Transcripts For BLOOMBERG Bloomberg Surveillance 20240713

We will be speaking to. When we could start to get a vaccine. We hear there are some in clinical trials, wondering if perhaps that is the next hope to look forward to. Francine from the conversations i have had, and they are very preliminary, it looks like a vaccine will be a couple years away unless they can speeded up. But there seemed to be three drugs that are working and fighting it off once you catch the coronavirus. We will delve deeper and see if it will make or break drug companies. Lets get to first word news with viviana hurtado. Viviana we begin with President Trump, who did a 180 on the coronavirus p he now says it is so bad, it may drive the economy into recession. He tried the president spent weeks minimizing the impact, which led state and local into the initiative to take a response. The republicancontrolled chamber will take up a house bill. It includes paid sick leave and now to the french president , Emmanuel Macron, who told the french people, we are at war. The french president making the case for shared sacrifices in the fight against coronavirus. Hotels and taxes will be requisitioned for health workers. His controversial pension overhaul and other reforms will be put on hold, and the government will ensure no business is allowed to fail. Global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in i amthan 120 countries, viviana hurtado. This is bloomberg. Taylor . Francine . Francine thank you so much, the vienna. This is what the markets are doing. What isiggs has more on happening with futures, but it feels like investors are trying to find their feet after the plunge yesterday, trimming european stocks, giving up the gains that we saw you earlier. 0. 8 ean stoxx 600, down to down 0. 8 . The banks are down 1. 2 . Some of the futures in the u. S. Holding onto gains, but less than they were an hour ago. I did want to show you some of the risk off. We have had it for quite some time. But looking at the u. S. 10 year yield, on. 38. Swings we are seeing within the u. S. Equity markets are incredible. As you know, we closed off 12 yesterday. We were high earlier by as much as 3 . We are coming off those highs, today barely higher now at least within the s p market, by 1 or so. Yesterday we talked about the big rally we saw within the yield market. Youre getting a lift in yield here from the riskon tone. Given there is a lot of talk that when there is an inverted yield curve, how quickly that signals a recession, it is all about the safe haven king dollar. The bloomberg dollar index had its best week since 2008. Francine it is incredible when you talk about recession. It seems like the mood is changing quite fast, and the Big Companies are trying to figure out exactly what kind of measures the government can support so they stay afloat. I have a very simple chart, the best chart i have seen out there. Things to hillary clark. It basically looks at the french bonds and the german bonds. This is significant because it goes to two different approaches, how the European Countries at the epicenter of , andoronavirus are dealing we can see that the spread is 2017, the highest since 2017. Taylor it is like you read my mind. Take a look at the chart i am showing inside my terminal. It is the Investment Grade and the high yield spreads that are blowing out. This is where you are continuing to find the cruxes in the credit markets. Providesearing this 750 basis points. I want to hold back some of the caution. We are nowhere near the level ands 2008. When we talk about the level since 2008. Joining us now, the Royal London Asset management head of assets. We have had historic days and weeks. What will be the floor . We have bridgewater putting a massive short on equities paired i dont know how you look at what the markets will do next. Cane have lowered to go, or things be stabilized by Financial Institutions . We have notis that found the low yet because we have not gotten to the stage of really rapid infection in the u. S. And most of continental europe, and most of that is still ahead. Market sentiment, it is going to be hard to shake off the real world stuff that is happening. I think this is the key at the moment. Policymakers can provide liquidity, and the fed has been doing that, Central Banks have been doing that. This is a real shock and we need to see the signs that the real shock has turned around. Context, yesterday was the fourth biggest percentage drop in the dow jones index since 1900. 1980 seven, you mentioned as being the worst one big drop. The out big of world war i and the start of the 1929 crash, that is the company we are in. We have our own sentiment indicator, and it is now almost 4. 5 standard deviations away from normal. The most extreme daily reading in 7000 days of trading since 1991. So really extreme market panic. It is a rolling crash that we are seeing here. I think it is very good to see what macron did because what you need is Central Bank Balance sheets to underwrite cash flow and what is a sudden stop in the World Economy. That is really what we need to see everywhere, and that is one findings that will help us a draw. We need to see realworld effects. It means the virus spread is slowing down. Francine we are also getting headlines from the french finance minister, saying they could nationalize companies to protect them if needed. Is this kind of rhetoric helpful for the market . I think it is inevitable that you will see some nationalization. There are different ways of doing it. You can guarantee loans, and my sense is that has been a big thing in macrons announcement as well. 300 billion dollars of loan guarantees, effectively the government directly ending to companies. So that is really sensible. I think you will see some nationalization as well. Different countries are probably going through the loan route, and countries will want to get National Control as they are putting money on risk. 4. 5or you mentioned the standard deviation move on your sentiment indicator. Does that tell you we are in peak panic . Trevor i hope so. About when thek markets are depressed, there is a panic in the Financial Markets, the policymakers react by panicking and they cut Interest Rates or they cut taxes or they do something. That takes the problem away. In that circumstance, rate cuts or a government announcement or the end of hostility in the middle east, it takes away the problem. In this case, the real issue is that the panic going on in Financial Markets reflects a societal panic about the virus and the government response to societys panic is to hurt the economy by shuttering it. That is what worries me that there is further to go. The lehman crisis, we were told that the market is deeply oversold and failed, and it dropped further. Ilue is being created, but think we are in for a period of three months, maybe six months of quite extreme volatility, twoway volatility. Like friday,days one of the biggest rises in volatility since 2012. Taylor aside from some of the behavioral analysis, we try on days like these to go back to fundamental analysis. You pointed out valuations, which perhaps look attractive. There were a lot of earlier that the s p had gone to trading more than 20 times forward p e ratio. Valuations now do they look attractive to you . Trevor they do look more attractive. The real question of valuations is always that you cannot unravel two separate things. There is the earnings hit for the markets pricing in, and taking that on its own, you would say the market is very attractive at the moment. But then there is also the question of what is the market risk premium . What value is the market putting on future earnings . I think the market risk premium is taking a real whack here. If you are running a Small Business or a restaurant, you might go bust through no fault of your own. Shares in companies, they will be good companies, it is a major cash flow problem. Although there will be liquidities and you have to think the fact that there is a different inflationary backdrop people will be wary about coming back in. That is what is quite hard to unravel. Francine thank you so much, Trevor Greetham. Coming up, we speak with mervyn king, the former bank of england governor, author of radical uncertainty. 6 00 a. M. In new york, 10 00 a. M. In london. And this is bloomberg. Viviana you are watching bloomberg surveillance. We begin with volkswagen. It says the coronavirus outbreak poses unknown financial challenges. The Worlds Largest automaker says the fallout is almost impossible to predict. The entire Auto Industry facing contracting demand and disrupted supply chains. We end with amazon, the Company Hiring 100,000 people because it is overwhelmed by demand triggered by the coronavirus outbreak. Plus, u. S. Workers will get a two dollar an hour raise. Saidaid outstripping demand outstripped its delivery capacity. Francine thank you so much. Arernments around the world scrambling to keep citizens from exposure to the coronavirus. Cases reach 180 thousand, fatalities reach 7000. Thank you for joining us. It is uncertain times, many people watching us will be scared. Many of them will be at home. What are the lessons we learned from china . Selfisolate, and how quick a recovery if everybody does what they are told, could we see . Thank you very much. Listening from china at this point in time, this is not the end of the journey, unfortunately, but they tell us , wellhen orchestrated communicated, clear containment measures are implemented with speed, they have an effect and can radically change the outcome of the pandemic. Francine when will we see the peak . It seems every country in europe and now the u. S. , especially with what they have done in san francisco, is taking different measures. Do we need a worldwide measure approach, or because we are two weeks behind, it is difficult to act in a concerted action . Arnaud i think you have to look nation by nation. There is not one situation at this point in time that is identical to one neighbor country. Intervention, the clarity of communication, and the fact that containment measures have a clear effect, i would also like to comment on that. When those measures are guided , ande Scientific Community the most notable they are having even more of an effect. Taylor when we talk about quarantine measures, some of our audience in new york city, it is unbelievable how quickly the city can shut down. I want to move from a quarantine to a potential treatment or a vaccine. What are you hearing from the Scientific Community about how far off we are from the potential vaccine . Arnaud well, it has been made , inr that some vaccines particular one of them, is getting into phase one clinical and the guidance of nah at this point in time, and that is good news, certainly. But you need to understand that phase i means that we only verify that the vaccine is not toxic to humans. Earlya stage that is very in the discovery process. You have to remain and demonstrate efficacy and most importantly also that they vaccine can be manufactured at scale, which is an issue in the context of existing capacity. I would say promising, but in the wrong way. I tend to agree with Clinical Experts on that 18 months is reasonable timeframe for seeing a vaccine administered to patients in real life. Taylor i would be remiss that i remiss thatuld be if i did not mention that i just moved here from san francisco, and the focus is on taxes and the private sector and what they can do. , on theyour role private sector playing a role here . In no one can work governments are making their shares, becoming increasingly , andiant to measures business has an immense contribution to make. That is where the World Economic forum created this covid19 pot form. Six days ago we got hundreds of ceos joining platform, six days ago we got hundreds of ceos joining us. Commitment and ideas to explore and coalitions in publicprivate partnerships. You should think about quicktake. Quick take can play a huge role, thinking about promoting telehealth or solutions, hospitals, thinking about the type of Artificial Intelligence technologies that can be used to customize measures and guidance to populations. Francine thank you so much. Bernaert. Wenon will ask our next guest about some of the prescriptions and what governments should do next. This is bloomberg. Francine this is bloomberg surveillance. We are back with Trevor Greetham. The number following of deaths and the number of infected. It is a tragedy. When it comes to an economic point of view, is it almost a given that we are seeing a recession in europe, not worldwide, and if not worldwide, and what kind of recovery will we have after that . Trevor it is the most strange recession ever. There does look like it will be a recession, the duration of the shuttering is the question. He becaus the shuttering is causin the economic stress. The danger is that the virus comes back in a big way if you open it back up. In the summer, you might be able to unshutter things and it will not be a problem. Shutter things up in the winter until we get the vaccine, which may be a year or two. We just dont know. It is a big unknown at the moment. What does it mean in terms of what it means for a Market Participant . Do you assume volatility until at least the summer . Or is there volatility for much longer . Muchr i think it is a longer volatility. The real question is, can you get life support in terms of liquidity to businesses, and not just large businesses, but Small Businesses. Cash to people . Macron is saying people do not have to pay their utility bills. You have to get cash to people, so that unemployment does not rise. If unemployment rises dramatically over the next three to six months, you get secondround effects, longterm credit effects. So you have to keep things on life support economically speaking for the next few months, after which when the unshuttering comes, i think it will be the most sudden economic recovery you have ever seen because activity will come back, pent up spending will have to be rebuilt, there is loads of stimulus in the system. Oil prices crashed. There will be a you shape to this a u shape to this. We do not know how long the flat part of it is, and that is where we see the volatility. Taylor what is the number one question you have been fielding from clients in the past week . The same sort of questions you are asking, really it how long will this last . I spoke with a Financial Advisor this week, and his first question to me will be, when will this ever end . The market keeps dropping. People want to know when it is going to end, looking to the government, for more measures, to impose curfews or stop gatherings, and those things are economically damaging. So i think you need i think it goes handinhand. I am hoping in the u. K. We get measures along the lines that macron has announced already because if you are going to tell people not to go into restaurants and theaters, have to have some kind of economic package in place as well. Taylor wonderful analysis. Trevor greetham will stay with us. Come check us out at tv. You can watch our interviews and events. This is bloomberg. [ fastpaced drumming ] [ fastpaced drumming ] critically important that the markets stay open as opposed to trying to take breaks in the middle. The stock market i am a little more concerned about it. Demandsteep decline in that we are seeing with a double whammy in Oil Prices Falling is unprecedented. What you see on the screen is a fraction of the story. The market has more or last eased up. Seized up. We have to act fast and the bankruptcy rate could be a permanent shock. Taylor that is some of the Bloomberg Television guest react thing to the stock rout from yesterday. We have turned negative on the dow and s p 500, nasdaq remaining positive. I wonder how we are going to find a floor given the 10 , 12 move we have had. Raising what was a 3 or 4 gain , now firmly into negative territory, and the fold over into the bond market, yields rising only about nine basis points or so as you get some confusion on whether it will be a risk off or risk on day. Omberg firmly in stronger the dollar index having its best day. The other thing that is significant is the vixs remaining significantly above longterm equilibrium which means traders are on edge. I dont know if you look at the number of debts deaths or infections. The selloff deepening. Day with european stocks gaining and they are now down 2. 3 . The descent is accelerating. Lets get straight to the bloomberg first word news. A newa we begin with tone on the coronavirus from donald trump. For weeks, he dismissed the danger of the disease and occasionally came out with misleading information. Now he says the virus is bad and could lead to a recession. He advised americans against rather angry and groups of more than 10 people. Six Francisco Bay counties ordering people to stay at home except for essential need. Other than those deemed essential are shut. Government will offer extra help for struggling businesses. Airlines, theaters, and restaurants are among those struggling. They will set out their plan today. Global news 24 hours a day, on air and quicktake on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Francine thank you so much. Leaders are preparing their to contain attempts the coronavirus update. Global numbers are close to 180,000 with 6000 deaths. The needts rolled out for further restrictions after g7 nations held a Conference Call on monday. Traveld discretionary and avoid eating and drinking at bars, restaurants, and public food courts. We are asking people to do something that is difficult and disruptive to their lives. The mainland, hong kong, and countriesr all of our all other countries we will be the alert is there and that will affect our daytoday way of life. Francine there are a number of measures being imposed on citizens, some voluntary, some compulsory, but what kind of support do you give to the economy and companies . Who seems to be at the forefront of this . Maria first of all, i would say that overall if you look at these nations, the tone has shift did where everyone shifted where everyone is saying this is not just a fluke, this is a serious situation with various repercussions. When you look at the measures announced, Emmanuel Macron came out with Strong Language saying this is almost like a war. You do not see the enemy. He is saying the french state will provide a huge credit line for companies, 300 billion euros, and the goal is to not see companies go bankrupt. Saying theyminister see a contraction of one percentage point. Will be a severe shock, the Italian Government taking more measures, billions of euros put on the table, but the question is will this be enough . Airlines, carmakers saying they are going to have to shut down plans, and the impact we are starting to see today. Francine maria tadeo in brussels. Moec ands is gilles still with us is Trevor Greetham. You put out a great note talking about the economics of lockdown. What will be the impact on the economy and companies if we have this protracted lockdown . The best to start with is simple arithmetics. If you take the sectors that will go down where output is likely to go to zero, hotel accommodations, in a country like france that is roughly 4 of gdp. 4 . Hat goes to zero, gdp is the leg down will hopefully not last the full quarter, but that will help start gauging the impact. It will be significant. Francine this is like a possible recession. We have seen nothing of the sort ever in modern times. If businesses dont have enough cash or if you are a central bank or government, can you just say you dont have to pay mortgages or loans and we pick up in october, or does that not work . Gilles you need a backstop, some agent with a huge Balance Sheet and the capacity to be protected. That has to be the government. There is no one else. The support we are getting from france and germany, shortterm support plus guarantees to businesses. I would love to see something similar coming from the u. S. U. S. Iserves in the about two months worth of compensation for employees in the u. S. , so very quickly you a time when governments Companies Need to engage in layoffs. To provide the proper bridge we need, you need the government to be protected and that is where military policy is needed. That is why we need qe basically, the capacity to monetize debts to keep the private sector safe. Taylor we have a raised all the gains we had this morning in the we are downet and 1 . We talked about the parallels with 9 11. In that time they shut down the market. Is there a case to be made that we should close the market for a week while we find a floor . Trevor this is a tricky one. I dont want to stretch the scary historic parallels but Neil Ferguson wrote a short can but pamphlet on the outbreak of world war i. Times on page 28 of the and not long after that, Financial Markets closed, in some cases for years. The problem is knowing when to reopen them and you will create panic and other areas, people rush to liquidity. It is not a good idea, but i agree with gilles moec, you need a Big Government backstop to this cash flow interruption. Good businesses will go bust through no fault of their own. The government is rightly stepping in saying we need to take action. It is like a war. Are banging our heads earlier this year within the u. S. , the democratic and republican candidates were not talking about the fiscal deficit and you are saying fiscal deficits will be much higher. Do we no longer care about deficits . Gilles i think we should not care, yes. These are exceptional circumstances. 16 deficit in the u. S. Is of odp. It will have to go much higher. We can make this sustainable if Monetary Policy support. Important. Qe was so on the private sector it is likely to be marginal, but the government will not get in trouble and that should be one of the emergency solution. Solutions. Francine thank, gilles moec and Trevor Greetham. Coming up, we speak to mervyn king. He is the author of radical uncertainty. Lord king joins us at 6 00 in new york. This is bloomberg. Francine this is bloomberg surveillance. Markets areance. Getting uglier by the minute, looking at data be it u. S. Futures. We are speaking with Trevor Greetham and delmo. Gilles moec. How low can banks go in our Central Banks going too far . Trevor the fed was trying to make sure the price of money was low and are taking efforts to make sure there is plenty of quantity. Some of that involves fiscal basque stop backstop, things like the fed is trying to keep the economy going. The concern is how long this lasts and what shape the recovery will have back in february and early march people impacts vshaped impacts and now they are saying ushaped. Theets were worried about socalled lshaped recovery where there is no recovery and that will be the point of maximum pessimism. You have to get governments in with Central Banks to underwrite cash flow to prevent that mindset. Ernments can print money excuse me, Central Banks can print money. This is classic helicopter money and can be done through government following government borrowing. You might argue there is an inflationary risk. Is Coronavirus Crisis primarily a demand shock that we need to worry about. The supply can be switched on quickly, and if it is a demand shock i would not be worried about inflation now. Francine do you agree with that . Anything short of helicopter money from Central Banks, what would it do . Does it lower Interest Rate help . Gilles there is a shortened response that can still be improved. There are some asset losses which are not yet covered by what the Central Banks are doing. In the u. S. , there is a good case for the fed to go into Corporate Bonds and commercial paper. They need authorization from congress, but it would provide a comprehensive backstop to deal with the shortterm impact on the financial market. Down the line, we can do it in a fairly traditional way. I will take the example of the euro area. We have this decision to spend more and suspend the , and we haven deficits growing in the next two courses with discretionary plus massive use of automatic stabilizers. They will need to increase borrowing and if we have a central bank in front of it buying government bonds, i dont see why things should not remain apathetic. There are a few things we need to get from the ecb. They were clever last week in terms of designing their response around the limit, around their redlines. They probably need to disclose those. Taylor i want to take a look at as we fold in what we call the smart money of bonds, the typical inversion of the yield curve gets a reese deepening and that cowans whatepening and that is causes a recession. There is always an issue with the fine line. Pening, thatrestee will mean they believe the policy issues on the table will be enough. Unless that is something we need to keep in mind, that is the effect to the euro area. In some countries, the long ends rising. In italy, there is a signal that the market could be facing a rebound. Epening wouldeste be a positive no. Signal. We would have a forwardlooking view. Taylor gilles moec and try their grief them Trevor Greetham, thank you for joining. Coming up on Bloomberg Radio and television, bill dudley, Bloomberg Opinion writer on his analysis between fed policy and fiscal response. This is bloomberg. This is bloomberg surveillance, taylor and france dean from london and new york francine from london and new york. Us on the front is kirill dmitriev. Thank you for joining us. You look at the price of oil which oil does not want to defend and you look at the coronavirus, how much of an impact will this have on russia in the shortterm . Kirill russia is well prepared to withstand different challenges. We have one of the lowest thats of percentage of gdp whereas the world as a whole has 325 , the gdp ratio much higher than the 2008 crisis. Russia has a solid budget and can handle the situation well. Andave closed the borders have lots of Research Facilities researching new technologies and a vaccine. Francine the price of oil is being crushed. Do you expect russia and saudi to Start Talking about the agreement . Kirill at this point, there are no discussions on this and it is a question to be asked to the minister. A proponentu were of these talks in the past. Is there a number for wti and brent where russia will suffer so much that you think things will change . At least leaders starting to talk . Kirill currently, there are no direct negotiations and we will see when they can be resumed. Francine what chance do you see for russia to return to Production Cut . Is morei was told this of a question about coronavirus so i much more prepared to talk about coronavirus, and about oil, we have a great agreement. Right now, there are no direct negotiations and we will see how the situation will work out. Announcedyou recently you created a 30 minute coronavirus test with a Chinese Japanese partner. Who is that partner . Kirill coronavirus needs to be handled for International Partnerships and we have partnerships with china, japan, europe, and other countries. We look at all of the difference asked looked at all of the trict tests that exist different test that exist we will announce the name of the company tomorrow because we are getting permission to have this test administered in russia and one in the middle east and europe. Believe the different technologies need to Work Together because testing is one of the ways to contain the thes, and the better results will be on fighting the virus. Showedng and singapore you can fight the virus quite successful. Francine there are doubt coronavirus statistics in russia are accu it. Accurate. Have you tested enough . Kirill we expect to ramp up testing starting from now and in april, testing has to be ubiquitous. A very important decision by the government, doesnt open up testing in russia does it open up testing in russia . Russia is advanced on Vaccine Development and we are working quite a bit on vaccines. We were the first ones to develop an ebola vaccine. Testing is important going forward. Francine how likely is it that we will see a recession in russia and the world . Kirill a world recession is likely. Ratio is high in the world, higher than 2008. A shock like coronavirus will affect the debt market and lead to recession. Russia we believe is wellpositioned to withstand the pressures, and we will see because we have lots of challenges that we have overcome. Francine thank you so much. Francine united ons amulets, stimulus, g7 leaders will do whatever it can to overcome the pandemic. U. S. Equities had their biggest rout ands 1987. Bridgewater makes a short that. Markets bet. Untils are closed thursday. U. S. Airlines asks for up to 58 billion in grants and loans. This is bloomberg surveillance , francine and london and taylor is stepping in for tom. Negative futures and negative european equities. Taylor the volatility is incredible, 12 drop yesterday after the circuit raker which was the third time in six trading days that that happened. We are firmly back in negative territory. The vix at 83 flashes the 2008 signals. Francine governments around the world are scrambling to keep citizens from exposure as local infections reach 180,000, fatalities exceed 7000. Joining us is david barro. David nabarro. It is great to speak to you because there is a lot of differing advice and people afraid, people but ignore calls to be in lock down. What should be the best approach and when will we know we have reached peak infections . David thank you very much. Experience inrom china, south korea, singapore, and some other south Asian Countries that with robust and resolute action at the beginning of an out rate, outbreak, it is possible to push back suffering. D reduce countries that were affected by sars which was caused by another coronavirus in 2002, they knew they had to get there quickly. Countries in europe and north america are moving a little slower, but they have now realized that that kind of intensive act for is needed effort is needed. I think we will see the epidemic curve starting to bend and flatten and we are seeing early signs that the italian approaches working. I want to be clear to everybody, aremall it markets uncertainty. Markets are stooped and uncertainty. Those of us involved in the markets and we know how outbreaks can be contained and we can reduce suffering and economic damage, but the challenges we dont know how long it will take. Francine we have had different approaches. Week, the. Even last Prime Minister was saying we want to immunize people so a number of the population get it. Others thought this was not the right case. Do you call for an immediate lockdown . Is there truth and locking down at a certain point . David this is such a new virus and we have not seen one like it before. We have only known about it for three months, so different governments are trying to feel their way into it. Some have moved quickly, others more slowly, and the consensus is you have to move quickly in order to reduce the problem. I dont like using the term because that is not the way we control it. People understanding that physical distancing matters and putting that into your lives, and secondly having good Quality Health services that can find people with disease and isolate them and make sure they get , and getting the whole of society organized on continuity. If you do those things quickly you get this under control quickly and there is less necessity of drastic entailment to people curtailment to peoples movement. When you have a lot down, provided you locked down, provided you have the health this is aking containable outbreak, a containable pandemic by us. It is up to us to get it right. There will be some pain and uncertainty as governments try to work out the actions, but as soon as you put the most robust actions in place you can get on top of it. We have seen it in south korea, china, singapore, and we will see it in europe but it will take time because we have moved into a strong phase slower perhaps than would have been optimal. Taylor thank you to david health, World Organization special envoy for coronavirus. Volatile market, we were hired this morning and then we firmly went into a negative print on the futures market, and we are back up volatility is the name of the game. Upine or 10 basis point lift in the 30 year yield. Moec said it would be a positive view for him and it is always about a positive dollar stronger dollar. Credit markets and funding markets, everyone trying to get their hands on king dollar. Francine treasuries are dropping. The vix will probably remain elevated. You look at treasuries and how some italian bonds have been doing. Onto Central Banks, joining as to talk about venture banks and cheap money, what Central Banks he is also an author and joins us now. When you wrote this you were probably not inking of the thinking of the coronavirus. When you look at what Central Banks are doing, it has hardly moved market. Lord king this is indeed an example of radical uncertainty. We are making decisions against and unknowable future. What happens now will depend on how much we behave. It is not something that is typically true in a scientific area, but it is true here in dealing with an epidemic. , it isle behave sensibly important they understand what we do and dont know. The last thing we need as false projections and false reassurances based on what we dont know. I thought the British Governments response last week was sensible and i found that having the chief scientist and chief medical officer there was immensely reassuring. Ae of the journalists asked question, how many people will die . The chief medical officer said quietly and calmly, we dont know. He did not want to put speculative numbers into the public domain, so how do we make decisions against this unknowable future . What is really going on . Where the science can help is giving us a feel for the nature of what an epidemic is. It can give us a precise numerical forecast of the number of cases and deaths. I think the government needs to take the sensible decisions day by day as their narrative about the nature of the epidemic is updated, as we see experience from other countries and the experience of our own country, and secondly, take drastic action to limit the long run consequences of the short run closing down of the economy. People are using the word recession, and this is not the right vocabulary. The government is trying to close down the economy so we are bound to see a sharp reduction in economic activity. These measures to contain the epidemic, what we will need to deal do is deal with cash flow problems. Francine in this kind of environment, how much of a backstop we need . Does it need to be every government, every central bank, or a coordinated action . Cuts matter ates all . Lord king Interest Rate cut will not have much of an effect in the short run. They usually take a year or more to work their way through. That is not to say it is wrong to cut rates. It may provide a sense of reassurance and the idea that Central Banks are doing things. What is reassuring is the countries are working together, and the bank of england and the government are working closely together. This is the reassurance people need to have, that the authorities are not doing things independently. The government has to be the main source of support and the key thing to focus on our measures to provide support to the cash flow of businesses large and small that might otherwise come under great pressure. It is no good offering help to certain sectors of the economy. There are businesses in every sector that will be affected and we ought to be thinking about measures such as deferral of tax payment which would be one of the measures the government could introduce. Taylor is that a better idea than a payroll tax, because once you are laid off the payroll tax this not help you, and does not help the elderly who are out of the labor force in our most vulnerable . Lord king in terms of the economic impact, there are two types of measures. One is to help businesses so they do not just disappear when we get back to normal, and we have no idea when that will be. Those people who have no source of income other than a weekly cash payment, pensioners can still claim their pension. We have to make sure they cash is there in their hands so we need to think of mechanisms of how they will contain it. There are young people that may not be vulnerable to the virus but will clearly be vulnerable to the consequence of the measures being taken. People who might have parttime jobs or in the gig economy, maybe somebody who works in a gymnasium that is selfemployed. They have no income for a period at all. How do we get cash into their hands . This is a practical problem rather than an abstract problem and will need solutions. The government could do a great deal not by coming up with new schemes to lend businesses. They will certainly have the ability to say at present, we are taking money out of the private sector in the form of tax payments. We can postpone them until we return to normal. That would do a great job with cash flow because longrun profit and loss statements do not matter. Taylor do we no longer care about fiscal deficit . Senseing we dont in the that over the next 12 months we may need be we may need to be prepared to borrow large amounts of money for a unique event we have not had before. One of the reasons for being careful with public finances is to find ourselves in a position where we could expand public borrowing for extraordinary measures. Taylor lord mervyn king, you will be sticking with us. If you have the bloomberg, check out the function tv. You can click on our chart and interact with us directly and send us questions. This is bloomberg. You are viviana watching bloomberg surveillance. A 180 from donald trump on the coronavirus. He now says it may drive the economy into recession. Minimizing the tellingmmanuel macron the french people we are at war, making the case for shared sacrifice. This is a fight against the coronavirus. Includings reforms the pension overhaul is on hold. The government will ensure no business is allowed to fail. In the u. K. , Boris Johnsons government will promise extra help for struggling businesses. Airlines and theaters are among those. The British Government will set out its plans today. Global news 24 hours a day, on air and quicktake on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Francine still with us is lord mervyn king, former bank of england governor and author of this book. It is a very sobering read. I would recommend it when people are home and have more time than usual. Economicabout much advice is bogus quantification. Economies that could be on hold for a period. Can economies get back to working as normal after this . Think of the consequences of the virus, the risk that has materialized will need to be solved collectively. This was not easy to ensure against in advance because we governmente sure the would be forced to take these measures to shut down the economy, and we dont know how long. There is a case to recognizing the losses that occur should be socialized and paid for collectively by government borrowing and we pay it back when we service debt, and with Interest Rates being so low this is not a bad time. Socialization and the consequences are inevitable. It is part of the Community Spirit coming together to make something work, unreal have to accept that. Francine and we have to accept that. Concern is there any this Health Crisis could turn into a financial crisis . Lord king i dont think there is concerned the Health Crisis will generate a banking crisis. The banks are better capitalized and Central Banks have many more tools to deal with this kind of thing. You have seen that operate already, so i dont think that is the issue. The bigger problem is we are facing something we didnt imagine will happen and do not know where it is going. The size may help us understand the broad nature of how the epidemic spreads but it cannot give us precise quantitative forecasts. I am pleased that at least in britain the chief scientist and medical officer will provide guidance by providing a narrative on what we do and dont know. As time passes, we will know more. The real question that faces us down the road is the exit strategy from this, which is that it seems on the one hand what we typically do with viruses as we get to a point or there is significant immunity in the population. This containment strategy of trying to have social distance thing as a massive limit for a short period will not spread immunity in the population as a whole. The risk therefore is we could get repeats of this, the virus coming back. We desperately need a vaccine which means putting a third second or third wave into the future will not be as serious if we have a vaccine. One of the consequences is we will have to put in place even more detailed measures then we had already front Emergency Program to produce for an Emergency Program to produce vaccines and rapidly increase the number of intensive care bed available. And theorking very hard government is working hard to find a temporary solution to the number of bed and equipment. It may be that we need to be more prepared in the future. One thing we should not forget and this will be a major issue for the economy there could be significant changes in the structure of our economy as people decide that just in time delivery tech takes may have been more efficient in the past, but leave us vulnerable to the outbreak of a virus in certain parts of the world. International travel may be curtailed, not because we are told we may not travel but because of the cost. Taylor you talked about how Economic Modeling sometimes does the work. Particularly when you mentioned the financial crisis, when there is a structural shift the models need tweaking. How do you model this virus and are we in a structural shift . Lord king the phrase structural shift or shocks to the economy, they are words that mean we do not know what we are talking about. What we have to recognize is we live in a world in which many important things that affect business and Financial Decisions are unknowable. It does not mean the models cannot is full. Cannot be useful. The big mistake is to pretend they are literal descriptions of what is going on. We dont know enough about this virus to make precise quantitative predictions, and that is more true of many aspects of business and economics. Models can be help all in helping us think about a problem , but what we should be wary of our people who pretend they are quantitative forecasts. International organizations saying we have shaved decimal points off our economic forecasts. Who in december anticipated this kind of thing would happen where governments would be shutting down their economies not just in one part of the world, but around the globe . This kind of thing has happened and we need to be prepared for responding by making our systems resilient and robust. We need to identify part of the economy whether it is Electricity Generation or the financial system, and make sure they are as robust as possible and that means building a degree of redundancy into the system. The same thing with the health system. We need redundancy in the sense that we may have resources we may need resources we will not use all the time but will bring into action when necessary. Taylor you talk about risk and uncertainty and if you can control risk you can perhaps enjoy uncertainty. What is your prescription for controlling risk . Lord king risk is something which in ordinary language is a bad thing. It is not volatility. What we have seen in Financial Markets is extraordinarily extraordinary volunteer volatility. We need to say we have a narrative about how the World Economy will work and something very bad happened to derail that. What can we do to minimize the cost of that happening again . Some of the best things in life come from uncertainty. Developments of new products, discovery of new places, life experiences. It is the uncertainty in life that makes it worth living. Day withgroundhog bill murray going mad having to repeat the same day, we need change to keep the good things going in life, but risk is where you can identify a bad downside outcome compared to where your thought you thought your life would be. All of us need to Work Together to socialize the cost of this and gradually find a way through it. The science will be immensely helpful but helpful only if we have people like the chief scientific officer and chief medical officer in britain. There were very calm and reassuring and saying, this is what we know and this is what we dont know. If you look back to the debate of brexit in britain, one thing that went badly wrong as both sides pretended to know things they could not know and that undermined public confidence. Francine we will continue the conversation with lord king. This is what u. S. Equity futures are doing, fluctuating is the best way to describe it. They were up, down, now back up. 5 more ofcks down our conversation with ervin king. Mervyn king. Is bloombergs surveillance. We are having a great conversation with lord mervyn king, former bank of england governor and author. We were talking to lord king about coronavirus and the impact on the economy. To sum it up, you were saying cooler heads should avail. Prevail. Talk to me about coordination. Who are one of the g7 central we had in 2008 when unprecedented liquidity in the markets, the shock and all we talk about awe we talk about. What would it look like and do we have enough solidarity against g7 to act together . Lord king one thing we learned from the financial crisis is when the major Central Banks around the world cooperate, Work Together, announced measures at the same time, the impact is bigger then would be the case if the same measures were taken by Central Banks operating individually. There is benefit in the Central Banks being seen to work gather and a wealth of big together, and a wealth of experience. The same is true between Central Banks and governments. ,ertainly in the United Kingdom i was reassured at the way in which the United Kingdom and British Government were clearly working close together last week and still are, to tackle the economic responses to the virus. Corporation cooperation is of the essence and it has an impact over individual measures. Taylor lord mervyn king, i am curious and i hope this is not too radical, but i want to get your impact on globalization. We have been touting that and have been so dependent on china. Now given the supply chain restrictions, does it give a push for lord king this is something people will come back to once the immediate concern of the virus is over. To repeat a point i made earlier, there is real risk in trying to run an important system at the very edge of its tolerance. The just in time delivery techniques sound fine because they minimize cost but create new risks that that source cannot deliver in time. You may need more backup so these and alternatives. This is true of the financial system. The minimizing cost is not only aspect of making a system robust and resilient to what would happen for an unknowable future. I think there will be questions to the extent which people will rely on international travel, rely on obtaining their inputs from one particular source. They may want to diversify. This will have an impact on what you might think of as globalization, but the importance of trade will be there. There will be significant trade between countries. We will not turn ourselves into countries where we do not trade with each other, but the extent to which we have done it may go into a pause. People will want to rethink how to organize their businesses and it is impossible to predict what that means. The question will undoubtedly be posed and people will think about it very hard when we come out of this crisis. Francine the bank of england has given a lot of guide and put together a comprehensive guidance and put together a comprehensive package. What else can they do . It has quickly put into place a lot of facilities and the package that will ensure the Banking System should be in a place to keep lending to the business sector. Deep down, this is a matter for government rather than Central Banks because there will be losses occurring to businesses across the economy and governments are the only people who can decide whether to calm they businesses for those compensate is for those losses or socialize the losses or make decisions to help the fortunes of those businesses. That is decisions taken by the government on our behalf. It is important for Central Banks to be seen to be working with governments and doing what they can. The bank of england has been very effective in doing that. Francine thank you so much, lord mervyn king joining us. We are getting breaking news out of the u. S. According to politico saying Steven Mnuchin will seek a package of 850 billion dollars or more in stimulus. I am looking to see if it is having an impact on u. S. Futures. Gains are a touch higher, s p futures gaining 1. 4 . We will have a deep dive into what mr. Mnuchin is planning to do and the impact on the economy. The u. S. Aviation industry is asking for a 58 billion dollar bailout. Elp is needed critics are likely to point out airlines made billions in profits the last decade. To cashares went buybacks cash to all american households is seen as the best way to help an economy brought to a near standstill. Republican senator mitt romney proposing sending 1000 checks to every american. Tom cotton is working on similar regulation. Regulators will make it easier for traders and brokers to work from home. Until june 30. Regulators are expected to extend a number of filing deadlines. Global news 24 hours a day, on air and quicktake on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Taylor i want to stick with some of the virus updates we have been getting and we talk to dr. Jennifer around jennifer roan. I want your thought on if the quarantine looks like it is working, if there is any sign that foreign teens are working soonfer i think it is too to tell. In china andes south korea seem to be effective but in terms of other countries, it is too soon to tell. Of asour thoughts you have been studying this, we hear it could be about 18 months to get a vaccine. What in your opinion is an appropriate timeline . Jennifer forgetting the vaccine , 18 months is just on the money. It has to go through extensive testing before it can be deployed widely, and there are a number of tests vaccines in the pipeline. It is a risky game so we hope that previous successes are working in our favor, but we cannot be sure. Francine what works . We just heard from mervyn king that he does not want to call it locked down, locked down, isolation, what is the ideal time to put these measures and place . Jennifer two major strategies are being employed, mitigation, isolating those who were sick, and looking after elderly people at risk, and suppression is locked down, looking to reverse the epidemic. Both measures can work but suppression can take a long time, could be a year. It is how long we can tolerate this locked down. I think it is necessary but there is some wonderful data and you could still have millions of people dying in Health Systems overwhelmed. None of these are going to be easy. Francine what are we trying to do . Are we trying to delay so we place . He vaccine in treatre anything used to other viruses to treat coronavirus. Jennifer drugs are being repurposed. They are being deployed in china. There was a test in the united states. We need to try everything we already have and it could be that some of these drugs are useful. Taylor give us some more perspective on what you have learned from other viruses like sars and mers. How is this coronavirus different . Jennifer they are all slightly different. Sars was much more deadly but undercontrol quite quickly. Mers is still out there popping up here and there. We have occasional pandemics. These are related viruses but none are the same. This new coronavirus is new. We do not know the parameters and we are trying to learn from other viruses, but we do not know the answers. Notor we are waiting, as of us really know the answers so i appreciate that. Thanks for your time. , theg up later today Starwood Capital ceo. This is bloomberg. Avoid discretionary travel and avoid eating and drinking in bars, restaurants, and public food courts. We are asking people to do something difficult and disruptive with their lives. Apart from the mainland macau and taiwan, for all other countries and regions, we will be issuing the alert. The enemy is there and moving forward and that will affect our daytoday life. Francine moments ago, politico was saying Steven Mnuchin may seek a package of 850 billion million more 850 in stimulus. Joining us is emily wilkins. What do we know the government is trying to do with the fallout of the coronavirus on the economy . Paint the picture. Emily a lot of components are moving. Yesterday, the house passed an update to the package from friday, the phase two package about an estimated 100 billion including things such as tax breaks and paid time off. That will go to the senate so we will see how quickly the senate moves on that, today or tomorrow. The white house is already renegotiation of 850 billion. Democraticcting a Senate Leader Chuck Schumer to show off his proposal today. We are waiting to see what the white house comes out with and will be focused on. Francine is everyone working together toward the same goal or do we still have bipartisan disagreement . Emily lawmakers do not speak with one mind and have their own perceptions on how things should be done, but there is a shared sense of urgency. We are seeing things move rapidly through the house and senate. Yesterday, a colleague was speaking with one of the senators who came out of the meeting with nguyen and said mnuchin and said, we have less time than we thought. Taylor what does this mean for the primaries and in person voting canceled or delayed . Emily last night, the Ohio Governor announced they would not hold their primary and he would look for other ways to make sure people are able to vote. Other states are expected to vote today. They have not canceled their vote at this point and we will keep an eye on how turnout is impacted. A week ago, we did not see much impact. That was a week ago and this is such a rapidly moving situation that i think a lot of decisions are being made with not a lot of lag time. Taylor what are you hearing about how much trouble President Trump could be in his reelection efforts and how much of a boost this could be for joe biden, for example . Emily this depends on what happens between now and november, how does the Trump Administration respond, how safe or fearful do people feel. We are seeing democrats and republicans starting to talk about the coronavirus. The democrats have come out with so Strong Health care notice you see them using the coronavirus a little bit on their campaign. Exactly what happens will depend on how bad the situation get u. S. Taylor thank you to emily wilkins, our government reporter. Coming up on Bloomberg Radio and television, bill dudley, former Federal Reserve resident and now a Bloomberg Opinion writer on the intersection between monetary and fiscal policy. This is bloomberg. Viviana you are watching bloomberg surveillance. We begin with volkswagen. Posesronavirus outbreak unknown financial challenges. They say it is almost impossible to predict. The Auto Industry facing contracted demand and disrupted supply chains. Amazon hiring 100,000 people because it is overwhelmed by demand triggered by the coronavirus. Workers will get a two dollar an hour raise. Demand outstripping its delivery capacity. Two largest American Theater chains will close all locations star starting today. Amc says its movie halls will be regal six to 12 weeks and says theaters are shut indefinitely. Francine thank you so much. We are looking at turkish lira weakening and that may be because the Turkish Central Bank set Monetary Policy meets today. I dont know if there is a buffer rate cut coming but we are watching for the turkish lira and that decision later on. Taylor i wanted to bring in, given how markets have been moving up and down, i want to bring in stellar analysis from Gina Martin Adams. Phone but are on the you know this chart with your eyes closed. Take a look at this terminal. We were talking six months ago about the lofty valuations on the s p, almost 20 times on a forward pe basis. All of that has changed in a matter of days. We are at 13, 13. 5. Are you able to fold in fundamental analysis or given that it is driven on behavior analysis, is fundamental analysis a mood point . Moot point . Gina that is a question investors are grappling with because the valuations are based on questionable earnings outlooks. We estimate the market is pricing in worse than average u. S. Recession. You usually get a 14 decline in earnings in recession and we think based on the combination of price dynamics and where the markets are likely to go, the market is pricing in a 20 to 22 decline over the next 12 months. If valuations are tough to use for time mechanism always. Valuations were getting ahead of their skis and certainly for a correction. , unveilingirus hit the obvious point that the multiples are too high. Bottoms are never made on fundamentals alone. Bottoms are always made on sentiment and then we take our way out of bottoms on the prospect for fundamental improvement. You have got to say, how bad can sentiment get . Do we reach a low on sentiment . Decline as well as the decline we had yesterday means we are probably in the process of forming a sentiment bottom. Valuations are attractive but what will move us forward our solidification of the earnings outlook which will make valuations more realistic and easier to assess. Taylor i have heard more and more strategists are pulling their forecast and that they do not know how to model it. Are you confident of the yearoveryear figures you guys are putting out . How do you model that . Gina this is a huge problem, not only are analysts struggling but customers are putting guiding. That we areme dealing with the rocky market until we get to a point in firstquarter earnings season when companies assess where our earnings headed . We can get over the hurdle of the firstquarter earnings season which we know will be ugly. Hopefully by that time we will have contained the peak contagion and further in earnings systems we will know more about fiscal policy and what the response will be and how much that could short the outlook as well. It is next to impossible to assess where earnings are going. The natural proclivity is to price in your worst possible case scenario, and that is what we are in the process of doing, when we are pricing for worse than average recession, we are trying to price our worst case scenario. It is a case of how much worse can that worst case get . Francine Gina Martin Adams from bloomberg intelligent. We have been looking at the markets almost every minute. U. S. Futures fluctuating, concerns about dollar funding stress, dollar jumping, treasuries and gold slipping. Downan see european stocks 0. 3 and banks are gaining. Ofing up, a lot more bloomberg surveillance on the radio. Beyond the routine checkups. Beyond the notsoroutine cases. Comcast business is helping doctors provide care in whole new ways. All working with a new generation of technologies powered by our gigspeed network. Because beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected. To do the extraordinary. Take your business beyond. Pres. Trump my administration is recommending that all americans, including the young and healthy, work to engage in school and work from home, i possible. Down,global cities shut upending the way of life. Airports request tens of millions of dollars airlines request tens of millions of dollars to stay alive. U. S. Equities leading to outside swings in markets. Welcome to bloomberg daybreak on this tuesday, march 17. Im alix steel. Lets take a look at where we stand right now. S p futures up by about 61 points. At one point, we had the rally. Then we saw decline. Now we are back by almost 3 . We were limit up early in the morning come up officially see and more stimulus coming from d. C. ,