Oil Crash and Coronavirus Roil Markets

Week on iTunes, SoundCloud, or Bloomberg dot Com. You can also listen to our radio show weekdays at two pm Eastern only on Bloomberg Radio. Crude oil certainly and the energy market is Charlie just mentioned one of our big stories, oil slam by a price for both Russia and Saudi Arabia uh stood poised to flood the market with chiep crude oil. It comes at a rough time because you've got the coronavirus spurring the first contraction in demand since

two thousand nine. So we are getting squeeze certainly on the energy markets and really the overall market universe from all angles. Ellen Wald is the perfect person to talk to about the energy markets. President of Transversal Consulting, senior fellow at the Atlantic Council's Global Energy Center. She's also a Bloomberg Opinion contributor. She joins us on the phone from Jacksonville, Florida. She's also author of the book Saudi inc. On the history of a Ramco and Saudi Arabia Ellen.

What happened this weekend. What happened this weekend is that Saudi Arabia and Russia finally um caved to their differences

and parted ways. This was a rift that had been growing for some time, and you could see it in the way that Russia was never really adhering to the production cuts that it had agreed to, and then at the last OPEC meeting in December, Saudi Arabia had to promise to make It did make some really significant production cuts when Russia was essentially a great agreed to not cut its own production, and then everything could have continued to limp along, except coronavirus came and Saudi Arabia and

OPEC wanted a significant response, particularly because Saudi Arabia was feeling the pinch. In fact, it's um, it's the oil

that China was buying from. It was cut by about thirty percent, and the problem was that when they went into these negotiations, Russia knew the Saudi Abby was getting hit, and its position was basically, if you're the one that's getting hit from falling Chinese demand, then you take the brunt of these cuts, and we're not going to And Saudi Arabia has finally stood up and said no, and then they each walked out and the world is paying

quite a price for this today, and certainly the global markets. Why is that, I mean, remind us is a very basic question, but remind us why the world cares so much about the price of oil. Well, the world has to care a lot about the price of oil because the world still runs on oil. Oil production is about a hundred million barrels per day. China is a pretty big portion of that. It imports about ten million barrels of oil per day. That's about ten percent of global production.

And in the United States, we like to think about it from the perspective of where the world's largest consumer, but we're also now the world's largest user, and so we need to be thinking about this drop in oil prices is for more than just hey, low gas leam prices, but oil production is a significant component of our economy, and this is really going to hit hard in areas that we're fracking is a big part of the economy, right I do wonder what kind of shake up you know,

this will have among the US shale players or the global economy of roll. I'm assuming that some of those weaker players, they just won't be able to exist. Yeah, and that this is a particularly difficult time to have a price and production war going on between Russia and Saudi Arabia. UM, it's not unexpected. Times of high tensions can certainly lead to this. But there are players in this shale area where they were really on the margin,

have a lot of debt. We're doing through great in terms of financing, and this is going to push them over the edge right now. The upside is that if you're on the hunt to acquire so some assets, you may find a very good deal out there. The assets aren't going away. The oil is still there. Uh. The oil will still be needed, it just might not be needed in the near future. We're talking about a year

where global demand for oil may actually decline. We were already looking at basically no demand growth, but now we're looking at at an actual situation where we may see a decline, but that doesn't mean that that will continue for and so on. Ellen, how much of this is just about the oil and energy markets, and how much of this is about geopolitical relationships? And I do think about alliances either China has with the Middle East or

China has with Russia. Because China gets a boost, as you wrote in your column for Bloomberg Opinion, from these low oil prices, right, they've got to import their oil exactly. This is basically like a stimulus plan for China. Um. China is looking at a situation where, um, you know, it's it's going to have some economic problems getting getting things back going after the coronavirus stops to be a significant drain on its economy, and essentially Russia's Saudi Arabia

have handed it a stimulus plan. They said, well, you know that ten million barrels of oil you need to import every day. Um, you know, now it's going to be a lot, lot cheaper. And because before this happened, you know, we could have been in a situation where China you know, has to import a lot of food, they have to import a lot of energy. And if they were in a very bad economic situation because of the drop in trade. What were they going to choose

Now they've basically made oil a non issue. They can get their oil, and they can get it cheaply, and Saudi Arabia and Russia are going to fight over who can sellve China more oil and at cheaper prices. Ellen thirty seconds left, just debunk the hey oil is cheap, gas is cheap good for consumers argument, Well, it is good for consumers, but only if you want to go somewhere right now, and there are a lot of people who don't want to go anywhere right now, So it

is it is essentially good for consumers. But for producers this is really really bad and at a certain point, um it's being bad for producers can also make it bad for consumers. Crude oil futures right now down well, and your five worst performers in the SMP are all in the energy patch. Uh marathon down more than fifty ellen Wald, fantastic, Thank you so much for that. Context, Really the perfect way to start our show. She is the president of Transversal Consulting and also a contributor to

Bloomberg Opinion. If you want to understand this, check out her column on the Bloomberg to Day. She joined us on the phone from Jacksonville, Florida. This is Bloomberg Business Week with Carol Messer and Jason Kelly on Bloomberg Radio. All right, so we do want to talk a little bit more about what's going on in the bond market. As if we've been talking about the entire yield curve for US bonds falling below one percent for the first

time in history. This is after an all out price war between the world's biggest oil exporters triggered an unpressed sedented global bond rolling. Meantime, the fedlifted the amount of temporary cash it's willing to provide markets as pressure intensifies for the US Central Bank to tackle the risk of a worldwide credit crunch. There is so much to talk about with Lindsay Pegs a chief economy is It's Devil Financial on the phone Inch in Chicago. So Lindsay, nice

to check in with you. Recession Are we in one? Well, I don't know if we're in recession at this point, but we certainly see some of the downside risk that could potentially tip the US economy into recession. Now, remember some of the data that we're still seeing suggests that we were on relatively moderate footing, at least in hindsight

coming into the new year. The brunt of the pain, however, from the impact of the coronavirus from the abruptions to the global supply chain aren't likely to hit the data until the second quarter, so it's unlikely that we really have a true sense of what's happening to the US economy until the April or even the May data come to ruition. So it's going to be quite some time

right now. It's a lot of guessing, it's a lot of estimating, but we do see a significant slowdown in some of the key parts of the economy, which if continued, if the depth and duration of this impact extends, we very much could see a recession. Our base case scenario is one quarter of negative growth, so enough to push us in below zero percent GDP, but not enough for that technical recession. So lindsay, talk to us about the

Fed's role here. The Federal Reserve obviously not dealing with a lot of AMMO, not coming to this fight with a lot of AMMO, to say the least, What are what are they thinking about? What are they sort of turning over in their meetings. In your estimation, well, I think it is a little frustrating because when we look back going into the Great Recession, when we look back going into the two thousand and one downturn, the FED came to the table with four five d basis points

of potential support for the economy. This time around, as you mentioned, we were talking about a hundred and fifty basis points, so the FED was already providing extremely accommodative conditions. Now with the emergency move, the FED set in part that was to ensure further accommodation, but also to help boost confidence. Now, it's unlikely that with rates already so low, in additional fifty basis points is going to have a meaningful impact on boosting investment and consumption as it typically

would when the economy begins to slow. But we do think that this increased preparedness, increased commitment to UH further support the economy could help boost confidence on the margin, or at least that's the intention, helping to sort of slow these knee jerk reactions on a day to day

basis to incoming data of the coronavirus. Now, obviously today buck to that trend, but the FED is hoping that increased assistance to the marketplace will help provide a calm and help provide a floor if, however, we get to the March meeting and the FED decides to lower rates further, However, growth continues to deteriorate as we go into the second quarter. The question is what additional stimulus does the FED have left.

They can They can provide explicit forward guidance, We can move into some sort of Operation Twist program or large scale asset purchases. We also have negative interest rates which are on the table, but the FED has most often moved away from those. So we were certainly will be talking about non traditional metrics given that the FED has such very little wiggle room before we hit that lower

zero bound. How do you see the virus, lindsay, Is it is something that once we have the parameters around it and understand you know that we start to see some containment kind of get on the other side of it. When we get to that point, can we assume that we'll get a v shaped recovery or not necessarily not necessarily even if we start to have control of the virus, depending on how widespread the impact is, and how many

cases we're talking about. It may take us some time before confident comes back to the market, before people feel comfortable traveling, before people return to offices and factories. So I do think that depending on the duration on the front end, that will very much impact the recovery on the back end. The faster we can get this contained, the more likely we will see a V or even a short U shaped recovery. But the longer this takes, the more likely it is that the extended recovery period

is quite a bit longer. Alright, Lindsay pex, oh, thank you so much. Chief economists for Stephile Financial, joinius on the phone from Chicago. This is Bloomberg Business Week with Carol Masser and Jason Kelly on Bloomberg Radio. So it is the worst day since Lehman for emerging market credit spreads. Meantime, the usc'll curve inside one percent, sounding the alarm for global bond markets. UH And according to our Peter Coy, the U S may already be in a recession. That

was a story out on Friday. We talked to him about it. It was out over the weekend as well. Peter Koy Economics Center Business Week Key is on the phone in New Jersey. Mike Reagan is senior editor and lead blogger at the Bloomberg Markets Live blog in our interactive Broker studio along with Chill Weber, Editor Bloomberg Business Week. Micha, let's start with you. It's bad. Yeah, it's very bad.

I mean, looking at an almost eight percent drop in the SP five hundred right now, about seven point seven, and the energy energy industry complex just absolutely destroyed SP energy companies as a group today alone or down. That's the biggest drop for them in history. Obviously, it's all a result of what appears to be a price war going on in in the global energy industry world, with Saudi Arabia slashing prices dramatically over the weekend um and

really no bright spots in the equity market. Pretty much every industry group is down. It's it's just triggered massive risk off moves throughout the Market's really a historic day in the stock market. And and Peter, you were kind of all over this on Friday when you wrote you're calling about how the US may already be in recession. Can you bring it up to speed today? And so you feel about it today? Is it no longer may right? Well,

it's looking more and more likely. Yeah. I mean, if the chain of events is, you have markets price for perfection at the beginning of the year, and the coronavirus hits and it takes a while for people to wrap their minds around it. But one thing it does do is start to make people think that oil demand is going to be lower. So oil prices come under pressure. Russia re chooses to go along with Saudi Arabia's requests to pull back on production. So what happened now that

this is the trigger for today's carnage. The Saudi said, look, we're gonna call your bluff and we have lower production prices than you do. We're gonna step up our production, crash the price of oil, and that will force you Russia back to the table. And what's happening now is that there's enormous collateral damage from this, because first of all, it's wiping out the shale sector in the US, which cannot tolerate these low prices. A lot of these shale

companies are highly leveraged. They shouldn't be, but they are, and so they're going to be going into defaults, any any any energy credit that was a triple be minus or something you know, barely investment grade. It's going to fall out of investment grade, no longer be eligible to be owned by the uh, the firm, the funds that own only investment grade stuff. And yet there's no junk bond buyers are willing up to step up and buy.

So that's that's where the cards is coming from. All right, So Mike Reagan, uh, what are you hearing from investors? Is their real fear? Is it uncertainty? Is it all of the above? Like what are people saying as you talk to them on the street with the uncertainty? Is

just overwhelming. I mean when you see so many companies simply withdraw their earnings guidance, Uh, not reduce it or say you know, we're gonna make tem percent less than we thought, but simply say we don' know which draw completely. It's just a very unnerving thing. Uh. Liz Ane Saunders was on TV earlier saying, you know, both the p and the ear in freefall right now. So it's just

a you know, very unique and disturbing situation. I think right now, the big expectation is that the government Congress will get together and come up with some sort of massive spending package to try to stop the bleeding. That's the hope anyway. That said, you know, there's a big question of what, you know, what exactly can they do, how quickly can they get it done, Will it be enough to sort of stop this snowball from rolling down the hill that's happening in markets right now? And what's

the help that companies need? Because I feel like you've got small business which aren't in the market but maybe there were supplier to a big publicly held company. You know, you've got consumers trying to figure out, some of them who have no safety nets if they can't go to work. So I do wonder, like, what what is the right panacea from Washington that makes a difference. Well, that's the thing. I don't think there is one. I don't think there's a pantasy. I think it's just how can you sort

of stem the damage as best you can? And you're right, there's you know, it's whether it being the corporate bond market's gonna need propping up the consumer if there are sort of a lot of furloughs all of a sudden, you know, at the same time, the government has to try to stop the spread of this thing. So it's fighting sort of a war on two or three different fronts right here. Um. And you know, the market is expecting something, even if it's not enough to really stop

what we're seeing, at least to slow it down. Uh, you know, sort of get a floor under this market. But UM, well, it's just a way to see game at the moment. Do you think Pal wishes he could walk back last week's cut. I doubt it. Um. You know, I think he's going to be doing another one soon by by the next meeting, if not before. So um. I you know, there's a lot of money morning quarterback and going on about whether they should have waited. I don't think it certainly would have helped if he had

waited on that cut. Peter, that's your world economics. What are you seeing in terms of FED and FED policy? No, I I think that it was the right thing to cut then. And unfortunately, that's when you're that close to zero lower bound, you just don't have that much ammunition left. That's uh, just a feature of the economy right now, not the fault of J. Powell. Um. I would think that the FED is going to do more than just cut. It's gonna probably do a lot more forward guidance, maybe

new rounds of quantitative easing. I mean, it's gonna basically people are saying, this is not the time to keep your powder dry. This is the time to come in and and and put put all your firepower at work to help us economy. So, Joe Weber, as you put together this week's magazine, what are you seeing come in that gives you sort of a broader sense of this story. I mean, we've been pretty proactive in trying to own as many different angles at the coronavirus story as we can.

But then this weekend, I mean the thing that I think, you know, everyone was like, oh my goodness, was the oil knife fight. Effectively, I think it's a knife fight if you look at it through that lens. It's like everyone wants to get back at Texas in the US and Shale for up ending everything. But even to the point that OPEC plus unravels and you've got Russia and NBS and a knife fight now, so it just feels

like full on knife fight. And these are not people that I really want to get knife fights with, right and I think it does raise the spectr of this being a bigger geopolitical issue than just who's pumping how much oil? I mean, I think it just feels like a very tense geopolitical moment, that relationships could start to sour over this, and and we all might just be

the start of our worries. Well, and we talked at the top of how China benefits by these lower oil prices, and we do know, you know, China has certainly in terms of its alliances, We've seen it. We've been closer to the Middle East and Russia as well well. And Peter Coy at a time, just thirty seconds left, when you've got a lot of people, big voices calling for global coordination, how likely does that? See? Uh? Central banks

can coordinate for one thing. Uh If if one bank huts another dozen, than the bank in the country that doesn't cut is at a serious disadvantage because their currency starts to appreciate, their their current account evins at widens and there in their economy weekends. So for no other reason than self preservation, I think you're gonna see coordinated central bank rate cuts all right. A lot of phone calls happening around the world for sure. Thank you all

so much. Peter Koy, Economic Center for Business Week joining us on the phone. Mike Reagan from Bloomberg Markets Here in our studio alongside Joel Webber, the editor of the magazine. This is Bloomberg Business Week with Carol Masser and Jason Kelly on Bloomberg Radio. Jason, last night, when I was watching what was going on the markets, I did a shortlist of people I wanted to talk to, and this next guest was on that list. Dr Robert Schiller is

Sterling Professor of Economics at Yale University. We've been talking a lot about his recent book that was published last year, Narrative Economics, How Stories go viral and drive major economic events. He enjoins us right now on the phone. Professor Schiller, it is great to have you here. How do you see what's going on in the markets right now? Carol? I think that what's going on has an obvious connection

to certain facts that have come up. One of them, notably, is that we have a new virus that is contagious early before before it's detectable or diagnosable. So it's hard to quarantine people if you don't even know they have the disease, so it's a new problem. How do we contain this kind of epidemic. The other thing is that people are seeing how much international travel dominates uh these days. So the epidemic has You've seen these maps showing where

where it's hit, what countries it's hit. It's practically everywhere, So we have a pandemic. Those facts have sunk in and have been augmented by people's experiences of going to a grocery store and finding that all of various products are completely sold out. Uh, So they know that something is big is going on, and it's scary. It's also a situation in which people think I might even die. This is rare that it gets that bad, and so

Dr Schiller. You know, when we speak of narratives, the narrative the market today seems to be partially about the coronavirus, of course, but also about the oil market. How do you synthesize those two things into one story. How connected are they or are there just two things that are really weighing on this market? I think they're connected. People are traveling less, they're canceling international flights, so that obviously reduces the demand for oil. The oil futures market is

really related to the pipeline. We've got a lot of oil in the pipeline, so it's a relative to demand. So it's a natural connection to see that. Uh, it's maybe in a sense it's reassuring low oil prices benefit consumers. Uh, that's the plus side of this. But I don't think it cannot weigh the the panics from the from the COVID nineteen epidemic. So I think about your most recent book and Bloomberg business Week magazine has made reference to

it over the last couple of weeks. As we try to assess what's going on in this market environment, how can that potentially help us and kind of figuring out what this means for the economy going forward. We were talking about Peter Core has a story that says, well, the US may already be in a in a recession. How can that kind of help us figure out where do we go from here and how quickly we can

recover from it? Yeah, you have to. My book Narrative Economics was about the power of narratives, which are contagious like diseases. You know, I had no idea that, Uh, the coronavirus was coming when I wrote the book, but here it is, and it shows the power of contagion. Often of crises appear seemingly out of nowhere. Disease crisis, right because somebody killed a bat in China, okay ate it or something like that, because some very modest beginning

explodes into a worldwide catastrophe because of contagion. And that's that's what people are rediscovering right now. I like to talk about it in my book because we have not just disease contagion, but we have idea contagion or spread

by narratives, by talk. Most people don't talk about economics except indirectly through stories, and this the story of this epidemic and its effect on business is extremely powerful well, and it also feels like the story is so powerful in part because of the lack of information, or lack of trustworthy information. I believe this is something you've talked about. I mean that that affects the narrative ultimately, right, the the notion that we're having a hard time finding things

to really hang onto to create a cohesive narrative. The problem with the narrative is that you have to develop it's a damaging narrative like this one, you have to develop a counter narrative, something else that has to be contagious. And uh, right now we see uh contagious stories about President Trump's tweets, and that doesn't help, right. I think we need we need narratives about heroic efforts to uh

control the epidemic. So if I can just quickly ask you, just got about a minute and a half left here, recession? Are we in one? Are we headed for one? Well, we'll find out from the nd R National Duo of Economic Research and the Reset. They're slow too to announce that, but I would guess that we're about in one. Uh. People are really pulling back. Yeah. You know, remember Roosevelt in three said the only thing we have to fear is fear itself. We're seeing a lot of fear right now.

And just have about a minute left here, because the cover of Business Week magazine last week was Larry Cutlow, the you know, ultimate optimist within the White House and questioning whether or not the administration will come up with the right economic policies that are needed in this crisis. Just got about fifty seconds here. What are the right economic policies in your view, Are you concerned that Washington

misses it just quickly? Well, first of all, we need a serious response to things like the shortage of testing kits or plans for how we're going to quarantine a large number of people, right, So we need that kind of leadership rather intensely right now. On top of that, there's also opportunities for fiscal and monetary policy. Obviously, those are things that have helped in the past and they can help again. All Right, we're gonna leave it there.

Thank you so much. We really appreciate it. As Carol said, one of the voices that we really needed and wanted to hear from on a day like this. Dr Robert Schiller is the Sterling Professor of Economics at Yale University, a Nobel laureate, of course, the author of many books, most pointedly and most recently, Narrative Economics. We want to appreciate his time spot on and as he said, couldn't be more timely. This is Bloomberg Business Week with Carol

Messer and Jason Kelly on Bloomberg Radio. One of the people we've been talking a lot about this, like who do we want to talk to that can make us smarter about everything that's happening in the world. This guy is on that list for sure. He has been our sharp of sorts through us trying to trade and now certainly an understanding coronavirus it's impact so many things. Andy Brown back with this editorial director for Bloomberg New Economy

here in our Blooberg Interactor Berker Studio. So here we are. We are weeks now, a few months into this coronavirus crisis. In many ways, what have we learned? What can we learn from China? Well, first of all, thank you for that or a generous wind up. Um, Yeah, so so the lessons. I mean, this is the ultimate test of political systems, and we've all been waiting to see which system is going to perform the best. Is it the Chinese authoritarian top down model or is it the Western

liberal democratic model. And on the available evidence, it is not a toll clear that the Western democratic model has been superior in dealing with this crisis. In fact, there's quite a lot of evidence to support that the Chinese outcomes may be better. She wrote in your column this week that the Chinese have bought the rest of the world some time because of some of the steps that

they took correct. So there was a lot of skepticism, as you recall, right at the beginning of the Chinese overreacting, locking down sixty million people and then it was several hundred million people who couldn't move around the country. It turns out, actually that that measure may well have bought two to three weeks of precious time for the rest of the world to get their act together. Time I might say that in some countries has been completely squandered.

And so I want to ask you before we get too far about Taiwan, because you mentioned that when you first came into the studio, a country, a place that may have done better than expected. Right, this is a very underreported story. I mean, Taiwan was probably more at risk from the coronavirus coming out of China than any other economy in the world, and has probably start there. Okay, Number one, eight fifty thousand Taiwanese people live on the

main land. Four hundred thousand Taiwanese people work on the main land. Last year there were two point seven million Chinese visitors came over to Taiwan, I mean criss crossing kind of, right, And so you would have thought that that, you know, if any country was gonna really was going to really suffer, it would be tied. It would be Taiwan, twenty three million people. In fact, it has been least

scathed of any of Chinese neighbors. I mean, they've only had a few of Chinese neighbors, only had a few dozen cases. One combination, combination of factors. The first thing is really really key is they understood the risk. Okay, so you know, I mean this may may seem intuitive, but but when one looks at what's been happening in

the United States, is clearly not intuitive. The reason that they are not just Taiwan, but also Hong Kong and Singapore and a few other places in East Asia were able to understand the risk is because of the experience they had in the early two thousands with SAS. So they saw this right train, you know, coming towards them and jumped out of the way. The government in Taiwan reactivated the command center that they had used in insars.

They used in technology and big data very intelligently. They linked their healthcare system with their immigration databases so that they were able to screen and monitor, you know, potential carriers and you know, look, make sure that they were following quarantine directions and so on. But I think, I think, really really really important politicians and social groups set aside their differences and worked together. And this may be the biggest lesson from Taiwan, which is that you can't tackle

this coronavirus without a healthy society. Well, is there's something to be said for those nations that had to deal with stars in the past. They understand what can happen very quickly, and maybe that's where we're a little bit of a disadvantage. Right, So, so they'd seen this before and they didn't panic, right, So, you know what you've had um out of the Trump administration has been you know,

Trump is not wanting to spread panic. That's good. I mean, you don't want panic, but you have to combine that with decisive government action. And the public has to also know. And this is the other thing in Taiwan. You know, individuals need to take responsibility for their own actions in order to promote public welfare and the common good. And that has occurred more readily in societies that had been

through the trauma of sards. Well, it's interesting, I just because Bob Shiller was just on with us, and he said, you know, what's going on right now? We talked about kind of the narrative or narrative economics that you know, people know something big is going on, and there's also this fear that people understand that they can die, and so there's we're not kind of managing that well right exactly.

And you see from from the Taiwan case, where you had early intervention, smart government, decisive political action, and society that works together, you've only had I think one death and and and a few dozen infections where you might have expected literally hundreds of thousands or a substantial portion of the population. So in a sense, the Taiwan example

gives us all hope. All right, So this is a very difficult question to answer in thirty seconds, but I'm gonna ask you anyway, because you know, I guess he was like one of our great experts. What does this tell us about the New economy? You know, it tells us that, um, we often assume that our political models, are social models, are technologies are the best, and in fact, there is an awful lot that we can learn from the New Economy's ideology. Actually wasn't important necess particularly in

in the response to coronavirus. What Matt it was political decisiveness and technology. New economies are very very quick, uh, to embrace technologies and to put it good to good use. And we've seen that vividly in the coronavirus case. All right, I think he proved my point. He proved my point as amazing. All right, he's our sure. But Andy Brown, editorial director for Bloomberg New Economy here in our Bloomberg Interactive broker's studio the Journal. Yeah, but you let me drive.

Oh no, no, no, no no, honey, please, I'll do the revel I want to dry ball. Just drive baby, good question trying. This is the drive to the Globe Commune. Thanks, we'll dry us to Dawn on Bloomberg Radio. All right. We've been talking throughout the show and had tip to our producer Paul Brennan for lining this all up that these are the days where we just want to talk to the smartest people we know. It's certainly our next

guest fits that. Bill. She is Hillary Cramer, President, chief investment Officer of Angie Capital Research, also the author of Game Changer Investing, How to Profit from Tomorrow's billion dollar trends. I have a copy. It's inscribed it's lovely. She's seen our Blooberg in reactor worker studio. Hi. Hi. Alright, So here we are, as Carol Masters fund of saying, whoa, this has been quite a couple of weeks. Certainly quite

a day today. Put today in context for us, this is the day that it unwinds because you have all of these large funds that that hit that number and had to start selling. You have so many mandates out there, you have to be ten percent down down. And then on top of that, obviously there's something going on in the credit markets. When we know that for sure, um, we've seen what we call the spreads blowing out between the treasuries and especially the junk bonds. Corporate bonds have

actually held in there pretty well. The bottom line is this, uh, there's real damage being done to the economy. Okay, this is that's the that's my concern by this coronavirus. My concern are these big capital intensive projects. Is Royal Caribbean canceling two new ships that they're building, you know, is Bowing just free falling. One of my favorite companies, by the way, is Bowing free falling because they are like

desperately trying to keep UM airlines from canceling. Probably wouldn't be the military as much, but uh so that's where it's an issue. Are there going to be restaurants that are going to they are going to go into bankrupt so real damage or big damage being done to the economy are both real, but like i'd say, real damage where it might be harder to come back. That's the problem.

That's what I think is an interesting like the thing that we should be discussing, right because do we kind of get through this and hopefully sooner rather than later, and then we're like, okay, we can we can put an end to it. We understand there's less cases and so on and so forth, and then we can think about getting back to our daily lives, right and things

bounce back quickly. But I do wonder what's the point where it's not so easy to come back from exactly, that's Carol, That's exactly what I'm saying, right, So, so where do these projects get canceled? Where do companies that were on the verge of an I p O they just never get to that window again to jump through and go public? Uh? Companies that needed to do another

round of financing. The the other The other kind of interesting point though, is when it comes to the staples, the staples that I always talk about, Hormel, hr L, that spam and uh and and Skippy peanut butter. You know, I talk General Mills. You know, these are three percent plus dividend yielding companies. You know, people are still going to have their cheerios and right, and their gold medal

flower and their Hamburger helper. So we still have those companies that are going to do fine, and they're gonna come back. Anyone who has doesn't have a financing issue, that doesn't have to refinance debt, and even I'll tell you everyone's gonna be looking for at this point for the yield, right, They're gonna be looking for those dividends, which is why even though utilities are kind of expensive still, we're gonna see, We're gonna see, yeah, everyone kind of

going towards those. But you don't want to be in anything that you know has to has to refinance or that you know could have that has an ugly balance sheet. Um. At the same time, we got to think about the banks, right, like maybe you want context for today. You know, JP Morgan down twelve and it's not because Jamie Diamond had heart surgery. Okay, I mean, so what do you worry about with the banks here? Okay? So the market tells us. What everyone needs to know is that the stock market

is telling us what's going on. It always tells us and knows ahead of what we know. So something is happening in the banking sector. And it's not just this like net interest margin that we always talk about when rates go down own uh and the banks can't make as much margin, right, But there's something else happening there now and we don't necessarily know exactly what it is. Is it? And and a lot of the debt though they have, you know, they have sold off to insurance companies, endowments,

pension funds. Uh So are they at risk? So who's at risk? Oh? Well, it always comes down to the pension funds. You know. Anyone who thinks that their pension, and this is an unpopular thing to say, but that their pension is written in stone, including city employees, it's not. It's not if there just isn't the money there, And so that's what's such a shame you know, when we talk about kind of all this new money that's been created out of Silicon Valley, it's the where has it

come from? What's been financing it? And I think so many people don't realize it's coming from us, the Royal US, the royal we are putting that money in. And Hillary, Yes, the bond market and the equity markets, because I hear what you say about the equity markets. You know they're telling us something, they're leading. But I really feel like the bond market is always or credit markets are really

often out there in front. Are they telling the same story? Finally, Yes, Yes, with this, with this, with this blowing out of these uh, the blowing out of the margins between the US Treasury and and junk bonds, genre bonds are the junk bonds are looking really really bad. Now there's a headline finn saying banks may need to alter trader supervision because of the virus. And we keep talking about this about traders.

Maybe the mechanics basically of how banks do business and this, I mean, you've worked on Wall Street, Uh, you understand this as well as anyone. I mean, the day to day operations. I think it's such a fascinating element of this, right Hillary, in the sense that the financial crisis is one thing. It is a financial crisis, and there are certain things that the I can do. There's certain things

that regulators can do. Part of this is human behavior, right and changing the way people do their Okay, yes, and so what we need to think about there's there's there's two worlds. One world is we will get through this and the market will start going back up. That will happen. And anyone who's like tempted to like sell it all right now, even if we go down another ten percent, even look at another This isn't the time to be selling off because you're never gonna time it right.

You're gonna get nervous and you're gonna try to jump back in, and then we're gonna have another big draw down retracement day. This isn't Yeah, you know, maybe if you had sold three weeks ago, but that's why, you know, you really can't really can't time the market. Um. So that's that's the good news, you know that that's all coming back. Here's the bad news. Conferences. Okay, So conferences are canceled, and that's a big business. And this is

just an example. So do companies decide does Cisco, which hit a fifty two week load today to Cisco decide um to have their conference next year when they canceled it this year. I don't think so. I think that that is um. You know, these sort of boondoggles. Basically, this is going to be a good excuse and good reason for companies to say, hey, we don't need to do this anymore and to set the precedent. It's very expensive, but it always serves the interest in everyone from the

administration to sales to management. Everyone loves these sort of conferences and opportunities, whether it's for sales purposes or just internal purposes. So that's going to be a problem. How is there risk Carlton Naples or how is uh New Orleans going to do? And there's something there's some things

that may just not be rescheduled, not happen. I heard Dana tells a she's un surveillances, we aren't talking about she's fabulous talking about retail and talking about it being a lost year that you just ultimately there are things that you're just never going to get back, you know, and people who maybe we're going to take a trip well, they can't take it later in the year. You're just not going to get exactly or a conference south by Southwest?

Are they going to reschedule it? I heard that they may not actually do the conference next year, which was kind of interesting. That was a very odd headline. Yeah, there's a lot of dueling, uh versions of that in some ways. Because I heard that they were hoping that they could reschedule it for later in the year. I also heard they may not do it at all. The Milk and conference supposed to happen the first week last

week in April, one week in May. That's been postponed to July for now, and then it'll get then the Allen and Company conference with the way did and then something is going to have to a doing, because I do wonder if we're all going to look at back at this in six months and say, man, that was a great buying opportunity. Of course, So what are you doing? What are your clients asking you to do? Are you buying me? Yes? Yes? What are you buy a buying?

We are buying these staples, right, so we're buying the smuckers and we're buying, As I said, the General Rold mills, the Hormail. We love p s A, which is um that's public storage. So take a look at public storage div it in yield there, what is it at that two four dollars and the DIVDAN yield is about three point six percent. That's the largest self storage company in the country this year, So why is that important? Nine

billion dollar market cap? It's a great company. I actually worked on the private placement of it in six so I haven't kind of an intimate you know, love for this company and have seen it where we are all store that stuff. Everyone, yes, so when people have to downsize, they store their things. But even if the market comes back and it's good, everyone accumulates stuff and they and the and they'll pay the money to go into storage.

But again the downsizing, and then of course you have the whole baby boomer um, the baby boomer kind of you know, um evolution, which is uh going to um smaller condos, town houses, and but they don't want to let go of the suburbanizing, right, And I bet you that all those public storage p s A is filled with records with alb like who the who Bruce Springsteen and boxes of like their kids report cards from the eighties exactly. I want to ask you, would you buy

a carnival that's just getting decimated? What would you found this year? No, I would not. I would not be buying right here if there's just no way, because again, it's going to take time for the reputation to come back, for people to stop being fearful. You know, you hope that a new culture is informed where we're all like just this bumping and kind of like keeping separate from each other. What about an Expedia down right now? I wouldn't go for Expedia, but I would go for United

Airlines and American Airlines. Now, United wasn't down that much as a Friday, you know. Today, I mean it's it's it's actually had a resiliency. It's down nine percent today United, which is not bad considering the fact that I came back from Florida and three it's I think three flights. This is what my impression was, that three flights were combined into one last week. It's down this year. I'll tell you that baseball preseason baseball packed. It was, Yeah,

everyone was still there. There are some people that I mean, you know, the the bigger problem. It's not like the coronavirus. This is a great you know, more great news. The coronavirus is not going to kill us all. And probably the mortality rate is much lower than we know. Because we only know the people that die. We don't know how many people have gotten it and thought it was just a cold or bronchitis or as sinus infection. Well we joke that there are many many people we know

who've had it and it's gone. Yeah, you probably didn't even know, right. I never knew it, right. And that's that's what's kind of interesting here. What else are you buying? I know, are you're selling anything or no, you're not selling, because we're not. We're not selling. We are looking to do options. You know, we do options on e T s. But that's a whole other kind of a whole other kind of game out there. We do like some of the company's you know, Flowers Foods has so depressed right now.

That is the maker of Wonder Bread and Dave's Killer Bread. And when you look at that, you think to yourself, and actually, I just bought it to do. Okay, well it had really fall I mean it had a terrible year last year. But you have this three point three five percent diven in yield. Uh and they they they've done the right thing. They have the wonder bread for one group, and then they have this day's killer organic bread that has different levels of seeds in it from

down to sixteen fourteen. You like Dave's. You like Dave's and he likes a lot of bread. But it goes back to that. So Flowers food is f l O and there's upside there. And when also the market comes back, and when and when the credit markets open back up, you're gonna see acquisitions. You're gonna see companies come in swoopers and pick up these Yeah, and then they're gonna drip down and they're gonna pick up these kind of companies. What everyone should have heart, this is fine. Everything will

be fine. Is this the financial crisis in your view? Absolutely not, because it's not systemic in the sense that and I understand that there might be issues. Look, it might be the financial crisis in Europe. I mean, we don't really know. We already know like Barclays is sort of gone, so but we don't know how bad Deutsche Bank And Jason, what did you say about Deutsche Bank today and the Deutsche banks market cap. Deutsche Bank's market cap is roughly equal to the compensation that they paid

their workers last year. How crazy is that? Oh, they're not supposed to do that. There was there's a there's an equation. It should be like like eight into Well, it's probably because they've been so beaten up. Isn't that insane? I mean the sort of joke, the sort of tongue in cheek tweet that I saw about it was essentially that if everybody just put their salaries together, they could just buy the bank. They're not going to do that happen. Is there another name that you tell people? Um, well,

I love Golden Sacks. Goldman Sacks will come back. Goldman Sachs has the balance sheet. They're smart, you're the executive changes we keep I know. But they they have invested in the top talent. I have no concern because if you think about it, it's Goldman Sacks rather than you know about a Wasserstein. You know, it's not about one heroic kind of you know, it's about the first legend. It's the firm. You know, a person's a partner of Goldman Sacks versus what their name might be. So I

think that you want to be in Golden Sacks. If I if I had to buy today, I'd buy Goldman Sacks right here downtown, one seventy seven Goldman Sacks. I mean they are going to be and if there's restructuring, you're gonna be the first ones at the table and they're gonna take a piece of the credit. One of our one of our loyal listeners Watchers is saying, we hear you. Leadership to reduce the damage is needed with

a coordinated plan. Do we need something from the government though, in order to get out of this in a in a better way, if you will, And just got about we need to see these temporary payroll taxes, you know, some kind of payroll tame shuts we need right or nearly. I wouldn't be on that, but that's what we need to kind of create a spark. And and then I think we're going to be fine. But everyone should know you'll have more money ten years from now. And don't

just buy gold. And don't just buy gold, don't buy gold, buy gold men nicely, President of Angi Capital Researchero game Change Investing, you how to profit m Tomorrow's billion dollar transport Thanks for listening to Bloomberg Business Week. You can subscribe to the podcast on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show every weekday at two pm Eastern, only on Bloomberg Radio