As coronavirus has spread across the globe markets have fallen sharply and entire industries have warned of imminent bankruptcy. Governments are trying to understand the potential scale of the economic fallout and how to mitigate it. FT experts discuss the policy options and the potential unintended consequences. #covid #pandemic #markets #coronavirus #covid19 #financialtimes #financialnews #ft #business
It’s wild for global markets for businesses to really get the memo about the corona virus outbreak but i think it’s safe to say they have fun now global markets have been in freefall the best parts of three weeks or more even and global business confidence is collapsed guys interview how bad of things is this competition right now i think it’s it’s terrible i think
That we’re seeing a situation where a large number of businesses including some quite large are going to go bust quite see this is really an emergency situation we’re up to act they need to ask you know central banks and slightly later governments have really started pulling out all the stops to try and to try and rectify the situation right so central bank’s over
The weekend put together swap to try and enhance dollars around the global financial system the federal reserve in the space is absolutely throwing everything at this it’s cut rates twice it my money into the repo market its buying seven hundred billion dollars of bonds it made a very unusual step of coming in and making a big announcement right before markets
Opened on sunday night they’re doing everything here but can it work i mean robert from where you’re sitting in new york what’s the sense of how the fed can help him the sense is that the fed can help at best modest rate so they are essentially a creature of the financial system and at some point there’s only so much you can do by fixing the plumbing that’s work
The problem it’s activity so work so for exemple they’ve done a lot to support the banks most recently they cut the cost of overnight lending at what they call the feds discount window made that money very cheap and they’ve clear their throat loudly with the result that the large banks of old doodly walk dutifully walked up to this window and taken some money go
There’s a stigma involved and it is similar to 2008-2009 where you had tarp fights troubled asset relief program funds and none of the banks wanted to take them but then the authorities tapped their foot and jamie dimon and co shuffled up to the tarp window and took money similarly the banks are taking money now but the economic bottleneck is not at the level
Of the financial system it’s at the fact that for example new york city closed all its restaurants today most all its jews today people are going to get fired today and they were going to need money next week you can see a whole series of sections that are in deep deep trouble the epicenter of this is the travel industry because they also nany on capacity over
The winter period which they expect to recoup in terms of bookings from the spring but you can see qe which is a huge european for businesses in deep trouble lines around the world are going to go bust what they need is cash flow their cash flow is taking off that is what kills businesses so this is where the government provides systems central central banking
To indirect a means to provide assurance needed best way to judge how successful these central bank policies are whatever you did they’re not trying to support the equity market but nonetheless the scale of addict like that we’ve seen in stock markets since this massive package came from the fed on sunday has been really something to behold it closed about 12
Or 13 percent over on the sp on monday it’s really clear to me that investors just do not know what to do next there’s quite indiscriminate selling what going on at the bun but again it’s build-up concerns there’s going to be more shoes to drop here right there’s gonna be not just airlines and whatnot that get the substance some actual trouble but also a lot of
Funds they’re nursing extremely heavy losses at the moment some of them are not going to make it through this program process and a lot of them are having to sell liquid assets just i’d stay afloat in the short term and to meet redemptions and that’s something again we’re sort of stop the bleeding here i mean jonathan what’s going on on the fiscal front i know
France for example has announced a pretty heavy hitting package they had three hundred billion euros of loan guarantees and i think about one trillion overall of sitting around inside the european system and i think the thing that governments have to do they have to embrace it they have to forget my moral hazard which is the worry that if business is out that
They therefore take proper risk controls we already dealt with that a period of the financial crisis or where we forgot about moral hazard for banks i think you have to do it again employer lots of people i want to get the problems of the financial system we shouldn’t worry about it too much i personally i’m not going to share too many tears of some hedge funds
Go back to business as whether they carry they trade systemic risks systemic it should be pretty well contained one word which is a very high we’ve got four solely be stably follow this program it’s more chart showing you here the finance members in the world can have this for free royalty is required i think it’s showing really what the strategy proposed to be
Which is that the cash flows bitten for collapsing because they don’t have any much demand from customers you and you put her up you put reign guarantees in place though the banks commend them but very low red with underwriting date and when you do some sort of big demand stimulant when the corona part is attenuated hope from in three months or months time hopefully
Then you see at back through the system will naturally again that government support that’s a good point and in a way what a lot of people are talking about now is stimulus that’s coming from it’s not really it’s one thing that bothers me amongst many at the moment is that the experience so in china is that certain cities were was shut down for relatively short
Spaces of time and then they’re starting to try and get things back up and running what if in in the us and uk and across europe these shutdowns approve a lot longer it’s clear that governments struggling with the right model for how long people need to be kept indoors mean robert like culturally financially how long can americans stay indoors however well having
That homeschooling my own children for one day now i think two days is probably the absolute limit i’ve waited for you it’s gonna be anarchy in the armstrong house in the wider world well one one question is decisions have to get made about which workers are essential and under what conditions they will work you know so for example in the city of new york they
Are setting up special schools for the children of first responders if we’re stuck at home we need the internet we need water to keep running in the heat and the electricity and everything else the miracle of this call is made possible by workers some so who are the essential workers gonna be who’s gonna take care of them what are the measures for them and so who
Is in and who is out in terms of the work baby while the ambulatory workforce do you think function of months you know in america now is that this will be a short shutdown would you think that the word for something much longer now it’s a point to emphasize here how little we really know at this point we’re sort of staring into off the edge of precipice now so
For example american express had an investor call this morning and they said actually as a fraud energy spending was holding up patterns changing obviously dislocations but they think they’re q1 revenue will still grow a little bit but no one thinks that is gonna keep happening this week surely are waiting to see what the patterns of consumer behavior and business
Behavior are like now that it’s real or in high for example it’s the speed of this thing i mean you know we’ve gone levels on a lot of kind of metrics of stress in the high-yield bond markets but this is happen in a straight line in a way doesn’t really that we don’t really have any precedent for and it rests the confidence has you know just like super confidence
That you’re saying robert it’s just effectively falling off a cliff you can’t overstate the level of ignorance that we are operating under so i think we all fall into the trap of thinking that somebody’d out ever really knows what the coronavirus is gonna look like in a month nobody knows that somebody knows what thank stocks aren’t worth right now we’d like
To think actually nobody knows that that’s why they’re all that’s not showing you that banks are worth a third less than they were a month ago what it’s showing you is nobody has any idea so i think we have to be cautious about attributing too much information from markets what works is a market that’s struggling with really low information nobody knows what is
Going on and no one knows how much anything is worth anymore in markets what do you think of this idea that we should just shut them down i think it’s about absolutely terrible oh i know i know katie i know katie that you think we should do this but the problem there is a market which does sometimes happen and certainly it happens when the standard is that you
Can do a whole lot of things that you hope will improve iteration but when you reopen it’s pretty op fixable this is the jab do in a very much larger step but in but the bankers go through and they try to price as you know and they really know whether it’s going to go up or down when the market reopens been i think market star i can do have some bank and circuit
Breakers because i think they can hold intraday strong trading motion which also include ones where you got men following computer trading system but i think i need markets open to provide a feedback there’s all kinds of what they have a safety net and stimulus packages and you reopen and markets then that seems to me to be even more destruction destructive but
You dabbas have a different theory what is it well i have a different view from the point of view that it would really help my stress levels if i had a lot less idea has some merits and i think that the way we’re going at the moment the markets yes the circuit breakers are working but there are periods where the liquidity is so bad and moves in really important
Markets and so jerky that you just think are we going to get some sort of financial accidents layered on top of economic crisis lay it on top of a health crisis that would just make matters worse it is interesting that we’re marketing the philippines granted not one of the major global markets they have shut down there are short set and again are sort of different
That been instituted across europe of temporary periods i’m not sure it is definitely the right way to go i think that it is something that’s worth thinking about what do you think i think you have to weigh the benefits you described katy against the risk that having markets closed would cause a little bit i don’t panic but unrest since their people lost their
Economy the government has taken away their right to manage their retirement savings does they sue see fit but people are significantly anxious am i one of the few people left who remembers in person the closing of the banks in the 1930s and he had my mother march out to the atm the other day and take out of hell $100 bills and you don’t want the entire country
To turn into my father no i think that’s a good point we put a lot of ground here and we’re gonna have to wrap it up there robert ellis is really nice to talk to you i hope to see you in person at some point soon take care will happen like it or not
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Coronavirus: can we protect markets and companies? | FT By Financial Times