WEBVTT - Tesla Is A Busted Growth Story, Like AOL: Gordon Johnson 0:00:01.400 --> 0:00:04.120 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along 0:00:04.120 --> 0:00:06.200 with my co host of Bonnie Quinn. Every business day 0:00:06.240 --> 0:00:10.360 we bring you interviews from CEO, market pros, and Bloomberg experts, 0:00:10.400 --> 0:00:13.600 along with essential market moving news. Find the Bloomberg Markets 0:00:13.600 --> 0:00:17.000 Podcast on Apple podcast or wherever you listen to podcasts, 0:00:17.000 --> 0:00:20.880 and on Bloomberg dot com. What's been quite the two 0:00:20.920 --> 0:00:24.040 days for Tesla. It had its worst one day loss 0:00:24.160 --> 0:00:28.920 ever yesterday just on the SMP five hundred snubs, so 0:00:28.960 --> 0:00:32.320 it's not in the SMP five Also GM backing Nicolo, 0:00:32.360 --> 0:00:34.720 which is a little bit of a rival in some senses. 0:00:35.120 --> 0:00:37.920 Our next guests say, is that, you know, maybe that 0:00:38.840 --> 0:00:45.280 down draft was not completely unexpected, nor was it, you know, unreasonable. 0:00:45.479 --> 0:00:48.240 We are up eight percent today, but let's bring in 0:00:48.479 --> 0:00:50.960 our next guest now to tell us exactly why he 0:00:51.040 --> 0:00:54.800 believes that Tesla may have some room to go below 0:00:54.800 --> 0:00:56.760 where it is right now. Gordon Johnson is CEO and 0:00:56.760 --> 0:01:00.320 founder of g LJ Research. So, Gordon, yesterday you know 0:01:00.800 --> 0:01:02.920 we were blaming sort of the lack of inclusion in 0:01:02.920 --> 0:01:05.039 the s and P five hundred for the sell off. 0:01:05.120 --> 0:01:07.600 There was also the Nastack sell off. More generally, would 0:01:07.640 --> 0:01:12.080 you say Tesla deserves to be valued much lower than 0:01:12.120 --> 0:01:14.440 it is right now? And there are several reasons behind that. 0:01:14.760 --> 0:01:17.640 Take us through some of them. Right, So we have 0:01:17.720 --> 0:01:21.080 a nineteen dollar price target on Tesla more than downside. 0:01:21.080 --> 0:01:24.039 That's the one year and price started right Tesla's around, 0:01:24.440 --> 0:01:26.320 you know, just under four hundred dollars. Keep in mind, 0:01:26.319 --> 0:01:29.440 till right stock went from two hundred to five first 0:01:29.440 --> 0:01:32.240 solar stock went a while ago from two hundred to twelve, 0:01:32.280 --> 0:01:34.560 so you can see moves like this. Listen, Tesla is 0:01:34.600 --> 0:01:38.280 a busted growth story. UM. Their US revenues peaked in 0:01:38.319 --> 0:01:42.360 the fourth quarter of eighteen, their global revenues peaked essentially 0:01:42.360 --> 0:01:46.080 in the fourth quarter of eighteen. Um they're global, I'm sorry, 0:01:46.080 --> 0:01:48.559 they're auto. Growth margins peaked in the third quarter of eighteen. 0:01:48.760 --> 0:01:51.920 And listen, even if Tesla hit their guidance for five 0:01:52.200 --> 0:01:55.560 five hundred thousand cars delivered this year, that's only sixty 0:01:56.760 --> 0:02:00.640 of their capacity. They're expected capacity exiting this year before 0:02:00.680 --> 0:02:04.320 they build two more plans in Germany and the United States. 0:02:04.320 --> 0:02:09.359 So they're only selling of their existing capacity. Uh, that's 0:02:09.360 --> 0:02:12.480 a very negative dynamic. It's just no one talks about. 0:02:12.880 --> 0:02:15.600 So we think that Tesla. I'm sorry, go ahead, Well, 0:02:15.639 --> 0:02:18.000 I was just going to point out that till Ray, 0:02:18.160 --> 0:02:21.240 which he referenced as a cannabis company, they make medicines 0:02:21.280 --> 0:02:22.880 and drugs and drops and so on, and for a 0:02:23.000 --> 0:02:26.760 solar is obviously a solar module company. Very different stories though, 0:02:27.000 --> 0:02:30.040 albeit you know that the same type of company in 0:02:30.160 --> 0:02:32.480 terms of what people invest in. I suppose if if 0:02:32.480 --> 0:02:34.440 you want to talk about growth companies, but but so 0:02:34.680 --> 0:02:37.600 is Amazon, and you know you wouldn't fold Amazon for 0:02:37.600 --> 0:02:40.640 having a capacity greater than what it's delivering upon, So 0:02:40.760 --> 0:02:45.720 wife all Tesla. Right, So Amazon is a very different company, right, 0:02:45.760 --> 0:02:48.160 people who often make that comparison, but we think Tesla 0:02:48.280 --> 0:02:50.840 is more like a O L or BlackBerry. Right. They're 0:02:50.880 --> 0:02:54.160 the first stout with evs and now everybody's coming with competition. 0:02:54.639 --> 0:02:57.760 Um So, I think there's big misconceptions out there. Tesla 0:02:57.840 --> 0:02:59.760 does not make their own batteries. I think a lot 0:02:59.800 --> 0:03:02.880 of your listeners think they do. They buy batteries from Panasonic, 0:03:03.200 --> 0:03:06.120 C A, T L and LG Kim. LG Kim just 0:03:06.160 --> 0:03:08.480 signed a deal with GM. Anybody can buy those batteries 0:03:08.480 --> 0:03:11.320 that Tesla buys Panasonic. Anybody can buy the batteries that 0:03:11.400 --> 0:03:13.760 Tesla buys, and the same with with C A t 0:03:13.919 --> 0:03:16.320 L and T A p L has a million mile battery. Listen, 0:03:16.320 --> 0:03:19.640 people talk about, you know, evs being disruptive, electric vehicles 0:03:19.639 --> 0:03:23.040 being disruptive. Here's the reality. In the United States twenty 0:03:23.080 --> 0:03:26.680 eleven and nine uh total evs, not just Tesla's. Here, 0:03:26.760 --> 0:03:30.880 Tesla total electric vehicles have went from point three percent 0:03:31.040 --> 0:03:35.080 of the market to one point four percent, right, you know, 0:03:35.280 --> 0:03:39.400 that's not disruption. And globally e vs twenty nineteen have 0:03:39.480 --> 0:03:41.680 went from point three percent of the market to one 0:03:41.680 --> 0:03:44.760 point seven percent one point seven percent. So both in 0:03:44.800 --> 0:03:47.640 the in the world and the US, despite billions of 0:03:47.680 --> 0:03:51.040 dollars of government and centims you know, basically handed out 0:03:51.040 --> 0:03:53.160 to people buying vise, people just don't want to buy them, 0:03:53.160 --> 0:03:57.040 so they're not disruptive. And with respect to Tesla, listen, 0:03:57.080 --> 0:03:59.520 Tesla is not a technology leader. Right. People talk about 0:03:59.520 --> 0:04:01.840 full self drive. They have this thing called full self drive. 0:04:02.040 --> 0:04:03.960 If they sell for eight thousand dollars a pop. We 0:04:03.960 --> 0:04:06.720 think it's vapor ware. We think it doesn't exist. Consumer 0:04:06.760 --> 0:04:08.640 Reports just did a review of it. It was a 0:04:08.680 --> 0:04:11.680 scathingly negative review, and Elon Musk is on record in 0:04:11.720 --> 0:04:15.839 teams and consumer report reports. Is always um always fair, 0:04:15.880 --> 0:04:17.760 they said, it's not when it's cracked up to being 0:04:17.760 --> 0:04:20.400 it's dangerous for the driver and other people on the road. 0:04:20.640 --> 0:04:23.960 And Navigant ranks Tesla dead last and full self drive. 0:04:24.240 --> 0:04:25.760 My point is, I think that a lot of your 0:04:25.800 --> 0:04:28.039 listeners will probably think their ranked first, given where the 0:04:28.040 --> 0:04:30.240 stock price did and how people say they're a tech 0:04:30.320 --> 0:04:32.960 leader and disruptive. But the reality is just so much 0:04:33.000 --> 0:04:36.320 different um than um. You know what people think and 0:04:36.320 --> 0:04:38.440 we think. As numbers come out, you know things are 0:04:38.440 --> 0:04:40.880 gonna look bad. One other thing, if you take away 0:04:40.920 --> 0:04:44.159 the one time credit revenues, right, Tesla basically gets taxpayer 0:04:44.160 --> 0:04:47.760 and sentiff to sell credits to other automakers who previously 0:04:47.800 --> 0:04:51.440 weren't selling, weren't making evs. Now every automaker's a making evy. 0:04:51.480 --> 0:04:53.880 But if you take away those one time credit sells 0:04:53.920 --> 0:04:56.080 over the past twenty four quarters and only four of 0:04:56.080 --> 0:04:59.279 those quarters has has has Tesla been profitable? The most 0:04:59.279 --> 0:05:02.160 recent which was Reach You nine three Q three Q nineteen. 0:05:02.480 --> 0:05:05.159 The point is, um even in two cute this most 0:05:05.200 --> 0:05:08.320 recent quarter, taking away those one time sales, they lost 0:05:08.360 --> 0:05:10.520 three hundred million on the night income line. This company 0:05:10.600 --> 0:05:14.520 is a perpetual loss making company excluding those excluding those 0:05:14.520 --> 0:05:17.560 credit cells. And those credit cells they're guiding down in 0:05:17.600 --> 0:05:19.920 the back half and they're gonna basically go away next year. 0:05:20.279 --> 0:05:22.720 So it sounds like you have secular arguments based on 0:05:23.000 --> 0:05:26.240 you know, people's preferences free easse and do you have 0:05:26.279 --> 0:05:29.840 sort of individual problems with Tesla itself? Almost out of time, 0:05:29.839 --> 0:05:31.240 but I do want to ask you what you think 0:05:31.279 --> 0:05:33.560 of Nicola. Do you think Nikola is also you know, 0:05:33.760 --> 0:05:37.280 smoking mirrors as you seem to think Tessa is. Well, 0:05:37.320 --> 0:05:39.000 one other thing I want to highlight on Tessa. Right, 0:05:39.040 --> 0:05:41.760 if you go to one La must said they were 0:05:41.800 --> 0:05:44.360 gonna be profitable going forward forever and they never need 0:05:44.400 --> 0:05:47.080 to raise money again. A month later, they lost seven 0:05:47.200 --> 0:05:50.720 hundred million dollars, and since then they've raised ten billion dollars. 0:05:51.000 --> 0:05:52.599 Right when he said they're never gonna need to raise 0:05:52.640 --> 0:05:54.880 money again. Just last year, right, they said they were 0:05:54.880 --> 0:05:56.800 gonna have a million robo taxes on the road. This 0:05:56.880 --> 0:05:59.640 year they use that promise to raise a billion dollars. 0:05:59.720 --> 0:06:03.119 There's not one robot taxi on the road. So again people, 0:06:03.240 --> 0:06:05.680 you know, people talk about these promises that Elon musk 0:06:05.760 --> 0:06:07.440 makes and I you know, I highlight this. You know, 0:06:07.520 --> 0:06:09.560 given the battery days coming up. Keep in mind it's 0:06:09.880 --> 0:06:11.960 fifteen Elon must sit in a year to two years, 0:06:12.120 --> 0:06:14.680 your testa will be able to do over SIS on 0:06:14.680 --> 0:06:16.960 one charge. They're still not They're still not there. So 0:06:17.000 --> 0:06:20.080 he makes these promises he doesn't meet. With respect to Nicola, 0:06:20.520 --> 0:06:23.840 listen the GM investment yesterday, no cash was changed the 0:06:23.960 --> 0:06:26.479 hands right. GM took an ownership interest in Nicola, and 0:06:26.560 --> 0:06:30.760 Nicola gave GM shares um. With respect to Nicolas technology, 0:06:30.760 --> 0:06:32.320 you know, we're going to actually have to get that 0:06:32.400 --> 0:06:35.479 Nicola thought from you another time. We are out of time. Gordon, 0:06:35.560 --> 0:06:37.720 thank you so much for joining us today, though much 0:06:37.720 --> 0:06:43.600 appreciated from g l J researcher at Gordon Johnson. The 0:06:43.600 --> 0:06:45.760 ten year yield at sixty seven basis points, the two 0:06:45.760 --> 0:06:50.039 stands spread at nearly fifty four basis points. What exactly 0:06:50.160 --> 0:06:52.480 is the focus for the treasury market liston right now? Well, 0:06:52.520 --> 0:06:55.440 let's bring in Jim Vogel of f h N Financial. 0:06:55.720 --> 0:06:59.720 Following all of the data and interest rates and rates 0:06:59.760 --> 0:07:02.560 mark it's for the last X number of years. Jim. 0:07:02.560 --> 0:07:04.680 It is great to have you on. It's been a 0:07:04.680 --> 0:07:09.360 really interesting right, and equities, but rates have been sort 0:07:09.400 --> 0:07:12.560 of like the cows watching equities passed by quite happily. 0:07:13.360 --> 0:07:17.560 Oh yes, And what they're really focused on right now 0:07:17.720 --> 0:07:21.400 is the supply this week, uh CPI on Friday, and 0:07:21.440 --> 0:07:25.160 then the Fed next week. You're absolutely right, equities for 0:07:25.200 --> 0:07:27.360 the moment as far as rates are concerned, or aside 0:07:27.400 --> 0:07:32.600 to right. So what is this calm in the treasury market? 0:07:32.760 --> 0:07:36.920 Is it just the absolute conviction that central banks are 0:07:36.920 --> 0:07:40.400 going to you know, keep underpinning the fundamentals of the 0:07:40.440 --> 0:07:44.840 economy and that central banks will also save us should 0:07:44.840 --> 0:07:47.120 inflation get out of control, like stan Rock and Miller 0:07:47.200 --> 0:07:50.080 is telling c NBC, or should we see deflation, which 0:07:50.080 --> 0:07:54.760 sand Rock and Miller is also telling CNBC. Well, Um, 0:07:54.960 --> 0:07:58.720 the couple of things. The main one is that right 0:07:58.760 --> 0:08:03.160 now the bond market is more uncertain than many of 0:08:03.320 --> 0:08:06.080 the pundits and the people that appear on the media 0:08:06.160 --> 0:08:08.840 on a regular basis, and so they're waiting to see 0:08:08.880 --> 0:08:11.760 what happens and develops. Because we do have the election, 0:08:11.880 --> 0:08:14.600 we've got the what the Congress is going to consider 0:08:14.640 --> 0:08:17.400 with fiscal stimulus, and then we have the next steps 0:08:17.400 --> 0:08:20.920 that the Fed is going to employ Meanwhile, many of 0:08:20.920 --> 0:08:25.120 the people that sat on liquidity during the early part 0:08:25.120 --> 0:08:28.000 of the third quarter are continuing to put that money 0:08:28.000 --> 0:08:31.880 to work. So you have the tension of uncertainty against 0:08:31.920 --> 0:08:35.160 the need for people to continue to spend cash. That's 0:08:35.200 --> 0:08:38.360 so interesting. So there's an underlying tension there that may 0:08:38.360 --> 0:08:41.199 not be obvious if you just look at the actual levels. 0:08:41.240 --> 0:08:43.160 So when do we get a change in that gym? 0:08:43.240 --> 0:08:46.680 Does does something happen? You know, does does the dam break? 0:08:46.720 --> 0:08:50.680 At some point? It does? There are two things to watch. 0:08:51.240 --> 0:08:54.360 One is the actual credit experience that will start to 0:08:54.400 --> 0:08:57.599 see from households and small businesses in terms of delinquencies 0:08:57.600 --> 0:09:01.280 and unfortunately the possibility of defaults and charge offs in 0:09:01.320 --> 0:09:04.480 the fourth quarter. And then the second is the progress 0:09:04.559 --> 0:09:09.800 that we make on the twin of vaccine development and 0:09:09.840 --> 0:09:14.120 then how the US continues to try to adapt to 0:09:14.240 --> 0:09:18.000 the pandemic without a vaccine today. Yeah, do you have 0:09:18.080 --> 0:09:20.800 a base case at f H engine or just yourself, 0:09:20.840 --> 0:09:23.080 what is your base case for how the economy reacts? 0:09:23.960 --> 0:09:27.160 You know that we're in the W camp, so that 0:09:27.240 --> 0:09:31.800 the fourth quarters um disappoints relative to current expectations. Uh, 0:09:31.840 --> 0:09:35.360 and that creates the opportunity for people to rethink the 0:09:35.400 --> 0:09:38.120 idea that inflation is going to run out of control 0:09:38.200 --> 0:09:41.440 simply because the FED has changed uh its approach to 0:09:41.679 --> 0:09:46.240 managing um their policy for the next four to five years. 0:09:46.960 --> 0:09:50.160 What did you make of that is something that you're anticipating, 0:09:50.200 --> 0:09:53.720 and what does it change practically for traitors of rates 0:09:53.920 --> 0:09:57.720 or those trying to conserve some cash. For the most part, 0:09:57.760 --> 0:10:01.120 the FED changes reflect things that are going to happen 0:10:01.200 --> 0:10:04.200 maybe in the next two to three years. It's unlikely 0:10:04.280 --> 0:10:07.680 that they come into play at any point in in 0:10:09.400 --> 0:10:12.640 so there's time to consider what the Fit's going to do. 0:10:13.040 --> 0:10:15.280 The big reason for the change was is that the 0:10:15.280 --> 0:10:18.679 old policy just simply was not working and it needed 0:10:18.720 --> 0:10:23.120 to change. It's not a revolution, it's an education process 0:10:23.160 --> 0:10:27.880 for everyone, Jim. Outside of the obvious, you know unemployment, 0:10:28.360 --> 0:10:32.600 under employment, you know social inequality, all of the things 0:10:32.640 --> 0:10:34.760 that are troubling the US at the moment and that 0:10:35.000 --> 0:10:38.360 have potential implications for the bond market. Do you look 0:10:38.400 --> 0:10:42.640 outside the US for other challenges, obviously China being one. 0:10:43.559 --> 0:10:47.040 So you have to constantly watch the combination of the 0:10:47.080 --> 0:10:51.319 demographics of an aging population in Europe and the dependence 0:10:51.360 --> 0:10:55.960 of the European economy on emerging market growth. So there's 0:10:56.040 --> 0:10:59.800 stories that started literally five or six years ago that 0:11:00.000 --> 0:11:02.120 are still going to be with us when we come 0:11:02.120 --> 0:11:04.720 out on the other side from the pandemic. Yeah, that's 0:11:04.720 --> 0:11:07.000 for sure. You talk about Europe there, and we did 0:11:07.000 --> 0:11:09.600 see a move in yields yesterday. But essentially, as you're 0:11:09.600 --> 0:11:13.120 talking about negative yields and Europe, you know, how much 0:11:13.200 --> 0:11:16.040 does it matter whether we have a five or six 0:11:16.040 --> 0:11:19.240 basis point move and say a French bond or a 0:11:19.280 --> 0:11:23.520 German bond, Right, we need something like a thirty to 0:11:23.640 --> 0:11:26.400 forty basis point change in terms of the outlook and 0:11:26.440 --> 0:11:31.000 the landscape for European interest rates, and that is perhaps 0:11:31.040 --> 0:11:35.000 possible by two, but it's not a near term event either. 0:11:36.160 --> 0:11:39.680 Do you see inflation becoming a problem, you know, in 0:11:39.720 --> 0:11:45.800 the next decade, Jim. If it becomes a problem, it's 0:11:45.840 --> 0:11:50.520 going to be because the spending patterns and the consumption 0:11:50.600 --> 0:11:54.720 patterns of the next generation that's coming behind the Boomers 0:11:55.240 --> 0:12:01.360 fundamentally changes their attitude toward um spending and the mount 0:12:01.440 --> 0:12:07.040 they borrow. So inflation comes from uh in effect, credit 0:12:07.160 --> 0:12:11.800 fueled spending that was the hallmark of the Boomer generation 0:12:12.200 --> 0:12:17.200 so far that has not been absorbed by the cohort 0:12:17.280 --> 0:12:19.960 coming up that that has already past the boomers in 0:12:20.080 --> 0:12:22.599 terms of its total size in the US. That is 0:12:22.640 --> 0:12:26.000 so fascinating. And Jim, before we let you go out 0:12:26.000 --> 0:12:28.960 of time, really, but how is Memphis, Tennessee? These days open? 0:12:29.320 --> 0:12:34.760 Not open? Uh? Schools are virtual for public schools. We 0:12:34.960 --> 0:12:37.880 have still a good number of rules in place. But 0:12:38.040 --> 0:12:41.800 thankfully the COVID infections are falling all right. That is 0:12:41.960 --> 0:12:44.520 Jim Vogel. Always love chatting with Jim, who is of 0:12:44.559 --> 0:12:47.840 course based in Memphis, Tennessee. He's interest rate strategist for 0:12:47.920 --> 0:12:51.960 f h N Financial, FED Water, ECB Water and much 0:12:52.160 --> 0:12:58.000 much more are thanks to Jim Vogel. Well Sweeney is 0:12:58.040 --> 0:13:00.440 off today. Let's get now to our next to guess. 0:13:00.440 --> 0:13:04.199 Gina Martin Adams is chief equity strategist for Bloomberg Intelligence 0:13:04.240 --> 0:13:06.600 and has been watching, I'm sure the last few days 0:13:07.080 --> 0:13:12.440 moves with extreme interest, so extreme in fact that she 0:13:12.559 --> 0:13:16.319 talks about momentum extremes and how they're easing and that 0:13:16.480 --> 0:13:20.080 means that new equities leadership should emerge. Gina, thanks for 0:13:20.160 --> 0:13:23.000 joining so so are we definitely saying that these are 0:13:23.040 --> 0:13:26.440 extremes or have we decided. Yet, Yeah, we definitely did 0:13:26.480 --> 0:13:29.559 get to a momentum extreme. We saw by the end 0:13:29.600 --> 0:13:32.640 of August, three of the biggest sectors in the SP 0:13:33.800 --> 0:13:37.840 tech communications as well as consumer discretionary reaching multi year 0:13:37.880 --> 0:13:41.880 extremes on momentum. At the same time, we saw index 0:13:41.960 --> 0:13:47.600 valuations rise almost exclusively due to text docs and mega 0:13:47.640 --> 0:13:51.720 cab text docs, and the gap between broad index valuations 0:13:51.760 --> 0:13:55.199 as well as UH and index valuations excluding those text 0:13:55.200 --> 0:13:58.400 docs reached the multi decade high. So we certainly did 0:13:58.440 --> 0:14:01.080 reach an extreme point in time. Now the question is 0:14:01.080 --> 0:14:03.360 where do we go from here? What does extreme really mean? 0:14:03.480 --> 0:14:06.199 Because I think that your natural reaction maybe oh quite 0:14:06.200 --> 0:14:08.880 fearful on the other side of an extreme. But what 0:14:09.000 --> 0:14:11.200 you can see and what you know, our view is 0:14:11.640 --> 0:14:15.000 we'll actually see pe s normalize, will most likely see 0:14:15.120 --> 0:14:20.240 leadership shift to other cyclical sectors um and it We 0:14:20.280 --> 0:14:22.520 could be in for a choppy period in the interim 0:14:22.560 --> 0:14:25.480 as we see that leadership shift, But there's still very 0:14:25.480 --> 0:14:28.760 little evidence that the broader ball market is coming to 0:14:28.800 --> 0:14:31.160 an end or anything like that. It's really just an 0:14:31.200 --> 0:14:35.960 adjustment from extreme levels. Sometimes those adjustments take you from 0:14:36.400 --> 0:14:39.880 you know, upside extremes to downside extremes, but so far 0:14:40.400 --> 0:14:43.440 it looks like more of a normalization from what we're 0:14:43.680 --> 0:14:47.000 pretty out of balance conditions by the end of August. 0:14:47.360 --> 0:14:49.320 So talk to us a little bit about the new 0:14:49.400 --> 0:14:51.720 leadership that you say will emerge. You give us some 0:14:51.800 --> 0:14:54.040 details there, But are we talking about a post pandemic 0:14:54.080 --> 0:14:57.200 world in which investor is just value stay at home 0:14:57.240 --> 0:15:02.240 stocks and real performer like Amazon that can just get 0:15:02.360 --> 0:15:08.840 consumers what they want to their doorsteps immediately, much richer 0:15:08.840 --> 0:15:12.880 than other companies. Yeah, I think that we'll see some 0:15:13.120 --> 0:15:16.680 normalization of that. I mean, we certainly have seen valuations 0:15:16.720 --> 0:15:19.960 expand enormously for some of the COVID nineteen winners or 0:15:20.000 --> 0:15:23.040 some of the more sort of persistent earners over the 0:15:23.040 --> 0:15:25.360 course of the last six months. What we're expecting to 0:15:25.400 --> 0:15:30.400 see into one is more normalized conditions emerge where some 0:15:30.480 --> 0:15:33.760 of the most beaten down cyclical care groups like industrials 0:15:33.760 --> 0:15:38.280 and materials, some of the consumer discretionary names outside of 0:15:38.560 --> 0:15:42.720 Amazon are expected to lead in earnings recovery, and in 0:15:42.760 --> 0:15:45.760 an environment where they lead in earnings recovery off of 0:15:45.760 --> 0:15:48.400 a very low base or not, you should see some 0:15:48.520 --> 0:15:51.400 leadership migrate to those names to take advantage of that 0:15:51.440 --> 0:15:54.880 earnings recovery. So a lot of this depends upon what 0:15:55.000 --> 0:15:57.840 the outlook looks like. How much do economies improve, how 0:15:57.920 --> 0:16:01.960 much do we see humors sort of go outside of 0:16:02.040 --> 0:16:07.080 their homes, visit restaurants, you know, resume pre COVID type 0:16:07.120 --> 0:16:09.080 of activities over the course of the next six to 0:16:09.160 --> 0:16:11.640 twelve months. But if you look at the consensus forecast 0:16:12.800 --> 0:16:15.240 very differently than the environment we've been in for the 0:16:15.320 --> 0:16:18.840 last six months, where tech and healthcare have taken a 0:16:19.000 --> 0:16:22.400 very very strong and consistent earnings lead, we should see 0:16:22.400 --> 0:16:26.200 earnings distribute, earnings growth distribute to more secular sectors and 0:16:26.280 --> 0:16:29.480 importantly too different sectors over the course of one and 0:16:29.560 --> 0:16:34.200 that should create a migration two groups outside of of 0:16:34.240 --> 0:16:38.080 tech and healthcare to some degree. So does the pe 0:16:38.120 --> 0:16:40.840 gap between tech and then by tech I suppose, I 0:16:40.880 --> 0:16:44.440 mean the biggest five tech companies and some of the 0:16:44.440 --> 0:16:47.880 rest even in tech. Will that tolls Gina? I think 0:16:47.880 --> 0:16:50.240 it should. I mean, there's some argument to be made 0:16:50.280 --> 0:16:54.720 that it doesn't necessarily need to close by valuations falling 0:16:54.880 --> 0:16:58.160 for tech stocks, who could see valuations for the rest 0:16:58.160 --> 0:17:00.200 of the market starts to catch up to tech. When 0:17:00.200 --> 0:17:03.080 we look at the broad market, and we try to 0:17:03.400 --> 0:17:06.280 determine what a fair value multiple for the index is. 0:17:06.480 --> 0:17:09.960 We find the result of extremely low interest rates in 0:17:10.040 --> 0:17:15.160 combination with a likely double digit earnings recovery into supports 0:17:15.160 --> 0:17:17.880 the fair value pe for the broad market of well 0:17:18.000 --> 0:17:22.439 north of twenty times earnings. Currently, the market is trading 0:17:22.480 --> 0:17:27.240 at about twenty times earnings, even including those big Tex docs, 0:17:27.280 --> 0:17:29.919 so there is room for some reratings still in the 0:17:29.960 --> 0:17:33.119 non tech areas of the market. It's difficult to argue 0:17:33.160 --> 0:17:36.480 that you would need to see tech valuations move higher 0:17:37.000 --> 0:17:40.600 in an environment where their earnings dominance is starting to 0:17:40.720 --> 0:17:43.960 fade a little bit, So it's unlikely that tech multiples 0:17:44.000 --> 0:17:47.680 continue to expand they may even normalize by coming down 0:17:47.680 --> 0:17:50.080 a little bit, meeting somewhere in the middle the rest 0:17:50.119 --> 0:17:52.240 of the market as the rest of the market starts 0:17:52.280 --> 0:17:55.879 to catch up. Fascinating and give us a time frame 0:17:56.000 --> 0:17:58.159 for this, You know, when when is the latest that 0:17:58.240 --> 0:18:02.159 this might happen? Yeah, So our sector scorecard actually started 0:18:02.200 --> 0:18:04.720 to signal as of September one, we put out the 0:18:04.760 --> 0:18:06.960 scorecard and it's the first time that we saw tech 0:18:07.040 --> 0:18:09.639 fall out of the top three sectors on the scorecard 0:18:10.160 --> 0:18:15.800 since um we saw materials, industrials and discretionary stocks already 0:18:15.800 --> 0:18:19.800 starting to rise. There is some evidence even as of 0:18:19.840 --> 0:18:24.359 August that value um, the value factor in the SMP 0:18:24.480 --> 0:18:27.160 five hundred anyway, was starting to outperform. If you look 0:18:27.160 --> 0:18:30.760 at the long short value factor, uh, it performed better 0:18:30.880 --> 0:18:35.520 than quality or volatility or momentum in the month of 0:18:35.520 --> 0:18:38.439 August for the first time and sometimes. So we're already 0:18:38.440 --> 0:18:41.359 starting to see some evidence of this rotation. If you 0:18:41.359 --> 0:18:44.199 look at the last five days, even material stocks are 0:18:44.280 --> 0:18:47.560 up while the rest of the index is down. Industrial 0:18:47.640 --> 0:18:50.399 stocks have fallen half as much as the index. So 0:18:50.480 --> 0:18:52.280 I think we're starting to see a little bit of 0:18:52.320 --> 0:18:56.679 this rotation. Now will it continue really depends on some 0:18:56.840 --> 0:18:59.600 solidification of that earnings outlook. I do think we need 0:18:59.680 --> 0:19:04.040 to go into third quarter earning season and see companies 0:19:04.119 --> 0:19:07.040 start to confirm that they do see a better environment 0:19:07.080 --> 0:19:11.600 emerging into one. They do see order flow improving, they 0:19:11.640 --> 0:19:16.520 do see manufacturing activity starting to pick up around the world. Um, 0:19:16.560 --> 0:19:19.760 maybe even some references to the week dollar as a 0:19:19.840 --> 0:19:25.879 support to their multinational operations, and multinational economic activity starting 0:19:25.880 --> 0:19:29.000 to improve. So I do think, well, we'll go through 0:19:29.040 --> 0:19:32.760 a period of of you know, really assessing, reassessing. You know, 0:19:32.880 --> 0:19:36.400 probably see a chopping market as we go through this transition, 0:19:36.440 --> 0:19:39.080 but ultimately it will depend upon earnings really proving the 0:19:39.160 --> 0:19:43.280 case to broaden out exposure in the SMP five beyond 0:19:43.400 --> 0:19:46.560 these COVID winners. Yeah, it really is fascinating if you 0:19:46.560 --> 0:19:49.080 look at the value index versus the growth index and 0:19:49.080 --> 0:19:51.880 how they've performed. The value index is down twelve sance 0:19:51.880 --> 0:19:53.439 the beginning of the year. The growth index is up 0:19:53.480 --> 0:19:56.400 twenty since the beginning of the year. Very briefly, we're 0:19:56.440 --> 0:19:59.080 out of time, but I did want to ask you, 0:19:59.800 --> 0:20:03.000 you know, doesn't matter who are the players here, whether 0:20:03.040 --> 0:20:06.080 they're you know, big hedge funds or big pension funds 0:20:06.160 --> 0:20:10.680 or robin Hood investors. Yeah, I think it matters to 0:20:10.760 --> 0:20:14.639 some degree. Um, you're certainly seeing a heightened amount of 0:20:15.240 --> 0:20:20.480 interest in specialty packaged products like epf UM. You know, 0:20:20.520 --> 0:20:23.359 obviously the Triple Q products have driven a lot of 0:20:23.520 --> 0:20:25.760 slow over the course of the last couple of months. 0:20:26.359 --> 0:20:29.879 That does indicate that this sort of um presence of 0:20:29.920 --> 0:20:33.600 the retail investor is significant. Our work says the retail 0:20:33.600 --> 0:20:37.760 investor flows the market. They've historically averaged about fift for 0:20:37.800 --> 0:20:41.760 the last five years, so there is more retail participation 0:20:41.840 --> 0:20:44.399 in this to the extent that some of that gets 0:20:44.440 --> 0:20:49.360 washed out through this um this tech sort of adjustment. 0:20:49.480 --> 0:20:51.679 I would suggest that somewhat healthy. We want to have 0:20:51.760 --> 0:20:55.960 less speculation and more investing. Gina Martin Adams, always eliminating 0:20:56.000 --> 0:20:59.359 speaking with you, Sank huge if equity strategist for Bloomberg Intelligence. 0:20:59.440 --> 0:21:04.959 Gina Martin Adams, there alright. Astros Zeneca in the news today. 0:21:05.119 --> 0:21:09.520 One of the candidates for a vaccine, of course, is 0:21:09.560 --> 0:21:12.840 astro zenecas, and we got to report yesterday that there 0:21:12.920 --> 0:21:17.160 was some adverse reaction in one patient or perhaps more. 0:21:17.240 --> 0:21:19.760 Today the ft is saying that trials may resume next week. 0:21:19.840 --> 0:21:22.120 To make sense of it all, let's bring in Sam Fazally, 0:21:22.440 --> 0:21:24.760 senior pharmaceutical analyst and head of E M e A 0:21:24.840 --> 0:21:28.600 Research for Bloomberg Intelligence. Sam, what exactly is going on 0:21:28.680 --> 0:21:32.480 at astro Zeneca h Q? On Twitter yesterday, for example, 0:21:32.520 --> 0:21:36.040 there was a lot of discussion about the difference between 0:21:36.040 --> 0:21:39.439 saying the word adverse effect and side effect and so on. 0:21:40.119 --> 0:21:43.639 Just bring us up to speed with the story. Yeah, Hi, BONI, 0:21:43.840 --> 0:21:48.160 So I mean advertifact, side effect, toxicity, safety signal, They're 0:21:48.200 --> 0:21:51.119 all the same kind of things. So um I would 0:21:51.119 --> 0:21:54.400 just see this as obviously sufficiently big enough safety signal 0:21:54.880 --> 0:21:58.200 for the company to have decided to voluntarily hold the trial. 0:21:58.640 --> 0:22:01.120 Once they've done that, though it's necessarily up to them 0:22:01.160 --> 0:22:04.840 to restart it. They would have to satisfy their data 0:22:04.880 --> 0:22:10.000 safety monitoring board, which every trial has, and the regulators 0:22:10.040 --> 0:22:14.240 that it is safe to restart the trial and continue 0:22:14.280 --> 0:22:18.600 dosing patients. So whether the company thinks that it would 0:22:18.600 --> 0:22:21.520 be over or not must be something to do with 0:22:21.960 --> 0:22:24.600 what they're talking about with regulators. But at the end 0:22:24.640 --> 0:22:26.000 of the day, it is them who are going to 0:22:26.080 --> 0:22:29.920 decide to allow the trial to restart. Yes, the f 0:22:30.160 --> 0:22:33.320 T I should explain is reporting that sources to the 0:22:33.400 --> 0:22:37.160 FT are saying that the trial could resume early next week. 0:22:37.200 --> 0:22:39.199 And this is a trial, of course in conjunction with 0:22:39.280 --> 0:22:44.159 Oxford University. Now, is this a large trial? Explained to us? 0:22:44.160 --> 0:22:48.800