Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jai Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot com, and of course on the Bloomberg David
Speaker 1: Lee Bowoods joins us right now. He is with JP
Speaker 1: Morgan Asset Management. Good morning, tell us simply how you
Speaker 1: have changed your asset allocation? How do you change your
Speaker 1: equity belief after up? So, you know, I think what's
Speaker 1: what's most interesting from our vantage point is that we
Speaker 1: haven't really changed things too much. Um. From the beginning,
Speaker 1: from you know, the start of April, we were really
Speaker 1: of the view that we wanted to center portfolios in
Speaker 1: higher quality assets like technology, like healthcare, but we didn't
Speaker 1: want to completely abandon cyclicality because if markets came back quickly,
Speaker 1: we wanted to participate. UM. We obviously haven't been fully
Speaker 1: positioned with a cyclical tilt, so we have been under
Speaker 1: performing a bit over the past couple of days. But
Speaker 1: some of our more value cyclical exposure to things like
Speaker 1: financials has been helping. And so I think that you know,
Speaker 1: when we look at where the market is today, Clearly
Speaker 1: things have moved very far, very fast. Um there there
Speaker 1: is room for markets to continue climbing higher, But I
Speaker 1: think now is probably the wrong time to materially change
Speaker 1: your asset allocation. Right, maybe a month and a half
Speaker 1: ago this was the conversation to have. But I think
Speaker 1: that the risk reward has continued to deteriorate here and
Speaker 1: that makes me a little bit nervous about the direction
Speaker 1: of travel for markets in the coming weeks. And it's
Speaker 1: sometimes you've just got to take a step back and
Speaker 1: look at the position we're in right now. If I
Speaker 1: teld you twelve months ago that in twenty twenty we
Speaker 1: would have a job sprint of negative two points seven
Speaker 1: six million, and on the same day people would call
Speaker 1: it a big bait and the SMP five hundred would
Speaker 1: go through, there is no way that you would believe
Speaker 1: me that that is what would happen. That's what happened
Speaker 1: in the last twenty four as daven, How do you
Speaker 1: explain that to clients? You know, I think that it's
Speaker 1: important to recognize that there's there's a real technical nature
Speaker 1: to everything that's going on here, and market structure is
Speaker 1: just very different today than it has been historically, and
Speaker 1: part of what we think has driven this big rebound.
Speaker 1: You know, when we look at get cash balances of
Speaker 1: non bank investors and things like that, they they still
Speaker 1: look underweight equities. But where we've really seen money come
Speaker 1: back into the market is through the more systematic strategies.
Speaker 1: And so we had this enormous spike in volatility back
Speaker 1: in the middle of March, and as volatility has trended
Speaker 1: lower over the past couple of weeks, you've seen signals
Speaker 1: triggered that bring the c t A s and the
Speaker 1: momentum traders, and the risk parity funds and the ball
Speaker 1: control funds back into the market. So I think that,
Speaker 1: you know, as quickly as we went down, it actually,
Speaker 1: with some hindsight doesn't necessarily surprise me the speed at
Speaker 1: which things have bounced back. But I do think that
Speaker 1: this is a function of the way that markets are
Speaker 1: structured today, um, and that's created a pretty significant disconnect, John,
Speaker 1: to your point between what we're seeing in the economic
Speaker 1: data and the performance of equity markets, particularly US equity markets,
Speaker 1: which have really led the charge here. All right, David,
Speaker 1: So how long can these technical factors overwhelm the fundamental factors,
Speaker 1: which are an increasing bankruptcy rate and increasing unemployment rate,
Speaker 1: and concern that we could get some sort of W
Speaker 1: shaped recovery or some sort of a second wave of
Speaker 1: the virus. I'm just thinking, for example, high yield bond
Speaker 1: yields right now are within one and a half percentage
Speaker 1: points from the all time low at a time when
Speaker 1: the bankruptcy to rate is climbing beyond what we saw
Speaker 1: in two thousand and nine, How does this make sense
Speaker 1: to So, you know, I think the market is very
Speaker 1: much focused on on direction rather than level, and with
Speaker 1: things reopening, that does seem to be overwhelming the market's
Speaker 1: ability to look forward. You know, I acknowledge everything you said.
Speaker 1: We've seen commercial mortgage back, UH security delinquency rates begin
Speaker 1: to pick up. I mean, there there's a lot of
Speaker 1: evidence of the stress in the economy, but the market
Speaker 1: really seems much more focused on the direction of travel
Speaker 1: of the virus itself and the ability of the economy
Speaker 1: to reopen. So, you know, to my mind, there there
Speaker 1: are really two big risks here that investors need to monitor.
Speaker 1: The first is a potential for a second wave, and
Speaker 1: I think it's an unfortunate reality given the the protests
Speaker 1: over the past couple of days here in the US
Speaker 1: that you know, to my mind, that risk has increased
Speaker 1: as social distancing seems to have been put off to
Speaker 1: the side temporarily. But the other thing that I think
Speaker 1: we need to pay attention to, and you guys were
Speaker 1: alluding to it a bit earlier, is simply the the
Speaker 1: amount of stimulus that's been pumped into the economy, and
Speaker 1: more importantly, the expectation that there's more stimulus coming. You know,
Speaker 1: we have the e c B later today. The ECB
Speaker 1: historically has tended to to pull out the bazuka when
Speaker 1: things aren't looking good, not when we're in the midst
Speaker 1: of a rally, and so it'll be really interesting to
Speaker 1: see what happens in just under an hour here and
Speaker 1: whether they go through and increase the size of the
Speaker 1: of the emergency programs or whether they hold off of it.
Speaker 1: But I think that there's an inherent expectation on the
Speaker 1: part of the market that there's more stimulus coming. It's
Speaker 1: a fantastic to catch up with you as always, David.
Speaker 1: Believe it's the of JP Morgan Asset Management joining us
Speaker 1: right now, getting right to it. On this busy, busy morning,
Speaker 1: the Lieutenant Governor of the Empire State, Kathy Hockl, joins
Speaker 1: us UH this morning. Kathy, what are you going to
Speaker 1: work on today to move the trend of forward? We've
Speaker 1: gone from rioting and louding to what was called relative
Speaker 1: calm to an even calmer Wednesday night. What is next
Speaker 1: for you and the governor? Well, the next step is
Speaker 1: to really address the concerns of the community that have
Speaker 1: finally come into a forefront. And it's a it's a
Speaker 1: tragedy that it took a the leurder of an unarmed
Speaker 1: African American and the streets of Minneapolis to get the
Speaker 1: national tension. But if that's what it took, it's where
Speaker 1: we are today. We're talking about how we can address
Speaker 1: the inherent criminal justice injustice system, and we now have
Speaker 1: that that African Americans are subjected to and white Americans
Speaker 1: are not, and so we have an agenda of national
Speaker 1: reforms that we believe should occur. I believe that when
Speaker 1: we start taking concrete action that will address many of
Speaker 1: the concerns of the protesters, they will feel that they've
Speaker 1: been heard. And this conversation has to begin in earnest
Speaker 1: starting today, we get the banned success. Of course, we
Speaker 1: have to have independent investigations of police abuse and disclosing
Speaker 1: disciplinary erected. These are things that the Governor and I
Speaker 1: have proposed in the state of New York and they
Speaker 1: should be national. So that's what we did. We start
Speaker 1: cleaning up the streets, we start giving people hope that
Speaker 1: we're going to go forward and uh, and we also
Speaker 1: have to make some major systemic changes in order to
Speaker 1: take this national moment that has focused the world on
Speaker 1: what's happening in our country and come out and better
Speaker 1: for it. Lieutenant Governor, it is an ageless tension between
Speaker 1: governors and mayors. It goes back in New York State,
Speaker 1: at least to Governor Clinton in the three day trip
Speaker 1: up the Hudson to Albany. That doesn't happen now now
Speaker 1: it's a media give us an update on the tension
Speaker 1: between your offices and Mayor de Blasio of New York City.
Speaker 1: There's certainly issue by issuing. Literally just a few days ago,
Speaker 1: Mayor de Blasio did a joint press conference with the
Speaker 1: Governor to talk about how far we've come in in
Speaker 1: eradicating the virus and how we're ready to open New
Speaker 1: York City the first phase starting literally on Monday, which
Speaker 1: is just so such such good news for New Yorkers
Speaker 1: that are desperate to start getting back to some semas
Speaker 1: the normal. So they truly do have a working relationship. Uh.
Speaker 1: They can disagree with each other, everybody can disagree, but
Speaker 1: when it comes down to getting the job done to
Speaker 1: the people of New York, Uh, they're able to get
Speaker 1: it done. And I think the evidence is what we've
Speaker 1: what we've been able to do with eradicating working on
Speaker 1: the coronavirus together. That was intensive teamwork from the states
Speaker 1: and city officials, and our teams have worked together for
Speaker 1: the last three months on a day to day basis.
Speaker 1: So it's really a case by case, Lieutenant Governor. Let's
Speaker 1: talk more about the reopening that is supposed to happen
Speaker 1: on Monday. There's a question of if you reopen, will
Speaker 1: they come? And a big, big part of that question
Speaker 1: is the m t A, the subway system. Will it
Speaker 1: be prepared to take an increased number of writers with
Speaker 1: respect to hygiene as well as service. How close are
Speaker 1: we to that? Yes, And you're absolutely right that we
Speaker 1: knew that we could not reopen society, reopen economy without
Speaker 1: the ability to get people safely to their jobs. And yes,
Speaker 1: we've had the scale down service and we've had the
Speaker 1: subway closed from from the middle of the night down
Speaker 1: to five am in order to do unpresented cleaning. You know,
Speaker 1: you thought there are subways need to be cleaned, that
Speaker 1: they have been uh sanitized top to bottom by individuals
Speaker 1: that have just been working slowly through the night. So
Speaker 1: we're going to continue those processes. We're going to add
Speaker 1: more trains. We know that they'll be increased capacity. But
Speaker 1: people are going to be anxious. You're absolutely right. Uh,
Speaker 1: we we want they cannot get on unless they're wearing
Speaker 1: a mask. We hope that people be using hand sanitizers
Speaker 1: and you know, to the extent possible social distinct. But
Speaker 1: if you have the mask on you, it's it's we
Speaker 1: now know that that will protect you. Again, there's more
Speaker 1: information out there than we didn't even have three months ago.
Speaker 1: And three months ago we did not know that mask
Speaker 1: was the primary way that you can stop to spread.
Speaker 1: You know, people said, is all on surfaces. Well, we're
Speaker 1: learning a lot and we're cleaning the surfaces requiring masks,
Speaker 1: and we will get people to their jobs in New
Speaker 1: York because when we start opening, it's going to be
Speaker 1: in phased, a phased approach where it's manufacturing, construction, some
Speaker 1: very limited retail at first, so people start getting afflimated
Speaker 1: to the new system. Then Phase two, which most of
Speaker 1: upstate New York or is in right now. I'm in
Speaker 1: Western New York and we just started Phase two this week.
Speaker 1: That's all retails, shopping, it's office spaces. I think you're
Speaker 1: gonna see a lot more of that. But but truthfully,
Speaker 1: we've talked about this on this show before. There's going
Speaker 1: to be a different mindset when people have the ability
Speaker 1: to continue working from home, at least perhaps for a
Speaker 1: couple more months. I think it's going to be a
Speaker 1: more gradual opening that people won't all of a sudden
Speaker 1: descend on the subway system and overloaded. But if that
Speaker 1: becomes the case, we're prepared, Lieutenant Governor. I just wanted
Speaker 1: to wrap up the conversation by talking about lessons learned
Speaker 1: with you. I'm a guest in this country, but New
Speaker 1: York City is my home, and I, like many people,
Speaker 1: were shocked to see the looting that took place on
Speaker 1: Fifth Avenue a place that you cannot walk down without
Speaker 1: usually bumping into a police officer. What happened the other
Speaker 1: night and what have we learned from it? Well, the
Speaker 1: governor addressed this, and he said that, you know, reminding
Speaker 1: everyone that New York City does have the finest police
Speaker 1: force in the nation. They are well trained. There's thirty
Speaker 1: eight thousand of them. And the question became most efficient
Speaker 1: number of individuals from the police force deployed on these
Speaker 1: early nights when when there was looting going on, and
Speaker 1: you know, again separating out the legitimate right of individuals
Speaker 1: to protest that in our country was founded on a
Speaker 1: protest that I don't want to remind anyone about the
Speaker 1: Boston Tea Party, but you know, we we we by
Speaker 1: nature are going to stand up to oppression and stand
Speaker 1: with each other when others are opposed, are pressed, and
Speaker 1: that's that's in our DNA as Americans. So the right
Speaker 1: to protest is something that's enshrined in our constitution. And
Speaker 1: we told very dear, but that does not give anyone
Speaker 1: the right to commit criminal acts, and they must be
Speaker 1: stopped and we need to regain order to ensure that
Speaker 1: the safety of people's lives, people's communities and their businesses.
Speaker 1: So we've now regained that control. It's important, but it
Speaker 1: sends a message to the rest of the world that
Speaker 1: we also support legitimate protests. People have the right to
Speaker 1: bring their grievances to their government, to society, and we
Speaker 1: in government have a responsibility to address them. Lieutenant Governor
Speaker 1: of New York, Kathy Cathy, fantastic to catchup with you.
Speaker 1: Thank you very much for j woanting. Guess John, As
Speaker 1: you know, there's something about the first chart you look
Speaker 1: at every morning. This morning's chart was a standard in
Speaker 1: force made up of a few stocks. I can't remember
Speaker 1: their names right now, but there's four or five stocks
Speaker 1: that make up the stocks, and everybody else is trailing behind.
Speaker 1: I'm kidding, but we're seven percent under where we were
Speaker 1: Valentine's Day. An extraordinary bull market off the march bottom.
Speaker 1: Greg Bottle of BMP perry By, he knows the mathematics
Speaker 1: of this, He knows the derivative dynamics of this equity surge. Greg,
Speaker 1: let me begin with first principles. Is it the renewance
Speaker 1: of a bull market? I didn't think so. This is
Speaker 1: a very large bear market rally. But I also think
Speaker 1: we need to think about this in terms of a
Speaker 1: two speed recovery. You touched on it there. I think
Speaker 1: some of these mega caps, just these oligobalistic tech companies,
Speaker 1: could potentially be in the start of a new bull market,
Speaker 1: while the rest of the market could still potentially have
Speaker 1: a much more difficult time ahead of it. Greg, I
Speaker 1: want to talk about moral hazard. We were speaking yesterday
Speaker 1: with Bill Dudley, formerly of the New York FED, saying
Speaker 1: that the Fed's actions do increase the risk of moral hazard.
Speaker 1: You could say the same thing about the ECB. As
Speaker 1: an equity strategist, How concerned are you that this moral
Speaker 1: hazard will lead to an overshooting and a crash? Well,
Speaker 1: I think in some ways there are echoes of the
Speaker 1: late nineties. We had this policy response to LTCM where
Speaker 1: the FED came in and cut rates, and really that
Speaker 1: drove the last legs of the bubble that resulted in
Speaker 1: the in the in the tech bubble in the late
Speaker 1: nineties and the subsequent bear markets No. One oh two.
Speaker 1: And clearly we have a situation where we've had real
Speaker 1: policies shock and awe, and some of the reasons that
Speaker 1: people are giving to invest now is that there is
Speaker 1: no alternative, and you can't fight the FED even though
Speaker 1: fundamentals look terrible, and I think there's a real risk
Speaker 1: of moral hazard for equty markets. Greg. Something that Jim
Speaker 1: Bianca Bianca Research said recently I thought was really interesting.
Speaker 1: It's about good hearts law that once a measure becomes
Speaker 1: a target, it ceases to be a good measure. This
Speaker 1: whole market has become a target. What's it a measure
Speaker 1: of anymore? Yeah. I think there's definitely a big disconnect
Speaker 1: in between the outlook for the U S economy and
Speaker 1: the outlook for the equity market. Tom touched there the
Speaker 1: lack of breadth in the rally that we have a
Speaker 1: handful of stocks now, these megacap stocks that are driving
Speaker 1: the market directionally, and it's become increasingly devolved from the economy,
Speaker 1: Whereas I think when you look at some of the
Speaker 1: smaller mitcaps for example, or some of those even second
Speaker 1: tier large cap stocks, I think they're going to be
Speaker 1: much more wedded to the cyclical um direction of the
Speaker 1: U S economy and the outcome that we get there.
Speaker 1: Good battle of BMP, panaback RAG fantastic to catch up
Speaker 1: with you, SA now without question, our interview of the day.
Speaker 1: Admiral James Trevitis, of course, an author of any number
Speaker 1: of books and leaders, including The Leader's Bookshelf and Former
Speaker 1: Service to this Nation, among other things. As Supreme NATO
Speaker 1: Commander James Trevitas, the forty eight hours here have been extraordinary.
Speaker 1: I wrote a script about Lieutenant Colonel Asper, about General Miley,
Speaker 1: about General uh Maddis, and I wrote a script about
Speaker 1: Admiral Mullen. They're all on board. Do the soldiers and
Speaker 1: the sailors of the military, do they have their back? Yes?
Speaker 1: I think so. Um. As I look out across the
Speaker 1: force today, tom Um, we have one point two million
Speaker 1: active duty military and they didn't sign up to uh
Speaker 1: dominate protesters, peaceful protesters in a battle space. Um. We've
Speaker 1: got plenty of law enforcement officers, plenty of National Guard
Speaker 1: troops who can do the kind of attention to prevent
Speaker 1: looting that is so important. But I think the military
Speaker 1: recognizes his duty as to the Constitution of the United States.
Speaker 1: They were ordered to stand on the steps of the
Speaker 1: Lincoln Memorial as they did. What were your thoughts when
Speaker 1: Martha Radditt's of ABC showed that image of our military,
Speaker 1: of whichever flavor lined up like Game of Thrones on
Speaker 1: the steps of the Lincoln Memorial. You know, Tom, I
Speaker 1: don't think it's important what I think. Let's think about
Speaker 1: what Abraham Lincoln must have thought about that as he
Speaker 1: was looking down from that great Republic in the sky.
Speaker 1: I think he would have been stunned to think that
Speaker 1: we'd hit this point over the exact issues that he
Speaker 1: had worked so hard to keep our country together, to
Speaker 1: overcome the kind of racism at its absolute peak, and slavery.
Speaker 1: He must have felt as though he had had that
Speaker 1: occur through the Civil War, and all that work must
Speaker 1: have felt so undone to him. To see armed troops
Speaker 1: standing there. I find it saddening to think what Abraham
Speaker 1: Lincoln would think of that moment. Admiral, just if you
Speaker 1: could just give us a sense of how you think
Speaker 1: maybe the most senior military commanders in this country, how
Speaker 1: do they feel like they need to react to President
Speaker 1: trumpall think about the joint chiefs when he issues an
Speaker 1: edict about, you know, maybe deploying troops to the Lincoln Memorial.
Speaker 1: I mean, is it simply he's my commander in chief,
Speaker 1: and therefore I fulfill the order first, Any senior military
Speaker 1: officer is gonna begin by saying, here's my advice on
Speaker 1: this situation. Secretary of Defense and Mr President, Well, we
Speaker 1: will never know because of the professionalism of our senior
Speaker 1: military what the exact advice they gave the President, but
Speaker 1: I would guess that they advised him not to do it,
Speaker 1: that it would be the wrong thing, the wrong signal,
Speaker 1: the wrong step forward. Um once the President then over rise,
Speaker 1: then you have a very tough decision to make as
Speaker 1: a senior military leader. If it is a lawful order,
Speaker 1: and it is a lawful order, it's not a smart order,
Speaker 1: but it's a lawful order, then you can either execute
Speaker 1: it or you have to presign. I think what we've
Speaker 1: seen in the last twenty four hours, both from Secretary
Speaker 1: Esper and from General Millie, is them taking a step
Speaker 1: back and effectively saying to the President through their public pronouncements, Okay,
Speaker 1: we don't agree with this, and now we're going to
Speaker 1: see what unfolds in the next four to forty eight hours.
Speaker 1: Join us on Bloombert Radio across this nation. James Trevidus,
Speaker 1: former admiral with the United States Navy and of course
Speaker 1: Supreme Commander NATO. James trevinas the lieutenant colonel earned a
Speaker 1: bronze star moving to the left on the road to Baghdad.
Speaker 1: He's in a difficult position right now. What does the
Speaker 1: Secretary Defense do? Is it constructive to resign or does
Speaker 1: he carry forward waiting to be terminated as is the
Speaker 1: speculation overnight. Certainly these are intensely personal decisions, and I'm sure,
Speaker 1: for example, Secretary Maddison White House Chief of Staff Kelly
Speaker 1: must have wrestled with these kind of thoughts after Charlotteesville,
Speaker 1: when I think there were a lot of storm clouds
Speaker 1: gathering and red flags flying about where this was all going.
Speaker 1: So I am hopeful that Secretary Esper will convince the
Speaker 1: President as is his job, to do the right thing here,
Speaker 1: which is to let law enforcement, National Guard take care
Speaker 1: of these kind of missions. We do not want to
Speaker 1: turn this into a active duty military role in tank
Speaker 1: down Pennsylvania Avenue or flying helicopters. We actually saw this
Speaker 1: flying combat helicopters low over protesters. Hey, that's the stuff
Speaker 1: we do in Afghanistan and Iracut war. We don't do
Speaker 1: that in the United States of America. Edmon, I've had
Speaker 1: some history today. What you are expert on and folks,
Speaker 1: I can't say enough about The Leader's Bookshelf by James
Speaker 1: stravit As it's really an important book. Douglas MacArthur didn't
Speaker 1: he have a helicopter when he and a young Eisenhower
Speaker 1: and Major Patton had to take on the bonus boys
Speaker 1: of World War One, starving in in the depression. MacArthur
Speaker 1: had a challenging career after that. Within his acclaim and
Speaker 1: his bravery and leadership as well. Is that the kind
Speaker 1: of person the president wants? Is he really in search
Speaker 1: of the Douglas MacArthur that my grandfather worshiped. I think
Speaker 1: all presidents reached for active engage, forceful leaders, and sometimes
Speaker 1: the leader you inherit in a situation, let's say Lincoln,
Speaker 1: we're talking about him earlier, gets McClellan, General McClellan, who's
Speaker 1: a pretty boy soldier, but he has to go through
Speaker 1: a lot of general still he gets to Grant and
Speaker 1: so what we what we see I think is the
Speaker 1: president reaching for active engaged generals. But what he really
Speaker 1: wants is a general who will stand up to him
Speaker 1: and tell him what he cannot do, what he should
Speaker 1: not do. I think that's the General that that President
Speaker 1: Trump needs desperately in this moment. James de Vita, thank
Speaker 1: you so much. With illusions are of course to Mr
Speaker 1: Grant as well, General Grant as well, almost to Vitas.
Speaker 1: I would look forward to the next essays from you
Speaker 1: on this historic moment in Washington. Thanks for listening to
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm
Speaker 1: on Twitter at Tom Keene before the podcast. You can
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