Coronavirus: can we protect markets and companies? | FT

Coronavirus: can we protect markets and companies? | FT


So it took a while for global
markets and global businesses to really get the memo about
the coronavirus outbreak. But I think it’s safe to
say they have done now. Global markets have been in
freefall for the best part of three weeks or more even. And global business
confidence has collapsed. Guys, from your points of
view, how bad are things? Jonathan, what is business
confidence looking like now? I think it’s terrible. I think that we’re
seeing a situation where a large number of
businesses, including some quite large ones, are
going to go bust, quite soon. We’ll see very large
numbers of redundancies. And this is really an
emergency situation where government needs to act. And they need to act quite
strongly and quite powerfully in order to reassure people. I think it’s the
point when we’re witnessing quite clearly
who’s in charge in the world. And it isn’t powerful
entrepreneurs and people on Wall Street or in
the City of London. It’s politicians. But central banks
and slightly later governments have really started
pulling out all the stops to try and rectify
the situation, right? So central banks
over the weekend put together swap lines
to try and enhance dollars flowing around the
global financial system. The Federal Reserve
in the States has absolutely thrown
everything at this. It’s cut rates twice. It’s thrown money
into the repo market. It’s buying $700bn 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 here? The sense is that the Fed
can help at best, modestly. So they are
essentially a creature of the financial system. And at some point
there is only so much you can do by fixing
the plumbing, as it were. The problem is activity. So for example, they’ve done
a lot to support the banks. Most recently they cut the
cost of overnight lending of what they call the
Fed’s discount window. Made that money very cheap. And they’ve cleared their
throat loudly with the result that the large banks
have dutifully walked up to this window and
taken some money out. Because they don’t normally
like doing that, right? No, there’s a stigma involved. And it is similar
to 2008, 2009 where you had TARP funds, Troubled
Asset Relief Programme funds. And none of the banks
want 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, almost all its gyms today. People are going
to get fired today. And they are going to
need money next week. You can see a whole
series of sectors that are in deep, deep trouble. The epicentre of this
is the travel industry because they spend
an awful lot of money on capacity over the winter
period, which they expect to recoup in terms of
bookings from the springtime and onwards. You can see TUI, which is a
huge European travel business, is in deep trouble. Airlines around the world
are going to go bust. What they need is cash flow. Their cash flow is choking off. And that is what kills business. And so this is
where the government would provide assistance. Central banking is too indirect
a means to provide reassurance. What’s needed is very large
packages of loan guarantees. Markets are perhaps
not the best way to judge how successful these
central bank policies are from the point of view
that they’re not trying to support the equity market. But nonetheless, the
scale of the decline that we’ve seen in stock markets
since this massive package came from the Fed on Sunday has been
really something to behold. I think we closed about 12 or
13 per cent lower on the S&P on Monday. So it’s really clear to
me that investors just do not know what to do next. There’s quite indiscriminate
selling going on at the moment. And that, again, is
building up concerns. There’s going to be more
shoes to drop here, right? There’s going to be not
just airlines and whatnot that get themselves into
financial 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 process. And a lot of them are having to
sell liquid assets just trying to stay afloat in the short
term and to meet redemptions and that sort of thing. Again, we’re looking at what
can 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 have 300bn euros
of loan guarantees. And I think about 1tn
overall are floating around inside the European system. And I think this is
the type of thing that governments have to do. They have to embrace it. They have to forget about moral
hazard, which is the worry that if you bail businesses out,
that they, therefore, will not take proper risk controls. We already dealt with
that over the period of the financial crisis, where
we forgot about moral hazard for banks. I think we have to do it again
for ordinary businesses that employ lots of people. I always say the problem
isn’t the financial system. We shouldn’t worry
about them too much. I personally am not going
to shed too many tears if some hedge funds
go out of business. The question is
whether they carry, they create systemic risks. Systemic risks should be
pretty well contained, one would hope, because of
the very high capital buffers that we’ve got now. I have produced solely and
exclusively for this programme this small chart, which
I’m going to show you here. And the finance ministers of the
world can have this for free. There’s no royalties required. And I think it’s showing really
what the strategy is proposed to be, which is that the
cash flow in businesses are collapsing because
they don’t have any much demand from customers. You put loan guarantees
in place so that the banks can lend them at very low
risk with underwriting from the state. And when you do some sort
of big demand stimulus when coronavirus is attenuating,
hopefully in three months, four months’ time. Hopefully, then,
you see cash flowing back through the
system more naturally again without
government support. That’s a good point. In a way, what a lot of
people are talking about now is all the stimulus that’s
coming from central banks and from governments. It’s not really stimulus. These are crisis measures. These are mitigation methods. They always try
to fire things up. They’re just trying to
stop greater disaster and move quickly. I don’t think
demands, this isn’t the moment for demand stimulus. It’s no good trying to
persuade Americans or Britains to go out and go to
parties and go to cinemas and pubs and clubs and bars. Because it’s precisely
no longer the thing to do in terms of health. I think that stimulus, then,
needs to happen a lot later down the track. One thing that bothers me,
amongst many at the moment, is that the experience
we saw in China is that certain
cities were 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 the US and
the UK and across Europe these shutdowns
prove a lot longer? It’s clear that
governments are struggling with the right
model for how long people need to be kept indoors. I mean, Robert, like
culturally, financially, how long can Americans
stay indoors? How long can people hold out? Well, having been homeschooling
my own children for one day now, I think two days is
probably the absolute limit. At which point it’s going to
be anarchy in the Armstrong household, if not
in the wider world. Well, one question
is decisions have to get made about which
workers are essential and under what conditions
they will work. 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 and the heat and the electricity
and everything else. The miracle of this all is made
possible by workers somewhere. So who are the essential
workers going to be? Who’s going to
take care of them? What are the measures for them? And so, who is in? And who is out in
terms of the work – the mobile, the
ambulatory workforce? But do you think the
assumption amongst corporate America now is that this
will be a short shutdown? Or, do you think that the
world is waiting for something much longer now? I think it’s important to
emphasise here how little we really know at this point. We’re staring into, off the
edge of a precipice now. So, for example,
American Express had an investor
call this morning. And they said, actually,
as of Friday, spending was holding up. Patterns were changing. Obviously, there was
some dislocations. But they think their Q1 revenue
will still grow a little bit. But no one thinks that is going
to keep happening this week. So actually, we are waiting
to see what the patterns of consumer behaviour and
business behaviour are like now that it’s real. It’s not just the
scale of the decline that we’ve seen in stock
markets or in high-yield bonds, for example. It’s the speed of this thing. I mean, we’ve gone back to
’08 levels on a lot of metrics of stress in the
high-yield bond markets. But this has happened
in a straight line in a way that doesn’t
really, that we don’t really have any precedent for. And investor confidence has,
just like consumer confidence, like you were saying,
Robert, has just effectively fallen off a cliff. You can’t overstate
the level of ignorance that we are all operating under. So I think we all
fall into the trap of thinking that
somebody out there really knows what
the coronavirus is going to look like in a month. Nobody knows that. Somebody knows what bank
stocks are worth right now, we’d like to think. Actually, nobody knows that. That’s why they’re
off the curve. 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 we have to be cautious
about attributing too much information from markets. What we’re seeing
now is a market that’s struggling with
really low information. So given that nobody knows
what on Earth 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 an
absolutely terrible idea. And I know, Katie, that you
think we should do this. But the problem of closing
markets, which does sometimes happen – and
certainly it happens quite a lot with individual
stocks when they are suspended – is that you can do
a whole lot of things that you hope will
improve the situation. But when you reopen it’s
pretty unpredictable. This is the jeopardy in
a very much larger sense that investment
bankers go through when they try to price an IPO. And they really don’t
know whether it’s going to go up or down when
the market reopens again. I think as long as
markets don’t, kind of do have some faith
in circuit breakers, because I think they can
halt intraday strong trading notions that also
include the ones where you’ve got momentum following
computer trading systems. But I think, overall,
you need markets open to provide a
feedback mechanism. If you close markets,
and then governments produce all kinds
of what they hope are safety net and
stimulus packages. Then you reopen. And the markets crater. And that seems to me to
be even more destructive than leaving them open and
putting up with the volatility. But you doubtless
have a different view. 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 to do. But I do think I do
have 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 liquidity is so bad and moves in really
important markets are so jerky that
you just think, are we going to get some sort
of financial accident, layered on top of an economic
crisis, layered on top of a health crisis that
would just make matters worse? It is interesting that we’ve had
the markets in the Philippines – granted, not one of
the major global markets – they’ve shut down. There are short selling
bans – but again, that’s sort of different – that have
been instituted across Europe for 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. Robert, what do you think? I think you have to weigh the
benefits you just described, Katie, against the risk
that having markets closed would cause a little
bit of, I don’t want to say panic, but unrest. And it’s that people
have lost their economy. The government has
taken away their right to manage their
retirement savings as they see fit could make
people significantly anxious. My father is one of
the few people left who remembers, in
person, the closing of the banks in the 1930s. And he had my mother march
up to the ATM the other day and take out a pile of
hundred dollar bills. And you don’t want the entire
country to turn into my father. No, I think that’s a good point. We’ve covered a
lot of ground here. And we’re going to have
to wrap it up there. But, Robert, Jonathan,
really nice to talk to you. I hope to see you in
person at some point soon. Take care. It will happen, Katie,
whether we like it or not.

26 Comments on "Coronavirus: can we protect markets and companies? | FT"


  1. Those businesses are amateurs. They lost to media and news that gives free articles and videos yet still grows or survive. They need to learn a thing or two from the news industry.

    Reply

  2. "Çeşitli zamanlarda, insanlığı idare için Allah tarafından gönderildiği iddia olunan bütün semavî kitapları büyük bir dikkatle inceledimse de tahrif olundukları için hiçbirisinde aradığım hikmet ve tam isabeti göremedim. Bu kanunlar değil bir toplum, bir ev halkının saadetini bile temin edecek özellikten uzaktır. Lâkin Muhammedîlerin Kur'an'ı, istisna… Ben Kur'an'ı her yönüyle inceledim, her kelimesinde büyük hikmetler gördüm. Muhammedîlerin düşmanları, bu kitabı Hz.Muhammed (s.a.v)'in yazdığını iddia ediyorlarsa da, en mükemmel, hattâ en mütekâmil (Olgun) bir akıldan böyle bir harikanın çıkacağını iddia etmek, hakikatlere göz kapayarak kin ve garaza âlet olmak manasını ifade eder. Ben şunu iddia ediyorum ki; Hz.Muhammed (s.a.v) mümtaz (Seçkin) bir kuvvettir. Böyle ikinci bir vücudun tekrar dünya'ya gelmesi ihtimalden uzaktır." (Otto von Bismarck – Alman Devlet Adamı – Modern Almanyanın kurucusu)

    Reply

  3. Jonathan Guthrie please reduce the audio level on your microphone before you next use Skype. That should prevent the sound distortion.

    Reply

  4. I refuse to watch this..
    This is why.
    Because when paying for water is still a problem with no immediate relief what so ever.
    🤑 💧 ☹
    The basic needs of life and sanitation needs have been ripped apart by conglamorates, massive corruption and shady business owners.
    Truth! 🧐
    In
    Michigan
    USA (L.L.C)

    Reply

  5. Governments cannot guarantee cash flow, if people don't fly or go to restaurants then business has no cash flow. Loan guarantees can only provide short term support.

    Reply

  6. They're diluting their currency. Why would we want to have to pay huge interest rates on taxes and inflation that will be out of control. All to save businesses that will not do anything for people. Why would we even waste our time?

    Reply

  7. I lost 4000 euros in past 1 month now.. and I'm wondering what to do.. If after all this the global economy takes a more sustainable, more ecological path, more local.. then of course it would be the best result ever, but I'd loose all this money I was saving for years for my new apartment and things.. hmm.. :/ and this was just 1 month…

    Reply

  8. lolololol……..and lo and behold. ….the FT is lockstep in line with the Tory government worrying about the financial system before the serfs. Question…..what is a lamestream media outlet like the FT even doing on YouTube in the first place? Answer…..it's is actually YouTube itself promoting as many tired, old mainstream media outlets as it can for reasons most dubious, but contrary to the spirit of the social media platform's origins.

    Reply

  9. No. This ridiculous when we cant get money into the hands of working lower and middle class families. The paid leave passed by Congress does not cover 80% of workers.

    Reply

  10. We are in 2020 already, still can't believe that FT will publish videos with audio as bad as this.

    Reply

  11. Great stuff, you should publish 3 videos per day. Much needed analysis, dialog and exchange of perceptions on #Covi19 impact. Also, please suggest to people to use better microphones (avoid default mic from laptops)

    Reply

  12. Thank you for watching FT Video. We apologise for the poor audio quality and hope that the subtitles help a bit. The lost word from Jonathan at 0:41 is 'governments'. Our journalists are working hard to deliver quality analytical content in all formats under unique circumstances. It shouldn't take us long to figure out some of the new technical challenges that we are encountering – stay with us. More importantly, stay well.

    Reply

  13. WAS THIS SHOT THROUGH A TUBE IN A TUNNEL A THOUSAND FEET DOWN? ARE YOU ALL IN A MILLIONAIRE BUNKER SOMEWHERE?

    Reply

  14. Great video ty! Lot of good insight and also some good natured humor. We all need a bit of that rn 😊🙏🏼 take care

    Reply

  15. Would it not have been better to freeze every thing for 3 months, and national guard UK lock it down. No job loss no cuts all stopped. Gov in control money fixing here comes mass debt etc

    Reply

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