Years Before U.S. Gets Full Employment Back: HFE's Weinberg

you listen to podcasts, as well as at Bloomberg dot com. Paul, I gotta say I'm looking forward to the time when economic data releases are less emotional, when you don't sort of feel this sort of stunning shock every time you see a new unemployment print. I gotta say, yes, the jobless claims came in, uh less terrible than people had expected.

Five point two million people lost their jobs, and we're just seeing one statistic after another defy any historical precedent, and it raises a question with an economy and free fall, how quickly will it take to climb out of this hole?

And joining us as someone who's been tracking this for decades and who has a good sense of what perhaps is the historical pressed or lack there of Carl Weinberg, I'm so glad to say a founder in chief international economist of high frequency economics joining us now, Carl, when you take a look at these jobless claims, what's your sense of how many of them can actually come back once the economy starts to restart and we do see a sign of a plateau ing of the pandemic. Hi, Lisa,

good morning on this grim day for data. UM. The answer to your question is simple, I don't know, and UM not to go anything to get that answer a lot for me today. In order to be able to forecast the future, I think we have to have at least three basic facts that we do know, none of which are evident right now. How long is this going to go on this lockdown? Number two? How low will the economy for what will be the bottom for GDP

growth and for the peak for unemployment? And number three, how many firms are going to not make it through all of this and not come back, because that will give us the starting level of the unemployment rate when we come back. If uh ten percent of the firms that that are out there don't come back, then ten percent of the jobs will be last will be starting with an unemployment rate in the double digits, and that will gauge how long will we come back. How long

it takes us to get back. So Carl, give us a sense of how critical it is for this the folks down in Washington, in in in Congress to really be consistent and aggressive with fiscal stimulus that we just heard today. That's small business part of the initial fiscal stimulus that has been exhausted as of today. Um really putting pressure on Congress to act once again. Yeah, I mean it's critical. I wouldn't call it fiscal stimulus, Plaul, I would give it a different name. I would call

it bridge financing. What we're really doing here is we're taking companies that have an unsurvivable hit to their cash flows and we're letting them finance that hit over an affordable period time of time. It's it's the oldest trick

in banking. It's restructuring. We're restructuring the pain. So I would say that we have to get bridge financing in the hands of companies that needed a S a P. Because once they fold and the jobs are lost, then no matter when we unlocked down, we're still going to be at a very We're not going to be able to put these people back to work. So based on

what we've seen in China. Some people are saying the economy can restart uh in a fairly robust manner just looking at copper demand and other gauges out of China. Do you clean the same kind of optimistic signs based on what we're saying, Well, you know, I'm questioning our high frequency economics readers not to use China as a blueprint for what to expect here. And the reason is

is that they're rather draconian. Lockdown probably I'm going to say probably contained the virus to one province, and even though it was a big province, it's only five of the economy. So they never locked down the entire economy as we did, so the pain is felt in a in a smaller portion. I was sure that the supply chains words are linked, but we didn't see companies failing around the nation. Now everybody's going to say that Old China is lying, they're not reporting the numbers, blah blah blah.

All right, but if we had seen a national shutdown there rather than just the provincial shutdown there, there's no way to cover that up. Alright, China has definitely been hit, but I think they were nicked a lot less than we're being nicked over then we're being hit over here, And Carl, I think the initially there is hope. I think I'm going to use the word hope as opposed

to anything else for a V shaped recovery here. But it just seems if we're going to get some of the numbers that people are talking about, i e. Thirty decline in second quarter g d P, you know, kind of plus unemployment, that type of shock to the system suggests that that may cause some real structural, longer term damage. How are you kind of thinking about those aspects. I think people who see the solution as a V shape recovery defined in terms of growth have to rethink their

arithmetic starting from day one. You know, the rate of growth of GDP is irrelevant to how we're going to come back. The unemployment rate is linked or the number of the level of employment is linked to the level

of economic activity. So if we go down in terms of level, right, and then we come back to the same two percent GDP growth rate that we had before, then yes, we will have a V shaped recovery in terms of growth, but we'll be starting with fewer jobs in the economy, and it's going to take a really long time to come back from that. The V shape in terms of growth is a nice thing to think about. It makes us feel good, but the real problem is of V shape in terms of the level of GDP,

and that's going to take years to get back. So it'll be years before we get our full employment back. Well. Interesting, Yeah, that's kind of I think where some people as more and more data comes in, kind of thinking discounting that V shaped recovery called Winberg Founder and Teeth, International Economists for High Frequency Economics. Thanks so much for joining us. Always appreciate your perspective. So, Lisa, kind of an interesting

day to the markets here, kind of very mixed. You've got the NAST deck up over one percent, but the down and SMP just kind of flatished now actually down about half a percent. So it's kind of a strange day in the marketplace. We had that terrible jobs number again again, the cumulative million jobs lost over the last several weeks. That's equal to the total amount of jobs that were created since the financial crisis, So just extraordinary. People are just trying to question how do I position

myself in this market? Nobody better to chat about that Lisa Than Barry Ridholtz, rid Holts Capital Management, Bloomberg Opinion columnists, and podcast extraordinaire. Barry, thanks so much for joining us. Okay, the job's number came in ugly. We're gonna get some terrible unemployment numbers. We're gonna get some terrible g d P numbers. Is it reasonable for this equity market to

be looking to the other side? Yes and no. I mean a lot of what the market is looking at is what's what's unknown and what sort of probability bet markets can make. Look, we already know that we're in a deep recession of not a depression. We're probably coming close to the numbers we saw during the Great Depression. I've seen some some people say we have eight or nine or ten percent unemployment, that that's a way legging number. We're probably closer to twenty on our way to if

this lockdown continues much longer. So the market already understands that the market is already reflecting that. The question is as we start to see various things to test, as we start to see various ways of treating the virus, as we come to the end of the really really bad part of not knowing what happens next. Markets are

making up half the losses and then some. I certainly wouldn't be surprised if we saw a retest of those prior lows, and if the news doesn't get any better, we could make new lows um But historically markets are trying to figure out where is the greater risk to the upside or to the down side. When you fall in a month, the risk tends to be towards the upside. And that's what the market has been working off the past couple of weeks. That and a two trillion dollar stimulus. Right, Barry,

here's what I'm struggling with. It all makes sense if you're a long term investor, these companies have value, we will bounce back. Blah blah blah. I get it. I hear it every day and I and I buy it to an extent. And then you have people who are basically saying the entire paradigm is changing. You cannot put the world on hold. People are staying at home. But there's a transformation going on in terms of business, in terms of priorities, in terms of savings and household wealth.

And will the other side of this look profoundly different, with a different inflationary point of view, with a different tax structure, with a different social kind of fiber. Well, there's an easy answer to that, and and and then the more challenging answer to that, and let me take into that order. The easy answer is, pre existing trends are going to accelerate, and things that were already beginning to happen are going to happen much more quickly. And

a couple of quick examples. The United States has been over retailed, much more square footage on a per capita basis for retail stores then say the UK or Japan or Italy, and so that giant footprint of retail stores were already pressured. This is just going to accelerate that. This is going to accelerate the move towards online. It's going to accelerate the move to get rid of giant

shopping malls. They're gonna have to come up with something beyond here's some stuff, come buy it as a business model. But that's been in place for that trend has been in existence for two decades. Same with the remote work, the virtual work, the work from home. I mean I've been working at home on Fridays over the summer for years and years, and over the past couple of years it became easy to keep doing that. I wonder how

this is going to impact office space. It dawned on me that for the for the ten thousand square feet I have in my office, I could probably fit double the number of people if if people don't need to work nine to five Monday to Friday, you can change that. That's a something that was already in the works over the past couple of years. That's going to accelerate. And then they're generally speaking, the move towards service economy away

from actually physically manufacturing goods. That continues to accelerate. The more difficult question is what's going to reverse the fact that we have just in time deliveries and just in time supply chains. That's gonna have to change in some way. Thea that we don't make all sorts of essential equipment from ventilators too, and nine mass too, god knows what else. There's gonna be a national security question of why isn't

this manufactured on the continental United States. It's anybody's guests how that resolves, And and there are gonna be a lot of other questions about national security, about trade, about a variety of issues that's going to have a significant impact on the economy. Figuring out how that plays out is going to be a function of how the virus

and its um management evolves over the next year. And I certainly think and I don't want to turn this into a political debate, but I think everybody is very much an agreement that the outcome of the November election is going to have a significant impact on a variety of different things. Whether it's national medical supply, emergency stockpiling,

or an infrastructure build out. There's going to be some significant changes relative to this next election, and so trying to figure out where the market is going to go relative to all those variables, it's always the best guess. It's always a probabilistic exercise. But no one really has a clear view as to what we're gonna look like six months or a year from now. Some trends are obvious, there's a lot of things that are happening below the

surface that we really won't know about. Barry rit Holt, thank you so much for being with us. Barry rid Holt's founder of Reholt's Wealth Management, A Bloomberg Opinion calumnist and of course the host of Masters of Business on Bloomberg Radio. Tree not Rage and that covers all things financials for us here at Bloomberg News and joins us

now Street. I want to talk a little bit about Morgan Stanley's earnings and sort of how it highlights the trend we're seeing across Wall Street trading revenues beating expectations across the board, definitely plugging a bit of a hole when it comes to low lost provisions and other areas

of the bank. How long can that continue? Morning? We so absolutely like the trading revenue part, not just that Morgan Stanley, pretty much every other bank everyone Blue Pass estimates it was a phenomenal quarter for all of the Wall Street trading death and it was extremely critical that they had a blowout quarter because of the big holes

opening up in other parts of the business. Every bank has been taking huge loan loss provision, tread loss provision, market market losses, and it really was the trading desk that saves the baken for them. But then the important part is what happens going forward into your question, do they have the stamina to continue like this? Well, John Truz and mom Stally Stapo offered us the first clue

today that that might not be the kid. While volumes are still elevated from what we saw in January and February, they're already down about twenty from the craziness of March, is what he's saying. So you could have a situation where the second quarter, the protracted lockdown continues. It brings with it all the negatives that you saw in the first quarter without the trading boon accompanying it, and that's

the wiring signs of the bank. Sure, what was your Some of your takeaways from Eric Schatzer's discussion with Mr Gorman just now, look, I always find Government to be a fascinating interviews. He's emotional, passion and even before the TV interview when he was on the call with analyst investors, you could send that you know he was emotional. Obviously, Government has just recovered from the coronavirus. Not a serious kid, but still one of the most senior executives on Wall

streets to have tested positive for it. He worked through it and he didn't have to be hospitalized. But again, now you know that he made some critical points. One of One of the things he said was this is a shock to the global economic system that we haven't seen since the Great Depression, not since the financial crisis of two thousand eight, since the Great Depression. You cannot model that. He was he was clear about that early on. He said, we're not going to be in a position

to meet our target. Any CEO who says that they're going to be able to make their short term target is living on a different planet. That is subtle dig at government tax who came out yesterday and said, you know, we're not changing our medium term target. Maybe maybe not. I guess the distinction there is between short term and medium term, but it does highlight and really what government was playing on. The interview with Eric also highlighted that

we are entering a period of high uncertainty. It's completely unclear to everyone from from the late person to the folks running these big banks as to how this will pan out. And that is why you're hearing everyone taking on a conservative posture as we move ahead. All right, so, since you brought it up, let's talk about the rivalship. The rivalry between Morgan Stanley and Goldman Sachs, who won this quarter yeah, I think to be honest, both of

them in the same boat. Again, what holds government and Marvel Family apart from the rest of the industry, And I think that's the comparison we should be making Government and Long Family was So the their other big banks of JPM City, Bery Wells is they don't have that same ft commercial loan book to consumer loan exposure like

those banks. So where you were seeing on the one hand eight billion dollar loan lost provision four billions, four billions, five billion, Uh, these guys had a much smaller figure, a much more manageable figure because they don't have that kind of exposure, so they were insulated from it. The training desks, which are really top of the line, the best on the street, really outperformed and really did work.

The real question is if that slows down and you don't have any of the boons from the other side, it's it's going to be troubling period for the banks, and I don't think it's going to be one way. You will necessarily see if you separating themselves from the others, I think they all write same boat going forward, so surely coming into this crisis that I think they accepted wisdom was that the banks are a much better place

financially from a balance sheet perspective. Okay, I get that, but this is a totally different type of animal we're dealing with in terms of the decline in the global economy. Is that still the feeling that you heard on these conference calls from the CEOs that they feel confident in

their balance sheets? Pretty much? The caveat to that is you could probably go back to early two thousand eight, late two thousand seven, and I don't think you would have found to see on once we would have said we're really concerned about the state of a balance sheet. They were. They were confident back then also. But the reality is, and when you talk to and listen the folks doing the numbers things stand, banks do seem to be in a much better position. They're really well capitalized

compared to ten years ago. And the feeling is that risk might have shifted elsewhere, not that the risk have disappeared, but they might have shifted outside the banking system. The only thing to keep in mind is what that uh this period of heightened volatility and this crisis. Apart from say that to help make crisis war, it took a good amount of time for the government to act. It took a good amount of time to depread to intervene.

It's thinks very different this time around. The spread the government. Everyone has jumped in right from the get go, and that has also given confidence to folks that this isn't a systemic issue from from the point of view of what will happen to the banks, But that doesn't take away from the fact that there is still great economic uncertainty. There is a real crisis growing out there, and ultimately, the healthful bank is intricately tied to the health of

the broader economy. So if that doesn't recover, you will have to worry about banks at some point. Shod Naturaj and thank you so much for being with us Bloomberg Finance Reporter, joining us and Morgan Stanley earnings. There is an incredible swell of joblessness that defies all historical precedent. Twenty two million American jobs lost in four weeks, wiping out a decade of gains. Meanwhile, we've got federal governments around the world pumping trillions of dollars into the economy.

What are we looking at here in terms of money and pricing going forward stagflation, deflation inflation joining US now Vincent de Loard, a global macro strategistic I n T LFC Stone based in San Francisco, joining US now Vincent. When you take a look at the job losses, you can take a look at the unprecedented stimulus packages being pumped into the economy to keep it afloat during this period. What are we looking at in terms of price increases going forward? Well, high, great to be here, Uh, for

the moment, it's almost impossible to tell. I mean, the CPI is a basket of goods, witch and goods and services which most of the country cannot buy right now, and presumably there will be some restriction as to what can be bought in do future. So the the near term inflation picture is really anyone's guess. Uh. You know, you certainly will have a lot of impact from from the collapse of all prices, and we could indeed get

you know, a couple of months of negative CPR readings. However, over the medium to long term, I think what we are witnessing today is really planting the seats for what I would expect to be a decade of stagflation. What is a decade of stag flash? All right, defined for audience, your view of what is stagflation and what would cause to be such a long term phenomena in this economy. Well, so, you know, stagflation is literally economic stagnation or let's say

below a rich growth. Uh and at the same time rapid increase in price. I mean, that's that was a condition that we saw in the seventies in the US, uh and in um Many throughout the twentieth century, in many parts of Latin America, parts of European the nineteen thirties, um so be economic growth, I think is something that's increasingly getting obvious that we're not going to get very rapid v shape recovery. I mean, even in the markets that are indeed coming out of this, you know, nothing

has come back to normal. Uh Some consumption pattern of change, investment has changed, usually for the worse. And it will also have to deal with the consequences of the bailouts that we so casually made. I mean, if anything, the experience in Europe shows that there's no such thing as an emergency lending program. Uh. So that's on the real economy side, and then on the monetary economy. I mean, we have a lot of of monetory and fiscal accommodation

that's simply the world hasn't seen before. Um right now, it doesn't matter because the velocity of money people people looked at home, But as soon as the economy reopened, it's really any anyone guess where it can go. And it seems to me that the sole focused on deflation

is is very misplaced. East. Let's talk about what we mean when we say stagflation, because I'm looking at your report and typically stagflation means rising prices of the things you need to buy, and wages not necessarily keeping pace, and basically consumption remaining flatter, declining, and just sort of the global energy of business just sort of remaining it in stalls speed. Is that a bad thing? And is that an accurate reflection of what you're talking about with stagflation? Right?

I mean generally, Uh, staclation is not a good environment for the owners of capital and assets. I mean, it's your worst outcome. It means that you know your stocks are not doing so great because invasion is high Martin's compress. Uh growth is not that great, ayth in real term and and your bombs really get hit. The words I mean, that's what happened in seventies. I mean savage baermarkets for equities they want nowhere for a decade and then um,

really devastation on market. And also usually see is the correation between stocks and bomb turning from negative as it is today to to positive. UM. I tend to be a little more optimistic about the real economy. I think at the end of the day, it you know, some period of high inflation could be uh, a real price inflation at least, and deflation of the asset price could be what's needed to solve the strong generational imbalances that

we are seeing in the US. I think there is a a you generational problem that's hiding today between the young who is who are mostly poor and who are bearing the cost of the lockdowns, and the older generation that leonso the asset and you know, curious a decade of inflation could actually help that transfer which must take place. Vincent Danielar, thank you so much for joining us. We appreciate your thoughts and your most recent research report entitled

a Crazy but Logical Call for Stagflation. Vincent Ward Global Macro strategist for I N T L F C Stone, based in San Francisco. 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. I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa Abram Woyds. I'm on Twitter at Lisa Abram wits one. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio