1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily 2 00:00:13,960 --> 00:00:17,560 Speaker 1: we bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,480 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,640 --> 00:00:27,640 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Right now. Off, 5 00:00:27,760 --> 00:00:29,840 Speaker 1: what we heard from Sunder McConnell in the mystery of 6 00:00:29,840 --> 00:00:33,720 Speaker 1: what we'll see today from Disarray and the Republican Party 7 00:00:34,280 --> 00:00:36,400 Speaker 1: is the reality of what it means for the funding 8 00:00:36,479 --> 00:00:40,040 Speaker 1: of our transportation. That can be DFW and Dallas. That 9 00:00:40,120 --> 00:00:42,720 Speaker 1: can be the airlines out west, the railroads coast to 10 00:00:42,800 --> 00:00:46,400 Speaker 1: coast amtrack even or it can be the m t A. 11 00:00:46,560 --> 00:00:49,480 Speaker 1: The chairman and CEO is ex Scott, and our Pat 12 00:00:49,520 --> 00:00:53,159 Speaker 1: Foy joins us right now. Pat, you're listening to the 13 00:00:53,240 --> 00:00:58,640 Speaker 1: dialogue in Washington on the Foyd desperation Meter. How badly 14 00:00:58,720 --> 00:01:03,440 Speaker 1: do you need federal help after the writer's shortfall you're 15 00:01:03,480 --> 00:01:08,240 Speaker 1: seeing on the desperation index. We're in a we're facing 16 00:01:08,240 --> 00:01:11,679 Speaker 1: a fiscal tsunami, once in a hundred year fiscal tsunami 17 00:01:11,800 --> 00:01:16,640 Speaker 1: which has left our infrastructure intact with demolished of our revenues. 18 00:01:17,319 --> 00:01:20,360 Speaker 1: We exhausted, and we exhausted on Friday, the last of 19 00:01:20,400 --> 00:01:24,319 Speaker 1: the CARES dollars that we got several months ago. That 20 00:01:24,400 --> 00:01:27,280 Speaker 1: was about three point nine billion dollars of funding. We 21 00:01:27,319 --> 00:01:30,160 Speaker 1: need an additional three point nine and these are shocking 22 00:01:30,280 --> 00:01:33,240 Speaker 1: numbers to get us through the remainder of the year. 23 00:01:33,959 --> 00:01:38,960 Speaker 1: Our revenue sources are come from our customers, affairs and tolls. 24 00:01:39,000 --> 00:01:42,440 Speaker 1: Those are down precipitously, and the remaining half of our 25 00:01:42,480 --> 00:01:45,640 Speaker 1: revenues comes from a dedicated package of taxes and subsidies 26 00:01:45,880 --> 00:01:48,760 Speaker 1: which are economically sensitive. In those two are falling off 27 00:01:48,760 --> 00:01:51,880 Speaker 1: a cliff town. Do you get a feeling Washington and 28 00:01:51,960 --> 00:01:55,800 Speaker 1: different flavors, including a gentleman residing above the Gucci store 29 00:01:56,200 --> 00:01:59,040 Speaker 1: on Fifth Avenue. Do you get the feeling they're saying 30 00:01:59,240 --> 00:02:04,360 Speaker 1: New York up dead? I I hope not. I think 31 00:02:04,400 --> 00:02:08,799 Speaker 1: we'll find that out in the in the weeks to come. Clearly, 32 00:02:09,240 --> 00:02:12,160 Speaker 1: states and cities around the country, including New York City 33 00:02:12,160 --> 00:02:14,480 Speaker 1: and New York State, or in desperate need of funding. 34 00:02:14,960 --> 00:02:16,760 Speaker 1: I'm here to talk about the m t A today, 35 00:02:16,800 --> 00:02:19,200 Speaker 1: and the m t A is in desperate need of funding. 36 00:02:19,520 --> 00:02:21,440 Speaker 1: The m t A is not only just a mass 37 00:02:21,480 --> 00:02:24,480 Speaker 1: transit agency, it's frankly the circulatory system of the New 38 00:02:24,560 --> 00:02:28,040 Speaker 1: York City regional economy, and not funding the m t 39 00:02:28,240 --> 00:02:32,680 Speaker 1: A will stunt and thwart economic recovery and job creation 40 00:02:32,800 --> 00:02:35,200 Speaker 1: all over New York. Well, give us a sense of 41 00:02:35,200 --> 00:02:38,200 Speaker 1: that scope and scale. I mean, we understand the subway system, 42 00:02:38,240 --> 00:02:41,040 Speaker 1: the busses. I give you major credit for showing the 43 00:02:41,080 --> 00:02:44,919 Speaker 1: decline in ridership numbers right up front on your website, 44 00:02:45,320 --> 00:02:49,040 Speaker 1: But give us give our viewers and listeners worldwide a 45 00:02:49,200 --> 00:02:53,000 Speaker 1: sense of the geographic reach of the m t A. 46 00:02:53,160 --> 00:02:57,040 Speaker 1: It's not the Five boroughs, is it. No, it's beyond 47 00:02:57,120 --> 00:03:00,600 Speaker 1: the subways buses in New York City, five earls Long 48 00:03:00,600 --> 00:03:06,000 Speaker 1: Island Railroad goes out NASA and Suffolk County. Metro North 49 00:03:06,080 --> 00:03:09,240 Speaker 1: covers Westchester and North as well as part of Connecticut. 50 00:03:09,320 --> 00:03:11,760 Speaker 1: And we've got a small operation that New Jersey Transit 51 00:03:11,840 --> 00:03:15,200 Speaker 1: runs for US west of Hudson UH In a technical 52 00:03:15,320 --> 00:03:19,480 Speaker 1: day pre pandemic will carry well over eight million passengers. 53 00:03:20,000 --> 00:03:23,600 Speaker 1: Pre pandemic subway ridership average weekday five and a half 54 00:03:23,639 --> 00:03:27,280 Speaker 1: million customers right now one point two million. That's up 55 00:03:27,320 --> 00:03:30,760 Speaker 1: substantially from the depths of the pandemic, but a fraction 56 00:03:30,800 --> 00:03:32,760 Speaker 1: of the numbers that we would carry on all of 57 00:03:32,800 --> 00:03:36,040 Speaker 1: those agencies. In my anecdotal and his, folks is real simple. 58 00:03:36,200 --> 00:03:40,000 Speaker 1: I was thunderstruck how empty New York City was this weekend, 59 00:03:40,040 --> 00:03:43,120 Speaker 1: Like I've honestly never seen it in my time at 60 00:03:43,120 --> 00:03:45,920 Speaker 1: Bloomberg and PET four. You're living with this, with the 61 00:03:45,960 --> 00:03:48,440 Speaker 1: empty office buildings of Midtown and there's all these other 62 00:03:48,520 --> 00:03:52,280 Speaker 1: stories as well. If you get that aid, what do 63 00:03:52,360 --> 00:03:54,720 Speaker 1: you do with it or do you have to begin 64 00:03:54,880 --> 00:04:00,080 Speaker 1: thinking about firing thousands of people. Well, Tom, here's what 65 00:04:00,080 --> 00:04:02,960 Speaker 1: we're gonna do. I'm cautiously optimistic that we're gonna get 66 00:04:02,960 --> 00:04:05,400 Speaker 1: the funding because frankly, it's in the interest of the 67 00:04:05,520 --> 00:04:08,640 Speaker 1: nation to fund the m t a UH to help 68 00:04:09,040 --> 00:04:13,360 Speaker 1: bolster New York City's regional economic recovery. That's in the 69 00:04:13,480 --> 00:04:17,640 Speaker 1: national interest. The pandemic is an international and national challenge, 70 00:04:17,720 --> 00:04:21,440 Speaker 1: and it requires a national solution. So I'm postiously optimistic 71 00:04:21,480 --> 00:04:24,159 Speaker 1: that Washington is going to do the right thing. But 72 00:04:24,240 --> 00:04:28,080 Speaker 1: without funding UH for the rest of the year, that's 73 00:04:28,080 --> 00:04:31,400 Speaker 1: what we're talking about. To get us through, decline in 74 00:04:31,480 --> 00:04:35,360 Speaker 1: revenues has been that precipitous. We will have to consider 75 00:04:35,520 --> 00:04:40,720 Speaker 1: things like wage freezes, like service reductions, like head count reduction, 76 00:04:41,200 --> 00:04:44,159 Speaker 1: delaying or deferring the capital plan. We have an historic 77 00:04:44,200 --> 00:04:46,880 Speaker 1: fifty one and a half billion dollar capital plan that 78 00:04:47,000 --> 00:04:49,440 Speaker 1: was approved a year ago. We've put that on pause. 79 00:04:49,800 --> 00:04:51,960 Speaker 1: None of us wants to replay the movie from the 80 00:04:52,000 --> 00:04:54,960 Speaker 1: seventies and eighties when MTA didn't infest in subways and 81 00:04:55,000 --> 00:04:59,280 Speaker 1: buses and service to climbs. Pafoy, We've got some breaking 82 00:04:59,279 --> 00:05:00,960 Speaker 1: news here. Some gonna have to let you go, but 83 00:05:01,040 --> 00:05:03,120 Speaker 1: we'll monitor is carefully. And of course the m t 84 00:05:03,240 --> 00:05:05,800 Speaker 1: A folks with a huge reach in New York, we 85 00:05:05,800 --> 00:05:10,320 Speaker 1: welcome Bloomberger eleven three oh particularly listening to this swarny. 86 00:05:10,400 --> 00:05:19,480 Speaker 1: Mr Foys, chairman and CEO of the mt AS put sweets. 87 00:05:19,920 --> 00:05:22,440 Speaker 1: And they have a wonderful chief economist. His name is 88 00:05:22,520 --> 00:05:27,480 Speaker 1: James Sweeney, with terrific us and British academics. James Sweeney 89 00:05:27,680 --> 00:05:31,400 Speaker 1: was brilliant a few years ago saying the disinflation and 90 00:05:31,480 --> 00:05:35,159 Speaker 1: deflation gloom of Europe a few years ago was off 91 00:05:35,200 --> 00:05:38,160 Speaker 1: the mark. He joins us this morning with a different view, 92 00:05:38,440 --> 00:05:41,520 Speaker 1: James Sweeney, our service is going to cave in and 93 00:05:41,640 --> 00:05:47,560 Speaker 1: joined goods as disinflation and deflationary items. Well, right now, 94 00:05:47,640 --> 00:05:51,800 Speaker 1: services have joined goods with this collapse and activity, but 95 00:05:51,839 --> 00:05:56,560 Speaker 1: it's been driven by shutdown. Now we're rebounding because there's 96 00:05:56,760 --> 00:05:59,840 Speaker 1: some activity turning back on. But I think if you 97 00:06:00,040 --> 00:06:03,520 Speaker 1: look beyond this rebound, the fears should indeed be toward 98 00:06:04,520 --> 00:06:08,920 Speaker 1: weaker inflation, including in services, given a very uncertain path 99 00:06:09,000 --> 00:06:12,960 Speaker 1: for unemployment and potential for pretty elevated unemployment deep into 100 00:06:12,960 --> 00:06:15,880 Speaker 1: two thousand twenty one. How have you adjusted your GDP 101 00:06:16,120 --> 00:06:18,480 Speaker 1: for the United States of America? Give us a view 102 00:06:18,520 --> 00:06:20,880 Speaker 1: out twelve months or dare I say even at the 103 00:06:20,960 --> 00:06:24,480 Speaker 1: end of this year? Well? Yeah, I mean again, the 104 00:06:24,520 --> 00:06:28,560 Speaker 1: rebound is formidable because when you turn the lights off 105 00:06:28,600 --> 00:06:30,560 Speaker 1: and you turn the lights back on again, it does 106 00:06:30,600 --> 00:06:33,640 Speaker 1: crazy things to the data. So what we're seeing now 107 00:06:33,800 --> 00:06:38,240 Speaker 1: is an incremental slowdown in the US because of increasing 108 00:06:38,279 --> 00:06:42,040 Speaker 1: infections in the summer. But you know, we're still forecasting 109 00:06:42,080 --> 00:06:46,080 Speaker 1: a very strong, basically double digit increase in Q three 110 00:06:46,160 --> 00:06:48,880 Speaker 1: g d P. But what you have to remember is 111 00:06:48,880 --> 00:06:51,480 Speaker 1: that the level of activity is going to be well 112 00:06:51,520 --> 00:06:55,000 Speaker 1: below trent. So you know, if we have GDP contracting 113 00:06:55,080 --> 00:06:59,560 Speaker 1: you know, five percent six percent this year, Um, you've 114 00:06:59,560 --> 00:07:02,279 Speaker 1: got a big cold. Help me with a folk trio 115 00:07:02,400 --> 00:07:06,880 Speaker 1: MC McConnell, Minution and Meadows. I'm sure they're watching right now. 116 00:07:07,360 --> 00:07:10,800 Speaker 1: James Sweeney, what's the American all in unemployment right now? 117 00:07:10,840 --> 00:07:15,120 Speaker 1: The U six it's over, isn't it. Well, that's a 118 00:07:15,280 --> 00:07:18,280 Speaker 1: that's a fake number, because that's telling you about how 119 00:07:18,320 --> 00:07:22,120 Speaker 1: many hourly workers are getting zero hours during a period 120 00:07:22,120 --> 00:07:25,560 Speaker 1: of shutdowns. But I think the real number is probably 121 00:07:25,560 --> 00:07:28,640 Speaker 1: closer to ten than five. And that's a big problem. 122 00:07:28,760 --> 00:07:32,920 Speaker 1: And in six months, even if there's a vaccine around UM, 123 00:07:32,960 --> 00:07:35,760 Speaker 1: if that number is still real number is still closer 124 00:07:35,800 --> 00:07:39,440 Speaker 1: to ten than five UM, then that has real implications 125 00:07:39,480 --> 00:07:41,760 Speaker 1: for the for the FED, and and and for growth 126 00:07:41,880 --> 00:07:44,600 Speaker 1: and for inflation pressures. Let's talk about the latter one. 127 00:07:44,640 --> 00:07:47,200 Speaker 1: Inflation pressures, as you point out, will be the low 128 00:07:47,200 --> 00:07:51,120 Speaker 1: capacity for a sustained period an extended period of time. Yet, James, 129 00:07:51,160 --> 00:07:55,560 Speaker 1: there's a conversation drifting into inflation away from disinflation. Inflation 130 00:07:55,600 --> 00:07:58,720 Speaker 1: reexpectations started to pick up, James, from your perspective and 131 00:07:58,760 --> 00:08:03,680 Speaker 1: your conversations. Why, yeah, Well, it's actually a very popular 132 00:08:03,720 --> 00:08:09,080 Speaker 1: conversation among equity investors, not so much among debt investors. 133 00:08:09,120 --> 00:08:12,520 Speaker 1: But the view is basically, you know MP two money 134 00:08:12,520 --> 00:08:15,640 Speaker 1: supply in the US is up three trillion dollars. Bank 135 00:08:15,720 --> 00:08:19,120 Speaker 1: credit is up just under a trillion dollars. No Treasury 136 00:08:19,160 --> 00:08:22,920 Speaker 1: debt is up, you know, three trillion ish FED balance 137 00:08:22,920 --> 00:08:27,200 Speaker 1: sheets similar, Um, surely this is inflationary down the road. 138 00:08:27,960 --> 00:08:31,040 Speaker 1: Not so surely It's possible, But inflation is a forward 139 00:08:31,040 --> 00:08:34,640 Speaker 1: looking phenomenon. It depends on expectations later on. It depends 140 00:08:34,679 --> 00:08:39,320 Speaker 1: on whether the FED responds to incipient inflationary pressures. A 141 00:08:39,360 --> 00:08:41,880 Speaker 1: lot of good things have to happen first in order 142 00:08:41,960 --> 00:08:45,560 Speaker 1: for us to get there. So, um, so I think 143 00:08:45,679 --> 00:08:49,720 Speaker 1: the focus is it needs to be on, you know, 144 00:08:49,880 --> 00:08:53,400 Speaker 1: on exactly that European situation that I've been not expecting 145 00:08:53,400 --> 00:08:55,880 Speaker 1: in the US for a long time. But the odds 146 00:08:55,920 --> 00:08:59,439 Speaker 1: that inflation gets stuck at a lower level are elevated 147 00:08:59,520 --> 00:09:01,360 Speaker 1: at the moment, and I think the FED is going 148 00:09:01,400 --> 00:09:03,480 Speaker 1: to be focusing on that, and I think we're going 149 00:09:03,520 --> 00:09:06,720 Speaker 1: to see policy actions over the next six months that 150 00:09:06,720 --> 00:09:08,760 Speaker 1: that confirm that fear. James, we can talk about the 151 00:09:08,760 --> 00:09:10,400 Speaker 1: policy action at just a moment. Can you just walk 152 00:09:10,440 --> 00:09:13,600 Speaker 1: through our audience the relationship between money supply and inflation. 153 00:09:13,679 --> 00:09:16,040 Speaker 1: Just how tied does that relationship being or not over 154 00:09:16,040 --> 00:09:20,079 Speaker 1: the last ten years, the last twenty years poor, not good, 155 00:09:20,360 --> 00:09:25,000 Speaker 1: not not a good relationship. And again um with with 156 00:09:25,160 --> 00:09:29,160 Speaker 1: interest rates. So low bonds are not necessarily a great 157 00:09:29,320 --> 00:09:33,520 Speaker 1: attractive alternative to cash in the bank. So if if 158 00:09:33,720 --> 00:09:37,199 Speaker 1: cash is being created in deposits are being created, you know, 159 00:09:37,320 --> 00:09:39,840 Speaker 1: I may not want to put those in fixed income securities. 160 00:09:39,880 --> 00:09:42,719 Speaker 1: I may not want to take the risk of of equities, 161 00:09:43,320 --> 00:09:45,680 Speaker 1: and so the deposits don't go anywhere. I mean, in 162 00:09:45,720 --> 00:09:48,880 Speaker 1: the short run, it's nice that the stimulus has has 163 00:09:48,920 --> 00:09:52,240 Speaker 1: gotten cash flow into a lot of especially you know, 164 00:09:52,320 --> 00:09:54,959 Speaker 1: lower income cash constraint workers, so that they can pay 165 00:09:55,000 --> 00:09:58,040 Speaker 1: their bills. That's extremely important. But the idea that this 166 00:09:58,080 --> 00:10:01,200 Speaker 1: money is going to circulate at a high rate and 167 00:10:01,320 --> 00:10:03,960 Speaker 1: risk and and really grow aggregate demand in a way 168 00:10:03,960 --> 00:10:08,400 Speaker 1: that will quickly be inflationary, uh, seems pretty far fetched 169 00:10:08,440 --> 00:10:11,040 Speaker 1: to me. You're just joining us Bloomberg Radio, Bloomberg Television, 170 00:10:11,080 --> 00:10:13,480 Speaker 1: John Farrell in Time, King James Sweeney with us with 171 00:10:13,520 --> 00:10:17,520 Speaker 1: Credit Sweetzer, Chief Economists. Lots of really good conversation this morning, 172 00:10:17,600 --> 00:10:22,439 Speaker 1: centering on Washington and our fiscal policy, along with Marcus 173 00:10:22,480 --> 00:10:26,560 Speaker 1: Futures up seventeen now up thirteen. James Sweeney. All that's fine, 174 00:10:27,000 --> 00:10:30,080 Speaker 1: But if I get a James Sweeney economy, what does 175 00:10:30,120 --> 00:10:32,560 Speaker 1: four trillion in debt due to it? I don't understand 176 00:10:32,600 --> 00:10:36,680 Speaker 1: the dovetail of saggy nominal g d P, you know, okay, 177 00:10:36,760 --> 00:10:39,040 Speaker 1: kind of like real g d P and a new 178 00:10:39,120 --> 00:10:43,280 Speaker 1: overlay of four trillion in debt. Well, I mean longer term. 179 00:10:43,320 --> 00:10:46,120 Speaker 1: I think that's what's happening with the dollar. I mean, 180 00:10:46,200 --> 00:10:50,840 Speaker 1: I think there are fears about the fiscal path of 181 00:10:50,880 --> 00:10:53,680 Speaker 1: the US longer term. So it's driving a narrative both 182 00:10:53,720 --> 00:10:57,200 Speaker 1: of longer term inflation and you know, positive for gold 183 00:10:57,320 --> 00:11:01,080 Speaker 1: and positive for break evens and and and all these things. Um. 184 00:11:01,120 --> 00:11:03,559 Speaker 1: But there's just a very important hump to get over first, 185 00:11:03,559 --> 00:11:07,320 Speaker 1: and that's the disinflationary pressure of the of the high unemployment. 186 00:11:07,320 --> 00:11:10,160 Speaker 1: And I would say also, you know, without very high 187 00:11:10,240 --> 00:11:13,800 Speaker 1: fed purchases, you're likely to see a decent slowdown in 188 00:11:13,880 --> 00:11:17,360 Speaker 1: bank credit and money supply growth over over the next 189 00:11:17,360 --> 00:11:20,120 Speaker 1: twelve eighteen months. Um. And so if you're if your 190 00:11:20,200 --> 00:11:22,680 Speaker 1: argument is based on those things, your argument may fall apart. 191 00:11:22,800 --> 00:11:25,000 Speaker 1: John who booked him, We don't do this much gloom 192 00:11:25,040 --> 00:11:28,240 Speaker 1: on a Monday, James Sweeney, how are the market people 193 00:11:28,240 --> 00:11:32,280 Speaker 1: at credit suits reacting to your cautious view. The bond 194 00:11:32,280 --> 00:11:35,640 Speaker 1: guys and the equity guys they're different. How are each 195 00:11:35,720 --> 00:11:39,360 Speaker 1: of them reacting to this scenario? Well, I mean a 196 00:11:39,400 --> 00:11:41,880 Speaker 1: lot of the bond guys basically agree with it. I 197 00:11:41,880 --> 00:11:43,960 Speaker 1: mean on the equity side, you know, our our house 198 00:11:44,040 --> 00:11:47,400 Speaker 1: Field and zerich Ar Investment Committee recently went from overweight 199 00:11:47,440 --> 00:11:50,720 Speaker 1: global equities to to neutral. Uh. And part of it 200 00:11:50,760 --> 00:11:52,800 Speaker 1: is based on these fears as we as we get 201 00:11:52,840 --> 00:11:55,120 Speaker 1: into the into the autumn, and I mean neutral is 202 00:11:55,160 --> 00:11:58,480 Speaker 1: not underweight and and risky assets are of course doing 203 00:11:58,520 --> 00:12:02,200 Speaker 1: okay um and but you know, looking forward, I think 204 00:12:02,200 --> 00:12:04,720 Speaker 1: expected returns have definitely come down. It's on this place 205 00:12:04,760 --> 00:12:06,600 Speaker 1: into the Golob trade as well, that you'll pay a 206 00:12:06,640 --> 00:12:09,800 Speaker 1: premium for growth. Jonathan Golub far more constructive on the 207 00:12:09,840 --> 00:12:12,280 Speaker 1: growth names big tech than most people I speak to 208 00:12:12,320 --> 00:12:14,520 Speaker 1: on Wall Street. It has been for quite a while. Yeah, 209 00:12:14,520 --> 00:12:17,240 Speaker 1: And that's to the conversation had earlier with the Licia 210 00:12:17,320 --> 00:12:19,400 Speaker 1: Levine at b N y Mellon who went the other 211 00:12:19,440 --> 00:12:22,240 Speaker 1: way and said you've got to go away from growth 212 00:12:22,320 --> 00:12:24,679 Speaker 1: right now. I mean, John, these are these huge tensions, 213 00:12:25,320 --> 00:12:28,040 Speaker 1: all of them secondary to what we see in Washington 214 00:12:28,120 --> 00:12:30,680 Speaker 1: over the next well, James, not just on the fiscal debate, 215 00:12:30,720 --> 00:12:32,480 Speaker 1: let's talk about the Fed. They meet in forty eight 216 00:12:32,480 --> 00:12:35,480 Speaker 1: hours time as well. Just sounds like your positioning now 217 00:12:35,600 --> 00:12:38,560 Speaker 1: thinking about the next move. Governor Brain had really really 218 00:12:38,600 --> 00:12:40,920 Speaker 1: stimulated this conversation in the last couple of weeks when 219 00:12:40,960 --> 00:12:44,760 Speaker 1: she said we'll move from stabilization to accommodation, and everyone 220 00:12:44,760 --> 00:12:46,400 Speaker 1: on Wall Street was like, well, what was the last 221 00:12:46,440 --> 00:12:49,400 Speaker 1: few months about. If that wasn't about accommodation, what does 222 00:12:49,440 --> 00:12:53,000 Speaker 1: that transition look like in your mind? Well, I think 223 00:12:53,000 --> 00:12:56,760 Speaker 1: the last few months were about emergency measures responding to 224 00:12:56,800 --> 00:13:00,760 Speaker 1: the cash flow crisis through the shutdowns UM and trying 225 00:13:00,760 --> 00:13:04,320 Speaker 1: to ensure market functioning. And you know, if anything, they've 226 00:13:04,400 --> 00:13:08,080 Speaker 1: over ensured market functioning. But I think going forward again, 227 00:13:08,120 --> 00:13:10,360 Speaker 1: it's where does the unemployment rate settle? What does the 228 00:13:10,400 --> 00:13:14,400 Speaker 1: growth and inflation look like three or six months from now? UM, 229 00:13:14,440 --> 00:13:17,480 Speaker 1: And I think most of us think that activity is 230 00:13:17,480 --> 00:13:19,000 Speaker 1: going to be running at a pretty low level, and 231 00:13:19,000 --> 00:13:22,240 Speaker 1: so you're gonna need more help from from the FED. 232 00:13:22,400 --> 00:13:24,960 Speaker 1: So you maybe pulling back some of these emergency measures. 233 00:13:24,960 --> 00:13:28,000 Speaker 1: But in the short run, I think the Fed may 234 00:13:28,440 --> 00:13:31,800 Speaker 1: signal that you know, until unemployment and inflation or at 235 00:13:31,840 --> 00:13:35,160 Speaker 1: exceptional levels, some kind of substantial stimulus is going to 236 00:13:35,240 --> 00:13:36,600 Speaker 1: be in place. And I think in the in the 237 00:13:36,640 --> 00:13:40,760 Speaker 1: background is yield curve control as the next big Buzuka 238 00:13:41,200 --> 00:13:44,120 Speaker 1: to be fired at a time when you're in severe 239 00:13:44,240 --> 00:13:47,120 Speaker 1: market and growth stress. So hopefully that doesn't show up. 240 00:13:47,400 --> 00:13:50,120 Speaker 1: That's the that's the big option, James. Aren't we in 241 00:13:50,280 --> 00:13:53,920 Speaker 1: yield curve control right now? I mean, I'm looking at 242 00:13:53,920 --> 00:13:57,680 Speaker 1: a tenure of point five eight percent. How do you 243 00:13:57,760 --> 00:14:02,280 Speaker 1: control a number that low in America? Well, I mean 244 00:14:02,360 --> 00:14:05,080 Speaker 1: the fact that the market is behaving as if it's 245 00:14:05,080 --> 00:14:08,920 Speaker 1: already implemented, ob serves the FEDS objectives like that's a 246 00:14:08,960 --> 00:14:11,840 Speaker 1: good thing. So what you don't want is the market 247 00:14:11,880 --> 00:14:13,719 Speaker 1: to start to think they're never going to do this. 248 00:14:14,320 --> 00:14:16,440 Speaker 1: And so yields is a curve starts to step and 249 00:14:16,520 --> 00:14:19,360 Speaker 1: yields start to move in a in a in a 250 00:14:19,440 --> 00:14:23,640 Speaker 1: way that that suggests, you know, tightening of financial conditions. 251 00:14:24,080 --> 00:14:26,600 Speaker 1: So um, at some point you know, they may need 252 00:14:26,680 --> 00:14:29,600 Speaker 1: to formalize this thing, but at the moment, there's certainly 253 00:14:29,640 --> 00:14:33,080 Speaker 1: no risk. Assets are doing okay, and yields are doing 254 00:14:33,080 --> 00:14:35,520 Speaker 1: exactly what we need them to do got to catch you. 255 00:14:35,680 --> 00:14:44,640 Speaker 1: They send up best of the tame chief economists. So 256 00:14:44,680 --> 00:14:48,800 Speaker 1: we've got a market your folks is extraordinary and a mystery. 257 00:14:49,080 --> 00:14:51,400 Speaker 1: She's a chief strategist of Mystery of b n Y 258 00:14:51,480 --> 00:14:54,080 Speaker 1: mel And Alicia Levine joins us. And what's great about 259 00:14:54,080 --> 00:14:58,960 Speaker 1: a leisure Levine is prodigious academics behind trying to game 260 00:14:59,040 --> 00:15:01,760 Speaker 1: and guests a view Ford. Alicia, thanks so much for 261 00:15:01,880 --> 00:15:05,240 Speaker 1: joining John Amy this morning. Can you buy the marginal 262 00:15:05,320 --> 00:15:09,400 Speaker 1: share this morning? Alicia? Yeah, but I think you don't 263 00:15:09,400 --> 00:15:12,240 Speaker 1: buy it in tech and you know the message from 264 00:15:12,280 --> 00:15:15,600 Speaker 1: the last couple of weeks. It's really interesting the five 265 00:15:15,720 --> 00:15:18,800 Speaker 1: large cap tech stocks over the last two weeks, we're 266 00:15:18,960 --> 00:15:23,440 Speaker 1: down over five and the rest of the SMP was 267 00:15:23,480 --> 00:15:28,000 Speaker 1: actually up five in the last two weeks, suggesting a 268 00:15:28,120 --> 00:15:31,480 Speaker 1: broadening of the market and the trade moving away from 269 00:15:31,480 --> 00:15:34,800 Speaker 1: the parabola like stocks that we've all talked about for 270 00:15:34,840 --> 00:15:39,160 Speaker 1: the last four months. You can, but you can, yeah, 271 00:15:39,320 --> 00:15:41,640 Speaker 1: do what I mean to interrupt, but this is so important. 272 00:15:41,640 --> 00:15:43,960 Speaker 1: Do you rebalanced by selling tech or do you hold 273 00:15:44,000 --> 00:15:46,360 Speaker 1: the tech and put in new cash to work? Which 274 00:15:46,400 --> 00:15:49,880 Speaker 1: is it? I think you have to sell a little 275 00:15:49,880 --> 00:15:53,640 Speaker 1: tech here. Okay, I think I think that the growth 276 00:15:53,720 --> 00:15:58,840 Speaker 1: stocks must remain a core holding in an overall portfolio allocation. 277 00:15:59,440 --> 00:16:02,760 Speaker 1: Simply the US going forward growth will not be strong, 278 00:16:02,800 --> 00:16:06,800 Speaker 1: will be lower, and so growth tend to outperform. But 279 00:16:06,920 --> 00:16:09,320 Speaker 1: you know, if you look at it on the short basis, 280 00:16:09,400 --> 00:16:12,520 Speaker 1: these are parabolas. They don't suggest future gained in the 281 00:16:12,640 --> 00:16:15,440 Speaker 1: new Yar term, so you know they've gone too far, 282 00:16:15,640 --> 00:16:18,960 Speaker 1: too fast. And the forward, the forward comments after the 283 00:16:19,040 --> 00:16:23,920 Speaker 1: quarters has not been matching what the stack prices have done. 284 00:16:24,160 --> 00:16:25,960 Speaker 1: So I think you pull a little bit out of Teck. 285 00:16:26,000 --> 00:16:27,560 Speaker 1: And that's what we saw in the last couple of 286 00:16:27,600 --> 00:16:31,360 Speaker 1: weeks that people just sort of shaving, not not really dumping, 287 00:16:31,400 --> 00:16:33,560 Speaker 1: but shaving. And that makes sense, you know, because that's 288 00:16:33,560 --> 00:16:35,720 Speaker 1: what you do for rebalancing. You sell your winners and 289 00:16:35,800 --> 00:16:38,200 Speaker 1: you kind of reallocate. Tom And that was the last 290 00:16:38,200 --> 00:16:41,320 Speaker 1: time you interrupted someone with that, meaning to interrupt them. 291 00:16:41,520 --> 00:16:47,040 Speaker 1: Um No, Nixon. Nixon was back to Nixon at least 292 00:16:47,080 --> 00:16:49,520 Speaker 1: I know you're used to Thanks for being with us 293 00:16:49,520 --> 00:16:52,520 Speaker 1: this morning. I know you can handle it. I'm not 294 00:16:52,560 --> 00:16:55,400 Speaker 1: worried about you, Alicia at all, in any way, shape 295 00:16:55,480 --> 00:16:58,000 Speaker 1: or form. The rotation away from tech, let's continue that 296 00:16:58,040 --> 00:16:59,880 Speaker 1: conversation because a lot of people come on this show, 297 00:17:00,040 --> 00:17:02,280 Speaker 1: you know, Alicia, and they talk about rotating out of 298 00:17:02,320 --> 00:17:06,600 Speaker 1: tech but into the cyclical areas elsewhere m Asia, China, 299 00:17:07,000 --> 00:17:09,720 Speaker 1: Europe much more so it's there an argument to stay 300 00:17:09,800 --> 00:17:14,520 Speaker 1: US based. So I think, look, it's really interesting right now. 301 00:17:14,560 --> 00:17:17,679 Speaker 1: The rest of the world is recovering faster than the US. 302 00:17:17,800 --> 00:17:20,600 Speaker 1: So we see it in the industrial production in China, 303 00:17:20,720 --> 00:17:23,080 Speaker 1: we saw it in the data coming out of China 304 00:17:23,119 --> 00:17:25,000 Speaker 1: in the last week, and we saw it last becoming 305 00:17:25,000 --> 00:17:28,000 Speaker 1: out of Europe and the t m I. So the 306 00:17:28,040 --> 00:17:31,160 Speaker 1: rest of the world is recovering faster. The only thing 307 00:17:31,200 --> 00:17:33,440 Speaker 1: I'll say is that the valuations tend to get higher 308 00:17:33,440 --> 00:17:35,720 Speaker 1: in the US. Must I think you definitely have to 309 00:17:35,720 --> 00:17:39,000 Speaker 1: have an allocation to Europe. But the softer dollar does 310 00:17:39,280 --> 00:17:42,679 Speaker 1: argue for cyclicals here in the US. That's going to 311 00:17:42,720 --> 00:17:46,040 Speaker 1: be the bedrock of and some of these stocks. I mean, 312 00:17:46,080 --> 00:17:49,760 Speaker 1: so your software dollars helping these multinational companies. And by 313 00:17:49,800 --> 00:17:54,520 Speaker 1: the way, multinational companies are exposed to the recovery overseas, 314 00:17:54,840 --> 00:17:57,720 Speaker 1: So you know, you have to stay in the US. 315 00:17:57,760 --> 00:18:00,840 Speaker 1: But I think Asia is great, and I think Europe 316 00:18:00,880 --> 00:18:04,399 Speaker 1: looks it looks like a nice trade here. Well, Lea, 317 00:18:04,480 --> 00:18:06,840 Speaker 1: let's continue this conversation. Then. Is the weaker dollar a 318 00:18:06,920 --> 00:18:09,800 Speaker 1: symptom of the foreign inflows or a driver off them? 319 00:18:09,800 --> 00:18:13,280 Speaker 1: How do you frame that for clients at the moment. Well, 320 00:18:13,320 --> 00:18:17,359 Speaker 1: that's a really great technical question, Thank you, Jonathan Um. 321 00:18:17,440 --> 00:18:20,120 Speaker 1: I think I think it's it's a symptom, and it's 322 00:18:20,160 --> 00:18:24,600 Speaker 1: a symptom because let's let's go back to the first 323 00:18:24,680 --> 00:18:27,439 Speaker 1: first basis, right, first stasis is the path of the 324 00:18:27,480 --> 00:18:32,040 Speaker 1: recovery is going to track the path of the virus. Okay, 325 00:18:32,200 --> 00:18:34,520 Speaker 1: and what we've seen in the last sixteen at the 326 00:18:34,600 --> 00:18:37,040 Speaker 1: path that the path of the virus is exploding everywhere 327 00:18:37,040 --> 00:18:41,119 Speaker 1: in the US, and so economic activity is flattening and 328 00:18:41,200 --> 00:18:44,040 Speaker 1: so there it's not happening in other regions of the world. 329 00:18:44,320 --> 00:18:47,879 Speaker 1: So therefore they're recovering fast. We're flattening s. The first 330 00:18:47,920 --> 00:18:51,760 Speaker 1: problem in the labor markets last Thursday, where the claimed 331 00:18:51,840 --> 00:18:54,000 Speaker 1: data win in the wrong direction for the first time 332 00:18:54,040 --> 00:18:56,960 Speaker 1: in sixteen weeks. So we're gonna start feeling it here 333 00:18:57,040 --> 00:18:59,520 Speaker 1: and I think this office dollar is a reflection of that. 334 00:19:00,080 --> 00:19:03,080 Speaker 1: Not to mention, not to mention, yields are so low 335 00:19:03,080 --> 00:19:05,280 Speaker 1: and we've got negative yield as you were talking about 336 00:19:05,600 --> 00:19:08,119 Speaker 1: all the learning long So I think I think that 337 00:19:08,200 --> 00:19:11,200 Speaker 1: the week or dollar is a symptom. Or is dividend 338 00:19:11,280 --> 00:19:19,640 Speaker 1: and dividend growth a proxy for yield right now? Yes? Yes, um, Look, 339 00:19:19,760 --> 00:19:22,639 Speaker 1: you know it's interesting only sixty two companies in the 340 00:19:22,760 --> 00:19:25,240 Speaker 1: SMP have actually cut dividends. I would have thought that 341 00:19:25,280 --> 00:19:28,080 Speaker 1: would have been more, and it's interesting that they haven't. 342 00:19:28,119 --> 00:19:31,040 Speaker 1: And part of that is due to the support from 343 00:19:31,040 --> 00:19:35,520 Speaker 1: the FED supporting all the different levels of bonds here, 344 00:19:35,560 --> 00:19:38,880 Speaker 1: you know, creating a situation where you have enough capital 345 00:19:39,000 --> 00:19:41,040 Speaker 1: and you can both play paid dividends. Because it's the 346 00:19:41,119 --> 00:19:43,840 Speaker 1: number of companies that have cut dividends actually less than 347 00:19:43,840 --> 00:19:45,840 Speaker 1: in two thousand and eight and two thousand and nine, 348 00:19:46,040 --> 00:19:48,600 Speaker 1: which I find really interesting. I would not have expected 349 00:19:48,640 --> 00:19:50,399 Speaker 1: that three months ago. Well come all of you on 350 00:19:50,400 --> 00:19:53,600 Speaker 1: Bloomberg Radio, Bloomberg Television, John Farrow and Tom Keen, Alicia 351 00:19:53,680 --> 00:19:57,160 Speaker 1: Levine with us right now. B and why Melan, Alicia, 352 00:19:57,200 --> 00:19:59,800 Speaker 1: what are you seeing people actually do with their money? 353 00:19:59,800 --> 00:20:02,119 Speaker 1: I'm fascinating when I talked to you, or saying Lisian 354 00:20:02,200 --> 00:20:06,919 Speaker 1: Sanders a hub about what the actual action is of people? 355 00:20:07,000 --> 00:20:10,080 Speaker 1: What is the action right now? So the action is 356 00:20:10,200 --> 00:20:15,560 Speaker 1: very defensive, and that's why we remain cautiously bullish on 357 00:20:15,560 --> 00:20:21,719 Speaker 1: on this market. Nervous but bullish because positioning is defensive. 358 00:20:21,840 --> 00:20:27,439 Speaker 1: So money market funds, goals, and bonds and investment great bonds, 359 00:20:27,520 --> 00:20:30,959 Speaker 1: and that's really where the the incremental trade is coming from. 360 00:20:31,040 --> 00:20:33,640 Speaker 1: People are nervous to buy into this market. And as 361 00:20:33,640 --> 00:20:36,560 Speaker 1: long as you still have that going on, you have support. 362 00:20:36,640 --> 00:20:40,400 Speaker 1: You know, it's it's a it's a contrarian you know view, 363 00:20:40,640 --> 00:20:43,120 Speaker 1: and and so therefore you know you have support under 364 00:20:43,160 --> 00:20:46,040 Speaker 1: the market. But positioning is defensive. So let me ask 365 00:20:46,040 --> 00:20:53,399 Speaker 1: the stupid question, who's buying stocks? Then, um, people are buying. 366 00:20:53,480 --> 00:20:56,480 Speaker 1: If people are still buying stocks, it's just not running 367 00:20:56,480 --> 00:20:58,679 Speaker 1: into tech in the same way. I mean the you know, 368 00:20:58,720 --> 00:21:01,760 Speaker 1: the last couple of weeks as a cautionary sign. That's 369 00:21:01,760 --> 00:21:05,159 Speaker 1: evaluation do matter ultimately, and you have to take some 370 00:21:05,200 --> 00:21:08,320 Speaker 1: of the excess out of it. So we are we 371 00:21:08,359 --> 00:21:11,960 Speaker 1: are sing buying in equity. It's just as the trade is. 372 00:21:12,119 --> 00:21:15,520 Speaker 1: You know, the incremental trade still is bonds, gold and 373 00:21:15,560 --> 00:21:18,920 Speaker 1: and fixed income. Just because we're hermetically sealed here, John 374 00:21:18,960 --> 00:21:23,720 Speaker 1: and I are in two separate cubicles to try to together, well, 375 00:21:23,760 --> 00:21:27,680 Speaker 1: you know that's true. That you know, I just did 376 00:21:27,720 --> 00:21:31,400 Speaker 1: a log chart on Amazon with some fancy moving mathematical 377 00:21:31,440 --> 00:21:35,080 Speaker 1: averages for Alicia Levine. Come on, Alicia, Amazon, all that's 378 00:21:35,119 --> 00:21:38,360 Speaker 1: done is fallen back to a very comfortable support. It's 379 00:21:38,400 --> 00:21:41,480 Speaker 1: not a correction. It's almost like a pause. I mean, 380 00:21:41,520 --> 00:21:45,040 Speaker 1: do you buy the dip? Can you buy the dip? 381 00:21:45,080 --> 00:21:47,680 Speaker 1: In the text of I need to make some money 382 00:21:47,720 --> 00:21:50,840 Speaker 1: here about nine tenths of one percent west of camp 383 00:21:51,200 --> 00:21:53,560 Speaker 1: on Nata on the NaSTA in the last couple of weeks. 384 00:21:53,560 --> 00:21:55,639 Speaker 1: I know we've come back a bit, but hardly. We're 385 00:21:55,680 --> 00:21:58,280 Speaker 1: still up near old time hist Tom. I don't know. 386 00:21:58,320 --> 00:22:00,560 Speaker 1: I'm just trying to impress Alicia with my math, and 387 00:22:00,600 --> 00:22:03,480 Speaker 1: all I see is on a large chart, Amazon's back 388 00:22:03,560 --> 00:22:07,960 Speaker 1: to support. I mean, it's not like it's caved in, right, no, so, 389 00:22:08,080 --> 00:22:11,840 Speaker 1: but look it is twelve off the high so you 390 00:22:11,880 --> 00:22:15,240 Speaker 1: know that is not you know again, that is that's 391 00:22:15,280 --> 00:22:17,800 Speaker 1: not a bad that's not a bad entry point for 392 00:22:17,840 --> 00:22:20,919 Speaker 1: any stuck after your you know, ten to twelve percent 393 00:22:20,960 --> 00:22:23,639 Speaker 1: off the highs and that kind of fast mover. That's 394 00:22:23,680 --> 00:22:26,400 Speaker 1: that's fine. We don't think these stocks are rolling over. 395 00:22:26,560 --> 00:22:28,400 Speaker 1: We just think some of the excess has to come 396 00:22:28,400 --> 00:22:31,119 Speaker 1: out of it, and charting is a great way to 397 00:22:31,160 --> 00:22:34,200 Speaker 1: pick your entry point. You know, as I've said before, 398 00:22:34,240 --> 00:22:36,840 Speaker 1: parabolus don't make for a great technical charts. You have 399 00:22:36,960 --> 00:22:39,480 Speaker 1: to wait. Always enjoy catching up with you. Appreciate that 400 00:22:39,480 --> 00:22:41,800 Speaker 1: your patients this morning with us as well, Alicia Leavin, 401 00:22:44,560 --> 00:22:48,720 Speaker 1: I'm usually I'm usually saying that to appreciate that tolerance 402 00:22:48,800 --> 00:22:51,840 Speaker 1: for a certain someone who has a bow time throwing 403 00:22:51,880 --> 00:22:54,959 Speaker 1: me some parablic It's not new. I do that every day, 404 00:22:55,359 --> 00:23:02,879 Speaker 1: do that every day. Right now, in this oddest of 405 00:23:02,960 --> 00:23:06,160 Speaker 1: baseball seasons, we have to drag on Douglas Cast. Talk 406 00:23:06,240 --> 00:23:09,560 Speaker 1: to us about the equity markets, talk to us about 407 00:23:09,600 --> 00:23:12,639 Speaker 1: his brilliant calling Amazon that's working out, and of course 408 00:23:12,960 --> 00:23:15,760 Speaker 1: a lot of other things as well. Can I Dug Cast, 409 00:23:15,800 --> 00:23:19,720 Speaker 1: good morning, Good morning Tom. I just um learned that 410 00:23:19,760 --> 00:23:24,120 Speaker 1: the Marlins home game, we had that on ESPN reported 411 00:23:24,160 --> 00:23:28,359 Speaker 1: that in the athletic and there's eight players with a virus, etcetera. 412 00:23:28,800 --> 00:23:31,000 Speaker 1: And we'll talk about that in a bit. Can we 413 00:23:31,080 --> 00:23:34,720 Speaker 1: just talk a minute, Doug Cast about someone who never 414 00:23:34,760 --> 00:23:37,520 Speaker 1: gets print because he's outside the three zip codes that matter, 415 00:23:38,200 --> 00:23:41,200 Speaker 1: and that is a gentleman pitching for the Chicago Cubs today, 416 00:23:41,400 --> 00:23:47,399 Speaker 1: John Luster has delivered what everybody's supposed to deliver. You 417 00:23:47,480 --> 00:23:50,280 Speaker 1: get paid a ton of money, but year after year 418 00:23:50,400 --> 00:23:56,720 Speaker 1: after year, he's getting older, and you know he's no, no, 419 00:23:56,840 --> 00:23:58,959 Speaker 1: it's not that old. But here's a guy that had 420 00:23:59,040 --> 00:24:01,520 Speaker 1: Limpield Paul. No, he's not that old, but he had 421 00:24:01,640 --> 00:24:04,439 Speaker 1: you know, Limpolo when he was young. He's got like 422 00:24:04,520 --> 00:24:07,280 Speaker 1: seven World Series rings. And the guy, you know, with 423 00:24:07,320 --> 00:24:10,600 Speaker 1: all the negativity about baseball, he's a guy that just 424 00:24:10,680 --> 00:24:14,879 Speaker 1: delivers it year after year. Yeah, he's fantastic. I like 425 00:24:14,960 --> 00:24:17,720 Speaker 1: the Cubs this year, actually, but I like the Yankees more. 426 00:24:18,080 --> 00:24:19,800 Speaker 1: You like the Yankees more, and I know you were 427 00:24:19,800 --> 00:24:22,000 Speaker 1: telling me this weekend they're starting out. Well, what you 428 00:24:22,119 --> 00:24:26,040 Speaker 1: really like is Amazon. Joe Felban today typical in the street. 429 00:24:26,960 --> 00:24:30,120 Speaker 1: He goes up with a extrapolation out to thirty six 430 00:24:30,240 --> 00:24:33,040 Speaker 1: hundred on Amazon. Your way out in front of that. 431 00:24:33,280 --> 00:24:36,399 Speaker 1: How far out are you looking, dougcass I have on 432 00:24:36,600 --> 00:24:39,520 Speaker 1: Amazon dollar have a five thousand dollar price target in 433 00:24:40,240 --> 00:24:44,320 Speaker 1: two which I mentioned I think twice last year, and 434 00:24:45,040 --> 00:24:48,679 Speaker 1: there was a lot of size and disbelief. Um, my 435 00:24:48,760 --> 00:24:51,000 Speaker 1: near term target was three thousand. I've sold out of 436 00:24:51,040 --> 00:24:53,119 Speaker 1: the stock of short term because I think the market 437 00:24:53,800 --> 00:24:57,800 Speaker 1: and the Microsoft and Fang stocks um are going to retreat. 438 00:24:58,200 --> 00:25:00,840 Speaker 1: But can I just mention something about what you and 439 00:25:00,920 --> 00:25:03,760 Speaker 1: John were discussing. You had such an interesting conversation over 440 00:25:03,760 --> 00:25:08,800 Speaker 1: the last hour. Yeah, John was talking about the band 441 00:25:08,840 --> 00:25:11,240 Speaker 1: aids of policy and then you guys were talking about 442 00:25:11,240 --> 00:25:13,879 Speaker 1: real interest rate gold what it all means. I just 443 00:25:13,960 --> 00:25:17,880 Speaker 1: think that we're in such a fascinating time and financial history. 444 00:25:18,440 --> 00:25:24,640 Speaker 1: There is today almost a tensil relationship between current real 445 00:25:24,720 --> 00:25:28,720 Speaker 1: interest rates, which continue to fall, as you discussed, compared 446 00:25:28,840 --> 00:25:31,760 Speaker 1: compared with the inflation break evens, which is rising. I 447 00:25:31,880 --> 00:25:35,879 Speaker 1: just called my power pal, Peter poke Bar and he 448 00:25:35,960 --> 00:25:38,920 Speaker 1: knows me that break evens on the tenure in a 449 00:25:39,000 --> 00:25:42,199 Speaker 1: multi monti at one point five. So we have to 450 00:25:42,240 --> 00:25:44,240 Speaker 1: try to figure out the reason. And there seems to 451 00:25:44,240 --> 00:25:47,960 Speaker 1: be a growing belief in stagflation. With also the FED 452 00:25:48,000 --> 00:25:51,360 Speaker 1: pinning rates, we're gonna have still large dewey and we're, 453 00:25:51,520 --> 00:25:54,880 Speaker 1: as you talked earlier this morning, about a yoelker of control. 454 00:25:55,280 --> 00:25:58,960 Speaker 1: But stagflation is not equity market friendly. And I'm going 455 00:25:59,000 --> 00:26:02,040 Speaker 1: to remind you guys, is that it's time to consider 456 00:26:02,359 --> 00:26:06,800 Speaker 1: bond convexity, what the risk reward is and fixed income, 457 00:26:06,840 --> 00:26:10,439 Speaker 1: and that bond investors might be content in picking up 458 00:26:10,440 --> 00:26:13,040 Speaker 1: pennies in front of a steamroller, but we've learned over 459 00:26:13,119 --> 00:26:17,200 Speaker 1: history it's dangerous. And finally I'll remind you also then 460 00:26:17,240 --> 00:26:20,640 Speaker 1: in finance, there's something called bond convexity. It's a measure 461 00:26:20,680 --> 00:26:24,320 Speaker 1: of the relationship of bond prices to changes and interest rates. 462 00:26:24,320 --> 00:26:27,000 Speaker 1: It's the second derivative of the price of the bond 463 00:26:27,320 --> 00:26:30,720 Speaker 1: with respect to rates, with duration being the first derivative. 464 00:26:31,080 --> 00:26:33,120 Speaker 1: And so in general to hire, the duration the more 465 00:26:33,119 --> 00:26:35,280 Speaker 1: sensitive pricect. This is really important. I want you to 466 00:26:35,320 --> 00:26:37,919 Speaker 1: frame out here some of your bearished tone, Doug Cass, 467 00:26:37,920 --> 00:26:41,840 Speaker 1: and we do this, folks understanding everybody understands there for 468 00:26:41,880 --> 00:26:45,399 Speaker 1: a few crises in the business that bonds are typically 469 00:26:45,560 --> 00:26:48,720 Speaker 1: out front of the equity zeitguys, do you agree with that, 470 00:26:48,800 --> 00:26:53,080 Speaker 1: Doug Cass? Yeah, yeah, I think um bonds, as John 471 00:26:53,080 --> 00:26:56,600 Speaker 1: Farrow mentioned, are telling a far different story than consensus 472 00:26:56,640 --> 00:27:02,199 Speaker 1: economic and profit expectations are. So Doug, what what do 473 00:27:02,240 --> 00:27:06,240 Speaker 1: you think the bringing so right here? We've seen the 474 00:27:06,240 --> 00:27:08,879 Speaker 1: bond market really over the last you know, nine months 475 00:27:08,920 --> 00:27:11,120 Speaker 1: at least, really tell a different story, particularly as we're 476 00:27:11,119 --> 00:27:14,640 Speaker 1: coming into the pandemic here. The bonds market really told 477 00:27:14,640 --> 00:27:18,160 Speaker 1: a different story here. Um, what's the bond market telling you? Now? 478 00:27:20,080 --> 00:27:22,439 Speaker 1: The bond market is telling me that the Fed is 479 00:27:22,480 --> 00:27:28,360 Speaker 1: going to have yield control and that the the economic 480 00:27:28,920 --> 00:27:36,080 Speaker 1: um expectations and S ANDP profit expectations for twenty one 481 00:27:36,960 --> 00:27:41,160 Speaker 1: are unrealistic. UM. I think that, you know, getting back 482 00:27:41,200 --> 00:27:43,960 Speaker 1: to the the issue at hand that Tom mentioned, I 483 00:27:43,960 --> 00:27:47,399 Speaker 1: think the wise man considers the if the contrary and 484 00:27:47,440 --> 00:27:52,960 Speaker 1: constantly evaluates and often rallies against group think or what 485 00:27:53,040 --> 00:27:56,560 Speaker 1: I call groups think. And your question, Paul, I think 486 00:27:56,600 --> 00:28:02,560 Speaker 1: that there's worse than expected earnings and economic growth to come. Um. 487 00:28:03,080 --> 00:28:07,720 Speaker 1: One of the most intelligent strategist is Dave Coston at 488 00:28:07,720 --> 00:28:11,040 Speaker 1: Goldman Sachs. He's estimating a hundred and seventy dollars for 489 00:28:11,280 --> 00:28:15,280 Speaker 1: SMP earnings. UM, but that does not take into account 490 00:28:15,320 --> 00:28:17,840 Speaker 1: of Democratic victory, which is going to shave off probably 491 00:28:17,880 --> 00:28:21,439 Speaker 1: twenty dollars share taking down to one fifty. And I 492 00:28:21,520 --> 00:28:25,919 Speaker 1: live at one a shaff for next year, and I 493 00:28:25,960 --> 00:28:29,280 Speaker 1: don't believe SMP earnings will regain what they achieved in 494 00:28:29,320 --> 00:28:35,520 Speaker 1: two thousand nineteen until two thousand three UM. And I 495 00:28:35,560 --> 00:28:41,640 Speaker 1: think it's also important that UM technology earnings UM may 496 00:28:41,680 --> 00:28:43,960 Speaker 1: not live up to a very high high bar, because 497 00:28:44,000 --> 00:28:47,440 Speaker 1: I think there's been likely a massive pull forward of sales, 498 00:28:47,480 --> 00:28:51,800 Speaker 1: even for Amazon, but certainly for Netflix, Zoom, Uh and Tesla, 499 00:28:52,040 --> 00:28:55,280 Speaker 1: not in sales, but in regulatory credit, which I recently 500 00:28:55,280 --> 00:28:58,120 Speaker 1: short it. I should recently shorted all those stocks except 501 00:28:58,120 --> 00:29:02,600 Speaker 1: for Amazon UM. We saw in Microsoft Azor the cloud 502 00:29:02,600 --> 00:29:08,280 Speaker 1: business the rate of growth decellering markedly from six to UM, 503 00:29:08,600 --> 00:29:12,360 Speaker 1: so weakening economic growth, and we could see the appearance 504 00:29:12,400 --> 00:29:15,640 Speaker 1: reappearance of bond vigilantes, which we haven't seen since the 505 00:29:15,680 --> 00:29:18,840 Speaker 1: early eighties. You know. The final thing I would mention 506 00:29:18,960 --> 00:29:22,640 Speaker 1: is that I think size matters in the stock market, 507 00:29:23,400 --> 00:29:29,160 Speaker 1: and there have been three outsized industry waitings in the 508 00:29:29,240 --> 00:29:36,400 Speaker 1: last UM. Forty years back in UM, energy stocks represented 509 00:29:37,360 --> 00:29:40,920 Speaker 1: of the SMP, and then of course Exon lost fifty 510 00:29:41,320 --> 00:29:43,800 Speaker 1: of his value, and then the next two years back 511 00:29:43,840 --> 00:29:48,840 Speaker 1: in OH seven, financials represented the same and then we 512 00:29:48,880 --> 00:29:52,880 Speaker 1: know that JP Morgan lost seventy of its value in 513 00:29:52,920 --> 00:29:57,160 Speaker 1: the next three years. Today Big Technology represents thirty eight 514 00:29:57,200 --> 00:30:01,800 Speaker 1: percent of the SMP. So I see two comparables, and 515 00:30:01,920 --> 00:30:06,240 Speaker 1: energy and financials impacting technology, and I started to short 516 00:30:06,280 --> 00:30:09,760 Speaker 1: the sector. Doug. I think our listeners as they drive 517 00:30:09,800 --> 00:30:12,680 Speaker 1: around here are saying, this gentleman is painting a bear 518 00:30:12,920 --> 00:30:16,680 Speaker 1: market picture. Is that your view? It's my view. But 519 00:30:16,880 --> 00:30:19,160 Speaker 1: the last time I was on, you know I'm not 520 00:30:19,200 --> 00:30:22,720 Speaker 1: a permanent bear. The last time I was on, I 521 00:30:22,840 --> 00:30:25,800 Speaker 1: talked about a rip your face rally. I used the 522 00:30:25,800 --> 00:30:29,880 Speaker 1: word mother of all short squeezes on market surveillance. I 523 00:30:29,920 --> 00:30:33,720 Speaker 1: went aggressively long in March when the SMP traded at 524 00:30:34,440 --> 00:30:37,920 Speaker 1: two hundred. That was the largest discount to fair market 525 00:30:38,000 --> 00:30:42,160 Speaker 1: value or intrinsic value based on my calculus that we've 526 00:30:42,200 --> 00:30:46,480 Speaker 1: seen since December, when I also went long. So now 527 00:30:46,520 --> 00:30:52,080 Speaker 1: the market leadership is narrowing conspicuously. Stock prices and now 528 00:30:52,120 --> 00:30:57,080 Speaker 1: are well above intrinsic value, and it's time to short. Okay, 529 00:30:57,120 --> 00:30:59,280 Speaker 1: But Doug, what does somebody do in a four win 530 00:30:59,400 --> 00:31:01,440 Speaker 1: cap position and where they don't have time to short, 531 00:31:01,760 --> 00:31:03,440 Speaker 1: they don't want to just or they just want to 532 00:31:03,480 --> 00:31:07,440 Speaker 1: place assets for long term. Are you comfortable there being 533 00:31:07,480 --> 00:31:10,760 Speaker 1: in small cap value or do you still say just 534 00:31:10,800 --> 00:31:15,480 Speaker 1: say growthy if you haven't time arising of Let's say 535 00:31:16,080 --> 00:31:21,640 Speaker 1: you're talking about a time arising, Well, that's like twenty 536 00:31:21,720 --> 00:31:25,120 Speaker 1: or thirty years. Thank you. If you have a red 537 00:31:25,160 --> 00:31:29,040 Speaker 1: SOX time arison, you should certainly not modify your positions. 538 00:31:29,080 --> 00:31:32,280 Speaker 1: But a lot of people listening into surveillance, there are 539 00:31:32,280 --> 00:31:36,280 Speaker 1: a lot of traders, and traders have time frames of 540 00:31:36,400 --> 00:31:40,240 Speaker 1: under two years, often under if Robbing, Robin Hood and 541 00:31:40,280 --> 00:31:44,120 Speaker 1: the merry men in Sherlock Forest. They have a time 542 00:31:44,160 --> 00:31:46,400 Speaker 1: frame of a few minutes or a few hours. So 543 00:31:46,480 --> 00:31:48,760 Speaker 1: it depends on your time frame. If your time frame 544 00:31:48,840 --> 00:31:53,800 Speaker 1: is under a couple of months, UM, I would forget tina. 545 00:31:53,920 --> 00:31:56,280 Speaker 1: There is no alternative, And think about said us the 546 00:31:56,440 --> 00:31:59,440 Speaker 1: I t A cash is the alternative. Nothing wrong with 547 00:31:59,440 --> 00:32:01,959 Speaker 1: holding cat. What about a longer term? I didn't get 548 00:32:02,000 --> 00:32:05,240 Speaker 1: an answer. Three years? Five yeah, five years, and I 549 00:32:05,240 --> 00:32:10,360 Speaker 1: wouldn't disturb investment positions. So you know, the gravitational pull 550 00:32:10,400 --> 00:32:13,560 Speaker 1: of stocks is higher yep. And particularly I mean, are 551 00:32:13,560 --> 00:32:15,880 Speaker 1: you comfortable that this FED is going to remain a 552 00:32:15,960 --> 00:32:20,520 Speaker 1: backstop for risk assets including the stock market? I am 553 00:32:20,520 --> 00:32:24,840 Speaker 1: comfortable about that. But um, I think that we have 554 00:32:24,920 --> 00:32:30,040 Speaker 1: to consider that the fed's balance sheet in two thousand 555 00:32:30,080 --> 00:32:35,000 Speaker 1: and eleven was about two point five trillion. It's over 556 00:32:35,080 --> 00:32:40,520 Speaker 1: seven trillion dollars today in the interimentable US nominal GDP 557 00:32:40,760 --> 00:32:44,560 Speaker 1: only rose by about that means to me, and this 558 00:32:44,680 --> 00:32:47,560 Speaker 1: is really important. It takes more and more debt to 559 00:32:47,720 --> 00:32:51,920 Speaker 1: produce a unit of production. That's a real negative. So 560 00:32:52,320 --> 00:32:56,600 Speaker 1: Katie bar the doors is the bond vigilantes reappear and 561 00:32:56,720 --> 00:33:01,520 Speaker 1: all of a sudden, public and private sector um service 562 00:33:01,680 --> 00:33:05,640 Speaker 1: of debt is challenged. And that's the big black swan 563 00:33:05,800 --> 00:33:11,080 Speaker 1: that lies ahead. We haven't seen it yet, Charles Cass 564 00:33:11,200 --> 00:33:15,680 Speaker 1: with us right now, with Doug. It's happened before, it 565 00:33:15,880 --> 00:33:19,240 Speaker 1: is happening now. It is a bullmarket of vix from 566 00:33:19,360 --> 00:33:24,520 Speaker 1: eight to and retail climbs on board with a laptop 567 00:33:24,720 --> 00:33:27,640 Speaker 1: on the couch. However, it is as well. I want 568 00:33:27,680 --> 00:33:30,440 Speaker 1: you to speak right now to all the people listening 569 00:33:31,080 --> 00:33:34,640 Speaker 1: who have been playing the game. Some have gains, some dote. 570 00:33:35,200 --> 00:33:39,520 Speaker 1: Where are they heading. Well, these Speculus stocks one of 571 00:33:39,600 --> 00:33:43,440 Speaker 1: my big concerns. They're going to collapse. They always do. 572 00:33:44,280 --> 00:33:48,360 Speaker 1: I've seen this in the past. Um speculation always takes 573 00:33:48,400 --> 00:33:50,880 Speaker 1: the same form in every cycle. It did in the 574 00:33:51,000 --> 00:33:53,880 Speaker 1: dot com era, it did in two thousand seven. It's 575 00:33:53,920 --> 00:33:57,840 Speaker 1: doing it right now. You have low price debt that 576 00:33:58,080 --> 00:34:02,280 Speaker 1: is plentiful, and you have a new class of buyers 577 00:34:03,040 --> 00:34:07,160 Speaker 1: in an asset class and the new classes Robin Hood 578 00:34:07,200 --> 00:34:12,280 Speaker 1: and his merry men and UM. You know that occurred 579 00:34:12,400 --> 00:34:17,439 Speaker 1: because HUM, for a number of reasons, UM commission rates 580 00:34:18,560 --> 00:34:21,759 Speaker 1: were pegged at zero after being really high priced and 581 00:34:21,840 --> 00:34:25,200 Speaker 1: going down as they got commoditized over a period of time. 582 00:34:25,600 --> 00:34:30,279 Speaker 1: And of course you got the federal government's checks UM, 583 00:34:30,760 --> 00:34:32,920 Speaker 1: so they had nothing to do. It couldn't been on sports. 584 00:34:32,920 --> 00:34:35,600 Speaker 1: So I started betting on stocks. And that's really dangerous. 585 00:34:36,440 --> 00:34:40,920 Speaker 1: And I have shorted a package months ago of stocks 586 00:34:40,960 --> 00:34:43,680 Speaker 1: that I considered to be worthless and bankrupt and will 587 00:34:43,760 --> 00:34:47,400 Speaker 1: mention them. But you know, example would be Hurts. Example 588 00:34:47,400 --> 00:34:50,799 Speaker 1: would be Hurts where stock some of them already down. 589 00:34:51,680 --> 00:34:54,160 Speaker 1: But there are a number of concerns I have I've 590 00:34:54,200 --> 00:34:56,640 Speaker 1: expressed to you in my top ten list of concerns. 591 00:34:56,719 --> 00:35:00,319 Speaker 1: I'm concerned that COVID nineteen spreads and fatality of these 592 00:35:00,400 --> 00:35:05,880 Speaker 1: expand UM we have gutted UM the real estate business, 593 00:35:06,360 --> 00:35:11,000 Speaker 1: the hotel business, the travel business, airlines, cruise lines, and 594 00:35:11,200 --> 00:35:16,759 Speaker 1: importantly our educational institutions, which are large employers. And I 595 00:35:16,800 --> 00:35:19,400 Speaker 1: wouldn't be surprised in the next couple of months we 596 00:35:19,560 --> 00:35:22,800 Speaker 1: hear of a large, well known university that closes and 597 00:35:22,880 --> 00:35:26,080 Speaker 1: shocks the markets. Um. The second thing is that this 598 00:35:26,239 --> 00:35:30,480 Speaker 1: rift between China is widening. Um. China is obviously playing 599 00:35:30,560 --> 00:35:34,160 Speaker 1: hardball in the face of a likely loss, and I 600 00:35:34,239 --> 00:35:39,360 Speaker 1: could see a furious president retaliating. His popularity is falling 601 00:35:39,800 --> 00:35:44,319 Speaker 1: further so he could lose his composure introduce a number 602 00:35:44,320 --> 00:35:48,480 Speaker 1: of wild policy shifts, moving further to the right. Um, 603 00:35:48,800 --> 00:35:53,640 Speaker 1: we had the wire card, um, which no one's discussing. 604 00:35:53,880 --> 00:35:58,040 Speaker 1: Did you were you short wire card? I had no 605 00:35:58,200 --> 00:36:03,200 Speaker 1: position in wire Uh. No one's smarter than Jimmy on 606 00:36:03,280 --> 00:36:05,879 Speaker 1: the short That's true that we can have a large 607 00:36:06,000 --> 00:36:08,600 Speaker 1: US fraud which shakes the markets. I mean that happened 608 00:36:08,840 --> 00:36:11,880 Speaker 1: often in the cycle, Doug. Because of time, we got 609 00:36:12,000 --> 00:36:14,200 Speaker 1: to leave it there. Also, you need to rest before 610 00:36:14,200 --> 00:36:17,120 Speaker 1: the Yankees take another victory. I can't believe I just 611 00:36:17,239 --> 00:36:20,680 Speaker 1: said that. Douglas cast with Sea Breeze and we say 612 00:36:20,760 --> 00:36:24,960 Speaker 1: thank you this morning. Thanks for listening to the Bloomberg 613 00:36:25,040 --> 00:36:30,960 Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 614 00:36:31,360 --> 00:36:35,520 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 615 00:36:35,640 --> 00:36:39,839 Speaker 1: Tom Keane Before the podcast. You can always catch us worldwide. 616 00:36:40,360 --> 00:36:41,400 Speaker 1: I'm Bloomberg Radio.