WEBVTT - Surveillance: Stimulus Standoff With Furman 0:00:00.080 --> 0:00:13.800 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jailey. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.960 Bloomberg dot Com, and of course on the Bloomberg Joining 0:00:28.040 --> 0:00:31.000 us now Sunny kind of coach genoency equity strategist. He 0:00:31.080 --> 0:00:32.879 joined us on a five tinny rights to a a head 0:00:32.880 --> 0:00:35.680 from you, sir? Are you more preoccupied with what's going 0:00:35.800 --> 0:00:39.000 right or what could go wrong? So jump back in 0:00:39.040 --> 0:00:40.839 two thousand and nine. I remember I was sitting in 0:00:40.840 --> 0:00:45.960 an industrial um industrial company conference and they were going 0:00:46.040 --> 0:00:49.599 through multiple slides of what their contingency plans were. This 0:00:49.640 --> 0:00:51.320 was in the summer of two thousand nine, so the 0:00:51.360 --> 0:00:54.040 market was up, but you were still kind of in 0:00:54.080 --> 0:00:56.920 the grip of the Great Financial Crisis and people were 0:00:56.960 --> 0:00:58.720 looking at each other, son, how can the market be 0:00:58.800 --> 0:01:02.000 up so much? So this conferences companies talking about what 0:01:02.080 --> 0:01:05.280 could their contingency plans on what could go wrong if 0:01:05.880 --> 0:01:08.480 when it goes wrong. I raised my hand and I said, 0:01:08.520 --> 0:01:11.160 have you guys got a contingency plan of what could 0:01:11.200 --> 0:01:14.080 go right? And then what could go right? Is always 0:01:14.080 --> 0:01:16.920 revolved around credit, and I was reading a Bloomberg story. 0:01:16.920 --> 0:01:18.720 I'm gonna look away from the camera for one second 0:01:19.040 --> 0:01:20.640 just so I can read a little bit out of 0:01:20.640 --> 0:01:25.800 the story. Um Alphabet Chevron. Chevron priced a two year 0:01:25.840 --> 0:01:30.360 bond yield yesterday with a point three three three coupon. 0:01:31.200 --> 0:01:34.160 You had on the high yield side. Aluminum packaging company 0:01:34.200 --> 0:01:37.280 Ball Corp. Sold one point three billion of ten year 0:01:37.319 --> 0:01:43.920 notes at two point eight seven high yield two. So 0:01:43.959 --> 0:01:47.240 you go into an economic and market kind of catastrophe 0:01:47.480 --> 0:01:49.920 or problem when you have a need for money with 0:01:50.160 --> 0:01:53.559 limited or no access to it. Clearly that's not the case. 0:01:53.720 --> 0:01:55.440 How do you stand full of the credit market? Keep 0:01:55.480 --> 0:01:59.920 on stocks? Yeah, that's I hate to listen the guys 0:02:00.000 --> 0:02:03.680 printing the money keep telling us their game plan. They're 0:02:03.960 --> 0:02:06.360 they're not even thinking about thinking about thinking about I mean, 0:02:06.360 --> 0:02:09.120 you can go on and on about not thinking about 0:02:09.400 --> 0:02:16.560 raising race. It's for guidance and potentially for the rest 0:02:16.560 --> 0:02:18.960 of my career unless you get a major surge of 0:02:19.000 --> 0:02:22.639 inflation that's sustainable. Remember the tenure inflation break evens are 0:02:22.680 --> 0:02:26.000 still at about one point six percent. They want core 0:02:26.040 --> 0:02:29.800 inflation at an average of two percent. These guys are 0:02:29.800 --> 0:02:32.480 going to have their foot on the pedal until the 0:02:32.520 --> 0:02:35.560 fur for the foreseeable future, and as a result of that, 0:02:35.960 --> 0:02:39.520 the need for returns and pension plans is creating a 0:02:39.639 --> 0:02:43.559 demand equation. Is Lisa pointed out not just for treasurieson 0:02:43.639 --> 0:02:47.480 is that Bloomberg story pointed out for for investment grade 0:02:47.520 --> 0:02:52.640 and speculative credit. Tony, When does the real economy matter? Well, 0:02:53.320 --> 0:02:56.320 so this is an incredible time, Lisa, because what we 0:02:56.400 --> 0:03:00.320 have is this access liquidity we've never seen before, coupled 0:03:00.360 --> 0:03:02.080 with At the same time, if you look at the 0:03:02.120 --> 0:03:04.799 o e c D, which is the Organization of Economic 0:03:04.840 --> 0:03:08.600 Cooperation and Development, they tracked thirty seven countries as of 0:03:08.680 --> 0:03:10.760 their end of June data and it works with a 0:03:10.800 --> 0:03:13.440 six week lags, so it's really mid May. At the 0:03:13.520 --> 0:03:16.519 end of June, they were saying that there were zero 0:03:16.639 --> 0:03:20.000 of the thirty seven economies that were showing positive or 0:03:20.040 --> 0:03:26.800 above average UM composite leading indicators that pivoted to month 0:03:26.840 --> 0:03:29.800 to month. So we have an economy that has largely 0:03:29.840 --> 0:03:33.239 been in collapse that is just beginning to pivot higher. 0:03:33.600 --> 0:03:36.680 Whenever that's happened in the past, you've had to sustained 0:03:36.680 --> 0:03:41.000 economic recovery so it's really important that we don't need 0:03:41.080 --> 0:03:44.839 an incredible surgeon economic activity, because that would that would 0:03:44.880 --> 0:03:47.360 change the whole dynamic of credit. You want what we're 0:03:47.400 --> 0:03:50.080 getting well a little better than we're getting, especially for 0:03:50.120 --> 0:03:53.000 the small businesses than people that need the money. You 0:03:53.120 --> 0:03:56.360 are beginning to get that inflection higher. You've got to 0:03:56.360 --> 0:03:58.920 concept to some degree that the economic story is beneath 0:03:58.960 --> 0:04:01.280 the index. With text all absolutely ripping. I think the 0:04:01.320 --> 0:04:05.480 tech sector up about yet today the KBW Bank index 0:04:05.520 --> 0:04:08.880 is still down around about That's not because the economy 0:04:08.960 --> 0:04:12.720 is doing well, it's because it isn't. Yeah, there is discretion, 0:04:12.960 --> 0:04:16.320 certainly that is beneath the surface of some of these indexes. 0:04:16.800 --> 0:04:19.600 Hard pressed to find the discretion though in a junk 0:04:19.640 --> 0:04:22.720 bond yielding two point eight seven five, Hard to find 0:04:22.760 --> 0:04:25.920 the discretion in a record amount of issue ends across 0:04:25.960 --> 0:04:28.320 the board, in more junk bond issue in so far 0:04:28.680 --> 0:04:32.480 year to date than all of last year. Tony. Looking forward, 0:04:32.520 --> 0:04:35.280 there is a question here of how sustainable this is, 0:04:35.400 --> 0:04:38.520 especially in light of some pretty serious potholes. For example, 0:04:38.600 --> 0:04:40.680 there is no deal in Washington, and the time is 0:04:40.680 --> 0:04:45.799 ticking and the pain is deepening. Can you imagine Washington 0:04:45.920 --> 0:04:47.599 is not going to come to a deal, and they're 0:04:47.600 --> 0:04:49.960 gonna let the only purpose of the government is to 0:04:50.000 --> 0:04:53.920 support people, and they're gonna let everybody fail. So our 0:04:54.000 --> 0:04:57.120 underlying assumption is they will get. Pain is the motivate 0:04:57.240 --> 0:05:00.440 motivator for change and growth. They will get, and enough 0:05:00.480 --> 0:05:03.839 pain the feedwill back loop will become negative enough that 0:05:03.920 --> 0:05:07.680 they will come to a deal. But again, we've got 0:05:07.680 --> 0:05:11.279 to separate what um is good or bad, right or wrong. 0:05:11.360 --> 0:05:14.160 Those don't matter, Okay, I frankly, I don't think this 0:05:14.320 --> 0:05:17.240 incredible use of debt ultimately is going to be a 0:05:17.279 --> 0:05:20.520 good thing, but that doesn't matter. It is. So what 0:05:20.600 --> 0:05:23.479 I try to guide our institutional clients and wealth management 0:05:23.480 --> 0:05:27.920 clients overseas is try to get by what intuitively seems 0:05:27.960 --> 0:05:30.240 good or bad, right or wrong, and just focus on 0:05:30.279 --> 0:05:34.080 what is. We've had almost one or two frillion dollars 0:05:34.080 --> 0:05:38.120 of corporate credit new issues, which allows those companies to 0:05:38.279 --> 0:05:41.719 bridge the gap until we get the continued pivot and 0:05:41.760 --> 0:05:45.680 economic activity that historically, when you look back at periods 0:05:45.680 --> 0:05:49.440 of similar high volatility followed by a drop, you know 0:05:49.480 --> 0:05:52.840 a retracement of the volatility. When you see correlations as 0:05:52.920 --> 0:05:56.599 high as they were in March. Those are periods where 0:05:56.880 --> 0:05:59.560 it's the beginning of a new economic and market cycle, 0:06:00.000 --> 0:06:03.039 and that's really the differentiator. Is it the beginning of 0:06:03.279 --> 0:06:06.560 a new and economic and market cycle? And the data 0:06:06.680 --> 0:06:09.400 that we have suggests that it is. It's only something's 0:06:09.400 --> 0:06:11.919 gotta break. And I'm just wondering what breaks first. Is 0:06:11.920 --> 0:06:14.240 it the market and the market rally over the last 0:06:14.240 --> 0:06:16.800 few months, or is it the resolve down in Washington, 0:06:16.880 --> 0:06:19.000 Because right now, I'm with you, of course they've got 0:06:19.000 --> 0:06:22.120 to get something done. But at the moment, this economic 0:06:22.200 --> 0:06:25.080 dates in America is fairly resilient relative to what people 0:06:25.120 --> 0:06:27.960 expected to see coming into Walkers And I'm just wondering 0:06:28.000 --> 0:06:33.080 what breaks the resolve down in Washington again, John, Like, 0:06:33.160 --> 0:06:34.880 if you look at the t s A numbers, even 0:06:34.960 --> 0:06:37.919 with the increasing case of COVID nineteen over the last month, 0:06:38.200 --> 0:06:41.719 the T s A numbers are still going up. So 0:06:42.000 --> 0:06:45.200 what's happening is you've taken something that's gone from extraordinary 0:06:45.520 --> 0:06:48.880 and it's moving more towards normal. And at the same time, 0:06:48.920 --> 0:06:50.640 like I said, you're going to get this pressure in 0:06:50.680 --> 0:06:54.520 Washington to actually get something done. But again, with all 0:06:54.560 --> 0:06:58.760 of that in the game, you're having incredible money pushed 0:06:58.760 --> 0:07:01.880 into the system that bridges the gap. Now, of course 0:07:01.880 --> 0:07:03.480 you're gonna have to have a deal in Washington. You're 0:07:03.480 --> 0:07:06.159 gonna have to have the economy recover. And that's where 0:07:06.200 --> 0:07:08.960 you have to when you look at the historical data, 0:07:09.200 --> 0:07:11.520 when it is set up like it is, you do 0:07:11.640 --> 0:07:14.320 get those things to happen. I will say it's the 0:07:14.400 --> 0:07:17.120 tao of Tony Dwyer. Just look at what is and 0:07:17.160 --> 0:07:19.400 that is the wall of money. If you're looking at 0:07:19.440 --> 0:07:21.800 the wall of money, why not just invest in small 0:07:21.840 --> 0:07:24.120 cap stocks and call it a day. Say, eventually the 0:07:24.200 --> 0:07:26.920 rally will get to some of the less loved sectors 0:07:27.120 --> 0:07:29.120 and that's where you're gonna actually get the biggest returns. 0:07:29.840 --> 0:07:32.720 And that's that's our call. So when when John asked, 0:07:32.840 --> 0:07:36.360 you know what breaks first the market, Let's define the market. 0:07:36.720 --> 0:07:38.360 So here's what we have. We have the stay at 0:07:38.360 --> 0:07:41.280 home stocks which are now defensive in nature, the megacap 0:07:41.640 --> 0:07:45.320 fang stocks which are now defensive in nature. So let's 0:07:45.360 --> 0:07:48.600 say the economy gets a lot better, they should correct. 0:07:49.160 --> 0:07:51.160 As the economy is what's been happening over the last 0:07:51.160 --> 0:07:54.200 couple of weeks, where the economically sensitive small cap emerging 0:07:55.200 --> 0:07:58.600 markets do way better because you're starting to price in 0:07:59.000 --> 0:08:02.800 return economic activity. While it's it's into this very interesting. 0:08:03.040 --> 0:08:05.360 People keep thinking that this is like the bubble of 0:08:05.840 --> 0:08:09.080 the dot com boom because only a few stocks are 0:08:09.160 --> 0:08:12.240 driving the index gains. But it's totally opposite when you 0:08:12.280 --> 0:08:15.160 look at the average stock. The ny SC composite uh 0:08:15.640 --> 0:08:19.280 New New uh ny SC advanced to client line cumulative 0:08:19.560 --> 0:08:21.840 advanced to client line. I think made a new high 0:08:22.200 --> 0:08:25.320 this week, all time high. It was in a two 0:08:25.400 --> 0:08:27.800 year down trend by the time you hit the dot 0:08:27.840 --> 0:08:31.320 com bubble peak. So yes, a few stocks are definitely 0:08:31.400 --> 0:08:34.199 driving the gains, and I think it's far. It's excessive, 0:08:34.240 --> 0:08:37.800 there's no question. However, a lot of stocks, even the banks, 0:08:37.800 --> 0:08:40.240 if you look at from the low, they're highly there's 0:08:40.240 --> 0:08:42.679 still a high correlation because they've been going up, just 0:08:42.760 --> 0:08:45.840 not as much. And that's where the opportunity exists, is 0:08:45.840 --> 0:08:47.599 where you get some of the fang stocks maybe to 0:08:47.640 --> 0:08:52.320 go sideways, consolidate their gains with economic activity improving, while 0:08:52.400 --> 0:08:56.679 these other areas, the economically sensitive recovery areas really start 0:08:56.720 --> 0:08:59.000 to ramp Tony, you am more than welcome to join 0:08:59.080 --> 0:09:00.960 us anytime you like to it. It's a Bloomberg story 0:09:01.000 --> 0:09:06.600 in the morning, whenever your life just a little bit, 0:09:06.920 --> 0:09:08.760 just a little bit, Tony, send my best to the 0:09:08.800 --> 0:09:11.880 family trying to catch out Tony to of countercur generite. 0:09:12.000 --> 0:09:24.120 Thank you very much. Joining us now is the wonderful 0:09:24.200 --> 0:09:28.439 Lisa Hornby Investments US Fixed income portfolio manager Lisa HORNBI 0:09:28.520 --> 0:09:32.000 fantastic to catch up with you. Policy has been the 0:09:32.000 --> 0:09:34.880 bigg issue this year in I could have told you 0:09:34.920 --> 0:09:37.360 every single data point and many people still would have 0:09:37.440 --> 0:09:39.800 got the market call wrong. What's the policy focus for 0:09:39.840 --> 0:09:43.920 you right now, Lisa, I mean, it's clearly an extension 0:09:44.000 --> 0:09:48.200 of these benefits. UM. You know, I think the points 0:09:48.200 --> 0:09:50.560 you both were making, or you three were making right 0:09:50.600 --> 0:09:53.720 before I came on, we're right. Will the will the 0:09:53.760 --> 0:09:58.400 central government get it together and UM continue these unemployment benefits? 0:09:58.400 --> 0:10:01.720 I mean right now, the to me is surviving on stimulus. 0:10:01.960 --> 0:10:04.439 You know, you think about UM some of the packages 0:10:04.520 --> 0:10:07.160 that are going to that are going to be rolling 0:10:07.200 --> 0:10:10.840 off potentially the unemployment benefits. The question as to whether 0:10:10.920 --> 0:10:13.520 or not state and local government to get release. I mean, 0:10:13.640 --> 0:10:16.200 these are some of the big economic questions we're asking 0:10:16.200 --> 0:10:20.160 ourselves in state and local governments. Employee eighteen million people 0:10:20.720 --> 0:10:24.840 um small businesses right, they employed sixty million people. Surveys 0:10:24.880 --> 0:10:27.280 there are showing that optimism and hiring plans are well 0:10:27.320 --> 0:10:30.439 below where they were pre pandemic. These are the kind 0:10:30.440 --> 0:10:32.440 of questions that we're asking, Are we going to see 0:10:32.480 --> 0:10:35.719 some kind of fiscal relief package that continues what we've 0:10:35.760 --> 0:10:39.480 seen before, that potentially even expands on it. From a 0:10:39.520 --> 0:10:42.600 fixed income investors standpoint, do you bet on the FED 0:10:42.640 --> 0:10:45.160 poot just the idea that, no matter what, there is 0:10:45.200 --> 0:10:48.440 going to be a pinning of treasure yields roughly where 0:10:48.480 --> 0:10:51.480 they are regardless of policy, Or do you really look 0:10:51.559 --> 0:10:54.440 to some sort of resurgence and inflation and some sort 0:10:54.480 --> 0:10:59.319 of economic data to sort of get your guidelines um 0:11:00.080 --> 0:11:02.960 To an extent, there's a FED put So we we 0:11:04.520 --> 0:11:07.360 first and foremost look at evaluations when we're evaluating markets, 0:11:07.360 --> 0:11:12.120 when we're evaluating credit um, and valuations today tell us 0:11:12.160 --> 0:11:15.400 they're more or less median level. So things are not expensive, 0:11:15.400 --> 0:11:17.559 things are not cheap. But what keeps us engaged in 0:11:17.600 --> 0:11:21.000 the markets despite them being just fair value is the 0:11:21.040 --> 0:11:23.800 fact that we do have this tremendous liquidity environment. So 0:11:23.880 --> 0:11:26.559 the FED keeps us perhaps more engaged in fixed income 0:11:26.600 --> 0:11:28.959 because we do think there is some degree of a backstop. 0:11:29.240 --> 0:11:32.920 But we will continue to become or we will become 0:11:33.000 --> 0:11:35.240 much more cautious if we start to see spreads really 0:11:35.240 --> 0:11:38.520 wretched in here, because there is still a tremendous dislocation 0:11:38.640 --> 0:11:42.400 between where markets are trading today and what the underlying 0:11:42.400 --> 0:11:44.679 economy tells us. And this is not something that we 0:11:44.720 --> 0:11:46.760 think will be gone in just a couple of months time. 0:11:46.800 --> 0:11:50.720 There are going to be sustaining pressures on certain points 0:11:50.720 --> 0:11:53.840 of the economy for a long time to come. There's 0:11:53.840 --> 0:11:57.440 a question about the intelligence of buying treasuries as an 0:11:57.440 --> 0:11:59.920 investment right now given the negative real yields. Where are 0:12:00.080 --> 0:12:01.719 you on that? I mean, do you see treasuries is 0:12:01.720 --> 0:12:07.959 truly acting as a hedge against equity volatility going forward? Um? 0:12:08.000 --> 0:12:11.040 You know, we're fairly neutral duration here in our portfolios. 0:12:11.120 --> 0:12:13.440 I think the FED is the backstop. I find it 0:12:13.440 --> 0:12:17.600 really difficult to see rates moving aggressively, to be honest, 0:12:17.600 --> 0:12:21.040 in either direction. Um, at this point in time, I 0:12:21.040 --> 0:12:24.680 think we're kind of in a range. And you know, yes, 0:12:24.720 --> 0:12:26.240 I think that you want to have some treasuries in 0:12:26.280 --> 0:12:28.800 your portfolio if we do have another risk off event. 0:12:28.920 --> 0:12:31.880 But equally, I think that we're going to see the 0:12:31.920 --> 0:12:34.480 government response very very quickly, both on the FED and 0:12:34.480 --> 0:12:37.880 the fiscal side, if we do have another major downturn 0:12:38.000 --> 0:12:41.079 in financial assets. I think they learned their lesson this 0:12:41.200 --> 0:12:44.640 time around. I mean, the magnitude and the briskness of 0:12:44.640 --> 0:12:48.360 the response was just incredible, and that's what stabilized markets 0:12:48.360 --> 0:12:51.200 in a in an actually very short period of time. 0:12:51.360 --> 0:12:53.800 Lisa Homeby this market is taken down a tremendous amount 0:12:53.800 --> 0:12:55.680 of supply on both the sulfon and the credit side. 0:12:55.679 --> 0:13:01.000 Are you seeing any signs of it? Take whatsoever? You know? 0:13:01.080 --> 0:13:03.760 From my perspective, it seems that investors just can't get enough. 0:13:03.880 --> 0:13:07.320 I mean, the US is still the highest yielding developed 0:13:07.360 --> 0:13:11.360 market in the world bar italy um, and so we 0:13:11.480 --> 0:13:15.160 are still seeing that international demand. Hedging costs have gone 0:13:15.200 --> 0:13:17.440 all the way down, you know, a couple of percentage 0:13:17.440 --> 0:13:19.400 points if you look back over the last eighteen months. 0:13:19.400 --> 0:13:23.080 So we are still seeing that international demand. It seems insatiable. 0:13:23.320 --> 0:13:26.640 And we're even seeing domestic um sort of retail demand 0:13:26.679 --> 0:13:29.959 as well. Uh So, right now, it seems that people 0:13:29.960 --> 0:13:32.040 are just can't get enough of credit. You look at 0:13:32.040 --> 0:13:34.440 the deals that have come um in the market. Over 0:13:34.480 --> 0:13:37.320 the last few weeks, the concessions have been completely erased. 0:13:37.320 --> 0:13:40.000 I mean in many cases they're coming twenty basis points 0:13:40.000 --> 0:13:42.720 through where the initial price talk is. So the demand 0:13:42.800 --> 0:13:45.720 is still there. Um, you know, the FED is still 0:13:45.720 --> 0:13:47.640 there as a back stop. People, I think are looking 0:13:47.640 --> 0:13:50.760 through this congressional impass at the moment and thinking something 0:13:50.800 --> 0:13:54.480 will get done. Um. And you know, I think some 0:13:54.600 --> 0:13:57.480 of that risk premium is probably not I think there 0:13:57.480 --> 0:14:01.040 should be a somewhat greater degree of risk premium in markets, 0:14:01.080 --> 0:14:03.560 just given some of the uncertainty that's out there. But 0:14:03.640 --> 0:14:06.000 at the moment, you know, it's kind of it's a 0:14:06.040 --> 0:14:08.240 little bit to kind of calm. Lisa Hollby, just a 0:14:08.240 --> 0:14:10.959 final question from me. We face this really strange dynamic 0:14:10.960 --> 0:14:13.679 and credit right now. It feels like a momentum trade 0:14:13.679 --> 0:14:16.040 where lower yields get lower yields, and the strong gets 0:14:16.040 --> 0:14:18.200 stronger the week get weaker. And when I say to 0:14:18.240 --> 0:14:20.560 people what's the money being used for when they issue 0:14:20.560 --> 0:14:22.480 this debt, they'll sets to lock in low rates. And 0:14:22.520 --> 0:14:25.800 that's a good thing because average borrowing costs are lower, 0:14:26.080 --> 0:14:28.320 and therefore I want to buy the credit. But Lisa, 0:14:28.400 --> 0:14:29.800 that just tells me you want to buy the credit 0:14:29.840 --> 0:14:32.040 because average boring costs are lower, so you buy the credit. 0:14:32.080 --> 0:14:34.760 Then they issue some more than boring costs come lower again, 0:14:34.800 --> 0:14:37.240 so you buy some more. At least, it just feels 0:14:37.280 --> 0:14:39.880 like this weird cycle where leverage might be going up, 0:14:39.920 --> 0:14:43.040 but because average boring costs are lower, people want to 0:14:43.120 --> 0:14:48.600 buy Lisa. What breaks that trend? I mean, that's that's 0:14:48.600 --> 0:14:50.320 been the story of the last ten years, if you 0:14:50.360 --> 0:14:52.160 think about it right. Rates have been going down for 0:14:52.240 --> 0:14:55.160 that almost entire period of time, and companies have been 0:14:55.200 --> 0:14:58.160 issuing more debt UM. I think what breaks if there's 0:14:58.160 --> 0:15:01.920 a few things that break it? Um the central banks 0:15:01.920 --> 0:15:04.440 starting to deliver a different message than the one which 0:15:04.480 --> 0:15:07.320 they're delivering now, so that they're no longer going to 0:15:07.360 --> 0:15:10.840 be as supportive as they were. I think inflation coming 0:15:10.840 --> 0:15:14.680 through UM in a material, material and very sustained way, 0:15:14.760 --> 0:15:17.720 nothing like what we saw yesterday that was just you know, 0:15:18.520 --> 0:15:20.800 one data print. I think that you need to see 0:15:20.840 --> 0:15:25.040 serious inflation for them to change their tune. UM. You know, 0:15:25.080 --> 0:15:27.880 there's a million other potential variables that could change things. 0:15:27.920 --> 0:15:30.680 But that's why I think you use valuations as your guide. 0:15:30.680 --> 0:15:34.080 And as as credit becomes more expensive, Um, you have 0:15:34.200 --> 0:15:37.160 to be really judicious about which companies you own. There 0:15:37.200 --> 0:15:39.960 are certainly still companies out there that are buying back 0:15:40.000 --> 0:15:42.440 debt that that are actually taking some of the higher 0:15:42.440 --> 0:15:44.880 coupon debt out of the market, so leverage, you know, 0:15:44.960 --> 0:15:47.640 maybe more or less unchanged. They have large cash buffers 0:15:48.320 --> 0:15:50.200 as well. Um. So I think you just have to 0:15:50.240 --> 0:15:52.480 be cautious about which companies you're buying and stick to 0:15:52.560 --> 0:15:55.280 high quality, more defensive names. Lisa. Before we let you go, 0:15:55.360 --> 0:15:58.240 can we sec congratulations from my family, the Bloombergs of 0:15:58.320 --> 0:16:01.480 Veileance family to yours and stand. There's a new little 0:16:01.520 --> 0:16:05.840 Hornby in the family. What's his name, Alexander? Thank you 0:16:05.960 --> 0:16:09.000 very much. He's a he's a proud but Bloomberg watcher. 0:16:09.040 --> 0:16:11.280 He's been watching between the last few months at He's 0:16:11.320 --> 0:16:13.960 a lucky little boys. Have a great mom. Lisa. Fantastic 0:16:13.960 --> 0:16:16.320 to catch up with you as always, are best to 0:16:16.400 --> 0:16:30.080 your family, Lisa, Hornbie there of Schroeder's. A little bit 0:16:30.120 --> 0:16:31.960 later this week, there will be a conversation between the 0:16:32.000 --> 0:16:34.240 United States and China on the Phase one agreement. We 0:16:34.320 --> 0:16:36.800 understand that China would also like to bring in We 0:16:37.040 --> 0:16:39.600 chatted TikTok into the chat as well. This is what 0:16:39.640 --> 0:16:41.840 the Wall Street Journal reported this morning. We reported it 0:16:41.880 --> 0:16:43.880 a little bit earlier on let me repeat it again 0:16:43.960 --> 0:16:46.200 for you. This from the Wall Street Journal a couple 0:16:46.200 --> 0:16:49.000 of hours ago. More than a dozen major US multinational 0:16:49.040 --> 0:16:51.800 companies raised concerns in a call with White House officials 0:16:51.880 --> 0:16:55.480 just yesterday about the potential broad scope and impact of 0:16:55.600 --> 0:16:59.040 Mr Trump's executive order targeting we chat set to take 0:16:59.080 --> 0:17:01.960 effect in the next month. On that coal arrange of 0:17:01.960 --> 0:17:05.760 companies including Apple and the Walt Disney Company joining us. Now, 0:17:05.800 --> 0:17:08.000 a man who understands this issue better than most. It's 0:17:08.080 --> 0:17:10.600 Lee the Miller of China based book Leland. Great to 0:17:10.640 --> 0:17:13.480 catch up with you, sir. Let's start there the tension 0:17:14.080 --> 0:17:18.240 between these two countries over this specific issue tech. Where 0:17:18.359 --> 0:17:22.040 is this heading, Leland? Well, A lot of it depends 0:17:22.080 --> 0:17:24.480 on whether or not we see the trade deal last 0:17:24.560 --> 0:17:27.119 through the election. That's holding a lot of this back. 0:17:27.600 --> 0:17:30.840 But on the tech side specifically, the problem is the 0:17:30.840 --> 0:17:33.360 White House wants to do something. It wants to take 0:17:33.359 --> 0:17:35.960 ownership of the issue. It wants to push back on 0:17:36.040 --> 0:17:39.199 some some very legitimate national security issues related to TikTok 0:17:39.240 --> 0:17:41.639 and related to wa chat. But it hasn't really fleshed 0:17:41.640 --> 0:17:43.040 them out. And I mean it's not an accident that 0:17:43.080 --> 0:17:45.680 we saw forty five day kick out on any action 0:17:46.000 --> 0:17:48.880 on TikTok and wheat Chat, particularly when you're talking about 0:17:48.880 --> 0:17:51.679 wheat Chat. They just don't know how to pull it 0:17:51.720 --> 0:17:54.080 back to to to restrict parts of it and not 0:17:54.480 --> 0:17:58.359 dramatically hurt us companies like Apple and others who used 0:17:58.359 --> 0:18:00.920 the watch at the payment of ration for for huge 0:18:00.960 --> 0:18:03.320 chunks of their sale. So they haven't really thought this through. 0:18:03.359 --> 0:18:05.280 They want to be aggressive, but but there's but the 0:18:05.359 --> 0:18:07.240 jury still out of which direction they're gonna go on this? 0:18:07.720 --> 0:18:09.720 Which direction they're gonna go on this? Does this mean 0:18:09.760 --> 0:18:11.720 that you expect them to pull it back? Does this 0:18:11.840 --> 0:18:13.920 just imagine? Do you expect that they're going to put 0:18:13.960 --> 0:18:17.960 provisions within the band that allow the companies like Apple 0:18:18.280 --> 0:18:22.400 to sell we chat on on their eye store Apple Store? 0:18:22.640 --> 0:18:25.879 Was it E store? I like that? Yeah. Look, I 0:18:25.920 --> 0:18:28.199 think look TikTok should have a sale. I think that 0:18:28.240 --> 0:18:30.160 could end this if if you see a sale within 0:18:30.240 --> 0:18:32.440 within the coming weeks, I think that's very likely. We 0:18:32.600 --> 0:18:35.919 chats a much more difficult issue, and I think that 0:18:35.960 --> 0:18:39.120 the chances are that you see a broad based aggressive 0:18:39.880 --> 0:18:42.280 solution is very low. I think there's a chance that 0:18:42.320 --> 0:18:45.080 this thing gets kicked out past the election. They're gonna 0:18:45.119 --> 0:18:46.920 have to do something, but there are plenty of remedial 0:18:46.960 --> 0:18:49.360 actions from Cyphius and others in which they can sort 0:18:49.359 --> 0:18:52.200 of tweak things at the margins. The more they're getting 0:18:52.200 --> 0:18:54.400 into this issue, the more they realize that they don't 0:18:54.480 --> 0:18:57.240 understand the second and third order effects. So they want 0:18:57.240 --> 0:19:01.040 the political om from doing a big, broad anti China action, 0:19:01.440 --> 0:19:03.280 but they're not prepared for the fallout, so I think 0:19:03.320 --> 0:19:05.320 it'll be less than people expect. Headline cross on a 0:19:05.320 --> 0:19:07.399 Bloomberg Leland, let me bring it to you that India 0:19:07.480 --> 0:19:09.720 is set to be poised a band Huawei and z 0:19:09.920 --> 0:19:12.880 t A from five G network trials. This is not 0:19:12.920 --> 0:19:15.600 just about the United States and China, Leland, It's about 0:19:15.720 --> 0:19:19.080 China and a whole host of countries. How are they 0:19:19.160 --> 0:19:21.720 handling this right now? And do you think President she 0:19:21.800 --> 0:19:24.720 has pushed things a little bit too far? Yeah, I 0:19:24.720 --> 0:19:26.639 think that they're handling us about as poorly as you 0:19:26.640 --> 0:19:29.280 could possibly handle this issue. One of the mistakes people 0:19:29.320 --> 0:19:31.800 make is is thinking that Huawei and zt are just 0:19:32.080 --> 0:19:35.800 another Chinese company or two, they're not, They're there, and 0:19:35.880 --> 0:19:38.919 there are five. You know, Huawei in particular is the 0:19:39.040 --> 0:19:43.399 Chinese semiconductor champion uh in terms of building out five G, 0:19:43.600 --> 0:19:47.040 and so you have an enormous nation national security issue 0:19:47.320 --> 0:19:51.160 where where countries are now becoming aware of just how 0:19:51.400 --> 0:19:55.439 dangerous it might be to to integrate Huawei into all 0:19:55.480 --> 0:19:59.240 of their new next generation telecommunications. The US has has 0:19:59.240 --> 0:20:01.640 been pushing on the but it wasn't until China really 0:20:01.680 --> 0:20:05.520 antagonize the entire universe during and in the aftermath of 0:20:05.560 --> 0:20:08.399 their COVID hit that that that that the countries are 0:20:08.440 --> 0:20:10.520 really taking notice on this. So, you know, this is 0:20:10.560 --> 0:20:13.160 something in which Chijn Ping, I think has overplayed his cards. 0:20:13.440 --> 0:20:15.520 He just this is just going in the wrong direction 0:20:15.560 --> 0:20:18.040 for China. It's a real problem because they're not going 0:20:18.119 --> 0:20:20.920 to be able to pull this back if if UAWE 0:20:21.000 --> 0:20:23.560 gets cut off. The narrative over the past few months 0:20:23.560 --> 0:20:25.920 has been that China will recover faster than the rest 0:20:25.920 --> 0:20:28.960 of the world from the pandemic because they clamped down 0:20:29.080 --> 0:20:32.840 harder and there, and they had the virus first. Is 0:20:32.880 --> 0:20:35.800 what you're saying that that is not necessarily the case 0:20:35.880 --> 0:20:38.959 because they are facing these other pressures due to some 0:20:39.040 --> 0:20:44.160 of their international trade policies. Well, they may recover faster 0:20:44.240 --> 0:20:47.800 and first, but recovery no longer means what people think 0:20:47.840 --> 0:20:49.960 it used to mean. So you know, if you're looking 0:20:49.960 --> 0:20:53.360 at at a month on month improvement qure and quarter improvement, 0:20:53.520 --> 0:20:55.199 we're seeing that in our data. You're seeing that in 0:20:55.240 --> 0:20:57.080 the p M I s. What you're not seeing is 0:20:57.080 --> 0:20:59.800 a return to normalcy. You're not seeing on your growth. 0:21:00.160 --> 0:21:03.159 Our last data show no on your growth whatsoever. And and 0:21:03.080 --> 0:21:05.120 and quite frankly, that's not what the p M eyes 0:21:05.119 --> 0:21:07.639 are showing either. People have decided they don't understand how 0:21:07.680 --> 0:21:09.160