The dow up. 2 . Moves. Elping those , back above 42. The dollar index at 92. 74. Stronger sterling, stronger euro, stronger yen. Pandemic an interesting time for investors, distressed investors among them. Erik schatzker is speaking to howard marks of oaktree. Always terrific to have howard marks with us on bloomberg television. Weigh in on tenterhooks for your memos. A lot of them in march and april. Not so many as of late. You are out with another one, time for thinking. You raise a number of provocative points and questions. Them states the obvious, the Financial Markets are at the center of a titanic struggle between the pandemic on the one hand, and the government effectively on the other, recession versus the fed and treasury department. You and i have talked about this before. As recently as may, youre thinking was that the fed could not keep it up forever. Am i to divine that perhaps youre thinking has changed on that subject . No, i still dont know if they can keep it up forever. That is the critical question. Fed and treasury support is obviously important to the economy while it is partially shut down and underperforming. By provision of liquidity the fed, keeping of Interest Rates low, all of these are very important to what the market has been doing for the last 4, 5 months, and what it does in the future. The fed has expanded its Balance Sheet from 4 trillion to 7 trillion in the last month, the treasury has expanded the deficit. Probably going to be over 4 until they pass more aid. The question is how long can they keep it up . Nobody knows. Erik lets try to answer the question you raised. Which will win . Do economic fundamentals ultimately triumph over government policy . Well, we have never had anything like this in the economy. In the Second Quarter was down the most in history, actually. Stimulus. E government in the past, stimulus has always. On out the question is whether they can keep it up long enough to get a victory this time. I think they will continue, have to continue. Then the question becomes what the longterm ramifications are. You point out this historic decline in the Second Quarter of gdp. As you point out, we and others reported that the decline in secondquarter gdp was 32. 9 on an annualized basis. Decline, on a quarterly basis, was much smaller, 7. 2 . Added up in dollars, about 190 billion. Why is the difference important between the 32. 9 on the one hand, 380 billion on the other . Howard the real difference is between the 32. 9 and a 7. 2. As 1. 2 trillion, but it was actually 180 million. When the fed reports, they report at what is called an annual rate. At an annualfell rate of 32. 9 in the Second Quarter. Nobody stops to say, i wonder what they mean by that. As i say in the memo, and you know, it is a very complicated answer. It raises a question for me and one that i think you implicitly raise. If we are talking about an thatce of 380 billion might have otherwise existed, all things being equal, did the government over react by throwing 6 trillion at a 380 billion hole . That is the 64 question. You could formulate it the way that you did and there is something to that. On the other hand you can say, think of this we threw 6 trillion added, because it couldve been more. There is no right answer, but it just goes to show you how much to government has had to do, respond to the effects of the economic shutdown. Erik im a big believer that you cannot have it both ways. You are right there is no precise answer to that question, we will not know for a while, and then it will be a matter of analysis. But do you have a gut feeling, do you think 6 trillion, verging on seven is too much . Howard it is not a matter of too much. I believe the injection of that kind of liquidity into the economy is likely to have some longterm ramifications. The most likely is some pickup in inflation. But that does not mean that it was a mistake. The mere fact that you do has possiblet negative consequences doesnt mean it is a mistake. They had to. If they had not done the things they did, we would be talking about a much more serious economic event, we may be even using the word depression, and the words global depression. Aboutwhat we are talking at the moment is largely a macro issue. Lets try to focus on the credit markets. Howard, can the government ever put the genie back in the bottle, or is there something backstop irreversible for all but the most Zombie Companies . Howard that is the question. I dont know what they are going to do next time. This time, they are providing liquidity to all kinds of companies, some of them are zombies. We use that term in the market to define a company where the cash flow is less than the debt service requirements. So they had to borrow money to service their debt. Well. Ompany is not doing if it is going to do that for long, it should probably go out of business. But the provision of liquidity is keeping them alive. The fed can provide liquidity but not solvency. It cannot make a Zombie Company a moneymaker, but they can, and are, keeping companies along. Erik for the time being, these companies would not have survived if not for fed and treasury action. Howard many of them, yes. A great example is the airlines. Tremendous ongoing costs every day, whether they are flying or not. To ground the planes and have them go through a long period where they are not flying or underpopulated, many of them would have gone under. Cap them inrants business. Erik do you think we have crossed the line into state capitalism . Passed thehad not line into government ownership of businesses, but clearly, there is an unwillingness to let companies go. Unwillingness to let the chips fall anywhere. This period has been a time when the government is providing revenues and income to people and businesses that they otherwise would not have had, that they need. Without those, there would have been serious consequences. Erik but there is a necessary deterministic quality to markets that have been staved off for the time being. Every Credit Investor is wrestling with this because you have to make decisions accordingly about how you think you are going to generate a return. It is fundamental in this equation. At what point does the need to start happening . Howard we use the term creative destruction, which is to say, companies that are unsuccessful should perish. If we waste societal resources keeping Unsuccessful Companies in business, then there are other parts of the population or economy that we cannot do as much for. In one of my memos, i said, the fear of bankruptcy is to capitalism as hell is to catholicism. It is fear of bankruptcy that keeps managements prudent and careful, trying to control the risks they take. If they are confident the government or the fed will keep them in business, even if they lot,big risks and lose a that it introduces what we call moral hazard. Erik has the fed engendered too much moral hazard . Howard you keep on trying to use these words of too much, not enough. Erik it is my job. Howard it is a personal taste. They have crossed over supporting. The fed buys a lot of securities, that is how they inject money into the economy. They initiated this thing called qe after the Global Financial crisis. But then they always bought government debt. Erik this brings up an important question. Rated junk bonds have recovered to their prepandemic levels. Do you recall ever seeing a bigger gap between credit pricing and fundamentals . Howard i dont think so. Erik the biggest ever . By the way, the government has not bought many low rated bonds, maybe none. They bought some low rated etfs. They have created an environment liquidityolific ies have been able to stay in business. When you say that bonds have recovered to their historic highs, which means the yields are at their historic lows. In bonds, the yield and the price have an inverse relationship. The bonds are at their lowest yields. Rates areinterest lower than they have ever been. Back to years, the 10 year treasury yielded two. A highyield bond may have yielded seven. More, that is worth taking the risk. When the yield on the tenyear treasury goes to almost zero, and highyield bonds can sell at 4 and still look attractive, because all the decisions are made on a relative basis. Is whathe yield spread determines the relative attractiveness of different categories. Yields are ate the lowest in history, the yield spreads are still attractive because the base rate is so low. As always, wisdom and deeply instructive insights. Thank you for spending some time with me on bloomberg television. That is howard marks, the cochairman of oaktree capital. Vonnie our thanks to you, erik schatzker. Lets get to first word news. Says theoris johnson testing system for coronavirus is world beating, even as data the bugs that claim. Test and trace system is failing to connect more than 50 of people positive. York is seeking to dissolve the National Rifle association. The state attorney general accuses the Gun Rights Group and senior officials of engaging in a massive fraud against donors. For these years of fraud and misconduct, we are seeking an order to dissolve the nra in its entirety. Karina a suit alleging they never order Charitable Funds for years to enrich top executives at the organization. The case may close one of the biggest legal challenges the nra has faced. Of doves wereer released at the sight of the u. S. Atomic bombing in hiroshima. The 75th anniversary was scaled back due to safety concerns. The worlds first atomic bomb destroyed the city, killing 140,000 people. A second bomb dropped near nagasaki days later killed 70,000 others. Global news 24 hours a day, onair, and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Im Karina Mitchell. This is bloomberg. Vonnie this is bloomberg markets. Im vonnie quinn. Some School Districts began in person classes for the fall, but 12 of the countrys largest rejected calls to reopen, opting to hold classes virtually. A republican plan released last week would provide 70 billion for k12, but would attach most of those funds to physical school reopening. A battle being waged in virtually every household across the country. How can we ensure the safety of our children, teachers, and all associated . Becky pringle is the newly elected president of the National Education association. Almost 3 million members. Not 24 hours into the job, congratulations. How do you plan to begin this crucial threeyear term in such a time as this . Becky thank you, first of all. People have been asking me how i feel about this moment. To say that im excited and humbled and honored to be asked to serve in this moment, i am weighing against the somberness and seriousness of what we are facing now. Than ourno one more teachers and support staff, parents, who want our students to be in school. I dont think there is anyone who thought we would still be in the throes of this pandemic at the start of the school year, but here we are. The reality is, the federal government has not shown the leadership that we needed to put our schools in a position to open safely. Leading with been all of the guidelines and certainly have not done their to to provide the resources ensure that our schools are safe. So what our educators and parents and Community Members are all saying is, if they are not say, we cannot open them. That is the first order of business, students have to be safe. If that not safe community, their infection rates are not low for two weeks. They are not safe if we dont have masks or protective equipment. They are not save it schools cannot socially distance. They are not safe if they cannot provide health care checks and testing. Whenare not safe for students get sick or educators get sick, and we had to figure out how to isolate them and protect the other students and the community and their parents. Donna shalala told us there is a gap between democrats and republicans on the amount that should go to schools and states. Point will you go on strike, vote for strike actions . What is the amount of money that you would need minimum in order for strike action to be avoided . Just like the coronavirus, the impact of this pandemic is impacting communities in different ways. Communities and states with very high infection rates. Some have controlled it, they have done everything they can to take the precautions to bring it under control. What we are saying is that from community to community, state to state, district to district, they need to look at the infection rate, know what resources they need in that area. M glad that you mentioned because it is in the heroes act it is not only the funding that goes directly to the schools. It is also funding going to states and localities. I think we all know maybe we dont the funding from our never recovered from the 2008 recession. We are still suffering from that loss from 12 years ago. Because of the economic crisis in our states and localities, we have had almost a million educators laid off. Endhe crisis does not within the next couple of years, we will have at least a million more. We know that the funding has to include not only direct funding for schools. Without those ties of being in schools or School Buildings or not. We know that funding has to go directly to schools. We know we need allocated funding to close the digital gap. We need help in our states vonnie this has been the someion of the nea for time. Who are you speaking to in congress to get that gap narrowed . If it does not, what will you do . Becky we are uniting our members, and anyone who likes them or loves them or intends to keep living with them to lobby their members of congress and senators. We need our congresspeople to be firm in ensuring we get the funding we need for our states, locals, the schools, all of them. We are mounting of those efforts. We are not just doing that. You have seen schools are opening, planning to reopen. Larger districts are realizing its impossible to keep everyone safe, so they are going virtual. Even the schools that have opened, they are shutting down by or by district. We know that we have got to do better with the online Virtual Learning vonnie you just mentioned the digital divide. Arne duncan recently said that we also need to take care of students physical and mental health. Specifically, food security. Getting students are food at school. What does the nea do about that . Becky exactly why i said the entire heroes package is important. We know our communities are suffering. You saw this in the spring, and we are ramping up the network now. Our School Bus Drivers are , full of lunches and dinners. And we are not just providing for our students. Thatlaud those districts understood that those families were hungry as well. We were reaching out, Building Partnerships with organizations in the community to expand that reach, begin to try and address some of the Food Insecurity that already existed. We knew that our students were relying on us to eat. Exacerbatedhat was in the pandemic. We are ramping up those efforts, working within the community, starting food pantries of our own to ensure that our students are fed. We know that if they are hungry, they cannot learn. Vonnie the best of luck with all of those projects, starting food pantries at the nea. President elect of the National Education association, nearly 3 million strong. Coming up, we will be looking at the u. S. July jobs report coming out on friday, and the Housing Market with Nela Richardson of edward jones. Karina im Karina Mitchell with bloomberg first word news. Allow the death rate remains high, the rate of people in florida testing positive for coronavirus dropped to just above a percent, the lowest level since june. Ohio Governor Mike Dewine announce he has tested positive for the virus and plans to quarantine at his home for the next two weeks. The republican governor was set to meet the president at the airport today and was tested as part of standard protocol. Amid a surge of coronavirus cases, the turkish government is proposing changes to school. Since the muslim holiday earlier, the outbreak has spread quickly in major cities, including in the capital. New cases surpassed 1000 for the first time this week but officials several ruled out imposing citywide curfews. The richest person in the world has turned a bit at the stock into cash. Shares of amazon for 3. 1 billion. He is worth 189. 8 billion. 73 thisstock is up year. Global news 24 hours a day, onair, and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Im Karina Mitchell. This is bloomberg. Amanda im amanda lang in toronto. Welcome to bloomberg markets. Vonnie im vonnie quinn. We are joined by our bloomberg and Bnn Bloomberg audiences. Here are the top stories we are following from around the world. A drop in jobless claims, applications in jobless benefits down. Still human get. It may be offering a ray of hope battered by the coronavirus. Later, we will speak with ,ebekah dopp, chair of exponent which began as a 20 project inside google. We will also speak with the ceo lorens, a cookie company, about the state of Small Business during the pandemic. It could be that slightly betterthanexpected jobless claims number keeping markets buoyed it. We are still watching for signs that congress will emerge with a deal on the stainless package. Earnings are also in the mix. On that earnings package. Communications and tech are showing strength on the day. Facebook is up 5 . Everything else in the broad market is weak. Modestlyo, we are positive but not in a major way. Gold stocks moving lower come despite the fact that gold continues to shine. Another data point showing the economy is bad but maybe beyond the worst. That jobless claims number today, 1. 2 million, has everyone looking ahead to the july number that will come tomorrow, and whether we will see a turn. Here is a preview. Investors are waiting to scour the u. S. Herald report to determine whether the u. S. Recovery is on track or stumbling. Nearly 35 million jobs were lost at the height of the pandemic. While millions of jobs were added in may and june, that was before a resurgence in virus cases across the country. Now the strength of the recovery is in question. Changing the picture of a stalled rebound. Consumer confidence falling the most since march and jobless claims rose or the First Time Since the crisis. A weaker jobs report could add to that worry. Now edwardwelcome jones strategist Nela Richardson. The concern is there are other issues to drop amid the pandemic. Where you think we stand now, and then we can talk about the risks that lie ahead. The hope is that we have seen the worst and we are emerging from the bottom. What is your take on that . My take is that is a covid19 dependence. The Federal Reserve chairman said it well when he stated the path of the economic recovery, from recession to recovery, is dictated by covid19. As we see the labor market numbers, that is the link between the recession and the recovery. The hope is those 20 million plus job losses we have seen are mostly temporary. We are seeing that people who have been out of work temporarily are more likely to be reattached to their employer. The concern are these longerterm unemployed. That they dont ship to permanent unemployed. That is what ill be looking for in tomorrows report. Vonnie how much structural unemployment are you seeing in two years and and into 2021 . Nela structural is the key word because it is this dichotomy between temporary and permanent. Analysts, we expect a quick rebound in the third quarter. Covid19dependent, but a quick rebound based on pentup consumer demand. Crawl to a much slower prepandemic levels of growth. Jobs market will improve, especially in the third quarter. Then that improvement will slow. How much of it remains structural rather than a cyclical improvement, is still to be determined, by what the new normal looks like, how quickly we can get a vaccine, and how widely we can get the vaccine distributed so we can get an economy back to normal levels of activity. Amanda there is a sense that a real fallout in the u. S. And canada is papered over with government support. Workers who might be unemployed are not. People who might be running short on cash are not yet. How much do we need to fear the end of those supports them in which is inevitable, coming when we still have issues for businesses around covid, trying to get back to normal . Nela right now we think the lack of continual fiscal stimulus is one of the key drip in the wall of worry that stocks are climbing. If you think about the three drivers of this rally since the march 23 lows, it is based on fiscal and monetary stimulus, fed support, hopes of a vaccine, and the belief that these temporary dislocations in supply and demand in the labor market would stay temporary. If you take away the fiscal stimulus, especially when it comes to the enhanced Unemployment Insurance benefits, then what you do is you create a cratersized ho hole in the consumer. Demand may come back without that fiscal support. It is really important that we the cares act, so that those most affected by covid19, most likely to stay unemployed, get the help they need to manage the time between recession and recovery. Vonnie President Trump speaking to reporters before leaving he may ohio trip, says impose a payroll tax holiday because lawmakers have not been able to Reach Agreement on legislation. Nothing happens, there will be some kind of president ial order, enhanced unemployment benefit. But if they dont reach the , only 200 oreek 300 on top of state unappointed benefits, how much does that throw more families into poverty . It is impossible to put a number on the pain that consumers are feeling at this point. We spend a lot of time looking at cash flow, their ability to see around the corner, know what their expenses will be over the longterm. Consumers and households have that same kind of dependability. Getting an agreement on the table that a consumer can say, we have these benefits through the end of the year, that is a really important aspect in terms of reassuring Consumer Confidence that ultimately translates into retail and spending. Consumer spending is two thirds of the economy. Without it, the economy cannot recover. This is a key pillar. The bipartisan effort would be a driver for stocks as well. We have seen the most recent quarterly earnings, a mixed picture, needless to say. Some actually benefited from the pandemic, some are really struggling. Broadly speaking, can we be satisfied with what we saw this quarter, are you concerned about what lies ahead for some of those sectors . Nela we should all be concerned about what lies ahead without a vaccine or wide distribution. To be specific about your point, we went into the corner expecting the worst, and that is basically what we got. We will see earnings fall dramatically from last year. The good news is this should be the worst. We expect improvement in the second half of the year. We have seen companies continued to beat the low expectations set for the corner. The future is less clear. It is still a fuzzy picture for most companies about what the second half looks like an into 2021. Here is where we could see some disappointment. Not todays earnings picture, but tomorrow. That is why we think there will be bumping us volatility and stock prices, until we get a clear handle on what the full corporate toll will be from covid19. Vonnie thank you for that, Nela Richardson. As you can see, President Trump just arrived in ohio, making some comments. That ant to just say very good friend of mine just tested positive. That . Know our great governor of ohio, governor dewine tested positive. We want to wish him the best. He will be fine. I guess he is going for a secondary test. I said i look forward to seeing the governor and they said he tested positive. He is a great guy, has done fantastic. Jon husted is here someplace. Thank you very much. Thankspeaker, bob cupp, you. Republican candidate for ohios 13th district, christina hagan. Come here. Jon. Up here, bob. Come over here. Whatever. Social distance. Amanda welcome back to bloomberg markets. Im amanda lang in toronto. The bloomberg equality summit is underway. It is one of a series of conversations being held, tackling the issues of systemic racism and inequality across north america. Another one of them is being led by exponent. Dopp,e with us, rebekah founder and chair of exponent, which aims to amplify issues of gender equality. Thank you for being with us. I know you are highlighting exponent today, taking on new urgency given everything going on. For those that dont know it, give us a sense of what exponent is and does. Rebekah thank you so much, and such a privilege to be here. We are thrilled that bloomberg is a launch partner. Gendert is a Global Equity accelerator, a coalition that amplifies gender equity initiatives. Mission is to amplify gender equity efforts at the highest levels of power, influence, and decisionmaking, and alongside bloomberg we have our partners which include bbc, nasdaq, and google. Vonnie a good time to mention that bloomberg is a part of the inaugural partner supporting the initiative. What is the goal . We started this a couple years back. When we started to scratch the so many we realized initiatives are already making significant impact. When we can do as a coalition is amplify and help those initiatives scale. That is what we do, we take initiatives that are already having significant impact, and we help those initiatives scale out. Our First Initiative it is the bbc 50 50 equality project. Willartnership with them work to amplify and scale what they have already done at the bbc and make it global. Really amplifying their impact worldwide. Is it safe to say maybe it isnt but given everything thats been happening around the world and the renewed focus on race equality, are you focusing on racialized women in particular at this moment . Rebekah absolutely. Is at the corety of all of this. We know that women are disproportionately impacted in the pandemic. Especially women of color. Covid19 is the biggest set back to gender equality in decades. That is why this is more important than ever. Women, especially women of color, will disproportionately to startng Solutions Healing everything that we are feeling today. Google was the original home for this. Do you see it having a broader base than inside google . Could it be used by everybody . Rebekah without a doubt. A 20 nt started as project inside google, where a few of us got together, thinking through how we could make a difference in this space. Now we are outside of google, they are a partner, but we are not inside google, alongside bbc, nasdaq, and bloomberg. We are going to be voting that partnership and the Exponent Alliance in the coming months. Everyone is coming to the table to really help lift one another up. This is not really a new conversation, its been going on a long time. Do you have are new to making progress on this front . Rebekah i do. As a business person, i know firsthand gender equity is a business imperative. Fortune 500 companies with at least three female directors have a return on equity at at least 50 . Is, thesey of it numbers, these data points have been telling us the same information for a long time even i think there has been a renewed sense of urgency to actually Pay Attention and take action. I do have a lot of hope that we that all to be sure areas and ways that people are disenfranchised will be moving toward progress, and people are coming together in such a positive way. We have to, frankly. Vonnie our thanks to rebekah dopp, exponent founder and chair. Stay tuned for covered from the bloomberg equality event, race, money, and wall street. Tv, onll be on bloomberg your bloomberg terminal, and bloomberg. Com. Coming up, survival of the sweetest. How a clean food company rose during the pandemic. We will speak to the ceo next. This is bloomberg. Vonnie this is bloomberg markets. Im vonnie quinn. Alongside amanda lang in toronto. Pandemic ravages Small Businesses, owners are finding ways to adapt. Our next guest is an example. Loren brill is the founder of sweet lorens. She joins us now. Talk about the difficulty of this year. I know that you are in thousands of retailers including grocery stores. You obviously have to ramp up production fast. Then a pandemic comes along. What happens to your business in that scenario . Loren thank you for having us. Our sales have actually increased. As we know, people have been relying on food found in supermarkets. We had to double down, have extra communication with our manufacturers, make sure we had backup suppliers, making sure that we could handle the increased demand. Thankfully, im proud to say, there was only a twoweek window during this time that we could not fulfill orders 100 . We have been able to keep retailers and customers happy, we have always kept extra inventory on hand. As a small company, we have always been planning for expansion. Amanda you are also innovating cookiesse singleserve here. Is that a big market, how much does that speak to covid life versus what made extend beyond the pandemic . Loren yes, we Just Announced that today, a singleserve edible publixdough cup, in all and online, something that we can ship to your home. People are looking for convenience, singleserve, something they can eat on the go. In this time, people are just extra stressed. A lot of homes, kids are not at school or camp. There is homeschooling happening. With busy homes, it is great for families to keep snacks like that where it is singleserve come easy for their kids, families, friends to grab and snack. Thise i hate to put it way, but you may have been one of the lucky ones because your products are the types of products that you can stockpile. Suppliers . S to your where did you come up against obstacles, where did you have to pay more to keep your employees food suppliers that you are using, to keep them in business . Loren absolutely. The fact that we are produced in the u. S. Kept us extra safe because we could keep an eye on production. Food is considered an essential business, so thankfully, we felt lucky and protected in that sense. Hit, wend that covid were very proactive. Munication with our manufacturers, making sure we had backups to our backup suppliers. Thankfully, because we were able to forecast our business and gave a heads up to our suppliers, we were able to use the same suppliers, not run out of ingredients, we were able to get our packaging ordered and arriving on time. It was extra stress on our team to work overtime, to make sure they were forecasting appropriately, that there was extra to munication happening. There are a lot of larger food businesses where you plan on justintime inventory. Saw ak those businesses lot of empty shelves because they could not keep up with demand. Because we are smaller, we can be more nimble. We have always carried extra inventory vonnie we are out of time. That is the ceo of sweet lorens, loren brill. 2 00 p. M. In new york, 7 00 p. M. In london. Theres an uncertain outlook, investors search as lawmakers make little progress on a support package. Shares plummet with disappointing earnings. A better week for the u. S. Labor market. Applications for Unemployment Benefits unexpectedly fall. The lowest since the pandemic began. Of oneh straight week million plus americans filing for unemployment. Revenue estimated to fall by theythan one third as report secondquarter results later today. Why gains in food delivery arent expected to outweigh the drastic drop in ridesharing. Romaine breaking