Coronavirus Won't Be The Thing To Cause A Recession

really over the last several days. You know, we're somewhat surprised at how well the equity markets are kind of discounting, if you will, the coronavirus and the economic income economic impact that may have going forward. Help us kind of put into perspective kind of what's going on out there

in the world. We welcome, as always, our good friend Barry Ridholtz, Bloomberg Opinion columist and host of Masters in Business on Bloomberg Radio, also the founder and chairman and chief investment officer Rid Holtz Wealth Management, joining us here on our Bloomberg Interactive Broker Studio. So, Barry, one of the things that you know, people have been were ten or eleven years into this economic cycle, and people were thinking about what's going to cause or push us into

the next recession. What are your thoughts on that as we think about the coronavirus and all the other crazy things going on out in the world. So, the two big things I keep hearing from pundits and investors and economists. One is a geopolitical event, and certainly the coronavirus qualifies as that. And the other is this. You know, look at Tesla, This this crazy tech boom and bubble is going to lead us to a recession. And I don't

think either of those are genuine recessionary factors. Let's start with the coronavirus, which I know you guys can't get enough of. You been talking about it for solidly for a week. Look, this is gonna be the case. He well, he wants to be. Version. The a version is the is the problematic. Look at that. You think we're obsessed. You actually light here. So when you look at the impact of this, it's going to affect imports and exports

out of China, It'll affect Australia and Korea and Vietnam. Um, there'll be some knock on effect in the United States. But this isn't the sort of thing without its spiraling wildly out of control. This isn't the sort of thing that leads to a recession. So we have less than a thousand deaths, right, which are tragic, and we have about ten thousand cases, and I think the death rate is somewhere around two p which is high. But last year in the United States were ten thousand influenza deaths.

The flu kills ten thousand people a year out of admittedly much higher infection rates. It's a it's about a tenth or so. This doesn't cause a global recession. But this is basically what's being priced into the market today that people are saying, we hear you. Valuations in the tech companies high, and yet this is the future, so well, why not? And it seems to be justified to some degree by some of the results. It's much it's more than that. I'm gonna jump up right here, all right.

It's much more than that, because if you look at the trailing five year returns, the SMP five hundred is up sixty over the past five years. The tech sector a lot more growth, a lot more potential. It's up a hundred and twenty, which sounds like a lot. Look at the exact same five year period only instead of going back from February, look at it from February two thousand, the previous five years, the NASDAC gained eight hundred and sixty five seven times the past five years growth of

the NASDAC. Now. And let me also point out that tech stocks are making bootles and bootles of money. They're enormously profitable. Look at look at Apple, Microsoft, Amazon, go down the list of the amount of cash on the balance sheet. This is not the dot com era, This isn't even remotely close. These are large, profitable companies, some of which are monopolies Google, Facebook arguably monopolies or essentially I just pointed out something that Danielle DiMartino booth um

Um just retweeted. She appears on our show often basically just kind of referencing what's going on in the repo market and the fact that the Fed's injecting money into the short end of the market, and she says that is what's driving the markets. Everybody is entitled to be as wrong as they want, and I have been arguing with daniel de Martino about this for a solid decade. Let's assume she's right Okay, so the Fed is doing this.

Now you know the Fed is driving the market higher than you must really like stocks because there is no sign the Fed's gonna stop doing this. I don't believe the repo market directly in equity value, but put the repo market aside, because a lot of people say that that's just completely a structural issue. It's not necessarily pumping liquidity into markets. Uh. There have been a lot of arguments build Dudley in particular, making it in a Bloomberg

opinion column recently in former New York FED president. But just on a larger point here, this concept of Fed stimulus, I think it's poignant at a time when Christine Lagarde came out overnight the ECB president and said, we don't have that much more leverage to lower rates to stimulate the economy. Hey, lawmakers, it's your turn, and that's what she was saying. And you're hearing this increasingly, this feeling that yeah, they're in there supporting the market, but they're

running out of ammunition. That doesn't concern you. The fact that they're running out of ammunition and they haven't gotten inflation up further, and you're seeing capex go down. I mean, there are a whole host of things you can point to to be barished. So I have a post of on the blog a couple of years ago with a quote, the FETE is running out of ammunition. Central bankers running out of communition. This is a slide in the presentation

I do. Every year for the past twelve years, someone has come out and said the FETE is running out of ammunition, And as far as I can tell, they have an infinite amount of ammunition. Because they issue credit and they affect rates ps. Nobody is making buy or cell decisions these days, about capex, about homes, about any large purchase um because of we're its are if rates go up a percent, they're still historically cheap, so that

that's not the issue. When we'd say the FED is running out of ammo, the question is how low are they going to keep rates and for how long? And how much is that affecting other people's UM purchase decisions, consumer demand, etcetera. I don't like the entire FED argument, the central bank argument. It's clear the economy is instill in a post credit crisis state and it is not

the most robust. Contrary to what you may have heard at the State of the Union address, the global economy and the U S economy have been highly dependent on monetary policy. I'll give that much to Danielle. She's right about that. And where Christine Legard is half right is that we understand the Kinsian playbook in a crisis, when when demand from consumers and demand from UH the business sector drops, the government should step in with fiscal stimulus.

The fact that we've gone so long relying mostly on monetary policy is a giant policy mistake. It should have been fiscal stimulus from day one, with monetary stimulus right behind it. Christine Legarde is absolutely right, albeit a decade late, and it is remember the Austerians in the UK and Europe. They took a bad situation and said, how could we

make this much much worse? I know, let's cut back spending right into the teeth of a drop of demands, and they very successfully made the circumstances in Europe much worse. There is a reason why the US recovery preceded that in Japan and then in Europe. We recognize this immediately for what it was. We had Bernanke doing monetary stimulus, and we still did a modest seven or eight hundred billion dollar stimulus should have been three or four trillion.

But let's hold that aside. Barry rid Holts, founder of red Holts Wealth Management, Bloomberg opinion columnist, founder of rit Holts, while the management and incredible orator on the woes and the lack of fiscal stimulus, I will say, I love them sitting around thinking how can we make this much much worse? Here we go, we're gonna be hearing from President Trump after he was acquitted of the impeachment charges

brought to him by the House of Representatives. Senators, particularly the Republicans, really joined forces and voted to acquit him. Joining us now to discuss Preneur, a senior editor for the National Review, also a Bloomberg opinion columnist, coming to us from Washington, d C. I just want to start a mesh uh your opinion of the stance that Republicans took. Do you think that they did the right thing in acquitting President Trump. I think that Senator Romney had the

better of the argument among Republicans. I think that President Trump abused his power, and even some of the Republicans who voted to acquit him agreed with that. Uh and UH. The impeachment power was put into the Constitution by the founders precisely to deal with presidential abuses of power of this nature. So I think he should have been convicted. Remesh. The National Review is thought of as a right leaning,

a conservative leaning, typically Republican publication. How much pushback do you get when you say things like this given the fact that President Trump has a near record amount of support among Republicans, Well, the official editorial position of the magazine is on the other side. For me, most of my colleagues are on the other side, So I do get a lot of uh, pushback, disagreement, um, sometimes very politefully politely and thoughtfully expressed uh from our readers, sometimes

less so so. Remesh. Let's look forward a little bit. Do you think the acquittal or the in the Senate means for President Trump and the Democrats? How do you think that's going to kind of play out for the election? I suspect that it will not be a top of

mind issue by the time of the election. UM. I just think that we have a lot of time between now and November, and media cycles and news cycles are just a lot faster than they used to be, so I think we'll all probably be obsessing about something else in the last weeks of October in the beginning of November. Do you think that going forward that this will actually solidify President trump space behind him or do you think that this will just sort of be a side note

as we proceed towards November. President Trump has been extremely careful to keep his base together. He has done a lot of things that previous Republican presidents would not have done, but on the core issues that mattered Republican voters, like guns and taxes and abortion, he has been a completely orthodox Republican and so he had a unified base even before impeachment. Impeachment may have slightly solidified that base, but the partisan dynamic of a presidential election was likely to

generate that result anyway. What do you make of Senator Mitt Romney's decision to vote to convict Well, I think that it surprised a lot of people who had just resigned themselves to this being uh an almost completely perfectly uh party line vote. Um. I think um. Senator Romney made a good case for his decision. Uh, it's not uh,

you know, obviously doesn't have change the outcome. UM, but it just sort of puts him on record about, UM, what the appropriate norms for presidential conduct ought to be. Considering your stance that you thought that President Trump should have been convicted, do you think that he should lose or are you voting for someone else in November? Well, I don't even know who the Democratic nominee is going to be. UM. I certainly think it's unlikely, UM, that

I am going to vote for President Trump. I didn't vote for him last time. Uh, and I continue to have UM serious objections to the way he has conducted himself in office. Do you think there are any Democrats as we as currently currently constituted in the field that can be President Trump? Oh? You know, UM, right now, I'd say that President Trump is probably favored to win, but I wouldn't say that he's an inevitably going to win. And I think a number of the Democratic candidates could

potentially defeat him. Um. Some are I think riskier than others. I think Senator Sanders UM would be a risky nominee for the Democratic Party given the historic and continuing on popularity of socialism in the United States. Thank you so

much for joining us. We appreciate your thoughts. Peuro was a senior editor for the National Review, also Bloomberg opinion columnist as well, and you could read the work from Remesh and the other Bloomberg opinion columnists at Bloomberg dot com, slash Opinion and on the terminal O p I n Go. Tex shares absolutely surging after better than expected earnings from a lot of the giants, plus looking at the trajectory

forward that they are the future. Big question, could the coronavirus and the spread there disrupt supply chains enough to make a material DNT for these companies? And just how much good news has already been priced in without perhaps that good news actually happening. Bradstone joining us here in our interactive broker studios we're so glad to have. Do you hear in New York normally San San Francisco, Senior

Executive editor of Global Tech for bloom Bloomberg News. Brad, Let's just start with what we've seen in terms of the supply chain challenges UH stemming from the coronavirus for big tech. We've heard from Apple. What else are we hearing with with chips? With other areas? Thankfully so well. I mean, I think there's a lot of ambiguity, there's

a lot of concern, uh and and and doubt. I mean just like the World Health Organization you know, is saying it doesn't quite know, you know, how this virus operates, Um, how it started, whether we're at peak infection. You know, the tech companies don't know what's coming. And so we've seen a lot of of the of the big suppliers kind of warren. Uh, not much concrete evidence yet. So so Fox con Right, the maker of the iPhone, saying it expects one to three or sent growth and set

us three to five. You know, qual Calm warning that it could be material materially impacted. We've seen LG Electronics withdraw from the big Mobile World Congress trade show in Barcelona. Um. You know, so if you're a tech company with the exposure, if you're supply chains in China, you know you're watching it and it's sort of up in the air what what the impact is going to be and whether it

will impact global demand. So Brad, you and your the technology team out on the West coast to cover this so so well, uh, thinking about all the supply chain of global technology. First, we had the trade uncertainty, which I guess still is there between the US and China despite the Phase one deal. Now we've got this virus. A lot of times company has been talking about trying to de emphasize or take some of the supply chain out of China, maybe move with the Vietnam or other

areas in Asia. Is there any evidence that that they're going to follow through with that or that they can actually do that to move the needle. I mean, I think they will follow through, but that's such a long term process, right, and you've got you know, you've got thirty years of the supply chain consolidating in China, in particular in areas of China like shen Zen, and and you're it's not gonna it's not gonna happen anytime soon.

And some of the you know, the politically motivated promises like Fox Con saying it's going to build a facility in Wisconsin. Uh, you know, that's been a little more hyped than reality. So none of these companies can adjust fast enough to contend with what's happening now in China. So you talked about some of the supply chain challenges, and yet we're looking at the NASDAC up six point six percent. We're looking at a Fang plus index having its biggest run in the most valuation relative to the

S and P I think in history. I mean, we're looking at some pretty extreme valuations. When you talk to people, is there a sense that there's too much good news

baked in? No? I think. I think it's really driven by the kind of consolidation of of tech into you know, into a few companies, and like you have the virus, and you have the regulatory overhang, and yet right Apple Blockbuster iPhone sales, you know, the dock near an all time high, you know, Amazon, the re acceleration of the cloud business despite all the fear and uncertainty around like Microsoft, you know, winning the Jedi contract and whether Amazon's cloud

growth was slowing down, and are re acceleration in retail right, more people becoming prime members and so yeah, you're right, it seems oversold, I mean, and of course you have examples where that is true, like Tesla right over overbought um. And yet you know, when you look at the performance of these companies, despite the sort of bad news and

the regulatory concerns, they're still doing really well. All right, So can that enthusiasm translate and spill back over to the unicorn world, which had some of its shine taken off at the end of last year after a couple

of less than happy IPO situations. That's right now and then and then we're sort of into a different discussion, right because you know, when you when you look at the companies I'm on public last year, Uber and Peloton and then of course we Work, which didn't even make it out, you had a situation where the hype did collide with reality and a lot of the value was taken out already by private equity, by soft bank, by

the venture capital firms. So you know, there you have a situation where you've got companies like Airbnb or or or the fintech company robin Hood, which are probably looking at this market with a lot of anxiety, wondering and cast for the Mattress company of course, today, you know, how are the public markets going to react, particularly if they if they remain unprofitable. So one of the issues that has kind of crept into the technology discussion over

the last year or two has been regulatory overhang. Now, historically the U. S Government has taken I think pretty light touch to the U S. Tech industry that might be changing. How what's the feeling in the valley. There is this a paradigm shift, and they've got to really start thinking about this. I think that's right, Paul. I mean storm clouds. Right, it's coming at them from all angles. You've you've got the EU, which is obviously the most

active over the last few years. UM. But then in the US, the Justice Department seeming to increase the pace of its investigation, particularly of Google. UM. But then and particularly with the guards. So it's third party ad network. You know, we've reported on the Wall Street Journal has reported that they're interviewing publishers looking at Google's ad dominance.

Then you've got the FDC, You've got Attorneys General. Um, you've got the David Cellini, uh, the the the House member from Rhode Island, you know, leading these discussion panel discussions looking at big tech. And so yeah, I think we're sort of at peak or we're close to peak. Um, you know, scrutiny of the big tech companies, and that's

not that's what we're just getting started there. And it does seem to be the one thing that all the presidential candidates kind of agree on right now markets basically saying it doesn't look like those politicians are going to move soon on anything. And it seems like tech companies believe that as well. Is there a sign, any sign whatsoever that they're wrong, that there is some kind of push to get some regulation passed in the near term. I think you're I don't think they're wrong. I think

this is a long term process, you know. And and we saw it with the Microsoft case in the nineties. It takes years, it's appealed, the Supreme Court often has to get into these things. But you know, when we saw Makon del Rahim, the head of the d o j Antitrust Division, recused himself from the Google investigation, there are signs that things are accelerating, you know. And he was involved in the sale of double click to Google. So it's one reason why you'd want to step back.

But things like that, you know, suggests that we're we're no longer in the realm of the hypothetical. It might take a long time, but these companies are girding for battle. Brad Stone, thanks so much for joining us. To really appreciate you coming into our Bloomberg studios, usually based in San Francisco. Brad Senior Executive editor of Global Technology for Bloomberg News. He in a team do a great job

covering everything on the tech space. They've been very busy with all these I p o s and all these big issues affecting big tech. The Treasury Department gave details about their issuance of twenty year treasuries for the first time, as they laid out a plan to find as a deficit for the federal government that should reach one trillion dollars annually over the next ten years. Is according to independent analyzes. The question is doesn't matter and this has

been a subject of huge debate. Joining us now the way in Chris Edwards, director of tax policy Studies at the Cato Institute an editor of Downsizing Government dot org. Chris, you have come out with some pretty stark warnings about the federal deficit. Can we just start about why a federal deficit is so problematic? A lot of people challenging that concept in an era where there is an encouragement

for more fiscal stimulus. Well, what the federal government is doing right now is completely unique in in our two stories of history in the past We've had spikes in federal government that usually during wars, you know, the Civil War and World War One and World War Two, but the government has always paid the debt back down again. Now we are not at war. We're in the eleventh year of economic expansion. Now we should be down our debt. But our debt is the highest in our peacetime history,

and it is going up. The latest Congressional Budget Office data shows that the annual deficit is going from a trillion this year to one point seven trillion ten years from now. And I think that's optimistic. For one thing, the CBO doesn't put any recessions in its projections, and yet we probably will have a recession in coming years sometime, and that will blow an even bigger hole. So I

think the outlook is very scary. Chris. Are you surprised that the Republican Party hasn't made this bigger of an issue and and really tried to work harder to uh shrink the size the government to deal with this deficit. It is remarkable. There's been huge responsibility on both sides. You know, the Republicans they just want to cut taxes, which increases deficits that the Democrats and Republicans want to increase spending. So we've got the situation where there's irresponsibility

on all sides. What's remarkable is if you go back and you look at the federal budget document and so say President Reagan or President Clinton, they were there's a lot of concern about deficits. There was a focus on, you know, creating new mechanisms to try to reduce debt and deficits. That has all gone out the window. And I think what has happened is pretty clear that we have global capital markets these days, and you are gonna be able to borrow at very low interest rates, and

politicians don't have any fears about the death. It used to be the politicians thought if they ran big deficits, it would push up mortgage interest rates, it would cause inflation, and it would create political pain for them. But I think all the political pain has gone and so they're just their natural spending instincts have come out and they're irresponsible, Chris. But to that exact point, they have blown up the

deficit and it hasn't mattered. In fact, we just got to read today, uh that mortgage rates in the United States have fall into their lowest in sixteen. So why is it a problem to have a big deficit. Uh, The first problem is that all this all this borrowing is cost pushed to the future. The pain doesn't come now. The government borrows another one billion or ten billion, or hundred billion, that is all a cost on the next

generation of young taxpayers. Taxes will to be higher twenty trillion in the future because we've got this giant twenty trillion dollar debt now. So it means that and as you know, just somewhat a bit less than half of all our debt is borrowed from abroad. So that means that young American workers in incoming decades will be working, their taxes will be going to Washington siphoned off from

them and paid the foreign creditors. So they're gonna be working, and we're not even going to get the benefit of that work here in the US economy. So that's where the rubber hits the road, the costs on the future. So Chris in hindsight, A little bit of hindsight here with tax cuts a mistake from an economic perspective, I think that the corporate tax cut was absolutely needed. You have to be globally competitive on our corporate tax rape the individual tax cuts, I think we're much more of

a mixed bag. As you know, the individual tax cuts expire at the end of and I think there's gonna be and there should be a good debate at that time whether they're worth extending, because if Congress keeps spending like uh, the money like this, those individual tax cuts, in a way, they're not really tax cuts. All they're doing is deferring a giant tax burton that's going to

come in the future anyway. Chris. There's also though an argument here that if there is some sort of fiscal stimulus ongoing, that it will continue to grow the economy enough to finance some of the tax bills that will come do later on, that the consequences of not taking action now could potentially be more detrimental to the U. S economy than ballooning the deficit. What do you say

to those arguments, It doesn't make any sense. Look in the in the under President Clinton, we had some of the strongest growth we've had over the last half century, and we've balance the budget. Clinton balanced the budget four years in a row, and we had strong economic growth. The idea that we're getting stimulus from the massive deficits now doesn't make any sense. I think what it does is it scares investors and scares businesses about the future

credit worthiness of the U. S. Economy. So I don't And and look, we've only got modest economic growth right now despite this giant so called stimulus, So I don't buy the stimulus argument. Chris Edwards, thanks so much for

joining us. We appreciate your thoughts here. Chris Edwards, director of Tax Policy Studies at the Cato Institute, also an editor of Downsizing Government dot org based in Washington, d C. Raising the specter of how this, potentially the federal deficit could end badly UH for the U. S. Government, and

it's populous. Look, whichever way you you believe, it's a really interesting debate to be having, because for a long time, to Chris's point, people did believe if you balloon the deficit, you'd end up with much higher rates, which would lead to uh some sort of economic slow down in their

own right. But the problem is we've seen exactly the opposite, that major developed nations have gone out there and they have ballooned their deficits and their rates have dropped, so kind of calling into questions some of the old theory here, I'd raising questions about helicopter money, etcetera. It's an interesting debate one that will be definitely had increasingly fervently. Yes, exactly. Thanks for listening to the Bloomberg P and L podcast.

You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa abram Woyds. I'm on Twitter at Lisa bramwo wits one Before the podcast, you can always catch us worldwide on Bloomberg Radio