We will take you to the basic news, and we will begin with , a call to help negate the academic Economic Impact of the coronavirus. Michael mckee joints me now with more. Theres a lot riding on the next 24 hours. Mike a rescue package for European Countries should be based on the european stability mechanism rather than joint bond issuance. And another idea is to set up another European Fund that would guarantee bank loans to Small Business. And finance ministers meet tomorrow to discuss a package and then possibly the leaders would decide on something on thursday. Thehe other of the world, japanese Prime Minister is announcing the largest similars package ever for the country. He says he will declare a state of emergency in tokyo. Is equivalent to of japan. Of the gdp the first phase would be support for households and businesses affected by the virus, shut down. The second would aim to look at trying to stimulate a vshaped recovery in japan. The plan includes cash handouts to households much the same as in the United States. The problems with the Stimulus Program in the u. S. , in a letter to the treasury this weekend, the Community Bankers of america worn hundreds of lenders are struggling to access the technology they need to distribute the money in government loans. They also say the amount of money is insufficient and they will be out of money to lend pretty soon. Small businesses continue to complain that they cannot get through and cannot figure out the regulations and rules and that many banks will not lend to them unless they have an existing known what the bank. Wells fargo says it cannot land any because the fed but a cap on its assets because of the lending scandals that he went through. They are looking for that to be relieved. Wall street journal reporting american banks be allowed to keep paying dividends even though they are lending out hundreds of billions of dollars that could be bad loans. There will not be a decision made likely until after the next round of stress tests in june. Jamie dimon saint look it will be pretty dime pretty bad for earnings. I want to take a broader look. We have seen that overall rate of cases may be slowing world wide heard there was a note out further tocould help keep the markets. Of the next correlations now that investors are looking for if that could occur. Mike. Looks like we are having some technical issues. Lets take a second to turn to lossesause our earlier imposing levies on imports if it is actually necessary. Substantialo tariffs because we are independent now. I would use tariffs if i had to. I do not think i will have to. We have our guest joining us now. What is the latest . Freshstill have a lot of barbs over the weekend, grandstanding from saudi and russia, and this is why we had the meeting. There are still negotiations hammering out a deal. Two things really stand out, one is the fact that how do you get the United States on board . You just heard from President Trump and he is talking about the fact that he can put these tariffs on imports if he has to. Has beenaid that he against opec his entire life so getting the United States on board was a precondition, and if we cut everyone else cuts, so that will be a steep obstacle. Second thing is we are talking about this cut, but what baseline is this coming from . Contentious. Quite the russians clearly want the First Quarter average, and the saudis one current production. Right nowquarter, they are producing more than 12 million a day. Depending on what baseline, the impact of that 10 maryland 10 million cut could be different. I think we have to remember that regardless if there is a meaningful deal between all the three major producers right now, every producer will have to start ratcheting back production because demand is falling off the cliff and storage is running out. Alex indeed. Thisaseline will be important sticking point. That isne article really interesting. This author says if you want to know what the future will look like, take a look at the black death back in the 14th century but he points out one of the lessons is that labor gained in power at the expense of capital. One study found that in the decade of the pandemic in terms of recovery, the study found it lead to higher Interest Rates. Pandemics are followed by lower rates, so low rates than perhaps coming up, we will have much more. This is bloomberg. Here toir to discuss discuss todays markets, we have our guests. Weirde seen something with the riley. What are you looking at today . Similarlooking at how come across the whole financial markets, are today to 2008, so with all of this talk that things are different this time, the playbook remains similar. The real question for me and everyone else is whether or not the same Asset Classes rally that we saw back in 2009, if those are the classes that will yet rally again. The berdych is still out. Verdict is still out. Alex what have we learned about what actually works when things werent working in the last month . I think you have to look for some sort of normalization across all Asset Classes. We have seen all of this volatility, and it will take time. It will be choppy but i think thats what for me i am looking for local currency curves to flatten. They have steepened dramatically. Some of the more Higher Quality sovereigns, i expect the curves to flatten. Those are the areas that i am most focused on. Alex all of it has to do with what will wind up being the overall stimulus. Oy question is why is the eur not getting a bid . Tough one. A it takes me back again to cross currency basis and to credit but for me i think all of this means that you have a refocus on fundamentals. Now that we have seen the worst of it, we have a lot of reserve data coming out this week across the world from mexico and the philippines, south africa, russia, you name. Calculations, what does that mean . Weve seen these big downgrades come another budget deficit is expected to rise this year im a so how can these countries expect to just cut rates and restimulate the economys. I am skeptical. Yet were not even looking at the stimulus. This is just prevention. We have to get to the actual sort of stimulus part. Mike mckee, can you weigh in on this . Mike alex looks like we are still having issues. Sorry about that. The dollar from rising . Timeess im time in you will see something post Global Financial crisis, the bid for real assets, people focused on the fundamental deterioration in the deficit and the economics , the economy. One would think that eign, butals will r structurally speaking, i just do not see that happening near term. We will muddle through. We will look at whatever stimulus today is sufficient to deal with the crisis. Alex talking about muddling along, this is a day where we will have this soft line opening up. What is the uptake . We did see a bit of an uptick last week. Seen the femaen swap lines take hold. That will hit this week, but obviously central bank holdings, official Foreign Holdings fell 110 billion in march. That is the largest decline on record. I think that was the impetus for a lot of that that to focus on, the need they need to provide dollars offshore. That is what opened the door but it remains to seen but it will be, but i think people will start to tap those lines and get dollars into their system. Articleere was a good saying that the markets are now pricing in a much better environment to take a look at , andibor and the spread some were saying just do not get ahead of yourself. We are nowhere near calling this ok. Our friends put out a wonderful point where they broke down the cross currency basis. I will spare you the details. One of the reasons it is looking attractive, in europe, you have seen the spreads widened, which is having sort of a positive effect on the basis from a investor perspective. It is not a good impact it would have necessarily. Youre seeing a steepening of the short end in europe, and while that reflects positively, it still means that financial conditions are tight in europe and getting tighter. You have do differentiate what is driving the basis. Up, while oil is still better than what we saw earlier in the trading session, if the world cannot stabilize, what is the effect to the rest of the market . We have already seen a lot of the exporting sovereigns globally. Nigeria announced they would have to borrow billions of dollars and we have seen all of these oilproducing sovereigns are at risk. We have seen the occurrences for other places, all of them have gotten hit merely because of oil. They have not yet snapped back. Obviously theres a higher asjecture to em currencies we fall closer to the 20 per barrel mark. That is certainly a risk for investors globally. Alex thank you. Get torry we did not mike about we will get you back later on. This is bloomberg. This is bloomberg daybreak. Bmwegin with sales at plunging, and the coronavirus hitting all of the german automakers markets. Carmakers in europe have shut down their production lines. Is scheduled to resume operation. Boeing will keep it seattle hub closed indefinitely. The factories were scheduled to reopen tomorrow night after a twoweek shutdown, but state Health Officials are still tying to contain the outbreak. The suppliers are also showing signs of stress. Arabia and saturday other large Oil Producers racing to negotiate a deal trying to stem the historic price crash. Some progress was made over the weekend, but one obstacle is russia and saudi arabia once the u. S. To join but President Trump has shown little willingness to do so. Alex thank you. By a strategy cofounder, a consenting Consulting Firm conducting break the doit risk for companies. It is good to chat with you. We are focused on what the u. S. Can do and the biggest question is can the government in any way toually mandate producers cut production . It is a great question in such a complicated question. The answer probably is directly no, as you are all probably the u. S. Really does not authorize production. We do not have a single state owned oil and gas company in the u. S. Like many opec countries do. It is more complicated, but that does not mean it is impossible. We look at a variety of mechanisms and we have a president who is willing to get pretty creative, so we look at potentially Something Like an executive order that would have to be implemented by states. Like whatok at things about export controls. You might remember from the ban was lifted in 2015 there was a statute inserted the said the president could reinstate limits at any time if there was a case of National Security or if it was needed for security. Theres a couple of powers that sit with the president which we think could be valuable. It is pretty clear that the white house have to show its hand about how it would respond. As far as the controls, idea be, how would that help mandate the producers . That is a good question. It would be complicated. I think you look at this as something that happens in conjunction with cuts from other countries. One of the parts of our thesis order to bring russia and Saudia Arabia back to the table, the u. S. Has got to offer some kind of skin in the game in terms of what is our country, now the largest producer of crude oil on the planet, doing to write this situation . If you had limitations on exports, you would also have to create additional Storage Options for u. S. Producers until production either naturally responded to the low price. We really have yet to see much of a contraction in u. S. , so we really have not seen the u. S. Production site respond to the low prices yet. We do believe they will. Tariffs,t about . Utting tariffs on the imports theres such a divide. How do you think that one is playing out here . That is clearly a very politically popular contest within the administration, a little bit less in congress and particularly in the senate. Also it is one that, going back a familiar playbook for the white house, so why not explore it. We see the prospect of tariffs as being a precision strategy designed to target saudi arabia in particular. We have met roughly half a Million Barrels a day from saudi arabia and they are very controlled in terms of where the flows land, so be kind of a targeted strategy. We see that as a tactic for it i see tariffs is something that moves the u. S. Farther away from conciliatory you action with opec and russia. It is something that the white house is considering. We also look if youre going to look at tariffs on experts of crude because how uniquely important those are two places like the northeast or the coast, you probably are also going to wave the jones act which would to befor u. S. Ships delivered around u. S. Ports. That is a way of normalizing for shortterm that that refiners should like. Alex that is a good point. It was great to meet you. Up, another take on the market. This is bloomberg. Alix welcome to bloomberg daybreak. There is a rally in the s p futures. European futures are up as well. Automakers are leading the way in europe. In the bond market, its a bear steepener in the u. S. , up five basis points higher for the 10 year. The vix is coming down a little a big gap down overnight in oil. A bit of constructive optimism or a little stabilization coming into the market. Remains. Ty still the reported death toll in the u. S. Shows some easing over the weekend. Good to chat with you. What have we learned about what actually works as an Investment Strategy over the last four weeks . Good morning, we learned a couple of things, u. S. Dollar cash was the best performing asset. You are rewarded for having the flexibility of having dollar cash. That, safe havens are traditional treasuries but not all of the time. I would say the same thing about the was dollar. The dollar has performed well but are still below levels we saw three years ago. Traditional safe havens have not even us the Strong Performance we would expect in this downtrend. I think the liquidity provided by the fed will play a critical role. Its no surprise we are seeing the treasury up by the fed paring back. Are we learning anything about the real fundamentals of the treasury market . I dont think treasury yields are rising because the fed is pulling back. If anything, the fed has told us that they stand ready to buy as much as needed and they have already purchased over 1 trillion of securities in the last few weeks. The increase in the size of their Balance Sheet in the last three weeks is larger than what we saw in the fall of 2008. I think the fed is stepping up in a big way. It has much door to dish much more to do with risk on. We are looking at major hotbeds of coronavirus improving the case. Basically you will look at the casas spreading in the u. S. Versus the s p which is a key indicator. Does that imply that the u. S. Will be the strongest country to come out of this once we come out of this . Now been theas worst affected of any of these nations. I think its probably early to say that the u. S. May correlate desk the u. S. Cases may correlate with the s p. The credit market bottom s before the s p bottomed. The slower credit in the economy has been interrupted in the fed is trying to improve that. I think credit markets are a requirement to recover before we see a credit in the s p market. Seen credite markets fully recovered . When do we call it ok . Still concerned. I think the best place to invest right now in our view would be the short end of the Investment Grade market because thats where the fed will become very involved. I still think its too early. We look at the spread levels in the highyield market, pricing and default rates over 10 . The fed needs to pull that back to bring us back to a more normalized market. The other areas of the market that the fed needs to address . There has been pressure in different areas for bankers. Is that in the cards . It could be, i think there is a big back log with mortgage servicers. If i look at the 30 year performing rate, its the same as it was last fall. The idea of the fed buying mortgages is lowering cost for the consumer is not lowering Interest Rates. I think the fed needs to do more to make the flow of credit better for households. Alix does that mean that mortgagebacked securities would be a good bet . I still think we dont see a functioning nonconforming Mortgage Market right now. The only market that is is thening now is mortgagebacked market. Pass on Lower Borrowing costs to consumers. I think that would help with a more direct play at this point. Alix you are looking at shortterm invest grade market is the best opportunity, did we learn anything from that call about what you think default rates would be or what you think Consumer Loan paybacks will be . We know that there will be aperiod of payment disruption that will be meaningful. Other countries are effective in flattening the curve and putting economies back online we are months forward, that should be a temporary disruption. Will beenvision that it a meaningful but temporary spike and something that if youre talking about Investment Grade market, something these companies will be able to weather. Your ifabout anything, the European Market on the credit side is less exposed to energy. If we look at a market in which the central bank, the european on the bank of england now been involved in the Corporate Market for longer, i think that is reflected in the spreads. U. S. Credit spreads trade wider for comparable credit quality than europe because of monetary easings and Corporate Bond purchases are working. You have a more wellfunctioning market there on the nonfinancial corporate side of things. Alix an interesting take but what happens if europe cannot get its act together . France some has ideas as well as italy. A coordinated relief seems really far off. It always does in these situations. Inwere back at the brink 2011. What i hear now are probably the most coordinated conversations we have heard in some time. Arefact that the germans willing to spend in these conversations is pretty meaningful as it relates to the potential opportunity for places like spain and italy. Alix then you have the german finance minister basically saying that if you need help, go financialopean mechanism but the countries dont want to do that. It comes with strings. Does politics halt the abilities for these countries to rehabilitate. The stigma point is important because the stigma can go away. We saw that here in the u. S. Back in 2008 with some of the fed Credit Facilities in which banks were reticent to borrow. Because of the emergency of the situation, that stigma can go away. Its possible to get funding through these countries that need the capital most. Mean peripherals like spain and portugal are the best at this point or would you stick to Investment Grade bonds . We feel more comfortable in Corporate Bonds because the spread is wider. We think there is upside for places like italy, particularly because there is more coordination now and because they are the heart of the problem from a coronavirus standpoint, with think that will be a greater area of focus. Question, is it the same story with Corporate Bonds in emerging markets . Emerging markets, we are cautious on at the moment. Emerging markets need functioning market demand. They need Stronger Energy markets because a large portion energyem universe are exporters and they need a stable environment and they have none of those things in the last three weeks. If we see improvement in two out of those three areas, we would be comfortable but right now we are being cautious. Alix it is a good point in a stronger dollar will help. It was great to catch up with you. Ons give you an update headlines outside the business world. A th Trump Administration says the u. S. Coronavirus out break is starting to stabilize. The president and Vice President pointed to a day by day reduction in deaths in the state of new york. The u. S. Surgeon generals warning the u. S. To brace itself as this week will be the hardest and saddest of most americans. Primus or Boris Johnson in the u. K. Was in the hospital for the coronavirus. His illness was originally described as mild but there is no sign its getting worse. His doctors are urging he had he be admitted to the hospital because symptoms have not cleared up. In japan, the Prime Minister is proposing a 988 billion dollar package to help people and businesses hurt by the coronavirus. He will also propose a state of emergency be declared in seven prefectures including tokyo and osaka after cases of coronavirus surged over the weekend. A day,news, 24 hours powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Alix thanks so much. Income equality is another issue during this coronavirus. Its about feeding the unemployed. More than 10 million americans have lost their jobs in the last two weeks. Insecurity so we crunch the numbers and found that more than half the u. S. Counties, more than one in eight people dont have adequate food. Food pantry said the planning for the crisis will be a longterm issue. Coming up, the impact of the pandemic on worker pay and benefits. We will speak to bob nichols tv. Check out this is bloomberg. Viviana coming up, and exclusive interview with a real estate advisor. Viviana rollsroyce will scrap its profit plans and will suspend its dividend according to the financial times. Shares of the jet engine maker plunged 31 . Tesla has showed off a ventilator prototype. Design includes a touchscreen computer and a control system from a model threecar. Shortage of ventilators for coronavirus patients. A toprated fund is pivoting for taking on more risk in loading up in corporate debt. Half of the alley ons strategic Corporate Bond is in Investment Grade credit which is a turnaround. Says the comanager move is based on the Global Economy rebounding from the chaos toward the end of the year. Thats your Bloomberg Business flash. Alix thank you. Tosumer demand is difficult keep up with it is being held up various factors including limited employee participation. Its good to get your perspective on this, bob. Columnist wrote an opinion piece that talks about how rising worker pair and the power shift of the workers was a result is all this happening now . No, its not. Was ilable labor pool has shrunk but fortunately, thats not happening now. In fact, its not leading to upward pressure on paying benefits except with certain sectors like the food sector, tyson and were miller offering bonuses to keep workers at their workstations throughout the crisis. , theof the companies economic disruption caused by the covid crisis is actually just making employees glad to have jobs. Many of my clients are energy lower gas prices means employees are happy to still have a job. Do you have an idea of what companies are listing and how much they ability they have to cut costs . We are seeing everything across the board. We are seeing pay cuts across the board, we are seeing furloughs, straight layoffs, we are seeing people put on unpaid leave. Are takingompanies different approaches. A lot of large corporations are trying to hang in there and continue to pay their employees but because of cash flow issues, they will not be able to do that forever and the longer this goes on, the more we will see major reductions including some of the nations largest companies. Thosethe same thing for furloughed who are paying health insurance, how long can they go on with that . Economy seems off the table. How many months can employee sustained that . Shorter end of that. I think within the next two months, particularly of people remain at home and not spending, major separations and not just restaurants and retail but for major corporations, they simply dont have the money since they are not selling goods and services to continue to maintain the workforce. Is theeve seen that lower end of the income wage worker that has been disproportionately affected. Will that affect whitecollar workers . We saw a restaurant employees laid off immediately. Large corporations, their whitecollar workforces, they have continued to employ them and continued to pay them but they simply cannot sustain that. Its because their income, for many of those companies is greatly curtailed or has come to a halt and theres going to have to be major layoffs including a well compensated whitecollar employees with large companies. Still likehe people howvery people or doctors, does this dynamic affect their ability to advocate for themselves . If you are in the right sector, youve got lots of leverage. Care,ompanies, health their employers absently need them. There is bonuses in those industries. In most sectors, the downturn in the economy means they have little or no leverage and employee seem to be just happy if they can keep their jobs. Alix tell me about it. What are we talking about in a year . What will this look like . I dont think there will be a quick rebound. Go, you let lots of People Companies simply dont bounce back to where they were overnight if there is a longterm economic downturn, that will be amplified. I think we will have a great deal of unemployment a year from now because of the residual effects of what we are seeing. Alix what are you telling your clients . Studying thes are federal legislation thats been passed, they are trying to figure out how they can retain their workforce and make use of some of the tax credits that have been approved by congress. The numbersnching and trying to determine how long they can keep people, given their problems with cash flow. Our clients are trying to hold on but i just think if this continues into may, lots of Companies Across many sectors are going to have to let more people go including there whitecollar workforces. That will happen in large numbers. To get yourreat perspective on this so thank you very much. Good to talk to you. If you work at home like most of us, its impossible to escape zoom. Virtual townd as a hall. A ceo has launch in a policy an apology. Has been hijacking meetings and the ceo said he is working to improve privacy and security. He said he messed up and is trying to win back customers trust. The District Attorney said they are not using zoom at all. Emergingmarket currencies are trading at new lows against the u. S. Dollar which is coming up in todays traders take. This is bloomberg. Alix time now for traders take. We talked earlier about whats the main thing you are watching . Im watching the emergingmarket currencies. Are officially in no mans land. Riore down now 35 on the real. All four currencies are down over 75 per annum. Basis withulative the lira down 160 which means those economies will have to resort to unpopular policies to keep their fiscal situation in order which means higher taxes or perhaps wage freezes. Fx reserves will be in focus. We will be looking at reserves to imports, broad money cover, all of these things to make sure they have enough reserves on hand to cover their shortterm needs. Alix its going to be brutal. Thank you very much. Paulson will be joining us, what do you do when you have futures up on a monday . This is bloomberg. Alix stabilization signs as World Leaders grow cautiously optimistic as death slow in the epidemic. A state of emergency in japan as they move toward aggressively paving the way for a 1 trillion stimulus and we are still waiting on europe. Waiting onre coordinated stimulus from the european block. Welcome to bloomberg daybreak on this monday. Where we seeday s p futures up on a sunday into monday. It it feels like a totally week. Beginning of the are we stabilizing or is this a relief rally . S p futures are up around the highest of the system. The 10 year yield is seeing little bit of a selloff. Oil was down overnight but we are now off the lows of the session as well. Now is jim paulson. Stabilizations where futures are up right now . Weird to have a monday morning thats green. We have had market stabilization going on for quite a bit of the last couple of weeks really with the market low about 11 days ago. Were certainly seeing the vix come down, wrecking to almost 47 at the end of last week the bond market and 10 year low set a record low which it has not violated yet. We are certainly seeing some cyclical participation. The leadership is off the lows. Haveminimum, we certainly a rally going on we certainly have a calling in the abject fear and panic that was evident a couple of weeks ago. Cascade, theelling enforced selling, the ones that wanted out are out of this stock market. But we dont have yet is buyers in a big way. I think the best news of all is a then than the virus curve and thats was driving this this morning predominantly. Im glad you said that. If you can seed the United States be able to pare back the virus infections and deaths that that would be very supportive. Do you think thats the real correlation . Why would the u. S. Matter more than whats happening in europe . Most of the curves have followed similar patterns and europe is showing a lot of evidence of that now. You kind of get a sense the u. S. Is behind europe and maybe we are close to where the u. S. Is going to show more broader signs of bending the curve. Think the worst pressure on u. S. Hospitals starts to diminish and then i think that opens up the possibility of restarting the economy at least in a partial way. Are going to have massive unemployment, maybe as high as somend there will be public outcry for people to go ofk to work, the intensity this virus is diminishing in some sense i think we will see the economy restart and it gives the market may be the first time to be able to look beyond this crisis a little bit and start to discount, in the nottoodistant future, where there is growth again in the latter part of the year. Growth, andg about a normal year, we would be talking about Bank Earnings season seasons. How can we have that conversation when there is no visibility and the key support of market buybacks feels like it will be decimated for a while. How do you appropriately value what you should be paying for these companies . Data has been debunked for a while. In good data we had januaryfebruary was largely ignored because everyone knew it was coming and now that the bad data is coming, the market had already adjusted for that. I dont really think the Earnings Report of the season will be that relevant because everyone knows they will be horrible. Think we are reconnected yet with dataflow. That would be a wonderful thing to do that but i think the market, like they have for a while, will continue to look through data and it will be all about where is the point at which the economy, the on switch starts to turn on again and we can look at some realistic data of fundamentals again. If you turn the switch off on the economy, you know all the data plummets but its more like there was an earthquake and the Earnings Data after an earthquake will not be good but once you get the cleanup process in place, you can get back to where things shake out but i dont think we will know that until the latter part of the year. What we do know is there has been incredible carnage in these markets. The s p fell 34 percentage ,oints but the Broader Market those things were down 40 or more. Its been incredible damage and you look at how low yields have gone and you look at the Financial Support coming from policy officials and you look at how much the spread has widened. We have a situation where we know earnings will be really lousy but we also have priced Financial Assets for that event but how long will it last before we get some semblance of recovery from this . In the late summer into the rest of the year, i think the market from these levels will look through a lot of that bad data. I guess the easy question to ask is what do you buy . But many werem not expecting in the downturn. Low volatility stocks did not work necessarily. Rely onot necessarily good dividend payers because the dividends will not be there so where is the safety . Was a piece a couple of weeks ago about a defensive none of it really worked. You look at the other side and we will probably stay volatile and rechallenge these lows at some point. I wonder if most of the damage has already been seen in the sense that we go down to those lows may be but not go a whole lot lower. I would use the down days to add more overseas exposure. I would look to add the cyclicality whether i would look at financials or industrials. Wouldnt necessarily go after the airlines were the cruise is good think there investing companies and Financial Companies that are wellcapitalized and will get through this and there is probably quite a bit of upside in the more cyclical parts of the stock universe and i think defensive sectors will probably trail on the way back up. I would still own some defense that i would start to lean more toward offense a little bit in the next several months. Alix i appreciate it, its good to talk to you. Coming up on the program, one sector that was beaten up that may not recover his energy. Be is pairing losses and may saudi arabia and russia can make some kind of deal. This is bloomberg. I would do substantial tariffs because we are independent now, we have our own oil. I dont think i will have to. Alix that was President Trump saying he doesnt think he will have to impose tariffs on imported oil. For more, we are joined by sarah emerson. Is most prevalent question what will pressure these. Ompanies to do anything i dont think we are there yet. We still have a couple of months where we can continue stocking through april. The issue with storage is its not in the right location. You still have to move the crude around and move products around. We still have another month of stocking because we will just before we will feel it over flowing. Alix if we have a Production Cut by u. S. , russia or saudi arabia or any combination, does or does itt tanking help the back end of the curve . I think it just helps the back end of the curve because you are building inventory now and that will be in place and then you are cutting production to work against a continuation of the coronavirus impact. You are are doing is tempering the inventory increase and hopefully leading to a situation where the second half of the year, you are drawing in. The inventory we are building in now, that remains a weighted market for some time. It should gradually retreat. Alix based on that, it seems months could see front for them the back month while the curve actually rises no matter what opec does. Groundcally, march was zero. Any Production Cut will not be immediate. Fairlys another month of significant stocking. Contango continues and he could get deeper but at the end of the day, we can look at prices in the high 30s by the end of the year. Alix what kind of cuts do you expect. Do you know when production could come off . Quickly cut and how will the cuts reverberate within the market . You have to think about the involuntary cuts first and thats the nonopec countries that will not participate in an agreement and they are already beginning to cut back. Would include even u. S. Shale. Fall over thel next six months. The question is how much that will fall. Our senses by the end of the year, you cut 3 million per day out of the nonopec community including shale and then you have the russia peace. We think they will also have a lot of pressure on involuntary cuts. Countries. Got opec i dont think they need to cut 10 Million Barrels per day. Its an odd thing that people are latched onto because of the president s statement. Its how many months do you keep Production Cuts . People are looking at 10 million and trying to fix a problem in one month but that will not happen. Maybe they will cut 3,000,001 month but they will have that cut through december and then you chip away the inventory. Alix thats a good point in terms of how long it maintains. Why dont countries just cut exports now . That would be an immediate thing that everyone could do to help save the oil market. You mean the United States cut exports . Arabia, russia or saudi wait until the front of the curve gets better and then they can deal with how long production will be cut for. Now and theto april customerworks is the nominates how much of my contract i want to take this next month and that is already in the pipeline. Its already being delivered and is already on the ships. Youre talking about whether they will cut in may. Maybe if we get everybody cut, we can reduce in may and that would change your pricing. April is done. Good to get in touch with you. Thank you very much. Coming up, we will focus on another sector hit by the pandemic and thats Bank Earnings. Estimates were reduced for a fourth time as Jp Morgan Says the bad recession echoes of 2008. We will break it down. This is bloomberg. Tom you are what day rate. We begin with First Quarter sales at bmw plunging more than 20 . The coronavirus is heading all the german automaker markets. Andflagship bmw brand, mini rollsroyce were hit and carmakers in europe have shut down their production line. Bmws are scheduled to redeem debt resume operations in two weeks. Jamie dimon is warming a bed recession is on the way. Tosent his annual letter shareholders and rights that the coronavirus pandemic will trigger a Major Economic downturn plus, he says it will moree Financial Stress than the crisis of 2008. Jpd jay p Morgan Morgan cannot be immune and they may cut their dividend. Alix thanks so much. For more on banks, we are joined by mike mayo at wells fargo. He expects banks should grow book value and generate more than 10 returns the second half of 2021. Its great to catch up with you. Fourth time you downgraded this, a total 40 decrease in earnings versus previrus levels. Will it get worse and 40 . This is really amazing. Each time, we are think we are where we need to be and then we have to cut again. Banks are about to live the stress test that may have been practicing for a decade and if successful, this could justify a rerating higher but first, its earnings hell. With thebank is immune negative impact of higher unemployment and lower Interest Rates now we have credit losses up tothree times. Out for negative guidance when banks report next week. The u. S. Government has a gargantuan task to make the to get stimulus so these are sobering times with reported unemployment that will likely pass the level of the Global Financial crisis and the hope is the government efforts cushion the impact and take maybe 15 headline unemployment and make it feel like under 10 . Is feel like unemployment what is important for the banks. Alix can we start distinguishing which banks will be worse off . You mention lower Interest Rates and high unemployment. The Small Business administration is trying to disperse those loans through banks which has been rocky. Which banks are more exposed to all of that and which can and if it for more volatility and more trading with crazy trading numbers coming out of the banks. Can you help me distinguish . First, i want to make the point that we ran over 100 earnings models under all sorts of scenarios. We are deep in the number so if years,k out over 25 almost every large bank would be a buy. Having said that, there some banks that are more exposed by lower Interest Rates than others such as comerica where we have a sell rating. Either high data with banks that benefit from high data. Lity or high some can benefit from high volatility. There could be heart highquality banks you mentioned jp morgan and they are also highquality. We will finally are from jamie dimon for the first time next tuesday when they report earnings. He can remind people why jp morgan is quality and how they have over 1 trillion liquidity and how they run daily stress tests. It would be better if jamie dimon would buy stock again. He has done that before when the stock has taken a hit so i think the industry has a financial boost when jamie dimon returns next tuesday. Alix im glad you brought up the internal buying backup stock. Europe, its no buy back no dividends which is a regulatory thing because they were not sure of their Balance Sheet. Could the same thing happen here and how do you revalue banks . Like i just said, we have run the math every which way. Even after our fourth estimate cut and even if we had a few more, we still think that banks would earn the dividend. If banks can earn the dividend, and they should pay the dividend in the difference versus european banks is european banks return almost all their capital through dividends where u. S. Banks return a lot of their capital through buybacks which have already been suspended voluntarily. I think its quite different in the u. S. Banks recapitalized early last decade with more capital and they did it sooner than the european banks. The other issue, the mitigating factor is that banks are likely to cut expenses in the amount of dividends equal about 17 of expenses so banks will be creating more cash flow and earnings through that mechanism. I still prefer that being left up to the shareholders. I will be asking about these types of topics at the annual meeting. Meetings will be virtual. Shareholders can hold the Companies Accountable for areas like dividends and pay and bonuses as opposed to the government. Alix i appreciate you coming on with us and talking about the estimate rating. Thank you for joining us. Staying within this world and looking at real estate and where the opportunity is and where you will see lower prices, i will speak exclusively to alan graybill coming up next. In the markets, you are seeing Something Weird and that is positive equity futures. Continuing the rally overnight. This is bloomberg. Alix welcome to bloomberg daybreak. Im alix steel. In the market, s p futures around the highs of the session following European Markets higher as well. If you switch of the board, you can see where interesting action is taken place. I want to highlight eurodollar and the yen, both lower against the dollar. The euro cannot find a bid. The yen a little bit weaker because you have a 1 trillion stimulus out of the country. Reports about tokyo being in lockdown. I want to highlight some bare steepeners in the treasury market and the vix calming down. Germany planning limitless credit programs for small companies, a backstop for regional governments. A question for europe, can they get together and make it work . In the u. S. It has been about the Trump Administration stimulus measure. The idea is it does not help homeowners to delay payments for four months. Investors are saying it could be a huge opportunity. Oining me is al rabil he oversees over 8 billion of real estate across medical office space, Student Housing, and more. You are in the middle of all of it. First question is the losses. What kind of defaults, postponement on loans, etc. , are you expecting as you are exposed to all of the sectors of the market getting hit . Al a great question. Butiffers sector by sector we are specifically medical office, Senior Housing, Student Housing because of the recession resistance and the strength of those Asset Classes in an environment like this. Existing own any Student Housing assets at this point, we are largely allocated to Senior Housing. On a medical office front, i would say medical office we have seen no default, we expect no defaults, we have strong tenants and long lease. From a longerterm perspective, you will have continued demand. On the Senior Housing side, i would like to give a shout out to to many of the best in class operators within this sector who are truly first responders. I will tell you we have been coordinating response efforts for supplies, bailout resources with many of the largest owners in the state. That is incredibly heartening and shows the true makeup of many of these people. Sector, the best assets and operators will ultimately benefit from this downturn. Becauseanybody wants, pre2025 you will have essentially a shutdown of new supply. Permanentee any degradation of capital on the Senior Housing side. We have a nearterm issue, and that issue first and foremost is a health care issue. You will see occupancy declines through the end of the year. I think you will see that rebound strongly starting next year. Nearterm pain and Senior Housing. Followed by longerterm gain. Alix where are the longerterm gains . Where you sing the biggest price dislocations that now provide opportunity . Al we are very active on the debt side of our business. We have been acquiring freddie discountsat deep given the dislocations youve seen in the debt markets. Wellpublicized and talked about on the show many different times. , margin calls over the past couple of weeks, those will continue and put incredible stress on the debt market. We have seen freddie mac institute a forbearance program. We are bullish on Government Agency bonds, particularly if we can acquire the right prices. We think ultimately the multifamily sector will prove strong in the government has shown not only a willingness but quick Action Response in terms of injecting capital into this space. What you will see on a Going Forward basis is the u. S. Government will have to provide capital to Mortgage Services to support the agency back to Mortgage Market. We are looking at both debt and Equity Opportunities in which to invest and i would say we are active on the equity side as Asset Classes in which we invest are very resilient. We are looking at significant discounts a year from now to where values will be. I would alix is that also because the fed is backstopping it . I notice you did not mention nonagency back Mortgage Securities . Is this a fed play . Are firstk dollars going to be allocated to you will have some kind of support on nonagency debt, do not know what that will look like. That is a different animal. In many cases you have seen companies on the nonagency debt side used it inappropriately, and many of those players are asking for a backstop. We will see how that plays out. We are focused on the agency debt side at the moment and we expect to see capital infusions first to that and maybe only to that. Ato not think we are looking the crash of the Real Estate Debt market. Fed do you think if the was able to backstop nonagency mortgages in some capacity, would that be a good buying opportunity . We focus on specific opportunities where we have outside knowledge. , seniorld include debt Housing Properties on the nonagency side, we have seen pain and many of the mortgage of the hedgey funds and private equity sponsors who have used shorter duration debt to finance longer duration holdings, so we will look across the debt market to where we see value. We are not going to limit ourselves only to agency debt, but i think we will be opportunistic yet cautious at the same time. Alix are you selling anything right now . Al no. Alix have you been hit with any margins or anything along those lines . Al we are incredibly well positioned. We structured our most recent debt fund without using any mark market margin calls. We took no duration risk, no mark to market risk, no margin calls. We are pretty uniquely positioned to take advantage of the current opportunity. Side, ourior housing operators are working hard every day. We have not experienced occupancy declines on the Senior Housing side. We are wellpositioned to play offense in the current downturn. Alix i have a question from a viewer who will want your outlook on retail real estate, even though you do not own it, but to get your outlook on retail real estate, especially malls as it pertains to Companies Like simon properties, how that plays out over the next year . Al retail is not my area of expertise. I will say ive been bearish on retail for a long time. Ive had serious questions precovid19 on the mall business and retail in general. Tremendouswill see changes in the economy and the way people act, the way they the things people do in a post covid19 world. I do not think retail as a whole will be a beneficiary. I think retail when youre looking at the internet will emerge incredibly strong because what you are seeing is Behavioral Changes where people who have never used the internet to order are now ordering online. Dead, but i think the trendline already in place will continue on a Going Forward basis. Michael good to catch up alix good to catch up with you. Some anymore questions. Youll have to come back in a few weeks to chat. Al rabil, thank you. Now Viviana Hurtado is here with first word news. Viviana we begin in spain, the nation reporting the lowest number of new cases in two weeks. This is a sign europes largest outbreak of coronavirus is slowing. In the last 24 hours, there were fewer than 4800 new infections. The lowest number of fatalities since march 24. The Trump Administration says there are signs the u. S. Coronavirus outbreak is starting to stabilize. Donald trump and mike pence pointing to a day by day reduction in new york. Still the u. S. Surgeon general warning americans to brace themselves for tragedy. He said this week will be the hardest and saddest of most americans lives. We end in the u. K. Where Boris Johnson was in the hospital for the coronavirus. His illness was originally described as mild and there is no sign it is getting worse, but his doctor urging he be admitted to the hospital for tests as his symptoms have not cleared out. Global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. I am Viviana Hurtado. This is bloomberg. Alix thanks so much. Turning to how company was whirlwind to how Companies Worldwide are responding. Tesla showing off a ventilator prototype made from car components. According to the video, the design includes a touchscreen computer and control systems from a model 3 car. There is a shortage of ventilators needed for coronavirus patients. Apple coming up with 20 Million Masks through its Global Supply chain and designing another piece of protective equipment. We have launched a companywide effort, bringing together product designers, engineering, operations, and teams, and our suppliers to design, produce, and ship face shields for health workers. Apple plans to ship over one million of the shields this week. We will see if they are super cool hightech scifi kind of things. Coming up, we are taking a deep dive into the app and all into the ethanol world. What happens of oil still traits around 24 a barrel. We break it down with todd becker, green plains ceo come in todays bottom line. If youre looking at any charts throughout the show, check out gtv. This is bloomberg. Viviana this is bloomberg daybreak. Youre looking at the principal room. Coming up on bloomberg technologys, the doordash ceo. Viviana youre watching bloomberg daybreak. Im Viviana Hurtado with your Bloomberg Business flash. Boeing will keep its seattle area airplane manufacturing hub closed indefinitely. The factory was scheduled to reopen tomorrow night after two week shut down but state Health Officials are still trying to contain a coronavirus outbreak. Boeing suppliers are showing signs of stress. Will reportedly scrap its profit targets this week for the First Time Since going public in 1987. It will also suspend its dividends. Jet week shares of the engine maker plunging 31 . I am Viviana Hurtado and that is your Bloomberg Business flash. Alix thanks so much. Time for bottom line. We take a look at Companies Worth watching this morning. Today we will focus on green plains energy. We are joined by the ceo, todd becker. Drop ink has seen a 77 the year as the oil route and the demand from the virus slows. There are two bronx to this story. First is to take the general virus story. How bad is demand down from people just not driving . Todd that is the key to what is happening in the market. Driving demand last week was down 27 in the United States. We see some areas as high as 80 down. Saying we are seeing our customers who did not want our product because demand is down. It is not just a domestic story. We export a lot of ethanol, and we have seen customers back out of their contract and calling force majeure. We have seen a big drop in the product and that is causing havoc on this industry. Alix do you have any visibility into china, where areas pick up in terms of what kind of rebound we can expect when things get better . Todd we are seeing them stable out a little bit. They have bought corn, they have bought soybeans, those are not big deals compared to the demand we have domestically for Agricultural Products and ethanol. We have not seen them come into the ethanol market. It is the brazilians that have started to slow down taking our product. China is sniffing around, but those far we have not seen them with any of our product out of the United States. They needed, and they needed badly. They could make a dramatic shift on this industry and we think through the trade war negotiations ethanol as part of the solution and we are waiting for them to come back into the market. We are not seeing them return to the Global Market for any shape or form for ethanol. Alix where the industry was before is a good indicator of when we go back to some kind of recovery phase, what it looks like. There were Higher Expectations for higher ethanol plan. 15 of what you blend per gallon of gasoline has to come from ethanol versus 10 . They were talking about more exports. Policy shifts to help ethanol producers. Where is that conversation right now . Todd that is some of the issues we had. We are already over supplying the market as an industry. The industry had a longterm idea that if we make a little little more product we will wait for demand to catch up and the demand has not caught up. It is about oil over ethanol. They do not look at the clean air are clean water as much as favoring the oil industry. It is mindboggling. Through all that, we are producing more than we need every single day around the world. We need 15 expansion and we need to clear some of the last hurdles. The president is supportive of e15 and 15 ethanol blends. It is the epa that needs to change a few more factors. It is cheaper than normal e10, it is 88 octane. It is a great product. Not one claim has come from the consumer. We compete very well with the price of gasoline. We have for a long time. When youre fighting for a share of the gas tank, it is a big battle. You are starting to ce 15 rollout across retail platforms. The brands are under the old fuel contracts. We are starting to make some progress but we need that, we need china back into the market, and we need to temper our expectations on some of the supply we put out. We need to slow down as an industry. That is starting to happen because of the coronavirus, but overall it needs to stay that way for a while longer. Alix you say are competitive with gasoline, but are you competitive if it is 1. 90 a gallon . Todd that is the big question and the big thing we are looking at. Corn prices are linked energy. The corn versus crude spread we look at a lot is a record high favoring crude. Corn is an Energy Component is priced too high. 25 you think about oil at and gasoline at . 70, ethanol is priced too high and that is driven by the price of corn. As this industry shuts down, we are destroying corn demand and the ethanol industry is the backbone of u. S. Agriculture. Without a strong ethanol industry, we do not have a strong agricultural economy. We will take 2 billion bushels of corn demand off. The corn prices are so high relative to crude, if you laid over as a ratio you would see that. We can be competitive. It is a function of the agricultural price structure being competitive with the energy price structure. Oil came down so much faster than the price of Agricultural Products. We are starting to catch up as you see the price of corn come down as well. Crosssection a between all three parts of the commodity world. For your business, what kind of leverage have you had . Youve already done lowering production cost, youve been divesting assets, how anymore levers do you have at this time . Todd for great plains, it was priced incorrectly. We have a lot of assets worth more than the equity value of our company. People are looking at the overall macro and saying who will make it and who will not make it . We are convinced green planes will be around great plains will be around for a long time. We have more cash in our equity value as well. We have very little debt left. It is a function of cyclicality. We are in a downtrend because of the coronavirus, because of china, because of the trade war. The list goes on and on. We need to come out of this. I think the silverlining out of all of this is when we come out of the coronavirus, you have to think people will drive a little bit more before they start to take long haul flights. We think coming out of this longerterm, it is bullish gasoline prices, it is bullish driving miles. At 140 4een stable billion gallons of gasoline demand. Ethanol is 10 of that. Coming out, what will look behavior of the consumer be . The consumer drives more, china buys more, the Agricultural Prices compete with energy prices. We have set ourselves up with us. We have very little debt on the Balance Sheet. We think will be around for a while. We have several other levers to pull. We have other businesses worth more than the equity value of our company. It is part of the game we have to play, it is part of the cyclicality of our industry. Alix good to talk to you. Have to get you back to see how that is progressing. Todd becker, green planes ceo. It is a bullish chart for gold in a bearish one for nasdaq. That is coming up on todays technically speaking. This is bloomberg. Alix time for technically speaking. Joining me is mike mcglone of bloomberg intelligence. Give me the bullish case for gold. Mike you might be able to see in the chart we have a triple high going into gold futures. Cold futures close at a 16. 80 r high, about about 1680 an ounce. When you get lifted out of your cash and you do not have inventory, you lift the futures. That is what is happening. Gold futures are breaking out. I do not know what it takes to hold it down. The next resistance is around 1700. The alltime high as 1900, probably a good target. Alix that cannot be good for the equity market. Mike that is the opposite. If i look at the nasdaq, everything will be leaning on the nasdaq. The nasdaq is hovering above 7000, the trendline it has held since the election. If you think about the next time we will see a full baseball stadium, it will probably be a long time. You are seeing a bounce, probably more of a dead cat. It is only a few months so probably more of an endearing bear market. Alix mike, great to catch up with you on this monday. Mike mcglone of bloomberg intelligence. That does it for me. Withg up on the open jonathan ferro, ellen wald. Happy monday everybody. This is bloomberg. To help you stay informed of the latest news just say coronavirus into your xfinity voice remote to access Important Information and special reports from around the world. And to keep your kids learning at home, say education to discover learning collections for all ages from our partners at common sense media, curiosity stream, history vault, reading corner and many others. For more information on how you can stay connected, visit xfinity. Com prepare. Jonathan from new york city for audience worldwide, good morning, good morning. The countdown to the open starts right now. 30 minutes away on this monday morning. Here is your monday morning price action. Equity futures positive 3. 8 on the s p 500. In the bond market, yields higher. The perv steeper. Up five basis points the curve steeper. Eurodollar unmoved through much of the session. In the commodity market, we rebound off last nights lows on crude. We will talk about that later. That is the price action of the morning. We begin with the top story. A little bit of hope, a little bit of light in europe and a sign the mitigation efforts in places like spain and italy is starting to show rewards. Some success. A hope in the United States their present is our future. We begin with tha
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