In demand for oil. Francine it is amazing. F you look at the price he was gloomy and said this was serious. Interesting is that all of his modeling shows there will not be enough Storage Capacity because demand will fall so much. It is based on every country not cheating. If a country needs to balance its books you might open the taps a little bit even if the price of oil is low because you need the export revenue, but that may make things worse. I think thats what he was trying to convey to us. Tom no question about that with oil. Jonathan ferro was talking yesterday about the global contraction in oil. In new york city here is viviana. Report on the impact of coronavirus on the oil market. This year oil demand will plunge by a record of 9 . The executive Director Director on surveillance moments ago. This will for efforts by the opecplus coalition to contain the rush of crude. Shrink byill almost a third. Toald trump halting payments the World Health Organization, he blames them for taking chinese claims about the coronavirus at face value. He says they failed to share information about the virus. The United Nations says now is not the time to reduce the agencys resources. For theary lifeline u. S. Airlines, they have reached a deal with the Treasury Department to get billions of dollars in aid while they wait for travel restrictions to ease. The federal government is requiring the airlines to repay the assistance at low interest. In germany for the sixth day in a row the number of new coronavirus cases falling. A little more than 2100 new infections, the lowest increase. Germany is likely to extend nation what nationwide lockdown measures. Global news 24 hours a day on air and on quicktake on twitter powered by more than 2700 journalists and analysts in over 120 countries. I am viviana our toddler. This is blue i am viviana, this is bloomberg. A reversal off huge moves in the market yesterday. Maybe not as big down as we were nevertheless the twoyear yield is stunning coming in at under 2 . I am looking at oil dropping below 20. The dollars are jumping. There was a great story on the saying theerminal euro might be the unlikely retreating and a lot has to do with earnings. Samsung rep as they come in fast, trying to figure out what the next six months will bring. To get awaytrying from the punditry and talk to worldclass experts during this pandemic and this crisis within this great contraction. Yesterday we heard on extremely individual looking at equities as the only alternative for assets. He is looking for higher equity prices. We go to the source of theories that howard lives by, that would be william priest of epoch investments, writing the definitive book on cash flow. Bill priest, we are thrilled you could join us. Does your book work now . Does your formula works, does your belief in equities work if we see buybacks go lower or drift away . Is a littleks, it more complicated. If you think about it, the value of any company is a function of its ability to generate cash flow. To get that cash flow we look at two planes, actual cash taxes and planned Capital Expenditures. We dont distinguish between maid mary capex an expansionary capex. Maintenance and expansionary capex. There are only five things you can do with the cash flow, pay a cash dividend, repurchase stock, pay down debt, make an acquisition, or invest internally. If you cannot reinvest at a rate above your cost of capital you should return capital to owners. Then you have cash dividends, cash buybacks, or debt payouts. Be suspended for the most part and you are looking for cash yields. There you have to wonder what the outflow for cash is because we know share buybacks will come down a lot. Thereividend yields, and is a future to determine what expectations are, but that is expected to be substantially lower this year than last year. Principle of companies that generate Free Cash Flow and have the wisdom and management skills to allocated between returning capital or reinvesting capital, that has never changed. With cashcularly flow, you mentioned it earlier, with Capital Expenditures what is the elasticity of a crosssection of sectors to sharply reduce capex to defend an ample cash flow . There are two things going on. The difference between this but between this crisis and 08, 08 was a monetary crisis. Largelyout of nowhere generated in the financial sector. This is different. We put our economy in a coma, this is a self induced coma that we have engineered to fight the effects of this virus. We will have to wait and see what the final story looks like. You could argue that the reaction has been necessary, but it has killed the economy. There is the saying speed kills, it is not true, it is the sudden stop that kills. There has been a sudden stop to the economy then we had this horrific situation with unemployment. Capex will be a lot lower. There is another systemic thing going on with capex and what is happening, we are substituting bits for adams. By substituting technology for labor and technology for physical assets like accent mortar it changes the components return on equity. Technologybstitute for labor and hold my revenues constant my margins go up and if i can substitute technology for physical assets my sales per dollar assets go up. Isry firm on the planet trying to create a capital like business. They are substituting technology in the form of this for the need for capex spending is going down and not of other things equal. Bill, sorry to jump in, but how Many Companies will go bust . If you are suspending or putting the economy in a coma, not everyone will be saved. There will be company that goes bust companies that go because we are so global and interconnected. Bigger the company safer you are, providing you have not gone out a you will have a lot of failures in small businesses. If you look at the plans the government has put into place when you look at the system, we ccf, theand slp, the only thing we are running out of his capital letters. We have the Paycheck Protection Program lending facility, the primary and Second Market Corporate Credit facility, mutual liquidity, all of those things are massive. It is a massive infusion of support. The danger is i am not sure what it does to capitalism as we know it. Is modern monetary theory merging ofere is a fiscal policy and Monetary Policy here. We dont know what the outcome will be, howard marks made a comment about saving jump bonds junk bonds and how that was the wrong thing to do. Capitalism requires failure. A famous economist had this concept of creative destruction. We need to have creative destruction. What about the companies that are bailed out and there loans are guaranteed . Are we putting too much of a burden on fiscal and Monetary Policy, can we pay for it in 10 years . I am not saying its a bad thing because we need to take care of the economy and people dying, but what does it mean for Financial Markets longerterm . Bill thats a great question and i wish i had a good answer. When you invite the government to be your partner it is unclear how you disinvited the government from being your partner and we will learn that over the next several years. We can look at japan as a model, it is not a perfect model. Japan started to buy sovereign bonds they bought a little bit than a lot. Japanese days when the sovereign bonds does not trade and there are a lot of sovereign bonds out there. Etfs. N they are buying for the Capital Markets to work they have to allow for failure. It is all about constantly reorganizing yourself as the challenges come along. To we are going to have leave it there. , it is suggest this book a failure if you are part of wall street and you do not read bill priest. We are going to come back with bill priest and the top with him further. I want to drive your attention to an interview on cash. We will talk about his positioning right now in cash. Cash is good, cash is trash . Im not sure. This is bloomberg. Tom good morning. Francine lacqua in london and tom keene in new york. A fired up bill priest with us. , faangget right to it stocks has done well and amazon has done well. How do you use your cash flow analysis across microsoft, apple, amazon and the rest . The Biggest Holding in our bonds is microsoft by far. Its the single Biggest Holding of the firm and they benefit from two things. The cloud is continuing to expand and they are a major ander along with amazon aws we think that will continue. For physical labor nothing will stop that. You have to wonder who the beneficiaries are. Amazon. Facebook and google to some extent, they have other issues. Amazon and microsoft are big beneficiaries. Profitability of amazon is understated. When you look at amazon, they have just begun to break out aws which is their cloud service. Ofy have reached five years public data for aws. , ands been around longer it would be interesting to see what would happen if they took aws public. Theink aws is worth half price of the stock today so it would be interesting. I dont think they would do it, theit is interesting that value of aws independent of the Online Business, i think the Online Business will benefit tremendously from one is going on. It will be tremendous. Ableusiness that has been to benefit from Online Business will be in better shape after this. Francine bill, i was going to whether all of these normal market functions that have been halted will start again once the economy is open or is it just lost. Are there companies that could have ipo door spun off that will off thatod or spun will not . Bill i do not know. It will be tough to get an ipo going. I have been doing this a long time, 50 years, at the end of every one of these markets there is a bit of craziness that goes on. It had to do with the unicorn valuations. Valuations, there was a lot of phoniness. Every single round was about the last round which is kind of interesting if the implication is business is Getting Better and better but that was not the truth. Many previous round did not have. Think of it as having a put option in round three that the first guy did not have. Incrementse little added to the value of the round but not necessarily to the underlying value of the company. It went to the particular shareholder. If you have seven or eight rounds in a private company it is like playing poker when you havent figured out who the sucker is after an hour or two, in that case the sucker is you. Francine well said. Bill priest there with a great analogy. Coming up, if roundup of oil spoke f toaith this is bloomberg. I am instructing my administration to halt funding of the World Health Organization while they review is conducted to assess the World Health Organizations role in severely mismanaging and covering up the spread of the coronavirus. The president of the United States shocking the medical community, pulling away 22 of funding for the who. The question is can he do that. Stephanie is giving us a perspective, she is in charge of looking at the executive branch and his relationship with the legislative branch. The simple question is, can the president actually affected this the funding or can Congress Rise to the occasion and say no . Stephanie that is the question whether or not he has the Legal Authority to halt funding to the who which is mandated by congress. When this will. Ake effect or how long House Democrats are decrying the move because he lacks the Legal Authority. The question is does he take the funds that were congressionally mandated and redirect them to Something Else with the same purpose, in other words to another body . To congresso back and ask for the funding to be rescinded. We dont know how he is going to go about doing this so that remains to be seen. Very quickly, does china fill the vacuum. Do they come in with the lack of a go global president and fill the diplomatic vacuum . Stephanie this move has been criticized around the world from Public Health experts. China has fought back on this and many are saying that it does actually feed into chinas narrative and that this gives china the upper hand and they can perhaps step in and provide additional funding where the u. S. Has withdrawn. It is counterproductive. There are legitimate questions to be asked about the whos handling of the outbreak and there are legitimate questions about whether or not china under cases. Now is not the time to cut off funding for a global body trying to coordinate response. That is crucially helping with testing efforts like places in in places like africa or the middle east where the virus could continue being could end up being a continuous outbreak. Donor tois the largest the who, cutting off funding could cripple the organization if other nations like china dont step up. Francine Stephanie Baker looking at the trump administration. We speak to the assistant professor of emergency medicine at Johns Hopkins. You doing okay . Yeah. This moving thing never gets any easier. Well, xfinity makes moving super easy. I can transfer my internet and tv service in about a minute. Wow, that is easy. Almost as easy as having those guys help you move. We are those guys. Thats you . The truck adds 10 pounds. In the arms. Okay. Transfer your Service Online in a few easy steps. Now thats simple, easy, awesome. Transfer your service in minutes, making moving with xfinity a breeze. Visit xfinity. Com moving today. Francine you are watching bloomberg surveillance. Viviana republicans are ramping up efforts to pay china as the villain in the coronavirus pandemic. The Trump Campaign sending out an email accusing china of lying about the outbreak. A republican senator introducing a bill that could make china liable for simple claims on the virus, donald trump off funding to the who claiming they took chinese claims on the virus at face value. Airlines need passengers to come back and travel restrictions to end. They will access billions in government aid. Pres. Trump this agreement will support Airline Industry workers and preserve the role they play in our economy and protect taxpayers. Airlines are in good shape. Will repay that federal assistance at low interest. If shares rebound that would give it an upside. The International Monetary fund is urging members to avoid making a depression era mistakes. The imf warning against rationing back budget deficits when the pandemic abates. In the u. K. They are responding to claims that some of the elderly have been neglected in the coronavirus crisis. British elderly are cared for in small privately run homes, they are among the most vulnerable to the virus. Global news 24 hours a global news 24 hours a day on air and on quicktake on twitter powered by more than 2700 journalists and analysts in over this istries. Bloomberg. Thank you. What we try to do every day during every hour of bloomberg is to give you coverage in this pandemic into the medicine and epidemiology of this prices. Hopkinsauer is a Johns University school of medicine expert. She joins us for in upstate. Lauren as you see it from your work in the hospital in altimore, is there finally cresting of cases and a cresting of hospitalizations, a cresting in deaths . It is too early to say, we are seeing a slowdown, we have not peaked the curve yet but we are seeing slowdowns in volume. All the more reason to protect those measures in place like social distancing to ensure that the volumes do not spike right back up so we can go back to normal. Go back to normal. Tom thats what i see as well. Much of that is done on a moving average where professionals like me and nonprofessionals like and the president of the United States have to use a number of days, weeks, or months blended together to see the ebb. What is the appropriate length gauge . For you to lauren i think it is changing every day and we are learning more about the virus. The key is not to make assumptions too early. The minimum to start to understand the data. You want to look at it to weeks out. We are several months before we can go back to go towards nning told reopened towards planning to reopen. Francine how quickly will we get a vaccination against the pandemic . Lauren there are good candidates coming up. Estimates from between three and 12 months which is unbelievable for vaccine science. This exciting to see all progress being made. Realistically i think a vaccine that is ready to go out to the general public is a year away. We could be seeing candidates that are used to protect frontline workers and health care workers. Francine what is the biggest challenge now . Some questions about asymptomatic cases, until you find out more it is difficult to get a handle on them. Also immunity, how close are we to understanding whether people that had it can go back safely to work . Lauren there is a lot of work being done on the immunity question. Because we are so early in the outbreak we have to wait to see how people them you respond to stay over time and when people are ready to go back to work without having symptoms. The biggest challenge is testing. We are trying to ramp up testing in a meaningful way and that is what every single other Public Health measures to be able to travel and reduce mask use. Very quickly tom what is the constraint on getting more testing done . Supply issue of a and a lot a coordination issue. Making sure the tests are in the right place and people have the ability to test all the people they need to. That you have the people to run the test. So much. En, thank you this has been hugely beneficial. Lauren from Johns Hopkins university and the emergency medicine emerging medicine science. ,e will do analysis on banks doing that with jp morgan and wells fargo. That will come up momentarily. Us, from london and new york this is bloomberg. Good morning everyone, bloomberg surveillance. Tom keene in new york and Francine Lacqua in london. Spending some time looking at the real crisis in bank earnings. , what a stunning statistic that was. Credit changes as well. Onto wells fargo and our conversation with their cfo yesterday, a pretty grim picture and now we move ordered. Bank of america in moments. On from cfra research. How did jp morgan and wells fargo adjust the prism of how you will look at the other too big to fail banks . Credit riskft is to and provisions to reserve. Jp morgan 6. 8 billion, now the reserve is 10 billion. Wells fargo has 3. 1. This was pencil on paper really in march. We have not seen the full impact from the coronavirus. It is likely we will see increased reserves in the Second Quarter and a disappointing return on capital. Reserves are being increased on the consumer side. We have distressed industries. The largest one is commercial real estate, construction. ,e all know about airlines hospitality, and other areas affected by consumer spending. Tom how is bank of america doing . Arethey competing retail, they competing in other areas or are they showing excellence . Americas share price is down steeper than the rest of its peer group. For have a broad base community and Consumer Banking along with corporate. Bank of america from a capital perspective is still very strong. For bank of america the dividend is safe as it is for other banks. Conversationious bank of america is mostly on america first, most of its revenues are in north america. Something that struck me that jamie dimon said on the get thes we can help country through this. We are adults that know that if the economy gets worse it will bear additional loss. Is there anyone in the banking world that cannot handle the conditions we will get . Banks areix largest safe. When you move down to regional banks, anyone with a concentration in oil and gas could be at risk. What jamie is saying is that they are going to make all their lines of credit available for corporate. For consumers there is a forbearance in terms of mortgages. This is striking, jamie was asked during the financial crisis bear stearns, so it is a little different now and there is a question of the rebound of the 2021, wheres say in they can make back or gain a bigger share of the wallet of banking when we have a stronger economy again. One of the know things in the market yesterday was when wells fargo did not give a forecast. Will that mean more banks will anunder pressure to produce outlook of what they see as worstcase and best Case Scenarios . Any bank today could forecast net interest bankruptcy at 60 to 7 rates, it is not going to move that much other than volume. It is what we have been talking about with lending and other areas like leasing. Those areas are difficult to call. Bank will bek any called out because they did not provide guidance. Where we are when we talk in july will be more interesting in terms of whether we are in a shaped economy, or some different shape later. The bank of america earnings outlook. Off thelines right iphone here on the bloomberg terminal. The key statistic is 4. 7 6 billion in what they would call provision for credit loss. A lot of other First Quarter beats as well. 2. 6 7 billion versus 2. 52. Earnings clearly coming in after that provision through credit losses. Net interest data, little higher than expected. We will see other earnings come out as well. N, we see the provision for credit losses, is it your sense that these banks are being to threeive and one years out they will put that back at the profit line . Ken i think their work is not done. The credit committees have two or three weeks to load this up, but i think they have more work to do in april. We think the biggest risk is commercial real estate and construction. For bank of america it is about loans,total commercial it is about 26 . We have not had any conversation or focus on the Capital Markets. Investmentg for grade, not by yield, it is strong. There trading is strong are some marked down for derivatives. Investment banking will have to have that conversation in three plus months. Our chief financial correspondent is with us. Let us start with a banking 101 question. In north america how do you perceive the difference between jp morgan and bank of america . Jp morgan has a behemoth Investment Bank and daytrading a daytrading desk many times larger than bank of america. I want to point out something that is not picked up. Consumer business fell short of expectations even though the trading revenue beat it. Creating a big Investment Bank but jp morgan is known for its work with the consumer. After a slight disappointment in the Fourth Quarter people were a rebound. They did have a tough quarter and we will see where they go from here when it comes to Mortgage Origination which they were doing more of before the coronavirus had hit. The numbers here are not fully reflecting the total Economic Impact since the shutdown started. It is the next quarter the one that counts . Even the jp morgan estimates were factoring in a 10 unemployment rate. They have provided estimates closer to 20 and even with a rebound towards the end of the year, we dont know what bank of america is factoring in when they have those provisions at almost 5 billion, that could tick higher. Where are they at commercial mortgages, where are they on home loans. Where are they with the rest of the consumer business . And seeto look at this their exposed sector specifically and see how the consumer business is going to play out for the rest of the year. There are new accounting rules that have banks that are required to recognize potential losses more quickly. Impact on numbers quicker than expected. Fargo took a provision of 3. 1, i think they had it in the accounting for acl allowances for credit losses. Total deposits, i number is better. 64 for the First Quarter. It was 65 10 years ago. For the other large banks it was under 100 two years ago and they are averaging in the range of 70 . What does that signal . Help us with the regionals. We will go through the nuances of Goldman Sachs and morgan stanley. Of can extrapolate the power these big banks over to the super regionals, can you . Ken the regionals are much more. Ensitive they dont have the capital one otherd they have point the card business is important. The downside is delinquencies for credit cards, but in terms of a growing economy that is a great place to grow. That draws the large banks on the consumer side. Even with the rebound, how cheap are the banks . Us is it super buy, is it buy . They are trading below discount net tangible values multiples. I think you have to look at the strength of the bank as long as the dividend is safe these could be in the second half of this year a great performing area if we use that cyclical stock, that is not going to be the focus of the market or strategists in till we see some recovery. These are great cyclical investments when we see a turn in the economy. What can you tell us about bank of america . They shifted about 3000 employees to small businesses. They have said they wont lay off people in 2020 because of covid19. Another 2000hired people in march. Something interesting about banks, with revenue under pressure, how do they keep costs in line when they have committed to not laying people off . What does that mean for next year and their ability to return capital. They said they would suspend buybacks among bigger banks. That does put that cost item under pressure, so where will they take out costs . From the Technology Fund may be but how do they remain competitive. Some areas even with the trading gain the gain in fixed income among half of the percentage gain jp morgan saw in fixed income trading. You area tough time going to want to see these banks tried to gain share among their big institutional clients when volumes are skyrocketing. That will be a market share question. We have jp morgan, wells fargo and we have bank of america, how are the others compared for this compared to this . In terms of the consumer side and the car business, they have great franchises around the world for consumers but they also have a late share in terms of working with corporate treasury, particularly in asia and global. Lowestving the percentage of net revenue coming from north america you will get more of a global picture. They also have the highest percentage of Net Interest Income to global revenue well over 70 , the others are 50 to 60. We may not see as high a provision for credit reserves for city. I know you will be the first person to fly on both Goldman Sachs private jets, what are you looking for today . They meet the jp morgan on that fixed income and Equities Trading revenue and how deep of a hit will they take in their investment portfolio at a time where they are trying to raise money to expand in private markets. Tom thank you. Thank you so much. Chief financial correspondent. Ken leon always timely as well. Me show it toet you here on bloomberg television. The hallmarks for me Early Morning were very simple, a lower yield particularly the twoyear yield under 2. 0 extraordinary with oil leading as well. Texas american oil down to 19. 20, that is truly extraordinary. Francine this is the International Energy agency. Record thising by a year despite historic Production Cut between opec plus that happened on sunday. The iea said consumption in april will fall by almost a third. Warning, a third of demand will be lost and that is the lowest level since 1995. Enderday we had a principal day agreement between treasury and airlines in the u. S. They jumped yesterday on the news of free market trade and are still gaining. Bloombergis great story, an angle i had not thought about. It is the u. K. Pound. Given what we saw and the pressure it has had because of brexit, they basically argue that the pound may turn into this unlikely winner because of the troubles europe has in dealing with the virus. Very good, francine, thank you so much. Much more coming up. I want to bring your attention to an important essay. He will join us here on Bloomberg Radio in a bit. Being forward to that as well. It is a day of bank earnings. Stay with us worldwide. This is bloomberg. Because you cant get to the theater, were bringing the theater home to you, with xfinity movie premiere. Theres a world full of other trolls. How different can they be . Our brandnew service that lets you watch all the latest movie releases from the comfort of home. Trolls world tour available now. I will protect you no matter what, pinky promise. Just say xfinity movie premiere into your voice remote to bring the theater to you. Alix sexy risk backseat for risk. Glutea warns of an oil overwhelming storage. Loan loss provisions bite big banks. Goldman sachs and citi now on deck. And a rout in retail sales. We get the latest read on the u. S. Consumer. Welcome to bloomberg daybreak on this wednesday, april 15. Im alix steel. It is definitely risk off. A big part of that is oil, as the iea issued a terrible demand forecast. S p futures around the low of the session. Money moving into the dollar as the safe haven. Want to get right to the news of the morning
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