Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jaily.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Let's
Speaker 1: do this. Let's dispense with the formalities right now and
Speaker 1: get to David Ricks Eli Lily chairman and CEO, and
Speaker 1: I do this. John and Lisa have a lot of
Speaker 1: questions about the news yesterday, But David, I think there's
Speaker 1: massive confusion over all of these fancy words, and particularly
Speaker 1: around vaccine, around anybody treatment. We conflate bacterial and virus
Speaker 1: therapies on top of each other. How does a vaccine
Speaker 1: differ from the antibody treatment you announced yesterday? Well, thanks
Speaker 1: for me on Tom, and it's any news last night
Speaker 1: with the emergency Use authorization in the US for our
Speaker 1: monoclonal antibody neutralizing antibody, which is a therapy that you're
Speaker 1: to be given in this approval if you have new,
Speaker 1: newer onset disease, so a positive test and symptoms, and
Speaker 1: particularly if you fall into a high risk group, you
Speaker 1: have underlying conditions or you're older, then you can take
Speaker 1: this therapy and in our studies that reduced the probability
Speaker 1: that you go to the hospital pretty dramatically by sevent um.
Speaker 1: So that's an important step, another tool now UM to
Speaker 1: help manage this disease just when we need it most there.
Speaker 1: In terms of how it works, you're asking what we
Speaker 1: did actually was UM. When your body is infected with
Speaker 1: a virus, it amounts a variety of immune responses. One
Speaker 1: of them is we create antibodies, which have been much
Speaker 1: talked about in these antibody testing UM. These antibodies, UH
Speaker 1: lock up the virus and dispose of it. What we
Speaker 1: did was took antibodies from surviving patients early in the pandemic.
Speaker 1: We isolated the very most potent ones in one in
Speaker 1: this case, and now we make it in a factory
Speaker 1: synthetically and give it medicine. This is really important. David Ricks.
Speaker 1: Can you suggest, just suggest that this bacterial like anibody therapy,
Speaker 1: almost like a bacterial antibiotic, could be a substitute for
Speaker 1: a true vaccine. Well, we're studying UM what we call
Speaker 1: passive immunization in a in a setting where you're trying
Speaker 1: to prevent spread. In our case, we're looking at spread
Speaker 1: within nursing home facilities. It's similar to vaccination in a way.
Speaker 1: So when you get a vaccine, we introduce a killed
Speaker 1: or modified version of a part of a virus, and
Speaker 1: your body recognizes that as foreign and mounts its own
Speaker 1: antibody response. Here, what we're doing is we're giving you
Speaker 1: the antibody response of someone else prior to getting sick.
Speaker 1: It's in a study, it's not approved by the FDA,
Speaker 1: and we don't have the data yet, but that's a
Speaker 1: very interesting approach, and if we look at other viruses
Speaker 1: like ebol, even this was the setting where these antibodies
Speaker 1: made the biggest difference. Of course in the US, and
Speaker 1: I think around the world, nursing home patients, elderly nursing
Speaker 1: comes are at the highest risk. So this would be
Speaker 1: an important positive event if it occurred, and we should
Speaker 1: have that data in the coming weeks. They have to
Speaker 1: build on what Tom's discussing. I think we're trying to
Speaker 1: ask the question as to whether we need a multi
Speaker 1: pronged approach here, not just the advance when we heard
Speaker 1: from Fiser yesterday, but maybe also complemented by what you're
Speaker 1: doing as well. One thing that stuck out for us
Speaker 1: all yesterday, it's just the storage of the m RNA
Speaker 1: vaccine that fights are moving forward with, and how difficult
Speaker 1: it is to store it really really freezing cold temperatures day.
Speaker 1: Can you speak to that, the developments there on that side,
Speaker 1: and how difficult it will be actually to distribute something
Speaker 1: like that widely and everywhere. Well, for for the messenger
Speaker 1: our inn A vaccines, they are fragile molecules, so they
Speaker 1: need to be held at a very very low temperature.
Speaker 1: That will likely not I don't think that's going to
Speaker 1: be a major barrier UM. Once this is broadly available
Speaker 1: in developed markets with advanced medical systems UM, where it
Speaker 1: becomes a problem is where refrigeration and available capacities UM
Speaker 1: in developing countries. UM. You know, it's gonna be much
Speaker 1: tougher and we'll take longer. That's why we have uh.
Speaker 1: You know, two of the leading ten UM vaccines are
Speaker 1: using this technology. Eight aren't and likely won't have those
Speaker 1: refrigeration constriction restrictions. I suspect some of those will work
Speaker 1: as well. I bet on that, and we'll likely end
Speaker 1: up with multiple shots on goal with vaccines. In the meantime,
Speaker 1: none of them will work a percent of the time,
Speaker 1: and back to the original question, will still need medicines
Speaker 1: like our anibody therapy to help those that will still
Speaker 1: get sick, hopefully at a much lower rate as we
Speaker 1: approach something like um herd immunity, but you'll still have
Speaker 1: endemic disease and we'll need therapies we have. There's many
Speaker 1: examples where this is true, including common respiratory viruses like RSV,
Speaker 1: where we have both vaccination and antibodies. They can go together,
Speaker 1: but together. I mean this is in the last forty
Speaker 1: eight hours we have two important developments in the fight
Speaker 1: against COVID nineteen. I think the future is looking more
Speaker 1: certain and brighter for sure. To build though on what
Speaker 1: John is talking about, there are some practical concerns as
Speaker 1: all of the pharmaceutical companies try to ramp up production,
Speaker 1: and I'm wondering supply chain issues, especially as a pandemic worsens.
Speaker 1: The idea that all of these different pharmaceutical companies are
Speaker 1: trying to go for the same thing and probably sourcing
Speaker 1: some of the same uh some of the same substances,
Speaker 1: as well as using some of the same staffers, how
Speaker 1: well can you ramp up production of the antibody therapies
Speaker 1: to meet demand in the next couple of months. Well,
Speaker 1: I wouldn't worry so much about that competition phase where
Speaker 1: we're competing our ideas. I think once it's clear they're winners,
Speaker 1: you'll see the industry come together to make product at scale.
Speaker 1: That's already occurred in the antibody space where Rosian, Regenera
Speaker 1: and who have a different approach from Lily's, have teamed up.
Speaker 1: We've teamed up with am Gin and then all of
Speaker 1: the largest contract manufacturing organizations in the world, like Samsung
Speaker 1: and Fuji to build out that supply base. So I
Speaker 1: don't think you're we're wasting material by by competing in
Speaker 1: that way. Of course, antibodies are complicated to make, one
Speaker 1: of the most complicated medicines we make, and we usually
Speaker 1: reserve them for severe disease like cancer and autommunity. Here
Speaker 1: we're talking about treating thousands millions of people potentially with
Speaker 1: these antibodies. It will strain that system and we will
Speaker 1: have scarcity, that's for sure. That's why the FDA last night,
Speaker 1: when they approved this, really asked doctors to use it
Speaker 1: in the highest risk patients. That's appropriate, so we use
Speaker 1: it where it matters most these a serious issues. We
Speaker 1: have about thirty seconds left and i'd i'd love for
Speaker 1: you to do me a favor on just the light
Speaker 1: and note, can you explain the offside rule to Tom
Speaker 1: Kane and about twenty seconds? Can you do that for us?
Speaker 1: You're talking about in football? Yes, of course offside just
Speaker 1: when when the offensive players in front of the defensive
Speaker 1: player prior to the ball being struck. Of course, once
Speaker 1: the ball struck he can run in front. It doesn't matter.
Speaker 1: That's different from hockey, where the blue line is what matters. Oh,
Speaker 1: thank you, that's very good, David Rickster. And of course
Speaker 1: the sport of Eli lily to our Olympic Committee which
Speaker 1: they've been committed to for for many years. Last week
Speaker 1: it was Guernsey in the U S election. This week
Speaker 1: it's the great rotation East Anglia and Latin bat Chappa
Speaker 1: is joining us. Now she's sitting there wondering what is
Speaker 1: it about to happen on this show? Join us from
Speaker 1: sock Jan she's the head of US right strategy and
Speaker 1: a place to say. She's still here. So Batra, let's
Speaker 1: just start with the bond market move of yesterday. You
Speaker 1: first take please, a spectacular move higher in in yield,
Speaker 1: and you know, basically the market has been all over
Speaker 1: the place supposed to be unwe the reflation trade after
Speaker 1: the election, and then we had to reflate in a
Speaker 1: rush yesterday. Um, so we've we've broken through some key
Speaker 1: uh you know, technical levels yesterday, and I think that
Speaker 1: they set off, like you said with with equities set
Speaker 1: off in the bond market could have legs as well.
Speaker 1: There's just a lot of cash in the sidelines that
Speaker 1: needs to be put to work, and if there's an opportunity,
Speaker 1: I think you're going to see a departure away from
Speaker 1: bonds into into risky assets. It's about a really important question.
Speaker 1: I did the math yesterday. I used JP Morgan just
Speaker 1: as a giant financial success. And yes it's come off
Speaker 1: the bottom, but it's nowhere back to the pre Valentine's
Speaker 1: Day trend. It needs to go up another fourteen percent
Speaker 1: sort of to get back to trend. Don't call me
Speaker 1: on that, folks, Those are rough numbers. Did you see
Speaker 1: a Catharsis yesterday going upper? Job so Bradra that did
Speaker 1: you see a Catharsis that speaks to a new bull
Speaker 1: market or a new leg of a bowl market. Well,
Speaker 1: I'm not an equity strategist, so I kind of a
Speaker 1: comment on the on the on the on the equity market,
Speaker 1: but from the bond side of the equation, I think
Speaker 1: one of the things that happened after the election was
Speaker 1: positioning was a lot cleaner. There were a lot of
Speaker 1: shorts going into the into the elections that got cleaned up.
Speaker 1: And when we got this sort of surprise news from Fiser,
Speaker 1: you saw this this sort of you know, massive sell
Speaker 1: off in bonds. And I think that the going forward,
Speaker 1: what the market is going to be focused on is is,
Speaker 1: like you mentioned earlier about what happens on the vaccine
Speaker 1: side of the equation. Um, you know, there's lots of
Speaker 1: logistical issues that need to be dealt with. It's a
Speaker 1: it's a it's a very large deployment from perhaps several
Speaker 1: different vaccine makers, and and how that gets ruled out
Speaker 1: is going to be very key on how the bond
Speaker 1: market reacts and how equities react as well. And I
Speaker 1: think for for a change, you're gonna see more correlation
Speaker 1: or sort of more negative correlation between equities and bonds
Speaker 1: where you see you know, riskond days and equities and
Speaker 1: the sell off in bonds. But I'm losing the neat
Speaker 1: narrative here. I gotta be honest. Yesterday I was really
Speaker 1: confused because we've got tenure yields shooting higher, seismic move
Speaker 1: you have break even rates, the expectation for longer term
Speaker 1: inflation not doing that much, so this isn't necessarily a
Speaker 1: surge in long term growth prospects. And all of a
Speaker 1: sudden you've got junk bonds yields at record lows, even
Speaker 1: though we've got an unemployment rate that still is a
Speaker 1: nero historic highs in the recent era. What's the narrative? So,
Speaker 1: you know, I would say, broadly speaking, real yields as
Speaker 1: well as break evens heading in the right direction. We
Speaker 1: hit a load of negative one percent in tennie real
Speaker 1: yields that's gone up to a closer negative ad basis points.
Speaker 1: And then in break evens as well, you saw about
Speaker 1: a six or seven basis point rise and break evens.
Speaker 1: So it's it's heading in the right direction. That's what
Speaker 1: you want to see in a reflation trade, higher real
Speaker 1: yields and wider break evens the question is one of caution.
Speaker 1: It's really hard for the bond market to price in
Speaker 1: a lot of exuberance in a very short period of time,
Speaker 1: given the fact that the FED is very much at
Speaker 1: play and there's really no certainty on a lot of fronts.
Speaker 1: I mean, there's not there's not good it's not clear
Speaker 1: that we're going to get any sort of fiscal stimulus
Speaker 1: by the end of the year. Even if we do,
Speaker 1: it's not going to be of the magie to that's
Speaker 1: required by the by the economy to prevent new term
Speaker 1: damage in the jobs market. Sespparentially mentioned the Federal Reserve,
Speaker 1: and for me, it's the recovery through twenty one that
Speaker 1: we all hope for, whether feds new reaction function will
Speaker 1: start to come into its own, where good news will
Speaker 1: just be good news because the FED is set we
Speaker 1: will not step in. How are you thinking about that
Speaker 1: after the news of the twenty four hours Well, I
Speaker 1: think the FED is doing exactly what they should be doing,
Speaker 1: which is the staining path. Right. There's not much they
Speaker 1: can do on the monetary policy side to stimulate the economy.
Speaker 1: What really need, what the economy really needs now is
Speaker 1: on the fiscal side if there is sort of an
Speaker 1: unruly sell off in bonds, and I can see the
Speaker 1: FED step in, But there's really no need for for
Speaker 1: any sort of monetary stimulus at the current time. Financial conditions,
Speaker 1: broadly speaking, are extraordinarily easy. You're looking at interestrates and
Speaker 1: historic blows, you know, equity markets and historic highs the
Speaker 1: dollars week. So there's really not much the Fed can
Speaker 1: do to move the needle. Really, the stimulus has to
Speaker 1: come on the fiscals time side to stop job losses.
Speaker 1: It's about a right to catch up. As Owise selk Jan,
Speaker 1: what we're trying to do John Fern, Liza bramoitts into
Speaker 1: all of you on radio and TV, is bring you
Speaker 1: more than the markets. We're looking at economics, finance, investment
Speaker 1: as horrific virus. As we speak to scientists, sometimes we
Speaker 1: speak to politicians. Kethy Hokel is a Lieutenant governor of
Speaker 1: the Empire State. She knows the trajectory of the Erie
Speaker 1: Canal as it opened up western New York and from
Speaker 1: Onondaga to Munroe to Erie County, it is a yellow zone.
Speaker 1: The Lieutenant governor joins us this morning, Cathy, what does
Speaker 1: the yellow zone, and what does it mean as you
Speaker 1: confront a new virus. Well, thank you for having me
Speaker 1: back on the show, and yes, I'm embedded in that
Speaker 1: yellow zone right now. Yellow means caution, and it says
Speaker 1: that if our numbers don't start trending downward, reversing where
Speaker 1: we've been for the last two weeks, we'll be in
Speaker 1: in a situation where we're heading to orange and red,
Speaker 1: and those means we will have shutdowns, and we'll be
Speaker 1: trying very hard not to get to a situation where
Speaker 1: we have to reverse the progress we've made on reopening.
Speaker 1: But our schools also have to do more testing. We've
Speaker 1: limited the number of people at gatherings. So it's not
Speaker 1: the worst case scenario, but it's a warning to our
Speaker 1: residence here that I've been saying for days. Now change
Speaker 1: your behavior or you'll be locked out of your favorite
Speaker 1: restaurant and you have no chance of going through a
Speaker 1: football game in person this year, and a lot of
Speaker 1: other consequences. So it's basically trying to stay beware and
Speaker 1: change your behavior starting today, Lieutenant Governor of the Conceit
Speaker 1: is the big cities have ample medicine, ample hospitalization. I
Speaker 1: think of strong and that complex and Rochester over in Buffalo,
Speaker 1: you've seen a positivity rate that is just exploded. Are
Speaker 1: you concerned with Governor Cuomo about the hospitalization facilities available?
Speaker 1: The good news is is that we are prepared for
Speaker 1: even more capacity, far more capacity in the early months
Speaker 1: of this pandemic, and the Governor made sure that we
Speaker 1: had ample supplies of PPE and all the hospitals, each
Speaker 1: one was required to have at least a three months
Speaker 1: additional supply. I've been in regular charge with their leadership
Speaker 1: of the hospitals. Yes, our numbers have gone up, but
Speaker 1: it's about maybe people in hospitals in Western York. We
Speaker 1: can handle that now. But you're absolutely right, it's something
Speaker 1: that if the numbers, you know, the number of people
Speaker 1: testing positive, if they turn into serious cases and hospitalizations required,
Speaker 1: we're going to have to get back to the eliminating
Speaker 1: the elective surgeries and a lot of the unessential procedures
Speaker 1: that are now going on, so we can create the
Speaker 1: capacity very quickly. Though. We are actually have unfortunately a
Speaker 1: lot of experience dealing with this and we'll be able
Speaker 1: to handle it in the meantime, Cathy, yesterday we got
Speaker 1: incredible news on the vaccine front from Fiser, A lot
Speaker 1: of people expecting a turn, perhaps an end to the
Speaker 1: pandemic next year, but there's a lot of daylight between
Speaker 1: now and then, and some people saying that will reduce
Speaker 1: the emphasis on a fiscal support plan from Washington, d C.
Speaker 1: From your vantage point, how much does this take pressure
Speaker 1: off of Washington to help with the twelve billion dollar
Speaker 1: bailout for the m t A, to help with the
Speaker 1: unemployment as more people get laid off as the virus
Speaker 1: counts go up, and just help financially going forward. I
Speaker 1: don't think they're related. I don't think that having a
Speaker 1: vaccine takes the pressure off at all, because we've already
Speaker 1: lost that money. We've already lost the revenues and the
Speaker 1: feeds generated from people using our transportation systems or from
Speaker 1: the sales tax revenues that were not collected, and the
Speaker 1: extraordinary cost that we had to incur just fighting this
Speaker 1: pandemic and are still paying for now. That's not gone
Speaker 1: away with the vaccine, And the truth is this vaccine
Speaker 1: is going to take a while to be wildly disseminated
Speaker 1: and have a real impact now. Governor Cuomo this summer
Speaker 1: started working on this, you know, very early on to
Speaker 1: have a widespread distribution plan in the state of New York,
Speaker 1: one that's quite different from what the White House is proposing,
Speaker 1: where they're saying they're going to get into the hands
Speaker 1: of doctors and to the pharmacies. Would is great if
Speaker 1: you live in an area that has a lot of
Speaker 1: doctors and pharmacies, but large parts of New York City,
Speaker 1: or what we call healthcare deserts, they don't have a
Speaker 1: right A or CVS or Walgreens. Where are they supposed
Speaker 1: to get it? So we're focused in New York. I'm
Speaker 1: making sure that communities that have been hardest hit that
Speaker 1: make sure that they're not left out of the distribution
Speaker 1: of the vaccine early on as well, because many of
Speaker 1: those individuals in the black and brown communities, they're the
Speaker 1: frontline workers, they're the health care workers, they're the mt
Speaker 1: mt A workers. So we want to make sure that
Speaker 1: there's the plan includes everyone and is fairly distributed as
Speaker 1: quickly as possible. Lieutenant Government. Just to finish on a
Speaker 1: final question about restrictions, We've seen restrictions from Massachusetts, we've
Speaker 1: seen it from Utah, and yesterday evening we saw it
Speaker 1: from the government New Jersey, Mr Murphy, Now Phil Murphy
Speaker 1: outlined a plan that we're all familiar with here in
Speaker 1: the UK, which is to close down indoor dining from
Speaker 1: ten pm. We're familiar with that. Because it didn't end there.
Speaker 1: Something else came next, Cathy, do you see merit in
Speaker 1: that approach? Lieutenant Governor? Do you think that is a
Speaker 1: good approach to allow indoor dining to shut at tempm?
Speaker 1: Does that make sense to you to stop at temp M.
Speaker 1: We actually have a restaurants have to shut down at
Speaker 1: midnight in New York City and that is part of
Speaker 1: our Yellow Zone in fact, and you know upstate New
Speaker 1: York those counties that you referenced earlier will now be
Speaker 1: having restaurants shut down at midnight because people tend to
Speaker 1: the more you drink, the more you're out, you know,
Speaker 1: more likely to gather at parties afterwards. You just analyze
Speaker 1: human behavior. Your defenses go down the more alcohol you've consumed,
Speaker 1: the left you are to be compliant about wearing the mask.
Speaker 1: So we think it makes sense. The issue that we
Speaker 1: have here, though, Lieutenant Governor, is it didn't stop there,
Speaker 1: and it clearly wasn't sufficient. You're not at all concerned
Speaker 1: that twelve doesn't make sense, tend doesn't make sense that
Speaker 1: actually you need to get ahead of what's about to
Speaker 1: happen through winter. Well you'res you're asking if it's going
Speaker 1: to be more a restrictive Well, the numbers will dictate
Speaker 1: that in the state of New York and New York
Speaker 1: City's infection rate was one eight percent on Friday, it
Speaker 1: has creeped up to about two point five percent. So clearly, yes,
Speaker 1: we are watching those numbers. And as we head into
Speaker 1: various zones, the one zone that does require a shutdown
Speaker 1: of restaurants is that is the red zone. What we're
Speaker 1: now doing is limiting the number of people at tables.
Speaker 1: You can't have ten people at the table, you can
Speaker 1: only at for so everything you're talking about, we are
Speaker 1: watching what going on in other states. But New York
Speaker 1: still maintains that we are the lowest large state infection ry.
Speaker 1: I think a couple of rural states are maybe a
Speaker 1: little bit lower than us, but we want to maintain that.
Speaker 1: And you're absolutely right that everything has to be on
Speaker 1: the table to consider if we get to that situation.
Speaker 1: At sending Governor, we appreciate your time and howefully will
Speaker 1: catch up against and Cathy. How cool that Mr Pharaoh
Speaker 1: identifies that spread between Russell two thousands small cap is
Speaker 1: indicated by the big tech is negative. Big tech negative
Speaker 1: of Russell two thousand is positive. Stampsovo has seen this before.
Speaker 1: He's a cfi A. Well, actually none of us have
Speaker 1: seen what we saw yesterday, and it will go and
Speaker 1: you acclaim stock almanac, Sam Stovo, just your single summary
Speaker 1: of how unusual was yesterday? Well, Tom, very unusual. I
Speaker 1: mean we were up uh more than five percent at
Speaker 1: one point on the day, and then we closed up
Speaker 1: one on the S and P five. So when you
Speaker 1: look to you know, closing percent changes, Um, it's just
Speaker 1: simply a blip. We had five times this year that
Speaker 1: we're even substantially stronger. On March we were up nine
Speaker 1: point in a single day. Um. And so I would
Speaker 1: say it would certainly add excitement to one's portfolio, but
Speaker 1: certainly not adding a lot in terms of asset value.
Speaker 1: Right now, Sam, yesterday was a catch up tride. We
Speaker 1: can all agree on that the names, the parts of
Speaker 1: the market that were left behind all caught up. What
Speaker 1: people thought it was safe suddenly became a massive risk
Speaker 1: you reprice Boom twenty four as done or is it?
Speaker 1: And Sam, that's the question right now. Was yesterday the
Speaker 1: catch up trade or the beginning of a durable trend?
Speaker 1: Now that's really difficult to identify with one day's price action.
Speaker 1: But Sam, do you have a cool on that? Well?
Speaker 1: I think that you know when you look to the
Speaker 1: individual day then you know you're absolutely correct. Um, you
Speaker 1: had basically seventy of the near one hundred and fifties
Speaker 1: sub industries in the SMP in positive territory, so it
Speaker 1: was pretty broadly diversified. The SMP six was up close
Speaker 1: to five in the single day. Mid caps are up
Speaker 1: three percent versus the large caps a little more than
Speaker 1: one percent. Game. I think that because investors are saying,
Speaker 1: we've got ten companies around the world that are in
Speaker 1: phase three trials of a COVID nineteen virus vaccine, that
Speaker 1: even if Fiser's stumbles a little bit, we still have
Speaker 1: nine more that we can work with. And so Wall
Speaker 1: Street is looking beyond the valley, it's looking beyond the
Speaker 1: spike right now and saying six to twelve months from now,
Speaker 1: things will be growing. And the real question is by
Speaker 1: how much will analysts be elevating their two thousand and
Speaker 1: twenty one estimates, and we all have to look beyond
Speaker 1: this valley just to stay upright, frankly, because the pandemic
Speaker 1: hasn't been that fun. That said, you still have to
Speaker 1: start wondering about valuations. Yes, we are going to reach
Speaker 1: some sort of new normal, but record highs basically in
Speaker 1: a lot of the equity indices, and this is predicated
Speaker 1: on the idea that interest rates will stay low. At
Speaker 1: what point will treasury yields rise high enough to offset
Speaker 1: that narrative to basically say we have to reset valuations. Yes,
Speaker 1: it's a better world, but valuations got too high for
Speaker 1: where rates maybe well, good point. If you look at
Speaker 1: it on an absolute basis, basically everything looks expensive. SMPI
Speaker 1: trading at twenty two point four times next twelve month
Speaker 1: and TM earnings, which is a thirty premium to its
Speaker 1: average over the last twenty years. Every sector except financials
Speaker 1: and healthcare are trading at double digit premiums on a
Speaker 1: relative basis. However, only consumer discretionary and energy are trading
Speaker 1: at double digit premiums to the market. So I guess
Speaker 1: it really depends on whether we're going to be seeing
Speaker 1: rotation or an actual retreat right now. From a technical perspective,
Speaker 1: I think we have to see interest rates go above
Speaker 1: one in order for us to see a technical rotation
Speaker 1: from a bearish trend to a neutral trend. And then
Speaker 1: I think we need to see interest rates rise more
Speaker 1: dramatically for investors to really get scared and think that
Speaker 1: inflation is right around the corner. And just to give
Speaker 1: some perspective, we now have a tenure yield near session
Speaker 1: highs at nine basis points, so about five basis points
Speaker 1: away from that one percent mark. There is also a
Speaker 1: question of whether this rotation means losses for big tech
Speaker 1: or just under performance. What's your take on that, sand Well,
Speaker 1: right now we're going for um losses or under performance,
Speaker 1: actually near term losses, but more longer term under performance.
Speaker 1: When you look at the SMP five growth minus value
Speaker 1: on a rolling twelve month basis, we hit an all
Speaker 1: time high in August and then again in September, meaning
Speaker 1: that going back to the twelve months present change for
Speaker 1: growth stocks minus uh that that for value was at
Speaker 1: about thirty five percentage points higher than where we were
Speaker 1: during the tech bubble of the late nineties. So, uh,
Speaker 1: it just seeing that it was a matter of time
Speaker 1: before we saw some sort of rotation away from growth
Speaker 1: and toward value, which were in the very early phases
Speaker 1: of right now. So, Sam, this rise is a really
Speaker 1: important question. Let me build on one. LEAKSA just asked
Speaker 1: how much risk is through the index level for passive
Speaker 1: investors just sitting and holding the SMP five hundred, given
Speaker 1: the waitings of these huge tech names Apple six of
Speaker 1: the SMP, Microsoft five and a half percent, Amazon about
Speaker 1: four and a half percent. Is there a lot of
Speaker 1: risk at the index level because of the white things? Um?
Speaker 1: I guess. So. I mean, when you think about it,
Speaker 1: you mentioned technology with Microsoft and Apple, but then you've
Speaker 1: got Facebook and the two share classes of Google in
Speaker 1: the communications services, you have Amazon and Visa in the
Speaker 1: consumer discretionary. So it's not just one sector. It is
Speaker 1: spread around. Uh. And so it is a large cap
Speaker 1: index and therefore the behemans do tend to drive the action.
Speaker 1: But interesting, back in two thousand and eight you would
Speaker 1: have said pretty much the same thing. Um, ditto back
Speaker 1: in two thousand Yet the equal weight five tends to
Speaker 1: fall more precipitously in the early phases of bear Mark
Speaker 1: it's or or corrections, so it is interesting, but the
Speaker 1: they do offer ballast because of their size, because of
Speaker 1: their market share, etcetera. Well, the equal way at a
Speaker 1: massive day yesterday, Sam, It's great to catch up to
Speaker 1: get your thoughts on this market. What a move we've had,
Speaker 1: What a week already. Sam Stuggle, the CFI right Chief
Speaker 1: Investment strategistic Thanks for listening to the Bloomberg Surveillance podcast.
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Speaker 1: Keane before the podcast. You can always catch us worldwide.
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