Surveillance: Expect More Virus Cases, Rasmussen Says

derivative markets say to you right now? What are the indicators and derivatives that gives you direction in regular common stock? Sure so, so yesterday was was critical in our view because as you made lower low in the SMP five hundred and all the major indexes, you didn't make a

higher high in the VIX. And when you put that in the context of the fact that between limit down Sunday night, then massive rally on the back of the FED and then a collapse, a total movement of almost of the value of the s and P five from low to high to low um, it basically tells you

that for the most part, sellers are exhausted. They may not be finished, but they are exhausted at the moment, and so that's the start of a bottoming process and our view, Judy, I'm realty hot to make the argument that things of bottom in an equity when we haven't seen that happening credit yet, how it spreads out to about eleven hundred basis points, the non energy component getting out to near a thousand now and the direction of travel is still concerning. Can you construct an argument the

equities of bottoming opposite of a bottoming gall in credit? Uh? Well, I think basically, you know you you spoke about it a little while ago, in that you know, the government is now uh in the business of picking winners and losers more than perhaps in two thousand and eight, I would argue, well more than than two thousand and eight. And clearly the priority is on the employers, the you know, the larger companies. UM. This will be a process that

will get managed. Ultimately, the FED will oversee the high yield market. Um. And as you said, there will be bankruptcies. But the fact is that you know, the for the most part, you tend to look through these types of things. And I would suggest that when you look at the first quarter of two thousand and sixteen, and obviously the bankruptcies in high yield will be you know, far in excess of that that you know down thirty could be the beginning of of discounting in the equity market. So, Julian,

there is a question about the fiscal response. We're talking about the government and support for some of these companies. But I want to go back to the FED and trying to support market function and I'm trying to pass through market functioning versus credit risk. And I'm looking, for example, at some mortgage funds that are unable to meet margin calls. Investal Mortgage Capital the latest one crossing the Bloomberg earlier today.

You're seeing a lot of distress fire sales over the weekend, trying to get rid of some of the assets to meet redemptions and margin calls. At what point is this going to be an ongoing problem for the system versus just idiosyncratic potholes that are blowing up amid the volatility. Well, I think it actually has been a systemic problem, which is why you've seen the said do what what it's doing.

From our point of view, you really want to look at commercial paper um and you want to look at you know, frankly, training and clearing volume in in all of the fixed income markets because to us, one of the interesting things about this environment is that if you look at it, the equity market to function much much, you know, far superior in terms of liquidity than the fixed income markets. We will be watching commercial paper very very carefully. Julian, what have you? This may be an

unfair question, but I'm gonna go that it's unfair. Tuesday, what have you learned about active versus passive in this creator? I mean, act has been waiting for a creator for years to say actives better than pass Have you had any wisdom on that? Well, what we're learning is is that the combination of of of the government intervening is causing active versus passive to look a little different than

perhaps we might have expected. Um And you know, typically you might see some more of the value type areas start to emerge and stabilize first. But again when you look at it and you think about the waiting in the index, uh, you really you know, you look at at the value of technology, financials, health care, and communication services and they dominate uh the index as a whole, and those to be the area is that the government is likely to put you winners over losers. John Pharaoh,

is Apple looking for a bail out. I don't think Apples looking from a bailout. I think that's a silver lining on a morning like this, sitting down the couch. You know, John, underneath my culture's probably three pair of airs been lost. You're supporting the company is still unpleased

to keep on. Julie, and I want to transition to a really complex question right now that it's got a whole lot more fuel in the last twenty four hours, and it's something investors increasingly might have to think about. I don't want you space to speak directly to the health issue, and I know that's difficult at a moment

like this, but just explore the following with me. The President is making it pretty clear that he's thinking about the cost benefit analysis, and it's a tragic store and it's an ugly process of remaining shut down, and whether the cure is worse than the illness. And the reason I think investors need to start thinking about this is if they pulled back on the mitigation efforts too early, and then we have to think about bringing them back in in the summer and bringing back in in the full.

I just wonder how chopping, how messy this could get if we don't shut it down, what it wants for markets, that is, from a market's perspective, from what you hear from the President at the moment, Judi. And how complex

is this issue. So if you look at the evolution of the last sixteen hours or so, it's very clear that part of the reason that the market started rallying overnight is because there was an expectation that the President intends to bring the economy back sooner than expect You know, you can openine on on what the health implications of that are, um, but there's no question about that from

the market point of view that that is how we reacted. Look, it's an incredibly difficult trade off, and and what we we're thinking is that the actions that the Fed took yesterday UM in concert with what we certainly hope and and honestly, if we don't get a bill today or tomorrow, the level of your responsibility in Washington will just be you know, off the charts. Um that the combination of those things can get us, you know, to manage the

economic trough into the summer. But the real question is, you know, in mitigation, you know, do people want to get on airplanes and eat out come the fall? We need to get to that point, Jude mny Well, great to catch you out with you without question, folks. The

Bloomberg Surveillance interview of the day on this crisis. She is out of Northampton, Massachusetts and Smith College, where she took a liking to the creb cycle and then had a sterling academic career in microbiology, including uh time at Columbia University, her Columbia University, and the University of Washington program,

which is world class. Angela Rasmussen choice. Now, Angela, help me with the density of population, whether it is Italy or Wuhan or Brooklyn, New York, the density of population seems to be a determining factor. Yeah, so viruses have to spread between people. Um Viruses can be picked up from the environment, but they generally don't last long on

say surfaces, for example. Um So, in general, when the population is more dense, you're more risk of coming across somebody who is also infected, who could possibly transmit a virus to you. So, Angelo, what have we learned from Wuhan and from northern Italy about the timeline here? Flattening that curve. Where are we kind of here in the

US on that curve. Well, it's very difficult to say, because our testing capacity is not at the point where we can truly accurately determine the prevalence of Star's coronavirus to in our population. However, um, and I'm cautioning this pison. I'm not an epidemiologist, but all the current epidemiological models that I've seen suggestion that we're still on the uptick. You can expect more cases. I mean, this is so important.

Folks and the Ft and the New York Times have done great charts on this, and Angela their log charts. And the answer is you want to bend the curve over, as Paul Sweeney says, the Asians have successfully done this period and in Europe it's a struggle. What's so important is the slope of those trajectories. Our slope Angela is frightening.

How do we bring that slope down? Unfortunately, because we don't know the prevalence in our population very accurately right now, the only way to do that is by these large scale, very very strict social distancing. How do you respond, I don't mean to interrupt it, just because of time. Dr Rasmussen, how do you respond to the president's an hour and forty eight minute briefing yesterday, which is to get America back to work? How do you, as a grizzled pro

respond that. I was very concerned about that statement. I don't think that we're anywhere near the point where we can begin to say that. UM. I think that it does need to be evaluated uh as we go along. UM. I don't think though, that it saves to say that people can go back to work unless we can determine if they have been infected before and may have protective immunity. So, Dr the what is the sense of the treatment? How do you think the treatment will evolve over the next

several months. Obviously there's not a COVID nineteen treatment flu shot, for example, But how do you think the treatment will evolve? I think if there is a treatment, and certainly some of the treatments that have been discussed hydroxychlor quinn rum does a view, for example, are in clinical trials. Now it's incumbent on us to to complete those clinical trials as quickly as possible, because having in a ailable treatment that's effective could really dramatically change this for all of us.

So a sense of timing on that, I know it's you know, we usually kind of measure these things in years. Is there a possibility to compress that to months? Yes, certainly. UM for chloroquine, M hydroxy chloroquine and super mycen and ram doeser here. Those trials I believe are already ongoing. A trial has already been completed in China um on to HIV drugs that unfortunately did not turn out to work.

But um, since the remdesivie and chloroquine trials have also been going on, I think we can expect it to be a matter of weeks. Um eight to twelve weeks is what I've heard versus six months to a year. Doctor. It's interesting, Tom, you know, it's uh, it's just kind of we're still in that upward part of the curve here in the United States, certainly New York City. Dr. Yeah, yeah, I don't mean to interrupt, but thank you John Tucker

for sending in this headline. Mr Cudlow at the White House, as quote, may try to reopen parts of the economy around months end. Dr rasmuson what's that part of the economy gonna be. Is it going to be that famous coffee house up in Northampton? Are they going to try to open the Iron Horse Cafe just to keep the economy going? I mean, what do they open? That is an excellent question, and I have no idea. UM. I do think that in many places some of those service

businesses UM and retail are still open. I know that not in New York, cannot in Seattle, where I'm calling from right now. UM, But I really don't know what parts of the economy Mr Cudlo is speaking of. UM. I think though, that indiscriminately opening up parts of the economy is a bad idea without further testing. Thank you so much for being with los Angele Rasmuson of Columbia University and in Seattle, of course, the University of Washington.

Thank you so much for being with. That's what we've been trying to do is go to experts in the field. Whether it's Peter Styre we talked to at Mount Sinai, Brooklyn yesterday, Robert Crandall joining us, the emeritus chairman of American Airlines earlier now Randall Crossinger, the former governor of the Federal Reserve System, Randy Crossinger Joints from the Boost School, Chicago. Professor Krasser, wonderful to have you with us. I want

to go to the mathiness. There is a point in physics where you forget about the fanciness of the equation and you just look at the magnitude or what's called the amplitude. Do we have any understanding of the amplitudes of this shock, the size of the shock we're confronting. We really haven't seen something like this before, because this is both a natural disaster and one that in order to respond into the finatural disaster, we're taking policy actions

that are significantly slow in the economy. And I don't think we've ever seen that specific combination before. We have not seen it before, but we have to sort our way through it. Do the formulas in the theories work here? Or is it just just to throw a lot of

money at the wall. No, No, I think they still uh, you know, we don't have you know, we don't know for sure, but I think we still have guidance from from other examples of the past, whether it's from the pandemic in the early part of the twentieth century or other challenges that have occurred. I think it's really clear that the lessons from the financial crisis and two thousand eight, two thousand nine are that a fundamental is that you need to keep the financial system operating, and I think

that's what the FED is trying to do. Obviously, the shock is coming from something very different than the mortgage market, um. But I think the less since have been learned there and they stood up a lot of the programs that we did back when I was there a decade ago, and they're doing new things, which I think is great. Professor Krauster, you so I want to talk a little bit about those new things that that you talk about.

Do they have anything left based on your experience in the crisis era at the Fedure Reserve and based on what we're seeing right now, well, they've done a lot

and a lot of this is still being implemented. We'll see the exact magnitude um and and you see they're able to revive some of these They originally buying uh billion dollars worth of treasuries billion dollars worth of mortgage backed securities, and now that will be unlimited, and so they may and they are starting to enter other markets and they can increase their firepower in purchasing assets in those those other markets. Uh, they are introducing or talked

about introducing a main street lending program. I think that could be helpful for small and medium sized business and for for consumers. So I think they've done a lot. I think there's still more ammunition left, both in terms of the magnitude of programs that really and now as well as some specific programs like a main street lending program. And Professor, we've talked a lot about what they've done, and they've done a lot. Let's talk about what they've achieved.

What have they achieved in the last couple of weeks with this whole range of tools that they've basically deployed to really get at the functioning of the market and the financial conditions as well. So I think the markets are still functioning, not perfectly, but much better than if the FIT had and other central banks hadn't undertaken the actions that that they had. But when the shot comes from something like a virus, the FED can do what's necessary,

but it's not sufficient. And I think UM, the reason that we haven't seen um the markets stopped that stopping the tunnels in the markets. It is because it's now with the health authorities and fiscal authorities, and they've been mixed messages. Some countries doing more, some trunter is doing less. UM. It's obviously the debates in Congress over you know, what kind of package, whether the package will be passed and when.

That's creating a lot of a lot of uncertainty and tumult a lot of division in Washington, d C. So let's talk about how the effort in Washington could complement what we've seen on the montery policy side. What do you need to say literally yesterday as soon as possible from Washington. On the political side of things, I think getting an agreement that in and of itself will be very valuable to the market to see that, I guess they can get something together and they can act against

this um uh this uh this pandemic. Then, in particular, I think would be really valuable to make sure that it's very well focused on what are the issues. The First, making sure that there's sufficient funding for healthcare and uh that um giving incentives for healthcare workers in retirement to

come come back in that's I think something very important. Second, making sure that vulnerable people continue to be able to get income, and in particular that their incentive is not to go into work but to stay home during this period but still be able to receive income. You can do that through sending checks to people. You can do that through various support to small and medium sized business to get them to continue to pay the wages of

people who would be happy staying at home. UM. Those those are some of the first things that I would I would focus on Professor Krausner. Last week and even the week before, we were really talking about a financial crisis in addition to the economic crisis unfolding. Has the FED effectively stopped that? Have we avoided a financial crisis

at this point or is it too early to say? Well, given my experiences back in two two nine, I never say never about anything, but I think that the FED actions have been crucial in avoiding financial crisis so far. And I think if the fiscal and health authorities act in um expeditiously and effectively, then I think we will

have will have been able to get through that. But it really will depend on the size of the economic shock, and and that's now on the court of the fiscal and monetary and fiscal health authorities, and now as we do for for surveillance. It's Math Tuesday with Randall Croster of Chicago, Grandy Paul Wilmot, the giant of Imperial College, and a guy named Todd. Ab gave a rave review years ago to Kent Osmond's masterpiece Iceberg Risk, which was

basically a complete refusentation of the central limit theorem. Are we are we doing that again? Are we so fancy at our crosser like math certitude that once again we've learned the once in a lifetime event come along every twelve years? Well? Yeah, Well, I think if you we've talked about this before. I think on on your program that I get worried when other people aren't worried. So I focus a lot on um uh, doing scenario planning, doing stress tests, and risk analysis for things where you're

just not sure you don't have the data. Fork it hasn't happened, but let's see what if? Can you? Can you withstand anything like that? And so these are the things that you have to to think about. Can you perfectly plans for them? Of course not. Can you have better readiness for them? Yes? And I think in some sense we've learned a number of lessons from two thousand two thousand nine, and it helped to allow the FED

to respond much more rapidly. Because they didn't have to create programs like the commercial paper Facility and the money market Facility and so many of the others whole cloth like we didn't, they could stand them up quickly, and that gives opportunity to ramp them up, move them to scale, and do some new thing. To borrow phrase from Nicholas tell Ub, and that would be just simply skin in the game. I guess we've all got skin in the

game now with this horrific crisis. I don't mean to make a joke about it, folks, but Randy, the recovery rate, the glide path to recovery. We forget out of the depression. It took a war and stimulus of a war to get equities to lift back to where they were in nine after nineteen thirty seven. How do you envision a

recovery here to Dow twenty nine thousand. So I think that ultimately will be related to the underlying economics, and can we make sure as best as possible to try to make this a v shape recovery rather than the U shape or an L shape sort of sort of thing that is out of the hands of the FIT. UM. The FIT had very important role in making sure we we had a recovery in over the last decade. Here they can make sure we can avoid a financial crisis, but the recovery pieces will have to come on the

health side and on that metiscal side. If we can get agreements, if we can get some movement forward, I think we can get there and hopefully make it much more rapid than in uh in a great depression. Professor Krauser, thank you so much, greatly greatly appreciated that. Too much

math just enough. Robert Crandell with us now, who was identified with the airline business starting with t W a years ago and then his leadership at American Airlines single handedly inventing frequent flyer miles and the rest of it, and now a well preserved eighty five year and he joins us this morning. Bob Crandell, were so honored to have you with us. You have seen the ups and downs of airline bankruptcy and bailout. Does the a via

an industry need another bailout or nationalization this morning? Well, I do think it needs help, Tom. I mean the keep in mind, you know, we've only got one big intercity transportation system, that's the airline business. The airline business and associated travel businesses are you know, they've they account

from millions of jobs. So we've got to keep the ail in and it's the functional And I do think at the moment that what we're going to have to do is make a public investment in the airline industry to sort of sustained it during a period of time when cash is just running out the door in the river. So I think, and I think the Trade Office, this is probably a good public investment. It needs to be

off with some controls. I mean, we can't we can't have the al in business taking public money and then turning around and using its free cash phot to buy back shares, which is what it's done over the last six years. And we need to be sure that if if we're going to help the airline industry, okay, but that people don't get laid off and we were not outsourcing maintenance to other countries. How do you envision what

would be a new regulation? I mean, folks, this is ancient history now, but the gentleman from Cornell decided we should be regulated, and Bob Crandell fought it for years along with everybody else. And look what we wrought. I mean the quality air service today. I'll be blunt, folks, I fly international carriers as often as I can. Bob Crandell, what does the new regulation look like? No? Not, Well, you keep in mind, Tom, I was a guy that said we should not deregulate. I always thought we should

have some version of regulation. I think we should now. I mean, look, we invested in the airline industry after nine one one. We're going to invest in the air and industry now. I don't think we ought to regulate it the way we used to. But I do think that if the public is going to make an investment in the airline industry, that it is entitled to know that the airline industry isn't going to turn around and layoff a lot of people while it's taking money from

the public. The airline industry isn't going to turn around and abandoned cities that don't meet the profit metric. It isn't going to turn around and take its own free cash flow and buy back shares. So it's so there's that there are some don't use the word regulation, let's use the word constraint. There are going to be some constraints on a business that needs to be regarded, in

my view, as something of a public utility. And actually that's sort of some of those provisions are being included currently in a House bill being circulated to prevent share buy backs in certain executive compensation when it comes to the airline industry. But Robert, I'd love to get your sense who's to blame for the nine of free cash flow that went to buying back shares of the airlines for the past ten years. Well, who's to blame for it?

Obviously the folks, the folks that are running the airlines and other folks that decided to do that. And I you know, the boards of directors as well as the executives are actually running the business. And and that's just a foolish thing to do. In an industry like the airline industry, you always know there's there's a black swan waiting around the corner. And back in the day when airlines weren't as consolidated as they are today and therefore we're not as profitable. One of the rules of the

road is. You never bought back stock, You didn't pay dividends, you didn't and you didn't buy back stock because you needed you needed a well of cash to go to when something bad happened to you. Something bad always happens to the airline industry. But forgive me for playing devil's advocate, But why should we give money to an industry that's very, very difficult to be in, you know as a former CEO, to run an airline, it's incredibly complex, really quite difficult.

What does the government want any part of that whatsoever? No, it doesn't want any part of it. I don't want to. I don't want the government to take over the airline. There's this good lord. But I do think that the government and the interests of employment and the interests of the economy. Look, the travel business, including the airline industry, accounts for millions and millions of jobs, I mean all over.

This country is probably the world's largest employer in terms of and so every country, including the United States, needs a vibrant, healthy, traveling tourism industry, and that needs to keep the airlines going. Now, apparently France is talking about nationalizing trance. I don't I don't think we want to nationalize our airlines. I do think we need to make available long term, very low interest loans. And while those loans are outstanding, we need to impost some constraints on

the business. Bloomberg eleven three oh New York, good morning. Let me ask this private question here, Bob, Why are airports so lousy? What do we need to do to speed up the rebirth and rekindling of our airports. We need to invest more money, and I'm tom luckily are you ports? There's been a continuing battle for years and years and years and years that that the airports, the airports as a group, would like to impose higher individual travel charges on the public. So how do you finance

airports today in this country. We don't finance them publicly using taxes. We we finance them by by transaction charges on individual passiers. The airports would like to raise those charges. The air the airlines recognizing that as prices go up, the the desirability of travel goes down, and resisted that effort.

But we have lousy airports because we don't invest enough money. Animal, Bob Crandell has been great, Thank you so much, greatly appreciated Mr Crandell of American Aerologs without question the interview of the day, and not with someone with medicine, but someone with a deep knowledge of how China reports data. Leland Miller is with China Beige Book, and we're thrilled that he could join us right now, just immensely qualified on the veracity of their data. Leland Miller or Daniel

Moss has written, uh, maybe not. And I've seen a lot of other pros like Carl Weinberg say maybe not. Do you believe the statistics out of China right now on their better news on virus? You know, I believe the virus news is getting better. There's definitely there's definitely

a slowdown the rate of infections. The problem is you can't believe the actual numbers because right now there's a political narrative that the party has swooped in which Dad everybody and is responsible for this wonderful virus clean up. And so as long as there is a big political push to make this an issue of a politics and not uh not strictly the medical area, then you never know what numbers to believe. I think things are getting better, but the exact numbers, I think it would be very

dangerous to take them seriously. And Leland, the one reason why it's always great to get you on is because you look at nonofficial data to gauge the actual economic activity in the entire region. And I'd love to get your sense of what you've observed as far as how quickly they've brought business back online. We have heard from the party that things are going very quickly and very well,

and they're expecting a full recovery very quickly. Are you seeing that born out in sort of the anecdotal evidence that you look at. Yeah, the idea of a full recovery is nonsense anytime soon. Uh, firms are going back to work now. We are seeing workforces back and people are outside and factories are starting to run again and lights are on. But you're not seeing a resumption in

any of the growth metrics. So one of the many disappointing things we saw is that even in the first half of March when we were getting our dad and firms were going back to work, I mean, the shriff closures, the firms reporting closures was way down as we extended in to March. But the data we're not getting better. And the problem with this is that that China is very anxious to have a recovery narrative. They announced their bad data for January in February and now they want

to get on with your recovery. But the recovery is not so fast. You're actually seeing the worst data we've ever seen, without question right now, and Q one is likely you know, around and had negative eleven contraction. It gives us a Leland Miller example of wacko data that matters, like is it the number of you know, crew members on iron ore ships or is it you know, counting containers a simple out of Shanghai as you I mean, what's a what's the data point that matters to you

to gauge that? Well, you know, it's it's very different this quarter than any other quarter we've ever tracked, but it is typically what we do is we go through the weeds and we try to find the areas of strength but also the real areas of weakness that others haven't identified. And when we looked across the spectrum this quarter, everything was weaker. Every sector was weaker, every region was weaker.

Every headline metric is weaker, and not just weakly, but the weakest numbers we've ever seen, all of them in severe contraction. Lel this different, different, different ball game, discorre Leland. I want to go back to what you said that

tend to eleven percent contraction in the first quarter. Can you extrapolate that out based on what you're seeing in terms of a pickup or or not in in recovery in the second quarter and beyond, what are you looking at for the full annualized GDP for China right now? Right well, the outlooks getting a big gloomier for China,

even though their economy is getting better. And what I mean by that is this is no longer just a domestic China story, even if there is an enormous level of domestic resilience and the Party pushes everyone back to work and output and consumption and demand are all back faster than anyone could possibly uh, you know, assume would be the case. You have a problem with the rest

of globes shutting down. So Q two was supposed to be the time in which Chinese factories were back up and running, and then you would have global demand take over. Now your US factories are down, Europe's down, demand is creating worldwide. So the idea that Chinese will have a recovering Q two from an inlet of a contraction, if it's not going to be back to normal levels of growth, what would happen to China if the president came out and lifted the various trade initiatives he's put in place.

I mean, is that beneficial to China? Is that a US story? Well, look if you had, if you had an end to the supply shock and the demand shock, and you pulled back all these trade initiatives, I think you'd see, uh, quite a quite a juice to growth. The problem is is right now there's no demand. There's no global demand. So you know, having a resumption of of business as usual in China over the next couple of months, but there's no demand, no demand internationally, uh

from the major trading partner. So right now you have no effect or very little effective any Okay, Lela Miller. This has been wonderful, Thank you so much with China page book, just very very informative this morning. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio