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

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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. George

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Speaker 1: Rusnack joins us right now. George, it's real simple. I

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Speaker 1: looked at the UK two year yield today and I

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Speaker 1: couldn't go la rhythmic because it's a negative yield. But

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Speaker 1: the math is real simple. It is a persistent trend.

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Speaker 1: How grinding is this bond market? And does it Does

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Speaker 1: it indicate for you that the US tenure yield could

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Speaker 1: grind ever lower, it could grind glower here We've been

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Speaker 1: in a range here for quite a while, Tom, So

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Speaker 1: since June five, where he hit roughly eighty nine basis points.

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Speaker 1: We've been sort of this sixty seventy five basis point

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Speaker 1: range for the last month or so. We think it's

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Speaker 1: going to probably stay in that range. Unfortunately, over the

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Speaker 1: longer term, we do think it might trend a little

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Speaker 1: bit higher. And a little bit higher is only ten

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Speaker 1: twenty basis points, but quite frankly, Tom a ten basis

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Speaker 1: point move higher in tenure rates is a negative one

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Speaker 1: return for investors here. So that's the challenge that investors

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Speaker 1: are facing right now, is that they're just really with

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Speaker 1: yields so low they actually just a small backup and

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Speaker 1: cause a pretty significant negative yield and negative return for clients.

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Speaker 1: But George has been fascinating to see what happens at

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Speaker 1: the front end. But of course the front end is

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Speaker 1: high persensitive to expectations about the policy right. What's been

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Speaker 1: more interesting for me, it's what's happening down the longer nd.

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Speaker 1: But Michael JP. Morgan thinks that here in the United

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Speaker 1: States we can converge down towards the policy right on

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Speaker 1: a ten year maturity in the treasury market and to

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Speaker 1: be clear, but not far off those levels. Do you

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Speaker 1: think that can happen, George, it's feasible, John. We don't

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Speaker 1: think necessarily that's going to happen. That's not our base

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Speaker 1: case scenario. It's feasible, though, And certainly what's happening here domestically,

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Speaker 1: we're catching up to international what we're seeing overseas in

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Speaker 1: Europe and Japan, and that's that's actually not a good

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Speaker 1: thing for US. So we actually like the fact that

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Speaker 1: the yolkerve is actually widened a little bit and more

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Speaker 1: specifically a steep in a little bit. That's something that's

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Speaker 1: a healthy thing for the economy. That is part of

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Speaker 1: our base case forecast that continues. And again though, I

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Speaker 1: think the key here is that it's going to be gradual.

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Speaker 1: And I think the other key of why that's potentially

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Speaker 1: gonna happen, John, is the idea of the issuance that's

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Speaker 1: coming out. That was well absorbed last week, last last

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Speaker 1: week's issuance, but going forward, it for means to be

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Speaker 1: seen if that's going to happen, and the Feds actually

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Speaker 1: gonna have to step in here from quantity of easing

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Speaker 1: perspective to pick up on that, to stave off any

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Speaker 1: kind of great tantrum that you could get if you

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Speaker 1: don't see if you don't see them stepping again, George,

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Speaker 1: Typically when benchmark government yields are this low, that is

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Speaker 1: negative for the economy. Certainly we see a lot of

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Speaker 1: dark clouds out there for the economic recovery, and yet

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Speaker 1: a lot of people going further into risk with a

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Speaker 1: preference even increasingly for high yield over investment grade. Why

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Speaker 1: is this a good time to take credit risk at

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Speaker 1: a time of so much skepticism about the recovery being

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Speaker 1: expressed in government debt markets. It's a great question, Lisa,

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Speaker 1: and we're actually in that camp as well. Believe it

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Speaker 1: or not, we've been stepping into high yield a little bit.

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Speaker 1: We're neutral on it overall. Right now, we're looking for

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Speaker 1: opportunities to take on credit risk. And the reason why

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Speaker 1: is right now you're actually getting compensated to take that risk.

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Speaker 1: So in the past you had such tight spreads, there

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Speaker 1: were no opportunities to do that. Even if the fall

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Speaker 1: rates pick up just a little bit. Here you're getting

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Speaker 1: compensated six and a half percent type yields and high

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Speaker 1: yields you're looking at a five any type of spread. Historically,

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Speaker 1: that's a good opportunity to get into that, even if

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Speaker 1: it seems like a challenging time to get into it.

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Speaker 1: We think over the long haul, those returns will offset

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Speaker 1: any kind of volatility that you're gonna see, any kind

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Speaker 1: of defaults that you're gonna see. We think it's a

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Speaker 1: good opportunity. Investment grade corporates, HI corporates preferred to step

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Speaker 1: into that risk. We think from an income perspective, there's

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Speaker 1: just such a dearth of income out there that you're

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Speaker 1: gonna see a lot of demand coming into that and

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Speaker 1: that's going to support those levels despite some of the

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Speaker 1: challenges that they might see financially, the spread you're saying

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Speaker 1: sufficient to absorb the bankruptcies and the losses that are expected.

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Speaker 1: Right now, we're seeing the highest default rate among US

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Speaker 1: high yield debt in ten years, with it expected to

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Speaker 1: go even higher. What kind of default rate is your

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Speaker 1: analysis pricing in to make the five point eight percentage

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Speaker 1: point yield cushion worth it? Right now, default rates are

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Speaker 1: roughly between five and eight percent. Even if you go

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Speaker 1: up to that eight percent level, we still think it

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Speaker 1: makes sense to stay within high yield right now. You

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Speaker 1: have to leg in. You have to be in there

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Speaker 1: over the long term, and you're getting compensated. Look if

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Speaker 1: you look at where else you go on the market,

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Speaker 1: and this is a challenge that every client is facing

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Speaker 1: right now. Pre COVID for fixed income, you could count

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Speaker 1: on getting two things. You could get down count on

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Speaker 1: getting good income and an offset to your risk portfolio

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Speaker 1: going forward. You do not have to choose one or

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Speaker 1: the other. You're gonna have to choose either the income

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Speaker 1: component you're not going to get the risk off set,

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Speaker 1: or you're gonna have to choose the risk offset, which

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Speaker 1: is Treasury agencies, Asset Act mortgages, but you're not going

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Speaker 1: to get the income. We actually think going for the

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Speaker 1: income right here is making sense, and we think that

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Speaker 1: actually more and more investors are going to be doing

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Speaker 1: that and will support the high yield market. George, the

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Speaker 1: backdrop here is a new statistic, and Greg Valier published

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Speaker 1: it today, but many others have talked about it as well.

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Speaker 1: It's all a lot of bond analysis. Again. What appears

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Speaker 1: to be four trillion dollars of national debt, that's the

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Speaker 1: new statistic, not to trillion, not three trillion, four four

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Speaker 1: four trillion. What do you say to Wells Fargo clients

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Speaker 1: who say, wait a minute, there's four trillion dollars out there.

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Speaker 1: That's a number we've never perceived. It's scary, Tom. The

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Speaker 1: amount of debt that we're taking on is very significant.

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Speaker 1: The amount of stimulus that you're seeing in the marketplace

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Speaker 1: is something that we haven't really seen before the two

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Speaker 1: thousand and eight crisis. You saw roughly three trillion dollars

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Speaker 1: in in fiscal stimulus. Over a two year time frame,

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Speaker 1: you're gonna see two trillion dollars over a period in

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Speaker 1: this so six times as much in stimulus. And you're right,

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Speaker 1: that's a huge debt burden and that's going to cause

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Speaker 1: challenges for us for time to come. But the reality

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Speaker 1: is we need it. We need it right now. When

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Speaker 1: you stop the economy, when you slow it down as

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Speaker 1: significantly as you do, and you have the pandemic, you

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Speaker 1: this is the time to be adding the fiscal stimulus.

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Speaker 1: So we're doing the right thing both on the fiscal

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Speaker 1: side and the monetary side. It's scary over the long term,

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Speaker 1: but for the short term we really need that to

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Speaker 1: jump start the economy, and over the long term we're

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Speaker 1: gonna have to work for ways to pay that down.

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Speaker 1: Well over a long term, I mean, can we do

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Speaker 1: this with stability? I mean not only stability in the

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Speaker 1: bond world, your world, but also Scott Rens world, the

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Speaker 1: equity world as well. Do you see this as a

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Speaker 1: stable processor. We're gonna have some volatility out there. Yeah,

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Speaker 1: we do think more of the volatility Again, resilience is

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Speaker 1: one of the key themes that we've talked about. Yeah,

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Speaker 1: that's what we've talked about over both over our midyear

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Speaker 1: and the idea that you know, yes there's a path back,

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Speaker 1: that path might be quite a bumpy one, and so

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Speaker 1: you're gonna see that within the stock market. Obviously, though

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Speaker 1: we do still see sort of a neutral positioning. We're

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Speaker 1: slightly favorite towards equities. We do think there's some good

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Speaker 1: growth out there and are roughly forecasting about a three

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Speaker 1: percent growth now and your end, Georgia gotta wrap up

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Speaker 1: this conversation with a question that basically addressed the only

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Speaker 1: thing that I think people like Lisa Branvits, Marco McKay

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Speaker 1: and Molly Smith would be following, which is waste management

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Speaker 1: debt bought by the Federal Reserve three million dollars worth

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Speaker 1: at about a hundred and five cents on the dollar.

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Speaker 1: It's just been redeemed a hundred of one cents. That's

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Speaker 1: a loss for the Federal Reserve, the Central Bank loss

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Speaker 1: says matter. I think right now, in the short term,

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Speaker 1: they need to support stability, they need to support liquidity

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Speaker 1: within the marketplace, and they're gonna have some losses. Unfortunately.

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Speaker 1: Over the long term, I think they'll be in good shape.

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Speaker 1: But I think you're right. Over the short term, there's

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Speaker 1: gonna be some bumpings there, John, and they're gonna have

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Speaker 1: to absorb that in order to get back to more liquid,

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Speaker 1: well well operating market. And point frankly, they've done a

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Speaker 1: good job of the short term. Yeah. We think of

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Speaker 1: the long term things will pan out fine. Of last

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Speaker 1: FAGA private bank, Joch always tried to catch up the other.

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Speaker 1: David Bianco is going this family's dysfunctional. Mr Bianco's with

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Speaker 1: the DWS America's and he joins us now with investment perspective.

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Speaker 1: David Bianco Benjamin Bernanke's core theory was the financial system

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Speaker 1: in any crisis must stay sound. Is the American financial

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Speaker 1: system sound today? Yes, Tom Corning, it is sound. Um,

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Speaker 1: there are challenges, but it's sound. And last recession, the

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Speaker 1: banks for very much the patient. This time they are

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Speaker 1: a medic. They are responding to the crisis. They're helping

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Speaker 1: facilitate many federal programs. They are still providing credit. Uh,

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Speaker 1: their earnings are under a lot of pressure. And although

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Speaker 1: they're not the yeppie center of this recession in terms

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Speaker 1: of being part of the cause, UH, they are still

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Speaker 1: suffering quite a bit. Of the brunt and the low

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Speaker 1: lost provisions which we saw in the first quarter and

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Speaker 1: where will be more to come that is hitting the

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Speaker 1: earnings as you see this morning. The big banks are

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Speaker 1: getting through it in part because of fees from other

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Speaker 1: capital markets oriented businesses that they have. But it's not

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Speaker 1: easy for these big banks. They are making their contribution

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Speaker 1: to UH to absorbing the costs of this pandemic of

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Speaker 1: that society suffering. But it's good to be a big bank.

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Speaker 1: And I think as the earning season goes on, you'll

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Speaker 1: see if the challenges to smaller banks that are more

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Speaker 1: dependent on that typical that interest income margin, that's even tougher,

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Speaker 1: and it's gonna stay tough in this zero interest rate

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Speaker 1: environment as far as the I can see. The implication

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Speaker 1: in your comments perhaps is consolidation, if not in actual

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Speaker 1: purchases of smaller banks in market share And is this

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Speaker 1: this mean from your perspective, you want to buy the

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Speaker 1: JP Morgan's of the world. You want to buy the

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Speaker 1: strongest US banks right now given their beaten up valuations

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Speaker 1: and given the scope for their consolidation of market share

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Speaker 1: going forward. Within the bank's biggest is best um. A

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Speaker 1: lot of people are moving the debate to should they

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Speaker 1: own big banks versus um super cap tech. I think

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Speaker 1: the portfolio should have at least equal weights, probably in

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Speaker 1: both at this stage, to bring a little bit more

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Speaker 1: balance between this growth first value dynamic that's been so

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Speaker 1: extreme consolidation amongst things. The regulators would have to approve it,

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Speaker 1: endorse it. Hopefully we don't have too much of that

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Speaker 1: activity going on in voluntarily, because there will be some

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Speaker 1: smarts that will have a very tough time should this

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Speaker 1: challenge economy spell into one, and that's a real possibility,

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Speaker 1: and the regulators are certainly asking the banks to consider

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Speaker 1: that outlook. David Bianco, one of the hallmarks of your

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Speaker 1: research for years is a bigger, broader perspective. You've got

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Speaker 1: to overlay onto all of this talk of America and

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Speaker 1: call it developed world markets China. Where do we stand

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Speaker 1: out with this mentioned to China and how will that

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Speaker 1: impinge on markets ADWS. We've been pretty bullish on China

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Speaker 1: for quite some time. We recognize the country as its challenges,

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Speaker 1: return on capital UM, many other types of UH progress

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Speaker 1: that is making, as becoming a not just a heloped

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Speaker 1: country but a leader in the world economy. UM there's

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Speaker 1: this tension between the United States and China, which is

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Speaker 1: an understatement which begs the question, should US investors be

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Speaker 1: investing in China. We monitor this, but our answers yes.

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Speaker 1: Our answer is whether it be investing in a currency

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Speaker 1: that looks like it's going to be one of the

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Speaker 1: world's more important currencies over the long term, in in companies,

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Speaker 1: h and an economy that we think is an important

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Speaker 1: part of the global economy for the longest time. We

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Speaker 1: would simply argue, just go by China tech tech stocks.

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Speaker 1: This rise of Eastern tech, not just the Western tech companies.

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Speaker 1: These Eastern tech companies, you know who they are, their beheaming,

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Speaker 1: They've performed just as well as our being of tech names.

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Speaker 1: But at a time like this where the China economy

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Speaker 1: is bouncing better since the virus and showing signs of

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Speaker 1: its ability to grow, maybe at a slower piece, but grow.

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Speaker 1: If you're looking for value stocks beyond technology, we would

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Speaker 1: point you in the direction of China, maybe first their

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Speaker 1: consumer and their healthcare stocks. Dare I say that even

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Speaker 1: their financials, they're they're banks. I wouldn't make it a

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Speaker 1: big part of the portfolio, but I think the currency

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Speaker 1: and the interest rate environment in Asia being better than

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Speaker 1: in the Western world. Chinese stocks belong in the portfolio.

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Speaker 1: But I think what people struggle with is every single

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Speaker 1: morning we could write the same headline, tensions rising between

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Speaker 1: the United States and China. It's almost become a joke,

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Speaker 1: except it Isn't You see the news out of the

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Speaker 1: UK this morning, essentially kicking out Huawei. Over the next

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Speaker 1: several years, towards the back end of the decade, you

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Speaker 1: see what's happening in the South China Sea once again,

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Speaker 1: that's become an issue, a much bigger issue in the

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Speaker 1: last twenty four hours, David, No one knows what to

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Speaker 1: do with that story anymore. What do you do with it? Well,

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Speaker 1: a lot of these big macro pictures, we try to

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Speaker 1: think about how to invest through them, around them, trying

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Speaker 1: to keep perspective about what really matters to the stocks.

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Speaker 1: Are you comfortable with the currency, are you comfortable with

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Speaker 1: the business? Are you comfortable with the valuation? Uh and

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Speaker 1: And in those simple questions, we are. And that's why

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Speaker 1: China stocks are in the portfolio. And I think as

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Speaker 1: time goes on, as people think about maybe ms C

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Speaker 1: I EVA being a crucial part of the of an

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Speaker 1: equity portfolio. I think Asia ex Japan is going to

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Speaker 1: become an equally important and strategic weight in in in

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Speaker 1: U S investors equity portfolios. But but look, as you said, John,

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Speaker 1: unfortunately it's not a joke. It is real. There's a

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Speaker 1: lot of tension between the US and China about the

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Speaker 1: way the world should be a run and and and

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Speaker 1: elements of of individualism and the country surrounding China. And look,

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Speaker 1: this is this is something that won't go away. Most

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Speaker 1: the US election issue. I think the United States, both

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Speaker 1: sides of the aisle see the tension with China and

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Speaker 1: and I have different ideas about how to deal with it.

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Speaker 1: But this tension between the U S and China is real.

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Speaker 1: It's not going away. As long as it doesn't expode.

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Speaker 1: I do think it's investable for for U S investors.

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Speaker 1: Devin Bianca of DWS Investments learning season a full swing

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Speaker 1: and it's amazing on Gerard Kiss and the RBC Capital

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Speaker 1: Markets really like Mr Mayo saying this is as bad

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Speaker 1: as it gets, and he was quite forceful about better

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Speaker 1: time to come, particularly looking out past two and three quarters.

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Speaker 1: Someone to discuss this and provide broad market perspective is

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Speaker 1: Gina Martin Adams. She is Bloomberg Intelligence chief equity strategist.

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Speaker 1: But what she's really in charge of his courage more

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Speaker 1: than anyone I know. She's never gone to cash. She's

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Speaker 1: always participating in the market and that has been a

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Speaker 1: good and good, h better than good outcome for Geno

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Speaker 1: Martin Adams. If you have confidence to be in the

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Speaker 1: markets right now, can you have confidence to be in

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Speaker 1: the financial sector and the too big to fail banks specifically? Yeah,

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Speaker 1: I think it largely depends upon your outlook for revenue growth.

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Speaker 1: I mean, frankly, these are extremely discounted stocks at large.

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Speaker 1: The financial sector when you look at the history has

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Speaker 1: been training at an incredible discount for most of this year.

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Speaker 1: Even though they bounced back significantly from March to early June,

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Speaker 1: this is a group that's still training between one and

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Speaker 1: happen to standard deviations below five year average. So you've

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Speaker 1: got a discount available to you. It's really just a

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Speaker 1: question of where do you think things are going to head,

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Speaker 1: because in order for this group to outperform, it's got

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Speaker 1: to get better revenue growth. That's been the sticking point

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Speaker 1: throughout the cycle. Everybody focuses on the yield curve. But

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Speaker 1: the reality is, when you look at the factors driving financials,

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Speaker 1: it's that lack of revenue growth that's been incredibly important.

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Speaker 1: So you've got to get some economic visibility, I think,

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Speaker 1: to feel a little better about your investment Opportunit many

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Speaker 1: in this space, and I went right to the revenue

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Speaker 1: growth headlines folks that you see coming across the bloomberg,

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Speaker 1: and it's real simple geno that has to get fixed.

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Speaker 1: And the way it gets fixed is cost cutting. Forget

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Speaker 1: about aggregate demand, forget about yield curve. Dynamics is one

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Speaker 1: of their ways here, one of the factors to a

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Speaker 1: better outcome. All these banks are going to start cutting costs. Yeah,

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Speaker 1: they have. They really have no choice because revenue has

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Speaker 1: been somewhat paltry. I mean they've got you've got JP

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Speaker 1: Morgan and City out this morning talking about trading revenues

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Speaker 1: extraordinarily strong. That certainly has been an offset to what's

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Speaker 1: happening with the consumer books and the loans in general.

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Speaker 1: But that is that big portion of sort of their

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Speaker 1: core lending operations is a moss as a massive drag

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Speaker 1: the result of slow growth. There is going to be

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Speaker 1: that they have to cut costs to maintain some degree

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Speaker 1: of margin stability, because that's what's going to drive earnings

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Speaker 1: growth in the shorter term. Um. You know, the other

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Speaker 1: thing that they've got to contend with is the yield curve.

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Speaker 1: When we look at the history of the yield curve,

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Speaker 1: it does have some predictive power or for obviously not

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Speaker 1: interest margin and margin at large. For the financial space,

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Speaker 1: the yield curve stepening out of the markets low this

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Speaker 1: year has been about half as much as you usually

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Speaker 1: get following recession loads and stocks. So it's been a

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Speaker 1: really really slow time for the yield curve and that's

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Speaker 1: going to restrain growth in this space as well. So

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Speaker 1: absolutely they're going to have to cut costs or right

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Speaker 1: size operations with a slower growth environment and also contend

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Speaker 1: with what's happening in the macro. Do you know it's

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Speaker 1: important that you say that they need to have some

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Speaker 1: visibility into the economy to gain conviction about bank stocks.

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Speaker 1: Is to give you a sense one of the supports

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Speaker 1: to profitability has been investment banking revenues, and we have

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Speaker 1: JP Morgan CFO coming out and saying that they do

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Speaker 1: not expect investment banking fees to be as high in

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Speaker 1: the next quarter, given the fact that we are expecting

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Speaker 1: a decline in debt issuance. Gina. Just broadening out to

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Speaker 1: the rest of the market, there was a story today

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Speaker 1: Bank of America Managers Fund Manager survey came out for

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Speaker 1: the month of July showing that people believe seventy percent

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Speaker 1: of all respondents believe that tech is the most crowded trade.

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Speaker 1: It is a record for the survey. Do you agree? Oh? Yeah,

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Speaker 1: Tech has absolutely the most crowded trade. There's no doubt

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Speaker 1: about it. It's been between tech, some of the select

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Speaker 1: consumer discretionary names such as Amazon, as well as communications services,

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Speaker 1: and then healthcare. Those are kind of the only spaces

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Speaker 1: and investors have been really willing to put longer term

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Speaker 1: capital to work over the course of the last several months.

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Speaker 1: They're just sort of hiding in what is more defensive

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Speaker 1: stocks at this point in time, and defense is a

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Speaker 1: very different tone and characteristic than it was, say a

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Speaker 1: year ago. It's not utilities in real estate consumer stables

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Speaker 1: so much as the technology, healthcare, communication services groups that

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Speaker 1: actually do have relatively stable growth prospects and even more

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Speaker 1: more so stable growth prospects, not only but growth possibilities

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Speaker 1: into that combination has been sort of the the ideal

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Speaker 1: space for people who are willing to take a chance

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Speaker 1: in equities to put capital to work. Now, is that

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Speaker 1: going to be the winner longer term? If we do

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Speaker 1: see economic recovery, what you should see is some catch

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Speaker 1: up in these lower valuation stocks, high cyclical groups, higher risk,

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Speaker 1: higher beta groups that no one really wants to own,

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Speaker 1: like the financials and the industrials, the rest of consumer

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Speaker 1: discretionary maybe even some energy and material stocks, which you know,

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Speaker 1: frankly that's just been so volatile, but it is high value.

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Speaker 1: I mean, it's their extraordinary discounts available in this space.

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Speaker 1: If you can find that economic visibility catch up is

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Speaker 1: not the same thing as tech selling off. Do you

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Speaker 1: see tech as being overvalued and poised for a fall

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Speaker 1: or just poised for an underperformance relative to other parts

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Speaker 1: of the market. Yeah. Most of the time, what you

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Speaker 1: see in economic recovery is still participation. You get participation

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Speaker 1: from all groups, but you see the cyclical stocks lead

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Speaker 1: the recovery. You see the catch up story. So we

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Speaker 1: sudn't see an outright decline in tech valuations that said,

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Speaker 1: there has been so much crowding and select names and

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Speaker 1: select portions of tech, think software and some of the

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Speaker 1: services groups, even some of the communications stucks where investors

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Speaker 1: have hidden a tremendous amount of capital. You may see

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Speaker 1: a modest rotation out of those groups in order to

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Speaker 1: put that capital to work in other cyclicals. But in

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Speaker 1: general it should be a catch ap, not necessarily a

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Speaker 1: massive sell off, even though valuations do look somewhat extended,

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Speaker 1: and that is that's a big if. I mean I

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Speaker 1: say if very carefully, because I don't have a ton

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Speaker 1: of conviction that we're going to have this rip roaring

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Speaker 1: economy developing into the second half of this year and

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Speaker 1: into one. So even in our sector scorecard, we're still

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Speaker 1: hiding in those defensive groups. We've got a technology and

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Speaker 1: communication services and healthcare right up at the top as well.

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Speaker 1: I'm not sure how many people actually have high levels

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Speaker 1: of conviction about anything right now. Gina, fantastic to catch

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Speaker 1: on with you as always, Jena Martin Adams. There a

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Speaker 1: Bloomberg Intelligence the chief equity strategists right now on the charts.

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Speaker 1: He is just exquisite at the trends of the market.

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Speaker 1: Christopher Ron joins from Strategic Chris, an open question to begin,

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Speaker 1: what is the trend of the equity market right now?

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Speaker 1: I think the tactical trend is sideways. We were digesting

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Speaker 1: what was a rally off the lows. We don't have

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Speaker 1: much seasonal support over the next sixty to ninety days,

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Speaker 1: So I think the next month or two is going

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Speaker 1: to look a lot like the last month or two,

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Speaker 1: where markets just don't make a lot of progress. Chris,

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Speaker 1: when do you think that the virus counts are going

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Speaker 1: to matter again? So you know, it's an important question,

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Speaker 1: and it's certainly the topic of almost every client conversation

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Speaker 1: we have, but I would encourage people to think about

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Speaker 1: it a little bit differently. I think this is less

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Speaker 1: about um, what the trajectory of the virus is. I

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Speaker 1: think this is about the financial markets interpretation of that

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Speaker 1: and what I've actually been encouraged by over the last

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Speaker 1: several weeks. As the news around the virus has gotten

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Speaker 1: has got more dire, you have not seen credit conditions

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Speaker 1: really deteriorate to any meaningful extent. And that's just a

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Speaker 1: big difference from late February early March, where the credit

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Speaker 1: fact drop really began to deteriorate in a very very

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Speaker 1: quick fashion. That has not happened here. So I think

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Speaker 1: credit markets are actually more important than what the daily

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Speaker 1: buyers count is Chris or just looking right now. Jamie

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Speaker 1: Diamond speaking on the call after JP Morgan reported earnings,

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Speaker 1: and he was asked about the health of the consumer,

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Speaker 1: and he said, this is not a normal recession. Consumers

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Speaker 1: incomes are up, savings are up, home prices are up.

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Speaker 1: The traditional recessionary part has been delayed and it will

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Speaker 1: come down the past. We will see the weakness down

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Speaker 1: the road. How well is that being priced into markets currently,

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Speaker 1: given the fact that we do have some of the

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Speaker 1: delayed pain that will come along with this recession. Yeah,

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Speaker 1: you know, I'm always headed to the forecast. I don't

435
00:22:56,600 --> 00:22:59,800
Speaker 1: think anyone out there is a great forecaster. Uh certainly

436
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Speaker 1: will defer to Mr Diamond on his expertise. I do

437
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Speaker 1: think when you look at what the market already discounted,

438
00:23:07,480 --> 00:23:11,400
Speaker 1: you had draw down against stocks. And remember most stocks

439
00:23:11,440 --> 00:23:14,520
Speaker 1: didn't peak in February of two thousand and twenty. Small

440
00:23:14,560 --> 00:23:17,399
Speaker 1: caps peak two years ago. Cyclicality is broadly peep in

441
00:23:17,400 --> 00:23:21,320
Speaker 1: the fourth quarter of So I'm trying to ask ourselves

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00:23:21,400 --> 00:23:26,680
Speaker 1: the question um has cyclicality, Have small caps have the

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00:23:26,760 --> 00:23:29,960
Speaker 1: secondary issues after a two year bear market? Are they

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00:23:30,000 --> 00:23:32,639
Speaker 1: starting to come out of that? And I think the

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00:23:32,720 --> 00:23:36,199
Speaker 1: resiliency to really ban news over the last four or

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00:23:36,200 --> 00:23:38,840
Speaker 1: five or six weeks. You've got to give market the

447
00:23:38,880 --> 00:23:42,720
Speaker 1: hat tip, because you know, we're talking about discounting mechanisms.

448
00:23:43,440 --> 00:23:47,040
Speaker 1: The market surely is aware of what the future will hold.

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00:23:47,400 --> 00:23:49,720
Speaker 1: We just got to figure out what it's focused on. Well, Chris,

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00:23:49,760 --> 00:23:51,960
Speaker 1: let's get into the technicals. Over the last month, it's

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00:23:52,040 --> 00:23:55,080
Speaker 1: pretty clear that breath is narrowed. The post COVID highs

452
00:23:55,119 --> 00:23:57,120
Speaker 1: is something we can't breach it and hold we saw

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Speaker 1: that tape place yesterday. How key is that for you?

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00:23:59,680 --> 00:24:01,919
Speaker 1: You know, it reminds me a lot of and I

455
00:24:02,000 --> 00:24:04,520
Speaker 1: remember it distinctly reminds been a lot of like May

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00:24:04,720 --> 00:24:10,160
Speaker 1: through July August two thousand nine. You had this fortent

457
00:24:10,280 --> 00:24:13,200
Speaker 1: move off the March two thousand nine loads, and then

458
00:24:13,240 --> 00:24:16,359
Speaker 1: you went through three months of all the leading issues

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00:24:16,400 --> 00:24:20,240
Speaker 1: starting to correct, breath maturiated. It was a very very

460
00:24:20,320 --> 00:24:22,920
Speaker 1: tense three or four months as the market consolidated that

461
00:24:23,080 --> 00:24:25,200
Speaker 1: game and it was resolved higher. So I just think

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00:24:25,200 --> 00:24:28,199
Speaker 1: it's interesting that the expectation is I think among a

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00:24:28,200 --> 00:24:30,480
Speaker 1: lot of investors at this consolidation we've been in over

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00:24:30,520 --> 00:24:33,600
Speaker 1: the last month must resolve lower. I'm not convinced of that.

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00:24:34,200 --> 00:24:37,400
Speaker 1: And right now, folks, Bloomberg Surveillance and Nerd Alert, we're

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00:24:37,400 --> 00:24:39,960
Speaker 1: gonna do this with Christopher Brown because he can do it.

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Speaker 1: Christopher Oone, I was stunned yesterday to look at the

468
00:24:42,800 --> 00:24:47,320
Speaker 1: Tesla chart and there are five gaps, folks, jumps within

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00:24:47,359 --> 00:24:51,439
Speaker 1: the Tesla stock price, five since the beginning of June.

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00:24:51,760 --> 00:24:54,760
Speaker 1: I believe I can say, Christopher Ron, I've never seen that.

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00:24:55,119 --> 00:24:58,080
Speaker 1: This goes back to John Maggie and his classic text

472
00:24:58,560 --> 00:25:02,440
Speaker 1: of nineteen forty eight. For our global Wall Street audience,

473
00:25:02,440 --> 00:25:04,760
Speaker 1: who have all made a ton of money on Tesla,

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00:25:05,280 --> 00:25:09,000
Speaker 1: what does it signal that Tesla has served through five

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00:25:09,600 --> 00:25:13,399
Speaker 1: technical gaps just since early June. I think when you

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00:25:13,440 --> 00:25:15,479
Speaker 1: look at Tesla or the charter in particular, this has

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00:25:15,480 --> 00:25:18,240
Speaker 1: really been the hood ornament of liquidity. It's been the

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00:25:18,280 --> 00:25:22,040
Speaker 1: hood ornament of the growth trade. Is there an access

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00:25:22,080 --> 00:25:25,200
Speaker 1: to correct here? Likely we had what looked like blow

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00:25:25,280 --> 00:25:29,120
Speaker 1: up value yesterday you did almost forty million shares on Tesla,

481
00:25:29,200 --> 00:25:32,439
Speaker 1: similar to what you did near the high and early February.

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00:25:32,520 --> 00:25:35,320
Speaker 1: But the trends here is up. So I would approach

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00:25:35,359 --> 00:25:38,160
Speaker 1: this from the perspective of what do you do with weakness,

484
00:25:38,440 --> 00:25:41,560
Speaker 1: and when trends are positive, you're inclined to buy weakness.

485
00:25:41,640 --> 00:25:43,880
Speaker 1: I think you start filling some of these gaps near

486
00:25:44,680 --> 00:25:47,840
Speaker 1: eleven twelve fifty, I'd be more inclined to be a

487
00:25:47,840 --> 00:25:50,320
Speaker 1: buyer of that weakness giving the trend. Bring that over

488
00:25:50,359 --> 00:25:52,800
Speaker 1: to the major growth stocks that have driven this market.

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00:25:52,880 --> 00:25:55,879
Speaker 1: Is it the same thing by the weakness when they

490
00:25:55,920 --> 00:25:59,120
Speaker 1: fill the gap get long. Yeah. And I think that's

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00:25:59,119 --> 00:26:01,320
Speaker 1: the process that's going to play out over the next

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00:26:01,359 --> 00:26:03,800
Speaker 1: several months. I think the more difficult question is as

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00:26:03,840 --> 00:26:06,800
Speaker 1: some of the high flyers correct, do some of the

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00:26:06,840 --> 00:26:10,399
Speaker 1: secondary issues stuff step up and fill that void, for

495
00:26:10,440 --> 00:26:13,879
Speaker 1: example the banks right as earnings get underway this week

496
00:26:14,040 --> 00:26:16,639
Speaker 1: in that group, is that going to be enough to

497
00:26:16,720 --> 00:26:20,160
Speaker 1: support the tape while some of the high flying momentum

498
00:26:20,160 --> 00:26:22,080
Speaker 1: stocks actually come in here. I think that's the question

499
00:26:22,119 --> 00:26:24,560
Speaker 1: that's going to be answered over the next several days. Here, Chris,

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00:26:24,640 --> 00:26:26,439
Speaker 1: a little bit of risk aversion coming in ahead of

501
00:26:26,440 --> 00:26:28,960
Speaker 1: the cash open. We've got equity futures declining now down

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00:26:29,000 --> 00:26:31,560
Speaker 1: by a tenth of one percent, mild moves, but worth

503
00:26:31,760 --> 00:26:34,119
Speaker 1: pointing out. In the bond market, yields were higher by

504
00:26:34,119 --> 00:26:36,440
Speaker 1: a basis point now lower by about a basis point

505
00:26:36,440 --> 00:26:38,439
Speaker 1: on a ten year maturity to zero point six one.

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00:26:39,119 --> 00:26:41,720
Speaker 1: Before we let you go, Chris, the outperformance that we've

507
00:26:41,720 --> 00:26:45,560
Speaker 1: seen in e M over the last month, how constructive

508
00:26:45,600 --> 00:26:48,560
Speaker 1: are you on that continuing? So I want to answer

509
00:26:48,560 --> 00:26:50,199
Speaker 1: that a little bit differently. I want to answer it

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00:26:50,240 --> 00:26:52,720
Speaker 1: through the lens of the US dollar, and I'll say this,

511
00:26:53,080 --> 00:26:55,720
Speaker 1: I am very, very barished on US dollars here. I

512
00:26:55,720 --> 00:26:59,560
Speaker 1: think we're putting in a major, major talk in USB

513
00:27:00,119 --> 00:27:02,480
Speaker 1: and I think as a consequence of that, we should

514
00:27:02,480 --> 00:27:06,160
Speaker 1: expect to see some new developments in the macro landscape.

515
00:27:06,240 --> 00:27:09,919
Speaker 1: One of those jobs being the resurgence of emerging markets

516
00:27:10,040 --> 00:27:13,960
Speaker 1: as a leadership idea, and not just EM but rest

517
00:27:14,000 --> 00:27:17,960
Speaker 1: of world quietly starting to outperform. I've got to jump

518
00:27:17,960 --> 00:27:20,720
Speaker 1: in k self and asked this question this morning. If

519
00:27:20,760 --> 00:27:24,920
Speaker 1: stock stock going up, can the dollar really decline? Now?

520
00:27:24,920 --> 00:27:26,840
Speaker 1: If you think stocks have going sidewise for the next

521
00:27:26,880 --> 00:27:29,680
Speaker 1: several months, is that an environment where the dollar gets

522
00:27:29,760 --> 00:27:32,640
Speaker 1: weak up? Yeah, I think it is, and I think

523
00:27:32,680 --> 00:27:35,880
Speaker 1: weaker dollar is a headwind to some of the big

524
00:27:35,920 --> 00:27:38,280
Speaker 1: index weights that have driven this market over the last

525
00:27:38,320 --> 00:27:40,320
Speaker 1: four or five six weeks, while it may be a

526
00:27:40,320 --> 00:27:44,400
Speaker 1: tailwind to the basic resources, to the industrials, to even

527
00:27:44,400 --> 00:27:46,439
Speaker 1: the banks that have largely been on the sideline. So

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00:27:46,480 --> 00:27:47,960
Speaker 1: I think what we're on the cut stuff. Here is

529
00:27:48,000 --> 00:27:50,720
Speaker 1: some leadership change, and I think the dollar is driving that.

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00:27:50,840 --> 00:27:53,880
Speaker 1: This is the most important shot in the world. US

531
00:27:53,960 --> 00:27:56,800
Speaker 1: dollar is topping. I know that's the bolt call. It's

532
00:27:56,840 --> 00:27:59,520
Speaker 1: what we see in our work. It's just bouncing. As

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00:27:59,560 --> 00:28:02,280
Speaker 1: you say those words, Chris, I appreciate that this is

534
00:28:02,280 --> 00:28:04,200
Speaker 1: a long term call, not a five minute time arise

535
00:28:04,240 --> 00:28:06,240
Speaker 1: and Chris grab to catch up with you. Has always

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00:28:06,240 --> 00:28:08,760
Speaker 1: made cross her own at a tannical and macro strategy

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00:28:08,800 --> 00:28:13,160
Speaker 1: and fatigues security. Thanks for listening to the Bloomberg Surveillance podcast.

538
00:28:13,520 --> 00:28:18,480
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

539
00:28:18,640 --> 00:28:22,960
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom

540
00:28:23,040 --> 00:28:26,920
Speaker 1: Keene before the podcast, you can always catch us worldwide.

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00:28:27,359 --> 00:28:28,480
Speaker 1: I'm Bloomberg Radio