This morning dr. Fauci will enter the senate chambers, at least virtually, and testify before the senate. There are a lot of dynamics around this word lockdown. Seeinge and wuhan infections come back. They will test the whole population of people. We will have plenty more of that. Now lets get to first word news in new york city with ritika gupta. Mentioning,ou were a stern warning from dr. Anthony fauci. Disease infectious chief will enter the senate sayinganthony fauci there is a chance of more outbreak without following white house guidelines. President trump says we have met the moment and have prevailed. U. S. Deaths have exceeded 80,000. He later said his remarks relate to testing for infection. The Federal Reserve is watching its longawaited backstop for companies today, and will begin by etfs for corporate debt. It played an Important Role in keeping the Financial Markets relatively calm since march. In china, all 11 million represents residents will be coronavirus. People are already under quarantine. 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, ritika gupta. This is uber. Francine . Tom . This is bloomberg. Francine . Tom . Tom as francine mentioned, a churning to the market. It is amazing to see that the nifty five really picking up and going and even as it is under struggle. I dont want to overplay the struggle that is out there, a grinding riskon. You see it in higher yields this morning, no question about that. I really want to point out the unraveling of brazil. I dont know what it is around, whether it is the virus or simply the economy and the global slowdown. Very, veryan real difficult. Francine . It is a wisehink thing to spend a lot more time on emerging markets. European stocks are edging higher. A couple things i would not underestimate. One is the Trump Administration moving yesterday to block investments in chinese equities by government Retirement Funds. Significant and have wider implications, and i am looking at most european bond slipping and treasuries drifting higher. Talking about your markets, joining us now is rick lacaille. As always, thank you so much for coming on. How do you see the recovery, and how will that dictate where you see value in assets right now . The first stage in the recovery will be a sharp rebounding. We are seeing quite a bit of balance already. Of balance already. The second stage might be a little bit slower, so ultimately it is a long road back. I think there are sectors where there is both profitability and growth. I think that is why a lot of sectors are moving money into health care and tech. What do you do with Something Like gold for the moment . We dont have gold from an inflation risk but more from a portfolio hedging perspective. Riskon, we are voicing cash in the balance portfolio. Niftyick, i look at the five, and particularly the extraordinary performance yesterday, the separateness of it all. See the how you separateness of the desire for revenue growth. Rick i think it is visible revenue that investors evaluate. Although the evaluations say all the evaluation is in the out years, future cash flows, it is the current attractiveness of revenue profitability that i think is attracting attention. That will shift ultimately to a more valued opportunity. But at the moment, when you have a constrained economy, investors are narrowing their focus and shortening their time horizons. Tom what is interesting to me is, within amazon or apple, the Free Cash Flow generation over four years is just extraordinary. With operating beverages almost at triple, in value, and is particularly on these nifty five stocks, are they looking out one year or six months, or are they looking out five years . Well, the value of the company suggests they are looking a long way. But i have a suspicion people are focusing very much on the shortterm, and i think it is a risk that investors repeat the what they have always done, which is extrapolate the shortterm into the future. Fundamental lens on, we see they do have in some cases very long numbers potentially, but the risk is you end up overpaying. I think we will draw back and we have drawn back from some of orientede Growth Investments and looking for in a longrune sustainable but also extensive. How much rick, difference do you do between emerging markets or at least at the asian economies, recovering quicker, and european and u. S. Economies, and therefore the assets associated with them . I think they look at the value store at the moment, overweight in emerging market equity, and from a currency perspective, we think some are worth buying on the dips. Thesouth african rand and rupee. I think they have long growth potential. They will be the beneficiary of a better form of globalization. There are a lot of risks, and that is why we have brought gold into the portfolio, to hedge against some of those risks. Francine what is the biggest risk exactly, the debt generated, or is it actually the supply chains being upended . Rick i think there is a variety of risks. You mentioned brazil before. There is Political Risk that is quite high, damage from the pandemic and it is putting stress on the system. I think Political Risks may come back to bite investors in some cases. In other cases, it is the risk of deglobalization. Third, you have the risk that the dollar remains high, and you have a mismatch both from the revenue but also the Balance Sheet perspective. I think that will capture some of the other countries like columbia. Others are in a like columbia. Tom later are the signals what are the signals to overweight Equity Investment . It has been miserable for some time. What are the signals you need to observe to know it is time to overweight International Stocks . Rick well, we are not. U. S. Equities Roast International with a u. S. Client base the reason for that is the value in emerging europe and elsewhere needs more of a catalyst in order for nonus. Quities you need to see more convincing growth as a catalyst. Tois not enough you need see growth momentum both in economies and in earnings. To really make a difference. I think that will be, in a sense, accompanied by a weaker dollar. Which is the horse and which is the cart . This morning we have a stronger dollar with the exwhy out over 100. Over 100. Y out it follows the belief come if you will come in a Better International economy. Is that the way you look at it . Rick absolutely. Currencies will oftentimes lead, but in this particular case it will have to be growth first , a moreto a tech stock upward sloping yield curve, more confidence for investment. Many things could do that. The pandemic, coordinated fiscal stimulus. Many of those things could happen to simulate growth, but we are not ready to in effect speculate on what is in front of us. Francine rick thank you so much. Theng up, speaking with nasdaq chief executive, dena friedman. In new york, p. M. 9 30 p. M. In london. And this is bloomberg. Tom good morning, everyone. Bloomberg surveillance. Later today, dr. Fauci before the senate. It will be most interesting to see the tone of the senators and the responses from dr. Fauci of holy cross, and obviously the nih, working with the president on this global pandemic. Rick lacaille, i look at the entire mix of equities right now. I look at the belief in longterm investment, clearly something that state street is focused on. What is the actuarial assumption of equities, given the new yield that we have. Do you have to pull that ever lower, or you can you stay lower or middle or high Single Digits . Rick i think youve got to be low. I dont think you are in high Single Digits in terms of returns. I think it shows through in the yield curve number real rate expectations of low, dividend cuts on the way. I think we have to be modest. That is still a big premium. Relative to riskfree assets, it is a premium worth having. Longrun investors should keep that in mind, that compounding 4 risk three or premium is very valuable. Tom chief executive officers will struggle to find whatever their measure of success is, given mid or lower single digit equity return. Does that force combinations in the future, as we saw and other times of crisis, like the 1930s . Rick we have had plenty of combinations already that have created value, and i think crisis, in whatever sector it is, but it is not a crisis in all sectors, forces people to reappraise how they can add value. A top line is hard to come by, then i think it makes sense. There is obviously policy issues about competition and we need to be careful that we have a very competitive economy, and that remains the case. Coming out of the pandemic, i would expect people to draw a breath and say how are we going to make progress . ThinkSmart Measures will me and i think Smart Measures will make sense. Broader measures will make sense. Do we expect the consumer to come back . I was having a conversation with the Standard Chartered chairman early on. Are people going to be fearful in spending . Is there going to be almost too much saving . Has been the pattern so far in china, where on theing is supply side of the economy is ramped up, but on the demand side, not as much. It will not get back to where it started. Gmc is savingshe ratios do rise, but not nearly as much as people thought. Some people had a shot in. This is a different type of shock, but it will take a while to consumption return return to prior levels. Francine what lessons can reroute can we learn from the pace of it in china . Rick i think what you learn is that early stages are very rapid. Thatrcentage terms, maybe is obvious, and you get to the supply side of the economy, and 80 , 90 s up to 70 , plus relatively quickly. It is the confidence measures that you put in place for consumers as well as workers that get you to the next stage of a full recovery. And i think that is why this question of risk tolerance for the pandemic and Health Measures are very important, because the more confident consumers are, the more quickly they will come back. I think you are seeing that now in china. Is fascinating here is not so much what we do, but we we try to avoid. There is going to be huge desperation out there from state street clients, and frankly across the entire industry, that dont have enough, ive got to put away more, and my returns are going to be subpar. That is clearly the tone from you and other guests as well. What do i avoid right now . To me that is the hardest question. What do i not invest in . Rick well, if you dont have a need for liquidity or absolute safety, then obviously avoid the safe havens. We have them in there because at the portfolio level they can be good balancing items. But essentially it is a message without risk. If you brought up risk tolerance from me liquidity perspective and a time horizon, then taking more the quiddity risk, extending in credit, and in equities, means you avoid those very safe haven assets, which have to be brought by people. Some people have to buy safety, but if you are not one of them, those are the things to avoid. Tom but what sectors in equity would you suggest avoiding . I am having trouble getting this answer from anyone, folks. I get i am supposed to buy more amazon, microsoft, netflix, and the rest of them. I want to know what not to buy. Rick there is always a price where things are worth buying. You need to look in the long run at the fossil fuel industry and ask yourself how much risk do i vector turning into a runoff . So i think there is a price that is right for integrated oil and resources more generally, so that may be a place where you think i can fund from that from an under waiting there. Position, somet glamorous. Ess grandm there are value opportunities funded by those sectors that are undervalued. Or glamorous parts of i. T. , areas like resources and oil. Tom i can see the marketing coming now, the state street global glamour fund. It has a ring to it. Thank you so, much, the cio of state street. We look around july and august as well. Coming up later today, david westin and conversation with a either traineds on saudi arabia and aramco, the challenges that the kingdom is having. That would be the u. S. Secretary of energy with david westin at the 12 00 hour. Stay with us. This is bloomberg. Ritika this is bloomberg surveillance. Lets get the Bloomberg Business flash. The ceo of boeing predict a major u. S. Airline will most likely go out of business this year. In an interview with nbc news, something will happen when september comes. That is when the u. S. Government payroll aid to the Airline Industry ends. Toyota warns that profit will plunge 80 to a nineyear low. Japanss biggest automaker predicted it could take another year before global costs go to previrus levels. Automakers have been forced to shut down factories and showrooms. Tmc financial says it is cashing out one of the industrys most lucrative bets ever, selling its 17 billion stake in blackrock. Tmc hostssts 22 22 of the share asset manager. That is your Bloomberg Business flash. Tom . Francine . Francine thank you so much. This is what the markets are doing. European stocks are edging higher with u. S. Equity futures slipping, but europe is holding. Oil is rising. European bonds are slipping and treasuries are drifting higher, tom. Tom francine, thank you so much. I would look at that and also look at the brazilian real. Brazil is really idiosyncratic. The effect of the virus is really difficult for mr. Bolsonaro. Coming up, Michael Spence of new york university. Of course, his work on signals that we see during this pandemic. Stay with us. This is bloomberg. Bloomberg surveillance, greatly appreciate your attendance. The headline across the bloomberg, i am not sure francine is still with me in london, mr. Hancock out with a headline that holidays in the United Kingdom may be foreign holidays unlikely the summer. Are you ok . Francine i am ok. I dont know if my kids are ok. This goes back to Boris Johnson saying anyone coming back to the country will be in quarantine for two weeks so if you need to get to work or go to the shops, unlikely foreign travel will be allowed. I guess we will see. My kids are on valium now to make sure they do not go and see the italian or french family. Tom this brings in perfectly our next guest, a Nobel Laureate of new york university, Michael Spence. Michael spence is one of our great thinkers at 60,000 feet and has the intellectual courage to come down to six feet where it is appropriate, the great convergence was really formative particularly as focused on china. He joins us today from italy. From before essay the pandemic, what my younger self never expected. Your younger self never expected a pandemic and particularly one that was so formative in italy. What is your observance of how we move on from this endemic question pandemic . Michael it is nice to be with you. First of all, we have to be prepared for very, very slow economic recoveries. I have looked at china and their recovery is slower than anybody expected. I just read a detailed report on korea, similar things. Consumption is being held back even for opening economies, i risk aversion and major markets by risk aversion and major markets are closed down because of the pandemic. We will make it back but it will be slow. Tom you are expert at the theory of the unobservable, the type to risk, the thing type two that is out there, the unknown unknown. What is the unobservable to you that has your maximum attention . Michael to me, the most important thing to understand is with a pandemic and in the absence of effective testing regimes, you have markets that are clogged up by imperfect information. Basically, everyone you run into is a risk and the only way to get it of that risk is with an effective vaccine, which we just have to wait for, for an unknown time, or a massive regime of testing. If we managed to do either of those things, that will materially speed up the recovery once it is communicated, no other risk can take away the principal break on consumption in america which is 70 of the economy. I am focused on missing information at a micro level in markets because of our inability to sort between the people who are infectious and who are not. Francine i dont know if there is data to show us the optimum time of reopening an economy. Reopening slowly and tracking reinforce tracking infections in real time, is there a better way to do it . Michael there was a better way to do it. A lot of places including where i sit did not task enough and getting ready on opening up. There is two things that need to be done clearly. You cannot lock down and economy for a very long time without producing an excessive amount of economic destruction and painandsuffering unrelated to the virus. , dealingd thing is with the Health Problem acceleratoris an for the speed of opening up precisely because it deals with this risk issue. Curvere all behind the one way or another and doing the best we can. On the question of whether to open up, that has to be based on values and our leaders, politicians and policymakers have to make that choice. I dont have any problem with that. I am not one of those people that think experts and scientists should make these choices. People we elect should make these choices, and they are uncomfortable because we are ideal risks in an scenario we would not have to take to the same extent. Francine what do you worry about in the recovery phase, the number of unemployed and how long it will take to get those people back on the job in the u. S. . Michael that is the core of it. And theemployment destruction of businesses that will not be able to come back at the end because they have been knocked out. I am hoping these massive stimulus efforts are complemented by Debt Forgiveness and other things so we minimize that dimension of damage to the economy. Tom lets come back with Michael Spence of new york university, thrilled he could be with us today. Trump president donald says america has met the moment it prevails on coronavirus testing. After two known cases were reported by white house staffers, he said anyone who wants a test can get one and then revised it to say anyone who needs a test. He is blocking investment into chinese funds for government retirement savings. The ms ci captures emerging markets including china. House democrats are drafting their plan for another round of economic stimulus but the bill will not be ready until friday, the price tag more than 2 trillion. This would include money for states and cities. The president and senate have said there is no rush to spend more. Boris johnson has water down his plan for rebooting the british economy, saying people should go to work if they cannot work from home but many were laces are not ready yet. Now go back to work if your place of work is secure and you can travel safely. 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 ritika gupta. This is bloomberg. Francine thank you so much. Coming up, and exclusive conversation with paul hudson at 12 00 p. M. In new york, 5 00 p. M. In london. This is bloomberg. Surveillance, good morning, everyone. With us, the laureate Michael Spence. You wrote a brilliant essay years ago on hurricane katrina. I would suggest the political dialogue of disaster changed with katrina, the immediacy of social, the immediacy of all of that Media Technology stepbystep. Becomethe politicians unconstrained from the katrina so they can find Disaster Preparedness resilience in this crisis . Michael that is an interesting question. I think this stock may be big in someo that at least dimensions on the health care side, on a number of dimensions we have actually made investments. We had this huge stimulus package and a huge spike in unemployment claims. The unemployment claims simply overwhelmed the Computer Systems that are required to be online, causing distress and so on. With cloud computing, it is an entirely fix elbow fixable problem so i expect resilience. Going back to the type one and type two errors, normally we commit the error of not acting quick enough. There is one area where we normally do the opposite and that is hurricanes, where we get ready for a hurricane which may or may not hit us, in advance. But in most other areas we sort of let it wash over us and we have limited options. Tom this is absolutely brilliant, what you are talking about. Are we treating this pandemic like a Natural Disaster hurricane impinging massively on our growth to take us back to a second great oppression . We are struggling against that now, but that is the situation we are in. Forgive, even for making mistakes, all of us making mistakes when we encounter something genuinely new. When we look back at it and see this thing started in china and did not produce a Rapid Response in a wide range of countries that probably should have seen be, theg is going to historians will say that will be the big mistake. We lost the ability to contain it in the early stages in most places, not all, but most. Francine how do you view all this extra debt we have put in place in the world . Hurtwill it come back to countries . Michael it will hurt fairly immediately in the sense of constraining options, particularly on the Public Sector side so my guess is we have a mountain event building. A fair amount of that gravitate to the sovereign side. It will be absorbed as public debt. The question is, what does that do . At 130y, we started out 5 sovereign debt to gdp ratio and i would guess we would get to at least 160 so even with a long period of accommodative Monetary Policy that takes that not fatal, makes that not fatal, there will be constrained fiscal space in the future and increased vulnerability to additional shocks. I dont have any doubt about that. Having said that, if the alternative was not to create thethis debt and simply let pandemic wash over the economy, i would have chosen the debt. It was just a tough choice to have to make but i think we took the right one in these massive fiscal programs. Francine do you think italy at the end of it will need a bailout . Michael lots of industries will need bailouts, and some vulnerablehat are and relatively weak will need debt restructuring. I do not have any doubt. What worries me about the longerterm as people revert to the world war ii example when we built up debt to finance the were effort war effort and then we recovered, throughout. Not grew out. Nominal growth was high enough that we could row out, and now grow out. Overhangs maydebt be with us for a longer time than we would like. Tom professor spence, thank you so much for joining us, advising northern atlantic and Nobel Laureate. The jobs report of friday, interesting economics this week including inflation on retail sales on the backend end of the week in america. From new york and london, this is bloomberg. Ritika this is bloomberg surveillance. Musk is daring authorities to arrest him. He has restarted production at teslas only u. S. Car plant. On theted he would be Assembly Line with everyone else and asked that he be the only one arrested. Abilityut down on its hurts has cut down on its ability to go down and it may pay its enough money to bankruptcy. Aramco is staying on track to payout from 5 billion in dividends this year despite reporting at 25 drop in thirdquarter profits. The dividends are crucial for saudi arabias government which owns 98 percent of aramco. That is your Bloomberg Business flash. Economy maystrias take a few years to reach precrisis levels. That is according to sebastian kurtz. There is support on the european level for countries like spain. Matt will that be enough or will there needs to be some sort of shared fiscal union in europe to help your second trading partner . ,ebastian this package is good but we are not in favor of ideas like corona bonds or mutual is asian of debt the European Union debt in thetion of European Union. Matt how important to you as the membership of other countries like italy . Sebastian there is no debate about membership. We are united in the European Union. There is good cooperation and i think we will manage this crisis and we will be able to manage the economic situation. Of course, it will be enormous difficulty. Matt austria, germany, the netherlands were well prepared before the crisis hit but other European Countries like italy and spain were already in a bad fiscal situation. Paymuch are you prepared to to keep the European Union together, to save those countries that were hit so much harder . Wanttian it is clear we to support them and show solidarity. It is good that the ministers of finance agreed on the 500 billion euro package to support these countries and on the in aean level, we are discussion if more help is needed. Matt do you think it is possible the austerity you practice what you in a good position now but your secondbiggest trading partner, italy, has 158 debt to gdp. Is it possible for them to get out of that kind of debt trap . How would they do it without Debt Forgiveness or shared debt . Sebastian they would not be able to handle the situation without the help of the European Union and countries like austria , but i dont think the idea of shared debt is the right answer. Matt how long do you think it will take for economies like the austrian economy to get back to precrisis levels . Now that you earmark 38 billion euros, you have more measures to come, wendy you see yourself getting when do you see yourself getting back to precrisis levels . Sebastian it is difficult to say because we are quite dependent on tourism, 50 of our gdp in austria is toryism. Touriesm. Industries like automobiles have been hit. 2020 will be a difficult year but we hope the next year, 2021 there will be positive development again, but probably it could take us a few years. Matt you are preparing measures like tax cuts, possibly infrastructure investment, reopening borders with your neighbors. What will be the most important move to revive the economy on the post corona side of the crisis . The reopening us, of the borders is most important because we need the Single Market of the European Union. We are an exporter an exporter and tourism also plays an Important Role in our country so the general role, but tourism in particular, reopening the borders is important. Francine that was the austrian chancellor speaking exclusively to matt miller. This is what the markets are saying. European stocks edging higher than where they were when they opened. Inestors weighing an uptick Coronavirus Infections in several countries with fresh trade tensions. Oil is rising. The Trump Administration moved to block investments into chinese equities by a government Retirement Fund that is said to put shivers through asia. Tom some things going on in the background, not front and center and maybe not arkin driving. Market driving. The Federal Reserve will be buying Exchange Traded funds, a little bit of mystery, but maybe we will see that historic moment where they take on at least bond etfs today, some of that giving buoyancy to the market. We will drive forward this conversation, many things to talk about, including the important testimony of dr. Fauci at the 10 00 hour in new york. We speak on the linkage of the equity markets to beleaguered economies with michael shaoul. Stay with us. This is bloomberg. Good morning. Save hundreds on your wireless bill without even leaving your house. Just keep your phone and switch to xfinity mobile. You can get it by ordering a free sim card online. Once you activate, youll only have to pay for the data you need saving you up to 400 a year. There are no term contracts, no activation fees, and no credit check on the first two lines. Get a 50 prepaid card when you switch. Its the most reliable wireless network. And it could save you hundreds. Xfinity mobile. Tom this morning, the dollar and the nifty five as risk is persistently and grindingly on. Brazil is against bolsonaro in brazil is against any and all lockdowns. President trump exits a press conference stage right, entering center stage this morning, dr. Fauci will speak to the senate. There are sure signs this will end. Baseball under discussion at some point. Jon ferro knows the premier league in june, and ryanair will fly in july. This is bloomberg surveillance. The lockdowns we have been talking