After the Great Lockdown WebinarAftertheGreatLockdownWebinar

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  [ Music ]

  >>[DESCRIPTION: The heading on the slide is “PGIM – After the Great Lockdown” with a subheading “New Business Realities and the Implications for Investors”
  •    There are four headshots of the panelists. They are:
  •    Warren Koontz, Managing Director and Head of Value Equity Investing at Jennison Associates
  •    Cathy Marcus, Global CEO and head of US Equities at PGIM Real Estate
  •    Nathan Sheets, Chief Economist and Head of Global Macroeconomic Research at PGIM Fixed Income
  •    Taimur Hyat, Chief Operating Officer PGIM
  Taimur Hyat is speaking]

  >>[AUDIO:  Welcome, everyone. Thank you for joining us for today's webcast. After the Great Lockdown, New Business Realities and Implications for Investors. I'm Taimur Hyat, one of the principal authors of the report and moderator for today's session. 
  We are spending a lot of time at PGIM with clients and how to navigate the current [inaudible] markets, as well as sharing out perspectives on the debt and [inaudible] severity on global economic recession. But at the same time, a lot of long-term investors are asking us about how we are [inaudible] processing and thinking about the longer term structural implications of the COVID-19 crisis. 
  What will the post pandemic world look like? And in what ways will it be permanently different? And that's about corporate business models struggling with the fragility of supply chains and inventories across manufacturing, agriculture services. It's about government setup, potentially contemplating new regulatory actions and interventions, some for the better, some perhaps not. And it's about consumer behavior. 
  You know, will this be a temporary change or a permanent shift in some of online certain behaviors coming out of a period that we call the Great Lockdown? And most importantly for us, what does this mean for investors? We invested PGIM across equities, fixed income, real estate, private, alternative. \
  What does this mean across the portfolio? And which sectors and which countries will emerge as the new winners and losers long after the actual pandemic has passed? Before diving into these topics with my panelists, a few housekeeping items. 
  On your screen, you'll see multiple boxes. But the ones to really pay the most attention to is the Q and A box. We encourage you to submit questions at any time. We try to answer them during this webcast. But if we run out of time, we'll make every effort to answer your questions by email in the coming days. 
  There will also be a On Demand version of the webcast. So if colleagues can't join it today, please let them know about this and they can listen to it later. I did want to mention, we have invited a few select members of the press to this webinar. We request that the Q and A section here be reserved just for clients. 
  Our panelists can do a follow up meeting with media if needed. And for participants who ask a question, please be assured that your name and institution won't be identified as we do the Q and A piece. 
  Let me begin by introducing our panelists. We have Warren Koontz, Managing Director and Head of Value Equity Investing at Jennison Associates. We have Cathy Marcus, Global CEO and head of US Equities at PGIM Real Estate. And Nathan Sheets, Chief Economist and Head of Global Macroeconomic Research at PGIM Fixed Income. 
  And Nathan, maybe before we hit some of these longer term structural trends, I do think it's worth taking a couple of minutes and asking you, as the economist in the mix today, to provide a quick snapshot of the macro situation we have now. And we've heard an alphabet soup of focus recovery parts, Vs, Us, Ws, Ls, the Nike swoosh. Where do we stand now? And what's your best case scenario for the next 12 months?

  >>[DESCRIPTION: Nathan Sheets is talking]

  >>[AUDIO: Well, thank you, Turner. It's a pleasure, pleasure to be here. So we are seeing an extraordinarily sharp contraction in global economic activity. I think the word unprecedented is the best that I can do in seeking to describe it. But I'm not sure that that really adequately describes the depth of what we're seeing. It's the most severe contraction in the last 70 years. And to be a little more specific, we are now expecting the global economy to contract by roughly five percent in 2020.
  Every major jurisdiction across the advanced economies and the emerging markets looks like that they're likely to post negative growth. Really, no one is immune. Now, in response to this, if there's any good news, we're also seeing an extraordinarily rapid and powerful monetary and fiscal response by central banks and governments around the world. 
  I was in the Federal Reserve working there during the global financial crisis. And I never dreamed it would go through another episode where the Federal Reserve, if anything, would be more aggressive and more vigorous and more rapid in its response than was the case a decade ago. But that's what we're seeing from the Powell Fed. 
  And it's not only the Federal Reserve. It's central banks in many jurisdictions. Essentially everyone has cut rates. And many are buying assets and providing other kinds of support. And in most countries, it's also being matched with very significant fiscal stimulus. Now, an important exception to this and caveat to this statement is that the stimulus that we're seeing in China is much more moderate than was the case during the global financial crisis. 
  During the global financial crisis, the Chinese government just opened the floodgates. And an enormous amount of credit in fiscal support was provided to the economy. In this episode, President Xi and his colleagues are being much more restrained.
  And I think they remain appropriately concerned about the high levels of debt and leverage and concerned about further increases. So that's a place where it's a more restrained policy response. And then finally, as you say, the big question is what does the recovery look like? Our baseline is for you or if you'd like, the Nike swoosh kind of recovery where, through the next couple months, the global economy will bottom out. 
  And then as we move through the summer and into the fall, we'll start seeing a gradual kind of recovery with the level of economic activity in GDP, returning to late 2019 levels, maybe in mid to late 2021. So it will be a gradual process of kind of getting back to the spending and production that we had before. 
  Could it be a little better than that? I mean we get the V-shape recovery. I'd say that's possible. In order to get there, I think that would mean some advances in testing and tracking and treatments. But it's also very possible that we could do worse. Either people are afraid to go out and start spending again and the economy just doesn't bounce back or a very worrisome possibility is that things are going okay at first but then we get hit by a second wave. And I think that would deliver what people refer to as a W. So we're expecting a U but lots of uncertainties as to what this recovery looks like.

  >>[DESCRIPTION: Taimur Hyat is talking]

  >>[AUDIO: I think one of the interesting pieces I'm working on after the Great Lockdown and talking to over a dozen portfolio managers across PGIM is that, while there's huge near term uncertainty and a lot of different scenarios around that best case that you laid out, Nathan, there is perhaps a little more clarity on some of the structural trends of what we call the end game, the longer term trends. 

  And the call that we'd love to hit in this session, briefly, first supply chain fragility and the need for resilience. Second, the sections of space and safety and what that means for companies and investors. Third, acceleration of tech forward companies in all sectors, this rise of weightless firm. And fourth, I'd also love to hit upon government intervention which is always changed after a crisis and what the panel sees as being some of the major trends after this particular crisis. 
  So if we can spend about five minutes on each, I think we can cover a lot of ground upon on what some of those longer term structural changes are that we think investors need to focus on and battle with, obviously, navigating the turbulence and the recession. 
  And let me kick that off with supply chains. I think we saw fragility in supply chains across manufacturing, agricultural, and food production supply chains, [inaudible] supply chains when India went into lockdown and affected some of the companies who had outsourced operations there. 
  And at the same time, a bit of a call for just in time inventories, lean inventories becoming somewhat fatter and more just in case, so for this argument around, you know, potentially a return for investors on companies that build more resiliency. Warren, I'd love to start with your perspective as a fundamental equity investor, how you think about resiliency versus earnings growth and how the pandemic might structurally change things in terms of how you view companies and value.

  >>[DESCRIPTION: Warren Koontz is talking]

  >>[AUDIO: Sure. Thanks for having me, first of all. Without a doubt, companies need to consider their supply chain resiliency. You know, we've known for decades, low cost supply, minimal inventory were the main ingredients of supply chain management. But of course, things have changed, as we've just started to discuss. 
  The world has become a much more turbulent place, of course, with natural disasters that we've seen. We've had concerns of Brexit disruption and the US-China trade wars. So really, companies began to think about supply chain resiliency a few years back. And of course, that's become increasingly important and emphasized with, you know, with the COVID-19 lockdown. 
  So COVID will accelerate many of the trends that we've already put in place but has also intensified the consideration of location in the supply chain. Are we too dependent on one geography? And of course, if we are, then you must diversify out. And of course, the big concern with the US-China trade wars is having some critical supply and certainly products produced in one location, particularly around China. 
  So companies are starting to think and have been thinking about diversifying their supply chain to make them more resilient and will likely include, yes, the US in terms of reshoring but also, perhaps, Mexico, Vietnam, and of course, India, to name a few. 
  Now, it's interesting, the pace of the acceleration of these trends is likely to grow over time. But we'll be somewhat delayed for now. As most companies we know have really cut that cap back substantially or want to preserve capital to whether the worldwide economic shutdown. Of course, as Nathan mentioned, it's an unprecedented time. 
  The economies have been shut down, not only completely but the quickness. And so it's going to take a while for these economies to restart. And so as the economies restart, as we hope it's more of U, you know, trajectory, [inaudible]. We'll also see this rate of change in supply chains, which will focus, again, on resiliency and diversification.

  >>[DESCRIPTION: Taimur Hyat is talking]

  >>[AUDIO: Cathy, what's the real estate angle here as well, with all these changes in supply chains and kind of this new geographical map of companies? How do you see this from a real estate angle?

  >>[DESCRIPTION: Cathy Marcus is talking]

  >>[AUDIO:  Sure. So clearly, you know, the major impact is it's really on the industrial and logistics sector. And you know, that has really -- has been and continues to be the darling of real estate investors globally. 
  There's been a lot of development of new modern distribution facilities. But demand still really outstrips supply. And in the US, 50% of what we would call the warehouse stock was built before 1980. And so those types of facilities are really not at all appealing to your typical ecommerce tenant and Amazon or a Walmart. 
  And just back to the comments around inventories, you know, we're hearing a lot among out industrial tenants, you know, around safety stock and the reshoring of manufacturing. And the correlation between US business inventories and industrial real estate occupancy and demand for space is 98%. So that's obviously, you know, a very, very strong correlation. 
  And so even in this environment and maybe even in an accelerated way in this environment, because of the acceleration of ecommerce across many different parts of the economy, you're seeing still a lot of leeching activity among tenants, like Amazon and Home Depot, Walmart, Target, and in particular, pet supply providers. They're expanding very aggressively, even in this environment. And you know, Amazon is clearly a major force in supply chain logistics. And in addition to delivering its own products, Amazon also handles a lot of third party packages and is currently the fourth largest delivery company in the US. And early on, Amazon was very focused on being located in very low cost areas. And that could mean low rent, low wages, or low or no sales tax. 
  But now, with a push toward less miles deliveries and focus on major population centers, today actually, the state of California has the largest Amazon footprint. And the impact on the local economies in the areas targeted by a tenant like Amazon can't be understated. 
  Since 2014, Amazon has spent $69 billion building out its fulfillment distribution capabilities. And that includes, of course, paying rent. So there's really a tremendous impact on the US real estate markets and just even an evolution of the industrial market in, you know, in recent times. 
  Outside the US, people used to always refer to warehouses as sheds, because that's kind of what they used to be. It was, you know, four walls and roof and constructed very cheaply. And now you have, you know, very sophisticated buildings that are being built with tremendous robotics and lots and lots of equipment that is extremely high tech. So the entire sector has really changed.

  >>[DESCRIPTION: Taimur Hyat is talking]

  >>[AUDIO: [Inaudible] sort of maybe sticking with this theme that we mentioned at the beginning of the sections of personal space. It's clearly critical for investors in commercial real estate but also all companies to think about what are some of the lasting changes in company behavior and consumer behavior coming out of the coronavirus pandemic. 
  So maybe we can hit two elements here and start with what you think the office space of the future will look like. And then I might want to go a little bit into kind of residential space and kind of the urban, suburban question. But I guess, to kick us off, will anybody ever want to work in an office after this pandemic episode is over?

  >>[DESCRIPTION: Cathy Marcus is talking]

  >>[AUDIO: Well, our view is that office is definitely not going away. But I think there are two big takeaways from this work from home experience, which probably we can all relate to on some personal level. 
  The office plays a much greater role in our lives than just the physical space, where we go to get our jobs done. And that has probably become more clear to us in recent times. Either for the vast majority of office using workers, we're actually, you know, able to very effectively perform the daily blocking and tackling of our jobs from home. 
  But what we can't recreate remotely, you know, are all of the social and emotional needs that get met in an office environment. And again, I don't think we thought that much about this pre-crisis. So I don't think that people will stop wanting to go to the office. But I do think that the purpose of the office will change.
  And we think our tenants, they'll rethink what they and their employees use their offices for. And that will inform probably some pretty significant changes, you know, in design and in the way that things are built and also in the demand for space. So if I had to guess, tenants will make occupancy decisions that will envision less employees in an office because of the need to distance. 
  But also, you know, sort of just a difference in the way that people use space, so having less employees but needing more space per employee. And some of the tech tenants are leading the way here. Twitter, in particular, has said that some percentage of their roles will become permanently work from home. 
  And another huge tech tenant has also said that where, as they used to operate with an occupancy strategy of about 75 square feet per employee, they're now going to go to 300. So that's obviously a big change. 
  And again, people don't -- are not going to be comfortable being crammed in together. In terms of the multifamily question and live, work, play, this whole live, work, play environment, you know, they tend to be very urban in nature. And where they're not actually truly urban, we've recreated the density of an urban experience. 
  So it's kind of the same -- the same problem right now, where you are seeing people migrating a bit more to more suburban open spaces. And because of that, we actually do think there will be more rent growth in the near term in suburban apartments versus urban. And we also think there could be increase demands for rentals of single family homes. 
  Again, as people are thinking about more space and are doing a little bit of a change from really wanting these communal, very social places. See, the other thing that I think it's important to just kind of think about how attitudes might change is, you know, how does this concept of live, work, play, that whole lifestyle, how does that play out if people are moving more seamlessly between working from home and working in a more traditional office environment, which is really what we expect is going to happen. That, you know, I might go to the office two days a week instead of five going forward. 
  The rest of the time I might be working in my home. So how does that impact where I want to live, where I want to work, where I play? Right now, we're doing all three things in one place. And so I do think that there's going to be, you know, a change in behaviors and consumer desires.

  >>[DESCRIPTION: Taimur Hyat is talking]

  >>[AUDIO: Very interesting. And Cathy, you mentioned that the tech sector, I think that's a good segway to our third structural trend that we've identified, which was already underway but is clearly accelerated, which is this rise of the weightless economy. And by that, we mean companies, maybe well beyond Silicone Valley, well beyond the formal tech sector, that are technology forward, whose returns in revenues are driven by data and software and intellectual property and technology platforms, rather than by machinery and factory and equipment. 
  And I was curious, Warren, from your angle, from the equity angle, what you think some of the implications of this episode will be for the weightless economy and the technology sector. And by technology sector, I don't mean the narrowly defined tech sector but companies using technology to transform their industries.

  >>[DESCRIPTION: Warren Koontz is talking]

  >>[AUDIO: Sure. It's having a dramatic impact. And you know, if we go back to think about -- we talked about the supply chain. It's having a dramatic impact across any corporation, if you want it to be competitive. 
  And if [inaudible] somebody like an Amazon or Netflix or Disney, where we use that technology to be much more efficient from home and the value of those companies certainly increased in this COVID lockdown. But in addition to those, the weightless economy is having a dramatic impact in traditional manufacturing through visualization. 
  And again, to use the supply chain as an example, it allows, through the use of data, through the use of IP, you know, through the use of the management and the timely management of that, it allows a company's supply chain to be more flexible. What do I mean by that? We mean real time planning allows flexibility to react quicker to changing supply and demand and therefore affects how you might have flows to various manufacturing. 
  The data allows more granularity. What do we mean by that? Well, customers are demanding more and more individualized products. And therefore, if you are more timely and flexible, you are allowed to deliver more granularity across your product offering. And then [inaudible] digitization allows much more accuracy, accuracy in terms of timely information across the supply chain. And of course, more digitization means less human error. 
  And so it increases your accuracy. And then another aspect is efficiency, you know, the efficiency in supply chain, as Cathy mentioned, is boosted by the use of robotics and repetitive tasks, maybe managing the warehouse inventory and things of that nature. 
  And so, if you're running a more accurate, more efficient organization, a more flexible organization, you're also reducing waste, which when you're reducing waste, which has become increasingly important to reduce your carbon footprint. And so corporations have to do this nowadays to be able to be competitive. 
  The more efficient the company is and the better managed it is, this leads to better cashflow. And better cashflow and earnings will certainly drive higher valuations. I'm a value investor. And of course, we think one of the biggest drivers of companies’ valuations is cashflow. And so this digitization is having, I think, profound and dramatically good impact about companies across the landscape. And you have to do it in order to be a competitive player.

  >>[DESCRIPTION: Taimur Hyat is talking]

  >>[AUDIO: Okay. Nathan, but where -- maybe we'll hear somewhat more mixed feedback on kind of technology forward companies is in the share economy. And you know, when will passengers sit in Ubers again? How have gig economy workers more generally fared as the jobless schemes went up? We saw the numbers again this morning, again, 2.4. What are your thoughts on the shared economy and where that has been left in the now and the post-pandemic era?

  >>[DESCRIPTION: Nathan Sheets is talking]

  >>[AUDIO: Well, coming into this episode, I was a big fan of the gig economy from an economic efficiency standpoint and very much felt that the flexibility of the gig economy was allowing resources to be allocated in a more efficient way that was raising the productivity of the overall economy and creating lots of opportunities for people across the economy. 
  As a personal matter, I myself was a very heavy user of the gig economy and found a lot of benefits from it. But as I step back and think about some of the psychology of what people have gone through, I think there are serious questions, as you indicate, Taimur, about when are people going to feel comfortable again to get into, particularly, a series of cars where they're just not familiar with the speakers or with the drivers. 
  And similarly, for solutions, so bringing people into other's homes on an ad hoc basis. And I think these are questions that we'll get answers to over time. But my instinct is, coming out of this, that people may prefer more of a longer term kind of relationship with service providers in environments that they are familiar with and comfortable with and feel confidence in.

  >>[DESCRIPTION: Taimur Hyat is talking]

  >>[AUDIO: So maybe I'd like to shift the discussion, before we go to questions, to a fourth structural trend, and that's less about consumer behavior. Although, certainly will that be influenced by how people might vote in elections to government intervention and regulation. And I think the real question we have coming out of the coronavirus crisis is not if governments will intervene but how and to what extent. And where will they do good? And where will they do less good? 
  I think 9/11 led to a whole host of security measures for air travel and terrorist financing, protection [inaudible], the war on terror. The GFC led to the Financial Stability Board, Basel III, new liquidity and capital standards. It does seem like that government's involvement will, at a minimum, increase in sectors where there were shortages during the Great Lockdown, medicine, food supplies, and so on. Warren, maybe I'll kick off with you. What might this look like for companies and industries that you cover?

  >>[DESCRIPTION: Warren Koontz is talking]

  >>[AUDIO: Yeah. It's undoubtedly government investing, as you say, will increase. And there's a few obvious sectors right now, which have come to light during the COVID lockdown. And that of course, is pharmaceutical and of course, key medical supplies. 
  These will be undoubtedly increasingly pressured, persuaded to bring the production back to the US, including many CEOs of these companies are in agreement. They have realized that perhaps they've gotten tilted too far in one direction with regards to the production. 
  And we're starting to see -- I know Senator Rubio and others have joined him in starting to talk about the production and procurement of key products, particularly related to the pharmaceutical industry. None of this has passed yet. But you're starting to see the influence of this government intervention. 
  The other area which is also obvious but isn't obviously in the technology area -- of course, that could come to light under the trade wars and IP in terms of, you know, the Chinese, the US trade war. 
  And it's fascinating to me that we're starting to see this in a relatively near term incident. And that is, you know, these leading edge technologies, 5G and some of the others, that we've had an announcement in the very short term from Taiwan's semiconductor announcing plans to build and operate in advance semi fab in Arizona. And obviously, this is with the mutual understanding and likely commitment from the US government. 
  Now, this is clearly a government involved, from all levels of trying to bring sensitive technology to build a much more autonomous US supply chain. And I think we're going to see more and more of that. And so those are the -- that's some of the, you know, some of the obvious industries that you're going to see that in. And I think you're going to see it in other aspects of government as well. 
  Perhaps you've seen many companies in the financial industry and/or even across other industries, where do we have the case where capital allocation decisions now become part of government interference. And I mentioned, in particular, share buy backs, where that's been somewhat villainized in many industries with regards to the airlines. 
  You know, they spent a lot of the money buying back shares, you know, at the time and not saving for a rainy day. So while there has been a variety of discussions about that, perhaps at some point, we'll see a more direct influence or guidance from Washington on some of these decisions to make sure that capital structures of corporations will be able to weather a rainy day. 
  We all remember the great financial crisis and what that meant for banks. And of course, banks in this time are weathering it quite well. Reserves are nice. Capital is still quite substantial. Perhaps we'll see some aspects of that filter through to other corporations that we haven't had since then.

  >>[DESCRIPTION: Taimur Hyat is talking]

  >>[AUDIO: Cathy, are you seeing any of this government intervention play out in the near term and/or any thoughts on the longer term in the real estate sector, whether it's with developers or tenants or elsewhere is the real estate chain?

  >>[DESCRIPTION: Cathy Marcus is talking]

  >>[AUDIO: Sure. In the near term, we're seeing it play out with our tenants, both individual tenants as well as commercial tenants. And you know, we are seeing that people are continuing to pay our rent and a lot of that is because of the government support. 
  I mean, to be clear, most of the government intervention has been much more focused on keeping payrolls going versus even encouraging tenants to pay rent. But overall, we've been collecting, you know, over 90% of our multifamily rents in April and May, 80% of our industrial, and close to 90 in office. 
  You know, clearly retail is lagging, but that's to be expected. But I think longer term, you know, one of the areas that, you know, Taimur, you mentioned a few sort of things that happened after the GFC and after other crises. 
  You know, one of the things that could and probably should be focused on that is real estate related is around affordable housing. And I would say that inequality has been exacerbated throughout this crisis. And I'd also say there appears to be a heightened sense of, you know, the concern around inequality. And more and more people are focused on it. And affordable housing is a real crisis in this country. And I think the government could be very helpful in, you know, creating a better balance between encouraging development of affordable housing. 
  We need a lot more development of affordable housing than we have right now. But you know, creating programs that bridge the gap between the needs of society and the commercial realities and risk involved in any kind of development, even affordable housing development and just probably the lower risk than many other types of development.
  So I would say that some sort of a, you know, a broad national kind of focus on this is something that would be very, very helpful overall.

  >>[DESCRIPTION: Taimur Hyat is talking]

  >>[AUDIO: And speaking of national focus, Nathan, you've written eloquently about the tussle between nationalization and nationalism and globalization. 
  And how do you feel, what is essentially a cross country phenomena of pandemic that knows no borders is battling with states that are kind of closing down their countries to outside influence. You're seeing the geopolitical tensions rise between China and the US. Is this another nail in the coffin for globalization? Will it lead to more collaboration? Where are you on that tussle and where this leaves it?

  >>[DESCRIPTION: Nathan Sheets is talking]

  >>[AUDIO: Well, I very much agree with you that the pandemic on the heels of the trade war is underscoring the role of the nation state to protect its citizens from a range of actual and perceived risks. And in some deep way, is probably reinforcing the role of the state relative to some of the global trends and forces to where greater global integration that are also very much still present. 
  Now, I think to make matters even more challenging, these factors that we're dealing with, with the trade war and more recently, the pandemic, are coming at a time where there was already a sense that maybe globalization had failed to deliver everything that was hoped and in particular, I think a critique, that the gains from globalization were being shared unequally. And folks at the top of the income and wealth distribution were gaining disproportionately at the advantage of the rest of society. 
  I think this was giving rise to a whole range of kind of populous pressures and populous politics that we've seen in a wide range of countries around the world. Now all that said, Taimur, I think I remain a supporter of globalization. 
  I think that the forces of integration are powerful and are likely to continue. But I think the globalization -- and I've called it globalization 2.0 -- needs to be more pragmatic than it has been. I think we need to be more aware of potential social disruptions. We need to be more aware of the distributional issues and other kinds of challenges that globalization has brought. 
  You know, exactly how we balance all these concerns, I think is something that's still being figured out. But I think that during coming years and coming decades, that these forces of increased information and ability to travel and so forth that have brought us together will still very much be present. So I wouldn't say a nail in the coffin but a challenge, maybe an obstacle for us to overcome and to work around. But over time, I think that globalization to continue in some form.

  >>[DESCRIPTION: Taimur Hyat is talking]

  >>[AUDIO: It'll be fascinating to see how this plays out. Maybe jump into a few of the questions. And I'll try to summarize a few of them into teams that I'm seeing as the questions come in. Cathy, one for you, maybe if you make this a quick fly around. But there's a couple of questions on sort of seniors, nursing homes, how the elderly are affected. What are the implications for senior housing?

  >>[DESCRIPTION: Cathy Marcus is talking]

  >>[AUDIO: So we really think that long-term senior housing is one of the best opportunities on a risk [inaudible] basis in -- actually globally, I would say in the US too, but globally for sure. But you know, short term, there's definitely going to be, you know, some challenges for senior housing. And one of them is around supply. And that was a pre-COVID issue. 
  And post-COVID, we're actually thinking that that might be addressed a bit. But there clearly could be some stigma, you know, for the sector in general, even though the majority of the, you know, issues and some tragic occurrences lately have been in skilled nursing facilities, particular and very traditional type nursing homes. 
  And that's really something that I think, as time goes by, people will start to differentiate a bit more between an assisted living facility and a skilled nursing facility. And then of course, there's also going to be some expense pressures at a lot of the senior housing areas, mostly because of increases in cost of things like PPE but also labor. 
  And there's definitely been a bit of a hazard pay, you know, resetting of the labor costs, you know, which makes a lot of sense right now but will probably go away at some point. We think that, you know, the excess supply is really going to go away partially because people are a little bit nervous of the sector right now.
  But the long term demographic trends that will support this sector continue. From 2022 and on, the 75-year-old plus population is expected to surge. And the expected increase in the pace of demands, assuming that, you know, usage of senior housing remains about where it is right now, will far exceed supply, and in particular, if development of new stocks goes down in 2020 and 2021, which you know, seems likely right now. So long term, still you know, a very, very good place to be from an investment perspective.

  >>[DESCRIPTION: Taimur Hyat is talking]

  >>[AUDIO:  Thank you. Question -- maybe, Nathan, you could kick this one off. And then, Warren, it would be great to get your perspective. But the range of questions on emerging markets and what's the risk beyond, again, the pandemic, the sort of structure longer term view we are taking here of a sovereign debt crisis in emerging markets triggered by events that are going on now. And maybe, Nathan, a double piece for you on, you know, is China going to be losing manufacturing share as a result of what we've just described?

  >>[DESCRIPTION: Nathan Sheets is talking]

  >>[AUDIO: So on the EMs broadly, I think this is a rocky period for the emerging markets. They're begin hit by the pandemic very hard. And I think it's both the social distancing and illness that it brings. But the emerging markets are also very dependent on the global economy and those effects, terms of trade and commodity prices and so forth have been quite severe. 
  Further, as I look to the other side of this pandemic, I think many of these emerging market economies are likely to leave this episode with meaningfully higher doubt levels and, whereas I think the United States and many European countries, the markets are very likely to give those countries a pass. 
  I'm not sure that all of these emerging market economies are going to get that pass. So I do believe that there are some risks there that need to be monitoring -- need to be monitored. And you know, we are looking at these issues carefully as we think about emerging market investment. 
  But even so, over the longer term, I continue to believe that EM is a place that will generate alpha. And through this period, as we carefully pick credits and probably focus somewhat more on the higher rated emerging market credits, that there's alpha to be made. 
  Now, on the question about China and its manufacturing share, I very much agree with the view that many firms are going to leave this episode with a message that far flung supply chains and particularly far flung supply chains that are highly dependent on China, that those supply chains bear a lot of risk. And I think that that will cause some diversification of supply chains globally away from China and to maybe some extent in some industries, a effort to bring the supply chains home. 
  So bottom line is I do think that there is going to be some pressure on the Chinese manufacturing sector over the medium term as supply chains adjust. And maybe exacerbated by what seemed to be deepening tensions in the relationship between the United States and China and China and several of its other major trading partners. And I think that also is going to tend to put some pressure on China's manufacturing sector.

  >>[DESCRIPTION: Taimur Hyat is talking]

  >>[AUDIO:  Warren, what's your take on the equity side for EM?

  >>[DESCRIPTION: Warren Koontz is talking]

  >>[AUDIO:   Yeah, it's -- I agree with everything that Nathan said. It will be a rough time for them. Most of the world banking entities have allowed them to defer -- emerging markets to defer payments, which of course, they need to free up capital to help direct to fighting the coronavirus. Unfortunately, the amount [inaudible] adequate.
   So they're going to go through a very rough patch and have some dire circumstances on a humanitarian basis and of course, on a financial one. So our view, from the equity side on emerging market, is to tread carefully. Nathan used the term, you know, selective. We would agree with that. And the way we would look at it is, much as Nathan described, it's going to be a longer workout for the stronger emerging markets. And so we'll look at it on a very selective basis from the equity side.

  >>[DESCRIPTION: Taimur Hyat is talking]

  >>[AUDIO:   And Warren, maybe a follow up question that's coming through is, "What do you think of some of the winners and losers in terms of sectors within equity?"

  >>[DESCRIPTION: Warren Koontz is talking]

  >>[AUDIO:   Well, you know, I'm not the -- as everybody on the call probably knows, I am a value investor. And so we are in the process of having and have had a wonderful shopping list. If you think about the returns that we've seen in the market in the last decade, they've been substantial and meaningful.
   And then in a very dramatic and quick fashion, we were handed stock prices that sometimes were 50% below what they were just a few weeks prior. And so the way we look at that is, as a value investor, is what companies have we not been able to look at for a very long period of time that now have been handed to us at a very attractive price. 
  And so I would say that our opportunity set has increased. And I would also say that it's really quite wide in terms of sectors and industries. One of the areas that we like a lot now and are thinking about is in the industrial sector. Many of those companies have been, you know, shut down and again, handed a very good price. 
  Many of them are in very good financial condition and therefore we spend a lot of time on that. There are certainly aspects in the technology sector where you have -- and that still tended to hold up very well in this environment. But the other aspect that we're looking at, as we move through this year, where are these companies that have good balance sheets, good staying power, good managements. 
  And really, it's more broad-based than you might imagine. And so we have a fairly diversified approach and a fairly lengthy shopping list. And now we're just thinking about the time to invest. I do believe that it's going to take some time and that the move in the equity markets will be more in fits and starts. 
  Obviously we've bounced off the bottoms, the very March lows. Do we test that? I don't really know. But I do know, the more we see the economy start to gradually reopen, the more we will be applying, right, our cash in a useful manner.

  >>[DESCRIPTION: Taimur Hyat is talking]

  >>[AUDIO:  And, Nathan, inflation is another question I see a few people asking us around. What is your take on whether all this fiscal spend and monetary moves will cause inflation, if you kind of take a three, five-year horizon?

  >>[DESCRIPTION: Nathan Sheets is talking]

  >>[AUDIO:  So let me be a two-handed economist on that one. On the one hand, with rising government doubt levels and so much central bank stimulus, I think it's important that we keep the possibility that inflation might rise over the medium term. I think we've got to keep that in our minds and not lose sight. I mean, it's been a number of years since we've seen inflation. But inflation can emerge from those kinds of conditions. 
  On the other hand, those conditions, more or less, existed coming out of the global financial crisis. And many commentators expected the aftermath of the global financial crisis to be characterized by high inflation. And instead, what we had was sustained disinflation, where central banks, despite their best efforts, were unable to achieve their inflation targets. 
  And I think that what was going on is we were seeing deep structural forces at work in our economy. And I think that aging demographics have been at play. 
  These high doubt levels that I mentioned, instead of being inflationary, turned out to be more restraining a demand. And even with the challenges to globalization, I think that technology and global integration have brought, over the last decade, increased price competition has also served to keep inflation down. 
  So putting all of this together, my expectation is that the world that we lived in before this coronavirus episode, which was characterized by low inflation and challenges for central banks to get inflation up to their targets, is likely to continue on the other side and if anything, be more pronounced. But by the same token, I'm also aware that this thing could go in a different direction. 
  So just as there's uncertainty, unusual uncertainty about where the economy is headed in terms of growth, I also think that there is unusual uncertainty as to how inflation might perform over the longer term, while very much leaning in expectation to being a low inflation world.

  >>[DESCRIPTION: Taimur Hyat is talking]

  >>[AUDIO:  Very interesting. We'll have to watch that one. Well, we don't have time for more questions. But maybe just summarize some of the key things that came out of today's discussion, which I thought was really interesting. 
  So thank you to all three panelists. Is first, I think there is lots of near term uncertainty around Nathan's best case of that U-shaped or Nike swooshed recovery. There is no clear Goldilocks opening path. Open too soon and you have reinfection. 
  Open too slowly and the economic devastation increases. But there is, perhaps, somewhat more certainty around some of the structural trends that will signify the end game of the coronavirus. 
  I think the first of those is that the cost of doing business has likely gone up as companies figure out supply chains that are more location or have to bring supply chains back home, both of that raises the cost of business versus finding the cheaper single concentrated location for your business and how equity and debt investors will value this return to resiliency versus the EPS growth that you might have be given up for more protection. 
  And the down side is going to be a critical thing to monitor. Second, I think no one is in any doubt that government intervention will go up. But it may well extend beyond the stop filing and bringing back home or reshoring up medical and food supplies. It will affect taxes. It will affect which kinds of political parties win. It will affect how we put up barriers to trade. And therefore, again, the cost of doing business for companies and managing government regulation will be a big part of the story over the next five years.
   I think in real estate, we learned that certain sectors will probably get accelerated growth and momentum from the post-pandemic environment, that's logistics, it's cold storage, it's warehousing, it's for cell phones and data centers that [inaudible] technology world. But maybe dense urban centers, maybe co-shared spaces will do less well. 
  And then the weightless economy, which is something PGIM has been talking about for a while, really gets turbo charged by the events that have happened here. People's behaviors are fervently being reshaped. And that's about cloud. It's about streaming services. It's about remote working devices.
   You've got the pipes and plumbing that runs those services. And as Warren said, it's about companies using technology to improve their logistics, their supply chains, how they run their businesses in a much deeper and broader way than the narrow tech center. I do want to thank everyone who joined the call today. We appreciate the time you took to join us and participate in the discussion. There will be an On Demand version of the webcast that's available until May 27.
   And to learn more about PGIM's latest research and the winners and losers from the long-term pandemic effects, please do go to -- read After the Great Lockdown, which you can get at pgim.com/lockdown or email [inaudible] dot leadership@pgim.com if you have any questions. Enjoy the rest of your day.]
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