1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene along 2 00:00:09,240 --> 00:00:13,080 Speaker 1: with Jonathan Ferrell and Lisa brown Witz Jailey. We bring 3 00:00:13,119 --> 00:00:17,159 Speaker 1: you insight from the best and economics, finance, investment, and 4 00:00:17,280 --> 00:00:23,280 Speaker 1: international relations. Find Bloomberg Surveillance, an Apple podcast, SoundCloud, Bloomberg 5 00:00:23,360 --> 00:00:28,360 Speaker 1: dot Com, and of course on the Bloomberg Terminal. Kyle 6 00:00:28,400 --> 00:00:31,280 Speaker 1: Wineberg with us now my frequency can almoys chief Economists 7 00:00:31,280 --> 00:00:34,560 Speaker 1: and Managing Director. Kyle. As the week progresses, will be 8 00:00:34,640 --> 00:00:36,760 Speaker 1: knee deep in CPI reachs, house sounds. I think this 9 00:00:36,840 --> 00:00:39,080 Speaker 1: morning's time has come to have a little bit more 10 00:00:39,080 --> 00:00:42,080 Speaker 1: of a deeper think about what's happening. You've compared crisis 11 00:00:42,080 --> 00:00:45,680 Speaker 1: to recession, from crisis to recession and rat us distinction 12 00:00:45,680 --> 00:00:48,720 Speaker 1: between the two. Can just walk me through that right now? Sure, 13 00:00:48,760 --> 00:00:50,960 Speaker 1: Good morning, John, and good morning Time, Good morning Lisa, 14 00:00:51,040 --> 00:00:54,040 Speaker 1: Thanks for having me on. A crisis is a downturn 15 00:00:54,200 --> 00:00:57,320 Speaker 1: or an adverse situation where you don't have a policy response. 16 00:00:57,640 --> 00:00:59,360 Speaker 1: And that's where we were a year ago. All right, 17 00:00:59,400 --> 00:01:02,280 Speaker 1: we had a pandemic. We had no solution for it 18 00:01:02,480 --> 00:01:05,000 Speaker 1: other than to shut everything down. That wasn't a good solution. 19 00:01:05,200 --> 00:01:07,800 Speaker 1: So with no good policy response, you have a crisis, 20 00:01:07,840 --> 00:01:10,880 Speaker 1: that's my definition. And but we're in right now. What 21 00:01:10,959 --> 00:01:13,520 Speaker 1: the crisis did was it created a recession, and in 22 00:01:13,600 --> 00:01:15,800 Speaker 1: a recession, we know what we have to do, alright. 23 00:01:15,840 --> 00:01:18,399 Speaker 1: The problem with this recession, which is different in so 24 00:01:18,440 --> 00:01:20,960 Speaker 1: many ways from all the recessions before it, is that 25 00:01:21,000 --> 00:01:24,520 Speaker 1: most of our policy tools already exhausted. So going into 26 00:01:24,760 --> 00:01:27,440 Speaker 1: a period where we normally would expect to see policy 27 00:01:28,160 --> 00:01:32,319 Speaker 1: supporting reemployment, re engagement of people in the workforce, growth 28 00:01:32,319 --> 00:01:34,880 Speaker 1: of the economy, and so forth, policy is pretty much 29 00:01:34,920 --> 00:01:38,520 Speaker 1: hamstrung and is already doing all that it can do. Carl, 30 00:01:38,560 --> 00:01:41,640 Speaker 1: you are a legendary across the time of Lehman Brothers 31 00:01:41,880 --> 00:01:46,440 Speaker 1: into World Crisis two and three, four decades ago, of 32 00:01:46,600 --> 00:01:50,800 Speaker 1: watching gloom turn into not optimism but a good workout. 33 00:01:50,960 --> 00:01:54,600 Speaker 1: Are we just impatient right now? Are we just impatient 34 00:01:54,680 --> 00:01:58,080 Speaker 1: worried about fixing things in three months that may take 35 00:01:58,200 --> 00:02:01,600 Speaker 1: three years to fix? Yeah, three years would be a 36 00:02:01,600 --> 00:02:04,600 Speaker 1: conservative estimate of history as any guide. You know, some 37 00:02:04,720 --> 00:02:06,880 Speaker 1: of the people in the market at least these days 38 00:02:07,040 --> 00:02:09,359 Speaker 1: were also in the market in two thousand and two 39 00:02:09,360 --> 00:02:12,440 Speaker 1: thousand and nine, And people forget that. Even though GDP 40 00:02:12,680 --> 00:02:16,600 Speaker 1: got back to where it was prior to the global 41 00:02:16,639 --> 00:02:20,519 Speaker 1: financial crisis in just two years. The unemployment rate didn't 42 00:02:20,520 --> 00:02:24,720 Speaker 1: regain two thousand and eight levels until a decade later. 43 00:02:25,080 --> 00:02:28,120 Speaker 1: And that kind of delay and employment is actually normal. 44 00:02:28,320 --> 00:02:32,040 Speaker 1: It's why we have recessions. Right, Recessions are a purge 45 00:02:32,440 --> 00:02:36,280 Speaker 1: of excesses, so firms hire too many workers, right, it's 46 00:02:36,320 --> 00:02:39,880 Speaker 1: easier there that uh, we we purge. We find we 47 00:02:39,919 --> 00:02:44,000 Speaker 1: can do just as much with fewer workers in a recession, 48 00:02:44,160 --> 00:02:46,440 Speaker 1: and then it's very, very slow to bring those workers 49 00:02:46,480 --> 00:02:49,120 Speaker 1: back on forward. Firms are reluctant to bring them back. 50 00:02:49,520 --> 00:02:53,120 Speaker 1: So I think that we are overly optimistic and expecting 51 00:02:53,360 --> 00:02:55,440 Speaker 1: that everything's going to get back to the way where 52 00:02:55,480 --> 00:02:58,359 Speaker 1: it was by the end of this year, and especially 53 00:02:58,360 --> 00:03:00,760 Speaker 1: in the labor market. And if the abor market is 54 00:03:00,800 --> 00:03:05,400 Speaker 1: now our criteria for changing monetary policy, than recovery or 55 00:03:05,520 --> 00:03:09,200 Speaker 1: changes or renormalization of monetary policy is going to be 56 00:03:09,280 --> 00:03:12,000 Speaker 1: further out than most people expect. Carl, are you saying 57 00:03:12,040 --> 00:03:14,560 Speaker 1: when you say policy is hamstrung, that the Federal Reserve 58 00:03:14,639 --> 00:03:18,440 Speaker 1: is out of tools to fight another recession. Well, I 59 00:03:18,480 --> 00:03:21,320 Speaker 1: think that they've extended about as much as they can 60 00:03:21,360 --> 00:03:24,760 Speaker 1: go in terms of q E. I mean technically they 61 00:03:24,760 --> 00:03:28,240 Speaker 1: could go further than that, but practically will they do that? 62 00:03:28,280 --> 00:03:30,680 Speaker 1: Will they take the heat if there were another downturn, 63 00:03:30,720 --> 00:03:32,640 Speaker 1: if there was another shock right now, what would the 64 00:03:32,680 --> 00:03:36,400 Speaker 1: FIT do? What could the FIT plausibly do without unsettling 65 00:03:36,440 --> 00:03:39,760 Speaker 1: financial markets? And on the fiscal side, it's clear that 66 00:03:39,800 --> 00:03:42,040 Speaker 1: there's not a lot of appetite anywhere in the world 67 00:03:42,080 --> 00:03:46,440 Speaker 1: for more deficit spending, yet that is what would be required. Remember, 68 00:03:46,560 --> 00:03:51,240 Speaker 1: with fiscal policy, it doesn't increase growth unless you get 69 00:03:51,280 --> 00:03:54,800 Speaker 1: more of it each year. So running bigger deficits than 70 00:03:54,840 --> 00:03:58,279 Speaker 1: we saw last year next year, I think as a nonstarter. 71 00:03:58,560 --> 00:04:01,760 Speaker 1: Even in the most dire circle stances, it's gonna catchhop 72 00:04:01,800 --> 00:04:03,320 Speaker 1: Has so wise to get your input on this show 73 00:04:03,640 --> 00:04:05,520 Speaker 1: ahead of a big week for this market. Gun, it's 74 00:04:05,520 --> 00:04:07,560 Speaker 1: the Fed next week, cal wand back that high frequency 75 00:04:07,560 --> 00:04:14,400 Speaker 1: can always chief economist and managing direct d Okay, we're 76 00:04:14,440 --> 00:04:16,400 Speaker 1: gonna stop the show. This is what we do. We 77 00:04:16,480 --> 00:04:19,960 Speaker 1: talked to smart smart people Imperial College in London, Johns Hopkins. 78 00:04:20,000 --> 00:04:21,800 Speaker 1: We've done a lot of at work with Thank you 79 00:04:21,880 --> 00:04:26,159 Speaker 1: Mr Bloomberg for that. I think of University Washington Microbiology. 80 00:04:26,240 --> 00:04:29,479 Speaker 1: Joshua Scharstein from Johns Hopkins with us today and we're 81 00:04:29,520 --> 00:04:33,000 Speaker 1: just gonna flat out stop, Joshua after I'm teen months 82 00:04:33,600 --> 00:04:36,720 Speaker 1: and brilliant people like you trying to extricate a seal 83 00:04:36,800 --> 00:04:40,240 Speaker 1: from this pandemic. To celebrate that one million kids will 84 00:04:40,279 --> 00:04:44,480 Speaker 1: go back to school in New York City today, I mean, 85 00:04:44,520 --> 00:04:47,320 Speaker 1: it's just a huge deal in New York City back 86 00:04:47,360 --> 00:04:50,440 Speaker 1: to school. Let's cut to the chase. Is it gonna 87 00:04:50,480 --> 00:04:52,760 Speaker 1: be safe? How do you go back to school and 88 00:04:52,800 --> 00:04:57,560 Speaker 1: be safe if you're not vaccinated under twelve years old? Well, 89 00:04:57,600 --> 00:05:00,840 Speaker 1: I think it's gonna be uh, pretty safe because New 90 00:05:00,920 --> 00:05:04,040 Speaker 1: York is taking as many precautions as it possibly can take. 91 00:05:04,320 --> 00:05:06,680 Speaker 1: It's really important for kids to be back in school. 92 00:05:06,720 --> 00:05:09,200 Speaker 1: So you're right, it is a really great thing that 93 00:05:09,240 --> 00:05:11,680 Speaker 1: they're doing it, but it's going to require, you know, 94 00:05:12,120 --> 00:05:17,200 Speaker 1: a vigilance and it's going to require these different mitigation steps, masking, 95 00:05:17,960 --> 00:05:22,120 Speaker 1: um testing, other kinds of things until we really get 96 00:05:22,120 --> 00:05:25,800 Speaker 1: a handle on what the delta virus does in schools, 97 00:05:25,839 --> 00:05:30,320 Speaker 1: particularly for younger kids. Link your knowledge of the unvaccinated, 98 00:05:30,440 --> 00:05:33,120 Speaker 1: including the runner up at the US Open I believe 99 00:05:33,760 --> 00:05:39,200 Speaker 1: is unvaccinated on the male side, Djokovic. Link the unvaccinated 100 00:05:39,240 --> 00:05:43,960 Speaker 1: across this nation with kids and teachers and staff going 101 00:05:44,040 --> 00:05:47,719 Speaker 1: back to school. Well, one thing that's been clear is 102 00:05:47,800 --> 00:05:52,280 Speaker 1: that UM states with more people who are unvaccinated are 103 00:05:52,320 --> 00:05:56,880 Speaker 1: also seeing many more sick kids, particularly young sick kids. 104 00:05:56,920 --> 00:06:01,039 Speaker 1: And that's probably because adults who are unvaccinated who gets 105 00:06:01,040 --> 00:06:05,039 Speaker 1: sick can really infect kids effectively, and adults who are 106 00:06:05,120 --> 00:06:08,239 Speaker 1: vaccinated are it's much harder for them to infect kids. 107 00:06:08,640 --> 00:06:11,080 Speaker 1: And so I think that one of the ways we 108 00:06:11,080 --> 00:06:14,440 Speaker 1: can protect kids is to have adults generally vaccinated. A 109 00:06:14,520 --> 00:06:18,160 Speaker 1: second way is to have adults in schools vaccinated. And 110 00:06:18,200 --> 00:06:22,039 Speaker 1: so I'm very supportive of policies that that that require 111 00:06:22,720 --> 00:06:25,680 Speaker 1: adults in schools to be vaccinated. It's absolutely for the 112 00:06:25,720 --> 00:06:28,160 Speaker 1: safety of the kids. Dr. Scharfsine almost every parent out 113 00:06:28,200 --> 00:06:30,600 Speaker 1: there is going to get a dreaded email one morning 114 00:06:30,600 --> 00:06:32,880 Speaker 1: and the next couple of weeks saying somebody and your 115 00:06:32,960 --> 00:06:36,920 Speaker 1: kids school was diagnosed with COVID. Don't worry or worry 116 00:06:37,240 --> 00:06:39,839 Speaker 1: you have to quarantine or not quarantine. What is the 117 00:06:39,839 --> 00:06:42,920 Speaker 1: correct protocol if someone is in contact or within six 118 00:06:42,920 --> 00:06:46,480 Speaker 1: feet for say, ten straight minutes, even if they are 119 00:06:46,560 --> 00:06:51,159 Speaker 1: masked in a school. So UM, what I would say 120 00:06:51,240 --> 00:06:53,440 Speaker 1: is it's really important for them to be good communication 121 00:06:53,480 --> 00:06:56,000 Speaker 1: about this and to explain to parents as much as 122 00:06:56,040 --> 00:06:58,719 Speaker 1: possible exactly how this will be handled, and then follow 123 00:06:58,760 --> 00:07:01,520 Speaker 1: through on that rather in surprise everyone the first time 124 00:07:01,560 --> 00:07:04,080 Speaker 1: there's a positive test, it is going to be expected 125 00:07:04,120 --> 00:07:06,000 Speaker 1: that that that may happen. Here's how we're going to 126 00:07:06,120 --> 00:07:10,240 Speaker 1: deal with it. UM, and I think that in general UM, 127 00:07:10,280 --> 00:07:14,120 Speaker 1: it is certainly for UM for kids who have vaccinated. 128 00:07:14,160 --> 00:07:17,680 Speaker 1: Older kids who are vaccinated, they do not necessarily, according 129 00:07:17,680 --> 00:07:21,160 Speaker 1: to the CDC, I think, need to be quarantined. Some 130 00:07:21,280 --> 00:07:23,440 Speaker 1: schools may want to do that out of an abundance 131 00:07:23,480 --> 00:07:26,239 Speaker 1: of caution. Others may want to try to use tests, 132 00:07:26,280 --> 00:07:28,640 Speaker 1: for example, to keep kids in school. They're going to 133 00:07:28,720 --> 00:07:31,600 Speaker 1: be a few different practices. I think the most important 134 00:07:31,600 --> 00:07:34,000 Speaker 1: thing is that they're explained clearly to parents and that 135 00:07:34,080 --> 00:07:37,440 Speaker 1: the school is monitoring whether their particular approach works and 136 00:07:37,480 --> 00:07:41,360 Speaker 1: it's flexible to changing UM if necessary based on what 137 00:07:41,400 --> 00:07:43,560 Speaker 1: they see. Early in the school year, Dr Scharfson, the 138 00:07:43,600 --> 00:07:46,080 Speaker 1: start of the New York City school year really highlights 139 00:07:46,080 --> 00:07:48,480 Speaker 1: how people are trying to get back to some semblance 140 00:07:48,480 --> 00:07:50,440 Speaker 1: of normal. People are saying, get back to the office. 141 00:07:50,440 --> 00:07:53,880 Speaker 1: City workers have to be back in person, and yet 142 00:07:53,880 --> 00:07:56,320 Speaker 1: it is pock marked by all these notices and by 143 00:07:56,360 --> 00:07:59,239 Speaker 1: the ongoing spread of the virus. When do we get 144 00:07:59,480 --> 00:08:01,560 Speaker 1: to some sort of equilibrium or we're heading into a 145 00:08:01,600 --> 00:08:04,200 Speaker 1: really perilous fall where people are trying to act like 146 00:08:04,240 --> 00:08:07,800 Speaker 1: everything is normal when it is anything. But I think 147 00:08:07,840 --> 00:08:10,440 Speaker 1: that we're headed right now into a bit of a 148 00:08:10,440 --> 00:08:12,960 Speaker 1: new normal. You know, we can go to work, but 149 00:08:13,080 --> 00:08:15,200 Speaker 1: we may need to wear a mask in the workplace 150 00:08:15,280 --> 00:08:18,559 Speaker 1: or make sure everybody is vaccinated. UM, and the people 151 00:08:18,720 --> 00:08:21,000 Speaker 1: need to be a little bit more vigilant. I think 152 00:08:21,000 --> 00:08:23,480 Speaker 1: we're going to be in that period for a while 153 00:08:23,520 --> 00:08:27,240 Speaker 1: at least until cases really go down. UM, and we 154 00:08:27,560 --> 00:08:29,320 Speaker 1: you know, get a little bit more of a distance 155 00:08:29,360 --> 00:08:31,880 Speaker 1: between us and the virus. That obviously depends on where 156 00:08:31,920 --> 00:08:34,600 Speaker 1: you are in the country in this situation. But for example, 157 00:08:34,640 --> 00:08:36,640 Speaker 1: at our school, you know, we're we have kids back 158 00:08:36,640 --> 00:08:39,040 Speaker 1: in class. Um, we have a little bit more distance 159 00:08:39,120 --> 00:08:42,760 Speaker 1: than usual, fewer people in the classroom, but they can 160 00:08:42,760 --> 00:08:45,800 Speaker 1: sit you know, three ft away with a mask on 161 00:08:46,640 --> 00:08:50,920 Speaker 1: and um, and everybody is vaccinated. So you know, we 162 00:08:51,000 --> 00:08:53,240 Speaker 1: have a new normal. But we're excited to be in 163 00:08:53,280 --> 00:08:55,280 Speaker 1: the classroom and teaching. And I've been doing some of that. 164 00:08:55,360 --> 00:08:57,680 Speaker 1: I think it's fantasy, like so you and many others 165 00:08:57,679 --> 00:09:00,679 Speaker 1: anticipating a bit of a problem this fold into WINSA Well. 166 00:09:00,679 --> 00:09:02,360 Speaker 1: I mean, I'll tell you my kids actually went back 167 00:09:02,480 --> 00:09:03,839 Speaker 1: back to school a little bit early because they go 168 00:09:03,880 --> 00:09:05,880 Speaker 1: to a charter school. And I will just tell you 169 00:09:05,960 --> 00:09:08,440 Speaker 1: that they actually have already had to stay home for 170 00:09:08,480 --> 00:09:11,200 Speaker 1: a week as a result, John, of this idea that 171 00:09:11,240 --> 00:09:13,880 Speaker 1: they have been quarantined and basically somebody was exposed to 172 00:09:13,920 --> 00:09:16,960 Speaker 1: scot started Lisa. I'm telling you it was the second week. 173 00:09:17,040 --> 00:09:19,320 Speaker 1: So I just wonder what kind of provisions do people 174 00:09:19,360 --> 00:09:21,920 Speaker 1: make to potentially have childcare when they have to go 175 00:09:21,960 --> 00:09:24,080 Speaker 1: back to the office. Your experience, Leasa, the experience of 176 00:09:24,120 --> 00:09:26,920 Speaker 1: so many right now, so keen across this country. Yeah, 177 00:09:26,960 --> 00:09:30,480 Speaker 1: it is. And you know, I think what's so important here, John, 178 00:09:30,600 --> 00:09:33,559 Speaker 1: is the idea of how it linkson Joe Biden stridency. 179 00:09:33,600 --> 00:09:36,360 Speaker 1: The President has made clear this is strident, but he 180 00:09:36,480 --> 00:09:39,840 Speaker 1: talked enough about the schools within that stridency. Joshua going 181 00:09:39,920 --> 00:09:41,960 Speaker 1: to leave it. They're gonna catch up. Joshua shafting there, 182 00:09:42,000 --> 00:09:50,640 Speaker 1: Johns Hopkins Blinbo School of Public Health, Weinstein, do we 183 00:09:50,679 --> 00:09:56,280 Speaker 1: get to Francisco the international standard out of London, Francisco 184 00:09:56,400 --> 00:09:59,959 Speaker 1: blage Bank America ahead of global commodatives and too rivets 185 00:10:00,000 --> 00:10:03,240 Speaker 1: of research got to catch up. Francisco. Let's just start 186 00:10:03,240 --> 00:10:06,360 Speaker 1: with what's going on with aluminum aluminium three K. What's 187 00:10:06,400 --> 00:10:11,400 Speaker 1: happening is this old supply scarcity. UH. In the Jonathan 188 00:10:11,400 --> 00:10:15,319 Speaker 1: there's a there's supply scarcity on a couple of different fronts. 189 00:10:15,360 --> 00:10:18,760 Speaker 1: We've had, of course, UH a coo of tieing Guinea, 190 00:10:18,880 --> 00:10:23,600 Speaker 1: which is created some anxiety around book side supplies. Book 191 00:10:23,679 --> 00:10:28,400 Speaker 1: Side is the ingredient into alumina, which in turn as 192 00:10:28,480 --> 00:10:34,480 Speaker 1: the key ingredients into aluminum or aluminium um so um so. 193 00:10:34,720 --> 00:10:37,040 Speaker 1: We we've had shortages there because of cool and but 194 00:10:37,040 --> 00:10:40,640 Speaker 1: then more importantly, China has been curving aluminum supplies now 195 00:10:40,720 --> 00:10:44,679 Speaker 1: for most of the most of the year because um 196 00:10:44,720 --> 00:10:48,439 Speaker 1: they're trying to rain in power generation become cleaner. And 197 00:10:48,559 --> 00:10:51,160 Speaker 1: remember it's been a low rainfall year in China. It's 198 00:10:51,160 --> 00:10:53,280 Speaker 1: one of the reasons they've been trying to crack down 199 00:10:53,320 --> 00:10:56,320 Speaker 1: on bitcoin too. So third generation is very strong, but 200 00:10:56,360 --> 00:10:59,880 Speaker 1: it's mostly again filling the gap for that lack of 201 00:11:00,080 --> 00:11:03,120 Speaker 1: hydro power. So so if you look at the liminum 202 00:11:03,120 --> 00:11:05,520 Speaker 1: production year to date in China's kind of flat as 203 00:11:05,520 --> 00:11:08,800 Speaker 1: a pancake. Demand's kept growing. We hold this liquar in 204 00:11:08,840 --> 00:11:13,280 Speaker 1: the system and and that's what's pushing prices higher. Francisco, 205 00:11:13,320 --> 00:11:16,520 Speaker 1: I saw the London Medals index of Bloomberg indexes as well, 206 00:11:16,559 --> 00:11:19,280 Speaker 1: show Medals as a group doing better. We know the 207 00:11:19,280 --> 00:11:23,160 Speaker 1: Bloomberg Commodity index has done better as well. Does it 208 00:11:23,320 --> 00:11:30,400 Speaker 1: signal the commodities breakout? Can you call a bullmarket in commodities? Um? Well, 209 00:11:30,400 --> 00:11:32,880 Speaker 1: I mean we you know, uh, Tom, we we've had 210 00:11:32,920 --> 00:11:34,520 Speaker 1: a bit of a bull market already for a while, 211 00:11:34,720 --> 00:11:36,880 Speaker 1: uh since since we hit the lowest back in April 212 00:11:37,000 --> 00:11:40,400 Speaker 1: last year. So um, we remained constructive here. We we 213 00:11:40,480 --> 00:11:43,320 Speaker 1: think prices of Marty's most commodities will keep going higher. 214 00:11:43,800 --> 00:11:45,959 Speaker 1: But again, independs on where you look at. I remember 215 00:11:46,440 --> 00:11:49,400 Speaker 1: iron ore has been coming down very hard since Valley 216 00:11:49,480 --> 00:11:54,240 Speaker 1: started exporting more volumes. But then oil, on the other hand, 217 00:11:54,280 --> 00:11:56,360 Speaker 1: it's kind of sitting. It's a bit of a boiling 218 00:11:56,360 --> 00:11:59,439 Speaker 1: frog waiting for the winter. And natural gas, of course 219 00:11:59,559 --> 00:12:03,200 Speaker 1: is ripped around the world and also dragging up us 220 00:12:03,280 --> 00:12:05,640 Speaker 1: mad gats with it. So it depends where you look at. 221 00:12:05,679 --> 00:12:08,880 Speaker 1: But in world terms, commorities are very strong because we 222 00:12:08,920 --> 00:12:11,160 Speaker 1: have a little liquid in the system. We are growing, 223 00:12:11,600 --> 00:12:14,480 Speaker 1: we have supply constraints, we have low inventories. It's kind 224 00:12:14,520 --> 00:12:16,880 Speaker 1: of a perfect cocktail for commorities to keep breaking higher. 225 00:12:16,920 --> 00:12:18,760 Speaker 1: And when you talk about oil and the cold winter, 226 00:12:18,960 --> 00:12:21,439 Speaker 1: there was a note that I believe your team put 227 00:12:21,480 --> 00:12:23,640 Speaker 1: out that you do see the potential for a hundred 228 00:12:23,640 --> 00:12:27,720 Speaker 1: dollar barrel oil in the United States and elsewhere based 229 00:12:27,840 --> 00:12:30,280 Speaker 1: on what supplies are doing. Just want to bring you 230 00:12:30,280 --> 00:12:33,480 Speaker 1: these headlines. OPEC see stronger demand for its crew this 231 00:12:33,559 --> 00:12:37,200 Speaker 1: year and next at the same time, non opeque output 232 00:12:37,520 --> 00:12:40,280 Speaker 1: is supposed to be down. And this really directly speaks 233 00:12:40,320 --> 00:12:43,280 Speaker 1: to the shale patch. What's the tipping point at which 234 00:12:43,280 --> 00:12:46,720 Speaker 1: point we start to see UH supplies go up to 235 00:12:46,800 --> 00:12:50,719 Speaker 1: meet the demand and regulate well. So so I think 236 00:12:50,720 --> 00:12:52,520 Speaker 1: I think right now we have a very short window 237 00:12:52,520 --> 00:12:55,320 Speaker 1: into the winter. We're all still UH wearing flip flow 238 00:12:55,360 --> 00:12:57,880 Speaker 1: ups and shorts in the northern hemisphere, but that's not 239 00:12:58,000 --> 00:13:00,559 Speaker 1: changed very quickly. Within a month or two, get cold, 240 00:13:00,679 --> 00:13:02,559 Speaker 1: you can get very cold. I think natural gas is 241 00:13:02,600 --> 00:13:06,160 Speaker 1: gonna be very strong and if if it breaks out, 242 00:13:06,320 --> 00:13:09,160 Speaker 1: and remember we're already trading over twenty dosp mb tu, 243 00:13:09,200 --> 00:13:12,040 Speaker 1: which is a hundred and twenty barrel foil equivalent in 244 00:13:12,120 --> 00:13:15,760 Speaker 1: oil um and we go another ten bucks higher on 245 00:13:15,800 --> 00:13:17,840 Speaker 1: then for mbtu, which would put US at a hundred 246 00:13:17,880 --> 00:13:22,079 Speaker 1: and eighty dollars per prepared barrel foil equivalent. I think 247 00:13:22,080 --> 00:13:24,439 Speaker 1: that would drug up the entire oil sector because people 248 00:13:24,440 --> 00:13:28,360 Speaker 1: will look for cheaper sources of of of of bt 249 00:13:28,520 --> 00:13:32,120 Speaker 1: us of calorific value for for heating and for power generation. 250 00:13:32,400 --> 00:13:35,600 Speaker 1: We see a very strong bunker fuel marketing Singapore already 251 00:13:35,640 --> 00:13:39,160 Speaker 1: because of that recent So I'm a little concerned that, um, 252 00:13:39,200 --> 00:13:41,960 Speaker 1: the winter gets cold, we're gonna see, uh, the entire 253 00:13:42,080 --> 00:13:44,880 Speaker 1: energy complex ripping higher. Francisco, what does the move in 254 00:13:44,920 --> 00:13:51,200 Speaker 1: these commodities say about the resurgence of the Pacific rim Um? Well, 255 00:13:51,240 --> 00:13:53,160 Speaker 1: I mean, I think the Pacific rim is is definitely 256 00:13:53,240 --> 00:13:55,480 Speaker 1: coming back. Now. The one thing I would notice that 257 00:13:55,600 --> 00:13:58,400 Speaker 1: China is a little softer. And remember one thing we've 258 00:13:58,520 --> 00:14:01,000 Speaker 1: we've been tracking with with a lot of interest this 259 00:14:01,120 --> 00:14:02,960 Speaker 1: what's going on in the property sector in China with 260 00:14:03,040 --> 00:14:07,280 Speaker 1: ever grands bonds coming down very hard, Chinese new lawn 261 00:14:07,320 --> 00:14:11,400 Speaker 1: issues also slowing down materially over the last few months. 262 00:14:11,920 --> 00:14:14,080 Speaker 1: UM and that's one thing that you know, we we 263 00:14:14,200 --> 00:14:17,360 Speaker 1: keep a close eye on. But but generally the the 264 00:14:17,400 --> 00:14:20,960 Speaker 1: Asia Pacific ram, the back ram as reported, it's definitely 265 00:14:21,000 --> 00:14:23,920 Speaker 1: coming back with force. And remember over the next six 266 00:14:23,960 --> 00:14:27,360 Speaker 1: months we're gonna have a huge search in vaccinations which 267 00:14:27,360 --> 00:14:30,960 Speaker 1: will restart air travel. So we think a hundred oil 268 00:14:31,160 --> 00:14:33,680 Speaker 1: is more likely next summer when we all start flying 269 00:14:33,720 --> 00:14:37,280 Speaker 1: internationally much more um in in in a much much 270 00:14:37,280 --> 00:14:40,360 Speaker 1: greater way. Otherwise it may happen sooner if the winter 271 00:14:40,960 --> 00:14:43,200 Speaker 1: turn is very cold. But the pack rim is definitely 272 00:14:43,280 --> 00:14:45,640 Speaker 1: coming back. But it's a triple digit crew price the 273 00:14:45,640 --> 00:14:49,000 Speaker 1: base case for you, Francisco, it's not your base case. Now. 274 00:14:49,640 --> 00:14:52,400 Speaker 1: We we have are are we have a call for 275 00:14:52,520 --> 00:14:55,280 Speaker 1: a hundred oil for next summer. What we are saying 276 00:14:55,400 --> 00:14:57,720 Speaker 1: is if the winter is called, we would roll We 277 00:14:57,760 --> 00:14:59,760 Speaker 1: could roll that up six months and it may have 278 00:14:59,840 --> 00:15:03,480 Speaker 1: been this winter. Wow. But again, um, you know we're 279 00:15:03,480 --> 00:15:08,640 Speaker 1: gonna type market for for energy and oil is again 280 00:15:09,040 --> 00:15:12,920 Speaker 1: it's still benefiting from OPEC excess capacity. But we don't 281 00:15:12,920 --> 00:15:17,880 Speaker 1: have the the amount of shale available over a shore 282 00:15:17,920 --> 00:15:20,720 Speaker 1: window of time to to meet that call if if 283 00:15:20,760 --> 00:15:25,000 Speaker 1: the weather gets cold, Francisco, just an amazing cool, and 284 00:15:25,040 --> 00:15:26,920 Speaker 1: we want you to come back again soon so we 285 00:15:26,920 --> 00:15:29,160 Speaker 1: can talk about that the prospect that cool comes in 286 00:15:29,560 --> 00:15:37,920 Speaker 1: six months. Francisco Blige their bank for America. Let's get 287 00:15:37,960 --> 00:15:40,600 Speaker 1: straight to the quote of this morning. We've been jokingly 288 00:15:40,640 --> 00:15:43,160 Speaker 1: calling this rally the d Sharon or Dave Matthews rally. 289 00:15:43,240 --> 00:15:45,840 Speaker 1: Essentially it is a rally that nobody likes, and yet 290 00:15:45,840 --> 00:15:48,160 Speaker 1: it continues to go up. The author of that quote, 291 00:15:48,200 --> 00:15:49,640 Speaker 1: and please to say as with us now, I mean 292 00:15:49,640 --> 00:15:53,560 Speaker 1: with Silverman, RBC Capital Markets, Equity derivative strategist Amy, let's 293 00:15:53,560 --> 00:15:56,760 Speaker 1: start right there. Any reason for that to change anytime soon? 294 00:15:59,240 --> 00:16:02,360 Speaker 1: So guys, so far no, you know, I was watching 295 00:16:02,440 --> 00:16:04,840 Speaker 1: the draw down, you know, the past week with great 296 00:16:04,880 --> 00:16:08,720 Speaker 1: interest because the option sentiment has been so glum through 297 00:16:08,760 --> 00:16:11,320 Speaker 1: your end, and you know, once usually you get kind 298 00:16:11,360 --> 00:16:13,720 Speaker 1: of a breather, it kind of comes off, and the 299 00:16:13,760 --> 00:16:16,520 Speaker 1: reality is it hasn't. So you know, we remain glum. 300 00:16:17,080 --> 00:16:21,240 Speaker 1: We remain with demand for downside protection and even despite 301 00:16:21,240 --> 00:16:24,120 Speaker 1: the move down, you know, that has kind of stayed solid, 302 00:16:24,200 --> 00:16:27,160 Speaker 1: which just tells you that sentiment UH is still kind 303 00:16:27,160 --> 00:16:29,720 Speaker 1: of saying this is this is unloved and they're waiting 304 00:16:29,720 --> 00:16:33,520 Speaker 1: for even further of a move amy the week, the weekends, 305 00:16:33,600 --> 00:16:36,760 Speaker 1: the week begins, and we have to focus on acuity 306 00:16:36,840 --> 00:16:39,000 Speaker 1: here away from the lyrics of Ed shere And and 307 00:16:39,160 --> 00:16:42,720 Speaker 1: Dave Matthews. You've created a firestorm out in the street 308 00:16:43,000 --> 00:16:46,600 Speaker 1: with your vicious, mean spirited note. Give us the acuity 309 00:16:46,800 --> 00:16:52,400 Speaker 1: right now of why you can own equities. Yeah. Look, 310 00:16:52,480 --> 00:16:54,960 Speaker 1: I think part of it is because the market is 311 00:16:55,040 --> 00:16:58,240 Speaker 1: well hedged. We are very well positioned to the downside. 312 00:16:58,240 --> 00:17:00,280 Speaker 1: I'll give you guys one step that I think really 313 00:17:00,280 --> 00:17:02,680 Speaker 1: puts this in the context. You know, if you just 314 00:17:02,760 --> 00:17:04,959 Speaker 1: sold one of these temper cent how the money put 315 00:17:05,040 --> 00:17:08,120 Speaker 1: options on the SMP in October, Right now, you can 316 00:17:08,160 --> 00:17:11,960 Speaker 1: buy the equivalent sixty times the upside. Now, just to 317 00:17:12,040 --> 00:17:14,480 Speaker 1: provide some history on that metric, back in July that 318 00:17:14,560 --> 00:17:17,520 Speaker 1: was at fifteen times. So what that's telling you is 319 00:17:17,560 --> 00:17:20,920 Speaker 1: the market is ready for the market going down. Um, 320 00:17:21,000 --> 00:17:24,800 Speaker 1: and oftentimes when that happens that the reverse is not true. Right, 321 00:17:24,840 --> 00:17:27,200 Speaker 1: the market is not ready for the market going up. 322 00:17:27,520 --> 00:17:30,080 Speaker 1: And so you know that brings you to a potential 323 00:17:30,119 --> 00:17:34,160 Speaker 1: path if something good does happen of people climbing having 324 00:17:34,240 --> 00:17:36,439 Speaker 1: to scramble to get that leverage on the upside. Well, 325 00:17:36,440 --> 00:17:37,879 Speaker 1: I can say, Amy's I'm sure you've got a lot 326 00:17:37,880 --> 00:17:40,320 Speaker 1: of push back on the Dave Matthews point, especially based 327 00:17:40,320 --> 00:17:42,800 Speaker 1: on some of the people who read your notes. A 328 00:17:42,880 --> 00:17:44,919 Speaker 1: lot of people like Dave Matthews, and we can discuss 329 00:17:44,960 --> 00:17:47,840 Speaker 1: that in detail. They that's the hard way. Yeah, exactly, 330 00:17:47,840 --> 00:17:50,040 Speaker 1: not a lot of haymail Um. There is a question 331 00:17:50,160 --> 00:17:52,800 Speaker 1: about how people are looking at inflation, how people are 332 00:17:52,840 --> 00:17:55,280 Speaker 1: looking at margin pressures. And one thing that you said 333 00:17:55,320 --> 00:17:56,800 Speaker 1: in your note that I thought was fascinating is the 334 00:17:56,840 --> 00:18:00,040 Speaker 1: options market is not pricing in concern at all for 335 00:18:00,119 --> 00:18:02,520 Speaker 1: a six month period or twelve month period for inflation 336 00:18:02,520 --> 00:18:06,560 Speaker 1: in the consumer staples, however, not really the case in industrials. 337 00:18:06,560 --> 00:18:10,879 Speaker 1: Can you explain, Yeah, you know, I think it's important 338 00:18:10,920 --> 00:18:14,240 Speaker 1: because we kind of talk about inflation in this broad umbrella, 339 00:18:14,400 --> 00:18:17,639 Speaker 1: and the reality is obviously different sectors are going to 340 00:18:17,680 --> 00:18:20,600 Speaker 1: be impacted differently. You know, when you look at consumer 341 00:18:20,720 --> 00:18:23,240 Speaker 1: staples on a two month period, when you look at 342 00:18:23,280 --> 00:18:25,480 Speaker 1: the names in it, like a Kroger for example, where 343 00:18:25,520 --> 00:18:27,960 Speaker 1: you know it is down nine percent last week, you're 344 00:18:28,160 --> 00:18:31,520 Speaker 1: seeing it short term, and yet that disappears over a 345 00:18:31,520 --> 00:18:34,040 Speaker 1: six month period and a twelve month period when you 346 00:18:34,040 --> 00:18:38,920 Speaker 1: look at those relative implied volatilities completely the opposite truest industrials. Now, 347 00:18:39,119 --> 00:18:40,679 Speaker 1: you know, as I mentioned my notes, some of this 348 00:18:40,920 --> 00:18:43,760 Speaker 1: is tax related. But what this tells me is, look, 349 00:18:43,800 --> 00:18:47,080 Speaker 1: if you believe that the cost pressures do remain in 350 00:18:47,160 --> 00:18:50,520 Speaker 1: consumer staples over the longer term, that options market pricing 351 00:18:50,560 --> 00:18:52,439 Speaker 1: has not put that there yet, So that is an 352 00:18:52,440 --> 00:18:55,960 Speaker 1: opportunity to own those puts within that sector specifically. I 353 00:18:56,000 --> 00:18:59,120 Speaker 1: think that's how you have to play inflation concerns right now. 354 00:18:59,160 --> 00:19:01,200 Speaker 1: How much is this the way that people are looking 355 00:19:01,240 --> 00:19:03,919 Speaker 1: at the market rather than go along a particular sector, 356 00:19:03,960 --> 00:19:07,000 Speaker 1: They're looking at how margin pressures are being priced in 357 00:19:07,080 --> 00:19:12,120 Speaker 1: specific sectors and trying to get ahead of things that way. Yeah, 358 00:19:12,200 --> 00:19:14,760 Speaker 1: I think, Look, it's gonna go sector by sector, Lisa, 359 00:19:14,800 --> 00:19:17,000 Speaker 1: it's also going to go stock by stock, So you know, 360 00:19:17,040 --> 00:19:20,320 Speaker 1: we're really focused on where we see that change in 361 00:19:20,400 --> 00:19:23,560 Speaker 1: auction sentiment. And you know stop by stop program for example, 362 00:19:23,880 --> 00:19:26,800 Speaker 1: you know that the normalized skew in that name is 363 00:19:26,840 --> 00:19:29,080 Speaker 1: at a two year high, so essentially the demand for 364 00:19:29,119 --> 00:19:31,800 Speaker 1: downside protection. Again, this is even after it's gone down 365 00:19:31,880 --> 00:19:34,200 Speaker 1: nine percent. That's what I think is key for people 366 00:19:34,240 --> 00:19:36,680 Speaker 1: to remember it's you know, after you've had that moved down, 367 00:19:37,040 --> 00:19:40,560 Speaker 1: oftentimes hedges are removed. This is not what is happening 368 00:19:40,600 --> 00:19:43,240 Speaker 1: in names where you continue to see that inflation pressure, 369 00:19:43,280 --> 00:19:45,359 Speaker 1: so people think it will continue to go down. Okay, 370 00:19:45,440 --> 00:19:47,199 Speaker 1: So I mean after this, I'm in love with the 371 00:19:47,200 --> 00:19:49,959 Speaker 1: shape of this market. You know that's great. It's an 372 00:19:50,760 --> 00:19:53,520 Speaker 1: actually go out there, folks and read edge sheering lyrics. 373 00:19:53,600 --> 00:19:57,960 Speaker 1: It's um telling, you know, good jokes that needs to 374 00:19:57,960 --> 00:20:03,000 Speaker 1: be explained, tak. So we're in love with the shape 375 00:20:03,000 --> 00:20:05,800 Speaker 1: of this market. But the reason why the skew is 376 00:20:05,840 --> 00:20:07,879 Speaker 1: the way it is. You know that Shearing taught me 377 00:20:07,880 --> 00:20:10,920 Speaker 1: the Greek letters. The reason that the skews the way 378 00:20:10,960 --> 00:20:13,840 Speaker 1: it is is fear. How do you know when to 379 00:20:13,920 --> 00:20:19,320 Speaker 1: step into fear and go along? Yeah? You know, Look 380 00:20:19,520 --> 00:20:22,359 Speaker 1: you don't. I wish I did. It's always about timing, right, 381 00:20:22,440 --> 00:20:24,160 Speaker 1: you don't. You know. The way I kind of think 382 00:20:24,160 --> 00:20:27,439 Speaker 1: about it is what could possibly drive you know, this 383 00:20:27,520 --> 00:20:30,560 Speaker 1: market to the upside. What Lisa said earlier about just 384 00:20:30,640 --> 00:20:33,439 Speaker 1: the childcare point, I feel deeply personally because I have 385 00:20:33,480 --> 00:20:36,080 Speaker 1: two school aged children. But look, if you get a 386 00:20:36,160 --> 00:20:39,320 Speaker 1: vaccine earlier than expected for the under twelve crowd, right, 387 00:20:39,359 --> 00:20:43,240 Speaker 1: the crowd that actually needs childcare infrastructure. That's something that 388 00:20:43,280 --> 00:20:45,720 Speaker 1: could potentially bring this market up the same with you know, 389 00:20:45,840 --> 00:20:48,919 Speaker 1: better than expected NFP data point. Again, you know, the 390 00:20:48,960 --> 00:20:51,439 Speaker 1: timing is always difficult. The point is just that the 391 00:20:51,480 --> 00:20:54,000 Speaker 1: positioning is really not to be upside at all with it. 392 00:20:54,119 --> 00:20:56,000 Speaker 1: I mean, that's some important let's finish that. Do you 393 00:20:56,080 --> 00:21:00,000 Speaker 1: think that authorization for children could have a similar effect 394 00:21:00,080 --> 00:21:01,640 Speaker 1: on this market in the same way that we saw 395 00:21:01,680 --> 00:21:06,320 Speaker 1: things developed in early November last year? Yeah, you know, look, 396 00:21:06,680 --> 00:21:09,119 Speaker 1: I'm not a medical expert, but I think that that 397 00:21:09,240 --> 00:21:10,720 Speaker 1: this is one of those things where you just kind 398 00:21:10,720 --> 00:21:13,600 Speaker 1: of know personally if you're if you're living through it, right, Like, 399 00:21:13,640 --> 00:21:15,879 Speaker 1: if if this is something that you know that you 400 00:21:15,880 --> 00:21:18,520 Speaker 1: can safely send your children to school and so you're 401 00:21:18,520 --> 00:21:22,240 Speaker 1: not you know, calling a backubsider at the eleventh hour 402 00:21:22,320 --> 00:21:23,960 Speaker 1: because you still have to go to the office and 403 00:21:24,119 --> 00:21:26,120 Speaker 1: you know you can't leave a seven year at home, 404 00:21:26,560 --> 00:21:29,200 Speaker 1: then then sure, of course it helps that that makes 405 00:21:29,240 --> 00:21:32,320 Speaker 1: it so the stability of the return to work is 406 00:21:32,320 --> 00:21:34,800 Speaker 1: is something that can happen. I mean, thank you, thank 407 00:21:34,840 --> 00:21:36,480 Speaker 1: you for catching up with this morning, and we sail 408 00:21:36,560 --> 00:21:45,280 Speaker 1: them in that and obviously, capital markets Postmanian time keen 409 00:21:45,359 --> 00:21:48,040 Speaker 1: are the most important conversation of the day on the 410 00:21:48,160 --> 00:21:51,639 Speaker 1: here and now. Mr Cass is with us this morning. 411 00:21:51,640 --> 00:21:54,720 Speaker 1: Douglas Cass, he reads investment, and his people briefed us 412 00:21:54,760 --> 00:21:56,919 Speaker 1: this morning that we are not talking about the New 413 00:21:57,000 --> 00:22:02,280 Speaker 1: York Yankees, the Boston Red Sax or the Toronto Blue Juice. 414 00:22:03,440 --> 00:22:10,520 Speaker 1: Here nowhere, the Toronto's du Casse Good morning. Market breadth 415 00:22:10,920 --> 00:22:14,680 Speaker 1: represents the total number of stacks that are increasing as 416 00:22:14,680 --> 00:22:17,720 Speaker 1: opposed to the number of stacks that are undergoing a decline. 417 00:22:18,200 --> 00:22:22,119 Speaker 1: You are focused, I am focused. I'm fearful about the 418 00:22:22,160 --> 00:22:26,399 Speaker 1: equity market, and I'm basically of the view that investors 419 00:22:26,480 --> 00:22:32,760 Speaker 1: are underpricing risk UM. Investors today are really wildly bullish UM, 420 00:22:33,000 --> 00:22:38,560 Speaker 1: despite a long laundry list of uncertainties and despite um 421 00:22:38,600 --> 00:22:42,719 Speaker 1: a wide range of possible economic outcomes, there's virtually no 422 00:22:42,760 --> 00:22:45,600 Speaker 1: one looking for anything other than a garden variety correction 423 00:22:45,640 --> 00:22:48,760 Speaker 1: at most. And as a measure of that optimism, Bank 424 00:22:48,800 --> 00:22:52,120 Speaker 1: of America conducted a survey of their private wealth clients 425 00:22:52,119 --> 00:22:56,359 Speaker 1: represented over three trillion dollars in assets, and their investors 426 00:22:56,800 --> 00:23:00,800 Speaker 1: are at sixty in stocks and then all time high 427 00:23:01,400 --> 00:23:04,199 Speaker 1: and Today's and you've just been discussing this for the 428 00:23:04,240 --> 00:23:09,080 Speaker 1: past week. Today's strategists offer very precise and sometimes preposterous 429 00:23:09,119 --> 00:23:13,720 Speaker 1: price targets at that reflective optimism that economic growth will 430 00:23:13,760 --> 00:23:17,480 Speaker 1: not be threatened by inflation, by hierocaust, by continued supply 431 00:23:17,600 --> 00:23:21,600 Speaker 1: dis locations, by higher taxes, etcetera. The government's debtload and 432 00:23:21,640 --> 00:23:25,879 Speaker 1: even higher deficits. Um. Yeah, a few strategists have recently 433 00:23:25,920 --> 00:23:28,800 Speaker 1: voiced some short term concern pol Tom, but look at 434 00:23:28,840 --> 00:23:32,240 Speaker 1: the shallowness of their downside targets. There is a unanimity 435 00:23:32,359 --> 00:23:35,360 Speaker 1: that dips it A buy forgetting about draw downs over history, 436 00:23:35,600 --> 00:23:37,639 Speaker 1: and as I said to you last time, Grandma co 437 00:23:37,760 --> 00:23:39,679 Speaker 1: Fax taught me a more balanced way to look at 438 00:23:39,680 --> 00:23:42,639 Speaker 1: the markets. She taught me to always look over my 439 00:23:42,680 --> 00:23:46,000 Speaker 1: shoulder because the Cossacks may be attacking us. So you 440 00:23:46,040 --> 00:23:49,040 Speaker 1: could describe me now as the anti ethel merman who 441 00:23:49,119 --> 00:23:53,919 Speaker 1: I prefer over edge Shearon and Dave Matthews. Everything doesn't 442 00:23:54,000 --> 00:23:57,320 Speaker 1: always come up roses, and I would describe the market 443 00:23:57,400 --> 00:24:00,360 Speaker 1: a little differently. I prefer the lyrics of Jerry see 444 00:24:00,359 --> 00:24:04,080 Speaker 1: You to Dave Matthews from the Grateful Dead song Ripple. 445 00:24:04,520 --> 00:24:06,919 Speaker 1: There is a road but it's no simple highway between 446 00:24:06,960 --> 00:24:09,360 Speaker 1: the dawn and the dark. So I see things differently 447 00:24:09,400 --> 00:24:12,639 Speaker 1: than the bulls. And I would end by saying, among 448 00:24:12,680 --> 00:24:17,239 Speaker 1: other things, when when Pale tells us that inflation is transitory, 449 00:24:17,400 --> 00:24:20,720 Speaker 1: I'm reminded of that great scene and Princess Bride when 450 00:24:20,720 --> 00:24:23,679 Speaker 1: a Nigo Montoyo tells Vessini, I do not think the 451 00:24:23,720 --> 00:24:27,640 Speaker 1: word means what you think it means. Yeah. Yeah. Shoutout 452 00:24:27,680 --> 00:24:30,280 Speaker 1: to Lisianne Sanders, who, like Doug, cast channel the past 453 00:24:30,359 --> 00:24:35,280 Speaker 1: and excellence and mentioned the Stones in Philadelphia in Doug 454 00:24:35,320 --> 00:24:38,080 Speaker 1: Paul's got a bunch of adult questions. Just one quick 455 00:24:38,200 --> 00:24:44,359 Speaker 1: question for you. Is our pontification about equities now shattered 456 00:24:44,560 --> 00:24:50,480 Speaker 1: or changed because of all these media and social media. Well, 457 00:24:50,520 --> 00:24:52,680 Speaker 1: that's a question. That's a great question. I would look. 458 00:24:52,720 --> 00:24:55,879 Speaker 1: I would I have a different take on that. I 459 00:24:55,920 --> 00:25:01,720 Speaker 1: think it's shattered because we rarely discuss the dangers associated 460 00:25:01,760 --> 00:25:05,960 Speaker 1: with the evolution of market structure. Um. You know, in 461 00:25:06,000 --> 00:25:09,440 Speaker 1: the old days when we started talking to each other, 462 00:25:09,880 --> 00:25:12,680 Speaker 1: the dominant investor used to be active investors like mutual 463 00:25:12,720 --> 00:25:16,480 Speaker 1: funds and hedge funds, and today our markets are dominated 464 00:25:16,560 --> 00:25:21,639 Speaker 1: by these passive investors E. T. F and quant strategies UM. 465 00:25:21,680 --> 00:25:25,000 Speaker 1: I reminded of a quote that Warren Buffett said in 466 00:25:25,080 --> 00:25:28,200 Speaker 1: two thousand six when he was talking about derivetives being 467 00:25:28,240 --> 00:25:31,600 Speaker 1: financial weapons of mass destruction that led to the Great 468 00:25:31,840 --> 00:25:36,879 Speaker 1: Financial Crisis. He said, beware of geeks bearing formulas UM. 469 00:25:37,000 --> 00:25:40,439 Speaker 1: So today the geek's account for over sevent the trading 470 00:25:40,520 --> 00:25:43,520 Speaker 1: volume UH, and so Warrant's comments could apply to the 471 00:25:43,600 --> 00:25:46,240 Speaker 1: risk parity voice and the quants today. So I don't 472 00:25:46,240 --> 00:25:48,639 Speaker 1: think there's a I think there's a non trivial danger 473 00:25:48,680 --> 00:25:53,040 Speaker 1: in this transition. As passive investors know everything about price 474 00:25:53,119 --> 00:25:56,440 Speaker 1: but nothing about value. They act and are in herds. 475 00:25:56,480 --> 00:26:00,240 Speaker 1: They feast on price momentum, that's their prey. They don't 476 00:26:00,280 --> 00:26:03,200 Speaker 1: consider reward versus risk. They're not c f as they 477 00:26:03,240 --> 00:26:07,080 Speaker 1: know nothing about discount the dividend models. Um. They never 478 00:26:07,119 --> 00:26:08,760 Speaker 1: looked at a balance sheet or a P and L 479 00:26:08,880 --> 00:26:12,400 Speaker 1: statement and have no emotions because their algales and machines 480 00:26:12,760 --> 00:26:16,600 Speaker 1: to take their strategies. So any inflection point momentum can 481 00:26:16,680 --> 00:26:19,760 Speaker 1: lead to these abrupt and changes and even an avalanche 482 00:26:19,760 --> 00:26:23,240 Speaker 1: of selling. Look what happened on Friday. S and P 483 00:26:23,440 --> 00:26:25,639 Speaker 1: s were up twenty eight handles at nine thirty in 484 00:26:25,680 --> 00:26:28,520 Speaker 1: the morning. They closed sixty handles lower the end the 485 00:26:28,600 --> 00:26:31,119 Speaker 1: day minus thirty four. There was no new news. It 486 00:26:31,280 --> 00:26:33,919 Speaker 1: just happened. It's sort of like when the Yankees won 487 00:26:34,000 --> 00:26:36,919 Speaker 1: thirteen in a row and then went you know, they 488 00:26:36,960 --> 00:26:39,639 Speaker 1: went two for eight in the next ten ten games. 489 00:26:40,119 --> 00:26:42,959 Speaker 1: You know, I'm looking at the Yankee schedule here, and 490 00:26:43,000 --> 00:26:46,800 Speaker 1: I mean they end brutal three games with Toronto. You 491 00:26:46,880 --> 00:26:50,479 Speaker 1: promised me the three games with Tampa. The Yankees are 492 00:26:50,520 --> 00:26:53,640 Speaker 1: the toughest season clothes of any team, I mean Tampa Bay. 493 00:26:54,000 --> 00:26:56,720 Speaker 1: Since when do we fear Tampa today? You have to 494 00:26:56,880 --> 00:26:59,840 Speaker 1: you have to alight? Can I can? I just mentioned 495 00:27:00,000 --> 00:27:04,960 Speaker 1: one thing about stocks. Um You know. I usually come 496 00:27:04,960 --> 00:27:09,280 Speaker 1: on and I have these cautious remarks, um um, you know, 497 00:27:09,320 --> 00:27:11,720 Speaker 1: and I am concerned about the fragility of the economy, 498 00:27:11,760 --> 00:27:16,080 Speaker 1: our market structure, and other reasons like stagflation. But I 499 00:27:16,160 --> 00:27:20,359 Speaker 1: see some really extraordinary long opportunities today in deeper value 500 00:27:20,400 --> 00:27:23,600 Speaker 1: and hated market sectors. The market has been so bifurcated. 501 00:27:24,480 --> 00:27:26,960 Speaker 1: Um Can. I just mentioned very briefly one group that 502 00:27:27,040 --> 00:27:33,320 Speaker 1: I'm buying aggressively. It was a year ago in bank stocks. 503 00:27:33,760 --> 00:27:36,600 Speaker 1: I think that we're in a generational loaf of cannabis stocks. 504 00:27:36,680 --> 00:27:39,600 Speaker 1: And it's not dissimilar to when the SMP was at 505 00:27:39,640 --> 00:27:42,800 Speaker 1: six sixty six on that faithful day in March of 506 00:27:42,840 --> 00:27:45,000 Speaker 1: two thou nine, when I was on the Larry Cudlow 507 00:27:45,080 --> 00:27:48,520 Speaker 1: Show and talking about a generational low in stocks. I 508 00:27:48,560 --> 00:27:51,800 Speaker 1: think that cannabis represents a single best reward versus risk 509 00:27:51,840 --> 00:27:54,760 Speaker 1: on the longside of any sector that I have encountered. 510 00:27:54,760 --> 00:27:58,639 Speaker 1: In the last decade. UM. Most of the major industry 511 00:27:58,640 --> 00:28:02,920 Speaker 1: players are improved their franchises the footprints while the government 512 00:28:02,960 --> 00:28:06,520 Speaker 1: deals with the Safe Banking Act and legalization, both of 513 00:28:06,520 --> 00:28:09,960 Speaker 1: which I see happening during the next couple of months UM. 514 00:28:10,000 --> 00:28:14,840 Speaker 1: But they've been increasingly profitable while legislative debate. Today, most 515 00:28:14,920 --> 00:28:17,919 Speaker 1: institutionals can't even buy the stocks because they're on the 516 00:28:17,920 --> 00:28:21,440 Speaker 1: pitch sheets or trade in candidate. But these are artificial constraints, 517 00:28:21,680 --> 00:28:23,679 Speaker 1: and I'm buying M S O S, which is the 518 00:28:23,760 --> 00:28:26,959 Speaker 1: largest et the pink sheets. Is what the reason folks 519 00:28:27,000 --> 00:28:31,560 Speaker 1: done casses live in large in Florida. You and Tom 520 00:28:31,560 --> 00:28:35,159 Speaker 1: are grizzled veterans down putting it politely there, Um, you 521 00:28:35,240 --> 00:28:37,240 Speaker 1: don't fight the FED is something we all learned a 522 00:28:37,240 --> 00:28:39,640 Speaker 1: long time ago. If the FED is going to be 523 00:28:39,960 --> 00:28:46,720 Speaker 1: more or less our friend, doesn't that support stocks? You know? Um, 524 00:28:46,760 --> 00:28:50,040 Speaker 1: I would say the record high stock prices, the generational 525 00:28:50,080 --> 00:28:53,240 Speaker 1: low and interest rates and the extreme valuations that we 526 00:28:53,280 --> 00:28:57,160 Speaker 1: see today are fertile ground for bogus and new narratives 527 00:28:57,160 --> 00:28:59,960 Speaker 1: and paradigms. It's kind of the polar opposite of the 528 00:29:00,160 --> 00:29:05,040 Speaker 1: dire pessimism. Again in March nine, do you remember a 529 00:29:05,120 --> 00:29:10,480 Speaker 1: famous UH column published in wire by Peter Schwartz and 530 00:29:10,520 --> 00:29:14,000 Speaker 1: Peter Leyden during the dot com boom when they talked 531 00:29:14,000 --> 00:29:20,800 Speaker 1: about a long economic boon. Remember, all right, Well that 532 00:29:20,840 --> 00:29:27,320 Speaker 1: famous It pushed the dot com stocks to new highs. 533 00:29:27,360 --> 00:29:29,920 Speaker 1: And three years after that column there was an eight 534 00:29:30,400 --> 00:29:32,720 Speaker 1: collapse in the nastacs. Seven years later there was a 535 00:29:32,760 --> 00:29:37,200 Speaker 1: great financial crisis. Um. The mantra that sky high valuations 536 00:29:37,200 --> 00:29:40,280 Speaker 1: are now suddenly acceptable as interest rates well to almost 537 00:29:40,360 --> 00:29:44,640 Speaker 1: zero has provided today's rational and popular narrative. But low 538 00:29:44,720 --> 00:29:51,000 Speaker 1: rates provide the roots to historically high value valuations. And 539 00:29:51,160 --> 00:29:54,000 Speaker 1: I would counter the teno argument with the statement that 540 00:29:54,040 --> 00:29:57,520 Speaker 1: there's a fundamental problem with the low rates argument, that 541 00:29:57,560 --> 00:30:01,120 Speaker 1: we may be comparing, oh, one over valued asset class 542 00:30:01,200 --> 00:30:04,440 Speaker 1: to another. You know, you know, a year and a 543 00:30:04,440 --> 00:30:07,560 Speaker 1: half ago, when I like the dividing yield on the SMP, 544 00:30:07,960 --> 00:30:10,720 Speaker 1: sedd that of the tenure. Today the dividing yield on 545 00:30:10,760 --> 00:30:13,520 Speaker 1: the SMP is down to one point to eight. It's 546 00:30:13,520 --> 00:30:15,800 Speaker 1: the lowest in twenty years and not far from the 547 00:30:15,800 --> 00:30:18,240 Speaker 1: record low of one pen in two thousand. I get 548 00:30:18,280 --> 00:30:21,640 Speaker 1: fifteen seconds. Michael from the Pocono's ask should he buy Amazon? 549 00:30:23,440 --> 00:30:25,440 Speaker 1: Buy Amazon and put it away? Yet? There you go, 550 00:30:25,520 --> 00:30:27,760 Speaker 1: There you go, Doug Cass, Thank you so much, greatly 551 00:30:27,760 --> 00:30:31,920 Speaker 1: appreciate it. Next time, Doune Cass on Jay's Rays and Yankees. 552 00:30:32,640 --> 00:30:36,440 Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join 553 00:30:36,520 --> 00:30:39,840 Speaker 1: us live weekdays from seven to ten am Eastern on 554 00:30:39,960 --> 00:30:44,240 Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six 555 00:30:44,320 --> 00:30:49,200 Speaker 1: to nine am for insight from the best in economics, finance, investment, 556 00:30:49,320 --> 00:30:54,360 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 557 00:30:54,440 --> 00:30:58,240 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on 558 00:30:58,360 --> 00:31:02,400 Speaker 1: the terminal. I'm I'm keen in. This is Bloomer