Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily
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: what we heard from Sunder McConnell in the mystery of
Speaker 1: what we'll see today from Disarray and the Republican Party
Speaker 1: is the reality of what it means for the funding
Speaker 1: of our transportation. That can be DFW and Dallas. That
Speaker 1: can be the airlines out west, the railroads coast to
Speaker 1: coast amtrack even or it can be the m t A.
Speaker 1: The chairman and CEO is ex Scott, and our Pat
Speaker 1: Foy joins us right now. Pat, you're listening to the
Speaker 1: dialogue in Washington on the Foyd desperation Meter. How badly
Speaker 1: do you need federal help after the writer's shortfall you're
Speaker 1: seeing on the desperation index. We're in a we're facing
Speaker 1: a fiscal tsunami, once in a hundred year fiscal tsunami
Speaker 1: which has left our infrastructure intact with demolished of our revenues.
Speaker 1: We exhausted, and we exhausted on Friday, the last of
Speaker 1: the CARES dollars that we got several months ago. That
Speaker 1: was about three point nine billion dollars of funding. We
Speaker 1: need an additional three point nine and these are shocking
Speaker 1: numbers to get us through the remainder of the year.
Speaker 1: Our revenue sources are come from our customers, affairs and tolls.
Speaker 1: Those are down precipitously, and the remaining half of our
Speaker 1: revenues comes from a dedicated package of taxes and subsidies
Speaker 1: which are economically sensitive. In those two are falling off
Speaker 1: a cliff town. Do you get a feeling Washington and
Speaker 1: different flavors, including a gentleman residing above the Gucci store
Speaker 1: on Fifth Avenue. Do you get the feeling they're saying
Speaker 1: New York up dead? I I hope not. I think
Speaker 1: we'll find that out in the in the weeks to come. Clearly,
Speaker 1: states and cities around the country, including New York City
Speaker 1: and New York State, or in desperate need of funding.
Speaker 1: I'm here to talk about the m t A today,
Speaker 1: and the m t A is in desperate need of funding.
Speaker 1: The m t A is not only just a mass
Speaker 1: transit agency, it's frankly the circulatory system of the New
Speaker 1: York City regional economy, and not funding the m t
Speaker 1: A will stunt and thwart economic recovery and job creation
Speaker 1: all over New York. Well, give us a sense of
Speaker 1: that scope and scale. I mean, we understand the subway system,
Speaker 1: the busses. I give you major credit for showing the
Speaker 1: decline in ridership numbers right up front on your website,
Speaker 1: But give us give our viewers and listeners worldwide a
Speaker 1: sense of the geographic reach of the m t A.
Speaker 1: It's not the Five boroughs, is it. No, it's beyond
Speaker 1: the subways buses in New York City, five earls Long
Speaker 1: Island Railroad goes out NASA and Suffolk County. Metro North
Speaker 1: covers Westchester and North as well as part of Connecticut.
Speaker 1: And we've got a small operation that New Jersey Transit
Speaker 1: runs for US west of Hudson UH In a technical
Speaker 1: day pre pandemic will carry well over eight million passengers.
Speaker 1: Pre pandemic subway ridership average weekday five and a half
Speaker 1: million customers right now one point two million. That's up
Speaker 1: substantially from the depths of the pandemic, but a fraction
Speaker 1: of the numbers that we would carry on all of
Speaker 1: those agencies. In my anecdotal and his, folks is real simple.
Speaker 1: I was thunderstruck how empty New York City was this weekend,
Speaker 1: Like I've honestly never seen it in my time at
Speaker 1: Bloomberg and PET four. You're living with this, with the
Speaker 1: empty office buildings of Midtown and there's all these other
Speaker 1: stories as well. If you get that aid, what do
Speaker 1: you do with it or do you have to begin
Speaker 1: thinking about firing thousands of people. Well, Tom, here's what
Speaker 1: we're gonna do. I'm cautiously optimistic that we're gonna get
Speaker 1: the funding because frankly, it's in the interest of the
Speaker 1: nation to fund the m t a UH to help
Speaker 1: bolster New York City's regional economic recovery. That's in the
Speaker 1: national interest. The pandemic is an international and national challenge,
Speaker 1: and it requires a national solution. So I'm postiously optimistic
Speaker 1: that Washington is going to do the right thing. But
Speaker 1: without funding UH for the rest of the year, that's
Speaker 1: what we're talking about. To get us through, decline in
Speaker 1: revenues has been that precipitous. We will have to consider
Speaker 1: things like wage freezes, like service reductions, like head count reduction,
Speaker 1: delaying or deferring the capital plan. We have an historic
Speaker 1: fifty one and a half billion dollar capital plan that
Speaker 1: was approved a year ago. We've put that on pause.
Speaker 1: None of us wants to replay the movie from the
Speaker 1: seventies and eighties when MTA didn't infest in subways and
Speaker 1: buses and service to climbs. Pafoy, We've got some breaking
Speaker 1: news here. Some gonna have to let you go, but
Speaker 1: we'll monitor is carefully. And of course the m t
Speaker 1: A folks with a huge reach in New York, we
Speaker 1: welcome Bloomberger eleven three oh particularly listening to this swarny.
Speaker 1: Mr Foys, chairman and CEO of the mt AS put sweets.
Speaker 1: And they have a wonderful chief economist. His name is
Speaker 1: James Sweeney, with terrific us and British academics. James Sweeney
Speaker 1: was brilliant a few years ago saying the disinflation and
Speaker 1: deflation gloom of Europe a few years ago was off
Speaker 1: the mark. He joins us this morning with a different view,
Speaker 1: James Sweeney, our service is going to cave in and
Speaker 1: joined goods as disinflation and deflationary items. Well, right now,
Speaker 1: services have joined goods with this collapse and activity, but
Speaker 1: it's been driven by shutdown. Now we're rebounding because there's
Speaker 1: some activity turning back on. But I think if you
Speaker 1: look beyond this rebound, the fears should indeed be toward
Speaker 1: weaker inflation, including in services, given a very uncertain path
Speaker 1: for unemployment and potential for pretty elevated unemployment deep into
Speaker 1: two thousand twenty one. How have you adjusted your GDP
Speaker 1: for the United States of America? Give us a view
Speaker 1: out twelve months or dare I say even at the
Speaker 1: end of this year? Well? Yeah, I mean again, the
Speaker 1: rebound is formidable because when you turn the lights off
Speaker 1: and you turn the lights back on again, it does
Speaker 1: crazy things to the data. So what we're seeing now
Speaker 1: is an incremental slowdown in the US because of increasing
Speaker 1: infections in the summer. But you know, we're still forecasting
Speaker 1: a very strong, basically double digit increase in Q three
Speaker 1: g d P. But what you have to remember is
Speaker 1: that the level of activity is going to be well
Speaker 1: below trent. So you know, if we have GDP contracting
Speaker 1: you know, five percent six percent this year, Um, you've
Speaker 1: got a big cold. Help me with a folk trio
Speaker 1: MC McConnell, Minution and Meadows. I'm sure they're watching right now.
Speaker 1: James Sweeney, what's the American all in unemployment right now?
Speaker 1: The U six it's over, isn't it. Well, that's a
Speaker 1: that's a fake number, because that's telling you about how
Speaker 1: many hourly workers are getting zero hours during a period
Speaker 1: of shutdowns. But I think the real number is probably
Speaker 1: closer to ten than five. And that's a big problem.
Speaker 1: And in six months, even if there's a vaccine around UM,
Speaker 1: if that number is still real number is still closer
Speaker 1: to ten than five UM, then that has real implications
Speaker 1: for the for the FED, and and and for growth
Speaker 1: and for inflation pressures. Let's talk about the latter one.
Speaker 1: Inflation pressures, as you point out, will be the low
Speaker 1: capacity for a sustained period an extended period of time. Yet, James,
Speaker 1: there's a conversation drifting into inflation away from disinflation. Inflation
Speaker 1: reexpectations started to pick up, James, from your perspective and
Speaker 1: your conversations. Why, yeah, Well, it's actually a very popular
Speaker 1: conversation among equity investors, not so much among debt investors.
Speaker 1: But the view is basically, you know MP two money
Speaker 1: supply in the US is up three trillion dollars. Bank
Speaker 1: credit is up just under a trillion dollars. No Treasury
Speaker 1: debt is up, you know, three trillion ish FED balance
Speaker 1: sheets similar, Um, surely this is inflationary down the road.
Speaker 1: Not so surely It's possible, But inflation is a forward
Speaker 1: looking phenomenon. It depends on expectations later on. It depends
Speaker 1: on whether the FED responds to incipient inflationary pressures. A
Speaker 1: lot of good things have to happen first in order
Speaker 1: for us to get there. So, um, so I think
Speaker 1: the focus is it needs to be on, you know,
Speaker 1: on exactly that European situation that I've been not expecting
Speaker 1: in the US for a long time. But the odds
Speaker 1: that inflation gets stuck at a lower level are elevated
Speaker 1: at the moment, and I think the FED is going
Speaker 1: to be focusing on that, and I think we're going
Speaker 1: to see policy actions over the next six months that
Speaker 1: that confirm that fear. James, we can talk about the
Speaker 1: policy action at just a moment. Can you just walk
Speaker 1: through our audience the relationship between money supply and inflation.
Speaker 1: Just how tied does that relationship being or not over
Speaker 1: the last ten years, the last twenty years poor, not good,
Speaker 1: not not a good relationship. And again um with with
Speaker 1: interest rates. So low bonds are not necessarily a great
Speaker 1: attractive alternative to cash in the bank. So if if
Speaker 1: cash is being created in deposits are being created, you know,
Speaker 1: I may not want to put those in fixed income securities.
Speaker 1: I may not want to take the risk of of equities,
Speaker 1: and so the deposits don't go anywhere. I mean, in
Speaker 1: the short run, it's nice that the stimulus has has
Speaker 1: gotten cash flow into a lot of especially you know,
Speaker 1: lower income cash constraint workers, so that they can pay
Speaker 1: their bills. That's extremely important. But the idea that this
Speaker 1: money is going to circulate at a high rate and
Speaker 1: risk and and really grow aggregate demand in a way
Speaker 1: that will quickly be inflationary, uh, seems pretty far fetched
Speaker 1: to me. You're just joining us Bloomberg Radio, Bloomberg Television,
Speaker 1: John Farrell in Time, King James Sweeney with us with
Speaker 1: Credit Sweetzer, Chief Economists. Lots of really good conversation this morning,
Speaker 1: centering on Washington and our fiscal policy, along with Marcus
Speaker 1: Futures up seventeen now up thirteen. James Sweeney. All that's fine,
Speaker 1: But if I get a James Sweeney economy, what does
Speaker 1: four trillion in debt due to it? I don't understand
Speaker 1: the dovetail of saggy nominal g d P, you know, okay,
Speaker 1: kind of like real g d P and a new
Speaker 1: overlay of four trillion in debt. Well, I mean longer term.
Speaker 1: I think that's what's happening with the dollar. I mean,
Speaker 1: I think there are fears about the fiscal path of
Speaker 1: the US longer term. So it's driving a narrative both
Speaker 1: of longer term inflation and you know, positive for gold
Speaker 1: and positive for break evens and and and all these things. Um.
Speaker 1: But there's just a very important hump to get over first,
Speaker 1: and that's the disinflationary pressure of the of the high unemployment.
Speaker 1: And I would say also, you know, without very high
Speaker 1: fed purchases, you're likely to see a decent slowdown in
Speaker 1: bank credit and money supply growth over over the next
Speaker 1: twelve eighteen months. Um. And so if you're if your
Speaker 1: argument is based on those things, your argument may fall apart.
Speaker 1: John who booked him, We don't do this much gloom
Speaker 1: on a Monday, James Sweeney, how are the market people
Speaker 1: at credit suits reacting to your cautious view. The bond
Speaker 1: guys and the equity guys they're different. How are each
Speaker 1: of them reacting to this scenario? Well, I mean a
Speaker 1: lot of the bond guys basically agree with it. I
Speaker 1: mean on the equity side, you know, our our house
Speaker 1: Field and zerich Ar Investment Committee recently went from overweight
Speaker 1: global equities to to neutral. Uh. And part of it
Speaker 1: is based on these fears as we as we get
Speaker 1: into the into the autumn, and I mean neutral is
Speaker 1: not underweight and and risky assets are of course doing
Speaker 1: okay um and but you know, looking forward, I think
Speaker 1: expected returns have definitely come down. It's on this place
Speaker 1: into the Golob trade as well, that you'll pay a
Speaker 1: premium for growth. Jonathan Golub far more constructive on the
Speaker 1: growth names big tech than most people I speak to
Speaker 1: on Wall Street. It has been for quite a while. Yeah,
Speaker 1: And that's to the conversation had earlier with the Licia
Speaker 1: Levine at b N y Mellon who went the other
Speaker 1: way and said you've got to go away from growth
Speaker 1: right now. I mean, John, these are these huge tensions,
Speaker 1: all of them secondary to what we see in Washington
Speaker 1: over the next well, James, not just on the fiscal debate,
Speaker 1: let's talk about the Fed. They meet in forty eight
Speaker 1: hours time as well. Just sounds like your positioning now
Speaker 1: thinking about the next move. Governor Brain had really really
Speaker 1: stimulated this conversation in the last couple of weeks when
Speaker 1: she said we'll move from stabilization to accommodation, and everyone
Speaker 1: on Wall Street was like, well, what was the last
Speaker 1: few months about. If that wasn't about accommodation, what does
Speaker 1: that transition look like in your mind? Well, I think
Speaker 1: the last few months were about emergency measures responding to
Speaker 1: the cash flow crisis through the shutdowns UM and trying
Speaker 1: to ensure market functioning. And you know, if anything, they've
Speaker 1: over ensured market functioning. But I think going forward again,
Speaker 1: it's where does the unemployment rate settle? What does the
Speaker 1: growth and inflation look like three or six months from now? UM,
Speaker 1: And I think most of us think that activity is
Speaker 1: going to be running at a pretty low level, and
Speaker 1: so you're gonna need more help from from the FED.
Speaker 1: So you maybe pulling back some of these emergency measures.
Speaker 1: But in the short run, I think the Fed may
Speaker 1: signal that you know, until unemployment and inflation or at
Speaker 1: exceptional levels, some kind of substantial stimulus is going to
Speaker 1: be in place. And I think in the in the
Speaker 1: background is yield curve control as the next big Buzuka
Speaker 1: to be fired at a time when you're in severe
Speaker 1: market and growth stress. So hopefully that doesn't show up.
Speaker 1: That's the that's the big option, James. Aren't we in
Speaker 1: yield curve control right now? I mean, I'm looking at
Speaker 1: a tenure of point five eight percent. How do you
Speaker 1: control a number that low in America? Well, I mean
Speaker 1: the fact that the market is behaving as if it's
Speaker 1: already implemented, ob serves the FEDS objectives like that's a
Speaker 1: good thing. So what you don't want is the market
Speaker 1: to start to think they're never going to do this.
Speaker 1: And so yields is a curve starts to step and
Speaker 1: yields start to move in a in a in a
Speaker 1: way that that suggests, you know, tightening of financial conditions.
Speaker 1: So um, at some point you know, they may need
Speaker 1: to formalize this thing, but at the moment, there's certainly
Speaker 1: no risk. Assets are doing okay, and yields are doing
Speaker 1: exactly what we need them to do got to catch you.
Speaker 1: They send up best of the tame chief economists. So
Speaker 1: we've got a market your folks is extraordinary and a mystery.
Speaker 1: She's a chief strategist of Mystery of b n Y
Speaker 1: mel And Alicia Levine joins us. And what's great about
Speaker 1: a leisure Levine is prodigious academics behind trying to game
Speaker 1: and guests a view Ford. Alicia, thanks so much for
Speaker 1: joining John Amy this morning. Can you buy the marginal
Speaker 1: share this morning? Alicia? Yeah, but I think you don't
Speaker 1: buy it in tech and you know the message from
Speaker 1: the last couple of weeks. It's really interesting the five
Speaker 1: large cap tech stocks over the last two weeks, we're
Speaker 1: down over five and the rest of the SMP was
Speaker 1: actually up five in the last two weeks, suggesting a
Speaker 1: broadening of the market and the trade moving away from
Speaker 1: the parabola like stocks that we've all talked about for
Speaker 1: the last four months. You can, but you can, yeah,
Speaker 1: do what I mean to interrupt, but this is so important.
Speaker 1: Do you rebalanced by selling tech or do you hold
Speaker 1: the tech and put in new cash to work? Which
Speaker 1: is it? I think you have to sell a little
Speaker 1: tech here. Okay, I think I think that the growth
Speaker 1: stocks must remain a core holding in an overall portfolio allocation.
Speaker 1: Simply the US going forward growth will not be strong,
Speaker 1: will be lower, and so growth tend to outperform. But
Speaker 1: you know, if you look at it on the short basis,
Speaker 1: these are parabolas. They don't suggest future gained in the
Speaker 1: new Yar term, so you know they've gone too far,
Speaker 1: too fast. And the forward, the forward comments after the
Speaker 1: quarters has not been matching what the stack prices have done.
Speaker 1: So I think you pull a little bit out of Teck.
Speaker 1: And that's what we saw in the last couple of
Speaker 1: weeks that people just sort of shaving, not not really dumping,
Speaker 1: but shaving. And that makes sense, you know, because that's
Speaker 1: what you do for rebalancing. You sell your winners and
Speaker 1: you kind of reallocate. Tom And that was the last
Speaker 1: time you interrupted someone with that, meaning to interrupt them.
Speaker 1: Um No, Nixon. Nixon was back to Nixon at least
Speaker 1: I know you're used to Thanks for being with us
Speaker 1: this morning. I know you can handle it. I'm not
Speaker 1: worried about you, Alicia at all, in any way, shape
Speaker 1: or form. The rotation away from tech, let's continue that
Speaker 1: conversation because a lot of people come on this show,
Speaker 1: you know, Alicia, and they talk about rotating out of
Speaker 1: tech but into the cyclical areas elsewhere m Asia, China,
Speaker 1: Europe much more so it's there an argument to stay
Speaker 1: US based. So I think, look, it's really interesting right now.
Speaker 1: The rest of the world is recovering faster than the US.
Speaker 1: So we see it in the industrial production in China,
Speaker 1: we saw it in the data coming out of China
Speaker 1: in the last week, and we saw it last becoming
Speaker 1: out of Europe and the t m I. So the
Speaker 1: rest of the world is recovering faster. The only thing
Speaker 1: I'll say is that the valuations tend to get higher
Speaker 1: in the US. Must I think you definitely have to
Speaker 1: have an allocation to Europe. But the softer dollar does
Speaker 1: argue for cyclicals here in the US. That's going to
Speaker 1: be the bedrock of and some of these stocks. I mean,
Speaker 1: so your software dollars helping these multinational companies. And by
Speaker 1: the way, multinational companies are exposed to the recovery overseas,
Speaker 1: So you know, you have to stay in the US.
Speaker 1: But I think Asia is great, and I think Europe
Speaker 1: looks it looks like a nice trade here. Well, Lea,
Speaker 1: let's continue this conversation. Then. Is the weaker dollar a
Speaker 1: symptom of the foreign inflows or a driver off them?
Speaker 1: How do you frame that for clients at the moment. Well,
Speaker 1: that's a really great technical question, Thank you, Jonathan Um.
Speaker 1: I think I think it's it's a symptom, and it's
Speaker 1: a symptom because let's let's go back to the first
Speaker 1: first basis, right, first stasis is the path of the
Speaker 1: recovery is going to track the path of the virus. Okay,
Speaker 1: and what we've seen in the last sixteen at the
Speaker 1: path that the path of the virus is exploding everywhere
Speaker 1: in the US, and so economic activity is flattening and
Speaker 1: so there it's not happening in other regions of the world.
Speaker 1: So therefore they're recovering fast. We're flattening s. The first
Speaker 1: problem in the labor markets last Thursday, where the claimed
Speaker 1: data win in the wrong direction for the first time
Speaker 1: in sixteen weeks. So we're gonna start feeling it here
Speaker 1: and I think this office dollar is a reflection of that.
Speaker 1: Not to mention, not to mention, yields are so low
Speaker 1: and we've got negative yield as you were talking about
Speaker 1: all the learning long So I think I think that
Speaker 1: the week or dollar is a symptom. Or is dividend
Speaker 1: and dividend growth a proxy for yield right now? Yes? Yes, um, Look,
Speaker 1: you know it's interesting only sixty two companies in the
Speaker 1: SMP have actually cut dividends. I would have thought that
Speaker 1: would have been more, and it's interesting that they haven't.
Speaker 1: And part of that is due to the support from
Speaker 1: the FED supporting all the different levels of bonds here,
Speaker 1: you know, creating a situation where you have enough capital
Speaker 1: and you can both play paid dividends. Because it's the
Speaker 1: number of companies that have cut dividends actually less than
Speaker 1: in two thousand and eight and two thousand and nine,
Speaker 1: which I find really interesting. I would not have expected
Speaker 1: that three months ago. Well come all of you on
Speaker 1: Bloomberg Radio, Bloomberg Television, John Farrow and Tom Keen, Alicia
Speaker 1: Levine with us right now. B and why Melan, Alicia,
Speaker 1: what are you seeing people actually do with their money?
Speaker 1: I'm fascinating when I talked to you, or saying Lisian
Speaker 1: Sanders a hub about what the actual action is of people?
Speaker 1: What is the action right now? So the action is
Speaker 1: very defensive, and that's why we remain cautiously bullish on
Speaker 1: on this market. Nervous but bullish because positioning is defensive.
Speaker 1: So money market funds, goals, and bonds and investment great bonds,
Speaker 1: and that's really where the the incremental trade is coming from.
Speaker 1: People are nervous to buy into this market. And as
Speaker 1: long as you still have that going on, you have support.
Speaker 1: You know, it's it's a it's a contrarian you know view,
Speaker 1: and and so therefore you know you have support under
Speaker 1: the market. But positioning is defensive. So let me ask
Speaker 1: the stupid question, who's buying stocks? Then, um, people are buying.
Speaker 1: If people are still buying stocks, it's just not running
Speaker 1: into tech in the same way. I mean the you know,
Speaker 1: the last couple of weeks as a cautionary sign. That's
Speaker 1: evaluation do matter ultimately, and you have to take some
Speaker 1: of the excess out of it. So we are we
Speaker 1: are sing buying in equity. It's just as the trade is.
Speaker 1: You know, the incremental trade still is bonds, gold and
Speaker 1: and fixed income. Just because we're hermetically sealed here, John
Speaker 1: and I are in two separate cubicles to try to together, well,
Speaker 1: you know that's true. That you know, I just did
Speaker 1: a log chart on Amazon with some fancy moving mathematical
Speaker 1: averages for Alicia Levine. Come on, Alicia, Amazon, all that's
Speaker 1: done is fallen back to a very comfortable support. It's
Speaker 1: not a correction. It's almost like a pause. I mean,
Speaker 1: do you buy the dip? Can you buy the dip?
Speaker 1: In the text of I need to make some money
Speaker 1: here about nine tenths of one percent west of camp
Speaker 1: on Nata on the NaSTA in the last couple of weeks.
Speaker 1: I know we've come back a bit, but hardly. We're
Speaker 1: still up near old time hist Tom. I don't know.
Speaker 1: I'm just trying to impress Alicia with my math, and
Speaker 1: all I see is on a large chart, Amazon's back
Speaker 1: to support. I mean, it's not like it's caved in, right, no, so,
Speaker 1: but look it is twelve off the high so you
Speaker 1: know that is not you know again, that is that's
Speaker 1: not a bad that's not a bad entry point for
Speaker 1: any stuck after your you know, ten to twelve percent
Speaker 1: off the highs and that kind of fast mover. That's
Speaker 1: that's fine. We don't think these stocks are rolling over.
Speaker 1: We just think some of the excess has to come
Speaker 1: out of it, and charting is a great way to
Speaker 1: pick your entry point. You know, as I've said before,
Speaker 1: parabolus don't make for a great technical charts. You have
Speaker 1: to wait. Always enjoy catching up with you. Appreciate that
Speaker 1: your patients this morning with us as well, Alicia Leavin,
Speaker 1: I'm usually I'm usually saying that to appreciate that tolerance
Speaker 1: for a certain someone who has a bow time throwing
Speaker 1: me some parablic It's not new. I do that every day,
Speaker 1: do that every day. Right now, in this oddest of
Speaker 1: baseball seasons, we have to drag on Douglas Cast. Talk
Speaker 1: to us about the equity markets, talk to us about
Speaker 1: his brilliant calling Amazon that's working out, and of course
Speaker 1: a lot of other things as well. Can I Dug Cast,
Speaker 1: good morning, Good morning Tom. I just um learned that
Speaker 1: the Marlins home game, we had that on ESPN reported
Speaker 1: that in the athletic and there's eight players with a virus, etcetera.
Speaker 1: And we'll talk about that in a bit. Can we
Speaker 1: just talk a minute, Doug Cast about someone who never
Speaker 1: gets print because he's outside the three zip codes that matter,
Speaker 1: and that is a gentleman pitching for the Chicago Cubs today,
Speaker 1: John Luster has delivered what everybody's supposed to deliver. You
Speaker 1: get paid a ton of money, but year after year
Speaker 1: after year, he's getting older, and you know he's no, no,
Speaker 1: it's not that old. But here's a guy that had
Speaker 1: Limpield Paul. No, he's not that old, but he had
Speaker 1: you know, Limpolo when he was young. He's got like
Speaker 1: seven World Series rings. And the guy, you know, with
Speaker 1: all the negativity about baseball, he's a guy that just
Speaker 1: delivers it year after year. Yeah, he's fantastic. I like
Speaker 1: the Cubs this year, actually, but I like the Yankees more.
Speaker 1: You like the Yankees more, and I know you were
Speaker 1: telling me this weekend they're starting out. Well, what you
Speaker 1: really like is Amazon. Joe Felban today typical in the street.
Speaker 1: He goes up with a extrapolation out to thirty six
Speaker 1: hundred on Amazon. Your way out in front of that.
Speaker 1: How far out are you looking, dougcass I have on
Speaker 1: Amazon dollar have a five thousand dollar price target in
Speaker 1: two which I mentioned I think twice last year, and
Speaker 1: there was a lot of size and disbelief. Um, my
Speaker 1: near term target was three thousand. I've sold out of
Speaker 1: the stock of short term because I think the market
Speaker 1: and the Microsoft and Fang stocks um are going to retreat.
Speaker 1: But can I just mention something about what you and
Speaker 1: John were discussing. You had such an interesting conversation over
Speaker 1: the last hour. Yeah, John was talking about the band
Speaker 1: aids of policy and then you guys were talking about
Speaker 1: real interest rate gold what it all means. I just
Speaker 1: think that we're in such a fascinating time and financial history.
Speaker 1: There is today almost a tensil relationship between current real
Speaker 1: interest rates, which continue to fall, as you discussed, compared
Speaker 1: compared with the inflation break evens, which is rising. I
Speaker 1: just called my power pal, Peter poke Bar and he
Speaker 1: knows me that break evens on the tenure in a
Speaker 1: multi monti at one point five. So we have to
Speaker 1: try to figure out the reason. And there seems to
Speaker 1: be a growing belief in stagflation. With also the FED
Speaker 1: pinning rates, we're gonna have still large dewey and we're,
Speaker 1: as you talked earlier this morning, about a yoelker of control.
Speaker 1: But stagflation is not equity market friendly. And I'm going
Speaker 1: to remind you guys, is that it's time to consider
Speaker 1: bond convexity, what the risk reward is and fixed income,
Speaker 1: and that bond investors might be content in picking up
Speaker 1: pennies in front of a steamroller, but we've learned over
Speaker 1: history it's dangerous. And finally I'll remind you also then
Speaker 1: in finance, there's something called bond convexity. It's a measure
Speaker 1: of the relationship of bond prices to changes and interest rates.
Speaker 1: It's the second derivative of the price of the bond
Speaker 1: with respect to rates, with duration being the first derivative.
Speaker 1: And so in general to hire, the duration the more
Speaker 1: sensitive pricect. This is really important. I want you to
Speaker 1: frame out here some of your bearished tone, Doug Cass,
Speaker 1: and we do this, folks understanding everybody understands there for
Speaker 1: a few crises in the business that bonds are typically
Speaker 1: out front of the equity zeitguys, do you agree with that,
Speaker 1: Doug Cass? Yeah, yeah, I think um bonds, as John
Speaker 1: Farrow mentioned, are telling a far different story than consensus
Speaker 1: economic and profit expectations are. So Doug, what what do
Speaker 1: you think the bringing so right here? We've seen the
Speaker 1: bond market really over the last you know, nine months
Speaker 1: at least, really tell a different story, particularly as we're
Speaker 1: coming into the pandemic here. The bonds market really told
Speaker 1: a different story here. Um, what's the bond market telling you? Now?
Speaker 1: The bond market is telling me that the Fed is
Speaker 1: going to have yield control and that the the economic
Speaker 1: um expectations and S ANDP profit expectations for twenty one
Speaker 1: are unrealistic. UM. I think that, you know, getting back
Speaker 1: to the the issue at hand that Tom mentioned, I
Speaker 1: think the wise man considers the if the contrary and
Speaker 1: constantly evaluates and often rallies against group think or what
Speaker 1: I call groups think. And your question, Paul, I think
Speaker 1: that there's worse than expected earnings and economic growth to come. Um.
Speaker 1: One of the most intelligent strategist is Dave Coston at
Speaker 1: Goldman Sachs. He's estimating a hundred and seventy dollars for
Speaker 1: SMP earnings. UM, but that does not take into account
Speaker 1: of Democratic victory, which is going to shave off probably
Speaker 1: twenty dollars share taking down to one fifty. And I
Speaker 1: live at one a shaff for next year, and I
Speaker 1: don't believe SMP earnings will regain what they achieved in
Speaker 1: two thousand nineteen until two thousand three UM. And I
Speaker 1: think it's also important that UM technology earnings UM may
Speaker 1: not live up to a very high high bar, because
Speaker 1: I think there's been likely a massive pull forward of sales,
Speaker 1: even for Amazon, but certainly for Netflix, Zoom, Uh and Tesla,
Speaker 1: not in sales, but in regulatory credit, which I recently
Speaker 1: short it. I should recently shorted all those stocks except
Speaker 1: for Amazon UM. We saw in Microsoft Azor the cloud
Speaker 1: business the rate of growth decellering markedly from six to UM,
Speaker 1: so weakening economic growth, and we could see the appearance
Speaker 1: reappearance of bond vigilantes, which we haven't seen since the
Speaker 1: early eighties. You know. The final thing I would mention
Speaker 1: is that I think size matters in the stock market,
Speaker 1: and there have been three outsized industry waitings in the
Speaker 1: last UM. Forty years back in UM, energy stocks represented
Speaker 1: of the SMP, and then of course Exon lost fifty
Speaker 1: of his value, and then the next two years back
Speaker 1: in OH seven, financials represented the same and then we
Speaker 1: know that JP Morgan lost seventy of its value in
Speaker 1: the next three years. Today Big Technology represents thirty eight
Speaker 1: percent of the SMP. So I see two comparables, and
Speaker 1: energy and financials impacting technology, and I started to short
Speaker 1: the sector. Doug. I think our listeners as they drive
Speaker 1: around here are saying, this gentleman is painting a bear
Speaker 1: market picture. Is that your view? It's my view. But
Speaker 1: the last time I was on, you know I'm not
Speaker 1: a permanent bear. The last time I was on, I
Speaker 1: talked about a rip your face rally. I used the
Speaker 1: word mother of all short squeezes on market surveillance. I
Speaker 1: went aggressively long in March when the SMP traded at
Speaker 1: two hundred. That was the largest discount to fair market
Speaker 1: value or intrinsic value based on my calculus that we've
Speaker 1: seen since December, when I also went long. So now
Speaker 1: the market leadership is narrowing conspicuously. Stock prices and now
Speaker 1: are well above intrinsic value, and it's time to short. Okay,
Speaker 1: But Doug, what does somebody do in a four win
Speaker 1: cap position and where they don't have time to short,
Speaker 1: they don't want to just or they just want to
Speaker 1: place assets for long term. Are you comfortable there being
Speaker 1: in small cap value or do you still say just
Speaker 1: say growthy if you haven't time arising of Let's say
Speaker 1: you're talking about a time arising, Well, that's like twenty
Speaker 1: or thirty years. Thank you. If you have a red
Speaker 1: SOX time arison, you should certainly not modify your positions.
Speaker 1: But a lot of people listening into surveillance, there are
Speaker 1: a lot of traders, and traders have time frames of
Speaker 1: under two years, often under if Robbing, Robin Hood and
Speaker 1: the merry men in Sherlock Forest. They have a time
Speaker 1: frame of a few minutes or a few hours. So
Speaker 1: it depends on your time frame. If your time frame
Speaker 1: is under a couple of months, UM, I would forget tina.
Speaker 1: There is no alternative, And think about said us the
Speaker 1: I t A cash is the alternative. Nothing wrong with
Speaker 1: holding cat. What about a longer term? I didn't get
Speaker 1: an answer. Three years? Five yeah, five years, and I
Speaker 1: wouldn't disturb investment positions. So you know, the gravitational pull
Speaker 1: of stocks is higher yep. And particularly I mean, are
Speaker 1: you comfortable that this FED is going to remain a
Speaker 1: backstop for risk assets including the stock market? I am
Speaker 1: comfortable about that. But um, I think that we have
Speaker 1: to consider that the fed's balance sheet in two thousand
Speaker 1: and eleven was about two point five trillion. It's over
Speaker 1: seven trillion dollars today in the interimentable US nominal GDP
Speaker 1: only rose by about that means to me, and this
Speaker 1: is really important. It takes more and more debt to
Speaker 1: produce a unit of production. That's a real negative. So
Speaker 1: Katie bar the doors is the bond vigilantes reappear and
Speaker 1: all of a sudden, public and private sector um service
Speaker 1: of debt is challenged. And that's the big black swan
Speaker 1: that lies ahead. We haven't seen it yet, Charles Cass
Speaker 1: with us right now, with Doug. It's happened before, it
Speaker 1: is happening now. It is a bullmarket of vix from
Speaker 1: eight to and retail climbs on board with a laptop
Speaker 1: on the couch. However, it is as well. I want
Speaker 1: you to speak right now to all the people listening
Speaker 1: who have been playing the game. Some have gains, some dote.
Speaker 1: Where are they heading. Well, these Speculus stocks one of
Speaker 1: my big concerns. They're going to collapse. They always do.
Speaker 1: I've seen this in the past. Um speculation always takes
Speaker 1: the same form in every cycle. It did in the
Speaker 1: dot com era, it did in two thousand seven. It's
Speaker 1: doing it right now. You have low price debt that
Speaker 1: is plentiful, and you have a new class of buyers
Speaker 1: in an asset class and the new classes Robin Hood
Speaker 1: and his merry men and UM. You know that occurred
Speaker 1: because HUM, for a number of reasons, UM commission rates
Speaker 1: were pegged at zero after being really high priced and
Speaker 1: going down as they got commoditized over a period of time.
Speaker 1: And of course you got the federal government's checks UM,
Speaker 1: so they had nothing to do. It couldn't been on sports.
Speaker 1: So I started betting on stocks. And that's really dangerous.
Speaker 1: And I have shorted a package months ago of stocks
Speaker 1: that I considered to be worthless and bankrupt and will
Speaker 1: mention them. But you know, example would be Hurts. Example
Speaker 1: would be Hurts where stock some of them already down.
Speaker 1: But there are a number of concerns I have I've
Speaker 1: expressed to you in my top ten list of concerns.
Speaker 1: I'm concerned that COVID nineteen spreads and fatality of these
Speaker 1: expand UM we have gutted UM the real estate business,
Speaker 1: the hotel business, the travel business, airlines, cruise lines, and
Speaker 1: importantly our educational institutions, which are large employers. And I
Speaker 1: wouldn't be surprised in the next couple of months we
Speaker 1: hear of a large, well known university that closes and
Speaker 1: shocks the markets. Um. The second thing is that this
Speaker 1: rift between China is widening. Um. China is obviously playing
Speaker 1: hardball in the face of a likely loss, and I
Speaker 1: could see a furious president retaliating. His popularity is falling
Speaker 1: further so he could lose his composure introduce a number
Speaker 1: of wild policy shifts, moving further to the right. Um,
Speaker 1: we had the wire card, um, which no one's discussing.
Speaker 1: Did you were you short wire card? I had no
Speaker 1: position in wire Uh. No one's smarter than Jimmy on
Speaker 1: the short That's true that we can have a large
Speaker 1: US fraud which shakes the markets. I mean that happened
Speaker 1: often in the cycle, Doug. Because of time, we got
Speaker 1: to leave it there. Also, you need to rest before
Speaker 1: the Yankees take another victory. I can't believe I just
Speaker 1: said that. Douglas cast with Sea Breeze and we say
Speaker 1: thank you this morning. Thanks for listening to the Bloomberg
Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keane Before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio.