Surveillance: Historic Jobless Claims With Gapen

to get you on this program. As always trying to gage a couple of things in this market and one thing you can readly help us with today is sentiment. How washed out is sentiment at the moment. Well, unfortunately, I don't think it's washed out enough. John Um. We actually just released our investor survey this morning that we do every quarter, and that we we ran this from March thirty one, so it's pretty pretty fresh, as fresh

as we can get. We actually were stunned to see that those describing themselves as bullish are very a bullish rose from in December to fifty eight percent in March. Now that's on a six to twelve month time frame. But what's really stunning about it is that it's the highest we've seen since we started our survey in the first quarter of and it's the exact opposite of what happened back in December when we saw the bear spike

and the bullsese back. So, you know, I've talked to a lot of investors who are you know, running down their shopping lists with me talking about how this is

a buying opportunity um. And we saw that in the survey results that I just don't think people are barish enough, all right, So walk us through the idea of why they should be more bearished given the fact that the US government that frankly governments around the world are pouring money into the economy to try to sustain it, and then beyond with the potential infrastructure program, isn't that enough to get things back on track and get these valuations

to look better to you? Well, you know, one thing we saw was that there is clear faith in the FED, and I do think that that faith is deserved. We found that think monetary policy has been good or very good, and there's also a lot of faith in the fiscal response so far. But I think what concerns me a little bit is that if you look at the economic scenario that people are assuming there's a belief that the economic damage from the crisis will be fairly contained and

fairly manageable and fairly short in duration. And so I think the real risk to markets going forward is do we test some of those assumptions. Now, we've seen a number of firms around the street come out with some pretty scary two Q GDP numbers, and thankfully I'm not an economist, so I don't have to make that call. But we did see that about two thirds of our survey respondents think that GDP is going to be contracting by or left. That assumption is starting to be tested

by the market. Um. So my concern is that some of these assumptions on the economic side will be called into question. Look, Glaurie, it where we are and it's great to have a six to twelve month visibility. As we talked to average Joseph Cohen yesterday, let me ask you the same question, what is your counsel for institution or high net worth looking out three years or dare I say five years? So you know, in terms of what we want to do, in terms of what we

want to buy. Um, we've been telling people to really have a balance, So we think you should have some defense in your portfolio. We think you should have some long term growth in your portfolio, and we do think you should have some cicklicality. But we're very picky about what we're choosing on each of those. I would say, sick, you pick your spots carefully, be exposed to equities, but be prepared for some additional turbulence in the near term.

That's really how we think about it. And one of the reasons why we're trying to really emphasize that there could be additional turbulence in your term is we want people to be prepared for it. We do want people to be able to use it as a buying opportunity, but we think it's important to understand that there are still risks out there in the short term, risks out there that are very hard to quantify or get your

hands around. Given the fact that a lot of this is an epidemiological issue, it's a health issue, and it depends on a lot of different factors, how do you even go into figuring out what to consider when determining whether we're hitting a bottom aside from just pure sentiment, So you know, sentiment, I think is one of the

best things we can look at. I sort of laughed when I looked at the survey results this morning because we saw a huge number thing that valuations are attractive, and you know, people are telling me they have no idea what the earnings outlook is that how do you know if valuations are attractive or not? Um, you know, one of the things we did ask in the survey was what does the market need to see to stabilize? Just regardless of what your view is, what does the

market need to happen? And one of the things we saw loud and clear in the survey results is that people think that the virus is really the key. It's taken center stage. So seventy eight percent told us that a decline in new cases in the US is needed for the market to stabilize. Now, I'm not a doctor, you know. I sympathize with John when when he doesn't like non doctors talking about medical stuff. So I'm not going to do that here because I think he's dead

right on this. But I do think it's important to understand that a lot of the rally we had towards the end of March was a positive reaction to what was coming out of Washington, to the actions the FED was doing, and that was all very well and good and deserve. But our survey this morning told us investors don't think we need to really see additional fiscal response to get the market to stabilize, but they sure do think that we need this virus outlook to improve. Now.

The thing that also, you know, concerned me a little bit is that also said for the market to stabilize, we need significant progress on new drugs to treat the coronavirus and or a vaccine. I'm not going to speculate when that's going to happen, but just understand that the virus in that path of that virus and all the uncertainty there, that's pivotal to market's near term. Laurie, You've had me with many things over the last couple of weeks, but one thing in particular stands out how to tailor

the message for retail. This is an institutional audience that you've been speaking to, and I think for retail at the moment, it's a really confusing time because I get many people on my programs, including on this program, with all of us talking about the opportunities out there time to add a little bit more risk. How do you tailor the message for retail at a really confusing time.

I think that we do. You know, what we do want people to generally do is just to sit tight, to be prepared, to understand that this is a bit of a rollers coaster and we're going to have up swings and we're going to have down swings. Um. You know. I used an analogy at the beginning of the year when I was talking about the turbulence we expected in the market, and I said, imagine that I'm the airline pilot. I'm coming on. I'm telling you that we're going to

hit some bad weather. Um, please don't jump off my plane in the middle of the flight. We are going to get to our destination. I still do firmly believe that, unfortunately, the turbulence has just been a bit worse than we expected, and it could get a little bit worse than it's been. I was pretty impressed, Laurie. I had to buy some boat tie wax yesterday from the Amazon, and you know, usually it's like next day delivery. It's hold on, hold

on it, you got it. You got to elaborates, you put it on your boat tie and it keeps a little fuzzies down. So anyways, it's a four day delivery, which I thought was pretty extraordinary. Laurie, Amazon has got to be the mother of all buys. Well, look, one of the things we've talked about, and I can't talk about individual stocks, but we have, you know, said in investors need to really think about how consumer habits are

going to change. And there will be some good changes for some companies and there will be some bad changes

from other companies. UM. But you know, my personal view is, you know, when we think about sort of the tech space, um and sort of this internet space, we we think that they're sort of you know, heroes that that are emerging in the in the investment world, um, you know, and sort of thinking about the tech companies, the banks, the healthcare companies, these are the ones that are really you know, sort of coming to the rescue to help

this economy muddle through. And when I think back to past crises, the tech bubble, the financial crisis, sort of how these companies step up if they're they're viewed as being part of the solution or part of the problem, does have longer term investment implications. Nice, pretty fur To, thank you so much RBC Capital Markets and right now, folks, we bring in a gentleman has been very supportive of

all our efforts. Jason Furman is a unique economists and yes there's an academic track, but far more at a young age he had the courtesy to really tackle policy and almost applied policy within the American political economy. Professor Furman at Harvard and the former chairman of President Obama's

Council of Economic Advisors. Jason at this time and moment, and this is something we've gone back and forth with the economist John Farrell on at this time and moment, Jason, do you wish that America and Washington was more fiscally like Europe? I think the United States has a big advantage every Europe And what way borrows at the level of the United States and Europe right now is borrowing at the level of national economies. But then have a

central bank UM at the level of the Eurozone. They need, you know, the type of fiscal federalism um in Europe that we have in the United States. Francis Borron, get pretty loud, rights, Jason, just to lab right on that a little bit. Mom but confused by that comment. They're borrowing at very low rates across Europe. Are you talking

about burden sharing across the Eurozone? Yeah? No, I mean you see, yes, you see low rates in Europe because I think implicit in that is the expectation that at the end of this the ECB will be there to backstop the national borrowing and that um and that there will be some form of fiscal federalism. I think absent that expectation, UM, Europe wouldn't be borrowing at the rates

that's borrowing out. Now, let's talk about the response so far. Jason, you were very early in asking for a big in fact pushing for a big fiscal package in the United States. It has come around, and I believe that you've had some part in influencing the decision to move quickly on all of that, and I congratulate for you for the effort that you've done over the last couple of months on that front. Jason, there are many people that think we will need to do more, and I'm trying to

understand the easiest way of doing more. Can you top up existing packages that are already available through the bill that was produced last week, or do you need a separate bill. What's the best web policy I can go about doing that. Certainly, the most important thing in the United States is to extend and expand what's already happened. You know, the unemployment insurance ends at the end of June. There's going to be very high unemployment the rest of

this year. That's gonna be very high unemployment. Next year the checks are one time. You know, incomes are going to be hit next year too, and we're gonna need, you know, a more traditional stimulus for recovery. So that's the easiest. Then identifying some of the deficiencies of what's happening so far. The biggest and most obvious one is states and localities. They're cutting their budgets right now. That's undoing some of the benefit of what's happening. At the

federal level. They can't borrow for themselves, they're not allowed to UM, so they need much more money UM. And then finally, we just need to keep open the channels for anything that could help healthcare UM and fund the health response. That's probably the most important, Jason. Everyone has their hands out right now, and everybody needs money, and everybody is looking for the government to step in and

plug that hole. Some people. Actually, no one right now is particularly worried about the deficit, but some people have brought it up sort of in passing. We're looking right now at a trillion dollar deficits expected to rise to three trillion dollars, especially as President Trump and even Democrats talk about sort of rolling back some of the tax provisions like the salt tax, etcetera that sort of created a little bit of cost savings in the in the

previous rounds. How big can the US deficits sustainably get? In your view, you saw years of GDP deficits in fighting World War two. Um, this is like an invasion and if that's needed, I wouldn't shrink from it. I mean, the point is, the borrowing needs to happen somewhere, household states, locality, small businesses, large businesses. Somebody needs to be borrowing. And the least bad position for that borrowing right now our national government. Jayson very quickly here, this is so important.

The inflation he has got it wrong coming out of two thousand nine. Are the inflation warriors going to get it wrong again? In two thous of nine, it was completely obvious that in the highly depressed economy. You weren't gonna get inflation here unless sure, you have a huge supply shock, you have a huge demand shock. Um, we are maintaining a lot of incomes, not all incomes, but we're containing a lot. So I don't know. All I can say is if we get inflish, and I think

that would be good. That would be a good sign that we have adequate demand. It would help lower real interest rates, lower real wages. That would help um the economy's recovery. So I don't I don't know. I don't know what's going to happen, but I don't think we should be afraid of getting inflish. Jason Furman, thank you so much, the former chairman of President Obama's Council of Economic Advisors. Let's do this, bringing Michael Gape in a

park place right now. Who's more than accomplished here on the rates of change? Michael did these stunning numbers? Is Lisa frames that beautifully? Do these numbers make you pull forward the agony? Do you pull the May job's report, you know, showing April statistics? Do you pull that forward in your analysis? We do? I mean, I think the weekly job less claims data is probably the most important

piece of data that we got. Now it's it's only one week lag, it's fairly contemporaneous about what's happening in the economy. When you look at the number last week and this week and take those together, you know that that's roughly a let's call it, a six percentage point

rise in the in the April unemployment rate already. And we have a few make a few more weeks ago for the April employment report, so it's it's not I mean, I think it is likely that the unemployment rate will be rising above where we saw it in O eight oh nine, and and and may come as soon as that April employment report, if not certainly into the main report.

But uh, and if you kind of you know, there's a historical relationship between activity and the unemployment rate, so you can kind of reverse engineer what might be happening to the economy from these jobless claims data, and and it it paints just an awful picture. And it's just reflective of the cliff effects on economic activity from all of these statewide shut sounds that we're seeing. So it's just it's a sudden stop in the labor market and a in a sudden stop for many parts of the

U S account. Michael, I'm really struck by how devastating these numbers are, because, as John and Tom keep talking about all of the human stories behind it, is there any tiny little bit of silver lining in that the people who file for unemployment benefits are actually getting unemployment benefits and at least will be able to pay the rent and buy groceries, given the fact that the US

has expanded those benefits. Yes, I mean, I think that's probably you know, the secondary consideration for for the workers, but certainly it's it's a reflection of it certainly illustrates why we need to get fiscal resources two households and business immediately and and make it targeted for for where it's needed. So, yes, the fiscal plan, which which up to unemployment benefits is certainly the right move and the ideas we we need to get resources to these households.

The hope is that this is a temporary surge and unemployment and and if we're successful it UH getting the coronavirus under control as we move into June and July, maybe a lot of this UH unemployment can come back. I just I just worry that, you know, I'm My main concern here is for small business that up talking about firms, let's say forty nine employees or last exactly thirty three million people employed in these businesses, like about

twenty seven million of them with these services related. So my worries we don't get enough resources to those types of business. John ferrows some context here, which I think is so important. We've lost a Florida of employment. Florida's statistic is ten million employed, So in two weeks of claims is a generalization we've lost to Florida is a nation. The numbers are absolutely stunning. And Michael, where we really need to help is how to navigate some of the

dates will get in the coming days. Tomorrow we'll get payrolls in around about twenty four hours time. We'll be having a conversation with an economist like yourself trying to work out how to read a labor market report that for many people is incredibly dated. What do we do

with tomorrow's non farm payrolls report? Honestly, I think we we we ignore it because we claimed data are telling you what April's going to look like, and so that we're likely to see a modest some deterioration or a modest deterioration in the labor market from the March employment report. But these two initial jobless claims reports from last week to this week are telling us April is going to be monumentally worse. So honestly, I think March is already old.

There's and these are the two most important pieces of information we've had. Michael, I gotta say, the emotion in this number is dramatic. Is there a sense that these people will be able to get their jobs back once the economy starts to get up and running? In other words, how sticky is this really high unemployment rate going to be? I think the way that we're thinking about it um is that some of this will will likely come back.

But I think we're you know, we're maybe half of it comes back, And I'm worried that there's a longer tail from the same by and by the end of the year was so likely to have an elevated unemployment rate. H So it we can reopen the economy back up, but it may be that we're slow to unsocial distance, if you will, And I also think they'll be lagged effects from other sectors, like certainly there's there will be spill over to the energy sector for a long time

because of where oil is treating UH. And I think there will be negative wealth effects on on consumption. And this is largely services activity that that we're taking away, and it's not so easy to make that up. So my certainly, my hope is a lot of this unemployment will come back relatively quickly as we move into the third quarter. I have concerns that will be a larger a large portion of it that that will linger for

quite some time into next year. Make the futures on the screen right now down by eighteen points SMP five, we are rather up by sixteen points on SMP five, up by six tents of one percent, but raising some of the big games we had a little earlier on in the session. There will be people asking right now, Michael, whether the fiscal life package in Washington is big enough, even a two twenty in dollars, Is it big enough?

We don't think so. We We think that there will be a phase for certainly the House wants to direct more resources to state local governments, and there's conversations around whether we could do more on infrastructure. So we certainly think Phase three was was a good down payment, and the needle in terms of willingness to support the economy

flift very quickly in about seven days in Washington. So it's a it's a large package at ten percent or so of GDP, but I do think more will ultimately be needed, and I do think you'll type a number I think helps to solidify that. Michael, You've got a great international resume as well. Our David Weston is going to speak with Vice President Pence here in three hours. Okay, great a Florida just fell off the map in terms of labor economy, and as John's nation has figured out,

you have to put the check in. As you brilliantly said, the small business hands a service sector that's getting crushed when you why can't we do that? Why can't politicians just say this is a natural disaster, one off, effective immediately, we're cutting blah blah blah blah blah. Why are we

unable to do that? I don't know. I mean I do wish that it were geared a little more like the support provided in Europe in the UK, where where the arrangement is you keep people on payrolls and will foot you know, seventy of of the wage bill for you know, call it for three months and then we'll we visit if we need to do another three months and go from there. So I do wish we were directed a little more in that in that way. We I don't know why we don't do it. It's just

not it's just not what we do. Uh. And and it's I think it's potentially a problem because I worry, as I said before, about gaps that we don't get the resources down owned the spectrum of from large firms down to small firms, and and I worry about potential cracks and gaps, and and we don't get resources to where they're needed most. But yes, if if I had a magic wand, I would have designed the fiscal stimulus

a little more into that direction. Is direct income support through business to household, keep people on payrolls, keep them getting benefits, and and just have the government support that bill. Michael Cain of banc Leys really appreciate your time this morning at difficult time for everyone worldwide. At the moment yesterday we spoke to the likes of the Abby Joseph

Cohen Olivia Blanchard. We spoke earlier this morning to Jeffrey Sachs and Jason Firm, and none of this matters because all they want to do is hear from Jonathan Miller, Miller, Samuel right now in real estate, in this New York real estate in all the major cities of this nation. Uh, Jonathan, I can't imagine what you have bleeded in your data and your study and your embedded knowledge of our real estate.

How does this rent conundrum play out? Millions can't pay, landlords aren't going to get the rent they have financing do. How does it play out? Well? I think though, what is a reversal from the financial crisis? I think the banks are going to be the one that are going to do the heavy lifting on supporting landlords um as they see a huge drop in you come over the next couple of months. I don't think there's any way around it. If there's excuse me, Lisa, I'm sorry, Lisa.

Go ahead, well, Jonathan, and heading into this, property evaluations were already declining in New York City, And Jonathan, I'm wondering how much you see property valuations declining further from here, given what we're seeing in terms of just a complete shutdown of the city that never sleeps, right. It's uh, it's interesting because the real estate brokerage business, specifically in New York City or it was considered a non essential

business until yesterday and Cuomo reversed it. And so now we we could have real estate agents, uh, you know, some running around selling property, which is counterproductive on on

the concept of shelter in place. Um. If you look at the last two big events in in this market, one was nine eleven and one was the Lehman moment, which didn't um, you know, removing the tragedy components side and just looking at housing, we're looking at you know, we could be looking at a short term price drop anywhere from twenty five tot because you simply don't have

well we saw before, and then a quick rebound. That's right where I wanted to go in terms of what a bear market is in let's say, because the elasticities are totally different than mortgage in the leverage and that is the history of this John Miller, that we see decline in real estate in the major cities and across this nation. So I think there's the high probability of of significant price drops in the short term. The variable here is how long you know, in each region does

this UH virus play out? Therefore, how much damage does it due to the economy there before? How much damage does it do the housing market? And I think it's clear, pretty clear. Uh. You know, there was a lot of optimism coming into the year in harder hit areas like New York that things were starting to that we were bottoming and we were looking better. But really all that's out the door. You can't look backwards behind this event.

It's not relevant. Um, We're what we're seeing now is we're seeing inventory falls sharply, which sounds good, but really what it is is that consumers are not putting their properties on the market. UM. I think landlords in rentals are going to do everything they can to uh to accelerate the renewals because it's difficult for people to run around and look at property. I think they're going to try to retain the tenants that they have, and I

think there's going to be some price compression. Jonathan, taking a step back, I want to talk about the behavior of Americans and whether we are going to see a shift out of some of the bigger cities where you see more concentrated populations to uh, you know, the suburbs and beyond. In response to the threat of a pandemic. We've seen that on the peripheries. Is that going to accelerate?

I don't. I don't think so. I I do think that in the short term will have and we already saw in the last over the last month of people trying to do short term rentals in the suburban market. It's but they physically couldn't move their their stuff out of the city because many buildings have done allow movers to come in and out. Um. But I don't I don't see a massive restructuring, But I do see a short term advantage to the to the suburbs. I think. I think we do have short memories, as as we've

seen in the past. What do you see in Florida right now, johannilor what do you what do you see down there? The dynamics are different down there than some of these other cities. Yeah, we aren't. Um, you know, they're having the operak. The state just had the lockdown. Uh. I think where New York is probably two, two or three weeks ahead of Florida in terms of um stalling or pausing simply because of the pragmatic element of people

not being able to view property. I think the idea of of someone buying virtually right now is still a concept that is going to accelerate in popularity, but it's really out margin. I don't think it's going to replace people physically looking at property. Jonathan Miller, Thank you so much for Miller Samuel 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.