WEBVTT - The Melt-Up After the Meltdown 0:00:00.440 --> 0:00:03.559 Strap on your parachute. It is time for What Goes 0:00:03.680 --> 0:00:14.200 Up with Sarah Ponzick and Mike Reagan. Hello and welcome 0:00:14.240 --> 0:00:17.560 to What goes Up, a Bloomberg Weekly Markets podcast. I'm 0:00:17.600 --> 0:00:21.079 Sarah Ponzek, a reporter on the Cross Asset team, and 0:00:21.120 --> 0:00:24.280 I'm Mike Reagan, a senior editor on the Markets team 0:00:24.320 --> 0:00:28.120 who is fresh out of wacky dynamic duos for for 0:00:28.160 --> 0:00:30.520 you and I. Sarah, I don't know. I'm I should 0:00:30.560 --> 0:00:32.840 have started this whole gimmick. I'm completely out of out 0:00:32.840 --> 0:00:36.599 of duos now. Honestly, Mike, I was expecting coming into 0:00:36.640 --> 0:00:38.480 this week's show that you weren't even going to bring 0:00:38.520 --> 0:00:41.279 it up. So the fact that you're even admitting it, 0:00:42.080 --> 0:00:44.400 we'll give you something at least. But next week I'm 0:00:44.400 --> 0:00:46.440 holding you to it. We'll have a new one. All right, good, 0:00:46.479 --> 0:00:50.040 good enough. But this week on the show, we've discussed 0:00:50.040 --> 0:00:54.480 it before. Coronavirus cases continue to rise across US hotspots 0:00:54.480 --> 0:00:59.120 and other countries to get financial markets seem relatively unbothered. 0:00:59.560 --> 0:01:01.760 Our guest was on the right side of the stock 0:01:01.800 --> 0:01:05.160 rebound earlier this year, but now she's starting to talk 0:01:05.200 --> 0:01:08.919 about the potential for a market melt up. And as always, 0:01:08.920 --> 0:01:11.880 will close out this week's episode with our tradition the 0:01:11.920 --> 0:01:16.040 craziest thing I saw in markets this week. And of course, 0:01:16.080 --> 0:01:18.600 if you see something crazy, give us a call on 0:01:18.640 --> 0:01:22.920 the Bloomberg Podcast hotline at six four or six three 0:01:22.959 --> 0:01:26.679 to four three four nine, oh, and leave us a 0:01:26.880 --> 0:01:29.480 voicemail and maybe we'll play it on the show. Or 0:01:29.520 --> 0:01:32.160 if you just have a suggestion or some feedback on 0:01:32.200 --> 0:01:35.000 the show, we'd like to hear it. Hear that too, Sarah, 0:01:35.000 --> 0:01:37.040 I hope you came prepared for with the crazy thing. 0:01:37.040 --> 0:01:39.000 I've got a pretty good one. You have a pretty 0:01:39.000 --> 0:01:42.200 good one. I do, I do, I do. It's true, 0:01:42.720 --> 0:01:45.880 It's true most of the time. It's true. It's the 0:01:45.920 --> 0:01:48.040 one the one thing I'm good at. My my career 0:01:48.120 --> 0:01:50.840 highlight is is crazy things. Take take that for what 0:01:50.880 --> 0:01:56.040 it's worth, exactly exactly. So joining us for the first 0:01:56.040 --> 0:01:58.680 time a new guest. Were very excited to have her. 0:01:58.720 --> 0:02:02.520 Her name is Anna and she's an equity strategist at 0:02:02.560 --> 0:02:06.560 Wells Fargo Security and uh again, first time on the show, 0:02:06.600 --> 0:02:08.280 and welcome to the show. I hope you brought a 0:02:08.320 --> 0:02:11.880 crazy thing too. I did. Thanks for having me, Mike 0:02:11.919 --> 0:02:15.240 and Sarah Glad to be here. Okay, good, Well, don't 0:02:15.280 --> 0:02:17.320 give us your crazy thing yet. We'd like to save 0:02:17.360 --> 0:02:19.880 that for the end. It's like the dessert after a 0:02:20.160 --> 0:02:22.920 nice nutritious meal, as I like to say, after you 0:02:22.960 --> 0:02:26.280 eat your vegetables. That's that's right. But and I wanted 0:02:26.320 --> 0:02:30.320 to start by asking you about this whole notion of 0:02:30.400 --> 0:02:33.120 a melt up. Um, you know, the way I would 0:02:33.200 --> 0:02:35.239 think of the definition of a melt up, I'm I 0:02:35.480 --> 0:02:38.520 guess there's not really a textbook sort of definition of 0:02:38.560 --> 0:02:41.040 it as far as what kind of percentage gain and 0:02:41.440 --> 0:02:44.560 then subsequent pullback we'd be talking about. But to me, 0:02:44.600 --> 0:02:48.400 it just means sort of, uh, an irrational sudden lurch 0:02:48.520 --> 0:02:51.840 higher in the equity market that typically would be would 0:02:51.840 --> 0:02:54.520 be followed by a meltdown. I guess, um, uh, you know, 0:02:54.600 --> 0:02:57.560 sort of retracement of a lot of that game. UM, 0:02:57.600 --> 0:02:59.600 So correct me if I'm wrong on any of that 0:02:59.680 --> 0:03:02.120 as far is how you define it. But also what 0:03:02.200 --> 0:03:04.760 would that look like in this scenario. I mean, I 0:03:04.800 --> 0:03:07.760 think the problem with sort of entering what would be 0:03:07.760 --> 0:03:11.040 considered a melt up phase of the market is really 0:03:11.120 --> 0:03:13.880 not having any idea how far it could go or 0:03:13.960 --> 0:03:16.480 when it would reverse. Um, So how would you sort 0:03:16.480 --> 0:03:19.480 of approach that type of scenario that we we we 0:03:19.560 --> 0:03:22.639 seem seems like we very well could be entering. Well, Mike, 0:03:22.760 --> 0:03:24.799 you sort of hit that on the head already. When 0:03:24.840 --> 0:03:27.480 when you get a melt up, it's hard to characterize 0:03:27.600 --> 0:03:30.760 or exactly put your finger on it, but the way 0:03:30.919 --> 0:03:34.560 I would describe it is, it's this exuberance. It's an 0:03:34.560 --> 0:03:38.119 investor risk seeking that sort of gets ahead of itself. 0:03:38.320 --> 0:03:40.800 And when it does, like you said, you're not sure 0:03:40.880 --> 0:03:43.880 exactly how long can it go, but you know that 0:03:43.960 --> 0:03:47.600 it's more of a destabilizing push up higher and equities 0:03:47.720 --> 0:03:52.800 rather than a a positive, you know, encouraging move on 0:03:52.840 --> 0:03:56.240 the equity market. So we've been suspecting that the risk 0:03:56.280 --> 0:03:59.520 of a melt up is getting higher because look, when 0:03:59.560 --> 0:04:04.400 you've got at zero rates, you've got massive accommodation, both 0:04:04.440 --> 0:04:08.760 monetary and fiscal, and you know you have improving sentiment, 0:04:08.840 --> 0:04:15.160 and you're seeing data economically, jobs, manufacturing, not just domestically 0:04:15.280 --> 0:04:19.919 but globally improving. It's gonna spur that sort of risk seeking, 0:04:20.000 --> 0:04:22.160 and we're worried that's getting a little ahead of itself. 0:04:22.920 --> 0:04:27.120 So I remember back in ten, also in twenty nineteen 0:04:27.600 --> 0:04:30.400 hearing people talk about this phrase a melt up, and 0:04:30.480 --> 0:04:33.640 usually when people talk about a melt up, it comes 0:04:33.640 --> 0:04:37.560 with a negative connotation that that people are scared of 0:04:37.640 --> 0:04:40.720 this spooky, spooky melt up and stocks are going to 0:04:40.800 --> 0:04:44.600 be rising for no fundamental reason that people can really pinpoint. 0:04:45.040 --> 0:04:47.160 But the way you look at it is that, I mean, 0:04:47.160 --> 0:04:49.760 you can play this gap. Stocks are going up. That's 0:04:49.800 --> 0:04:54.160 not necessarily a bad thing, right, Absolutely, It's not something 0:04:54.200 --> 0:04:56.280 where you should be so fearful that you feel like 0:04:56.320 --> 0:04:58.320 you need to sit on the sidelines and you know, 0:04:58.680 --> 0:05:01.599 head for the cash. Um. I would put it more 0:05:01.640 --> 0:05:05.120 as you can ride that rally, but know what you're 0:05:05.120 --> 0:05:07.800 getting into and look for those signs and when you 0:05:07.920 --> 0:05:11.440 think that melt up or that rally is really losing steam. 0:05:11.880 --> 0:05:14.720 So for us, we think one of the catalysts that's 0:05:14.720 --> 0:05:17.480 gonna push this melt up higher is probably going to 0:05:17.600 --> 0:05:21.200 be the second quarter earning season. We expect a generally 0:05:21.200 --> 0:05:24.560 constructive tone, and that can make investors a little too 0:05:24.640 --> 0:05:28.839 hopeful that really the worst is over, not just the worst, 0:05:28.880 --> 0:05:32.000 but hey, things are going to get better sooner than expected. 0:05:32.400 --> 0:05:35.320 So if that happens and you see this massive urge 0:05:35.320 --> 0:05:39.240 in equities, we think won't necessarily be followed by a 0:05:39.279 --> 0:05:42.680 full toppling down, perhaps a melt down, like Mike you 0:05:42.680 --> 0:05:46.599 were mentioning, but it could come to an abrupt halt, 0:05:47.200 --> 0:05:49.919 and that could be a concern if it does pull back, 0:05:50.040 --> 0:05:52.520 that can spook investors, because you know, when you go 0:05:52.640 --> 0:05:56.800 from this exuberant high to a sudden, scary exuberant low, 0:05:56.920 --> 0:06:01.039 that shock that can really spook investors. Can I imply 0:06:01.560 --> 0:06:03.880 from that? Or and for from that that have the 0:06:03.880 --> 0:06:07.600 earnings estimates for the second quarter been cut too low? 0:06:07.640 --> 0:06:09.040 Do you think? Is that? Is that what you mean 0:06:09.080 --> 0:06:12.480 by construction constructive earning season? That sort of the hurdle 0:06:12.560 --> 0:06:14.679 is so low now that it will be a pretty 0:06:14.720 --> 0:06:18.240 easy beat for a lot of companies. And where would 0:06:18.279 --> 0:06:20.880 you suspect those beats to to mainly be. Is it 0:06:20.920 --> 0:06:24.760 across the board or were you know, in the growth stocks, 0:06:25.000 --> 0:06:27.000 in sort of the cyclical stocks. Is there any sort 0:06:27.000 --> 0:06:29.400 of sort of way to get ahead of what you 0:06:29.440 --> 0:06:31.599 think is coming in the earning season? You bring up 0:06:31.640 --> 0:06:35.320 a great point, Mike, it's that expectation, because really equities, 0:06:35.360 --> 0:06:39.359 that's a game of expectation and risk perception. So with 0:06:39.480 --> 0:06:42.159 the earning season there are going to be pockets or 0:06:42.160 --> 0:06:45.680 certain sectors in the economy that investors and analysts on 0:06:45.880 --> 0:06:48.120 you know, the cell side, like myself, are going to 0:06:48.320 --> 0:06:52.440 lower their estimates expecting really that they got decimated because 0:06:52.440 --> 0:06:56.640 of the coronavirus um. But as we've seen already, you've 0:06:56.680 --> 0:06:59.760 seen some of this value style resurgence. Some of the 0:06:59.760 --> 0:07:05.520 really beaten down names have recovered quite decently. Now you're 0:07:05.520 --> 0:07:08.440 also seeing the opposite side of the trend, the high growth, 0:07:08.520 --> 0:07:12.520 high momentum names that were steady all through the downturn 0:07:12.600 --> 0:07:16.440 in March and April. They continue to be those outperformers. 0:07:16.480 --> 0:07:19.600 So the question becomes, as the bar gets higher, can 0:07:19.640 --> 0:07:23.200 you continue to leap over that um? And when you 0:07:23.240 --> 0:07:26.080 have a very low bar, is it enough just to 0:07:26.200 --> 0:07:30.400 kind of, you know, barely hop over that. I'm suspecting 0:07:30.520 --> 0:07:33.520 that really in the value pockets, you're gonna see some 0:07:33.680 --> 0:07:37.560 beaten down expectations. But that's why we actually think that 0:07:37.560 --> 0:07:40.840 that's an opportunity for us, because the bar is lower, 0:07:41.240 --> 0:07:44.840 you can have that kind of positive reaction after you 0:07:44.880 --> 0:07:48.000 get an earning speed. And then on the growth side, 0:07:48.000 --> 0:07:51.360 I just say, you know, again, these growth players, they've 0:07:51.520 --> 0:07:55.600 done very well through the turmoil um, but whether they're 0:07:55.640 --> 0:07:58.400 going to be able to hop over that high hurdle 0:07:58.560 --> 0:08:01.560 and what the expectation is. It's really a next of 0:08:02.000 --> 0:08:06.760 the short term expectation versus our investors perhaps looking already 0:08:06.800 --> 0:08:26.560 to Before we get to talking further about this disparity 0:08:26.600 --> 0:08:28.440 between value and growth, I do want to talk about 0:08:28.880 --> 0:08:30.800 the factors of a melt up just a little bit more, 0:08:30.840 --> 0:08:34.440 because you mentioned earlier on that it's something that you 0:08:34.480 --> 0:08:37.080 can take part in, but you really want to be 0:08:37.160 --> 0:08:40.959 on the lookout for the factors, the signals that might 0:08:41.000 --> 0:08:43.880 point to a blow off top or the end of 0:08:43.880 --> 0:08:46.600 a melt up. I mean, what are those factors that 0:08:46.640 --> 0:08:50.240 you actually look for? And what's to say that maybe 0:08:50.280 --> 0:08:53.200 we haven't seen a melt up already? And I know 0:08:53.280 --> 0:08:55.520 that sounds so crazy because we're in the middle of 0:08:55.559 --> 0:08:58.480 a recession, but some might look at this rally that 0:08:58.520 --> 0:09:01.199 we have seen and say, wait, where are the fundamentals 0:09:01.200 --> 0:09:04.199 behind this? You know, that's a common pushback we've gotten 0:09:04.280 --> 0:09:07.320 from investors and clients is look at this massive rally, 0:09:07.480 --> 0:09:11.040 isn't it too expensive already? Should I really be playing 0:09:11.080 --> 0:09:14.360 in equities? And and has this is this gonna you know, 0:09:14.480 --> 0:09:18.240 run out of steam. When we think about it, it's 0:09:18.320 --> 0:09:21.360 easy to look at where equities and valuations are now 0:09:21.760 --> 0:09:24.920 and to think this is expensive, especially when you don't 0:09:25.000 --> 0:09:29.640 know what that denominator earnings should be given all this turmoil. 0:09:30.080 --> 0:09:34.400 But for us, the situation is different this time because 0:09:34.400 --> 0:09:38.160 you've had so much monetary and fiscal stimulus, and you've 0:09:38.200 --> 0:09:42.360 had it come bigger and badder and faster than we've 0:09:42.360 --> 0:09:46.040 had it ever in history. So we're in an unprecedented 0:09:46.080 --> 0:09:49.400 time of liquidity and stimulus. So that is going to 0:09:49.559 --> 0:09:52.959 make multiples be able to reach higher and be in 0:09:53.160 --> 0:09:55.440 what I would say a different regime really than you've 0:09:55.440 --> 0:09:59.719 seen in the past. That being said, one of the indicators, 0:09:59.720 --> 0:10:02.320 like you said factors to watch out for, we like 0:10:02.440 --> 0:10:06.080 to look at risk really again, equities are the story 0:10:06.200 --> 0:10:09.600 of what investors perceived risk to be in the upcoming 0:10:09.640 --> 0:10:13.080 couple of months. Now. As risk you can measure in 0:10:13.080 --> 0:10:16.000 different ways, but think about the VIX indicator. The index. 0:10:16.520 --> 0:10:20.840 The VIX is telling us what investors believe equities, how 0:10:20.960 --> 0:10:23.760 risky they think they are. And you saw it spike 0:10:24.000 --> 0:10:27.800 massively in March and then rapidly decay, and with that 0:10:27.880 --> 0:10:34.240 decay from the loads of March smp rallied, right, So 0:10:34.960 --> 0:10:37.840 that goes hand in hand. Now we've seen that VIX 0:10:37.880 --> 0:10:40.959 start creeping higher. It was in the low twenties, now 0:10:41.000 --> 0:10:45.080 it's flirting with thirty this Thursday. And with that moving forward, 0:10:45.360 --> 0:10:47.840 as you see this risk creep back in this system 0:10:47.960 --> 0:10:50.839 and yet equities be able to push higher, if not 0:10:51.120 --> 0:10:54.560 leg up significantly, that could be one of the big 0:10:54.600 --> 0:10:58.400 signals that this rally is getting ahead of itself. I'm 0:10:58.400 --> 0:11:00.800 glad you brought up the vix and know you're you 0:11:00.840 --> 0:11:03.600 were a derivatives trader and a former life right is 0:11:03.600 --> 0:11:07.320 that right? Yep, that was a former life for sure, Mike. 0:11:09.720 --> 0:11:12.600 So there has been a lot of talk about exactly 0:11:12.600 --> 0:11:14.920 what you're talking about. The the VIX has receded, but 0:11:15.040 --> 0:11:18.360 still lingering in that sort of you know, high twenties, 0:11:18.400 --> 0:11:22.120 the thirty level, which, um, you know, when you think back, 0:11:23.280 --> 0:11:26.160 maybe given the vixes lifetime average I think for a 0:11:26.160 --> 0:11:28.319 long time was right around twenty. But wait for a 0:11:28.360 --> 0:11:30.960 while there we were looking at a single digit VIX 0:11:31.160 --> 0:11:35.079 you know, um, you know again another lifetime pre pre 0:11:35.200 --> 0:11:39.720 covid um. But I I wonder if that sort of 0:11:39.920 --> 0:11:43.840 suggests that you know that the professional hedge fund class 0:11:44.640 --> 0:11:49.480 is pretty well hedged against, you know, the meltdown, uh, 0:11:49.480 --> 0:11:51.480 and side of the melt up, you know what I 0:11:51.480 --> 0:11:53.800 mean that the sort of coming back to earth and 0:11:53.840 --> 0:11:56.640 that that might actually provide a bit of a cushion 0:11:57.200 --> 0:11:59.920 that would prevent that, you know, that sort of return 0:12:00.080 --> 0:12:03.640 to the rationality if you will, after a melt up 0:12:03.720 --> 0:12:05.680 from getting out of hand. You know, if if you're 0:12:05.920 --> 0:12:08.839 if you're well hedged, maybe the need to to sell 0:12:08.840 --> 0:12:11.760 out will of your of your long positions will not 0:12:11.800 --> 0:12:14.040 be as strong. I mean, is that a fair way 0:12:14.080 --> 0:12:17.920 to think of a high VIX in this type of environment. Yeah, 0:12:18.000 --> 0:12:19.960 I think that is a fair way. And Mike, you know, 0:12:20.040 --> 0:12:22.720 the one way I would characterize it is fool me once, 0:12:23.040 --> 0:12:26.920 you know, shame on you. Fool me twice. That's on me. 0:12:27.080 --> 0:12:30.120 So after a lot of investors got burned by this 0:12:30.360 --> 0:12:35.280 sudden thirty percent drop in March, they realized, I have 0:12:35.440 --> 0:12:39.360 to have that downside protection. So there are more people 0:12:39.640 --> 0:12:42.720 who are out there prepared for that and better heshed. 0:12:43.000 --> 0:12:46.480 But that's not to say that there isn't also upside 0:12:46.520 --> 0:12:50.360 seeking where people are buying called and taking those wagers 0:12:50.360 --> 0:12:54.000 on the market. So you do see better downside protection 0:12:54.120 --> 0:12:56.720 that may provide some cushion were we to see a 0:12:56.760 --> 0:13:00.200 further slide down. But our view, really we're not too 0:13:00.240 --> 0:13:03.840 fearful of a huge pullback here. We don't think we're 0:13:03.840 --> 0:13:07.079 going to see a massive drop in the SMP hive hundred. Really, 0:13:07.120 --> 0:13:09.680 it's more of a risk to the upside and that 0:13:09.880 --> 0:13:13.400 surge higher. Now that being said, we do have a 0:13:13.440 --> 0:13:16.080 lot of risks on the horizon. And if you look 0:13:16.120 --> 0:13:19.840 again in the options market, what's interesting that I found 0:13:19.920 --> 0:13:23.760 is that it looks like investors are more worried about 0:13:23.840 --> 0:13:27.040 the next six months, so the rest of this year, 0:13:27.600 --> 0:13:31.079 than the first half of next year. And that's odd 0:13:31.120 --> 0:13:33.959 to think. Usually it's the other way around, further out 0:13:34.040 --> 0:13:38.280 more uncertainty. You know, the options are priced with higher uncertainty. 0:13:38.800 --> 0:13:40.920 That's not the case now, and part of that could 0:13:41.000 --> 0:13:44.720 be because of the lingering effects of the coronavirus and 0:13:45.000 --> 0:13:48.400 perhaps maybe that domestic political risk that's getting priced in. 0:13:49.080 --> 0:13:51.680 But it's a bit surprising just considering the fact that, okay, 0:13:51.720 --> 0:13:54.720 the next six months, it is very very difficult to 0:13:54.880 --> 0:13:57.240 understand what's going to come our way. I mean, first, 0:13:57.600 --> 0:14:00.400 we're potentially dealing with the fiscal cliff, this month, we 0:14:00.440 --> 0:14:02.640 have the earning season coming up. We don't know what's 0:14:02.640 --> 0:14:05.400 going to happen with the trajectory of the virus, what 0:14:05.520 --> 0:14:07.959 that means for the economic recovery. Then we've got a 0:14:08.000 --> 0:14:11.160 presidential election. I mean, the list just goes on. But 0:14:11.480 --> 0:14:15.760 with that said, how much do you think the expectations 0:14:15.760 --> 0:14:19.320 for volatility in one being lower than they stand now 0:14:19.440 --> 0:14:21.840 is just people throwing their hands up and saying, I 0:14:21.920 --> 0:14:23.960 have no clue. I mean, if you can't predict the 0:14:24.000 --> 0:14:27.240 next six months, what's to say you can predict the 0:14:27.320 --> 0:14:30.360 following year. Now that's a good point, San, there's a 0:14:30.360 --> 0:14:33.520 lot of focus, and then in short term because so 0:14:33.640 --> 0:14:35.800 much is going on, so much crammed in the next 0:14:35.840 --> 0:14:38.800 six months. But if you think about that, that should 0:14:38.800 --> 0:14:43.720 still make the whole next year be higher up in uncertainty. 0:14:43.760 --> 0:14:47.120 But if you're expecting a drop after the next six months, 0:14:47.160 --> 0:14:50.480 that's telling as well. The shape of the vixed curve, 0:14:50.520 --> 0:14:54.000 as you alluded to, is just very unusual right now. Um, 0:14:54.040 --> 0:14:56.000 you know, you do have this spike sort of in 0:14:56.080 --> 0:14:59.760 October and in the fall. There's always kind of been 0:15:00.080 --> 0:15:04.320 least the last I don't know most of there's been 0:15:04.360 --> 0:15:06.400 that sort of weird kink in the VICS curve where 0:15:06.440 --> 0:15:12.640 there was elevated uh futures in say November October. I wonder, 0:15:12.760 --> 0:15:14.440 you know, I would have thought that would have gotten 0:15:14.480 --> 0:15:17.880 smoothed out when you sort of eliminated the Bernie Sanders 0:15:18.320 --> 0:15:23.760 Elizabeth Warren uh risk from the election. Uh as Biden 0:15:23.840 --> 0:15:27.359 sort of ascended to the point where he's the nominee. 0:15:28.120 --> 0:15:30.520 It really hasn't smoothed out though, So I wonder is 0:15:30.840 --> 0:15:34.640 how much of of that hedging for that time frame 0:15:35.040 --> 0:15:38.240 is political risk as far as maybe not even Biden, 0:15:38.360 --> 0:15:42.560 but um, the idea of a blue sweep, you know, 0:15:42.720 --> 0:15:46.960 uh Senate and House and White House controlled by the 0:15:47.000 --> 0:15:50.600 Democrats and sort of the roll rollback of the massive 0:15:50.680 --> 0:15:54.320 Trump tax cuts or is some of it that and 0:15:54.400 --> 0:15:56.680 some of it the worry about that second wave of 0:15:56.720 --> 0:15:58.960 the virus? I mean, is it you know, from someone 0:15:58.960 --> 0:16:01.080 who's traded this type of stuff, is it? Is it 0:16:01.120 --> 0:16:03.960 possible to sort of suss out and talking to clients, 0:16:04.080 --> 0:16:06.840 what is you know, what is causing that odd shape 0:16:06.840 --> 0:16:09.760 in the VIX curve. It's hard to really pick it 0:16:09.920 --> 0:16:13.120 apart just from looking at just the VIX curve or 0:16:13.160 --> 0:16:16.920 just SNP options market, but you talk to investors, and 0:16:17.240 --> 0:16:20.520 I think there really is the growing threat of what's 0:16:20.520 --> 0:16:24.200 going to happen this uh, this presidential election. Like you mentioned, 0:16:24.480 --> 0:16:27.520 let's say we get a blue sweep, but you have 0:16:27.640 --> 0:16:31.560 to realize that the platforms and the economic proposals that 0:16:31.640 --> 0:16:34.440 candidates have been running on, what we thought they were 0:16:34.600 --> 0:16:38.280 back in January and February, they're not the case anymore. 0:16:38.320 --> 0:16:41.840 You're seeing them adapt to the situation given the economic 0:16:41.880 --> 0:16:45.240 recession we're in, and right now we're not sure what 0:16:45.400 --> 0:16:49.160 form they're gonna take. So even as you see one 0:16:49.200 --> 0:16:53.320 party or another gaining momentum, we know that perhaps were 0:16:53.320 --> 0:16:55.960 you to see a sweep, you might see changes enacting 0:16:56.080 --> 0:16:59.720 much faster. But what are those changes? That's what is 0:16:59.760 --> 0:17:03.280 that big uncertainty that people are still fuzzy on, and 0:17:03.280 --> 0:17:05.840 I think that's why you're seeing that that kink in 0:17:05.880 --> 0:17:25.000 the curve. Like you said, m alright, so Anna, bringing 0:17:25.040 --> 0:17:27.960 it back to how you and your team are advising 0:17:28.040 --> 0:17:32.160 client's position. It was back on March that you guys 0:17:32.240 --> 0:17:35.800 said you believe that seven was the market low, which 0:17:35.840 --> 0:17:38.960 it has been, but at that time you still favored 0:17:39.119 --> 0:17:43.040 high quality um names also growth. But then it was 0:17:43.160 --> 0:17:45.639 mid April that you guys shifted and you started to 0:17:45.680 --> 0:17:48.440 say that you wanted to pick up on this rotation, 0:17:48.560 --> 0:17:52.360 particularly into value and cyclicals, and that really did pay 0:17:52.359 --> 0:17:56.919 off through May and early June. But lately it's unbelievable 0:17:57.160 --> 0:18:00.639 the resurgence that we have seen in growth names, mega 0:18:00.680 --> 0:18:05.240 cap technology, the things. I mean, many at record highs 0:18:05.800 --> 0:18:09.960 since June eighth. I believe the NASDAC is beating the 0:18:10.200 --> 0:18:15.440 SNP by ten percentage points or so are a hefty margin. 0:18:16.320 --> 0:18:18.880 Are you guys sticking with this call that you believe 0:18:19.440 --> 0:18:23.080 that value with cyclicals are a good opportunity right now 0:18:23.119 --> 0:18:26.440 and what would it take for that to turn back around? Yeah? 0:18:26.480 --> 0:18:29.560 So far, Sarah, we are still on that value camp 0:18:29.680 --> 0:18:32.280 and we are on that risk on play. And that's 0:18:32.320 --> 0:18:35.840 not to say that this growth and momentum don't work. 0:18:36.320 --> 0:18:39.200 We do think that's one trend you've seen through the markets. 0:18:39.200 --> 0:18:43.600 But where the opportunity is is really where the value is. 0:18:43.680 --> 0:18:45.960 Where is the where is the I wouldn't say bang 0:18:46.000 --> 0:18:48.600 for your buck, but where's the trade where you can 0:18:48.720 --> 0:18:52.119 see a bigger multiple expansion than you would get with 0:18:52.160 --> 0:18:55.080 these growth names. And that's really in the value camp 0:18:55.480 --> 0:18:59.160 because that opportunity came when you had that massive sell 0:18:59.200 --> 0:19:01.919 off the value names, A lot of them got really 0:19:02.000 --> 0:19:05.919 destroyed because the higher risk. Naturally, when you have stress 0:19:06.000 --> 0:19:09.680 in the economic environment inequities, those higher risk names are 0:19:09.720 --> 0:19:12.040 going to be the first to go. But we take 0:19:12.080 --> 0:19:15.040 sort of a first and first out approach that those 0:19:15.160 --> 0:19:18.439 names that got really beaten down, if they are able 0:19:18.520 --> 0:19:22.160 to continue accessing capital, which, thank you to the FED, 0:19:22.320 --> 0:19:27.199 they are because of that credit liquidity, then that discounting 0:19:27.600 --> 0:19:31.120 should actually in a way get reversed as they're able 0:19:31.160 --> 0:19:35.080 to access capital and continue to take advantage of the 0:19:35.240 --> 0:19:38.600 opportunities in liquid markets. We think that these companies have 0:19:38.640 --> 0:19:40.960 a chance of coming back. Now we are seeing that 0:19:41.080 --> 0:19:44.320 rally back. We saw a lot of that action. We 0:19:44.440 --> 0:19:47.720 think there's more left to it. But again, what we're 0:19:47.760 --> 0:19:50.240 watching carefully is to make sure that trade doesn't get 0:19:50.240 --> 0:19:53.960 too heated. Yeah, if I think of a rotation from 0:19:54.000 --> 0:19:57.399 growth to value, I'm thinking of a pretty messy market, 0:19:57.440 --> 0:20:00.639 you know, given the dominance of the big oath names. 0:20:01.200 --> 0:20:03.240 But in your opinion, it sounds like you think it 0:20:03.280 --> 0:20:06.359 could sort of just be a rotation that doesn't really 0:20:06.920 --> 0:20:09.400 hurt the growth growth names as much as just sort 0:20:09.400 --> 0:20:12.760 of prop up up the value end of things. Um. 0:20:13.040 --> 0:20:15.520 And what I keep going back to I've been drowning 0:20:15.560 --> 0:20:18.200 on and on a lot about is the bank stocks. Uh. 0:20:18.359 --> 0:20:21.080 If you look at the KBW Bank Index, I mean 0:20:21.080 --> 0:20:23.840 the p is like single digits, I think it's like 0:20:23.920 --> 0:20:27.879 nine points something. Uh, dividend yield is like four and 0:20:27.880 --> 0:20:31.840 a half and above percent. I mean pretty amazing. Is 0:20:31.880 --> 0:20:35.280 the assumption? Um, do you think just that these dividends 0:20:35.280 --> 0:20:38.359 aren't going to survive given the the sort of uh 0:20:38.600 --> 0:20:42.160 strenuousness of this year's stress tests and the mandates that 0:20:42.160 --> 0:20:44.919 that came with it about cap You know, obviously they 0:20:44.920 --> 0:20:47.080 have to cap their dividends, but you know, I think 0:20:47.080 --> 0:20:50.800 there's a suspicion that we might see some dividend cuts. 0:20:50.920 --> 0:20:54.439 Um boy, if that happens, I I that seems like 0:20:54.480 --> 0:20:56.640 it's gonna be a weird day on the stock market 0:20:56.680 --> 0:20:59.080 if we start to see a big bank dividend cut. Um. 0:20:59.240 --> 0:21:01.600 Maybe I'm just shell shocked from the two thousand and 0:21:01.600 --> 0:21:04.160 eight experience, But how do you look at the bank 0:21:04.280 --> 0:21:08.000 sector as far as a value play, um, as well 0:21:08.040 --> 0:21:11.040 as sort of you know, being integral to to the 0:21:11.080 --> 0:21:14.960 financial system as a whole. Well, banks certainly are integrals 0:21:14.960 --> 0:21:17.560 to the financial system. And like you said, you know, 0:21:17.800 --> 0:21:21.240 in the Great Financial Crisis, bank dividends and banks were 0:21:21.320 --> 0:21:25.359 the problem. They were what broke. And now today and 0:21:25.480 --> 0:21:29.120 the virus crisis, it's a different story. The banks are 0:21:29.160 --> 0:21:32.199 not the source of the problem, but they are one 0:21:32.280 --> 0:21:35.000 of the hardest hit, especially when you bring rates to zero. 0:21:35.240 --> 0:21:38.199 You know, the net interest margins on banks, they just 0:21:38.560 --> 0:21:41.960 get decimated. It's hard for banks right now. So they 0:21:42.000 --> 0:21:44.560 our value play and the question is are they a 0:21:44.720 --> 0:21:49.720 value trap? Now regarding dividends, you realize that they are 0:21:49.760 --> 0:21:53.480 already paid their first two quarters of dividends and many 0:21:53.560 --> 0:21:57.600 banks are approved to pay their third quarter as expected. 0:21:57.720 --> 0:22:01.399 Like you mentioned their caps, but that was expected. I 0:22:01.480 --> 0:22:04.040 don't want to I don't think cell side analysts were 0:22:04.040 --> 0:22:07.720 expecting a raise this year given the environment. And mind 0:22:07.800 --> 0:22:11.159 you that they actually stopped all their buy back repurchasing, 0:22:11.280 --> 0:22:13.800 so with that they have extra cash on hand to 0:22:13.960 --> 0:22:18.160 handle dividends and also any other potential bank growth sea 0:22:18.200 --> 0:22:21.760 crisis that come around. But going forward, it's not that 0:22:21.800 --> 0:22:23.959 they had to cancel the rest of their dividends. They 0:22:24.000 --> 0:22:27.159 were asked by the FED to revalue by quarter and 0:22:27.240 --> 0:22:29.720 so far it's our view that they will be able 0:22:29.760 --> 0:22:32.200 to pay out the rest of their dividends, but as 0:22:32.200 --> 0:22:35.080 an investment, as a whole of the financial sector, it's 0:22:35.119 --> 0:22:39.119 certainly taken a beating. Well. Lucky for you, Mike, the 0:22:39.200 --> 0:22:42.240 banks kickoff second quarter earning season next week, so I'm 0:22:42.240 --> 0:22:44.280 sure there will be plenty of fodder for you to 0:22:44.280 --> 0:22:47.440 obsess over, right. You know, I like a good earnings 0:22:47.480 --> 0:22:50.200 conference called from the bank CEOs, but it really isn't 0:22:50.240 --> 0:22:51.920 you know? It's interesting. I think a lot of people 0:22:51.960 --> 0:22:54.720 are waiting to hear what the bank CEOs are obviously 0:22:54.800 --> 0:22:58.600 in a position to know more about the consumer and 0:22:58.640 --> 0:23:02.240