WEBVTT - Heavy Rotation 0:00:00.400 --> 0:00:03.960 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 --> 0:00:17.680 What goes Up, a Boomberg Weekly markets podcast. I'm Sarah Pons, 0:00:18.000 --> 0:00:20.840 reporter on the Cross Asset team, and I'm Mike Reagan, 0:00:21.000 --> 0:00:23.760 a senior editor at Bloomberg. This week on the show, 0:00:24.160 --> 0:00:27.560 it was a rotation for the record books, positive vaccine 0:00:27.600 --> 0:00:30.200 news sparks, some historic moves in stocks this week. Finally, 0:00:30.240 --> 0:00:33.400 small caps value the reopening trade powered higher at the 0:00:33.440 --> 0:00:36.760 expense of big tech, just after a week after election 0:00:36.760 --> 0:00:39.640 results had investors thinking that the status quo leadership was 0:00:39.720 --> 0:00:42.600 here to stay. Another head fake or is this time 0:00:42.640 --> 0:00:45.760 actually different? Sara, One thing that will not be different 0:00:45.800 --> 0:00:48.839 about this podcast is that we're all the fans of 0:00:48.840 --> 0:00:51.720 crazy things out there. We will conclude with our crazy 0:00:51.800 --> 0:00:55.360 Things segment, And Sarah, I've got a feeling that this 0:00:55.400 --> 0:00:59.400 week's guest came in strong with the crazy things. If 0:00:59.480 --> 0:01:03.800 history is any guide, if past performances indicative of future results, 0:01:03.840 --> 0:01:05.640 I think this week's guest is going to give us 0:01:05.640 --> 0:01:08.000 some stiff competition. Do you a great I'd have to 0:01:08.040 --> 0:01:10.000 agree with you. I have I have a feeling that 0:01:10.360 --> 0:01:13.240 we both might go down this week. Mike, all right, Well, 0:01:13.280 --> 0:01:17.080 no pressure on you, guest, mystery guests whose name is 0:01:17.120 --> 0:01:22.000 Lauren Goodwin, economist and multi asset portfolio strategists at New 0:01:22.080 --> 0:01:24.800 York Life Investments. But Lauren, you even pressed me with 0:01:24.840 --> 0:01:27.000 your crazy things in the past. That's a compliment. By 0:01:27.000 --> 0:01:30.040 the way, the bar has been set high. The pressure 0:01:30.160 --> 0:01:33.840 is on. No pressure here, no pressure here, but there's 0:01:33.840 --> 0:01:38.160 actually pressure every week. We know, go Laard. I guess 0:01:38.240 --> 0:01:41.440 let's start with that rotation we saw early in the 0:01:41.480 --> 0:01:44.399 week in the markets this week that was by all definitions, 0:01:44.440 --> 0:01:47.960 pretty crazy in itself. I'm gonna give you my take 0:01:48.040 --> 0:01:50.120 on things with the caveat that. As you know, I'm 0:01:50.160 --> 0:01:52.560 I'm kind of a cranky old man, and I this 0:01:52.600 --> 0:01:54.880 could be way off base. So I'm gonna give you 0:01:54.920 --> 0:01:57.200 my rent, and then I want you to tell me 0:01:57.240 --> 0:02:00.000 if I'm right or wrong. But to me, I think 0:02:00.120 --> 0:02:02.280 what happened and I started muchtion in the instruction. This 0:02:02.400 --> 0:02:03.760 very well could be a head fake. You know, we 0:02:03.800 --> 0:02:06.320 saw later in the weeks sort of a reversion back 0:02:06.480 --> 0:02:08.760 to to what it looked like before the vaccine news. 0:02:09.400 --> 0:02:12.600 But I feel like investors are rotating out of growth 0:02:12.919 --> 0:02:17.079 and into growth, just the growth that they expect should 0:02:17.080 --> 0:02:20.400 the vaccine come, should the economy reopen. And to me, 0:02:20.480 --> 0:02:22.799 it's it's kind of you know, it sounds like semantics, 0:02:22.840 --> 0:02:25.480 but it's kind of an important distinction I think to 0:02:25.560 --> 0:02:28.760 make because I don't think it's necessarily about a confidence 0:02:28.760 --> 0:02:32.720 in the value factor or the size factor with small caps. 0:02:32.760 --> 0:02:36.640 I think it's just investors love growth. They see these 0:02:36.680 --> 0:02:42.160 beaten down cyclical sectors perhaps rebounding very strongly next year. 0:02:42.919 --> 0:02:45.120 They want to get in on that growth that's coming. 0:02:45.600 --> 0:02:47.280 You know, I think that that alone sort of makes 0:02:47.280 --> 0:02:51.520 it sort of a temporary rotation, you know, a rented position, 0:02:51.600 --> 0:02:54.840 rather than a sort of convicted owned position. Would you 0:02:54.840 --> 0:02:56.840 agree with that sort of thing, And feel free to 0:02:56.880 --> 0:03:00.200 tell me I'm crazy, I've I've heard it before. No, 0:03:00.360 --> 0:03:04.000 I agree. I mean what you're describing as investors rotating 0:03:04.080 --> 0:03:07.760 out of growth stocks and into economic growth these securities 0:03:07.760 --> 0:03:11.480 that tend to do well when economic tides are raising 0:03:11.560 --> 0:03:14.520 all ships, so to speak. And you know, I think 0:03:14.520 --> 0:03:17.480 investors are faced with you know what feels like and 0:03:17.560 --> 0:03:21.480 really is a once in a decade potential actual rotation 0:03:21.520 --> 0:03:24.720 into value. You know, we've discussed time and time again. 0:03:24.840 --> 0:03:26.920 How you know it's a head fake this time. It's 0:03:26.960 --> 0:03:30.160 a head fake this time. Unless we see durable economic growth, 0:03:30.480 --> 0:03:34.200 we might get that. That'd be great news, that'd be 0:03:34.240 --> 0:03:37.800 super exciting. But the way we're positioning is thinking about 0:03:37.800 --> 0:03:39.840 it kind of like a barbell, you know, if you 0:03:39.840 --> 0:03:43.200 think about the companies and the sectors that outperform over time, 0:03:43.280 --> 0:03:45.640 so over you know, years and decades rather than weeks 0:03:45.640 --> 0:03:48.040 and months, it's going to be those that are adding 0:03:48.360 --> 0:03:51.640 new innovations to the economy, and then secondarily the ones 0:03:51.720 --> 0:03:54.800 that provide resources to those innovators. You've got to be 0:03:54.840 --> 0:03:59.600 positioned to capture that, you know, equity growth or um 0:03:59.680 --> 0:04:03.440 you know, long term growth. But you know, next year, 0:04:03.480 --> 0:04:05.480 I think that we we get some boost from the 0:04:05.480 --> 0:04:08.960 economic growth, and so we're we're dipping into that as 0:04:08.960 --> 0:04:11.280 well for the first time, frankly in a long time. 0:04:11.360 --> 0:04:14.960 It feels good. It does. But something I think a 0:04:15.000 --> 0:04:18.680 lot about, Lauren is the fact that before COVID nineteen hit, 0:04:18.839 --> 0:04:22.280 before we were all discussing this earlier in the year, 0:04:22.880 --> 0:04:25.400 the narrative back then was not that we were going 0:04:25.480 --> 0:04:28.920 to see this unbelievable pickup in growth. Rather, people were 0:04:28.920 --> 0:04:31.200 worried that we were at the end of an economic cycle, 0:04:31.560 --> 0:04:33.760 that the bull market was long in the tooth. Then 0:04:33.800 --> 0:04:37.720 we had this exogenous factor just come in and take 0:04:37.800 --> 0:04:39.960 over the entire year. We still don't know how long 0:04:40.040 --> 0:04:42.000 it's going to last. We do have positive news on 0:04:42.000 --> 0:04:44.800 the vaccine front, which we are all very, very very 0:04:44.880 --> 0:04:49.080 excited about. But what has truly changed in the backdrop 0:04:49.480 --> 0:04:54.720 beneath COVID nineteen to make people believe that even after 0:04:55.240 --> 0:05:00.359 a pandemic, even after this exogenous caused recess shin that 0:05:00.400 --> 0:05:03.839 we're dealing with that even though we were not expecting 0:05:03.880 --> 0:05:07.159 growth prior to this, we should expect growth now. You know, 0:05:07.200 --> 0:05:09.400 I think a couple of things. The first is that 0:05:09.560 --> 0:05:14.200 the markets aren't necessarily reflecting the real economy um in 0:05:14.279 --> 0:05:16.160 terms of what works and what doesn't work. And I 0:05:16.480 --> 0:05:19.359 know it just said that we're excited about economic growth 0:05:19.520 --> 0:05:24.080 raising tides for markets, but you know, there's certain aspects 0:05:24.120 --> 0:05:27.200 of the economy that are reflected in financial markets and 0:05:27.240 --> 0:05:30.640 other aspects that are not. So you know, that's part 0:05:30.680 --> 0:05:35.160 of it. That the sectors and styles and securities that 0:05:35.200 --> 0:05:40.360 have had access to capital are the ones in financial markets, 0:05:40.360 --> 0:05:44.800 and so there's a winners and losers aspect there that 0:05:45.000 --> 0:05:47.599 I think is playing out in this dynamic. But the 0:05:47.640 --> 0:05:50.400 other is that the economy has just been a lot 0:05:50.440 --> 0:05:53.200 more resilient in part um in large part fixed to 0:05:53.279 --> 0:05:55.880 government support over the course of the year than really 0:05:55.920 --> 0:06:00.719 anybody expected. I mean, when unemployment benefits UM started to 0:06:00.960 --> 0:06:04.360 taper off in July, we expected that August and then 0:06:04.400 --> 0:06:08.000 September and then October would reflect just the true nature 0:06:08.040 --> 0:06:12.080 of economic pain that some of these service sector parts 0:06:12.080 --> 0:06:15.560 of the economy are feeling, and it just hasn't been 0:06:15.600 --> 0:06:18.480 the case. UM. You know, we see it in UM, 0:06:18.520 --> 0:06:22.200 in consumers that have been saving, we see it in 0:06:22.240 --> 0:06:25.800 the corporate sector companies that have been raising debt in 0:06:25.920 --> 0:06:29.760 order to have cash on hand, dry powder to capture 0:06:30.040 --> 0:06:32.080 really to bridge the gap created by COVID. But they 0:06:32.120 --> 0:06:35.360 can now be used to capture the economic upswing if 0:06:35.360 --> 0:06:38.000 that's what they choose to do. And so there is 0:06:38.200 --> 0:06:42.760 an underlying strength there that again the financial markets side 0:06:42.760 --> 0:06:47.760 of the economy can leverage. There are of course vulnerabilities 0:06:48.120 --> 0:06:50.080 involved in that, and as investors we have to be 0:06:50.680 --> 0:06:53.719 frankly very humble in the face of those vulnerabilities, whether 0:06:53.760 --> 0:06:57.679 it includes rising debt levels, vulnerabilities to the labor market, 0:06:57.680 --> 0:07:01.120 which I'm particularly worried about. But it's it's just that 0:07:01.240 --> 0:07:03.960 the economic environment has been a bit more resilient than 0:07:04.000 --> 0:07:21.440 we anyone would have expected in March or April. I 0:07:21.520 --> 0:07:25.040 was reading your notes before this conversation, Lauren, and I 0:07:25.120 --> 0:07:30.200 know you're you're pretty optimistic, constructive antiquities. I'm a worry word, 0:07:30.240 --> 0:07:32.720 So of course I I skipped right to those vulnerabilities 0:07:32.720 --> 0:07:35.400 you're talking about. And one that's sort of caught my 0:07:35.600 --> 0:07:39.360 eye is you you talk about stranded assets. What exactly 0:07:39.400 --> 0:07:40.920 do you mean that that? I mean, I'm kind of 0:07:40.960 --> 0:07:44.520 picturing maybe the energy sector spended assets if this move 0:07:44.600 --> 0:07:47.160 to renewables picks up steam. Is is that part of it? 0:07:47.200 --> 0:07:49.400 Is there anything else that that you would consider a 0:07:49.440 --> 0:07:52.239 stranded asset that we should be on the look fo. Yeah, 0:07:52.360 --> 0:07:55.320 that that's a really really good way to think about it. Um, 0:07:55.360 --> 0:07:58.520 whether it's the energy sector, you know, I think suburban malls. 0:07:59.160 --> 0:08:02.560 We should be careful to point out that these aren't 0:08:03.360 --> 0:08:07.200 really surprises. You know that the energy sector has struggled 0:08:08.000 --> 0:08:10.560 for quite a while. Um, some of the some of 0:08:10.600 --> 0:08:13.440 these aspects of real estate have struggled for a while, 0:08:14.080 --> 0:08:18.600 and COVID has only accelerated those developments rather than creating 0:08:18.640 --> 0:08:22.000 them out of nowhere. There could be some partially strained 0:08:22.000 --> 0:08:25.360 assets if we think about um you know, focus on business, travel, 0:08:25.440 --> 0:08:28.240 office space, these types of things. One of the things 0:08:28.240 --> 0:08:30.080 I try to point out though, when it comes to 0:08:30.120 --> 0:08:33.520 these vulnerabilities is that as investors we have the enormous 0:08:33.640 --> 0:08:37.199 challenge and and also privileged to think about the other 0:08:37.240 --> 0:08:40.800 side of them, the opportunities that come from them. And so, 0:08:40.920 --> 0:08:44.360 you know, you mentioned energy. Potentially there's oil and gas 0:08:44.400 --> 0:08:47.000 assets that end up being stranded, you know, wells and 0:08:47.080 --> 0:08:49.360 rigs that end up shut down. But of course there's 0:08:49.400 --> 0:08:53.920 alternative energy infrastructure, battery power, solar wind that you know, 0:08:54.000 --> 0:08:57.400 charging stations that become an opportunity. The same is true 0:08:57.400 --> 0:08:59.440 in in other strained assets like real estate. You know, 0:08:59.480 --> 0:09:03.280 suburban malls can become virus testing centers or you know, 0:09:03.360 --> 0:09:06.040 call centers, which has very much been the case. UM 0:09:06.080 --> 0:09:09.480 you can have you know, maybe folks use um less 0:09:09.600 --> 0:09:13.880 office space in the future, but it's used more creatively. 0:09:13.960 --> 0:09:16.959 There's more spending done on virtual technology that integrates those 0:09:16.960 --> 0:09:19.440 of us who prefer to be in office versus those 0:09:19.480 --> 0:09:21.760 that don't. UM So we try to think all the 0:09:21.800 --> 0:09:24.840 way around a problem when it comes to investment opportunities, 0:09:24.920 --> 0:09:27.920 rather than only focus on the stranded assets. You just 0:09:27.960 --> 0:09:30.040 gotta be careful to make sure you're not overly invested 0:09:30.080 --> 0:09:32.720 in in the ones that end up being actually stranded. 0:09:33.200 --> 0:09:35.559 Entire malls as virus testing centers. I mean, I hope 0:09:35.559 --> 0:09:37.160 we don't need that in a couple of years. It's 0:09:37.160 --> 0:09:38.680 a little bit of a different um. I don't know 0:09:38.679 --> 0:09:42.200 if you played, um, what was that board game like 0:09:42.320 --> 0:09:44.920 malls game where you had to set up your stores 0:09:44.920 --> 0:09:46.480 in the right place. It looks a little bit different 0:09:46.480 --> 0:09:53.199 if it's virus testing, not as glamorous. So I want 0:09:53.200 --> 0:09:55.960 to bring energy into the picture. Something I heard a 0:09:55.960 --> 0:09:59.240 lot this week as of Wednesday, coming into the day 0:09:59.360 --> 0:10:01.599 or by the end the day Wednesday, energy stocks in 0:10:01.640 --> 0:10:04.800 the SMP on track for the best week on record. 0:10:05.200 --> 0:10:07.560 All of a sudden, I hear people bubbling up with 0:10:07.640 --> 0:10:10.920 enthusiasms saying, you know, this is the time for energy, 0:10:10.960 --> 0:10:13.520 this is the time for banks. Do you truly believe 0:10:13.600 --> 0:10:17.040 that we are going to see growth enough to lift 0:10:17.120 --> 0:10:19.280 those areas of the market as well, or do you 0:10:19.320 --> 0:10:25.800 have to think about individual micro strategic the environment basically 0:10:26.000 --> 0:10:30.040 for each sector individually. Like energy, Yes, maybe you're going 0:10:30.080 --> 0:10:33.880 to get economic growth, but isn't the energy industry facing 0:10:34.080 --> 0:10:38.319 a lot of indiscriminate challenges itself. The idiosyncratic nature of 0:10:38.400 --> 0:10:41.280 some of these value sectors is really important. So in 0:10:41.400 --> 0:10:44.880 in energy, of course, it's the you know, secular move 0:10:44.960 --> 0:10:47.840 lower in oil prices that's made it very difficult for 0:10:47.960 --> 0:10:52.040 energy capex. A lot of consolidation in energy as we 0:10:52.080 --> 0:10:56.199 went through a manufacturing recession just a couple of years ago. Similarly, 0:10:56.240 --> 0:10:58.839 if you think about banks interest rates, the path of 0:10:58.880 --> 0:11:00.800 interest rates is a real challenge, you know, you have 0:11:00.800 --> 0:11:03.440 if you expect economic growth to move up. If you 0:11:03.480 --> 0:11:06.600 don't expect a major curve steepening or or maybe not 0:11:06.640 --> 0:11:08.839 a durable one, then you're probably not going to be 0:11:09.440 --> 0:11:13.440 uh super jazzed about financials for the next several years. Um. 0:11:13.480 --> 0:11:15.679 And so you know, as we've discussed, I think these 0:11:15.679 --> 0:11:19.120 are tactical moves. UM. I certainly have colleagues who I 0:11:19.280 --> 0:11:23.160 very much respect to who who disagree, who say that, 0:11:23.320 --> 0:11:25.960 you know, some of these sectors have been so beaten 0:11:26.040 --> 0:11:29.040 down that there can only be an upward move from here. 0:11:29.320 --> 0:11:31.560 But I gotta tell you, sometimes I mean, we just 0:11:31.600 --> 0:11:34.400 we're talking about stranded assets. Sometimes securities are cheap for 0:11:34.440 --> 0:11:36.880 a reason. Um, and so as we as we look 0:11:36.920 --> 0:11:39.960 through these value sectors and and and try to capture 0:11:40.040 --> 0:11:42.480 the part of the rising tide that raises some of 0:11:42.520 --> 0:11:46.000 the ships, it's really important not to fall into value traps. 0:11:46.040 --> 0:11:50.080 And I wouldn't say necessarily that energy or financials are 0:11:50.240 --> 0:11:53.040 you know, value traps across the board, But that's where 0:11:53.080 --> 0:11:55.760 investors work is really cut out for them, is determining, 0:11:55.760 --> 0:11:58.480 you know, where are there, you know, potential long term 0:11:58.480 --> 0:12:02.120 opportunities versus really just a few months worth of rotation 0:12:02.920 --> 0:12:05.400 that we haven't seen in value for for quite some time. 0:12:05.679 --> 0:12:07.720 I'm glad you brought up sort of the idea of 0:12:07.720 --> 0:12:12.280 a tactical trade versus a more fundamental long term trade, 0:12:12.720 --> 0:12:14.800 because I feel like so much of this year and 0:12:15.080 --> 0:12:18.600 the current market positioning and and anything you hear people 0:12:18.600 --> 0:12:22.199 talk about is kind of seeing through just trying to 0:12:22.240 --> 0:12:26.280 ignore this year completely, trying to focus on life getting 0:12:26.320 --> 0:12:31.520 back to normal with the vaccine. We've got something resembling 0:12:31.760 --> 0:12:36.480 clarity on the election, maybe uh, not quite crystal clear clarity, 0:12:37.520 --> 0:12:42.120 maybe possibly a little more clear than it was. Maybe 0:12:42.160 --> 0:12:45.000 I don't know, but I do wonder about the rest 0:12:45.080 --> 0:12:50.120 of the year and early. I mean, this virus is raging. 0:12:50.920 --> 0:12:55.680 Every hour there's another state announcing a new restriction, sort 0:12:55.679 --> 0:12:59.400 of going back in the semi lockdown mode. Does that 0:12:59.480 --> 0:13:04.480 have the potential in your opinion, to cause a deterioration 0:13:04.520 --> 0:13:07.000 and sentiment in the very near term, say between now 0:13:07.040 --> 0:13:10.080 and and when the vaccine is really available at your 0:13:10.120 --> 0:13:13.080 your local CDs. I mean, this kind of brings back 0:13:13.120 --> 0:13:15.480 the idea that stimulus and the idea we're not It 0:13:15.520 --> 0:13:19.000 doesn't look like we're getting another one at least until 0:13:19.800 --> 0:13:24.480 say the middle of the first quarter of A lot 0:13:24.520 --> 0:13:28.360 of those unemployment benefits that the federal government gave to 0:13:28.480 --> 0:13:31.199 gig workers and and some sort of that other stimulus 0:13:31.520 --> 0:13:33.160 is all rolling off at the end of the year. 0:13:33.160 --> 0:13:36.640 Those programs are expiring. I'm just worried about the next 0:13:36.679 --> 0:13:39.640 few months. I mean, is is the market you know? 0:13:40.120 --> 0:13:43.160 Is everyone just gonna position for the other side of 0:13:43.160 --> 0:13:46.160 of the tunnel and not worry about what the next 0:13:46.200 --> 0:13:49.080 few months are gonna look like, or do you see 0:13:49.080 --> 0:13:53.680 the potential for a little bit of volatility as the 0:13:53.720 --> 0:13:57.439 case counts grow, the restrictions come, come on, people lose 0:13:57.480 --> 0:14:00.200 those extended benefits and maybe after the time up in 0:14:00.200 --> 0:14:02.839 the savings that that high statements rate you're talking about, 0:14:03.720 --> 0:14:06.360 or is it foolish even bother thinking about the next 0:14:06.360 --> 0:14:08.120 three months if you're a long term investor, I mean, 0:14:08.120 --> 0:14:10.120 how do you how do you think about this sort 0:14:10.160 --> 0:14:13.240 of near term compared to the Rosey outlook for say 0:14:13.280 --> 0:14:16.920 that the back half of yes to all of the 0:14:16.960 --> 0:14:21.040 things you just said, that's right to answered. By the way, 0:14:22.440 --> 0:14:25.360 just Mike is right, You're you're now officially a cranky 0:14:25.400 --> 0:14:27.240 old man. He's going to be inviting you on the 0:14:27.240 --> 0:14:31.480 podcast every week from that one with but with the 0:14:32.320 --> 0:14:37.880 mandatory discretion that you say that every time this podcast 0:14:37.920 --> 0:14:40.440 has been brought to you by Mike Lauren to say 0:14:40.440 --> 0:15:01.560 that he's right. Affirmation bias is, you know, I think 0:15:01.600 --> 0:15:04.760 the cyclical trade, the value rotation, is the tactical trade. 0:15:04.960 --> 0:15:08.360 So I do think that investors are, as we are, frankly, 0:15:08.400 --> 0:15:11.160 starting to move in that direction on the expectation that 0:15:11.520 --> 0:15:15.480 you just can't time the vaccine announcement. Um, you know 0:15:15.520 --> 0:15:17.600 it's coming soon, you don't know exactly when, So you 0:15:17.640 --> 0:15:21.720 move into some of these value and cyclical sectors. That 0:15:22.280 --> 0:15:24.800 is to a certain extent the tactical trade, because what 0:15:24.920 --> 0:15:28.640 has worked during COVID is also to a certain extent 0:15:28.680 --> 0:15:31.480 what worked over the last five ten years, which is 0:15:31.480 --> 0:15:33.880 that when you have a low interest rate environment, a 0:15:33.920 --> 0:15:37.200 global search for yield. None of these, by the way, 0:15:37.200 --> 0:15:39.440 are changing anytime soon. If you think, you know, in 0:15:39.560 --> 0:15:42.720 terms of years and decades, UM, that's that's a story 0:15:42.840 --> 0:15:48.160 for US growth, tech equity. UM. You know, there's no alternative, 0:15:48.520 --> 0:15:51.160 and and that if you're seeking that yield, you have 0:15:51.240 --> 0:15:54.000 to look for it in these securities. I don't think 0:15:54.000 --> 0:15:56.720 that as a secular story that's likely to really change, 0:15:56.760 --> 0:16:01.120 and so the value rotation is local move or the 0:16:01.240 --> 0:16:04.480 i'm sorry, the tactical move, but I do think that 0:16:04.520 --> 0:16:08.480 there's going to be near term volatility. The little elf 0:16:08.600 --> 0:16:11.360 in the room, elephant Elf, the elephant of the room 0:16:11.360 --> 0:16:14.160 that we haven't discussed here of course. Elf, it's almost 0:16:14.200 --> 0:16:17.080 the holidays. I'm so scared of our elf on the shelf. 0:16:17.120 --> 0:16:20.840 I I don't know if you've seen the the memes 0:16:20.920 --> 0:16:24.000 of elves on the shelf inside quarantine chambers, but I'm 0:16:24.000 --> 0:16:27.440 absolutely doing that in my home. So the oh my gosh, 0:16:27.800 --> 0:16:30.240 the elf on the shelf in the in the room, 0:16:30.280 --> 0:16:34.000 of course is um. The is policy support, you know, UM, 0:16:34.440 --> 0:16:37.200 I do expect that we're going to have several fits 0:16:37.200 --> 0:16:40.280 and starts. Well we learn more about this vaccine, whatever 0:16:40.320 --> 0:16:42.880 it looks like, it's gonna be hard to distribute. It's 0:16:42.920 --> 0:16:44.680 going to take, you know, a year and a half 0:16:44.720 --> 0:16:47.800 before we get to anybody who isn't a health care 0:16:47.840 --> 0:16:51.200 worker or vulnerable segment of the population. You know, any 0:16:51.280 --> 0:16:53.960 number of things that could be challenging about the vaccine 0:16:54.200 --> 0:16:56.600 are going to cause fits and starts in this rotation. 0:16:56.800 --> 0:16:59.720 I think we should just expect it. But I also 0:16:59.800 --> 0:17:04.960 think that those moments of weakness in the face of 0:17:05.520 --> 0:17:09.800 policy support, not only from the FED but also potentially 0:17:09.920 --> 0:17:13.320 on the fiscal side, those moments of weakness are going 0:17:13.320 --> 0:17:17.200 to be buying opportunities for investors who expect the second 0:17:17.200 --> 0:17:20.679 half of one to have that real economic resurgence, and 0:17:20.760 --> 0:17:25.240 so volatility is my base case scenario. But I don't 0:17:25.240 --> 0:17:27.360 think it will stop the rotation. And I do think 0:17:27.359 --> 0:17:30.040 that rotation is a tactical trade. That's your that's your 0:17:30.080 --> 0:17:32.400 you know, six to twelve month idea, it's not your 0:17:32.440 --> 0:17:35.040 three to five year idea. So it's my turn to 0:17:35.080 --> 0:17:39.280 be the cranky one now, and maybe maybe it's maybe 0:17:39.320 --> 0:17:42.920 it's possible. Uh, maybe it's due to proximity or timing 0:17:43.200 --> 0:17:47.040 of headlines that have been coming out. But just before 0:17:47.160 --> 0:17:51.560 we began recording the podcast, we got headlines from Chicago 0:17:52.119 --> 0:17:56.800 about them starting to impose lockdowns. We have sharper restrictions 0:17:56.880 --> 0:17:59.280 that are going to begin over the weekend in New 0:17:59.359 --> 0:18:03.920 York City. I mean, part of this does feel eerily 0:18:04.119 --> 0:18:08.680 similar to back in March. Granted we know much more now, 0:18:09.200 --> 0:18:13.480 interest rates are at zero, but this sense that because 0:18:13.520 --> 0:18:16.840 you have a vaccine coming one day, there is plenty 0:18:16.840 --> 0:18:21.920 of enthusiasm from investors in markets. Oh, COVID nineteen, We're 0:18:21.960 --> 0:18:24.080 not going to have a lockdown to the extent that 0:18:24.160 --> 0:18:26.600 we saw it back then. Do you get the sense 0:18:26.640 --> 0:18:29.280 at all, though, that people are being a little bit 0:18:29.840 --> 0:18:35.520 too enthusiastic about the possibilities here? Uh? I mean, like, 0:18:35.840 --> 0:18:38.760 I'm not completely convinced that no, we won't see lockdowns 0:18:38.760 --> 0:18:40.640 like we saw back then, but that we could see 0:18:40.720 --> 0:18:44.760 some pretty strict economic restrictions if these cases continue to rise. 0:18:45.600 --> 0:18:48.240 You know, if I put on my economist heet, which 0:18:48.240 --> 0:18:50.560 I'll also call my real person hat, although I don't 0:18:50.560 --> 0:18:54.119 know if economists real people. UM, and you guys, I 0:18:54.200 --> 0:18:56.879 hate being the optimistic one. I'm so used to being 0:18:57.240 --> 0:19:00.600 the doom and gloom in the room. Uh usually I am. 0:19:00.640 --> 0:19:05.159 But Mike's Mike's getting in my head. Um well, he 0:19:05.800 --> 0:19:07.520 when he paid me off to say he's right, he 0:19:07.560 --> 0:19:10.040 also paid me off to be optimistic in your stead. 0:19:10.119 --> 0:19:12.240 But if I put on my my real person, had 0:19:12.359 --> 0:19:15.600 my economist set, this virus is completely out of control. 0:19:15.920 --> 0:19:18.240 I mean, a hundred and thirty thousand cases in a day, 0:19:18.400 --> 0:19:21.879 sixty thousand hospitalizations. I mean, this is this is an 0:19:22.040 --> 0:19:24.760 enormous risk to human health. And you know, I think 0:19:24.760 --> 0:19:28.040 that we who were in New York or in other 0:19:28.080 --> 0:19:33.000 cities that experienced um, really bad first waves. You just 0:19:33.160 --> 0:19:39.359 you know what those ambulances feel like. Um. And the 0:19:39.440 --> 0:19:44.280 impact to just real people and real families is happening, 0:19:44.480 --> 0:19:50.240 and it does frustrate me to a certain extent that 0:19:50.680 --> 0:19:56.680 this doesn't appear to be what market story or economic 0:19:56.800 --> 0:19:59.720 story reflects. You know this, this virus is out of 0:20:00.119 --> 0:20:03.679 role and it will have an impact. Um I And 0:20:03.720 --> 0:20:05.560 I agree with you, Sarah. I think that we will 0:20:05.640 --> 0:20:12.360 see restrictions to activity, but the expectation that it's not 0:20:12.400 --> 0:20:15.800 gonna last forever is really important, you know it. It 0:20:15.960 --> 0:20:21.000 helps companies to start making plans um, you know, saying Okay, 0:20:21.040 --> 0:20:22.800 if we only need to make it six or nine 0:20:22.880 --> 0:20:25.320 more months, then yeah, we you know, maybe we shutter 0:20:25.359 --> 0:20:27.600 our doors, but we don't have to close down entirely. 0:20:27.880 --> 0:20:30.679 Those expectations are really important. It might mean that you 0:20:30.720 --> 0:20:33.600 can invest a little more in you know that you know, 0:20:33.800 --> 0:20:36.200 factory or warehouse because you're going to be shipping more. 0:20:36.640 --> 0:20:38.840 It might mean as a household that you can plan 0:20:38.960 --> 0:20:41.720 your trip. Um. You know, you stay inside for the 0:20:41.760 --> 0:20:43.639 next six months and don't leave your house in Chicago 0:20:43.680 --> 0:20:46.080 because it's freezing, but you plan that trip to Hawaii 0:20:46.440 --> 0:20:51.560 for July. I mean, expectations are really really important. And UM, 0:20:51.600 --> 0:20:54.480 so I do think that there's you know, despite this 0:20:54.760 --> 0:20:58.359 um you know, dark winter, there's you know, the dawn 0:20:58.480 --> 0:21:00.760 is coming, there's a light at the end of the tunnel, etcetera. 0:21:00.840 --> 0:21:04.320 And and and that those expectations are what matter for markets. 0:21:04.560 --> 0:21:09.280 UM And so real real person Lauren does get does 0:21:09.320 --> 0:21:12.840 get a little bit frustrated by that. UM, But I 0:21:13.160 --> 0:21:15.800 think we do have a case to be optimistic. Stand 0:21:15.840 --> 0:21:19.320 clear of the craziest things we saw in markets this 0:21:19.400 --> 0:21:21.760 week alright, Mike, I trust that you have something a 0:21:21.760 --> 0:21:24.640 bit more creative though this week, and I wonder if 0:21:24.680 --> 0:21:27.199 we have a price is right? Maybe? Oh? Shoot, no 0:21:27.359 --> 0:21:30.399 prices Okay, I can turn the cinema prices right, you 0:21:30.440 --> 0:21:34.000 always can. I can turn the cinema prices right. All right. 0:21:34.760 --> 0:21:38.800 It's been a while since algorithms and high frequency trading 0:21:39.000 --> 0:21:41.320 has made the news, which much to my sugrined because 0:21:41.359 --> 0:21:44.439 I love that stuff, I love all the controversy surrounding it. 0:21:44.480 --> 0:21:46.720 But we had a good story this week out of London. 0:21:47.040 --> 0:21:51.400 UM Citadel Securities, the big hedgephone and market making firm 0:21:51.480 --> 0:21:56.360 out of Chicago, is suing this former employee in London 0:21:56.560 --> 0:22:01.600 because they allege he left to go to another hedge 0:22:01.640 --> 0:22:05.840 fund and brought with him basically the secrets of one 0:22:05.880 --> 0:22:10.560 of their their main algorithms for trading stocks. Um, alright, 0:22:10.640 --> 0:22:12.080 let me figure out how to make this as a 0:22:12.119 --> 0:22:16.200 prices right. There's several there's several really interesting numbers. They're 0:22:16.240 --> 0:22:19.000 gonna ask us how much he's suing them for or 0:22:19.320 --> 0:22:23.280 is this going somewhere else before I we make that 0:22:23.440 --> 0:22:28.480 the prices right number. For one thing, they say, this algorithm, 0:22:28.480 --> 0:22:30.679 this one algorithm and I guess maybe just calling it 0:22:30.720 --> 0:22:34.200 an algorithm is a little too uh simplified. It's a 0:22:34.200 --> 0:22:39.160 a trading automated trading strategy. It's called the ABC strategy. 0:22:39.240 --> 0:22:41.119 They put a lot of time into this strategy, not 0:22:41.200 --> 0:22:43.120 a lot of time in the name of it though, 0:22:43.160 --> 0:22:47.080 So the ABC strategy is what it's called. They say 0:22:47.119 --> 0:22:50.160 this one strategy alone makes hundreds of millions of dollars 0:22:50.280 --> 0:22:57.159 a year for Citadel. It costs a hundred million to develop. Um. 0:22:57.200 --> 0:23:00.920 And what's really fascinating is the for that the guy 0:23:01.440 --> 0:23:05.720 was being recruited by g S, a uh London based 0:23:05.760 --> 0:23:10.280 head firm, is uh basically saying it's not that valuable 0:23:10.320 --> 0:23:13.479 to us. In fact, the guy who recruited him printed 0:23:13.480 --> 0:23:17.639