Latest / Bloomberg Intelligence / Oil Price Could Revisit 1986 Low of $9.75: Stephen Schork

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Oil Price Could Revisit 1986 Low of $9.75: Stephen Schork · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you
• 0:05
  Speaker 1: along with my co host Lisa Brahma Wicks. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money, whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:18
  Speaker 1: that Bloomberg dot com. Oil prices surging after President Trump
• 0:22
  Speaker 1: tweeted that he expects and hopes that both Saudi Arabia
• 0:26
  Speaker 1: and Russia would cut back about ten million barrels of
• 0:30
  Speaker 1: oil and maybe substantially more. However, there is a concern
• 0:35
  Speaker 1: about whether this actually is concrete, and you're seeing that
• 0:39
  Speaker 1: in oil prices coming off. Some of the earlier highs up.
• 0:42
  Speaker 1: Spokesman for Vladimir Putin Dmitri Peskovs and the Russian president
• 0:47
  Speaker 1: had not spoken to Crown Prince Mohammad and Bill's bin Selman,
• 0:50
  Speaker 1: raising some confusion about whether this is something that has
• 0:55
  Speaker 1: legs joining us now to discuss. I'm so pleased to
• 0:57
  Speaker 1: say is Stephen Schork, who's been tracking the oil market
• 1:00
  Speaker 1: UH for a very long time. President of the Short Group,
• 1:03
  Speaker 1: Steven Let's just start with the news the idea that
• 1:05
  Speaker 1: President Trump has made it very clear that he wants
• 1:08
  Speaker 1: to get involved to bring these two players to the table.
• 1:11
  Speaker 1: Let's say he succeeds. And let's say that, let's take
• 1:14
  Speaker 1: this on its face value, that they do both cut
• 1:16
  Speaker 1: ten million barrels of oil in production. How much will
• 1:20
  Speaker 1: that matter fundamentally at this point for the price of oil.
• 1:24
  Speaker 1: Uh from a obviously from a supply standpoint, is a
• 1:27
  Speaker 1: significant move. Do we have to keep in mind that
• 1:30
  Speaker 1: on the other side of the equation, And this is
• 1:33
  Speaker 1: what made the Russian Saudi move to put so much
• 1:37
  Speaker 1: oil on the market a month ago so odd, because
• 1:40
  Speaker 1: the world economy is dead for all intents and purposes.
• 1:44
  Speaker 1: And as we just saw with yesterday's report from the
• 1:48
  Speaker 1: weekly report from the e I, A U S crude
• 1:51
  Speaker 1: all producers are still producing way too much crude oil.
• 1:54
  Speaker 1: The price of US export is not even competitive anymore.
• 1:59
  Speaker 1: So the United it is going to now become even
• 2:01
  Speaker 1: more glutted with its own oil. And the refineries can't
• 2:05
  Speaker 1: make any money because the crack spreads, the margins between
• 2:09
  Speaker 1: gasoline and diesel fuel and crwdal have absolutely crashed, so
• 2:12
  Speaker 1: refinery demand here in the United States is dead. So
• 2:16
  Speaker 1: what we've had here is a massive crash on the
• 2:19
  Speaker 1: front end of the curve. Whereas prices today, which normally
• 2:23
  Speaker 1: in a healthy commodity market, trade at a premium to
• 2:26
  Speaker 1: prices tomorrow. But what's happened over the past week is
• 2:29
  Speaker 1: prices today have come crashing down. For instance, at one
• 2:34
  Speaker 1: point last week, oil on the spot market traded at
• 2:37
  Speaker 1: a discount for the same contract a year from now.
• 2:42
  Speaker 1: So what does that mean? Oil is bidding for storage?
• 2:45
  Speaker 1: There's only so much storage capacity around the globe. Here
• 2:49
  Speaker 1: in the United States, our biggest complex of storage is
• 2:52
  Speaker 1: in Oklahoma Cushion, That is the delivery complex of the
• 2:56
  Speaker 1: Namics contract. By July, we're going to be at max
• 3:01
  Speaker 1: capacity in that storage. So now what happens, even if
• 3:05
  Speaker 1: we're producing a greatly reduced rates, demand is going to
• 3:10
  Speaker 1: outpace that, and when we run out of storage capacity,
• 3:13
  Speaker 1: you're looking at potentially another significant leg lower in oil prices.
• 3:19
  Speaker 1: All right, so let me ask the simple question the
• 3:21
  Speaker 1: non energy person, why don't people stop? Why don't these
• 3:24
  Speaker 1: to stop producing oil? It's an excellent question. Here in
• 3:28
  Speaker 1: the United States, the biggest issue is debt. We have
• 3:31
  Speaker 1: a debt bomb in the shale patch. So it's this
• 3:35
  Speaker 1: nasty cycle where I have to produce more because I
• 3:38
  Speaker 1: need cash and to pay down my debt. Now, we
• 3:42
  Speaker 1: just saw Whiting Patroleum file for bankruptcy the other day.
• 3:45
  Speaker 1: That is the first domino and a number of dominoes
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  Speaker 1: in this industry that are about to fall. So you
• 3:51
  Speaker 1: will start to see product production pulled back as these
• 3:55
  Speaker 1: smaller producers tip over. The bigger problem is Canada. Given
• 4:01
  Speaker 1: the way they uh dig their oil out of the ground,
• 4:05
  Speaker 1: It's not simply just shutting off production. It is an
• 4:08
  Speaker 1: extremely complicated process. So Canada is stuck. They cannot cut
• 4:14
  Speaker 1: down on their production. So what you're going to see,
• 4:17
  Speaker 1: and we have already started to see in some of
• 4:19
  Speaker 1: the more esoteric oil markets in the planes, you will
• 4:22
  Speaker 1: see negative crud all prices. That is to say, the
• 4:26
  Speaker 1: producers are going to pay you to take the oil
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  Speaker 1: away from them. Yeah, we're already hearing about reports of
• 4:32
  Speaker 1: that actually occurring, and I'm just trying to to push
• 4:35
  Speaker 1: this forward. I mean, people are talking about how supplies
• 4:39
  Speaker 1: are not coming offline. Meanwhile, demand has absolutely plummeted. It's
• 4:43
  Speaker 1: not it's almost non existent. When you look at airplanes
• 4:45
  Speaker 1: just not flying around, and I'm just wondering, how much
• 4:48
  Speaker 1: does the supply picture even matt are, given how much
• 4:51
  Speaker 1: currently is in storage, and given the fact that we're
• 4:53
  Speaker 1: not seeing necessarily an end date for when this the
• 4:57
  Speaker 1: demand drop off is gonna is gonna just finally be
• 5:01
  Speaker 1: different or change. That's an excellent point and that's why
• 5:04
  Speaker 1: I'm not buying on this headline or this tweet about
• 5:08
  Speaker 1: US cutting off producers, because this is yes, part of
• 5:11
  Speaker 1: it is supply, but again it's the other side of
• 5:14
  Speaker 1: the variable and demand, and you nailed it. We don't know.
• 5:18
  Speaker 1: The economy is dead. The economy here, they're everywhere around
• 5:22
  Speaker 1: the globe is dead, and we don't know when it's
• 5:25
  Speaker 1: going to be, uh, come come back, because we don't
• 5:29
  Speaker 1: know yet how long this virus is going to stick around.
• 5:33
  Speaker 1: You've got reports that, oh, it will die in the
• 5:36
  Speaker 1: warm weather. You've got other reports, Oh no, it's going
• 5:38
  Speaker 1: to expand in the warm weather. So we still don't know.
• 5:41
  Speaker 1: So as we continue to kick down the road right
• 5:44
  Speaker 1: the the covid Um protocol pushed back to April, you
• 5:48
  Speaker 1: know what, and then it's gonna be pushed back to
• 5:50
  Speaker 1: May thirty one, we're already talking about potentially the NFL
• 5:54
  Speaker 1: season next fall being canceled or being greatly delayed because
• 5:57
  Speaker 1: we simply don't know. So the long we don't know,
• 6:01
  Speaker 1: demand will continue to outstrip whatever production is pulled off
• 6:06
  Speaker 1: of the market. This is unbelievably inconceivable situation we are
• 6:12
  Speaker 1: in right now. So what's the low point that you foresee, UH?
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  Speaker 1: For crude prices nine dollars and seventy five cents. That
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  Speaker 1: is below that we saw that in April six. So
• 6:25
  Speaker 1: that that so, so we the markets like to go
• 6:28
  Speaker 1: to the extremes nine dollars and seventy five cents for
• 6:30
  Speaker 1: for NIMEX w t I futures, that is the Shark
• 6:34
  Speaker 1: reports in our daily model. That is how low we
• 6:37
  Speaker 1: think we can go. And to that point, guys, we
• 6:40
  Speaker 1: are all into this together. So we hear at the
• 6:42
  Speaker 1: Short Group made a decision two and a half weeks
• 6:44
  Speaker 1: ago to offer our research for free to all market participants.
• 6:50
  Speaker 1: We all need to work together to get through this. So, yes,
• 6:54
  Speaker 1: it's nice that we're getting a pop today include all prices.
• 6:58
  Speaker 1: I don't think it's going to last. Wow, Stephen Shork,
• 7:01
  Speaker 1: thanks so much for joining us. Uh, nine dollars and
• 7:03
  Speaker 1: seventy five cents. I think that's the takeaway here. Stephen Shork,
• 7:06
  Speaker 1: president of the Short Group, Let's get a sense maybe
• 7:12
  Speaker 1: how to think about this market. We welcome Cole Smed.
• 7:15
  Speaker 1: He's a president in portfolio manager of Smed Capital Management. Cole,
• 7:18
  Speaker 1: thanks so much for joining us. Give us your sense
• 7:21
  Speaker 1: of kind of how you're thinking about the markets these
• 7:25
  Speaker 1: days given this just these incredible volatility that we're seeing.
• 7:29
  Speaker 1: But appreciate having me on. This is one of the
• 7:32
  Speaker 1: five greatest buying opportunities the last fifty years, which would
• 7:35
  Speaker 1: be the bottom and seventy four the bottom, and eighty
• 7:38
  Speaker 1: two the bottom, and eight seven the bottom of O
• 7:41
  Speaker 1: nine and today. And I say that because we always
• 7:44
  Speaker 1: get to these junctures and people can always tell you
• 7:47
  Speaker 1: how much worse it will become. Jeffrey Gunlock was the
• 7:50
  Speaker 1: poster child that of the last couple of weeks saying
• 7:53
  Speaker 1: we're not gonna we have not reached the loads of
• 7:55
  Speaker 1: what we're going to see. And at the same time,
• 7:58
  Speaker 1: look at the opportunities it's putting out there where people
• 8:00
  Speaker 1: have no optimism. The reason why oil is rolling is
• 8:03
  Speaker 1: because no one owns it. And if you've got to
• 8:05
  Speaker 1: put a by order in. They're all going into it
• 8:07
  Speaker 1: at the same time. So um so it's just it's
• 8:10
  Speaker 1: such a great time to be alive and be a
• 8:12
  Speaker 1: stock picker, because, um this isn't going to translate into
• 8:16
  Speaker 1: perfect perfection for the index, but it is going to
• 8:18
  Speaker 1: change how we price individual securities. Cool, I'm loving this.
• 8:22
  Speaker 1: I gotta say, I'm sitting here and we've just been
• 8:24
  Speaker 1: like bombarded by gloom for just day after day. It
• 8:28
  Speaker 1: is absolutely depressing. The number we got today actually was
• 8:32
  Speaker 1: emotionally horrific when it came to how many people are
• 8:35
  Speaker 1: being laid off. You said, this is a great time
• 8:37
  Speaker 1: to be alive. It is the buying opportunity of a lifetime.
• 8:40
  Speaker 1: You have economists saying they're flying in the dark and
• 8:43
  Speaker 1: every day they're downgrading their estimates of the US economy,
• 8:46
  Speaker 1: and yet you still have a lot of investors who,
• 8:49
  Speaker 1: like you, see this is a buying opportunity in Lori
• 8:51
  Speaker 1: Calvacina of OURBC just did actually a survey of investors
• 8:55
  Speaker 1: that found a lot of optimism. So where are you seeing.
• 8:58
  Speaker 1: It's sort of your conveying action being vindicated that this
• 9:02
  Speaker 1: is an incredible buying opportunity given how uncertain people are
• 9:06
  Speaker 1: about whether we're even headed towards the next depression. Yeah,
• 9:10
  Speaker 1: it's a it's a great question. Well, first off, you
• 9:12
  Speaker 1: gotta remember the consumer came into this in a great spot.
• 9:15
  Speaker 1: We had the lowest household debt service going back to
• 9:18
  Speaker 1: one we've ever had, and then secondly, last year we
• 9:20
  Speaker 1: had the highest savings rate of a non recessionary year
• 9:23
  Speaker 1: of the last fifty years. So the interesting part of
• 9:26
  Speaker 1: the consumer was actually ready for this because they just
• 9:28
  Speaker 1: weren't borrowing money like normal corporations. In comparison, we're borrowing
• 9:32
  Speaker 1: money and we're seeing some of the effects of that.
• 9:34
  Speaker 1: You know, we work would be the most recent example
• 9:36
  Speaker 1: of what has borrowed money and and you know, a
• 9:38
  Speaker 1: lot of money throwing. Look like now go back, let's
• 9:41
  Speaker 1: go back three years ago when the summer of retail
• 9:44
  Speaker 1: malaise was going on. Someone would have had to step
• 9:46
  Speaker 1: into what seemed like very dark circumstances in retail and
• 9:49
  Speaker 1: a business like Target, Well you look this, your Targets
• 9:52
  Speaker 1: getting lavish with praise by investors because that's a place
• 9:56
  Speaker 1: that you can go, click and collect, and their business
• 9:58
  Speaker 1: has done great through the process. So that that was
• 10:01
  Speaker 1: a kind of a similar circumstances in a sub industry
• 10:04
  Speaker 1: that had very particular circumstance around that. What is the
• 10:07
  Speaker 1: opportunity right now is cyclicality tied to the economy and
• 10:12
  Speaker 1: the consumer and things like oil and financials and things
• 10:16
  Speaker 1: like mal reads out there couldn't be more left for dead.
• 10:20
  Speaker 1: Macy's left the S and P five hundred index today
• 10:22
  Speaker 1: as an example. If those things make a big comeback
• 10:25
  Speaker 1: over the next three to five years, you're going to
• 10:27
  Speaker 1: find the SNP fix not owning them, as they typically
• 10:31
  Speaker 1: do at major low points in buying opportunities in the
• 10:34
  Speaker 1: history of the stock market. So what is your sense
• 10:38
  Speaker 1: of just to give a sense of your optimism, what
• 10:41
  Speaker 1: how do you think the economy is going to react
• 10:43
  Speaker 1: here over the next you know, year or so. Oh,
• 10:46
  Speaker 1: it's a great question. I have a wonderful book for
• 10:48
  Speaker 1: you guys that I picked, the Barton Bigs Wealth, Warre
• 10:51
  Speaker 1: and Wisdom, which really deals with the circumstances around World
• 10:54
  Speaker 1: War Two between nineteen and forty two, particularly what it
• 10:57
  Speaker 1: was like for the UK stock market, what it was
• 10:59
  Speaker 1: like for the U stock market. You get two points
• 11:03
  Speaker 1: where the news can't get worse and bad news continues
• 11:06
  Speaker 1: to come out after that. It's just it's less bad. Okay.
• 11:09
  Speaker 1: So when we talk about flattening the curve and that
• 11:11
  Speaker 1: kind of stuff type the coronavirus, we are talking about
• 11:13
  Speaker 1: news becoming less bad and and and the beautiful part
• 11:17
  Speaker 1: about this is it's fun to read a book and say,
• 11:18
  Speaker 1: here's what happened in the past, and you can understand
• 11:21
  Speaker 1: life looking back, but you have to live it forward.
• 11:24
  Speaker 1: And that's the great part about this opportunity is that
• 11:27
  Speaker 1: while people are telling you just terrible things, you know
• 11:30
  Speaker 1: that at some point the optimists always win. And by
• 11:33
  Speaker 1: the way, they always win. There's just no question about that.
• 11:36
  Speaker 1: And what you want to do with capital right now
• 11:39
  Speaker 1: is the most important question, not whether you want to
• 11:41
  Speaker 1: be an owner of businesses that are publicly traded. Cool.
• 11:44
  Speaker 1: I want to drink your kool aid so bad, just
• 11:46
  Speaker 1: because it's so depressing. I gotta say, you know, when
• 11:49
  Speaker 1: I say it's so depressing, you say that that that
• 11:51
  Speaker 1: news can't get it that much worse it is every day.
• 11:56
  Speaker 1: I mean, really, reach yeah it trust me here. You
• 11:59
  Speaker 1: know you gotta remember too, you guys are sitting in
• 12:01
  Speaker 1: New York. You know our companies based in Seattle. We
• 12:04
  Speaker 1: were one of the hotspots, just like you are. So
• 12:06
  Speaker 1: you gotta remember a lot of the news media is
• 12:08
  Speaker 1: tied to a geography that's being greatly affected in your lives,
• 12:11
  Speaker 1: just like ours have been greatly affected. The problem with
• 12:14
  Speaker 1: that is that's not Peory Illinois, and a lot of
• 12:17
  Speaker 1: this have to do about what's going to go on
• 12:18
  Speaker 1: in America. Secondly, some of your writers have been writing
• 12:21
  Speaker 1: about this. What typically happens when we trap Americans at
• 12:24
  Speaker 1: home for period of time. We tend to have a
• 12:26
  Speaker 1: lot of babies being birthed. And guess what that is
• 12:29
  Speaker 1: so good for the economy and the consumer and cyclical
• 12:32
  Speaker 1: businesses like autos and homes. And no one's saying, oh,
• 12:35
  Speaker 1: by the way, what do you do when the things
• 12:37
  Speaker 1: are slow? And your spouse it's quite a fun thing.
• 12:43
  Speaker 1: You go, you go to the alcohol story. You got
• 12:45
  Speaker 1: your alcohol story. I got four kids, So I'm preaching
• 12:47
  Speaker 1: to the choir. Al right, Okay, So aside been making
• 12:50
  Speaker 1: babies as people are sequestered in their homes, drinking and
• 12:53
  Speaker 1: sequestered with their spouses, I am wondering going forward in
• 12:57
  Speaker 1: terms of some of the massive shifts in the economy
• 13:01
  Speaker 1: that people are talking about this increases pushed toward Uh,
• 13:05
  Speaker 1: you know, an online world where you have online shopping,
• 13:09
  Speaker 1: where you have the retailers that were struggling before closing down,
• 13:12
  Speaker 1: where you have malls being either repurposed or left to die.
• 13:17
  Speaker 1: I mean, what do you say about that? Yeah? I
• 13:20
  Speaker 1: think about the oil shocks in the nineteen seventies. How
• 13:22
  Speaker 1: fun was it to sit in a gas line? I
• 13:24
  Speaker 1: mean I was not born then, but just the thought
• 13:27
  Speaker 1: of that, and you know, hearing it from my parents,
• 13:30
  Speaker 1: is that that that was That was not fun? That
• 13:32
  Speaker 1: was depressing. Um. Now, did they ever want to deal
• 13:35
  Speaker 1: with that circumstance again or be in that situation? The
• 13:37
  Speaker 1: answer is no. Forever they were changed because of that circumstance. So,
• 13:41
  Speaker 1: for example, to your question about online shopping, can I
• 13:43
  Speaker 1: shop online right now? Yes? The wonderful delivery person from
• 13:46
  Speaker 1: Amazon will come to my door anytime I want right now.
• 13:49
  Speaker 1: You're lucky because we're struggling with that to carry on. Yeah,
• 13:52
  Speaker 1: how fun is that? Oh? It's depressing. Reminds me of
• 13:55
  Speaker 1: that time we had COVID. You remember that. Well, that
• 13:58
  Speaker 1: does not sound like a lot of fun. So much
• 14:00
  Speaker 1: like if you came from communist Russia, thinking of bread
• 14:03
  Speaker 1: redlines that the connotation in your mind, it doesn't not
• 14:06
  Speaker 1: something you ever want to look at again. So I
• 14:08
  Speaker 1: think the one inevitable I can guarantee is change. And
• 14:12
  Speaker 1: what we're doing right now is not what we'll be
• 14:14
  Speaker 1: doing in twelve months. But the market has reoriented stock
• 14:17
  Speaker 1: market capitalizations around what we're doing right now. What the
• 14:21
  Speaker 1: wise man does at the beginning, the fool does at
• 14:23
  Speaker 1: the end. And I think there's a lot of fools
• 14:25
  Speaker 1: trying to say, well, what if this goes on for
• 14:26
  Speaker 1: two years? Just like they said, oh, Britain might be
• 14:30
  Speaker 1: obliterated as the Germans crossed the Channel and ruin the
• 14:34
  Speaker 1: world in nineteen forty, they could always tell us how
• 14:36
  Speaker 1: much worse it was going to get. The problem is,
• 14:39
  Speaker 1: you know, Churchill was optimistic even though he was depressed, Okay,
• 14:43
  Speaker 1: and that produced a lot of success in stocks the
• 14:45
  Speaker 1: next five to ten years when no one thought good
• 14:48
  Speaker 1: circumstances could come out of that either. All right, cool,
• 14:50
  Speaker 1: let me just I know you kind of touched on
• 14:52
  Speaker 1: a little bit. Just summarize for us kind of the
• 14:54
  Speaker 1: some sectors that you're looking at right now. Yeah, So, uh,
• 14:58
  Speaker 1: in the discretionary world. There's very interesting opportunities. Um. You know,
• 15:03
  Speaker 1: some of the things that could to open up is
• 15:05
  Speaker 1: there's businesses that can benefit from more people having trouble
• 15:08
  Speaker 1: in credit or income. So we've been out there looking
• 15:12
  Speaker 1: at businesses that have that cyclicality tied to the consumer. Um,
• 15:15
  Speaker 1: we own Chevron. The oil world is only looking more
• 15:19
  Speaker 1: attractive every day. Uh, we own mace rich a mall rate.
• 15:22
  Speaker 1: I mean, uh you could you could take the market
• 15:25
  Speaker 1: cap of most of anything dealing with stuff that you
• 15:28
  Speaker 1: do going out in the evening right now and you
• 15:31
  Speaker 1: could fit that into any technology stock you'd like in
• 15:34
  Speaker 1: terms of total market cap. So uh, you know, consumer cyclical,
• 15:39
  Speaker 1: tide economy and heavily beat up with insider buying. Right now,
• 15:43
  Speaker 1: the insiders are showing their hand and like I said,
• 15:45
  Speaker 1: it's a stock picker. It's just a dream. Course Mead,
• 15:49
  Speaker 1: keep living that dream. Thanks for bringing us some some
• 15:51
  Speaker 1: optimism on a day where there is very little of it.
• 15:54
  Speaker 1: Colsemeade Managing director and portfolio manager at Smeat Capital Management,
• 15:58
  Speaker 1: with three point three billion dollars of assets under management
• 16:01
  Speaker 1: based in Seattle, another one of the hotspots for the virus.
• 16:06
  Speaker 1: In addition, to New York City and parts beyond as
• 16:09
  Speaker 1: you like to save, Paul, Paul. The number that came
• 16:13
  Speaker 1: out today was devastating when it came to the jobless claims,
• 16:16
  Speaker 1: six point six five million jobless claims, blowing away the
• 16:21
  Speaker 1: previous record set last week a three point one million claims,
• 16:25
  Speaker 1: which was revised upward. The picture is bleak getting bleaker,
• 16:29
  Speaker 1: and it's dramatic, and it's painful, and the human stories
• 16:33
  Speaker 1: behind these numbers are devastating. Lena Shilgetava, Senior US economist
• 16:38
  Speaker 1: for Bloomberg Economics, joining us now, Helena, when you dig
• 16:42
  Speaker 1: into these numbers, what do you find when it comes
• 16:45
  Speaker 1: to the job sectors that are disproportionately affected? Good morning, Lisa. Indeed,
• 16:52
  Speaker 1: we are really lucky to be employed u in the
• 16:56
  Speaker 1: situation and working from home, but a lot of people there,
• 17:00
  Speaker 1: especially small businesses, devastated by this situation. So the extraordinary
• 17:07
  Speaker 1: increased reflected in today's numbers in jobless claims. This number
• 17:13
  Speaker 1: is not only showing the inflow of new layoffs, but
• 17:16
  Speaker 1: it is also showing a catch up in application processing. UH,
• 17:22
  Speaker 1: people were just filing for claims, but UH, the labor
• 17:26
  Speaker 1: departments were not able to process all the claims in
• 17:29
  Speaker 1: prior weeks. So we will continue to see the numbers
• 17:34
  Speaker 1: going forward for several weeks ahead. And if we see
• 17:39
  Speaker 1: these numbers in the vicinity of three to five million persisting,
• 17:43
  Speaker 1: the unemployment rate will climb towards uh something like fift
• 17:48
  Speaker 1: in April. Um. I I really think this situation is
• 17:54
  Speaker 1: not not precedented, and uh it's at this point, you know,
• 17:59
  Speaker 1: making economic forecast is uh very difficult task. So Elena,
• 18:04
  Speaker 1: that's unfortunate. Kind of where I think most people want
• 18:07
  Speaker 1: to go is trying to get a sense of, you know,
• 18:10
  Speaker 1: I guess the second quarter how that might check out.
• 18:13
  Speaker 1: We know it's gonna be bad. We've seen numbers as
• 18:15
  Speaker 1: GDP contractions UM, and then a lot of people had
• 18:21
  Speaker 1: it kind of bouncing back in the third and fourth quarter.
• 18:23
  Speaker 1: Given kind of just as Bloomberg Economics right now is
• 18:25
  Speaker 1: trying to digest this number this morning, just give us broadly,
• 18:29
  Speaker 1: you know, I don't have to give us exact numbers,
• 18:30
  Speaker 1: but broadly, how you think economic growth and contraction might
• 18:34
  Speaker 1: look for the remainder of the year. Uh. So, I
• 18:38
  Speaker 1: think we will not see a V shaped recovery, and
• 18:41
  Speaker 1: not even a U shaped recovery at all. I think
• 18:46
  Speaker 1: we have already um uh kind of course to the
• 18:50
  Speaker 1: point of no return for that. And I think that
• 18:55
  Speaker 1: we'll see very very slow l shaped sort of recovery
• 18:59
  Speaker 1: going forward. Uh. Yes, when this is over, and luckily
• 19:05
  Speaker 1: we will have the cure for uh you know, a
• 19:08
  Speaker 1: vaccine or some medicine for the virus. Uh. This will
• 19:13
  Speaker 1: the economy will slowly go back to normal. But a
• 19:17
  Speaker 1: lot of things I think have been changed, and it's
• 19:21
  Speaker 1: a structural change in my view. Uh. I think we
• 19:24
  Speaker 1: will not go back or cruising or uh, you know,
• 19:29
  Speaker 1: going out as much as we used to. So I
• 19:32
  Speaker 1: think services that will hurt most and for a very
• 19:36
  Speaker 1: long time. Um. In terms of payrolls numbers, remember that
• 19:41
  Speaker 1: we have pay rolls numbers coming out at the end
• 19:45
  Speaker 1: of this week tomorrow. The numbers for much will just
• 19:49
  Speaker 1: only catch the front ege of the economic shutdown in
• 19:52
  Speaker 1: response to the pandemic. April numbers will be mind boggling,
• 19:57
  Speaker 1: probably with millions losing jobs. In the Peril's report for April.
• 20:04
  Speaker 1: I'm looking right now at just some of the breakdown
• 20:06
  Speaker 1: of the state numbers, and you could see the states
• 20:08
  Speaker 1: with the highest number of filings California with more than
• 20:12
  Speaker 1: a million, Pennsylvania with almost eight hundred thousand, New York
• 20:17
  Speaker 1: with almost four hundred and fifty thousand. I mean, these
• 20:19
  Speaker 1: numbers are just mind boggling. Also in Michigan and Ohio
• 20:23
  Speaker 1: seeing some serious uh numbers coming out there. Can you elaborate, Elena,
• 20:28
  Speaker 1: what you say that you do not see people going
• 20:31
  Speaker 1: cruising for a very long time, that you don't think
• 20:33
  Speaker 1: services will recover for the foreseeable future. Why not? Well,
• 20:39
  Speaker 1: because think about it in terms of financial crisis or
• 20:44
  Speaker 1: September eleven. So that changed a lot of things for
• 20:49
  Speaker 1: us permanently, and we just uh, you know, we will
• 20:53
  Speaker 1: not go back as easily as we used to into
• 20:58
  Speaker 1: a lot of these things because people, even if we
• 21:02
  Speaker 1: get the vaccine, even if we have the cure, people
• 21:06
  Speaker 1: will be afraid to do that. And over time we
• 21:10
  Speaker 1: might get back to that. But right away, so let
• 21:13
  Speaker 1: me give you an example. We I'm a board member
• 21:16
  Speaker 1: of Money Mctius of New York. It's a nonprofit organization.
• 21:20
  Speaker 1: We can filt all the meetings go for the rest
• 21:22
  Speaker 1: of the season, so who knows, we will probably go
• 21:26
  Speaker 1: back to webinar, you know, sort of uh uh set
• 21:31
  Speaker 1: So people will not easily go back. People will be
• 21:35
  Speaker 1: scared for a very long time. Elena she Letvia, thank
• 21:39
  Speaker 1: you so much for your thoughts there. Elena she Letiva,
• 21:43
  Speaker 1: senior US economists for Bloomberg Economics, giving us her thoughts
• 21:47
  Speaker 1: and the thoughts of Bloomberg Economics on these just historic
• 21:50
  Speaker 1: jobless claims numbers, Lisa, six point six five million put
• 21:54
  Speaker 1: that in come in in addition to the three point
• 21:57
  Speaker 1: three from last week. That's ten million Americans filing jobs
• 22:01
  Speaker 1: claims just in the last two weeks, which is historic
• 22:03
  Speaker 1: and unprecedented. Last year we had the trade war, particularly
• 22:09
  Speaker 1: between the US and China. This year, it is an
• 22:12
  Speaker 1: information war that is becoming evident every day. Yesterday, Bloomberg
• 22:18
  Speaker 1: News reported that U S Intelligence agents reported that Beijing
• 22:22
  Speaker 1: concealed the extent of the coronavirus epidemic, and how China
• 22:27
  Speaker 1: meanwhile is accusing the United States of seeking to shift
• 22:31
  Speaker 1: the blame for its own handling of the outbreak. Andy
• 22:34
  Speaker 1: Brown joining US now editorial director for the Bloomberg New Economy,
• 22:38
  Speaker 1: joining us from New Hampshire, Andy, just can you give
• 22:41
  Speaker 1: us a sense of the broader picture here as the
• 22:44
  Speaker 1: China tries to sort of massage its image as the
• 22:48
  Speaker 1: beginning of the coronavirus pandemic and as the US perhaps
• 22:53
  Speaker 1: does try to pin the blame on not having better
• 22:56
  Speaker 1: surveillance about how to cope with the virus. Yeah, I mean,
• 23:01
  Speaker 1: just to start with this intelligence assessment that you mentioned, UM,
• 23:07
  Speaker 1: I mean, we don't have any details of how the
• 23:09
  Speaker 1: intelligence services put together this report, and and you know,
• 23:14
  Speaker 1: it has to be said that it would have been
• 23:16
  Speaker 1: far more useful to have had this uh several months
• 23:19
  Speaker 1: or even several weeks ago. Having having said that, the
• 23:24
  Speaker 1: broad assessment that China is faking the numbers UM is
• 23:29
  Speaker 1: not at all surprising. I mean, China, the way that
• 23:32
  Speaker 1: China has handled the data around coronavirus right from the
• 23:37
  Speaker 1: beginning has been problematic. UM. It has impeded a global
• 23:42
  Speaker 1: understanding of the nature of the virus and how it's
• 23:45
  Speaker 1: and how it's spread, and therefore has affected the way
• 23:48
  Speaker 1: that the rest of the world, UM, you know, has
• 23:51
  Speaker 1: has has mustered a defense. UM. You know, there's gigantic inconsistencies.
• 23:57
  Speaker 1: For instance, you know the way that UM, so few
• 24:01
  Speaker 1: cases have been reported outside of Wuhan and surrounding Hubei province,
• 24:06
  Speaker 1: when we know that hundreds of thousands and potentially millions
• 24:09
  Speaker 1: of people left Wuhan, um, you know, just before the
• 24:14
  Speaker 1: Chinese New Year and ceded the virus all around China,
• 24:18
  Speaker 1: uh and in the United States. Bloomberg's own reporting has
• 24:21
  Speaker 1: shown that, you know, patient zero in Seattle had made
• 24:25
  Speaker 1: a a trip to to Wuhan. Having said that, I
• 24:30
  Speaker 1: think you have to also understand this intelligence report within
• 24:33
  Speaker 1: the context of what you just talked about, which is
• 24:36
  Speaker 1: the new battlefront that China has opened up in the
• 24:39
  Speaker 1: war on coronavirus. Having fought and one significant victories UM
• 24:44
  Speaker 1: in what they call a people's war on coronavirus, they've
• 24:48
  Speaker 1: now opened up a propaganda war with disinformation, which of
• 24:53
  Speaker 1: course is a specialty UM you know of of the
• 24:57
  Speaker 1: authorities in China. So Andy, is there any sense or
• 25:01
  Speaker 1: any guestimate that you've seen about the real extent in China? Look,
• 25:07
  Speaker 1: I think you can exaggerate this, right. I mean, you know,
• 25:12
  Speaker 1: you see we we know that Beijing is is returning
• 25:16
  Speaker 1: to life. I mean, shoppers are out and about. Um,
• 25:19
  Speaker 1: you see traffic jams on the Third Ring Road. Friends
• 25:24
  Speaker 1: of mine who own factories sourced from factories, supply factories
• 25:28
  Speaker 1: and China telling me that China is pretty much open
• 25:33
  Speaker 1: for business. I mean not, but they're certainly getting there.
• 25:37
  Speaker 1: Their problem now is not supply their problem is demanded
• 25:40
  Speaker 1: that there's nobody in the rest of the world to
• 25:42
  Speaker 1: buy the stuff coming out of these factories because you know,
• 25:45
  Speaker 1: the US and Europe are in lockdown. So I think
• 25:48
  Speaker 1: it's unlikely that China is totally faking it. And it
• 25:51
  Speaker 1: also has to be said that US data aren't brilliant either.
• 25:55
  Speaker 1: I mean, it's only in the last few days, you
• 25:58
  Speaker 1: know that we've had mass testing in the US, which
• 26:00
  Speaker 1: has enabled you know, the country to get a real
• 26:03
  Speaker 1: handle on the extent of the problem over here. And
• 26:07
  Speaker 1: also it hanging. It needs to be said that, you know,
• 26:09
  Speaker 1: in terms of preparedness, sure, the world would have been
• 26:13
  Speaker 1: far better off if the Chinese had been transparent right
• 26:16
  Speaker 1: from the beginning. But you know, um, it's it's only
• 26:20
  Speaker 1: recently that states in the United States have accepted the
• 26:24
  Speaker 1: evidence that they've been seeing in in in Italy, in
• 26:27
  Speaker 1: New York, I mean yesterday, Florida, you know, announces its
• 26:31
  Speaker 1: stay at home policy. So data globally has been problematic.
• 26:35
  Speaker 1: Politicians in the in the US, politicians and leaders in
• 26:38
  Speaker 1: China have not covered themselves in glory in this whole episode,
• 26:43
  Speaker 1: and so we are into a blame game now, trying
• 26:45
  Speaker 1: to deflect blame onto the other. Alright, this blame game,
• 26:49
  Speaker 1: I gotta be honest, this is kind of a time
• 26:52
  Speaker 1: of some catastrophic extrapolations on on behalf of the person
• 26:56
  Speaker 1: speaking right now. So I'm just going to throw this
• 26:58
  Speaker 1: out there. How much will the blame game escalate? In
• 27:01
  Speaker 1: other words, what are the consequences besides just throwing you know,
• 27:06
  Speaker 1: reports at one another and accusations. Is there some sort
• 27:09
  Speaker 1: of practical consequence either when it comes to trade tensions
• 27:14
  Speaker 1: or you know, hopefully not, but you know, military altercations
• 27:18
  Speaker 1: that could arise from the increasing blame game that we
• 27:22
  Speaker 1: see going on absolutely live, many thousands of lives will
• 27:26
  Speaker 1: be lost, um as a result of the inability of
• 27:29
  Speaker 1: China and the US to come together at this at
• 27:33
  Speaker 1: this moment to coordinate their response to coronavirus. I mean,
• 27:38
  Speaker 1: you know, I've said this before on the show, but
• 27:41
  Speaker 1: scientists in the US, researches in the US, and China
• 27:44
  Speaker 1: need to be working together on a vaccine. Um. You know,
• 27:48
  Speaker 1: they ought to be coordinating the production and the supply
• 27:52
  Speaker 1: of emergency gear which from China, and China still dominates
• 27:55
  Speaker 1: the production of face masks, ventilators and so on. Um,
• 27:59
  Speaker 1: and what's happening now? And we have had uh plane
• 28:02
  Speaker 1: loans of supplies arriving in the US from China just
• 28:06
  Speaker 1: the other day, I mean today, or yes, I believe
• 28:09
  Speaker 1: New England patriots sent a plane over there to to
• 28:11
  Speaker 1: bring back in. So it's it's happening, but it's happening
• 28:14
  Speaker 1: in an ad hoc, uncoordinated way, in some cases, in
• 28:19
  Speaker 1: clandestine way. You know, there's this there's this uh global
• 28:23
  Speaker 1: bidding war going on now. But you know between countries,
• 28:26
  Speaker 1: between nonprofits, between private enterprises, between speculators to try to
• 28:32
  Speaker 1: get their hands on you know, Chinese equipment. This needs
• 28:36
  Speaker 1: to be coordinated at a high level in the US
• 28:39
  Speaker 1: and China need to re establish a measure of trust
• 28:43
  Speaker 1: in order to make this happen. Andy's globalization dead. I
• 28:48
  Speaker 1: don't think globalization is dead, but I don't think we
• 28:52
  Speaker 1: go back to the way it was before. Um. You know,
• 28:56
  Speaker 1: it's it's it's one thing to put up borders. It's
• 28:58
  Speaker 1: relatively easy to put up board. Isn't barriers, And it's
• 29:01
  Speaker 1: much much more difficult to take them down. I think
• 29:03
  Speaker 1: we are going to see supply chains shifting out of China,
• 29:06
  Speaker 1: starting with medical equipment, as the US realizes that, you know,
• 29:11
  Speaker 1: it is incredibly vulnerable in this critical area to Chinese
• 29:14
  Speaker 1: supply chain. Interesting. Andy Brown, thank you so much for
• 29:18
  Speaker 1: joining us. We appreciate your thoughts in your perspective as always,
• 29:21
  Speaker 1: Andy Brown, editorial director for Bloomberg New Economy. And I
• 29:25
  Speaker 1: want to get that last question then or at Lisa,
• 29:27
  Speaker 1: because there's a lot of people saying that globalization is
• 29:30
  Speaker 1: it may not be dead, but uh, clearly just on
• 29:35
  Speaker 1: the on the downside, it's not what it was. It's
• 29:37
  Speaker 1: a it's a good question, it's a really important question.
• 29:40
  Speaker 1: It's when a lot of people were talking about last
• 29:42
  Speaker 1: year even saying that you're already seeing supply chains become
• 29:45
  Speaker 1: more domestic, and you have to wonder whether the coronavirus
• 29:48
  Speaker 1: and the effects will actually increase that, uh, that move
• 29:52
  Speaker 1: to domestic supply chains, given the fact that any inter
• 29:56
  Speaker 1: connection at this point is a liability, give them what
• 29:58
  Speaker 1: we're looking at. Thanks for listening to the Bloomberg P
• 30:02
  Speaker 1: and L podcast. You can subscribe and listen to interviews
• 30:04
  Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. I'm
• 30:07
  Speaker 1: Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa
• 30:10
  Speaker 1: abram Woyits. I'm on Twitter at Lisa Abramloits. One before
• 30:13
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• 30:16
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