Why Banks Must Lend To Those People They Normally Wouldn't

find a compass in an unprecedented period of time? Joining us now, Carl Weinberg, Founder and chief International economist at High Frequency Economics in New York, and based on your deckies of experience, including the restructuring of Latin American crisis back in the eighties, I'm wondering, what are you looking for to determine the floor here and get a sense of its time to buy? Hi? Good morning. Well, you know time to buy is more complicated than just economics.

I'm focused on the where the economy is going to be and how we're going to get through this. This bump in my experience, a difference between a downturn and a crisis is whether or not things break. And the question is whether this break and income is going to be severe enough to cause institutions, companies to fail and get us to a point where when we come back, we're not as strong as we were as when we

went into all of this. So, Carl, what are some of the type of data that you're going to be looking at going forward to get a sense of whether this is a little bit more of a short term issue once we get to the other side of the virus, or perhaps something more fundamental to the global economy. Well, here's what we're going to be discussing in our global webinar at High Frequent Economics later this week on Thursday morning.

I believe I'm looking at the data from China and I'm looking at January February figures, and I'm seeing plus down on retail sells over a year for the January February numbers. I've seen thirteen and a half percent down year over your on industrial production. And I'm wondering, could that happen here with our lockdown? You know they locked down, we're locking down. Why wouldn't we get the same result? And if we got that. I'm trying to guest of it,

because I've never seen anything like this before. What the impact of two or three months at that level of the press activity would mean for the solvency of small and medium enterprises, and for that matter, for the solvency of big enterprises and the banks that serviced them. This is the kind of the scale of the question that I'm thinking about, and it's framed very much by the data from China. Auto production in China, by the way,

dropped almost eight year over year in February. These are enormous numbers, and again one has to ask, if it happened there, why would similar clients happen here, and what would the consequences be. So have you started to model that out? I've started to think about I can't really model, at least because I don't have any historical data to hold it up against. So we're really in the realm of guests of it. And that puts economics of the

same places where the medicine is. We're looking at potentially an unprecedented shock I'll call it a supply shock by that reduces our capacity to work. It reduces the number of people who can get to their jobs, and that means we can produce left stuff. And along that sliding that supply curve to the left, we end up with shortages of stuff, higher prices, speculation scenario with dramatically lower output, and frankly, Lisa, I'm just beginning to think about how

to think about it. So, Carl, we've seen the side of reserve come in aggressively over the weekend last night with lower rates and some QE. What do you think is that? Do you think that what this economy really needs is a comprehensive fiscal package coming out of Washington. Um, we need a package coming out of Washington, But I don't think we need traditional fiscal stimulus, all right. What we need is we need to keep our our financial

systems sound and safe. And I give the fit and all the central of the banks of the world except maybe for the Bank of Japan hagh marks for ensuring that banks remain liquid, that they push credit to peep ball and companies so that they can use it. That the only way to survive this kind of a shock is to introducing a financing and credit into the economy so that we can spread the pain over an affordable

piani survivable period of time. So what we need our programs to ensure that banks, whether they want to or not, pump credit out the companies that are suffering cash for shore falls and household make it a credit, not a transfer, and then use that space of time that the credit allows to recover from what appears to be a much bigger shock than anyone had been thinking about until recently.

So you said that that traditional uh fiscal stimulus would not be necessarily what was required, and yet you have a growing amount of speculation that anything from helicopter money to bailing out entire industries would be a productive and not only productive, but crucial part of our recovery. I'm

just going to throw this out there. A q R Capital Management's Cliff Assness, who is a self described libertarian in at times, said today on Twitter, I am not a libertarian about coronavirus and say we need and I don't think I've ever said this before, fiscal help. We need fiscal relief for individuals and small and maybe large businesses. If that action was fine, and those who dismiss it are wrong, we should use all possible tools. Do you agree?

Um um? Sort of but not entirely. You know, if this is a supply shock, all right, means we're making less stuff. So if we give people money in their pockets to replace the money they're not earning a right to make the stuff that's not being produced, we're going to have more money than good and we're going to create an inflation. Shifting the demand curve to the right

I think is the wrong policy. Right, we need to get that supply curve moving back to the left, and we need the cushion what is an inevitable decline and income and loss of income and must wealth coming out of this, And that's when we have to start being realistic that if we keep people away from work for weeks or months, we're going to be poorer as a result of that. And the challenge is not to replace

the income that's lost. You can the challenges to bridge the adjustment to that lower level of income the lower level of wealth so that it's survivable. So I think that fiscal policy credit is the right tool to do that. And the government's role in all of this is to ensure that banks make loans the people that they normally wouldn't make. Right, if you go to the bank, then you say, I'm sort of cash, I need a loan.

You're not going to get it all right, when the banks have to be prepared to make these kinds of bridging loans, I'll call them, so that people can get the credits they need to survive the next six months, so that when the virus goes away, businesses are still in business and households having lost their homes and their life savings and all of that. So we need to bridge through this trauma and then recover over time from it. Carl Winbert, thanks very much for joining us. We appreciate

your thoughts as always. Uh, interesting to put in context. I guess it's question, Lisa's just kind of how long uh this um, the medical aspect of this at last? Is it a month? Is a two months? Obviously the longer ago, Lisa, the more profound the economic impact will be. And then that raises the question of what type of rebound will we have on the way back out. Yeah, it's gonna be a really tricky situation. People talking about five billion, six hundred billion dollar type of fiscal stimulus.

There's also a question of timing. How quickly, uh can they end up getting it? Given the fact that this seems to be imminent, there's more of a concern that there's going to be actually a failure of some companies to be able to make their bills. In your term, why even the big behemoths like Apple and Facebook are just getting hammered when a lot of people view them as likely to be uh, you know, absolutely withstand this

and then continue to gain on the other side. David Garrity has been tracking this, chief market strategist for leid Law and Company and partner at bt Block. I'd love to get your sense of of Big text involvement in Washington, d C. Stories about how they're trying to help basically assess testing, trying to figure out ways to do it so that people don't have to go to the doctor's office, as well as just gaming out hospital bed availability in real time. How will this end up reshaping big tech

in its relationship with Washington. Well, I think to the extent from an overall public policy standpoint, does a major effort underway right now to try to flatten the curve of coronavirus infection and certainly, you know, an important way to make that happen. Apart from saying that you know, we shouldn't have gatherings of more than fifty people in one place for the next two months, you know, the way to really make society operators to be able to

use technology to operate on a more distributed basis. Uh So, you know, certainly from that standpoint, big tech has a very significant role to play. Um you know, whether you want to go from looking at you cloud computing companies, uh e commerce to distributed workforce productivity names like zoom,

slad or distance learning providers such as to you. Uh So, you know clearly we're going into a mode here for you know, maybe the next two months of where you know, consumers are basically going to be you know, living at

home and staying at home and working at home. And you know what we have to think about here is that to the extent that this is a significant crisis, to the extent that people's behavior is being changed as a result of it, you know, here's a real chance for these companies to the technology sector to become even more of an integral part of people's daily lives than they were prior to this. So, David, I know you

have a lot of experience with technology stocks. Is it your call um that you know, these are still fundamentally you know, good businesses going into the crisis. They're gonna be fundamentally good businesses coming out of the crisis. And you're going to have some extraordinary entry points. Um. Or you just kind of scared about the valuation, you might want to get more defensive given this tremendous amount of

uncertaint involved they have. I mean, look, these are these are certainly going to be core holdings for anybody's portfolio we think going forward. Um. You know, the question that we have to ask ourselves is sort of looking at broader market levels, you know, where does it perhaps become you know, more balanced in terms of the risk reward

ratio um. You know, sort of looking at the SMP five hundreds, historically, uh, the SMP five hundred kind of bottoms out at thirteen times prior PEK earnings twenty times current trough. You know, if we think that SP five hurtings are gonna be down this year, you know, that kind of puts a floor on the SMP five hundred

about level. You know, granted that was down from what we were trading pre market, but it certainly says you know that that's a level where we think that kind of in between here and there, um, you know, there's gonna be some real opportunities for investors to come in and pick the right names. Uh. And and certainly we think that these names you mentioned earlier are going to be playing an even more important part in people's lives

going forward than they were before. I wanted to pick up on exactly that point because certainly one aspect of this whole epidemic pandemic has been the importance of being interconnected via social media, via Slack, via zoom. And I'm wondering who are the biggest winners that maybe are not as obvious as the Zooms and the slacks of the world. Well, I mean, certainly, if we're looking at places where it's you know, safe to keep your data stored, cloud computing

continues to be quite strong. I think one of the names you mentioned earlier in terms of distance learning, there's a company to you, mid cap company, about two billion dollar market cap. They work with educational academic institutions to help enable their distance learning capabilities in terms of the ability with their programs out um, you know, to students. And certainly from that standpoint, that's going to be significant

going forward. Um, we know that Pierce Publishing Company had a company called the Blackboard that they had acquired that that on its own, I think is a really small part of the overall enterprise, and maybe not may not be so much of a cure play as some of

these other names. So you know, clearly we're looking at a market here where investors are looking for large liquid names, albeit today to sell to raise cash, but looking at large liquid names that people can easily own a part of going forward, you know, looking at some of the names that have been mentioned along this line, even a were to be Slack re Zoom, I think are also two quite good names um to be looking at here

as well. There's also a question about cybersecurity, especially as more of the information moves to the cloud, and this is all the more relevant today when we learned the US Health and Human Services Department suffered a cyber attack on its computer system Sunday night. It said that this did not affect its response, the timing, or the scope of its response to the spreading coronavirus. But still very

much front and center is the cyber security. What's your sense about how good that is in terms of the big tech giants is an increasing amount of business and

activity moves online. Now, I mean you've raised a very very good point because you know, not only are we operating operating in a real economy environment here where people's personal hygiene is critical, but also to the extent that life is shifting more to be supported online or virtually looking at our technology, our tech hygiene is critical in

this regarden. So, yes, cybersecurity is an area where there is an alarming a number of security breaches or hacks, and so from that standpoint, you know, the need to improve cybersecurity is necessary from here certainly as we're looking at an environment right now, people's attention is focused on you know, what are we going to be doing here to support people's incomes? Is you know, unemployment rates probably

spike over ten percent more um. You know, we also be thinking about a public private sector initiative that goes more towards enhancing the cybersecurity not just of the U. S. Government, but that of the individual citizens. David Garretty, thank you so much for joining us David Garritty laid Law and Company sharing his thoughts on the market. We always appreciate

David's thoughts particularly on technology. And again, you know, I think a lot investors are selling tech along with everything else. As David mentioned, I want to take a look at the medical side of coronavirus, in particular, how we track it, how we test for it, and frankly, how close we are to actually crying it or solving it, or a merely rating at least the effects. Luckily, we have Max Nis and Bloomberg opinion columnists covering all things healthcare with

us today. Max, I want to start with Anthony Fauci, who is the director of the National Institute for Allergy and Infectious Disease. Yesterday he was testifying in front of Congress, and he said, he admitted that it was a failing of the US health care system that we did not have sufficient testing at the outset. Can you just walk through why we did not have better testing available right away so that we could track and isolate people immediately.

So there you know, any number of reasons or failures for this um you know, a failure of cooperation between agencies like the CDC and the f D, a failure to bring in private companies and state labs rapidly enough, decision at the outset instead of using w h O developed tests, one that's been deployed all over the world. We decided to develop our own, which turned out to

have problems. The introducing those problems obviously created difficulties and and slow the raw and beyond that, um just an overall decision by the government for um, you know, not necessarily the best reasons to restrict deliberately the number of tests that were deployed and developed, and and like the number are people that were tested, limiting it only to people with the direct travel history to China in spite of the fact that there was you know, already evidence

of spread in other parts of the world, and you know the reality that the earlier you know, better to overtest and under test. And we really didn't even get to that that mindset until just a few weeks ago. So failure of leadership, failure of science, failure on on many many levels has led to this this point, Max, where are we right now in terms of the number of kits we have in this country, how widely dispersed they are right now, how easy is it for somebody

to get a test? And and just kind of where are we today? Do you think Unfortunately, all that we really have are sort of these ad hoc estimates. UM. I'll point people to former FDA Commissioner Scott Gottlieb, who has been you know, talking to state labs of the CDC, private companies trying to come up with a reasonable estimate. UM. So we we really don't have a confer number unfortunately, And UM it seems to be the case that you know, your ability to get tested really depends on where you are.

Are you in a state that that took early steps to to you know, develop its own tests to stand up at more capacity than it needed any any given moment um, where we're still not at a point where everyone who needs to be tested can be unfortunately, and probably won't be for a little bit to come. Although Anthony Fauci did say today that he expects the number of tests to increase dramatically over the upcoming weeks and part because the US government is partnering with private companies.

Can you talk a little bit about that, Yeah, absolutely, So this is basically you know, looking to companies like lab Corp and and Quests, UM, you know, these sort of brand name companies that have labs all over the country, and UM, just basically making sure that they too are are part of this effort that you know, if if a public lab is overwhelmed, if there isn't one available, send it to these companies and they're finally beginning to to stand up capacity to to get you know, validate

these tests and begin to run them. That will be a huge help because they're they're more dispersed um and and potentially you know, quite capable of running a lot of tests. You know, we're not at the stage where even they are are going to provide all the capacity we need, but they will certainly help a lot. Let's talk about cost, Max, I know you're out with account. A really interesting coronavirus crisis makes a case for medicare for all. Talk to us about that. Does that actually

have some legs? Yeah, so, you know, the it's a uniquely American um phenomenon that in addition to people worrying about getting coronavirus, if they're smart, they will also be worried about the cost of getting coronavirus um. You know. The first step is obviously testing. There's been an effort from insurers and from individual states and the government to make sure that that that that people won't be faced

with costs. But that's you know, you actually have to take really aggressive steps to make sure that even testing in a pandemic is not going to cost people thousands of dollars. And then you get to the stage of of whether when people actually have a hospital stay. UM, you know a lot of people that don't use their health insurance that often assume that they're protected from unexpected bills.

But if you end up with an inpatient hospital stay, you're gonna hit your deductible UM, You're gonna potentially face coinsurance, and that will get you to your plans out of pocket maximum, which in many cases is in the thousands of dollars. And that's a financial strain on many companies. And that's the best case scenario. There. There are steps of the government can take in an emergency to kind of prevent that from happening, to protect people from costs.

UH still in the works and and unclear whether it will be broad enough to help. I'd argue that you might want a system in this what I arg you might call them where you don't have to take emergency steps to protect people from those costs. Max Kinison, thanks so much for joining us. We always appreciate your perspective on all things healthcare. Maximison is a biotech farm at Healthcare Commas for Bloomberg Opinion. Joining is here in a

Bloomberg eleven three oh studio. Thank you, Max. I mean, honestly, that's just to me. Highlights a lot of weak spots, and you know, there's there's a question of how much is going to be temporary and how much will this entire episode reshape the way some people think about a variety of different issues, this medicaid from medicare for all.

I think we'll be back on the table, certainly for the Democrats as they think about, you know, kind of how to position uh, the US against some of these pandemics. 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 abramoits one before the podcast. You can always catch us worldwide on Bloomberg Radio.