Don't See More Than 50bp Emergency Cut: Amundi's Todd

particular the risk your credit markets. I'm really glad to say that we've got Christine Todd, head of US Fixed Income with us from a MOONDI pioneer which oversees ninety billion dollars. Christine, thank you so much for being with us. I want to start with high yield bonds because we're seeing unprecedented outflows from the biggest e t f s that invest in these uh in these securities, and we're also seeing the shares of those ETFs decline significantly today h y G, which is the biggest of it. UH

thinking the most is how concerned are you? Without getting to the esoterics of E T F S versus the underlying market. How concerned are you about some sort of liquidity spiral that's going to really push prices down a lot more? From here in bonds, we more see it as an opportunity than a concern. UM. When you're an active manager and you see that there is UM fear based selling UM not fundamentally based UM, then you really are seeing correlations separate and that the opportunity for bond

picking increases. So we can take advantage of forced selling causing dislocation and valuations and improve the UM credit profile and the yield profile of the portfolios as this is happening. UM. Interesting, Well, I was going to say that, UM, you're you're really seeing a process of price discovery and that when you look at ind see and UM marked prices, Uh, it's it's really more a gauge than a execution level. So that too is something that you can take thorough advantage of.

And that the ets being four sellers are at the mercy of so Christine. So if someone was brave enough to dip their toe back into the bond market, here where some sectors that you think they should look for initially, Well, the obvious place to look is in the energy sector UM that is taking the biggest hit from the fears around the coronavirus, and the more stable subsectors with energy UM like pipelines are are less leveraged to the price of the commodity, and we think there are really strong

opportunities there. What we're doing is really topping up our best ideas rather than adding new names to the portfolio, So sticking with our convictions and doubling down on where we see value. So are you doubling down on pipelines? We are reaching our targets, which is UM an equal to overweight an energy via exposure to pipelines. And why

did you start doing that? So we've been active in UH managing around the subsectors of energy, and we've been accelerating that process in the last couple of days, but not phrenetically. I mean, the key here is to be patient. And we don't think that we've seen floor and prices

in the wides and yields UM. You know, we've only dropped, you know, in high yields in the terms of the index you know, call it eighties and ninety basis points since the UM Corona scare really took hold and we're down you know, over our d and twenty basis points since the beginning of two thousand nineteen. So this is not UM, you know, a wide by recommendation. This is being very selective in the names that you pick and

UM sticking with your convictions from a bottom up fundamental analysis. So, Christine, I'm looking at my Bloomberg termal here to your treasury one point zero five, very near the all time low. Do we need to be on a zero interst rate watch for the two year? Do you think? Well? The Feed has been very clear about wanting to stay very far away from zero bound interest rates and UH. The

at some point though the FED is resisting. At some point, the Fed is going to want to see UM longer term rates rise more than shorter term rates UM, but to see optimism in the markets. So you might see the front end of the curve come down with the FED succumbing to pressure UM from the coronavirus, mainly from tighter financial conditions UM, not so much from the administration UM,

but in reaction to UM. You know, the consumer retrend shan and probably what you'd see is a fifty basis point move UM characterized as an emergency cut that could be walked back when the crisis subsides. So the answer to that is, we could see lower two year rates, but UM, the market wouldn't come down to zero because they would be optimism around the stimulative leaning of the Fed and the stability of economic growth. Christine, just real

quick here thirty seconds. I'm looking right now. It Fed funds rates pricing in almost three and a half rate cuts by the end of January. Do you think that that's reasonable? Do you expect the Fed to cut that that much? We do not. UM. We are very confident that the FED is influenced by the economic fundamentals and that the pressure from as I said, the yield curve

the administration UM can be avoided. UM though UH, a consumer retrend MINT and the reversal of some of the very strong economic numbers that we've seen would cause the Fed to act. And as mentioned UH, an emergency move of fifty basis points could be easily walked back, but we don't see a strategic plotting towards easier policy because of the fear in the market of the coronavirus. It would be based on the fundamentals the consumer, the housing market,

the job market, et cetera. Christine Todd, thanks so much for joining us to really appreciate your, uh, your thoughts on the fixed income market. Christine is the head of US fixed income for a Mundi pioneer of about ninety billion dollars under management based in Boston. There's sort of an expectation that at a certain point there will be some sort of stimulus, whether it be monetary as is currently being priced into the Fed funds features, or whether

it will be fiscal. And this certainly comes as the Democratic debates heat up as we head into Super Tuesday, leading to a question, what is the cost of some of these fiscal stimulus plans, in particular those put out by Bernie Sanders And doesn't matter? Ben Holland took a

look at that. He's a political economy editor for Bloomberg News, joining us from our ninety now on studios in Washington, d C. Ben, you wrote that perhaps it doesn't even matter whether Bernie Sanders is numbers actually add up because borrowing rates are just so low. Can you explain? Yeah, I think what's striking here is that there is this debate going on in the Democratic Party, you have Bernie Sanders with all these very big, you know, unprecedented in

recent history spending plans. He says he's going to pay for them all by raising taxes on various things, and his opponents say, oh, well, but your numbers don't add up, and Bernie Sanders says, yes they do, and the opponents say, no, they don't. And what's old is that while all this is going on, the cost of government borrowing in the United States has plunged to levels that have never been

seen before. So you might think it would be a good time for both Bonie Sounders and the other Democrats to say, well, if these plans don't in fact that it doesn't matter, it might be a good thing. Maybe the economy could use some more physical stimulants. So it's interesting, Ben It raises a question, don't deficits matter? Doesn't the

national debt matter anymore? I think there's I don't think that many people would make the case that deficits don't matter, but I think more and more economists would make the case that there is no reason why we should worry about the ones that the United States is running right now, because there's running deficits of around five percent of gross

domestic product. That's pretty big. It's nothing like you had in two thousand and ten after the crisis, but for us, you know, for a decade into an expansion, it's a pretty big deficit. It's not causing inflation, it's not causing flight from bond markets, it's not causing yields to go up, it's not crowding out any investment. So a lot of economists have concluded, well, it's not something we need to

worry about right now. Ben, what's the alternative? Certain here that the more debt that an economy takes on, the more that you head into a deflationary spiral where it's sort of a weight hanging over the economy and it doesn't act in a stimulative manner. Well, I think that

is a concern. But I think what's happened if if you look at Japan, which has kind of led the way and a lot of this stuff, and a lot of other developed economies like the United States and Europe are kind of getting that what you had was was a big build up in private debt, and when that crashed, which was about ten years before it crashed in the

United States. So in the late n what the government was doing was really stepping in with deficit spending to fill that big hole in demand that have been left by the bursting of a private credit bubble. Well that's pretty much what happened in the United States ten years later, and the United States ever since two thousand eight, the government has been stepping in just like the Japanese government did to fill the gap in demand by its own deficit spending. So Ben this sounds to me a lot

like modern monetary theory or M empty. Can you explain what M empty is and is it becoming more accepted by more economists? If you listen to what the most economists say about m MT, you'd probably conclude that it isn't becoming more accepted. But then if you listen to the way that the economists talk about things like deficits and government that I think you'd conclude that it is becoming more accepted. So it's kind of creeping into the debate.

And the essential argument of m m T is that when governments run depth sits, the thing that they have to worry about is inflation. They don't have to worry about going bankrupt. They might do if they're using another you know, if they're borrowing in another currency. But if you're the United States, if you're Japan, the United Kingdom, you don't have to worry about going bankrupt. You have to worry about, well, will I spend too much money

and create inflation? That's clearly not a problem right now. Fascinating. Ben Holland, thank you so much for joining. I spend hard political economy at for Bloomberg News, joining us from One Studios in Washington, d C. And I will say, Paul, the conversation comes at a really salient point, especially as Hong Kong starts to do helicopter money, essentially giving each family a certain quotation of just cash to go out

and spend an on street of us. And just walked into the Bloomberg Atta Active Broker Studios in his hoodie, his Bloomberg Intelligence hoodie, and he said, the world's melting down, and you want me to talk about ink cartridges And we said, yes, that is exactly what we want to

talk about. Because even though we do have the coronavirusphere spreading and concerns about what that means, there is actual business getting done and discussion of it and we want to bring in Austin Carr, technology reporter for Bloomberg News, as well as an on screen of Austin senior semi

conductor and hardware analyst. And Austin you wrote a story for Business Week that Xerox and HPR and a thirty five billion dollar fight over in cartridges, which is comical considering the fact that the concept of paper and ink seems to be going the way of the cart and horse. What was sort of the gist of the piece. Well, I think first of all, we should just clarify that

the printer market is still massive. In fact, it's estimated that between the consumer and office market there's still about three point two trillion pieces of paper printed every year. So that takes a lot of ink, That takes a lot of printer sales um So this is really a

story about two aging innovation giants the twentieth century. They own the innovation market if Silicon Valley, they arguably invented the sort of garage startup, and yet they've seen in the last decade or so this disruption in the digital market and then just hanging on to their old world products like printers and ink, which really is what accounts

for a large portion of their profits. So this is a story about Xerox trying to take over a much larger aging giant to see whether they can create some sort of printer super giant as the market continues to consolidate. So on, and give us a sense here, I'm looking Zerox. It's a much smaller company than HP. How are they going to finance this thing debt? Quite quite simply today

than it was back in November when they proposed the deal. Absolutely, and and this has become a point of contention to UM for for HP in its refusal and its continuing refusal of of the Xerox M and AM approach is that it will be too debt heavy. UM and our take is that, in fact, HP looked at xerox um last year and they spurned that deal potentially because they weren't enough cost synergies and they couldn't make the deal work. Look in the grand scheme of things, right, So Austin

story is on point in that supplies is what matters. UM. If you look at the supplies business, it is roughly of overall HP sales. It's a very very all of supply printing, including the consumer business and the corporate business and supplies has a six operating margin which they want to take to seventeen. Supplies alone probably is well into

the twenties UM. And they've tried to sort of use this four box model in the previous CEO's tenure to try and push more printers um and have it be sticky over a long term with an office such that it can drag the supplies business and so they'll give you the printer at their discount. In the consumer business, that hasn't necessarily worked because the consumers are buying the cheap printers and then going to the fake printing supplies from off brands and using that, so you you're not

sort of benefiting from that. I love the quote Austin and your story. The industry may not be sexy, but it's not going anywhere. There is a question though, and I do want to bring it forward since and now you did come in here and then the coronavirus is the headline right now? What about supply chains? What about

some other aspects of these companies? Both of them shares down more than three percent on a daylight today and on I'd love you to take a crack of that, I mean, do you have a sense of how much they are affected? Here? Absolutely? Look, I mean the entire tech ecosystem supply chain goes through China, and this is the downside of having become concentrated in that part of the world of the last twenty years, given logistics, ease, cost preference, etcetera, etcetera. And so um uh and and

you're going to be impacted. One queue is done, right, so you're gonna take numbers down for one queue. The question is what does two Q look like, both from a demand perspective as well as from a supply perspective, and can you get product out the door to meet that demand? And that's going to be the telling sign if you don't have enough product and if demand is week that matchup of those two will determine how you

shape up for the full year. Um and we have some sensitivity here from from our work if you and supplies are a big portion of that to what happens is if you take supplies down, you take margins down with it pretty hard. I mean, because because PCs are a low to mid single digit operating margin business, it ain't sexy by any stretch, right, So the printer, the printer business and the supplies business is what's carrying HP.

You ding that business, coronavirus dings that and you print even less then EPs is disproportionately her Austin, is this still going to get done well? I think that's the big question about the announcement that they had earlier this week attached to their earnings, is that they're pushing back on this deal by announcing, uh, you know, this big boost of fifteen billion dollars in buy backs, uh, huge cost savings is not just mentioned that they're looking for.

And so if you see any disruption that supply chain or slow down in PC or printer sales even more than what they've seen, that's gonna put a lot of pressure on HP to sort of explore this deal more. In Enrica, Laura's who came in a CEO in November basically said, you know what, we're sort of going we have a winning strategy. He dis xerox a bunch on the earnings call, but at the same time he kept saying,

we're open to this idea. But a lot of if you talk to analysts, they do feel like, you know, there may be more of a likelihood of that HP ends up buying Xerox than the other way around. Just on the call. On the call, he was very explicit about he says, they don't have good technology, they're they're small by comparison, and uh, you know. And we spoke to him after the call and he was, uh, he said he was pumped up about how well it went.

Austo Car, thanks so much for joining Austin Car, technology reporter for Bloomberg News and on Entreni bast and our senior UH technology analyst for Bloomberg Telenges posts joining us here in our Bloomberg Interactive Broker studio. Well. Last night, President Trump held a press conference along with members of the CDC to talk about the coronavirus and the state of US preparedness for the virus. Let's tick a listen. Because of all we've done, the risk to the American

people remains very low. We're ready to adapt and we're ready to do whatever we have to. This one is different, much different. This is a flu. This is like a flu. I think the stock market will recover. Uh, the economy is very strong. We are totally ready, willing enabled. That was President Trump last evening at the White House talking about the coronavirus and the preparedness of the United States

for that. Let's take a little bit deeper onto that state of preparedness uh by the US government and economy. Vivian Ho she's at James A. Baker, the Third Institute Chair in Health Economics and Director Center for Health and Biosciences at Rice University in Houston, Texas. Vivian, thanks so much for joining us. Give us a sense of kind of where you think the US is in terms of preparedness for dealing with a potential wider outbreak of the

coronavirus in the US. I think the US is actually in a fair amount of trouble in terms of what's going to happen with the coronavirus, because the speech yesterday basically told citizens that there wasn't much to worry about. But we see the spread of the disease all over the world. There are several countries with cases now, which means it's only a matter of time before the disease reaches the US unless the President wants to make a decision that we cut off all trade in goods and

services and people traveling, which we could. We could do that and we could then shut down the economy because of how much of our economy depends on trade and UM transfer of goods and services and people across borders and so UM. We have local governments and schools and and other UM places not prepared for what will happen when this disease actually reaches this country. So what Vivian

should they be doing to prepare well? I thought that UM when Anthony Fauci spoke yesterday afterwards, UM you know he's he and others are saying, UM, try not to be two alarmed. This is this is something like a flu. We're going to have cases of UM diseases similar to say to pneumonia, and those are of high risk to seniors and those with compromised immune systems UM, and we need to be directing more resources towards the c D

c UM. Apparently we don't have enough test kits that are adequate for local UM local governments and state governments to be able to test UM patients, So that's going to be a problem. We're probably gonna have cases where parts of the country are going to try and and UM quarantine people at home, closed schools temporarily, UM, close

work offices temporarily. But my guess is because this is so hard to control the spread of the disease, eventually officials are going to throw their hands up and say, uh, sorry, we can't handle this um and and try and go about your normal everyday business or otherwise the economy really

takes for a significant period of time. So, Vivian, you know, over the last several days, it appears that there's kind of a disconnect between the CDC and the Trump administration different you know, kind of framing the risk profile of this disease. How problematic is that for you know, local authorities to maybe make the decisions they need to make.

I think it's extremely problematic because there needs to be some guidance and expertise at the top saying what resources, um are these governments going to receive and what should they be planning for And you need to have that coming from the federal level unless there are UM state

experts who are going to give this guidance. Now, now, I think Alexaser is a terrific Secretary of Health and Human Services, but it troubles me that that that Vice President Pence was put in charge of dealing with this disease. You know, when America goes to war or goes to battle, we put a general in charge who has military experience.

Um if we're as a country going to try and fight this disease, we should be having a doctor or an epidemiologist who understands the spread of infectious diseases calling the shots. So let's walk through the iterations of what you expect is most likely, because it is highly unlikely that the United States at this point would or could

completely shut off its borders and all trade. What do you expect to happen based on the contagiousness of the disease that we are familiar with at this point, as well as the preparatory measures that have been put in place. I think it's I think it's highly unpredictable at this point, simply because they're going to be different authorities who are going to make different decisions and and and we don't

know who is going to be giving them counseling. But you could have everything from um uh, you know, certain governors saying Okay, we're going to declare a holiday and and everyone stay home for a week to try and get control of what happens to other states saying, well, we need to go about our business and let's go ahead and do this and UM, but let's try and funnel as much resources as we can towards UM, towards public clinics, and towards hospitals to deal with the expected

rise in the number of cases. I mean, there's a fair amount of fluctuation that goes on every year in the health care system already because of the flu and so um. So our health care experts, you know, people running our hospitals do know how to deal with this. There's always a lot of discretion in terms of do we admit patients with pneumonia and do we not? So so in a sense they can deal with this. I think it's just the problem is there's so much anxiety

and panic on top of it. You know, if you get the flu, you're kind of like, I've had this, I've you know, I've had this before, and they're saying the mortality rate is somewhat similar or to the flu, but it's just new. So Vivian, how do you think this will play out in terms of the spread in the US? Are you are the good folks at Rice thinking this is going to happen and this is gonna be bad. What's kind of your base case there? Oh, I think everyone is is in is in disagreement right now.

I personally think it's only a matter of time. And I have no idea whether it's going to happen within the next two or three months, or whether it's going to happen in six months or in a year. It's just too early to say, because the scientists don't know how the disease is spreading. They don't understand why it's showing up, for example, in California with a person who supposedly has no contact with anybody from China. Vivian Ho,

thank you so much for being with us. Vivian Hoe is the director of the Center for Health and Biosciences at Rice University, also the James A. Baker Institute Chair and Health economics. Really interesting to hear what the potential concerns are in terms of how to prepare for something

like this. It does seem though, Paul, and not being a doctor or anything else, but looking at the medical supplies industry, there seems to be a little bit more optimism that six months a year run rate actually is helpful in developing the right medications, UH and and vaccines, and we are seeing some of those companies seeing their shares surge as they prepare for that. Yeah, exactly right.

And as Vivian Hoa suggesting, like we've heard from a lot of people, it's just too early to to kind of figure out how this will play out in the US. But again, I think it would be foolish probably, you know what we're hearing from a lot of people. Would would be foolish to think that it won't come to the US and it won't be an issue. So now it seems to be a question of how prepared is the U. S 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 Abram Woyds. One. Before the podcast, you can always catch us worldwide on Bloomberg Radio.