Powell’s Dark Tone Designed To Pressure Fiscal Policy: Dutta

at Bloomberg dot com. Earlier this morning, we heard some really interesting discussion uh with FED Chairman j Pale to Peterson Institute talking about the impact of the coronavirus on the economy, and Chairman Pal warns of a broad virus danger and he certainly batted down any expectations of negative rates out there, but certainly a somber longer term view from the chairman to get a sense of kind of what some of the details are there that we should

be paying attention to. We welcome Neil Dada ahead of US Economics at Renaissance Macro Research. So Neil, thanks so much for joining us. What was the key takeaway or key takeaways for you from what we heard from Chairman Pal this morning. Well, I think the most important takeaway is that he's leaning into fiscal authorities quite hard. U. He sounded pretty somber and um, you know, downbeat about the outlook. In my view, I think he kind of

needs to do that. It's almost by design. If he sounds upbeat, that takes the pressure off on the heat off the ciscal authorities. If he sounds more negative, UM, I think he keeps the pressure on them. So UM. So to me, that, well, that's what was important. I also thought it was quite interesting they talked about how liquidity crises now can evolve into solvency problems later. Um. Again, that sort of speaks to this idea that the less they do now, the more pain there can be later.

So that kind of speaks to the sort of second and third order effects from the initial shock um that I think a lot of people are worried about right now. So UM, I thought it was a pretty um you know. I mean, like like I said, I think I think he's negative. I think it's by design. Um. I think I think it's important for fiscal um you know, for our politicians to kind of um not declare victory too soon.

And in my view that means really two things. And the most immediate term, UM, it means we need some kind of a stay in local aid package. UM, you know, from the federal government, you need to kind of backstop the revenue shortfalls that states are seeing. And UM, I think number two in the summer, when things presumably will

feel a little bit better than they do right now. UM, we've kind of set up a cliff type scenario with with respect to fiscal policy, because we're going to see a robust unemployment insurance program evaporate for many millions of people. And these are individuals in many cases that UM work in industries like leaving, hospitality, retail that will be slow to come back. UM. And they also have very high

propensities to consume. They usually spend what they get. So UM, those are the two things I think on the fiscal side that I'm kind of keeping an eye on right now. And I think Powell's right to kind of say that, UM, you know, while their costs to doing this, UM, the benefits probably away the cost at this point. Neil, I love speaking with you because when I sometimes feel gloomy, you often bring an optimistic view to the table, and I'm trying to find the optimistic view right now, especially

after fed Share Powells testimony. I know that this is by design, but some of the statistics themselves all throughout one among people who are working in February, almost of those in households making less than forty tho dollars a year had lost a job in March. Meanwhile, Stan druck and Miller, the billionaire who has been very successful, said that the risk reward calculation for equities right now is the worst he's seen in his career. What do you

have to say about that? So? I think, Um, I don't buy into this idea that the markets have priced in some kind of of you know, glory V shaped style of recovery and it's off to the races. Um. I think that's sort of a red herring that people are talking about. It's like everyone's looking for a V shaped recovery except for me. You know, I don't. I don't buy that at all. I mean, I think the markets in the economy are more or less telling you the same thing. We've done a reasonably good job of

clipping off the left tail rist scenario. I don't think in L shape recovery is likely to happen on the other end of this. At the same time, we've opened things up a little, things have loosened a bit. Um. The process is going slowly and gradually, and we've had our initial bounce off belows and we're kind of treading water. So I think the stock market and the economy are more or less giving you the same message you asked for something optimistic. There's always been somewhere Lisa, and um

and and and I'll tell you that. You know, it's pretty obvious to me that the economy bottomed sometime in the middle of April, meaning the level of activity isn't getting any worse. If you look at specific sectors, loively, housing, there's some evidence that things are reviving a little bit more rapidly than originally anticipated. As an example, mortgage purchase

applications are up now four weeks in a row. This preceded the sort of expiration of some of these formal shels formal formal shelter in place orders, right, So, um, the housing market recovery started even before these orders went, you know, expired, and it's still recovering. It's up four weeks in a row. Um, we've recouped about two thirds of the loss since mid March. So um, that's that's a surprise. Um, and it's you know, I mean the fact that homebuying demand is picked up. I think it's

a it's a good thing, it's an interesting sign. So it's something we're keeping an eye on. Yeah, Neil Data, thank you so much for being with us as always. Uh, it's always wonderful to get your perspective, Neil Data, head of US economics at Renaissance Macro Research. And I will tell you in the housing market, Paul, I wonder how bifurcated it is with now on urban centers getting the

bulk of the purchasing right now. We hear so much about this in Denise PELAGRENI was talking about this how people are looking to get out of the city right now, perhaps because they've been sheltering in place in a studio or concerned about the density factor, but that seems to be something persistent. I wonder if it's going to be

your diehard city personally, you're not considering leaving the city. Well, I'm I'm born and raised here and I've lived outside of the city, but you know, for for the time being, I'm here, and it will be interesting to see how the city transforms, especially if it gets cheaper for individuals to live here. How that affects things especially, I'm not going to get into it. Vanguard is known as the firm that really pioneered the index fund, that really has

led the charge into passive investing. So it came as a surprise to some people in February when it announced a partnership with Harbor Vest UH Strategic Partnership to provide qualified investors with access to private equity, which is decidedly not indexible in the same kind of way as public equities. The question is, then the world got turned on its head. What is the opportunity now in private equity joining us now?

I'm so glad to say fran Can i Ree, principle and global head of Private Investment at Vanguard frand thank you so much for being with us. I would love to start just first with how strong or weak demand has been for private equity at a time when some of the smaller businesses that these firms invest in are getting incredibly challenged by the pandemic and related shutdowns. Oh yes,

thank you. And the supply coming in and the client interests coming in continues, despite as you mentioned, the health crisis and the market volatility. UM. I think a lot of investors see the case for private equity UM. The case also has extended in full and bear markets. So private equity tends to be a replacement to public equity or a compliment. And we've seen in other bear market environments where private equity has held its own. So Frank

gives a sense of kind of the thinking behind at Vanguard. Again, as Lisa was saying earlier, you guys are the big giant player and indexing, and what's the thinking behind getting into the private equity business. Yeah, thanks, Um. I think most people may now mel us as indexing, but when we started Vanguard, Jack Bogel started Vanguard, we started as an actively managed shop and our first offerings were active

uh in nature. And so while we get very well known for our indexing, I'm very proud of our indexing franchise. We're actually one of the largest active investors on the public equity side. We're also by far one of the largest active managers on the fixed income side, both taxable fixed income and tax exempts. So for us, we've always been a very large, vibrant, active shop, and private equity

just extends that from the public markets. For the private markets fran This was the rage heading into this crisis, or right before it, where a vast amount of money, record sums were flooding into private equity firms public private debt funds, the idea being that public markets were still flush with cash, that really the private markets were the

ones that still held opportunity. I'm wondering, though, liquidity and solvency are different, and there are people who are saying that private equity hasn't sold off to the same degree that public markets have, but it's simply a function of there not trading as much. Would you agree with that? Do you think that private equity has seen the same scope of declines, we just may not be able to see them in the same way. Yeah, that's probably correct.

There's three maybe main components. One, you have appraisal based valuation versus with the public markets are priced instant caneatives for liquidity at that second, so it's the price that will clear supply and demand. And whereas private equity is a much longer duration investment, so the investors and the investments themselves are much longer duration investments and they don't trade, so a very small amount trades relative to its float,

which is very different from the public equity market. So, Frank, give us a sense of kind of as you look at the market today, it must be really difficult to get a sense of where true value is. How are you and in your team kind of trying to work through that challenge. But the great thing for us at Vanguard, we launched on March five, and so for us, it's

for us it's a new uh. So we actually have no money in the ground, So we actually see this as very opportunistic for Vanguard investors because we're not We were not buying in November, December, January. We would have if we were in the market, but we are entering actually at a pretty good time because the valuations have reset. So where are you seeing the potential opportunities here? So we very much like our roots on the public equity side and public fixed income side, are offering is going

to be very broad based, very global. Um will likely have thirty to forty gps inside this offering, with seven to eight hundred different holding companies, it'll globally diversified. I don't want to interrupt you, Fran, but this sounds a lot like an index fund of private equity is that what it's aiming to be? Did we just lose frand did he just hang off on that question He was saying, I don't think so. I think we just lost him.

But that's sort of the question that some people have is that are we going to end up getting some sort of indexing factor among private equity funds and could Vanguard's entrance into it be that. I mean, that's not what he said. We didn't get his response on that. We will have to have him back to discuss it, because it is a really interesting point. In other words, how much mainstreaming are you gonna end up seeing in

the private equity industry? Paul, Yeah, And you know some people, you know, they see Vanguard and the likes of the Vanguards, you know, get into private equity that say top of

the market when you know, as you were mentioning earlierly. So, there's so much capital flowing into the private equity space in the in the period before the pandemic, and there's not that many places to find good deals, and we saw this cash kind of piling up on the sidelines and the question is is there too much cast chasing too few deals? Uh? Pushing the prices up and returns down. I think the days of getting I R are those are certainly gone. And the questions can you get double

digit consistent returns in the private equity market? If anything, though, Paul I will say that this downturn gives certain private equity firms certainly raising funds now a better chance of getting that I are going forward just given some of the valuations. Yes, and I think we're seeing a lot of money flow into a stress credit funds and uh, you know, you really if you can do your credit work, Uh,

you know, certainly some returns there. So we thank fran Fran Canary, principle and global head of Private Investments at Vanguard, joining us here to talk about the private equity business and the opportunities in a pandemic world. This is Bloomberg. The people are starting to debate how this coronavirus and

the will change economic will change consumer behavior? Is it changing consumer behavior and to what degree and across which activities you know, people are you know, as it relates to purchasing goods and services, people are doing more and more of it online and then when they do, in fact venture out to the stores, are they using more or less cash, deborit cards, credit cards, all that type

of things. Fascinating to see how this pandemic will impact consumer behavior going forward as we think about payments and how we actually buy stuff when we're out in the stores. Uh. We're really fortunate to have Lynda Kirkpatrick, President for the U s issuers at MasterCard UH joining us. So, Lynda, give us a sense of what you're seeing in terms of the credit and debit card activity on your network.

How is consumer behavior changing? Thanks? Called, Well, we've seen an increase in contactless payments in particular over the past couple of months. And you know, the payments industry has been investing in contact with capabilities for a while. So Linda, sorry to interrupt, but you know, to find what is contactless payments, because I find that it's much less prevalent in the US than it is, saying Europe. Yeah, that's right.

Calls contactless is where you have technology that's embedded into a typical credit or debit cards that allows a consumer to tap their card at a terminal rather than inserting it or swiping it and avoiding contact with the terminal altogether. So it's using technology that prevents that contact with the with the register and it's just the safe and secure is every other product on the marketing fact that it has the safest UH technology embedded into into the card.

UH and it's really a fast and easy way for consumers to go about their day and their purchases UH in general. So in with those with those payments, we've seen them in crease over the past few months. UH and and we believe this is a reflection of the current environment. We wanted to really under better understand how these consumer behaviors were changing and how we can support consumers and merchants as we moved through uh COVID nineteens.

So we actually conducted a survey seventeen thousand people nineteen countries around the globe and UH of those we've surveyed, nearly of consumers say that they're now using some form of contactless payments and they cite safety, health and security reasons as as key drivers of that. And you know, Mastercard's own data shows that our contactless transactions grew twice as fast globally and three times as fast in the US as non contactless transactions in grocery and drug stores

in particular. UH. So we are seeing arise in contactless both here in the US as well as markets outside the US. Even in our in our first quarter contactless transactions group forty per cent. I'm wondering, Linda, how easy it is to determine the shifts in the market right now, given how many people are staying at home and aren't spending as much, And if you could just speak to the not spending as much aspect a little bit as well, that might give people a sense of just how much

spending has contracted. Yeah, you know what we're seeing with respect to consumer spending is it's really being focused in the food and pharmacy areas. So people are still absolutely spending.

If you look at our transaction data and our purchase volume data, we're seeing, uh, we're seeing spend and we're seeing growth as of the end of the first quarter and into the second, but we're seeing it very concentrated in category that are everyday items and necessity items, and certainly digital and e commerce transactions have grown exponentially as well, So we've really seen a shift from uh, certain categories

to other categories. But we are seeing sustained periods of spend and growth, and again, contactless Uh, ways to pay are are really on the rise because it you know, it's a product that lends itself to an environment where uh, you know, the CDC and other health officials are encouraging consumers not to come in contact with with cashiers and terminals.

It's it's really the rough product at the right time, Linda, I'm wondering how difficult it is to get some of the stores that you partner with to invest in contact lists equipment now given their cash struggles. Yes, so the good news is that most merchants in the US have invested in contact with capability already. The upgraded the terminals to accept ship several years ago, and at this point we have six of our volume at MasterCard, actually close

to sixty happening at terminals that have contactless capabilities. So acceptance by and large is is there. Uh. And we actually had great commitments from are issuing financial institutions to issue those contactless cards, and many of them now are already in market. Uh. So we're now seeing the benefit of that investment on the merchant side and the bank

side as consumers are using these products more readily. You know, we wouldn't have anticipated when we started this journey UH several years ago towards you know, chip and contactless that uh, that we would have a pandemic that would make it ever more relevant. But but certainly now we have the health benefits in additions to safety and security benefits that contactless spring. Linda Kirkpatrick, thank you so much for being

with US. President of US issue or as at MasterCard based in New York, Well shares of grub Hub yesterday searched as much as thirty nine percent after reports that Uber was planning to buy the food delivery company grub Hub. The question is a will it get through and be What is the goal in the combination of both of these companies joining US now as man Deep Singh, senior tech industry analyst at Bloomberg Intelligence, So what would Uber

be looking to do with an acquisition of grub Hub. Sure, so one of the things that they are targeting is you know, positive even profitability. Obviously they set the goal for for Q twenty. We don't think that's going to happen even by the way, a whole lot of second, I'm not letting you get away with that. Basically, they're hoping to actually turn a profit at some point in life while they were trying to. But I think they

were hit really badly with this COVID situation. Uh, Sadara say his businesses recession proves, but it seems, uh, you know, the volumes are done about fifty to sixt in core ride sharing, and now it's a matter of can this be a growth company? And investors are rethinking the whole notion of you know, Uber having a long addressable market where it can keep growing you know, every year. That is out of the window simply because white sharing at its core is declining, like I said, in volume, and

we don't know when it will come back. Yes, the social distancing will be in effect for the foreseeable future, and even if things open up, the volumes are not going to come back right away. So we are talking about desoleration of pronounced deceleration in top line. And I think this is just an attempt to boost in organic growth. So grub hub kind of gives them one point five billion dollars in revenue, It helps them consolidate market share

and really lower cash burn. That's key because they were losing fifty cents on every dollar of revenue in Uber red. So this kind of at least helps them lure that cash burn, which I think is extremely important given you know, the concern around liquidity for both Uber and Left so many deposition you know, acquisition, potential acquisition of growth hub.

Kind of a tacit admission that the core right sharing business will not return to the growth rates it was before the pandemic, that maybe consumer behavior will be permanently altered, and one of the areas that may be altered. Is this the whole concept of right sharing. I wouldn't call it permanently altered, but I think for the foreseeable future, right sharing isn't coming back to the historical levels we

have seen. And the fact that Uber is doubling down on food delivery, which is a lower growth margin business where they're losing money, just goes to show how desperate they are to at least push that top line. Because the last thing you want as Uber, you know, a company that has got scale and network effects, is to have you know, decline in top line growth. And that is very much of a possibility if this doesn't happen, because the core business is, like I said, declining at

least for the next two quarters. There's a question Mandy it's a larger question about whether the sharing economy that was touted by so many of these tech startups and growth companies is dead in an era post pandemic. When you talk to individuals and when you look at the actual traffic at Uber and Left and how it's starting to recover in places that might be exiting the lockdown. There aren't many where Uber and Left have presents, But just in terms of the path forward, what are you

hearing on that front? Well, so look at Airbnb and you know pretty much everybody, uh you know on the food delivery side is also part of the economy, and I think they do serve a purpose at the end of the day. They're all part of going digital and you know, helping improve utilization. The problem is just the

cash burn. These business models are just not sustainable, and I think what covid situation has done is really brought the whole aspect you know of these companies just burning through cash quarter after quarter, not even trying to generate a profit. And really now the question is who can

hold on to the cash for long enough? And we think Lift, for example, is really in a precarious situation where they're burning about two million dollars of cash every month and they have you know, about two point five billion dollars in liquidity, so it just takes them up

to a year if the situation doesn't change. And I think liquidity is really the main focus right now for investors who can survive this period, which is at least going to be you know, I believe sticks to a twelve months if not, you know what, you know what this feels like to me? It feels like people are going to be paying a lot more to get the food delivered. I think so, yeah, exactly, And and it kind of goes to the point, uh, may man deep as we compare Uber to Lift, which investors are are

wont to do? You know, lift that the Lift story was were simplified, were core ride sharing? Uh? To the extent that that business maybe permanently altered or maybe not permanently but certainly significant offered over a longer period of time. What's the feeling about the Lift story now? Is it still the clear story or to still the one that needs to diversify? Yeah, I think the diversification aspect is clearly not being diversified is clearly hurting them right now.

And I will compare you know, Lift to somebody like Amazon. You know, both Uber and Lift have been uh cutting costs. They have been laying off employees. There is Zone is hiring hundred house and employees. Both of them are doing last mild delivery. So and and granted, uh, you know, Lift is a more one sided business model where they're

just doing right sharing. But why can't they adapt? I'm just kind of really baffled here that they weren't able to, you know, offer grocery delivery quick enough to offset that they decline in right volume. Why did they have to just go in the towel and start laying off people. And and I think their business model there kind of premise all along was personal mobility and they haven't really fulcated.

This is just you know, a one dimensional company just doing white sharing where they're they're supposed to have a lot of data where they can anticipate the demand and adapt. You know, they should have been able to do grocery delivery too, delivery much more quickly than than they have. And and that to me is surprising. Here Men Deep Seeing, thanks so much for joining us. We appreciate you bringing us up to date on Uber Grubhub, Lift and all that ride as sharing. Uh, it's going to be interesting

to see how this shakes out. Man Deep seeing senior tech industry analys for Bloomberg Intelligence, and it's interesting. Lisa. You know, I kind of was always joking with friends. I just said, you know, Uber and Lift, the whole ride sharing thing was one of the greatest inventions of all time, never thinking that it would have to deal with something like a pandemic and how that might you know, really really alter the way people do some of these

sharing activities like rides and or Airbnb. Yeah. I'm hesitant to make sweeping characterizations or extrapolations from this moment because the world changes when there is some sort of vaccine and people feel comfortable going out and about that's you know, the big caveat here. Yeah, exactly, So we'll see. But the you know, uh, Uber definitely dug doubling down on that diversification to food delivery business to Uber Eats, with

potentially an acquisition of competitor grow Up. So will follow that story as it develops going forward, along with Lee so Bramo Wits. I'm Paul Sweeney and this is Bloomberg. Thanks for listening to the Bloomberg pen L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa Abram. Why it's I'm on Twitter at Lisa Abram. Whit's one before the podcast.

You can always catch us worldwide. I'm Bloomberg Radio