Surveillance: Coronavirus Treatments With Sharfstein

about the following and I've been thinking about it too. Privilege, the privileged companies that have the access to the liquidity to get through this particular crisis. Walk me through your thinking at the moment. Look, I think we're in unprecedented times. It's all about duration and when we restart the economy and the businesses that survived that lull in activity UM

are going to end and benefit thereafter. So for us, privileged, our companies that you thrill to own UM when the markets going down, because you know that the strength of the business model, the brand, the distribution system, the technology, the customer engagement makes them a much stronger company over time and they'll end up with higher revenues and higher profits to do three years from now as you enter

the negative of low activity. So you're excited to earn them on the way down, and you always want them in your portfolio when when when normalcy returns to the environment. These are businesses that have the duration, the balance shee flexibility UM to get us through this time UM. And and that's what's going to matter. We think it's going to be a really really difficult time for weak companies

and for weak countries. And we think, UM, those that are privileged, those that have flexibility UM will end up stronger, bigger and better. I guess that defines JP morget in four other banks out there. I'll let you decide which ones they are. But are you predicting them bank consolidation because the smaller, the weaker can't survive. You know, bank consolidation hasn't really happened for for a for a very long time. The large banks themselves can't actually aggregate UM

any longer. I just feel that it's an environment. You know, it's really hard UM to run a business with leverage if your revenues go to zero. And so this question or duration is fundamental to the help of our economy and fund it mental to to to to the nature of the recovery we see when when when at some point this nation is blessed with with with better help UM, and it's it's going to take a herculean effort UM to get this economy restarted. And so the risk of

a policy mistake right now is large. But I would never bet against the innovation entrepreneurial spirit of this fine country. So ultimately, very polish on America, Charles, I want to go to that point, Thomas, referencing JP Morgan Jamie Diamond coming out in the shareholder letter saying that he's expecting a bad recession ahead with financial stress similar to the two thousand and eight crisis. Do you agree? Look, I

think we're there right now. Economic activity UM has plummeted to two levels unimaginable UM a month ago at speeds that are unprecedented. Output across this economy for the vast majority of sectors, UM is down, you know, dramatically, first six and ultimately UM that stressfuls all the way back to the financial system. And the question is UM the time it takes for it to fall back, and so the longer UM the amount of time one ultimately waits.

UM is not a linear function, it's an expert antial function. Meaning for every ten days we wait to restart the economy, UM, it will take fifty days or so to get us to to get us where we need to be. So the banks ultimately bear all the liabilities of those that don't get paid, whether you're not paying your commercial rant, whether you're not paying your supplies or your inventory providers UM. And it becomes amount of time. And so they're more

than well capitalized. They've got more than enough UM federal federal stimulus UM and monetary support for now. But it becomes a question of of of of when UM, and the longer the when is, the harder it will be for our financial system. Well, chance, let's think about that a little bit further. Someone said to me recently, the unlike two thousand and eight, banks are being seen as part of the solution now, not part of the problem. Are you saying that's a mistake. No, I don't think so.

The banks are lending right now. There was no real lending taking place post two thousand and eight. I don't think this is comparable to two thousand and eight. I think the volatility is I think, I think the range of outcomes possibly. But in two thousand and eight, when I was in the markets, we sat there and wondered whether the world, the economic system as we knew it was going to come to an end. Yeah, this is a question of of of innovation, entrepreneurial spirits, um and time.

And so it's very very different, very very different. So, Charles, if there is financial stress equivalent to the two thousand and eight crisis, where do you expect to see it the most? Where it hasn't necessarily been reflected yet in pricing. Look, you always see financial stress UM in credit markets. That's where it shows up. That's our leading indicator, and and and and there was tremendous stress in the credit markets um regardless of acid class um over the last two

two and a half weeks. But but what's the FED now done in terms of their purchases of investment grade credit? UM is unprecedented and massively helpful to stabilize in credit markets and ultimately stabilizing how yield market. So you would expect it to see it in credit spreads. Credit spreads blew out over a thousand basis points and have now slowly started to close that gap, but very slowly. Charles, you're involved in the Whole Foods Amazon transaction. Can you

get the three of us deliveries from Whole Foods? Yes, but you're to thank you Tom. You're gonna need a little duration. H I was always great to catch up. You appreciate your time this morning, Charles Cancer, their senior portfolio manager at New Burger Berman. Let's bring a Joyce change share we Jake Morgan, Chair of Global Research Joyce. If we got our hands around just how much damage we're about to see the dividends worldwide, particularly in the

United States. Well, I think you're going to continue to see revisions on dividends and on earnings, and I think the buy backs UM you are going to be off you know, considerably. So I don't think that this is over yet. I mean, we have the second quarter contracting in the US by and we're looking at initial claims for you know, to come out over seven million. So I think some of these revisions are going to continue. We've already done three you know, macro revisions over the

last month. UM and even though you're seeing some tipid recovery UM in UM China, right now. We still think that you have worst numbers to come for the second quarter of the year. One thing that's been a question just going to the question of share buy backs, given the fact that share buy backs have been one of the only sources of net demand for US equities, Given the fact that they're off the table, how much of a technical is that that's going to push valuations lower?

Has that already been priced in? Well, A lot of the technical mis sell off we think um you did occur. This is kind of why you had the bounce back off of the month and rebalancing at the end of the month. So our estimate is if you could take a look at aggregate at retail flows that could go into the bond and equity markets, you still have one and a half trillion that could go in over a period of time, but some of those sources of support

like the buybacks will not be there. And you've got the earnings revisions downwards and you have the retail money is probably not going to come in as rapidly as some of these flows that we saw that stabilize the market at month. Then around the rebalancing, Joyce I read carefully this weekend not only your research, but the compendium that you write on international economics. What's the level of

belief we have now, what's the level of conviction? And all the really hard thinking that's going on, like the situation and emerging markets is really dire. They have neither the health care systems or the resources or really some of the fall back that they've had is usually going to the developed markets countries for assistance. So it's really

all on the International arry Fund. Now. The said came back with the swap lines, but that's where I think you see a lot of downside risk in many countries that have really under reported the figures. And even in China, you know, they changed the methodology here, um. And I think the real test in China is whether they reopen the schools at the end of May, UM and the beginning of June on whether they can contain a second wave. So this is all very fragile right now. With all

of the support from the government. The government the said that you haven't seen, Um, You've seen some tipid stability in the financial markets from the very lows that we hit, but I think on the economic data you continue to see the revisions come downwards. Um. In particular, the labor markets have really been in free fall here Joyce less transition, just a little bit to a delicate conversation. You've touched

on it. The under reporting. There have been accusations, in fact reports according to an Intel report to the to the White House, that China is still under reporting the amount of cases and the amount of deaths as well. And I wonder if we can fault that in what

is happening with emerging markets at the moment. There are gonna be a lot of countries that can't deal with this, can't afford to deal with this, And I just wonder the tension that emerges on the other end of this between the countries that are drowning in debt and can't afford to pay it back and the accusations being thrown out at China that they covered it up and didn't deal with it well enough. Well, I mean, you have seen China change the methodology and they now are including

the asymptomatic cases. That's raising questions on whether they are at the end of containing this curve. Why did they change the methodology right now? But you take a look at some other countries like India, which is going under containment right now, and there are estimates that there's only nineteen tests for every one million residents. So you have that many of these emerging markets countries are very densely populated, the containment measures are harder to enforce, and the health

care systems are weaker. So we've seen the first statements from the I M S calling out for debt relief for the frontier emerging markets, um the poorest emerging markets countries.

But I think this is the debate you're going to see from the fall out of this, whether it's the emerging markets or some of the debate that you're seeing in Europe, It's going to be about burden sharing and risk sharing and how this has really sort of changed the metric um you know, for the way we need to talk about, you know, the level of death that will be sustainable. Well, Joyce, let me follow up on that just a little bit and make it a little

bit more pointed. Do you expect these emerging market countries, just as far as burden sharing is concerned, to put China on the spot to shoulder a lot of that burden. I think that you know, China is trying very hard to as the source of the contagion, and also as the country that has sort of a deeper understanding of this because they were the first in they are trying to provide some support. So if you look at fifty

four countries in Africa, they've provided hundred testing kits apiece. UM. You know, we hear that they're also fast tracking them leaders to Mexico where there has been a real shortage. So I think China is trying to see which ways it can actually UM try to get out its medical expertise you as a first step in UM trying to assist other countries and book they've even been sending medical

supplies to the United States. But I do think that you will have UM a discussion on which official debt China developed markets as well can be forgiven for these emerging markets countries that are the poorest emerging markets. Joyce appreciates on This Morning Joyce Change that JP Morgan Chant of Global Research better news on this pandemic. There's no question about that, but still very grim. The sirens here off of Central Park in New York City are really

something to hear. It is persistent and just a drone that's out there is uh. The first responders do. What they do is many others try to go on with their lives. Some of the people looking at this are in public health. There's any number of great institutions around this nation, and one of them is that Johns Hopkins University, of course, with their engineering long ago and far away. Mr Oberg was an engineering student at Johns Hopkins and he's endowed their School of Public Health. Here is their

weiss Stein. Mr Joshua Scharstein Dr Scharstein on the state the peak of this pandemic. I think that there's a little bit of a misunderstanding about this concept of the peak. And you know, I think people, um, I think you know, for where we are now, there will be a peak. But the only reason it's peaking is because we have shut everything now. So I think some people think when you're on the other side of the peak, it just goes down and we can open everything back up again.

But if the reason it's peaking is because we've shut everything down, as soon as we'd open things up, it's going to go up. And so we have to use the time um that we have that we're buying to strengthen our healthcare system to get more protective equipment to healthcare workers, and to build a stronger public health response. So we have another set of tools besides just shutting everything down. Star to Charstein, we're flattening the curve. It's

been successful in certain geographies. There's no question about that. I think of let's say the Baltimore Orioles. They're gonna have a big game here against the Boston Red Sox. They're gonna pack cal ripkin Field, no question about that. Is it going to be safe to go to a baseball game with all those people crammed in? Well, certainly it's not safe at the moment um. And uh, you know,

Oil Park at Sandy Yards is a wonderful ballpark. But I think people realize that helps comes first, and you know, right now that's not possible. I think what's going to happen is we're gonna have to And I like the tonality that other people have made. Maybe we've flipped off the light on our kind of world very quickly, but when we turn it back on, it's going to be more like a dimmer switch, you know. I mean, absent a miraculous treatment or vaccine, we're gonna have to move

very slowly. We're gonna have to make sure that we're not you know, having the cases searched so I that they put our healthcare system in jeopardy again. So I guarantee you it won't be baseball games or football matches that are going first. It's going to be um it send more more people going to work, you know, UM in particular industries, probably not bars in restaurants. So it's going to be you know, a slow increase and we may have to dial it back. If you look at

what Singapore has been doing. Singapore has you know, kept the number of things open, They have encouraged social distancing. They do not have large gatherings like you know, sporting events, UM. And they've been using a very robots public health response to keep it in check, you know, isolation, contact tracing, quarantine. But they recently had an increase in cases, so they've

dialed up in their social distancing. So I think it's going to be most likely a period where we're going it's like a dimmer switch until we can really get to light all the way on. Dr Charston and let us turn to JOHNS. Hopkins and public health. I look at it like infrastructure where the nation as a tradition of being grievously underfunded. There's no question we've been that way. When we look at this emergent moment is pandemic. What

is the first order condition to better public health in America? Well, I'm first we need people. You know, public health and the United States is law within fifty thou workers. Over the last decade or so, um, it's it's very been very underfunded and neglected. It's very important that you know, particularly now urgently, there people to do some of the poor public health task. We're going to need partnerships because

even with more people, we still won't have the reach. Um. So we're going to really have to have the private sector mobilized behind public health in different areas, provide resources like hotel space and dorms for people to stay when they're sick. Um And I think, you know, you know, for the future, we're gonna need to rethink our priorities.

You know, we had so little attention paid to preventtion of different kinds, including preventing the harm that a pandemic and caught Joshua Sharfstein, he is at Johns Hopkins in the Bloomberg School of Public Health, that was just wonderful. He's Vice Deein and Paul. You know, everyone we talked to in the metal community. Medical community is so holistic. They all have specialties, and of course Dr Scheffstein working with FDA and working with the State of Maryland and

public health. But it's amazing how they can span across this pandemic and and really inform about what's going on and what the trend is. Ted Alden joining us with the Council on Foreign Relations TED Foreign Affairs Magazine provided great leadership this weekend, clearly with my read of the week at a wonderful essay on China and on the path forward for the government, very controversial essay about the strength of the Communist Party, the future for Mr g

as well. How fragile do you perceive trade is with with Mr? G? Well, I mean, I think I think trade is tremendously fragile. I mean already before the current crisis, obviously you have the trade war that you've been following very closely, So trade relations between the US and China we're pretty fragile going into this. Now. You've just got a lot of incentives for countries to pursue more nationalist policies of various sorts in terms of you know, export controls,

hoarding medical supplies, bringing back home critical supply chains. So I mean, the you know, the current crisis and accelerating what we saw before, which was a migration of supply chains out of China to other places in Asia, even back to the United States to some extent. So trade is pretty fragile, but the Chinese have a big incentive to keep it, keep it flowing. So I think, you know, coming out of this crisis, they've been behaving pretty responsibly.

So that's that's the positive in all of this. So ted since the end of World War two, globalism has generally been the theme of trade. How big of a blow as globalism taken just in the last several years and then punctuated by this virus, well, I mean, I think it's taken an enormous blow. You know, it's hard for us to remember where we were two or three

years ago. With this you know, really sort of world system set up under the w t O and a variety of other regional trade agreements, companies very confident that they could locate portions of their production and wherever in the world. It made most economic sense to do so good services moving very freely. We're in a much more fragmented world already. The question really is how companies are going to adjust and how much of a hit that is on the cost side. And and you know, the

good news again is that companies are extraordinarily adaptable. We won't have these very lean, long supply chains that we had a kind of the height of the of the of the globalism era. But but we may have more redundant systems that work almost as well. So it's a very different rule, but it may function quite well anyway. What what to multinationals? What a company seed? Frankly, what a mid size and small businesses need on trade? Right now?

From the Trump administration, I think they need more predictability. I mean, they've gone through one shock after another in terms of the tariffs, in terms of various security related restrictions, now obviously the shock coming from the pandemic. I just think they need some predictability about you know, here's where the administration is going to keep the rules stable, here's where they're going to change. I mean, you look at

the whole tariff process. It's become this free for all with certain companies like Apple getting exemptions, other companies not exemptions. That's really hard for smaller companies. They can't play that game. They know if the rules are gonna be I gotta rip up the script here, and it's just real simple, Ted Alden, have you been surprised that the President hasn't looked like a hero and just come out and said, effective pandemic, We're taking the tariffs off and we'll put

them back on when the pandemic is over. I think that would have been a good call. I mean, you know, I've been urging that, a lot of other people have been urging that. But you know, the tariffs are so much a part of his political identity. Right again, it's hard to think in the middle of this crisis, but you go back even a few months, and he was talking every day about what a great thing that tariffs have been for the U. S. Economy, how much money is flowing into the United States as a result of

the tariffs. So politically, that's a big U turn for the president, even though he's pretty good at making you turns Um. I think it would have been a good gesture. But you know, as you know, they flirted with with some reduction of tariffs on some products, and then backed

away from that because they said it's too complicated. Manufacturers are getting a double whammy from the you know, the collapse and demand, the challenge in maintaining their supply chains and paying the harriss on top of that, they're still there. So ted could it be made that President Trump was ahead of the curve with the you know, America first and with unilateral trade agreements. You know, you you could

make that argument. This will be an interesting one for the history books, right, you know, to what extent has American policy caused some of this retrenchment caused some of this pulling back caused some of the shortening of supply chains, or to what extent was it really inevitable? I mean you could argue, um, yeah, you look at a book like Barry Lynn's End of the Line almost fifteen years ago saying companies are very vulnerable by the extent of

these supply chains, by the heavy reliance. Kind of you can make it argument and stuff, what's going to happen anyway? And then that's been the President Trump really was a bit out of the curve. It'll be interesting. Yeah, he's obviously observated it with his policies, but I'm not sure caused that he may have seen it come and actually really impression and a shout out to Kenneth Rogoff of Harvard University is a way out front on the fragility of those lines as well. It sounds like Napoleon on

his way to Moscow. Ted Alden, thank you so much. I can't say enough, folks about Mr Alden's failure to adjust. It is a dense book, but hugely readable on trade. It's just a really extraordinary effort from the Council on Foreign Relationship. Martin Ratz Morgan Stanley joins as their globile oil strategist. Martin, what is Mr Putin's play here? I was confused by his headline where I think basically he doesn't want to talk to anyone. Am I wrong on that welcome? I think we are all a little into

dark on what executive is going on here. I have to say we are now discussing production cuffs that could be as much as ten to fifty million barrels a day. That has taken us well outside of the range of anything that has happened in the bost So we're truly an uncharged care story. UM. Given the demands instruction that has taken place, it will be inevitable that there will

be some supply culture curtailment. But whether that will be through um, just market prices doing its work and falling two levels which are so low that it that it forces some shut ins, or whether that will happen almo somewhat negotiated basis with all the main producers in one room,

UM remains remains to be seen. UM. It is definitely the case though that if you listen to the rhetoric of the US administration, the Russian administration to a certain extent, all this also the Southeast, you're starting to see that the that this level of oil price is creating real, real challenges to domestic oil industries, the government budgets and so from the prospective Yeah, it comments like the ones that we've seen also from Mr. Putting perhaps are enterprising

distress in the oil industry is is very, very real. At the stage, I'm struggling to understand the optimism that we saw in markets and oil markets on Friday from the prospect of Russia and Saudi Arabia getting together to possibly agree on a ten percent output cut, especially when the I e. A says a much bigger cut needs to happen in order to stabilize markets. Can you give us some light around that? Yeah? Sure, Um, you're not alone struggling with this. I think many of us also

kind of stretching their heads. So from reprospective, Um, you're yea,

as I said, you're You're not alone there. There's a really interesting divergence at the moment between the painful oil market the futures market, which is with most people trade for the physical markets the market or you know, oil companies selling cargoes to each other, and the paper oil market is now on brent um in the in the low thirties, about thirty four dollars about, but the physical oil market is still trading at an unusually deep discounts

to this. So on Friday, for example, physically delivered brands as a daily price assessment, which was sussessed that just twenty three dollars a barrel. So you're seeing a near near pendle or gap between where the paper market is for the physical market is. And I think this placed to your confusion that we're all kind of struggling with, you know, us on the barrel counting side of the market,

just adding barrels to supply and demands. We're looking at the market meaning, well, piece, there's still an awful of oil inventories are going to fill. I is there reason to be so oplimistic? And there are little signals in the physical markets that we shouldn't be But what you're seeing in the paper market is then positioning go very very one sided. We all drew the same conclusions that there will be huge oversupply in the physical and the

paper market. People goes very very short. And when you have these these these tweets and other things where you send like jeez, maybe things are moving, then the paper market can move very very quickly. Nobody wants to be called short. And then you get these wild moves. But they've moved to such an extended now the they've overdone it a little bit. Well, let's keep it focused on the physical market, Martin, because I think this is important and I come up this from just the perspective of

just the alignment. So forgive me. But if we're very close to breaching storage capacity, it doesn't really matter what they do on the supply side, because it's not gonna be enough to offset the amount of demand that has collapsed. And if we are that close to breaching storage capacity, then is inevitable that we actually do breach it Martin, And I'm thinking about crude at least on the physical side, and aggressively lower from here. Look, this is well possible

at a global level. We're probably not yet at the level of what in the industry is often called tank tops, at the point where we reach maximum storage spacity. But regionally, I've already seeing anecdotal evidence suggest investigations Soldan a big, big storage facility in South Africa allegedly close to being fooled, the Gyra big storage facility in the UEI allegedly close to being foolish, and high some facility single word facility

to operators saying we're getting very full levels. You're seeing floating storage on tankers rising quite strongly. Um, that's typically um that's expensive storage. Or if floating storage goes up, that's indicating that on shore storage is is getting close to being full. And yeah, the amount of total storage capacity in the world is not entirely known. It's a little bit of a moving target. UM, but it's broadly thought to be in the order of a billion barrels

um that can be stored from here on. We could well reach that by the end of April or sometime during eight that type of time frame. And what happens to all prices then, yeah, is um is untested, but theoretically you will oil prices should fall to levels where it backs out supply already producing fields too short of visit Martin Ross, thank you so much. He's with Morgan Stanley their global oil strategy. Thanks for listening to the

Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple podcast US, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.