Abramowicz. A special edition of bloomberg surveillance. What is the title of this program . Market chaos. We are going to do two things. We wrap around the date of where we are now in terms of assets. Of course, good conversation. Jon ferro, start framing with us. We will start with the price action. Huge moves in the equity markets. The biggest oneday drop that we have seen going back to december of 2008. S p 500 futures continue to roll over in the hour or so after that. In the bond market, you know all about it. Treasury yields settle down, coming down basis points. A monster move in crude. Sunday evening, lower on brent by as much as 31 . Lisa, this is the one i know you have been watching. Debt,opin highyield that is the biggest drop going back to 2009. Lisa when you look at past market routs, they always say that credit leads. A canary in the coal mine. This time, it was not. Some people think it is at the epicenter of what is to, with companies that are heavily indebted getting punished even more. This chart. John come i want you to continue the data check. It is like down 10,000. It is a 1 negative yield. The 10 year in white anti twoyear creators today. I know we will talk to michael and others about this, but that is a real benchmark. No shortage of bigname guests on bloomberg tv and radio weighing in with some advice. Do not buy this dip. This is not going to repair itself. It will start a recession and the Second Quarter of this year. A whatever it takes policy approach from the fed. They are going to throw some touch throw so much liquidity. Out butwill sort itself will not sort itself out before some further damage unfortunately. Jonathan the lineup over the next 60 minutes or so. Catching up with kathy would. Front and center for many people, the Commodity Markets and the impact. Tom it is not just one thing. It is a combination of the virus, the crisis, everything rolled together. Different. That much i dont agree at all with this idea that it is like 2008. Jonathan lets bring in bob from jp morgan. We have heard those parallels again and again to 2008. The magnitude of the move, how striking is that been for you . I think the reason everyone goes back to 2008, 2009 is because we have had the longest expansion on record. It has risen to a near certainty. Nd markets are struggling the last few months, they were not expecting this. They were expecting a nice recovery on the heels of a it tells you we were on the right track. Jonathan im sure you have dealt with this question many times. Is this it . The one, the end of the bull market . Yes. 2009, thereoint in was always expectations that the central bank would ride to the rescue. Because that yield is what bob michael and other quotas other pros quote on the seat on the street. I think we need a petition for the audience getting ready for the asian open. Market youe credit are watching more than anything. We have not lisa seen price moves like this since the Financial Market and beyond. I am looking at these prices not just for high yields, but also for bbb rated bonds. How close are we to a credit crisis . I dont think we are quite there yet. The energy complex, 11 to 12 of the highyield market. Athink what you are seeing is repricing based on expectation that when a recession comes, the fault the default rates go up. Lisa a lot of people have argued that the structure has changed for the better. Now we are seeing huge price moves in the stock. We are going to see massive outflows. Equipped is the market to handle this . Going toink we are find out that it is not as well equipped as it used to be. They have shrunk their inventories, they have been forced to accumulate capital and raise capital. The balancehave sheet space. Tom i was looking at the news on the virus. , 47 basisomberg points. Thatthink it is something is underappreciated right now. Among a professional audience, i think they get it. What has really taken a grip of the market is shortterm risk. In the bond market, it is about paying the principal, paying the interest. In the commodity market, it is about clearing physical supply and demand right here on spot. Equity is just in the back seat for the ride. Bob what is amazing to me is we did not from any of the Central Banks today. Bloombergp the financial. When they cut rates, it drives their thinking it is dramatically tighter. It. The markets dont like tom this is so important. Standard deviations. A plunge, a soup of financial industries. Why didnt we hear from the central bank . Are frustratedey that last weeks rate cut did not have the impact. I think there was frustration that there was nothing ecbdinated from the fed and or g7. I think they are wondering what they will do next. Do they have another cut . Do they do something with the ecb . How did they get liquidity in the system . Jonathan lets start with the fed. 50 basis points next meeting in the fed. Another 50 after that. Are we looking for 100 basis points in two months . Bob if not all hundred on the 18th. Point where there is more quarantine and an economy shut down, that has to be the response while they wait for the fiscal side. Tom i think what is so important for the different audiences. Global wall street, people who are very sophisticated, and people tuning in who want to know what is going on. We are a fully employed america, at least that is what i have heard. We are Interest Rates down to the bone. We are approaching negative Interest Rates. None of this is in anybodys textbooks. How did we get to this point of theories and Market Action by central bankers and others that is not in the textbooks . Bob because for the last several years, Central Banks have been the only game in town. You have been unable to get something out of the fiscal side. Realizeid not even 54. 46 on the vix. Since 2009. T level it went from the loosest conditions on record the tightest since 2009. We have moved from getting an extra yield to getting your money back. Do you actually expect these companies to not be able to pay back in the shortterm . Bob i think we are hearing that from our equity and credit analysts, that small and Midsized Enterprises are starting to feel the struggle. We know what is coming, we know conferences, we know what has happened to suppliers. There is a recession coming. You will see default rates going up. That is what the market is now trying to price in. Ago, everyone might be such might not be such a big deal. Jonathan lets go to washington, d. C. Josh, your thoughts on what is happening in washington and how close we are to a policy response. Josh we seem closer today than the last few weeks. President trump returning from florida. He has been striking the same tone, more of a dont worry approach. Today, when he came back, there was a scheduled meeting with his economic advisers, fiscal proposals to intervene that might take the sting out of this. Someportation, airlines, Small Businesses. Tryingow, they have been to talk this down and avoid a panic. Larry kudlow last friday, he made a good point and i was encouraged by it. Ideated as years, a clear over what the threshold is to act and deploy those targeted measures. What are we waiting for . What wants to know. Donald trump has staked his reelection on the economy. This hurts him. Tom what is the agenda for tomorrow morning . A long discussion with the present the president . Josh the president will be a little less sanguine. It depends what happens out of this meeting tonight. Chart,want to bring up a from Yale University years ago. Of red circle, the lows 1942. Optimistic view here on equities, reverting to the mean. I know we are supposed to have correction, para markets are predictable. How big of an opportunity is this . Bob i think you can be patient and wait a while. I remember the 1987 stock crash. There is time. A lot of damage has been done. You are getting an economic shock. The policy responses, how long it takes to get them. The kind of policy response that would be the Circuit Breaker right now. Early on in the program, you sent this might the end of the bull market. Bob i think you need a combination of monetary and fiscal. The fed should go to zero, the ecb should cut rates 10 basis points. They should do targeted longterm repo operations. Number three, the fed should think about expanding its balance sheet. On the fiscal side, you need to see programs come out immediately to get operating cash to Small Businesses. By the time you see the data, it is too late and the Small Businesses will have been forced to lay people off. There is a coordinated effort, fiscal and monetary, will it be a vshaped market, or is this going to be a longerlasting issue . Bob you put in a bottom here. To me, this is crazy. There is a big difference. Minorshaped is just a market event. Every recession has been ushap ed or we all would not be here. This is about assessing the damage, trying to figure out, is this a threemonth, sixmonth, or ninemonth event . Is tradeweighted swiss franc. Know, 2015, a stronger swiss franc. We are back to that point of tension. Which is the indicator that you look at as we go into asia tomorrow and then to the new york open . Bob i thought this was a particularly see close today went equities sold off. Did rally, which is starting to tell me that investors think treasuries will not be a hedge foray risk off environment. Lot. , yen has rallied a jonathan are we seriously sitting here and saying that the treasury market has lost its risk mitigating characteristics after a move like that . I think it has. I dont think anyone will come in here and be selling over the near term. They will joyride this with the fed down to zero. But i think the expectation that you can buy enough u. S. Government bonds to offset either in equity market decline or a selloff in credit, or a selloff in referral government bonds is fading. Jonathan this will be a topic of conversation today and tomorrow as well. On move, cruise down by 26 brent. A similar move on wti as well. Fantastic to catch up with you. You said it to me last week. There is a real risk that this alliance breaks down. What next . A pricenk we are in for and production war between russia and saudi arabia. The real target here is china. Both russia and saudi arabia scrambling to see who can sell more crude at cheaper prices to the chinese. Down, weis all went its that china was cutting orders from saudi arabia but we did not hear anything about orders from russia. Tom i am going to get a chart up here on the history of oil. Your knowledge of energy history, you think of dan and all that. What is different now versus other oil plunges. What is different this time . That was basically a decision by saudi arabia that they would no longer play the swing producer and they would start increasing prices. For quite some time, they have been cutting their own production in hopes that it would lift the price of oil. It is not altogether dissimilar now. A really good comparison, what 20142015, when prices really dipped because they decided to overproduce. The difference this time is that we are not sure that there is the demand to handle all that were oil. We are starting to hear that buyers in singapore and other asian areas are interested in aramcos low oil prices. But that is not an indication that they are ready for quite the amount of oil that will be put on the market. Inflationadjusted saudi oil. It goes back to before nixon. Persian gulf war, the yellow circle in the middle. We rollover again, inflationadjusted. Risk u. S. Energy independents . I dont think we were independent to start. I do think we are going to see problems in the areas that do produce a lot of american oil. We saw that today. It was really a bloodbath with a lot of Oil Companies losing a lot of their value. I think that we have to remember one thing. The value is really in the oil asset. Whether that is produced now, tomorrow, in five years, it is still there. We will have people willing to purchase those assets and produce them. Guesses, are we back to that again . Back to now, we are estimates. Who has got 20, who has got below 20 a barrel . Tom i thought we cleared out troubled energy. Lisa you are wrong. Right now, we are seeing a complete wave. There is the feeling that the u. S. Is going to suffer disproportionately. Just how substantial could it be . Will we see half the companies go bankrupt in the next six months . A lot of the selloff was due to a panic lori fear over the socalled oil more. But when you go and look at the fundamentals in terms of oil being put on the market, we are only talking about an extra 600,000 Barrels Per Day right now. That is less oil than came off the market in january because of libya. Tom why did the market dropped so much if we are dealing with that small of a unit set of oil . We are looking at a panic situation. Everyone got freaked out that suddenly russia and saudi arabia would be at each others throats. The fact that saudi arabia made it look like such a strong reaction i think has scared markets. I would not be surprised if we start to see some recovery. Tom thank you very much. Lets do a data check here. Special edition of bloomberg surveillance. Thrilled you are with us this afternoon. Really good conversation to come. Germanoking at those 1 to year yield. What is the data point you saw . Jonathan just looking at what is happening with crude and highyield credit. Down 7. 6 at the close. December 2008. You are in all cash. All cash for the past few years. Switch up the board. Lets get to the bond market. Here is your big bid into treasuries. For me comedy relationship between what happened with crude and what happened with the treasury market is really important. The collapse of the opec alliance speaks more broadly to two points of tension. Thefact that it is fueling reassessment of default risks. That is why you see today, and i made this point earlier, inequity is about hopes and dreams in the future. In the near term right now, in the commodity market, to clear Raw Materials is about physical demand and supply. Right now, it doesnt matter what you think things will be like in 12 months. It brings forward the credit question as well. Am i going to get paid . If you want to take a look at the scope of debt, this comes at a time of pressure overall, and a time of weakness when you have a lot of buyers stepping away. The jp morgan on desk . The way this works in the real world is you end up on your desk. Are we still vulnerable to where different investment houses and major banks have stuff on their desks that they have to mark to market into friday, into the close, etc. . I think it is. It is certainly in a lot of portfolios, in a lot of dealer positions. There is a lot going on with energy bonds. It is also the volume in the investmentgrade space is about twice the size of the highyield space. About,ng we did not talk an obvious comparison to past drops. This drop is a headwind for Economic Growth in the u. S. Because of all of the investment into shale and oil. Assumees bruce just inflation or disinflation . I dont know where you will get inflation from in this environment . Lisa this paints a pretty brutal picture, raises the question of active management. This is the day for tom can we play a bar game . Bring this up right now. For 13 have been here hours. Seriously . Tom this is a bar game. Drinks . Ere are the where are the dots . I will buy then drinks. Lisa joining us to talk about tesla, kathy wood. When i introduced you, i was thinking, you have outperform so many act managers. There is a question of how much is skill and how much is luck. Yourday like today, given fundamental research, do you say, this is just going to be about luck, or do you start looking around and saying, it is time to buy . During periods gain market s. Salesforce. Coms worst quarter, up 20 revenue. Amazons worst quarter in that near depression was of 14 . So, we believe that the disruptive innovators in our portfolio will gain more traction in this tumultuous period. Buying tech names in particular . Cathie consolidating. Tech is permeating every sector. We think it is blurring the lines within and among sectors. We are buying in the genomic space, the robotic space. Lisa buying the vaccine, basically . Cathie very interestingly, the coronavirus was sequenced in two days. It took five months to sequenced in 2003. Virus this new wave of genomics will gain traction. From genomics to, i am afraid to go out. This is a tech company that moves cardboard boxes. It is called amazon. What i find remarkable, it has had a horrific bear market year. Sicklyhe innovation of a amazon right now in terms of this crisis. Certainly, online. People do not want to go to a run for their money, so that is yet another. Lets wrap things up with another conversation ive had a million times. Companies that are not even 10 years old, do you worry about that . Some people get behind the story with no real concern about the for the impact downturn. We would use it as an opportunity. The key to the research is caustic line in technology and prices will fall as well, so these products and services are going to be an deflationarye wellbeing. Im very curious about all this talk of innovation, do you know everyday you will buy 37 stocks . We will be trading around , so we buy low and. Ell high we get you some price action as we wrap things up and push forward. This monday, we wrap things up. Just a massive bid into staff ofs a tender 0. 5 , down 22 basis points on the session and the bond market outside of that getting really dicey. How easy is it in the last 24 hours . Of think it would have been easy to get out of the treasury market. I think that is some of the things we saw last night. If you looked at what was going on in canada this morning, there were no offers. There was no offer in a 30 years future contract overnight. Whys that . No one wanted to be sure the markets were [inaudible] thehis is no longer treasury serve as a hedge because we will ride them down to 0 yields and then what . Walk us through what that means. Overthink it has been easy the last few weeks as we go down 2. 5 to say government bonds will go up to offset enough of where is occurring and now it does not feel like theres enough room in treasuries or you have to buy we arey and now even seeing credit and equities inequities. They were thrilled you are with us, the markets closing ugly, just nobid at the back in and. We can give you them together and that is a really cool thing and it goes back to the heritage of the crisis. Stephen is at the charter bank. Of the Currency Pairs we dont speak of and the holistic economics as well. Moment inreally magic history. We were expected more action. We expect at the baseline 25 and 25. It is clear the market is much more aggressive right now stop i think the feds problem is having used up 50 basis points and not having done much. There are better ways they can convey that. The market is already pricing it in. Everything is already flattened to nothing. Now, looking at futures a full. At 0 rates by what happens if we dont do this . My guess is very few of them think the fed cutting down to zero it is going to actually fix the problem and some of the bond the senserisk free in that if there were policies put in place that would restore confidence, there would not be credit issues or they could be mitigated, that would back off and the fed would not have to ease that much, the question is could they do it. I dont believe it is going to work. He said something fascinating, he said look at everything of developed market right now, look at where the expected policy rate is and i said quite nicely around each other, why is that so critical right now . It tells you the weight of money that is out there. It tells you the demographic of retirees, tells you that Central Bank Balance sheet creates its own bond buying and that money will come in and weigh on top of the yield curve of everything on market and keep it flat to official rate. Just a law of money up, we have to go to the heritage charter and develop the economys as well. Everyone who has studied this knows that it is something we dont see coming that has to do with emerging markets. Which ones are you studying so closely . I think that one, relations go to and why they are all increasing. Really enough, asia seems to and theyof the u. S. Got hit both in their numbers , not sharplyt ugly better, but slightly better. How do you transport weaker and weaker . Or you an isolated event pull that into the greater view . Traditionally, it is a very high data currency, but one thing we have had which is the yields have come down. When it was a highyield, it at 12 and now it has that a while ago, the buffer of saying there is a risk and return, even brazilians are saying there is a risk, they travel to other domestic assets. What is the euro doing question mark at first doing . There is some evidence. You can find that the days that the market favors in the em are selling off in the euro seems to and vicebetter earlier versa. I think what the market is telling us is we are Walking Around last year saying yield differentials are going to be 300 in our grandchildren. Forget about the grandchildren. A are not going to go back. There is a larger story which is where are the currencies . We saw the yen overnight absolutely surge to astronomical levels about what that means for japan and potential intervention, but it does raise the question and bob to your point, where are the havens . The dollar to be when we see this shakeout in return to the greenbacks . Against a be dollar lot of currencies. Michael is taking over the program. We like gold as well and i beyondill be long later tonight to talk about it. We noted a couple weeks ago, we looked at episodes where the s p and there were no surprises. On the other side, you sell all these aussie. A i think it is behaving like safe haven. Theres a element that japanese authorities are reluctant to push back because they know there is a trade bullseye on the back so they cannot respond the way it would have in the past. As long as this is the world we are living in. It flows out of asia into treasuries. What does that look like . There have been tremendous flows into the u. S. On market out of negative yield markets, out of euro and out of the yen market and that has been sustained for quite some time. Recently, there has been little. Nterest it is not a coincidence to me that where we had seen historically the biggest flows into the u. S. Bond market from japan and europe, suddenly those currencies are doing well. I think there is some repatriation going on and i wonder if there is not the fiscal yearend in japan. Theres also a call of a mass unwind of leverage trade. Movee looking the biggest of the dollaryen since 1998. I would love your sense of what we are seeing. What we looking at . This is not like it happened at 6 00 p. M. New york time, it happened in asia was flush, everybody was in the market. I think there is an issue, etf information is very broadly quickly disseminated. Andyone is on the same side you could call it liquidity, but also say it is hyper marketed. If you are on the wrong side, it is brutal. It is not as if it bounced back and forth they seem to be comfortable with one or two. These are circumstances, i will let the market. Great to see you. Would you take my bloomberg and put it up on the screen . This is what we talk about when rates closing quickly. Down here is when we had the spread going up to about 250 basis points. This is are we where we are right now and it happened really quickly, rate differentials have closed. The other story, aggressive timing of rate differentials we have seen. Do you expect a little bit more of this . I expect a lot. I think the action you are likely to see is less about rate cut and more about policy levels. It is not just this rate differential we should be looking at, we should also be italy. At it versus it is telling everyone i not stepping in here, it is making a policy air. Once of jamie dimon about macro credential. It is not really in the media. Relationshiporst that has most of bob michaels attention . I think it is about trying to understand what a policy response will look like. We walk in this morning with the northern part of italy shut off with the rest of the world. Can kind of policy response and should you have . Headline hereer that they are basically shutting italy down. That viruses at some point in . , no onet to the clear on this program is a doctor. We are not trying to get our head around longevity and nothing that is why there is a lot of confusion around their. Walk me through tomorrow. Your message declines going through. I dont think the market will be down, but the underlying problem continues to be the if youshock, so even take the premise that viruses do demand is going to be destroyed, how much demand decline or were going to have in the interim in what is the impact or how quickly will it come back and right now we have no idea. Im told we see some type of response from federal officials in particular. It is going to be very difficult for investors to jump into this market. Moves fix is at 54, data in almost 20 , so even if the market is going through and earning feel basis, it is still pivotal to get involved. I want to go to the idea of do what it takes type of response. Lets say we get a coordinated response overnight. You expect markets to rebound tomorrow . The details would be pivotal. That thew signals federal government will do what , anything, some type of tax with, that is the real issue here. Decent, whenetty everyone is talking about recession. Question, this is something Everyone Wants to know. I guess it would technically be in a to quarter decline. [notly appreciate it audio] rate to have you on the program. Just said this is the one, your thoughts . I think we will listen with great interest and i think there are some things we need to sort out, first of all we will need to see some progress, cant wait to see that, i think markets will continue to be volatile. I think what we are seeing is asset markets being able to price in and not knowing where the bond is and not knowing what kind of economic blow off we will see. I think the third thing we need , we need to see better cooperation and collaboration among policymakers. Crisis has been about monetary policy, but i think we need to see more than that. There is a wall of money out there and the underpinning of enthusiasm, is that still there . I think there is a lot. If we look at the way their clients have reacted throughout lowerarket, weve had participation and there has been once wen defense that see signs of civilization, you start to put this to put to work. People talk about the systems in the containment measures we are still seeing. Theres also the concept of a financial shock in given the unwind, howof an much are we going to see a financial shock in the economic downturn . I think there are three elements here, certain level here because Certain Services you simply cant recapture, and there iswages part of demand that is deferred and we know they will prevent manufacturing and another element is in terms of exasperating that in financial conditions and this is why we need to see more of a policy response. Lead todition could exasperating the economic fallout. As we go into the close, i want to show this chart. What we are living. Eisenhower on the left and down we go. This is something economist will get. I have never seen that chart. How many times along the continuum have who said rates it on and and they dont. The thin im looking at is breaking rates. Plummetedabsolutely to their low and since the financial crisis to 1 . That means 1 implied inflation over the next 10 years, it is not matter if the Federal Reserve cuts rates, that is the implication. I want to give you a flavor of what has happened with highyield. Is a triple be credit and were going to get away from this ugly screen. That is a triple be credit and this is what has happened over the last week. 130 ins trading around the middle of february and i want to give you a flavor of what is happening with the yield. Lets just but this up to give people a better understanding of what the yield has done. Translate what we just observed. Translate the emotion of that. The emotion is that there is not a next rotation that things will be worked out, that the under aector, it will, lot of pressure and everyone would rather exit been hold and restructure. Is that opportunistic for the big money that has been waiting come of you expect to see consolidation . That is a prime downgrade. Lower price, that is what she has learned. Just to give you an idea, the to . 21 pers 18 dollar. I dont want to let that go. That it wouldng become a problem. Is this that moment we are seeing the sector side to tied the energy that would lead to a downgrade in the universe . Recession overa the next couple of quarters, you will not service the debt and these companies will be downgraded and the high gilt market is not big enough to observe it. What are you going to tell them . About enjoyclients money . I think the first thing is, keep your cool. It has been the longest expansion on record. We were due for some sort of contraction and slowdown. We are seeing that what happen with prices are what happened in the past. We to see what the policy responses are both on the monetary side in the make your decision. Do you know anyone who enjoys losing money, anybody . Regret. S a room of the policy response thursday, what are you looking for . Im looking for them to go tomorrow or wednesday. I expect it tend basis point rate cut than to double the size and expect them to do targeted operation. Right . S monday, bob michael at jpmorgan, lets get you through the trading diary. We will be watching the next u. S. E of days, six more States Holding democratic primaries as well and we get ups ppi. A decision coming up thursday, i am jonathan ferro. Lets close things down as you look at the markets worldwide and markets down hard at the close. In just a moment, looking ahead, hoping to hear from the white house to get a briefing on the hour onrus in the next bloomberg tv and bloomberg radio. This was a bloomberg special. This is bloomberg tv. Good morning oh no, here comes the neighbor probably to brag about how amazing his Xfinity Customer Service is. Im mike, im so busy. Good thing xfinity has twohour appointment windows. They have night and weekend appointments too. Hes here. Bill . Karolyn . Nope no, just a couple of rocks. Download the my account app to manage your appointments making todays Xfinity Customer Service simple, easy, awesome. Ill pass. Welcome to Bloomberg Markets asia. I am paul allen in city sydney. Here are the top stories we are covering. The market rolls on as the coronavirus as, conditions set for a perfect storm for asia entering their territory. Demand for crude falls