WEBVTT - Surveillance: Landlords Fight for NYC 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily 0:00:13.960 --> 0:00:17.560 we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.640 --> 0:00:27.400 Bloomberg dot Com, and of course, on the Bloomberg. The 0:00:27.560 --> 0:00:31.800 uproar at Bloomberg today is off one article. Let me 0:00:31.840 --> 0:00:35.040 look down at the terminal New York City landlords press 0:00:35.120 --> 0:00:39.559 finance bosses to speed return in safe city. And as 0:00:39.560 --> 0:00:42.320 I said to Anna Edwards in the simulcast a bit ago, 0:00:42.720 --> 0:00:45.080 I heard the same story out of the city of London. 0:00:45.400 --> 0:00:47.800 I think it was two or three weeks ago as well. 0:00:48.240 --> 0:00:52.199 To give us perspective on this is Anthony Malkin of 0:00:52.360 --> 0:00:56.480 Empire States Reality Trust. He's got a big fancy title. 0:00:56.560 --> 0:00:59.480 Other than that, what you need to know is he 0:00:59.520 --> 0:01:02.960 holds ordered five O one seventh Avenue at thirty seven 0:01:03.360 --> 0:01:06.920 one Grand Central Place, at the Grand Central Terminal two 0:01:07.440 --> 0:01:11.960 fifty West fifty seventh at Broadway. These are tangible properties 0:01:12.240 --> 0:01:16.920 of his Empire State Reality Tony, what's the what's the 0:01:17.040 --> 0:01:21.040 level of panic right now about the empty Midtown that 0:01:21.200 --> 0:01:24.160 I observe? And I really don't think it's a. It's 0:01:24.160 --> 0:01:26.200 a matter of panic. I think it's time for people 0:01:26.200 --> 0:01:28.240 to get out of the Hampton's and get out of Aspen, 0:01:28.280 --> 0:01:30.360 and get out of the mountains and show up to work. 0:01:30.760 --> 0:01:33.480 The leaders who are very comfortable in their their their 0:01:33.520 --> 0:01:36.840 country homes need to lead. People want to be back 0:01:36.880 --> 0:01:39.280 at work. The young people want to be back at work. 0:01:39.600 --> 0:01:42.200 It's a competitive advantage to those people who come back 0:01:42.280 --> 0:01:46.280 to work. It's maybe an elitist thing. I take your 0:01:46.360 --> 0:01:50.000 point on the fancy people are at the fancy properties 0:01:50.440 --> 0:01:53.800 and the people that work for them, do they want 0:01:53.840 --> 0:01:56.000 to go to the office as well or do they 0:01:56.040 --> 0:01:58.680 want to be at home? You know, I think that 0:01:58.720 --> 0:02:01.400 the whole issue of work from home, the death of 0:02:01.440 --> 0:02:05.600 work from home, has been written Amazon, Facebook, smartest companies, 0:02:05.720 --> 0:02:09.119 biggest companies have stated very clearly they're expanding, and they're 0:02:09.120 --> 0:02:12.080 expanding in cities, are expanding in New York City. And 0:02:12.120 --> 0:02:16.320 the fact of the matter is that you cannot understand 0:02:16.639 --> 0:02:21.080 halloway validation what happens before the zoom after the zoom, 0:02:21.160 --> 0:02:24.080 unless you're actually in the office. And I attended a 0:02:24.080 --> 0:02:26.160 board meeting the public company on his board, I sit 0:02:26.280 --> 0:02:29.160 in minny Apolais on Monday, and Tuesday last week. It's 0:02:29.200 --> 0:02:32.680 so critical to be there. Uh and and in person, 0:02:33.040 --> 0:02:35.160 you just don't get the world from the shoulders up 0:02:35.160 --> 0:02:38.000 and in the length of the zoom call, it doesn't work. 0:02:38.440 --> 0:02:40.560 What you can you can you can maintain and you 0:02:40.600 --> 0:02:43.200 can sustain, but you cannot build and you cannot grow. 0:02:43.520 --> 0:02:45.680 But the reality is Tony and you and I know 0:02:45.760 --> 0:02:49.360 all the restaurants have frequent all your wonderful properties, those 0:02:49.400 --> 0:02:52.119 restaurants have to be open. Essentially, they're not. I mean, 0:02:52.400 --> 0:02:55.840 you can go down to Benoit on fifty fifth Street, 0:02:55.880 --> 0:02:58.880 I think, and they've got their wonderful cafe outside and 0:02:58.919 --> 0:03:01.919 do the French a faith thing Alan dukas, thank you. 0:03:02.200 --> 0:03:05.240 Guess what you can't go in the restaurant. How critical 0:03:05.360 --> 0:03:08.320 is it to link your opening of real estate to 0:03:08.480 --> 0:03:11.799 their opening of restaurants. You know the fact is that 0:03:11.840 --> 0:03:13.800 at the Empire State Building, for instance, we have a 0:03:13.840 --> 0:03:15.680 lot of services, a lot of restaurants, a lot of 0:03:15.680 --> 0:03:19.000 different food vendors. They will deliver two people's desks, they'll 0:03:19.040 --> 0:03:22.000 deliver to their offices. People need to be there for 0:03:22.080 --> 0:03:24.760 people to have the justification to open their stores and 0:03:24.919 --> 0:03:28.160 open their doors and employ people and and it all 0:03:28.200 --> 0:03:31.359 starts at the top. That's where it starts. And if 0:03:31.360 --> 0:03:35.040 people are going to sit there, comfortable in there and 0:03:35.560 --> 0:03:38.360 looking in there, I'm tired of zooms with people who 0:03:38.360 --> 0:03:41.280 are in their beach homes getting delivered iced tea by 0:03:41.320 --> 0:03:44.440 somebody who's off camera, you know, get to your desk. 0:03:45.960 --> 0:03:48.480 I take I take your message on board, Anthony. I'm 0:03:48.520 --> 0:03:50.240 not in New York. I'm not in the Hampton's Lam 0:03:50.320 --> 0:03:52.360 in London, but I am in my house. And parts 0:03:52.400 --> 0:03:55.440 of that is to do with and keeping occupancy of 0:03:55.440 --> 0:03:58.440 office space down. It might be possible for some people 0:03:58.480 --> 0:04:00.840 to go back to offices, but do you accept that 0:04:00.880 --> 0:04:02.560 we're going to be in a sort of new normal 0:04:02.600 --> 0:04:05.760 situation in some of these big world cities where not 0:04:05.880 --> 0:04:08.040 everybody can go back at the same time. Not yet. 0:04:08.320 --> 0:04:11.520 I think we've got four phases lockdown, pre therapy, vaccine, 0:04:11.560 --> 0:04:15.080 post therapy vaccine, and then clean up and and replanting 0:04:15.080 --> 0:04:18.200 the field, if you will. We're definitely in that phase 0:04:18.200 --> 0:04:20.400 two right now, and we've got a ways to go 0:04:20.560 --> 0:04:23.520 till we get to phase three. So there absolutely are 0:04:23.880 --> 0:04:28.080 quote new temporary normals unquote, and we have to adjust 0:04:28.080 --> 0:04:32.560 and address that. That said, if people will not lead, 0:04:32.800 --> 0:04:35.880 people will not follow. And what really is interesting is 0:04:36.279 --> 0:04:39.400 the young people today, ranging from their junior year in 0:04:39.440 --> 0:04:42.400 high school to two years out of college, they will 0:04:42.480 --> 0:04:45.280 follow those people who lead, and those people who sit 0:04:45.320 --> 0:04:48.640 at home will remain at a competitive disadvantage from those 0:04:48.640 --> 0:04:51.279 people who show up and work. So the bottom line is, hey, 0:04:51.320 --> 0:04:54.720 look you need indoor environmental quality. It has been a 0:04:54.720 --> 0:04:57.279 major factor of all of our work in the over 0:04:57.360 --> 0:05:00.240 one billion dollars we've spent modernizing our PORTFOLI you in 0:05:00.279 --> 0:05:04.640 New York City, making an energy efficient MERV third team filters, ventilation, 0:05:05.200 --> 0:05:09.040 ion transfer, air purification. We have a benefit in our 0:05:09.080 --> 0:05:11.080 buildings the fact that they are older, so they didn't 0:05:11.120 --> 0:05:14.960 used to have centralized air conditioning systems. Consequently, fan rooms 0:05:14.960 --> 0:05:17.800 are located per floor. You're not recirculating the air for 0:05:17.839 --> 0:05:21.320 the entire building when you cooler heat and individual floor. 0:05:21.880 --> 0:05:24.480 That said, you can make these changes. You can make 0:05:24.520 --> 0:05:28.279 these adjustments, and people need to adjust and adapt. That's true. 0:05:28.560 --> 0:05:30.800 That doesn't mean that you don't try and you don't start. 0:05:31.040 --> 0:05:33.960 Those people who do are going to win. So, Anthony, 0:05:34.040 --> 0:05:36.240 and what do you think people are afraid of? The 0:05:36.279 --> 0:05:38.479 managers you say aren't coming back. Are they afraid of 0:05:38.480 --> 0:05:41.479 the virus, or they're afraid of the legal system perhaps 0:05:41.520 --> 0:05:44.400 and the legal implications of getting back bringing people back 0:05:44.440 --> 0:05:46.800 if it isn't entirely safe. You know, you make a 0:05:46.800 --> 0:05:49.520 really good point. This whole issue of liability capping is 0:05:49.520 --> 0:05:52.760 so critical. You cannot take a look at let's say, 0:05:52.760 --> 0:05:54.719 what happened in New York City and compared to what 0:05:54.839 --> 0:05:58.960 happened in Miami. Miami happened several months after what happened 0:05:58.960 --> 0:06:01.080 in New York City. The lessons learned in New York 0:06:01.080 --> 0:06:03.680 City have helped everyone else in the world. Nobody's fault 0:06:03.680 --> 0:06:05.599 that these things occurred when we didn't know what was 0:06:05.600 --> 0:06:07.960 going on. Now that you do know what's going on, however, 0:06:07.960 --> 0:06:10.880 you have to take prudent steps, wear a mask, have 0:06:11.040 --> 0:06:15.760 your distancing, have your cleaning, do the appropriate measures. That said, 0:06:16.880 --> 0:06:20.440 it is a matter where you can operate at the 0:06:20.839 --> 0:06:24.479 occupancy which is allowable. We're operating at the Empire State 0:06:24.480 --> 0:06:28.240 Building Observatory right now. We've got the same ventilation they're 0:06:28.279 --> 0:06:31.640 depending upon the density that we planned for visitors there. 0:06:31.680 --> 0:06:33.960 The fresh air comes into that space three to twenty 0:06:34.000 --> 0:06:36.800 two times an hour, very quickly. Or Tony Malco and 0:06:36.920 --> 0:06:39.680 last question, what portion of rents are not being paid. 0:06:40.200 --> 0:06:46.200 So h in July we reported collection lower in retail 0:06:46.360 --> 0:06:50.240 than in office. Very good, Tony Malcoln, thank you so much, 0:06:50.279 --> 0:06:52.760 just really really love have you, and we'll do this 0:06:52.839 --> 0:06:56.360 again soon with the Empire State Reality Trust. Mr Melkin, 0:06:56.400 --> 0:06:59.239 of course part of New York City. I really can't 0:06:59.279 --> 0:07:05.360 say enough about the Bloomberg article right now. We need 0:07:05.360 --> 0:07:08.520 a clinic any equity market. We turn to Laurie Calvacina 0:07:08.839 --> 0:07:12.000 of RBC Capital Markets, airhead of all of US equity 0:07:12.040 --> 0:07:14.480 strategy as well. Laurie, what will you write about? What 0:07:14.560 --> 0:07:18.600 will you frame from Monday morning? So look, I think 0:07:18.600 --> 0:07:21.080 it's a quiet week. I think that there hasn't been 0:07:21.120 --> 0:07:23.200 a ton of news, but the news that has come 0:07:23.200 --> 0:07:26.080 out has moved markets, and I think what my takeaway 0:07:26.120 --> 0:07:27.960 for the week so far is that there's still an 0:07:28.040 --> 0:07:31.200 undercurrent of nervousness. I mean, arguably the Fed minutes really 0:07:31.200 --> 0:07:33.360 shouldn't have rattled markets, and it's not like they rattled 0:07:33.360 --> 0:07:35.760 them in a major way, but they did reveal that 0:07:35.840 --> 0:07:39.440 there's still some underlying concern about this fork in the 0:07:39.480 --> 0:07:42.080 road that the US economy seems to be at. Which 0:07:42.080 --> 0:07:44.239 way are we going? Are we going? To start recovering 0:07:44.240 --> 0:07:46.200 again after a bit of a plateau over the summer, 0:07:46.600 --> 0:07:48.640 or are we going to take another leg down? And 0:07:48.680 --> 0:07:50.800 I think markets are still concerned about that. We have 0:07:50.840 --> 0:07:54.360 seen a reaffirmation this week, Lorie, of digital dominance. We 0:07:54.440 --> 0:07:56.560 see it in any number of companies. We all know them, 0:07:56.600 --> 0:08:00.280 Home Depot, Walmart, etcetera. Apple with the two trillion dollar 0:08:00.400 --> 0:08:04.920 valuation as well. How do you do a strategy in 0:08:05.000 --> 0:08:10.400 a time of big box digital dominance. So our call 0:08:10.520 --> 0:08:14.120 has been not to chase all of the little individual moves, 0:08:14.120 --> 0:08:15.320 and we think that we're going to see a lot 0:08:15.360 --> 0:08:18.360 of volatility in terms of leadership at the style level, 0:08:18.440 --> 0:08:21.520 at the sector level. UM. We're continuing to tell people 0:08:21.520 --> 0:08:24.120 to stay balanced between things like growth and value. We're 0:08:24.160 --> 0:08:26.320 neutral on the tech and T I M T space. 0:08:26.640 --> 0:08:29.960 We fully understand what's driving it. And as well as 0:08:29.960 --> 0:08:33.160 those big buck retailers that the work from home UM, 0:08:33.200 --> 0:08:35.840 you know sort of quarantine type names. We get what's 0:08:35.880 --> 0:08:37.480 going on there. But we think we're going to see 0:08:37.480 --> 0:08:39.000 a lot of volatility, that this is going to be 0:08:39.040 --> 0:08:42.000 a long, uneven recovery and you just need to buy 0:08:42.040 --> 0:08:44.560 the best in the cyclical camp, the defensive camp, and 0:08:44.600 --> 0:08:47.280 the longer term growth camp and not try to chase 0:08:47.320 --> 0:08:49.160 all of these little individual moves because we think you'll 0:08:49.200 --> 0:08:52.840 get whiplash. Wise, were as lowering good morning. Why do 0:08:52.960 --> 0:08:55.160 you not have a moll positive view on small camps 0:08:55.200 --> 0:08:57.360 If you think they're cheap, if you think they could 0:08:57.360 --> 0:08:58.880 have the potential to capt up with some of those 0:08:58.920 --> 0:09:01.120 big box moves, that's only talk me about that. And 0:09:01.120 --> 0:09:04.160 if they're underowned and they and they like recoveries, why 0:09:04.200 --> 0:09:07.679 not go more aggressively into the smaller camp. End. So 0:09:07.720 --> 0:09:10.319 our call on small cap is very nuancedpace on your 0:09:10.320 --> 0:09:12.960 time horizon. And you know, I think everybody on the 0:09:12.960 --> 0:09:15.439 street likes to think of themselves as a long term investor, 0:09:15.480 --> 0:09:16.480 but at the end of the day, a lot of 0:09:16.480 --> 0:09:18.600 people aren't and can't really afford to be a lot 0:09:18.600 --> 0:09:20.720 of people live in that kind of six months, next 0:09:20.760 --> 0:09:23.480 few quarters, one year time horizon. If you're in that 0:09:23.520 --> 0:09:25.680 six to twelve month time horizon, we think you should 0:09:25.679 --> 0:09:28.640 stay neutral. Um, we think that the small caps are 0:09:28.720 --> 0:09:32.600 giving you a historic valuation opportunity. That means said, we 0:09:32.679 --> 0:09:34.760 do also think that they're functioning the way that they 0:09:34.800 --> 0:09:38.960 typically function as cyclical expressions of confidence in the market. 0:09:39.080 --> 0:09:40.959 So as we you know, as we think one of 0:09:40.960 --> 0:09:43.120 the reasons, frankly, they haven't broken out in a bigger 0:09:43.160 --> 0:09:45.640 way is that there are still all these doubts about 0:09:45.640 --> 0:09:48.520 the near term trajectory of the economy. But if you 0:09:48.559 --> 0:09:50.120 really are, in your heart of hearts, a three to 0:09:50.200 --> 0:09:52.360 five year investor, and you can ignore the noise of 0:09:52.400 --> 0:09:54.120 the next year, no, we will come out of this. 0:09:54.520 --> 0:09:57.520 We know that valuations are back to tech bubble extremes, 0:09:57.520 --> 0:09:59.560 and what I mean by that is that small caps 0:09:59.679 --> 0:10:02.920 are historically cheap relative to large caps. So we think 0:10:02.920 --> 0:10:04.320 you're going to be in a good place in this 0:10:04.440 --> 0:10:06.760 trade on a three to five year view, but over 0:10:06.800 --> 0:10:09.199 the next six to twelve months, our confidence level is 0:10:09.240 --> 0:10:10.959 a bit lower, and so we want to be intellectually 0:10:10.960 --> 0:10:13.559 honest about that. Okay, so you'd be a bit more cautious. 0:10:13.559 --> 0:10:15.800 They're picking up on something you said earlier about the 0:10:15.800 --> 0:10:17.840 fork in the road, and and it makes me wonder 0:10:17.840 --> 0:10:21.240 whether actually what we're dealing with in the US is many, many, many, 0:10:21.280 --> 0:10:24.160 many different forks. Because of the size of the economy 0:10:24.160 --> 0:10:27.319 and the way that the coronavirus regulations are being implemented 0:10:27.440 --> 0:10:29.800 rightly in a very localized fashion, and you can apply 0:10:29.880 --> 0:10:31.800 this to Europe to some extent. If we don't see 0:10:31.840 --> 0:10:35.280 big lockdowns, big statewide or big country wide lockdowns, if 0:10:35.280 --> 0:10:38.400 they are more nuanced, more targeted, that's going to make 0:10:38.440 --> 0:10:40.880 the job of of working out which fork in the 0:10:40.960 --> 0:10:42.600 road is going to be taken here for the for 0:10:42.679 --> 0:10:45.040 the big picture economy, that's going to make that really difficult. 0:10:45.840 --> 0:10:47.800 I think that's true. And you know, we're all watching 0:10:47.800 --> 0:10:51.920 this alternative high frequency economic data, things like the open table, 0:10:52.000 --> 0:10:55.560 restaurant book games, flying trends, public transit activity, that sort 0:10:55.559 --> 0:10:57.280 of stuff. And one of the things that we do 0:10:57.320 --> 0:10:59.120 on my team is an addition to looking at it 0:10:59.120 --> 0:11:02.280 at say US versus Europe, where we can, we try 0:11:02.320 --> 0:11:04.600 to look at the different regions around the country. Within 0:11:04.600 --> 0:11:07.200 the US, and we noticed over the summer, as the 0:11:07.200 --> 0:11:10.200 case counts were rising in Texas and Arizona and Florida, 0:11:10.480 --> 0:11:13.360 you were seeing different reactions and consumer confidence, you were 0:11:13.360 --> 0:11:17.120 seeing different reactions in mobility and engagement. UM that the 0:11:17.160 --> 0:11:20.640 trends were simply not uniform across region different regions of 0:11:20.640 --> 0:11:23.320 the country. Oftentimes the you, the Northeast was looking a 0:11:23.320 --> 0:11:26.080 bit better than some of these other hotspots. UM And 0:11:26.120 --> 0:11:28.920 I think that makes it very very difficult. UM. But 0:11:29.000 --> 0:11:31.280 at the end of the day, Um, what we're seeing 0:11:31.280 --> 0:11:33.880 at the national level is the data has generally plateaued. 0:11:33.920 --> 0:11:36.000 A few things are starting to perk up a little bit, 0:11:36.040 --> 0:11:38.280 but a lot of stuff has stayed stalled. And that's 0:11:38.320 --> 0:11:40.920 telling me this economy hasn't decided which way it wants 0:11:40.960 --> 0:11:44.080 to head yet. Will we see M and A here 0:11:44.120 --> 0:11:47.120 in the coming quarters simply because of a dearth of 0:11:47.160 --> 0:11:50.839 revenue growth? I think you'll get M and A down 0:11:50.880 --> 0:11:52.679 the road. Um. You know, one of the things our 0:11:52.720 --> 0:11:55.600 industrial analyst Dean dre has talked about is just how 0:11:55.640 --> 0:11:58.280 strong the balance sheets are of his companies, and he 0:11:58.320 --> 0:12:00.280 thinks they'll have a lot of dry powdered down the 0:12:00.360 --> 0:12:04.520 road once confidence returns to go out and do some deals. UM. 0:12:04.520 --> 0:12:06.880 And I think that's probably a pretty true statement of 0:12:06.920 --> 0:12:09.320 the broader market. UM. But I'll tell you tom As 0:12:09.360 --> 0:12:12.000 I went through the transcripts of this last reporting season, 0:12:12.000 --> 0:12:14.240 one thing that really struck me was that companies, when 0:12:14.280 --> 0:12:16.920 they were giving guidance, we're giving you a quarter's worth, 0:12:17.000 --> 0:12:20.319 not generally anything more than that. Um. And also, you know, 0:12:20.320 --> 0:12:22.040 there are a lot of companies that said, hey, things 0:12:22.040 --> 0:12:24.520 are better in June and July, but still had a 0:12:24.520 --> 0:12:27.440 cautious tone about the longer term outlook. So that's telling 0:12:27.480 --> 0:12:29.880 me they're going to keep that dry, that powder dry 0:12:29.920 --> 0:12:31.720 for a little bit longer. I mean, I'm glad you 0:12:31.760 --> 0:12:34.559 mentioned Dean Dre. He's just wonderful on Honeywell and on 0:12:34.640 --> 0:12:37.960 the other great industrials and what i'd almost call multinational 0:12:38.600 --> 0:12:41.959 industrials as well. I know you can't talk individual stocks, 0:12:41.960 --> 0:12:45.719 but what does Mr Dre tell you about the confidence 0:12:45.880 --> 0:12:49.080 of these executives? You know what I what I think 0:12:49.120 --> 0:12:52.440 we've heard on the industrial side is that the trade war, 0:12:52.920 --> 0:12:55.160 you know it really was was was a great sort 0:12:55.160 --> 0:12:58.160 of test run for this not intentionally, obviously nobody saw 0:12:58.200 --> 0:13:01.400 this coming. But these companies are really focused on cost cutting, 0:13:01.400 --> 0:13:04.640 They're really focused on margins, they're trying to defend the dividends. 0:13:04.800 --> 0:13:07.559 They're really in a good place to weather this pandemic. 0:13:07.600 --> 0:13:09.440 And that's really, you know, what I've seen in my work, 0:13:09.440 --> 0:13:11.320 That's also what I've been hearing from Dean and some 0:13:11.400 --> 0:13:14.320 of our other industrial analysts. And I'm actually overweight the 0:13:14.320 --> 0:13:17.200 industrial sector while I have, you know, an expectation that 0:13:17.240 --> 0:13:18.800 this market is going to give back some of the 0:13:18.800 --> 0:13:20.760 games in the final few months of the year, and 0:13:20.800 --> 0:13:24.640 I don't want to be holy encyclicals right now. Industrials 0:13:24.720 --> 0:13:27.319 is the one spot in cyclicals that I'm really comfortable 0:13:27.400 --> 0:13:30.080 leaning into at the sector level. Laurie Calvacina, thank you 0:13:30.160 --> 0:13:38.800 so much. With RBC Capital Markets, there's a really great 0:13:39.320 --> 0:13:44.360 indecision about where we're heading on inflation and particularly on 0:13:44.400 --> 0:13:48.120 the general economy. Kathy Jones studies this. She has a 0:13:48.160 --> 0:13:51.000 great joy of working with Lizzie Sanders at Charles Schwab. 0:13:51.200 --> 0:13:54.320 It's arguably the best flow team on the street. Kathy, 0:13:54.720 --> 0:13:56.880 question I'd ask liz Anne, let me ask you to 0:13:57.000 --> 0:14:01.319 you as well. Schwab sees the flow of money nobody. 0:14:01.360 --> 0:14:05.000 What are you seeing right now among Schwab clients? Are 0:14:05.000 --> 0:14:09.400 they in the markets? Yeah? Absolutely, Um. I think our 0:14:09.480 --> 0:14:12.880 clients have learned the lesson of hanging in there after 0:14:13.000 --> 0:14:15.800 the ups and downs of the markets. Uh. You know, 0:14:15.880 --> 0:14:18.280 there's there's a lot of different clients, so each has 0:14:18.320 --> 0:14:21.800 a different kind of view, but in general, our clients 0:14:21.880 --> 0:14:25.080 have stayed in. We didn't see a big exodus when 0:14:25.160 --> 0:14:29.040 the economy declined, and we've actually seen clients come back 0:14:29.200 --> 0:14:32.600 and uh and increase their positions as the markets improved. 0:14:32.800 --> 0:14:37.400 What is your general yield prediction given the worries this 0:14:37.480 --> 0:14:42.920 morning over future aggregate demand. Yeah, so we've been saying 0:14:42.960 --> 0:14:45.080 since the beginning of the year that we thought that 0:14:45.240 --> 0:14:48.040 well actually since the pandemic hit, that we thought the 0:14:48.160 --> 0:14:52.240 tenure yield would stay in a fifty two five hundred 0:14:52.240 --> 0:14:55.560 basis point range this year. We're looking for a continued 0:14:55.600 --> 0:14:58.560 improvement in the economy, but the pace will probably slow 0:14:58.640 --> 0:15:01.760 down now that we've had this as quick rebound, and 0:15:01.800 --> 0:15:04.240 we think that that puts a lid on the upper 0:15:04.360 --> 0:15:08.280 end of yields. But with the improvement in the economy, 0:15:08.360 --> 0:15:11.240 even to a small extent, or even if we continue 0:15:11.280 --> 0:15:15.560 to kind of roll along here, should hold tenure yields 0:15:15.560 --> 0:15:18.520 around fifty basis points. And of course the short end 0:15:18.560 --> 0:15:22.040 is completely anchored by the fed um near zero, so 0:15:22.080 --> 0:15:25.480 there's not going to be a lot of play there. Kathy, 0:15:25.520 --> 0:15:27.880 good to speak to you Anna in London. Let me 0:15:28.040 --> 0:15:30.520 go into the minutes. We're just getting through from the ECB, 0:15:30.760 --> 0:15:33.800 just dropping across the bloomberg right now. They talk about 0:15:33.840 --> 0:15:36.840 positive market developments not being fully backed by data. Let's 0:15:36.840 --> 0:15:38.720 remember this is for July. This is the minutes of 0:15:38.720 --> 0:15:41.600 the fift to the sixteenth of July. But something catches 0:15:41.640 --> 0:15:43.720 my eye at Kathy, and that is what they're saying 0:15:44.040 --> 0:15:46.680 around the PEP, and that's the plan that the ECB 0:15:46.800 --> 0:15:49.440 put in place, of course, to to buy up assets. 0:15:49.480 --> 0:15:52.480 Some said in the minutes that the pet envelope should 0:15:52.480 --> 0:15:55.240 be a ceiling, not a target, and I wonder if 0:15:55.280 --> 0:15:57.680 that will lead some to conclude that maybe the ECB 0:15:57.880 --> 0:16:00.960 isn't about to increase the amount of money it puts 0:16:00.960 --> 0:16:03.080 into the PEP in the future. What are you expecting 0:16:03.120 --> 0:16:05.440 to see. Um, I think that that's still going to 0:16:05.520 --> 0:16:08.040 be somewhat flexible. You know, in the ECB you have 0:16:08.200 --> 0:16:12.080 different different factions there, and I think probably that statement, 0:16:12.360 --> 0:16:14.040 off the top of my head sounds like they're trying 0:16:14.080 --> 0:16:17.440 to satisfy different different factions within the e c B. 0:16:18.080 --> 0:16:21.240 But I do think that they're still under Christie regard this, 0:16:21.440 --> 0:16:26.280 you know, the continuation of the draggy whatever it takes philosophy. 0:16:26.400 --> 0:16:29.320 So if they have to increase, they will increase. But 0:16:30.120 --> 0:16:32.560 in the short run that probably sends a little bit 0:16:32.600 --> 0:16:35.440 of a signal that will firm up the Euro if 0:16:35.480 --> 0:16:38.120 people believe there is a ceiling on it. Yeah. They're 0:16:38.160 --> 0:16:41.240 also saying that they expect more clarity about inflation and 0:16:41.280 --> 0:16:43.800 the outlook for that in September. They'll have plenty more 0:16:43.920 --> 0:16:47.040 data to play with in September when it comes to that. 0:16:47.120 --> 0:16:50.280 The global conversation that seems to be going on around inflation, Kathy, 0:16:50.360 --> 0:16:52.400 if we can, if we can talk globally about inflation. 0:16:52.440 --> 0:16:55.160 I know these things are much more nuanced and geographical, 0:16:55.240 --> 0:16:58.280 but in general terms, we spent many years with central 0:16:58.280 --> 0:17:01.920 banks struggling to get inflation ray to meet their targets 0:17:01.960 --> 0:17:05.120 in developed markets. This is going to be even more 0:17:05.119 --> 0:17:07.800 difficult now, isn't it, with unemployment rates as high as 0:17:07.840 --> 0:17:09.480 they are, or as high as they're going to be. 0:17:09.760 --> 0:17:12.840 So where do you see the inflation and narrative gemming? Yeah, 0:17:12.880 --> 0:17:14.960 I think it's gonna be a real struggle. We've got 0:17:15.000 --> 0:17:18.720 several years here before we close those output gaps, we 0:17:18.760 --> 0:17:21.680 get unemployment rates down, we get wages up, and enough 0:17:21.760 --> 0:17:24.880 that you have, you know, enough money in people's pockets 0:17:24.880 --> 0:17:27.639 to fuel some inflation. It's going to take a couple 0:17:27.680 --> 0:17:30.480 of years. But I'm not in the doom and gloom 0:17:30.600 --> 0:17:34.840 sort of a deflation camp. I think the abundant liquidity 0:17:34.920 --> 0:17:37.359 and the efforts of the central banks will mean that 0:17:37.400 --> 0:17:40.040 we will gradually see a little bit better inflation. But 0:17:40.080 --> 0:17:44.240 it's gonna take time because we doubled into unemployment and 0:17:44.359 --> 0:17:47.000 on all of the damage that's been done to the 0:17:47.080 --> 0:17:50.639 major developed economies economies around the world. It's going to 0:17:50.760 --> 0:17:53.000 take some time. The kitty, you know, we just had 0:17:53.080 --> 0:17:55.960 launched time. I'm Bloomberg, folks. This is an incredibly important 0:17:56.000 --> 0:17:59.680 story and I'll get it out shoot Nagina Natalie Wong 0:18:00.440 --> 0:18:04.520 on the real estate and the emptiness of our big cities. 0:18:04.560 --> 0:18:07.679 The article focuses on New York City, but in Edwards. 0:18:07.680 --> 0:18:10.199 To be honest, I saw a like article on London 0:18:10.240 --> 0:18:13.600 a couple of weeks ago as well. Kathy Jones to Schwab, 0:18:13.720 --> 0:18:17.240 just assume that there will be a lower g d 0:18:17.480 --> 0:18:20.080 P number and that the level we get back to 0:18:20.800 --> 0:18:25.520 could even be sub two real g d P. No, 0:18:25.680 --> 0:18:28.560 I don't think we're assuming that at all. Um. You know, 0:18:28.760 --> 0:18:31.600 we do know that there are structural changes taking place. 0:18:31.720 --> 0:18:34.640 So a commercial real estate is certainly an area where 0:18:34.680 --> 0:18:37.240 a lot of questions as to how that's going to evolve. 0:18:37.840 --> 0:18:41.480 But I really take on more optimistic view of things. 0:18:41.560 --> 0:18:44.160 If you look at how anxious people are to get 0:18:44.200 --> 0:18:47.680 back to their quote unquote normal lives. What you see 0:18:47.720 --> 0:18:50.919 is they're willing to risk their health and well being 0:18:51.040 --> 0:18:53.000 in order to just go to a bar or have 0:18:53.080 --> 0:18:56.080 a party or go to the gym. Um, I'm actually 0:18:56.600 --> 0:19:01.480 fairly optimistic about the resilience of the major economies once 0:19:01.600 --> 0:19:04.120 once we get further down the road. Obviously a vaccine 0:19:04.160 --> 0:19:07.240 would be a huge game changer, but I don't assume 0:19:07.800 --> 0:19:10.600 that we necessarily go to a lower level of economic 0:19:10.640 --> 0:19:13.399 activity below two percent going forward. I think we can 0:19:13.400 --> 0:19:14.920 get back to that two to two and a half 0:19:14.960 --> 0:19:16.879 percent area. I don't know that we can go be 0:19:16.880 --> 0:19:20.120 a pond differ. Well, that's yield up at some point, 0:19:20.240 --> 0:19:22.879 that's yield up priced down. How do you protect on 0:19:22.960 --> 0:19:27.120 price erosion on fixed income? Well, right now, we're keeping 0:19:27.200 --> 0:19:30.280 duration a little bit short of average or whatever the 0:19:30.320 --> 0:19:32.960 benchmark is. So if you take the egg the benchmark, 0:19:33.720 --> 0:19:36.320 it's around six or seven. Right now, we'd keep it 0:19:36.359 --> 0:19:38.800 a little bit shorter because the risk reward at the 0:19:38.880 --> 0:19:42.280 long end just isn't that great unless you have a 0:19:42.400 --> 0:19:46.320 very deflationary outlook, which we don't have. So we're keeping 0:19:46.400 --> 0:19:50.639 duration a little bit short. Um, we like high quality credit, 0:19:50.720 --> 0:19:54.200 you know, I investment grade credit. You can actually take 0:19:54.240 --> 0:19:57.040 some duration there and get a bit more yield, and 0:19:57.119 --> 0:19:59.720 you can venture out into some of the riskier segments 0:19:59.720 --> 0:20:02.399 of them market if you have the risk appetite for 0:20:02.440 --> 0:20:06.760 a little bit um and get some duration plus yield there. Yeah. 0:20:06.800 --> 0:20:08.720 What is appetite like for some of the new issuance 0:20:08.800 --> 0:20:11.639 we've seen coming through Kathy from the corporate world in 0:20:12.080 --> 0:20:14.280 in the US, and I'm thinking of investment grade. I 0:20:14.320 --> 0:20:16.480 was looking at a chant that showed issue instead of 0:20:16.560 --> 0:20:18.800 record for the year, and that was on Monday, So 0:20:18.960 --> 0:20:22.880 midway through August, we've already reached a full year record 0:20:22.920 --> 0:20:25.560 on on corporate issues. Is there still the appetite and 0:20:25.600 --> 0:20:28.520 the market still soaked this up? Oh? I think so. Um, 0:20:28.560 --> 0:20:31.879