Crisis. 1000point days were multiplied all week this week for joining me right now to discuss the chaotic week for the markets is the Hudson Institute director for chinese strategy michael pillsbury. Always good to see a thank you mr. Entrance arch for joining us. We talk about markets in the comic backed up coming up with Robert Kaplan but let me first get your take on the coronavirus and i your in touch with the administration. Tell us about the u. S. s response to the coronavirus and what President Trumps focus on now. President trump responses been to offer help to president xi, he has not accepted. He did permit the World Health Organization to send a team at their access was restricted. And now the who in geneva admitted yesterday that key data they need about how healthcare workers are infected, means of transmission, have not been provided by china. This is not something that is evil or mean, its part of chinas overall strategy that weve seen the last three years they are basically the leader of the world now. They claim they are fighting protectionism and given a model on how to handle the coronavirus in their own conduct. Its really quite breathtaking that they want to say we have defeated the coronavirus, and now we are willing to help other countries. Theyre kind of magnanimous about it. We want to help other countries, even though they basically secretly hold back Key Information that we need. Maria but this is impacting the u. S. In a very severe way. You are seeing supply disruptions, things like medicine, the active ingredients in certain medicines like penicillin and antibiotics are all manufactured in china. And now we can get those things indicating to me, or suggesting to me that this thing gets worse for america. One thing Common People not understood including myself, is the degree to which we are dependent on china. Not only pharmaceuticals, it was revealed by the Defense Department at President Trumps insistence, three years ago, many of our basic Weapon System or most advanced Weapon System are dependent on chinese parts. The supply chain for military Technology Goes back to china. So our dependence on china, we are beginning to understand better through the corona virus crisis, that this is not some sort of distant country thats 10000 miles away. They are deeply embedded in us. I found out recently to my surprise, the chinese cdc that detects epidemics and decides what to do about it, recreated it back in the 1980s under president reagan. He has been personally involved in creating an training chinese cdc. See you can imagine the disappointment of americans who thought china was good be our best friend, g2 idea and all the sudden its not that way at all. They want to be g1 and not have us want us to be the second power. Maria they want to be the numberone superpower it militarily, economically, all the above. It is incredible to me that our weapons components are made in china. That is just extraordinary. Between that and the active ingredients in pharmaceuticals, how soon before American Companies can actually change that Manufacturing Base and manufacture those important things in america . I think President Trump blew the whistle on this to use the phrase, back in 2017. Ive heard him say this many times. If hillary had been elected, china would surpass america during her term. Its not going to happen on my watch, he says. So you will notice, the respect he has for chinas growth rate, and chinas economic power. He is not one of the china collapse or segment of asia members at all. The chinese respect him in part because he recognized how far the competition has gone and how much china is pulling ahead. This is a key thing to understand President Trumps policy and their they have for him to see through their own stories. That is chinas week and we are get a collapse. The chinese themselves say this. They dont stratton say where the most powerful country. They say they have so many weaknesses, dont buy the appraisal had about china. President trump saw through that the chinese respect important. Maria thats unbelievable in the meantime china has its own strategy here at sound people to go back to work even as people are still dying of the coronavirus. Thats right i think their gdp growth rate is sacred to them its extremely important. Even if it drops a little bit below six, they still want to have second, third, Fourth Quarter quarter this year be up 6 . The other thing i think you know, maria, is there a need for capital. They have set over the next few years theyre going to need as much is 3 trillion in foreign direct investment, their own equities on our exchanges. Their need for capital is a norm is to make this finally happen where they can be number one. Seven american started sounding the alarm and senator rubio is one of them, that we provide too much easy capital in china. No accounting safeguards on their equities in our markets. Our Retirement Funds going to buy shares in Chinese Companies that engage in surveillance or South China Sea dredging. We are just beginning to wake up. Maria we are looking and impact on the market that has been severe and i know that 900 billion in corporate debt is due to roll over this year. Thats a risk to the leverage loan market and Robert Kaplan is good join us to talk about that. Michael pillsbury, thanks for joining us this weekend. Dont go anywhere Robert Kaplan is next. Earning on that eclair. Dont touch it dont touch it yet let me get the big one. This one . No this one . Yes no. The big one theyre all the same size with freedom unlimited, youre always earning. Let me get them all. 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In fact the two year also fell below 1 as investors look for safe there a jsa for options. During the outbreak they brought treasuries and the elders way down. Joining me right now to discuss that in the backdrop in terms of the economy right now its Dallas Federal Reserve president and ceo, Robert Kaplan. Its a great to see a thing for joining us. Weve been talking about a lot about the supply issues here given the corona virus and the worries about the supply chain hitting earnings. You also say its a demand issue. Talk to us about how this is involved in the last couple of weeks. So for most companies i talked to, and im talking to a wide range of contacts to understand what they are saying, many of them are managing supply chain issues with china and obviously those will create challenges for them. But i think the big issue they are trying to come to grips with his movie on that now. They want to they want to know the demand effect of the coronavirus how might it weaken demand in the United States. Obviously were seeing some impact in the travel industry on demand, certainly in the Energy Business and most countries im talking to her moving there thinking towards to assess the demand and its very uncertain its how many diagnosed cases, how long this could go on for, thats what companies are wrestling with. Maria he really see that surely with apple. I realize its an outlier here but not only does apple protas everything in china but they also count on the demand side of the story for the growth projections Going Forward so apple is the face of what youre talking about, but the other companies within the s p 500 has a significant exposure on both sides of the aisle. Supply and demand. Thats right, for most companies in the United States, their logistics and supply chain arrangements with mexico are as or more significant. But yes, the part they are struggling to get their arms around is what will their customer demand be, how much of a slowdown. They are already assuming this will affect the first half of the year, what theyre trying to understand is how persistent will this be will extend beyond that . Maria thats why you have companies coming out saying were not expecting any earning growth in these s p 500 should this thing worsen. What kind of effect are you expecting to have on growth the United States . Its probably too soon to put a number on gdp before the coronavirus we were expecting growth as much as two or two and a quarter percent or more in the United States. This obviously will throw a severe wrench into that. But we thought the Growth Potential of this economy was in that range. And so the issue is, how long does this occur . How much damage is done to demand . What happens to financial conditions . And therefore how persistent, beyond the first half is the impact on growth. And i think thats it were trying to come to grips with and our contacts are trying to come to grips with. So i would not even put a number on gdp growth for the rest of the year because there are too many variables here at this point. Maria you talk to me this week when you join me on mornings with maria on credit spread. And you are going to be watching credit. Tell me about that it whats most important . So obviously theres the selloff in Financial Assets. But in particular what i look at his cost and availability of credit to businesses. Going into this, we had very robust financial conditions. Elevated asset value by any historical standards but also relatively tight credit spreads and good availability of capital. That may be tested in here and there has been somewhat widening, not material for weaker credits but i am watching a very carefully. Because what i am always concerned about is you get a more severe tightening, which in turn would lead to a slowing in the economy. Maria at that important issue because so far credit has been readily available. So has that changed . Theres something about a cycle that is a vicious cycle once Financial Assets start dropping in value. Yes, the good news is the Banking Sector is in much better shape than it was during the great recession. Got tough Capital Requirements and stress testing. The more concerning news is corporates are much more leveraged today than they were in the financial crisis. Theres been a big jump and triple debt. I think it should be manageable, but we have to understand if business turns down for some companies, because they are more leveraged than they were youll have a higher percentage of cash flow needing to go to debt service. That could create some further slowing. Maria Robert Kaplan stay with me im and ask what everybodys lengths to now will the Federal Reserve cut Interest Rate in the next couple of months . Robert kaplan, stay with us, click break well be right back. 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Com [ fastpaced drumming ] maria and i am back with the president and ceo of the Dallas Federal Reserve, Robert Kaplan. Weve been talked about the impact of coronavirus we are fully expecting Growth Numbers to come way down given the impact of the supply chain, the demand situation as youve been saying. Interest rates have been move towards rockbottom levels. We sow it happen with a ten year end the twoyear this week. What does that tell you . It tells me primarily there has been a big flight to quality when people sell Financial Assets around the world at the topic of the list and places to go as the Treasury Curve. And we are seeing that all along the curve and is not surprising. So its hard to make a many more judgments about the Treasury Curve other than people are in a risk off mode and their flooding into treasuries. And i would say thats the primary driver right now. Maria is not indicative of a recession on the horizon . I think some people are saying if there is a more severe slowdown than they expect, and they want to hedge it one of the places theyre hedging it is buying the Treasury Curve so there are some of that also. People are concerned about future growth and for some of them they are parking in treasuries as a place to weather the storm. Maria s office of the last time we spoke we were talking about a very strong backdrop we were talking about an Unemployment Rate that was it a 50 year low, we were talking about wages going up and the Federal Reserve being on hold. Is the fed still on hold over the Federal Reserve have to cut Interest Rates now . What i have said over the last number of months is we are on hold unless i see a material for me a Material Change in the outlook. Obviously my comments this morning are indicative that i am carefully monitoring this and i think the probabilities for me of the Material Change in outlook are increasing, the question im asking is this transitory or more persistent . But im getting more concerned about it. So i will be going into the march ethyl and c meeting prepared if i see a Material Change in the outlook, i will go into the meeting prepared to take some action. Maria in that meeting just a couple weeks away. Theres also speculation a cut in Interest Rates is not going to do much frankly. Here we are looking at Interest Rates at rockbottom levels. How much lower can you go . Are there other tools in your toolbox you could be discussing an environment where you need to stimulate better rate cut is not necessarily gonna cut it . I agree Monetary Policy has a role to play. But i think this is a time where broader economic policies and structural policies will also have a role. How we handle the containment, the public communication, all the things you would normally expect when youre managing a healthcare crisis and fiscal policy and other options will be another option. Monetary policy is not the bl and ill bet it does have a role to play and thats my mindset is i go into the march meeting. Maria s are going into the march meeting youre going to be prepared to make a move should you see a change in the broader backdrop. What is it that it be to make you decide that . What metrics are most important to then . At this point the thing about this situation, the data is not all that useful because its a backward looking. A lot of it is backward even before the coronavirus escalated. So this is where discussions with ceos, discussion with contacts, trying to assess whats actually happening on the ground with businesses, with consumer, those are major factors and that is why i am extensively conducting those discussions right now. Maria whats more important to consider, the chinese economy and all the Economic Activity is now come to a standstill . You dont have flights going inandout have businesses closed down, or the idea that europe is still sort of bumbling along. Earlier in the week i spoke to one analyst is said is expecting recession in italy, france, and germany. How does that affect the United States and whats most important terms of the global story . Certainly when lower level growth common some extent will spill over to the United States. The question is how much is it spillover . In the bigger issue for me is what is going on in the ground and the United States with this virus, how are businesses reacting . How are consumers reacting what is the demand impact and that is going to be the key and that is the key i am actively looking at. Maria has received Economic Conditions slowdown or worsen how everyone to say it, do you believe Interest Rate cut would help that . Would that provide stimulus . I think historically Monetary Policy in these situation where you have a shock and you think its going to be persistent, something this going to affect the outlook nuc a tightening of financial conditions along with that, i think Monetary Policy has a policy to play. Its not the beall and all, but its got a key role to play among other policies. Maria you have been lessening the Balance Sheet, selling securities. But is it time now its time to tighten up . What about the Balance Sheet moves and other moves in terms of stimulation away from a cut . We sow it happened a negative Interest Rates in europe, that was not good. You have seen since the end of september we have actually grown the Balance Sheet in order to deal with the overnight lending situation, the repo market. It has been buying bills and dealing on the short end of the curve. In the future, among our tools are Interest Rate and among our tools are also using our Balance Sheet and buying securities farther out along the curve. That is always a tool that weve got at our suppose all. Maria Robert Kaplan albeit pleasure to talk to you thanks for explaining it all to us. Robert kaplan is a ceo and president of the Dallas Federal Reserve. Dont go anywhere, more wall street right after this. Oh, hi, samantha. You look more like a heather. Do you ever get that . Its nice to finally meet you in person. Youre pete nocchio . Oh, the pic . That was actually a professional headshot. Im sure thats it, yeah. I, uh, i think ive lost a few pounds recently too. Im actually doing a juice cleanse. Wait you dont. glass breaking gasp ah oh. with geico, the savings keep on going. Just like this sequel. 15 minutes could save you 15 or more on Car Insurance. The business of hard work. Hustle. And high fives. 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