WEBVTT - Surveillance: Equities are Overpriced, Normand Says 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.319 Bloomberg dot Com, and of course, on the Bloomberg. We 0:00:27.440 --> 0:00:29.840 begin this morning with the President of the United States 0:00:29.880 --> 0:00:33.280 saying the following. Will some people be affected, yes, will 0:00:33.320 --> 0:00:36.199 some people be affected badly? Yes, But we have to 0:00:36.240 --> 0:00:38.599 get our country open, and we have to get it 0:00:38.680 --> 0:00:42.000 open soon. Let's turn out to David Balen, a city 0:00:42.000 --> 0:00:45.480 private bank, the chief investment officer. David, help me out 0:00:45.479 --> 0:00:48.400 with this one. As we reopen, is there a reopening 0:00:48.520 --> 0:00:53.800 rotation in this market? If so, what does it look like? Well, 0:00:53.880 --> 0:00:56.760 in terms of what we're what we're expecting to see, is, 0:00:57.000 --> 0:00:59.600 you know, a reopening that is very much focused on 0:00:59.680 --> 0:01:03.160 two big trends. One is to refill the supply lines 0:01:03.280 --> 0:01:06.200 and you know of the for all industrial products and 0:01:06.240 --> 0:01:10.479 capital expenditures in the second one associated with the consumer um. 0:01:10.520 --> 0:01:13.120 We expected that reopening is right. This quarter is all 0:01:13.160 --> 0:01:16.479 about refilling that pipeline and then obviously the rebound will 0:01:16.480 --> 0:01:19.119 take place in the numbers in Q three and as 0:01:19.120 --> 0:01:21.720 you've been talking about on the show today, we're going 0:01:21.800 --> 0:01:24.560 to continue to see these incredibly bad numbers. And what 0:01:24.640 --> 0:01:26.520 we're gonna need to see on the opposite side of 0:01:26.520 --> 0:01:29.360 this is an enormous amount of re employment. Of the 0:01:29.400 --> 0:01:31.640 thirty odd million people, let's say in the United States 0:01:31.680 --> 0:01:34.039 who are unemployed, we would want to see half of 0:01:34.080 --> 0:01:37.360 those people are more reemployed as we entered Q three. 0:01:37.720 --> 0:01:39.840 And if that's the case, then you can really have 0:01:39.920 --> 0:01:42.959 your meeting the market expectations here. So to me, that's 0:01:43.000 --> 0:01:44.920 what we're gonna be looking for, because that is what's 0:01:44.920 --> 0:01:48.840 going to drive, in my mind, the the the economic power, 0:01:48.920 --> 0:01:52.040 the recovery that will give people confidence that the numbers 0:01:52.040 --> 0:01:54.320 in the markets today are real. How far is the 0:01:54.400 --> 0:01:57.360 stock market looking out right now? The textbook tells me 0:01:57.440 --> 0:02:01.000 six months. We understand that's a guestimate, David. How far 0:02:01.080 --> 0:02:04.600 do you think the stock market is guessing out? Yeah? 0:02:04.640 --> 0:02:06.760 I think that the stock market Tom has to be 0:02:06.800 --> 0:02:09.720 guessing out now about a year. And here's why. First 0:02:09.720 --> 0:02:11.359 of all, you see that nobody is willing to make 0:02:11.360 --> 0:02:13.600 really good predictions about what's actually going to happen quarter 0:02:13.680 --> 0:02:16.280 to quarter for all good reasons. These numbers are unlike 0:02:16.320 --> 0:02:19.400 anything that we've ever seen, including in the Great Financial Crisis. 0:02:19.800 --> 0:02:21.960 So what we need to see as a recovery right 0:02:21.960 --> 0:02:24.919 where we get through this trough and then we actually 0:02:25.000 --> 0:02:28.400 experience the type of earnings that you fore and we 0:02:28.440 --> 0:02:31.519 get some clarity on that, and we're expecting a fifty 0:02:31.560 --> 0:02:35.400 so a very sharp decline you know about decline in 0:02:35.480 --> 0:02:38.160 EPs for the SMP and half of that would be 0:02:38.200 --> 0:02:42.799 captured back in. So once we get into Q three 0:02:42.919 --> 0:02:45.320 and we see the recovery, people will need to believe 0:02:45.360 --> 0:02:49.280 that what they see in Q three will be possible 0:02:49.600 --> 0:02:51.600 and that will be the key determinant as to whether 0:02:51.639 --> 0:02:54.480 or not this market can maintain the types of valuations 0:02:54.520 --> 0:02:58.040 that are being projected when within the elasticities on any 0:02:58.080 --> 0:03:03.359 given big companies UH income statement. What does furlow mean? 0:03:03.400 --> 0:03:05.800 Do you? I mean, John? I mean you, you're up 0:03:05.840 --> 0:03:08.600 to speed on these headlines better than me. British Airways 0:03:08.680 --> 0:03:11.840 is furlowing? You know, general mode as a CFO is 0:03:11.880 --> 0:03:13.639 going to be on with Bloomberg later. I'll bet you 0:03:13.720 --> 0:03:19.440 theugh furlow. What's furlough mean? Well, in terms of what 0:03:19.520 --> 0:03:23.840 we're looking at, furlough means obviously temporary unemployment people who's 0:03:23.919 --> 0:03:27.040 where the company's intention is to re employ them, and 0:03:27.120 --> 0:03:30.040 furlough also means, at least in the US, that those 0:03:30.080 --> 0:03:35.040 furloughed employees will get benefits associated with either company loans 0:03:35.080 --> 0:03:38.880 that are forgiven or because of unemployment benefits that are 0:03:38.880 --> 0:03:41.720 made available. Uh. And then when that furlow period is over, 0:03:41.760 --> 0:03:44.720 there presumably reemployed, and then we'll ultimately be paid by 0:03:44.720 --> 0:03:48.480 the company. David. This sort of goes to the idea 0:03:48.640 --> 0:03:51.280 of what the economy will look like. On the other side, 0:03:51.320 --> 0:03:54.600 the idea of furlowing employees rather than laying them off 0:03:54.680 --> 0:03:58.720 outright because people are expecting the economy to recover. I'm 0:03:58.720 --> 0:04:01.360 struck by the borrowings of some junk raded companies. They 0:04:01.360 --> 0:04:03.880 are paying more than ten percent yields to borrow money 0:04:03.920 --> 0:04:07.720 for four years, and I'm wondering whether the cure is 0:04:07.760 --> 0:04:10.040 worth the worse than the ailment. In other words, how 0:04:10.080 --> 0:04:13.080 many of these companies that are piling on debt and 0:04:13.160 --> 0:04:17.200 keeping employees online are not going to survive after the 0:04:17.240 --> 0:04:21.640 pandemic because they've just simply become overleveraged given economic growth. 0:04:23.000 --> 0:04:25.520 It's it's one of the major issues that you know, 0:04:25.760 --> 0:04:29.440 an unintended and unintended consequences of the FED stepping into 0:04:29.440 --> 0:04:32.520 the market. What you're talking about is the fact that 0:04:32.560 --> 0:04:34.440 the companies that might not have been able to borrow 0:04:34.440 --> 0:04:36.279 are now able to go to the junk market, able 0:04:36.320 --> 0:04:39.359 to obtain, as you said, capital at very expensive rates 0:04:39.680 --> 0:04:43.080 to continue their operations, even though they were probably marginal 0:04:43.200 --> 0:04:47.080 prior to that recapitalization. So the issue there is what 0:04:47.200 --> 0:04:48.800 is the strength of the recovery. And one of the 0:04:48.800 --> 0:04:50.880 reasons why we're very concerned about aspects of the high 0:04:50.920 --> 0:04:54.279 yield bond market is precisely because there is really no 0:04:54.360 --> 0:04:57.000 trajectory for those companies, you know, given the slowness of 0:04:57.000 --> 0:04:59.000 what we expect this recovery will be over the next 0:04:59.040 --> 0:05:02.960 two years, to really give them any acceleration in their businesses. 0:05:03.279 --> 0:05:05.719 So to your point, a lot of companies have seen 0:05:05.800 --> 0:05:09.479 the postponement of what ultimately will be, you know, either 0:05:09.560 --> 0:05:11.320 the failure of the company, the merger of the company, 0:05:11.360 --> 0:05:13.760 or the restructuring of the company, and that's really one 0:05:13.800 --> 0:05:17.120 of the unintended consequences. We're very carefully looking at credits 0:05:17.120 --> 0:05:19.040 at City Private Bank to make sure we do not 0:05:19.120 --> 0:05:21.960 put client capital into those companies because even though the 0:05:22.000 --> 0:05:24.800 yields look very attractive, they are much more risky than 0:05:24.839 --> 0:05:27.520 they appear. So, David, can you square the idea that 0:05:27.600 --> 0:05:30.320 sort of bearish feel with respect to the high old 0:05:30.360 --> 0:05:34.240 bond market with your bullish call on small cap stocks 0:05:34.320 --> 0:05:37.160 which often track the high old bond market in terms 0:05:37.160 --> 0:05:40.719 of performance. That is a great question also, and I 0:05:40.720 --> 0:05:42.520 think you have to look at the balance sheets of 0:05:42.520 --> 0:05:45.200 those companies. So what we've done is we've divided the 0:05:45.279 --> 0:05:47.360 high old market itself. Will We've taken out all of 0:05:47.360 --> 0:05:49.400 the energy securities and taking a look at the remainder 0:05:49.400 --> 0:05:51.159 of the high old mark market bond market and the 0:05:51.200 --> 0:05:53.919 companies that are borrowing those, and then we've further divided 0:05:53.920 --> 0:05:57.360 those companies into those that have resilient business models i e. 0:05:57.720 --> 0:06:00.240 Which have not been as impacted by this more ket 0:06:00.240 --> 0:06:04.320 conditions and specifically associated with healthcare, consumer durables, and things 0:06:04.360 --> 0:06:07.799 like that. Companies that supply parts and services two industries 0:06:07.800 --> 0:06:10.440 that are going to recover. An example would be airline 0:06:10.520 --> 0:06:14.839 services rather than airlines. And by identifying all of those subsegments, 0:06:14.920 --> 0:06:17.560 you're able to build a portfolio companies that are very 0:06:17.640 --> 0:06:20.400 highly likely to rebound and to thrive, and to your 0:06:20.480 --> 0:06:22.800 other point, to the extent that you identify companies that 0:06:22.839 --> 0:06:25.600 are either over leveled or whether business models themselves are 0:06:25.640 --> 0:06:28.440 not in essential categories, we are going to avoid them. 0:06:28.680 --> 0:06:31.000 But it's this level of discrimination. And by the way, 0:06:31.000 --> 0:06:33.520 the market has been fairly discriminating in this regard when 0:06:33.600 --> 0:06:36.239 when you take a little bit small and MidCap equity prices, 0:06:36.240 --> 0:06:37.760 this is the kind of work that you have to 0:06:37.839 --> 0:06:41.039 do in terms of portfolio construction now that just six 0:06:41.080 --> 0:06:43.640 months ago you really didn't need to do because things 0:06:43.640 --> 0:06:47.200 were relatively sanguine. Would have thrive under what conditions, you know, 0:06:47.240 --> 0:06:49.400 let's get back to the main story. We re outake 0:06:49.440 --> 0:06:51.400 care and there's clearly a massive tower risk of a 0:06:51.480 --> 0:06:53.840 second wife. Now for some people, that's not a tower risk, 0:06:53.880 --> 0:06:56.280 that's a base case. Isn't that likely to linger for 0:06:56.320 --> 0:06:59.760 the next several months, So it is a base case. 0:06:59.800 --> 0:07:02.200 And I think that this whole debate in the market 0:07:02.279 --> 0:07:04.039 is to whether or not there is a second wave. 0:07:04.160 --> 0:07:07.039 We are going to see a material increase in the 0:07:07.160 --> 0:07:10.040 number of coronavirus cases, whether that be in Europe or 0:07:10.040 --> 0:07:12.240 in the United States. And in the US you're actually 0:07:12.360 --> 0:07:14.920 going to see potentially even more bad dudes in that 0:07:15.000 --> 0:07:17.640 regard because of the nature of the rolling way that 0:07:17.680 --> 0:07:21.119 they handled the lockdowns and are now handling the the 0:07:21.320 --> 0:07:26.040 reopening of the economy. So the question is do these 0:07:26.400 --> 0:07:30.760 increases in virus cases ultimately once again impact the healthcare system. 0:07:31.040 --> 0:07:33.160 You have to go back to the first premise. The 0:07:33.240 --> 0:07:35.800 reason why we took the step of lockdown was because 0:07:35.840 --> 0:07:39.120 we thought we would overwhelm healthcare systems and completely have 0:07:39.240 --> 0:07:42.160 people literally dying at their homes, dying in the streets, 0:07:42.200 --> 0:07:44.560 you know, and things like that. Unwilling to do that 0:07:44.680 --> 0:07:47.800 as a society, we then stepped into to stop that. 0:07:48.000 --> 0:07:49.960 And now we're going to reopen. And the question is 0:07:50.080 --> 0:07:52.040 how do we make sure that does not happen again. 0:07:52.080 --> 0:07:53.520 And there's only two ways for that to be true. 0:07:53.560 --> 0:07:55.640 One is that the amount of disease goes down, and 0:07:55.680 --> 0:07:58.160 that's this concept of a trough between the waves. And 0:07:58.200 --> 0:07:59.720 then the second is that we know that there will 0:07:59.720 --> 0:08:01.480 be as second wave of barring your treatment or a 0:08:01.560 --> 0:08:03.960 vaccine um and that that the question is how big 0:08:04.000 --> 0:08:05.600 that wave is, and it right now in the United 0:08:05.640 --> 0:08:08.200 States look looks like it could accelerate because of the 0:08:08.240 --> 0:08:12.240 fact that we didn't tamp down the disease sufficiently. David 0:08:12.280 --> 0:08:15.200 gred Skate thow us on a shot. Real appreciate David 0:08:15.200 --> 0:08:17.560 Betton sending up best to the same one City Private 0:08:17.560 --> 0:08:23.440 Banks chief Investment officer. This has been one of the 0:08:23.440 --> 0:08:27.880 pleasant surprises of this tragedy. A weekly conversation even more 0:08:27.880 --> 0:08:30.760 than that with the Lieutenant Governor of the Empire State, 0:08:30.840 --> 0:08:33.520 Kathey Hokel joins us right now, Kathy, I want to 0:08:33.520 --> 0:08:38.160 ask a dumb question. Government can affect policy that makes 0:08:38.240 --> 0:08:41.520 things easy. Why can't the State of New York say 0:08:41.640 --> 0:08:44.160 you can't walk on the streets of New York, New 0:08:44.240 --> 0:08:47.880 York State without a mask on and those plastic gloves on, 0:08:47.880 --> 0:08:54.120 those latex gloves on. Wouldn't that immediately build confidence? We 0:08:54.280 --> 0:08:57.319 build confidence by having the people who listened to us 0:08:57.360 --> 0:09:00.520 every single day as we give very transparent press officers 0:09:00.520 --> 0:09:02.840 and tell like this. We tell them the truth. We 0:09:02.960 --> 0:09:05.280 tell them that if they wear the mask, they couldnt 0:09:05.400 --> 0:09:08.000 just save themselves but also their families and they have 0:09:08.040 --> 0:09:11.040 a responsibility. But we don't have the resources nor the 0:09:11.160 --> 0:09:13.280 desire to have a police state where we go through 0:09:13.280 --> 0:09:17.120 and have to try to convince ninety million people to it. Here. 0:09:17.280 --> 0:09:19.040 We'd love to, but we're not going to that's not 0:09:19.120 --> 0:09:21.240 who we are, it's not our character, but we want 0:09:21.320 --> 0:09:24.280 that same results, and we're appealing to people and their 0:09:24.360 --> 0:09:28.160 desire to protect themselves and their families and friends and neighbors, 0:09:28.200 --> 0:09:30.840 and thus far, I have to say, we are starting 0:09:30.880 --> 0:09:33.360 to see some cracks in this, but people have really 0:09:33.480 --> 0:09:36.080 uniformly throughout the States been adhering to this, and that's 0:09:36.080 --> 0:09:39.120 really actually quite astounding that they are the ones, the 0:09:39.120 --> 0:09:42.560 New Yorkers are the ones who really changed the trend. 0:09:42.720 --> 0:09:45.040 If they hadn't been doing the social disting and now 0:09:45.080 --> 0:09:47.360 the mask, we'd be in a far worse place. So 0:09:47.400 --> 0:09:49.480 you'll see outliers and we hope we can bring them 0:09:49.480 --> 0:09:51.640 back into the fold. But right now I think we're 0:09:51.640 --> 0:09:54.640 doing very well. Governor. When we talk about a May 0:09:54.640 --> 0:09:58.080 fifteenth three opening in New York, we are talking about upstate. 0:09:58.160 --> 0:10:00.600 We are not talking about New York City. How much 0:10:00.760 --> 0:10:03.360 longer do you think it will take for the major 0:10:03.440 --> 0:10:07.960 metropolitan areas in the region to reopen. We have put 0:10:08.000 --> 0:10:10.760 in place the number of metrics better really come from 0:10:10.760 --> 0:10:13.200 the CBC that we're using up state first of all, 0:10:13.240 --> 0:10:15.439 and that is to look at the hospitalization rate, the 0:10:15.520 --> 0:10:18.040 number of vice the you bed being used, the rate 0:10:18.040 --> 0:10:21.280 of infection, how it's spreading. Also the ability to have 0:10:21.360 --> 0:10:25.600 more diagnostic testing available as well as contact tracers. So 0:10:25.840 --> 0:10:27.719 the benefit for New York City is that we will 0:10:27.760 --> 0:10:31.319 be able to trial run this upstate. I'm managing parts 0:10:31.320 --> 0:10:34.720 of upstate Western New York area and looking at these metrics. 0:10:34.720 --> 0:10:37.120 Do we hit them by May fifteenth? If so, we'll 0:10:37.160 --> 0:10:41.640 slowly open manufacturing, some retail we could pick up on 0:10:41.679 --> 0:10:44.680 the curve and construction. This is the same model that 0:10:44.720 --> 0:10:46.840 we would use downstate. But then we're going to take 0:10:46.880 --> 0:10:49.920 two weeks and testency whether or not the numbers have 0:10:50.040 --> 0:10:53.319 gone upwards downwards day the same. And so it's this 0:10:53.480 --> 0:10:55.800 data that's going to help us drive the reopening of 0:10:55.800 --> 0:10:58.240 New York City, which we have to get right. We 0:10:58.280 --> 0:11:00.480 cannot do it a day to really, but not a 0:11:00.559 --> 0:11:02.560 day longer than necessary. That we don't want to have 0:11:02.600 --> 0:11:05.920 the economy held back any longer than is necessary. But 0:11:05.960 --> 0:11:08.280 also the safety is going to continue to be our 0:11:08.360 --> 0:11:11.040 our guide guiding stars. So I think it's good for 0:11:11.040 --> 0:11:13.720 New York City. I don't think there's a single person 0:11:13.760 --> 0:11:16.079 New York City who thinks they're ready. They know that 0:11:16.120 --> 0:11:18.760 they're still seeing the numbers but upstate, we can do 0:11:18.840 --> 0:11:21.520 a trial one of this and then implement that in 0:11:21.559 --> 0:11:23.040 New York City in a few weeks. So we don't 0:11:23.040 --> 0:11:26.439 have a timeline for New York City just yet. Kathy. 0:11:26.480 --> 0:11:28.120 I'm going to ask you, Delica a question, and I 0:11:28.160 --> 0:11:30.360 asked it with the deepest amount of understanding of sympathy 0:11:30.360 --> 0:11:33.240 for the position you're in. When Governor Cuomo says the 0:11:33.280 --> 0:11:36.120 fast that we reopen, the lower the economic costs, but 0:11:36.200 --> 0:11:40.520 the more lives are lost, you guys are in a 0:11:40.640 --> 0:11:43.959 really tough position now where you have to balance reopen 0:11:44.000 --> 0:11:47.840 the economy with loss of life. And when that's communicated 0:11:47.840 --> 0:11:52.320 from Governor Cuomo, it comes across really sincerely, very authentically, 0:11:52.600 --> 0:11:54.319 and I think it resonates with a lot of people 0:11:54.440 --> 0:11:57.719 listening to these news conferences. But behind closed doors, when 0:11:57.760 --> 0:11:59.880 you have to make that calculation, can you give us 0:11:59.880 --> 0:12:05.320 a deeper understanding of how you make those decisions? We've 0:12:05.400 --> 0:12:08.400 heart wrenching. No one in public life ever expects they're 0:12:08.400 --> 0:12:10.800 going to have to make these types of decisions. We 0:12:10.880 --> 0:12:13.480 go into public life to make people's lives better, give 0:12:13.480 --> 0:12:17.280 them education, health care, opportunity for good jobs. You never 0:12:17.400 --> 0:12:18.640 think that you're going to have to be in the 0:12:18.720 --> 0:12:22.640 position to determine between life and death. But it's very 0:12:22.640 --> 0:12:25.520 clear to us we will choose life over death. That 0:12:25.520 --> 0:12:28.640 that has been what has guided us. It's not a 0:12:28.679 --> 0:12:31.520 gray area, it's black and white. And we also know 0:12:31.720 --> 0:12:34.520 that you can have a livelihood without a life. So 0:12:34.679 --> 0:12:36.520 people talk about what we have to bring back to 0:12:36.559 --> 0:12:39.160 economic guests. We do, but we have to bring it 0:12:39.200 --> 0:12:42.600 back in a thoughtful way that will protect people's lives 0:12:42.640 --> 0:12:46.679 and also give employees and customers the assurance that when 0:12:46.720 --> 0:12:50.080 they come to your establishment they will be safe. That's 0:12:50.080 --> 0:12:52.240 why we have to get this right. We could flip 0:12:52.240 --> 0:12:54.040 a switch and open it tomorrow, but there's not a 0:12:54.080 --> 0:12:56.880 single New Yorker, very few who think that it's safe 0:12:56.960 --> 0:12:58.520 enough to go out there now, and they're still seeing 0:12:58.520 --> 0:13:00.920 the numbers that we are. We will get to that point, 0:13:01.400 --> 0:13:03.320 and I'm going to tell you right now, we're already 0:13:03.320 --> 0:13:07.080 planning for a post pandemic future that's even better. Not 0:13:07.200 --> 0:13:11.920 just reopening our economy, but reimagining areas like the workplace, 0:13:12.000 --> 0:13:15.240 how we can make it more flexible for people, Reimagining 0:13:15.360 --> 0:13:18.559 education and making sure it's more accessible truth technology, and 0:13:18.600 --> 0:13:20.920 all the experience that our teachers have had to go 0:13:21.000 --> 0:13:24.040 through teaching children at home in our colleges, and how 0:13:24.080 --> 0:13:26.360 they've had to a debt. We have an opportunity here 0:13:26.760 --> 0:13:29.760 to make this state even stronger than before, and that's 0:13:29.760 --> 0:13:31.320 what we're doing. But we're going to get it right. 0:13:32.040 --> 0:13:34.880 Lieutenant Governor, you said that there really isn't gray area. 0:13:35.480 --> 0:13:37.760 I am guessing that President Trump may agree. He was 0:13:37.800 --> 0:13:40.880 talking about how there are losses on either side. You're 0:13:40.880 --> 0:13:45.079 seeing mental illness rise, uh, you're seeing the the the 0:13:45.120 --> 0:13:49.120 concern about substance abuse, domestic violence. Even Governor Cuomo has 0:13:49.120 --> 0:13:53.920 talked about this. It's not necessarily all all things being equal. 0:13:53.960 --> 0:13:56.800 I'm just wondering how you weigh things on that side. 0:13:57.080 --> 0:13:59.840 As a jobless rate soars to levels not seen in 0:14:00.000 --> 0:14:05.040 our history. Yeah, this is unprecedent. You know, we're not 0:14:05.080 --> 0:14:08.400 trying to increase the job We're trying to save people's lives. 0:14:08.440 --> 0:14:10.760 But we're very thoughtful in this. That's why we've put 0:14:10.800 --> 0:14:14.320 in place different opportunities for people to get assistance. We 0:14:14.400 --> 0:14:17.080 have a hotline and emotional health hotline for not just 0:14:17.240 --> 0:14:20.640 first responders, who I'm sure are going to have lifelong 0:14:20.800 --> 0:14:23.280 impacts on their mental health because of what they've had 0:14:23.320 --> 0:14:26.280 to see and endure during this crisis. But people who 0:14:26.280 --> 0:14:28.720 have been isolated and people who are lonely, and those 0:14:28.760 --> 0:14:32.320 are dealing with the the the havoc in their lives 0:14:32.360 --> 0:14:34.440 from having lost a job when they never dreamed they'd 0:14:34.440 --> 0:14:36.320 be having to spend hours on the phone trying to 0:14:36.320 --> 0:14:39.800 get an unemployment application. And so we know there's a 0:14:40.440 --> 0:14:43.600 severe human toll, and we have assistance for them. We 0:14:43.640 --> 0:14:47.040 have over nineties thousand people answering phone calls to help them. 0:14:47.280 --> 0:14:50.400 But at the end of the day, New Yorkers are resilient. 0:14:50.520 --> 0:14:52.920 We are a tough bunch. We will come out of 0:14:52.960 --> 0:14:55.840 this stronger as long as we continue to protect each 0:14:55.880 --> 0:14:58.240 other with the social distancing and the mass and it's 0:14:58.280 --> 0:15:00.320 not an easy equation, but we're going to get Yeah, 0:15:00.680 --> 0:15:03.680 Lieutenant Governor, thank you so much. This is a joyful 0:15:03.760 --> 0:15:10.640 thank you, Lieutenant Governor. Every week. Joining us right now 0:15:10.880 --> 0:15:13.440 from JP Morgan is John Norman. He has been a 0:15:13.480 --> 0:15:17.080 wonderful supporter of all that we do with surveillance because 0:15:17.120 --> 0:15:23.440 of a wonderful synthesis in his research note across equities, bonds, currencies, commodities. John, 0:15:23.880 --> 0:15:28.000 just exceptional historic import coming up in three days. What 0:15:28.080 --> 0:15:31.680 do you hear from Bruce Casman and your economists that 0:15:31.800 --> 0:15:37.200 you fold into market choice. To me, the most important 0:15:37.240 --> 0:15:40.080 takeaway from the work of our economists is that it's 0:15:40.120 --> 0:15:43.320 going to be an extremely abnormal recovery, meaning it's going 0:15:43.360 --> 0:15:46.720 to take years to recruit the lost output and the 0:15:46.800 --> 0:15:50.760 lost jobs, and that usually equates to a multi year 0:15:50.800 --> 0:15:53.280 process of recouping the lost profits. That that's got to 0:15:53.280 --> 0:15:55.440 be a constraint on how much markets can we trace, 0:15:55.640 --> 0:15:57.480 even if they go up, So that that shape of 0:15:57.520 --> 0:16:00.200 the recovery, to me, is a lot of what is 0:16:00.200 --> 0:16:02.920 the views on the asset markets going forward. The views 0:16:02.960 --> 0:16:04.960 on the asset markets don't seem that dire. If you 0:16:04.960 --> 0:16:07.760 take a look at stock prices, particularly within the tech sector, 0:16:07.840 --> 0:16:10.560 do you think that they're accurately pricing in and I'm 0:16:10.600 --> 0:16:13.080 not just talking about big tech, just broadly, do you 0:16:13.080 --> 0:16:15.400 think that equities are pricing in what you're talking about, 0:16:15.400 --> 0:16:18.680 which is a prolonged period of time with these destroyed 0:16:18.760 --> 0:16:23.280 jobs not coming back anytime soon. No, I think the 0:16:23.400 --> 0:16:27.320 price the over optimistically, meaning they seem to be pricing 0:16:27.360 --> 0:16:31.120 and extremely smooth transition from the lockdown to the restart 0:16:31.160 --> 0:16:34.200 of the economies. So even though the levels that we're 0:16:34.200 --> 0:16:38.880 seeing right now in markets. UM may may may be 0:16:39.120 --> 0:16:43.640 levels that that UH should be seen in six months time. 0:16:44.120 --> 0:16:46.240 It's it's a bit premature to be seeing these now. 0:16:46.640 --> 0:16:49.680 It essentially assumes that the restart is going to be 0:16:49.800 --> 0:16:52.160 all free, and I think it's going to be a 0:16:52.200 --> 0:16:54.800 little more hazard prone than that. So let's talk about it, John, 0:16:54.840 --> 0:16:56.880 How you a capital with all of that in mind? 0:16:59.160 --> 0:17:01.320 So for me, you want to be allocating to markets 0:17:01.360 --> 0:17:04.719 that are still very cheap and have a very direct 0:17:04.840 --> 0:17:07.000 central bank back stop. And to me, this is why 0:17:07.040 --> 0:17:10.800 the credit markets are better risk reward than the equity 0:17:10.840 --> 0:17:13.679 markets over the over this transition period and to restart 0:17:13.680 --> 0:17:15.840 the economies, even though I think equity markets will be 0:17:16.000 --> 0:17:18.199 you know, still higher by by year end, it's just 0:17:18.200 --> 0:17:20.200 sort of recognizing that as we go through this very 0:17:20.200 --> 0:17:24.000 awkward restarting process, UM, there are going to be some 0:17:24.080 --> 0:17:27.640 uncertainties around out the corporate profits outlook, and and it's 0:17:27.680 --> 0:17:30.240 better to have exposure to a market where at least 0:17:30.280 --> 0:17:32.560 someone else is buying regardless of the news flowers and 0:17:32.840 --> 0:17:34.639 that's someone of course is the FED in terms of 0:17:34.680 --> 0:17:37.080 what it's doing in the high grade and high young market. 0:17:37.119 --> 0:17:39.360 So I feel like that's the best risk reward for now, 0:17:39.880 --> 0:17:41.960 even though I still think stocks you're gonna keep up 0:17:41.960 --> 0:17:44.719 performing bonds, let's say over the over the next three quarters. 0:17:45.080 --> 0:17:47.040 This is something you call it. Bob Michael talked about 0:17:47.040 --> 0:17:49.240 as well, co investing with the Federal Reserve, And I 0:17:49.280 --> 0:17:51.240 just wanted to Johmp from your perspective, whether that takes 0:17:51.280 --> 0:17:53.359 you to the United States of the Europe, the United 0:17:53.400 --> 0:17:56.040 States over the rest of the world, just geographically speaking, 0:17:56.040 --> 0:18:00.400 the regional bias, It definitely does. Because there's there's two 0:18:00.440 --> 0:18:02.600 dimensions to this. One is that the FED is just 0:18:02.840 --> 0:18:06.720 a much greater participant in in so many sectors of 0:18:06.920 --> 0:18:09.520 US financial markets compared to the ECP. The ECB actually 0:18:09.560 --> 0:18:11.440 has more latitude the ft the e C. We could 0:18:11.440 --> 0:18:14.320 buy stocks to days we wanted to, but it doesn't. 0:18:14.440 --> 0:18:16.600 And it has latitudes to buy high yield but it doesn't. 0:18:16.680 --> 0:18:19.840 So the FAT is the one that's the the broadest 0:18:19.880 --> 0:18:23.040 investor uh and playing. But there's another dimension to it 0:18:23.119 --> 0:18:25.320 as well, which is when you think about what sectors 0:18:25.320 --> 0:18:28.200 are the end game winners in a post COVID environment, 0:18:28.280 --> 0:18:31.800 it's it's tag communications, and it's and its healthcare, And 0:18:31.840 --> 0:18:34.120 these are ones that probably comprise, you know, a good 0:18:34.119 --> 0:18:37.199 fortent of the US equity market. So if you just 0:18:37.240 --> 0:18:40.520 kind of recognize that there's a structural set of winners here, 0:18:40.800 --> 0:18:44.240 that those winners are much more evident and dominant in 0:18:44.280 --> 0:18:47.080 the US equity market and other equity markets, it's uh, 0:18:47.280 --> 0:18:50.120 it's a hands down view that the US stock market 0:18:50.160 --> 0:18:52.920 is going to continue on performing. John implicit in your 0:18:52.960 --> 0:18:56.159 comments is this feeling like there it will be no 0:18:56.320 --> 0:19:01.160 international consequence to the US is printing trillions of dollars 0:19:01.160 --> 0:19:03.320 of debt, with the Federal reserves balance sheet poise to 0:19:03.359 --> 0:19:05.680 exceed ten trillion dollars by the end of the year. 0:19:05.960 --> 0:19:07.679 A lot of times in the past this would have 0:19:07.680 --> 0:19:10.760 been expressed in a weaker dollar versus other currencies, but 0:19:10.800 --> 0:19:13.680 weaker versus what especially given some of the existential acts 0:19:13.800 --> 0:19:17.720 right now over in the euroregion, Is that true that 0:19:17.760 --> 0:19:22.080 basically there is no consequence to the US monetizing its 0:19:22.119 --> 0:19:27.560 debt and increasing its deficit dramatically. There will be a 0:19:27.640 --> 0:19:30.919 consequence to this, It's more question of time horizon and 0:19:31.000 --> 0:19:36.040 as you suggest, against what asset specifically, so um over 0:19:36.080 --> 0:19:38.760 the long term, there's a concern this could be inflationary 0:19:38.840 --> 0:19:41.080 that that is not a concern right now or for 0:19:41.119 --> 0:19:45.439 this year next year, because you could have particuarly unemployment 0:19:45.600 --> 0:19:47.919 in the in the US um But there is a 0:19:47.920 --> 0:19:50.440 consequence in terms of real interest rates, they're they're extremely 0:19:50.440 --> 0:19:52.040 low in the US and that makes it difficult to 0:19:52.040 --> 0:19:54.080 the US to attract financing. And I think that's one 0:19:54.119 --> 0:19:57.440 of them why you do see the dollars slipping lower 0:19:57.560 --> 0:19:59.960 versus the end and it slips lower versus the goal 0:20:00.080 --> 0:20:02.919 price even though stock and credit markets are very healthy 0:20:03.040 --> 0:20:05.879 right now. So there's there's some I think residual anxiety 0:20:05.960 --> 0:20:09.880 around the dollar, a currency which is feeding through into 0:20:10.000 --> 0:20:12.400 some things like the n gold even though it's it's 0:20:12.400 --> 0:20:14.840 certainly not a you know, a fire sale. Where it 0:20:14.880 --> 0:20:16.920 gets more interesting is if you're in a in a 0:20:17.040 --> 0:20:19.280 much better state of the world in six months time, 0:20:19.400 --> 0:20:23.960 what's the demand for US assets when qwie is bearing 0:20:23.960 --> 0:20:27.239