WEBVTT - Surveillance: Roubini Warns of Slow Recovery 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. 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 --> 0:00:27.400 Bloomberg dot Com, and of course on the Bloomberg Nor 0:00:27.680 --> 0:00:30.680 Rabini joins us now from New York University Student School 0:00:30.720 --> 0:00:35.000 of Business and of course of great acclaim looking at crisis. 0:00:35.280 --> 0:00:37.879 Professor Rebini, wonderful to have you back with us. You 0:00:37.920 --> 0:00:41.839 wrote in February or January of the white Swans that 0:00:41.880 --> 0:00:45.440 are out there stealing that phrase from nothing Talub as well, 0:00:45.880 --> 0:00:49.120 where are the white Swans of two years from now? Well, 0:00:49.200 --> 0:00:52.400 there are some medium term challenges that were facing right 0:00:52.479 --> 0:00:56.440 in the world in which public and private debts are rising. 0:00:56.560 --> 0:00:59.080 They're going to become even bigger given the response to 0:00:59.120 --> 0:01:03.520 the crises. We have the risk of global pandemics becoming 0:01:03.560 --> 0:01:08.399 our current global climate change. This Cold war between US 0:01:08.480 --> 0:01:14.120 and China is getting worse, geopolitical risk arising. Serious political 0:01:14.160 --> 0:01:17.959 uncertainty is about the US election, about the shape of 0:01:18.000 --> 0:01:21.600 the recovery started like a free fall. Then for a 0:01:21.600 --> 0:01:23.840 while people thought it would be a v This v 0:01:24.040 --> 0:01:26.520 is becoming a you that you could become a w 0:01:27.120 --> 0:01:28.959 if you don't find the vaccine, if you don't have 0:01:29.080 --> 0:01:34.480 enough Lolaurial, I want to look forward given the assumptions 0:01:34.560 --> 0:01:39.039 and certitudes that institutions have right now, the great model 0:01:39.120 --> 0:01:41.759 Neil that we have is there's a bridge out there 0:01:41.800 --> 0:01:45.319 and we should invest or act according to that bridge. 0:01:45.680 --> 0:01:48.400 Do you believe in the bridge and can it get 0:01:48.480 --> 0:01:52.720 us to two thousand twenty two. I worried because before 0:01:52.720 --> 0:01:56.200 the crisis there was a massive leveraging of the corporate 0:01:56.240 --> 0:01:59.400 sector in the United States, but also in many other 0:01:59.480 --> 0:02:02.760 parts of the role, including emerging markets. And given the 0:02:02.840 --> 0:02:07.559 COVID shock, most firms have to deleverage. The leverage means 0:02:07.600 --> 0:02:12.560 to spend less, save more, and doing less capax because 0:02:12.560 --> 0:02:15.919 there is a glass of capacity. Now, how you spend less. 0:02:16.840 --> 0:02:20.280 Your main cost are labor costs, But your labor costs 0:02:20.320 --> 0:02:23.200 are my labor income. So the de leveraging of the 0:02:23.280 --> 0:02:28.400 corporate sector implies there will be much more sluggage labor income. First, 0:02:28.440 --> 0:02:31.600 the workers are fired, and even when they're gonna start 0:02:31.639 --> 0:02:34.560 to be hired, they're not gonna get full time jobs 0:02:34.600 --> 0:02:37.960 with full wages and benefits. Will be more gig workers, 0:02:38.040 --> 0:02:43.639 part time workers, our workers, contractors, free lancers. That means 0:02:43.680 --> 0:02:47.320 a huge amount of uncertainty and risk. Aversion by the 0:02:47.360 --> 0:02:51.440 household sector that is also highly indebted. So you're gonna 0:02:51.440 --> 0:02:54.680 have also deleveraging by the household sector that they have 0:02:54.760 --> 0:02:59.720 to spend less, save more, and do less residential investment, 0:02:59.800 --> 0:03:03.400 and that the leveraging of the private sector implies at 0:03:03.480 --> 0:03:08.240 best sluggish. You shape our covery and a tours from 0:03:08.240 --> 0:03:11.079 not doing the writings them as of controlling the virus, 0:03:11.360 --> 0:03:14.080 and we don't find the vaccine that you could become 0:03:14.120 --> 0:03:16.919 even a double a double D procession. But no real 0:03:17.160 --> 0:03:19.160 If you look at the markets, they're going up. So 0:03:19.280 --> 0:03:22.440 you know you've you've basically you're saying that we're going 0:03:22.440 --> 0:03:25.960 through ten years of misery. The market keeps on going 0:03:26.040 --> 0:03:29.680 up because of central banks. So you know who's right. 0:03:29.680 --> 0:03:31.840 Does the economy catch up with the market or the 0:03:32.000 --> 0:03:35.240 does the market catch up with the economy. Well, as 0:03:35.240 --> 0:03:38.280 you pointed out, you know we have zero policy rates, 0:03:38.400 --> 0:03:41.920 if not negative. We have a long term interest rates 0:03:41.960 --> 0:03:45.640 in the US at best at sixty basis points in 0:03:45.760 --> 0:03:49.880 parts of the world zero if not negative. Central banks 0:03:49.880 --> 0:03:52.880 are even buying high yield and I great bonds, so 0:03:53.040 --> 0:03:56.560 those spreads are squeezed and you don't get much in 0:03:57.360 --> 0:04:01.640 credit or fixed income, and therefore people are going into stocks, 0:04:01.720 --> 0:04:05.360 but not because there's a very strong recovery of earnings. 0:04:05.720 --> 0:04:08.720 I mean, you have yet five companies, the big tech, 0:04:08.800 --> 0:04:11.760 within the five hundred of SMP that are doing well. 0:04:11.840 --> 0:04:14.119 The rest of them are not doing well. So it's 0:04:14.160 --> 0:04:19.600 all driven by further multiple expansion rather than a real recovery. 0:04:19.920 --> 0:04:23.039 And what's good, by the way, for Wall Street is 0:04:23.080 --> 0:04:27.120 bad for main Street because Wall Street represents what big firms, 0:04:27.560 --> 0:04:33.160 big tech, and big banks. What's main street? Workers, households 0:04:33.200 --> 0:04:37.080 and small and medium sized enterprises. We know that hundreds 0:04:37.120 --> 0:04:41.600 of thousands soon enough of small shops, retailers and others 0:04:41.839 --> 0:04:44.479 are going to go out of business while the market 0:04:44.560 --> 0:04:48.719 share of big business and arise, and that's driving things 0:04:48.760 --> 0:04:52.080 straight down. That creates tons of jobs in the SIME 0:04:52.400 --> 0:04:54.720 and makes the big firms even bigger in terms of 0:04:54.800 --> 0:04:57.960 market shares. And as I said, if the firms are 0:04:58.040 --> 0:05:01.440 going to survive and drive and achieve earnings target by 0:05:01.440 --> 0:05:05.000 slashing labor costs, your labor costs and my labor income, 0:05:05.040 --> 0:05:08.680 my consumption, and eventually that slamp of consumption is going 0:05:08.720 --> 0:05:12.120 to weaken earnings and profits down the line. So I 0:05:12.120 --> 0:05:16.440 think that the market doesn't reflect the real economy. Mainstream 0:05:16.640 --> 0:05:23.400 is struggling, straggling severely. We're also focusing a lot more 0:05:23.400 --> 0:05:26.360 on health. We're also focusing a lot more on climate change. 0:05:26.720 --> 0:05:29.560 Governments are doing that across the world. Doesn't mean that 0:05:29.600 --> 0:05:33.960 the pandemic is actually ending our obsession with economic growth 0:05:34.080 --> 0:05:37.599 to focus on other things. Well it might then the 0:05:37.640 --> 0:05:41.359 short run, But now there is some clear evidence that 0:05:41.800 --> 0:05:47.360 these zoonotic diseases that our transmission from animal to human 0:05:47.760 --> 0:05:53.120 that are occurring much more frequently, where HIV stars, Mayor's 0:05:53.520 --> 0:05:59.120 swine flu, bird flu ze CA now COVID nineteen soon 0:05:59.240 --> 0:06:02.080 en after it might be even more virulent, is driven 0:06:02.120 --> 0:06:06.640 by the destruction of ecosystem That implied that animals that 0:06:06.680 --> 0:06:11.039 are wild that heavy these diseases are closed livestock and 0:06:11.080 --> 0:06:15.320 closer to human So if we don't address the destruction 0:06:15.360 --> 0:06:18.800 of the ecosystem, the global pandemics are going to become 0:06:19.040 --> 0:06:22.600 more frequent and more severe. And this pandemic alone has 0:06:22.640 --> 0:06:26.920 done more economic destruction than any economic and financial crisis 0:06:27.200 --> 0:06:30.440 in the last seventy years. So thinking that we should 0:06:30.640 --> 0:06:34.279 not worry about the environment. Doesn't make any sense. We 0:06:34.320 --> 0:06:38.480 have the investing environment control because that's gonna be greating jobs. 0:06:38.760 --> 0:06:41.880 Nor Robinia, I want you to take an old world 0:06:42.160 --> 0:06:48.480 study of how America's struggling to do income replacement. It's 0:06:48.640 --> 0:06:52.919 understood in Germany, it's understood in the continent, it's understood 0:06:52.920 --> 0:06:58.159 in the United Kingdom. And America struggling so hard with aid, 0:06:58.680 --> 0:07:03.080 with stimulus and with the ideas simply of replacing income. 0:07:03.600 --> 0:07:08.040 Why is that. Well, Historically people were criticizing the European 0:07:08.160 --> 0:07:11.600 labor markets for being a more rigid and not as 0:07:11.680 --> 0:07:15.520 flexible as the US. But during the crisis, the European 0:07:15.640 --> 0:07:19.280 systems is to have worked much better because instead of 0:07:19.360 --> 0:07:25.280 indiscriminately firing people, there is a system where workers stay 0:07:25.520 --> 0:07:29.239 on the job, they get at least sixty to seventy 0:07:29.960 --> 0:07:33.320 of their income depending on the country, and the rest 0:07:33.360 --> 0:07:36.840 of it is risk sharing between the firm and the government. 0:07:36.960 --> 0:07:41.960 That's why the unemployment rate barely went up in Germany 0:07:42.080 --> 0:07:44.560 or even in Italy, while in the US we've had 0:07:45.120 --> 0:07:50.560 double digit unemployment rate and actually even worse considering underemployment 0:07:50.600 --> 0:07:53.280 and so on. So I think that actually system where 0:07:53.280 --> 0:07:57.120 there is more social collision implies that you don't have 0:07:57.240 --> 0:08:01.280 the collapse of employment, the collapse of labor income. And 0:08:01.360 --> 0:08:04.760 that's why the recovery of Europe and the Eurozone right 0:08:04.760 --> 0:08:08.080 now maybe better than the one of the United States. 0:08:08.120 --> 0:08:11.360 Of course, there's a dual labor market. There are people 0:08:11.440 --> 0:08:15.080 that are informal workers who don't get the same kind 0:08:15.120 --> 0:08:17.880 of benefits. And there's a risk that, of course if 0:08:17.880 --> 0:08:20.000 there are cover is going to be anemic in Europe 0:08:20.000 --> 0:08:23.800 with another wave, that there will be another wave of unemployment. 0:08:24.320 --> 0:08:27.880 That's a serious risk. But that's more rigid labor market, 0:08:27.920 --> 0:08:31.040 and this form of re sharing has implied actually they're 0:08:31.080 --> 0:08:35.120 doing a major price like this, the European system of 0:08:35.240 --> 0:08:40.679 greater social coession gives you better economic outcomes than the 0:08:40.760 --> 0:08:44.160 one of the United States that is just wild West capitalism. 0:08:45.080 --> 0:08:47.800 Does that mean that m M T will be here? 0:08:48.200 --> 0:08:52.600 And again, what does that mean for you know, for assets? Well, 0:08:52.640 --> 0:08:56.280 we are already effectively in m M T or helicopter 0:08:56.400 --> 0:09:00.560 drop of money because we have massive budget deficity of 0:09:00.640 --> 0:09:03.240 the order of ten percent in Europe. In the US 0:09:03.360 --> 0:09:06.640 is going to be closer tow and we have central 0:09:06.679 --> 0:09:11.800 banks that are effectively doing unlimited qui formally in the 0:09:11.880 --> 0:09:16.280 case of the US or Japan, informally even in the 0:09:16.320 --> 0:09:20.000 Eurozone and other parts of Europe. So what's the difference 0:09:20.040 --> 0:09:25.120 between m m T and large monetized budget deficits? Only 0:09:25.200 --> 0:09:28.520 two fig lives? In one case you buy the bonds 0:09:29.000 --> 0:09:31.840 in the primary market if you do m empty. In 0:09:31.880 --> 0:09:34.120 the other case, if you do qui, you buy in 0:09:34.160 --> 0:09:37.840 the secondary a week later. To m emty is supposed 0:09:37.880 --> 0:09:41.280 to be permanent, while que is supposed to be temporary. 0:09:41.320 --> 0:09:45.240 But this temporary que is becoming permanent. Effectively, we are 0:09:45.280 --> 0:09:47.880 in that world of and we are out of time. 0:09:47.960 --> 0:09:50.240 Nor Robini, thank you so much. You look forward to 0:09:50.280 --> 0:09:57.160 seeing you again. It's the real deal has become very 0:09:57.160 --> 0:09:59.720 serious and that's a good way to bring in our 0:09:59.760 --> 0:10:03.079 first guests. This is perfect for the morning on these 0:10:03.160 --> 0:10:05.920 John Gallup joins from Credit Such. John, I want to 0:10:05.960 --> 0:10:08.480 go right over to James Sweeney and the rest of 0:10:08.520 --> 0:10:11.800 your fixed income team and economics team. What is the 0:10:11.920 --> 0:10:16.680 real yield? Excuse me, what is the large negative real 0:10:16.800 --> 0:10:22.880 yield mean for equity investors? Um, you know, it's it's interesting, Tom. 0:10:23.160 --> 0:10:25.200 We've We've done a whole bunch of work on what 0:10:25.240 --> 0:10:27.480 it means for stock prices, because I know that people 0:10:27.480 --> 0:10:30.280 who are looking at gold and other assets are obsessed 0:10:30.320 --> 0:10:35.600 with this. The market cares more about nominal interest rates 0:10:35.600 --> 0:10:38.760 than real yield. They do care about this. This issue 0:10:38.800 --> 0:10:42.440 of inflation and we are when we're talking to clients, 0:10:42.440 --> 0:10:45.640 whether we have inflation or deflation on the back of 0:10:45.640 --> 0:10:49.199 this crisis is a really big discussion point because it 0:10:49.280 --> 0:10:52.080 sets the tone for what type of stocks are going 0:10:52.160 --> 0:10:54.920 to win. But the but in terms of the direction 0:10:54.960 --> 0:10:57.760 of the market, it's the general of it's the sixty 0:10:57.760 --> 0:11:01.280 three basis points on the tenure matters more to stocks 0:11:01.640 --> 0:11:04.719 than this negative one person you're talking about right there 0:11:04.800 --> 0:11:07.320 is worth the watching of Bloomberg surveillance. Through all of 0:11:07.360 --> 0:11:11.120 this surveillance thign right there, it's the nominal yield minus 0:11:11.120 --> 0:11:15.320 inflation expectations and the residual of that is the real yield. 0:11:15.360 --> 0:11:17.240 And what you're hearing from Gala do is look at 0:11:17.240 --> 0:11:21.480 the nominal yield is the most important determinant. What does 0:11:21.480 --> 0:11:23.640 it mean, John Galup for the big banks and for 0:11:23.720 --> 0:11:28.200 banking in general, Well, you know banks don't do well 0:11:28.280 --> 0:11:30.800 when there's no interest rates. And at sixty three basis 0:11:30.880 --> 0:11:32.960 points on the ten year and you can pull up 0:11:32.960 --> 0:11:36.440 on your Bloomberg on what a two year UM bond 0:11:36.520 --> 0:11:39.520 yield is doing, which is a lot lower than that, 0:11:39.840 --> 0:11:43.000 and banks can't be that profitable in that um wormans. 0:11:43.120 --> 0:11:45.880 Why the US banks have done so poor and actually 0:11:45.880 --> 0:11:49.320 worse than European banks is because the yields in the 0:11:49.440 --> 0:11:53.600 United States have fallen meaningfully, but European yields were so 0:11:53.760 --> 0:11:57.400 low going into this crisis they couldn't go any lower. UM. 0:11:57.559 --> 0:12:01.400 So the damage to US banks has been much greater 0:12:01.880 --> 0:12:04.640 on a relative basis than the banks than the damage 0:12:04.679 --> 0:12:08.000 to European banks um. You know, as a result of 0:12:08.040 --> 0:12:11.120 this crisis, which is really I think a surprise too many. 0:12:11.400 --> 0:12:13.920 John gub something current this morning. An hour ago we 0:12:13.960 --> 0:12:16.960 saw John Deere come out with a better view for 0:12:17.000 --> 0:12:21.240 their Q three. Certainly a surprise to the market is 0:12:21.240 --> 0:12:23.360 that a trend that we're going to see coming here 0:12:23.360 --> 0:12:25.840 and that with the grimness and the gloom of a 0:12:25.840 --> 0:12:30.720 pandemic markdown, actually companies could do better. You know. We 0:12:30.720 --> 0:12:33.400 we saw in the second quarter that it was the 0:12:33.440 --> 0:12:38.360 best quarter in history in terms of beats, how results 0:12:38.360 --> 0:12:41.760 are coming in relative to expectations, and it was also 0:12:42.320 --> 0:12:46.920 the single quarter where the market cared less than any other. Um. 0:12:47.160 --> 0:12:50.160 The people are trying to figure out is where is 0:12:50.200 --> 0:12:54.000 this thing going? And what happens to Q three earnings 0:12:54.000 --> 0:12:57.240 In the middle of this, it's probably more noise. People 0:12:57.240 --> 0:12:59.520 are really trying to figure out the kind of a 0:12:59.559 --> 0:13:02.600 trend direction. Do we have a cure, What does it 0:13:02.640 --> 0:13:05.120 do for rates? What does it do for inflation? As 0:13:05.120 --> 0:13:07.960 you were talking about, which is really the key issue. Um. 0:13:08.040 --> 0:13:11.160 But but the next quarter in terms of earnings, the 0:13:11.200 --> 0:13:14.719 market really is actually shrugging its shoulders much more than 0:13:14.720 --> 0:13:16.839 you would think. Okay, so Jonathan, let's go back to 0:13:16.920 --> 0:13:18.840 in good morning from London and frenzy. But let's go 0:13:18.880 --> 0:13:21.560 back to this inflation versus deflation. If we want to 0:13:21.559 --> 0:13:24.760 see inflation, let's say, rampant inflation, where does it come from? 0:13:24.840 --> 0:13:27.680 Is it central bank action? Is it stimulus? Or actually 0:13:27.760 --> 0:13:30.559 is it's simply supply chains. If you move supply chains 0:13:30.559 --> 0:13:32.960 and you move them back home, you know, partly because 0:13:32.960 --> 0:13:35.520 of trade wars, but also because of COVID, doesn't just 0:13:35.600 --> 0:13:39.880 mean that prices go automatically up. Well, it's a really 0:13:40.120 --> 0:13:43.120 great question because recently we've had to pick up in 0:13:43.600 --> 0:13:46.760 actual inflation and you're starting to see if you wanted 0:13:46.760 --> 0:13:49.680 to go buy a bicycle or tennis racket or certain 0:13:49.679 --> 0:13:53.040 things like that, that there may be shortages because everything 0:13:53.080 --> 0:13:56.040 has been shut down and then reopened. And you're seeing 0:13:56.040 --> 0:13:59.040 inflation right now for people who want to leave New 0:13:59.120 --> 0:14:02.319 York City and buy an apartment and apartment but a 0:14:02.440 --> 0:14:05.000 rent a home in the suburbs, that the prices are 0:14:05.080 --> 0:14:08.800 up because there's no additional stock of homes to buy 0:14:08.840 --> 0:14:11.880 or rent. And so you are seeing inflation now, but 0:14:11.920 --> 0:14:13.719 it is not the kind that's going to freak the 0:14:13.800 --> 0:14:17.840 market out, because this is really transitory. It's because of 0:14:18.480 --> 0:14:22.520 um kind of the result of the crisis itself. The 0:14:22.600 --> 0:14:25.040 real the real question, I think in terms of longer 0:14:25.240 --> 0:14:28.280 term inflation, and that's really what what matters here is 0:14:28.800 --> 0:14:31.400 are you going to see this as a systemic issue 0:14:31.720 --> 0:14:35.320 because the Fed is printing money and that it's ultimately 0:14:35.560 --> 0:14:38.760 going to be a monetary phenomenon that prices go up 0:14:39.120 --> 0:14:43.600 broadly on a sustained basis. If that happens, then it's 0:14:43.640 --> 0:14:46.360 going to affect asset prices if it's something that's a 0:14:46.400 --> 0:14:51.800 near term shortage. For example, the price of lumber is up, 0:14:51.840 --> 0:14:54.160 but that's not something that's a long term trend. That's 0:14:54.200 --> 0:14:57.680 a that's really resulting from the current crisis. That's not 0:14:57.720 --> 0:15:00.760 the thing that's that's going to make the market uncomfortable. UM. 0:15:00.880 --> 0:15:03.920 But the real question if you have central banks everywhere 0:15:03.920 --> 0:15:08.240 in the world printing money like crazy, then prices naturally 0:15:08.320 --> 0:15:11.440 go up. And that's the thing that people are focused on. 0:15:11.760 --> 0:15:15.080 But with a labor market that is, you know, with 0:15:15.280 --> 0:15:19.280 fifteen million unemployed Americans, it's very hard to see right 0:15:19.320 --> 0:15:23.120 now anything that looks like underlying inflation. Johnathan, you know, 0:15:23.120 --> 0:15:25.280 there are two things that I learned in lockdown, and 0:15:25.320 --> 0:15:30.040 that was actually, yes, bicycles rise and inflation. And there's 0:15:30.040 --> 0:15:31.720 also a puppy shortage. I don't know whether you can 0:15:31.760 --> 0:15:33.960 model that. I mean, Tom can actually you know, see 0:15:33.960 --> 0:15:37.560 a three standard deviation in prices of puppies. How do 0:15:37.560 --> 0:15:40.880 you protect yourself to do you buy inflation protection at 0:15:40.880 --> 0:15:43.760 this moment in time? I don't. I don't think So 0:15:44.240 --> 0:15:47.560 you're you're talking about what matters if you in the 0:15:47.640 --> 0:15:51.480 inflation deflation argument. And I talked to Andrew Garth, wages 0:15:51.480 --> 0:15:55.240 are global strategies about this all the time. If you 0:15:55.400 --> 0:15:58.040 are if you think that you're going to have a 0:15:58.080 --> 0:16:00.600 long term inflation problem because of all this any printing, 0:16:01.000 --> 0:16:05.040 then value beats growth and non US assets to actually 0:16:05.040 --> 0:16:07.920 beat US assets if you think that we're going to 0:16:08.000 --> 0:16:12.000 have disinflation. And that's my view that ultimately all of 0:16:12.040 --> 0:16:16.720 the damage that's being done here actually pushes inflation down. UM. 0:16:16.880 --> 0:16:21.160 But if that's the case, then growth winds and tech 0:16:21.240 --> 0:16:24.400 winds and large caps. So this this discussion is not 0:16:24.560 --> 0:16:28.400 just an academic um issue. It is the single most 0:16:28.440 --> 0:16:33.200 important issue for pension plans and hedge funds and fund 0:16:33.200 --> 0:16:35.800 managers who want to figure out how do you play 0:16:35.840 --> 0:16:38.360 this thing? Not over the meat but over the next 0:16:38.440 --> 0:16:42.200 you know, one to three years. John Glup one final question. 0:16:42.440 --> 0:16:46.360 I was thunderstruck and caustious. James Sweeney. The last time, 0:16:46.680 --> 0:16:49.920 you're wonderful chief Economist was on with us. I've never 0:16:50.000 --> 0:16:53.800 heard Sweeney so conscious, and that's confirmed today by the 0:16:53.920 --> 0:16:59.280 statistics out of France as well. Are you investing based 0:16:59.320 --> 0:17:02.680 on sweeney caution? First of all, we talk all the 0:17:02.840 --> 0:17:06.040 you know, we talk all the time, and um, you know, 0:17:06.119 --> 0:17:09.520 and we don't. People don't always agree on everything. Right now, 0:17:09.640 --> 0:17:12.960 we're seeing the world the same way that the bounce 0:17:13.040 --> 0:17:15.920 that we've had this v shape, bounce off the bottom 0:17:16.160 --> 0:17:19.320 is going to start flattening out as we go into 0:17:20.000 --> 0:17:23.679 the September October time frame, and so we believe you're 0:17:23.680 --> 0:17:27.600 gonna see more data start to roll over. And we 0:17:27.640 --> 0:17:31.160 saw that, for example with the jobs data UM yesterday 0:17:31.200 --> 0:17:35.280 on the unemployment claims, it has really stopped going down 0:17:35.960 --> 0:17:38.760 and it's the the improvement in the job situation has 0:17:38.840 --> 0:17:41.439 kind of flattened out, and we think we're gonna see that. 0:17:41.480 --> 0:17:43.639 And James is a big proponent of the idea of 0:17:43.960 --> 0:17:48.600 industrial production that the industrial data, which bounds really hard, 0:17:49.040 --> 0:17:51.679 big v off the bottom, that it's going to stop 0:17:51.720 --> 0:17:55.760 improving on a relative change basis, and so he would 0:17:55.800 --> 0:17:58.560 he would agree. He would actually, uh, I haven't spoken 0:17:58.560 --> 0:18:00.520 to him. He'd probably look at the date out of 0:18:00.560 --> 0:18:04.000 France and say directionally, that's not a big surprise. John 0:18:04.040 --> 0:18:06.040 gob thank you for the briefing with Credit Sweet. Is 0:18:06.080 --> 0:18:08.560 just wonderful to see that combined research of Mr grayth Right, 0:18:08.720 --> 0:18:17.200 Mr Sweeney and Mr Agalab. We go to Lisian Saunders 0:18:17.200 --> 0:18:21.879 of Charles Schwab her her experience at SQUAB is extraordinary 0:18:22.160 --> 0:18:24.159 and Lisien, I want to go back to the moments 0:18:24.200 --> 0:18:27.080 like with Lou rue Kaiser A few years ago where 0:18:27.080 --> 0:18:30.320 there were big events were now into not a big 0:18:30.320 --> 0:18:35.959 event but almost a weekly and indeed monthly numbness of 0:18:36.320 --> 0:18:43.280 struggling news. How do you invest given a numbness? Yeah, 0:18:43.320 --> 0:18:46.320 it is an extraordinary period of time. And I really 0:18:46.320 --> 0:18:48.080 think and I would say this, I suppose in a 0:18:48.119 --> 0:18:52.280 normal market environment, but investors have to remember that some 0:18:52.400 --> 0:18:57.800 of the basics around UH rebalancing, broad diversification, I think 0:18:57.840 --> 0:19:01.280 really come into play in this environment. I continually get 0:19:01.359 --> 0:19:04.960 questions about whether to be in this market being given 0:19:05.000 --> 0:19:09.000 high valuations or election uncertainty. Should I get out now? 0:19:09.080 --> 0:19:12.040 And neither get in or get out? And I think 0:19:12.080 --> 0:19:14.720 that's sort of the moxie of some of the newly 0:19:14.800 --> 0:19:18.439 minted day traders. Is a long term investing strategy, and 0:19:18.480 --> 0:19:22.200 I think in this environment, more frequent rebalancing driven by 0:19:22.480 --> 0:19:25.400 volatility and what asset classes are doing. Letting your portfolio 0:19:25.560 --> 0:19:27.760 tell you when it's time to do something keeps us 0:19:27.800 --> 0:19:30.159 in gear by sort of forcing us to trim and 0:19:30.280 --> 0:19:33.879 to strength and add into weakness, which is ultimately the 0:19:34.520 --> 0:19:37.880 best path to long term success. Some of your research, Lisanna, 0:19:37.920 --> 0:19:41.560 is about volume, about retail trades, about the confidences that 0:19:41.600 --> 0:19:44.679 are out there measure for us, a pile of money 0:19:44.680 --> 0:19:48.840 on the sidelines. How big is the mountain of cash? Well, 0:19:48.840 --> 0:19:51.479 it really depends on what type of investor you're looking at, 0:19:51.480 --> 0:19:54.080 and that's really extraordinary. If you look at the most 0:19:54.119 --> 0:19:57.760 active investors, their equity exposure has gone well up, so 0:19:57.840 --> 0:19:59.720 there's not a lot of cash there. If you look 0:19:59.760 --> 0:20:03.840 at a more traditional investors and there was a recent 0:20:03.880 --> 0:20:06.720 gallop pole, you can look at overall household exposure to 0:20:06.760 --> 0:20:10.080 equities that's been coming down. So that's another unique part 0:20:10.080 --> 0:20:13.720 of this market environment is you really have significant divergence 0:20:14.119 --> 0:20:17.640 in terms of both behavioral and attitudinal measures of investor 0:20:17.760 --> 0:20:20.960 sentiment and what they're positioning is So if you look 0:20:21.000 --> 0:20:26.200 at the cohort of newer, younger, more active day traders, 0:20:26.480 --> 0:20:29.280 their exposure is extraordinarily high. But if you look at 0:20:29.280 --> 0:20:32.280 more seasoned investors, both on the retail side and the 0:20:32.280 --> 0:20:36.199 institutional side, they've had a bit more skepticism about this 0:20:36.280 --> 0:20:40.000 and are holding larger amounts of cash. So it really 0:20:40.040 --> 0:20:43.560 is a unique environment where you have to break investors 0:20:43.560 --> 0:20:48.080 into various cohorts, in some cases a functive h to 0:20:48.160 --> 0:20:50.840 get a sense of where there's excess and where there's 0:20:50.880 --> 0:20:58.760 still opportunity. But listen, where do you know volatility? More 0:20:58.880 --> 0:21:03.600 volatility give, because just simply the number of infections are 0:21:03.720 --> 0:21:06.359 rising because of COVID nineteen and it will be much 0:21:06.400 --> 0:21:10.560 more difficult to read the economy. I think economic volatility 0:21:10.680 --> 0:21:14.360 is absolutely a given. We've seen diminishing equity volatility as 0:21:14.400 --> 0:21:16.520 measured by things like the VIX, but I think as 0:21:16.520 --> 0:21:19.439 we move into the fall, that's likely to pick up, 0:21:19.520 --> 0:21:22.760 even absent any news on the virus front. I think 0:21:22.840 --> 0:21:25.760 election related volatility tends to pick up in the post 0:21:25.840 --> 0:21:28.800 labor day environment, so I would certainly expect that to 0:21:28.840 --> 0:21:31.600 be the case this time. But I think economic volatility 0:21:31.640 --> 0:21:34.760 absolutely not just driven by number of cases. And there's 0:21:34.760 --> 0:21:37.679 been a big focus on vaccines, and I think the 0:21:37.760 --> 0:21:42.160 market would obviously be pleasantly surprised if we do get 0:21:42.320 --> 0:21:44.560 near term news on a vaccine. But I think just 0:21:44.600 --> 0:21:48.000 as important would be news on therapeutics, because we have 0:21:48.040 --> 0:21:50.840 to remember that upon an announcement of a vaccine that's 0:21:50.840 --> 0:21:54.080 ready for humans, that'll be all the follow on questions 0:21:54.080 --> 0:21:58.040 on efficacy, availability, that percentage of people willing to take it. 0:21:58.119 --> 0:22:00.760 So I don't think the head and we're looking for 0:22:00.920 --> 0:22:04.399 on a vaccine answers all the questions that we have 0:22:04.520 --> 0:22:09.400 now or will then las Angel We spend a lot 0:22:09.400 --> 0:22:11.880 more time trying to figure out, you know, what companies 0:22:12.040 --> 0:22:15.639 will go into liquidation, will go bankrupt and and is 0:22:15.680 --> 0:22:17.919 this because of COVID nineteen or is it just an 0:22:17.920 --> 0:22:23.040 acceleration of trend. Well, we're seeing heightened level of bankruptcy 0:22:23.200 --> 0:22:25.680 akin to what we saw back in two thousand and nine, 0:22:25.720 --> 0:22:28.240 but we also have FET facilities that have been able 0:22:28.280 --> 0:22:30.919 to sort of stem that tied a little bit. I 0:22:30.960 --> 0:22:33.400 still think it's a factor, particularly when we look at 0:22:33.440 --> 0:22:38.439 the relationship between temporary unemployed and permanent job losses, and 0:22:38.920 --> 0:22:41.680 those have been going effectively in the wrong direction. We've 0:22:41.680 --> 0:22:44.800 seen a decline in temporary layoffs and a rise in 0:22:44.800 --> 0:22:47.560 in permanent job losses, and I think that will continue 0:22:47.560 --> 0:22:51.800 to be tied to bankruptcies filings now. For now, defaults 0:22:51.840 --> 0:22:53.560 have been held at bay in large part due to 0:22:53.560 --> 0:22:56.240 what the FETE has done. But I also think that 0:22:56.320 --> 0:22:58.520 there might be less willingness on the part of some 0:22:58.600 --> 0:23:01.280 small companies that are facing an existential threat to their 0:23:01.320 --> 0:23:04.320 business to try to stay afloat via what the FET 0:23:04.320 --> 0:23:06.600 has done or other means. So that may be what's 0:23:06.600 --> 0:23:09.400 different in this environment versus last time. If you really 0:23:09.520 --> 0:23:13.280 question your long term survivability, I think there are some 0:23:13.320 --> 0:23:15.320 companies that are just throw in the towel right now. 0:23:15.560 --> 0:23:18.680 Bloomberg Radio, Bloomberg Television, a simulcast for instance, ly Qua 0:23:18.800 --> 0:23:21.160 and for Lisa Bryan wantson John Farrell. We welcome all 0:23:21.160 --> 0:23:23.280 of you on this Friday, Lizzie, and I didn't know 0:23:23.320 --> 0:23:24.680 this was going to be a theme of the week 0:23:24.800 --> 0:23:27.040 on a Monday, but here it is, and that is 0:23:27.119 --> 0:23:32.000 diversification or Peter Lynch's diversification, whatever it may be. Are 0:23:32.040 --> 0:23:38.240 we over diversified in our retirement plans? Actually we we 0:23:38.400 --> 0:23:41.640 think not. In fact, if we look at the lack 0:23:41.680 --> 0:23:46.240 of rebalancing that's done, particularly US versus rest of world, 0:23:46.880 --> 0:23:51.159 there is a significant bias within portfolios towards US equity 0:23:51.160 --> 0:23:55.440 ex closure, largely because the lack of rebalancing in the performance. 0:23:55.480 --> 0:23:57.800 And I think you know what tends to happen as 0:23:57.840 --> 0:24:00.800 you move from one cycle into another cycle, you do 0:24:00.920 --> 0:24:03.679 see tend to see a reversal in leadership. And we 0:24:03.720 --> 0:24:06.960 do think there is an opportunity for non US to 0:24:07.040 --> 0:24:09.800