Latest / Bloomberg Intelligence / Fed Cannot Cross Red, Dark Line To Support Junk Debt: Booth

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Fed Cannot Cross Red, Dark Line To Support Junk Debt: Booth · 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 wits. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
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  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
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  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:18
  Speaker 1: that Bloomberg dot com. How far is the Federals are
• 0:21
  Speaker 1: willing to go and its average to support the market?
• 0:24
  Speaker 1: What more can and will it do? And Paul, one
• 0:28
  Speaker 1: area where people are looking at is could the Federal
• 0:31
  Speaker 1: Reserve expand its bond purchasing program beyond investment grade debt
• 0:35
  Speaker 1: to include some junk rated debt? And it raises some
• 0:39
  Speaker 1: serious questions about moral hazard as well as just credit risk. Yeah,
• 0:43
  Speaker 1: it's interesting. Remember we had Iver Jersey from Bloomberg Intelligence
• 0:46
  Speaker 1: on I would say more than a week ago, where
• 0:48
  Speaker 1: he was the first one to kind of just said, uh,
• 0:50
  Speaker 1: they just think could double too close to ten billion dollars.
• 0:53
  Speaker 1: And then I've heard that number echoed by others as well. Yeah,
• 0:56
  Speaker 1: echoed and then expanded upon with some saying it could
• 0:59
  Speaker 1: reach twelve million dollars in the not so distant of future.
• 1:03
  Speaker 1: One person who has been tracking all of this very
• 1:06
  Speaker 1: closely and has the inside view when you talk about
• 1:10
  Speaker 1: working at the at the Federal Reserve, is Daniel de
• 1:13
  Speaker 1: Martino Booth, who joins us now. She did work for
• 1:17
  Speaker 1: the Dallas Federal Reserve and currently has her own firm
• 1:20
  Speaker 1: where she analyzes all things credit and beyond. And I'm
• 1:24
  Speaker 1: just wondering, given the fact that Daniel de Martino Booth
• 1:28
  Speaker 1: CEO of of of Quill Intelligence, what's your perspective in
• 1:32
  Speaker 1: terms of what more the Federal Reserve can do? Well?
• 1:36
  Speaker 1: I think right now, this guy's the limit went back
• 1:40
  Speaker 1: during the financial crisis when I was inside the FED,
• 1:42
  Speaker 1: the purchase of corporate bonds was debated and and and
• 1:47
  Speaker 1: refute it. It was decided at the time that that
• 1:49
  Speaker 1: was crossing the line, and and in fact, I think
• 1:53
  Speaker 1: DoD Frank tried to make sure that the line was
• 1:55
  Speaker 1: never crossed again because it specifies that the FED cannot
• 1:58
  Speaker 1: extend credit to borrowers that are insolvent. But the work
• 2:03
  Speaker 1: around the bypassing of the Federal Reserve Act via a
• 2:07
  Speaker 1: special purpose vehicle at the Treasury effectively means that because
• 2:11
  Speaker 1: the loss goes to taxpayers, and because the paper doesn't
• 2:14
  Speaker 1: sit on the Fed's balance sheet, the FED can buy
• 2:16
  Speaker 1: whatever it wants. So, Danielle, so give us a sense
• 2:20
  Speaker 1: of kind of where you think, Um, what more you
• 2:23
  Speaker 1: would expect the FED to do? Here? We finally have
• 2:25
  Speaker 1: some fiscal stanleus and we can talk about that in
• 2:27
  Speaker 1: the moment. But staying with the Fed, what's what's the
• 2:30
  Speaker 1: next steps for the Fed? Well, you know, I think
• 2:33
  Speaker 1: it'll be interesting to see what we do and do
• 2:35
  Speaker 1: not hear out of today's minutes at two pm. Um.
• 2:39
  Speaker 1: You know, some people don't realize that the cares act
• 2:42
  Speaker 1: Um actually allows Jerome Powell to use his judgment to
• 2:46
  Speaker 1: determine whether or not Federal Open Market Committee meetings and
• 2:50
  Speaker 1: emergency meetings applied to the Sunshine Act, which requires divulgence
• 2:55
  Speaker 1: afterwards in the form of some for some form of minute.
• 2:58
  Speaker 1: So in that we're not going to see that the
• 3:01
  Speaker 1: minutes will or will not hint at whether the FED
• 3:04
  Speaker 1: is going to cross that investment grade to junk line.
• 3:07
  Speaker 1: And that is you've ys just put a report out
• 3:09
  Speaker 1: that was on the Bloomberg terminal. That is where everybody's
• 3:11
  Speaker 1: focus is right now. I've even gotten questions as to
• 3:14
  Speaker 1: whether or not the FED can put a time stamp
• 3:17
  Speaker 1: on fallen angels and come in after the fact, and
• 3:20
  Speaker 1: by triple B debt that has already been down graded,
• 3:24
  Speaker 1: if it if it was downgraded after March. These are
• 3:27
  Speaker 1: fascinating things running around. But if you look at one thing,
• 3:30
  Speaker 1: and that's the compression that we've seen in junk bond yield,
• 3:33
  Speaker 1: I think the market has moved on to concluding that
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  Speaker 1: the FED is actually going there next and potentially stocks
• 3:40
  Speaker 1: via e t s, as the Swiss National Bank and
• 3:43
  Speaker 1: the Bank in Japan already do. So what's the argument
• 3:45
  Speaker 1: for the federers are stepping into jump bonds here? I
• 3:49
  Speaker 1: don't think there is an argument. I think I think
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  Speaker 1: it crosses a very dark red line. I'm writing about
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  Speaker 1: this today in fact um, there's a reason that that
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  Speaker 1: dog Frank specifies that the FED cannot extend credit to
• 3:59
  Speaker 1: borrowers quote unquote bars that are insolvent. But but okay,
• 4:04
  Speaker 1: I guess on on the counter side, you could say
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  Speaker 1: the Federal Reserve is looking to prevent systemic defaults across
• 4:10
  Speaker 1: the board that could end up wiping out pensions as
• 4:14
  Speaker 1: well as insurance companies and municipalities and whoever else, and
• 4:19
  Speaker 1: that a lot of these companies would have been viable
• 4:21
  Speaker 1: if they hadn't been closed down man mandatory closed down
• 4:25
  Speaker 1: based on the government's policies. What would you say to
• 4:28
  Speaker 1: that argument. I'm certainly sympathetic to that idea, But the
• 4:33
  Speaker 1: fact of the matter is of major shops across Wall Street.
• 4:36
  Speaker 1: Morgan Stanley put it out a few weeks in fact,
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  Speaker 1: before the coronavirus outbreak hit, that of triple B bonds
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  Speaker 1: were effectively junk rated. So I think the rot has
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  Speaker 1: been in the bond market industries long before uh this
• 4:51
  Speaker 1: emergency broke out. And for that reason, and especially given
• 4:55
  Speaker 1: the sheer size of the ten trillion dollar uh US
• 4:58
  Speaker 1: corporate bond market, there's plenty that the Fed can do
• 5:01
  Speaker 1: with companies that are deemed as being viable and solvent.
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  Speaker 1: All right, Daniel, let's switch over to fiscal policy. We
• 5:09
  Speaker 1: got the two trillion dollar UH plus policy recently. That
• 5:13
  Speaker 1: looks like Congress is working on something perhaps as large
• 5:16
  Speaker 1: as another trillion dollars of fiscal stimulus. Is that enough? Well,
• 5:22
  Speaker 1: you know, right now it's a matter of chasing time.
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  Speaker 1: We don't know if it's enough because the money hasn't
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  Speaker 1: gotten into the hands of companies that are truly insolvent
• 5:31
  Speaker 1: and viable, and that would be a lot of the
• 5:32
  Speaker 1: smaller businesses that are in something of a holding pattern
• 5:36
  Speaker 1: hoping to get through the paperwork morass and get that
• 5:38
  Speaker 1: money delivered to them. So you can listen to all
• 5:41
  Speaker 1: you want at press conferences about increasing the amount of
• 5:43
  Speaker 1: funding available, but you actually have to get the cash
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  Speaker 1: in the hands of the small businesses, and I think
• 5:48
  Speaker 1: that that is what's critical at this juncture. How worried
• 5:51
  Speaker 1: are you, Danielle about an increase in consumer defaults UM.
• 5:55
  Speaker 1: I think that it depends on how long you can
• 5:59
  Speaker 1: push forbearren Stout and whether or not there's a second
• 6:02
  Speaker 1: wave of the virus even as the United States makes
• 6:06
  Speaker 1: plans to come out of this UM. So it really
• 6:09
  Speaker 1: will be a matter of how long the federal government
• 6:14
  Speaker 1: is able to provide forbearance. But that just applied to mortgages. Look,
• 6:19
  Speaker 1: we've got there are car companies that are extending thirty
• 6:22
  Speaker 1: days at a time at this point on auto loan UM.
• 6:25
  Speaker 1: There's credit card defaults that are going up. A new
• 6:28
  Speaker 1: survey out of the New York Fed stated that quite
• 6:31
  Speaker 1: a few Americans right now are are concerned that they
• 6:33
  Speaker 1: can't make it past three months without defaulting on their debts. So,
• 6:38
  Speaker 1: you know, we we entered the COVID nineteen crisis with
• 6:41
  Speaker 1: sub prime auto loan delinquencies at recessionary level. So I
• 6:46
  Speaker 1: think it's it's a bit naive to say that we're
• 6:48
  Speaker 1: not going to see um more uh more more households
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  Speaker 1: falling into arrears in the days and weeks to come,
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  Speaker 1: especially given we're seeing so much stress come out of
• 6:59
  Speaker 1: households that make more than a hundred thousand dollars. Right,
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  Speaker 1: Danielle di Martino Bouth, thank you so much for joining us.
• 7:05
  Speaker 1: We as always appreciate your thoughts and commentary. Danielle's the
• 7:09
  Speaker 1: CEO and director of Intelligence at Quill Intelligence. She's also
• 7:13
  Speaker 1: a former advisors that Dallas Dallas Feder Reservant. She is
• 7:15
  Speaker 1: a Bloomberg opinion columnists, so she is quite busy. Lisa
• 7:19
  Speaker 1: really liked her comments about you know, you know, the
• 7:22
  Speaker 1: consumer credit is going to be an issue. It's not
• 7:25
  Speaker 1: just mortgages here, We're going to see it across the
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  Speaker 1: credit spectrum. Uh And the longer people are out of work,
• 7:31
  Speaker 1: the bigger obviously the bigger the issue will be for
• 7:33
  Speaker 1: the economy. I was struck by a common idea that
• 7:38
  Speaker 1: markets are forward looking, and Paul, I'm struggling to understand
• 7:42
  Speaker 1: how markets look forward when there is no guidance and
• 7:45
  Speaker 1: when a growing number of companies are scrapping any guidance
• 7:48
  Speaker 1: or expected to do so. And this is sort of
• 7:51
  Speaker 1: one of the main conundrums. How do you invest at
• 7:53
  Speaker 1: a time of such little visibility? Joining us now as
• 7:56
  Speaker 1: Phil Orlando, somebody who always has a view and has
• 7:59
  Speaker 1: been really right repeatedly when it came to some bullish
• 8:03
  Speaker 1: calls over the past few years, chief equity market strategist
• 8:06
  Speaker 1: for Federated Hermes, joining us from Westchester, Phil, how do
• 8:11
  Speaker 1: you deal with this conundrum, the fact that we have
• 8:13
  Speaker 1: very little visibility into the future as far as corporate
• 8:15
  Speaker 1: earnings or the economy. This was a question that we
• 8:20
  Speaker 1: addressed ourselves in the early stages of this UH market
• 8:25
  Speaker 1: down thirty in in five weeks, the sharpest decline from
• 8:31
  Speaker 1: a record high to a bear market in history. And
• 8:35
  Speaker 1: UH technicals weren't making any sense, fundamentals weren't making any sense,
• 8:40
  Speaker 1: and as you said, with h forty some odd states
• 8:44
  Speaker 1: closed and with something in the neighborhood of a quarter
• 8:49
  Speaker 1: to a third of the global population sheltering in place,
• 8:53
  Speaker 1: S and P five, our companies have withdrawn guidance. So
• 8:56
  Speaker 1: what do you as an investor to do? What we
• 8:59
  Speaker 1: do it is created an alternative methodology for analyzing what
• 9:05
  Speaker 1: was going on. And not to be too simplistic about it,
• 9:08
  Speaker 1: but I call it my three legged stool. And what
• 9:11
  Speaker 1: we did is is we needed to get our hands
• 9:13
  Speaker 1: around three issues monetary policy, fiscal policy, and social policy
• 9:20
  Speaker 1: in order to gauge the trajectory of this disease and
• 9:25
  Speaker 1: what might the implications be on the economy and the
• 9:29
  Speaker 1: financial markets and and so far, I think the work
• 9:33
  Speaker 1: that we've done here has given us a sense directionally
• 9:38
  Speaker 1: how this thing is going to play out. So, Phil,
• 9:41
  Speaker 1: I'd like to go to maybe that third leg of
• 9:43
  Speaker 1: the stool that you were talking about, which is kind
• 9:45
  Speaker 1: of consumer consumer behavior. You know, we're gonna get get
• 9:49
  Speaker 1: another really brutal jobless claims number tomorrow, We're gonna get
• 9:52
  Speaker 1: incredible record unemployment here very soon. How do you think
• 9:56
  Speaker 1: the consumer and consumer behavior is going to come out
• 9:59
  Speaker 1: of this thing? On the other side, I think we're
• 10:02
  Speaker 1: gonna be fine, because what what this situation, This, as
• 10:07
  Speaker 1: disastrous as it is, is not the Great Recession of
• 10:11
  Speaker 1: oh seven oh nine or the bursting of the tech
• 10:14
  Speaker 1: bubble in O to oh three. This was a forced
• 10:18
  Speaker 1: shutdown of the economy based upon the ultimate Black swan,
• 10:22
  Speaker 1: an exogenous medical shock that we didn't do this to ourselves.
• 10:26
  Speaker 1: This just sort of happened. And so we're all doing
• 10:29
  Speaker 1: the right thing, which is, you know, locking down and
• 10:31
  Speaker 1: sheltering in place. And we did it in March, and
• 10:34
  Speaker 1: we're gonna do it in April. And if the trajectory
• 10:38
  Speaker 1: of the illness and the mortality plays out the way
• 10:41
  Speaker 1: we think it will, um, then we're going to start
• 10:44
  Speaker 1: to slowly reopen things at some point early in May.
• 10:48
  Speaker 1: And the equity market is a forward looking discounting mechanism,
• 10:53
  Speaker 1: is at least in our view, is saying, Okay, as
• 10:56
  Speaker 1: we get into the second half of this year, you've
• 10:58
  Speaker 1: got this enormous pen up demand, uh that is going
• 11:02
  Speaker 1: to start to be fulfilled. People have been depriving themselves
• 11:05
  Speaker 1: of uh, you know, Tomahawk, rib I steaks and nice
• 11:08
  Speaker 1: bottles of cabernet for a couple of months and we
• 11:11
  Speaker 1: haven't seen a show or a ball game, and and
• 11:14
  Speaker 1: we're gonna want to do something and I think the
• 11:16
  Speaker 1: consumer is going to start to come back. Um, you know,
• 11:20
  Speaker 1: illness permitting in the second half of this year. Phil,
• 11:25
  Speaker 1: it sounds like you're pretty polish. Is that accurate? That
• 11:27
  Speaker 1: is accurate. Um. As we look at the three paths
• 11:32
  Speaker 1: that this thing could take. There's the L shaped recovery
• 11:35
  Speaker 1: where you just go straight down and there's no recovery,
• 11:38
  Speaker 1: you just you're in a deep procession for a couple
• 11:40
  Speaker 1: of years. We put the probability of that at about
• 11:43
  Speaker 1: ten percent. There's the V shaped recovery where you come
• 11:46
  Speaker 1: straight down, which has happened, and then you go straight
• 11:49
  Speaker 1: back up and everything's fine after a couple of rocky months. Um,
• 11:53
  Speaker 1: we've got about a ten percent probability on that. Our
• 11:56
  Speaker 1: base case is sort of a U shaped recovery where
• 12:00
  Speaker 1: we're going to bounce around here a couple of quarters
• 12:02
  Speaker 1: of negative GDP, but then the market and the economy
• 12:06
  Speaker 1: are going to come back strong in the second half
• 12:08
  Speaker 1: of the year. But the key issue here is we've
• 12:12
  Speaker 1: got to see the trajectory of the illnesses and the
• 12:15
  Speaker 1: mortalities peak. Now our best gas based upon our analysis
• 12:20
  Speaker 1: was that that was going to happen in Holy Week,
• 12:22
  Speaker 1: and this is Holy Week, and and so and and. Frankly,
• 12:25
  Speaker 1: I gotta tell you, we're we're pleased with what we
• 12:28
  Speaker 1: think we're seeing here in the metropolitan area, which is,
• 12:32
  Speaker 1: you know, sort of the uh, the the epicenter of
• 12:35
  Speaker 1: the entire world. Yeah, just just about thirty seconds. Given
• 12:39
  Speaker 1: the fact that we're seeing statistics that nearly a third
• 12:41
  Speaker 1: of US apartment renters didn't pay any of their April rent,
• 12:45
  Speaker 1: that more than a million workers in the retail sector
• 12:47
  Speaker 1: have been furloughed, what makes you think that American consumers
• 12:51
  Speaker 1: will be in a position to spend the way they
• 12:53
  Speaker 1: did before this. Well, I think from a policy standpoint,
• 12:56
  Speaker 1: monitoring fiscal we've thrown everything at it. Uh. You look
• 13:00
  Speaker 1: at the extension of unemployment insurance, the additional six hundred
• 13:04
  Speaker 1: dollar weekly bonuses on top of of regular benefits. Uh,
• 13:10
  Speaker 1: the fact that I think landlords recognized that they're not
• 13:12
  Speaker 1: going to be collecting any rents for the next couple
• 13:14
  Speaker 1: of months. I think all of that is sort of
• 13:17
  Speaker 1: built in to to what are going to be disastrous
• 13:20
  Speaker 1: numbers March April, probably through the balance of the second quarter.
• 13:24
  Speaker 1: But I think the spirit of the American people and
• 13:26
  Speaker 1: the desire to get back in the game is going
• 13:29
  Speaker 1: to allow us to start to come back to life
• 13:31
  Speaker 1: in the second half of the year. Philorlando, thanks so
• 13:34
  Speaker 1: much for joining us. We appreciate that. We hope your
• 13:37
  Speaker 1: optimistic view proves correct. Philo Orlando, chief equity market strategist
• 13:41
  Speaker 1: for Federated Hermes about eighty nine billion dollars under management,
• 13:45
  Speaker 1: so he's certainly talking for a lot of money, joining
• 13:47
  Speaker 1: us on the phone from Westchester and Lisa. Phil has
• 13:49
  Speaker 1: always been bullish, always been optimistic. Key's you know, during
• 13:53
  Speaker 1: this bullmarket he has been absolutely spot on here. I
• 13:55
  Speaker 1: think the real question I have is, you know, has
• 13:57
  Speaker 1: consumer behavior changed or at least not just the near
• 14:01
  Speaker 1: term and maybe even the intermediate term, And how's that
• 14:03
  Speaker 1: going to affect the economy and spending habits going forward.
• 14:06
  Speaker 1: And so we'll have to see, because that's really a big,
• 14:09
  Speaker 1: big issue going forward. Part of that two trillion dollars
• 14:16
  Speaker 1: of fiscal stimulus that was approved last week includes cash
• 14:21
  Speaker 1: directly for consumers. The question is will it be enough
• 14:24
  Speaker 1: and will it arrive quickly enough for that. We turned
• 14:28
  Speaker 1: to Greg McBride. He's the chief financial analyst at bank
• 14:31
  Speaker 1: rate dot com. They did some recent survey work on that. Greg,
• 14:34
  Speaker 1: thanks so much for joining us on the phone. What
• 14:37
  Speaker 1: did your survey tell you? But it really shows how
• 14:40
  Speaker 1: badly so many Americans need this money, and I think
• 14:43
  Speaker 1: that's evident by the fact that of those that expect
• 14:47
  Speaker 1: to receive a payment say it's somewhat were very important
• 14:50
  Speaker 1: to their near term financial well being. And also when
• 14:53
  Speaker 1: we see how people plan to use that money, Uh,
• 14:57
  Speaker 1: we're going to use it for monthly bills, forty one
• 15:00
  Speaker 1: sent that they would use it for day to day essentials. Um,
• 15:03
  Speaker 1: there's some overlap there because it was you could pick
• 15:05
  Speaker 1: more than one, but I think you know, those were
• 15:08
  Speaker 1: heading shoulders above things like adding to savings and paying
• 15:12
  Speaker 1: down debt. So I think that really illustrates that even
• 15:15
  Speaker 1: those that are still working, they don't have much of
• 15:18
  Speaker 1: a cushion, and if they're concerned about the sustainability of
• 15:21
  Speaker 1: their employment or income going forward, that this is going
• 15:23
  Speaker 1: to be a valuable cushion. Greg. I was struck by
• 15:26
  Speaker 1: your report. It showed, yes, it's a cushion that's valuable,
• 15:31
  Speaker 1: but it's not nearly a big enough cushion, and The
• 15:33
  Speaker 1: study that banquet dot com did showed that thirty one
• 15:37
  Speaker 1: percent of US adults who participate receiving a stimulus check
• 15:40
  Speaker 1: believe that it would not be enough to sustain their
• 15:42
  Speaker 1: financial well being for one month. So is it going
• 15:46
  Speaker 1: to be ineffective when this money actually does get to
• 15:49
  Speaker 1: consumers given the fact that it hasn't even gotten to
• 15:51
  Speaker 1: any of them yet, was it worth it? Well, I mean,
• 15:56
  Speaker 1: I'll leave me whether it's worth it up, I think
• 15:58
  Speaker 1: that's something we can evaluate in hindsight. But you know,
• 16:00
  Speaker 1: I think for those that have been furloughed or laid off,
• 16:04
  Speaker 1: have suffered an income disruption, the timing is critical because
• 16:07
  Speaker 1: it can really bridge the gap between the last paycheck
• 16:10
  Speaker 1: and the first unemployment check. You know, a lot of
• 16:12
  Speaker 1: people are in that limbo right now. Um, And so
• 16:15
  Speaker 1: the timing I think is is you know, really really
• 16:17
  Speaker 1: important to that. But you know, it's not going to
• 16:20
  Speaker 1: be a panacea by any means. And and you know,
• 16:23
  Speaker 1: when we look at the economic fallout from this, the
• 16:25
  Speaker 1: financial pain that households feel is something that's going to
• 16:29
  Speaker 1: be with us for a long time. I mean it's
• 16:31
  Speaker 1: going to be measured in months and years, not something days.
• 16:34
  Speaker 1: And weeks, so long after the state at home orders
• 16:36
  Speaker 1: have been lifted, there's gonna be a financial hangover the
• 16:39
  Speaker 1: a lot of households are going to continue to deal
• 16:41
  Speaker 1: with for some time thereafter. So it sounds like from
• 16:44
  Speaker 1: your survey that the respondents feel like there needs to
• 16:48
  Speaker 1: be more, Is that right? Yeah, I mean, and I
• 16:52
  Speaker 1: think a lot of that is just you know, we
• 16:54
  Speaker 1: you know, we've only really kind of touched the tip
• 16:56
  Speaker 1: of the iceberg on unemployment. Ten million people have filed
• 16:59
  Speaker 1: for nemployment in the last two weeks. That's just those
• 17:02
  Speaker 1: that have been able to file. We know there are
• 17:03
  Speaker 1: more that haven't even been able to get through yet.
• 17:06
  Speaker 1: Um and you know, unfortunately, more layoffs to come. So
• 17:09
  Speaker 1: uh yeah, I think there's a recognition of that on
• 17:11
  Speaker 1: the part of consumers and even coming into this, you know,
• 17:15
  Speaker 1: there were a lot of households that you know, it
• 17:17
  Speaker 1: wouldn't take much to kind of put them off the
• 17:19
  Speaker 1: rails financially. You know, we found a forty one percent
• 17:22
  Speaker 1: of Americans. This is back in January, which seems like
• 17:24
  Speaker 1: a lifetime ago of Americans at that point could afford
• 17:28
  Speaker 1: an unplanned expense of a thousand dollars and pay for
• 17:32
  Speaker 1: it out of their savings, just so um, you know.
• 17:36
  Speaker 1: And that was at a point where unemployment was at
• 17:37
  Speaker 1: a fifty year low, and obviously things have really changed
• 17:40
  Speaker 1: dramatically since then. So, Greg, this is an interesting kind
• 17:44
  Speaker 1: of development, given the fact that the American consumer was
• 17:47
  Speaker 1: praised as being the bedrock of the recovery that we
• 17:50
  Speaker 1: saw for a decade that came crashing to a halt
• 17:53
  Speaker 1: in the past month or two. And I'm wondering going forward,
• 17:57
  Speaker 1: how able some of these consumers will be to go
• 18:00
  Speaker 1: back to their previous spending habits. I mean, we were
• 18:03
  Speaker 1: speaking with Phil Orlando earlier in the show Federated her Veys,
• 18:06
  Speaker 1: and he was saying he expects that when this all
• 18:09
  Speaker 1: does lift, everybody will want to run back to Disneyland
• 18:12
  Speaker 1: or go out and to get a big steak. Is
• 18:15
  Speaker 1: that going to be feasible given the destruction to the
• 18:17
  Speaker 1: balance sheets and a lot of households. I think they're
• 18:20
  Speaker 1: You're gonna see two different extremes. I mean, yes, there
• 18:23
  Speaker 1: are going to be those that have cabin fever. In
• 18:25
  Speaker 1: the first place, they're headed as the airport or uh,
• 18:27
  Speaker 1: you know something. They want to you know, get out
• 18:29
  Speaker 1: and kind of resume normal life and you know they're
• 18:32
  Speaker 1: they're still employed that you know, they're they were able
• 18:35
  Speaker 1: to do that, But there are going to be millions
• 18:37
  Speaker 1: that are still unemployed and or that get re employedment
• 18:41
  Speaker 1: at a lower level of income, and they're not going
• 18:44
  Speaker 1: to be able to generate the same level of spending
• 18:46
  Speaker 1: that they had in the past. And uh, you know
• 18:49
  Speaker 1: that's coming out of the last prossession. The recovery was
• 18:53
  Speaker 1: one that had a you know, very slow growth trajectory.
• 18:57
  Speaker 1: You know, depending upon how long we see elevated unemployed
• 19:00
  Speaker 1: this time around, you know, we could see something similar. So, Greg,
• 19:03
  Speaker 1: are you looking at you know, mortgage debt, credit card debt?
• 19:07
  Speaker 1: What are you looking at for as it relates to
• 19:08
  Speaker 1: the consumer, Well, you know, in terms of monthly payments,
• 19:13
  Speaker 1: because people have been able to refinance at lower rates. UM,
• 19:18
  Speaker 1: the stream on the budget in terms of monthly payments
• 19:20
  Speaker 1: as a percentage of income is some of the lowest
• 19:22
  Speaker 1: that's been in thirty five years. The actual debt is bigger,
• 19:25
  Speaker 1: but you know, people have lessened the pain of those
• 19:28
  Speaker 1: monthly payments by virtue of of low interest rates. Uh. Fortunately,
• 19:32
  Speaker 1: with widespread forbearance and payment relief options, UM there are
• 19:36
  Speaker 1: ways that people can buy themselves selves some valuable time,
• 19:40
  Speaker 1: getting a forbearance on that mortgage or the car loan,
• 19:43
  Speaker 1: you know, those big ticket items that really carve a
• 19:46
  Speaker 1: big hole out of the monthly budget, and that could
• 19:48
  Speaker 1: be critical. I mean, if if you're only seeing an
• 19:50
  Speaker 1: income disruption for a couple of months, being able to
• 19:53
  Speaker 1: get a reprieve on that mortgage or car loan for
• 19:55
  Speaker 1: a couple of months could really make a big difference.
• 19:58
  Speaker 1: And uh, you know, and being able to to sort
• 20:00
  Speaker 1: of resoom normally from a financial standpoint, you know. Once
• 20:04
  Speaker 1: we're giving me all Claire. Greg McBride, thank you so
• 20:06
  Speaker 1: much for being with us. Greg McBride, chief financial analyst
• 20:09
  Speaker 1: for Banquet dot Com. Time to check in with Bloomberg Opinion.
• 20:16
  Speaker 1: Now we're joined by opinion columnists. Take him covers all
• 20:19
  Speaker 1: things technology for Bloomberg Opinion, and we're gonna talk about Zoom.
• 20:23
  Speaker 1: Here's the stock that's just about doubled uh since the pandemic,
• 20:26
  Speaker 1: uh really crossed our desk. Here is people go more
• 20:30
  Speaker 1: and more to remote learning, but now there's some concerns
• 20:32
  Speaker 1: about security of those streams. Hey, thanks so much for
• 20:36
  Speaker 1: joining us. Give us the latest on what's going on
• 20:39
  Speaker 1: with Zoom. I know it's being sued for fraud and
• 20:42
  Speaker 1: mounting security concerns. What's going on? So I think there
• 20:46
  Speaker 1: is on legitimate cristim prisons for what they've done. Um,
• 20:50
  Speaker 1: their marketing has been overly aggressed. They've been misleading with
• 20:53
  Speaker 1: this term end end encryption, so they're getting a lot
• 20:56
  Speaker 1: of scrutiny for that. Actually used this less robust form
• 20:59
  Speaker 1: of encryption called a less security, which is used by
• 21:01
  Speaker 1: many web services like Gmail. So I think they might
• 21:04
  Speaker 1: get fined for that. So let's just take a bit
• 21:07
  Speaker 1: testep back. Zoom got a lot of interest over the
• 21:11
  Speaker 1: past few years as people thought about the possibility of
• 21:14
  Speaker 1: a greater shift to an online workplace that's been accelerated
• 21:18
  Speaker 1: by the COVID nineteen related shutdowns. Now Zoom finds itself
• 21:23
  Speaker 1: the subject of some unwanted scrutiny in addition to an
• 21:26
  Speaker 1: incredible surge and popularity. Can you just give us a
• 21:29
  Speaker 1: sense of the liability aspect of this, aside from the
• 21:32
  Speaker 1: legal areas of just you know, people moving away from
• 21:35
  Speaker 1: the platform or perhaps looking to regulate it more closely.
• 21:39
  Speaker 1: What's the latest I think, like I said, they might
• 21:43
  Speaker 1: get fined on this kind of aggressive marketing they've done.
• 21:47
  Speaker 1: But I also think some of the blame has been overblown.
• 21:50
  Speaker 1: They've been getting a lot of crissystem over this zoom
• 21:53
  Speaker 1: bombing thing, where people panters, pranksters get into these calls.
• 21:57
  Speaker 1: But I think most of that is due to people
• 22:00
  Speaker 1: not enabling these spasic security features like passwords, waiting room,
• 22:04
  Speaker 1: invitation only meetings which weren't weren't enabled by default, And
• 22:08
  Speaker 1: now Zoom has enabled these security features by default to
• 22:13
  Speaker 1: stop these things. So it's almost like if I put
• 22:16
  Speaker 1: my cell phone out there on the Internet, like I'm
• 22:19
  Speaker 1: gonna get prank calls. So Zoom A lot of the
• 22:23
  Speaker 1: users a Zoom. It was mainly used for enterprise customers
• 22:27
  Speaker 1: before this great surge over the last few weeks, and
• 22:31
  Speaker 1: I think that some of the blame might be overblown there.
• 22:34
  Speaker 1: All right, So Tay, So what can Zoom really do here?
• 22:37
  Speaker 1: I mean, is it just some new software, some new encryption?
• 22:41
  Speaker 1: What can they do? So they already said that they're
• 22:44
  Speaker 1: going to do the end to end decryption is gonna
• 22:46
  Speaker 1: take a few months. This morning they hired the former
• 22:49
  Speaker 1: security chiefs of Facebook. That's look at all the practices
• 22:52
  Speaker 1: and try to improve their software for laws, but a
• 22:55
  Speaker 1: lot of it is just educating people on how to
• 22:58
  Speaker 1: use these security features there are already there, um, and
• 23:01
  Speaker 1: they really gave Mede that mistake. They didn't see the
• 23:04
  Speaker 1: change in nature the user base from enterprises consumers over
• 23:07
  Speaker 1: the last two weeks. Now Zoom is literally the most
• 23:11
  Speaker 1: popular app on the App Store. It went from ten
• 23:13
  Speaker 1: million users December in March, so it's like more popular
• 23:18
  Speaker 1: than TikTok these days. So they really need to recognize
• 23:22
  Speaker 1: it's a different moment for them. They they really make
• 23:25
  Speaker 1: the best, easy to use, high quality software that everyone
• 23:28
  Speaker 1: wants to use, because it's so much for their competitors,
• 23:31
  Speaker 1: and they really need to realize that they have to
• 23:33
  Speaker 1: do a better marketing and education for their customers. Paul
• 23:37
  Speaker 1: I will say full disclosure. I'm having a zoom uh
• 23:41
  Speaker 1: passover sater tonight with my excited family and my nine
• 23:45
  Speaker 1: year old eight year old. I guess he still is uh.
• 23:47
  Speaker 1: He has been having Zoom calls with his friends. UM.
• 23:51
  Speaker 1: He sets up little meetings with his friends all the time.
• 23:54
  Speaker 1: I am wondering though, when it comes to an official capacity,
• 23:56
  Speaker 1: when it's not a passover sater um A good Friday
• 24:00
  Speaker 1: event with your family or if it's your eight year old.
• 24:04
  Speaker 1: Our office spaces moving more to Microsoft and some of
• 24:07
  Speaker 1: these other platforms perhaps that offer a greater degree of
• 24:10
  Speaker 1: security and perhaps have thought this through a little bit more.
• 24:13
  Speaker 1: Take so, offices are moving to Microsoft. Teams. Um, New
• 24:20
  Speaker 1: York City actually banned Zoom for the teachers over last weekend.
• 24:24
  Speaker 1: So there is a move by some to move towards
• 24:26
  Speaker 1: Microsoft and Google. But I'll say again, is that people
• 24:30
  Speaker 1: a lot of enterprises still want to use Zoom because
• 24:33
  Speaker 1: it works better. Um, there's less lagged, higher reliability. So
• 24:37
  Speaker 1: I think over the next thirty and ninety days they'll
• 24:41
  Speaker 1: get through this. They'll probably come out with better security, uh,
• 24:45
  Speaker 1: in terms of encryption. And I think actually the company
• 24:48
  Speaker 1: deserves some praise too because providing this enormously helpful service
• 24:52
  Speaker 1: that's enabling hundreds of maize of people to kind of
• 24:54
  Speaker 1: hope in these difficult circumstances. Um, it's providing a sense
• 24:58
  Speaker 1: of community and social socialization that people really need right now. So, UM,
• 25:04
  Speaker 1: they have some issues, They're going to fix those issues
• 25:07
  Speaker 1: and we'll see what happens. Take him, thanks so much
• 25:11
  Speaker 1: for joining us. Take him Bloomberg opinion technology columnists, and
• 25:15
  Speaker 1: you can find all of his work and the work
• 25:17
  Speaker 1: of all of Bloomberg Opinion on Bloomberg dot com, slash
• 25:20
  Speaker 1: opinion and on the terminal O P I n GO.
• 25:24
  Speaker 1: So you look at that chart of Zoom technologies Leasa,
• 25:27
  Speaker 1: it's just extraordinaries, just kind of puts. I mean, had
• 25:29
  Speaker 1: a great i PA, one of the good IPOs from
• 25:30
  Speaker 1: nineteen in a year where there weren't a whole lot
• 25:32
  Speaker 1: of them. And then you know, just around the kind
• 25:34
  Speaker 1: of the end of the uh, you know, it's just
• 25:36
  Speaker 1: started to really really rock it up over the last
• 25:38
  Speaker 1: several months, and it's pulled back here on some of
• 25:40
  Speaker 1: these security concerns here, but clearly, as Tay was just mentioning,
• 25:45
  Speaker 1: it's probably the best one out there, the best technology
• 25:47
  Speaker 1: out there. Well, it's easiest to use. I don't know,
• 25:50
  Speaker 1: it's been really interesting to figure out, how do you
• 25:53
  Speaker 1: have you know, video calls and conferences with your family
• 25:57
  Speaker 1: for Easter? I mean, how are you guys thinking about
• 25:59
  Speaker 1: this so or anything to people together? You know, it's
• 26:04
  Speaker 1: you know, FaceTime is for is popular, but Microsoft got
• 26:06
  Speaker 1: a product out there, but Zoom seems to have really
• 26:09
  Speaker 1: taken off and again, as Time mentioned, it's just a
• 26:11
  Speaker 1: really good, easy to use technology. Um, but they've got
• 26:14
  Speaker 1: to get that security thing right. And also, you know,
• 26:17
  Speaker 1: when you're having a family affair on one of these platforms,
• 26:20
  Speaker 1: you have to kind of have an agenda and treat
• 26:21
  Speaker 1: it like a meeting. Otherwise it's complete bedlam and everyone
• 26:24
  Speaker 1: talks at once, you don't know what's going on, and
• 26:26
  Speaker 1: everyone just sort of ends up smiling at each other
• 26:28
  Speaker 1: until it's time to say goodbye. That's something I've noticed.
• 26:32
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 26:34
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
• 26:37
  Speaker 1: or whatever podcast platform you prefer. Paul Sweeney, I'm on
• 26:40
  Speaker 1: Twitter at pt Sweeney. I'm Lisa abram Woids. I'm on
• 26:43
  Speaker 1: Twitter at Lisa A. Bramwoyd's one before the podcast, you
• 26:45
  Speaker 1: can always catch us worldwide. I'm Bloomberg Radio