An Inside Look at Italy's Corona Crisis (w/ Raoul Pal and Giovanni Pozzi)
RAOUL PAL: Giovanni, good to speak to you. You're in isolation in Italy. I'm in isolation in Little Cayman. So, tell people a little bit about yourself, and then we'll dig into what the hell's going on. GIOVANNI POZZI: Myself generally, not in isolation, you mean, I guess. RAOUL PAL: Not in isolation. You, the normal. GIOVANNI POZZI: The normal Giovanni. I run a family office here in Italy, so constantly on the financial markets. I'm home. Family's well. My colleagues and I have been smart working since the 20th of February now. It's not so disruptive for our type of job. Right? We're used to Bloomberg and all the information providers and the video conference calls, so not such a big deal. I cannot take your advice of going running into the woods because I live in the city, although it's not a megacity. But we don't have close woods. But it's OK. Staying at home feels good, feels safe. RAOUL PAL: So, talk me through how this unfolded in Italy and the national psyche. Just talk us through that, because it's a story that we don't get to hear firsthand, and you've been living it firsthand. So, when you first saw it in China, what did you think? GIOVANNI POZZI: Well, I think it's pretty natural for the human being. When we first heard from China, we were quite relaxed. You don't think this is going to come to you. Right? And it did come. Where are now in Italy, just to update the numbers? Roughly 15,000 official recognized cases, about 1,000 deaths, about 1,300 healed. And the exponential growth continues, both in terms of new cases, of critical cases, of deaths, and of healings, luckily. We haven't really had the chance to learn from the Chinese experience. You might have seen the picture, the chart that's been going around that shows how the curves of the Hubei province in China and of Italy overlap precisely with, I think, a 38 days delay. And by the way, Hubei and Italy have about the same population-- 55 million Hubei, 60 million Italy. Now there's another chart going around these days that shows the beginning of the same overlap between Italy and the rest of Europe, which is 10 days behind. So, I was saying we didn't have a chance to really learn from the Chinese experience. It was certainly a mistake on us as people and on the government. But it wasn't easy, because despite the strong trade and business relationship between China and Italy, there's the distance, both geographically and culturally. And we were the first ones in the Western world, so it wasn't that easy. Now, I'm only today hearing France, Germany, the rest of Europe taking serious action. The last few days from here, the sentiment was, why are these guys waiting? They're just repeating our mistakes. But this mistake is not acceptable, in my opinion. So, I'm glad that they are moving, and I urge-- if I could speak to them, I would urge them to move again. There is a great chart by a guy called Tomas Pueyo on "Medium" that shows how much impact one day of delay in implementing what they call social distancing policies or measures can make in the number of cases, and it's amazing. So, that alone should convince everybody to take a more prudent approach. RAOUL PAL: So, what is the situation now in Italy in terms of what's shut down, what businesses are open? What's going on economically and socially now? GIOVANNI POZZI: So, the only open businesses for commercial activity on the streets are pharmacies and food. All the rest is closed. But offices and companies can be open and operate as far as they respect policies and implement policies that allow people to stay distant on one from the other. And it's pretty personal. Every manager had to choose their own way to implement this. So, it's not a total business shutdown. RAOUL PAL: And what about the-- GIOVANNI POZZI: Before going-- RAOUL PAL: What about-- GIOVANNI POZZI: Before going into-- yeah. Sorry, go ahead. RAOUL PAL: What about factories? The industrial heartland of Europe is north Italy, right? How does that affect the industrial output of the country? GIOVANNI POZZI: It will be affected, but factories are not shut down. They are continuing to run. RAOUL PAL: Wow. GIOVANNI POZZI: Of course, they've slowed down, because if you need to have, for example, the simpler thing is half of the workforce home and half at the office or at the factory and in and out, alternating 50/50. So, that clearly reduces your workforce. But on the other hand, consumption is clearly reduced much, much more than that. So, it should stay quite in balance. The economical impact is certainly there. Well, let me-- before going into the economical impact, a few words on one thing. It doesn't matter how late you come to it, but this thing really gets into people's minds. So, it's a priority to be calm, to take care of yourselves, to eat well, and to be strong. It's the first time, in a way, that our generation is faced with such a chance to prove our resilience. I don't want to compare it with war. We're under a roof, we're healthy, we're warm, we've got food, we've got internet. We've even got applications that allow us to do video calls socially. A couple of days ago, we celebrated my daddy's birthday-- 85-- with a video called app. So, come on. This is not a war. We're not being bombed, building and the houses. But in our generation, which is probably weaker than that of our grandparents and great grandparents, it's the first time off such a proof. So, it's important to understand is and be very, and stay very strong. The other thing, it's clear that the health care system is heavily stressed. There is a picture that became very famous in Italy of Francesca, this nurse, falling asleep on her desk after-- I don't know-- 10, 12 hours uninterrupted work. And around Francesca and the nurses and the doctors, there's an amazing number of people doing an excellent job, and the resources are pretty stretched. This morning, the first call I had was with my friend Diego, who runs the logistics for a big hospital in Bologna. He takes 45 minutes to work typically. But because they've stopped, suspended most of the high speed trains to avoid people going around and gathering together and because of the extended hours they need to work, He takes them now-- well, he's left with very few hours of sleep and of rest. And his first task this morning was to find a forklift to move one of those huge emergency tents to accommodate more beds. And my second call this morning was when another friend, Paolo, that runs a hospitality business. He was calling all of the landlords he manages the short-term rent of the apartments for to convince them to give out for free the apartments to the doctors and the people working in the hospitals that-- like, Diego cannot commute every day, because it's too far. Otherwise, he'll sleep one hour instead of three. One evidence I had-- the doctors were the first ones at two, three, four weeks ago to take this thing seriously, while everybody else was pretty relaxed. It's quite clear that they know how to do their job. And a positive signal, if you want, these days-- yesterday for the first time, I heard a doctor publicly-- the general manager of a big hospital here in Lombardy-- saying we have the resources. They've come. We've been provided with what we need. So, you guys just do your job. Stay home, and we'll fix this. Your question was on the economy. RAOUL PAL: No, it's all right. Let's go back a little bit to this. So, the health care system overloading-- and we're hearing stories in Italy that's in some places, it's basically a choice of who lives and who dies when you're under a stretched resources situation. What stories are you hearing on this stretch of resources that's going on? Because this is a lot of things that people don't understand. They say the death rate is not that high. Well actually, in Italy, it's been quite high because of the aging population. And also, not everything's being measured. But it's the impact on the medical system that people don't really understand. So, any more light you've got on that would be really enlightening for people. GIOVANNI POZZI: It was very difficult, and it is very difficult, to understand what is the reality and to reply to this question. We went through those days when on WhatsApp there was a number of recordings going around from people working within the hospitals and telling people-- alarming people-- and telling them, look, the beds are over, the ventilation systems are over. From tomorrow, we need to choose who we want to save. The next days, the messages that arrived were calming. And in the last couple of days, the official messages, which I believe, were, don't worry. Now, the resources are available. So, it's not anymore a choice of who we're going to save and we will have to let go. So, it's a mix. I think for the first few days, the system was a little unprepared. So, it was probably true that at some point, some doctor somewhere in Lombardy had to make a decision-- to take a decision. In general, I'm sure think now after a few days have improved a lot. RAOUL PAL: And so what is it like for you and your parents having to go through the panic and the disbelief and then the despair? Talk us through that personal journey. Because again for your parents, or even you thinking about your parents, it's very unsettling. And your friends must be going through the same thing. Talk a little bit about that. GIOVANNI POZZI: It's very personal. We are managing to be calm. We're safe. We're pretty strong. So, far, I didn't have any zero degree of separation cases close to me. That may be also the reason why we managed to stay calm. We took it seriously from the beginning. We were lucky or smart enough to do that. But of course, you're worried. No, I think in general, the population is giving the proof of a lot of stability, very united. We're experiencing for the first time an upside down Italy. Well, as you said, Lombardy is by far the most productive region and industrialized region in Italy, and maybe in Europe. And it was interesting to see the Southern people staring at the North and interviewed on TV and saying, we would like to help, but we don't know what to do. Nobody knows what to do. You can just stay home and learn from the learning curve and use the learning curve to learn from the other people's experience. RAOUL PAL: Yeah. I really, sincerely hope. Looking at what's going on in Spain and France and Germany-- Spain was slow again. And they've just hit over 4,000 cases this morning at midday. They'll probably get to, maybe, 5,000 by the end of the day. It's exploding in Spain. They've allowed too much travel. Your plea at the beginning of our conversation for people to hurry up and understand what's going on doesn't yet seem to be being taken on board. They're slowly making steps but just haven't gone big and gone early, which seems to be the only answer here, like South Korea did. GIOVANNI POZZI: Yeah, that's exactly correct. That's exactly the feeling we have. And we feel-- as the South towards the North, we feel we should do more to tell people. I've shared a lot of messages on this topic with my friends around Europe and the US. And we should all do the same. Just be calm, but take it seriously. It will help slowing it down. RAOUL PAL: And the two economies that stand out to me that are potentially being irresponsible are the UK and the US, that have been extremely slow in doing things. Yes, the UK has made noises, but they've also said, well, we just want to see if it can burn itself out. But I think the human behavior aspect means that it can't. And the US seems to have made a huge policy error. What's your thoughts from being in Italy and looking at the US and how they're dealing with it? GIOVANNI POZZI: It's similar to my thought on how France, Spain, Germany were dealing with it-- too slowly. Hopefully, that will not prove to be a mistake. In the US specifically, you mentioned demography before. The US are a much younger country, so that probably will help to have a lower mortality rate, which is important. But that's not enough reason to be more relaxed. RAOUL PAL: No, because it's not about the mortality rate. They've had the virus for 48 days now in the US without really taking major actions, and that's the longest lag I've seen of any of the countries. And we saw the exponential curve that Italy went through. And you've just got to think the US and Italy are overlapping in their exponential curves, and it looks like the US has got a hell of a problem ahead of it. GIOVANNI POZZI: Yeah, that's certainly so. Talking about our government, it was highly criticized in the first few days of the emergency. And I'm sure they made some mistakes. But I wouldn't want to be in their shoes in that moment to treat such an emergency. It's like when the people, we're all trainers of the national football team. I think it's a little stupid to criticize without understanding how tough job that is. Plus honestly, I believe I'm not particularly a fan or an opponent of our prime minister, Giuseppe Conte, but I think the body language and communication style was pretty good-- surprisingly good. He speaks very clearly, very simply, not too formally with a language that gets very easily to all the groups of population in terms of social, age, education. And even a few days ago, our finance minister, Gualtieri, said that no one is going to lose a job because of the coronavirus. That's an incredibly strong statement. I'm not sure I would have made that statement. And I'm not even sure I believe that statement. But who knows? That might be the right statement to make when your priority is to keep the population calm, safe, and healthy, even if it's a small lie. So, it's very difficult to criticize. We shouldn't do it. They're doing a good job over here. And the on the economical role, of course talking about Italy means talking about Europe and talking about the world. But there's a lot of talking about Europe itself. Right? So, Europe is less prepared to deal with supporting the economy because it has less ammunition on the monetary policy side and on the fiscal policy side. Fiscal policy side because of the cultural clash historically between the German-led austerity and the Italian-led approach, or Latin-style approach, to the rules, if you want. Now, there's a few points I would like to make here. First, organically, let's not forget that the welfare system in Europe is better suited for these crises. We've already seen this in the past in the global financial crisis. Now, this is, of course, the flip side of the coin of then having a continent that grows more slowly. But in this moment in time, it's the downside that matters more. So, take, for example, the social tools available as safety nets. In Italy, we have the [indiscernible], which is like a wage guaranty fund managed by the INPS, the National Institute of Social Insurance, that pays 80% of the salary for about a year. It kicks in very, very quickly. And it did kick in very, very quickly for small companies these days. And that helps a lot in avoiding layoffs, moving the costs from the private to the public. Again, that might come at a slower growth in the future, but who cares today? So, that's one thing that people should not forget when comparing Europe to the other continents. RAOUL PAL: You're trading social benefit for growth, which some people don't understand. But Europeans took that, and in many respects, it helps cushion the worst outcomes. As you say, it gives you a bit of downside protection for the average person. But it gives upside issues for sovereign debt. GIOVANNI POZZI: Correct. Now, back to the monetary and fiscal policies. So, monetary policy-- for sure, the rates are well below zero. We know that. So, there's not much room to decrease those. But does it really matter? Are lower interest rates what matter in this moment in time? If a small company's cash flow is negative, they need money. They would pay 10% rate. They don't care whether the rates are at zero, or one, or two, or three. So, I don't think that matters much, and that's something that we could expand on talking about the Federal Reserve move. But it doesn't do any harm, but that's not the pure solution. On monetary policy, we know there are many unconventional tools that, by now, are conventional. And the ECB started using some of those yesterday. Despite the communication error of Mrs. Lagarde, some of those tools are already active. Banks are being helped, and banks are giving out credit more quickly to the small companies. They're calling the companies, telling them, we have the tools to help you a little bit, to improve your overdraft limit, and so on. This is happening. Talking to people on the ground, we have evidence of this happening. Now, on the fiscal policy side, it's a more cultural question. I think that before the coronavirus started, we were already in a very different situation. So, we've all heard the political pressure on Germany, also from internally from the bottom up-- call it black zero, call it Green New Deal. So, we have to admit we are in a different situation. I don't think Europe will let Italy go. We have had already a couple of evidences these days. Mrs. Merkel, a couple of days ago, the sweet repeat of Draghi's July 2012, but we'll do whatever it takes. That applied to monetary policy, of course, because he was at the helm of the ECB. She's in politics, so that applies to fiscal policy. Hopefully, it won't apply just to the media. And then Mrs. Fonderlai of the European Commission that in a perfect Italian-- I wonder whether she speaks Italian or whether she was reading, but it did work perfectly-- gave a message saying, [indiscernible], we are all Italian. And that wasn't a fake message. This is an exogenous, makes everybody feel bad. And as opposed to other situations in the past, there's not anybody in particular to be blamed. There wasn't any financial inconsistency or bad governance causing this. It's a more complex conversation, and maybe you have seen the video, the Ted Talk of Bill Gates from 2015 at Ebola time, so that's impressive. That's what we should be talking about, not Italy and Europe. So, that's clearly a shared global response. RAOUL PAL: Yes. But I guess the issue-- the next phase seems to be, and we all knew this when Lagarde came in, is the next step for monetary policy in Europe is tying to get a fiscal and monetary, somehow combining the nations, getting rid of the deficit ceilings and allowing some ability to move. What is your impression that the Europeans are going to do? Because they're going to have to do something really big at some point, because it's not just Italy, right? As you say, this is the whole of Europe that is in the same boat, just in a different phase. So, they're going to do something extraordinary to not lose the banking sector and to not lose all the small businesses and that kind of thing. What is your impression that they're going to do with the fiscal, monetary combination? GIOVANNI POZZI: That's a tough question to answer. I think they will go very gradually and very wisely. Maybe that will mean the markets in the short term will be disappointed, as they were yesterday. But I don't see this tide changing. Having said this, I think the help and the support that is needed will come. So, the budget deficit limits will be relaxed. Of course, it will be temporary, or the declarations will be it must be temporary. And rightly so, because this probably will have a temporary impact, not a permanent impact, or hopefully so. But they will come. So, I'm pretty confident that they will do the right moves, and I'm lucky I'm not there to take the decision for that. RAOUL PAL: No. One of the other things I'm interested in is China had its shutdown, which Italy is going through now. So, then they start bringing production back to life and a bit of consumption. Look, nobody trusts each other, the social distancing. There's a lot of scarring that comes out of something that's so fast. But the issue now is China's trading partners are all about to go through the same. There's a rolling shutdown. So, let's say Italy now has taken the more extreme measures, and within-- call it 60 days-- the rate of growth has now fallen significantly, like Korea, and they've got it under control. But at that stage, Spain or the UK or the US is going through peak. My issue is, does this drag on a lot longer just because of how this is spreading and how slow people are reacting? And does that create more problems than the initial shutdown? GIOVANNI POZZI: Well, it certainly will. It's a global system, interconnected, and we can't really split it in parts. It's not that China is all good and safe now, and Italy will be good and safe in 38 days. And then after 10 days, the UK. Of course, it's all very fluid on the positive and negative side. I would take it from another angle. So, if I look at the economy and the markets in general now, what would I want to know of the future to understand where they are headed? I would want to know how and when and where the second wave of infection develops. Because the first one, we've understood it. So, science and statistics seem to agree that the base case is that this pandemic, at some point over the years, will infect 50% of the population, maybe. People say between 30% and 70% with a slowly decreasing-- RAOUL PAL: Which we need, because we need to herd immunity. People need to get infected, but slowly. GIOVANNI POZZI: Correct. Exactly. So, decreasing severity and decreasing stress on the health system, of course. So, if this is the case, it probably means that, as you said, let's say 60 days from now, most of the developed world sees a flattening curve in new cases, in deaths, and decreasing. And let's say the problem is solved, or uncertainty is gone. In this scenario, the Olympic games in Tokyo are happily held, which I strongly hope is not being superficial. That's August, that's not April. And then next winter in the Northern Hemisphere, we get back to the second wave. By then, maybe some vaccine is available. We don't know that yet. We know it takes long, but we'll see. So, that's the base case. In that base case, in my opinion, it would be hard to see a V-shaped the recovery, as they say, both in economy and in markets, because some impact on both the consumer confidence and investor confidence will remain. So, in a way, whichever the bottom level the markets and the risky assets will have reached by then, we'll have time to put money to work. And as well, we'll have time to get back to normal life. This will be different between the various areas. You have the old continent, Europe, behaving one way, and then probably you have China that was already running ahead as a herd of buffalo before, and they will continue to do so. And it has the domestic consumption power to have a V recovery. By the way, it wouldn't be a V, because the markets there didn't come off that much. So, it's clearly a different story. Now, this is the base The other two scenarios are worst and best. Worst scenario-- which I think not enough people are talking about, or maybe it's better that not enough people talk about it-- is that the second wave of infection comes long before, like now in China. That would be a killer. That would have everybody throw in the towel. It will kill the investor and consumer confidence, and we would really be left with no marginal buyer in the markets. RAOUL PAL: And that was similar to the Spanish flu, because it actually came back in July and August in France and a few other countries earlier than anybody would imagine. And that was the damaging one because everyone had stopped social distancing, everyone had relaxed. And then before you know it, it really takes off again. So, it's a hugely dangerous outcome, that one. GIOVANNI POZZI: Exactly. Of course, we strongly hope that times are different from the times of the Spanish flu-- and they are-- and that this doesn't happen. But let's keep this in a corner of our mind. And if we are investors in the markets, let's be ready to act if we want to reduce risk in case it happens, as we did, or we should have done, depending, when there was the first outburst of the first wave. Then luckily there is also a third scenario, which is the best case, justified by the temperature. So, there was a study, and there's a great map from, I believe, the University of Maryland, although I'm not entirely sure, that shows that all the regions affected strongly from Japan, Korea, Hubei, Iran, Italy, up to California are in the same yellow zone, which means they share the same ratio between temperature and humidity. So, it looks like it makes sense to think that the virus can die when it's warm. There is also a possibility, however small, that the virus dies forever in the summer-- in the northern hemisphere summer. So, let's try to keep always a positive note on the table, and we also have this scenario. RAOUL PAL: Yeah. And I think the key here is we will not know until later in the summer. So, we may get to the point of pausing as the curves all start to slow down. And I think we need to go through the panic in the US and probably in the UK first, that France and Germany and everybody is going through almost today. And then we'll see the curves flatten out. And then we have to wait, and we won't know. GIOVANNI POZZI: Yeah. Which is one of the reasons why I don't expect such a sharp V recovery as in other cases. I'm not negative. I'm a buyer on dips, in general. I think the underlying bull trend for the economy in general is still there. The reasons why it could extend some more time are still there, as well as the problems that were hidden behind that are still there. But that doesn't mean that it accelerates immediately. And one of the reasons is what you and I just said-- it will take some time for all of us to feel so safe and so strong from every perspective, including that of investing money in risky assets. RAOUL PAL: And you've mentioned before about the Federal Reserve. What do you think America is going to do at this point, because it's at the interesting juncture where it's about to run out of ammunition? What's your viewpoint on that? GIOVANNI POZZI: Well, I think one of the keys will be-- I know it might sound impossible-- for Mr. Trump and the other representatives of the government to sound wise and talk as our prime minister did, clearly to all the people and firmly. So, it sounds like a different style from the one he has had up until now. We'll see what happens. But that, on the psychology of the people, will matter. In terms of the economy, well, we all expect from the US just a big number, however it will come. From Europe, you always say as a joke that in the US everything is bigger. The supermarket is bigger. They have a mall. We have the small supermarkets. So, now let's see if they bring a ton of money on the table. And that will be the key. Temperature, which is a lot more varied in the US than in Europe, might help. The younger people, the younger demography might help. So, all in all, we could have a better situation than in Europe. RAOUL PAL: Yeah. And so I guess the next phase is waiting. We've seen this before in crises in the past. They test ideas. The market usually rejects them all. And then they come out with the bazooka because it's the only way to stop it. But I guess we'll go through that process of testing a few ideas. It's not enough for the market. Even whatever the Fed said-- 1 and 1/2 trillion of repo-- didn't really stop anything yesterday. GIOVANNI POZZI: Yeah. Yeah. Well, my impression is that the investors are not overloaded with positions on risky assets at the moment. I think a lot was already offloaded. We've seen record flows into cash, into government bonds in the last few weeks. So, that should support the market at some point, because we know positioning is quite key. RAOUL PAL: And you and I were chatting on email about China and the RMB, because that's one of the things is, how does the dollar play out into all of this? There's an argument-- and it's not clear, but there's an argument to the Euro could weaken as Europe itself has to take the fiscal strain. And there's a whole load of things that they need to do to try and stabilize their economy. But in China, they had a situation where the economy was shut down. So, there's no outflows and no inflows, and that's OK, because it's stable. As things change, what's your view there? Is the RMB at risk, or are you the other way around with this? GIOVANNI POZZI: I'm the other way around. In the short term, I can't guarantee that they will be able to keep it so stable if there is another route on the risky assets. But in general, I think there is already an evidence of the resilience that China has compared to the past. It's not an emerging market anymore. Let's face it. The portfolios are not enough diversified into Chinese assets, whether they're bonds or equities. They are experiencing inflows from the rebalancing of the global indexes, which are supporting those markets. And that's a lack that European and US markets don't have at the moment. And that will go on for some time. So, there's a number of reasons why I'm in the camp of thinking that the Renminbi will not devalue aggressively. RAOUL PAL: And what about the dollar overall? How do you see the set up there? Or do you think it's a mixed bag? Is it stronger against emerging markets and weaker against majors? What's your view, because it's a very mixed feed for everybody right now? GIOVANNI POZZI: It's true. And I don't take either side, because I think it's pretty uncertain. As far as emerging markets in general are concerned, I think in part they would benefit from the Chinese effect that I just talked about if that materializes. So, the diversification effect of the portfolios into different currencies and counter risks would be true, yes, for gold, for the Renminbi, but maybe for many other countries which now seem to be much more damaged, be it Brazil with is Real, be it Mexico with its Peso, or Norway with its Krone-- developed or developing. One of the consequences of the world being more globalized means this in my opinion-- reducing the importance of the dollar, which should help to keep the dollar more balanced and avoid the very real dangers of funding stress that you very frequently talk about, which are certainly there. The new world, the more globalized investor world might help in avoiding that stress. RAOUL PAL: Interesting. And what about-- what's your view on gold? Gold has been everybody's favorite for a while. What do you think? GIOVANNI POZZI: I'm not a big fan of gold in general as an asset. I like to buy assets which have a value and generate a value for some reason. So, I see it only as a store of value and diversification from the rest of the portfolio, be it a currency, be it an asset, it doesn't really matter. It's gone up a lot. I don't see gold going to 10,000, as someone says. But I think it makes sense to hold some in a portfolio because it certainly keeps its diversification qualities. RAOUL PAL: So, it's a portfolio diversifier for. It has value. But as a single asset bet-- which I know a lot of people have got, I see on Twitter, I see it elsewhere-- you think that's not probably the best use of capital. GIOVANNI POZZI: Not the best use of capital, exactly. I don't think it will go down now in the shortterm much. I think it will stay here because uncertainty will stay here. And as we know, gold turns out to be a good hedge on hyperinflation and on deflation, so it's not a bad idea to keep some. But yes, as a real asset, not so keen to keeping it forever. RAOUL PAL: So, what is the next phase in the markets for you? Do you think we've got some more downside before stabilizing into this period of time where we don't really know anything? What's your hunch? It's not easy to call, because obviously we've moved very sharply. What do you think? GIOVANNI POZZI: Yeah. Well, my base case is that we won't see a new low on the S&P, which is the first thing we all look at below, them the low of the last quarter of '18, which was 2,300 something. RAOUL PAL: So, you think that support holds, essentially? GIOVANNI POZZI: I think that might hold. I would prepare my portfolio for this not to hold. So, I would prepare my-- I think it's a time of reducing the sizing of the position and of the bets. Reduce the value at risk on the table, because the moves are big enough to make money also with smaller positions. And they're big enough to ruin everybody with large positions. RAOUL PAL: Exactly. GIOVANNI POZZI: So, I think the more you put yourself in a position of not having to be right, to necessarily be right, it's better. And so that's my base case. It depends how it will evolve in the UK and the US, because those are the key markets for the financial markets. So, if it takes a bad angle, as it did clearly in Italy, for the UK and for the US especially, I don't think that support will hold. RAOUL PAL: No. Yeah, I tend to agree. So, just wrapping up, how long do you think you're all going to be semi-quarantined or self-quarantined, the social distancing? How long does this go on for now for you? Because it's fine you've been home for a few weeks now, but your beard is getting longer. You don't get to see people. How does that go on? GIOVANNI POZZI: Well, I think it will expand at least until my birthday, which is the 9th of February. And then there's Easter. So, I expect my friends to set up some video conference also for that, like the one we're going to have tonight for another friend. Yeah, I know. But apart from this, it make sense to look at the Hubei example. They're getting out of their quarantine now, and we're 30 days behind. RAOUL PAL: Right. OK, so-- GIOVANNI POZZI: So, that's the only data point we really have and we can take as an example and as a guide. RAOUL PAL: Now, just a last question that I wanted to ask on this. What is it like going shopping? So, you go and buy groceries. Are people not fearful? Does any cough-- is everyone keeping away from everybody? Because the human behavioral thing is obviously humans over extrapolate everything. So, what's it like when you just go out and do a normal chore? GIOVANNI POZZI: In the first few days, there was a run on the supermarkets, and people just emptied everything and bought everything they could, imagining the war coming. Now, it's got a lot better. People are getting used to it. Of course, you're allowed to go out and move around your place and certainly for shopping for food and medicines. When you get to a small food store, you wait outside. RAOUL PAL: Really? GIOVANNI POZZI: You just wait for one person to get in and out at a time. It's not so difficult. It's not freezing cold. We're not at minus 20 here, and we're not at plus 40. So, it's fine. It's weird, though. Let me tell you, it's very weird. RAOUL PAL: Yeah, it's not Russia in the 1980s, but it feels like it. It's like rationing almost. GIOVANNI POZZI: It does feel of rationing, but it's not. There's food available, whatever you need in whatever quantity you need. RAOUL PAL: Amazing. Who'd have thought this, Giovanni, right? We all knew-- GIOVANNI POZZI: Nobody. RAOUL PAL: --a pandemic was it was one of the black swans. Right? We all talked about it. But to live it is a really bizarre thing. GIOVANNI POZZI: It's true. Although at the beginning of the year for the outlook 2020, I wrote in a note for my colleagues, don't forget that a natural disaster-- which a pandemic is a natural disaster, in a way-- is always the biggest reason for market shock. But that's not because I was waiting for it. I do it every year. And it's wise to-- no, nobody was thinking about it. Maybe Bill Gates was, and he is an outstanding brain, of course, and someone else. I was really impressed by the doctors and how early they saw this coming. So, let's listen to them. Let's trust them when they talk. It's their job. RAOUL PAL: Yeah. It's a good proof of science over hubris. The science is what you need to follow here and not the message from random people on Facebook. GIOVANNI POZZI: True. True. RAOUL PAL: It's a really interesting thing. And I think that behaviorists are also important in this, because it is human behavior, after all, that will actually drive both the spread of the virus and the economic impact. GIOVANNI POZZI: The psychological impact, yes, and the behavior, as you say, is very important as well. I'm a natural optimist, and I want to be an optimist also in this case, despite the damage and the lives that have been lost. It will be a wasted opportunity if we as people and as a population don't grow better out of this in terms of focusing on what's more important and taking care of ourselves and, again, doing the right things and understanding that some things are really a plus. RAOUL PAL: Giovanni, that's a perfect note to end it on. Listen, thank you so much for your time. And it's super interesting to hear, because you're ahead of the curve for the rest of us. And I think your messaging about people understanding what it is, I think it's really important. So, thank you for that, and thank you for everything. And don't get too bored in isolation. Have a few video conference calls with glasses of wine. You'll be fine. GIOVANNI POZZI: I'll certainly do that. Thank you, Raoul. RAOUL PAL: OK, my friend. GIOVANNI POZZI: Bye, bye. RAOUL PAL: Cheers. JUSTINE UNDERHILL: If you're ready to go beyond The Interview, make sure visit realvision.com where you can try Real Vision Plus for 30 days for just $1. We'll see you next time right here on Real Vision.