Surveillance: Unprecedented GDP Drop With Blanchflower

the Leguard press conference on fiscal matters. She has to address that Europe is not a great fiscal power, is it? No? I agree with you. I think there will be a discussion of fiscal issues in the press conference and some job owning towards directed at the at the finance ministers and and ads of government to move in that direction. But you know, at the end of the day, Uh, just as Powell yesterday said, a lot of this is outside of their remit, and all they can do is

kind of nudge gently in the right direction. Now, how pur audience said, just how large is a CB asset purchases? Right now? They've got all these different programs, put them together just how big is monthly quee are the European Central Bank at the moment, it's I mean, it's you know, it's not it's not that different from how the FED story, where you have a range of programs. You have the que programs which are more traditional and in fact larger on the ECB side than than than what the FED

is doing. But then you have to have all this alphabet soup that you're kind of referred to of of credit easing measures, and you know these there's so many programs because there's so many different things that the FED and the ECB are trying to to fix. But the bottom line is are trying to make sure that markets are functioning smoothly, that there's no pockets of liquidity, and that they're kind of getting their transmission into all the

right places. There's another loan program for banks, because I'm sure it's going to be a topic for the news conference a little bit later this morning. The Canary and most people's coal mines right now is a bt P. The Italian boond the tenure right now up seven basis points. Off the back of this decision is the focus still on whether the ECB will buy junk debt from here on out, not just on the sulfuring side, but on

the credit side. To Dan, I think there was also some hope that they might do more to address some of the pressure on the very front end of the market that you know you've seen in at least for part of April higher higher your Eyebork fixings uh and some hope they might add financial commercial paper or or

T bills to their their their purchase programs. Instead, what they've done is out of these these additional uh T L t r os that you mentioned, so that may be coming up a bit short of what the market was helping for, and that may be why you see some of the pressure on the euro right after decision and also on the BTPs. Dan, I remember when currencies used to be a debate on which central bank was

either tightening fastest or easing fastest. So I'm wondering if it still is a relative game in terms of who's easing most quickly, who's got the most ammunition to do so, who's winning here? Where is the pressure right now on a weeker dollar or a week or weaker euro. Well, I think we're kind of like where we got to in two thousand nine. Already we got your very quickly where everybody is all in. Everybody's at zero, and now they're just making adjustments along the margins to make sure

that the transmissions working, so everyone's all in. Rate differentials have come down to about zero. It's about, you know, seventies sixty seventy basis points three months rate differential between Europe and US based on the FX forwards. And that means that you know, the currencies that are going to do well are the ones where investor you have a current account surplust investors have no more reason to keep our risk in overseas markets, and you'll see hedging away

of overseas effects composure. So that's bad news for the dollar. Basically, I don't want to get you in trouble with Paris Daan, But let's try what's the optimal point for euro right now? What's the multi efficacious euro dollar pricing right now? For Christine Legard, Well, we think euro is cheap versus the dollar. We think a long term equilibrium is in one thirties area. So obviously that's a long way away. And and then you know, I'm not gonna that's not gonna happen very quickly.

But we think you could get considerably higher from where you are now. And um, that would be a much more neutral place for facts that cats catch you. You joint to us from BMP powder bite. Here if the surveillance home studio in the oak paneled library with a bloody mary board, I can look at a book the Wage Curve Blanche Flower Oswald, and I can open the book and see the first sentence. Work on this monograph

began in nineteen eighties seven. David blanche Flower joins us now from Dartmouth, where he saw twelve copies of the Wage Curve. David, is this the worst you've seen since seven? Is this is? This is stunning economic decline, isn't it? Well? It certainly is the worst. But I'm a historian as well, and I can't see anything worse than this ever. Um, I mean, I was looking at the numbers you were

talking about this morning. Got numbers for Europe. We've got numbers for France but also Spain and Belgium and Austria, and we're looking at, I mean, unprecedented numbers. And just to put what John said in context, France, of course had a negative quarter the one before that, so basically interesting. Certainly now even before we get to Q two. I mean, these numbers are completely unprecedented, and they're all going to get a lot worse, and we're going to see another

number at age thirty. My guess is four million or so you I claims. It's a bit difficult to follow because if you look at place like k because there's been a big increase there, But these are these are numbers that are you know, the only way to describe it is a falling night. This is just collapsing through the floor. Danny. For ten years, you said, don't raise interest rates. You kept saying, don't raise interest rates because this labor market has still got a load of slack.

There's still a load of work to do, there's still more and more people that need to come back. They raised interest rates. Chair Yelen flirted with the idea of running things hard. She didn't run things hard. Chair how quickly realized after a couple of years on the job that maybe they should be leaving things to run hard,

because there is more work to do in the labor market. Danny, when we come out of this in twelve months time, eighteen months time, whenever that is, in two years time, the reluctance to do what they did last time around is going to be absolutely massive. Can you help frame for our audience just how long rates are going to be at these levels because of the lessons that were learned over the last five ten years. What a great question.

I mean, obviously, on your program many times I took a view that the bed was mistaken and it's great rises from two thousand fifteen to two thousand and eighteen and left the economy weaker than it should have been when this shot came along. Um, I think we need to look back at what happened both from two thousand and eight onwards, and it seemed to me that people underestimated to the shock. The fiscal authorities tightened too much, and that put pressure on the central thing. And I

think we haven't learned the lesson. I used to quote this quote a lot Kane's in one talked about the long dragging conditions of semi slump, and he said the issue was not so much the crash itself, but what follows. And so I think that's a really great question of yours, John, that the reality is that you have this great shock and then you need to worry about what's coming. And I think if we look back that the biggest mistake that was made was to assume it was all over

um and then you could sort of anchor back. And then if you hear and now your steerings of all talking about well, now in eighteen months or so, we're gonna we'll go back to where where we can raise rate, we can fight. And I think the reality what we know in these giant shops is that their long lapsing. Literally, So how come John Ferrell only has all great questions? What is that about? Danny and I talked before we do the shape you coordinate and you brob him. I agree,

and I want to build on it. Uh, Danny and the idea of the slack in the economy and in the jobs market, and you wrote a really good paper about this recently, looking at the preliminary data about the job destruction and the mass of it in the United States and in the United Kingdom and the wake of the coronavirus shutdowns, and you talked about the widening wealth gap, the widening income gap, the disproportionate hit on lower income individuals is a fed effectively widening this wealth gap with

its programs. Well, I mean the issue is who are you going to rescue? I mean, we had an initial piece of data from the BLX for its March release, and we're going to get the release for a rape coming shortly. If you look, the biggest group that were impacted with a young, So the young had a three point three percentage point rise in their unemployment rate. So obviously the issue here is that there's going to be

distributional consequences here. And obviously the FED action we know in two thousand and eight onwards rescued people who owned assets, and what we're going to see here is that that's

the same thing going to happen. The question is what happens in terms of the distributional consequences, And of course what we're seeing a distributional consequences of the virus itself, so people into the poorer people, people without health insurance, people owing up so well, so that that's obviously an issue. And the question always for a central bank is Okay, we're going to have an effect on distribution. We only have limited tools. It's up to the fiscal authorities to

do something about it. And obviously the issue is that are they going to do that? And I think the second issue is that we see around the country are they going to get food to the people who need it? So I think distributional things are really important. And something else I should flag is that we're going to look at you, I claims. But the big deal going forward is going to be under employment, which is even that people are in work, they don't have enough hours, and

that's sort of huge hit as well. Are we going to see big hits from that? So it's not just unemployment, it's about underemployment. And the people who are going to be under employed are the weakest spoke that. You're right, the FED will not essentially be be getting too because they can't do everything, but but the central government and the Congress have to get to those books and they aren't it. So what we've seen is the people who do best in the boom are the people who do

worst in the slump. So the least educated, the young we're going to worry about. And the FED really has no, no, no part of play in that game. Danny. Politicians have done a lot over the last couple of months, and one of the things they've done is enhanced employment benefits in the United States of America? Does it rather contra vercial question being asked in America now over the last

several weeks about the unintended consequences of that decision. Can you walk us through how you're thinking about that particular dilemma at the moment enhanced unemployment benefits which for some people they may well be doing better off without a

job financially speaking, certainly, not psychologically speaking, but financially speaking. Well, the first thing we know from from all the work that I and many other people in paper economics have is that the biggest happiness inducer, if you like, is a job. And so obviously the question now is well, should you go in and help people who have lost the job through no fault of their own. So that's

the first point. So you put in benefits, and we've traditionally have done it on a bypassing basis to help people through this shock. The issue, I guess is you've helped these people and then you say, well, are they just lazy? Are going to just sit there and not look for all the jobs that are out there? And then you get to the point of well, what jobs

are there out there. The point of the point in this great recession where we've seen German unemployment rights and having a huge numbers coming just thirty million odd increase in unemployment claims is because there's no demand, oil price driving UM. The restaurants are closingest people aren't going to them. So this is to temporarily take help the people who

have no fold with their own have been made unemployed. UM. And so to argue that we shouldn't help those people, we shouldn't deal with the difficult issues that are going on right now, seems well heartless as good as well, said Danny. Very well, said David blanch For thank you so much. He is with Dartmouth College. We have talked all sorts of good people. We think Stephen Riley of Imperial College for joining Bloomberg Surveillance today out of London.

Right now, my conversation that I have with Francie Laqui, with Jason Farley with it Johns Hopkins University School of Nursing. Let's listen, We've got great data about the way we position patients UM that will actually help improve oxygen saturations or the amount of oxygen in the blood. UM. It can actually slow down if a patient's progressing towards the need for ventilation, by placing them on their stomach. We

call that prone position or proning the patients. We can do that before a patient gets ventilated, we can do that after a patient gets ventilated. It actually helps to buy gravity improve the amount of oxygen in a patient's blood. So that's one thing. The second thing, and I think more importantly what Dr Fauci is referring to in this proof of concept is do we have any drug that shows it can help improve the way um it responds or it causes the virus to respond in the body.

And that, I think is more what Dr Fauci is we're speaking to in his comments yesterday, the proof of concept that we now share a single drug that may offer a benefit. What is our proof of concept right now with our testing? It seems to be complex. People talk about the swabs and the rest of it. Is our testing up to proof of concept level? Well? Well, certainly, when we when we talk about proof of concept, it simply means that we have you know, we've theorized an issue.

And when we understand that there is a at least something that gives us an idea that the hypothesis we originally proposed is actually has merit, right, and that's the proof of concept. So right now, our proof of concept is that we can stand up across the United States without the help of the federal government, you know, testing, and we can stand that testing up. Uh. You know, it takes it's a slow process. It's their supply thing that's used. But we are now testing across the United States, um,

you know, hundreds of thousands of people a day. Um. That being said, it's remained a very slow process. So we do need to scale up. And the administration's estimate of testing two percent of the general population per day with you know, we've heard estimates that that would take up approximately four years to get to the right level of testing that we need. So we we definitely know that we need to speed up our testing capacity, need

to speed up the number of people being tested. Dr Farley, what is you know, what are you most hopeful about right now? I know that there are a couple of clinical trials actually showing that Rodzeviere could be working. How long until we have you know, an almost certain answer on what drugs can help us fighting this pandemic certainly,

so I understand. You know that the data that came out from the NIH yesterday was an interim analysis and and basically what that means is that the that there's a data safety and monitoring board that's independent to the investigative team. They look at the data and they've done that, and in that interim analysis, there is a statistical benefit in terms of recovery time. It's the four day benefits.

So patients who received the drug redem severe received eleven day over all time to resolution, whereas people who received placebo was a fifteen day time to resolution. Now that's our first as we were saying before, proof of concept of the drug may have some level of benefits when

it comes to survival UM. There was a trend toward survivability UM that was not exactly statistical significant at this point, meaning that you know, the metric we look at as scientists to say, is this different one drug AID versus drug B. And the answer to that is right now, it was. It appears that it's moving in that direction, but it was not yet statistically different. But the data.

What the data did show was the eight percent mortality in the redemped severe arm versus eleven point six percent mortality in the placebo arm so that is at least some benefit it that we can see mathematically emerging. Jesson Farrowy the School Nursing Jena, because university owners should mention also affiliated with the Bloomberg School of Public Health at j h U. And of course we should mention Michael Bloomberg, founder of Bloomberg LP this radio and television operation as well.

He has given generously to his School of Engineering and the rest of the Johns Hopkins University. Apple's taken over our lives, and they're becoming more and more integral as we are staying at home and consuming more and more media on our devices. Chris Sankar covers Apple for Counter Companies of Senior Research Channels Tom and he joins us here. Chris, thanks so much for joining us. Um, what do you expect from Apple after the close tonight when they report

their earnings? Yeah, Hi, thanks for having me, and everyone is a very you know, Apple's party the first one to pull the guidance because of COVID back in mid February. So I would say that consensus numbers are all over the map. But if you look at the midpoint of it roughly around like you know, low to mid fifty billion and revenues. I do expect them to come in

line with that number. And keep in mind that used to be sixty five billion, you know, pre guidance withdrawals, so you've seen quite a bit of tious king over there. So I do expect them largely to come in line at this point. I do not expect them to give a June quarter guidance. And the rationalt for that is pretty simple, right, So in jan thirty during the last

earnings called, they give a March guidance. Two weeks later they pulled it at the time because the supply chain is disrupted due to the COVID And now the supply chain is up and running, but you have to forecast demand for June based on some geographies that haven't even opened up yet. So I think the demand forecasting is much more challenging than the supply ramifications at this point. So I would say, given all of that, I do not expect them to give a June quarter guidance about

our forecast. It is to be largely flattish on a sequential basis, alright, So Chris, so I know they had some new phones UH is scheduled to be launched kind of a lower our mid price phone UH as well as perhaps a five G phone in the fall. Where do you think some of those new product launches are going to be impact? There are we gonna see some

significant delays in some of their new product launches. So in term of like the mid rangers, I should say the low class phone they did come out of the two weeks ago the iPhone SC, you know, which the price phone is anywhere from three at the low end to five nine in the in the in the upper end. So I think they did come out of the iPhone SC.

You know, in a normal environment, it has seen a little bit more fanfare official launch this time on it was an online launch, so I think that does add to some upside into the unit forecast in June, but more realistically into the half of the year. And then um the five D phone, which is scheduled for a later at the here. Typically Apple comes out with a new iPhone, you know, in the September October time frames. Looks like it might be shifted by maybe a month.

But I would say, you know, in the grand scheme of things, whether the new iPhone five G gets lit by a month or two months, it doesn't really matter, you know, it doesn't matter to the thesis, it doesn't matter to the supply chain. If it's like a couple

of months push out. I would say that if you are six or nine months push out, and uh, there's probably some ramistications in the in the medium term, but I would say a few months push out really doesn't change the land of the five adoption into calendar one. I can predict you know that all my kids iPhones will break one week before the rollout of five, six

or seven. Gee. I got one question here, with all of this upside down demands supply dynamics, what do you model out for the growth of their free cash flow and for the sustainability of two hundred and seven jillion dollars of cash? I mean, there's a ball she got adjusted year off of cash flow or not? Yeah, I think that's a good question. And you know, one of the things I would say is that, you know, the

stability of the balance. She has been a major selling point for many Apple shareholders, and you know, I mean the free cash if you look at it, you know last year it was around like two percent. You know, if these things are going to be down quite a bit this year, we actually don't expect the free cash or to diminish dramatically. In other words, right now forecasts like, you know, just under twenty percent free cash flow margins for physical twenty was his twenty two in fiscal nineteen.

So I think that's kind of like the beauty of the model. The other thing that we have assumed in our model is that there's really no buy backs in the June quarter. You know, clearly Apple has been funding buybacks in their own cash flow, so they could do what they want with it. But given the environment and the optics of it, we just assume that they're not going to do any buy back at least in the June quarter. I mean, it's just you being Paul listen

talking here. Nobody else is listening. What are they going to do with all that money? I mean, if there's a valuation contraction out there, isn't this like the best time ever for Mr Cook to get acquisitive? You know, I know it's a it's a very valid point, and usually you know, there are a lot of bargain basement deals at this time, but I think at the same time,

you know, how many of them are bilnked itself. You know, historically they've done more tuck in em and a not any big transformational emin a. I feel like that is still their sentiment around m n as at this point. And if it's a big opportunity out there, you know, is there a building sell it as well? I doubt

it in these valuation metrics. But at the same time, what they have made it very clear, both Mr Cook and uh Mr Luca the CFO, have made it clear that they want to be um net cash neutral, i e. They still have like net cash of like a hundred plus billion dollars. And what you've seeing them do is, you know, expectively do an eighteen to twenty billion dollars on a quarterly basis buy back. And they're also looking at investing in you know, TV plus or the news shows,

et cetera. Over the last five years, some of the big topics, uh, you know investments were on retail stores. They're largely done building that out. So what are you're seeing is some of the more intremental and going towards original content for TV plus, et cetera. And you know, to your point, Tom when you have two hundred billion dollars in you know, in the bank. The world is

your oyster. But historically, as you've seen, Apple is not being a major transformation accilition kind of a company, but it's been more bolt on so Christian, you know, one of the stories about Apple over the last several years has been the growth of the services business. And I'm just wondering how the services business will fare in a world where thirty million Americans just lost their jobs in

the last five weeks, we have a global pandemic. How are you thinking about kind of the services businesses for Apple? You know, I mean, it's about the question, and at the end of the day, I would say the services is definitely more resilient in a normal environment. March Quarter usually sees the uptick in services, especially from China, where they do a lot of App store downloads of games

around the Chinese years. Arguably, this March Quarter was not like any other March Quarter in history, so there's a lot more people working from home, so I think that actually probably helped the services business overall compared to historical March quarters. At the same time, I think the unemployment is the biggest concerns from investors. I think that is more centered around the hotweed or the smartphone division, and it's much more consumer centing. But I think the services

siety is pretty resilient in today's pretty resilient. Yeah, Paul, let me do some cf A institute research for you right now. Create, explore and survive all this for six Explore infinite worlds and build everything from the simplest of homes to the grandest castles. Paul, you can do this with Minecraft. Trust me. Tim Cook's killing it with the Minecraft app from Apple. I know exactly times. I'm sure that's downloaded all all across the keen household. Won't even

go for a walk anymore. He's playing bed Wars exactly. So, Chris, just you know, taking a look. You mentioned the supply chain here. It looks like China's reopening again. Give us a state of the supply chain for Apple. The supplant chain is definitely much better shape compared to a month ago. I think. You know, if you look at one of the major suppliers, which is fox Con, you know, at the peak of the pandemic in um in Asia, their utilization rates you know when below right now, they're back

up into like over ninety percent. So clearly the supply chain has come from like you know, a sub fifty person in a late February to like you know, a more normalized run rate today. So the supply chain has seemed a quick to bound. You've also seen a lot of the shelter in place or as some of the

Asian economies call it, like movement control orders. They've been lifted or in some cases they're actually given special permission to some of the larger employers, which would be like many semi chennect companies, Apple, et cetera, which employed tons of people in the local jurisdiction, many of them and relax.

I think the supply chain is definitely in a much better situation than it was maybe like a month month and a half ago, where you're not seeing the biggest efficiency improvement is because there are some factories or shop flows there. You still have to practice social distancing, so you can have as many people or either people densities lower than what it would normally be, So that does have some impact on the supply but largely I would say the supply chain is you know, um in today's

environment for lack of a better word back to normal. Chris, thanks so much for joining us to really appreciate your thoughts and commentary on Apple, which Tom Roster indoors. We're quarantining, we're shut in, and we are consuming media more than ever. The question is how do we kind of get it the cable the telecom companies. Are we streaming just a whole host of issues for these big tech telecom media

companies to deal with. And who better to chat about that than our good friend Craig Moffatt Moffatt Nathanson, founding partner and senior research Annel's Craig, thanks so much for joining us. Let's talk cable stocks. First, we had some Comcast numbers. Out is the cable story, Craig, Just yeah, don't worry about the video subscribers. That business is going away. It's all about broadband. Yeah, Hi, good morning, Ball and Tom. Good good to talk to you again. You know, yes,

I think that's right for the cable side of Comcast business. Broadband, blue doors off. I think all the things that you could have hoped for, which is that in this kind of a crisis, UH customers want at higher speeds. They were willing to trade up to a better broadband connection for DSL customers and what have you? Switching to cable. All that happened, and the results on the cable side

of the business were very very good. Losing video subscribers doesn't hurt them that much because those customers don't make them much money anyway. And uh, and so you saw margins rise to an all time record. And if if Comcast were cable only company, the results would have been terrific. Craig very quickly here the gossip in A T and T. Mr Stevenson, Am I right? The board moved about the door. Tell us about the m and A activity of A T and T And what Mr Stanky can do to

straighten this out fast? Well, you know, I I can't come in. I don't have any insight into to the circumstances surrounding Randall's earlier than expected retirement. I would say that that John Stanky as his success or, is to some extent an endorsement of the status quo at A T and T, though John was very much a co architect of this quote unquote a new media company vision. That is, you generate content and you distribute it over your own platforms. They've got it all under one roof.

It hasn't worked so far, but this is clearly an endorsement of saying we're going to stay the course and try to keep keep trying here to make it work. Alright, So Craig, let's stay with a T and T here. You know, from my recollection, the Direct TV acquisition probably one of the worst deals I've ever seen. I guess the jury is still out on Time Warner. How much time does Mr Stinky have to prove this concept correct? Well, you're you're right. The Direct TV acquisition, I think we'll

go down in history is one of the worst ever. Um, you guys one, could you guys sugarcoat it billion dollars or an acquisition that today is just five years later is worth billion dollars or something? Maybe? Um And and you're right. Time Warner is in some ways very similar in that long term structural challenges to these businesses. Now you're facing a lot of cyclical headwinds as well, but even leaving aside the COVID crisis, these are long term

structurally challenge businesses. Um that they bought at extremely high valuations and they're just writing them down. What makes this so so difficult though, is as I said before, John Stanky was sort of the co architect of this strategy. So it's not like you're bringing in an outsider to say, now me change this business and UM and see what I can make of it. This is this is an

endorsement of saying he helped put it together completely. Changing directions probably would have just been too hard and and too risky and so um. They've changed leadership, but but it is still very much the same strategy. I I don't know what the ticking clock would say for how long you have to put it together the obvious order to right the ship. I think the obvious question is just can you sustain the dividend and UM. Right now

it looks like probably yes. But if the recession goes on longer than people think, or if it's deeper than people think, then the leverage ratio at A T and T will rise quite substantially as EVADA falls, and the rating agencies could very justifiably and and conceivably demand a dividend cut in order to redirect cash flows to debt retirement instead. And that's the real risk, and that's the ticking clock at A T and T alright, Greig, just

real quick, Verizon thirty seconds. What's their strategy? Well, Verizon right now is viewed as an impregnable, defensive story, and that's not entirely wrong. Um. There's nothing bad that's going to happen to their business relative to most businesses in this crisis. UM, and they're doing fine. The problem is before this crisis, they weren't growing. UM. After this crisis, they won't be growing, and so they are an okay

place to hide. But it's this is by no means one of those very few stories in the market that will emerge stronger. I don't think Verizon will emerge stronger. They'll sort of emerge the same, let's say, Craig Mofatt, not enough time, We'll do it again, Craig Moffatt with us, of course, with Moffett, Natancy. 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