 --> 0:10:58.640 we get into the second half of this year, you've 0:10:58.640 --> 0:11:02.160 got this enormous pen up demand, uh that is going 0:11:02.200 --> 0:11:05.479 to start to be fulfilled. People have been depriving themselves 0:11:05.559 --> 0:11:08.920 of uh, you know, Tomahawk, rib I steaks and nice 0:11:08.960 --> 0:11:11.840 bottles of cabernet for a couple of months and we 0:11:11.920 --> 0:11:14.240 haven't seen a show or a ball game, and and 0:11:14.280 --> 0:11:16.720 we're gonna want to do something and I think the 0:11:16.800 --> 0:11:20.280 consumer is going to start to come back. Um, you know, 0:11:20.640 --> 0:11:24.959 illness permitting in the second half of this year. Phil, 0:11:25.000 --> 0:11:27.640 it sounds like you're pretty polish. Is that accurate? That 0:11:27.800 --> 0:11:31.920 is accurate. Um. As we look at the three paths 0:11:32.000 --> 0:11:35.439 that this thing could take. There's the L shaped recovery 0:11:35.520 --> 0:11:38.400 where you just go straight down and there's no recovery, 0:11:38.440 --> 0:11:40.800 you just you're in a deep procession for a couple 0:11:40.840 --> 0:11:43.400 of years. We put the probability of that at about 0:11:43.400 --> 0:11:46.839 ten percent. There's the V shaped recovery where you come 0:11:46.920 --> 0:11:49.080 straight down, which has happened, and then you go straight 0:11:49.080 --> 0:11:53.040 back up and everything's fine after a couple of rocky months. Um, 0:11:53.400 --> 0:11:56.520 we've got about a ten percent probability on that. Our 0:11:56.600 --> 0:12:00.200 base case is sort of a U shaped recovery where 0:12:00.200 --> 0:12:02.480 we're going to bounce around here a couple of quarters 0:12:02.480 --> 0:12:06.280 of negative GDP, but then the market and the economy 0:12:06.320 --> 0:12:08.360 are going to come back strong in the second half 0:12:08.400 --> 0:12:12.120 of the year. But the key issue here is we've 0:12:12.120 --> 0:12:15.360 got to see the trajectory of the illnesses and the 0:12:15.400 --> 0:12:19.600 mortalities peak. Now our best gas based upon our analysis 0:12:20.040 --> 0:12:21.960 was that that was going to happen in Holy Week, 0:12:22.000 --> 0:12:25.280 and this is Holy Week, and and so and and. Frankly, 0:12:25.320 --> 0:12:28.800 I gotta tell you, we're we're pleased with what we 0:12:28.840 --> 0:12:32.320 think we're seeing here in the metropolitan area, which is, 0:12:32.559 --> 0:12:35.800 you know, sort of the uh, the the epicenter of 0:12:35.800 --> 0:12:39.080 the entire world. Yeah, just just about thirty seconds. Given 0:12:39.120 --> 0:12:41.520 the fact that we're seeing statistics that nearly a third 0:12:41.520 --> 0:12:44.400 of US apartment renters didn't pay any of their April rent, 0:12:45.080 --> 0:12:47.640 that more than a million workers in the retail sector 0:12:47.679 --> 0:12:51.120 have been furloughed, what makes you think that American consumers 0:12:51.120 --> 0:12:53.080 will be in a position to spend the way they 0:12:53.120 --> 0:12:56.839 did before this. Well, I think from a policy standpoint, 0:12:56.880 --> 0:13:00.840 monitoring fiscal we've thrown everything at it. Uh. You look 0:13:00.880 --> 0:13:04.400 at the extension of unemployment insurance, the additional six hundred 0:13:04.400 --> 0:13:09.720 dollar weekly bonuses on top of of regular benefits. Uh, 0:13:10.200 --> 0:13:12.719 the fact that I think landlords recognized that they're not 0:13:12.800 --> 0:13:14.720 going to be collecting any rents for the next couple 0:13:14.760 --> 0:13:17.280 of months. I think all of that is sort of 0:13:17.320 --> 0:13:20.480 built in to to what are going to be disastrous 0:13:20.559 --> 0:13:23.800 numbers March April, probably through the balance of the second quarter. 0:13:24.040 --> 0:13:26.200 But I think the spirit of the American people and 0:13:26.280 --> 0:13:28.960 the desire to get back in the game is going 0:13:29.000 --> 0:13:31.240 to allow us to start to come back to life 0:13:31.280 --> 0:13:34.240 in the second half of the year. Philorlando, thanks so 0:13:34.320 --> 0:13:36.920 much for joining us. We appreciate that. We hope your 0:13:37.000 --> 0:13:41.079 optimistic view proves correct. Philo Orlando, chief equity market strategist 0:13:41.160 --> 0:13:45.280 for Federated Hermes about eighty nine billion dollars under management, 0:13:45.320 --> 0:13:47.520 so he's certainly talking for a lot of money, joining 0:13:47.559 --> 0:13:49.920 us on the phone from Westchester and Lisa. Phil has 0:13:49.960 --> 0:13:53.040 always been bullish, always been optimistic. Key's you know, during 0:13:53.080 --> 0:13:55.720 this bullmarket he has been absolutely spot on here. I 0:13:55.720 --> 0:13:57.840 think the real question I have is, you know, has 0:13:57.960 --> 0:14:01.720 consumer behavior changed or at least not just the near 0:14:01.840 --> 0:14:03.480 term and maybe even the intermediate term, And how's that 0:14:03.520 --> 0:14:06.400 going to affect the economy and spending habits going forward. 0:14:06.440 --> 0:14:09.440 And so we'll have to see, because that's really a big, 0:14:09.480 --> 0:14:16.880 big issue going forward. Part of that two trillion dollars 0:14:16.920 --> 0:14:21.200 of fiscal stimulus that was approved last week includes cash 0:14:21.400 --> 0:14:24.920 directly for consumers. The question is will it be enough 0:14:24.960 --> 0:14:28.320 and will it arrive quickly enough for that. We turned 0:14:28.320 --> 0:14:30.960 to Greg McBride. He's the chief financial analyst at bank 0:14:31.080 --> 0:14:34.360 rate dot com. They did some recent survey work on that. Greg, 0:14:34.360 --> 0:14:36.960 thanks so much for joining us on the phone. What 0:14:37.040 --> 0:14:40.600 did your survey tell you? But it really shows how 0:14:40.640 --> 0:14:43.560 badly so many Americans need this money, and I think 0:14:43.600 --> 0:14:47.280 that's evident by the fact that of those that expect 0:14:47.280 --> 0:14:50.640 to receive a payment say it's somewhat were very important 0:14:50.640 --> 0:14:53.440 to their near term financial well being. And also when 0:14:53.440 --> 0:14:56.240 we see how people plan to use that money, Uh, 0:14:57.360 --> 0:14:59.800 we're going to use it for monthly bills, forty one 0:15:00.080 --> 0:15:03.040 sent that they would use it for day to day essentials. Um, 0:15:03.120 --> 0:15:05.560 there's some overlap there because it was you could pick 0:15:05.600 --> 0:15:08.360 more than one, but I think you know, those were 0:15:08.360 --> 0:15:12.000 heading shoulders above things like adding to savings and paying 0:15:12.040 --> 0:15:15.120 down debt. So I think that really illustrates that even 0:15:15.320 --> 0:15:18.480 those that are still working, they don't have much of 0:15:18.480 --> 0:15:21.080 a cushion, and if they're concerned about the sustainability of 0:15:21.120 --> 0:15:23.600 their employment or income going forward, that this is going 0:15:23.640 --> 0:15:26.600 to be a valuable cushion. Greg. I was struck by 0:15:26.640 --> 0:15:30.480 your report. It showed, yes, it's a cushion that's valuable, 0:15:31.080 --> 0:15:33.840 but it's not nearly a big enough cushion, and The 0:15:33.880 --> 0:15:37.280 study that banquet dot com did showed that thirty one 0:15:37.320 --> 0:15:40.520 percent of US adults who participate receiving a stimulus check 0:15:40.560 --> 0:15:42.760 believe that it would not be enough to sustain their 0:15:42.760 --> 0:15:46.120 financial well being for one month. So is it going 0:15:46.200 --> 0:15:49.120 to be ineffective when this money actually does get to 0:15:49.360 --> 0:15:51.840 consumers given the fact that it hasn't even gotten to 0:15:51.880 --> 0:15:56.120 any of them yet, was it worth it? Well, I mean, 0:15:56.360 --> 0:15:58.120 I'll leave me whether it's worth it up, I think 0:15:58.200 --> 0:16:00.320 that's something we can evaluate in hindsight. But you know, 0:16:00.360 --> 0:16:03.720 I think for those that have been furloughed or laid off, 0:16:04.160 --> 0:16:07.880 have suffered an income disruption, the timing is critical because 0:16:07.960 --> 0:16:10.400 it can really bridge the gap between the last paycheck 0:16:10.480 --> 0:16:12.160 and the first unemployment check. You know, a lot of 0:16:12.200 --> 0:16:15.320 people are in that limbo right now. Um, And so 0:16:15.520 --> 0:16:17.600 the timing I think is is you know, really really 0:16:17.640 --> 0:16:19.920 important to that. But you know, it's not going to 0:16:20.000 --> 0:16:22.920 be a panacea by any means. And and you know, 0:16:23.000 --> 0:16:25.800 when we look at the economic fallout from this, the 0:16:25.880 --> 0:16:29.160 financial pain that households feel is something that's going to 0:16:29.240 --> 0:16:31.400 be with us for a long time. I mean it's 0:16:31.440 --> 0:16:34.360 going to be measured in months and years, not something days. 0:16:34.400 --> 0:16:36.840 And weeks, so long after the state at home orders 0:16:36.880 --> 0:16:39.960 have been lifted, there's gonna be a financial hangover the 0:16:39.960 --> 0:16:41.920 a lot of households are going to continue to deal 0:16:41.960 --> 0:16:44.560 with for some time thereafter. So it sounds like from 0:16:44.600 --> 0:16:48.440 your survey that the respondents feel like there needs to 0:16:48.520 --> 0:16:52.320 be more, Is that right? Yeah, I mean, and I 0:16:52.400 --> 0:16:53.960 think a lot of that is just you know, we 0:16:54.520 --> 0:16:56.600 you know, we've only really kind of touched the tip 0:16:56.640 --> 0:16:59.760 of the iceberg on unemployment. Ten million people have filed 0:16:59.800 --> 0:17:02.200 for nemployment in the last two weeks. That's just those 0:17:02.240 --> 0:17:03.800 that have been able to file. We know there are 0:17:03.840 --> 0:17:05.680 more that haven't even been able to get through yet. 0:17:06.119 --> 0:17:08.600 Um and you know, unfortunately, more layoffs to come. So 0:17:09.200 --> 0:17:11.320 uh yeah, I think there's a recognition of that on 0:17:11.600 --> 0:17:14.399 the part of consumers and even coming into this, you know, 0:17:15.040 --> 0:17:17.320 there were a lot of households that you know, it 0:17:17.359 --> 0:17:19.200 wouldn't take much to kind of put them off the 0:17:19.320 --> 0:17:22.240 rails financially. You know, we found a forty one percent 0:17:22.280 --> 0:17:24.800 of Americans. This is back in January, which seems like 0:17:24.840 --> 0:17:28.719 a lifetime ago of Americans at that point could afford 0:17:28.840 --> 0:17:32.720 an unplanned expense of a thousand dollars and pay for 0:17:32.800 --> 0:17:35.920 it out of their savings, just so um, you know. 0:17:36.000 --> 0:17:37.840 And that was at a point where unemployment was at 0:17:37.840 --> 0:17:40.640 a fifty year low, and obviously things have really changed 0:17:40.720 --> 0:17:44.240 dramatically since then. So, Greg, this is an interesting kind 0:17:44.280 --> 0:17:47.720 of development, given the fact that the American consumer was 0:17:47.840 --> 0:17:50.440 praised as being the bedrock of the recovery that we 0:17:50.520 --> 0:17:53.200 saw for a decade that came crashing to a halt 0:17:53.880 --> 0:17:57.320 in the past month or two. And I'm wondering going forward, 0:17:57.480 --> 0:18:00.320 how able some of these consumers will be to go 0:18:00.440 --> 0:18:02.959 back to their previous spending habits. I mean, we were 0:18:03.000 --> 0:18:06.760 speaking with Phil Orlando earlier in the show Federated her Veys, 0:18:06.960 --> 0:18:09.440 and he was saying he expects that when this all 0:18:09.560 --> 0:18:12.119 does lift, everybody will want to run back to Disneyland 0:18:12.240 --> 0:18:15.080 or go out and to get a big steak. Is 0:18:15.119 --> 0:18:17.520 that going to be feasible given the destruction to the 0:18:17.560 --> 0:18:20.560 balance sheets and a lot of households. I think they're 0:18:20.760 --> 0:18:23.560 You're gonna see two different extremes. I mean, yes, there 0:18:23.600 --> 0:18:25.240 are going to be those that have cabin fever. In 0:18:25.280 --> 0:18:27.639 the first place, they're headed as the airport or uh, 0:18:27.760 --> 0:18:29.600 you know something. They want to you know, get out 0:18:29.680 --> 0:18:32.400 and kind of resume normal life and you know they're 0:18:32.520 --> 0:18:35.280 they're still employed that you know, they're they were able 0:18:35.320 --> 0:18:37.360 to do that, But there are going to be millions 0:18:37.400 --> 0:18:40.920 that are still unemployed and or that get re employedment 0:18:41.080 --> 0:18:44.280 at a lower level of income, and they're not going 0:18:44.400 --> 0:18:46.719 to be able to generate the same level of spending 0:18:46.760 --> 0:18:48.960 that they had in the past. And uh, you know 0:18:49.080 --> 0:18:52.560 that's coming out of the last prossession. The recovery was 0:18:53.080 --> 0:18:56.159 one that had a you know, very slow growth trajectory. 0:18:57.119 --> 0:19:00.000 You know, depending upon how long we see elevated unemployed 0:19:00.320 --> 0:19:03.800 this time around, you know, we could see something similar. So, Greg, 0:19:03.840 --> 0:19:07.320 are you looking at you know, mortgage debt, credit card debt? 0:19:07.359 --> 0:19:08.879 What are you looking at for as it relates to 0:19:08.920 --> 0:19:13.120 the consumer, Well, you know, in terms of monthly payments, 0:19:13.720 --> 0:19:16.960 because people have been able to refinance at lower rates. UM, 0:19:18.080 --> 0:19:20.320 the stream on the budget in terms of monthly payments 0:19:20.400 --> 0:19:22.639 as a percentage of income is some of the lowest 0:19:22.680 --> 0:19:25.439 that's been in thirty five years. The actual debt is bigger, 0:19:25.840 --> 0:19:28.280 but you know, people have lessened the pain of those 0:19:28.320 --> 0:19:32.119 monthly payments by virtue of of low interest rates. Uh. Fortunately, 0:19:32.440 --> 0:19:36.080 with widespread forbearance and payment relief options, UM there are 0:19:36.880 --> 0:19:40.000 ways that people can buy themselves selves some valuable time, 0:19:40.520 --> 0:19:43.320 getting a forbearance on that mortgage or the car loan, 0:19:43.400 --> 0:19:46.119 you know, those big ticket items that really carve a 0:19:46.160 --> 0:19:48.360 big hole out of the monthly budget, and that could 0:19:48.359 --> 0:19:50.600 be critical. I mean, if if you're only seeing an 0:19:50.640 --> 0:19:53.240 income disruption for a couple of months, being able to 0:19:53.280 --> 0:19:55.200 get a reprieve on that mortgage or car loan for 0:19:55.200 --> 0:19:57.680 a couple of months could really make a big difference. 0:19:58.000 --> 0:20:00.520 And uh, you know, and being able to to sort 0:20:00.560 --> 0:20:04.120 of resoom normally from a financial standpoint, you know. Once 0:20:04.160 --> 0:20:06.560 we're giving me all Claire. Greg McBride, thank you so 0:20:06.680 --> 0:20:09.600 much for being with us. Greg McBride, chief financial analyst 0:20:09.720 --> 0:20:16.600 for Banquet dot Com. Time to check in with Bloomberg Opinion. 0:20:16.680 --> 0:20:19.720 Now we're joined by opinion columnists. Take him covers all 0:20:19.840 --> 0:20:23.040 things technology for Bloomberg Opinion, and we're gonna talk about Zoom. 0:20:23.080 --> 0:20:26.520 Here's the stock that's just about doubled uh since the pandemic, 0:20:26.840 --> 0:20:29.959 uh really crossed our desk. Here is people go more 0:20:30.040 --> 0:20:32.760 and more to remote learning, but now there's some concerns 0:20:32.800 --> 0:20:36.480 about security of those streams. Hey, thanks so much for 0:20:36.600 --> 0:20:39.159 joining us. Give us the latest on what's going on 0:20:39.320 --> 0:20:41.639 with Zoom. I know it's being sued for fraud and 0:20:42.040 --> 0:20:46.560 mounting security concerns. What's going on? So I think there 0:20:46.720 --> 0:20:50.119 is on legitimate cristim prisons for what they've done. Um, 0:20:50.200 --> 0:20:53.440 their marketing has been overly aggressed. They've been misleading with 0:20:53.560 --> 0:20:56.000 this term end end encryption, so they're getting a lot 0:20:56.000 --> 0:20:58.960 of scrutiny for that. Actually used this less robust form 0:20:59.040 --> 0:21:01.600 of encryption called a less security, which is used by 0:21:01.680 --> 0:21:04.239 many web services like Gmail. So I think they might 0:21:04.320 --> 0:21:07.479 get fined for that. So let's just take a bit 0:21:07.560 --> 0:21:11.040 testep back. Zoom got a lot of interest over the 0:21:11.119 --> 0:21:14.560 past few years as people thought about the possibility of 0:21:14.600 --> 0:21:18.520 a greater shift to an online workplace that's been accelerated 0:21:18.840 --> 0:21:23.119 by the COVID nineteen related shutdowns. Now Zoom finds itself 0:21:23.400 --> 0:21:26.600 the subject of some unwanted scrutiny in addition to an 0:21:26.640 --> 0:21:29.040 incredible surge and popularity. Can you just give us a 0:21:29.119 --> 0:21:32.720 sense of the liability aspect of this, aside from the 0:21:32.840 --> 0:21:35.720 legal areas of just you know, people moving away from 0:21:35.840 --> 0:21:39.119