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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jai Ley.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot com, and of course on the Bloomberg David

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Speaker 1: Lee Bowoods joins us right now. He is with JP

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Speaker 1: Morgan Asset Management. Good morning, tell us simply how you

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Speaker 1: have changed your asset allocation? How do you change your

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Speaker 1: equity belief after up? So, you know, I think what's

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Speaker 1: what's most interesting from our vantage point is that we

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Speaker 1: haven't really changed things too much. Um. From the beginning,

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Speaker 1: from you know, the start of April, we were really

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Speaker 1: of the view that we wanted to center portfolios in

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Speaker 1: higher quality assets like technology, like healthcare, but we didn't

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Speaker 1: want to completely abandon cyclicality because if markets came back quickly,

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Speaker 1: we wanted to participate. UM. We obviously haven't been fully

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Speaker 1: positioned with a cyclical tilt, so we have been under

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Speaker 1: performing a bit over the past couple of days. But

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Speaker 1: some of our more value cyclical exposure to things like

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Speaker 1: financials has been helping. And so I think that you know,

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Speaker 1: when we look at where the market is today, Clearly

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Speaker 1: things have moved very far, very fast. Um there there

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Speaker 1: is room for markets to continue climbing higher, But I

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Speaker 1: think now is probably the wrong time to materially change

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Speaker 1: your asset allocation. Right, maybe a month and a half

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Speaker 1: ago this was the conversation to have. But I think

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Speaker 1: that the risk reward has continued to deteriorate here and

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Speaker 1: that makes me a little bit nervous about the direction

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Speaker 1: of travel for markets in the coming weeks. And it's

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Speaker 1: sometimes you've just got to take a step back and

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Speaker 1: look at the position we're in right now. If I

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Speaker 1: teld you twelve months ago that in twenty twenty we

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Speaker 1: would have a job sprint of negative two points seven

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Speaker 1: six million, and on the same day people would call

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Speaker 1: it a big bait and the SMP five hundred would

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Speaker 1: go through, there is no way that you would believe

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Speaker 1: me that that is what would happen. That's what happened

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Speaker 1: in the last twenty four as daven, How do you

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Speaker 1: explain that to clients? You know, I think that it's

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Speaker 1: important to recognize that there's there's a real technical nature

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Speaker 1: to everything that's going on here, and market structure is

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Speaker 1: just very different today than it has been historically, and

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Speaker 1: part of what we think has driven this big rebound.

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Speaker 1: You know, when we look at get cash balances of

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Speaker 1: non bank investors and things like that, they they still

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Speaker 1: look underweight equities. But where we've really seen money come

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Speaker 1: back into the market is through the more systematic strategies.

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Speaker 1: And so we had this enormous spike in volatility back

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Speaker 1: in the middle of March, and as volatility has trended

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Speaker 1: lower over the past couple of weeks, you've seen signals

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Speaker 1: triggered that bring the c t A s and the

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Speaker 1: momentum traders, and the risk parity funds and the ball

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Speaker 1: control funds back into the market. So I think that,

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Speaker 1: you know, as quickly as we went down, it actually,

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Speaker 1: with some hindsight doesn't necessarily surprise me the speed at

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Speaker 1: which things have bounced back. But I do think that

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Speaker 1: this is a function of the way that markets are

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Speaker 1: structured today, um, and that's created a pretty significant disconnect, John,

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Speaker 1: to your point between what we're seeing in the economic

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Speaker 1: data and the performance of equity markets, particularly US equity markets,

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Speaker 1: which have really led the charge here. All right, David,

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Speaker 1: So how long can these technical factors overwhelm the fundamental factors,

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Speaker 1: which are an increasing bankruptcy rate and increasing unemployment rate,

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Speaker 1: and concern that we could get some sort of W

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Speaker 1: shaped recovery or some sort of a second wave of

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Speaker 1: the virus. I'm just thinking, for example, high yield bond

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Speaker 1: yields right now are within one and a half percentage

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Speaker 1: points from the all time low at a time when

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Speaker 1: the bankruptcy to rate is climbing beyond what we saw

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Speaker 1: in two thousand and nine, How does this make sense

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Speaker 1: to So, you know, I think the market is very

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Speaker 1: much focused on on direction rather than level, and with

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Speaker 1: things reopening, that does seem to be overwhelming the market's

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Speaker 1: ability to look forward. You know, I acknowledge everything you said.

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Speaker 1: We've seen commercial mortgage back, UH security delinquency rates begin

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Speaker 1: to pick up. I mean, there there's a lot of

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Speaker 1: evidence of the stress in the economy, but the market

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Speaker 1: really seems much more focused on the direction of travel

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Speaker 1: of the virus itself and the ability of the economy

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Speaker 1: to reopen. So, you know, to my mind, there there

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Speaker 1: are really two big risks here that investors need to monitor.

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Speaker 1: The first is a potential for a second wave, and

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Speaker 1: I think it's an unfortunate reality given the the protests

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Speaker 1: over the past couple of days here in the US

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Speaker 1: that you know, to my mind, that risk has increased

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Speaker 1: as social distancing seems to have been put off to

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Speaker 1: the side temporarily. But the other thing that I think

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Speaker 1: we need to pay attention to, and you guys were

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Speaker 1: alluding to it a bit earlier, is simply the the

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Speaker 1: amount of stimulus that's been pumped into the economy, and

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Speaker 1: more importantly, the expectation that there's more stimulus coming. You know,

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Speaker 1: we have the e c B later today. The ECB

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Speaker 1: historically has tended to to pull out the bazuka when

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Speaker 1: things aren't looking good, not when we're in the midst

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Speaker 1: of a rally, and so it'll be really interesting to

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Speaker 1: see what happens in just under an hour here and

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Speaker 1: whether they go through and increase the size of the

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Speaker 1: of the emergency programs or whether they hold off of it.

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Speaker 1: But I think that there's an inherent expectation on the

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Speaker 1: part of the market that there's more stimulus coming. It's

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Speaker 1: a fantastic to catch up with you as always, David.

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Speaker 1: Believe it's the of JP Morgan Asset Management joining us

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Speaker 1: right now, getting right to it. On this busy, busy morning,

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Speaker 1: the Lieutenant Governor of the Empire State, Kathy Hockl, joins

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Speaker 1: us UH this morning. Kathy, what are you going to

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Speaker 1: work on today to move the trend of forward? We've

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Speaker 1: gone from rioting and louding to what was called relative

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Speaker 1: calm to an even calmer Wednesday night. What is next

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Speaker 1: for you and the governor? Well, the next step is

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Speaker 1: to really address the concerns of the community that have

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Speaker 1: finally come into a forefront. And it's a it's a

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Speaker 1: tragedy that it took a the leurder of an unarmed

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Speaker 1: African American and the streets of Minneapolis to get the

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Speaker 1: national tension. But if that's what it took, it's where

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Speaker 1: we are today. We're talking about how we can address

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Speaker 1: the inherent criminal justice injustice system, and we now have

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Speaker 1: that that African Americans are subjected to and white Americans

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Speaker 1: are not, and so we have an agenda of national

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Speaker 1: reforms that we believe should occur. I believe that when

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Speaker 1: we start taking concrete action that will address many of

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Speaker 1: the concerns of the protesters, they will feel that they've

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Speaker 1: been heard. And this conversation has to begin in earnest

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Speaker 1: starting today, we get the banned success. Of course, we

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Speaker 1: have to have independent investigations of police abuse and disclosing

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Speaker 1: disciplinary erected. These are things that the Governor and I

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Speaker 1: have proposed in the state of New York and they

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Speaker 1: should be national. So that's what we did. We start

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Speaker 1: cleaning up the streets, we start giving people hope that

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Speaker 1: we're going to go forward and uh, and we also

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Speaker 1: have to make some major systemic changes in order to

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Speaker 1: take this national moment that has focused the world on

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Speaker 1: what's happening in our country and come out and better

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Speaker 1: for it. Lieutenant Governor, it is an ageless tension between

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Speaker 1: governors and mayors. It goes back in New York State,

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Speaker 1: at least to Governor Clinton in the three day trip

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Speaker 1: up the Hudson to Albany. That doesn't happen now now

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Speaker 1: it's a media give us an update on the tension

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Speaker 1: between your offices and Mayor de Blasio of New York City.

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Speaker 1: There's certainly issue by issuing. Literally just a few days ago,

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Speaker 1: Mayor de Blasio did a joint press conference with the

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Speaker 1: Governor to talk about how far we've come in in

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Speaker 1: eradicating the virus and how we're ready to open New

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Speaker 1: York City the first phase starting literally on Monday, which

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Speaker 1: is just so such such good news for New Yorkers

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Speaker 1: that are desperate to start getting back to some semas

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Speaker 1: the normal. So they truly do have a working relationship. Uh.

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Speaker 1: They can disagree with each other, everybody can disagree, but

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Speaker 1: when it comes down to getting the job done to

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Speaker 1: the people of New York, Uh, they're able to get

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Speaker 1: it done. And I think the evidence is what we've

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Speaker 1: what we've been able to do with eradicating working on

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Speaker 1: the coronavirus together. That was intensive teamwork from the states

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Speaker 1: and city officials, and our teams have worked together for

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Speaker 1: the last three months on a day to day basis.

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Speaker 1: So it's really a case by case, Lieutenant Governor. Let's

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Speaker 1: talk more about the reopening that is supposed to happen

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Speaker 1: on Monday. There's a question of if you reopen, will

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Speaker 1: they come? And a big, big part of that question

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Speaker 1: is the m t A, the subway system. Will it

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Speaker 1: be prepared to take an increased number of writers with

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Speaker 1: respect to hygiene as well as service. How close are

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Speaker 1: we to that? Yes, And you're absolutely right that we

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Speaker 1: knew that we could not reopen society, reopen economy without

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Speaker 1: the ability to get people safely to their jobs. And yes,

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Speaker 1: we've had the scale down service and we've had the

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Speaker 1: subway closed from from the middle of the night down

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Speaker 1: to five am in order to do unpresented cleaning. You know,

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Speaker 1: you thought there are subways need to be cleaned, that

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Speaker 1: they have been uh sanitized top to bottom by individuals

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Speaker 1: that have just been working slowly through the night. So

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Speaker 1: we're going to continue those processes. We're going to add

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Speaker 1: more trains. We know that they'll be increased capacity. But

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Speaker 1: people are going to be anxious. You're absolutely right. Uh,

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Speaker 1: we we want they cannot get on unless they're wearing

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Speaker 1: a mask. We hope that people be using hand sanitizers

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Speaker 1: and you know, to the extent possible social distinct. But

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Speaker 1: if you have the mask on you, it's it's we

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Speaker 1: now know that that will protect you. Again, there's more

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Speaker 1: information out there than we didn't even have three months ago.

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Speaker 1: And three months ago we did not know that mask

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Speaker 1: was the primary way that you can stop to spread.

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Speaker 1: You know, people said, is all on surfaces. Well, we're

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Speaker 1: learning a lot and we're cleaning the surfaces requiring masks,

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Speaker 1: and we will get people to their jobs in New

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Speaker 1: York because when we start opening, it's going to be

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Speaker 1: in phased, a phased approach where it's manufacturing, construction, some

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Speaker 1: very limited retail at first, so people start getting afflimated

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Speaker 1: to the new system. Then Phase two, which most of

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Speaker 1: upstate New York or is in right now. I'm in

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Speaker 1: Western New York and we just started Phase two this week.

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Speaker 1: That's all retails, shopping, it's office spaces. I think you're

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Speaker 1: gonna see a lot more of that. But but truthfully,

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Speaker 1: we've talked about this on this show before. There's going

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Speaker 1: to be a different mindset when people have the ability

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Speaker 1: to continue working from home, at least perhaps for a

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Speaker 1: couple more months. I think it's going to be a

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Speaker 1: more gradual opening that people won't all of a sudden

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Speaker 1: descend on the subway system and overloaded. But if that

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Speaker 1: becomes the case, we're prepared, Lieutenant Governor. I just wanted

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Speaker 1: to wrap up the conversation by talking about lessons learned

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Speaker 1: with you. I'm a guest in this country, but New

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Speaker 1: York City is my home, and I, like many people,

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Speaker 1: were shocked to see the looting that took place on

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Speaker 1: Fifth Avenue a place that you cannot walk down without

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Speaker 1: usually bumping into a police officer. What happened the other

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Speaker 1: night and what have we learned from it? Well, the

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Speaker 1: governor addressed this, and he said that, you know, reminding

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Speaker 1: everyone that New York City does have the finest police

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Speaker 1: force in the nation. They are well trained. There's thirty

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Speaker 1: eight thousand of them. And the question became most efficient

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Speaker 1: number of individuals from the police force deployed on these

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Speaker 1: early nights when when there was looting going on, and

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Speaker 1: you know, again separating out the legitimate right of individuals

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Speaker 1: to protest that in our country was founded on a

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Speaker 1: protest that I don't want to remind anyone about the

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Speaker 1: Boston Tea Party, but you know, we we we by

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Speaker 1: nature are going to stand up to oppression and stand

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Speaker 1: with each other when others are opposed, are pressed, and

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Speaker 1: that's that's in our DNA as Americans. So the right

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Speaker 1: to protest is something that's enshrined in our constitution. And

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Speaker 1: we told very dear, but that does not give anyone

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Speaker 1: the right to commit criminal acts, and they must be

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Speaker 1: stopped and we need to regain order to ensure that

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Speaker 1: the safety of people's lives, people's communities and their businesses.

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Speaker 1: So we've now regained that control. It's important, but it

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Speaker 1: sends a message to the rest of the world that

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Speaker 1: we also support legitimate protests. People have the right to

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Speaker 1: bring their grievances to their government, to society, and we

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Speaker 1: in government have a responsibility to address them. Lieutenant Governor

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Speaker 1: of New York, Kathy Cathy, fantastic to catchup with you.

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Speaker 1: Thank you very much for j woanting. Guess John, As

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Speaker 1: you know, there's something about the first chart you look

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Speaker 1: at every morning. This morning's chart was a standard in

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Speaker 1: force made up of a few stocks. I can't remember

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Speaker 1: their names right now, but there's four or five stocks

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Speaker 1: that make up the stocks, and everybody else is trailing behind.

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Speaker 1: I'm kidding, but we're seven percent under where we were

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Speaker 1: Valentine's Day. An extraordinary bull market off the march bottom.

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Speaker 1: Greg Bottle of BMP perry By, he knows the mathematics

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Speaker 1: of this, He knows the derivative dynamics of this equity surge. Greg,

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Speaker 1: let me begin with first principles. Is it the renewance

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Speaker 1: of a bull market? I didn't think so. This is

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Speaker 1: a very large bear market rally. But I also think

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Speaker 1: we need to think about this in terms of a

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Speaker 1: two speed recovery. You touched on it there. I think

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Speaker 1: some of these mega caps, just these oligobalistic tech companies,

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Speaker 1: could potentially be in the start of a new bull market,

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Speaker 1: while the rest of the market could still potentially have

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Speaker 1: a much more difficult time ahead of it. Greg, I

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Speaker 1: want to talk about moral hazard. We were speaking yesterday

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Speaker 1: with Bill Dudley, formerly of the New York FED, saying

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Speaker 1: that the Fed's actions do increase the risk of moral hazard.

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Speaker 1: You could say the same thing about the ECB. As

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Speaker 1: an equity strategist, How concerned are you that this moral

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Speaker 1: hazard will lead to an overshooting and a crash? Well,

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Speaker 1: I think in some ways there are echoes of the

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Speaker 1: late nineties. We had this policy response to LTCM where

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Speaker 1: the FED came in and cut rates, and really that

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Speaker 1: drove the last legs of the bubble that resulted in

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Speaker 1: the in the in the tech bubble in the late

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Speaker 1: nineties and the subsequent bear markets No. One oh two.

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Speaker 1: And clearly we have a situation where we've had real

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Speaker 1: policies shock and awe, and some of the reasons that

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Speaker 1: people are giving to invest now is that there is

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Speaker 1: no alternative, and you can't fight the FED even though

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Speaker 1: fundamentals look terrible, and I think there's a real risk

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Speaker 1: of moral hazard for equty markets. Greg. Something that Jim

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Speaker 1: Bianca Bianca Research said recently I thought was really interesting.

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Speaker 1: It's about good hearts law that once a measure becomes

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Speaker 1: a target, it ceases to be a good measure. This

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Speaker 1: whole market has become a target. What's it a measure

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Speaker 1: of anymore? Yeah. I think there's definitely a big disconnect

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Speaker 1: in between the outlook for the U S economy and

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Speaker 1: the outlook for the equity market. Tom touched there the

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Speaker 1: lack of breadth in the rally that we have a

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Speaker 1: handful of stocks now, these megacap stocks that are driving

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Speaker 1: the market directionally, and it's become increasingly devolved from the economy,

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Speaker 1: Whereas I think when you look at some of the

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Speaker 1: smaller mitcaps for example, or some of those even second

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Speaker 1: tier large cap stocks, I think they're going to be

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Speaker 1: much more wedded to the cyclical um direction of the

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Speaker 1: U S economy and the outcome that we get there.

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Speaker 1: Good battle of BMP, panaback RAG fantastic to catch up

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Speaker 1: with you, SA now without question, our interview of the day.

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Speaker 1: Admiral James Trevitis, of course, an author of any number

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Speaker 1: of books and leaders, including The Leader's Bookshelf and Former

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Speaker 1: Service to this Nation, among other things. As Supreme NATO

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Speaker 1: Commander James Trevitas, the forty eight hours here have been extraordinary.

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Speaker 1: I wrote a script about Lieutenant Colonel Asper, about General Miley,

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Speaker 1: about General uh Maddis, and I wrote a script about

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Speaker 1: Admiral Mullen. They're all on board. Do the soldiers and

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Speaker 1: the sailors of the military, do they have their back? Yes?

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Speaker 1: I think so. Um. As I look out across the

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Speaker 1: force today, tom Um, we have one point two million

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Speaker 1: active duty military and they didn't sign up to uh

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Speaker 1: dominate protesters, peaceful protesters in a battle space. Um. We've

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Speaker 1: got plenty of law enforcement officers, plenty of National Guard

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Speaker 1: troops who can do the kind of attention to prevent

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Speaker 1: looting that is so important. But I think the military

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Speaker 1: recognizes his duty as to the Constitution of the United States.

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Speaker 1: They were ordered to stand on the steps of the

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Speaker 1: Lincoln Memorial as they did. What were your thoughts when

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Speaker 1: Martha Radditt's of ABC showed that image of our military,

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Speaker 1: of whichever flavor lined up like Game of Thrones on

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Speaker 1: the steps of the Lincoln Memorial. You know, Tom, I

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Speaker 1: don't think it's important what I think. Let's think about

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Speaker 1: what Abraham Lincoln must have thought about that as he

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Speaker 1: was looking down from that great Republic in the sky.

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Speaker 1: I think he would have been stunned to think that

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Speaker 1: we'd hit this point over the exact issues that he

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Speaker 1: had worked so hard to keep our country together, to

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Speaker 1: overcome the kind of racism at its absolute peak, and slavery.

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Speaker 1: He must have felt as though he had had that

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Speaker 1: occur through the Civil War, and all that work must

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Speaker 1: have felt so undone to him. To see armed troops

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Speaker 1: standing there. I find it saddening to think what Abraham

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Speaker 1: Lincoln would think of that moment. Admiral, just if you

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Speaker 1: could just give us a sense of how you think

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Speaker 1: maybe the most senior military commanders in this country, how

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Speaker 1: do they feel like they need to react to President

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Speaker 1: trumpall think about the joint chiefs when he issues an

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Speaker 1: edict about, you know, maybe deploying troops to the Lincoln Memorial.

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Speaker 1: I mean, is it simply he's my commander in chief,

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Speaker 1: and therefore I fulfill the order first, Any senior military

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Speaker 1: officer is gonna begin by saying, here's my advice on

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Speaker 1: this situation. Secretary of Defense and Mr President, Well, we

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Speaker 1: will never know because of the professionalism of our senior

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Speaker 1: military what the exact advice they gave the President, but

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Speaker 1: I would guess that they advised him not to do it,

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Speaker 1: that it would be the wrong thing, the wrong signal,

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Speaker 1: the wrong step forward. Um once the President then over rise,

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Speaker 1: then you have a very tough decision to make as

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Speaker 1: a senior military leader. If it is a lawful order,

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Speaker 1: and it is a lawful order, it's not a smart order,

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Speaker 1: but it's a lawful order, then you can either execute

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Speaker 1: it or you have to presign. I think what we've

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Speaker 1: seen in the last twenty four hours, both from Secretary

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Speaker 1: Esper and from General Millie, is them taking a step

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Speaker 1: back and effectively saying to the President through their public pronouncements, Okay,

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Speaker 1: we don't agree with this, and now we're going to

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Speaker 1: see what unfolds in the next four to forty eight hours.

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Speaker 1: Join us on Bloombert Radio across this nation. James Trevidus,

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Speaker 1: former admiral with the United States Navy and of course

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Speaker 1: Supreme Commander NATO. James trevinas the lieutenant colonel earned a

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Speaker 1: bronze star moving to the left on the road to Baghdad.

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Speaker 1: He's in a difficult position right now. What does the

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Speaker 1: Secretary Defense do? Is it constructive to resign or does

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Speaker 1: he carry forward waiting to be terminated as is the

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Speaker 1: speculation overnight. Certainly these are intensely personal decisions, and I'm sure,

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Speaker 1: for example, Secretary Maddison White House Chief of Staff Kelly

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Speaker 1: must have wrestled with these kind of thoughts after Charlotteesville,

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Speaker 1: when I think there were a lot of storm clouds

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Speaker 1: gathering and red flags flying about where this was all going.

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Speaker 1: So I am hopeful that Secretary Esper will convince the

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Speaker 1: President as is his job, to do the right thing here,

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Speaker 1: which is to let law enforcement, National Guard take care

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Speaker 1: of these kind of missions. We do not want to

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Speaker 1: turn this into a active duty military role in tank

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Speaker 1: down Pennsylvania Avenue or flying helicopters. We actually saw this

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Speaker 1: flying combat helicopters low over protesters. Hey, that's the stuff

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Speaker 1: we do in Afghanistan and Iracut war. We don't do

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Speaker 1: that in the United States of America. Edmon, I've had

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Speaker 1: some history today. What you are expert on and folks,

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Speaker 1: I can't say enough about The Leader's Bookshelf by James

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Speaker 1: stravit As it's really an important book. Douglas MacArthur didn't

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Speaker 1: he have a helicopter when he and a young Eisenhower

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Speaker 1: and Major Patton had to take on the bonus boys

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Speaker 1: of World War One, starving in in the depression. MacArthur

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Speaker 1: had a challenging career after that. Within his acclaim and

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Speaker 1: his bravery and leadership as well. Is that the kind

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Speaker 1: of person the president wants? Is he really in search

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Speaker 1: of the Douglas MacArthur that my grandfather worshiped. I think

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Speaker 1: all presidents reached for active engage, forceful leaders, and sometimes

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Speaker 1: the leader you inherit in a situation, let's say Lincoln,

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Speaker 1: we're talking about him earlier, gets McClellan, General McClellan, who's

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Speaker 1: a pretty boy soldier, but he has to go through

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Speaker 1: a lot of general still he gets to Grant and

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Speaker 1: so what we what we see I think is the

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Speaker 1: president reaching for active engaged generals. But what he really

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Speaker 1: wants is a general who will stand up to him

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Speaker 1: and tell him what he cannot do, what he should

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Speaker 1: not do. I think that's the General that that President

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Speaker 1: Trump needs desperately in this moment. James de Vita, thank

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Speaker 1: you so much. With illusions are of course to Mr

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Speaker 1: Grant as well, General Grant as well, almost to Vitas.

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Speaker 1: I would look forward to the next essays from you

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Speaker 1: on this historic moment in Washington. Thanks for listening to

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Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on

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Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm

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Speaker 1: on Twitter at Tom Keene before the podcast. You can

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Speaker 1: always catch us worldwide. I'm Bloomberg Radio