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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.

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Speaker 1: We bring you inside from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. There's

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Speaker 1: some real oddities in the FOREGN exchange market has clearly

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Speaker 1: market participants search for information. Let's drive that forward right now.

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Speaker 1: Sebastian Gallery where us with Nordia. He's known for writing

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Speaker 1: wonderfully dense important notes where you're like, damn, I hate

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Speaker 1: this guy. I've got to read every paragraph, and we

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Speaker 1: do that with Sebastian uh Galli, especially oh welco. Question

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Speaker 1: to get the conversation started, what is your observation on

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Speaker 1: currency dynamics right now? I think what you're seeing is

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Speaker 1: basically a form of normalization. You're seeing, for example, the

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Speaker 1: euro appreciated against the sterlings is also being driven by

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Speaker 1: exectations of negative rates. In the United Kingdom. You're seeing

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Speaker 1: some form of normalizations, but no great trends um if

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Speaker 1: you look, for example, in the margo market, the Church's theory,

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Speaker 1: which is something people love to hate for good reasons,

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Speaker 1: has actually been appreciating the last two to three weeks

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Speaker 1: and doing actually quite well, helping the central bank over

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Speaker 1: there to cut the interest rates by fifty basis point today.

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Speaker 1: You could see it on your bloomwerk. Okay, this is great,

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Speaker 1: and then you know Brazilian ROWL has actually had a

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Speaker 1: couple of good days versus the horrific pandemic statistics out

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Speaker 1: of there. But Sebastian, is there a theme that can

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Speaker 1: be identified here that it helps our listeners and viewers

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Speaker 1: forward over the next ninety days. Concurrency tell us something forward, Well,

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Speaker 1: they can tell you something about the effect in the

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Speaker 1: negative industry. So if the theme of negative interest rates

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Speaker 1: in the United States is an important one, denied of

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Speaker 1: course by the Federal Reserve, which is close to the banks.

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Speaker 1: They think the banks actually need to have very good

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Speaker 1: balance sheets, and it doesn't help what we call net income,

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Speaker 1: so the ability to generate money by running down the

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Speaker 1: curve um. But if it does have a negative impact

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Speaker 1: on on the dollar, it's gonna be great, particularly versus

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Speaker 1: emerging markets, also versus g tents such as the euro.

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Speaker 1: It could really reset the level of the dollar. And

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Speaker 1: why because negative entries they hit the people um who

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Speaker 1: are the most sensitive to it, which is namely the

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Speaker 1: safest type of investors, such as foreign reserves. That could

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Speaker 1: be China and the likes. It happened to the euro Zone.

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Speaker 1: I was there with the CB. They go for negative introvice,

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Speaker 1: particularly to talget these people to force him out of

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Speaker 1: the euro to reduce it. It works to some extent,

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Speaker 1: not completely, but it does work, and as they start

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Speaker 1: moving at a just the level of the euro in

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Speaker 1: the same obviously could happen also in the case of

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Speaker 1: the of the dollars. So one shouldn't neglect the fact

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Speaker 1: the negative industry could have a powerful impact on the US,

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Speaker 1: particularly because it owes money to the rest of the world.

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Speaker 1: It receives a lot of a portfolio flows, sting portfolio flows,

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Speaker 1: but it actually is not in a great position, though

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Speaker 1: a much better position than they used to be. So

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Speaker 1: it's a negative in Church Chase is not a great

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Speaker 1: story for fixed income in the US or risk taking,

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Speaker 1: but it is a bit, but it could be a

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Speaker 1: powerful one for the dollar. A wise man once told me,

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Speaker 1: and I won't confirm or deny whether it's a gentleman

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Speaker 1: we're currently interviewing, but he once told me that when

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Speaker 1: an economist becomes a central banker, they have to learn

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Speaker 1: to lie. Sep what are they lying to us about

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Speaker 1: right now? I know nothing about lying is absolutely not sure?

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Speaker 1: Carry on having having clarified it is that I am

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Speaker 1: not involved in this business. The business has central bankings

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Speaker 1: such as the military, is a business of lying. What

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Speaker 1: your objective is is to gather people around you to

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Speaker 1: create a narrative, to sell their narrative. There'll be hawks,

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Speaker 1: there will be doves, and some of them genuinely are,

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Speaker 1: but they are in the business of creating that storyline,

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Speaker 1: which then drives expectations in the market. You then have

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Speaker 1: what you could call anchor points within the markets. It's

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Speaker 1: important people large hedge fund manager, larger fixed income guys

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Speaker 1: and to something and they received better information than other

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Speaker 1: sense one of the reasons you want to be invested

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Speaker 1: with them. And they then drive also the narratives with

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Speaker 1: their own views and they group to some extent. Of course,

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Speaker 1: the inforced the FED, and it's a very powerful and

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Speaker 1: well organized type of operations. So not all central banks

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Speaker 1: are as efficient, but they are generally very very good,

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Speaker 1: from the PBOC in China to the Bank of England

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Speaker 1: which is the oldest one in the most experienced one

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Speaker 1: Bunk Defalse also and and the FED and their business

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Speaker 1: is to create the environments. If they tell you there's

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Speaker 1: no negative interest chase, that means they're probably considering they're

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Speaker 1: working on it. And they told the Bank of England

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Speaker 1: basically one of the oldest liars in central bankings. Yeah, well,

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Speaker 1: it's definitely the skepticism John, that you've been showing, as

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Speaker 1: you say, is you could get away with that because

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Speaker 1: of his accent accent, he couldn't be that cental Chris Basha.

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Speaker 1: Let's talk about what the FED can do. Let's say

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Speaker 1: they're not lying about not wanting to use negative interest

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Speaker 1: rates or not planning for it at this point, to

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Speaker 1: talk about the additional tools that they have on deck.

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Speaker 1: We've seen massive inflows into some of the credit et

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Speaker 1: f s and the hills of FED purchases in particular

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Speaker 1: l QD, H, y G and even J and K

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Speaker 1: more than a billion dollars of the past week into

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Speaker 1: each of those funds. How realistic is this? Is the

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Speaker 1: FED back stopping this and how much can the federally

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Speaker 1: expand in this area? A lot? I mean, never underestimate

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Speaker 1: the power of a central bank is one side of

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Speaker 1: banketor used to say, I can put fish on my bounce.

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Speaker 1: She doesn't really not an issue, so never understimated. The

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Speaker 1: only fish the only time when you wanna they have

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Speaker 1: said that, and the only time when you want to

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Speaker 1: have doubts is when inflation in rising. So when some

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Speaker 1: emerging markets things are broken, for example in the meat industry,

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Speaker 1: that creates inflation. When you have constraints in the system,

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Speaker 1: then they lose credibility and they're forced to act. But

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Speaker 1: if if you have low inflation, if there are there's

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Speaker 1: a significant amount of slack in the environment, they can

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Speaker 1: do so much. And probably what they're going to do

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Speaker 1: is try to go, of course in the high yield,

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Speaker 1: but go to small and make caps with many caps

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Speaker 1: and the and the likes mainstream facilities. Starting in June,

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Speaker 1: it probably will be increased a vastly going forward. So

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Speaker 1: that's probably one thing to look forward for. More advransious

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Speaker 1: center bacts even quite bearish on the outlook of the

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Speaker 1: economy to put pressure on the government as well as

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Speaker 1: on on the Congress to do something. But they probably

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Speaker 1: are also deeply concerned that they actually need to put

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Speaker 1: a much more pressure on the economy so that it

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Speaker 1: rebounds quite nicely. Sae tell him, this is the problem.

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Speaker 1: This conversation, this very conversation is basically why market participants

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Speaker 1: do not believe the Federal Reserve when they turn around

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Speaker 1: and say, no, the negative interest rate. And look, I'd

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Speaker 1: love to think that it's true. I hope they don't

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Speaker 1: go through with this, but there is a reason why

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Speaker 1: so many investors still think there's a chance they go

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Speaker 1: through with this till you overcome by events. I mean,

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Speaker 1: that's all there is to it, you know, Obi, And

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Speaker 1: in every institution can manage the messages all they want,

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Speaker 1: and then when the facts change, they change, and there

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Speaker 1: can be a set effects. John again, and I'm going

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Speaker 1: to claims, what fifty minutes away, you know, you do

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Speaker 1: a couple of months of unemployment that may qualify as

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Speaker 1: a Sebastian girl. Effects changeable. What's let's finish there, Let's

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Speaker 1: wrap things up. Let's say that the labor market doesn't

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Speaker 1: snap back quickly enough. Let's say that we really get

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Speaker 1: this really strong disinflationary trend that takes hold. An inflation

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Speaker 1: is steadily holding below where the policy rate is right now,

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Speaker 1: what's the next move at the Fed. Probably the next

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Speaker 1: move is is some form of credit easing quality everything,

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Speaker 1: because they want to sort basically an expanding fiscal balance

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Speaker 1: from from from the government, so they basically expand to

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Speaker 1: absorb it, and so that's where they need to do MBS.

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Speaker 1: It's going to be very slowly, not MBS, that's going

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Speaker 1: to come more with a lax so that you're talking

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Speaker 1: about six one, six months, one year, and one year

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Speaker 1: and half and two years down the road. Credit easing

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Speaker 1: basically going where the pressure is and try to encourage

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Speaker 1: people to take a credit risk and where it's very

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Speaker 1: difficult to take it, such as mini caps, small caps

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Speaker 1: and the life far more aggressions, negative intricate. That largely

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Speaker 1: depends on the relationship between the White House and UH

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Speaker 1: and the Federal Reserve. So it's really a debate you

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Speaker 1: really fet is essentially Republican institutions. White House obviously is

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Speaker 1: a Republican one. So on one side they have the

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Speaker 1: banking system, with which they're quite close to. On the

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Speaker 1: other side they are quite close to the economy in general,

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Speaker 1: and so they have to find some kind of balance.

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Speaker 1: Negative aturey straits are are possible in the in the

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Speaker 1: United States, they're probably working on them in terms of implications,

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Speaker 1: as the sues did for six months, and and that

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Speaker 1: probably will take them in another few weeks, and and

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Speaker 1: the debta ultimately will be a political one. There's the

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Speaker 1: fet is independent, but it doesn't mean that it's not

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Speaker 1: easily to some extent influences in some cases. So thank

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Speaker 1: you so much, greatly, greatly appreciate it this morning. Just

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Speaker 1: very very smart. Let's forget about the millions. Now, we

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Speaker 1: used to look at statistics weekly that we're two hundred

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Speaker 1: ten thousand, We get all lathered up. If we got

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Speaker 1: near two hundred or a hundred thousand, maybe two hundred

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Speaker 1: and thirty. John and I would stay up all night drinking,

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Speaker 1: worrying about the future of a fully employed America. And

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Speaker 1: now were up ten times above that two point four million,

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Speaker 1: and as Lisa pointed out presciently hit twenty minutes ago,

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Speaker 1: were so continuing claims matter and that statistic moves in

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Speaker 1: the wrong direction. Stephen Roshido has been a student of this.

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Speaker 1: He's at missooo and his charm is chief US Economist.

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Speaker 1: As he writes a shockingly interesting note, always digging into

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Speaker 1: y equals see plus I plus G plus annex. Stephen

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Speaker 1: Shudo joins us now steven the claims, but also on

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Speaker 1: your general work. What's the thing that you're most studying

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Speaker 1: about the American economy? Well, I clearly the the two

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Speaker 1: degree of deterioration is unprecedented, not only in size but

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Speaker 1: also on speed, given the nature of the lockdown, none

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Speaker 1: of that should be a surprise. What I'm really looking

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Speaker 1: at and focusing on that sets this position particular period

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Speaker 1: apart from others that most of us have grown up

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Speaker 1: in is the coordination between fiscal and monetary policy UM

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Speaker 1: striving for the same end result UM. You know, back

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Speaker 1: in n seventy nine, I should say, when Paul Vulker

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Speaker 1: moved us away from interest rate to money supply targeting

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Speaker 1: adopted monitorism. Basically, the Federal Reserve has been on a

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Speaker 1: process of demand management, i e. Trying to keep the

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Speaker 1: economy from creating underlying inflation pressures, and therefore, anytime fiscal

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Speaker 1: policy was employed, the Federal Reserve work to counter that

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Speaker 1: because they were trying to contain demand. This time through,

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Speaker 1: you're seeing a Federal Reserve take the exact opposite approach,

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Speaker 1: which is, we want to expand demand. We need to

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Speaker 1: expand demand. We will do whatever it takes to amplify

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Speaker 1: whatever is done on Capital Hill. And they're even coming

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Speaker 1: out and suggesting more fiscal policy is needed, which is

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Speaker 1: another major change in the in the dynamic, because the

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Speaker 1: Fed recognizes the risk they run here is global deflation

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Speaker 1: being imported into the United States, and that's the situation

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Speaker 1: they want to avoid, because once deflation gets here, it's

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Speaker 1: very hard to get rid of. Nobody has been able

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Speaker 1: to get rid of it to date. Stephen, the fiscal

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Speaker 1: stimulus we've gotten so far, there's been a question about

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Speaker 1: how quickly it's getting out to people. And I'm thinking

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Speaker 1: in part about the enhanced jobless benefits, and this really

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Speaker 1: comes into the numbers that we just saw the Continuing claims.

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Speaker 1: In focus is people try to gauge how many of

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Speaker 1: these unemployed people are actually receiving the money from the

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Speaker 1: government that has been allocated to them. We saw a

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Speaker 1: bigger than expected jump in the continuing claims now more

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Speaker 1: than twenty five million people receiving those enhanced jobless benefits.

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Speaker 1: What does this mean to you about how quickly people

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Speaker 1: are getting the money versus how quickly people are getting

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Speaker 1: their jobs back or not. As we see certain economies reopen.

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Speaker 1: You well, I think the problem here is going to be,

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Speaker 1: even though we can get the economy back to a

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Speaker 1: stronger growth trajectory much more quickly than I think some

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Speaker 1: people anticipate, the ability to get the labor market back

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Speaker 1: to where it was is something that is going to

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Speaker 1: be to take longer. Where it could take us a

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Speaker 1: year to get back to zero on a year over

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Speaker 1: year growth rate basis, so i e. The entire recovery

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Speaker 1: stretches out for over a year essentially this time in

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Speaker 1: one you know, we may be looking at a labor

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Speaker 1: market that's struggling for several years, principally because you know

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Speaker 1: we have people will be looking to try to maximize

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Speaker 1: their returns as much as possible, and the easiest way

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Speaker 1: to do that in an environment where demand picks up

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Speaker 1: is to create a situation where you control your expenses.

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Speaker 1: So therefore, the le labor market data is going to

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Speaker 1: lag as it is done in every business cycle in history,

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Speaker 1: and this time it's going to be one of the

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Speaker 1: longer ones. The two major jobless recoveries were the post

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Speaker 1: recovery period um and then again the two thousand and

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Speaker 1: seven period where it took us years to get back

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Speaker 1: to where we needed to be in eventually those very

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Speaker 1: low numbers that I was being talked about earlier on

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Speaker 1: in the beginning of the segment. So I think this

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Speaker 1: is gonna be a long process where the economy could

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Speaker 1: get back to a more healthy environment within a year's time.

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Speaker 1: I think it will take two years to get us

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Speaker 1: back to let's say, a seven percent unemployment rate, Steve,

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Speaker 1: When you look at historical parallels for a moment like this,

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Speaker 1: how useful aren't they? There really is only one, and

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Speaker 1: even that's not a particularly good historical comparison. Uh, you

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Speaker 1: have to go back um to Jimmy Carter and his

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Speaker 1: credit controls that he imposed on the economy back in

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Speaker 1: to ring out inflation in the economy. That caused the

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Speaker 1: underlying pace of economic activity dropped by ten um and

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Speaker 1: it caused a four percentage point up would jump in

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Speaker 1: the unemployment I should say, a two and a half

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Speaker 1: percent jump in the unemployment rate. So therefore nothing fully

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Speaker 1: compared to this. But that's the closest we can because again,

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Speaker 1: that was a government imposed tightening of credit on an

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Speaker 1: economy which was much more heavily manufacturing than it is today,

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Speaker 1: and therefore it had a bigger bite on the economy

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Speaker 1: in the extistrict, and the pain was so so severe

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Speaker 1: that they were forced to abandon it almost immediately, which

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Speaker 1: is why it's also is the shortest recession in America's history.

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Speaker 1: What's the partition, Steve Shooto, between big business and small business?

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Speaker 1: This is beginning to percolate about who's getting the benefits,

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Speaker 1: who's using the benefits, who's returning the benefits, who will

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Speaker 1: get the next tron to benefit? Split America between big

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Speaker 1: business and small business. Yeah, and if you're gonna provide

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Speaker 1: more stimulus, you have to give it the small business.

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Speaker 1: The reason for it is big business has the ability

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Speaker 1: to tap financial markets. And if you look at the

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Speaker 1: ability of the financial markets to provide financing two larger

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Speaker 1: corporations that have access to these markets. You know, in

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Speaker 1: the first half of this year, we've done about a

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Speaker 1: trillion dollars worth of i G origination trillion dollars UH

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Speaker 1: and a lot of it's been concentrated in the March

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Speaker 1: April May period, no surprise there um. And therefore that's

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Speaker 1: reliquefied a lot of them and allowed them to take

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Speaker 1: a lot of the short term liabilities they've accumulated by

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Speaker 1: drawing down tow lines of credit. Term amount over longer

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Speaker 1: reduced the impact on their interest expense and reduced their

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Speaker 1: impact on the dependence on short term borrowing, put them

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Speaker 1: in a healthier financial position. It's small America that has

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Speaker 1: to go to the banks, and it's small America that

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Speaker 1: is not being you know, adequately UH dealt with in

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Speaker 1: this particular period of time. So I think the next

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Speaker 1: round of Stimus honestly has to continue to be focused

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Speaker 1: at small, smaller and mid sized companies and to be

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Speaker 1: focused at individuals, because individuals the end of the day,

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Speaker 1: we are consuming economy. Three quarters of the two thirds

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Speaker 1: of the U S economy is consumer spending, and therefore

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Speaker 1: we need to make sure consumer spending picks up in

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Speaker 1: order to get this economy to pick up. So those

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Speaker 1: are the two areas where I think the next you know,

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Speaker 1: one trillion dollars should go to UH. And I think

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Speaker 1: it will be at least a one trillion dollar bility,

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Speaker 1: maybe even more than that. I don't think it will

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Speaker 1: be the three trillion dollars Heroes Act that was advanced

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Speaker 1: by the House and Representative. But I think it would

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Speaker 1: be something along the lines of another trillion to trillion

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Speaker 1: and a half, and I think all of that debt

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Speaker 1: will be purchased by the Federal Reserve. Yeah, that's certainly

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Speaker 1: what we've been seeing, crowding out the private sector in

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Speaker 1: terms of the monetization of all of the debt and

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Speaker 1: all of the deficit that the US is taking on.

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Speaker 1: I just I'm wondering what we can read into beyond

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Speaker 1: the claims Stephen, with respect to delinquencies that we're seeing

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Speaker 1: increasing with residential mortgages. We've seen it with credit card loans,

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Speaker 1: We've seen it with auto loans, and they've only continued

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Speaker 1: to increase the delinquencies and defaults at an accelerating pace.

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Speaker 1: At what point will we see this peek out? In

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Speaker 1: your opinion, Well, to be honest, with the delinquency process,

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Speaker 1: um is a lagged process. So again, if you were

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Speaker 1: to get the economy back act to zero on a

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Speaker 1: year over year basis by the second quarter of it

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Speaker 1: probably wouldn't be until the third or fourth quarter of

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Speaker 1: that you would get to be at a point where

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Speaker 1: you'll be glean to be very comfortable that the delinquency

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Speaker 1: rates are rolling over. Steve shad Mansour great a catch

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Speaker 1: out with the set. This is the most important conversation

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Speaker 1: of the day for so many of us. The whiplash

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Speaker 1: of volatility, the up to eighty on the VIX, where

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Speaker 1: we are now twenty eight, still a way above VIX

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Speaker 1: normal of twenty. It has been a shocking, shocking twelve months.

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Speaker 1: Stephen off the scene, all this before with Federated Herme's

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Speaker 1: running their equity operation. We're thrilled he could speak to

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Speaker 1: us on blue chip in investment. Steve, what did you

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Speaker 1: do in the middle of March? I mean, I mean

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Speaker 1: you know you're you're doing this for long term. Your

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Speaker 1: idea of short term is three years or five years.

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Speaker 1: What were you doing in the middle of March? Besides

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Speaker 1: looking at it Pittsburgh Pirates spring training most I was

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Speaker 1: watching Pittsburgh Spired string train anything. I uh, you know,

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Speaker 1: our view was in those kinds of down dress Tom.

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Speaker 1: You know, my experience tells me you just gotta hold

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Speaker 1: your fire. Now. We we went into the thing frankly

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Speaker 1: too optimistic, but we were, you know, basing our view

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Speaker 1: on the idea that the market was probably heading significantly higher.

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Speaker 1: A lot of drivers of this bull market I've talked

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Speaker 1: about on your show, and then the Corona thing hit

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Speaker 1: and it just came out part very very quickly. Um,

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Speaker 1: we were playing the chess game, and um, you know,

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Speaker 1: I learned a long time ago, I'm not the smartest

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Speaker 1: guy in this chessboard. And that's what I think. At

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Speaker 1: the bears in trouble, they start to think they're smart

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Speaker 1: than everybody else, and I'm looking at the same thing

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Speaker 1: everyone else is looking at, and I'm thinking, well, the

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Speaker 1: Fed's got to do something here. So we were advising

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Speaker 1: our clients hold your ground, hang on your equity overweights.

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Speaker 1: There will be a reaction here. And so we've held

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Speaker 1: our ground, and um, you know, we think we're still

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Speaker 1: in an up trend, you know, but what I would

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Speaker 1: call like kind of short term beer market within that,

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Speaker 1: and most importantly, Tom, what we have been focusing on

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Speaker 1: is stock picking, because I figured we can't really get

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Speaker 1: this market one way or the other, but we can

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Speaker 1: figure out which of the stocks are gonna win and lose.

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Speaker 1: So down at the lows, everything was getting closed. It

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Speaker 1: didn't matter whether you were a winner or a loser

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Speaker 1: or something between. And that's where the real opportunity was

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Speaker 1: there was just get by these winners. We know they're

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Speaker 1: going to actually do well in this environment. In fact,

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Speaker 1: in fact, many of them are actually growing their cash

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Speaker 1: flow in the Corona lockdown, and in a way, the

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Speaker 1: easy part of the game now it's getting. But Paul,

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Speaker 1: what's so important about what Mr Ross says here is

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Speaker 1: it's all easy to say, I got to identify the winners.

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Speaker 1: But in that exercise you try to avoid the losers.

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Speaker 1: I think that's even more important than finding the next

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Speaker 1: Amazon exactly. Yeah, Steve, you know you mentioned it's a

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Speaker 1: game about, you know, if you can just avoid the losers,

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Speaker 1: the blow ups in your portfolio. So so, Steve, what

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Speaker 1: are some of the sectors here? We again, we retraced

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Speaker 1: kind of half of that decline we saw decline peaked,

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Speaker 1: the tropic retraced, you know, maybe a little bit more

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Speaker 1: than half of that. What are some of the sectors

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Speaker 1: here as you look out to maybe the other side

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Speaker 1: of this pandemic that it got your attention right here? Well, well,

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Speaker 1: first of all, I just want to take exception to

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Speaker 1: that that this is one of the issues people say,

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Speaker 1: we've only three traced half to decline, if you look

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Speaker 1: at what I call the survivors, which these companies are

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Speaker 1: gonna make it through but need the economy to be alive.

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Speaker 1: They've retested their March twenty three lows. It's only the winners,

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Speaker 1: and the winners aren't going to retest March twenty three,

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Speaker 1: and so the average of the market looks like it's

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Speaker 1: only retraced half the well off low. It's the place

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Speaker 1: half decline or in the other end, hasn't gone back

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Speaker 1: to those lows. But actually the stocks that matter have uh.

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Speaker 1: In terms of sectors, we continue to think the digitization

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Speaker 1: of the economy is a big theme. It's accelerating as

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Speaker 1: a result of this. So therefore we like tech, but

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Speaker 1: more importantly, we like companies that are utilizing that now

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Speaker 1: in the broader economy. So it goes across sectors where

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Speaker 1: we're finding companies, particularly in small cap land, that are

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Speaker 1: taking advantage of technology to take share of the example,

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Speaker 1: tele Adoc right in the healthcare space is using technology

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Speaker 1: to deliver healthcare services online. Right that's a big growing

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Speaker 1: business right now. Um, we're looking at u Pharma because

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Speaker 1: we think that's another that's been a trend biotech. It's

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Speaker 1: accelerating now. Obviously we're even looking at this manufacturing renaissance

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Speaker 1: theme because we have a lot of companies that we

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Speaker 1: think are gonna okay. Right now, they look pretty beaten up.

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Speaker 1: But if this economy does come back as we expect

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Speaker 1: it will, and ship fits and starts, they're going to

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Speaker 1: be taking share as supply chains come back in from China.

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Speaker 1: You know, that's what's going to happen the next five years.

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Speaker 1: I don't think it matters who's the president. We do

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Speaker 1: we think? Do we think Steve about you know some

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Speaker 1: of the sectors that have just been really crushed. I'm

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Speaker 1: thinking about energy. For example, we're seeing oil come back

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Speaker 1: here um off of this historic lows uh in pricing,

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Speaker 1: negative pricing. Um. What do you think about the energy patch? Well,

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Speaker 1: we're not heavy there yet, we're sniffing around. I think

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Speaker 1: on the energy patch, the way I would play it

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Speaker 1: is to go with the real, big integrated names. They're

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Speaker 1: usually the boring stocks, but they actually are the beneficiaries.

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Speaker 1: You know, they've got the balance sheets and they're the

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Speaker 1: beneficiaries of the shakeout that's now happening as all these

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Speaker 1: wildcatters in Texas finally find out and this is why

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Speaker 1: the I think spots rowling is like the wildcatters are

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Speaker 1: finding out none of the uh the depots will take

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Speaker 1: their their supply, you know, and so they are being

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Speaker 1: forced to shut in. And a lot of those wells

430
00:23:15,840 --> 00:23:19,359
Speaker 1: can't come back up once they're shut in. So it's

431
00:23:19,400 --> 00:23:23,280
Speaker 1: the big players that have access to storage and have

432
00:23:23,440 --> 00:23:26,720
Speaker 1: balance sheets to get through this. They're going to benefit

433
00:23:26,800 --> 00:23:30,480
Speaker 1: from the inevitable rebound in energy prices. It's going to

434
00:23:30,560 --> 00:23:32,800
Speaker 1: happen over the next three years. There's been no investment

435
00:23:32,920 --> 00:23:37,000
Speaker 1: in new capacity and a lot of the existing is

436
00:23:37,040 --> 00:23:40,160
Speaker 1: being shut in and if the economy comes back. I'm

437
00:23:40,160 --> 00:23:43,720
Speaker 1: not a screaming buy on these names, but I um,

438
00:23:43,960 --> 00:23:47,040
Speaker 1: you can at least collect the dividend pretty safely here.

439
00:23:48,040 --> 00:23:50,199
Speaker 1: I think in the energy space I would play it

440
00:23:50,320 --> 00:23:53,680
Speaker 1: more defensively, is what I'm saying. Stephen Off driving the

441
00:23:53,720 --> 00:23:56,879
Speaker 1: market higher here with Federated Army's right now read on

442
00:23:56,920 --> 00:23:59,040
Speaker 1: the screens to the morning Well Green right now, deal

443
00:23:59,200 --> 00:24:02,760
Speaker 1: up points SMP for actually higher. Let me give you

444
00:24:02,760 --> 00:24:08,120
Speaker 1: those levels two nine seven to on standards six zero,

445
00:24:08,280 --> 00:24:15,399
Speaker 1: six thousand, six hundred on the data VIX under eight seven. Steve,

446
00:24:15,840 --> 00:24:17,880
Speaker 1: I hate to mention this Paul twice, but I got

447
00:24:17,880 --> 00:24:20,040
Speaker 1: to do it in one show. It's just a rare thing.

448
00:24:20,160 --> 00:24:23,359
Speaker 1: Robert Schiffman in the team over at Bloomberg Intelligence writing

449
00:24:23,440 --> 00:24:28,560
Speaker 1: up a credit report on one of the small technology

450
00:24:28,640 --> 00:24:33,240
Speaker 1: stocks called Microsoft. What would you like, Steve both, for

451
00:24:33,280 --> 00:24:37,520
Speaker 1: those tech giants to do with all that cash? I mean,

452
00:24:37,560 --> 00:24:41,119
Speaker 1: what's do they have an obligation to do something with it?

453
00:24:41,240 --> 00:24:44,480
Speaker 1: Or is a is a conservative buttondown guy like you

454
00:24:44,600 --> 00:24:48,639
Speaker 1: comfortable that they got a jillion dollars on their balance sheet.

455
00:24:49,640 --> 00:24:52,879
Speaker 1: I like the fact that they got the flexibility. Tom Um.

456
00:24:52,920 --> 00:24:55,840
Speaker 1: You know, as the market cap expands, it has not

457
00:24:55,960 --> 00:25:01,240
Speaker 1: become you know, excessive. They'll do maybe some acquisitions as

458
00:25:01,320 --> 00:25:05,480
Speaker 1: Microsoft and Google have in the areas that can expand

459
00:25:05,520 --> 00:25:09,400
Speaker 1: their footprint even further. It is in that space, as

460
00:25:09,440 --> 00:25:13,760
Speaker 1: you know, rich get richer environment, and that's one of

461
00:25:13,760 --> 00:25:15,480
Speaker 1: the reasons a lot of the large cabin names are

462
00:25:15,480 --> 00:25:17,960
Speaker 1: doing well. But it's and even the niche small cab

463
00:25:18,119 --> 00:25:24,160
Speaker 1: names that have niche capabilities that are growing in this environment. Um,

464
00:25:24,280 --> 00:25:26,600
Speaker 1: that's gonna be one of the games here. I guess

465
00:25:26,640 --> 00:25:28,320
Speaker 1: in the next two or three years, you're going to

466
00:25:28,400 --> 00:25:32,720
Speaker 1: see further consolidation and that's the case even in some

467
00:25:32,800 --> 00:25:38,680
Speaker 1: of these sectors we didn't talk about retail, restaurant, chains, hotels.

468
00:25:39,040 --> 00:25:44,280
Speaker 1: There's gonna be a consolidation of the winning players, and

469
00:25:44,359 --> 00:25:47,200
Speaker 1: you're gonna have capacity come out of the system that

470
00:25:47,320 --> 00:25:51,000
Speaker 1: was already suffering going into this thing. And this is

471
00:25:51,080 --> 00:25:55,600
Speaker 1: just this is just accelerating that process. Now. It's violent

472
00:25:55,840 --> 00:25:58,320
Speaker 1: what's going on. And that's the reason why you can't

473
00:25:58,320 --> 00:26:01,840
Speaker 1: be overly bullish about the economy because the creative destruction

474
00:26:01,880 --> 00:26:03,680
Speaker 1: process is going to be a little bit of a

475
00:26:03,760 --> 00:26:07,359
Speaker 1: drag here, I think in the next twelve, d eighteen months,

476
00:26:07,440 --> 00:26:10,040
Speaker 1: But if you're in the right stocks, I think you

477
00:26:10,080 --> 00:26:13,440
Speaker 1: can still do very well. See how much are that

478
00:26:13,680 --> 00:26:18,080
Speaker 1: Does a market really need another round of fiscal stimulus?

479
00:26:18,160 --> 00:26:20,600
Speaker 1: The first several rounds we got out of Washington were

480
00:26:20,640 --> 00:26:23,320
Speaker 1: generally bipartisan, generally out the door pretty quickly. But it

481
00:26:23,359 --> 00:26:26,000
Speaker 1: looks like this next round, whether it's the three trillion

482
00:26:26,040 --> 00:26:28,919
Speaker 1: that the House is proposing, not going to be so easy.

483
00:26:28,960 --> 00:26:31,040
Speaker 1: How much does the market really need another round of

484
00:26:31,040 --> 00:26:34,199
Speaker 1: fiscal stimulus? I don't think it's tom you know, a

485
00:26:34,240 --> 00:26:38,679
Speaker 1: pool rather um. What I kept saying during the crisis

486
00:26:38,840 --> 00:26:40,840
Speaker 1: was this is not a stimulus as the way we

487
00:26:40,920 --> 00:26:44,480
Speaker 1: normally think about it, it's basically a bridge loan. The

488
00:26:44,480 --> 00:26:46,880
Speaker 1: economy is healthy, we need a bridge loan to get

489
00:26:46,920 --> 00:26:49,639
Speaker 1: us through this liquidity crisis. So I think that's what

490
00:26:49,760 --> 00:26:53,880
Speaker 1: the first round should be characterized. It was a bridge loan. Now,

491
00:26:54,119 --> 00:26:56,359
Speaker 1: whether we use stimulus or not, it depends on how

492
00:26:56,440 --> 00:26:59,320
Speaker 1: well the bridge alone worked and how much creative destruction

493
00:26:59,440 --> 00:27:01,960
Speaker 1: is now going going to happen. But I think the

494
00:27:02,040 --> 00:27:06,400
Speaker 1: first rand of stimulus is now happening, which is we've

495
00:27:06,440 --> 00:27:09,679
Speaker 1: got all this cash piling up. The savings rate is

496
00:27:09,720 --> 00:27:13,960
Speaker 1: through the roof the so called unemployed, most of them

497
00:27:14,200 --> 00:27:18,160
Speaker 1: have been getting cash from the government. The businesses are

498
00:27:18,160 --> 00:27:21,280
Speaker 1: are are pretty liquid. We're going to see how much

499
00:27:21,320 --> 00:27:23,919
Speaker 1: of this spending gets unleashed now. And I think that

500
00:27:24,080 --> 00:27:26,760
Speaker 1: itself is going to be a stimulus. And if we

501
00:27:26,840 --> 00:27:30,280
Speaker 1: get progress, continued progress on the healthcare side with things

502
00:27:30,359 --> 00:27:35,600
Speaker 1: like Maderna and the vaccine side, that's a stimulus psychologically

503
00:27:36,040 --> 00:27:39,679
Speaker 1: to consumers who need a reason to spend their cash.

504
00:27:39,760 --> 00:27:42,480
Speaker 1: And so let's see how that goes over the summer.

505
00:27:42,920 --> 00:27:45,760
Speaker 1: And I think this is one reason why there isn't

506
00:27:45,760 --> 00:27:48,600
Speaker 1: a bipartisan support here. It's not as odd that we

507
00:27:48,640 --> 00:27:52,000
Speaker 1: need another big ranch of spending. Steve that's too much

508
00:27:52,040 --> 00:27:57,200
Speaker 1: optimism go away. That was federated is really greatly appreciated.

509
00:27:57,160 --> 00:28:04,480
Speaker 1: A ten of it is important that we chronicle this pandemic.

510
00:28:04,560 --> 00:28:07,080
Speaker 1: And we're just so proud of our staff that has

511
00:28:07,119 --> 00:28:10,480
Speaker 1: given us experts around the world. Jason Farley has what

512
00:28:10,560 --> 00:28:13,600
Speaker 1: appears to be a quiet job but extremely important at

513
00:28:13,600 --> 00:28:17,879
Speaker 1: the Johns Hopkins University where he drives forward their academic

514
00:28:18,000 --> 00:28:22,040
Speaker 1: acuity and nursing. We spoke to Dr Farley today and

515
00:28:22,080 --> 00:28:24,440
Speaker 1: has talked about all those lights at the end of

516
00:28:24,480 --> 00:28:29,280
Speaker 1: the American pandemic tunnel, many glimmers of hope, and I

517
00:28:29,359 --> 00:28:32,000
Speaker 1: just want the audience to know that we do see

518
00:28:32,040 --> 00:28:36,679
Speaker 1: hope on the horizon. The appearance of a calming of

519
00:28:36,680 --> 00:28:40,880
Speaker 1: the virus in certain locales and in Baltimore I am,

520
00:28:40,920 --> 00:28:43,440
Speaker 1: and in many other locations is happening. We're seeing a

521
00:28:43,440 --> 00:28:46,040
Speaker 1: flattening of the curve. But by no means do that

522
00:28:46,120 --> 00:28:50,440
Speaker 1: mean we can roll back our our active participation in

523
00:28:50,480 --> 00:28:52,920
Speaker 1: the social distancing measures when we're out about about our

524
00:28:52,960 --> 00:28:55,520
Speaker 1: life and I look at you know, rolling back to

525
00:28:55,640 --> 00:29:00,800
Speaker 1: social participation. The fact is we see social part anticipation.

526
00:29:01,240 --> 00:29:04,160
Speaker 1: Can we get away with this with the distances between

527
00:29:04,240 --> 00:29:07,760
Speaker 1: us six ft twelve feet whatever that number is, or

528
00:29:07,760 --> 00:29:10,640
Speaker 1: do we just really have to stay locked down? There's

529
00:29:10,680 --> 00:29:14,280
Speaker 1: a huge pushback. Yeah. No, you know, I think that

530
00:29:14,680 --> 00:29:21,000
Speaker 1: the population is exhibiting the exact same disillusionment we we anticipate,

531
00:29:21,320 --> 00:29:23,480
Speaker 1: you know, in the beginning of any kind of pandemic.

532
00:29:23,520 --> 00:29:25,720
Speaker 1: You know, there's great science around this. We see this

533
00:29:26,160 --> 00:29:30,480
Speaker 1: heroic effort of the population to come together into to persevere,

534
00:29:31,040 --> 00:29:33,880
Speaker 1: and then that over time really gives way to this

535
00:29:34,040 --> 00:29:36,640
Speaker 1: level of disillusionment where people begin to push back in

536
00:29:36,680 --> 00:29:39,920
Speaker 1: this feeling of you know, this desire to interact socially,

537
00:29:39,960 --> 00:29:42,040
Speaker 1: and we have the in the US, the Memorial Day

538
00:29:42,040 --> 00:29:45,240
Speaker 1: holidays coming up. I would just caution, you know, think

539
00:29:45,360 --> 00:29:49,200
Speaker 1: and plan accordingly. If you're getting together with others, you

540
00:29:49,320 --> 00:29:53,320
Speaker 1: have to set strategies so that you can maintain social distancing.

541
00:29:53,640 --> 00:29:55,560
Speaker 1: By no means that if the time to bring the

542
00:29:55,680 --> 00:29:58,920
Speaker 1: entire family together at the barbecue. There's tons of data

543
00:29:59,120 --> 00:30:04,200
Speaker 1: from the CDC about family related household related when multiple

544
00:30:04,200 --> 00:30:07,840
Speaker 1: different members of different households are coming together and the

545
00:30:07,920 --> 00:30:13,240
Speaker 1: subsequent infections that ensue. There's also data about transmissions in

546
00:30:13,520 --> 00:30:17,800
Speaker 1: churches who have kind of exceeded their capacity. So again,

547
00:30:17,960 --> 00:30:22,160
Speaker 1: what the large gatherings. It's really important, Jason, and talk

548
00:30:22,200 --> 00:30:25,440
Speaker 1: to me a bit about what medicine actually work in

549
00:30:25,520 --> 00:30:30,240
Speaker 1: treating COVID nineteen. Well, in the treatment of COVID nineteen UM,

550
00:30:30,320 --> 00:30:32,760
Speaker 1: we still have, you know, the glimmer of hope reducing

551
00:30:33,040 --> 00:30:37,440
Speaker 1: hospitalization with pridensvere. Although that study did not show statistical

552
00:30:37,480 --> 00:30:42,480
Speaker 1: benefits related to its um mortality of with the drug,

553
00:30:42,640 --> 00:30:45,880
Speaker 1: there was a statistical benefit of reducing the symptom burden

554
00:30:46,080 --> 00:30:49,560
Speaker 1: and the length of symptoms and hospitalization. UM. We also

555
00:30:49,600 --> 00:30:53,280
Speaker 1: have great news on the front of initial preliminary results

556
00:30:53,360 --> 00:30:57,280
Speaker 1: in recent attacks or monkeys as well as some guinea

557
00:30:57,320 --> 00:31:02,000
Speaker 1: pig models showing initial um ability of the vaccines of

558
00:31:02,080 --> 00:31:06,960
Speaker 1: the several vaccines in evaluation to produce a great antivirus response.

559
00:31:07,320 --> 00:31:09,720
Speaker 1: Now there's a long journey between the animal model and

560
00:31:09,760 --> 00:31:12,480
Speaker 1: the humans, but we do have at least some glimmers

561
00:31:12,520 --> 00:31:15,800
Speaker 1: of hope that those viruses UM that those vaccines are

562
00:31:15,840 --> 00:31:18,640
Speaker 1: helping having an impact on the virus. So all good

563
00:31:18,680 --> 00:31:23,200
Speaker 1: news is the virus mutating, No, I think UM, it's

564
00:31:23,200 --> 00:31:27,000
Speaker 1: a relatively stable virus. But we always see because viruses

565
00:31:27,600 --> 00:31:33,080
Speaker 1: replicate themselves billions and billions of copies per day. Um

566
00:31:33,120 --> 00:31:35,720
Speaker 1: that we always see a little bit of a drift

567
00:31:35,760 --> 00:31:38,760
Speaker 1: in the virus structure, so slow model changes in the

568
00:31:38,760 --> 00:31:41,040
Speaker 1: structure so that we can say that if I gave

569
00:31:41,080 --> 00:31:43,200
Speaker 1: the virus to persons BE, and they gave it to

570
00:31:43,280 --> 00:31:45,200
Speaker 1: person SEE, and then they gave it to person D.

571
00:31:45,600 --> 00:31:49,560
Speaker 1: Between A and D, we will see small changes. Those

572
00:31:49,680 --> 00:31:53,400
Speaker 1: changes aren't mutation. Their mutations in their growth that since

573
00:31:53,440 --> 00:31:55,920
Speaker 1: the word, but they're not mutations that mean that it

574
00:31:56,120 --> 00:32:00,880
Speaker 1: changes it pathogeniquity typically or changes it it's virulens or

575
00:32:00,920 --> 00:32:04,080
Speaker 1: the way in which it kills or you know, causes infection.

576
00:32:04,960 --> 00:32:09,320
Speaker 1: Jason Farley, the Johns Hopkins University School of Nursing. Thanks

577
00:32:09,400 --> 00:32:13,640
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen

578
00:32:13,880 --> 00:32:19,200
Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform

579
00:32:19,320 --> 00:32:23,600
Speaker 1: you prefer. I'm on Twitter at Tom Keane Before the podcast,

580
00:32:23,680 --> 00:32:27,160
Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio