Markets moved to the downside, Morgan Stanley at the Economic Team out with a note in the last few hours, talking about some of the risks. Markets as youhe start to see this payrolls turned back negative. What that means for the Downside Risk for the market at valuations that are by some measures full at this point. Romaine lets bring jim polson back. Upay, you see the nasdaq 100 0. 8 . Snp down half a percent. Down 2 on the day. Smaller, midcap cyclical names, that has kind of disappeared. That some of these names could come back anytime soon . Jim i think that whenever we have jitters about the virus reemerging, that creating a slowdown in economic reopenings , we will get the kind of today we got today where the market itself, great leadership by what is perceived as defensive investments, which is the new communications, consumer discretionary, that has growth outside of reliance solely on the economy. But i think we are in a new economic recovery and new bull market. Ultimately, i think the economy is going to improve. If it does come i think you will see those Broader Market areas. This thing shaping up a lot like 2000 where it is just being led by a small handful of new era stocks. I dont think that is true. Archlook from the low on 23rd, 2000, the s p 500 is up around 40 . But the equally weighted s p 500 is up a little more than that and the russell 2000 is up 40 . Rally,r the pull of this we have had much broader leadership in what people give it credit for. The market has pulled back since he june 8 high, generated more fear, and led to more defensive outperformance. Broaderwe will see parts of this pick back up and take leadership again. Caroline we got a glimpse of that with labor data today with the jobless claims wending a little bit that are than expected. We wish we had you for longer. That does it for the closing bell. Whatd you miss . Is next, where we will be speaking with kim seymour about our company is tackling diversity. This is bloomberg. Taylor from bloomberg World Headquarters in new york, i am taylor riggs. Caroline i am caroline hyde. Romaine i am Romaine Bostick. This is whatd you miss . Caroline once again, technology in charge. Nasdaq up 0. 5 . Lowerp 500 dragged to once again by energy, by materials. Concerns about covid front and center. Tactical, trumps victory on the tax returns. Blocks Asupreme Court courts bid for access to records but also blocking a house bid for release. Still, it is a Bleak Outlook for banks. Jobless claims fell by the most in a month but they are still double the highest level during the last recession. Bankruptcies and planned layoffs. All of that and more coming up taylor, you can paint a picture of how much we are seeing yet further bankruptcies. Many announced after the bell. Taylor it is the charts and data that pain is picture the most. Corporate and cropsey tracker rising the highest since 2016. These are companies with reported liabilities of 100 million or more. At distresseding levels. It really is the universe of distressed bonds and the volume traded, the lowest since the march 23 peak but still generally on an uptrend. Ed, i have to say that i have a certain appreciation for the calculation of that z score because i had to do it to pass level two of the cfa. It is always great to have you on the program and get your thoughts particular around this market. What are some of the signals and calculations showing you about the levels of distress in the market . Ed the actual model that you are referring to, and i am sorry it give you nightmares when you are studying for the cfa. But that model is based on data from a few months ago. Beforeack to 2019, even covid became a crisis here, there were storm clouds on the horizon shown by the incredible increase in corporate it at that level. High ath stock prices that point, it was pointing toward a potential crisis situation, should there be a catalyst like covid19. Indeed, i dont know if you have one ofide i sent, but them does show that when that corporate level gets to a peak level, if it is followed by a recession, regardless of what the catalyst is, you will have a huge uptick in bankruptcies and defaults. That is what has happened in 2020, of course exacerbated by covid19. Romaine there has been some sense, as you start to look at the moving averages, does that provide comfort or does that provide concern given that moving average . Think it is some comfort that this is not only covid19 causing this crisis among large numbers of large firms in the United States which, by the way, the stock market is completely ignoring. I understand some of the reasons, and you have been talking about it on your shows, i am sure, on a continuous basis. But the fundamentals of some of the companies are really body crisis level. This will become clearer when the corporate earnings come out at the end of the Second Quarter for a large number of big companies. The increase in bankruptcies so us the feelinges that we are going to break all records for billiondollar bankruptcies by the end of this year. I can elaborate on those numbers. Caroline please do. What sort of level are we saying . What are you expecting . Now probably are billiondollar bankruptcies so far this year. If that continues at a similar rate the rest of the year, you are talking about around 65 or so by year end. The previous highest of these mega bankruptcies was 2009, when it was 49. So we will easily break that record. Thisis partially due to huge increase in highyield bonds, leverage loans of companies that are very large. And we have seen some very clear numbers about this and very wellknown companies, the most recent being brooks brothers. And a saw Neiman Marcus whole slew of energy companies. The 100 million or more bankruptcies, which are still large, but not as much, we will probably come in second place to 2009 with that number by the end of the year. I believe we would have had a large number, even without covid19, simply because of the huge debt levels and the fact that possible recession was out there, even though the likelihood of it happening was relatively low by year end 2019. But that is because we did not know what the catalyst would be. Covid19 is a huge catalyst. It could have been other things that caused some of these but certainly covid19 has increased it a lot. Taylor you know more than anyone that there is a difference between default rates and recovery rates, given rising defaults. What does that mean for recovery rates in the event of a bankruptcy . Edward so far, the numbers for corporate vons and the recovery rate and i am talking about the prices of these bonds just after default, around . 32 on the dollar. Historically, they average around . 46 on the dollar. This is for all types of maturities put together. Leverage loans, the recovery rates are higher, generally 6070 cents on the dollar. Now down also. Hugeeason is, with these amounts of new bankruptcies and defaults Company Supply and manned for securities as shifted much more towards a buyers market. That is why investors are somewhat pleased about what is going on, because they have been waiting for this delusion of new bankruptcies. And defaults. And what that means in terms of not only the recovery rates to the existing investors, creditors, but also what they have to pay to purchase these companies, many of which will be restructured well in chapter 11. Single now signaling a market for the distressed market and money is flowing into these funds at a fairly high rate at this point. Romaine we have had some of those distressed investors on. I wish you had more time. It is such a pleasure to get you on and get your thoughts here. Mosttman, one of the influential people in finance. Course, the inventor of that z score for tracking bankruptcies. Caroline always nice to remind us of taylors cfa. Romaine she never lets us forget. Caroline keeping us smart. Coming up, double downturns. Is the country ready for a fight against two recessions at the same time . This is bloomberg. In some ways, the program has been very successful. It has saved a lot of Small Businesses that otherwise would have failed. From a lot of that impact, it gets an a. From a fraud perspective, from the perspective of taxpayer money only being used in the way that the framers of this law originally intended, it is probably closer to a d. You have the likes of food cart vendors, carnegie hall, the guggenheim, libertarian groups, the church of scientology all applying to the same program. Should they all be given equal status . It is tricky. There were certain criteria for the program. Certain types of industries that were not supposed to receive funds. Hedge funds, lobbyist. Listoks at least from the they put out, that some of these companies that at least looked to be ineligible got funds. So that is a problem. But it also was supposed to go that companies that needed the money. Some of the recipients, we dont know their internal finances. It really seems unlikely that a law firm that pays its partners on the average of 2 million 3 million, 4 million for partner really needed these funds, and nonetheless took it. It looks as if it was not as evenly played as it shouldve been. Isif the spirit of the law to keep people employed, what is the problem with these companies and organizations taking money alongside food cart vendors and very Small Business owners who only higher one or two . If they dont qualify for the program, they violated the law by taking these funds. But number two, i think there is an ethical component to this. If a law firm or a Company Knows that they do not meet these funds. Our firm did not take any government money, we have not been laying people off, in part because we know that, we dont necessarily from an ethical perspective need the money. There is an ethical component. Then there is the ipod chrissy. These antigovernment antiquote unquote handout organizations, nonprofits, who go on and on about how people the government outelping people, finding that they are first in line with a tin cup out to take free money, it is pretty disgraceful. We did have several highprofile libertarian type organizations like the americans the institute, from santa ana, california, taking money. They did keep people employed. But, their reasoning was, the government shut us down, therefore this is reparations. Tell us why that is problematic. The federal government really did not shut down anything, did it . You hear that, it sounds like a bunch of malarkey. Does this mean that they are now supporting the idea that if the government takes away business, that they are always in favor of taking money. Theset shows you that nonprofits, what is the price to sell their soul and their beliefs . Toarently it is about 150 300,000. It is just greed and hypocrisy. Again, does it violate the program rule . No. But it really does call into question. Caroline keeping it real. Neil barofsky. Two economic downturns at the same time. One caused by fear of the coronavirus, then a longerterm slump that looks more like a traditional recession. Bloomberg opinion columnist noah smith, who has a very widely read report out on the bloomberg today, saying how we are battling two recessions, and talk to us initially about what the jobs report today paints for you . What we see is that unemployment is really going down quickly. When we adjust unemployment so we include people who are receiving a paycheck but not going into work, it is falling even more quickly. This suggests there have been a lot of employers that have workers either getting a paycheck or not getting a paycheck but intending to call them back as soon as they could. In some areas, the northeast and northwest, the virus is receding, workers are being called back into work. The south is currently in this giant new wave of coronavirus. When that goes away, we can expect a similar thing come or people who are temporarily laid off will be called back. That is the good news. The bad news is that Permanent Employment is still rising. Only atill maybe like few Percentage Points higher than it was before the crisis. But it is steadily rising. Businessn is because is closing and aggregate demand is tanking. There is this other recession gaining steam, sort of rising up to meet us even as the pandemicinduced temporary layoffs go away, others are coming to get us. Romaine i am curious about the permanency of some of this. As i walk around my own neighborhood, there several businesses that have shuttered for good. We were just plain footage of people working out in a gym. I wonder if Industries Like that, jims, concert venues, movie theaters, do they have the capacity to really bounce back to a level where they can operate profitably anytime soon . Not anytime soon. Whether it will ever happen, the answer is that we dont know. This pandemic has prompted a lot of people to figure out ways to do things at home or at a distance. That may stick. People are watching netflix on their tvs instead of going to movie theaters. They are working out at home instead of going to the gym the question is, once this is all done, will people say, it is really not worth the money to go back to the jims or the movie theaters. Shiftse kind of demand are reasons why we can expect the economic pain to be prolonged because those expect other businesses to close, others to open. In the meantime, Unemployed People are not buying things or contribute to aggregate demand. Taylor what is your analysis tell you about further stimulus that may be needed . Noah we absolutely will need more relief bill of the kind we have had to get us through this new wave of coronavirus. In the south, big southern and southwestern states, the virus is exploding. This will go on for at least a couple of months. Theill need a relief past july 31 expiration date. Beyond that, we will be facing a more traditional recession and we will need traditional remedies. Stimulus,des fiscal spending a bunch on science, bailing out the states. Those are kind of our biggest ticket items in addition to just your Standard Food stamps and whatnot so you dont have people rioting in the streets. Caroline Bloomberg Opinion columnist noah smith. Latestquick check of the is this flash headlines. Big job cuts on the way at wells fargo. Tens of thousands of positions may ultimately be eliminated. That theysts predict bank may post the first quarterly loss in a decade next week. Another firm is sounding doubts about apples prospects in the near term. Says wall street is being optimistic with the assumption of 20 sent year on year growth in the fourth quarter. Google has scrapped a key part of security growth. They say its subjected lack and latino workers to bias. Google encouraged staff to check in some staffers complained workersck and latinx had their badges checked more than other employees. Coming up, while Companies Across the globe voiced their support in the fight against racism, but more action is needed by corporate america. This is bloomberg. Its pretty inspiring the way families redefined the word school this year. Its why, at xfinity, were committed to helping kids keep learning through the summer. And help College Students studying at home stay connected through our university program. Were providing affordable Internet Access to low income families through our internet essentials program. And this summer, xfinity is creating a Virtual Summer camp for kids at home all on xfinity x1. Were committed to helping all families stay connected. Learn more at xfinity. Com education. Because now you can expewatch all your favorite hulu shows and movies on xfinity. Youre only a voice command away from Award Winning shows like the handmaids tale, to new hits like little fires everywhere. And fx originals you can only watch on hulu. Thats just the beginning of what you can experience with hulu on xfinity. Tv made simple, easy, awesome. Beentail investors have growing as a more significant part of the market for a number of years. Selfdirected individual investors and a lot of the empowerment that has happened has been a trend for a while. We also saw functions over the last few months. Retail,aid, in 2019, estimations r and we have a pretty good sense of how much retail comprises of the market, it was about an percent. Toward the end of last year, with the zero commission changes that started getting introduced, we did see the increase to about 15 . If you fastforward to this year, with a lot of the covid related volatility that we saw, we have definitely seen the increase more toward this 20 or on peak days closer to 25 . Some of that is obviously triggered by structural changes. Some of that triggered by some of the situations we have, so how much remains is still to be seen. Certainly we continue to see Retail Investors becoming a significant liquidity source in the marketplace. Is the lockdown trader still engaged with the market or have they gone elsewhere . It is still a little bit of both. We definitely continue to see engagement by retail. We will need more time to make a determination of how much of that is driven by current Market Conditions versus the more structural changes. But we have not seen a significant decline at this point. There is a perception in the market that retail traders are the dumb money chasing the smart money . Do you think that is antiquated . I think that has always been a little bit of a misnomer. Retail investors have a different investment horizon and different profile to their orders. Retail is clearly a significant force. But they are not going to be the ones that are solely able to drive valuation or market levels. You make money as spreads widen out and volumes go up. We saw those things happen a couple of months back. Were looking at markets and trying to work out where the next catalyst comes from. I am wondering whether you guys are anticipating that we do see another bout of volatility. Do you think we are done with the current situation, or do you think we go back to that kind of choppy market we saw a couple of. Onths ago my earliero back to comments, the theory around markets, pricing in current information, clearly the markets have been normalizing and taking a bit of a view that the outlook is positive. That said, i do think