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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along

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Speaker 1: with my co host of Bonnie Quinn. Every business day

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Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,

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Speaker 1: along with essential market moving news kind of Bloomberg Markets

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Speaker 1: Podcast on Apple podcast or wherever you listen to podcasts,

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Speaker 1: and on Bloomberg dot com. So we have a lot

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Speaker 1: of coronavirus news today. Most of it is positive. Well

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Speaker 1: maybe I shouldn't say most of it, but some of

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Speaker 1: it is positive. Let's say the vaccine being developed by

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Speaker 1: Fiser and Bioontech is preventing more than of symptomatic infections

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Speaker 1: in a study of tens of thousands of volunteers. We

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Speaker 1: also know Maderna is getting closer. However, on the other

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Speaker 1: side of things, we know that more than a hundred

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Speaker 1: thousand US citizens will be diagnosed today, and we just

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Speaker 1: have Mayor Bill de Blasio in New York saying New

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Speaker 1: York City is coming dangerously close to a second wave

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Speaker 1: with an all rate now that is above two. Let's

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Speaker 1: bring in Max Nisson, who can synthesize all this for

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Speaker 1: us and tell us exactly where we are here. Farm

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Speaker 1: analyst for Bloomberg Intelligence and Bloomberg News. Max talks us

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Speaker 1: about this vaccine. The market is is rallying big on it.

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Speaker 1: Is it enough to save us? Uh? Not on its own?

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Speaker 1: So this is what i'd call really good news that

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Speaker 1: that needs a lot of context, so that that result, UM,

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Speaker 1: he's a really strong indication that this is going to

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Speaker 1: be an effective vaccine. UM could fade over time as

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Speaker 1: you get more data to be a little bit lower,

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Speaker 1: but it really does suggest that this is something that

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Speaker 1: that's going to work and and be useful. The caveat

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Speaker 1: is that it's not going to be immediately available, and

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Speaker 1: it's not going to be broadly available for a longer time. UM.

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Speaker 1: I think the company's guided to fifty million doses worldwide

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Speaker 1: by the end of the year. That's enough for only

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Speaker 1: twenty five million people. Manufacturing is going to ramp up

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Speaker 1: over time, but you know, it takes time, and you

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Speaker 1: will still need other seems to be successful likely in

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Speaker 1: order to get a significant part of the population. Does um,

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Speaker 1: you know, with any sort of any sort of reasonable

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Speaker 1: time frame. And the other thing to keep in mind

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Speaker 1: is that it's not going to be ready, particularly in

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Speaker 1: sufficient quantities to do anything about the current sort of

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Speaker 1: rampant outbreaks that's going to take um, you know, your

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Speaker 1: more traditional type of public health action, UM and then

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Speaker 1: preferably with some urgency given the really disturbing rate of

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Speaker 1: growth that you're seeing lately. So Max, that rate of

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Speaker 1: growth that we are seeing, you know, as you speak

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Speaker 1: to the experts, is that something that's within the bounds

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Speaker 1: of expectations given what we know about the virus and

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Speaker 1: colder temperatures and people not being outdoors as much. UM,

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Speaker 1: Or is this even a higher rate? I I wouldn't

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Speaker 1: really blame this on the seasonal effect, although you know,

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Speaker 1: I may be a little biased by effect them in

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Speaker 1: New York and it's beautiful right now, but UM, you

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Speaker 1: know that we haven't really hit the the sort of

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Speaker 1: worst period for that. The growth that's coming right now

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Speaker 1: is the fact that there just hasn't been in many

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Speaker 1: parts of the country. UM. You know, a robust or

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Speaker 1: sufficient response to rapidly growing cases. The seasonal effect is

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Speaker 1: something that's going to take what's happening now and make

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Speaker 1: it worse. It's not the cause of how bad things

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Speaker 1: are right now. We're exponential, aren't we, Max. I mean,

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Speaker 1: we're above two for an ol rage in New York

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Speaker 1: City alone, but we're above one and all all states. Yeah,

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Speaker 1: it's it's incredibly concerning. Um. I you know, I with

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Speaker 1: there's some hope you can point to in the fact that, um,

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Speaker 1: the Biden administration, you know, a panel of really well

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Speaker 1: regarded experts, But you do also have to keep in

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Speaker 1: mind that you won't actually take power until late January. UM,

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Speaker 1: so we do have the status quo on a national level.

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Speaker 1: You just have to hope that the the States will

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Speaker 1: finally sort of react and in the way that you should,

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Speaker 1: because you know, if if you leave things the way

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Speaker 1: they are, you're just going to see continued growth. Max.

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Speaker 1: What do we know about in the second wave here

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Speaker 1: the hospitalization rate number one and number two, the fatality rates,

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Speaker 1: or any reason to believe that those rates won't mirror

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Speaker 1: what we saw in the first wave? Uh, there there

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Speaker 1: is some reason. Yes, So there there are a bunch

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Speaker 1: of the number of things that are different now. UM,

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Speaker 1: you know, it's a different situation. The wars in the

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Speaker 1: spring you had sort of completely uncontained, spread a lot

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Speaker 1: of it into really vulnerable populations. Now, even though you

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Speaker 1: know obviously containment is failing, still efforts to protect those

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Speaker 1: that are more vulnerable, better treatments, better, better know how

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Speaker 1: about managing the virus. But the thing that you do

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Speaker 1: have to keep in mind is, you know, a reduction

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Speaker 1: in the hospitalization rate or death rate UM. All of

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Speaker 1: that would have eventually breaks down in the face of

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Speaker 1: large enough numbers UM. You start to get hospitals that

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Speaker 1: get overwhelmed, you start to get enough community transmission that

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Speaker 1: all of those efforts to protect the more more vulnerable

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Speaker 1: population begin to break down. So it's not something that

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Speaker 1: you can take for granted. It's something that is an

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Speaker 1: advantage if you you manage a relatively good degree of

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Speaker 1: containment and caution, but one you know, it's it's a

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Speaker 1: benefit that you can lose. Max tell us a little

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Speaker 1: bit more about this Fiser vaccine. So it's preventing of

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Speaker 1: COVID cases in a study. Why is that good? You know,

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Speaker 1: relative to other types of vaccines. Shouldn't have been more

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Speaker 1: like and how many people are we really talking about here?

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Speaker 1: So is actually excellent, especially for a vaccine that has

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Speaker 1: been developed so rapidly. So what it's preventing in this

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Speaker 1: case is the thing that they're measuring is mild symptomatic

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Speaker 1: confirmed cases of COVID, and the number that they're looking

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Speaker 1: at is is ninety four confirmed cases so far, less

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Speaker 1: than ten people in that group UM that got the

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Speaker 1: fact of the virus um that that got, that had

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Speaker 1: a confirmed case in the trial, or or had been vaccinated.

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Speaker 1: That's a rate of efficacy that that's comparable to you know,

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Speaker 1: really effective vaccines, much better than you know, your annual

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Speaker 1: flu vaccine, which you know can hover around the fifty

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Speaker 1: percent range, and better than the f d a's bar

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Speaker 1: for approval, which was only efficacy. So there are a

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Speaker 1: lot of unknown still, you don't know how well the

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Speaker 1: vaccine works at preventing severe disease UM, whether it can

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Speaker 1: actually prevent asymptomatic infection or transmission. But the protection rates

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Speaker 1: suggest that it really is active. It does have some

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Speaker 1: degree of protection um and a better one than what

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Speaker 1: many people were actually hoping for. So um a good

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Speaker 1: and meaningful results. Though that we do still need more

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Speaker 1: and more context and information a max. About thirty seconds

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Speaker 1: or so. There's still other entities out there working towards

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Speaker 1: a vaccine. Is the expectation that you know, as we

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Speaker 1: get into one will have two, three, maybe four vaccines

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Speaker 1: in the marketplace at the same time, and it'll simply

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Speaker 1: be a choice or that doctors will forge out which

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Speaker 1: is the best for which population. Um. That's the hope, though,

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Speaker 1: I do think that only Madurana's vaccine is likely to

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Speaker 1: provide data really soon, and there's some concern that having

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Speaker 1: another option or a good data may slow trial enrollment.

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Speaker 1: I very much hope that doesn't happen, because we really

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Speaker 1: need multiple vaccines given the manufacturing and supply constraints on visors. Max,

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Speaker 1: thank you so much. We appreciate it as always a

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Speaker 1: very very important day here as we move towards a vaccine.

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Speaker 1: Max Neeson, Bloomberg Opinion, Biotech and healthcare columnists. You can

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Speaker 1: read all of max work and the work of our

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Speaker 1: other opinion columnists at Bloomberg dot com, slash Opinion or

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Speaker 1: by typing O P I N go on the terminal.

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Speaker 1: It's interesting, Vonny, it's you know, I guess as Max

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Speaker 1: was suggesting the hope that you know, you get multiple

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Speaker 1: vaccines out there in the market, because this thing has

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Speaker 1: to scale just on an incredible level. Yes, absolutely, and

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Speaker 1: you know, obviously we know that it will be done

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Speaker 1: in layers. But then what about the rest of the world,

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Speaker 1: you know, and then how close to other countries come

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Speaker 1: to getting a vaccine and how does it all get distributed.

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Speaker 1: It's it's going to be a fascinating matrix to watch.

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Speaker 1: Right now, the KBW Bank Index is eleven and a

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Speaker 1: half percent. Now, Zion's Bank Corps, M and T America

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Speaker 1: they're all leading the charge, up around twenty apiece. But

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Speaker 1: the majors like City Group, Bank of America, JP, Morgan,

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Speaker 1: they're all up nine and ten percent. Let's bring in

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Speaker 1: somebody who knows a lot about US banks, the goliath

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Speaker 1: of the global capital markets, as he calls them. Mike

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Speaker 1: Mayo is senior analyst at Wells Fargo Securities. Mike, I

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Speaker 1: can understand why banks might be up because the entire

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Speaker 1: market is up, But what else is behind this extra

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Speaker 1: exuberant trade for the banks. Well, I'd say this is

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Speaker 1: not only a good day for banks, a great day

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Speaker 1: for banks relative to the market's the best performance for

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Speaker 1: bank stock and over six months if this holds, and

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Speaker 1: so number one, you have the hope for a COVID vaccine.

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Speaker 1: And what we say is that bank stocks have among

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Speaker 1: the highest COVID stock data so as COVID got worse,

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Speaker 1: bank stocks went down. If there's a vaccine, banks to

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Speaker 1: get much better. And the concern there is because of

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Speaker 1: the exposure banks have in lending to corporations and individuals. Uh.

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Speaker 1: The second factor happening today is this an enormous move

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Speaker 1: in the treasury market with the steepening yield curve, So

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Speaker 1: banks like Bank of America certainly benefit from that steepening um.

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Speaker 1: And then third, I'd say the idea of a Abiden

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Speaker 1: presidency with the divided government means that it's the absence

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Speaker 1: of a potential more harsher regulat regime than what's mostly

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Speaker 1: currently in place. So, Mike, let's talk about that steepening

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Speaker 1: Yeel curve that you were talking about here, and it

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Speaker 1: goes to the obviously in the net interest margin that

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Speaker 1: these banks can earn on their deposits. Give us a

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Speaker 1: sense of kind of where we are today in terms

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Speaker 1: of that part of their business. And does it have

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Speaker 1: you know, how much more do we need improvement steepening

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Speaker 1: in the Yeel curve for to make a meaningful difference

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Speaker 1: for these companies. Well, we estimate that the banking industry

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Speaker 1: will have a piece dividend once the war on COVID

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Speaker 1: is one of about a hundred billion dollars, and that

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Speaker 1: does not even assume much change and interest rate. So

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Speaker 1: if interest rates improved, that number would go a lot higher.

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Speaker 1: I think what's interesting is one of the biggest implicit

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Speaker 1: taxes on the banking industry in history has been this

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Speaker 1: period of lower interest rate. The federalies are balance sheet

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Speaker 1: has ballooned this year from four trillion the seven billion dollars,

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Speaker 1: and that's kept rates lower for longer. Uh and the

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Speaker 1: cost to banks has been fifty billion dollars annually. If

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Speaker 1: you compare year every year so to an extent that

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Speaker 1: that reverses some bit, then you could have expectations going

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Speaker 1: higher across the bank group. That's impacts on this every bank,

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Speaker 1: especially some more of the smaller banks, but the larger

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Speaker 1: Golias banks which we've we've been favoring for a while,

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Speaker 1: like j Jake Morigan Bank America. Mike does this assume

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Speaker 1: that once we have a coronavirus vaccine that works and

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Speaker 1: that is getting widely distributed, and once cases are going

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Speaker 1: down and blattening and so on, that suddenly everything will

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Speaker 1: be okay for the banks that you know, those those

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Speaker 1: on the brink of bankruptcy suddenly won't go bankrupt, that

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Speaker 1: those loans will get repaid, and so on. You know,

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Speaker 1: what I find amazing is just how much recency bias

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Speaker 1: there is to the global financial crisis from over a

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Speaker 1: decade ago, and this idea that banks are in the

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Speaker 1: rink of bankruptcy and they're going to fail, or even

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Speaker 1: that they'll have to issue more equity. Now that might

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Speaker 1: be the case for some smaller banks. No, no no, I

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Speaker 1: meant those companies that banks are lending to that are

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Speaker 1: on the verge of bankruptcy. Oh well, look, these are

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Speaker 1: still sobering times, make no mistake about it. I mean,

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Speaker 1: so from the banking industry standpoint, the banks have already

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Speaker 1: reserved for the problem loans they expect over the next

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Speaker 1: couple of years. And the peak and these problems probably

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Speaker 1: doesn't happen until the second half and next year. So

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Speaker 1: you're still going to have bankruptcies individuals, corporations. These are

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Speaker 1: still hard times. You know, even with the vaccine, I

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Speaker 1: would not expect banks to start saying, well, you know,

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Speaker 1: credit is just fine as far as all these loans.

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Speaker 1: It just helps ease the pressure and the risk of

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Speaker 1: a tail risk scenario, you know, in terms of a

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Speaker 1: you know, we have different shape recoveries. Maybe it's not

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Speaker 1: a V shape recovery, which is the best case, but

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Speaker 1: maybe softs are not in an L shape either or

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Speaker 1: what people say like a Nike swoosh. Maybe it's more

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Speaker 1: like a you that doesn't last as long as otherwise expected.

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Speaker 1: So bank, Mike, where how well are the banks reserved

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Speaker 1: right now? I know they're pretty aggressive in the early

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Speaker 1: part of are how are they positioned in your perspective?

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Speaker 1: You know what's amazing recent comments from the largest banks

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Speaker 1: say they are reserved. They don't need to build any

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Speaker 1: more reserves than what they did the first part of

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Speaker 1: this year. What they did the first part of this year,

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Speaker 1: and this is due to an accounting change that encouraged this.

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Speaker 1: They said, reserved for all the problems you think you'll

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Speaker 1: have from now into infinity for the loans. So they

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Speaker 1: took more reserves at the start of re recession at

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Speaker 1: any time in banking history. So as a result, banks

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Speaker 1: are in better shape to whether the storm um the

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Speaker 1: losses that are to come um than any time before.

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Speaker 1: So that means that you know, they front loaded the

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Speaker 1: pain and now when the losses come, Uh, it doesn't

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Speaker 1: hurt the earnings like otherwise would. Real quick, Mic, we're

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Speaker 1: out of time. But who will the banks be looking

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Speaker 1: to Joe Biden to pick for some of those important

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Speaker 1: Treasury and you know, Labor secretary and so on positions. Well,

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Speaker 1: I think what they can do, what they will do

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Speaker 1: is they look for somebody that has the part of

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Speaker 1: Main Street and the head of Wall Street. And what

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Speaker 1: that means is, um, you really have to look after

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Speaker 1: the transparency and consumers and make sure they're getting a

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Speaker 1: fair deal while at the same time being savvy enough

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Speaker 1: to recognize that, you know, good good politics is good economics. Hey, Mike,

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Speaker 1: thanks so much for joining us. We appreciate it. As always,

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Speaker 1: Mike Mayo, senior banking analyst at Wells Fargo Security, is

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Speaker 1: giving his thoughts into banks they are rallying today. This

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Speaker 1: is Bloomberg Markets with Ball Sweeney and Bunny Quinn on

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Speaker 1: Bloomberg Radio. Well with the election for the most part

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Speaker 1: in our rear view year rear of view mirror, it's

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Speaker 1: a great time to check in with Michael Jasas. He's

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Speaker 1: a chief US public policy and municipal strategist for Mortgage

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Speaker 1: Stanley Michael, thanks so much for joining us here. So

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Speaker 1: all right, we've got the presidential election, and with the

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Speaker 1: exception of Georgia, the Senate and Congress kind of all

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Speaker 1: mapped out here. What did you take away from this

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Speaker 1: latest election cycle? Yeah, I think you sort framed it right.

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Speaker 1: There's a couple of loose ends here with regard to

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Speaker 1: send a control and that's where Georgia comes in. But

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Speaker 1: if you take a step back, you know, we went

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Speaker 1: into election day and consider a very wide variety of

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Speaker 1: possible policy outcomes, because you have to consider a very

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Speaker 1: wide variety of election outcomes, including a much uh sort

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Speaker 1: of much more substantial uh Senate control outcome for the

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Speaker 1: Democrats um, as well as obviously a potential we've in

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Speaker 1: the other direction for the Republicans. But I now what

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Speaker 1: you're looking at is basically either going to get fifty

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Speaker 1: seats in the Senate for the Democrats or they're gonna

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Speaker 1: fall short. Uh. And most of the policy concerns that

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Speaker 1: a lot of investors told us in our survey were

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Speaker 1: animating their behavior become you know, less variables and more

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Speaker 1: fixed things like tech regulation, potential for taxes to go up.

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Speaker 1: I think there's still some potential for some tax increases

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Speaker 1: in the fifty scenario, but probably are less of versus

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Speaker 1: what a lot of investors were expressing concern on. And

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Speaker 1: so it's not that we don't need to pay attention

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Speaker 1: to this January fifth runoff. We we there's probably actually

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Speaker 1: a big difference for the path for COVID relief stimulus,

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Speaker 1: but a lot of the kind of medium term policy

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Speaker 1: concerns that investors had the possibilities have been narrowed down substantially,

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Speaker 1: and so politics in general is becoming a little more

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Speaker 1: like a constant than a variable, at least in the

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Speaker 1: very short term. What does it mean for your projection

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Speaker 1: for economics and metals? So here because the right way

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Speaker 1: to frame it, uh, if the Democrats were to take

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Speaker 1: control of the Senate, even with that very slim fifty

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Speaker 1: fifty majority that they've had for a long time, the

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Speaker 1: motive to spend a lot on COVID release stimulus was

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Speaker 1: evidenced by the Heroes Act being above three trillion dollars um.

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Speaker 1: If they got fifty seats in the Senate, they'd obviously

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Speaker 1: have the opportunity to execute on that. So I think

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Speaker 1: the way you would frame that is, the half to

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Speaker 1: stimulus would be fairly wide and not filled with too

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Speaker 1: much drama, and you would probably get a pretty big package.

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Speaker 1: Um in a divided government outcome right where the Republicans

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Speaker 1: keep the Senate, it's not that you could never get stimulus,

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Speaker 1: but that it would probably be smaller and the path

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Speaker 1: to get there would be less. Certain Republicans haven't necessarily

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Speaker 1: sent and the Senate changed their view about the idea

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Speaker 1: that they're still concerned about spending driven deficits and are

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Speaker 1: not convinced that the economy needs more stimulus. And so

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Speaker 1: it might be that you need a demonstration from weaker

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Speaker 1: economic data, we can market weaker market data to move

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Speaker 1: them off of that position. So the difference is a

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Speaker 1: democratic Uh, Democrats getting fifty seats gets you a kind

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Speaker 1: of proactive and easy stimulus. Republicans keeping the Senate probably

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Speaker 1: a bumpy, kind of windy path to ultimately a smaller stimulus. So, Michael,

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Speaker 1: we're starting to see the COVID cases, uh, you know,

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Speaker 1: really go the wrong way here. How does that impact

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Speaker 1: kind of your outlook for what kind of public policy

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Speaker 1: we may see out of a Biden administration in terms

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Speaker 1: of maybe you know, locking down the country for some

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Speaker 1: period of time and any potential economic fallout. Yeah. I mean,

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Speaker 1: what's interesting here is that, you know, the Biden team

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Speaker 1: doesn't take power until January twentieth, and there's a lot

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Speaker 1: that happens between now in January twenties, and obviously, you know,

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Speaker 1: the news breaking this morning about vaccine is sort of

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Speaker 1: puts that completely on display. And so what you know,

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Speaker 1: what our biotech team, led by Matthew Harrison um I

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Speaker 1: believe is that once you get to January twenties, you

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Speaker 1: will have effectively banked a lot of positive information on vaccination.

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Speaker 1: UM that the sort of the modeling of the virus

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Speaker 1: trajectory would suggest that you could be in kind of

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Speaker 1: more of a plateau territory at that point. So by

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Speaker 1: the time the Biden team kind of comes to UM

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Speaker 1: take executive authority. UM that the question of whether or

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Speaker 1: not they would try and pursue a kind of more

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Speaker 1: sort of return to March April style lockdown could be

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Speaker 1: kind of a moot one, because you'd have all this

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Speaker 1: positive new information behind you, and at the same time,

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Speaker 1: if you are getting a pretty negative trajectory on COVID

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Speaker 1: and you've had some weaker economic data coincident with that,

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Speaker 1: it's far less likely that you would sort of face

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Speaker 1: a difficult scenario of, you know, the Biden team considering

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Speaker 1: returning to March April style restrictions at the same time

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Speaker 1: they didn't have of a relief package or a stimulus package.

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Speaker 1: It would be very difficult for those two negative things

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Speaker 1: to co exist at the same time. So, you know,

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Speaker 1: so long story, sure, I think that it's we should

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Speaker 1: be asking these questions, but there doesn't seem to be

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Speaker 1: a lot of paths to that kind of very negative

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Speaker 1: policy outcome where we end up in both heavily restricted

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Speaker 1: economy and one without stimulus. Michael, we're almost at a time,

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Speaker 1: but the tenure yield is at nine basis points. Now,

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Speaker 1: who are very close to that one percent mark? Do

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Speaker 1: we get above it? And what sense us there? Uh? Yeah,

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Speaker 1: I mean, I know, certainly the view of our interest

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Speaker 1: rates team is that you should still be short on

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Speaker 1: duration here and expect a higher bias and yields going forward.

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Speaker 1: Uh And at this point, because we haven't or sort

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Speaker 1: of we kept open the pathway to a bigger stimulus package.

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Speaker 1: As we talked about, the Democrats get those fifty seats.

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Speaker 1: It's it's meaningful that the difference between in an easy

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Speaker 1: path to a couple of trillion dollars of stimulus and

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Speaker 1: bumpy paths or something smaller, it suggests that you have

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Speaker 1: to price in some degree on the probability way the

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Speaker 1: basis of a lot more treasury supply. So um H

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Speaker 1: think the market sort of behaving very rationally around that. Michael,

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Speaker 1: looking forward to another conversation with you where we can

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Speaker 1: talk a little bit more about the individual states and

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Speaker 1: and newnees and so on. Michael Jesus is chief you

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Speaker 1: as public policy and municipal strategist at Morgan Stanley, and

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Speaker 1: we sank him redhead. Ben Carson has now been tested

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Speaker 1: positive for coronavirus well, and indeed we are continuing to

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Speaker 1: watch this market. With a ten year yield at ninety

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Speaker 1: five plus basis points is quite a change just from

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Speaker 1: last week alone. And obviously we have equities doing their

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Speaker 1: thing as well, but let's concentrate on fixed income now

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Speaker 1: and bringing Thomas McLaughlin ahead of America's fixed income at

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Speaker 1: UBS Global Wealth Management. So Tom, we you know, we

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Speaker 1: had treasuries rallying last week and suddenly now they're they're

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Speaker 1: they're dropping like a stone with a tenure yield bass

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Speaker 1: points and going higher. How much more room is there

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Speaker 1: in this self? Well, you know, Vonnie, this morning, uh

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Speaker 1: if and this morning has proven anything, it's proven the

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Speaker 1: fact that it's all about COVID and the prospects of

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Speaker 1: the vaccine. We've kind of left the election behind us.

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Speaker 1: We've been added for about eighteen months, but the election

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Speaker 1: looks like it's been decided, and now we're all looking

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Speaker 1: forward to the prospects of vaccine. And what you're seeing

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Speaker 1: in the equity market rally, what you're seeing effectively in

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Speaker 1: the yells jumping is the optimism that's uh, that's taking

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Speaker 1: over the market this morning. And so Tom, let's put

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Speaker 1: a coda, if if we will on the election here, Well,

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Speaker 1: was ebs out saying to its clients, given that it

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Speaker 1: looks like president elected, that Joe Biden will in fact

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Speaker 1: be in the White House, a little bit of uncertainty

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Speaker 1: as it relates to the Senate and what's the UBS message. Yeah,

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Speaker 1: so it's gonna be a little more constrained the ability

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Speaker 1: of the Democrats, regardless of what happens in Georgia, even

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Speaker 1: if they take both seats, and they have the narrow

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Speaker 1: majority in the Senate, there ability and discretion to go

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Speaker 1: ahead and make big changes to the UH. The tax

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Speaker 1: regime is going to be much much more limited. So

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Speaker 1: we think that there's gonna be a smaller fiscal stimulus,

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Speaker 1: but we do expect one. We don't think there's going

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Speaker 1: to be a massive tax bill or at tax a

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Speaker 1: change in the tax regime. UH. And that's actually also

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Speaker 1: probably helping some of the the high yield market for example,

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Speaker 1: which is that tights that are certainly pre COVID. Yeah,

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Speaker 1: why this reaction though, I mean, you know, we're looking

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Speaker 1: at one percent of the tenure again, we're seeing what

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Speaker 1: we're seeing with high yield. All is not well in

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Speaker 1: the world. To suddenly just because there's a change in leadership, No,

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Speaker 1: it's not really the change of leaders That's why I

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Speaker 1: keep coming back to the notion that UM as we

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Speaker 1: got closer to the election in October and certainly will

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Speaker 1: be seen in the wake of the election, is everybody's

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Speaker 1: turned their attention to the prospects of the vaccine. And

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Speaker 1: of course, you know, there was just note on the

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Speaker 1: program about the fact that Americle Lazio came out um

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Speaker 1: and said he's concerned about the spread of the virus.

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Speaker 1: Governor Herbert and Utah's did the same thing last night.

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Speaker 1: So there's a lot of concern about the virus. But

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Speaker 1: the prospects of a vaccine, which we've expected to be

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Speaker 1: kind of rolled out in April and May, it looks

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Speaker 1: actually like that's gonna happen. So I think that enthusiasm,

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Speaker 1: the animal spirits in the market have taken over again

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Speaker 1: just on the on the prospects that, UM, we'll be

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Speaker 1: able to relieve ourselves from social distancing sometime next year. Tom,

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00:24:23,760 --> 00:24:25,960
Speaker 1: What do you sing in the corporate credit market, um,

433
00:24:26,119 --> 00:24:29,080
Speaker 1: in terms of credit quality? Um, are you starting to

434
00:24:29,119 --> 00:24:31,440
Speaker 1: see cracks or is that something that's still going to

435
00:24:31,520 --> 00:24:36,040
Speaker 1: be event? It's still gonna be Uh. If we see

436
00:24:36,080 --> 00:24:39,399
Speaker 1: the cracks, it's gonna be one event we've seen. You know,

437
00:24:39,560 --> 00:24:42,480
Speaker 1: we expect senior loans actually to do well, uh, as

438
00:24:42,880 --> 00:24:46,159
Speaker 1: we've seen incremental increases and yields. Uh. The high yield

439
00:24:46,320 --> 00:24:49,400
Speaker 1: you know again, is that that was pretty COVID heights. UH.

440
00:24:49,440 --> 00:24:52,600
Speaker 1: And I think that's probably a function of the fact

441
00:24:52,600 --> 00:24:54,760
Speaker 1: that HYO bonds tend to basically be more or less

442
00:24:54,760 --> 00:24:58,399
Speaker 1: correlated with the equity market. Um. But the again, the

443
00:24:58,400 --> 00:25:01,480
Speaker 1: prospects that you'll probably have of if there are already

444
00:25:01,680 --> 00:25:05,800
Speaker 1: changes in the tax regime in two twenty two, it

445
00:25:05,840 --> 00:25:07,520
Speaker 1: will be far more limited that might have been the

446
00:25:07,560 --> 00:25:10,040
Speaker 1: case if we had a massive blue wave. So again,

447
00:25:10,240 --> 00:25:14,359
Speaker 1: incrementally positive for for that market as well. So what

448
00:25:14,400 --> 00:25:16,720
Speaker 1: are you wealthy clients calling up and saying, I mean,

449
00:25:17,160 --> 00:25:19,919
Speaker 1: are they concerned about changes in tax policy? Are they

450
00:25:19,920 --> 00:25:22,919
Speaker 1: concerned about changes in inheritance policy and so on? And

451
00:25:22,960 --> 00:25:25,000
Speaker 1: are they trying to do something with their money right now?

452
00:25:25,680 --> 00:25:29,879
Speaker 1: You know, beyond just swapping out of different areas of

453
00:25:29,880 --> 00:25:33,200
Speaker 1: fixed income. Going into the election, there was a lot

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00:25:33,240 --> 00:25:36,439
Speaker 1: of concern about the prospects of taxes, and what we

455
00:25:36,480 --> 00:25:38,920
Speaker 1: had said then before the election was that we didn't

456
00:25:38,920 --> 00:25:40,159
Speaker 1: think it was going to be rolled out in the

457
00:25:40,400 --> 00:25:42,720
Speaker 1: UH in the first six months, that it would probably

458
00:25:42,760 --> 00:25:45,480
Speaker 1: be later in the year. Now that we've actually had

459
00:25:46,280 --> 00:25:49,040
Speaker 1: the election and the Democratic majority in the House is

460
00:25:49,080 --> 00:25:51,840
Speaker 1: going to be smaller, uh the Senate. Um, we don't

461
00:25:51,840 --> 00:25:53,640
Speaker 1: know what the outcome is going to be based on Georgia,

462
00:25:53,720 --> 00:25:57,560
Speaker 1: but they'll certainly be constrained. You the way Um, there's

463
00:25:57,560 --> 00:26:00,159
Speaker 1: been there's a little bit less anxiety going in the

464
00:26:00,160 --> 00:26:01,840
Speaker 1: election of Vanni. You're right, there was a lot of

465
00:26:01,840 --> 00:26:04,920
Speaker 1: concern about state taxes uh, and whether or not those

466
00:26:04,960 --> 00:26:07,320
Speaker 1: were going to change. Um, I wouldn't. We're not at

467
00:26:07,320 --> 00:26:09,520
Speaker 1: the point out we consider completely off the table, but

468
00:26:09,800 --> 00:26:14,320
Speaker 1: we think they're certainly much less less less likely. Alright, So, Tom,

469
00:26:14,320 --> 00:26:16,960
Speaker 1: given what we know now from the political front, given

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00:26:17,000 --> 00:26:19,879
Speaker 1: what we know now about the pandemic h I E.

471
00:26:19,960 --> 00:26:21,960
Speaker 1: The numbers are not trending well, but we do have

472
00:26:22,040 --> 00:26:26,400
Speaker 1: some uh, some vaccine information that's certainly positive. Where are

473
00:26:26,400 --> 00:26:29,639
Speaker 1: you finding the best of value in the fixed income

474
00:26:29,680 --> 00:26:34,200
Speaker 1: world for your clients? Well, actually it's interesting, UM, A

475
00:26:34,280 --> 00:26:36,680
Speaker 1: lot of there's a lot of concerned about municipal bonds UH.

476
00:26:36,720 --> 00:26:38,959
Speaker 1: And I think one of the things we've told our

477
00:26:39,000 --> 00:26:42,400
Speaker 1: clients is you have to start with the presumption that

478
00:26:42,880 --> 00:26:45,560
Speaker 1: in terms of municipal credit, it's a very very idios

479
00:26:45,560 --> 00:26:48,719
Speaker 1: and cratic market. So while you've got some credits that

480
00:26:48,760 --> 00:26:51,480
Speaker 1: are certainly experiencing stress, New Jersey and Illinois, of course

481
00:26:51,760 --> 00:26:53,800
Speaker 1: there at least half the states will be able to

482
00:26:53,800 --> 00:26:57,840
Speaker 1: basically accommodate whatever stress the stress they're going to experience.

483
00:26:58,160 --> 00:27:03,440
Speaker 1: So here credit selection is exceptionally important. UM beyond municiples. Again,

484
00:27:03,560 --> 00:27:06,480
Speaker 1: we think senior alone should actually benefit from the from

485
00:27:06,520 --> 00:27:11,920
Speaker 1: the prospect of incrementally higher UM yields, but also the

486
00:27:11,960 --> 00:27:16,880
Speaker 1: expectation that credit conditions may actually improve next year. Yeah.

487
00:27:16,960 --> 00:27:19,320
Speaker 1: It is really fascinating when you look around the junk

488
00:27:19,400 --> 00:27:22,400
Speaker 1: space and you know, the lower quality corporates and so on,

489
00:27:22,480 --> 00:27:25,880
Speaker 1: what interests you because it seems like one day, when

490
00:27:25,880 --> 00:27:28,560
Speaker 1: there's you know, optimism over a vaccine, it's all the

491
00:27:28,600 --> 00:27:32,200
Speaker 1: going out stocks, the travel stocks that are rallying, and

492
00:27:32,359 --> 00:27:34,800
Speaker 1: the next day, when you know there's a setback, then

493
00:27:34,840 --> 00:27:38,000
Speaker 1: it's the exact opposite. And we're talking about major moves

494
00:27:38,040 --> 00:27:41,879
Speaker 1: here and not just you know, incremental moves. Yeah, and

495
00:27:41,920 --> 00:27:46,159
Speaker 1: industrials and financials probably jump off the page. Industrials obviously

496
00:27:46,200 --> 00:27:49,640
Speaker 1: because if we do get some sort of vaccine next year,

497
00:27:49,640 --> 00:27:54,159
Speaker 1: and again we're probably exceptionally optimistic this morning because of

498
00:27:54,200 --> 00:28:00,240
Speaker 1: the annoucement Provisor UM, but industrial activity UM should improve. Uh,

499
00:28:00,280 --> 00:28:03,720
Speaker 1: the industrials will probably benefit from this as we begin

500
00:28:03,760 --> 00:28:06,160
Speaker 1: to travel again sometime in the latter part next year.

501
00:28:06,520 --> 00:28:10,280
Speaker 1: Financials have been cheap um, you know, obviously, Uh, you

502
00:28:10,400 --> 00:28:13,720
Speaker 1: may see some yell curve control by the Feds either

503
00:28:13,800 --> 00:28:16,320
Speaker 1: in December or sometimes sometimes in the first court of

504
00:28:16,359 --> 00:28:19,800
Speaker 1: next year. But by large financials UM, you know, have

505
00:28:19,920 --> 00:28:22,600
Speaker 1: been a sector which are relatively under undervalued at this point.

506
00:28:22,760 --> 00:28:24,320
Speaker 1: So to the extent you get any sort of a

507
00:28:24,320 --> 00:28:27,480
Speaker 1: steeper you occurred, UM, it's probably going to be beneficial.

508
00:28:28,440 --> 00:28:30,720
Speaker 1: And Tom on the municipal bond front, you're just chatting

509
00:28:30,720 --> 00:28:33,359
Speaker 1: about how critical is it for the muisipal bond market

510
00:28:33,400 --> 00:28:36,760
Speaker 1: and certainly the states in in big need for this

511
00:28:36,800 --> 00:28:40,360
Speaker 1: fiscal stimulus to in fact include some type of aid

512
00:28:40,480 --> 00:28:43,440
Speaker 1: for states and municipalities. Well, this has been one of

513
00:28:43,440 --> 00:28:47,040
Speaker 1: the obviously UH points of argument between the Republicans and

514
00:28:47,080 --> 00:28:50,040
Speaker 1: the Democrats run in the run up to the election. UH,

515
00:28:50,080 --> 00:28:52,640
Speaker 1: the GOP has been reluctant to go ahead and allocate

516
00:28:52,720 --> 00:28:55,160
Speaker 1: a large amount of that stimulus to state local government

517
00:28:55,200 --> 00:28:58,960
Speaker 1: ad Uh. Democrats have been pushing forward for a hard UM.

518
00:28:59,320 --> 00:29:04,240
Speaker 1: I think in some cases federal aid to state governments

519
00:29:04,240 --> 00:29:06,000
Speaker 1: that are in our are in a world of hurt

520
00:29:06,040 --> 00:29:09,160
Speaker 1: at this point. Some of them, UM would be very beneficial.

521
00:29:09,400 --> 00:29:11,880
Speaker 1: But again let me emphasize this, there are at least

522
00:29:11,960 --> 00:29:14,560
Speaker 1: half the states out there that are able to accommodate

523
00:29:14,600 --> 00:29:16,960
Speaker 1: whatever decline in revenue experience in the last year and

524
00:29:17,000 --> 00:29:19,840
Speaker 1: probably will experience over the course of the next six

525
00:29:19,880 --> 00:29:22,560
Speaker 1: to nine months, because there's always a lag effect in

526
00:29:22,680 --> 00:29:25,600
Speaker 1: this was where the decline in revenue tends not to

527
00:29:25,640 --> 00:29:29,440
Speaker 1: take effect immediately, attends to basically build over time. UM

528
00:29:29,480 --> 00:29:32,040
Speaker 1: So the current fiscal year into the next fiscal year

529
00:29:32,640 --> 00:29:34,880
Speaker 1: UM through let's say, through the end of the calendar

530
00:29:34,920 --> 00:29:36,840
Speaker 1: year two thousand and twenty one will probably be the

531
00:29:36,880 --> 00:29:40,240
Speaker 1: toughest part. I guess I'm bouncing around the question litle

532
00:29:40,240 --> 00:29:42,600
Speaker 1: bit only because it's really difficult to go ahead and

533
00:29:42,640 --> 00:29:47,640
Speaker 1: suggest that there's a a specific UM need in every

534
00:29:47,640 --> 00:29:50,400
Speaker 1: single state. It's certainly more necessary and states again like

535
00:29:50,440 --> 00:29:53,880
Speaker 1: with Illinois, Kentucky, New Jersey, it's probably even though they

536
00:29:53,880 --> 00:29:56,880
Speaker 1: wouldn't turn down the money, it's probably certainly less necessary

537
00:29:56,960 --> 00:30:01,000
Speaker 1: in states like Utah, Idaho, Tennessee, uh and, And therefore

538
00:30:01,040 --> 00:30:03,360
Speaker 1: it's really on a case case, a case by case basis.

539
00:30:04,400 --> 00:30:08,680
Speaker 1: So are there anything in terms of projects that you're

540
00:30:08,680 --> 00:30:13,280
Speaker 1: looking at that will get funded either way? Uh? Well,

541
00:30:13,320 --> 00:30:17,000
Speaker 1: I think enhanced on employment benefits are certainly on the table.

542
00:30:17,040 --> 00:30:19,600
Speaker 1: I think there's there's a fair amount of bipartisan support

543
00:30:19,800 --> 00:30:24,320
Speaker 1: for that. UM I expect the the the amount may

544
00:30:24,400 --> 00:30:27,880
Speaker 1: have declined in terms of the discussions with the annostment

545
00:30:27,880 --> 00:30:31,640
Speaker 1: of the virus vaccine. It's possible we were talking about

546
00:30:31,680 --> 00:30:34,600
Speaker 1: seven billion to a trilia, which was higher than where

547
00:30:34,600 --> 00:30:37,720
Speaker 1: the Republicans started, certainly for our less than the Democrats

548
00:30:37,760 --> 00:30:41,000
Speaker 1: wanted prior to the election. UM. Speaker Pelosi may have

549
00:30:41,080 --> 00:30:44,280
Speaker 1: less leverage at this point going into post election phase

550
00:30:44,320 --> 00:30:47,480
Speaker 1: of negotiations with McConnell. So this may be somewhere in

551
00:30:47,520 --> 00:30:52,080
Speaker 1: the range of up to seven UH. And and therefore

552
00:30:52,120 --> 00:30:54,440
Speaker 1: they're gonna be some somewhat constrained about how much money

553
00:30:54,440 --> 00:30:57,920
Speaker 1: they can provide to stay local governments. UM, but I

554
00:30:57,960 --> 00:31:01,800
Speaker 1: think it's a it's primarily an employment enhance benefits. It's

555
00:31:01,800 --> 00:31:03,400
Speaker 1: probably where they're going to spend most of the time.

556
00:31:03,440 --> 00:31:05,960
Speaker 1: And probably as as I'm thinking about it, Crawl Wholy

557
00:31:06,080 --> 00:31:09,400
Speaker 1: some additional aid to UH. Some of the industrial companies

558
00:31:09,400 --> 00:31:13,280
Speaker 1: like the airlines that will probably write some assistance. Hey, Tom,

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00:31:13,280 --> 00:31:15,680
Speaker 1: thanks so much for joining us. We really appreciate it.

560
00:31:15,760 --> 00:31:20,600
Speaker 1: Thomas McLaughlin, head of America's Fixed income UBS Global Wealth Management,

561
00:31:22,000 --> 00:31:25,440
Speaker 1: Thanks for listening to Bloomberg Markets podcast. You can subscribe

562
00:31:25,480 --> 00:31:28,480
Speaker 1: and listen to interviews at Apple Podcasts or whatever a

563
00:31:28,520 --> 00:31:31,880
Speaker 1: podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter

564
00:31:32,120 --> 00:31:34,440
Speaker 1: at Bonnie Quinn. And I'm Paul Sweeney. I'm on Twitter

565
00:31:34,520 --> 00:31:37,360
Speaker 1: at pt Sweeney. Before the podcast, you can always catch

566
00:31:37,400 --> 00:31:38,960
Speaker 1: us worldwide at Bloomberg Radio