Square Working With Government to Speed Up Small Business Payments

by the shutdowns from the coronavirus pandemic. Someone who's very clean clued in to exactly how these businesses operate and how they can survive and thrive going forward. As Jim mccalvey, co founder of Square, that incredibly popular payment system electronic payment system used by many small businesses, also the author of a new book, The Innovation Stack, Building an unbeatable business, one crazy idea at a time. He has a former glass blower who ended up founding one of the pre

eminent mobile online payment systems. Jim, thank you so much for being with us today. I wanted to start with just anecdotally, given your conversations with small businesses, how hard hit have they been from this whole episode? Oh my god, Lisa, They've been tremendously hard hit. UM, and everybody knows it it's uh, but nobody knows the extent of it. We are watching, uh, some businesses closed, We're watching employees and panics. UM,

It's it's bad. And I'm actually still in the art world and I still run a small studio and my staff was terrified, UM, because we had to shut down. So why is this time different than other times when you talk about financial downturns? So this is the first time there's been a voluntary shutdown of a healthy economy. So I'm also a director of the St. Louis Federal Reserve, and so I get to see the economic data almost

in real time. And we had a very healthy economy going in UM, and we elected to voluntarily closed down, uh, the economy to solve a medical problem. Uh. This is different than most recessions. Most recessions just happened because there's some structural problem in the economy. There was none in this case. What happened was we had this medical emergency and to fight the disease, we had to close the economy.

But it's different. So yes, you you do run an art studio and you are a glassblower, I believe based on your bio. Yet you did also found co found Square, which is one of the key technological advances for a lot of small businesses. And I'm just wondering the role of tech at this moment when so much business is going online. How are you seeing this sort of transformative moment for small businesses in the relationship with their tech infrastructure. Well,

they're super defended on the tech infrastructure. As a matter of fact. Square has been rolling out new products almost every day to help small businesses adapt, and we're putting

new products in their hands. Uh, you know, probably one a week now, allowing restaurants to turn to a delivery and pick up, uh, making our software free for companies that need it, and basically look um, this in some ways helps companies that have modernized their processes to use electronic payments, to use electronic record keeping, to use electronic meetings, to use distributed workforces, and it's forcing a lot of

other companies to get with the program going forward. I'm just wondering, do you expect a lot of these smaller businesses to go out of business completely or do you think that they'll just be a sort of transformation as far as weeding out the most successful successful ones. Well, I mean, there's certainly going to be a winnowing down of companies that were not well prepared for this, But the real tragedy is that there were a lot of

healthy businesses that are getting caught in it. The government's trying to step in. One of my great concerns is that the government is doing a lot of their aid through uh sort of antiquated paper based systems, and it's not going to get the money to the people that need it and the businesses need it fast enough. So at Square we're working diligently to try to give them the tools for instantaneous or near real time um action

if the government chooses to do that. Wait. So, in other words, you're working with the government right now to try to make these payments electronic. Yes, so, I'm Jack said a tweet about this a couple of weeks ago.

But basically, our whole company stands ready to give whatever aid we can because we've had the electronic rails working for several years, and they work with millions of businesses and scaling for millions to tens of millions or hundreds of millions is not as difficult as scaling from nothing to you know, project number one. Jim McKelvey, thank you so much for being with us and for sharing your insights.

Jim McKelvey as co founder of Square based in St. Louis author of The Innovation Stack, Building an Unbeatable Business, One Crazy Idea at a Time, a new book that's out. He also is a glassblower, which I really love as somebody who used to do sculpture a long time ago. One of the key questions for markets going forward is whether inflation will actually start to pick up this time. Typically, in the past, the idea has been theoretically, when governments

print money that leads to inflation. It didn't happen in two thousand nine. People are expecting it not to happen again. But are they wrong. Maria Murphy joining us now vice president and portfolio manager at Lomas Sales, which oversees nearly three hundred billion dollars and is based in Boston. Mara Maura there This to me is one of the most important debates at a time when people are basically shrugging

off the concept of inflation. Going forward, even as governments and central banks unleash some of the biggest financial packages ever to hit markets. Do you think this time is different the two nine financial crisis and that this actually will spurf inflation? Hi, Lisa, thanks for having me. Um. You know, it's certainly different this time, and that the pace and the size that the FED is is going and buying right now is drastically different than any of

the other quei's we've ever seen. They're really doing this at what I'd call a sprint pace, and we need to get ourselves into this marathon mindset rather than the frint we've been in, because they need As you see this week, they're already starting to taper the pace of their purchases and we'll see how the market responds to that.

So far, as you mentioned that break evens are off their lows um which suggests that the market is no longer pricing that real fear of deflation or disinflationary risk, but we're still well off the levels of being afraid of inflation to come. I think the thing to watch that will be key to see if we do good inflation this time with all the easing, is what happens

with the dollar. We need to watch for that excess dollar liquidity in the market, and given the amount that we've seen with increased swap lines from the FED, a weaker dollar would finally perhaps give us that impotence for inflation pressure. But I think that's a lot further down the line, and right now we need to be focused

on the pace of the seed byon Alright. So, I guess inflation is sort of a hard concept to to get your mind around because there are a lot of different components to it, and there are a lot of potential scenarios in terms of whether the financial package from the FED continues to accelerate or if it does slow down.

As you talked about, there is a much more concrete issue of bond yields, and we're looking right now at tenure yields at at three quarters of a percent, and you're seeing people expect that rate to actually go down over time, even as the US prints unprecedented amount amounts of these securities. At what point will that increase in

supply lead to higher yields. That's the ultimate question here, right is timing on all of this, And I think unfortunately we still have too many unknown to really have

a good sense of when that actually might occur. The Fed is talking about issuing T bills right now for um supply to pay for this stimulus, but eventually they may need to issue on the back end of the curve, which I don't think we have a lot of natural demand there right now with levels as low as you mentioned, because people are starting to step into some of the new I G issuants rather than to day in the safe case incursory assets, but volatility remains really high in

this asset class. The set has improved liquidity, but ball is still there. And so I think, you know, given that we're likely to see bigger move in per day, and the range of yields that we're going to be in will likely be wider than we've been used to. So when we used to trade in a range of twenty to thirty basis points on ten or thirty year yields, now I think that range could be a lot wider while we try to figure out where the right level is based on the supply that's coming and based on

the buying that's happening. The volatility has pretty significant consequences, not only for the Treasury, market, but also for credit. And I'm wondering what this does for investment grade bonds even as they're back stopped by the Federal Reserve, given the fact that they're more sensitive than ever to the fluctuations in the volatility and treasury yields. Yeah, one of the patterns we've seen over the last week is that all of this new ig issuance that's come to market, Um,

you have deals that are highly oversubscribed. Um. I'd liken it to all of us right now, rushing to get that online order. We all wake up early and we're trying to, you know, secture that online delivery for our groceries every day. And are you are you actually succeeding, by the way, are you? Are you? It's so hard, isn't this? I have I've failed every single day. I actually have to go out, get get geared up in my hasmat suit and go to the grocery store. But

carry out please. So you know, if we think of it like that, we have this rush for everyone going to the same space right now because that's where the FED is supporting. So you know that old adage of

don't fight the bed persist here. So you want to be in i G and that UM demand for these high quality, large deals is really persisting and I think that will continue UM and we've only probably just seen the start of that, and I think to strengthen the secondary will be the next order of operations after all of this new issue. So it sounds like you're overweight

investment grade? Is that right? Yeah, We're We're constructive on the new issuants here, and we like the level of yields after the backup, and I think given the natural buyer and the stead it's a place we definitely like and we'll be adding to What about high yield UM, it's a little bit harder to source high heeled paper right now. Uh, We're we're having we're seeing that UM i G with that excess supply is a little bit easier for us to be buying right now UM in

a high yield. I'm just not sure we have a good sense yet, UM. Given the unknowns with the recovery of you know, how how long will this last? We how fast can company is really resume normal operations and how big and how you know, what's the magnitude of this recession and not knowing those unknowns, it's hard to really assess recovery values and highlo companies, and so I guess we're just not ready to say that the uh, the bounce is real here yet, so we're not adding

to their respectors at the mall. That's really compelling to me. You said it's difficult to source paper. In other words, has a dramatic move that we've seen been largely on paper, and nobody really wants to solidify their losses by actually selling the underlying bonds. Is that is that what you're saying. Liquidity is definitely improving across the board across most markets, but I think it's it's perhaps not necessarily people stepping in to buy yet in large size. UM, this this

sell off has happened very quickly. I think, you know, less than a month, or just about a month is how long it took for us to hit the bottom here if we did hit the ball them, And that's, you know, the fastest pace we've seen in a long time. UM. Back in eight seven, it took about seventy five days for the peak to trough to occur, and this time it took less than thirty. So given that it just happened so quickly, I'd be shocked if there isn't more downside to come, and I think in light of that,

it's it's unwise to be stepping into risk here. Maura Murphy, thank you so much for being with us. Mor Murphy, vice president and portfolio manager at Loomis Sales with almost three billion dollars under management, based in Boston. I'm Lisa Abramoy. It's by co host and colleague Paul Sweeney Off today from New York. This is Bloomberg Markets. There's a keig question in the transformation of the US economy right now that's going on in the heels of the coronavirus, and

that is what is the state of the consumer? Will they be able to maintain the recovery that we saw that will have to happen yet again and may not happen yet again for another couple of years. Joining us now is David Coudla, chief executive officer and chief investment strategist at Mainstay Capital Management. David, this has been a sort of key talking point for years that the American consumer is very strong. Right now we are seeing an

absolute demolition in confidence among American consumers. How pivotal are they in the recovery from this period of time that we're looking at, it will be very pivotal highly. So the you know, the consumer is two thirds of the

U S economy. And how the consumer uh comes out of this in terms of their UH, purchasing habits, the consumer sediment, consumer confidence, how soon consumers are willing to re engage the economy, how unemployment affects their behavior coming out of this, how pay cuts because some of the you know, there are different impacts on different parts of

different demographics across the US. We have some that are going to be unemployed for a certain period of time, and the fiscal stimulus packages addressing some of that, uh in a meaningful way. UH. There are others that are going to just have haircuts in their pay A lot of the automotive industry here in Michigan have pay deferrals um that or pay cuts just straight pay cuts that will go on for months, and so that's going to

be affecting, you know, consumer discretionary activity. So UH, it's yet to be seen, you know, so much of this is unknown, but it will be key and how the consumer behaves coming out of or on the other side of the coronavirus restarted the economy. Yeah, I was looking at a story out of the Financial Times, the survey that they conducted this. It came out today that nearly three quarters of Americans say that coronavirus pandemic has reduced

the family's income nearly a quarter. So their household income had been cut very significantly, according to this poll. And you're very much at the epicenter of that when you look at the auto industry in Detroit and how much has just come to a complete halt. How much long term damage will that do? I mean, that's sort of a key question. I'm wondering how quickly can people revive, not just from a balancee perspective, but from a confidence perspective.

Is there any kind of historical precedent. I don't know that there is. You know, this is the first recession that's been brought on by um, a pandemic that's been brought on by any kind of disease or virus. So

it's unknown in that regard um. You know, we have some predictability and that you know, we came into this with a really an economy on pretty good footing in terms of being at fifty year unemployment, we had rising wages, we had a strong relatively strong consumer coming into this, and then the economy didn't shut down or slow down under normal business conditions are a normal business cycle. It

was an artificial restraint. We the government actually shut down the economy and we're then we're going to fire back up. But there's some natural things or natural or human factors that have to happen for that to reoccur. So there are a lot of unknowns in that. As an investor,

how do you trade around this? Well? I think for now, I think that you know, these last two days, there is a lot of optimism about you know, what we saw over the weekend in New York City, the improvement of the last several days in Europe, specifically in in France and Spain, in Italy, um, and so there's confidence about the number of new cases slowing. But uh, you know, we know that there we have a long way to go here and the economic impacts are still to be realized.

So I think that investors need to be careful about thinking that this is this is behind us, and we think that it's still important to have, you know, some defensive posturing in play, some hedges, in place in your portfolio, because there's there's still volatility ahead. We still got some some pretty bad ecademic numbers to come out, and uh first quarter earnings and even second quarter earnings that are

gonna be pretty abysmal. So do you think that you'd be uh selling this rally and that you expect the US equity markets to test new lows. I don't know I full test new lows, but I think we've certainly got a down draft, uh more of a down draft from from some point here. I don't know how much further this rally can go. We're seeing it fade a little bit as we get into trading today. You know, very strong rally yesterday, Futures were strong again this morning,

started to fade a little bit. It's it's it's uh, you know, come and go today through trading this morning. But um, you know, we we see, you know, we're in a what we're calling right now an event driven bear market, not a not a secular bear market, not a you know, we don't think that this is a more than too an O eight O nine top type of bear market, that this is still just an event driven beer market that will just last a few short months and not a couple of years or or or

uh a year or longer. We think that we're coming out of this and by the end of the year the economy and stock market will be on pretty good footing again. Um, that's yet to be seen, but that's that's our forecast right now. The economy and the stock market are two very different things. And there's a feeling that the stock market might recovery, but the economy the economic hit. Very few people at this point are are putting conviction behind a V shaped recovery in the economy.

What gives you confidence that this will just be a couple of months and then all those jobs will come back. I guess it's it's it really comes down to, and we don't know right it. It comes down to how long the social distancing needs to go on, um, how the data coming in relative to the number of new cases. And then what we talked about earlier on how uh the consumers re engage the economy, how people get back

to work. Um, the the uh you know, continuation of or the continuation of unemployment for a period of time. The longer goes, the more businesses to go out of business, the more people that are suffering that much longer makes it that much harder to restart the economy and and starts to manifest into longer term effects. That's the that's the risk. So the sooner we restart the economy, and I'm not suggesting we do that, it's got to be

health and safety first. But the sooner we restart the economy, the less the effects will be. If you look at China as a model, um and as much as we believe the data and the recovery, but there's you know, there's measurements that we're taking that are being taken to to see that what the real recovery rate is there and how much factories are actually running and so forth. But they really did have somewhat of a V shaped recovery in a matter of a few months from the

time they went down to come back up. They're not running it full production now. It's questionable as to what market sign ship too, but you know there's a model where it all happened literally in a few months. Yeah, David Couldla, thank you so much for being with us. David Couldla, chief executive officer and chief investment strategist at Mainstay Capital Management with nearly three billion dollars joining us

from Michigan. There's a question right now about the progress of the coronavirus and some of the measures put in place to limit a limited spread in Europe. They appear to be working. However, we did see an increase in the number of deaths in Spain, and there is a question right now around the leadership of the United Kingdom. Is Boris Johnson, the Prime Minister is still in the hospital and in an intensive care unit being treated for

the coronavirus. For some insight on what we should take away from this episode, let's bring in to raise Raphael Bloomberg, opinion editor covering European politics and economics. Trace, of course, our thoughts are with Boris Johnson, hoping that he does

recover from the virus. On a bigger level, though, is there anything that we can take away in terms of the leadership of the United Kingdom throughout this epidemic as well as beyond and what the future brings in terms of Boris Johnson's government, Well, the UK does not, like the US, have a vice president or vice prime minister role.

There's no constitutionally designated number two at present. Foreign Secretary Dominique rob a cabinet member and one time rival to Boris Johnson, has been designated as his stand in for day to day policy meetings, and the cabinet is says it's taking decisions by consensus now that can continue for a while. Should Johnson become UH seriously incapacitated, should he sign UH, then it's a different process. The Cabinet would then choose a member to recommend to the Queen to

become prime minister. There's no acting prime ministerial role in the UK constitution. They would simply become prime minister. But I think that's sort of getting ahead of ourselves. Johnson, the news out this afternoon is in good spirits and stable. He's not on a ventilator, as you said in your introduction, so the hope is that he will be able to return to full work. Um whether that will happen in a few days or much further into the future isn't clear.

And Soris forgive me for being I don't want to say cynical, but cynical. We got communication out of the United Kingdom the forest Johnson was totally fine, they were mild symptoms. Then we got information that he was just brought to the hospital for a precautionary check. It was just a precautionary measure. Stopped getting your nose. A lot of joint about it. It's no big deal. Then we hear he's in the ICU, but he's not an a ventilator.

He's fine in everything is copasetic. Is there a trust issue here or you know, is this just sort of a protocol for a leader of a nation. Yeah, I mean, I wish I could answer that with any great certainty. There are moments when it has felt a little bit um, you know, like uh, you know, like watching the old Soviet leaders and wondering what's happening. I think what we have to bear in mind is that this virus um

operates in in sort of strange and mysterious ways. There are cases where a COVID nineteen uh suffer will the experiencing fairly moderate symptoms that persist and within hours it gets much worse. So it may be that uh, the the Downing Street was putting a positive spin on things. And it may also be that the Prime Minister, who we know, uh, you know, we know from his biographer that he doesn't believe in illness. He tends to work

through illnesses. He doesn't really tolerate it in his staff that he may have just been pushing himself, not being quite um, you know, as as uh as careful about you know, looking after himself and resting, and things might have deteriorated quite quickly. I think we're not going to know that for a while. The Downing Street is going out of its way right now to say that they

are being transparent. They're updating the media regularly. Um. But that's a legitimate question and many here are asking it. Just shifting gears to the continent of Europe, there is some talk about reopening parts of certain economies as the virus does appear to be plateau ing when it comes to the account of deaths in new cases in certain hotspots, I'm wondering what the latest is on that. Well, the epidemiological curve is at a different place, or let's put

it at this way. Different countries are on a different places on that curve, and those that have taken earlier measures or whose um death rates and infection rates are slowing, are now starting to contemplate um loosening those measure us. But it's a very uh, it's a very finally balanced

decision because there is no vaccine. As we know, there won't be a vaccine most likely for a while, and there's always a risk that in loosening UH controls you see another surge of infections, and then it then becomes harder, as the a team that advises Boris Johnson keeps saying, it becomes harder to re reimpose those controls after people sort of you know, get a taste of of having some freedom. So I think we're likely to see this

progressing by fits and starts. Perhaps some schools will reopen, or certain um you know, still fairly essential businesses will be allowed to operate, not but people will still be encouraged to work from home and that sort of thing.

There's also discussion of issuing immunity passport, so those who have tested positive in the past, have had COVID nineteen or who antibody tests show UM have had it, even if they didn't experience symptoms, would be given so kind of certification so that they could use public transport, return to work, and communicate to you know, to anyone that

they are not UM, that they are not infectious. But that depends on getting the disease being a sort of one and done rather than something that can you can be reinfected within a short period afterwards. Torereas Rafael. We are all living in a science fiction novel at Toreas Rafael, Bloomberg opinion editor covering European politics and economics. It does feel like it is a scene out of some sort of surreal science fiction when everybody is being tested for

their immunological defense mechanisms to this virus going forward. 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. Paul Sweeney, I'm on Twitter at pt Sweeney and Lisa A. Bramoids I'm on Twitter at Lisa A. Bramoids one before the podcast, you can always catch us worldwide. I'm Bloomberg Radio Monty