WEBVTT - Surveillance: Kass Says Investors Underpricing Risk 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa brown Witz Jailey. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance, an Apple podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:28.360 dot Com, and of course on the Bloomberg Terminal. Kyle 0:00:28.400 --> 0:00:31.280 Wineberg with us now my frequency can almoys chief Economists 0:00:31.280 --> 0:00:34.560 and Managing Director. Kyle. As the week progresses, will be 0:00:34.640 --> 0:00:36.760 knee deep in CPI reachs, house sounds. I think this 0:00:36.840 --> 0:00:39.080 morning's time has come to have a little bit more 0:00:39.080 --> 0:00:42.080 of a deeper think about what's happening. You've compared crisis 0:00:42.080 --> 0:00:45.680 to recession, from crisis to recession and rat us distinction 0:00:45.680 --> 0:00:48.720 between the two. Can just walk me through that right now? Sure, 0:00:48.760 --> 0:00:50.960 Good morning, John, and good morning Time, Good morning Lisa, 0:00:51.040 --> 0:00:54.040 Thanks for having me on. A crisis is a downturn 0:00:54.200 --> 0:00:57.320 or an adverse situation where you don't have a policy response. 0:00:57.640 --> 0:00:59.360 And that's where we were a year ago. All right, 0:00:59.400 --> 0:01:02.280 we had a pandemic. We had no solution for it 0:01:02.480 --> 0:01:05.000 other than to shut everything down. That wasn't a good solution. 0:01:05.200 --> 0:01:07.800 So with no good policy response, you have a crisis, 0:01:07.840 --> 0:01:10.880 that's my definition. And but we're in right now. What 0:01:10.959 --> 0:01:13.520 the crisis did was it created a recession, and in 0:01:13.600 --> 0:01:15.800 a recession, we know what we have to do, alright. 0:01:15.840 --> 0:01:18.399 The problem with this recession, which is different in so 0:01:18.440 --> 0:01:20.960 many ways from all the recessions before it, is that 0:01:21.000 --> 0:01:24.520 most of our policy tools already exhausted. So going into 0:01:24.760 --> 0:01:27.440 a period where we normally would expect to see policy 0:01:28.160 --> 0:01:32.319 supporting reemployment, re engagement of people in the workforce, growth 0:01:32.319 --> 0:01:34.880 of the economy, and so forth, policy is pretty much 0:01:34.920 --> 0:01:38.520 hamstrung and is already doing all that it can do. Carl, 0:01:38.560 --> 0:01:41.640 you are a legendary across the time of Lehman Brothers 0:01:41.880 --> 0:01:46.440 into World Crisis two and three, four decades ago, of 0:01:46.600 --> 0:01:50.800 watching gloom turn into not optimism but a good workout. 0:01:50.960 --> 0:01:54.600 Are we just impatient right now? Are we just impatient 0:01:54.680 --> 0:01:58.080 worried about fixing things in three months that may take 0:01:58.200 --> 0:02:01.600 three years to fix? Yeah, three years would be a 0:02:01.600 --> 0:02:04.600 conservative estimate of history as any guide. You know, some 0:02:04.720 --> 0:02:06.880 of the people in the market at least these days 0:02:07.040 --> 0:02:09.359 were also in the market in two thousand and two 0:02:09.360 --> 0:02:12.440 thousand and nine, And people forget that. Even though GDP 0:02:12.680 --> 0:02:16.600 got back to where it was prior to the global 0:02:16.639 --> 0:02:20.519 financial crisis in just two years. The unemployment rate didn't 0:02:20.520 --> 0:02:24.720 regain two thousand and eight levels until a decade later. 0:02:25.080 --> 0:02:28.120 And that kind of delay and employment is actually normal. 0:02:28.320 --> 0:02:32.040 It's why we have recessions. Right, Recessions are a purge 0:02:32.440 --> 0:02:36.280 of excesses, so firms hire too many workers, right, it's 0:02:36.320 --> 0:02:39.880 easier there that uh, we we purge. We find we 0:02:39.919 --> 0:02:44.000 can do just as much with fewer workers in a recession, 0:02:44.160 --> 0:02:46.440 and then it's very, very slow to bring those workers 0:02:46.480 --> 0:02:49.120 back on forward. Firms are reluctant to bring them back. 0:02:49.520 --> 0:02:53.120 So I think that we are overly optimistic and expecting 0:02:53.360 --> 0:02:55.440 that everything's going to get back to the way where 0:02:55.480 --> 0:02:58.359 it was by the end of this year, and especially 0:02:58.360 --> 0:03:00.760 in the labor market. And if the abor market is 0:03:00.800 --> 0:03:05.400 now our criteria for changing monetary policy, than recovery or 0:03:05.520 --> 0:03:09.200 changes or renormalization of monetary policy is going to be 0:03:09.280 --> 0:03:12.000 further out than most people expect. Carl, are you saying 0:03:12.040 --> 0:03:14.560 when you say policy is hamstrung, that the Federal Reserve 0:03:14.639 --> 0:03:18.440 is out of tools to fight another recession. Well, I 0:03:18.480 --> 0:03:21.320 think that they've extended about as much as they can 0:03:21.360 --> 0:03:24.760 go in terms of q E. I mean technically they 0:03:24.760 --> 0:03:28.240 could go further than that, but practically will they do that? 0:03:28.280 --> 0:03:30.680 Will they take the heat if there were another downturn, 0:03:30.720 --> 0:03:32.640 if there was another shock right now, what would the 0:03:32.680 --> 0:03:36.400 FIT do? What could the FIT plausibly do without unsettling 0:03:36.440 --> 0:03:39.760 financial markets? And on the fiscal side, it's clear that 0:03:39.800 --> 0:03:42.040 there's not a lot of appetite anywhere in the world 0:03:42.080 --> 0:03:46.440 for more deficit spending, yet that is what would be required. Remember, 0:03:46.560 --> 0:03:51.240 with fiscal policy, it doesn't increase growth unless you get 0:03:51.280 --> 0:03:54.800 more of it each year. So running bigger deficits than 0:03:54.840 --> 0:03:58.279 we saw last year next year, I think as a nonstarter. 0:03:58.560 --> 0:04:01.760 Even in the most dire circle stances, it's gonna catchhop 0:04:01.800 --> 0:04:03.320 Has so wise to get your input on this show 0:04:03.640 --> 0:04:05.520 ahead of a big week for this market. Gun, it's 0:04:05.520 --> 0:04:07.560 the Fed next week, cal wand back that high frequency 0:04:07.560 --> 0:04:14.400 can always chief economist and managing direct d Okay, we're 0:04:14.440 --> 0:04:16.400 gonna stop the show. This is what we do. We 0:04:16.480 --> 0:04:19.960 talked to smart smart people Imperial College in London, Johns Hopkins. 0:04:20.000 --> 0:04:21.800 We've done a lot of at work with Thank you 0:04:21.880 --> 0:04:26.159 Mr Bloomberg for that. I think of University Washington Microbiology. 0:04:26.240 --> 0:04:29.479 Joshua Scharstein from Johns Hopkins with us today and we're 0:04:29.520 --> 0:04:33.000 just gonna flat out stop, Joshua after I'm teen months 0:04:33.600 --> 0:04:36.720 and brilliant people like you trying to extricate a seal 0:04:36.800 --> 0:04:40.240 from this pandemic. To celebrate that one million kids will 0:04:40.279 --> 0:04:44.480 go back to school in New York City today, I mean, 0:04:44.520 --> 0:04:47.320 it's just a huge deal in New York City back 0:04:47.360 --> 0:04:50.440 to school. Let's cut to the chase. Is it gonna 0:04:50.480 --> 0:04:52.760 be safe? How do you go back to school and 0:04:52.800 --> 0:04:57.560 be safe if you're not vaccinated under twelve years old? Well, 0:04:57.600 --> 0:05:00.840 I think it's gonna be uh, pretty safe because New 0:05:00.920 --> 0:05:04.040 York is taking as many precautions as it possibly can take. 0:05:04.320 --> 0:05:06.680 It's really important for kids to be back in school. 0:05:06.720 --> 0:05:09.200 So you're right, it is a really great thing that 0:05:09.240 --> 0:05:11.680 they're doing it, but it's going to require, you know, 0:05:12.120 --> 0:05:17.200 a vigilance and it's going to require these different mitigation steps, masking, 0:05:17.960 --> 0:05:22.120 um testing, other kinds of things until we really get 0:05:22.120 --> 0:05:25.800 a handle on what the delta virus does in schools, 0:05:25.839 --> 0:05:30.320 particularly for younger kids. Link your knowledge of the unvaccinated, 0:05:30.440 --> 0:05:33.120 including the runner up at the US Open I believe 0:05:33.760 --> 0:05:39.200 is unvaccinated on the male side, Djokovic. Link the unvaccinated 0:05:39.240 --> 0:05:43.960 across this nation with kids and teachers and staff going 0:05:44.040 --> 0:05:47.719 back to school. Well, one thing that's been clear is 0:05:47.800 --> 0:05:52.280 that UM states with more people who are unvaccinated are 0:05:52.320 --> 0:05:56.880 also seeing many more sick kids, particularly young sick kids. 0:05:56.920 --> 0:06:01.039 And that's probably because adults who are unvaccinated who gets 0:06:01.040 --> 0:06:05.039 sick can really infect kids effectively, and adults who are 0:06:05.120 --> 0:06:08.239 vaccinated are it's much harder for them to infect kids. 0:06:08.640 --> 0:06:11.080 And so I think that one of the ways we 0:06:11.080 --> 0:06:14.440 can protect kids is to have adults generally vaccinated. A 0:06:14.520 --> 0:06:18.160 second way is to have adults in schools vaccinated. And 0:06:18.200 --> 0:06:22.039 so I'm very supportive of policies that that that require 0:06:22.720 --> 0:06:25.680 adults in schools to be vaccinated. It's absolutely for the 0:06:25.720 --> 0:06:28.160 safety of the kids. Dr. Scharfsine almost every parent out 0:06:28.200 --> 0:06:30.600 there is going to get a dreaded email one morning 0:06:30.600 --> 0:06:32.880 and the next couple of weeks saying somebody and your 0:06:32.960 --> 0:06:36.920 kids school was diagnosed with COVID. Don't worry or worry 0:06:37.240 --> 0:06:39.839 you have to quarantine or not quarantine. What is the 0:06:39.839 --> 0:06:42.920 correct protocol if someone is in contact or within six 0:06:42.920 --> 0:06:46.480 feet for say, ten straight minutes, even if they are 0:06:46.560 --> 0:06:51.159 masked in a school. So UM, what I would say 0:06:51.240 --> 0:06:53.440 is it's really important for them to be good communication 0:06:53.480 --> 0:06:56.000 about this and to explain to parents as much as 0:06:56.040 --> 0:06:58.719 possible exactly how this will be handled, and then follow 0:06:58.760 --> 0:07:01.520 through on that rather in surprise everyone the first time 0:07:01.560 --> 0:07:04.080 there's a positive test, it is going to be expected 0:07:04.120 --> 0:07:06.000 that that that may happen. Here's how we're going to 0:07:06.120 --> 0:07:10.240 deal with it. UM, and I think that in general UM, 0:07:10.280 --> 0:07:14.120 it is certainly for UM for kids who have vaccinated. 0:07:14.160 --> 0:07:17.680 Older kids who are vaccinated, they do not necessarily, according 0:07:17.680 --> 0:07:21.160 to the CDC, I think, need to be quarantined. Some 0:07:21.280 --> 0:07:23.440 schools may want to do that out of an abundance 0:07:23.480 --> 0:07:26.239 of caution. Others may want to try to use tests, 0:07:26.280 --> 0:07:28.640 for example, to keep kids in school. They're going to 0:07:28.720 --> 0:07:31.600 be a few different practices. I think the most important 0:07:31.600 --> 0:07:34.000 thing is that they're explained clearly to parents and that 0:07:34.080 --> 0:07:37.440 the school is monitoring whether their particular approach works and 0:07:37.480 --> 0:07:41.360 it's flexible to changing UM if necessary based on what 0:07:41.400 --> 0:07:43.560 they see. Early in the school year, Dr Scharfson, the 0:07:43.600 --> 0:07:46.080 start of the New York City school year really highlights 0:07:46.080 --> 0:07:48.480 how people are trying to get back to some semblance 0:07:48.480 --> 0:07:50.440 of normal. People are saying, get back to the office. 0:07:50.440 --> 0:07:53.880 City workers have to be back in person, and yet 0:07:53.880 --> 0:07:56.320 it is pock marked by all these notices and by 0:07:56.360 --> 0:07:59.239 the ongoing spread of the virus. When do we get 0:07:59.480 --> 0:08:01.560 to some sort of equilibrium or we're heading into a 0:08:01.600 --> 0:08:04.200 really perilous fall where people are trying to act like 0:08:04.240 --> 0:08:07.800 everything is normal when it is anything. But I think 0:08:07.840 --> 0:08:10.440 that we're headed right now into a bit of a 0:08:10.440 --> 0:08:12.960 new normal. You know, we can go to work, but 0:08:13.080 --> 0:08:15.200 we may need to wear a mask in the workplace 0:08:15.280 --> 0:08:18.559 or make sure everybody is vaccinated. UM, and the people 0:08:18.720 --> 0:08:21.000 need to be a little bit more vigilant. I think 0:08:21.000 --> 0:08:23.480 we're going to be in that period for a while 0:08:23.520 --> 0:08:27.240 at least until cases really go down. UM, and we 0:08:27.560 --> 0:08:29.320 you know, get a little bit more of a distance 0:08:29.360 --> 0:08:31.880 between us and the virus. That obviously depends on where 0:08:31.920 --> 0:08:34.600 you are in the country in this situation. But for example, 0:08:34.640 --> 0:08:36.640 at our school, you know, we're we have kids back 0:08:36.640 --> 0:08:39.040 in class. Um, we have a little bit more distance 0:08:39.120 --> 0:08:42.760 than usual, fewer people in the classroom, but they can 0:08:42.760 --> 0:08:45.800 sit you know, three ft away with a mask on 0:08:46.640 --> 0:08:50.920 and um, and everybody is vaccinated. So you know, we 0:08:51.000 --> 0:08:53.240 have a new normal. But we're excited to be in 0:08:53.280 --> 0:08:55.280 the classroom and teaching. And I've been doing some of that. 0:08:55.360 --> 0:08:57.680 I think it's fantasy, like so you and many others 0:08:57.679 --> 0:09:00.679 anticipating a bit of a problem this fold into WINSA Well. 0:09:00.679 --> 0:09:02.360 I mean, I'll tell you my kids actually went back 0:09:02.480 --> 0:09:03.839 back to school a little bit early because they go 0:09:03.880 --> 0:09:05.880 to a charter school. And I will just tell you 0:09:05.960 --> 0:09:08.440 that they actually have already had to stay home for 0:09:08.480 --> 0:09:11.200 a week as a result, John, of this idea that 0:09:11.240 --> 0:09:13.880 they have been quarantined and basically somebody was exposed to 0:09:13.920 --> 0:09:16.960 scot started Lisa. I'm telling you it was the second week. 0:09:17.040 --> 0:09:19.320 So I just wonder what kind of provisions do people 0:09:19.360 --> 0:09:21.920 make to potentially have childcare when they have to go 0:09:21.960 --> 0:09:24.080 back to the office. Your experience, Leasa, the experience of 0:09:24.120 --> 0:09:26.920 so many right now, so keen across this country. Yeah, 0:09:26.960 --> 0:09:30.480 it is. And you know, I think what's so important here, John, 0:09:30.600 --> 0:09:33.559 is the idea of how it linkson Joe Biden stridency. 0:09:33.600 --> 0:09:36.360 The President has made clear this is strident, but he 0:09:36.480 --> 0:09:39.840 talked enough about the schools within that stridency. Joshua going 0:09:39.920 --> 0:09:41.960 to leave it. They're gonna catch up. Joshua shafting there, 0:09:42.000 --> 0:09:50.640 Johns Hopkins Blinbo School of Public Health, Weinstein, do we 0:09:50.679 --> 0:09:56.280 get to Francisco the international standard out of London, Francisco 0:09:56.400 --> 0:09:59.959 blage Bank America ahead of global commodatives and too rivets 0:10:00.000 --> 0:10:03.240 of research got to catch up. Francisco. Let's just start 0:10:03.240 --> 0:10:06.360 with what's going on with aluminum aluminium three K. What's 0:10:06.400 --> 0:10:11.400 happening is this old supply scarcity. UH. In the Jonathan 0:10:11.400 --> 0:10:15.319 there's a there's supply scarcity on a couple of different fronts. 0:10:15.360 --> 0:10:18.760 We've had, of course, UH a coo of tieing Guinea, 0:10:18.880 --> 0:10:23.600 which is created some anxiety around book side supplies. Book 0:10:23.679 --> 0:10:28.400 Side is the ingredient into alumina, which in turn as 0:10:28.480 --> 0:10:34.480 the key ingredients into aluminum or aluminium um so um so. 0:10:34.720 --> 0:10:37.040 We we've had shortages there because of cool and but 0:10:37.040 --> 0:10:40.640 then more importantly, China has been curving aluminum supplies now 0:10:40.720 --> 0:10:44.679 for most of the most of the year because um 0:10:44.720 --> 0:10:48.439 they're trying to rain in power generation become cleaner. And 0:10:48.559 --> 0:10:51.160 remember it's been a low rainfall year in China. It's 0:10:51.160 --> 0:10:53.280 one of the reasons they've been trying to crack down 0:10:53.320 --> 0:10:56.320 on bitcoin too. So third generation is very strong, but 0:10:56.360 --> 0:10:59.880 it's mostly again filling the gap for that lack of 0:11:00.080 --> 0:11:03.120 hydro power. So so if you look at the liminum 0:11:03.120 --> 0:11:05.520 production year to date in China's kind of flat as 0:11:05.520 --> 0:11:08.800 a pancake. Demand's kept growing. We hold this liquar in 0:11:08.840 --> 0:11:13.280 the system and and that's what's pushing prices higher. Francisco, 0:11:13.320 --> 0:11:16.520 I saw the London Medals index of Bloomberg indexes as well, 0:11:16.559 --> 0:11:19.280 show Medals as a group doing better. We know the 0:11:19.280 --> 0:11:23.160 Bloomberg Commodity index has done better as well. Does it 0:11:23.320 --> 0:11:30.400 signal the commodities breakout? Can you call a bullmarket in commodities? Um? Well, 0:11:30.400 --> 0:11:32.880 I mean we you know, uh, Tom, we we've had 0:11:32.920 --> 0:11:34.520 a bit of a bull market already for a while, 0:11:34.720 --> 0:11:36.880 uh since since we hit the lowest back in April 0:11:37.000 --> 0:11:40.400 last year. So um, we remained constructive here. We we 0:11:40.480 --> 0:11:43.320 think prices of Marty's most commodities will keep going higher. 0:11:43.800 --> 0:11:45.959 But again, independs on where you look at. I remember 0:11:46.440 --> 0:11:49.400 iron ore has been coming down very hard since Valley 0:11:49.480 --> 0:11:54.240 started exporting more volumes. But then oil, on the other hand, 0:11:54.280 --> 0:11:56.360 it's kind of sitting. It's a bit of a boiling 0:11:56.360 --> 0:11:59.439 frog waiting for the winter. And natural gas, of course 0:11:59.559 --> 0:12:03.200 is ripped around the world and also dragging up us 0:12:03.280 --> 0:12:05.640 mad gats with it. So it depends where you look at. 0:12:05.679 --> 0:12:08.880 But in world terms, commorities are very strong because we 0:12:08.920 --> 0:12:11.160 have a little liquid in the system. We are growing, 0:12:11.600 --> 0:12:14.480 we have supply constraints, we have low inventories. It's kind 0:12:14.520 --> 0:12:16.880 of a perfect cocktail for commorities to keep breaking higher. 0:12:16.920 --> 0:12:18.760 And when you talk about oil and the cold winter, 0:12:18.960 --> 0:12:21.439 there was a note that I believe your team put 0:12:21.480 --> 0:12:23.640 out that you do see the potential for a hundred 0:12:23.640 --> 0:12:27.720 dollar barrel oil in the United States and elsewhere based 0:12:27.840 --> 0:12:30.280 on what supplies are doing. Just want to bring you 0:12:30.280 --> 0:12:33.480 these headlines. OPEC see stronger demand for its crew this 0:12:33.559 --> 0:12:37.200 year and next at the same time, non opeque output 0:12:37.520 --> 0:12:40.280 is supposed to be down. And this really directly speaks 0:12:40.320 --> 0:12:43.280 to the shale patch. What's the tipping point at which 0:12:43.280 --> 0:12:46.720 point we start to see UH supplies go up to 0:12:46.800 --> 0:12:50.719 meet the demand and regulate well. So so I think 0:12:50.720 --> 0:12:52.520 I think right now we have a very short window 0:12:52.520 --> 0:12:55.320 into the winter. We're all still UH wearing flip flow 0:12:55.360 --> 0:12:57.880 ups and shorts in the northern hemisphere, but that's not 0:12:58.000 --> 0:13:00.559 changed very quickly. Within a month or two, get cold, 0:13:00.679 --> 0:13:02.559 you can get very cold. I think natural gas is 0:13:02.600 --> 0:13:06.160 gonna be very strong and if if it breaks out, 0:13:06.320 --> 0:13:09.160 and remember we're already trading over twenty dosp mb tu, 0:13:09.200 --> 0:13:12.040 which is a hundred and twenty barrel foil equivalent in 0:13:12.120 --> 0:13:15.760 oil um and we go another ten bucks higher on 0:13:15.800 --> 0:13:17.840 then for mbtu, which would put US at a hundred 0:13:17.880 --> 0:13:22.079 and eighty dollars per prepared barrel foil equivalent. I think 0:13:22.080 --> 0:13:24.439 that would drug up the entire oil sector because people 0:13:24.440 --> 0:13:28.360 will look for cheaper sources of of of of bt 0:13:28.520 --> 0:13:32.120 us of calorific value for for heating and for power generation. 0:13:32.400 --> 0:13:35.600 We see a very strong bunker fuel marketing Singapore already 0:13:35.640 --> 0:13:39.160 because of that recent So I'm a little concerned that, um, 0:13:39.200 --> 0:13:41.960 the winter gets cold, we're gonna see, uh, the entire 0:13:42.080 --> 0:13:44.880 energy complex ripping higher. Francisco, what does the move in 0:13:44.920 --> 0:13:51.200 these commodities say about the resurgence of the Pacific rim Um? Well, 0:13:51.240 --> 0:13:53.160 I mean, I think the Pacific rim is is definitely 0:13:53.240 --> 0:13:55.480 coming back. Now. The one thing I would notice that 0:13:55.600 --> 0:13:58.400 China is a little softer. And remember one thing we've 0:13:58.520 --> 0:14:01.000 we've been tracking with with a lot of interest this 0:14:01.120 --> 0:14:02.960 what's going on in the property sector in China with 0:14:03.040 --> 0:14:07.280 ever grands bonds coming down very hard, Chinese new lawn 0:14:07.320 --> 0:14:11.400 issues also slowing down materially over the last few months. 0:14:11.920 --> 0:14:14.080 UM and that's one thing that you know, we we 0:14:14.200 --> 0:14:17.360 keep a close eye on. But but generally the the 0:14:17.400 --> 0:14:20.960 Asia Pacific ram, the back ram as reported, it's definitely 0:14:21.000 --> 0:14:23.920 coming back with force. And remember over the next six 0:14:23.960 --> 0:14:27.360 months we're gonna have a huge search in vaccinations which 0:14:27.360 --> 0:14:30.960 will restart air travel. So we think a hundred oil 0:14:31.160 --> 0:14:33.680 is more likely next summer when we all start flying 0:14:33.720 --> 0:14:37.280 internationally much more um in in in a much much 0:14:37.280 --> 0:14:40.360 greater way. Otherwise it may happen sooner if the winter 0:14:40.960 --> 0:14:43.200 turn is very cold. But the pack rim is definitely 0:14:43.280 --> 0:14:45.640 coming back. But it's a triple digit crew price the 0:14:45.640 --> 0:14:49.000 base case for you, Francisco, it's not your base case. Now. 0:14:49.640 --> 0:14:52.400 We we have are are we have a call for 0:14:52.520 --> 0:14:55.280 a hundred oil for next summer. What we are saying 0:14:55.400 --> 0:14:57.720 is if the winter is called, we would roll We 0:14:57.760 --> 0:14:59.760 could roll that up six months and it may have 0:14:59.840 --> 0:15:03.480 been this winter. Wow. But again, um, you know we're 0:15:03.480 --> 0:15:08.640 gonna type market for for energy and oil is again 0:15:09.040 --> 0:15:12.920 it's still benefiting from OPEC excess capacity. But we don't 0:15:12.920 --> 0:15:17.880 have the the amount of shale available over a shore 0:15:17.920 --> 0:15:20.720 window of time to to meet that call if if 0:15:20.760 --> 0:15:25.000 the weather gets cold, Francisco, just an amazing cool, and 0:15:25.040 --> 0:15:26.920 we want you to come back again soon so we 0:15:26.920 --> 0:15:29.160 can talk about that the prospect that cool comes in 0:15:29.560 --> 0:15:37.920 six months. Francisco Blige their bank for America. Let's get 0:15:37.960 --> 0:15:40.600 straight to the quote of this morning. We've been jokingly 0:15:40.640 --> 0:15:43.160 calling this rally the d Sharon or Dave Matthews rally. 0:15:43.240 --> 0:15:45.840 Essentially it is a rally that nobody likes, and yet 0:15:45.840 --> 0:15:48.160 it continues to go up. The author of that quote, 0:15:48.200 --> 0:15:49.640 and please to say as with us now, I mean 0:15:49.640 --> 0:15:53.560 with Silverman, RBC Capital Markets, Equity derivative strategist Amy, let's 0:15:53.560 --> 0:15:56.760 start right there. Any reason for that to change anytime soon? 0:15:59.240 --> 0:16:02.360 So guys, so far no, you know, I was watching 0:16:02.440 --> 0:16:04.840 the draw down, you know, the past week with great 0:16:04.880 --> 0:16:08.720 interest because the option sentiment has been so glum through 0:16:08.760 --> 0:16:11.320 your end, and you know, once usually you get kind 0:16:11.360 --> 0:16:13.720 of a breather, it kind of comes off, and the 0:16:13.760 --> 0:16:16.520 reality is it hasn't. So you know, we remain glum. 0:16:17.080 --> 0:16:21.240 We remain with demand for downside protection and even despite 0:16:21.240 --> 0:16:24.120 the move down, you know, that has kind of stayed solid, 0:16:24.200 --> 0:16:27.160 which just tells you that sentiment UH is still kind 0:16:27.160 --> 0:16:29.720 of saying this is this is unloved and they're waiting 0:16:29.720 --> 0:16:33.520 for even further of a move amy the week, the weekends, 0:16:33.600 --> 0:16:36.760 the week begins, and we have to focus on acuity 0:16:36.840 --> 0:16:39.000 here away from the lyrics of Ed shere And and 0:16:39.160 --> 0:16:42.720 Dave Matthews. You've created a firestorm out in the street 0:16:43.000 --> 0:16:46.600 with your vicious, mean spirited note. Give us the acuity 0:16:46.800 --> 0:16:52.400 right now of why you can own equities. Yeah. Look, 0:16:52.480 --> 0:16:54.960 I think part of it is because the market is 0:16:55.040 --> 0:16:58.240 well hedged. We are very well positioned to the downside. 0:16:58.240 --> 0:17:00.280 I'll give you guys one step that I think really 0:17:00.280 --> 0:17:02.680 puts this in the context. You know, if you just 0:17:02.760 --> 0:17:04.959 sold one of these temper cent how the money put 0:17:05.040 --> 0:17:08.120 options on the SMP in October, Right now, you can 0:17:08.160 --> 0:17:11.960 buy the equivalent sixty times the upside. Now, just to 0:17:12.040 --> 0:17:14.480 provide some history on that metric, back in July that 0:17:14.560 --> 0:17:17.520 was at fifteen times. So what that's telling you is 0:17:17.560 --> 0:17:20.920 the market is ready for the market going down. Um, 0:17:21.000 --> 0:17:24.800 and oftentimes when that happens that the reverse is not true. Right, 0:17:24.840 --> 0:17:27.200 the market is not ready for the market going up. 0:17:27.520 --> 0:17:30.080 And so you know that brings you to a potential 0:17:30.119 --> 0:17:34.160 path if something good does happen of people climbing having 0:17:34.240 --> 0:17:36.439 to scramble to get that leverage on the upside. Well, 0:17:36.440 --> 0:17:37.879 I can say, Amy's I'm sure you've got a lot 0:17:37.880 --> 0:17:40.320 of push back on the Dave Matthews point, especially based 0:17:40.320 --> 0:17:42.800 on some of the people who read your notes. A 0:17:42.880 --> 0:17:44.919 lot of people like Dave Matthews, and we can discuss 0:17:44.960 --> 0:17:47.840 that in detail. They that's the hard way. Yeah, exactly, 0:17:47.840 --> 0:17:50.040 not a lot of haymail Um. There is a question 0:17:50.160 --> 0:17:52.800 about how people are looking at inflation, how people are 0:17:52.840 --> 0:17:55.280 looking at margin pressures. And one thing that you said 0:17:55.320 --> 0:17:56.800 in your note that I thought was fascinating is the 0:17:56.840 --> 0:18:00.040 options market is not pricing in concern at all for 0:18:00.119 --> 0:18:02.520 a six month period or twelve month period for inflation 0:18:02.520 --> 0:18:06.560 in the consumer staples, however, not really the case in industrials. 0:18:06.560 --> 0:18:10.879 Can you explain, Yeah, you know, I think it's important 0:18:10.920 --> 0:18:14.240 because we kind of talk about inflation in this broad umbrella, 0:18:14.400 --> 0:18:17.639 and the reality is obviously different sectors are going to 0:18:17.680 --> 0:18:20.600 be impacted differently. You know, when you look at consumer 0:18:20.720 --> 0:18:23.240 staples on a two month period, when you look at 0:18:23.280 --> 0:18:25.480 the names in it, like a Kroger for example, where 0:18:25.520 --> 0:18:27.960 you know it is down nine percent last week, you're 0:18:28.160 --> 0:18:31.520 seeing it short term, and yet that disappears over a 0:18:31.520 --> 0:18:34.040 six month period and a twelve month period when you 0:18:34.040 --> 0:18:38.920 look at those relative implied volatilities completely the opposite truest industrials. Now, 0:18:39.119 --> 0:18:40.679 you know, as I mentioned my notes, some of this 0:18:40.920 --> 0:18:43.760 is tax related. But what this tells me is, look, 0:18:43.800 --> 0:18:47.080 if you believe that the cost pressures do remain in 0:18:47.160 --> 0:18:50.520 consumer staples over the longer term, that options market pricing 0:18:50.560 --> 0:18:52.439 has not put that there yet, So that is an 0:18:52.440 --> 0:18:55.960 opportunity to own those puts within that sector specifically. I 0:18:56.000 --> 0:18:59.120 think that's how you have to play inflation concerns right now. 0:18:59.160 --> 0:19:01.200 How much is this the way that people are looking 0:19:01.240 --> 0:19:03.919 at the market rather than go along a particular sector, 0:19:03.960 --> 0:19:07.000 They're looking at how margin pressures are being priced in 0:19:07.080 --> 0:19:12.120 specific sectors and trying to get ahead of things that way. Yeah, 0:19:12.200 --> 0:19:14.760 I think, Look, it's gonna go sector by sector, Lisa, 0:19:14.800 --> 0:19:17.000 it's also going to go stock by stock, So you know, 0:19:17.040 --> 0:19:20.320 we're really focused on where we see that change in 0:19:20.400 --> 0:19:23.560 auction sentiment. And you know stop by stop program for example, 0:19:23.880 --> 0:19:26.800 you know that the normalized skew in that name is 0:19:26.840 --> 0:19:29.080 at a two year high, so essentially the demand for 0:19:29.119 --> 0:19:31.800 downside protection. Again, this is even after it's gone down 0:19:31.880 --> 0:19:34.200 nine percent. That's what I think is key for people 0:19:34.240 --> 0:19:36.680 to remember it's you know, after you've had that moved down, 0:19:37.040 --> 0:19:40.560 oftentimes hedges are removed. This is not what is happening 0:19:40.600 --> 0:19:43.240 in names where you continue to see that inflation pressure, 0:19:43.280 --> 0:19:45.359 so people think it will continue to go down. Okay, 0:19:45.440 --> 0:19:47.199 So I mean after this, I'm in love with the 0:19:47.200 --> 0:19:49.959 shape of this market. You know that's great. It's an 0:19:50.760 --> 0:19:53.520 actually go out there, folks and read edge sheering lyrics. 0:19:53.600 --> 0:19:57.960 It's um telling, you know, good jokes that needs to 0:19:57.960 --> 0:20:03.000 be explained, tak. So we're in love with the shape 0:20:03.000 --> 0:20:05.800 of this market. But the reason why the skew is 0:20:05.840 --> 0:20:07.879 the way it is. You know that Shearing taught me 0:20:07.880 --> 0:20:10.920 the Greek letters. The reason that the skews the way 0:20:10.960 --> 0:20:13.840 it is is fear. How do you know when to 0:20:13.920 --> 0:20:19.320 step into fear and go along? Yeah? You know, Look 0:20:19.520 --> 0:20:22.359 you don't. I wish I did. It's always about timing, right, 0:20:22.440 --> 0:20:24.160 you don't. You know. The way I kind of think 0:20:24.160 --> 0:20:27.439 about it is what could possibly drive you know, this 0:20:27.520 --> 0:20:30.560 market to the upside. What Lisa said earlier about just 0:20:30.640 --> 0:20:33.439 the childcare point, I feel deeply personally because I have 0:20:33.480 --> 0:20:36.080 two school aged children. But look, if you get a 0:20:36.160 --> 0:20:39.320 vaccine earlier than expected for the under twelve crowd, right, 0:20:39.359 --> 0:20:43.240 the crowd that actually needs childcare infrastructure. That's something that 0:20:43.280 --> 0:20:45.720 could potentially bring this market up the same with you know, 0:20:45.840 --> 0:20:48.919 better than expected NFP data point. Again, you know, the 0:20:48.960 --> 0:20:51.439 timing is always difficult. The point is just that the 0:20:51.480 --> 0:20:54.000 positioning is really not to be upside at all with it. 0:20:54.119 --> 0:20:56.000 I mean, that's some important let's finish that. Do you 0:20:56.080 --> 0:21:00.000 think that authorization for children could have a similar effect 0:21:00.080 --> 0:21:01.640 on this market in the same way that we saw 0:21:01.680 --> 0:21:06.320 things developed in early November last year? Yeah, you know, look, 0:21:06.680 --> 0:21:09.119 I'm not a medical expert, but I think that that 0:21:09.240 --> 0:21:10.720 this is one of those things where you just kind 0:21:10.720 --> 0:21:13.600 of know personally if you're if you're living through it, right, Like, 0:21:13.640 --> 0:21:15.879 if if this is something that you know that you 0:21:15.880 --> 0:21:18.520 can safely send your children to school and so you're 0:21:18.520 --> 0:21:22.240