WEBVTT - Surveillance: U.S. Jobless Claims Fall With Gapen 0:00:00.080 --> 0:00:13.800 Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom keene 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 --> 0:00:27.400 Bloomberg dot Com, and of course on the Bloomberg. We 0:00:27.520 --> 0:00:30.160 begin the program though by talking about this market. We 0:00:30.200 --> 0:00:32.760 can bring it in Rob Waldner of invest Go. Rob, 0:00:32.840 --> 0:00:35.040 you've made it pretty clear you think it's time to 0:00:35.080 --> 0:00:38.199 move to a more cautious risk stance on risky assets. 0:00:38.360 --> 0:00:42.680 I'll stop it to show at want why well, John, 0:00:42.760 --> 0:00:46.040 thanks for having me this morning. What's driving markets here? 0:00:46.880 --> 0:00:50.640 Is is really policy right? And I'll give you a 0:00:50.680 --> 0:00:53.479 few statistics we have. You know, we talked about treasuries 0:00:53.560 --> 0:00:55.760 just a moment ago. You know, real yields in the 0:00:55.760 --> 0:00:58.640 tragedy market are are are very low. So if you 0:00:58.640 --> 0:01:00.800 look at real yields, have could need to decline. We 0:01:00.840 --> 0:01:03.560 have five year really yields about minus a hundred basis 0:01:03.560 --> 0:01:08.120 points real tenure yields minus ad basis points. We have 0:01:08.120 --> 0:01:10.600 a fed that it continues to be active in the market, 0:01:10.640 --> 0:01:13.000 which is the reason why we've gotten this big bounce 0:01:13.080 --> 0:01:14.959 off of the bottom and if you look at what 0:01:14.959 --> 0:01:17.880 happened in June, it becomes very very clear what that 0:01:17.959 --> 0:01:20.200 that is what's driving things. So in June we saw 0:01:20.240 --> 0:01:22.320 investment grade, which we know that the Fed is buying, 0:01:22.400 --> 0:01:26.920 continue to rally. Investments grade, investment grades, spreads tightened by 0:01:27.040 --> 0:01:30.399 twenty four basis points or so in June. High yield 0:01:30.640 --> 0:01:34.119 UH did not rally as much. Spreads titan much less, 0:01:34.400 --> 0:01:36.600 and you know, bank loans kind of went sideways in June. 0:01:36.600 --> 0:01:39.040 And the reason for that is that that the i 0:01:39.200 --> 0:01:42.840 G is is very closely tied to UH FED policy, 0:01:43.280 --> 0:01:45.400 as the Fed is actually buying. So our mantra has 0:01:45.440 --> 0:01:48.080 been by what the central banks are buying, by what 0:01:48.120 --> 0:01:51.920 the central banks are supporting, because the fundamentals themselves, undguing 0:01:51.960 --> 0:01:58.080 fundamentals disease are not that positive. Rob Dan cass Of 0:01:58.200 --> 0:02:01.120 of BMP berry bat was it's out in the last 0:02:01.240 --> 0:02:04.600 hour talking about you know, nominal yields can stay or 0:02:04.600 --> 0:02:07.240 they are folks, the visible interest rate that we see, 0:02:07.800 --> 0:02:11.480 and yet with rising inflation, those real yields could drive 0:02:11.520 --> 0:02:16.560 ever ever lower. I have trouble believing that's a stable process. 0:02:16.919 --> 0:02:20.040 Will that be a stable process or do you look 0:02:20.080 --> 0:02:25.359 for bond price volatility. Well, Tom, the FED I think 0:02:25.440 --> 0:02:28.560 is trying to make sure that's as stable process as possible. 0:02:28.639 --> 0:02:31.880 You know, the treasury volatility, to take the move index 0:02:32.000 --> 0:02:35.320 for instance, which is a measure of treasury volatility, is 0:02:35.320 --> 0:02:38.200 at its lows. So the FED I think is with 0:02:38.360 --> 0:02:42.119 their with their for guidance and what what they their 0:02:42.200 --> 0:02:44.680 Their policy going forward will be to try and maintain 0:02:44.800 --> 0:02:47.280 that stability in the short end of the market at 0:02:47.360 --> 0:02:51.120 least so that you can have these really yields continue 0:02:51.120 --> 0:02:54.320 to decline. Obviously there's a point of breaking point where 0:02:54.440 --> 0:02:57.160 they may lose control, but that will be well in 0:02:57.160 --> 0:02:59.200 the future in our view, so they will continue to 0:02:59.200 --> 0:03:01.320 be able to control all the level of nominal rates 0:03:01.320 --> 0:03:05.639 to some extent um and its inflation expectations rise, which 0:03:05.639 --> 0:03:08.840 they have been recently in the is priced and market 0:03:09.400 --> 0:03:13.320 that means really ill to go down. Robert, What does 0:03:13.360 --> 0:03:15.440 a cautious stance mean at a time when there is 0:03:15.520 --> 0:03:19.120 discretion in markets where you have the best quality assets 0:03:19.120 --> 0:03:23.240 with extremely high prices and the riskiest assets the ones 0:03:23.280 --> 0:03:26.760 where you see companies closest to default priced as such, 0:03:27.040 --> 0:03:31.280 how are you cautious in this environment? So what we 0:03:31.560 --> 0:03:34.120 get what we would advocate is you know, own what 0:03:34.280 --> 0:03:37.040 the FED is buying or what the central banks are buying. 0:03:37.040 --> 0:03:39.080 So in Europe that is corporate bonds. In the US 0:03:39.160 --> 0:03:43.280 here it is i g. It is mortgages because those 0:03:43.320 --> 0:03:46.640 assets you know, will be supported the central banks are 0:03:46.800 --> 0:03:51.480 driving that. We're a little bit more cautious on assets 0:03:51.520 --> 0:03:55.600 that are more dependent upon the economic recovery. So the 0:03:55.640 --> 0:03:58.960 economic recovery we clearly bottomed. I think some good news 0:03:58.960 --> 0:04:00.880 in our view is that we've on a little bit 0:04:01.320 --> 0:04:04.200 you know less down in the United States and in 0:04:04.280 --> 0:04:06.200 terms of the economy that didn't dip quite as much 0:04:06.240 --> 0:04:10.119 as we were fearing. Um. But this open reopening processes 0:04:10.160 --> 0:04:12.080 and train. But it is not clear to us at 0:04:12.080 --> 0:04:14.800 all how this reopening process is going to go, especially 0:04:14.800 --> 0:04:18.200 given the viral pickups track pickup that we've seen in 0:04:18.279 --> 0:04:23.440 some states recently. Rob Lasa touches on something really really important. 0:04:23.480 --> 0:04:26.599 Now everybody is crowding into the same trades. You're not 0:04:26.640 --> 0:04:28.080 the first, you won't be the last to come on 0:04:28.120 --> 0:04:30.520 this program and talk about following the FED coming against 0:04:30.520 --> 0:04:33.800 the US investment grade, do you need to think about 0:04:33.839 --> 0:04:40.800 redefining what is considered safe in this market? Well, you 0:04:40.880 --> 0:04:44.560 know the I'm sure that if I when I came 0:04:44.560 --> 0:04:46.400 on the program the last time, I would have said 0:04:46.440 --> 0:04:48.520 exactly that, which is by what the FED is buying. 0:04:49.080 --> 0:04:52.080 And you know the fact is that in June that worked. UM. 0:04:52.120 --> 0:04:54.360 In June that worked. We think probably in July that 0:04:54.400 --> 0:04:58.720 will continue to work. UM. Redefining what is safe? Uh? 0:04:58.920 --> 0:05:02.559 You know that that the fundamental problem for the market here, John, 0:05:02.600 --> 0:05:05.600 because uh, you know, the safe asset now has very 0:05:05.680 --> 0:05:08.200 very little yield to it. So as we think about 0:05:08.200 --> 0:05:10.960 building portfolios, and I think there's a portfolio construction question 0:05:11.240 --> 0:05:15.599 really right, But with with such a low rate of 0:05:15.720 --> 0:05:18.119 yield for the risk free asset, we need to think 0:05:18.640 --> 0:05:21.440 about other assets that we can use to support that. 0:05:21.560 --> 0:05:25.120 And again, investment grade bonds, uh, you know, spreads and 0:05:25.360 --> 0:05:29.640 one forty over right now, um investment grade bonds where 0:05:29.839 --> 0:05:35.080 we did the risk of imminent default is not there. Um, 0:05:35.279 --> 0:05:37.680 the volatility comes and spread and the FED is in 0:05:37.800 --> 0:05:40.960 managing that volatility. That seems like a pretty safe asset 0:05:41.080 --> 0:05:46.200 to us, Rob, Where's the unsafe asset? I mean the 0:05:46.279 --> 0:05:49.559 real question here is I get I get the idea 0:05:49.560 --> 0:05:52.000 of I G but where do I not want to 0:05:52.040 --> 0:05:57.240 be in fixed income? Well? You know, I think the 0:05:57.240 --> 0:05:59.360 things that that you might want to be that that 0:05:59.520 --> 0:06:02.560 require so rather than say don't want to be there, 0:06:02.560 --> 0:06:04.760 where you really have to do your fundamental work is 0:06:04.760 --> 0:06:08.080 is in assets that are more directly tied to specific 0:06:08.200 --> 0:06:11.000 sectors of the economy. So we know, for instance, the 0:06:11.080 --> 0:06:12.840 you know, the high yield default rate is picked up. 0:06:12.920 --> 0:06:14.919 We're what running about three and a half percent I 0:06:14.920 --> 0:06:18.320 think now, and how yield defaults. That's not a big number, um, 0:06:18.440 --> 0:06:21.760 but there are hidden in that, there are idiosyncratic issues. 0:06:22.279 --> 0:06:24.080 We know the defaults have picked up an energy and 0:06:24.080 --> 0:06:26.320 a couple of other sectors. So you know what we 0:06:26.360 --> 0:06:29.560 would say, Tom, is those things that are that are 0:06:29.600 --> 0:06:33.480 tied more directly to the economic outcomes we need to be. 0:06:33.600 --> 0:06:37.599 You need to do your homework on John. I find 0:06:37.600 --> 0:06:40.440 this conversation so interesting because to your point you're talking 0:06:40.480 --> 0:06:43.360 about earlier, a lot of people are following the FED. 0:06:43.400 --> 0:06:45.440 Initially it was trying to front run the FED. Now 0:06:45.440 --> 0:06:47.840 it's don't fight the FED and follow the FED. And 0:06:47.839 --> 0:06:51.640 you're seeing this and flows incoming into the biggest investment 0:06:51.640 --> 0:06:53.400 grade corporate e t F. I just want to give 0:06:53.440 --> 0:06:56.200 you this nugget. There has been one point two billion 0:06:56.279 --> 0:06:59.600 dollars put into this fund in the past week alone. 0:07:00.000 --> 0:07:02.680 With them, they're two hundred and two million dollars put overnight. 0:07:03.040 --> 0:07:05.960 This trend has not gone away, and it does raise 0:07:05.960 --> 0:07:08.679 a question, John, at what point has a FED fully 0:07:08.720 --> 0:07:10.880 been priced in? And are they going to be unwilling 0:07:10.920 --> 0:07:13.640 to continue to backstop credit markets? And how does that 0:07:13.720 --> 0:07:17.800 rearrange what we are going to see going forward? At 0:07:17.880 --> 0:07:20.120 least there's an important question, and I think Rob's addressing 0:07:20.120 --> 0:07:23.280 the portfolio construction component of that question. I think it's 0:07:23.280 --> 0:07:26.440 really important Rob, in the next draw down, in the 0:07:26.480 --> 0:07:29.520 next downturn, what's going to give me that downside protection? 0:07:29.520 --> 0:07:32.760 And my portfolio with ten years try some real it's 0:07:32.840 --> 0:07:36.440 just stuck between ten, say sixty to seventy basis points 0:07:36.440 --> 0:07:40.880 on a ten year. Well we make a great point, Johnathan, 0:07:40.920 --> 0:07:43.720 which is that that you know, there's less there's obviously 0:07:43.800 --> 0:07:47.360 much less downside for yields in portfolios right now. So 0:07:47.400 --> 0:07:49.320 you have to be a little bit more sophisticated now 0:07:49.360 --> 0:07:53.400 you build your portfolio. And again, uh, you know, investigrade 0:07:53.480 --> 0:07:56.720 is a good is a good way to think about, uh, 0:07:57.160 --> 0:08:02.240 adding some safety. But you traditional way of using treasuries 0:08:02.280 --> 0:08:05.840 as your risk free asset to your point is valid, 0:08:05.880 --> 0:08:09.440 which is there's much less downside available and yields right now, 0:08:09.480 --> 0:08:14.000 so much less underlying protection. If you like Rob, always 0:08:14.000 --> 0:08:16.080 appreciate your time, sir. I'll best that the team I've 0:08:16.080 --> 0:08:29.720 read of robball into that off Investco advices right now, 0:08:29.840 --> 0:08:33.000 get out the calendar. It is July, and it is 0:08:33.080 --> 0:08:37.120 July ish on the way too well, you know earning season. 0:08:37.600 --> 0:08:40.520 It is total chaos. But we need perspective. When we 0:08:40.559 --> 0:08:44.080 get that from the Bank of America and their equity strategist, 0:08:44.120 --> 0:08:47.120 Chill carry Hall, Jill. There's eight ways to go here, 0:08:47.120 --> 0:08:49.720 and I love the detail of your research. Note given 0:08:49.760 --> 0:08:53.319 the present chaos, I want to go to somewhat minutia, 0:08:53.880 --> 0:08:59.520 which is the wiggle room corporations have with capital expenditures. 0:09:00.000 --> 0:09:03.119 The way they do this is they reduced them in crisis. 0:09:03.600 --> 0:09:08.760 Is that's what's happening now, hieah, thanks for having me. Definitely, 0:09:08.800 --> 0:09:13.080 we're seeing that, um, you know, overall corporate cash deployment 0:09:13.280 --> 0:09:18.640 has come down. We've seen about the spending buy backs, 0:09:18.640 --> 0:09:20.880 We've seen a little over ten percent of the index 0:09:20.960 --> 0:09:24.200 of spending dividends. And then capex has really been an 0:09:24.240 --> 0:09:28.280 area that that corporations have cut back on UM. When 0:09:28.320 --> 0:09:30.760 when we look at you know, what happened last quarter 0:09:30.960 --> 0:09:35.120 capex spending was it was essentially flatish UM, and then 0:09:35.440 --> 0:09:37.720 the quarter week you think it will continue to remain 0:09:37.760 --> 0:09:41.600 week when we look at capex guidance, which some companies 0:09:41.640 --> 0:09:46.320 will give on their plans spending, that's been extremely weak. Um. 0:09:46.360 --> 0:09:48.679 You have very few companies you know giving it now 0:09:48.720 --> 0:09:51.719 to begin with, is overall guidance has here but for 0:09:51.840 --> 0:09:54.600 the one the ones that are, it's you know, pretty 0:09:54.600 --> 0:09:57.280 close to two thousand nine levels. So they're sort of 0:09:57.320 --> 0:09:59.839 that disconnect between the improvement we've seen in the i 0:10:00.120 --> 0:10:05.600 SM and just very negative. What I note, Jill is 0:10:05.720 --> 0:10:09.520 Mr Buffett and Berkshire Hathaway take out Dominion and Dominion 0:10:09.640 --> 0:10:12.679 is actually going to deploy the billions. So Mr Buffett 0:10:13.000 --> 0:10:16.880 over to a more conservative tone on their balance sheet. 0:10:17.160 --> 0:10:22.520 Would you expect that to happen throughout all of corporate America? Well, 0:10:22.520 --> 0:10:24.360 I think what we've seen when you look at you know, 0:10:24.400 --> 0:10:28.160 the Bank of America Global Fund Managers survey, investors have 0:10:28.280 --> 0:10:32.000 really honed in on companies balance sheets. Um. There's a 0:10:32.000 --> 0:10:36.480 lot of leverage out there, particularly down the market cap spectrum. 0:10:36.760 --> 0:10:40.840 So investors have been wanting companies to use their excess 0:10:40.880 --> 0:10:45.559 cash to clean up their balance sheets over other cash uses. 0:10:45.720 --> 0:10:49.240 Now we have been in the lackluster capex environment, so 0:10:49.600 --> 0:10:51.320 you know, I think there is sort of a demand 0:10:51.400 --> 0:10:54.079 for that as well. You know, where where companies can 0:10:54.280 --> 0:10:57.640 invest in areas that it makes sense UM and and 0:10:57.720 --> 0:11:02.640 certainly that that's beneficiary for for companies UM, whether it's 0:11:02.679 --> 0:11:07.240 tech capex or more traditional industrial capex UM. But I 0:11:07.280 --> 0:11:09.720 think right now a lot of companies are really being 0:11:09.760 --> 0:11:15.160 cautious on undeploying big projects given the uncertain environment. UM. So, 0:11:15.160 --> 0:11:18.439 so we're not looking for a big cap XCHUME this year, 0:11:18.480 --> 0:11:22.720 but but certainly if UM economic conditions continue to to improve, 0:11:22.760 --> 0:11:25.480 we'll be watching the guidance closely to to see effects. 0:11:25.520 --> 0:11:29.240 Suggest to pick up Joe. We're sitting that this morning, 0:11:29.240 --> 0:11:31.760 Walgreen's coming out kind of have a full thousand jobs, 0:11:31.800 --> 0:11:34.760 suspending the ship buy backs. So yesterday evening bet Bath 0:11:34.840 --> 0:11:38.160 and beyond cutting stores as well. We say this every 0:11:38.200 --> 0:11:41.960 single day. Is this why you think we need to 0:11:41.960 --> 0:11:45.520 own the mega cap stocks with the strongest balance sheets 0:11:45.640 --> 0:11:48.559 versus the small cap stocks with something a little bit 0:11:48.559 --> 0:11:52.880 more frati alebernate the surface. Yeah, so we continue to 0:11:53.240 --> 0:11:56.920 prefer larger were small cops right now, I think, you know, overall, 0:11:57.160 --> 0:12:00.120 the fundamental backdrop is so much we grew down the 0:12:00.160 --> 0:12:03.240 cap spectrums. So this this sarning season which kicks off 0:12:03.320 --> 0:12:08.760 next week, large cap earnings should fall about every year UM. 0:12:08.920 --> 0:12:11.280 Small cap earnings are going to be falling a lot 0:12:11.320 --> 0:12:14.280 greater analysts are looking for about you know, dred percent 0:12:14.400 --> 0:12:17.840 you're your decline and earnings for small caps UM. So 0:12:18.080 --> 0:12:22.560 So even though UM, you know, recovery certainly benefits small caps, 0:12:22.640 --> 0:12:26.040 if we we see a more sustainable recovery and we 0:12:26.080 --> 0:12:29.720 stop seeing a pickup in cases, that that could be positive. 0:12:29.800 --> 0:12:32.280 But obviously the fact that UM, you know, there's a 0:12:32.280 --> 0:12:35.600 lot of fear right now about the rising cases UM. 0:12:35.640 --> 0:12:38.840 Small caps have been generally underperforming again since the early 0:12:38.960 --> 0:12:43.000 June escalating trade tensions or another risk there and one 0:12:43.000 --> 0:12:47.320 of the key reasons smaller stocks underperformed in in so 0:12:47.640 --> 0:12:51.320 you also have really expensive valuations not across the cap spectrum, 0:12:51.360 --> 0:12:53.480 but for small and mid caps there at at record 0:12:53.559 --> 0:12:56.400 highs right now UM. And and a lot of the 0:12:56.440 --> 0:13:00.119 economic data on reopening suggests you're starting to see stalling 0:13:00.240 --> 0:13:04.000 or decelerating trends for small businesses. So um, you know, 0:13:04.040 --> 0:13:07.120 as you mentioned, balance sheets are a lot cleaner for 0:13:07.120 --> 0:13:10.600 for larger stocks. You have a lot higher quality for 0:13:10.600 --> 0:13:14.280 for the SMP five relative to small cap benchmarks. So 0:13:15.120 --> 0:13:17.840 you know that that's still something we're thinking about right now. 0:13:17.840 --> 0:13:20.560 But but certainly if you are an investor in small caps, 0:13:20.960 --> 0:13:23.640 still opportunities that you know, if we do see a 0:13:23.640 --> 0:13:27.600 bit of a tactical rotation into into value, um, you 0:13:27.600 --> 0:13:30.600 know that that's something we expect could work across the market. 0:13:30.720 --> 0:13:34.360 But but being more selective within small caps makes sense. 0:13:34.600 --> 0:13:37.440 I just given that that a lot of the value 0:13:37.480 --> 0:13:40.880 stocks within small caps have been become increasingly synonymous with 0:13:41.080 --> 0:13:45.760 with leverage and risk. Jill, your comments make a lot 0:13:45.800 --> 0:13:48.320 of sense. Your caution makes a lot of sense with 0:13:48.480 --> 0:13:51.680 the bigger picture of the pandemic and the accelerating job 0:13:51.760 --> 0:13:55.240 losses in some sectors. At the same time, valuations have 0:13:55.360 --> 0:13:57.600 reflected this. And there's a theory out there put out 0:13:57.600 --> 0:14:00.680 by JP Morgan that really the surp eyes could be 0:14:00.760 --> 0:14:03.280 to the upside if we get a stalling out of 0:14:03.280 --> 0:14:06.280 the pandemic or better than expected data, and you could 0:14:06.320 --> 0:14:09.559 see the small caps rally and some of the larger 0:14:09.600 --> 0:14:13.600 caps the mega tech stocks sell off given where valuations are, 0:14:14.000 --> 0:14:18.160 Why is that flawed in your opinion? Well, I think 0:14:18.200 --> 0:14:21.680 if we if we do see a much more sustainable recovery. 0:14:22.000 --> 0:14:24.200 You know that that is when when we've looked at 0:14:24.240 --> 0:14:27.720 size and style performance, you do tend to see UM 0:14:27.840 --> 0:14:31.720 small cap stocks. Value stocks tend to rally during those 0:14:31.920 --> 0:14:35.800 those early recovery stages of the cycle. So we obviously 0:14:35.840 --> 0:14:38.720 saw some early innings of that, and now that's that's 0:14:38.720 --> 0:14:41.280 called into question. You know, I think one risk this 0:14:41.320 --> 0:14:43.840 time is that small caps were just a lot worse 0:14:44.000 --> 0:14:48.000 position going into this crisis than they were going into 0:14:48.040 --> 0:14:50.960 a lot of the prior recessions. UM. You know, they 0:14:51.000 --> 0:14:54.200 had record leverage ratios that they've never had before. They've 0:14:54.240 --> 0:14:59.040 benefited from uh keewee and all the actors to cheap capital. Um. 0:14:59.240 --> 0:15:01.160 You know, there are a lot of or quality today. 0:15:01.280 --> 0:15:04.680 So and it's a crisis that hurts small businesses. So 0:15:04.720 --> 0:15:07.400 I think there's some additional risks there as well as 0:15:07.440 --> 0:15:12.360 around trunk Jill Jill, this is a huge deal. Come on, 0:15:12.400 --> 0:15:15.280 We've got this company boot John Farrell mentioned Boots out 0:15:15.280 --> 0:15:18.240 with layoffs. We got Walgreens with layoffs, and on and on. 0:15:18.280 --> 0:15:20.600 And on there's gonna be a job curnage out there, 0:15:20.800 --> 0:15:23.760 the chances of the exchequers spoke about it yesterday. Vice 0:15:23.800 --> 0:15:26.360 President Biden is going to speak about it today. What 0:15:26.560 --> 0:15:30.120 is the elasticity of those job cuts to the revenue 0:15:30.160 --> 0:15:33.200 line of small, mid and large cap? The answer is 0:15:33.240 --> 0:15:38.600 small cap is gonna get absolutely crushed on this, right. Yeah. 0:15:38.600 --> 0:15:41.360 I mean, I think the labor market backdrop and like 0:15:41.400 --> 0:15:43.880 I said that, the data we've been seeing kind of 0:15:44.040 --> 0:15:47.160 stalling and decelerating for small businesses is a big risk. 0:15:47.320 --> 0:15:50.360 And you know, overall for for the market, we think 0:15:50.400 --> 0:15:52.480 there's a lot of risk of you know, just pay 0:15:52.800 --> 0:15:54.880 risk because we've seen all the stimulus and moving on 0:15:55.040 --> 0:15:57.720 into your end and then as if soolatility picks up 0:15:57.760 --> 0:16:01.480 around the election. So you know, we're at this point, 0:16:01.680 --> 0:16:04.800 we're even for the SMP five hundred, the markets treating 0:16:04.840 --> 0:16:09.520 above targets for a year end. So um, so we're 0:16:09.520 --> 0:16:12.200 more neutral on equities at this point and think it 0:16:12.280 --> 0:16:16.360 makes sense for investors. So it's really kind of picture spots. Okay, 0:16:16.400 --> 0:16:19.240 the one final question then, and folks, I'm distraught this 0:16:19.280 --> 0:16:22.280 morning because I have my pasta maker on order at 0:16:22.320 --> 0:16:25.160 sir La Tabla and they announced are going bankrupt this 0:16:25.200 --> 0:16:27.360 morning or last night or whatever. And I'm never able 0:16:27.360 --> 0:16:29.640 to make a pasta to have Faraoh over. So you 0:16:29.640 --> 0:16:33.240 can get some really good quality Tom Kinge Italian pasta. 0:16:33.600 --> 0:16:36.240 That's all great, but it's gonna come in an Amazon box. 0:16:36.800 --> 0:16:41.080 What does the capex reduction? What do the job layoffs 0:16:41.120 --> 0:16:44.760 do to the top line fundamentals of Apple and Amazon 0:16:44.840 --> 0:16:49.520 and the others. Are they immune from this dynamic? Well, 0:16:49.520 --> 0:16:52.240 I think you know, and and Amazon and some of 0:16:52.240 --> 0:16:55.120 those companies are are actually the ones that have been 0:16:55.240 --> 0:16:58.680 been the cap ex spenders during this current crisis and 0:16:58.760 --> 0:17:01.920 kind of keeping SMP five hundred capex positive as all 0:17:01.960 --> 0:17:06.600 of the commodity oriented areas have cut back significantly. Um. 0:17:06.720 --> 0:17:11.040 But but then in terms of capex beneficiaries, you've certainly 0:17:11.080 --> 0:17:14.120 seen kind of a slowdown across the board in terms 0:17:14.200 --> 0:17:18.600 of both more cyclical capex spending from the commodity complex 0:17:18.640 --> 0:17:21.439 and then overall spending on tech. But but if we 0:17:21.520 --> 0:17:24.399 are in a more permanent, you know, work from home 0:17:24.520 --> 0:17:28.800 type of environment, certainly some of the mega cap tech 0:17:28.840 --> 0:17:32.240 companies have benefited. We're we're equal weight tech overall. We 0:17:32.320 --> 0:17:36.680 think tech looks very positive fundamentally strong balance sheets. Um. 0:17:37.160 --> 0:17:40.960 But but obviously that's one sector where there could potentially 0:17:40.960 --> 0:17:44.359 be regulatory risks. Um that the tech has largely escaped 0:17:44.400 --> 0:17:46.840 up until this point. Um. So as we go into 0:17:46.840 --> 0:17:49.000 the election, that's, you know, one of the reasons we've 0:17:49.040 --> 0:17:51.800 just been equal weight. Uh. In addition to obviously the 0:17:52.119 --> 0:17:56.199 very strong run it's had. Joe brilliant catching up with 0:17:56.200 --> 0:17:58.600 you as always, love hearing from you, My best to you. 0:17:58.720 --> 0:18:01.320 Entertainment Banks America they like to surbata for us as well. 0:18:01.359 --> 0:18:12.720 Do you carry hold that off Bank of America to 0:18:12.760 --> 0:18:15.480 give us perspective in the dynamic here and particularly to 0:18:15.520 --> 0:18:19.760 get to August Michael Gape and joined some Barclay's capital. Michael, 0:18:19.800 --> 0:18:23.320 do you have any ability to forecast estimate a judge 0:18:23.400 --> 0:18:27.640 August right now? Not a lot. I think that we would, 0:18:27.800 --> 0:18:30.760 as Jonathan said, give a little more credibility to some 0:18:30.920 --> 0:18:35.240 of these high frequency mobility data's restaurant bookings. I've in 0:18:35.320 --> 0:18:39.359 particular watch the Dallas FEDS Mobility and Engagement Index. The 0:18:39.440 --> 0:18:42.080 claims data just don't have as clear of a signal 0:18:42.119 --> 0:18:44.639 For all the reasons that you've discussed in recent weeks, 0:18:44.640 --> 0:18:48.520 including backlogs and processing, and we're in this very strange 0:18:48.560 --> 0:18:51.720 situation where where the separation side of the labor market 0:18:51.800 --> 0:18:54.200 is still bad, but claims really only tell us about 0:18:54.480 --> 0:18:57.040 half the story. The other half has been a tremendous 0:18:57.119 --> 0:18:59.760 pick up in in the hiring rates. So we're in 0:18:59.760 --> 0:19:02.640 this odd period where we can have a high level 0:19:02.680 --> 0:19:06.560 of claims, unusually extraordinarily high level of claims, but still 0:19:06.600 --> 0:19:09.440 have an improving labor market. So August, I think it's 0:19:09.480 --> 0:19:13.320 probably more more about COVID cases, a willingness to move 0:19:13.359 --> 0:19:16.399 around still, not so much about what the labor market 0:19:16.440 --> 0:19:21.080 is saying today. And what's so important that insight, folks, 0:19:21.119 --> 0:19:23.560 is from Dr Gape and the idea of claims being 0:19:23.600 --> 0:19:26.439 a one sided view. Can there be a one or 0:19:26.520 --> 0:19:30.040 two or even three sided view of the distinction between 0:19:30.119 --> 0:19:35.040 furloughs and layoffs and firings in the short run yes, 0:19:35.359 --> 0:19:38.080 Somewhere in the long run no. And so there's this 0:19:38.200 --> 0:19:41.280 tension in labor markets, as you know, where where most 0:19:41.359 --> 0:19:44.960 the vast majority of people unemployed right now consider themselves 0:19:44.960 --> 0:19:49.000 temporarily unemployed. But as we've seen, even though the labor 0:19:49.040 --> 0:19:52.280 market has been improving and the number of unemployed has 0:19:52.320 --> 0:19:56.399 come down, a greater share of those layoffs are unemployed 0:19:56.400 --> 0:20:00.000 are now starting to be booked as more permanent unemployments. 0:20:00.040 --> 0:20:04.119 So as as this gets prolonged into August, September, and October, 0:20:04.359 --> 0:20:06.800 I think no, there's there's that difference is just a 0:20:06.960 --> 0:20:10.960 name only, and we risk a temporary unemployed worker turning 0:20:11.000 --> 0:20:14.320 into a long term unemployed worker. And that's the scarring 0:20:14.400 --> 0:20:16.720 that the Federal Reserve, of course, is trying to avoid, 0:20:18.240 --> 0:20:20.000 and we're seeing that in the numbers. Michael, the churn. 0:20:20.040 --> 0:20:22.879 Beneath the surface, the net change is positive, but beneath 0:20:22.920 --> 0:20:25.480 the surface, we're starting to see permanent layoffs build again. 0:20:25.720 --> 0:20:27.800 We've had so many different companies in the last twenty 0:20:27.800 --> 0:20:31.560 four hours announced job cuts, store closures, the worries about 0:20:31.600 --> 0:20:34.040 the second wave of layoffs. Are we starting to see 0:20:34.040 --> 0:20:37.800 evidence of it? Yes? Absolutely. I think there's been a 0:20:37.880 --> 0:20:42.280 narrative that that says that business models under pressure. Retail 0:20:42.400 --> 0:20:45.679 is the most obvious case of this, that if firms 0:20:45.720 --> 0:20:49.080 we're thinking of making major transformations over two to three 0:20:49.160 --> 0:20:52.720 year horizon, that those would be brought forward. So COVID 0:20:52.800 --> 0:20:55.600 is accelerating some of those structural changes, and I think 0:20:55.640 --> 0:20:58.040 what you're seeing now is firms have had several months 0:20:58.320 --> 0:21:01.960 to assess the state of play. They're now making plans, 0:21:02.160 --> 0:21:04.840 and so we're getting some some word and some releases 0:21:04.880 --> 0:21:07.680 that those those plans include more layoffs. I think those 0:21:07.680 --> 0:21:10.919 are probably layoffs that are being brought forward relative to 0:21:10.920 --> 0:21:15.719 where plans would have stood in January and February. Michael, 0:21:16.040 --> 0:21:18.919 some analysts and some traders would say economists are just 0:21:19.000 --> 0:21:21.000 being chicken little right now. And you're seeing this in 0:21:21.000 --> 0:21:23.480 the economic surprise Index in the United States, which is 0:21:23.480 --> 0:21:26.959 surging to a record high as economist projections come in 0:21:27.320 --> 0:21:31.080 too low again and again and again, and certainly today 0:21:31.240 --> 0:21:34.280 with the jobs report. Do you take that as a 0:21:34.320 --> 0:21:37.800 sign that economists are being too pessimistic and it's sort 0:21:37.840 --> 0:21:41.040 of accounting for a greater amount of permanent layoffs in 0:21:41.080 --> 0:21:43.639 the market really will sustain or do you view this 0:21:43.720 --> 0:21:45.840 as just how difficult it is to gauge a labor 0:21:45.880 --> 0:21:50.040 market in such dramatic flux. Well, I'm six nine, so 0:21:50.080 --> 0:21:53.000 I've never really been described as as little um. But 0:21:53.720 --> 0:21:55.919 the way that I look at this is we I mean, yes, 0:21:56.080 --> 0:21:58.840 it is true that we've been surprised to the upside, 0:21:59.200 --> 0:22:01.760 but it's my view it's been mainly on the good 0:22:01.800 --> 0:22:04.639 side of the economy. The good sector can rebound quickly. 0:22:05.280 --> 0:22:07.560 It has been the case that that has happened has 0:22:07.600 --> 0:22:11.399 happened in the US, and globally, spending by households on 0:22:11.520 --> 0:22:13.960 goods is only a little bit short of where it 0:22:14.119 --> 0:22:18.239 was in February. That's rebounded from here, though, is if 0:22:18.680 --> 0:22:21.119 the rest of the economy is going to recover and 0:22:21.119 --> 0:22:24.119 we're going to get continued upside surprises, it had to 0:22:24.200 --> 0:22:27.160 come out of services. So while the good sectors recovered 0:22:27.160 --> 0:22:29.600 about half of the lost jobs that we saw in 0:22:29.640 --> 0:22:32.920 March and April, the service sectors only recovered about a third. 0:22:33.000 --> 0:22:35.240 So I think it's what we're seeing at the moment, 0:22:35.400 --> 0:22:39.440 is the good sector rebounding quickly. Economists are still thinking 0:22:39.480 --> 0:22:41.480 a little bit more longer term about well, this is 0:22:41.480 --> 0:22:45.560 a service oriented economy. It's roughly seventy percent of where 0:22:45.560 --> 0:22:48.119 the economy is going, and there's still a lot of 0:22:48.200 --> 0:22:51.000 after effects from COVID that could affect the services sector. 0:22:51.040 --> 0:22:53.080 So I think we're thinking a little more longer term. 0:22:53.560 --> 0:22:56.159