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.