Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: We bring you inside 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. There's
Speaker 1: some real oddities in the FOREGN exchange market has clearly
Speaker 1: market participants search for information. Let's drive that forward right now.
Speaker 1: Sebastian Gallery where us with Nordia. He's known for writing
Speaker 1: wonderfully dense important notes where you're like, damn, I hate
Speaker 1: this guy. I've got to read every paragraph, and we
Speaker 1: do that with Sebastian uh Galli, especially oh welco. Question
Speaker 1: to get the conversation started, what is your observation on
Speaker 1: currency dynamics right now? I think what you're seeing is
Speaker 1: basically a form of normalization. You're seeing, for example, the
Speaker 1: euro appreciated against the sterlings is also being driven by
Speaker 1: exectations of negative rates. In the United Kingdom. You're seeing
Speaker 1: some form of normalizations, but no great trends um if
Speaker 1: you look, for example, in the margo market, the Church's theory,
Speaker 1: which is something people love to hate for good reasons,
Speaker 1: has actually been appreciating the last two to three weeks
Speaker 1: and doing actually quite well, helping the central bank over
Speaker 1: there to cut the interest rates by fifty basis point today.
Speaker 1: You could see it on your bloomwerk. Okay, this is great,
Speaker 1: and then you know Brazilian ROWL has actually had a
Speaker 1: couple of good days versus the horrific pandemic statistics out
Speaker 1: of there. But Sebastian, is there a theme that can
Speaker 1: be identified here that it helps our listeners and viewers
Speaker 1: forward over the next ninety days. Concurrency tell us something forward, Well,
Speaker 1: they can tell you something about the effect in the
Speaker 1: negative industry. So if the theme of negative interest rates
Speaker 1: in the United States is an important one, denied of
Speaker 1: course by the Federal Reserve, which is close to the banks.
Speaker 1: They think the banks actually need to have very good
Speaker 1: balance sheets, and it doesn't help what we call net income,
Speaker 1: so the ability to generate money by running down the
Speaker 1: curve um. But if it does have a negative impact
Speaker 1: on on the dollar, it's gonna be great, particularly versus
Speaker 1: emerging markets, also versus g tents such as the euro.
Speaker 1: It could really reset the level of the dollar. And
Speaker 1: why because negative entries they hit the people um who
Speaker 1: are the most sensitive to it, which is namely the
Speaker 1: safest type of investors, such as foreign reserves. That could
Speaker 1: be China and the likes. It happened to the euro Zone.
Speaker 1: I was there with the CB. They go for negative introvice,
Speaker 1: particularly to talget these people to force him out of
Speaker 1: the euro to reduce it. It works to some extent,
Speaker 1: not completely, but it does work, and as they start
Speaker 1: moving at a just the level of the euro in
Speaker 1: the same obviously could happen also in the case of
Speaker 1: the of the dollars. So one shouldn't neglect the fact
Speaker 1: the negative industry could have a powerful impact on the US,
Speaker 1: particularly because it owes money to the rest of the world.
Speaker 1: It receives a lot of a portfolio flows, sting portfolio flows,
Speaker 1: but it actually is not in a great position, though
Speaker 1: a much better position than they used to be. So
Speaker 1: it's a negative in Church Chase is not a great
Speaker 1: story for fixed income in the US or risk taking,
Speaker 1: but it is a bit, but it could be a
Speaker 1: powerful one for the dollar. A wise man once told me,
Speaker 1: and I won't confirm or deny whether it's a gentleman
Speaker 1: we're currently interviewing, but he once told me that when
Speaker 1: an economist becomes a central banker, they have to learn
Speaker 1: to lie. Sep what are they lying to us about
Speaker 1: right now? I know nothing about lying is absolutely not sure?
Speaker 1: Carry on having having clarified it is that I am
Speaker 1: not involved in this business. The business has central bankings
Speaker 1: such as the military, is a business of lying. What
Speaker 1: your objective is is to gather people around you to
Speaker 1: create a narrative, to sell their narrative. There'll be hawks,
Speaker 1: there will be doves, and some of them genuinely are,
Speaker 1: but they are in the business of creating that storyline,
Speaker 1: which then drives expectations in the market. You then have
Speaker 1: what you could call anchor points within the markets. It's
Speaker 1: important people large hedge fund manager, larger fixed income guys
Speaker 1: and to something and they received better information than other
Speaker 1: sense one of the reasons you want to be invested
Speaker 1: with them. And they then drive also the narratives with
Speaker 1: their own views and they group to some extent. Of course,
Speaker 1: the inforced the FED, and it's a very powerful and
Speaker 1: well organized type of operations. So not all central banks
Speaker 1: are as efficient, but they are generally very very good,
Speaker 1: from the PBOC in China to the Bank of England
Speaker 1: which is the oldest one in the most experienced one
Speaker 1: Bunk Defalse also and and the FED and their business
Speaker 1: is to create the environments. If they tell you there's
Speaker 1: no negative interest chase, that means they're probably considering they're
Speaker 1: working on it. And they told the Bank of England
Speaker 1: basically one of the oldest liars in central bankings. Yeah, well,
Speaker 1: it's definitely the skepticism John, that you've been showing, as
Speaker 1: you say, is you could get away with that because
Speaker 1: of his accent accent, he couldn't be that cental Chris Basha.
Speaker 1: Let's talk about what the FED can do. Let's say
Speaker 1: they're not lying about not wanting to use negative interest
Speaker 1: rates or not planning for it at this point, to
Speaker 1: talk about the additional tools that they have on deck.
Speaker 1: We've seen massive inflows into some of the credit et
Speaker 1: f s and the hills of FED purchases in particular
Speaker 1: l QD, H, y G and even J and K
Speaker 1: more than a billion dollars of the past week into
Speaker 1: each of those funds. How realistic is this? Is the
Speaker 1: FED back stopping this and how much can the federally
Speaker 1: expand in this area? A lot? I mean, never underestimate
Speaker 1: the power of a central bank is one side of
Speaker 1: banketor used to say, I can put fish on my bounce.
Speaker 1: She doesn't really not an issue, so never understimated. The
Speaker 1: only fish the only time when you wanna they have
Speaker 1: said that, and the only time when you want to
Speaker 1: have doubts is when inflation in rising. So when some
Speaker 1: emerging markets things are broken, for example in the meat industry,
Speaker 1: that creates inflation. When you have constraints in the system,
Speaker 1: then they lose credibility and they're forced to act. But
Speaker 1: if if you have low inflation, if there are there's
Speaker 1: a significant amount of slack in the environment, they can
Speaker 1: do so much. And probably what they're going to do
Speaker 1: is try to go, of course in the high yield,
Speaker 1: but go to small and make caps with many caps
Speaker 1: and the and the likes mainstream facilities. Starting in June,
Speaker 1: it probably will be increased a vastly going forward. So
Speaker 1: that's probably one thing to look forward for. More advransious
Speaker 1: center bacts even quite bearish on the outlook of the
Speaker 1: economy to put pressure on the government as well as
Speaker 1: on on the Congress to do something. But they probably
Speaker 1: are also deeply concerned that they actually need to put
Speaker 1: a much more pressure on the economy so that it
Speaker 1: rebounds quite nicely. Sae tell him, this is the problem.
Speaker 1: This conversation, this very conversation is basically why market participants
Speaker 1: do not believe the Federal Reserve when they turn around
Speaker 1: and say, no, the negative interest rate. And look, I'd
Speaker 1: love to think that it's true. I hope they don't
Speaker 1: go through with this, but there is a reason why
Speaker 1: so many investors still think there's a chance they go
Speaker 1: through with this till you overcome by events. I mean,
Speaker 1: that's all there is to it, you know, Obi, And
Speaker 1: in every institution can manage the messages all they want,
Speaker 1: and then when the facts change, they change, and there
Speaker 1: can be a set effects. John again, and I'm going
Speaker 1: to claims, what fifty minutes away, you know, you do
Speaker 1: a couple of months of unemployment that may qualify as
Speaker 1: a Sebastian girl. Effects changeable. What's let's finish there, Let's
Speaker 1: wrap things up. Let's say that the labor market doesn't
Speaker 1: snap back quickly enough. Let's say that we really get
Speaker 1: this really strong disinflationary trend that takes hold. An inflation
Speaker 1: is steadily holding below where the policy rate is right now,
Speaker 1: what's the next move at the Fed. Probably the next
Speaker 1: move is is some form of credit easing quality everything,
Speaker 1: because they want to sort basically an expanding fiscal balance
Speaker 1: from from from the government, so they basically expand to
Speaker 1: absorb it, and so that's where they need to do MBS.
Speaker 1: It's going to be very slowly, not MBS, that's going
Speaker 1: to come more with a lax so that you're talking
Speaker 1: about six one, six months, one year, and one year
Speaker 1: and half and two years down the road. Credit easing
Speaker 1: basically going where the pressure is and try to encourage
Speaker 1: people to take a credit risk and where it's very
Speaker 1: difficult to take it, such as mini caps, small caps
Speaker 1: and the life far more aggressions, negative intricate. That largely
Speaker 1: depends on the relationship between the White House and UH
Speaker 1: and the Federal Reserve. So it's really a debate you
Speaker 1: really fet is essentially Republican institutions. White House obviously is
Speaker 1: a Republican one. So on one side they have the
Speaker 1: banking system, with which they're quite close to. On the
Speaker 1: other side they are quite close to the economy in general,
Speaker 1: and so they have to find some kind of balance.
Speaker 1: Negative aturey straits are are possible in the in the
Speaker 1: United States, they're probably working on them in terms of implications,
Speaker 1: as the sues did for six months, and and that
Speaker 1: probably will take them in another few weeks, and and
Speaker 1: the debta ultimately will be a political one. There's the
Speaker 1: fet is independent, but it doesn't mean that it's not
Speaker 1: easily to some extent influences in some cases. So thank
Speaker 1: you so much, greatly, greatly appreciate it this morning. Just
Speaker 1: very very smart. Let's forget about the millions. Now, we
Speaker 1: used to look at statistics weekly that we're two hundred
Speaker 1: ten thousand, We get all lathered up. If we got
Speaker 1: near two hundred or a hundred thousand, maybe two hundred
Speaker 1: and thirty. John and I would stay up all night drinking,
Speaker 1: worrying about the future of a fully employed America. And
Speaker 1: now were up ten times above that two point four million,
Speaker 1: and as Lisa pointed out presciently hit twenty minutes ago,
Speaker 1: were so continuing claims matter and that statistic moves in
Speaker 1: the wrong direction. Stephen Roshido has been a student of this.
Speaker 1: He's at missooo and his charm is chief US Economist.
Speaker 1: As he writes a shockingly interesting note, always digging into
Speaker 1: y equals see plus I plus G plus annex. Stephen
Speaker 1: Shudo joins us now steven the claims, but also on
Speaker 1: your general work. What's the thing that you're most studying
Speaker 1: about the American economy? Well, I clearly the the two
Speaker 1: degree of deterioration is unprecedented, not only in size but
Speaker 1: also on speed, given the nature of the lockdown, none
Speaker 1: of that should be a surprise. What I'm really looking
Speaker 1: at and focusing on that sets this position particular period
Speaker 1: apart from others that most of us have grown up
Speaker 1: in is the coordination between fiscal and monetary policy UM
Speaker 1: striving for the same end result UM. You know, back
Speaker 1: in n seventy nine, I should say, when Paul Vulker
Speaker 1: moved us away from interest rate to money supply targeting
Speaker 1: adopted monitorism. Basically, the Federal Reserve has been on a
Speaker 1: process of demand management, i e. Trying to keep the
Speaker 1: economy from creating underlying inflation pressures, and therefore, anytime fiscal
Speaker 1: policy was employed, the Federal Reserve work to counter that
Speaker 1: because they were trying to contain demand. This time through,
Speaker 1: you're seeing a Federal Reserve take the exact opposite approach,
Speaker 1: which is, we want to expand demand. We need to
Speaker 1: expand demand. We will do whatever it takes to amplify
Speaker 1: whatever is done on Capital Hill. And they're even coming
Speaker 1: out and suggesting more fiscal policy is needed, which is
Speaker 1: another major change in the in the dynamic, because the
Speaker 1: Fed recognizes the risk they run here is global deflation
Speaker 1: being imported into the United States, and that's the situation
Speaker 1: they want to avoid, because once deflation gets here, it's
Speaker 1: very hard to get rid of. Nobody has been able
Speaker 1: to get rid of it to date. Stephen, the fiscal
Speaker 1: stimulus we've gotten so far, there's been a question about
Speaker 1: how quickly it's getting out to people. And I'm thinking
Speaker 1: in part about the enhanced jobless benefits, and this really
Speaker 1: comes into the numbers that we just saw the Continuing claims.
Speaker 1: In focus is people try to gauge how many of
Speaker 1: these unemployed people are actually receiving the money from the
Speaker 1: government that has been allocated to them. We saw a
Speaker 1: bigger than expected jump in the continuing claims now more
Speaker 1: than twenty five million people receiving those enhanced jobless benefits.
Speaker 1: What does this mean to you about how quickly people
Speaker 1: are getting the money versus how quickly people are getting
Speaker 1: their jobs back or not. As we see certain economies reopen.
Speaker 1: You well, I think the problem here is going to be,
Speaker 1: even though we can get the economy back to a
Speaker 1: stronger growth trajectory much more quickly than I think some
Speaker 1: people anticipate, the ability to get the labor market back
Speaker 1: to where it was is something that is going to
Speaker 1: be to take longer. Where it could take us a
Speaker 1: year to get back to zero on a year over
Speaker 1: year growth rate basis, so i e. The entire recovery
Speaker 1: stretches out for over a year essentially this time in
Speaker 1: one you know, we may be looking at a labor
Speaker 1: market that's struggling for several years, principally because you know
Speaker 1: we have people will be looking to try to maximize
Speaker 1: their returns as much as possible, and the easiest way
Speaker 1: to do that in an environment where demand picks up
Speaker 1: is to create a situation where you control your expenses.
Speaker 1: So therefore, the le labor market data is going to
Speaker 1: lag as it is done in every business cycle in history,
Speaker 1: and this time it's going to be one of the
Speaker 1: longer ones. The two major jobless recoveries were the post
Speaker 1: recovery period um and then again the two thousand and
Speaker 1: seven period where it took us years to get back
Speaker 1: to where we needed to be in eventually those very
Speaker 1: low numbers that I was being talked about earlier on
Speaker 1: in the beginning of the segment. So I think this
Speaker 1: is gonna be a long process where the economy could
Speaker 1: get back to a more healthy environment within a year's time.
Speaker 1: I think it will take two years to get us
Speaker 1: back to let's say, a seven percent unemployment rate, Steve,
Speaker 1: When you look at historical parallels for a moment like this,
Speaker 1: how useful aren't they? There really is only one, and
Speaker 1: even that's not a particularly good historical comparison. Uh, you
Speaker 1: have to go back um to Jimmy Carter and his
Speaker 1: credit controls that he imposed on the economy back in
Speaker 1: to ring out inflation in the economy. That caused the
Speaker 1: underlying pace of economic activity dropped by ten um and
Speaker 1: it caused a four percentage point up would jump in
Speaker 1: the unemployment I should say, a two and a half
Speaker 1: percent jump in the unemployment rate. So therefore nothing fully
Speaker 1: compared to this. But that's the closest we can because again,
Speaker 1: that was a government imposed tightening of credit on an
Speaker 1: economy which was much more heavily manufacturing than it is today,
Speaker 1: and therefore it had a bigger bite on the economy
Speaker 1: in the extistrict, and the pain was so so severe
Speaker 1: that they were forced to abandon it almost immediately, which
Speaker 1: is why it's also is the shortest recession in America's history.
Speaker 1: What's the partition, Steve Shooto, between big business and small business?
Speaker 1: This is beginning to percolate about who's getting the benefits,
Speaker 1: who's using the benefits, who's returning the benefits, who will
Speaker 1: get the next tron to benefit? Split America between big
Speaker 1: business and small business. Yeah, and if you're gonna provide
Speaker 1: more stimulus, you have to give it the small business.
Speaker 1: The reason for it is big business has the ability
Speaker 1: to tap financial markets. And if you look at the
Speaker 1: ability of the financial markets to provide financing two larger
Speaker 1: corporations that have access to these markets. You know, in
Speaker 1: the first half of this year, we've done about a
Speaker 1: trillion dollars worth of i G origination trillion dollars UH
Speaker 1: and a lot of it's been concentrated in the March
Speaker 1: April May period, no surprise there um. And therefore that's
Speaker 1: reliquefied a lot of them and allowed them to take
Speaker 1: a lot of the short term liabilities they've accumulated by
Speaker 1: drawing down tow lines of credit. Term amount over longer
Speaker 1: reduced the impact on their interest expense and reduced their
Speaker 1: impact on the dependence on short term borrowing, put them
Speaker 1: in a healthier financial position. It's small America that has
Speaker 1: to go to the banks, and it's small America that
Speaker 1: is not being you know, adequately UH dealt with in
Speaker 1: this particular period of time. So I think the next
Speaker 1: round of Stimus honestly has to continue to be focused
Speaker 1: at small, smaller and mid sized companies and to be
Speaker 1: focused at individuals, because individuals the end of the day,
Speaker 1: we are consuming economy. Three quarters of the two thirds
Speaker 1: of the U S economy is consumer spending, and therefore
Speaker 1: we need to make sure consumer spending picks up in
Speaker 1: order to get this economy to pick up. So those
Speaker 1: are the two areas where I think the next you know,
Speaker 1: one trillion dollars should go to UH. And I think
Speaker 1: it will be at least a one trillion dollar bility,
Speaker 1: maybe even more than that. I don't think it will
Speaker 1: be the three trillion dollars Heroes Act that was advanced
Speaker 1: by the House and Representative. But I think it would
Speaker 1: be something along the lines of another trillion to trillion
Speaker 1: and a half, and I think all of that debt
Speaker 1: will be purchased by the Federal Reserve. Yeah, that's certainly
Speaker 1: what we've been seeing, crowding out the private sector in
Speaker 1: terms of the monetization of all of the debt and
Speaker 1: all of the deficit that the US is taking on.
Speaker 1: I just I'm wondering what we can read into beyond
Speaker 1: the claims Stephen, with respect to delinquencies that we're seeing
Speaker 1: increasing with residential mortgages. We've seen it with credit card loans,
Speaker 1: We've seen it with auto loans, and they've only continued
Speaker 1: to increase the delinquencies and defaults at an accelerating pace.
Speaker 1: At what point will we see this peek out? In
Speaker 1: your opinion, Well, to be honest, with the delinquency process,
Speaker 1: um is a lagged process. So again, if you were
Speaker 1: to get the economy back act to zero on a
Speaker 1: year over year basis by the second quarter of it
Speaker 1: probably wouldn't be until the third or fourth quarter of
Speaker 1: that you would get to be at a point where
Speaker 1: you'll be glean to be very comfortable that the delinquency
Speaker 1: rates are rolling over. Steve shad Mansour great a catch
Speaker 1: out with the set. This is the most important conversation
Speaker 1: of the day for so many of us. The whiplash
Speaker 1: of volatility, the up to eighty on the VIX, where
Speaker 1: we are now twenty eight, still a way above VIX
Speaker 1: normal of twenty. It has been a shocking, shocking twelve months.
Speaker 1: Stephen off the scene, all this before with Federated Herme's
Speaker 1: running their equity operation. We're thrilled he could speak to
Speaker 1: us on blue chip in investment. Steve, what did you
Speaker 1: do in the middle of March? I mean, I mean
Speaker 1: you know you're you're doing this for long term. Your
Speaker 1: idea of short term is three years or five years.
Speaker 1: What were you doing in the middle of March? Besides
Speaker 1: looking at it Pittsburgh Pirates spring training most I was
Speaker 1: watching Pittsburgh Spired string train anything. I uh, you know,
Speaker 1: our view was in those kinds of down dress Tom.
Speaker 1: You know, my experience tells me you just gotta hold
Speaker 1: your fire. Now. We we went into the thing frankly
Speaker 1: too optimistic, but we were, you know, basing our view
Speaker 1: on the idea that the market was probably heading significantly higher.
Speaker 1: A lot of drivers of this bull market I've talked
Speaker 1: about on your show, and then the Corona thing hit
Speaker 1: and it just came out part very very quickly. Um,
Speaker 1: we were playing the chess game, and um, you know,
Speaker 1: I learned a long time ago, I'm not the smartest
Speaker 1: guy in this chessboard. And that's what I think. At
Speaker 1: the bears in trouble, they start to think they're smart
Speaker 1: than everybody else, and I'm looking at the same thing
Speaker 1: everyone else is looking at, and I'm thinking, well, the
Speaker 1: Fed's got to do something here. So we were advising
Speaker 1: our clients hold your ground, hang on your equity overweights.
Speaker 1: There will be a reaction here. And so we've held
Speaker 1: our ground, and um, you know, we think we're still
Speaker 1: in an up trend, you know, but what I would
Speaker 1: call like kind of short term beer market within that,
Speaker 1: and most importantly, Tom, what we have been focusing on
Speaker 1: is stock picking, because I figured we can't really get
Speaker 1: this market one way or the other, but we can
Speaker 1: figure out which of the stocks are gonna win and lose.
Speaker 1: So down at the lows, everything was getting closed. It
Speaker 1: didn't matter whether you were a winner or a loser
Speaker 1: or something between. And that's where the real opportunity was
Speaker 1: there was just get by these winners. We know they're
Speaker 1: going to actually do well in this environment. In fact,
Speaker 1: in fact, many of them are actually growing their cash
Speaker 1: flow in the Corona lockdown, and in a way, the
Speaker 1: easy part of the game now it's getting. But Paul,
Speaker 1: what's so important about what Mr Ross says here is
Speaker 1: it's all easy to say, I got to identify the winners.
Speaker 1: But in that exercise you try to avoid the losers.
Speaker 1: I think that's even more important than finding the next
Speaker 1: Amazon exactly. Yeah, Steve, you know you mentioned it's a
Speaker 1: game about, you know, if you can just avoid the losers,
Speaker 1: the blow ups in your portfolio. So so, Steve, what
Speaker 1: are some of the sectors here? We again, we retraced
Speaker 1: kind of half of that decline we saw decline peaked,
Speaker 1: the tropic retraced, you know, maybe a little bit more
Speaker 1: than half of that. What are some of the sectors
Speaker 1: here as you look out to maybe the other side
Speaker 1: of this pandemic that it got your attention right here? Well, well,
Speaker 1: first of all, I just want to take exception to
Speaker 1: that that this is one of the issues people say,
Speaker 1: we've only three traced half to decline, if you look
Speaker 1: at what I call the survivors, which these companies are
Speaker 1: gonna make it through but need the economy to be alive.
Speaker 1: They've retested their March twenty three lows. It's only the winners,
Speaker 1: and the winners aren't going to retest March twenty three,
Speaker 1: and so the average of the market looks like it's
Speaker 1: only retraced half the well off low. It's the place
Speaker 1: half decline or in the other end, hasn't gone back
Speaker 1: to those lows. But actually the stocks that matter have uh.
Speaker 1: In terms of sectors, we continue to think the digitization
Speaker 1: of the economy is a big theme. It's accelerating as
Speaker 1: a result of this. So therefore we like tech, but
Speaker 1: more importantly, we like companies that are utilizing that now
Speaker 1: in the broader economy. So it goes across sectors where
Speaker 1: we're finding companies, particularly in small cap land, that are
Speaker 1: taking advantage of technology to take share of the example,
Speaker 1: tele Adoc right in the healthcare space is using technology
Speaker 1: to deliver healthcare services online. Right that's a big growing
Speaker 1: business right now. Um, we're looking at u Pharma because
Speaker 1: we think that's another that's been a trend biotech. It's
Speaker 1: accelerating now. Obviously we're even looking at this manufacturing renaissance
Speaker 1: theme because we have a lot of companies that we
Speaker 1: think are gonna okay. Right now, they look pretty beaten up.
Speaker 1: But if this economy does come back as we expect
Speaker 1: it will, and ship fits and starts, they're going to
Speaker 1: be taking share as supply chains come back in from China.
Speaker 1: You know, that's what's going to happen the next five years.
Speaker 1: I don't think it matters who's the president. We do
Speaker 1: we think? Do we think Steve about you know some
Speaker 1: of the sectors that have just been really crushed. I'm
Speaker 1: thinking about energy. For example, we're seeing oil come back
Speaker 1: here um off of this historic lows uh in pricing,
Speaker 1: negative pricing. Um. What do you think about the energy patch? Well,
Speaker 1: we're not heavy there yet, we're sniffing around. I think
Speaker 1: on the energy patch, the way I would play it
Speaker 1: is to go with the real, big integrated names. They're
Speaker 1: usually the boring stocks, but they actually are the beneficiaries.
Speaker 1: You know, they've got the balance sheets and they're the
Speaker 1: beneficiaries of the shakeout that's now happening as all these
Speaker 1: wildcatters in Texas finally find out and this is why
Speaker 1: the I think spots rowling is like the wildcatters are
Speaker 1: finding out none of the uh the depots will take
Speaker 1: their their supply, you know, and so they are being
Speaker 1: forced to shut in. And a lot of those wells
Speaker 1: can't come back up once they're shut in. So it's
Speaker 1: the big players that have access to storage and have
Speaker 1: balance sheets to get through this. They're going to benefit
Speaker 1: from the inevitable rebound in energy prices. It's going to
Speaker 1: happen over the next three years. There's been no investment
Speaker 1: in new capacity and a lot of the existing is
Speaker 1: being shut in and if the economy comes back. I'm
Speaker 1: not a screaming buy on these names, but I um,
Speaker 1: you can at least collect the dividend pretty safely here.
Speaker 1: I think in the energy space I would play it
Speaker 1: more defensively, is what I'm saying. Stephen Off driving the
Speaker 1: market higher here with Federated Army's right now read on
Speaker 1: the screens to the morning Well Green right now, deal
Speaker 1: up points SMP for actually higher. Let me give you
Speaker 1: those levels two nine seven to on standards six zero,
Speaker 1: six thousand, six hundred on the data VIX under eight seven. Steve,
Speaker 1: I hate to mention this Paul twice, but I got
Speaker 1: to do it in one show. It's just a rare thing.
Speaker 1: Robert Schiffman in the team over at Bloomberg Intelligence writing
Speaker 1: up a credit report on one of the small technology
Speaker 1: stocks called Microsoft. What would you like, Steve both, for
Speaker 1: those tech giants to do with all that cash? I mean,
Speaker 1: what's do they have an obligation to do something with it?
Speaker 1: Or is a is a conservative buttondown guy like you
Speaker 1: comfortable that they got a jillion dollars on their balance sheet.
Speaker 1: I like the fact that they got the flexibility. Tom Um.
Speaker 1: You know, as the market cap expands, it has not
Speaker 1: become you know, excessive. They'll do maybe some acquisitions as
Speaker 1: Microsoft and Google have in the areas that can expand
Speaker 1: their footprint even further. It is in that space, as
Speaker 1: you know, rich get richer environment, and that's one of
Speaker 1: the reasons a lot of the large cabin names are
Speaker 1: doing well. But it's and even the niche small cab
Speaker 1: names that have niche capabilities that are growing in this environment. Um,
Speaker 1: that's gonna be one of the games here. I guess
Speaker 1: in the next two or three years, you're going to
Speaker 1: see further consolidation and that's the case even in some
Speaker 1: of these sectors we didn't talk about retail, restaurant, chains, hotels.
Speaker 1: There's gonna be a consolidation of the winning players, and
Speaker 1: you're gonna have capacity come out of the system that
Speaker 1: was already suffering going into this thing. And this is
Speaker 1: just this is just accelerating that process. Now. It's violent
Speaker 1: what's going on. And that's the reason why you can't
Speaker 1: be overly bullish about the economy because the creative destruction
Speaker 1: process is going to be a little bit of a
Speaker 1: drag here, I think in the next twelve, d eighteen months,
Speaker 1: But if you're in the right stocks, I think you
Speaker 1: can still do very well. See how much are that
Speaker 1: Does a market really need another round of fiscal stimulus?
Speaker 1: The first several rounds we got out of Washington were
Speaker 1: generally bipartisan, generally out the door pretty quickly. But it
Speaker 1: looks like this next round, whether it's the three trillion
Speaker 1: that the House is proposing, not going to be so easy.
Speaker 1: How much does the market really need another round of
Speaker 1: fiscal stimulus? I don't think it's tom you know, a
Speaker 1: pool rather um. What I kept saying during the crisis
Speaker 1: was this is not a stimulus as the way we
Speaker 1: normally think about it, it's basically a bridge loan. The
Speaker 1: economy is healthy, we need a bridge loan to get
Speaker 1: us through this liquidity crisis. So I think that's what
Speaker 1: the first round should be characterized. It was a bridge loan. Now,
Speaker 1: whether we use stimulus or not, it depends on how
Speaker 1: well the bridge alone worked and how much creative destruction
Speaker 1: is now going going to happen. But I think the
Speaker 1: first rand of stimulus is now happening, which is we've
Speaker 1: got all this cash piling up. The savings rate is
Speaker 1: through the roof the so called unemployed, most of them
Speaker 1: have been getting cash from the government. The businesses are
Speaker 1: are are pretty liquid. We're going to see how much
Speaker 1: of this spending gets unleashed now. And I think that
Speaker 1: itself is going to be a stimulus. And if we
Speaker 1: get progress, continued progress on the healthcare side with things
Speaker 1: like Maderna and the vaccine side, that's a stimulus psychologically
Speaker 1: to consumers who need a reason to spend their cash.
Speaker 1: And so let's see how that goes over the summer.
Speaker 1: And I think this is one reason why there isn't
Speaker 1: a bipartisan support here. It's not as odd that we
Speaker 1: need another big ranch of spending. Steve that's too much
Speaker 1: optimism go away. That was federated is really greatly appreciated.
Speaker 1: A ten of it is important that we chronicle this pandemic.
Speaker 1: And we're just so proud of our staff that has
Speaker 1: given us experts around the world. Jason Farley has what
Speaker 1: appears to be a quiet job but extremely important at
Speaker 1: the Johns Hopkins University where he drives forward their academic
Speaker 1: acuity and nursing. We spoke to Dr Farley today and
Speaker 1: has talked about all those lights at the end of
Speaker 1: the American pandemic tunnel, many glimmers of hope, and I
Speaker 1: just want the audience to know that we do see
Speaker 1: hope on the horizon. The appearance of a calming of
Speaker 1: the virus in certain locales and in Baltimore I am,
Speaker 1: and in many other locations is happening. We're seeing a
Speaker 1: flattening of the curve. But by no means do that
Speaker 1: mean we can roll back our our active participation in
Speaker 1: the social distancing measures when we're out about about our
Speaker 1: life and I look at you know, rolling back to
Speaker 1: social participation. The fact is we see social part anticipation.
Speaker 1: Can we get away with this with the distances between
Speaker 1: us six ft twelve feet whatever that number is, or
Speaker 1: do we just really have to stay locked down? There's
Speaker 1: a huge pushback. Yeah. No, you know, I think that
Speaker 1: the population is exhibiting the exact same disillusionment we we anticipate,
Speaker 1: you know, in the beginning of any kind of pandemic.
Speaker 1: You know, there's great science around this. We see this
Speaker 1: heroic effort of the population to come together into to persevere,
Speaker 1: and then that over time really gives way to this
Speaker 1: level of disillusionment where people begin to push back in
Speaker 1: this feeling of you know, this desire to interact socially,
Speaker 1: and we have the in the US, the Memorial Day
Speaker 1: holidays coming up. I would just caution, you know, think
Speaker 1: and plan accordingly. If you're getting together with others, you
Speaker 1: have to set strategies so that you can maintain social distancing.
Speaker 1: By no means that if the time to bring the
Speaker 1: entire family together at the barbecue. There's tons of data
Speaker 1: from the CDC about family related household related when multiple
Speaker 1: different members of different households are coming together and the
Speaker 1: subsequent infections that ensue. There's also data about transmissions in
Speaker 1: churches who have kind of exceeded their capacity. So again,
Speaker 1: what the large gatherings. It's really important, Jason, and talk
Speaker 1: to me a bit about what medicine actually work in
Speaker 1: treating COVID nineteen. Well, in the treatment of COVID nineteen UM,
Speaker 1: we still have, you know, the glimmer of hope reducing
Speaker 1: hospitalization with pridensvere. Although that study did not show statistical
Speaker 1: benefits related to its um mortality of with the drug,
Speaker 1: there was a statistical benefit of reducing the symptom burden
Speaker 1: and the length of symptoms and hospitalization. UM. We also
Speaker 1: have great news on the front of initial preliminary results
Speaker 1: in recent attacks or monkeys as well as some guinea
Speaker 1: pig models showing initial um ability of the vaccines of
Speaker 1: the several vaccines in evaluation to produce a great antivirus response.
Speaker 1: Now there's a long journey between the animal model and
Speaker 1: the humans, but we do have at least some glimmers
Speaker 1: of hope that those viruses UM that those vaccines are
Speaker 1: helping having an impact on the virus. So all good
Speaker 1: news is the virus mutating, No, I think UM, it's
Speaker 1: a relatively stable virus. But we always see because viruses
Speaker 1: replicate themselves billions and billions of copies per day. Um
Speaker 1: that we always see a little bit of a drift
Speaker 1: in the virus structure, so slow model changes in the
Speaker 1: structure so that we can say that if I gave
Speaker 1: the virus to persons BE, and they gave it to
Speaker 1: person SEE, and then they gave it to person D.
Speaker 1: Between A and D, we will see small changes. Those
Speaker 1: changes aren't mutation. Their mutations in their growth that since
Speaker 1: the word, but they're not mutations that mean that it
Speaker 1: changes it pathogeniquity typically or changes it it's virulens or
Speaker 1: the way in which it kills or you know, causes infection.
Speaker 1: Jason Farley, the Johns Hopkins University School of Nursing. Thanks
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen
Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform
Speaker 1: you prefer. I'm on Twitter at Tom Keane Before the podcast,
Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio