WEBVTT - Volatility From Voting 0:00:00.440 --> 0:00:03.920 Strap on your parachute. It's time for What Goes Up 0:00:04.120 --> 0:00:13.800 with Sarah Ponzick and Mike Reagan. Hello and welcome to 0:00:13.840 --> 0:00:17.759 What goes Up, a Bloomberg Weekly Markets podcast. I'm Sarah Ponza, 0:00:18.079 --> 0:00:20.960 reporter on the Cross Asset team, and I'm Mike Reagan, 0:00:21.120 --> 0:00:23.759 a senior editor at Bloomberg. This week on the show, 0:00:23.920 --> 0:00:26.800 the last time our guests joined us was in early March. 0:00:27.280 --> 0:00:29.440 The SMP five hundred had fallen a little bit more 0:00:29.480 --> 0:00:31.800 than ten percent at the time. We were all still 0:00:31.840 --> 0:00:34.760 in the office together and he said, in essence, belows 0:00:34.880 --> 0:00:39.240 aren't in until DC starts to panic, will stricter social 0:00:39.320 --> 0:00:43.120 isolation measures then took cold, stocks tumbled, and trillions and 0:00:43.240 --> 0:00:46.680 economic stimulus came from Washington and the Fed. Now the 0:00:46.760 --> 0:00:49.680 sp F DRED has risen more than fifty percent since, 0:00:49.960 --> 0:00:54.240 and we'll discuss what's next for markets, fiscal and monetary policy, 0:00:54.880 --> 0:00:58.080 and as always, will close out the episode with our tradition, 0:00:58.240 --> 0:01:02.000 the craziest thing I saw in markets this week? Now, Sarah, 0:01:02.040 --> 0:01:06.520 I was chatting with our chief Crazy Things correspondent, Vildonna 0:01:06.600 --> 0:01:10.119 Hirick before this show, and she's back to giving you 0:01:10.160 --> 0:01:13.640 exclusively all the craziest things she sees. I thought you 0:01:13.680 --> 0:01:15.120 were going to say that she gave you one. I'm 0:01:15.120 --> 0:01:17.920 going to say that she doubled up then and vil 0:01:17.920 --> 0:01:20.679 Donna just needs her own show that because she's just 0:01:20.760 --> 0:01:24.480 coming up with multiple a week. It's it's honestly pretty impressive. 0:01:24.760 --> 0:01:26.560 And she's very proud of this when she said she 0:01:26.720 --> 0:01:29.479 might be her best ever, So you guys should be proud. 0:01:29.760 --> 0:01:31.320 I'm want to say that I think she knows where 0:01:31.319 --> 0:01:35.399 her loyalty lives. Yeah, I'm just gonna break the news 0:01:35.440 --> 0:01:38.680 to you early though that mine's better. So all right, 0:01:38.720 --> 0:01:43.600 you proud as you want. But as you said, uh, Sarah, 0:01:43.720 --> 0:01:47.240 this guest this week was last on the show in March, 0:01:47.640 --> 0:01:49.440 and you know what I was thinking about recently. Do 0:01:49.520 --> 0:01:55.160 you remember your last handshake with someone before the virus lockdown? 0:01:55.600 --> 0:01:58.200 I really don't. Was our guest to your last hand show? 0:01:58.240 --> 0:01:59.920 I think he was. I think he was, and I 0:02:00.000 --> 0:02:02.120 remember when I met him and we both it's like 0:02:02.160 --> 0:02:04.280 a reflex, you both shake hands, and then I think 0:02:04.320 --> 0:02:06.440 we both were like, wait, maybe we shouldn't be shaking hands, 0:02:06.840 --> 0:02:08.639 but that was that was it. He might go down 0:02:08.720 --> 0:02:10.840 as my last hand shake ever. I'm not sure I'll 0:02:10.880 --> 0:02:13.519 ever be comfortable enough to shake it. I don't know 0:02:13.560 --> 0:02:16.240 if I even remember how to shake some I do 0:02:16.320 --> 0:02:20.960 like a right kind of like a little sleep. But anyway, 0:02:21.080 --> 0:02:23.160 very happy I'm back on the show. As you said, 0:02:23.160 --> 0:02:25.600 he made some great calls I think in the last 0:02:25.600 --> 0:02:28.480 time he was on in March. His name is novel 0:02:28.600 --> 0:02:31.960 Son Noula and he is the chief macro strategist at 0:02:31.960 --> 0:02:36.400 the hedge Fund e i A All Weather Alpha Partners NFL. 0:02:36.440 --> 0:02:38.480 Welcome back to the show. Thank you so much for 0:02:38.520 --> 0:02:41.239 having me again, Mike. And you know, it's always a 0:02:41.240 --> 0:02:43.400 pleasure that chat was the last person that you shok it. 0:02:44.480 --> 0:02:47.960 That's absolutely right. The other fun thing, yeah, it is. 0:02:48.040 --> 0:02:50.160 It's a very it's a very special bond. We also 0:02:50.280 --> 0:02:53.760 bonded over that episode by making fun of Luke Lukawa 0:02:53.919 --> 0:02:56.200 pretty vigorously in that I don't think we can do 0:02:56.240 --> 0:02:59.280 that again. He's not here to defend himself, so I 0:02:59.280 --> 0:03:01.440 don't know I would feel bad making fun of Luke 0:03:01.600 --> 0:03:04.440 next time. We'll try to get them back on here. 0:03:04.480 --> 0:03:07.359 But uh, but now let's start with the big news 0:03:07.440 --> 0:03:10.839 of the week. It was obviously Jerome Pal's speech at 0:03:10.880 --> 0:03:16.400 the Virtual Jackson Hole summit of the Federal Reserve. Any Basically, 0:03:16.480 --> 0:03:19.800 the headlines were that the Fed appears to be willing 0:03:20.360 --> 0:03:24.600 to let both inflation run a little hotter than two 0:03:24.639 --> 0:03:27.480 percent and also for the to allow the job market 0:03:27.560 --> 0:03:29.840 to sort of get a little bit hotter. They're not 0:03:29.880 --> 0:03:33.279 worried about the Phillips curve and sort of the the 0:03:33.320 --> 0:03:36.600 strength of the job market, how that will affect inflation 0:03:36.640 --> 0:03:39.040 as much as they once were. What are your sort 0:03:39.080 --> 0:03:43.280 of main takeaways, uh from the Chairman pal speech and 0:03:43.360 --> 0:03:46.400 sort of how it's, if at all it will influence 0:03:46.440 --> 0:03:49.240 the way you're looking at markets going forward. Now, you 0:03:49.240 --> 0:03:51.040 know what, if you don't mind, I'll start by taking 0:03:51.080 --> 0:03:54.080 us back to our last podcast actually and when you know, 0:03:54.440 --> 0:03:57.720 the view I kind of presented was social distancing is 0:03:57.720 --> 0:04:02.360 going to be a big deal to well economic momentum, 0:04:02.400 --> 0:04:07.120 and it's gonna require massive fiscal and monetary coordination in 0:04:07.240 --> 0:04:11.440 order to reflate assets to kind of provide the the 0:04:11.560 --> 0:04:16.120 income replacement and the market backstops um. So for for 0:04:16.160 --> 0:04:18.560 the for the global markets to weather the storm, however 0:04:18.600 --> 0:04:21.960 long it takes. We definitely got exactly that. You know, 0:04:22.000 --> 0:04:24.240 we got trillions of dollars of fiscal spending, and we 0:04:24.320 --> 0:04:27.560 had a FED that you know, was already along its 0:04:27.600 --> 0:04:31.200 path of its strategic policy review. That motivation behind that 0:04:31.279 --> 0:04:34.680 in the first place was to rethink, to rethink, are 0:04:34.720 --> 0:04:39.760 we short circuiting recoveries without necessarily needing to? And I 0:04:39.800 --> 0:04:43.679 think that the market had already been starting to condition 0:04:43.680 --> 0:04:46.240 towards that. COVID, like I did with a lot of 0:04:46.240 --> 0:04:49.560 other trends, really accelerated it and kind of pulled it 0:04:49.600 --> 0:04:52.360 all forward, and we got to a point where, you know, 0:04:52.920 --> 0:04:56.960 curves are very flat, very little yield left, and you know, 0:04:57.200 --> 0:05:00.600 the market basically saying, you know, the Fed's not gonna 0:05:00.600 --> 0:05:02.599 get gonna get in front of this or get ahead 0:05:02.600 --> 0:05:05.159 of this. They're gonna let it run. I consider that 0:05:05.279 --> 0:05:08.600 kind of chopping off the left tail of the distribution 0:05:09.200 --> 0:05:14.080 of both inflation and just generally growth. However, the question becomes, 0:05:14.120 --> 0:05:18.080 can be FED also open up the right tail. We've 0:05:18.200 --> 0:05:21.880 chopped off the left hail and distribution, we've limited deflation risk, 0:05:22.000 --> 0:05:24.920 we've we've prevented market crashes, and we've provided an income 0:05:24.960 --> 0:05:29.120 replacement from the substitution. But can it actually ignite at 0:05:29.160 --> 0:05:31.000 the right tail? Can it open up the right tail? 0:05:31.480 --> 0:05:34.080 I think that this seat by a chair. Powell at 0:05:34.160 --> 0:05:37.320 Jackson Hole was kind of just more so the codification 0:05:38.279 --> 0:05:41.200 of what the trend that's been kind of being priced 0:05:41.200 --> 0:05:43.440 in over the course of the last several months, if 0:05:43.480 --> 0:05:46.400 not even longer than that. And so now I think 0:05:46.400 --> 0:05:48.240 that this is kind of an event where a lot 0:05:48.279 --> 0:05:51.640 of folks like me are saying, Okay, I can kind 0:05:51.680 --> 0:05:54.400 of book my fed trades, I can kind of you know, 0:05:54.480 --> 0:05:56.760 that trade is kind of over, and now my my 0:05:56.960 --> 0:06:01.440 narrative shifts towards what can open up the kit. So 0:06:01.480 --> 0:06:04.400 then what can possibly open the right tail? And I 0:06:04.400 --> 0:06:07.120 think just the fact that we are talking about right 0:06:07.160 --> 0:06:10.440 tail risk right now at the point of where we 0:06:10.480 --> 0:06:12.120 are and what we've seen happen in markets over the 0:06:12.200 --> 0:06:15.400 last couple of months is just pretty amazing. Yeah, you know, 0:06:15.480 --> 0:06:17.640 it's funny because I've had of you for a long 0:06:17.760 --> 0:06:20.120 time that a lot of our economic outcomes are ultimately 0:06:20.160 --> 0:06:23.920 follows the choices because the things that typically would constrain 0:06:24.440 --> 0:06:28.400 massive discial spending, massive redistribution, massive subsidies, all these types 0:06:28.440 --> 0:06:31.360 of things typically what constrains as inflation. So if you're 0:06:31.360 --> 0:06:34.840 in a structurally disinflation disinflationary regime, as we have been 0:06:34.839 --> 0:06:37.760 in for decades, perhaps like the lion share of my life, 0:06:37.760 --> 0:06:40.320 how you fat it really is up being a policy choice, 0:06:40.360 --> 0:06:42.160 Like you can decide if you want, if you want 0:06:42.240 --> 0:06:45.039 freepers unemployment, there's a policy cocktail I can get you 0:06:45.040 --> 0:06:47.400 there three four seven employment. So the idea is that 0:06:47.640 --> 0:06:50.880 the in order to open up the right tail, you 0:06:50.960 --> 0:06:53.680 continue to do what we've been doing. Everyone's kind of surprised, 0:06:54.160 --> 0:06:57.600 um that the combination of the Cares Act plus the 0:06:57.760 --> 0:07:00.600 FED promising it wouldn't use the CARES as a reason 0:07:00.600 --> 0:07:03.159 to short circuit the recovery of the Cares Act, the 0:07:03.160 --> 0:07:06.080 fact that we have monetary christal coordination and fiscal dominance, 0:07:06.320 --> 0:07:07.800 it's not surprising to me that it was able to 0:07:07.800 --> 0:07:11.000 reflate the economy, and a surpris us so well, Um, 0:07:11.040 --> 0:07:12.400 there's a lot of places where it could have done 0:07:12.480 --> 0:07:15.200 much better, and there's a lot of big issues that remain, 0:07:15.360 --> 0:07:17.680 and you know, the whole k shaped recovery idea I 0:07:17.680 --> 0:07:20.920 think as alien, but generally speaking, I think it succeeded. 0:07:21.040 --> 0:07:23.560 And if that type of fiscal impulse would return into 0:07:23.600 --> 0:07:25.920 something that was a little bit more durable, something that 0:07:26.000 --> 0:07:29.360 was a little a little bit more not necessarily contingent 0:07:29.440 --> 0:07:34.320 upon crisis, and the FED continued to establish it's an 0:07:34.360 --> 0:07:38.160 implemented promise to not short circuit uh those impulses. And 0:07:38.160 --> 0:07:39.880 then I don't see why we couldn't open up the 0:07:39.960 --> 0:07:42.440 right tail. I don't anticipate us being able to open 0:07:42.560 --> 0:07:45.640 up inflationary risk to the point where its spires on itself. 0:07:45.920 --> 0:07:48.600 In my opinion, getting to you know, three or four 0:07:48.680 --> 0:07:52.760 percent inflation uh seven eight percent nominal girth to me 0:07:53.520 --> 0:07:56.040 um is likely to be just basically a politic choice. 0:07:56.080 --> 0:07:58.440 And and and that's why I think that these markets 0:07:58.440 --> 0:08:02.280 are so politically driven, They're so connected to politics that 0:08:02.400 --> 0:08:06.040 they used to be, because policy is driving everything. And 0:08:06.480 --> 0:08:09.440 we may have kind of crossed the rubicon um in Nicona. 0:08:27.440 --> 0:08:29.880 You know, it seems like we have seen a little 0:08:29.880 --> 0:08:33.360 bit of steepening in the treasury yield curve even before 0:08:33.360 --> 0:08:36.640 the Jackson whole speech, picking up somewhat after that. Is 0:08:36.679 --> 0:08:38.960 it a no brainer to think that steepening trend is 0:08:38.960 --> 0:08:41.640 gonna continue, or you know, will the FED to have 0:08:41.720 --> 0:08:44.600 something to say about that down the road at some point? 0:08:44.600 --> 0:08:47.560 I mean, is I guess is the notion of potential 0:08:47.640 --> 0:08:50.520 yield curve control from the Fed? Is that idea dead 0:08:50.640 --> 0:08:51.920 right now? Do you think or do you think it 0:08:52.000 --> 0:08:54.560 could be a topic we're talking about again in the future. 0:08:55.200 --> 0:08:57.079 So everyone I talked you think I'm crazy with my 0:08:57.120 --> 0:09:04.480 answer to this, But the idea is, especially on the show, 0:09:04.960 --> 0:09:08.120 I've been talking about yield for control type of policy sinceeding, 0:09:08.160 --> 0:09:10.559 before the boj Ample bent to the I always kind 0:09:10.559 --> 0:09:12.920 of brought it back to the World War Two for 0:09:13.040 --> 0:09:15.480 the fifties analog in the United States, and I think 0:09:15.480 --> 0:09:17.800 it's still remains salient. Um. The way I would frame 0:09:17.840 --> 0:09:19.760 my answer to your question would be to say that 0:09:20.120 --> 0:09:22.720 I think it's likely that if this type of dawn 0:09:22.800 --> 0:09:25.800 market action were to continue and persist, I wouldn't be 0:09:25.880 --> 0:09:30.640 surprised if the FED in September Epilepsy decided to do 0:09:30.720 --> 0:09:32.960 something along the lines of saying, either we're gonna upsize 0:09:33.040 --> 0:09:35.400 QUI or we're going to shift the composition of QUI 0:09:35.520 --> 0:09:38.040 toward long end purchases. You know, what's the point of 0:09:38.040 --> 0:09:40.680 buying the two years? What's the point of a point 0:09:40.679 --> 0:09:42.880 of buying the five year when you know those are 0:09:43.240 --> 0:09:45.720 you know, the Defense Promising Unit, they're basically just trading 0:09:45.840 --> 0:09:48.719 as funds, right, So UM, I would be surprised to 0:09:48.760 --> 0:09:51.960 see them come in with some sort of balance sheet 0:09:51.960 --> 0:09:55.439 policy to signal to the market that nope, you know, 0:09:55.640 --> 0:09:58.760 we're even even the little bit that we've stepen. No, 0:09:58.960 --> 0:10:00.960 we're not going to allow it to I think in 0:10:01.040 --> 0:10:02.959 order to get a yield care control type of policy, 0:10:03.040 --> 0:10:05.559 or yield caps or anything along those lines, I think 0:10:05.600 --> 0:10:08.000 the impetus for that, and then the backdrop required for 0:10:08.040 --> 0:10:12.280 that would be a structural shift that the market used 0:10:12.320 --> 0:10:15.439 as a as a reason to challenge the Fed. Stands. 0:10:15.679 --> 0:10:17.840 For example, if we were to get a very big 0:10:17.880 --> 0:10:21.840 fiscal package with signs that it would be quite durable 0:10:21.880 --> 0:10:24.800 and not just you know, a one time thing turning 0:10:24.800 --> 0:10:27.000 into a two time thing, but like this is the 0:10:27.000 --> 0:10:29.120 new normal, you know, the first thing traders would do 0:10:29.120 --> 0:10:30.880 is they would sell the long in the market, you know, 0:10:31.320 --> 0:10:33.760 of the bond market and um. If they were to 0:10:33.800 --> 0:10:37.079 do that enough, then the Fed likely step in and say, actually, 0:10:37.080 --> 0:10:39.439 we're going to make sure that all this spending is 0:10:39.520 --> 0:10:42.480 finance at a specific level. The other potential scenario along 0:10:42.480 --> 0:10:44.480 these lines would be if we got some sort of 0:10:44.960 --> 0:10:48.280 um surprise on the vaccine front. There's a lot of 0:10:48.280 --> 0:10:51.720 political impulses occurring on both sides right now, so you know, 0:10:51.720 --> 0:10:55.360 there's probably higher than usual risk of UM kind of 0:10:55.360 --> 0:11:00.240 like a politically finessed vaccine headline to hit prel action, 0:11:00.640 --> 0:11:04.000 so you know, a big fiscal package or a vaccine, 0:11:04.160 --> 0:11:07.400 both of those things could be the impetus for folks 0:11:07.400 --> 0:11:11.320 in the market to just sell the long end and if, if, 0:11:11.440 --> 0:11:14.040 if it were to feed on itself. That's the window 0:11:14.200 --> 0:11:16.880 and that's the preconditions I think required for the FED 0:11:16.960 --> 0:11:19.600 to step in with something like yielder control, because that's 0:11:19.640 --> 0:11:22.400 the moment where it's most needed, that's the moment where 0:11:22.400 --> 0:11:25.360 it's the most effective, and that's the moment where the 0:11:25.400 --> 0:11:29.920 FED is establishing the most credibility with that policy without 0:11:30.000 --> 0:11:32.760 taking the risk of you know, we're preempting it and 0:11:32.760 --> 0:11:34.240 by the time we need it, we have to do 0:11:34.240 --> 0:11:36.160 it again, and we have to kind of establish some 0:11:36.240 --> 0:11:38.680 sort of novel credibility and you know that, you know, 0:11:38.880 --> 0:11:41.160 mon tery policy is a weird gain. It's similar, you know, 0:11:41.240 --> 0:11:43.199 it's similar to just like how money works for generally, 0:11:43.559 --> 0:11:47.920 it really depends on credibility and signaling. I disagree with 0:11:48.559 --> 0:11:51.480 the way some folks frame you know, credibility and inflation 0:11:51.480 --> 0:11:55.160 fighting or whatever. If you have structurally distiflationary regimes, the 0:11:55.240 --> 0:11:57.959 credibility needs to be on the other side. But if 0:11:58.000 --> 0:12:00.640 we see a backup and yields, that's that's significant, and 0:12:00.679 --> 0:12:04.160 it's driven by some sort of regime ship, whether it's 0:12:04.200 --> 0:12:07.440 fiscal quality or a vaccine, that would be the type 0:12:07.440 --> 0:12:10.600 of window where I think that we could see yield curtetical. 0:12:10.679 --> 0:12:13.760 I do think that the FED would ultimately signal a 0:12:13.760 --> 0:12:15.560 willingness to go down that route if we were to 0:12:15.559 --> 0:12:18.440 see the bond market back up that part. So you 0:12:18.480 --> 0:12:20.920 mentioned fiscal but clearly, at least of now, we don't 0:12:20.960 --> 0:12:23.520 have a fiscal four package yet. The FED has made 0:12:23.559 --> 0:12:25.760 it very very clear that they're on the market side 0:12:25.840 --> 0:12:28.360 lower for longer, they'll let both inflation in the labor 0:12:28.400 --> 0:12:33.120 market run hot. How much pressure then does that put 0:12:33.240 --> 0:12:36.200 on the fiscal side of the equation, And how do 0:12:36.240 --> 0:12:39.440 you think about those risks or the risk that maybe 0:12:39.679 --> 0:12:43.800 we don't get another trillion dollar fiscal package, or is 0:12:43.840 --> 0:12:47.280 that outcome just so far fetched that people just won't 0:12:47.280 --> 0:12:50.360 even believe that that won't happen. The way the FED 0:12:50.480 --> 0:12:56.240 has realigned and recalibrated its policy has essentially been a 0:12:56.320 --> 0:12:58.720 move a move away from being kind of a shock 0:12:58.800 --> 0:13:03.439 absorber or counter say focal to being procyclical, by which 0:13:03.480 --> 0:13:07.959 I mean this usually if stocks go down, real yields 0:13:07.960 --> 0:13:12.040 will fall because folks are expecting the fat. You know, ease, 0:13:12.440 --> 0:13:15.040 if socks go up, real yelds go up. So sorry 0:13:15.040 --> 0:13:18.800 about my dog left, because you know, folks are expecting Okay, 0:13:18.840 --> 0:13:23.360 this reflects possibility for the FAT to start tightening policy 0:13:23.600 --> 0:13:26.840 because we are in like a clause I tagged environment 0:13:26.920 --> 0:13:30.040 and nominally yields. It becomes the case that the FED 0:13:30.120 --> 0:13:34.320 policy becomes procyclical because as markets rise and as growth 0:13:34.360 --> 0:13:37.680 increases break even as an inflation rise, which means real 0:13:37.760 --> 0:13:42.319 yields fall, which means that effectively, as things are good 0:13:42.360 --> 0:13:45.800 in the economy and markets, financial conditions become even looser. 0:13:46.240 --> 0:13:49.720 And they actually they further feed that welcome for the 0:13:49.720 --> 0:13:52.120 first time. In the show novels Dog he got a 0:13:52.120 --> 0:13:58.920 new puppy, everyone, classic quarantine purchase. I'm gonna get my 0:13:59.000 --> 0:14:02.720 dog down here to bark back at them. Sorry about that, guys, 0:14:02.800 --> 0:14:06.240 but yeah, So you know, as markets and as upside 0:14:06.240 --> 0:14:09.840 outcomes occur in markets and the economy, financial conditions actually 0:14:09.880 --> 0:14:12.000 become a looser. And the same thing works in rehearse 0:14:12.080 --> 0:14:15.480 where if there are downside risks to the markets or 0:14:15.520 --> 0:14:19.400 the economy, break even small and it really yields tightened, 0:14:19.600 --> 0:14:23.080 they go up, which tightens financial conditions. So really the 0:14:23.200 --> 0:14:26.560 FED is in a position where it's become more of 0:14:26.600 --> 0:14:30.680 a post cyclical driver, and it becomes very important for 0:14:30.720 --> 0:14:34.960 fiscal policy to utilize that space, because if we have 0:14:35.040 --> 0:14:38.800 fiscal cliffs and such, and you know, people start selling 0:14:38.840 --> 0:14:42.640 break even and start betting on lower equation, then real 0:14:42.680 --> 0:14:46.720 borrowing costs actually rise, which exacerbates the issue. And to 0:14:46.800 --> 0:14:49.320 the question of what's going to happen and how do 0:14:49.400 --> 0:14:51.440 the markets that do it? I think the way the 0:14:51.480 --> 0:14:54.080 market have been thinking through it is you know, look, 0:14:54.160 --> 0:14:56.720 you know personally at COVID, which really moved the odds 0:14:56.760 --> 0:15:00.560 for the presidential election odds um and pull ing, and 0:15:00.600 --> 0:15:03.600 then we have these protests and some interesting actions by 0:15:03.600 --> 0:15:07.000 certain police departments, which then coincided with the odds for 0:15:07.000 --> 0:15:09.320 the Senate shifting as well. And you know, now everyone 0:15:09.400 --> 0:15:12.080 that talks about blue wave right like because of that, 0:15:12.160 --> 0:15:15.080 I think that the markets basically saying, even if they 0:15:15.120 --> 0:15:17.680 want to play games on fiscal polity right now, we'll 0:15:17.720 --> 0:15:20.680 basically get the hero's Act in February much so, you know, 0:15:20.760 --> 0:15:23.600 it's just like a window of uncertainty. But like, because 0:15:23.640 --> 0:15:25.640 there's something on the other side to look at, I'm 0:15:25.680 --> 0:15:27.920 gonna be buying in depth, which means that deep of 0:15:27.920 --> 0:15:30.080 a depth to buy when I think can change that. 0:15:30.400 --> 0:15:32.040 There's a few things I can change that. And I 0:15:32.120 --> 0:15:34.080 think the closer we get to the election without without 0:15:34.080 --> 0:15:36.680 a deal, I think the bigger the risk becomes along 0:15:36.760 --> 0:15:39.360 these lines. But yeah, you know, if if fiscal policy 0:15:39.400 --> 0:15:41.800 doesn't follow through, then you know, a lot of what 0:15:41.840 --> 0:15:43.520 the FED is doing isn't really gonna be able to 0:15:43.560 --> 0:15:46.640 be effective. A lot of the Fed's effectiveness comes from 0:15:46.680 --> 0:15:50.560 accommodating fiscal policy. It is necessarily igniting effectiveness of it zone. 0:15:50.840 --> 0:15:54.160 So without that fiscal polity, the potency and efficacy of 0:15:54.240 --> 0:15:58.240 the FEDS decisions is much lower. And actually the strategic 0:15:58.240 --> 0:16:01.480 shift could actually work a reverse because of this protocolcality 0:16:01.520 --> 0:16:03.840 element I'm talking about. Do we get that, I don't know. 0:16:04.160 --> 0:16:06.440 I've always kind of been like, internally, we've been have 0:16:06.640 --> 0:16:08.920 of the view that it's likely to be the case 0:16:09.000 --> 0:16:13.400 that President Trump would prefer to have a big fiscal 0:16:13.440 --> 0:16:17.400 package that's much better time for the election Um, you know, 0:16:17.960 --> 0:16:21.600 and I think that how Speaker Felosi recognized that and 0:16:21.720 --> 0:16:24.480 that was part of the cocktail reasons why she passed 0:16:24.480 --> 0:16:27.120 the Heroes Act in the House in May, and you know, 0:16:27.640 --> 0:16:30.960 very early on, aiming for a late summer deal that 0:16:31.000 --> 0:16:32.960 gets through the Center as well. And then we had 0:16:33.000 --> 0:16:35.360 these you know, the Executive Action and like all this 0:16:35.480 --> 0:16:39.240 fiscal drama and games and back and forth. But ultimately, 0:16:39.280 --> 0:16:41.160 I do think, you know, everyone has an incentive to 0:16:41.200 --> 0:16:43.920 get something done. Um, and well we probably will see 0:16:43.960 --> 0:16:46.920 something get done. Is it the case that, so, Sarah, 0:16:47.000 --> 0:16:49.880 you asked me, does what Jeff Powell is saying does 0:16:49.960 --> 0:16:56.560 defense approach? Do all these things pressure Congress into acting fiscally? Maybe? 0:16:57.000 --> 0:16:59.640 I think that probably what pressures Congress a lot more 0:16:59.640 --> 0:17:02.040 than that would be the markets on the electoral cycle. 0:17:02.160 --> 0:17:05.080 So you know, if if we if the market decides, 0:17:05.440 --> 0:17:08.879 you know, my friend marked out one of his favorite 0:17:08.880 --> 0:17:11.120 phrases that he uses, which I think is very salient 0:17:11.200 --> 0:17:13.919 and insightful, is the market is very prone to quote 0:17:14.280 --> 0:17:18.520 belated overreactions. So if we get a belated overreaction to 0:17:19.119 --> 0:17:21.959 these kind of rolling fiscal cliffs, the market can go 0:17:22.040 --> 0:17:24.200 probe for a fiscal foot strike. I'm sure it will 0:17:24.240 --> 0:17:27.320 find it and then we'll get the deal. Otherwise it 0:17:27.359 --> 0:17:30.320 becomes a game of electoral politics. And so you know, 0:17:30.640 --> 0:17:33.280 I wouldn't be surprised if you know, I don't know 0:17:33.359 --> 0:17:37.280 where we see a random pre election vaccine pump at 0:17:37.280 --> 0:17:41.080 the same time as around my stimulus package, you know, 0:17:41.240 --> 0:17:43.560 like and like just like a very well juiced pump 0:17:43.640 --> 0:18:04.320 into the election. Fascinating what you said, because I think 0:18:04.359 --> 0:18:07.120 a lot of people and myself included, as we got 0:18:07.160 --> 0:18:10.400 into August, you know, it became sort of vacation season 0:18:10.600 --> 0:18:13.640 in Washington, d C. And then we had the political 0:18:14.240 --> 0:18:16.720 conventions where you knew nothing was going to get done. 0:18:17.200 --> 0:18:19.960 I had really expected sort of a tantrum in markets 0:18:20.000 --> 0:18:23.879 over the fact that there wasn't a physical package ready 0:18:23.920 --> 0:18:26.320 to be signed. So you're you're thinking, is that the 0:18:26.359 --> 0:18:31.040 markets sort of looking through that into a blue sweep, 0:18:31.080 --> 0:18:34.120 a blue wave, and that we will get that Heroes Act, 0:18:34.119 --> 0:18:36.320 which is what it's like three times the size of 0:18:36.359 --> 0:18:39.800 what the latest GOP fiscal package was. That three you know, 0:18:39.840 --> 0:18:43.359 three trillion verses one trillion. That's fascinating to me. I 0:18:43.400 --> 0:18:48.440 wonder though, you know, it's a long time between November 0:18:48.480 --> 0:18:52.960 and inauguration time in January, and I wonder what could 0:18:53.000 --> 0:18:55.399 go wrong in that period, you know, is is it 0:18:55.480 --> 0:18:59.840 safe to assume some political theater that could possibly create 0:18:59.880 --> 0:19:03.239 some volatility? Do you think? Just similar to you, I 0:19:03.320 --> 0:19:06.760 was sitting there in July and August being like, really, 0:19:06.800 --> 0:19:09.000 the market just don't care about this, you know, I 0:19:09.160 --> 0:19:14.320 certainly I was certainly positioned for them to care about it, 0:19:14.359 --> 0:19:16.879 and you know, we have to make um some adjustments, 0:19:16.920 --> 0:19:20.200 and thankfully, you know, we were disciplined to our process 0:19:20.200 --> 0:19:23.560 and it worked out um quite well. But yeah, like 0:19:23.640 --> 0:19:27.200 I was also very surprised about that. And and by 0:19:27.240 --> 0:19:30.399 the way, because of that, I run the risk inherently 0:19:30.440 --> 0:19:34.080 of of ex post front to rationalize the market move. 0:19:34.400 --> 0:19:37.119 But I do think that there's something to the notion 0:19:37.200 --> 0:19:39.680 of why do I care if I know that we're 0:19:39.680 --> 0:19:43.159 going to get a massive package coming in February and 0:19:43.200 --> 0:19:45.400 if that goes well, then like what's to stop them 0:19:45.400 --> 0:19:48.040 from continuing this? And that's an utter regime ship, you know. 0:19:48.160 --> 0:19:49.960 So I think I probably played at least a little 0:19:49.960 --> 0:19:52.119 bit of a role to your matter question. You know, 0:19:52.600 --> 0:19:56.159 how quickly we normalized post pandemic and how quickly and 0:19:56.240 --> 0:19:59.359 how long and how durably we're able to maintain this 0:19:59.400 --> 0:20:03.119 new fiscal regime. Whether President Trump is re elected or not, 0:20:03.760 --> 0:20:06.800 whoever on the losing side will, in different ways and 0:20:06.800 --> 0:20:09.960 in different magnitudes have some sort of feeling of contesting 0:20:10.000 --> 0:20:12.240 the election. And if it does end up being a 0:20:12.320 --> 0:20:14.760 lane duck period, I think it's an even bigger political 0:20:14.840 --> 0:20:17.359 risk because you know, there's a lot of things that 0:20:17.400 --> 0:20:20.480 can be done, especially on the geopolitical front, that might 0:20:20.520 --> 0:20:25.040 not be you know, the typical normal handover period during 0:20:25.040 --> 0:20:29.159 a late duct period between election inauguration, the distribution of 0:20:29.200 --> 0:20:32.600 probabilities changes so much, you know, especially if we get 0:20:32.640 --> 0:20:35.960 a fiscal package or a vaccine before the election, irrespective 0:20:36.000 --> 0:20:38.520 of how effective it is, or irrespective of it if 0:20:38.560 --> 0:20:42.439 it won't through the right regulatory channels. You know, if 0:20:42.720 --> 0:20:44.879 Maderna wants to get a vaccine now and says they 0:20:44.920 --> 0:20:48.760 got to phase three and President Trump's administration wants to 0:20:48.800 --> 0:20:52.359 do an emergency use authorization, I mean, I don't know 0:20:52.400 --> 0:20:56.359 if that's like koshert but like they'll probably try, and 0:20:56.680 --> 0:21:00.000 that will probably matter to the markets, to the rather discourse. 0:21:00.000 --> 0:21:01.400 And then the reason I bring that up, it's because 0:21:01.440 --> 0:21:04.560 if we get this well timed fiscal package were a 0:21:04.560 --> 0:21:08.600 well timed vaccine headline, then I'm sure folks will start 0:21:09.359 --> 0:21:12.800 re calibrating the the electoral odds of President Trump as 0:21:12.840 --> 0:21:15.720 well as the GOP the Senate. And you know, if 0:21:15.760 --> 0:21:18.520 that were to occur, then suddenly a lot of things 0:21:18.520 --> 0:21:21.879 start changing. Do we get a President Trump and a 0:21:22.000 --> 0:21:24.000 Democratic Senate? Do we get a blue sweep? Do we 0:21:24.000 --> 0:21:26.960 get a red sweep? The point being there that the 0:21:27.000 --> 0:21:30.480 distribution of probabilistic outcomes, why it is, we have more 0:21:30.520 --> 0:21:34.040 outcomes that are that are within the range of probably plausible, 0:21:34.440 --> 0:21:37.720 and in that scenario that's like definitionally higher volatility. There's 0:21:37.800 --> 0:21:41.200 there's more scenarios that need gonna be considered. Um So 0:21:41.320 --> 0:21:44.240 I absolutely believe that, Like you know, again, it's the 0:21:44.520 --> 0:21:46.840 sequencing is kind of like get to the point where 0:21:46.880 --> 0:21:50.359 the where the FED is understood and priced in, then 0:21:51.119 --> 0:21:53.879 you shift to the regime of fiscal and MACS, and 0:21:53.920 --> 0:21:56.760