WEBVTT - Surveillance: Building Vaccine Capacity With CureVac CEO 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.240 Bloomberg dot Com, and of course on the Bloomberg on 0:00:27.280 --> 0:00:30.160 the Markets. Joining us now is Gampria Santos, JP MULGANASID 0:00:30.160 --> 0:00:33.920 Management Global market strategist Gappy. Let's just start their cash 0:00:34.280 --> 0:00:37.200 and the debate on the old cliche cash on the sidelines, 0:00:37.600 --> 0:00:43.680 what's left to allocay? There's actually still quite a lot left. John. Actually, um, 0:00:43.720 --> 0:00:46.040 if we look at assets and money market funds, they 0:00:46.080 --> 0:00:50.400 had an increase um after the pandemic hit of about 0:00:50.440 --> 0:00:54.120 one point two trillion dollars. Now really since the middle 0:00:54.160 --> 0:00:57.160 of the year that started to get deployed slowly, but 0:00:57.200 --> 0:01:01.920 you still have seven hundred billion dollars extra on the 0:01:02.000 --> 0:01:05.559 sidelines waiting to get deployed. So I think that means 0:01:05.600 --> 0:01:08.120 that any sort of pullbacks that we have in the market, 0:01:08.200 --> 0:01:11.000 when you see days with more bad news, it gets 0:01:11.040 --> 0:01:14.520 absorbed by this cash being deployed. And it's especially your 0:01:14.560 --> 0:01:19.640 hardest hit sectors. You're more cyclically economically oriented sectors and 0:01:19.720 --> 0:01:22.560 regions that are going to see the biggest bump from 0:01:22.560 --> 0:01:25.280 this cash being deployed. And on the fixed income side, 0:01:25.280 --> 0:01:28.040 your higher risk credit things like high yield an emerging 0:01:28.080 --> 0:01:30.640 market dat as well, and that's generally where we're tilting 0:01:30.640 --> 0:01:34.759 as well. Gabriella back to two thousand seven, thirteen years ago, 0:01:34.800 --> 0:01:37.480 I believe the math is the e M index c 0:01:37.680 --> 0:01:40.640 M s c I e M index really hasn't broken out. 0:01:41.280 --> 0:01:45.080 Is now the time? I think there are so many 0:01:45.120 --> 0:01:49.080 stars aligning here for emerging markets. First, you do have 0:01:49.200 --> 0:01:53.640 this visibility of a cyclical upturn forming next year and 0:01:53.680 --> 0:01:58.320 beyond with these vaccine news, emerging markets are still cyclically 0:01:58.320 --> 0:02:03.360 oriented over fift and that is cyclical sectors. Number two, 0:02:03.480 --> 0:02:06.000 you have the result of the US election in which 0:02:06.000 --> 0:02:08.720 we have a president elect Biden. That to US and 0:02:08.800 --> 0:02:14.639 two investors represents a return to more orthodox, clear foreign policy. 0:02:14.720 --> 0:02:18.600 That's huge for your very trade oriented em And then 0:02:18.680 --> 0:02:21.720 number three, you have central banks whose reaction functions have 0:02:21.840 --> 0:02:24.680 changed so much so in which case you can have 0:02:24.760 --> 0:02:28.280 good news and interest rates still stays well low. That's 0:02:28.680 --> 0:02:31.839 great set up for emerging markets, not just the ones 0:02:31.840 --> 0:02:34.960 that have led this year, which is North Asia and technology, 0:02:35.200 --> 0:02:38.080 but a broader set of emerging markets. And we're extremely 0:02:38.160 --> 0:02:40.920 bullish on the UM equities, on the M debt, and 0:02:41.080 --> 0:02:44.440 on fact Gabriella, we take a step back. The optimism 0:02:44.720 --> 0:02:48.519 that you have as you talk about this is increasingly consensus. 0:02:48.760 --> 0:02:51.200 You've got Bank of America's Fund manager survey coming out 0:02:51.240 --> 0:02:53.040 and saying we're getting close to full bull here with 0:02:53.080 --> 0:02:56.600 respect to cash holdings and the outlook on equities. And 0:02:56.639 --> 0:02:59.399 you've got Howard Marks of oak Tree Capital yesterday coming 0:02:59.400 --> 0:03:02.160 out with this quote in an interview with Bloomberg News. 0:03:02.240 --> 0:03:05.080 When the level of optimism is high, there is usually 0:03:05.120 --> 0:03:08.920 more room for disappointment. Can you square those two narratives, 0:03:08.919 --> 0:03:11.760 the optimism with the reality on the ground of a 0:03:11.760 --> 0:03:15.640 pandemic that's only getting worse right now. So I do 0:03:15.720 --> 0:03:19.119 think in the very short term we're very much due 0:03:19.160 --> 0:03:23.240 for a tough time. We see cases rising significantly across 0:03:23.280 --> 0:03:26.600 the United States, very higher cases in Europe. That is 0:03:26.639 --> 0:03:30.000 going to restrain the recovery here in the fourth quarter 0:03:30.080 --> 0:03:33.040 and the first quarter. But I think the vaccine news 0:03:33.360 --> 0:03:36.960 is good news because it gives investors the freedom to 0:03:37.120 --> 0:03:40.880 think less month to month and more twelve months out 0:03:41.040 --> 0:03:43.120 and beyond, which is what we should be doing. We 0:03:43.120 --> 0:03:45.760 shouldn't be thinking about the here and now so much. 0:03:45.840 --> 0:03:48.840 We should be investing for the future. And that's why 0:03:48.920 --> 0:03:51.720 I think you can have a difference where cases do 0:03:51.840 --> 0:03:54.040 pick up than uses that in the short term. But 0:03:54.120 --> 0:03:57.120 the market is able to absorb a it better looking 0:03:57.120 --> 0:03:59.480 out into the future now. It doesn't mean there will 0:03:59.520 --> 0:04:02.200 be pulled back right um, And as you mentioned, there 0:04:02.360 --> 0:04:05.800 is more bullish outlook now, but a much more normal 0:04:05.880 --> 0:04:08.880 pullback of five to ten percent instead of the bear 0:04:09.000 --> 0:04:13.160 market we had last time cases were rising. Thomas Lisa 0:04:13.200 --> 0:04:17.320 being rude to our guest, calling our guest consensus. Hold on, No, 0:04:17.640 --> 0:04:21.560 I'm not being I'm not being rude. Hold on a second, Gabriella. 0:04:21.600 --> 0:04:24.239 I'm sorry to ring up the script. Gabriella. Was that rude? 0:04:25.000 --> 0:04:27.960 I think John is starting to start stuff. I don't 0:04:27.960 --> 0:04:30.720 think it was really What do you think of that? 0:04:30.760 --> 0:04:32.679 Maybe that is what John? Maybe that is what John 0:04:32.720 --> 0:04:33.960 is doing this morning. I want to turn to the 0:04:33.960 --> 0:04:42.880 ex market China. That's really good. It looks better than 0:04:44.400 --> 0:04:47.440 I grew up at this. I've lifted before. I'm used 0:04:47.520 --> 0:04:50.119 to it. Women unhappy with me. There's nothing new about 0:04:50.640 --> 0:04:54.880 dollar China. Can I go there and you're in the 0:04:54.880 --> 0:04:58.880 middle of the year, Gabby, what's left to squeeze? So 0:04:59.080 --> 0:05:02.120 we're actually we think the Chinese land has plenty of 0:05:02.200 --> 0:05:06.440 room actually to appreciate over the next few years. Um. 0:05:06.520 --> 0:05:09.640 That's due to cyclical factors, as you get an upturn 0:05:09.760 --> 0:05:13.120 in the global economy, as you have uh this more 0:05:13.839 --> 0:05:17.039 friendly outlook of the U S election. But beyond that, 0:05:17.200 --> 0:05:20.480 you have the Chinese one getting more and more added 0:05:20.520 --> 0:05:23.839 into investors portfolios. You have a lot more investors also 0:05:23.880 --> 0:05:27.720 wanting to invest directly in Chinese equities and bombs. So 0:05:27.760 --> 0:05:31.320 that's also a structural support for the Chinese one to 0:05:31.360 --> 0:05:34.120 be one of the currencies that appreciates the most over 0:05:34.160 --> 0:05:36.880 the next decade. This is one of your best things 0:05:36.880 --> 0:05:39.240 and you can work off Farolean Kasmin. Here let's talk 0:05:39.240 --> 0:05:42.960 about the Brazilian scream, and that's not you angry at Pharaoh. 0:05:43.000 --> 0:05:47.000 The Brazilian scream is when you get strong Brazilian real, 0:05:47.279 --> 0:05:51.880 strong Taiwanese dollar and they start screaming about week. US 0:05:52.000 --> 0:05:55.440 dollar is a general tendency. Are we closer to that 0:05:55.960 --> 0:05:58.520 or do we have patients out to two thousand twenty 0:05:58.520 --> 0:06:04.880 two on US dollar? So I think from the Brazilian perspective, 0:06:05.640 --> 0:06:10.159 it's the second worst performing currency this year. UM, it's 0:06:10.320 --> 0:06:14.000 depreciate it close to There's actually a much more concern 0:06:14.040 --> 0:06:17.200 about the depreciation than there is for any sort of 0:06:17.360 --> 0:06:21.760 nascent appreciation. Right. There's still the concern about the weakness 0:06:21.839 --> 0:06:25.160 of the currency feeding into higher goods prices, higher inflation, 0:06:25.680 --> 0:06:28.240 and a vicious cycle with higher interest rates. So I 0:06:28.279 --> 0:06:31.159 think there's plenty of room for the reality to appreciate 0:06:31.240 --> 0:06:34.080 a little bit further. UM. And Brazil, of course is 0:06:34.080 --> 0:06:38.080 a very cyclical currency, very cyclical market. UM. So it 0:06:38.200 --> 0:06:41.480 is part and parcel of the cyclical recovery that we're 0:06:41.520 --> 0:06:44.160 seeing in global markets. And so in that sense, it's 0:06:44.240 --> 0:06:47.040 very much welcome. Gotta be great to catch up, appreciate 0:06:47.120 --> 0:06:50.200 your time as always. Gabrella stances there from JP Morgan 0:06:50.440 --> 0:06:52.800 Asset Management on this market and a little bit more. 0:06:56.520 --> 0:07:00.920 Michael kush muf brings prodigious academic chops to Morgan Stanley 0:07:00.960 --> 0:07:04.440 where he is Global fixed income. Uh see, I oh, Michael, 0:07:04.520 --> 0:07:06.440 thrilled to have you on. You know, I think of 0:07:06.680 --> 0:07:11.040 the multidisciplinary economics of your Columbia University is maybe a 0:07:11.080 --> 0:07:13.920 good place to start. I want to start with the 0:07:14.160 --> 0:07:19.120 monetary mystery of December in January, is it just simply 0:07:19.480 --> 0:07:23.560 Chairman Powell to the rescue. I think that's a lot 0:07:23.600 --> 0:07:26.160 of it. I think the FED has been clear about 0:07:26.280 --> 0:07:32.280 its intentions to support, provide accommodation, more combination if necessary, 0:07:32.480 --> 0:07:35.200 to get us to a stronger economy down the road. 0:07:35.400 --> 0:07:38.400 And they obviously can't put money directly in people's pockets, 0:07:38.400 --> 0:07:41.120 but they can do every possible measure to ensure the 0:07:41.160 --> 0:07:43.600 cost of putting money in people's pockets through borrowing is 0:07:43.600 --> 0:07:45.880 at very low levels, whether it's the household of corporate 0:07:45.880 --> 0:07:49.640 sector or the US government. I think Michael of Rick 0:07:49.720 --> 0:07:52.480 Michigan at Columbia and of course has has melding of 0:07:52.600 --> 0:07:56.880 policy into economics. Right now, what is the most efficacious 0:07:56.960 --> 0:08:00.280 policy to get us out to where these VEC scenes 0:08:00.320 --> 0:08:04.840 click in of this balance of fiscal, monetary, budgetary and 0:08:04.920 --> 0:08:09.240 just outright policy, what's the best mix forward? Well, the 0:08:09.280 --> 0:08:11.960 best mixes A is a combination. Again, the FED cannot 0:08:12.040 --> 0:08:15.960 provide direct income support for individuals. The federal government can 0:08:16.000 --> 0:08:18.760 provide that direct support, and the FED can help them 0:08:18.800 --> 0:08:21.600 along the way by buying the debt that the US 0:08:21.680 --> 0:08:24.600 government produces In order to put money into people's pockets 0:08:24.800 --> 0:08:28.120 along the way. So it is a joint effort, combined effort, 0:08:28.320 --> 0:08:33.040 and it could it could flounder or temporarily go sideways 0:08:33.200 --> 0:08:36.160 when one of the three elements is also healthcare policy 0:08:36.160 --> 0:08:37.880 of force on the side as well. One of the 0:08:37.920 --> 0:08:40.680 three areas, you know, flounder or stop making progress along 0:08:40.720 --> 0:08:42.960 the way. So the FED has been quite clear that 0:08:43.000 --> 0:08:46.400 they expect the federal government to hopefully provide more income 0:08:46.480 --> 0:08:48.960 support to the to the economy as a whole during 0:08:49.040 --> 0:08:53.160 this transition period to a vaccine. So I'm wondering, Michael, 0:08:53.440 --> 0:08:56.200 given the fact that there is incredible FED support, there 0:08:56.200 --> 0:08:58.480 aren't a lot of bargains out there, given how high 0:08:58.559 --> 0:09:02.360 asset prices are, what do you do. It's it's it's 0:09:02.400 --> 0:09:04.800 you have to think longer term. So it's it's like 0:09:04.960 --> 0:09:07.160 a growth stock or something which is discounting a lot 0:09:07.200 --> 0:09:09.560 of good news into the future. There's no doubt a 0:09:09.559 --> 0:09:11.760 lot of good news into the future. People can start 0:09:11.840 --> 0:09:15.160 seeing the endgame assuming these vaccines are able to be 0:09:15.160 --> 0:09:18.000 distributed in a widespread manner. In the next call, it's 0:09:18.080 --> 0:09:20.240 called six to nine months in a in a very 0:09:20.240 --> 0:09:23.520 widespread manner. So in terms of the opportunities. You really 0:09:23.520 --> 0:09:25.960 have to think, where are we gonna be twelve months 0:09:26.000 --> 0:09:28.040 from now, six to twelve months from now if we 0:09:28.160 --> 0:09:31.760 think we will be on a stronger economic trajectory. There's 0:09:31.840 --> 0:09:34.760 no doubt, given the monitory and fiscal support being provided 0:09:34.800 --> 0:09:38.679 and unlikely to withdrawn through two thousand twenty two, that 0:09:38.920 --> 0:09:42.360 interest rates credit spreads, interest rates should be um at 0:09:42.640 --> 0:09:45.200 very low levels. You know, high yield bonds should be expensive, 0:09:45.360 --> 0:09:48.319 investment grade bonds should be expensive. Equity should probably be 0:09:48.440 --> 0:09:50.960 high because of low interest rates are around the world 0:09:50.960 --> 0:09:53.760 and particularly in the United States. So again you look 0:09:53.840 --> 0:09:57.360 farther out. It's not that bonds are a fair value 0:09:57.360 --> 0:10:00.000 and that doesn't make them attractive. Is that should they 0:10:00.040 --> 0:10:02.040 us to be at fair value or should be again 0:10:02.080 --> 0:10:05.760 in the future be well below historical fair value. If 0:10:05.760 --> 0:10:08.640 you look at into investment grade credit spreads, even high 0:10:08.679 --> 0:10:11.440 yield spreads, they don't spend a lot of time around average. 0:10:11.480 --> 0:10:14.520 These either above average or below average. Because fundamentals are good, 0:10:14.520 --> 0:10:17.680 fundamentals are bad relative to average. There's cycling, and we 0:10:17.800 --> 0:10:21.520 think that saying it's the business cycle will improve dramatically 0:10:21.600 --> 0:10:24.520 next year, and that will cause spreads to be below 0:10:24.559 --> 0:10:26.320 average by the end of next year or by some 0:10:26.360 --> 0:10:28.000 time between the set middle of next year and the 0:10:28.040 --> 0:10:31.280 end of next year. Michael, that's credit. How difficult will 0:10:31.320 --> 0:10:33.560 it be to push that view through the yield curve 0:10:33.880 --> 0:10:36.080 and looking for a steeper one at that I understand 0:10:36.120 --> 0:10:38.439 we've had a one way move since the end of 0:10:38.559 --> 0:10:41.280 February when we were down by ten eleven basis points, 0:10:41.280 --> 0:10:44.200 were steeping down aggressively over the last seven eight months. 0:10:44.320 --> 0:10:46.200 But just over the last week we had some game 0:10:46.280 --> 0:10:50.559 changing news. Seventy basis points, two s tens all around 0:10:50.559 --> 0:10:54.600 again round trip Michael. Why. I think there's there's two 0:10:54.960 --> 0:10:58.800 two elements. One insert is technical. This idea of a 0:10:58.800 --> 0:11:00.960 steeping yelker has been in place for a while. A 0:11:01.000 --> 0:11:03.040 lot of investors around the world have been putting on 0:11:03.080 --> 0:11:05.720 so called steepening trade and selling long data bonds buying 0:11:05.720 --> 0:11:08.440 short of data bonds. It worked, now it's stopped to work. 0:11:08.640 --> 0:11:10.880 The rise of the pandemic, the rise of infection rates, 0:11:10.920 --> 0:11:13.160 I think is unnerved on people. In terms of the 0:11:13.200 --> 0:11:17.320 near term FED actions. It could be easily true that 0:11:17.360 --> 0:11:20.520 in in December, the FED announces an adjustment to their 0:11:20.559 --> 0:11:24.240 quantitative you know easy program that they actually tilt buying 0:11:24.240 --> 0:11:26.520 to long long under the yelkurve. So there's some issues 0:11:26.559 --> 0:11:28.520 in the short term. Into the end of this year, 0:11:28.760 --> 0:11:32.199 the FED will adjust their policies because one fiscal policy 0:11:32.240 --> 0:11:36.120 is now inactive. Secondly, the pandemic has gotten worse. They 0:11:36.240 --> 0:11:38.760 may feel compelled to do something, and what they're likely 0:11:38.800 --> 0:11:41.160 to do is increased bonding of long term bonds, which 0:11:41.160 --> 0:11:45.880 again reduces the pressure for steepening in the short term. Michael, 0:11:45.920 --> 0:11:48.640 this conversation belongs in the future. Many parts of this 0:11:48.760 --> 0:11:51.920 market living in the future. One. I want to turn 0:11:52.000 --> 0:11:55.120 to the here and now and cross sidever to Berlin, Germany. 0:11:55.280 --> 0:11:58.360 What we started to see more restrictions in Europe. What 0:11:58.480 --> 0:12:01.920 we noticed this time around was pushed back, more pushed 0:12:01.920 --> 0:12:04.520 back and more resilience and Tom that's what you see 0:12:04.520 --> 0:12:07.920 on the streets of Berlin today. Back in spring, it 0:12:08.000 --> 0:12:11.080 was widely accepted to go through a lockdown, to go 0:12:11.160 --> 0:12:14.679 through restrictions to ultimately at some point we ended up 0:12:14.800 --> 0:12:18.400 wearing masks. What we've noticed across Europe and many other 0:12:18.400 --> 0:12:21.200 places around the world as well this time when the 0:12:21.240 --> 0:12:24.600 government has tried to lock things down, the pushback has 0:12:24.640 --> 0:12:28.160 been so much greater than what we saw six months ago. 0:12:28.559 --> 0:12:30.840 And that's what's difficult about living too far in the 0:12:30.880 --> 0:12:34.920 future and ignoring where we are right now in Berlin, Germany, 0:12:35.000 --> 0:12:37.680 where there are protests on the streets and a German 0:12:37.720 --> 0:12:41.680 police a firing of water cannon at the demonstrators tom 0:12:41.720 --> 0:12:44.600 because they will not adhere to social distancing, they do 0:12:44.679 --> 0:12:46.440 not want to wear masks, and they do not want 0:12:46.480 --> 0:12:48.640 to be locked down. How do you live in a 0:12:48.679 --> 0:12:53.199 better future in one if we're still grappling with a difficulty, 0:12:53.440 --> 0:12:55.600 not just in Europe but in the United States as well. 0:12:55.800 --> 0:12:58.040 In the here and now. It's called a pandemic, and 0:12:58.080 --> 0:13:00.400 they're all the same every time. When back, you know, 0:13:00.440 --> 0:13:03.240 I think about John Elliott Gardner's one volume on Joan 0:13:03.320 --> 0:13:07.199 Sebastian Bach and the plague that was across Germany. You know, 0:13:07.200 --> 0:13:10.760 I'm gonna guess six thirty if my brain that reminds 0:13:10.800 --> 0:13:13.040 me and John, I'm just gonna say, it's simple. You 0:13:13.160 --> 0:13:15.840 read Camu and the Plague and we're on about chapter 0:13:15.920 --> 0:13:18.560 eighteen of the plague. I mean, it's that simple. Where 0:13:18.600 --> 0:13:22.320 there is societal protests norther way to put it here, 0:13:22.360 --> 0:13:25.880 we have water cannons being used moments ago in Berlin. 0:13:25.960 --> 0:13:28.240 It's a little bit more testy, John than it was 0:13:28.320 --> 0:13:32.160 two hours ago. Place a right get on the straits 0:13:32.200 --> 0:13:34.839 of Europe, trying to deal with these demonstrators, and Michael, 0:13:34.880 --> 0:13:37.960 I just wonder, as we go through this moment around 0:13:37.960 --> 0:13:40.840 the world, a difficult moment through the back end of 0:13:40.880 --> 0:13:44.080 this year, how much the market can live in the 0:13:44.120 --> 0:13:47.719 back end of one given the difficulty this playing down 0:13:47.800 --> 0:13:51.280 right in front of us. It's a good, good question. 0:13:51.360 --> 0:13:53.720 I think it's all about the length of period of time. 0:13:53.800 --> 0:13:56.520 So if you think about evaluating a longer data asset, 0:13:56.520 --> 0:13:58.880 whether it's an equity or fixed income security, we're talking 0:13:58.880 --> 0:14:02.160 about five, ten, twenty years of cash flows. If cash 0:14:02.200 --> 0:14:05.560 flows are damaged for a short period of time and 0:14:05.640 --> 0:14:08.920 not too disastrously, then you look through it. It's not 0:14:09.120 --> 0:14:10.760 that big a deal. And we see all the time 0:14:10.800 --> 0:14:14.280 with corporations make announcements of restructurings and big big losses 0:14:14.360 --> 0:14:16.680 and big losses and book value and the stock price 0:14:16.760 --> 0:14:19.480 goes up. Well, the same thing is happening happening now. 0:14:19.520 --> 0:14:21.800 If you have a company or a situation where this 0:14:21.880 --> 0:14:24.120 is not that bad, they can get through this and 0:14:24.160 --> 0:14:27.120 the longer term prospects are bright you look through it. 0:14:27.320 --> 0:14:30.440 The longer this last, the more damaging it does to 0:14:30.440 --> 0:14:32.880 the economy, which is clearly what the FED is concerned with. 0:14:33.080 --> 0:14:36.120 The longer damage, which mean the worst cash flows are hammered, 0:14:36.320 --> 0:14:38.680 that has a bigger impact on the long terminal present 0:14:38.760 --> 0:14:42.120 value of these assets. And that is that is the challenge, 0:14:42.520 --> 0:14:45.920 is getting people remaining confident, keeping the economy running at 0:14:45.920 --> 0:14:49.400 a reasonable pace, keeping money in people's pockets so that 0:14:49.440 --> 0:14:52.680 even if they're not spending it today, when the gates 0:14:52.680 --> 0:14:55.600 are lifted, when the lockdowns are lifted, there is money 0:14:55.600 --> 0:14:57.680 in people's pockets. Where it's the corporate sector of the 0:14:57.680 --> 0:15:01.000 household sector, they can go out and bend. And that 0:15:01.200 --> 0:15:03.480 was what's you have a very strong pop down the 0:15:03.560 --> 0:15:07.160 road and compensates in theory at least for the weakness 0:15:07.200 --> 0:15:10.040 we're seeing now. Michael Grant to catch out with you, sir. 0:15:10.200 --> 0:15:18.520 We appreciate its time. Thank you, Michael Investment Management. Right now, 0:15:18.680 --> 0:15:22.000 it's good to speak to the current of macro risk advisors. 0:15:22.120 --> 0:15:25.520 We do that because boy has he been right with 0:15:25.560 --> 0:15:27.720 a vix of forty one and down we come with 0:15:27.840 --> 0:15:32.160 better stock markets, but currently pointing out the election uncertainty, 0:15:32.440 --> 0:15:34.480 and that would clear, and we see that at twenty 0:15:34.480 --> 0:15:37.680 one point nine eight right now on the VIX Dan, 0:15:37.800 --> 0:15:42.480 have we cleared all of the election uncertainty? Well, for 0:15:42.480 --> 0:15:44.760 the most part, I think you still got that jan 0:15:44.920 --> 0:15:49.160 fifth date. And if you stare at um the SMP 0:15:50.120 --> 0:15:54.320 option prices by expiration, you can actually see something pretty granular. 0:15:54.400 --> 0:15:56.960 You can look at December thirty one as an expert, 0:15:57.440 --> 0:15:58.840 so right at the end of the year, and that's 0:15:58.840 --> 0:16:02.400 typically a very quiet week right between Christmas and New 0:16:02.440 --> 0:16:05.120 Year's so that implies fall autilities pretty low. But you 0:16:05.120 --> 0:16:07.720 can go out to January eight and you see there's 0:16:07.720 --> 0:16:11.720 actually a bump up. So that date between those two expirations, 0:16:11.840 --> 0:16:15.360 January FI, that Georgia runoff date actually does have some 0:16:15.520 --> 0:16:18.840 consequence at least in terms of how ball markets are pricing. 0:16:19.640 --> 0:16:21.480 So Jean to we just zoom out a little bit. 0:16:21.520 --> 0:16:24.440 We've been talking about full bull is John highlighted from 0:16:24.440 --> 0:16:27.520 the Bank of America survey that came out yesterday. We're 0:16:27.520 --> 0:16:30.880 hearing about how people are expecting some sort of disturbances 0:16:30.960 --> 0:16:33.120 over the next couple of weeks and months as people 0:16:33.520 --> 0:16:37.120 calibrate themselves and their outlooks to the near term reality 0:16:37.120 --> 0:16:40.600 of a pandemic that's worsening. What do you foresee based 0:16:40.640 --> 0:16:43.880 on the bullish trends in the markets that you track, 0:16:44.000 --> 0:16:49.560 the technical factors, how much of a pullback could we get? Well, 0:16:49.560 --> 0:16:51.760 it's anyone's guests. I think, um, you know, really it 0:16:51.800 --> 0:16:54.560 comes down to the response from the government. I think 0:16:54.600 --> 0:16:56.960 that the thing we have to worry about is whether 0:16:57.000 --> 0:16:59.560 the you know, the Congress pulls off pulls off a 0:16:59.560 --> 0:17:02.320 stimulus are not. I think that's really you know, the 0:17:02.560 --> 0:17:04.840 weak spot for the market is is the politics of 0:17:04.920 --> 0:17:08.080 it dean current with us right now, John, fer I 0:17:08.119 --> 0:17:10.199 do want to point out housing statistics out and they 0:17:10.200 --> 0:17:13.879 are a better the halves of the economy, certainly repositioning 0:17:14.280 --> 0:17:16.080 h in a housing let me get that up right 0:17:16.080 --> 0:17:19.800 now with a constructive revision as well. And housing I'm 0:17:19.840 --> 0:17:21.520 not gonna give you too much of the data than 0:17:21.560 --> 0:17:24.119 the same month over month, it's a very strong be 0:17:24.240 --> 0:17:29.640 down housing starts and critically the previous the previous month 0:17:29.800 --> 0:17:32.800 was a huge revision upward as well. Not so much 0:17:32.800 --> 0:17:35.520 moving the bond market, John, But again they're two part 0:17:35.560 --> 0:17:40.200 America and America struggling and also a booming housing economy. 0:17:40.640 --> 0:17:42.960 It's a really good upside surprise four point nine percent 0:17:43.040 --> 0:17:45.199 month on month, the median estimate three points say. The 0:17:45.200 --> 0:17:47.920 revision tell me talk of a revision the previous month 0:17:48.080 --> 0:17:51.320 one point nine percent, the upward revision six point three. 0:17:51.400 --> 0:17:53.520 That's housing staffs. And this has been a really really 0:17:53.560 --> 0:17:57.360 solid part of this economy, Dean. The housing sector that's 0:17:57.400 --> 0:18:01.040 just done terrifically well, low rates, people bending on their houses. 0:18:01.240 --> 0:18:03.760 I'm deepo to the moon. That's been a really great 0:18:03.800 --> 0:18:07.480 story day the small caps. Let's talk about the story 0:18:07.560 --> 0:18:10.120 that hasn't worked and is starting to work, the cyclical 0:18:10.160 --> 0:18:13.240 positis market the small caps. Can you walk me through 0:18:13.240 --> 0:18:16.280 the trend there and whether that is durable. That's been 0:18:16.320 --> 0:18:18.240 a big debate over the last week. How durable some 0:18:18.280 --> 0:18:21.840 of these catch up moves have been. I think that's 0:18:21.840 --> 0:18:25.159 that's obviously on people's minds, and certainly a question that 0:18:25.280 --> 0:18:28.959 we fielded um you know quite frequently last week was 0:18:29.040 --> 0:18:32.000 just this epic move in the fact the rotations right. 0:18:32.119 --> 0:18:35.040 People are calling it a fifteen standardy viation move from 0:18:35.240 --> 0:18:37.879 um you know, from growth to value and people are asking, 0:18:38.480 --> 0:18:41.159 is that just an indication of how crowded the space 0:18:41.320 --> 0:18:44.160 you know has been in terms of positioning and things 0:18:44.160 --> 0:18:47.080 like growth and the under positioning and value. I think 0:18:47.080 --> 0:18:49.520 there's something to that. I think the other part is, look, 0:18:49.560 --> 0:18:52.399 we you know, we've got pricing in the market that 0:18:52.440 --> 0:18:57.560 reflects the truly unusual and unprecedented consequence. We sort of 0:18:57.640 --> 0:19:00.719 knew in this vaccine announcement all and only came we 0:19:00.720 --> 0:19:03.200 were going to have this, you know, this big rotation. 0:19:03.359 --> 0:19:06.679 I think, Um, you know, the question around value and 0:19:06.800 --> 0:19:09.560 just the sort of more old economy type of stocks, 0:19:10.640 --> 0:19:14.320 I think an important one. Um. Look, I think we 0:19:14.359 --> 0:19:16.679 have a permanently changed economy in a lot of ways, 0:19:17.000 --> 0:19:20.400 but we are slowly coming back. And when I step 0:19:20.400 --> 0:19:22.400 back and I just look at the broad picture of risk, 0:19:22.520 --> 0:19:25.680 I see option prices that you know, Tom was saying 0:19:25.680 --> 0:19:29.280 we were expecting normalization post the election, But I still 0:19:29.320 --> 0:19:32.280 see them as something you can utilize in your portfolio, 0:19:32.880 --> 0:19:35.320 and more on the short side than on the long side. 0:19:35.400 --> 0:19:38.480 So these option premiums are sort of the last war 0:19:38.560 --> 0:19:41.320 for the FED to push lower. UM. You know, they 0:19:41.440 --> 0:19:45.440 they crushed fx ball, they crushed rate ball. UM. You 0:19:45.480 --> 0:19:47.959 know that that is was a major part of how 0:19:48.000 --> 0:19:50.800 they had to restore market functioning back in in in 0:19:50.840 --> 0:19:54.040 the March lows. But you still have very high option 0:19:54.119 --> 0:19:56.879 prices as we start, and I just think you can 0:19:57.040 --> 0:20:00.000 use them as an income generating part of your portfolio. 0:20:00.040 --> 0:20:02.280 You well, then I want to pick up on that 0:20:02.280 --> 0:20:05.920 word you used. Normal pretty pandemic. There was nothing really 0:20:05.960 --> 0:20:08.600 normal about the low folatility regime we were in for 0:20:08.640 --> 0:20:13.040 so many years with a vixed down towards ten. Right now, 0:20:13.280 --> 0:20:16.800 one stath of twenty two, Just Dane, what is normal 0:20:17.119 --> 0:20:18.720 and what do you think is the normal that we 0:20:18.720 --> 0:20:22.199 need to get used to? You know, I'm thinking a 0:20:22.200 --> 0:20:25.400 lot about the post crisis period that the GFC and 0:20:25.440 --> 0:20:27.600 you know, we had the aftershocks of the flash crash, 0:20:28.400 --> 0:20:32.280 then we had the Eurozone crisis eleven, and then we 0:20:32.359 --> 0:20:36.400 had this long, long period where the economy was clearly normalizing, 0:20:36.480 --> 0:20:40.760 but um behind the push towards trying to you know, 0:20:40.800 --> 0:20:43.880 get the labor market back on its seat. Said policy 0:20:43.920 --> 0:20:46.199 stood in town, stayed in town much longer than you 0:20:46.200 --> 0:20:50.000 would have thought, and that normalization in the vix from 0:20:50.000 --> 0:20:55.160 call it twenty twelve to you had an average VIX 0:20:55.160 --> 0:20:58.359 of about fifteen for that period. And I think that's 0:20:58.440 --> 0:21:01.560 just my playbook is that you have a crisis, you 0:21:01.640 --> 0:21:05.160 have an ascid price shock, you have a massive policy response. 0:21:05.240 --> 0:21:07.680 Each time it gets bigger and bigger. And then even 0:21:07.720 --> 0:21:10.320 as people argue, well, maybe we don't need as much FED, 0:21:10.880 --> 0:21:13.200 you know, of the FED guardrails as we have, as 0:21:13.240 --> 0:21:16.560 we had during the crisis, the guardrails stay up. And 0:21:16.640 --> 0:21:19.159 ultimately those guardrails they work a little bit on the 0:21:19.200 --> 0:21:22.479 real economy, but really what they impact is asset prices, 0:21:22.560 --> 0:21:26.000 and I think they've they've impacted f X volve, They've 0:21:26.000 --> 0:21:29.239 taken interest rate volatility to the lows, and it's just 0:21:29.280 --> 0:21:32.600 this equity volatility that I think still stands out as 0:21:32.640 --> 0:21:37.880 something that's you know, it's got some normalization into I've 0:21:37.880 --> 0:21:40.680 been struck by the recent volatility and how it upended 0:21:40.720 --> 0:21:43.320 a lot of quant funds in particular that have posted 0:21:43.359 --> 0:21:46.600 some pretty stark returns based on the fact that you 0:21:46.680 --> 0:21:49.479 cannot plan for a vaccine, you cannot plan for some 0:21:49.520 --> 0:21:53.080 sort of fiscal bill that is or isn't past, and 0:21:53.119 --> 0:21:57.600 you can't necessarily plan for a FED response based on 0:21:57.800 --> 0:22:01.800 that news. Has the old model just been completely upended? 0:22:03.840 --> 0:22:07.479