Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
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Speaker 1: one house in particular over the last couple of months
Speaker 1: has stood out as being more constructive than the rest.
Speaker 1: There's been more Constanley, and I'm pleased to say that
Speaker 1: Andrew Sheets, the chief cross assets strategist at more Than Stanley,
Speaker 1: joined us now. Andrew fantastic to catch up with you, Sir.
Speaker 1: I've said continually for three months there is nothing normal
Speaker 1: about this, but your argument has been entirely opposite. It's
Speaker 1: more normal than most people appreciate. Why is that, well,
Speaker 1: I I think so in good morning, I think there
Speaker 1: are a couple of things that we've been following. I
Speaker 1: think the fact that a lot of the conditions that
Speaker 1: preceded this session had a lot of very normal late
Speaker 1: cycle characteristics in terms of what we're seeing with city
Speaker 1: unemployment rate or the yield curve, or valuations or volatility.
Speaker 1: We had a lot of very i think normal late
Speaker 1: cycle dynamics. The way the markets bottomed in March ahead
Speaker 1: of the data followed a very kind of normal pattern
Speaker 1: of markets leading the economy. And I think the type
Speaker 1: of recovery that our economist forecasts are commis of Morgan Stanley,
Speaker 1: I think are above consensus on on the speed of
Speaker 1: this recovery and how v shape they think it will be.
Speaker 1: That that will also make it look more normal than
Speaker 1: have normal going forward. Inderstrates what's so important here is
Speaker 1: how cross s does given money costs nothing. We see
Speaker 1: Mr Buffett today pony up a new obligation of nine
Speaker 1: point seven billion, four billion cash and a five point
Speaker 1: seven billion in dat as well for the Dominion gas
Speaker 1: lines as well. Is that howvard your of things to come?
Speaker 1: Are we going to see exceptional M and A which
Speaker 1: buttresses this bull market? Well, I think it's a good
Speaker 1: it's it's a very good question. Our expectation would actually
Speaker 1: be that I think companies remain a little bit more cautious.
Speaker 1: It's actually I think consumers who were counting on to
Speaker 1: continue the growth momentum, because I think companies will be
Speaker 1: looking at a the continued uncertainty over the economic backdrop.
Speaker 1: The fact that I think for a lot of them,
Speaker 1: given the strain that was in credit markets as recently
Speaker 1: as April, we really see a focus to protect balance
Speaker 1: sheets not take on kind of aggressive new action. And
Speaker 1: then you also obviously have a US presidential election coming
Speaker 1: up in early November, which could also change either regulatory
Speaker 1: tax policy, trade policy the like, which would be another
Speaker 1: reason to kind of wait on this activity. So I
Speaker 1: think for for both of those reasons, we'd actually expect
Speaker 1: kind of businesses to lag the rebadded activity we see
Speaker 1: on the consumer side. And still you are bullish with
Speaker 1: back to going further into risk and moving from growth
Speaker 1: to value stocks. What does value mean anymore? Well, I
Speaker 1: think what's what's pretty interesting about this market is that
Speaker 1: on the surface, it would seem like the equity markets
Speaker 1: have embraced a V shaped recovery. And certainly I think
Speaker 1: there's a lot of focus, a lot of very reasonable
Speaker 1: focus on this idea that you know, the smps trading
Speaker 1: at twenty one times forward earnings and yet the economy
Speaker 1: is clearly still very weak. It's it's recovering, but it's
Speaker 1: it's very weak, and and this must mean that the
Speaker 1: market is discounting with these high valuations an extremely strong recovery.
Speaker 1: And yet you know, you look at what's what's driven
Speaker 1: that market rebound, or you look at the way the
Speaker 1: markets valued, and and there's there's rarely been a more
Speaker 1: extreme gap between what the markets paying for what it
Speaker 1: considers kind of the best, highest quality companies and what
Speaker 1: the market is paying for the rest. And so I
Speaker 1: think it's that gap, that extreme gap that you know,
Speaker 1: and and this idea that the market kind of cares
Speaker 1: about is worried valuation at the headline level, and it
Speaker 1: has no no problem embracing many of the market's most
Speaker 1: expensive companies. We think that that those factors can lead
Speaker 1: the market to have a more balanced, a more balanced approach,
Speaker 1: a broader equity market participation they would leave. They will
Speaker 1: lead some of the smaller and cheaper companies to perform,
Speaker 1: to perform better. At the epicentre of this debate is
Speaker 1: zero rights. Tom Caine, you mentioned that money costs nothing.
Speaker 1: We should look at it the other way as well.
Speaker 1: Money earns nothing right now, and for a lot of people,
Speaker 1: including miss the Buffett of Berkshire Hathaway, they've got to
Speaker 1: get that capital to work. Yeah, this is really really
Speaker 1: important inside John and What's so important here, Andrew, is
Speaker 1: the idea that dominion in this transaction will go right
Speaker 1: where you said, they'll go to a more conservative structure,
Speaker 1: They'll go to a more conservative dividend payout ratio, et cetera.
Speaker 1: What do you think of all the money that John
Speaker 1: mentions that Warren Buffett has, the billions he has, the
Speaker 1: billions of tech company has, the billions of private equity has.
Speaker 1: It's kind of it's kinda find a warm place, right. Well,
Speaker 1: So I think if we think about this from a
Speaker 1: corporate perspective, I think tech is a great example, right.
Speaker 1: I think, you know, for a long time, there was
Speaker 1: some criticism of these large cash balances that many large
Speaker 1: tech companies were holding. And yet when the pandemic hit,
Speaker 1: that became, you know, yet another reason why investors favored
Speaker 1: a lot of these big tech names because they had
Speaker 1: these fortress balance sheets with enormous financial flexibility to kind
Speaker 1: of see them through any any scenarios. So in some
Speaker 1: ways that could reward or encourage companies to remain somewhat conservative.
Speaker 1: And I think we've seen the same thing on the
Speaker 1: from the investor side, from the retail investor side, um
Speaker 1: where you know, We've seen a lot of investors raised
Speaker 1: cash in marches the pandemic was was intensifying as as
Speaker 1: markets were falling, and in many cases they really haven't
Speaker 1: redeployed that money back into the market. And I think
Speaker 1: there are a number of reasons for that. The fact
Speaker 1: that you know, markets rebounded relatively quickly, the fact that
Speaker 1: you still serve in the US. Clearly um have a
Speaker 1: severe public health challenge that's all around us. But you know,
Speaker 1: I think for those, uh, it's not just about the businesses.
Speaker 1: We we do think actually on the on the investors side,
Speaker 1: there are still above average levels of cash balance, which
Speaker 1: we need to monitor, but at the moment remain a
Speaker 1: supportive factor. How much more do you expect returns to
Speaker 1: increase this year in equities? In other words, what's the
Speaker 1: full year total return going to look like? Yeah, I
Speaker 1: think it's a good question. I mean, we we are positive,
Speaker 1: we've we've been positive, but I feel I need to
Speaker 1: cappy out that. You know, we we do think at
Speaker 1: the overall level the games will be modest. That for
Speaker 1: US and European equities, we're looking at kind of you know, uh,
Speaker 1: mid to high single digit type of returns for for
Speaker 1: the SMP five hundred for Europe. You know, my colleague
Speaker 1: Mike Wilson has a thirty three fifty target for the
Speaker 1: SMP five hundred by the middle of next year. So
Speaker 1: it's still positive, it's still higher, it's still better than
Speaker 1: cash um in credit. We see kind of modest spread tightening.
Speaker 1: I agree with the earlier comment we think volatility can
Speaker 1: can fall. You can probably follow a reasonable amount here
Speaker 1: over the next twelve months. But I do think you know,
Speaker 1: you could potentially see the bigger movement won't be at
Speaker 1: the headline equity market level. It would be at more
Speaker 1: of these rotations under the surface, as some more of
Speaker 1: the traditional early cycle things do better. Andrew what was
Speaker 1: saying in the economy quite clearly a serious upside surprises,
Speaker 1: but there is evidence of scarring this reason to worry.
Speaker 1: Yet at the same time, I wonder whether this continued
Speaker 1: positive forward momentum, whether that is sufficient to continue the
Speaker 1: durable rotation that you're looking for. Yeah, I think that's
Speaker 1: a great question and something where I think we might
Speaker 1: know the case this month. Um. A big part of
Speaker 1: our our positive economic view, specifically in the US, is
Speaker 1: the expectation that that Congress will pass another round of stimulus,
Speaker 1: will extend the Cares Act, and that's very important we
Speaker 1: think for supporting the consumer, reducing the severity of that
Speaker 1: scarring that you mentioned. Um. But there's a certain irony
Speaker 1: here where there's a risk that if if there's a
Speaker 1: perception that the data is improving very quickly, maybe that
Speaker 1: reduces the impetus on the government act, which would in
Speaker 1: the long term be we think the worst scenario, which
Speaker 1: would increase the risk that the recovery is slower and
Speaker 1: more prolonged. So we one of the reasons we're positive
Speaker 1: is we do think that stimulus passes, but if it doesn't,
Speaker 1: that would be a severe risk to our scenario. Andrew
Speaker 1: Shades and Morgan Stanley. Andrew, always great to catch up
Speaker 1: with you, and the same been great to hear you
Speaker 1: challenge the less constructive view in this market over the
Speaker 1: last several months. Andrew sets that joining us from Morgan
Speaker 1: Stanley right now, we're going to speak on finance and
Speaker 1: economics and reframe for the rest of this year. We
Speaker 1: can do that with Catherine Mann of City Group, but
Speaker 1: far more importantly and John Farrell Folks has been really
Speaker 1: out front on focusing on China US. I think he's
Speaker 1: almost got the advantage being from England and that he
Speaker 1: can look at China US with a different prism. Doctor
Speaker 1: Man has led with our analysis of the international economics
Speaker 1: and codependency of Beijing and Washington, and I must start
Speaker 1: there this morning, Doctor Man, give us an update on
Speaker 1: the codependency that we see right now between Beijing and Washington. Well, Tom,
Speaker 1: it's great to be with you again. Um, the codependency
Speaker 1: seems to have taken a bit of a turn, uh
Speaker 1: to the negative. Um. We had thought that the relationship
Speaker 1: as of January was was one that was a tentative truth. Um.
Speaker 1: But of course things have deteriorated since then, not only
Speaker 1: because of all the issues with regard to the disease,
Speaker 1: but also because, um, there's you know, there's some there's
Speaker 1: some lack of ability on the part of China to
Speaker 1: really buy all the things that the US would like
Speaker 1: to sell. I mean, we've been talking and calling this
Speaker 1: a shopping list for quite some time since back last year.
Speaker 1: And when we look at the items on the shopping
Speaker 1: list that the U s would like China to buy, Um,
Speaker 1: you know, the agg is there, that the energy is there,
Speaker 1: but some of the other products they're just not going
Speaker 1: to be able to buy, and there's certainly a sense
Speaker 1: in which they're not going to be able to buy
Speaker 1: in bulk in order to reach those targets by the
Speaker 1: by the time it matters, which is later on this year,
Speaker 1: but not the end of the year. Dr Man. The
Speaker 1: heart of your research this weekend goes to the heart
Speaker 1: of microeconomics and macroeconomics. Is it's taught, which is finance
Speaker 1: is an afterthought. You know, the booming financial economy is
Speaker 1: compared to the economic economy, which is grim, grim, grimm.
Speaker 1: How do we bring the two together? Well, this is
Speaker 1: you know, this has been a conundrum and are really
Speaker 1: a puzzle even for from for my financial market folks,
Speaker 1: particularly those in the equity markets, who have been arguing that,
Speaker 1: you know, the the earnings per share that's consistent with
Speaker 1: the economic data is quite a bit different than than
Speaker 1: what we see the market pricing in now. Um, there
Speaker 1: are a couple of theories that kind of would make
Speaker 1: this apparent levitation of the financial markets makes sense. One
Speaker 1: of them is that you know, everybody's looking through and
Speaker 1: the error of that, I think is individually a a
Speaker 1: stock analysts can say, well, my stock is saying they're
Speaker 1: going to be you know, be lean. They're going to
Speaker 1: cut in order to maintain earnings going into one. But
Speaker 1: you know, if everybody cuts, you know, your cut is
Speaker 1: my revenue. So it doesn't add up macroeconomically. And that's
Speaker 1: where the puzzle really comes in. In terms of the market.
Speaker 1: What it implies is that a lot of looking below
Speaker 1: the index at the individual stocks. This is what financed
Speaker 1: people are to be doing at this point. And Catherine,
Speaker 1: for economists, we've got to look below the headline economic
Speaker 1: figures as well the aggregate numbers, paying a constructive picture
Speaker 1: of a really nice bounce beneath the surface. This comes
Speaker 1: from Bank of America. Over the weekend, there were twelve
Speaker 1: point four million people who flowed into the labor market
Speaker 1: hired seven and a half million people who flowed out separations. Catherine,
Speaker 1: you look at the same numbers, the same data. How
Speaker 1: are we meant to digest churn that big? Well, I
Speaker 1: mean we are in unprecedented times in terms of you know,
Speaker 1: the numbers turn has always been big. This of course
Speaker 1: puts it in a completely different category. What I think
Speaker 1: is concerning is that yet in some in some sense,
Speaker 1: there was a sector of the economy, the leisure and
Speaker 1: hospitality um, many of whom the workers who were completely
Speaker 1: out of work because of the way that was shut down.
Speaker 1: But there's this second shoot, a drop, which is, as
Speaker 1: I say, thinking about how are firms planning on weathering
Speaker 1: the next half of year in order to survive into
Speaker 1: They're going to do that by cutting, and they're looking
Speaker 1: now at how am I going to do that? And
Speaker 1: that's where we get a lot of the separations from
Speaker 1: It's a different category of workers than than who than
Speaker 1: those who are coming in from leisure and hospitality. I
Speaker 1: also think that you know, in keeping with what what
Speaker 1: we were talking about before, the levitation of the stock
Speaker 1: market indexes in general is of course looking below that
Speaker 1: to what the Federal Reserve is doing. We cannot talk
Speaker 1: about the strength of the financial markets in in absence
Speaker 1: of talking about the extent to which the Central Bank
Speaker 1: is on a supportive track. The next phase forward God
Speaker 1: is seemingly for the Federals of Catherine. How do you
Speaker 1: think that would take in the coming months the coming
Speaker 1: mate takes well. This is a real challenge because, of course,
Speaker 1: true forward guidance is where you talk about it that
Speaker 1: has the appropriate effects. So there's you don't actually have
Speaker 1: to do anything. So true forward guidance is one where
Speaker 1: the Fed says, I stand behind you, but then the
Speaker 1: market takes on its own dynamic in order to make
Speaker 1: things uh appropriate. Again this time, you know, the market
Speaker 1: has taken off a little bit too much, in part
Speaker 1: because it's not just forward guidance that the Federal Reserve
Speaker 1: has provided, it's actual implementation of all of those programs
Speaker 1: that they've put into place. Now. Back in March, that
Speaker 1: was the appropriate thing, forward guidance, putting in the programs
Speaker 1: in place, being ready in case you know, there was
Speaker 1: another real um, you know, collapse in the markets. But unfortunately,
Speaker 1: what we have right now is a replay of what
Speaker 1: I wrote about last year, which is the Central bank
Speaker 1: but dilemma. Yes, they want to prevent a fire sales situation,
Speaker 1: which we have the financial system cascade eads into a
Speaker 1: second GFC two point oh. On the other hand, how
Speaker 1: much do they want to contribute to moral hazard, which
Speaker 1: is things are as I say levitated um and so
Speaker 1: any kind of decline from where we are now really
Speaker 1: puts the Central Bank into a dilemma situation. How much
Speaker 1: do they really want to see existing level Catherine? How
Speaker 1: much at this point are FED policies actually bringing jobs
Speaker 1: back or providing a supportive environment to allow job growth
Speaker 1: going forward. Well, that's always you know, the relationship between
Speaker 1: central bank actions and actions in the real economy have
Speaker 1: a lot of different links in the chain. And what
Speaker 1: I can say right now is that the dynamics of
Speaker 1: some of the fiscal programs, the p p P of
Speaker 1: which there is also of course the main street lending
Speaker 1: in in the US, that matters. But we've done some
Speaker 1: work that looks at things like um possible downgrades from
Speaker 1: investment raid into high yield and then from high yield
Speaker 1: into default, and we have worked with our our analysts
Speaker 1: in those in those two categories of asset classes and
Speaker 1: evaluated what are the employment effects of a downgrade on
Speaker 1: the investment grade or a default out of high yield.
Speaker 1: And what we've found is is that, you know, those
Speaker 1: are pretty pretty big numbers, especially on the high yield
Speaker 1: going into default, have pretty significant implications for employment. So
Speaker 1: there is a rationale for the FED to be in
Speaker 1: a supportive mode to try to avoid having fallen angels,
Speaker 1: as you know, those are those are investment investment grade
Speaker 1: that turned in high yield uh and and they had
Speaker 1: a particular um UH date put on them for the
Speaker 1: Fed reserve programs and then um and then the cash
Speaker 1: availability and the liquidity to try to tide over on
Speaker 1: the high yield. But of course you know underlying this
Speaker 1: it's it's got to be the real economy that performs,
Speaker 1: otherwise none of these companies are going to be able
Speaker 1: to make it through. Your projection is that markets or
Speaker 1: cities have projection is that markets will catch up to
Speaker 1: the economic reality which is bleaker than stocks and corporate
Speaker 1: bonds are portraying. Is the sense here that the solvency
Speaker 1: issues will overwhelm the liquidity solution that the Federal Reserve
Speaker 1: has presented the market. Well, the problem here is is that,
Speaker 1: I mean, liquidity is important, but solvency depends on the
Speaker 1: return of the real economy to a pre covid um
Speaker 1: situation um and and and we don't have that um under.
Speaker 1: We have several different scenarios for the U s economy
Speaker 1: um and and. Under a very optimistic scenario, the US
Speaker 1: returns to pre covid level of GDP in the middle
Speaker 1: of next year, but that still represents an entire year
Speaker 1: where firms are not generating revenue along the path that
Speaker 1: they had expected. Now some of them have replaced at
Speaker 1: by borrowing and you know, issuing equity and issuing bonds
Speaker 1: just from amazing issue and historic issues in order to
Speaker 1: give them their own liquidity in order to tie them over.
Speaker 1: But you know, even even then, you know, if we don't,
Speaker 1: there's still a whole year where there's no new revenue generation,
Speaker 1: and of course no one has a return to three
Speaker 1: and a half percent unemployment. So you know that that
Speaker 1: argument that by next year everything will be okay is
Speaker 1: really optimistic, really optimistic. Catherine, Really appreciate and enjoy your insight,
Speaker 1: especially this morning, Catherine Mane of City. We have been
Speaker 1: thrilled that the Lieutenant Governor could come in week after
Speaker 1: week after week and give our national audience perspective on
Speaker 1: the success New York State is having unlessening of cases
Speaker 1: of the virus and much lower deaths of the virus
Speaker 1: as well. Kathy Hokel joins us this morning the Lieutenant Governor, Kathy,
Speaker 1: I need you to give me an update on what
Speaker 1: everyone wants to know if New York is responsible unlike
Speaker 1: other states when do we get the restaurants open. Well,
Speaker 1: thank you for having me back on the show again
Speaker 1: and allowing me to have this conversation with you, because
Speaker 1: it's so important people understand where our minds are, what
Speaker 1: the governor is thinking about, what our administration is thinking
Speaker 1: about when we make determinations on what or not a
Speaker 1: region can go into the next phase. So, first of all,
Speaker 1: New York City. New York City is now in Phase three.
Speaker 1: There was no pause, No one said you can't go
Speaker 1: into phase three. So personal services are still allowed. A
Speaker 1: lot of the you know, the hair salons have been opened,
Speaker 1: but they can do more services, to have two parlors.
Speaker 1: I mean, there's just a lot of things that had
Speaker 1: been shut down in the past that now can be open,
Speaker 1: massage salons, etcetera. However, the reason there is they delay
Speaker 1: in the allowance of indoor dining is that, first of all,
Speaker 1: we have seen an incredible spike in cases nationwide. We
Speaker 1: are also concerned about local enforcement to make sure that
Speaker 1: that is going to go in a very robust fashion
Speaker 1: in order to ensure compliance. And second, a third late
Speaker 1: personal compliance. I mean you don't have to go very
Speaker 1: far to see constant social media pictures of people people
Speaker 1: in New York City not adhering to what we've asked
Speaker 1: them to do. Now that the jury, I would say,
Speaker 1: are doing well, But it doesn't take but a small
Speaker 1: minority of people to lagually violate the rules to shut
Speaker 1: us down again. So that is why we are not
Speaker 1: going into Phase three element respect to indoor dining. We've
Speaker 1: allowed the expansion of outdoor dining, and we can here
Speaker 1: continue to courage people to support their restaurants so they
Speaker 1: can hang on by ordering takeout. But we don't have
Speaker 1: a dancewerer question, Tom. It is just not safe to
Speaker 1: say that the usually smaller restaurants in your suit of
Speaker 1: very intimate and with the indoor circulation of air which
Speaker 1: is now becoming a more well known phenomenon, what this
Speaker 1: is doing to the spread of the COVID pandemic and
Speaker 1: co COVID virus. We can't take that risk. We are
Speaker 1: where we are in New York States. Your risk averse
Speaker 1: and we're not going to do that. Well, that's the point.
Speaker 1: I mean, you go right to it. We're risk averse
Speaker 1: and we're looking for perfection. That falls right over into
Speaker 1: the school year as well. It's July and we're getting
Speaker 1: into July. To you and all the other governors of
Speaker 1: our great fifty states, the District of Columbia and of Guam,
Speaker 1: are we going to get a school in September? Well, yeah,
Speaker 1: I don't think being risk averse when you're in a
Speaker 1: global pandemic is a problem. I mean that we're not
Speaker 1: striving for perfection. We're striving to save lives and we
Speaker 1: are going to continue monitoring the data as it unfolds.
Speaker 1: That we think about the fact that back in March,
Speaker 1: no one was even talking about wearing a mask. Everyone
Speaker 1: thought if you washed your hands, you're going to be okay.
Speaker 1: Now we're understanding, just very recently that this is more
Speaker 1: airborne than we had thought, and the droplets can linker
Speaker 1: in the air for a longer period of time. So
Speaker 1: we have to have the benefit of the ability to
Speaker 1: turn on a dime to say, you know, what we
Speaker 1: thought was right based on global experts, and in New
Speaker 1: York name is being advised by global experts, not just
Speaker 1: the CDC, who are you know, always having a question
Speaker 1: the motivation there from the President's influence. We want to trust,
Speaker 1: but we also have to verify. We want to make
Speaker 1: sure we get it right with respect to restaurants and
Speaker 1: particularly with respect to schools. This is not an area
Speaker 1: we're going to make a mistake with the health and
Speaker 1: well being of New York children. And we only wish
Speaker 1: that the rest of the nation had followed our lead
Speaker 1: and taking extremely serious this pandemic and taking precautionary measures
Speaker 1: and enforcing the social distin wearing the mask, shutting down,
Speaker 1: but now coming back in a way that's thoughtful and
Speaker 1: based on the data, not just the emotion that we
Speaker 1: all want to get back to normal and back to school.
Speaker 1: We can't pop least say in July what this pandemic
Speaker 1: the landscape is going to look like when children should
Speaker 1: be starting school in September. We're planning for it, but
Speaker 1: we're not going to guarantee at this point, Lieutenant Governor.
Speaker 1: So important to be cautious and to care for people's health.
Speaker 1: There's also a question of how long this state and
Speaker 1: New York City in particular, can last financially as things
Speaker 1: do not get back to normal, and as people who
Speaker 1: have left the region stay away as things don't return
Speaker 1: to normal, and frankly, as people are worried about cuts
Speaker 1: to basic services, whether it's police or sanitation. Where are
Speaker 1: we on that front. There is a very simple solution,
Speaker 1: and that is that the federal government, the President has
Speaker 1: to recognize that this is not a state phenomenon. This
Speaker 1: is not one hurricane that hits New York City. It
Speaker 1: is a hurricane that it's hit the entire nation. And
Speaker 1: if they don't realize this by now that this is
Speaker 1: beyond the borders of New York, New Jersey and Connecticut,
Speaker 1: that the that the rest of the nation is being
Speaker 1: hit hard. And I only need to name a few
Speaker 1: states like Texas, Arizona, and Florida, and you know what
Speaker 1: I'm talking about that we need the settle government to
Speaker 1: get back to business. Congress, the House has been on
Speaker 1: our side. We need the Senate and the President to
Speaker 1: sign a very very robust, large and impactful stimulus plan
Speaker 1: to help support our local governments so we could help
Speaker 1: the states, help the local governments, so we can have
Speaker 1: fund the very essential services you're referring to, police, health
Speaker 1: care workers, teachers, and not miss a beat, and that
Speaker 1: they do what they're supposed to do, we can. It
Speaker 1: will help our recovery. And I've said on your show
Speaker 1: before there is no recovery for this nation without the
Speaker 1: recovery of New York State. We are the epicenter. We
Speaker 1: beat it back, We've contained the beast. We are the
Speaker 1: role model for the rest of nations that we want
Speaker 1: to start jump starting our economy and we know how
Speaker 1: to do it. We need help in the settle government,
Speaker 1: Lieutenant Governor the debate of this month, that's for sure,
Speaker 1: and maybe beyond. We appreciate you continued engagement with this program.
Speaker 1: Right now, we're gonna bring in Alicia Levine. She is wonderful,
Speaker 1: just wonderful on the equity markets and really a more
Speaker 1: holistic view of what to do for Alicia, you have
Speaker 1: been absolutely wonderful at b n Y Melon on the
Speaker 1: idea of staying in the market nervous. How do you
Speaker 1: accomplish that to the end of the year. Good morning,
Speaker 1: great show, guys, Great to see you as always. Yes,
Speaker 1: staying in the market nervous and that is still our message. UM,
Speaker 1: it's extraordinary. UM. I think we're all scratching our heads,
Speaker 1: but the market is telling you you've got to be
Speaker 1: in it. And I listened to the classes and that's
Speaker 1: what they're telling us. So, Alicia, something you said over
Speaker 1: the last couple of weeks, and I think it's really important,
Speaker 1: not about the pace of the recovery, just about the
Speaker 1: direct and I think that's something a lot of people
Speaker 1: have failed to appreciate. The direction of traveler is not
Speaker 1: a whole lot to this market. It means a whole
Speaker 1: lot to you too, doesn't it. That's right. So the
Speaker 1: thing is, we think that this summer could be a
Speaker 1: bit of a test and some consolidation and choppy and
Speaker 1: that not at least of which is that the third
Speaker 1: quarter tends to be the worst performing quarter historically. So
Speaker 1: when you add that with some of the news items
Speaker 1: that you three have been talking about, you could get
Speaker 1: that here. However, the direction of travel is upward overall,
Speaker 1: and I don't think this should be shaken out here.
Speaker 1: And you can hedge, and you can change your sectors
Speaker 1: that you're interested in. There are many sectors that simply
Speaker 1: have not participated yet. But the direction of travel for
Speaker 1: the economy is upward, even its shallower than we hope
Speaker 1: two weeks ago, so upward. The consensus view is that
Speaker 1: this is the bounce, and the recovery starts to slow
Speaker 1: in late summer. And I keep going back to this question.
Speaker 1: Alicia whether anemic owth in the future is sufficient to
Speaker 1: carry on driving equity gangs. Do you think it is? So?
Speaker 1: I think we have to separate what the support for
Speaker 1: the market and economy are versus what the fundamentals of
Speaker 1: the corporate sector are. And in the end, the overwhelming
Speaker 1: amount of stimulus coming from the FED and from Congress,
Speaker 1: and we do have the fiscal clip, as you said,
Speaker 1: we do expect something will be passed. And by the way,
Speaker 1: because the resurgence in cases is happening in the South,
Speaker 1: I expect that that next stimulus feels to be larger
Speaker 1: than one trillion dollars because it's going to hit home
Speaker 1: for many more people in the Senate, and I think
Speaker 1: it's going to be larger, and there's there's an understanding
Speaker 1: that what's kept the economy going are the transfer payments
Speaker 1: from the government to households that have been out of
Speaker 1: work and have been affected by this and will be longer.
Speaker 1: So we think we're going to get that. And the
Speaker 1: FED is out there having every single asset class supported.
Speaker 1: So with that, even if it's a mean nick growth,
Speaker 1: markets will be supported. Markets will be supported. There is
Speaker 1: a question of what companies will do with the fact
Speaker 1: that balance sheets on the consumer side are strong and
Speaker 1: their own balance sheets are flooded with cash. We saw
Speaker 1: Warren Buffett take a stab over the weekend, and then
Speaker 1: this morning Uber is said to be agreeing to buy
Speaker 1: Postmates for two point six five billion dollars. Uber shares
Speaker 1: up nearly eight percent ahead of the open. How much
Speaker 1: will consolidation, as Tom was asking about earlier, how much
Speaker 1: will that consolidation really be the hallmark of the months
Speaker 1: to come as companies look for any advantage for economies
Speaker 1: of scale perspective in this economy, look, I think you
Speaker 1: will see a lot more m n A here simply
Speaker 1: because the primary funding markets are open and cash is available,
Speaker 1: and there are going to be winners and losers. And
Speaker 1: this is a kind of economy and market where relative
Speaker 1: strength will matter more than if you have a decently
Speaker 1: growing economy, and so I think you will see more
Speaker 1: in then A and that is positive for the market.
Speaker 1: I think that Berkshire Hathaway news over the weekends also
Speaker 1: very positive. I think that's part of the reason you're
Speaker 1: seeing the future is up this morning. That's simply buffets
Speaker 1: back in, and it buffets back in. It can't be
Speaker 1: that bad when you said, oh, you were looking at
Speaker 1: your outlook and you said, the economy of twenty thirty
Speaker 1: was brought forward ten years? What does that mean in
Speaker 1: terms of where you want to invest? So, what that
Speaker 1: means is the structural changes that we've all been aware of,
Speaker 1: whether it's retail or tech or five G. You know,
Speaker 1: these kinds of consumer behaviors that were slowly happening, that
Speaker 1: were visible and creating some shakeouts now have been turbocharged.
Speaker 1: So whatever you thought the economy was going to look
Speaker 1: like in we're getting it now and we're getting it
Speaker 1: next year. So it means that certain soft line retail
Speaker 1: is probably going to struggle very sharply, and you've already
Speaker 1: seen it. Uh, Certain certain kinds of businesses simply cannot
Speaker 1: survive this going forward. Consumer behavior will not change entirely,
Speaker 1: but it will on the margins, and that's where you're
Speaker 1: going to see problems. I think the health care sector
Speaker 1: is a huge place to invest here. You will see
Speaker 1: so much money and investment coming both at biotech and
Speaker 1: large cap pharma and and tech to deal with some
Speaker 1: of these um some of the data issues that you
Speaker 1: need to get healthcare right. That's all going to be accelerated, Alicia,
Speaker 1: Will corporate behavior change and is the thing that we're
Speaker 1: missing here is we're going to see an M and
Speaker 1: a boom like we've never ever experienced before. So this
Speaker 1: is the interesting question. And I think this is where
Speaker 1: politics comes in a little bit. I think you will
Speaker 1: see an M N a boom um. There's not a
Speaker 1: lot of time left to get these deals done before
Speaker 1: the election, so I think, you know, left left to
Speaker 1: their own, that you will see a boom. I think
Speaker 1: there has to be some uh. I to at the
Speaker 1: regulatory picture is going to look like after November and
Speaker 1: whether certain high ups will be viable or not. But
Speaker 1: everything else being equal, you should see an M and
Speaker 1: a boom here. Yet cash is plentiful, Alicia Levine, love
Speaker 1: getting you on the program right to catch up on
Speaker 1: this secrete market. Thanks for time this morning. Thanks for
Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to
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