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Why Stocks Are Rising While Economy Crashes: Paul Krugman · 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
• 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. When you think about the broader SMP,
• 0:22
  Speaker 1: you know, from the peak to trough when this coronavirus
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  Speaker 1: really hit the markets, we had about a thirty four
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  Speaker 1: percent decline in the SMP. The markets kind of carved
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  Speaker 1: back or clawed back about half that and for a
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  Speaker 1: lot of investors that seems a little bit unusual given
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  Speaker 1: or incongruous with the data we're seeing, the economic data,
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  Speaker 1: the jobless data, UH and the data that we're certain
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  Speaker 1: to see over the coming days, weeks, and months. To
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  Speaker 1: get a sense of kind of how that's really playing
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  Speaker 1: out in what the relationship is there between the equity
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  Speaker 1: markets and the economic environment. We welcome Paul Krugman, Distinguished
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  Speaker 1: Professor of Economics at the City University of New York.
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  Speaker 1: He's also a New York Times columnist and Nobel Laurea Paul,
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  Speaker 1: thanks so much for joining us again. A lot of
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  Speaker 1: our listeners, a lot of investors are not sure whether
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  Speaker 1: or how to square it with what's going on in
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  Speaker 1: the economy, the pain that they're seeing the economy, yet
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  Speaker 1: the stock market seems to be pretty solid. Yeah. Well,
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  Speaker 1: the first thing to say is that stock market. As
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  Speaker 1: I like to say, there are three rules about the
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  Speaker 1: stock market and the economy, which is that the stock
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  Speaker 1: market is not the economy. The stock market is not
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  Speaker 1: the economy, and the stock market economy. Um. And actually,
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  Speaker 1: beyond the fact that there's a whole lot of psychology
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  Speaker 1: in the market, and uh, all those kinds of things
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  Speaker 1: can move stocks, Um, there's the simple fact that, um,
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  Speaker 1: there there's another market that is much more closely linked
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  Speaker 1: to economic prospects, which is the bond market. The bond
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  Speaker 1: market has been telling us something very clearly. If you
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  Speaker 1: look at at long term interest rates, you see that
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  Speaker 1: that um, the ten year is falling from almost actually
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  Speaker 1: a little over three um at at the beginning of
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  Speaker 1: twenty nineteen and uh well over two percent that you know,
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  Speaker 1: not not very long ago to to you know, frash
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  Speaker 1: number percent now thirty year rates down by half since uh,
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  Speaker 1: since last fall. UM, So the bond market is signaling
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  Speaker 1: economic weakness. UM. That has a bearing on stocks because
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  Speaker 1: you know, bonds are the alternative to stocks. A stock
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  Speaker 1: is a claim on future profits, not just profits in
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  Speaker 1: the next year, profits some ways into the future. And
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  Speaker 1: if you're going to discount those future profits at a
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  Speaker 1: much lower rate because interest rates are down, uh, that's
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  Speaker 1: an upward push for stocks. So once you take two account,
• 2:43
  Speaker 1: the full and interest rates, it's not so peculiar that
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  Speaker 1: stocks are held up pretty well despite these calamitous economic numbers. Paul,
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  Speaker 1: is what I'm hearing from you support of the Fed
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  Speaker 1: bottle the idea that the lower the interest rates, the
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  Speaker 1: more people will just be pushed into stocks because the
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  Speaker 1: relative earnings that you get ultimately proved that they become
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  Speaker 1: attractive regardless of what the economy it seems to be showing. Yeah,
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  Speaker 1: I mean that's not I mean that's sort of obvious,
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  Speaker 1: right if you think about there are stocks are competing
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  Speaker 1: with with other assets, uh, and for money they you
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  Speaker 1: can't tell what a stock is worth until you tell
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  Speaker 1: me what what are the alternatives? Um? And the alternatives
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  Speaker 1: are are actually looking pretty grimply. Uh, the markets just
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  Speaker 1: saying there's there's just not much yield. Well, although you
• 3:34
  Speaker 1: say it's kind of obvious, and yet we see that
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  Speaker 1: the earnings yield is falling dramatically on stocks as they
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  Speaker 1: cut their dividends and they cut their payouts, uh just
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  Speaker 1: in general and share buybacks because they are running out
• 3:44
  Speaker 1: of money. So at what point is getting your money
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  Speaker 1: back a preferable outcome than risking it with a company
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  Speaker 1: that faces a very bleak outcome. Well, there's a Remember
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  Speaker 1: the earning deal on bonds is also very long. Now
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  Speaker 1: again it's really long term bonds. It's half what it
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  Speaker 1: was before the coronavirus hit, and so um you would expend.
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  Speaker 1: Remember also that for the value of the stock depends
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  Speaker 1: a lot on expected future uh yields, not just this year,
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  Speaker 1: but three, four or five, maybe even ten years out.
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  Speaker 1: So they it's really is not that peculiar. Um what
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  Speaker 1: the old The question is, at what point do people say,
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  Speaker 1: all of these yields are so low that I'm going
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  Speaker 1: to I'm scared and I'm just gonna go into cash. Um.
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  Speaker 1: And that's that actually was happening for a couple of
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  Speaker 1: weeks in March. We had a point there where everything froze,
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  Speaker 1: where bond prices and stock prices both fell, where UM
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  Speaker 1: where corporate bonds were selling at the deel on corporate
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  Speaker 1: bonds shot up because people were afraid of default and
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  Speaker 1: the and the stocks created UM that came to a
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  Speaker 1: pretty abrupt end UH in late March, and stops be bounded,
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  Speaker 1: making up you know, something like half the losses that
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  Speaker 1: they've experienced. But that's the story. The As long as
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  Speaker 1: people are not afraid of a real financial crisis, and
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  Speaker 1: at the moment that that fear has receded, UM, then
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  Speaker 1: it makes sense for stocks to hold up pretty well
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  Speaker 1: despite a truly ghastly real economy. Talking about the real economy, Paul,
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  Speaker 1: we've seen obviously the second quote of expectations are for
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  Speaker 1: just crushing, crushing contraction in g d P. But then
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  Speaker 1: I guess the real discussion becomes to what extent and
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  Speaker 1: over what time period will the US economy recover. We've
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  Speaker 1: had to fed very aggressive, we've had fiscal stimulus from
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  Speaker 1: Congress and more likely to come. How do you think
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  Speaker 1: the recovery plays out? I won't ask you to give
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  Speaker 1: me a letter of V or W rn L or anything.
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  Speaker 1: But how do you think this is going to play out? Actually,
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  Speaker 1: I will give you it's not a it's not a letter.
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  Speaker 1: It's a swoosh right, very step, very steep decline and
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  Speaker 1: then a climb the only which is clearly going to
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  Speaker 1: be much slower than the crash. Um and Uh, it's
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  Speaker 1: the question of how fast that rise uh is going
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  Speaker 1: to be is actually one of the hardest things. We
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  Speaker 1: we really don't have experience with this that the we Uh,
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  Speaker 1: you can tell stories that go in all directions. I
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  Speaker 1: have no confidence at all in in any prediction, including
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  Speaker 1: my own, on this. Uh. You know, on the one hand,
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  Speaker 1: there could be pent up demand, um, people raring to go.
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  Speaker 1: On the other hand, Uh, there's probably a lot of
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  Speaker 1: financial damaging taking taking place down businesses. Business can't come
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  Speaker 1: back if the business has gone under. Uh, consumers maybe
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  Speaker 1: wanting to rebuild their balance sheets after after the beating
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  Speaker 1: they've taken in at the peak of the crisis. UM.
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  Speaker 1: And we'll also the the epidemiology is how the uncertain
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  Speaker 1: You said, well, we're going to be ready to go
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  Speaker 1: back to business, are we? I mean everything I see
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  Speaker 1: so is that Um, if you take out new York,
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  Speaker 1: which had a very steep peak in cases and is
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  Speaker 1: now falling. The rest of the country things are still
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  Speaker 1: getting worse, and so your guess is really as good
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  Speaker 1: as mine. It's used to certain they can't count on
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  Speaker 1: a rampid recovery. Flying blind is the way a lot
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  Speaker 1: of analysts have put it, and that's definitely how I
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  Speaker 1: feel right now. Paul Krugman, Distinguished Professor of Economics at
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  Speaker 1: the City A University of New York, and New York
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  Speaker 1: Times columnist Nobel laureate and uh, really really helpful insights
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  Speaker 1: into this issue. Joining us on the phone from New Jersey.
• 7:33
  Speaker 1: We are expecting a truly horrific jobs data figure on
• 7:38
  Speaker 1: Friday when we get the April jobs numbers. Were expecting
• 7:42
  Speaker 1: more than twenty million jobs to have been lost, and
• 7:44
  Speaker 1: we saw a numbers similar to that this morning from
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  Speaker 1: the ADP report. It is time for Bloomberg Opinion. We
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  Speaker 1: are joined today by Bloomberg Opinion coms Tera la Chapelle.
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  Speaker 1: She covers all things on the entertainment, telecommunications and deals
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  Speaker 1: front for Bloomberg Opinion. So Tara, thanks so much for
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  Speaker 1: joining us here. We had, you know, highly anticipated numbers
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  Speaker 1: out of Disney last night, and boy, it seems like
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  Speaker 1: they're key businesses really bore the brunt of you know,
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  Speaker 1: what's happening to the US economy resulting from this pandemic.
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  Speaker 1: What kind of stood out for you as you looked
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  Speaker 1: at the results last night, Well, if you look at
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  Speaker 1: the park, the Theme parks division, they're operating income and
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  Speaker 1: just that business was down fifty eight percent. And if
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  Speaker 1: you recall, that's for the quarter ended March thirty one,
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  Speaker 1: So that was only the beginning of this crisis, which
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  Speaker 1: means this quarter is going to be a lot worse um,
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  Speaker 1: and that drove down Disney's overall net income by ninety
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  Speaker 1: one percent. So it wasn't really surprising to see that,
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  Speaker 1: given that we know so much of Disney's different businesses
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  Speaker 1: have been affected and closed because of these lockdowns, but
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  Speaker 1: it was still really just momentous to look at those
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  Speaker 1: numbers and be like, Wow, we haven't seen something like
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  Speaker 1: this from Disney for a really long time. Can you
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  Speaker 1: just talk a little little bit about the breakdown in
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  Speaker 1: terms of where Disney gets revenues, in terms of how
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  Speaker 1: much Disney Plus could actually pull with respect to revenues
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  Speaker 1: it brings in. So Disney Plus has been a bright spot,
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  Speaker 1: but when you look at the numbers, I mean they're
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  Speaker 1: not that impressive yet because you know, it's still losing money.
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  Speaker 1: It's it's nowhere near the level of these other businesses.
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  Speaker 1: Their Disney is still very dependent on their media network,
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  Speaker 1: the advertising money they get from that, their theme parks.
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  Speaker 1: Of course, they're films that get released to movie theaters,
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  Speaker 1: so they're still very much tied to that. However, you
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  Speaker 1: can see that bob Iger as he was preparing for retirement,
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  Speaker 1: was trying to set up Disney for a future where
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  Speaker 1: streaming is going to play a much bigger role. And
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  Speaker 1: they have been hoping to get to sixteed and ninety
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  Speaker 1: million subscribers globally for Disney Plus by the year. They're
• 9:48
  Speaker 1: already almost at sixty million now, so you can see that,
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  Speaker 1: you know, this is doing better than they expected. It
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  Speaker 1: can't carry the weight of Disney, but I think it
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  Speaker 1: definitely is a bright spot in something investors are at
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  Speaker 1: least like while they have this and it is the future,
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  Speaker 1: so maybe that's an opportunity there. Hey, tera did was
• 10:05
  Speaker 1: there any clarification on the call last night of what
• 10:08
  Speaker 1: Bob Eyre's role is. I mean, you know, it's been
• 10:11
  Speaker 1: an on again, off again for years about whether he was,
• 10:14
  Speaker 1: you know, when when he was gonna retire. He surprised
• 10:17
  Speaker 1: everybody by retiring a couple of months ago, kind of
• 10:19
  Speaker 1: right in front of this pandemic, which I think surprised
• 10:22
  Speaker 1: a lot of people, and Bob Speck was elevated the
• 10:25
  Speaker 1: CEO role, and then there's some announcement that Bob was
• 10:29
  Speaker 1: kind of coming back and taking more hands on roles.
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  Speaker 1: So is there any clarification last night? See didn't address
• 10:35
  Speaker 1: it head on, but I think there was kind of
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  Speaker 1: an unspoken message. When the earnings call began, Bob Iger
• 10:40
  Speaker 1: kicked it off with some introductory remarks on just how
• 10:43
  Speaker 1: he sees the business and how he's still really optimistic
• 10:45
  Speaker 1: about the future and so on. But then from there
• 10:49
  Speaker 1: the new CEO, Bob Check He handled all the questions
• 10:51
  Speaker 1: along with their chief financial officer, and we didn't really
• 10:54
  Speaker 1: hear from Igor the rest of the evening. So I
• 10:56
  Speaker 1: think that was a Disney's way of saying Check is
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  Speaker 1: the CEO. But I do think that Eiger, as executive chairman,
• 11:03
  Speaker 1: is perhaps being a little bit more hands on than
• 11:06
  Speaker 1: a chairman normally would and I think maybe his focus
• 11:09
  Speaker 1: while Chapeck is, you know, all his attention has to
• 11:11
  Speaker 1: go to the theme parks right now and getting those
• 11:13
  Speaker 1: back open. I think maybe Eiger is focusing on the
• 11:16
  Speaker 1: content side and making sure Disney Plus doesn't get thrown
• 11:20
  Speaker 1: off course by all of this. One thing I was
• 11:23
  Speaker 1: wondering about Terra the dividend. They said they were not
• 11:25
  Speaker 1: going to pay it for the second half of the year.
• 11:28
  Speaker 1: Do we have a sense of how long they will
• 11:30
  Speaker 1: suspend the dividend as the theme parks are struggling to reopen.
• 11:35
  Speaker 1: It sounded like they were going to reassess it in
• 11:38
  Speaker 1: about six months, So I think this was it wasn't
• 11:41
  Speaker 1: something they necessarily needed to do, but it just seems
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  Speaker 1: like a smart move. They're trying to conserve their money
• 11:46
  Speaker 1: right now. You know, they have lots of workers that
• 11:48
  Speaker 1: are fur allowed at the moment, but as so their
• 11:50
  Speaker 1: costs are lower than they would be. But as they
• 11:52
  Speaker 1: get these parks back up and running, they're trying to
• 11:54
  Speaker 1: figure out how many people they need to staff and
• 11:57
  Speaker 1: what the effects of that are going to be relative
• 12:00
  Speaker 1: to the lower volume of visitors that they're going to
• 12:03
  Speaker 1: be allowing in. So I think they're just going to
• 12:06
  Speaker 1: have to reassess that down the road. There's also a
• 12:09
  Speaker 1: question of executive compensation. There's been some political ire over
• 12:13
  Speaker 1: the fact that there still aren't packages incentive packages for
• 12:17
  Speaker 1: some of the top executives, even though there is this
• 12:20
  Speaker 1: absolute demolition of their balance sheet. Any word on that.
• 12:25
  Speaker 1: You know, this has been an ongoing issue for Disney
• 12:28
  Speaker 1: even before this crisis. Tiger's pay has been increasingly controversial,
• 12:33
  Speaker 1: and you know, now with them furloughing so many workers,
• 12:38
  Speaker 1: and I think this could be, you know, something that
• 12:41
  Speaker 1: makes its way back into the news again. They really
• 12:42
  Speaker 1: haven't talked much about it other than doing the same
• 12:45
  Speaker 1: things that other companies are doing with cutting you know,
• 12:47
  Speaker 1: executive pay and things like that. But you know, as
• 12:50
  Speaker 1: time wears on those employees that they had been paying
• 12:54
  Speaker 1: even though they weren't working at the park, that's going
• 12:57
  Speaker 1: to you know, they're going to stop doing that, and
• 12:59
  Speaker 1: that's to be something that becomes a little bit more
• 13:01
  Speaker 1: controversial when these executives are obviously still making lots of money.
• 13:06
  Speaker 1: Tera La Chapelle, Bloomberg Opinion Columnists, thank you so much
• 13:08
  Speaker 1: for being with us. Definitely, Paul, that's been a political
• 13:10
  Speaker 1: hot button issue, especially as the company cuts half of
• 13:15
  Speaker 1: its employees tied to the theme parks. I'm just wondering
• 13:18
  Speaker 1: what would you make of the earnings. Yeah, it's interesting,
• 13:21
  Speaker 1: kind of as expected, but just decimated. And they're gonna
• 13:24
  Speaker 1: be even worse this coming fiscal quarter because I kind
• 13:26
  Speaker 1: of a full quarter of the park shutdown and no
• 13:29
  Speaker 1: film and entertainment, and so it's gonna be tough. But
• 13:32
  Speaker 1: I think the I think what most investors are saying is,
• 13:34
  Speaker 1: you know, this is a world class brand, and when
• 13:37
  Speaker 1: we do get to the other side of this, uh,
• 13:39
  Speaker 1: this is a brand that once again start generating returns
• 13:42
  Speaker 1: for shareholders. I think that's kind of what we're seeing
• 13:44
  Speaker 1: in the stock today. It's up about three percent today,
• 13:46
  Speaker 1: but still down about year to date. Yeah, there's also
• 13:49
  Speaker 1: this idea that the entire environment is giving some wind
• 13:54
  Speaker 1: to its Disney Plus offering and making it a real
• 13:56
  Speaker 1: competitor for Netflix. So if they can hang on to
• 13:59
  Speaker 1: the subscribers, is that could be a potential boon to them.
• 14:02
  Speaker 1: On the other side of this, As we were just
• 14:07
  Speaker 1: talking about with Terry La Chappelle, Disney Plus and Netflix
• 14:10
  Speaker 1: have been some of the few bright spots in an
• 14:12
  Speaker 1: otherwise bleak time for companies and employees alike. Meanwhile, theater
• 14:15
  Speaker 1: companies like a MC are struggling to survive all this
• 14:18
  Speaker 1: leading to the question how much will the media landscape
• 14:21
  Speaker 1: change in the wake of this pandemic? Joining us now
• 14:24
  Speaker 1: someone with a front row seat to all of the
• 14:27
  Speaker 1: changes over media, which is Terry Quaja. He was former
• 14:30
  Speaker 1: global head of Media Mergers and Acquisitions at City Group
• 14:33
  Speaker 1: and Credit suitees First Boston, more than twenty years of experience.
• 14:36
  Speaker 1: Currently founder and Chief executive Officer of Luma Partners Investment
• 14:40
  Speaker 1: Banking in New York. Terry, as you surveil the landscape
• 14:45
  Speaker 1: right now that seems to be under a dramatic change,
• 14:48
  Speaker 1: what will it look like on the other side? Good morning,
• 14:52
  Speaker 1: Lakes are a great debe with you. You know we
• 14:55
  Speaker 1: have this What's going on right now is this bizarre
• 14:58
  Speaker 1: dichotomy between we normally connect time stent media with advertising opportunity,
• 15:06
  Speaker 1: and we've got this saving that has taken place because
• 15:09
  Speaker 1: here we are in COVID in lockdown, and consumers across
• 15:13
  Speaker 1: the board are consuming more media almost across every conceivable
• 15:18
  Speaker 1: uh category, more TV, more digital um uh and and
• 15:23
  Speaker 1: what's interesting is yet at the same time, advertising is down.
• 15:28
  Speaker 1: And and when I say these changes are taking place,
• 15:31
  Speaker 1: we're watching way more TV, way more digital, uh, you know,
• 15:35
  Speaker 1: spending more time on our funds, and yet advertising is
• 15:37
  Speaker 1: down thirty just in the course of the last two months.
• 15:41
  Speaker 1: So this dichotomy between time spent and and revenue from
• 15:46
  Speaker 1: advertising is pretty material. I think post COVID we have
• 15:52
  Speaker 1: to look to see what of these patterns are are
• 15:56
  Speaker 1: you know, we'll stick are more permanent than others because
• 16:00
  Speaker 1: we should presume that when things get back to normal,
• 16:02
  Speaker 1: the sort of advertising opportunity should rematch with time spent,
• 16:07
  Speaker 1: so we should get rid of that tasm. Then the
• 16:10
  Speaker 1: question is what will consumption look like? And I think, uh,
• 16:14
  Speaker 1: in large part, you can assume that the impacts of
• 16:18
  Speaker 1: COVID have been not to necessarily change our patterns permanently,
• 16:24
  Speaker 1: but rather accelerate the trends that we were previously seeing. So,
• 16:28
  Speaker 1: for example, the shift from linear television to cutting the
• 16:33
  Speaker 1: chord and watching via streaming, that will likely accelerate post COVID.
• 16:39
  Speaker 1: Um the enhanced listening of podcast the consumption of podcast
• 16:45
  Speaker 1: media will likely enhanced post COVID. And then there's a
• 16:49
  Speaker 1: two question marks uh, like around terrestrial radio. What you
• 16:54
  Speaker 1: tell me what the work from home patterns change post COVID,
• 16:59
  Speaker 1: and I'll tell you, but the implications of drive time
• 17:02
  Speaker 1: and therefore listening of terrestrial radio. So some of them
• 17:05
  Speaker 1: we know for sure are accelerance and trends that were
• 17:08
  Speaker 1: already happening pre COVID. Others are more jump ball, Terry,
• 17:12
  Speaker 1: I know you're really on the front lines and dealing
• 17:15
  Speaker 1: with a lot of the digital advertising ecosystem here the
• 17:18
  Speaker 1: buyers and sellers of digital advertising. Do you think one
• 17:21
  Speaker 1: of the trends will be maybe an acceleration of advertising
• 17:26
  Speaker 1: dollars from traditional media, whether it's broadcasting, cable, television, print
• 17:31
  Speaker 1: and so on, to the digital, to the facebooks, to
• 17:33
  Speaker 1: the Googles of the world. Is that just gonna be accelerated, Yeah,
• 17:37
  Speaker 1: no question right if we you know, at times of crisis,
• 17:42
  Speaker 1: that tends to create intellection points right on existing trends.
• 17:46
  Speaker 1: If we look back at the financial crisis ten years ago,
• 17:50
  Speaker 1: what happened was media spending. Every single category went down
• 17:55
  Speaker 1: except for one search Search ad spend went up during
• 18:01
  Speaker 1: the last recession, which is and and and that is
• 18:04
  Speaker 1: a function of the fact that advertisers retreat towards performance
• 18:09
  Speaker 1: when when times get tough, right, so UH brands spend
• 18:13
  Speaker 1: spend on you know, garnering impressions without necessarily it leading
• 18:18
  Speaker 1: to the direct sale of a product. Tends to be
• 18:20
  Speaker 1: thought of as more discretionary in nature, So when economic
• 18:24
  Speaker 1: times turned down, you sort of siphon off that some
• 18:27
  Speaker 1: of that spend, whereas what you do keep spending on
• 18:31
  Speaker 1: are the things that keep driving your business. So the
• 18:33
  Speaker 1: tighter the connection between the spend on media in advertising
• 18:37
  Speaker 1: and the results of driving actual new customers, those are
• 18:41
  Speaker 1: the channels to which you will migrate to in downtimes,
• 18:44
  Speaker 1: and those tend to be searchers. I mentioned performance ads
• 18:48
  Speaker 1: on Facebook and other similar channels. Terry. There's also a
• 18:55
  Speaker 1: question of who will remain after this crisis is over all.
• 18:58
  Speaker 1: We've seen from AMC to leaters for example, are struggling
• 19:02
  Speaker 1: UH to stay afloat as no one can go to
• 19:04
  Speaker 1: the movies and actually see them in a theater. There
• 19:07
  Speaker 1: is also a question about mergers and acquisitions. Do you
• 19:10
  Speaker 1: expect a rash of deals and consolidation in the near future.
• 19:16
  Speaker 1: So I think what this crisis does, obviously for growth
• 19:19
  Speaker 1: companies is it puts a cash constraint on You've seen
• 19:22
  Speaker 1: almost most companies, you know, cut their guidance, downsize their
• 19:26
  Speaker 1: their workforce in preparation to withstand and whether this storm,
• 19:31
  Speaker 1: because we just don't know the total extent of the
• 19:34
  Speaker 1: impact or how long it will take, but absolutely this
• 19:37
  Speaker 1: will create sellers, right, companies that need to find a home.
• 19:43
  Speaker 1: And again the continuation or perhaps acceleration of a trend
• 19:47
  Speaker 1: that we had witnessed and you we all had talked
• 19:49
  Speaker 1: about on a prior program where it's inevitable that this
• 19:54
  Speaker 1: will then cause some companies to want to sort of
• 19:57
  Speaker 1: panic is probably too strong a word, but certainly seek
• 20:00
  Speaker 1: an exit. And then on the back end of this,
• 20:04
  Speaker 1: when things come back, I think we will get in
• 20:06
  Speaker 1: whatever it is, three months, six months, nine months of
• 20:09
  Speaker 1: a deal hiatus, and I actually do believe we'll see
• 20:13
  Speaker 1: a tremendous amount of strategic activity take place. So I'm
• 20:16
  Speaker 1: actually contemplating the end of this year and into two
• 20:20
  Speaker 1: thousand twenty one as being a very active time for
• 20:22
  Speaker 1: deals in media. So Barry, we Terry, we just had
• 20:26
  Speaker 1: Disney report last night, and you know, the silver lining,
• 20:29
  Speaker 1: I guess if there was one, was the Disney plus
• 20:31
  Speaker 1: and all the streaming businesses uh doing pretty well. You know,
• 20:34
  Speaker 1: people I guess are sampling a lot. Now we're all quarantined,
• 20:37
  Speaker 1: we're sampling all the streaming products out there. How many
• 20:40
  Speaker 1: streaming services do you think will ultimately uh shake out
• 20:43
  Speaker 1: in this market? Yeah, it's a good question, Paul. I
• 20:47
  Speaker 1: think if you look at the survey data, you know,
• 20:51
  Speaker 1: people suggest that you know, sort of earns itself out
• 20:54
  Speaker 1: in and around uh three to five you know subscription services,
• 20:58
  Speaker 1: And of course it's a function of you know, what
• 21:00
  Speaker 1: what the nature of those services and how comprehensive. I
• 21:04
  Speaker 1: think of it more in terms of the total economic bundle.
• 21:08
  Speaker 1: So the are pro the average revenue per user, what
• 21:11
  Speaker 1: what the average American pays for their cable bundle is
• 21:16
  Speaker 1: approximately a hundred dollars a month. Uh. That translated into
• 21:20
  Speaker 1: a streaming world is about half of that, about fifty
• 21:24
  Speaker 1: dollars a month. So if you think of you know,
• 21:26
  Speaker 1: Netflix plus, maybe you know an HBO Mac subscription, maybe
• 21:30
  Speaker 1: you've got you know, sling, is some one of these
• 21:33
  Speaker 1: comprehensive v m v p ds to give you a
• 21:36
  Speaker 1: bundle of channels you'll all add up to in that
• 21:39
  Speaker 1: sort of range. So it's it's materially. Hey, Terry, thanks
• 21:43
  Speaker 1: so much for joining us. We really appreciate your thoughts
• 21:46
  Speaker 1: in your perspective. You're right on the front lines here
• 21:48
  Speaker 1: of the media space, the digital media space, a transformation
• 21:51
  Speaker 1: of linear media to digital media. Terry Kawasha, founder and
• 21:55
  Speaker 1: CEO of Luma Partners Investment Banking. They target that whole
• 21:59
  Speaker 1: digital media space and at least we've seen this transformational
• 22:03
  Speaker 1: shift of ad dollars from traditional media to digital and
• 22:06
  Speaker 1: and Terry and as firm er right there dealing with
• 22:08
  Speaker 1: all those companies on the front lines. We appreciate that
• 22:11
  Speaker 1: this is Bloomberg. The story Paul, that really really cried
• 22:18
  Speaker 1: out to me this morning, written by Sean Donnon and
• 22:21
  Speaker 1: Joe Doe, talking about the layoffs that we're seeing in
• 22:24
  Speaker 1: unprecedented numbers across America. There is a question are we
• 22:29
  Speaker 1: moving from a temporary wave of layoffs to something much
• 22:33
  Speaker 1: more permanent and uh and and nefarious when it comes
• 22:36
  Speaker 1: to a longer term recovery. Shaan donn and senior trade
• 22:39
  Speaker 1: reporter for Bloomberg, joining us. Now, Sean, how much have
• 22:43
  Speaker 1: you seen by way of evidence that a lot of
• 22:46
  Speaker 1: the layoffs that we're seeing right now are going to
• 22:48
  Speaker 1: be permanent. Yeah. Well, I mean the story of the
• 22:51
  Speaker 1: jobs market in the US right now is the story
• 22:53
  Speaker 1: of a lot of cases of the data that we
• 22:56
  Speaker 1: don't have, right I mean, it's it's we know that
• 22:58
  Speaker 1: these jobs numbers we're going to get on Friday are
• 23:01
  Speaker 1: going to show us that they're huge layoffs in in
• 23:04
  Speaker 1: in April, but they're not going to really answer one
• 23:06
  Speaker 1: of the key questions, which is what we set out
• 23:08
  Speaker 1: to answer here or address here, and that is how
• 23:11
  Speaker 1: many of these layoffs are temporary and how many are permanent?
• 23:16
  Speaker 1: And what we're seeing in the notices that companies are
• 23:19
  Speaker 1: filing with state authorities around the country. You can dig
• 23:23
  Speaker 1: into these what are called Warren notices and places like Ohio, Wisconsin,
• 23:27
  Speaker 1: Washington State, California, all over the place, and you read
• 23:31
  Speaker 1: those letters and more and more companies are starting to
• 23:33
  Speaker 1: use the word at least uh, at least indefinite and
• 23:39
  Speaker 1: often permanent. And that is scary for anyone who's hoping
• 23:44
  Speaker 1: for a V shaped recovery in the U S economy. So, Sean,
• 23:47
  Speaker 1: I think I'm guessing you know, when you're reporting a
• 23:50
  Speaker 1: lot of what you found is that the companies really
• 23:52
  Speaker 1: just don't know, you know, how this virus is going
• 23:55
  Speaker 1: to play out? Is there going to be a second wave?
• 23:58
  Speaker 1: I mean, are most companies that you looked at were
• 24:00
  Speaker 1: they Are they still clinging to the hope that there
• 24:03
  Speaker 1: this will be a relatively you know, yes, it will
• 24:07
  Speaker 1: be a brutal contraction in g d P in the
• 24:09
  Speaker 1: second quarter, but that in fact will be relatively brief. Look,
• 24:13
  Speaker 1: I think everyone's clinging to that hope. Uh And we've
• 24:16
  Speaker 1: seen Kevin Hassett go out there this morning and the
• 24:19
  Speaker 1: President do this a number of times, talking about the
• 24:22
  Speaker 1: possibility of a real rebound in the third quarter of
• 24:26
  Speaker 1: this year. But what you're starting to see in these
• 24:27
  Speaker 1: layoff notices this company saying I can hope, but I'm
• 24:31
  Speaker 1: looking at my order book, I'm looking at demand and
• 24:34
  Speaker 1: what I'm expecting ahead, and that looks like a much
• 24:37
  Speaker 1: slower recovery than what I'm hoping for. And therefore I'm
• 24:40
  Speaker 1: going to start cutting costs and I'm going to start
• 24:42
  Speaker 1: laying off people. And one of the companies we mentioned
• 24:45
  Speaker 1: in here is is you know, these are these are
• 24:47
  Speaker 1: not short term decisions. These are these are in some
• 24:51
  Speaker 1: cases companies that have long histories. One of the companies
• 24:55
  Speaker 1: we look at in this story is the Michigan Maple
• 24:57
  Speaker 1: Block Company, which goes back to eight teen eight one
• 25:01
  Speaker 1: in the Michigan town of Potoski, four hours north of Detroit,
• 25:05
  Speaker 1: and it is laying off and shutting down, and that
• 25:09
  Speaker 1: means fifty six workers are are done and will be
• 25:13
  Speaker 1: done by by by the end of the by the
• 25:15
  Speaker 1: early July, and that is, you know, the beginning of
• 25:18
  Speaker 1: the third quarter that that we're talking about that we're
• 25:20
  Speaker 1: hoping for that recovery. So you see those layoffs and
• 25:24
  Speaker 1: again those and those layoffs in the case of Michigan
• 25:26
  Speaker 1: Maple aren't showing up yet in the in the broader
• 25:29
  Speaker 1: economic data because they haven't happened yet. But that company
• 25:34
  Speaker 1: is shutting down and it's just saying it can't do anymore.
• 25:37
  Speaker 1: You look at the auto supply chain company. I talked
• 25:39
  Speaker 1: to al Udine, which makes lightweight aluminum chassis components. They
• 25:44
  Speaker 1: sell to all the major carmakers, and they're looking at
• 25:47
  Speaker 1: forecast for the auto market right now. Going into this crisis,
• 25:51
  Speaker 1: we were expecting the US to sell some sixteen million
• 25:54
  Speaker 1: cars this year. Now people talking about more like eleven
• 25:57
  Speaker 1: or twelve million. That's just a huge robin demand through
• 26:02
  Speaker 1: the rest of the year for this company's products, and
• 26:05
  Speaker 1: what are they doing. They're responding by laying off two
• 26:08
  Speaker 1: fifty people in Michigan and in Georgia the foundry that
• 26:11
  Speaker 1: they have there, and that those are permanent layoffs, those
• 26:15
  Speaker 1: back to work. I'm struck by the regions and the
• 26:19
  Speaker 1: industries that you keep mentioning Michigan, the rust belt in general,
• 26:23
  Speaker 1: and these are industrial companies, and I'm wondering how much
• 26:25
  Speaker 1: this is an accelerating a trend that we had seen
• 26:28
  Speaker 1: for years, frankly, which is a shift away from industrials
• 26:32
  Speaker 1: that maybe will be solidified with a much smaller industrial
• 26:36
  Speaker 1: footprint in the United States going forward. Yeah. Look, I
• 26:39
  Speaker 1: it's hard to tell where we're going to come out
• 26:41
  Speaker 1: of this, right, I mean with this is a once
• 26:44
  Speaker 1: in a not just a once in a generation, it's
• 26:46
  Speaker 1: once in the century event. And in many ways economically, uh,
• 26:50
  Speaker 1: some companies will be able to come through this and
• 26:53
  Speaker 1: and be more robust and maybe even gain market share.
• 26:56
  Speaker 1: But you look at the steel industry, You look at
• 27:00
  Speaker 1: Aluminum ALCA shutting down a big smelter out in in
• 27:04
  Speaker 1: Washington State, layoff people. You look at the auto industry. Uh,
• 27:09
  Speaker 1: and what's going to happen there. You look at coal miners.
• 27:12
  Speaker 1: One of the companies that we talked about in this
• 27:15
  Speaker 1: is runs a coal mine in Billsville, Ohio, and ten
• 27:19
  Speaker 1: people are going to be laid off there. It's hard
• 27:22
  Speaker 1: to to you know, we think oftentimes about the impact
• 27:26
  Speaker 1: on on travel or hotels and restaurants and and so
• 27:30
  Speaker 1: onto this crisis and the things that we're not going
• 27:32
  Speaker 1: to do anymore, but this is really hitting industrial America
• 27:36
  Speaker 1: and it's a major crisis for industrial Sean Donna, thanks
• 27:39
  Speaker 1: so much for joining us. Really a compelling story. You
• 27:42
  Speaker 1: and Joe Doe put out just a really interesting story
• 27:45
  Speaker 1: about the real impact that we're seeing in terms of
• 27:48
  Speaker 1: behind the employment numbers that we talked about every week.
• 27:50
  Speaker 1: Sean Donna and senior trade reporter for Bloomberg and Lisa.
• 27:53
  Speaker 1: Sean's story just kind of brings back to, you know,
• 27:55
  Speaker 1: to the flour once again, if we ever do forget
• 27:57
  Speaker 1: about it, that when we talk about these employment figures,
• 28:01
  Speaker 1: that job was claims every week that there are you know,
• 28:04
  Speaker 1: real companies, real people, real communities, you know, really being
• 28:08
  Speaker 1: impacted by what's happening as a result of this coronavirus.
• 28:11
  Speaker 1: In terms of the economic activity, yeah, I would say
• 28:13
  Speaker 1: that the political implications too are vast, considering that these
• 28:17
  Speaker 1: are some of these swing states and some of the
• 28:20
  Speaker 1: ones that were hardest hit after the last crisis and
• 28:23
  Speaker 1: look like they're at the epicenter of this one once again.
• 28:25
  Speaker 1: The exactly right as we come up to a presidential
• 28:28
  Speaker 1: election period, certainly some issues for the candidates to think
• 28:31
  Speaker 1: about is this will be front and center obviously for
• 28:34
  Speaker 1: this upcoming election, the pandemic and how elected officials have reacted.
• 28:38
  Speaker 1: This is Bloomberg. Thanks for listening to the Bloomberg P
• 28:42
  Speaker 1: and L podcast. You can subscribe and listen to interviews
• 28:44
  Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney,
• 28:48
  Speaker 1: I'm on Twitter at pt Sweeney. I'm Lisa abram Woids.
• 28:51
  Speaker 1: I'm on Twitter at Lisa A. Bramwods One. Before the podcast,
• 28:54
  Speaker 1: you can always catch us worldwide on Bloomberg Radio.