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Structural Changes To Society Will Reshape Post-Virus Economy · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penl podcast on Paul Swing You.
0:05
Speaker 1: Along with my co host Lisa brahma Witz, 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 Penil podcast on Apple
0:15
Speaker 1: podcast or wherever you listen to podcasts, as well as
0:18
Speaker 1: at Bloomberg dot com. Two trillion dollars US stimulus package
0:22
Speaker 1: coming out that SCO's about ten of the nation's total output.
0:26
Speaker 1: The question is is it enough. Francis Donald, managing director,
0:30
Speaker 1: chief Economists and head of macro Strategy at Manual Life
0:32
Speaker 1: Investment Management, joins us to lend her thoughts. So, Francis,
0:36
Speaker 1: thanks so much for joining us. We're starting to get
0:38
Speaker 1: some initial details about this stimulus plan. What is your
0:42
Speaker 1: early read as to kind of the scope and scale
0:45
Speaker 1: of this plan. Well, like almost every data point in
0:49
Speaker 1: policy move, we get unprecedented, huge, massive, But just like
0:54
Speaker 1: every other policy we've seen from other governments, it's not
0:57
Speaker 1: going to be enough to prevent a massive dislowcation in
1:00
Speaker 1: this economy. We are still going to experience a recession
1:03
Speaker 1: what I call it compressed recession in a very short
1:06
Speaker 1: period of time. This passage is about mitigating just how
1:09
Speaker 1: bad that might be and preventing it from creating other
1:13
Speaker 1: spillovers that last an extended period of time. So for me,
1:17
Speaker 1: this doesn't really change how I think the next three
1:19
Speaker 1: months ago. It does give me more hope that by
1:21
Speaker 1: the year end we have seen a little bit more
1:24
Speaker 1: of that recovery. I'm not in V shaped recovery. I'm
1:27
Speaker 1: in U shaped recovery. I'm not sure how much the
1:29
Speaker 1: distinction matters. It's good news, it's not a savior. So
1:33
Speaker 1: a lot of people are looking ahead to initial jobless
1:35
Speaker 1: claims tomorrow. A lot of economists are just throwing up
1:38
Speaker 1: their hands and saying, we don't know. I mean, this
1:40
Speaker 1: seems unprecedented. The range of outcomes is so wide that
1:44
Speaker 1: it's very hard to make a forecast. What are you
1:46
Speaker 1: looking at? To give you some sort of compass through
1:49
Speaker 1: this period? We have to look at a lot of
1:52
Speaker 1: different alternative data sets, things I've never looked at before,
1:55
Speaker 1: like subway ridership. How many people are They're looking at
1:59
Speaker 1: open table reservations, looking at surveys that we maybe haven't
2:03
Speaker 1: seen before. This is really difficult to forecast, and there's
2:08
Speaker 1: a reason why the set through up its hands and
2:10
Speaker 1: said we're not giving you the summary of economic projections. Basically,
2:14
Speaker 1: the only way to do forecasting here is to take
2:16
Speaker 1: an economic model and break it, push through a bunch
2:20
Speaker 1: of assumptions that are based on just various scenarios, and
2:23
Speaker 1: hope it gives you some point forecast. But that is
2:26
Speaker 1: false precision. What we need to be doing now is
2:29
Speaker 1: thinking about the progression, the quarter by quarter progression, and
2:34
Speaker 1: how does anything that happened in the next three months
2:36
Speaker 1: create longer term damage. I do think we need to
2:39
Speaker 1: realize that we can't and we probably will not unwind
2:43
Speaker 1: all of the damage that we see in the next
2:45
Speaker 1: three to six months, that there are structural changes that
2:48
Speaker 1: are coming from this, and most importantly, a lot of
2:50
Speaker 1: the policies that were put in place monetary and fiscal
2:53
Speaker 1: are not going to be unwind unwounded three months. So
2:57
Speaker 1: we kind of have to distinguish here between what's going
2:59
Speaker 1: to rebound and what isn't. That conversation is so much
3:03
Speaker 1: more important than what is the GDP hit, what is
3:06
Speaker 1: initial jobs claim is going to be? So what do
3:08
Speaker 1: you think some of the structural changes might result out
3:12
Speaker 1: of this Friensis. The biggest one is if I'm opening
3:16
Speaker 1: a company right now, I'm thinking twice three times about
3:19
Speaker 1: do I want to global supply chain. We haven't just
3:22
Speaker 1: had one hit to global supply chains. The paraffs who've
3:25
Speaker 1: now had a second entirely different one. So if I'm
3:28
Speaker 1: opening a company, I'm thinking, yeah, maybe, And you have
3:31
Speaker 1: to pay for domestic labor, which is more expensive, but
3:34
Speaker 1: that's a form of insurance. I also think that we're
3:36
Speaker 1: going to get a sense that people can work remotely
3:39
Speaker 1: and do not need to travel into downtown cores. That
3:42
Speaker 1: could change housing markets, It can change the way companies operate,
3:45
Speaker 1: It can change the push towards new and better technologies
3:48
Speaker 1: for remote working. These are the types of conversation that
3:52
Speaker 1: we need to have. Um of course, the biggest one
3:54
Speaker 1: is we have now, you know, expanded the sets balance
3:58
Speaker 1: sheet to something unprecedented. We now have deficits that will
4:01
Speaker 1: blow out across the entire world. And I don't think
4:04
Speaker 1: you're going to have anyone who says we shouldn't have
4:06
Speaker 1: spent that amount of money. So even our notions of
4:09
Speaker 1: what's the appropriate rule of a central bank and how
4:12
Speaker 1: much money should government spend is going to change as well. Francis,
4:16
Speaker 1: That's exactly where I wanted to go, this idea that
4:18
Speaker 1: the deficit is now going to double to where it was.
4:21
Speaker 1: You've got helicopters dropping money, You've got the FED basically
4:24
Speaker 1: saying we'll buy whatever you want with expectations at the
4:27
Speaker 1: Fed's balance sheet, which already is at a record high
4:29
Speaker 1: now is going to at least double in the next
4:31
Speaker 1: twelve months, if not far sooner than that, to more
4:34
Speaker 1: than nine trillion dollars. At what point is this inflationary
4:38
Speaker 1: versus deflationary, So eventually that will create some inflation. And
4:45
Speaker 1: this is why I think we're seeing a steeper curve.
4:48
Speaker 1: It's why you're going to hear people say I'm a
4:50
Speaker 1: seller of the thirty year that inflation is coming. Um.
4:54
Speaker 1: This is why you're going to see people who like
4:56
Speaker 1: gold in this type of environment. But for the meantime,
4:59
Speaker 1: particularly in the next six months, we're going to have
5:01
Speaker 1: to deal with demand destruction, and in my view, that
5:04
Speaker 1: demand destruction it's going to be so much more powerful
5:07
Speaker 1: than any sort of inflationary dynamics that come from these policies.
5:11
Speaker 1: We also have a very strong US dollar, and that
5:14
Speaker 1: is a deflationary force. I don't think that strong US
5:17
Speaker 1: dollar is going to unwind significantly this year. So yes,
5:20
Speaker 1: do we need to think about inflation. Absolutely, Do we
5:24
Speaker 1: need to think about it in the next twelve months
5:25
Speaker 1: or even twenty four months, I don't think so. So.
5:29
Speaker 1: Francisk you're talking about you more of a U shaped recovery,
5:34
Speaker 1: do you? In fact? And I think that we will
5:36
Speaker 1: see a recovery in the third quarters that can be
5:37
Speaker 1: pushed out maybe more to the fourth quarter. This could
5:39
Speaker 1: be a lower for longer type of hit to the
5:42
Speaker 1: second quarter. I suspect you're going to see some seeds
5:47
Speaker 1: of the recovery by the third quarter, and by that
5:49
Speaker 1: I mean you will see shops open back up and
5:52
Speaker 1: some rehiring activity. Are we truly back online? Do we
5:56
Speaker 1: start to see an economy that even resembled where we
5:58
Speaker 1: were in January? Probably not till the fourth quarter. You know,
6:02
Speaker 1: we have a supply shock and then we have two
6:04
Speaker 1: types of demand shocks. Here. We have forced closures, which
6:07
Speaker 1: means even if you want to buy a latte at
6:09
Speaker 1: the coffee shop, you can't, And then you have this
6:11
Speaker 1: other type of demand shops, which is just confidence based,
6:14
Speaker 1: which is saying, you know, even if the store is open,
6:16
Speaker 1: I'm too afraid for my personal safety to go outside
6:19
Speaker 1: the house. Right now, a lot of these can be
6:21
Speaker 1: cleared up. Supply chains are already coming back online out
6:24
Speaker 1: of China. That's good news. You can press a button
6:27
Speaker 1: and or sign a paper and open up a segment
6:29
Speaker 1: of the economy. But it's probably going to take a
6:31
Speaker 1: little bit of time before we have people who are
6:33
Speaker 1: generally happy to go to concerts through movies. Again, that's
6:36
Speaker 1: the more of a confidence shock. Those are really difficult
6:38
Speaker 1: to forecast. But you know, just thinking it true, I
6:41
Speaker 1: don't think we're all going to be going around shaking
6:43
Speaker 1: hands by June Francis. Just real quick here, I'm wondering
6:47
Speaker 1: how much of the economy is still online that's getting discounted,
6:50
Speaker 1: basically that the American business community hasn't gone to zero
6:54
Speaker 1: as people shop online and uh and order stuff online.
6:59
Speaker 1: Yeah right, And we see a variety of different types
7:02
Speaker 1: of companies that are hiring because there's a segment of
7:05
Speaker 1: this economy that isn't just holding place, but it's going
7:07
Speaker 1: to re accelerate. And what they're seeing is just like
7:11
Speaker 1: you know, the full weakness of the economy isn't going
7:13
Speaker 1: to redown. I suspect the strength in those particular industries,
7:16
Speaker 1: everything from telecom to online shopping. They're not going to
7:20
Speaker 1: lose all of this stump either as we continue to
7:22
Speaker 1: have the structural shift. So certainly we're going to see
7:25
Speaker 1: some front loading activity in March. Wash grocery store sales
7:28
Speaker 1: for March, they're gonna be through the roof, um, but
7:31
Speaker 1: it's going to be substantially offset by the significant amount
7:34
Speaker 1: of downward pressure we have from small businesses, restaurants, job losses, um.
7:39
Speaker 1: Those are going to significantly outweigh Francis Donald. Thank you
7:42
Speaker 1: so much for being with us. Frances Donald, chief economists
7:45
Speaker 1: and head of macroeconomic strategy for MANU Life Asset Management.
7:49
Speaker 1: Joining us on the phone from Toronto really interesting to
7:52
Speaker 1: try to forecast what the society might look like on
7:56
Speaker 1: the other side of this. We don't know how long
7:58
Speaker 1: it's gonna be, Paul, but they're us seem to be
8:00
Speaker 1: a feeling things are going to be very different in
8:02
Speaker 1: certain ways at least. Yeah, absolutely, and again her economic
8:06
Speaker 1: outlook more of a U shaped recovery than some of
8:09
Speaker 1: the V shaped recoveries. That we've seen come out of
8:11
Speaker 1: Wall Street. Over the last three or four days, we've
8:16
Speaker 1: been hearing consistently about some of the growing strains on
8:20
Speaker 1: the health care system, particularly in New York City and
8:24
Speaker 1: Javit Center being outfitted with hundreds of beds in order
8:27
Speaker 1: to accommodate the influx of expected patients. Joining us now
8:31
Speaker 1: someone with a lot of experience planning and existing within
8:34
Speaker 1: this type of ecosystem. Dr Lena When, emergency physician as
8:38
Speaker 1: well as a public health professor towards Washington University previously
8:42
Speaker 1: serving as Baltimore as Health Commissioner. Dr When, thank you
8:45
Speaker 1: so much for being with us. I want to just
8:48
Speaker 1: get a sense of a state of play. How close
8:50
Speaker 1: are we in New York City and some of the
8:53
Speaker 1: other epicenters to a an Italy type situation where we
8:57
Speaker 1: end up with just hundreds of people dying a day. Well,
9:02
Speaker 1: if you talk to any of our frontline healthcare providers
9:07
Speaker 1: in New York and in other epicenters around the country,
9:10
Speaker 1: they will say that we are already at this breaking point.
9:15
Speaker 1: We are already seeing our hospital system stretched to capacity.
9:20
Speaker 1: And what's extremely worrisome is that our healthcare providers for
9:24
Speaker 1: on the front lines don't even have the basic equipment
9:28
Speaker 1: that they need in order to protect themselves, which frankly
9:31
Speaker 1: is something that I never thought we would see in
9:34
Speaker 1: this country. I mean, it was just two months ago
9:36
Speaker 1: that we saw the images emerging from China of nurses
9:39
Speaker 1: who had to reuse their masks for several days at
9:42
Speaker 1: a time, doctors whom had to fashion their own gowns
9:47
Speaker 1: out of garbage bags. And now we're seeing this playing
9:50
Speaker 1: out all over the country. First we're ratcheting masks, then
9:54
Speaker 1: we're going to run out of doctors, and then we're
9:56
Speaker 1: also going to run out of hospital beds and I
9:59
Speaker 1: see you bed and other critical capabilities that will keep
10:02
Speaker 1: patients alive. I mean, I hate to present this dire picture,
10:06
Speaker 1: but this is what's happening in our country due to
10:08
Speaker 1: lack of preparedness. But all is not lost. We do
10:12
Speaker 1: have an opportunity to ramp up production dramatically in this
10:16
Speaker 1: country through a coordinated national effort, and we need everyone
10:20
Speaker 1: to continue to do their part to do social distancing
10:24
Speaker 1: and other measures that can reduce the rate of transmission
10:27
Speaker 1: in these epicenters, but as critically in other parts of
10:31
Speaker 1: the country, to to prevent every part of our country
10:34
Speaker 1: from turning into the China and Italy scenario that we
10:39
Speaker 1: have seen playing out so dr when there has been
10:42
Speaker 1: some growing discussion over the last week or so that
10:44
Speaker 1: perhaps it's time to think about getting in the country
10:47
Speaker 1: quote unquote back to work and perhaps kind of open
10:50
Speaker 1: up the economy somewhat. From your perspective on the healthcare side,
10:54
Speaker 1: how do you view that? I mean, I understand the
10:57
Speaker 1: desire to get back to normal, because frankly, right now
11:01
Speaker 1: life is not normal at all. It's not imaginable compared
11:04
Speaker 1: to where we were a month ago or two months ago.
11:08
Speaker 1: But we also have to look at the reality of
11:10
Speaker 1: where things are. We can't navigate based on our wish list.
11:13
Speaker 1: We have to navigate based on the reality and what
11:16
Speaker 1: the reality is that we have this urgent need to
11:19
Speaker 1: stabilize our health care system. We have an urgent need
11:22
Speaker 1: to ramp up testing because unless we do that, we
11:24
Speaker 1: have no idea of where we actually are. We have
11:27
Speaker 1: case counts every day of the number of people who
11:29
Speaker 1: are infected, but we don't know how accurate these counts are.
11:33
Speaker 1: In fact, basically every public health expert I know thinks
11:36
Speaker 1: that these counts are far off because we just don't
11:39
Speaker 1: have the testing capability to understand what's happening in our country.
11:43
Speaker 1: So unless we can shore up our health care system,
11:46
Speaker 1: unless we can get real data about what's going on,
11:49
Speaker 1: we can't let up on really the only effective intervention
11:53
Speaker 1: that we have at this time, which is social distancing.
11:56
Speaker 1: I wish that this were not the case. Don't get
11:58
Speaker 1: me wrong. I wish that we had testing up and running.
12:00
Speaker 1: I wish that our hospitals were not overflowing. But given
12:03
Speaker 1: the situation that we're in, we can't let up, or
12:06
Speaker 1: else we are going to have tens of thousands of
12:09
Speaker 1: people die, maybe even more because of our own in action.
12:14
Speaker 1: Dr when I'm wondering right now, we're looking at a
12:18
Speaker 1: recommendation that anyone from New York quarantine themselves for fourteen
12:23
Speaker 1: days if they travel outside of this state. How prevalent
12:27
Speaker 1: is your estimates is the research currently is the virus
12:31
Speaker 1: in the United States beyond New York? In other words,
12:34
Speaker 1: if some of the hot spots are contained, will that
12:36
Speaker 1: be enough to sort of stave off a crisis situation
12:40
Speaker 1: the rest of the United States. It's a great question.
12:43
Speaker 1: I think the answer is that we don't know, because
12:46
Speaker 1: we don't know the true prevalence in other communities, but
12:49
Speaker 1: there's reason to believe that you can do both of
12:51
Speaker 1: these things at the same time. So mitigation efforts, meaning
12:54
Speaker 1: mitigation in these hotspot areas as well as containment in
12:58
Speaker 1: areas that probably are not yet so affected, although very
13:02
Speaker 1: likely they are much more affective than we think, but
13:05
Speaker 1: still there is a chance at that, and I think
13:07
Speaker 1: as long as there's a chance, we should be trying
13:10
Speaker 1: to do both, trying to to um do every day
13:13
Speaker 1: we can to both to the healthcare system in these
13:16
Speaker 1: hot spots and to reduce the rate of of transmission
13:19
Speaker 1: in other areas too. Dr Lena When, thank you so
13:23
Speaker 1: much for joining us. We really appreciate your learned perspective
13:26
Speaker 1: on this issue. Dr Lena When is an emergency physician
13:29
Speaker 1: and public health professor George Washington University. She previously served
13:33
Speaker 1: as Baltimore's health commissioner. So, Lisa, still, I think what
13:37
Speaker 1: we're hearing from Dr When is that, obviously we are
13:40
Speaker 1: still at the relatively critical stages here, particularly in some
13:43
Speaker 1: of the hot spots, so perhaps a little bit premature
13:47
Speaker 1: I think about opening up the economy. There was a
13:50
Speaker 1: story that caught my attention this morning about how New
13:54
Speaker 1: York hospital workers are basically foregoing tests to see whether
13:58
Speaker 1: they have the virus. If they don't have symptoms, they're
14:00
Speaker 1: being told just to come to work because a they're
14:03
Speaker 1: needed and be there aren't enough tests, and it just
14:05
Speaker 1: sort of highlights the fear felt by a lot of
14:08
Speaker 1: people currently in the healthcare system. And I will tell
14:11
Speaker 1: you personally, I've spoken to people who are nurses in
14:14
Speaker 1: this situation, and it is a frightening situation at this point,
14:18
Speaker 1: and it's expected to peak in about two weeks, so
14:21
Speaker 1: a lot of concern about whether people who could potentially
14:24
Speaker 1: be saved will be able to saved, as well as
14:27
Speaker 1: the lives of a lot of the people who are
14:28
Speaker 1: on the front lines as hospital workers. Our next guest
14:34
Speaker 1: Hans Olsa, and he'sa chief investment officer food Shary Trust
14:37
Speaker 1: company in Boston with about fourteen billion dollars under management. Hans,
14:42
Speaker 1: thanks so much for joining us. What do you make
14:44
Speaker 1: of the market performance of the last couple of days?
14:46
Speaker 1: Are just kind of forming maybe a little bit of
14:48
Speaker 1: a bottom here? Is this just a dead cat bounce? No,
14:51
Speaker 1: I think we're in the very early stages of a bottom.
14:55
Speaker 1: Formation here with the Setter reserves action being joined by
15:00
Speaker 1: the Congress's actions, I think we have the conditions now
15:04
Speaker 1: to start to put a double line underneath this episode.
15:08
Speaker 1: So I think we're in the early stages. There's definitely
15:12
Speaker 1: um some some probably shockingly difficult headlines will have to
15:16
Speaker 1: deal with in the week ahead, but most important, I
15:19
Speaker 1: think we've got the beginnings of a base being formed.
15:22
Speaker 1: You know, there's a question here how you get some
15:24
Speaker 1: conviction at a time of such lack of conviction when
15:29
Speaker 1: it comes to economic forecasts. I'd love to get your sense.
15:32
Speaker 1: How do you gain a sense of assurance behind your
15:36
Speaker 1: call that we're getting stability and it's time to perhaps
15:38
Speaker 1: buy well. I think you have to look at the
15:42
Speaker 1: credit market, because in our commercial lives, the sort of
15:45
Speaker 1: the well spring of all the activity starts with credit,
15:47
Speaker 1: right with money changing hands and the ability to get
15:51
Speaker 1: credit to to transact UH. And you know, what we've
15:55
Speaker 1: seen over the last week or so is severe dislocation.
15:58
Speaker 1: We're right out through right cross the credit landscape, and
16:02
Speaker 1: what we're starting to see now is some normalization beginning
16:05
Speaker 1: to happen in that that space, whether it be UH
16:09
Speaker 1: yield spreads on investment grade bonds or high yields starting
16:13
Speaker 1: to come down. Once that we start to get a
16:16
Speaker 1: return of normalization there, that will flow through to the
16:19
Speaker 1: equity markets, and I think they're both happening at the
16:21
Speaker 1: same time at the moment. So, Hans, one of the
16:24
Speaker 1: areas that's been a little bit troubled obviously in the
16:27
Speaker 1: credit side of the business is the mortgage markets. What's
16:30
Speaker 1: your take on what's going on there and kind of
16:31
Speaker 1: what the response has been from the FED. I think
16:34
Speaker 1: the Fed's efforts have been really good, uh in addressing
16:37
Speaker 1: the primary markets. We need to get into the secondary markets,
16:41
Speaker 1: especially in commercial back uh, commercial back mortgage paper and
16:46
Speaker 1: the like. I think there needs to be some help
16:49
Speaker 1: there on the part of the set of reserve there.
16:51
Speaker 1: They need to basically supply capital to that part of
16:54
Speaker 1: the market so that um uh, some liquidity is there
16:58
Speaker 1: and we get a sort of beginning of a return
17:01
Speaker 1: to normal trading. It's not there yet. There's still some
17:03
Speaker 1: distress sellers and liquidations occurring. But if the FED turns,
17:07
Speaker 1: it's considerable resources there that will start to tamp down
17:13
Speaker 1: as well. Hans. We're speaking with Hans Olsen, chief Investment
17:17
Speaker 1: Officer a fiduciary trust company in Boston. Hans, I'd love
17:21
Speaker 1: to get your sense of how you go about buying
17:23
Speaker 1: in this situation, given the fact that it's very hard
17:26
Speaker 1: to depend on any actual data that we've previously relied on,
17:30
Speaker 1: like earnings or estimates, to get a sense of what
17:32
Speaker 1: the financial picture is. Yeah, I think that's a two
17:36
Speaker 1: part process. One you have to sort of look through
17:38
Speaker 1: to the other side of this. So if we if
17:40
Speaker 1: we fixate on the data that we see in front
17:43
Speaker 1: of us right now, we're always two to three weeks
17:46
Speaker 1: behind the curve and uh, you know, whether it's the
17:49
Speaker 1: p M I like only actually with the p M I,
17:52
Speaker 1: some of them are just beginning to to to reflect
17:55
Speaker 1: the UH sort of the severity of the draw down.
17:58
Speaker 1: But I think if you focus through to UH and
18:00
Speaker 1: and to a recovery, when we get a return to
18:03
Speaker 1: a bit of normalcy, then I think it's just a
18:06
Speaker 1: matter of having exposure. It's really more of a beta
18:09
Speaker 1: play than it is trying to pick an individual stock
18:12
Speaker 1: here or there. Things have sold off so so systemically,
18:16
Speaker 1: and in some cases in such a disorderly way. Uh,
18:19
Speaker 1: just exposure to markets now in the base formation is
18:24
Speaker 1: I think the first step into a successful um re
18:28
Speaker 1: emergence of this from this period son for the brave
18:32
Speaker 1: of heart that are willing and able to look to
18:34
Speaker 1: the other side of this, where should they be looking? Well,
18:38
Speaker 1: I think the US is the first place. And we
18:41
Speaker 1: we have liked international names for for some time, UM,
18:45
Speaker 1: but it's hard to imagine the global economy emerging from
18:50
Speaker 1: this global slowdown, of this global crisis without the US
18:53
Speaker 1: leading the way. We tend to be the most vibrant
18:55
Speaker 1: uh and most creative economy. Uh. And you know it
18:59
Speaker 1: would it would be a break with history for US
19:02
Speaker 1: to come out of a global slowdown without the US
19:05
Speaker 1: leading the way. So I think the US is the
19:07
Speaker 1: first place to be. I think credit is beginning to
19:09
Speaker 1: look pretty interesting. Uh. I think I would go credit
19:13
Speaker 1: first and then equities second, just because credit has to
19:16
Speaker 1: recover before equities can recover. So if you have incremental
19:20
Speaker 1: money UM, splitting it between those two sectors of the
19:23
Speaker 1: capital markets would seem to me to be a good idea.
19:26
Speaker 1: All right, So we're in credit because we've seen an
19:28
Speaker 1: out performance in the past couple of days, and investment
19:30
Speaker 1: grade as a federal reserve backstops that as a class,
19:34
Speaker 1: but high yield has continued to underperform as people expect
19:36
Speaker 1: the default rate to spike in the wake of the
19:39
Speaker 1: of the shutdowns. The places that we're looking at right
19:44
Speaker 1: now haven't pulled the trigger, but we're doing the work
19:48
Speaker 1: on would be levered loans those are down trading in
19:50
Speaker 1: the seventies. Now on those are applying implying default rates
19:54
Speaker 1: and recovery rates that probably won't come to pass, give
20:00
Speaker 1: and all the extraordinary efforts on the part of the
20:02
Speaker 1: Central Bank and now Congress, and then once that starts
20:06
Speaker 1: to catch a bid, I think we'll see a bit
20:08
Speaker 1: of a recovery and high yield already, though high yield
20:11
Speaker 1: oh a s is down from the peak that achieved
20:15
Speaker 1: just a couple of days ago. So Hans, it's interesting
20:19
Speaker 1: the looking out to the other side. Are there sectors
20:24
Speaker 1: in the economy that you would look at? Would you
20:26
Speaker 1: look at the ones that got really crushed, whether it
20:27
Speaker 1: be leisure or the airlines, transports, that type of thing.
20:32
Speaker 1: I think that for for us, where we would look
20:35
Speaker 1: first would be various, Like um um industrials actually is
20:40
Speaker 1: pretty good. Picking in technology, although that hasn't sold off
20:42
Speaker 1: as much energy. Some of the top names, and energy
20:45
Speaker 1: might make a lot of sense here. They have the
20:47
Speaker 1: wear with all the balance sheet, of the depth of
20:49
Speaker 1: business and the access to resources. UH. In order to
20:53
Speaker 1: lead out our way out, we start to get a
20:56
Speaker 1: bid for for energy prices, so it would be energy,
20:59
Speaker 1: it would be health there, it would be UH. Financials
21:01
Speaker 1: at some point here in the States are going to
21:03
Speaker 1: look pretty interesting. So some of the areas that have
21:05
Speaker 1: gotten hit harder. But it's but focusing really on the
21:08
Speaker 1: larger companies in that in those sectors, because those are
21:11
Speaker 1: the ones that will lead out. In an environment like this,
21:15
Speaker 1: it's hard to see how the smaller companies lead us
21:17
Speaker 1: out of this. Hans Olson, thank you so much for
21:19
Speaker 1: being with us, and take care of yourself. Hans Olsen
21:21
Speaker 1: as chief investment officer, a fiduciary trust company in Boston.
21:28
Speaker 1: Volatility markets a little bit of weak this year today
21:31
Speaker 1: after that tremendous and historic rally yesterday, was at the
21:35
Speaker 1: start of something new or just a bear market bounce.
21:39
Speaker 1: We have Aaron Dunne, co director of Value and Equity
21:42
Speaker 1: Investing and portfolio manager at Eaton Vance with us. Aaron,
21:46
Speaker 1: thanks so much for joining us. Give us your thoughts
21:49
Speaker 1: of kind of what we're seeing in the market over
21:51
Speaker 1: the last several days. Obviously tremendous volatility, but what are
21:54
Speaker 1: some of the themes you're looking at. Well, I thank you.
21:58
Speaker 1: You've gone through a couple of weeks here where you've
22:01
Speaker 1: had a lot of technical issues in the market, whether
22:03
Speaker 1: it be sort of UH leverage calls, et cetera, that
22:06
Speaker 1: are exacerbating massive moves in the market here. UM. I
22:10
Speaker 1: think more technical factors have been driving the market. What
22:14
Speaker 1: I think we're starting to see, though, is a little
22:16
Speaker 1: bit more of a an attention to fundamentals. And it's
22:20
Speaker 1: really what we're trying to uh shift, you know, to
22:23
Speaker 1: sift through for ourselves in terms of UM, how we
22:27
Speaker 1: come out on the other side of this. And you know,
22:29
Speaker 1: this is an unprecedented time. It's a downturn that many
22:32
Speaker 1: struggle to foresee, UM and so I think it's sifting
22:36
Speaker 1: through the winners and losers on the other side of this.
22:38
Speaker 1: I don't think it's gonna be UM back to business
22:41
Speaker 1: as usual in a month or two. I think there's
22:44
Speaker 1: gonna be some lasting impacts. And I think the UM
22:48
Speaker 1: the American public is probably UH at some point here
22:51
Speaker 1: We're gonna get very anxious to get out and get
22:53
Speaker 1: back to life as normal. So, um, sort of looking
22:57
Speaker 1: at that and saying, who are who are the big
22:58
Speaker 1: winners here? Uh? And maybe a little bit of a
23:01
Speaker 1: new world who are some you know that? I think
23:03
Speaker 1: we're going to struggle once we get on the other
23:05
Speaker 1: side of this, Aaron, That's exactly where I wanted to go.
23:07
Speaker 1: I was looking at some of your research ahead of this,
23:10
Speaker 1: and you were saying, don't look at the next round
23:12
Speaker 1: of earnings. It's no longer a leading indicator. Look beyond that,
23:16
Speaker 1: but it enters the realm of theory, of sort of
23:18
Speaker 1: philosophy of what will sort of be the most missed
23:21
Speaker 1: aspects of people's lives. So how do you cope out
23:24
Speaker 1: kind of handicapping the big winners on the other side
23:27
Speaker 1: when you really cannot look at the number is to
23:29
Speaker 1: determine that? Now, Yeah, I think the numbers are so
23:33
Speaker 1: in flux that you know the next quarters earnings. I
23:36
Speaker 1: mean you had basically half a quarter in the books
23:39
Speaker 1: if it's the calendar quarter earnings, and we had Nike
23:41
Speaker 1: come out today that had some excellent results driven by
23:44
Speaker 1: the rebounded Shauna and some of the online UH sales
23:48
Speaker 1: they were able to book. I think that's one differentiator
23:51
Speaker 1: for retail companies. UM. For us, we look we want
23:54
Speaker 1: to really look at because the current environments in such
23:57
Speaker 1: flux and earnings numbers are in such flows. In a
24:00
Speaker 1: company with a calendar quarter that has a call in
24:02
Speaker 1: late April, I don't know that there's a ton of
24:05
Speaker 1: informational value and what they're going to report right, they're
24:08
Speaker 1: gonna say it's really challenging. UH. We want to make
24:11
Speaker 1: sure we have liquidity to make it through. UH don't
24:14
Speaker 1: know when people are you know, really gonna go back
24:15
Speaker 1: to life as usual. So there is some fundamental look
24:19
Speaker 1: here on what liquidity looks like. And that's one thing
24:21
Speaker 1: we've also been very focused on. We like to own
24:24
Speaker 1: quality companies with with low leverage UH at eaton bands,
24:28
Speaker 1: and so we're looking at make sure our companies have
24:30
Speaker 1: plenty of liquidity to get to other side of this.
24:33
Speaker 1: And so some some things we're looking at our you know,
24:35
Speaker 1: very liquid, well capitalized retailers UM looking at derivative plays
24:40
Speaker 1: on on the other side of this, so UM, you know,
24:44
Speaker 1: maybe not owning capital intensive airlines or cruise ships. We're
24:49
Speaker 1: not really interested in going there. We're not interesting something
24:51
Speaker 1: that's gonna get a bail out. But there's some derivative
24:53
Speaker 1: plays on the other side of this that are interesting. Um,
24:56
Speaker 1: you know. I think one example one is we look
24:59
Speaker 1: at as as uh plain vanilla as this. Maybe we
25:03
Speaker 1: look at corrugated box manufacturs, right, I mean Amazon is
25:07
Speaker 1: still delivering, Um, They've announced a big increase in employee
25:11
Speaker 1: based so plays like that where you can see some
25:14
Speaker 1: fundamentals that come back much quicker. They actually go through
25:17
Speaker 1: this with smooth sailing. Stuff like that I think is
25:19
Speaker 1: extremely interesting here and looking at kind of two what
25:24
Speaker 1: layer this year when the market looks forward, what is
25:27
Speaker 1: what's normalized earnings number? Look like? That's how I think
25:30
Speaker 1: you sift through today's environment. To the other side of
25:34
Speaker 1: this is looking at what the impacts are today, but
25:37
Speaker 1: look at what the impacts are. Two is going to
25:41
Speaker 1: really embed a lot of upside in portfolios today and
25:47
Speaker 1: go along a lot of pajamas because that's what people
25:50
Speaker 1: are doing right now, exactly exactly. So Aaron as co
25:53
Speaker 1: director of Value Equity Investing, how's value done in this
25:57
Speaker 1: market route? It's been very tough, and I'll tell you why.
26:00
Speaker 1: It's I mean, I think we were looking at coming
26:02
Speaker 1: into this, you had really a couple of years where
26:04
Speaker 1: growth outperformed value massively, and that's because you had these
26:08
Speaker 1: big growth tech companies that excellent balance sheets, and so
26:12
Speaker 1: in our view, as we went through last year and
26:14
Speaker 1: in early this year, the market got very narrow in
26:17
Speaker 1: a lot of these big tech company and then look
26:18
Speaker 1: how big Apple was in the index. Look how big
26:21
Speaker 1: um some of these other companies were in the index.
26:24
Speaker 1: Um they you know, they grow so much of the
26:27
Speaker 1: upside relative to the rest of the market. The value
26:29
Speaker 1: benches tend to be very uh have much more of
26:32
Speaker 1: a cyclical grouping. And that's happened over the last couple
26:35
Speaker 1: of years is energies falling more into value. You know,
26:38
Speaker 1: materials have fallen more industrials, So the value bench tends
26:41
Speaker 1: to be very um more a little more cyclical. Now
26:44
Speaker 1: have let's have more exposure to defensive groups like utilities, reads,
26:48
Speaker 1: et cetera. So if you look at performance of values,
26:50
Speaker 1: say versus growth, if that's your comparison, values and performed
26:54
Speaker 1: growth quite a bit um. But I also think that's
26:58
Speaker 1: the opportunity here is a lot of these spaces that
27:00
Speaker 1: have really been um decimated. Have the opportunity to sort of,
27:04
Speaker 1: uh to rebound the most on the other side of this,
27:06
Speaker 1: as we get a little more visibility and the cyclical
27:09
Speaker 1: work every here. Aaron Done, thank you so much for
27:12
Speaker 1: being with us. Take care of yourself and your family.
27:15
Speaker 1: Aaron Done, co director of Value Equity Investing in portfolio
27:18
Speaker 1: manager at Eaton Advance. Talking about the road forward, how
27:21
Speaker 1: you even start to sort of game out what might
27:24
Speaker 1: be the other side, Paul, I mean, honestly, the concept
27:28
Speaker 1: of even collective working and the concept of exercise. I mean,
27:32
Speaker 1: you just have to wonder how much we'll go back
27:34
Speaker 1: to the same versus be fundamentally changed. Yeah, it's really
27:38
Speaker 1: it's gonna be interesting to see how we all come
27:40
Speaker 1: out on the other side of this. Thanks for listening
27:44
Speaker 1: to the Bloomberg P and L podcast. You can subscribe
27:46
Speaker 1: and listen to interviews at Apple Podcasts or whatever podcast
27:49
Speaker 1: platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.
27:52
Speaker 1: I'm Lisa abram Woids. I'm on Twitter at Lisa A.
27:55
Speaker 1: Bramwoit's one before the podcast. You can always catch us
27:58
Speaker 1: worldwide on Bloomberg Radio three.